<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 1, 1998
REGISTRATION NO. 333-58493
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 2 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
THE BANC CORPORATION
(Exact Name of Registrant as Specified in its Charter)
---------------------
<TABLE>
<S> <C> <C>
DELAWARE 6711 63-1201350
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
---------------------
17 NORTH 20TH STREET
BIRMINGHAM, ALABAMA 35203
(205) 326-2265
(Address, including Zip Code, and Telephone Number, including Area Code, of
Registrant's Principal Executive Offices)
JAMES A. TAYLOR, JR.
EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
THE BANC CORPORATION, 17 NORTH 20TH STREET
BIRMINGHAM, ALABAMA 35203
(205) 326-2265
(Name, Address, including Zip Code, and Telephone Number, including Area Code,
of Agent for Service)
---------------------
COPIES TO:
<TABLE>
<S> <C> <C>
ROBERT E. LEE GARNER T. KURT MILLER MICHAEL D. WATERS
F. HAMPTON MCFADDEN, JR. BALCH & BINGHAM LLP BALCH & BINGHAM LLP
HASKELL SLAUGHTER & YOUNG, L.L.C. SUITE 2600 POST OFFICE BOX 78
1200 AMSOUTH/HARBERT PLAZA 1901 6TH AVENUE NORTH MONTGOMERY, ALABAMA 36101
1901 SIXTH AVENUE NORTH BIRMINGHAM, ALABAMA 35203 (334) 834-6500
BIRMINGHAM, ALABAMA 35203 (205) 251-8100
(205) 251-1000
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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- -------------------------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
TITLE OF EACH AMOUNT MAXIMUM MAXIMUM AMOUNT OF
CLASS OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(1) PER UNIT OFFERING PRICE(2) FEES
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.001
per share.................. 4,042,722 shares Not Applicable $21,555,000(2) $6,358.73(2)(3)
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Common Stock, par value $.001
per share.................. 157,136 shares Not Applicable $6,000.00 $1.77(4)
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Total........................ 4,199,858 shares -- $27,555,000 $6,360.50
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</TABLE>
(1) Represents the maximum amount of Common Stock, par value $.001 per share
("Corporation Common Stock"), of The Banc Corporation (the "Corporation")
issuable upon consummation of the Mergers (as defined in this Registration
Statement), assuming (a) the conversion of each outstanding share of Common
Stock, par value $.01 per share ("Commerce Common Stock"), of Commerce Bank
of Alabama ("Commerce") into 2.340 shares of Corporation Common Stock; (b)
the conversion of all outstanding shares of Common Stock, par value $1.00
per share ("First Citizens Common Stock"), of First Citizens Bancorp, Inc.
("First Citizens") into 8.291 shares of Corporation Common Stock; and (c)
the conversion of each outstanding share of Common Stock, par value $1.00
per share (the "City National Common Stock"), of City National Corporation
("City National") into 68.682 shares of Corporation Common Stock.
(2) Computed in accordance with Rule 457(f)(2), solely for the purpose of
calculating the registration fee, based upon the book value of the Commerce
Common Stock of $6,587,000 at March 31, 1998, the book value of the First
Citizens Common Stock (as defined herein) of $3,155,000 at March 31, 1998,
and the book value of the City National Common Stock (as defined herein) of
$11,813,000 at March 31, 1998.
(3) $6,358.73 represents the amount paid at the time of the original filing of
the Registration Statement.
(4) $1.77 represents the amount due on the additional 157,136 shares. Computed
in accordance with Rule 457(f)(2), solely for the purpose of calculating the
registration fee, based upon the book value of the City National Common
Stock (as defined herein) of $11,819,000 at June 30, 1998.
---------------------
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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
COMMERCE BANK OF ALABAMA
To Our Shareholders:
I would like to invite you to attend the Special Meeting of Shareholders
(the "Commerce Special Meeting") of Commerce Bank of Alabama ("Commerce") to be
held on October , 1998, at 10:00 a.m. local time, at , ,
Alabama. You will be asked to consider and vote upon a proposal to approve the
merger of Commerce with The Bank, an Alabama bank which is 99.75% owned by The
Banc Corporation ("Corporation") based in Birmingham, Alabama. Pursuant to the
Third Amended and Restated Reorganization Agreement and Plan of Merger, dated as
of April 6, 1998 (the "Commerce Plan of Merger"), among Commerce, The Banc
Corporation and The Bank, Commerce will merge with and into The Bank, with The
Bank as the surviving corporation (the "Commerce Merger") and the combined
operations of The Bank and Commerce will be conducted through The Bank as a
subsidiary of the Corporation. The Commerce Plan of Merger is included in the
accompanying Prospectus-Joint Proxy Statement as Annex A. The result of the
Commerce Merger will be that each outstanding share of Commerce common stock,
par value $0.01 per share (the "Commerce Common Stock") owned by you will be
converted into the right to receive approximately 2.335 shares of Corporation
common stock, par value $.001 per share unless you dissent from the merger. The
Commerce Merger is subject to certain conditions, including the approval and
adoption of the Commerce Plan of Merger by holders of a majority of the
outstanding shares of Commerce Common Stock. The exchange of your shares of
Commerce Common Stock for Corporation Common Stock in the Commerce Merger is
intended to be a tax-free reorganization for federal income tax purposes. The
Commerce Merger is described in greater detail in the accompanying
Prospectus-Joint Proxy Statement.
Approval of the matters related to the Commerce Merger to be voted on at
the Commerce Special Meeting requires a favorable vote of a majority of the
outstanding shares of Commerce Common Stock. Accordingly, if you do not vote or
if you mark "Abstain" on your proxy, it will have the effect of a vote against
the Commerce Plan of Merger and the transactions contemplated thereby. In order
to ensure that your vote is represented at the meeting, please indicate your
choice on the proxy form, date and sign it, and return it in the enclosed
envelope. A prompt response will be appreciated. If you have any questions,
please contact me at (256) 878-4511.
THE BOARD OF DIRECTORS OF COMMERCE UNANIMOUSLY RECOMMENDS THAT YOU VOTE
"FOR" APPROVAL AND ADOPTION OF THE COMMERCE PLAN OF MERGER, WHICH APPROVAL AND
ADOPTION WILL CONSTITUTE APPROVAL OF THE TRANSACTIONS CONTEMPLATED THEREBY,
INCLUDING THE COMMERCE MERGER. WE URGE YOU TO CONSIDER CAREFULLY THESE IMPORTANT
MATTERS, WHICH ARE DESCRIBED IN THE ACCOMPANYING PROSPECTUS-JOINT PROXY
STATEMENT.
Sincerely,
J. Daniel Sizemore
President
<PAGE> 3
COMMERCE BANK OF ALABAMA
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER , 1998
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the
"Commerce Special Meeting") of Commerce Bank of Alabama, an Alabama banking
corporation ("Commerce"), will be convened at 10:00 a.m. local time, on October
, 1998, at , , Alabama, for the following purposes:
1. To consider and vote upon a proposal to approve a Third Amended and
Restated Reorganization Agreement and Plan of Merger, dated as of April 6,
1998 (the "Commerce Plan of Merger"), among Commerce, The Banc Corporation,
a Delaware corporation headquartered in Birmingham, Alabama (the
"Corporation"), Warrior Capital Corporation, an Alabama corporation, and
The Bank, an Alabama banking corporation and 99.75% owned subsidiary of the
Corporation ("The Bank"), and the transactions contemplated thereby. The
Commerce Plan of Merger is included in the accompanying Prospectus-Joint
Proxy Statement as Annex A.
2. To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
As more fully described in the Prospectus-Joint Proxy Statement of which
this notice forms a part, pursuant to the Commerce Plan of Merger, Commerce will
merge with and into The Bank, with The Bank as the surviving corporation (the
"Commerce Merger"). The result of the Commerce Merger will be that each issued
and outstanding share of the common stock of Commerce, par value $0.01 per share
("Commerce Common Stock"), other than shares held by dissenting shareholders,
will be converted into the right to receive approximately 2.335 shares of
Corporation common stock, par value $.001 per share, and the combined operations
of The Bank and Commerce will be conducted through The Bank as a subsidiary of
the Corporation. Consummation of the Commerce Merger is subject to certain
conditions, including the approval and adoption of the Commerce Plan of Merger
by holders of a majority of the Commerce Common Stock.
Shareholders who do not vote to approve the Commerce Plan of Merger and who
comply with certain other requirements of law may, as an alternative to
receiving the consideration specified in the Commerce Plan of Merger, dissent
from the Merger and obtain payment in cash of the appraised or fair value of
their shares of Commerce Common Stock. The full text of Sections 10-2B-13.01
through 10-2B-13.32 of the Alabama Business Corporation Act, which sets forth
the procedures to be followed by shareholders who choose to dissent under
applicable law, are included as Annex D to the Prospectus-Joint Proxy Statement
and should be read carefully in their entirety.
The Commerce Board of Directors has fixed October 1, 1998 as the record
date for determining shareholders entitled to notice of and to vote at the
Commerce Special Meeting. Accordingly, only shareholders of record at the close
of business on such date will be entitled to notice of and to vote at the
Commerce Special Meeting or any adjournments or postponements thereof.
BY ORDER OF THE BOARD OF DIRECTORS
, Secretary
October , 1998
THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF
COMMERCE COMMON STOCK IS REQUIRED TO APPROVE THE COMMERCE MERGER. IT IS
IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE COMMERCE SPECIAL MEETING
REGARDLESS OF THE NUMBER OF SHARES YOU OWN. EVEN IF YOU PLAN TO ATTEND THE
COMMERCE SPECIAL MEETING, YOU ARE URGED TO COMPLETE, SIGN AND DATE THE ENCLOSED
PROXY CARD AND RETURN IT IN THE ENVELOPE PROVIDED AS PROMPTLY AS POSSIBLE. IF
YOU ATTEND THE COMMERCE SPECIAL MEETING, YOU MAY VOTE EITHER IN PERSON OR BY
PROXY. ANY PROXY GIVEN MAY BE REVOKED BY YOU AT ANY TIME PRIOR TO ITS EXERCISE
IN THE MANNER DESCRIBED IN THE PROSPECTUS-JOINT PROXY STATEMENT.
<PAGE> 4
FIRST CITIZENS BANCORP, INC.
To Our Shareholders:
I would like to invite you to attend the Special Meeting of Shareholders
(the "First Citizens Special Meeting") of First Citizens Bancorp, Inc. ("First
Citizens") to be held on October , 1998, at 10:00 a.m. local time, at
, , Alabama. You will be asked to consider and vote upon a
proposal to approve the merger of First Citizens with The Banc Corporation
("Corporation") based in Birmingham, Alabama. Pursuant to the Third Amended and
Restated Reorganization Agreement and Plan of Merger, dated as of April 15, 1998
(the "First Citizens Plan of Merger"), between the Corporation, headquartered in
Birmingham, Alabama and First Citizens, First Citizens will merge with and into
the Corporation (the "First Citizens Merger"), and the combined banking
operations of the Corporation and First Citizens will be conducted through The
Bank, an Alabama bank and 99.75% owned subsidiary of the Corporation. The First
Citizens Plan of Merger is included in the accompanying Prospectus-Joint Proxy
Statement as Annex B. The result of the First Citizens Merger will be that each
outstanding share of First Citizens' common stock, par value $1.00 per share
(the "First Citizens Common Stock") owned by you will be converted into the
right to receive approximately 8.291 shares of the Corporation's common stock,
par value $.001 per share, unless you dissent from the merger. The First
Citizens Merger is subject to certain conditions, including the approval and
adoption of the First Citizens Plan of Merger by holders of two-thirds of the
outstanding shares of First Citizens Common Stock. The exchange of your shares
of First Citizens Common Stock for Corporation Common Stock in the First
Citizens Merger is intended to be a tax-free reorganization for federal income
tax purposes. The First Citizens Merger is described in greater detail in the
accompanying Prospectus-Joint Proxy Statement.
Approval of the matters related to the First Citizens Merger to be voted on
at the First Citizens Special Meeting requires a favorable vote of two-thirds of
the outstanding shares of First Citizens Common Stock. Accordingly, if you do
not vote or if you mark "Abstain" on your proxy, it will have the effect of a
vote against the First Citizens Plan of Merger and the transactions contemplated
thereby. In order to ensure that your vote is represented at the meeting, please
indicate your choice on the proxy form, date and sign it, and return it in the
enclosed envelope. A prompt response will be appreciated. If you have any
questions, please contact me at (334) 575-2200.
THE BOARD OF DIRECTORS OF FIRST CITIZENS UNANIMOUSLY RECOMMENDS THAT YOU
VOTE "FOR" APPROVAL AND ADOPTION OF THE FIRST CITIZENS PLAN OF MERGER, WHICH
APPROVAL AND ADOPTION WILL CONSTITUTE APPROVAL OF THE TRANSACTIONS CONTEMPLATED
THEREBY, INCLUDING THE FIRST CITIZENS MERGER. WE URGE YOU TO CONSIDER CAREFULLY
THESE IMPORTANT MATTERS, WHICH ARE DESCRIBED IN THE ACCOMPANYING
PROSPECTUS-JOINT PROXY STATEMENT.
Sincerely,
<PAGE> 5
FIRST CITIZENS BANCORP, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER , 1998
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "First
Citizens Special Meeting") of First Citizens Bancorp, Inc., an Alabama
corporation ("First Citizens"), will be convened at 10:00 a.m. local time, on
October , 1998, at , , Alabama, for the following
purposes:
1. To consider and vote upon a proposal to approve a Third Amended and
Restated Reorganization Agreement and Plan of Merger, dated as of April 15,
1998 (the "First Citizens Plan of Merger"), between Warrior Capital
Corporation, an Alabama corporation, The Banc Corporation, a Delaware
corporation headquartered in Birmingham, Alabama (the "Corporation"), and
First Citizens, and the transactions contemplated thereby. The First
Citizens Plan of Merger is included in the accompanying Prospectus-Joint
Proxy Statement as Annex B.
2. To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
As more fully described in the Prospectus-Joint Proxy Statement of which
this notice forms a part, pursuant to the First Citizens Plan of Merger, First
Citizens will merge with and into the Corporation, with the Corporation as the
surviving corporation (the "First Citizens Merger"). The result of the First
Citizens Merger will be that each issued and outstanding share of the common
stock of First Citizens, par value $1.00 per share ("First Citizens Common
Stock"), other than shares held by dissenting shareholders, will be converted
into the right to receive approximately 8.291 shares of Corporation common
stock, par value $.001 per share, and First Citizens will cease to exist as a
separate corporate entity. Consummation of the First Citizens Merger is subject
to certain conditions, including the approval and adoption of the First Citizens
Plan of Merger by holders of at least two-thirds of the First Citizens Common
Stock.
Shareholders who do not vote to approve the First Citizens Plan of Merger
and who comply with certain other requirements of law may, as an alternative to
receiving the consideration specified in the First Citizens Plan of Merger,
dissent from the First Citizens Merger and obtain payment in cash of the
appraised or fair value of their shares of First Citizens Common Stock. The full
text of Sections 10-2B-13.01 through 10-2B-13.32 of the Alabama Business
Corporation Act, which sets forth the procedures to be followed by shareholders
who choose to dissent under applicable law, are included as Annex D to the
Prospectus-Joint Proxy Statement and should be read carefully in their entirety.
The First Citizens Board of Directors has fixed October 1, 1998 as the
record date for determining shareholders entitled to notice of and to vote at
the First Citizens Special Meeting. Accordingly, only shareholders of record at
the close of business on such date will be entitled to notice of and to vote at
the First Citizens Special Meeting or any adjournments or postponements thereof.
BY ORDER OF THE BOARD OF DIRECTORS
, Secretary
October , 1998
THE AFFIRMATIVE VOTE OF THE HOLDERS OF TWO-THIRDS OF THE OUTSTANDING SHARES OF
FIRST CITIZENS COMMON STOCK IS REQUIRED TO APPROVE THE FIRST CITIZENS MERGER. IT
IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE FIRST CITIZENS SPECIAL
MEETING REGARDLESS OF THE NUMBER OF SHARES YOU OWN. EVEN IF YOU PLAN TO ATTEND
THE FIRST CITIZENS SPECIAL MEETING, YOU ARE URGED TO COMPLETE, SIGN AND DATE THE
ENCLOSED PROXY CARD AND RETURN IT IN THE ENVELOPE PROVIDED AS PROMPTLY AS
POSSIBLE. IF YOU ATTEND THE FIRST CITIZENS SPECIAL MEETING, YOU MAY VOTE EITHER
IN PERSON OR BY PROXY. ANY PROXY GIVEN MAY BE REVOKED BY YOU AT ANY TIME PRIOR
TO ITS EXERCISE IN THE MANNER DESCRIBED IN THE PROSPECTUS-JOINT PROXY STATEMENT.
<PAGE> 6
CITY NATIONAL CORPORATION
To Our Shareholders:
I would like to invite you to attend the Special Meeting of Shareholders
(the "City National Special Meeting") of City National Corporation ("City
National") to be held on October , 1998, at 10:00 a.m. local time, at
, , Alabama. You will be asked to consider and vote upon a
proposal to approve the merger of City National with The Banc Corporation
("Corporation") based in Birmingham, Alabama. Pursuant to the Second Amended and
Restated Reorganization Agreement and Plan of Merger, dated as of June 16, 1998
(the "City National Plan of Merger"), between the Corporation, headquartered in
Birmingham, Alabama and City National, City National will merge with and into
the Corporation (the "City National Merger"), and the combined banking
operations of the Corporation and City National will be conducted through The
Bank, an Alabama bank and 99.75% owned subsidiary of the Corporation. The City
National Plan of Merger is included in the accompanying Prospectus-Joint Proxy
Statement as Annex C. The result of the City National Merger will be that each
outstanding share of City National's common stock, par value $1.00 per share
(the "City National Common Stock"), owned by you will be converted into the
right to receive approximately 74.538 shares of Corporation common stock, par
value $.001 per share, unless you dissent from the merger. The City National
Merger is subject to certain conditions, including the approval and adoption of
the City National Plan of Merger by holders of two-thirds of the outstanding
shares of City National Common Stock. The exchange of your shares of City
National Common Stock for Corporation Common Stock in the City National Merger
is intended to be a tax-free reorganization for federal income tax purposes. The
City National Merger is described in greater detail in the accompanying
Prospectus-Joint Proxy Statement.
Approval of the matters related to the City National Merger to be voted on
at the City National Special Meeting requires a favorable vote of two-thirds of
the outstanding shares of City National Common Stock. Accordingly, if you do not
vote or if you mark "Abstain" on your proxy, it will have the effect of a vote
against the City National Plan of Merger and the transactions contemplated
thereby. In order to ensure that your vote is represented at the meeting, please
indicate your choice on the proxy form, date and sign it, and return it in the
enclosed envelope. A prompt response will be appreciated. If you have any
questions, please contact Pat Riley at (256) 245-2281.
THE BOARD OF DIRECTORS OF CITY NATIONAL UNANIMOUSLY RECOMMENDS THAT YOU
VOTE "FOR" APPROVAL AND ADOPTION OF THE CITY NATIONAL PLAN OF MERGER, WHICH
APPROVAL AND ADOPTION WILL CONSTITUTE APPROVAL OF THE TRANSACTIONS CONTEMPLATED
THEREBY, INCLUDING THE CITY NATIONAL MERGER. WE URGE YOU TO CONSIDER CAREFULLY
THESE IMPORTANT MATTERS, WHICH ARE DESCRIBED IN THE ACCOMPANYING
PROSPECTUS-JOINT PROXY STATEMENT.
Sincerely,
W. T. Campbell, Jr.
Chairman
<PAGE> 7
CITY NATIONAL CORPORATION
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER , 1998
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "City
National Special Meeting") of City National Corporation, an Alabama corporation
("City National"), will be convened at 10:00 a.m. local time, on October ,
1998, at , , Alabama, for the following purposes:
1. To consider and vote upon a proposal to approve a Second Amended
and Restated Reorganization Agreement and Plan of Merger, dated as of June
16, 1998 (the "City National Plan of Merger"), between Warrior Capital
Corporation, an Alabama corporation, The Banc Corporation, a Delaware
corporation headquartered in Birmingham, Alabama (the "Corporation"), and
City National, and the transactions contemplated thereby. The City National
Plan of Merger is included in the accompanying Prospectus-Joint Proxy
Statement as Annex C.
2. To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
As more fully described in the Prospectus-Joint Proxy Statement of which
this notice forms a part, pursuant to the City National Plan of Merger, City
National will merge with and into the Corporation, with the Corporation as the
surviving corporation (the "City National Merger"). The result of the City
National Merger will be that each issued and outstanding share of the common
stock of City National, par value $1.00 per share ("City National Common
Stock"), other than shares held by dissenting shareholders, will be converted
into the right to receive approximately 74.538 shares of Corporation common
stock, par value $.001 per share, and the separate corporate existence of City
National will cease to exist. Consummation of the City National Merger is
subject to certain conditions, including the approval and adoption of the City
National Plan of Merger by holders of at least two-thirds of the Common Stock.
Shareholders who do not vote to approve the City National Plan of Merger
and who comply with certain other requirements of law may, as an alternative to
receiving the consideration specified in the City National Plan of Merger,
dissent from the City National Merger and obtain payment in cash of the
appraised or fair value of their shares of City National Common Stock. The full
text of Sections 10-2B-13.01 through 10-2B-13.32 of the Alabama Business
Corporation Act, which sets forth the procedures to be followed by shareholders
who choose to dissent under applicable law, are included as Annex D to the
Prospectus-Joint Proxy Statement and should be read carefully in their entirety.
The City National Board of Directors has fixed October , 1998 as the
record date for determining shareholders entitled to notice of and to vote at
the City National Special Meeting. Accordingly, only shareholders of record at
the close of business on such date will be entitled to notice of and to vote at
the City National Special Meeting or any adjournments or postponements thereof.
BY ORDER OF THE BOARD OF DIRECTORS
, Secretary
October , 1998
THE AFFIRMATIVE VOTE OF THE HOLDERS OF TWO-THIRDS OF THE OUTSTANDING SHARES OF
CITY NATIONAL COMMON STOCK IS REQUIRED TO APPROVE THE CITY NATIONAL MERGER. IT
IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE CITY NATIONAL SPECIAL
MEETING REGARDLESS OF THE NUMBER OF SHARES YOU OWN. EVEN IF YOU PLAN TO ATTEND
THE CITY NATIONAL SPECIAL MEETING, YOU ARE URGED TO COMPLETE, SIGN AND DATE THE
ENCLOSED PROXY CARD AND RETURN IT IN THE ENVELOPE PROVIDED AS PROMPTLY AS
POSSIBLE. IF YOU ATTEND THE CITY NATIONAL SPECIAL MEETING, YOU MAY VOTE EITHER
IN PERSON OR BY PROXY. ANY PROXY GIVEN MAY BE REVOKED BY YOU AT ANY TIME PRIOR
TO ITS EXERCISE IN THE MANNER DESCRIBED IN THE PROSPECTUS-JOINT PROXY STATEMENT.
<PAGE> 8
PROSPECTUS-JOINT PROXY STATEMENT
<TABLE>
<S> <C> <C>
PROXY STATEMENT OF COMMERCE PROXY STATEMENT OF FIRST PROXY STATEMENT OF CITY
BANK OF ALABAMA FOR THE CITIZENS BANCORP, INC. FOR THE NATIONAL CORPORATION FOR THE
SPECIAL MEETING OF SPECIAL MEETING OF SHAREHOLDERS SPECIAL MEETING OF SHAREHOLDERS
SHAREHOLDERS TO BE HELD ON TO BE HELD ON OCTOBER , 1998 TO BE HELD ON OCTOBER , 1998
OCTOBER , 1998
</TABLE>
---------------------
PROSPECTUS
OF
THE BANC CORPORATION
This Prospectus relates to up to 4,199,858 shares of the common stock, par
value $.001 per share (the "Corporation Common Stock"), of The Banc Corporation
(together with its subsidiaries, the "Corporation"), issuable to the
shareholders of Commerce Bank of Alabama, an Alabama banking corporation
("Commerce"), First Citizens Bancorp, Inc., an Alabama corporation ("First
Citizens") and City National Corporation, an Alabama corporation ("City
National"), upon consummation of the Mergers (as defined below) as consideration
for the Mergers (the "Merger Consideration"). This Prospectus also serves as the
Joint Proxy Statement of Commerce, First Citizens and City National for their
Special Meetings of Shareholders to be held on October , 1998, and any
adjournments and postponements thereof (the "Special Meetings"). See "The
Special Meetings."
---------------------
Assuming all of the Mergers are consummated (including the Corporation's
acquisitions of Emerald and CBS, as described herein) and no shareholders
dissent, here is what the approximate ownership of Corporation Common Stock
would be by each group of shareholders:
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------------- TOTAL NUMBER OF
STOCKHOLDERS' SHARES OF CORPORATION
ASSETS OF NET INCOME EQUITY OF COMMON STOCK TO BE
CURRENT ENTITY OF CURRENT CURRENT ISSUED TO FORMER
AS OF ENTITY AS OF ENTITY AS OF SHAREHOLDERS
CURRENT ENTITY JUNE 30, 1998 JUNE 30, 1998 JUNE 30, 1998 OF CURRENT ENTITY
- -------------- --------------- -------------- ----------------- ---------------------
(IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Corporation.................................. $ 89,820 $ 777 $21,856 5,448,000
Commerce..................................... 119,775 256 6,770 1,536,615
First Citizens............................... 38,116 236 3,245 663,243
City National................................ 82,208 85 11,819 2,000,000
Emerald...................................... 73,784 (7) 5,513 1,379,958
CBS.......................................... 42,387 270 6,408 -0-
-------- ------ ------- -----------
Total............................... $446,090 $1,617 $55,611 11,027,816*
======== ====== ======= ===========
</TABLE>
- ---------------
* Assumes all of the Transactions close. If one or more of the Transactions does
not occur, the actual number of shares you receive will not change. To
understand how the numbers might change, see "Risk Factors," "Independence of
Each Transaction" and "Condensed Combined Pro Forma Financial Information."
SEE "RISK FACTORS" AT PAGE 14 FOR A DISCUSSION OF CERTAIN RISK FACTORS
RELATED TO THE MERGERS AND THE CORPORATION.
---------------------
THE SECURITIES TO BE ISSUED HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS-JOINT PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR DEPOSITS, AND THEY ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR BY ANY OTHER STATE
OR FEDERAL AGENCY.
THE DATE OF THIS PROSPECTUS-PROXY STATEMENT IS OCTOBER , 1998.
<PAGE> 9
This Prospectus-Joint Proxy Statement describes the terms of: (i) the
acquisition of Commerce by means of the merger (the "Commerce Merger") of
Commerce with and into The Bank, an Alabama banking corporation and 99.75%-owned
subsidiary of the Corporation ("The Bank"), with The Bank being the surviving
corporation (the "Surviving Corporation"); (ii) the acquisition of First
Citizens by means of the merger (the "First Citizens Merger") of First Citizens
with and into the Corporation; and (iii) the acquisition of City National by
means of the merger of City National with and into the Corporation (the "City
National Merger" and collectively with the Commerce Merger, the First Citizens
Merger and the Emerald Merger (as defined herein), the "Mergers"). After the
Mergers, the combined operations of Commerce and The Bank will be conducted
through The Bank as a subsidiary of the Corporation, and the separate corporate
existence of First Citizens and City National will cease to exist. After the
First Citizens and City National Mergers, it is anticipated that First Citizens
Bank of Monroe County, the banking subsidiary of First Citizens, and City
National Bank of Sylacauga, the banking subsidiary of City National, may be
merged with and into The Bank and the combined operations conducted through The
Bank as a subsidiary of the Corporation. At the Special Meetings, the
shareholders of Commerce, First Citizens and City National will be asked to
approve and adopt the respective Plans of Merger (as defined below), which
approval and adoption will also constitute approval of the transactions
contemplated thereby, including the Mergers. The Commerce Merger will be
effected pursuant to the terms and subject to the conditions of the Third
Amended and Restated Reorganization Agreement and Plan of Merger, dated as of
April 6, 1998, among Warrior Capital Corporation ("Warrior"), the Corporation,
The Bank and Commerce (the "Commerce Plan of Merger"), the First Citizens Merger
will be effected pursuant to the terms and subject to the conditions of the
Third Amended and Restated Reorganization Agreement and Plan of Merger dated as
of April 15, 1998, by and among Warrior, the Corporation and First Citizens (the
"First Citizens Plan of Merger") and the City National Merger will be effected
pursuant to the terms and subject to the conditions of the Second Amended and
Restated Reorganization Agreement and Plan of Merger dated as of June 16, 1998,
by and among Warrior, the Corporation and City National (the "City National Plan
of Merger" and collectively with the Commerce Plan of Merger and the First
Citizens Plan of Merger, the "Plans of Merger"). The Plans of Merger are
attached to this Prospectus-Joint Proxy Statement as Annexes A, B and C,
respectively, and are incorporated herein by reference.
When the Commerce Merger is completed, each outstanding share of common
stock of Commerce, par value $.01 per share ("Commerce Common Stock"), other
than shares held by dissenting shareholders, will be converted into the right to
receive approximately 2.335 shares (the "Commerce Exchange Ratio") of
Corporation Common Stock. When the First Citizens Merger is completed, each
outstanding share of common stock of First Citizens, par value $1.00 per share
("First Citizens Common Stock"), other than shares held by dissenting
shareholders, will be converted into the right to receive approximately 8.291
shares (the "First Citizens Exchange Ratio") of Corporation Common Stock. When
the City National Merger is completed, each outstanding share of common stock of
City National, par value $1.00 per share ("City National Common Stock"), other
than shares held by dissenting shareholders, will be converted into the right to
receive approximately 74.538 shares (the "City National Exchange Ratio") of
Corporation Common Stock.
Any shareholder of Commerce, First Citizens or City National, who at the
time of the Special Meetings, does not desire to receive his or her respective
Merger Consideration may dissent from that merger by not voting in favor of the
applicable Plan of Merger and by properly demanding to be paid the fair cash
value for his or her shares in accordance with Sections 10-2B-13.01 through
10-2B-13.32 of the Alabama Business Corporation Act (the "ABCA"). Such a
shareholder (a "dissenting shareholder") will be entitled to receive the fair
cash value for such shares in accordance with such statutory requirements. For a
discussion of the right of the Corporation to terminate the respective Plans of
Merger at any time prior to Closing if the holders of more than 10% of the
Commerce, First Citizens or City National shares properly dissent, see "The
Merger Between the Corporation and Commerce -- Termination of the Commerce Plan
of Merger," "The Merger Between the Corporation and First Citizens --
Termination of the First Citizens Plan of Merger" and "The Merger Between the
Corporation and City National -- Termination of the City National Plan of
Merger." For a discussion of a shareholder's right to dissent, see "The Commerce
Merger," "The First Citizens Merger" and "The City National Merger." Commerce,
First Citizens or City National shareholders who do not dissent will receive
cash (without interest) in lieu of fractional shares of Corporation Common
Stock. For a more complete description of the terms of the Mergers, see "The
Commerce Merger," "The First Citizens Merger" and "The City National Merger,"
and for a description of certain risks associated with the Mergers, see "Risk
Factors."
This Prospectus-Joint Proxy Statement and the form of Proxy are first being
mailed to shareholders of Commerce, First Citizens or City National on or about
October , 1998.
<PAGE> 10
PROPOSED MERGERS -- YOUR VOTE IS VERY IMPORTANT
The Board of Directors of The Banc Corporation has approved three Mergers
which would result in Commerce, First Citizens and City National being merged
into the Corporation or one of its subsidiaries. The Board of Directors of each
of Commerce, First Citizens and City National has approved its company's Merger
with the Corporation. None of the Mergers is conditioned on any other, and
depending on the shareholder votes, one, two or three of the Mergers could
happen.
Here is what you, as a shareholder of Commerce, First Citizens or City
National, will receive if the your merger is completed:
Commerce Shareholders: Approximately 2.335 shares of Corporation Common Stock
for each share of Commerce Common Stock you own. Accordingly, a total of
1,536,615 shares of Corporation Common Stock will be issued to the former
shareholders of Commerce.
First Citizens Shareholders: Approximately 8.291 shares of Corporation Common
Stock for each share of First Citizens Common Stock you own. Accordingly, a
total of 663,243 shares of Corporation Common Stock will be issued to the former
shareholders of First Citizens.
City National Shareholders: Approximately 74.538 shares of Corporation Common
Stock for each share of City National Common Stock you own. Accordingly, a total
of 2,000,000 shares of Corporation Common Stock will be issued to the former
shareholders of City National.
Here is what you are being asked to approve:
Commerce Shareholders: The Commerce Plan of Merger.
First Citizens Shareholders: The First Citizens Plan of Merger.
City National Shareholders: The City National Plan of Merger.
YOUR VOTE IS IMPORTANT. PLEASE TAKE THE TIME TO VOTE ON THE PROPOSALS BY
COMPLETING AND MAILING THE ENCLOSED PROXY CARD, EVEN IF YOU PLAN TO ATTEND YOUR
SHAREHOLDERS MEETING. ALSO, WE ENCOURAGE YOU TO READ THIS DOCUMENT CAREFULLY
BEFORE YOU VOTE. IT PROVIDES DETAILED INFORMATION ABOUT ALL OF THE PROPOSED
MERGERS. IN ADDITION, YOU MAY OBTAIN INFORMATION ABOUT OUR COMPANIES FROM
DOCUMENTS THAT WE HAVE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE> 11
AVAILABLE INFORMATION
The Corporation has filed a Registration Statement (the "Registration
Statement") on Form S-4 under the Securities Act of 1933, as amended (the
"Securities Act"), with the Securities and Exchange Commission (the "SEC")
covering the shares of Corporation Common Stock to be issued in connection with
the Mergers. As permitted by the rules and regulations of the SEC, this
Prospectus-Joint Proxy Statement omits certain information contained in the
Registration Statement. For further information pertaining to the securities
offered hereby, reference is made to the Registration Statement and the exhibits
and amendments filed as a part thereof.
The Corporation, First Citizens and City National are not subject to the
informational reporting requirements of the Securities Exchange Act of 1934 (the
"Exchange Act") and, as a result, do not file reports and other information with
the SEC. Commerce is subject to the informational reporting and proxy
solicitation requirements of the Exchange Act and, as a result, files reports
and other information with the Federal Deposit Insurance Corporation ("FDIC").
Such reports may be inspected and copied at prescribed rates at the FDIC, 550
17th Street N.W., Washington, D.C. 20429. Following consummation of the Mergers
as described herein, however, the Corporation will become subject to the
informational reporting requirements of Section 15(d) of the Exchange Act and,
accordingly, will file reports and other information with the SEC. Also, the
Corporation will most likely become subject to the information, reporting and
proxy solicitation requirements of Section 13(a) of the Exchange Act pursuant to
Section 12(g) of the Exchange Act and will distribute to its shareholders an
annual report containing audited financial statements, as well as proxy
statements respecting its shareholder meetings. The Registration Statement, as
well as such reports, proxy statements and other information may be inspected
and copied at prescribed rates at the public reference facilities maintained by
the SEC at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
and should be available for inspection and copying at the regional offices of
the SEC located at Seven World Trade Center, 13th Floor, New York, New York and
at Citicorp Center, 500 West Madison Street, Chicago, Illinois. Copies of such
material can be obtained at prescribed rates by writing to the SEC, Public
Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549. The SEC also
maintains a website that contains reports, proxy statements and other
information including this Registration Statement regarding registrants that
file electronically with the SEC. The address of this website is
http://www.sec.gov.
FORWARD-LOOKING STATEMENTS
This Prospectus-Joint Proxy Statement contains or incorporates certain
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 with respect to the financial conditions, results
of operations and business of the Corporation, Commerce, First Citizens and City
National. The words "estimate," "project," "intend," "anticipate," "expect" and
similar expressions are intended to identify forward-looking statements. These
"forward-looking statements" are found at various places throughout this
document including, but not limited to the discussions under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business" sections for each company. These forward-looking statements are
subject to risks and uncertainties that could cause actual results to differ
materially from those contemplated in such forward-looking statements. For a
discussion of certain of such risks and uncertainties, see "Risk Factors."
Investors are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. The companies undertake no
obligation to publicly release any revisions to these forward-looking statements
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events. These events could include any of the
following:
- one or more of the Mergers, or the CBS Purchase (as defined herein), not
being consummated;
- regulatory authorities making adverse determinations regarding the
Mergers;
- expected cost savings from the Mergers not being fully realized or
realized within the expected time frame;
- revenues following the Mergers being lower than expected;
i
<PAGE> 12
- competitive pressures among banks increasing significantly;
- costs or difficulties related to the integration of the businesses
acquired being greater than expected;
- demands placed on management by the substantial increase in the
Corporation's size;
- unanticipated increases in financing and other costs;
- general economic or business conditions being less favorable than
expected either nationally or in the states where the companies do
business;
- market conditions for bank stocks, especially stock of smaller or
community banks being less favorable than expected;
- legislative or regulatory changes adversely affecting the banking
business in which the companies are engaged; and
- other opportunities being presented to and pursued by the companies.
All subsequent written and oral forward-looking statements attributable to
the Corporation, Commerce, First Citizens and City National or persons acting on
their behalf are expressly qualified in their entirety by the cautionary
statements contained or referred to in the paragraph above.
---------------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS-JOINT PROXY
STATEMENT, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. THE INFORMATION CONTAINED HEREIN WITH
RESPECT TO THE CORPORATION AND ITS SUBSIDIARIES HAS BEEN SUPPLIED BY THE
CORPORATION; THE INFORMATION CONTAINED HEREIN WITH RESPECT TO COMMERCE HAS BEEN
SUPPLIED BY COMMERCE; THE INFORMATION CONTAINED HEREIN WITH RESPECT TO FIRST
CITIZENS AND ITS SUBSIDIARY HAS BEEN SUPPLIED BY FIRST CITIZENS; AND THE
INFORMATION CONTAINED HEREIN WITH RESPECT TO CITY NATIONAL AND ITS SUBSIDIARIES
HAS BEEN SUPPLIED BY CITY NATIONAL. ALTHOUGH NEITHER THE CORPORATION, COMMERCE,
FIRST CITIZENS NOR CITY NATIONAL HAS ACTUAL KNOWLEDGE THAT WOULD INDICATE THAT
ANY STATEMENTS OR INFORMATION (INCLUDING FINANCIAL STATEMENTS) RELATING TO THE
OTHER PARTY CONTAINED HEREIN ARE INACCURATE OR INCOMPLETE, NEITHER THE
CORPORATION, COMMERCE, FIRST CITIZENS NOR CITY NATIONAL WARRANTS THE ACCURACY OR
COMPLETENESS OF SUCH STATEMENTS OR INFORMATION AS THEY RELATE TO ANY OTHER
PARTY. THIS PROSPECTUS-JOINT PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS
PROSPECTUS-JOINT PROXY STATEMENT, OR THE SOLICITATION OF A PROXY, IN ANY
JURISDICTION, TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER, SOLICITATION OF AN OFFER OR PROXY SOLICITATION IN SUCH JURISDICTION.
ii
<PAGE> 13
TABLE OF CONTENTS
<TABLE>
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AVAILABLE INFORMATION....................................... i
FORWARD-LOOKING STATEMENTS.................................. i
QUESTIONS AND ANSWERS ABOUT THE MERGERS..................... xi
SUMMARY OF PROSPECTUS-JOINT PROXY STATEMENT................. 1
The Companies............................................. 1
Additional Acquisitions................................... 2
Reasons For The Mergers................................... 3
Management of the Surviving Corporation................... 3
The Special Meetings...................................... 3
Recommendations to Shareholders........................... 4
Vote Required............................................. 4
THE MERGER BETWEEN THE BANK AND COMMERCE.................. 4
What Commerce Shareholders Will Receive................ 4
Other Interests of Officers and Directors of Commerce
in the Commerce Merger................................ 5
Conditions to the Commerce Merger...................... 5
No Solicitation by Commerce............................ 5
Regulatory Approvals................................... 5
Termination of the Commerce Plan of Merger............. 6
Accounting Treatment................................... 6
Opinion of Financial Advisor........................... 6
Material Federal Income Tax Consequences............... 6
Dissenters' Rights of Commerce Shareholders............ 6
THE MERGER BETWEEN THE CORPORATION AND FIRST CITIZENS..... 7
What First Citizens Shareholders will Receive.......... 7
Other Interests of Officers and Directors of First
Citizens in the First Citizens Merger................. 7
Conditions to the First Citizens Merger................ 7
No Solicitation by First Citizens...................... 7
Regulatory Approvals................................... 8
Termination of the First Citizens Plan of Merger....... 8
Accounting Treatment................................... 8
Opinion of Financial Advisor........................... 8
Material Federal Income Tax Consequences............... 8
Dissenters' Rights of First Citizens Shareholders...... 9
THE MERGER BETWEEN THE CORPORATION AND CITY NATIONAL...... 9
What City National Shareholders will Receive........... 9
Other Interests of Officers and Directors of City
National in the City National Merger.................. 9
Conditions to the City National Merger................. 9
No Solicitation by City National....................... 10
Regulatory Approvals................................... 10
Termination of the City National Plan of Merger........ 10
Accounting Treatment................................... 10
Opinion of Financial Advisor........................... 10
Material Federal Income Tax Consequences............... 10
Dissenters' Rights of City National Shareholders....... 11
Selected Historical and Pro Forma Financial Data....... 11
Ownership Subsequent to the Mergers.................... 12
Risk Factors........................................... 12
Market and Market Prices............................... 12
Comparative Per Share Information...................... 13
</TABLE>
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RISK FACTORS................................................ 14
The Transactions and the Companies -- Integration Risks
and Potential Negative Impact on Earnings from the
Transactions........................................... 14
Failure to Complete One or More of the Transactions....... 14
Ability to Sustain Growth; Profitability and Potential
Need for Additional Capital............................ 14
Adequacy of Allowance for Loan Losses..................... 15
Interest Rate Risk and Asset/Liability Management......... 15
Limited Number of Banks................................... 16
Geographic Concentration; Significance of Local Economic
Conditions............................................. 16
Computer Technologies and Year 2000 Compliance............ 16
Supervision and Regulation................................ 17
Government Regulation and Legislation..................... 18
Anti-Takeover Considerations.............................. 18
FDIC Insurance............................................ 18
Dividend History and Restrictions on Ability to Pay
Dividends.............................................. 18
Dependence on Management.................................. 19
Competition............................................... 19
Monetary Policy........................................... 19
Possible Adverse Effects of Issuance of Preferred Stock... 19
Control by Certain Stockholders........................... 20
Absence of Public Market; Possible Volatility of Stock
Price.................................................. 20
Risks Relating to Federal Income Taxes.................... 20
THE SPECIAL MEETINGS........................................ 21
The Commerce Special Meeting.............................. 21
Date, Place and Time................................... 21
Record Date, Quorum and Voting......................... 21
Vote Required.......................................... 21
Voting and Revocation of Proxies....................... 21
Solicitation of Proxies................................ 22
The First Citizens Special Meeting........................ 22
Date, Place and Time................................... 22
Record Date, Quorum and Voting......................... 22
Vote Required.......................................... 22
Voting and Revocation of Proxies....................... 23
Solicitation of Proxies................................ 23
The City National Special Meeting......................... 23
Date, Place and Time................................... 23
Record Date, Quorum and Voting......................... 23
Vote Required.......................................... 23
Voting and Revocation of Proxies....................... 24
Solicitation of Proxies................................ 24
THE COMMERCE MERGER......................................... 25
Terms of the Commerce Merger.............................. 25
Background of the Commerce Merger......................... 25
Reasons for the Commerce Merger; Recommendation of
Commerce Board of Directors............................ 27
Opinion of Commerce's Financial Advisor................... 27
Effective Time of the Merger.............................. 32
Exchange of Certificates.................................. 33
Conditions to the Commerce Merger......................... 33
Representations and Covenants............................. 35
Regulatory Approvals...................................... 35
</TABLE>
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Business Pending the Merger............................... 35
Resale of Corporation Common Stock by Affiliates.......... 36
Interests of Certain Persons in the Commerce Merger....... 37
Accounting Treatment...................................... 38
Material Federal Income Tax Consequences.................. 38
No Solicitation of Transactions........................... 40
Expenses.................................................. 40
Indemnification........................................... 40
Rights of Dissenting Shareholders......................... 40
THE FIRST CITIZENS MERGER................................... 42
Terms of the First Citizens Merger........................ 42
Background of the First Citizens Merger................... 42
Reasons for the First Citizens Merger; Recommendation of
First Citizens Board of Directors...................... 44
Opinion of First Citizens's Financial Advisor............. 45
Effective Time of the Merger.............................. 50
Exchange of Certificates.................................. 50
Conditions to the First Citizens Merger................... 51
Representations and Covenants............................. 52
Regulatory Approvals...................................... 53
Business Pending the Merger............................... 53
Resale of Corporation Common Stock by Affiliates.......... 54
Interests of Certain Persons in the First Citizens
Merger................................................. 55
Accounting Treatment...................................... 55
Material Federal Income Tax Consequences.................. 56
No Solicitation of Transactions........................... 57
Expenses.................................................. 57
Indemnification........................................... 57
Rights of Dissenting Shareholders......................... 58
THE CITY NATIONAL MERGER.................................... 60
Terms of the City National Merger......................... 60
Background of the City National Merger.................... 60
Reasons for the City National Merger; Recommendation of
City National Board of Directors....................... 62
Opinion of City National's Financial Advisor.............. 63
Effective Time of the Merger.............................. 69
Exchange of Certificates.................................. 69
Conditions to the City National Merger.................... 70
Representations and Covenants............................. 71
Regulatory Approvals...................................... 71
Business Pending the Merger............................... 71
Resale of Corporation Common Stock by Affiliates.......... 72
Interests of Certain Persons in the City National
Merger................................................. 73
Accounting Treatment...................................... 73
Material Federal Income Tax Consequences.................. 74
No Solicitation of Transactions........................... 75
Expenses.................................................. 76
Indemnification........................................... 76
Rights of Dissenting Shareholders......................... 76
INDEPENDENCE OF EACH TRANSACTION............................ 77
OPERATIONS AND MANAGEMENT OF THE CORPORATION AFTER THE
MERGERS................................................... 78
Operations................................................ 78
Management................................................ 78
</TABLE>
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CONDENSED PRO FORMA STATEMENT OF CONDITION (UNAUDITED)...... 79
SELECTED CONSOLIDATED FINANCIAL DATA -- CORPORATION......... 305
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- CORPORATION.................. 306
Basis of Presentation..................................... 306
Year 2000 Compliance...................................... 306
Results of Operations..................................... 307
Six Months Ended June 30, 1998, compared with six
months ended June 30, 1997............................ 307
Year Ended December 31, 1997, compared with years ended
December 31, 1996 and 1995............................ 308
Net Interest Income....................................... 308
Provision and Allowance for Loan Losses................... 311
Earning Assets............................................ 313
Deposits and Other Interest-Bearing Liabilities........... 314
Regulatory Capital Table.................................. 316
Impact of Inflation....................................... 316
Regulatory Matters........................................ 316
BUSINESS OF THE CORPORATION................................. 317
General................................................... 317
Recent Developments....................................... 317
Strategy.................................................. 318
Market Areas.............................................. 319
Growth Strategy........................................... 319
Lending Activities........................................ 319
Deposits.................................................. 320
Competition............................................... 321
Market Information........................................ 321
Properties................................................ 321
Legal Proceedings......................................... 321
SUPERVISION AND REGULATION.................................. 321
The Corporation........................................... 321
The Bank.................................................. 325
Instability of Regulatory Structure....................... 328
Expanding Enforcement Authority........................... 328
Effect on Economic Environment............................ 328
MANAGEMENT OF CORPORATION................................... 329
Directors and Executive Officers.......................... 329
Classified Board of Directors............................. 331
Committees of the Board of Directors...................... 331
Executive Officer Compensation............................ 332
Director Compensation..................................... 332
Employment Agreements..................................... 332
Compensation Committee Interlocks and Insider
Participation.......................................... 332
Stock Option Plan......................................... 333
Certain Relationships and Related Transactions............ 333
PRINCIPAL STOCKHOLDERS OF THE CORPORATION................... 335
SELECTED CONSOLIDATED FINANCIAL DATA -- COMMERCE............ 336
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- COMMERCE..................... 337
Basis of Presentation..................................... 337
Year 2000 Compliance...................................... 337
</TABLE>
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Results of Operations..................................... 337
Six months ended June 30, 1998, compared with six
months ended June 30, 1997............................ 337
Year ended December 31, 1997, compared with years ended
December 31, 1996 and 1995............................ 338
Net Interest Income....................................... 339
Provision and Allowance for Loan Losses................... 340
Earning Assets............................................ 342
Deposits and Other Interest-Bearing Liabilities........... 344
Capital Resources......................................... 345
Impact of Inflation....................................... 345
Regulatory Matters........................................ 345
BUSINESS OF COMMERCE........................................ 347
Business Strategy......................................... 347
Competition............................................... 347
Employees................................................. 348
Market Information........................................ 348
Properties................................................ 348
Legal Proceedings......................................... 349
Principal Shareholders of Commerce........................ 349
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 350
Management................................................ 351
Executive Compensation.................................... 351
Certain Relationships and Related Transactions............ 353
SELECTED FINANCIAL DATA (HISTORICAL) -- FIRST CITIZENS...... 354
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- FIRST CITIZENS............... 355
Basis of Presentation..................................... 355
Year 2000 Compliance...................................... 355
Results of Operations..................................... 355
Six Months Ended June 30, 1998, compared with six
months ended June 30, 1997............................ 355
Year Ended December 31, 1997, compared with years ended
December 31, 1996 and 1995............................ 356
Net Interest Income....................................... 356
Provision and Allowance for Loan Losses................... 359
Earning Assets............................................ 361
Deposits and Other Interest-Bearing Liabilities........... 363
Impact of Inflation....................................... 363
Regulatory Matters........................................ 363
BUSINESS OF FIRST CITIZENS.................................. 365
Bank Activities........................................... 365
Employees................................................. 365
Competition............................................... 365
Principal Shareholders of First Citizens.................. 366
Security Ownership of Management.......................... 366
Properties................................................ 367
Market Information........................................ 367
Legal Proceedings......................................... 367
SELECTED CONSOLIDATED FINANCIAL DATA -- CITY NATIONAL....... 368
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- CITY NATIONAL................ 369
Basis of Presentation..................................... 369
Year 2000 Compliance...................................... 369
</TABLE>
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Results of Operations..................................... 369
Six months ended June 30, 1998, compared with six
months ended June 30, 1997............................ 369
Year ended December 31, 1997, compared with years ended
December 31, 1996 and 1995............................ 370
Net Interest Income....................................... 371
Provisions and Allowance for Loan Losses.................. 374
Earning Assets............................................ 376
Deposits and Other Interest-Bearing Liabilities........... 377
Impact of Inflation....................................... 378
Regulatory Matters........................................ 378
BUSINESS OF CITY NATIONAL................................... 379
Bank Activities........................................... 379
Employees................................................. 379
Competition............................................... 379
Principal Holders of Common Stock......................... 380
Security Ownership of Management.......................... 380
Director Information...................................... 381
Market Information........................................ 381
Legal Proceedings......................................... 381
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- EMERALD...................... 382
Basis of Presentation..................................... 382
Year 2000 Compliance...................................... 382
Results of Operations..................................... 382
Six Months Ended June 30, 1998 Compared With Six Months
Ended June 30, 1997................................... 382
Year Ended December 31, 1997 Compared With Year Ended
December 31, 1996...................................... 383
Net Interest Income....................................... 383
Provision and Allowance for Loan Losses................... 386
Earning Assets............................................ 387
Deposits and Other Interest-Bearing Liabilities........... 389
Impact of Inflation....................................... 390
Regulatory Matters........................................ 390
BUSINESS OF EMERALD......................................... 391
Banking Activities........................................ 391
Market Area............................................... 391
Properties and Employees.................................. 391
Competition............................................... 391
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- CBS.......................... 392
Basis of Presentation..................................... 392
Year 2000 Compliance...................................... 392
Results of Operations..................................... 392
</TABLE>
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<S> <C>
Six Months Ended June 30, 1998, compared with six
months ended June 30, 1997............................ 392
Year Ended December 31, 1997, compared with years ended
December 31, 1996 and 1995............................ 393
Net Interest Income....................................... 393
Provision and Allowance for Loan Losses................... 396
Earning Assets............................................ 398
Deposits and Other Interest-Bearing Liabilities........... 399
Impact of Inflation....................................... 400
Regulatory Matters........................................ 400
BUSINESS OF CBS............................................. 401
General................................................... 401
The Commercial Bank of Roanoke............................ 401
Primary Service Area...................................... 401
Offices................................................... 401
Competition............................................... 401
Employees................................................. 402
Legal Proceedings......................................... 402
COMPARISON OF STOCKHOLDERS' RIGHTS.......................... 403
Comparison of Rights of Commerce Shareholders and
Corporation Stockholders............................... 403
Classes and Series of Capital Stock.................... 403
Size and Election of the Board of Directors............ 403
Removal of Directors................................... 403
Other Voting Rights.................................... 404
Dividends.............................................. 404
Conversion and Dissolution............................. 404
Amendment or Repeal of the Certificate of Incorporation
and Bylaws............................................ 404
Special Meetings of Stockholders....................... 405
Liability of Directors................................. 405
Advance Notice Provisions for Stockholder Proposals and
Stockholder Nominations of Directors.................. 405
Indemnification of Directors and Officers.............. 405
Comparison of Rights of First Citizens Shareholders and
Corporation Stockholders............................... 406
Classes and Series of Capital Stock.................... 406
Size and Election of the Board of Directors............ 407
Removal of Directors................................... 407
Other Voting Rights.................................... 407
Dividends.............................................. 407
Conversion and Dissolution............................. 407
Amendment or Repeal of the Certificate of Incorporation
and Bylaws............................................ 408
</TABLE>
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Special Meetings of Stockholders....................... 408
Liability of Directors................................. 408
Advance Notice Provisions for Stockholder Proposals and
Stockholder Nominations of Directors.................. 409
Indemnification of Directors and Officers.............. 409
Comparison of Rights of City National Shareholders and
Corporation Stockholders............................... 410
Classes and Series of Capital Stock.................... 410
Size and Election of the Board of Directors............ 410
Removal of Directors................................... 410
Other Voting Rights.................................... 410
Dividends.............................................. 411
Conversion and Dissolution............................. 411
Amendment or Repeal of the Certificate of Incorporation
and Bylaws............................................ 411
Special Meetings of Stockholders....................... 411
Liability of Directors................................. 412
Advance Notice Provisions for Stockholder Proposals and
Stockholder Nominations of Directors.................. 412
Indemnification of Directors and Officers.............. 412
DESCRIPTION OF CAPITAL STOCK OF THE CORPORATION............. 413
Authorized Capital Stock.................................. 413
Corporation Common Stock.................................. 413
Corporation Preferred Stock............................... 414
Certain Provisions of the Corporation Certificate and the
DGCL................................................... 414
Limitations on Liability of Officers and Directors........ 415
Transfer Agent and Registrar.............................. 415
EXPERTS..................................................... 415
LEGAL MATTERS............................................... 416
ADDITIONAL INFORMATION...................................... 416
Other Business............................................ 416
INDEX TO FINANCIAL STATEMENTS............................... F-1
ANNEXES
A. Third Amended and Restated Reorganization Agreement and
Plan of Merger, dated as of April 6, 1998 by and among
Warrior Capital Corporation, The Banc Corporation, The
Bank and Commerce Bank of Alabama........................ A-1
B. Third Amended and Restated Reorganization Agreement and
Plan of Merger, dated as of April 15, 1998 by and among
Warrior Capital Corporation, The Banc Corporation and
First Citizens Bancorp, Inc.............................. B-1
C. Second Amended and Restated Reorganization Agreement and
Plan of Merger, dated as of June 16, by and among City
National Corporation, Warrior Capital Corporation and The
Banc Corporation......................................... C-1
D. Dissenters' Rights -- Sections 10-2B-13.01 through
10-2B-13.32 of the Alabama Business Corporation Act...... D-1
E. Opinion of Commerce's Financial Advisor.................. E-1
F. Opinion of First Citizens' Financial Advisor............. F-1
G. Opinion of City National's Financial Advisor............. G-1
</TABLE>
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<PAGE> 21
QUESTIONS AND ANSWERS ABOUT THE MERGERS
Q: WHAT DO I NEED TO DO NOW?
A: After carefully reading and considering the information contained in this
document, please fill out and sign your proxy card. Mail your signed proxy
card in the enclosed return envelope as soon as possible so that your shares
may be represented at your Special Meeting.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. You can change your vote at any time before your proxy is voted at your
Special Meeting. You can do this in one of three ways. First, you can send a
written notice stating that you would like to revoke your proxy. Second, you
can complete and submit a new proxy card. If you choose either of these two
methods, you must submit your notice of revocation or your new proxy card to
J. Daniel Sizemore at the address below if you are a Commerce shareholder, to
John F. Gittings at the address below, if you are a First Citizens
shareholder or to William P. Riley at the address below if you are a City
National shareholder. Third, you can attend the applicable Special Meeting
for your company and vote in person. Simply attending the meeting, however,
will not revoke your proxy.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the Mergers are completed, the Corporation will send you written
instructions on exchanging your stock certificates.
Q: WHEN DO YOU EXPECT THE MERGERS TO BE COMPLETED?
A: We are working towards completing the Mergers as quickly as possible. In
addition to shareholder approvals, we must also obtain regulatory approvals.
We expect to complete the Mergers by , 1998.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGERS?
A: The receipt of Corporation Common Stock in the Mergers generally will be
tax-free to shareholders for federal income tax purposes. To review the tax
consequences to shareholders in greater detail, see pages and
.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have more questions about the mergers, you should contact:
<TABLE>
<S> <C> <C>
Commerce Shareholders: First Citizens Shareholders: City National Shareholders:
Commerce Bank of Alabama First Citizens Bancorp, Inc. City National Corporation
Post Office Box 460 Post Office Box 807 Post Office Box 128
Albertville, Alabama 35950 Monroeville, Alabama 36461 Sylacauga, Alabama 35150
Attention: J. Daniel Sizemore Attention: John F. Gittings Attention: William P. Riley
Telephone: (256) 878-4511 Telephone: (334) 575-2200 Telephone: (256) 245-2281
</TABLE>
xi
<PAGE> 22
SUMMARY OF PROSPECTUS-JOINT PROXY STATEMENT
This summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the
Mergers and related matters fully and for a more complete description of the
legal terms of the Mergers, you should read carefully this entire document and
the documents to which we have referred you.
THE COMPANIES
The Banc Corporation and The Bank. The Banc Corporation is a registered
bank holding company incorporated under the laws of Delaware and headquartered
in Birmingham, Alabama. The Corporation is the result of a recent merger with
Warrior Capital Corporation, a registered Alabama bank holding company. The
Corporation was established in April 1998 so that Warrior could merge into the
Corporation, and thereby, Warrior would change its name to "The Banc
Corporation" and its domicile from Alabama to Delaware. Warrior merged with the
Corporation on September 24, 1998. Before it merged with Warrior, the
Corporation was a shell corporation with no independent operations.
Warrior was established in 1982, and as of June 30, 1998, Warrior had
assets of approximately $89.8 million, deposits of approximately $64.8 million
and stockholders equity of approximately $21.9 million. Because the Corporation
was formed to effectuate the name and domicile change of Warrior, and has no
operations apart from those that were formerly Warrior's, had Warrior and the
Corporation merged as of June 30, 1998, the Corporation would have had the same
assets, deposits and stockholders equity as Warrior did on that date.
The principal subsidiary of the Corporation is The Bank, an Alabama banking
corporation headquartered in Birmingham, Alabama. The Bank is 99.75% owned by
the Corporation. Prior to the merger of the Corporation and Warrior, The Bank
was a subsidiary of Warrior, and it became a 99.75% owned subsidiary of the
Corporation when Warrior merged into the Corporation. The Bank has been in
business as a full service commercial and retail bank since it was established
in 1957. Before its name was changed to The Bank in February 1998, it was known
as Warrior Savings Bank.
Through the Bank, the Corporation has five locations in
Alabama -- Birmingham (which opened July 1, 1998), Decatur (which opened
September 14, 1998), and Warrior, Morris and Mt. Olive (all suburbs of
Birmingham). With the exception of Birmingham, the Corporation operates in
non-metropolitan areas targeting individuals and businesses that prefer local
bank decision making and personal service.
The Corporation believes its future growth will depend primarily on the
expansion of the business of its banking subsidiaries through internal growth,
the opening and acquisition of new branch offices in new markets and the
acquisition of other financial institutions. As part of its growth strategy, the
Corporation anticipates raising an additional $10 million of equity capital
during 1998 through the public sale of additional shares of its Common Stock,
although there can be no assurance that the Corporation will be able to offer
its shares at a price and on terms acceptable to the Corporation. The price
structure and terms of any such offering have not yet been determined. Such
shares will only be sold through means of a prospectus and registration
statement filed with and declared effective by the SEC. See "Risk
Factors -- Ability to Sustain Growth; Profitability and Potential Need for
Additional Capital" and "Business of the Corporation."
The principal executive offices of the Corporation are located at 17 North
20th Street, Birmingham, Alabama 35203, and its telephone number is (205)
326-2265. The principal executive offices of The Bank are located at 218 Louisa
Street, Warrior, Alabama 35180, and its telephone number is (205) 714-5700. As
used in this Prospectus-Joint Proxy Statement, the term "Corporation" refers to
The Banc Corporation and its predecessor, Warrior, and its respective
subsidiaries and affiliates, including The Bank, unless the context requires
otherwise.
Commerce. Commerce, established in 1995, is an Alabama banking corporation
with four full-service banking offices located in Albertville, Guntersville,
Gadsden and Rainbow City, Alabama. As of June 30, 1998, Commerce had total
assets of approximately $119.8 million, deposits of approximately $110.7 million
1
<PAGE> 23
and shareholders' equity of approximately $6.8 million. The principal executive
offices of Commerce are located at 301 North Broad Street, Albertville, Alabama
35950, and its telephone number is (256) 878-4511.
First Citizens. First Citizens is a bank holding company registered under
the BHCA. Through its bank subsidiary, First Citizens Bank of Monroe County
("First Citizens Bank"), First Citizens provides community banking services
through two locations in Monroeville and one in Frisco City, Alabama. As of June
30, 1998, First Citizens had total consolidated assets of approximately $38.1
million, total consolidated deposits of approximately $34.4 million, and total
consolidated shareholders' equity of approximately $3.2 million. The principal
executive offices of First Citizens are located at 915 South Alabama Avenue,
Monroeville, Alabama 36460-2504, and its telephone number is (334) 575-2200.
City National. City National is an Alabama bank holding company registered
under the BHCA. Through its subsidiary, City National Bank of Sylacauga ("City
National Bank"), City National provides community banking services in Talladega
County. As of June 30, 1998, City National had total assets of approximately
$82.2 million, deposits of approximately $69.4 million and shareholders' equity
of approximately $11.8 million. City National Bank is based in Sylacauga and has
additional branches in Mignon and Childersburg. The principal executive offices
of City National are located at 126 North Broadway Avenue, Sylacauga, Alabama
35150-2524 and its telephone number is (256) 245-2281.
ADDITIONAL ACQUISITIONS
In addition to the Commerce, First Citizens and City National Mergers
covered by this Prospectus-Joint Proxy Statement, the Corporation has entered
into agreements for two additional acquisitions.
CBS. On June 19, 1998, the Corporation entered into an Agreement and Plan
of Merger (the "CBS Plan of Merger") with Commercial Bancshares of Roanoke, Inc.
("CBS") to purchase all of the issued and outstanding shares of stock of CBS for
$7.3 million in cash (the "CBS Purchase"). CBS is a bank holding company
organized and existing under the laws of the State of Delaware. CBS's
subsidiaries include The Commercial Bank of Roanoke, an Alabama banking
corporation, and Commercial Bancshares Services, Inc., a Delaware corporation,
which engages in data processing services for community banks. As of June 30,
1998, CBS had total assets of approximately $42.4 million, total deposits of
approximately $35.7 million and total shareholders' equity of approximately $6.4
million. The CBS Purchase is subject to normal conditions for a transaction of
this type. The CBS shareholders approved the CBS Purchase on August 15, 1998 and
the Federal Reserve approved the CBS Purchase on September 23, 1998. The CBS
Purchase is expected to close on or about October 15, 1998.
Emerald. On June 2, 1998, the Corporation entered into a Reorganization
Agreement and Plan of Merger (the "Emerald Plan of Merger") with Emerald Coast
Bancshares, Inc. ("Emerald"), pursuant to which Emerald shall be merged with and
into the Corporation (the "Emerald Merger"). Emerald is a bank holding company
organized and existing under the laws of the State of Florida. Emerald's
subsidiaries include Emerald Coast Bank, a Florida banking corporation, and
Emerald Coast Financial Management, Inc., a Florida corporation. Emerald has
four locations in Florida -- Panama City Beach, Destin, Bay Point and Seagrove
(all located in the panhandle of Florida along the Gulf Coast). As of June 30,
1998, Emerald had total assets of approximately $73.8 million, deposits of
approximately $63.3 million and shareholders' equity of approximately $5.5
million. Prior to the Emerald Merger, Emerald Coast Bank will be converted from
a state chartered bank to a federally chartered thrift regulated by the Office
of Thrift Supervision (the "OTS"). In September 1998, the directors of Emerald
determined that a savings association/thrift charter was desirable as opposed to
the existing bank charter for two primary reasons. First, Emerald Coast Bank was
less than three years old and could not be acquired by an out of state bank
holding company such as the Corporation until August 31, 1999. A
federally-chartered thrift does not fall within such guidelines. Second, a
thrift charter provides greater branching capabilities within and outside the
State of Florida and allows for more services to be offered to customers. The
Emerald Merger is subject to normal conditions for a transaction of this type,
including regulatory approval. The Emerald Shareholders have approved the
Emerald Merger, and the Emerald Merger is expected to close simultaneously with
the other Mergers. A total of 1,379,958 shares of Corporation Common Stock will
be issued to the former shareholders of Emerald.
2
<PAGE> 24
REASONS FOR THE MERGERS
The Boards of Directors of the Corporation, Commerce, First Citizens and
City National have identified various benefits that are likely to result from
the mergers. The Boards of Directors expect the mergers to:
- Enhance the franchise and resources of the companies;
- Increase the presence of the companies in certain geographical areas;
- Increase the profitability of the companies through cost savings,
operating efficiencies, economies of scale, lower financing costs and
stronger market positions;
- Combine four strong management teams into one larger enterprise; and
- Provide liquidity to the shareholders of Commerce, First Citizens and
City National by giving them a security for which it is anticipated a
public trading market will develop.
These and other reasons identified by each board for recommending and approving
the Mergers are explained in greater detail on pages through ,
through and through of this document. See "Independence of
Each Transaction."
MANAGEMENT OF THE SURVIVING CORPORATION
Subsequent to the Mergers, the Corporation will be managed by the same
Board of Directors and executive officers as existed prior to the Mergers except
for the following changes. If the Commerce Merger is consummated, J. Daniel
Sizemore, Steven C. Hays, Randall E. Jones and T. Mandell Tillman, current
directors of Commerce, will become directors of the Corporation and Mr. Sizemore
will become President and Chief Operating Officer of the Corporation. If the
Commerce Merger is not consummated Messrs. Sizemore, Hays, Jones and Tillman
will not become directors of the Corporation and Mr. Sizemore will not become
President and Chief Operating Officer of the Corporation. In that case, the
Corporation intends that James A. Taylor, currently Chairman of the Board and
Chief Executive Officer of the Corporation, would serve as President and Chief
Operating Officer of the Corporation. See "Operations and Management of the
Corporation After the Mergers." See "-- Other Interests of Officers and
Directors of Commerce in the Commerce Merger," "The Commerce Merger -- Interests
of Certain Persons in the Commerce Merger," and Operations and Management of the
Corporation After The Mergers."
If the City National Merger is consummated, W.T. Campbell, Jr., a current
director of City National, will become a director of the Corporation. If the
City National Merger is not consummated, Mr. Campbell will not become a director
of the Corporation. See "-- Other Interests of Officers and Directors of City
National in the Merger,", "The City National Merger -- Interests of Certain
Persons in the City National Merger" and "Operations and Management of the
Corporation After The Mergers."
If the Emerald Merger is consummated, Terry DuBose, Chairman and Chief
Executive Officer of Emerald, will become Vice Chairman of the Board of the
Corporation and Earl Durden, a director of Emerald, will become a director of
the Corporation. If the Emerald Merger is not consummated, Mr. DuBose will not
become Vice Chairman of the Corporation and Mr. Durden will not become a
director of the Corporation.
THE SPECIAL MEETINGS
(See page , and )
The Commerce Special meeting will be held at , Alabama at
10:00 a.m. on October , 1998.
The First Citizens Special meeting will be held at the
, Alabama at 10:00 a.m. on October , 1998.
The City National Special meeting will be held at
, , on
, 1998, at .m.
3
<PAGE> 25
RECOMMENDATIONS TO SHAREHOLDERS
To Commerce Shareholders:
The Commerce Board of Directors believes that the Commerce Merger is in the
best interests of Commerce shareholders and recommends that Commerce
shareholders vote FOR the proposal to approve and adopt the Commerce Plan of
Merger.
To First Citizens Shareholders:
The First Citizens Board of Directors believes that the First Citizens
Merger is in the best interests of First Citizens and its shareholders and
recommends that First Citizens shareholders vote FOR the proposal to approve and
adopt the First Citizens Plan of Merger.
To City National Shareholders:
The City National Board of Directors believes that the City National Merger
is in the best interests of City National and its shareholders and recommends
that City National shareholders vote FOR the proposal to approve and adopt the
City National Plan of Merger.
VOTE REQUIRED
To approve the Commerce Merger, a majority of the outstanding shares of
Commerce must vote in favor of the Commerce Plan of Merger. Certain shareholders
of Commerce who collectively own approximately 33.8% of the outstanding Commerce
Common Stock, and who are also officers or directors of Commerce, have agreed to
vote their shares in favor of the Commerce Plan of Merger.
To approve the First Citizens Merger, two-thirds of the outstanding shares
of First Citizens must vote in favor of the First Citizens Plan of Merger.
Certain shareholders of First Citizens who collectively own approximately 42.30%
of the outstanding First Citizens Common Stock, and who are also officers or
directors of First Citizens, have agreed to vote their shares in favor of the
First Citizens Plan of Merger.
To approve the City National Merger, two-thirds of the outstanding shares
of City National must vote in favor of the City National Plan of Merger. Certain
shareholders of City National, who collectively own approximately 30.25% of the
voting power of the outstanding City National Common Stock, and who are also
officers or directors of City National, have agreed to vote their City National
shares in favor of the City National Plan of Merger.
Each of the Commerce Merger, the First Citizens Merger and the City
National Merger must also be approved by the shareholders of the Corporation.
Directors, executive officers and their affiliates of the Corporation own
3,045,700 shares representing 55.9 percent of the outstanding shares of Common
Stock of the Corporation. Each of the Mergers was approved by the Stockholders
of the Corporation on September 28, 1998.
THE MERGER BETWEEN THE BANK AND COMMERCE
THE COMMERCE PLAN OF MERGER IS INCLUDED AS ANNEX A TO THIS PROSPECTUS-
JOINT PROXY STATEMENT. YOU ARE ENCOURAGED TO READ THE COMMERCE PLAN OF MERGER
BECAUSE IT IS THE LEGAL DOCUMENT THAT GOVERNS THE COMMERCE MERGER.
WHAT COMMERCE SHAREHOLDERS WILL RECEIVE
(See Page )
As a result of the Commerce Merger, each outstanding share of Commerce
Common Stock will be converted into approximately 2.335 shares of Corporation
Common Stock. The exchange ratio was negotiated between Commerce and the
Corporation giving consideration to the factors set forth in "The Commerce
Merger -- Background of the Merger." In view of the wide variety of factors
considered in connection with its
4
<PAGE> 26
evaluation of the Commerce Merger, the Commerce Board of Directors did not find
it practicable to quantify or otherwise attempt to assign relative weights to
the specific factors considered in reaching its determination and did not do so.
Commerce shareholders should not send in their stock certificates until
instructed to do so after the Commerce Merger is completed.
OTHER INTERESTS OF OFFICERS AND DIRECTORS OF COMMERCE IN THE COMMERCE MERGER
(See Page )
A number of officers and directors of Commerce have interests in the
Commerce Merger that are different from or in addition to your interests. If the
Commerce Merger is consummated, J. Daniel Sizemore, Steven C. Hays, Randall E.
Jones and T. Mandell Tillman, current directors of Commerce, will become
directors of the Corporation after the Commerce Merger, and Mr. Sizemore will
become President and Chief Operating Officer of the Corporation. Mr. G. Ray
Smith will be employed as an Executive Vice President of The Bank and President
of the Etowah and Marshall County branches of The Bank. Mr. Sizemore and Mr.
Smith will also have an employment agreement with the Corporation. Additionally,
Mr. Sizemore, with approval of the Commerce Board of Directors and The Bank
Board of Directors, has served as a consultant to The Bank on the opening and
operation of the Birmingham location since April 1998.
CONDITIONS TO THE COMMERCE MERGER
(See Page )
The completion of the Commerce Merger depends upon a number of conditions,
including the following:
- Approval of the Commerce Plan of Merger by the Commerce shareholders;
- No law shall have been enacted or injunction entered that effectively
prohibits the Commerce Merger;
- The registration statement filed with the SEC with respect to the shares
of Corporation Common Stock to be received by the Commerce shareholders
shall have been declared effective;
- Receipt of legal opinions regarding certain tax consequences of the
Commerce Merger; and
- Receipt of an accountant's letter regarding accounting for the Commerce
Merger as a pooling of interests.
Except for shareholder approval and certain other legal requirements, any
condition to the Commerce Merger may be waived by the company entitled to assert
the condition. It is not a condition to the Commerce Merger that any of the
other Mergers or the CBS Purchase (collectively the "Transactions") be
completed. See "Independence of Each Transaction."
NO SOLICITATION BY COMMERCE
(See Page )
Commerce has agreed that it will not initiate or encourage any discussions
regarding a business combination of Commerce with any other party.
REGULATORY APPROVALS
(See Page )
The Commerce Merger was approved by the FDIC on September 29, 1998.
5
<PAGE> 27
TERMINATION OF THE COMMERCE PLAN OF MERGER
(See Page )
The Corporation and Commerce can agree to terminate the Commerce Plan of
Merger without completing the Commerce Merger, and either of the Corporation or
Commerce can terminate the Commerce Plan of Merger if any of the following
occurs:
- The Commerce Merger is not completed by March 31, 1999;
- The approval of the Commerce shareholders is not received;
- A court or other governmental authority permanently prohibits the
Commerce Merger; or
- The other party materially breaches any of its representations or
warranties or obligations under the Commerce Plan of Merger.
The Corporation can terminate the Commerce Plan of Merger if the Commerce
Board of Directors withdraws, modifies or amends its approval of the Commerce
Plan of Merger in any way adverse to the Corporation or recommends an
alternative transaction.
ACCOUNTING TREATMENT
(See Page )
The Corporation and Commerce expect the Commerce Merger to qualify as a
pooling of interests, which means that Corporation and Commerce will be treated
as if they had always been combined for accounting and financial reporting
purposes. The Commerce Merger is conditioned on receiving this accounting
treatment.
OPINION OF FINANCIAL ADVISOR
(See Page )
The Commerce Plan of Merger provides that it is a condition to Commerce's
obligation to conclude the Commerce Merger that Commerce receive an opinion
prior to the mailing of the Prospectus -- Joint Proxy Statement from an
investment banking firm chosen by Commerce, as to the fairness of the Commerce
Exchange Ratio from a financial point of view to the shareholders of Commerce.
Commerce has received an opinion from Porter, White & Company that the Commerce
Merger is fair to the shareholders of Commerce from a financial point of view.
See Annex E.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
(See Page )
The Corporation and Commerce have structured the Commerce Merger so that no
gain or loss should be recognized by a Commerce shareholder for federal income
tax purposes on the exchange of shares of Commerce Common Stock for shares of
Corporation Common Stock. Federal income tax may be payable, however, on cash
received by Commerce shareholders instead of fractional shares. Each of the
Corporation and Commerce received a legal opinion regarding material federal
income tax consequences of the Commerce Merger, which opinion reflects and
supports the federal income tax consequences described herein. To review the
federal income tax consequences to Commerce shareholders as described in such
tax opinions in greater detail, see pages and .
The tax consequences to you of the Commerce Merger will depend on the facts
of your own situation. Each Commerce shareholder is advised to consult his or
her own tax advisor as to the tax consequences of the Commerce Merger to such
shareholder.
DISSENTERS' RIGHTS OF COMMERCE SHAREHOLDERS
(See Page )
Commerce shareholders have the right to dissent from the Commerce Merger
under Alabama law and receive payment in cash of the "fair value" of their
shares in cash if they comply with certain requirements set forth in this
Prospectus-Joint Proxy Statement.
6
<PAGE> 28
THE MERGER BETWEEN THE CORPORATION AND FIRST CITIZENS
THE FIRST CITIZENS PLAN OF MERGER IS INCLUDED AS ANNEX B TO THIS
PROSPECTUS-JOINT PROXY STATEMENT. YOU ARE ENCOURAGED TO READ THE FIRST CITIZENS
PLAN OF MERGER BECAUSE IT IS THE LEGAL DOCUMENT THAT GOVERNS THE FIRST CITIZENS
MERGER.
WHAT FIRST CITIZENS SHAREHOLDERS WILL RECEIVE
(See Page )
As a result of the First Citizens Merger, each outstanding share of First
Citizens Common Stock will be converted into approximately 8.291 shares of
Corporation Common Stock. The exchange ratio was negotiated between First
Citizens and the Corporation giving consideration to the factors set forth in
"The First Citizens Merger -- Background of the Merger." In view of the wide
variety of factors considered in connection with its evaluation of the First
Citizens Merger, the First Citizens Board of Directors did not find it
practicable to quantify or otherwise attempt to assign relative weights to the
specific factors considered in reaching its determination and did not do so.
First Citizens shareholders should not send in their stock certificates
until instructed to do so after the First Citizens Merger is completed.
OTHER INTERESTS OF OFFICERS AND DIRECTORS OF FIRST CITIZENS IN THE FIRST
CITIZENS MERGER
(See Page )
A number of officers and directors of First Citizens have interests in the
First Citizens Merger that are different from or in addition to your interests.
If the First Citizens Merger is consummated, John F. Gittings, currently the
Chief Executive Officer and a Director of First Citizens, will receive an
employment contract from the Corporation.
CONDITIONS TO THE FIRST CITIZENS MERGER
(See Page )
The completion of the First Citizens Merger depends upon a number of
conditions, including the following:
- Approval of the First Citizens Plan of Merger by the First Citizens
shareholders;
- No law shall have been enacted or injunction entered that effectively
prohibits the First Citizens Merger;
- The registration statement filed with the Securities and Exchange
Commission with respect to the shares of Corporation Common Stock to be
received by the First Citizens shareholders shall have been declared
effective;
- Receipt of legal opinions regarding certain tax consequences of the First
Citizens Merger; and
- Receipt of an accountant's letter regarding accounting for the First
Citizens Merger as a pooling of interests.
Except for shareholder approval and certain other legal requirements, any
condition to the First Citizens Merger may be waived by the company entitled to
assert the condition. It is not a condition to the First Citizens Merger that
any of the other Transactions be completed. See "Independence of Each
Transaction."
NO SOLICITATION BY FIRST CITIZENS
(See Page )
First Citizens has agreed that it will not initiate or encourage any
discussions regarding a business combination of First Citizens with any other
party.
7
<PAGE> 29
REGULATORY APPROVALS
(See Page )
The First Citizens Merger was approved by the Federal Reserve Board
("Federal Reserve") on September 23, 1998.
TERMINATION OF THE FIRST CITIZENS PLAN OF MERGER
(See Page )
The Corporation and First Citizens can agree to terminate the First
Citizens Plan of Merger without completing the First Citizens Merger, and either
of the Corporation or First Citizens can terminate the Plan of Merger if any of
the following occurs:
- The First Citizens Merger is not completed by March 31, 1999;
- The approval of the First Citizens shareholders is not received;
- A court or other governmental authority permanently prohibits the First
Citizens Merger; or
- The other party materially breaches any of its representations or
warranties or obligations under the First Citizens Plan of Merger.
The Corporation can terminate the First Citizens Plan of Merger if the
First Citizens Board of Directors withdraws, modifies or amends its approval of
the First Citizens Plan of Merger in any way adverse to the Corporation or
recommends an alternative transaction.
ACCOUNTING TREATMENT
(See Page )
The Corporation and First Citizens expect the First Citizens Merger to
qualify as a pooling of interests, which means that the Corporation and First
Citizens will be treated as if they had always been combined for accounting and
financial reporting purposes. The First Citizens Merger is conditioned on
receiving this accounting treatment.
OPINION OF FINANCIAL ADVISOR
(See Page )
The First Citizens Plan of Merger provides that it is a condition to First
Citizen's obligation to conclude the First Citizens Merger that First Citizens
receive an opinion prior to the mailing of the Prospectus -- Joint Proxy
Statement from an investment banking firm chosen by First Citizens as to the
fairness of the First Citizens Exchange Ratio from a financial point of view to
the shareholders of First Citizens. First Citizens has received an opinion from
Porter, White & Company that the First Citizens Merger is fair to the
shareholders of First Citizens from a financial point of view.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
(See Page )
The Corporation and First Citizens have structured the First Citizens
Merger so that no gain or loss should be recognized by a First Citizens
shareholder for federal income tax purposes on the exchange of shares of First
Citizens Common Stock for shares of Corporation Common Stock. Federal income tax
may be payable, however, on cash received by First Citizens shareholders instead
of fractional shares. Each of the Corporation and First Citizens received a
legal opinion regarding material federal income tax consequences of the First
Citizens Merger, which opinion reflects and supports the federal income tax
consequences described herein. To review the federal income tax consequences to
First Citizens shareholders in greater detail, see pages and .
8
<PAGE> 30
The tax consequences of the First Citizens Merger to you will depend on the
facts of your own situation. Each First Citizens shareholder is advised to
consult his or her own tax advisor as to the tax consequences of the First
Citizens Merger to such shareholder.
DISSENTERS' RIGHTS OF FIRST CITIZENS SHAREHOLDERS
(See Page )
First Citizens shareholders have the right to dissent from the First
Citizens Merger under Alabama law and receive payment in cash of the "fair
value" of their shares if they comply with certain requirements set forth in
this Prospectus-Joint Proxy Statement.
THE MERGER BETWEEN THE CORPORATION AND CITY NATIONAL
THE CITY NATIONAL PLAN OF MERGER IS INCLUDED AS ANNEX C TO THIS PROSPECTUS-
JOINT PROXY STATEMENT. YOU ARE ENCOURAGED TO READ THE CITY NATIONAL PLAN OF
MERGER BECAUSE IT IS THE LEGAL DOCUMENT THAT GOVERNS THE CITY NATIONAL MERGER.
WHAT CITY NATIONAL SHAREHOLDERS WILL RECEIVE
(See Page )
As a result of the City National Merger, each outstanding share of City
National Common Stock will be converted into approximately 74.538 shares of
Corporation Common Stock. The exchange ratio was negotiated between City
National and the Corporation giving consideration to the factors set forth in
"The City National Merger -- Background of the Merger." In view of the wide
variety of factors considered in connection with its evaluation of the City
National Merger, the City National Board of Directors did not find it
practicable to quantify or otherwise attempt to assign relative weights to the
specific factors considered in reaching its determination and did not do so.
City National shareholders should not send in their stock certificates
until instructed to do so after the City National Merger is completed.
OTHER INTERESTS OF OFFICERS AND DIRECTORS OF CITY NATIONAL IN THE CITY NATIONAL
MERGER
(See Page )
A number of officers and directors of City National have interests in the
City National Merger that are different from or in addition to your interests.
If the City National Merger is consummated, W. T. Campbell, Jr., a current
director of City National, will become a director of the Corporation after the
City National Merger. W. T. Campbell, Jr., William P. Riley and Gordon R.
Boyles, executive officers of City National, will also receive employment
contracts from the Corporation.
CONDITIONS TO THE CITY NATIONAL MERGER
(See Page )
The completion of the City National Merger depends upon a number of
conditions, including the following:
- Approval of the City National Plan of Merger by the City National
shareholders;
- No law shall have been enacted or injunction entered that effectively
prohibits the City National Merger;
- The registration statement filed with the Securities and Exchange
Commission with respect to the shares of Corporation Common Stock to be
received by the City National shareholders shall have been declared
effective;
- Receipt of legal opinions regarding certain tax consequences of the City
National Merger; and
- Receipt of an accountant's letter regarding accounting for the City
National Merger as a pooling of interests.
9
<PAGE> 31
Except for shareholder approval and certain other legal requirements, any
condition to the City National Merger may be waived by the company entitled to
assert the condition. It is not a condition to the City National Merger that any
of the Transactions be competed. See "Independence of Each Transaction."
NO SOLICITATION BY CITY NATIONAL
City National has agreed that it will not initiate or encourage any
discussions regarding a business combination of City National with any other
party. City National has also agreed to pay a break-up fee of $1.8 million
(including $800,000 in out of pocket expenses) to the Corporation and it has
granted an option to the Corporation to acquire up to 19.9 percent of the City
National Common Stock if it enters into an acquisition transaction with another
party.
REGULATORY APPROVALS
(See Page )
The City National Merger was approved by the Federal Reserve on September
23, 1998.
TERMINATION OF THE CITY NATIONAL PLAN OF MERGER
(See Page )
The Corporation and City National can agree to terminate the City National
Plan of Merger without completing the City National Merger, and either of the
Corporation or City National can terminate the Plan of Merger if any of the
following occurs:
- The City National Merger is not completed by March 31, 1999;
- The approval of the City National shareholders is not received;
- A court or other governmental authority permanently prohibits the City
National Merger; or
- The other party materially breaches any of its representations or
warranties or obligations under the City National Plan of Merger.
The Corporation can terminate the City National Plan of Merger if the City
National Board of Directors withdraws, modifies or amends its approval of the
City National Plan of Merger in any way adverse to the Corporation or recommends
an alternative transaction.
ACCOUNTING TREATMENT
(See Page )
The Corporation and City National expect the City National Merger to
qualify as a pooling of interests, which means that Corporation and City
National will be treated as if they had always been combined for accounting and
financial reporting purposes. The City National Merger is conditioned on
receiving this accounting treatment.
OPINION OF FINANCIAL ADVISOR
(See Page )
The City National Plan of Merger provides that it is a condition to City
National's obligation to conclude the City National Merger that City National
receive an opinion prior to the mailing of the Prospectus -- Joint Proxy
Statement from an investment banking firm chosen by City National as to the
fairness of the City National Exchange Ratio from a financial point of view to
the shareholders of City National. City National has received an opinion from
Porter, White & Company that the City National Merger is fair to the
shareholders of City National from a financial point of view. See Annex F.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
(See Page )
The Corporation and City National have structured the City National Merger
so that no gain or loss should be recognized by a City National shareholder for
federal income tax purposes on the exchange of
10
<PAGE> 32
shares of City National Common Stock for shares of Corporation Common Stock.
Federal income tax may be payable, however, on cash received by City National
Shareholders instead of fractional shares. Each of the Corporation and City
National received a legal opinion regarding material federal income tax
consequences of the City National Merger, which opinion reflects and supports
the federal income tax consequence described herein. To review the federal
income tax consequences to City National shareholders in greater detail, see
pages and .
The tax consequences of the City National Merger to you will depend on the
facts of your own situation. Each City National shareholder is advised to
consult his or her own tax advisor as to tax consequences of the City National
Merger to such shareholder.
DISSENTERS' RIGHTS OF CITY NATIONAL SHAREHOLDERS
(See Page )
City National shareholders have the right to dissent from the City National
Merger under Alabama law and receive payment in cash of the "fair value" of
their shares if they comply with certain requirements set forth in this
Prospectus-Joint Proxy Statement.
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
(See Page )
The Transactions will increase the Corporation's assets from $89.8 million
to $447.6 million as of June 30, 1998, on a pro forma basis. In addition to the
immediate increase in asset size and the potential for improved future
profitability, the Transactions will allow the Corporation to expand its market
area into what it believes are desirable banking locations. Through the
Transactions, the Corporation will increase the number of its locations from 5
to 21. The resulting market area of the Corporation will extend from Decatur and
Guntersville, Alabama, to Destin and Panama City, Florida. This expansion will
increase the geographic diversity of the Corporation's loan portfolio, which is
expected to decrease the Corporation's overall lending risks. Assuming the
Transactions had all occurred on June 30, 1998, the Corporation would have had
total assets of approximately $447.6 million, total deposits of approximately
$378.2 million and total stockholders equity of approximately $49.8 million. See
"Business of the Corporation" and "Pro Forma Condensed Financial Information."
11
<PAGE> 33
The table below presents certain unaudited condensed and consolidated
historical financial and operating data for the Corporation and certain
unaudited pro forma condensed financial and operating data for the Corporation
after giving effect to (i) the Transactions as if they had each occurred as of
June 30, 1998, and (ii) the pro forma adjustments described in the Notes to the
Unaudited Pro Forma Condensed Financial Statements of the Corporation which
appear elsewhere in this Prospectus -- Joint Proxy Statement. The amount of pro
forma combined net income for the six-month period ended June 30, 1998, shown
below reflects adjustments which give effect to factors attributable to the
Transactions. The pro forma net earnings assume that the Transactions were
consummated at January 1, 1998. The pro forma financial information should be
read in conjunction with the financial statements and footnotes thereto
appearing elsewhere in this Prospectus-Joint Proxy Statement. The pro forma
condensed balance sheet information and net income are not necessarily
indicative of the combined financial position at consummation of the
Transactions or the results of operations following consummation of the
Transactions.
<TABLE>
<CAPTION>
AS OF AND FOR THE
SIX MONTHS ENDED
JUNE 30, 1998
-------------------
PRO FORMA
ACTUAL COMBINED
------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Assets...................................................... $89,820 $447,577
Loans, net of unearned interest............................. 46,601 277,600
Deposits.................................................... 64,754 378,189
Stockholders' equity........................................ 21,856 49,798
Net income.................................................. 777 1,446
Leverage ratio.............................................. 23.62% 11.17%
Tier 1 risk-based capital ratio............................. 32.51 15.53
Total risk-based capital ratio.............................. 33.60 16.62
</TABLE>
OWNERSHIP SUBSEQUENT TO THE MERGERS
(See Page , and )
Pursuant to the terms of the Mergers, and assuming that all of the Mergers
are consummated and there are no dissenting shareholders, at the Effective Time,
the former Commerce shareholders will receive approximately 1,536,615 shares of
Corporation Common Stock, representing approximately 13.93% of the issued and
outstanding Corporation Common Stock, the former First Citizens shareholders
will receive approximately 663,243 shares of Corporation Common Stock,
representing approximately 6.01% of the issued and outstanding Corporation
Common Stock, and the former City National shareholders will receive
approximately 2,000,000 shares of Corporation Common Stock, representing
approximately 18.14% of the issued and outstanding shares of Corporation Common
Stock. None of the Mergers is conditioned upon any other. If one or more of the
Mergers is not completed, the number of shares of Corporation Common Stock to be
received by the shareholders of a specific company will not change. See
"Independence of Each Transaction."
RISK FACTORS
(See Page )
See "Risk Factors" for a discussion of certain risk factors related to the
Transactions and the combined companies.
MARKET AND MARKET PRICES
(See Page )
To date, there is no public market for the Corporation Common Stock. There
were approximately 33 holders of record of Corporation Common Stock as of June
30, 1998. The Corporation has not paid any dividends this year, although Warrior
paid dividends in the past. Any dividends paid by the Corporation in the future
will be subject to certain state law restrictions, federal restrictions and the
judgment of the Board of
12
<PAGE> 34
Directors. See "Business of Commerce -- Market Information," "Business of First
Citizens -- Market Information" and "Business of City National -- Market
Information."
COMPARATIVE PER SHARE INFORMATION
The following summary presents selected comparative per share information
for (i) the Corporation on a historical basis in comparison with pro forma
information giving effect to the Mergers on a pooling of interests basis, and
(ii) Commerce, First Citizens and City National on a historical basis in
comparison with pro forma equivalent information after giving effect to the
Mergers, assuming that 2.335, 8.291 and 74.538 shares of Corporation Common
Stock are issued in exchange for each respective Commerce, First Citizens and
City National share of Common Stock in the Mergers. The historical and pro forma
financial information should be read in conjunction with the historical
consolidated financial statements of the Corporation, the historical
consolidated financial statements of Commerce, First Citizens and City National
and the related notes thereto. See "Index to Financial Statements."
The Corporation has not paid dividends since inception though Warrior,
First Citizens and City National have paid dividends in the past. There can be
no assurance that dividends will be paid in the future. See "Risk
Factors -- Dividend History and Restrictions on Ability to Pay Dividends."
The following information is not necessarily indicative of the combined
results of operations or combined financial position that would have resulted
had the Mergers been consummated at the beginning of the periods indicated, nor
is it necessarily indicative of the future combined results of operations or
financial position.
<TABLE>
<CAPTION>
PER COMMON SHARES
---------------------------------------------------------------------
INCOME (LOSS)
----------------------------------------------
SIX MONTHS
ENDED STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, JUNE 30, (BOOK VALUE)
-------------------------- ----------------- JUNE 30,
1995 1996 1997 1997 1998 1998
------ ------- ------- ------- ------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss):
Corporation
Historical(3)................ $ .33 $ .29 $ .26 $ .15 $ .15 $ 4.01
Pro forma combined(1)........ .20 .14 .19 .10 .14 4.52
Commerce
Historical(3)................ (.85) (.47) .35 .22 .39 10.29
Pro forma equivalent(2)...... .47 .33 .44 .23 .33 10.55
First Citizens
Historical(3)................ 2.59 5.33 5.64 3.07 3.15 43.27
Pro forma equivalent(2)...... 1.66 1.16 1.58 .83 1.16 37.48
City National
Historical(3)................ 26.73 20.68 23.25 6.31 3.16 440.48
Pro forma equivalent(2)...... 14.91 10.44 14.16 7.45 10.44 336.91
</TABLE>
- ---------------
(1) Assumes all of the Transactions (including Emerald and CBS) close. If one or
more of the Transactions do not close, the pro forma combined numbers will
differ from those shown here. See "Risk Factors," "Independence of Each
Transaction" and "Condensed Combined Pro Forma Financial Information."
(2) Commerce, First Citizens and City National pro forma equivalent per common
share data is calculated by dividing the pro forma combined amounts by the
respective Exchange Ratios of 2.335, 8.291 and 74.538.
(3) Represents historical data of Warrior after giving effect to the 300 to 1
conversion of Warrior Common Stock to The Banc Corporation Common Stock.
13
<PAGE> 35
RISK FACTORS
In addition to the other information contained in this Prospectus-Joint
Proxy Statement, shareholders of Commerce, First Citizens and City National
should consider carefully the factors listed below in evaluating the Mergers as
well as the other information set forth elsewhere herein. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Corporation" and "Business of the Corporation" for a description
of other factors affecting the business of the Corporation generally.
THE TRANSACTIONS AND THE COMPANIES -- INTEGRATION RISKS AND POTENTIAL NEGATIVE
IMPACT ON EARNINGS FROM THE TRANSACTIONS
The Corporation owns one bank and will consolidate up to five banks and
operate one thrift if all of the Transactions are consummated. As a result of
the Transactions, the Corporation's asset size will increase substantially, and
the Corporation must successfully integrate the operations of the Corporation,
and Commerce, First Citizens, City National, Emerald and CBS (collectively, the
"Companies") and their subsidiaries with those of the Corporation and The Bank.
The Corporation has not previously consummated an acquisition on the same scale
as the Transactions. While management of the Companies believe that the diverse
experience of each of them will serve to strengthen the Corporation, there can
be no assurance that management's efforts to integrate the operations of the
Corporation and the Companies will be successful or that the anticipated
benefits of the Transactions will be fully realized. The Board of Directors and
senior management of the Corporation face a significant challenge in their
efforts to integrate the businesses of the companies so that the combined
operations can be effectively managed. The operational areas requiring
significant integration include the consolidation of data processing operations,
the combination of employee benefit plans, the creation of joint account and
lending products, the development of unified marketing plans and other related
issues. The dedication of management resources to such integration may detract
attention from the day-to-day business of the Corporation. The future prospects
of the Corporation will depend on a number of factors, including, without
limitation, the Corporation's ability to integrate the businesses acquired in
the Transactions; its ability to compete effectively in new market areas; its
success in retaining earning assets, including loans, acquired in the
Transactions; its ability to generate new earning assets; its ability to achieve
significant cost savings which the Corporation estimates will equal $400,000
annually and revenue enhancements which the Corporation estimates will equal
$850,000 annually; and its ability to attract and retain qualified management
and other appropriate personnel. No assurance can be given that the Corporation
can accomplish any of the foregoing or that the Corporation will be able to
achieve results in the future similar to those achieved in the past or that the
Corporation will be able to manage effectively the growth resulting from the
Transactions. The estimated expenses of the Transactions total approximately
$700,000. There can be no assurance that there will not be substantial
additional costs associated with such activities or that there will not be other
material adverse effects of these integration efforts. Such effects could have a
material adverse effect on the financial condition and operating results of the
Corporation.
FAILURE TO COMPLETE ONE OR MORE OF THE TRANSACTIONS
Completion of any Merger is not conditioned upon completion of any other
Merger or the CBS Purchase. Failure by the Corporation to complete one or more
of the Transactions could mean that the resulting entity might be less diverse,
cover fewer banking markets, and achieve fewer cost savings or less revenue
enhancement, than management of Commerce, First Citizens or City National would
prefer, and the ability of the Corporation to raise additional capital could be
adversely affected. See "-- Ability to Sustain Growth; Profitability and
Potential Need for Additional Capital." The Board of Directors of each of
Commerce, First Citizens and City National believes that its own respective
Merger is in the best interests of its shareholders, even if one or more of the
Transactions fails to close. See "Independence of Each Transaction."
ABILITY TO SUSTAIN GROWTH; PROFITABILITY AND POTENTIAL NEED FOR ADDITIONAL
CAPITAL
The Corporation believes its future growth will depend primarily on the
expansion of the business of its banking subsidiaries through internal growth,
the opening and acquisition of new branch offices in new markets and the
acquisition of other financial institutions. The ability to profitably grow
through the opening
14
<PAGE> 36
or acquisition of new branches will depend primarily on, among other things, the
Corporation's ability to identify profitable or growing markets and branch
locations within such markets, attract necessary deposits to profitably operate
such branches and locate sound loans and investment opportunities within such
markets. Acquisitions of branches or other banks also involve risks of adversely
changing results of operations, unforeseen liabilities or asset quality problems
of the acquired entity, greater than anticipated costs of integrating acquired
businesses into the Corporation and other conditions not within the control of
the Corporation such as adverse personnel relations, loss of customers because
of change in identity, deterioration of local economic conditions and other
risks affecting the acquired institution. Furthermore, the Corporation's
continued growth and profitability depends on the ability of its officers and
key employees to manage such growth effectively, to attract and retain skilled
employees including new management, to obtain financing, if necessary, at an
acceptable cost and to expand the capabilities of the Corporation's management
information system. The Corporation regularly evaluates the adequacy of its
current policies, procedures, systems and resources. However, as a consequence
of the Corporation's growth strategy, the Corporation's financial condition and
results of operations could suffer if the Corporation is not able to
successfully manage its growth or adequately address all of the changing demands
its planned expansion may impose on its policies, procedures, systems and
resources.
As part of its growth strategy, the Corporation anticipates raising an
additional $10 million of equity capital during 1998 through the public sale of
additional shares of its Common Stock, although there can be no assurance that
the Corporation will be able to offer its shares at a price and on terms
acceptable to the Corporation. The price, structure and terms of any such
offering have not yet been determined. Such shares will only be sold through
means of a prospectus and registration statement filed with and declared
effective by the SEC. Each of the Commerce, First Citizens and City National
Board of Directors has considered the need to raise additional capital by the
Corporation in approving the respective Mergers. Failure by the Corporation to
raise such additional capital may pose risks for the shareholders of the
Companies in that the Corporation might not have sufficient capital for
additional expansion and any public market for Corporation Common Stock issued
in the Mergers may be less liquid.
ADEQUACY OF ALLOWANCE FOR LOAN LOSSES
There are certain risks inherent in making all loans, including risks with
respect to the period of time over which loans may be repaid, risks resulting
from changes in economic and industry conditions, risks inherent in dealing with
individual borrowers and, in the case of a collateralized loan, risks resulting
from uncertainties as to the future value of the collateral. The Corporation
attempts to maintain an allowance for loan losses at a sufficient level to
provide for potential losses in its loan portfolio. The amount of the allowance
for loan losses is periodically determined by management based upon
consideration of several factors, including: (1) an ongoing review of the
quality, mix and size of the overall loan portfolio; (2) historical loan loss
experience; (3) evaluation of non-performing loans; (4) assessment of economic
conditions and their related effects on the existing portfolio; and (5) the
amount and quality of collateral, including guarantees, securing loans. However,
there is no precise method of predicting loan losses and there can be no
assurance that the allowance for loan losses will be sufficient to absorb future
loan losses. If loan losses exceed the allowance, or if management's view of the
risk inherent in the lending function changes, it could have a material adverse
impact on the Corporation's financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Corporation -- Allocation of the Allowance for Loan Losses."
INTEREST RATE RISK AND ASSET/LIABILITY MANAGEMENT
The Corporation's operating results will be dependent to a significant
degree on its net interest income, which is the difference between interest
earned from loans, interest-bearing deposits in other financial institutions and
investment and mortgage-backed securities, and interest paid on deposits and
borrowings. Like most banks, The Bank's interest income and interest expense
will change as interest rates fluctuate and assets and liabilities reprice.
Interest rates fluctuate and assets and liabilities reprice because of a variety
of
15
<PAGE> 37
factors, including general economic conditions, the policies of various
regulatory authorities and other factors beyond the Corporation's control. See
"Business of the Corporation."
When interest rates are rising, the interest income earned on assets may
not increase as rapidly as the interest expense paid on the Corporation's
liabilities. As a result, the earnings of the Corporation may be adversely
affected when the cost of the Corporation's liabilities increases more rapidly
than the income earned on the Corporation's assets. The degree to which such
earnings will be adversely affected depends upon the rapidity and extent of the
increase in interest rates. In addition, rising interest rates may negatively
affect the Corporation's earnings due to diminished loan demand and the
increased risk of delinquencies due to increased payment amounts as
adjustable-rate loans reprice in a rising interest rate environment. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Corporation."
LIMITED NUMBER OF BANKS
The Corporation currently owns one bank. Due to its relatively small
existing base of banks and total assets, adverse results or events could have a
more significant impact on the Corporation's results of operations or financial
condition than would be the case of a company with a greater number of banks and
branches and total assets. Further, under federal law, a depository institution
insured by the FDIC can be held liable for any loss incurred by, or reasonably
expected to be incurred by, the FDIC in connection with the default of a
commonly controlled FDIC-insured depository institution or any assistance
provided by the FDIC to a commonly controlled FDIC-insured institution in danger
of default. These provisions can have the effect of making subsidiary banks of
the Corporation responsible for FDIC-insured losses at another subsidiary bank.
See "Business of the Corporation" and "Supervision and Regulation."
GEOGRAPHIC CONCENTRATION; SIGNIFICANCE OF LOCAL ECONOMIC CONDITIONS
Substantially all of the Corporation's deposits and assets at June 30,
1998, were derived from operations in relatively rural markets located in
Jefferson County, Alabama. The banks to be acquired in the Transactions also
operate in relatively rural markets. Consequently, the Corporation's
profitability may be negatively affected by factors that have a significant
impact on agriculture and tourism, including weather. Some of the banks' market
areas have experienced severe weather in 1998, primarily heavy rains and
flooding. See "Business of the Corporation."
The success of the Corporation is dependent upon the general economic
conditions in the geographic markets served by the banks. Although current
economic conditions in these markets are favorable, no assurance can be given
that favorable economic conditions will continue. Adverse changes in economic
conditions in the geographic markets that the banks serve would likely impair
the banks' ability to collect loans and could otherwise have a negative effect
on the financial condition and operating results of the Corporation. See
"Business of the Corporation."
COMPUTER TECHNOLOGIES AND YEAR 2000 COMPLIANCE
The Corporation is aware of the issues associated with the programming code
in existing computer systems as the year 2000 approaches. Many existing computer
programs use only two digits to identify a specific year. The issue is whether
such code exists in the Corporation's mission-critical applications and if that
code will produce accurate information relative to date-sensitive calculations
after the turn of the century.
The Corporation has completed a review of its material computer
applications. The Corporation's computer applications are divided into two
categories, those maintained internally by the Corporation's information
technology group and those maintained externally by the Corporation's vendors.
For internally maintained applications, revisions are currently being made and
are expected to be implemented by the first quarter of 1999. The Corporation
expects that the total cost associated with these revisions will not have a
material impact on the financial condition of the Corporation. These costs will
be primarily incurred during 1998 and be charged to expenses as incurred. For
externally maintained systems, the Corporation has received written confirmation
from its vendors that each system is currently Year 2000 compliant or will be
made Year
16
<PAGE> 38
2000 compliant during 1999. The costs to be incurred by the Corporation with
respect to externally maintained systems is expected to be minimal.
The Corporation has adopted a Year 2000 Merger Policy to address Year 2000
compliance on a stand-alone basis and with the Companies in the context, and
assuming completion, of the Mergers. This policy, adopted by the Board of
Directors of the Corporation, defines not only the techniques and procedures to
resolve Year 2000 issues, but also establishes a management function for
reviewing and coordinating Year 2000 efforts in all the Companies. The Year 2000
Merger Policy is designed to act as a guide to all the Companies in dealing with
Year 2000 issues and to insure compliance of the Corporation both before and
after the Mergers.
The Corporation is using this policy to insure that the Companies follow a
logical and planned process for assessing, testing, renovation and establishing
contingencies for effective systems. This policy includes environmental,
security, communications and other embedded chip systems as well as computers.
The Corporation is also addressing additional Year 2000 risk factors that may be
significantly influenced by activities related to the Mergers, including:
delayed or alternate schedules for the closing of the Mergers; the inadequate
allocation of resources to Year 2000 issues by one or more of the Companies; and
the potential costs of completing renovation or replacement of non-compliant
systems of one or more of the Companies.
Because of the uncertainty of timing of the Mergers and because the Mergers
may involve the replacement of current systems, each company is approaching the
Year 2000 issue from two different scenarios. One, the Companies assume that the
Mergers will take place as scheduled and that merger related operational changes
might provide a reasonable answer to some of the problems presented by
non-compliant systems. Second, each company assumes that the Mergers will be
significantly delayed or cancelled. In this situation, the Companies must plan
how noncompliant systems can be renovated or replaced without the merger related
operational changes. Therefore, each company is proceeding with its individual
Year 2000 project. Each project includes a contingency plan to address the
possibility that scheduled merger related systems changes might not take place.
The Corporation, through the Year 2000 Merger Plan, is providing coordination
between the Companies to insure that each is adequate and to reduce the
duplication of efforts within the Surviving Corporation.
Assessment and the establishment of mission-critical priorities have been
completed in all of the Companies with the testing phase currently in process.
Contingency plans to address possible failure of currently compliant or
renovated mission-critical systems are currently in the development process and
should be ready for approval by the Companies' Year 2000 steering committees and
boards of directors during the month of September.
The Corporation believes that all of its material applications will be Year
2000 compliant before the end of 1999 and does not expect the costs of attaining
compliance to have a material adverse effect on the financial condition and
operating results of the Corporation. Because of the many uncertainties
associated with Year 2000 compliance issues, and because the Corporation's
assessment is necessarily based on information from the Companies as well as
third party vendors, there can be no assurance that the Corporation's assessment
is correct. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Year 2000 Compliance" for each of the Corporation,
Commerce, First Citizens and City National.
SUPERVISION AND REGULATION
Bank holding companies and banks operate in a highly regulated environment
and are subject to extensive supervision and examination by several federal and
state regulatory agencies. The Corporation is subject to the BHCA and to
regulation and supervision by the Federal Reserve. The Bank is subject to
supervision and regulation by the FDIC and its respective state regulatory
authorities. These regulations are intended primarily for the protection of
depositors and consumers, rather than for the benefit of stockholders. The
Corporation is subject to changes in federal and state law, as well as changes
in regulation and governmental policies, income tax laws and accounting
principles. The effect of any potential changes cannot be predicted but could
adversely affect the business and operations of the Corporation in the future.
17
<PAGE> 39
The Federal Reserve has adopted a policy which requires a bank holding
company, such as the Corporation, to serve as a source of financial strength to
its banking subsidiaries. The Federal Reserve has ordered bank holding companies
to contribute cash to their troubled bank subsidiaries based upon this "source
of strength" policy, which could have the effect of decreasing funds available
for distributions to stockholders. In addition, a bank holding company in
certain circumstances could be required to guarantee the capital plan of an
undercapitalized banking subsidiary. Neither The Bank nor any of the banks to be
acquired in the Transactions are currently undercapitalized, but there is no
guarantee that they will not become undercapitalized in the future. See
"Supervision and Regulation."
As a result of the Transactions, the Corporation's leverage ratio will fall
from 23.62% at June 30, 1998, to 11.17% on a pro forma basis. Similarly, the
Corporation's Tier 1 capital to risk-based assets ratio will decline from 32.51%
to 15.53%, and the Corporation's total capital to risk-based assets ratio will
drop from 33.60% to 16.62%. While all three of these ratios will decline, they
are still in excess of the "well capitalized" standard set by the Federal
Reserve. See "Supervision and Regulation."
GOVERNMENT REGULATION AND LEGISLATION
Regulatory agencies have the authority to prohibit or limit The Bank's
activities or force The Bank to take prompt corrective action if the agencies
deem such activities to be unsafe or unsound. From time to time, legislation is
proposed or enacted that has the effect of increasing the cost of doing
business, limiting or expanding permissible activities or affecting the
competitive balance between banks and other financial and non-financial
institutions. Proposals to change the laws and regulations governing the
operations and taxation of banks and other financial institutions are frequently
made in Congress, by the Alabama legislature and by various state and federal
bank regulatory agencies. Most recently, the authorization of interstate
branching is likely to facilitate increased branching and merger activity and
enhance competition among financial institutions. The effects these changes
might have on the Corporation or the banks to be acquired in the Transactions
and the likelihood of additional changes are impossible to predict. See
"Supervision and Regulation."
ANTI-TAKEOVER CONSIDERATIONS
Certain provisions of the Corporation's Restated Certificate of
Incorporation, Bylaws and the General Corporation Law of the State of Delaware
(the "DGCL") could, together or separately, discourage potential acquisition
proposals, delay or prevent a change in control of the Corporation and limit the
price that certain investors might be willing to pay in the future for shares of
Corporation Common Stock. These provisions include a classified Board of
Directors and the issuance, without further stockholder approval, of preferred
stock with rights and privileges which could be senior to the Corporation Common
Stock. The Corporation also is subject to Section 203 of the DGCL which, subject
to certain exceptions, prohibits a Delaware corporation from engaging in any of
a broad range of business combinations with any "interested stockholder" for a
period of three years following the date that such stockholder became an
interested stockholder. See "Management of the Corporation -- Classified Board
of Directors," "Description of Capital Stock -- Certain Provisions of the
Corporation's Certificate and the DGCL" and "-- Possible Adverse Effects of the
Issuance of Preferred Stock."
FDIC INSURANCE
Although deposits at The Bank will be insured by the FDIC to the maximum
amount permitted by law, the shares of Corporation Common Stock offered hereby
are not savings or deposit accounts or other obligations of a bank and are not
insured by the Bank Insurance Fund of the FDIC or any other governmental agency.
DIVIDEND HISTORY AND RESTRICTIONS ON ABILITY TO PAY DIVIDENDS
The Corporation, through Warrior, has previously paid cash dividends;
however, there can be no assurance that dividends will be paid in the future.
The principal business operations of the Corporation will be
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conducted through its subsidiaries. Cash available to pay dividends will be
derived primarily, if not entirely, from dividends paid to the Corporation by
its subsidiaries. The ability of subsidiaries to pay dividends to the
Corporation as well as the Corporation's ability to pay dividends to its
stockholders will be subject to and limited by certain state and federal legal
and regulatory restrictions and will depend upon the earnings and financial
condition of the Corporation, liquidity and capital requirements, the general
economic and regulatory climate, the Corporation's ability to service any equity
or debt obligations senior to the Corporation Common Stock and other factors
deemed relevant by the Corporation's Board of Directors. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Corporation" and "Supervision and Regulation."
DEPENDENCE ON MANAGEMENT
At this stage of the Corporation's development, its prospects for success
depend, to a significant degree, on the efforts of James A. Taylor, the Chairman
of the Board, President and Chief Executive Officer of the Corporation. There
can be no assurance that the services of Mr. Taylor will remain available to the
Corporation indefinitely or that the Corporation will be successful under his
management. See "Management of the Corporation" and "Principal Stockholders of
the Corporation."
COMPETITION
The banking business is highly competitive. The Bank competes as a
financial intermediary with other commercial banks, savings associations, credit
unions, mortgage banking companies, securities brokerage companies, insurance
companies and money market mutual funds operating in Alabama and elsewhere. Many
of these competitors have substantially greater resources and lending limits
than the Corporation and The Bank and offer certain services that the
Corporation and The Bank may not provide. In addition, non-depository
institution competitors are generally not subject to the extensive regulation
applicable to the Corporation and The Bank. Pursuant to the Riegle-Neal
Interstate Banking and Branching Efficiency Act, commercial banks may now
acquire financial institutions nationwide, further increasing competition. See
"Business of the Corporation -- Competition."
MONETARY POLICY
Interest rates are largely dependent on the rate of interest charged by the
Federal Reserve from time to time for funds made available to financial
institutions by the Federal Reserve. Due to the volatility of such monetary
policy, there can be no assurance that the effect of actions by monetary and
fiscal authorities will not have an adverse effect on the deposit levels, net
interest margin, loan demand or the business and earnings of the Corporation and
the banks to be acquired in the Transactions.
POSSIBLE ADVERSE EFFECTS OF ISSUANCE OF PREFERRED STOCK
The Corporation has authorized 5,000,000 shares of preferred stock, $.001
per share (the "Corporation Preferred Stock"), the rights and preferences of
which may be designated by the Corporation's Board of Directors. The effect of
the issuance of shares of Corporation Preferred Stock on the holders of
Corporation Common Stock could include, among other things, (i) reduction of the
amount otherwise available for the payment of dividends on Corporation Common
Stock if dividends are payable on Corporation Preferred Stock; (ii) restrictions
on dividends on Corporation Common Stock if dividends on Corporation Preferred
Stock are in arrears; (iii) dilution of the voting power of Corporation Common
Stock if Corporation Preferred Stock has voting rights, including a possible
"veto" power if Corporation Preferred Stock has class voting rights; (iv)
dilution of the equity interest of holders of Corporation Common Stock if
Corporation Preferred Stock is convertible, and is converted into Corporation
Common Stock; and (v) restrictions on the rights of holders of Corporation
Common Stock to share in the Corporation's assets upon liquidation until
satisfaction of any liquidation preference granted to the holders of Corporation
Preferred Stock. Holders of Corporation Common Stock have no preemptive rights
to purchase or otherwise acquire any Corporation Preferred Stock that may be
issued. See "Description of Capital Stock of the Corporation."
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CONTROL BY CERTAIN STOCKHOLDERS
The directors and executive officers currently own or control approximately
55.9% of the outstanding shares of Corporation Common Stock. After giving effect
to the issuance of shares of Common Stock in the Mergers, the executive officers
and directors of the Corporation (and entities in which such directors are
principals) will own or control approximately 39.4% of the outstanding shares of
Corporation Common Stock. See "Principal Stockholders of the Corporation."
Accordingly, such persons, if they were to act in concert, would likely control
the Corporation's Board of Directors and therefore the business and policies of
the Corporation. Furthermore, such control could preclude any unsolicited
acquisition of the Corporation and, consequently, adversely affect the market
price of the Common Stock.
ABSENCE OF PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
To date, there has been no public market for Corporation Common Stock.
There can be no assurance as to the liquidity of Corporation Common Stock in any
market that may develop for Corporation Common Stock, the ability of holders of
Corporation Common Stock to sell their securities or at what price stockholders
would be able to sell their securities. If no market develops, it may be
difficult or impossible for stockholders to resell Corporation Common Stock they
receive in the Mergers.
Each of the Commerce, First Citizens, and City National Boards of Directors
has considered that the marketability and liquidity of the Corporation Common
Stock to be received by the respective shareholders in the Mergers will be
enhanced by a more effective secondary market which is expected to develop as a
result of the Mergers, because of a greatly expanded shareholder base and number
of shares outstanding and an anticipated initial public offering of Corporation
Common Stock promptly after the Mergers. The fairness opinions issued to the
Boards of Directors of Commerce, First Citizens and City National are based upon
the expectation, which Porter White (the provider of the fairness opinions)
deems reasonable, that an effective secondary market in the Corporation Common
Stock will develop and that the trading prices of Corporation Common Stock in
such market will be comparable to the trading prices of banks in the peer groups
of Commerce, First Citizens and City National. However, there is a risk that an
effective secondary market in the Corporation Common Stock will not develop or
that the trading prices of Corporation Common Stock will not approximate the
trading values of the respective peer groups of such banks. See "Opinion of
Commerce's Financial Advisor," "Opinion of First Citizens' Financial Advisor,"
and "Opinion of City National's Financial Advisor."
In the event a market develops, the market price of Corporation Common
Stock could be subject to significant fluctuations in response to variations in
quarterly and yearly operating results, general trends in the banking industry
and other factors. If the market price for Corporation Common Stock in any
market that might develop does not exceed the book value of Corporation Common
Stock at the Effective Time of the Mergers, shareholders of Commerce, First
Citizens and City National would not receive an appreciation in the book value
of their shares received in each respective Merger. In addition, the stock
market in recent years, and especially in recent months, has experienced price
and volume fluctuations that have often been unrelated or disproportionate to
the operating performance of affected companies. These broad fluctuations may
adversely affect the market price of Corporation Common Stock.
RISKS RELATING TO FEDERAL INCOME TAXES
If any Merger were not to constitute a tax-free reorganization under
Section 368(a) of the Code, each shareholder involved in that Merger would
recognize gain or loss equal to the difference between the fair market value of
Corporation Common Stock received plus any cash received in lieu of fractional
shares and such shareholder's basis in the shares exchanged therefor. See "The
Commerce Merger -- Material Federal Income Tax Consequences," "The First
Citizens Merger -- Material Federal Income Tax Consequences" and "The City
National Merger -- Material Federal Income Tax Consequences."
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THE SPECIAL MEETINGS
THE COMMERCE SPECIAL MEETING
This Prospectus-Joint Proxy Statement is being furnished to Commerce
shareholders in connection with the solicitation of proxies by the Commerce
Board of Directors for use at the Commerce Special Meeting to consider and vote
upon the approval of the Commerce Plan of Merger and to transact such other
business as may properly come before the Commerce Special Meeting or any
adjournments or postponements thereof. Each copy of this Prospectus-Joint Proxy
Statement mailed or delivered to Commerce shareholders is accompanied by a form
of Proxy for use at the Commerce Special Meeting.
This Prospectus-Joint Proxy Statement is also furnished to Commerce
shareholders as a Prospectus in connection with the issuance to them of shares
of Corporation Common Stock upon consummation of the Commerce Merger.
Date, Place and Time. The Commerce Special Meeting is to be held at
, , Alabama on October , 1998, at 10:00 a.m.
Record Date, Quorum and Voting. The Commerce Board of Directors has fixed
the close of business on October 1, 1998 (the "Commerce Record Date"), as the
record date for the determination of the Commerce shareholders entitled to
receive notice of and to vote at the Commerce Special Meeting. The presence, in
person or by Proxy, of the holders of shares of Commerce Common Stock entitled
to cast a majority of the votes entitled to be cast at the Commerce Special
Meeting will constitute a quorum at the Commerce Special Meeting. Each
shareholder of record as of the Commerce Record Date is entitled to one vote for
each share then held.
Vote Required. As of the Commerce Record Date, there were 658,190 shares
of Commerce Common Stock outstanding. Approval and adoption of the Commerce Plan
of Merger by the shareholders of Commerce requires the affirmative vote of a
majority of the outstanding shares of Commerce Common Stock entitled to vote
thereon; as a result, failures to vote and abstentions will be the equivalents
of votes against the Commerce Plan of Merger. Accordingly, approval and adoption
of the Commerce Plan of Merger at the Commerce Special Meeting will require the
affirmative vote of at least 329,096 shares held by the holders of shares of
Commerce Common Stock.
As of the Commerce Record Date, directors and executive officers of
Commerce beneficially owned or held a proxy for an aggregate of 221,850 shares
of Commerce Common Stock, or approximately 33.71% of the Commerce Common Stock
outstanding on such date. The directors and executive officers of Commerce have
indicated their intentions to vote the shares of Commerce Common Stock
beneficially owned by them FOR the Commerce Plan of Merger. Therefore, an
additional 107,246 (16.29%)of the shares of Commerce Common Stock outstanding
must be voted in favor of the Commerce Plan of Merger in order for it to be
approved.
See "The Commerce Merger -- Conditions to the Merger" and "-- Interests of
Certain Persons in the Commerce Merger."
Voting and Revocation of Proxies. Shares of Commerce Common Stock
represented by a Proxy properly signed and received at or prior to the Commerce
Special Meeting, unless subsequently revoked, will be voted in accordance with
the instructions thereon. IF A PROXY IS PROPERLY EXECUTED AND RETURNED WITHOUT
INDICATING ANY VOTING INSTRUCTIONS, SHARES OF COMMERCE COMMON STOCK REPRESENTED
BY THE PROXY WILL BE VOTED FOR APPROVAL AND ADOPTION OF THE COMMERCE PLAN OF
MERGER. Any Proxy given pursuant to the solicitation may be revoked by the
person giving the Proxy at any time before the Proxy is voted by filing an
instrument revoking it or by delivering a duly executed Proxy bearing a later
date to J. Daniel Sizemore at Commerce prior to or at the Commerce Special
Meeting, or by voting in person at the Commerce Special Meeting. Attendance at
the Commerce Special Meeting will not in and of itself constitute a revocation
of a Proxy. Only votes cast FOR approval of the Commerce Plan of Merger or other
matters constitute affirmative votes. Abstentions and votes that are withheld
will, therefore, have the same effect as votes AGAINST approval of the Commerce
Plan of Merger, so it is important that you return your Proxy properly executed.
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The Commerce Board of Directors is not aware of any business to be acted
upon at the Commerce Special Meeting other than as described in this
Prospectus-Joint Proxy Statement. If, however, other matters are properly
brought before the Commerce Special Meeting, or any adjournments or
postponements thereof, the persons appointed as proxies will have discretion to
vote or act thereon according to their best judgment and subject to applicable
rules of the SEC.
Solicitation of Proxies. In addition to solicitation by mail, directors,
officers and employees of Commerce, who will not be specifically compensated for
such services, may solicit proxies from the shareholders of Commerce personally
or by telephone or other forms of communication. Except as otherwise provided in
the Commerce Plan of Merger, Commerce will bear its own expenses in connection
with the solicitation of proxies for the Commerce Special Meeting. See "The
Commerce Merger -- Expenses."
COMMERCE SHAREHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY
CARDS. THE PROCEDURE FOR THE EXCHANGE OF SHARES AFTER THE COMMERCE MERGER IS
CONSUMMATED IS SET FORTH IN THIS PROSPECTUS-JOINT PROXY STATEMENT. SEE "THE
COMMERCE MERGER -- EXCHANGE OF CERTIFICATES."
THE FIRST CITIZENS SPECIAL MEETING
This Prospectus-Joint Proxy Statement is being furnished to First Citizens
shareholders in connection with the solicitation of proxies by the First
Citizens Board of Directors for use at the First Citizens Special Meeting to
consider and vote upon the approval of the First Citizens Plan of Merger and to
transact such other business as may properly come before the First Citizens
Special Meeting or any adjournments or postponements thereof. Each copy of this
Prospectus-Joint Proxy Statement mailed or delivered to First Citizens
shareholders is accompanied by a form of Proxy for use at the First Citizens
Special Meeting.
This Prospectus-Joint Proxy Statement is also furnished to First Citizens
shareholders as a Prospectus in connection with the issuance to them of shares
of Corporation Common Stock upon consummation of the First Citizens Merger.
Date, Place and Time. The First Citizens Special Meeting is to be held at
, , Alabama on October , 1998, at 10:00 a.m.
Record Date, Quorum and Voting. The First Citizens Board of Directors has
fixed the close of business on October 1, 1998 (the "First Citizens Record
Date"), as the record date for the determination of the First Citizens
shareholders entitled to receive notice of and to vote at the First Citizens
Special Meeting. The presence, in person or by Proxy, of the holders of a
majority of the shares of First Citizens Common Stock entitled to vote at the
First Citizens Special Meeting will constitute a quorum. Each shareholder of
record as of the First Citizens Record Date is entitled to one vote for each
share then held.
Vote Required. As of the First Citizens Record Date, there were 80,000
shares of First Citizens Common Stock outstanding. Approval and adoption of the
First Citizens Plan of Merger requires the affirmative vote of two-thirds of all
outstanding First Citizens Common Stock entitled to vote thereon; as a result,
failures to vote and abstentions will be the equivalents of votes against the
First Citizens Plan of Merger. Accordingly, approval and adoption of the First
Citizens Plan of Merger at the First Citizens Special Meeting will require the
affirmative vote of the holders of at least 53,328 shares of First Citizens
Common Stock.
As of the First Citizens Record Date, directors and executive officers of
First Citizens beneficially owned or held a proxy for an aggregate of 33,836
shares of First Citizens Common Stock, or approximately 42.30% of the First
Citizens Common Stock, outstanding on such date. The directors and executive
officers of First Citizens have indicated their intentions to vote the shares of
First Citizens Common Stock beneficially owned by them FOR the First Citizens
Plan of Merger. Therefore, an additional 19,492 (24.37%) of the shares of First
Citizens Common Stock outstanding must be voted in favor of the First Citizens
Plan of Merger in order for it to be approved.
See "The First Citizens Merger -- Conditions to the Merger."
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Voting and Revocation of Proxies. Shares of First Citizens Common Stock
represented by a Proxy properly signed and received at or prior to the First
Citizens Special Meeting, unless subsequently revoked, will be voted in
accordance with the instructions thereon. IF A PROXY IS PROPERLY EXECUTED AND
RETURNED WITHOUT INDICATING ANY VOTING INSTRUCTIONS, SHARES OF FIRST CITIZENS
COMMON STOCK REPRESENTED BY THE PROXY WILL BE VOTED FOR APPROVAL AND ADOPTION OF
THE FIRST CITIZENS PLAN OF MERGER. Any Proxy given pursuant to the solicitation
may be revoked by the person giving the Proxy at any time before the Proxy is
voted by filing an instrument revoking it or by delivering a duly executed Proxy
bearing a later date to John F. Gittings at First Citizens prior to or at the
First Citizens Special Meeting, or by voting in person at the First Citizens
Special Meeting. Attendance at the First Citizens Special Meeting will not in
and of itself constitute a revocation of a Proxy. Only votes cast FOR approval
of the First Citizens Plan of Merger or other matters constitute affirmative
votes. Abstentions and votes that are withheld will, therefore, have the same
effect as votes AGAINST approval of the First Citizens Plan of Merger, so it is
important that you return your Proxy properly executed.
The First Citizens Board of Directors is not aware of any business to be
acted upon at the First Citizens Special Meeting other than as described in this
Prospectus-Joint Proxy Statement. If, however, other matters are properly
brought before the First Citizens Special Meeting, or any adjournments or
postponements thereof, the persons appointed as proxies will have discretion to
vote or act thereon according to their best judgment and subject to applicable
rules of the SEC.
Solicitation of Proxies. In addition to solicitation by mail, directors,
officers and employees of First Citizens, who will not be specifically
compensated for such services, may solicit proxies from the shareholders of
First Citizens personally or by telephone or other forms of communication.
Except as otherwise provided in the First Citizens Plan of Merger, First
Citizens will bear its own expenses in connection with the solicitation of
proxies for the First Citizens Special Meeting. See "The First Citizens
Merger -- Expenses."
FIRST CITIZENS SHAREHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR
PROXY CARDS. THE PROCEDURE FOR THE EXCHANGE OF SHARES AFTER THE FIRST CITIZENS
MERGER IS CONSUMMATED IS SET FORTH IN THIS PROSPECTUS-JOINT PROXY STATEMENT. SEE
"THE FIRST CITIZENS MERGER -- EXCHANGE OF CERTIFICATES."
THE CITY NATIONAL SPECIAL MEETING
This Prospectus-Joint Proxy Statement is being furnished to City National
shareholders in connection with the solicitation of proxies by the City National
Board of Directors for use at the City National Special Meeting to consider and
vote upon the approval of the Plan of Merger and to transact such other business
as may properly come before the City National Special Meeting or any
adjournments or postponements thereof. Each copy of this Prospectus-Joint Proxy
Statement mailed or delivered to City National shareholders is accompanied by a
form of Proxy for use at the City National Special Meeting.
This Prospectus-Joint Proxy Statement is also furnished to City National
shareholders as a Prospectus in connection with the issuance to them of shares
of Corporation Common Stock upon consummation of the City National Merger.
Date, Place and Time. The City National Special Meeting is to be held at
, , Alabama on October , 1998, at 10:00 a.m.
Record Date, Quorum and Voting. The City National Board of Directors has
fixed the close of business on October 1, 1998 (the "City National Record
Date"), as the record date for the determination of the City National
shareholders entitled to receive notice of and to vote at the City National
Special Meeting. The presence, in person or by Proxy, of a majority of the
shares of City National Common Stock entitled to vote at the City National
Special Meeting will constitute a quorum. Each shareholder of record as of the
City National Record Date is entitled to one vote for each share then held.
Vote Required. As of the City National Record Date, there were 26,832
shares of City National Common Stock outstanding. Approval and adoption of the
City National Plan of Merger requires the
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affirmative vote of two-thirds of all outstanding City National Common Stock
entitled to vote thereon; as a result, failures to vote and abstentions will be
the equivalents of votes against the City National Plan of Merger. Accordingly,
approval and adoption of the City National Plan of Merger at the City National
Special Meeting will require the affirmative vote of the holders of at least
17,886 shares of City National Common Stock.
As of the City National Record Date, directors and executive officers of
City National beneficially owned or held a proxy for an aggregate of 8,116
shares of City National Common Stock, or approximately 30.25% of the City
National Common Stock, outstanding on such date. The directors and executive
officers of City National have indicated their intentions to vote the shares of
City National Common Stock beneficially owned by them FOR the City National Plan
of Merger. Therefore, an additional 9,770 (36.41%) of the shares of City
National Common Stock outstanding must be voted in favor of the City National
Plan of Merger in order for it to be approved.
See "The City National Merger -- Conditions to the Merger" and
"-- Interests of Certain Persons in the City National Merger."
Voting and Revocation of Proxies. Shares of City National Common Stock
represented by a Proxy properly signed and received at or prior to the City
National Special Meeting, unless subsequently revoked, will be voted in
accordance with the instructions thereon. IF A PROXY IS PROPERLY EXECUTED AND
RETURNED WITHOUT INDICATING ANY VOTING INSTRUCTIONS, SHARES OF CITY NATIONAL
COMMON STOCK REPRESENTED BY THE PROXY WILL BE VOTED FOR APPROVAL AND ADOPTION OF
THE CITY NATIONAL PLAN OF MERGER. Any Proxy given pursuant to the solicitation
may be revoked by the person giving the Proxy at any time before the Proxy is
voted by filing an instrument revoking it or by delivering a duly executed Proxy
bearing a later date to William P. Riley at City National prior to or at the
City National Special Meeting, or by voting in person at the City National
Special Meeting. Attendance at the City National Special Meeting will not in and
of itself constitute a revocation of a Proxy. Only votes cast FOR approval of
the City National Plan of Merger or other matters constitute affirmative votes.
Abstentions and votes that are withheld will, therefore, have the same effect as
votes AGAINST approval of the City National Plan of Merger, so it is important
that you return your Proxy properly executed.
The City National Board of Directors is not aware of any business to be
acted upon at the City National Special Meeting other than as described in this
Prospectus-Joint Proxy Statement. If, however, other matters are properly
brought before the City National Special Meeting, or any adjournments or
postponements thereof, the persons appointed as proxies will have discretion to
vote or act thereon according to their best judgment and subject to applicable
rules of the SEC.
Solicitation of Proxies. In addition to solicitation by mail, directors,
officers and employees of City National, who will not be specifically
compensated for such services, may solicit proxies from the shareholders of City
National personally or by telephone or other forms of communication. Except as
otherwise provided in the City National Plan of Merger, City National will bear
its own expenses in connection with the solicitation of proxies for the City
National Special Meeting. See "The City National Merger -- Expenses."
CITY NATIONAL SHAREHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR
PROXY CARDS. THE PROCEDURE FOR THE EXCHANGE OF SHARES AFTER THE CITY NATIONAL
MERGER IS CONSUMMATED IS SET FORTH IN THIS PROSPECTUS-JOINT PROXY STATEMENT. SEE
"THE CITY NATIONAL MERGER -- EXCHANGE OF CERTIFICATES."
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THE COMMERCE MERGER
The description of the Commerce Merger contained in this Prospectus-Joint
Proxy Statement summarizes the principal provisions of the Commerce Plan of
Merger and is qualified in its entirety by reference to the Commerce Plan of
Merger, the full text of which is attached hereto as Annex A. All Commerce
shareholders are urged to read Annex A carefully in its entirety.
The Corporation entered into a Reorganization Agreement and Plan of Merger
dated as of April 6, 1998, pursuant to which Commerce Bank of Alabama
("Commerce") is to be merged with and into The Bank, a subsidiary of the
Corporation. Subsequently, the parties executed a Third Amended and Restated
Reorganization Agreement and Plan of Merger dated as April 6, 1998. As of June
30, 1998, Commerce had total assets of approximately $119.8 million, deposits of
approximately $110.7 million and shareholders equity of approximately $6.8
million.
TERMS OF THE COMMERCE MERGER
Commerce will be merged with and into The Bank, with The Bank being the
surviving corporation as a subsidiary of the Corporation. The Articles of
Incorporation and the Bylaws of The Bank in effect at the Effective Time will
govern the surviving corporation until amended or repealed in accordance with
applicable law. At the Effective Time, The Bank shall continue as the surviving
corporation under the name "The Bank."
When the Commerce Merger is completed, each outstanding share of Commerce
Common Stock will automatically be converted into approximately 2.335 shares of
Corporation Common Stock. Pursuant to the terms of the Mergers, and assuming
that all of the Mergers are consummated and there are no dissenting
shareholders, at the Effective Time, the former Commerce shareholders will
receive 1,536,615 shares of Corporation Common Stock, representing approximately
13.93% of the issued and outstanding Corporation Common Stock. None of the
Mergers is conditioned upon one another. If one or more of the other Mergers is
not completed, the total number of shares of Corporation Common Stock to be
received by the Commerce shareholders will not change.
The Corporation will also assume existing options outstanding under
Commerce's Stock Option Plan. It is anticipated that options covering no more
than 38,500 shares of Commerce Common Stock will be outstanding and assumed at
the Effective Time.
BACKGROUND OF THE COMMERCE MERGER
Commerce has experienced rapid growth since its formation in 1995. The
rapid growth of Commerce since its formation in 1995 created a need in Commerce
for additional capital. At June 30, 1998, Commerce's total capital to
risk-weighted assets ratio was 8.32%, and its leverage ratio was 5.69%. While
these ratios exceed minimum regulatory levels, management believed that
continued growth of Commerce would eventually create a need for additional
capital to support that growth. As a result of this growth, the Board of
Directors of Commerce had been considering raising additional capital through a
public offering of Commerce Common Stock. Management of Commerce was approached
by representatives of Warrior in January 1998 about whether Commerce would
consider an affiliation with Warrior. Commerce considered a possible combination
with Warrior to be an attractive means of obtaining additional capital for the
business of Commerce. In addition, Commerce believed that Warrior's business
plan would be beneficial to the shareholders of Commerce. This plan includes
establishing a lead bank for Warrior in the Birmingham, Alabama area, building a
diverse holding company through acquisitions of banks around Alabama and
surrounding states, and enhancing the market for its common stock through the
raising of additional capital through a public offering of Warrior's common
stock. Commerce also believed that an affiliation with Warrior would offer the
shareholders of Commerce an opportunity to receive common stock in a larger and
more diverse entity.
In mid-January 1998, Mr. Taylor and James Mailon Kent, Jr., a director of
the Corporation, traveled to Albertville to meet with J. Daniel Sizemore,
President of Commerce, and discussed the possibility of Commerce merging with
The Bank. One week later, Mr. Taylor, Mr. Taylor, Jr. and David R. Carter met
with
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Mr. Sizemore. At this meeting the parties discussed the structure and timing of
transactions of this type. Mr. Sizemore stated that he would need to consult
with his directors before discussions could begin about a merger. On January 26,
1998, Mr. Taylor and Mr. Carter met with Mr. Sizemore and three other members of
the Commerce Board of Directors, Randall Jones, Steven Hays and Mandell Tillman.
Discussions were held regarding The Bank and Commerce and the possibility of
combining operations of the two institutions. Between January 26, 1998, and
February 10, 1998, representatives of the Corporation and Commerce negotiated
possible acquisition terms based on the total amount of investment that each
group of shareholders had in their respective company. On February 10, 1998,
Messrs. Taylor, Taylor, Jr. and Carter met with the Commerce Board of Directors
at the Gadsden Country Club. The Corporation representatives made a presentation
to the Commerce Board of Directors and presented the Commerce Board of Directors
with a formal offer and structure for the transaction. The Commerce Board of
Directors met independent of the Corporation representatives and voted to
proceed with a merger with the Corporation. On February 10, 1998 the parties
entered into a binding letter of intent setting forth the basic terms of the
Commerce Merger that are described in this Prospectus-Joint Proxy Statement.
A definitive agreement was then negotiated while each party conducted a due
diligence review of the other. The definitive agreement was signed on April 6,
1998. The shareholders of the Corporation had an investment of $26,077,760 in
the Corporation and the Commerce shareholders had an investment of $7,007,500 in
Commerce. Combining these two investments would result in a company in which the
Corporation shareholders had contributed 78.8% of the total equity and the
Commerce shareholders had contributed 21.2% of the total equity. Thus, the
Commerce Merger was originally structured so that the Corporation shareholders
would receive 78% ownership and the Commerce shareholders would receive 22%
ownership in the combined entity. On April 15, 1998 an amended agreement was
signed to reflect the proposed acquisition by the Corporation of First Citizens.
The Commerce Plan of Merger as amended provided for the issuance of 1,536,615
shares of Corporation Common Stock which would represent 14.14 percent of the
outstanding shares of Corporation Common Stock after completion of all of the
Transactions and was approximately equal to the percentage of the equity of the
combined entity represented by the equity of Commerce.
Thereafter, Commerce retained Porter, White & Company, Inc. ("Porter
White") to render a fairness opinion regarding the Commerce Merger. See "Opinion
of Commerce's Financial Advisor." In early July 1998, the Corporation and
Commerce amended the definitive agreement to provide for the acquisition by the
Corporation of Emerald. In late August 1998, the Corporation informed Commerce
that it wished to restructure its acquisition of Emerald by converting Emerald
Bank to a federally chartered thrift. A draft of a Second Amended and Restated
Reorganization Agreement and Plan of Merger was presented to Commerce for that
purpose. At a board meeting held in early September 1998, Commerce Management
received a preliminary report from Porter White regarding the fairness opinion
to be rendered regarding the Commerce Merger. After receiving the preliminary
report that the Commerce Merger was fair to the shareholders of Commerce from a
financial point of view, the Commerce Board of Directors reviewed and approved
the Second Amended and Restated Reorganization Agreement and Plan of Merger,
subject to final receipt from Porter White of the fairness opinion.
In mid-September 1998, the Corporation negotiated an increase in the number
of shares of Corporation Common Stock to be issued in the City National Merger.
Accordingly, Commerce and the Corporation agreed upon the Third Amended and
Restated Reorganization Agreement and Plan of Merger which provides that
1,536,615 shares of Corporation Common Stock will continue to be issued in the
Commerce Merger but that such shares will represent 13.93 percent of the
outstanding shares of Corporation Common Stock after completion of all of the
Transactions, rather than 14.14 percent as originally agreed, which was
approximately equal to the percentage of the equity of the combined entity
represented by the equity of Commerce.
On [October 6,] 1998, Porter White presented its fairness opinion to the
Commerce Board of Directors.
The Third Amended and Restated Reorganization Agreement and Plan of Merger
included at Annex A supercedes all previous agreements and amendments between
Commerce and the Corporation and sets forth the terms of the Commerce Merger
described in this Prospectus-Joint Proxy Statement.
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REASONS FOR THE COMMERCE MERGER; RECOMMENDATION OF COMMERCE BOARD OF DIRECTORS
By the unanimous vote of the members of the Commerce Board of Directors,
the Commerce Board of Directors determined that the proposed Commerce Merger,
and the terms and conditions of the Commerce Plan of Merger, were fair to and in
the best interests of Commerce and its shareholders and resolved to recommend
that the shareholders of Commerce vote FOR approval and adoption of the Commerce
Plan of Merger. See "-- Background of the Commerce Merger."
The terms of the Commerce Merger, including the Commerce Exchange Ratio,
are the result of arm's length negotiations between representatives of Commerce
and the Corporation. The Commerce Board of Directors did not assign any relative
or specific weight to any factor it considered in deciding to approve the
Commerce Plan of Merger. The Commerce Board of Directors, however, viewed the
ability of the transaction to satisfy Commerce's capital needs and the
opportunity to acquire a security for which a public trading market could
develop as significant. See -- "Background of the Commerce Merger." The Commerce
Merger satisfies that capital need. Assuming all of the Transactions are
consummated, the total capital to assets ratio of the Corporation will be 16.62
percent and the leverage ratio will be 11.17 percent. In reaching its decision,
Commerce's Board also took into account the condition in the Commerce Plan of
Merger regarding the receipt of an opinion of a financial advisor to be
delivered regarding the fairness of the Merger to the shareholders of Commerce
from a financial point of view. Additionally, the Commerce Board of Directors
reviewed the factors and circumstances set forth in "Background of the Commerce
Merger," and the independence of each merger as outlined in "Independence of
Each Transaction."
The Commerce Board examined alternatives to the Commerce Merger, including
Commerce's remaining an independent institution. The Commerce Board looked at
Commerce's capital position and need for additional capital in order to support
growth, the institution's current market area and market share, and considered
that smaller institutions such as Commerce may be at a competitive disadvantage
in an environment of increasing consolidation in the banking industry. The
Commerce Board took into account possible advantages of larger institutions,
including the ability to diversify on a geographic basis, to offer a wide
variety of products and services, to provide regulatory and legal compliance on
a more efficient basis, and otherwise to take advantages of economies of scale.
The Commerce Board examined the value of the Corporation Common Stock to be
received in the Commerce Merger, including the possible growth potential of the
Corporation as compared to Commerce on a stand-alone basis and relative to
larger institutions the expectation that the shareholders of Commerce would
obtain a more marketable security, and the financial aspects of the proposed
transaction, including that it would qualify as a tax-free reorganization under
the Code. The Commerce Board also considered the financial condition and results
of operations of the Corporation.
The foregoing factors are all of the material factors considered by the
Commerce Board of Directors in reaching its decision to recommend approval of
the Commerce Merger.
OPINION OF COMMERCE'S FINANCIAL ADVISOR
Commerce employed Porter White to determine whether the consideration
("Consideration") proposed to be paid to the shareholders of Commerce as a
result of the Commerce Merger is fair, from a financial point of view, to the
shareholders of Commerce ("Commerce Shareholders"). Porter White provided the
Commerce Board of Directors with a written opinion with respect to the fairness
of the transaction (the "Commerce Fairness Opinion"). In the preparation of the
opinion, Porter White performed various analyses bearing upon the determination
of fairness. The preparation of a fairness opinion involves various
determinations as to the most appropriate methods or analysis and relevant data
and the applications of each to the specific case. Notwithstanding the
description of separate topics in this letter, Porter White believes that the
question of fairness relates to many factors considered as a whole, and that
selecting individual statistics or portions of the analysis could create an
incomplete view of the transaction.
Porter White Profile. Porter White was retained by Commerce on or about
February 23, 1998, to provide its opinion of the fairness, from a financial
viewpoint, of the consideration to be received by the Shareholders in the
Commerce Merger. Porter White was not retained to market Commerce and did not
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participate in negotiation of the terms and conditions of the Commerce Merger
Agreement, or any of the documents or materials contemplated thereby or executed
and delivered in connection therewith.
Porter White is an investment banking firm whose business includes the
analysis and valuation of middle market firms, as well as the purchase and sale
of such firms and other business and financial assets and providing financing
for such firms. Porter White is also a valuation consultant. Typical engagements
include ESOP appraisals, fairness opinions, valuations of restricted stock,
valuations of minority interests in private companies, valuations of guarantees
in support of debt financing and others. Porter White is independent of the
Commerce Board of Directors and Commerce, and Porter White's compensation is not
contingent upon the outcome of the Commerce Fairness Opinion.
Commerce has represented to Porter White and Porter White has assumed for
purposes of its opinion that Commerce has received no firm offers to purchase
its stock. Commerce has further represented to Porter White that there are no
current offers to acquire shares of stock from Commerce or to engage in any
other business combination (or discussions ongoing designed to lead to any such
sale or combination).
At the [October 6,] 1998 meeting of the Commerce Board of Directors, Porter
White delivered a written opinion that the consideration to be paid by the
Corporation in the Commerce Merger was fair to Commerce Shareholders from a
financial point of view as of [October 6,] 1998.
THE FULL TEXT OF PORTER WHITE'S WRITTEN OPINION TO THE COMMERCE BOARD,
DATED AS OF [OCTOBER 6,] 1998, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITATION OF REVIEW BY PORTER WHITE, IS ATTACHED HERETO AS ANNEX
E AND IS INCORPORATED HEREIN BY REFERENCE AND SHOULD BE READ CAREFULLY AND IN
ITS ENTIRETY. THE FOLLOWING SUMMARY OF PORTER WHITE'S ANALYSIS IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION. PORTER WHITE'S
OPINION IS ADDRESSED TO THE COMMERCE BOARD AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY COMMERCE SHAREHOLDER AS TO HOW SUCH COMMERCE SHAREHOLDER
SHOULD VOTE WITH RESPECT TO THE COMMERCE MERGER.
Merger Analysis. As a basis for the Fairness Opinion, Porter White, among
other things: (i) reviewed the Commerce Plan of Merger and the Registration
Statement; (ii) reviewed certain historical business and financial information
relating to Commerce, the Corporation, Emerald, First Citizens, CBS and City
National (together, except for Commerce, the "Other Companies"); (iii) reviewed
other pertinent internally generated reports with regard to the separate
businesses and prospects of Commerce and the Other Companies, including, among
other things, the strategic objectives of each company and the potential
benefits which might be realized through consummation of the Commerce Merger;
(iv) participated with senior management in discussions of Commerce and the
Other Companies with regard to said strategic objectives which might be realized
through consummation of the Commerce Merger; (v) reviewed public information
regarding selected comparable publicly traded companies deemed relevant to the
proposed business combination; (vi) reviewed the financial terms and data of
selected comparable business combinations between banks, thrifts and bank and
thrift holding companies deemed relevant to the proposed business combination;
(vii) reviewed certain information pertaining to prospective cost savings or
revenue enhancements relative to the proposed business combination; and (viii)
conducted such other financial studies, analyses and investigations as
appropriate. Information concerning cost savings and revenue enhancements was
not quantified, but included potential cost savings associated with
consolidation of certain operations and potential revenue enhancement from the
ability of the combined banks to make larger loans. The written opinions
provided by Porter White are necessarily based upon economic, monetary,
financial market and other relevant conditions as of the dates thereof.
In connection with Porter White's review and arriving at the Commerce
Fairness Opinion, Porter White relied upon the accuracy and completeness of the
financial information and other pertinent information provided by Commerce and
the Other Companies for purposes of rendering the Commerce Fairness Opinion.
Porter White did not assume any obligation to independently verify any of the
provided information as being complete and accurate in all material respects.
With regard to the financial forecasts established and developed for Commerce
and the Other Companies and provided to Porter White by the Corporation
management, Porter White assumed that these materials had been reasonably
prepared on bases reflecting the best available estimates and judgments of the
Corporation as to the future performance of the separate and combined entities
and that the projections provided a reasonable basis upon which Porter White
could form its
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opinion. Neither Commerce nor the Corporation publicly discloses internal
management projections of the type provided to Porter White. Therefore, such
projections cannot be assumed to have been prepared with a view towards public
disclosure. The projections are based upon numerous variables and assumptions
that are inherently uncertain, including factors relative to the general
economic and competitive conditions facing Commerce and the Corporation.
Accordingly, actual results could vary significantly from those set forth in the
respective projections.
Porter White is not an expert in the evaluation of loan portfolios, or the
allowance for loan losses with respect thereto, and therefore assumed that such
allowances for Commerce and the Other Companies are adequate to cover such
losses. In addition, Porter White does not assume responsibility for the review
of individual credit files nor make an independent evaluation, appraisal or
physical inspection of the assets or individual properties of Commerce or the
Other Companies. Furthermore, Porter White assumed that the merger will be
consummated in accordance with the terms set forth in the Commerce Plan of
Merger, without any waiver of any material terms or conditions by Commerce and
that obtaining the necessary regulatory approvals for the Commerce Plan of
Merger will not have an adverse effect on either separate institution or the
combined entity. Porter White assumed that the Commerce Merger will be recorded
as a "pooling of interests" in accordance with generally accepted accounting
principles and will be treated as a tax free reorganization for federal income
tax purposes.
In connection with rendering its opinion to the Commerce Board of
Directors, Porter White performed a variety of financial analyses briefly
summarized below. Such a summary of analyses does not purport to be a complete
description of the analyses performed. Moreover, these analyses must be
considered as a whole, and selecting portions of such analyses and the factors
considered, without considering all such analyses and factors, could create an
incomplete view of the process underlying the analyses and, more importantly,
the opinion derived from them. The preparation of a financial advisor's opinion
is a complex process involving subjective judgments and is not necessarily
susceptible to partial analyses or a summary description of such analyses. In
the full analysis, Porter White considered general economic, financial market
and other financial conditions. Furthermore, Porter White drew from past
experience in similar transactions, as well as experience in the valuation of
securities. Any estimates contained in the analyses are not necessarily
indicative of future results or values which may significantly diverge more or
less favorably from such estimates. Estimates of company valuations do not
purport to be appraisals or necessarily reflect the prices at which companies or
their respective securities actually may be sold. Most notably, none of the
analyses performed by Porter White were assigned a greater significance than any
other in deriving the opinion.
Markets Served. Porter White developed a map of the main and branch
offices of all of the combining banks, including Commerce, City National, First
Citizens, the Corporation, Emerald and CBS.
The map indicates that the banks as a combined entity will cover a
significant portion of Alabama and the northwest coast of Florida. The banks
currently have a small presence in the larger Alabama markets of Birmingham and
Huntsville. However, the headquarters of the Corporation is in Birmingham, and
new locations are being opened in higher growth areas such as Decatur and
Guntersville.
Porter White prepared and analyzed schedules of various demographic and
expenditure information for each market in which the combining banks have a
presence. The northwest coast of Florida market has enjoyed extraordinarily high
population growth in the eighties and nineties. Population in these counties
increased 30 percent in the 1980's and has increased over 20 percent from 1990
to 1998. The northwest Florida coast, while enjoying high rates of growth in
population is comparable to other Corporation markets in Alabama in relation to
household wealth and growth in income. Housing values in the northwest Florida
coast tend to be somewhat higher than Alabama markets, primarily due to a higher
density of vacation home values for non-residents. Consumer expenditures are, on
average, mildly below the U.S. average as indicated by indices of expenditures
less than 100.
Other areas of higher-than-average growth include the Morris/Warrior/Mount
Olive area where three of The Bank's branches are located, and in
Albertville/Gadsden, where Commerce is located. The Morris/ Mount Olive/Warrior
market has higher-than-average consumer expenditures, income growth and wealth
indicators. Albertville/Gadsden has somewhat lower wealth and income indicators,
but the area has enjoyed moderate growth in population. Consumer expenditures in
this area are slightly below U.S. averages.
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First Citizens and City National cover market areas which have had slow or
even negative population growth in the last two decades. Job losses in apparel
and pulp and paper have dampened growth and income in these areas. However,
median household wealth and the distribution of household wealth remains
comparable to other Corporation markets.
Upon closing of the Commerce Plan of Merger, the combined banks will enjoy
a much broader and more diverse market than any single pre-merger entity has
enjoyed. The Corporation's market will encompass most of the State of Alabama
and the northwest Florida coast, giving the new entity access to the Florida,
Decatur and north Jefferson County growth markets. It is Porter White's
conclusion that the combined entity will be in a superior position with regard
to market diversity, growth and business risk than any of the banks as a single
entity.
Comparable Company Analysis. Porter White reviewed and compared actual
stock market data and actual and estimated selected financial information for a
selected peer group of companies comparable to Commerce and the Other Companies
(hereinafter referred to as the "Commerce Peer Group"). The Commerce Peer Group
consists of twenty-eight (28) publicly traded southeastern banking organizations
with assets up to $500 million.
The companies in the Commerce Peer Group are: S.Y. Bancorp Inc., Carolina
Southern Bank, PAB Bankshares, Inc., South Alabama Bancorporation, Summit
Financial Corp., Midsouth Bancorp Inc., Auburn National Bancorporation, FNB
Corp/North Carolina, SNB Bankshares Inc., Savannah Bancorp Inc., Bank of South
Carolina, First Community Banking Services, First Bancorp North Carolina,
Florida Banks, Inc., First Sterling Banks, Inc., Gulf West Banks, Inc., Peoples
Banctrust Co., Inc., Merit Holding Corp., FNB Financial Services Corp.,
Southwest Georgia Financial Corp., Newsouth Bancorp Inc., Commercial Bancshares
Inc/ Fla, American Bancshares Inc/Fla, First Southern Bancshares, Pointe
Financial Corp., Habersham Bancorp, Community Financial Group, and Community
Capital Corp.
The analysis of the Commerce Peer Group indicates that, among other things,
based on market prices as of September 2, 1998, (i) the average multiple of
price to respective last twelve months' earnings was 21.9x and the median was
20.8x for the Commerce Peer Group and the minimum ratio was 11.2x and the
maximum ratio was 38.1x; (ii) the average ratio of price to book value per share
was 232% and the median was 226% for the Commerce Peer Group and the minimum
ratio was 105% and the maximum ratio was 398%; (iii) the average ratio of equity
as a percentage of assets was 10.2% and the median was 9.8% (this compares to a
corresponding ratio for Commerce of 5.7% and a pro forma ratio of 11.1% for the
combined entity, both ratios as of June 30, 1998); (iv) the average return on
average assets was 1.11% and the median was 1.17% (this compares to a
corresponding ratio for Commerce of .4% and a pro forma ratio of .7% for the
combined entity assuming for both that the six-months results ending June 30,
1998 are annualized); and (v) the average return on equity was 11.4% and the
median was 11.5% for the Commerce Peer Group (this compares to a corresponding
ratio for Commerce of 7.3% and a pro forma ratio of 6.0% for the combined entity
assuming for both that the six-months results ending June 30, 1998 are
annualized).
Commerce Shareholders will receive, assuming that the Commerce Plan of
Merger closes as expected, with Corporation Common Stock with a pro forma book
value of $4.52 per share as compared to a book value of $4.41 per equivalent
Commerce share (assuming 11,027,816 equivalent shares) which represents
accretion in book value of 2.5%.
The Commerce Plan of Merger contemplates that the registration of the
Corporation Common Stock will be effective at closing. Further, it is
Corporation management's plan to issue approximately 1,000,000 shares of
Corporation Common Stock promptly after closing. If the creation of a public
market for Corporation Common Stock is successful, particularly in conjunction
with a new-money issue of the Corporation Common Stock, it is reasonable to
expect that the Corporation's shares will trade at multiples comparable to the
Commerce Peer Group.
Although Porter White does not project at what price the shares of
Corporation Common Stock will trade, a public-trading multiple of 200% to 225%
times Corporation book value would translate into a multiple of equivalent
Commerce share value of 205% to 231% respectively. Accordingly, Porter White
based its
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opinion of fairness on the reasonable expectation that an effective public
market for Corporation Common Stock can be developed such that comparable
trading multiples as described above will be realized.
Comparable Transaction Analysis. Porter White reviewed and compared actual
information for 55 comparable pending or closed transactions (the "Bank
Transactions") that it deemed pertinent to the combining banks. The Bank
Transactions are located generally in the Southeast. The primary criterion for
inclusion in the Bank Transactions was that the selling bank had assets less
than $100 million.
The selling institutions in the Bank Transactions are: FNB of Union County,
Independent Bancorp, Frederica Bank & Trust, Meigs County Bancshares, Marine
BanCorp, Commercial National Bank, Empire Bank Corp., Heart of Georgia
Bancshares, Colonial Bank of South Carolina, Mountain Bancshares Inc, Prime Bank
of Central Fla., CBC Bancshares, Inc., VB&T Bancshares Corp., Eagle Bancorp,
Peoples Banking Corp., Bank of Georgia, First Community Bancorp, Virginia
Heartland, Community B&T, CNB Holding Co., Union Bank of Tyler Ct., Ballston
Bancorp, Public Bank Corp., Hollandale Capital, Rappahannock Bankshares, Bank of
Mason, Bryan Bancorp of GA, Seminole Bank, Crossroads Bancshares Inc., Community
Investment, First NB of Tampa, Three Rivers Bancshares, Bank of Mingo, Investors
Financial Corp., Central Bank, Lanier Bank & Trust, Bank of Alexandria, Elmore
County Bancshares, Merchants & Planters, Peoples Bank of VA, First Citizens
Bancshares, Marshall National B&TC, First Community Bancshares, Duck Hill Bank,
Regency Financial Shares, Murdock Florida Bank, First Central Bank, Smith County
Bank, Gateway Bancshares, First Charter Bancshares, West Coast Bank, Capital
State Bank, First Southern Bancshares, Tysons Financial, and Sunniland Bank.
The analysis of the Bank Transactions indicates, among other things, that
based on the announced transaction values, (i) the average multiple of deal
price to respective last four quarters earnings was 22.9x and the median
multiple of deal price to last four quarters earnings was 21.4x; and (ii) the
average ratio of deal price to book value per share was 246% and the median
ratio of deal price to book value was 251%.
It should be emphasized that the transactions analyzed were primarily
acquisitions by large institutions, with publicly traded stock, of small
institutions, whose stock was closely held. The Commerce Merger, and the
proposed mergers with the Other Companies differ from these "comparable"
transactions in that it represents a combination of smaller banks, none of which
has actively traded stock, or a combination of smaller banks with a bank holding
company (Corporation), also with a small bank subsidiary but with the capital
and management to support a larger organization, a larger and more diverse
market and a publicly traded and marketable stock.
Accretion/Dilution Analysis. On the basis of the range of historical pro
forma financial statements for the period ending June 30, 1998 and projections
prepared by the respective managements of Commerce and the Corporation for the
calendar years 1999 and 2000, Porter White analyzed and compared pro forma net
income and book value for the combined entity and Commerce as a stand-alone
bank.
The accretion/dilution analysis showed, among other things, that the merger
(if all the banks are combined as proposed) would result in a projected earnings
dilution in 1998 for holders of Commerce shares of (13.8)% assuming earnings for
the six-month period ending June 30, 1998 are annualized. Earnings would be
diluted (15.9)% and accreted 31.4% for the years 1999 and 2000, respectively,
for holders of Commerce Common Stock. The analysis also showed that the Commerce
Merger would result in accretion to Commerce book value of 2.5% as of June 30,
1998, from a pro forma equivalent value of approximately $4.41 per share
stand-alone to $4.52 per share combined (assuming 11,027,816 equivalent shares).
Commerce book value would be accreted 5.7% and 7.2% as of year-end 1999 and 2000
respectively.
Discounted Cash Flow Analysis. Porter White performed a discounted cash
flow analysis with regard to Commerce, in combination with the Other Companies,
using the earnings projections provided by management of the Corporation. Porter
White utilized a range of discount rates from 10% to 15% and a terminal value of
2.25 times book value. The discount rates reflect a range that Porter White
considers appropriate to the risk and return and leverage profile of the
Corporation. The terminal value was computed by multiplying the projected book
value of equity by the median multiple of book value for the Commerce Peer Group
of banks (2.25x). The analysis resulted in present values of the Corporation
Common Stock of $10.37, $9.91 and $9.48
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for discount rates of 10%, 12.5% and 15% respectively. No dividends were
projected by the Corporation management for the years 1999 and 2000.
Other Analyses & Considerations. No other company used as a comparison in
the above analyses is identical to Commerce or the combined entity; and no other
transaction is identical to the merger. Accordingly, an analysis of the results
of the foregoing is not mathematical; rather, it involves complex considerations
and judgments concerning differences in financial market and operating
characteristics of the companies and other factors that could affect the public
trading volume and prices of the companies to which Commerce and the combined
entity are being compared.
Conclusions. Based on the foregoing analysis and assuming no material
deterioration in current market conditions for bank stocks or material change in
the Commerce Plan of Merger, Porter White concluded as follows:
(1) Commerce, if it remains a stand-alone entity, is not as likely to
achieve market diversification and superior growth;
(2) The trading price of Commerce Common Stock, if it remains a
closely held stock with little or no public market, will be at a
significant discount to prices available to holders of bank stocks which
are publicly traded and which have robust markets. Historically, shares of
Commerce have traded at approximately book value;
(3) The Corporation is filing the Registration Statement covering
shares of Corporation Common Stock to be issued in the Commerce Merger and
it is the plan of Corporation management to issue approximately 1,000,000
new-money shares in a subsequent offering. The new-money offering is
expected to follow promptly after the closing of the Commerce Merger. Upon
closing of the Commerce Merger, it is a reasonable expectation that a
public market can be developed for the Corporation Common Stock, whether or
not the Corporation issues additional shares through a public offering. The
issuance of additional Corporation Common Stock in a new-money offering
should improve the diversity of the holders of the Corporation Common
Stock. Although Porter White does not project at what price shares of the
Corporation Common Stock will trade, no information has been received that
would indicate that the Corporation Common Stock would trade on any basis
different than that of other similarly-situated bank stocks.
(4) A discounted cash flow analysis indicates a present value for the
Corporation Common Stock that is in excess of the book value of Commerce.
Compensation to Financial Advisor. For financial advisory services
provided to Commerce, Porter White will be paid its normal hourly rates plus a
$7,500 opinion fee, if an opinion is rendered. Porter White's normal hourly
rates range from $150 per hour to $240 per hour. In addition, Porter White will
be reimbursed for reasonable out-of-pocket expenses such as phone, facsimile,
travel and copying. The estimated cost of Porter White's financial advisory
services is $30,000.
EFFECTIVE TIME OF THE MERGER
Subject to the provisions of the Commerce Plan of Merger, Articles of
Merger shall be duly executed and, on the Closing Date, or as soon thereafter as
reasonably practicable, filed with the Alabama Secretary of State in accordance
with the ABCA, and the Merger Agreement bearing the certification of the Alabama
Secretary of State shall be filed as soon as reasonably practicable with the
Alabama Banking Department. The Commerce Merger shall become effective upon the
filing of the Merger Agreement with the Alabama Banking Department (the
"Effective Time"). It is presently anticipated that such filing will be made as
soon as practicable after the Commerce Special Meeting and in conjunction with
similar filings relating to the First Citizens Merger and the City National
Merger, and that the Effective Time will occur upon such filing, although there
can be no assurance as to whether or when the Commerce Merger will occur.
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EXCHANGE OF CERTIFICATES
As soon as reasonably practicable after the Effective Time, the Corporation
will mail to each holder of record of a certificate or certificates which
immediately prior to the Effective Time represented outstanding shares of
Commerce Common Stock (the "Certificates"), (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the
Corporation and shall be in such form and have such other provisions as the
Corporation may reasonably specify), and (ii) instructions for use in effecting
the surrender of the Certificates in exchange for certificates representing
shares of Corporation Common Stock. Upon surrender of a Certificate to the
Corporation or to such other agent or agents as may be appointed by the
Corporation, together with such letter of transmittal, duly executed, and such
other documents as may reasonably be required by the Corporation, the holder of
such Certificate shall be entitled to receive in exchange therefor a certificate
representing that number of whole shares of Corporation Common Stock which such
holder has the right to receive pursuant to the provisions of the Commerce Plan
of Merger.
In the event of a transfer of ownership of Commerce Common Stock which is
not registered in the transfer records of Commerce, a certificate representing
the proper number of shares of Corporation Common Stock may be issued to a
person other than the person in whose name the Certificate so surrendered is
registered, if such Certificate shall be properly endorsed or otherwise be in
proper form for transfer and the person requesting such issuance shall pay any
transfer or other taxes required by reason of the issuance of shares of
Corporation Common Stock to a person other than the registered holder of such
Certificate or establish to the satisfaction of the Corporation that such tax
has been paid or is not applicable.
Until surrendered as contemplated by the Commerce Plan of Merger, each
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive Corporation Common Stock and cash for fractional
shares to which the holder of such Certificates is entitled. No interest will be
paid or will accrue on any cash payable in lieu of any fractional shares of
Corporation Common Stock. To the extent permitted by law, former holders of
record of Commerce Common Stock shall be entitled to vote the number of shares
of Corporation Common Stock into which their respective shares of Commerce
Common Stock are converted after the Effective Time at any meeting of
Corporation stockholders, regardless of whether such holders have received their
certificates representing Corporation Common Stock in accordance with the
Commerce Plan of Merger.
No certificates or scrip representing fractional shares of Corporation
Common Stock shall be issued upon conversion of Commerce Common Stock, and such
fractional share interests will not entitle the owner thereof to vote or to any
rights of a stockholder of the Corporation. Notwithstanding any other provision
of the Commerce Plan of Merger, each holder of Commerce Common Stock exchanged
pursuant to the Commerce Merger who would otherwise have been entitled to
receive a fraction of a share of Corporation Common Stock shall receive, in lieu
thereof, cash (without interest) in an amount equal to $3.96 per share.
At the Effective Time, holders of Commerce Common Stock immediately prior
to the Effective Time will cease to be, and shall have no rights as, holders of
Commerce Common Stock, other than the right to receive shares of Corporation
Common Stock into which such shares have been converted, any fractional share
payment and any dividends or other distributions to which they may be entitled
under the Commerce Plan of Merger.
Neither the Corporation nor Commerce will be liable to any holder of
Commerce Common Stock for any shares of Corporation Common Stock (or dividends
or other distributions with respect thereto) or cash in lieu of fractional
shares delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
CONDITIONS TO THE COMMERCE MERGER
The Commerce Plan of Merger is subject to a number of conditions, some of
which are mutual and others of which are applicable to either the Corporation
and The Bank or Commerce. Though most of the
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conditions will not be satisfied until immediately prior to the Effective Time
of the Commerce Merger, the Companies believe that they are currently in
material compliance with the conditions.
The obligation of the Corporation and The Bank to consummate the Commerce
Merger is subject to, among others, the following conditions: (a) no material
adverse changes shall have occurred in the business, operations or financial
condition of Commerce; (b) except as otherwise provided therein, the
representations and warranties of Commerce contained in the Commerce Plan of
Merger shall be true and correct; (c) Commerce shall have performed and complied
with all covenants, agreements and conditions required by the Commerce Plan of
Merger; (d) the Corporation shall have received an opinion of Commerce's legal
counsel, Balch & Bingham, LLP, as to certain matters; (e) holders of not more
than ten percent (10%) of the outstanding shares of Commerce Common Stock shall
have dissented from the transactions contemplated by the Commerce Plan of
Merger; (f) the Corporation shall have received from Ernst & Young LLP ("Ernst &
Young") a letter dated the effective date of the Registration Statement and the
Closing Date, in form and substance reasonably satisfactory to Corporation and
customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the
Registration Statement and pooling of interests transactions similar to the
Commerce Merger; and (g) Commerce shall have shareholders equity at the
Effective Time of not less than $6,548,045, excluding costs associated with this
transaction.
The obligation of Commerce to consummate the Commerce Merger is subject to,
among others, the following conditions: (a) no material adverse changes shall
have occurred in the business, operations or financial condition of Corporation;
(b) Commerce shall have received an opinion from Balch & Bingham, LLP, that, for
federal income tax purposes, the Commerce Merger will constitute a tax-free
reorganization; (c) except as otherwise provided therein, the representations
and warranties of the Corporation and The Bank contained in the Commerce Plan of
Merger shall be true and correct; (d) the Corporation and The Bank shall have
performed and complied with all covenants, agreements and conditions required by
the Commerce Plan of Merger to be performed or complied with in all material
respects; (e) Commerce shall have received an opinion of Haskell Slaughter &
Young, L.L.C., legal counsel for the Corporation and The Bank as to certain
matters; (f) Commerce shall have received from Ernst & Young a letter dated the
effective date of the Registration Statement and the Closing Date, in form and
substance reasonably satisfactory to Commerce and customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the Registration Statement and pooling
of interests transactions similar to the Commerce Merger; (g) Commerce shall
have received an opinion from an investment banking firm chosen by Commerce and
acceptable to the Corporation that the transaction is fair from a financial
point of view to its shareholders; and (h) Corporation shall have stockholders
equity at the Effective Time of not less than $21,159,925, exclusive of costs
associated with this transaction.
The obligation of each of the Corporation, The Bank and Commerce to
consummate the Commerce Merger is subject to certain additional conditions,
including the following: (a) the Registration Statement shall have been declared
effective and shall not be subject to a stop order of the SEC, and all
applicable state blue sky laws shall have been complied with; (b) no suit,
action, claim or other proceeding shall have been threatened or pending before
any court, administrative or governmental agency which, in the reasonable
opinion of Commerce or the Corporation, presents a significant risk of restraint
or prohibition of the transactions contemplated by the Commerce Plan of Merger
or the attainment of material damages or other relief against Commerce or its
shareholders or the Corporation or its stockholders in connection therewith; (c)
approval of the Commerce Merger by holders of a majority of the outstanding
shares of Commerce Common Stock; (d) receipt of all authorizations, approvals
and consents of any third parties as well as the expiration of applicable
waiting periods, including federal or state governmental or regulatory bodies
and officials, necessary for the consummation of the Commerce Plan of Merger and
for the continuation in all material respects of the business of the
Corporation, The Bank and Commerce, without interruption after the Effective
Time, in substantially the manner in which such business is now conducted, and
no such authorizations or approvals shall contain any conditions or restrictions
that Corporation reasonably believes will materially restrict or limit the
business or activities of the Corporation or The Bank or have a material adverse
effect on their businesses, operations or financial conditions taken as a whole;
and (e) J. Daniel Sizemore and Ray Smith shall have entered into employment
agreements with The Bank.
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Prior to or at the Effective Time, either the Corporation or Commerce, or
both, acting through their respective Boards of Directors, chief executive
officers or other authorized officers, may waive any default in the performance
of any term of the Commerce Plan of Merger by the other party, may waive or
extend the time for the compliance or fulfillment by the other party of any and
all of its obligations under the Commerce Plan of Merger, and may waive any of
the conditions precedent to the obligations of such party under the Commerce
Plan of Merger, except any condition (such as required regulatory or Commerce
stockholder approval) that, if not satisfied, would result in the violation of
any applicable law or governmental regulation. See "Independence of Each
Transaction."
REPRESENTATIONS AND COVENANTS
Under the Commerce Plan of Merger, the Corporation and Commerce have each
made a number of representations regarding the organization and capital
structures of the respective companies and their subsidiaries, their operations,
financial condition and other matters, including their authority to enter into
the Commerce Plan of Merger and to consummate the Commerce Merger. The
Corporation and Commerce have each agreed not to encourage, solicit, participate
in or initiate discussions or negotiations with or provide any information to
any third party concerning any merger, sale of assets, sale of or tender offer
for its shares or similar transactions, except that Commerce may furnish
information to and negotiate with an unsolicited third party consistent with the
good faith exercise by the Board of Directors of its fiduciary obligations.
REGULATORY APPROVALS
The Commerce Merger must be approved by the Superintendent of the Alabama
Banking Department ("Superintendent") and by the FDIC. Applications for
requisite approvals have been filed with the FDIC and the Alabama Banking
Department. The Corporation's application was approved by the FDIC on September
29, 1998.
Certain persons, such as states' attorneys general and private parties,
could challenge the Commerce Merger as violative of the antitrust laws and seek
to enjoin the consummation of the Commerce Merger and, in the case of private
persons, also seek to obtain treble damages. There can be no assurance that a
challenge to the Commerce Merger on antitrust grounds will not be made or, if
such a challenge is made, that it will not be successful. Neither the
Corporation nor Commerce intends to seek any further shareholder approval or
authorization of the Commerce Plan of Merger as a result of any action that it
may take to resist or resolve any objections, unless required to do so by
applicable law.
BUSINESS PENDING THE MERGER
The Commerce Plan of Merger provides that, during the period from the date
of the Commerce Plan of Merger to the Effective Time, except as provided in the
Commerce Plan of Merger, the Corporation, The Bank and Commerce will conduct
their business in the ordinary course and use their respective reasonable best
efforts to preserve intact their respective business organizations, to keep
available to the Corporation and the surviving corporation the services of the
present employees of Commerce, and maintain the goodwill of customers, suppliers
and others having business dealings with Commerce.
Under the Commerce Plan of Merger, Commerce has agreed that: (a) it will
give to the Corporation access to its books, records, customer and loan files,
contracts and commitments and shall deliver such statements, schedules and
reports concerning the business, operations and financial condition of Commerce
as are regularly provided to its Board of Directors; (b) no change shall be made
in the articles of incorporation or bylaws of Commerce; (c) no change shall be
made in the number of shares of capital stock of Commerce issued and
outstanding, except as required by the Employee Stock Purchase Plan or made
pursuant to the exercise of options; (d) no contract or commitment (other than
deposits, loan commitments and investments or the sale of other real estate
owned in the ordinary course of business of Commerce) shall be entered into by
or on behalf of Commerce extending for more than one year or involving payment
by Commerce of more than $25,000 in any one contract or related series of
contracts or otherwise materially affecting its business; (e) no employment
agreement or other agreement will be entered into with any employee of Commerce
and no Commerce employee's salary or benefits will be increased except for
normal annual increases as agreed to by
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Corporation in writing and no employee benefit plan will be modified or amended;
(f) Commerce will duly comply in all material respects with all laws applicable
to it and to the conduct of its business; (g) no dividends shall be paid, or
distributions made, with respect to Commerce Stock; (h) no loan in excess of
$50,000 will be made by Commerce without providing Corporation with all relevant
documents related thereto and giving Corporation a reasonable opportunity to
review such loan and comment thereon; (i) no security owned by Commerce will be
sold and no new securities will be purchased without Corporation's approval; (j)
Commerce will not disclose to third parties any confidential information; (k)
Commerce shall not negotiate, solicit or encourage or authorize any person to
solicit from any third party any proposals relating to the merger or
consolidation of Commerce, disposition of the business or assets of Commerce or
the acquisition of the capital stock of Commerce or except to the extent legally
required for the discharge by the board of directors of its fiduciary duties,
make any information concerning Commerce available to any person for the purpose
of affecting or causing a merger, consolidation or disposition of Commerce or
its assets or common stock; (l) Commerce shall obtain and deliver to Corporation
prior to the filing of the Registration Statement an "affiliate" letter from
each Commerce shareholder who may be deemed an "affiliate" of Commerce within
the meaning of such term as used in Rule 145 under the Securities Act of 1933;
(m) Commerce shall not, directly or indirectly, incur expenses greater than
$100,000 in connection with the Commerce Merger; (n) Commerce shall not change,
in any material respect, its methods of accounting in effect at its most recent
fiscal year end, except as required by changes in generally accepted accounting
principles, if applicable, as concurred by such parties' independent
accountants; and (o) Commerce shall not intentionally or knowingly take or cause
to be taken any action which would disqualify the Commerce Merger as a "pooling
of interests" for accounting purposes or as a "reorganization" within the
meaning of Section 368(a) of the Code.
Under the Commerce Plan of Merger, the Corporation has agreed that: (a) it
will give Commerce access to its books, records, customer and loan files,
contracts and commitments and shall deliver to Commerce such statements,
schedules and reports concerning the business, operations and financial
condition of the Corporation and The Bank as are regularly provided to its Board
of Directors; (b) no change shall be made in the articles of incorporation or
bylaws of the Corporation and The Bank; (c) it will duly comply in all material
respects with all laws applicable to it and to the conduct of its business; (d)
until the Commerce Merger is consummated, it will not disclose to third parties
any confidential information; (e) it will prepare and file the Registration
Statement with the SEC and any other applicable regulatory bodies and shall make
all applicable state securities filings and shall take all reasonable steps
necessary to cause the Registration Statement and state filings to be declared
effective and to maintain such effectiveness until all of the shares of
Corporation Common Stock covered thereby have been distributed; (f) prior to the
Closing Date, the Corporation shall cause the shares of Corporation Common Stock
to be issued in the Commerce Merger to be registered or qualified under all
applicable securities or Blue Sky laws of each of the states and territories of
the United States, and to take any other actions which may be necessary to
enable the Corporation Common Stock to be issued in the Commerce Merger to be
distributed in each such jurisdiction; and (g) shall not intentionally take or
cause to be taken any action, whether on or before the Effective Time, which
would disqualify the Commerce Merger as a "pooling of interests" for accounting
purposes or as a "reorganization" within the meaning of Section 368(a) of the
Code.
RESALE OF CORPORATION COMMON STOCK BY AFFILIATES
Corporation Common Stock to be issued to Commerce shareholders in
connection with the Commerce Merger will be registered under the Securities Act.
Corporation Common Stock received by the Commerce shareholders upon consummation
of the Merger will be freely transferable under the Securities Act, except for
shares issued to any person who may be deemed an "Affiliate" (as defined below)
of Commerce or the Corporation within the meaning of Rule 145 under the
Securities Act. "Affiliates" are generally defined as persons who control, are
controlled by, or are under common control with Commerce or the Corporation at
the time of the Commerce Special Meeting (generally, directors and certain
executive officers of Commerce or the Corporation and major stockholders of the
Corporation or Commerce). Generally, all shares of Corporation Common Stock
received by such Affiliates may not be sold until the Corporation publishes at
least one full month of the combined results of operations of the Corporation
and Commerce. In addition, Affiliates of Commerce or the Corporation must sell
their shares of Corporation Common Stock acquired in
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connection with the Commerce Merger in compliance with Rule 145 or another
applicable exemption from the registration requirements of the Securities Act.
In general, under Rule 145, for one year following the Effective Time, an
Affiliate (together with certain related persons) would be entitled to sell
shares of Corporation Common Stock acquired in connection with the Commerce
Merger only through unsolicited "broker transactions" or in transactions
directly with a "market maker," as such terms are defined in Rule 144 under the
Securities Act. Additionally, the number of shares to be sold by an Affiliate
(together with certain related persons and certain persons acting in concert)
during such one-year period within any three-month period for purposes of Rule
145 may not exceed the greater of 1% of the outstanding shares of Corporation
Common Stock or the average weekly trading volume of such stock during the four
calendar weeks preceding such sale. Rule 145 would remain available to
Affiliates only if the Corporation remained current with its information filings
with the SEC under the Exchange Act. One year after the Effective Time, an
Affiliate of Commerce would be able to sell such Corporation Common Stock
without such manner of sale or volume limitations, provided that the Corporation
was current with its Exchange Act information filings and such Affiliate was not
then an Affiliate of the Corporation. Two years after the Effective Time, an
Affiliate of Commerce would be able to sell such shares of Corporation Common
Stock without any restrictions so long as such Affiliate was not, and had not
been for at least three months prior thereto, an Affiliate of the Corporation.
INTERESTS OF CERTAIN PERSONS IN THE COMMERCE MERGER
In considering the recommendation of the Board of Directors of Commerce
with respect to the Commerce Plan of Merger and the transactions contemplated
thereby, Commerce shareholders should be aware that certain members of
management of Commerce and the Board of Directors of Commerce have interests in
the Commerce Merger that are in addition to the interests of shareholders of
Commerce generally.
Pursuant to the Commerce Plan of Merger, the Corporation will enter into
employment agreements with J. Daniel Sizemore and G. Ray Smith. Mr. Sizemore
will be employed as President and Chief Operating Officer of the Corporation,
President and Chief Executive Officer of The Bank and President of the Bank's
Albertville branch. In addition, Mr. Sizemore will be elected to serve as a
director of the Corporation and each of its subsidiary banks. Mr. Sizemore will
receive an annual compensation of $270,000 including salary, director's fees and
bonuses. The agreement also provides that Mr. Sizemore will receive other
benefits such as car allowance, country club dues and life insurance and may
participate in other executive compensation plans. The agreement is for a term
of three years which is renewable daily for a three year term and terminable by
the Corporation only upon three years' notice. If Mr. Sizemore is terminated for
any reason other than cause as defined in the agreement, Mr. Sizemore shall
receive his annual compensation for three years following termination and may
not, directly or indirectly, carry on or do similar business or solicit similar
business with any customer of the Corporation in any counties where the
Corporation or its subsidiaries do business on the date of termination.
Additionally, Mr. Sizemore, with the approval of the Commerce Board of Directors
and The Bank Board of Directors, has served as a consultant to The Bank on the
opening and operation of its Birmingham location since April 1998. Mr. Sizemore
was retained as a consultant by the Bank because of the combination of his
industry expertise and his anticipated role as President and Chief Operating
Officer of the Corporation and The Bank subsequent to the Commerce Merger. Mr.
Sizemore receives $3,500 per month under the consulting arrangement. As of
September 9, 1998, Mr. Sizemore has received $21,000 in compensation for his
consulting services for The Bank.
Mr. Smith will be employed as an Executive Vice President of The Bank and
President of the Etowah and Marshall County branches of The Bank. Mr. Smith will
receive annual compensation of $150,000 including salary and bonuses. In
addition, Mr. Smith will receive other benefits including a car allowance,
country club dues, health insurance and other executive compensation plans. The
term of the agreement is for a period of three years renewable on the third
anniversary of the agreement and upon the third anniversary of each such
renewal. If Mr. Smith is terminated for any reason other than cause as defined
in the agreement, Mr. Smith shall receive his annual compensation for three
years following termination and may not directly or indirectly carry on similar
business or solicit or do similar business with any customer of the Corporation
in any counties where the Corporation or its subsidiaries do business on the
date of termination.
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Mr. Sizemore holds options representing 22,000 shares of Commerce Common
Stock, and Mr. Smith holds options respecting 11,000 such shares. These options
will be assumed by the Corporation at the Effective Time.
The terms of the foregoing employment arrangements have resulted from arm's
length negotiation between the parties involved following the original execution
of the Commerce Plan of Merger.
As of the Record Date, directors and executive officers of Commerce
beneficially owned an aggregate of 221,850 shares of Commerce Common Stock,
representing 33.71 percent of shares outstanding, not counting any shares
reserved to stock options. Assuming an Exchange Ratio of approximately 2.335,
such persons would receive a total of 518,020 shares of Corporation Common Stock
to be issued to shareholders of Commerce in the Commerce Merger or a total of
33.71% of the Corporation Common Stock issued to Commerce shareholders in the
Commerce Merger. These individuals have indicated their intentions to vote the
shares of Commerce Common Stock beneficially owned by them FOR the Commerce Plan
of Merger. See "Business of Commerce -- Security Ownership of Certain Beneficial
Owners and Management."
ACCOUNTING TREATMENT
Consummation of the Commerce Merger is conditioned upon the receipt at
Closing by the Corporation and Commerce of a letter from Ernst & Young, dated as
of the time the Commerce Merger becomes effective, to the effect that the
Commerce Merger will qualify for pooling of interests accounting treatment if
consummated in accordance with the Commerce Plan of Merger. The Corporation, The
Bank and Commerce have agreed not to intentionally take any action that would
disqualify the Commerce Merger as a pooling of interests for accounting
purposes.
Under the pooling of interests method of accounting, the historical basis
of the assets and liabilities of the Corporation and Commerce will be combined
at the Effective Time and carried forward at their previously recorded amounts,
the stockholders' equity accounts of the Corporation and Commerce will be
combined on the Corporation's consolidated balance sheet and no goodwill or
other intangible assets will be created. Consolidated financial statements of
the Corporation issued after the Commerce Merger will be restated retroactively
to reflect the consolidated operations of the Corporation and Commerce as if the
Commerce Merger had taken place prior to the periods covered by such
consolidated financial statements.
In the event the Commerce Merger does not qualify for pooling of interests
accounting treatment, it will be accounted for by the purchase method of
accounting applicable to business combinations. Under the purchase method, the
assets and liabilities of Commerce will be recorded on the books of the
Corporation at their fair value. If the Commerce Merger were to be accounted for
as a purchase, neither the Corporation nor Commerce believes that any required
adjustments would be material to the financial condition or results of
operations of the Corporation, and accordingly, Commerce would not resolicit the
approval of its shareholders prior to consummating the Commerce Merger.
The unaudited pro forma financial information contained in this
Prospectus-Joint Proxy Statement has been prepared using the pooling of
interests accounting method to account for the Commerce Merger. See "Pro Forma
Condensed Financial Information."
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of material federal income tax consequences
of the Commerce Merger and the exchange by the holders of Commerce Common Stock
of such shares for shares of Corporation Common Stock. Each shareholder's
individual circumstances may affect the tax consequences of the Commerce Merger
to him or her. In addition, no information is provided herein with respect to
the tax consequences of the Commerce Merger under applicable foreign, state or
local laws.
Neither the Corporation nor Commerce has requested or will receive an
advance ruling from the Internal Revenue Service (the "Service") as to the
federal income tax consequences of the Commerce Merger. The respective
obligations of Commerce and the Corporation to consummate the Commerce Merger
were conditioned upon receipt of certain legal opinions relating to the federal
income tax consequences of the Commerce Merger in form and substance
satisfactory to Commerce and the Corporation and their respective
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counsel, which have been received and are exhibits to the Registration
Statement. The opinions of such counsel are based upon the facts that are
described herein and upon certain customary representations made by the
management of Commerce and by the management of the Corporation. Such opinions
are also based upon the Code, regulations currently in effect thereunder,
current administrative rulings and practice by the Service and judicial
authority, all of which are subject to change. Any such change could affect the
continuing validity of such opinions and this discussion. In addition, an
opinion of counsel is not binding upon the Service, and there can be no
assurance, and none is hereby given, that the Service will not take a position
which is contrary to one or more positions reflected in the opinions of such
counsel, or that such opinions will be upheld by the courts if challenged by the
Service. Furthermore, the Corporation and Commerce have agreed in the Commerce
Plan of Merger not to take any action which would disqualify the Commerce Merger
as a reorganization which is tax-free to the shareholders of Commerce pursuant
to Section 368(a) of the Code. EACH COMMERCE SHAREHOLDER IS URGED TO CONSULT
SUCH SHAREHOLDER'S PERSONAL TAX AND FINANCIAL ADVISORS AS TO THE SPECIFIC
FEDERAL INCOME TAX CONSEQUENCES TO SUCH SHAREHOLDER, BASED ON SUCH SHAREHOLDER'S
OWN PARTICULAR STATUS AND CIRCUMSTANCES, AND ALSO AS TO ANY STATE, LOCAL,
FOREIGN OR OTHER TAX CONSEQUENCES ARISING OUT OF THE COMMERCE MERGER.
It is a condition to the obligation of the Corporation to proceed with the
Commerce Merger that the Corporation shall have received an opinion from Haskell
Slaughter & Young, L.L.C., its counsel, which it has received, and it is a
condition to the obligation of Commerce to proceed with the Commerce Merger that
Commerce shall have received an opinion from Balch & Bingham, LLP, its counsel,
which it has received, concerning the material federal income tax consequences
of the Commerce Merger. The opinions received by the Corporation and Commerce
reflect and support the following:
(i) The Commerce Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code, and the Corporation, The Bank and
Commerce will each be a party to the reorganization within the meaning of
Section 368(b) of the Code;
(ii) No gain or loss will be recognized by the Corporation, Commerce
or The Bank as a result of the Commerce Merger;
(iii) No gain or loss will be recognized by a Commerce shareholder who
receives solely shares of Corporation Common Stock in exchange for Commerce
Common Stock;
(iv) The receipt of cash in lieu of fractional shares of Corporation
Common Stock will be treated as if the fractional shares were distributed
as part of the exchange and then were redeemed by the Corporation. These
payments will be treated as having been received as distributions in full
payment in exchange for the stock redeemed as provided in Section 302(a) of
the Code, provided the redemption is not essentially equivalent to a
dividend;
(v) The aggregate tax basis of the shares of Corporation Common Stock
received by a Commerce shareholder will be equal to the aggregate tax basis
of the Commerce Common Stock exchanged therefor, excluding any basis
allocable to a fractional share of Corporation Common Stock for which cash
is received;
(vi) The holding period of the shares of Corporation Common Stock
received by a Commerce shareholder will include the holding period or
periods of the Commerce Common Stock exchanged therefor, provided that the
Commerce Common Stock is held as a capital asset within the meaning of
Section 1221 of the Code at the Effective Time.
The foregoing discussion is intended only as a summary of the material
federal income tax consequences of the Commerce Merger and does not purport to
be a complete analysis or listing of all potential tax effects relevant to a
decision whether to vote in favor of approval and adoption of the Commerce Plan
of Merger and the Commerce Merger. The discussion does not address the tax
consequences arising under the laws of any state, locality or foreign
jurisdiction. Commerce shareholders are urged to consult their own tax advisors
concerning the federal, state, local and foreign tax consequences of the
Commerce Merger to them.
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NO SOLICITATION OF TRANSACTIONS
Under the Commerce Plan of Merger, Commerce is restricted in its ability to
participate in discussions and negotiate with third parties concerning any
proposal to acquire Commerce upon a merger, purchase of assets, purchase of or
tender offer for Commerce Common Stock or similar transaction (an "Acquisition
Transaction"). Commerce has agreed that it will not, and will direct each
officer, director, employee, representative and agent of Commerce not to,
directly or indirectly, encourage, solicit, participate in or initiate
discussions or negotiations with or provide any information to any corporation,
partnership, person or other entity or group (other than the Corporation or an
affiliate or associate or agent of the Corporation) concerning any Acquisition
Transaction. Commerce has further agreed that except to the extent legally
required for the discharge by the Commerce Board of Directors of its fiduciary
duties, it will not make any information concerning Commerce available to any
person for the purpose of effecting an Acquisition Transaction.
EXPENSES
The Commerce Plan of Merger provides that all costs and expenses incurred
in connection with the Commerce Plan of Merger and the transactions contemplated
thereby shall be paid by the party incurring such expense.
INDEMNIFICATION
The Corporation's Restated Certificate of Incorporation and Bylaws provide
for the elimination of directors' liability for monetary damages arising from a
breach of certain fiduciary obligations and for the indemnification of
directors, officers and agents to the full extent permitted by the DGCL. These
provisions generally provide for indemnification in the absence of gross
negligence or willful misconduct and cannot be amended without the affirmative
vote of a majority of the outstanding shares of Corporation Common Stock
entitled to vote thereon.
By operation of law under the DGCL and the ABCA, all rights to
indemnification for acts or omissions occurring prior to the Effective Time now
existing in favor of the current or former directors or officers of Commerce as
provided in its articles of incorporation or bylaws shall survive the Merger and
shall continue in effect in accordance with their terms.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Corporation
pursuant to the foregoing provisions, the Corporation has been informed that in
the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
RIGHTS OF DISSENTING SHAREHOLDERS
The following discussion is not a complete statement of the law relating to
dissenters' rights and is qualified in its entirety by reference to Annex D,
which sets forth the full text of Sections 10-2B-13.01 through 10-2B-13.32 of
the ABCA. As used in this summary and in Sections 10-2B-13.01 through
10-2B-13.32, the term "dissenting shareholder" means the record holder of the
dissenting shares. A person having a beneficial interest in Commerce Common
Stock which is held of record in the name of another person, such as a broker or
nominee, must act promptly to cause the record shareholder to timely and
properly follow the steps summarized below to perfect whatever dissenter's
rights the beneficial shareholder may have.
Sections 10-2B-13.01 through 10-2B-13.32 of the ABCA provide for rights of
appraisal of the value of the shares of a shareholder of record who (i) has
delivered notice in writing to Commerce before the vote is taken that he intends
to seek a cash payment if the Commerce Merger is consummated and (ii) does not
vote in favor of the Commerce Merger. Within ten (10) days after completion of
the Commerce Merger, the Corporation will send to each shareholder who has given
such notice to Commerce a dissenter's notice (the "Dissenter's Notice") stating,
among other things, a date not less than thirty (30) days nor more than sixty
(60) days after the date of the Dissenter's Notice by which the shareholder must
submit a written payment demand. Within twenty (20) days after making such
payment demand, the shareholder shall submit the
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certificates representing shares in Commerce to the continuing bank for notation
thereon that such demand has been made.
The Dissenters Notice should be sent to:
J. Daniel Sizemore
Commerce Bank of Alabama
Post Office Box 460
Albertville, Alabama 35950
As soon as the Commerce Merger is completed, or upon the receipt of a
payment demand by a shareholder, the Corporation will offer to pay each
dissenting shareholder the amount which the Corporation estimated to be the fair
value of the shares, plus accrued interest, and each dissenting shareholder may
agree to accept such offer of payment. "Fair Value" means the value of the
shares immediately before the completion of the Commerce Merger excluding any
appreciation or depreciation in anticipation of the Commerce Merger unless
exclusion would be inequitable. Upon receiving payment, such dissenting
shareholder ceases to have any interest in the shares. If a dissenting
shareholder is dissatisfied with the Corporation's offer of payment, the
shareholder may notify the Corporation in writing within 30 days after the
Corporation's offer of his or her own estimate of the fair value plus interest
and demand such payment, or such dissenting shareholder may simply reject the
Corporation's offer and demand payment of the fair value.
If the Corporation fails to make an offer to a dissenting shareholder
within 60 days after the date set for demanding payment, the shareholder may
notify the Corporation of his or her own fair value and demand payment. If the
dissenting shareholder and the Corporation cannot agree upon the fair value,
plus interest, to be paid for shares that are the subject of the demand, then
the Corporation shall convene a proceeding in the Circuit Court for Marshall
County within 60 days of the payment demand to have the fair value of the shares
plus accrued interest determined. If the Corporation does not commence the
proceeding within 60 days and the shareholder's account still remains unsettled,
the Corporation must pay each dissenting shareholder the amount of money
demanded. In any court proceeding, the court shall assess costs against the
Corporation except that the court may assess costs against all or some of the
dissenting shareholders if the court finds the dissenters acted arbitrarily,
vexatiously or not in good faith in demanding payment.
A record shareholder may assert dissenters' rights as to fewer than all
shares registered in such holder's name, but only if the record holder dissents
with respect to all shares beneficially owned by any one person and provides
written notice to Commerce of the name and address of each person on whose
behalf the dissenting rights are asserted. A "beneficial shareholder" is defined
by the ABCA as the "person who is a beneficial owner of shares held in a voting
trust or by a nominee as the record shareholder." The rights of a partial
dissenter are determined as if the shares as to which such holder dissents and
other shares held by the holder are registered in different names of
shareholders. Thus, if a beneficial shareholder owns shares of Commerce Common
Stock through a bank, broker or other nominee, such beneficial shareholder may
assert dissenters' rights, but only if the bank, broker or nominee dissents with
respect to all shares beneficially owned by such shareholder through the bank,
broker or nominee and provides Commerce with the name and address of each such
person wishing to assert dissenters' rights. The beneficial shareholder must
submit to Commerce the consent of the record shareholder, i.e., the bank, broker
or nominee holding for the dissenting beneficial shareholder, not later than the
time the dissenting beneficial shareholder asserts dissenters' rights.
A shareholder who dissents and obtains payment under these procedures may
not challenge the Commerce Merger unless the Commerce Merger is unlawful or
fraudulent with respect to the shareholder or Commerce.
FAILURE OF A SHAREHOLDER TO COMPLY WITH ANY REQUIREMENTS OF THE PROVISIONS
RELATING TO DISSENTERS' RIGHTS OF APPRAISAL WILL RESULT IN A FORFEITURE BY SUCH
SHAREHOLDER OF APPRAISAL RIGHTS.
References herein to applicable statutes are summaries of portions thereof
and do not purport to be complete and are qualified in their entirety by
reference to applicable law. Sections 10-2B-13.01 through 10-2B-13.32 of the
ABCA are attached hereto as Annex D. YOU SHOULD READ ANNEX D CAREFULLY.
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THE FIRST CITIZENS MERGER
The description of the First Citizens Merger contained in this
Prospectus-Joint Proxy Statement summarizes the principal provisions of the
First Citizens Plan of Merger and is qualified in its entirety by reference to
the First Citizens Plan of Merger, the full text of which is attached hereto as
Annex B. All First Citizens shareholders are urged to read Annex B carefully in
its entirety.
On April 15, 1998, the Corporation entered into a Reorganization Agreement
and Plan of Merger with First Citizens Bancorp, Inc. ("First Citizens")pursuant
to which First Citizens is to be merged with and into the Corporation.
Subsequently, the parties executed a Third Amended and Restated Reorganization
Agreement and Plan of Merger dated as of April 15, 1998 (the "First Citizens
Plan of Merger"). As of June 30, 1998, First Citizens had total assets of
approximately $38.1 million, deposits of approximately $34.4 million and
shareholders' equity of approximately $3.2 million. First Citizens' subsidiary
bank, First Citizens Bank of Monroe County, is based in Monroeville, Alabama and
has two locations in Monroeville and one in Frisco City, Alabama. See "Business
of First Citizens" and "Pro Forma Condensed Financial Information."
TERMS OF THE FIRST CITIZENS MERGER
The acquisition of First Citizens by the Corporation will be effected by
means of the merger of First Citizens with and into the Corporation, with the
Corporation being the surviving corporation. The Certificate of Incorporation
and the Bylaws of the Corporation in effect at the Effective Time will govern
the Surviving Corporation until amended or repealed in accordance with
applicable law. At the Effective Time, the Corporation shall continue as the
surviving corporation under the name "The Banc Corporation."
When the First Citizens Merger is completed, each outstanding share of
First Citizens Common Stock will automatically be converted into approximately
8.291 shares of Corporation Common Stock. After completion of all of the
Mergers, the former holders of First Citizens Common Stock will receive 663,243
shares of Corporation Common Stock representing approximately 6.01% of the
outstanding shares of the Corporation's Common Stock. None of the Mergers is
conditioned upon one another. If one or more of the other Mergers is not
completed, the total number of shares of the Corporation's Common Stock to be
received by the First Citizens shareholders will not change.
BACKGROUND OF THE FIRST CITIZENS MERGER
In early 1997, First Citizens was approached by an investment banking firm
about whether First Citizens would be interested in being a merger candidate.
The First Citizens Board of Directors wanted to stay abreast of current bank
values and decided to meet with representatives of that firm. A meeting was held
at First Citizens Bank and present were the directors of First Citizens and such
representatives.
The investment banking firm's representatives outlined current values for
Alabama banks and gave estimates of what they thought the value of First
Citizens might be in an acquisition. They also emphasized that acquisition
activity had slowed considerably in Alabama. The First Citizens Board of
Directors had considered from time to time whether First Citizens could continue
to grow profitability and whether there were ways in which First Citizens could
increase the marketability of its common stock.
As a result of this meeting it was decided that First Citizens should
determine if there was any interest in a possible acquisition of First Citizens
and what the terms of a possible acquisition might be.
The investment banking firm prepared information packages on First Citizens
which were distributed generally to potential acquirors in the south. After
approximately a month, the firm reported the results to First Citizens. There
were several banks who were interested and gave an indication of the value they
placed on First Citizens. The company with the highest bid indication was given
an opportunity to meet with First Citizens and its staff. After discussions, the
company decided that First Citizens did not meet with its objectives because of
the location of First Citizens. A second bank that originally indicated an
interest had moved to another project and was no longer interested in First
Citizens. At this point, there was one prospect that was still interested and it
made several trips to First Citizens. However, this company also decided not to
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pursue further discussions. The relatively small size and market area of First
Citizens seemed to be a deterrent to all possible acquirers.
In late January 1998, James A. Taylor, the Chairman and Chief Executive
Officer of the Corporation, contacted John F. Gittings, Chief Executive Officer
of First Citizens, regarding a possible business combination between First
Citizens and the Corporation. The First Citizens Board of Directors decided to
conduct preliminary discussions with Mr. Taylor.
On February 26, 1998 Mr. Taylor, Mr. Taylor, Jr. and David R. Carter, Chief
Financial Officer of the Corporation, met with Mr. Gittings and Charlie Deer, a
director of First Citizens. Mr. Taylor outlined the business plans for the
Corporation, which included expanding the Corporation's banking operations in
Alabama and possibly outside Alabama by acquisitions, raising additional capital
and expanding its shareholder base, and operating its banks with considerable
local autonomy. In late February 1998, Mr. Taylor, Mr. Taylor, Jr. and Mr.
Carter traveled to Monroeville to meet with the Board of Directors of First
Citizens. At that meeting, a presentation was made to the First Citizens Board
of Directors and Mr. Taylor proposed an acquisition of First Citizens, which
proposal included a firm offer and an outline of the timing of the transaction.
In early March 1998, representatives of First Citizens traveled to Birmingham to
meet with Mr. Taylor and to further discuss the structure of a transaction. The
representatives of First Citizens expressed their interest in proceeding with
the First Citizens Merger and indicated that they would report to the rest of
the First Citizens Board of Directors. On March 13, 1998, the First Citizens
Board of Directors met, with their counsel present, and voted to proceed with
the First Citizens Merger. On that date the parties entered into a binding
letter of intent which outlined the terms of the deal and the structure of the
transaction described in this Prospectus-Joint Proxy Statement.
Subsequently, representatives of First Citizens conducted a due diligence
review of the Corporation and Commerce. Also, representatives of First Citizens
reviewed and negotiated drafts of a proposed definitive agreement. Copies of the
proposed agreement were also distributed to each member of the First Citizens
Board of Directors. The terms of the First Citizens Merger were negotiated after
the original Commerce Plan of Merger was already completed. At that time, First
Citizens had approximately $3,010,000 of equity with an option outstanding to
purchase 5,000 additional shares, which when exercised would increase equity by
approximately $145,000 to approximately $3,155,000. This equity amount would be
equal to 8.7% of the total equity of an entity that represented a combination of
the Corporation, Commerce and First Citizens. The First Citizens Merger was
therefore originally structured so that First Citizens shareholders would
receive shares equaling 8.7% of the total issued and outstanding shares of the
three combined institutions. After further negotiations with the Corporation,
the First Citizens Board of Directors approved a definitive agreement which
provided for the issuance of 663,243 shares of Corporation Common Stock in the
First Citizens Merger. This represented 6.10 percent of the outstanding shares
of Corporation Common Stock after completion of all of the Transactions and was
approximately equal to the percentage of the equity of the combined entity
represented by the equity of First Citizens.
Thereafter, First Citizens retained Porter, White & Company, Inc. ("Porter
White") to render a fairness opinion regarding the First Citizens Merger. See
"Opinion of First Citizens' Financial Advisor." In early July 1998, the
Corporation and First Citizens amended the definitive agreement to provide for
the acquisition by the Corporation of Emerald. In late August 1998, the
Corporation informed First Citizens that it wished to restructure its
acquisition of Emerald by converting Emerald Bank to a federally chartered
thrift. A draft of the Second Amended and Restated Reorganization Agreement and
Plan of Merger was presented to First Citizens for that purpose. At a board
meeting held in early September 1998, the First Citizens Board of Directors met
with a representative of Porter White to receive a preliminary report from
Porter White concerning its fairness opinion. After receiving the preliminary
report that the First Citizens Merger was fair to the shareholders of First
Citizens from a financial point of view and discussing that report with Porter
White, the First Citizens Board of Directors reviewed and considered the Second
Amended and Restated Reorganization Agreement and Plan of Merger, and decided to
consider approval of such amendment at a subsequent meeting. At such meeting
held the following week, the First Citizens Board of Directors approved
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the Second Amended and Restated Reorganization Agreement and Plan of Merger,
subject to final receipt from Porter White of the fairness opinion.
In mid-September 1998, the Corporation negotiated an increase in the number
of shares of Corporation Common Stock to be issued in the City National Merger.
Accordingly, First Citizens and the Corporation agreed upon the Third Amended
and Restated Reorganization Agreement and Plan of Merger which continues to
provide that 663,243 shares of Corporation Common Stock will be issued in the
First Citizens Merger but that such shares will represent 6.01 percent of the
outstanding shares of Corporation Common Stock after completion of all the
Transactions, rather than 6.10 percent as originally agreed which is
approximately equal to the percentage of the equity of the combined entity
represented by the equity of First Citizens.
On , 1998, Porter White presented its fairness opinion to
the First Citizens Board of Directors.
The Third Amended and Restated Reorganization Agreement and Plan of Merger
included at Annex A supercedes all previous agreements and amendments between
Commerce and the Corporation and sets forth the terms of the First Citizens
Merger described in this Prospectus-Joint Proxy Statement.
REASONS FOR THE FIRST CITIZENS MERGER; RECOMMENDATION OF FIRST CITIZENS BOARD OF
DIRECTORS
By the unanimous vote of the members of the First Citizens Board of
Directors, the First Citizens Board of Directors has determined that the
proposed First Citizens Merger, and the terms and conditions of the First
Citizens Plan of Merger, were fair to and in the best interests of First
Citizens and its shareholders and resolved to recommend that the shareholders of
First Citizens vote FOR approval and adoption of the First Citizens Plan of
Merger. See "Background of the First Citizens Merger."
The terms of the First Citizens Merger, including the exchange ratio, are
the result of arm's length negotiations between representatives of First
Citizens and Warrior. The First Citizens Board of Directors did not assign any
relative or specific weight to any factor it considered in deciding to approve
the First Citizens Plan of Merger. The First Citizens Board of Directors,
however, viewed the opportunity to acquire a security for which a public trading
market could develop as significant. In reaching its decision, First Citizens'
Board of Directors also took into account the requirement in the First Citizens
Plan of Merger of an opinion of a financial advisor regarding the fairness of
the First Citizens Merger to the shareholders of First Citizens from a financial
point of view. Additionally, the First Citizens Board of Directors reviewed the
factors and circumstances set forth in "Background of the First Citizens
Merger," and the independence of each merger as outlined in "Independence of
Each Transaction."
The First Citizens Board examined alternatives to the First Citizens
Merger, including First Citizens's remaining an independent institution. The
First Citizens Board looked at the market share and growth prospects of First
Citizens in the Monroeville area as an independent institution. The First
Citizens Board considered that smaller financial institutions may be at a
competitive disadvantage in an environment of increasing consolidation in the
banking industry and also considered possible advantages of larger institutions,
including the ability of larger institutions to diversify on a geographic basis,
to offer a wide variety of products and services, to provide regulatory and
legal compliance on a more efficient basis, and otherwise to take advantages of
economies of scale. The First Citizens Board took into account the possible
advantages to First Citizens of obtaining access to higher growth, metropolitan
areas. The First Citizens Board also examined the value of the Corporation
Common Stock to be received in the First Citizens Merger, including the possible
growth potential of the Corporation as compared to First Citizens on a
stand-alone basis and relative to larger institutions, the expectation that the
shareholders of First Citizens would obtain a more marketable security, and the
financial aspects of the proposed transaction, including that it would quality
as a tax-free reorganization under the Code. The First Citizens Board also
considered the financial condition and results of operations of the Corporation.
The First Citizens Board of Directors believes the Corporation's operating
philosophy of permitting banks it acquires to continue to operate with local
management and with considerable local autonomy can enhance First Citizens'
opportunity for profitable local operations. In addition, although the
Corporation is a relatively new company, a combination with the Corporation
offers an opportunity for First Citizens to become part of a
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larger banking enterprise that would enable First Citizens to diversify its
risks of operations. Because there is no public trading market for the common
stock of First Citizens, the Board expects that a combination with the
Corporation would provide more liquidity for the holders of First Citizens
common stock than is presently offered. In particular, the First Citizens Board
of Directors considered it significant that the Corporation had plans to grow by
acquiring additional banks, including the pending acquisition of Commerce and to
raise additional capital through a public offering of its Common Stock in 1998.
The foregoing factors are all of the material factors considered by the
First Citizens Board of Directors in reaching its decision to recommend approval
of the First Citizens Merger.
OPINION OF FIRST CITIZENS'S FINANCIAL ADVISOR
First Citizens employed Porter White to determine whether the consideration
("Consideration") proposed to be paid to the shareholders of First Citizens as a
result of the First Citizens Merger is fair, from a financial point of view, to
the shareholders of First Citizens ("First Citizens Shareholders"). Porter White
provided the First Citizens Board of Directors with a written opinion with
respect to the fairness of the transaction (the "First Citizens Fairness
Opinion"). In the preparation of the opinion, Porter White performed various
analyses bearing upon the determination of fairness. The preparation of a
fairness opinion involves various determinations as to the most appropriate
methods or analysis and relevant data and the applications of each to the
specific case. Notwithstanding the description of separate topics in this
letter, Porter White believes that the question of fairness relates to many
factors considered as a whole, and that selecting individual statistics or
portions of the analysis could create an incomplete view of the transaction.
Porter White Profile. Porter White was retained by First Citizens on or
about March 31, 1998, to provide its opinion of the fairness, from a financial
viewpoint, of the consideration to be received by the Shareholders in the First
Citizens Merger. Porter White was not retained to market First Citizens and did
not participate in negotiation of the terms and conditions of the First Citizens
Merger Agreement, or any of the documents or materials contemplated thereby or
executed and delivered in connection therewith.
Porter White is an investment banking firm whose business includes the analysis
and valuation of middle market firms, as well as the purchase and sale of such
firms and other business and financial assets and providing financing for such
firms. Porter White is also a valuation consultant. Typical engagements include
ESOP appraisals, fairness opinions, valuations of restricted stock, valuations
of minority interests in private companies, valuations of guarantees in support
of debt financing and others. Porter White is independent of the First Citizens
Board of Directors and First Citizens, and Porter White's compensation is not
contingent upon the outcome of the First Citizens Fairness Opinion.
Current Situation. In 1997, the Board hired an advisor to find a buyer for
First Citizens. Previously, no substantial market existed for shares of First
Citizens. Essentially, the only trades consisted of purchases by the Directors
of First Citizens of stock offered by various Shareholders, usually at
substantial discounts to book value. No in-state buyers were found, but a few
out-of-state banks indicated an interest in purchasing First Citizens.
Indications of interest were expressed at multiples of book from 1.6x to 2.3x,
but no firm proposals were received.
Discussions were then begun with James A. Taylor, Chairman of the
Corporation, for an all-cash purchase at 1.5x book value. This was subsequently
changed to the current proposed merger plan.
First Citizens has received no firm offers to purchase its stock, and there
are no current offers to acquire shares of stock from First Citizens or to
engage in any other business combination (or discussions ongoing designed to
lead to any such sale or combination).
At the [October 5], 1998 meeting of the First Citizens Board of Directors,
Porter White delivered a written opinion that the consideration to be paid by
the Corporation in the First Citizens Merger was fair to First Citizens
Shareholders from a financial point of view as of [October 5], 1998.
THE FULL TEXT OF PORTER WHITE'S WRITTEN OPINION TO THE FIRST CITIZENS
BOARD, DATED AS OF [OCTOBER 5], 1998, WHICH SETS FORTH THE ASSUMPTIONS MADE,
MATTERS CONSIDERED AND LIMITATION OF REVIEW BY PORTER WHITE, IS ATTACHED HERETO
AS ANNEX F AND IS INCORPORATED HEREIN BY REFERENCE AND SHOULD BE READ CAREFULLY
AND IN ITS
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ENTIRETY. THE FOLLOWING SUMMARY OF PORTER WHITE'S ANALYSIS IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION. PORTER WHITE'S OPINION IS
ADDRESSED TO THE FIRST CITIZENS BOARD AND DOES NOT CONSTITUTE A RECOMMENDATION
TO ANY FIRST CITIZENS SHAREHOLDER AS TO HOW SUCH FIRST CITIZENS SHAREHOLDER
SHOULD VOTE WITH RESPECT TO THE FIRST CITIZENS MERGER.
Merger Analysis. As a basis for the Fairness Opinion, Porter White, among
other things: (i) reviewed the First Citizens Plan of Merger and the
Registration Statement; (ii) reviewed certain historical business and financial
information relating to First Citizens, the Corporation, Emerald, City National,
CBS and Commerce (together, except for First Citizens, the "Other Companies");
(iii) reviewed other pertinent internally generated reports with regard to the
separate businesses and prospects of First Citizens and the Other Companies,
including, among other things, the strategic objectives of each company and the
potential benefits which might be realized through consummation of the merger;
(iv) participated with senior management in discussions of First Citizens and
the Other Companies with regard to said strategic objectives which might be
realized through consummation of the First Citizens Merger; (v) reviewed public
information regarding selected comparable publicly traded companies deemed
relevant to the proposed business combination; (vi) reviewed the financial terms
and data of selected comparable business combinations between banks, thrifts and
bank and thrift holding companies deemed relevant to the proposed business
combination; (vii) reviewed certain information pertaining to prospective cost
savings or revenue enhancements relative to the proposed business combination;
and (viii) conducted such other financial studies, analyses and investigations
as appropriate. Information concerning cost savings and revenue enhancements was
not quantified, but included potential cost savings associated with
consolidation of certain operations and potential revenue enhancement from the
ability of the combined banks to make larger loans. The written opinions
provided by Porter White are necessarily based upon economic, monetary,
financial market and other relevant conditions as of the dates thereof.
In connection with Porter White's review and arriving at the First Citizens
Fairness Opinion, Porter White relied upon the accuracy and completeness of the
financial information and other pertinent information provided by First Citizens
and the Other Companies for purposes of rendering the First Citizens Fairness
Opinion. Porter White did not assume any obligation to independently verify any
of the provided information as being complete and accurate in all material
respects. With regard to the financial forecasts established and developed for
First Citizens and the Other Companies and provided to Porter White by
Corporation management, Porter White assumed that these materials had been
reasonably prepared on bases reflecting the best available estimates and
judgments of the Corporation as to the future performance of the separate and
combined entities and that the projections provided a reasonable basis upon
which Porter White could form an opinion. Neither First Citizens nor the
Corporation publicly discloses internal management projections of the type
provided to Porter White. Therefore, such projections cannot be assumed to have
been prepared with a view towards public disclosure. The projections are based
upon numerous variables and assumptions that are inherently uncertain, including
factors relative to the general economic and competitive conditions facing First
Citizens and the Corporation. Accordingly, actual results could vary
significantly from those set forth in the respective projections.
Porter White is not an expert in the evaluation of loan portfolios, or the
allowance for loan losses with respect thereto, and therefore assumed that such
allowances for First Citizens and the Other Companies are adequate to cover such
losses. In addition, Porter White does not assume responsibility for the review
of individual credit files nor make an independent evaluation, appraisal or
physical inspection of the assets or individual properties of First Citizens or
the Other Companies. Furthermore, Porter White assumed that the First Citizens
Merger will be consummated in accordance with the terms set forth in the First
Citizens Plan of Merger, without any waiver of any material terms or conditions
by First Citizens and that obtaining the necessary regulatory approvals for the
First Citizens Plan of Merger will not have an adverse effect on either separate
institution or the combined entity. Porter White assumed that the First Citizens
Merger will be recorded as a "pooling of interests" in accordance with generally
accepted accounting principles and will be treated as a tax free reorganization
for federal income tax purposes.
In connection with rendering its opinion to the First Citizens Board of
Directors, Porter White performed a variety of financial analyses briefly
summarized below. Such a summary of analyses does not purport to be a
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complete description of the analyses performed. Moreover, these analyses must be
considered as a whole, and selecting portions of such analyses and the factors
considered, without considering all such analyses and factors, could create an
incomplete view of the process underlying the analyses and, more importantly,
the opinion derived from them. The preparation of a financial advisor's opinion
is a complex process involving subjective judgments and is not necessarily
susceptible to partial analyses or a summary description of such analyses. In
the full analysis, Porter White considered general economic, financial market
and other financial conditions. Furthermore, Porter White drew from past
experience in similar transactions, as well as our experience in the valuation
of securities. Any estimates contained in the analyses are not necessarily
indicative of future results or values which may significantly diverge more or
less favorably from such estimates. Estimates of company valuations do not
purport to be appraisals or necessarily reflect the prices at which companies or
their respective securities actually may be sold. Most notably, none of the
analyses performed by Porter White were assigned a greater significance than any
other in deriving the opinion.
Markets Served. Porter White developed a map of the main and branch
offices of all of the combining banks, including First Citizens, Commerce, City
National, the Corporation, Emerald and CBS.
The map indicates that the banks as a combined entity will cover a
significant portion of Alabama and the northwest coast of Florida. The banks
currently have a small presence in the larger Alabama markets of Birmingham and
Huntsville. However, the Corporation is headquartered in Birmingham, and new
locations are being opened in higher growth areas such as Decatur and
Guntersville.
Porter White prepared and analyzed schedules of various demographic and
expenditure information for each market in which the combining banks have a
presence. The northwest coast of Florida market has enjoyed extraordinarily high
population growth in the eighties and nineties. Population in these counties
increased 30 percent in the 1980's and has increased over 20 percent from 1990
to 1998. The northwest Florida coast, while enjoying high rates of growth in
population is comparable to other Corporation markets in Alabama in relation to
household wealth and growth in income. Housing values in the northwest Florida
coast tend to be somewhat higher than Alabama markets, primarily due to a higher
density of vacation home values for non-residents. Consumer expenditures are, on
average, mildly below the U.S. average as indicated by indices of expenditures
less than 100.
Other areas of higher-than-average growth include the Morris/Warrior/Mount
Olive area where three of The Bank's branches are located, and in
Albertville/Gadsden, where Commerce is located. The Morris/ Mount Olive/Warrior
market has higher-than-average consumer expenditures, income growth and wealth
indicators. Albertville/Gadsden has somewhat lower wealth and income indicators,
but the area has enjoyed moderate growth in population. Consumer expenditures in
this area are slightly below U.S. averages.
First Citizens and City National cover market areas which have had slow or
even negative population growth in the last two decades. Job losses in apparel
and pulp and paper have dampened growth and income in these areas. However,
median household wealth and the distribution of household wealth remains
comparable to other Corporation markets.
Upon closing of the First Citizens Plan of Merger, the combined banks will
enjoy a much broader and more diverse market than any single pre-merger entity
has enjoyed. The Corporation's market will encompass most of the State of
Alabama and the northwest Florida coast, giving the new entity access to the
Florida, Decatur and north Jefferson County growth markets. It is Porter White's
conclusion that the combined entity will be in a superior position with regard
to market diversity, growth and business risk than any of the banks as a single
entity.
Comparable Company Analysis. Porter White reviewed and compared actual
stock market data and actual and estimated selected financial information for a
selected peer group of companies comparable to First Citizens and the Other
Companies (hereinafter referred to as the "First Citizens Peer Group"). The
First Citizens Peer Group consists of twenty-eight (28) publicly traded
southeastern banking organizations with assets up to $500 million.
The companies in the First Citizens Peer Group are: S.Y. Bancorp Inc.,
Carolina Southern Bank, PAB Bankshares, Inc., South Alabama Bancorporation,
Summit Financial Corp., Midsouth Bancorp Inc., Auburn
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National Bancorporation, FNB Corp/North Carolina, SNB Bankshares Inc., Savannah
Bancorp Inc., Bank of South Carolina, First Community Banking Services, First
Bancorp North Carolina, Florida Banks, Inc., First Sterling Banks, Inc., Gulf
West Banks, Inc., Peoples Bantrust Co., Inc., Merit Holding Corp., FNB Financial
Services Corp., Southwest Georgia Financial Corp., Newsouth Bancorp Inc.,
Commercial Bancshares Inc/Fla, American Bancshares Inc/Fla, First Southern
Bancshares, Pointe Financial Corp., Habersham Bancorp, Community Financial
Group, and Community Capital Corp.
The analysis of the First Citizens Peer Group indicates that, among other
things, based on market prices as of September 2, 1998, (i) the average multiple
of price to respective last twelve months' earnings was 21.9x and the median was
20.8x for the First Citizens Peer Group and the minimum ratio was 11.2x and the
maximum ratio was 38.1x; (ii) the average ratio of price to book value per share
was 232% and the median was 226% for the First Citizens Peer Group and the
minimum ratio was 105% and the maximum ratio was 398%; (iii) the average ratio
of equity as a percentage of assets was 10.2% and the median was 9.8% (this
compares to a corresponding ratio for First Citizens of 8.5% and a pro forma
ratio of 11.1% for the combined entity, both ratios as of June 30, 1998); (iv)
the average return on average assets was 1.11% and the median was 1.17% (this
compares to a corresponding ratio for First Citizens of 1.3% and a pro forma
ratio of .7% for the combined entity, assuming for both that the six-months
results ending June 30, 1998 are annualized); and (v) the average return on
equity was 11.4% and the median was 11.5% for the First Citizens Peer Group
(this compares to a corresponding ratio for First Citizens of 15.0% and a pro
forma ratio of 6.0% for the combined entity, assuming for both that the
six-months results ending June 30, 1998 are annualized).
First Citizens Shareholders will receive, assuming that the First Citizens
Plan of Merger closes as expected, Corporation Common Stock with a pro forma
book value of $4.52 per share, as compared to a book value of $4.89 per
equivalent First Citizens share (assuming 11,027,816 equivalent shares) which
represents dilution in book value of (7.7)%.
The First Citizens Plan of Merger contemplates that the registration of the
Corporation Common Stock will be effective at closing. Further, it is
Corporation management's plan to issue approximately 1,000,000 shares of the
Corporation Common Stock promptly after closing. If the creation of a public
market for the shares of Corporation Common Stock is successful, particularly in
conjunction with a new-money issue of the Corporation Common Stock, it is
reasonable to expect that the Corporation Common Stock will trade at multiples
comparable to the First Citizens Peer Group.
Although Porter White does not project at what price the Corporation Common
Stock will trade, a public-trading multiple of 200% to 225% times Corporation
book value would translate into a multiple of equivalent First Citizens share
value of 185% to 208% respectively. Accordingly, Porter White based its opinion
of fairness on the reasonable expectation that an effective public market for
the Corporation Common Stock can be developed such that comparable trading
multiples as described above will be realized.
Comparable Transaction Analysis. Porter White reviewed and compared actual
information for 55 comparable pending or closed transactions (the "Bank
Transactions") that it deemed pertinent to the combining banks. The Bank
Transactions are located generally in the Southeast. The primary criterion for
inclusion in the Bank Transactions was that the selling bank had assets less
than $100 million.
The selling institutions in the Bank Transactions are: FNB of Union County,
Independent Bancorp, Frederica Bank & Trust, Meigs County Bancshares, Marine
BanCorp, Commercial National Bank, Empire Bank Corp., Heart of Georgia
Bancshares, Colonial Bank of South Carolina, Mountain Bancshares Inc, Prime Bank
of Central Fla., CBC Bancshares, Inc., VB&T Bancshares Corp., Eagle Bancorp,
Peoples Banking Corp., Bank of Georgia, First Community Bancorp, Virginia
Heartland, Community B&T, CNB Holding Co., Union Bank of Tyler Ct., Ballston
Bancorp, Public Bank Corp., Hollandale Capital, Rappahannock Bankshares, Bank of
Mason, Bryan Bancorp of GA, Seminole Bank, Crossroads Bancshares Inc., Community
Investment, First NB of Tampa, Three Rivers Bancshares, Bank of Mingo, Investors
Financial Corp., Central Bank, Lanier Bank & Trust, Bank of Alexandria, Elmore
County Bancshares, Merchants & Planters, Peoples Bank of VA, First Citizens
Bancshares, Marshall National B&TC, First Community Bancshares, Duck Hill Bank,
Regency Financial Shares, Murdock Florida Bank, First Central Bank, Smith County
Bank, Gateway
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Bancshares, First Charter Bancshares, West Coast Bank, Capital State Bank, First
Southern Bancshares, Tysons Financial, and Sunniland Bank.
The analysis of the Bank Transactions indicates, among other things, that
based on the announced transaction values, (i) the average multiple of deal
price to respective last four quarters earnings was 22.9x and the median
multiple of deal price to last four quarters earnings was 21.4x; and (ii) the
average ratio of deal price to book value per share was 246% and the median
ratio of deal price to book value was 251%.
It should be emphasized that the transactions analyzed were primarily
acquisitions by large institutions, with publicly traded stock, of small
institutions, whose stock was closely held. After inquiry, Porter White is not
aware that the Directors of First Citizens have presently before them the
alternative of selling to a large publicly traded bank corporation. The First
Citizens Merger, and the proposed mergers with the Other Companies differ from
these "comparable" transactions in that it represents a combination of smaller
banks, none of which has actively traded stock, or a combination of smaller
banks with a bank holding company (the Corporation), also with a small bank
subsidiary but with the capital and management to support a larger organization,
a larger and more diverse market and a publicly traded and marketable stock.
Accretion/Dilution Analysis. On the basis of the range of historical pro
forma financial statements for the period ending June 30, 1998 and projections
prepared by the respective managements of First Citizens and the Corporation for
the calendar years 1999 and 2000, Porter White analyzed and compared pro forma
net income and book value for the combined entity and First Citizens as a
stand-alone bank.
The accretion/dilution analysis showed that, among other things, the First
Citizens Merger (if all the banks combined as proposed) would result in
projected earnings dilution in 1998 for holders of First Citizens shares of
(61.5)% assuming earnings for the six-month period ending June 30, 1998 are
annualized. Earnings would be diluted (67.9)% and (57.6)% for the years 1999 and
2000, respectively, for holders of First Citizens Common Stock. The analysis
also showed that the First Citizens Merger would result in dilution to First
Citizens book value of (7.7)% as of June 30, 1998, from a pro forma equivalent
value of approximately $4.89 per share stand-alone to $4.52 per share combined
(assuming 11,027,816 equivalent shares). First Citizens book value would be
diluted (13.6)% and (19.8)% as of year-end 1999 and 2000 respectively.
Discounted Cash Flow Analysis. Porter White performed a discounted cash
flow analyses with regard to First Citizens, in combination with the Other
Companies, using the earnings projections provided by management of the
Corporation. Porter White utilized a range of discount rates from 10% to 15% and
a terminal value of 2.25 times book value. The discount rates reflect a range
that Porter White considered appropriate to the risk and return and leverage
profile of the Corporation. The terminal value was computed by multiplying the
projected book value of equity by the median multiple of book value for the
First Citizens Peer Group of banks (2.25x). The analysis resulted in present
values of the Corporation Common Stock of $10.37, $9.91 and $9.48 for discount
rates of 10%, 12.5% and 15% respectively. No dividends were projected by the
Corporation management for the years 1999 and 2000.
Other Analyses & Considerations. No other company used as a comparison in
the above analyses is identical to First Citizens or the combined entity; and no
other transaction is identical to the merger. Accordingly, an analysis of the
results of the foregoing is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial market and
operating characteristics of the companies and other factors that could affect
the public trading volume and prices of the companies to which First Citizens
and the combined entity are being compared.
Conclusions. Based on the foregoing analysis and assuming no material
deterioration in current market conditions for bank stocks or material change in
the First Citizens Plan of Merger, Porter White concluded as follows:
(1) First Citizens, if it remains a stand-alone entity, is not as
likely to achieve market diversification and superior growth;
(2) The trading price of First Citizens Common Stock, if it remains a
closely held stock with little or no public market, will be at a
significant discount to prices available to holders of bank stocks which
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are publicly traded and which have robust markets. Historically, shares of
First Citizens have traded at a discount to book value;
(3) The Corporation is filing the Registration Statement covering
shares of Corporation Common Stock to be issued in the First Citizens
Merger and it is the plan of Corporation management to issue approximately
1,000,000 new-money shares in a subsequent offering. The new-money offering
is expected to follow promptly after the closing of the First Citizens
Merger. Upon closing of the First Citizens Merger, it is a reasonable
expectation that a public market can be developed for the Corporation
Common Stock, whether or not the Corporation issues additional shares
through a public offering. The issuance of additional Corporation Common
Stock in a new-money offering should improve the diversity of the holders
of the Corporation Common Stock. Although Porter White does not project at
what price shares of the Corporation Common Stock will trade, no
information has been received that would indicate that the Corporation
Common Stock would trade on any basis different than that of other
similarly-situated bank stocks.
(4) A discounted cash flow analysis indicates a present value for the
Corporation Common Stock that is in excess of the book value of First
Citizens.
Compensation to Financial Advisor. For financial advisory services
provided to First Citizens, Porter White will be paid its normal hourly rates
plus a $7,500 opinion fee, if an opinion is rendered. Porter White's normal
hourly rates range from $150 per hour to $240 per hour. In addition, Porter
White will be reimbursed for reasonable out-of-pocket expenses such as phone,
facsimile, travel and copying. The estimated cost of Porter White's financial
advisory services is $30,000.
EFFECTIVE TIME OF THE MERGER
Subject to the provisions of the First Citizens Plan of Merger, Articles of
Merger shall be duly executed and, on the Closing Date, or as soon thereafter as
reasonably practicable, filed with the Alabama Secretary of State in accordance
with the ABCA, and a Certificate of Merger shall be duly executed and, on the
Closing Date, or as soon thereafter as reasonably practicable filed with the
Delaware Secretary of State in accordance with the DGCL. The First Citizens
Merger shall become effective upon the filing of the Articles of Merger and the
Certificate of Approval with the Alabama Secretary of State and the Certificate
of Merger with the Delaware Secretary of State (the "Effective Time"). It is
presently anticipated that such filing will be made as soon as practicable after
the First Citizens Special Meeting and in conjunction with similar filings
relating to the Commerce Merger and the City National Merger, and that the
Effective Time will occur upon such filing, although there can be no assurance
as to whether or when the First Citizens Merger will occur.
EXCHANGE OF CERTIFICATES
As soon as reasonably practicable after the Effective Time, the Corporation
will mail to each holder of record of a certificate or certificates which
immediately prior to the Effective Time represented outstanding shares of First
Citizens Common Stock (the "Certificates"), (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the
Corporation and shall be in such form and have such other provisions as the
Corporation may reasonably specify), and (ii) instructions for use in effecting
the surrender of the Certificates in exchange for certificates representing
shares of the Corporation Common Stock. Upon surrender of a Certificate to the
Corporation or to such other agent or agents as may be appointed by the
Corporation, together with such letter of transmittal, duly executed, and such
other documents as may reasonably be required by the Corporation, the holder of
such Certificate shall be entitled to receive in exchange therefor a certificate
representing that number of whole shares of Corporation Common Stock which such
holder has the right to receive pursuant to the provisions of the First Citizens
Plan of Merger.
In the event of a transfer of ownership of First Citizens Common Stock
which is not registered in the transfer records of First Citizens, a certificate
representing the proper number of shares of Corporation Common Stock may be
issued to a person other than the person in whose name the Certificate so
surrendered is registered, if such Certificate shall be properly endorsed or
otherwise be in proper form for transfer and the
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person requesting such issuance shall pay any transfer or other taxes required
by reason of the issuance of shares of Corporation Common Stock to a person
other than the registered holder of such Certificate or establish to the
satisfaction of the Corporation that such tax has been paid or is not
applicable.
Until surrendered as contemplated by the First Citizens Plan of Merger,
each Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive Corporation Common Stock and cash for
fractional shares to which the holder of such Certificates is entitled. No
interest will be paid or will accrue on any cash payable in lieu of any
fractional shares of Corporation Common Stock. To the extent permitted by law,
former holders of record of First Citizens Common Stock shall be entitled to
vote the number of shares of Corporation Common Stock into which their
respective shares of First Citizens Common Stock are converted after the
Effective Time at any meeting of Corporation stockholders, regardless of whether
such holders have received their certificates representing Corporation Common
Stock in accordance with the First Citizens Plan of Merger.
No certificates or scrip representing fractional shares of Corporation
Common Stock shall be issued upon conversion of First Citizens Common Stock, and
such fractional share interests will not entitle the owner thereof to vote or to
any rights of a stockholder of the Corporation. Notwithstanding any other
provision of the First Citizens Plan of Merger, each holder of First Citizens
Common Stock exchanged pursuant to the First Citizens Merger who would otherwise
have been entitled to receive a fraction of a share of Corporation Common Stock
shall receive, in lieu thereof, cash (without interest) in an amount equal to
$4.74 per share.
At the Effective Time, holders of First Citizens Common Stock immediately
prior to the Effective Time will cease to be, and shall have no rights as,
holders of First Citizens Common Stock, other than the right to receive shares
of Corporation Common Stock into which such shares have been converted, any
fractional share payment and any dividends or other distributions to which they
may be entitled under the First Citizens Plan of Merger.
Neither the Corporation nor First Citizens will be liable to any holder of
First Citizens Common Stock for any shares of Corporation Common Stock (or
dividends or other distributions with respect thereto) or cash in lieu of
fractional shares delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
CONDITIONS TO THE FIRST CITIZENS MERGER
The First Citizens Plan of Merger is subject to a number of conditions,
some of which are mutual and others of which are applicable to either the
Corporation or First Citizens. Though most of the conditions will not be
satisfied until immediately prior to the Effective Time of the First Citizens
Merger, the Companies believe that they are currently in material compliance
with the conditions.
The obligation of the Corporation to consummate the First Citizens Merger
is subject to, among others, the following conditions: (a) no material adverse
changes shall have occurred in the business, operations or financial condition
of First Citizens; (b) except as otherwise provided therein, the representations
and warranties of First Citizens contained in the First Citizens Plan of Merger
shall be true and correct; (c) First Citizens shall have performed and complied
with all covenants, agreements and conditions required by the First Citizens
Plan of Merger; (d) the Corporation shall have received an opinion of First
Citizens's legal counsel, Balch & Bingham, LLP, as to certain matters; (e)
holders of not more than ten percent (10%) of the outstanding shares of First
Citizens Common Stock shall have dissented from the transactions contemplated by
the First Citizens Plan of Merger; (f) the Corporation shall have received from
Ernst & Young a letter dated the effective date of the Registration Statement
and the Closing Date, in form and substance reasonably satisfactory to
Corporation and customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the Registration Statement and pooling of interests transactions
similar to the First Citizens Merger; and (g) First Citizens shall have
shareholders equity at the Effective Time of not less than $3,141,564, excluding
costs associated with this transaction.
The obligation of First Citizens to consummate the First Citizens Merger is
subject to, among others, the following conditions: (a) no material adverse
changes shall have occurred in the business, operations or
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financial condition of Corporation; (b) First Citizens shall have received an
opinion from Balch & Bingham, LLP, that, for federal income tax purposes, the
First Citizens Merger will constitute a tax-free reorganization; (c) except as
otherwise provided therein, the representations and warranties of the
Corporation contained in the First Citizens Plan of Merger shall be true and
correct; (d) the Corporation shall have performed and complied with all
covenants, agreements and conditions required by the First Citizens Plan of
Merger to be performed or complied with in all material respects; (e) First
Citizens shall have received an opinion of Haskell Slaughter & Young, L.L.C.,
legal counsel for the Corporation as to certain matters; (f) First Citizens
shall have received from Ernst & Young a letter dated the effective date of the
Registration Statement and the Closing Date, in form and substance reasonably
satisfactory to First Citizens and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the Registration Statement and pooling of interests
transactions similar to the First Citizens Merger; (g) First Citizens shall have
received an opinion from an investment banking firm chosen by First Citizens and
acceptable to the Corporation, that the transaction is fair from a financial
point of view to its shareholders; and (h) the Corporation shall have
shareholders equity at the Effective Time of not less than $27,707,970,
exclusive of costs associated with this transaction.
The obligation of each of the Corporation and First Citizens to consummate
the First Citizens Merger is subject to certain additional conditions, including
the following: (a) the Registration Statement shall have been declared effective
and shall not be subject to a stop order of the SEC, and all applicable state
blue sky laws shall have been complied with; (b) no suit, action, claim or other
proceeding shall have been threatened or pending before any court,
administrative or governmental agency which, in the reasonable opinion of First
Citizens or Corporation, presents a significant risk of restraint or prohibition
of the transactions contemplated by the First Citizens Plan of Merger or the
attainment of material damages or other relief against First Citizens or its
shareholders or the Corporation or its shareholders in connection therewith; (c)
approval of the First Citizens Merger by holders of two-thirds of the
outstanding First Citizens Common Stock; (d) receipt of all authorizations,
approvals and consents of any third parties as well as the expiration of
applicable waiting periods, including federal or state governmental or
regulatory bodies and officials, necessary for the consummation of the First
Citizens Plan of Merger and for the continuation in all material respects of the
business of the Corporation and First Citizens, without interruption after the
Effective Time, in substantially the manner in which such business is now
conducted, and no such authorizations or approvals shall contain any conditions
or restrictions that the Corporation reasonably believes will materially
restrict or limit the business or activities of the Corporation or The Bank or
have a material adverse effect on their businesses, operations or financial
conditions taken as a whole; and (e) John F. Gittings shall have entered into an
employment agreement with the Corporation.
Prior to or at the Effective Time, either the Corporation or First
Citizens, or both, acting through their respective Boards of Directors, chief
executive officers or other authorized officers, may waive any default in the
performance of any term of the First Citizens Plan of Merger by the other party,
may waive or extend the time for the compliance or fulfillment by the other
party of any and all of its obligations under the First Citizens Plan of Merger,
and may waive any of the conditions precedent to the obligations of such party
under the First Citizens Plan of Merger, except any condition (such as required
regulatory or First Citizens shareholder approval) that, if not satisfied, would
result in the violation of any applicable law or governmental regulation. See
"Independence of Each Transaction."
REPRESENTATIONS AND COVENANTS
Under the First Citizens Plan of Merger, the Corporation and First Citizens
have each made a number of representations regarding the organization and
capital structures of the respective companies and their subsidiaries, their
operations, financial condition and other matters, including their authority to
enter into the First Citizens Plan of Merger and to consummate the First
Citizens Merger. The Corporation and First Citizens have each agreed not to
encourage, solicit, participate in or initiate discussions or negotiations with
or provide any information to any third party concerning any merger, sale of
assets, sale of or tender offer for its shares or similar transactions, except
that First Citizens may furnish information to and negotiate with an
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unsolicited third party consistent with the good faith exercise by the Board of
Directors of its fiduciary obligations.
REGULATORY APPROVALS
The First Citizens Merger must be approved by the Federal Reserve. The
Corporation's application was approved by the Federal Reserve on September 23,
1998.
Certain persons, such as states' attorneys general and private parties,
could challenge the First Citizens Merger as violative of the antitrust laws and
seek to enjoin the consummation of the First Citizens Merger and, in the case of
private persons, also seek to obtain treble damages. There can be no assurance
that a challenge to the First Citizens Merger on antitrust grounds will not be
made or, if such a challenge is made, that it will not be successful. Neither
the Corporation nor First Citizens intends to seek any further stockholder
approval or authorization of the First Citizens Plan of Merger as a result of
any action that it may take to resist or resolve any FTC or other objections,
unless required to do so by applicable law.
BUSINESS PENDING THE MERGER
The First Citizens Plan of Merger provides that, during the period from the
date of the First Citizens Plan of Merger to the Effective Time, except as
provided in the First Citizens Plan of Merger, the Corporation and First
Citizens will conduct their business in the ordinary course and use their
respective reasonable best efforts to preserve intact their business
organizations, to keep available to the Corporation and the surviving
corporation the services of the present employees of First Citizens and maintain
the goodwill of customers, suppliers and others having business dealings with
First Citizens.
Under the First Citizens Plan of Merger, First Citizens has agreed that:
(a) it will give to the Corporation access to its books, records, customer and
loan files, contracts and commitments and shall deliver such statements,
schedules and reports concerning the business, operations and financial
condition of First Citizens as are regularly provided to its Board of Directors;
(b) no change shall be made in the articles of incorporation or bylaws of First
Citizens; (c) no change shall be made in the number of shares of capital stock
of First Citizens issued and outstanding, except for shares issued pursuant to
existing stock options; (d) no contract or commitment (other than deposits, loan
commitments and investments or the sale of other real estate owned in the
ordinary course of business of First Citizens) shall be entered into by or on
behalf of First Citizens extending for more than one year or involving payment
by First Citizens of more than $25,000 in any one contract or related series of
contracts or otherwise materially affecting its business; (e) no employment
agreement or other agreement will be entered into with any employee of First
Citizens and no First Citizens employee's salary or benefits will be increased
except for normal annual increases as agreed to by Corporation in writing and no
employee benefit plan will be modified or amended; (f) First Citizens will duly
comply in all material respects with all laws applicable to it and to the
conduct of its business; (g) no dividends shall be paid, or distributions made,
with respect to First Citizens Stock; (h) no loan in excess of $50,000 will be
made by First Citizens without providing the Corporation with all relevant
documents related thereto and giving the Corporation a reasonable opportunity to
review such loan and comment thereon; (i) no security owned by First Citizens
will be sold and no new securities will be purchased without the Corporation's
approval; (j) First Citizens will not disclose to third parties any confidential
information; (k) First Citizens shall not negotiate, solicit or encourage or
authorize any person to solicit from any third party any proposals relating to
the merger or consolidation of First Citizens, disposition of the business or
assets of First Citizens or the acquisition of the capital stock of First
Citizens, except to the extent legally required for the discharge by the board
of directors of its fiduciary duties, or make any information concerning First
Citizens available to any person for the purpose of affecting or causing a
merger, consolidation or disposition of First Citizens or its assets or common
stock; (l) First Citizens shall obtain and deliver to the Corporation prior to
the filing of the Registration Statement an "affiliate" letter from each First
Citizens shareholder who may be deemed an "affiliate" of First Citizens within
the meaning of such term as used in Rule 145 under the Securities Act of 1933;
(m) First Citizens shall not, directly or indirectly, incur expenses greater
than $100,000 in connection with the First Citizens Merger; (n) First Citizens
shall not change, in any material respect, its methods of accounting in effect
at its most recent fiscal year end, except as required by changes in generally
accepted accounting
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principles, if applicable, as concurred by such parties' independent
accountants; and (o) First Citizens shall not intentionally or knowingly take or
cause to be taken any action which would disqualify the First Citizens Merger as
a "pooling of interests" for accounting purposes or as a "reorganization" within
the meaning of Section 368(a) of the Code.
Under the First Citizens Plan of Merger, the Corporation has agreed that:
(a) it will give First Citizens access to its books, records, customer and loan
files, contracts and commitments and shall deliver to First Citizens such
statements, schedules and reports concerning the business, operations and
financial condition of the Corporation as are regularly provided to its Board of
Directors; (b) no change shall be made in the articles of incorporation or
bylaws of the Corporation; (c) it will duly comply in all material respects with
all laws applicable to it and to the conduct of its business; (d) until the
First Citizens Merger is consummated, it will not disclose to third parties any
confidential information; (e) it will prepare and file the Registration
Statement with the SEC and any other applicable regulatory bodies and shall make
all applicable state securities filings and shall take all reasonable steps
necessary to cause the Registration Statement and state filings to be declared
effective and to maintain such effectiveness until all of the shares of
Corporation Common Stock covered thereby have been distributed; (f) prior to the
Closing Date, Corporation shall cause the shares of Corporation Common Stock to
be issued in the First Citizens Merger to be registered or qualified under all
applicable securities or Blue Sky laws of each of the states and territories of
the United States, and to take any other actions which may be necessary to
enable the Corporation Common Stock to be issued in the First Citizens Merger to
be distributed in each such jurisdiction; and (g) shall not intentionally take
or cause to be taken any action, whether on or before the Effective Time, which
would disqualify the First Citizens Merger as a "pooling of interests" for
accounting purposes or as a "reorganization" within the meaning of Section
368(a) of the Code.
RESALE OF CORPORATION COMMON STOCK BY AFFILIATES
Corporation Common Stock to be issued to First Citizens shareholders in
connection with the First Citizens Merger will be registered under the
Securities Act. Corporation Common Stock received by the First Citizens
shareholders upon consummation of the Merger will be freely transferable under
the Securities Act, except for shares issued to any person who may be deemed an
"Affiliate" (as defined below) of First Citizens or the Corporation within the
meaning of Rule 145 under the Securities Act. "Affiliates" are generally defined
as persons who control, are controlled by, or are under common control with
First Citizens or the Corporation at the time of the First Citizens Special
Meeting (generally, directors and certain executive officers of First Citizens
or the Corporation and major stockholders of the Corporation or First Citizens).
Generally, all shares of Corporation Common Stock received by such Affiliates
may not be sold until the Corporation publishes at least one full month of the
combined results of operations of the Corporation and First Citizens. In
addition, Affiliates of First Citizens or the Corporation must sell their shares
of Corporation Common Stock acquired in connection with the First Citizens
Merger in compliance with Rule 145 or another applicable exemption from the
registration requirements of the Securities Act.
In general, under Rule 145, for one year following the Effective Time, an
Affiliate (together with certain related persons) would be entitled to sell
shares of Corporation Common Stock acquired in connection with the First
Citizens Merger only through unsolicited "broker transactions" or in
transactions directly with a "market maker," as such terms are defined in Rule
144 under the Securities Act. Additionally, the number of shares to be sold by
an Affiliate (together with certain related persons and certain persons acting
in concert) during such one-year period within any three-month period for
purposes of Rule 145 may not exceed the greater of 1% of the outstanding shares
of Corporation Common Stock or the average weekly trading volume of such stock
during the four calendar weeks preceding such sale. Rule 145 would remain
available to Affiliates only if the Corporation remained current with its
information filings with the SEC under the Exchange Act. One year after the
Effective Time, an Affiliate of First Citizens would be able to sell such
Corporation Common Stock without such manner of sale or volume limitations,
provided that the Corporation was current with its Exchange Act information
filings and such Affiliate was not then an Affiliate of the Corporation. Two
years after the Effective Time, an Affiliate of First Citizens would be able to
sell such shares
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of Corporation Common Stock without any restrictions so long as such Affiliate
was not, and had not been for at least three months prior thereto, an Affiliate
of the Corporation.
INTERESTS OF CERTAIN PERSONS IN THE FIRST CITIZENS MERGER
In considering the recommendation of the Board of Directors of First
Citizens with respect to the First Citizens Plan of Merger and the transactions
contemplated thereby, First Citizens shareholders should be aware that certain
members of the management of First Citizens and the Board of Directors of First
Citizens have certain interests in the First Citizens Merger that are in
addition to the interests of shareholders of First Citizens generally.
Pursuant to the First Citizens Plan of Merger, the Corporation will enter
into an employment agreement with John F. Gittings. Mr. Gittings will be
employed as President of The Bank's Monroeville branch. The agreement also
provides that Mr. Gittings will receive other benefits such as car allowance and
life insurance and may participate in other executive compensation plans. The
agreement is for a term of three years. If Mr. Gittings is terminated for any
reason other than cause as defined in the agreement, Mr. Gittings shall receive
his annual compensation for the remaining term of the agreement and may not,
directly or indirectly, carry on or do similar business or solicit similar
business with any customer of the Corporation in any counties where the
Corporation or its subsidiaries do business on the date of termination. The
terms of this agreement have resulted from arm's length negotiation between the
parties involved following the original execution of the First Citizens Plan of
Merger.
As of the Record Date, directors and executive officers of First Citizens
beneficially owned an aggregate of 33,836 shares of First Citizens Common Stock,
representing 42.30 percent of the shares outstanding. Assuming an Exchange Ratio
of approximately 8.291, such persons would receive a total of 280,534 shares of
Corporation Common Stock to be issued to shareholders of First Citizens in the
First Citizens Merger or a total of 42.30% of Corporation Common Stock issued to
First Citizens shareholders in the First Citizens Merger. These individuals have
unanimously indicated their intentions to vote the shares of First Citizens
Common Stock beneficially owned by them FOR the First Citizens Plan of Merger.
See "Principal Shareholders of First Citizens -- Security Ownership of
Management."
ACCOUNTING TREATMENT
Consummation of the First Citizens Merger is conditioned upon the receipt
at Closing by the Corporation and First Citizens of a letter from Ernst & Young,
dated as of the time the First Citizens Merger becomes effective, to the effect
that the First Citizens Merger will qualify for pooling of interests accounting
treatment if consummated in accordance with the First Citizens Plan of Merger.
The Corporation and First Citizens have agreed not to intentionally take any
action that would disqualify the First Citizens Merger as a pooling-
of-interests for accounting purposes.
Under the pooling of interests method of accounting, the historical basis
of the assets and liabilities of the Corporation and First Citizens will be
combined at the Effective Time and carried forward at their previously recorded
amounts, the stockholders' equity accounts of the Corporation and First Citizens
will be combined on the Corporation's consolidated balance sheet and no goodwill
or other intangible assets will be created. Consolidated financial statements of
the Corporation issued after the First Citizens Merger will be restated
retroactively to reflect the consolidated operations of the Corporation and
First Citizens as if the First Citizens Merger had taken place prior to the
periods covered by such consolidated financial statements.
In the event the First Citizens Merger does not qualify for pooling of
interests accounting treatment, it will be accounted for by the purchase method
of accounting applicable to business combinations. Under the purchase method,
the assets and liabilities of First Citizens will be recorded on the books of
the Corporation at their fair value. If the First Citizens Merger were to be
accounted for as a purchase, neither the Corporation nor First Citizens believes
that any required adjustments will be material to the financial condition or
results of operations of the Corporation and, accordingly, First Citizens would
not resolicit the approval of its shareholders prior to consummating the First
Citizens Merger.
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The unaudited pro forma financial information contained in this
Prospectus-Joint Proxy Statement has been prepared using the pooling of
interests accounting method to account for the First Citizens Merger. See "Pro
Forma Condensed Financial Information."
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of material federal income tax consequences
of the First Citizens Merger and the exchange by the holders of First Citizens
Common Stock of such shares for shares of Corporation Common Stock. Each
shareholder's individual circumstances may affect the tax consequences of the
First Citizens Merger to him or her. In addition, no information is provided
herein with respect to the tax consequences of the First Citizens Merger under
applicable foreign, state or local laws.
Neither the Corporation nor First Citizens has requested or will receive an
advance ruling from the Internal Revenue Service (the "Service") as to the
federal income tax consequences of the First Citizens Merger. The respective
obligations of First Citizens and the Corporation to consummate the First
Citizens Merger were conditioned upon receipt of certain legal opinions relating
to the federal income tax consequences of the First Citizens Merger in form and
substance satisfactory to First Citizens and the Corporation and their
respective counsel, which have been received and are exhibits to the
Registration Statement. The opinions of such counsel are based upon the facts
that are described herein and upon certain customary representations made by the
management of First Citizens and by the management of the Corporation. Such
opinions are also based upon the Code, regulations currently in effect
thereunder, current administrative rulings and practice by the Service and
judicial authority, all of which are subject to change. Any such change could
affect the continuing validity of such opinions and this discussion. In
addition, an opinion of counsel is not binding upon the Service, and there can
be no assurance, and none is hereby given, that the Service will not take a
position which is contrary to one or more positions reflected in the opinions of
such counsel, or that such opinions will be upheld by the courts if challenged
by the Service. Furthermore, the Corporation and First Citizens have agreed in
the First Citizens Plan of Merger not to take any action which would disqualify
the First Citizens Merger as a reorganization which is tax-free to the
shareholders of First Citizens pursuant to Section 368(a) of the Code. EACH
FIRST CITIZENS SHAREHOLDER IS URGED TO CONSULT SUCH SHAREHOLDER'S PERSONAL TAX
AND FINANCIAL ADVISORS AS TO THE SPECIFIC FEDERAL INCOME TAX CONSEQUENCES TO
SUCH SHAREHOLDER, BASED ON SUCH SHAREHOLDER'S OWN PARTICULAR STATUS AND
CIRCUMSTANCES, AND ALSO AS TO ANY STATE, LOCAL, FOREIGN OR OTHER TAX
CONSEQUENCES ARISING OUT OF THE FIRST CITIZENS MERGER.
It is a condition to the obligation of the Corporation to proceed with the
First Citizens Merger that the Corporation shall have received an opinion from
Haskell Slaughter & Young, L.L.C., its counsel, which it has received, and it is
a condition to the obligation of First Citizens to proceed with the First
Citizens Merger that First Citizens shall have received an opinion from Balch &
Bingham, LLP, its counsel, which it has received, concerning the material
federal income tax consequences of the First Citizens Merger. The opinions
received by the Corporation and First Citizens reflect and support the
following:
(i) The First Citizens Merger will constitute a reorganization within
the meaning of Section 368(a) of the Code, and the Corporation and First
Citizens will each be a party to the reorganization within the meaning of
Section 368(b) of the Code;
(ii) No gain or loss will be recognized by the Corporation or First
Citizens as a result of the First Citizens Merger;
(iii) No gain or loss will be recognized by a First Citizens
shareholder who receives solely shares of Corporation Common Stock in
exchange for First Citizens Common Stock;
(iv) The receipt of cash in lieu of fractional shares of Corporation
Common Stock will be treated as if the fractional shares were distributed
as part of the exchange and then were redeemed by the Corporation. These
payments will be treated as having been received as distributions in full
payment in exchange for the stock redeemed as provided in Section 302(a) of
the Code, provided the redemption is not essentially equivalent to a
dividend;
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(v) The aggregate tax basis of the shares of Corporation Common Stock
received by a First Citizens shareholder will be equal to the aggregate tax
basis of the First Citizens Common Stock exchanged therefor, excluding any
basis allocable to a fractional share of Corporation Common Stock for which
cash is received;
(vi) The holding period of the shares of Corporation Common Stock
received by a First Citizens shareholder will include the holding period or
periods of the First Citizens Common Stock exchanged therefor, provided
that the First Citizens Common Stock is held as a capital asset within the
meaning of Section 1221 of the Code at the Effective Time.
The foregoing discussion is intended only as a summary of the material
federal income tax consequences of the First Citizens Merger and does not
purport to be a complete analysis or listing of all potential tax effects
relevant to a decision whether to vote in favor of approval and adoption of the
First Citizens Plan of Merger and the First Citizens Merger. The discussion does
not address the tax consequences arising under the laws of any state, locality
or foreign jurisdiction. Holders of First Citizens Common Stock are urged to
consult their own tax advisors concerning the federal, state, local and foreign
tax consequences of the First Citizens Merger to them.
NO SOLICITATION OF TRANSACTIONS
Under the First Citizens Plan of Merger, First Citizens is restricted in
its ability to participate in discussions and negotiate with such entities
concerning any proposal to acquire First Citizens upon a merger, purchase of
assets, purchase of or tender offer for First Citizens Common Stock or similar
transaction (an "Acquisition Transaction"). First Citizens has agreed that it
will not, and will direct each officer, director, employee, representative and
agent of First Citizens not to, directly or indirectly, encourage, solicit,
participate in or initiate discussions or negotiations with or provide any
information to any corporation, partnership, person or other entity or group
(other than the Corporation or an affiliate or associate or agent of the
Corporation) concerning any Acquisition Transaction. First Citizens has further
agreed that except to the extent legally required for the discharge by the First
Citizens Board of Directors of its fiduciary duties, it will not make any
information concerning First Citizens available to any person for the purpose of
effecting an Acquisition Transaction.
EXPENSES
The First Citizens Plan of Merger provides that all costs and expenses
incurred in connection with the First Citizens Plan of Merger and the
transactions contemplated thereby shall be paid by the party incurring such
expense.
INDEMNIFICATION
The Corporation's Restated Certificate of Incorporation and Bylaws provide
for the elimination of directors' liability for monetary damages arising from a
breach of certain fiduciary obligations and for the indemnification of
directors, officers and agents to the full extent permitted by the DGCL. These
provisions generally provide for indemnification in the absence of gross
negligence or willful misconduct and cannot be amended without the affirmative
vote of a majority of the outstanding shares of Corporation Common Stock
entitled to vote thereon.
By operation of law under the DGCL and the ABCA, all rights to
indemnification for acts or omissions occurring prior to the Effective Time now
existing in favor of the current or former directors or officers of First
Citizens as provided in its articles of incorporation or bylaws shall survive
the Merger and shall continue in effect in accordance with their terms.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Corporation
pursuant to the foregoing provisions, the Corporation has been informed that in
the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
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RIGHTS OF DISSENTING SHAREHOLDERS
The following discussion is not a complete statement of the law relating to
dissenters' rights and is qualified in its entirety by reference to Annex D,
which sets forth the full text of Sections 10-2B-13.01 through 10-2B-13.32 of
the ABCA. As used in this summary and in Sections 10-2B-13.01 through
10-2B-13.32, the term "dissenting shareholder" means the record holder of the
dissenting shares. A person having a beneficial interest in First Citizens
Common Stock which is held of record in the name of another person, such as a
broker or nominee, must act promptly to cause the record shareholder to timely
and properly follow the steps summarized below to perfect whatever dissenter's
rights the beneficial shareholder may have.
Sections 10-2B-13.01 through 10-2B-13.32 of the ABCA provide for rights of
appraisal of the value of the shares of a shareholder of record who (i) has
delivered notice in writing to First Citizens before the vote is taken that he
intends to seek a cash payment if the First Citizens Merger is consummated and
(ii) does not vote in favor of the First Citizens Merger. Within ten (10) days
after completion of the First Citizens Merger, the Corporation will send to each
shareholder who has given such notice to First Citizens a dissenter's notice
(the "Dissenter's Notice") stating, among other things, a date not less than
thirty (30) days nor more than sixty (60) days after the date of the Dissenter's
Notice by which the shareholder must submit a written payment demand. Within
twenty (20) days after making such payment demand, the shareholder shall submit
the certificates representing shares in First Citizens Common Stock to the
Corporation for notation thereon that such demand has been made.
The dissenters notice should be sent to:
John F. Gittings
First Citizens Bancorp, Inc.
Post Office Box 807
Monroeville, Alabama 36461
As soon as the First Citizens Merger is completed, or upon the receipt of a
payment demand by a shareholder, the Corporation will offer to pay each
dissenting shareholder the amount which the Corporation estimated to be the fair
value of the shares, plus accrued interest, and each dissenting shareholder may
agree to accept such offer of payment. "Fair Value" means the value of the
shares immediately before the completion of the First Citizens Merger excluding
any appreciation or depreciation in anticipation of the First Citizens Merger
unless exclusion would be inequitable. Upon receiving payment, such dissenting
shareholder ceases to have any interest in the shares. If a dissenting
shareholder is dissatisfied with the Corporation's offer of payment, the
shareholder may notify the Corporation in writing within 30 days after the
Corporation's offer of his or her own estimate of the fair value plus interest
and demand such payment, or such dissenting shareholder may simply reject the
Corporation's offer and demand payment of the fair value.
If the Corporation fails to make an offer to a dissenting shareholder
within 60 days after the date set for demanding payment, the shareholder may
notify the Corporation of his or her own fair value and demand payment. If the
dissenting shareholder and the Corporation cannot agree upon the fair value,
plus interest, to be paid for shares that are the subject of the demand, then
the Corporation shall convene a proceeding in the Circuit Court for Monroe
County within 60 days of the payment demand to have the fair value of the shares
plus accrued interest determined. If the Corporation does not commence the
proceeding within 60 days and the shareholder's account still remains unsettled,
the Corporation must pay each dissenting shareholder the amount of money
demanded. In any court proceeding, the court shall assess costs against the
Corporation except that the court may assess costs against all or some of the
dissenting shareholders if the court finds the dissenters acted arbitrarily,
vexatiously or not in good faith in demanding payment.
A record shareholder may assert dissenters' rights as to fewer than all
shares registered in such holder's name, but only if the record holder dissents
with respect to all shares beneficially owned by any one person and provides
written notice to First Citizens of the name and address of each person on whose
behalf the dissenting rights are asserted. A "beneficial shareholder" is defined
by the ABCA as the "person who is a beneficial owner of shares held in a voting
trust or by a nominee as the record shareholder." The rights of a partial
dissenter are determined as if the shares as to which such holder dissents and
other shares held by the holder are registered in different names of
shareholders. Thus, if a beneficial shareholder owns shares of First Citizens
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Common Stock through a bank, broker or other nominee, such beneficial
shareholder may assert dissenters' rights, but only if the bank, broker or
nominee dissents with respect to all shares beneficially owned by such
shareholder through the bank, broker or nominee and provides First Citizens with
the name and address of each such person wishing to assert dissenters' rights.
The beneficial shareholder must submit to First Citizens the consent of the
record shareholder, i.e., the bank, broker or nominee holding for the dissenting
beneficial shareholder, not later than the time the dissenting beneficial
shareholder asserts dissenters' rights.
A shareholder who dissents and obtains payment under these procedures may
not challenge the First Citizens Merger unless the First Citizens Merger is
unlawful or fraudulent with respect to the shareholder or First Citizens.
FAILURE OF A SHAREHOLDER TO COMPLY WITH ANY REQUIREMENTS OF THE PROVISIONS
RELATING TO DISSENTERS' RIGHTS OF APPRAISAL WILL RESULT IN A FORFEITURE BY SUCH
SHAREHOLDER OF APPRAISAL RIGHTS.
References herein to applicable statutes are summaries of portions thereof
and do not purport to be complete and are qualified in their entirety by
reference to applicable law. Sections 10-2B-13.01 through 10-2B-13.32 of the
ABCA are attached hereto as Annex D. YOU SHOULD READ ANNEX D CAREFULLY.
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THE CITY NATIONAL MERGER
The description of the City National Merger contained in this
Prospectus-Joint Proxy Statement summarizes the principal provisions of the City
National Plan of Merger and is qualified in its entirety by reference to the
City National Plan of Merger, the full text of which is attached hereto as Annex
C. All City National shareholders are urged to read Annex C carefully in its
entirety.
On June 16, 1998, the Corporation entered into a Reorganization Agreement
and Plan of Merger with City National Corporation ("City National") pursuant to
which City National is to be merged with and into the Corporation (the "City
National Merger"). Subsequently, the parties executed a Second Amended and
Restated Reorganization Agreement and Plan of Merger, dated as of June 16, 1998,
(the "City National Plan of Merger"). As of June 30, 1998, City National had
total assets of approximately $82.2 million, deposits of approximately $69.4
million and shareholders equity of approximately $11.8 million. City National
Bank is based in Sylacauga and has branches in Mignon and Childersburg.
TERMS OF THE CITY NATIONAL MERGER
The acquisition of City National by the Corporation will be effected by
means of the merger of City National with and into the Corporation, with the
Corporation being the surviving corporation. The Certificate of Incorporation
and the Bylaws of the Corporation in effect at the Effective Time will govern
the Surviving Corporation until amended or repealed in accordance with
applicable law. At the Effective Time, the Corporation shall continue as the
surviving corporation under the name "The Banc Corporation."
When the City National Merger is completed, each outstanding share of City
National Common Stock will automatically be converted into approximately 74.538
shares of Corporation Common Stock. The former City National shareholders will
receive 2,000,000 shares of Common Stock, representing approximately 18.14% of
the issued and outstanding Corporation Common Stock after completion of all of
the Mergers. None of the Mergers is conditioned upon one another. If one or more
of the other Mergers is not completed, the total number of shares of the
Corporation's Common Stock to be received by the City National shareholders will
not change.
BACKGROUND OF THE CITY NATIONAL MERGER
The City National Board of Directors had considered from time to time
whether City National Bank could continue to grow profitability and whether
there were ways in which City National could increase the marketability of its
common stock.
In April 1998, James A. Taylor, the Chairman of the Corporation, contacted
W.T. Campbell, Jr., Chairman of City National, regarding a possible business
combination between City National and the Corporation. The City National Board
of Directors decided to approve preliminary discussions with Mr. Taylor.
A meeting between Mr. Taylor and Mr. Campbell was held May 12, 1998. Mr.
Taylor outlined the business plans for the Corporation, which included expanding
the Corporation's banking operations in Alabama and possibly outside Alabama by
acquisitions, raising additional capital and expanding its shareholder base, and
operating its banks with considerable local autonomy. After the parties
exchanged possible scenarios, Mr. Campbell invited Messrs. Taylor, Taylor, Jr.
and Carter to make a presentation to the City National Board of Directors. On
May 15, 1998, Messrs. Taylor, Taylor, Jr. and Carter traveled to Sylacauga and
met with the City National Board of Directors at the offices of Mr. Campbell. At
this meeting, the City National Board of Directors unanimously voted to proceed
with a merger with the Corporation and the parties entered into a binding letter
of intent which outlined the terms and structure of the proposed transaction.
Thereafter, representatives of City National conducted a due diligence
review of the Corporation and the other banks to be acquired by the Corporation.
A representative of City National negotiated drafts of a proposed definitive
agreement. Copies of the proposed agreement were distributed to each member of
the City National Board of Directors. After further negotiations with the
Corporation, the City National Board of Directors approved the definitive
agreement which was signed on June 16, 1998. The original terms of the City
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National Merger were negotiated after the terms of the Commerce, First Citizens
and Emerald Mergers had been agreed upon separately. At the time, City National
had capital equal to approximately 14% of assets, which was greatly in excess of
the capital necessary to support City National's assets. The parties agreed that
the necessary minimum capital to support City National's assets would be
approximately 7% of those assets. Accordingly, the parties negotiated terms for
City National to receive a multiple of required capital and a dollar-for-dollar
valuation of the excess capital. For purposes of the negotiations, City National
assumed a valuation of 2.0 to 2.5 times book value for the combined entity which
equated to an approximate multiple of 2.175 times City National's necessary
capital and a dollar for dollar exchange for City National's excess capital. The
agreement called for 1,842,864 shares of Corporation Common Stock to be issued
to the shareholders of City National which would represent 16.95 percent of the
total shares of the Corporation outstanding after completion of all of the
Transactions.
Thereafter, City National retained Porter, White & Company, Inc. ("Porter
White") to render a fairness opinion regarding the City National Merger. See
"Opinion of City National's Financial Advisor." In late August 1998, the
Corporation informed City National that it wished to restructure its acquisition
of Emerald by converting Emerald Bank to a federally chartered thrift. A draft
of the Amended and Restated Reorganization Agreement and Plan of Merger was
presented to City National for that purpose. In early September 1998, the City
National Board of Directors met with a representative of Porter White to receive
a preliminary report concerning its fairness opinion. The City National Board of
Directors also discussed the Amended and Restated Plan of Merger.
Later in the week following that board meeting, certain members of the City
National Board of Directors and a representative of Porter White met with
representatives of the Corporation and representatives of the Corporation's
investment banking firm to discuss the feasibility of a public offering of the
Corporation common stock subsequent to the Merger, general market conditions and
the factors that might affect the future development of a public market for the
common stock of the Corporation. The next day, representatives of City National
also met with representatives of the Corporation to discuss certain management
and operational issues.
After those meetings, the City National Board of Directors met in early
September to review the status of the fairness opinion, to receive a preliminary
report from Porter White that the City National Merger was fair to the
shareholders of City National from a financial point of view and to approve an
Amended and Restated Plan of Merger, subject to final receipt from Porter White
of the fairness opinion. The Amended and Restated Plan of Merger provided for
the issuance of 1,842,864 shares of Corporation Common Stock in the City
National Merger.
Around September 15, 1998, Mr. Campbell was contacted by a representative
of an investment banking firm who said that he was calling on behalf of another
banking institution (the "Third Party") to determine whether City National would
be interested in discussing the Third Party's acquisition of City National. Mr.
Campbell told the representative that City National had a definitive agreement
with the Corporation but that he would listen to anything the representative had
to say on behalf of the Third Party. A number of discussions were held between
Mr. Campbell and the representative, as well as between counsel for City
National and the representative. The representative told Mr. Campbell and
counsel for City National that the Third Party believed that a price of
approximately $21 million in current market value of its common stock would be
appropriate. Mr. Campbell indicated to the representative that because of the
short time frame for discussions, it would be necessary for the Third Party to
provide to City National a firm proposal if the Third Party were serious about
proceeding.
City National informed the Corporation of the discussions with
representatives of the Third Party while they were ongoing, and Mr. Campbell
through counsel for City National began negotiating with representatives of the
Corporation a possible increase in the consideration to be paid to the
shareholders of City National in the City National Merger. After several days of
negotiations, the Corporation proposed an increase of 157,136 shares to
2,000,000 shares of Corporation Common Stock from the amount originally agreed
to between City National and the Corporation. In view of the inquiries made by
the Third Party, and due to the considerable time and expense the Corporation
had incurred in finalizing plans for completion of all of the
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Transactions, the Corporation told City National that the proposed increase
would be conditioned on City National's agreeing to (i) a break-up fee in the
approximate amount of $1,800,000 (including $800,000 for out-of-pocket
expenses), (ii) not solicit or discuss other possible offers with outside
parties, and (iii) grant an option by City National to the Corporation
respecting 19.9 percent of City National's Common Stock should City National
terminate its agreement with the Corporation and enter into an acquisition
transaction with another party within 12 months. The Corporation informed City
National that this offer would be withdrawn if not accepted promptly by City
National.
Mr. Campbell had informed certain of the City National directors of the
Third Party's interest in City National, and on September 24, 1998, at a special
meeting, Mr. Campbell informed the full City National Board of Directors of the
Third Party's approach to City National, the negotiations with the Corporation
regarding the additional consideration to be paid by the Corporation in the City
National Merger, including the additional terms regarding the payment of a
break-up fee and grant of the stock option, the failure of the Third Party to
commit to a firm offer and Porter White's belief that it could render an opinion
regarding the fairness of the revised terms. After considering the foregoing,
the Board of Directors of City National adjourned and reconvened the next day to
vote upon the revised terms. The revised terms were approved by the City
National Board of Directors the next day, September 25, 1998, when the meeting
reconvened.
On [October 2], 1998, Porter White presented its fairness opinion to the
City National Board of Directors.
The Second Amended and Restated Reorganization Agreement and Plan of
Merger, included at Annex C, supercedes all previous agreements between City
National and the Corporation and contains the revised terms of the City National
Merger as outlined above.
REASONS FOR THE CITY NATIONAL MERGER; RECOMMENDATION OF CITY NATIONAL BOARD OF
DIRECTORS
The City National Board of Directors believes that the City National Merger
is fair to, and in the best interest of, City National and its shareholders.
Accordingly, the City National Board of Directors unanimously approved the
Agreement and it recommends that the holders of City National Common Stock vote
FOR the approval of the Agreement.
The terms of the City National Merger, including the exchange ratio, are
the result of arm's length negotiations between representatives of City National
and Warrior. The City National Board of Directors did not assign any relative or
specific weight to any factor it considered in deciding to approve the
agreement. The City National Board of Directors, however, viewed the opportunity
to acquire a security for which a public trading market could develop as
significant. In reaching its decision, the City National Board of Directors also
took into account the requirement in the City National Plan of Merger of an
opinion of a financial advisor regarding the fairness of the City National
Merger to the shareholders of City National from a financial point of view.
Additionally, the City National Board of Directors reviewed the factors and
circumstances set forth in "Background of the City National Merger," and the
independence of each Merger as outlined in "Independence of Each Transaction".
The City National Board examined alternatives to the City National Merger,
including City National's remaining an independent institution. The City
National Board looked at the current market share and growth prospects of City
National in the Sylacauga area as an independent institution. The City National
Board considered that smaller institutions such as City National may be at a
competitive disadvantage in an environment of increasing consolidation in the
banking industry and also considered possible advantages enjoyed by larger
institutions, including the ability to diversify on a geographic basis, to offer
a wide variety of products and services, to provide regulatory and legal
compliance on a more efficient basis, and otherwise to take advantages of
economies of scale. The City National Board took into account the possible
advantages to City National of obtaining access to higher growth, metropolitan
areas. The City National Board examined the value of the Corporation Common
Stock to be received in the City National Merger including the possible growth
potential of the Corporation as compared to City National on a stand-alone basis
and relative to larger institutions, the expectation that the shareholders of
City National would obtain a more marketable security, and the financial aspects
of the proposed transaction, including that it would qualify as a tax-free
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reorganization under the Code. The City National Board also considered the
financial condition and results of operations of the Corporation.
City National's Board of Directors believes the Corporation's operating
philosophy of permitting banks it acquires to continue to operate with local
management and with considerable local autonomy can enhance City National Bank's
opportunity for profitable local operations. In addition, although the
Corporation a relatively new company, a combination with the Corporation offers
an opportunity for City National to become part of a larger banking enterprise
that would enable City National to diversify its risks of operations. Because
there is no public trading market for the common stock of City National, the
City National Board of Directors believes that a combination with the
Corporation would provide more liquidity for the holders of City National Common
Stock than is presently offered. In particular, the City National Board of
Directors considered it significant that the Corporation had plans to grow by
acquiring additional banks, including the pending acquisitions of Commerce,
First Citizens and CBS, and to raise additional capital through a public
offering of its common stock.
The foregoing factors are all of the material factors considered by the City
National Board of Directors in reaching its decision to recommend approval of
the City National Merger.
OPINION OF CITY NATIONAL'S FINANCIAL ADVISOR
City National employed Porter White to determine whether consideration
proposed to be paid to the shareholders of City National as a result of the City
National Merger is fair, from a financial point of view, to the shareholders of
City National ("City National Shareholders"). Porter White provided the City
National Board of Directors with a written opinion with respect to the fairness
of the transaction (the "City National Fairness Opinion"). In the preparation of
the opinion, Porter White performed various analyses bearing upon the
determination of fairness. The preparation of a fairness opinion involves
various determinations as to the most appropriate methods or analysis and
relevant data and the applications of each to the specific case. Notwithstanding
the description of separate topics in this letter, Porter White believes that
the question of fairness relates to many factors considered as a whole, and that
selecting individual statistics or portions of the analysis could create an
incomplete view of the transaction.
Porter White Profile. Porter, White was retained by City National on or
about May 21, 1998, to provide its opinion of the fairness, from a financial
viewpoint, of the consideration to be received by the City National Shareholders
in the City National Merger. Porter White was not retained to market City
National and did not participate in negotiation of the terms and conditions of
the City National Plan of Merger or any of the documents or materials
contemplated thereby or executed and delivered in connection therewith,
including, without limitation, the Stock Option Agreement executed by City
National in favor of the Corporation, granting the Corporation an option to
acquire up to 19.9% of the authorized but unissued capital stock of City
National, and the agreement by City National to pay a termination fee of $1.8
million ($800,000 of which includes out-of-pocket expenses) to the Corporation
in the event City National determines not to proceed with the City National
Merger under the conditions enumerated in the City National Plan of Merger.
Porter White is an investment banking firm whose business includes the
analysis and valuation of middle market firms, as well as the purchase and sale
of such firms and other business and financial assets and providing financing
for such firms. Porter White holds itself out as valuation consultants. Typical
engagements include ESOP appraisals, fairness opinions, valuations of restricted
stock, valuations of minority interests in private companies, valuations of
guarantees in support of debt financing and others. Porter White is independent
of City National, and its compensation is not contingent upon the outcome of the
City National Fairness Opinion.
City National has represented to Porter White and Porter White has assumed
for purposes of its opinion that over the last several years, City National has
received no firm offers to purchase its stock, but there have been occasional
indications of interest expressed. The indications included a straight stock
swap from a Birmingham bank, a roll-up plan by a Birmingham banker, and a
request from a local competitor to know if City National was for sale. City
National has further represented that there are no current offers to acquire
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shares of stock of City National or to engage in any other business combination
(or discussions ongoing designed to lead to any such sale or combination).
At the October 2, 1998 meeting of the City National Board of Directors,
Porter White delivered its written opinion that the consideration to be paid by
the Corporation in the City National Merger was fair to City National
Shareholders from a financial point of view as of October 2, 1998.
THE FULL TEXT OF PORTER WHITE'S WRITTEN OPINION TO THE CITY NATIONAL BOARD,
DATED AS OF OCTOBER 2, 1998, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITATION OF REVIEW BY PORTER WHITE, IS ATTACHED AS ANNEX G AND
IS INCORPORATED HEREIN BY REFERENCE AND SHOULD BE READ CAREFULLY AND IN ITS
ENTIRETY. THE FOLLOWING SUMMARY OF PORTER WHITE'S ANALYSIS IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION. PORTER WHITE'S OPINION IS
ADDRESSED TO THE CITY NATIONAL BOARD AND DOES NOT CONSTITUTE A RECOMMENDATION TO
ANY SHAREHOLDER OF CITY NATIONAL AS TO HOW SUCH SHAREHOLDER SHOULD VOTE WITH
RESPECT TO THE CITY NATIONAL MERGER.
Merger Analysis. As a basis for the City National Fairness Opinion, Porter
White has, among other things: (i) reviewed the City National Plan of Merger and
the Registration Statement for the Corporation; (ii) reviewed certain historical
business and financial information relating to City National, the Corporation,
Emerald, First Citizens, CBS and Commerce (together, except for City National,
the "Other Companies"); (iii) reviewed other pertinent internally generated
reports with regard to the separate businesses and prospects of City National
and the Other Companies, including, among other things, the strategic objectives
of each company and the potential benefits which might be realized through
consummation of the City National Merger; (iv) participated with senior
management in discussions of City National and the Other Companies with regard
to said strategic objectives which might be realized through consummation of the
City National Merger; (v) reviewed public information regarding selected
comparable publicly traded companies deemed relevant to the proposed business
combination; (vi) reviewed the financial terms and data of selected comparable
business combinations between banks, thrifts and bank and thrift holding
companies deemed relevant to the proposed business combination; (vii) reviewed
certain information pertaining to prospective cost savings or revenue
enhancements relative to the proposed business combination; and (viii) conducted
such other financial studies, analyses and investigations as it deemed
appropriate. Information concerning cost savings and revenue enhancements was
not quantified, but included potential cost savings associated with
consolidation of certain operations and potential revenue enhancement from the
ability of the combined banks to make larger loans. The written opinions
provided by Porter White are necessarily based upon economic, monetary,
financial market and other relevant conditions as of the dates thereof.
In connection with its review and arriving at the City National Fairness
Opinion, Porter White has relied upon and assumed the accuracy and completeness
of all of the foregoing and all other financial information and other pertinent
information provided it by City National and the Other Companies. Porter White
did not and has not assumed any obligation to independently verify any of the
provided information. With regard to the financial forecasts established and
developed for City National and the Other Companies and provided to it by the
Corporation management, Porter White assumed that these materials had been
reasonably prepared on bases reflecting the best available estimates and
judgments of the Corporation as to the future performance of the separate and
combined entities and that the projections provide a reasonable basis upon which
it can form its opinion. Neither City National nor the Corporation publicly
discloses internal management projections of the type provided to Porter White.
Therefore, such projections cannot be assumed to have been prepared with a view
towards public disclosure. The projections are based upon numerous variables and
assumptions that are inherently uncertain, including factors relative to the
general economic and competitive conditions facing City National and the
Corporation. Accordingly, actual results could vary significantly from those set
forth in the respective projections.
Porter White is not an expert in the evaluation of loan portfolios, or the
allowance for loan losses with respect thereto, and has assumed that such
allowances for City National and the Other Companies are adequate to cover such
losses. In addition, Porter White does not assume responsibility for the review
of individual credit files nor did it make an independent evaluation, appraisal
or physical inspection of the assets, or individual properties of City National,
the Other Companies or the Corporation. Furthermore, Porter White
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assumed that the City National Merger will be consummated in accordance with the
terms set forth in the City National Plan of Merger, without any waiver of any
material terms or conditions by City National and that obtaining the necessary
regulatory approvals for the City National Plan of Merger will not have an
adverse effect on any of the separate institutions or the combined entity.
Porter White assumed that the City National Merger will be accounted for as a
"pooling of interests" in accordance with generally accepted accounting
principles and will be treated as a tax free reorganization for federal income
tax purposes.
In connection with rendering its opinion to the City National Board of
Directors, Porter White performed a variety of financial analyses briefly
summarized below. Such a summary of analyses does not purport to be a complete
description of the analyses performed by Porter White. Moreover, Porter White
believes that these analyses must be considered as a whole and that selecting
portions of such analyses and the factors considered, without considering all
such analyses and factors, could create an incomplete view of the process
underlying the analyses and, more importantly, the opinion derived from them.
The preparation of a financial advisor's opinion is a complex process involving
subjective judgments and is not necessarily susceptible to partial analyses or a
summary description of such analyses. In its full analysis, Porter White
considered general economic, financial market and other financial conditions.
Furthermore, Porter White drew from its past experience in similar transactions,
as well as its experience in the valuation of securities. Any estimates
contained in its analyses are not necessarily indicative of future results or
values which may significantly diverge more or less favorably from such
estimates. Estimates of company valuations do not purport to be appraisals or
necessarily reflect the prices at which companies or their respective securities
actually may be sold. Most notably, none of the analyses performed by Porter
White were assigned a greater significance than any other in deriving its
opinion.
Markets Served. Porter White developed a map of the main and branch
offices of all of the combining banks, including City National, Commerce, First
Citizens, the Corporation, Emerald and CBS.
The map indicates that the banks as a combined entity will cover a
significant portion of Alabama and the northwest coast of Florida. The banks
currently have a small presence in the larger Alabama markets of Birmingham and
Huntsville. However, the headquarters of the Corporation are in Birmingham and
new locations are being opened in higher growth areas such as Decatur and
Guntersville.
Porter White prepared and analyzed schedules of various demographic and
expenditure information for each market in which the combining banks have a
presence. The northwest coast of Florida market has enjoyed extraordinarily high
population growth in the eighties and nineties. Population in these counties
increased 30 percent in the 1980's and has increased over 20 percent from 1990
to 1998. The northwest Florida coast, while enjoying high rates of growth in
population is comparable to Corporation markets in Alabama in relation to
household wealth and growth in income. Housing values in the northwest Florida
coast tend to be somewhat higher than Alabama markets, primarily due to a higher
density of vacation home values for non-residents. Consumer expenditures are, on
average, slightly below the U.S. average as indicated by indices of expenditures
less than 100.
Other areas of higher-than-average growth include the Morris/Warrior/Mount
Olive area where three of The Bank's branches are located, and in
Albertville/Gadsden, where Commerce is located. The Morris/Mount Olive/Warrior
market has higher-than-average consumer expenditures, income growth and wealth
indicators. Albertville/Gadsden has somewhat lower wealth and income indicators,
but the area has enjoyed moderate growth in population. Consumer expenditures in
this area are slightly below U.S. averages.
First Citizens and City National cover market areas which have had slow or
negative population growth in the last two decades. Job losses in apparel and
pulp and paper industries have dampened growth and income in these areas.
However, median household wealth and the distribution of household wealth
remains comparable to other Corporation markets.
Upon consummation of the City National Plan of Merger, the combined banks
will enjoy a much broader and more diverse market than any single pre-merger
entity has enjoyed. The Corporation's market will encompass most of the State of
Alabama and the northwest Florida coast, giving the new entity access to the
Florida, Decatur and north Jefferson County growth markets. It is Porter White's
conclusion that the
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combined entity will be in a superior position with regard to market diversity,
growth and business risk than any of the banks as a single entity.
Comparable Company Analysis. Porter White reviewed and compared actual
stock market data and actual and estimated selected financial information for a
selected peer group of companies comparable to City National and the Other
Companies (hereinafter referred to as the "City National Peer Group"). The City
National Peer Group consists of twenty-eight (28) publicly traded southeastern
banking organizations with assets up to $500 million.
The companies in the City National Peer Group are: S.Y. Bancorp Inc.,
Carolina Southern Bank, PAB Bankshares, Inc., South Alabama Bancorporation,
Summit Financial Corp., Midsouth Bancorp Inc., Auburn National Bancorporation,
FNB Corp/North Carolina, SNB Bankshares Inc., Savannah Bancorp Inc., Bank of
South Carolina, First Community Banking Services, First Bancorp North Carolina,
Florida Banks, Inc., First Sterling Banks, Inc., Gulf West Banks, Inc., Peoples
Banctrust Co., Inc., Merit Holding Corp., FNB Financial Services Corp.,
Southwest Georgia Financial Corp., Newsouth Bancorp Inc., Commercial Bancshares
Inc/Fla, American Bancshares Inc/Fla, First Southern Bancshares, Pointe
Financial Corp., Habersham Bancorp, Community Financial Group, and Community
Capital Corp.
The analysis of the City National Peer Group indicates that, among other
things, based on market prices as of September 2, 1998, (i) the average multiple
of price to respective last twelve months' earnings was 21.9x and the median was
20.8x for the City National Peer Group and the minimum ratio was 11.2x and the
maximum ratio was 38.1x; (ii) the average ratio of price to book value per share
was 232% and the median was 226% for the City National Peer Group and the
minimum ratio was 105% and the maximum ratio was 398%; (iii) the average ratio
of equity as a percentage of assets was 10.2% and the median was 9.8% (this
compares to a corresponding ratio for City National of 14.4% and a pro forma
ratio of 11.1% for the combined entity, both ratios as of June 30, 1998); (iv)
the average return on average assets was 1.11% and the median was 1.17% (this
compares to a corresponding ratio for City National of .4% and a pro forma ratio
of .7% for the combined entity, assuming for both that the six-months results
ending June 30, 1998 are annualized); and (v) the average return on equity was
11.4% and the median was 11.5% for the City National Peer Group (this compares
to a corresponding ratio for City National of 2.6% and a pro forma ratio of 6.0%
for the combined entity, assuming for both that the six-months results ending
June 30, 1998 are annualized).
City National shareholders will receive, assuming that the City National
Plan of Merger closes as expected, Corporation Common Stock with a pro forma
book value of $4.52 per share, as compared to a book value of $5.91 per
equivalent City National share (assuming 11,027,816 Corporation shares) which
represents dilution of (23.6)%.
It is Porter White's observation of the City National Peer Group that a
relationship exists between the price multiple of book value and the return on
equity of the bank. In general, although not without exception, publicly traded
banks with greater returns on equity display greater price-to-book multiples.
Because City National has historically earned a comparatively low return on
equity, it is reasonable for it to be valued at a comparatively low multiple of
book value.
The City National Plan of Merger contemplates that the registration of
Corporation Common Stock will be effective at closing. Further, it is
Corporation management's plan to issue approximately 1,000,000 shares of
Corporation Common Stock almost immediately after closing. If the creation of a
public market for the Corporation Common Stock is successful, particularly in
conjunction with a new-money issue of Corporation Common Stock, it is reasonable
to expect that Corporation's Common Stock will trade at multiples comparable to
the City National Peer Group.
Although Porter White does not project at what price Corporation Common
Stock will trade, a public-trading multiple of 200% to 225% times Corporation
book value would translate into a multiple of equivalent City National share
value of 153% to 172% respectively. Accordingly, Porter White has based its
opinion of fairness on the expectation that an effective public market for
Corporation Common Stock can be developed such that comparable trading multiples
as described above will be realized.
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Comparable Transaction Analysis. Porter White reviewed and compared actual
information for 55 comparable pending or closed transactions (the "Bank
Transactions") that it deemed pertinent to the combining banks. The Bank
Transactions were located generally in the Southeast. The primary criterion for
inclusion in the Bank Transactions was that the selling bank had total assets
less than $100 million.
The selling institutions in the Bank Transactions were: FNB of Union
County, Independent Bancorp, Frederica Bank & Trust, Meigs County Bancshares,
Marine BanCorp, Commercial National Bank, Empire Bank Corp., Heart of Georgia
Bancshares, Colonial Bank of South Carolina, Mountain Bancshares Inc, Prime Bank
of Central Fla., CBC Bancshares, Inc., VB&T Bancshares Corp., Eagle Bancorp,
Peoples Banking Corp., Bank of Georgia, First Community Bancorp, Virginia
Heartland, Community B&T, CNB Holding Co., Union Bank of Tyler Ct., Ballston
Bancorp, Public Bank Corp., Hollandale Capital, Rappahannock Bankshares, Bank of
Mason, Bryan Bancorp of GA, Seminole Bank, Crossroads Bancshares Inc., Community
Investment, First NB of Tampa, Three Rivers Bancshares, Bank of Mingo, Investors
Financial Corp., Central Bank, Lanier Bank & Trust, Bank of Alexandria, Elmore
County Bancshares, Merchants & Planters, Peoples Bank of VA, First Citizens
Bancshares, Marshall National B&TC, First Community Bancshares, Duck Hill Bank,
Regency Financial Shares, Murdock Florida Bank, First Central Bank, Smith County
Bank, Gateway Bancshares, First Charter Bancshares, West Coast Bank, Capital
State Bank, First Southern Bancshares, Tysons Financial, and Sunniland Bank.
The analysis of the Bank Transactions indicates, among other things, that
based on the announced transaction values, (i) the average multiple of deal
price to respective last four quarters earnings was 22.9x and the median
multiple of deal price to last four quarters earnings was 21.4x; and (ii) the
average ratio of deal price to book value per share was 246% and the median
ratio of deal price to book value was 251%.
It should be emphasized that the transactions analyzed were primarily
acquisitions by large institutions, with publicly traded stock, of small
institutions, whose stock was closely held. The City National Merger, and the
proposed mergers with the Other Companies differ from these "comparable"
transactions in that it represents a combination of smaller banks, none of which
have actively traded stock, or a combination of smaller banks with a bank
holding company (Corporation), also with a small bank subsidiary but with the
capital and management to support a larger organization, a larger and more
diverse market and a publicly traded and marketable stock.
Accretion/Dilution Analysis. On the basis of the range of historical pro
forma financial statements for the period ending June 30, 1998 and projections
prepared by the respective managements of City National and the Corporation for
the calendar years 1999 and 2000, Porter White analyzed and compared pro forma
net income and book value for the combined entity and City National as a
stand-alone bank.
The accretion/dilution analysis showed, among other things, that the City
National Merger (if all the banks are combined as proposed) would result in a
projected earnings accretion in 1998 for holders of City National Common Stock
of 80.6% assuming earnings for the six-month period ending June 30, 1998 are
annualized. Earnings would be diluted (6.0)% and accreted 47.0% for the years
1999 and 2000, respectively, for holders of City National Common Stock. The
analysis also showed that the Merger would result in dilution to City National
book value of (23.6)% as of June 30, 1998, from a pro forma equivalent value of
approximately $5.91 per share stand-alone to $4.52 per share combined (assuming
11,027,816 Corporation shares). City National book value would be diluted (
17.9)% and ( 14.0)% as of year-end 1999 and 2000 respectively.
Discounted Cash Flow Analysis. Porter White performed a discounted cash
flow analysis with regard to City National, in combination with the Other
Companies, using the discount rates from 10% to 15% and a terminal value of 2.25
times book value. The discount rates reflect a range that it considers
appropriate to the risk and return and leverage profile of the Corporation. The
terminal value was computed by multiplying the projected book value of equity by
the median multiple of book value for the Peer Group of banks (2.25x). The
analysis resulted in present values of Corporation Common Stock of $10.37, $9.91
and $9.48 for discount rates of 10%, 12.5% and 15% respectively. No dividends
were projected by Corporation management for the years 1999 and 2000.
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Other Analyses & Considerations. No other company used as a comparison in
the above analyses is identical to City National or the combined entity; and no
other transaction is identical to the City National Merger. Accordingly, an
analysis of the results of the foregoing is not mathematical; rather, it
involves complex considerations and judgments concerning differences in
financial market and operating characteristics of the companies and other
factors that could affect the public trading volume of the companies to which
City National and the combined entity are being compared.
Porter White is advised that a less than book value price for City National
stock was negotiated on the basis of the fact that the ratio of capital to
assets of City National is substantially above the median of its peer group.
Thus, City National is regarded as having "excess capital." As a consequence,
assuming a trading value of stock of the Corporation in excess of book value,
City National would have a dilutive effect on the value of the Corporation were
its stock to be valued at book value in the City National Merger. Neither First
Citizens nor Commerce has substantial excess capital as described in the
previous provisions of this paragraph. In addition, the historical profitability
of City National as measured by return on assets and return on equity is below
that of its peer group of banks, below that of First Citizens and approximately
equal to that of Commerce. Considering these factors, Porter White believes that
a less than book value price for City National stock in the City National Merger
is fair.
Conclusions. Based on the foregoing analysis and assuming no material
deterioration in current market conditions for bank stocks or material change in
the City National Plan of Merger, Porter White has concluded as follows:
(1) City National, if it remains a stand-alone entity, is not as
likely to achieve market diversification and superior growth;
(2) The trading price of City National Common Stock, if it remains a
closely held stock with little or no public market, will be at a
significant discount to prices available to holders of bank stocks which
are publicly traded and which have robust markets. Historically, shares of
City National have traded at a discount to book value;
(3) The Corporation is filing the Registration Statement for the
purpose of registering shares of Corporation Common Stock to be issued in
the City National Merger and it is the plan of Corporation's management to
issue approximately 1,000,000 new-money shares in a subsequent offering.
The new-money offering is expected to follow promptly after the closing of
the City National Merger. Upon closing of the City National Merger, it is a
reasonable expectation that a public market can be developed for
Corporation Common Stock, whether or not the Corporation issues additional
shares through a public offering. The issuance of additional Corporation
Common Stock in a new-money offering should improve the diversity of
Corporation holdings. Although Porter White does not project at what price
shares of Corporation will trade, no information has been received that
would indicate that Corporation Common Stock would trade on any basis
different than that of other similarly-situated bank stocks..
(4) A discounted cash flow analysis indicates a present value for
Corporation Common Stock that is in excess of the book value of City
National.
(5) In agreeing to the City National Merger, the Directors are
committing to a two step transaction: (a) a merger which is dilutive of
book value, and (b) the establishment of a public market for the stock,
either through a subsequent underwritten public offering or through market
makers in the over the counter market.
Compensation to Financial Advisor. For its financial advisory services
provided to City National, Porter White will be paid its normal hourly rates
plus a $7,500 opinion fee, if an opinion is rendered. Our normal hourly rates
range from $150 per hour to $240 per hour. In addition, Porter White will be
reimbursed for reasonable out-of-pocket expenses such as phone, facsimile,
travel and copying. The estimated cost of Porter White's financial advisory
service is $40,000.
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EFFECTIVE TIME OF THE MERGER
Subject to the provisions of the City National Plan of Merger, Articles of
Merger shall be duly executed and, on the Closing Date, or as soon thereafter as
reasonably practicable, filed with the Alabama Secretary of State in accordance
with the ABCA and a Certificate of Merger shall be duly executed and, on the
Closing Date, or as soon thereafter as reasonably practicable, filed with the
Delaware Secretary of State in accordance with the DGCL. The City National
Merger shall become effective upon the filing of the Articles of Merger and the
Certificate of Approval with the Alabama Secretary of State and the Certificate
of Merger with the Delaware Secretary of State (the "Effective Time"). It is
presently anticipated that such filing will be made as soon as practicable after
the City National Special Meeting, and in conjunction with similar filings
relating to the Commerce Merger and the First Citizens Merger and that the
Effective Time will occur upon such filing, although there can be no assurance
as to whether or when the City National Merger will occur.
EXCHANGE OF CERTIFICATES
As soon as reasonably practicable after the Effective Time, the Corporation
will mail to each holder of record of a certificate or certificates which
immediately prior to the Effective Time represented outstanding shares of City
National Common Stock (the "Certificates"), (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the
Corporation and shall be in such form and have such other provisions as the
Corporation may reasonably specify), and (ii) instructions for use in effecting
the surrender of the Certificates in exchange for certificates representing
shares of the Corporation Common Stock. Upon surrender of a Certificate to the
Corporation or to such other agent or agents as may be appointed by the
Corporation, together with such letter of transmittal, duly executed, and such
other documents as may reasonably be required by the Corporation, the holder of
such Certificate shall be entitled to receive in exchange therefor a certificate
representing that number of whole shares of Corporation Common Stock which such
holder has the right to receive pursuant to the provisions of the City National
Plan of Merger.
In the event of a transfer of ownership of City National Common Stock which
is not registered in the transfer records of City National, a certificate
representing the proper number of shares of Corporation Common Stock may be
issued to a person other than the person in whose name the Certificate so
surrendered is registered, if such Certificate shall be properly endorsed or
otherwise be in proper form for transfer and the person requesting such issuance
shall pay any transfer or other taxes required by reason of the issuance of
shares of Corporation Common Stock to a person other than the registered holder
of such Certificate or establish to the satisfaction of the Corporation that
such tax has been paid or is not applicable.
Until surrendered as contemplated by the City National Plan of Merger, each
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive Corporation Common Stock and cash for fractional
shares to which the holder of such Certificate is entitled. No interest will be
paid or will accrue on any cash payable in lieu of any fractional shares of the
Corporation Common Stock. To the extent permitted by law, former holders of
record of City National Common Stock shall be entitled to vote the number of
shares of the Corporation Common Stock into which their respective shares of
City National Common Stock are converted after the Effective Time at any meeting
of Corporation stockholders, regardless of whether such holders have received
their certificates representing the Corporation Common Stock in accordance with
the City National Plan of Merger.
No certificates or scrip representing fractional shares of Corporation
Common Stock shall be issued upon conversion of City National Common Stock, and
such fractional share interests will not entitle the owner thereof to vote or to
any rights of a stockholder of the Corporation. Notwithstanding any other
provision of the City National Plan of Merger, each holder of City National
Common Stock exchanged pursuant to the City National Merger who would otherwise
have been entitled to receive a fraction of a share of Corporation Common Stock
shall receive, in lieu thereof, cash (without interest) in an amount equal to
$4.74 per share.
At the Effective Time, holders of City National Common Stock immediately
prior to the Effective Time will cease to be, and shall have no rights as,
holders of City National Common Stock, other than the right to receive shares of
Corporation Common Stock into which such shares have been converted, any
fractional
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share payment and any dividends or other distributions to which they may be
entitled under the City National Plan of Merger.
Neither of the Corporation nor City National will be liable to any holder
of City National Common Stock for any shares of Corporation Common Stock (or
dividends or other distributions with respect thereto) or cash in lieu of
fractional shares delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
CONDITIONS TO THE CITY NATIONAL MERGER
The City National Plan of Merger is subject to a number of conditions, some
of which are mutual and others of which are applicable to either the Corporation
or City National. Though most of the conditions will not be satisfied until
immediately prior to the Effective Time of the Merger, the Companies believe
that they are currently in material compliance with the conditions.
The obligation of the Corporation to consummate the City National Merger is
subject to, among others, the following conditions: (a) no material adverse
changes shall have occurred in the business, operations or financial condition
of City National; (b) except as otherwise provided therein, the representations
and warranties of City National contained in the City National Plan of Merger
shall be true and correct; (c) City National shall have performed and complied
with all covenants, agreements and conditions required by the City National Plan
of Merger; (d) the Corporation shall have received an opinion of City National's
legal counsel, Balch & Bingham, LLP as to certain matters; (e) holders of not
more than ten percent (10%) of the outstanding shares of City National Common
Stock shall have dissented from the transactions contemplated by the City
National Plan of Merger; (f) the Corporation shall have received from Ernst &
Young a letter dated the effective date of the Registration Statement and the
Closing Date, in form and substance reasonably satisfactory to Corporation and
customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the
Registration Statement and pooling of interests transactions similar to the City
National Merger; and (g) City National shall have shareholders equity at the
Effective Time of not less than $11,517,899, excluding costs associated with
this transaction.
The obligation of City National to consummate the City National Merger is
subject to, among others, the following conditions: (a) no material adverse
changes shall have occurred in the business, operations or financial condition
of Corporation; (b) City National shall have received an opinion from Balch &
Bingham, LLP that, for federal income tax purposes, the City National Merger
will constitute a tax-free reorganization; (c) except as otherwise provided
therein, the representations and warranties of the Corporation contained in the
City National Plan of Merger shall be true and correct; (d) the Corporation
shall have performed and complied with all covenants, agreements and conditions
required by the City National Plan of Merger to be performed or complied with in
all material respects; (e) City National shall have received an opinion of
Haskell Slaughter & Young, L.L.C., legal counsel for the Corporation as to
certain matters; (f) City National shall have received from Ernst & Young a
letter dated the effective date of the Registration Statement and the Closing
Date, in form and substance reasonably satisfactory to City National and
customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the
Registration Statement and pooling of interests transactions similar to the City
National Merger; (g) City National shall have received an opinion from an
investment banking firm chosen by City National and acceptable to the
Corporation that the transaction is fair from a financial point of view to its
shareholders; and (h) the Corporation shall have shareholders equity at the
Effective Time of not less than $30,849,534, exclusive of costs associated with
this transaction.
The obligation of each of the Corporation and City National to consummate
the City National Merger is subject to certain additional conditions, including
the following: (a) the Registration Statement shall have been declared effective
and shall not be subject to a stop order of the SEC, and all applicable state
blue sky laws shall have been complied with; (b) no suit, action, claim or other
proceeding shall have been threatened or pending before any court,
administrative or governmental agency which, in the reasonable opinion of City
National or Corporation, presents a significant risk of restraint or prohibition
of the transactions contemplated by the City National Plan of Merger or the
attainment of material damages or other relief against City
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National or its shareholders or the Corporation or its shareholders in
connection therewith; (c) approval of the City National Merger by holders of
two-thirds of the outstanding City National Common Stock; (d) receipt of all
authorizations, approvals and consents of any third parties as well as the
expiration of applicable waiting periods, including federal or state
governmental or regulatory bodies and officials, necessary for the consummation
of the City National Plan of Merger and for the continuation in all material
respects of the business of the Corporation, The Bank and City National, without
interruption after the Effective Time, in substantially the manner in which such
business is now conducted, and no such authorizations or approvals shall contain
any conditions or restrictions that the Corporation reasonably believes will
materially restrict or limit the business or activities of the Corporation or
The Bank or have a material adverse effect on their businesses, operations or
financial conditions taken as a whole; and (e) Gordon R. Boyles, W.T. Campbell,
Jr. and W.P. Riley shall have entered into employment agreements with the
Corporation.
Prior to or at the Effective Time, either the Corporation or City National,
or both, acting through their respective Boards of Directors, chief executive
officers or other authorized officers, may waive any default in the performance
of any term of the City National Plan of Merger by the other party, may waive or
extend the time for the compliance or fulfillment by the other party of any and
all of its obligations of such party under the City National Plan of Merger,
except any condition (such as required regulatory or City National shareholder
approval) that, if not satisfied, would result in the violation of any
applicable law or governmental regulation. See "Independence of Each
Transaction."
REPRESENTATIONS AND COVENANTS
Under the City National Plan of Merger, the Corporation and City National
have each made a number of representations regarding the organization and
capital structures of the respective Companies and their subsidiaries, their
operations, financial condition and other matters, including their authority to
enter into the City National Plan of Merger and to consummate the City National
Merger.
REGULATORY APPROVALS
The City National Merger must be approved by the Federal Reserve. The
Corporation's application was approved on September 23, 1998.
Certain persons, such as states' attorneys general and private parties,
could challenge the Merger as violative of the antitrust laws and seek to enjoin
the consummation of the Merger and, in the case of private persons, also seek to
obtain treble damages. There can be no assurance that a challenge to the City
National Merger on antitrust grounds will not be made or, if such a challenge is
made, that it will not be successful. Neither the Corporation nor City National
intends to seek any further stockholder approval or authorization of the City
National Plan of Merger as a result of any action that it may take to resist or
resolve any antitrust or other objections, unless required to do so by
applicable law.
BUSINESS PENDING THE MERGER
The City National Plan of Merger provides that, during the period from the
date of the City National Plan of Merger to the Effective Time, except as
provided in the City National Plan of Merger, the Corporation and City National
will conduct their business in the ordinary course and use their respective
reasonable best efforts to preserve intact their business organizations, to keep
available to the Corporation and the surviving corporation the services of the
present employees of City National and maintain the goodwill of customers,
suppliers and others having business dealings with City National.
Under the City National Plan of Merger, City National has agreed that: (a)
it will give to the Corporation access to its books, records, customer and loan
files, contracts and commitments and shall deliver such statements, schedules
and reports concerning the business, operations and financial condition of City
National as are regularly provided to its Board of Directors; (b) no change
shall be made in the articles of incorporation or bylaws of City National; (c)
no change shall be made in the number of shares of capital stock of City
National issued and outstanding; (d) no contract or commitment (other than
deposits, loan commitments and investments or the sale of other real estate
owned in the ordinary course of business of City
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National) shall be entered into by or on behalf of City National extending for
more than one year or involving payment by City National of more than $10,000 in
any one contract or related series of contracts or otherwise materially
affecting its business; (e) no employment agreement or other agreement will be
entered into with any employee of City National and no City National employee's
salary or benefits will be increased except for normal annual increases as
agreed to by Corporation in writing and no employee benefit plan will be
modified or amended; (f) City National will duly comply in all material respects
with all laws applicable to it and to the conduct of its business; (g) no
dividends shall be paid, or distributions made, with respect to City National
Stock, except that dividends in the amount of $1.50 per quarter may be paid; (h)
no loan other than in the ordinary course of business will be made by City
National without providing Corporation with all relevant documents related
thereto and giving Corporation a reasonable opportunity to review such loan and
comment thereon; (i) no security owned by City National will be sold and no new
securities will be purchased without Corporation's approval; (j) City National
will not disclose to third parties any confidential information; (k) City
National shall obtain and deliver to Corporation prior to the filing of the
Registration Statement an "affiliate" letter from each City National shareholder
who may be deemed an "affiliate" of City National within the meaning of such
term as used in Rule 145 under the Securities Act of 1933; (l) City National
shall not change, in any material respect, its methods of accounting in effect
at its most recent fiscal year end, except as required by changes in generally
accepted accounting principles, if applicable, as concurred by such parties'
independent accountants; and (m) City National shall not intentionally or
knowingly take or cause to be taken any action which would disqualify the City
National Merger as a "pooling of interests" for accounting purposes or as a
"reorganization" within the meaning of Section 368(a) of the Code.
Under the City National Plan of Merger, the Corporation has agreed that:
(a) it will give City National access to its books, records, customer and loan
files, contracts, and commitments and shall deliver to City National such
statements, schedules and reports concerning the business, operations and
financial condition of Corporation as are regularly provided to its Board of
Directors; (b) no change shall be made in the articles of incorporation or
bylaws of the Corporation; (c) it will duly comply in all material respects with
all laws applicable to it and to the conduct of its business; (d) until the City
National Merger is consummated, it will not disclose to third parties any
confidential information; (e) it will prepare and file the Registration
Statement with the SEC and any other applicable regulatory bodies and shall make
all applicable state securities filings and shall take all reasonable steps
necessary to cause the Registration Statement and state filings to be declared
effective and to maintain such effectiveness until all of the shares of
Corporation Common Stock covered thereby have been distributed; (f) prior to the
Closing Date, Corporation shall cause the shares of Corporation Common Stock to
be issued in the City National Merger to be registered or qualified under all
applicable securities or Blue Sky laws of each of the states and territories of
the United States, and to take any other actions which may be necessary to
enable the Corporation Common Stock to be issued in the City National Merger to
be distributed in each such jurisdiction; and (g) shall not intentionally take
or cause to be taken any action, whether on or before the Effective Time, which
would disqualify the City National Merger as a "pooling of interests" for
accounting purposes or as a "reorganization" within the meaning of Section
368(a) of the Code.
RESALE OF CORPORATION COMMON STOCK BY AFFILIATES
Corporation Common Stock to be issued to City National shareholders in
connection with the City National Merger will be registered under the Securities
Act. Corporation Common Stock received by the City National shareholders upon
consummation of the Merger will be freely transferable under the Securities Act,
except for shares issued to any person who may be deemed an "Affiliate" (as
defined below) of City National or the Corporation within the meaning of Rule
145 under the Securities Act. "Affiliates" are generally defined as persons who
control, are controlled by, or are under common control with City National or
the Corporation at the time of the City National Special Meeting (generally,
directors and certain executive officers of City National or the Corporation and
major stockholders of the Corporation or City National). Generally, all shares
of Corporation Common Stock received by such Affiliates may not be sold until
the Corporation publishes at least one full month of the combined results of
operations of the Corporation and City National. In addition, Affiliates of City
National or the Corporation must not sell their shares of the Corporation
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Common Stock acquired in connection with the City National Merger in compliance
with Rule 145 or another applicable exemption from the registration requirements
of the Securities Act.
In general, under Rule 145, for one year following the Effective Time, an
Affiliate (together with certain related persons) would be entitled to sell
shares of Corporation Common Stock acquired in connection with the City National
Merger only through unsolicited "broker transactions" or in transactions
directly with a "market maker," as such terms are defined in Rule 144 under the
Securities Act. Additionally, the number of shares to be sold by an Affiliate
(together with certain related persons and certain persons acting in concert)
during such one-year period within any three-month period for purposes of Rule
145 may not exceed the greater of 1% of the outstanding shares of Corporation
Common Stock or the average weekly trading volume of such stock during the four
calendar weeks preceding such sale. Rule 145 would remain available to
Affiliates only if the Corporation remained current with its information filings
with the SEC under the Exchange Act. One year after the Effective Time, an
Affiliate of City National would be able to sell such Corporation Common Stock
without such manner of sale or volume limitations, provided that the Corporation
was current with its Exchange Act information filings and such Affiliate was not
then an Affiliate of the Corporation. Two years after the Effective Time, an
Affiliate of City National would be able to sell such shares of Corporation
Common Stock without any restrictions so long as such Affiliate was not, and had
not been for at least three months prior thereto, an Affiliate of the
Corporation.
INTERESTS OF CERTAIN PERSONS IN THE CITY NATIONAL MERGER
In considering the recommendation of the Board of Directors of City
National with respect to the City National Plan of Merger and the transactions
contemplated thereby, City National shareholders should be aware that certain
members of the management of City National and the Board of Directors of City
National have certain interests in the City National Merger that are in addition
to the interests of shareholders of City National generally.
Pursuant to the City National Plan of Merger, the Corporation will enter
into employment agreements with W.T. Campbell, Jr., Gordon R. Boyles and W.P.
Riley. Each of the agreements will be for three year terms and will provide that
each person will be entitled to certain benefits such as car allowances,
insurance and rights to participate in executive compensation plans of the
Corporation. The agreements will also provide that if any person is terminated
for any reason other than cause as defined in the agreement, such person will
receive his annual compensation for the remaining term of the agreement and each
person may not, directly or indirectly, carry on or do similar business or
solicit similar business with any customer of the Corporation in any counties
where the Corporation or its subsidiaries do business on the date of
termination. The agreements provide that Mr. Campbell will serve as the Chairman
of the Sylacauga board of directors for The Bank, Mr. Boyles will serve as Vice
Chairman of such board, and Mr. Riley will serve as President and CEO of local
banking operations. The agreements provide annual compensation to Messrs.
Campbell, Boyles and Riley of $135,000, $95,000 and $90,000, respectively.
The terms of the foregoing employment arrangements have resulted from arm's
length negotiation between the parties involved following the original execution
of the City National Plan of Merger.
As of the Record Date, directors and executive officers of City National
beneficially owned an aggregate of 8,116 shares of City National Common Stock,
representing 30.25 percent of the shares outstanding. Assuming an Exchange Ratio
of approximately 74.538, such persons would receive a total of 604,950 shares of
the Corporation Common Stock to be issued to shareholders of City National in
the City National Merger or a total of 30.25% of Corporation Common Stock issued
to City National shareholders in the City National Merger. These individuals
have unanimously indicated their intentions to vote the shares of City National
Common Stock beneficially owned by them FOR the City National Plan of Merger.
See "Business of City National -- Security Ownership of Management."
ACCOUNTING TREATMENT
Consummation of the City National Merger is conditioned upon the receipt at
Closing by the Corporation and City National of a letter from Ernst & Young,
dated as of the time the City National Merger
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<PAGE> 95
becomes effective, to the effect that the City National Merger will qualify for
pooling-of-interests accounting treatment if consummated in accordance with the
City National Plan of Merger. The Corporation and City National have agreed not
to intentionally take any action that would disqualify the City National Merger
as a pooling-of-interests for accounting purposes.
Under the pooling-of-interests method of accounting, the historical basis
of the assets and liabilities of the Corporation and City National will be
combined at the Effective Time and carried forward at their previously recorded
amounts, the stockholders' equity accounts of the Corporation and City National
will be combined on the Corporation's consolidated balance sheet and no goodwill
or other intangible assets will be created. Consolidated financial statements of
the Corporation issued after the City National Merger will be restated
retroactively to reflect the consolidated operations of the Corporation and City
National as if the City National Merger had taken place prior to the periods
covered by such consolidated financial statements.
In the event the City National Merger does not qualify for pooling of
interests accounting treatment, it will be accounted for by the purchase method
of accounting applicable to business combinations. Under the purchase method,
the assets and liabilities of City National will be recorded on the books of the
Corporation at their fair value. If the City National Merger were to be
accounted for as a purchase, neither the Corporation nor City National believes
that any required adjustments will be material to the financial condition or
results of operations of the Corporation and, accordingly, City National would
not resolicit the approval of its shareholders prior to consummating the City
National Merger.
The unaudited pro forma financial information contained in this
Prospectus-Joint Proxy Statement has been prepared using the
pooling-of-interests accounting method to account for the City National Merger.
See "Pro Forma Condensed Financial Information."
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of material federal income tax consequences
of the City National Merger and the exchange by the holders of City National
Common Stock of such shares for shares of Corporation Common Stock. Each
shareholder's individual circumstances may affect the tax consequences of the
City National Merger to him or her. In addition, no information is provided
herein with respect to the tax consequences of the City National Merger under
applicable foreign, state or local laws.
Neither the Corporation nor City National has requested or will receive an
advance ruling from the Internal Revenue Service (the "Service") as to the
federal income tax consequences of the City National Merger. The respective
obligations of City National and the Corporation to consummate the City National
Merger were conditioned upon receipt of certain legal opinions relating to the
federal income tax consequences of the City National Merger in form and
substance satisfactory to City National and the Corporation and their respective
counsel, which have been received and are exhibits to the Registration
Statement. The opinions of such counsel are based upon the facts that are
described herein and upon certain customary representations made by the
management of City National and by the management of the Corporation. Such
opinions are also based upon the Code, regulations currently in effect
thereunder, current administrative rulings and practice by the Service and
judicial authority, all of which are subject to change. Any such change could
affect the continuing validity of such opinions and this discussion. In
addition, an opinion of counsel is not binding upon the Service, and there can
be no assurance, and none is hereby given, that the Service will not take a
position which is contrary to one or more positions reflected in the opinions of
such counsel, or that such opinions will be upheld by the courts if challenged
by the Service. Furthermore, the Corporation and City National have agreed in
the City National Plan of Merger not to take any action which would disqualify
the City National Merger as a reorganization which is tax-free to the
shareholders of City National pursuant to Section 368(a) of the Code. EACH CITY
NATIONAL SHAREHOLDER IS URGED TO CONSULT SUCH SHAREHOLDER'S PERSONAL TAX AND
FINANCIAL ADVISORS AS TO THE SPECIFIC FEDERAL INCOME TAX CONSEQUENCES TO SUCH
SHAREHOLDER, BASED ON SUCH SHAREHOLDER'S OWN PARTICULAR STATUS AND
CIRCUMSTANCES, AND ALSO AS TO ANY STATE, LOCAL, FOREIGN OR OTHER TAX
CONSEQUENCES ARISING OUT OF THE CITY NATIONAL MERGER.
It is a condition to the obligation of the Corporation to proceed with the
City National Merger that the Corporation shall have received an opinion from
Haskell Slaughter & Young, L.L.C., its counsel, which it has
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<PAGE> 96
received, and it is a condition to the obligation of City National to proceed
with the City National Merger that City National shall have received an opinion
from Balch & Bingham, LLP, its counsel, which it has received, concerning the
material federal income tax consequences of the City National Merger. The
opinions received by the Corporation and City National reflect and support the
following:
(i) The City National Merger will constitute a reorganization within
the meaning of Section 368(a) of the Code, and the Corporation and City
National will each be a party to the reorganization within the meaning of
Section 368(b) of the Code;
(ii) No gain or loss will be recognized by the Corporation or City
National as a result of the City National Merger;
(iii) No gain or loss will be recognized by a City National
shareholder who receives solely shares of Corporation Common Stock in
exchange for City National Common Stock;
(iv) The receipt of cash in lieu of fractional shares of Corporation
Common Stock will be treated as if the fractional shares were distributed
as part of the exchange and then were redeemed by the Corporation. These
payments will be treated as having been received as distributions in full
payment in exchange for the stock redeemed as provided in Section 302(a) of
the Code, provided the redemption is not essentially equivalent to a
dividend;
(v) The aggregate tax basis of the shares of Corporation Common Stock
received by a City National shareholder will be equal to the tax aggregate
basis of the City National Common Stock exchanged therefor, excluding any
basis allocable to a fractional share of Corporation Common Stock for which
cash is received;
(vi) The holding period of the shares of Corporation Common Stock
received by a City National shareholder will include the holding period or
periods of the City National Common Stock exchanged therefor, provided that
the City National Common Stock is held as a capital asset within the
meaning of Section 1221 of the Code at the Effective Time.
The foregoing discussion is intended only as a summary of the material
federal income tax consequences of the City National Merger and does not purport
to be a complete analysis or listing of all potential tax effects relevant to a
decision whether to vote in favor of approval and adoption of the Plan of Merger
and the City National Merger. The discussion does not address the tax
consequences arising under the laws of any state, locality or foreign
jurisdiction. Holders of City National Common Stock are urged to consult their
own tax advisors concerning the federal, state, local and foreign tax
consequences of the City National Merger to them.
NO SOLICITATION OF TRANSACTIONS
Under the City National Plan of Merger, City National is restricted in its
ability to participate in discussions and negotiate with third parties
concerning any proposal to acquire City National upon a merger, purchase of
assets, purchase of or tender offer for City National Common Stock or similar
transaction (an "Acquisition Transaction"). City National has agreed that it
will not, and will direct each officer, director, employee, representative and
agent of City National not to, directly or indirectly, encourage, solicit,
participate in or initiate discussions or negotiations with or provide any
information to any corporation, partnership, person or other entity or group
(other than the Corporation or an affiliate or associate or agent of the
Corporation) concerning any Acquisition Transaction. City National has further
agreed that except to the extent legally required for the discharge by the City
National Board of Directors of its fiduciary duties, it will not make any
information concerning City National available to any person for the purpose of
effecting an Acquisition Transaction.
City National has also agreed that it will pay a break-up fee of $1.8
million (including $800,000 in out of pocket expenses) to the Corporation and it
has granted an option to the Corporation to purchase up to 19.9 percent of City
National's Common Stock if City National enters into an Acquisition Transaction
with another party.
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<PAGE> 97
EXPENSES
The City National Plan of Merger provides that all costs and expenses
incurred in connection with the City National Plan of Merger and the
transactions contemplated thereby shall be paid by the party incurring such
expense.
INDEMNIFICATION
The Corporation's Restated Certificate of Incorporation and Bylaws provide
for the elimination of directors' liability for monetary damages arising from a
breach of certain fiduciary obligations and for the indemnification of
directors, officers and agents to the full extent permitted by the DGCL. These
provisions generally provide for indemnification in the absence of gross
negligence or willful misconduct and cannot be amended without the affirmative
vote of a majority of the outstanding shares of Corporation Common Stock
entitled to vote thereon.
By operation of law under the DGCL and the ABCA, all rights to
indemnification for acts or omissions occurring prior to the Effective Time now
existing in favor of the current or former directors or officers of City
National as provided in its articles of incorporation or bylaws shall survive
the Merger and shall continue in effect in accordance with their terms.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Corporation
pursuant to the foregoing provisions, the Corporation has been informed that in
the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
RIGHTS OF DISSENTING SHAREHOLDERS
The following discussion is not a complete statement of the law relating to
dissenters' rights and is qualified in its entirety by reference to Annex D,
which sets forth the full text of Sections 10-2B-13.01 through 10-2B-13.32 of
the ABCA. As used in this summary and in Sections 10-2B-13.01 through
10-2B-13.32, the term "dissenting stockholder" means the record holder of the
dissenting shares. A person having a beneficial interest in Common Stock which
is held of record in the name of another person, such as a broker or nominee,
must act promptly to cause the record shareholder to timely and properly follow
the steps summarized below to perfect whatever dissenter's rights the beneficial
shareholder may have.
Sections 10-2B-13.01 through 10-2B-13.32 of the ABCA provide for rights of
appraisal for the value of the shares of a shareholder of record who (i) has
delivered notice in writing to City National before the vote is taken that he
intends to seek a cash payment if the City National Merger is consummated and
(ii) does not vote in favor of the City National Merger. Within ten (10) days
after completion of the City National Merger, the Corporation will send to each
shareholder who has given such notice to City National a dissenter's notice (the
"Dissenter's Notice") stating, among other things, a date not less than thirty
(30) days nor more than sixty (60) days after the date of the Dissenter's Notice
by which the shareholder must submit a written payment demand. Within twenty
(20) days after making such payment demand, the shareholder shall submit the
certificates representing shares in City National to the Corporation for
notation thereon that such demand has been made.
The Dissenters Notice should be sent to:
W.P. Riley
City National Corporation
Post Office Box 128
Sylacauga, Alabama 35150
As soon as the City National Merger is completed, or upon the receipt of a
payment demand by a shareholder, the Corporation will offer to pay each
dissenting shareholder the amount which the Corporation estimated to be the fair
value of the shares, plus accrued interest, and each dissenting shareholder may
agree to accept such offer of payment. "Fair Value" means the value of the
shares immediately before the
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<PAGE> 98
completion of the City National Merger excluding any appreciation or
depreciation in anticipation of the City National Merger unless exclusion would
be inequitable. Upon receiving payment, such dissenting shareholder ceases to
have any interest in the shares. If a dissenting shareholder is dissatisfied
with the Corporation's offer of payment, the shareholder may notify the
Corporation in writing within 30 days after the Corporation's offer of his or
her own estimate of the fair value plus interest and demand such payment, or
such dissenting shareholder may simply reject the Corporation's offer and demand
payment of the fair value.
If the Corporation fails to make an offer to a dissenting shareholder
within 60 days after the date set for demanding payment, the shareholder may
notify the Corporation of his or her own fair value and demand payment. If the
dissenting shareholder and the Corporation cannot agree upon the fair value,
plus interest, to be paid for shares that are the subject of the demand, then
the Corporation shall convene a proceeding in the Circuit Court for Talladega
County within 60 days of the payment demand to have the fair value of the shares
plus accrued interest determined. If the Corporation does not commence the
proceeding within 60 days and the shareholder's account still remains unsettled,
the Corporation must pay each dissenter the amount of money demanded. In any
court proceeding, the court shall assess costs against the Corporation except
that the court may assess costs against all or some of the dissenting
shareholders if the court finds the dissenters acted arbitrarily, vexatiously or
not in good faith in demanding payment.
A record shareholder may assert dissenters' rights as to fewer than all
shares registered in such holder's name, but only if the record holder dissents
with respect to all shares beneficially owned by any one person and provides
written notice to City National of the name and address of each person on whose
behalf the dissenting rights are asserted. A "beneficial shareholder" is defined
by the ABCA as the "person who is a beneficial owner of shares held in a voting
trust or by a nominee as the record shareholder." The rights of a partial
dissenter are determined as if the shares as to which such holder dissents and
other shares held by the holder are registered in different names of
shareholders. Thus, if a beneficial shareholder owns shares of City National
Common Stock through a bank, broker or other nominee, such beneficial
shareholder may assert dissenters' rights, but only if the bank, broker or
nominee dissents with respect to all shares beneficially owned by such
shareholder through the bank, broker or nominee and provides City National with
the name and address of each such person wishing to assert dissenters' rights.
The beneficial shareholder must submit to City National the consent of the
record shareholder, i.e., the bank, broker or nominee holding for the dissenting
beneficial shareholder, not later than the time the dissenting beneficial
shareholder asserts dissenters' rights.
A shareholder who dissents and obtains payment under these procedures may
not challenge the City National Merger unless the City National Merger is
unlawful or fraudulent with respect to the shareholder or City National.
FAILURE OF A SHAREHOLDER TO COMPLY WITH ANY REQUIREMENTS OF THE PROVISIONS
RELATING TO DISSENTERS' RIGHTS OF APPRAISAL WILL RESULT IN A FORFEITURE BY SUCH
SHAREHOLDER OF APPRAISAL RIGHTS.
References herein to applicable statutes are summaries of portions thereof
and do not purport to be complete and are qualified in their entirety by
reference to applicable law. Sections 10-2B-13.01 through 10-2B-13.32 of the
ABCA are attached hereto as Annex D. YOU SHOULD READ ANNEX D CAREFULLY.
INDEPENDENCE OF EACH TRANSACTION
Management of each of Commerce, First Citizens and City National is aware
that one or more of the Transactions could fail to close. The Board of Directors
of each of Commerce, First Citizens and City National considered the possibility
that its corporation might be the only corporation merging with the Corporation.
Warrior entered into merger agreements first with Commerce, then with First
Citizens, Emerald, City National and CBS in that order. See the respective
"Background of the Merger" section. Thus, each of the Boards of Directors of
Commerce, First Citizens and City National approved their respective merger
agreements at various stages and before all of the pending transactions had been
made the subject of definitive agreements. Each Board believes that its own
merger with the Corporation will enhance the market for its common stock and
provide an adequate base of banking deposits and assets upon which to build a
profitable
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<PAGE> 99
banking franchise even if one or more of the other Mergers fails to close. See
"Risk Factors -- Failure to Complete One or More of the Transactions," "The
Commerce Merger -- Reasons for the Commerce Merger; Recommendations of Commerce
Board of Directors;" "The First Citizens Merger -- Reasons for the First
Citizens Merger; Recommendations of First Citizens Board of Directors" and "The
City National Merger -- Reasons for the City National Merger; Recommendations of
City National Board of Directors." Although the Board of Directors of each such
company believes that consummation of all of the planned Transactions will
provide a more diverse company upon which to expand banking operations, and
generally enhance the Corporation's ability to raise additional capital and
expand operations, each of Commerce, First Citizens and City National believes
that a merger with the Corporation will meet its objectives even if one or more
of the other Transactions fails to close.
Failure of one or more of the Transactions to be concluded would not change
the operating philosophy of the Corporation because the Corporation intends to
continue to build a banking enterprise that has operations throughout Alabama,
northwest Florida and elsewhere as opportunities arise. If one or more of the
Transactions is not undertaken, the Corporation would continue to seek to expand
its banking operations by acquiring other banks and, to a lesser extent, by
opening new branch offices de novo. In addition, the Corporation intends to
proceed with plans to raise additional capital through a public offer of its
common stock subsequent to the closing of the Mergers, and this capital would be
used to support the Corporation's planned growth. Failure to conclude one or
more of the Mergers could have a negative effect upon the Corporation's plans to
raise additional capital, but the Corporation believes that it will be able to
raise the additional capital even if one or more of the Mergers fails to close.
See "Risk Factors -- Ability to Sustain Growth and Potential Need for Additional
Capital."
OPERATIONS AND MANAGEMENT OF THE CORPORATION AFTER THE MERGERS
OPERATIONS
After consummation of the Mergers, the Surviving Corporation will operate
under the name The Banc Corporation and will continue to engage in the banking
business through its banking subsidiaries, and the operations of each of the
merged companies will be integrated where appropriate with the operations of the
Corporation and The Bank.
MANAGEMENT
After the consummation of the Mergers, the Corporation will be managed by
the same Board of Directors and executive officers as existed prior to the
Mergers, except that four Commerce directors, Steven C. Hays, Randall E. Jones,
J. Daniel Sizemore and T. Mandell Tillman and W. T. Campbell, Jr., Chairman of
the Board of City National, will become members of the Corporation's Board of
Directors for a period of three years following 1998. In addition, J. Daniel
Sizemore will become the President and the Chief Operating Officer of the
Corporation, and Terry DuBose, the Chairman and Chief Executive Officer of
Emerald, will become Vice Chairman of the Corporation and K. Earl Durden, a
director of Emerald, will become a director of the Corporation.
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THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENT OF CONDITION (UNAUDITED)
The following summary includes (i) the condensed consolidated statement of
financial condition of The Banc Corporation (formerly the Warrior Capital
Corporation) as of June 30, 1998, (ii) the condensed consolidated statement of
financial condition of Emerald Coast Bancshares, Inc. ("Emerald") as of June 30,
1998 (iii) the condensed statement of financial condition of Commerce Bank of
Alabama ("Commerce") as of June 30, 1998, (iv) the condensed consolidated
statement of financial condition of First Citizens Bancorp, Inc. ("First
Citizens") as of June 30, 1998, (v) the condensed consolidated statement of
financial condition of City National Corporation ("City National") as of June
30, 1998, (vi) the condensed consolidated statement of financial condition of
Commercial Bancshares of Roanoke, Inc. ("CBS") as of June 30, 1998, (vii)
adjustments to give effect to the proposed purchase method combination with CBS
and the proposed pooling of interests method business combinations with Emerald,
Commerce, First Citizens and City National, (viii) the pro forma combined
condensed consolidated statement of financial condition of The Banc Corporation
and subsidiaries as if such combinations had occurred on June 30, 1998.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of financial
conditions of The Banc Corporation, Emerald, Commerce, First Citizens, City
National and CBS. The pro forma information provided below may not be indicative
of future results.
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<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
---------------------------------------------------------------------------------------------------
HISTORICAL
-------------------------------------------------------------------------
THE EMERALD COMMERCE FIRST CITY COMMERCIAL
BANC COAST BANK OF CITIZENS NATIONAL BANCSHARES PRO FORMA PRO FORMA
CORPORATION BANCSHARES ALABAMA BANCORP CORPORATION OF ROANOKE ADJUSTMENTS COMBINED
----------- ---------- -------- -------- ----------- ---------- ----------- ---------
(D) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks..... $ 4,822 $ 4,220 $ 4,839 $ 988 $ 2,725 $ 1,579 $ 595a $ 19,768
Interest bearing deposits in
other banks............... -- -- -- -- 200 200 -- 400
Federal funds sold.......... 1,900 -- 840 1,230 1,120 5,250 -- 10,340
Investment securities
available for sale........ 201 8,092 21,239 1,757 35,224 2,820 -- 69,333
Investment securities held
to maturity............... 24,934 -- 252 -- -- 17,185 -- 42,371
Loans, net of unearned
income.................... 46,601 55,320 88,981 32,535 39,568 14,595 -- 277,600
Less: Allowance for loan
losses.................... (717) (512) (894) (357) (700) (288) -- (3,468)
------- ------- -------- ------- ------- ------- ---------- --------
Net loans........... 45,884 54,808 88,087 32,178 38,868 14,307 -- 274,132
------- ------- -------- ------- ------- ------- ---------- --------
Premises and equipment,
net....................... 10,227 5,286 2,841 555 2,707 285 892c 22,793
Intangibles, net............ 416 -- -- -- -- -- -- 416
Other assets................ 1,436 1,378 1,677 1,408 1,364 761 -- 8,024
------- ------- -------- ------- ------- ------- ---------- --------
Total assets........ $89,820 $73,784 $119,775 $38,116 $82,208 $42,387 $ 1,487 $447,577
======= ======= ======== ======= ======= ======= ========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing....... $12,618 $ 9,405 $ 12,796 $ 4,328 $10,525 $ 6,635 $ -- $ 56,307
Interest-bearing.......... 52,136 53,861 97,909 30,075 58,832 29,069 -- 321,882
------- ------- -------- ------- ------- ------- ---------- --------
Total deposits...... 64,754 63,266 110,705 34,403 69,357 35,704 -- 378,189
Federal funds purchased and
other borrowed funds...... -- 4,555 -- -- -- 32 7,300c 11,887
Accrued expenses and other
liabilities............... 3,181 450 2,300 468 893 243 -- 7,535
------- ------- -------- ------- ------- ------- ---------- --------
Total liabilities... 67,935 68,271 113,005 34,871 70,250 35,979 7,300 397,611
Minority interest in equity
of subsidiary............. 29 -- -- -- 139 -- -- 168
Stockholders' Equity
Common stock.............. 5 3,130 7 75 27 20 --a 11
6b
(3,239)b
(20)c
Surplus................... 13,435 3,130 7,027 800 4,135 3,526 595a 32,289
18,259b
(15,092)b
(3,526)c
Retained earnings
(accumulated deficit)... 8,451 (757) (279) 2,366 7,422 2,846 (2,846)c 17,203
Accumulated other
comprehensive income
(loss).................. (35) 10 15 4 301 16 (16)c 295
Treasury stock, at cost... -- -- -- -- (66) -- 66b --
------- ------- -------- ------- ------- ------- ---------- --------
Total stockholders'
equity............ 21,856 5,513 6,770 3,245 11,819 6,408 (5,813) 49,798
------- ------- -------- ------- ------- ------- ---------- --------
Total liabilities
and stockholders'
equity............ $89,820 $73,784 $119,775 $38,116 $82,208 $42,387 $ 1,487 $447,577
======= ======= ======== ======= ======= ======= ========== ========
</TABLE>
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NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL CONDITION
(a) To record the exercise of 57,000 stock options by officers of Emerald before
merger and 5,000 stock options by an officer of First Citizens prior to
merger.
(b) To record the exchange of 5,579,816 shares of The Banc Corporation common
stock for all of the outstanding shares of the following accounted for as a
pooling of interests.
<TABLE>
<CAPTION>
EMERALD FIRST COMMERCE CITY
COAST CITIZENS BANK OF NATIONAL
BANCSHARES BANCORP ALABAMA CORPORATION TOTAL
---------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Outstanding shares of
acquired corporation....... 683,000 80,000 658,190 26,832
Conversion ratio............. 2.02044 8.290537 2.334607 74.53786
The Banc Corporation shares
to be issued............... 1,379,958 663,243 1,536,615 2,000,000 5,579,816
Par value of shares to be
issued at $.001 per
share...................... $ 1 $ 1 $ 2 $ 2 $ 6
Total common stock
and surplus of
acquired
corporation...... 6,260 875 7,034 4,096 18,265
---------- --------- ---------- ---------- ----------
Excess recorded as an
increase in
contributed
capital............ 6,259 874 7,032 4,094 18,259
---------- --------- ---------- ---------- ----------
To eliminate acquired
corporations capital
stock Common stock at
par value............. (3,130) (75) (7) (27) (3,239)
Surplus............... (3,130) (800) (7,027) (4,135) (15,092)
Treasury stock........ -- -- -- 66 66
---------- --------- ---------- ---------- ----------
(6,260) (875) (7,034) (4,096) (18,265)
---------- --------- ---------- ---------- ----------
Net change in equity......... $ -- $ -- $ -- $ -- $ --
========== ========= ========== ========== ==========
</TABLE>
(c) Purchase of 100% of the outstanding common stock of the Commercial
Bancshares of Roanoke, Inc. for approximately $7.3 million. Stock will be
purchased with proceeds borrowed from a commercial bank. The excess of cost
over book value will be allocated to the carrying value of the main office
building which currently has a zero book basis.
(d) The Banc Corporation was formed by the reincorporation of Warrior Capital
Corporation. The 18,160 shares of Warrior Capital Corporation common stock
were converted into 5,448,000 shares of The Banc Corporation $.001 par value
common stock.
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THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENTS OF INCOME (UNAUDITED)
The following summaries include (i) the condensed consolidated statements
of income of The Banc Corporation (formerly the Warrior Capital Corporation) on
a historical basis for the six months ended June 30, 1998 and 1997, and the
years ended December 31, 1997, 1996, and 1995, (ii) the condensed consolidated
statements of operations of Emerald and subsidiary on a historical basis for the
six months ended June 30, 1998 and 1997, and the periods ended December 31, 1997
and 1996, (iii) the condensed statements of operations of Commerce for the six
months ended June 30, 1998 and 1997 and the periods ended December 31, 1997,
1996 and 1995, (iv) the condensed consolidated statements of income of First
Citizens for the six months ended June 30, 1998 and 1997 and the years ended
December 31, 1997, 1996 and 1995, (v) the condensed consolidated statements of
income of City National for the six months ended June 30, 1998 and 1997 and the
years ended December 31, 1997, 1996 and 1995, (vi) the condensed consolidated
statements of income of CBS for the six months ended June 30, 1998 and the year
ended December 31, 1997, (vii) adjustments to give affect to the proposed
purchase method combination with CBS and the proposed pooling of interest method
business combinations with Emerald, Commerce, First Citizens and City National,
(viii) the pro forma combined condensed consolidated statements of income of The
Banc Corporation as if such combinations had occurred on January 1, 1995. Note
that for purchase method combinations, Article 11 of Regulation S-X requires pro
forma statements of income to be presented for only the most recent fiscal year
and interim period. Accordingly, only the condensed consolidated statements of
income for the six months ended June 30, 1998 and the year ended December 31,
1997 are included in (vi) above for CBS.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of income of The
Banc Corporation, Emerald, Commerce, First Citizens, City National and CBS. The
pro forma information may not necessarily be indicative of future results. Pro
forma earnings per share is based on the weighted average number of shares
outstanding for the period adjusted for the applicable exchange ratio.
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1998
-------------------------------------------------------------------------------------------------------
HISTORICAL
-------------------------------------------------------------------------
THE EMERALD COMMERCE FIRST CITY COMMERCIAL
BANC COAST BANK OF CITIZENS NATIONAL BANCSHARES PRO FORMA PRO FORMA
CORPORATION BANCSHARES ALABAMA BANCORP CORPORATION OF ROANOKE ADJUSTMENTS COMBINED
----------- ---------- -------- -------- ----------- ---------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income........... $ 3,070 $ 2,498 $ 4,506 $ 1,683 $ 3,290 $ 1,494 $ -- $ 16,541
Interest expense.......... 1,134 1,197 2,659 688 1,359 669 256(a) 7,962
---------- -------- ------- ------- ------- -------- ----- -----------
Net interest
income.......... 1,936 1,301 1,847 995 1,931 825 (256) 8,579
Provision for loan
losses.................. 38 156 292 117 430 69 -- 1,102
---------- -------- ------- ------- ------- -------- ----- -----------
Net interest income
after provision for
loan losses........... 1,898 1,145 1,555 878 1,501 756 (256) 7,477
Noninterest income........ 312 168 582 225 280 491 -- 2,058
Gain (loss) on sale of
securities.............. (4) 18 1 -- 47 -- -- 62
Noninterest expenses...... 1,497 1,342 1,788 731 1,696 889 15(a) 7,958
---------- -------- ------- ------- ------- -------- ----- -----------
Income
(loss)before
income taxes.... 709 (11) 350 372 132 358 (271) 1,639
Income tax expense
(benefit)............... (68) (4) 94 136 47 88 (100)(a) 193
---------- -------- ------- ------- ------- -------- ----- -----------
Net income (loss)..... $ 777 $ (7) $ 256 $ 236 $ 85 $ 270 $(171) $ 1,446
========== ======== ======= ======= ======= ======== ===== ===========
Basic earnings per
share................... $ 0.15 $ (0.01) $ 0.39 $ 3.15 $ 3.16 $ 1.35 $ 0.14
========== ======== ======= ======= ======= ======== ===========
Average number of shares
outstanding -- basic.... 5,230,500 626,000 656,968 75,000 26,882 200,000 10,658,216
========== ======== ======= ======= ======= ======== ===========
</TABLE>
82
<PAGE> 104
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------
(a) To reflect interest expense (7%) on $7.3 million in debt
incurred to purchase stock of Commercial Bancshares of
Roanoke.................................................... $ 256
Depreciation on allocation of purchase price to premises and
equipment (30 year period)................................. 15
-------
Decrease in income before tax benefit....................... $ 271
=======
Income tax benefit at 37%................................... $ 100
=======
</TABLE>
83
<PAGE> 105
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1997
---------------------------------------------------------------------------------------
HISTORICAL
------------------------------------------------------------
THE EMERALD COMMERCE FIRST CITY
BANC COAST BANK OF CITIZENS NATIONAL PRO FORMA PRO FORMA
CORPORATION BANCSHARES ALABAMA BANCORP CORPORATION ADJUSTMENTS COMBINED
----------- ---------- -------- -------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income......................... $ 2,590 $ 1,228 $ 3,329 $ 1,391 $ 3,355 $ -- $ 11,893
Interest expense........................ 1,109 563 1,808 574 1,448 -- 5,502
---------- -------- ------- ------- ------- ---- ----------
Net interest income............. 1,481 665 1,521 817 1,907 -- 6,391
Provision for loan losses............... 90 155 232 30 248 -- 755
---------- -------- ------- ------- ------- ---- ----------
Net interest income after provision
for loan losses..................... 1,391 510 1,289 787 1,659 -- 5,636
Noninterest income...................... 251 28 310 201 255 -- 1,045
Gain (loss) on sale of securities....... (3) -- -- -- 2 -- (1)
Noninterest expenses.................... 1,011 817 1,420 627 1,654 -- 5,529
---------- -------- ------- ------- ------- ---- ----------
Income before income taxes...... 628 (279) 179 361 262 -- 1,151
Income tax expense (benefit)............ 233 (164) 35 131 92 -- 327
---------- -------- ------- ------- ------- ---- ----------
Net income (loss)............... $ 395 $ (115) $ 144 $ 230 $ 170 $ -- $ 824
========== ======== ======= ======= ======= ==== ==========
Basic earnings per share................ $ 0.15 $ (0.18) $ 0.22 $ 3.07 $ 6.31 $ 0.10
========== ======== ======= ======= ======= ==========
Average number of shares
outstanding -- basic.................. 2,716,200 626,000 655,460 75,000 26,948 8,145,304
========== ======== ======= ======= ======= ==========
</TABLE>
84
<PAGE> 106
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------------------------------------------------------------
HISTORICAL
-------------------------------------------------------------------------
THE EMERALD COMMERCE FIRST CITY COMMERCIAL
BANC COAST BANK OF CITIZENS NATIONAL BANCSHARES PRO FORMA PRO FORMA
CORPORATION BANCSHARES ALABAMA BANCORP CORPORATION OF ROANOKE ADJUSTMENTS COMBINED
----------- ---------- -------- -------- ----------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income........... $ 5,399 $ 3,114 $ 7,513 $ 2,957 $ 6,721 $ 3,114 $ -- $ 28,818
Interest expense.......... 2,248 1,551 4,028 1,215 2,911 1,307 511a 13,771
---------- -------- ------- ------- ------- -------- ----- ----------
Net interest
income.......... 3,151 1,563 3,485 1,742 3,810 1,807 (511) 15,047
Provision for loan
losses.................. 330 333 584 218 384 401 -- 2,250
---------- -------- ------- ------- ------- -------- ----- ----------
Net interest income
after provision for
loan losses........... 2,821 1,230 2,901 1,524 3,426 1,406 (511) 12,797
Noninterest income........ 475 115 578 415 736 980 -- 3,299
Noninterest expenses...... 2,111 1,936 3,131 1,303 3,367 2,010 30a 13,888
---------- -------- ------- ------- ------- -------- ----- ----------
Income before
income taxes.... 1,185 (591) 348 636 795 376 (541) 2,208
Income tax expense
(benefit)............... 387 (195) 120 213 170 68 (200)a 563
========== ======== ======= ======= ======= ======== ===== ==========
Net income
(loss).......... $ 798 $ (396) $ 228 $ 423 $ 625 $ 308 $(341) $ 1,645
========== ======== ======= ======= ======= ======== ===== ==========
Basic earnings per
share................... $ 0.26 $ (0.63) $ 0.35 $ 5.64 $ 23.25 $ 1.54 $ 0.19
========== ======== ======= ======= ======= ======== ==========
Average number of shares
outstanding............. 3,025,800 626,000 655,565 75,000 26,910 200,000 8,452,317
========== ======== ======= ======= ======= ======== ==========
- ---------------
(a) To reflect interest expense (7%) on $7.3 million in debt
incurred to purchase stock of Commercial Bancshares of
Roanoke.................................................... $ 511
Depreciation on allocation of purchase price to premises and
equipment (30 year period)................................. 30
-------
Decrease in income before tax benefit....................... $ 541
=======
Income tax benefit at 37%................................... $ 200
=======
</TABLE>
85
<PAGE> 107
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------------------------------------------
HISTORICAL
---------------------------------------------------------------
THE EMERALD COMMERCE FIRST CITY
BANC COAST BANK OF CITIZENS NATIONAL PRO FORMA PRO FORMA
CORPORATION BANCSHARES(1) ALABAMA BANCORP CORPORATION ADJUSTMENTS COMBINED
----------- ------------- -------- -------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income...................... $ 5,073 $ 381 $ 4,056 $ 2,437 $ 6,027 $ -- $ 17,974
Interest expense..................... 2,247 139 2,170 1,008 2,460 -- 8,024
---------- -------- ------- ------- ------- ---- ----------
Net interest income.......... 2,826 242 1,886 1,429 3,567 -- 9,950
Provision for loan losses............ 135 70 372 43 346 -- 966
---------- -------- ------- ------- ------- ---- ----------
Net interest income after provision
for loan losses.................. 2,691 172 1,514 1,386 3,221 -- 8,984
Noninterest income................... 463 10 380 430 683 -- 1,966
Noninterest expenses................. 1,952 793 2,268 1,232 3,211 -- 9,456
---------- -------- ------- ------- ------- ---- ----------
Income (loss) before income
taxes...................... 1,202 (611) (374) 584 693 -- 1,494
Income tax expense (benefit)......... 412 (257) (81) 184 133 -- 391
---------- -------- ------- ------- ------- ---- ----------
Net income (loss).................. $ 790 $ (354) $ (293) $ 400 $ 560 $ -- $ 1,103
========== ======== ======= ======= ======= ==== ==========
Basic earnings (loss) per share...... $ 0.29 $ (0.57) $ (0.47) $ 5.33 $ 20.68 $ 0.14
========== ======== ======= ======= ======= ==========
Average number of shares
outstanding........................ 2,716,200 626,000 618,854 75,000 27,063 8,068,212
========== ======== ======= ======= ======= ==========
</TABLE>
(1) Operations of Emerald since August of 1996, date of inception.
86
<PAGE> 108
<TABLE>
<CAPTION>
For the Year Ended December 31, 1995
----------------------------------------------------------------------------
Historical
-------------------------------------------------
THE Commerce First City
BANC Bank of Citizens National Pro Forma Pro Forma
CORPORATION Alabama(1) Bancorp Corporation Adjustments Combined
----------- ---------- -------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest income................ $ 4,859 $ 1,478 $ 1,809 $ 5,674 $ -- $ 13,820
Interest expense............... 2,056 765 786 2,324 -- 5,931
---------- -------- ------- ------- ---- ----------
Net interest
income............. 2,803 713 1,023 3,350 -- 7,889
Provision for loan losses...... 120 226 -- 204 -- 550
---------- -------- ------- ------- ---- ----------
Net interest income after
provision for loan
losses.................... 2,683 487 1,023 3,146 -- 7,339
Noninterest income............. 553 91 348 629 -- 1,621
Noninterest expenses........... 1,871 1,289 1,116 3,010 -- 7,286
---------- -------- ------- ------- ---- ----------
Income before income
taxes.............. 1,365 (711) 255 765 -- 1,674
Income tax expense (benefit)... 467 (241) 61 40 -- 327
---------- -------- ------- ------- ---- ----------
Net income (loss).... $ 898 $ (470) $ 194 $ 725 $ -- $ 1,347
========== ======== ======= ======= ==== ==========
Basic earnings (loss) per
share........................ $ 0.33 $ (0.85) $ 2.59 $ 26.73 $ 0.20
========== ======== ======= ======= ==========
Average number of shares
outstanding.................. 2,716,200 550,000 75,000 27,149 6,648,701
========== ======== ======= ======= ==========
</TABLE>
(1) Operations of Commerce since April of 1995, date of inception.
87
<PAGE> 109
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENT OF CONDITION (UNAUDITED)
The following summary includes (i) the condensed consolidated statement of
financial condition of The Banc Corporation (formerly the Warrior Capital
Corporation) as of June 30, 1998, (ii) the condensed consolidated statement of
financial condition of Emerald Coast Bancshares, Inc. ("Emerald") as of June 30,
1998, (iii) the condensed statement of financial condition of Commerce Bank of
Alabama ("Commerce") as of June 30, 1998, (iv) the condensed consolidated
statement of financial condition of First Citizens Bancorp, Inc. ("First
Citizens") as of June 30, 1998, (v) the condensed consolidated statement of
financial condition of City National Corporation ("City National") as of June
30, 1998, (vi) adjustments to give effect to the proposed pooling of interests
method business combinations with Emerald, Commerce, First Citizens and City
National, (vii) the pro forma combined condensed statement of financial
condition of The Banc Corporation and subsidiaries as if such combinations had
occurred on June 30, 1998.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of financial
conditions of The Banc Corporation, Emerald, Commerce, First Citizens, and City
National. The pro forma information provided below may not be indicative of
future results.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
-----------------------------------------------------------------------------------------
HISTORICAL
---------------------------------------------------------------
THE EMERALD COMMERCE FIRST CITY
BANC COAST BANK OF CITIZENS NATIONAL PRO FORMA PRO FORMA
CORPORATION(C) BANCSHARES ALABAMA BANCORP CORPORATION ADJUSTMENTS COMBINED
-------------- ---------- -------- -------- ----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks............... $ 4,822 $ 4,220 $ 4,839 $ 988 $ 2,725 $ 595a $ 18,189
Interest bearing deposits in other
banks............................... -- -- -- -- 200 -- 200
Federal funds sold.................... 1,900 -- 840 1,230 1,120 -- 5,090
Investment securities available for
sale................................ 201 8,092 21,239 1,757 35,224 -- 66,513
Investment securities held to
maturity............................ 24,934 -- 252 -- -- -- 25,186
Loans, net of unearned................ 46,601 55,320 88,981 32,535 39,568 -- 263,005
Less: Allowance for loan losses....... (717) (512) (894) (357) (700) -- (3,180)
------- ------- -------- ------- ------- -------- --------
Net loans..................... 45,884 54,808 88,087 32,178 38,868 -- 259,825
------- ------- -------- ------- ------- -------- --------
Premises and equipment, net........... 10,227 5,286 2,841 555 2,707 -- 21,616
Intangibles, net...................... 416 -- -- -- -- -- 416
Other assets.......................... 1,436 1,378 1,677 1,408 1,364 -- 7,263
------- ------- -------- ------- ------- -------- --------
Total assets.................. $89,820 $73,784 $119,775 $38,116 $82,208 $ 595 $404,298
======= ======= ======== ======= ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing................. $12,618 $ 9,405 $12,796 $ 4,328 $10,525 $ -- $ 49,672
Interest-bearing.................... 52,136 53,861 97,909 30,075 58,832 -- 292,813
------- ------- -------- ------- ------- -------- --------
Total deposits................ 64,754 63,266 110,705 34,403 69,357 -- 342,485
Federal funds purchased and other
borrowed funds...................... -- 4,555 -- -- -- -- 4,555
Accrued expenses and other
liabilities......................... 3,181 450 2,300 468 893 -- 7,292
------- ------- -------- ------- ------- -------- --------
Total liabilities............. 67,935 68,271 113,005 34,871 70,250 -- 354,332
Minority interest in equity of
subsidiary.......................... 29 -- -- -- 139 -- 168
Stockholders' Equity
Common stock........................ 5 3,130 7 75 27 --a 11
6b
(3,239)b
Surplus............................. 13,435 3,130 7,027 800 4,135 595a 32,289
18,259b
(15,092)b
Retained earnings (accumulated
deficit).......................... 8,451 (757) (279) 2,366 7,422 17,203
Accumulated other comprehensive
income (loss)..................... (35) 10 15 4 301 295
Treasury stock, at cost............. -- -- -- -- (66) 66b --
------- ------- -------- ------- ------- -------- --------
Total stockholders' equity.... 21,856 5,513 6,770 3,245 11,891 595 49,798
------- ------- -------- ------- ------- -------- --------
Total liabilities and
stockholders' equity........ $89,820 $73,784 $119,775 $38,116 $82,208 $ 595 $404,298
======= ======= ======== ======= ======= ======== ========
</TABLE>
88
<PAGE> 110
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL CONDITION
(a) To record the exercise of 57,000 stock options by officers of Emerald before
merger and 5,000 stock options by an officer of First Citizens prior to
merger.
(b) To record the exchange of 5,579,816 shares of The Banc Corporation common
stock for all of the outstanding shares of the following accounted for as a
pooling of interests.
<TABLE>
<CAPTION>
EMERALD FIRST COMMERCE CITY
COAST CITIZENS BANK OF NATIONAL
BANCSHARES BANCORP ALABAMA CORPORATION TOTAL
---------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Outstanding shares of acquired corporation........ 683,000 80,000 658,190 26,832
Conversion ratio.................................. 2.02044 8.290537 2.334607 74.53786
--------- --------- --------- ----------
The Banc Corporation shares to be issued.......... 1,379,958 663,243 1,536,615 2,000,000 5,579,816
Par value of shares to be issued at $.001 per
share........................................... $ 1 $ 1 $ 2 $ 2 $ 6
Total common stock and surplus of acquired
corporation..................................... 6,260 875 7,034 4,096 18,265
--------- --------- --------- ---------- ----------
Excess recorded as an increase in contributed
capital....................................... 6,259 874 7,032 4,094 18,259
--------- --------- --------- ---------- ----------
To eliminate acquired corporations capital stock
Common stock at par value....................... (3,130) (75) (7) (27) (3,239)
Surplus......................................... (3,130) (800) (7,027) (4,135) (15,092)
Treasury stock.................................. -- -- -- 66 66
--------- --------- --------- ---------- ----------
(6,260) (875) (7,034) (4,096) (18,265)
--------- --------- --------- ---------- ----------
Net change in equity...................... $ -- $ -- $ -- $ -- $ --
========= ========= ========= ========== ==========
</TABLE>
(c) The Banc Corporation was formed by the reincorporation of Warrior Capital
Corporation. The 18,160 shares of Warrior Capital Corporation common stock
were converted into 5,448,000 shares of The Banc Corporation $.001 par value
common stock.
89
<PAGE> 111
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENTS OF INCOME (UNAUDITED)
The following summaries include (i) the condensed consolidated statements
of income of The Banc Corporation (formerly Warrior Capital Corporation) on a
historical basis for the six months ended June 30, 1998 and 1997, and the years
ended December 31,1997, 1996, and 1995, (ii) the condensed consolidated
statements of income of Emerald for the six months ended June 30, 1998 and 1997
and the periods ended December 31, 1997, and 1996, (iii) the condensed
consolidated statements of income of Commerce for the six months ended June 30,
1998 and 1997 and the periods ended December 31, 1997,1996 and 1995,(iv) the
condensed consolidated statements of income of First Citizens for the six months
ended June 30, 1998 and 1997 and the years ended December 31, 1997, 1996 and
1995, (v) the condensed consolidated statements of income of City National for
the six months ended June 30, 1998 and 1997 and the years ended December 31,
1997, 1996 and 1995, (vi) adjustments to give effect to the proposed pooling of
interests method business combinations with Emerald, Commerce, First Citizens
and City National, (vii) the pro forma combined condensed consolidated
statements of income of The Banc Corporation as if such combinations had
occurred on January 1, 1995.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of income of The
Banc Corporation, Emerald, Commerce, First Citizens, and City National. The pro
forma information may not necessarily be indicative of future results. Pro forma
earnings per share is based on the weighted average number of shares outstanding
for the period adjusted for the applicable exchange ratio.
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1998
----------------------------------------------------------------------------------------
HISTORICAL
------------------------------------------------------------
THE EMERALD COMMERCE FIRST CITY
BANC COAST BANK OF CITIZENS NATIONAL PRO FORMA PRO FORMA
CORPORATION BANCSHARES ALABAMA BANCORP CORPORATION ADJUSTMENTS COMBINED
----------- ---------- -------- -------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income........................ $ 3,070 $ 2,498 $ 4,506 $1,683 $3,290 $ -- $ 15,047
Interest expense....................... 1,134 1,197 2,659 688 1,359 -- 7,037
---------- -------- -------- ------ ------ ------- -----------
Net interest income............ 1,936 1,301 1,847 995 1,931 -- 8,010
Provision for loan losses.............. 38 156 292 117 430 -- 1,033
---------- -------- -------- ------ ------ ------- -----------
Net interest income after provision
for loan losses.................... 1,898 1,145 1,555 878 1,501 -- 6,977
Noninterest income..................... 312 168 582 225 280 -- 1,567
Gain (loss) on sale of securities...... (4) 18 1 -- 47 -- 62
Noninterest expenses................... 1,497 1,342 1,788 731 1,696 -- 7,054
---------- -------- -------- ------ ------ ------- -----------
Income before income taxes..... 709 (11) 350 372 132 -- 1,552
Income tax expense (benefit)........... (68) (4) 94 136 47 -- 205
---------- -------- -------- ------ ------ ------- -----------
Net income..................... $ 777 $ (7) $ 256 $ 236 $ 85 -- $ 1,347
========== ======== ======== ====== ====== ======= ===========
Basic earnings per share............... $ 0.15 $ (0.01) $ 0.39 $ 3.15 $ 3.16 $ 0.13
========== ======== ======== ====== ====== ===========
Average number of shares
outstanding -- basic................. 5,230,500 626,000 656,968 75,000 26,882 10,658,216
========== ======== ======== ====== ====== ===========
</TABLE>
90
<PAGE> 112
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1997
----------------------------------------------------------------------------------------
HISTORICAL
------------------------------------------------------------
THE EMERALD COMMERCE FIRST CITY
BANC COAST BANK OF CITIZENS NATIONAL PRO FORMA PRO FORMA
CORPORATION BANCSHARES ALABAMA BANCORP CORPORATION ADJUSTMENTS COMBINED
----------- ---------- -------- -------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income........................ $ 2,590 $ 1,228 $ 3,329 $1,391 $3,355 $ -- $ 11,893
Interest expense....................... 1,109 563 1,808 574 1,448 -- 5,502
---------- -------- -------- ------ ------ ------ -----------
Net interest income............ 1,481 665 1,521 817 1,907 -- 6,391
Provision for loan losses.............. 90 155 232 30 248 -- 755
---------- -------- -------- ------ ------ ------ -----------
Net interest income after provision
for loan losses.................... 1,391 510 1,289 787 1,659 -- 5,636
Noninterest income..................... 251 28 310 201 255 -- 1,045
Gain (loss) on sale of securities...... (3) -- -- -- 2 -- (1)
Noninterest expenses................... 1,011 817 1,420 627 1,654 -- 5,529
---------- -------- -------- ------ ------ ------ -----------
Income (loss)before income
taxes........................ 628 (279) 179 361 262 -- 1,151
Income tax expense (benefit)........... 233 (164) 35 131 92 -- 327
---------- -------- -------- ------ ------ ------ -----------
Net income (loss).............. $ 395 $ (115) $ 144 $ 230 $ 170 $ -- $ 824
========== ======== ======== ====== ====== ====== ===========
Basic earnings per share............... $ 0.15 $ (0.18) $ 0.22 $ 3.07 $ 6.31 $ 0.10
========== ======== ======== ====== ====== ===========
Average number of shares
outstanding -- basic................. 2,716,200 626,000 655,460 75,000 26,948 8,145,304
========== ======== ======== ====== ====== ===========
</TABLE>
91
<PAGE> 113
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
---------------------------------------------------------------------------------------
HISTORICAL
------------------------------------------------------------
THE EMERALD COMMERCE FIRST CITY
BANC COAST BANK OF CITIZENS NATIONAL PRO FORMA PRO FORMA
CORPORATION BANCSHARES ALABAMA BANCORP CORPORATION ADJUSTMENTS COMBINED
----------- ---------- -------- -------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income................... $ 5,399 $ 3,114 $ 7,513 $ 2,957 $ 6,721 $ -- $ 25,704
Interest expense.................. 2,248 1,551 4,028 1,215 2,911 -- 11,953
---------- -------- -------- ------- ------- ---- ----------
Net interest income........... 3,151 1,563 3,485 1,742 3,810 -- 13,751
Provision for loan losses......... 330 333 584 218 384 -- 1,849
---------- -------- -------- ------- ------- ---- ----------
Net interest income after
provision for loan losses..... 2,821 1,230 2,901 1,524 3,426 -- 11,902
Noninterest income................ 475 115 578 415 737 -- 2,320
Noninterest expenses.............. 2,111 1,936 3,131 1,303 3,367 -- 11,848
---------- -------- -------- ------- ------- ---- ----------
Income (loss) before income
taxes....................... 1,185 (591) 348 636 796 -- 2,374
Income tax expense (benefit)...... 387 (195) 120 213 170 -- 695
---------- -------- -------- ------- ------- ---- ----------
Net income (loss)............. $ 798 $ (396) $ 228 $ 423 $ 626 $ -- $ 1,679
========== ======== ======== ======= ======= ==== ==========
Basic earnings per share.......... $ 0.26 $ (0.63) $ 0.35 $ 5.64 $ 23.25 $ 0.20
========== ======== ======== ======= ======= ==========
Average number of shares
outstanding..................... 3,025,800 626,000 655,565 75,000 26,910 8,452,317
========== ======== ======== ======= ======= ==========
</TABLE>
92
<PAGE> 114
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------------------------------------------
HISTORICAL
---------------------------------------------------------------
THE EMERALD COMMERCE FIRST CITY
BANC COAST BANK OF CITIZENS NATIONAL PRO FORMA PRO FORMA
CORPORATION BANCSHARES(1) ALABAMA BANCORP CORPORATION ADJUSTMENTS COMBINED
----------- ------------- -------- -------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income............... $ 5,073 $ 381 $ 4,056 $ 2,437 $ 6,027 $ -- $ 17,974
Interest expense.............. 2,247 139 2,170 1,008 2,460 -- 8,024
---------- -------- -------- ------- ------- ---- ----------
Net interest
income............. 2,826 242 1,886 1,429 3,567 -- 9,950
Provision for loan losses..... 135 70 372 43 346 -- 966
---------- -------- -------- ------- ------- ---- ----------
Net interest income after
provision for loan
losses.................... 2,691 172 1,514 1,386 3,221 -- 8,984
Noninterest income............ 463 10 380 430 683 -- 1,966
Noninterest expenses.......... 1,952 793 2,268 1,232 3,211 -- 9,456
---------- -------- -------- ------- ------- ---- ----------
Income (loss) before
income taxes....... 1,202 (611) (374) 584 693 -- 1,494
Income tax expense
(benefit)................... 412 (257) (81) 184 133 -- 391
---------- -------- -------- ------- ------- ---- ----------
Net income (loss).... $ 790 $ (354) $ (293) $ 400 $ 560 $ -- $ 1,103
========== ======== ======== ======= ======= ==== ==========
Basic earnings (loss) per
share....................... $ 0.29 $ (0.57) $ (0.47) $ 5.33 $ 20.68 $ 0.14
========== ======== ======== ======= ======= ==========
Average number of shares
outstanding................. 2,716,200 626,000 618,854 75,000 27,063 8,068,212
========== ======== ======== ======= ======= ==========
</TABLE>
- ---------------
(1) Operations of Emerald since August of 1996, date of inception.
93
<PAGE> 115
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
----------------------------------------------------------------------------
HISTORICAL
-------------------------------------------------
THE COMMERCE FIRST CITY
BANC BANK OF CITIZENS NATIONAL PRO FORMA PRO FORMA
CORPORATION ALABAMA(1) BANCORP CORPORATION ADJUSTMENTS COMBINED
----------- ---------- -------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income...................... $ 4,859 $ 1,478 $ 1,809 $ 5,674 $ -- $ 13,820
Interest expense..................... 2,056 765 786 2,324 -- 5,931
---------- -------- ------- ------- ---- ----------
Net interest income.............. 2,803 713 1,023 3,350 -- 7,889
Provision for loan losses............ 120 226 -- 204 -- 550
---------- -------- ------- ------- ---- ----------
Net interest income after provision
for loan losses.................. 2,683 487 1,023 3,146 -- 7,339
Noninterest income................... 553 91 348 629 -- 1,621
Noninterest expenses................. 1,871 1,289 1,116 3,010 -- 7,286
---------- -------- ------- ------- ---- ----------
Income (loss) before income
taxes.......................... 1,365 (711) 255 765 -- 1,674
Income tax expense (benefit)......... 467 (241) 61 40 -- 327
---------- -------- ------- ------- ---- ----------
Net income (loss)................ $ 898 $ (470) $ 194 $ 725 $ -- $ 1,347
========== ======== ======= ======= ==== ==========
Basic earnings (loss) per share...... $ 0.33 $ (0.85) $ 2.59 $ 26.73 $ 0.20
========== ======== ======= ======= ==========
Average number of shares
outstanding........................ 2,716,200 550,000 75,000 27,149 6,648,701
========== ======== ======= ======= ==========
</TABLE>
- ---------------
(1) Operations of Commerce since April of 1995, date of inception.
94
<PAGE> 116
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENT OF CONDITION (UNAUDITED)
The following summary includes (i) the condensed consolidated statement of
financial condition of The Banc Corporation (formerly the Warrior Capital
Corporation) as of June 30, 1998, (ii) the condensed consolidated statement of
financial condition of Emerald Coast Bancshares, Inc. ("Emerald") as of June 30,
1998, (iii) the condensed statement of financial condition of Commerce Bank of
Alabama ("Commerce") as of June 30, 1998, (iv) the condensed consolidated
statement of financial condition of First Citizens Bancorp, Inc. ("First
Citizens") as of June 30, 1998, (v) adjustments to give effect to the proposed
pooling of interests method business combinations with Emerald, Commerce and
First Citizens, (vi) the pro forma combined condensed statement of financial
condition of The Banc Corporation and subsidiaries as if such combinations had
occurred on June 30, 1998.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of financial
conditions of The Banc Corporation, Emerald, Commerce and First Citizens. The
pro forma information provided below may not be indicative of future results.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
----------------------------------------------------------------------------
HISTORICAL
-------------------------------------------------
THE EMERALD COMMERCE FIRST
BANC COAST BANK OF CITIZENS PRO FORMA PRO FORMA
CORPORATION(C) BANCSHARES ALABAMA BANCORP ADJUSTMENTS COMBINED
-------------- ---------- -------- -------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks............ $ 4,822 $ 4,220 $ 4,839 $ 988 $ 595(a) $ 15,464
Federal funds sold................. 1,900 -- 840 1,230 -- 3,970
Investment securities available for
sale............................. 201 8,092 21,239 1,757 -- 31,289
Investment securities held to
maturity......................... 24,934 -- 252 -- -- 25,186
Loans, net of unearned............. 46,601 55,320 88,981 32,535 -- 223,437
Less: Allowance for loan losses.... (717) (512) (894) (357) -- (2,480)
------- ------- ------- ------- -------- --------
Net loans................. 45,884 54,808 88,087 32,178 -- 220,957
------- ------- ------- ------- -------- --------
Premises and equipment, net........ 10,227 5,286 2,841 555 -- 18,909
Intangibles, net................... 416 -- -- -- -- 416
Other assets....................... 1,436 1,378 1,677 1,408 -- 5,899
------- ------- ------- ------- -------- --------
Total assets.............. $89,820 $73,784 $119,775 $38,116 $ 595 $322,090
======= ======= ======= ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing.............. $12,618 $ 9,405 $12,796 $ 4,328 $ -- $ 39,147
Interest-bearing................. 52,136 53,861 97,909 30,075 -- 233,981
------- ------- ------- ------- -------- --------
Total deposits............ 64,754 63,266 110,705 34,403 -- 273,128
Federal funds purchased and other
borrowed funds................... -- 4,555 -- -- -- 4,555
Accrued expenses and other
liabilities...................... 3,181 450 2,300 468 -- 6,399
------- ------- ------- ------- -------- --------
Total liabilities......... 67,935 68,271 113,005 34,871 -- 284,082
------- ------- ------- ------- -------- --------
Minority interest in equity of
subsidiary....................... 29 -- -- -- -- 29
Stockholders' Equity
Common stock..................... 5 3,130 7 75 --(a) 9
4(b)
(3,212)(b)
Surplus.......................... 13,435 3,130 7,027 800 595(a) 28,195
14,165(b)
(10,957)(b)
Retained earnings (accumulated
deficit)....................... 8,451 (757) (279) 2,366 9,781
Accumulated other comprehensive
income (loss).................. (35) 10 15 4 (6)
------- ------- ------- ------- -------- --------
Total stockholders'
equity.................. 21,856 5,513 6,770 3,245 595 37,979
------- ------- ------- ------- -------- --------
Total liabilities and
stockholders' equity.... $89,820 $73,784 $119,775 $38,116 $ 595 $322,090
======= ======= ======= ======= ======== ========
</TABLE>
95
<PAGE> 117
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL CONDITION
(a) To record the exercise of 57,000 stock options by officers of Emerald before
merger and 5,000 stock options by an officer of First Citizens prior to
merger.
(b) To record the exchange of 3,579,816 shares of The Banc Corporation common
stock for all of the outstanding shares of the following accounted for as a
pooling of interests.
<TABLE>
<CAPTION>
EMERALD FIRST COMMERCE
COAST CITIZENS BANK OF
BANCSHARES BANCORP ALABAMA TOTAL
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Outstanding shares of acquired
corporation........................... 683,000 80,000 658,190
Conversion ratio........................ 2.02044 8.290537 2.334607
---------- --------- ----------
The Banc Corporation shares to be
issued................................ 1,379,958 663,243 1,536,615 3,579,816
Par value of shares to be issued at
$.001 per share....................... $ 1 $ 1 $ 2 $ 4
Total common stock and surplus of
acquired corporation.................. 6,260 875 7,034 14,169
---------- --------- ---------- ----------
Excess recorded as an increase in
contributed capital................ 6,259 874 7,032 14,165
---------- --------- ---------- ----------
To eliminate acquired corporations
capital stock
Common stock at par value............. (3,130) (75) (7) (3,212)
Surplus............................... (3,130) (800) (7,027) (10,957)
---------- --------- ---------- ----------
(6,260) (875) (7,034) (14,169)
---------- --------- ---------- ----------
Net change in equity.......... $ -- $ -- $ -- $ --
========== ========= ========== ==========
</TABLE>
(c) The Banc Corporation was formed by the reincorporation of Warrior Capital
Corporation. The 18,160 shares of Warrior Capital Corporation common stock
were converted into 5,448,000 shares of The Banc Corporation $.001 par value
common stock.
96
<PAGE> 118
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENTS OF INCOME (UNAUDITED)
The following summaries include (i) the condensed consolidated statements
of income of The Banc Corporation (formerly Warrior Capital Corporation) on a
historical basis for the six months ended June 30, 1998 and 1997, and the years
ended December 31,1997, 1996, and 1995, (ii) the condensed consolidated
statements of income of Emerald for the six months ended June 30, 1998 and 1997
and the periods ended December 31, 1997, and 1996, (iii) the condensed
consolidated statements of income of Commerce for the six months ended June 30,
1998 and 1997 and the periods ended December 31, 1997, 1996 and 1995, (iv) the
condensed consolidated statements of income of First Citizens for the six months
ended June 30, 1998 and 1997 and the years ended December 31, 1997, 1996 and
1995, (v) adjustments to give effect to the proposed pooling of interests method
business combinations with Emerald, Commerce, and First Citizens, (vi) the pro
forma combined condensed consolidated statements of income of The Banc
Corporation as if such combinations had occurred on January 1, 1995.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of income of The
Banc Corporation, Emerald, Commerce and First Citizens. The pro forma
information may not necessarily be indicative of future results. Pro forma
earnings per share is based on the weighted average number of shares outstanding
for the period adjusted for the applicable exchange ratio.
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1998
-------------------------------------------------------------------------
HISTORICAL
----------------------------------------------
THE EMERALD COMMERCE FIRST
BANC COAST BANK OF CITIZENS PRO FORMA PRO FORMA
CORPORATION BANCSHARES ALABAMA BANCORP ADJUSTMENTS COMBINED
----------- ---------- -------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income............................... $ 3,070 $ 2,498 $ 4,506 $1,683 $ -- $ 11,757
Interest expense.............................. 1,134 1,197 2,659 688 -- 5,678
---------- -------- ------- ------ ------ ----------
Net interest income....................... 1,936 1,301 1,847 995 -- 6,079
Provision for loan losses..................... 38 156 292 117 -- 603
---------- -------- ------- ------ ------ ----------
Net interest income after provision for loan
losses.................................... 1,898 1,145 1,555 878 -- 5,476
Noninterest income............................ 312 168 582 225 -- 1,287
Gain (loss) on sale of securities............. (4) 18 1 -- -- 15
Noninterest expenses.......................... 1,497 1,342 1,788 731 -- 5,358
---------- -------- ------- ------ ------ ----------
Income (loss) before income taxes......... 709 (11) 350 372 -- 1,420
Income tax expense (benefit).................. (68) (4) 94 136 -- 158
---------- -------- ------- ------ ------ ----------
Net income (loss)......................... $ 777 $ (7) $ 256 $ 236 $ -- $ 1,262
========== ======== ======= ====== ====== ==========
Basic earnings per share...................... $ 0.15 $ (0.01) $ 0.39 $ 3.15 $ 0.15
========== ======== ======= ====== ==========
Average number of shares
outstanding -- basic........................ 5,230,500 626,000 656,968 75,000 8,654,489
========== ======== ======= ====== ==========
</TABLE>
97
<PAGE> 119
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1997
--------------------------------------------------------------------------
HISTORICAL
----------------------------------------------
THE EMERALD COMMERCE FIRST
BANC COAST BANK OF CITIZENS PRO FORMA PRO FORMA
CORPORATION BANCSHARES ALABAMA BANCORP ADJUSTMENTS COMBINED
----------- ---------- -------- -------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income............................... $ 2,590 $ 1,228 $ 3,329 $1,391 $ -- $ 8,538
Interest expense.............................. 1,109 563 1,808 574 -- 4,054
---------- -------- -------- ------ ------ -----------
Net interest income....................... 1,481 665 1,521 817 -- 4,484
Provision for loan losses..................... 90 155 232 30 -- 507
---------- -------- -------- ------ ------ -----------
Net interest income after provision for loan
losses.................................... 1,391 510 1,289 787 -- 3,977
Noninterest income............................ 251 28 310 201 -- 790
Loss on sale of securities.................... (3) -- -- -- -- (3)
Noninterest expenses.......................... 1,011 817 1,420 627 -- 3,875
---------- -------- -------- ------ ------ -----------
Income (loss) before income taxes......... 628 (279) 179 361 -- 889
Income tax expense(benefit)................... 233 (164) 35 131 -- 235
---------- -------- -------- ------ ------ -----------
Net income (loss)......................... $ 395 $ (115) $ 144 $ 230 $ -- $ 654
========== ======== ======== ====== ====== ===========
Basic earnings per share...................... $ 0.15 $ (0.18) $ 0.22 $ 3.07 $ 0.11
========== ======== ======== ====== ===========
Average number of shares
outstanding -- basic........................ 2,716,200 626,000 655,460 75,000 6,136,658
========== ======== ======== ====== ===========
</TABLE>
98
<PAGE> 120
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------------------------
HISTORICAL
----------------------------------------------
THE EMERALD COMMERCE FIRST
BANC COAST BANK OF CITIZENS PRO FORMA PRO FORMA
CORPORATION BANCSHARES ALABAMA BANCORP ADJUSTMENTS COMBINED
----------- ---------- -------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income........................ $ 5,399 $ 3,114 $ 7,513 $ 2,957 $ -- $ 18,983
Interest expense....................... 2,248 1,551 4,028 1,215 -- 9,042
---------- -------- -------- ------- ------ ----------
Net interest income................ 3,151 1,563 3,485 1,742 -- 9,941
Provision for loan losses.............. 330 333 584 218 -- 1,465
---------- -------- -------- ------- ------ ----------
Net interest income after provision
for loan losses.................... 2,821 1,230 2,901 1,524 -- 8,476
Noninterest income..................... 475 115 578 415 -- 1,583
Noninterest expenses................... 2,111 1,936 3,131 1,303 -- 8,481
---------- -------- -------- ------- ------ ----------
Income (loss) before income
taxes............................ 1,185 (591) 348 636 -- 1,578
Income tax expense (benefit)........... 387 (195) 120 213 -- 525
---------- -------- -------- ------- ------ ----------
Net income (loss).................. $ 798 $ (396) $ 228 $ 423 $ -- $ 1,053
========== ======== ======== ======= ====== ==========
Basic earnings per share............... $ 0.26 $ (0.63) $ 0.35 $ 5.64 $ 0.16
========== ======== ======== ======= ==========
Average number of shares outstanding... 3,025,800 626,000 655,565 75,000 6,446,503
========== ======== ======== ======= ==========
</TABLE>
99
<PAGE> 121
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
----------------------------------------------------------------------------
HISTORICAL
-------------------------------------------------
THE EMERALD COMMERCE FIRST
BANC COAST BANK OF CITIZENS PRO FORMA PRO FORMA
CORPORATION BANCSHARES(1) ALABAMA BANCORP ADJUSTMENTS COMBINED
----------- ------------- -------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income...................... $ 5,073 $ 381 $ 4,056 $ 2,437 $ -- $ 11,947
Interest expense..................... 2,247 139 2,170 1,008 -- 5,564
---------- -------- ------- ------- ------ ----------
Net interest income......... 2,826 242 1,886 1,429 -- 6,383
Provision for loan losses............ 135 70 372 43 -- 620
---------- -------- ------- ------- ------ ----------
Net interest income after provision
for loan losses.................. 2,691 172 1,514 1,386 -- 5,763
Noninterest income................... 463 10 380 430 -- 1,283
Noninterest expenses................. 1,952 793 2,268 1,232 -- 6,245
---------- -------- ------- ------- ------ ----------
Income (loss) before income
taxes..................... 1,202 (611) (374) 584 -- 801
Income tax expense (benefit)......... 412 (257) (81) 184 -- 258
---------- -------- ------- ------- ------ ----------
Net income (loss)........... $ 790 $ (354) $ (293) $ 400 $ -- $ 543
========== ======== ======= ======= ====== ==========
Basic earnings (loss) per share...... $ 0.29 $ (0.57) $ (0.47) $ 5.33 $ 0.09
========== ======== ======= ======= ==========
Average number of shares
outstanding........................ 2,716,200 626,000 618,854 75,000 6,050,994
========== ======== ======= ======= ==========
</TABLE>
- ---------------
(1) Operations of Emerald since August of 1996, date of inception.
100
<PAGE> 122
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------------------------
HISTORICAL
------------------------------------
THE COMMERCE FIRST
BANC BANK OF CITIZENS PRO FORMA PRO FORMA
CORPORATION ALABAMA(1) BANCORP ADJUSTMENTS COMBINED
----------- ----------- -------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income................................ $ 4,859 $ 1,478 $1,809 $ -- $ 8,146
Interest expense............................... 2,056 765 786 -- 3,607
---------- -------- ------ ------ ----------
Net interest income................... 2,803 713 1,023 -- 4,539
Provision for loan losses...................... 120 226 -- -- 346
---------- -------- ------ ------ ----------
Net interest income after provision for loan
losses..................................... 2,683 487 1,023 -- 4,193
Noninterest income............................. 553 91 348 -- 992
Noninterest expenses........................... 1,871 1,289 1,116 -- 4,276
---------- -------- ------ ------ ----------
Income (loss) before income taxes..... 1,365 (711) 255 -- 909
Income tax expense (benefit)................... 467 (241) 61 -- 287
---------- -------- ------ ------ ----------
Net income (loss)..................... $ 898 $ (470) $ 194 -- $ 622
========== ======== ====== ====== ==========
Basic earnings (loss) per share................ $ 0.33 $ (0.85) $ 2.59 $ 0.13
========== ======== ====== ==========
Average number of shares outstanding........... 2,716,200 550,000 75,000 4,625,073
========== ======== ====== ==========
</TABLE>
- ---------------
(1) Operations of Commerce since April of 1995, date of inception.
101
<PAGE> 123
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENT OF CONDITION (UNAUDITED)
The following summary includes (i) the condensed consolidated statement of
financial condition of The Banc Corporation (formerly the Warrior Capital
Corporation) as of June 30, 1998, (ii) the condensed consolidated statement of
financial condition of Emerald Coast Bancshares, Inc. ("Emerald") as of June 30,
1998, (iii) the condensed statement of financial condition of Commerce Bank of
Alabama ("Commerce") as of June 30, 1998, (iv) adjustments to give effect to the
proposed pooling of interests method business combinations with Emerald and
Commerce, (v) the pro forma combined condensed statement of financial condition
of The Banc Corporation and subsidiaries as if such combinations had occurred on
June 30, 1998.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of financial
conditions of The Banc Corporation, Emerald and Commerce. The pro forma
information provided below may not be indicative of future results.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
------------------------------------------------------------------
HISTORICAL
--------------------------------------
THE EMERALD COMMERCE
BANC COAST BANK OF PRO FORMA PRO FORMA
CORPORATION(C) BANCSHARES ALABAMA ADJUSTMENTS COMBINED
-------------- ---------- -------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks.................... $ 4,822 $ 4,220 $ 4,839 $ 450a $ 14,331
Federal funds sold......................... 1,900 -- 840 -- 2,740
Investment securities available for sale... 201 8,092 21,239 -- 29,532
Investment securities held to maturity..... 24,934 -- 252 -- 25,186
Loans, net of unearned..................... 46,601 55,320 88,981 -- 190,902
Less: Allowance for loan losses............ (717) (512) (894) -- (2,123)
------- ------- ------- ---------- --------
Net loans......................... 45,884 54,808 88,087 -- 188,779
------- ------- ------- ---------- --------
Premises and equipment, net................ 10,227 5,286 2,841 -- 18,354
Intangibles, net........................... 416 -- -- -- 416
Other assets............................... 1,436 1,378 1,677 -- 4,491
------- ------- ------- ---------- --------
Total assets...................... $89,820 $73,784 $119,775 $ 450 $283,829
======= ======= ======= ========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing...................... $12,618 $ 9,405 $12,796 $ -- $ 34,819
Interest-bearing......................... 52,136 53,861 97,909 -- 203,906
------- ------- ------- ---------- --------
Total deposits.................... 64,754 63,266 110,705 -- 238,725
Federal funds purchased and other borrowed
funds.................................... -- 4,555 -- -- 4,555
Accrued expenses and other liabilities..... 3,181 450 2,300 -- 5,931
------- ------- ------- ---------- --------
Total liabilities................. 67,935 68,271 113,005 -- 249,211
------- ------- ------- ---------- --------
Minority interest in equity of
subsidiary............................... 29 -- -- -- 29
Stockholders' Equity
Common stock............................. 5 3,130 7 --a 8
3b
(3,137)b
Surplus.................................. 13,435 3,130 7,027 450a 27,176
13,291b
(10,157)b
Retained earnings (accumulated
deficit)............................... 8,451 (757) (279) 7,415
Accumulated other comprehensive income
(loss)................................. (35) 10 15 (10)
------- ------- ------- ---------- --------
Total stockholders' equity........ 21,856 5,513 6,770 450 34,589
------- ------- ------- ---------- --------
Total liabilities and
stockholders' equity............ $89,820 $73,784 $119,775 $ 450 $283,829
======= ======= ======= ========== ========
</TABLE>
102
<PAGE> 124
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL CONDITION
(a) To record the exercise of 57,000 stock options by officers of Emerald before
merger.
(b) To record the exchange of 2,916,573 shares of The Banc Corporation common
stock for all of the outstanding shares of the following accounted for as a
pooling of interests.
<TABLE>
<CAPTION>
EMERALD COMMERCE
COAST BANK OF
BANCSHARES ALABAMA TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
Outstanding shares of acquired corporation......... 683,000 658,190
Conversion ratio................................... 2.02044 2.334607
---------- ----------
The Banc Corporation shares to be issued........... 1,379,958 1,536,615 2,916,573
Par value of shares to be issued at $.001 per
share............................................ $ 1 $ 2 $ 3
Total common stock and surplus of acquired
corporation...................................... 6,260 7,034 13,294
---------- ---------- ----------
Excess recorded as an increase in contributed
capital....................................... 6,529 7,032 13,291
---------- ---------- ----------
To eliminate acquired corporations capital stock
Common stock at par value........................ (3,130) (7) (3,137)
Surplus.......................................... (3,130) (7,027) (10,157)
---------- ---------- ----------
(6,260) (7,034) (13,294)
---------- ---------- ----------
Net change in equity..................... $ -- $ -- $ --
========== ========== ==========
</TABLE>
(c) The Banc Corporation was formed by the reincorporation of Warrior Capital
Corporation. The 18,160 shares of Warrior Capital Corporation common stock
were converted into 5,448,000 shares of The Banc Corporation $.001 par value
common stock.
103
<PAGE> 125
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENTS OF INCOME (UNAUDITED)
The following summaries include (i) the condensed consolidated statements
of income of The Banc Corporation (formerly Warrior Capital Corporation) on a
historical basis for the six months ended June 30, 1998 and 1997, and the years
ended December 31, 1997, 1996, and 1995, (ii) the condensed consolidated
statements of income of Emerald for the six months ended June 30, 1998 and 1997
and the periods ended December 31, 1997 and 1996, (iii) the condensed statements
of income of Commerce for the six months ended June 30, 1998 and 1997 and the
periods ended December 31, 1997, 1996 and 1995, (iv) adjustments to give effect
to the proposed pooling of interests method business combinations with Emerald
and Commerce, (v) the pro forma combined condensed consolidated statements of
income of The Banc Corporation as if such combinations had occurred on January
1, 1995.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of income of The
Banc Corporation, Emerald and Commerce. The pro forma information may not
necessarily be indicative of future results. Pro forma earnings per share is
based on the weighted average number of shares outstanding for the period
adjusted for the applicable exchange ratio.
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1998
--------------------------------------------------------------
HISTORICAL
-----------------------------------
THE EMERALD COMMERCE
BANC COAST BANK OF PRO FORMA PRO FORMA
CORPORATION BANCSHARES ALABAMA ADJUSTMENTS COMBINED
----------- ---------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income................................ $ 3,070 $ 2,498 $ 4,506 $ -- $ 10,074
Interest expense............................... 1,134 1,197 2,659 -- 4,990
---------- -------- ------- ---- ----------
Net interest income................... 1,936 1,301 1,847 -- 5,084
Provision for loan losses...................... 38 156 292 -- 486
---------- -------- ------- ---- ----------
Net interest income after provision
for loan losses............................ 1,898 1,145 1,555 -- 4,598
Noninterest income............................. 312 168 582 -- 1,062
Gain (loss) on sale of securities.............. (4) 18 1 -- 15
Noninterest expenses........................... 1,497 1,342 1,788 -- 4,627
---------- -------- ------- ---- ----------
Income (loss) before income taxes..... 709 (11) 350 -- 1,048
Income tax expense (benefit)................... (68) (4) 94 -- 22
---------- -------- ------- ---- ----------
Net income (loss)..................... $ 777 $ (7) $ 256 $ -- $ 1,026
========== ======== ======= ==== ==========
Basic earnings (loss) per share................ $ 0.15 $ (0.01) $ 0.39 $ 0.13
========== ======== ======= ==========
Average number of shares outstanding --basic... 5,230,500 626,000 656,968 8,032,699
========== ======== ======= ==========
</TABLE>
104
<PAGE> 126
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1997
--------------------------------------------------------------
HISTORICAL
-----------------------------------
THE EMERALD COMMERCE
BANC COAST BANK OF PRO FORMA PRO FORMA
CORPORATION BANCSHARES ALABAMA ADJUSTMENTS COMBINED
----------- ---------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income................................. $ 2,590 $ 1,228 $ 3,329 $ -- $ 7,147
Interest expense................................ 1,109 563 1,808 -- 3,480
---------- -------- ------- ---- ----------
Net interest income.................... 1,481 665 1,521 -- 3,667
Provision for loan losses....................... 90 155 232 -- 477
---------- -------- ------- ---- ----------
Net interest income after provision for loan
losses...................................... 1,391 510 1,289 -- 3,190
Noninterest income.............................. 251 28 310 -- 589
Gain (loss) on sale of securities............... (3) -- -- -- (3)
Noninterest expenses............................ 1,011 817 1,420 -- 3,248
---------- -------- ------- ---- ----------
Income (loss) before income taxes...... 628 (279) 179 -- 528
Income tax expense (benefit).................... 233 (164) 35 -- 104
---------- -------- ------- ---- ----------
Net income (loss)...................... $ 395 $ (115) $ 144 $ -- $ 424
========== ======== ======= ==== ==========
Basic earnings (loss) per share................. $ 0.15 $ (0.18) $ 0.22 $ 0.08
========== ======== ======= ==========
Average number of shares outstanding -- basic... 2,716,200 626,000 655,460 5,514,868
========== ======== ======= ==========
</TABLE>
105
<PAGE> 127
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
--------------------------------------------------------------
HISTORICAL
-----------------------------------
THE EMERALD COMMERCE
BANC COAST BANK OF PRO FORMA PRO FORMA
CORPORATION BANCSHARES ALABAMA ADJUSTMENTS COMBINED
----------- ---------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income......................... $ 5,399 $ 3,114 $ 7,513 $ -- $ 16,026
Interest expense........................ 2,248 1,551 4,028 -- 7,827
---------- -------- -------- ---- ----------
Net interest income........... 3,151 1,563 3,485 -- 8,199
Provision for loan losses............... 330 333 584 -- 1,247
---------- -------- -------- ---- ----------
Net interest income after provision
for loan losses.................... 2,821 1,230 2,901 -- 6,952
Noninterest income...................... 475 115 578 -- 1,168
Noninterest expenses.................... 2,111 1,936 3,131 -- 7,178
---------- -------- -------- ---- ----------
Income (loss) before income
taxes....................... 1,185 (591) 348 -- 942
Income tax expense (benefit)............ 387 (195) 120 -- 312
---------- -------- -------- ---- ----------
Net income (loss)............. $ 798 $ (396) $ 228 $ -- $ 630
========== ======== ======== ==== ==========
Basic earnings (loss) per share......... $ 0.26 $ (0.63) $ 0.35 $ 0.11
========== ======== ======== ==========
Average number of shares outstanding.... 3,025,800 626,000 655,565 5,824,713
========== ======== ======== ==========
</TABLE>
106
<PAGE> 128
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------------------------
HISTORICAL
--------------------------------------
THE EMERALD COMMERCE
BANC COAST BANK OF PRO FORMA PRO FORMA
CORPORATION BANCSHARES(1) ALABAMA ADJUSTMENTS COMBINED
----------- ------------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income....................... $ 5,073 $ 381 $ 4,056 $ -- $ 9,510
Interest expense...................... 2,247 139 2,170 -- 4,556
---------- -------- -------- ---- ----------
Net interest income......... 2,826 242 1,886 -- 4,954
Provision for loan losses............. 135 70 372 -- 577
---------- -------- -------- ---- ----------
Net interest income after
provision for loan
losses.................... 2,691 172 1,514 -- 4,377
Noninterest income.................... 463 10 380 -- 853
Noninterest expenses.................. 1,952 793 2,268 -- 5,013
---------- -------- -------- ---- ----------
Income (loss) before income
taxes..................... 1,202 (611) (374) -- 217
Income tax expense (benefit).......... 412 (257) (81) -- 74
---------- -------- -------- ---- ----------
Net income (loss)........... $ 790 $ (354) $ (293) $ -- $ 143
========== ======== ======== ==== ==========
Basic earnings (loss) per share....... $ 0.29 $ (0.57) $ (0.47) $ 0.03
========== ======== ======== ==========
Average number of shares
outstanding......................... 2,716,200 626,000 618,854 5,429,204
========== ======== ======== ==========
</TABLE>
- ---------------
(1) Operations of Emerald since August of 1996, date of inception.
107
<PAGE> 129
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------
HISTORICAL
------------------------
THE COMMERCE
BANC BANK OF PRO FORMA PRO FORMA
CORPORATION ALABAMA(1) ADJUSTMENTS COMBINED
----------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income.................................. $ 4,859 $ 1,478 $ -- $ 6,337
Interest expense................................. 2,056 765 -- 2,821
---------- -------- ---- ----------
Net interest income.................... 2,803 713 -- 3,516
Provision for loan losses........................ 120 226 -- 346
---------- -------- ---- ----------
Net interest income after provision for loan
losses...................................... 2,683 487 -- 3,170
Noninterest income............................... 553 91 -- 644
Noninterest expenses............................. 1,871 1,289 -- 3,160
---------- -------- ---- ----------
Income before income taxes............. 1,365 (711) -- 654
Income tax expense (benefit)..................... 467 (241) -- 226
---------- -------- ---- ----------
Net income (loss)...................... $ 898 $ (470) $ -- $ 428
========== ======== ==== ==========
Basic earnings (loss) per share.................. $ 0.33 $ (0.85) $ 0.11
========== ======== ==========
Average number of shares outstanding............. 2,716,200 550,000 4,003,283
========== ======== ==========
</TABLE>
- ---------------
(1) Operations of Commerce since April of 1995, date of inception.
108
<PAGE> 130
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENT OF CONDITION (UNAUDITED)
The following summary includes (i) the condensed consolidated statement of
financial condition of The Banc Corporation (formerly the Warrior Capital
Corporation) as of June 30, 1998, (ii) the condensed consolidated statement of
financial condition of Emerald Coast Bancshares, Inc. ("Emerald") as of June 30,
1998, (iii) the condensed consolidated statement of financial condition of City
National Corporation ("City National") as of June 30, 1998, (iv) adjustments to
give effect to the proposed pooling of interests method business combinations
with Emerald and City National, (v) the pro forma combined condensed statement
of financial condition of The Banc Corporation and subsidiaries as if such
combinations had occurred on June 30, 1998.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of financial
conditions of The Banc Corporation, Emerald, and City National. The pro forma
information provided below may not be indicative of future results.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
--------------------------------------------------------------------
HISTORICAL
-----------------------------------------
THE EMERALD CITY
BANC COAST NATIONAL PRO FORMA PRO FORMA
CORPORATION(C) BANCSHARES CORPORATION ADJUSTMENTS COMBINED
-------------- ---------- ----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks.................... $ 4,822 $ 4,220 $ 2,725 $ 450(a) $ 12,217
Interest bearing deposits in other banks... -- -- 200 -- 200
Federal funds sold......................... 1,900 -- 1,120 -- 3,020
Investment securities available for sale... 201 8,092 35,224 -- 43,517
Investment securities held to maturity..... 24,934 -- -- -- 24,934
Loans, net of unearned..................... 46,601 55,320 39,568 -- 141,489
Less: Allowance for loan losses............ (717) (512) (700) -- (1,929)
------- ------- ------- ------- --------
Net loans......................... 45,884 54,808 38,868 -- 139,560
------- ------- ------- ------- --------
Premises and equipment, net................ 10,227 5,286 2,707 -- 18,220
Intangibles, net........................... 416 -- -- -- 416
Other assets............................... 1,436 1,378 1,364 -- 4,178
------- ------- ------- ------- --------
Total assets...................... $89,820 $73,784 $82,208 $ 450 $246,262
======= ======= ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing...................... $12,618 $ 9,405 $10,525 $ -- $ 32,548
Interest-bearing......................... 52,136 53,861 58,832 -- 164,829
------- ------- ------- ------- --------
Total deposits.................... 64,754 63,266 69,357 -- 197,377
Federal funds purchased and other borrowed
funds.................................... -- 4,555 -- -- 4,555
Accrued expenses and other liabilities..... 3,181 450 893 -- 4,524
------- ------- ------- ------- --------
Total liabilities................. 67,935 68,271 70,250 -- 206,456
Minority interest in equity of
subsidiary............................... 29 -- 139 -- 168
Stockholders' Equity
Common stock............................. 5 3,130 27 --(a) 8
3(b)
(3,157)(b)
Surplus.................................. 13,435 3,130 4,135 450(a) 24,238
10,353(b)
(7,265)(b)
Retained earnings (accumulated
deficit)............................... 8,451 (757) 7,422 15,116
Accumulated other comprehensive income
(loss)................................. (35) 10 301 276
Treasury stock, at cost.................. -- -- (66) 66(b) --
------- ------- ------- ------- --------
Total stockholders' equity........ 21,856 5,513 11,891 450 39,638
------- ------- ------- ------- --------
Total liabilities and
stockholders' equity............ $89,820 $73,784 $82,208 $ 450 $246,262
======= ======= ======= ======= ========
</TABLE>
109
<PAGE> 131
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF
FINANCIAL CONDITION
(a) To record the exercise of 57,000 stock options by officers of Emerald
before merger.
(b) To record the exchange of 3,379,958 shares of The Banc Corporation common
stock for all of the outstanding shares of the following accounted for as a
pooling of interests.
<TABLE>
<CAPTION>
EMERALD CITY
COAST NATIONAL
BANCSHARES CORPORATION TOTAL
---------- ----------- ----------
<S> <C> <C> <C>
Outstanding shares of acquired corporation......... 683,000 26,832
Conversion ratio................................... 2.02044 74.53786
---------- ----------
The Banc Corporation shares to be issued........... 1,379,958 2,000,000 3,379,958
Par value of shares to be issued at $.001 per
share............................................ $ 1 $ 2 $ 3
Total common stock and surplus of acquired
corporation...................................... 6,260 4,096 10,356
---------- ---------- ----------
Excess recorded as an increase in contributed
capital....................................... 6,259 4,094 10,353
---------- ---------- ----------
To eliminate acquired corporations capital stock
Common stock at par value........................ (3,130) (27) (3,157)
Surplus.......................................... (3,130) (4,135) (7,265)
Treasury stock................................... -- 66 66
---------- ---------- ----------
(6,260) (4,096) (10,356)
---------- ---------- ----------
Net change in equity..................... $ -- $ -- $ --
========== ========== ==========
</TABLE>
(c) The Banc Corporation was formed by the reincorporation of Warrior Capital
Corporation. The 18,160 shares of Warrior Capital Corporation common stock
were converted into 5,448,000 shares of The Banc Corporation $.001 par
value common stock.
110
<PAGE> 132
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENTS OF INCOME (UNAUDITED)
The following summaries include (i) the condensed consolidated statements
of income of The Banc Corporation (formerly Warrior Capital Corporation) on a
historical basis for the six months ended June 30, 1998 and 1997, and the years
ended December 31, 1997, 1996, and 1995, (ii) the condensed consolidated
statements of income of Emerald for the six months ended June 30, 1998 and 1997
and the periods ended December 31, 1997 and 1996, (iii) the condensed
consolidated statements of income of City National for the six months ended June
30, 1998 and 1997 and the years ended December 31, 1997, 1996 and 1995, (iv)
adjustments to give effect to the proposed pooling of interests method business
combinations with Emerald and City National, (v) the pro forma combined
condensed consolidated statements of income of The Banc Corporation as if such
combinations had occurred on January 1, 1995.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of income of The
Banc Corporation, Emerald and City National. The pro forma information may not
necessarily be indicative of future results. Pro forma earnings per share is
based on the weighted average number of shares outstanding for the period
adjusted for the applicable exchange ratio.
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1998
-----------------------------------------------------------------
HISTORICAL
--------------------------------------
THE EMERALD CITY
BANC COAST NATIONAL PRO FORMA PRO FORMA
CORPORATION BANCSHARES CORPORATION ADJUSTMENTS COMBINED
----------- ---------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income........................ $ 3,070 $ 2,498 $ 3,290 $ -- $ 8,858
Interest expense....................... 1,134 1,197 1,359 -- 3,690
---------- -------- ------- ---- ----------
Net interest income.......... 1,936 1,301 1,931 -- 5,168
Provision for loan losses.............. 38 156 430 -- 624
---------- -------- ------- ---- ----------
Net interest income after provision
for loan losses................... 1,898 1,145 1,501 -- 4,544
Noninterest income..................... 312 168 280 -- 760
Gain (loss) on sale of securities...... (4) 18 47 -- 61
Noninterest expenses................... 1,497 1,342 1,696 -- 4,535
---------- -------- ------- ---- ----------
Income (loss) before income
taxes...................... 709 (11) 132 -- 830
Income tax expense (benefit)........... (68) (4) 47 -- (25)
---------- -------- ------- ---- ----------
Net income (loss)............ $ 777 $ (7) $ 85 $ -- $ 855
========== ======== ======= ==== ==========
Basic earnings (loss) per share........ $ 0.15 $ (0.01) $ 3.16 $ 0.10
========== ======== ======= ==========
Average number of shares outstanding --
basic................................ 5,230,500 626,000 26,882 8,499,022
========== ======== ======= ==========
</TABLE>
111
<PAGE> 133
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1997
-----------------------------------------------------------------
HISTORICAL
--------------------------------------
THE EMERALD CITY
BANC COAST NATIONAL PRO FORMA PRO FORMA
CORPORATION BANCSHARES CORPORATION ADJUSTMENTS COMBINED
----------- ---------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income................................ $ 2,590 $ 1,228 $ 3,355 $ -- $ 7,173
Interest expense............................... 1,109 563 1,448 -- 3,120
---------- -------- ------- ---- ----------
Net interest income................... 1,481 665 1,907 -- 4,053
Provision for loan losses...................... 90 155 248 -- 493
---------- -------- ------- ---- ----------
Net interest income after provision
for loan losses............................ 1,391 510 1,659 -- 3,560
Noninterest income............................. 251 28 255 -- 534
Gain (loss) on sale of securities.............. (3) -- 2 -- (1)
Noninterest expenses........................... 1,011 817 1,654 -- 3,482
---------- -------- ------- ---- ----------
Income (loss) before income taxes.......... 628 (279) 262 -- 611
Income tax expense(benefit).................... 233 (164) 92 -- 161
---------- -------- ------- ---- ----------
Net income (loss).......................... $ 395 $ (115) $ 170 $ -- $ 450
========== ======== ======= ==== ==========
Basic earnings (loss) per share................ $ 0.15 $ (0.18) $ 6.31 $ 0.08
========== ======== ======= ==========
Average number of shares outstanding --basic... 2,716,200 626,000 26,948 5,989,639
========== ======== ======= ==========
</TABLE>
112
<PAGE> 134
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------------------------
HISTORICAL
--------------------------------------
THE EMERALD CITY
BANC COAST NATIONAL PRO FORMA PRO FORMA
CORPORATION BANCSHARES CORPORATION ADJUSTMENTS COMBINED
----------- ---------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income........................ $ 5,399 $ 3,114 $ 6,721 $ -- $ 15,234
Interest expense....................... 2,248 1,551 2,911 -- 6,710
---------- -------- ------- ---- ----------
Net interest income.......... 3,151 1,563 3,810 -- 8,524
Provision for loan losses.............. 330 333 384 -- 1,047
---------- -------- ------- ---- ----------
Net interest income after provision
for loan losses................... 2,821 1,230 3,426 -- 7,477
Noninterest income..................... 475 115 737 -- 1,327
Noninterest expenses................... 2,111 1,936 3,367 -- 7,414
---------- -------- ------- ---- ----------
Income (loss) before income
taxes...................... 1,185 (591) 796 -- 1,390
Income tax expense (benefit)........... 387 (195) 170 -- 362
---------- -------- ------- ---- ----------
Net income (loss)............ $ 798 $ (396) $ 626 $ -- $ 1,028
========== ======== ======= ==== ==========
Basic earnings (loss) per share........ $ 0.26 $ (0.63) $ 23.25 $ 0.16
========== ======== ======= ==========
Average number of shares outstanding... 3,025,800 626,000 26,910 6,296,407
========== ======== ======= ==========
</TABLE>
113
<PAGE> 135
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------------------
HISTORICAL
-----------------------------------------
THE EMERALD CITY
BANC COAST NATIONAL PRO FORMA PRO FORMA
CORPORATION BANCSHARES(1) CORPORATION ADJUSTMENTS COMBINED
----------- ------------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income...................... $ 5,073 $ 381 $ 6,027 $ -- $ 11,481
Interest expense..................... 2,247 139 2,460 -- 4,846
---------- -------- ------- ---- ----------
Net interest income........ 2,826 242 3,567 -- 6,635
Provision for loan losses............ 135 70 346 -- 551
---------- -------- ------- ---- ----------
Net interest income after provision
for loan losses................. 2,691 172 3,221 -- 6,084
Noninterest income................... 463 10 683 -- 1,156
Noninterest expenses................. 1,952 793 3,211 -- 5,956
---------- -------- ------- ---- ----------
Income (loss) before
income taxes............. 1,202 (611) 693 -- 1,284
Income tax expense (benefit)......... 412 (257) 133 -- 288
---------- -------- ------- ---- ----------
Net income (loss).......... $ 790 $ (354) $ 560 $ -- $ 996
========== ======== ======= ==== ==========
Basic earnings (loss) per share...... $ 0.29 $ (0.57) $ 20.68 $ 0.17
========== ======== ======= ==========
Average number of shares
outstanding........................ 2,716,200 626,000 27,063 5,998,211
========== ======== ======= ==========
</TABLE>
- ---------------
(1) Operations of Emerald since August of 1996, date of inception.
114
<PAGE> 136
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
----------------------------------------------------
HISTORICAL
-------------------------
THE CITY
BANC NATIONAL PRO FORMA PRO FORMA
CORPORATION CORPORATION ADJUSTMENTS COMBINED
----------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income.................................. $ 4,859 $ 5,674 $ -- $ 10,533
Interest expense................................. 2,056 2,324 -- 4,380
---------- ------- ---- ----------
Net interest income.................... 2,803 3,350 -- 6,153
Provision for loan losses........................ 120 204 -- 324
---------- ------- ---- ----------
Net interest income after provision for loan
losses...................................... 2,683 3,146 -- 5,829
Noninterest income............................... 553 629 -- 1,182
Noninterest expenses............................. 1,871 3,010 -- 4,881
---------- ------- ---- ----------
Income before income taxes............. 1,365 765 -- 2,130
Income tax expense............................... 467 40 -- 507
---------- ------- ---- ----------
Net income............................. $ 898 $ 725 $ -- $ 1,623
========== ======= ==== ==========
Basic earnings per share......................... $ 0.33 $ 26.73 $ 0.34
========== ======= ==========
Average number of shares outstanding............. 2,716,200 27,149 4,739,828
========== ======= ==========
</TABLE>
115
<PAGE> 137
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENT OF CONDITION (UNAUDITED)
The following summary includes (i) the condensed consolidated statement of
financial condition of The Banc Corporation (formerly the Warrior Capital
Corporation) as of June 30, 1998, (ii) the condensed consolidated statement of
financial condition of Emerald Coast Bancshares, Inc. ("Emerald") as of June 30,
1998 (iii) the condensed statement of financial condition of Commerce Bank of
Alabama ("Commerce") as of June 30, 1998, (iv) the condensed consolidated
statement of financial condition of First Citizens Bancorp, Inc. ("First
Citizens") as of June 30, 1998, (v) the condensed consolidated statement of
financial condition of Commercial Bancshares of Roanoke, Inc. ("CBS") as of June
30, 1998, (vi) adjustments to give effect to the proposed purchase method
combination with CBS and the proposed pooling of interests method business
combinations with Emerald, Commerce and First Citizens, (vii) the pro forma
combined condensed statement of financial condition of The Banc Corporation and
subsidiaries as if such combinations had occurred on June 30, 1998.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of financial
conditions of The Banc Corporation, Emerald, Commerce, First Citizens, and CBS.
The pro forma information provided below may not be indicative of future
results.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
------------------------------------------------------------------------------------------
HISTORICAL
---------------------------------------------------------------
THE EMERALD COMMERCE FIRST COMMERCIAL
BANC COAST BANK OF CITIZENS BANCSHARES PRO FORMA PRO FORMA
CORPORATION(D) BANCSHARES ALABAMA BANCORP OF ROANOKE ADJUSTMENTS COMBINED
-------------- ---------- -------- -------- ---------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks............. $ 4,822 $ 4,220 $ 4,839 $ 988 $ 1,579 $ 595(a) $ 17,043
Interest bearing deposits in other
banks............................. -- -- -- -- 200 -- 200
Federal funds sold.................. 1,900 -- 840 1,230 5,250 -- 9,220
Investment securities available for
sale.............................. 201 8,092 21,239 1,757 2,820 -- 34,109
Investment securities held to
maturity.......................... 24,934 -- 252 -- 17,185 -- 42,371
Loans, net of unearned.............. 46,601 55,320 88,981 32,535 14,595 -- 238,032
Less: Allowance for loan losses..... (717) (512) (894) (357) (288) -- (2,768)
------- ------- -------- ------- ------- -------- --------
Net loans................... 45,884 54,808 88,087 32,178 14,307 -- 235,264
------- ------- -------- ------- ------- -------- --------
Premises and equipment, net......... 10,227 5,286 2,841 555 285 892(c) 20,086
Intangibles, net.................... 416 -- -- -- -- -- 416
Other assets........................ 1,436 1,378 1,677 1,408 761 -- 6,660
------- ------- -------- ------- ------- -------- --------
Total assets................ $89,820 $73,784 $119,775 $38,116 $42,387 $ 1,487 $365,369
======= ======= ======== ======= ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing............... $12,618 $ 9,405 $12,796 $ 4,328 $ 6,635 $ -- $ 45,782
Interest-bearing.................. 52,136 53,861 97,909 30,075 29,069 -- 263,050
------- ------- -------- ------- ------- -------- --------
Total deposits.............. 64,754 63,266 110,705 34,403 35,704 -- 308,832
Federal funds purchased and other
borrowed funds.................... -- 4,555 -- -- 32 7,300(c) 11,887
Accrued expenses and other
liabilities....................... 3,181 450 2,300 468 243 -- 6,642
------- ------- -------- ------- ------- -------- --------
Total liabilities........... 67,935 68,271 113,005 34,871 35,979 7,300 327,361
Minority interest in equity of
subsidiary........................ 29 -- -- -- -- -- 29
Stockholders' Equity
Common stock...................... 5 3,130 7 75 20 --(a) 9
4(b)
(3,212)(b)
(20)(c)
Surplus........................... 13,435 3,130 7,027 800 3,526 595(a) 28,195
14,165(b)
(10,957)(b)
(3,526)(c)
Retained earnings (accumulated
deficit)........................ 8,451 (757) (279) 2,366 2,846 (2,846)(c) 9,781
Accumulated other comprehensive
income (loss)................... (35) 10 15 4 16 (16)(c) (6)
------- ------- -------- ------- ------- -------- --------
Total stockholders'
equity.................... 21,856 5,513 6,770 3,245 6,408 (5,813) 37,979
------- ------- -------- ------- ------- -------- --------
Total liabilities and
stockholders' equity...... $89,820 $73,784 $119,775 $38,116 $42,387 $ 1,487 $365,369
======= ======= ======== ======= ======= ======== ========
</TABLE>
116
<PAGE> 138
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF
FINANCIAL CONDITION
(a) To record the exercise of 57,000 stock options by officers of Emerald
before merger and 5,000 stock options by an officer of First Citizens prior
to merger.
(b) To record the exchange of 3,579,816 shares of The Banc Corporation common
stock for all of the outstanding shares of the following accounted for as a
pooling of interests.
<TABLE>
<CAPTION>
EMERALD FIRST COMMERCE
COAST CITIZENS BANK OF
BANCSHARES BANCORP ALABAMA TOTAL
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Outstanding shares of acquired
corporation........................... 683,000 80,000 658,190
Conversion ratio........................ 2.02044 8.290537 2.334607
---------- --------- ---------- ----------
The Banc Corporation shares to be
issued................................ 1,379,958 663,243 1,536,615 3,579,816
Par value of shares to be issued at
$.001 per share....................... $ 1 $ 1 $ 2 $ 4
Total common stock and surplus of
acquired corporation.................. 6,260 875 7,034 14,169
---------- --------- ---------- ----------
Excess recorded as an increase in
contributed capital................ 6,259 874 7,032 14,165
---------- --------- ---------- ----------
To eliminate acquired corporations
capital stock
Common stock at par value............. (3,130) (75) (7) (3,212)
Surplus............................... (3,130) (800) (7,027) (10,957)
---------- --------- ---------- ----------
(6,260) (875) (7,034) (14,169)
---------- --------- ---------- ----------
Net change in equity.......... $ -- $ -- $ -- $ --
========== ========= ========== ==========
</TABLE>
(c) Purchase of 100% of the outstanding common stock of Commercial Bancshares
of Roanoke, Inc. for approximately $7.3 million. Stock will be purchased
with proceeds borrowed from a commercial bank. The excess of cost over book
value will be allocated to the carrying value of the main office building
which currently has a zero book basis.
(d) The Banc Corporation was formed by the reincorporation of Warrior Capital
Corporation. The 18,160 shares of Warrior Capital Corporation common stock
were converted into 5,448,000 shares of The Banc Corporation $.001 par
value common stock.
117
<PAGE> 139
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENTS OF INCOME (UNAUDITED)
The following summaries include (i) the condensed consolidated statements
of income of The Banc Corporation (formerly the Warrior Capital Corporation) on
a historical basis for the six months ended June 30, 1998 and 1997, and the
years ended December 31, 1997, 1996, and 1995, (ii) the condensed consolidated
statements of income of Emerald and subsidiary on a historical basis for the six
months ended June 30, 1998 and 1997, and the periods ended December 31, 1997 and
1996, (iii) the condensed statements of income of Commerce for the six months
ended June 30, 1998 and 1997 and the periods ended December 31, 1997, 1996 and
1995, (iv) the condensed consolidated statements of income of First Citizens for
the six months ended June 30, 1998 and 1997 and the years ended December 31,
1997, 1996 and 1995, (v) the condensed consolidated statements of income of CBS
for the six months ended June 30, 1998 and the year ended December 31, 1997,
(vi) adjustments to give effect to the proposed purchase method combination with
CBS and the proposed pooling of interests method business combinations with
Emerald, Commerce and First Citizens, (vii) the pro forma combined condensed
consolidated statements of income of The Banc Corporation as if such
combinations had occurred on January 1, 1995. Note that for purchase method
combinations, Article 11 of Regulation S-X requires pro forma statements of
income to be presented for only the most recent fiscal year and interim period.
Accordingly, only the condensed consolidated statements of income for the six
months ended June 30, 1998 and the year ended December 31, 1997 are included in
(v) above for CBS.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of income of The
Banc Corporation, Emerald, Commerce, First Citizens and CBS. The pro forma
information may not necessarily be indicative of future results. Pro forma
earnings per share is based on the weighted average number of shares outstanding
for the period adjusted for the applicable exchange ratio.
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1998
---------------------------------------------------------------------------------------
HISTORICAL
-----------------------------------------------------------
THE EMERALD COMMERCE FIRST COMMERCIAL
BANC COAST BANK OF CITIZENS BANCSHARES PRO FORMA PRO FORMA
CORPORATION BANCSHARES ALABAMA BANCORP OF ROANOKE ADJUSTMENTS COMBINED
----------- ---------- -------- -------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income................ $ 3,070 $ 2,498 $ 4,506 $1,683 $ 1,494 $ -- $ 13,251
Interest expense............... 1,134 1,197 2,659 688 669 256(a) 6,603
---------- -------- -------- ------ -------- ----- ----------
Net interest income... 1,936 1,301 1,847 995 825 (256) 6,648
Provision for loan losses...... 38 156 292 117 69 -- 672
---------- -------- -------- ------ -------- ----- ----------
Net interest income after
provision for loan
losses..................... 1,898 1,145 1,555 878 756 (256) 5,976
Noninterest income............. 312 168 582 225 491 -- 1,778
Gain (loss) on sale of
securities................... (4) 18 1 -- -- -- 15
Noninterest expenses........... 1,497 1,342 1,788 731 889 15(a) 6,262
---------- -------- -------- ------ -------- ----- ----------
Income (loss) before income
taxes.................... 709 (11) 350 372 358 (271) 1,507
Income tax expense (benefit)... (68) (4) 94 136 88 (100)(a) 146
---------- -------- -------- ------ -------- ----- ----------
Net income (loss)..... $ 777 $ (7) $ 256 $ 236 $ 270 $(171) $ 1,361
========== ======== ======== ====== ======== ===== ==========
Basic earnings (loss) per
share........................ $ 0.15 $ (0.01) $ 0.39 $ 3.15 $ 1.35 $ 0.16
========== ======== ======== ====== ======== ==========
Average number of shares
outstanding -- basic......... 5,230,500 626,000 656,968 75,000 200,000 8,654,489
========== ======== ======== ====== ======== ==========
</TABLE>
118
<PAGE> 140
- ---------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
(a) To reflect interest expense (7%) on $7.3 million in debt incurred
to purchase stock of Commercial Bancshares of Roanoke............ $ 256
Depreciation on allocation of purchase price to premises and
equipment (30 year period)....................................... 15
------
Decrease in income before tax benefit............................ $ 271
======
Income tax benefit at 37%........................................ $ 100
======
</TABLE>
119
<PAGE> 141
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1997
-------------------------------------------------------------------------
HISTORICAL
----------------------------------------------
THE EMERALD COMMERCE FIRST
BANC COAST BANK OF CITIZENS PRO FORMA PRO FORMA
CORPORATION BANCSHARES ALABAMA BANCORP ADJUSTMENTS COMBINED
----------- ---------- -------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income........................ $ 2,590 $ 1,228 $ 3,329 $1,391 $ -- $ 8,538
Interest expense....................... 1,109 563 1,808 574 -- 4,054
---------- -------- -------- ------ ---- ----------
Net interest income........... 1,481 665 1,521 817 -- 4,484
Provision for loan losses.............. 90 155 232 30 -- 507
---------- -------- -------- ------ ---- ----------
Net interest income after provision
for loan losses.................... 1,391 510 1,289 787 -- 3,977
Noninterest income..................... 251 28 310 201 -- 790
Loss on sale of securities............. (3) -- -- -- -- (3)
Noninterest expenses................... 1,011 817 1,420 627 -- 3,875
---------- -------- -------- ------ ---- ----------
Income (loss) before income
taxes....................... 628 (279) 179 361 -- 889
Income tax expense (benefit)........... 233 (164) 35 131 -- 235
---------- -------- -------- ------ ---- ----------
Net income (loss)............. $ 395 $ (115) $ 144 $ 230 $ -- $ 654
========== ======== ======== ====== ==== ==========
Basic earnings (loss) per share........ $ 0.15 $ (0.18) $ 0.22 $ 3.07 $ 0.11
========== ======== ======== ====== ==========
Average number of shares outstanding --
basic................................ 2,716,200 626,000 655,460 75,000 6,136,658
========== ======== ======== ====== ==========
</TABLE>
120
<PAGE> 142
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------------------------------------------
HISTORICAL
-----------------------------------------------------------
THE EMERALD COMMERCE FIRST COMMERCIAL
BANC COAST BANK OF CITIZENS BANCSHARES PRO FORMA PRO FORMA
CORPORATION BANCSHARES ALABAMA BANCORP OF ROANOKE ADJUSTMENTS COMBINED
----------- ---------- -------- -------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income........................ $ 5,399 $ 3,114 $ 7,513 $ 2,957 $ 3,114 $ -- $ 22,097
Interest expense....................... 2,248 1,551 4,028 1,215 1,307 511(a) 10,860
---------- -------- -------- ------- -------- ----- ----------
Net interest income............ 3,151 1,563 3,485 1,742 1,807 (511) 11,237
Provision for loan losses.............. 330 333 584 218 401 -- 1,866
---------- -------- -------- ------- -------- ----- ----------
Net interest income after provision
for loan losses.................... 2,821 1,230 2,901 1,524 1,406 (511) 9,371
Noninterest income..................... 475 115 578 415 980 -- 2,563
Noninterest expenses................... 2,111 1,936 3,131 1,303 2,010 30(a) 10,521
---------- -------- -------- ------- -------- ----- ----------
Income before income taxes..... 1,185 (591) 348 636 376 (541) 1,413
Income tax expense (benefit)........... 387 (195) 120 213 68 (200)(a) 393
---------- -------- -------- ------- -------- ----- ----------
Net income (loss).............. $ 798 $ (396) $ 228 $ 423 $ 308 $(341) $ 1,020
========== ======== ======== ======= ======== ===== ==========
Basic earnings (loss) per share........ $ 0.26 $ (0.63) $ 0.35 $ 5.64 $ 1.54 $ 0.16
========== ======== ======== ======= ======== ==========
Average number of shares outstanding... 3,025,800 626,000 655,565 75,000 200,000 6,446,503
========== ======== ======== ======= ======== ==========
</TABLE>
- ---------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
(a) To reflect interest expense (7%) on $7.3 million in debt
incurred to purchase stock of Commercial Bancshares of
Roanoke...................................................... $ 511
Depreciation on allocation of purchase price to premises and
equipment (30 year period).................................... 30
-------
Decrease in income before tax benefit......................... $ 541
=======
Income tax benefit at 37%..................................... $ 200
=======
</TABLE>
121
<PAGE> 143
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
----------------------------------------------------------------------------
HISTORICAL
-------------------------------------------------
THE EMERALD COMMERCE FIRST
BANC COAST BANK OF CITIZENS PRO FORMA PRO FORMA
CORPORATION BANCSHARES(1) ALABAMA BANCORP ADJUSTMENTS COMBINED
----------- ------------- -------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income.................................... $ 5,073 $ 381 $ 4,056 $ 2,437 $ -- $ 11,947
Interest expense................................... 2,247 139 2,170 1,008 -- 5,564
---------- -------- -------- ------- ---- ----------
Net interest income........................ 2,826 242 1,886 1,429 -- 6,383
Provision for loan losses.......................... 135 70 372 43 -- 620
---------- -------- -------- ------- ---- ----------
Net interest income after provision for loan
losses......................................... 2,691 172 1,514 1,386 -- 5,763
Noninterest income................................. 463 10 380 430 -- 1,283
Noninterest expenses............................... 1,952 793 2,268 1,232 -- 6,245
---------- -------- -------- ------- ---- ----------
Income(loss) before income taxes........... 1,202 (611) (374) 584 -- 801
Income tax expense(benefit)........................ 412 (257) (81) 184 -- 258
---------- -------- -------- ------- ---- ----------
Net income(loss)........................... $ 790 $ (354) $ (293) $ 400 $ -- $ 543
========== ======== ======== ======= ==== ==========
Basic earnings(loss) per share..................... $ 0.29 $ (0.57) $ (0.47) $ 5.33 $ 0.09
========== ======== ======== ======= ==========
Average number of shares outstanding............... 2,716,200 626,000 618,854 75,000 6,050,994
========== ======== ======== ======= ==========
</TABLE>
- ---------------
(1) Operations of Emerald since August of 1996, date of inception.
122
<PAGE> 144
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------------------
HISTORICAL
-----------------------------------
THE COMMERCE FIRST
BANC BANK OF CITIZENS PRO FORMA PRO FORMA
CORPORATION ALABAMA(1) BANCORP ADJUSTMENTS COMBINED
----------- ---------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income.......................... $ 4,859 $ 1,478 $ 1,809 $ -- $ 8,146
Interest expense......................... 2,056 765 786 -- 3,607
---------- -------- ------- ---- ----------
Net interest income............ 2,803 713 1,023 -- 4,539
Provision for loan losses................ 120 226 -- -- 346
---------- -------- ------- ---- ----------
Net interest income after provision for
loan losses......................... 2,683 487 1,023 -- 4,193
Noninterest income....................... 553 91 348 -- 992
Noninterest expenses..................... 1,871 1,289 1,116 -- 4,276
---------- -------- ------- ---- ----------
Income (loss) before income
taxes........................ 1,365 (711) 255 -- 909
Income tax expense(benefit).............. 467 (241) 61 -- 287
---------- -------- ------- ---- ----------
Net income(loss)............... $ 898 $ (470) $ 194 $ -- $ 622
========== ======== ======= ==== ==========
Basic earnings(loss) per share........... $ 0.33 $ (0.85) $ 2.59 $ 0.13
========== ======== ======= ==========
Average number of shares outstanding..... 2,716,200 550,000 75,000 4,625,073
========== ======== ======= ==========
</TABLE>
- ---------------
(1) Operations of Commerce since April of 1995, date of inception.
123
<PAGE> 145
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENT OF CONDITION (UNAUDITED)
The following summary includes (i) the condensed consolidated statement of
financial condition of The Banc Corporation (formerly the Warrior Capital
Corporation) as of June 30, 1998, (ii) the condensed consolidated statement of
financial condition of Emerald Coast Bancshares, Inc. ("Emerald") as of June 30,
1998(iii) the condensed statement of financial condition of Commerce Bank of
Alabama ("Commerce") as of June 30, 1998, (iv) the condensed consolidated
statement of financial condition of Commercial Bancshares of Roanoke, Inc.
("CBS") as of June 30, 1998, (v) adjustments to give effect to the proposed
purchase method combination with CBS and the proposed pooling of interests
method business combinations with Emerald and Commerce, (vi) the pro forma
combined condensed statement of financial condition of The Banc Corporation and
subsidiaries as if such combinations had occurred on June 30, 1998.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of financial
conditions of The Banc Corporation, Emerald, Commerce and CBS. The pro forma
information provided below may not be indicative of future results.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
--------------------------------------------------------------------------------
HISTORICAL
---------------------------------------------------
THE EMERALD COMMERCE COMMERCIAL
BANC COAST BANK OF BANCSHARES PRO FORMA PRO FORMA
CORPORATION(D) BANCSHARES ALABAMA OF ROANOKE ADJUSTMENTS COMBINED
-------------- ---------- -------- ---------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks............. $ 4,822 $ 4,220 $ 4,839 $ 1,579 $ 450(a) $ 15,910
Interest bearing deposits in other
banks............................. -- -- -- 200 -- 200
Federal funds sold.................. 1,900 -- 840 5,250 -- 7,990
Investment securities available for
sale.............................. 201 8,092 21,239 2,820 -- 32,352
Investment securities held to
maturity.......................... 24,934 -- 252 17,185 -- 42,371
Loans, net of unearned.............. 46,601 55,320 88,981 14,595 -- 205,497
Less: Allowance for loan losses..... (717) (512) (894) (288) -- (2,411)
------- ------- -------- ------- -------- --------
Net loans................... 45,884 54,808 88,087 14,307 -- 203,086
------- ------- -------- ------- -------- --------
Premises and equipment, net......... 10,227 5,286 2,841 285 892(c) 19,531
Intangibles, net.................... 416 -- -- -- -- 416
Other assets........................ 1,436 1,378 1,677 761 -- 5,252
------- ------- -------- ------- -------- --------
Total assets................ $89,820 $73,784 $119,775 $42,387 $ 1,342 $327,108
======= ======= ======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing............... $12,618 $ 9,405 $ 12,796 $ 6,635 $ -- $ 41,454
Interest-bearing.................. 52,136 53,861 97,909 29,069 -- 232,975
------- ------- -------- ------- -------- --------
Total deposits.............. 64,754 63,266 110,705 35,704 -- 274,429
Federal funds purchased and other
borrowed funds.................... -- 4,555 -- 32 7,300(c) 11,887
Accrued expenses and other
liabilities....................... 3,181 450 2,300 243 -- 6,174
------- ------- -------- ------- -------- --------
Total liabilities........... 67,935 68,271 113,005 35,979 7,300 292,490
Minority interest in equity of
subsidiary........................ 29 -- -- -- -- 29
Stockholders' Equity
Common stock...................... 5 3,130 7 20 --(a) 8
3(b)
(3,137)(b)
(20)(c)
Surplus........................... 13,435 3,130 7,027 3,526 450(a) 27,176
13,291(b)
(10,157)(b)
(3,526)(c)
Retained earnings (accumulated
deficit)........................ 8,451 (757) (279) 2,846 (2,846)(c) 7,415
Accumulated other comprehensive
income (loss)................... (35) 10 15 16 (16)(c) (10)
------- ------- -------- ------- -------- --------
Total stockholders'
equity.................... 21,856 5,513 6,770 6,408 (5,958) 34,589
------- ------- -------- ------- -------- --------
Total liabilities and
stockholders' equity...... $89,820 $73,784 $119,775 $42,387 $ 1,342 $327,108
======= ======= ======== ======= ======== ========
</TABLE>
124
<PAGE> 146
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL CONDITION
(a) To record the exercise of 57,000 stock options by officers of Emerald before
merger.
(b) To record the exchange of 2,916,573 shares of The Banc Corporation common
stock for all of the outstanding shares of the following accounted for as a
pooling of interests.
<TABLE>
<CAPTION>
EMERALD COMMERCE
COAST BANK OF
BANCSHARES ALABAMA TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
Outstanding shares of acquired corporation......... 683,000 658,190
Conversion ratio................................... 2.02044 2.334607
---------- ----------
The Banc Corporation shares to be issued........... 1,379,958 1,536,615 2,916,573
Par value of shares to be issued at $.001 per
share............................................ $ 1 $ 2 $ 3
Total common stock and surplus of acquired
corporation...................................... 6,260 7,034 13,294
---------- ---------- ----------
Excess recorded as an increase in contributed
capital....................................... 6,259 7,032 13,291
---------- ---------- ----------
To eliminate acquired corporations capital stock
Common stock at par value........................ (3,130) (7) (3,137)
Surplus.......................................... (3,130) (7,027) (10,157)
---------- ---------- ----------
(6,260) (7,034) (13,294)
---------- ---------- ----------
Net change in equity..................... $ -- $ -- $ --
========== ========== ==========
</TABLE>
(c) Purchase of 100% of the outstanding common stock of Commercial Bancshares of
Roanoke, Inc. for approximately $7.3 million. Stock will be purchased with
proceeds borrowed from a commercial bank. The excess of cost over book value
will be allocated to the carrying value of the main office building which
currently has a zero book basis.
(d) The Banc Corporation was formed by the reincorporation of Warrior Capital
Corporation. The 18,160 shares of Warrior Capital Corporation common stock
were converted into 5,448,000 shares of The Banc Corporation $.001 par value
common stock.
125
<PAGE> 147
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENTS OF INCOME (UNAUDITED)
The following summaries include (i) the condensed consolidated statements
of income of The Banc Corporation (formerly the Warrior Capital Corporation) on
a historical basis for the six months ended June 30, 1998 and 1997, and the
years ended December 31,1997, 1996, and 1995, (ii) the condensed consolidated
statements of income of Emerald and subsidiary on a historical basis for the six
months ended June 30, 1998 and 1997, and the periods ended December 31,1997 and
1996,(iii) the condensed consolidated statements of income of Commerce for the
six months ended June 30, 1998 and 1997 and the periods ended December 31, 1997,
1996 and 1995 (iv) the condensed consolidated statements of income of CBS for
the six months ended June 30, 1998 and the year ended December 31, 1997, (v)
adjustments to give effect to the proposed purchase method combination with CBS
and the proposed pooling of interests method business combinations with Emerald
Coast Bancshares and Commerce, (vi) the pro forma combined condensed
consolidated statements of income of The Banc Corporation as if such
combinations had occurred on January 1, 1995. Note that for purchase method
combinations, Article 11 of Regulation S-X requires pro forma statements of
income to be presented for only the most recent fiscal year and interim period.
Accordingly, only the condensed consolidated statements of income for the six
months ended June 30, 1998 and the year ended December 31, 1997 are included in
(iv) above for CBS.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of income of The
Banc Corporation, Emerald, Commerce and CBS. The pro forma information may not
necessarily be indicative of future results. Pro forma earnings per share is
based on the weighted average number of shares outstanding for the period
adjusted for the applicable exchange ratio.
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1998
-----------------------------------------------------------------------------
HISTORICAL
-------------------------------------------------
THE EMERALD COMMERCE COMMERCIAL
BANC COAST BANK OF BANCSHARES PRO FORMA PRO FORMA
CORPORATION BANCSHARES ALABAMA OF ROANOKE ADJUSTMENTS COMBINED
----------- ---------- -------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income............ $ 3,070 $ 2,498 $ 4,506 $ 1,494 $ -- $ 11,568
Interest expense........... 1,134 1,197 2,659 669 256(a) 5,915
---------- -------- -------- -------- ----- ----------
Net interest
income......... 1,936 1,301 1,847 825 (256) 5,653
Provision for loan
losses................... 38 156 292 69 -- 555
---------- -------- -------- -------- ----- ----------
Net interest income after
provision for loan
losses................ 1,898 1,145 1,555 756 (256) 5,098
Noninterest income......... 312 168 582 491 -- 1,553
Gain(loss) on sale of
securities............... (4) 18 1 -- -- 15
Noninterest expenses....... 1,497 1,342 1,788 889 15(a) 5,531
---------- -------- -------- -------- ----- ----------
Income
(loss)before
income taxes... 709 (11) 350 358 (271) 1,135
Income tax
expense(benefit)......... (68) (4) 94 88 (100)(a) 10
---------- -------- -------- -------- ----- ----------
Net
income(loss)... $ 777 $ (7) $ 256 $ 270 $(171) $ 1,125
========== ======== ======== ======== ===== ==========
Basic earnings (loss) per
share.................... $ 0.15 $ (0.01) $ 0.39 $ 1.35 $ 0.14
========== ======== ======== ======== ==========
Average number of shares
outstanding -- basic..... 5,230,500 626,000 656,968 200,000 8,032,699
========== ======== ======== ======== ==========
</TABLE>
126
<PAGE> 148
- ---------------
<TABLE>
<S> <C> <C>
(a) To reflect interest expense (7%) on $7.3
million in debt incurred to purchase stock
of Commercial Bancshares of Roanoke........ $256
Depreciation on allocation of purchase
price to premises and equipment (30 year
period).................................... 15
----
Decrease in income before tax benefit...... $271
====
Income tax benefit at 37%.................. $100
====
</TABLE>
127
<PAGE> 149
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1997
--------------------------------------------------------------
HISTORICAL
-----------------------------------
THE EMERALD COMMERCE
BANC COAST BANK OF PRO FORMA PRO FORMA
CORPORATION BANCSHARES ALABAMA ADJUSTMENTS COMBINED
----------- ---------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income......................... $ 2,590 $ 1,228 $ 3,329 $ -- $ 7,147
Interest expense........................ 1,109 563 1,808 -- 3,480
---------- -------- -------- ---- ----------
Net interest income........... 1,481 665 1,521 -- 3,667
Provision for loan losses............... 90 155 232 -- 477
---------- -------- -------- ---- ----------
Net interest income after provision
for loan losses.................... 1,391 510 1,289 -- 3,190
Noninterest income...................... 251 28 310 -- 589
Loss on sale of securities.............. (3) -- -- -- (3)
Noninterest expenses.................... 1,011 817 1,420 -- 3,248
---------- -------- -------- ---- ----------
Income (loss) before income
taxes....................... 628 (279) 179 -- 528
Income tax expense(benefit)............. 233 (164) 35 -- 104
---------- -------- -------- ---- ----------
Net income(loss).............. $ 395 $ (115) $ 144 $ -- $ 424
========== ======== ======== ==== ==========
Basic earnings (loss) per share......... $ 0.15 $ (0.18) $ 0.22 $ 0.08
========== ======== ======== ==========
Average number of shares outstanding --
basic................................. 2,716,200 626,000 655,460 5,514,868
========== ======== ======== ==========
</TABLE>
128
<PAGE> 150
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------------------------------------
HISTORICAL
-------------------------------------------------
THE EMERALD COMMERCE COMMERCIAL
BANC COAST BANK OF BANCSHARES PRO FORMA PRO FORMA
CORPORATION BANCSHARES ALABAMA OF ROANOKE ADJUSTMENTS COMBINED
----------- ---------- -------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income............. $ 5,399 $ 3,114 $ 7,513 $ 3,114 $ -- $ 19,140
Interest expense............ 2,248 1,551 4,028 1,307 511(a) 9,645
---------- -------- -------- -------- ----- ----------
Net interest
income.......... 3,151 1,563 3,485 1,807 (511) 9,495
Provision for loan losses... 330 333 584 401 -- 1,648
---------- -------- -------- -------- ----- ----------
Net interest income after
provision for loan
losses................. 2,821 1,230 2,901 1,406 (511) 7,847
Noninterest income.......... 475 115 578 980 -- 2,148
Noninterest expenses........ 2,111 1,936 3,131 2,010 30(a) 9,218
---------- -------- -------- -------- ----- ----------
Income before
income taxes.... 1,185 (591) 348 376 (541) 777
Income tax
expense(benefit).......... 387 (195) 120 68 (200)(a) 180
---------- -------- -------- -------- ----- ----------
Net income
(loss).......... $ 798 $ (396) $ 228 $ 308 $(341) $ 597
========== ======== ======== ======== ===== ==========
Basic earnings (loss) per
share..................... $ 0.26 $ (0.63) $ 0.35 $ 1.54 $ 0.10
========== ======== ======== ======== ==========
Average number of shares
outstanding............... 3,025,800 626,000 655,565 200,000 5,824,713
========== ======== ======== ======== ==========
- ---------------
(a) To reflect interest expense (7%) on $7.3 million in debt
incurred to purchase stock of Commercial Bancshares of
Roanoke...................................................... $ 511
Depreciation on allocation of purchase price to premises and
equipment (30 year period)................................... 30
--------
Decrease in income before tax benefit........................ $ 541
========
Income tax benefit at 37%.................................... $ 200
========
</TABLE>
129
<PAGE> 151
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------------------------
HISTORICAL
--------------------------------------
THE EMERALD COMMERCE
BANC COAST BANK OF PRO FORMA PRO FORMA
CORPORATION BANCSHARES(1) ALABAMA ADJUSTMENTS COMBINED
----------- ------------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income....................... $ 5,073 $ 381 $ 4,056 $ -- $ 9,510
Interest expense...................... 2,247 139 2,170 -- 4,556
---------- -------- -------- ---- ----------
Net interest income......... 2,826 242 1,886 -- 4,954
Provision for loan losses............. 135 70 372 -- 577
---------- -------- -------- ---- ----------
Net interest income after provision
for loan losses.................. 2,691 172 1,514 -- 4,377
Noninterest income.................... 463 10 380 -- 853
Noninterest expenses.................. 1,952 793 2,268 -- 5,013
---------- -------- -------- ---- ----------
Income (loss) before income
taxes..................... 1,202 (611) (374) -- 217
Income tax expense (benefit).......... 412 (257) (81) -- 74
---------- -------- -------- ---- ----------
Net income (loss)........... $ 790 $ (354) $ (293) $ -- $ 143
========== ======== ======== ==== ==========
Basic earnings (loss) per share....... $ 0.29 $ (0.57) $ (0.47) $ 0.03
========== ======== ======== ==========
Average number of shares
outstanding......................... 2,716,200 626,000 618,854 5,429,204
========== ======== ======== ==========
</TABLE>
- ---------------
(1) Operations of Emerald since August of 1996, date of inception.
130
<PAGE> 152
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------
HISTORICAL
------------------------
THE COMMERCE
BANC BANK OF PRO FORMA PRO FORMA
CORPORATION ALABAMA(1) ADJUSTMENTS COMBINED
----------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income.................................. $ 4,859 $ 1,478 $ -- $ 6,337
Interest expense................................. 2,056 765 -- 2,821
---------- -------- ---- ----------
Net interest income.................... 2,803 713 -- 3,516
Provision for loan losses........................ 120 226 -- 346
---------- -------- ---- ----------
Net interest income after provision for loan
losses...................................... 2,683 487 -- 3,170
Noninterest income............................... 553 91 -- 644
Noninterest expenses............................. 1,871 1,289 -- 3,160
---------- -------- ---- ----------
Income (loss) before income taxes...... 1,365 (711) -- 654
Income tax expense(benefit)...................... 467 (241) -- 226
---------- -------- ---- ----------
Net income(loss)....................... $ 898 $ (470) $ -- $ 428
========== ======== ==== ==========
Basic earnings(loss) per share................... $ 0.33 $ (0.85) $ 0.11
========== ======== ==========
Average number of shares outstanding............. 2,716,200 550,000 4,003,283
========== ======== ==========
</TABLE>
- ---------------
(1) Operations of Commerce since April of 1995, date of inception.
131
<PAGE> 153
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENT OF CONDITION (UNAUDITED)
The following summary includes (i) the condensed consolidated statement of
financial condition of The Banc Corporation (formerly the Warrior Capital
Corporation) as of June 30, 1998, (ii) the condensed consolidated statement of
financial condition of Emerald Coast Bancshares, Inc. ("Emerald") as of June 30,
1998, (iii) the condensed consolidated statement of financial condition of
Commercial Bancshares of Roanoke, Inc. ("CBS") as of June 30, 1998, (iv)
adjustments to give effect to the proposed purchase method combination with CBS
and the proposed pooling of interests method business combination with Emerald,
(v) the pro forma combined condensed statement of financial condition of The
Banc Corporation and subsidiaries as if such combinations had occurred on June
30, 1998.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of financial
conditions of The Banc Corporation, Emerald and CBS. The pro forma information
provided below may not be indicative of future results.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
--------------------------------------------------------------------
HISTORICAL
----------------------------------------
THE EMERALD COMMERCIAL
BANC COAST BANCSHARES PRO FORMA PRO FORMA
CORPORATION(D) BANCSHARES OF ROANOKE ADJUSTMENTS COMBINED
-------------- ---------- ---------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks................... $ 4,822 $ 4,220 $ 1,579 $ 450(a) $ 11,071
Interest bearing deposits in other
banks................................... -- -- 200 -- 200
Federal funds sold........................ 1,900 -- 5,250 -- 7,150
Investment securities available for
sale.................................... 201 8,092 2,820 -- 11,113
Investment securities held to maturity.... 24,934 -- 17,185 -- 42,119
Loans, net of unearned.................... 46,601 55,320 14,595 -- 116,516
Less: Allowance for loan losses........... (717) (512) (288) -- (1,517)
------- ------- ------- ----------- --------
Net loans........................ 45,884 54,808 14,307 -- 114,999
------- ------- ------- ----------- --------
Premises and equipment, net............... 10,227 5,286 285 892(c) 16,690
Intangibles, net.......................... 416 -- -- -- 416
Other assets.............................. 1,436 1,378 761 -- 3,575
------- ------- ------- ----------- --------
Total assets..................... $89,820 $73,784 $42,387 $ 1,342 $207,333
======= ======= ======= =========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing..................... $12,618 $ 9,405 $ 6,635 $ -- $ 28,658
Interest-bearing........................ 52,136 53,861 29,069 -- 135,066
------- ------- ------- ----------- --------
Total deposits................... 64,754 63,266 35,704 -- 163,724
Federal funds purchased and other borrowed
funds................................... -- 4,555 32 7,300(c) 11,887
Accrued expenses and other liabilities.... 3,181 450 243 -- 3,874
------- ------- ------- ----------- --------
Total liabilities................ 67,935 68,271 35,979 7,300 179,485
Minority interest in equity of
subsidiary.............................. 29 -- -- -- 29
Stockholders' Equity
Common stock............................ 5 3,130 20 --(a) 6
1(b)
(3,130)(b)
(20)(c)
Surplus................................. 13,435 3,130 3,526 450(a) 20,144
6,259(b)
(3,130)(b)
(3,526)(c)
Retained earnings (accumulated
deficit).............................. 8,451 (757) 2,846 (2,846)(c) 7,694
Accumulated other comprehensive income
(loss)................................ (35) 10 16 (16)(c) (25)
------- ------- ------- ----------- --------
Total stockholders' equity....... 21,856 5,513 6,408 (5,958) 27,819
------- ------- ------- ----------- --------
Total liabilities and
stockholders' equity........... $89,820 $73,784 $42,387 $ 1,342 $207,333
======= ======= ======= =========== ========
</TABLE>
132
<PAGE> 154
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL CONDITION
(a) To record the exercise of 57,000 stock options by officers of Emerald before
merger.
(b) To record the exchange of 1,379,958 shares of The Banc Corporation common
stock for all of the outstanding shares of Emerald Coast Bancshares
accounted for as a pooling of interests.
<TABLE>
<S> <C>
Outstanding shares of acquired corporation.................. 683,000
Conversion ratio............................................ 2.02044
---------
The Banc Corporation shares to be issued.................... 1,379,958
Par value of shares to be issued at $.001 per share......... $ 1
Total common stock and surplus of acquired corporation...... 6,260
---------
Excess recorded as an increase in contributed capital..... 6,259
---------
To eliminate acquired corporations capital stock
Common stock at par value................................. (3,130)
Surplus................................................... (3,130)
---------
(6,260)
---------
Net change in equity.............................. $ --
=========
</TABLE>
(c) Purchase of 100% of the outstanding common stock of Commercial Bancshares of
Roanoke, Inc. for approximately $7.3 million. Stock will be purchased with
proceeds borrowed from a commercial bank. The excess of cost over book value
will be allocated to the carrying value of the main office building which
currently has a zero book basis.
(d) The Banc Corporation was formed by the reincorporation of Warrior Capital
Corporation. The 18,160 shares of Warrior Capital Corporation common stock
were converted into 5,448,000 shares of The Banc Corporation $.001 par value
common stock.
133
<PAGE> 155
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENTS OF INCOME (UNAUDITED)
The following summaries include (i) the condensed consolidated statements
of income of The Banc Corporation (formerly the Warrior Capital Corporation) on
a historical basis for the six months ended June 30, 1998 and 1997, and the
years ended December 31, 1997, 1996, and 1995, (ii) the condensed consolidated
statements of income of Emerald and subsidiary on a historical basis for the six
months ended June 30, 1998 and 1997, and the periods ended December 31, 1997 and
1996, (iii) the condensed consolidated statements of income of CBS for the six
months ended June 30, 1998 and the year ended December 31, 1997, (iv)
adjustments to give effect to the proposed purchase method combination with CBS
and the proposed pooling of interests method business combination with Emerald,
(v) the pro forma combined condensed consolidated statements of income of The
Banc Corporation as if such combinations had occurred on January 1, 1995. Note
that for purchase method combinations, Article 11 of Regulation S-X requires pro
forma statements of income to be presented for only the most recent fiscal year
and interim period. Accordingly, only the condensed consolidated statements of
income for the six months ended June 30, 1998 and the year ended December 31,
1997 are included in (iii) above for CBS.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of income of The
Banc Corporation, Emerald and CBS. The pro forma information may not necessarily
be indicative of future results. Pro forma earnings per share is based on the
weighted average number of shares outstanding for the period adjusted for the
applicable exchange ratio.
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1998
-----------------------------------------------------------------
HISTORICAL
-------------------------------------
THE EMERALD COMMERCIAL
BANC COAST BANCSHARES PRO FORMA PRO FORMA
CORPORATION BANCSHARES OF ROANOKE ADJUSTMENTS COMBINED
----------- ---------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income..................................... $ 3,070 $ 2,498 $ 1,494 $ -- $ 7,062
Interest expense.................................... 1,134 1,197 669 256(a) 3,256
---------- -------- -------- ----- ----------
Net interest income......................... 1,936 1,301 825 (256) 3,806
Provision for loan losses........................... 38 156 69 -- 263
---------- -------- -------- ----- ----------
Net interest income after provision for loan
losses.......................................... 1,898 1,145 756 (256) 3,543
Noninterest income.................................. 312 168 491 -- 971
Gain (loss) on sale of securities................... (4) 18 -- -- 14
Noninterest expenses................................ 1,497 1,342 889 15(a) 3,743
---------- -------- -------- ----- ----------
Income (loss) before income taxes........... 709 (11) 358 (271) 785
Income tax expense (benefit)........................ (68) (4) 88 (100)(a) (84)
---------- -------- -------- ----- ----------
Net income (loss)........................... $ 777 $ (7) $ 270 $(171) $ 869
========== ======== ======== ===== ==========
Basic earnings (loss) per share..................... $ 0.15 $ (0.01) $ 1.35 $ 0.13
========== ======== ======== ==========
Average number of shares outstanding -- basic....... 5,230,500 626,000 200,000 6,495,295
========== ======== ======== ==========
</TABLE>
- ---------------
<TABLE>
<C> <S> <C>
(a) To reflect interest expense(7%) on $7.3 million in debt
incurred to purchase stock of Commercial Bancshares of
Roanoke..................................................... $256
Depreciation on allocation of purchase price to premises and
equipment (30 year period).................................. 15
----
Decrease in income before tax benefit....................... $271
====
Income tax benefit at 37%................................... $100
====
</TABLE>
134
<PAGE> 156
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1997
---------------------------------------------------
HISTORICAL
------------------------
THE EMERALD
BANC COAST PRO FORMA PRO FORMA
CORPORATION BANCSHARES ADJUSTMENTS COMBINED
----------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income................................... $ 2,590 $ 1,228 $ -- $ 3,818
Interest expense.................................. 1,109 563 -- 1,672
---------- -------- ---- ----------
Net interest income..................... 1,481 665 -- 2,146
Provision for loan losses......................... 90 155 -- 245
---------- -------- ---- ----------
Net interest income after provision for loan
losses....................................... 1,391 510 -- 1,901
Noninterest income................................ 251 28 -- 279
Loss on sale of securities........................ (3) -- -- (3)
Noninterest expenses.............................. 1,011 817 -- 1,828
---------- -------- ---- ----------
Income (loss) before income taxes....... 628 (279) -- 349
Income tax expense (benefit)...................... 233 (164) -- 69
---------- -------- ---- ----------
Net income (loss)....................... $ 395 $ (115) $ -- $ 280
========== ======== ==== ==========
Basic earnings (loss) per share................... $ 0.15 $ (0.18) $ 0.07
========== ======== ==========
Average number of shares outstanding -- basic..... 2,716,200 626,000 3,980,993
========== ======== ==========
</TABLE>
135
<PAGE> 157
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------------------------
HISTORICAL
-------------------------------------
THE EMERALD COMMERCIAL
BANC COAST BANCSHARES PRO FORMA PRO FORMA
CORPORATION BANCSHARES OF ROANOKE ADJUSTMENTS COMBINED
----------- ---------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income....................... $ 5,399 $ 3,114 $ 3,114 $ -- $ 11,627
Interest expense...................... 2,248 1,551 1,307 511(a) 5,617
---------- -------- -------- ----- ----------
Net interest income......... 3,151 1,563 1,807 (511) 6,010
Provision for loan losses............. 330 333 401 -- 1,064
---------- -------- -------- ----- ----------
Net interest income after provision
for loan losses.................. 2,821 1,230 1,406 (511) 4,946
Noninterest income.................... 475 115 980 -- 1,570
Noninterest expenses.................. 2,111 1,936 2,010 30(a) 6,087
---------- -------- -------- ----- ----------
Income (loss) before income
taxes..................... 1,185 (591) 376 (541) 429
Income tax expense (benefit).......... 387 (195) 68 (200)(a) 60
---------- -------- -------- ----- ----------
Net income (loss)........... $ 798 $ (396) $ 308 $(341) $ 369
========== ======== ======== ===== ==========
Basic earnings (loss) per share....... $ 0.26 $ (0.63) $ 1.54 $ 0.09
========== ======== ======== ==========
Average number of shares
outstanding......................... 3,025,800 626,000 200,000 4,290,593
========== ======== ======== ==========
</TABLE>
- ---------------
<TABLE>
<S> <C> <C> <C> <C> <C>
(a) To reflect interest expense(7%) on $7.3 million in debt
incurred to purchase stock of Commercial Bancshares of
Roanoke..................................................... $ 511
Depreciation on allocation of purchase price to premises and
equipment (30 year period).................................. 30
--------
Decrease in income before tax benefit....................... $ 541
========
Income tax benefit at 37%................................... $ 200
========
</TABLE>
136
<PAGE> 158
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------
HISTORICAL
---------------------------
THE EMERALD
BANC COAST PRO FORMA PRO FORMA
CORPORATION BANCSHARES(1) ADJUSTMENTS COMBINED
----------- ------------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income................................ $ 5,073 $ 381 $ -- $ 5,454
Interest expense............................... 2,247 139 -- 2,386
---------- -------- ---- ----------
Net interest income.................. 2,826 242 -- 3,068
Provision for loan losses...................... 135 70 -- 205
---------- -------- ---- ----------
Net interest income after provision for loan
losses.................................... 2,691 172 -- 2,863
Noninterest income............................. 463 10 -- 473
Noninterest expenses........................... 1,952 793 -- 2,745
---------- -------- ---- ----------
Income (loss) before income taxes.... 1,202 (611) -- 591
Income tax expense (benefit)................... 412 (257) -- 155
---------- -------- ---- ----------
Net income (loss).................... $ 790 $ (354) $ -- $ 436
========== ======== ==== ==========
Basic earnings (loss) per share................ $ 0.29 $ (0.57) $ 0.11
========== ======== ==========
Average number of shares outstanding........... 2,716,200 626,000 3,980,993
========== ======== ==========
</TABLE>
- ---------------
(1) Operations of Emerald since August of 1996, date of inception.
137
<PAGE> 159
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
--------------------------------------
HISTORICAL
-----------
THE
BANC PRO FORMA PRO FORMA
CORPORATION ADJUSTMENTS COMBINED
----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income............................................ $ 4,859 $ -- $ 4,859
Interest expense........................................... 2,056 -- 2,056
---------- ---- ----------
Net interest income.............................. 2,803 -- 2,803
Provision for loan losses.................................. 120 -- 120
---------- ---- ----------
Net interest income after provision for loan losses...... 2,683 -- 2,683
Noninterest income......................................... 553 -- 553
Noninterest expenses....................................... 1,871 -- 1,871
---------- ---- ----------
Income before income taxes....................... 1,365 -- 1,365
Income tax expense......................................... 467 -- 467
---------- ---- ----------
Net income....................................... $ 898 $ -- $ 898
========== ==== ==========
Basic earnings per share................................... $ 0.33 $ 0.33
========== ==========
Average number of shares outstanding....................... 2,716,200 2,716,200
========== ==========
</TABLE>
138
<PAGE> 160
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENT OF CONDITION (UNAUDITED)
The following summary includes (i) the condensed consolidated statement of
financial condition of The Banc Corporation(formerly the Warrior Capital
Corporation) as of June 30, 1998,(ii) the condensed consolidated statement of
financial condition of Emerald Coast Bancshares, Inc. ("Emerald") as of June 30,
1998, (iii) the condensed statement of financial condition of Commerce Bank of
Alabama ("Commerce") as of June 30, 1998, (iv) the condensed consolidated
statement of financial condition of City National Corporation ("City National")
as of June 30, 1998, (v) the condensed consolidated statement of financial
condition of Commercial Bancshares of Roanoke, Inc. ("CBS") as of June 30, 1998,
(vi) adjustments to give effect to the proposed purchase method combination with
CBS and the proposed pooling of interests method business combinations with
Emerald, Commerce, and City National, (vii) the pro forma combined condensed
statement of financial condition of The Banc Corporation and subsidiaries as if
such combinations had occurred on June 30, 1998.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of financial
conditions of The Banc Corporation, Emerald, Commerce, City National and CBS.
The pro forma information provided below may not be indicative of future
results.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
--------------------------------------------------------------------------------------------
HISTORICAL
-----------------------------------------------------------------
THE EMERALD COMMERCE CITY COMMERCIAL
BANC COAST BANK OF NATIONAL BANCSHARES PRO FORMA PRO FORMA
CORPORATION(D) BANCSHARES ALABAMA CORPORATION OF ROANOKE ADJUSTMENTS COMBINED
-------------- ---------- -------- ----------- ---------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks... $ 4,822 $ 4,220 $ 4,839 $ 2,725 $ 1,579 $ 450(a) $ 18,635
Interest bearing deposits
in other banks.......... -- -- -- 200 200 -- 400
Federal funds sold........ 1,900 -- 840 1,120 5,250 -- 9,110
Investment securities
available for sale...... 201 8,092 21,239 35,224 2,820 -- 67,576
Investment securities held
to maturity............. 24,934 -- 252 -- 17,185 -- 42,371
Loans, net of unearned.... 46,601 55,320 88,981 39,568 14,595 -- 245,065
Less: Allowance for loan
losses.................. (717) (512) (894) (700) (288) -- (3,111)
------- ------- -------- ------- ------- -------- --------
Net loans......... 45,884 54,808 88,087 38,868 14,307 -- 241,954
------- ------- -------- ------- ------- -------- --------
Premises and equipment,
net..................... 10,227 5,286 2,841 2,707 285 891(c) 22,237
Intangibles, net.......... 416 -- -- -- -- -- 416
Other assets.............. 1,436 1,378 1,677 1,364 761 -- 6,616
------- ------- -------- ------- ------- -------- --------
Total assets...... $89,820 $73,784 $119,775 $82,208 $42,387 $ 1,341 $409,315
======= ======= ======== ======= ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing..... $12,618 $ 9,405 $ 12,796 $10,525 $ 6,635 $ -- $ 51,979
Interest-bearing........ 52,136 53,861 97,909 58,832 29,069 -- 291,807
------- ------- -------- ------- ------- -------- --------
Total deposits.... 64,754 63,266 110,705 69,357 35,704 -- 343,786
Federal funds purchased
and other borrowed
funds................... -- 4,555 -- -- 31 7,300(c) 11,886
Accrued expenses and other
liabilities............. 3,181 450 2,300 893 243 -- 7,067
------- ------- -------- ------- ------- -------- --------
Total
liabilities..... 67,935 68,271 113,005 70,250 35,978 7,300 362,739
Minority interest in
equity of subsidiary.... 29 -- -- 139 -- -- 168
Stockholders' Equity
Common stock............ 5 3,130 7 27 20 --(a) 10
5(b)
(3,164)(b)
(20)(c)
Surplus................. 13,435 3,130 7,027 4,135 3,527 450(a) 31,270
17,385(b)
(14,292)(b)
(3,527)(c)
Retained earnings
(accumulated
deficit).............. 8,451 (757) (279) 7,422 2,846 (2,846)(c) 14,837
Accumulated other
comprehensive income
(loss)................ (35) 10 15 301 16 (16)(c) 291
Treasury stock, at
cost.................. -- -- -- (66)(b) -- 66(b) --
------- ------- -------- ------- ------- -------- --------
Total
stockholders'
equity.......... 21,856 5,513 6,770 11,819 6,409 (5,959) 46,408
------- ------- -------- ------- ------- -------- --------
Total liabilities
and
stockholders'
equity.......... $89,820 $73,784 $119,775 $82,208 $42,387 $ 1,341 $409,315
======= ======= ======== ======= ======= ======== ========
</TABLE>
139
<PAGE> 161
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL CONDITION
(a) To record the exercise of 57,000 stock options by officers of Emerald before
merger.
(b) To record the exchange of 4,916,573 shares of The Banc Corporation common
stock for all of the outstanding shares of the following accounted for as a
pooling of interests.
<TABLE>
<CAPTION>
EMERALD COMMERCE CITY
COAST BANK OF NATIONAL
BANCSHARES ALABAMA CORPORATION TOTAL
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Outstanding shares of acquired
corporation........................... 683,000 658,190 26,832
Conversion ratio........................ 2.02044 2.334607 74.53786
---------- ---------- ----------
The Banc Corporation shares to be
issued................................ 1,379,958 1,536,615 2,000,000 4,916,573
Par value of shares to be issued at
$.001 per share....................... $ 1 $ 2 $ 2 $ 5
Total common stock and surplus of
acquired corporation.................. 6,260 7,034 4,096 17,390
---------- ---------- ---------- ----------
Excess recorded as an increase in
contributed capital................ 6,259 7,032 4,094 17,385
---------- ---------- ---------- ----------
To eliminate acquired corporations
capital stock
Common stock at par value............. (3,130) (7) (27) (3,164)
Surplus............................... (3,130) (7,027) (4,135) (14,292)
Treasury stock........................ -- -- 66 66
---------- ---------- ---------- ----------
(6,260) (7,034) (4,096) (17,390)
---------- ---------- ---------- ----------
Net change in equity.......... $ -- $ -- $ -- $ --
========== ========== ========== ==========
</TABLE>
(c) Purchase of 100% of the outstanding common stock of Commercial Bancshares of
Roanoke, Inc. for approximately $7.3 million. Stock will be purchased with
proceeds borrowed from a commercial bank. The excess of cost over book value
will be allocated to the carrying value of the main office building which
currently has a zero book basis.
(d) The Banc Corporation was formed by the reincorporation of Warrior Capital
Corporation. The 18,160 shares of Warrior Capital Corporation common stock
were converted into 5,448,000 shares of The Banc Corporation $.001 par value
common stock.
140
<PAGE> 162
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENTS OF INCOME (UNAUDITED)
The following summaries include (i) the condensed consolidated statements
of income of The Banc Corporation(formerly the Warrior Capital Corporation) on a
historical basis for the six months ended June 30, 1998 and 1997, and the years
ended December 31, 1997, 1996, and 1995, (ii) the condensed consolidated
statements of income of Emerald for the six months ended June 30, 1998 and 1997
and the periods ended December 31, 1997 and 1996, (iii) the condensed
consolidated statements of income of Commerce for the six months ended June 30,
1998 and 1997 and the periods ended December 31, 1997, 1996 and 1995, (iv) the
condensed consolidated statements of income of City National for the six months
ended June 30, 1998 and 1997 and the years ended December 31, 1997, 1996 and
1995, (v) the condensed consolidated statements of income of CBS for the six
months ended June 31, 1998 and the year ended December 31, 1997, (vi)
adjustments to give effect to the proposed purchase method combination with CBS
and the proposed pooling of interests method business combinations with
Emerald,Commerce and City National, (vii) the pro forma combined condensed
consolidated statements of income of The Banc Corporation as if such
combinations had occurred on January 1, 1995. Note that for purchase method
combinations, Article 11 of Regulation S-X requires pro forma statements of
income to be presented for only the most recent fiscal year and interim period.
Accordingly, only the condensed consolidated statements of income for the six
months ended June 30, 1998 and the year ended December 31, 1997 are included in
(v) above for CBS.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of income of The
Banc Corporation, Emerald, Commerce, City National and CBS. The pro forma
information may not necessarily be indicative of future results. Pro forma
earnings per share is based on the weighted average number of shares outstanding
for the period adjusted for the applicable exchange ratio.
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1998
----------------------------------------------------------------------------------------------
HISTORICAL
-----------------------------------------------------------------
THE EMERALD COMMERCE CITY COMMERCIAL
BANC COAST BANK OF NATIONAL BANCSHARES PRO FORMA PRO FORMA
CORPORATION BANCSHARES ALABAMA CORPORATION OF ROANOKE ADJUSTMENTS COMBINED
----------- ----------- --------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income...... $ 3,070 $ 2,498 $ 4,506 $ 3,290 $ 1,494 $ -- $ 14,858
Interest expense..... 1,134 1,197 2,659 1,359 669 256(a) 7,274
---------- -------- -------- ------- -------- ----- -----------
Net interest
income.... 1,936 1,301 1,847 1,931 825 (256) 7,584
Provision for loan
losses............. 38 156 292 430 69 -- 985
---------- -------- -------- ------- -------- ----- -----------
Net interest income
after provision
for loan
losses........... 1,898 1,145 1,555 1,501 756 (256) 6,599
Noninterest income... 312 168 582 280 491 -- 1,833
Gain (loss) on sale
of securities...... (4) 18 1 47 -- -- 62
Noninterest
expenses........... 1,497 1,342 1,788 1,696 889 15(a) 7,227
---------- -------- -------- ------- -------- ----- -----------
Income
(loss)
before
income
taxes..... 709 (11) 350 132 358 (271) 1,267
Income tax expense
(benefit).......... (68) (4) 94 47 88 (100)(a) 57
---------- -------- -------- ------- -------- ----- -----------
Net income
(loss).... $ 777 $ (7) $ 256 $ 85 $ 270 $(171) $ 1,210
========== ======== ======== ======= ======== ===== ===========
Basic earnings (loss)
per share.......... $ 0.15 $ (0.01) $ 0.39 $ 3.16 $ 1.35 $ 0.12
========== ======== ======== ======= ======== ===========
Average number of
shares
outstanding --
basic.............. 5,230,500 626,000 656,968 26,882 200,000 10,036,426
========== ======== ======== ======= ======== ===========
</TABLE>
141
<PAGE> 163
- ---------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
(a) To reflect interest expense (7%) on $7.3 million in debt incurred to
purchase stock of Commercial Bancshares of Roanoke..................... $ 256
Depreciation on allocation of purchase price to premises and equipment
(30 year period)....................................................... 15
--------
Decrease in income before tax benefit.................................. $ 271
========
Income tax benefit at 37%.............................................. $ 100
========
</TABLE>
142
<PAGE> 164
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1997
----------------------------------------------------------------------------
HISTORICAL
-------------------------------------------------
THE EMERALD COMMERCE CITY
BANC COAST BANK OF NATIONAL PRO FORMA PRO FORMA
CORPORATION BANCSHARES ALABAMA CORPORATION ADJUSTMENTS COMBINED
----------- ---------- -------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income............................ $ 2,590 $ 1,228 $ 3,329 $ 3,355 $ -- $ 10,502
Interest expense........................... 1,109 563 1,808 1,448 -- 4,928
---------- -------- -------- ------- ---- ----------
Net interest income................ 1,481 665 1,521 1,907 -- 5,574
Provision for loan losses.................. 90 155 232 248 -- 725
---------- -------- -------- ------- ---- ----------
Net interest income after provision for
loan losses............................ 1,391 510 1,289 1,659 -- 4,849
Noninterest income......................... 251 28 310 255 -- 844
Gain (loss) on sale of securities.......... (3) -- -- 2 -- (1)
Noninterest expenses....................... 1,011 817 1,420 1,654 -- 4,902
---------- -------- -------- ------- ---- ----------
Income (loss) before income
taxes............................ 628 (279) 179 262 -- 790
Income tax expense(benefit)................ 233 (164) 35 92 -- 196
---------- -------- -------- ------- ---- ----------
Net income(loss)................... $ 395 $ (115) $ 144 $ 170 $ -- $ 594
========== ======== ======== ======= ==== ==========
Basic earnings (loss) per share............ $ 0.15 $ (0.18) $ 0.22 $ 6.31 $ 0.08
========== ======== ======== ======= ==========
Average number of shares
outstanding -- basic..................... 2,716,200 626,000 655,460 26,948 7,523,514
========== ======== ======== ======= ==========
</TABLE>
143
<PAGE> 165
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER, 31, 1997
------------------------------------------------------------------------------------------
HISTORICAL
---------------------------------------------------------------
THE EMERALD COMMERCE CITY COMMERCIAL
BANC COAST BANK OF NATIONAL BANCSHARES PRO FORMA PRO FORMA
CORPORATION BANCSHARES ALABAMA CORPORATION OF ROANOKE ADJUSTMENTS COMBINED
----------- ---------- -------- ----------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income......... $ 5,399 $ 3,114 $ 7,513 $ 6,721 $ 3,114 $ -- $ 25,861
Interest expense........ 2,248 1,551 4,028 2,911 1,307 511(a) 12,556
---------- -------- -------- ------- -------- ------ ----------
Net interest
income....... 3,151 1,563 3,485 3,810 1,807 (511) 13,305
Provision for loan
losses................ 330 333 584 384 401 -- 2,032
---------- -------- -------- ------- -------- ------ ----------
Net interest income
after provision for
loan losses......... 2,821 1,230 2,901 3,426 1,406 (511)(a) 11,273
Noninterest income...... 475 115 578 736 980 -- 2,884
Noninterest expenses.... 2,111 1,936 3,131 3,367 2,010 30(a) 12,585
---------- -------- -------- ------- -------- ------ ----------
Income (loss)
before income
taxes........ 1,185 (591) 348 795 376 (541) 1,572
Income tax
expense(benefit)...... 387 (195) 120 170 68 (200)(a) 350
---------- -------- -------- ------- -------- ------ ----------
Net
income(loss).. $ 798 $ (396) $ 228 $ 625 $ 308 $ (341) $ 1,222
========== ======== ======== ======= ======== ====== ==========
Basic earnings (loss)
per share............. $ 0.26 $ (0.63) $ 0.35 $ 23.25 $ 1.54 $ 0.16
========== ======== ======== ======= ======== ==========
Average number of shares
outstanding........... 3,025,800 626,000 655,565 26,910 200,000 7,830,527
========== ======== ======== ======= ======== ==========
- ---------------
(a) To reflect interest expense(7%) on $7.3 million in debt
incurred to purchase stock of Commercial Bancshares of
Roanoke.................................................. $ 511
Depreciation on allocation of purchase price to premises
and equipment (30 year period)........................... 30
-------
Decrease in income before tax benefit.................... $ 541
=======
Income tax benefit at 37%................................ $ 200
=======
</TABLE>
144
<PAGE> 166
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------------------------------------
HISTORICAL
----------------------------------------------------
THE EMERALD COMMERCE CITY PRO
BANC COAST BANK OF NATIONAL PRO FORMA FORMA
CORPORATION BANCSHARES(1) ALABAMA CORPORATION ADJUSTMENTS COMBINED
----------- ------------- -------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income.......................... $ 5,073 $ 381 $ 4,056 $ 6,027 $ -- $ 15,537
Interest expense......................... 2,247 139 2,170 2,460 -- 7,016
---------- -------- -------- ------- ---- ----------
Net interest income.............. 2,826 242 1,886 3,567 -- 8,521
Provision for loan losses................ 135 70 372 346 -- 923
---------- -------- -------- ------- ---- ----------
Net interest income after provision for
loan losses.......................... 2,691 172 1,514 3,221 -- 7,598
Noninterest income....................... 463 10 380 683 -- 1,536
Noninterest expenses..................... 1,952 793 2,268 3,211 -- 8,224
---------- -------- -------- ------- ---- ----------
Income(loss) before income
taxes.......................... 1,202 (611) (374) 693 -- 910
Income tax expense(benefit).............. 412 (257) (81) 133 -- 207
---------- -------- -------- ------- ---- ----------
Net income(loss)................. $ 790 $ (354) $ (293) $ 560 $ -- $ 703
========== ======== ======== ======= ==== ==========
Basic earnings(loss) per share........... $ 0.29 $ (0.57) $ (0.47) $ 20.68 $ .09
========== ======== ======== ======= ==========
Average number of shares outstanding..... 2,716,200 626,000 618,854 27,063 7,446,422
========== ======== ======== ======= ==========
</TABLE>
- ---------------
(1) Operations of Emerald since August of 1996, date of inception.
145
<PAGE> 167
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------------------
HISTORICAL
---------------------------------------
THE COMMERCE CITY
BANC BANK OF NATIONAL PRO FORMA PRO FORMA
CORPORATION ALABAMA(1) CORPORATION ADJUSTMENTS COMBINED
----------- ----------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income...................... $ 4,859 $ 1,478 $ 5,674 $ -- $ 12,011
Interest expense..................... 2,056 765 2,324 -- 5,145
---------- -------- ------- ---- ----------
Net interest income........ 2,803 713 3,350 -- 6,866
Provision for loan losses............ 120 226 204 -- 550
---------- -------- ------- ---- ----------
Net interest income after provision
for loan losses................. 2,683 487 3,146 -- 6,316
Noninterest income................... 553 91 629 -- 1,273
Noninterest expenses................. 1,871 1,289 3,010 -- 6,170
---------- -------- ------- ---- ----------
Income (loss) before income
taxes.................... 1,365 (711) 765 -- 1,419
Income tax expense(benefit).......... 467 (241) 40 -- 266
---------- -------- ------- ---- ----------
Net income(loss)........... $ 898 $ (470) $ 725 $ -- $ 1,153
========== ======== ======= ==== ==========
Basic earnings(loss) per share....... $ 0.33 $ (0.85) $ 26.73 $ 0.19
========== ======== ======= ==========
Average number of shares
outstanding........................ 2,716,200 550,000 27,149 6,026,911
========== ======== ======= ==========
</TABLE>
- ---------------
(1) Operations of Commerce since April of 1995, date of inception.
146
<PAGE> 168
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENT OF CONDITION (UNAUDITED)
The following summary includes (i) the condensed consolidated statement of
financial condition of The Banc Corporation (formerly the Warrior Capital
Corporation) as of June 30, 1998, (ii) the condensed consolidated statement of
financial condition of Emerald Coast Bancshares, Inc. ("Emerald") as of June 30,
1998, (iii) the condensed statement of financial condition of Commerce Bank of
Alabama ("Commerce") as of June 30, 1998, (iv) the condensed consolidated
statement of financial condition of City National Corporation ("City National")
as of June 30, 1998, (v) adjustments to give effect to the proposed pooling of
interests method business combinations with Emerald, Commerce and City National,
(vi) the pro forma combined condensed statement of financial condition of The
Banc Corporation and subsidiaries as if such combinations had occurred on June
30, 1998.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of financial
conditions of The Banc Corporation, Emerald, Commerce and City National. The pro
forma information provided below may not be indicative of future results.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
--------------------------------------------------------------------------------
HISTORICAL
-----------------------------------------------------
THE EMERALD COMMERCE CITY
BANC COAST BANK OF NATIONAL PRO FORMA PRO FORMA
CORPORATION(C) BANCSHARES ALABAMA CORPORATION ADJUSTMENTS COMBINED
-------------- ---------- --------- ----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks............... $ 4,822 $ 4,220 $ 4,839 $ 2,725 $ 450(a) $ 17,056
Interest bearing deposits in other
banks............................... -- -- -- 200 -- 200
Federal funds sold.................... 1,900 -- 840 1,120 -- 3,860
Investment securities available for
sale................................ 201 8,092 21,239 35,224 -- 64,756
Investment securities held to
maturity............................ 24,934 -- 252 -- -- 25,186
Loans, net of unearned................ 46,601 55,320 88,981 39,568 -- 230,470
Less: Allowance for loan losses....... (717) (512) (894) (700) -- (2,823)
------- ------- -------- ------- ---------- --------
Net loans..................... 45,884 54,808 88,087 38,868 -- 227,647
------- ------- -------- ------- ---------- --------
Premises and equipment, net........... 10,227 5,286 2,841 2,707 -- 21,061
Intangibles, net...................... 416 -- -- -- -- 416
Other assets.......................... 1,436 1,378 1,677 1,364 -- 5,855
------- ------- -------- ------- ---------- --------
Total assets.................. $89,820 $73,784 $119,775 $82,208 $ 450 $366,037
======= ======= ======== ======= ========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing................. $12,618 $ 9,405 $ 12,796 $10,525 $ -- $ 45,344
Interest-bearing.................... 52,136 53,861 97,909 58,832 -- 262,738
------- ------- -------- ------- ---------- --------
Total deposits................ 64,754 63,266 110,705 69,357 -- 308,082
Federal funds purchased and other
borrowed funds...................... -- 4,555 -- -- -- 4,555
Accrued expenses and other
liabilities......................... 3,181 450 2,300 893 -- 6,824
------- ------- -------- ------- ---------- --------
Total liabilities............. 67,935 68,271 113,005 70,250 -- 319,461
Minority interest in equity of
subsidiary.......................... 29 -- -- 139 -- 168
Stockholders' Equity
Common stock........................ 5 3,130 7 27 --(a) 10
5(b)
(3,164)(b)
Surplus............................. 13,435 3,130 7,027 4,135 450(a) 31,270
17,385(b)
(14,292)(b)
Retained earnings (accumulated
deficit).......................... 8,451 (757) (279) 7,422 14,837
Accumulated other comprehensive
income (loss)..................... (35) 10 15 301 291
Treasury stock, at cost............. -- -- -- (66) 66(b) --
------- ------- -------- ------- ---------- --------
Total stockholders' equity.... 21,856 5,513 6,770 11,819 450 46,408
------- ------- -------- ------- ---------- --------
Total liabilities and
stockholders' equity........ $89,820 $73,784 $119,775 $82,208 $ 450 $366,037
======= ======= ======== ======= ========== ========
</TABLE>
147
<PAGE> 169
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL CONDITION
(a) To record the exercise of 57,000 stock options by officers of Emerald
before merger.
(b) To record the exchange of 4,916,573 shares of The Banc Corporation common
stock for all of the outstanding shares of the following accounted for as a
pooling of interests.
<TABLE>
<CAPTION>
EMERALD COMMERCE CITY
COAST BANK OF NATIONAL
BANCSHARES ALABAMA CORPORATION TOTAL
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Outstanding shares of acquired
corporation........................... 683,000 658,190 26,832
Conversion ratio........................ 2.02044 2.334607 74.53786
---------- ---------- ----------
The Banc Corporation shares to be
issued................................ 1,379,958 1,536,615 2,000,000 4,916,573
Par value of shares to be issued at
$.001 per share....................... $ 1 $ 2 $ 2 $ 5
Total common stock and surplus of
acquired corporation.................. 6,260 7,034 4,096 17,390
---------- ---------- ---------- ----------
Excess recorded as an increase in
contributed capital................ 6,259 7,032 4,094 17,385
---------- ---------- ---------- ----------
To eliminate acquired corporations
capital stock
Common stock at par value............. (3,130) (7) (27) (3,164)
Surplus............................... (3,130) (7,027) (4,135) (14,292)
Treasury stock........................ -- -- 66 66
---------- ---------- ---------- ----------
(6,260) (7,034) (4,096) (17,390)
---------- ---------- ---------- ----------
Net change in equity.......... $ -- $ -- $ -- $ --
========== ========== ========== ==========
</TABLE>
(c) The Banc Corporation was formed by the reincorporation of Warrior Capital
Corporation. The 18,160 shares of Warrior Capital Corporation common stock
were converted into 5,448,000 shares of The Banc Corporation $.001 par
value common stock.
148
<PAGE> 170
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENTS OF INCOME (UNAUDITED)
The following summaries include (i) the condensed consolidated statements
of income of The Banc Corporation (formerly Warrior Capital Corporation) on a
historical basis for the six months ended June 30, 1998 and 1997, and the years
ended December 31, 1997, 1996, and 1995, (ii) the condensed consolidated
statements of income of Emerald for the six months ended June 30, 1998 and 1997
and the periods ended December 31, 1997 and 1996, (iii) the condensed
consolidated statements of income of Commerce for the six months ended June 30,
1998 and 1997 and the periods ended December 31, 1997, 1996 and 1995, (iv) the
condensed consolidated statements of income of City National for the six months
ended June 30, 1998 and 1997 and the years ended December 31, 1997, 1996 and
1995, (v) adjustments to give effect to the proposed pooling of interests method
business combinations with Emerald, Commerce and City National, (vi) the pro
forma combined condensed consolidated statements of income of The Banc
Corporation as if such combinations had occurred on January 1, 1995.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of income of The
Banc Corporation, Emerald, Commerce and City National. The pro forma information
may not necessarily be indicative of future results. Pro forma earnings per
share is based on the weighted average number of shares outstanding for the
period adjusted for the applicable exchange ratio.
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1998
-----------------------------------------------------------------------------
HISTORICAL
-------------------------------------------------
THE EMERALD COMMERCE CITY
BANC COAST BANK OF NATIONAL PRO FORMA PRO FORMA
CORPORATION BANCSHARES ALABAMA CORPORATION ADJUSTMENTS COMBINED
----------- ---------- -------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income..................... $ 3,070 $ 2,498 $ 4,506 $ 3,290 $ -- $ 13,364
Interest expense.................... 1,134 1,197 2,659 1,359 -- 6,349
---------- -------- -------- ------- ---- -----------
Net interest income........ 1,936 1,301 1,847 1,931 -- 7,015
Provision for loan losses........... 38 156 292 430 -- 916
---------- -------- -------- ------- ---- -----------
Net interest income after
provision for loan losses....... 1,898 1,145 1,555 1,501 -- 6,099
Noninterest income.................. 312 168 582 280 -- 1,342
Gain (loss) on sale of securities... (4) 18 1 47 -- 62
Noninterest expenses................ 1,497 1,342 1,788 1,696 -- 6,323
---------- -------- -------- ------- ---- -----------
Income (loss) before income
taxes.................... 709 (11) 350 132 -- 1,180
Income tax expense (benefit)........ (68) (4) 94 47 -- 69
---------- -------- -------- ------- ---- -----------
Net income (loss).......... $ 777 $ (7) $ 256 $ 85 $ -- $ 1,111
========== ======== ======== ======= ==== ===========
Basic earnings (loss) per share..... $ 0.15 $ (0.01) $ 0.39 $ 3.16 $ 0.11
========== ======== ======== ======= ===========
Average number of shares
outstanding -- basic.............. 5,230,500 626,000 656,968 26,882 10,036,426
========== ======== ======== ======= ===========
</TABLE>
149
<PAGE> 171
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1997
----------------------------------------------------------------------------
HISTORICAL
-------------------------------------------------
THE EMERALD COMMERCE CITY
BANC COAST BANK OF NATIONAL PRO FORMA PRO FORMA
CORPORATION BANCSHARES ALABAMA CORPORATION ADJUSTMENTS COMBINED
----------- ---------- -------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income...................... $ 2,590 $ 1,228 $ 3,329 $ 3,355 $ -- $ 10,502
Interest expense..................... 1,109 563 1,808 1,448 -- 4,928
---------- -------- -------- ------- ---- ----------
Net interest income......... 1,481 665 1,521 1,907 -- 5,574
Provision for loan losses............ 90 155 232 248 -- 725
---------- -------- -------- ------- ---- ----------
Net interest income after provision
for loan losses.................. 1,391 510 1,289 1,659 -- 4,849
Noninterest income................... 251 28 310 255 -- 844
Gain (loss) on sale of securities.... (3) -- -- 2 -- (1)
Noninterest expenses................. 1,011 817 1,420 1,654 -- 4,902
---------- -------- -------- ------- ---- ----------
Income (loss) before income
taxes..................... 628 (279) 179 262 -- 790
Income tax expense (benefit)......... 233 (164) 35 92 -- 196
---------- -------- -------- ------- ---- ----------
Net income (loss)........... $ 395 $ (115) $ 144 $ 170 $ -- $ 594
========== ======== ======== ======= ==== ==========
Basic earnings (loss) per share...... $ 0.15 $ (0.18) $ 0.22 $ 6.31 $ 0.08
========== ======== ======== ======= ==========
Average number of shares
outstanding -- basic............... 2,716,200 626,000 655,460 26,948 7,523,514
========== ======== ======== ======= ==========
</TABLE>
150
<PAGE> 172
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------------------------------
HISTORICAL
-------------------------------------------------
THE EMERALD COMMERCE CITY
BANC COAST BANK OF NATIONAL PRO FORMA PRO FORMA
CORPORATION BANCSHARES ALABAMA CORPORATION ADJUSTMENTS COMBINED
----------- ---------- -------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income...................... $ 5,399 $ 3,114 $ 7,513 $ 6,721 $ -- $ 22,747
Interest expense..................... 2,248 1,551 4,028 2,911 -- 10,738
---------- -------- -------- ------- ---- ----------
Net interest income......... 3,151 1,563 3,485 3,810 -- 12,009
Provision for loan losses............ 330 333 584 384 -- 1,631
---------- -------- -------- ------- ---- ----------
Net interest income after provision
for loan losses.................. 2,821 1,230 2,901 3,426 -- 10,378
Noninterest income................... 475 115 578 737 -- 1,905
Noninterest expenses................. 2,111 1,936 3,131 3,367 -- 10,545
---------- -------- -------- ------- ---- ----------
Income (loss) before income
taxes..................... 1,185 (591) 348 796 -- 1,738
Income tax expense (benefit)......... 387 (195) 120 170 -- 482
---------- -------- -------- ------- ---- ----------
Net income (loss)........... $ 798 $ (396) $ 228 $ 626 $ -- $ 1,256
========== ======== ======== ======= ==== ==========
Basic earnings (loss) per share...... $ 0.26 $ (0.63) $ 0.35 $ 23.25 $ 0.16
========== ======== ======== ======= ==========
Average number of shares
outstanding........................ 3,025,800 626,000 655,565 26,910 7,830,527
========== ======== ======== ======= ==========
</TABLE>
151
<PAGE> 173
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
----------------------------------------------------------------------------------
HISTORICAL
----------------------------------------------------
THE EMERALD COMMERCE CITY
BANC COAST BANK OF NATIONAL PRO FORMA PRO FORMA
CORPORATION BANCSHARES(1) ALABAMA CORPORATION ADJUSTMENTS COMBINED
----------- ------------- -------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income..................... $ 5,073 $ 381 $ 4,056 $ 6,027 $ -- $ 15,537
Interest expense.................... 2,247 139 2,170 2,460 -- 7,016
---------- -------- ------- ------- ---- ----------
Net interest income............. 2,826 242 1,886 3,567 -- 8,521
Provision for loan losses........... 135 70 372 346 -- 923
---------- -------- ------- ------- ---- ----------
Net interest income after
provision for loan losses....... 2,691 172 1,514 3,221 -- 7,598
Noninterest income.................. 463 10 380 683 -- 1,536
Noninterest expenses................ 1,952 793 2,268 3,211 -- 8,224
---------- -------- ------- ------- ---- ----------
Income (loss) before income
taxes......................... 1,202 (611) (374) 693 -- 910
Income tax expense (benefit)........ 412 (257) (81) 133 -- 207
---------- -------- ------- ------- ---- ----------
Net income (loss)............... $ 790 $ (354) $ (293) $ 560 $ -- $ 703
========== ======== ======= ======= ==== ==========
Basic earnings (loss) per share..... $ 0.29 $ (0.57) $ (0.47) $ 20.68 $ 0.09
========== ======== ======= ======= ==========
Average number of shares
outstanding....................... 2,716,200 626,000 618,854 27,063 7,446,442
========== ======== ======= ======= ==========
</TABLE>
- ---------------
(1) Operations of Emerald since August of 1996, date of inception.
152
<PAGE> 174
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------------------------
HISTORICAL
--------------------------------------
THE COMMERCE CITY
BANC BANK OF NATIONAL PRO FORMA PRO FORMA
CORPORATION ALABAMA(1) CORPORATION ADJUSTMENTS COMBINED
----------- ---------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income........................ $ 4,859 $ 1,478 $ 5,674 $ -- $ 12,011
Interest expense....................... 2,056 765 2,324 -- 5,145
---------- -------- ------- ---- ----------
Net interest income.......... 2,803 713 3,350 -- 6,866
Provision for loan losses.............. 120 226 204 -- 550
---------- -------- ------- ---- ----------
Net interest income after provision
for loan losses................... 2,683 487 3,146 -- 6,316
Noninterest income..................... 553 91 629 -- 1,273
Noninterest expenses................... 1,871 1,289 3,010 -- 6,170
---------- -------- ------- ---- ----------
Income (loss) before income
taxes...................... 1,365 (711) 765 -- 1,419
Income tax expense (benefit)........... 467 (241) 40 -- 266
---------- -------- ------- ---- ----------
Net income (loss)............ $ 898 $ (470) $ 725 $ -- $ 1,153
========== ======== ======= ==== ==========
Basic earnings (loss) per share........ $ 0.33 $ (0.85) $ 26.73 $ 0.19
========== ======== ======= ==========
Average number of shares outstanding... 2,716,200 550,000 27,149 6,026,911
========== ======== ======= ==========
</TABLE>
- ---------------
(1) Operations of Commerce since April of 1995, date of inception.
153
<PAGE> 175
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENT OF CONDITION (UNAUDITED)
The following summary includes (i) the condensed consolidated statement of
financial condition of The Banc Corporation (formerly the Warrior Capital
Corporation) as of June 30, 1998, (ii) the condensed consolidated statement of
financial condition of Emerald Coast Bancshares, Inc. ("Emerald") as of June 30,
1998, (iii) the condensed consolidated statement of financial condition of First
Citizens Bancorp, Inc. ("First Citizens") as of June 30, 1998, (iv) the
condensed consolidated statement of financial condition of City National
Corporation ("City National") as of June 30, 1998, (v) the condensed
consolidated statement of financial condition of Commercial Bancshares of
Roanoke, Inc. ("CBS") as of June 30, 1998, (vi) adjustments to give effect to
the proposed purchase method combination with CBS and the proposed pooling of
interests method business combinations with Emerald, First Citizens and City
National, (vii) the pro forma combined condensed statement of financial
condition of The Banc Corporation and subsidiaries as if such combinations had
occurred on June 30, 1998.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of financial
conditions of The Banc Corporation,Emerald Coast Bancshares, First Citizens,
City National and CBS. The pro forma information provided below may not be
indicative of future results.
<TABLE>
<CAPTION>
AS OF JUNE 30,1998
-----------------------------------------------------------------------------------------------
HISTORICAL
---------------------------------------------------------------------
THE EMERALD FIRST CITY COMMERCIAL PRO
BANC COAST CITIZENS NATIONAL BANCSHARES PRO FORMA FORMA
CORPORATION(D) BANCSHARES BANCORP CORPORATION OF ROANOKE ADJUSTMENTS COMBINED
-------------- ---------- --------- ----------- ------------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks......... $ 4,822 $ 4,220 $ 988 $ 2,725 $ 1,579 $ 595(a) $ 14,929
Interest bearing deposits in
other banks................... -- -- -- 200 200 -- 400
Federal funds sold.............. 1,900 -- 1,230 1,120 5,250 -- 9,500
Investment securities available
for sale...................... 201 8,092 1,757 35,224 2,820 -- 48,094
Investment securities held to
maturity...................... 24,934 -- -- -- 17,185 -- 42,119
Loans, net of unearned.......... 46,601 55,320 32,535 39,568 14,595 -- 188,619
Less: Allowance for loan
losses........................ (717) (512) (357) (700) (288) -- (2,574)
------- ------- ------- ------- ------- ------- --------
Net loans............... 45,884 54,808 32,178 38,868 14,307 -- 186,045
------- ------- ------- ------- ------- ------- --------
Premises and equipment, net..... 10,227 5,286 555 2,707 285 892(c) 19,952
Intangibles, net................ 416 -- -- -- -- -- 416
Other assets.................... 1,436 1,378 1,408 1,364 761 -- 6,347
------- ------- ------- ------- ------- ------- --------
Total assets............ $89,820 $73,784 $38,116 $82,208 $42,387 $ 1,487 $327,802
======= ======= ======= ======= ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing........... $12,618 $ 9,405 $ 4,328 $10,525 $ 6,635 $ -- $ 43,511
Interest-bearing.............. 52,136 53,861 30,075 58,832 29,069 -- 223,973
------- ------- ------- ------- ------- ------- --------
Total deposits.......... 64,754 63,266 34,403 69,357 35,704 -- 267,484
Federal funds purchased and
other borrowed funds.......... -- 4,555 -- -- 32 7,300(c) 11,887
Accrued expenses and other
liabilities................... 3,181 450 468 893 243 -- 5,235
------- ------- ------- ------- ------- ------- --------
Total liabilities....... 67,935 68,271 34,871 70,250 35,979 7,300 284,606
Minority interest in equity of
subsidiary.................... 29 -- -- 139 -- -- 168
Stockholders' Equity
Common stock.................. 5 3,130 75 27 20 --(a) 9
4(b)
(3,232)(b)
(20)(c)
Surplus....................... 13,435 3,130 800 4,135 3,526 595(a) 25,257
11,227(b)
(8,065)(b)
(3,526)(c)
Retained earnings (accumulated
deficit).................... 8,451 (757) 2,366 7,422 2,846 (2,846)(c) 17,482
Accumulated other
comprehensive income
(loss)...................... (35) 10 4 301 16 (16)(c) 280
Treasury stock, at cost....... -- -- -- (66) -- 66(b) --
------- ------- ------- ------- ------- ------- --------
Total stockholders'
equity................ 21,856 5,513 3,245 11,819 6,408 (5,813) 43,028
------- ------- ------- ------- ------- ------- --------
Total liabilities and
stockholders'
equity................ $89,820 $73,784 $38,116 $82,208 $42,387 $ 1,487 $327,802
======= ======= ======= ======= ======= ======= ========
</TABLE>
154
<PAGE> 176
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL CONDITION
(a) To record the exercise of 57,000 stock options by officers of Emerald before
merger and 5,000 stock options by an officer of First Citizens prior to
merger.
(b) To record the exchange of 4,043,201 shares of The Banc Corporation common
stock for all of the outstanding shares of the following accounted for as a
pooling of interests.
<TABLE>
<CAPTION>
EMERALD FIRST CITY
COAST CITIZENS NATIONAL
BANCSHARES BANCORP CORPORATION TOTAL
---------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Outstanding shares of acquired
corporation........................... 683,000 80,000 26,832
Conversion ratio........................ 2.02044 8.290537 74.53786
---------- --------- ----------
The Banc Corporation shares to be
issued................................ 1,379,958 663,243 2,000,000 4,043,201
Par value of shares to be issued at
$.001 per share....................... $ 1 $ 1 $ 2 $ 4
Total common stock and surplus of
acquired corporation.................. 6,260 875 4,096 11,231
---------- --------- ---------- ----------
Excess recorded as an increase in
contributed capital................ 6,259 874 4,094 11,227
---------- --------- ---------- ----------
To eliminate acquired corporations
capital stock
Common stock at par value............. (3,130) (75) (27) (3,232)
Surplus............................... (3,130) (800) (4,135) (8,065)
Treasury stock........................ -- -- 66 66
---------- --------- ---------- ----------
(6,260) (875) (4,096) (11,231)
---------- --------- ---------- ----------
Net change in equity.......... $ -- $ -- $ -- $ --
========== ========= ========== ==========
</TABLE>
(c) Purchase of 100% of the outstanding common stock of Commercial Bancshares of
Roanoke, Inc. for approximately $7.3 million. Stock will be purchased with
proceeds borrowed from a commercial bank. The excess of cost over book value
will be allocated to the carrying value of the main office building which
currently has a zero book basis.
(d) The Banc Corporation was formed by the reincorporation of Warrior Capital
Corporation. The 18,160 shares of Warrior Capital Corporation common stock
were converted into 5,448,000 shares of The Banc Corporation $.001 par
value common stock.
155
<PAGE> 177
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENTS OF INCOME (UNAUDITED)
The following summaries include (i) the condensed consolidated statements
of income of The Banc Corporation (formerly the Warrior Capital Corporation) on
a historical basis for the six months ended June 30, 1998 and 1997, and the
years ended December 31,1997, 1996, and 1995, (ii) the condensed consolidated
statements of income of Emerald and subsidiary on a historical basis for the six
months ended June 30, 1998 and 1997, and the periods ended December 31,1997 and
1996, (iii) the condensed consolidated statements of income of First Citizens
for the six months ended June 30, 1998 and 1997 and the years ended December 31,
1997, 1996 and 1995, (iv) the condensed consolidated statements of income of
City National for the six months ended June 30, 1998 and 1997 and the years
ended December 31, 1997, 1996 and 1995, (v) the condensed consolidated
statements of income of CBS for the six months ended June 30, 1998 and the year
ended December 31, 1997, (vi) adjustments to give effect to the proposed
purchase method combination with CBS and the proposed pooling of interests
method business combinations with Emerald Coast Bancshares, First Citizens and
City National, (vii) the pro forma combined condensed consolidated statements of
income of The Banc Corporation as if such combinations had occurred on January
1, 1995. Note that for purchase method combinations, Article 11 of Regulation
S-X requires pro forma statements of income to be presented for only the most
recent fiscal year and interim period. Accordingly, only the condensed
consolidated statements of income for the six months ended June 30, 1998 and the
year ended December 31, 1997 are included in (v) above for CBS.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of income of The
Banc Corporation, Emerald Coast Bancshares, First Citizens, City National and
CBS. The pro forma information may not necessarily be indicative of future
results. Pro forma earnings per share is based on the weighted average number of
shares outstanding for the period adjusted for the applicable exchange ratio.
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1998
-------------------------------------------------------------------------------------------
HISTORICAL
--------------------------------------------------------------
THE EMERALD FIRST CITY COMMERCIAL
BANC COAST CITIZENS NATIONAL BANCSHARES PRO FORMA PRO FORMA
CORPORATION BANCSHARES BANCORP CORPORATION OF ROANOKE ADJUSTMENTS COMBINED
----------- ---------- -------- ----------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income.......... $ 3,070 $ 2,498 $1,683 $3,290 $ 1,494 $ -- $ 12,035
Interest expense......... 1,134 1,197 688 1,359 669 256(a) 5,303
---------- -------- ------ ------ -------- ----- ----------
Net interest
income........ 1,936 1,301 995 1,931 825 (256) 6,732
Provision for loan
losses................. 38 156 117 430 69 -- 810
---------- -------- ------ ------ -------- ----- ----------
Net interest income
after provision for
loan losses.......... 1,898 1,145 878 1,501 756 (256) 5,922
Noninterest income....... 312 168 225 280 491 -- 1,476
Gain (loss) on sale of
securities............. (4) 18 -- 47 -- -- 61
Noninterest expenses..... 1,497 1,342 731 1,696 889 15(a) 6,170
---------- -------- ------ ------ -------- ----- ----------
Income (loss)
before income
taxes......... 709 (11) 372 132 358 (271) 1,289
Income tax expense
(benefit).............. (68) (4) 136 47 88 (100)(a) 99
---------- -------- ------ ------ -------- ----- ----------
Net income
(loss)........ $ 777 $ (7) $ 236 $ 85 $ 270 $(171) $ 1,190
========== ======== ====== ====== ======== ===== ==========
Basic earnings (loss) per
share.................. $ 0.15 $ (0.01) $ 3.15 $ 3.16 $ 1.35 $ 0.13
========== ======== ====== ====== ======== ==========
Average number of shares
outstanding -- basic... 5,230,500 626,000 75,000 26,882 200,000 9,120,812
========== ======== ====== ====== ======== ==========
</TABLE>
156
<PAGE> 178
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------
(a) To reflect interest expense (7%) on $7.3 million in
debt incurred to purchase stock of Commercial
Bancshares of Roanoke.................................. $ 256
Depreciation on allocation of purchase price to
premises and equipment (30 year period)................ 15
------
Decrease in income before tax benefit.................. $ 271
======
Income tax benefit at 37%.............................. $ 100
======
</TABLE>
157
<PAGE> 179
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1997
----------------------------------------------------------------------------
HISTORICAL
-------------------------------------------------
THE EMERALD FIRST CITY
BANC COAST CITIZENS NATIONAL PRO FORMA PRO FORMA
CORPORATION BANCSHARES BANCORP CORPORATION ADJUSTMENTS COMBINED
----------- ---------- -------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income................ $ 2,590 $ 1,228 $ 1,391 $ 3,355 $ -- $ 8,564
Interest expense............... 1,109 563 574 1,448 -- 3,694
---------- -------- ------- ------- ----- ----------
Net interest
income............. 1,481 665 817 1,907 -- 4,870
Provision for loan losses...... 90 155 30 248 -- 523
---------- -------- ------- ------- ----- ----------
Net interest income after
provision for loan
losses.................... 1,391 510 787 1,659 -- 4,347
Noninterest income............. 251 28 201 255 -- 735
Gain (loss) on sale of
securities................... (3) -- -- 2 -- (1)
Noninterest expenses........... 1,011 817 627 1,654 -- 4,109
---------- -------- ------- ------- ----- ----------
Income (loss) before
income taxes....... 628 (279) 361 262 -- 972
Income tax expense (benefit)... 233 (164) 131 92 -- 292
---------- -------- ------- ------- ----- ----------
Net income (loss).... $ 395 $ (115) $ 230 $ 170 $ -- $ 680
========== ======== ======= ======= ===== ==========
Basic earnings (loss) per
share........................ $ 0.15 $ (0.18) $ 3.07 $ 6.31 $ 0.10
========== ======== ======= ======= ==========
Average number of shares
outstanding -- basic......... 2,716,200 626,000 75,000 26,948 6,611,429
========== ======== ======= ======= ==========
</TABLE>
158
<PAGE> 180
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
---------------------------------------------------------------------------------------------
HISTORICAL
-----------------------------------------------------------------
THE EMERALD FIRST CITY COMMERCIAL
BANC COAST CITIZENS NATIONAL BANCSHARES PRO FORMA PRO FORMA
CORPORATION BANCSHARES BANCORP CORPORATION OF ROANOKE ADJUSTMENTS COMBINED
------------ ----------- -------- ----------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income........ $ 5,399 $ 3,114 $ 2,957 $ 6,721 $ 3,114 $ -- $ 21,305
Interest expense....... 2,248 1,551 1,215 2,911 1,307 511(a) 9,743
---------- -------- ------- ------- -------- ----- ----------
Net interest
income...... 3,151 1,563 1,742 3,810 1,807 (511) 11,562
Provision for loan
losses............... 330 333 218 384 401 -- 1,666
---------- -------- ------- ------- -------- ----- ----------
Net interest income
after provision for
loan losses........ 2,821 1,230 1,524 3,426 1,406 (511) 9,896
Noninterest income..... 475 115 415 736 980 -- 2,721
Noninterest expenses... 2,111 1,936 1,303 3,367 2,010 30(a) 10,757
---------- -------- ------- ------- -------- ----- ----------
Income (loss)
before
income
taxes....... 1,185 (591) 636 795 376 (541) 1,860
Income tax expense
(benefit)............ 387 (195) 213 170 68 (200)(a) 443
---------- -------- ------- ------- -------- ----- ----------
Net income
(loss)...... $ 798 $ (396) $ 423 $ 625 $ 308 $(341) $ 1,417
========== ======== ======= ======= ======== ===== ==========
Basic earnings (loss)
per share............ $ 0.26 $ (0.63) $ 5.64 $ 23.25 $ 1.54 $ 0.20
========== ======== ======= ======= ======== ==========
Average number of
shares outstanding... 3,025,800 626,000 75,000 26,910 200,000 6,918,197
========== ======== ======= ======= ======== ==========
</TABLE>
- ---------------
<TABLE>
<S> <C>
(a) To reflect interest expense (7%) on $7.3 million in debt
incurred to purchase stock of Commercial Bancshares of
Roanoke................................................... $ 511
Depreciation on allocation of purchase price to premises
and equipment (30 year period)............................ 30
-------
Decrease in income before tax benefit..................... $ 541
=======
Income tax benefit at 37%................................. $ 200
=======
</TABLE>
159
<PAGE> 181
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------------------------------
HISTORICAL
-----------------------------------------------------
THE EMERALD FIRST CITY
BANC COAST CITIZENS NATIONAL PRO FORMA PRO FORMA
CORPORATION BANCSHARES(1) BANCORP CORPORATION ADJUSTMENTS COMBINED
----------- ------------- --------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income........................ $ 5,073 $ 381 $ 2,437 $ 6,027 $ -- $ 13,918
Interest expense....................... 2,247 139 1,008 2,460 -- 5,854
---------- -------- ------- ------- ---- ----------
Net interest income........... 2,826 242 1,429 3,567 -- 8,064
Provision for loan losses.............. 135 70 43 346 -- 594
---------- -------- ------- ------- ---- ----------
Net interest income after provision
for loan losses.................... 2,691 172 1,386 3,221 -- 7,470
Noninterest income..................... 463 10 430 683 -- 1,586
Noninterest expenses................... 1,952 793 1,232 3,211 -- 7,188
---------- -------- ------- ------- ---- ----------
Income (loss) before income
taxes....................... 1,202 (611) 584 693 -- 1,868
Income tax expense (benefit)........... 412 (257) 184 133 -- 472
---------- -------- ------- ------- ---- ----------
Net income (loss)............. $ 790 $ (354) $ 400 $ 560 $ -- $ 1,396
========== ======== ======= ======= ==== ==========
Basic earnings (loss) per share........ $ 0.29 $ (0.57) $ 5.33 $ 20.68 $ 0.21
========== ======== ======= ======= ==========
Average number of shares outstanding... 2,716,200 626,000 75,000 27,063 6,620,001
========== ======== ======= ======= ==========
</TABLE>
- ---------------
(1) Operations of Emerald since August of 1996, date of inception.
160
<PAGE> 182
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------------------
HISTORICAL
------------------------------------
THE FIRST CITY
BANC CITIZENS NATIONAL PRO FORMA PRO FORMA
CORPORATION BANCORP CORPORATION ADJUSTMENTS COMBINED
----------- -------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income.................................. $ 4,859 $ 1,809 $5,674 $ -- $ 12,342
Interest expense................................. 2,056 786 2,324 -- 5,166
---------- ------- ------ ---- ----------
Net interest income..................... 2,803 1,023 3,350 -- 7,176
Provision for loan losses........................ 120 -- 204 -- 324
---------- ------- ------ ---- ----------
Net interest income after provision for loan
losses....................................... 2,683 1,023 3,146 -- 6,852
Noninterest income............................... 553 348 629 -- 1,530
Noninterest expenses............................. 1,871 1,116 3,010 -- 5,997
---------- ------- ------ ---- ----------
Income before income taxes.............. 1,365 255 765 -- 2,385
Income tax expense............................... 467 61 40 -- 568
---------- ------- ------ ---- ----------
Net income.............................. $ 898 $ 194 $ 725 $ -- $ 1,817
========== ======= ====== ==== ==========
Basic earnings per share......................... $ 0.33 $ 2.59 $26.73 $ 0.34
========== ======= ====== ==========
Average number of shares outstanding............. 2,716,200 75,000 27,149 5,361,618
========== ======= ====== ==========
</TABLE>
161
<PAGE> 183
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENT OF CONDITION (UNAUDITED)
The following summary includes (i) the condensed consolidated statement of
financial condition of The Banc Corporation (formerly the Warrior Capital
Corporation) as of June 30, 1998, (ii) the condensed consolidated statement of
financial condition of Emerald Coast Bancshares, Inc. ("Emerald") as of June 30,
1998, (iii) the condensed consolidated statement of financial condition of First
Citizens Bancorp, Inc. ("First Citizens") as of June 30, 1998, (iv) the
condensed consolidated statement of financial condition of City National
Corporation ("City National") as of June 30, 1998, (v) adjustments to give
effect to the proposed pooling of interests method business combinations with
Emerald, First Citizens and City National, (vi) the pro forma combined condensed
statement of financial condition of The Banc Corporation and subsidiaries as if
such combinations had occurred on June 30, 1998.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of financial
conditions of The Banc Corporation, Emerald, First Citizens, and City National.
The pro forma information provided below may not be indicative of future
results.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
-------------------------------------------------------------------------------
HISTORICAL
----------------------------------------------------
THE EMERALD FIRST CITY
BANC COAST CITIZENS NATIONAL PRO FORMA PRO FORMA
CORPORATION(C) BANCSHARES BANCORP CORPORATION ADJUSTMENTS COMBINED
-------------- ---------- -------- ----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks........... $ 4,822 $ 4,220 $ 988 $ 2,725 $ 595(a) $ 13,350
Interest bearing deposits in other
banks........................... -- -- -- 200 -- 200
Federal funds sold................ 1,900 -- 1,230 1,120 -- 4,250
Investment securities available
for sale........................ 201 8,092 1,757 35,224 -- 45,274
Investment securities held to
maturity........................ 24,934 -- -- -- -- 24,934
Loans, net of unearned............ 46,601 55,320 32,535 39,568 -- 174,024
Less: Allowance for loan losses... (717) (512) (357) (700) -- (2,286)
------- ------- ------- ------- -------- --------
Net loans................ 45,884 54,808 32,178 38,868 -- 171,738
------- ------- ------- ------- -------- --------
Premises and equipment, net....... 10,227 5,286 555 2,707 -- 18,775
Intangibles, net.................. 416 -- -- -- -- 416
Other assets...................... 1,436 1,378 1,408 1,364 -- 5,586
------- ------- ------- ------- -------- --------
Total assets............. $89,820 $73,784 $38,116 $82,208 $ 595 $284,523
======= ======= ======= ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing............. $12,618 $ 9,405 $ 4,328 $10,525 $ -- $ 36,876
Interest-bearing................ 52,136 53,861 30,075 58,832 -- 194,904
------- ------- ------- ------- -------- --------
Total deposits........... 64,754 63,266 34,403 69,357 -- 231,780
Federal funds purchased and other
borrowed funds.................. -- 4,555 -- -- -- 4,555
Accrued expenses and other
liabilities..................... 3,181 450 468 893 -- 4,992
------- ------- ------- ------- -------- --------
Total liabilities........ 67,935 68,271 34,871 70,250 -- 241,327
Minority interest in equity of
subsidiary...................... 29 -- -- 139 -- 168
Stockholders' Equity
Common stock.................... 5 3,130 75 27 --(a) 9
4(b)
(3,232)(b)
Surplus......................... 13,435 3,130 800 4,135 595(a) 25,257
11,227(b)
(8,065)(b)
Retained earnings (accumulated
deficit)...................... 8,451 (757) 2,366 7,422 17,482
Accumulated other comprehensive
income (loss)................. (35) 10 4 301 280
Treasury stock, at cost......... -- -- -- (66) 66(b) --
------- ------- ------- ------- -------- --------
Total stockholders'
equity................. 21,856 5,513 3,245 11,819 595 43,028
------- ------- ------- ------- -------- --------
Total liabilities and
stockholders' equity... $89,820 $73,784 $38,116 $82,208 $ 595 $284,523
======= ======= ======= ======= ======== ========
</TABLE>
162
<PAGE> 184
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL CONDITION
(a) To record the exercise of 57,000 stock options by officers of Emerald before
merger and 5,000 stock options by an officer of First Citizens prior to
merger.
(b) To record the exchange of 4,043,201 shares of The Banc Corporation common
stock for all of the outstanding shares of the following accounted for as a
pooling of interests.
<TABLE>
<CAPTION>
EMERALD FIRST CITY
COAST CITIZENS NATIONAL
BANCSHARES BANCORP CORPORATION TOTAL
---------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Outstanding shares of acquired
corporation........................... 683,000 80,000 26,832
Conversion ratio........................ 2.02044 8.290537 74.53786
---------- --------- ----------
The Banc Corporation shares to be
issued................................ 1,379,958 663,243 2,000,000 4,043,201
Par value of shares to be issued at
$.001 per share....................... $ 1 $ 1 $ 2 $ 4
Total common stock and surplus of
acquired corporation.................. 6,260 875 4,096 11,231
---------- --------- ---------- ----------
Excess recorded as an increase in
contributed capital................ 6,259 874 4,094 11,227
---------- --------- ---------- ----------
To eliminate acquired corporations
capital stock
Common stock at par value............. (3,130) (75) (27) (3,232)
Surplus............................... (3,130) (800) (4,135) (8,065)
Treasury stock........................ -- -- 66 66
---------- --------- ---------- ----------
(6,260) (875) (4,096) (11,231)
---------- --------- ---------- ----------
Net change in equity.......... $ -- $ -- $ -- $ --
========== ========= ========== ==========
</TABLE>
(c) The Banc Corporation was formed by the reincorporation of Warrior Capital
Corporation. The 18,160 shares of Warrior Capital Corporation common stock
were converted into 5,448,000 shares of The Banc Corporation $.001 par value
common stock.
163
<PAGE> 185
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENTS OF INCOME (UNAUDITED)
The following summaries include (i) the condensed consolidated statements
of income of The Banc Corporation (formerly Warrior Capital Corporation) on a
historical basis for the six months ended June 30, 1998 and 1997, and the years
ended December 31,1997, 1996, and 1995, (ii) the condensed consolidated
statements of income of Emerald for the six months ended June 30, 1998 and 1997
and the periods ended December 31, 1997, and 1996, (iii) the condensed
consolidated statements of income of First Citizens for the six months ended
June 30, 1998 and 1997 and the years ended December 31, 1997, 1996 and 1995,
(iv) the condensed consolidated statements of income of City National for the
six months ended June 30, 1998 and 1997 and the years ended December 31, 1997,
1996 and 1995, (v) adjustments to give effect to the proposed pooling of
interests method business combinations with Emerald, First Citizens and City
National, (vi) the pro forma combined condensed consolidated statements of
income of The Banc Corporation as if such combinations had occurred on January
1, 1995.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of income of The
Banc Corporation, Emerald, First Citizens, and City National. The pro forma
information may not necessarily be indicative of future results. Pro forma
earnings per share is based on the weighted average number of shares outstanding
for the period adjusted for the applicable exchange ratio.
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1998
----------------------------------------------------------------------------
HISTORICAL
-------------------------------------------------
THE EMERALD FIRST CITY
BANC COAST CITIZENS NATIONAL PRO FORMA PRO FORMA
CORPORATION BANCSHARES BANCORP CORPORATION ADJUSTMENTS COMBINED
----------- ---------- -------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income....................... $ 3,070 $ 2,498 $1,683 $3,290 $ -- $ 10,541
Interest expense...................... 1,134 1,197 688 1,359 -- 4,378
---------- -------- ------ ------ ---- ----------
Net interest income.......... 1,936 1,301 995 1,931 -- 6,163
Provision for loan losses............. 38 156 117 430 -- 741
---------- -------- ------ ------ ---- ----------
Net interest income after provision
for loan losses................... 1,898 1,145 878 1,501 -- 5,422
Noninterest income.................... 312 168 225 280 -- 985
Gain (loss) on sale of securities..... (4) 18 -- 47 -- 61
Noninterest expenses.................. 1,497 1,342 731 1,696 -- 5,266
---------- -------- ------ ------ ---- ----------
Income (loss) before income
taxes...................... 709 (11) 372 132 -- 1,202
Income tax expense (benefit).......... (68) (4) 136 47 -- 111
---------- -------- ------ ------ ---- ----------
Net income (loss)............ $ 777 $ (7) $ 236 $ 85 $ -- $ 1,091
========== ======== ====== ====== ==== ==========
Basic earnings (loss) per share....... $ 0.15 $ (0.01) $ 3.15 $ 3.16 $ 0.12
========== ======== ====== ====== ==========
Average number of shares outstanding--
basic............................... 5,230,500 626,000 75,000 26,882 9,120,812
========== ======== ====== ====== ==========
</TABLE>
164
<PAGE> 186
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1997
------------------------------------------------------------------------------
HISTORICAL
---------------------------------------------------
THE EMERALD FIRST CITY
BANC COAST CITIZENS NATIONAL PRO FORMA PRO FORMA
CORPORATION BANCSHARES BANCORP CORPORATION ADJUSTMENTS COMBINED
----------- ---------- --------- ------------ ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income............... $ 2,590 $ 1,228 $ 1,391 $ 3,355 $ -- $ 8,564
Interest expense.............. 1,109 563 574 1,448 -- 3,694
---------- -------- ------- ------- ---- ----------
Net interest
income............ 1,481 665 817 1,907 -- 4,870
Provision for loan losses..... 90 155 30 248 -- 523
---------- -------- ------- ------- ---- ----------
Net interest income after
provision for loan
losses................... 1,391 510 787 1,659 -- 4,347
Noninterest income............ 251 28 201 255 -- 735
Gain (loss) on sale of
securities.................. (3) -- -- 2 -- (1)
Noninterest expenses.......... 1,011 817 627 1,654 -- 4,109
---------- -------- ------- ------- ---- ----------
Income (loss) before
income taxes...... 628 (279) 361 262 -- 972
Income tax expense
(benefit)................... 233 (164) 131 92 -- 292
---------- -------- ------- ------- ---- ----------
Net income (loss)... $ 395 $ (115) $ 230 $ 170 $ -- $ 680
========== ======== ======= ======= ==== ==========
Basic earnings (loss) per
share....................... $ 0.15 $ (0.18) $ 3.07 $ 6.31 $ 0.10
========== ======== ======= ======= ==========
Average number of shares
outstanding -- basic........ 2,716,200 626,000 75,000 26,948 6,611,429
========== ======== ======= ======= ==========
</TABLE>
165
<PAGE> 187
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------------------------------
HISTORICAL
-------------------------------------------------
THE EMERALD FIRST CITY
BANC COAST CITIZENS NATIONAL PRO FORMA PRO FORMA
CORPORATION BANCSHARES BANCORP CORPORATION ADJUSTMENTS COMBINED
----------- ---------- -------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income.............................. $ 5,399 $ 3,114 $ 2,957 $ 6,721 $ -- $ 18,191
Interest expense............................. 2,248 1,551 1,215 2,911 -- 7,925
---------- -------- ------- ------- ---- ----------
Net interest income.................. 3,151 1,563 1,742 3,810 -- 10,266
Provision for loan losses.................... 330 333 218 384 -- 1,265
---------- -------- ------- ------- ---- ----------
Net interest income after provision for
loan losses.............................. 2,821 1,230 1,524 3,426 -- 9,001
Noninterest income........................... 475 115 415 737 -- 1,742
Noninterest expenses......................... 2,111 1,936 1,303 3,367 -- 8,717
---------- -------- ------- ------- ---- ----------
Income(loss) before income taxes..... 1,185 (591) 636 796 -- 2,026
Income tax expense(benefit).................. 387 (195) 213 170 -- 575
---------- -------- ------- ------- ---- ----------
Net income(loss)..................... $ 798 $ (396) $ 423 $ 626 $ -- $ 1,451
========== ======== ======= ======= ==== ==========
Basic earnings (loss) per share.............. $ 0.26 $ (0.63) $ 5.64 $ 23.25 $ 0.21
========== ======== ======= ======= ==========
Average number of shares outstanding......... 3,025,800 626,000 75,000 26,910 6,918,197
========== ======== ======= ======= ==========
</TABLE>
166
<PAGE> 188
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------------------------------
HISTORICAL
-----------------------------------------------------
THE EMERALD FIRST CITY
BANC COAST CITIZENS NATIONAL PRO FORMA PRO FORMA
CORPORATION BANCSHARES(1) BANCORP CORPORATION ADJUSTMENTS COMBINED
----------- ------------- --------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income............. $ 5,073 $ 381 $ 2,437 $ 6,027 $ -- $ 13,918
Interest expense............ 2,247 139 1,008 2,460 -- 5,854
---------- -------- ------- ------- ---- ----------
Net interest
income.......... 2,826 242 1,429 3,567 -- 8,064
Provision for loan losses... 135 70 43 346 -- 594
---------- -------- ------- ------- ---- ----------
Net interest income after
provision for loan
losses................. 2,691 172 1,386 3,221 -- 7,470
Noninterest income.......... 463 10 430 683 -- 1,586
Noninterest expenses........ 1,952 793 1,232 3,211 -- 7,188
---------- -------- ------- ------- ---- ----------
Income (loss)
before income
taxes........... 1,202 (611) 584 693 -- 1,868
Income tax expense
(benefit)................. 412 (257) 184 133 -- 472
---------- -------- ------- ------- ---- ----------
Net
income(loss).... $ 790 $ (354) $ 400 $ 560 $ -- $ 1,396
========== ======== ======= ======= ==== ==========
Basic earnings (loss) per
share..................... $ 0.29 $ (0.57) $ 5.33 $ 20.68 $ 0.21
========== ======== ======= ======= ==========
Average number of shares
outstanding............... 2,716,200 626,000 75,000 27,063 6,620,001
========== ======== ======= ======= ==========
</TABLE>
- ---------------
(1) Operations of Emerald since August of 1996, date of inception.
167
<PAGE> 189
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------------------
HISTORICAL
---------------------------------------------------------------
THE FIRST CITY
BANC CITIZENS NATIONAL PRO FORMA PRO FORMA
CORPORATION BANCORP CORPORATION ADJUSTMENTS COMBINED
----------- -------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income.......................... $ 4,859 $1,809 $ 5,674 $ -- $ 12,342
Interest expense......................... 2,056 786 2,324 -- 5,166
---------- ------ ------- ---- ----------
Net interest income............ 2,803 1,023 3,350 -- 7,176
Provision for loan losses................ 120 -- 204 -- 324
---------- ------ ------- ---- ----------
Net interest income after provision for
loan losses......................... 2,683 1,023 3,146 -- 6,852
Noninterest income....................... 553 348 629 -- 1,530
Noninterest expenses..................... 1,871 1,116 3,010 -- 5,997
---------- ------ ------- ---- ----------
Income before income taxes..... 1,365 255 765 -- 2,385
Income tax expense....................... 467 61 40 -- 568
---------- ------ ------- ---- ----------
Net income..................... $ 898 $ 194 $ 725 $ -- $ 1,817
========== ====== ======= ==== ==========
Basic earnings per share................. $ 0.33 $ 2.59 $ 26.73 $ 0.34
========== ====== ======= ==========
Average number of shares outstanding..... 2,716,200 75,000 27,149 5,361,618
========== ====== ======= ==========
</TABLE>
168
<PAGE> 190
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENT OF CONDITION (UNAUDITED)
The following summary includes (i) the condensed consolidated statement of
financial condition of The Banc Corporation (formerly the Warrior Capital
Corporation) as of June 30, 1998, (ii) the condensed consolidated statement of
financial condition of Emerald Coast Bancshares, Inc. ("Emerald") as of June 30,
1998, (iii) the condensed consolidated statement of financial condition of First
Citizens Bancorp, Inc. ("First Citizens") as of June 30, 1998, (iv) the
condensed consolidated statement of financial condition of Commercial Bancshares
of Roanoke, Inc. ("CBS") as of June 30, 1998, (v) adjustments to give effect to
the proposed purchase method combination with CBS and the proposed pooling of
interests method business combinations with Emerald and First Citizens , (vi)
the pro forma combined condensed statement of financial condition of The Banc
Corporation and subsidiaries as if such combinations had occurred on June 30,
1998.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of financial
conditions of The Banc Corporation, Emerald, First Citizens and CBS. The pro
forma information provided below may not be indicative of future results.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
------------------------------------------------------------------------------
HISTORICAL
---------------------------------------------------
THE EMERALD FIRST COMMERCIAL
BANC COAST CITIZENS BANCSHARES PRO FORMA PRO FORMA
CORPORATION(D) BANCSHARES BANCORP OF ROANOKE ADJUSTMENTS COMBINED
-------------- ---------- -------- ---------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks................. $ 4,822 $ 4,220 $ 988 $ 1,579 $ 595(a) $ 12,204
Interest bearing deposits in other
banks................................. -- -- -- 200 -- 200
Federal funds sold...................... 1,900 -- 1,230 5,250 -- 8,380
Investment securities available for
sale.................................. 201 8,092 1,757 2,820 -- 12,870
Investment securities held to
maturity.............................. 24,934 -- -- 17,185 -- 42,119
Loans, net of unearned.................. 46,601 55,320 32,535 14,595 -- 149,051
Less: Allowance for loan losses......... (717) (512) (357) (288) -- (1,874)
------- ------- ------- ------- ------- --------
Net loans....................... 45,884 54,808 32,178 14,307 -- 147,177
------- ------- ------- ------- ------- --------
Premises and equipment, net............. 10,227 5,286 555 285 892(c) 17,245
Intangibles, net........................ 416 -- -- -- -- 416
Other assets............................ 1,436 1,378 1,408 761 -- 4,983
------- ------- ------- ------- ------- --------
Total assets.................... $89,820 $73,784 $38,116 $42,387 $ 1,487 $245,594
======= ======= ======= ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing................... $12,618 $ 9,405 $ 4,328 $ 6,635 $ -- $ 32,986
Interest-bearing...................... 52,136 53,861 30,075 29,069 -- 165,141
------- ------- ------- ------- ------- --------
Total deposits.................. 64,754 63,266 34,403 35,704 -- 198,127
Federal funds purchased and other
borrowed funds........................ -- 4,555 -- 32 7,300(c) 11,887
Accrued expenses and other
liabilities........................... 3,181 450 468 243 -- 4,342
------- ------- ------- ------- ------- --------
Total liabilities............... 67,935 68,271 34,871 35,979 7,300 214,356
Minority interest in equity of
subsidiary............................ 29 -- -- -- -- 29
Stockholders' Equity
Common stock.......................... 5 3,130 75 20 --(a) 7
2(b)
(3,205)(b)
(20)(c)
Surplus............................... 13,435 3,130 800 3,526 595(a) 21,163
7,133(b)
(3,930)(b)
(3,526)(c)
Retained earnings (accumulated
deficit)............................ 8,451 (757) 2,366 2,846 (2,846)(c) 10,060
Accumulated other comprehensive income
(loss).............................. (35) 10 4 16 (16)(c) (21)
------- ------- ------- ------- ------- --------
Total stockholders' equity...... 21,856 5,513 3,245 6,408 (5,813) 31,209
------- ------- ------- ------- ------- --------
Total liabilities and
stockholders' equity.......... $89,820 $73,784 $38,116 $42,387 $ 1,487 $245,594
======= ======= ======= ======= ======= ========
</TABLE>
169
<PAGE> 191
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF
FINANCIAL CONDITION
(a) To record the exercise of 57,000 stock options by officers of Emerald before
merger and 5,000 stock options by an officer of First Citizens prior to
merger.
(b) To record the exchange of 2,043,201 shares of The Banc Corporation common
stock for all of the outstanding shares of the following accounted for as a
pooling of interest.
<TABLE>
<CAPTION>
EMERALD FIRST
COAST CITIZENS
BANCSHARES BANCORP TOTAL
---------- --------- ----------
<S> <C> <C> <C>
Outstanding shares of acquired corporation......... 683,000 80,000
Conversion ratio................................... 2.02044 8.290537
---------- ---------
The Banc Corporation shares to be issued........... 1,379,958 663,243 2,043,201
Par value of shares to be issued at $.001 per
share............................................ $ 1 $ 1 $ 2
Total common stock and surplus of acquired
corporation...................................... 6,260 875 7,135
---------- --------- ----------
Excess recorded as an increase in contributed
capital....................................... 6,259 874 7,133
---------- --------- ----------
To eliminate acquired corporations capital stock
Common stock at par value........................ (3,130) (75) (3,205)
Surplus.......................................... (3,130) (800) (3,930)
---------- --------- ----------
(6,260) (875) (7,135)
---------- --------- ----------
Net change in equity..................... $ -- $ -- $ --
========== ========= ==========
</TABLE>
(c) Purchase of 100% of the outstanding common stock of Commercial Bancshares of
Roanoke, Inc. for approximately $7.3 million. Stock will be purchased with
proceeds borrowed from a commercial bank. The excess of cost over book value
will be allocated to the carrying value of the main office building which
currently has a zero book basis.
(d) The Banc Corporation was formed by the reincorporation of Warrior Capital
Corporation. The 18,160 shares of Warrior Capital Corporation common stock
were converted into 5,448,000 shares of The Banc Corporation $.001 par value
common stock.
170
<PAGE> 192
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENTS OF INCOME (UNAUDITED)
The following summaries include (i) the condensed consolidated statements
of income of The Banc Corporation (formerly the Warrior Capital Corporation) on
a historical basis for the six months ended June 30, 1998 and 1997, and the
years ended December 31, 1997, 1996, and 1995, (ii) the condensed consolidated
statements of income of Emerald and subsidiary on a historical basis for the six
months ended June 30, 1998 and 1997, and the periods ended December 31, 1997 and
1996, (iii) the condensed consolidated statements of income of First Citizens
for the six months ended June 30, 1998 and 1997 and the years ended December 31,
1997, 1996 and 1995, (iv) the condensed consolidated statements of income of CBS
for the six months ended June 30, 1998 and the year ended December 31, 1997, (v)
adjustments to give effect to the proposed purchase method combination with CBS
and the proposed pooling of interests method business combinations with Emerald
and First Citizens, (vi) the pro forma combined condensed consolidated
statements of income of The Banc Corporation as if such combinations had
occurred on January 1, 1995. Note that for purchase method combinations, Article
11 of Regulation S-X requires pro forma statements of income to be presented for
only the most recent fiscal year and interim period. Accordingly, only the
condensed consolidated statements of income for the six months ended June 30,
1998 and the year ended December 31, 1997 are included in (iv) above for CBS.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of income of The
Banc Corporation, Emerald, First Citizens and CBS. The pro forma information may
not necessarily be indicative of future results. Pro forma earnings per share is
based on the weighted average number of shares outstanding for the period
adjusted for the applicable exchange ratio.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
----------------------------------------------------------------------------
HISTORICAL
------------------------------------------------
THE EMERALD FIRST COMMERCIAL
BANC COAST CITIZENS BANCSHARES PRO FORMA PRO FORMA
CORPORATION BANCSHARES BANCORP OF ROANOKE ADJUSTMENTS COMBINED
----------- ---------- -------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income.................... $ 3,070 $ 2,498 $ 1,683 $ 1,494 $ -- $ 8,745
Interest expense................... 1,134 1,197 688 669 256(a) 3,944
---------- -------- -------- -------- ----- ----------
Net interest income....... 1,936 1,301 995 825 (256) 4,801
Provision for loan losses.......... 38 156 117 69 -- 380
---------- -------- -------- -------- ----- ----------
Net interest income after
provision for loan losses...... 1,898 1,145 878 756 (256) 4,421
Noninterest income................. 312 168 225 491 -- 1,196
Gain (loss) on sale of
securities....................... (4) 18 -- -- -- 14
Noninterest expenses............... 1,497 1,342 731 889 15(a) 4,474
---------- -------- -------- -------- ----- ----------
Income (loss) before
income taxes............ 709 (11) 372 358 (271) 1,157
Income tax expense (benefit)....... (68) (4) 136 88 (100)(a) 52
---------- -------- -------- -------- ----- ----------
Net income (loss)......... $ 777 $ (7) $ 236 $ 270 $(171) $ 1,105
========== ======== ======== ======== ===== ==========
Basic earnings (loss) per share.... $ 0.15 $ (0.01) $ 3.15 $ 1.35 $ 0.16
========== ======== ======== ======== ==========
Average number of shares
outstanding -- basic............. 5,230,500 626,000 75,000 200,000 7,117,085
========== ======== ======== ======== ==========
</TABLE>
- ---------------
<TABLE>
<C> <S> <C>
(a) To reflect interest expense(7%) on $7.3 million in
debt incurred to purchase stock of Commercial
Bancshares of Roanoke............................... $ 256
Depreciation on allocation of purchase price to
premises and equipment (30 year period)............. 15
--------
Decrease in income before tax benefit............... $ 271
========
Income tax benefit at 37%........................... $ 100
========
</TABLE>
171
<PAGE> 193
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30, 1997
--------------------------------------------------------------
HISTORICAL
-----------------------------------
THE EMERALD FIRST PRO
BANC COAST CITIZENS FORMA PRO FORMA
CORPORATION BANCSHARES BANCORP ADJUSTMENTS COMBINED
----------- ---------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income............................ $ 2,590 $ 1,228 $1,391 $ -- $ 5,209
Interest expense........................... 1,109 563 574 -- 2,246
---------- -------- ------ ---- ----------
Net interest income.............. 1,481 665 817 -- 2,963
Provision for loan losses.................. 90 155 30 -- 275
---------- -------- ------ ---- ----------
Net interest income after provision for
loan losses........................... 1,391 510 787 -- 2,688
Noninterest income......................... 251 28 201 -- 480
Loss on sale of securities................. (3) -- -- -- (3)
Noninterest expenses....................... 1,011 817 627 -- 2,455
---------- -------- ------ ---- ----------
Income (loss) before income
taxes.......................... 628 (279) 361 -- 710
Income tax expense (benefit)............... 233 (164) 131 -- 200
---------- -------- ------ ---- ----------
Net income (loss)................ $ 395 $ (115) $ 230 $ -- $ 510
========== ======== ====== ==== ==========
Basic earnings (loss) per share............ $ 0.15 $ (0.18) $ 3.07 $ 0.11
========== ======== ====== ==========
Average number of shares
outstanding -- basic..................... 2,716,200 626,000 75,000 4,602,783
========== ======== ====== ==========
</TABLE>
172
<PAGE> 194
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED DECEMBER 31, 1997
----------------------------------------------------------------------------
HISTORICAL
------------------------------------------------
THE EMERALD FIRST COMMERCIAL
BANC COAST CITIZENS BANCSHARES PRO FORMA PRO FORMA
CORPORATION BANCSHARES BANCORP OF ROANOKE ADJUSTMENTS COMBINED
----------- ---------- -------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income..................... $ 5,399 $ 3,114 $ 2,957 $ 3,114 $ -- $ 14,584
Interest expense.................... 2,248 1,551 1,215 1,307 511(a) 6,832
---------- -------- ------- -------- ----- ----------
Net interest income............. 3,151 1,563 1,742 1,807 (511) 7,752
Provision for loan losses........... 330 333 218 401 -- 1,282
---------- -------- ------- -------- ----- ----------
Net interest income after
provision for loan losses....... 2,821 1,230 1,524 1,406 (511) 6,470
Noninterest income.................. 475 115 415 980 -- 1,985
Noninterest expenses................ 2,111 1,936 1,303 2,010 30(a) 7,390
---------- -------- ------- -------- ----- ----------
Income (loss) before income
taxes......................... 1,185 (591) 636 376 (541) 1,065
Income tax expense (benefit)........ 387 (195) 213 68 (200)(a) 273
---------- -------- ------- -------- ----- ----------
Net income (loss)............... $ 798 $ (396) $ 423 $ 308 $(341) $ 792
========== ======== ======= ======== ===== ==========
Basic earnings (loss) per share..... $ 0.26 $ (0.63) $ 5.64 $ 1.54 $ 0.16
========== ======== ======= ======== ==========
Average number of shares
outstanding....................... 3,025,800 626,000 75,000 200,000 4,912,383
========== ======== ======= ======== ==========
</TABLE>
- ---------------
<TABLE>
<C> <S> <C>
(a) To reflect interest expense(7%) on $7.3 million in debt
incurred to purchase stock of Commercial Bancshares of
Roanoke................................................. $511
Depreciation on allocation of purchase price to premises
and equipment (30 year period).......................... 30
----
Decrease in income before tax benefit................... $541
====
Income tax benefit at 37%............................... $200
====
</TABLE>
173
<PAGE> 195
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------------------------
HISTORICAL
--------------------------------------
THE EMERALD FIRST
BANC COAST CITIZENS PRO FORMA PRO FORMA
CORPORATION BANCSHARES(1) BANCORP ADJUSTMENTS COMBINED
----------- ------------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income........................ $ 5,073 $ 381 $2,437 $ -- $ 7,891
Interest expense....................... 2,247 139 1,008 -- 3,394
---------- -------- ------ ---- ----------
Net interest income.......... 2,826 242 1,429 -- 4,497
Provision for loan losses.............. 135 70 43 -- 248
---------- -------- ------ ---- ----------
Net interest income after provision
for loan losses................... 2,691 172 1,386 -- 4,249
Noninterest income..................... 463 10 430 -- 903
Noninterest expenses................... 1,952 793 1,232 -- 3,977
---------- -------- ------ ---- ----------
Income (loss) before income
taxes...................... 1,202 (611) 584 -- 1,175
Income tax expense (benefit)........... 412 (257) 184 -- 339
---------- -------- ------ ---- ----------
Net income (loss)............ $ 790 $ (354) $ 400 $ -- $ 836
========== ======== ====== ==== ==========
Basic earnings (loss) per share........ $ 0.29 $ (0.57) $ 5.33 $ 0.18
========== ======== ====== ==========
Average number of shares outstanding... 2,716,200 626,000 75,000 4,602,783
========== ======== ====== ==========
</TABLE>
- ---------------
(1) Operations of Emerald since August of 1996, date of inception.
174
<PAGE> 196
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
-------------------------------------------------
HISTORICAL
----------------------
THE FIRST
BANC CITIZENS PRO FORMA PRO FORMA
CORPORATION BANCORP ADJUSTMENTS COMBINED
----------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income..................................... $ 4,859 $1,809 $ -- $ 6,668
Interest expense.................................... 2,056 786 -- 2,842
---------- ------ ---- ----------
Net interest income............................ 2,803 1,023 -- 3,826
Provision for loan losses........................... 120 -- -- 120
---------- ------ ---- ----------
Net interest income after provision for
loan losses............................. 2,683 1,023 -- 3,706
Noninterest income.................................. 553 348 -- 901
Noninterest expenses................................ 1,871 1,116 -- 2,987
---------- ------ ---- ----------
Income before income taxes................ 1,365 255 -- 1,620
Income tax expense.................................. 467 61 -- 528
---------- ------ ---- ----------
Net income................................ $ 898 $ 194 $ -- $ 1,092
========== ====== ==== ==========
Basic earnings per share............................ $ 0.33 $ 2.59 $ 0.33
========== ====== ==========
Average number of shares outstanding................ 2,716,200 75,000 3,337,990
========== ====== ==========
</TABLE>
175
<PAGE> 197
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENT OF CONDITION (UNAUDITED)
The following summary includes (i) the condensed consolidated statement of
financial condition of The Banc Corporation (formerly the Warrior Capital
Corporation) as of June 30, 1998, (ii) the condensed consolidated statement of
financial condition of Emerald Coast Bancshares, Inc. ("Emerald") as of June 30,
1998, (iii) the condensed consolidated statement of financial condition of First
Citizens Bancorp, Inc. ("First Citizens") as of June 30, 1998, (iv) adjustments
to give effect to the proposed pooling of interests method business combinations
with Emerald and First Citizens, (v) the pro forma combined condensed statement
of financial condition of The Banc Corporation and subsidiaries as if such
combinations had occurred on June 30, 1998.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of financial
conditions of The Banc Corporation, Emerald and First Citizens. The pro forma
information provided below may not be indicative of future results.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
-----------------------------------------------------------------
HISTORICAL
--------------------------------------
THE EMERALD FIRST
BANC COAST CITIZENS PRO FORMA PRO FORMA
CORPORATION(C) BANCSHARES BANCORP ADJUSTMENTS COMBINED
-------------- ---------- -------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks........................ $ 4,822 $ 4,220 $ 988 $ 595(a) $ 10,625
Federal funds sold............................. 1,900 -- 1,230 -- 3,130
Investment securities available for sale....... 201 8,092 1,757 -- 10,050
Investment securities held to maturity......... 24,934 -- -- -- 24,934
Loans, net of unearned......................... 46,601 55,320 32,535 -- 134,456
Less: Allowance for loan losses................ (717) (512) (357) -- (1,586)
------- ------- ------- ------- --------
Net loans............................. 45,884 54,808 32,178 -- 132,870
------- ------- ------- ------- --------
Premises and equipment, net.................... 10,227 5,286 555 -- 16,068
Intangibles, net............................... 416 -- -- -- 416
Other assets................................... 1,436 1,378 1,408 -- 4,222
------- ------- ------- ------- --------
Total assets.......................... $89,820 $73,784 $38,116 $ 595 $202,315
======= ======= ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing.......................... $12,618 $ 9,405 $ 4,328 $ -- $ 26,351
Interest-bearing............................. 52,136 53,861 30,075 -- 136,072
------- ------- ------- ------- --------
Total deposits........................ 64,754 63,266 34,403 -- 162,423
Federal funds purchased and other borrowed
funds........................................ -- 4,555 -- -- 4,555
Accrued expenses and other liabilities......... 3,181 450 468 -- 4,099
------- ------- ------- ------- --------
Total liabilities..................... 67,935 68,271 34,871 -- 171,077
Minority interest in equity of subsidiary...... 29 -- -- -- 29
Stockholders' Equity
Common stock................................. 5 3,130 75 --(a) 7
2(b)
(3,205)(b)
Surplus...................................... 13,435 3,130 800 595(a) 21,163
7,133(b)
(3,930)(b)
Retained earnings (accumulated deficit)...... 8,451 (757) 2,366 -- 10,060
Accumulated other comprehensive income
(loss)..................................... (35) 10 4 -- (21)
------- ------- ------- ------- --------
Total stockholders' equity............ 21,856 5,513 3,245 595 31,209
------- ------- ------- ------- --------
Total liabilities and stockholders'
equity.............................. $89,820 $73,784 $38,116 $ 595 $202,315
======= ======= ======= ======= ========
</TABLE>
176
<PAGE> 198
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL CONDITION
(a) To record the exercise of 57,000 stock options by officers of Emerald before
merger and 5,000 stock options by an officer of First Citizens prior to
merger.
(b) To record the exchange of 2,043,201 shares of The Banc Corporation common
stock for all of the outstanding shares of the following accounted for as a
pooling of interests.
<TABLE>
<CAPTION>
EMERALD FIRST
COAST CITIZENS
BANCSHARES BANCORP TOTAL
---------- --------- ----------
<S> <C> <C> <C>
Outstanding shares of acquired corporation......... 683,000 80,000
Conversion ratio................................... 2.02044 8.290537
---------- --------- ----------
The Banc Corporation shares to be issued........... 1,379,958 663,243 2,043,201
Par value of shares to be issued at $.001 per
share............................................ $ 1 $ 1 $ 2
Total common stock and surplus of acquired
corporation...................................... 6,260 875 7,135
---------- --------- ----------
Excess recorded as an increase in contributed
capital....................................... 6,259 874 7,133
---------- --------- ----------
To eliminate acquired corporations capital stock
Common stock at par value........................ (3,130) (75) (3,205)
Surplus.......................................... (3,130) (800) (3,930)
---------- --------- ----------
(6,260) (875) (7,135)
---------- --------- ----------
Net change in equity..................... $ -- $ -- $ --
========== ========= ==========
</TABLE>
(c) The Banc Corporation was formed by the reincorporation of Warrior Capital
Corporation. The 18,160 shares of Warrior Capital Corporation common stock
were converted into 5,448,000 shares of The Banc Corporation $.001 par value
common stock.
177
<PAGE> 199
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENTS OF INCOME (UNAUDITED)
The following summaries include (i) the condensed consolidated statements
of income of The Banc Corporation (formerly Warrior Capital Corporation) on a
historical basis for the six months ended June 30, 1998 and 1997, and the years
ended December 31, 1997, 1996, and 1995, (ii) the condensed consolidated
statements of income of Emerald for the six months ended June 30, 1998 and 1997
and the periods ended December 31, 1997, and 1996, (iii) the condensed
consolidated statements of income of First Citizens for the six months ended
June 30, 1998 and 1997 and the years ended December 31, 1997, 1996 and 1995,
(iv) adjustments to give effect to the proposed pooling of interests method
business combinations with Emerald, and First Citizens, (v) the pro forma
combined condensed consolidated statements of income of The Banc Corporation as
if such combinations had occurred on January 1, 1995.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of income of The
Banc Corporation, Emerald and First Citizens. The pro forma information may not
necessarily be indicative of future results. Pro forma earnings per share is
based on the weighted average number of shares outstanding for the period
adjusted for the applicable exchange ratio.
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1998
--------------------------------------------------------------
HISTORICAL
-----------------------------------
THE EMERALD FIRST
BANC COAST CITIZENS PRO FORMA PRO FORMA
CORPORATION BANCSHARES BANCORP ADJUSTMENTS COMBINED
----------- ---------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income.......................... $ 3,070 $ 2,498 $ 1,683 $ -- $ 7,251
Interest expense......................... 1,134 1,197 688 -- 3,019
---------- -------- ------- ---- ----------
Net interest income............ 1,936 1,301 995 -- 4,232
Provision for loan losses................ 38 156 117 -- 311
---------- -------- ------- ---- ----------
Net interest income after provision for
loan losses......................... 1,898 1,145 878 -- 3,921
Noninterest income....................... 312 168 225 -- 705
Gain (loss) on sale of securities........ (4) 18 -- -- 14
Noninterest expenses..................... 1,497 1,342 731 -- 3,570
---------- -------- ------- ---- ----------
Income (loss) before income
taxes........................ 709 (11) 372 -- 1,070
Income tax expense (benefit)............. (68) (4) 136 -- 64
---------- -------- ------- ---- ----------
Net income (loss).............. $ 777 $ (7) $ 236 $ -- $ 1,006
========== ======== ======= ==== ==========
Basic earnings (loss) per share.......... $ 0.15 $ (0.01) $ 3.15 $ 0.14
========== ======== ======= ==========
Average number of shares
outstanding -- basic................... 5,230,500 626,000 75,000 7,117,085
========== ======== ======= ==========
</TABLE>
178
<PAGE> 200
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1997
--------------------------------------------------------------
HISTORICAL
-----------------------------------
THE EMERALD FIRST
BANC COAST CITIZENS PRO FORMA PRO FORMA
CORPORATION BANCSHARES BANCORP ADJUSTMENTS COMBINED
----------- ---------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income.......................... $ 2,590 $ 1,228 $ 1,391 $ -- $ 5,209
Interest expense......................... 1,109 563 574 -- 2,246
---------- -------- ------- ---- ----------
Net interest income............ 1,481 665 817 -- 2,963
Provision for loan losses................ 90 155 30 -- 275
---------- -------- ------- ---- ----------
Net interest income after provision for
loan losses......................... 1,391 510 787 -- 2,688
Noninterest income....................... 251 28 201 -- 480
Loss on sale of securities............... (3) -- -- -- (3)
Noninterest expenses..................... 1,011 817 627 -- 2,455
---------- -------- ------- ---- ----------
Income (loss) before income
taxes........................ 628 (279) 361 -- 710
Income tax expense (benefit)............. 233 (164) 131 -- 200
---------- -------- ------- ---- ----------
Net income (loss).............. $ 395 $ (115) $ 230 $ -- $ 510
========== ======== ======= ==== ==========
Basic earnings (loss) per share.......... $ 0.15 $ (0.18) $ 3.07 $ 0.11
========== ======== ======= ==========
Average number of shares
outstanding -- basic................... 2,716,200 626,000 75,000 4,602,783
========== ======== ======= ==========
</TABLE>
179
<PAGE> 201
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------------------
HISTORICAL
------------------------------------
THE EMERALD FIRST
BANC COAST CITIZENS PRO FORMA PRO FORMA
CORPORATION BANCSHARES BANCORP ADJUSTMENTS COMBINED
----------- ----------- -------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income......................... $ 5,399 $ 3,114 $ 2,957 $ -- $ 11,470
Interest expense........................ 2,248 1,551 1,215 -- 5,014
---------- -------- ------- ---- ----------
Net interest income........... 3,151 1,563 1,742 -- 6,456
Provision for loan losses............... 330 333 218 -- 881
---------- -------- ------- ---- ----------
Net interest income after provision for
loan losses........................... 2,821 1,230 1,524 -- 5,575
Noninterest income...................... 475 115 415 -- 1,005
Noninterest expenses.................... 2,111 1,936 1,303 -- 5,350
---------- -------- ------- ---- ----------
Income (loss) before income
taxes....................... 1,185 (591) 636 -- 1,230
Income tax expense (benefit)............ 387 (195) 213 -- 405
---------- -------- ------- ---- ----------
Net income (loss)............. $ 798 $ (396) $ 423 $ -- $ 825
========== ======== ======= ==== ==========
Basic earnings (loss) per share......... $ 0.26 $ (0.63) $ 5.64 $ 0.17
========== ======== ======= ==========
Average number of shares outstanding.... 3,025,800 626,000 75,000 4,912,383
========== ======== ======= ==========
</TABLE>
180
<PAGE> 202
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------------------------
HISTORICAL
--------------------------------------
THE EMERALD FIRST
BANC COAST CITIZENS PRO FORMA PRO FORMA
CORPORATION BANCSHARES(1) BANCORP ADJUSTMENTS COMBINED
----------- ------------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income........................ $ 5,073 $ 381 $ 2,437 $ -- $ 7,891
Interest expense....................... 2,247 139 1,008 -- 3,394
---------- -------- ------- ---- ----------
Net interest income.......... 2,826 242 1,429 -- 4,497
Provision for loan losses.............. 135 70 43 -- 248
---------- -------- ------- ---- ----------
Net interest income after provision
for loan losses................... 2,691 172 1,386 -- 4,249
Noninterest income..................... 463 10 430 -- 903
Noninterest expenses................... 1,952 793 1,232 -- 3,977
---------- -------- ------- ---- ----------
Income (loss) before income
taxes...................... 1,202 (611) 584 -- 1,175
Income tax expense (benefit)........... 412 (257) 184 -- 339
---------- -------- ------- ---- ----------
Net income (loss)............ $ 790 $ (354) $ 400 $ -- $ 836
========== ======== ======= ==== ==========
Basic earnings (loss) per share........ $ 0.29 $ (0.57) $ 5.33 $ 0.18
========== ======== ======= ==========
Average number of shares outstanding... 2,716,200 626,000 75,000 4,602,783
========== ======== ======= ==========
</TABLE>
- ---------------
(1) Operations of Emerald since August of 1996, date of inception.
181
<PAGE> 203
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
-------------------------------------------------
HISTORICAL
----------------------
THE FIRST
BANC CITIZENS PRO FORMA PRO FORMA
CORPORATION BANCORP ADJUSTMENTS COMBINED
----------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income.................................... $ 4,859 $ 1,809 $ -- $ 6,668
Interest expense................................... 2,056 786 -- 2,842
---------- ------- ---- ----------
Net interest income...................... 2,803 1,023 -- 3,826
Provision for loan losses.......................... 120 -- -- 120
---------- ------- ---- ----------
Net interest income after provision for loan
losses........................................ 2,683 1,023 -- 3,706
Noninterest income................................. 553 348 -- 901
Noninterest expenses............................... 1,871 1,116 -- 2,987
---------- ------- ---- ----------
Income before income taxes............... 1,365 255 -- 1,620
Income tax expense................................. 467 61 -- 528
---------- ------- ---- ----------
Net income.................................... $ 898 $ 194 $ -- $ 1,092
========== ======= ==== ==========
Basic earnings per share........................... $ 0.33 $ 2.59 $ 0.33
========== ======= ==========
Average number of shares outstanding............... 2,716,200 75,000 3,337,990
========== ======= ==========
</TABLE>
182
<PAGE> 204
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENT OF CONDITION (UNAUDITED)
The following summary includes (i) the condensed consolidated statement of
financial condition of The Banc Corporation (formerly the Warrior Capital
Corporation) as of June 30, 1998, (ii) the condensed consolidated statement of
financial condition of Emerald Coast Bancshares, Inc. ("Emerald") as of June 30,
1998, (iii) the condensed consolidated statement of financial condition of City
National Corporation ("City National") as of June 30, 1998, (iv) the condensed
consolidated statement of financial condition of Commercial Bancshares of
Roanoke, Inc. ("CBS") as of June 30, 1998, (v) adjustments to give effect to the
proposed purchase method combination with CBS and the proposed pooling of
interests method business combinations with Emerald and City National, (vi) the
pro forma combined condensed statement of financial condition of The Banc
Corporation and subsidiaries as if such combinations had occurred on June 30,
1998.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of financial
conditions of The Banc Corporation, Emerald, City National and CBS. The pro
forma information provided below may not be indicative of future results.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
---------------------------------------------------------------------------------
HISTORICAL
-------------------------------------------------------
THE EMERALD CITY COMMERCIAL
BANC COAST NATIONAL BANCSHARES PRO FORMA PRO FORMA
CORPORATION(D) BANCSHARES CORPORATION OF ROANOKE ADJUSTMENTS COMBINED
-------------- ---------- ----------- ----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks....................... $ 4,822 $ 4,220 $ 2,725 $ 1,579 $ 450(a) $ 13,796
Interest bearing deposits in other banks...... -- -- 200 200 -- 400
Federal funds sold............................ 1,900 -- 1,120 5,250 -- 8,270
Investment securities available for sale...... 201 8,092 35,224 2,820 -- 46,337
Investment securities held to maturity........ 24,934 -- -- 17,185 -- 42,119
Loans, net of unearned........................ 46,601 55,320 39,568 14,595 -- 156,084
Less: Allowance for loan losses............... (717) (512) (700) (288) -- (2,217)
------- ------- ------- ------- -------- --------
Net loans............................. 45,884 54,808 38,868 14,307 -- 153,867
------- ------- ------- ------- -------- --------
Premises and equipment, net................... 10,227 5,286 2,707 285 891(c) 19,396
Intangibles, net.............................. 416 -- -- -- -- 416
Other assets.................................. 1,436 1,378 1,364 761 -- 4,939
------- ------- ------- ------- -------- --------
Total assets.......................... $89,820 $73,784 $82,208 $42,387 $ 1,341 $289,540
======= ======= ======= ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing......................... $12,618 $ 9,405 $10,525 $ 6,635 $ -- $ 39,183
Interest-bearing............................ 52,136 53,861 58,832 29,069 -- 193,898
------- ------- ------- ------- -------- --------
Total deposits........................ 64,754 63,266 69,357 35,704 -- 233,081
Federal funds purchased and other borrowed
funds....................................... -- 4,555 -- 31 7,300(c) 11,886
Accrued expenses and other liabilities........ 3,181 450 893 243 -- 4,767
------- ------- ------- ------- -------- --------
Total liabilities..................... 67,935 68,271 70,250 35,978 7,300 249,734
Minority interest in equity of subsidiary..... 29 -- 139 -- -- 168
Stockholders' Equity
Common stock................................ 5 3,130 27 20 --(a) 8
3(b)
(3,157)(b)
(20)(c)
Surplus..................................... 13,435 3,130 4,135 3,527 450(a) 24,238
10,353(b)
(7,265)(b)
(3,527)(c)
Retained earnings (accumulated deficit)..... 8,451 (757) 7,422 2,846 (2,846)(c) 15,116
Accumulated other comprehensive income
(loss).................................... (35) 10 301 16 (16)(c) 276
Treasury stock, at cost..................... -- -- (66) -- 66(b) --
------- ------- ------- ------- -------- --------
Total stockholders' equity............ 21,856 5,513 11,819 6,409 (5,959) 39,638
------- ------- ------- ------- -------- --------
Total liabilities and stockholders'
equity.............................. $89,820 $73,784 $82,208 $42,387 $ 1,341 $289,540
======= ======= ======= ======= ======== ========
</TABLE>
183
<PAGE> 205
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF
FINANCIAL CONDITION
(a) To record the exercise of 57,000 stock options by officers of Emerald before
merger.
(b) To record the exchange of 3,379,958 shares of The Banc Corporation common
stock for all of the outstanding shares of the following accounted for as a
pooling of interests.
<TABLE>
<CAPTION>
EMERALD CITY
COAST NATIONAL
BANCSHARES CORPORATION TOTAL
---------- ----------- ----------
<S> <C> <C> <C>
Outstanding shares of acquired corporation......... 683,000 26,832
Conversion ratio................................... 2.02044 74.53786
---------- ----------
The Banc Corporation shares to be issued........... 1,379,958 2,000,000 3,379,958
Par value of shares to be issued at $.001 per
share............................................ $ 1 $ 2 $ 3
Total common stock and surplus of acquired
corporation...................................... 6,260 4,096 10,356
---------- ---------- ----------
Excess recorded as an increase in contributed
capital....................................... 6,259 4,094 10,353
---------- ---------- ----------
To eliminate acquired corporations capital stock
Common stock at par value........................ (3,130) (27) (3,157)
Surplus.......................................... (3,130) (4,135) (7,265)
Treasury stock................................... -- 66 66
---------- ---------- ----------
(6,260) (4,096) (10,356)
---------- ---------- ----------
Net change in equity..................... $ -- $ -- $ --
========== ========== ==========
</TABLE>
(c) Purchase of 100% of the outstanding common stock of Commercial Bancshares of
Roanoke, Inc. for approximately $7.3 million. Stock will be purchased with
proceeds borrowed from a commercial bank. The excess of cost over book value
will be allocated to the carrying value of the main office building which
currently has a zero book basis.
(d) The Banc Corporation was formed by the reincorporation of Warrior Capital
Corporation. The 18,160 shares of Warrior Capital Corporation common stock
were converted into 5,448,000 shares of The Banc Corporation $.001 par value
common stock.
184
<PAGE> 206
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENTS OF INCOME (UNAUDITED)
The following summaries include (i) the condensed consolidated statements
of income of The Banc Corporation (formerly the Warrior Capital Corporation) on
a historical basis for the six months ended June 30, 1998 and 1997, and the
years ended December 31, 1997, 1996, and 1995, (ii) the condensed consolidated
statements of income of Emerald for the six months ended June 30, 1998 and 1997
and the periods ended December 31, 1997, and 1996, (iii) the condensed
consolidated statements of income of City National for the six months ended June
30, 1998 and 1997 and the years ended December 31, 1997, 1996 and 1995, (iv) the
condensed consolidated statements of income of CBS for the six months ended June
31, 1998 and the year ended December 31, 1997, (v) adjustments to give effect to
the proposed purchase method combination with CBS and the proposed pooling of
interests method business combinations with Emerald and City National, (vi) the
pro forma combined condensed consolidated statements of income of The Banc
Corporation as if such combinations had occurred on January 1, 1995. Note that
for purchase method combinations, Article 11 of Regulation S-X requires pro
forma statements of income to be presented for only the most recent fiscal year
and interim period. Accordingly, only the condensed consolidated statements of
income for the six months ended June 30, 1998 and the year ended December 31,
1997 are included in (iv) above for CBS.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of income of The
Banc Corporation, Emerald, City National and CBS. The pro forma information may
not necessarily be indicative of future results. Pro forma earnings per share is
based on the weighted average number of shares outstanding for the period
adjusted for the applicable exchange ratio.
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1998
------------------------------------------------------------------------------
HISTORICAL
---------------------------------------------------
THE EMERALD CITY COMMERCIAL
BANC COAST NATIONAL BANCSHARES PRO FORMA PRO FORMA
CORPORATION BANCSHARES CORPORATION OF ROANOKE ADJUSTMENTS COMBINED
----------- ---------- ----------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income............. $ 3,070 $ 2,498 $ 3,290 $ 1,494 $ -- $ 10,352
Interest expense............ 1,134 1,197 1,359 669 256(a) 4,615
---------- -------- ------- -------- ----- ----------
Net interest
income.......... 1,936 1,301 1,931 825 (256) 5,737
Provision for loan losses... 38 156 430 69 -- 693
---------- -------- ------- -------- ----- ----------
Net interest income after
provision for loan
losses................. 1,898 1,145 1,501 756 (256) 5,044
Noninterest income.......... 312 168 280 491 -- 1,251
Gain (loss) on sale of
securities................ (4) 18 47 -- -- 61
Noninterest expenses........ 1,497 1,342 1,696 889 15(a) 5,439
---------- -------- ------- -------- ----- ----------
Income (loss)
before income
taxes........... 709 (11) 132 358 (271) 917
Income tax
expense(benefit).......... (68) (4) 47 88 (100)(a) (37)
---------- -------- ------- -------- ----- ----------
Net
income(loss).... $ 777 $ (7) $ 85 $ 270 $(171) $ 954
========== ======== ======= ======== ===== ==========
Basic earnings (loss) per
share..................... $ 0.15 $ (0.01) $ 3.16 $ 1.35 $ 0.11
========== ======== ======= ======== ==========
Average number of shares
outstanding -- basic...... 5,230,500 626,000 26,882 200,000 8,499,022
========== ======== ======= ======== ==========
</TABLE>
185
<PAGE> 207
- ---------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
(a) To reflect interest expense (7%) on $7.3 million in
debt incurred to purchase stock of Commercial
Bancshares of Roanoke.............................. $ 256
Depreciation on allocation of purchase price to
premises and equipment (30 year period)............ 15
--------
Decrease in income before tax benefit.............. $ 271
========
Income tax benefit at 37%.......................... $ 100
========
</TABLE>
186
<PAGE> 208
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1997
------------------------------------------------------------------
HISTORICAL
--------------------------------------
THE EMERALD CITY
BANC COAST NATIONAL PRO FORMA PRO FORMA
CORPORATION BANCSHARES CORPORATION ADJUSTMENTS COMBINED
----------- ---------- ----------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income....................... $ 2,590 $ 1,228 $ 3,355 $ -- $ 7,173
Interest expense...................... 1,109 563 1,448 -- 3,120
---------- -------- ------- ------- ----------
Net interest income......... 1,481 665 1,907 -- 4,053
Provision for loan losses............. 90 155 248 -- 493
---------- -------- ------- ------- ----------
Net interest income after provision
for loan losses.................. 1,391 510 1,659 -- 3,560
Noninterest income.................... 251 28 255 -- 534
Gain (loss) on sale of securities..... (3) -- 2 -- (1)
Noninterest expenses.................. 1,011 817 1,654 -- 3,482
---------- -------- ------- ------- ----------
Income (loss) before income
taxes..................... 628 (279) 262 -- 611
Income tax expense (benefit).......... 233 (164) 92 -- 161
---------- -------- ------- ------- ----------
Net income (loss)........... $ 395 $ (115) $ 170 $ -- $ 450
========== ======== ======= ======= ==========
Basic earnings (loss) per share....... $ 0.15 $ (0.18) $ 6.31 $ 0.08
========== ======== ======= ==========
Average number of shares outstanding--
basic............................... 2,716,200 626,000 26,948 5,989,639
========== ======== ======= ==========
</TABLE>
187
<PAGE> 209
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------------------------------
HISTORICAL
---------------------------------------------------
THE EMERALD CITY COMMERCIAL
BANC COAST NATIONAL BANCSHARES PRO FORMA PRO FORMA
CORPORATION BANCSHARES CORPORATION OF ROANOKE ADJUSTMENTS COMBINED
----------- ---------- ----------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income............ $ 5,399 $ 3,114 $ 6,721 $ 3,114 $ -- $ 18,348
Interest expense........... 2,248 1,551 2,911 1,307 511(a) 8,528
---------- -------- ------- -------- ----- ----------
Net interest
income......... 3,151 1,563 3,810 1,807 (511) 9,820
Provision for loan
losses................... 330 333 384 401 -- 1,448
---------- -------- ------- -------- ----- ----------
Net interest income after
provision for loan
losses................ 2,821 1,230 3,426 1,406 (511) 8,372
Noninterest income......... 475 115 736 980 -- 2,306
Noninterest expenses....... 2,111 1,936 3,367 2,010 30(a) 9,454
---------- -------- ------- -------- ----- ----------
Income (loss)
before income
taxes.......... 1,185 (591) 795 376 (541) 1,224
Income tax expense
(benefit)................ 387 (195) 170 68 (200)(a) 230
---------- -------- ------- -------- ----- ----------
Net income
(loss)......... $ 798 $ (396) $ 625 $ 308 $(341) $ 994
========== ======== ======= ======== ===== ==========
Basic earnings (loss) per
share.................... $ 0.26 $ (0.63) $ 23.25 $ 1.54 $ 0.16
========== ======== ======= ======== ==========
Average number of shares
outstanding.............. 3,025,800 626,000 26,910 200,000 6,296,407
========== ======== ======= ======== ==========
- ---------------
(a) To reflect interest expense (7%) on $7.3 million
in debt incurred to purchase stock of Commercial
Bancshares of Roanoke............................ $ 511
Depreciation on allocation of purchase price to
premises and equipment (30 year period).......... 30
-------
Decrease in income before tax benefit............ $ 541
=======
Income tax benefit at 37%........................ $ 200
=======
</TABLE>
188
<PAGE> 210
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------------------------------
HISTORICAL
-------------------------------------------
THE EMERALD CITY
BANC COAST NATIONAL PRO FORMA PRO FORMA
CORPORATION BANCSHARES(1) CORPORATION ADJUSTMENTS COMBINED
------------ -------------- ----------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income................... $ 5,073 $ 381 $ 6,027 $ -- $ 11,481
Interest expense.................. 2,247 139 2,460 -- 4,846
---------- -------- ------- ---- ----------
Net interest income..... 2,826 242 3,567 -- 6,635
Provision for loan losses......... 135 70 346 -- 551
---------- -------- ------- ---- ----------
Net interest income after
provision for loan losses.... 2,691 172 3,221 -- 6,084
Noninterest income................ 463 10 683 -- 1,156
Noninterest expenses.............. 1,952 793 3,211 -- 5,956
---------- -------- ------- ---- ----------
Income (loss) before
income taxes.......... 1,202 (611) 693 -- 1,284
Income tax expense (benefit)...... 412 (257) 133 -- 288
---------- -------- ------- ---- ----------
Net income (loss)....... $ 790 $ (354) $ 560 $ -- $ 996
========== ======== ======= ==== ==========
Basic earnings (loss) per share... $ 0.29 $ (0.57) $ 20.68 $ 0.17
========== ======== ======= ==========
Average number of shares
outstanding..................... 2,716,200 626,000 27,063 5,998,211
========== ======== ======= ==========
</TABLE>
- ------------------------
(1) Operations of Emerald since August of 1996, date of inception.
189
<PAGE> 211
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
----------------------------------------------------
HISTORICAL
-------------------------
THE CITY
BANC NATIONAL PRO FORMA PRO FORMA
CORPORATION CORPORATION ADJUSTMENTS COMBINED
----------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income.................................. $ 4,859 $ 5,674 $ -- $ 10,533
Interest expense................................. 2,056 2,324 -- 4,380
---------- ------- ---- ----------
Net interest income......................... 2,803 3,350 -- 6,153
Provision for loan losses........................ 120 204 -- 324
---------- ------- ---- ----------
Net interest income after provision for loan
losses...................................... 2,683 3,146 -- 5,829
Noninterest income............................... 553 629 -- 1,182
Noninterest expenses............................. 1,871 3,010 -- 4,881
---------- ------- ---- ----------
Income before income taxes.................. 1,365 765 -- 2,130
Income tax expense............................... 467 40 -- 507
---------- ------- ---- ----------
Net income.................................. $ 898 $ 725 $ -- $ 1,623
========== ======= ==== ==========
Basic earnings per share......................... $ 0.33 $ 26.73 $ 0.34
========== ======= ==========
Average number of shares outstanding............. 2,716,200 27,149 4,739,828
========== ======= ==========
</TABLE>
190
<PAGE> 212
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENT OF CONDITION (UNAUDITED)
The following summary includes (i) the condensed consolidated statement of
financial condition of The Banc Corporation (formerly the Warrior Capital
Corporation) as of June 30, 1998, (ii) the condensed statement of financial
condition of Commerce Bank of Alabama ("Commerce") as of June 30, 1998, (iii)
the condensed consolidated statement of financial condition of First Citizens
Bancorp, Inc. ("First Citizens") as of June 30, 1998, (iv) the condensed
consolidated statement of financial condition of City National Corporation
("City National") as of June 30, 1998, (v) the condensed consolidated statement
of financial condition of Commercial Bancshares of Roanoke, Inc. ("CBS") as of
June 30, 1998, (vi) adjustments to give effect to the proposed purchase method
combination with CBS and the proposed pooling of interests method business
combinations with Commerce, First Citizens and City National, (vii) the pro
forma combined condensed statement of financial condition of The Banc
Corporation and subsidiaries as if such combinations had occurred on June 30,
1998.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of financial
conditions of The Banc Corporation, Commerce, First Citizens, City National and
CBS. The pro forma information provided below may not be indicative of future
results.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
-------------------------------------------------------------------------------------------
HISTORICAL
---------------------------------------------------------------
THE COMMERCE FIRST CITY COMMERCIAL
BANC BANK OF CITIZENS NATIONAL BANCSHARES PRO FORMA PRO FORMA
CORPORATION(D) ALABAMA BANCORP CORPORATION OF ROANOKE ADJUSTMENTS COMBINED
-------------- -------- -------- ----------- ---------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks............. $ 4,822 $ 4,839 $ 988 $ 2,725 $ 1,579 $ 145(a) $ 15,098
Interest bearing deposits in other
banks............................. -- -- -- 200 200 -- 400
Federal funds sold.................. 1,900 840 1,230 1,120 5,250 -- 10,340
Investment securities available for
sale.............................. 201 21,239 1,757 35,224 2,820 -- 61,241
Investment securities held to
maturity.......................... 24,934 252 -- -- 17,185 -- 42,371
Loans, net of unearned.............. 46,601 88,981 32,535 39,568 14,595 -- 222,280
Less: Allowance for loan losses..... (717) (894) (357) (700) (288) -- (2,956)
------- -------- ------- ------- ------- ---------- --------
Net loans..................... 45,884 88,087 32,178 38,868 14,307 -- 219,324
------- -------- ------- ------- ------- ---------- --------
Premises and equipment, net......... 10,227 2,841 555 2,707 285 892(c) 17,507
Intangibles, net.................... 416 -- -- -- -- -- 416
Other assets........................ 1,436 1,677 1,408 1,364 761 -- 6,646
------- -------- ------- ------- ------- ---------- --------
Total assets................ $89,820 $119,775 $38,116 $82,208 $42,387 $ 1,037 $373,343
======= ======== ======= ======= ======= ========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing............... $12,618 $ 12,796 $ 4,328 $10,525 $ 6,635 $ -- $ 46,902
Interest-bearing.................. 52,136 97,909 30,075 58,832 29,069 -- 268,021
------- -------- ------- ------- ------- ---------- --------
Total deposits.............. 64,754 110,705 34,403 69,357 35,704 -- 314,923
Federal funds purchased and other
borrowed funds.................... -- -- -- -- 32 7,300(c) 7,332
Accrued expenses and other
liabilities....................... 3,181 2,300 468 893 243 -- 7,085
------- -------- ------- ------- ------- ---------- --------
Total liabilities........... 67,935 113,005 34,871 70,250 35,979 7,300 329,340
Minority interest in equity of
subsidiary........................ 29 -- -- 139 -- -- 168
Stockholders' Equity
Common stock...................... 5 7 75 27 20 --(a) 10
5(b)
(109)(b)
(20)(c)
Surplus........................... 13,435 7,027 800 4,135 3,526 145(a) 25,580
12,000(b)
(11,962)(b)
(3,526)(c)
Retained earnings (accumulated
deficit)........................ 8,451 (279) 2,366 7,422 2,846 (2,846)(c) 17,960
Accumulated other comprehensive
income (loss)................... (35) 15 4 301 16 (16)(c) 285
Treasury stock, at cost........... -- -- -- (66) -- 66(b) --
------- -------- ------- ------- ------- ---------- --------
Total stockholders'
equity.................... 21,856 6,770 3,245 11,819 6,408 (6,263) 43,835
------- -------- ------- ------- ------- ---------- --------
Total liabilities and
stockholders' equity...... $89,820 $119,775 $38,116 $82,208 $42,387 $ 1,037 $373,343
======= ======== ======= ======= ======= ========== ========
</TABLE>
191
<PAGE> 213
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF
FINANCIAL CONDITION
(a) To record the exercise of 5,000 stock options by officer of First Citizens
prior to merger.
(b) To record the exchange of 4,199,858 shares of The Banc Corporation common
stock for all of the outstanding shares of the following accounted for as a
pooling of interests.
<TABLE>
<CAPTION>
FIRST COMMERCE CITY
CITIZENS BANK OF NATIONAL
BANCORP ALABAMA CORPORATION TOTAL
--------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Outstanding shares of acquired
corporation........................... 80,000 658,190 26,832
Conversion ratio........................ 8.290537 2.334607 74.53786
--------- ---------- ----------
The Banc Corporation shares to be
issued................................ 663,243 1,536,615 2,000,000 4,199,858
Par value of shares to be issued at
$.001 per share....................... $ 1 $ 2 $ 2 $ 5
Total common stock and surplus of
acquired corporation.................. 875 7,034 4,096 12,005
--------- ---------- ---------- ----------
Excess recorded as an increase in
contributed capital................ 874 7,032 4,094 12,000
--------- ---------- ---------- ----------
To eliminate acquired corporations
capital stock
Common stock at par value............. (75) (7) (27) (109)
Surplus............................... (800) (7,027) (4,135) (11,962)
Treasury stock........................ -- -- 66 66
--------- ---------- ---------- ----------
(875) (7,034) (4,096) (12,005)
--------- ---------- ---------- ----------
Net change in equity.......... $ -- $ -- $ -- $ --
========= ========== ========== ==========
</TABLE>
(c) Purchase of 100% of the outstanding common stock of Commercial Bancshares of
Roanoke, Inc. for approximately $7.3 million. Stock will be purchased with
proceeds borrowed from a commercial bank. The excess of cost over book value
will be allocated to the carrying value of the main office building which
currently has a zero book basis.
(d) The Banc Corporation was formed by the reincorporation of Warrior Capital
Corporation. The 18,160 shares of Warrior Capital Corporation common stock
were converted into 5,448,000 shares of The Banc Corporation $.001 par value
common stock.
192
<PAGE> 214
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENTS OF INCOME (UNAUDITED)
The following summaries include (i) the condensed consolidated statements
of income of The Banc Corporation (formerly the Warrior Capital Corporation) on
a historical basis for the six months ended June 30, 1998 and 1997, and the
years ended December 31, 1997, 1996, and 1995, (ii) the condensed statements of
income of Commerce for the six months ended June 30, 1998 and 1997 and the
periods ended December 31, 1997, 1996 and 1995, (iii) the condensed consolidated
statements of income of First Citizens for the six months ended June 30, 1998
and 1997 and the years ended December 31, 1997, 1996 and 1995, (iv) the
condensed consolidated statements of income of City National for the six months
ended June 30, 1998 and 1997 and the years ended December 31, 1997, 1996 and
1995, (v) the condensed consolidated statements of income of CBS for the six
months ended June 30, 1998 and the year ended December 31, 1997, (vi)
adjustments to give effect to the proposed purchase method combination with CBS
and the proposed pooling of interests method business combinations with
Commerce, First Citizens and City National, (vii) the pro forma combined
condensed consolidated statements of income of The Banc Corporation as if such
combinations had occurred on January 1, 1995. Note that for purchase method
combinations, Article 11 of Regulation S-X requires pro forma statements of
income to be presented for only the most recent fiscal year and interim period.
Accordingly, only the condensed consolidated statements of income for the six
months ended June 30, 1998 and the year ended December 31, 1997 are included in
(v) above for CBS.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of income of The
Banc Corporation, Commerce, First Citizens, City National and CBS. the pro forma
information may not necessarily be indicative of future results. Pro forma
earnings per share is based on the weighted average number of shares outstanding
for the period adjusted for the applicable exchange ratio.
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1998
----------------------------------------------------------------------------------------
HISTORICAL
------------------------------------------------------------
THE COMMERCE FIRST CITY COMMERCIAL
BANC BANK OF CITIZENS NATIONAL BANCSHARES PRO FORMA PRO FORMA
CORPORATION ALABAMA BANCORP CORPORATION OF ROANOKE ADJUSTMENTS COMBINED
----------- -------- -------- ----------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income................. $ 3,070 $ 4,506 $ 1,683 $ 3,290 $ 1,494 $ -- $ 14,043
Interest expense................ 1,134 2,659 688 1,359 669 256(a) 6,765
---------- -------- ------- ------- -------- ----- ----------
Net interest income..... 1,936 1,847 995 1,931 825 (256) 7,278
Provision for loan losses....... 38 292 117 430 69 -- 946
---------- -------- ------- ------- -------- ----- ----------
Net interest income after
provision for loan losses... 1,898 1,555 878 1,501 756 (256) 6,332
Noninterest income.............. 312 582 225 280 491 -- 1,890
Gain (loss) on sale of
securities.................... (4) 1 -- 47 -- -- 44
Noninterest expenses............ 1,497 1,788 731 1,696 889 15(a) 6,616
---------- -------- ------- ------- -------- ----- ----------
Income (loss) before
income taxes.......... 709 350 372 132 358 (271) 1,650
Income tax expense (benefit).... (68) 94 136 47 88 (100)(a) 197
---------- -------- ------- ------- -------- ----- ----------
Net income (loss)....... $ 777 $ 256 $ 236 $ 85 $ 270 $(171) $ 1,453
========== ======== ======= ======= ======== ===== ==========
Basic earnings per share........ $ 0.15 $ 0.39 $ 3.15 $ 3.16 $ 1.35 $ 0.15
========== ======== ======= ======= ======== ==========
Average number of shares
outstanding -- basic.......... 5,230,500 656,968 75,000 26,882 200,000 9,393,421
========== ======== ======= ======= ======== ==========
</TABLE>
193
<PAGE> 215
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------
(a) To reflect interest expense(7%) on $7.3 million in
debt incurred to purchase stock of Commercial
Bancshares of Roanoke............................... $ 256
Depreciation on allocation of purchase price to
premises and equipment (30 year period)............. 15
-------
Decrease in income before tax benefit................ $ 271
=======
Income tax benefit at 37%............................ $ 100
=======
</TABLE>
194
<PAGE> 216
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1997
--------------------------------------------------------------------------
HISTORICAL
-----------------------------------------------
THE COMMERCE FIRST CITY
BANC BANK OF CITIZENS NATIONAL PRO FORMA PRO FORMA
CORPORATION ALABAMA BANCORP CORPORATION ADJUSTMENTS COMBINED
----------- -------- -------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income................ $ 2,590 $ 3,329 $ 1,391 $ 3,355 $ -- $ 10,665
Interest expense............... 1,109 1,808 574 1,448 -- 4,939
---------- -------- ------- ------- ---- ----------
Net interest
income............. 1,481 1,521 817 1,907 -- 5,726
Provision for loan losses...... 90 232 30 248 -- 600
---------- -------- ------- ------- ---- ----------
Net interest income after
provision for loan
losses.................... 1,391 1,289 787 1,659 -- 5,126
Noninterest income............. 251 310 201 255 -- 1,017
Gain (loss) on sale of
securities................... (3) -- -- 2 -- (1)
Noninterest expenses........... 1,011 1,420 627 1,654 -- 4,712
---------- -------- ------- ------- ---- ----------
Income before income
taxes................... 628 179 361 262 -- 1,430
Income tax expense............. 233 35 131 92 -- 491
---------- -------- ------- ------- ---- ----------
Net income........... $ 395 $ 144 $ 230 $ 170 $ -- $ 939
========== ======== ======= ======= ==== ==========
Basic earnings per share....... $ 0.15 $ 0.22 $ 3.07 $ 6.31 $ 0.14
========== ======== ======= ======= ==========
Average number of shares
outstanding -- basic......... 2,716,200 655,460 75,000 26,948 6,880,511
========== ======== ======= ======= ==========
</TABLE>
195
<PAGE> 217
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------------------------------------------
HISTORICAL
------------------------------------------------------------
THE COMMERCE FIRST CITY COMMERCIAL
BANC BANK OF CITIZENS NATIONAL BANCSHARES PRO FORMA PRO FORMA
CORPORATION ALABAMA BANCORP CORPORATION OF ROANOKE ADJUSTMENTS COMBINED
----------- -------- -------- ----------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income........................ $ 5,399 $ 7,513 $2,957 $ 6,721 $ 3,114 $ -- $ 25,704
Interest expense....................... 2,248 4,028 1,215 2,911 1,307 511(a) 12,220
---------- -------- ------ ------- -------- -------- ----------
Net interest income............ 3,151 3,485 1,742 3,810 1,807 (511) 13,484
Provision for loan losses.............. 330 584 218 384 401 -- 1,917
---------- -------- ------ ------- -------- -------- ----------
Net interest income after provision
for loan losses.................... 2,821 2,901 1,524 3,426 1,406 (511) 11,567
Noninterest income..................... 475 578 415 736 980 -- 3,184
Noninterest expenses................... 2,111 3,131 1,303 3,367 2,010 30(a) 11,952
---------- -------- ------ ------- -------- -------- ----------
Income before income taxes......... 1,185 348 636 795 376 (541) 2,799
Income tax expense (benefit)........... 387 120 213 170 68 (200)(a) 758
---------- -------- ------ ------- -------- -------- ----------
Net income (loss).............. $ 798 $ 228 $ 423 $ 625 $ 308 $ (341) $ 2,041
========== ======== ====== ======= ======== ======== ==========
Basic earnings per share............... $ 0.26 $ 0.35 $ 5.64 $ 23.25 $ 1.54 $ 0.28
========== ======== ====== ======= ======== ==========
Average number of shares outstanding... 3,025,800 655,565 75,000 26,910 200,000 7,187,524
========== ======== ====== ======= ======== ==========
- ---------------
(a) To reflect interest expense(7%) on $7.3 million in debt
incurred to purchase stock of Commercial Bancshares of
Roanoke.................................................... $ 511
Depreciation on allocation of purchase price to premises and
equipment (30 year period).................................. 30
------
Decrease in income before tax benefit....................... $ 541
======
Income tax benefit at 37%................................... $ 200
======
</TABLE>
196
<PAGE> 218
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------------------------
HISTORICAL
-----------------------------------------------
THE COMMERCE FIRST CITY
BANC BANK OF CITIZENS NATIONAL PRO FORMA PRO FORMA
CORPORATION ALABAMA BANCORP CORPORATION ADJUSTMENTS COMBINED
----------- -------- -------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income................... $ 5,073 $ 4,056 $2,437 $6,027 $ -- $ 17,593
Interest expense.................. 2,247 2,170 1,008 2,460 -- 7,885
---------- -------- ------ ------ ---- ----------
Net interest income..... 2,826 1,886 1,429 3,567 -- 9,708
Provision for loan losses......... 135 372 43 346 -- 896
---------- -------- ------ ------ ---- ----------
Net interest income after
provision for loan losses.... 2,691 1,514 1,386 3,221 -- 8,812
Noninterest income................ 463 380 430 683 -- 1,956
Noninterest expenses.............. 1,952 2,268 1,232 3,211 -- 8,663
---------- -------- ------ ------ ---- ----------
Income (loss) before
income taxes.......... 1,202 (374) 584 693 -- 2,105
Income tax expense (benefit)...... 412 (81) 184 133 -- 648
---------- -------- ------ ------ ---- ----------
Net income (loss)....... $ 790 $ (293) $ 400 $ 560 $ -- $ 1,457
========== ======== ====== ====== ==== ==========
Basic earnings(loss) per share.... $ 0.29 $ (0.47) $ 5.33 $20.68 $ 0.21
========== ======== ====== ====== ==========
Average number of shares
outstanding..................... 2,716,200 618,854 75,000 27,063 6,803,419
========== ======== ====== ====== ==========
</TABLE>
197
<PAGE> 219
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
----------------------------------------------------------------------------
HISTORICAL
-------------------------------------------------
THE COMMERCE FIRST CITY
BANC BANK OF CITIZENS NATIONAL PRO FORMA PRO FORMA
CORPORATION ALABAMA(1) BANCORP CORPORATION ADJUSTMENTS COMBINED
----------- ---------- -------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income....................... $ 4,859 $ 1,478 $1,809 $5,674 $ -- $ 13,820
Interest expense...................... 2,056 765 786 2,324 -- 5,931
---------- -------- ------ ------ ---- ----------
Net interest income.......... 2,803 713 1,023 3,350 -- 7,889
Provision for loan losses............. 120 226 -- 204 -- 550
---------- -------- ------ ------ ---- ----------
Net interest income after provision
for loan losses................... 2,683 487 1,023 3,146 -- 7,339
Noninterest income.................... 553 91 348 629 -- 1,621
Noninterest expenses.................. 1,871 1,289 1,116 3,010 -- 7,286
---------- -------- ------ ------ ---- ----------
Income (loss) before income
taxes...................... 1,365 (711) 255 765 -- 1,674
Income tax expense (benefit).......... 467 (241) 61 40 -- 327
---------- -------- ------ ------ ---- ----------
Net income (loss)............ $ 898 $ (470) $ 194 $ 725 $ -- $ 1,347
========== ======== ====== ====== ==== ==========
Basic earnings (loss) per share....... $ 0.33 $ (0.85) $ 2.59 $26.73 $ 0.20
========== ======== ====== ====== ==========
Average number of shares
outstanding......................... 2,716,200 550,000 75,000 27,149 6,648,701
========== ======== ====== ====== ==========
</TABLE>
- ---------------
(1) Operations of Commerce since April of 1995, date of inception.
198
<PAGE> 220
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENT OF CONDITION (UNAUDITED)
The following summary includes (i) the condensed consolidated statement of
financial condition of The Banc Corporation (formerly the Warrior Capital
Corporation) as of June 30, 1998, (ii) the condensed statement of financial
condition of Commerce Bank of Alabama ("Commerce") as of June 30, 1998, (iii)
the condensed consolidated statement of financial condition of First Citizens
Bancorp, Inc. ("First Citizens") as of June 30, 1998, (iv) the condensed
consolidated statement of financial condition of City National Corporation
("City National") as of June 30, 1998, (v) adjustments to give effect to the
proposed pooling of interests method business combinations with Commerce, First
Citizens and City National, (vi) the pro forma combined condensed statement of
financial condition of The Banc Corporation and subsidiaries as if such
combinations had occurred on June 30, 1998.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of financial
conditions of The Banc Corporation, Commerce, First Citizens, and City National.
The pro forma information provided below may not be indicative of future
results.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
------------------------------------------------------------------------------
HISTORICAL
--------------------------------------------------
THE COMMERCE FIRST CITY
BANC BANK OF CITIZENS NATIONAL PRO FORMA PRO FORMA
CORPORATION(C) ALABAMA BANCORP CORPORATION ADJUSTMENTS COMBINED
-------------- -------- -------- ----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks............... $ 4,822 $ 4,839 $ 988 $ 2,725 $ 145(a) $ 13,519
Interest bearing deposits in other
banks............................... -- -- -- 200 -- 200
Federal funds sold.................... 1,900 840 1,230 1,120 -- 5,090
Investment securities available for
sale................................ 201 21,239 1,757 35,224 -- 58,421
Investment securities held to
maturity............................ 24,934 252 -- -- -- 25,186
Loans, net of unearned................ 46,601 88,981 32,535 39,568 -- 207,685
Less: Allowance for loan losses....... (717) (894) (357) (700) -- (2,668)
------- -------- ------- ------- ---------- --------
Net loans.................... 45,884 88,087 32,178 38,868 -- 205,017
------- -------- ------- ------- ---------- --------
Premises and equipment, net........... 10,227 2,841 555 2,707 -- 16,330
Intangibles, net...................... 416 -- -- -- -- 416
Other assets.......................... 1,436 1,677 1,408 1,364 -- 5,885
------- -------- ------- ------- ---------- --------
Total assets................. $89,820 $119,775 $38,116 $82,208 $ 145 $330,064
======= ======== ======= ======= ========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing................. $12,618 $ 12,796 $ 4,328 $10,525 $ -- $ 40,267
Interest-bearing.................... 52,136 97,909 30,075 58,832 -- 238,952
------- -------- ------- ------- ---------- --------
Total deposits............... 64,754 110,705 34,403 69,357 -- 279,219
Accrued expenses and other
liabilities......................... 3,181 2,300 468 893 -- 6,842
------- -------- ------- ------- ---------- --------
Total liabilities............ 67,935 113,005 34,871 70,250 -- 286,061
Minority interest in equity of
subsidiary.......................... 29 -- -- 139 -- 168
Stockholders' Equity
Common stock........................ 5 7 75 27 --(a) 10
5(b)
(109)(b)
Surplus............................. 13,435 7,027 800 4,135 145(a) 25,580
12,000(b)
(11,962)(b)
Retained earnings (accumulated
deficit).......................... 8,451 (279) 2,366 7,422 17,960
Accumulated other comprehensive
income (loss)..................... (35) 15 4 301 285
Treasury stock, at cost............. -- -- -- (66) 66(b) --
------- -------- ------- ------- ---------- --------
Total stockholders' equity... 21,856 6,770 3,245 11,819 145 43,835
------- -------- ------- ------- ---------- --------
Total liabilities and
stockholders' equity....... $89,820 $119,775 $38,116 $82,208 $ 145 $330,064
======= ======== ======= ======= ========== ========
</TABLE>
199
<PAGE> 221
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL CONDITION
(a) To record the exercise of 5,000 stock options by officer of First Citizens
prior to merger.
(b) To record the exchange of 4,199,858 shares of The Banc Corporation common
stock for all of the outstanding shares of the following accounted for as a
pooling of interests.
<TABLE>
<CAPTION>
FIRST COMMERCE CITY
CITIZENS BANK OF NATIONAL
BANCORP ALABAMA CORPORATION TOTAL
--------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Outstanding shares of acquired
corporation........................... 80,000 658,190 26,832
Conversion ratio........................ 8.290537 2.334607 74.53786
--------- ---------- ----------
The Banc Corporation shares to be
issued................................ 663,243 1,536,615 2,000,000 4,199,858
Par value of shares to be issued at
$.001 per share....................... $ 1 $ 2 $ 2 $ 5
Total common stock and surplus of
acquired corporation.................. 875 7,034 4,096 12,005
--------- ---------- ---------- ----------
Excess recorded as an increase in
contributed capital................ 874 7,032 4,094 12,000
--------- ---------- ---------- ----------
To eliminate acquired corporations
capital stock
Common stock at par value............. (75) (7) (27) (109)
Surplus............................... (800) (7,027) (4,135) (11,962)
Treasury stock........................ -- -- 66 66
--------- ---------- ---------- ----------
(875) (7,034) (4,096) (12,005)
--------- ---------- ---------- ----------
Net change in equity.......... $ -- $ -- $ -- $ --
========= ========== ========== ==========
</TABLE>
(c) The Banc Corporation was formed by the reincorporation of Warrior Capital
Corporation. The 18,160 shares of Warrior Capital Corporation common stock
were converted into 5,448,000 shares of The Banc Corporation $.001 par value
common stock.
200
<PAGE> 222
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENTS OF INCOME (UNAUDITED)
The following summaries include (i) the condensed consolidated statements
of income of The Banc Corporation (formerly Warrior Capital Corporation) on a
historical basis for the six months ended June 30, 1998 and 1997, and the years
ended December 31,1997, 1996, and 1995, (ii) the condensed statements of income
of Commerce for the six months ended June 30, 1998 and 1997 and the periods
ended December 31, 1997,1996 and 1995,(iii) the condensed consolidated
statements of income of First Citizens for the six months ended June 30, 1998
and 1997 and the years ended December 31, 1997, 1996 and 1995, (iv) the
condensed consolidated statements of income of City National for the six months
ended June 30, 1998 and 1997 and the years ended December 31, 1997, 1996 and
1995, (v) adjustments to give effect to the proposed pooling of interests method
business combinations with Commerce, First Citizens and City National, (vi) the
pro forma combined condensed consolidated statements of income of The Banc
Corporation as if such combinations had occurred on January 1, 1995.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of income of The
Banc Corporation, Commerce, First Citizens, and City National. The pro forma
information may not necessarily be indicative of future results. Pro forma
earnings per share is based on the weighted average number of shares outstanding
for the period adjusted for the applicable exchange ratio.
<TABLE>
<CAPTION>
FOR PERIOD ENDED JUNE 30, 1998
--------------------------------------------------------------------------
HISTORICAL
-----------------------------------------------
THE COMMERCE FIRST CITY
BANC BANK OF CITIZENS NATIONAL PRO FORMA PRO FORMA
CORPORATION ALABAMA BANCORP CORPORATION ADJUSTMENTS COMBINED
----------- -------- -------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income........................ $ 3,070 $ 4,506 $1,683 $3,290 $ -- $ 12,549
Interest expense....................... 1,134 2,659 688 1,359 -- 5,840
---------- -------- ------ ------ ---- ----------
Net interest income........... 1,936 1,847 995 1,931 -- 6,709
Provision for loan losses.............. 38 292 117 430 -- 877
---------- -------- ------ ------ ---- ----------
Net interest income after provision
for loan losses.................... 1,898 1,555 878 1,501 -- 5,832
Noninterest income..................... 312 582 225 280 -- 1,399
Gain (loss) on sale of securities...... (4) 1 -- 47 -- 44
Noninterest expenses................... 1,497 1,788 731 1,696 -- 5,712
---------- -------- ------ ------ ---- ----------
Income before income taxes.... 709 350 372 132 -- 1,563
Income tax expense (benefit)........... (68) 94 136 47 -- 209
---------- -------- ------ ------ ---- ----------
Net income.................... $ 777 $ 256 $ 236 $ 85 $ -- $ 1,354
========== ======== ====== ====== ==== ==========
Basic earnings per share............... $ 0.15 $ 0.39 $ 3.15 $ 3.16 $ 0.14
========== ======== ====== ====== ==========
Average number of shares outstanding --
basic................................ 5,230,500 656,968 75,000 26,882 9,393,421
========== ======== ====== ====== ==========
</TABLE>
201
<PAGE> 223
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1997
--------------------------------------------------------------------------
HISTORICAL
-----------------------------------------------
THE COMMERCE FIRST CITY
BANC BANK OF CITIZENS NATIONAL PRO FORMA PRO FORMA
CORPORATION ALABAMA BANCORP CORPORATION ADJUSTMENTS COMBINED
----------- -------- -------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income................ $ 2,590 $ 3,329 $ 1,391 $ 3,355 $ -- $ 10,665
Interest expense............... 1,109 1,808 574 1,448 -- 4,939
---------- -------- ------- ------- ---- ----------
Net interest
income............. 1,481 1,521 817 1,907 -- 5,726
Provision for loan losses...... 90 232 30 248 -- 600
---------- -------- ------- ------- ---- ----------
Net interest income after
provision for loan
losses.................... 1,391 1,289 787 1,659 -- 5,126
Noninterest income............. 251 310 201 255 -- 1,017
Gain (loss) on sale of
securities................... (3) -- -- 2 -- (1)
Noninterest expenses........... 1,011 1,420 627 1,654 -- 4,712
---------- -------- ------- ------- ---- ----------
Income before income
taxes.............. 628 179 361 262 -- 1,430
Income tax expense............. 233 35 131 92 -- 491
---------- -------- ------- ------- ---- ----------
Net income................ $ 395 $ 144 $ 230 $ 170 $ -- $ 939
========== ======== ======= ======= ==== ==========
Basic earnings per share....... $ 0.15 $ 0.22 $ 3.07 $ 6.31 $ 0.14
========== ======== ======= ======= ==========
Average number of shares
outstanding -- basic......... 2,716,200 655,460 75,000 26,948 6,880,511
========== ======== ======= ======= ==========
</TABLE>
202
<PAGE> 224
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
--------------------------------------------------------------------------
HISTORICAL
-----------------------------------------------
THE COMMERCE FIRST CITY
BANC BANK OF CITIZENS NATIONAL PRO FORMA PRO FORMA
CORPORATION ALABAMA BANCORP CORPORATION ADJUSTMENTS COMBINED
----------- -------- -------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income................ $ 5,399 $ 7,513 $ 2,957 $ 6,721 $ -- $ 22,590
Interest expense............... 2,248 4,028 1,215 2,911 -- 10,402
---------- -------- ------- ------- ---- ----------
Net interest
income............. 3,151 3,485 1,742 3,810 -- 12,188
Provision for loan losses...... 330 584 218 384 -- 1,516
---------- -------- ------- ------- ---- ----------
Net interest income after
provision for loan
losses.................... 2,821 2,901 1,524 3,426 -- 10,672
Noninterest income............. 475 578 415 737 -- 2,205
Noninterest expenses........... 2,111 3,131 1,303 3,367 -- 9,912
---------- -------- ------- ------- ---- ----------
Income before income
taxes.............. 1,185 348 636 796 -- 2,965
Income tax expense............. 387 120 213 170 -- 890
---------- -------- ------- ------- ---- ----------
Net income................ $ 798 $ 228 $ 423 $ 626 $ -- $ 2,075
========== ======== ======= ======= ==== ==========
Basic earnings per share....... $ 0.26 $ 0.35 $ 5.64 $ 23.25 $ 0.29
========== ======== ======= ======= ==========
Average number of shares
outstanding.................. 3,025,800 655,565 75,000 26,910 7,187,524
========== ======== ======= ======= ==========
</TABLE>
203
<PAGE> 225
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------------------------
HISTORICAL
-----------------------------------------------
THE COMMERCE FIRST CITY
BANC BANK OF CITIZENS NATIONAL PRO FORMA PRO FORMA
CORPORATION ALABAMA BANCORP CORPORATION ADJUSTMENTS COMBINED
----------- -------- -------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income................ $ 5,073 $ 4,056 $ 2,437 $ 6,027 $ -- $ 17,593
Interest expense............... 2,247 2,170 1,008 2,460 -- 7,885
---------- -------- ------- ------- ---- ----------
Net interest
income............. 2,826 1,886 1,429 3,567 -- 9,708
Provision for loan losses...... 135 372 43 346 -- 896
---------- -------- ------- ------- ---- ----------
Net interest income after
provision for loan
losses.................... 2,691 1,514 1,386 3,221 -- 8,812
Noninterest income............. 463 380 430 683 -- 1,956
Noninterest expenses........... 1,952 2,268 1,232 3,211 -- 8,663
---------- -------- ------- ------- ---- ----------
Income (loss) before
income taxes....... 1,202 (374) 584 693 -- 2,105
Income tax expense (benefit)... 412 (81) 184 133 -- 648
---------- -------- ------- ------- ---- ----------
Net income (loss).... $ 790 $ (293) $ 400 $ 560 $ -- $ 1,457
========== ======== ======= ======= ==== ==========
Basic earnings (loss) per
share........................ $ 0.29 $ (0.47) $ 5.33 $ 20.68 $ 0.21
========== ======== ======= ======= ==========
Average number of shares
outstanding.................. 2,716,200 618,854 75,000 27,063 6,803,419
========== ======== ======= ======= ==========
</TABLE>
204
<PAGE> 226
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
----------------------------------------------------------------------------
HISTORICAL
-------------------------------------------------
THE COMMERCE FIRST CITY
BANC BANK OF CITIZENS NATIONAL PRO FORMA PRO FORMA
CORPORATION ALABAMA(1) BANCORP CORPORATION ADJUSTMENTS COMBINED
----------- ---------- -------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income...................... $ 4,859 $ 1,478 $ 1,809 $ 5,674 $ -- $ 13,820
Interest expense..................... 2,056 765 786 2,324 -- 5,931
---------- -------- ------- ------- ---- ----------
Net interest income......... 2,803 713 1,023 3,350 -- 7,889
Provision for loan losses............ 120 226 -- 204 -- 550
---------- -------- ------- ------- ---- ----------
Net interest income after provision
for loan losses.................. 2,683 487 1,023 3,146 -- 7,339
Noninterest income................... 553 91 348 629 -- 1,621
Noninterest expenses................. 1,871 1,289 1,116 3,010 -- 7,286
---------- -------- ------- ------- ---- ----------
Income (loss) before income
taxes..................... 1,365 (711) 255 765 -- 1,674
Income tax expense (benefit)......... 467 (241) 61 40 -- 327
---------- -------- ------- ------- ---- ----------
Net income (loss)........... $ 898 $ (470) $ 194 $ 725 $ -- $ 1,347
========== ======== ======= ======= ==== ==========
Basic earnings (loss) per share...... $ 0.33 $ (0.85) $ 2.59 $ 26.73 $ 0.20
========== ======== ======= ======= ==========
Average number of shares
outstanding........................ 2,716,200 550,000 75,000 27,149 6,648,701
========== ======== ======= ======= ==========
</TABLE>
- ---------------
(1) Operations of Commerce since April of 1995, date of inception.
205
<PAGE> 227
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENT OF CONDITION (UNAUDITED)
The following summary includes (i) the condensed consolidated statement of
financial condition of The Banc Corporation (formerly the Warrior Capital
Corporation) as of June 30, 1998, (ii) the condensed statement of financial
condition of Commerce Bank of Alabama ("Commerce") as of June 30, 1998, (iii)
the condensed consolidated statement of financial condition of First Citizens
Bancorp, Inc. ("First Citizens") as of June 30, 1998, (iv) adjustments to give
effect to the proposed pooling of interests method business combinations with
Commerce and First Citizens, (v) the pro forma combined condensed statement of
financial condition of The Banc Corporation and subsidiaries as if such
combinations had occurred on June 30, 1998.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of financial
conditions of The Banc Corporation, Commerce and First Citizens. The pro forma
information provided below may not be indicative of future results.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
---------------------------------------------------------------
HISTORICAL
------------------------------------
THE COMMERCE FIRST
BANC BANK OF CITIZENS PRO FORMA PRO FORMA
CORPORATION(C) ALABAMA BANCORP ADJUSTMENTS COMBINED
-------------- -------- -------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks...................... $ 4,822 $ 4,839 $ 988 $ 145(a) $ 10,794
Federal funds sold........................... 1,900 840 1,230 -- 3,970
Investment securities available for sale..... 201 21,239 1,757 -- 23,197
Investment securities held to maturity....... 24,934 252 -- -- 25,186
Loans, net of unearned....................... 46,601 88,981 32,535 -- 168,117
Less: Allowance for loan losses.............. (717) (894) (357) -- (1,968)
------- -------- ------- ------- --------
Net loans........................... 45,884 88,087 32,178 -- 166,149
------- -------- ------- ------- --------
Premises and equipment, net.................. 10,227 2,841 555 -- 13,623
Intangibles, net............................. 416 -- -- -- 416
Other assets................................. 1,436 1,677 1,408 -- 4,521
------- -------- ------- ------- --------
Total assets........................ $89,820 $119,775 $38,116 $ 145 $247,856
======= ======== ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing........................ $12,618 $ 12,796 $ 4,328 $ -- $ 29,742
Interest-bearing........................... 52,136 97,909 30,075 -- 180,120
------- -------- ------- ------- --------
Total deposits...................... 64,754 110,705 34,403 -- 209,862
Accrued expenses and other liabilities....... 3,181 2,300 468 -- 5,949
------- -------- ------- ------- --------
Total liabilities................... 67,935 113,005 34,871 -- 215,811
Minority interest in equity of subsidiary.... 29 -- -- -- 29
Stockholders' Equity
Common stock............................... 5 7 75 --(a) 8
3(b)
(82)(b)
Surplus.................................... 13,435 7,027 800 145(a) 21,486
7,906(b)
(7,827)(b)
Retained earnings (accumulated deficit).... 8,451 (279) 2,366 10,538
Accumulated other comprehensive income
(loss)................................... (35) 15 4 (16)
------- -------- ------- ------- --------
Total stockholders' equity.......... 21,856 6,770 3,245 145 32,016
------- -------- ------- ------- --------
Total liabilities and stockholders'
equity............................ $89,820 $119,775 $38,116 $ 145 $247,856
======= ======== ======= ======= ========
</TABLE>
206
<PAGE> 228
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF
FINANCIAL CONDITION
(a) To record the exercise of 5,000 stock options by officer of First Citizens
prior to merger.
(b) To record the exchange of 2,199,858 shares of The Banc Corporation common
stock for all of the outstanding shares of the following accounted for as a
pooling of interests.
<TABLE>
<CAPTION>
FIRST COMMERCE
CITIZENS BANK OF
BANCORP ALABAMA TOTAL
--------- ---------- ----------
<S> <C> <C> <C>
Outstanding shares of acquired corporation......... 80,000 658,190
Conversion ratio................................... 8.290537 2.334607
--------- ----------
The Banc Corporation shares to be issued........... 663,243 1,536,615 2,199,858
Par value of shares to be issued at $.001 per
share............................................ $ 1 $ 2 $ 3
Total common stock and surplus of acquired
corporation...................................... 875 7,034 7,909
--------- ---------- ----------
Excess recorded as an increase in contributed
capital....................................... 874 7,032 7,906
--------- ---------- ----------
To eliminate acquired corporations capital stock
Common stock at par value........................ (75) (7) (82)
Surplus.......................................... (800) (7,027) (7,827)
--------- ---------- ----------
(875) (7,034) (7,909)
--------- ---------- ----------
Net change in equity..................... $ -- $ -- $ --
========= ========== ==========
</TABLE>
(c) The Banc Corporation was formed by the reincorporation of Warrior Capital
Corporation. The 18,160 shares of Warrior Capital Corporation common stock
were converted into 5,448,000 shares of The Banc Corporation $.001 par value
common stock.
207
<PAGE> 229
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENTS OF INCOME (UNAUDITED)
The following summaries include (i) the condensed consolidated statements
of income of The Banc Corporation (formerly Warrior Capital Corporation) on a
historical basis for the six months ended June 30, 1998 and 1997, and the years
ended December 31, 1997, 1996, and 1995, (ii) the condensed statements of income
of Commerce for the six months ended June 30, 1998 and 1997 and the periods
ended December 31, 1997, 1996 and 1995, (iii) the condensed consolidated
statements of income of First Citizens for the six months ended June 30, 1998
and 1997 and the years ended December 31, 1997, 1996 and 1995, (iv) adjustments
to give effect to the proposed pooling of interests method business combinations
with Commerce and First Citizens, (v) the pro forma combined condensed
consolidated statements of income of The Banc Corporation as if such
combinations had occurred on January 1, 1995.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of income of The
Banc Corporation, Commerce and First Citizens. The pro forma information may not
necessarily be indicative of future results. Pro forma earnings per share is
based on the weighted average number of shares outstanding for the period
adjusted for the applicable exchange ratio.
<TABLE>
<CAPTION>
FOR THE PERIOD JUNE 30, 1998
------------------------------------------------------------
HISTORICAL
---------------------------------
THE COMMERCE FIRST
BANC BANK OF CITIZENS PRO FORMA PRO FORMA
CORPORATION ALABAMA BANCORP ADJUSTMENTS COMBINED
----------- -------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income.......................... $ 3,070 $ 4,506 $ 1,683 $ -- $ 9,259
Interest expense......................... 1,134 2,659 688 -- 4,481
---------- -------- ------- ---- ----------
Net interest income............ 1,936 1,847 995 -- 4,778
Provision for loan losses................ 38 292 117 -- 447
---------- -------- ------- ---- ----------
Net interest income after provision for
loan losses......................... 1,898 1,555 878 -- 4,331
Noninterest income....................... 312 582 225 -- 1,119
Gain (loss) on sale of securities........ (4) 1 -- -- (3)
Noninterest expenses..................... 1,497 1,788 731 -- 4,016
---------- -------- ------- ---- ----------
Income before income taxes..... 709 350 372 -- 1,431
Income tax expense (benefit)............. (68) 94 136 -- 162
---------- -------- ------- ---- ----------
Net income..................... $ 777 $ 256 $ 236 $ -- $ 1,269
========== ======== ======= ==== ==========
Basic earnings per share................. $ 0.15 $ 0.39 $ 3.15 $ 0.17
========== ======== ======= ==========
Average number of shares
outstanding -- basic................... 5,230,500 656,968 75,000 7,389,694
========== ======== ======= ==========
</TABLE>
208
<PAGE> 230
<TABLE>
<CAPTION>
FOR THE PERIOD JUNE 30, 1997
------------------------------------------------------------
HISTORICAL
---------------------------------
THE COMMERCE FIRST
BANC BANK OF CITIZENS PRO FORMA PRO FORMA
CORPORATION ALABAMA BANCORP ADJUSTMENTS COMBINED
----------- -------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income.......................... $ 2,590 $ 3,329 $ 1,391 $ -- $ 7,310
Interest expense......................... 1,109 1,808 574 -- 3,491
---------- -------- ------- ---- ----------
Net interest income................. 1,481 1,521 817 -- 3,819
Provision for loan losses................ 90 232 30 -- 352
---------- -------- ------- ---- ----------
Net interest income after provision for
loan losses......................... 1,391 1,289 787 -- 3,467
Noninterest income....................... 251 310 201 -- 762
Loss on sale of securities............... (3) -- -- -- (3)
Noninterest expenses..................... 1,011 1,420 627 -- 3,058
---------- -------- ------- ---- ----------
Income before income taxes.......... 628 179 361 -- 1,168
Income tax expense....................... 233 35 131 -- 399
---------- -------- ------- ---- ----------
Net income.......................... $ 395 $ 144 $ 230 $ -- $ 769
========== ======== ======= ==== ==========
Basic earnings per share................. $ 0.15 $ 0.22 $ 3.07 $ 0.16
========== ======== ======= ==========
Average number of shares
outstanding -- basic................... 2,716,200 655,460 75,000 4,871,865
========== ======== ======= ==========
</TABLE>
209
<PAGE> 231
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
------------------------------------------------------------
HISTORICAL
---------------------------------
THE COMMERCE FIRST
BANC BANK OF CITIZENS PRO FORMA PRO FORMA
CORPORATION ALABAMA BANCORP ADJUSTMENTS COMBINED
----------- -------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income.......................... $ 5,399 $ 7,513 $ 2,957 $ -- $ 15,869
Interest expense......................... 2,248 4,028 1,215 -- 7,491
---------- -------- ------- ---- ----------
Net interest income............ 3,151 3,485 1,742 -- 8,378
Provision for loan losses................ 330 584 218 -- 1,132
---------- -------- ------- ---- ----------
Net interest income after provision for
loan losses......................... 2,821 2,901 1,524 -- 7,246
Noninterest income....................... 475 578 415 -- 1,468
Noninterest expenses..................... 2,111 3,131 1,303 -- 6,545
---------- -------- ------- ---- ----------
Income before income taxes..... 1,185 348 636 -- 2,169
Income tax expense....................... 387 120 213 -- 720
---------- -------- ------- ---- ----------
Net income..................... $ 798 $ 228 $ 423 $ -- $ 1,449
========== ======== ======= ==== ==========
Basic earnings per share................. $ 0.26 $ 0.35 $ 5.64 $ 0.28
========== ======== ======= ==========
Average number of shares outstanding..... 3,025,800 655,565 75,000 5,181,710
========== ======== ======= ==========
</TABLE>
210
<PAGE> 232
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------------
HISTORICAL
---------------------------------
THE COMMERCE FIRST
BANC BANK OF CITIZENS PRO FORMA PRO FORMA
CORPORATION ALABAMA BANCORP ADJUSTMENTS COMBINED
----------- -------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income........................... $ 5,073 $ 4,056 $ 2,437 $ -- $ 11,566
Interest expense.......................... 2,247 2,170 1,008 -- 5,425
---------- -------- ------- ---- ----------
Net interest income............. 2,826 1,886 1,429 -- 6,141
Provision for loan losses................. 135 372 43 -- 550
---------- -------- ------- ---- ----------
Net interest income after provision for
loan losses.......................... 2,691 1,514 1,386 -- 5,591
Noninterest income........................ 463 380 430 -- 1,273
Noninterest expenses...................... 1,952 2,268 1,232 -- 5,452
---------- -------- ------- ---- ----------
Income (loss) before income
taxes......................... 1,202 (374) 584 -- 1,412
Income tax expense (benefit).............. 412 (81) 184 -- 515
---------- -------- ------- ---- ----------
Net income (loss)............... $ 790 $ (293) $ 400 $ -- $ 897
========== ======== ======= ==== ==========
Basic earnings (loss) per share........... $ 0.29 $ (0.47) $ 5.33 $ 0.19
========== ======== ======= ==========
Average number of shares outstanding...... 2,716,200 618,854 75,000 4,786,201
========== ======== ======= ==========
</TABLE>
211
<PAGE> 233
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------------------
HISTORICAL
-----------------------------------
THE COMMERCE FIRST
BANC BANK OF CITIZENS PRO FORMA PRO FORMA
CORPORATION ALABAMA(1) BANCORP ADJUSTMENTS COMBINED
----------- ---------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income........................ $ 4,859 $ 1,478 $ 1,809 $ -- $ 8,146
Interest expense....................... 2,056 765 786 -- 3,607
---------- -------- -------- ---- ----------
Net interest income.......... 2,803 713 1,023 -- 4,539
Provision for loan losses.............. 120 226 -- -- 346
---------- -------- -------- ---- ----------
Net interest income after provision
for loan losses................... 2,683 487 1,023 -- 4,193
Noninterest income..................... 553 91 348 -- 992
Noninterest expenses................... 1,871 1,289 1,116 -- 4,276
---------- -------- -------- ---- ----------
Income (loss) before income
taxes...................... 1,365 (711) 255 -- 909
Income tax expense (benefit)........... 467 (241) 61 -- 287
---------- -------- -------- ---- ----------
Net income (loss)............ $ 898 $ (470) $ 194 $ -- $ 622
========== ======== ======== ==== ==========
Basic earnings (loss) per share........ $ 0.33 $ (0.85) $ 2.59 $ 0.13
========== ======== ======== ==========
Average number of shares outstanding... 2,716,200 550,000 75,000 4,625,073
========== ======== ======== ==========
</TABLE>
- ---------------
(1) Operations of Commerce since April of 1995, date of inception.
212
<PAGE> 234
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENT OF CONDITION (UNAUDITED)
The following summary includes (i) the condensed consolidated statement of
financial condition of The Banc Corporation (formerly the Warrior Capital
Corporation) as of June 30, 1998, (ii) the condensed statement of financial
condition of Commerce Bank of Alabama ("Commerce") as of June 30, 1998, (iii)
adjustments to give effect to the proposed pooling of interests method business
combinations with Commerce, (iv) the pro forma combined condensed statement of
financial condition of The Banc Corporation and subsidiaries as if such
combinations had occurred on June 30, 1998.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of financial
conditions of The Banc Corporation and Commerce. The pro forma information
provided below may not be indicative of future results.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
------------------------------------------------------
HISTORICAL
--------------------------
THE COMMERCE
BANC BANK OF PRO FORMA PRO FORMA
CORPORATION(B) ALABAMA ADJUSTMENTS COMBINED
-------------- --------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks................................... $ 4,822 $ 4,839 $ -- $ 9,661
Federal funds sold........................................ 1,900 840 -- 2,740
Investment securities available for sale.................. 201 21,239 -- 21,440
Investment securities held to maturity.................... 24,934 252 -- 25,186
Loans, net of unearned.................................... 46,601 88,981 -- 135,582
Less: Allowance for loan losses........................... (717) (894) -- (1,611)
------- -------- ------- --------
Net loans........................................ 45,884 88,087 -- 133,971
------- -------- ------- --------
Premises and equipment, net............................... 10,227 2,841 -- 13,068
Intangibles, net.......................................... 416 -- -- 416
Other assets.............................................. 1,436 1,677 -- 3,113
------- -------- ------- --------
Total assets..................................... $89,820 $119,775 $ -- $209,595
======= ======== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing..................................... $12,618 $ 12,796 $ -- $ 25,414
Interest-bearing........................................ 52,136 97,909 -- 150,045
------- -------- ------- --------
Total deposits................................... 64,754 110,705 -- 175,459
Accrued expenses and other liabilities.................... 3,181 2,300 -- 5,481
------- -------- ------- --------
Total liabilities................................ 67,935 113,005 -- 180,940
Minority interest in equity of subsidiary................. 29 -- -- 29
Stockholders' Equity
Common stock............................................ 5 7 2(a) 7
(7)(a)
Surplus................................................. 13,435 7,027 7,032(a) 20,467
(7,027)(a)
Retained earnings (accumulated deficit)................. 8,451 (279) 8,172
Accumulated other comprehensive income (loss)........... (35) 15 (20)
------- -------- ------- --------
Total stockholders' equity....................... 21,856 6,770 -- 28,626
------- -------- ------- --------
Total liabilities and stockholders' equity....... $89,820 $119,775 $ -- $209,595
======= ======== ======= ========
</TABLE>
213
<PAGE> 235
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL CONDITION
(a) To record the exchange of 1,536,615 shares of The Banc Corporation common
stock for all of the outstanding shares of Commerce accounted for as a
pooling of interests.
<TABLE>
<CAPTION>
COMMERCE
BANK OF
ALABAMA
----------
<S> <C>
Outstanding shares of acquired corporation.................. 658,190
Conversion ratio............................................ 2.334607
----------
The Banc Corporation shares to be issued.................... 1,536,615
Par value of shares to be issued at $.001 per share......... $ 2
Total common stock and surplus of acquired corporation...... 7,034
----------
Excess recorded as an increase in contributed capital..... 7,032
----------
To eliminate acquired corporations capital stock
Common stock at par value................................. (7)
Surplus................................................... (7,027)
----------
(7,034)
----------
Net change in equity.............................. $ --
==========
</TABLE>
(b) The Banc Corporation was formed by the reincorporation of Warrior Capital
Corporation. The 18,160 shares of Warrior Capital Corporation common stock
were converted into 5,448,000 shares of The Banc Corporation $.001 par value
common stock.
214
<PAGE> 236
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENTS OF INCOME (UNAUDITED)
The following summaries include (i) the condensed consolidated statements
of income of The Banc Corporation (formerly Warrior Capital Corporation) on a
historical basis for the six months ended June 30, 1998 and 1997, and the years
ended December 31, 1997, 1996, and 1995, (ii) the condensed statements of income
of Commerce for the six months ended June 30, 1998 and 1997 and the periods
ended December 31, 1997, 1996 and 1995,(iii) adjustments to give effect to the
proposed pooling of interests method business combinations with Commerce, (iv)
the pro forma combined condensed consolidated statements of income of The Banc
Corporation as if such combinations had occurred on January 1, 1995.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of income of The
Banc Corporation and Commerce. The pro forma information may not necessarily be
indicative of future results. Pro forma earnings per share is based on the
weighted average number of shares outstanding for the period adjusted for the
applicable exchange ratio.
<TABLE>
<CAPTION>
FOR THE PERIOD JUNE 30, 1998
-------------------------------------------------
HISTORICAL
----------------------
THE COMMERCE
BANC BANK OF PRO FORMA PRO FORMA
CORPORATION ALABAMA ADJUSTMENTS COMBINED
----------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income................................... $ 3,070 $ 4,506 $ -- $ 7,576
Interest expense.................................. 1,134 2,659 -- 3,793
---------- -------- ---- ----------
Net interest income..................... 1,936 1,847 -- 3,783
Provision for loan losses......................... 38 292 -- 330
---------- -------- ---- ----------
Net interest income after provision for loan
losses....................................... 1,898 1,555 -- 3,453
Noninterest income................................ 312 582 -- 894
Gain (loss) sale of securities.................... (4) 1 -- (3)
Noninterest expenses.............................. 1,497 1,788 -- 3,285
---------- -------- ---- ----------
Income before income taxes.............. 709 350 -- 1,059
Income tax expense (benefit)...................... (68) 94 -- 26
---------- -------- ---- ----------
Net income.............................. $ 777 $ 256 $ -- $ 1,033
========== ======== ==== ==========
Basic earnings per share.......................... $ 0.15 $ 0.39 $ 0.15
========== ======== ==========
Average number of shares outstanding -- basic..... 5,230,500 656,968 6,767,904
========== ======== ==========
</TABLE>
215
<PAGE> 237
<TABLE>
<CAPTION>
FOR THE PERIOD JUNE 30, 1997
-------------------------------------------------
HISTORICAL
----------------------
THE COMMERCE
BANC BANK OF PRO FORMA PRO FORMA
CORPORATION ALABAMA ADJUSTMENTS COMBINED
----------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income................................... $ 2,590 $ 3,329 $ -- $ 5,919
Interest expense.................................. 1,109 1,808 -- 2,917
---------- -------- ---- ----------
Net interest income.......................... 1,481 1,521 -- 3,002
Provision for loan losses......................... 90 232 -- 322
---------- -------- ---- ----------
Net interest income after provision for loan
losses....................................... 1,391 1,289 -- 2,680
Noninterest income................................ 251 310 -- 561
Loss on sale of securities........................ (3) -- -- (3)
Noninterest expenses.............................. 1,011 1,420 -- 2,431
---------- -------- ---- ----------
Income before income taxes................... 628 179 -- 807
Income tax expense................................ 233 35 -- 268
---------- -------- ---- ----------
Net income................................... $ 395 $ 144 $ -- $ 539
========== ======== ==== ==========
Basic earnings per share.......................... $ 0.15 $ 0.22 $ 0.13
========== ======== ==========
Average number of shares outstanding -- basic..... 2,716,200 655,460 4,250,075
========== ======== ==========
</TABLE>
216
<PAGE> 238
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------
HISTORICAL
----------------------
THE COMMERCE
BANC BANK OF PRO FORMA PRO FORMA
CORPORATION ALABAMA ADJUSTMENTS COMBINED
----------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income................................... $ 5,399 $ 7,513 $ -- $ 12,912
Interest expense.................................. 2,248 4,028 -- 6,276
---------- -------- ---- ----------
Net interest income..................... 3,151 3,485 -- 6,636
Provision for loan losses......................... 330 584 -- 914
---------- -------- ---- ----------
Net interest income after provision for loan
losses....................................... 2,821 2,901 -- 5,722
Noninterest income................................ 475 578 -- 1,053
Noninterest expenses.............................. 2,111 3,131 -- 5,242
---------- -------- ---- ----------
Income before income taxes.............. 1,185 348 -- 1,533
Income tax expense................................ 387 120 -- 507
---------- -------- ---- ----------
Net income.............................. $ 798 $ 228 $ -- $ 1,026
========== ======== ==== ==========
Basic earnings per share.......................... $ 0.26 $ 0.35 $ 0.23
========== ======== ==========
Average number of shares outstanding.............. 3,025,800 655,565 4,559,920
========== ======== ==========
</TABLE>
217
<PAGE> 239
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------
HISTORICAL
----------------------
THE COMMERCE
BANC BANK OF PRO FORMA PRO FORMA
CORPORATION ALABAMA ADJUSTMENTS COMBINED
----------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income................................... $ 5,073 $ 4,056 $ -- $ 9,129
Interest expense.................................. 2,247 2,170 -- 4,417
---------- -------- ---- ----------
Net interest income..................... 2,826 1,886 -- 4,712
Provision for loan losses......................... 135 372 -- 507
---------- -------- ---- ----------
Net interest income after provision for loan
losses....................................... 2,691 1,514 -- 4,205
Noninterest income................................ 463 380 -- 843
Noninterest expenses.............................. 1,952 2,268 -- 4,220
---------- -------- ---- ----------
Income (loss) before income taxes....... 1,202 (374) -- 828
Income tax expense (benefit)...................... 412 (81) -- 331
---------- -------- ---- ----------
Net income (loss)....................... $ 790 $ (293) $ -- $ 497
========== ======== ==== ==========
Basic earnings (loss) per share................... $ 0.29 $ (0.47) $ 0.12
========== ======== ==========
Average number of shares outstanding.............. 2,716,200 618,854 4,164,411
========== ======== ==========
</TABLE>
218
<PAGE> 240
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------
HISTORICAL
------------------------
THE COMMERCE
BANC BANK OF PRO FORMA PRO FORMA
CORPORATION ALABAMA(1) ADJUSTMENTS COMBINED
----------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income.................................. $ 4,859 $ 1,478 $ -- $ 6,337
Interest expense................................. 2,056 765 -- 2,821
---------- -------- ---- ----------
Net interest income.................... 2,803 713 -- 3,516
Provision for loan losses........................ 120 226 -- 346
---------- -------- ---- ----------
Net interest income after provision for loan
losses...................................... 2,683 487 -- 3,170
Noninterest income............................... 553 91 -- 644
Noninterest expenses............................. 1,871 1,289 -- 3,160
---------- -------- ---- ----------
Income before income taxes............. 1,365 (711) -- 654
Income tax expense (benefit)..................... 467 (241) -- 226
---------- -------- ---- ----------
Net income (loss)...................... $ 898 $ (470) $ -- $ 428
========== ======== ==== ==========
Basic earnings (loss) per share.................. $ 0.33 $ (0.85) $ 0.11
========== ======== ==========
Average number of shares outstanding............. 2,716,200 550,000 4,003,283
========== ======== ==========
</TABLE>
- ---------------
(1) Operations of Commerce since April of 1995, date of inception.
219
<PAGE> 241
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENT OF CONDITION (UNAUDITED)
The following summary includes (i) the condensed consolidated statement of
financial condition of The Banc Corporation (formerly the Warrior Capital
Corporation) as of June 30, 1998, (ii) the condensed statement of financial
condition of Commerce Bank of Alabama ("Commerce") as of June 30, 1998, (iii)
the condensed consolidated statement of financial condition of First Citizens
Bancorp, Inc. ("First Citizens") as of June 30, 1998, (iv) the condensed
consolidated statement of financial condition of Commercial Bancshares of
Roanoke, Inc. ("CBS") as of June 30, 1998, (v) adjustments to give effect to the
proposed purchase method combination with CBS and the proposed pooling of
interests method business combinations with Commerce and First Citizens, (vi)
the pro forma combined condensed statement of financial condition of The Banc
Corporation and subsidiaries as if such combinations had occurred on June 30,
1998.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of financial
conditions of The Banc Corporation, Commerce, First Citizens, and CBS. The pro
forma information provided below may not be indicative of future results.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
--------------------------------------------------------------------------------
HISTORICAL
---------------------------------------------------
THE COMMERCE FIRST COMMERCIAL
BANC BANK OF CITIZENS BANCSHARES PRO FORMA PRO FORMA
CORPORATION(D) ALABAMA BANCORP OF ROANOKE ADJUSTMENTS COMBINED
-------------- -------- --------- ----------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks................ $ 4,822 $ 4,839 $ 988 $ 1,579 $ 145(a) $ 12,373
Interest bearing deposits in other
banks................................ -- -- -- 200 -- 200
Federal funds sold..................... 1,900 840 1,230 5,250 -- 9,220
Investment securities available for
sale................................. 201 21,239 1,757 2,820 -- 26,017
Investment securities held to
maturity............................. 24,934 252 -- 17,185 -- 42,371
Loans, net of unearned................. 46,601 88,981 32,535 14,595 -- 182,712
Less: Allowance for loan losses........ (717) (894) (357) (288) -- (2,256)
------- -------- ------- ------- ------- --------
Net loans...................... 45,884 88,087 32,178 14,307 -- 180,456
------- -------- ------- ------- ------- --------
Premises and equipment, net............ 10,227 2,841 555 285 892(c) 14,800
Intangibles, net....................... 416 -- -- -- -- 416
Other assets........................... 1,436 1,677 1,408 761 -- 5,282
------- -------- ------- ------- ------- --------
Total assets................... $89,820 $119,775 $38,116 $42,387 $ 1,037 $291,135
======= ======== ======= ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing.................. $12,618 $ 12,796 $ 4,328 $ 6,635 $ -- $ 36,377
Interest-bearing..................... 52,136 97,909 30,075 29,069 -- 209,189
------- -------- ------- ------- ------- --------
Total deposits................. 64,754 110,705 34,403 35,704 -- 245,566
Federal funds purchased and other
borrowed funds....................... -- -- -- 32 7,300(c) 7,332
Accrued expenses and other
liabilities.......................... 3,181 2,300 468 243 -- 6,192
------- -------- ------- ------- ------- --------
Total liabilities.............. 67,935 113,005 34,871 35,979 7,300 259,090
Minority interest in equity of
subsidiary........................... 29 -- -- -- -- 29
Stockholders' Equity
Common stock......................... 5 7 75 20 --(a) 8
3(b)
(82)(b)
(20)(c)
Surplus.............................. 13,435 7,027 800 3,526 145(a) 21,486
7,906(b)
(7,827)(b)
(3,526)(c)
Retained earnings (accumulated
deficit)........................... 8,451 (279) 2,366 2,846 (2,846)(c) 10,538
Accumulated other comprehensive
income (loss)...................... (35) 15 4 16 (16)(c) (16)
------- -------- ------- ------- ------- --------
Total stockholders' equity..... 21,856 6,770 3,245 6,408 (6,263) 32,016
------- -------- ------- ------- ------- --------
Total liabilities and
stockholders' equity......... $89,820 $119,775 $38,116 $42,387 $ 1,037 $291,135
======= ======== ======= ======= ======= ========
</TABLE>
220
<PAGE> 242
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF
FINANCIAL CONDITION
(a) To record the exercise of 5,000 stock options by officer of First Citizens
prior to merger.
(b) To record the exchange of 2,199,858 shares of The Banc Corporation common
stock for all of the outstanding shares of the following accounted for as a
pooling of interests.
<TABLE>
<CAPTION>
FIRST COMMERCE
CITIZENS BANK OF
BANCORP ALABAMA TOTAL
--------- ---------- ----------
<S> <C> <C> <C>
Outstanding shares of acquired corporation......... 80,000 658,190
Conversion ratio................................... 8.290537 2.334607
--------- ---------- ----------
The Banc Corporation shares to be issued........... 663,243 1,536,615 2,199,858
Par value of shares to be issued at $.001 per
share............................................ $ 1 $ 2 $ 3
Total common stock and surplus of acquired
corporation...................................... 875 7,034 7,909
--------- ---------- ----------
Excess recorded as an increase in contributed
capital....................................... 874 7,032 7,906
--------- ---------- ----------
To eliminate acquired corporations capital stock
Common stock at par value........................ (75) (7) (82)
Surplus.......................................... (800) (7,027) (7,827)
--------- ---------- ----------
(875) (7,034) (7,909)
--------- ---------- ----------
Net change in equity..................... $ -- $ -- $ --
========= ========== ==========
</TABLE>
(c) Purchase of 100% of the outstanding common stock of Commercial Bancshares of
Roanoke, Inc. for approximately $7.3 million. Stock will be purchased with
proceeds borrowed from a commercial bank. The excess of cost over book value
will be allocated to the carrying value of the main office building which
currently has a zero book basis.
(d) The Banc Corporation was formed by the reincorporation of Warrior Capital
Corporation. The 18,160 shares of Warrior Capital Corporation common stock
were converted into 5,448,000 shares of The Banc Corporation $.001 par value
common stock.
221
<PAGE> 243
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENTS OF INCOME (UNAUDITED)
The following summaries include (i) the condensed consolidated statements
of income of The Banc Corporation (formerly the Warrior Capital Corporation) on
a historical basis for the six months ended June 30, 1998 and 1997, and the
years ended December 31, 1997, 1996, and 1995, (ii) the condensed statements of
income of Commerce for the six months ended June 30, 1998 and 1997 and the
periods ended December 31, 1997, 1996 and 1995, (iii) the condensed consolidated
statements of income of First Citizens for the six months ended June 30, 1998
and 1997 and the years ended December 31, 1997, 1996 and 1995, (iv) the
condensed consolidated statements of income of CBS for the six months ended June
30, 1998 and the year ended December 31, 1997, (v) adjustments to give effect to
the proposed purchase method combination with CBS and the proposed pooling of
interests method business combinations with Commerce and First Citizens, (vi)
the pro forma combined condensed consolidated statements of income of The Banc
Corporation as if such combinations had occurred on January 1, 1995. Note that
for purchase method combinations, Article 11 of Regulation S-X requires pro
forma statements of income to be presented for only the most recent fiscal year
and interim period. Accordingly, only the condensed consolidated statements of
income for the six months ended June 30, 1998 and the year ended December 31,
1997 are included in (iv) above for CBS.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of income of The
Banc Corporation,Commerce, First Citizens and CBS. The pro forma information may
not necessarily be indicative of future results. Pro forma earnings per share is
based on the weighted average number of shares outstanding for the period
adjusted for the applicable exchange ratio.
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1998
--------------------------------------------------------------------------
HISTORICAL
----------------------------------------------
THE COMMERCE FIRST COMMERCIAL
BANC BANK OF CITIZENS BANCSHARES PRO FORMA PRO FORMA
CORPORATION ALABAMA BANCORP OF ROANOKE ADJUSTMENTS COMBINED
----------- -------- -------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income.............. $ 3,070 $ 4,506 $ 1,683 $ 1,494 $ -- $ 10,753
Interest expense............. 1,134 2,659 688 669 256(a) 5,406
---------- -------- ------- -------- ----- ----------
Net interest
income........... 1,936 1,847 995 825 (256) 5,347
Provision for loan losses.... 38 292 117 69 -- 516
---------- -------- ------- -------- ----- ----------
Net interest income after
provision for loan
losses.................. 1,898 1,555 878 756 (256) 4,831
Noninterest income........... 312 582 225 491 -- 1,610
Gain (loss) on sale of
securities................. (4) 1 -- -- -- (3)
Noninterest expenses......... 1,497 1,788 731 889 15(a) 4,920
---------- -------- ------- -------- ----- ----------
Income (loss)
before income
taxes............ 709 350 372 358 (271) 1,518
Income tax expense
(benefit).................. (68) 94 136 88 (100)(a) 150
---------- -------- ------- -------- ----- ----------
Net income
(loss)........... $ 777 $ 256 $ 236 $ 270 $(171) $ 1,368
========== ======== ======= ======== ===== ==========
Basic earnings per share..... $ 0.15 $ 0.39 $ 3.15 $ 1.35 $ 0.19
========== ======== ======= ======== ==========
Average number of shares
outstanding -- basic....... 5,230,500 656,968 75,000 200,000 7,389,694
========== ======== ======= ======== ==========
</TABLE>
222
<PAGE> 244
- ---------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
(a) To reflect interest expense (7%) on $7.3 million in
debt incurred to purchase stock of Commercial
Bancshares of Roanoke.............................. $ 256
Depreciation on allocation of purchase price to
premises and equipment (30 year period)............ 15
-------
Decrease in income before tax benefit.................. $ 271
=======
Income tax benefit at 37%.............................. $ 100
=======
</TABLE>
223
<PAGE> 245
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1997
--------------------------------------------------------------
HISTORICAL
----------------------------------
THE COMMERCE FIRST
BANC BANK OF CITIZENS PRO FORMA PRO FORMA
CORPORATION ALABAMA BANCORP ADJUSTMENTS COMBINED
----------- -------- --------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income.......................... $ 2,590 $ 3,329 $ 1,391 $ -- $ 7,310
Interest expense......................... 1,109 1,808 574 -- 3,491
---------- -------- ------- ---- ----------
Net interest income............ 1,481 1,521 817 -- 3,819
Provision for loan losses................ 90 232 30 -- 352
---------- -------- ------- ---- ----------
Net interest income after provision for
loan losses......................... 1,391 1,289 787 -- 3,467
Noninterest income....................... 251 310 201 -- 762
Loss on sale of securities............... (3) -- -- -- (3)
Noninterest expenses..................... 1,011 1,420 627 -- 3,058
---------- -------- ------- ---- ----------
Income before income taxes..... 628 179 361 -- 1,168
Income tax expense....................... 233 35 131 -- 399
---------- -------- ------- ---- ----------
Net income..................... $ 395 $ 144 $ 230 $ -- $ 769
========== ======== ======= ==== ==========
Basic earnings per share................. $ 0.15 $ 0.22 $ 3.07 $ 0.16
========== ======== ======= ==========
Average number of shares
outstanding -- basic................... 2,716,200 655,460 75,000 4,871,865
========== ======== ======= ==========
</TABLE>
224
<PAGE> 246
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------------------------
HISTORICAL
----------------------------------------------
THE COMMERCE FIRST COMMERCIAL
BANC BANK OF CITIZENS BANCSHARES PRO FORMA PRO FORMA
CORPORATION ALABAMA BANCORP OF ROANOKE ADJUSTMENTS COMBINED
----------- -------- -------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income................ $ 5,399 $ 7,513 $ 2,957 $ 3,114 $ -- $ 18,983
Interest expense............... 2,248 4,028 1,215 1,307 511(a) 9,309
---------- -------- ------- -------- ----- ----------
Net interest
income............. 3,151 3,485 1,742 1,807 (511) 9,674
Provision for loan losses...... 330 584 218 401 -- 1,533
---------- -------- ------- -------- ----- ----------
Net interest income after
provision for loan
losses.................... 2,821 2,901 1,524 1,406 (511) 8,141
Noninterest income............. 475 578 415 980 -- 2,448
Noninterest expenses........... 2,111 3,131 1,303 2,010 30(a) 8,585
---------- -------- ------- -------- ----- ----------
Income before income
taxes.............. 1,185 348 636 376 (541) 2,004
Income tax expense (benefit)... 387 120 213 68 (200)(a) 588
---------- -------- ------- -------- ----- ----------
Net income (loss).... $ 798 $ 228 $ 423 $ 308 $(341) $ 1,416
========== ======== ======= ======== ===== ==========
Basic earnings per share....... $ 0.26 $ 0.35 $ 5.64 $ 1.54 $ 0.27
========== ======== ======= ======== ==========
Average number of shares
outstanding.................. 3,025,800 655,565 75,000 200,000 5,181,710
========== ======== ======= ======== ==========
</TABLE>
- ---------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
(a) To reflect interest expense (7%) on $7.3 million in
debt incurred to purchase stock of Commercial
Bancshares of Roanoke.............................. $ 511
Depreciation on allocation of purchase price to
premises and equipment (30 year period)............ 30
-------
Decrease in income before tax benefit.............. $ 541
=======
Income tax benefit at 37%.......................... $ 200
=======
</TABLE>
225
<PAGE> 247
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------------
HISTORICAL
---------------------------------
THE COMMERCE FIRST
BANC BANK OF CITIZENS PRO FORMA PRO FORMA
CORPORATION ALABAMA BANCORP ADJUSTMENTS COMBINED
----------- -------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income.......................... $ 5,073 $ 4,056 $ 2,437 $ -- $ 11,566
Interest expense......................... 2,247 2,170 1,008 -- 5,425
---------- -------- ------- ----- ----------
Net interest income............ 2,826 1,886 1,429 -- 6,141
Provision for loan losses................ 135 372 43 -- 550
---------- -------- ------- ----- ----------
Net interest income after provision for
loan losses......................... 2,691 1,514 1,386 -- 5,591
Noninterest income....................... 463 380 430 -- 1,273
Noninterest expenses..................... 1,952 2,268 1,232 -- 5,452
---------- -------- ------- ----- ----------
Income (loss) before income
taxes........................ 1,202 (374) 584 -- 1,412
Income tax expense (benefit)............. 412 (81) 184 -- 515
---------- -------- ------- ----- ----------
Net income (loss).............. $ 790 $ (293) $ 400 $ -- $ 897
========== ======== ======= ===== ==========
Basic earnings (loss) per share.......... $ 0.29 $ (0.47) $ 5.33 $ 0.19
========== ======== ======= ==========
Average number of shares outstanding..... 2,716,200 618,854 75,000 4,786,201
========== ======== ======= ==========
</TABLE>
226
<PAGE> 248
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------------------
HISTORICAL
-----------------------------------
THE COMMERCE FIRST
BANC BANK OF CITIZENS PRO FORMA PRO FORMA
CORPORATION ALABAMA(1) BANCORP ADJUSTMENTS COMBINED
----------- ---------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income.......................... $ 4,859 $ 1,478 $ 1,809 $ -- $ 8,146
Interest expense......................... 2,056 765 786 -- 3,607
---------- -------- ------- ----- ----------
Net interest income............ 2,803 713 1,023 -- 4,539
Provision for loan losses................ 120 226 -- -- 346
---------- -------- ------- ----- ----------
Net interest income after provision for
loan losses......................... 2,683 487 1,023 -- 4,193
Noninterest income....................... 553 91 348 -- 992
Noninterest expenses..................... 1,871 1,289 1,116 -- 4,276
---------- -------- ------- ----- ----------
Income (loss) before income
taxes........................ 1,365 (711) 255 -- 909
Income tax expense (benefit)............. 467 (241) 61 -- 287
---------- -------- ------- ----- ----------
Net income (loss).............. $ 898 $ (470) $ 194 $ -- $ 622
========== ======== ======= ===== ==========
Basic earnings (loss) per share.......... $ 0.33 $ (0.85) $ 2.59 $ 0.13
========== ======== ======= ==========
Average number of shares outstanding..... 2,716,200 550,000 75,000 4,625,073
========== ======== ======= ==========
</TABLE>
- ------------------------
(1) Operations of Commerce since April of 1995, date of inception.
227
<PAGE> 249
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENT OF CONDITION (UNAUDITED)
The following summary includes (i) the condensed consolidated statement of
financial condition of The Banc Corporation (formerly the Warrior Capital
Corporation) as of June 30, 1998, (ii) the condensed statement of financial
condition of Commerce Bank of Alabama ("Commerce") as of June 30, 1998, (iii)
the condensed consolidated statement of financial condition of Commercial
Bancshares of Roanoke, Inc. ("CBS") as of June 30, 1998, (iv) adjustments to
give effect to the proposed purchase method combination with CBS and the
proposed pooling of interests method business combinations with Commerce, (v)
the pro forma combined condensed statement of financial condition of The Banc
Corporation and subsidiaries as if such combinations had occurred on June 30,
1998.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of financial
conditions of The Banc Corporation, Commerce and CBS. The pro forma information
provided below may not be indicative of future results.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
-----------------------------------------------------------------
HISTORICAL
--------------------------------------
THE COMMERCE COMMERCIAL
BANC BANK OF BANCSHARES PRO FORMA PRO FORMA
CORPORATION(C) ALABAMA OF ROANOKE ADJUSTMENTS COMBINED
-------------- -------- ---------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks.................... $ 4,822 $ 4,839 $ 1,579 $ -- $ 11,240
Interest bearing deposits in other banks... -- -- 200 -- 200
Federal funds sold......................... 1,900 840 5,250 -- 7,990
Investment securities available for sale... 201 21,239 2,820 -- 24,260
Investment securities held to maturity..... 24,934 252 17,185 -- 42,371
Loans, net of unearned..................... 46,601 88,981 14,595 -- 150,177
Less: Allowance for loan losses............ (717) (894) (288) -- (1,899)
------- -------- ------- ------- --------
Net loans......................... 45,884 88,087 14,307 -- 148,278
------- -------- ------- ------- --------
Premises and equipment, net................ 10,227 2,841 285 892(b) 14,245
Intangibles, net........................... 416 -- -- -- 416
Other assets............................... 1,436 1,677 761 -- 3,874
------- -------- ------- ------- --------
Total assets...................... $89,820 $119,775 $42,387 $ 892 $252,874
======= ======== ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing...................... $12,618 $ 12,796 $ 6,635 $ -- $ 32,049
Interest-bearing......................... 52,136 97,909 29,069 -- 179,114
------- -------- ------- ------- --------
Total deposits.................... 64,754 110,705 35,704 -- 211,163
Federal funds purchased and other borrowed
funds.................................... -- -- 32 7,300(b) 7,332
Accrued expenses and other liabilities..... 3,181 2,300 243 -- 5,724
------- -------- ------- ------- --------
Total liabilities................. 67,935 113,005 35,979 7,300 224,219
Minority interest in equity of
subsidiary............................... 29 -- -- -- 29
Stockholders' Equity
Common stock............................. 5 7 20 2(a) 7
(7)(a)
(20)(b)
Surplus.................................. 13,435 7,027 3,526 7,032(a) 20,467
(7,027)(a)
(3,526)(b)
Retained earnings (accumulated
deficit)............................... 8,451 (279) 2,846 (2,846)(b) 8,172
Accumulated other comprehensive income
(loss)................................. (35) 15 16 (16)(b) (20)
------- -------- ------- ------- --------
Total stockholders' equity........ 21,856 6,770 6,408 (6,408) 28,626
------- -------- ------- ------- --------
Total liabilities and
stockholders' equity............ $89,820 $119,775 $42,387 $ 892 $252,874
======= ======== ======= ======= ========
</TABLE>
228
<PAGE> 250
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL CONDITION
(a) To record the exchange of 1,536,615 shares of The Banc Corporation common
stock for all of the outstanding shares of Commerce accounted for as a
pooling of interests.
<TABLE>
<CAPTION>
COMMERCE
BANK OF
ALABAMA
----------
<S> <C>
Outstanding shares of acquired corporation.................. 658,190
Conversion ratio............................................ 2.334607
----------
The Banc Corporation shares to be issued.................... 1,536,615
Par value of shares to be issued at $.001 per share......... $ 2
Total common stock and surplus of acquired corporation...... 7,034
----------
Excess recorded as an increase in contributed capital..... 7,032
----------
To eliminate acquired corporations capital stock
Common stock at par value................................. (7)
Surplus................................................... (7,027)
Treasury stock............................................ --
----------
(7,034)
----------
Net change in equity.............................. $ --
==========
</TABLE>
(b) Purchase of 100% of the outstanding common stock of Commercial Bancshares of
Roanoke, Inc. for approximately $7.3 million. Stock will be purchased with
proceeds borrowed from a commercial bank. The excess of cost over book value
will be allocated to the carrying value of the main office building which
currently has a zero book basis.
(c) The Banc Corporation was formed by the reincorporation of Warrior Capital
Corporation. The 18,160 shares of Warrior Capital Corporation common stock
were converted into 5,448,000 shares of The Banc Corporation $.001 par value
common stock.
229
<PAGE> 251
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENTS OF INCOME (UNAUDITED)
The following summaries include (i) the condensed consolidated statements
of income of The Banc Corporation (formerly the Warrior Capital Corporation) on
a historical basis for the six months ended June 30, 1998 and 1997, and the
years ended December 31, 1997, 1996, and 1995, (ii) the condensed statements of
income of Commerce for the six months ended June 30, 1998 and 1997 and the
periods ended December 31, 1997, 1996 and 1995, (iii) the condensed consolidated
statements of income of CBS for the six months ended June 30, 1998 and the year
ended December 31, 1997, (iv) adjustments to give effect to the proposed
purchase method combination with CBS and the proposed pooling of interests
method business combination with Commerce, (v) the pro forma combined condensed
consolidated statements of income of The Banc Corporation as if such
combinations had occurred on January 1, 1995. Note that for purchase method
combinations, Article 11 of Regulation S-X requires pro forma statements of
income to be presented for only the most recent fiscal year and interim period.
Accordingly, only the condensed consolidated statements of income for the six
months ended June 30, 1998 and the year ended December 31, 1997 are included in
(iii) above for CBS.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of income of The
Banc Corporation, Commerce and CBS. The pro forma information may not
necessarily be indicative of future results. Pro forma earnings per share is
based on the weighted average number of shares outstanding for the period
adjusted for the applicable exchange ratio.
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1998
---------------------------------------------------------------
HISTORICAL
-----------------------------------
THE COMMERCE COMMERCIAL
BANC BANK OF BANCSHARES PRO FORMA PRO FORMA
CORPORATION ALABAMA OF ROANOKE ADJUSTMENTS COMBINED
----------- -------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income...................... $ 3,070 $ 4,506 $ 1,494 $ -- $ 9,070
Interest expense..................... 1,134 2,659 669 256(a) 4,718
---------- -------- -------- ------ ----------
Net interest income........ 1,936 1,847 825 (256) 4,352
Provision for loan losses............ 38 292 69 -- 399
---------- -------- -------- ------ ----------
Net interest income after provision
for loan losses................. 1,898 1,555 756 (256) 3,953
Noninterest income................... 312 582 491 -- 1,385
Gain (loss) on sale of securities.... (4) 1 -- -- (3)
Noninterest expenses................. 1,497 1,788 889 15(a) 4,189
---------- -------- -------- ------ ----------
Income (loss) before income
taxes.................... 709 350 358 (271) 1,146
Income tax expense (benefit)......... (68) 94 88 (100)(a) 14
---------- -------- -------- ------ ----------
Net income (loss).......... $ 777 $ 256 $ 270 $ (171) $ 1,132
========== ======== ======== ====== ==========
Basic earnings per share............. $ 0.15 $ 0.39 $ 1.35 $ 0.17
========== ======== ======== ==========
Average number of shares
outstanding -- basic............... 5,230,500 656,968 200,000 6,767,904
========== ======== ======== ==========
</TABLE>
230
<PAGE> 252
<TABLE>
<S> <C> <C> <C> <C> <C>
- ---------------
(a) To reflect interest expense (7%) on $7.3 million in debt
incurred to purchase stock of Commercial Bancshares of
Roanoke.................................................. $ 256
Depreciation on allocation of purchase price to premises
and equipment (30 year period)........................... 15
--------
Decrease in income before tax benefit.................... $ 271
========
Income tax benefit at 37%................................ $ 100
========
</TABLE>
231
<PAGE> 253
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1997
-------------------------------------------------
HISTORICAL
----------------------
THE COMMERCE
BANC BANK OF PRO FORMA PRO FORMA
CORPORATION ALABAMA ADJUSTMENTS COMBINED
----------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income................................... $ 2,590 $ 3,329 $ -- $ 5,919
Interest expense.................................. 1,109 1,808 -- 2,917
---------- -------- ---- ----------
Net interest income..................... 1,481 1,521 -- 3,002
Provision for loan losses......................... 90 232 -- 322
---------- -------- ---- ----------
Net interest income after provision for loan
losses....................................... 1,391 1,289 -- 2,680
Noninterest income................................ 251 310 -- 561
Loss on sale of securities........................ (3) -- -- (3)
Noninterest expenses.............................. 1,011 1,420 -- 2,431
---------- -------- ---- ----------
Income before income taxes.............. 628 179 -- 807
Income tax expense................................ 233 35 -- 268
---------- -------- ---- ----------
Net income.............................. $ 395 $ 144 $ -- $ 539
========== ======== ==== ==========
Basic earnings per share.......................... $ 0.15 $ 0.22 $ 0.13
========== ======== ==========
Average number of shares outstanding -- basic..... 2,716,200 655,460 4,250,073
========== ======== ==========
</TABLE>
232
<PAGE> 254
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,1997
---------------------------------------------------------------
HISTORICAL
-----------------------------------
THE COMMERCE COMMERCIAL
BANC BANK OF BANCSHARES PRO FORMA PRO FORMA
CORPORATION ALABAMA OF ROANOKE ADJUSTMENTS COMBINED
----------- -------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income...................... $ 5,399 $ 7,513 $ 3,114 $ -- $ 16,026
Interest expense..................... 2,248 4,028 1,307 511(a) 8,094
---------- -------- -------- ------ ----------
Net interest income........ 3,151 3,485 1,807 (511) 7,932
Provision for loan losses............ 330 584 401 -- 1,315
---------- -------- -------- ------ ----------
Net interest income after provision
for loan losses................. 2,821 2,901 1,406 (511) 6,617
Noninterest income................... 475 578 980 -- 2,033
Noninterest expenses................. 2,111 3,131 2,010 30(a) 7,282
---------- -------- -------- ------ ----------
Income before income
taxes.................... 1,185 348 376 (541) 1,368
Income tax expense (benefit)......... 387 120 68 (200)(a) 375
---------- -------- -------- ------ ----------
Net income (loss).......... $ 798 $ 228 $ 308 $ (341) $ 993
========== ======== ======== ====== ==========
Basic earnings per share............. $ 0.26 $ 0.35 $ 1.54 $ 0.22
========== ======== ======== ==========
Average number of shares
outstanding........................ 3,025,800 655,565 200,000 4,559,918
========== ======== ======== ==========
</TABLE>
- ---------------
<TABLE>
<C> <S> <C>
(a) To reflect interest expense(7%) on $7.3 million in debt
incurred to purchase stock of Commercial Bancshares of
Roanoke................................................... $511
Depreciation on allocation of purchase price to premises
and equipment (30 year period)............................ 30
----
Decrease in income before tax benefit..................... $541
====
Income tax benefit at 37%................................. $200
====
</TABLE>
233
<PAGE> 255
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED DECEMBER 31, 1996
-------------------------------------------------
HISTORICAL
----------------------
THE COMMERCE
BANC BANK OF PRO FORMA PRO FORMA
CORPORATION ALABAMA ADJUSTMENTS COMBINED
----------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income................................... $ 5,073 $ 4,056 $ -- $ 9,129
Interest expense.................................. 2,247 2,170 -- 4,417
---------- -------- ---- ----------
Net interest income..................... 2,826 1,886 -- 4,712
Provision for loan losses......................... 135 372 -- 507
---------- -------- ---- ----------
Net interest income after provision for loan
losses....................................... 2,691 1,514 -- 4,205
Noninterest income................................ 463 380 -- 843
Noninterest expenses.............................. 1,952 2,268 -- 4,220
---------- -------- ---- ----------
Income (loss) before income taxes....... 1,202 (374) -- 828
Income tax expense (benefit)...................... 412 (81) -- 331
---------- -------- ---- ----------
Net income (loss)....................... $ 790 $ (293) $ -- $ 497
========== ======== ==== ==========
Basic earnings (loss) per share................... $ 0.29 $ (0.47) $ 0.12
========== ======== ==========
Average number of shares outstanding.............. 2,716,200 618,854 4,164,409
========== ======== ==========
</TABLE>
234
<PAGE> 256
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED DECEMBER 31, 1995
---------------------------------------------------
HISTORICAL
------------------------
THE COMMERCE
BANC BANK OF PRO FORMA PRO FORMA
CORPORATION ALABAMA(1) ADJUSTMENTS COMBINED
----------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income.................................. $ 4,859 $ 1,478 $ -- $ 6,337
Interest expense................................. 2,056 765 -- 2,821
---------- -------- ---- ----------
Net interest income.................... 2,803 713 -- 3,516
Provision for loan losses........................ 120 226 -- 346
---------- -------- ---- ----------
Net interest income after provision for loan
losses...................................... 2,683 487 -- 3,170
Noninterest income............................... 553 91 -- 644
Noninterest expenses............................. 1,871 1,289 -- 3,160
---------- -------- ---- ----------
Income (loss) before income taxes...... 1,365 (711) -- 654
Income tax expense (benefit)..................... 467 (241) -- 226
---------- -------- ---- ----------
Net income (loss)...................... $ 898 $ (470) $ -- $ 428
========== ======== ==== ==========
Basic earnings (loss) per share.................. $ 0.33 $ (0.85) $ 0.11
========== ======== ==========
Average number of shares outstanding............. 2,716,200 550,000 4,003,283
========== ======== ==========
</TABLE>
- ------------------------
(1) Operations of Commerce since April of 1995, date of inception.
235
<PAGE> 257
THE BANC CORPORATION AND SUBSIDIARY
CONDENSED PRO FORMA STATEMENT OF CONDITION (UNAUDITED)
The following summary includes (i) the condensed consolidated statement of
financial condition of The Banc Corporation (formerly the Warrior Capital
Corporation) as of June 30, 1998, (ii) the condensed consolidated statement of
financial condition of Commercial Bancshares of Roanoke, Inc. ("CBS") as of June
30, 1998, (iii) adjustments to give effect to the proposed purchase method
combination with CBS, (iv) the pro forma combined condensed statement of
financial condition of The Banc Corporation and subsidiary as if such
combinations had occurred on June 30, 1998.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of financial
conditions of The Banc Corporation and CBS. The pro forma information provided
below may not be indicative of future results.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
------------------------------------------------------
HISTORICAL
---------------------------
THE COMMERCIAL
BANC BANCSHARES PRO FORMA PRO FORMA
CORPORATION(B) OF ROANOKE ADJUSTMENTS COMBINED
-------------- ---------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks........................ $ 4,822 $ 1,579 $ -- $ 6,401
Interest bearing deposits in other banks....... -- 200 -- 200
Federal funds sold............................. 1,900 5,250 -- 7,150
Investment securities available for sale....... 201 2,820 -- 3,021
Investment securities held to maturity......... 24,934 17,185 -- 42,119
Loans, net of unearned......................... 46,601 14,595 -- 61,196
Less: Allowance for loan losses................ (717) (288) -- (1,005)
------- ------- ------- --------
Net loans............................ 45,884 14,307 -- 60,191
------- ------- ------- --------
Premises and equipment, net.................... 10,227 285 892(a) 11,404
Intangibles, net............................... 416 -- -- 416
Other assets................................... 1,436 761 -- 2,197
------- ------- ------- --------
Total assets......................... $89,820 $42,387 $ 892 $133,099
======= ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing.......................... $12,618 $ 6,635 $ -- $ 19,253
Interest-bearing............................. 52,136 29,069 -- 81,205
------- ------- ------- --------
Total deposits....................... 64,754 35,704 -- 100,458
Federal funds purchased and other borrowed
funds........................................ -- 32 7,300(a) 7,332
Accrued expenses and other liabilities......... 3,181 243 -- 3,424
------- ------- ------- --------
Total liabilities.................... 67,935 35,979 7,300 111,214
Minority interest in equity of subsidiary...... 29 -- -- 29
Stockholders' Equity
Common stock................................. 5 20 (20)(a) 5
Surplus...................................... 13,435 3,526 (3,526)(a) 13,435
Retained earnings............................ 8,451 2,846 (2,846)(a) 8,451
Accumulated other comprehensive income
(loss).................................... (35) 16 (16)(a) (35)
------- ------- ------- --------
Total stockholders' equity........... 21,856 6,408 (6,408) 21,856
------- ------- ------- --------
Total liabilities and stockholders'
equity............................. $89,820 $42,387 $ 892 $133,099
======= ======= ======= ========
</TABLE>
236
<PAGE> 258
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL CONDITION
(a) Purchase of 100% of the outstanding common stock of Commercial Bancshares of
Roanoke, Inc. for approximately $7.3 million. Stock will be purchased with
proceeds borrowed from a commercial bank. The excess of cost over book value
will be allocated to the carrying value of the main office building which
currently has a zero book basis.
(b) The Banc Corporation was formed by the reincorporation of Warrior Capital
Corporation. The 18,160 shares of Warrior Capital Corporation common stock
were converted into 5,448,000 shares of The Banc Corporation $.001 par value
common stock.
237
<PAGE> 259
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENTS OF INCOME (UNAUDITED)
The following summaries include (i) the condensed consolidated statements
of income of The Banc Corporation (formerly the Warrior Capital Corporation) on
a historical basis for the six months ended June 30, 1998, and the year ended
December 31, 1997, (ii) the condensed consolidated statements of income of CBS
for the six months ended June 30, 1998 and the year ended December 31, 1997,
(iii) adjustments to give effect to the proposed purchase method combination
with CBS (iv) the pro forma combined condensed consolidated statements of income
of The Banc Corporation as if such combination had occurred on January 1, 1997.
Note that for purchase method combinations, Article 11 of Regulation S-X
requires pro forma statements of income to be presented for only the most recent
fiscal year and interim period.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of income of The
Banc Corporation, and CBS. The pro forma information may not necessarily be
indicative of future results. Pro forma earnings per share is based on the
weighted average number of shares outstanding for the period adjusted for the
applicable exchange ratio.
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1998
----------------------------------------------------
HISTORICAL
------------------------
THE COMMERCIAL
BANC BANCSHARES PRO FORMA PRO FORMA
CORPORATION OF ROANOKE ADJUSTMENTS COMBINED
----------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income................................ $ 3,070 $ 1,494 $ -- $ 4,564
Interest expense............................... 1,134 669 256(a) 2,059
---------- -------- -------- ----------
Net interest income.................. 1,936 825 (256) 2,505
Provision for loan losses...................... 38 69 -- 107
---------- -------- -------- ----------
Net interest income after provision for loan
losses.................................... 1,898 756 (256) 2,398
Noninterest income............................. 312 491 -- 803
Loss on sale of securities..................... (4) -- -- (4)
Noninterest expenses........................... 1,497 889 15(a) 2,401
---------- -------- -------- ----------
Income (loss)before income taxes..... 709 358 (271) 796
Income tax expense (benefit)................... (68) 88 (100)(a) (80)
---------- -------- -------- ----------
Net income (loss).................... $ 777 $ 270 $ (171) $ 876
========== ======== ======== ==========
Basic earnings per share....................... $ 0.15 $ 1.35 $ 0.17
========== ======== ==========
Average number of shares outstanding --basic... 5,230,500 200,000 5,230,500
========== ======== ==========
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
- ---------------
(a) To reflect interest expense (7%) on $7.3 million in debt
incurred to purchase stock of Commercial Bancshares of
Roanoke................................................... $ 256
Depreciation on allocation of purchase price to premises
and equipment (30 year period)............................ 15
--------
Decrease in income before tax benefit..................... $ 271
========
Income tax benefit at 37%................................. $ 100
========
</TABLE>
238
<PAGE> 260
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------------
HISTORICAL
-------------------------
THE COMMERCIAL
BANC BANCSHARES PRO FORMA PRO FORMA
CORPORATION OF ROANOKE ADJUSTMENTS COMBINED
----------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income................................ $ 5,399 $ 3,114 $ -- $ 8,513
Interest expense............................... 2,248 1,307 511(a) 4,066
---------- -------- ----- ----------
Net interest income.................. 3,151 1,807 (511) 4,447
Provision for loan losses...................... 330 401 -- 731
---------- -------- ----- ----------
Net interest income after provision for loan
losses.................................... 2,821 1,406 (511) 3,716
Noninterest income............................. 475 980 -- 1,455
Noninterest expenses........................... 2,111 2,010 30(a) 4,151
---------- -------- ----- ----------
Income before income taxes........... 1,185 376 (541) 1,020
Income tax expense (benefit)................... 387 68 (200)(a) 255
---------- -------- ----- ----------
Net income (loss).................... $ 798 $ 308 $(341) $ 765
========== ======== ===== ==========
Basic earnings per share....................... $ 0.26 $ 1.54 $ 0.25
========== ======== ==========
Average number of shares outstanding........... 3,025,800 200,000 3,025,800
========== ======== ==========
- ---------------
(a) To reflect interest expense (7%) on $7.3 million in debt
incurred to purchase stock of Commercial Bancshares of
Roanoke................................................. $ 511
Depreciation on allocation of purchase price to premises
and equipment (30 year period).......................... 30
--------
Decrease in income before tax benefit................... $ 541
========
Income tax benefit at 37%............................... $ 200
========
</TABLE>
239
<PAGE> 261
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENT OF CONDITION (UNAUDITED)
The following summary includes (i) the condensed consolidated statement of
financial condition of The Banc Corporation (formerly the Warrior Capital
Corporation) as of June 30, 1998, (ii) the condensed statement of financial
condition of Commerce Bank of Alabama ("Commerce") as of June 30, 1998, (iii)
the condensed consolidated statement of financial condition of City National
Corporation ("City National") as of June 30, 1998, (iv) the condensed
consolidated statement of financial condition of Commercial Bancshares of
Roanoke, Inc. ("CBS") as of June 30, 1998, (v) adjustments to give effect to the
proposed purchase method combination with CBS and the proposed pooling of
interests method business combinations with Commerce and City National, (vi) the
pro forma combined condensed statement of financial condition of The Banc
Corporation and subsidiaries as if such combinations had occurred on June 30,
1998.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of financial
conditions of The Banc Corporation, Commerce, City National and CBS. The pro
forma information provided below may not be indicative of future results.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
------------------------------------------------------------------------------
HISTORICAL
----------------------------------------------------
THE COMMERCE CITY COMMERCIAL PRO
BANC BANK OF NATIONAL BANCSHARES PRO FORMA FORMA
CORPORATION(C) ALABAMA CORPORATION OF ROANOKE ADJUSTMENTS COMBINED
-------------- -------- ----------- ---------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks................ $ 4,822 $ 4,839 $ 2,725 $ 1,579 $ -- $ 13,965
Interest bearing deposits in other
banks................................ -- -- 200 200 -- 400
Federal funds sold..................... 1,900 840 1,120 5,250 -- 9,110
Investment securities available for
sale................................. 201 21,239 35,224 2,820 -- 59,484
Investment securities held to
maturity............................. 24,934 252 -- 17,185 -- 42,371
Loans, net of unearned................. 46,601 88,981 39,568 14,595 -- 189,745
Less: Allowance for loan losses........ (717) (894) (700) (288) -- (2,599)
------- -------- ------- ------- -------- --------
Net loans...................... 45,884 88,087 38,868 14,307 -- 187,146
------- -------- ------- ------- -------- --------
Premises and equipment, net............ 10,227 2,841 2,707 285 891(b) 16,951
Intangibles, net....................... 416 -- -- -- -- 416
Other assets........................... 1,436 1,677 1,364 761 -- 5,238
------- -------- ------- ------- -------- --------
Total assets................... $89,820 $119,775 $82,208 $42,387 $ 891 $335,081
======= ======== ======= ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing.................. $12,618 $ 12,796 $10,525 $ 6,635 $ -- $ 42,574
Interest-bearing..................... 52,136 97,909 58,832 29,069 -- 237,946
------- -------- ------- ------- -------- --------
Total deposits................. 64,754 110,705 69,357 35,704 -- 280,520
Federal funds purchased and other
borrowed funds....................... -- -- -- 31 7,300(b) 7,331
Accrued expenses and other
liabilities.......................... 3,181 2,300 893 243 -- 6,617
------- -------- ------- ------- -------- --------
Total liabilities.............. 67,935 113,005 70,250 35,978 7,300 294,468
Minority interest in equity of
subsidiary........................... 29 -- 139 -- -- 168
Stockholders' Equity
Common stock......................... 5 7 27 20 4(a) 9
(34)(a)
(20)(b)
Surplus.............................. 13,435 7,027 4,135 3,527 11,126(a) 24,561
(11,162)(a)
(3,527)(b)
Retained earnings (accumulated
deficit)........................... 8,451 (279) 7,422 2,846 (2,846)(b) 15,594
Accumulated other comprehensive
income (loss)...................... (35) 15 301 16 (16)(b) 281
Treasury stock, at cost.............. -- -- (66) -- 66(a) --
------- -------- ------- ------- -------- --------
Total stockholders' equity..... 21,856 6,770 11,819 6,409 (6,409) 40,445
------- -------- ------- ------- -------- --------
Total liabilities and
stockholders' equity......... $89,820 $119,775 $82,208 $42,387 $ 891 $335,081
======= ======== ======= ======= ======== ========
</TABLE>
240
<PAGE> 262
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF
FINANCIAL CONDITION
(a) To record the exchange of 3,536,615 shares of The Banc Corporation common
stock for all of the outstanding shares of the following accounted for as a
pooling of interests.
<TABLE>
<CAPTION>
COMMERCE CITY
BANK OF NATIONAL
ALABAMA CORPORATION TOTAL
---------- ----------- ----------
<S> <C> <C> <C>
Outstanding shares of acquired corporation......... 658,190 26,832
Conversion ratio................................... 2.334607 74.53786
---------- ----------
The Banc Corporation shares to be issued........... 1,536,615 2,000,000 3,536,615
Par value of shares to be issued at $.001 per
share............................................ $ 2 $ 2 $ 4
Total common stock and surplus of acquired
corporation...................................... 7,034 4,096 11,130
---------- ---------- ----------
Excess recorded as an increase in contributed
capital....................................... 7,032 4,094 11,126
---------- ---------- ----------
To eliminate acquired corporations capital stock
Common stock at par value........................ (7) (27) (34)
Surplus.......................................... (7,027) (4,135) (11,162)
Treasury stock................................... -- 66 66
---------- ---------- ----------
(7,034) (4,096) (11,130)
---------- ---------- ----------
Net change in equity..................... $ -- $ -- $ --
========== ========== ==========
</TABLE>
(b) Purchase of 100% of the outstanding common stock of Commercial Bancshares of
Roanoke, Inc. for approximately $7.3 million. Stock will be purchased with
proceeds borrowed from a commercial bank. The excess of cost over book value
will be allocated to the carrying value of the main office building which
currently has a zero book basis.
(c) The Banc Corporation was formed by the reincorporation of Warrior Capital
Corporation. The 18,160 shares of Warrior Capital Corporation common stock
were converted into 5,448,000 shares of The Banc Corporation $.001 par value
common stock.
241
<PAGE> 263
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENTS OF INCOME (UNAUDITED)
The following summaries include (i) the condensed consolidated statements
of income of The Banc Corporation (formerly the Warrior Capital Corporation) on
a historical basis for the six months ended June 30, 1998 and 1997, and the
years ended December 31, 1997, 1996, and 1995, (ii) the condensed statements of
income of Commerce for the six months ended June 30, 1998 and 1997 and the
periods ended December 31, 1997, 1996 and 1995, (iii) the condensed consolidated
statements of income of City National for the six months ended June 30, 1998 and
1997 and the years ended December 31, 1997, 1996 and 1995, (iv) the condensed
consolidated statements of income of CBS for the six months ended June 30, 1998
and the year ended December 31, 1997, (v) adjustments to give effect to the
proposed purchase method combination with CBS and the proposed pooling of
interests method business combinations with Commerce and City National, (vi) the
pro forma combined condensed consolidated statements of income of The Banc
Corporation as if such combinations had occurred on January 1, 1995. Note that
for purchase method combinations, Article 11 of Regulation S-X requires pro
forma statements of income to be presented for only the most recent fiscal year
and interim period. Accordingly, only the condensed consolidated statements of
income for the six months ended June 30, 1998 and the year ended December 31,
1997 are included in (iv) above for CBS.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of income of The
Banc Corporation, Commerce, City National and CBS. The pro forma information may
not necessarily be indicative of future results. Pro forma earnings per share is
based on the weighted average number of shares outstanding for the period
adjusted for the applicable exchange ratio.
242
<PAGE> 264
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1998
------------------------------------------------------------------------------
HISTORICAL
--------------------------------------------------
THE COMMERCE CITY COMMERCIAL
BANC BANK OF NATIONAL BANCSHARES PRO FORMA PRO FORMA
CORPORATION ALABAMA CORPORATION OF ROANOKE ADJUSTMENTS COMBINED
----------- -------- ----------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income............ $ 3,070 $ 4,506 $ 3,290 $ 1,494 $ -- $ 12,360
Interest expense........... 1,134 2,659 1,359 669 256(a) 6,077
---------- -------- ------- -------- ----- ----------
Net interest
income......... 1,936 1,847 1,931 825 (256) 6,283
Provision for loan
losses................... 38 292 430 69 -- 829
---------- -------- ------- -------- ----- ----------
Net interest income after
provision for loan
losses................ 1,898 1,555 1,501 756 (256) 5,454
Noninterest income......... 312 582 280 491 -- 1,665
Gain (loss) on sale of
securities............... (4) 1 47 -- -- 44
Noninterest expenses....... 1,497 1,788 1,696 889 15(a) 5,885
---------- -------- ------- -------- ----- ----------
Income before
income taxes... 709 350 132 358 (271) 1,278
Income tax expense
(benefit)................ (68) 94 47 88 (100)(a) 61
---------- -------- ------- -------- ----- ----------
Net income
(loss)......... $ 777 $ 256 $ 85 $ 270 $(171) $ 1,217
========== ======== ======= ======== ===== ==========
Basic earnings per share... $ 0.15 $ 0.39 $ 3.16 $ 1.35 $ 0.14
========== ======== ======= ======== ==========
Average number of shares
outstanding -- basic..... 5,230,500 656,968 26,882 200,000 8,771,631
========== ======== ======= ======== ==========
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
- ---------------
(a) To reflect interest expense (7%) on $7.3 million in debt
incurred to purchase stock of Commercial Bancshares of
Roanoke.................................................. $ 256
Depreciation on allocation of purchase price to premises
and equipment (30 year period)........................... 15
-------
Decrease in income before tax benefit.................... $ 271
=======
Income tax benefit at 37%................................ $ 100
=======
</TABLE>
243
<PAGE> 265
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1997
---------------------------------------------------------------
HISTORICAL
------------------------------------
THE COMMERCE CITY
BANC BANK OF NATIONAL PRO FORMA PRO FORMA
CORPORATION ALABAMA CORPORATION ADJUSTMENTS COMBINED
----------- -------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income........................ $ 2,590 $ 3,329 $ 3,355 $ -- $ 9,274
Interest expense....................... 1,109 1,808 1,448 -- 4,365
---------- -------- ------- ---- ----------
Net interest income.......... 1,481 1,521 1,907 -- 4,909
Provision for loan losses.............. 90 232 248 -- 570
---------- -------- ------- ---- ----------
Net interest income after provision
for loan losses................... 1,391 1,289 1,659 -- 4,339
Noninterest income..................... 251 310 255 -- 816
Gain (loss) on sale of securities...... (3) -- 2 -- (1)
Noninterest expenses................... 1,011 1,420 1,654 -- 4,085
---------- -------- ------- ---- ----------
Income before income taxes... 628 179 262 -- 1,069
Income tax expense..................... 233 35 92 -- 360
---------- -------- ------- ---- ----------
Net income................... $ 395 $ 144 $ 170 $ -- $ 709
========== ======== ======= ==== ==========
Basic earnings per share............... $ 0.15 $ 0.22 $ 6.31 $ 0.11
========== ======== ======= ==========
Average number of shares outstanding --
basic................................ 2,716,200 655,460 26,948 6,258,721
========== ======== ======= ==========
</TABLE>
244
<PAGE> 266
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------------------------------------
HISTORICAL
-------------------------------------------------
THE COMMERCE CITY COMMERCIAL
BANC BANK OF NATIONAL BANCSHARES PRO FORMA PRO FORMA
CORPORATION ALABAMA CORPORATION OF ROANOKE ADJUSTMENTS COMBINED
----------- -------- ----------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income............. $ 5,399 $ 7,513 $ 6,721 $ 3,114 $ -- $ 22,747
Interest expense............ 2,248 4,028 2,911 1,307 511(a) 11,005
---------- -------- ------- -------- ----- ----------
Net interest
income.......... 3,151 3,485 3,810 1,807 (511) 11,742
Provision for loan losses... 330 584 384 401 -- 1,699
---------- -------- ------- -------- ----- ----------
Net interest income after
provision for loan
losses................. 2,821 2,901 3,426 1,406 (511) 10,043
Noninterest income.......... 475 578 736 980 -- 2,769
Noninterest expenses........ 2,111 3,131 3,367 2,010 30(a) 10,649
---------- -------- ------- -------- ----- ----------
Income before
income taxes.... 1,185 348 795 376 (541) 2,163
Income tax expense
(benefit)................. 387 120 170 68 (200)(a) 545
---------- -------- ------- -------- ----- ----------
Net income
(loss).......... $ 798 $ 228 $ 625 $ 308 $(341) $ 1,618
========== ======== ======= ======== ===== ==========
Basic earnings per share.... $ 0.26 $ 0.35 $ 23.25 $ 1.54 $ 0.25
========== ======== ======= ======== ==========
Average number of shares
outstanding............... 3,025,800 655,565 26,910 200,000 6,565,734
========== ======== ======= ======== ==========
- ---------------
(a) To reflect interest expense (7%) on $7.3 million
in debt incurred to purchase stock of Commercial
Bancshares of Roanoke........................... $ 511
Depreciation on allocation of purchase price to
premises and equipment (30 year period)......... 30
-------
Decrease in income before tax benefit........... $ 541
=======
Income tax benefit at 37%....................... $ 200
=======
</TABLE>
245
<PAGE> 267
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------------------
HISTORICAL
------------------------------------
THE COMMERCE CITY
BANC BANK OF NATIONAL PRO FORMA PRO FORMA
CORPORATION ALABAMA CORPORATION ADJUSTMENTS COMBINED
----------- -------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income........................ $ 5,073 $ 4,056 $ 6,027 $ -- $ 15,156
Interest expense....................... 2,247 2,170 2,460 -- 6,877
---------- -------- ------- ----- ----------
Net interest income.......... 2,826 1,886 3,567 -- 8,279
Provision for loan losses.............. 135 372 346 -- 853
---------- -------- ------- ----- ----------
Net interest income after provision
for loan losses................... 2,691 1,514 3,221 -- 7,426
Noninterest income..................... 463 380 683 -- 1,526
Noninterest expenses................... 1,952 2,268 3,211 -- 7,431
---------- -------- ------- ----- ----------
Income (loss) before income
taxes...................... 1,202 (374) 693 -- 1,521
Income tax expense (benefit)........... 412 (81) 133 -- 464
---------- -------- ------- ----- ----------
Net income (loss)............ $ 790 $ (293) $ 560 $ -- $ 1,057
========== ======== ======= ===== ==========
Basic earnings (loss) per share........ $ 0.29 $ (0.47) $ 20.68 $ 0.17
========== ======== ======= ==========
Average number of shares outstanding... 2,716,200 618,854 27,063 6,181,629
========== ======== ======= ==========
</TABLE>
246
<PAGE> 268
<TABLE>
<CAPTION>
FOR THE YEAR DECEMBER 31, 1995
-----------------------------------------------------------------
HISTORICAL
--------------------------------------
THE COMMERCE CITY
BANC BANK OF NATIONAL PRO FORMA PRO FORMA
CORPORATION ALABAMA(1) CORPORATION ADJUSTMENTS COMBINED
----------- ---------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income........................ $ 4,859 $ 1,478 $5,674 $ -- $ 12,011
Interest expense....................... 2,056 765 2,324 -- 5,145
---------- -------- ------ ------ ----------
Net interest income.......... 2,803 713 3,350 -- 6,866
Provision for loan losses.............. 120 226 204 -- 550
---------- -------- ------ ------ ----------
Net interest income after provision
for loan losses................... 2,683 487 3,146 -- 6,316
Noninterest income..................... 553 91 629 -- 1,273
Noninterest expenses................... 1,871 1,289 3,010 -- 6,170
---------- -------- ------ ------ ----------
Income (loss) before income
taxes...................... 1,365 (711) 765 -- 1,419
Income tax expense (benefit)........... 467 (241) 40 -- 266
---------- -------- ------ ------ ----------
Net income (loss)............ $ 898 $ (470) $ 725 $ -- $ 1,153
========== ======== ====== ====== ==========
Basic earnings (loss) per share........ $ 0.33 $ (0.85) $26.73 $ 0.19
========== ======== ====== ==========
Average number of shares outstanding... 2,716,200 550,000 27,149 6,026,911
========== ======== ====== ==========
</TABLE>
- ---------------
(1) Operations of Commerce since April 1995, date of inception.
247
<PAGE> 269
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENT OF CONDITION (UNAUDITED)
The following summary includes (i) the condensed consolidated statement of
financial condition of The Banc Corporation (formerly the Warrior Capital
Corporation) as of June 30, 1998, (ii) the condensed consolidated statement of
financial condition of City National Corporation ("City National") as of June
30, 1998, (iii) the condensed consolidated statement of financial condition of
Commercial Bancshares of Roanoke, Inc. ("CBS") as of June 30, 1998, (iv)
adjustments to give effect to the proposed purchase method combination with CBS
and the proposed pooling of interests method business combination with City
National, (v) the pro forma combined condensed statement of financial condition
of The Banc Corporation and subsidiaries as if such combinations had occurred on
June 30, 1998.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of financial
conditions of The Banc Corporation, City National and CBS. The pro forma
information provided below may not be indicative of future results.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
---------------------------------------------------------------------
HISTORICAL
------------------------------------------
THE CITY COMMERCIAL
BANC NATIONAL BANCSHARES PRO FORMA PRO FORMA
CORPORATION(C) CORPORATION OF ROANOKE ADJUSTMENTS COMBINED
-------------- ----------- ----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks.................. $ 4,822 $ 2,725 $ 1,579 $ -- $ 9,126
Interest bearing deposits in other
banks.................................. -- 200 200 -- 400
Federal funds sold....................... 1,900 1,120 5,250 -- 8,270
Investment securities available for
sale................................... 201 35,224 2,820 -- 38,245
Investment securities held to maturity... 24,934 -- 17,185 -- 42,119
Loans, net of unearned................... 46,601 39,568 14,595 -- 100,764
Less: Allowance for loan losses.......... (717) (700) (288) -- (1,705)
------- ------- ------- ------- --------
Net loans....................... 45,884 38,868 14,307 -- 99,059
------- ------- ------- ------- --------
Premises and equipment, net.............. 10,227 2,707 285 891(b) 14,110
Intangibles, net......................... 416 -- -- -- 416
Other assets............................. 1,436 1,364 761 -- 3,561
------- ------- ------- ------- --------
Total assets.................... $89,820 $82,208 $42,387 $ 891 $215,306
======= ======= ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing.................... $12,618 $10,525 $ 6,635 $ -- $ 29,778
Interest-bearing....................... 52,136 58,832 29,069 -- 140,037
------- ------- ------- ------- --------
Total deposits.................. 64,754 69,357 35,704 -- 169,815
Federal funds purchased and other
borrowed funds......................... -- -- 31 7,300(b) 7,331
Accrued expenses and other liabilities... 3,181 893 243 -- 4,317
------- ------- ------- ------- --------
Total liabilities............... 67,935 70,250 35,978 7,300 181,463
Minority interest in equity of
subsidiary............................. 29 139 -- -- 168
Stockholders' Equity
Common stock........................... 5 27 20 2(a) 7
(27)(a)
(20)(b)
Surplus................................ 13,435 4,135 3,527 4,094(a) 17,529
(4,135)(a)
(3,527)(b)
Retained earnings...................... 8,451 7,422 2,846 (2,846)(b) 15,873
Accumulated other comprehensive income
(loss)............................... (35) 301 16 (16)(b) 266
Treasury stock, at cost................ -- (66) -- 66(a) --
------- ------- ------- ------- --------
Total stockholders' equity...... 21,856 11,819 6,409 (6,409) 33,675
------- ------- ------- ------- --------
Total liabilities and
stockholders' equity.......... $89,820 $82,208 $42,387 $ 891 $215,306
======= ======= ======= ======= ========
</TABLE>
248
<PAGE> 270
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL CONDITION
(a) To record the exchange of 2,000,000 shares of The Banc Corporation common
stock for all of the outstanding shares of City National accounted for as a
pooling of interests.
<TABLE>
<CAPTION>
CITY
NATIONAL
CORPORATION
-----------
<S> <C>
Outstanding shares of acquired corporation.................. 26,832
Conversion ratio............................................ 74.53786
----------
The Banc Corporation shares to be issued.................... 2,000,000
Par value of shares to be issued at $.001 per share......... $ 2
Total common stock and surplus of acquired corporation...... 4,096
----------
Excess recorded as an increase in contributed capital..... 4,094
----------
To eliminate acquired corporations capital stock
Common stock at par value................................. (27)
Surplus................................................... (4,135)
Treasury stock............................................ 66
----------
(4,096)
----------
Net change in equity.............................. $ --
==========
</TABLE>
(b) Purchase of 100% of the outstanding common stock of Commercial Bancshares of
Roanoke, Inc. for approximately $7.3 million. Stock will be purchased with
proceeds borrowed from a commercial bank. The excess of cost over book value
will be allocated to the carrying value of the main office building which
currently has a zero book basis.
(c) The Banc Corporation was formed by the reincorporation of Warrior Capital
Corporation. The 18,160 shares of Warrior Capital Corporation common stock
were converted into 5,448,000 shares of The Banc Corporation $.001 par value
common stock.
249
<PAGE> 271
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENTS OF INCOME (UNAUDITED)
The following summaries include (i) the condensed consolidated statements
of income of The Banc Corporation (formerly the Warrior Capital Corporation) on
a historical basis for the six months ended June 30, 1998 and 1997, and the
years ended December 31, 1997, 1996, and 1995, (ii) the condensed consolidated
statements of income of City National for the six months ended June 30, 1998 and
1997 and the years ended December 31, 1997, 1996 and 1995, (iii) the condensed
consolidated statements of income of CBS for the six months ended June 31, 1998
and the year ended December 31, 1997, (iv) adjustments to give effect to the
proposed purchase method combination with CBS and the proposed pooling of
interests method business combination with City National, (v) the pro forma
combined condensed consolidated statements of income of The Banc Corporation as
if such combinations had occurred on January 1, 1995. Note that for purchase
method combinations, Article 11 of Regulation S-X requires pro forma statements
of income to be presented for only the most recent fiscal year and interim
period. Accordingly, only the condensed consolidated statements of income for
the six months ended June 30, 1998 and the year ended December 31, 1997 are
included in (iii) above for CBS.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of income of The
Banc Corporation, City National and CBS. The pro forma information may not
necessarily be indicative of future results. Pro forma earnings per share is
based on the weighted average number of shares outstanding for the period
adjusted for the applicable exchange ratio.
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1998
------------------------------------------------------------------
HISTORICAL
--------------------------------------
THE CITY COMMERCIAL
BANC NATIONAL BANCSHARES PRO FORMA PRO FORMA
CORPORATION CORPORATION OF ROANOKE ADJUSTMENTS COMBINED
----------- ----------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income...................... $ 3,070 $ 3,290 $ 1,494 $ -- $ 7,854
Interest expense..................... 1,134 1,359 669 256(a) 3,418
---------- ------- -------- ----- ----------
Net interest income........ 1,936 1,931 825 (256) 4,436
Provision for loan losses............ 38 430 69 -- 537
---------- ------- -------- ----- ----------
Net interest income after provision
for loan losses................. 1,898 1,501 756 (256) 3,899
Noninterest income................... 312 280 491 -- 1,083
Gain (loss) on sale of securities.... (4) 47 -- -- 43
Noninterest expenses................. 1,497 1,696 889 15(a) 4,097
---------- ------- -------- ----- ----------
Income before income
taxes.................... 709 132 358 (271) 928
Income tax expense (benefit)......... (68) 47 88 (100)(a) (33)
---------- ------- -------- ----- ----------
Net income (loss).......... $ 777 $ 85 $ 270 $(171) $ 961
========== ======= ======== ===== ==========
Basic earnings per share............. $ 0.15 $ 3.16 $ 1.35 $ 0.13
========== ======= ======== ==========
Average number of shares
outstanding -- basic............... 5,230,500 26,882 200,000 7,234,227
========== ======= ======== ==========
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
- ---------------
(a) To reflect interest expense (7%) on $7.3 million in debt
incurred to purchase stock of Commercial Bancshares of
Roanoke.................................................. $ 256
Depreciation on allocation of purchase price to premises
and equipment (30 year period)........................... 15
-------
Decrease in income before tax benefit.................... $ 271
=======
Income tax benefit at 37%................................ $ 100
=======
</TABLE>
250
<PAGE> 272
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1997
----------------------------------------------------
HISTORICAL
-------------------------
THE CITY
BANC NATIONAL PRO FORMA PRO FORMA
CORPORATION CORPORATION ADJUSTMENTS COMBINED
----------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income.................................. $ 2,590 $ 3,355 $ -- $ 5,945
Interest expense................................. 1,109 1,448 -- 2,557
---------- ------- ---- ----------
Net interest income.................... 1,481 1,907 -- 3,388
Provision for loan losses........................ 90 248 -- 338
---------- ------- ---- ----------
Net interest income after provision for loan
losses...................................... 1,391 1,659 -- 3,050
Noninterest income............................... 251 255 -- 506
Gain (loss) on sale of securities................ (3) 2 -- (1)
Noninterest expenses............................. 1,011 1,654 -- 2,665
---------- ------- ---- ----------
Income before income taxes............. 628 262 -- 890
Income tax expense............................... 233 92 -- 325
---------- ------- ---- ----------
Net income............................. $ 395 $ 170 $ -- $ 565
========== ======= ==== ==========
Basic earnings per share......................... $ 0.15 $ 6.31 $ 0.12
========== ======= ==========
Average number of shares outstanding -- basic.... 2,716,200 26,948 4,724,846
========== ======= ==========
</TABLE>
251
<PAGE> 273
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
------------------------------------------------------------------
HISTORICAL
--------------------------------------
THE CITY COMMERCIAL
BANC NATIONAL BANCSHARES PRO FORMA PRO FORMA
CORPORATION CORPORATION OF ROANOKE ADJUSTMENTS COMBINED
----------- ----------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income...................... $ 5,399 $ 6,721 $ 3,114 $ -- $ 15,234
Interest expense..................... 2,248 2,911 1,307 511(a) 6,977
---------- ------- -------- ----- ----------
Net interest income........ 3,151 3,810 1,807 (511) 8,257
Provision for loan losses............ 330 384 401 -- 1,115
---------- ------- -------- ----- ----------
Net interest income after provision
for loan losses................. 2,821 3,426 1,406 (511) 7,142
Noninterest income................... 475 736 980 -- 2,191
Noninterest expenses................. 2,111 3,367 2,010 30(a) 7,518
---------- ------- -------- ----- ----------
Income before income taxes...... 1,185 795 376 (541) 1,815
Income tax expense (benefit)......... 387 170 68 (200)(a) 425
---------- ------- -------- ----- ----------
Net income (loss)............... $ 798 $ 625 $ 308 $(341) $ 1,390
========== ======= ======== ===== ==========
Basic earnings per share............. $ 0.26 $ 23.25 $ 1.54 $ 0.28
========== ======= ======== ==========
Average number of shares
outstanding........................ 3,025,800 26,910 200,000 5,031,614
========== ======= ======== ==========
- ---------------
(a) To reflect interest expense (7%) on $7.3 million in debt
incurred to purchase stock of Commercial Bancshares of
Roanoke..................................................... $ 511
Depreciation on allocation of purchase price to premises and
equipment (30 year period).................................. 30
--------
Decrease in income before tax benefit....................... $ 541
========
Income tax benefit at 37%................................... $ 200
========
</TABLE>
252
<PAGE> 274
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
----------------------------------------------------
HISTORICAL
-------------------------
THE CITY
BANC NATIONAL PRO FORMA PRO FORMA
CORPORATION CORPORATION ADJUSTMENTS COMBINED
----------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income.................................. $ 5,073 $ 6,027 $ -- $ 11,100
Interest expense................................. 2,247 2,460 -- 4,707
---------- ------- ---- ----------
Net interest income.................... 2,826 3,567 -- 6,393
Provision for loan losses........................ 135 346 -- 481
---------- ------- ---- ----------
Net interest income after provision for loan
losses...................................... 2,691 3,221 -- 5,912
Noninterest income............................... 463 683 -- 1,146
Noninterest expenses............................. 1,952 3,211 -- 5,163
---------- ------- ---- ----------
Income before income taxes............. 1,202 693 -- 1,895
Income tax expense............................... 412 133 -- 545
---------- ------- ---- ----------
Net income............................. $ 790 $ 560 $ -- $ 1,350
========== ======= ==== ==========
Basic earnings per share......................... $ 0.29 $ 20.68 $ 0.29
========== ======= ==========
Average number of shares outstanding............. 2,716,200 27,063 4,733,418
========== ======= ==========
</TABLE>
253
<PAGE> 275
<TABLE>
<CAPTION>
FOR THE PERIOD DECEMBER 31, 1995
----------------------------------------------------
HISTORICAL
-------------------------
THE CITY
BANC NATIONAL PRO FORMA PRO FORMA
CORPORATION CORPORATION ADJUSTMENTS COMBINED
----------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income.................................. $ 4,859 $ 5,674 $ -- $ 10,533
Interest expense................................. 2,056 2,324 -- 4,380
---------- ------- ------ ----------
Net interest income.................... 2,803 3,350 -- 6,153
Provision for loan losses........................ 120 204 -- 324
---------- ------- ------ ----------
Net interest income after provision for loan
losses...................................... 2,683 3,146 -- 5,829
Noninterest income............................... 553 629 -- 1,182
Noninterest expenses............................. 1,871 3,010 -- 4,881
---------- ------- ------ ----------
Income before income taxes............. 1,365 765 -- 2,130
Income tax expense............................... 467 40 -- 507
---------- ------- ------ ----------
Net income............................. $ 898 $ 725 $ -- $ 1,623
========== ======= ====== ==========
Basic earnings per share......................... $ 0.33 $ 26.73 $ 0.34
========== ======= ==========
Average number of shares outstanding............. 2,716,200 27,149 4,739,828
========== ======= ==========
</TABLE>
254
<PAGE> 276
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENT OF CONDITION (UNAUDITED)
The following summary includes (i) the condensed consolidated statement of
financial condition of The Banc Corporation (formerly the Warrior Capital
Corporation) as of June 30, 1998, (ii) the condensed statement of financial
condition of Commerce Bank of Alabama ("Commerce") as of June 30, 1998, (iii)
the condensed consolidated statement of financial condition of City National
Corporation ("City National") as of June 30, 1998, (iv) adjustments to give
effect to the proposed pooling of interests method business combinations with
Commerce and City National, (v) the pro forma combined condensed statement of
financial condition of The Banc Corporation and subsidiaries as if such
combinations had occurred on June 30, 1998.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of financial
conditions of The Banc Corporation, Commerce and City National. The pro forma
information provided below may not be indicative of future results.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
------------------------------------------------------------------
HISTORICAL
---------------------------------------
THE COMMERCE CITY
BANC BANK OF NATIONAL PRO FORMA PRO FORMA
CORPORATION(B) ALABAMA CORPORATION ADJUSTMENTS COMBINED
-------------- -------- ----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks.................... $ 4,822 $ 4,839 $ 2,725 $ -- $ 12,386
Interest bearing deposits in other banks... -- -- 200 -- 200
Federal funds sold......................... 1,900 840 1,120 -- 3,860
Investment securities available for sale... 201 21,239 35,224 -- 56,664
Investment securities held to maturity..... 24,934 252 -- -- 25,186
Loans, net of unearned..................... 46,601 88,981 39,568 -- 175,150
Less: Allowance for loan losses............ (717) (894) (700) -- (2,311)
------- -------- ------- --------- --------
Net loans......................... 45,884 88,087 38,868 -- 172,839
------- -------- ------- --------- --------
Premises and equipment, net................ 10,227 2,841 2,707 -- 15,775
Intangibles, net........................... 416 -- -- -- 416
Other assets............................... 1,436 1,677 1,364 -- 4,477
------- -------- ------- --------- --------
Total assets...................... $89,820 $119,775 $82,208 $ -- $291,803
======= ======== ======= ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing...................... $12,618 $ 12,796 $10,525 $ -- $ 35,939
Interest-bearing......................... 52,136 97,909 58,832 -- 208,877
------- -------- ------- --------- --------
Total deposits.................... 64,754 110,705 69,357 -- 244,816
Accrued expenses and other liabilities..... 3,181 2,300 893 -- 6,374
------- -------- ------- --------- --------
Total liabilities................. 67,935 113,005 70,250 -- 251,190
Minority interest in equity of
subsidiary............................... 29 -- 139 -- 168
Stockholders' Equity
Common stock............................. 5 7 27 4(a) 9
(34)(a)
Surplus.................................. 13,435 7,027 4,135 11,126(a) 24,561
(11,162)(a)
Retained earnings (accumulated
deficit)............................... 8,451 (279) 7,422 15,594
Accumulated other comprehensive income
(loss)................................. (35) 15 301 281
Treasury stock, at cost.................. -- -- (66) 66(a) --
------- -------- ------- --------- --------
Total stockholders' equity........ 21,856 6,770 11,819 -- 40,445
------- -------- ------- --------- --------
Total liabilities and
stockholders' equity............ $89,820 $119,775 $82,208 $ -- $291,803
======= ======== ======= ========= ========
</TABLE>
255
<PAGE> 277
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF
FINANCIAL CONDITION
(a) To record the exchange of 3,536,615 shares of The Banc Corporation common
stock for all of the outstanding shares of the following accounted for as a
pooling of interests.
<TABLE>
<CAPTION>
COMMERCE CITY
BANK OF NATIONAL
ALABAMA CORPORATION TOTAL
---------- ----------- ----------
<S> <C> <C> <C>
Outstanding shares of acquired corporation......... 658,190 26,832
Conversion ratio................................... 2.334607 74.53786
---------- ----------
The Banc Corporation shares to be issued........... 1,536,615 2,000,000 3,536,615
Par value of shares to be issued at $.001 per
share............................................ $ 2 $ 2 $ 4
Total common stock and surplus of acquired
corporation...................................... 7,034 4,096 11,130
---------- ---------- ----------
Excess recorded as an increase in contributed
capital....................................... 7,032 4,094 11,126
---------- ---------- ----------
To eliminate acquired corporations capital stock
Common stock at par value........................ (7) (27) (34)
Surplus.......................................... (7,027) (4,135) (11,162)
Treasury stock................................... -- 66 66
---------- ---------- ----------
(7,034) (4,096) (11,130)
---------- ---------- ----------
Net change in equity..................... $ -- $ -- $ --
========== ========== ==========
</TABLE>
(b) The Banc Corporation was formed by the reincorporation of Warrior Capital
Corporation. The 18,160 shares of Warrior Capital Corporation common stock
were converted into 5,448,000 shares of The Banc Corporation $.001 par value
common stock.
256
<PAGE> 278
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENTS OF INCOME (UNAUDITED)
The following summaries include (i) the condensed consolidated statements
of income of The Banc Corporation (formerly Warrior Capital Corporation) on a
historical basis for the six months ended June 30, 1998 and 1997, and the years
ended December 31, 1997, 1996, and 1995, (ii) the condensed statements of income
of Commerce for the six months ended June 30, 1998 and 1997 and the periods
ended December 31, 1997, 1996 and 1995, (iii) the condensed consolidated
statements of income of City National for the six months ended June 30, 1998 and
1997 and the years ended December 31, 1997, 1996 and 1995, (iv) adjustments to
give effect to the proposed pooling of interests method business combinations
with Commerce and City National, (v) the pro forma combined condensed
consolidated statements of income of The Banc Corporation as if such
combinations had occurred on January 1, 1995.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of income of The
Banc Corporation, Commerce and City National. The pro forma information may not
necessarily be indicative of future results. Pro forma earnings per share is
based on the weighted average number of shares outstanding for the period
adjusted for the applicable exchange ratio.
<TABLE>
<CAPTION>
FOR THE PERIOD JUNE 30, 1998
--------------------------------------------------------------------
HISTORICAL
-----------------------------------------
THE COMMERCE CITY
BANC BANK OF NATIONAL PRO FORMA PRO FORMA
CORPORATION ALABAMA CORPORATION ADJUSTMENTS COMBINED
----------- ------------ ------------ ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income..................... $ 3,070 $ 4,506 $ 3,290 $ -- $ 10,866
Interest expense.................... 1,134 2,659 1,359 -- 5,152
---------- -------- -------- ---- ----------
Net interest income....... 1,936 1,847 1,931 -- 5,714
Provision for loan losses........... 38 292 430 -- 760
---------- -------- -------- ---- ----------
Net interest income after
provision for loan losses...... 1,898 1,555 1,501 -- 4,954
Noninterest income.................. 312 582 280 -- 1,174
Gain (loss) on sale of securities... (4) 1 47 -- 44
Noninterest expenses................ 1,497 1,788 1,696 -- 4,981
---------- -------- -------- ---- ----------
Income before income
taxes................... 709 350 132 -- 1,191
Income tax expense (benefit)........ (68) 94 47 -- 73
---------- -------- -------- ---- ----------
Net income................ $ 777 $ 256 $ 85 $ -- $ 1,118
========== ======== ======== ==== ==========
Basic earnings per share............ $ 0.15 $ 0.39 $ 3.16 $ 0.13
========== ======== ======== ==========
Average number of shares
outstanding -- basic.............. 5,230,500 656,968 26,882 8,771,631
========== ======== ======== ==========
</TABLE>
257
<PAGE> 279
<TABLE>
<CAPTION>
FOR THE PERIOD JUNE 30, 1997
---------------------------------------------------------------
HISTORICAL
------------------------------------
THE COMMERCE CITY
BANC BANK OF NATIONAL PRO FORMA PRO FORMA
CORPORATION ALABAMA CORPORATION ADJUSTMENTS COMBINED
----------- -------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income........................ $ 2,590 $ 3,329 $ 3,355 $ -- $ 9,274
Interest expense....................... 1,109 1,808 1,448 -- 4,365
---------- -------- ------- ---- ----------
Net interest income.......... 1,481 1,521 1,907 -- 4,909
Provision for loan losses.............. 90 232 248 -- 570
---------- -------- ------- ---- ----------
Net interest income after provision
for loan losses................... 1,391 1,289 1,659 -- 4,339
Noninterest income..................... 251 310 255 -- 816
Gain (loss) on sale of securities...... (3) -- 2 -- (1)
Noninterest expenses................... 1,011 1,420 1,654 -- 4,085
---------- -------- ------- ---- ----------
Income before income taxes... 628 179 262 -- 1,069
Income tax expense..................... 233 35 92 -- 360
---------- -------- ------- ---- ----------
Net income................... $ 395 $ 144 $ 170 $ -- $ 709
========== ======== ======= ==== ==========
Basic earnings per share............... $ 0.15 $ 0.22 $ 6.31 $ 0.11
========== ======== ======= ==========
Average number of shares outstanding --
basic................................ 2,716,200 655,460 26,948 6,258,721
========== ======== ======= ==========
</TABLE>
258
<PAGE> 280
<TABLE>
<CAPTION>
FOR THE PERIOD DECEMBER 31, 1997
---------------------------------------------------------------
HISTORICAL
------------------------------------
THE COMMERCE CITY
BANC BANK OF NATIONAL PRO FORMA PRO FORMA
CORPORATION ALABAMA CORPORATION ADJUSTMENTS COMBINED
----------- -------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income........................ $ 5,399 $ 7,513 $ 6,721 $ -- $ 19,633
Interest expense....................... 2,248 4,028 2,911 -- 9,187
---------- -------- ------- ---- ----------
Net interest income.......... 3,151 3,485 3,810 -- 10,446
Provision for loan losses.............. 330 584 384 -- 1,298
---------- -------- ------- ---- ----------
Net interest income after provision
for loan losses................... 2,821 2,901 3,426 -- 9,148
Noninterest income..................... 475 578 737 -- 1,790
Noninterest expenses................... 2,111 3,131 3,367 -- 8,609
---------- -------- ------- ---- ----------
Income before income taxes... 1,185 348 796 -- 2,329
Income tax expense..................... 387 120 170 -- 677
---------- -------- ------- ---- ----------
Net income................... $ 798 $ 228 $ 626 $ -- $ 1,652
========== ======== ======= ==== ==========
Basic earnings per share............... $ 0.26 $ 0.35 $ 23.25 $ 0.25
========== ======== ======= ==========
Average number of shares outstanding... 3,025,800 655,565 26,910 6,565,734
========== ======== ======= ==========
</TABLE>
259
<PAGE> 281
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------------------
HISTORICAL
------------------------------------
THE COMMERCE CITY
BANC BANK OF NATIONAL PRO FORMA PRO FORMA
CORPORATION ALABAMA CORPORATION ADJUSTMENTS COMBINED
----------- -------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income........................ $ 5,073 $ 4,056 $ 6,027 $ -- $ 15,156
Interest expense....................... 2,247 2,170 2,460 -- 6,877
---------- -------- ------- ---- ----------
Net interest income.......... 2,826 1,886 3,567 -- 8,279
Provision for loan losses.............. 135 372 346 -- 853
---------- -------- ------- ---- ----------
Net interest income after provision
for loan losses................... 2,691 1,514 3,221 -- 7,426
Noninterest income..................... 463 380 683 -- 1,526
Noninterest expenses................... 1,952 2,268 3,211 -- 7,431
---------- -------- ------- ---- ----------
Income (loss) before income
taxes...................... 1,202 (374) 693 -- 1,521
Income tax expense (benefit)........... 412 (81) 133 -- 464
---------- -------- ------- ---- ----------
Net income (loss)............ $ 790 $ (293) $ 560 $ -- $ 1,057
========== ======== ======= ==== ==========
Basic earnings (loss) per share........ $ 0.29 $ (0.47) $ 20.68 $ 0.17
========== ======== ======= ==========
Average number of shares outstanding... 2,716,200 618,854 27,063 6,181,629
========== ======== ======= ==========
</TABLE>
260
<PAGE> 282
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------------------------
HISTORICAL
--------------------------------------
THE COMMERCE CITY
BANC BANK OF NATIONAL PRO FORMA PRO FORMA
CORPORATION ALABAMA(1) CORPORATION ADJUSTMENTS COMBINED
----------- ---------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income........................ $ 4,859 $ 1,478 $ 5,674 $ -- $ 12,011
Interest expense....................... 2,056 765 2,324 -- 5,145
---------- -------- ------- ---- ----------
Net interest income.......... 2,803 713 3,350 -- 6,866
Provision for loan losses.............. 120 226 204 -- 550
---------- -------- ------- ---- ----------
Net interest income after provision
for loan losses................... 2,683 487 3,146 -- 6,316
Noninterest income..................... 553 91 629 -- 1,273
Noninterest expenses................... 1,871 1,289 3,010 -- 6,170
---------- -------- ------- ---- ----------
Income (loss) before income
taxes...................... 1,365 (711) 765 -- 1,419
Income tax expense (benefit)........... 467 (241) 40 -- 266
---------- -------- ------- ---- ----------
Net income (loss)............ $ 898 $ (470) $ 725 $ -- $ 1,153
========== ======== ======= ==== ==========
Basic earnings (loss) per share........ $ 0.33 $ (0.85) $ 26.73 $ 0.19
========== ======== ======= ==========
Average number of shares outstanding... 2,716,200 550,000 27,149 6,026,911
========== ======== ======= ==========
</TABLE>
- ---------------
(1) Operations of Commerce since April 1995, date of inception.
261
<PAGE> 283
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENT OF CONDITION (UNAUDITED)
The following summary includes (i) the condensed consolidated statement of
financial condition of The Banc Corporation (formerly the Warrior Capital
Corporation) as of June 30, 1998, (ii) the condensed consolidated statement of
financial condition of First Citizens Bancorp, Inc. ("First Citizens") as of
June 30, 1998, (iii) the condensed consolidated statement of financial condition
of City National Corporation ("City National") as of June 30, 1998, (iv)
adjustments to give effect to the proposed pooling of interests method business
combinations with First Citizens and City National, (v) the pro forma combined
condensed statement of financial condition of The Banc Corporation and
subsidiaries as if such combinations had occurred on June 30, 1998.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of financial
conditions of The Banc Corporation, First Citizens, and City National. The pro
forma information provided below may not be indicative of future results.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
------------------------------------------------------------------
HISTORICAL
---------------------------------------
THE FIRST CITY
BANC CITIZENS NATIONAL PRO FORMA PRO FORMA
CORPORATION(C) BANCORP CORPORATION ADJUSTMENTS COMBINED
-------------- -------- ----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks...................... $ 4,822 $ 988 $ 2,725 $ 145(a) $ 8,680
Interest bearing deposits in other banks..... -- -- 200 -- 200
Federal funds sold........................... 1,900 1,230 1,120 -- 4,250
Investment securities available for sale..... 201 1,757 35,224 -- 37,182
Investment securities held to maturity....... 24,934 -- -- -- 24,934
Loans, net of unearned....................... 46,601 32,535 39,568 -- 118,704
Less: Allowance for loan losses.............. (717) (357) (700) -- (1,774)
------- ------- ------- ------- --------
Net loans........................... 45,884 32,178 38,868 -- 116,930
------- ------- ------- ------- --------
Premises and equipment, net.................. 10,277 555 2,707 -- 13,489
Intangibles, net............................. 416 -- -- -- 416
Other assets................................. 1,436 1,408 1,364 -- 4,208
------- ------- ------- ------- --------
Total assets........................ $89,820 $38,116 $82,208 $ 145 $210,289
======= ======= ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing........................ $12,618 $ 4,328 $10,525 $ -- $ 27,471
Interest-bearing........................... 52,136 30,075 58,832 -- 141,043
------- ------- ------- ------- --------
Total deposits...................... 64,754 34,403 69,357 -- 168,514
Accrued expenses and other liabilities....... 3,181 468 893 -- 4,542
------- ------- ------- ------- --------
Total liabilities................... 67,935 34,871 70,250 -- 173,056
Minority interest in equity of subsidiary.... 29 -- 139 -- 168
Stockholders' Equity
Common stock............................... 5 75 27 --(a) 8
3(b)
(102)(b)
Surplus.................................... 13,435 800 4,135 145(a) 18,548
4,968(b)
(4,935)(b)
Retained earnings.......................... 8,451 2,366 7,422 18,239
Accumulated other comprehensive income
(loss)................................... (35) 4 301 270
Treasury stock, at cost.................... -- -- (66) 66(b) --
------- ------- ------- ------- --------
Total stockholders' equity.......... 21,856 3,245 11,819 145 37,065
------- ------- ------- ------- --------
Total liabilities and stockholders'
equity............................ $89,820 $38,116 $82,208 $ 145 $210,289
======= ======= ======= ======= ========
</TABLE>
262
<PAGE> 284
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF
FINANCIAL CONDITION
(a) To record the exercise of 5,000 stock options by officer of First Citizens
prior to merger.
(b) To record the exchange of 2,663,243 shares of The Banc Corporation common
stock for all of the outstanding shares of the following accounted for as a
pooling of interest.
<TABLE>
<CAPTION>
FIRST CITY
CITIZENS NATIONAL
BANCORP CORPORATION TOTAL
--------- ----------- ----------
<S> <C> <C> <C>
Outstanding shares of acquired corporation......... 80,000 26,832
Conversion ratio................................... 8.290537 74.53786
--------- ----------
The Banc Corporation shares to be issued........... 663,243 2,000,000 2,663,243
Par value of shares to be issued at $.001 per
share............................................ $ 1 $ 2 $ 3
Total common stock and surplus of acquired
corporation...................................... 875 4,096 4,971
--------- ---------- ----------
Excess recorded as an increase in contributed
capital....................................... 874 4,094 4,968
--------- ---------- ----------
To eliminate acquired corporations capital stock
Common stock at par value........................ (75) (27) (102)
Surplus.......................................... (800) (4,135) (4,935)
Treasury stock................................... -- 66 66
--------- ---------- ----------
(875) (4,096) (4,971)
--------- ---------- ----------
Net change in equity..................... $ -- $ -- $ --
========= ========== ==========
</TABLE>
(c) The Banc Corporation was formed by the reincorporation of Warrior Capital
Corporation. The 18,160 shares of Warrior Capital Corporation common stock
were converted into 5,448,000 shares of The Banc Corporation $.001 par value
common stock.
263
<PAGE> 285
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENTS OF INCOME (UNAUDITED)
The following summaries include (i) the condensed consolidated statements
of income of The Banc Corporation (formerly Warrior Capital Corporation) on a
historical basis for the six months ended June 30, 1998 and 1997, and the years
ended December 31, 1997, 1996, and 1995, (ii) the condensed consolidated
statements of income of First Citizens for the six months ended June 30, 1998
and 1997 and the years ended December 31, 1997, 1996 and 1995, (iii) the
condensed consolidated statements of income of City National for the six months
ended June 30, 1998 and 1997 and the years ended December 31, 1997, 1996 and
1995, (iv) adjustments to give effect to the proposed pooling of interests
method business combinations with First Citizens and City National, (v) the pro
forma combined condensed consolidated statements of income of The Banc
Corporation as if such combinations had occurred on January 1, 1995.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of income of The
Banc Corporation, First Citizens, and City National. The pro forma information
may not necessarily be indicative of future results. Pro forma earnings per
share is based on the weighted average number of shares outstanding for the
period adjusted for the applicable exchange ratio.
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1998
---------------------------------------------------------------
HISTORICAL
------------------------------------
THE FIRST CITY
BANC CITIZENS NATIONAL PRO FORMA PRO FORMA
CORPORATION BANCORP CORPORATION ADJUSTMENTS COMBINED
----------- -------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income......................... $ 3,070 $ 1,683 $ 3,290 $ -- $ 8,043
Interest expense........................ 1,134 688 1,359 -- 3,181
---------- ------- ------- ---- ----------
Net interest income........... 1,936 995 1,931 -- 4,862
Provision for loan losses............... 38 117 430 -- 585
---------- ------- ------- ---- ----------
Net interest income after provision
for loan losses.................... 1,898 878 1,501 -- 4,277
Noninterest income...................... 312 225 280 -- 817
Gain (loss) on sale of securities....... (4) -- 47 -- 43
Noninterest expenses.................... 1,497 731 1,696 -- 3,924
---------- ------- ------- ---- ----------
Income before income taxes.... 709 372 132 -- 1,213
Income tax expense (benefit)............ (68) 136 47 -- 115
---------- ------- ------- ---- ----------
Net income.................... $ 777 $ 236 $ 85 $ -- $ 1,098
========== ======= ======= ==== ==========
Basic earnings per share................ $ 0.15 $ 3.15 $ 3.16 $ 0.14
========== ======= ======= ==========
Average number of shares
outstanding -- basic.................. 5,230,500 75,000 26,882 7,856,017
========== ======= ======= ==========
</TABLE>
264
<PAGE> 286
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1997
---------------------------------------------------------------
HISTORICAL
------------------------------------
THE FIRST CITY
BANC CITIZENS NATIONAL PRO FORMA PRO FORMA
CORPORATION BANCORP CORPORATION ADJUSTMENTS COMBINED
----------- -------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income......................... $ 2,590 $ 1,391 $ 3,355 $ -- $ 7,336
Interest expense........................ 1,109 574 1,448 -- 3,131
---------- ------- ------- ---- ----------
Net interest income........... 1,481 817 1,907 -- 4,205
Provision for loan losses............... 90 30 248 -- 368
---------- ------- ------- ---- ----------
Net interest income after provision
for loan losses.................... 1,391 787 1,659 -- 3,837
Noninterest income...................... 251 201 255 -- 707
Gain (loss) on sale of securities....... (3) -- 2 -- (1)
Noninterest expenses.................... 1,011 627 1,654 -- 3,292
---------- ------- ------- ---- ----------
Income before income taxes.... 628 361 262 -- 1,251
Income tax expense...................... 233 131 92 -- 456
---------- ------- ------- ---- ----------
Net income.................... $ 395 $ 230 $ 170 $ -- $ 795
========== ======= ======= ==== ==========
Basic earnings per share................ $ 0.15 $ 3.07 $ 6.31 $ 0.15
========== ======= ======= ==========
Average number of shares
outstanding -- basic.................. 2,716,200 75,000 26,948 5,346,636
========== ======= ======= ==========
</TABLE>
265
<PAGE> 287
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
---------------------------------------------------------------
HISTORICAL
------------------------------------
THE FIRST CITY
BANC CITIZENS NATIONAL PRO FORMA PRO FORMA
CORPORATION BANCORP CORPORATION ADJUSTMENTS COMBINED
----------- -------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income......................... $ 5,399 $ 2,957 $ 6,721 $ -- $ 15,077
Interest expense........................ 2,248 1,215 2,911 -- 6,374
---------- ------- ------- ---- ----------
Net interest income........... 3,151 1,742 3,810 -- 8,703
Provision for loan losses............... 330 218 384 -- 932
---------- ------- ------- ---- ----------
Net interest income after provision
for loan losses.................... 2,821 1,524 3,426 -- 7,771
Noninterest income...................... 475 415 737 -- 1,627
Noninterest expenses.................... 2,111 1,303 3,367 -- 6,781
---------- ------- ------- ---- ----------
Income before income taxes.... 1,185 636 796 -- 2,617
Income tax expense...................... 387 213 170 -- 770
---------- ------- ------- ---- ----------
Net income.................... $ 798 $ 423 $ 626 $ -- $ 1,847
========== ======= ======= ==== ==========
Basic earnings per share................ $ 0.26 $ 5.64 $ 23.25 $ 0.33
========== ======= ======= ==========
Average number of shares outstanding.... 3,025,800 75,000 26,910 5,653,404
========== ======= ======= ==========
</TABLE>
266
<PAGE> 288
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------------------
HISTORICAL
------------------------------------
THE FIRST CITY
BANC CITIZENS NATIONAL PRO FORMA PRO FORMA
CORPORATION BANCORP CORPORATION ADJUSTMENTS COMBINED
----------- -------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income......................... $ 5,073 $ 2,437 $ 6,027 $ -- $ 13,537
Interest expense........................ 2,247 1,008 2,460 -- 5,715
---------- ------- ------- ---- ----------
Net interest income........... 2,826 1,429 3,567 -- 7,822
Provision for loan losses............... 135 43 346 -- 524
---------- ------- ------- ---- ----------
Net interest income after provision
for loan losses.................... 2,691 1,386 3,221 -- 7,298
Noninterest income...................... 463 430 683 -- 1,576
Noninterest expenses.................... 1,952 1,232 3,211 -- 6,395
---------- ------- ------- ---- ----------
Income before income taxes......... 1,202 584 693 -- 2,479
Income tax expense...................... 412 184 133 -- 729
---------- ------- ------- ---- ----------
Net income......................... $ 790 $ 400 $ 560 $ -- $ 1,750
========== ======= ======= ==== ==========
Basic earnings per share................ $ 0.29 $ 5.33 $ 20.68 $ 0.33
========== ======= ======= ==========
Average number of shares outstanding.... 2,716,200 75,000 27,063 5,355,208
========== ======= ======= ==========
</TABLE>
267
<PAGE> 289
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------------------
HISTORICAL
------------------------------------
THE FIRST CITY
BANC CITIZENS NATIONAL PRO FORMA PRO FORMA
CORPORATION BANCORP CORPORATION ADJUSTMENTS COMBINED
----------- -------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income......................... $ 4,859 $ 1,809 $ 5,674 $ -- $ 12,342
Interest expense........................ 2,056 786 2,324 -- 5,166
---------- ------- ------- ---- ----------
Net interest income........... 2,803 1,023 3,350 -- 7,176
Provision for loan losses............... 120 -- 204 -- 324
---------- ------- ------- ---- ----------
Net interest income after provision
for loan losses.................... 2,683 1,023 3,146 -- 6,852
Noninterest income...................... 553 348 629 -- 1,530
Noninterest expenses.................... 1,871 1,116 3,010 -- 5,997
---------- ------- ------- ---- ----------
Income before income taxes......... 1,365 255 765 -- 2,385
Income tax expense...................... 467 61 40 -- 568
---------- ------- ------- ---- ----------
Net income......................... $ 898 $ 194 $ 725 $ -- $ 1,817
========== ======= ======= ==== ==========
Basic earnings per share................ $ 0.33 $ 2.59 $ 26.73 $ 0.34
========== ======= ======= ==========
Average number of shares outstanding.... 2,716,200 75,000 27,149 5,361,618
========== ======= ======= ==========
</TABLE>
268
<PAGE> 290
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENT OF CONDITION (UNAUDITED)
The following summary includes (i) the condensed consolidated statement of
financial condition of The Banc Corporation (formerly the Warrior Capital
Corporation) as of June 30, 1998, (ii) the condensed consolidated statement of
financial condition of First Citizens Bancorp, Inc. ("First Citizens") as of
June 30, 1998, (iii) the condensed consolidated statement of financial condition
of Commercial Bancshares of Roanoke, Inc. ("CBS") as of June 30, 1998, (iv)
adjustments to give effect to the proposed purchase method combination with CBS
and the proposed pooling of interests method business combination with First
Citizens, (v) the pro forma combined condensed statement of financial condition
of The Banc Corporation and subsidiaries as if such combinations had occurred on
June 30, 1998.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of financial
conditions of The Banc Corporation, First Citizens and CBS. The pro forma
information provided below may not be indicative of future results.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
---------------------------------------------------------------------
HISTORICAL
----------------------------------------
THE FIRST COMMERCIAL
BANC CITIZENS BANCSHARES PRO FORMA PRO FORMA
CORPORATION(D) BANCORP OF ROANOKE ADJUSTMENTS COMBINED
-------------- --------- ----------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks.................... $ 4,822 $ 988 $ 1,579 $ 145(a) $ 7,534
Interest bearing deposits in other banks... -- -- 200 -- 200
Federal funds sold......................... 1,900 1,230 5,250 -- 8,380
Investment securities available for sale... 201 1,757 2,820 -- 4,778
Investment securities held to maturity..... 24,934 -- 17,185 -- 42,119
Loans, net of unearned..................... 46,601 32,535 14,595 -- 93,731
Less: Allowance for loan losses............ (717) (357) (288) -- (1,362)
------- ------- ------- ------- --------
Net loans......................... 45,884 32,178 14,307 -- 92,369
------- ------- ------- ------- --------
Premises and equipment, net................ 10,227 555 285 892(c) 11,959
Intangibles, net........................... 416 -- -- -- 416
Other assets............................... 1,436 1,408 761 -- 3,605
------- ------- ------- ------- --------
Total assets...................... $89,820 $38,116 $42,387 $ 1,037 $171,360
======= ======= ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing...................... $12,618 $ 4,328 $ 6,635 $ -- $ 23,581
Interest-bearing......................... 52,136 30,075 29,069 -- 111,280
------- ------- ------- ------- --------
Total deposits.................... 64,754 34,403 35,704 -- 134,861
Federal funds purchased and other borrowed
funds.................................... -- -- 32 7,300(c) 7,332
Accrued expenses and other liabilities..... 3,181 468 243 -- 3,892
------- ------- ------- ------- --------
Total liabilities................. 67,935 34,871 35,979 7,300 146,085
Minority interest in equity of
subsidiary............................... 29 -- -- -- 29
Stockholders' Equity
Common stock............................. 5 75 20 --(a) 6
1(b)
(75)(b)
(20)(c)
Surplus.................................. 13,435 800 3,526 145(a) 14,454
874(b)
(800)(b)
(3,526)(c)
Retained earnings........................ 8,451 2,366 2,846 (2,846)(c) 10,817
Accumulated other comprehensive income
(loss)................................. (35) 4 16 (16)(c) (31)
------- ------- ------- ------- --------
Total stockholders' equity........ 21,856 3,245 6,408 (6,263) 25,246
------- ------- ------- ------- --------
Total liabilities and
stockholders' equity............ $89,820 $38,116 $42,387 $ 1,037 $171,360
======= ======= ======= ======= ========
</TABLE>
269
<PAGE> 291
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF
FINANCIAL CONDITION
(a) To record the exercise of 5,000 stock options by officer of First Citizens
prior to the merger.
(b) To record the exchange of 663,243 shares of The Banc Corporation common
stock for all of the outstanding shares of First Citizens accounted for as a
pooling of interests.
<TABLE>
<CAPTION>
FIRST
CITIZENS
BANCORP
---------
<S> <C>
Outstanding shares of acquired corporation.................. 80,000
Conversion ratio............................................ 8.290537
---------
The Banc Corporation shares to be issued.................... 663,243
Par value of shares to be issued at $.001 per share......... $ 1
Total common stock and surplus of acquired corporation...... 875
---------
Excess recorded as an increase in contributed capital..... 874
---------
To eliminate acquired corporations capital stock
Common stock at par value................................. (75)
Surplus................................................... (800)
---------
(875)
---------
Net change in equity.............................. $ --
=========
</TABLE>
(c) Purchase of 100% of the outstanding common stock of Commercial Bancshares of
Roanoke, Inc. for approximately $7.3 million. Stock will be purchased with
proceeds borrowed from a commercial bank. The excess of cost over book value
will be allocated to the carrying value of the main office building which
currently has a zero book basis.
(d) The Banc Corporation was formed by the reincorporation of Warrior Capital
Corporation. The 18,160 shares of Warrior Capital Corporation common stock
were converted into 5,448,000 shares of The Banc Corporation $.001 par value
common stock.
270
<PAGE> 292
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENTS OF INCOME (UNAUDITED)
The following summaries include (i) the condensed consolidated statements
of income of The Banc Corporation (formerly the Warrior Capital Corporation) on
a historical basis for the six months ended June 30, 1998 and 1997, and the
years ended December 31, 1997, 1996, and 1995, (ii) the condensed consolidated
statements of income of First Citizens for the six months ended June 30, 1998
and 1997 and the years ended December 31, 1997, 1996 and 1995, (iii) the
condensed consolidated statements of income of CBS for the six months ended June
30, 1998 and the year ended December 31, 1997, (iv) adjustments to give effect
to the proposed purchase method combination with CBS and the proposed pooling of
interests method business combination with First Citizens, (v) the pro forma
combined condensed consolidated statements of income of The Banc Corporation as
if such combinations had occurred on January 1, 1995. Note that for purchase
method combinations, Article 11 of Regulation S-X requires pro forma statements
of income to be presented for only the most recent fiscal year and interim
period. Accordingly, only the condensed consolidated statements of income for
the six months ended June 30, 1998 and the year ended December 31, 1997 are
included in (iii) above for CBS.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of income of The
Banc Corporation, First Citizens and CBS. The pro forma information may not
necessarily be indicative of future results. Pro forma earnings per share is
based on the weighted average number of shares outstanding for the period
adjusted for the applicable exchange ratio.
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1998
---------------------------------------------------------------
HISTORICAL
-----------------------------------
THE FIRST COMMERCIAL
BANC CITIZENS BANCSHARES PRO FORMA PRO FORMA
CORPORATION BANCORP OF ROANOKE ADJUSTMENTS COMBINED
----------- -------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income........................ $ 3,070 $1,683 $ 1,494 $ -- $ 6,247
Interest expense....................... 1,134 688 669 256(a) 2,747
---------- ------ -------- ----- ----------
Net interest income.......... 1,936 995 825 (256) 3,500
Provision for loan losses.............. 38 117 69 -- 224
---------- ------ -------- ----- ----------
Net interest income after provision
for loan losses................... 1,898 878 756 (256) 3,276
Noninterest income..................... 312 225 491 -- 1,028
Loss on sale of securities............. (4) -- -- -- (4)
Noninterest expenses................... 1,497 731 889 15(a) 3,132
---------- ------ -------- ----- ----------
Income (loss) before income
taxes...................... 709 372 358 (271) 1,168
Income tax expense (benefit)........... (68) 136 88 (100)(a) 56
---------- ------ -------- ----- ----------
Net income (loss)............ $ 777 $ 236 $ 270 $(171) $ 1,112
========== ====== ======== ===== ==========
Basic earnings per share............... $ 0.15 $ 3.15 $ 1.35 $ 0.19
========== ====== ======== ==========
Average number of shares outstanding --
basic................................ 5,230,500 75,000 200,000 5,852,290
========== ====== ======== ==========
</TABLE>
271
<PAGE> 293
- ---------------
<TABLE>
<S> <C> <C>
(a) To reflect interest expense (7%) on $7.3 million in
debt incurred to purchase stock of Commercial
Bancshares of Roanoke.............................. $256
Depreciation on allocation of purchase price to
premises and equipment (30 year period)............ 15
----
Decrease in income before tax benefit.............. $271
====
Income tax benefit at 37%.......................... $100
====
</TABLE>
272
<PAGE> 294
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1997
-------------------------------------------------
HISTORICAL
----------------------
THE FIRST
BANC CITIZENS PRO FORMA PRO FORMA
CORPORATION BANCORP ADJUSTMENTS COMBINED
----------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income.................................... $ 2,590 $ 1,391 $ -- $ 3,981
Interest expense................................... 1,109 574 -- 1,683
---------- ------- ---- ----------
Net interest income...................... 1,481 817 -- 2,298
Provision for loan losses.......................... 90 30 -- 120
---------- ------- ---- ----------
Net interest income after provision for loan
losses........................................ 1,391 787 -- 2,178
Noninterest income................................. 251 201 -- 452
Loss on sale of securities......................... (3) -- -- (3)
Noninterest expenses............................... 1,011 627 -- 1,638
---------- ------- ---- ----------
Income before income taxes............... 628 361 -- 989
Income tax expense................................. 233 131 -- 364
---------- ------- ---- ----------
Net income............................... $ 395 $ 230 $ -- $ 625
========== ======= ==== ==========
Basic earnings per share........................... $ 0.15 $ 3.07 $ 0.19
========== ======= ==========
Average number of shares outstanding -- basic...... 2,716,200 75,000 3,337,990
========== ======= ==========
</TABLE>
273
<PAGE> 295
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
---------------------------------------------------------------
HISTORICAL
-----------------------------------
THE FIRST COMMERCIAL
BANC CITIZENS BANCSHARES PRO FORMA PRO FORMA
CORPORATION BANCORP OF ROANOKE ADJUSTMENTS COMBINED
----------- -------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income........................ $ 5,399 $ 2,957 $ 3,114 $ -- $ 11,470
Interest expense....................... 2,248 1,215 1,307 511(a) 5,281
---------- ------- -------- ----- ----------
Net interest income.......... 3,151 1,742 1,807 (511) 6,189
Provision for loan losses.............. 330 218 401 -- 949
---------- ------- -------- ----- ----------
Net interest income after provision
for loan losses................... 2,821 1,524 1,406 (511) 5,240
Noninterest income..................... 475 415 980 -- 1,870
Noninterest expenses................... 2,111 1,303 2,010 30(a) 5,454
---------- ------- -------- ----- ----------
Income before income taxes... 1,185 636 376 (541) 1,656
Income tax expense (benefit)........... 387 213 68 (200)(a) 468
---------- ------- -------- ----- ----------
Net income (loss)............ $ 798 $ 423 $ 308 $(341) $ 1,188
========== ======= ======== ===== ==========
Basic earnings per share............... $ 0.26 $ 5.64 $ 1.54 $ 0.33
========== ======= ======== ==========
Average number of shares outstanding... 3,025,800 75,000 200,000 3,647,590
========== ======= ======== ==========
- ---------------
(a) To reflect interest expense (7%) on $7.3 million
in debt incurred to purchase stock of Commercial
Bancshares of Roanoke........................... $ 511
Depreciation on allocation of purchase price to
premises and equipment (30 year period)......... 30
-------
Decrease in income before tax benefit........... $ 541
=======
Income tax benefit at 37%....................... $ 200
=======
</TABLE>
274
<PAGE> 296
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------
HISTORICAL
----------------------
THE FIRST
BANC CITIZENS PRO FORMA PRO FORMA
CORPORATION BANCORP ADJUSTMENTS COMBINED
----------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income.................................... $ 5,073 $ 2,437 $ -- $ 7,510
Interest expense................................... 2,247 1,008 -- 3,255
---------- ------- ---- ----------
Net interest income...................... 2,826 1,429 -- 4,255
Provision for loan losses.......................... 135 43 -- 178
---------- ------- ---- ----------
Net interest income after provision for loan
losses........................................ 2,691 1,386 -- 4,077
Noninterest income................................. 463 430 -- 893
Noninterest expenses............................... 1,952 1,232 -- 3,184
---------- ------- ---- ----------
Income before income taxes............... 1,202 584 -- 1,786
Income tax expense................................. 412 184 -- 596
---------- ------- ---- ----------
Net income............................... $ 790 $ 400 $ -- $ 1,190
========== ======= ==== ==========
Basic earnings per share........................... $ 0.29 $ 5.33 $ 0.36
========== ======= ==========
Average number of shares outstanding............... 2,716,200 75,000 3,337,990
========== ======= ==========
</TABLE>
275
<PAGE> 297
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
-------------------------------------------------
HISTORICAL
----------------------
THE FIRST
BANC CITIZENS PRO FORMA PRO FORMA
CORPORATION BANCORP ADJUSTMENTS COMBINED
----------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income.................................... $ 4,859 $ 1,809 $ -- $ 6,668
Interest expense................................... 2,056 786 -- 2,842
---------- ------- ---- ----------
Net interest income...................... 2,803 1,023 -- 3,826
Provision for loan losses.......................... 120 -- -- 120
---------- ------- ---- ----------
Net interest income after provision for loan
losses........................................ 2,683 1,023 -- 3,706
Noninterest income................................. 553 348 -- 901
Noninterest expenses............................... 1,871 1,116 -- 2,987
---------- ------- ---- ----------
Income before income taxes............... 1,365 255 -- 1,620
Income tax expense................................. 467 61 -- 528
---------- ------- ---- ----------
Net income............................... $ 898 $ 194 $ -- $ 1,092
========== ======= ==== ==========
Basic earnings per share........................... $ 0.33 $ 2.59 $ 0.33
========== ======= ==========
Average number of shares outstanding............... 2,716,200 75,000 3,337,990
========== ======= ==========
</TABLE>
276
<PAGE> 298
THE BANC CORPORATION AND SUBSIDIARY
CONDENSED PRO FORMA STATEMENT OF CONDITION (UNAUDITED)
The following summary includes (i) the condensed consolidated statement of
financial condition of The Banc Corporation (formerly the Warrior Capital
Corporation) as of June 30, 1998, (ii) the condensed consolidated statement of
financial condition of First Citizens Bancorp, Inc. ("First Citizens") as of
June 30, 1998, (iii) adjustments to give effect to the proposed pooling of
interests method business combination with First Citizens, (iv) the pro forma
combined condensed statement of financial condition of The Banc Corporation and
subsidiary as if such combination had occurred on June 30, 1998.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of financial
conditions of The Banc Corporation and First Citizens. The pro forma information
provided below may not be indicative of future results.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
----------------------------------------------------
HISTORICAL
-------------------------
THE FIRST
BANC CITIZENS PRO FORMA PRO FORMA
CORPORATION(C) BANCORP ADJUSTMENTS COMBINED
-------------- -------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks................................. $ 4,822 $ 988 $ 145(a) $ 5,955
Federal funds sold...................................... 1,900 1,230 -- 3,130
Investment securities available for sale................ 201 1,757 -- 1,958
Investment securities held to maturity.................. 24,934 -- -- 24,934
Loans, net of unearned.................................. 46,601 32,535 -- 79,136
Less: Allowance for loan losses......................... (717) (357) -- (1,074)
------- ------- ----- --------
Net loans...................................... 45,884 32,178 -- 78,062
------- ------- ----- --------
Premises and equipment, net............................. 10,227 555 -- 10,782
Intangibles, net........................................ 416 -- -- 416
Other assets............................................ 1,436 1,408 -- 2,844
------- ------- ----- --------
Total assets................................... $89,820 $38,116 $ 145 $128,081
======= ======= ===== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing................................... $12,618 $ 4,328 $ -- $ 16,946
Interest-bearing...................................... 52,136 30,075 -- 82,211
------- ------- ----- --------
Total deposits................................. 64,754 34,403 -- 99,157
Accrued expenses and other liabilities.................. 3,181 468 -- 3,649
------- ------- ----- --------
Total liabilities.............................. 67,935 34,871 -- 102,806
Minority interest in equity of subsidiary............... 29 -- -- 29
Stockholders' Equity
Common stock.......................................... 5 75 --(a) 6
1(b)
(75)(b)
Surplus............................................... 13,435 800 145(a) 14,454
874(b)
(800)(b)
Retained earnings..................................... 8,451 2,366 -- 10,817
Accumulated other comprehensive income (loss)......... (35) 4 -- (31)
------- ------- ----- --------
Total stockholders' equity..................... 21,856 3,245 145 25,246
------- ------- ----- --------
Total liabilities and stockholders' equity..... $89,820 $38,116 $ 145 $128,081
======= ======= ===== ========
</TABLE>
277
<PAGE> 299
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF
FINANCIAL CONDITION
(a) To record the exercise of 5,000 stock options by officer of First Citizens
prior to the merger.
(b) To record the exchange of 663,243 shares of The Banc Corporation common
stock for all of the outstanding shares of First Citizens accounted for as a
pooling of interests.
<TABLE>
<CAPTION>
FIRST
CITIZENS
BANCORP
---------
<S> <C>
Outstanding shares of acquired corporation.................. 80,000
Conversion ratio............................................ 8.290537
---------
The Banc Corporation shares to be issued.................... 663,243
Par value of shares to be issued at $.001 per share......... $ 1
Total common stock and surplus of acquired corporation...... 875
---------
Excess recorded as an increase in contributed capital..... 874
---------
To eliminate acquired corporations capital stock
Common stock at par value................................. (75)
Surplus................................................... (800)
---------
(875)
---------
Net change in equity.............................. $ --
=========
</TABLE>
(c) The Banc Corporation was formed by the reincorporation of Warrior Capital
Corporation. The 18,160 shares of Warrior Capital Corporation common stock
were converted into 5,448,000 shares of The Banc Corporation $.001 par value
common stock.
278
<PAGE> 300
THE BANC CORPORATION AND SUBSIDIARY
CONDENSED PRO FORMA STATEMENTS OF INCOME (UNAUDITED)
The following summaries include (i) the condensed consolidated statements
of income of The Banc Corporation (formerly Warrior Capital Corporation) on a
historical basis for the six months ended June 30, 1998 and 1997, and the years
ended December 31, 1997, 1996, and 1995, (ii) the condensed consolidated
statements of income of First Citizens for the six months ended June 30, 1998
and 1997 and the years ended December 31, 1997, 1996 and 1995, (iii) adjustments
to give effect to the proposed pooling of interests method business combination
with First Citizens, (iv) the pro forma combined condensed consolidated
statements of income of The Banc Corporation as if such combination had occurred
on January 1, 1995.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of income of The
Banc Corporation and First Citizens. The pro forma information may not
necessarily be indicative of future results. Pro forma earnings per share is
based on the weighted average number of shares outstanding for the period
adjusted for the applicable exchange ratio.
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1998
-------------------------------------------------
HISTORICAL
----------------------
THE FIRST
BANC CITIZENS PRO FORMA PRO FORMA
CORPORATION BANCORP ADJUSTMENTS COMBINED
----------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income.................................... $ 3,070 $ 1,683 $ -- $ 4,753
Interest expense................................... 1,134 688 -- 1,822
---------- ------- ---- ----------
Net interest income........................... 1,936 995 -- 2,931
Provision for loan losses.......................... 38 117 -- 155
---------- ------- ---- ----------
Net interest income after provision for loan
losses........................................ 1,898 878 -- 2,776
Noninterest income................................. 312 225 -- 537
Loss on sale of securities......................... (4) -- -- (4)
Noninterest expenses............................... 1,497 731 -- 2,228
---------- ------- ---- ----------
Income before income taxes.................... 709 372 -- 1,081
Income tax expense (benefit)....................... (68) 136 -- 68
---------- ------- ---- ----------
Net income.................................... $ 777 $ 236 $ -- $ 1,013
========== ======= ==== ==========
Basic earnings per share........................... $ 0.15 $ 3.15 $ 0.17
========== ======= ==========
Average number of shares outstanding -- basic...... 5,230,500 75,000 5,852,290
========== ======= ==========
</TABLE>
279
<PAGE> 301
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1997
-------------------------------------------------
HISTORICAL
----------------------
THE FIRST
BANC CITIZENS PRO FORMA PRO FORMA
CORPORATION BANCORP ADJUSTMENTS COMBINED
----------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income.................................... $ 2,590 $ 1,391 $ -- $ 3,981
Interest expense................................... 1,109 574 -- 1,683
---------- ------- ---- ----------
Net interest income...................... 1,481 817 -- 2,298
Provision for loan losses.......................... 90 30 -- 120
---------- ------- ---- ----------
Net interest income after provision for loan
losses........................................ 1,391 787 -- 2,178
Noninterest income................................. 251 201 -- 452
Loss on sale of securities......................... (3) -- -- (3)
Noninterest expenses............................... 1,011 627 -- 1,638
---------- ------- ---- ----------
Income before income taxes............... 628 361 -- 989
Income tax expense................................. 233 131 -- 364
---------- ------- ---- ----------
Net income............................... $ 395 $ 230 $ -- $ 625
========== ======= ==== ==========
Basic earnings per share........................... $ 0.15 $ 3.07 $ 0.19
========== ======= ==========
Average number of shares outstanding -- basic...... 2,716,200 75,000 3,337,990
========== ======= ==========
</TABLE>
280
<PAGE> 302
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------
HISTORICAL
----------------------
THE FIRST
BANC CITIZENS PRO FORMA PRO FORMA
CORPORATION BANCORP ADJUSTMENTS COMBINED
----------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income.................................... $ 5,399 $ 2,957 $ -- $ 8,356
Interest expense................................... 2,248 1,215 -- 3,463
---------- ------- ---- ----------
Net interest income...................... 3,151 1,742 -- 4,893
Provision for loan losses.......................... 330 218 -- 548
---------- ------- ---- ----------
Net interest income after provision for loan
losses........................................ 2,821 1,524 -- 4,345
Noninterest income................................. 475 415 -- 890
Noninterest expenses............................... 2,111 1,303 -- 3,414
---------- ------- ---- ----------
Income before income taxes............... 1,185 636 -- 1,821
Income tax expense................................. 387 213 -- 600
---------- ------- ---- ----------
Net income............................... $ 798 $ 423 $ -- $ 1,221
========== ======= ==== ==========
Basic earnings per share........................... $ 0.26 $ 5.64 $ 0.33
========== ======= ==========
Average number of shares outstanding............... 3,025,800 75,000 3,647,590
========== ======= ==========
</TABLE>
281
<PAGE> 303
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------
HISTORICAL
----------------------
THE FIRST
BANC CITIZENS PRO FORMA PRO FORMA
CORPORATION BANCORP ADJUSTMENTS COMBINED
----------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income.................................... $ 5,073 $ 2,437 $ -- $ 7,510
Interest expense................................... 2,247 1,008 -- 3,255
---------- ------- ---- ----------
Net interest income...................... 2,826 1,429 -- 4,255
Provision for loan losses.......................... 135 43 -- 178
---------- ------- ---- ----------
Net interest income after provision for loan
losses........................................ 2,691 1,386 -- 4,077
Noninterest income................................. 463 430 -- 893
Noninterest expenses............................... 1,952 1,232 -- 3,184
---------- ------- ---- ----------
Income before income taxes............... 1,202 584 -- 1,786
Income tax expense................................. 412 184 -- 596
---------- ------- ---- ----------
Net income............................... $ 790 $ 400 $ -- $ 1,190
========== ======= ==== ==========
Basic earnings per share........................... $ 0.29 $ 5.33 $ 0.36
========== ======= ==========
Average number of shares outstanding............... 2,716,200 75,000 3,337,990
========== ======= ==========
</TABLE>
282
<PAGE> 304
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
-------------------------------------------------
HISTORICAL
----------------------
THE FIRST
BANC CITIZENS PRO FORMA PRO FORMA
CORPORATION BANCORP ADJUSTMENTS COMBINED
----------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income.................................... $ 4,859 $ 1,809 $ -- $ 6,668
Interest expense................................... 2,056 786 -- 2,842
---------- ------- ------ ----------
Net interest income...................... 2,803 1,023 -- 3,826
Provision for loan losses.......................... 120 -- -- 120
---------- ------- ------ ----------
Net interest income after provision for loan
losses........................................ 2,683 1,023 -- 3,706
Noninterest income................................. 553 348 -- 901
Noninterest expenses............................... 1,871 1,116 -- 2,987
---------- ------- ------ ----------
Income before income taxes............... 1,365 255 -- 1,620
Income tax expense................................. 467 61 -- 528
---------- ------- ------ ----------
Net income............................... $ 898 $ 194 $ -- $ 1,092
========== ======= ====== ==========
Basic earnings per share........................... $ 0.33 $ 2.59 $ 0.33
========== ======= ==========
Average number of shares outstanding............... 2,716,200 75,000 3,337,990
========== ======= ==========
</TABLE>
283
<PAGE> 305
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENT OF CONDITION (UNAUDITED)
The following summary includes (i) the condensed consolidated statement of
financial condition of The Banc Corporation (formerly the Warrior Capital
Corporation) as of June 30, 1998, (ii) the condensed consolidated statement of
financial condition of First Citizens Bancorp, Inc. ("First Citizens") as of
June 30, 1998, (iii) the condensed consolidated statement of financial condition
of City National Corporation ("City National") as of June 30, 1998, (iv) the
condensed consolidated statement of financial condition of Commercial Bancshares
of Roanoke, Inc. ("CBS") as of June 30, 1998, (v) adjustments to give effect to
the proposed purchase method combination with CBS and the proposed pooling of
interests method business combinations with First Citizens and City National,
(vi) the pro forma combined condensed statement of financial condition of The
Banc Corporation and subsidiaries as if such combinations had occurred on June
30, 1998.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of financial
conditions of The Banc Corporation, First Citizens, City National and CBS. The
pro forma information provided below may not be indicative of future results.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
----------------------------------------------------------------------------------
HISTORICAL
-----------------------------------------------------
THE FIRST CITY COMMERCIAL
BANC CITIZENS NATIONAL BANCSHARES PRO FORMA PRO FORMA
CORPORATION(D) BANCORP CORPORATION OF ROANOKE ADJUSTMENTS COMBINED
-------------- --------- ----------- ---------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks........... $ 4,822 $ 988 $ 2,725 $ 1,579 $ 145(a) $ 10,259
Interest bearing deposits in other
banks........................... -- -- 200 200 -- 400
Federal funds sold................ 1,900 1,230 1,120 5,250 -- 9,500
Investment securities available
for sale........................ 201 1,757 35,224 2,820 -- 40,002
Investment securities held to
maturity........................ 24,934 -- -- 17,185 -- 42,119
Loans, net of unearned............ 46,601 32,535 39,568 14,595 -- 133,299
Less: Allowance for loan losses... (717) (357) (700) (288) -- (2,062)
------- ------- ------- ------- -------- --------
Net loans................. 45,884 32,178 38,868 14,307 -- 131,237
------- ------- ------- ------- -------- --------
Premises and equipment, net....... 10,227 555 2,707 285 892(c) 14,666
Intangibles, net.................. 416 -- -- -- -- 416
Other assets...................... 1,436 1,408 1,364 761 -- 4,969
------- ------- ------- ------- -------- --------
Total assets.............. $89,820 $38,116 $82,208 $42,387 $ 1,037 $253,568
======= ======= ======= ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing............. $12,618 $ 4,328 $10,525 $ 6,635 $ -- $ 34,106
Interest-bearing................ 52,136 30,075 58,832 29,069 -- 170,112
------- ------- ------- ------- -------- --------
Total deposits............ 64,754 34,403 69,357 35,704 -- 204,218
Federal funds purchased and other
borrowed funds.................. -- -- -- 32 7,300(c) 7,332
Accrued expenses and other
liabilities..................... 3,181 468 893 243 -- 4,785
------- ------- ------- ------- -------- --------
Total liabilities......... 67,935 34,871 70,250 35,979 7,300 216,335
Minority interest in equity of
subsidiary...................... 29 -- 139 -- -- 168
Stockholders' Equity
Common stock.................... 5 75 27 20 --(a) 8
3(b)
(102)(b)
(20)(c)
Surplus......................... 13,435 800 4,135 3,526 145(a) 18,548
4,968(b)
(4,935)(b)
(3,526)(c)
Retained earnings............... 8,451 2,366 7,422 2,846 (2,846)(c) 18,239
Accumulated other comprehensive
income (loss)................. (35) 4 301 16 (16)(c) 270
Treasury stock, at cost......... -- -- (66) -- 66(b) --
------- ------- ------- ------- -------- --------
Total stockholders'
equity.................. 21,856 3,245 11,819 6,408 (6,263) 37,065
------- ------- ------- ------- -------- --------
Total liabilities and
stockholders' equity.... $89,820 $38,116 $82,208 $42,387 $ 1,037 $253,568
======= ======= ======= ======= ======== ========
</TABLE>
284
<PAGE> 306
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF
FINANCIAL CONDITION
(a) To record the exercise of 5,000 stock options by officer of First Citizens
prior to the merger.
(b) To record the exchange of 2,663,243 shares of The Banc Corporation common
stock for all of the outstanding shares of the following accounted for as a
pooling of interests.
<TABLE>
<CAPTION>
FIRST CITY
CITIZENS NATIONAL
BANCORP CORPORATION TOTAL
--------- ----------- ----------
<S> <C> <C> <C>
Outstanding shares of acquired corporation......... 80,000 26,832
Conversion ratio................................... 8.290537 74.53786
--------- ----------
The Banc Corporation shares to be issued........... 663,243 2,000,000 2,663,243
Par value of shares to be issued at $.001 per
share............................................ $ 1 $ 2 $ 3
Total common stock and surplus of acquired
corporation...................................... 875 4,096 4,971
--------- ---------- ----------
Excess recorded as an increase in contributed
capital....................................... 874 4,094 4,968
--------- ---------- ----------
To eliminate acquired corporations capital stock
Common stock at par value........................ (75) (27) (102)
Surplus.......................................... (800) (4,135) (4,935)
Treasury stock................................... -- 66 66
--------- ---------- ----------
(875) (4,096) (4,971)
--------- ---------- ----------
Net change in equity..................... $ -- $ -- $ --
========= ========== ==========
</TABLE>
(c) Purchase of 100% of the outstanding common stock of Commercial Bancshares of
Roanoke, Inc. for approximately $7.3 million. Stock will be purchased with
proceeds borrowed from a commercial bank. The excess of cost over book value
will be allocated to the carrying value of the main office building which
currently has a zero book basis.
(d) The Banc Corporation was formed by the reincorporation of Warrior Capital
Corporation. The 18,160 shares of Warrior Capital Corporation common stock
were converted into 5,448,000 shares of The Banc Corporation $.001 par value
common stock.
285
<PAGE> 307
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENTS OF INCOME (UNAUDITED)
The following summaries include (i) the condensed consolidated statements
of income of The Banc Corporation (formerly the Warrior Capital Corporation) on
a historical basis for the six months ended June 30, 1998 and 1997, and the
years ended December 31,1997, 1996, and 1995, (ii) the condensed consolidated
statements of income of First Citizens for the six months ended June 30, 1998
and 1997 and the years ended December 31, 1997, 1996 and 1995, (iii) the
condensed consolidated statements of income of City National for the six months
ended June 30, 1998 and 1997 and the years ended December 31, 1997, 1996 and
1995, (iv) the condensed consolidated statements of income of CBS for the six
months ended June 30, 1998 and the year ended December 31, 1997, (v) adjustments
to give effect to the proposed purchase method combination with CBS and the
proposed pooling of interests method business combinations with First Citizens
and City National, (vi) the pro forma combined condensed consolidated statements
of income of The Banc Corporation as if such combinations had occurred on
January 1, 1995. Note that for purchase method combinations, Article 11 of
Regulation S-X requires pro forma statements of income to be presented for only
the most recent fiscal year and interim period. Accordingly, only the condensed
consolidated statements of income for the six months ended June 30, 1998 and the
year ended December 31, 1997 are included in (iv) above for CBS.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of income of The
Banc Corporation First Citizens, City National and CBS. The pro forma
information may not necessarily be indicative of future results. Pro forma
earnings per share is based on the weighted average number of shares outstanding
for the period adjusted for the applicable exchange ratio.
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1998
-----------------------------------------------------------------------------
HISTORICAL
-------------------------------------------------
THE FIRST CITY COMMERCIAL
BANC CITIZENS NATIONAL BANCSHARES PRO FORMA PRO FORMA
CORPORATION BANCORP CORPORATION OF ROANOKE ADJUSTMENTS COMBINED
----------- -------- ----------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income........................ $ 3,070 $ 1,683 $ 3,290 $ 1,494 $ -- $ 9,537
Interest expense....................... 1,134 688 1,359 669 256(a) 4,106
---------- ------- ------- -------- ----- ----------
Net interest income........... 1,936 995 1,931 825 (256) 5,431
Provision for loan losses.............. 38 117 430 69 -- 654
---------- ------- ------- -------- ----- ----------
Net interest income after provision
for loan losses.................... 1,898 878 1,501 756 (256) 4,777
Noninterest income..................... 312 225 280 491 -- 1,308
Gain (loss) on sale of securities...... (4) -- 47 -- -- 43
Noninterest expenses................... 1,497 731 1,696 889 15(a) 4,828
---------- ------- ------- -------- ----- ----------
Income (loss) before income
taxes....................... 709 372 132 358 (271) 1,300
Income tax expense (benefit)........... (68) 136 47 88 (100)(a) 103
---------- ------- ------- -------- ----- ----------
Net income (loss)............. $ 777 $ 236 $ 85 $ 270 $(171) $ 1,197
========== ======= ======= ======== ===== ==========
Basic earnings per share............... $ 0.15 $ 3.15 $ 3.16 $ 1.35 $ 0.15
========== ======= ======= ======== ==========
Average number of shares outstanding --
basic................................ 5,230,500 75,000 26,882 200,000 7,856,017
========== ======= ======= ======== ==========
- ---------------
(a) To reflect interest expense (7%) on $7.3 million
in debt incurred to purchase stock of Commercial
Bancshares of Roanoke, Inc...................... $ 256
Depreciation on allocation of purchase price to
premises and equipment (30 year period)......... 15
-------
Decrease in income before tax benefit........... $ 271
=======
Income tax benefit at 37%....................... $ 100
=======
</TABLE>
286
<PAGE> 308
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1997
---------------------------------------------------------------
HISTORICAL
------------------------------------
THE FIRST CITY
BANC CITIZENS NATIONAL PRO FORMA PRO FORMA
CORPORATION BANCORP CORPORATION ADJUSTMENTS COMBINED
----------- -------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income......................... $ 2,590 $ 1,391 $ 3,355 $ -- $ 7,336
Interest expense........................ 1,109 574 1,448 -- 3,131
---------- ------- ------- ----- ----------
Net interest income................ 1,481 817 1,907 -- 4,205
Provision for loan losses............... 90 30 248 -- 368
---------- ------- ------- ----- ----------
Net interest income after provision
for loan losses.................... 1,391 787 1,659 -- 3,837
Noninterest income...................... 251 201 255 -- 707
Gain (loss) on sale of securities....... (3) -- 2 -- (1)
Noninterest expenses.................... 1,011 627 1,654 -- 3,292
---------- ------- ------- ----- ----------
Income before income taxes......... 628 361 262 -- 1,251
Income tax expense...................... 233 131 92 -- 456
---------- ------- ------- ----- ----------
Net income......................... $ 395 $ 230 $ 170 $ -- $ 795
========== ======= ======= ===== ==========
Basic earnings per share................ $ 0.15 $ 3.07 $ 6.31 $ 0.15
========== ======= ======= ==========
Average number of shares
outstanding -- basic.................. 2,716,200 75,000 26,948 5,346,636
========== ======= ======= ==========
</TABLE>
287
<PAGE> 309
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------------------------------------
HISTORICAL
-------------------------------------------------
THE FIRST CITY COMMERCIAL
BANC CITIZENS NATIONAL BANCSHARES PRO FORMA PRO FORMA
CORPORATION BANCORP CORPORATION OF ROANOKE ADJUSTMENTS COMBINED
----------- -------- ----------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income............. $ 5,399 $ 2,957 $ 6,721 $ 3,114 $ -- $ 18,191
Interest expense............ 2,248 1,215 2,911 1,307 511(a) 8,192
---------- ------- ------- -------- ----- ----------
Net interest
income.......... 3,151 1,742 3,810 1,807 (511) 9,999
Provision for loan losses... 330 218 384 401 -- 1,333
---------- ------- ------- -------- ----- ----------
Net interest income after
provision for loan
losses................. 2,821 1,524 3,426 1,406 (511) 8,666
Noninterest income.......... 475 415 736 980 -- 2,606
Noninterest expenses........ 2,111 1,303 3,367 2,010 30(a) 8,821
---------- ------- ------- -------- ----- ----------
Income before
income taxes.... 1,185 636 795 376 (541) 2,451
Income tax expense
(benefit)................. 387 213 170 68 (200)(a) 638
---------- ------- ------- -------- ----- ----------
Net income
(loss).......... $ 798 $ 423 $ 625 $ 308 $(341) $ 1,813
========== ======= ======= ======== ===== ==========
Basic earnings per share.... $ 0.26 $ 5.64 $ 23.25 $ 1.54 $ 0.32
========== ======= ======= ======== ==========
Average number of shares
outstanding............... 3,025,800 75,000 26,910 200,000 5,653,404
========== ======= ======= ======== ==========
- ---------------
(a) To reflect interest expense (7%) on $7.3 million
in debt incurred to purchase stock of Commercial
Bancshares of Roanoke, Inc...................... $ 511
Depreciation on allocation of purchase price to
premises and equipment (30 year period)......... 30
-------
Decrease in income before tax benefit........... $ 541
=======
Income tax benefit at 37%....................... $ 200
=======
</TABLE>
288
<PAGE> 310
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------------------
HISTORICAL
------------------------------------
THE FIRST CITY
BANC CITIZENS NATIONAL PRO FORMA PRO FORMA
CORPORATION BANCORP CORPORATION ADJUSTMENTS COMBINED
----------- -------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income......................... $ 5,073 $ 2,437 $ 6,027 $ -- $ 13,537
Interest expense........................ 2,247 1,008 2,460 -- 5,715
---------- ------- ------- ---- ----------
Net interest income................ 2,826 1,429 3,567 -- 7,822
Provision for loan losses............... 135 43 346 -- 524
---------- ------- ------- ---- ----------
Net interest income after provision
for loan losses.................... 2,691 1,386 3,221 -- 7,298
Noninterest income...................... 463 430 683 -- 1,576
Noninterest expenses.................... 1,952 1,232 3,211 -- 6,395
---------- ------- ------- ---- ----------
Income before income taxes......... 1,202 584 693 -- 2,479
Income tax expense...................... 412 184 133 -- 729
---------- ------- ------- ---- ----------
Net income......................... $ 790 $ 400 $ 560 $ -- $ 1,750
========== ======= ======= ==== ==========
Basic earnings per share................ $ 0.29 $ 5.33 $ 20.68 $ 0.33
========== ======= ======= ==========
Average number of shares outstanding.... 2,716,200 75,000 27,063 5,355,208
========== ======= ======= ==========
</TABLE>
289
<PAGE> 311
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------------------
HISTORICAL
------------------------------------
THE FIRST CITY
BANC CITIZENS NATIONAL PRO FORMA PRO FORMA
CORPORATION BANCORP CORPORATION ADJUSTMENTS COMBINED
----------- -------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income......................... $ 4,859 $ 1,809 $ 5,674 $ -- $ 12,342
Interest expense........................ 2,056 786 2,324 -- 5,166
---------- ------- ------- ---- ----------
Net interest income........... 2,803 1,023 3,350 -- 7,176
Provision for loan losses............... 120 -- 204 -- 324
---------- ------- ------- ---- ----------
Net interest income after provision
for loan losses.................... 2,683 1,023 3,146 -- 6,852
Noninterest income...................... 553 348 629 -- 1,530
Noninterest expenses.................... 1,871 1,116 3,010 -- 5,997
---------- ------- ------- ---- ----------
Income before income taxes.... 1,365 255 765 -- 2,385
Income tax expense...................... 467 61 40 -- 568
---------- ------- ------- ---- ----------
Net income.................... $ 898 $ 194 $ 725 $ -- $ 1,817
========== ======= ======= ==== ==========
Basic earnings per share................ $ 0.33 $ 2.59 $ 26.73 $ 0.34
========== ======= ======= ==========
Average number of shares outstanding.... 2,716,200 75,000 27,149 5,361,618
========== ======= ======= ==========
</TABLE>
290
<PAGE> 312
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENT OF CONDITION (UNAUDITED)
The following summary includes (i) the condensed consolidated statement of
financial condition of The Banc Corporation (formerly the Warrior Capital
Corporation) as of June 30, 1998, (ii) the condensed consolidated statement of
financial condition of City National Corporation ("City National") as of June
30, 1998, (iii) adjustments to give effect to the proposed pooling of interests
method business combination with City National, (iv) the pro forma combined
condensed statement of financial condition of The Banc Corporation and
subsidiaries as if such combinations had occurred on June 30, 1998.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of financial
conditions of The Banc Corporation and City National. The pro forma information
provided below may not be indicative of future results.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
-------------------------------------------------------
HISTORICAL
----------------------------
THE CITY
BANC NATIONAL PRO FORMA PRO FORMA
CORPORATION(B) CORPORATION ADJUSTMENTS COMBINED
-------------- ----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks........................ $ 4,822 $ 2,725 $ -- $ 7,547
Interest bearing deposits in other banks....... -- 200 -- 200
Federal funds sold............................. 1,900 1,120 -- 3,020
Investment securities available for sale....... 201 35,224 -- 35,425
Investment securities held to maturity......... 24,934 -- -- 24,934
Loans, net of unearned......................... 46,601 39,568 -- 86,169
Less: Allowance for loan losses................ (717) (700) -- (1,417)
-------- ------- -------- --------
Net loans............................ 45,884 38,868 -- 84,752
-------- ------- -------- --------
Premises and equipment, net.................... 10,227 2,707 -- 12,934
Intangibles, net............................... 416 -- -- 416
Other assets................................... 1,436 1,364 -- 2,800
-------- ------- -------- --------
Total assets......................... $ 89,820 $82,208 $ -- $172,028
======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing.......................... $ 12,618 $10,525 $ -- $ 23,143
Interest-bearing............................. 52,136 58,832 -- 110,968
-------- ------- -------- --------
Total deposits....................... 64,754 69,357 -- 134,111
Accrued expenses and other liabilities......... 3,181 893 -- 4,074
-------- ------- -------- --------
Total liabilities.................... 67,935 70,250 -- 138,185
Minority interest in equity of subsidiary...... 29 139 -- 168
Stockholders' Equity
Common stock................................. 5 27 2(a) 7
(27)(a)
Surplus...................................... 13,435 4,135 4,094(a) 17,529
(4,135)(a)
Retained earnings............................ 8,451 7,422 15,873
Accumulated other comprehensive income
(loss).................................... (35) 301 266
Treasury stock, at cost...................... -- (66) 66(a) --
-------- ------- -------- --------
Total stockholders' equity........... 21,856 11,819 -- 33,675
-------- ------- -------- --------
Total liabilities and stockholders'
equity............................. $ 89,820 $82,208 $ -- $172,028
======== ======= ======== ========
</TABLE>
291
<PAGE> 313
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF
FINANCIAL CONDITION
(a) To record the exchange of 2,000,000 shares of The Banc Corporation common
stock for all of the outstanding shares of City National accounted for as a
pooling of interests.
<TABLE>
<CAPTION>
CITY
NATIONAL
CORPORATION
-----------
<S> <C>
Outstanding shares of acquired corporation.................. 26,832
Conversion ratio............................................ 74.53786
----------
The Banc Corporation shares to be issued.................... 2,000,000
Par value of shares to be issued at $.001 per share......... $ 2
Total common stock and surplus of acquired corporation...... 4,096
----------
Excess recorded as an increase in contributed capital..... 4,094
----------
To eliminate acquired corporations capital stock
Common stock at par value................................. (27)
Surplus................................................... (4,135)
Treasury stock............................................ 66
----------
(4,096)
----------
Net change in equity.............................. $ --
==========
</TABLE>
(b) The Banc Corporation was formed by the reincorporation of Warrior Capital
Corporation. The 18,160 shares of Warrior Capital Corporation common stock
were converted into 5,448,000 shares of The Banc Corporation $.001 par value
common stock.
292
<PAGE> 314
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENTS OF INCOME (UNAUDITED)
The following summaries include (i) the condensed consolidated statements
of income of The Banc Corporation (formerly Warrior Capital Corporation) on a
historical basis for the six months ended June 30, 1998 and 1997, and the years
ended December 31, 1997, 1996, and 1995, (ii) the condensed consolidated
statements of income of City National for the six months ended June 30, 1998 and
1997 and the years ended December 31, 1997, 1996 and 1995, (iii) adjustments to
give effect to the proposed pooling of interests method business combination
with City National, (iv) the pro forma combined condensed consolidated
statements of income of The Banc Corporation as if such combination had occurred
on January 1, 1995.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of income of The
Banc Corporation and City National. The pro forma information may not
necessarily be indicative of future results. Pro forma earnings per share is
based on the weighted average number of shares outstanding for the period
adjusted for the applicable exchange ratio.
<TABLE>
<CAPTION>
FOR THE PERIOD JUNE 30, 1998
----------------------------------------------------
HISTORICAL
-------------------------
THE CITY
BANC NATIONAL PRO FORMA PRO FORMA
CORPORATION CORPORATION ADJUSTMENTS COMBINED
----------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income.................................. $ 3,070 $ 3,290 $ -- $ 6,360
Interest expense................................. 1,134 1,359 -- 2,493
---------- ------- ---- ----------
Net interest income.................... 1,936 1,931 -- 3,867
Provision for loan losses........................ 38 430 -- 468
---------- ------- ---- ----------
Net interest income after provision for loan
losses...................................... 1,898 1,501 -- 3,399
Noninterest income............................... 312 280 -- 592
Gain (loss) on sale of securities................ (4) 47 -- 43
Noninterest expenses............................. 1,497 1,696 -- 3,193
---------- ------- ---- ----------
Income before income taxes............. 709 132 -- 841
Income tax expense (benefit)..................... (68) 47 -- (21)
---------- ------- ---- ----------
Net income............................. $ 777 $ 85 $ -- $ 862
========== ======= ==== ==========
Basic earnings per share......................... $ 0.15 $ 3.16 $ 0.12
========== ======= ==========
Average number of shares outstanding -- basic.... 5,230,500 26,882 7,234,227
========== ======= ==========
</TABLE>
293
<PAGE> 315
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1997
----------------------------------------------------
HISTORICAL
-------------------------
THE CITY
BANC NATIONAL PRO FORMA PRO FORMA
CORPORATION CORPORATION ADJUSTMENTS COMBINED
----------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income.................................. $ 2,590 $ 3,355 $ -- $ 5,945
Interest expense................................. 1,109 1,448 -- 2,557
---------- ------- ----- ----------
Net interest income.................... 1,481 1,907 -- 3,388
Provision for loan losses........................ 90 248 -- 338
---------- ------- ----- ----------
Net interest income after provision for loan
losses...................................... 1,391 1,659 -- 3,050
Noninterest income............................... 251 255 -- 506
Gain (loss) on sale of securities................ (3) 2 -- (1)
Noninterest expenses............................. 1,011 1,654 -- 2,665
---------- ------- ----- ----------
Income before income taxes............. 628 262 -- 890
Income tax expense............................... 233 92 -- 325
---------- ------- ----- ----------
Net income............................. $ 395 $ 170 $ -- $ 565
========== ======= ===== ==========
Basic earnings per share......................... $ 0.15 $ 6.31 $ 0.12
========== ======= ==========
Average number of shares outstanding -- basic.... 2,716,200 26,948 4,724,846
========== ======= ==========
</TABLE>
294
<PAGE> 316
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------
HISTORICAL
-------------------------
THE CITY
BANC NATIONAL PRO FORMA PRO FORMA
CORPORATION CORPORATION ADJUSTMENTS COMBINED
----------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income.................................. $ 5,399 $ 6,721 $ -- $ 12,120
Interest expense................................. 2,248 2,911 -- 5,159
---------- ------- ---- ----------
Net interest income.................... 3,151 3,810 -- 6,961
Provision for loan losses........................ 330 384 -- 714
---------- ------- ---- ----------
Net interest income after provision for loan
losses...................................... 2,821 3,426 -- 6,247
Noninterest income............................... 475 737 -- 1,212
Noninterest expenses............................. 2,111 3,367 -- 5,478
---------- ------- ---- ----------
Income before income taxes.................. 1,185 796 -- 1,981
Income tax expense............................... 387 170 -- 557
---------- ------- ---- ----------
Net income.................................. $ 798 $ 626 $ -- $ 1,424
========== ======= ==== ==========
Basic earnings per share......................... $ 0.26 $ 23.25 $ 0.28
========== ======= ==========
Average number of shares outstanding............. 3,025,800 26,910 5,031,614
========== ======= ==========
</TABLE>
295
<PAGE> 317
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
----------------------------------------------------
HISTORICAL
-------------------------
THE CITY
BANC NATIONAL PRO FORMA PRO FORMA
CORPORATION CORPORATION ADJUSTMENTS COMBINED
----------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income.................................. $ 5,073 $ 6,027 $ -- $ 11,100
Interest expense................................. 2,247 2,460 -- 4,707
---------- ------- ---- ----------
Net interest income.................... 2,826 3,567 -- 6,393
Provision for loan losses........................ 135 346 -- 481
---------- ------- ---- ----------
Net interest income after provision for loan
losses...................................... 2,691 3,221 -- 5,912
Noninterest income............................... 463 683 -- 1,146
Noninterest expenses............................. 1,952 3,211 -- 5,163
---------- ------- ---- ----------
Income before income taxes............. 1,202 693 -- 1,895
Income tax expense............................... 412 133 -- 545
---------- ------- ---- ----------
Net income............................. $ 790 $ 560 $ -- $ 1,350
========== ======= ==== ==========
Basic earnings per share......................... $ 0.29 $ 20.68 $ 0.29
========== ======= ==========
Average number of shares outstanding............. 2,716,200 27,063 4,733,418
========== ======= ==========
</TABLE>
296
<PAGE> 318
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
----------------------------------------------------
HISTORICAL
-------------------------
THE CITY
BANC NATIONAL PRO FORMA PRO FORMA
CORPORATION CORPORATION ADJUSTMENTS COMBINED
----------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income.................................. $ 4,859 $ 5,674 $ -- $ 10,533
Interest expense................................. 2,056 2,324 -- 4,380
---------- ------- ---- ----------
Net interest income.................... 2,803 3,350 -- 6,153
Provision for loan losses........................ 120 204 -- 324
---------- ------- ---- ----------
Net interest income after provision for loan
losses...................................... 2,683 3,146 -- 5,829
Noninterest income............................... 553 629 -- 1,182
Noninterest expenses............................. 1,871 3,010 -- 4,881
---------- ------- ---- ----------
Income before income taxes............. 1,365 765 -- 2,130
Income tax expense............................... 467 40 -- 507
---------- ------- ---- ----------
Net income............................. $ 898 $ 725 $ -- $ 1,623
========== ======= ==== ==========
Basic earnings per share......................... $ 0.33 $ 26.73 $ 0.34
========== ======= ==========
Average number of shares outstanding............. 2,716,200 27,149 4,739,828
========== ======= ==========
</TABLE>
297
<PAGE> 319
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENT OF CONDITION (UNAUDITED)
The following summary includes (i) the condensed consolidated statement of
financial condition of The Banc Corporation (formerly the Warrior Capital
Corporation) as of June 30, 1998, (ii) the condensed consolidated statement of
financial condition of Emerald Coast Bancshares, Inc. ("Emerald") as of June 30,
1998, (iii) adjustments to give effect to the proposed pooling of interests
method business combination with Emerald, (iv) the pro forma combined condensed
statement of financial condition of The Banc Corporation and subsidiaries as if
such combination had occurred on June 30, 1998.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of financial
conditions of The Banc Corporation and Emerald. The pro forma information
provided below may not be indicative of future results.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
-------------------------------------------------------
HISTORICAL
---------------------------
THE EMERALD PRO
BANC COAST PRO FORMA FORMA
CORPORATION(C) BANCSHARES ADJUSTMENTS COMBINED
-------------- ---------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks.............................. $ 4,822 $ 4,220 $ 450(a) $ 9,492
Federal funds sold................................... 1,900 -- -- 1,900
Investment securities available for sale............. 201 8,092 -- 8,293
Investment securities held to maturity............... 24,934 -- -- 24,934
Loans, net of unearned............................... 46,601 55,320 -- 101,921
Less: Allowance for loan losses...................... (717) (512) -- (1,229)
------- ------- -------- --------
Net loans................................... 45,884 54,808 -- 100,692
------- ------- -------- --------
Premises and equipment, net.......................... 10,227 5,286 -- 15,513
Intangibles, net..................................... 416 -- -- 416
Other assets......................................... 1,436 1,378 -- 2,814
------- ------- -------- --------
Total assets................................ $89,820 $73,784 $ 450 $164,054
======= ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing................................ $12,618 $ 9,405 $ -- $ 22,023
Interest-bearing................................... 52,136 53,861 -- 105,997
------- ------- -------- --------
Total deposits.............................. 64,754 63,266 -- 128,020
Federal funds purchased and other borrowed funds..... -- 4,555 -- 4,555
Accrued expenses and other liabilities............... 3,181 450 -- 3,631
------- ------- -------- --------
Total liabilities........................... 67,935 68,271 -- 136,206
Minority interest in equity of subsidiary............ 29 -- -- 29
Stockholders' Equity
Common stock....................................... 5 3,130 --(a) 6
1(b)
(3,130)(b)
Surplus............................................ 13,435 3,130 450(a) 20,144
6,259(b)
(3,130)(b)
Retained earnings (accumulated deficit)............ 8,451 (757) 7,694
Accumulated other comprehensive income (loss)...... (35) 10 (25)
------- ------- -------- --------
Total stockholders' equity.................. 21,856 5,513 450 27,819
------- ------- -------- --------
Total liabilities and stockholders'
equity.................................... $89,820 $73,784 $ 450 $164,054
======= ======= ======== ========
</TABLE>
298
<PAGE> 320
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF
FINANCIAL CONDITION
(a) To record the exercise of 57,000 stock options by officers of Emerald before
merger.
(b) To record the exchange of 1,379,958 shares of The Banc Corporation common
stock for all of the outstanding shares of Emerald Coast Bancshares, Inc.
accounted for as a pooling of interests.
<TABLE>
<CAPTION>
EMERALD
COAST
BANCSHARES
----------
<S> <C>
Outstanding shares of acquired corporation.................. 683,000
Conversion ratio............................................ 2.02044
----------
The Banc Corporation shares to be issued.................... 1,379,958
Par value of shares to be issued at $.001 per share......... $ 1
Total common stock and surplus of acquired corporation...... 6,260
----------
Excess recorded as an increase in contributed capital..... 6,259
----------
To eliminate acquired corporations capital stock
Common stock at par value................................. (3,130)
Surplus................................................... (3,130)
Treasury stock............................................ --
----------
(6,260)
----------
Net change in equity.............................. $ --
==========
</TABLE>
(c) The Banc Corporation was formed by the reincorporation of Warrior Capital
Corporation. The 18,160 shares of Warrior Capital Corporation common stock
were converted into 5,448,000 shares of The Banc Corporation $.001 par value
common stock.
299
<PAGE> 321
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENTS OF INCOME (UNAUDITED)
The following summaries include (i) the condensed consolidated statements
of income of The Banc Corporation (formerly Warrior Capital Corporation) on a
historical basis for the six months ended June 30, 1998 and 1997, and the years
ended December 31, 1997, 1996, and 1995, (ii) the condensed consolidated
statements of income of Emerald for the six months ended June 30, 1998 and 1997
and the periods ended December 31, 1997 and 1996, (iii) adjustments to give
effect to the proposed pooling of interests method business combination with
Emerald, (iv) the pro forma combined condensed consolidated statements of income
of The Banc Corporation as if such combination had occurred on January 1, 1995.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of income of The
Banc Corporation and Emerald. The pro forma information may not necessarily be
indicative of future results. Pro forma earnings per share is based on the
weighted average number of shares outstanding for the period adjusted for the
applicable exchange ratio.
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1998
---------------------------------------------------
HISTORICAL
------------------------
THE EMERALD
BANC COAST PRO FORMA PRO FORMA
CORPORATION BANCSHARES ADJUSTMENTS COMBINED
----------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income................................... $ 3,070 $ 2,498 $ -- $ 5,568
Interest expense.................................. 1,134 1,197 -- 2,331
---------- -------- ---- ----------
Net interest income..................... 1,936 1,301 -- 3,237
Provision for loan losses......................... 38 156 -- 194
---------- -------- ---- ----------
Net interest income after provision for loan
losses....................................... 1,898 1,145 -- 3,043
Noninterest income................................ 312 168 -- 480
Gain (loss) on sale of securities................. (4) 18 -- 14
Noninterest expenses.............................. 1,497 1,342 -- 2,839
---------- -------- ---- ----------
Income (loss) before income taxes....... 709 (11) -- 698
Income tax benefit................................ (68) (4) -- (72)
---------- -------- ---- ----------
Net income (loss)....................... $ 777 $ (7) $ -- $ 770
========== ======== ==== ==========
Basic earnings per share.......................... $ 0.15 $ (0.01) $ 0.12
========== ======== ==========
Average number of shares outstanding -- basic..... 5,230,500 626,000 6,495,295
========== ======== ==========
</TABLE>
300
<PAGE> 322
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1997
---------------------------------------------------
HISTORICAL
------------------------
THE EMERALD
BANC COAST PRO FORMA PRO FORMA
CORPORATION BANCSHARES ADJUSTMENTS COMBINED
----------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income................................... $ 2,590 $ 1,228 $ -- $ 3,818
Interest expense.................................. 1,109 563 -- 1,672
---------- -------- ---- ----------
Net interest income..................... 1,481 665 -- 2,146
Provision for loan losses......................... 90 155 -- 245
---------- -------- ---- ----------
Net interest income after provision for loan
losses....................................... 1,391 510 -- 1,901
Noninterest income................................ 251 28 -- 279
Loss on sale of securities........................ (3) -- -- (3)
Noninterest expenses.............................. 1,011 817 -- 1,828
---------- -------- ---- ----------
Income (loss) before income taxes....... 628 (279) -- 349
Income tax expense (benefit)...................... 233 (164) -- 69
---------- -------- ---- ----------
Net income (loss)....................... $ 395 $ (115) $ -- $ 280
========== ======== ==== ==========
Basic earnings (loss) per share................... $ 0.15 $ (0.18) $ 0.07
========== ======== ==========
Average number of shares outstanding -- basic..... 2,716,200 626,000 3,980,993
========== ======== ==========
</TABLE>
301
<PAGE> 323
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
---------------------------------------------------
HISTORICAL
------------------------
THE EMERALD
BANC COAST PRO FORMA PRO FORMA
CORPORATION BANCSHARES ADJUSTMENTS COMBINED
----------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income................................... $ 5,399 $ 3,114 $ -- $ 8,513
Interest expense.................................. 2,248 1,551 -- 3,799
---------- -------- ---- ----------
Net interest income..................... 3,151 1,563 -- 4,714
Provision for loan losses......................... 330 333 -- 663
---------- -------- ---- ----------
Net interest income after provision for loan
losses....................................... 2,821 1,230 -- 4,051
Noninterest income................................ 475 115 -- 590
Noninterest expenses.............................. 2,111 1,936 -- 4,047
---------- -------- ---- ----------
Income (loss) before income taxes....... 1,185 (591) -- 594
Income tax expense (benefit)...................... 387 (195) -- 192
---------- -------- ---- ----------
Net income (loss)....................... $ 798 $ (396) $ -- $ 402
========== ======== ==== ==========
Basic earnings (loss) per share................... $ 0.26 $ (0.63) $ 0.09
========== ======== ==========
Average number of shares outstanding.............. 3,025,800 626,000 4,290,593
========== ======== ==========
</TABLE>
302
<PAGE> 324
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------
HISTORICAL
---------------------------
THE EMERALD
BANC COAST PRO FORMA PRO FORMA
CORPORATION BANCSHARES(1) ADJUSTMENTS COMBINED
----------- ------------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income................................ $ 5,073 $ 381 $ -- $ 5,454
Interest expense............................... 2,247 139 -- 2,386
---------- -------- ---- ----------
Net interest income.................. 2,826 242 -- 3,068
Provision for loan losses...................... 135 70 -- 205
---------- -------- ---- ----------
Net interest income after provision for loan
losses.................................... 2,691 172 -- 2,863
Noninterest income............................. 463 10 -- 473
Noninterest expenses........................... 1,952 793 -- 2,745
---------- -------- ---- ----------
Income (loss) before income taxes.... 1,202 (611) -- 591
Income tax expense (benefit)................... 412 (257) -- 155
---------- -------- ---- ----------
Net income (loss).................... $ 790 $ (354) $ -- $ 436
========== ======== ==== ==========
Basic earnings (loss) per share................ $ 0.29 $ (0.57) $ 0.11
========== ======== ==========
Average number of shares outstanding........... 2,716,200 626,000 3,980,993
========== ======== ==========
</TABLE>
- ---------------
(1) Operations of Emerald since August of 1996, date of inception.
303
<PAGE> 325
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
--------------------------------------
HISTORICAL
-----------
THE
BANC PRO FORMA PRO FORMA
CORPORATION ADJUSTMENTS COMBINED
----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income............................................ $ 4,859 $-- $ 4,859
Interest expense........................................... 2,056 -- 2,056
---------- -- ----------
Net interest income.............................. 2,803 -- 2,803
Provision for loan losses.................................. 120 -- 120
---------- -- ----------
Net interest income after provision for loan losses...... 2,683 -- 2,683
Noninterest income......................................... 553 -- 553
Noninterest expenses....................................... 1,871 -- 1,871
---------- -- ----------
Income before income taxes....................... 1,365 -- 1,365
Income tax expense......................................... 467 -- 467
---------- -- ----------
Net income....................................... $ 898 $-- $ 898
========== == ==========
Basic earnings per share................................... $ 0.33 $ 0.33
========== ==========
Average number of shares outstanding....................... 2,716,200 2,716,200
========== ==========
</TABLE>
304
<PAGE> 326
SELECTED CONSOLIDATED FINANCIAL DATA -- CORPORATION
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------ ------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- ------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Statement of Financial
Condition Data:
Total assets.......................... $ 89,820 $69,176 $ 83,662 $66,639 $65,792 $59,831 $57,501
Total loans........................... 46,601 32,680 32,394 31,028 33,192 30,854 29,119
Investment securities................. 25,135 22,192 24,018 20,947 18,842 18,582 18,405
Deposits.............................. 64,754 60,948 63,885 58,891 58,849 53,623 51,898
Stockholders' equity.................. 21,856 7,770 18,706 7,515 6,929 6,194 5,591
Selected Statement of Income Data:
Interest income....................... 3,070 2,590 5,399 5,073 4,859 4,253 4,215
Interest expense...................... 1,134 1,109 2,248 2,247 2,056 1,655 1,683
-------- ------- -------- ------- ------- ------- -------
Net interest income................. 1,936 1,481 3,151 2,826 2,803 2,598 2,532
Provision for loan losses............. 38 90 330 135 120 70 200
Noninterest income.................... 312 251 475 463 553 596 543
Noninterest expense................... 1,501 1,014 2,111 1,952 1,871 1,920 1,836
-------- ------- -------- ------- ------- ------- -------
Income before tax..................... 709 628 1,185 1,202 1,365 1,204 1,039
Income tax expense (benefit).......... (68) 233 387 412 467 361 239
-------- ------- -------- ------- ------- ------- -------
Net income.......................... $ 777 $ 395 $ 798 $ 790 $ 898 $ 843 $ 800
======== ======= ======== ======= ======= ======= =======
Per Share Data:
Net income -- basic................... $ 44.57 $ 43.63 $ 79.12 $ 87.25 $ 99.21 $ 93.05 $ 78.52
Dividends............................. -- -- 26.00 23.50 25.00 22.00 --
</TABLE>
- ---------------
305
<PAGE> 327
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- CORPORATION
BASIS OF PRESENTATION
The following provides a narrative discussion and analysis of significant
changes in the Corporation's results of operations and financial condition. This
discussion should be read in conjunction with the consolidated statements and
the supplemental financial data included elsewhere in this Prospectus-Joint
Proxy Statement. The principal subsidiary of the Corporation is The Bank, a bank
organized and existing under the laws of Alabama and headquartered in
Birmingham, Alabama. The Corporation is the result of a recent merger with
Warrior Capital Corporation, a registered Alabama bank holding company. The
Corporation was established in April 1998 so that Warrior could merge into the
Corporation, and thereby, Warrior would change its name to "The Banc
Corporation" and its domicile from Alabama to Delaware. Warrior merged with the
Corporation on September 24, 1998. Before it merged with Warrior, the
Corporation was a shell corporation with no independent operations. See
"Business of the Corporation." The financial results for all periods presented
herein have been restated to include the financial results of the Warrior Merger
which was effective as of September 24, 1998, and was accounted for as a pooling
of interests.
This discussion contains information and forward-looking statements that
are based on the Corporation's belief as well as certain assumptions made by,
and information currently available to the Corporation with respect to, the
adequacy of the allowance for loan losses; the effect of legal proceedings on
the Corporation's financial condition, results of operations and liquidity; Year
2000 compliance issues and market risk disclosures, as well as other
information. The risks and uncertainties that may affect operations,
performance, growth projections and the results of the Corporation's business
include, but are not limited to, fluctuations in the economy, the relative
strength and weakness in the commercial and consumer credit sector and in the
real estate market, the actions taken by the Federal Reserve for the purpose of
managing the economy, interest rate movements, the impact of competitive
products, services and pricing, timely development by the Corporation of
technology enhancements for its products and operating systems, legislation and
similar matters. Although management of the Corporation believes that the
expectations reflected in such forward-looking statements are reasonable, it can
give no assurance that such expectations will prove to be correct. Such
forward-looking statements are subject to certain risks, uncertainties and
assumptions. Should one or more of these risks materialize, or should any such
underlying assumptions prove to be significantly different, actual results may
vary materially from those anticipated, estimated, projected or expected.
YEAR 2000 COMPLIANCE
The Corporation, recognizing the importance of the Year 2000 issue, has
developed and implemented a strategy to address and mitigate potential risks
resulting from this problem and encompass the following components:
- awareness of the Year 2000 issue and the education of key personnel on
the approach to address any potential problems;
- identification of significant systems, including both system hardware and
software and interfaces to and from these systems;
- inventory and assessment of personal computers and shadow systems;
- assessment of potentially affected operational systems;
- establishment of a testing plan to test key internal systems and a
remediation plan to address any problems identified;
- evaluation, and testing when applicable, of the Year 2000 efforts of
significant vendors and outside service organizations providing
processing for the Corporation;
- development of contingency plans, where necessary, to address potential
unidentified problems in both significant internal and external systems;
and
306
<PAGE> 328
- development of a process for monitoring and review of the progress of the
Year 2000 project both before and after January 1, 2000.
The Corporation is currently in the testing phase of its strategy and is
actively testing key internal systems. The Corporation utilizes vendor supplied
turnkey systems for many of its critical applications such as deposit, IRA, loan
and general ledger processing. Because of these systems, much of the
Corporation's remediation efforts relate to monitoring and communicating with
those vendors and service providers to gain assurance that they will be able to
effectively address the year 2000 issue. Furthermore, the Corporation has
recently begun its evaluation of areas that potentially could require
contingency plans in the event of significant unforeseen Year 2000 problems or
failures.
Because of the nature of operations, the external customers of the
Corporation would be considered its borrowers. The Corporation is in the process
of identifying customers that it deems to present a material risk to the
continued operations of the institution. The individual potential risk presented
by these customers and their strategies for addressing the Year 2000 issue will
be evaluated. The risk is somewhat diminished in light of the fact that the
Corporation loan portfolio is primarily secured by asset-based collateral where
the fair market value of such property is typically equal to or greater than the
outstanding loan balance. The Corporation Year 2000 plan establishes
underwriting standards for Year 2000 compliance for borrowers. The Corporation
is in the process of revising its loan document forms and underwriting
procedures to encompass Year 2000 compliance criteria and review.
The Corporation has estimated its total internal costs for its Year 2000
project to be approximately $500,000 of which a total of $140,000 has been
incurred to date. Of this expense, $2,000 was incurred in 1997 and $138,000 in
1998. Given the nature and scope of the project, it is not feasible at this
stage to estimate the degree of success of the project. However, the Corporation
believes it has an adequate plan in place to address the Year 2000 issue and the
final outcome is not anticipated to have a material adverse effect on the
results of operations or financial condition of the Corporation. See "Risk
Factors -- Computer Technologies and Year 2000 Compliance.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998, COMPARED WITH SIX MONTHS ENDED JUNE 30, 1997
Net income increased $382,000, or 96.7% to $777,000 for the six months
ended June 30, 1998, from $395,000 for the six months ended June 30, 1997.
Return on average assets for the period ended June 30, 1998, was 1.79% compared
to 1.16% for the six months ended June 30, 1997, and the return on average
equity was 7.66% for the six months ended June 30, 1998, compared to 10.34% for
the corresponding period in 1997.
Net interest income increased $455,000, or 30.7% to $1,936,000 for the
period ended June 30, 1998, from $1,481,000 for the same period in 1997, as
interest income increased $480,000 and interest expense increased $25,000. The
increase in net interest income was primarily due to an increase in loan volume.
On October 28, 1997, Warrior increased its capital base through a
redemption and sale of its common stock in a private placement transaction. As a
result, total equity for Warrior increased by $12,178,000.
The provision for loan losses was $38,000 for the six months ended June 30,
1998, compared to $90,000 for the corresponding period in 1997. The
Corporation's allowance for loan losses as a percentage of loans was 1.54% at
June 30, 1998, compared to 2.14% at June 30, 1997.
Non-interest income increased $60,000, or 24.2%, to $308,000 for the six
months ended June 30, 1998, compared to $248,000 for the period ended June 30,
1997. The increase is attributable to increased fees on deposit accounts.
Non-interest expense increased $486,000, or 48.1%, to $1,497,000 for the
period ended June 30, 1998, compared to $1,011,000 for the corresponding period
in 1997. The increase is mainly attributable to increases in salaries and
benefits and furniture and equipment expenses. Most of these expenses were
incurred in preparation for the opening of a new Branch office and expenses
related to Year 2000 preparations.
307
<PAGE> 329
YEAR ENDED DECEMBER 31, 1997, COMPARED WITH YEARS ENDED DECEMBER 31, 1996 AND
1995
The Corporation's net income increased $8,000, or 1.0% to $798,000 in 1997
from $790,000 in 1996, which in turn decreased 12.0% from $898,000 in 1995.
Return on average assets in 1997 was 1.10% compared to 1.16% in 1996 and 1.42%
in 1995. Return on average equity was 9.06% in 1997 compared to 10.71% in 1996
and 13.69% in 1995.
Net interest income increased $325,000, or 11.5% to $3,151,000 in 1997 from
$2,826,000 in 1996, which in turn increased $23,000, or .82% from 1995. The
increase in net interest income was due to an increase in average earning assets
to $65,870,000, or 6.96% in 1997 from $61,584,000 in 1996, which increased 7.02%
from $57,543,000 in 1995.
The provision for loan losses was $330,000 in 1997, compared to $135,000 in
1996 and $120,000 in 1995. The Corporation's allowance for loan losses as a
percentage of its loans was 2.01% at December 31, 1997, compared to 2.04% at
December 31, 1996, and 1.99% at December 31, 1995. The allowance for loan losses
as a percentage of period end nonperforming loans was 150% at December 31, 1997,
compared to 88.2% at December 31, 1996. The Corporation had net charge-offs of
$314,000 in 1997, resulting in a ratio of net charge-offs to average loans of
.94%. This compares to $161,000 and .51% in 1996 and $87,000 and .27% in 1995.
Noninterest income increased $12,000, or 2.59% to $475,000 in 1997 from
$463,000 in 1996, which decreased $90,000, or 16.27% from $553,000 in 1995.
Noninterest expense increased $159,000, or 8.14% to $2,111,000 in 1997 from
$1,952,000 in 1996, which increased $81,000, or 4.3% from $1,871,000 in 1995.
NET INTEREST INCOME
The largest component of the Corporation's net income is its net interest
income, which is the difference between the income earned on assets and interest
paid on deposits and borrowings used in support of such assets. Net interest
income is determined by the rates earned on the Corporation's interest earning
assets and the rates paid on its interest-bearing liabilities, the relative
amounts of interest-earning assets and interest-bearing liabilities, and the
degree of mismatch and the maturity and repricing characteristics of its
interest-earning assets and interest-bearing liabilities. Net interest income
divided by average interest-earning assets represents the Corporation's net
interest margin.
308
<PAGE> 330
Average Balances, Income, Expenses and Rates. The following tables depict,
on a tax-equivalent basis for the periods indicated, certain information related
to the Corporation's average balance sheet and its average yields on assets and
average costs of liabilities. Such yields are derived by dividing income or
expense by the average balance of the corresponding assets or liabilities.
Average balances have been derived from quarterly averages.
CONSOLIDATED AVERAGE BALANCES, INTEREST/INCOME/EXPENSE AND YIELD/RATES
TAXABLE EQUIVALENT BASIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
1997 1996 1995
--------------------------- -------------------------- --------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
-------- ------- ------ ------- ------- ------ ------- ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Loans, net of unearned income... $ 33,272 $3,530 10.61% $31,451 $3,358 10.68% $32,192 $3,340 10.38%
Investment securities
Taxable....................... 18,428 1,086 5.89 17,248 1,005 5.83 16,119 956 5.93
Tax-exempt.................... 2,254 124 5.50 1,993 117 5.87 1,726 138 8.00
-------- ------ ------- ------ ------- ------
Total investment
securities............. 20,682 1,210 5.85 19,241 1,122 5.83 17,845 1,094 6.13
Federal funds sold............ 11,493 623 5.42 10,440 553 5.30 7,164 418 5.83
Other investments............. 423 36 8.51 452 39 8.63 342 25 7.31
-------- ------ ------- ------ ------- ------
Total interest-earning
assets................. 65,870 5,399 8.20 61,584 5,072 8.24 57,543 4,877 8.48
Non interest-earning assets:
Cash and due from banks......... 3,682 3,648 3,600
Premises and equipment.......... 1,666 1,244 1,283
Accrued interest and other
assets........................ 1,770 2,444 1,531
Allowance for loan losses....... (667) (632) (665)
-------- ------- -------
Total assets............. $ 72,321 $68,288 $63,292
======== ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Demand deposits................. $ 11,111 $ 402 3.62% $10,218 $ 310 3.03% $ 9,695 $ 293 3.02%
Savings deposits................ 15,857 603 3.80 15,747 600 3.81 15,275 561 3.67
Time deposits................... 23,057 1,308 5.67 23,187 1,337 5.77 21,290 1,202 5.65
-------- ------ ------- ------ ------- ------
Total interest-bearing
liabilities............ 50,025 2,313 4.62 49,152 2,247 4.57 46,260 2,056 4.44
Non-interest bearing liabilities
Demand deposits................. 12,434 10,238 9,524
Accrued interest and other
liabilities................... 1,050 1,519 947
Shareholders' equity............ 8,812 7,379 6,561
-------- ------- -------
Total liabilities and
shareholders' equity... $ 72,321 $68,288 $63,292
======== ======= =======
Net interest income/net interest
spread.......................... 3,086 3.57% 2,825 3.66% 2,821 4.03%
===== ===== =====
Net yield on earning assets....... 4.68% 4.59% 4.90%
===== ===== =====
Taxable equivalent adjustment:
Investment securities........... 42 40 47
------ ------ ------
Net interest income............... $3,044 $2,785 $2,774
====== ====== ======
</TABLE>
309
<PAGE> 331
Analysis of Changes in Net Interest Income. The following table sets forth, on
a taxable equivalent basis, the effect which the varying levels of earning
assets and interest-bearing liabilities and the applicable rates have had on
changes in net interest income for the years ended December 31, 1997, 1996 and
1995.
RATE/VOLUME VARIANCE ANALYSIS
TAXABLE EQUIVALENT BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
INTEREST
AVERAGE VOLUME CHANGE IN VOLUME AVERAGE RATE INCOME/EXPENSE
---------------------------- --------------------- --------------------- --------------
1997 1996 1995 1997-1996 1996-1995 1997 1996 1995 1997 1996
---- ---- ---- --------- --------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EARNING ASSETS:
Loans, net of unearned
income.................... $ 33,272 $31,451 $32,192 $ 1,821 $ (741) 10.61% 10.68% 10.38% $3,530 $3,358
Investment securities
Taxable................... 18,428 17,248 16,119 1,180 1,129 5.89 5.83 5.93 1,086 1,005
Tax-exempt................ 2,254 1,993 1,726 261 267 5.50 5.87 8.00 124 117
-------- ------- ------- ------- ------ ------ ------
Total investment
securities........ 20,682 19,241 17,845 1,441 1,396 5.85 5.83 6.13 1,210 1,122
Federal funds sold.......... 11,493 10,440 7,164 1,053 3,276 5.42 5.30 5.83 623 553
-------- ------- ------- ------- ------ ------ ------
Total earning
assets............ $ 65,447 $61,132 $57,201 $ 4,315 $3,931 8.20 8.24 8.48 5,363 5,033
======== ======= ======= ======= ======
INTEREST-BEARING
LIABILITIES:
Deposits:
Demand.................... $ 11,111 $10,218 $ 9,695 $ 893 $ 523 3.62 3.03 3.02 402 310
Savings................... 15,857 15,747 15,275 110 472 3.80 3.81 3.67 603 600
Time...................... 23,057 23,187 21,290 (130) 1,897 5.67 5.77 5.65 1,308 1,337
-------- ------- ------- ------- ------ ------ ------
Total
interest-bearing
deposits.......... 50,025 49,152 46,260 873 2,892 4.62 4.57 4.44 2,313 2,247
======== ======= ======= ======= ======
Net interest income/net
interest spread........... 3.57% 3.66% 4.03% $3,050 $2,786
===== ===== ===== ====== ======
Net yield on earning
assets.................... 4.68% 4.59% 4.90%
===== ===== =====
Net cost of funds........... 3.51% 3.65% 3.57%
===== ===== =====
<CAPTION>
Variance Attributed to (1)
------------------------------
VARIANCE 1997 1996
--------------------- -------------- -------------
1995 1997-1996 1996-1995 VOLUME RATE VOLUME RATE
---- --------- --------- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C> <C>
EARNING ASSETS:
Loans, net of unearned
income.................... $3,340 $ 172 $ 18 $ 193 $ (21) $(79) $ 97
Investment securities
Taxable................... 956 81 49 70 11 66 (17)
Tax-exempt................ 138 7 (21) 14 (7) 17 (38)
------ ------ ---- ------ ----- ---- ----
Total investment
securities........ 1,094 88 28 84 4 83 (55)
Federal funds sold.......... 418 70 135 57 13 175 (40)
------ ------ ---- ------ ----- ---- ----
Total earning
assets............ 4,852 330 181 334 (4) 179 2
INTEREST-BEARING
LIABILITIES:
Deposits:
Demand.................... 293 92 17 27 65 16 1
Savings................... 561 3 39 4 (1) 18 21
Time...................... 1,202 (29) 135 (7) (22) 109 26
------ ------ ---- ------ ----- ---- ----
Total
interest-bearing
deposits.......... 2,056 66 191 24 42 143 48
Net interest income/net
interest spread........... $2,796 $ 264 $(10) $ 310 $ (46) $ 36 $(46)
====== ====== ==== ====== ===== ==== ====
Net yield on earning
assets....................
Net cost of funds...........
</TABLE>
- ---------------
(1) The change in interest due to both rate and volume has been allocated to
volume and rate changes in proportion to the relationship of the absolute
dollar amounts of the changes in each.
310
<PAGE> 332
Interest Sensitivity. The Corporation monitors and manages the pricing and
maturity of its assets and liabilities in order to diminish the potential
adverse impact that changes in interest rates could have on net interest income.
The principal monitoring technique employed by the Corporation is the
measurement of the Corporation's interest rate sensitivity "gap," which is the
positive or negative dollar difference between assets and liabilities that are
subject to interest rate repricing within a given period of time. The objective
of the Corporation's Asset/Liability Management (ALM) function is to maintain a
consistent level of net interest income in a rising, falling or static interest
rate environment. ALM monitors the pricing of both interest earning assets and
interest bearing liabilities and the maturities of each. Interest rate
sensitivity can be managed by repricing assets or liabilities, selling
securities available-for-sale, replacing an asset or liability at maturity or by
adjusting the interest rates during the life of an asset or liability.
The Corporation evaluates interest rate sensitivity risk and then
formulates guidelines regarding asset generation and repricing, funding sources
and pricing and off-balance sheet commitments in order to decrease interest rate
sensitivity risk. The Corporation uses computer simulations to measure the net
income effect of various interest rate scenarios. The modeling reflects interest
rate changes and the related impact on net income over specified periods of
time.
The goal of liquidity management is to provide adequate funds to meet
changes in loan and lease demand or any potential unexpected deposit
withdrawals. Additionally, management strives to maximize its earnings by
investing its excess funds in securities and other securitized loan assets with
maturities matching its offsetting liabilities. See the "Selected Loan Maturity
and Interest Rate Sensitivity" and the "Maturity Distribution of Investment
Securities" tables.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The Corporation has developed policies and procedures for evaluating the
overall quality of its credit portfolio and the timely identification of
potential problem credits. The Corporation reviews the appropriate level of the
allowance for loan losses based on the results of the internal monitoring and
reporting system, analysis of economic conditions in its markets and a review of
historical statistical data for both the Corporation and other financial
institutions. The Corporation's judgment as to the adequacy of the allowance is
based upon a number of assumptions about future events, which it believes to be
reasonable but which may or may not be valid. Thus, there can be no assurance
that charge-offs in future periods will not exceed the allowance for loan losses
or that additional increases in the allowance for loan losses will not be
required. The adequacy of the allowance for loan losses and the effectiveness of
the Corporation's monitoring and analysis system are also reviewed periodically
by the banking regulators and the Corporation's independent auditors.
Additions to the allowance for loan losses, which are expensed as the
provision for loan losses on the Corporation's income statement, are made
periodically to maintain the allowance at an appropriate level based on
management's analysis of the potential risk in the loan portfolio. Loan losses
and recoveries are charged or credited directly to the allowance. The amount of
the provision is a function of the levels of loans outstanding, the level of
nonperforming loans, historical loan loss experience, the amount of loan losses
actually charged against the reserve during a given period and current and
anticipated economic conditions.
311
<PAGE> 333
The following table summarizes certain information with respect to the
Corporation's allowance for loan losses and the composition of charge-offs and
recoveries for the periods indicated.
SUMMARY OF LOAN LOSS EXPERIENCE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Allowance for loan losses --
balance at beginning of period............... $ 634 $ 660 $ 627 $ 580 $ 428
Charge-offs
Commercial, financial and agricultural....... 170 -- -- -- --
Consumer..................................... 210 202 124 43 64
------- ------- ------- ------- -------
Total charge-offs.............................. 380 202 124 43 64
Recoveries:
Consumer..................................... 66 41 37 20 16
------- ------- ------- ------- -------
Net charge-offs................................ 314 161 87 23 48
Addition to allowance charged to operating
expense...................................... 330 135 120 70 200
------- ------- ------- ------- -------
Allowance for loan losses --
balance at end of period..................... $ 650 $ 634 $ 660 $ 627 $ 580
======= ======= ======= ======= =======
Loans at end of period, net of unearned
income....................................... 32,394 31,028 33,192 30,854 29,119
Ratio of ending allowance to ending loans...... 2.01% 2.04% 1.99% 2.03% 1.99%
Average loans, net of unearned income.......... 33,272 31,451 32,192 29,977 29,063
Ratio of net charge-offs to average loans...... 0.94% 0.51% 0.27% 0.08% 0.17%
</TABLE>
Allocation of Allowance. The Corporation historically has allocated its
allowance for loan losses to specific loan categories. Although the allowance is
allocated, it is available to absorb losses in the entire loan portfolio.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
----------------- ----------------- ----------------- ----------------- -----------------
PERCENT PERCENT PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Domestic
Commercial, financial and
agricultural.............. $116 18% $109 17% $101 15% $101 16% $ 80 14%
Real estate - construction.. 66 10% 63 10% 41 6% 45 7% 26 5%
Real estate - mortgage...... 248 38% 243 38% 288 44% 279 45% 271 47%
Consumer.................... 220 34% 219 35% 230 35% 202 32% 203 35%
---- --- ---- --- ---- --- ---- --- ---- ---
$650 100% $634 100% $660 100% $627 100% $580 100%
==== === ==== === ==== === ==== === ==== ===
</TABLE>
Nonperforming Assets. The following table presents the Corporation's
nonperforming assets for the dates indicated.
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Nonaccrual........................................... $434 $719 $ 4 $ 7 $ 12
Past Due............................................. 185 76 41 62 314
Restructured......................................... - - - - -
---- ---- --- --- ----
Total...................................... $619 $795 $45 $69 $326
==== ==== === === ====
</TABLE>
312
<PAGE> 334
Accrual of interest is discontinued on a loan when management believes,
after considering economic and business conditions and collection efforts, that
the borrower's financial condition is such that the collection of interest is
doubtful. A delinquent loan is generally placed on nonaccrual status when it
becomes 90 days or more past due. When a loan is placed on nonaccrual status,
all interest which has been accrued on the loans but remains unpaid is reserved
and deducted from earnings as a reduction of reported interest income. No
additional interest is accrued on the loan balance until the collection of both
principal and interest becomes reasonably certain. When a problem loan is
finally resolved, there may ultimately be an actual write-down or charge-off of
the principal balance of the loan, which would necessitate additional charges to
earnings.
EARNING ASSETS
Loans. Loans are the largest category of earning assets and typically
provide higher yields than the other types of earning assets. Associated with
the higher loan yields are the inherent credit and liquidity risks which
management attempts to control and counterbalance. Loans averaged $33.3 million
in 1997 compared to $31.5 million in 1996 and $32.2 million in 1995. At December
31, 1997, total loans net of unearned interest were $32.4 million compared to
$31.0 million at December 31, 1996, and $33.2 million at December 31, 1995.
DISTRIBUTION OF LOANS BY CATEGORY
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural......... $ 5,285 $ 4,969 $ 5,161 $ 5,022 $ 4,072
Real estate -- construction.................... 3,317 3,102 2,075 2,262 1,340
Real estate -- mortgage........................ 12,360 12,005 14,628 13,894 13,709
Consumer....................................... 11,752 11,280 11,710 10,043 10,257
------- ------- ------- ------- -------
Total loans.......................... 32,714 31,356 33,574 31,221 29,378
Unearned interest.............................. (320) (328) (382) (367) (260)
Allowance for loan losses...................... (650) (634) (660) (627) (580)
------- ------- ------- ------- -------
Net loans............................ $31,744 $30,394 $32,532 $30,227 $28,538
======= ======= ======= ======= =======
</TABLE>
The repayment of loans in the loan portfolio as they mature is also a
source of liquidity for the Corporation. The following table sets forth the
Corporation's loans maturing within specified intervals at December 31, 1997.
SELECTED LOAN MATURITY AND INTEREST RATE SENSITIVITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
RATE STRUCTURE FOR LOANS
MATURITY MATURING OVER ONE YEAR
---------------------------------------------- ---------------------------
OVER ONE PREDETERMINED FLOATING OR
ONE YEAR YEAR THROUGH OVER FIVE INTEREST ADJUSTABLE
OR LESS FIVE YEARS YEARS TOTAL RATE RATE
-------- ------------ --------- ----- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and
agriculture................... $ 4,101 $ 1,037 $ 147 $ 5,285 $ 1,184 --
Real estate -- construction..... 3,273 44 -- 3,317 44 --
Real estate -- mortgage......... 8,546 2,829 985 12,360 3,683 131
Consumer........................ 6,487 5,242 23 11,752 5,265 --
------- ------- ------ ------- ------- ------
$22,407 $ 9,152 $1,155 $32,714 $10,176 $ 131
======= ======= ====== ======= ======= ======
</TABLE>
The information presented in the above table is based on the contractual
maturities of the individual loans, including loans which may be subject to
renewal at their contractual maturity. Renewal of such loans is subject to
review and credit approval, as well as modification of terms upon their
maturity. Consequently, management believes this treatment presents fairly the
maturity and repricing structure of the loan portfolio.
313
<PAGE> 335
Investment Securities. The investment securities portfolio is a
significant component of the Corporation's total earning assets. Total
securities averaged $20.7 million in 1997, compared to $19.2 million in 1996 and
$17.8 million in 1995. At December 31, 1997, the total securities portfolio was
$24.0 million.
The following table sets forth the book value of the securities held by the
Corporation at the dates indicated.
INVESTMENT PORTFOLIO
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
U.S. Treasury and U.S. Government agencies.................. $20,050 $17,736 $15,044
State and political subdivisions............................ 3,545 2,776 3,208
Other investments........................................... 460 476 537
------- ------- -------
Total investment securities....................... $24,055 $20,988 $18,789
======= ======= =======
</TABLE>
The following table shows the scheduled maturities and average yields of
securities held at December 31, 1997.
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES
<TABLE>
<CAPTION>
MATURING
---------------------------------------------------------------------------------------------
AFTER ONE BUT AFTER FIVE BUT
WITHIN ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS AFTER TEN YEARS TOTAL
---------------- ------------------ ---------------- ---------------- ---------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities available
for sale............. $ 260 7.2 $ 200 10.10% $ -- -- $ -- -- $ 460 8.65%
Securities held to
maturity:
U.S. Treasury and
Govt Agencies...... 7,900 5.01 7,317 6.24 4,833 7.19 -- -- 20,050 5.98
State and political
subdivision........ 564 7.62 1,472 5.74 1,112 4.86 397 4.77 3,545 5.63
------ ---- ------ ----- ------ ---- ---- ---- ------- -----
Total
securities
held to
maturity.... 8,464 5.18 8,789 6.16 5,945 6.75 397 4.77 23,595 5.93
</TABLE>
Short-Term Investments. Short-term investments, which consist primarily of
federal funds sold, averaged $11.9 million in 1997, compared to $10.9 million in
1996 and $7.5 million in 1995. These funds are a primary source of the
Corporation's liquidity and are generally invested on an overnight basis.
DEPOSITS AND OTHER INTEREST-BEARING LIABILITIES
Deposits. Average total deposits increased $3.1 million, or 1.7% to $62.5
million during 1997, from $59.4 million in 1996. Average total deposits
increased $3.6 million, or 6.5% in 1996, from $55.8 million in 1995.
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The following table sets forth the deposits of the Corporation by category
at the dates indicated.
AVERAGE DEPOSITS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AVERAGE FOR THE YEAR
---------------------------------------------------------------------
1997 1996 1995
--------------------- --------------------- ---------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE AMOUNT RATE
OUTSTANDING PAID OUTSTANDING PAID OUTSTANDING PAID
----------- ------- ----------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing demand deposits... $12,434 --% $10,238 --% $ 9,524 --%
Interest bearing demand deposits....... 11,111 3.62 10,218 3.03 9,695 3.02
Savings deposits....................... 15,857 3.80 15,747 3.81 15,275 3.67
Time deposits.......................... 23,057 5.67 23,187 5.77 21,290 5.65
------- ------- -------
Total average deposits....... $62,459 4.62 $59,390 4.57 $55,784 4.44
======= ======= =======
</TABLE>
Deposits, and particularly core deposits, have historically been the
Corporation's primary source of funding and have enabled the Corporation to meet
successfully both its short-term and long-term liquidity needs. The Corporation
anticipates that such deposits will continue to be its primary source of funding
in the future. The Corporation's loan to deposit ratio was 50.7% at December 31,
1997, compared to 52.7% at December 31, 1996. The maturity distribution of the
Corporation's time deposits over $100,000 at December 31, 1997, is shown in the
following table.
MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE
(IN THOUSANDS)
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
- -----------------------------------------------------
UNDER OVER
3 3-6 6-12 12
MONTHS MONTHS MONTHS MONTHS TOTAL
------ ------ ------ ------ -----
<S> <C> <C> <C> <C>
$1,091 $111 $568 $712 $2,482
========= ========= ========= ========= =========
</TABLE>
Approximately 44% of the Corporation's time deposits over $100,000 had
scheduled maturities within three months. The Corporation believes that large
denomination certificate of deposit customers tend to be extremely sensitive to
interest rate levels, making these deposits less reliable sources of funding for
liquidity planning purposes than core deposits. While some financial
institutions partially fund their balance sheets using large certificates of
deposits obtained through brokers, these broker deposits are generally expensive
and are unreliable as long-term funding sources. Accordingly, the Corporation
does not actively solicit brokered deposits.
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REGULATORY CAPITAL TABLE
The table below represents the Corporation's actual regulatory and minimum
regulatory capital requirements at December 31, 1997 (Dollars in thousands):
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------ ------------------ -----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Capital.............. $18,907 39.58% $3,821 8.00% $4,777 10.00%
(to Risk Weighted Assets)
Tier 1 Capital............. 18,310 38.33 1,911 4.00 2,866 6.00
(to Risk Weighted Assets)
Tier 1 Capital............. 18,310 23.48 3,119 4.00 3,899 5.00
(to Average Assets)
</TABLE>
IMPACT OF INFLATION
Unlike most industrial companies, the assets and liabilities of financial
institutions such as the Company and its subsidiaries are primarily monetary in
nature. Therefore, interest rates have a more significant effect on the
Company's performance than do the effects of changes in the general rate of
inflation and changes in prices. In addition, interest rates do not necessarily
move in the same direction or in the same magnitude as the prices of goods and
services. Management seeks to manage the relationships between interest
sensitive assets and liabilities in order to protect against wide interest rate
fluctuations, including those resulting from inflation.
REGULATORY MATTERS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general purpose 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 with the same prominence as other financial statements. The statement
is effective for fiscal years beginning after December 15, 1997. Management
intends to comply with this standard in 1998.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." This statement establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
This statement is effective for financial statements for periods beginning after
December 15, 1997. The Corporation intends to comply with this standard in 1998.
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BUSINESS OF THE CORPORATION
GENERAL
The Banc Corporation is a registered bank holding company incorporated
under the laws of Delaware and headquartered in Birmingham, Alabama. The
Corporation is the result of a recent merger, with Warrior Capital Corporation
("Warrior"), a registered Alabama bank holding company (the "Warrior Merger").
The Corporation was established in April 1998 so that Warrior could merge into
the Corporation, and thereby, Warrior would change its name to "The Banc
Corporation" and its domicile from Alabama to Delaware. Warrior merged with the
Corporation on September 24, 1998. Before it merged with Warrior, the
Corporation was a shell corporation with no independent operations.
Warrior was established in 1982, and as of June 30, 1998, Warrior had
assets of approximately $89.8 million, deposits of approximately $64.8 million
and stockholders equity of approximately $21.9 million. Because the Corporation
was formed to effectuate the name and domicile change of Warrior, and has no
operations apart from those that were formerly Warrior's, had Warrior and the
Corporation merged as of June 30, 1998, the Corporation would have had the same
assets, deposits and stockholders equity as Warrior did on that date.
The principal subsidiary of the Corporation is The Bank, an Alabama banking
corporation headquartered in Birmingham, Alabama. The Bank is 99.75% owned by
the Corporation. Prior to the merger of the Corporation and Warrior, The Bank
was a subsidiary of Warrior, and it became a 99.75% owned subsidiary of the
Corporation when Warrior merged into the Corporation. The Bank has been in
business as a full service commercial and retail bank since it was established
in 1957. Before its name changed to The Bank in February 1998, it was known as
Warrior Savings Bank.
Through the Bank, the Corporation has five locations in
Alabama -- Birmingham (which opened July 1, 1998), Decatur (which opened
September 14, 1998), and Warrior, Morris and Mt. Olive (all suburbs of
Birmingham). With the exception of Birmingham, the Corporation operates in
non-metropolitan areas targeting individuals and businesses that prefer local
bank decision making and personal service.
The Corporation believes its future growth will depend primarily on the
expansion of the business of its banking subsidiaries through internal growth,
the opening and acquisition of new branch offices in new markets and the
acquisition of other financial institutions. As part of its growth strategy, the
Corporation anticipates raising approximately $10 million of additional equity
capital during 1998 through the public sale of additional shares of its Common
Stock. There can be no assurance that the Corporation will be able to offer its
shares at a price and on terms acceptable to the Corporation, and neither the
price structure nor the terms of any such offering have been determined. Such
shares will only be sold through means of a prospectus and registration
statement filed with and declared effective by the SEC. See "Risk
Factors -- Ability to Sustain Growth; Profitability and Potential Need for
Additional Capital" and "Business of the Corporation."
The principal executive offices of the Corporation are located at 17 North
20th Street, Birmingham, Alabama 35203, and its telephone number is (205)
326-2265. The principal executive offices of The Bank are located at 218 Louisa
Street, Warrior, Alabama 35180, and its telephone number is (205) 714-5700. As
used in this Prospectus-Joint Proxy Statement, the term "Corporation" refers to
The Banc Corporation and its predecessor, Warrior, and its respective
subsidiaries and affiliates, including The Bank, unless the context requires
otherwise.
RECENT DEVELOPMENTS
On June 16, 1998, the Corporation entered into the CBS Plan of Merger with
Commercial Bancshares of Roanoke, Inc. ("CBS") to purchase all of the issued and
outstanding shares of stock of CBS for $7.3 million in cash ("CBS Purchase").
CBS is a bank holding company organized and existing under the laws of the State
of Delaware. CBS's subsidiaries include Commercial Bank of Roanoke, an Alabama
banking corporation, and Commercial Bancshares Services, Inc., a Delaware
corporation, which engages in data processing services for community banks. As
of June 30, 1998, CBS had total assets of approximately $42.4 million, total
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deposits of approximately $35.7 million and total shareholders' equity of
approximately $6.4 million. The CBS Purchase is subject to normal conditions for
a transaction of this type, including regulatory approval. The CBS shareholders
approved the CBS Purchase on August 15, 1998, and the CBS Purchase is expected
to close on or about October 16, 1998.
On June 2, 1998, Corporation entered into a Reorganization Agreement and
Plan of Merger (the "Emerald Plan of Merger") with Emerald Coast Bancshares,
Inc. ("Emerald"), pursuant to which Emerald will be merged with and into
Corporation (the "Emerald Merger"). Emerald is a bank holding company organized
and existing under the laws of the State of Florida. Emerald's subsidiaries
include Emerald Coast Bank, a Florida banking corporation, and Emerald Coast
Financial Management, Inc., a Florida corporation. Emerald has four locations in
Florida -- Panama City Beach, Destin, Seagrove and Bay Point (all located in the
panhandle of Florida along the Gulf Coast). As of June 30, 1998, Emerald had
total assets of approximately $73.8 million, deposits of approximately $63.3
million and shareholders' equity of approximately $5.5 million. Prior to the
Emerald Merger, Emerald Coast Bank will be converted from a state chartered bank
to a federally chartered thrift regulated by the Office of Thrift Supervision
(the "OTS"). In September 1998, the directors of Emerald determined that a
savings association/thrift charter was desirable as opposed to the existing bank
charter for two primary reasons. First, Emerald Coast Bank was less than three
years old and could not be acquired by an out of state bank holding company such
as the Corporation until August 31, 1999. A federally-chartered thrift does not
fall within such guidelines. Second, a thrift charter provides greater branching
capabilities within and outside the State of Florida and allows for more
services to be offered to the bank's customers. The Emerald Merger is subject to
normal conditions for a transaction of this type, including regulatory approval.
The Emerald shareholders have approved the Emerald Merger, and the Emerald
Merger is expected to close simultaneously with the other Mergers.
Pursuant to the terms of the Mergers, and assuming all Mergers are
consummated, at the Effective Time, the former Commerce shareholders will
receive a total of 1,536,615 shares of Common Stock, representing approximately
13.93% of the issued and outstanding Corporation Common Stock; the former First
Citizens shareholders will receive a total of 663,243 shares of Common Stock,
representing approximately 6.01% of the issued and outstanding Corporation
Common Stock; and the former City National shareholders will receive a total of
2,000,000 shares of Corporation Stock, representing approximately 18.14% of the
issued and outstanding Corporation Common Stock. None of the Mergers is
conditioned upon one another.
Assuming the Transactions had occurred as of June 30, 1998, the Corporation
would have had total assets of approximately $447.6 million, total deposits of
approximately $378.2 million and total stockholders equity of approximately
$49.8 million. See "Pro Forma Condensed Financial Information."
STRATEGY
With the exception of its Birmingham, Alabama, operations (commenced July
1, 1998), the Corporation operates in non-metropolitan areas targeting
individuals and local businesses that prefer local bank decision making and
personalized service. As a result of this strategy, the Corporation operates on
a decentralized basis, emphasizing each of the banks' local knowledge and
authority to make credit decisions. The Corporation believes this local strategy
enables The Bank to generate high yielding loans and to attract and retain low
cost core deposits which provide substantially all of the banks' funding
requirements. The Corporation supplements its decentralized operating strategy
with centralized policy oversight, credit review and strategic planning.
The Bank focuses on residential mortgage, consumer, commercial and real
estate construction lending to customers in their market areas. The Bank also
offers a variety of deposit programs to individuals and businesses and other
organizations at interest rates generally consistent with local market
conditions. In addition, The Bank offers individual retirement and KEOGH
accounts, safe deposit and night depository facilities and additional services
such as the sale of traveler's checks, money orders and cashier's checks.
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MARKET AREAS
Other than Birmingham, Alabama, the Corporation primarily operates in
non-metropolitan areas. The Corporation emphasizes a decentralized approach to
banking. Through The Bank, the Corporation operates in Jefferson County Alabama,
with offices in Birmingham and Warrior, Morris and Mount Olive, Alabama which
are relatively rural suburbs of Birmingham. The Bank opened a new location in
Decatur, Alabama on September 14, 1998.
GROWTH STRATEGY
The Corporation believes its future growth will depend primarily on the
expansion of the business of its banking subsidiaries through internal growth,
the opening and acquisition of new branch offices in new markets and on the
acquisition of other financial institutions. The ability to profitably grow
through the opening or acquisition of new branches will depend primarily on,
among other things, the Corporation's ability to identify profitable growing
markets and branch locations within such markets, attract necessary deposits to
profitably operate such branches and locate sound loans and investment
opportunities within such markets.
As part of its growth strategy, the Corporation anticipates raising an
additional $10 million of equity capital during 1998 through the public sale of
additional shares of its Common Stock, although this is dependent on the
Corporation being able to offer its shares at a price and on terms acceptable to
the Corporation. The price, structure and terms of any such offering have not
yet been determined. Such shares will only be sold through means of a prospectus
and registration statement filed with and declared effective by the SEC. The
Corporation expects the offer to be made in 1998, although market conditions or
other factors not now anticipated by the Corporation could result in a delay or
indefinite postponement of the offer. See "Risk Factors -- Ability to Sustain
Growth; Profitability and Need for Additional Capital."
Although the Corporation has no agreements or understandings regarding the
acquisition of additional banks or financial institutions other than those
discussed in this Prospectus-Joint Proxy Statement, such additional capital
could be used to support the acquisition of other banks and the establishment of
de novo branches. There is no assurance that any further acquisitions, internal
growth or establishment of new offices or lines of business will occur.
LENDING ACTIVITIES
General. Through its banking subsidiaries, the Corporation offers a range
of lending services, including real estate, consumer and commercial loans,
primarily to individuals and businesses and other organizations that are located
in or conduct a substantial portion of their business in The Bank's market
areas. The Corporation's total loans at June 30, 1998 were $46.6 million, or
65.8% of total earning assets. The interest rates charged on loans vary with the
degree of risk, maturity and amount of the loan, and are further subject to
competitive pressures, money market rates, availability of funds and government
regulations. The Corporation has no foreign loans or loans for highly leveraged
transactions.
Loan Portfolio
Real Estate Loans. Loans secured by real estate are the primary component
of the Corporation's loan portfolio, constituting $26.0 million, or 55.8% of
total loans at June 30, 1998. The Corporation's primary type of real estate loan
is single family first mortgage loans, typically structured with fixed or
adjustable interest rates, based on market conditions. Fixed rate loans usually
have terms of five years, with payments through the date of maturity generally
based on a 15 to 30 year amortization schedule. Adjustable rate loans generally
have a term of 15 years. The Bank typically charges an origination fee on these
loans.
The Bank's nonresidential mortgage loans include commercial, industrial and
raw land loans. The commercial real estate loans are typically used to provide
financing for retail establishments, offices and manufacturing facilities. The
Bank generally requires nonresidential mortgage loans to have an 80% loan-to-
value ratio and usually underwrites its commercial loans on the basis of the
borrower's cash flow and ability to service the debt from earnings, rather than
on the basis of the value of the collateral. Terms are typically five
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years and may have payments through the date of maturity based on a 10 to 20
year amortization schedule. Terms on construction loans are usually less than
twelve months and generally require personal guarantees.
Consumer Loans. Consumer lending includes installment lending to
individuals in The Bank's market areas and consists of loans to purchase
automobiles, recreational vehicles, mobile homes and appliances. Consumer loans
constituted $13.4 million, or 28.8% of the Corporation's loan portfolio at June
30, 1998. Consumer loans are underwritten based on the borrower's income,
current debt, credit history and collateral. Terms generally range from four to
five years on automobile loans and one to three years on other consumer loans.
Commercial, Financial, and Agricultural Loans. The Bank makes loans for
commercial purposes in various lines of business. These loans are typically made
on terms up to 5 years at fixed or variable rates and are secured by accounts
receivable, inventory or, in the case of equipment loans, the financed
equipment. The Bank's attempts to reduce its credit risk on commercial loans by
limiting the loan to value ratio to 65% on loans secured by accounts receivable
or inventory and 75% on equipment loans. The Bank also makes unsecured
commercial loans. Commercial, financial and agricultural loans constituted $7.2
million, or 15.4% of the Corporation's loan portfolio at June 30, 1998.
Credit Procedures and Review
Loan Approval. Certain credit risks are inherent in making loans. These
include prepayment risks, risks resulting from uncertainties in the future value
of collateral, risks resulting from changes in economic and industry conditions
and risks inherent in dealing with individual borrowers. In particular, longer
maturities increase the risk that economic conditions will change and adversely
affect collectibility.
The Corporation attempts to minimize loan losses through various means and
uses standardized underwriting criteria. In particular, on larger credits, the
Corporation generally relies on the cash flow of a debtor as the source of
repayment and secondarily on the value of the underlying collateral. In
addition, the Corporation attempts to utilize shorter loan terms in order to
reduce the risk of a decline in the value of such collateral.
The Corporation addresses repayment risks by adhering to internal credit
policies and procedures. These policies and procedures include officer and
customer lending limits, a multi-layered loan approval process for larger loans,
periodic documentation examination and follow-up procedures for any exceptions
to credit policies. The point in the Corporation's loan approval process at
which a loan is approved depends on the size of the borrower's credit
relationship with the Corporation.
Loan Review. The Corporation has a loan review process designed to promote
early identification of credit quality problems. All loan officers are charged
with the responsibility of reviewing at least quarterly all past due loans in
their respective portfolios. The Bank's loan officers establish a watch list of
loans to be reviewed quarterly by The Bank's Board of Directors. The Loan
Committee, which includes the Chief Lending Officer of The Bank along with other
officers also conducts a regular centralized internal review which tests
compliance with loan policy and documentation for all loans over $250,000 and a
sampling of smaller loans.
DEPOSITS
The principal sources of funds for The Bank are core deposits, consisting
of demand deposits, interest-bearing transaction accounts, money market
accounts, savings deposits and certificates of deposit. Transaction accounts
include checking, money market and negotiable order of withdrawal (NOW) accounts
which customers use for cash management and which provide the banks with a
source of fee income and cross-marketing opportunities, as well as a low-cost
source of funds. Time and savings accounts also provide a relatively stable and
low-cost source of funding. The largest source of funds for The Bank is
certificates of deposit. Certificates of deposit in excess of $100,000 are held
primarily by customers in The Bank's market areas.
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Deposit rates are set weekly by senior management of The Bank, subject to
approval by management of the Corporation. Management believes that the rates
The Bank offers are competitive with those offered by other institutions in The
Bank's market areas. The Corporation focuses on customer service, not high
rates, to attract and retain deposits.
COMPETITION
The Bank encounters strong competition both in making loans and attracting
deposits. Competition among financial institutions is based upon interest rates
offered on deposit accounts, interest rates charged on loans and other credit
and service charges, the quality and scope of the services rendered, the
convenience of banking facilities and, in the case of loans to commercial
borrowers, relative lending limits, and may offer certain services, such as
trust services, that The Bank does not currently provide. In addition, most of
the Corporation's non-bank competitors are not subject to the same extensive
federal regulations that govern bank holding companies and federally insured
banks. See "Supervision and Regulation."
MARKET INFORMATION
There is currently no organized public trading market for the Corporation
Common Stock. Therefore, when Corporation Common Stock is traded, it is traded
in privately negotiated transactions. Management is currently unaware of any
trades of Corporation Common Stock. Prior to the Warrior Merger, the last known
trades of Warrior Common Stock occurred in January and April 1998 for $1,436.00
per share when 600 shares and 1,050 shares, respectively, were traded.
Management of the Corporation is unaware of any other trades of Warrior Common
Stock in the past two fiscal years.
As of June 30, 1998, the Corporation has not paid any dividends. Warrior
previously paid dividends annually including dividends of $26.00 per share and
$23.50 per share in 1997 and 1996 respectively.
As of June 30, 1998, there were 33 holders of record of Corporation Common
Stock.
PROPERTIES
The Corporation owns the John A. Hand building, a 21 story office building
located at 17 North 20th Street, Birmingham, Alabama 35203, in which the
corporation's headquarters are located and in which The Bank of Birmingham is
located. The Corporation also owns each of The Bank's locations in Warrior,
Morris, Mt. Olive and Decatur.
LEGAL PROCEEDINGS
While the Corporation may from time to time be a party to various legal
proceedings arising from the ordinary course of its business, the Corporation
believes that there are currently no proceedings threatened or pending against
the Corporation that will individually, or in the aggregate, have a material
adverse effect on the business or financial condition of the Corporation.
SUPERVISION AND REGULATION
The supervision and regulation of bank holding companies and their
subsidiaries is intended primarily for the protection of depositors, the deposit
insurance funds of the FDIC and the banking system as a whole, not for the
protection of bank holding company shareholders or creditors. The banking
agencies have broad enforcement power over bank holding companies and banks
including the power to impose substantial fines and other penalties for
violation of laws and regulations.
The following description summarizes some of the laws to which the
Corporation and The Bank are subject. References herein to applicable statutes
and regulations are brief summaries thereof, do not purport to be complete and
are qualified in their entirety by reference to such statutes and regulations.
THE CORPORATION
The Corporation is a bank holding company registered under the Bank Holding
Company Act (the "BHCA"), and it is subject to supervision, regulation and
examination by the Federal Reserve. The BHCA and other federal laws subject bank
holding companies to particular restrictions on the types of activities in
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which they may engage and to a range of supervisory requirements and activities,
including regulatory enforcement actions for violations of laws and regulations.
Regulatory Restrictions on Dividends; Source of Strength. It is the policy
of the Federal Reserve that bank holding companies should pay cash dividends on
common stock only out of income available over the past year and only if
prospective earnings retention is consistent with the organization's expected
future needs and financial condition. The policy provides that bank holding
companies should not maintain a level of cash dividends that undermines the bank
holding company's ability to serve as a source of strength to its banking
subsidiaries.
The Corporation's principal source of funds to pay dividends on the shares
of Corporation Common Stock will be cash dividends that the Corporation receives
from The Bank. The payment of dividends by The Bank to the Corporation is
subject to certain restrictions imposed by state and federal banking laws,
regulations and authorities. As of June 30, 1998, an aggregate of approximately
$2.0 million was available for payment of dividends by The Bank to the
Corporation under applicable restrictions, without regulatory approval. See
"-- The Bank."
The federal banking statutes prohibit federally insured banks from making
any capital distributions (including a dividend payment) if, after making the
distribution, the institution would be "undercapitalized" as defined by statute.
In addition, the relevant federal regulatory agencies also have authority to
prohibit an insured bank from engaging in an unsafe or unsound practice, as
determined by the agency, in conducting an activity. The payment of dividends
could be deemed to constitute such an unsafe or unsound practice, depending on
the financial condition of The Bank. Regulatory authorities could impose
administratively stricter limitations on the ability of The Bank to pay
dividends to the Corporation if such limits were deemed appropriate to preserve
certain capital adequacy requirements.
Under Federal Reserve policy, a bank holding company is expected to act as
a source of financial strength to each of its banking subsidiaries and commit
resources to their support. Such support may be required at times when, absent
this Federal Reserve policy, a holding company may not be inclined to provide
it. As discussed below, a bank holding company in certain circumstances could be
required to guarantee the capital plan of an undercapitalized banking
subsidiary.
In the event of a bank holding company's bankruptcy under Chapter 11 of the
U.S. Bankruptcy Code, the trustee will be deemed to have assumed and is required
to cure immediately any deficit under any commitment by the debtor holding
company to any of the federal banking agencies to maintain the capital of an
insured depository institution, and any claim for breach of such obligation will
generally have priority over most other unsecured claims.
Activities "Closely Related" to Banking. The BHCA prohibits a bank holding
company, with certain limited exceptions, from acquiring direct or indirect
ownership or control of any voting shares of any company which is not a bank or
from engaging in any activities other than those of banking, managing or
controlling banks and certain other subsidiaries, or furnishing services to or
performing services for its subsidiaries. One principal exception to these
prohibitions allows the acquisition of interests in companies whose activities
are found by the Federal Reserve, or order or regulation, to be so closely
related to banking or managing or controlling banks, as to be a proper incident
thereto. Some of the activities that have been determined to be closely related
to banking are making or servicing loans, performing certain data processing
services, acting as an investment or financial advisor to certain investment
trusts and investment companies and providing securities brokerage services.
Other activities approved by the Federal Reserve include consumer financial
counseling, tax planning and tax preparation, futures and options advisory
services, check guaranty services, collection agency and credit bureau services
and personal property appraisals. In approving acquisitions by bank holding
companies of companies engaged in banking-related activities, the Federal
Reserve considers a number of factors and weighs the expected benefits to the
public (such as greater convenience and increased competition or gains in
efficiency) against the risks of possible adverse effects (such as undue
concentration of resources, decreased or unfair competition, conflicts of
interest, or unsound banking practices). The Federal Reserve is also empowered
to differentiate between activities commenced de novo and activities commenced
through acquisition of a going concern.
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Securities Activities. The Federal Reserve has approved applications by
bank holding companies to engage, through nonbank subsidiaries, in certain
securities-related activities (underwriting of municipal revenue bonds,
commercial paper, consumer receivable-related securities and one-to-four family
mortgage-backed securities), provided that the affiliates would not be
"principally engaged" in such activities for purposes of Section 20 of the
Glass-Steagall Act. In limited situations, holding companies may be able to use
such subsidiaries to underwrite and deal in corporate debt and equity
securities.
Safe and Sound Banking Practices. Bank holding companies are not permitted
to engage in unsafe and unsound banking practices. The Federal Reserve's
Regulation Y, for example, generally requires a holding company to give the
Federal Reserve prior notice of any redemption or repurchase of its own equity
securities, if the consideration to be paid, together with the consideration
paid for any repurchases or redemptions in the preceding year, is equal to 10%
or more of the company's consolidated net worth. The Federal Reserve may oppose
the transaction if it believes that the transaction would constitute an unsafe
or unsound practice or would violate any law or regulation. Depending upon the
circumstances, the Federal Reserve could take the position that paying a
dividend would constitute an unsafe or unsound banking practice.
The Federal Reserve has broad authority to prohibit activities of bank
holding companies and their nonbanking subsidiaries which represent unsafe and
unsound banking practices or which constitute violations of laws or regulations,
and can assess civil money penalties for certain activities conducted on a
knowing and reckless basis, if those activities caused a substantial loss to a
depository institution. The penalties can be as high as $1,000,000 for each day
the activity continues.
Anti-Tying Restrictions. Bank holding companies and their affiliates are
prohibited from tying the provision of certain services, such as extensions of
credit, to other services offered by a holding company or its affiliates.
Capital Adequacy Requirements. The Federal Reserve has adopted a system
using risk-based capital guidelines to evaluate the capital adequacy of bank
holding companies. Under the guidelines, specific categories of assets are
assigned different risk weights, based generally on the perceived credit risk of
the asset. These risk weights are multiplied by corresponding asset balances to
determine a "risk-weighted" asset base. The guidelines require a minimum total
risk-based capital ratio of 8.0% (of which at least 4.0% is required to consist
of Tier 1 capital elements). Total capital is the sum of Tier 1 and Tier 2
capital. As of June 30, 1998, the Corporation's ratio of Tier 1 capital to total
risk-weighted assets was 32.51%, and its ratio of total capital to total
risk-weighted assets was 33.60%. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Capital Resources."
In addition to the risk-based capital guidelines, the Federal Reserve uses
a leverage ratio as an additional tool to evaluate the capital adequacy of bank
holding companies. The leverage ratio is a company's Tier 1 capital divided by
its average total consolidated assets. Certain highly-rated bank holding
companies may maintain a minimum leverage ratio of 3.0%, but other bank holding
companies may be required to maintain a leverage ratio of up to 200 basis points
above the regulatory minimum. As of June 30, 1998, the Corporation's leverage
ratio was 23.62%.
The federal banking agencies' risk-based and leverage ratios are minimum
supervisory ratios generally applicable to banking organizations that meet
certain specified criteria, assuming that they have the highest regulatory
rating. Banking organizations not meeting these criteria are expected to operate
with capital positions well above the minimum ratios. The federal bank
regulatory agencies may set capital requirements for a particular banking
organizations that are higher than the minimum ratios when circumstances
warrant. Federal Reserve guidelines also provide that banking organizations
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.
Imposition of Liability for Undercapitalized Subsidiaries. Bank regulators
are required to take "prompt corrective action" to resolve problems associated
with insured depository institutions whose capital declines below certain
levels. In the event an institution becomes "undercapitalized," it must submit a
capital restoration plan. The capital restoration plan will not be accepted by
the regulators unless each company
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having control of the undercapitalized institution guarantees the subsidiary's
compliance with the capital restoration plan up to a certain specified amount.
Any such guarantee from a depository institution's holding company is entitled
to a priority of payment in bankruptcy.
The aggregate liability of the holding company of an undercapitalized bank
is limited to the lesser of 5% of the institution's assets at the time it became
undercapitalized or the amount necessary to cause the institution to be
"adequately capitalized." The bank regulators have greater power in situations
where an institution becomes "significantly" or "critically" undercapitalized or
fails to submit a capital restoration plan. For example, a bank holding company
controlling such an institution can be required to obtain prior Federal Reserve
approval of proposed dividends or might be required to consent to a
consolidation or to divest the troubled institution or other affiliates.
Acquisitions by Bank Holding Companies. The BHCA requires every bank
holding company to obtain the prior approval of the Federal Reserve before it
may acquire all or substantially all of the assets of any bank, or ownership or
control of any voting shares of any bank, if after such acquisition it would own
or control, directly or indirectly, more than 5% of the voting shares of such
bank. In approving bank acquisitions by bank holding companies, the Federal
Reserve is required to consider the financial and managerial resources and
future prospects of the bank holding company and the banks concerned, the
convenience and needs of the communities to be served, and various competitive
factors.
Control Acquisitions. The Change in Bank Control Act prohibits a person or
group of persons from acquiring "control" of a bank holding company unless the
Federal Reserve has been notified and has not objected to the transaction. Under
a rebuttable presumption established by the Federal Reserve, the acquisition of
10% or more of a class of voting stock of a bank holding company with a class of
securities registered under Section 12 of the Exchange Act, would, under the
circumstances set forth in the presumption, constitute acquisition of control of
that bank holding company.
In addition, any company is required to obtain the approval of the Federal
Reserve under the BHCA before acquiring 25% (5% in the case of an acquiror that
is a bank holding company) or more of the outstanding Common Stock of the
Corporation, or otherwise obtaining control or a "controlling influence" over
the Corporation.
Thrift Holding Company. Upon completion of the Emerald Merger, the
Corporation will be a registered thrift holding company under the Home Owner's
Loan Act (the "HOLA") and will be subject to additional regulatory scrutiny and
examination by the Office of Thrift Supervision (the "OTS"). The Corporation
will be required to obtain OTS approval prior to acquiring, directly or
indirectly, more than 10% of the voting shares of, or otherwise obtaining
control (as defined in the relevant OTS regulations) over another thrift or
holding company of a thrift.
Qualified Thrift Lender. Under the HOLA, as amended by FDICIA, as a
thrift, Emerald must maintain a minimum of 60% of its total portfolio assets (as
defined in the statute) in certain investments (generally, loans relating to
residential or manufactured housing) on a monthly average basis in nine out of
every twelve months in order to remain a "Qualified Thrift Lender." A savings
association that fails to become or remain a Qualified Thrift Lender must either
become a bank (other than a savings bank) or become subject to certain
restrictions on operations similar to those applicable to national banks. In
addition, in the event that Emerald fails to remain a Qualified Thrift Lender, a
portion of its bad debt reserve will be subject to taxation.
Restrictions on Distribution of Subsidiary Thrift Dividends and Assets. As
a thrift, Emerald will be subject to OTS regulations which restrict its ability
to make capital distributions such as dividends to the Corporation. Under these
regulations, a thrift that meets its fully phased-in capital requirements is
permitted to make capital distributions without OTS approval during any calendar
year up to 100% of its net income to date during that year plus an amount that
would reduce its surplus capital ratio (as measured at the beginning of the
calendar year) by one-half. Any proposed capital distributions in excess of this
amount are subject to objection by the OTS. Thrifts that have capital
immediately prior to, and on a pro forma basis after giving effect to, a
proposed capital distribution that is equal to or in excess of their minimum
capital requirement, but
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less than their fully phased-in capital requirement, may make capital
distributions from 25% to 75% of net income during the most recent four quarters
(minus distributions previously made over that period), depending upon how close
they are to meeting their fully phased-in capital requirement. Thrifts that fail
to meet their minimum capital requirements are not authorized to make any
capital distributions without prior written approval from the OTS. All thrifts
must provide notice to the OTS prior to making any capital distributions.
THE BANK
The deposits of The Bank, an Alabama-chartered banking corporation, are
insured by the Bank Insurance Fund ("BIF") of the FDIC. The Bank is a not member
of the Federal Reserve System; therefore, The Bank is subject to supervision and
regulation by the FDIC and the Alabama Banking Department. Such supervision and
regulation subjects The Bank to special restrictions, requirements, potential
enforcement actions and periodic examination by the FDIC and the Alabama Banking
Department. Because the Federal Reserve regulates the bank holding company
parent of The Bank, the Federal Reserve also has supervisory authority which
directly affects The Bank.
Branching. Alabama law provides that an Alabama-chartered bank can
establish a branch anywhere in Alabama provided that the branch is approved in
advance by the Alabama Banking Department. The branch must also be approved by
the FDIC which considers a number of factors, including financial history,
capital adequacy, earnings prospects, character of management, needs of the
community and consistency with corporate powers.
Restrictions on Transactions With Affiliates and Insiders. Transactions
between The Bank and its respective nonbanking subsidiaries and affiliates,
including the Corporation, are subject to Section 23A of the Federal Reserve
Act. In general, Section 23A imposes limits on the amount of such transactions,
and also requires certain levels of collateral for loans to affiliated parties.
It also limits the amount of advances to third parties with are collateralized
by the securities or obligations of the Corporation or its subsidiaries.
Affiliate transactions are also subject to Section 23B of the Federal
Reserve Act which generally requires that certain transactions between The Bank
and its respective affiliates be on terms substantially the same, or at least as
favorable to such bank, as those prevailing at the time for comparable
transactions with or involving other nonaffiliated persons.
The restrictions on loans to directors, executive officers, principal
shareholders and their related interests (collectively referred to herein as
"insiders") contained in the Federal Reserve Act and Regulation O apply to all
insured institutions and their subsidiaries and holding companies. These
restrictions include limits on loans to one borrower and conditions that must be
met before such a loan can be made. There is also an aggregate limitation on all
loans to insiders and their related interests. These loans cannot exceed the
institution's total unimpaired capital and surplus, and the FDIC may determine
that a lesser amount is appropriate. Insiders are subject to enforcement actions
for knowingly accepting loans in violation of applicable restrictions.
Restrictions on Distribution of Subsidiary Bank Dividends and
Assets. Dividends paid by The Bank have provided a substantial part of the
Corporation's operating funds and, for the foreseeable future, it is anticipated
that dividends paid by The Bank to the Corporation will continue to be the
Corporation's principal source of operating funds. Capital adequacy requirements
serve to limit the amount of dividends that may be paid by The Bank. Under
federal law, The Bank can not pay a dividend if, after paying the dividend, The
Bank would be "undercapitalized." The FDIC may declare a dividend payment to be
unsafe and unsound even though The Bank would continue to meet its capital
requirements after the dividend.
Because the Corporation is a legal entity separate and distinct from its
subsidiaries, its right to participate in the distribution of assets of any
subsidiary upon the subsidiary's liquidation or reorganization will be subject
to the prior claims of the subsidiary's creditors. In the event of a liquidation
or other resolution of an insured depository institution, the claims of
depositors and other general or subordinated creditors are entitled to a
priority of payment over the claims of holders of any obligation of the
institution to its shareholders, including any depository institution holding
company (such as the Corporation) or any shareholder or creditor thereof.
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Examinations. The FDIC periodically examines and evaluates insured banks.
Based upon such an evaluation, the FDIC may revalue the assets of the
institution and require that it establish specific reserves to compensate for
the difference between the FDIC-determined value and the book value of such
assets. The Alabama Banking Department also conducts examinations of state banks
but may accept the results of a federal examination in lieu of conducting an
independent examination.
Capital Adequacy Requirements. The FDIC has adopted regulations
establishing minimum requirements for the capital adequacy of insured
institutions. The FDIC may establish higher minimum requirements if, for
example, a bank has previously received special attention or has a high
susceptibility to interest rate risk.
The FDIC's risk-based capital guidelines generally require state banks to
have a minimum of Tier 1 capital to total risk-weighted assets of 4.0% and a
ratio of total capital to total risk-weighted assets of 8.0%. The capital
categories have the same definitions for The Bank as for the Corporation. As of
December 31, 1997, The Bank's ratio of Tier 1 capital to total risk-weighted
assets was 17.80% and its ratio of total capital to total risk-weighted assets
was 19.05%. See "Management's Discussion and Analysis of Financial Condition and
Results of Operation -- Corporation."
Corrective Measures for Capital Deficiencies. The federal banking
regulators are required to take "prompt corrective action" with respect to
capital-deficient institutions. Agency regulations define, for each capital
category, the levels at which institutions are "well-capitalized," "adequately
capitalized," "under capitalized," "significantly under capitalized" and
"critically under capitalized." A "well capitalized" bank has a total risk based
capital ratio of 10.0% or higher; a Tier 1 risk based capital ratio of 6.0% or
higher; a leverage ratio of 5.0% or higher; and is not subject to any written
agreement, order or directive requiring it to maintain a specific capital level
for any capital measure. An "adequately capitalized" bank has a total risk based
capital ratio of 8.0% or higher; a Tier 1 risk based capital ratio of 4.0% or
higher; a leverage ratio of 4.0% or higher (3.0% or higher if the bank was rated
a CAMEL 1 in its most recent examination report and is not experiencing
significant growth); and does not meet the criteria for a well capitalized bank.
A bank is "under capitalized" if it fails to meet any one of the ratios required
to be adequately capitalized. The Bank is classified as "well capitalized" for
purposes of the FDIC's prompt corrective action regulations.
In addition to requiring undercapitalized institutions to submit a capital
restoration plan, agency regulations contain broad restrictions on certain
activities of undercapitalized institutions including asset growth,
acquisitions, branch establishment and expansion into new lines of business.
With certain exceptions, an insured depository institution is prohibited from
making capital distributions, including dividends, and is prohibited from paying
management fees to control persons if the institution would be undercapitalized
after any such distribution or payment.
As an institution's capital decreases, the FDIC's enforcement powers become
more severe. A significantly undercapitalized institution is subject to mandated
capital raising activities, restrictions on interest rates paid and transactions
with affiliates, removal of management, and other restrictions. The FDIC has
only very limited discretion in dealing with a critically undercapitalized
institution and is virtually required to appoint a receiver or conservator.
Banks with risk-based capital and leverage ratios below the required
minimums may also be subject to certain administrative actions, including the
termination of deposit insurance upon notice and hearing, or a temporary
suspension of insurance without a hearing in the event the institution has no
tangible capital.
Deposit Insurance Assessments. The Bank must pay assessments to the FDIC
for federal deposit insurance protection. The FDIC has adopted a risk based
assessment system as required by Federal Deposit Insurance Corporation
Improvements Act ("FDICIA"). Under this system, FDIC-insured depository
institutions pay insurance premiums at rates based on their risk classification.
Institutions assigned to higher-risk classifications (that is, institutions that
pose a greater risk of loss to their respective deposit insurance funds) pay
assessments at higher rates than institutions that pose a lower risk. An
institution's risk classification is assigned based on its capital levels and
the level of supervisory concern the institution poses to the regulators. In
addition, the FDIC can impose special assessments in certain instances. The
current range of BIF assessments is between 0% and 0.27% of deposits.
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The FDIC established a process for raising or lowering all rates for
insured institutions semi-annually if conditions warrant a change. Under this
new system, the FDIC has the flexibility to adjust the assessment rate schedule
twice a year without seeking prior public comment, but only within a range of
five cents per $100 above or below the premium schedule adopted. Changes in the
rate schedule outside the five cent range above or below the current schedule
can be made by the FDIC only after a full rulemaking with opportunity for public
comment.
On September 30, 1996, President Clinton signed into law an act that
contained a comprehensive approach to recapitalizing the SAIF and to assure the
payment of the Financial Corporation's ("FICO") bond obligations. Under this
act, banks insured under the BIF are required to pay a portion of the interest
due on bonds that were issued by FICO to help shore up the ailing Federal
Savings and Loan Insurance Corporation in 1987. The BIF rate must equal
one-fifth of the Savings Association Insurance Fund ("SAIF") rate through
year-end 1999, or until the insurance funds are merged, whichever occurs first.
Thereafter, BIF and SAIF payers will be assessed pro rata for the FICO bond
obligations. With regard to the assessment for the FICO obligation, the current
BIF rate is .0126% of deposits.
Enforcement Powers. The FDIC and the other federal banking agencies have
broad enforcement powers, including the power to terminate deposit insurance,
impose substantial fines and other civil and criminal penalties and appoint a
conservator or receiver. Failure to comply with applicable laws, regulations and
supervisory agreements could subject the Corporation or its banking
subsidiaries, as well as officers, directors and other institution-affiliated
parties of these organizations, to administrative sanctions and substantial
civil money penalties. The appropriate federal banking agency may appoint the
FDIC as conservator or receiver for a banking institution (or the FDIC may
appoint itself, under certain circumstances) if any one or more of a number of
circumstances exist, including, without limitation, the fact that the banking
institution is undercapitalized and has no reasonable prospect of becoming
adequately capitalized; fails to become adequately capitalized when required to
do so; fails to submit a timely and acceptable capital restoration plan; or
materially fails to implement an accepted capital restoration plan. The Alabama
Banking Department also has broad enforcement powers over The Bank including the
power to impose orders, remove officers and directors, impose fines and appoint
supervisors and conservators.
Brokered Deposit Restrictions. Adequately capitalized institutions cannot
accept, renew or roll over brokered deposits except with a waiver from the FDIC,
and are subject to restrictions on the interest rates that can be paid on such
deposits. Undercapitalized institutions may not accept, renew or roll over
brokered deposits.
Cross-Guarantee Provisions. The Financial Institutions Reform, Recovery
and Enforcement Act of 1989 ("FIRREA") contains a "cross-guarantee" provision
which generally makes commonly controlled insured depository institutions liable
to the FDIC for any losses incurred in connection with the failure of a commonly
controlled depository institution.
Community Reinvestment Act. The Community Reinvestment Act of 1977 ("CRA")
and the regulations issued thereunder are intended to encourage banks to help
meet the credit needs of their service area, including low and moderate income
neighborhoods, consistent with the safe and sound operations of the banks. These
regulations also provide for regulatory assessment of a bank's record in meeting
the needs of its service area when considering applications to establish
branches, merger applications and applications to acquire the assets and assume
the liabilities of another bank. FIRREA requires federal banking agencies to
make public a rating of a bank's performance under the CRA. In the case of a
bank holding company, the CRA performance record of the banks involved in the
transaction are reviewed in connection with the filing of an application to
acquire ownership or control of shares or assets of a bank or to merge with any
other bank holding company. An unsatisfactory record can substantially delay or
block the transaction.
Consumer Laws and Regulations. In addition to the laws and regulations
discussed herein, The Bank is also subject to certain consumer laws and
regulations that are designed to protect consumers in transactions with banks.
While the list set forth herein is not exhaustive, these laws and regulations
include the Truth in Lending Act, the Truth in Savings Act, the Electronic Funds
Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity
Act and the Fair Housing Act, among others. These laws and regulations
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mandate certain disclosure requirements and regulate the manner in which
financial institutions must deal with customers when taking deposits or making
loans to such customers. The Bank must comply with the applicable provisions of
these consumer protection laws and regulations as part of their ongoing customer
relations.
INSTABILITY OF REGULATORY STRUCTURE
Various legislation, including proposals to overhaul the bank regulatory
system, expand the powers of banking institutions and bank holding companies and
limit the investments that a depository institution may make with insured funds,
is from time to time introduced in Congress. Such legislation may change banking
statutes and the operating environment of the Corporation and its banking
subsidiaries in substantial and unpredictable ways. The Corporation cannot
determine the ultimate effect that potential legislation, if enacted, or
implementing regulations with respect thereto, would have upon the financial
condition or results of operations of the Corporation or its subsidiaries.
EXPANDING ENFORCEMENT AUTHORITY
One of the major additional burdens imposed on the banking industry by
FDICIA is the increased ability of banking regulators to monitor the activities
of banks and their holding companies. In addition, the Federal Reserve and FDIC
are possessed of extensive authority to police unsafe or unsound practices and
violations of applicable laws and regulations by depository institutions and
their holding companies. For example, the FDIC may terminate the deposit
insurance of any institution which it determines has engaged in an unsafe or
unsound practice. The agencies can also assess civil money penalties, issue
cease and desist or removal orders, seek injunctions and publicly disclose such
actions. FDICIA, FIRREA and other laws have expanded the agencies' authority in
recent years, and the agencies have not yet fully tested the limits of their
powers.
EFFECT ON ECONOMIC ENVIRONMENT
The policies of regulatory authorities, including the monetary policy of
the Federal Reserve, have a significant effect on the operating results of bank
holding companies and their subsidiaries. Among the means available to the
Federal Reserve to affect the money supply are open market operations in U.S.
Government securities, changes in the discount rate on member bank borrowings
and changes in reserve requirements against member bank deposits. These means
are used in varying combinations to influence overall growth and distribution of
bank loans, investments and deposits, and their use may affect interest rates
charged on loans or paid for deposits.
Federal Reserve monetary policies have materially affected the operating
results of commercial banks in the past and are expected to continue to do so in
the future. The nature of future monetary policies and the effect of such
policies on the business and earnings of the Corporation and its subsidiaries
cannot be predicted.
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MANAGEMENT OF CORPORATION
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information about the executive
officers and directors of the Corporation as of September 1, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH CORPORATION
- ---- --- -------------------------
<S> <C> <C>
James A. Taylor........................ 56 Chairman of the Board, President and
Chief Executive Officer
David R. Carter........................ 46 Executive Vice President and Chief
Financial Officer
James A. Taylor, Jr.................... 33 Executive Vice President and General
Counsel and Director
James R. Andrews, M.D.................. 56 Director
Charles Barkley........................ 35 Director
Neal R. Berte, Ph.D.................... 58 Director
Peter N. Dichiara(2)................... 42 Director
Larry R. House......................... 54 Director
Thomas E. Jernigan, Jr.(2)............. 33 Director
James Mailon Kent, Jr.(1).............. 47 Director
Mayer Mitchell......................... 65 Director
Ronald W. Orso, M.D.(1)................ 52 Director
Harold Ripps(2)........................ 59 Director
Richard M. Scrushy..................... 45 Director
Michael E. Stephens.................... 54 Director
Larry D. Striplin, Jr.(1).............. 68 Director
Marie Swift............................ 56 Director
Johnny Wallis.......................... 69 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
James A. Taylor has been Chairman of the Board, President and Chief
Executive Officer of the Corporation since its incorporation in 1998. Mr. Taylor
served as Chairman of the Board, President and Chief Executive Officer of
Warrior from October 1997 until the Warrior Merger. Mr. Taylor was Founder,
Chairman of the Board and Chief Executive Officer of Alabama National
BanCorporation ("ANB"), a publicly-traded bank holding company based in
Birmingham, Alabama, from its incorporation in 1986 until his retirement in
April 1996. From 1981 until 1996, Mr. Taylor served as Chairman of the Board and
Chief Executive Officer of various banks and bank holding companies that
comprised ANB. Mr. Taylor is also on the Board of Directors of the American
Sports Medicine Institute.
David R. Carter has been Executive Vice President and Chief Financial
Officer of the Corporation since the Warrior Merger. Mr. Carter served as
Executive Vice President and Chief Financial Officer of Warrior from April 1998
until the Warrior Merger. Mr. Carter served as a consultant to Warrior from
January 1998 until April 1998. From June 1995 through January 1998, Mr. Carter
served as the Chief Financial Officer of Roxco, Ltd., a regional construction
company. From February 1981 through January 1995, Mr. Carter served in various
capacities with Trustmark, a publicly-traded bank holding company based in
Jackson, Mississippi, including Chief Financial Officer from September 1988
until January 1995.
James A. Taylor, Jr. has been Executive Vice President and General Counsel
of the Corporation since the Warrior Merger. Mr. Taylor was a director of
Warrior from October 1997 until the Warrior Merger and served as Executive Vice
President and General Counsel of Warrior from April 1998 until the Warrior
Merger. From June 1996 until April 1998, Mr. Taylor served as Vice
President -- Legal Services for MedPartners, Inc. ("MedPartners"), a
publicly-traded healthcare company. From July 1994 until December
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1996, Mr. Taylor served as outside general counsel to ANB. From August 1990
until March 1996, Mr. Taylor was in private practice with a law firm in
Birmingham, Alabama. Mr. Taylor is the son of James A. Taylor.
Neal R. Berte, Ph.D. has been a director of the Corporation since September
1998. Dr. Berte has been the President of Birmingham Southern College since
1975.
James R. Andrews, M.D. has been a director of the Corporation since the
Warrior Merger and served as a director of Warrior from October 1997 until the
Warrior Merger. Dr. Andrews served as a director of ANB from 1989 until 1996.
Dr. Andrews is an orthopedic surgeon specializing in sports-related injuries.
Charles Barkley has been a director of the Corporation since the Warrior
Merger and served as a director of Warrior from October 1997 until the Warrior
Merger. Mr. Barkley is a professional basketball player with the Houston Rockets
of the National Basketball Association.
Peter N. Dichiara has been a director of the Corporation since the Warrior
Merger and served as a director of Warrior from 1984 until the Warrior Merger.
Mr. Dichiara is the President of City Wholesale Grocery, a grocery supply
company based in Birmingham, Alabama.
Larry R. House has been a director of the Corporation since the Warrior
Merger and served as a director of Warrior from October 1997 until the Warrior
Merger. From 1985 to 1992, he was Chief Operating Officer of HEALTHSOUTH
Rehabilitation Corporation, now HEALTHSOUTH Corporation, a publicly traded
provider of rehabilitative health care services ("HEALTHSOUTH"). From 1992 to
1993, Mr. House was President of HEALTHSOUTH International, Inc. From 1993 to
1998 Mr. House served as Chairman of the Board and Chief Executive Officer of
MedPartners. Mr. House is a member of the Board of Directors of the American
Sports Medicine Institute.
Thomas E. Jernigan, Jr. has been a director of the Corporation since the
Warrior Merger and served as a director of Warrior from October 1997 until the
Warrior Merger. Mr. Jernigan is the President of Marathon Corporation, a
privately-held investment management company based in Birmingham, Alabama.
James Mailon Kent, Jr. has been a director of the Corporation since the
Warrior Merger and served as a director of Warrior from October 1997 until the
Warrior Merger. Mr. Kent served as a director of Alabama National BanCorporation
from 1988 until 1996 and served as Vice Chairman of ANB until 1994. Mr. Kent is
the owner of Mailon Kent Insurance Agency in Birmingham, Alabama.
Mayer Mitchell has been a director of the Corporation since the Warrior
Merger. He served as Chairman and Chief Executive Officer of The Mitchell
Company, a real estate development firm based in Mobile, Alabama, from September
1955 until his retirement from the company on December 31, 1986. He is currently
owner of Mitchell Brothers, Inc., a private investment company. Mr. Mitchell is
a former National President and Chairman of the Board of Directors of the
American Israel Public Affairs Committee (AIPAC) and a past member of the Board
of Directors of AmSouth Bank, N.A. of Mobile and Altus Bank of Mobile.
Ronald W. Orso, M.D. has been a director of the Corporation since the
Warrior Merger and served as a director of Warrior from October 1997 until the
Warrior Merger. Dr. Orso served as a director of ANB from 1988 until 1997. Dr.
Orso practices in the field of obstetrics and gynecology and is the Chairman of
the Department of Obstetrics and Gynecology at Baptist Medical Centers.
Harold Ripps, has been a director of the Corporation since the Warrior
Merger. He is a trustee of Colonial Properties Trust. He is the founder of The
Rime Companies, a real estate development, construction and management firm
specializing in the development of multifamily properties.
Richard M. Scrushy has been a member of the Board of Directors of the
Corporation since the Warrior Merger. Since 1984, Mr. Scrushy has been Chairman
of the Board and Chief Executive Officer of HEALTHSOUTH. Mr. Scrushy is also
Chairman of the Board of Directors of MedPartners.
Michael Stephens has been a director of the Corporation since the Warrior
Merger. He is currently the Chairman and CEO of S Enterprises, Inc. He was the
Founder, Chairman and CEO of ReLife, a publicly traded rehabilitation company
based in Birmingham from 1986 until 1994. Mr. Stephens also serves on the Board
of Directors of Rehabilitation Designs of America based in Kansas City, Kansas
and PsychPartners, Inc. based in Birmingham, Alabama.
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Larry D. Striplin, Jr. has been a member of the Board of Directors of the
Corporation since the Warrior Merger and served as a director of Warrior from
October 1997 until the Warrior Merger. Since December 1995, Mr. Striplin has
been the Chairman and Chief Executive Officer of Nelson-Brantley Glass
Contractors, Inc. and Chairman and CEO of Clearview Properties, Inc. Until
December 1995, Mr. Striplin had been Chairman of the Board and Chief Executive
Officer of Circle "S" Industries, Inc., a privately-owned bonding wire
manufacturer. Mr. Striplin is a member of the Board of Directors of Kulicke &
Suffa, Inc., a publicly-traded manufacturer of electronic equipment, and of
Capstone.
Marie Swift has been a director of the Corporation since the Warrior Merger
and served as a director of Warrior from its incorporation in 1982 until the
Warrior Merger. Ms. Swift has been President of The Bank of Warrior since
January 1998.
Mr. Wallis has been a director of the Corporation since the Warrior Merger
and served as director of Warrior from its incorporation in 1982 until the
Warrior Merger. Mr. Wallis served as Chairman of the Board, President and CEO of
Warrior until October 1997. Mr. Wallis served as President of The Bank until
January 1998 and continues to serve as CEO of The Bank.
CLASSIFIED BOARD OF DIRECTORS
Pursuant to the terms of the Corporation's Restated Certificate of
Incorporation (the "Corporation Certificate") and the Corporation's Amended and
Restated Bylaws (the "Corporation Bylaws"), the Board of Directors of the
Corporation is divided into three classes, with each class being as nearly equal
in number as reasonably possible. One class holds office for a term that will
expire at the annual meeting of stockholders to be held in 1999, a second class
holds office for a term that will expire at the annual meeting of stockholders
to be held in 2000 and a third class holds office for a term that will expire at
the annual meeting of stockholders to be held in 2001. Each director holds
office for the term to which he is elected and until his successor is duly
elected and qualified. At each annual meeting of stockholders of the
Corporation, the successors to the class of directors whose terms expire at such
meeting are elected to hold office for a term expiring at the annual meeting of
stockholders held in the third year following the year of their election.
Messrs. Taylor, Jr., Barkley, Jernigan, Jr., Mitchell and Ripps have terms
expiring in 1999, Messrs. Dichiara, House, Scrushy, Stephens and Wallis and Ms.
Swift have terms expiring in 2000 and Messrs. Taylor, Kent, Jr., and Striplin,
Jr. and Drs. Andrews and Orso have terms expiring in 2001. The Board of
Directors elects officers annually and such officers serve at the discretion of
the Board of Directors.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Corporation currently has two committees: the
Audit Committee and the Compensation Committee.
The Audit Committee has the responsibility for reviewing and supervising
the financial controls of the Corporation. The Audit Committee makes
recommendations to the Board of Directors of the Corporation with respect to the
Corporation's financial statements and the appointment of independent auditors,
reviews significant audit and accounting policies and practices, meets with the
Corporation's independent public accountants concerning, among other things, the
scope of audits and reports, and reviews the performance of overall accounting
and financial controls of the Corporation. The Audit Committee consists of
Messrs. Ripps, Dichiara and Jernigan, Jr.
The Compensation Committee has the responsibility for reviewing the
performance of the officers of the Corporation and recommending to the Board of
Directors of the Corporation's annual salary and bonus amounts for all officers
of the Corporation. The Compensation Committee consists of Messrs. Striplin and
Kent, Jr. and Dr. Orso.
331
<PAGE> 353
EXECUTIVE OFFICER COMPENSATION
Executive Officer Compensation. The following table presents certain
information concerning compensation paid or accrued for services rendered to the
Corporation in all capacities during the years ended December 31, 1997, 1996 and
1995, for the chief executive officer and the four other most highly compensated
executive officers of the Corporation whose total annual salary and bonus in the
last fiscal year exceeded $100,000 (collectively, the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION(1) ------------------------
------------------------------------- RESTRICTED
OTHER STOCK SECURITIES ALL OTHER
NAME AND ANNUAL AWARDS UNDERLYING COMPENSATION
PRINCIPAL POSITION HELD YEAR SALARY ($) BONUS ($) COMPENSATION ($) OPTIONS (#) ($)(2) PAYOUTS
----------------------- ---- ---------- --------- ------------ ---------- ----------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James A. Taylor............ 1997 25,000 -- 4,200 --
Chairman of the Board 1996 -- -- --
1995 -- -- --
Johnny Wallis.............. 1997 108,450 37,025 18,700 6,936
1996 104,100 14,300 15,400 6,252
1995 95,741 19,584 13,650 5,364
Marie Swift................ 1997 75,150 26,250 18,700 3,480
1996 74,800 10,625 15,400 3,204
1995 75,150 16,000 13,650 2,856
</TABLE>
- ---------------
(1) Dollar value of perquisites and other benefits were less than the lesser of
$50,000 or 10% of total salary and bonus for each Named Executive Officer.
(2) Represents the dollar value of insurance premiums paid by the Corporation
with respect to life, health, dental and disability insurance and automobile
allowance for the benefit of the Named Executive Officer.
DIRECTOR COMPENSATION
Directors of the Corporation receive $1,500 compensation for each meeting
attended and a retainer of $1,500 per quarter for serving as directors of the
Corporation. Directors are eligible to receive the grant of stock options under
the Corporation Option Plan. See "-- Executive Officer Compensation -- Option
Grants in 1997" and "Principal Stockholders of the Corporation."
EMPLOYMENT AGREEMENTS
Pursuant to the Executive Employment Agreement entered into between the
Corporation and James A. Taylor (the "Taylor Agreement") in October 1997, Mr.
Taylor will serve as Chairman of the Board, President and Chief Executive
Officer of the Corporation and Chairman of the Board of The Bank. In addition,
Mr. Taylor will be elected to serve as a director of the Corporation and each of
its subsidiaries. Mr. Taylor will receive a minimum annual base compensation of
$150,000, $200,000 and $250,000 in the first three years of the Taylor Agreement
plus a bonus of 15% of the base amount per quarter. In the event of a change of
control or an initial public offering of Corporation Common Stock prior to the
second anniversary of the Taylor Agreement, the base compensation shall be
$250,000.
Pursuant to the Taylor Agreement, Mr. Taylor will be entitled to receive
other benefits such as a car allowance, country club dues and may participate in
other executive compensation plans. The agreement is for a term of three years
which is renewable daily for an additional three year term and terminable by the
Corporation only upon three years notice. If Mr. Taylor is terminated for any
reason other than cause (including constructive termination) he shall receive
three years base compensation, directors' fees and all benefits or their cash
equivalents and be entitled to a "gross-up" payment to cover any excise tax
imposed on any severance payment to Mr. Taylor.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
There was no Compensation Committee of the Board of Directors of the
Corporation during 1997. Mr. Wallis and Ms. Swift were responsible for the
recommendation to the Board of all compensation levels.
332
<PAGE> 354
Messrs. Kent, Jr. and Striplin, Jr. and Dr. Orso will comprise the Compensation
Committee once the Mergers are complete.
STOCK OPTION PLAN
The Corporation has a Stock Option Plan (the "Corporation Option Plan").
The objectives of the Corporation Option Plan are to attract and retain
qualified personnel, to provide incentives to employees, officers, and directors
of the Corporation and to promote the success of the Corporation. A total of
1,000,000 shares of Corporation Common Stock, are covered by the Corporation
Option Plan. However, such additional shares shall be available only for the
grant of non-qualified stock options and not for the grant of incentive options.
The Corporation Option Plan authorizes the grant of options to purchase
Corporation Common Stock intended to qualify as incentive stock options
("Incentive Options") under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), and the grant of options that do not qualify as Incentive
Options ("Non-Qualified Options") under Section 422 of the Code. No options have
been granted under the Corporation Option Plan.
The Corporation Option Plan is administered by the Compensation Committee
of the Board of Directors of the Corporation (the "Committee"). The Committee,
subject to the approval of the Board of Directors and the provisions of the
Corporation Option Plans, has full power to select the individuals to whom
awards will be granted, to fix the number of shares that each optionee may
purchase, to set the terms and conditions of each option, and to determine all
other matters relating to the Corporation Option Plan. The Corporation Option
Plan provides that the Committee will select grantees from among full-time
employees, officers, directors and consultants of the Corporation or its
subsidiaries, and individuals or entities subject to an acquisition or
management agreement with the Corporation.
The option exercise price of each option shall be determined by the
Committee, but shall not be less than 100% of the fair market value of the
shares on the date of grant in the case of Incentive Options and not less than
85% of the fair market value of the shares on the date of grant in the case of
Non-Qualified Options granted to employees. No Incentive Option may be granted
to any employee who owns at the date of grant stock representing in excess of
10% of the combined voting power of all classes of stock of the Corporation or a
parent or a subsidiary unless the exercise price for stock subject to such
options is at least 110% of the fair market value of such stock at the time of
grant and the option term does not exceed five years. The aggregate fair market
value of stock with regard to which Incentive Options are exercisable by an
individual for the first time during any calendar year may not exceed $100,000.
The term of each option shall be fixed by the Committee and may not exceed
ten years from the date of grant. If a participant who holds options ceases to
be an employee, consultant or director or otherwise affiliated with the
Corporation (the "Termination"), for cause (as defined), and such person shall
not have fully exercised any option granted under the Corporation Option Plans,
the option or the remaining portion thereof will expire on the date employment
was terminated. Any option or portion thereof which has not expired or been
exercised on or before the date of Termination, without cause, expires 90 days
after the date of Termination. Notwithstanding the foregoing, in the event of
Termination due to the optionee's death or incapacity, the option will terminate
12 months following the date of such optionee's death or incapacity. Options
granted under the Corporation Option Plans may be exercisable in installments.
Upon the exercise of options, the option exercise price must be paid in
full, either in cash or other form acceptable to the Committee, including
delivery of a full recourse promissory note, delivery of shares of Common Stock
already owned by the optionee or delivery of other property. Unless terminated
earlier, the Corporation Option Plan will terminate in 2008.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Bank has entered into transactions with its directors, executive
officers, significant shareholders and their affiliates. Such transactions were
made in the ordinary course of business on substantially the same terms and
conditions, including interest rates and collateral, as those prevailing at the
same time for comparable
333
<PAGE> 355
transactions with other customers, and did not, in the opinion of management of
the Bank involve more than normal credit risk or present other unfavorable
features.
In October 1997, the following directors of the Corporation purchased the
following amounts of Warrior Common Stock at $1,436 per share: James R. Andrews,
700; Charles Barkley, 700; Larry R. House, 696; James Mailon Kent, Jr., 700;
Mayer Mitchell, 350; Harold Ripps, 700; Michael A. Stephens, 700; and Larry D.
Striplin 700.
During 1997, Warrior purchased the John A. Hand building, a twenty-one
story office building in downtown Birmingham, from Taylor Acquisition
Corporation, a corporation owned by James A. Taylor, Chairman and Chief
Executive Officer of the Corporation, and certain family members including his
son, James A. Taylor, Jr., Executive Vice President and General Counsel of the
Corporation. The building was purchased through a transaction in which the
Taylors received 1,535 shares of Warrior Common Stock valued at $1,436 per share
and Warrior assumed $1,513,000 in outstanding debt on the property. James A.
Taylor received 1,228 shares of Warrior Common Stock, valued at $1,436 per
share, and James A. Taylor, Jr. received 100 shares of Warrior Common Stock,
valued at $1,436 per share. The building and related equipment have been
appraised at $3,718,000.
During 1998, Warrior sold a total of 1,650 shares of Warrior Common Stock
at $1,436 per share to various executive officers and directors of the
Corporation. James A. Taylor, James A. Taylor, Jr., Richard M. Scrushy and James
R. Andrews each purchased 700, 350, 350 and 250 shares respectively.
As a result of the Warrior Merger, each person listed above received 300
shares of Corporation Common Stock for each share of Warrior Common Stock they
owned.
334
<PAGE> 356
PRINCIPAL STOCKHOLDERS OF THE CORPORATION
The following table sets forth certain information regarding beneficial
stock ownership of the Corporation as of September 10, 1998: (i) each director
and Named Executive Officer of the Corporation. (ii) all directors and executive
officers as a group, and (iii) each stockholder known by the Corporation to be
the beneficial owner of more than 5% of the outstanding Corporation Common
Stock. Except as otherwise indicated, each person or entity listed below has
sole voting and investment power with respect to all shares shown to be
beneficially owned by him or it except to the extent such power is shared by a
spouse under applicable law. Shares of Common Stock subject to options held by
directors and executive officers that are exercisable within 60 days of
September 10, 1998, are deemed outstanding for the purpose of computing such
director's or executive officer's beneficial ownership and the beneficial
ownership of all directors and executive officers as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENTAGE
THE CORPORATION OF COMMON
NAME POSITION HELD COMMON STOCK STOCK OWNED
- ---- ------------- ------------------- -----------
<S> <C> <C> <C>
James A. Taylor...................... Chairman of the Board,
President and Chief
Executive Officer 578,400(1) 10.62%
James A. Taylor, Jr.................. Executive Vice President,
General Counsel and
Director 135,000 2.48
James R. Andrews, M.D. .............. Director 285,000 5.23
Neal R. Berte, Ph.D. ................ Director -- *
Charles Barkley...................... Director 210,000 3.85
Peter N. Dichiara.................... Director 210,000(2) 3.85
Larry R. House....................... Director 103,800 1.91
Thomas E. Jernigan................... Director Emeritus(4) 416,600 7.65
Thomas E. Jernigan, Jr............... Director 1,000 *
James Mailon Kent, Jr................ Director 210,000 3.85
Mayer Mitchell....................... Director 105,000 1.93
Ronald W. Orso, M.D. ................ Director 210,000(3) 3.85
Harold Ripps......................... Director 210,000 3.85
Richard M. Scrushy................... Director 210,000 3.85
Michael Stephens..................... Director 210,000 3.85
Larry D. Striplin, Jr. .............. Director 210,000 3.85
Marie Swift.......................... Director 52,500 *
Johnny Wallis........................ Director 105,000 1.93
--------- -----
All executive officers and directors
as a group (16 persons)............ 3,045,700 55.90%
</TABLE>
- ---------------
* Less than one percent.
(1) Does not include 32,100 shares owned by his wife or 30,000 shares owned by
his son, Brett Taylor, of which he disclaims beneficial ownership.
(2) Includes 210,000 shares owned by City Wholesale Grocery Co., Inc. of which
he is the President.
(3) Includes 210,000 shares as Trustee of Birmingham OB/GYN, P.A. Pension Plan.
(4) Director Emeritus is a non-voting member of the Board of Directors.
335
<PAGE> 357
SELECTED CONSOLIDATED FINANCIAL DATA -- COMMERCE
TABLE CONTAINING SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, PERIOD ENDED DECEMBER 31,
------------------ ----------------------------
1998 1997 1997 1996 1995
-------- ------- -------- ------- -------
(A)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
SELECTED STATEMENT OF FINANCIAL CONDITION DATA:
Total assets................................. $119,775 $89,045 $104,962 $68,455 $33,959
Total loans.................................. 88,981 67,639 77,269 51,163 22,324
Investment securities........................ 21,491 12,294 11,860 6,156 3,551
Deposits..................................... 110,705 81,589 97,445 61,467 28,675
Stockholders' equity......................... 6,770 6,210 6,511 6,232 5,032
SELECTED STATEMENT OF INCOME DATA:
Interest income.............................. 4,506 3,329 7,513 4,056 1,478
Interest expense............................. 2,659 1,808 4,028 2,170 765
-------- ------- -------- ------- -------
Net interest income.................. 1,847 1,521 3,485 1,886 713
Provision for loan losses.................... 292 232 584 372 226
Noninterest income........................... 583 310 578 380 91
Noninterest expense.......................... 1,788 1,420 3,131 2,268 1,289
-------- ------- -------- ------- -------
Income (loss) before tax..................... 350 179 348 (374) (711)
Income tax expense (benefit)................. 94 35 120 (81) (241)
-------- ------- -------- ------- -------
Net income (loss).................... $ 256 $ 144 $ 228 $ (293) $ (470)
======== ======= ======== ======= =======
PER SHARE DATA:
Net income (loss)
-- Basic.................................. $ .39 $ .22 $ 0.35 $ (0.47) $ (0.85)
-- Diluted................................ .39 .22 0.34 -- --
Dividends.................................... -- -- -- -- --
</TABLE>
- ---------------
(a) The selected statement of income and per share data for this period are from
the date of inception (April 6, 1995) to December 31, 1995.
336
<PAGE> 358
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- COMMERCE
BASIS OF PRESENTATION
The following provides a narrative discussion and analysis of significant
changes in Commerce's results of operations and financial condition. Commerce
Bank was formed on April 6, 1995; therefore, it should be noted that the
discussion relative to 1995 only contains data for approximately nine months.
This discussion should be read in conjunction with the consolidated statements
and the supplemental financial data included elsewhere in this
Prospectus -- Joint Proxy Statement.
Certain of the information included in this discussion contains information
and forward-looking statements that are based on management's belief as well as
certain information and assumptions made by, and information currently available
to management. Specifically, Management's Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking statements with
respect to the adequacy of the allowance for loan losses; the effect of legal
proceedings on Commerce's financial condition, results of operations and
liquidity; Year 2000 compliance issues and market risk disclosures. The risks
and uncertainties that may affect operations, performance, growth projections
and the results of Commerce's business include, but are not limited to,
fluctuations in the economy, the relative strength and weakness in the
commercial and consumer credit sector and in the real estate market, the actions
taken by the Federal Reserve for the purpose of managing the economy, interest
rate movements, the impact of competitive products, services and pricing, timely
development by Commerce of technology enhancements for its products and
operating systems, legislation and similar matters. Although management of
Commerce believes that the expectations in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to be
correct. Such forward-looking statements are subject to certain risks,
uncertainties and assumptions. Should one or more of these risks materialize, or
should any such underlying assumptions prove to be significantly different,
actual results may vary materially from those anticipated, estimated, projected
or expected.
YEAR 2000 COMPLIANCE
Commerce has established a task force to review all computer-based systems
and applications and develop an action plan to ensure that its computer and
information systems will function properly in the Year 2000. This plan, which
has been approved by the Board of Directors and management, includes Commerce's
approach to having all systems and applications changed for the Year 2000 by
December 31, 1998, with final testing to take place during 1999. At this time,
management believes that implementation of its Year 2000 action plan will not
materially affect Commerce's operations in the future. Management does not
expect the costs of achieving Year 2000 compliance to have a material adverse
effect on Commerce's consolidated financial statements.
Because of the nature of operations, the external customers of Commerce
would be considered its borrowers. Commerce is in the process of identifying
customers that it deems to present a material risk to the continued operations
of the institution. The individual potential risk presented by these customers
and their strategies for addressing the Year 2000 issue will be evaluated. The
risk is somewhat diminished in light of the fact that Commerce's loan portfolio
is primarily secured by asset-based collateral where the fair market value of
such property is typically equal to or greater than the outstanding loan
balance. Commerce's Year 2000 plan establishes underwriting standards for Year
2000 compliance by borrowers. Commerce is in the process of revising its loan
document forms and underwriting procedures to encompass Year 2000 compliance
criteria and review.
RESULTS OF OPERATIONS
Six months ended June 30, 1998, compared with six months ended June 30, 1997
Net income increased $112,000, or 77.8% to $256,000 for the six months
ended June 30, 1998 from $144,000 for the six months ended June 30, 1997. Return
on average assets for the period ended June 30, 1998 was .46% compared to .37%
for the six months ended June 30, 1997, and the return on average equity was
337
<PAGE> 359
7.71% for the six months ended June 30, 1998 compared to 4.63% for the
corresponding period in 1997. Comprehensive income was $243,000 for the six
month period ended June 30, 1998, compared to a comprehensive loss of $21,000
for the period ended June 30, 1997. This increase is due to an increase in net
interest income and a decrease in the net unrealized loss on securities
available for sale.
Net interest income increased $326,000, or 21.4% to $1.847 million for the
period ended June 30, 1998 from $1.521 million for the same period in 1997, as
interest income increased $1.177 million and interest expense increased
$851,000. The increase in net interest income was primarily due to an increase
in earning assets funded by an increase in deposits.
The provision for loan losses was $292,000 for the six month period ended
June 30, 1998, compared to $232,000 for the six month period ended June 30,
1997. This 25.9% increase is attributable to management's ability to increase
reserves as Commerce becomes more profitable and management's conservative
approach in maintaining its allowance for loan losses.
Noninterest income was $583,000 for the period ended June 30, 1998,
compared to $310,000 for the six month period ended June 30, 1997. The increase
in noninterest income was primarily due to an increase in service charge income
on deposits.
Noninterest expenses were $1.788 million for the period ended June 30,
1998, compared to $1.420 million for the six month period ended June 30, 1997.
The increase in noninterest expenses was primarily due to an increase in salary
and employee benefits and various other operating expenses.
Income tax expense was $94,000 for the six month period ended June 30,
1998, compared to $35,000 for the six month period ended June 30, 1997. The
effective tax rates were 27% and 20%, respectively.
Year ended December 31, 1997, compared with years ended December 31, 1996 and
1995
Commerce's net income increased $520,550, or 117.8% to $227,721 in 1997
from a loss of $292,829 in 1996, which increased 37.6% from a loss of $469,601
in 1995. The increases are primarily the result of a newly formed bank being
able to build its business to a level where a positive return is attainable.
Return on average assets in 1997 was .26%, compared to (.60)% in 1996 and
(2.56)% in 1995. Return on average equity was 3.58% in 1997 compared to (5.12)%
in 1996 and (12.07)% in 1995. The increases are primarily a result of increased
volume allowing Commerce to begin to achieve profitable results.
Net interest income increased $1.6 million, or 84.8% to $3.5 million in
1997 from $1.9 million in 1996, which increased $1.2 million, or 164.7% from
1995. The increase in net interest income was due to an increase in average
earning assets to $81.0 million, or 79.2% in 1997 from $45.2 million in 1996,
which increased 182.4% from $16.0 million in 1995.
The provision for loan losses was $584,000 in 1997, compared to $372,000 in
1996 and $226,000 in 1995. While asset quality and loan loss experience has
improved, the fact that the operation was a de novo bank and had to fund its
allowance for loan losses during its start up has caused this provision to be
abnormally high. Commerce's allowance for loan losses as a percentage of its
loans was .90% at December 31, 1997, compared to .80% at December 31, 1996 and
.78% at December 31, 1995. The allowance for loan losses as a percentage of
period end nonperforming loans was 129.7% at December 31, 1997, compared to
934.1% at December 31, 1996. Commerce had net charge-offs of $297,000 in 1997,
resulting in a ratio of net charge-offs to average loans of .44%. This compares
to $135,000 and .39% in 1996.
Noninterest income increased $198,146 or 52.1% to $578,175 in 1997 from
$380,029 in 1996, which increased $288,870, or 316.9% from $91,159 in 1995. Most
of the increase in 1997 is attributable to the fact that the operation started
in 1995 and continued to grow in 1996 and 1997.
Noninterest expense increased $862,852, or 38.0% to $3.1 million in 1997
from $2.3 million in 1996, which increased $976,246, or 76% from $1.3 million in
1995. Again most of the increases are attributable to the fact that the
operation opened in 1995 and continued to grow in 1996 and 1997.
338
<PAGE> 360
NET INTEREST INCOME
The largest component of Commerce's net income is its net interest income,
which is the difference between the income earned on assets and interest paid on
deposits and borrowings used in support of such assets. Net interest income is
determined by the rates earned on Commerce's interest earning assets and the
rates paid on its interest-bearing liabilities, the relative amounts of
interest-earning assets and interest-bearing liabilities, and the degree of
mismatch and the maturity and repricing characteristics of its interest-earning
assets and interest-bearing liabilities. Net interest income divided by average
interest-earning assets represents Commerce's net interest margin.
Average Balances, Income, Expenses and Rates. The following tables depict,
on a tax-equivalent basis for the periods indicated, certain information related
to Commerce's average balance sheet and its average yields on assets and average
costs of liabilities. Such yields are derived by dividing income or expense by
the average balance of the corresponding assets or liabilities. Average balances
have been derived from quarterly averages.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------
1997 1996 1995
-------------------------- -------------------------- --------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------- ------- ------ ------- ------- ------ ------- ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans, net of unearned interest....... $66,770 $6,595 9.88% $34,998 $3,497 9.99% $ 9,800 $1,063 10.86%
Investment securities:
Taxable............................. 11,324 738 6.52 4,873 308 6.32 1,465 93 6.35
Tax exempt.......................... -- -- -- -- -- -- -- -- --
Federal funds sold.................... 2,913 180 6.18 5,341 251 4.70 4,743 322 6.79
------- ------ ------- ------ ------- ------
Total interest-earning
assets....................... 81,007 7,513 9.27 45,212 4,056 8.97 16,008 1,478 9.24
------- ------ ------- ------ ------- ------
Noninterest earning assets:
Cash.................................. 3,453 1,615 1,324
Allowance for loan losses............. (570) (232) (85)
Unrealized loss on available for sale
securities.......................... (61) (1) --
Other assets.......................... 3,425 2,467 1,087
------- ------- -------
Total noninterest-earning
assets....................... 6,247 3,849 2,326
------- ------- -------
Total assets................... $87,254 $49,061 $18,334
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Savings and interest-bearing demand
deposits............................ $13,445 $ 556 4.14% $ 7,949 $ 322 4.05% $ 3,867 $ 195 5.04%
Time deposits......................... 57,638 3,447 5.98 29,426 1,828 6.21 8,446 569 6.74
Other borrowings...................... 564 25 4.43 437 20 4.58 17 1 5.88
------- ------ ------- ------ ------- ------
Total interest-bearing
liabilities.................. 71,647 4,028 5.62 37,812 2,170 5.74 12,330 765 6.20
------- ------ ------- ------ ------- ------
Noninterest-bearing liabilities and
stockholders' equity:
Demand deposits....................... 9,048 5,413 2,060
Other liabilities..................... 191 113 58
Stockholders' equity.................. 6,368 5,723 3,886
------- ------- -------
Total noninterest-bearing
liabilities and stockholders'
equity....................... 15,607 11,249 6,004
------- ------- -------
Total liabilities and
stockholders' equity......... $87,254 $49,061 $18,334
======= ======= =======
Interest rate spread.................... 3.65% 3.23% 3.04%
==== ==== =====
Net interest income..................... $3,485 $1,886 $ 713
====== ====== ======
Net interest margin..................... 4.30% 4.17% 4.45%
==== ==== =====
</TABLE>
339
<PAGE> 361
Analysis of Changes in Net Interest Income. The following table sets
forth, on a taxable equivalent basis, the effect which the varying levels of
earning assets and interest-bearing liabilities and the applicable rates have
had on changes in net interest income for the years ended December 31, 1997,
1996 and 1995.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1997 VS. 1996 1996 VS. 1995
--------------------------- ---------------------------
CHANGES DUE TO CHANGES DUE TO
INCREASE -------------- INCREASE --------------
(DECREASE) RATE VOLUME (DECREASE) RATE VOLUME
---------- ----- ------ ---------- ----- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in:
Income from earning assets:
Interest and fees on loans........................ $3,098 $ (78) $3,176 $2,434 $(302) $2,736
Interest on securities:
Taxable......................................... 430 22 408 215 (1) 216
Tax-exempt...................................... -- -- -- -- -- --
Interest on Federal funds......................... (71) 43 (114) (71) (112) 41
------ ----- ------ ------ ----- ------
Total interest income........................ 3,457 (13) 3,470 2,578 (415) 2,993
------ ----- ------ ------ ----- ------
Expense from interest-bearing liabilities:
Interest on savings and interest-bearing demand
deposits.......................................... 234 11 223 127 (79) 206
Interest on time deposits........................... 1,619 (134) 1,753 1,259 (154) 1,413
Interest on other borrowings........................ 5 (1) 6 19 (6) 25
------ ----- ------ ------ ----- ------
Total interest expense....................... 1,858 (124) 1,982 1,405 (239) 1,644
------ ----- ------ ------ ----- ------
Net interest income.......................... $1,599 $ 111 $1,488 $1,173 $(176) $1,349
====== ===== ====== ====== ===== ======
</TABLE>
Interest Sensitivity. Commerce monitors and manages the pricing and
maturity of its assets and liabilities in order to diminish the potential
adverse impact that changes in interest rates could have on net interest income.
The principal monitoring technique employed by Commerce is the measurement of
Commerce's interest rate sensitivity "gap," which is the positive or negative
dollar difference between assets and liabilities that are subject to interest
rate repricing within a given period of time. The objective of Commerce's
Asset/Liability Management (ALM) function is to maintain a consistent level of
net interest income in a rising, falling or static interest rate environment.
ALM monitors the pricing of both interest earning assets and interest bearing
liabilities and the maturities of each. Interest rate sensitivity can be managed
by repricing assets or liabilities, selling securities available-for-sale,
replacing an asset or liability at maturity or by adjusting the interest rates
during the life of an asset or liability.
Commerce evaluates interest sensitivity risk and then formulates guidelines
regarding asset generation and repricing, funding sources and pricing,
off-balance sheet commitments in order to decrease interest sensitivity risk.
Commerce uses computer simulations to measure the net income effect of various
interest rate scenarios. The modeling reflects interest rate changes and the
related impact on net income over specified periods of time.
The goal of liquidity management is to provide adequate funds to meet
changes in loan and lease demand on any potential unexpected deposit
withdrawals. Additionally, management strives to maximize its earnings by
investing its excess funds in securities and other securitized loan assets with
maturities matching its offsetting liabilities. See the "Selected Loan Maturity
and Interest Rate Sensitivity" and the "Maturity Distribution of Investment
Securities" tables.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
Commerce has developed policies and procedures for evaluating the overall
quality of its credit portfolio and the timely identification of potential
problem credits. Management reviews the appropriate level for the allowance for
loan losses based on the results of the internal monitoring and reporting
system, analysis of economic conditions in its markets and a review of
historical statistical data for both Commerce and other financial institutions.
Management's judgment as to the adequacy of the allowance is based upon a number
of assumptions about future events, which it believes to be reasonable but which
may or may not be valid. Thus, there can be no assurance that charge-offs in
future periods will not exceed the allowance for loan losses or
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<PAGE> 362
that additional increases in the allowance for loan losses will not be required.
The adequacy of the allowance for loan losses and the effectiveness of
Commerce's monitoring and analysis system are also reviewed periodically by the
banking regulators and Commerce's independent auditors.
Additions to the allowance for loan losses, which are expensed as the
provision for loan losses on Commerce's income statement, are made periodically
to maintain the allowance at an appropriate level based on management's analysis
of the potential risk in the loan portfolio. Loan losses and recoveries are
charged or credited directly to the allowance. The amount of the provision is a
function of the levels of loans outstanding, the level of nonperforming loans,
historical loan loss experience, the amount of loan losses actually charged
against the reserve during a given period, and current and anticipated economic
conditions.
The following table summarizes certain information with respect to
Commerce's allowance for loan losses and the composition of charge-offs and
recoveries for the periods indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Average amount of loans outstanding......................... $66,770 $34,998
======= =======
Balance of allowance for loan losses at beginning of
period.................................................... $ 411 $ 174
------- -------
Charge-offs:
Commercial, financial and agricultural.................... 51 --
Real estate............................................... 41 --
Consumer.................................................. 309 143
------- -------
401 143
------- -------
Recoveries:
Commercial, financial and agricultural.................... 17 --
Real estate............................................... 6 --
Consumer.................................................. 81 8
------- -------
104 8
------- -------
Net charge-offs................................... 297 135
------- -------
Additions to reserve charged to operating expenses.......... 584 372
------- -------
Balance of allowance for loan losses........................ $ 698 $ 411
======= =======
Ratio of net loan charge-offs to average loans.............. 0.44% 0.39%
======= =======
</TABLE>
Allocation of Allowance. Commerce historically has allocated its allowance
for loan losses to specific loan categories. Although the allowance is
allocated, it is available to absorb losses in the entire loan portfolio.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------
1997 1996
-------------------- --------------------
PERCENT OF PERCENT OF
LOANS IN LOANS IN
CATEGORY TO CATEGORY TO
TOTAL TOTAL
AMOUNT LOANS AMOUNT LOANS
------ ----------- ------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial, financial, industrial and agricultural....... $279 48% $173 49%
Real estate.............................................. 216 38 111 31
Consumer................................................. 98 14 70 20
Unallocated.............................................. 105 -- 57 --
---- --- ---- ---
$698 100% $411 100%
==== === ==== ===
</TABLE>
341
<PAGE> 363
Nonperforming Assets. The following table presents Commerce's
nonperforming assets for the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1997 1996
---- ----
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Loans accounted for on a nonaccrual basis................... $ 73 $33
Installment loans and term loans contractually past due
ninety days or more as to interest or principal payments
and still accruing........................................ 465 11
Loans, the term of which has been renegotiated to provide a
reduction or deferral of interest or principal because of
deterioration in the financial position of the borrower... -- --
Loans now current about which there are serious doubts as to
the ability of the borrower to comply with present loan
repayment terms........................................... -- --
</TABLE>
Accrual of interest is discontinued on a loan when management believes,
after considering economic and business conditions and collection efforts, that
the borrower's financial condition is such that the collection of interest is
doubtful. A delinquent loan is generally placed on nonaccrual status when it
becomes 90 days or more past due. When a loan is placed on nonaccrual status,
all interest which has been accrued on the loan but remains unpaid is reversed
and deducted from earnings as a reduction of reported interest income. No
additional interest is accrued on the loan balance until the collection of both
principal and interest becomes reasonably certain. When a problem loan is
finally resolved, there may ultimately be an actual writedown or charge-off of
the principal balance of the loan, which would necessitate additional charges to
earnings.
EARNING ASSETS
Loans. Loans are the largest category of earning assets and typically
provide higher yields than the other types of earning assets. Associated with
the higher loan yields are the inherent credit and liquidity risks which
management attempts to control and counterbalance. Loans averaged $66.8 million
in 1997 compared to $35.0 million in 1996 and $9.8 million in 1995. At December
31, 1997, total loans were $77.3 million compared to $51.2 million at December
31, 1996 and $22.3 million at December 31, 1995.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Commercial, financial and agricultural...................... $36,955 $24,893
Real estate -- construction................................. 4,981 1,738
Real estate -- mortgage..................................... 22,449 13,951
Consumer installment loans.................................. 11,222 9,548
Other....................................................... 1,662 1,033
------- -------
77,269 51,163
Allowance for loan losses................................... (698) (411)
------- -------
Loans, net........................................ $76,571 $50,752
======= =======
</TABLE>
342
<PAGE> 364
The repayment of loans in the loan portfolio as they mature is also a
source of liquidity for Commerce. The following table sets forth Commerce's
loans maturing within specified intervals at December 31, 1997.
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Maturity:
One year or less.......................................... $35,243
After one year through five years......................... 37,013
After five years.......................................... 5,013
-------
$77,269
=======
</TABLE>
The information presented in the above table is based on the contractual
maturities of the individual loans, including loans which may be subject to
renewal at their contractual maturity. Renewal of such loans is subject to
review and credit approval as well as modification of terms upon their maturity.
Consequently, management believes this treatment presents fairly the maturity
and repricing structure of the loan portfolio.
Investment Securities. The investment securities portfolio is a
significant component of Commerce's total earning assets. Total securities
averaged $11.3 million in 1997, compared to $4.9 million in 1996 and $1.5
million in 1995. At December 31, 1997, the total securities portfolio was $11.8
million.
The following table sets forth the book and fair value of the securities
held by Commerce at the dates indicated.
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Securities Available for Sale
December 31, 1997:
U.S. Government and agency securities.............. $1,501 $ 1 $ -- $1,502
State and municipal securities..................... 673 -- -- 673
Mortgage-backed securities......................... 7,140 43 (1) 7,182
------ --- ---- ------
$9,314 $44 $ (1) $9,357
====== === ==== ======
December 31, 1996:
U.S. Government and agency securities.............. $ 497 $ 2 $ -- $ 499
Mortgage-backed securities......................... 2,520 -- (18) 2,502
------ --- ---- ------
$3,017 $ 2 $(18) $3,001
====== === ==== ======
Securities Held to Maturity
December 31, 1997:
U.S. Government and agency securities.............. $2,503 $ 1 $ (3) $2,501
====== === ==== ======
December 31, 1996:
U.S. Government and agency securities.............. $3,155 $-- $(34) $3,121
====== === ==== ======
</TABLE>
343
<PAGE> 365
The following table shows the scheduled maturities and average yields of
securities held at December 31, 1997.
<TABLE>
<CAPTION>
U.S. TREASURY AND
OTHER U.S. STATE AND
GOVERNMENT POLITICAL
AGENCIES AND SUBDIVISIONS
CORPORATIONS ---------------
------------------ YIELD
AMOUNT YIELD(1) AMOUNT (1)(2)
------- -------- ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Maturity:
One year or less.......................................... $ 502 6.21% $ -- --%
After one year through five years......................... 10,185 6.78 -- --
After five years through ten years........................ 500 7.00 -- --
After ten years........................................... -- -- 673 7.68
------- ---- ---- ----
$11,187 6.76% $673 7.68%
======= ==== ==== ====
</TABLE>
- ---------------
(1) Yields were computed using coupon interest, adding discount accretion or
subtracting premium amortization, as appropriate, on a ratable basis over
the life of each security. The weighted average yield for each maturity
range was computed using the acquisition price of each security in that
range.
(2) Yields on securities of state and political subdivisions are stated on a
taxable equivalent basis using a tax rate of 34%.
Short-Term Investments. Short-term investments, which consist primarily of
federal funds sold averaged $2.9 million in 1997, compared to $5.3 million in
1996 and $4.7 million in 1995. These funds are a primary source of Commerce's
liquidity and are generally invested on an overnight basis.
DEPOSITS AND OTHER INTEREST-BEARING LIABILITIES
Deposits. Average total deposits increased $37.3 million, or 87.1%, to
$80.1 million during 1997, from $42.8 million in 1996. Average total deposits
increased $28.4 million, or 197.7% in 1996, from $14.4 million in 1995. These
increases are a direct result of management's desire to fund its loan growth
with deposits.
The following table sets forth the deposits of Commerce by category at the
dates indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996
-------------- --------------
AMOUNT RATE AMOUNT RATE
------- ---- ------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Noninterest-bearing demand deposits......................... $ 9,048 --% $ 5,413 --%
Interest-bearing demand and savings deposits................ 13,445 4.14 7,949 4.05
Time deposits............................................... 57,638 5.98 29,426 6.21
------- -------
Total deposits.................................... $80,131 $42,788
======= =======
</TABLE>
344
<PAGE> 366
Deposits, and particularly core deposits, have historically been Commerce's
primary source of funding and have enabled Commerce to meet successfully both
its short-term and long-term liquidity needs. Management anticipates that such
deposits will continue to be Commerce's primary source of funding in the future.
Commerce's loan to deposit ratio was 79.3% at December 31, 1997, compared to
83.2% at December 31, 1996. The maturity distribution of Commerce's time
deposits over $100,000 at December 31, 1997 is shown in the following table.
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Three months or less........................................ $ 4,093
Over three through twelve months............................ 8,307
Over twelve months.......................................... 6,293
-------
Total............................................. $18,693
=======
</TABLE>
Approximately 21.9% of Commerce's time deposits over $100,000 had scheduled
maturities within three months. Large certificates of deposit customers tend to
be extremely sensitive to interest rate levels, making these deposits less
reliable sources of funding for liquidity planning purposes than core deposits.
Some financial institutions partially fund their balance sheets using large
certificates of deposits obtained through brokers. These broker deposits are
generally expensive and are unreliable as long-term funding sources. Commerce
does not currently buy brokered deposits. However, Commerce did purchase
brokered deposits when it first opened as a means of funding its loan demand. As
these brokered deposits have matured, they are not being renewed and have been
replaced with more conventional in-market deposits.
CAPITAL RESOURCES
The following table summarizes the regulatory capital levels of Commerce at
December 31, 1997.
<TABLE>
<CAPTION>
ACTUAL REQUIRED EXCESS
---------------- ---------------- ----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Leverage capital................................ $6,482 6.67% $3,885 4.00% $2,597 2.67%
Risk-based capital:
Core capital.................................. 6,482 8.72 2,973 4.00 3,509 4.72
Total capital................................. 7,181 9.66 5,947 8.00 1,234 1.66
</TABLE>
IMPACT OF INFLATION
Unlike most industrial companies, the assets and liabilities of financial
institutions such as Commerce are primarily monetary in nature. Therefore,
interest rates have a more significant effect on Commerce's performance than do
the effects of changes in the general rate of inflation and change in prices. In
addition, interest rates do not necessarily move in the same direction or in the
same magnitude as the prices of goods and services. Management seeks to manage
the relationships between interest sensitive assets and liabilities in order to
protect against wide interest rate fluctuations, including those resulting from
inflation.
REGULATORY MATTERS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general purpose 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 with the same prominence as other financial statements. The statement
is effective for fiscal years beginning after December 15, 1997. Management
intends to comply with this standard in 1998.
345
<PAGE> 367
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." This statement establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
This statement is effective for financial statements for periods beginning after
December 15, 1997. Management intends to comply with this standard in 1998.
346
<PAGE> 368
BUSINESS OF COMMERCE
Commerce offers a broad range of bank and bank-related services. It was
organized as an Alabama banking corporation in 1995. Commerce performs banking
services customary for full-service banks of similar size for customers located
in Albertville, Guntersville, Gadsden and Rainbow City, Alabama. These services
include the making of personal, commercial, and mortgage loans, the furnishing
of personal and commercial checking accounts, the receipt of demand and time
deposit accounts, a credit card program, and an accounts receivable financing
program. Commerce does not presently provide trust and fiduciary services.
Commerce has four full service banking offices located in Albertville,
Guntersville, Gadsden and Rainbow City. See "Competition."
BUSINESS STRATEGY
Commerce's business strategy is to continue to grow while maintaining high
asset quality and includes the following components:
Increase Market Share in Existing Markets. Management will continue
to take advantage of the marketing and business advantages that it
perceives result from being a locally managed bank in its market area.
Management believes that as a locally managed bank, Commerce and its
officers are better able to understand and respond effectively and quickly
to its communities' needs for credit and financial services.
Expand Markets Served; New Boaz Branch. Commerce intends to expand
its market area in North Alabama, with emphasis on Marshall and Etowah
counties and areas adjacent to Commerce's current market area. Management
believes Commerce's emphasis on banking for small to medium sized business
customers in the Marshall County area has been well received and that this
same approach will be well received in the Boaz, Alabama market area.
Management anticipates opening a branch in Boaz during 1998.
Prudently Manage Credit Quality and Interest Rate Risk. Commerce's
loan policies establish prudent loan underwriting and credit administration
standards. Adherence to these policies is closely monitored by management
and is reviewed by Commerce's Board of Directors. In addition, Commerce
manages its interest rate risk by originating short-term or variable rate
loans in order to match, to the extent practicable, the average maturities
of Commerce's interest-bearing liabilities and interest-earning assets.
Emphasize Customer Service. Commerce distinguishes itself in its
market by making its customers the highest priority in all aspects of
Commerce's operations. Ongoing employee training focuses on customer needs,
responsiveness, and courtesy to customers. Commerce emphasizes the
development of long-term relationships with its customers. Management
believes that the size of Commerce and the relationship it has with its
customers enables Commerce to develop and offer products that meet its
customers' needs. Commerce's marketing efforts and operating practices
emphasize the institution's ties to the local community and its commitment
to providing the highest level of personalized service.
COMPETITION
The banking business in Alabama, including Albertville, Guntersville,
Gadsden and Rainbow City, is highly competitive with respect to loans, deposits
and other services, and is dominated by a number of major banks and bank holding
companies which have numerous offices and affiliates operating over wide
geographic areas. Commerce competes for deposits, loans and other business with
these institutions, as well as with savings and loan associations, finance
companies and other local and non-local financial institutions. Areas of
competition include prices, interest rates, services and availability of
products. Among the advantages certain of these institutions may have compared
to Commerce are the ability to finance extensive advertising campaigns and to
allocate and diversify their assets among loans and securities of the highest
yield and in locations with the greatest demand.
347
<PAGE> 369
Many of the major commercial banks in Commerce's service area or their
affiliates offer services such as international banking and investment and trust
services that are not presently offered directly by Commerce. Such competitors,
because of their greater capitalization, also have substantially higher lending
limits than Commerce.
The risk of non-payment or deferred payment of loans is inherent in
commercial banking. Loans to smaller or medium-sized businesses served by
Commerce may, however, involve certain lending risks not inherent in loans to
larger companies. Smaller companies may have shorter operating histories, less
sophisticated internal record keeping and financial controls, and greater
debt-to-equity ratios. Management of Commerce evaluates all loan applicants and
attempts to minimize its credit risks by using appropriate loan application,
approval and administrative procedures. However, there can be no assurance that
these procedures will significantly reduce such lending risks.
Commerce believes that intense competition in Commerce's market areas will
continue and possibly increase. However, Commerce also believes that the
marketing and business advantages of being locally managed will continue.
Management believes that as a locally managed bank, Commerce and its officers
are better able to understand and respond effectively and quickly to its
communities' needs for credit and financial services. See "-- General."
EMPLOYEES
As of December 31, 1997, Commerce had 56 full-time equivalent employees.
Commerce provides a variety of benefit programs including group life, health and
accident insurance, long-term Disability, a 401(k) retirement plan and an
Employee Stock Purchase Plan. Commerce maintains ongoing educational and
training programs for its employees designed to prepare them for positions of
increasing responsibility in both management and operations positions.
It is presently anticipated that Commerce will initially hire 6 employees
to staff the Boaz Branch, including a branch manager, 2 full time tellers and 1
part-time teller, a Customer Service Representative and a secretary/loan
assistant. Commerce believes it can attract qualified personnel for these
positions.
MARKET INFORMATION
Through an Offering Circular dated March 11, 1996, Commerce sold 100,000
shares of its common capital stock at a price of $14.50 per share (minimum
purchase of 100 shares). All shares were issued by May 20, 1996. Commerce,
through its Employee Stock Purchase Plan, has issued additional shares of its
common stock at 85 percent of the fair market value of the stock. During the
past two fiscal years the fair market value for plan purposes has been set by
the Commerce Board of Directors at $14.50 per share.
There is no organized trading market for the Commerce Common Stock. When
shares are traded, they are traded in privately negotiated transactions.
Commerce is aware that trades for Commerce Common Stock have occurred in a
general range of $14.50 to $16.00 per share within the past two fiscal years,
although trades may have taken place of which management is unaware. The last
trade of which Commerce is aware, other than transactions through the Employee
Stock Purchase Plan, occurred on January 13, 1998, for $15.50 per share when 250
shares were traded. As of June 30, 1998, Commerce had 503 stockholders of
record.
There have been no dividends paid for the last two fiscal years. The
Commerce Plan of Merger provides that Commerce will not pay dividends prior to
the Effective Time.
PROPERTIES
The main office of Commerce is located at 301 North Broad Street, in
Albertville in the 1904 landmark building locally known as "the Pink House,"
consisting of approximately 5,000 square feet of space. The main building houses
Commerce's retail division, and some banking operations, enabling Commerce to
better service its customers and the community. The operations center of
Commerce, which houses deposit operations, data processing, accounting and audit
functions, was relocated from the main office to office space adjacent to the
main office in the fall of 1995. Commerce owns the main building and the
operations center
348
<PAGE> 370
annex and the approximately 3.5 acres of land upon which they are located. The
main building and the operations center annex together should provide adequate
space for present needs as well as for projected growth over the next ten years.
Commerce also owns each of its branch locations in Guntersville, Gadsden and
Rainbow City.
LEGAL PROCEEDINGS
While Commerce is from time to time party to various legal proceedings
arising from the ordinary course of business, management believes after
consultation with legal counsel that there are currently no proceedings
threatened or pending against Commerce that will, individually or in the
aggregate, have a material adverse effect on the business or financial condition
of Commerce.
Commerce has paid civil money penalties to the FDIC of $900 and $2,500 for
call reports that were filed late by Commerce and due July 31, 1997 and January
30, 1998, respectively. The filing due July 31, 1997 was late because of
transmission problems in the electronic filing of the call report. The call
report due January 30, 1998 was made late due to oversight. Since January 30,
1998, Commerce has put in place procedures which it believes will correct these
filing deficiencies.
PRINCIPAL SHAREHOLDERS OF COMMERCE
Commerce's authorized capital stock consists of 20,000,000 shares of
Commerce Common Stock, 658,190 shares of which are issued and outstanding as of
the Commerce Record Date. There are 38,500 shares reserved for issuance upon
exercise of outstanding options.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
NAME AND ADDRESS BENEFICIALLY OWNED(1) SHARES OWNED
- ---------------- --------------------- -------------
<S> <C> <C>
Pat M. Courington, Jr....................................... 41,733 6.0%
105 Eagle Drive
Albertville, AL 35950
J. Daniel Sizemore.......................................... 36,034(2) 5.2%
10055 Alabama Hwy 79
Guntersville, AL 35976
</TABLE>
- ---------------
(1) "Beneficial Ownership" includes shares for which an individual, directly or
indirectly, has or shares voting or investment power or both, including the
right to acquire beneficial ownership within 60 days. All of the listed
persons have sole voting and investment power over the shares listed
opposite their names unless otherwise indicated in the notes below.
Beneficial Ownership as reported in the above table has been determined in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934, as
amended. The percentages are based upon 696,690 shares of common stock
outstanding.
(2) Includes 23,000 shares subject to immediate exercise under stock options.
349
<PAGE> 371
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
No person owns more than five percent of the outstanding shares of common
stock of Commerce other than certain directors as shown in the table below. As
of the Commerce Record Date, there were 658,190 shares of Commerce's common
stock outstanding and approximately 503 stockholders of record.
The following table shows for each director, each executive officer and all
executive officers and directors of Commerce as a group the number of shares of
outstanding common stock of Commerce owned as of the Commerce Record Date.
SHARES OF COMMERCE BENEFICIALLY OWNED
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME NUMBER OF SHARES CLASS(1)
---- ---------------- -------------
<S> <C> <C>
DIRECTOR
Terrell R. Bridges.......................................... 28,000(2) 4.0%
Pat M. Courington, Jr. ..................................... 41,733(3) 6.0
Larry D. Grimes, M.D. ...................................... 8,000 1.1
Steven C. Hays.............................................. 31,733(4) 4.6
Gordon Henderson............................................ 25,350(5) 3.6
Randall E. Jones............................................ 20,500 2.9
William O. Ramsey........................................... 21,500(6) 3.1
T. Mandell Tillman.......................................... 20,200(7) 2.9
J. Daniel Sizemore*......................................... 36,034(8) 5.2
Charles E. Watts, Jr. ...................................... 7,800 1.1
EXECUTIVE OFFICER WHO IS NOT ALSO A DIRECTOR
G. Ray Smith................................................ 14,000(9) 2.0
All Executive Officers and Directors as a Group (11
persons).................................................. 254,850 36.6%
</TABLE>
- ---------------
* Indicates that the director is also an executive officer.
(1) Percentages are calculated by including as outstanding shares [38,500]
shares subject to options.
(2) Includes 3,000 shares held as custodian for his children and grandchildren.
(3) Includes 10,000 shares held by his wife and 16,740 shares over which he
serves as trustee.
(4) Includes 1,733 shares as custodian for his children.
(5) Includes 150 shares over which he is custodian for his grandchildren.
(6) Includes 500 shares owned by his son.
(7) Includes 200 shares owned by his wife.
(8) Includes 1,200 shares owned by his wife, 1,000 owned by his children and
22,000 shares subject to options.
(9) Includes 11,000 shares subject to options.
350
<PAGE> 372
MANAGEMENT
The Plan of Merger provides that four current directors of Commerce will be
appointed as directors of Warrior at the Effective Time. J. Daniel Sizemore,
Steven C. Hays, Randall E. Jones and T. Mandell Tillman will become directors of
the Corporation. Additionally, J. Daniel Sizemore and G. Ray Smith will become
officers of the Corporation and The Bank, respectively, at the Effective Time.
Following is a summary of each of these director's and executive officer's
business experience and affiliations for at least the last five years.
Steve C. Hays, age 41, served as Executive Vice President of Steel
Processing Services, Inc., Albertville, from 1981 until the sale of the company
in 1993. He presently manages a number of personal investments.
Randall E. Jones, age 44, is owner and President of Randy Jones Insurance
Agency, Inc., Guntersville, representing NationWide Insurance Co., since 1978.
He is past President of Albertville Rotary Club, and Albertville Chamber of
Commerce.
T. Mandell Tillman, age 49, has served as Chairman of the Board of Real
Property Services, Inc., Gadsden, since 1985. He holds the MAI and CRE
designations.
J. Daniel Sizemore, age 50, served as President of AmSouth Bank in Marshall
County from 1987 through 1994. He has served as President and CEO of Commerce
Bank of Alabama since 1995. He has worked in the financial service business
since 1970. He was President of the Guntersville Chamber of Commerce and
Guntersville Citizens of the Year in 1987.
G. Ray Smith, age 44, served as Senior Vice President and Gadsden City
President for AmSouth Bank from 1984 to 1996. He has served as Executive Vice
President of Commerce Bank of Alabama since 1996. He was President of the
Gadsden Chamber of Commerce and President of the Gadsden-Etowah County
Industrial Development Authority.
None of the Directors or Executive Officers of Commerce are related by
blood or marriage.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table presents for the last
three fiscal years of Commerce the compensation paid to the chief executive
officer of Commerce and for each of the executive officers whose compensation in
1997 exceeded $100,000.
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
SECURITIES
SALARY BONUS OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR $ $ COMPENSATION OPTIONS (#)
--------------------------- ---- -------- ------- ------------- ------------
<S> <C> <C> <C> <C> <C>
J. Daniel Sizemore........................ 1997 $108,233 $39,706 $15,700(1) 1,000
President, and Chief Executive Officer 1996 103,161 30,000 21,236(1) 1,000
1995 92,911 0 10,112(1) 20,000
G. Ray Smith.............................. 1997 $ 86,562 $22,670 $11,676(3) 1,000
Executive Vice President(2) 1996 65,708 7,885 9,902(3) 10,000
</TABLE>
- ---------------
(1) Includes an automobile allowance of $15,360, $14,351 and $9,703 for each of
the years 1997, 1996 and 1995, respectively, and club and civic dues of
$6,885 for 1996.
(2) Mr. Smith joined Commerce in 1996.
(3) Includes an automobile allowance of $10,104 for 1997 and $7,815 for 1996.
Director Compensation. A Directors Compensation Plan was approved by
stockholders at the 1997 Annual Stockholder Meeting. However, the plan had not
been implemented as of April 15, 1998. Commerce is currently accruing $8,600 per
month to cover the anticipated aggregate cost of the plan should it be
implemented.
351
<PAGE> 373
Under the terms of the plan, the Directors are to be paid a monthly fee of
$500 for board meetings and a monthly fee of $100 for committee meetings
attended.
Options. The following table shows for each executive officer listed in
the table all certain information representing stock options granted in 1997.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING % OF TOTAL
OPTIONS OPTIONS GRANTED
GRANTED TO EMPLOYEES IN EXERCISE OR BASE EXPIRATION
NAME (#) FISCAL YEAR PRICE ($/SH) DATE
---- ---------- ---------------- ---------------- ----------
<S> <C> <C> <C> <C>
J. Daniel Sizemore............................ 1,000 40% $14.50 2007
G. Ray Smith.................................. 1,000 40 14.50 2007
</TABLE>
Employment Agreements. J. Daniel Sizemore, the President and Chief
Executive Officer of Commerce, has an employment contract with Commerce dated
May 25, 1995. The contract provides that Mr. Sizemore will be employed as
President and Chief Executive Officer of Commerce and will receive a minimum
annual salary of $98,500, which may be increased during the term of the
agreement. Cash bonuses may also be paid. The agreement is for a term of five
years and shall automatically be renewed for successive five years terms unless
either party notifies the other at least 90 days prior to the end thereof.
The agreement also provides that Mr. Sizemore will receive options
respecting 20,000 shares of Commerce common stock and other benefits such as a
car allowance, club dues, and life and disability insurance.
If Mr. Sizemore's employment is terminated for any reason except "cause,"
as defined in the agreement, or for death or disability, Mr. Sizemore will be
entitled to receive an amount in cash equal to the lesser of three years annual
salary or the remaining term of the agreement times his annual salary.
If Mr. Sizemore's employment is terminated at any time within three years
after a "change of control" of Commerce, as defined below, other than for cause,
but including voluntary termination by Mr. Sizemore under certain specified
conditions, Mr. Sizemore shall receive in cash an amount equal to three years
times his annual salary plus he shall receive existing benefits under Commerce's
compensation plans, with acceleration of any maturity or vesting requirements.
A "change of control" of Commerce means (i) a merger or corporate
reorganization of Commerce in which Commerce does not survive, (ii) the
acquisition of beneficial ownership by any person or group of 35% or more of the
outstanding shares of common stock of Commerce with prior approval of Commerce's
directors, or (iii) other circumstances determined by Commerce's directors.
Mr. Sizemore's employment agreement with Commerce will be superseded by his
employment agreement with the Corporation after the Commerce Merger is
consummated.
Commerce has entered into an employment agreement with Gerald Ray Smith
dated April 12, 1996, pursuant to which Mr. Smith serves as Executive Vice
President and Gadsden City President. The agreement provides that Mr. Smith will
receive an annual salary of at least $83,000, which may be increased during the
term of the agreement.
The agreement provides that Mr. Smith will be eligible to receive stock
options and that Mr. Smith will be entitled to termination benefits, upon a
change of control of Commerce, as defined above, similar to those described
above for Mr. Sizemore.
Mr. Smith's employment agreement with Commerce will be superseded by his
employment agreement with the Corporation after the Commerce Merger is
consummated.
352
<PAGE> 374
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain directors and executive officers of Commerce and their affiliated
interests were customers of and had transactions with Commerce in the ordinary
course of business during the past year. None of such business transactions
exceeded for any director or executive officer $60,000 in the aggregate for
either 1996 or 1997. Additional transactions may be expected to take place in
the future. In addition, such persons have one or more outstanding loans and
commitments of Commerce, including the loans described above, all of which were
made in the ordinary course of business on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons and did not involve more than the
normal risk of collectibility or present other unfavorable features.
353
<PAGE> 375
SELECTED FINANCIAL DATA (HISTORICAL) -- FIRST CITIZENS
<TABLE>
<CAPTION>
CONSOLIDATED
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------ -----------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------- ------- ------- ------- ------- ------- -------
(A) (A)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED STATEMENT OF FINANCIAL
CONDITION DATA:
Total assets.......................... $38,117 $34,912 $35,096 $31,623 $26,665 $21,164 $20,073
Total loans........................... 32,535 26,984 30,193 24,378 14,494 10,196 9,666
Investment securities................. 1,757 2,435 2,176 3,133 6,393 7,505 6,354
Deposits.............................. 34,403 31,729 31,563 28,643 24,213 19,126 18,038
Stockholders' equity.................. 3,246 2,812 3,011 2,576 2,191 1,913 1,882
SELECTED STATEMENT OF INCOME DATA:
Interest income....................... 1,683 1,391 2,957 2,437 1,809 1,521 1,500
Interest expense...................... 688 574 1,215 1,008 786 616 536
------- ------- ------- ------- ------- ------- -------
Net interest income............ 995 817 1,742 1,429 1,023 905 964
Provision for loan losses............. 117 30 218 43 -- 19 --
Noninterest income.................... 225 201 415 430 348 321 286
Noninterest expense................... 731 627 1,303 1,232 1,116 1,089 991
------- ------- ------- ------- ------- ------- -------
Income before tax..................... 372 361 636 584 255 118 259
Income tax expense.................... 136 131 213 184 61 11 63
------- ------- ------- ------- ------- ------- -------
Net income..................... $ 236 $ 230 $ 423 $ 400 $ 194 $ 107 $ 196
======= ======= ======= ======= ======= ======= =======
PER SHARE DATA:
Net income (loss)
--basic............................. $ 3.15 $ 3.07 $ 5.64 $ 5.33 $ 2.59 $ 1.43 $ 2.61
--diluted........................... 3.08 3.02 5.56 5.30 -- -- --
Dividends............................. -- -- -- -- -- -- --
</TABLE>
- ---------------
(a) First Citizens acquired its wholly-owned subsidiary, First Citizens Bank, in
January 1995.
354
<PAGE> 376
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- FIRST CITIZENS
BASIS OF PRESENTATION
The following provides a narrative discussion and analysis of significant
changes in First Citizens' results of operations and financial condition. This
discussion should be read in conjunction with the consolidated statements and
the supplemental financial data included elsewhere in this Prospectus-Joint
Proxy Statement.
Certain of the information included in this discussion contains
forward-looking statements and information that are based on management's belief
as well as certain assumptions made by, and information currently available to
management. Specifically, Management's Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking statements with
respect to the adequacy of the allowance for loan losses; the effect of legal
proceedings on First Citizens' financial condition, results of operations and
liquidity; Year 2000 compliance issues and market risk disclosures. The risks
and uncertainties that may affect operations, performance, growth projections
and the results of First Citizens' business include, but are not limited to,
fluctuations in the economy, the relative strength and weakness in the
commercial and consumer credit sector and in the real estate market, the actions
taken by the Federal Reserve for the purpose of managing the economy, interest
rate movements, the impact of competitive products, services and pricing, timely
development by First Citizens of technology enhancements for its products and
operating systems, legislation and similar matters. Although management of First
Citizens believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to be correct. Such forward-looking statements are subject to certain
risks, uncertainties and assumptions. Should one or more of these risks
materialize, or should any such underlying assumptions prove to be significantly
different, actual results may vary materially from those anticipated, estimated,
projected or expected.
YEAR 2000 COMPLIANCE
First Citizens has established a task force to review all computer-based
systems and applications and develop an action plan to ensure that its computer
and information systems will function properly in the Year 2000. This plan,
which has been approved by the Board of Directors and management, includes First
Citizens' approach to having all systems and applications changed for the Year
2000 by December 31, 1998, with final testing to take place during 1999. At this
time, management believes that implementation of its Year 2000 action plan will
not materially affect First Citizens' operations in the future. Management does
not expect the costs of achieving Year 2000 compliance to have a material
adverse effect on First Citizens' consolidated financial statements.
Because of the nature of operations, the external customers of First
Citizens would be considered its borrowers. First Citizens is in the process of
identifying customers that it deems to present a material risk to the continued
operations of the institution. The individual potential risk presented by these
customers and their strategies for addressing the Year 2000 issue will be
evaluated. The risk is somewhat diminished in light of the fact that First
Citizens' loan portfolio is primarily secured by asset-based collateral where
the fair market value of such property is typically equal to or greater than the
outstanding loan balance. First Citizens' Year 2000 plan establishes
underwriting standards for Year 2000 compliance for borrowers. First Citizens is
in the process of revising its loan document forms and underwriting procedures
to encompass Year 2000 compliance criteria and review.
RESULTS OF OPERATIONS
Six months ended June 30, 1998, compared with six months ended June 30, 1997
Net income increased $6,000, or 2.6% to $236,000 for the six months ended
June 30, 1998, from $230,000 for the same period in 1997. Return on average
assets for the period ended June 30, 1998, was 1.29% compared to 1.38% for the
six months ended June 30, 1997, and the return on average equity was 15.10% for
355
<PAGE> 377
the six months ended June 30, 1998, compared to 17.07% for the corresponding
period in 1997. Comprehensive income was $235,000 for the six month period ended
June 30, 1998, compared to $236,000 for the period ended June 30, 1997. The bank
experienced a $1,000 unrealized loss on securities available for sale in 1998,
compared to an unrealized gain on securities available for sale of $6,000 for
the same period in 1997.
Net interest income increased $178,000, or 21.8% to $995,000 for the period
ended June 30, 1998, from $817,000 for the same period in 1997, as interest
income increased $292,000 and interest expense increased $114,000. The increase
in net interest income is attributable to an increase in loan volume.
The provision for loan losses was $117,000 for the six month period ended
June 30, 1998, compared to $30,000 for the six month period ended June 30, 1997.
This increase is attributable to an increase in loan volume and management's
prudent decision to increase the allowance.
Noninterest income was $225,000 for the period ended June 30, 1998,
compared to $201,000 for the same period in 1997. The increase in noninterest
income is primarily due to an increase in service charges and fee income.
Noninterest expenses increased $104,000, or 16.6% to $731,000 for the period
ended June 30, 1998 from $627,000 for the six months ended June 30, 1997. The
increase in noninterest expenses is attributable to an increase in salaries and
benefits and other operating expenses.
Income tax expense was $136,000 for the six month period ended June 30,
1998, compared to $131,000 for the six month period ended June 30, 1997. The
effective tax rate was 36% for each period.
Year Ended December 31, 1997, compared with years ended December 31, 1996 and
1995
First Citizens' net income increased $23,000, or 5.8% to $423,000 in 1997
from $400,000 in 1996, which increased 106.2% from $194,000 in 1995. The
increases are primarily the result of an increase in loan volume in each year.
Return on average assets in 1997 was 1.29%, compared to 1.50% in 1996 and .83%
in 1995. Return on average equity was 15.15% in 1997 compared to 16.76% in 1996
and 9.51% in 1995.
Net interest income increased $313,000, or 21.9% to $1.7 million in 1997
from $1.4 million in 1996, which increased $406,000, or 39.7% from 1995. The
increase in net interest income was due to an increase in average earning assets
to $30.3 million, or 26.6% in 1997 from $23.9 million in 1996, which increased
18.2% from $20.0 million in 1995.
The provision for loan losses was $218,000 in 1997, compared to $43,000 in
1996 and $0 in 1995. While asset quality and loan loss experience has improved,
First Citizens has continued to fund its reserve in a conservative and prudent
manner. The increase in the provision in 1997 was directly attributable to a
single credit, which was charged off. First Citizens' allowance for loan losses
as a percentage of its loans was .88% at December 31, 1997, compared to .80% at
December 31, 1996, and 1.44% at December 31, 1995. The allowance for loan losses
as a percentage of period end nonperforming loans was 245.37% at December 31,
1997, compared to 31.0% at December 31, 1996, and 120.8% at December 31, 1995.
First Citizens had net charge-offs of $148,000 in 1997, resulting in a ratio of
net charge-offs to average loans of .55%. This compares to $57,000 and .30% in
1996. First Citizens had net recoveries in 1995 of $21,000, which was .17% of
average loans.
Noninterest income decreased $15,000, or 3.5% to $415,000 in 1997 from
$430,000 in 1996, which increased $82,000, or 23.6% from $348,000 in 1995. Most
of the increase in 1996 is attributable to increased loan fees and fees on
deposits. The decrease in 1997 was insignificant.
Noninterest expense increased $71,000, or 5.8% to $1.3 million in 1997 from
$1.2 million in 1996, which increased $116,000, or 10.4% from $1.1 million in
1995. The increases are attributable to normal increases in salaries and
benefits and other operating expenses.
NET INTEREST INCOME
The largest component of First Citizens' net income is its net interest
income, which is the difference between the income earned on assets and interest
paid on deposits and borrowings used in support of such assets. Net interest
income is determined by the rates earned on First Citizens' interest earning
assets and the
356
<PAGE> 378
rates paid on its interest-bearing liabilities, the relative amounts of
interest-earning assets and interest-bearing liabilities, and the degree of
mismatch and the maturity and repricing characteristics of its interest-earning
assets and interest-bearing liabilities. Net interest income divided by average
interest-earning assets represents First Citizens' net interest margin.
Average Balances, Income, Expenses and Rates. The following tables depict,
on a tax-equivalent basis for the periods indicated, certain information related
to First Citizens' average balance sheet and its average yields on assets and
average costs of liabilities. Such yields are derived by dividing income or
expense by the average balance of the corresponding assets or liabilities.
Average balances have been derived from quarterly averages.
CONSOLIDATED AVERAGE BALANCES, INTEREST INCOME/EXPENSE AND YIELD/RATES
TAXABLE EQUIVALENT BASIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------
1997 1996 1995
-------------------------- -------------------------- --------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------- ------- ------ ------- ------- ------ ------- ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Loans, net of unearned income... $26,835 $2,755 10.27% $18,787 $2,124 11.31% $12,070 $1,317 10.91%
Investment securities
Taxable....................... 2,506 143 5.71 4,000 247 6.18 6,300 376 5.97
Tax-exempt.................... 253 24 9.58 242 23 9.39 806 68 8.46
------- ------ ------- ------ ------- ------
Total investment securities... 2,759 167 6.06 4,242 270 6.36 7,106 444 6.25
Federal funds sold............ 665 43 6.47 873 51 5.84 1,044 71 6.80
------- ------ ------- ------ ------- ------
Total interest-earning
assets................. 30,259 $2,965 9.80% 23,902 $2,445 10.23% 20,220 $1,832 9.06%
Non interest-earning assets:
Cash and due from banks......... 1,217 1,121 1,623
Premises and equipment.......... 621 610 710
Accrued interest and other
assets........................ 1,053 1,293 1,125
Allowance for loan losses....... (241) (203) (193)
------- ------- -------
Total assets............. $32,909 $26,723 $23,485
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Demand deposits................. $ 4,712 $ 102 2.16% $ 4,257 $ 104 2.44% $ 4,203 $ 117 2.78%
Savings deposits................ 2,707 97 3.58 2,276 86 3.78 2,729 88 3.22
Time deposits................... 18,394 1,015 5.52 13,804 815 5.90 10,762 581 5.40
------- ------ ------- ------ ------- ------
Total interest-bearing
deposits............... 25,813 1,214 4.70 20,337 1,005 4.94 17,694 786 4.44
Federal funds purchased......... 25 1 4.00 47 3 6.38 -- -- --
------- ------ ------- ------ ------- ------
Total interest-bearing
liabilities............ 25,838 1,215 4.70 20,384 1,008 4.95 17,694 786 4.44
Non-interest bearing liabilities
Demand deposits................. 3,885 3,659 3,553
Accrued interest and other
liabilities................... 393 294 199
Shareholders' equity............ 2,793 2,386 2,039
------- ------- -------
Total liabilities and
shareholders' equity... $32,909 $26,723 $23,485
======= ======= =======
Net interest income/net interest
spread.......................... 1,750 5.10% 1,437 5.28% 1,046 4.62%
===== ===== =====
Net yield on earning assets....... 5.78% 6.01% 5.17%
===== ===== =====
Taxable equivalent adjustment:
Investment securities........... 8 8 23
------ ------ ------
Net interest income............. $1,742 $1,429 $1,023
====== ====== ======
</TABLE>
357
<PAGE> 379
Analysis of Changes in Net Interest Income. The following table sets
forth, on a taxable equivalent basis, the effect which the varying levels of
earning assets and interest-bearing liabilities and the applicable rates have
had on changes in net interest income for the years ended December 31, 1997,
1996 and 1995.
RATE/VOLUME VARIANCE ANALYSIS TAXABLE EQUIVALENT BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AVERAGE VOLUME CHANGE IN VOLUME AVERAGE RATE INTEREST INCOME/EXPENSE
--------------------------- --------------------- --------------------- ------------------------
1997 1996 1995 1997-1996 1996-1995 1997 1996 1995 1997 1996 1995
------- ------- ------- --------- --------- ----- ----- ----- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earning Assets:
Loans, net of unearned
income................. $26,835 $18,787 $12,070 $ 8,048 $ 6,717 10.27% 11.31% 10.91% $2,755 $2,124 $1,317
Investment securities:
Taxable................ 2,506 4,000 6,300 (1,494) (2,300) 5.71 6.18 5.97 143 247 376
Tax-exempt............. 253 242 806 11 (564) 9.58 9.39 8.46 24 23 68
------- ------- ------- ------- ------- ------ ------ ------
Total investment
securities..... 2,759 4,242 7,106 (1,483) (2,864) 6.06 6.36 6.25 167 270 444
Federal funds sold....... 665 873 1,044 (208) (171) 6.47 5.84 6.80 43 51 71
------- ------- ------- ------- ------- ------ ------ ------
Total earning
assets......... $30,259 $23,902 $20,220 $ 6,357 $ 3,682 9.80 10.23 9.06 2,965 2,445 1,832
======= ======= ======= ======= ======= ------ ------ ------
Interest-bearing
liabilities:
Deposits:
Demand............... $ 4,712 $ 4,257 $ 4,203 $ 455 $ 54 2.16 2.44 2.78 102 104 117
Savings.............. 2,707 2,276 2,729 431 (453) 3.58 3.78 3.22 97 86 88
Time................. 18,394 13,804 10,762 4,590 3,042 5.52 5.90 5.40 1,015 815 581
------- ------- ------- ------- ------- ------ ------ ------
Total interest-
bearing
deposits....... 25,813 20,337 17,694 5,476 2,643 4.70 4.94 4.44 1,214 1,005 786
Other short-term
borrowings..... 25 47 -- (22) 47 4.00 6.38 -- 1 3 --
------- ------- ------- ------- ------- ------ ------ ------
Total interest-
bearing
liabilities.... $25,838 $20,384 $17,694 $ 5,454 $ 2,690 4.70 4.95 4.44 1,215 1,008 786
======= ======= ======= ======= ======= ------ ------ ------
Net interest
income/net
interest
spread......... 5.10% 5.28% 4.62% $1,750 $1,437 $1,046
===== ===== ===== ====== ====== ======
Net yield on
earning
assets......... 5.78% 6.01% 5.17%
===== ===== =====
Net cost of
funds.......... 4.02% 4.22% 3.89%
===== ===== =====
<CAPTION>
VARIANCE ATTRIBUTED TO(1)
------------------------------
VARIANCE 1997 1996
--------------------- -------------- -------------
1997-1996 1996-1995 VOLUME RATE VOLUME RATE
--------- --------- ------ ----- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Loans, net of unearned
income................. $ 631 $ 807 $ 833 $(202) $758 $ 49
Investment securities:
Taxable................ (104) (129) (86) (18) (142) 13
Tax-exempt............. 1 (45) 1 0 (52) 7
----- ----- ----- ----- ---- ----
Total investment
securities..... (103) (174) (85) (18) (194) 20
Federal funds sold....... (8) (20) (13) 5 (10) (10)
----- ----- ----- ----- ---- ----
Total earning
assets......... 520 613 735 (215) 554 59
----- ----- ----- ----- ---- ----
Interest-bearing
liabilities:
Deposits:
Demand............... (2) (13) 11 (13) 1 (14)
Savings.............. 11 (2) 16 (5) (17) 15
Time................. 200 234 271 (71) 178 56
----- ----- ----- ----- ---- ----
Total interest-
bearing
deposits....... 209 219 298 (89) 162 57
Other short-term
borrowings..... (2) 3 (1) (1) -- 3
----- ----- ----- ----- ---- ----
Total interest-
bearing
liabilities.... 207 222 297 (90) 162 60
----- ----- ----- ----- ----
Net interest
income/net
interest
spread......... $ 313 $ 391 $ 438 $(125) $392 $ (1)
===== ===== ===== ===== ==== ====
Net yield on
earning
assets.........
Net cost of
funds..........
</TABLE>
- ---------------
(1) The change in interest due to both rate and volume has been allocated to
volume and rate changes in proportion to the relationship of the absolute
dollar amounts of the changes in each.
358
<PAGE> 380
Interest Sensitivity. First Citizens monitors and manages the pricing and
maturity of its assets and liabilities in order to diminish the potential
adverse impact that changes in interest rates could have on net interest income.
The principal monitoring technique employed by First Citizens is the measurement
of First Citizens' interest rate sensitivity "gap," which is the positive or
negative dollar difference between assets and liabilities that are subject to
interest rate repricing within a given period of time. The objective of First
Citizen's Asset/Liability Management (ALM) function is to maintain a consistent
level of net interest income in a rising, falling or static interest rate
environment. ALM monitors the pricing of both interest earning assets and
interest bearing liabilities and the maturities of each. Interest rate
sensitivity can be managed by repricing assets or liabilities, selling
securities available-for-sale, replacing an asset or liability at maturity or by
adjusting the interest rates during the life of an asset or liability.
First Citizens evaluates interest rate sensitivity risk and then formulates
guidelines regarding asset generation and repricing, funding sources and pricing
and off-balance sheet commitments in order to decrease interest rate sensitivity
risk. First Citizens uses computer simulations to measure the net income effect
of various interest rate scenarios. The modeling reflects interest rate changes
and the related impact on net income over specified periods of time.
The goal of liquidity management is to provide adequate funds to meet
changes in loan demand or any potential unexpected deposit withdrawals.
Additionally, management strives to maximize its earnings by investing its
excess funds in securities and other securitized loan assets with maturities
matching its offsetting liabilities.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
First Citizens has developed policies and procedures for evaluating the
overall quality of its credit portfolio and the timely identification of
potential problem credits. Management reviews the appropriate level for the
allowance for loan losses based on the results of the internal monitoring and
reporting system, analysis of economic conditions in its markets, and a review
of historical statistical data for both the Corporation and other financial
institutions. Management's judgment as to the adequacy of the allowance is based
upon a number of assumptions about future events, which it believes to be
reasonable but which may or may not be valid. Thus, there can be no assurance
that charge-offs in future periods will not exceed the allowance for loan losses
or that additional increases in the allowance for loan losses will not be
required. The adequacy of the allowance for loan losses and the effectiveness of
First Citizens' monitoring and analysis system are also reviewed periodically by
the banking regulators and First Citizens' independent auditors.
Additions to the allowance for loan losses, which are expensed as the
provision for loan losses on First Citizens' income statement, are made
periodically to maintain the allowance at an appropriate level based on
management's analysis of the potential risk in the loan portfolio. Loan losses
and recoveries are charged or credited directly to the allowance. The amount of
the provision is a function of the levels of loans outstanding, the level of
nonperforming loans, historical loan loss experience, the amount of loan losses
actually charged against the reserve during a given period, and current and
anticipated economic conditions.
359
<PAGE> 381
The following table summarizes certain information with respect to First
Citizens' allowance for loan losses and the composition of charge-offs and
recoveries for the periods indicated.
SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Allowance for loan losses -- balance at
beginning of period........................ $ 195 $ 209 $ 188 $ 188 $ 186
Charge-offs:
Commercial, financial and agricultural..... 171 19 -- 29 20
Real estate-mortgage....................... 16 46 -- -- 13
Consumer................................... 8 44 41 14 36
------- ------- ------- ------- -------
Total charge-offs.................. 195 109 41 43 69
Recoveries:
Commercial, financial and agricultural..... 17 17 24 3 17
Real estate-mortgage....................... 17 5 3 1 5
Consumer................................... 13 30 35 20 49
------- ------- ------- ------- -------
Total recoveries................... 47 52 62 24 71
------- ------- ------- ------- -------
Net charge-offs (recoveries)................. 148 57 (21) 19 (2)
Addition to allowance charged to operating
expense.................................... 218 43 -- 19 --
------- ------- ------- ------- -------
Allowance for loan losses -- balance at end
of period.................................. $ 265 $ 195 $ 209 $ 188 $ 188
======= ======= ======= ======= =======
Loans at end of period, net of unearned
income..................................... $30,193 $24,378 $14,494 $10,196 $ 9,666
Ratio of ending allowance to ending loans.... 0.88% 0.80% 1.44% 1.84% 1.94%
Average loans, net of unearned income........ $26,835 $18,787 $12,070 $ 9,743 $ 9,552
Ratio of net charge-offs (recoveries) to
average loans.............................. 0.55% 0.30% (0.17)% 0.20% (0.02)%
</TABLE>
Allocation of Allowance. First Citizens historically has allocated its
allowance for loan losses to specific loan categories. Although the allowance is
allocated, it is available to absorb losses in the entire loan portfolio.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
----------------- ----------------- ----------------- ----------------- -----------------
PERCENT PERCENT PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Domestic Commercial, financial
and agricultural............ $ 87 33% $ 64 34% $ 65 31% $ 48 26% $ 52 28%
Real estate -- construction. 12 5 6 3 13 6 5 2 6 3
Real estate -- mortgage..... 94 35 71 36 58 28 53 28 40 21
Consumer.................... 72 27 54 27 73 35 82 44 90 48
---- --- ---- --- ---- --- ---- --- ---- ---
$265 100% $195 100% $209 100% $188 100% $188 100%
==== === ==== === ==== === ==== === ==== ===
</TABLE>
360
<PAGE> 382
Nonperforming Assets. The following table presents First Citizens'
nonperforming assets for the dates indicated.
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Nonaccrual.................................................. $ 67 $273 $173 $50 $51
Past Due.................................................... 41 357 -- -- --
Restructured................................................ -- -- -- -- --
---- ---- ---- --- ---
Total............................................. $108 $630 $173 $50 $51
==== ==== ==== === ===
</TABLE>
Accrual of interest is discontinued on a loan when management believes,
after considering economic and business conditions and collection efforts, that
the borrower's financial condition is such that the collection of interest is
doubtful. A delinquent loan is generally placed on nonaccrual status when it
becomes 90 days or more past due. When a loan is placed on nonaccrual status,
all interest which has been accrued on the loan but remains unpaid is reserved
and deducted from earnings as a reduction of reported interest income. No
additional interest is accrued on the loan balance until the collection of both
principal and interest becomes reasonably certain. When a problem loan is
finally resolved, there may ultimately be an actual write-down or charge-off of
the principal balance of the loan, which would necessitate additional charges to
earnings.
EARNING ASSETS
Loans. Loans are the largest category of earning assets and typically
provide higher yields than the other types of earning assets. Associated with
the higher loan yields are the inherent credit and liquidity risks which
management attempts to control and counterbalance. Loans averaged $26.8 million
in 1997 compared to $18.8 million in 1996 and $12.1 million in 1995. At December
31, 1997, total loans net of unearned interest were $30.2 million compared to
$24.4 million at December 31, 1996, and $14.5 million at December 31, 1995.
DISTRIBUTION OF LOANS BY CATEGORY
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural........ $ 9,933 $ 8,051 $ 4,448 $ 2,658 $2,709
Real estate -- construction................... 1,362 764 872 249 301
Real estate -- mortgage....................... 10,680 8,866 3,923 2,884 2,096
Consumer...................................... 8,218 6,697 5,261 4,459 4,709
------- ------- ------- ------- ------
Total loans......................... 30,193 24,378 14,504 10,250 9,815
Unearned interest............................. -- -- (10) (54) (149)
Allowance for loan losses..................... (265) (195) (209) (188) (188)
------- ------- ------- ------- ------
Net loans........................... $29,928 $24,183 $14,285 $10,008 $9,478
======= ======= ======= ======= ======
</TABLE>
361
<PAGE> 383
The repayment of loans in the loan portfolio as they mature is also a
source of liquidity for First Citizens. The following table sets forth First
Citizens' loans maturing within specified intervals at December 31, 1997.
SELECTED LOAN MATURITY AND INTEREST RATE SENSITIVITY
<TABLE>
<CAPTION>
RATE STRUCTURE FOR LOANS
MATURITY MATURING OVER ONE YEAR
---------------------------------------------- ---------------------------
OVER ONE PREDETERMINED FLOATING OR
ONE YEAR YEAR THROUGH OVER INTEREST ADJUSTABLE
OR LESS FIVE YEARS FIVE YEARS TOTAL RATE RATE
-------- ------------ ---------- ------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and
agriculture......................... $ 5,804 $ 3,966 $ 163 $ 9,933
Real estate -- construction........... 732 327 303 1,362
Real estate -- mortgage............... 3,893 5,982 805 10,680
Consumer.............................. 3,438 4,612 168 8,218
------- ------- ------ ------- ------- ----
$13,867 $14,887 $1,439 $30,193 $15,701 $625
======= ======= ====== ======= ======= ====
</TABLE>
The information presented in the above table is based on the contractual
maturities of the individual loans, including loans, which may be subject to
renewal at their contractual maturity. Renewal of such loans is subject to
review and credit approval, as well as modification of terms upon their
maturity. Consequently, management believes this treatment presents fairly the
maturity and repricing structure of the loan portfolio.
Investment Securities. The investment securities portfolio is a
significant component of First Citizens' total earning assets. Total securities
averaged $2.8 million in 1997, compared to $4.2 million in 1996 and $7.1 million
in 1995. At December 31, 1997, the total securities portfolio was $2.2 million.
The following table sets forth the book value of the securities held by
First Citizens at the dates indicated.
INVESTMENT PORTFOLIO
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996 1995
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
U.S. Treasury and U.S. Government agencies.................. $1,916 $2,891 $6,076
State and political subdivisions............................ 252 253 304
------ ------ ------
Total investment securities....................... $2,168 $3,144 $6,380
====== ====== ======
</TABLE>
The following table shows the scheduled maturities and average yields of
securities held at December 31, 1997.
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES
<TABLE>
<CAPTION>
MATURING
----------------------------------------------------------------------------------
AFTER ONE BUT AFTER FIVE BUT
WITHIN ONE WITHIN FIVE WITHIN TEN AFTER TEN
YEAR YEARS YEARS YEARS TOTAL
-------------- -------------- -------------- -------------- --------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities available for sale:
U.S. Treasury and Govt Agencies...... $511 5.47% $1,098 6.16% $283 6.99% $24 9.00% $1,916 6.13%
State and political subdivision...... 50 4.20 162 4.53 40 7.24 -- -- 252 4.89
---- ------ ---- --- ------
Total securities available for
sale........................ $561 5.35% $1,260 5.95% $323 7.02% $24 9.00% $2,168 5.99%
==== ====== ==== === ======
</TABLE>
Short-Term Investments. Short-term investments, which consist primarily of
federal funds sold averaged $665,000 in 1997, compared to $873,000 in 1996 and
$1,044,000 in 1995. These funds are a primary source of First Citizens'
liquidity and are generally invested on an overnight basis.
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<PAGE> 384
DEPOSITS AND OTHER INTEREST-BEARING LIABILITIES
Deposits. Average total deposits increased $5.7 million, or 23.8% to $29.7
million during 1997, from $24.0 million in 1996. Average total deposits
increased $2.8 million, or 12.9% in 1996, from $21.2 million in 1995. These
increases are a direct result of management's desire to fund its loan growth
with time deposits.
The following table sets forth the deposits of First Citizens by category
at the dates indicated.
AVERAGE DEPOSITS
<TABLE>
<CAPTION>
AVERAGE FOR THE YEAR
---------------------------------------------------------------------
1997 1996 1995
--------------------- --------------------- ---------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE AMOUNT RATE
OUTSTANDING PAID OUTSTANDING PAID OUTSTANDING PAID
----------- ------- ----------- ------- ----------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing demand deposits... $ 3,885 -- $ 3,659 -- $ 3,553 --
Interest bearing demand deposits....... 4,712 2.16% 4,257 2.44% 4,203 2.78%
Savings deposits....................... 2,707 3.58 2,276 3.78 2,729 3.22
Time deposits.......................... 18,394 5.52 13,804 5.90 10,762 5.40
------- ------- -------
Total average deposits....... $29,698 4.70% $23,996 4.94% $21,247 4.44%
======= ======= =======
</TABLE>
Deposits, particularly core deposits, have historically been First
Citizens' primary source of funding and have enabled First Citizens to meet
successfully both its short-term and long-term liquidity needs. Management
anticipates that such deposits will continue to be First Citizens' primary
source of funding in the future. First Citizens' loan to deposit ratio was 95.7%
at December 31, 1997, compared to 85.1% at December 31, 1996. The maturity
distribution of First Citizens' time deposits over $100,000 at December 31,
1997, is shown in the following table.
MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
------------------------------------------
UNDER OVER
3 3-6 6-12 12
MONTHS MONTHS MONTHS MONTHS TOTAL
------ ------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
$3,074 $1,117 $2,135 $ -- $6,326
====== ====== ====== ====== ======
</TABLE>
Approximately 49% of First Citizens' time deposits over $100,000 had
scheduled maturities within three months. Large certificates of deposit
customers tend to be extremely sensitive to interest rate levels, making these
deposits less reliable sources of funding for liquidity planning purposes than
core deposits. Some financial institutions partially fund their balance sheets
using large certificates of deposits obtained through brokers. These broker
deposits are generally expensive and are unreliable as long-term funding
sources. First Citizens does not currently buy brokered deposits.
IMPACT OF INFLATION
Unlike most industrial companies, the assets and liabilities of financial
institutions such as First Citizens and its subsidiaries are primarily monetary
in nature. Therefore, interest rates have a more significant effect on First
Citizens' performance than do the effects of changes in the general rate of
inflation and change in prices. In addition, interest rates do not necessarily
move in the same direction or in the same magnitude as the prices of goods and
services. Management seeks to manage the relationships between interest
sensitive assets and liabilities in order to protect against wide interest rate
fluctuations, including those resulting from inflation.
REGULATORY MATTERS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general purpose financial statements. This statement requires
that
363
<PAGE> 385
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 with the same prominence as other financial statements. The statement
is effective for fiscal years beginning after December 15, 1997. Management
intends to comply with this standard in 1998.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." This statement establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
This statement is effective for financial statements for periods beginning after
December 15, 1997. Management intends to comply with this standard in 1998.
364
<PAGE> 386
BUSINESS OF FIRST CITIZENS
First Citizens is a bank holding company registered under the BHCA. Through
its bank subsidiary, First Citizens Bank, First Citizens provides community
banking services in Monroe County, Alabama. At June 30, 1998, First Citizens had
total consolidated assets of approximately $38.1 million, total consolidated
deposits of approximately $34.4 million dollars, and total consolidated
shareholders' equity of approximately $3.2 million.
BANK ACTIVITIES
First Citizens Bank has operated a commercial banking business in Alabama
since 1987 providing banking services such as commercial and individual checking
and savings accounts, money market accounts and certificates of deposit. First
Citizens Bank offers commercial and working capital loans and real estate and
installment loans, and provides credit card services through a national credit
card issuer. First Citizens Bank also acts as issuing agent for U.S. Savings
Bonds, travelers checks, money orders and cashiers checks, and it offers
collection teller services, wire transfer facilities, safe deposit boxes and
night depository facilities. The transaction accounts and time certificates are
tailored to First Citizens Bank's principal market area at rates competitive
with those offered in First Citizens Bank's primary service area. All deposit
accounts are insured by the FDIC up to the maximum amount allowed by law.
First Citizens Bank offers commercial lending services, including lines of
credit, revolving credits, term loans, real estate loans and other forms of
secured financing. First Citizens Bank also offers installment and other
personal loans, home improvement loans, automobile loans, boat loans and other
consumer financing and mortgage loans. First Citizens Bank extends credit to its
customers located primarily within its market area of Monroe County, Alabama.
First Citizens was formed in 1994 to enhance First Citizens Bank's ability
to raise capital and to make possible a wider variety of banking related
activities.
EMPLOYEES
As of January 1, 1998, First Citizens had 24 full-time employees, 16 which
are located at the main office, 5 at Frisco City and 3 at the Food World
location.
COMPETITION
The banking business is highly competitive and sources of competition are
varied. First Citizens Bank competes as a financial intermediary with other
commercial banks, credit unions, mortgage banking companies, consumer finance
companies, securities brokerages, insurance companies and money market mutual
funds operating in Monroe County and elsewhere. Many of the financial
organizations in competition with First Citizens Bank have much greater capital
resources than First Citizens Bank which, among other things, may allow them to
price their services at levels more favorable to customers and to provide larger
credit facilities than could First Citizens Bank.
365
<PAGE> 387
PRINCIPAL SHAREHOLDERS OF FIRST CITIZENS
First Citizens' authorized capital stock consists of 10,000,000 shares of
common stock, $1.00 par value per share, 75,000 shares of which are issued and
outstanding as of the First Citizens Record Date. There are 5,000 shares
reserved for issuance upon exercise of First Citizens options. The following
table shows certain information regarding those persons who beneficially own
five percent or more of the outstanding shares of First Citizens Common Stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
NAME AND ADDRESS BENEFICIALLY OWNED(1) SHARES OWNED
- ---------------- --------------------- -------------
<S> <C> <C>
Charlie Deer................................................ 11,385 14.23%
Post Office Box 667
Monroeville, Alabama 36461
Lawrence A. Knight, Jr...................................... 8,775 10.97%
800 N. Mt. Pleasant
Monroeville, Alabama 36460
R. Alan Deer................................................ 6,575 8.22%
258 Buckhead Circle
Birmingham, Alabama 35216
John F. Gittings............................................ 5,200(2) 6.50%
702 Main Street
Monroeville, Alabama 36460
Mark Buntyn................................................. 4,097 5.12%
1800 Lake Street
Lake Providence, Louisiana 71254
</TABLE>
- ---------------
(1) "Beneficial Ownership" includes shares for which an individual, directly or
indirectly, has or shares voting or investment power or both, including the
right to acquire beneficial ownership within 60 days. All of the listed
persons have sole voting and investment power over the shares listed
opposite their names unless otherwise indicated in the notes below.
Beneficial Ownership as reported in the above table has been determined in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934, as
amended. The percentages are based upon 80,000 shares of common stock
outstanding.
(2) Includes 5,000 shares subject to immediate exercise under stock options.
SECURITY OWNERSHIP OF MANAGEMENT
The following table shows for the directors, executive officers and
directors and executive officers as a group the number and percentage of
outstanding shares of First Citizens Common Stock beneficially owned.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF CLASS
NAME POSITION BENEFICIALLY OWNED(1) BENEFICIALLY OWNED(3)
- ---- -------- --------------------- ---------------------
<S> <C> <C> <C>
Sam Carter......................... Director 2,450 3.06%
Charlie Deer....................... Director 11,385 14.23
President and
William H. Eddins.................. Director 1,700 2.13
Grover C. Feaster, Jr.............. Director 250 .31
John F. Gittings................... CEO, Director 5,200(2) 6.50
George A. Hughes................... Director 2,176 2.72
Joseph William Jones............... Director 1,900 2.38
Lawrence A. Knight, Jr. ........... Chairman of the Board 8,775 10.97
All Directors and Executive
Officers as a Group (8
persons)......................... 33,836 42.30%
</TABLE>
- ---------------
(1) See Footnote (1) to the table above at "Principal Holders of Common Stock."
(2) Includes 5,000 shares subject to immediate exercise under stock options.
(3) The percentages are calculated by including as outstanding shares 5,000
shares subject to options.
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<PAGE> 388
PROPERTIES
First Citizens Bank's main office is located at 915 South Alabama Avenue,
Monroeville, Alabama, 36461. First Citizens Bank's main office building, which
contains approximately 5,500 square feet of finished floor space, and the land
on which it is located, which is approximately 2.0 acres, are owned by First
Citizens Bank. The main office houses teller facilities, including 3 drive-thru
teller lanes and an ATM machine. First Citizens Bank also has a branch office
located at 125 Bowden Street in Frisco City, Alabama which has a walk-up window.
First Citizens leases the approximately 3,000 square foot branch office. In
addition to these two free standing full service locations, First Citizens Bank
has an office located in Food World, which offers new accounts, certificates of
deposit, teller services, night depository and ATM services.
MARKET INFORMATION
There is no organized trading market for shares of First Citizens Common
Stock. When shares are traded, they are traded in privately negotiated
transactions. Since January 1, 1996, management of First Citizens is aware that
35 trades have occurred at prices ranging from $22 to $26 per share. However,
First Citizens is unaware of the prices in most of these transactions. The most
recent transaction in which management is aware of the sales price occurred on
July 16, 1997, when 400 shares were sold at $26 per share.
John F. Gittings, the President and Chief Executive Officer of First
Citizens, holds options to acquire 5,000 shares of First Citizens Common Stock
at an exercise price of $28.96 per share.
The First Citizens Plan of Merger provides that First Citizens will not pay
dividends prior to the Effective Time.
There are 170 shareholders of record of First Citizens.
LEGAL PROCEEDINGS
While First Citizens is from time to time party to various legal
proceedings arising from the ordinary course of its business, First Citizens
believes that there are currently no proceedings threatened or pending against
First Citizens that will individually or in the aggregate, have a material
adverse affect on the business or financial condition of First Citizens.
367
<PAGE> 389
SELECTED CONSOLIDATED FINANCIAL DATA -- CITY NATIONAL
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------- -----------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED STATEMENT OF FINANCIAL
CONDITION DATA:
Total assets.................. $82,208 $87,019 $83,996 $84,238 $74,323 $68,520 $65,706
Total loans................... 39,568 36,691 39,149 34,659 31,473 29,162 27,239
Investment securities......... 35,224 43,207 35,857 43,066 36,714 27,415 31,883
Deposits...................... 69,357 73,066 71,270 70,642 61,369 58,952 55,108
Stockholders' equity.......... 11,819 11,255 11,754 11,120 10,994 8,926 9,346
SELECTED STATEMENT OF INCOME
DATA:
Interest income............... 3,290 3,355 6,720 6,026 5,673 5,026 4,911
Interest expense.............. 1,359 1,448 2,910 2,460 2,324 1,815 1,663
------- ------- ------- ------- ------- ------- -------
Net interest income... 1,931 1,907 3,810 3,566 3,349 3,211 3,248
Provision for loan losses..... 430 248 384 346 203 78 98
Noninterest income............ 327 257 737 683 629 544 744
Noninterest expense........... 1,696 1,654 3,368 3,210 3,010 2,515 2,598
------- ------- ------- ------- ------- ------- -------
Income before tax............. 132 262 795 693 765 1,162 1,296
Income tax expense............ 47 92 170 133 40 266 288
------- ------- ------- ------- ------- ------- -------
Net income............ $ 85 $ 170 $ 625 $ 560 $ 725 $ 896 $ 1,008
======= ======= ======= ======= ======= ======= =======
PER SHARE DATA:
Net income -- basic........... $ 3.16 $ 6.31 $ 23.25 $ 20.68 $ 26.73 $ 33.00 $ 37.45
Dividends..................... 3.00 2.80 5.70 5.60 5.30 4.90 5.16
</TABLE>
368
<PAGE> 390
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- CITY NATIONAL
BASIS OF PRESENTATION
The following provides a narrative discussion and analysis of significant
changes in City National's results of operations and financial condition. This
discussion should be read in conjunction with the consolidated statements and
the supplemental financial data included elsewhere in this Prospectus -- Joint
Proxy Statement.
Certain of the information included in this discussion contains
forward-looking statements and information that are based on management's belief
as well as certain assumptions made by, and information currently available to
management. Specifically, Management's Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking statements with
respect to the adequacy of the allowance loan losses; the effect of legal
proceedings on City National's financial condition, results of operations and
liquidity; year 2000 compliance issues and market risk disclosures, the risks
and uncertainties that may affect operations, performance, growth projections
and the results of City National's business include, but are not limited to,
fluctuations in the economy, the relative strength and weakness in the
commercial and consumer credit sector and in the real estate market, the actions
taken by the Federal Reserve for the purpose of managing the economy, interest
rate movements, the impact of competitive products, services and pricing, timely
development by City National of technology enhancements for its products and
operating systems, legislation and similar matters. Although management of City
National believes that the expectations in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to be
correct. Such forward-looking statements are subject to certain risks,
uncertainties and assumptions. Should one or more of these risks materialize, or
should any such underlying assumptions prove to be significantly different,
actual results may vary materially from those anticipated, estimated, projected
or expected.
YEAR 2000 COMPLIANCE
City National has established a task force to review all computer-based
systems and applications and develop an action plan to ensure that its computer
and information systems will function properly in the year 2000. This plan,
which has been approved by the Board of Directors and management, includes City
National's approach to having all systems and applications changed for the year
2000 by December 31, 1998 with final testing to take place during 1999. At this
time, management believes that implementation of its year 2000 action plan will
not materially affect City National's operations in the future. Management does
not expect the costs of achieving year 2000 compliance to have a material effect
on City National's consolidated financial statements.
Because of the nature of operations, the external customers of City
National would be considered its borrowers. City National is in the process of
identifying customers that it deems to present a material risk to the continued
operations of the institution. The individual potential risk presented by these
customers and their strategies for addressing the Year 2000 issue will be
evaluated. The risk is somewhat diminished in light of the fact that City
National's loan portfolio is primarily secured by asset-based collateral where
the fair market value of such property is typically equal to or greater than the
outstanding loan balance. City National's Year 2000 plan establishes
underwriting standards for Year 2000 compliance for borrowers. City National is
in the process of revising its loan document forms and underwriting procedures
to encompass Year 2000 compliance criteria and review.
RESULTS OF OPERATIONS
Six months ended June 30, 1998, compared with six months ended June 30, 1997
Net income decreased $85,000, or 50.0% to $85,000 for the six months ended
June 30, 1998, from $170,000 for the same period in 1997. Return on average
assets for the period ended June 30, 1998 was .20% compared to .40% for the six
months ended June 30, 1997, and the return on average equity was 1.47% for the
369
<PAGE> 391
six months ended June 30, 1998, compared to 3.04% for the corresponding period
in 1997. Comprehensive income was $151,000 for the six months ended June 30,
1998, compared to $236,000 for the six months ended June 30, 1997. The bank
experienced unrealized gains on securities available for sale of $66,000 for
each period.
Net interest income increased $24,000, or 1.3% to $1.93 million for the
period ended June 30, 1998, from $1.91 million for the same period ended June
30, 1997. Interest income decreased $65,000, while interest expense decreased
$89,000 for the six months ended June 30, 1998 as compared to the same period
ended June 30, 1997.
The provision for loan losses was $430,000 for the six month period ended
June 30, 1998, compared to $248,000 for the six month period ended June 30,
1997. The increase is attributable to an increase in allowance for losses in its
consumer loan portfolio.
Noninterest income was $280,000 for the period ended June 30, 1998,
compared to $255,000 for the six month period ended June 30, 1997. This 9.8%
increase is attributable to increases in service fees and other charges. Gains
on sales of securities for the six months ended June 30, 1998 was $47,000,
compared to only $2,000 for the same period ended June 30, 1997.
Noninterest expenses increased $42,000, or 2.5% to $1.70 million for the
period ended June 30, 1998 from $1.65 million for the six months ended June 30,
1997. This immaterial increase was attributable to several expense areas.
Income tax expense was $47,000 for the six month period ended June 30,
1998, compared to $92,000 for the six month period ended June 30, 1997. The
effective tax rates were 35.6% and 35.1%, respectively.
Year ended December 31, 1997, compared with years ended December 31, 1996 and
1995
City National's net income increased $65,000, or 11.6% to $625,000 in 1997
from $560,000 in 1996, which decreased 22.8% from $725,000 in 1995. The increase
in 1997 was primarily the result of increases in average loans outstanding of
$4.2 million and average investment securities of $5.2 million. Other interest
earning investments also increased by $360,000. This was partially offset by an
increase in average interest bearing liabilities of $7.6 million. Thus, the
increase in net average earning assets was $1.9 million. The decrease in 1996
was attributable to an increase in the loan loss provision. Return on average
assets in 1997 was .73%, compared to .74% in 1996 and 1.01% in 1995. These
decreases have primarily been the result of an increase in net charge-offs
during each of these periods. The ratio of net charge-offs to average loans was
.86% in 1997, 1.01% in 1996 and .64% in 1995. The Company owns a small finance
company and has experienced a larger than expected loss ratio on these small
consumer loans over the past several years. Management has taken action to
correct this deficiency. Return on average equity was 5.47% in 1997 compared to
5.06% in 1996 and 7.33% in 1995. The increase in 1997 is attributable to the
increase in net average earning assets and the decrease in 1996 is primarily the
result of lower earnings brought about by increases in the loan loss provision.
Net interest income increased $244,000, or 6.8% to $3.8 million in 1997
from $3.6 million in 1996, which increased $217,000, or 6.5% from 1995. Average
interest earning assets net of average interest bearing liabilities increased by
$1.9 million in 1997 from 1996. The net increase in 1996 from 1995 was $589,000.
Average loans increased $4,187,000, or 12.8% in 1997 as compared to 1996.
Average securities increased $5.2 million, or 14.3% in 1997 as compared to 1996.
Average interest bearing deposits increased $7.4 million, or 13.5%, in 1997 from
1996. The increase was in time deposits as savings and demand deposits remained
at a constant level during the year. Average loans increased $1.6 million, or
5.0% in 1996 as compared to 1995. Average securities increased $2.6 million, or
7.5% in 1996 from 1995. Average interest bearing deposits increased $2.7
million, or 5.2% in 1996 from 1995. Again the increase was in time deposits,
with savings remaining constant and demand deposits showing a 15.6% decrease in
1996 from 1995. Interest rates have remained fairly constant during the periods
discussed, thus the volume differential influenced the increase in earnings more
so than the interest rate changes.
The provision for loan losses was $384,000 in 1997, compared to $346,000 in
1996 and $203,000 in 1995. While asset quality and loan loss experience has
improved, City National has continued to fund its reserve in a
370
<PAGE> 392
conservative and prudent manner. City National's allowance for loan losses as a
percentage of its loans was 1.32% at December 31, 1997, compared to 1.30% at
December 31, 1996 and 1.38% at December 31, 1995. The allowance for loan losses
as a percentage of period end nonperforming loans was 87.0% at December 31,
1997, compared to 76.8% at December 31, 1996, and 77.8% at December 31, 1995.
City National had net charge-offs of $318,000 in 1997, resulting in a ratio of
net charge-offs to average loans of .86%. This compares to $331,000 and 1.01% in
1996. City National had net charge-offs in 1995 of $200,000, which was .64% of
average loans.
Noninterest income increased $158,000, or 7.9% to $737,000 in 1997 from
$3.2 million in 1996, which increased $54,000 or 8.6% from $629,000 in 1995. The
increase in 1997 is mainly attributable to an increase in net investment
securities gains of $159,000, which is partially offset by decreases of $57,000
and $48,000 in service charges, commissions and fees and other income,
respectively. The increase in 1996 is a result of a $32,000 increase in service
charges, commissions and fees. The remainder is composed of a decrease in the
net gains on securities of $33,000 and an increase in other income of $55,000.
Noninterest expense increased $158,000, or 4.9% to $3.4 million in 1997
from $3.2 million in 1996, which increased $200,000, or 6.6% from $3.0 million
in 1995. The increase in 1997 is attributable to increased occupancy costs
associated with the construction of a new branch location and the increased
salaries and benefits associated with the new branch. The increase in 1996
mainly resulted from normal increases in salaries and benefits and costs
associated with upgrading its automation systems.
NET INTEREST INCOME
The largest component of City National's net income is its net interest
income, which is the difference between the income earned on assets and interest
paid on deposits and borrowings used in support of such assets. Net interest
income is determined by the rates earned on City National's interest earning
assets and the rates paid on its interest-bearing liabilities, the relative
amounts of interest-earning assets and interest-bearing liabilities, and the
degree of mismatch and the maturity and repricing characteristics of its
interest-earning assets and interest-bearing liabilities. Net interest income
divided by average interest-earning assets represents City National's net
interest margin.
371
<PAGE> 393
Average Balances, Income, Expenses and Rates. The following tables depict,
on a tax-equivalent basis for the periods indicated, certain information related
to City National's average balance sheet and its average yields on assets and
average costs of liabilities. Such yields are derived by dividing income or
expense by the average balance of the corresponding assets or liabilities.
Average balances have been derived from quarterly averages.
CONSOLIDATED AVERAGE BALANCES, INTEREST/INCOME/EXPENSE AND YIELD/RATES
TAXABLE EQUIVALENT BASIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------
1997 1996 1995
-------------------------- -------------------------- --------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------- ------- ------ ------- ------- ------ ------- ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Loans, net of unearned income............ $36,911 $3,802 10.30% $32,724 $3,468 10.60% $31,167 $3,211 10.30%
Investment securities
Taxable................................ 35,515 2,440 6.87 28,730 2,008 6.99 26,188 1,855 7.08
Tax-exempt............................. 5,934 535 9.01 7,536 677 8.99 7,544 688 9.12
------- ------ ------- ------ ------- ------
Total investment securities........ 41,449 2,975 7.18 36,266 2,685 7.40 33,732 2,543 7.54
Federal funds sold..................... 1,488 82 5.51 1,472 78 5.30 2,101 131 6.24
Other investments...................... 717 43 6.00 360 25 6.94 403 22 5.46
------- ------ ------- ------ ------- ------
Total interest-earning assets...... 80,565 6,902 8.57 70,822 6,256 8.83 67,403 5,907 8.76
Non interest-earning assets:
Cash and due from banks.................. 2,621 2,456 2,439
Premises and equipment................... 1,964 1,647 1,496
Accrued interest and other assets........ 539 1,137 881
Allowance for loan losses................ (515) (450) (434)
------- ------- -------
Total assets....................... $85,174 $75,612 $71,785
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Demand deposits.......................... $14,916 438 2.94 $14,773 437 2.96 $17,510 632 3.61
Savings deposits......................... 8,015 211 2.63 8,290 223 2.69 8,314 249 2.99
Time deposits............................ 39,243 2,234 5.69 31,611 1,792 5.67 26,123 1,442 5.52
------- ------ ------- ------ ------- ------
Total interest-bearing deposits.... 62,174 2,883 4.64 54,674 2,452 4.48 51,947 2,323 4.47
Federal funds purchased.................. 118 7 5.93 49 3 6.12 33 1 3.03
Other borrowings......................... 345 20 5.80 87 5 5.75 -- -- --
------- ------ ------- ------ ------- ------
Total interest-bearing liabilities....... 62,637 2,910 4.65 54,810 2,460 4.49 51,980 2,324 4.47
Non-interest bearing liabilities
Demand deposits.......................... 10,492 9,363 9,255
Accrued interest and other liabilities... 609 382 661
Shareholders' equity..................... 11,436 11,057 9,889
------- ------- -------
Total liabilities and shareholders'
equity........................... $85,174 $75,612 $71,785
======= ======= =======
Net interest income/net interest
spread........................... 3,992 3.92% 3,796 4.34% 3,583 4.29%
===== ===== =====
Net yield on earning assets........ 4.95% 5.36% 5.32%
===== ===== =====
Taxable equivalent adjustment:
Investment securities.................... 182 230 234
------ ------ ------
Net interest income................ $3,810 $3,566 $3,349
====== ====== ======
</TABLE>
372
<PAGE> 394
Analysis of Changes in Net Interest Income. The following table sets
forth, on a taxable equivalent basis, the effect which the varying levels of
earning assets and interest-bearing liabilities and the applicable rates have
had on changes in net interest income for the years ended December 31, 1997,
1996 and 1995.
RATE/VOLUME VARIANCE ANALYSIS TAXABLE EQUIVALENT BASIS
<TABLE>
<CAPTION>
AVERAGE VOLUME CHANGE IN VOLUME
--------------------------- ---------------------
1997 1996 1995 1997-1996 1996-1995
------- ------- ------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
EARNING ASSETS:
Loans, net of unearned income............................. $36,911 $32,724 $31,167 $ 4,187 $ 1,557
Investment securities
Taxable.................................................. 35,515 28,730 26,188 6,785 2,542
Tax-exempt............................................... 5,934 7,536 7,544 (1,602) (8)
------- ------- ------- ------- -------
Total investment securities........................ 41,449 36,266 33,732 5,183 2,534
Federal funds sold........................................ 1,488 1,472 2,101 16 (629)
Other investments......................................... 717 360 403 357 (43)
------- ------- ------- ------- -------
Total earning assets............................... $80,565 $70,822 $67,403 $ 9,743 $ 3,419
======= ======= ======= ======= =======
INTEREST-BEARING LIABILITIES:
Deposits:
Demand................................................... $14,916 $14,773 $17,510 $ 143 $(2,737)
Savings.................................................. 8,015 8,290 8,314 (275) (24)
Time..................................................... 39,243 31,611 26,123 7,632 5,488
------- ------- ------- ------- -------
Total interest-bearing deposits.................... 62,174 54,674 51,947 7,500 2,727
Federal funds purchased.................................. 118 49 33 69 16
Other borrowings......................................... 345 87 -- 258 87
------- ------- ------- ------- -------
Total interest-bearing liabilities................. $62,637 $54,810 $51,980 $ 7,827 $ 2,830
======= ======= ======= ======= =======
Net interest income/net interest spread...................
Net yield on earning assets...............................
Net cost of funds.........................................
<CAPTION>
AVERAGE RATE INTEREST INCOME/EXPENSE
--------------------- ------------------------
1997 1996 1995 1997 1996 1995
----- ----- ----- ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS:
Loans, net of unearned income............................. 10.30% 10.60% 10.30% $3,802 $3,468 $3,211
Investment securities
Taxable.................................................. 6.87 6.99 7.08 2,440 2,008 1,855
Tax-exempt............................................... 9.01 8.99 9.12 535 677 688
------ ------ ------
Total investment securities........................ 7.18 7.40 7.54 2,975 2,685 2,543
Federal funds sold........................................ 5.51 5.30 6.24 82 78 131
Other investments......................................... 6.00 6.94 5.46 43 25 22
------ ------ ------
Total earning assets............................... 8.57 8.83 8.76 6,902 6,256 5,907
INTEREST-BEARING LIABILITIES:
Deposits:
Demand................................................... 2.94 2.96 3.61 438 437 632
Savings.................................................. 2.63 2.69 2.99 211 223 249
Time..................................................... 5.69 5.67 5.52 2,234 1,792 1,442
------ ------ ------
Total interest-bearing deposits.................... 4.64 4.48 4.47 2,883 2,452 2,323
Federal funds purchased.................................. 5.93 6.12 3.03 7 3 1
Other borrowings......................................... 5.80 5.75 -- 20 5 --
------ ------ ------
Total interest-bearing liabilities................. 4.65 4.49 4.47 $2,910 $2,460 $2,324
====== ====== ======
Net interest income/net interest spread................... 3.92% 4.34% 4.29% $3,992 $3,796 $3,583
===== ===== ===== ====== ====== ======
Net yield on earning assets............................... 4.95% 5.36% 5.32%
===== ===== =====
Net cost of funds......................................... 3.62% 3.47% 3.44%
===== ===== =====
<CAPTION>
VARIANCE ATTRIBUTED TO (1)
-------------------------------
VARIANCE 1997 1996
--------------------- -------------- --------------
1997-1996 1996-1995 VOLUME RATE VOLUME RATE
--------- --------- ------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS:
Loans, net of unearned income............................. $ 334 $ 257 $ 432 $ (98) $165 $ 92
Investment securities
Taxable.................................................. 432 153 466 (34) 178 (25)
Tax-exempt............................................... (142) (11) (144) 2 (2) (10)
----- ----- ----- ----- ---- -----
Total investment securities........................ 290 142 322 (32) 177 (35)
Federal funds sold........................................ 4 (53) 1 3 (34) (19)
Other investments......................................... 18 3 22 (4) (3) 6
----- ----- ----- ----- ---- -----
Total earning assets............................... 646 349 777 (131) 305 44
INTEREST-BEARING LIABILITIES:
Deposits:
Demand................................................... 1 (195) 4 (3) (84) (111)
Savings.................................................. (12) (26) (7) (5) (1) (25)
Time..................................................... 442 53 433 9 311 39
----- ----- ----- ----- ---- -----
Total interest-bearing deposits.................... 431 129 430 1 226 (97)
Federal funds purchased.................................. 4 2 4 -- 1 1
Other borrowings......................................... 15 5 15 -- -- 5
----- ----- ----- ----- ---- -----
Total interest-bearing liabilities................. $ 450 $ 136 $ 449 $ 1 $227 $ (91)
===== ===== ===== ===== ==== =====
Net interest income/net interest spread................... $ 196 $ 213 $ 328 $(132) $ 78 $ 135
===== ===== ===== ===== ==== =====
Net yield on earning assets...............................
Net cost of funds.........................................
</TABLE>
- ---------------
(1) The change in interest due to both rate and volume has been allocated to
volume and rate changes in proportion to the relationship of the absolute
dollar amounts of the changes in each.
373
<PAGE> 395
Interest Sensitivity. City National monitors and manages the pricing and
maturity of its assets and liabilities in order to diminish the potential
adverse impact that changes in interest rates could have on net interest income.
The principal monitoring technique employed by City National is the measurement
of City National's interest rate sensitivity "gap," which is the positive or
negative dollar difference between assets and liabilities that are subject to
interest rate repricing within a given period of time. The objective of City
National's Asset/Liability Management (ALM) function is to maintain a consistent
level of net interest income in a rising, falling or static interest rate
environment. ALM monitors the pricing of both interest earning assets and
interest bearing liabilities and the maturities of each. Interest rate
sensitivity can be managed by repricing assets or liabilities, selling
securities available-for-sale, replacing an asset or liability at maturity or by
adjusting the interest rates during the life of an asset or liability.
City National evaluates interest rate sensitivity risk and then formulates
guidelines regarding asset generation and repricing, funding sources and
pricing, off-balance sheet commitments in order to decrease interest rate
sensitivity risk. City National uses computer simulations to measure the net
income effect of various interest rate scenarios. The modeling reflects interest
rate changes and the related impact on net income over specified periods of
time.
The goal of liquidity management is to provide adequate funds to meet
changes in loan demand or any potential unexpected deposit withdrawals.
Additionally, management strives to maximize its earnings by investing its
excess funds in securities and other securitized loan assets with maturities
matching its offsetting liabilities. See the "Selected Loan Maturity and
Interest Rate Sensitivity" and the "Maturity Distribution of Investment
Securities" tables.
PROVISIONS AND ALLOWANCE FOR LOAN LOSSES
City National has developed policies and procedures for evaluating the
overall quality of its credit portfolio and the timely identification of
potential problem credits. Management reviews the appropriate level for the
allowance for loan losses based on the results of the internal monitoring and
reporting system, analysis of economic conditions in its markets, and a review
of historical statistical data for both City National and other financial
institutions. Management's judgment as to the adequacy of the allowance is based
upon a number of assumptions about future events, which it believes to be
reasonable but which may or may not be valid. Thus, there can be no assurance
that charge-offs in future periods will not exceed the allowance for loan losses
or that additional increases in the allowance for loan losses will not be
required. The adequacy of the allowance for loan losses and the effectiveness of
City National's monitoring and analysis system are also reviewed periodically by
the banking regulators and City National's independent auditors.
Additions to the allowance for loan losses, which are expensed as the
provision for loan losses on City National's income statement, are made
periodically to maintain the allowance at an appropriate level based on
management's analysis of the potential risk in the loan portfolio. Loan losses
and recoveries are charged or credited directly to the allowance. The amount of
the provision is a function of the levels of loans outstanding, the level of
nonperforming loans, historical loan loss experience, the amount of loan losses
actually charged against the reserve during a given period and current and
anticipated economic conditions.
374
<PAGE> 396
The following table summaries certain information with respect to City
National's allowance for loan losses and the composition of charge-offs and
recoveries for the periods indicated.
SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Allowance for loan losses - balance at beginning of
period................................................... $ 49 $ 434 $ 431 $ 483 $ 483
Charge-offs:
Commercial, financial and agricultural................... 130 49 7 96 --
Real estate -- mortgage.................................. -- -- 13 -- --
Consumer................................................. 252 342 230 92 168
------- ------- ------- ------- -------
Total charge-offs................................. 382 391 250 188 168
Recoveries:
Commercial, financial and agricultural................... 6 5 -- -- --
Real estate -- mortgage.................................. -- -- -- -- --
Consumer................................................. 58 55 50 59 70
------- ------- ------- ------- -------
Total recoveries.................................. 64 60 50 59 70
------- ------- ------- ------- -------
Net charge-offs................................... 318 331 200 129 98
Addition to allowance charged to operating expense......... 384 346 203 77 98
------- ------- ------- ------- -------
Allowance for loan losses -- balance at end of period...... $ 515 $ 449 $ 434 $ 431 $ 483
======= ======= ======= ======= =======
Loans at end of period, net of unearned income............. $39,149 $34,659 $31,473 $29,162 $27,239
Ratio of ending allowance to ending loans.................. 1.32% 1.30% 1.38% 1.48% 1.77%
Average loans, net of unearned income...................... $36,911 $32,724 $31,167 $28,880 $27,656
Ratio of net charge-offs to average loans.................. 0.86% 1.01% 0.64% 0.45% 0.35%
</TABLE>
Allocation of Allowance. City National historically has allocated its
allowance for loan losses to specific loan categories. Although the allowance is
allocated, it is available to absorb losses in the entire loan portfolio.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------------------ ------------------ ------------------ ------------------ ------------------
PERCENT PERCENT PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
------- -------- ------- -------- ------- -------- ------- -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Domestic
Commercial,
financial and
agricultural........ $ 72 14% $ 36 8% $ 40 9% $ 40 9% $ 47 10%
Real estate --
construction...... 5 1 4 1 2 1 5 1 7 2
Real estate --
mortgage.......... 278 54 247 55 229 53 232 54 251 51
Consumer............ 160 31 162 36 163 37 154 36 178 37
---- --- ---- --- ---- --- ---- --- ---- ---
$515 100% $449 100% $434 100% $431 100% $483 100%
==== === ==== === ==== === ==== === ==== ===
</TABLE>
Nonperforming Assets. The following table presents City National's
nonperforming assets for the dates indicated.
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Nonaccrual.................................................. $404 $453 $243 $192 $ 96
Past Due.................................................... 188 132 315 281 189
Restructured................................................ -- -- -- -- --
---- ---- ---- ---- ----
Total............................................. $592 $585 $558 $473 $285
==== ==== ==== ==== ====
</TABLE>
375
<PAGE> 397
Accrual of interest is discontinued on a loan when management believes,
after considering economic and business conditions and collections efforts, that
the borrower's financial condition is such that the collection of interest is
doubtful. A delinquent loan is generally placed on nonaccrual status when it
becomes 90 days or more past due. When a loan is placed on nonaccrual status,
all interest which has been accrued on the loan but remains unpaid is reversed
and deducted from earnings as a reduction of reported interest income. No
additional interest is accrued on the loan balance until the collection of both
principal and interest becomes reasonably certain. When a problem loan is
finally resolved, there may ultimately be an actual writedown or charge-off of
the principal balance of the loan, which would necessitate additional charges to
earnings.
EARNING ASSETS
Loans. Loans are the largest category of earning assets and typically
provide higher yields than the other types of earning assets. Associated with
the higher loan yields are the inherent credit and liquidity risks which
management attempts to control and counterbalance. Loans averaged $36.9 million
in 1997 compared to $32.7 million in 1996 and $31.2 million in 1995. At December
31, 1997 total loans net of unearned interest and fees were $39.1 million
compared to $34.7 million at December 31, 1996 and $31.5 million at December 31,
1995.
DISTRIBUTION OF LOANS BY CATEGORY
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural........... $ 5,699 $ 2,855 $ 2,282 $ 2,097 $ 2,043
Real estate -- construction...................... 467 215 183 370 433
Real estate -- mortgage.......................... 21,197 19,212 16,407 16,197 14,591
Consumer......................................... 12,122 12,793 12,460 10,734 10,400
Other loans...................................... 560 659 443 669 688
------- ------- ------- ------- -------
Total loans............................ 40,045 35,734 31,775 30,067 28,155
Unearned interest and fees....................... (896) (1,075) (302) (904) (916)
Allowance for loan losses........................ (515) (450) (434) (431) (483)
------- ------- ------- ------- -------
Net loans...................................... $38,634 $34,209 $31,039 $28,732 $26,756
======= ======= ======= ======= =======
</TABLE>
The repayment of loans in the loan portfolio as they mature is also a
source of liquidity for City National. The following table sets forth City
National's loans maturing within specified intervals at December 31, 1997.
SELECTED LOAN MATURITY AND INTEREST RATE SENSITIVITY
<TABLE>
<CAPTION>
FIXED VARIABLE
RATE RATE TOTAL
------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Maturity:
One year or less.......................................... $ 9,948 $4,873 $14,821
After one year through five years......................... 14,715 745 15,460
After five years.......................................... 9,736 28 9,764
------- ------ -------
$34,399 $5,646 $40,045
======= ====== =======
</TABLE>
The information presented in the above table is based on the contractual
maturities of the individual loans, including loans which may be subject to
renewal at their contractual maturity. Renewal of such loans is subject to
review and credit approval, as well as modification of terms upon their
maturity. Consequently, management believes this treatment presents fairly the
maturity and repricing structure of the loan portfolio.
Investment Securities. The investment securities portfolio is a
significant component of City National's total earning assets. Total securities
averaged $41.4 million in 1997, compared to $36.3 million in 1996 and $33.7
million in 1995. At December 31, 1997 the total carrying value securities
portfolio was $35.9 million.
376
<PAGE> 398
The following table sets forth the book value of the securities held by
City National at the dates indicated.
INVESTMENT PORTFOLIO
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
U.S. Treasury and U.S. Government agencies.................. $25,620 $33,021 $27,582
State and political subdivisions............................ 6,774 9,984 8,603
Other investments........................................... 3,067 -- --
------- ------- -------
Total investment securities....................... $35,461 $43,005 $36,185
======= ======= =======
</TABLE>
The following table shows the scheduled maturities and average yields of
securities held at December 31, 1997.
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES
<TABLE>
<CAPTION>
MATURING
--------------------------------------------------------------------------------------
AFTER ONE BUT
WITHIN ONE WITHIN FIVE AFTER FIVE BUT AFTER TEN
YEAR YEARS WITHIN TEN YEARS YEARS TOTAL
-------------- -------------- ----------------- -------------- ---------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ------ ----- -------- ------ ------ ----- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities available for sale:
U.S. Treasury and Govt Agencies........ $99 8.26% $3,638 6.57% $16,998 6.73% $6,360 7.36% $27,094 6.86%
State and political subdivision........ -- -- 215 6.53 1,561 6.24 3,523 6.32 5,300 6.30
Other securities....................... -- -- 3,067 6.35 -- -- -- -- 3,067 6.35
--- ------ ------- ------ -------
Total securities available for
sale........................... $99 8.26% $6,920 6.47% $18,559 6.68% $9,883 7.00% $35,461 6.74%
=== ====== ======= ====== =======
</TABLE>
Short-Term Investments. Short-term investments, which consist primarily of
federal funds sold averaged $1.5 million in 1997, compared to $1.5 million in
1996 and $2.1 million in 1995. These funds are a primary source of City
National's liquidity and are generally invested on an overnight basis.
DEPOSITS AND OTHER INTEREST-BEARING LIABILITIES
Deposits. Average total deposits increased $8.7 million, or 13.5% to $72.7
million during 1997, from $64.0 million in 1996. Average total deposits
increased $2.8 million, or 4.6% in 1996, from $61.2 million in 1995. These
increases are a direct result of management's desire to fund its loan growth
with time deposits.
The following table sets forth the deposits of City National by category at
the dates indicated.
AVERAGE DEPOSITS
<TABLE>
<CAPTION>
AVERAGE FOR THE YEAR
---------------------------------------------------------------------
1997 1996 1995
--------------------- --------------------- ---------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE AMOUNT RATE
OUTSTANDING PAID OUTSTANDING PAID OUTSTANDING PAID
----------- ------- ----------- ------- ----------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing demand deposits... $10,492 --% $ 9,363 --% $ 9,255 --%
Interest bearing demand deposits....... 14,916 2.94 14,773 2.96 17,510 3.61
Savings deposits....................... 8,015 2.63 8,290 2.69 8,314 2.99
Time deposits.......................... 39,243 5.69 31,611 5.67 26,123 5.52
------- ---- ------- ---- ------- ----
Total average deposits....... $72,666 4.64% $64,037 4.48% $61,202 4.47%
======= ======= =======
</TABLE>
377
<PAGE> 399
Deposits, particularly core deposits, have historically been City
National's primary source of funding and have enabled City National to meet
successfully both its short-term and long-term liquidity needs. Management
anticipates that such deposits will continue to be City National's primary
source of funding in the future. City National's loan to deposit ratio was 54.9%
at December 31, 1997, compared to 49.1% at December 31, 1996. The maturity
distribution of City National's time deposits over $100,000 at December 31, 1997
is shown in the following table.
MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
- ----------------------------------------------
UNDER 3 3-6 6-12 OVER 12
MONTHS MONTHS MONTHS MONTHS TOTAL
- ------- ------ ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
$7,576 $1,188 $12,776 $1,554 $23,094
====== ====== ======= ====== =======
</TABLE>
Approximately 32.8% of City National's time deposits over $100,000 had
scheduled maturities within three months. Large certificates of deposit
customers tend to be extremely sensitive to interest rate levels, making these
deposits less reliable sources of funding for liquidity planning purposes than
core deposits. Some financial institutions partially fund their balance sheets
using large certificates of deposits obtained through brokers. These broker
deposits are generally expensive and are unreliable as long-term funding
sources. City National does not generally buy brokered deposits, but on occasion
it has purchased some brokered deposits to fund short term needs.
IMPACT OF INFLATION
Unlike most industrial companies, the assets and liabilities of financial
institutions such as City National and its subsidiary are primarily monetary in
nature. Therefore, interest rates have a more significant effect on City
National's performance than do the effects of changes in the general rate of
inflation and change in prices. In addition, interest rates do not necessarily
move in the same direction or in the same magnitude as the prices of goods and
services. Management seeks to manage the relationships between interest
sensitive assets and liabilities in order to protect against wide interest rate
fluctuations, including those resulting from inflation.
REGULATORY MATTERS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general purpose 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 with the same prominence as other financial statements. The statement
is effective for fiscal years beginning after December 15, 1997. Management
intends to comply with this standard in 1998.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." This statement establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
This statement is effective for financial statements for periods beginning after
December 15, 1997. Management intends to comply with this standard in 1998.
378
<PAGE> 400
BUSINESS OF CITY NATIONAL
City National is a bank holding company registered under the BHCA. Through
its bank subsidiary, City National Bank of Sylacauga, City National provides
community banking services in Talladega County, Alabama. At June 30, 1998, City
National had total consolidated assets of approximately $82.2 million, total
consolidated deposits of approximately $69.4 million, and total consolidated
shareholders' equity of approximately $11.8 million.
BANK ACTIVITIES
City National Bank has operated a commercial business in Alabama since 1913
providing banking services such as commercial and individual checking and
savings accounts, money market accounts and certificates of deposit. City
National Bank offers commercial and working capital loans and real estate
installment loans, and provides credit card services through a national credit
card issuer. City National Bank also acts as issuing agent for U.S. Savings
Bonds, travelers checks, money orders and cashiers checks, and it offers
collection teller services, wire transfer facilities, safe deposit boxes and
night depository facilities. The transaction accounts and time certificates are
tailored to City National Bank's principal market area at rates competitive with
those offered in City National Bank's primary service area. All deposit accounts
are insured by the FDIC up to the maximum amount allowed by law.
City National Bank offers commercial lending services, including lines of
credit, revolving credits, term loans, real estate loans and other forms of
secured financing. City National Bank also offers installment and other personal
loans, home improvement loans, automobile loans, boat loans and other consumer
financing and mortgage loans. City National Bank extends credit to its customers
located primarily within its market area of Talladega County, Alabama.
City National was formed in 1984 to enhance City National Bank's ability to
raise capital and to make possible a wider variety of banking related
activities.
City National Bank also operates Freedom Financial Services, Inc., a wholly
owned subsidiary ("Freedom"). Freedom is a consumer finance company operating in
Sylacauga, Clanton and Pelham, Alabama.
EMPLOYEES
As of January 1, 1998, City National Bank had 55 full-time employees and
eight part time employees.
COMPETITION
The banking business is highly competitive and sources of competition are
varied. City National Bank competes as a financial intermediary with other
commercial banks, credit unions, mortgage banking companies, consumer finance
companies, securities brokerages, insurance companies and money market mutual
funds operating in Talladega County and elsewhere. Many of the financial
organizations in competition with City National Bank have much greater capital
resources than City National Bank which, among other things, may allow them to
price their services at levels more favorable to customers and to provide larger
credit facilities than could City National Bank.
379
<PAGE> 401
PRINCIPAL HOLDERS OF COMMON STOCK
City National's authorized capital stock consist of 100,000 shares of
common stock, $1.00 par value per share, 26,832 shares of which are issued and
outstanding as of the City National Record Date. The following table shows
certain information regarding those persons who own five percent or more of the
outstanding shares of City National common stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE
NAME AND ADDRESS BENEFICIALLY OWNED(1) OF SHARES OWNED
- ---------------- --------------------- ---------------
<S> <C> <C>
W.T. Campbell, Jr.(2)....................................... 5,641 21.0%
Post Office Box 128
Sylacauga, Alabama 35150
Debbie G. Ford as Personal.................................. 2,110 7.9
Representative of the Estate
of William R. Gammon, Deceased
405 Overlook Drive
Opelika, Alabama 36801
Susan C. Green(2)........................................... 4,432 16.5
Post Office Box 847
Sylacauga, Alabama 35150
</TABLE>
- ---------------
(1) "Beneficial Ownership" includes shares for which an individual, directly or
indirectly, has or shares voting or investment power or both. All of the
listed persons have sole voting and investment power over the shares listed
opposite their names unless otherwise indicated in the notes below.
Beneficial Ownership as reported in the above table has been determined in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934, as
amended. The percentages are based upon 26,832 shares of common stock
outstanding.
(2) Mr. Campbell is the brother of Ms. Green.
SECURITY OWNERSHIP OF MANAGEMENT
The following table shows for the directors, executive officers and
directors and executive officers as a group the number and percentage of
outstanding shares of City National common stock beneficially owned.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES CLASS
NAME POSITION BENEFICIALLY OWNED(1) BENEFICIALLY OWNED
- ---- -------- --------------------- ------------------
<S> <C> <C> <C>
Gordon R. Boyles......... Vice President and Vice Chairman 100 *
D. Wayne Duke............ Director 201 *
W.T. Campbell, Jr........ Chairman of the Board and President 5,641 21.0 %
F. Parker Cather......... Secretary and Director 1,100 4.1
B.B. Comer, II........... Director 215 *
Mary A. Bennett.......... Director 100 *
G. Wendell Morris........ Director 359 1.3
Feagin Rainer............ Director 300 1.1
William P. Riley......... Director 100 *
All Directors and
Executive Officers as a
Group (9) Persons...... 8,116 30.25%
</TABLE>
- ---------------
* Less than one percent
(1) See footnote (1) to the table above at "Principal Holders of Common Stock."
380
<PAGE> 402
DIRECTOR INFORMATION
W. T. Campbell, Jr., Chairman of the Board of Directors of City National,
will become a director of the Corporation following the City National Merger.
Mr. Campbell, age 51, has been a director of City National since its inception
in 1984 and has been a director of City National Bank since prior to the
formation of City National. Mr. Campbell is a practicing attorney in Sylacauga,
Alabama with the firm of McKay and Campbell.
Mr. Campbell received director fees from City National in 1997 of $10,300,
and compensation as Chairman of the Board of $71,050. In addition, Mr. Campbell
received an annual retainer of $4,800 for legal services performed for City
National.
City National Bank's main office is located at 126 North Broadway,
Sylacauga, Alabama, 35150. City National Bank's main office building contains
approximately 5,500 square feet of finished floor space. The main office houses
teller facilities, including 3 drive-thru teller lanes.
City National Bank distributes its services at four locations: Main Office;
Mignon Branch, 1010 Talladega Highway, Sylacauga, Alabama; Childersburg Branch,
33327 U.S. Highway 280, Childersburg, Alabama; and the Ogletree Shopping Center
24 Hour Automatic Teller Machine, Fort Williams Street, Sylacauga, Alabama.
MARKET INFORMATION
There is no organized trading market for shares of City National Common
Stock. When shares are traded, they are traded in privately negotiated
transactions. Since January 1, 1996, management of City National is aware that
trades have taken place at prices ranging from $160 to $250 per share, although
most trades have taken place at prices not known by management. The most recent
sale for which City National has price information occurred on June 18, 1998,
when three shares were sold at $250 per share.
City National has paid dividends in cash of $1.50 per share per quarter
since January 1, 1996.
There are 199 holders of record of City National Common Stock.
LEGAL PROCEEDINGS
While City National is from time to time party to various legal proceedings
arising from the ordinary course of its business, City National believes that
there are currently no proceedings threatened or pending against City National
that will individually or in the aggregate, have a material adverse affect on
the business or financial condition of City National.
381
<PAGE> 403
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- EMERALD
BASIS OF PRESENTATION
The following provides a narrative discussion and analysis of significant
changes in the results of operations and financial condition of Emerald Coast
Bancshares, Inc. ("Emerald"). This discussion should be read in conjunction with
the consolidated statements and the supplemental financial data included
elsewhere in this Prospectus-Joint Proxy Statement. The principal subsidiary of
Emerald is Emerald Coast Bank ("Emerald Bank"), a bank organized and existing
under the laws of Florida and headquartered in Panama City Beach, Florida.
Emerald Bank was formed in August 1996 and Emerald was formed in April 1997.
Therefore, the portion of this discussion covering the period January 1, 1996 to
June 30, 1998 represents consolidated operations, and there is no discussion
covering the period January 1, 1995 to December 31, 1995.
This narrative contains information and forward-looking statements that are
based on Emerald's belief as well as certain assumptions made by, and
information currently available to Emerald with respect to: the adequacy of the
allowance for loan losses; the effect of legal proceedings on Emerald's
financial condition, results of operations and liquidity; year 2000 compliance
issues and market risk disclosures, as well as other information. The risks and
uncertainties that may affect operations, performance, growth projections and
the results of Emerald's business include, but are not limited to, fluctuations
in the economy, the relative strength and weakness in the commercial and
consumer credit sector and in the real estate market, the actions taken by the
Federal Reserve for the purpose of managing the economy, interest rate
movements, the impact of competitive products, services and pricing, timely
development by Emerald of technology enhancements for its products and operating
systems, legislation and similar matters. Although management of Emerald
believes that the expectations reflected in such forward-looking statements are
reasonable; it can give no assurance that such expectations will prove to be
correct. Such forward-looking statements are subject to certain risks,
uncertainties and assumptions. Should one or more of these risks materialize, or
should any such underlying assumptions prove to be significantly different,
actual results may vary materially from those anticipated, estimated, projected
or expected.
YEAR 2000 COMPLIANCE
Emerald has established a task force to review all computer-based systems
and applications and develop an action plan to ensure that its computer and
information systems will function properly in the year 2000. This plan, which
has been approved by the Board of Directors of Emerald, provides a goal of
having all of Emerald's systems and applications addressed and changed where
necessary to address the year 2000 problem by December 31, 1998, with final
testing to take place during 1999. Management does not expect the costs of
achieving year 2000 compliance to have a material adverse effect on Emerald's
financial condition or results of operations.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1998 Compared With Six Months Ended June 30, 1997
The net results improved by $109,000, or 94.0 % to ($7,000) for the six
months ended June 30, 1998, from ($116,000) for the six months ended June 30,
1997. The return on average assets for the period ended June 30, 1998, was
(0.01%) compared to (0.44%) for the six months ended June 30, 1997, and the
return on average equity was (0.13%) for the six months ended June 30, 1998,
compared to (2.03%) for the corresponding period in 1997. The improvements were
a direct result of Emerald Bank's continued growth and development as it entered
its second full year of operations. In addition, the results during the 1998
period represents twelve months of activity while 1997 only included ten months.
Net interest income increased $453,000, or 68.0 % to $1,118,000 for the
period ended June 30, 1998, from $665,000 for the same period in 1997, as
interest income increased $1,088,000 and interest expense increased $634,000.
The increase in net interest income was due to an increase in loan volume,
offset by an increase in deposits, coupled with the fact that Emerald's
operations were beginning to mature. The provision for loan
382
<PAGE> 404
losses was virtually the same during each period as Emerald continued to build
reserves to keep pace with loan growth.
Loan fee income for the six months ended June 30, 1998 was $170,000 while
there was no such income during the same period in 1997. New loan originations
increased substantially from 1997 to 1998 due to heavy demand in Emerald's
primary market areas.
Other non-interest income increased $230,000 as of June 30, 1998 from
$28,000 for the six months ended June 30, 1997. This was due to increases of
$69,000 in deposit account fees and charges, $44,000 from Emerald Bank's
non-deposit financial products subsidiary and $87,000 from mortgage operations.
All such improvements resulted from the growth and maturing of Emerald's
operations.
Non-interest expenses increased $584,000, or 71.5% to $1,401,000 for the
six months ended June 30, 1998 from $817,000 for the same period in 1997. This
increase occurred in all categories due to the substantial growth enjoyed by
Emerald. Between June 1997 and June 1998, two branch offices were opened,
causing increases in compensation costs as well as occupancy expenses. In
addition, a portion of the increase is attributable to the unequal comparison of
twelve months of expenses to ten months.
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
Emerald Bank began operations in August 1996. Consequently, no comparative
information is provided for 1995. In addition, the comparison of 1996 to 1997 is
materially affected by the fact that Emerald Bank was a de novo bank and was
only open for four months in 1996 compared to a full twelve months in 1997.
Emerald's consolidated net loss increased $42,000, or 11.8% to $396,000 in
1997 from $354,000 in 1996. The return on average assets in 1997 was (0.99%)
compared to (0.89%) in 1996, and the return on average equity was (6.99%) in
1997 compared to (17.88%) in 1996. These three decreases are directly
attributable the factors set forth above.
Net interest income increased $1,321,000 to $1,563,000 in 1997 from
$242,000 in 1996. The increase in net interest income was due to an increase in
average net earning assets from 4,000 in 1996 to $34,000 in 1997. The
substantial growth was directly related to the start-up nature of the
operations.
The provision for loan losses was $333,000 in 1997 compared to $70,000 in
1996. Because Emerald Bank was a de novo bank and had to fund its reserve for
bad debt during its start up, the loan loss provision was abnormally high for
this period. Emerald's allowance for loan losses as a percentage of its loans
was 1.04% at December 31, 1997 compared to 0.59% at December 31, 1996. The
allowance for loan losses as a percentage of period end nonperforming loans was
760.8% at December 31, 1997. All loans were performing loans at December 31,
1996. Net charge-offs totaled $15,000 in 1997, resulting in a ratio of net
charge-offs to average loans of 0.06%. There were no such charge-offs during
1996.
Non-interest income increased $105,000 to $115,000 in 1997 from $10,000 in
1996 which increase was attributable to the fact that Emerald Bank opened in
1996 and continued to have strong growth in 1997. In addition, the comparative
periods do not cover the same number of months' operations.
Non-interest expense increased $1,143,000 to $1,936,000 in 1997 from
$793,000 in 1996 which again, was primarily attributable to the fact that
Emerald Bank opened in 1996 and continued its healthy growth in 1997. In
addition, certain start-up costs were recorded during these periods.
NET INTEREST INCOME
The largest component of Emerald's net income is its net interest income,
which is the difference between the income earned on assets and interest paid on
deposits and borrowings used in support of such assets. Net interest income is
determined by the rates earned on Emerald's interest earning assets and the
rates paid on its interest-bearing liabilities, the relative amounts of
interest-earning assets and interest-bearing liabilities, and the degree of
mismatch and the maturity and repricing characteristics of its interest-earning
assets and interest-bearing liabilities. Net interest income divided by average
interest-earning assets represents Emerald's net interest margin.
383
<PAGE> 405
The following tables depict, on a tax-equivalent basis for the periods
indicated, certain information related to Emerald's average balance sheet and
its average yields on assets and average costs of liabilities. Such yields are
derived by dividing income or expense by the average balance of the
corresponding assets or liabilities. Average balances have been derived from
quarterly averages.
CONSOLIDATED AVERAGE BALANCES, INTEREST/INCOME/EXPENSE AND YIELD/RATES
(TAXABLE EQUIVALENT BASIS)
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31,
-----------------------------------------------------
1997 1996
------------------------- -------------------------
AVERAGE INCOME/ YIELD AVERAGE INCOME/ YIELD
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------- ------- ----- ------- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Loans, net of unearned income(1).......................... $27,093 $2,695 9.95% $2,104 $250 11.88%
Investment securities
Taxable................................................. 6,045 388 6.42 646 61 9.44
Federal funds sold...................................... 546 31 5.68 1,340 70 5.22
------- ------ ---- ------ ---- -----
Total interest-earning assets....................... 33,684 3,114 9.24 4,090 381 9.32
Non interest-earning assets:
Cash and due from banks................................... 1,442 240
Premises and equipment.................................... 4,090 699
Accrued interest and other assets........................... 1,004 134
Allowance for loan losses................................... (388) (70)
------- ------
Total assets........................................ $39,832 $5,093
======= ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Demand deposits........................................... $12,298 $ 526 4.28% $1,129 $ 50 4.43%
Savings deposits.......................................... 386 11 2.85 43 1 2.33
Time deposits............................................. 16,382 937 5.72 1,574 88 5.59
------- ------ ---- ------ ---- -----
Total deposits...................................... 29,066 1,474 5.07 2,746 139 5.06
Other short-term borrowings................................. 1,385 77 5.66 -- -- --
------- ------ ---- ------ ---- -----
Total interest-bearing liabilities.................. 30,451 1,551 5.09 2,746 139 5.06
Non-interest bearing liabilities
Demand deposits........................................... 3,594 356
Accrued interest and other liabilities.................... 153 11
Shareholders' equity...................................... 5,634 1,980
------- ------
Total liabilities and shareholders' equity.......... $39,832 $5,093
======= ======
Net interest income/net interest spread..................... 1,563 4.17% 242 4.25%
==== =====
Net yield on earning assets................................. 4.64% 5.92%
==== =====
Taxable equivalent adjustment:
Investment securities....................................... 0 0
------ ----
Net interest income......................................... $1,563 $242
====== ====
</TABLE>
384
<PAGE> 406
The following table sets forth, on a taxable equivalent basis, the effect
which the varying levels of earning assets and interest-bearing liabilities and
the applicable rates have had on changes in net interest income for the years
ended December 31, 1997 and 1996.
RATE/VOLUME VARIANCE ANALYSIS
TAXABLE EQUIVALENT BASIS
<TABLE>
<CAPTION>
VARIANCE
ATTRIBUTED TO
CHANGE IN INTEREST --------------
AVERAGE VOLUME VOLUME AVERAGE RATE INCOME/EXPENSE VARIANCE 1997
---------------- --------- ------------ --------------- --------- --------------
1997 1996 1997-1996 1997 1996 1997 1996 1997-1996 VOLUME RATE
------- ------ --------- ---- ----- ------- ----- --------- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earning Assets:
Loans, net of unearned
income.................. $27,093 $2,104 $24,989 9.95% 11.88% $2,695 $250 $2,445 $2,553 $(108)
Investment securities
taxable................. 6,045 646 5,399 6.42 9.44 388 61 327 386 (59)
Federal funds sold........ 546 1,340 (794) 5.68 5.22 31 70 (39) (45) 6
------- ------ ------- ------ ---- ------ ------ -----
Total earning
assets........... $33,684 $4,090 $29,594 9.24 9.32 3,114 381 2,733 2,894 (161)
======= ====== =======
Interest-bearing
liabilities:
Deposits:
Demand.................. $12,298 $1,129 $11,169 4.28 4.43 526 50 476 495 (19)
Savings................. 386 43 343 2.85 2.33 11 1 10 8 2
Time.................... 16,382 1,574 14,808 5.72 5.59 937 88 849 828 21
------- ------ ------- ------ ---- ------ ------ -----
29,066 2,746 26,320 5.07 5.06 1,474 139 1,335 1,331 4
Other short-term
borrowings.............. 1,385 77 77 77
------- ------ ------- ------ ---- ------ ------ -----
Total
interest-bearing
deposits......... $30,451 $2,746 $26,320 1,551 139 1,412 1,331 81
======= ====== ======= ------ ---- ------ ------ -----
Net interest income/net
interest spread........... 4.17% 4.25% $1,563 $242 $1,321 $1,563 $(242)
==== ===== ====== ==== ====== ====== =====
Net yield on earning
assets.................... 4.64% 5.92%
==== =====
Net cost of funds........... 4.60% 3.40%
==== =====
</TABLE>
INTEREST SENSITIVITY
Emerald monitors and manages the pricing and maturity of its assets and
liabilities in order to diminish the potential adverse impact that changes in
interest rates could have on net interest income. The principal monitoring
technique employed by Emerald is the measurement of Emerald's interest rate
sensitivity "gap," which is the positive or negative dollar difference between
assets and liabilities that are subject to interest rate repricing within a
given period of time. The objective of Emerald's Asset/Liability Management
(ALM) function is to maintain a consistent level of net interest income in a
rising, falling or static interest rate environment. ALM monitors the pricing of
both interest earning assets and interest bearing liabilities and the maturities
of each. Interest rate sensitivity can be managed by repricing assets or
liabilities, selling securities or loans available-for-sale, replacing an asset
or liability at maturity or by adjusting the interest rates during the life of
an asset or liability.
Emerald evaluates interest sensitivity risk and then formulates guidelines
regarding asset generation and repricing, funding sources and pricing,
off-balance sheet commitments in order to decrease interest sensitivity risk.
Emerald uses computer simulations, produced in-house and by outside consultants,
to measure the net income effect of various interest rate scenarios. The
modeling reflects interest rate changes and the related impact on net income
over specified periods of time.
The goal of liquidity management is to provide adequate funds to meet
changes in loan and lease demand or any potential unexpected deposit
withdrawals. Additionally, management strives to maximize its earnings by
investing its excess funds in securities and other securitized loan assets with
maturities matching its
385
<PAGE> 407
offsetting liabilities. See the "Selected Loan Maturity and Interest Rate
Sensitivity" and the "Maturity Distribution of Investment Securities" tables.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
Emerald has developed policies and procedures for evaluating the overall
quality of its credit portfolio and the timely identification of potential
problem credits. Emerald reviews the appropriate level for the allowance for
loan losses based on the results of the internal monitoring and reporting
system, analysis of economic conditions in its markets and a review of
historical statistical data for both Emerald and other financial institutions.
Emerald's judgment as to the adequacy of the allowance is based upon a number of
assumptions about future events, which it believes to be reasonable but which
may or may not be valid. Thus, there can be no assurance that charge-offs in
future periods will not exceed the allowance for loan losses or that additional
increases in the allowance for loan losses will not be required. The adequacy of
the allowance for loan losses and the effectiveness of Emerald's monitoring and
analysis system are also reviewed periodically by the banking regulators and
Emerald's independent auditors.
Additions to the allowance for loan losses, which are expensed as the
provision for loan losses on Emerald's income statement, are made periodically
to maintain the allowance at an appropriate level based on management's analysis
of the potential risk in the loan portfolio. Loan losses and recoveries are
charged or credited directly to the allowance. The amount of the provision is a
function of the levels of loans outstanding, the level of nonperforming loans,
historical loan loss experience, the amount of loan losses actually charged
against the reserve during a given period and current and anticipated economic
conditions.
The following table summarizes certain information with respect to
Emerald's allowance for loan losses and the composition of charge-offs and
recoveries for the periods indicated.
SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
PERIODS ENDED
DECEMBER 31,
----------------------
1997 1996
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Allowance for loan losses -- balance at beginning of
period.................................................... $ 70 $ 0
Charge-offs commercial, financial and agricultural.......... 15 0
consumer.................................................. 0 0
------- -------
Total charge-offs................................. 15 0
Recoveries:
Consumer.................................................. 0 0
------- -------
Net charge-offs............................................. 15 0
Addition to allowance charged to operating expense.......... 333 70
------- -------
Allowance for loan losses -- balance at end of period....... $ 388 $ 70
======= =======
Loans at end of period, net of unearned income.............. $37,602 $11,797
Ratio of ending allowance to ending loans................... 1.03% 0.59%
Average loans, net of unearned income....................... $27,093 $ 2,104
Ratio of net charge-offs to average loans................... 0.06% 0.00%
</TABLE>
Emerald has no substantial history of loan losses to use as guidance;
therefore, Emerald has not allocated its allowance for loan losses to specific
loan categories. The bad debt reserve is available to absorb losses in the
entire loan portfolio.
386
<PAGE> 408
The following table presents Emerald's nonperforming assets for the dates
indicated.
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1997 1996
----- -----
(IN THOUSANDS)
<S> <C> <C>
Nonaccrual.................................................. $ 51 $--
Past Due.................................................... 363 39
Restructured................................................ -- --
---- ---
Total............................................. $414 $39
==== ===
</TABLE>
Accrual of interest is discontinued on a loan when management believes,
after considering economic and business conditions and collection efforts, that
the borrower's financial condition is such that the collection of interest is
doubtful. A delinquent loan is generally placed on nonaccrual status when it
becomes 90 days or more past due. When a loan is placed on nonaccrual status,
all interest which has been accrued on the loans but remains unpaid is reserved
and deducted from earnings as a reduction of reported interest income. No
additional interest is accrued on the loan balance until the collection of both
principal and interest becomes reasonably certain. When a problem loan is
finally resolved, there may ultimately be an actual write-down or charge-off of
the principal balance of the loan, which would necessitate additional charges to
earnings.
EARNING ASSETS
Loans. Loans are the largest category of earning assets and typically
provide higher yields than the other types of earning assets. Associated with
the higher loan yields are the inherent credit and liquidity risks which
management attempts to control and counterbalance. Loans averaged $27.1 million
in 1997 compared to $2.1 million in 1996. At December 31, 1997, total loans net
of unearned interest were $37.4 million compared to $11.8 million at December
31, 1996.
DISTRIBUTION OF LOANS BY CATEGORY
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Commercial, financial and agricultural...................... $ 7,600 $ 1,421
Real estate -- construction................................. 12,537 2,605
Real estate -- mortgage..................................... 15,080 6,655
Consumer.................................................... 2,773 1,186
------- -------
Total loans....................................... 37,990 11,867
Allowance for loan losses................................... (388) (70)
------- -------
Net loans................................................... $37,602 $11,797
======= =======
</TABLE>
387
<PAGE> 409
Repayment of loans in the loan portfolio as they mature is also a source of
liquidity for Emerald. The following table sets forth Emerald's loans maturing
within specified intervals at December 31, 1997.
SELECTED LOAN MATURITY AND INTEREST RATE SENSITIVITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
MATURITY RATE STRUCTURE FOR LONAS
----------------------------- MATURING OVER ONE YEAR
OVER ONE ---------------------------
ONE YEAR OVER PREDETERMINED FLOATING OR
YEAR THROUGH FIVE INTEREST ADJUSTABLE
OR LESS FIVE YEARS YEARS TOTAL RATE RATE
------- ---------- ------ ------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and
agriculture....................... $ 3,482 $ 2,704 $1,412 $ 7,598 $ 3,333 $ 783
Real estate -- construction......... 6,146 5,763 627 12,536 5,858 532
Real estate -- mortgage............. 1,958 11,358 1,767 15,083 10,733 2,390
Consumer............................ 1,514 1,249 10 2,773 960 299
------- ------- ------ ------- ------- ------
$13,100 $21,074 $3,816 $37,990 $20,884 $4,004
======= ======= ====== ======= ======= ======
</TABLE>
The information presented in the above table is based on the contractual
maturities of individual loans, including loans which may be subject to renewal
at their contractual maturity. Renewal of such loans is subject to review and
credit approval, as well as modification of terms upon their maturity.
Consequently, management believes this treatment presents fairly the maturity
and repricing structure of the loan portfolio.
Investment Securities. The investment securities portfolio is another
component of Emerald's total earning assets. Total securities averaged $6.0
million in 1997 compared to $646,000 in 1996. At December 31, 1997, the total
securities portfolio was $8.5 million.
The following table sets forth the book value of the securities held by
Emerald at the dates indicated.
INVESTMENT PORTFOLIO
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1997 1996
------ ------
<S> <C> <C>
U.S. Treasury and Government agencies....................... $8,529 $4,439
====== ======
</TABLE>
The following table shows the scheduled maturities and average yields of
securities held at December 31, 1997.
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MATURING
---------------------------------------------------------
AFTER ONE AFTER FIVE
BUT BUT
WITHIN WITHIN FIVE WITHIN TEN AFTER TEN
ONE YEAR YRS. YRS. YRS. TOTAL
----------- ------------- ------------- ----------- -------------
AMT. YLD. AMT. YLD. AMT. YLD. AMT. YLD. AMT. YLD.
---- ---- ------ ---- ------ ---- ---- ---- ------ ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities available for sale:
U.S. Treasury and Government Agencies.............. $899 6.27% $2,742 6.25% $4,888 6.46% -- -- $8,529 6.38%
==== ==== ====== ==== ====== ==== == == ====== ====
</TABLE>
Short-Term Investments. Short-term investments, which consist primarily of
federal funds sold, averaged $546,000 in 1997 compared to $1.3 million in 1996.
These funds are a primary source of Emerald's liquidity and are generally
invested on an overnight basis.
388
<PAGE> 410
DEPOSITS AND OTHER INTEREST-BEARING LIABILITIES
Deposits. Average total deposits increased $26.4 million to $29.1 million
during 1997, from $2.7 million in 1996. All of these deposits are attributable
to the formation of Emerald Bank in 1996.
The following table sets forth the deposits of Emerald by category at the
dates indicated.
AVERAGE DEPOSITS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AVERAGE FOR THE YEAR
---------------------------------------------
1997 1996
--------------------- ---------------------
AVERAGE AVERAGE AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE
OUTSTANDING PAID OUTSTANDING PAID
----------- ------- ----------- -------
<S> <C> <C> <C> <C>
Non-interest bearing demand deposits.................... $ 3,594 -- $ 356 --
Interest bearing demand deposits........................ 12,298 4.28% 1,129 4.43%
Savings deposits........................................ 386 2.85 43 2.33
Time deposits........................................... 16,382 5.72 1,574 5.59
------- ---- ------ ----
Total average deposits........................ $32,660 5.07 $3,102 5.06
======= ==== ====== ====
</TABLE>
Deposits, and particularly core deposits, have been Emerald's primary
source of funding and have enabled Emerald to meet successfully both its
short-term and long-term liquidity needs. Emerald anticipates that such deposits
will continue to be its primary source of funding in the future. Emerald's loan
to deposit ratio was 87.8% at December 31, 1997, compared to 77.3% at December
31, 1996.
The maturity distribution of Emerald's time deposits with balances over
$100,000 at December 31, 1997, is shown in the following table.
MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE
(IN THOUSANDS)
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
- -------------------------------------------
UNDER OVER
3 3-6 6-12 12
MONTHS MONTHS MONTHS MONTHS TOTAL
- ------ ------ ------ ------ -------
<S> <C> <C> <C> <C>
$4,329 $1,975 $3,600 $ 907 $10,811
====== ====== ====== =======
</TABLE>
Approximately 40% of Emerald's time deposits over $100,000 had scheduled
maturities within three months. Although Emerald believes that large
denomination certificate of deposit customers tend to be extremely sensitive to
interest rate levels, making these deposits less reliable sources of funding for
liquidity planning purposes than core deposits, a large percentage of these
deposits are held by insiders (Board members and stockholders) who will more
than likely, leave the funds at Emerald Bank. While some financial institutions
partially fund their balance sheets using large certificates of deposits
obtained through brokers, these broker deposits are generally expensive and are
unreliable as long-term funding sources. Accordingly, Emerald does not actively
buy brokered deposits.
389
<PAGE> 411
The table below represents Emerald's actual regulatory and minimum
regulatory capital requirements at December 31, 1997 (dollars in thousands):
REGULATORY CAPITAL TABLE
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
UNDER
PROMPT
FOR CAPITAL CORRECTIVE
ADEQUACY ACTION
ACTUAL PURPOSES PROVISIONS
-------------- -------------- --------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Capital............................... $5,898 13.55% $3,480 8.00% $4,350 10.00%
(to Risk Weighted Assets)
Tier 1 Capital.............................. 5,510 12.67 1,740 4.00 2,610 6.00
(to Risk Weighted Assets)
Tier 1 Capital.............................. 5,510 10.53 2,094 4.00 2,617 5.00
(to Average Assets)
</TABLE>
IMPACT OF INFLATION
Unlike most industrial companies, the assets and liabilities of financial
institutions such as Emerald and its subsidiaries are primarily monetary in
nature. Therefore, interest rates have a more significant effect on Emerald's
performance than do the effects of changes in the general rate of inflation and
changes in prices. In addition, interest rates do not necessarily move in the
same direction or in the same magnitude as the prices of goods and services.
Management seeks to manage the relationships between interest sensitive assets
and liabilities in order to protect against wide interest rate fluctuations,
including those resulting from inflation.
REGULATORY MATTERS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general purpose 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 with the same prominence as other financial statements. The statement
is effective for fiscal years beginning after December 15, 1997. Management
intends to comply with this standard in 1998.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." This statement establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
This statement is effective for financial statements for periods beginning after
December 15, 1997. Emerald intends to comply with this standard in 1998.
390
<PAGE> 412
BUSINESS OF EMERALD
Emerald Coast Bank was formed on August 30, 1996, and opened for business
on August 31, 1996, with three locations in Panama City Beach, Destin and
Seagrove, Florida. Each of these branches operated in a temporary facility until
completion of the permanent branch buildings in the summer and fall of 1997.
Emerald Coast Bank opened its fourth branch at Bay Point Resort in Panama City
in June of 1997 and plans to open two to four branches in the next two years.
All future Emerald branches will be located within Emerald Cost Bank's existing
market areas as this area, one of the fastest growing in the State of Florida,
is expected to continue to experience rapid growth with the development of large
amounts of acreage formerly owned by the St. Joe Paper Company which is now
under development for residential purposes. Emerald was formed in 1997 for the
purpose of acquiring Emerald Coast Bank. The shareholders of Emerald are
identical to the original shareholders of Emerald Coast Bank. Emerald is
currently a one bank holding company which also owns Emerald Coast Financial
Management, Inc., an entity formed for the purpose of selling investments and
insurance to the bank's customers and others. In September 1998, the directors
of Emerald determined that a savings association/thrift charter was desirable as
opposed to the existing bank charter for two primary reasons. First, Emerald
Coast Bank was less than three years old and could not be acquired by an out of
state bank holding company such as the Corporation until August 31, 1999. A
federally-chartered thrift does not fall within such guidelines. Second, a
thrift charter provides greater branching capabilities within and outside the
State of Florida and allows for more services to be offered to the bank's
customers.
BANKING ACTIVITIES
Emerald Coast Bank is an independent, full service, locally owned financial
institution and was chartered by local business leaders. Accordingly, the bank's
purpose is to be community oriented and focus on customers within Emerald's
market areas. Emerald currently offers various savings accounts, interest and
non-interest bearing checking accounts for consumers and commercial customers,
including NOW accounts, money market checking accounts and certificates of
deposit. Emerald is also very active in marketing its IRA products as the
retiree population in the panhandle of Florida continues to increase.
Emerald also offers a full line of consumer and commercial loan products.
The bank originates both consumer and commercial mortgage loans, lines of
credit, SBA loans and unsecured consumer loans. Most of the commercial loan
portfolio is secured by real estate or some other form of collateral or is
guaranteed by the principals of the borrower.
MARKET AREA
The Emerald Coast Bank branches comprise a clearly defined market
penetration from Panama City to Destin, a sixty mile corridor along the gulf
coast, that is a rapidly growing real estate region. The bank focuses on small
and professional business, real estate developers and restaurateurs. Retired
individuals also make up a significant part of Emerald Coast Bank's target
customer base.
PROPERTIES AND EMPLOYEES
Emerald Coast Bank leases each of its branch facilities and plans to
continue to lease future locations as they are opened. Emerald currently has 47
full-time equivalent employees, the majority of whom are located in the main
office in Panama City Beach.
COMPETITION
The Emerald Coast banking environment will continue to be very competitive
for the foreseeable future. Major out of state bank holding companies actively
seek loans and deposits through their presence along the gulf coast. The bank's
primary competition is a large independently owned thrift based in Panama City.
Emerald has actually transferred certain larger loans to this thrift because of
their increased asset size. After the Mergers, these loans will be participated
with The Bank and will offer Emerald the critical mass needed to effectively
compete in the gulf coast market. Because of the large military presence in the
bank's market areas, Emerald also faces significant competition from credit
unions who are able to offer lower consumer interest rates to its members.
391
<PAGE> 413
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- CBS
BASIS OF PRESENTATION
The following provides a narrative discussion and analysis of significant
changes in CBS' results of operations and financial condition. This discussion
should be read in conjunction with the consolidated statements and the
supplemental financial data included elsewhere in this Prospectus-Joint Proxy
Statement.
Certain of the information included in this discussion contains
forward-looking statements and information that are based on management's belief
as well as certain assumptions made by, and information currently available to
management. Specifically, Management's Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking statements with
respect to the adequacy of the allowance for loan losses; the effect of legal
proceedings on CBS' financial condition, results of operations and liquidity;
Year 2000 compliance issues and market risk disclosures. The risks and
uncertainties that may affect operations, performance, growth projections and
the results of CBS' business include, but are not limited to, fluctuations in
the economy, the relative strength and weakness in the commercial and consumer
credit sector and in the real estate market, the actions taken by the Federal
Reserve for the purpose of managing the economy, interest rate movements, the
impact of competitive products, services and pricing, timely development by CBS
of technology enhancements for its products and operating systems, legislation
and similar matters. Although management of CBS believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to be correct. Such forward-looking
statements are subject to certain risks, uncertainties and assumptions. Should
one or more of these risks materialize, or should any such underlying
assumptions prove to be significantly different, actual results may vary
materially from those anticipated, estimated, projected or expected.
YEAR 2000 COMPLIANCE
CBS has established a task force to review all computer-based systems and
applications and develop an action plan to ensure that its computer and
information systems will function properly in the Year 2000. This plan, which
has been approved by the Board of Directors and management, includes CBS'
approach to having all systems and applications changed for the Year 2000 by
December 31, 1998, with final testing to take place during 1999. At this time,
management believes that implementation of its Year 2000 action plan will not
materially affect CBS' operations in the future. Management does not expect the
costs of achieving Year 2000 compliance to have a material adverse effect on
CBS' consolidated financial statements.
Because of the nature of operations, the external customers of CBS would be
considered its borrowers. CBS is in the process of identifying customers that it
deems to present a material risk to the continued operations of the institution.
The individual potential risk presented by these customers and their strategies
for addressing the Year 2000 issue will be evaluated. The risk is somewhat
diminished in light of the fact that CBS' loan portfolio is primarily secured by
asset-based collateral where the fair market value of such property is typically
equal to or greater than the outstanding loan balance. CBS' Year 2000 plan
establishes underwriting standards for Year 2000 compliance for borrowers. CBS
is in the process of revising its loan document forms and underwriting
procedures to encompass Year 2000 compliance criteria and review.
RESULTS OF OPERATIONS
Six months ended June 30, 1998, compared with six months ended June 30, 1997
Net income decreased $63,000, or 18.9% to $270,000 for the six months ended
June 30, 1998, from $333,000 for the same period in 1997. Return on average
assets for the period ended June 30, 1998, was 1.28% compared to 1.56% for the
six months ended June 30, 1997, and the return on average equity was 8.61% for
the six months ended June 30, 1998, compared to 10.89% for the corresponding
period in 1997.
392
<PAGE> 414
Net interest income decreased $106,000, or 11.4% to $825,000 for the period
ended June 30, 1998, from $931,000 for the same period in 1997, as interest
income decreased $85,000 and interest expense increased $21,000. The decrease in
net interest income is attributable to a decrease in outstanding loans.
The provision for loan losses was $69,000 for the six month period ended
June 30, 1998, compared to $62,000 for the six month period ended June 30, 1997.
This increase is attributable to an increase in loan volume and management's
prudent decision to increase the allowance based on the quality of the loan
portfolio.
Noninterest income was $491,000 for the period ended June 30, 1998,
compared to $509,000 for the same period in 1997. The decrease in noninterest
income is primarily due to a decrease in fee income. Noninterest expenses
decreased $1,000 to $889,000 for the period ended June 30, 1998 from $890,000
for the six months ended June 30, 1997.
Income tax expense was $88,000 for the six month period ended June 30,
1998, compared to $155,000 for the six month period ended June 30, 1997. The
effective tax rate was 24.6% and 31.8% for the respective periods.
Year Ended December 31, 1997, compared with years ended December 31, 1996 and
1995
CBS' net income decreased $92,000, or 23.0% to $308,000 in 1997 from
$400,000 in 1996, which increased .5% from $398,000 in 1995. The decrease in
1997 is primarily the result of an increase in the loan loss provision. In 1996,
CBS was able to offset an increase in the loan loss provision with a decrease in
noninterest expense. Return on average assets in 1997 was .71%, compared to .90%
in 1996 and .92% in 1995. Return on average equity was 5.12% in 1997 compared to
7.09% in 1996 and 7.01% in 1995.
Net interest income increased $51,000, or 2.90% to $1.807 million in 1997
from $1.756 million in 1996, which increased $112,000, or 6.8% from 1995.
Average earning assets decreased $383,000, or .91% in 1997 from $41.875 million
in 1996, which increased 1.54% from $41.241 million in 1995.
The provision for loan losses was $401,000 in 1997, compared to $201,000 in
1996 and $33,000 in 1995. While asset quality and loan loss experience has
improved, CBS' allowance for loan losses as a percentage of its loans was 2.32%
at December 31, 1997, compared to .55% at December 31, 1996, and .61% at
December 31, 1995. The allowance for loan losses as a percentage of period end
nonperforming loans was 244.87% at December 31, 1997, compared to 40.89% at
December 31, 1996, and 231.43% at December 31, 1995. CBS had net charge-offs of
$111,000 in 1997, resulting in a ratio of net charge-offs to average loans of
.62%. This compares to $190,000 and 1.28% in 1996. CBS had net charge-offs in
1995 of $22,000, which was .17% of average loans.
Noninterest income decreased $75,000, or 7.1% to $980,000 in 1997 from
$1,055,000 in 1996, which decreased $94,000, or 8.2% from $1,149,000 in 1995.
The decreases are attributable to decreases in fee income.
Noninterest expense decreased $64,000, or 3.1% to $2,009,000 in 1997 from
$2,073,000 in 1996, which decreased $133,000, or 6.0% from $2,206,000 in 1995.
The decreases are attributable to management's attempt to clean up its loan
portfolio and tighten control on its operations.
NET INTEREST INCOME
The largest component of CBS' net income is its net interest income, which
is the difference between the income earned on assets and interest paid on
deposits and borrowings used in support of such assets. Net interest income is
determined by the rates earned on CBS' interest earning assets and the rates
paid on its interest-bearing liabilities, the relative amounts of
interest-earning assets and interest-bearing liabilities, and the degree of
mismatch and the maturity and repricing characteristics of its interest-earning
assets and interest-bearing liabilities. Net interest income divided by average
interest-earning assets represents CBS' net interest margin.
393
<PAGE> 415
Average Balances, Income, Expenses and Rates. The following tables depict,
on a tax-equivalent basis for the periods indicated, certain information related
to CBS' average balance sheet and its average yields on assets and average costs
of liabilities. Such yields are derived by dividing income or expense by the
average balance of the corresponding assets or liabilities. Average balances
have been derived from quarterly averages.
CONSOLIDATED AVERAGE BALANCES, INTEREST INCOME/EXPENSE AND YIELD/RATES
TAXABLE EQUIVALENT BASIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------
1997 1996 1995
-------------------------- -------------------------- --------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------- ------- ------ ------- ------- ------ ------- ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Loans, net of unearned
income(1)..................... $17,961 1,753 9.76% $14,864 1,535 10.33% $13,266 1,347 10.15%
Investment securities
Taxable....................... 18,047 1,070 5.93 31,890 1,276 5.83 22,771 1,436 6.31
Tax-exempt.................... 2,823 238 8.43 2,476 226 9.12 1,971 162 8.23
------- ------- ------- ------- ------- -------
Total investment
securities............. 20,870 1,308 6.27 24,366 1,502 6.16 24,742 1,598 6.46
Federal funds sold....... 1,852 99 5.35 993 57 5.74 1,583 91 5.75
Other investments................. 809 35 4.33 1,652 78 4.72 1,650 76 4.61
------- ------- ------- ------- ------- -------
Total interest-earning
assets(2).............. 41,492 3,195 7.70 41,875 3,172 7.57 41,241 3,112 7.55
Non interest-earning assets:
Cash and due from banks......... 1,232 1,298 1,025
Premises and equipment.......... 384 253 122
Accrued interest and other
assets........................ 601 1,331 941
Allowance for loan losses....... (382) (92) (81)
------- ------- -------
Total assets............. $43,327 $44,665 $43,248
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Demand deposits................. $11,009 372 3.38% $11,668 406 3.48% $12,592 485 3.85%
Savings deposits................ 1,979 54 2.73 2,004 55 2.74 2,020 65 3.22
Time deposits................... 16,594 878 5.29 18,397 878 4.77 16,366 863 5.27
------- ------- ------- ------- ------- -------
Total interest-bearing
deposits............... 29,582 1,304 4.41 32,069 1,339 4.18 30,978 1,413 4.56
Federal funds purchased......... 51 3 5.88 -- -- -- -- --
------- ------- ------- ------- ------- -------
Total interest-bearing
liabilities............ 29,633 1,307 4.41 32,069 1,339 4.18 30,978 1,413 4.56
Non-interest bearing liabilities
Demand deposits................. 7,285 6,474 6,167
Accrued interest and other
liabilities................... 388 477 423
Shareholders' equity.............. 6,021 5,645 5,680
------- ------- -------
Total liabilities and
shareholders' equity... $43,327 $44,665 $43,248
======= ======= =======
Net interest income/net interest
spread.......................... 1,888 3.29% 1,833 3.39% 1,699 2.98%
====== ====== ======
Net yield on earning assets....... 4.55% 4.38% 4.12%
====== ====== ======
Taxable equivalent adjustment:
Investment securities........... 81 77 55
------- ------- -------
Net interest income............. $1,807 $1,756 $1,644
======= ======= =======
</TABLE>
- ---------------
(1) Average loans include nonaccrual loans. All loans and deposits are domestic.
(2) Tax equivalent adjustments have been based on an assumed tax rate of 34
percent, and do not give effect to the disallowance for federal income tax
purpose of interest expense related to certain tax-exempt earnings assets.
394
<PAGE> 416
RATE/VOLUME VARIANCE ANALYSIS
TAXABLE EQUIVALENT BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AVERAGE VOLUME CHANGE IN VOLUME AVERAGE RATE
--------------------------- --------------------- ----------------------
1997 1996 1995 1997-1996 1996-1995 1997 1996 1995
------- ------- ------- --------- --------- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EARNING ASSETS:
Loans, net of unearned
income..................... $17,961 $14,864 $13,266 $ 3,097 $1,598 9.76% 10.33% 10.15%
Investment securities
Taxable.................... 18,047 21,890 22,771 (3,843) (881) 5.93 5.83 6.31
Tax-exempt................. 2,823 2,476 1,971 347 505 8.43 9.12 8.23
------- ------- ------- ------- ------
Total investment
securities......... 20,870 24,366 24,742 (3,496) (376) 6.27 6.16 6.46
Federal funds sold.......... 1,852 993 1,583 859 (590) 5.35 5.74 5.75
Other investments........... 809 1,652 1,650 (843) 2 4.33 4.72 4.61
------- ------- ------- ------- ------
Total earning
assets............. $41,492 $41,875 $41,241 $ (383) $ 634 7.70 7.57 7.55
======= ======= ======= ======= ======
INTEREST-BEARING
LIABILITIES:
Deposits:
Demand..................... $11,009 $11,668 $12,592 $ (659) $ (924) 3.38 3.48 3.85
Savings.................... 1,979 2,004 2,020 (25) (16) 2.73 2.74 3.22
Time....................... 16,594 18,397 16,366 (1,803) 2,031 5.29 4.77 5.27
------- ------- ------- ------- ------
Total
interest-bearing
liabilities........ 29,582 32,069 30,978 (2,487) 1,091 4.41 4.18 4.56
Federal funds purchased.... 51 -- -- 51 -- 5.88 -- --
------- ------- ------- ------- ------
Total
interest-bearing
liabilities........ 29,633 32,069 30,978 (2,436) 1,091 4.41 4.18 4.56
======= ======= ======= ======= ======
Net interest income/net
interest spread............ 3.29% 3.39% 2.98%
==== ===== =====
Net yield on earning
assets..................... 4.55% 4.38% 4.12%
==== ===== =====
Net cost of funds........... 3.15% 3.19% 3.43%
==== ===== =====
<CAPTION>
VARIANCE ATTRIBUTED TO(1)
-------------------------------
INTEREST INCOME/EXPENSE VARIANCE 1997 1996
------------------------ --------------------- -------------- --------------
1997 1996 1995 1997-1996 1996-1995 VOLUME RATE VOLUME RATE
------ ------ ------ --------- --------- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EARNING ASSETS:
Loans, net of unearned
income..................... $1,753 $1,535 $1,347 $ 218 $ 188 $ 303 $ (85) $165 $ 23
Investment securities
Taxable.................... 1,070 1,276 1,436 (206) (160) (228) 22 (52) (108)
Tax-exempt................. 238 226 162 12 64 29 (17) 46 18
------ ------ ------ ----- ----- ----- ----- ---- -----
Total investment
securities......... 1,308 1,502 1,598 (194) (96) (199) 5 (6) (90)
Federal funds sold.......... 99 57 91 42 (34) 46 (4) (34) --
Other investments........... 35 78 76 (43) 2 (37) (6) -- 2
------ ------ ------ ----- ----- ----- ----- ---- -----
Total earning
assets............. 3,195 3,172 3,112 23 60 113 (90) 125 (65)
INTEREST-BEARING
LIABILITIES:
Deposits:
Demand..................... 372 406 485 (34) (79) (23) (11) (32) (47)
Savings.................... 54 55 65 (1) (10) (1) -- -- (10)
Time....................... 878 878 863 -- 15 (86) 86 98 (83)
------ ------ ------ ----- ----- ----- ----- ---- -----
Total
interest-bearing
liabilities........ 1,304 1,339 1,413 (35) (74) (110) 75 66 (140)
Federal funds purchased.... 3 -- -- 3 -- -- 3 -- --
------ ------ ------ ----- ----- ----- ----- ---- -----
Total
interest-bearing
liabilities........ 1,307 1,339 1,413 (32) (74) (110) 78 66 (140)
------ ------ ------ ----- ----- ----- ----- ---- -----
Net interest income/net
interest spread............ $1,888 $1,833 $1,699 $ 55 $ 134 $ 223 $(168) $ 59 $ 75
====== ====== ====== ===== ===== ===== ===== ==== =====
Net yield on earning
assets.....................
Net cost of funds...........
</TABLE>
(1) The change in interest due to both rate and volume has been allocated to
volume and rate changes in proportion to the relationship of the absolute
dollar amounts of the changes in each.
395
<PAGE> 417
Interest Sensitivity. CBS monitors and manages the pricing and maturity of
its assets and liabilities in order to diminish the potential adverse impact
that changes in interest rates could have on net interest income. The principal
monitoring technique employed by CBS is the measurement of CBS' interest rate
sensitivity "gap," which is the positive or negative dollar difference between
assets and liabilities that are subject to interest rate repricing within a
given period of time. The objective of CBS' Asset/Liability Management (ALM)
function is to maintain a consistent level of net interest income in a rising,
falling or static interest rate environment. ALM monitors the pricing of both
interest earning assets and interest bearing liabilities and the maturities of
each. Interest rate sensitivity can be managed by repricing assets or
liabilities, selling securities available-for-sale, replacing an asset or
liability at maturity or by adjusting the interest rates during the life of an
asset or liability.
CBS evaluates interest rate sensitivity risk and then formulates guidelines
regarding asset generation and repricing, funding sources and pricing and
off-balance sheet commitments in order to decrease interest rate sensitivity
risk. CBS uses computer simulations to measure the net income effect of various
interest rate scenarios. The modeling reflects interest rate changes and the
related impact on net income over specified periods of time.
The goal of liquidity management is to provide adequate funds to meet
changes in loan demand or any potential unexpected deposit withdrawals.
Additionally, management strives to maximize its earnings by investing its
excess funds in securities and other securitized loan assets with maturities
matching its offsetting liabilities.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
CBS has developed policies and procedures for evaluating the overall
quality of its credit portfolio and the timely identification of potential
problem credits. Management reviews the appropriate level for the allowance for
loan losses based on the results of the internal monitoring and reporting
system, analysis of economic conditions in its markets, and a review of
historical statistical data for both the Corporation and other financial
institutions. Management's judgment as to the adequacy of the allowance is based
upon a number of assumptions about future events, which it believes to be
reasonable but which may or may not be valid. Thus, there can be no assurance
that charge-offs in future periods will not exceed the allowance for loan losses
or that additional increases in the allowance for loan losses will not be
required. The adequacy of the allowance for loan losses and the effectiveness of
CBS' monitoring and analysis system are also reviewed periodically by the
banking regulators and CBS independent auditors.
Additions to the allowance for loan losses, which are expensed as the
provision for loan losses on CBS' income statement, are made periodically to
maintain the allowance at an appropriate level based on management's analysis of
the potential risk in the loan portfolio. Loan losses and recoveries are charged
or credited directly to the allowance. The amount of the provision is a function
of the levels of loans outstanding, the level of nonperforming loans, historical
loan loss experience, the amount of loan losses actually charged against the
reserve during a given period, and current and anticipated economic conditions.
396
<PAGE> 418
The following table summarizes certain information with respect to CBS'
allowance for loan losses and the composition of charge-offs and recoveries for
the periods indicated.
SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Allowance for loan losses -- balance at
beginning of period........................ $ 92 $ 81 $ 70 $ 70 $ 70
Charge-offs:
Commercial, financial and agricultural..... 32 114 5 6 24
Real estate-mortgage....................... -- 8 -- -- --
Consumer................................... 110 103 46 52 63
------- ------- ------- ------- -------
Total charge-offs.................. 142 225 51 58 87
Recoveries:
Commercial, financial and agricultural..... 2 7 4 5 16
Real estate-mortgage....................... 1 1 1 -- 1
Consumer................................... 28 27 24 40 29
------- ------- ------- ------- -------
Total recoveries................... 31 35 29 45 46
------- ------- ------- ------- -------
Net charge-offs.............................. 111 190 22 13 41
Addition to allowance charged to operating
expense.................................... 401 201 33 13 41
------- ------- ------- ------- -------
Allowance for loan losses -- balance at end
of period.................................. $ 382 $ 92 $ 81 $ 70 $ 70
======= ======= ======= ======= =======
Loans at end of period, net of unearned
income..................................... $16,453 $16,818 $13,345 $11,822 $11,934
Ratio of ending allowance to ending loans.... 2.32% 0.55% 0.61% 0.59% 0.59%
Average loans, net of unearned income........ $17,961 $14,864 $13,266 $11,894 $12,181
Ratio of net charge-offs to average loans.... 0.62% 1.28% 0.17% 0.11% 0.34%
</TABLE>
Allocation of Allowance. CBS historically has allocated its allowance for
loan losses to specific loan categories. Although the allowance is allocated, it
is available to absorb losses in the entire loan portfolio.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
----------------- ----------------- ----------------- ----------------- -----------------
PERCENT PERCENT PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Domestic
Commercial, financial and
agricultural.............. $ 73 19% $27 30% $25 31% $32 46% $38 54%
Real estate -- construction. 4 1 1 1 1 1 0 0 -- 0
Real estate -- mortgage..... 210 55 40 43 34 42 20 28 17 24
Consumer.................... 95 25 24 26 21 26 18 26 15 22
---- --- --- --- --- --- --- --- --- ---
$382 100% $92 100% $81 100% $70 100% $70 100%
==== === === === === === === === === ===
</TABLE>
Nonperforming Assets. The following table presents CBS' nonperforming
assets for the dates indicated.
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Nonaccrual.................................................. $ -- $ -- $-- $-- $--
Past Due.................................................... 156 225 35 62 40
Restructured................................................ -- -- -- -- --
---- ---- --- --- ---
Total............................................. $156 $225 $35 $62 $40
==== ==== === === ===
</TABLE>
397
<PAGE> 419
Accrual of interest is discontinued on a loan when management believes,
after considering economic and business conditions and collection efforts, that
the borrower's financial condition is such that the collection of interest is
doubtful. A delinquent loan is generally placed on nonaccrual status when it
becomes 90 days or more past due. When a loan is placed on nonaccrual status,
all interest which has been accrued on the loan but remains unpaid is reserved
and deducted from earnings as a reduction of reported interest income. No
additional interest is accrued on the loan balance until the collection of both
principal and interest becomes reasonably certain. When a problem loan is
finally resolved, there may ultimately be an actual write-down or charge-off of
the principal balance of the loan, which would necessitate additional charges to
earnings.
EARNING ASSETS
Loans. Loans are the largest category of earning assets and typically
provide higher yields than the other types of earning assets. Associated with
the higher loan yields are the inherent credit and liquidity risks which
management attempts to control and counterbalance. Loans averaged $18.0 million
in 1997 compared to $14.9 million in 1996 and $13.3 million in 1995. At December
31, 1997, total loans net of unearned interest were $16.5 million compared to
$16.8 million at December 31, 1996, and $13.3 million at December 31, 1995.
DISTRIBUTION OF LOANS BY CATEGORY
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural....... $ 3,151 $ 4,989 $ 4,067 $ 5,510 $ 6,479
Real estate -- construction.................. 167 221 82 58 --
Real estate -- mortgage...................... 8,971 7,067 5,637 3,292 2,900
Consumer..................................... 4,017 4,338 3,483 3,034 2,554
Other loans.................................. 147 223 205 51 88
------- ------- ------- ------- -------
Total loans........................ 16,453 16,838 13,474 11,945 12,021
Unearned income.............................. -- (20) (129) (123) (87)
Allowance for loan losses.................... (382) (92) (81) (70) (70)
------- ------- ------- ------- -------
Net loans.......................... $16,071 $16,726 $13,264 $11,752 $11,864
======= ======= ======= ======= =======
</TABLE>
The repayment of loans in the loan portfolio as they mature is also a
source of liquidity for CBS. The following table sets forth CBS' loans maturing
within specified intervals at December 31, 1997.
SELECTED LOAN MATURITY AND INTEREST RATE SENSITIVITY
<TABLE>
<CAPTION>
RATE STRUCTURE FOR LOANS
MATURITY MATURING OVER ONE YEAR
---------------------------------------------- ---------------------------
OVER ONE PREDETERMINED FLOATING OR
ONE YEAR YEAR THROUGH OVER INTEREST ADJUSTABLE
OR LESS FIVE YEARS FIVE YEARS TOTAL RATE RATE
-------- ------------ ---------- ------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Loans................................. $ 5,751 $ 5,964 $4,783 $16,453 $10,723 $ --
</TABLE>
The information presented in the above table is based on the contractual
maturities of the individual loans, including loans, which may be subject to
renewal at their contractual maturity. Renewal of such loans is subject to
review and credit approval, as well as modification of terms upon their
maturity. Consequently, management believes this treatment presents fairly the
maturity and repricing structure of the loan portfolio.
Investment Securities. The investment securities portfolio is a
significant component of CBS' total earning assets. Total securities averaged
$20.9 million in 1997, compared to $24.4 million in 1996 and $24.7 million in
1995. At December 31, 1997, the total securities portfolio was $18.7 million.
398
<PAGE> 420
The following table sets forth the book value of the securities held by CBS
at the dates indicated.
INVESTMENT PORTFOLIO
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
U.S. Treasury and U.S. Government agencies.................. $14,924 $17,658 $19,448
State and political subdivisions............................ 3,025 3,405 3,065
Other investments........................................... 752 851 1,274
------- ------- -------
Total investment securities....................... $18,701 $21,914 $23,787
======= ======= =======
</TABLE>
The following table shows the scheduled maturities and average yields of
securities held at December 31, 1997.
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES
<TABLE>
<CAPTION>
MATURING
-----------------------------------------------------------------------------------
AFTER ONE BUT AFTER FIVE BUT
WITHIN ONE WITHIN FIVE WITHIN TEN AFTER TEN
YEAR YEARS YEARS YEARS TOTAL
-------------- -------------- -------------- -------------- ---------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ------ ----- ------ ----- ------ ----- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities available for sale:
U.S. Treasury and Government
Agencies.......................... $ 200 6.20% $ 747 6.20% $ -- -- $ -- -- $ 947 6.20%
State and political subdivision..... -- -- -- -- 100 4.85% 95 6.57% 195 5.71
Securities held to maturity:
U.S. Treasury and Government
Agencies.......................... 3,932 5.65 6,488 6.26 1,109 6.25 2,448 6.50 13,977 6.22
State and political subdivision..... 297 6.33 1,843 5.14 630 5.18 60 9.00 2,830 5.36
Other securities.................... 122 7.73 440 7.59 190 8.68 -- -- 752 7.89
------ ------ ------ ------ -------
Total securities............. $4,551 5.77% $9,518 6.10% $2,029 6.08% $2,603 6.56% $18,701 6.15%
====== ====== ====== ====== =======
</TABLE>
Short-Term Investments. Short-term investments, which consist primarily of
federal funds sold averaged $1,852,000 in 1997, compared to $993,000 in 1996 and
$1,583,000 in 1995. These funds are a primary source of CBS' liquidity and are
generally invested on an overnight basis.
DEPOSITS AND OTHER INTEREST-BEARING LIABILITIES
Deposits. Average total deposits decreased $1.6 million, or 4.2% to $36.9
million during 1997, from $38.5 million in 1996. Average total deposits
increased $1.4 million, or 3.8% in 1996, from $37.1 million in 1995. These
increases are a direct result of management's desire to fund its loan growth
with time deposits.
The following table sets forth the deposits of CBS by category at the dates
indicated.
AVERAGE DEPOSITS
<TABLE>
<CAPTION>
AVERAGE FOR THE YEAR
---------------------------------------------------------------------
1997 1996 1995
--------------------- --------------------- ---------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE AMOUNT RATE
OUTSTANDING PAID OUTSTANDING PAID OUTSTANDING PAID
----------- ------- ----------- ------- ----------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing demand deposits... $ 7,285 -- $ 6,474 -- $ 6,167 --
Interest bearing demand deposits....... 11,009 3.38% 11,668 3.48% 12,592 3.85%
Savings deposits....................... 1,979 2.73 2,004 2.74 2,020 3.22
Time deposits.......................... 16,594 5.29 18,397 4.77 16,366 5.27
------- ------- -------
Total average deposits....... $36,867 4.41% $38,543 4.18% $37,145 4.56%
======= ======= =======
</TABLE>
399
<PAGE> 421
Deposits, particularly core deposits, have historically been CBS' primary
source of funding and have enabled CBS to meet successfully both its short-term
and long-term liquidity needs. Management anticipates that such deposits will
continue to be CBS' primary source of funding in the future. CBS' loan to
deposit ratio was 46.7% at December 31, 1997, compared to 46.3% at December 31,
1996. The maturity distribution of CBS' time deposits over $100,000 at December
31, 1997, is shown in the following table.
MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
------------------------------------------
UNDER OVER
3 3-6 6-12 12
MONTHS MONTHS MONTHS MONTHS TOTAL
------ ------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
$1,545 $306 $1,163 $208 $3,222
====== ==== ====== ==== ======
</TABLE>
Approximately 48% of CBS' time deposits over $100,000 had scheduled
maturities within three months. Large certificates of deposit customers tend to
be extremely sensitive to interest rate levels, making these deposits less
reliable sources of funding for liquidity planning purposes than core deposits.
Some financial institutions partially fund their balance sheets using large
certificates of deposits obtained through brokers. These broker deposits are
generally expensive and are unreliable as long-term funding sources. CBS does
not currently buy brokered deposits.
IMPACT OF INFLATION
Unlike most industrial companies, the assets and liabilities of financial
institutions such as CBS and its subsidiaries are primarily monetary in nature.
Therefore, interest rates have a more significant effect on CBS' performance
than do the effects of changes in the general rate of inflation and change in
prices. In addition, interest rates do not necessarily move in the same
direction or in the same magnitude as the prices of goods and services.
Management seeks to manage the relationships between interest sensitive assets
and liabilities in order to protect against wide interest rate fluctuations,
including those resulting from inflation.
REGULATORY MATTERS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general purpose 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 with the same prominence as other financial statements. The statement
is effective for fiscal years beginning after December 15, 1997. Management
intends to comply with this standard in 1998.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." This statement establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
This statement is effective for financial statements for periods beginning after
December 15, 1997. Management intends to comply with this standard in 1998.
400
<PAGE> 422
BUSINESS OF CBS
GENERAL
CBS is a bank holding company that was organized as a Delaware corporation
on November 29, 1984 for the purpose of acquiring all of the outstanding capital
stock of Commercial Bank of Roanoke ("Commercial Bank"). Commercial Bank is a
subsidiary of CBS along with Commercial Bancshares Services, Inc., located in
Birmingham, Alabama, which performs data processing for Commercial Bank and
other banks.
Substantially all of the income of CBS is derived from dividends received
from Commercial Bank. The amount of these dividends is directly related to
expenses incurred by Commercial Bank and is subject to various regulatory
restrictions. As of June 30, 1998, CBS had total consolidated assets of
approximately $42.4 million, total consolidated loans of approximately $14.6
million, total consolidated deposits of approximately $35.7 million, and total
consolidated shareholders' equity of approximately $6.4 million.
THE COMMERCIAL BANK OF ROANOKE
Commercial Bank was founded in 1931. Commercial Bank is an Alabama bank and
is regulated by the Alabama Banking Department and the FDIC. It provides banking
services primarily to the residents of Randolph County, Alabama. Commercial Bank
attempts to attract business from customers who like to conduct banking business
with a local financial institution which provides a high level of personal
service and responsiveness and a demonstrated commitment to the local community.
Commercial Bank offers a wide range of banking services to individuals and
businesses located in its primary service area. Commercial Bank is actively
engaged in the business of seeking deposits from the public and making real
estate, commercial and consumer loans. Commercial Bank offers a variety of
deposit accounts to its individual and commercial customers, as well as related
banking services. These services include interest bearing checking accounts,
savings accounts, certificates of deposit, commercial checking accounts,
individual retirement accounts, safe deposit boxes, bank-by-mail service,
drive-up teller service, draft collection and direct deposit. The bank does not
offer trust services.
Commercial Bank's principal sources of income are interest on loans and
investments and service fees. Its principal expenses are interest paid on
deposits and general operating expenses.
PRIMARY SERVICE AREA
Commercial Bank's primary service area is Randolph County, Alabama.
Randolph County has a population of approximately 20,000.
OFFICES
The corporate offices of CBS and the main banking office of Commercial Bank
are located at 548 Main Street, Roanoke, in a two-story building owned by
Commercial Bank. In addition to its main banking office, Commercial Bank
operates a walk-up branch at one other location in Roanoke.
COMPETITION
All phases of Commercial Bank's business are highly competitive. Commercial
Bank competes with other commercial banks, credit unions and savings and loan
associations, many of which have assets, capital and lending limits larger than
Commercial Bank. Commercial Bank is one of 5 commercial banks that have a total
of 10 offices located within Randolph County. Commercial Bank, along with other
commercial banks, also competes with respect to its lending activities, as well
as in attracting demand deposits, with savings banks, savings and loan
associations, insurance companies, regulated small loan companies, credit unions
and with the issuers of commercial paper and other securities, such as money
market funds. Among the advantages larger institutions have over Commercial Bank
are their ability to finance wide ranging advertising campaigns and to allocate
their investment assets to products of highest yields and demand. By virtue of
their
401
<PAGE> 423
greater total capital, such institutions have substantially higher lending
limits than Commercial Bank (legal lending limits to an individual customer
being limited to a percentage of a bank's total capital accounts).
EMPLOYEES
Commercial Bank has 18 full-time employees.
LEGAL PROCEEDINGS
Neither CBS nor Commercial Bank is a party to any material pending legal
proceedings, other than routine litigation incidental to its banking business.
402
<PAGE> 424
COMPARISON OF STOCKHOLDERS' RIGHTS
COMPARISON OF RIGHTS OF COMMERCE SHAREHOLDERS AND CORPORATION STOCKHOLDERS
Commerce is incorporated in Alabama and the Corporation is incorporated in
Delaware. Holders of the Commerce Common Stock will have their rights and
obligations as stockholders of the Corporation after the Merger governed by
Delaware law. Set forth below is a summary comparison of the material rights of
a Corporation stockholder under the Corporation Restated Certificate and the
Corporation Bylaws, on the one hand, and the rights of a Commerce shareholder
under the Commerce Articles of Incorporation, as amended (the "Commerce
Articles"), and the Commerce Bylaws (the "Commerce Bylaws"), on the other hand.
The information set forth below is qualified in its entirety by reference to the
Corporation Restated Certificate, the Corporation Bylaws, the Commerce Articles
and the Commerce Bylaws.
Classes and Series of Capital Stock
Commerce. There are 20,000,000 shares of Commerce Common Stock, par value
$.01 per share, authorized, 658,190 of which are issued and outstanding, and
38,500 of which are subject to issue pursuant to benefit plans.
The Corporation. The Corporation is authorized by the Corporation Restated
Certificate to issue up to 30,000,000 shares of capital stock, of which
25,000,000 shares are designated Common Stock, par value $.001 per share, and
5,000,000 shares are designated Preferred Stock, par value $.001 per share
("Corporation Preferred Stock"). As of September 30, 1998, there were 5,448,000
shares of Corporation Common Stock outstanding. In addition, 1,000,000 shares of
Corporation Common Stock have been reserved for future option grants under such
plans. The Board of Directors of the Corporation has the authority to issue
Corporation Preferred Stock in one or more series and to fix the rights,
preferences, privileges and restrictions for each such series, without any
further vote or action by the stockholders. As of September 30, 1998, there were
no shares of Corporation Preferred Stock issued and outstanding, and the Board
of Directors of the Corporation has no present intention of issuing shares of
Corporation Preferred Stock.
Size and Election of the Board of Directors
Commerce. The Bylaws of Commerce provide that the number of directors
shall be not less than nine nor more than eighteen. The Bylaws also provide that
the Board shall be divided into three classes, consisting of an equal number of
directors as is possible, with directors serving three year terms. Thus,
approximately one-third of the Board is elected annually. The Commerce Articles
of Incorporation provide that at least 51 percent of the directors shall be
residents of the State of Alabama and at least 75 percent of the directors shall
be residents of the State of Alabama or states contiguous to Alabama.
The Corporation. The Corporation Restated Certificate provides for the
Corporation Board of Directors to be divided into three classes as nearly equal
in number as is reasonably possible, serving staggered terms. With a classified
board of directors, at least two annual meetings of stockholders, instead of
one, will be required to effect a change in the majority of the Board of
Directors. The Corporation Bylaws provide that the Corporation Board of
Directors shall consist of not more than 30 directors, but in any event shall
consist of at least three directors and that the size of the Corporation Board
of Directors shall be fixed by the resolution of the Corporation Board of
Directors. Directors of the Corporation are elected by a plurality of votes cast
at the annual meeting of stockholders.
Removal of Directors
Commerce. Under the ABCA, directors of Commerce may be removed by the
shareholders with or without cause by a majority vote of shares voting.
The Corporation. The Corporation Bylaws provide that a director may be
removed with or without cause and by the vote of the holders of a majority of
the shares of the Corporation Common Stock entitled to vote at an election of
Directors, except as otherwise provided by applicable law.
403
<PAGE> 425
Other Voting Rights
Commerce. Holders of Commerce Common Stock have one vote per share on all
matters coming before the shareholders, including the election of directors.
The Corporation. The Corporation Common Stock is not divided into classes,
and the Corporation has no classes or series of capital stock issued or
outstanding other than the Corporation Common Stock. Each Corporation
stockholder holding shares of Corporation Common Stock entitled to be voted on
any matter, including the election of directors, has one vote on each such
matter submitted to vote at a meeting of stockholders for each such share of the
Corporation Common Stock held by such stockholder as of the record date for such
meeting. Except as specifically provided otherwise by law or by the Corporation
Restated Certificate or the Corporation Bylaws, the vote of the holders of a
majority of the shares of the Corporation Common Stock present or represented
and entitled to vote is required for the approval of any matter at a meeting of
the Corporation stockholders.
Dividends
Commerce. The Board of Directors may declare dividends on Commerce Common
Stock out of funds legally available therefor.
The Corporation. The Corporation Restated Certificate authorizes the
Corporation Board of Directors to declare a dividend to distribute to the
stockholders, without a vote of the stockholders, a portion of the assets of the
Corporation which are available under the DGCL for distribution.
Conversion and Dissolution
Commerce. Shares of Commerce Common Stock may not be converted into any
other security, and upon dissolution or liquidation, share ratably in the assets
of Commerce.
The Corporation. The Corporation Common Stock has no conversion features.
The Corporation Restated Certificate authorizes the issuance of 5,000,000 shares
of Preferred Stock, par value $.001 per share, and provides that such shares of
Corporation Preferred Stock may have such voting powers, preferences and other
special rights (including, without limitation, the right to convert the shares
of such Corporation Preferred Stock into shares of Corporation Common Stock) as
shall be stated in the Corporation Restated Certificate or resolutions providing
for the issuance of Corporation Preferred Stock. If the Board of Directors were
to designate such a series of Corporation Preferred Stock, such Corporation
Preferred Stock could be entitled to preferential payments in the event of
dissolution of the Corporation.
Amendment or Repeal of the Certificate of Incorporation and Bylaws
Under the DGCL, unless its certificate of incorporation or bylaws otherwise
provide, amendment of a corporation's certificate of incorporation generally
requires the approval of the holders of a majority of the outstanding stock
entitled to vote thereon, and if such amendment would increase or decrease the
number of authorized shares of any class or series or the par value of such
shares or would adversely affect the shares of such class or series, requires
the approval of the holders of a majority of the outstanding stock of such class
or series.
Commerce. The Articles of Incorporation of Commerce may be amended by the
affirmative vote of a majority of the outstanding shares. The bylaws may be
amended by the Board of Directors or by the shareholders by a majority vote.
The Corporation. The Corporation Restated Certificate and the Corporation
Bylaws provide that the Corporation Bylaws may be altered, amended or repealed
by a vote of a majority of the entire Corporation Board of Directors, or by a
majority of the outstanding stock entitled to vote thereon.
404
<PAGE> 426
Special Meetings of Stockholders
Commerce. Special meetings of shareholders for any purpose may be called
by the Chairman of the Board or the President and shall be called by the
President or Secretary at the request in writing of a majority of the directors
or shareholders owning 10 percent or more of the outstanding shares of Commerce
Common Stock.
The Corporation. The Corporation Bylaws provide that a special meeting of
the Corporation stockholders, unless otherwise prescribed by law, may be called
at any time by the Chairman of the Board, President or by order of the Board of
Directors. Special meetings of stockholders prescribed by law for the election
of directors shall be called by the Corporation Board of Directors, the Chairman
of the Board, the President or the Secretary whenever required to do so by
applicable law.
Liability of Directors
The DGCL permits a corporation to include a provision in its certificate of
incorporation eliminating or limiting the personal liability of a director or
officer to the corporation or its stockholders for damages for breach of the
director's fiduciary duty, subject to certain limitations. The Corporation
Restated Certificate includes such a provision which, as set forth below, limits
such liability to the fullest extent permitted under applicable law.
The Corporation Restated Certificate provides that a director will not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL,
which concerns unlawful payments of dividends or expenditures of funds for
unlawful stock purchases or redemptions or (iv) for any transaction from which
the director derived an improper personal benefit.
While these provisions provide directors with protection from awards of
monetary damages for breaches of their duty of care, they do not eliminate such
duty. Accordingly, these provisions will have no effect on the availability of
equitable remedies such as an injunction or rescission based on a director's
breach of his or her duty of care. The provisions described above apply to an
officer of the corporation only if he or she is a director of the corporation
and is acting in his or her capacity as director, and do not apply to officers
of the corporation who are not directors.
The ABCA authorizes similar provisions for all Alabama corporations, but
Commerce's Articles of Incorporation do not contain these provisions.
Advance Notice Provisions for Stockholder Proposals and Stockholder Nominations
of Directors
Commerce. Neither the Commerce Articles nor Bylaws have provisions for
advance shareholder notice of shareholder proposals or director nominations.
The Corporation. The Corporation Restated Certificate provides that at an
annual meeting of the shareholders, only such business shall be conducted as
shall have been properly brought before the meeting.
Indemnification of Directors and Officers
Commerce. Sections 10-2B-8.50 through 10-2B-8.58 of the ABCA contain
detailed and comprehensive provisions providing for the indemnification of
directors and officers of Alabama corporations against expenses, judgments,
fines and settlements in connection with litigation. Under these provisions,
other than actions brought by or in the right of Commerce, indemnification is
available if it is determined that the proposed indemnitee acted in good faith
and in a manner reasonably believed to be in or not opposed to the best
interests of Commerce, and with respect to any criminal action or proceeding,
had no reasonable cause to believe his or her conduct was unlawful.
405
<PAGE> 427
To the extent that the proposed indemnitee has been successful on the
merits or otherwise in defense of any action, suit or proceeding (or any claim,
issue or matter therein), he or she must be indemnified against expenses
(including attorney fees) actually and reasonably incurred by him or her in
connection therewith.
Commerce's Bylaws contain indemnification provisions requiring Commerce to
provide indemnification in the foregoing circumstances.
Corporation. The DGCL permits a corporation to indemnify officers,
directors, employees and agents for actions taken in good faith and in a manner
they reasonably believed to be in, or not opposed to, the best interests of the
corporation, and with respect to any criminal action, which they had no
reasonable cause to believe was unlawful. The DGCL provides that a corporation
may advance expenses of defense (upon receipt of a written undertaking to
reimburse the corporation if indemnification is not appropriate) and must
reimburse a successful defendant for expenses, including attorneys' fees,
actually and reasonably incurred, and permits a corporation to purchase and
maintain liability insurance for its directors and officers. The DGCL provides
that indemnification may not be made for any claim, issue or matter as to which
a person has been adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable to the corporation, unless and
only to the extent a court determines that the person is entitled to indemnity
for such expenses as the court deems proper.
The Corporation Bylaws provide that each person who is involved in any
actual or threatened action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she is or was
a director, officer, employee or agent of the Corporation, or is or was serving
at the request of the Corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan, will be
indemnified by the Corporation to the full extent permitted by the DGCL, as the
same exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than said law permitted prior to such amendment)
or by other applicable laws then in effect.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Corporation
pursuant to the foregoing provisions, the Corporation has been informed that in
the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
COMPARISON OF RIGHTS OF FIRST CITIZENS SHAREHOLDERS AND CORPORATION STOCKHOLDERS
First Citizens is incorporated in Alabama and the Corporation is
incorporated in Delaware. Holders of the First Citizens Common Stock will have
their rights and obligations as stockholders of the Corporation after the Merger
governed by Delaware law. Set forth below is a summary comparison of the
material rights of a Corporation stockholder under the Corporation Restated
Certificate and the Corporation Bylaws, on the one hand, and the rights of a
First Citizens shareholder under the First Citizens Articles of Incorporation,
as amended (the "First Citizens Articles"), and the First Citizens Bylaws (the
"First Citizens Bylaws"), on the other hand. The information set forth below is
qualified in its entirety by reference to the Corporation Restated Certificate,
the Corporation Bylaws, the First Citizens Articles and the First Citizens
Bylaws.
Classes and Series of Capital Stock
First Citizens. There are 10,000,000 shares of First Citizens Common
Stock, par value $1.00 per share, authorized, 75,000 of which are issued and
outstanding.
The Corporation. The Corporation is authorized by the Corporation Restated
Certificate to issue up to 30,000,000 shares of capital stock, of which
25,000,000 shares are designated Common Stock, par value $.001 per share, and
5,000,000 shares are designated Preferred Stock, par value $.001 per share
("Corporation Preferred Stock"). As of September 30, 1998, there were 5,448,000
shares of Corporation Common Stock outstanding. In addition, 1,000,000 shares of
Corporation Common Stock have been reserved for future option grants under such
plans. The Board of Directors of the Corporation has the authority to issue
Corporation
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Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions for each such series, without any further vote or
action by the stockholders. As of September 30, 1998, there were no shares of
Corporation Preferred Stock issued and outstanding, and the Board of Directors
of the Corporation has no present intention of issuing shares of Corporation
Preferred Stock.
Size and Election of the Board of Directors
First Citizens. The Bylaws of First Citizens provide that the number of
directors shall be one or more with the exact number determined by the Board of
Directors.
The Corporation. The Corporation Restated Certificate provides for the
Corporation Board of Directors to be divided into three classes as nearly equal
in number as is reasonably possible, serving staggered terms. With a classified
board of directors, at least two annual meetings of stockholders, instead of
one, will be required to effect a change in the majority of the Board of
Directors. The Corporation Bylaws provide that the Corporation Board of
Directors shall consist of not more than 30 directors, but in any event shall
consist of at least three directors and that the size of the Corporation Board
of Directors shall be fixed by the resolution of the Corporation Board of
Directors. Directors of the Corporation are elected by a plurality of votes cast
at the annual meeting of stockholders.
Removal of Directors
First Citizens. Under the First Citizens Bylaws, directors of First
Citizens may be removed by the shareholders with or without cause by a majority
vote of the shares entitled to vote in the election of directors.
The Corporation. The Corporation Bylaws provide that a director may be
removed with or without cause and by the vote of the holders of a majority of
the shares of Corporation Common Stock entitled to vote at an election of
Directors, except as otherwise provided by applicable law.
Other Voting Rights
First Citizens. Holders of First Citizens Common Stock have one vote per
share on all matters coming before the shareholders, including the election of
directors.
The Corporation. The Corporation Common Stock is not divided into classes,
and the Corporation has no classes or series of capital stock issued or
outstanding other than the Corporation Common Stock. Each Corporation
stockholder holding shares of Corporation Common Stock entitled to be voted on
any matter, including the election of directors, has one vote on each such
matter submitted to vote at a meeting of stockholders for each such share of the
Corporation Common Stock held by such stockholder as of the record date for such
meeting. Except as specifically provided otherwise by law or by the Corporation
Restated Certificate or the Corporation Bylaws, the vote of the holders of a
majority of the shares of Corporation Common Stock present or represented and
entitled to vote is required for the approval of any matter at a meeting of the
Corporation stockholders.
Dividends
First Citizens. The Board of Directors may declare dividends on First
Citizens Common Stock out of funds legally available therefor.
The Corporation. The Corporation Restated Certificate authorizes the Board
of Directors to declare a dividend to distribute to the stockholders, without a
vote of the stockholders, a portion of the assets of the Corporation which are
available under the DGCL for distribution.
Conversion and Dissolution
First Citizens. Shares of First Citizens Common Stock may not be converted
into any other security, and upon dissolution or liquidation, share ratably in
the assets of First Citizens.
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The Corporation. The Corporation Common Stock has no conversion features.
The Corporation Restated Certificate authorizes the issuance of 5,000,000 shares
of Preferred Stock, par value $.001 per share, and provides that such shares of
Corporation Preferred Stock may have such voting powers, preferences and other
special rights (including, without limitation, the right to convert the shares
of such Corporation Preferred Stock into shares of Corporation Common Stock) as
shall be stated in the Corporation Restated Certificate or resolutions providing
for the issuance of Corporation Preferred Stock. If the Board of Directors were
to designate such a series of Corporation Preferred Stock, such Corporation
Preferred Stock could be entitled to preferential payments in the event of
dissolution of the Corporation.
Amendment or Repeal of the Certificate of Incorporation and Bylaws
Under the DGCL, unless its certificate of incorporation or bylaws otherwise
provide, amendment of a corporation's certificate of incorporation generally
requires the approval of the holders of a majority of the outstanding stock
entitled to vote thereon, and if such amendment would increase or decrease the
number of authorized shares of any class or series or the par value of such
shares or would adversely affect the shares of such class or series, requires
the approval of the holders of a majority of the outstanding stock of such class
or series.
First Citizens. The Articles of Incorporation of First Citizens may be
amended by the affirmative vote of a majority of the outstanding shares. The
bylaws may be amended by majority vote of the whole Board of Directors or by the
shareholders by a majority vote of shares entitled to vote.
The Corporation. The Corporation Restated Certificate and the Corporation
Bylaws provide that the Corporation Bylaws may be altered, amended or repealed
by a vote of a majority of the entire Corporation Board of Directors, or by a
majority of the outstanding stock entitled to vote thereon.
Special Meetings of Stockholders
First Citizens. Special meetings of shareholders for any purpose may be
called by the Chairman of the Board, the President or by order of the Board of
Directors, or shareholders owning 10 percent or more of the outstanding shares
of First Citizens Common Stock.
The Corporation. The Corporation Bylaws provide that a special meeting of
the Corporation stockholders, unless otherwise prescribed by law, may be called
at any time by the Chairman of the Board, President or by order of the Board of
Directors. Special meetings of stockholders prescribed by law for the election
of directors shall be called by the 'Corporation Board of Directors, the
Chairman of the Board, the President or the Secretary whenever "required" to do
so by applicable law.
Liability of Directors
The DGCL permits a corporation to include a provision in its certificate of
incorporation eliminating or limiting the personal liability of a director or
officer to the corporation or its stockholders for damages for breach of the
director's fiduciary duty, subject to certain limitations. The Corporation
Restated Certificate includes such a provision which, as set forth below, limits
such liability to the fullest extent permitted under applicable law.
The Corporation Restated Certificate provides that a director will not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL,
which concerns unlawful payments of dividends or expenditures of funds for
unlawful stock purchases or redemptions or (iv) for any transaction from which
the director derived an improper personal benefit.
While these provisions provide directors with protection from awards of
monetary damages for breaches of their duty of care, they do not eliminate such
duty. Accordingly, these provisions will have no effect on the availability of
equitable remedies such as an injunction or rescission based on a director's
breach of his or her
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duty of care. The provisions described above apply to an officer of the
corporation only if he or she is a director of the corporation and is acting in
his or her capacity as director, and do not apply to officers of the corporation
who are not directors.
The ABCA authorizes similar provisions for all Alabama corporations, but
First Citizens Articles of Incorporation do not contain such provisions.
Advance Notice Provisions for Stockholder Proposals and Stockholder Nominations
of Directors
First Citizens. Neither the First Citizens Articles nor Bylaws have
provisions for advance shareholder notice of shareholder proposals or director
nominations.
The Corporation. The Corporation Restated Certificate provides that at an
annual meeting of the shareholders, only such business shall be conducted as
shall have been properly brought before the meeting.
Indemnification of Directors and Officers
First Citizens. Sections 10-2B-8.50 through 10-2B-8.58 of the ABCA contain
detailed and comprehensive provisions providing for the indemnification of
directors and officers of Alabama corporations against expenses, judgments,
fines and settlements in connection with litigation. Under these provisions,
other than actions brought by or in the right of First Citizens, indemnification
is available if it is determined that the proposed indemnitee acted in good
faith and in a manner reasonably believed to be in or not opposed to the best
interests of First Citizens, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
To the extent that the proposed indemnitee has been successful on the
merits or otherwise in defense of any action, suit or proceeding (or any claim,
issue or matter therein), he or she must be indemnified against expenses
(including attorney fees) actually and reasonably incurred by him or her in
connection therewith.
First Citizens' Bylaws contain indemnification provisions requiring First
Citizens to provide indemnification in the foregoing circumstances.
Corporation. The DGCL permits a corporation to indemnify officers,
directors, employees and agents for actions taken in good faith and in a manner
they reasonably believed to be in, or not opposed to, the best interests of the
corporation, and with respect to any criminal action, which they had no
reasonable cause to believe was unlawful. The DGCL provides that a corporation
may advance expenses of defense (upon receipt of a written undertaking to
reimburse the corporation if indemnification is not appropriate) and must
reimburse a successful defendant for expenses, including attorneys' fees,
actually and reasonably incurred, and permits a corporation to purchase and
maintain liability insurance for its directors and officers. The DGCL provides
that indemnification may not be made for any claim, issue or matter as to which
a person has been adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable to the corporation, unless and
only to the extent a court determines that the person is entitled to indemnity
for such expenses as the court deems proper.
The Corporation Bylaws provide that each person who is involved in any
actual or threatened action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she is or was
a director, officer, employee or agent of the Corporation, or is or was serving
at the request of the Corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan, will be
indemnified by the Corporation to the full extent permitted by the DGCL, as the
same exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than said law permitted prior to such amendment)
or by other applicable laws then in effect.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Corporation
pursuant to the foregoing provisions, the Corporation has been
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informed that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
COMPARISON OF RIGHTS OF CITY NATIONAL SHAREHOLDERS AND CORPORATION STOCKHOLDERS
City National is incorporated in Alabama and the Corporation is
incorporated in Delaware. Holders of the City National Common Stock will have
their rights and obligations as stockholders of the Corporation after the Merger
governed by Delaware law. Set forth below is a summary comparison of the
material rights of a Corporation stockholder under the Corporation Restated
Certificate and the Corporation Bylaws, on the one hand, and the rights of a
City National shareholder under the City National Articles of Incorporation, as
amended (the "City National Articles"), and the City National Bylaws (the "City
National Bylaws"), on the other hand. The information set forth below is
qualified in its entirety by reference to the Corporation Restated Certificate,
the Corporation Bylaws, the City National Articles and the City National Bylaws.
Classes and Series of Capital Stock
City National. There are 100,000 shares of City National Common Stock, par
value $1.00 per share, authorized, 26,832 of which are issued and outstanding.
The Corporation. The Corporation is authorized by the Corporation Restated
Certificate to issue up to 30,000,000 shares of capital stock, of which
25,000,000 shares are designated Common Stock, par value $.001 per share, and
5,000,000 shares are designated Preferred Stock, par value $.001 per share
("Corporation Preferred Stock"). As of September 30, 1998, there were 5,448,000
shares of Corporation Common Stock outstanding. In addition, 1,000,000 shares of
Corporation Common Stock have been reserved for future option grants under such
plans. The Board of Directors of the Corporation has the authority to issue
Corporation Preferred Stock in one or more series and to fix the rights,
preferences, privileges and restrictions for each such series, without any
further vote or action by the stockholders. As of September 30, 1998, there were
no shares of Corporation Preferred Stock issued and outstanding, and the Board
of Directors of the Corporation has no present intention of issuing shares of
Corporation Preferred Stock.
Size and Election of the Board of Directors
City National. The Bylaws of City National provide that the number of
directors shall be not less than five nor more than twenty-five shareholders,
with the exact number established by the Board of Directors.
The Corporation. The Corporation Restated Certificate provides for the
Corporation Board of Directors to be divided into three classes as nearly equal
in number as is reasonably possible, serving staggered terms. With a classified
board of directors, at least two annual meetings of stockholders, instead of
one, will be required to effect a change in the majority of the Board of
Directors. The Corporation Bylaws provide that the Corporation Board of
Directors shall consist of not more than 30 directors, but in any event shall
consist of at least three directors and that the size of the Corporation Board
of Directors shall be fixed by the resolution of the Corporation Board of
Directors. Directors of the Corporation are elected by a plurality of votes cast
at the annual meeting of stockholders.
Removal of Directors
City National. Under the ABCA, directors of City National may be removed
by the shareholders with or without cause.
The Corporation. The Corporation Bylaws provide that a director may be
removed with or without cause and by the vote of the holders of a majority of
the shares of Corporation Common Stock entitled to vote at an election of
Directors, except as otherwise provided by applicable law.
Other Voting Rights
City National. Holders of City National Common Stock have one vote per
share on all matters coming before the shareholders, including the election of
directors.
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The Corporation. The Corporation Common Stock is not divided into classes,
and the Corporation has no classes or series of capital stock issued or
outstanding other than the Corporation Common Stock. Each Corporation
stockholder holding shares of Corporation Common Stock entitled to be voted on
any matter, including the election of directors, has one vote on each such
matter submitted to vote at a meeting of stockholders for each such share of the
Corporation Common Stock held by such stockholder as of the record date for such
meeting. Except as specifically provided otherwise by law or by the Corporation
Restated Certificate or the Corporation Bylaws, the vote of the holders of a
majority of the shares of Corporation Common Stock present or represented and
entitled to vote is required for the approval of any matter at a meeting of the
Corporation stockholders.
Dividends
City National. The Board of Directors may declare dividends on City
National Common Stock out of funds legally available therefor.
The Corporation. The Corporation Certificate authorizes the Board of
Directors to declare a dividend to distribute to the stockholders, without a
vote of the stockholders, a portion of the assets of the Corporation which are
available under the DGCL for distribution.
Conversion and Dissolution
City National. Shares of City National Common Stock may not be converted
into any other security, and upon dissolution or liquidation, share ratably in
the assets of City National.
The Corporation. The Corporation Common Stock has no conversion features.
The Corporation Restated Certificate authorizes the issuance of 5,000,000 shares
of Preferred Stock, par value $.001 per share, and provides that such shares of
Corporation Preferred Stock may have such voting powers, preferences and other
special rights (including, without limitation, the right to convert the shares
of such Corporation Preferred Stock into shares of Corporation Common Stock) as
shall be stated in the Corporation Restated Certificate or resolutions providing
for the issuance of Corporation Preferred Stock. If the Board of Directors were
to designate such a series of Corporation Preferred Stock, such Corporation
Preferred Stock could be entitled to preferential payments in the event of
dissolution of the Corporation.
Amendment or Repeal of the Certificate of Incorporation and Bylaws
Under the DGCL, unless its certificate of incorporation or bylaws otherwise
provide, amendment of a corporation's certificate of incorporation generally
requires the approval of the holders of a majority of the outstanding stock
entitled to vote thereon, and if such amendment would increase or decrease the
number of authorized shares of any class or series or the par value of such
shares or would adversely affect the shares of such class or series, requires
the approval of the holders of a majority of the outstanding stock of such class
or series.
City National. The City National Articles may be amended by the
affirmative vote of a majority of the outstanding shares. The City National
Bylaws may be amended by majority vote of the whole Board of Directors or by the
shareholders by a majority vote of shares entitled to vote.
The Corporation. The Corporation Restated Certificate and the Corporation
Bylaws provide that the Corporation Bylaws may be altered, amended or repealed
by a vote of a majority of the entire Corporation Board of Directors, or by a
majority of the outstanding stock entitled to vote thereon.
Special Meetings of Stockholders
City National. Special meetings of shareholders for any purpose may be
called by the Board of Directors, or by any three or more shareholders owning 25
percent or more of the outstanding shares of City National Common Stock.
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The Corporation. The Corporation Bylaws provide that a special meeting of
the Corporation stockholders, unless otherwise prescribed by law, may be called
at any time by the Chairman of the Board, President or the Secretary by order of
the Board of Directors. Special meetings of stockholders prescribed by law for
the election of directors shall be called by the Corporation Board of Directors,
the Chairman of the Board, the President or the Secretary whenever "required" to
do so by applicable law.
Liability of Directors
The DGCL permits a corporation to include a provision in its certificate of
incorporation eliminating or limiting the personal liability of a director or
officer to the corporation or its stockholders for damages for breach of the
director's fiduciary duty, subject to certain limitations. The Corporation
Restated Certificate includes such a provision which, as set forth below, limits
such liability to the fullest extent permitted under applicable law.
The Corporation Restated Certificate provides that a director will not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL,
which concerns unlawful payments of dividends or expenditures of funds for
unlawful stock purchases or redemptions or (iv) for any transaction from which
the director derived an improper personal benefit.
While these provisions provide directors with protection from awards of
monetary damages for breaches of their duty of care, they do not eliminate such
duty. Accordingly, these provisions will have no effect on the availability of
equitable remedies such as an injunction or rescission based on a director's
breach of his or her duty of care. The provisions described above apply to an
officer of the corporation only if he or she is a director of the corporation
and is acting in his or her capacity as director, and do not apply to officers
of the corporation who are not directors.
The ABCA authorizes similar provisions for all Alabama corporations, but
the City National Articles do not contain such provisions.
Advance Notice Provisions for Stockholder Proposals and Stockholder Nominations
of Directors
City National. The City National Bylaws provide that nominations for
election to the Board of Directors may be made by the Board, or by any
stockholder entitled to vote in the election of directors if such stockholder
follows certain notice procedures set forth in the Bylaws, including the
requirement that the stockholder give written notice of the nomination not less
than 14 days nor more than 50 days prior to any meeting of shareholders where
directors are to be elected and provide certain biographical information on the
persons nominated by such stockholder.
The Corporation. The Corporation Restated Certificate provides that at an
annual meeting of the shareholders, only such business shall be conducted as
shall have been properly brought before the meeting.
Indemnification of Directors and Officers
City National. Sections 10-2B-8.50 through 10-2B-8.58 of the ABCA contain
detailed and comprehensive provisions providing for the indemnification of
directors and officers of Alabama corporations against expenses, judgments,
fines and settlements in connection with litigation. Under these provisions,
other than actions brought by or in the right of City National, indemnification
is available if it is determined that the proposed indemnitee acted in good
faith and in a manner reasonably believed to be in or not opposed to the best
interests of City National, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
To the extent that the proposed indemnitee has been successful on the
merits or otherwise in defense of any action, suit or proceeding (or any claim,
issue or matter therein), he or she must be indemnified against expenses
(including attorney fees) actually and reasonably incurred by him or her in
connection therewith.
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City National's Articles contain indemnification provisions requiring City
National to provide indemnification in the foregoing circumstances.
Corporation. The DGCL permits a corporation to indemnify officers,
directors, employees and agents for actions taken in good faith and in a manner
they reasonably believed to be in, or not opposed to, the best interests of the
corporation, and with respect to any criminal action, which they had no
reasonable cause to believe was unlawful. The DGCL provides that a corporation
may advance expenses of defense (upon receipt of a written undertaking to
reimburse the corporation if indemnification is not appropriate) and must
reimburse a successful defendant for expenses, including attorneys' fees,
actually and reasonably incurred, and permits a corporation to purchase and
maintain liability insurance for its directors and officers. The DGCL provides
that indemnification may not be made for any claim, issue or matter as to which
a person has been adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable to the corporation, unless and
only to the extent a court determines that the person is entitled to indemnity
for such expenses as the court deems proper.
The Corporation Bylaws provide that each person who is involved in any
actual or threatened action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she is or was
a director, officer, employee or agent of the Corporation, or is or was serving
at the request of the Corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan, will be
indemnified by the Corporation to the full extent permitted by the DGCL, as the
same exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than said law permitted prior to such amendment)
or by other applicable laws then in effect.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Corporation
pursuant to the foregoing provisions, the Corporation has been informed that in
the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
DESCRIPTION OF CAPITAL STOCK OF THE CORPORATION
AUTHORIZED CAPITAL STOCK
The Corporation Restated Certificate provides that the Corporation may
issue 5,000,000 shares of Corporation Preferred Stock, par value $.001 per
share, and 25,000,000 shares of Corporation Common Stock, par value $.001 per
share.
CORPORATION COMMON STOCK
Holders of Corporation Common Stock are entitled to one vote for each share
held of record on all matters to be submitted to a vote of the stockholders and
do not have preemptive rights. Subject to preferences that may be applicable to
any outstanding shares of Preferred Stock, holders of Corporation Common Stock
are entitled to receive ratably such dividends, if any, as may be declared from
time to time by the Board of Directors of the Corporation out of funds legally
available therefor. See "Summary of Prospectus-Joint Proxy Statement -- Market
and Market Prices." All outstanding shares of Corporation Common Stock are, and
the shares to be issued in the Merger will be, when issued pursuant to the
applicable Plan of Merger, fully paid and nonassessable. In the event of any
liquidation, dissolution or winding-up of the affairs of the Corporation,
holders of Corporation Common Stock will be entitled to share ratably in the
assets of the Corporation remaining after payment or provision for payment of
all of the Corporation's debts and obligations and liquidation payments to
holders of any outstanding shares of Preferred Stock.
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CORPORATION PREFERRED STOCK
The Board of Directors of the Corporation, without further stockholder
authorization, is authorized to issue shares of Corporation Preferred Stock in
one or more series and to determine and fix the rights, preferences and
privileges of each series, including dividend rights and preferences over
dividends on Corporation Common Stock and one or more series of Corporation
Preferred Stock, conversion rights, voting rights (in addition to those provided
by law), redemption rights and the terms of any sinking fund therefor, and
rights upon liquidation, dissolution or winding up, including preferences over
Corporation Common Stock and one or more series of Corporation Preferred Stock.
Although the Corporation has no present plans to issue any shares of Corporation
Preferred Stock, the issuance of shares of Corporation Preferred Stock, or the
issuance of rights to purchase such shares, may have the effect of delaying,
deferring or preventing a change in control of the Corporation or an unsolicited
acquisition proposal.
CERTAIN PROVISIONS OF THE CORPORATION CERTIFICATE AND THE DGCL
Classified Board of Directors. The Corporation Restated Certificate and
the Corporation Bylaws provide for the Board of Directors of the Corporation to
be divided into three classes of directors, as nearly equal in number as is
reasonably possible, serving staggered terms so that directors' terms expire
either at the 1999, 2000 or 2001 annual meeting of stockholders of the
Corporation, and every three years thereafter as to each class. See "The
Corporation's Management -- Classified Board of Directors."
The Corporation believes that a classified Board of Directors will help to
assure the continuity and stability of the Board of Directors and the
Corporation's business strategies and policies as determined by the Board of
Directors, since a majority of the directors at any given time will have had
prior experience as directors of the Corporation. The Corporation believes that
this, in turn, will permit the Board of Directors to more effectively represent
the interests of stockholders.
With a classified Board of Directors, at least two annual meetings of
stockholders, instead of one, will generally be required to effect a change in
the majority of the Board of Directors. As a result, a provision relating to a
classified Board of Directors of the Corporation may discourage proxy contests
for the election of directors or purchases of a substantial block of Corporation
Common Stock because its provisions could operate to prevent obtaining control
of the Board of Directors in a relatively short period of time. The
classification provision could also have the effect of discouraging a third
party from making a tender offer or otherwise attempting to obtain control of
the Corporation. Under the DGCL, unless the certificate of incorporation
otherwise provides, a director on a classified board may be removed by the
stockholders of the corporation only for cause. The Corporation Restated
Certificate does not provide otherwise.
Advance Notice Provisions for Stockholder Proposals and Stockholder
Nominations of Directors. The Corporation Restated Certificate provides that at
an annual meeting of stockholders, only such business shall be conducted as
shall have been properly brought before the meeting. To be properly brought
before an annual meeting business must be (a) specified in the notice of posting
(or any supplement thereof, given by or at the direction of the Board of
Directors, (b) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (c) otherwise properly brought before
the meeting by a stockholder. For business to be properly brought before an
annual meeting by a stockholder, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation.
Delaware Takeover Statute. The Corporation is subject to Section 203 of
the DGCL which, subject to certain exceptions, prohibits a Delaware corporation
from engaging in any of a broad range of business combinations with any
"interested stockholder" for a period of three years following the date that
such stockholder became an interested stockholder, unless: (i) prior to such
date, the Board of Directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder; (ii) upon consummation of the transaction which resulted
in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned (a) by persons
who are directors and also officers and (b) by employee stock plans in which
employee participants do not have the right to determine
414
<PAGE> 436
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer; or (iii) on or after such date, the business
combination is approved by the Board of Directors and authorized at an annual or
special meeting of stockholders, and not by written consent, by the affirmative
vote of at least 66 2/3% of the outstanding voting stock which is not owned by
the interested stockholder. An "interested stockholder" is defined as any person
that is (a) the owner of 15% or more of the outstanding voting stock of the
corporation or (b) an affiliate or associate of the corporation and was the
owner of 15% or more of the outstanding voting stock of the corporation at any
time within the three-year period immediately prior to the date on which it is
sought to be determined whether such person is an interested stockholder.
LIMITATIONS ON LIABILITY OF OFFICERS AND DIRECTORS
The Corporation Restated Certificate contains a provision eliminating or
limiting director liability to the Corporation and its stockholders for monetary
damages arising from acts or omissions in the director's capacity as a director.
The provision does not, however, eliminate or limit the personal liability of a
director (i) for any breach of such director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
the Delaware statutory provision making directors personally liable, under a
negligence standard, for unlawful dividends or unlawful stock purchases or
redemptions, or (iv) for any transaction from which the director derived an
improper personal benefit. This provision offers persons who serve on the Board
of Directors of the Corporation protection against awards of monetary damages
resulting from breaches of their duty of care (except as indicated above). As a
result of this provision, the ability of the Corporation or a stockholder
thereof to successfully prosecute an action against a director for a breach of
his duty of care is limited. However, the provision does not affect the
availability of equitable remedies such as an injunction or rescission based
upon a director's breach of his duty of care. The SEC has taken the position
that the provision will have no effect on claims arising under the federal
securities laws.
In addition, the Corporation Restated Certificate and the Corporation
Bylaws provide for mandatory indemnification rights, subject to limited
exceptions, to any director, officer, employee or agent of the Corporation who
by reason of the fact that he or she is a director, officer, employee or agent
of the Corporation, is involved in a legal proceeding of any nature. Such
indemnification rights include reimbursement for expenses incurred by such
director, officer, employee or agent in advance of the final disposition of such
proceeding in accordance with the applicable provisions of the DGCL.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Corporation Common Stock is
.
EXPERTS
Mauldin & Jenkins, LLC, independent public accountants, serve as the
independent accountants for Commerce.
Dudley, Hopton-Jones, Sims & Freeman, PLLP, independent public accountants,
serve as the independent accountants for First Citizens.
Dudley, Hopton-Jones, Sims & Freeman, PLLP, independent public accountants,
serve as the independent accountants for City National.
The Statement of Condition of The Banc Corporation at April 7, 1998,
included in the Proxy Statement of The Banc Corporation, which is referred to
and made a part of this Prospectus and Registration Statement, has been audited
by Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and is included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
415
<PAGE> 437
CHANGES IN REGISTRANTS CERTIFYING ACCOUNTANTS
On June 16, 1998, the Company approved the engagement of Ernst & Young LLP
as its independent auditors for the three years ending December 31, 1998 to
replace the firm of Dudley, Hopton,-Jones, Sims & Freeman PLLP who were the
auditors of Warrior Capital Corporation ("Warrior"), the predecessor of the
Company. The Board of Directors of the Corporation approved the change in
auditors on June 16, 1998. The reports of Dudley, Hopton-Jones, Sims & Freeman
PLLP on Warrior's financial statements for the past two fiscal years did not
contain an adverse opinion or a disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope or accounting principles.
In connection with the audits of Warrior's financial statements for each of
the two fiscal years ended December 31, 1997, and in the subsequent interim
period, there were no disagreements with Dudley, Hopton-Jones, Sims & Freeman
PLLP on any matters of accounting principles or practices, financial statement
disclosure or auditing scope and procedures which, if not resolved to the
satisfaction of Dudley, Hopton-Jones, Sims & Freeman PLLP would have caused
Dudley, Hopton-Jones, Sims & Freeman PLLP to make reference to the matter in
their report. The Company has requested Dudley, Hopton-Jones, Sims & Freeman
PLLP to furnish it a letter addressed to the Commission stating whether it
agrees with the above statements. A copy of that letter, dated September 30,
1998, is filed as Exhibit 16 to this Registration Statement.
LEGAL MATTERS
The validity of the shares of Corporation Common Stock to be issued to the
shareholders of Commerce, First Citizens and City National pursuant to the
Mergers will be passed upon by Haskell Slaughter & Young, L.L.C., Birmingham,
Alabama.
ADDITIONAL INFORMATION
OTHER BUSINESS
The Board of Directors of Commerce, First Citizens or City National is not
aware of any business to be acted upon at the Special Meetings other than as
described herein. If, however, other matters are properly brought before any
Special Meeting, or any adjournments or postponements thereof, the persons
appointed as proxies will have discretion to vote or act thereon according to
their best judgment and applicable SEC rules.
416
<PAGE> 438
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
WARRIOR CAPITAL CORPORATION AND SUBSIDIARY
Independent Auditor's Report................................ F-5
Consolidated Statements of Financial Condition as of
December 31, 1997 and 1996................................ F-6
Consolidated Statements of Income and Comprehensive Income
for the Years Ended December 31, 1997, 1996, and 1995..... F-7
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1997, 1996 and 1995...... F-8
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996, and 1995......................... F-9
Notes to Consolidated Financial Statements.................. F-10
Condensed Consolidated Statement of Financial Condition as
of June 30, 1998 (Unaudited).............................. F-22
Condensed Consolidated Statements of Income and
Comprehensive Income for the Six Months Ended June 30,
1998 and 1997 (Unaudited)................................. F-23
Condensed Consolidated Statement of Changes in Stockholders'
Equity for the Six Months Ended June 30, 1998
(Unaudited)............................................... F-24
Condensed Consolidated Statements of Cash Flow for the Six
Months Ended June 30, 1998 and 1997 (Unaudited)........... F-25
Note to Condensed Consolidated Financial Statements for the
Six Months Ended June 30, 1998 and 1997 (Unaudited)....... F-26
EMERALD COAST BANCSHARES INC. AND SUBSIDIARY
Independent Auditor's Report................................ F-28
Consolidated Statements of Financial Condition as of
December 31, 1997 and 1996................................ F-29
Consolidated Statements of Operations for the Year Ended
December 31, 1997 and the Four Months Ended December 31,
1996...................................................... F-30
Consolidated Statements of Changes in Stockholders' Equity
for the Year Ended December 31, 1997 and the Four Months
Ended December 31, 1996................................... F-31
Consolidated Statements of Cash Flows for the Year ended
December 31, 1997 and the Four Months Ended December 31,
1996...................................................... F-32
Notes to Consolidated Financial Statements.................. F-33
Condensed Consolidated Statement of Financial Condition as
of June 30, 1998 (Unaudited).............................. F-44
Condensed Statements of Loss and Comprehensive Loss for the
Six Months Ended June 30, 1998 and 1997 (Unaudited)....... F-45
Condensed Consolidated Statement of Changes in Stockholders'
Equity for the Six Months Ended June 30, 1998
(Unaudited)............................................... F-46
Condensed Statements of Cash Flow for the Six Months Ended
June 30, 1998 and 1997 (Unaudited)........................ F-47
Note to Condensed Consolidated Financial Statements for the
Six Months Ended June 30, 1998 and 1997 (Unaudited)....... F-48
COMMERCE BANK OF ALABAMA
Independent Auditor's Report................................ F-50
Balance Sheets as of December 31, 1997 and 1996............. F-51
Statements of Operations for the Years Ended December 31,
1997 and 1996............................................. F-52
Statements of Stockholders' Equity for the Years Ended
December 31, 1997 and 1996................................ F-53
Statements of Cash Flows for the Years Ended December 31,
1997 and 1996............................................. F-54
</TABLE>
F-1
<PAGE> 439
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Notes to Financial Statements............................... F-55
Condensed Statement of Financial Condition as of June 30,
1998 (Unaudited).......................................... F-68
Condensed Statements of Income and Comprehensive Income for
the Six Months Ended June 30, 1998 and 1997 (Unaudited)... F-69
Condensed Statement of Changes in Stockholders' Equity for
the Six Months Ended June 30, 1998 (Unaudited)............ F-70
Condensed Consolidated Statements of Cash Flow for the Six
Months Ended June 30, 1998 and 1997 (Unaudited)........... F-71
Note to Condensed Financial Statements for the Six Months
Ended June 30, 1998 and 1997 (Unaudited).................. F-72
Independent Auditors' Report................................ F-73
Independent Auditors' Report................................ F-74
Balance Sheet as of December 31, 1995....................... F-75
Statement of Operations for the period from organization
through December 31, 1995................................. F-76
Statement of Cash Flows for the period from organization
through December 31, 1995................................. F-77
Statement of Stockholders' Equity for the period from
organization through December 31, 1995.................... F-78
Notes to the Financial Statements........................... F-79
FIRST CITIZENS BANCORP, INC. AND SUBSIDIARY
Independent Auditor's Report................................ F-89
Consolidated Statements of Financial Condition as of
December 31, 1997 and 1996................................ F-90
Consolidated Statements of Income and Comprehensive Income
for the Years Ended December 31, 1997, 1996 and 1995...... F-91
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1997, 1996 and 1995...... F-92
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995.......................... F-93
Notes to Consolidated Financial Statements.................. F-94
Condensed Consolidated Statement of Financial Condition as
of June 30, 1998 (Unaudited).............................. F-105
Condensed Consolidated Statements of Income and
Comprehensive Income for the Six Months Ended June 30,
1998 and 1997 (Unaudited)................................. F-106
Condensed Consolidated Statement of Changes in Stockholders'
Equity for the Six Months Ended June 30, 1998
(Unaudited)............................................... F-107
Condensed Consolidated Statements of Cash Flow for the Six
Months Ended June 30, 1998 and 1997 (Unaudited)........... F-108
Note to Condensed Consolidated Financial Statements for the
Six Months Ended June 30, 1998 and 1997 (Unaudited)....... F-109
CITY NATIONAL CORPORATION AND SUBSIDIARY
Independent Auditor's Report................................ F-111
Consolidated Statements of Financial Condition as of
December 31, 1997 and 1996................................ F-112
Consolidated Statements of Income and Comprehensive Income
for the Years Ended December 31, 1997, 1996 and 1995...... F-113
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1997, 1996 and 1995...... F-114
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995.......................... F-115
Notes to Consolidated Financial Statements.................. F-116
Condensed Consolidated Statement of Financial Condition as
of June 30, 1998 (Unaudited).............................. F-128
</TABLE>
F-2
<PAGE> 440
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Condensed Consolidated Statements of Income and
Comprehensive Income for the Six Months Ended June 30,
1998 and 1997 (Unaudited)................................. F-129
Condensed Consolidated Statement of Changes in Stockholders'
Equity for the Six Months Ended June 30, 1998
(Unaudited)............................................... F-130
Condensed Consolidated Statements of Cash Flow for the Six
Months Ended June 30, 1998 and 1997 (Unaudited)........... F-131
Note to Condensed Consolidated Financial Statements for the
Six Months Ended June 30, 1998 and 1997 (Unaudited)....... F-132
COMMERCIAL BANCSHARES OF ROANOKE, INC. AND SUBSIDIARIES
Independent Auditor's Report................................ F-134
Consolidated Statements of Financial Condition as of
December 31, 1997 and 1996................................ F-135
Consolidated Statements of Income and Comprehensive Income
for the Years Ended December 31, 1997, 1996 and 1995...... F-136
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1997, 1996 and 1995...... F-137
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995.......................... F-138
Notes to Consolidated Financial Statements.................. F-139
Condensed Consolidated Statement of Financial Condition as
of June 30, 1998 (Unaudited).............................. F-151
Condensed Consolidated Statements of Income and
Comprehensive Income for the Six Months Ended June 30,
1998 and 1997 (Unaudited)................................. F-152
Condensed Consolidated Statement of Changes in Stockholders'
Equity for the Six Months Ended June 30, 1998
(Unaudited)............................................... F-153
Condensed Consolidated Statements of Cash Flow for the Six
Months Ended June 30, 1998 and 1997 (Unaudited)........... F-154
Note to Condensed Consolidated Financial Statements for the
Six Months Ended June 30, 1998 and 1997 (Unaudited)....... F-155
THE BANC CORPORATION
Report of Independent Auditors.............................. F-156
Statement of Condition as of April 7, 1998 (Date of
Inception)................................................ F-157
Notes to Statement of Condition............................. F-158
</TABLE>
F-3
<PAGE> 441
WARRIOR CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditor's Report................................ F-5
Consolidated Statements of Financial Condition as of
December 31, 1997 and 1996................................ F-6
Consolidated Statements of Income and Comprehensive Income
for the Years Ended December 31, 1997, 1996 and 1995...... F-7
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1997, 1996 and 1995...... F-8
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996, and 1995......................... F-9
Notes to Consolidated Financial Statements.................. F-10
Condensed Consolidated Statement of Financial Condition as
of June 30, 1998 (Unaudited).............................. F-22
Condensed Consolidated Statements of Income and
Comprehensive Income for the Six Months Ended June 30,
1998 and 1997 (Unaudited)................................. F-23
Condensed Consolidated Statement of Changes in Stockholders'
Equity for the Six Months Ended June 30, 1998
(Unaudited)............................................... F-24
Condensed Consolidated Statements of Cash Flow for the Six
Months Ended June 30, 1998 and 1997 (Unaudited)........... F-25
Note to Condensed Consolidated Financial Statements for the
Six Months Ended June 30, 1998 and 1997 (Unaudited)....... F-26
</TABLE>
F-4
<PAGE> 442
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
and Stockholders
Warrior Capital Corporation and Subsidiary
Warrior, Alabama
We have audited the accompanying consolidated statements of financial
condition of Warrior Capital Corporation and subsidiary as of December 31, 1997
and 1996 and the related consolidated statements of income and comprehensive
income, changes in stockholders' equity and cash flows for each of the years in
the three-year period ended December 31, 1997. 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 audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Warrior Capital
Corporation and subsidiary at December 31, 1997 and 1996 and the consolidated
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally accepted
accounting principles.
DUDLEY, HOPTON -- JONES, SIMS &
FREEMAN PLLP
Birmingham, Alabama
February 5, 1998
F-5
<PAGE> 443
WARRIOR CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 3,538 $ 3,388
Federal funds sold.......................................... 17,000 9,250
Investment securities available for sale.................... 223 235
Investment securities held to maturity (fair value $23,808
and $20,695, respectively)................................ 23,795 20,712
Loans, net of unearned income............................... 32,394 31,028
Less: Allowance for loan losses............................. (650) (634)
------- -------
Net loans......................................... 31,744 30,394
------- -------
Premises and equipment, net................................. 5,764 1,154
Accrued interest receivable................................. 853 739
Intangible, net............................................. 415 432
Other assets................................................ 330 335
------- -------
TOTAL ASSETS...................................... $83,662 $66,639
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing demand............................. $12,294 $10,018
Interest-bearing demand................................ 12,677 10,054
Savings................................................ 16,459 15,670
Certificates of deposit $100,000 and over.............. 2,482 1,924
Other time............................................. 19,973 21,225
------- -------
TOTAL DEPOSITS.................................... 63,885 58,891
Accrued expenses and other liabilities...................... 1,052 216
------- -------
TOTAL LIABILITIES................................. 64,937 59,107
Minority interest in subsidiary............................. 19 17
Stockholders' equity
Preferred stock, par value $10 per share; authorized
1,476; -0- issued...................................... -- --
Common stock, par value $1 per share; authorized 30,000
shares; 16,510 and 9,054 shares issued and outstanding,
respectively........................................... 16 9
Surplus................................................... 11,054 436
Retained earnings......................................... 7,673 7,111
Accumulated other comprehensive loss...................... (37) (41)
------- -------
TOTAL STOCKHOLDERS' EQUITY........................ 18,706 7,515
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $83,662 $66,639
======= =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE> 444
WARRIOR CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans................................ $3,530 $3,358 $3,323
Interest on investment securities:
Taxable................................................ 1,086 989 935
Exempt from federal income tax......................... 124 134 138
Interest on federal funds sold............................ 623 553 418
Interest and dividends on other investments............... 36 39 45
------ ------ ------
TOTAL INTEREST INCOME............................. 5,399 5,073 4,859
INTEREST EXPENSE ON DEPOSITS................................ 2,248 2,247 2,056
------ ------ ------
Net interest income.................................... 3,151 2,826 2,803
PROVISION FOR LOAN LOSSES................................... 330 135 120
------ ------ ------
Net interest income after provision for loan losses.... 2,821 2,691 2,683
NONINTEREST INCOME
Service charges and fees.................................. 441 419 538
Loss on sale of securities................................ (2) (16) (35)
Other income.............................................. 36 60 50
------ ------ ------
TOTAL NONINTEREST INCOME.......................... 475 463 553
NONINTEREST EXPENSES
Salaries and employee benefits............................ 1,149 1,041 987
Occupancy and equipment expense........................... 361 347 304
Minority interest in earnings of subsidiary............... 2 2 2
Other operating expenses.................................. 599 562 578
------ ------ ------
TOTAL NONINTEREST EXPENSES........................ 2,111 1,952 1,871
------ ------ ------
Income before income taxes........................... 1,185 1,202 1,365
Income tax expense.......................................... 387 412 467
------ ------ ------
NET INCOME........................................... 798 790 898
Other comprehensive income, net of tax:
Unrealized holding gains on securities available for sale
arising during period.................................. 4 9 63
------ ------ ------
COMPREHENSIVE INCOME...................................... $ 802 $ 799 $ 961
====== ====== ======
Earnings per share -- basic................................. $79.12 $87.25 $99.21
====== ====== ======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-7
<PAGE> 445
WARRIOR CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMMON RETAINED COMPREHENSIVE TREASURY STOCKHOLDERS'
STOCK SURPLUS EARNINGS LOSS STOCK EQUITY
------ ------- -------- ------------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995......... $ 9 $ 436 $5,862 $(113) $ -- $ 6,194
Net income......................... -- -- 898 -- -- 898
Dividends declared................. -- -- (226) -- -- (226)
Other comprehensive income......... -- -- -- 63 -- 63
--- ------- ------ ----- ------ -------
Balance at December 31, 1995....... 9 436 6,534 (50) -- 6,929
Net income......................... -- -- 790 -- -- 790
Dividends declared................. -- -- (213) -- -- (213)
Other comprehensive income......... -- -- -- 9 -- 9
--- ------- ------ ----- ------ -------
Balance at December 31, 1996....... 9 436 7,111 (41) -- 7,515
NET INCOME......................... -- -- 798 -- -- 798
DIVIDENDS DECLARED................. -- -- (236) -- -- (236)
PURCHASE OF 6,587 SHARES OF COMMON
STOCK............................ -- -- -- -- (9,459) (9,459)
PROCEEDS FROM ISSUANCE OF 7,456
SHARES OF COMMON STOCK AND
REISSUANCE OF 6,587 SHARES OF
TREASURY STOCK................... 7 10,618 -- -- 9,459 20,084
OTHER COMPREHENSIVE INCOME......... -- -- -- 4 -- 4
--- ------- ------ ----- ------ -------
BALANCE AT DECEMBER 31, 1997....... $16 $11,054 $7,673 $ (37) -- $18,706
=== ======= ====== ===== ====== =======
</TABLE>
F-8
<PAGE> 446
WARRIOR CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 798 $ 790 $ 898
Adjustments to reconcile net income to net cash provided
by operations:
Depreciation and amortization.......................... 145 143 130
Net (discount accretion) premium amortization.......... (17) (47) 1
Loss on sale of securities available for sale.......... 2 16 35
Loss on sale of other real estate...................... 11 -- --
Provision for loan losses.............................. 330 135 120
Increase in accrued interest receivable................ (114) -- (50)
Increase in other assets............................... (122) (50) (190)
(Decrease) increase in accrued interest payable........ (3) (17) 72
(Decrease) increase in other liabilities............... (4) (137) 42
-------- ------- -------
NET CASH PROVIDED BY OPERATIONS................... 1,026 833 1,058
-------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in federal funds sold........................ (7,750) (650) (3,800)
Proceeds from sales of securities available for sale...... 13 36 38
Proceeds from maturities of investment securities held to
maturity............................................... 11,485 5,270 4,311
Purchases of investment securities held to maturity....... (14,552) (7,474) (4,079)
Net (increase) decrease in loans.......................... (1,679) 2,002 (2,424)
Purchases of premises and equipment....................... (203) (67) (149)
Proceeds from sale of other real estate................... 146 -- --
-------- ------- -------
NET CASH USED IN INVESTING ACTIVITIES............. (12,540) (883) (6,103)
-------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand and savings deposits.... 5,687 (58) 1,728
Net decrease (increase) in certificates of deposit and
other time deposits.................................... (694) 472 3,295
Payment on assumed debt................................... (1,513) -- --
Proceeds from issuance of common stock.................... 17,879 -- --
Repurchase of common stock................................ (9,459) -- --
Dividends paid............................................ (236) (213) (226)
-------- ------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES......... 11,664 201 4,797
-------- ------- -------
Net increase (decrease) in cash and due from banks.......... 150 151 (248)
Cash and due from banks at beginning of year................ 3,388 3,237 3,485
-------- ------- -------
CASH AND DUE FROM BANKS AT END OF YEAR...................... $ 3,538 $ 3,388 $ 3,237
======== ======= =======
SUPPLEMENTAL CASH FLOW INFORMATION
Selected cash payments and noncash activities were as
follows:
Cash payments for income taxes............................ $ 461 $ 575 $ 423
Cash payments for interest................................ 2,251 2,264 1,984
Noncash investing and financing activities:
Real estate and equipment acquired by assuming related
liability and issuing common stock (Note 9)............ $ 4,534 $ -- $ --
======== ======= =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-9
<PAGE> 447
WARRIOR CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(IN THOUSAND, EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies followed by Warrior Capital Corporation ("Company")
and its subsidiary and the method of applying those policies which affect the
determination of financial condition, results of operations and cash flows are
summarized below.
CONSOLIDATION
The consolidated financial statements of the Company include the accounts
of its 99.75% owned subsidiary, Warrior Savings Bank ("Bank"). All significant
intercompany accounts and transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses. While management
uses available information to recognize losses on loans, future additions to the
allowance may be necessary based on changes in local economic conditions. In
addition, regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses. 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.
INVESTMENT SECURITIES
The Bank's investments in securities are classified in two categories and
accounted for as follows:
-- Investment Securities Held to Maturity. Bonds, notes and debentures for
which the Bank has the positive intent and ability to hold to maturity
are reported at cost, adjusted for amortization of premiums and
accretion of discounts which are recognized in interest income using the
interest method over the period to maturity.
-- Investment Securities Available for Sale. Securities available for sale
consist of bonds, notes, debentures, and certain equity securities not
classified as trading securities nor as securities to be held to
maturity. Unrealized holding gains and losses, net of deferred income
tax, on securities available for sale are reported as a separate
component of stockholders' equity until realized.
Gains and losses on the sale of securities available for sale are
determined using the specific-identification method.
LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are stated at the amount of unpaid principal, reduced by unearned
discount and an allowance for loan losses. Interest income with respect to loans
is accrued on the principal amount outstanding, except for interest on certain
consumer loans, which is recognized over the term of the loan using a method
which approximates a level yield.
F-10
<PAGE> 448
WARRIOR CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
The allowance for loan losses is established through a provision for loan
losses charged to expenses. Loans are charged against the allowance for loan
losses when management believes the collectibility of principal is unlikely. The
allowance is the amount that management believes will be adequate to absorb
possible losses on existing loans which may become uncollectible, based on
evaluation of the collectibility of loans and prior loan loss experience. The
evaluations take into consideration such factors as changes in the nature and
volume of the loan portfolio, overall portfolio quality, review of specific
problem loans, and current economic conditions that may affect the borrower's
ability to pay.
Accrual of interest is discontinued on a loan when management believes,
after considering economic and business conditions and collection efforts, that
the loan is impaired. Any unpaid interest previously accrued on those loans is
reversed from income. Interest income generally is not recognized on specific
impaired loans unless the likelihood of further loss is remote. Interest
payments received on such loans are applied as a reduction of the loan principal
balance. Interest income on other nonaccrual loans is recognized only to the
extent of interest payments received.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed over the estimated service lives of the
assets using certain straight-line and accelerated methods.
Expenditures for maintenance and repairs are charged to operations as
incurred; expenditures for renewals and betterments are capitalized and written
off by depreciation charges. Property retired or sold is removed from the asset
and related accumulated depreciation accounts and any profit or loss resulting
therefrom is reflected in the statement of income.
INTANGIBLE, NET
Intangible assets is the excess of the cost over net assets acquired, net
of amortization calculated on a straight-line basis over a forty-year period.
OTHER REAL ESTATE
Other real estate, acquired through partial or total satisfaction of loans,
is carried at the lower of cost or fair market value. At the date of
acquisition, losses are charged to the allowance for loan losses.
INCOME TAXES
Income tax expense is based on amounts reported in the statement of income,
after exclusion of nontaxable income such as interest on state and municipal
securities and certain nondeductible expenses (See Note 8).
EARNINGS PER SHARE
Basic earnings per share has been computed based on the weighted average
number of common shares outstanding of 10,086 and 9,054, respectively.
STOCKHOLDERS EQUITY
In 1997, the Company received $20,084, net of issuance cost, from the
proceeds of a private offering ("offering"). Under the offering a total of
14,043 shares were issued at $1,436 per share before December 31, 1997. Of the
14,043 shares issued, 6,587 consisted of treasury stock purchased on October 28,
1997 and recorded at cost.
F-11
<PAGE> 449
WARRIOR CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
OFF BALANCE SHEET FINANCIAL INSTRUMENTS
In the ordinary course of business the Bank has entered into off balance
sheet financial instruments consisting of commitments to extend credit, and
standby letters of credit. Such financial instruments are recorded in the
financial statements when they become payable.
CASH AND CASH EQUIVALENTS
For the purpose of presentation in the statement of cash flows, cash and
cash equivalents are defined as those amounts included in the statement of
financial condition caption "Cash and Due from Banks."
EFFECT OF NEW FINANCIAL ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, Earnings per Share. This statement simplifies the standards for
computing earnings per share previously set forth in APB Opinion No. 15,
Earnings per Share, and makes them comparable to international Earnings per
Share ("EPS") standards. It replaces the presentation of primary EPS with a
presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. Basic EPS excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. Diluted EPS is computed
similarly to fully diluted EPS pursuant to APB Opinion No. 15. This statement is
effective for financial statements issued for periods ending after December 15,
1997. The adoption of this statement did not have a material impact on the
consolidated financial statements.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
This statement establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose 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 with
the same prominence as other financial statements. This statement does not
require a specific format for that financial statement but requires that an
enterprise display an amount representing total comprehensive income for the
period in that financial statement. This statement requires that an enterprise
classify items of other comprehensive income by their nature in a financial
statement and display the accumulated balance separately from retained earnings
and additional paid-in capital in the equity section of a statement of financial
position. This statement is effective for fiscal years beginning after December
15, 1997. The adoption of this statement did not have a material impact on the
consolidated financial statements.
2. RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS
The subsidiary bank is required to maintain average reserve balances either
in vault cash or on deposit with the Federal Reserve Bank. The amount of those
reserves required at December 31, 1997 was approximately $420.
F-12
<PAGE> 450
WARRIOR CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVESTMENT SECURITIES
The amounts at which investment securities are carried and their
approximate fair values at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Investment securities available for sale
Equity securities............................ $ 260 $ -- $ 37 $ 223
======= ==== ==== =======
Investment securities held to maturity
U.S. Treasury securities and obligations of
U.S. government corporations and
agencies.................................. $20,050 $ 45 $ 91 $20,004
State, county and municipal securities....... 3,545 62 13 3,594
Corporate.................................... 200 10 -- 210
------- ---- ---- -------
Totals............................... $23,795 $117 $104 $23,808
======= ==== ==== =======
DECEMBER 31, 1996
Investment securities available for sale
Equity securities............................ $ 276 $ -- $ 41 $ 235
======= ==== ==== =======
Investment securities held to maturity
U.S. Treasury securities and obligations of
U.S. government corporations and
agencies.................................. $17,736 $ 44 $139 $17,641
State, county and municipal securities....... 2,776 85 22 2,839
Corporate.................................... 200 15 -- 215
------- ---- ---- -------
Totals............................... $20,712 $144 $161 $20,695
======= ==== ==== =======
</TABLE>
Securities with an amortized cost of $1,574 and $1,374 at December 31, 1997
and 1996, respectively were pledged to secure United States government deposits
and other public funds and for other purposes as required or permitted by law.
The amortized cost and estimated fair values of debt securities at December
31, 1997, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
SECURITIES HELD TO
MATURITY
---------------------
ESTIMATED
AMORTIZED FAIR
COST VALUE
--------- ---------
<S> <C> <C>
Due in one year or less..................................... $ 8,465 $ 8,434
Due after one year through five years....................... 8,988 9,036
Due after five years through ten years...................... 5,945 5,935
Due after ten years......................................... 397 403
------- -------
$23,795 $23,808
======= =======
</TABLE>
F-13
<PAGE> 451
WARRIOR CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. LOANS
The Bank grants loans to customers primarily in Jefferson County, Alabama.
At December 31, 1997 and 1996 the composition of the loan portfolio was as
follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Commercial and industrial................................... $ 5,285 $ 4,969
Real estate -- construction................................. 3,317 3,102
-- mortgage..................................... 12,360 12,005
Loans to individuals for personal expenditures.............. 10,979 10,840
All other loans (including overdrafts)...................... 773 440
------- -------
Total loans....................................... 32,714 31,356
Unearned interest and fees.................................. (320) (328)
Allowance for loan losses................................... (650) (634)
------- -------
Net loans......................................... $31,744 $30,394
======= =======
</TABLE>
At December 31, 1997 and 1996 the Company's recorded investment in loans
considered to be impaired under SFAS 114 were $433 and $719, respectfully, all
of which were on nonaccrual status with no related allowance. The average
recorded investment in impaired loans during 1997 and 1996 were approximately
$434 and $361, respectfully.
The Bank has no commitments to loan additional funds to the borrowers whose
loans are nonaccruing.
5. ALLOWANCE FOR LOAN LOSSES
A summary of the allowance for loan losses for the year ended December 31,
1997, 1996 and 1995 follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year................................ $634 $660 $627
Provision for loan losses................................... 330 135 120
Loan charge-offs............................................ (380) (202) (124)
Recoveries.................................................. 66 41 37
---- ---- ----
Balance at end of year...................................... $650 $634 $660
==== ==== ====
</TABLE>
6. PREMISES AND EQUIPMENT
Components of premises and equipment at December 31, 1997 and 1996 are as
follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Land........................................................ $ 200 $ 200
Bank premises............................................... 938 883
Furniture and equipment..................................... 1,438 1,438
------- -------
2,576 2,521
Less: Accumulated depreciation............................ (1,488) (1,367)
------- -------
Net book value of premises and equipment in service.... 1,088 1,154
Real estate and equipment under renovation (Note 9)......... 4,676 --
------- -------
Net premises and equipment............................. $ 5,764 $ 1,154
======= =======
</TABLE>
F-14
<PAGE> 452
WARRIOR CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. RETIREMENT PLANS
The Bank has a defined benefit plan that provides retirement, disability
and death benefits. All employees over age 21 are eligible to participate in the
plan after the completion of one year of service.
Benefits under the Plan depend upon a participant's years of credited
service with the Bank and his average monthly earnings for the five-year period
prior to the retirement or termination of employment. A participant is 20%
vested in his accrued benefits after completion of two years of service. Vesting
increases 20% per year for the next four years with the participant becoming
fully vested upon completion of six years of service. An employee who completes
ten years of service and attains age fifty-five is eligible for early retirement
benefits. Plan assets consist primarily of Bank certificates of deposit.
The Company contributes amounts to the pension funds sufficient to satisfy
funding requirements of the Employee Retirement Income Security Act.
Net pension cost for 1997 and 1996 are composed of the following:
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
Service..................................................... $ 30 $ 31
Interest cost on projected benefit obligations.............. 55 47
Actual return on assets..................................... (53) (50)
Net amortization and deferral............................... (3) --
----- -----
Net periodic pension costs........................ $ 29 $ 28
===== =====
Actuarial present value of benefit obligation:
Vested.................................................... $ 700 $ 768
Nonvested................................................. 12 9
----- -----
Accumulated benefit obligation.............................. $ 712 $ 777
===== =====
Actuarial present value of projected benefit obligation..... $(725) $(783)
Plan assets at fair value................................... 789 774
----- -----
Funded status............................................... 64 (9)
Unrecognized transition amount.............................. (17) (18)
Unrecognized net (gain) loss................................ (12) 41
----- -----
Prepaid pension cost........................................ $ 35 $ 14
===== =====
</TABLE>
The weighted average discount rate used in determining actuarial present
value of the projected benefit obligation was seven percent for 1997. The
assumed long-term rate of return on plan assets in 1997 was seven percent.
The Bank has a profit-sharing plan which permits participants to make
contributions by salary reduction pursuant to Section 401(k) of the Internal
Revenue code. Employees may contribute a maximum of 15% of compensation for the
plan year. The Bank matches contributions at its discretion. In addition, the
plan allows the Bank to make discretionary contributions. In 1997, 1996 and 1995
the Bank's contributions to the plan were $20, $18 and $14, respectively.
F-15
<PAGE> 453
WARRIOR CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAX EXPENSE
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
DESCRIPTION 1997 1996 1995
- ----------- ---- ---- ----
<S> <C> <C> <C>
Currently payable:
Federal................................................... $357 $386 $418
State..................................................... 78 49 51
---- ---- ----
Total currently payable........................... 435 435 469
Tax effect of temporary differences......................... (48) (23) (2)
---- ---- ----
Income tax expense................................ $387 $412 $467
==== ==== ====
</TABLE>
As of December 31, 1997 and 1996 the net deferred tax liability consisted
of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax asset:
Provision for loan losses................................. $184 $206
---- ----
Deferred tax liability:
Difference in book and tax basis of assets acquired....... 816 --
Sec. 481 cash to accrual basis adjustment................. 127 207
Accretion on securities................................... 34 24
---- ----
977 231
---- ----
Net deferred tax liability........................ $793 $ 25
==== ====
</TABLE>
The effective tax rate differs significantly from the expected tax using
statutory rate of 34%. Reconciliation between the expected tax and the actual
provision for income taxes follows:
<TABLE>
<CAPTION>
DESCRIPTION 1997 1996 1995
- ----------- ---- ---- ----
<S> <C> <C> <C>
Expected tax at 34% of income tax before taxes.............. $403 $409 $464
Add (deduct):
State income taxes, net of federal tax benefit............ 52 32 34
Effect of interest income exempt from Federal income
taxes.................................................. (44) (45) (47)
Unallowable interest deduction............................ 5 5 4
Other items -- net........................................ (29) 11 12
---- ---- ----
Income tax expense................................ $387 $412 $467
==== ==== ====
</TABLE>
9. RELATED PARTY TRANSACTIONS
The Bank has entered into transactions with its directors, executive
officers, significant shareholders and their affiliates (related parties). Such
transactions were made in the ordinary course of business on substantially the
same terms and conditions, including interest rates and collateral, as those
prevailing at the same time for comparable transactions with other customers,
and did not, in the opinion of management, involve more than normal credit risk
or present other unfavorable features. Changes in related party loans for the
year ended December 31, 1997 were as follows:
<TABLE>
<CAPTION>
BALANCE BALANCE
DECEMBER 31, 1996 ADVANCES REPAYMENTS DECEMBER 31, 1997
- ----------------- -------- ---------- -----------------
<S> <C> <C> <C>
$1,327 $2,121 $1,304 $2,144
====== ====== ====== ======
</TABLE>
F-16
<PAGE> 454
WARRIOR CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. RELATED PARTY TRANSACTIONS -- CONTINUED
During 1997 the Company purchased a twenty-one story building in downtown
Birmingham from Taylor Acquisition Corporation, a corporation owned by James A.
Taylor, Sr., Chairman and CEO of the Company and certain family members. The
building was purchased through a transaction in which the Taylor's received
1,535 shares of Company common stock and, in addition, the Company assumed
$1,513 in outstanding debt on the property. The building and related equipment
have been capitalized at the appraised fair value of $3,718, plus $816 in
deferred taxes recognized on the difference between the book and tax basis.
10. TIME DEPOSITS
The maturities of time certificates of deposit of $100,000 or more at
December 31, 1997 are as follows:
<TABLE>
<S> <C>
Three months or less........................................ $1,091
Over three through six months............................... 111
Over six through twelve months.............................. 568
Over twelve months.......................................... 712
------
$2,482
======
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
The consolidated financial statements do not reflect the Bank's various
commitments and contingent liabilities which arise in the normal course of
business and which involve elements of credit risk, interest rate risk and
liquidity risk. These commitments and contingent liabilities are commitments to
extend credit and standby letters of credit. The following is a summary of the
Bank's commitments and contingent liabilities at December 31, 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Commitments to extend credit................................ $5,294 $2,985
Standby letters of credit................................... 351 170
</TABLE>
Commitments to extend credit and standby letters of credit all include
exposure to some credit loss in the event of nonperformance of the customer. The
Bank's credit policies and procedures for credit commitments and financial
guarantees are the same as those for extension of credit that are recorded in
the consolidated statement of financial condition. Because these instruments
have fixed maturity dates, and because many of them expire without being drawn
upon, they do not generally present any significant liquidity risk to the Bank.
The Bank is party to litigation and claims arising in the normal course of
business. Management, after consultation with legal counsel, believes that the
liabilities, if any, arising from such litigation and claims will not be
material to the consolidated financial statements.
12. REGULATORY RESTRICTIONS
The primary source of funds available to the Company is the payment of
dividends by its subsidiary Bank. Banking regulations limit the amount of
dividends that may be paid without prior approval of the Bank's regulatory
agency. Approximately $2,182,000 are available to be paid as dividends by the
Bank subsidiary at December 31, 1997.
The Company and its subsidiary are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory -- and possible
additional discretionary -- actions by regulators that, if undertaken, could
have a direct material effect on the Company's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Company and its subsidiary must meet specific capital guidelines
F-17
<PAGE> 455
WARRIOR CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. REGULATORY RESTRICTIONS -- CONTINUED
that involve quantitative measures of their assets, liabilities, and certain
off-balance sheet items as calculated under regulatory accounting practices. The
Company and its subsidiary's capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk weightings,
and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1997 and 1996 that
the Company and its subsidiary meet all capital adequacy requirements to which
they are subject.
As of December 31, 1997 and 1996, 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, Tier I leverage ratios as
set forth in the table. There are no conditions or events since that
notification that management believes have changed the institution's category.
The Company and its subsidiary's actual capital amounts and ratios are also
presented in the table.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
FOR CAPITAL UNDER PROMPT
ADEQUACY CORRECTIVE ACTION
ACTUAL PURPOSES PROVISIONS
--------------- -------------- ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ------ ----- -------- -------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Capital
(to Risk Weighted Assets):
Consolidated............................ $18,907 39.58% $3,821 8.00% $4,777 10.00%
Bank.................................... 8,191 19.05 3,439 8.00 4,299 10.00
Tier I Capital
(to Risk Weighted Assets):
Consolidated............................ 18,310 38.33 1,911 4.00 2,866 6.00
Bank.................................... 7,654 17.80 1,720 4.00 2,579 6.00
Tier I Capital
(to Average Assets):
Consolidated............................ 18,310 23.48 3,119 4.00 3,899 5.00
Bank.................................... 7,654 9.81 3,119 4.00 3,899 5.00
As of December 31, 1996:
Total Capital
(to Risk Weighted Assets):
Consolidated............................ $ 7,604 18.88% $3,223 8.00% $4,029 10.00%
Bank.................................... 7,369 18.29 3,223 8.00 4,029 10.00
Tier I Capital
(to Risk Weighted Assets):
Consolidated............................ 7,100 17.62 1,611 4.00 2,417 6.00
Bank.................................... 6,865 17.04 1,611 4.00 2,417 6.00
Tier I Capital
(to Average Assets):
Consolidated............................ 7,100 10.56 2,689 4.00 3,361 5.00
Bank.................................... 6,865 10.21 2,689 4.00 3,361 5.00
</TABLE>
F-18
<PAGE> 456
WARRIOR CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. OTHER OPERATING EXPENSES
Other operating expenses consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Professional fees........................................... $ 67 $ 65 $ 71
Directors fees.............................................. 191 152 136
Insurance and assessments................................... 49 58 120
Postage, stationery and supplies............................ 124 111 117
Other operating expense..................................... 168 176 134
---- ---- ----
Total............................................. $599 $562 $578
==== ==== ====
</TABLE>
14. CONCENTRATIONS OF CREDIT
All of the Bank's loans, commitments and standby letters of credit have
been granted to customers in the Bank's market area. The concentrations of
credit by type of loan or commitment are set forth in Notes 4 and 11,
respectively.
The Bank maintains due from bank accounts at various commercial banks in
Alabama. The total cash balances are insured by the FDIC up to $100,000. Total
uninsured balances held at these commercial banks amounted to $1,053 at December
31, 1997.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Cash and Short-Term Investments: For those short-term instruments,
the carrying amount is a reasonable estimate of fair value.
Investment Securities: For securities held for investment purposes,
fair values are based on quoted market prices or dealer quotes.
Loan Receivables: For variable-rate loans that reprice frequently and
have no significant change in credit risk, fair values are based on
carrying values. The fair value of other types of loans is estimated by
discounting the future cash flows using the current rates at which similar
loans would be made to borrowers with similar credit ratings and for the
same remaining maturities.
Deposit Liabilities: The fair value of demand deposits, savings
accounts, and certain money market deposits is the amount payable on demand
at the reporting date. The fair value of fixed-maturity certificates of
deposit is estimated using the rates currently offered for deposit of
similar remaining maturities.
Commitments to Extend Credit and Standby Letters of Credit. The fair
value of commitments and letters of credit is estimated to be approximately
the same as the notional amount of the related commitment.
F-19
<PAGE> 457
WARRIOR CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. FAIR VALUE OF FINANCIAL INSTRUMENTS -- CONTINUED
The estimated fair values of the Company's financial instruments as of
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
------------------ ------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- -------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and short-term investments................. $20,538 $20,538 $12,638 $12,638
Investment securities........................... 24,018 24,031 20,747 20,930
Loans........................................... 32,394 31,228
Less: Allowance for losses...................... (650) (634)
Net loans....................................... 31,744 31,800 30,594 30,600
------- ------- ------- -------
TOTAL FINANCIAL ASSETS.................. $76,300 $76,369 $63,979 $64,168
======= ======= ======= =======
FINANCIAL LIABILITIES:
Deposits........................................ $63,885 $63,973 $58,891 $58,941
======= ======= ======= =======
UNRECOGNIZED FINANCIAL INSTRUMENTS:
Commitments to extend credit.................... $ 5,294 $ 5,294 $ 2,985 $ 2,985
Standby letters of credit....................... 351 351 170 170
------- ------- ------- -------
TOTAL UNRECOGNIZED FINANCIAL
INSTRUMENTS........................... $ 5,645 $ 5,645 $ 3,155 $ 3,155
======= ======= ======= =======
</TABLE>
16. PARENT COMPANY
The condensed financial information for Warrior Capital Corporation (Parent
Company only) is presented as follows:
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
1997 1996
------- ------
<S> <C> <C>
ASSETS
Cash...................................................... $ 6,717 $ 257
Investment in subsidiary, at equity....................... 7,636 6,848
Intangibles, net.......................................... 415 432
Premises and equipment -- net............................. 4,676 --
Other assets.............................................. 148 1
------- ------
$19,592 $7,538
======= ======
LIABILITIES -- ACCOUNTS PAYABLE AND DEFERRED TAXES.......... $ 886 $ 23
STOCKHOLDERS' EQUITY........................................ 18,706 7,515
------- ------
$19,592 $7,538
======= ======
</TABLE>
F-20
<PAGE> 458
WARRIOR CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. PARENT COMPANY -- CONTINUED
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
INCOME
Dividends from subsidiary................................. $100 $235 $275
Interest.................................................. 65 -- --
---- ---- ----
165 235 275
EXPENSE
Directors' fees........................................... 136 98 89
Other..................................................... 58 34 36
---- ---- ----
194 132 125
---- ---- ----
Income (loss) before income tax benefit and equity
in undistributed earnings of subsidiary.......... (29) 103 150
INCOME TAX BENEFIT.......................................... 43 7 36
---- ---- ----
Income before equity in undistributed earnings of
subsidiary....................................... 14 110 186
Equity in undistributed earnings of subsidiary.............. 784 680 712
---- ---- ----
NET INCOME........................................ $798 $790 $898
==== ==== ====
</TABLE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1997 1996 1995
------- ----- -----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 798 $ 790 $ 898
Adjustments to reconcile net income to net cash (used)
provided by operating activities:
Amortization expense................................... 18 18 18
Undistributed earnings of subsidiary................... (784) (680) (712)
Increase (decrease) in other liabilities............... 47 (141) 46
Increase in other assets............................... (149) -- --
------- ----- -----
NET CASH (USED) PROVIDED BY OPERATING
ACTIVITIES...................................... (70) (13) 250
------- ----- -----
NET CASH USED IN INVESTING ACTIVITIES
Purchase of equipment..................................... (141) -- --
------- ----- -----
CASH USED IN FINANCING ACTIVITIES
Dividends paid............................................ (235) (213) (226)
Proceeds from issuance of common stock.................... 17,878 -- --
Repurchase of common stock................................ (9,459) -- --
Payment on assumed debt................................... (1,513) -- --
------- ----- -----
Net cash provided (used) by financing
activities...................................... 6,671 (213) (226)
------- ----- -----
Net increase (decrease) in cash............................. 6,460 (226) 24
Cash at beginning of year................................... 257 483 459
------- ----- -----
CASH AT END OF YEAR......................................... $ 6,717 $ 257 $ 483
======= ===== =====
</TABLE>
F-21
<PAGE> 459
WARRIOR CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION (UNAUDITED)
AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
JUNE 30,
1998
--------------
(IN THOUSANDS)
<S> <C>
ASSETS
Cash and due from banks..................................... $ 4,822
Federal funds sold.......................................... 1,900
Investment securities available for sale.................... 201
Investment securities held to maturity...................... 24,934
Loans, net of unearned...................................... 46,601
Less: Allowance for loan losses............................. (717)
-------
Net loans......................................... 45,884
-------
Premises and equipment, net................................. 10,227
Other assets................................................ 1,852
-------
TOTAL ASSETS...................................... $89,820
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing....................................... $12,618
Interest-bearing.......................................... 52,136
-------
TOTAL DEPOSITS.................................... 64,754
Accrued expenses and other liabilities...................... 3,181
-------
TOTAL LIABILITIES................................. 67,935
Minority interest in equity of subsidiary................... 29
Stockholders' Equity
Common stock, par value $1 per share; authorized 30,000
shares; 18,160 shares issued and outstanding........... 18
Surplus................................................... 13,422
Retained earnings......................................... 8,451
Accumulated other comprehensive loss...................... (35)
-------
TOTAL STOCKHOLDERS' EQUITY........................ 21,856
-------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $89,820
=======
</TABLE>
See Note to Unaudited Condensed Financial Statements.
F-22
<PAGE> 460
WARRIOR CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------- ------
(IN THOUSANDS
EXCEPT PER SHARE
DATA)
<S> <C> <C>
Interest Income............................................. $ 3,070 $2,590
Interest expense............................................ 1,134 1,109
------- ------
Net interest income............................... 1,936 1,481
Provision for loan losses................................... 38 90
------- ------
Net interest income after provision for loan losses.... 1,898 1,391
Noninterest income.......................................... 312 251
Net loss on sale of securities.............................. (4) (3)
Noninterest expenses........................................ 1,497 1,011
------- ------
Income before income taxes........................ 709 628
Income tax expense (benefit)................................ (68) 233
------- ------
Net income........................................ 777 395
Other comprehensive income (loss) net of tax:
Unrealized gain (loss) on securities available for sale... 2 (4)
------- ------
Comprehensive income........................................ $ 779 $ 391
======= ======
Basic earnings per share.................................... $ 44.57 $43.63
======= ======
Average number of shares outstanding........................ 17,435 9,054
======= ======
</TABLE>
See Note to Unaudited Condensed Financial Statements.
F-23
<PAGE> 461
WARRIOR CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMMON RETAINED COMPREHENSIVE STOCKHOLDERS'
STOCK SURPLUS EARNINGS LOSS EQUITY
------ ------- -------- ------------- -------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997................ $16 $11,054 $7,674 $(37) $18,707
Net income.................................. -- -- 777 -- 777
Issuance of 1,650 shares of common stock.... 2 2,368 -- -- 2,370
Other comprehensive income.................. -- -- -- 2 2
--- ------- ------ ---- -------
Balance at June 30, 1998.................... $18 $13,422 $8,451 $(35) $21,856
=== ======= ====== ==== =======
</TABLE>
See Note to Unaudited Condensed Financial Statements.
F-24
<PAGE> 462
WARRIOR CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Net cash provided by operating activities................... $ 672 $ 518
-------- -------
Cash flows from investing activities:
Net decrease in federal funds sold........................ 15,100 1,525
Proceeds from sales of securities available for sale...... 21 12
Proceeds from maturities of investment securities held to
maturity............................................... 10,144 3,230
Purchases of investment securities held to maturity....... (11,218) (4,486)
Net increase in loans..................................... (14,178) (1,676)
Purchases of premises and equipment....................... (2,495) (35)
-------- -------
Net cash used in investing activities............. (2,626) (1,430)
-------- -------
Cash flows from financing activities:
Net increase in deposit accounts.......................... 868 2,057
Proceeds from issuance of common stock.................... 2,370 --
Cash dividends paid....................................... -- (135)
-------- -------
Net cash provided by financing activities......... 3,238 1,922
-------- -------
Net increase in cash and due from banks..................... 1,284 1,010
Cash and due from banks at beginning of period.............. 3,538 3,388
-------- -------
Cash and due from banks at end of period.................... $ 4,822 $ 4,398
======== =======
Supplemental Cash Flow Information:
Selected cash payments and noncash activities were as
follows:
Cash (refund) payments for income taxes................ $ (10) $ 242
Cash payments for interest............................. 1,026 1,006
</TABLE>
See Note to Unaudited Condensed Financial Statements.
F-25
<PAGE> 463
WARRIOR CAPITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)
1. ACCOUNTING AND REPORTING POLICIES
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and, accordingly, do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, the
accompanying unaudited condensed consolidated financial statements contain all
adjustments (consisting of only normal recurring entries) necessary to present
fairly the financial position, results of operations and cash flows for the
interim periods. All interim amounts are subject to year-end audit, and the
results of operations for the interim periods reported herein are not
necessarily indicative of results of operations to be expected for the year.
2. RELATED PARTY TRANSACTION
During 1998 the Company received $2,370 from the sale of 1,650 shares of
common stock sold to various directors and executive officers of the Company.
The shares were issued at $1,436 per share as part of a private offering
initiated in 1997.
F-26
<PAGE> 464
EMERALD COAST BANCSHARES INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditor's Report................................ F-28
Consolidated Statements of Financial Condition as of
December 31, 1997 and 1996................................ F-29
Consolidated Statements of Operations for the Year Ended
December 31, 1997 and the Four Months Ended December 31,
1996...................................................... F-30
Consolidated Statements of Changes in Stockholders' Equity
for the Year Ended December 31, 1997 and the Four Months
Ended December 31, 1996................................... F-31
Consolidated Statements of Cash Flows for the Year Ended
December 31, 1997 and the Four Months Ended December 31,
1996...................................................... F-32
Notes to Consolidated Financial Statements.................. F-33
Condensed Consolidated Statement of Financial Condition as
of June 30, 1998 (Unaudited).............................. F-44
Condensed Statements of Loss and Comprehensive Loss for the
Six Months Ended June 30, 1998 and 1997 (Unaudited)....... F-45
Condensed Consolidated Statement of Changes in Stockholders'
Equity for the Six Months Ended June 30, 1998
(Unaudited)............................................... F-46
Condensed Statements of Cash Flow for the Six Months Ended
June 30, 1998 and 1997 (Unaudited)........................ F-47
Note to Condensed Consolidated Financial Statements for the
Six Months Ended June 30, 1998 and 1997 (Unaudited)....... F-48
</TABLE>
F-27
<PAGE> 465
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Emerald Coast Bancshares, Inc. and Subsidiary
Panama City Beach, Florida
We have audited the accompanying consolidated statements of financial
condition of Emerald Coast Bancshares, Inc. and Subsidiary as of December 31,
1997 and 1996, and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for the year ended December 31, 1997 and
the four months ended December 31, 1996. These consolidated financial statements
are the responsibility of the Bank's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Emerald Coast
Bancshares, Inc. and Subsidiary as of December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for the year ended
December 31, 1997 and the four months ended December 31, 1996 in conformity with
generally accepted accounting principles.
/s/ SALTMARSH, CLEAVELAND & GUND
--------------------------------------
Pensacola, Florida
March 9, 1998, except of Note 15,
as to which date is May 4, 1998
F-28
<PAGE> 466
EMERALD COAST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 3,496,277 $ 1,689,615
Federal funds sold.......................................... -- 410,000
Securities available for sale............................... 8,529,253 4,436,071
Loans receivable, net of allowance for loan losses of
$387,826 in 1997 and $70,000 in 1996...................... 37,437,148 11,776,372
Accrued interest receivable................................. 358,349 112,149
Premises and equipment...................................... 5,587,492 2,364,075
Deferred income taxes....................................... 448,535 257,990
Other assets................................................ 139,995 170,438
----------- -----------
TOTAL ASSETS...................................... $55,997,049 $21,216,710
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Noninterest-bearing demand deposits....................... $11,296,263 $ 5,092,673
Interest-bearing deposits
NOW and money market deposits.......................... 9,267,938 2,128,003
Savings deposits....................................... 526,242 182,355
Other time deposits.................................... 21,532,177 7,836,961
----------- -----------
Total deposits.................................... 42,622,620 15,239,992
Federal funds purchased................................... 7,670,000 --
Accrued interest payable.................................. 177,812 68,873
Other liabilities......................................... 10,994 4,000
----------- -----------
Total liabilities................................. 50,481,426 15,312,865
----------- -----------
COMMITMENTS AND CONTINGENCIES............................... -- --
STOCKHOLDERS' EQUITY:
Common stock, $5 par value; 10,000,000 shares authorized,
626,000 shares issued and outstanding.................. 3,130,000 3,130,000
Additional paid-in capital................................ 3,130,000 3,130,000
Accumulated deficit....................................... (750,104) (354,294)
Net unrealized appreciation (depreciation) on
available-for-sale securities, net of taxes of $3,465
in 1997 and $1,240 in 1996............................. 5,727 (1,861)
----------- -----------
Total stockholders' equity........................ 5,515,623 5,903,845
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $55,997,049 $21,216,710
=========== ===========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements
F-29
<PAGE> 467
EMERALD COAST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
AND THE FOUR MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
INTEREST INCOME:
Loans receivable and fees on loans........................ $2,694,995 $ 249,957
Investment securities..................................... 388,516 60,880
Federal funds sold........................................ 30,935 70,098
---------- ---------
Total interest income............................. 3,114,446 380,935
---------- ---------
INTEREST EXPENSE:
Deposits.................................................. 1,474,472 139,112
Federal funds purchased................................... 76,869 --
---------- ---------
Total interest expense............................ 1,551,341 139,112
---------- ---------
Net interest income............................... 1,563,105 241,823
PROVISION FOR LOAN LOSSES................................... 332,500 70,000
---------- ---------
Net interest income after provision for loan
losses.......................................... 1,230,605 171,823
---------- ---------
NONINTEREST INCOME:
Service charges on deposit accounts....................... 67,667 3,123
Net gain on sale of securities............................ 4,747 --
Other income.............................................. 42,360 6,547
---------- ---------
Total noninterest income.......................... 114,774 9,670
---------- ---------
NONINTEREST EXPENSES:
Salaries and employee benefits............................ 1,016,915 432,791
Occupancy expense......................................... 152,177 76,065
Other expense............................................. 767,347 283,681
---------- ---------
Total noninterest expenses........................ 1,936,439 792,537
---------- ---------
LOSS BEFORE INCOME TAX BENEFIT.............................. (591,060) (611,044)
INCOME TAX BENEFIT.......................................... 195,250 256,750
---------- ---------
NET LOSS.................................................... $ (395,810) $(354,294)
========== =========
NET LOSS PER SHARE OF COMMON STOCK.......................... $ (.63) $ (.57)
========== =========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements
F-30
<PAGE> 468
EMERALD COAST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1997 AND THE FOUR MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
NET
UNREALIZED
APPRECIATION
(DEPRECIATION)
ADDITIONAL ON AVAILABLE-
COMMON PAID-IN ACCUMULATED FOR-SALE
STOCK CAPITAL DEFICIT SECURITIES TOTAL
---------- ---------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C>
ISSUANCE OF COMMON
STOCK -- INCEPTION, AUGUST 30,
1996............................ $3,120,000 $3,120,000 -- -- $6,240,000
Net loss........................ $(354,294) (354,294)
Issuance of common stock........ 10,000 10,000 20,000
Net unrealized depreciation on
available-for-sale
securities, net of tax of
$1,240....................... $ (1,861) (1,861)
---------- ---------- --------- -------- ----------
BALANCE, DECEMBER 31, 1996........ $3,130,000 $3,130,000 $(354,294) $ (1,861) $5,903,845
Net loss........................ (395,810) (395,810)
Net change in unrealized
appreciation (depreciation)
on available-for-sale
securities, net of tax of
$4,705....................... 7,588 7,588
---------- ---------- --------- -------- ----------
BALANCE, DECEMBER 31, 1997........ $3,130,000 $3,130,000 $(750,104) $ 5,727 $5,515,623
========== ========== ========= ======== ==========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F-31
<PAGE> 469
EMERALD COAST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997 AND THE FOUR MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (323,420) $ (354,294)
Adjustments to reconcile net loss to net cash used in
operating activities --
Depreciation and amortization.......................... 234,361 62,678
Provision for loan losses.............................. 260,000 70,000
Net accretion/amortization on securities............... (6,045) 737
Net gain on sale of securities......................... (4,747) --
Deferred income taxes.................................. (110,209) (256,750)
Change in operating assets and liabilities --
Increase in accrued interest receivable................ (148,697) (112,149)
Increase (decrease) in other assets.................... 30,411 (170,438)
Increase in accrued interest payable and other
liabilities.......................................... 64,786 72,873
------------ ------------
Net cash used in operating activities............. (3,560) (687,343)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities................ (7,987,778) (4,439,909)
Proceeds from sales and maturities of available-for-sale
securities............................................. 4,316,495 --
Net increase in loans..................................... (14,828,435) (11,846,372)
Net purchases of premises and equipment................... (2,470,987) (2,426,753)
------------ ------------
Net cash used in investing activities............. (20,970,705) (18,713,034)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in non-interest bearing demand, NOW, money
market and savings deposits............................ 6,724,322 7,403,031
Net increase in time deposits............................. 7,903,759 7,836,961
Issuance of common stock.................................. -- 6,260,000
Net increase in federal funds purchased................... 7,670,000 --
------------ ------------
Net cash provided by financing activities......... 22,298,081 21,499,992
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 1,323,816 2,099,615
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 2,172,461 --
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 3,496,277 $ 2,099,615
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid............................................. $ 1,202,295 $ 70,239
============ ============
Income taxes paid......................................... $ -- $ --
============ ============
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F-32
<PAGE> 470
EMERALD COAST BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION:
Emerald Coast Bancshares, Inc. (the "Company") was incorporated on April
16, 1997, as a bank holding company organized under the laws of the State of
Florida. On the date of incorporation, the shareholders of Emerald Coast Bank
received one share of common stock of the Company for each share of common stock
of the Bank. The transaction represented an exchange of shares between
enterprises under common control. The financial statements reflect the
consolidated results of operations as if the combination had occurred at the
date of Bank inception on August 30, 1996.
In 1996, the organizers of Emerald Coast Bank (the "Bank") contributed
$6,260,000 for capital of the Bank. On August 30, 1996, the organizers received
final approval from the Federal Deposit Insurance Corporation and the State of
Florida Department of Banking and Finance to conduct banking transactions.
During the period prior to receiving this regulatory approval the organizers
incurred expenses amounting to $222,782. These expenses have been included in
the consolidated statements of operations for the four months ended December 31,
1996.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, Emerald Coast Bank, (the "Bank"), which
includes its wholly-owned subsidiary Emerald Coast Financial Management, Inc.
All material intercompany balances and transactions have been eliminated in
consolidation.
BUSINESS ACTIVITY:
The Bank is a state chartered bank organized in 1996 under the laws of the
State of Florida. The Bank provides a full range of banking services to
individuals and businesses through three branches located in Northwest Florida.
The Bank is regulated by various federal and state agencies and is subject to
periodic examination by those regulatory authorities.
ACCOUNTING ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS:
For the purpose of presentation in the consolidated statement of cash
flows, cash and cash equivalents are defined as those amounts included in the
balance-sheet caption "cash and due from banks" and "federal funds sold."
Generally, federal funds are sold for one day periods.
SECURITIES AVAILABLE FOR SALE:
Available-for-sale securities consist of bonds and other securities not
classified as trading securities or as held-to-maturity securities.
Unrealized holding gains and losses, net of tax, on available-for-sale
securities are reported as a net amount in a separate component of stockholders'
equity until realized.
F-33
<PAGE> 471
EMERALD COAST BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Gains and losses on the sale of available-for-sale securities are
determined using the specific-identification method.
Declines in the fair value of available-for-sale securities below their
cost, that are other than temporary, result in write-downs of the individual
securities to their fair value. The related write-downs are included in earnings
as realized losses.
Premiums and discounts are recognized in interest income using the interest
method over the period to maturity.
LOANS RECEIVABLE:
Loans receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off are reported at their
outstanding principal adjusted for any charge-offs, the allowance for loan
losses, and any deferred fees or costs on originated loans.
Loan origination fees and certain direct origination costs are capitalized
and recognized as an adjustment of the yield of the related loan.
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as they become
due. When interest accrual is discontinued, all unpaid accrued interest is
reversed. Interest income is subsequently recognized only to the extent cash
payments are received.
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Management's periodic evaluation
of the adequacy of the allowance is based on the Bank's past loan loss
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay, the estimated value of any
underlying collateral, and current economic conditions.
PREMISES AND EQUIPMENT:
Land is carried at cost. Furniture and equipment and leasehold improvements
are carried at cost, less accumulated depreciation and amortization computed
principally by the straight-line method.
INCOME TAXES:
Deferred tax assets and liabilities are reflected at current income tax
rates applicable to the period in which the deferred tax assets or liabilities
are expected to be realized or settled. As changes in tax laws or rates are
enacted, deferred tax assets and liabilities are adjusted through the provision
for income taxes.
The Company and its subsidiary file consolidated income tax returns, with
income tax expense or benefit computed and allocated on a separate return basis.
FINANCIAL INSTRUMENTS:
In the ordinary course of business the Bank has entered into
off-balance-sheet financial instruments consisting of commitments to extend
credit and standby letters of credit. Such financial instruments are recorded in
the consolidated financial statements when they are funded or related fees are
incurred or received.
NET LOSS PER SHARE OF COMMON STOCK:
Net loss per share of common stock is computed on the weighted average
number of shares outstanding.
F-34
<PAGE> 472
EMERALD COAST BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
2. INVESTMENT SECURITIES
Securities have been classified in the consolidated statement of financial
condition according to management's intent. The carrying amount of securities
available-for-sale and their approximate fair values at December 31, 1997 and
1996, are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1997
U.S. government and agency securities.... $8,520,061 $13,347 $(4,155) $8,529,253
========== ======= ======= ==========
December 31, 1996
U.S. government and agency securities.... $4,439,172 $ 3,966 $(7,067) $4,436,071
========== ======= ======= ==========
</TABLE>
The amortized cost and fair value of investment maturities at December 31,
1997, by contractual maturity, are summarized below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties. The
scheduled maturities of securities available-for-sale as of December 31, 1997,
are as follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
---------- ----------
<S> <C> <C>
Due in one year or less..................................... $ 500,121 $ 500,690
Due from one to five years.................................. 3,136,846 3,140,969
Due from five to ten years.................................. 4,883,094 4,887,594
---------- ----------
$8,520,061 $8,529,253
========== ==========
</TABLE>
Investment securities with a fair value of approximately $5,612,000 at
December 31, 1997 and $250,000 at December 31, 1996, were pledged to secure
public deposits and for other purposes required or permitted by law.
3. LOANS RECEIVABLE
The components of loans in the consolidated statement of financial
condition are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Commercial.................................................. $14,214,394 $ 4,724,795
Real estate................................................. 18,988,419 5,559,481
Consumer.................................................... 2,035,360 852,162
Lines of credit............................................. 2,610,200 731,200
----------- -----------
37,848,373 11,867,638
Net deferred loan fees...................................... (23,399) (21,266)
Allowance for loan losses................................... (387,826) (70,000)
----------- -----------
Loans receivable, net....................................... $37,437,148 $11,776,372
=========== ===========
</TABLE>
The Bank grants commercial, real estate and consumer loans in the State of
Florida with primary concentration being in Walton and Bay Counties, Florida.
Although the Bank's loan portfolio is diversified, a significant portion of its
loans are secured by real estate.
F-35
<PAGE> 473
EMERALD COAST BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
3. LOANS RECEIVABLE -- (CONTINUED)
An analysis of the change in the allowance for loan losses follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Balance, beginning of period................................ $ 70,000 $ --
Loans charged off......................................... (14,674) --
Provision for loan losses................................. 332,500 70,000
-------- --------
Balance, end of period...................................... $387,826 $ 70,000
======== ========
</TABLE>
Loans on which the accrual of interest has been discontinued or reduced,
for which impairment had not been recognized, amounted to approximately $51,280
at December 31, 1997. If interest on those loans had been accrued, such income
would have approximated $2,100 for the year ended December 31, 1997. Interest
income on those loans is recorded only when received. The Bank did not have any
nonaccrual loans as of December 31, 1996.
4. PREMISES AND EQUIPMENT
Components of premises and equipment included in the consolidated statement of
financial condition were as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Land...................................................... $1,164,072 $1,164,072
Land improvements......................................... 330,447 --
Buildings and improvements................................ 2,457,491 --
Furniture and equipment................................... 1,519,935 613,790
Software.................................................. 272,084 225,338
Vehicles.................................................. 132,123 131,791
Leasehold improvements.................................... 17,491 35,986
---------- ----------
5,893,643 2,170,977
Less: Accumulated depreciation and amortization........... (309,036) (62,678)
---------- ----------
5,584,607 2,108,299
Construction in progress.................................. 2,885 255,776
---------- ----------
$5,587,492 $2,364,075
========== ==========
</TABLE>
Depreciation and amortization expense charged to operations amounted to
$241,508 for the year ended December 31, 1997 and $62,678 for the four months
ended December 31, 1996.
LEASES:
The Bank leases a branch building under an operating lease expiring in
2000. The lease requires payment of taxes, insurance and maintenance costs in
addition to rental payments.
Future minimum lease payments under the operating lease are summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
1998................................................. $22,836
1999................................................. 22,836
2000................................................. 11,418
-------
Total minimum lease payments................. $57,090
=======
</TABLE>
F-36
<PAGE> 474
EMERALD COAST BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
4. PREMISES AND EQUIPMENT -- (CONTINUED)
Rental expense relating to operating leases, including leases that expired
during 1997, amounted to approximately $52,180 for the year ended December 31,
1997, and $44,560 for the four months ended December 31, 1996.
5. TIME DEPOSITS
The aggregate amount of time deposits, each with a minimum denomination of
$100,000, was approximately $8,994,500 at December 31, 1997.
At December 31, 1997, the scheduled maturities of time deposits are as
follows:
<TABLE>
<S> <C>
1998........................................................ $10,482,725
1999........................................................ 10,719,794
2000........................................................ 320,829
2001........................................................ 8,829
-----------
$21,532,177
===========
</TABLE>
6. STOCKHOLDERS' EQUITY
The Bank is subject to certain restrictions on the amount of dividends that
it may declare without prior regulatory approval. However, it is management's
intent not to pay dividends until such time as the accumulated deficit has been
recovered.
7. RESTRICTED STOCK AWARD AGREEMENT
The Bank has entered into a Restricted Stock Award Agreement (the
"Agreement") with the Chairman/Chief Executive Officer of the Bank (the
"Employee") in consideration of future services to be rendered on behalf of the
Bank. The Agreement awards the Employee 12,000 shares of common stock which will
vest in equal one-third increments on January 1, 1998, 1999, and 2000. All or a
portion of the restricted stock would be subject to forfeiture in the event the
Employee resigns or is involuntarily terminated prior to the applicable vesting
date unless the Employee resigns for a "good reason" or is involuntary
terminated without "good cause." The shares of restricted stock are not
transferable until they become vested. The amount of related compensation cost
is not significant in 1997 or 1996.
8. INCOME TAXES
The financial statements of the Company reflect a zero income tax provision
for current federal and state income taxes for the year ended December 31, 1997,
and the four months ended December 31, 1996 as a result of the net operating
loss incurred. The deferred tax benefit for 1997 and 1996 primarily relates to
the expected future benefit from the net operating losses. The net operating
loss carryforward available to the Company will expire in 2011 and 2012 and
amounted to approximately $811,000 at December 31, 1997.
F-37
<PAGE> 475
EMERALD COAST BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
8. INCOME TAXES -- (CONTINUED)
The tax effects of each type of significant item that gave rise to deferred
income taxes are:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Expected benefit of net operating loss carryforwards...... $305,790 $230,360
Allowance for loan losses................................. 146,210 26,390
Net unrealized depreciation on available-for-sale
securities............................................. -- 1,240
-------- --------
452,000 257,990
Deferred tax liabilities:
Net unrealized appreciation on available-for-sale
securities............................................. (3,465) --
-------- --------
$448,535 $257,990
======== ========
</TABLE>
9. EMPLOYEE BENEFIT PLAN
The Bank has a non-contributory profit sharing retirement plan (the
"Plan"). The Plan covers all employees over 21 years of age who have completed
one year of service. A participant will become vested after completing five
years of service. At its discretion, the Bank can make an annual profit-sharing
contribution to the Plan which will be allocated based on the provisions of the
Plan document. The Bank did not make a contribution to the Plan in 1997 or 1996.
10. COMMITMENTS AND CONTINGENCIES
FINANCIAL INSTRUMENTS:
The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit, standby
letters of credit and financial guarantees. Those instruments involve, to
varying degrees, elements of credit and interest-rate risk in excess of the
amount recognized in the consolidated statement of financial condition. The
contract or notional amounts of those instruments reflect the extent of the
Bank's involvement in particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit,
standby letters of credit, and financial guarantees written is represented by
the contractual notional amount of those instruments. The Bank uses the same
credit policies in making commitments and conditional obligations as it does for
on-balance-sheet instruments.
Commitments to Extend Credit and Financial Guarantees. Commitments to
extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments 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 Bank evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by
the Bank upon extension of credit, is based on management's credit evaluation of
the counterparty. Collateral held varies but may include accounts receivable;
inventory; property, plant, and equipment; and income-producing commercial
properties.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements, including
commercial paper, bond financing, and similar transactions. The credit risk
involved
F-38
<PAGE> 476
EMERALD COAST BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
10. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
in issuing letters of credit is essentially the same as that involved in
extending loan facilities to customers. The Bank holds collateral for those
commitments for which collateral is deemed necessary.
The Bank has not incurred any losses on its commitments in 1997.
A summary of the notional amounts of the Bank's financial instruments with
off-balance-sheet risk at December 31, 1997, follows:
<TABLE>
<S> <C>
Commitments to extend credit................................ $4,284,000
==========
Standby letters of credit................................... $ 525,385
==========
</TABLE>
OTHER:
In the ordinary course of business, the Company has various outstanding
contingent liabilities that are not reflected in the accompanying financial
statements. In addition, the Company is a defendant in certain claims and legal
actions arising in the ordinary course of business. In the opinion of
management, after consultation with legal counsel, the ultimate disposition of
these matters is not expected to have a material adverse effect on the financial
condition of the Company.
11. CONCENTRATIONS OF CREDIT RISK
The Bank maintains cash balances and federal funds sold at several
financial institutions in Alabama and Florida. Accounts at each institution are
insured by the Federal Deposit Insurance Corporation (the "FDIC") up to
$100,000. At various times throughout the year cash balance held at these
institutions will exceed federally insured limits. The Bank's management
monitors these institutions on a quarterly basis in order to determine that the
institutions meet "well-capitalized" guidelines as established by the FDIC.
12. RELATED PARTY TRANSACTIONS
The Bank has entered into transactions with its directors, significant
stockholders, and their affiliates (related parties). The aggregate amount of
loans to such related parties at December 31, 1997 and 1996, was approximately
$2,335,000 and $1,164,000, respectively. During 1997, new loans to such related
parties amounted to approximately $2,071,000 and repayments amounted to
approximately $730,000. Also, certain related parties maintain deposit balances
with the Bank in the aggregate amount of approximately $6,325,000 and $2,718,000
at December 31, 1997 and 1996, respectively.
13. REGULATORY MATTERS
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 Company's and the Bank's 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 Company's and the Bank's
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 (set
forth in the table below) of total and Tier I capital (as
F-39
<PAGE> 477
EMERALD COAST BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
13. REGULATORY MATTERS -- (CONTINUED)
defined in the regulations) to risk-weighted assets (as defined), and of Tier I
capital (as defined) to average assets (as defined). Management believes, as of
December 31, 1997 and 1996, that the Company and the Bank meets all capital
adequacy requirements to which they are subject.
As of December 31, 1997, the most recent notification that the Company and
the Bank had received from the FDIC categorized the Company and the Bank as well
capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized the Company and the Bank must maintain minimum
total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in
the table. There are no conditions or events since that notification that
management believes have changed the Company's or the Bank's category.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------ ------------------------ ------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Capital (to Risk
Weighted Assets)
Consolidated.............. $5,897,722 13.55% > $3,480,343 > 8.0% > $4,350,429 > 10.0%
= = = =
Bank...................... 5,869,744 13.50 > 3,479,387 > 8.0 > 4,349,234 > 10.0
= = = =
Tier I Capital (to Risk
Weighted Assets)
Consolidated.............. $5,509,896 12.67% > $1,740,172 > 4.0% > $2,610,257 > 6.0%
= = = =
Bank...................... 5,481,918 12.60 > 1,739,694 > 4.0 > 2,609,540 > 6.0
= = = =
Tier I Capital (to Average
Assets)
Consolidated.............. $5,509,896 10.53% > $2,093,838 > 4.0% > $2,617,297 > 5.0%
= = = =
Bank...................... 5,481,918 10.47 > 2,093,360 > 4.0 > 2,616,700 > 5.0
= = = =
As of December 31, 1996:
Total Capital (to Risk
Weighted Assets)
Consolidated.............. $5,975,706 41.47% > $1,152,781 > 8.0% > $1,440,976 > 10.0%
= = = =
Bank...................... 5,975,706 41.47 > 1,152,781 > 8.0 > 1,440,976 > 10.0
= = = =
Tier I Capital (to Risk
Weighted Assets)
Consolidated.............. $5,905,706 40.98% > $ 576,390 > 4.0% > $ 864,586 > 6.0%
= = = =
Bank...................... 5,905,706 40.98 > 576,390 > 4.0 > 864,586 > 6.0
= = = =
Tier I Capital (to Average
Assets)
Consolidated.............. $5,905,706 34.48% > $ 685,120 > 4.0% > $ 856,400 > 5.0%
= = = =
Bank...................... 5,905,706 34.48 > 685,120 > 4.0 > 856,400 > 5.0
= = = =
</TABLE>
14. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating fair values of financial instruments as disclosed herein:
Cash and short term instruments. The carrying amounts of cash and
short-term instruments approximate their fair value.
Available-for-sale securities. Fair values for securities are based
on quoted market prices. The carrying values of restricted equity
securities approximate fair values.
F-40
<PAGE> 478
EMERALD COAST BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
14. FAIR VALUES OF FINANCIAL INSTRUMENTS -- (CONTINUED)
Loans receivable. For variable-rate loans that reprice frequently and
have no significant change in credit risk, fair values are based on
carrying values. Fair values for certain mortgage loans (for example,
one-to-four family residential), and other consumer loans are based on
quoted market prices of similar loans sold in conjunction with
securitization transactions, adjusted for differences in loan
characteristics. Fair values for commercial real estate and commercial
loans are estimated using discounted cash flow analyses using interest
rates currently being offered for loans with similar terms to borrowers of
similar credit quality. Fair values for impaired loans are estimated using
discounted cash flow analyses or underlying collateral values, where
applicable.
Deposit liabilities. The fair values disclosed for demand deposits
are, by definition, equal to the amount payable on demand at the reporting
date (that is, their carrying amounts). The carrying amounts of
variable-rate, fixed-term money market accounts and certificates of deposit
("CDs") approximate their fair values at the reporting date. Fair values
for fixed-rate CDs are estimated using a discounted cash flow calculation
that applies interest rates currently being offered on certificates to a
schedule of aggregated expected monthly maturities on time deposits.
Short-term borrowings. The carrying amount of federal funds purchased
and other short-term borrowings maturing within 90 days approximate their
fair values.
Accrued interest. The carrying amounts of accrued interest
approximate their fair values.
Off balance-sheet instruments. Fair values for off-balance-sheet
lending commitments are based on fees currently charged to enter into
similar agreements, taking into account the remaining terms of the
agreements and the counterparties' credit standings. The estimated fair
value for these financial instruments was insignificant at December 31,
1997 and 1996.
Limitations. Fair value estimates are made at a specific point in
time and are based on relevant market information which is continuously
changing. Because no quoted market prices exist for a significant portion
of the Company's financial instruments, fair values for such instruments
are based on management's assumptions with respect to future economic
conditions, estimated discount rates, estimates of the amount and timing of
future cash flows, expected loss experience, and other factors. These
estimates are subjective in nature involving uncertainties and matters of
significant judgment; therefore, they cannot be determined with precision.
Changes in the assumptions could significantly affect the estimates.
The estimated fair values of the Company's financial instruments at
December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------- -------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents......... $ 3,496,277 $ 3,496,277 $ 2,099,615 $ 2,099,615
Securities available-for-sale..... 8,529,253 8,529,253 4,436,071 4,436,071
Loans receivable.................. 37,437,148 37,495,223 11,776,372 11,645,805
Accrued interest receivable....... 358,349 358,349 112,149 112,149
Financial liabilities:
Deposits.......................... 42,622,620 42,607,998 15,239,992 15,217,529
Federal funds purchased........... 7,670,000 7,670,000 -- --
Accrued interest payable.......... 177,812 177,812 68,873 68,873
</TABLE>
F-41
<PAGE> 479
EMERALD COAST BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
15. SUBSEQUENT EVENT
Subsequent to year-end the Company entered into discussions with another
bank holding company regarding merger options between the companies. At this
time the companies are performing various due diligence and negotiations as
covered under a confidentiality agreement signed May 4, 1998.
16. PARENT COMPANY FINANCIAL STATEMENTS
The following is the parent company only statement of financial condition
as of December 31, 1997 and statements of income and cash flows for the year
ended December 31, 1997. Parent company information is not presented for 1996
since the Company was not formed until April 1997.
STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
1997
----------
<S> <C>
ASSETS
Cash........................................................ $ 16,423
Investment in subsidiary bank............................... 5,487,645
Other assets................................................ 11,555
----------
Total Assets...................................... $5,515,623
==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Total Liabilities........................................... $ --
Stockholder's equity........................................ 5,515,623
----------
Total liabilities and stockholder's equity........ $5,515,623
==========
</TABLE>
STATEMENT OF INCOME
<TABLE>
<CAPTION>
1997
----------
<S> <C>
Operating Income:
Dividends from subsidiary bank............................ $ --
----------
Operating Expenses:
Other operating expenses.................................. 2,022
----------
Loss before equity in loss of subsidiary.................... (2,022)
Equity in loss of subsidiary................................ (393,788)
----------
Net Loss.................................................... $ (395,810)
==========
</TABLE>
F-42
<PAGE> 480
EMERALD COAST BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
16. PARENT COMPANY FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
1997
---------
<S> <C>
Cash Flows From Operating Activities:
Net loss.................................................. $(395,810)
Adjustments to reconcile net loss to net cash used in
operating activities:
Equity in loss of subsidiary........................... 393,788
Increase in other assets............................... (11,555)
---------
Net cash used in operating activities:...................... (13,577)
---------
Cash Flows From Investing Activities:
Return of capital from subsidiary bank.................... 30,000
---------
NET INCREASE IN CASH........................................ 16,423
CASH, BEGINNING OF YEAR..................................... --
---------
CASH, END OF YEAR........................................... $ 16,423
=========
</TABLE>
F-43
<PAGE> 481
EMERALD COAST BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION (UNAUDITED)
AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
JUNE 30,
1998
--------------
(IN THOUSANDS)
<S> <C>
ASSETS
Cash and due from banks..................................... $ 4,220
Investment securities available for sale.................... 8,092
Loans, net of unearned...................................... 55,320
Less: Allowance for loan losses............................. (512)
-------
Net loans......................................... 54,808
-------
Premises and equipment, net................................. 5,286
Other assets................................................ 1,378
-------
TOTAL ASSETS...................................... $73,784
=======
LIABILITIES AND STOCKHOLDER'S EQUITY
Deposits
Noninterest-bearing....................................... $ 9,405
Interest-bearing.......................................... 53,861
-------
TOTAL DEPOSITS.................................... 63,266
Federal funds purchased and other borrowed funds............ 4,555
Accrued expenses and other liabilities...................... 450
-------
TOTAL LIABILITIES................................. 68,271
=======
Stockholders' Equity
Common stock, par value $5 per share; authorized
10,000,000 shares; 626,000 shares issued and
outstanding............................................ 3,130
Surplus................................................... 3,130
Accumulated deficit....................................... (757)
Accumulated other comprehensive income.................... 10
-------
TOTAL STOCKHOLDERS' EQUITY........................ 5,513
-------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $73,784
=======
</TABLE>
See Note to Unaudited Condensed Financial Statements.
F-44
<PAGE> 482
EMERALD COAST BANCSHARES, INC.
CONDENSED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- ---------
(IN THOUSANDS EXCEPT
PER SHARE DATA)
<S> <C> <C>
Interest Income............................................. $ 2,498 $ 1,228
Interest expense............................................ 1,197 563
-------- --------
Net interest income............................... 1,301 665
Provision for loan losses................................... 156 155
-------- --------
Net interest income after provision for loan
losses........................................... 1,145 510
Noninterest income.......................................... 168 28
Gain on sale of securities.................................. 18 --
Noninterest expenses........................................ 1,342 817
-------- --------
Loss before income tax benefit.................... (11) (279)
Income tax benefit.......................................... (4) (164)
-------- --------
Net loss.......................................... (7) (115)
Other comprehensive income (loss), net of tax:
Unrealized gain(loss) on securities available for sale.... 5 (3)
-------- --------
Comprehensive loss.......................................... $ (2) $ (118)
======== ========
Basic loss per share........................................ $ (0.01) $ (0.18)
======== ========
Average number of shares outstanding........................ 626,000 626,000
======== ========
</TABLE>
See Note to Unaudited Condensed Financial Statements.
F-45
<PAGE> 483
EMERALD COAST BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMMON ACCUMULATED COMPREHENSIVE STOCKHOLDERS'
STOCK SURPLUS DEFICIT INCOME EQUITY
------ ------- ----------- ------------- -------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997.............. $3,130 $3,130 $(750) $ 5 $5,515
Net loss.................................. -- -- (7) -- (7)
Other comprehensive income................ -- -- -- 5 5
------ ------ ----- --- ------
Balance at June 30, 1998.................. $3,130 $3,130 $(757) $10 $5,513
====== ====== ===== === ======
</TABLE>
See Note to Unaudited Condensed Financial Statements.
F-46
<PAGE> 484
EMERALD COAST BANCSHARES, INC.
CONDENSED STATEMENTS OF CASH FLOW (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Net cash provided (used) by operating activities............ $ 356 $ (429)
-------- --------
Cash flows from investing activities:
Proceeds from sales of securities available for sale...... 1,764 --
Proceeds from maturities of investment securities
available for sale..................................... 1,000 650
Purchases of investment securities available for sale..... (2,064) (1,049)
Purchase of stock in FHLB................................. (225) --
Net increase in loans..................................... (17,542) (15,989)
Purchases of premises and equipment....................... (93) (1,897)
-------- --------
Net cash used in investing activities............. (17,160) (18,285)
-------- --------
Cash flows from financing activities:
Net increase in deposit accounts.......................... 20,643 16,524
Net (decrease) increase in short-term borrowings.......... (3,115) 1,390
-------- --------
Net cash provided by financing activities......... 17,528 17,914
-------- --------
Net increase (decrease) in cash and cash equivalents........ 724 (800)
Cash and cash equivalents at beginning of period............ 3,496 2,099
-------- --------
Cash and cash equivalents at end of period.................. $ 4,220 $ 1,299
======== ========
Supplemental Cash Flow Information:
Selected cash payments and noncash activities were as
follows:
Cash payments for income taxes......................... $ -- $ --
Cash payments for interest............................. 1,018 498
</TABLE>
See Note to Unaudited Condensed Financial Statements.
F-47
<PAGE> 485
EMERALD COAST BANCSHARES, INC.
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)
1. ACCOUNTING AND REPORTING POLICIES
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and, accordingly, do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, the
accompanying unaudited condensed consolidated financial statements contain all
adjustments (consisting of only normal recurring entries) necessary to present
fairly the financial position, results of operations and cash flows for the
interim periods. All interim amounts are subject to year-end audit, and the
results of operations for the interim periods reported herein are not
necessarily indicative of results of operations to be expected for the year.
F-48
<PAGE> 486
COMMERCE BANK OF ALABAMA
FINANCIAL STATEMENTS
DECEMBER 31, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditor's Report................................ F-50
Balance Sheets as of December 31, 1997 and 1996............. F-51
Statements of Operations for the Years Ended December 31,
1997 and 1996............................................. F-52
Statements of Stockholders' Equity for the Years Ended
December 31, 1997 and 1996................................ F-53
Statements of Cash Flows for the Years Ended December 31,
1997 and 1996............................................. F-54
Notes to Financial Statements............................... F-55
Condensed Statement of Financial Condition as of June 30,
1998 (Unaudited).......................................... F-68
Condensed Statements of Income and Comprehensive Income for
the Six Months Ended June 30, 1998 and 1997 (Unaudited)... F-69
Condensed Statement of Changes in Stockholders' Equity for
the Six Months Ended June 30, 1998 (Unaudited)............ F-70
Condensed Consolidated Statements of Cash Flow for the Six
Months Ended June 30, 1998 and 1997 (Unaudited)........... F-71
Note to Condensed Financial Statements for the Six Months
Ended June 30, 1998 and 1997 (Unaudited).................. F-72
Independent Auditors' Report................................ F-73
Independent Auditors' Report................................ F-74
Balance Sheet as of December 31, 1995....................... F-75
Statement of Operations for the period from organization
through December 31, 1995................................. F-76
Statement of Cash Flows for the period from organization
through December 31, 1995................................. F-77
Statement of Stockholders' Equity for the period from
organization through December 31, 1995.................... F-78
Notes to the Financial Statements........................... F-79
</TABLE>
F-49
<PAGE> 487
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Commerce Bank of Alabama
Albertville, Alabama
We have audited the accompanying balance sheet of Commerce Bank of Alabama
as of December 31, 1997, and the related statements of operations, stockholders'
equity and cash flows for the year then ended. These financial statements are
the responsibility of the Bank's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The financial
statements of Commerce Bank of Alabama for the year ended December 31, 1996 were
audited by other auditors whose report, dated June 10, 1997, 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 1997 financial statements referred to above present
fairly, in all material respects, the financial position of Commerce Bank of
Alabama 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.
MAULDIN & JENKINS, LLC
Albany, Georgia
February 13, 1998
F-50
<PAGE> 488
COMMERCE BANK OF ALABAMA
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 5,641,127 $ 7,609,484
Federal funds sold.......................................... 6,635,000 330,000
Securities available for sale, at fair value................ 9,356,603 3,001,026
Securities held to maturity, at cost (fair value $2,501,384
and $3,120,993)........................................... 2,503,218 3,155,107
Loans....................................................... 77,268,735 51,162,673
Less allowance for loan losses.............................. 698,283 411,011
------------ -----------
Loans, net.............................................. 76,570,452 50,751,662
------------ -----------
Premises and equipment, net................................. 2,821,649 2,655,593
Other assets................................................ 1,433,498 951,620
------------ -----------
$104,961,547 $68,454,492
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing demand................................ $ 8,633,733 $ 7,344,706
Interest-bearing demand................................... 15,599,423 8,474,921
Savings................................................... 2,168,929 1,861,834
Time, $100,000 and over................................... 18,692,820 10,846,515
Other time................................................ 52,349,727 32,939,310
------------ -----------
Total deposits..................................... 97,444,632 61,467,286
Securities sold under agreements to repurchase............ 216,258 --
Other borrowings.......................................... 242,631 248,606
Other liabilities......................................... 547,532 506,438
------------ -----------
Total liabilities.................................. 98,451,053 62,222,330
------------ -----------
Commitments and contingent liabilities
Stockholders' equity
Common stock, par value $.01; 20,000,000 shares
authorized, 656,280 and 655,460 shares issued,
respectively............................................ 6,563 6,555
Surplus................................................... 7,010,383 6,999,575
Accumulated deficit....................................... (534,709) (762,430)
Unrealized gains (losses) on securities available for
sale, net of taxes...................................... 28,257 (11,538)
------------ -----------
Total stockholders' equity......................... 6,510,494 6,232,162
------------ -----------
$104,961,547 $68,454,492
============ ===========
</TABLE>
See Notes to Financial Statements.
F-51
<PAGE> 489
COMMERCE BANK OF ALABAMA
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Interest income
Interest and fees on loans................................ $6,595,214 $3,497,732
Interest on taxable securities............................ 738,190 307,794
Interest on Federal funds sold............................ 179,700 250,871
---------- ----------
7,513,104 4,056,397
---------- ----------
Interest expense
Interest on deposits...................................... 4,002,996 2,150,206
Interest on other borrowings.............................. 24,994 19,995
---------- ----------
4,027,990 2,170,201
---------- ----------
Net interest income..................................... 3,485,114 1,886,196
Provision for loan losses................................... 584,000 372,000
---------- ----------
Net interest income after provision for loan losses..... 2,901,114 1,514,196
---------- ----------
Other income
Service charges on deposit accounts....................... 506,911 297,854
Other service charges, commissions and fees............... 41,543 17,042
Security transactions, net................................ (240) 8,600
Other..................................................... 29,961 56,533
---------- ----------
578,175 380,029
---------- ----------
Other expenses
Salaries and employee benefits............................ 1,745,659 1,209,639
Equipment and occupancy expense........................... 424,077 290,137
Supplies expense.......................................... 87,383 63,460
Advertising expense....................................... 57,748 44,467
Telephone expense......................................... 64,416 52,603
Other operating expense................................... 752,120 608,248
---------- ----------
3,131,403 2,268,554
---------- ----------
Income (loss) before income taxes (benefits)............ 347,886 (374,329)
Applicable income taxes (benefits).......................... 120,165 (81,500)
---------- ----------
Net income (loss)....................................... $ 227,721 $ (292,829)
========== ==========
Net income (loss) per common share
Basic..................................................... $ 0.35 $ (0.47)
========== ==========
Diluted................................................... $ 0.34 $ (0.47)
========== ==========
</TABLE>
See Notes to Financial Statements.
F-52
<PAGE> 490
COMMERCE BANK OF ALABAMA
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
UNREALIZED
GAINS
(LOSSES) ON
SECURITIES
COMMON STOCK AVAILABLE
------------------- CAPITAL ACCUMULATED FOR SALE,
SHARES PAR VALUE SURPLUS DEFICIT NET OF TAXES TOTAL
------- --------- ---------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995............... 550,100 $5,501 $5,495,799 $(469,601) $ -- $5,031,699
Net loss............................... -- -- -- (292,829) -- (292,829)
Proceeds from sale of stock.......... 100,000 1,000 1,449,000 -- -- 1,450,000
Shares issued under employee stock
purchase plan...................... 360 4 4,826 -- -- 4,830
Options exercised under incentive
stock option plan.................. 5,000 50 49,950 -- -- 50,000
Net change in unrealized (losses) on
securities available-for-sale, net of
taxes................................ -- -- -- -- (11,538) (11,538)
------- ------ ---------- --------- -------- ----------
BALANCE, DECEMBER 31, 1996............... 655,460 6,555 6,999,575 (762,430) (11,538) 6,232,162
Net income............................. -- -- -- 227,721 -- 227,721
Shares issued under employee stock
purchase plan........................ 820 8 10,808 -- -- 10,816
Net change in unrealized gains on
securities available-for-sale, net of
taxes................................ -- -- -- -- 39,795 39,795
------- ------ ---------- --------- -------- ----------
BALANCE, DECEMBER 31, 1997............... 656,280 $6,563 $7,010,383 $(534,709) $ 28,257 $6,510,494
======= ====== ========== ========= ======== ==========
</TABLE>
See Notes to Financial Statements.
F-53
<PAGE> 491
COMMERCE BANK OF ALABAMA
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)......................................... $ 227,721 $ (292,829)
------------ ------------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation............................................ 234,217 158,207
Provision for loan losses............................... 584,000 372,000
Provision for deferred taxes............................ 120,165 (81,500)
Loss on abandonment of assets........................... -- (12,920)
Net realized (gains) losses on securities available for
sale................................................... 240 (8,600)
Increase in interest receivable......................... (52,474) (271,580)
Increase in interest payable............................ 101,123 148,626
Other prepaids, deferrals and accruals, net............. (512,317) 142,863
------------ ------------
Total adjustments.................................. 474,954 447,096
------------ ------------
Net cash provided by operating activities.......... 702,675 154,267
------------ ------------
INVESTING ACTIVITIES
(Increase) decrease in Federal funds sold................. (6,305,000) 5,460,000
Purchases of securities available for sale................ (12,414,869) (5,988,126)
Proceeds from sales of securities available for sale...... 999,375 2,980,000
Proceeds from maturities of securities available for
sale.................................................... 5,118,191 --
Purchases of securities held to maturity.................. -- (3,855,839)
Proceeds from maturities of securities held to maturity... 651,889 4,251,438
Increase in loans, net.................................... (26,518,790) (28,983,419)
Purchase of premises and equipment........................ (400,273) (1,519,998)
------------ ------------
Net cash used in investing activities.............. (38,869,477) (27,655,944)
------------ ------------
FINANCING ACTIVITIES
Increase in deposits...................................... 35,977,346 32,967,019
Increase in securities sold under agreements to
repurchase.............................................. 216,258 --
Payments on other borrowings.............................. (5,975) (5,517)
Proceeds from sale of stock............................... 10,816 1,504,830
------------ ------------
Net cash provided by financing activities............. 36,198,445 34,466,332
------------ ------------
Net increase (decrease) in cash and due from banks.......... (1,968,357) 6,964,655
Cash and due from banks at beginning of year................ 7,609,484 644,829
------------ ------------
Cash and due from banks at end of year...................... $ 5,641,127 $ 7,609,484
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest.............................................. $ 3,926,867 $ 2,021,575
NONCASH TRANSACTIONS
Net changes in unrealized gains (losses) on securities
available for sale...................................... $ 58,514 $ (15,700)
Transfer from loans to other real estate.................. $ 116,000 $ --
</TABLE>
See Notes to Financial Statements.
F-54
<PAGE> 492
COMMERCE BANK OF ALABAMA
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Commerce Bank of Alabama (the Bank) is a commercial bank with operations in
the cities of Albertville, Gadsden, Guntersville and Rainbow City, Alabama. The
Bank provides a full range of banking services to individual and corporate
customers in the primary market areas described above and surrounding counties.
The Bank is subject to the regulations of certain Federal and state agencies and
is periodically examined by certain regulatory authorities.
BASIS OF PRESENTATION
The accounting and reporting policies of the Bank conform to generally
accepted accounting principles and general practices within the financial
services industry. In preparing the financial statements, management is required
to make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and revenues and expenses for
the period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash on hand, cash items in process of collection, and amounts due from
banks are included in cash and cash equivalents.
The Bank maintains amounts due from banks which, at times, may exceed
Federally insured limits. The Bank 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 are 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 stockholders' equity net
of tax.
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 certain direct costs of most 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. In addition, regulatory agencies, as an integral part
of their examination process, periodically review the Bank's allowance for loan
losses, and may require the Bank to record additions to the allowance based on
their judgment about information available to them at the time of their
examinations.
F-55
<PAGE> 493
COMMERCE BANK OF ALABAMA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
The accrual of interest on impaired 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.
A loan is impaired when it is probable the Bank 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 by the straight-line method over the
estimated useful lives of the assets.
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 as
other income or expense.
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 tax assets and liabilities are recognized on the temporary differences
between the bases of assets and liabilities as measured by tax laws and their
bases as reported in the financial statements. Deferred tax expense or benefit
is then recognized for the change in deferred tax assets or liabilities between
periods.
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.
EARNINGS PER COMMON SHARE
Basic earnings per share are calculated on the basis of the weighted
average number of common shares outstanding. Diluted earnings per share are
computed by dividing net income by the sum of the weighted average number of
common shares outstanding and potential common shares. Earnings per common share
for the prior periods have been restated to reflect the adoption of FASB 128.
CURRENT ACCOUNTING DEVELOPMENTS
In June 1996, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities". ("SFAS
No. 125"). This Statement provides standards for distinguishing transfers of
financial assets that are sales from those that are secured borrowings, and
provides guidance on the recognition
F-56
<PAGE> 494
COMMERCE BANK OF ALABAMA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
and measurement of asset servicing contracts and on debt extinguishments. As
issued, SFAS No. 125 is effective for transactions occurring after December 31,
1996. However, as a result of an amendment to SFAS No. 125 by the FASB in
December 1996, certain provisions of SFAS No. 125 are deferred for an additional
year. Adoption of the new accounting standard is not expected to have a material
impact on the Bank's financial statements.
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share". This
statement simplifies the standards for computing earnings per share previously
set forth in APB Opinion No. 15, "Earnings per Share", and makes them comparable
to international Earnings per Share ("EPS") standards. It replaces the
presentation of primary EPS with a presentation of basic EPS. It also requires
dual presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures and requires a reconciliation
of the numerator and denominator of the basic EPS computation to the numerator
and denominator of the diluted EPS computation. Basic EPS excludes dilution and
is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
entity. Diluted EPS is computed similarly to fully diluted EPS pursuant to APB
Opinion No. 15. This statement is effective for financial statements issued for
periods ending after December 15, 1997. The adoption of this statement did not
have a material impact on the Bank's financial statements.
In June 1997, the FASB issued SFAS No 130, "Reporting Comprehensive
Income". This statement establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose 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 with the same prominence as other financial statements. This statement
does not require a specific format for that financial statement but requires
that an enterprise display an amount representing total comprehensive income for
the period in that financial statement. This statement requires that an
enterprise classify items of other comprehensive income by their nature in a
financial statement and display the accumulated balance or other comprehensive
income by their nature in a financial statement and display the accumulated
balance or other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of a statement of financial
position. This statement is effective for fiscal years beginning after December
15, 1997. The adoption of this statement is not expected to have a material
impact on the Bank's financial statements.
In June 1997, The FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information". This statement requires that a public
business enterprise report financial and descriptive information about its
reportable operating segments. Operating segments are components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. Generally, financial
information is required to be reported on the basis that it is used internally
for evaluating segment performance and deciding how to allocate resources to
segments. The statement requires that a business enterprise report a measure of
segment profit or loss, certain specific revenue and expense items and segment
assets. It requires reconciliations of total segment revenues, total segment
profit or loss, total segment assets and other amounts disclosed for segments to
corresponding amounts in the enterprise's general-purpose financial statements.
It requires that the enterprise report information about the revenues derived
from the enterprise's products or services, about the countries in which the
enterprise earns revenues and hold assets and about major customers. This
Statement is effective for financial Statements for periods beginning after
F-57
<PAGE> 495
COMMERCE BANK OF ALABAMA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
December 15, 1997. The adoption of this statement is not expected to have a
material impact on the Bank's financial statements.
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, 1997:
U. S. Government and agency securities........... $1,501,007 $ 493 $ -- $1,501,500
State and municipal securities................... 672,590 570 -- 673,160
Mortgage-backed securities....................... 7,140,192 42,476 (725) 7,181,943
---------- ------- -------- ----------
$9,313,789 $43,539 $ (725) $9,356,603
========== ======= ======== ==========
December 31, 1996:
U. S. Government and agency securities........... $ 496,372 $ 2,288 $ (23) $ 498,637
Mortgage-backed securities....................... 2,520,354 282 (18,247) 2,502,389
---------- ------- -------- ----------
$3,016,726 $ 2,570 $(18,270) $3,001,026
========== ======= ======== ==========
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ------- -------- ----------
Securities Held to Maturity
December 31, 1997:
U. S. Government and agency securities........... $2,503,218 $ 1,001 $ (2,835) $2,501,384
---------- ------- -------- ----------
December 31, 1996:
U. S. Government and agency securities........... $3,155,107 $ 282 $(34,396) $3,120,993
========== ======= ======== ==========
</TABLE>
The amortized cost and fair value of securities as of December 31, 1997 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 without penalty. Therefore, these securities
are not included in the maturity categories in the following maturity summary.
<TABLE>
<CAPTION>
SECURITIES AVAILABLE FOR SALE SECURITIES HELD TO MATURITY
----------------------------- ---------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Due from one year to five years........................... $1,001,007 $1,001,500 $2,503,218 $2,501,384
Due from five to ten years................................ 500,000 500,000 -- --
Due after ten years....................................... 672,590 673,160 -- --
Mortgage-backed securities................................ 7,140,192 7,181,943 -- --
---------- ---------- ---------- ----------
$9,313,789 $9,356,603 $2,503,218 $2,501,384
========== ========== ========== ==========
</TABLE>
Securities with a carrying value of $11,859,814 and $4,399,000 at December
31, 1997 and 1996, respectively, were pledged to secure public deposits and for
other purposes.
F-58
<PAGE> 496
COMMERCE BANK OF ALABAMA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SECURITIES -- (CONTINUED)
Gross realized gains and gross realized losses on sales of securities were:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1996
------- ------
<S> <C> <C>
Gross realized gains on sales of securities................. $ 4,659 $8,679
Gross losses on sales of securities......................... (4,899) (79)
------- ------
Net realized gains (losses) on sales of securities available
for sale.................................................. $ (240) $8,600
======= ======
</TABLE>
3. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of loans is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
Commercial, financial and agricultural...................... $36,955,003 $24,892,841
Real estate -- construction................................. 4,980,736 1,737,989
Real estate -- mortgage, other.............................. 22,448,723 13,950,911
Consumer.................................................... 11,222,366 9,547,939
Other....................................................... 1,661,907 1,032,993
----------- -----------
77,268,735 51,162,673
Allowance for loan losses................................... (698,283) (411,011)
----------- -----------
Loans, net.................................................. $76,570,452 $50,751,662
=========== ===========
</TABLE>
The total recorded investment in impaired loans was approximately $72,000
and $44,000 at December 31, 1997 and 1996, respectively. The average recorded
investment in impaired loans for 1997 and 1996 was approximately $58,000 and
$22,000, respectively. Interest income on impaired loans of $2,925 and $242 was
recognized for cash payments received for the years ended 1997 and 1996,
respectively.
Changes in the allowance for loan losses for the years ended December 31
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
-------- --------
<S> <C> <C>
BALANCE, BEGINNING OF YEAR.................................. $411,011 $174,467
Provision charged to operations........................... 584,000 372,000
Loans charged off......................................... (400,670) (143,456)
Recoveries of loans previously charged off................ 103,942 8,000
-------- --------
BALANCE, END OF YEAR........................................ $698,283 $411,011
======== ========
</TABLE>
The Bank has granted loans to certain directors, executive officers, and
related entities of the Bank. 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, 1997 were as follows:
<TABLE>
<S> <C>
BALANCE, BEGINNING OF YEAR.................................. $1,617,163
Advances.................................................. 1,776,307
Repayments................................................ (1,025,266)
----------
BALANCE, END OF YEAR........................................ $2,368,204
==========
</TABLE>
F-59
<PAGE> 497
COMMERCE BANK OF ALABAMA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
Land........................................................ $1,096,050 $ 853,950
Buildings................................................... 1,154,374 1,140,705
Equipment................................................... 1,044,769 900,264
---------- ----------
3,295,193 2,894,919
Accumulated depreciation.................................... (473,544) (239,326)
---------- ----------
$2,821,649 $2,655,593
========== ==========
</TABLE>
Depreciation expense for the years ended December 31, 1997 and 1996 was
$234,217 and $158,207, respectively.
5. EMPLOYEE BENEFIT PLAN
The Bank adopted a 401(k) Asset Accumulation Plan for its employees. The
Plan covers substantially all employees who meet certain age and length of
service requirements. Annual contributions are determined by the Board of
Directors. Contributions to the plan charged to expense were $16,216 and $32,430
for the years ended December 31, 1997 and 1996, respectively.
6. INCENTIVE STOCK OPTION PLAN
Annually, the Bank enters into certain Incentive Stock Option Agreements
with certain key employees of the Bank. The agreements allow the employees to
acquire a specified amount of stock within a period beginning six months after
the date of grant and ending on the date which immediately precedes the tenth
anniversary. Options must be exercised in a minimum of 1,000 shares per purchase
unless less than 1,000 shares remain under the options. Options are exercised by
payment in full upon notification by the holder to the Compensation Committee of
his intent to exercise the options.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1997 1996
------------------- -------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
NUMBER PRICE NUMBER PRICE
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Under option, beginning of year.......................... 36,000 $11.69 27,500 $10.00
Granted................................................ 2,500 14.50 13,500 14.50
Exercised.............................................. -- -- (5,000) 10.00
Forfeited.............................................. -- -- -- --
------- ------ ------- ------
Under option, end of year................................ 38,500 11.87 36,000 11.69
======= =======
Exercisable at end of year............................... 36,000 32,500
======= =======
Available for grant at end of year....................... 56,500 59,000
======= =======
Weighted-average fair value per option of options granted
during the year........................................ $ 6.57 $ 6.81
======= =======
</TABLE>
F-60
<PAGE> 498
COMMERCE BANK OF ALABAMA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. INCENTIVE STOCK OPTION PLAN -- (CONTINUED)
A further summary about options outstanding at December 31, 1997 is as
follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- -----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE IN YEARS PRICE OUTSTANDING PRICE
- ------------------------ ----------- ------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$10.00....................................... 22,500 7.5 $10.00 22,500 $10.00
14.50....................................... 10,000 8.25 14.50 10,000 14.50
14.50....................................... 3,500 8.75 14.50 3,500 14.50
14.50....................................... 2,500 10.0 14.50 -- --
------ ------
38,500 7.97 11.87 36,000 11.69
====== ======
</TABLE>
As permitted by Statement of Financial Accounting Standard No. 123,
"Accounting for Stock-Based Compensation" (SFAS No. 123), 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, 1997 and 1996. If the Company had recognized
compensation cost in accordance with SFAS No. 123, net income and net income per
share would have been reduced as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------
1997 1996
--------------------- ---------------------
BASIC BASIC NET
NET NET INCOME NET LOSS
INCOME PER SHARE LOSS PER SHARE
-------- ---------- --------- ---------
<S> <C> <C> <C> <C>
As reported............................................ $227,721 $ 0.35 $(292,829) $(0.47)
Stock based compensation, net of related tax effect.... (10,844) (0.02) (60,718) (0.10)
-------- ------ --------- ------
As adjusted............................................ $216,877 $ 0.33 $(353,547) $(0.57)
======== ====== ========= ======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1997 1996
--------------------- -----------------------
DILUTED DILUTED NET
NET NET INCOME NET LOSS
INCOME PER SHARE LOSS PER SHARE
-------- ---------- --------- -----------
<S> <C> <C> <C> <C>
As reported........................................... $227,721 $ 0.34 $(292,829) $(0.47)
Stock based compensation, net of related tax effect... (10,844) (0.01) (60,718) (0.09)
-------- ------ --------- ------
As adjusted........................................... $216,877 $ 0.33 $(353,547) $(0.56)
======== ====== ========= ======
</TABLE>
The fair value of the options granted in 1997 was based upon the discounted
value of future cash flows of the options using the following assumptions:
<TABLE>
<S> <C>
Risk-free interest rate..................................... 6.13%
Expected life of the options................................ 10 years
Expected dividends (as a percent of the fair value of the
stock).................................................... 0.00%
Expected volatility......................................... 0.01%
</TABLE>
F-61
<PAGE> 499
COMMERCE BANK OF ALABAMA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. EMPLOYEE STOCK PURCHASE PLAN
Under the employee stock purchase plan, the Bank is authorized to issue up
to 5,000 shares of common stock to its full-time employees, nearly all of whom
are eligible to participate. Employees can subscribe at any one offering to a
minimum of 10 shares and a maximum of 50 shares of the Bank's stock at a price
that is 85% of the fair market value and is subject to the following:
No employee shall be permitted to subscribe for any shares under the
plan if such employee immediately after such a subscription, owns shares
possessing 5% or more of the total combined voting power or value of all
classes of stock of the Bank.
No employee shall be allowed to subscribe for any shares under the
plan which permits his rights to purchase shares under all stock purchase
plans of the Bank to accrue at a rate which exceeds $25,000 of the fair
market value of such shares for each calendar year.
Under the plan, the Bank sold 325 and 360 shares in 1997 and 1996,
respectively.
8. OTHER BORROWINGS
Other borrowings consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
-------- --------
<S> <C> <C>
Note payable with interest at a fixed rate of 8%, payable in
equal monthly installments, due October 5, 2005,
collateralized by 3 lots in Guntersville.................. $ 67,631 $ 73,606
Advances under revolving credit agreement with the Federal
Reserve Bank with interest adjusting at the weekly Federal
funds rate minus 25 basis points, collateralized by
specific securities....................................... 175,000 175,000
-------- --------
$242,631 $248,606
======== ========
</TABLE>
Other borrowings at December 31, 1997 have maturities in future years as
follows:
<TABLE>
<S> <C>
1998........................................................ $ 6,471
1999........................................................ 7,008
2000........................................................ 7,590
2001........................................................ 8,220
2002........................................................ 8,902
Later years................................................. 29,440
-------
$67,631
=======
</TABLE>
9. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
-------- --------
<S> <C> <C>
Current..................................................... $ -- $ --
Deferred.................................................... 120,165 (81,500)
-------- --------
Provision for income taxes................................ $120,165 $(81,500)
======== ========
</TABLE>
F-62
<PAGE> 500
COMMERCE BANK OF ALABAMA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES -- (CONTINUED)
The Bank's provision for income taxes 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,
----------------------------------------
1997 1996
------------------ -------------------
AMOUNT PERCENT AMOUNT PERCENT
-------- ------- --------- -------
<S> <C> <C> <C> <C>
Tax provision at statutory rate.......................... $118,281 34% $(127,272) (34)%
Tax-exempt interest...................................... (1,050) -- -- --
Other items, net......................................... 2,934 -- 45,772 12
-------- -- --------- ----
Provision for income taxes............................. $120,165 34% $ (81,500) (22)%
======== == ========= ====
</TABLE>
The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
-------- --------
<S> <C> <C>
DEFERRED TAX ASSETS:
Loan loss reserves........................................ $136,529 $ 38,856
Net operating loss carryover.............................. 104,317 266,986
Unrealized loss on securities available for sale.......... -- 4,054
Contribution carryover.................................... 20,726 10,842
-------- --------
261,572 320,738
-------- --------
DEFERRED TAX LIABILITIES:
Depreciation.............................................. 65,053 --
Unrealized gain on securities available for sale.......... 14,557 --
-------- --------
79,610 --
-------- --------
NET DEFERRED TAX ASSETS..................................... $181,962 $320,738
======== ========
</TABLE>
10. EARNINGS (LOSS) PER COMMON SHARE
The following is a reconciliation of net income (loss) (the numerator) and
the weighted average shares outstanding (the denominator) used in determining
basic and diluted earnings (loss) per share:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
---------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE
Net income................................................ $227,721 655,565 $0.35
=========
EFFECT OF DILUTIVE SECURITIES
Stock options............................................. -- 6,983
----------- -------------
DILUTIVE EARNINGS PER SHARE
Net income................................................ $227,721 662,548 $0.34
======== ======= =====
</TABLE>
F-63
<PAGE> 501
COMMERCE BANK OF ALABAMA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. EARNINGS (LOSS) PER COMMON SHARE -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
---------------------------------------
LOSS SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
BASIC LOSS PER SHARE
Net loss.................................................. $(292,829) 618,854 $(0.47)
=========
EFFECT OF DILUTIVE SECURITIES
Stock options............................................. -- 6,983
----------- -------------
DILUTIVE LOSS PER SHARE
Net loss.................................................. $(292,829) 625,837 $(0.47)
========= ======= ======
</TABLE>
11. COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, the Bank 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 Bank'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 Bank's commitments is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
Commitments to extend credit................................ $9,168,285 $7,399,000
Standby letters of credit................................... 57,080 100,000
---------- ----------
$9,225,365 $7,499,000
========== ==========
</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 Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Bank upon extension of credit, is based on
management's credit evaluation of the customer. Collateral held varies but may
include real estate and improvements, crops, marketable securities, accounts
receivable, inventory, equipment, and personal property.
Standby letters of credit are conditional commitments issued by the Bank 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 loan facilities to customers. Collateral held varies
as specified above and is required in instances which the Bank deems necessary.
In the normal course of business, the Bank is involved in various legal
proceedings. In the opinion of management of the Bank, any liability resulting
from such proceedings would not have a material effect on the Bank's financial
statements.
F-64
<PAGE> 502
COMMERCE BANK OF ALABAMA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
12. CONCENTRATIONS OF CREDIT
The Bank makes agricultural, agribusiness, commercial, residential and
consumer loans to customers primarily in the market area described in Note 1. A
substantial portion of the Company's customers' abilities to honor their
contracts is dependent on the business economy in the above areas.
Thirty-six percent (36%) of the Bank's loan portfolio is concentrated in
real estate loans, of which 6% consists of construction loans. A substantial
portion of these loans are secured by real estate in the Bank'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
loan portfolio and the recovery of the carrying amount of other real estate
owned are susceptible to changes in market conditions in the Bank's primary
market area. The other significant concentrations of credit by type of loan are
set forth in Note 3.
The Bank, as a matter of policy, does not generally extend credit to any
single borrower or group of related borrowers in excess of 20% of statutory
capital.
13. 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, 1997, there
were no retained earnings available for payment of dividends.
The Bank is 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 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 Bank's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of total and Tier I
capital to risk-weighted assets and of Tier I capital to average assets.
Management believes, as of December 31, 1997, the Bank meets all capital
adequacy requirements to which it is subject.
As of December 31, 1997, the most recent notification from the FDIC
categorized the Bank as adequately 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 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
---------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997
Total Capital (to Risk Weighted Assets)........ $7,180,521 9.66% $5,946,875 8.00% $7,433,594 10.00%
Tier I Capital (to Risk Weighted Assets)....... $6,482,237 8.72% $2,973,438 4.00% $4,460,156 6.00%
Tier I Capital (to Average Assets)............. $6,482,237 6.67% $3,884,840 4.00% $4,856,050 5.00%
</TABLE>
F-65
<PAGE> 503
COMMERCE BANK OF ALABAMA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
13. REGULATORY MATTERS -- (CONTINUED)
<TABLE>
<CAPTION>
TO BE WELL
FOR CAPITAL CAPITALIZED UNDER
ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
------------------ ------------------ ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996
Total Capital (to Risk Weighted Assets).... $6,654,711 13.00% $4,093,000 8.00% $5,116,000 10.00%
Tier I Capital (to Risk Weighted Assets)... $6,243,700 12.20% $2,046,000 4.00% $3,070,000 6.00%
Tier I Capital (to Average Assets)......... $6,243,700 16.70% $1,495,000 4.00% $1,869,000 5.00%
</TABLE>
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Bank 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 methods. Those methods 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, 1997 and 1996. 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.
The following methods and assumptions were used by the Bank in estimating
fair values of financial instruments as disclosed herein:
CASH, DUE FROM BANKS, AND FEDERAL FUNDS SOLD
The carrying amounts of cash, due from banks, and Federal funds sold
approximate their fair value.
AVAILABLE FOR SALE AND HELD TO MATURITY SECURITIES
Fair values for securities are based on 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 methods, using
interest rates currently being offered for loans with similar terms to borrowers
of similar credit quality. Fair values for impaired loans are estimated using
discounted cash flow methods or underlying collateral values.
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
methods, using interest rates currently being offered on certificates.
OTHER BORROWINGS
The carrying amounts of securities sold under agreements to repurchase and
other borrowings approximate their fair value.
F-66
<PAGE> 504
COMMERCE BANK OF ALABAMA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
14. FAIR VALUE OF FINANCIAL INSTRUMENTS -- (CONTINUED)
OFF-BALANCE SHEET INSTRUMENTS
Fair values of the Bank'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
Bank until such commitments are funded. The Bank has determined that these
instruments do not have a distinguishable fair value and no fair value has been
assigned.
The estimated fair values of the Bank's financial instruments were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------- -------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks, interest-bearing
deposits with banks and Federal funds
sold...................................... $12,276,127 $12,276,127 $ 7,939,484 $ 7,939,484
Securities available for sale............... 9,356,603 9,356,603 3,001,026 3,001,926
Securities held to maturity................. 2,503,218 2,501,384 3,155,107 3,120,993
Loans....................................... 76,570,452 78,050,966 50,751,662 51,162,673
Financial liabilities:
Deposits.................................... 97,450,735 94,465,065 61,467,286 61,051,995
Other borrowings............................ 242,631 242,631 248,606 248,606
Securities sold under agreements to
repurchase................................ 216,258 216,258 -- --
</TABLE>
F-67
<PAGE> 505
COMMERCE BANK OF ALABAMA
CONDENSED STATEMENT OF FINANCIAL CONDITION (UNAUDITED)
AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
JUNE 30,
1998
--------------
(IN THOUSANDS)
<S> <C>
ASSETS
Cash and due from banks..................................... $ 4,839
Federal funds sold.......................................... 840
Investment securities held to maturity...................... 252
Investment securities available for sale.................... 21,239
Loans, net of unearned...................................... 88,981
Less: Allowance for loan losses............................. (894)
--------
Net loans......................................... 88,087
--------
Premises and equipment, net................................. 2,841
Other assets................................................ 1,677
--------
Total assets...................................... $119,775
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing....................................... $ 12,796
Interest-bearing.......................................... 97,909
--------
Total deposits.................................... 110,705
Accrued expenses and other liabilities...................... 2,300
--------
Total liabilities................................. 113,005
Stockholders' Equity
Common stock, par value $.01 per share; authorized
20,000,000 shares; 658,190 shares issued and
outstanding............................................ 7
Surplus................................................... 7,027
Accumulated deficit....................................... (279)
Accumulated other comprehensive income.................... 15
--------
Total stockholders' equity........................ 6,770
--------
Total liabilities and stockholders' equity........ $119,775
========
</TABLE>
See Note to Unaudited Condensed Financial Statements.
F-68
<PAGE> 506
COMMERCE BANK OF ALABAMA
CONDENSED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS EXCEPT
PER SHARE DATA)
<S> <C> <C>
Interest Income............................................. $ 4,506 $ 3,329
Interest expense............................................ 2,659 1,808
-------- --------
Net interest income............................... 1,847 1,521
Provision for loan losses................................... 292 232
-------- --------
Net interest income after provision for loan
losses.......................................... 1,555 1,289
Noninterest income.......................................... 582 310
Gain on sale of securities.................................. 1 --
Noninterest expenses........................................ 1,788 1,420
-------- --------
Income before income taxes.................................. 350 179
Income tax expense.......................................... 94 35
-------- --------
Net income........................................ 256 144
Other comprehensive loss, net of tax:
Unrealized loss on securities available for sale.......... (13) (165)
-------- --------
Comprehensive income (loss)................................. $ 243 $ (21)
======== ========
Earnings per share
Basic..................................................... $ 0.39 $ 0.22
======== ========
Dilutive.................................................. $ 0.39 $ 0.22
======== ========
Average number of shares outstanding
Basic..................................................... 656,968 655,460
======== ========
Dilutive.................................................. 663,951 662,443
======== ========
</TABLE>
See Note to Unaudited Condensed Financial Statements.
F-69
<PAGE> 507
COMMERCE BANK OF ALABAMA
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE TOTAL
COMMON ACCUMULATED INCOME STOCKHOLDERS'
STOCK SURPLUS DEFICIT (LOSS) EQUITY
------ ------- ----------- ------------- -------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997.............. $7 $7,011 $(535) $ 28 $6,511
Net income................................ -- -- 256 -- 256
1,910 shares issued under employee stock
purchase plan........................... -- 16 -- -- 16
Other comprehensive loss.................. -- -- -- (13) (13)
-- ------ ----- ---- ------
Balance at June 30, 1998.................. $7 $7,027 $(279) $ 15 $6,770
== ====== ===== ==== ======
</TABLE>
See Note to Unaudited Condensed Financial Statements.
F-70
<PAGE> 508
COMMERCE BANK OF ALABAMA
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Net cash provided by operating activities................... $ 569 $ 571
-------- --------
Cash flows from investing activities:
Net decrease (increase) in federal funds sold............. 5,795 (2,670)
Proceeds from sales of securities available for sale...... 678 497
Proceeds from maturities of investment securities
available for sale..................................... 5,591 1,653
Purchases of investment securities available for sale..... (18,204) (8,416)
Proceeds from maturities of investment securities held to
maturity............................................... 2,250 --
Net increase in loans..................................... (11,808) (16,550)
Purchase of stock in FHLB................................. (31) --
Purchases of premises and equipment....................... (139) (130)
-------- --------
Net cash used by investing activities............. (15,868) (25,616)
-------- --------
Cash flows from financing activities:
Net increase in deposit accounts.......................... 13,260 20,122
Principal payments on long-term debt...................... (4) (3)
Advance form FHLB......................................... 1,000 --
Net increase in short-term borrowings..................... 225 349
Proceeds from issuance of common stock.................... 16 3
-------- --------
Net cash provided by financing activities......... 14,497 20,471
-------- --------
Net decrease in cash and due from banks..................... (802) (4,574)
Cash and due from banks at beginning of period.............. 5,641 7,610
-------- --------
Cash and due from banks at end of period.................... $ 4,839 $ 3,036
======== ========
Supplemental Cash Flow Information:
Selected cash payments and noncash activities were as
follows:
Cash payments for income taxes......................... $ -- $ --
Cash payments for interest............................. 2,614 1,756
</TABLE>
See Note to Unaudited Condensed Financial Statements.
F-71
<PAGE> 509
COMMERCE BANK OF ALABAMA
NOTE TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
1. ACCOUNTING AND REPORTING POLICIES
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and, accordingly, do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the accompanying unaudited
condensed financial statements contain all adjustments (consisting of only
normal recurring entries) necessary to present fairly the financial position,
results of operations and cash flows for the interim periods. All interim
amounts are subject to year-end audit, and the results of operations for the
interim periods reported herein are not necessarily indicative of results of
operations to be expected for the year.
F-72
<PAGE> 510
INDEPENDENT AUDITORS' REPORT
Board of Directors
Commerce Bank of Alabama
Albertville, Alabama
We have audited the accompanying balance sheet of Commerce Bank of Alabama
as of December 31, 1996, and the related statements of operations, cash flows
and stockholders' equity for the year then ended. These financial statements are
the responsibility of the Bank's management. Our responsibility is to express an
opinion on these financial statements based on our 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 examination 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 financial statements referred to above present fairly,
in all material respects, the financial position of Commerce Bank of Alabama as
of December 31, 1996, and the results of its operations and cash flows for the
year then ended, in conformity with generally accepted accounting principles.
Cochran, Wheeler and Kennedy, P.C.
June 10, 1997
F-73
<PAGE> 511
INDEPENDENT AUDITORS' REPORT
Board of Directors
Commerce Bank of Alabama
Albertville, Alabama
We have audited the accompanying balance sheet of Commerce Bank of Alabama
as of December 31, 1995, and the related statements of operations, cash flows
and stockholders' equity for the period from organization (April 6, 1995)
through December 31, 1995. These financial statements are the responsibility of
the Bank's management. Our responsibility is to express an opinion on these
financial statements based on our 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 examination 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 financial statements referred to above present fairly,
in all material respects, the financial position of Commerce Bank of Alabama as
of December 31, 1995, and the results of its operations and cash flows for the
period then ended, in conformity with generally accepted accounting principles.
Cochran, Wheeler and Kennedy, P.C.
January 12, 1996
F-74
<PAGE> 512
COMMERCE BANK OF ALABAMA
BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents:
Cash and due from banks................................... $ 644,829
Federal funds sold........................................ 5,790,000
-----------
Total cash and cash equivalents................... 6,434,829
Investment securities, held to maturity..................... 3,550,706
Loans, net.................................................. 22,150,039
Premises and equipment, net................................. 1,280,882
Other real estate owned..................................... 40,000
Accrued interest receivable................................. 164,958
Deferred tax benefit........................................ 241,825
Other assets................................................ 96,034
-----------
TOTAL ASSETS...................................... $33,959,273
===========
LIABILITIES
Deposits:
Demand.................................................... $ 8,149,930
Savings................................................... 1,528,622
Time.............................................. 18,996,715
-----------
Total deposits.................................... 28,675,267
-----------
Accrued interest payable.................................... 166,429
Long term debt.............................................. 79,123
Other liabilities........................................... 6,755
-----------
TOTAL LIABILITIES................................. 28,927,574
-----------
STOCKHOLDERS' EQUITY
Common stock -- par value $.01; 20,000,000 shares authorized
550,100 shares issued and outstanding..................... $ 5,501
Additional paid in capital.................................. 5,495,799
Accumulated deficit......................................... (469,601)
-----------
TOTAL STOCKHOLDERS' EQUITY........................ 5,031,699
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $33,959,273
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-75
<PAGE> 513
COMMERCE BANK OF ALABAMA
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM ORGANIZATION THROUGH DECEMBER 31, 1995
<TABLE>
<S> <C>
INTEREST INCOME
Interest and fees on loans................................ $1,063,794
Interest on investments................................... 92,640
Interest on federal funds sold............................ 321,629
----------
TOTAL INTEREST INCOME............................. 1,478,063
----------
INTEREST EXPENSE
Interest on deposits:
Demand................................................. 188,269
Savings................................................ 6,566
Time................................................... 569,442
Interest on borrowings................................. 1,063
----------
TOTAL INTEREST EXPENSE............................ 765,340
----------
PROVISION FOR LOAN LOSSES................................... 226,000
----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES......... 486,723
----------
OTHER INCOME
Service charges on deposit accounts....................... 66,141
Other fees and commissions................................ 3,174
Data processing services.................................. 16,000
Rental income............................................. 5,844
----------
TOTAL OTHER INCOME................................ 91,159
----------
OTHER EXPENSES
Salaries and employee benefits............................ 671,919
Occupancy expense......................................... 145,283
Equipment expense......................................... 13,576
Other real estate expense................................. 945
Loan and credit card expense.............................. 28,800
Marketing expense......................................... 33,609
Supply expense............................................ 89,970
Outside professional services............................. 75,732
Other expense............................................. 229,474
----------
TOTAL OTHER EXPENSES.............................. 1,289,308
----------
LOSS BEFORE INCOME TAX BENEFIT.............................. (711,426)
INCOME TAX BENEFIT.......................................... 241,825
----------
NET LOSS.................................................... $ (469,601)
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-76
<PAGE> 514
COMMERCE BANK OF ALABAMA
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM ORGANIZATION THROUGH DECEMBER 31, 1995
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................. $ (469,601)
Adjustments to reconcile net loss to net cash used by
operating activities:
Provision for loan losses.............................. 226,000
Provision for tax benefit.............................. (241,825)
Provision for depreciation............................. 80,036
Net amortization (accretion) of investment securities
premiums (discounts).................................. (2,274)
Other real estate...................................... (36,509)
Accrued interest receivable............................ (164,958)
Other assets........................................... (99,525)
Accrued interest payable............................... 166,429
Other liabilities...................................... 6,755
------------
NET CASH USED BY OPERATING ACTIVITIES....................... (535,472)
------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investment securities........................ (3,548,432)
Net increase in loans..................................... (22,376,039)
Purchase of premises and equipment........................ (1,360,918)
------------
NET CASH USED BY INVESTING ACTIVITIES....................... (27,285,389)
------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand, savings and interest bearing
checking account....................................... 9,680,468
Net increase in time deposits............................. 18,994,799
Payments of principal..................................... 80,000
New borrowing-long term................................... (877)
Capital contributions..................................... 5,501,300
------------
NET CASH PROVIDED BY FINANCING ACTIVITIES................... 34,255,690
------------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 6,434,829
CASH AND CASH EQUIVALENTS, Beginning of period.............. --
------------
CASH AND CASH EQUIVALENTS, End of period.................... $ 6,434,829
============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Paid During Period For:
Interest............................................... $ 598,911
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-77
<PAGE> 515
COMMERCE BANK OF ALABAMA
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM ORGANIZATION THROUGH DECEMBER 31, 1995
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
------ ---------- ----------- ----------
<S> <C> <C> <C> <C>
BALANCE, Beginning of period....................... $ -- $ -- $ -- $ --
Initial sale of 550,000 shares, April 1995......... 5,500 5,494,500 -- 5,500,000
ESOP purchases of 100 shares, November 1995........ 1 1,299 -- 1,300
Net Loss........................................... -- -- (469,601) (469,601)
------ ---------- --------- ----------
BALANCE, End of period............................. $5,501 $5,495,789 $(469,601) $5,031,699
====== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-78
<PAGE> 516
COMMERCE BANK OF ALABAMA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
NATURE OF OPERATIONS
Commerce Bank of Alabama was organized on April 6, 1995. Commerce Bank of
Alabama operates under a bank charter with the State of Alabama and provides
full banking services. The Bank is subject to regulation under the Federal
Deposit Insurance Corporation and State of Alabama, State Banking Department.
The area served by Commerce Bank of Alabama is the Marshall county area with two
branches located in Albertville and Guntersville, Alabama.
INVESTMENT SECURITIES
Investment securities are classified in three categories and accounted for
as follows.
Trading Securities. Government bonds held principally for resale in the
near term and mortgage-backed securities held for sale in conjunction
with the Bank's mortgage banking activities are classified as trading
securities and recorded at their fair values. Realized and unrealized
gains and losses on trading securities are included in other income.
Securities to be Held to Maturity. Bonds, notes and debentures for
which the Bank has the positive intent and ability to hold to maturity
are reported at cost, adjusted for amortization of premiums, and
accretion of discounts which are recognized in interest income suing the
interest method over the period to maturity.
Securities Available for Sale. Securities available for sale consist of
bonds, notes, debentures, and certain equity securities not classified
as trading securities or as securities to be hold to maturity.
Declines in the fair value of individual held-to-maturity and
available-for-sale securities below their cost that are other than temporary
have resulted in write-downs of the individual securities to their fair value.
The related write-downs have been included in earnings as realized losses.
Unrealized holding gains and losses, net of tax, on securities available
for sale are reported as a net amount in a separate component of shareholders;
equity until realized.
Gains and losses on the sale of securities available for sale are
determined using the specific-identification method. Premiums and discounts are
amortized into interest income using a level yield method.
At December 31, 1995, all securities held by the Bank are securities held
to maturity. The Bank intends to hold these securities for an indefinite period
of time-out may sell prior to maturity. Securities are held with the Bankers
Bank and First Commercial Bank.
LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
Loans are stated at the amount of unpaid principal, reduced by unearned
discount and an allowance of possible loan losses. Unearned discount on
installment loans is recognized as income over the terms of the loans by the
sum-of-the-months-digits and simple interest methods.
Interest on other loans is calculated by using the simple interest method
on daily balances of the principal amount outstanding. The allowance for
possible loan losses is established through a provision for possible loan losses
charged to expense. Loans are charged against the allowance for possible loan
losses when management believes that the collectibility of the principal is
unlikely. The allowance is an amount that management believes will be adequate
to absorb possible losses on existing loans that may become uncollectible, based
on evaluations of the collectibility of loans and prior loan loss experience.
F-79
<PAGE> 517
COMMERCE BANK OF ALABAMA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The evaluations take into consideration such factors as changes in the
nature and volume of the loan portfolio, overall portfolio quality, review of
specific problem loans, and current economic conditions that may affect the
borrowers' ability to pay. Accrual of interest is discontinued on a loan when
management believes, after considering economic and business conditions and
collection efforts, that the borrower's financial condition is such that
collection of interest is doubtful.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is provided principally by the straight-line method,
to distribute the cost of premises and equipment over their estimated useful
lives of the assets. Maintenance and repairs of property and equipment are
charged to operations, and the expenditures for major improvements and
replacements are capitalized and added to the premises and equipment accounts.
Upon retirement, sale, or other disposition of property and equipment, the cost
and accumulated depreciation are eliminated from the accounts, and the gain or
loss is included in current operations.
OTHER REAL ESTATE
Other real estate, acquired through partial or total satisfaction of loans,
is carried at the lower of cost or fair market value. At the date of
acquisition, losses are charged to the allowance for loan losses and subsequent
write downs are charged to expense in the period they are incurred.
INCOME TAXES
Provisions for income taxes are based on amounts reported in the statement
of income (after exclusion of non-taxable income such as interest on state and
municipal securities) and include deferred taxes on temporary differences in the
recognition of income and expense for tax and financial statement purposes.
Deferred tax assets and liabilities are included in the financial statements at
currently enacted income tax rates applicable to the period in which the
deferred tax assets and liabilities are expected to be realized or settled as
prescribed in SFAS No. 109 Accounting for Income Taxes. As changes in tax laws
or rates are enacted, deferred tax assets and liabilities are adjusted through
the provision for income taxes.
CASH FLOWS
For purposes of presentation in the statement of cash flows, cash and cash
equivalents are defined as those amounts included in cash on hand, cash items,
amounts due from banks, and federal funds sold.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
In the ordinary course of business, the Bank has entered into
off-balance-sheet financial instruments consisting of commitments to extend
credit, unfunded lines of credit and standby letters of credit. Such financial
instruments are recorded in the financial statements when they become payable or
related fees are incurred or received.
STOCK OPTIONS
Stock options are provided to all eligible employees through the Bank's
Employee Stock Option Plan and to certain key employees through the Incentive
Stock Compensation Plan. Options are granted at below market prices to employees
with the resulting difference between the option price and market value
recognized as a component of compensation expense in the period that full
payment is received.
F-80
<PAGE> 518
COMMERCE BANK OF ALABAMA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
NOTE B -- INVESTMENT SECURITIES
The carrying value and market value of investment securities follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Held to maturity:
U. S. government and agency securities.......... $3,550,706 $7,762 $580 $3,557,888
========== ====== ==== ==========
</TABLE>
The market value of investments are established with the assistance of an
independent pricing service and are based on available market data which often
reflects transactions of relatively small size and are not necessarily
indicative of the prices at which large amounts of particular issues could
readily be sold or purchased.
The amortized cost and estimated market values of debt securities at
December 31, 1995, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call of prepayment penalties.
<TABLE>
<CAPTION>
HELD TO MATURITY
-----------------------
AMORTIZED MARKET
COST VALUE
---------- ----------
<S> <C> <C>
Due in one year or less..................................... $1,900,000 $1,905,900
Due from one through five years............................. 1,500,706 1,501,988
Due from five through ten years............................. 150,000 150,000
Due after ten years......................................... -- --
---------- ----------
$3,550,706 $3,557,888
========== ==========
</TABLE>
Investment securities with a carrying value of approximately $1,900,000 at
December 31, 1995 were pledged for various purposes as required or permitted by
law.
F-81
<PAGE> 519
COMMERCE BANK OF ALABAMA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C -- LOANS
A summary of loans is as follows:
<TABLE>
<S> <C>
Loans secured by real estate: IN THOUSANDS
Construction.............................................. $ 1,142
Farm land and farm residential............................ 522
Residential properties 1-4 family......................... 3,846
Residential properties 5 or more family................... 102
Non-farm/non-residential properties....................... 254
Loans for agricultural production........................... 234
Commercial and industrial loans............................. 10,909
Loans to individuals for household, family and personal..... 4,862
Other loans................................................. 453
-------
22,324
Less: Allowance for possible loan losses.................. 174
-------
$22,150
=======
</TABLE>
Loans which are contractually past due 90 days or more as to interest or
principal payments and loans which have been restructured to provide a reduction
or deferral of interest or principal for reasons related to the debtors'
financial difficulties are considered to be non-performing loans. There were no
non-performing loans at December 31, 1995.
NOTE D -- ALLOWANCE FOR POSSIBLE LOAN LOSSES
An analysis of the allowance for possible loan losses is as follows:
<TABLE>
<S> <C>
Balance, beginning of period................................ $ --
Provision charged to operating expenses..................... 226,000
Recoveries on loans previously charged off.................. --
Loans charged off........................................... 51,533
--------
Balance, end of period...................................... $174,467
========
</TABLE>
NOTE E -- PREMISES AND EQUIPMENT
The major classes of premises and equipment are summarized as follows:
<TABLE>
<S> <C>
Land and improvements....................................... $ 342,151
Buildings................................................... 498,498
Furniture and equipment..................................... 520,269
----------
1,360,918
Less: Accumulated depreciation.............................. (80,036)
----------
$1,280,882
==========
</TABLE>
F-82
<PAGE> 520
COMMERCE BANK OF ALABAMA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE F -- DEPOSITS
Deposits consisted of the following at December 31, 1995:
<TABLE>
<CAPTION>
IN THOUSANDS
<S> <C>
Deposits of individuals, partnerships, and corporations..... $24,225
Deposits of states and political subdivisions............... 2,961
Other depository institutions in the U.S. .................. 1,188
Certified and official checks............................... 301
-------
$28,675
=======
</TABLE>
NOTE G -- TIME DEPOSITS
Time deposits outstanding in the amounts of $100,000 or more as of December
31, 1995 were approximately $9,652,000. Interest expense on these deposits for
the period ended December 31, 1995 were approximately $357,000.
NOTE H -- LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1995:
<TABLE>
<S> <C>
Note payable, Edward R. Perkins, payable in equal monthly
installments of $971 through October, 2005. This loan is
collateralized by 3 lots in Guntersville. Interest accrues
at 8%..................................................... $79,123
=======
</TABLE>
Maturities of long-term debt for the next five years ending December 31,
are as follows:
<TABLE>
<S> <C>
1996........................................................ $ 5,517
1997........................................................ 5,975
1998........................................................ 6,471
1999........................................................ 7,008
2000........................................................ 7,590
Thereafter.................................................. 46,562
-------
$79,123
=======
</TABLE>
NOTE I -- TRANSACTIONS WITH DIRECTORS AND SHAREHOLDERS
In the ordinary course of business, the Bank has had, and may be expected
to have in the future, banking transactions with its directors, principal
officers, their immediate families, and affiliated companies in which they are
principal stockholders (commonly referred to as related parties), on the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with others. These persons and firms were indebted
to the Bank for loans totaling approximately $1,293,700 at December 31, 1995.
F-83
<PAGE> 521
COMMERCE BANK OF ALABAMA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE J -- INCOME TAXES
Income tax expense and its components are as follows:
<TABLE>
<S> <C>
Components of income tax expense:
Currently paid or payable:
Federal................................................ $ --
State.................................................. --
--------
Deferred (Net Operating Loss):
Federal................................................ 199,145
State.................................................. 42,680
--------
241,825
--------
$241,825
========
</TABLE>
As of December 31, 1995 the Bank had a net operating loss (NOL)
carryforward for federal income tax purposes of approximately $241,000 that may
be used in future years to offset taxable income. To the extent not utilized,
the NOL carryforward will expire in the year 2010.
NOTE K -- EMPLOYEE BENEFIT PLAN
At organization, the Bank adopted a 401(k) Asset Accumulation Plan for its
employees. The Plan covers substantially all employees who meet certain age and
length of service requirements. Annual contributions are determined by the Board
of Directors. Contributions to the Plan were $8,753 for the period ended
December 31, 1995.
NOTE L -- INCENTIVE STOCK COMPENSATION PLAN
Effective May, 1995, the Bank entered into certain Incentive Stock Option
Agreements with certain key employees of the Bank. The agreements allow the
employees to acquire a specified amount of stock within a period beginning six
months after the date of grant and ending on the date which immediately precedes
the fifth anniversary. Options must be exercised in a minimum of 1,000 shares
per purchase unless less than 1.000 shares remain under the options. Options are
exercised by payment in full upon notification by the holder to the Compensation
Committee of his intent to exercise the options.
An analysis of options outstanding is as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Options outstanding, beginning period....................... -- $--
Options granted............................................. 27,500 10
Options exercised........................................... -- --
------ ---
Options outstanding, end of period.......................... 27,500 $10
====== ===
</TABLE>
F-84
<PAGE> 522
COMMERCE BANK OF ALABAMA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE M -- EMPLOYEE STOCK PURCHASE PLAN
Effective April, 1995, the Bank adopted an employee stock purchase plan
whereby the employees may conveniently acquire shares of Bank's stock. The Bank
provides offerings at six month intervals with offering periods lasting fifteen
days. The minimum number of shares for which an eligible employee will be
permitted to subscribe at any one offering is ten shares and the maximum is
fifty subject to the following:
No employee shall be permitted to subscribe for any shares under the Plan
if such employee immediately after such a subscription, owns shares possessing
5% or more of the total combined voting power or value of all classes of stock
of the Bank.
No employee shall be allowed to subscribe for any shares under the Plan
which permits his rights to purchase shares under all stock purchase plans of
the Bank to accrue at a rate which exceeds $25,000 of the fair market value of
such shares for each calendar year.
The established option price for stock at the predetermined offering dates
is at 85% of fair market value as established by the Board of Directors.
Employees are given the option to acquire the stock at the grant date or
withhold the amount due from the employee's compensation over the next twelve
months. The stock is transferred at the earlier of the date the last payment is
withheld or payment is received directly from the employee.
An analysis of options is as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Options outstanding, beginning of period.................... -- $ --
Options granted............................................. 395 11.05
Options exercised........................................... 395 11.05
--- ------
Options outstanding, end of period.......................... -- $ --
=== ======
</TABLE>
Options exercised at December 31, 1995 on which employees have elected
payroll deduction are as follows:
<TABLE>
<S> <C> <C>
Options:.................................................... 295 shares
Total Option Price................................ $ 3,260
Amount withheld, through December 31, 1995.................. $ 277
</TABLE>
Compensation expense for the period ended December 31, 1995 recognized in
conjunction with purchased shares totaled $295.
NOTE N -- CONTINGENT LIABILITIES AND COMMITMENTS
The Bank's financial statements do not reflect various commitments and
contingent liabilities which arise in the normal course of business and which
involve elements of credit risk, interest rate risk, and liquidity risk. These
commitments and contingent liabilities are commitments to extend credit, standby
letters of credit and unfunded lines of credit. A summary of the Bank's
commitments and contingent liabilities at December 31, 1995 is as follows:
<TABLE>
<CAPTION>
NOTIONAL
AMOUNT
----------
<S> <C>
Commitments to extend credit................................ $ --
Standby letters of credit................................... $ 10,000
Unfunded lines of credit.................................... $4,156,000
</TABLE>
F-85
<PAGE> 523
COMMERCE BANK OF ALABAMA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Commitments to extend credit, unfunded lines of credit, and standby letters
of credit all include exposure to some credit loss in the event of
nonperformance of the customer. The Bank's credit policies and procedures for
credit commitments and financial guarantees are the same as those for extension
of credit that are recorded on the balance sheets. Because these instruments
have fixed maturity dates, and because many of them expire without being drawn
upon, they do not generally present any significant liquidity risk to the Bank.
The Bank has not incurred any losses on its commitments in 1995.
NOTE O -- CONCENTRATIONS OF CREDIT
Most of the Bank's loans, commitments, and standby letters of credit have
been granted to customers within Marshall County, Alabama. The concentrations of
credit by type of loan are set forth in Note C. The distribution of commitments
to extend credit and unfunded lines of credit approximates the distribution of
loans outstanding. Standby letters of credit were granted primarily to
commercial borrowers.
NOTE P -- REGULATORY MATTERS
The Bank is subject to the dividend restrictions set forth by the FDIC.
Under such restrictions, the Bank may not, without the prior approval of the
Bank's primary regulator, declare dividends in excess of the sum of the current
year's earnings (as defined) plus the retained earnings (as defined) from the
prior two years. As of December 31, 1995, the Bank could not declare dividends
without the approval of the State Banking Department and the F.D.I.C.
The Bank is 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 Bank's financial statements. The regulations require the
Bank to meet specific capital adequacy guidelines that involve quantitative
measures of the Bank's assets, liabilities, and certain off-balance-sheet items
as calculated under regulatory accounting practices. The Bank's capital
classification is also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors. To be considered adequately
capitalized (as defined) under the regulatory framework for prompt corrective
action, the Bank is required to have minimum Tier 1 and Total capital ratios of
4.00% and 8.00% respectively. The Bank's actual ratios at December 31, 1995 were
approximately 16.9% and 17.4% respectively. Management believes, as of December
31, 1995, that the Bank meets all capital requirements to which it is subject.
NOTE Q -- PROPOSED BRANCH
Prior to yearend, the Bank's Board of Directors established a committee to
evaluate the possibilities of establishing a branch of the Bank in Gadsden,
Alabama. In conjunction with the proposed branch, the Board of Directors
obtained an option to lease certain real estate in Gadsden. The lease option is
$5,000 and payable only if the Bank does not exercise the lease.
The Bank intends to authorize 100,000 shares of stock for issuance in
conjunction with establishing the proposed Branch. The Bank intends to offer
these shares during the first quarter of 1996.
NOTE R -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which is practicable to estimate that
value:
CASH AND FEDERAL FUNDS SOLD
For these short-term instruments, the carrying amount is a reasonable
estimate of fair value.
F-86
<PAGE> 524
COMMERCE BANK OF ALABAMA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INVESTMENT SECURITIES
For securities held for investment purposes, fair values are based on
quoted market prices or dealer quotes.
LOANS
The fair value of loans is estimated by discounting the future cash flows
using the current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities.
DEPOSITS
The fair value of demand deposits, savings accounts, and certain money
market deposits is the amount payable on demand at the reporting date. The fair
value of fixed-maturity certificates of deposit is estimated using the rates
currently offered for deposit of similar remaining maturities.
LONG-TERM DEBT
Rates currently available to the Bank for debt with similar terms and
remaining maturities are used to estimate fair value of existing debt.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
The fair value of commitments and letters of credit is estimated to be
approximately the same as the notional amount of the related commitment.
The estimated fair values of the Bank's financial instruments as of
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
VALUE VALUE
-------- -------
IN THOUSANDS
<S> <C> <C>
Financial Assets:
Cash and federal funds sold............................... $ 6,435 $ 6,435
Investment securities..................................... 3,551 3,558
Loans..................................................... 22,324
Less: allowance for losses................................ 174
------- -------
Net loans................................................. 22,150 22,443
------- -------
Total financial assets............................ $32,136 $32,436
======= =======
Financial Liabilities:
Deposits.................................................. $28,675 $28,589
Long-term debt............................................ 79 78
------- -------
Total financial liabilities....................... $28,754 $28,667
======= =======
Unrecognized Financial Instruments
Unused lines of credit.................................... $ 4,156 $ 4,156
Standby letter of credit.................................. 10 10
------- -------
Total unrecognized financial instruments.......... $ 4,166 $ 4,166
======= =======
</TABLE>
F-87
<PAGE> 525
FIRST CITIZENS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditor's Report................................ F-89
Consolidated Statements of Financial Condition as of
December 31, 1997 and 1996................................ F-90
Consolidated Statements of Income and Comprehensive Income
for the Years Ended December 31, 1997, 1996 and 1995...... F-91
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1997, 1996 and 1995...... F-92
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995.......................... F-93
Notes to Consolidated Financial Statements.................. F-94
Condensed Consolidated Statement of Financial Condition as
of June 30, 1998 (Unaudited).............................. F-105
Condensed Consolidated Statements of Income and
Comprehensive Income for the Six Months Ended June 30,
1998 and 1997 (Unaudited)................................. F-106
Condensed Consolidated Statement of Changes in Stockholders'
Equity for the Six Months Ended June 30, 1998
(Unaudited)............................................... F-107
Condensed Consolidated Statements of Cash Flow for the Six
Months Ended June 30, 1998 and 1997 (Unaudited)........... F-108
Note to Condensed Consolidated Financial Statements for the
Six Months Ended June 30, 1998 and 1997 (Unaudited)....... F-109
</TABLE>
F-88
<PAGE> 526
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
and Stockholders
First Citizens Bancorp, Inc. and Subsidiary
Monroeville, Alabama
We have audited the accompanying consolidated statements of financial
condition of First Citizens Bancorp, Inc. and subsidiary as of December 31, 1997
and 1996, and the related consolidated statements of income and comprehensive
income, changes in stockholders' equity and cash flows for each of the years in
the three-year period ended December 31, 1997. 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 audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of First Citizens
Bancorp, Inc. and subsidiary at December 31, 1997 and 1996, and the consolidated
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally accepted
accounting principles.
DUDLEY, HOPTON-JONES, SIMS & FREEMAN PLLP
Birmingham, Alabama
May 6, 1998
F-89
<PAGE> 527
FIRST CITIZENS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 1,044 $ 2,249
Federal funds sold.......................................... -- 280
Investment securities available for sale.................... 2,176 3,133
Loans....................................................... 30,193 24,378
Less: Allowance for loan losses............................. (265) (195)
------- -------
Net loans............................................. 29,928 24,183
------- -------
Premises and equipment, net................................. 584 629
Accrued interest receivable................................. 469 393
Other assets................................................ 895 756
------- -------
TOTAL ASSETS....................................... $35,096 $31,623
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing demand................................ $ 4,678 $ 3,661
Interest-bearing demand................................... 5,813 6,614
Savings................................................... 1,692 1,502
Time deposits $100,000 and over........................... 6,326 5,033
Other time................................................ 13,054 11,833
------- -------
TOTAL DEPOSITS..................................... 31,563 28,643
Federal funds purchased..................................... 100 --
Accrued expenses and other liabilities...................... 422 404
------- -------
TOTAL LIABILITIES.................................. 32,085 29,047
Stockholders' equity
Common stock, par value $1 per share; authorized
10,000,000 shares; 75,000 shares issued and
outstanding............................................. 75 75
Surplus................................................... 1,914 1,914
Retained earnings......................................... 1,017 594
Accumulated other comprehensive income (loss)............. 5 (7)
------- -------
TOTAL STOCKHOLDERS' EQUITY......................... 3,011 2,576
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......... $35,096 $31,623
======= =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-90
<PAGE> 528
FIRST CITIZENS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans................................ $2,755 $2,124 $1,317
Interest on investment securities:
Taxable................................................. 143 247 376
Exempt from federal income tax.......................... 16 15 45
Interest on federal funds sold............................ 39 50 70
Interest and dividends on other investments............... 4 1 1
------ ------ ------
TOTAL INTEREST INCOME.............................. 2,957 2,437 1,809
INTEREST EXPENSE ON DEPOSITS................................ 1,215 1,008 786
------ ------ ------
Net interest income..................................... 1,742 1,429 1,023
PROVISION FOR LOAN LOSSES................................... 218 43 --
------ ------ ------
Net interest income after provision for loan losses..... 1,524 1,386 1,023
NONINTEREST INCOME
Service charges and fees.................................. 323 347 265
Other income.............................................. 92 79 64
Gain on sale of securities................................ -- 4 19
------ ------ ------
TOTAL NONINTEREST INCOME........................... 415 430 348
NONINTEREST EXPENSES
Salaries and employee benefits............................ 642 570 550
Occupancy and equipment expense........................... 206 217 216
Data processing expense................................... 97 135 114
Other operating expenses.................................. 358 310 236
------ ------ ------
TOTAL NONINTEREST EXPENSES......................... 1,303 1,232 1,116
------ ------ ------
Income before income taxes............................ 636 584 255
Income tax expense.......................................... 213 184 61
------ ------ ------
NET INCOME............................................ 423 400 194
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) on securities available
for sale arising during period.......................... 12 (15) 117
------ ------ ------
COMPREHENSIVE INCOME.................................. $ 435 $ 385 $ 311
====== ====== ======
Earnings per common share
Basic..................................................... $ 5.64 $ 5.33 $ 2.59
Diluted................................................... 5.56 5.30 2.59
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-91
<PAGE> 529
FIRST CITIZENS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE TOTAL
COMMON RETAINED INCOME STOCKHOLDERS'
STOCK SURPLUS EARNINGS (LOSS) EQUITY
------ ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance -- January 11, 1995 issuance of 75,000 shares
in exchange for 100% of the outstanding shares of
First Citizens Bank.................................. $75 $1,914 $ -- $(109) $1,880
Net income............................................. -- -- 194 -- 194
Other comprehensive income............................. -- -- -- 117 117
--- ------ ------ ----- ------
Balance at December 31, 1995........................... 75 1,914 194 8 2,191
Net income............................................. -- -- 400 -- 400
Other comprehensive loss............................... -- -- -- (15) (15)
--- ------ ------ ----- ------
Balance at December 31, 1996........................... 75 1,914 594 (7) 2,576
Net income............................................. -- -- 423 -- 423
Other comprehensive income............................. -- -- -- 12 12
--- ------ ------ ----- ------
Balance at December 31, 1997........................... $75 $1,914 $1,017 $ 5 $3,011
=== ====== ====== ===== ======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-92
<PAGE> 530
FIRST CITIZENS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
------- -------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 423 $ 400 $ 194
Adjustments to reconcile net income to net cash provided
by operations:
Depreciation and amortization........................... 72 77 83
Net premium amortization................................ 4 6 --
Gain on sale of securities.............................. -- (4) (19)
Provision for loan losses............................... 218 43 --
(Increase) decrease in accrued interest receivable...... (76) 1 (102)
Increase in other assets................................ (52) (35) (21)
Increase in accrued interest payable.................... 66 66 40
(Decrease) increase in other liabilities................ (48) 77 96
------- -------- -------
NET CASH PROVIDED BY OPERATIONS.................... 607 631 271
------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease (increase) in federal funds sold............. 280 2,690 (2,630)
Proceeds from sales of securities available for sale...... -- -- 219
Proceeds from maturities of securities available for
sale.................................................... 1,518 2,680 1,232
Purchases of investment securities available for sale..... (545) (102) (2,185)
Proceeds from sales of securities held to maturity........ -- -- 931
Proceeds from maturities of investments securities held to
maturity................................................ -- 656 1,457
Purchases of investment securities held to maturity....... -- -- (401)
Net increase in loans..................................... (5,963) (10,187) (3,951)
Purchases of premises and equipment....................... (27) (35) --
Purchase of FHLB stock.................................... (95) -- --
------- -------- -------
NET CASH USED IN INVESTING ACTIVITIES.............. (4,832) (4,298) (5,328)
------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand and savings deposits.... 406 (201) 2,558
Net increase in certificates of deposit and other time
deposits................................................ 2,514 4,631 2,529
Net increase in federal funds purchased................... 100 -- --
------- -------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES.......... 3,020 4,430 5,087
------- -------- -------
Net (decrease) increase in cash and due from banks.......... (1,205) 763 30
Cash and due from banks at beginning of year................ 2,249 1,486 1,456
------- -------- -------
CASH AND DUE FROM BANKS AT END OF YEAR...................... $ 1,044 $ 2,249 $ 1,486
======= ======== =======
SUPPLEMENTAL CASH FLOW INFORMATION
Selected cash payments and noncash activities were as
follows:
Cash payments (refund) for income taxes................. $ 322 $ 104 $ (24)
Cash payments for interest.............................. 1,149 942 746
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-93
<PAGE> 531
FIRST CITIZENS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies followed by First Citizens Bancorp, Inc.
("Company") and its subsidiary and the method of applying those policies which
affect the determination of financial condition, results of operations and cash
flows are summarized below.
CONSOLIDATION
The consolidated financial statements of the Company include the accounts
of its wholly-owned subsidiary, First Citizens Bank of Monroe County ("Bank").
All significant intercompany accounts and transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses. While management
uses available information to recognize losses on loans, future additions to the
allowance may be necessary based on changes in local economic conditions. In
addition, regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses. Such agencies may
require the Bank to recognize additions to the allowance based on their
judgments about information available to them at the time of their examination.
INVESTMENT SECURITIES
The Bank's investments in securities are classified as available for sale
and carried at fair value with net unrealized holding gains and losses
recognized as other comprehensive income and included in stockholders' equity
net of tax.
Interest, including amortization of premiums and accretion of discounts,
are included in interest income. Gains and losses on the sale of securities
available for sale are determined using the specific-identification method.
LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are stated at the amount of unpaid principal, reduced by unearned
discount and an allowance for loan losses. Interest income with respect to loans
is accrued on the principal amount outstanding.
The allowance for loan losses is established through a provision for loan
losses charged to expenses. Loans are charged against the allowance for loan
losses when management believes the collectibility of principal is unlikely. The
allowance is the amount that management believes will be adequate to absorb
possible losses on existing loans which may become uncollectible, based on
evaluation of the collectibility of loans and prior loan loss experience. The
evaluations take into consideration such factors as changes in the nature and
volume of the loan portfolio, overall portfolio quality, review of specific
problem loans, and current economic conditions that may affect the borrower's
ability to pay.
Accrual of interest is discontinued on a loan when management believes,
after considering economic and business conditions and collection efforts, that
the loan is impaired. Any unpaid interest previously accrued on
F-94
<PAGE> 532
FIRST CITIZENS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
those loans is reversed from income. Interest income generally is not recognized
on specific impaired loans unless the likelihood of further loss is remote.
Interest payments received on such loans are applied as a reduction of the loan
principal balance. Interest income on other nonaccrual loans is recognized only
to the extent of interest payments received.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed over the estimated service lives of the
assets using certain straight-line and accelerated methods.
Expenditures for maintenance and repairs are charged to operations as
incurred; expenditures for renewals and betterments are capitalized and written
off by depreciation charges. Property retired or sold is removed from the asset
and related accumulated depreciation accounts and any profit or loss resulting
therefrom is reflected in the statement of income.
INCOME TAXES
Income tax expense is based on amounts reported in the statements of income
and comprehensive income after exclusion of nontaxable income such as interest
on state and municipal securities and certain nondeductible expenses (See Note
9).
EARNINGS PER COMMON SHARE
Basic earnings per common share are computed by dividing earnings available
to stockholders by the weighted average number of common shares outstanding
during the period. Diluted earnings per share reflect per share amounts that
would have resulted if dilutive potential common stock had been converted to
common stock, as prescribed by SFAS No. 128, Earnings per Share. The following
reconciles the weighted average number of shares outstanding:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Weighted average of common shares outstanding............... 75,000 75,000 75,000
Effect of dilutive options.................................. 1,113 444 --
------ ------ ------
Weighted average of common shares outstanding effected for
dilution.................................................. 76,113 75,444 75,000
====== ====== ======
</TABLE>
OFF BALANCE SHEET FINANCIAL INSTRUMENTS
In the ordinary course of business the Bank has entered into off balance
sheet financial instruments consisting of commitments to extend credit and
standby letters of credit. Such financial instruments are recorded in the
financial statements when they become payable.
CASH AND CASH EQUIVALENTS
For the purpose of presentation in the statement of cash flows, cash and
cash equivalents are defined as those amounts included in the statement of
financial condition caption "Cash and Due from Banks."
EFFECT OF NEW FINANCIAL ACCOUNTING STANDARDS
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation.
SFAS No. 123, became effective for years beginning after December 15, 1995, and
allows for the option of continuing to follow Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, and the related
Interpretations or selecting
F-95
<PAGE> 533
FIRST CITIZENS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
the fair value method of expense recognition as described in SFAS No. 123. The
Company has elected to follow APB No. 25 in accounting for its employee stock
options.
In February 1997, the FASB issued SFAS No. 128, Earnings per Share. This
statement simplifies the standards for computing earnings per share previously
set forth in APB Opinion No. 15, Earnings per Share, and makes them comparable
to international Earnings per Share ("EPS") standards. It replaces the
presentation of primary EPS with a presentation of basic EPS. It also requires
dual presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures and requires a reconciliation
of the numerator and denominator of the basic EPS computation to the numerator
and denominator of the diluted EPS computation. Basic EPS excludes dilution and
is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
entity. Diluted EPS is computed similarly to fully diluted EPS pursuant to APB
Opinion No. 15. This statement is effective for financial statements issued for
periods ending after December 15, 1997. The adoption of this statement did not
have a material impact on the consolidated financial statements.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
This statement establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose 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 with
the same prominence as other financial statements. This statement does not
require a specific format for that financial statement but requires that an
enterprise display an amount representing total comprehensive income for the
period in that financial statement. This statement requires that an enterprise
classify items of other comprehensive income by their nature in a financial
statement and display the accumulated balance separately from retained earnings
and additional paid-in capital in the equity section of a statement of financial
position. This statement is effective for fiscal years beginning after December
15, 1997. The adoption of this statement did not have a material impact on the
consolidated financial statements.
2. RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS
The subsidiary bank is required to maintain average reserve balances either
in vault cash or on deposit with the Federal Reserve Bank. The amount of those
reserves required at December 31, 1997 was approximately $175.
F-96
<PAGE> 534
FIRST CITIZENS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVESTMENT SECURITIES
The amounts at which investment securities are carried and their
approximate fair values at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
-----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Obligations of U.S. government corporations and
agencies........................................... $1,916 $ 4 $ 4 $1,916
State, county and municipal securities............... 252 8 -- 260
------ --- --- ------
Totals........................................ $2,168 $12 $ 4 $2,176
====== === === ======
DECEMBER 31, 1996
U.S. Treasury securities and obligations of U.S.
government corporations and agencies............... $2,891 $ 6 $20 $2,877
State, county and municipal securities............... 253 4 1 256
------ --- --- ------
Totals........................................ $3,144 $10 $21 $3,133
====== === === ======
</TABLE>
Securities with an amortized cost of $1,722 at December 31, 1997 were
pledged to secure United States government deposits and other public funds and
for other purposes as required or permitted by law.
Gross realized gains and losses on investments in debt securities available
for sale for each of the three years in the period ended December 31, 1997 were
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Gross realized gains........................................ $-- $5 $29
Gross realized losses....................................... -- 1 10
</TABLE>
The amortized cost and estimated fair values of debt securities at December
31, 1997, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
COST VALUE
--------- ---------
<S> <C> <C>
Due in one year or less..................................... $ 561 $ 560
Due after one year through five years....................... 1,260 1,262
Due after five years through ten years...................... 323 329
Due after ten years......................................... 24 25
------ ------
$2,168 $2,176
====== ======
</TABLE>
4. LOANS
The Bank grants loans to customers primarily in Monroe County, Alabama.
At December 31 the composition of the loan portfolio was as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Commercial, industrial and agricultural..................... $ 9,933 $ 8,051
Real estate -- construction................................. 1,362 764
-- mortgage...................................... 10,680 8,866
Loans to individuals for personal expenditures.............. 8,218 6,697
------- -------
Total loans........................................ 30,193 24,378
Allowance for loan losses................................... (265) (195)
------- -------
Net loans................................................. $29,928 $24,183
======= =======
</TABLE>
F-97
<PAGE> 535
FIRST CITIZENS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. LOANS -- (CONTINUED)
At December 31, 1997 and 1996 the Company's recorded investment in loans
considered to be impaired under SFAS 114 were $67 and $273, respectively, all of
which were on nonaccrual status with no related allowance. The average recorded
investment in impaired loans during 1997 was approximately $170.
The Bank has no commitments to loan additional funds to the borrowers whose
loans are nonaccruing.
5. ALLOWANCE FOR LOAN LOSSES
A summary of the allowance for loan losses for the year ended December 31,
1997, 1996 and 1995 follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year................................ $195 $209 $188
Provision for loan losses................................... 218 43 --
Loan charge-offs............................................ (195) (109) (41)
Recoveries.................................................. 47 52 62
---- ---- ----
Balance at end of year...................................... $265 $195 $209
==== ==== ====
</TABLE>
6. PREMISES AND EQUIPMENT
Components of premises and equipment at December 31, 1997 and 1996 are as
follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Land........................................................ $ 85 $ 85
Bank premises and leasehold improvements.................... 680 680
Furniture and equipment..................................... 410 383
------ ------
1,175 1,148
Less: Accumulated depreciation............................ (591) (519)
------ ------
Net premises and equipment.............................. $ 584 $ 629
====== ======
</TABLE>
7. RETIREMENT PLAN
The Bank has a profit-sharing plan which permits participants to make
contributions by salary reduction pursuant to Section 401(k) of the Internal
Revenue Code. Employees may contribute a maximum of 15% of compensation for the
plan year. In addition, the plan allows the Bank to make discretionary
contributions. In 1997 and 1996 the Bank's contributions to the plan were $10
and $5, respectively.
8. STOCK OPTION PLAN
On January 9, 1996, the Company granted its CEO an option to purchase 5,000
shares of its common stock at the option price of $28.96 per share. The options
are fully vested and expire January 9, 2001.
As permitted by Statement of Financial Accounting Standard No. 123,
Accounting for Stock-Based Compensation (SFAS No. 123), 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 year
F-98
<PAGE> 536
FIRST CITIZENS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. STOCK OPTION PLAN -- (CONTINUED)
ended December 31, 1996. If the Company had recognized compensation cost in
accordance with SFAS No. 123, net income and net income per share would have
been reduced as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------
BASIC NET
NET INCOME
INCOME PER SHARE
------ ---------
<S> <C> <C>
As reported................................................. $400 $5.33
Stock based compensation, net of related tax effect......... (25) (.33)
---- -----
As adjusted................................................. $375 $5.00
==== =====
</TABLE>
The fair value of the options granted in 1996 was based upon the discounted
value of future cash flows of the options using the following assumptions:
<TABLE>
<S> <C>
Risk-free interest rate..................................... 6.13%
Expected life of the options................................ 10 years
Expected dividends (as a percent of the fair value of the
stock).................................................... 0.00%
</TABLE>
9. INCOME TAX EXPENSE
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Currently payable:
Federal................................................... $218 $169 $61
State..................................................... 17 22 14
---- ---- ---
Total currently payable............................ 235 191 75
Tax effect of temporary differences......................... (22) (7) (14)
---- ---- ---
Income tax expense...................................... $213 $184 $61
==== ==== ===
</TABLE>
As of December 31, 1997 and 1996 the deferred tax asset consisted of the
following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax asset:
Provision for loan losses................................. $33 $10
Deferred compensation..................................... 21 21
Net unrealized gain (loss) on securities available for
sale.................................................... (3) 5
--- ---
Deferred tax asset...................................... $51 $36
=== ===
</TABLE>
The effective tax rate differs significantly from the expected tax using
the statutory rate of 34%. Reconciliation between the expected tax and the
actual provision for income taxes follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Expected tax at 34% of income tax before taxes.............. $216 $199 $87
Add (deduct):
State income taxes, net of federal tax benefit............ 11 15 9
Effect of interest income exempt from Federal income
taxes................................................... (12) (11) (19)
Unallowable interest deduction............................ 1 1 2
Other items -- net........................................ (3) (20) (18)
---- ---- ---
Income tax expense...................................... $213 $184 $61
==== ==== ===
</TABLE>
F-99
<PAGE> 537
FIRST CITIZENS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. RELATED PARTY TRANSACTIONS
The Bank has entered into transactions with its directors, executive
officers, significant shareholders and their affiliates (related parties). Such
transactions were made in the ordinary course of business on substantially the
same terms and conditions, including interest rates and collateral, as those
prevailing at the same time for comparable transactions with other customers,
and did not, in the opinion of management, involve more than normal credit risk
or present other unfavorable features. Changes in related party loans for the
year ended December 31, 1997 were as follows:
<TABLE>
<CAPTION>
BALANCE BALANCE
DECEMBER 31, 1996 ADVANCES REPAYMENTS DECEMBER 31, 1997
- ----------------- -------- ---------- -----------------
<S> <C> <C> <C>
$908 $652 $148 $1,412
==== ==== ==== ======
</TABLE>
11. TIME DEPOSITS
The maturities of time certificates of deposit and other time deposits of
$100,000 or more at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
TIME OTHER
CERTIFICATES TIME
OF DEPOSIT DEPOSITS TOTAL
------------ -------- ------
<S> <C> <C> <C>
Three months or less........................................ $2,799 $275 $3,074
Over three through six months............................... 1,117 -- 1,117
Over six through twelve months.............................. 2,135 -- 2,135
------ ---- ------
$6,051 $275 $6,326
====== ==== ======
</TABLE>
12. COMMITMENTS AND CONTINGENCIES
The consolidated financial statements do not reflect the Bank's various
commitments and contingent liabilities which arise in the normal course of
business and which involve elements of credit risk, interest rate risk and
liquidity risk. These commitments and contingent liabilities are commitments to
extend credit and standby letters of credit. The following is a summary of the
Bank's commitments and contingent liabilities at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ------
<S> <C> <C>
Commitments to extend credit................................ $772 $1,023
Standby letters of credit................................... 130 130
</TABLE>
Commitments to extend credit and standby letters of credit all include
exposure to some credit loss in the event of nonperformance of the customer. The
Bank's credit policies and procedures for credit commitments and financial
guarantees are the same as those for extension of credit that are recorded in
the consolidated statement of financial condition. Because these instruments
have fixed maturity dates, and because many of them expire without being drawn
upon, they do not generally present any significant liquidity risk to the Bank.
The Bank is party to litigation and claims arising in the normal course of
business. Management, after consultation with legal counsel, believes that the
liabilities, if any, arising from such litigation and claims will not be
material to the consolidated financial statements.
13. REGULATORY RESTRICTIONS
The primary source of funds available to the Company is the payment of
dividends by its subsidiary Bank. Banking regulations limit the amount of
dividends that may be paid without prior approval of the Bank's regulatory
agency. Approximately $1,004 are available to be paid as dividends by the Bank
subsidiary at December 31, 1997.
F-100
<PAGE> 538
FIRST CITIZENS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. REGULATORY RESTRICTIONS -- (CONTINUED)
The Company and its subsidiary are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory -- and possible
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 its subsidiary must meet specific capital guidelines that
involve quantitative measures of their assets, liabilities, and certain
off-balance sheet items as calculated under regulatory accounting practices. The
Company and its subsidiary 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 its subsidiary to maintain minimum amounts and ratios
(set forth in the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital (as
defined) to average assets (as defined). Management believes, as of December 31,
1997 and 1996 that the Company meet all capital adequacy requirements to which
they are subject.
As of December 31, 1997 and 1996, 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, Tier I leverage ratios as
set forth in the table. There are no conditions or events since that
notification that management believes have changed the institution's category.
The Company and its subsidiary's actual capital amounts and ratios are also
presented in the table.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
FOR CAPITAL UNDER PROMPT
ADEQUACY CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
-------------- -------------- ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- -------- -------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Capital (to Risk Weighted Assets):
Consolidated....................................... $3,271 13.49% $1,940 8.00% $2,425 10.00%
Bank............................................... 3,257 13.43 1,940 8.00 2,425 10.00
Tier I Capital (to Risk Weighted Assets):
Consolidated....................................... 3,006 12.40 970 4.00 1,455 6.00
Bank............................................... 2,992 12.34 970 4.00 1,455 6.00
Tier I Capital (to Average Assets):
Consolidated....................................... 3,006 10.22 1,177 4.00 1,471 5.00
Bank............................................... 2,992 10.17 1,177 4.00 1,471 5.00
As of December 31, 1996:
Total Capital (to Risk Weighted Assets):
Consolidated....................................... $2,778 11.46% $1,940 8.00% $2,425 10.00%
Bank............................................... 2,764 11.40 1,940 8.00 2,425 10.00
Tier I Capital (to Risk Weighted Assets):
Consolidated....................................... 2,583 10.65 970 4.00 1,455 6.00
Bank............................................... 2,569 10.60 970 4.00 1,455 6.00
Tier I Capital (to Average Assets) Consolidated........ 2,583 8.78 1,177 4.00 1,471 5.00
Bank............................................... 2,569 8.73 1,177 4.00 1,471 5.00
</TABLE>
F-101
<PAGE> 539
FIRST CITIZENS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. OTHER OPERATING EXPENSES
Other operating expenses consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Professional fees........................................... $ 62 $ 44 $ 23
Directors fees.............................................. 16 15 12
Insurance and assessments................................... 27 22 38
Postage..................................................... 32 25 25
Bank service charges........................................ 29 27 28
Other operating expense..................................... 192 177 110
---- ---- ----
Total.............................................. $358 $310 $236
==== ==== ====
</TABLE>
15. CONCENTRATIONS OF CREDIT
All of the Bank's loans, commitments and standby letters of credit have
been granted to customers in the Bank's market area. The concentrations of
credit by type of loan or commitment are set forth in Notes 4 and 12,
respectively.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Cash and Short-Term Investments: For those short-term instruments, the
carrying amount is a reasonable estimate of fair value.
Investment Securities: For securities held for investment purposes, fair
values are based on quoted market prices or dealer quotes.
Loan Receivables: For variable-rate loans that reprice frequently and have
no significant change in credit risk, fair values are based on carrying values.
The fair value of other types of loans is estimated by discounting the future
cash flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining maturities.
Deposit Liabilities: The fair value of demand deposits, savings accounts,
and certain money market deposits is the amount payable on demand at the
reporting date. The fair value of fixed-maturity certificates of deposit is
estimated using the rates currently offered for deposit of similar remaining
maturities.
Commitments to Extend Credit and Standby Letters of Credit. The fair value
of commitments and letters of credit is estimated to be approximately the same
as the notional amount of the related commitment.
F-102
<PAGE> 540
FIRST CITIZENS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. FAIR VALUE OF FINANCIAL INSTRUMENTS -- (CONTINUED)
The estimated fair values of the Company's financial instruments as of
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
------------------ ------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- -------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and short-term investments........................... $ 1,044 $ 1,044 $ 2,529 $ 2,529
Investment securities..................................... 2,176 2,176 3,133 3,133
Loans..................................................... 30,193 -- 24,378 --
Less: Allowance for losses................................ (265) -- (195) --
------- -------
Net loans................................................. 29,928 30,160 24,183 24,374
------- ------- ------- -------
TOTAL FINANCIAL ASSETS............................. $33,148 $33,380 $29,845 $30,036
======= ======= ======= =======
FINANCIAL LIABILITIES:
Deposits.................................................. $31,563 $31,722 $28,643 $28,737
Short-term borrowings..................................... 100 100 -- --
------- ------- ------- -------
TOTAL FINANCIAL LIABILITIES........................ $31,663 $31,822 $28,643 $28,737
======= ======= ======= =======
UNRECOGNIZED FINANCIAL INSTRUMENTS:
Commitments to extend credit.............................. $ 772 $ 772 $ 1,023 $ 1,023
Standby letters of credit................................. 130 130 130 130
------- ------- ------- -------
TOTAL UNRECOGNIZED FINANCIAL INSTRUMENTS........... $ 902 $ 902 $ 1,153 $ 1,153
======= ======= ======= =======
</TABLE>
17. PARENT COMPANY
The condensed financial information for First Citizens Bancorp, Inc.
(Parent Company only) is presented as follows:
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
ASSETS
Cash...................................................... $ 10 $ 11
Investment in subsidiary, at equity....................... 2,999 2,563
Other assets.............................................. 2 2
------ ------
$3,011 $2,576
====== ======
STOCKHOLDERS' EQUITY........................................ $3,011 $2,576
====== ======
</TABLE>
F-103
<PAGE> 541
FIRST CITIZENS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. PARENT COMPANY -- (CONTINUED)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
INCOME
Dividends from subsidiary................................. $ -- $ -- $ 15
EXPENSE -- OTHER............................................ 1 1 --
---- ---- ----
Income (loss) before income tax expense (benefit) and
equity in undistributed earnings of subsidiary.......... (1) (1) 15
INCOME TAX EXPENSE (BENEFIT)................................ -- (5) 5
---- ---- ----
Income (loss) before equity in undistributed earnings of
subsidiary.............................................. (1) 4 10
Equity in undistributed earnings of subsidiary.............. 424 396 184
---- ---- ----
NET INCOME......................................... $423 $400 $194
==== ==== ====
</TABLE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 423 $ 400 $ 194
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Undistributed earnings of subsidiary.................... (424) (396) (184)
Increase (decrease) in other liabilities................ -- (5) 5
Increase in other assets................................ -- -- (3)
----- ----- -----
NET CASH (USED IN) PROVIDED BY OPERATING
ACTIVITIES....................................... (1) (1) 12
----- ----- -----
Net (decrease) increase in cash............................. (1) (1) 12
Cash at beginning of year................................... 11 12 --
----- ----- -----
CASH AT END OF YEAR......................................... $ 10 $ 11 $ 12
===== ===== =====
</TABLE>
F-104
<PAGE> 542
FIRST CITIZENS BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION (UNAUDITED)
AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
JUNE 30,
1998
--------------
(IN THOUSANDS)
<S> <C>
ASSETS
Cash and due from banks..................................... $ 988
Federal funds sold.......................................... 1,230
Investment securities available for sale.................... 1,757
Loans, net of unearned...................................... 32,535
Less: Allowance for loan losses............................. (357)
-------
Net loans......................................... 32,178
-------
Premises and equipment, net................................. 555
Other assets................................................ 1,409
-------
Total assets...................................... $38,117
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing......................................... $ 4,328
Interest-bearing............................................ 30,075
-------
Total deposits.................................... 34,403
Accrued expenses and other liabilities...................... 468
-------
Total liabilities................................. 34,871
Stockholders' Equity
Common stock, par value $1 per share; authorized
10,000,000 shares; 75,000 shares issued................ 75
Surplus................................................... 1,914
Retained earnings......................................... 1,253
Accumulated other comprehensive income.................... 4
-------
Total stockholders' equity........................ 3,246
-------
Total liabilities and stockholders' equity........ $38,117
=======
</TABLE>
See Note to Unaudited Condensed Financial Statements.
F-105
<PAGE> 543
FIRST CITIZENS BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS EXCEPT
PER SHARE DATA)
<S> <C> <C>
Interest Income............................................. $ 1,683 $ 1,391
Interest expense............................................ 688 574
------- -------
Net interest income............................... 995 817
Provision for loan losses................................... 117 30
------- -------
Net interest income after provision for loan
losses........................................... 878 787
Noninterest income.......................................... 225 201
Gain on sale of securities.................................. -- --
Noninterest expenses........................................ 731 627
------- -------
Income before income taxes.................................. 372 361
Income tax expense.......................................... 136 131
------- -------
Net income........................................ 236 230
Other comprehensive (loss) income, net of tax:
Unrealized (loss) gain on securities available for sale... (1) 6
------- -------
Comprehensive income........................................ $ 235 $ 236
======= =======
Earnings per share
Basic..................................................... $ 3.15 $ 3.07
======= =======
Diluted................................................... $ 3.08 $ 3.02
======= =======
Average number of shares outstanding
Basic..................................................... 75,000 75,000
======= =======
Diluted................................................... 76,528 76,113
======= =======
</TABLE>
See Note to Unaudited Condensed Financial Statements.
F-106
<PAGE> 544
FIRST CITIZENS BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMMON RETAINED COMPREHENSIVE STOCKHOLDERS'
STOCK SURPLUS EARNINGS INCOME EQUITY
------ ------- -------- ------------- -------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997................ $75 $1,914 $1,017 $ 5 $3,011
Net income.................................. -- -- 236 -- 236
Other comprehensive loss.................... -- -- -- (1) (1)
--- ------ ------ ------- ------
Balance at June 30, 1998.................... $75 $1,914 $1,253 $ 4 3,246
=== ====== ====== ======= ======
</TABLE>
See Note to Unaudited Condensed Financial Statements.
F-107
<PAGE> 545
FIRST CITIZENS BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------ ------
(IN THOUSANDS)
<S> <C> <C>
Net cash provided by operating activities................... $ 394 $ 148
------ ------
Cash flows from investing activities:
Net increase in federal funds sold........................ (1,230) (80)
Proceeds from maturities of investment securities
available for sale..................................... 815 700
Purchases of investment securities available for sale..... (400) --
Net increase in loans..................................... (2,367) (2,609)
Purchases of premises and equipment....................... (8) (24)
------ ------
Net cash used in investing activities................ (3,190) (2,013)
------ ------
Cash flows from financing activities:
Net increase in deposit accounts.......................... 2,840 3,086
Net decrease in federal funds purchased................... (100) --
------ ------
Net cash provided by financing activities............ 2,740 3,086
------ ------
Net (decrease) increase in cash and due from banks.......... (56) 1,221
Cash and due from banks at beginning of period.............. 1,044 2,249
------ ------
Cash and due from banks at end of period.................... $ 988 $3,470
====== ======
Supplemental Cash Flow Information:
Selected cash payments and noncash activities were as
follows:
Cash payments for income taxes......................... $ 175 $ 233
Cash payments for interest............................. 661 534
</TABLE>
See Note to Unaudited Condensed Financial Statements.
F-108
<PAGE> 546
FIRST CITIZENS BANCORP, INC.
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)
1. ACCOUNTING AND REPORTING POLICIES
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and, accordingly, do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, the
accompanying unaudited condensed consolidated financial statements contain all
adjustments (consisting of only normal recurring entries) necessary to present
fairly the financial position, results of operations and cash flows for the
interim periods. All interim amounts are subject to year-end audit, and the
results of operations for the interim periods reported herein are not
necessarily indicative of results of operations to be expected for the year.
F-109
<PAGE> 547
CITY NATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditor's Report................................ F-111
Consolidated Statements of Financial Condition as of
December 31, 1997 and 1996................................ F-112
Consolidated Statements of Income and Comprehensive Income
for the Years Ended December 31, 1997, 1996 and 1995...... F-113
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1997, 1996 and 1995...... F-114
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995.......................... F-115
Notes to Consolidated Financial Statements.................. F-116
Condensed Consolidated Statement of Financial Condition as
of June 30, 1998 (Unaudited).............................. F-128
Condensed Consolidated Statements of Income and
Comprehensive Income for the Six Months Ended June 30,
1998 and 1997 (Unaudited)................................. F-129
Condensed Consolidated Statement of Changes in Stockholders'
Equity for the Six Months Ended June 30, 1998
(Unaudited)............................................... F-130
Condensed Consolidated Statements of Cash Flow for the Six
Months Ended June 30, 1998 and 1997 (Unaudited)........... F-131
Note to Condensed Consolidated Financial Statements for the
Six Months Ended June 30, 1998 and 1997 (Unaudited)....... F-132
</TABLE>
F-110
<PAGE> 548
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
and Stockholders
City National Corporation
Sylacauga, Alabama
We have audited the accompanying consolidated statements of financial
condition of City National Corporation and subsidiary as of December 31, 1997
and 1996, and the related consolidated statements of income and comprehensive
income, changes in stockholders' equity and cash flows for each of the years in
the three-year period ended December 31, 1997. 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 audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of City National Corporation
and subsidiary at December 31, 1997 and 1996, and the results of its operations
and its cash flows for each of the years in the three-year period ended December
31, 1997, in conformity with generally accepted accounting principles.
DUDLEY, HOPTON-JONES, SIMS & FREEMAN PLLP
Birmingham, Alabama
January 8, 1998
F-111
<PAGE> 549
CITY NATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
ASSETS
Cash and due from banks................................... $ 2,031 $ 2,696
Interest-bearing deposits in other banks.................. 200 200
Federal funds sold........................................ 3,240 520
Investment securities available for sale.................. 35,857 43,066
Loans, net of unearned income............................. 39,149 34,659
Less: Allowance for loan losses........................... (515) (449)
------- -------
Net loans............................................. 38,634 34,210
------- -------
Premises and equipment, net............................... 2,535 2,075
Accrued interest receivable............................... 1,026 973
Stock in FHLB and Federal Reserve Bank.................... 270 244
Other assets.............................................. 203 254
------- -------
TOTAL ASSETS....................................... $83,996 $84,238
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing demand................................ $10,569 $ 9,538
Interest-bearing demand................................... 14,209 14,113
Savings................................................... 7,782 7,934
Time deposits $100,000 and over........................... 23,094 21,818
Other time deposits....................................... 15,616 17,239
------- -------
TOTAL DEPOSITS..................................... 71,270 70,642
Advance from FHLB........................................... -- 1,600
Accrued expenses and other liabilities...................... 831 743
------- -------
TOTAL LIABILITIES.................................. 72,101 72,985
Minority interest in equity of subsidiary................... 141 133
Stockholders' equity
Common stock, par value $1.00 per share; 100,000 shares
authorized, 27,149 issued............................... 27 27
Surplus................................................... 4,127 4,127
Retained earnings......................................... 7,418 6,946
Treasury stock, at cost -- 300 and 100 shares,
respectively............................................ (53) (16)
Accumulated other comprehensive income.................... 235 36
------- -------
TOTAL STOCKHOLDERS' EQUITY......................... 11,754 11,120
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......... $83,996 $84,238
======= =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-112
<PAGE> 550
CITY NATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans................................ $3,802 $3,468 $3,211
Interest on investment securities
Taxable................................................. 2,440 2,008 1,855
Exempt from federal income tax.......................... 353 447 454
Interest on federal funds sold............................ 82 78 131
Interest on other investments............................. 43 25 22
------ ------ ------
TOTAL INTEREST INCOME.............................. 6,720 6,026 5,673
INTEREST EXPENSE
Interest on deposits...................................... 2,903 2,452 2,324
Interest on short-term borrowings......................... 7 8 --
------ ------ ------
TOTAL INTEREST EXPENSE............................. 2,910 2,460 2,324
------ ------ ------
Net interest income..................................... 3,810 3,566 3,349
PROVISION FOR LOAN LOSSES................................... 384 346 203
------ ------ ------
Net interest income after provision for loan losses..... 3,426 3,220 3,146
NONINTEREST INCOME
Service charges, commissions and fees..................... 481 538 506
Net investment securities gains........................... 214 55 88
Other income.............................................. 42 90 35
------ ------ ------
TOTAL NONINTEREST INCOME........................... 737 683 629
NONINTEREST EXPENSES
Salaries and employee benefits............................ 1,940 1,816 1,649
Occupancy expense......................................... 188 128 127
Furniture and equipment expense........................... 386 389 303
Insurance and assessments................................. 48 47 97
Loss on disposal of assets................................ 23 -- 82
Minority interest in earnings of subsidiary............... 8 7 9
Other operating expenses.................................. 775 823 743
------ ------ ------
TOTAL NONINTEREST EXPENSES......................... 3,368 3,210 3,010
------ ------ ------
Income before income taxes......................... 795 693 765
Income tax expense.......................................... 170 133 40
------ ------ ------
NET INCOME......................................... 625 560 725
Other comprehensive income (loss) net of tax:
Unrealized holding gains (losses) on securities available
for sale arising during period.......................... 199 (267) 1,486
------ ------ ------
COMPREHENSIVE INCOME...................................... $ 824 $ 293 $2,211
====== ====== ======
Earnings per share -- basic................................. $23.25 $20.68 $26.73
====== ====== ======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-113
<PAGE> 551
CITY NATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON RETAINED OTHER COMPREHENSIVE TREASURY TOTAL
STOCK SURPLUS EARNINGS INCOME (LOSS) STOCK AT COST EQUITY
------ ------- -------- ------------------- ------------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994................ $27 $4,127 $5,956 $(1,183) $ -- $ 8,927
Net income................................ -- -- 725 -- -- 725
Cash dividends declared................... -- -- (144) -- -- (144)
Other comprehensive income................ -- -- -- 1,486 -- 1,486
--- ------ ------ ------- ---- -------
Balance at December 31, 1995.............. 27 4,127 6,537 303 -- 10,994
Net income................................ -- -- 560 -- -- 560
Cash dividends declared................... -- -- (151) -- -- (151)
Purchase of treasury stock................ -- -- -- -- (16) (16)
Other comprehensive loss.................. -- -- -- (267) -- (267)
--- ------ ------ ------- ---- -------
Balance at December 31, 1996.............. 27 4,127 6,946 36 (16) 11,120
Net income................................ -- -- 625 -- -- 625
Cash dividends............................ -- -- (153) -- -- (153)
Purchase of treasury stock................ -- -- -- -- (37) (37)
Other comprehensive income................ -- -- -- 199 -- 199
--- ------ ------ ------- ---- -------
Balance at December 31, 1997.............. $27 $4,127 $7,418 $ 235 $(53) $11,754
=== ====== ====== ======= ==== =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-114
<PAGE> 552
CITY NATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 625 $ 560 $ 725
Adjustments to reconcile net income to net cash provided
by operations:
Depreciation............................................ 269 276 205
Net discount accretion.................................. (246) (35) (42)
Provision for loan losses............................... 384 346 203
Net investment securities gains......................... (214) (55) (88)
Increase in accrued interest receivable................. (53) (60) (96)
(Increase) decrease in other assets..................... (83) 110 (186)
(Decrease) increase in accrued interest payable......... (32) 54 104
Increase (decrease) in other liabilities................ 119 (110) 55
Minority interest in earnings of subsidiary............. 8 5 9
-------- -------- --------
NET CASH PROVIDED BY OPERATIONS.................... 777 1,091 889
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of interest-bearing deposits with
banks................................................... -- 202 --
Net (increase) decrease in federal funds sold............. (2,720) (520) 5,950
Proceeds from sales of investment securities available for
sale.................................................... 22,207 6,091 8,208
Proceeds from maturities of investment securities
available for sale...................................... 2,314 7,391 4,512
Purchases of investment securities available for sale..... (16,516) (20,213) (19,381)
Purchase of FHLB stock.................................... (25) (226) --
Net increase in loans..................................... (4,809) (3,517) (2,488)
Purchases of premises and equipment....................... (729) (561) (706)
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES.............. (278) (11,353) (3,905)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand and savings deposits.... 974 (1,919) (2,327)
Net (decrease) increase in certificates of deposit and
other time deposits..................................... (346) 11,193 4,744
Dividends paid............................................ (153) (151) (144)
Dividends paid to minority shareholders................... (2) (1) (2)
Net decrease in notes payable............................. -- (30) 30
Net (decrease) increase in FHLB advance................... (1,600) 1,600 --
Net (decrease) increase in federal funds purchased........ -- (1,000) 1,000
Purchase of treasury stock................................ (37) (16) --
-------- -------- --------
NET CASH (USED IN) PROVIDED BY FINANCING
ACTIVITIES....................................... (1,164) 9,676 3,301
-------- -------- --------
Net (decrease) increase in cash and due from banks.......... (665) (586) 285
Cash and due from banks at beginning of year................ 2,696 3,282 2,997
-------- -------- --------
CASH AND DUE FROM BANKS AT END OF YEAR...................... $ 2,031 $ 2,696 $ 3,282
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest................................................ $ 2,942 $ 2,406 $ 2,219
Income taxes............................................ 106 117 181
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-115
<PAGE> 553
CITY NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies followed by the Company and its subsidiary and the
method of applying those policies which affect the determination of financial
position, results of operations and cash flows are summarized below.
CONSOLIDATION
The consolidated financial statements of the Company include the accounts
of the Company and its subsidiary, The City National Bank ("Bank"), Sylacauga,
Alabama and its wholly-owned subsidiary, Freedom Financial Corporation. As of
December 31, 1997 and 1996, the Company owns 98.81% of the Bank and all
significant intercompany transactions and amounts have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for losses on loans. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in local economic
conditions. In addition, regulatory agencies, as an integral part of their
examination process, periodically review the Company's allowance for losses on
loans. Such agencies may require the Company to recognize additions to the
allowances based on their judgments about information available to them at the
time of their examination.
INVESTMENT SECURITIES
The Bank's investments in securities are classified available for sale and
accounted for as follows:
Securities available for sale consist of bonds, notes, debentures, and
certain equity securities not classified as trading securities nor as
securities to be held to maturity.
Unrealized holding gains and losses, net of deferred income tax, are
reported as a separate component of stockholders' equity until realized.
Gains and losses on the sale of securities available for sale are
determined using the specific-identification method.
LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are stated at the amount of unpaid principal, reduced by unearned
discount and an allowance for loan losses. Interest income with respect to loans
is accrued on the principal amount outstanding, except for interest on certain
consumer loans, which is recognized over the term of the loan using a method
which approximates a level yield.
The allowance for loan losses is established through a provision for loan
losses charged to expenses. Loans are charged against the allowance for loan
losses when management believes the collectibility of principal is unlikely. The
allowance is the amount that management believes will be adequate to absorb
possible losses on existing loans which may become uncollectible, based on
evaluation of the collectibility of loans and prior loan
F-116
<PAGE> 554
CITY NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
loss experience. The evaluations take into consideration such factors as changes
in the nature and volume of the loan portfolio, overall portfolio quality,
review of specific problem loans, and current economic conditions that may
affect the borrower's ability to pay.
Accrual of interest is discontinued on a loan when management believes,
after considering economic and business conditions and collection efforts, that
the loan is impaired. Any unpaid interest previously accrued on those loans is
reversed from income. Interest income generally is not recognized on specific
impaired loans unless the likelihood of further loss is remote. Interest
payments received on such loans are applied as a reduction of the loan principal
balance. Interest income on other nonaccrual loans is recognized only to the
extent of interest payments received.
BANK PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is computed over the estimated
service lives of the assets using straight-line and accelerated methods. The
estimated service lives are as follows:
<TABLE>
<CAPTION>
DESCRIPTION ESTIMATED SERVICE LIFE
----------- ----------------------
<S> <C>
Bank premises............................................... 18 to 50 years
Furniture and equipment..................................... 5 to 12 years
</TABLE>
Expenditures for maintenance and repairs are charged to operations as
incurred; expenditures for renewals and betterments are capitalized and written
off by depreciation charges. Property retired or sold is removed from the asset
and related accumulated depreciation accounts and any profit or loss resulting
therefrom is reflected in the statement of income.
LOAN ORIGINATION FEES
Loan origination fees are capitalized and recognized as an adjustment of
the yield on the related loan.
INCOME TAXES
Income taxes are based on amounts reported in the statements of income and
comprehensive income, after exclusion of nontaxable income such as interest on
state and municipal securities and certain nondeductible expenses (See Note 9).
EARNINGS PER SHARE
Earnings per share has been computed based on the weighted average number
of common shares outstanding of 26,910, 27,063 and 27,149, respectively.
OFF BALANCE SHEET FINANCIAL INSTRUMENTS
In the ordinary course of business the Bank has entered into off balance
sheet financial instruments consisting of commitments to extend credit and
standby letters of credit. Such financial instruments are recorded in the
financial statements when they become payable.
CASH AND CASH EQUIVALENTS
For the purpose of presentation in the Statements of Cash Flows, cash and
cash equivalents are defined as those amounts included in the balance sheet
caption "Cash and Due from Banks."
F-117
<PAGE> 555
CITY NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
EFFECT OF NEW FINANCIAL ACCOUNTING STANDARDS
In February 1997, the FASB issued SFAS No. 128, Earnings per Share. This
statement simplifies the standards for computing earnings per share previously
set forth in APB Opinion No. 15, Earnings per Share, and makes them comparable
to international Earnings per Share ("EPS") standards. It replaces the
presentation of primary EPS with a presentation of basic EPS. It also requires
dual presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures and requires a reconciliation
of the numerator and denominator of the basic EPS computation to the numerator
and denominator of the diluted EPS computation. Basic EPS excludes dilution and
is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
entity. Diluted EPS is computed similarly to fully diluted EPS pursuant to APB
Opinion No. 15. This statement is effective for financial statements issued for
periods ending after December 15, 1997. The adoption of this statement did not
have a material impact on the consolidated financial statements.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
Income. This statement establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose 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 with the same prominence as other financial statements. This statement
does not require a specific format for that financial statement but requires
that an enterprise display an amount representing total comprehensive income for
the period in that financial statement. This statement requires that an
enterprise classify items of other comprehensive income by their nature in a
financial statement and display the accumulated balance separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. This statement is effective for fiscal years beginning after
December 15, 1997. The adoption of this statement did not have a material impact
on the consolidated financial statements.
2. RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS
The subsidiary bank is required to maintain average reserve balances either
in vault cash or on deposit with the Federal Reserve Bank. The amount of those
reserves required at December 31, 1997 was approximately $418.
F-118
<PAGE> 556
CITY NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVESTMENT SECURITIES
The amounts at which investment securities are carried and their
approximate fair values at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
December 31, 1997
U.S. Treasury securities and obligations of U.S.
government corporations and agencies.............. $19,894 $ 51 $ 47 $19,898
Obligations of states and political subdivisions.... 6,774 344 -- 7,118
Mortgage-backed securities.......................... 5,726 59 28 5,757
Corporate........................................... 3,067 17 -- 3,084
------- ---- ---- -------
Total........................................ $35,461 $471 $ 75 $35,857
======= ==== ==== =======
December 31, 1996
U.S. Treasury securities and obligations of U.S.
government corporations and agencies.............. $22,881 $ 27 $366 $22,542
Obligations of states and political subdivisions.... 9,984 486 42 10,428
Mortgage-backed securities.......................... 10,140 73 117 10,096
------- ---- ---- -------
Total........................................ $43,005 $586 $525 $43,066
======= ==== ==== =======
</TABLE>
Securities with an amortized cost of $14,291 and $14,681 at December 31,
1997 and 1996, respectively, were pledged to secure United States Government
deposits and other public funds and for other purposes as required or permitted
by law.
The amortized cost and estimated fair value of debt securities at December
31, 1997, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
COST VALUE
--------- ---------
<S> <C> <C>
Due in one year or less..................................... $ 99 $ 102
Due after one year through five years....................... 6,920 6,978
Due after five years through ten years...................... 18,559 18,695
Due after ten years......................................... 9,883 10,082
------- -------
$35,461 $35,857
======= =======
</TABLE>
Gross realized gains and losses on securities available for sale were:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Realized gains.............................................. $235 $68 $97
Realized losses............................................. 21 13 9
</TABLE>
4. LOANS
The Bank grants loans to customers primarily in Talladega County, Alabama.
F-119
<PAGE> 557
CITY NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. LOANS -- (CONTINUED)
A summary of the composition of the loan portfolio at December 31, 1997 and
1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Commercial, industrial and agricultural..................... $ 5,699 $ 2,855
Real estate -- construction................................. 467 215
-- mortgage..................................... 21,197 19,212
Loans to individuals for personal expenditures.............. 12,122 12,793
All other loans (including overdrafts)...................... 560 659
------- -------
Total loans........................................ 40,045 35,734
Unearned interest and fees.................................. (896) (1,075)
Allowance for loan losses................................... (515) (449)
------- -------
Net loans.......................................... $38,634 $34,210
======= =======
</TABLE>
Information with respect to impaired loans as of and for the year ended
December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Nonaccruing with related loan loss reserve.................. $ -- $ --
Nonaccruing with no related loan loss reserve............... 404 453
---- ----
Total impaired loans............................... $404 $453
==== ====
Average balance of impaired loans........................... $428 $280
==== ====
</TABLE>
The Bank has no commitments to loan additional funds to borrowers whose
loans are nonaccruing.
5. ALLOWANCE FOR LOAN LOSSES
A summary of the allowance for loan losses for the years ended December 31,
1997 and 1996 follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year................................ $449 $434 $431
Provision charged to operations............................. 384 346 203
---- ---- ----
833 780 634
Net charge-offs............................................. 318 331 200
---- ---- ----
Balance at end of year...................................... $515 $449 $434
==== ==== ====
</TABLE>
6. PREMISES AND EQUIPMENT
A summary of the components of premises and equipment at December 31, 1997
and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Land........................................................ $ 261 $ 261
Bank premises............................................... 1,816 1,146
Furniture and equipment..................................... 2,068 1,977
------- -------
4,145 3,384
Less: Accumulated depreciation............................ (1,610) (1,309)
------- -------
Net book value..................................... $ 2,535 $ 2,075
======= =======
</TABLE>
The provision for depreciation charged to occupancy and equipment expense
for the years ended December 31, 1997, 1996 and 1995 was $269, $276 and $205,
respectively.
F-120
<PAGE> 558
CITY NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. ADVANCE FROM FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank ("FHLB") as of December 31, 1996
totaled $1,600,000. The interest rate is fixed at 5.64% and due monthly;
maturity date is March 12, 1997. The advances are secured by Federal Home Loan
Bank stock.
8. PROFIT-SHARING PLAN
The Bank has a profit-sharing plan which permits participants to make
contributions by salary reduction pursuant to section 401(k) of the Internal
Revenue Code. The Bank matches contributions at its discretion up to a maximum
of 8% of compensation. In addition, the plan allows the Bank to make
discretionary contributions of up to 6% of employee compensation. In 1997, 1996
and 1995, the Bank's contributions to the plan were $124, $100, and $95,
respectively.
9. INCOME TAX EXPENSE
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Currently payable:
Federal................................................... $154 $116 $120
State..................................................... 37 26 9
---- ---- ----
Total currently payable............................ 191 142 129
Tax effect of temporary differences....................... (21) (9) (89)
---- ---- ----
Total income tax expense........................... $170 $133 $ 40
==== ==== ====
</TABLE>
As of December 31, 1997 and 1996, the net deferred tax asset (liability)
consisted of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax asset:
Allowance for loan losses................................. $194 $161
Alternative minimum tax credit............................ 97 91
---- ----
291 252
Deferred tax liability:
Depreciation.............................................. 163 145
Unrealized gain on securities available for sale.......... 159 24
---- ----
322 169
---- ----
Net deferred tax asset (liability)................. $(31) $ 83
==== ====
</TABLE>
The effective tax differs significantly from the Federal tax rate of 34%. A
reconciliation between the expected tax and the actual income tax follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Expected tax at the Federal statutory rate.................. $ 271 $ 235 $ 260
Increases (decreases) resulting from:
Effect of tax-exempt income............................... (120) (161) (154)
Change in valuation allowance............................. -- -- (86)
State excise taxes........................................ 24 17 3
Nondeductible interest.................................... 14 18 13
Other -- net.............................................. (19) 24 4
----- ----- -----
$ 170 $ 133 $ 40
===== ===== =====
</TABLE>
F-121
<PAGE> 559
CITY NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. RELATED PARTY TRANSACTIONS
The Bank has entered into transactions with its directors, significant
shareholders and their affiliates (related parties). Such transactions were made
in the ordinary course of business on substantially the same terms and
conditions, including interest rates and collateral, as those prevailing at the
same time for comparable transactions with other customers, and did not, in the
opinion of management, involve more than normal credit risk or present other
unfavorable features. Changes in related party loans for the year ended December
31, 1997 were as follows:
<TABLE>
<CAPTION>
BALANCE BALANCE
DECEMBER 31, 1996 ADVANCES REPAYMENTS DECEMBER 31, 1997
- ----------------- -------- ---------- -----------------
<S> <C> <C> <C>
$533 $49 $70 $512
==== === === ====
</TABLE>
11. TIME DEPOSITS
The maturities of time certificates of deposit and other time deposits of
$100,000 or more at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
TIME OTHER
CERTIFICATES TIME
OF DEPOSIT DEPOSITS TOTAL
------------ -------- -------
<S> <C> <C> <C>
Three months or less........................................ $ 3,076 $ 4,500 $ 7,576
Over three through six months............................... 1,188 -- 1,188
Over six through twelve months.............................. 5,796 6,980 12,776
Over twelve months.......................................... 1,554 -- 1,554
------- ------- -------
$11,614 $11,480 $23,094
======= ======= =======
</TABLE>
12. COMMITMENTS AND CONTINGENCIES
The consolidated financial statements do not reflect various commitments
and contingent liabilities which arise in the normal course of business and
which involve elements of credit risk, interest rate risk and liquidity risk.
These commitments and contingent liabilities are commitments to extend credit
and standby letters of credit. A summary of the Bank's commitments and
contingent liabilities at December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Commitments to extend credit................................ $1,246 $1,598
Standby letters of credit................................... 68 201
</TABLE>
Commitments to extend credit and standby letters of credit all include
exposure to some credit loss in the event of nonperformance of the customer. The
Bank's credit policies and procedures for credit commitments and financial
guarantees are the same as those for extension of credit that are recorded on
the balance sheet. Because these instruments have fixed maturity dates, and
because many of them expire without being drawn upon, they do not generally
present any significant liquidity risk to the Bank.
Freedom Financial Services, Inc. leases its branch office facilities under
various operating leases. The future minimum lease payments (including renewal
options) for each of the succeeding five years follows:
<TABLE>
<S> <C>
1998........................................................ $33
1999........................................................ 22
2000........................................................ 18
2001........................................................ 8
2002........................................................ 8
---
$89
===
</TABLE>
F-122
<PAGE> 560
CITY NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
Rent expense was approximately $33 and $29 for the years ended December 31,
1997 and 1996, respectively.
The Bank is party to litigation and claims arising in the normal course of
business. Management, after consultation with legal counsel, believes that the
liabilities, if any, arising from such litigation and claims will not be
material to the financial statements.
13. CONCENTRATIONS OF CREDIT
Substantially all of the Bank's loans, commitments and standby letters of
credit have been granted to customers in the Bank's market area. The
concentrations of credit by type of loan or commitment are set forth in Notes 4
and 12, respectively.
14. REGULATORY RESTRICTIONS
The primary source of funds available to the Company is the payment of
dividends by its subsidiary bank. Banking regulations limit the amount of
dividends that may be paid without prior approval of the Banks' regulatory
agency. Approximately $1,420 are available to be paid as dividends by the
subsidiary bank at December 31, 1997.
The Company and its subsidiary are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory -- and possible
additional discretionary -- actions by regulators that, if undertaken, could
have a direct material effect on the Company's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Company and its subsidiary must meet specific capital guidelines
that involve quantitative measures of their assets, liabilities, and certain
off-balance sheet items as calculated under regulatory accounting practices. The
Company and its subsidiary'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 its subsidiary to maintain minimum amounts and ratios
(set forth in the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital (as
defined) to average assets (as defined). Management believes, as of December 31,
1997 and 1996, that the Company and its subsidiary meet all capital adequacy
requirements to which it is subject.
As of December 31, 1997 and 1996, the most recent notification from the
Office of the Comptroller of the Currency 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, Tier I leverage ratios as set forth in the table. There are
no conditions or events since that notification that management believes have
changed the institution's category.
F-123
<PAGE> 561
CITY NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. REGULATORY RESTRICTIONS -- (CONTINUED)
The Company's and its subsidiary's actual capital amounts and ratios are
also presented in the table.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
FOR CAPITAL UNDER PROMPT
ADEQUACY CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
--------------- -------------- ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ------ ----- -------- -------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Capital (to Risk Weighted Assets):
Consolidated......................................... $12,175 25.3% $3,858 8.0% $4,822 10.0%
Bank................................................. 12,098 25.2 3,837 8.0 4,796 10.0
Tier I Capital (to Risk Weighted Assets):
Consolidated......................................... 11,660 24.2 1,929 4.0 2,893 6.0
Bank................................................. 11,583 24.2 1,918 4.0 2,878 6.0
Tier I Capital (to Average Assets):
Consolidated......................................... 11,660 13.6 3,423 4.0 4,279 5.0
Bank................................................. 11,583 13.6 3,412 4.0 4,265 5.0
As of December 31, 1996:
Total Capital (to Risk Weighted Assets):
Consolidated......................................... $11,667 27.6% $3,385 8.0% $4,231 10.0%
Bank................................................. 11,567 27.5 3,366 8.0 4,208 10.0
Tier I Capital (to Risk Weighted Assets):
Consolidated......................................... 11,217 26.5 1,692 4.0 2,539 6.0
Bank................................................. 11,117 26.4 1,683 4.0 2,525 6.0
Tier I Capital (to Average Assets):
Consolidated......................................... 11,217 14.0 3,196 4.0 3,995 5.0
Bank................................................. 11,117 14.0 3,186 4.0 3,983 5.0
</TABLE>
15. OTHER OPERATING EXPENSES
Other operating expenses consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Directors fees.............................................. $ 87 $ 91 $ 94
Advertising................................................. 80 77 87
Other operating expense..................................... 608 655 562
---- ---- ----
Total.............................................. $775 $823 $743
==== ==== ====
</TABLE>
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Cash and Short-Term Investments: For those short-term instruments, the
carrying amount is a reasonable estimate of fair value.
Investment Securities: For securities held for investment purposes, fair
values are based on quoted market prices or dealer quotes.
Loan Receivables: For variable-rate loans that reprice frequently and have
no significant change in credit risk, fair values are based on carrying values.
The fair value of other types of loans is estimated by discounting the future
cash flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining maturities.
F-124
<PAGE> 562
CITY NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. FAIR VALUE OF FINANCIAL INSTRUMENTS -- (CONTINUED)
Deposit Liabilities: The fair value of demand deposits, savings accounts,
and certain money market deposits is the amount payable on demand at the
reporting date. The fair value of fixed-maturity certificates of deposit is
estimated using the rates currently offered for deposit of similar remaining
maturities.
Commitments to Extend Credit and Standby Letters of Credit. The fair value
of commitments and letters of credit is estimated to be approximately the same
as the notional amount of the related commitment.
The estimated fair values of the Company's financial instruments as of
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
------------------ ------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- -------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and short-term investments........................ $ 5,471 $ 5,471 $ 3,416 $ 3,416
Investment securities.................................. 35,857 35,857 43,066 43,066
Loans.................................................. 39,149 34,659
Less: Allowance for losses............................. (515) (449)
------- -------
Net loans.............................................. 38,634 39,197 34,210 34,853
------- ------- ------- -------
TOTAL FINANCIAL ASSETS.......................... $79,962 $80,525 $80,692 $81,335
======= ======= ======= =======
FINANCIAL LIABILITIES:
Deposits............................................... $71,270 $71,408 $70,642 $70,860
Short-term borrowings.................................. -- -- 1,600 1,600
------- ------- ------- -------
TOTAL FINANCIAL LIABILITIES..................... $71,270 $71,408 $72,242 $72,460
======= ======= ======= =======
UNRECOGNIZED FINANCIAL INSTRUMENTS:
Commitments to extend credit........................... $ 1,246 $ 1,246 $ 1,598 $ 1,598
Standby letters of credit.............................. 68 68 201 201
------- ------- ------- -------
TOTAL UNRECOGNIZED FINANCIAL INSTRUMENTS........ $ 1,314 $ 1,314 $ 1,799 $ 1,799
======= ======= ======= =======
</TABLE>
F-125
<PAGE> 563
CITY NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. PARENT COMPANY
The condensed financial information for City National Corporation (Parent
Company only) is presented as follows:
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
ASSETS
Cash...................................................... $ 40 $ 74
Investment in subsidiary, at equity....................... 11,679 11,023
Property and equipment, net............................... 146 153
Other assets.............................................. 117 82
------- -------
TOTAL ASSETS....................................... $11,982 $11,332
======= =======
LIABILITIES
Dividends payable......................................... $ 40 $ 38
Other liabilities......................................... 188 174
------- -------
228 212
STOCKHOLDERS' EQUITY........................................ 11,754 11,120
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......... $11,982 $11,332
======= =======
</TABLE>
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
INCOME
Dividends from subsidiary................................. $169 $166 $157
Interest.................................................. 2 2 5
Commissions............................................... 2 -- 10
Lease income.............................................. 10 53 52
Management fees........................................... 72 60 --
Amortization of negative goodwill......................... 11 11 11
---- ---- ----
266 292 235
EXPENSES
Interest.................................................. -- -- 2
Depreciation.............................................. 7 3 18
Salaries and benefits..................................... 89 77 59
Miscellaneous............................................. 7 8 3
---- ---- ----
103 88 82
---- ---- ----
OPERATING INCOME BEFORE INCOME TAX EXPENSE (BENEFIT).... 163 204 153
Income tax expense (benefit).............................. (5) 39 (22)
---- ---- ----
INCOME BEFORE UNDISTRIBUTED INCOME OF SUBSIDIARY........ 168 165 175
UNDISTRIBUTED INCOME OF SUBSIDIARY
Net income of subsidiary.................................. 626 561 707
Less: Dividends received.................................. 169 166 157
---- ---- ----
UNDISTRIBUTED INCOME OF SUBSIDIARY................. 457 395 550
---- ---- ----
NET INCOME......................................... $625 $560 $725
==== ==== ====
</TABLE>
F-126
<PAGE> 564
CITY NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. PARENT COMPANY -- (CONTINUED)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $625 $560 $725
Adjustment to reconcile net income to net cash provided by
operations
Depreciation............................................ 7 3 18
Amortization of negative goodwill....................... (11) (11) (11)
Undistributed income of subsidiary...................... (457) (395) (550)
(Increase) decrease in other assets..................... (35) 70 (113)
Increase in other liabilities........................... 27 18 --
---- ---- ----
NET CASH PROVIDED BY OPERATIONS.................... 156 245 69
---- ---- ----
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchases of premises and equipment....................... -- -- (153)
---- ---- ----
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in notes payable...................... -- (30) 30
Dividends paid............................................ (153) (151) (141)
Purchase of treasury stock................................ (37) (16) --
---- ---- ----
NET CASH USED IN FINANCING ACTIVITIES.............. (190) (197) (111)
---- ---- ----
Net (decrease) increase in cash............................. (34) 48 (195)
Cash at beginning of year................................... 74 26 221
---- ---- ----
CASH AT END OF YEAR......................................... $ 40 $ 74 $ 26
==== ==== ====
</TABLE>
F-127
<PAGE> 565
CITY NATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION (UNAUDITED)
AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
JUNE 30,
1998
--------------
(IN THOUSANDS)
<S> <C>
ASSETS
Cash and due from banks..................................... $ 2,725
Interest bearing deposits in other banks.................... 200
Federal funds sold.......................................... 1,120
Investment securities available for sale.................... 35,224
Loans, net of unearned...................................... 39,568
Less: Allowance for loan losses............................. (700)
-------
Net loans......................................... 38,868
-------
Premises and equipment, net................................. 2,707
Other assets................................................ 1,364
-------
Total assets...................................... $82,208
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing....................................... $10,525
Interest-bearing.......................................... 58,832
-------
Total deposits.................................... 69,357
Accrued expenses and other liabilities...................... 893
-------
Total liabilities................................. 70,250
Minority interest in equity of subsidiary................... 139
Stockholders' Equity
Common stock, par value $1 per share; authorized 100,000
shares; 27,149 shares issued........................... 27
Surplus................................................... 4,135
Retained earnings......................................... 7,422
Accumulated other comprehensive income.................... 301
Treasury stock, at cost -- 317 shares..................... (66)
-------
Total stockholders' equity........................ 11,819
-------
Total liabilities and stockholders' equity........ $82,208
=======
</TABLE>
See Note to Unaudited Condensed Financial Statements.
F-128
<PAGE> 566
CITY NATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(IN THOUSANDS EXCEPT
PER SHARE DATA)
<S> <C> <C>
Interest income............................................. $ 3,290 $ 3,355
Interest expense............................................ 1,359 1,448
------- -------
Net interest income.................................. 1,931 1,907
Provision for loan losses................................... 430 248
------- -------
Net interest income after provision for loan losses....... 1,501 1,659
Noninterest income.......................................... 280 255
Gain on sale of securities.................................. 47 2
Noninterest expenses........................................ 1,696 1,654
------- -------
Income before income taxes............................. 132 262
Income tax expense.......................................... 47 92
------- -------
Net income........................................... 85 170
Other comprehensive income, net of tax:
Unrealized gain on securities available for sale.......... 66 66
------- -------
Comprehensive income........................................ $ 151 $ 236
======= =======
Basic earnings per share.................................... $ 3.16 $ 6.31
======= =======
Average number of shares outstanding........................ 26,882 26,948
======= =======
</TABLE>
See Note to Unaudited Condensed Financial Statements.
F-129
<PAGE> 567
CITY NATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TREASURY TOTAL
COMMON RETAINED COMPREHENSIVE STOCK STOCKHOLDERS'
STOCK SURPLUS EARNINGS INCOME AT COST EQUITY
------ ------- -------- ------------- -------- -------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997........ $27 $4,126 $7,417 $235 $(53) $11,752
Net income.......................... -- -- 85 -- -- 85
Dividends declared.................. -- -- (80) -- -- (80)
Sale of 100 shares of treasury
stock............................. -- 9 -- -- 16 25
Purchase of 137 shares of treasury
stock............................. -- -- -- -- (29) (29)
Other comprehensive income.......... -- -- -- 66 -- 66
--- ------ ------ ---- ---- -------
Balance at June 30, 1998............ $27 $4,135 $7,422 $301 $(66) $11,819
=== ====== ====== ==== ==== =======
</TABLE>
See Note to Unaudited Condensed Financial Statements.
F-130
<PAGE> 568
CITY NATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Net cash provided by operating activities................... $ 775 $ 648
-------- -------
Cash flows from investing activities:
Net decrease in federal funds sold........................ 2,120 520
Proceeds from sales of securities available for sale...... 8,083 1,410
Proceeds from maturities of investment securities
available for sale..................................... 7,056 1,625
Purchases of investment securities available for sale..... (14,357) (3,034)
Purchase of stock in FHLB................................. -- (25)
Net increase in loans..................................... (664) (2,194)
Purchases of premises and equipment....................... (322) (244)
-------- -------
Net cash provided (used) by investing
activities....................................... 1,916 (1,942)
-------- -------
Cash flows from financing activities:
Net (decrease) increase in deposit accounts............... (1,913) 2,424
Net increase in federal funds purchased................... -- 1,310
Net decrease in advance from FHLB......................... -- (1,300)
Proceeds from sale of treasury stock...................... 25 --
Purchase of treasury stock................................ (29) (24)
Cash dividends paid....................................... (80) (75)
-------- -------
Net cash (used) provided by financing
activities....................................... (1,997) 2,335
-------- -------
Net increase in cash and due from banks..................... 694 1,041
Cash and due from banks at beginning of period.............. 2,031 2,696
-------- -------
Cash and due from banks at end of period.................... $ 2,725 $ 3,737
======== =======
Supplemental Cash Flow Information:
Selected cash payments and noncash activities were as
follows:
Cash payments for income taxes......................... $ 144 $ 70
Cash payments for interest............................. 1,169 1,328
</TABLE>
See Note to Unaudited Condensed Financial Statements.
F-131
<PAGE> 569
CITY NATIONAL CORPORATION
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)
1. ACCOUNTING AND REPORTING POLICIES
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and, accordingly, do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, the
accompanying unaudited condensed consolidated financial statements contain all
adjustments (consisting of only normal recurring entries) necessary to present
fairly the financial position, results of operations and cash flows for the
interim periods. All interim amounts are subject to year-end audit, and the
results of operations for the interim periods reported herein are not
necessarily indicative of results of operations to be expected for the year.
F-132
<PAGE> 570
COMMERCIAL BANCSHARES OF ROANOKE, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditor's Report................................ F-134
Consolidated Statements of Financial Condition as of
December 31, 1997 and 1996................................ F-135
Consolidated Statements of Income and Comprehensive Income
for the Years Ended December 31, 1997, 1996 and 1995...... F-136
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1997, 1996 and 1995...... F-137
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995.......................... F-138
Notes to Consolidated Financial Statements.................. F-139
Condensed Consolidated Statement of Financial Condition as
of June 30, 1998 (Unaudited).............................. F-151
Condensed Consolidated Statements of Income and
Comprehensive Income for the Six Months Ended June 30,
1998 and 1997 (Unaudited)................................. F-152
Condensed Consolidated Statement of Changes in Stockholders'
Equity for the Six Months Ended June 30, 1998
(Unaudited)............................................... F-153
Condensed Consolidated Statements of Cash Flow for the Six
Months Ended June 30, 1998 and 1997 (Unaudited)........... F-154
Note to Condensed Consolidated Financial Statements for the
Six Months Ended June 30, 1998 and 1997 (Unaudited)....... F-155
</TABLE>
F-133
<PAGE> 571
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
and Stockholders'
Commercial Bancshares of Roanoke, Inc. and Subsidiaries
Roanoke, Alabama
We have audited the accompanying consolidated statement of financial
condition of Commercial Bancshares of Roanoke, Inc. and Subsidiaries as of
December 31, 1997 and the related consolidated statements of income and
comprehensive income, changes in stockholders' 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 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Commercial
Bancshares of Roanoke, Inc. and Subsidiaries at December 31, 1997 and the
consolidated results of their operations and their cash flows for the year then
ended, in conformity with generally accepted accounting principles.
DUDLEY, HOPTON-JONES, SIMS & FREEMAN PLLP
Birmingham, Alabama
June 11, 1998
F-134
<PAGE> 572
COMMERCIAL BANCSHARES OF ROANOKE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 1,467 $ 1,486
Interest bearing deposits in other banks.................... 200 300
Federal funds sold.......................................... 4,125 150
Preferred stocks............................................ -- 1,200
Investment securities available for sale.................... 1,170 1,363
Investment securities held to maturity (fair value $17,646
and 20,549, respectively)................................. 17,559 20,567
Loans, net of unearned income............................... 16,453 16,818
Less: Allowance for loan losses............................. 382 92
------- -------
Net loans.............................................. 16,071 16,726
------- -------
Premises and equipment, net................................. 307 237
Accrued interest receivable................................. 433 480
Other real estate........................................... 244 --
Other assets................................................ 116 203
------- -------
TOTAL ASSETS....................................... $41,692 $42,712
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing demand................................ $ 6,156 $ 5,945
Interest-bearing demand................................... 10,377 11,171
Savings................................................... 1,895 1,928
Time deposit $100,000 and over............................ 2,497 2,846
Other time................................................ 14,290 14,430
------- -------
TOTAL DEPOSITS..................................... 35,215 36,320
Accrued expenses and other liabilities...................... 338 438
------- -------
TOTAL LIABILITIES.................................. 35,553 36,758
Stockholders' equity
Common stock, par value $.10 per share; authorized 600,000
shares; 200,000 shares issued and outstanding........... 20 20
Surplus................................................... 3,527 3,527
Retained earnings......................................... 2,576 2,398
Accumulated other comprehensive gains..................... 16 9
------- -------
TOTAL STOCKHOLDERS' EQUITY......................... 6,139 5,954
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......... $41,692 $42,712
======= =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-135
<PAGE> 573
COMMERCIAL BANCSHARES OF ROANOKE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
---------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans................................ $1,753 $1,535 $1,347
Interest on investment securities:
Taxable................................................. 1,070 1,276 1,436
Exempt from federal income tax.......................... 157 149 107
Interest on federal funds sold............................ 99 57 91
Interest and dividends on other investments............... 35 78 76
------ ------ ------
TOTAL INTEREST INCOME.............................. 3,114 3,095 3,057
INTEREST EXPENSE ON DEPOSITS................................ 1,307 1,339 1,413
------ ------ ------
Net interest income..................................... 1,807 1,756 1,644
PROVISION FOR LOAN LOSSES................................... 401 201 33
------ ------ ------
Net interest income after provision for loan losses..... 1,406 1,555 1,611
NONINTEREST INCOME
Service charges and fees.................................. 189 196 174
Gain (loss) on sale of securities......................... 1 1 (41)
Data processing fees...................................... 698 694 940
Other income.............................................. 92 164 76
------ ------ ------
TOTAL NONINTEREST INCOME........................... 980 1,055 1,149
------ ------ ------
NONINTEREST EXPENSES
Salaries and employee benefits............................ 1,038 1,009 1,022
Occupancy and equipment expense........................... 310 333 411
Other operating expenses.................................. 661 731 773
------ ------ ------
TOTAL NONINTEREST EXPENSES......................... 2,009 2,073 2,206
------ ------ ------
Income before income taxes............................ 377 537 554
Income tax expense.......................................... 69 137 156
------ ------ ------
NET INCOME............................................ 308 400 398
Other comprehensive income, net of tax:
Unrealized holding gains (losses) on securities available
for sale arising during period.......................... 7 (12) 22
------ ------ ------
COMPREHENSIVE INCOME...................................... $ 315 $ 388 $ 420
====== ====== ======
Earnings per share -- basic................................. $ 1.54 $ 2.00 $ 1.99
====== ====== ======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-136
<PAGE> 574
COMMERCIAL BANCSHARES OF ROANOKE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON RETAINED COMPREHENSIVE TOTAL
STOCK SURPLUS EARNINGS INCOME (LOSS) EQUITY
------ ------- -------- ------------- ------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 (Unaudited)......... $20 $3,527 $1,860 $(1) $5,406
Net income..................................... -- -- 398 -- 398
Dividends declared............................. -- -- (130) -- (130)
Other comprehensive income..................... -- -- -- 22 22
--- ------ ------ --- ------
Balance at December 31, 1995 (Unaudited)....... 20 3,527 2,128 21 5,696
Net income..................................... -- -- 400 -- 400
Dividends declared............................. -- -- (130) -- (130)
Other comprehensive loss....................... -- -- -- (12) (12)
--- ------ ------ --- ------
Balance at December 31, 1996 (Unaudited)....... 20 3,527 2,398 9 5,954
Net income..................................... -- -- 308 -- 308
Dividends declared............................. -- -- (130) -- (130)
Other comprehensive income..................... -- -- -- 7 7
--- ------ ------ --- ------
Balance at December 31, 1997................... $20 $3,527 $2,576 $16 $6,139
=== ====== ====== === ======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-137
<PAGE> 575
COMMERCIAL BANCSHARES OF ROANOKE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
1997 1996 1995
------- ------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 308 $ 400 $ 398
Adjustments to reconcile net income to net cash provided
by operations:
Depreciation and amortization......................... 66 82 108
Loss (gain) on disposal of fixed assets............... -- 8 (17)
Loss on sale of investment securities................. -- -- 41
Provision for loan losses............................. 401 201 33
Decrease in accrued interest receivable............... 47 5 26
Decrease (increase) in other assets................... 87 (32) 57
(Decrease) increase in accrued interest payable....... 7 (3) (25)
Decrease in other liabilities......................... (107) (115) (6)
------- ------- --------
NET CASH PROVIDED BY OPERATIONS.................... 809 546 615
------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturity of interest bearing deposits....... 100 300 100
Net (increase) decrease in federal funds sold............. (3,975) 1,475 450
Proceeds from sales of securities available for sale...... -- -- 3,618
Proceeds from maturities of securities available for
sale.................................................... 950 901 182
Purchase of securities available for sale................. (745) (354) (1,237)
Proceeds from maturities of investment securities held to
maturity................................................ 4,276 4,538 10,743
Purchases of investment securities held to maturity....... (1,272) (3,205) (10,719)
Proceeds from maturities of preferred stocks.............. 1,200 -- --
Purchase of preferred stocks.............................. -- (200) (300)
Net (increase) decrease in loans.......................... 10 (3,663) (1,544)
Purchases of premises and equipment....................... (136) (72) (35)
Proceeds from sale of fixed assets........................ -- 14 34
------- ------- --------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES....................................... 408 (266) 1,292
------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in demand and savings deposits............... (616) (1,503) (1,344)
Net decrease (increase) in certificates of deposit and
other time deposits..................................... (490) 1,334 (513)
Dividends paid............................................ (130) (130) (130)
------- ------- --------
NET CASH USED IN FINANCING ACTIVITIES.............. (1,236) (299) (1,987)
------- ------- --------
Net decrease in cash and due from banks..................... (19) (19) (80)
Cash and due from banks at beginning of year................ 1,486 1,505 1,585
------- ------- --------
CASH AND DUE FROM BANKS AT END OF YEAR...................... $ 1,467 $ 1,486 $ 1,505
======= ======= ========
SUPPLEMENTAL CASH FLOW INFORMATION
Selected cash payments and noncash activities were as
follows:
Cash payments for income taxes.......................... $ 202 $ 182 $ 166
Cash payments for interest.............................. 1,300 1,342 1,397
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-138
<PAGE> 576
COMMERCIAL BANCSHARES OF ROANOKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(IN THOUSAND, EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies followed by Commercial Bancshares of Roanoke, Inc.
and Subsidiaries, and the method of applying those policies which affect the
determination of financial condition, results of operations and cash flows are
summarized below.
CONSOLIDATION
The consolidated financial statements of the Company include the accounts
of subsidiaries. All significant intercompany accounts and transactions have
been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses. While management
uses available information to recognize losses on loans, future additions to the
allowance may be necessary based on changes in local economic conditions. In
addition, regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses. 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.
INVESTMENT SECURITIES
The Bank's investments in securities are classified in two categories and
accounted for as follows:
- Investment Securities Held to Maturity. Bonds, notes and debentures for
which the Bank has the positive intent and ability to hold to maturity
are reported at cost, adjusted for amortization of premiums and accretion
of discounts which are recognized in interest income using the interest
method over the period to maturity.
- Investment Securities Available for Sale. Securities available for sale
consist of bonds, notes, debentures, and certain equity securities not
classified as trading securities nor as securities to be held to
maturity. Unrealized holding gains and losses, net of deferred income
tax, on securities available for sale are reported as a separate
component of stockholders' equity until realized.
Gains and losses on the sale of securities available for sale are
determined using the specific-identification method.
LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are stated at the amount of unpaid principal, reduced by unearned
discount and an allowance for loan losses. Interest income on substantially all
loans is accrued on the principal amount outstanding.
The allowance for loan losses is established through a provision for loan
losses charged to expenses. Loans are charged against the allowance for loan
losses when management believes the collectibility of principal is unlikely. The
allowance is the amount that management believes will be adequate to absorb
possible losses on existing loans which may become uncollectible, based on
evaluation of the collectibility of loans and prior loan
F-139
<PAGE> 577
COMMERCIAL BANCSHARES OF ROANOKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
loss experience. The evaluations take into consideration such factors as changes
in the nature and volume of the loan portfolio, overall portfolio quality,
review of specific problem loans, and current economic conditions that may
affect the borrower's ability to pay.
Accrual of interest is discontinued on a loan when management believes,
after considering economic and business conditions and collection efforts, that
the loan is impaired. Any unpaid interest previously accrued on those loans is
reversed from income. Interest income generally is not recognized on specific
impaired loans unless the likelihood of further loss is remote. Interest
payments received on such loans are applied as a reduction of the loan principal
balance. Interest income on other nonaccrual loans is recognized only to the
extent of interest payments received.
PREMISES AND EQUIPMENT
Premises, equipment and equipment under capital lease are stated at cost
less accumulated depreciation and amortization. Depreciation is computed over
the estimated service lives of the assets using certain straight-line and
accelerated methods.
Expenditures for maintenance and repairs are charged to operations as
incurred; expenditures for renewals and betterments are capitalized and written
off by depreciation charges. Property retired or sold is removed from the asset
and related accumulated depreciation accounts and any profit or loss resulting
therefrom is reflected in the statement of income.
OTHER REAL ESTATE
Other real estate, acquired through partial or total satisfaction of loans,
is carried at the lower of cost or fair market value. At the date of
acquisition, losses are charged to the allowance for loan losses.
INCOME TAXES
Income tax expense is based on amounts reported in the statement of income,
after exclusion of nontaxable income such as interest on state and municipal
securities and certain nondeductible expenses (See Note 8).
OFF BALANCE SHEET FINANCIAL INSTRUMENTS
In the ordinary course of business the Bank has entered into off balance
sheet financial instruments consisting of commitments to extend credit, and
standby letters of credit. Such financial instruments are recorded in the
financial statements when they become payable.
CASH AND CASH EQUIVALENTS
For the purpose of presentation in the statement of cash flows, cash and
cash equivalents are defined as those amounts included in the statement of
financial condition caption "Cash and Due from Banks."
EFFECT OF NEW FINANCIAL ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, Earnings per Share. This statement simplifies the standards for
computing earnings per share previously set forth in APB Opinion No. 15,
Earnings per Share, and makes them comparable to international Earnings per
Share ("EPS") standards. It replaces the presentation of primary EPS with a
presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and
denominator of the basic
F-140
<PAGE> 578
COMMERCIAL BANCSHARES OF ROANOKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
EPS computation to the numerator and denominator of the diluted EPS computation.
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity. Diluted EPS is computed similarly to fully
diluted EPS pursuant to APB Opinion No. 15. This statement is effective for
financial statements issued for periods ending after December 15, 1997. The
adoption of this statement did not have a material impact on the consolidated
financial statements.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
Income. This statement establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose 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 with the same prominence as other financial statements. This statement
does not require a specific format for that financial statement but requires
that an enterprise display an amount representing total comprehensive income for
the period in that financial statement. This statement requires that an
enterprise classify items of other comprehensive income by their nature in a
financial statement and display the accumulated balance separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. This statement is effective for fiscal years beginning after
December 15, 1997. The adoption of this statement did not have a material impact
on the consolidated financial statements.
2. RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS
The subsidiary bank is required to maintain average reserve balances either
in vault cash or on deposit with the Federal Reserve Bank. The amount of those
reserves required at December 31, 1997 was approximately $1,809.
3. INVESTMENT SECURITIES
The amounts at which investment securities are carried and their
approximate fair values at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
INVESTMENT SECURITIES AVAILABLE FOR SALE:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies............... $ 947 $ 14 $ 3 $ 958
Obligations of states and political subdivisions..... 195 17 -- 212
------- ---- --- -------
Totals........................................ $ 1,142 $ 31 $ 3 $ 1,170
======= ==== === =======
INVESTMENT SECURITIES HELD TO MATURITY:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies............... $10,129 $ 35 $16 $10,148
Obligations of states and political subdivisions..... 2,830 61 2 2,889
Corporate securities................................. 752 26 -- 778
Mortgage-backed securities........................... 3,848 26 43 3,831
------- ---- --- -------
Totals........................................ $17,559 $148 $61 $17,646
======= ==== === =======
</TABLE>
F-141
<PAGE> 579
COMMERCIAL BANCSHARES OF ROANOKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVESTMENT SECURITIES -- (CONTINUED)
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
DECEMBER 31, 1996 (UNAUDITED)
INVESTMENT SECURITIES AVAILABLE FOR SALE:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies.................... $ 1,152 $ 6 $ 7 $ 1,151
Obligations of states and political subdivisions.......... 195 17 -- 212
------- ---- ---- -------
Totals............................................. $ 1,347 $ 23 $ 7 $ 1,363
======= ==== ==== =======
HELD TO MATURITY SECURITIES:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies.................... $11,825 $ 27 $ 83 $11,769
Obligations of states and political subdivisions.......... 3,210 83 2 3,291
Corporate securities...................................... 851 27 1 877
Mortgage-backed securities................................ 4,681 25 94 4,612
------- ---- ---- -------
Totals............................................. $20,567 $162 $180 $20,549
======= ==== ==== =======
</TABLE>
The amortized cost and estimated fair values of debt securities at December
31, 1997, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
SECURITIES AVAILABLE FOR SECURITIES HELD TO
SALE MATURITY
------------------------ ---------------------
ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
---------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Due in one year or less..................................... $ 200 $ 200 $ 4,351 $ 4,349
Due after one year through five years....................... 747 758 8,771 8,831
Due after five years through ten years...................... 100 104 1,929 1,957
Due after ten years......................................... 95 108 2,508 2,509
------ ------ ------- -------
$1,142 $1,170 $17,559 $17,646
====== ====== ======= =======
</TABLE>
Securities carried at approximately $3,093 and $4,525 at December 31, 1997
and 1996, respectively, were pledged to secure public and trust deposits as
required by law and for other purposes.
4. LOANS
The Bank grants loans to customers primarily in Randolph and Northern
Chambers County, Alabama.
At December 31, 1997 and 1996 the composition of the loan portfolio was as
follows:
<TABLE>
<CAPTION>
1997 1996
------- -----------
(UNAUDITED)
<S> <C> <C>
Commercial and industrial................................... $ 3,151 $ 4,989
Real estate -- construction................................. 167 221
-- mortgage...................................... 8,971 7,067
Loans to individuals for personal expenditures.............. 4,017 4,338
All other loans (including overdrafts)...................... 147 223
------- -------
Total loans........................................ 16,453 16,838
Unearned interest and fees.................................. -- (20)
Allowance for loan losses................................... (382) (92)
------- -------
Net loans.......................................... $16,071 $16,726
======= =======
</TABLE>
F-142
<PAGE> 580
COMMERCIAL BANCSHARES OF ROANOKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. ALLOWANCE FOR LOAN LOSSES
A summary of the allowance for loan losses for the year ended December 31,
1997, 1996 and 1995 follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- ----
(UNAUDITED)
<S> <C> <C> <C>
Balance at beginning of year................................ $ 92 $ 81 $ 70
Provision for loan losses................................... 401 201 33
Loan charge-offs............................................ (142) (225) (51)
Recoveries.................................................. 31 35 29
----- ----- ----
Balance at end of year...................................... $ 382 $ 92 $ 81
===== ===== ====
</TABLE>
6. PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31, follows:
<TABLE>
<CAPTION>
1997 1996
------ -----------
(UNAUDITED)
<S> <C> <C>
Land........................................................ $ 25 $ 22
Premises.................................................... 470 361
Furniture and equipment..................................... 585 561
Leasehold improvements...................................... 96 96
Capital lease............................................... 73 73
------ ------
1,249 1,113
Allowance for depreciation and amortization................. (942) (876)
------ ------
$ 307 $ 237
====== ======
</TABLE>
Depreciation expense for the years ended December 31, 1997 and 1996 was $66
and $82, respectively.
7. PENSION PLANS
Net pension cost for 1997 and 1996 are composed of the following:
<TABLE>
<CAPTION>
1997 1996
------ -----------
(UNAUDITED)
<S> <C> <C>
Service..................................................... $ 51 $ 49
Interest cost on projected benefit obligations.............. 81 76
Actual return on assets..................................... (276) (147)
Net amortization and deferral............................... 172 49
------ ------
Net periodic pension costs......................... $ 28 $ 27
====== ======
Actuarial present value of benefit obligation:
Vested.................................................... $ 910 $ 846
Nonvested................................................. -- 21
------ ------
Accumulated benefit obligation.............................. $ 910 $ 867
------ ------
Actuarial present value of projected benefit obligation..... $1,213 $1,129
Plan assets at fair value................................... 1,548 1,306
------ ------
Excess of plan assets over projected benefit obligation..... 335 177
Unamortized net assets at transition........................ (383) (192)
Unrecognized net gain....................................... (24) (29)
------ ------
Accrued pension cost included in other liabilities.......... $ 72 $ 44
====== ======
</TABLE>
F-143
<PAGE> 581
COMMERCIAL BANCSHARES OF ROANOKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. PENSION PLANS -- (CONTINUED)
The weighted average discount rate and rate of increase in future
compensation levels in determining the actuarial present value of the projected
benefit obligation were 7.5% and 5.0%, respectively, in both years presented.
The expected long-term rate of return on assets was 7.5% for both years
presented. The Plan was terminated on April 29, 1998.
8. INCOME TAX EXPENSE
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
Currently payable:
Federal................................................... $198 $129 $145
State..................................................... 26 11 16
---- ---- ----
Total currently payable............................ 224 140 161
Tax effect of temporary differences......................... (155) (3) (5)
---- ---- ----
Income tax expense...................................... $ 69 $137 $156
==== ==== ====
</TABLE>
As of December 31, 1997 and 1996 the net deferred tax (asset) liability
consisted of the following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
Deferred tax asset:
Accrued pension expense................................... $ 7 $ 13
Allowance for loan losses................................. 167 28
Miscellaneous............................................. 14 3
---- ----
Total deferred tax asset........................... 188 44
---- ----
Deferred tax liabilities:
Cash method of accounting for tax purposes................ 137 151
Property, plant and equipment............................. 16 13
Unrealized gain on available-for-sale securities.......... 11 6
Miscellaneous............................................. 1 1
---- ----
Total deferred tax liability....................... 165 171
---- ----
Net deferred tax(asset) liability.................. $(23) $127
==== ====
</TABLE>
The effective tax rate differs significantly from the expected tax using
statutory rate of 34%. Reconciliation between the expected tax and the actual
provision for income taxes follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
Expected tax at 34% of income tax before taxes.............. $128 $182 $188
Add (deduct):
State income taxes, net of federal tax benefit............ 8 7 17
Effect of interest income exempt from Federal income
taxes................................................... (59) (57) (46)
Other items -- net........................................ (8) 5 (3)
---- ---- ----
Income tax expense................................. $ 69 $137 $156
==== ==== ====
</TABLE>
9. RELATED PARTY TRANSACTIONS
The Bank has entered into transactions with its directors, executive
officers, significant shareholders and their affiliates (related parties). Such
transactions were made in the ordinary course of business on
F-144
<PAGE> 582
COMMERCIAL BANCSHARES OF ROANOKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. RELATED PARTY TRANSACTIONS -- (CONTINUED)
substantially the same terms and conditions, including interest rates and
collateral, as those prevailing at the same time for comparable transactions
with other customers, and did not, in the opinion of management, involve more
than normal credit risk or present other unfavorable features. Changes in
related party loans for the year ended December 31, 1997 were as follows:
<TABLE>
<CAPTION>
BALANCE BALANCE
DECEMBER 31, 1996 ADVANCES REPAYMENTS DECEMBER 31, 1997
- ----------------- -------- ---------- -----------------
<S> <C> <C> <C>
325...$.... $21 $126 $220
================= ======== ========== =================
</TABLE>
One of the Company's subsidiaries leases a facility from the Schuessler
Partnership, a related party. (See Note 11).
10. TIME DEPOSITS
The maturities of time certificates of deposit and other time deposits of
$100 or more at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
TIME OTHER
CERTIFICATES TIME
OF DEPOSIT DEPOSITS TOTAL
------------ -------- ------
<S> <C> <C> <C>
Three months or less........................................ $ 820 $725 $1,545
Over three through six months............................... 306 -- 306
Over six through twelve months.............................. 1,050 113 1,163
Over twelve through twenty four months...................... 100 108 208
------ ---- ------
$2,276 $946 $3,222
====== ==== ======
</TABLE>
11. OPERATING LEASES
The Company through its subsidiaries, The Commercial Bank of Roanoke,
Alabama and Commercial Bancshares Services, Inc., conducts portions of its
operations in leased facilities. One of the leased facilities was leased from a
related party, Schuessler Partnership, an Alabama general partnership. This
facility was purchased by the Company on December 19, 1997.
In addition to the above mentioned lease, the Company also leases equipment
which expire on various dates through 2000.
At December 31, 1997, minimum rental payments under operating leases shown
by subsidiary, are as follows:
<TABLE>
<CAPTION>
THE COMMERCIAL COMMERCIAL
BANK OF ROANOKE BANCSHARES
ALABAMA SERVICES, INC. TOTAL
--------------- -------------- -----
<S> <C> <C> <C>
1998........................................................ $3 $191 $194
1999........................................................ 3 151 154
2000........................................................ 1 28 29
2001........................................................ -- -- --
2002........................................................ -- -- --
2003 and thereafter......................................... -- -- --
-- ---- ----
Total.............................................. $7 $370 $377
== ==== ====
</TABLE>
F-145
<PAGE> 583
COMMERCIAL BANCSHARES OF ROANOKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. OPERATING LEASES -- (CONTINUED)
Rental expense for all operating leases for the years ending December 31,
were as follows:
<TABLE>
<CAPTION>
1997 1996
---- -----------
(UNAUDITED)
<S> <C> <C>
Rental payments............................................. $212 $162
==== ====
</TABLE>
12. CAPITAL LEASES
Computer hardware was purchased by the Company's subsidiary, Commercial
Bancshares Services, Inc., under a 5-year capital lease negotiated during 1994.
The lease requires a monthly fee of $1 through November 1999. The capitalized
lease obligation was calculated using the interest rate appropriate at the
inception of the lease. The gross amount of these leased assets included in
premises and equipment is $73. Accumulated amortization for these leased assets
for 1997 and 1996 is $61 and $52, respectively. At December 31, 1997 and 1996,
the recorded obligation was $32 and $46, respectively.
Future minimum lease payments for capitalized lease obligations at December
31, 1997 are as follows:
<TABLE>
<S> <C>
1998........................................................ $16
1999........................................................ 16
2000........................................................ --
2001........................................................ --
2002........................................................ --
</TABLE>
13. COMMITMENTS AND CONTINGENCIES
The consolidated financial statements do not reflect the Bank's various
commitments and contingent liabilities which arise in the normal course of
business and which involve elements of credit risk, interest rate risk and
liquidity risk. These commitments to extend credit totaled $172 and $715 at
December 31, 1997 and 1996, respectively.
Commitments to extend credit include exposure to some credit loss in the
event of nonperformance of the customer. The Bank's credit policies and
procedures for credit commitments and financial guarantees are the same as those
for extension of credit that are recorded in the consolidated statement of
financial condition. Because these instruments have fixed maturity dates, and
because many of them expire without being drawn upon, they do not generally
present any significant liquidity risk to the Bank.
The Bank is party to litigation and claims arising in the normal course of
business. Management, after consultation with legal counsel, believes that the
liabilities, if any, arising from such litigation and claims will not be
material to the consolidated financial statements.
14. REGULATORY RESTRICTIONS
The primary source of funds available to the Company is the payment of
dividends by its subsidiary Bank. Banking regulations limit the amount of
dividends that may be paid without prior approval of the Bank's regulatory
agency. Approximately $103 are available to be paid as dividends by the Bank
subsidiary at December 31, 1997.
The Company and its subsidiary are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory -- and possible
additional discretionary -- actions by regulators that, if undertaken, could
have a direct material effect on the Company's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Company and its subsidiary must meet specific capital guidelines
F-146
<PAGE> 584
COMMERCIAL BANCSHARES OF ROANOKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. REGULATORY RESTRICTIONS -- (CONTINUED)
that involve quantitative measures of their assets, liabilities, and certain
off-balance sheet items as calculated under regulatory accounting practices. The
Company and its subsidiary's capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk weightings,
and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1997 that the
Company and its subsidiary meet all capital adequacy requirements to which they
are subject.
As of December 31, 1997, 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, Tier I leverage ratios as
set forth in the table. There are no conditions or events since that
notification that management believes have changed the institution's category.
The Company and its subsidiary's actual capital amounts and ratios are also
presented in the table.
<TABLE>
<CAPTION>
TO BE WELL
FOR CAPITAL CAPITALIZED UNDER
ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
-------------- -------------- -----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------- ------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Capital (to Risk Weighted Assets):
Consolidated........................................ $6,037 24.9% $2,364 >8% $2,955 >10%
- -
Bank................................................ 4,647 22.6 1,793 >8 2,241 >10
- -
Tier I Capital (to Risk Weighted Assets):
Consolidated........................................ 5,945 24.5 1,182 >4 1,773 >6
- -
Bank................................................ 4,366 21.3 896 >4 1,345 >6
- -
Tier I Capital (to Average Assets):
Consolidated........................................ 5,945 13.8 1,762 >4 2,202 >5
- -
Bank................................................ 4,366 10.5 1,692 >4 2,115 >5
- -
As of December 31, 1996 (Unaudited):
Total Capital (to Risk Weighted Assets):
Consolidated........................................ $6,504 26.8% $1,940 >8% $2,425 >10%
- -
Bank................................................ 4,383 21.3 1,643 >8 2,054 >10
- -
Tier I Capital (to Risk Weighted Assets):
Consolidated........................................ 6,122 25.3 970 >4 1,455 >6
- -
Bank................................................ 4,293 20.9 821 >4 1,232 >6
- -
Tier I Capital (to Average Assets):
Consolidated........................................ 6,122 14.2 1,728 >4 2,161 >5
- -
Bank................................................ 4,293 10.3 1,665 >4 2,081 >5
- -
</TABLE>
F-147
<PAGE> 585
COMMERCIAL BANCSHARES OF ROANOKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. OTHER OPERATING EXPENSES
Other operating expenses consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
Professional fees........................................... $101 $ 85 $ 53
Advertising................................................. 45 49 56
Service maintenance contracts............................... 23 50 63
Postage, stationery and supplies............................ 58 67 65
Telephone................................................... 163 184 194
FDIC insurance.............................................. -- -- 44
---- ---- ----
Total.............................................. $390 $435 $475
==== ==== ====
</TABLE>
16. CONCENTRATIONS OF CREDIT
All of the Bank's loans, commitments and standby letters of credit have
been granted to customers in the Bank's market area. The concentrations of
credit by type of loan or commitment are set forth in Notes 4 and 13,
respectively.
17. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Cash and Short-Term Investments: For those short-term instruments,
the carrying amount is a reasonable estimate of fair value.
Investment Securities: For securities held for investment purposes,
fair values are based on quoted market prices or dealer quotes.
Loan Receivables: For variable-rate loans that reprice frequently and
have no significant change in credit risk, fair values are based on
carrying values. The fair value of other types of loans is estimated by
discounting the future cash flows using the current rates at which similar
loans would be made to borrowers with similar credit ratings and for the
same remaining maturities.
Deposit Liabilities: The fair value of demand deposits, savings
accounts, and certain money market deposits is the amount payable on demand
at the reporting date. The fair value of fixed-maturity certificates of
deposit is estimated using the rates currently offered for deposit of
similar remaining maturities.
Commitments to Extend Credit. The fair value of commitments are
estimated to be approximately the same as the notional amount of the
related commitment.
F-148
<PAGE> 586
COMMERCIAL BANCSHARES OF ROANOKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. FAIR VALUE OF FINANCIAL INSTRUMENTS -- (CONTINUED)
The estimated fair values of the Company's financial instruments as of
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
1997
------------------
CARRYING FAIR
AMOUNT VALUE
-------- -------
<S> <C> <C>
FINANCIAL ASSETS:
Cash and short-term investments........................... $ 5,792 $ 5,792
Investment securities..................................... 18,788 18,816
Loans..................................................... 16,453
Less: Allowance for losses................................ 382
-------
Net loans................................................. 16,071 16,140
------- -------
TOTAL FINANCIAL ASSETS............................. $40,651 $40,748
======= =======
FINANCIAL LIABILITIES:
Deposits.................................................. $35,215 $35,229
======= =======
TOTAL FINANCIAL LIABILITIES
UNRECOGNIZED FINANCIAL INSTRUMENTS:
Commitments to extend credit.............................. $ 172 $ 172
======= =======
</TABLE>
18. PARENT COMPANY
The condensed financial information for Commercial Bancshares of Roanoke,
Inc. (Parent only) is presented as follows:
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
1997 1996
------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash on demand deposit...................................... $1,351 $ 131
Preferred stock............................................. -- 1,200
Due from subsidiaries:
Commercial Bank of Roanoke................................ 35 44
Commercial Bancshares Services............................ 51 12
Loans to subsidiary......................................... 61 124
Investment in subsidiaries:
Commercial Bank of Roanoke................................ 4,383 4,301
Commercial Bancshares Services............................ 159 62
Premises and equipment, net................................. 165 60
Other assets................................................ 3 22
------ ------
Total Assets....................................... $6,208 $5,956
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities........................................... $ 69 $ 2
STOCKHOLDERS' EQUITY........................................ 6,139 5,954
------ ------
Total Liabilities and Stockholders' Equity......... $6,208 $5,956
====== ======
</TABLE>
F-149
<PAGE> 587
COMMERCIAL BANCSHARES OF ROANOKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
18. PARENT COMPANY -- (CONTINUED)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
INCOME
Cash dividends from bank subsidiary....................... $120 $220 $360
Cash dividends from preferred stock....................... 23 47 39
Management fees........................................... 12 12 12
Interest.................................................. 8 11 13
Rent income............................................... 3 4 8
---- ---- ----
Total income....................................... 166 294 432
---- ---- ----
EXPENSES
Taxes..................................................... 9 8 5
Repairs................................................... 2 8 --
Professional services..................................... 10 6 4
Depreciation.............................................. 3 3 4
Other expenses............................................ 6 4 9
---- ---- ----
Total expenses..................................... 30 29 22
---- ---- ----
Income before income taxes and equity in undistributed net
income of subsidiaries.................................... 136 265 410
Income taxes................................................ -- 7 8
---- ---- ----
Income before equity in undistributed net income of
subsidiaries.............................................. 136 258 402
Equity in undistributed net income of subsidiaries.......... 172 142 (4)
---- ---- ----
NET INCOME......................................... $308 $400 $398
==== ==== ====
</TABLE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1997 1996 1995
------ ----- -----
(UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income................................................ $ 308 $ 400 $ 398
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation............................................ 3 3 4
(Increase) decrease in equity in undistributed net
income of subsidiaries................................ (171) (142) 4
Decrease (increase) in other assets..................... 18 (18) (1)
Increase (decrease) in other liabilities................ 67 (44) (9)
------ ----- -----
Net cash provided by operating activities.......... 225 199 396
------ ----- -----
INVESTING ACTIVITIES
Net principal received on loans to subsidiary............. 33 234 (14)
Purchases of premises and equipment....................... (108)
Redemption (purchase) of preferred stock.................. 1,200 (200) (300)
------ ----- -----
Net cash provided (used) by investing activities... 1,125 34 (314)
------ ----- -----
FINANCING ACTIVITIES
Cash dividends............................................ (130) (130) (130)
------ ----- -----
Net increase (decrease) in cash............................. 1,220 103 (48)
Cash -- beginning of year................................... 131 28 76
------ ----- -----
Cash -- end of year......................................... $1,351 $ 131 $ 28
====== ===== =====
</TABLE>
F-150
<PAGE> 588
COMMERCIAL BANCSHARES OF ROANOKE, INC.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION (UNAUDITED)
AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
JUNE 30,
1998
--------------
(IN THOUSANDS)
<S> <C>
ASSETS
Cash and due from banks..................................... $ 1,579
Interest bearing deposits in other banks.................... 200
Federal funds sold.......................................... 5,250
Investment securities available for sale.................... 2,820
Investment securities held to maturity...................... 17,185
Loans, net of unearned...................................... 14,595
Less: Allowance for loan losses............................. (288)
-------
Net loans......................................... 14,307
-------
Premises and equipment, net................................. 285
Other assets................................................ 761
-------
Total assets...................................... $42,387
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing....................................... $ 6,635
Interest-bearing.......................................... 29,069
-------
Total deposits.................................... 35,704
Accrued expenses and other liabilities...................... 275
-------
Total liabilities................................. 35,979
Stockholders' Equity
Common stock, par value $.10 per share; authorized 600,000
shares; 200,000 shares issued.......................... 20
Surplus................................................... 3,526
Retained earnings......................................... 2,846
Accumulated other comprehensive income.................... 16
-------
Total stockholders' equity........................ 6,408
-------
Total liabilities and stockholders' equity........ $42,387
=======
</TABLE>
See Note to Unaudited Condensed Financial Statements.
F-151
<PAGE> 589
COMMERCIAL BANCSHARES OF ROANOKE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE
INCOME (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(IN THOUSANDS EXCEPT
PER SHARE DATA)
<S> <C> <C>
Interest income............................................. $ 1,494 $ 1,579
Interest expense............................................ 669 648
-------- --------
Net interest income............................... 825 931
Provision for loan losses................................... 69 62
-------- --------
Net interest income after provision for loan
losses........................................... 756 869
Noninterest income.......................................... 491 509
Noninterest expenses........................................ 889 890
-------- --------
Income before income taxes................................ 358 488
Income tax expense.......................................... 88 155
-------- --------
Net income........................................ 270 333
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities available for sale... (1) 1
-------- --------
Comprehensive income........................................ $ 269 $ 334
======== ========
Basic earnings per share.................................... $ 1.35 $ 1.67
======== ========
Average number of shares outstanding........................ 200,000 200,000
======== ========
</TABLE>
See Note to Unaudited Condensed Financial Statements.
F-152
<PAGE> 590
COMMERCIAL BANCSHARES OF ROANOKE, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMMON RETAINED COMPREHENSIVE STOCKHOLDERS'
STOCK SURPLUS EARNINGS INCOME EQUITY
------ ------- -------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997................ $20 $3,526 $2,576 $17 $6,139
Net income.................................. -- -- 270 -- 270
Other comprehensive loss.................... -- -- -- (1) (1)
--- ------ ------ --- ------
Balance at June 30, 1998.................... $20 $3,526 $2,846 $16 $6,408
=== ====== ====== === ======
</TABLE>
See Note to Unaudited Condensed Financial Statements.
F-153
<PAGE> 591
COMMERCIAL BANCSHARES OF ROANOKE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Net cash provided by operating activities................... $ 332 $ 626
------- -------
Cash flows from investing activities:
Net decrease in interest bearing deposits................. -- 100
Net increase in federal funds sold........................ (1,125) (1,400)
Proceeds from maturities of investment securities
available for sale..................................... 100 400
Purchases of investment securities available for sale..... (1,751) (494)
Proceeds from maturities of investment securities held to
maturity............................................... 4,362 2,102
Purchase of investment securities held to maturity........ (3,985) (406)
Proceeds from maturity of other investments............... -- 1,100
Net decrease (increase) in loans.......................... 1,695 (1,457)
Purchases of premises and equipment....................... (5) (36)
------- -------
Net cash used by investing activities............. (709) (91)
------- -------
Cash flows provided (used) by financing activities:
Net increase (decrease) in deposit accounts............... 489 (660)
------- -------
Net increase (decrease) in cash and due from banks.......... 112 (125)
Cash and due from banks at beginning of period.............. 1,467 1,486
------- -------
Cash and due from banks at end of period.................... $ 1,579 $ 1,361
======= =======
Supplemental Cash Flow Information:
Selected cash payments and noncash activities were as
follows:
Cash payments for income taxes......................... $ 130 $ 50
Cash payments for interest............................. 670 656
</TABLE>
See Note to Unaudited Condensed Financial Statements.
F-154
<PAGE> 592
COMMERCIAL BANCSHARES OF ROANOKE, INC.
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
1. ACCOUNTING AND REPORTING POLICIES
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and, accordingly, do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, the
accompanying unaudited condensed consolidated financial statements contain all
adjustments (consisting of only normal recurring entries) necessary to present
fairly the financial position, results of operations and cash flows for the
interim periods. All interim amounts are subject to year-end audit, and the
results of operations for the interim periods reported herein are not
necessarily indicative of results of operations to be expected for the year.
F-155
<PAGE> 593
REPORT OF INDEPENDENT AUDITORS
Board of Directors
The Banc Corporation
We have audited the accompanying statement of condition of The Banc
Corporation as of April 7, 1998 (inception). This statement of condition is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this statement of condition 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 statement of condition is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of condition. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall statement of condition
presentation. We believe that our audit of the statement of condition provides a
reasonable basis for our opinion.
In our opinion, the statement of condition referred to above presents
fairly, in all material respects, the financial position of The Banc Corporation
at April 7, 1998, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Birmingham, Alabama
September 10, 1998,
except for Note 3 as
to which the date is
September 25, 1998
F-156
<PAGE> 594
THE BANC CORPORATION
STATEMENT OF CONDITION
APRIL 7, 1998
<TABLE>
<S> <C>
ASSETS
Cash........................................................ $1,000
------
$1,000
======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accrued organizational costs.............................. $ 500
Stockholders' equity:
Common stock -- $.001 par value, 25,000,000 shares
authorized; 1,000 issued and outstanding............... 1
Preferred stock -- $.001 par value; 5,000,000 shares
authorized; -0- issued and outstanding................. --
Surplus................................................... 999
Accumulated deficit....................................... (500)
------
Total stockholders' equity.................................. 500
------
$1,000
======
</TABLE>
See accompanying notes.
F-157
<PAGE> 595
THE BANC CORPORATION
NOTES TO STATEMENT OF CONDITION
APRIL 7, 1998
1. ORGANIZATION AND FORMATION
The Banc Corporation (the Company) is a bank holding company incorporated on
April 7, 1998 as a Delaware corporation.
2. ACCOUNTING POLICIES
CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. The carrying amounts
reported in the accompanying statement of condition for cash and cash
equivalents approximate their fair values.
3. PENDING BUSINESS COMBINATIONS
The Company has entered into definitive merger agreements with the following
entities: Warrior Capital Corporation, Commerce Bank of Alabama, City National
Corporation, First Citizens Bancorp, Inc., Emerald Coast Bancshares, Inc., and
Commercial Bancshares of Roanoke, Inc. The Company has a commitment letter from
a non-affiliate bank to lend up to $10 million and it is anticipated that a
portion of the proceeds would be used to purchase Commercial Bancshares of
Roanoke, Inc.
F-158
<PAGE> 596
THE BANC CORPORATION
NOTES TO STATEMENT OF CONDITION -- (CONTINUED)
3. PENDING BUSINESS COMBINATIONS -- (CONTINUED)
Information related to the pending business combinations follows:
<TABLE>
<CAPTION>
ASSET SIZE AS STOCKHOLDERS'
OF EQUITY ANTICIPATED
DECEMBER 31, DECEMBER 31, ACCOUNTING
INSTITUTION 1997 1997 CONSIDERATION TREATMENT
- ----------- -------------- -------------- --------------------- -----------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Commerce Bank of Alabama
located in Albertville,
Alabama.................. $104,962 $ 6,510 1,536,615 shares of Pooling
The Banc Corporation
Common Stock
City National Corporation
and Subsidiary located in
Sylacauga, Alabama....... 83,996 11,754 2,000,000 shares of Pooling
The Banc Corporation
Common Stock
First Citizens Bancorp,
Inc. and Subsidiary
located in Monroeville,
Alabama.................. 35,096 3,011 663,243 shares of Pooling
The Banc Corporation
Common Stock
Commercial Bancshares of
Roanoke, Inc. located in
Roanoke, Alabama......... 41,692 6,139 $7,300,000 Purchase
Cash
Emerald Coast Bancshares,
Inc. and Subsidiary
located in Panama City
Beach, Florida........... 55,997 5,516 1,379,958 shares of Pooling
The Banc Corporation
Common Stock
Warrior Capital Corporation
and Subsidiary located in
Warrior, Alabama......... 83,662 17,890 5,448,000 shares of Pooling
The Banc Corporation
Common Stock
</TABLE>
If the pending business combinations are successfully completed, the
Company estimates transaction costs of approximately $700,000 which will be
expensed by the combined company in the period when the combinations are
consummated.
F-159
<PAGE> 597
ANNEX A
THIRD AMENDED AND RESTATED REORGANIZATION
AGREEMENT AND PLAN OF MERGER
This Third Amended and Restated Reorganization Agreement and Plan of Merger
("Plan of Merger") is entered into as of the 6th day of April, 1998, by and
among Warrior Capital Corporation, an Alabama corporation ("Corporation"), The
Banc Corporation, a Delaware corporation ("TBC"), The Bank, an Alabama
corporation, and Commerce Bank of Alabama, an Alabama corporation ("Commerce").
RECITALS:
WHEREAS, Corporation is a corporation existing under the laws of the State
of Alabama, with its principal office at 218 Louisa Street, Warrior, Alabama
35180, and is a registered bank holding company through ownership of 99.75% of
the outstanding shares of The Bank;
WHEREAS, The Bank is a bank existing under the laws of the State of Alabama
and is a subsidiary of Corporation based upon Corporation's ownership of 99.75%
of the outstanding shares of The Bank;
WHEREAS, Commerce is a bank existing under the laws of the State of
Alabama, having its principal offices at 301 North Broad Street, Albertville,
Alabama 35950;
WHEREAS, prior to the Effective Time, Corporation will reincorporate via
merger with and into The Banc Corporation, a newly-formed Delaware corporation
("TBC") (the "Warrior Merger") with and into TBC with the separate corporate
existence of Corporation terminating upon the Effective Time of the Merger;
WHEREAS, Corporation has entered into that certain Third Amended and
Restated Reorganization Agreement and Plan of Merger dated April 15, 1998, by
and between Corporation, TBC and First Citizens Bancorp, Inc. ("First Citizens")
in which First Citizens shall be merged with and into TBC and TBC shall be the
surviving corporation;
WHEREAS, TBC has entered into that certain Second Amended and Restated
Reorganization Agreement and Plan of Merger, dated as of June 16, 1998, by and
between TBC and City National Corporation ("CNC") in which CNC shall be merged
with and into TBC and TBC will be the surviving corporation;
WHEREAS, TBC has entered into that certain Reorganization Agreement and
Plan of Merger dated as of June 2, 1998, by and between TBC and Emerald Cost
Bancshares, Inc., a Florida bank holding company ("Emerald"), pursuant to which,
Emerald shall be merged with and into TBC and TBC shall be the surviving
corporation;
WHEREAS, the respective Boards of Directors of Corporation, The Bank and
Commerce have determined that it is in the best interests and welfare of
Corporation, The Bank and Commerce and in the best interests of their respective
shareholders that The Bank and Commerce merge on the terms and conditions
hereinafter set forth;
WHEREAS, the respective Boards of Directors of Corporation, The Bank and
Commerce have, by resolutions, approved and authorized the execution and
delivery of this Plan of Merger and the merger of Commerce with and into The
Bank (the "Merger") on the terms and conditions set forth herein;
WHEREAS, Corporation, The Bank and Commerce desire to merge in a
transaction intended to qualify as a tax-free reorganization under the
provisions of Sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue
Code of 1986, as amended (the "Code");
WHEREAS, the parties intend that this Plan of Merger shall constitute a
plan of reorganization as that term is used in Sections 354 and 361 of the Code;
A-1
<PAGE> 598
WHEREAS, for accounting purposes, it is intended that the Merger be
accounted for as a "pooling of interests;" and
WHEREAS, TBC joins in this Plan of Merger to affirm and acknowledge the
obligations of Corporation that TBC will assume all of the obligations,
agreements, representations and warranties of Corporation by operation of law
subsequent to the Warrior Merger.
THEREFORE, in consideration of the mutual covenants, promises, agreements
and provisions contained herein and subject to the satisfaction of the terms and
conditions set forth herein, and intending to be legally bound hereby,
Corporation, The Bank and Commerce agree as follows:
ARTICLE I
PRINCIPAL TERMS OF THE MERGER
1.1 The Merger. Upon the terms and conditions of this Plan of Merger,
including the receipt of all requisite governmental and shareholder approvals,
and in accordance with the Alabama Business Corporation Act (the "ABCA") and the
Alabama Banking Code ("the ABC"), the acquisition of Commerce by Corporation
will be carried out in the following manner:
(a) Commerce will cooperate in the preparation and filing by
Corporation of such applications to the Board of Governors of the Federal
Reserve System (the "Fed"), the Alabama State Banking Department (the
"Department"), the Federal Deposit Insurance Corporation (the "FDIC") and
other regulatory authorities as may be necessary to obtain all governmental
approvals requisite to the consummation of the Merger;
(b) TBC, Corporation, The Bank and Commerce will each cooperate in
preparing and filing a registration statement (the "Registration
Statement") pursuant to the Securities Act of 1933 (the "1933 Act") for the
common stock of TBC (the "TBC Common Stock") to be issued in the Merger,
which Registration Statement will include a prospectus for the Corporation
Common Stock and a proxy statement for the meeting of shareholders of
Commerce to approve the Merger (collectively, the "Prospectus/Proxy
Statement") and use their respective best efforts to consummate the
transactions contemplated by this Plan of Merger;
(c) Commerce shall call a meeting of its shareholders to approve the
Merger and, except as otherwise provided herein, shall solicit proxies to
vote in favor of the Merger.
(d) Subject to the provisions of this Plan of Merger, Articles of
Merger, substantially in the form of Exhibit B (the "Articles of Merger"),
shall be duly executed and, on the Closing Date (as defined in section 1.2
hereof) or as soon thereafter as reasonably practicable, filed with the
Alabama Secretary of State (the "Secretary of State") in accordance with
the ABCA. Upon the issuance of the certificate of approval (the
"Certificate of Approval") from the superintendent of the Department, as
required by Section 5-7A-4 of the ABC, a copy of the Certificate of
Approval shall be forwarded to the Secretary of State for filing. The
Merger shall become effective upon the filing of the Articles of Merger and
the Certificate of Approval with the Secretary of State (the "Effective
Time").
(e) At the Effective Time, Commerce shall merge with and into The
Bank. The separate existence of Commerce shall cease, and The Bank shall
continue as the surviving bank (The Bank, in its capacity as the bank
surviving the Merger, is hereinafter sometimes referred to as the
"Surviving Bank").
(f) For each outstanding share of Commerce common stock, $.01 par
value (the "Commerce Common Stock"), held immediately prior to the
Effective Time, the shareholders of Commerce (except those exercising their
dissenters rights of appraisal, as described in Section 2.3), will receive
consideration equal to the number of shares of TBC Common Stock which
shall, at and upon the Effective Time, comprise 13.93% of the issued and
outstanding shares of TBC Common Stock and represent 13.93% of the net
worth of TBC determined according to GAAP, divided by the number of shares
of Commerce Common Stock issued and outstanding at and upon the Effective
Time (the "Exchange Ratio"). The
A-2
<PAGE> 599
Exchange Ratio shall be calculated giving effect to the proposed
acquisition of First Citizens, the proposed acquisition of Emerald and the
proposed acquisition of CNC, but the total number of shares of TBC Common
Stock to be issued in the Merger shall not be reduced if one or more of
such acquisitions does not close. The Exchange Ratio shall be calculated
prior to, and excluding the effect of, the IPO (as described in Section
5.2(j) of this Agreement). Any amendment to the Exchange Ratio as a result
of a proposed acquisition of another financial institution by TBC, if,
agreed upon or proposed to close prior to the Effective Time, shall be
subject to the approval of Commerce, provided that (i) Commerce shall
consider such proposal in good faith and not withhold its reasonable
consent, and (ii) Commerce has already agreed to the terms of a possible
acquisition in a letter signed by the President of Commerce. Cash will be
paid in lieu of the issuance of fractional shares equal to $3.96 per share.
As of the Effective Time, by virtue of the Merger and without any action on
the part of any holder of shares of Commerce Common Stock, each share of
the Commerce Common Stock issued and outstanding immediately prior to the
Effective Time shall cease to be outstanding and shall automatically be
canceled and retired, and each of the certificates previously evidencing
Commerce Common Stock outstanding immediately prior to the Effective Time
shall thereafter be deemed, for all purposes, to represent that number of
shares of TBC Common Stock determined pursuant to this Section 1.1(f), and,
if applicable, the right to receive cash pursuant to this Section 1.1(f).
The holders of Commerce Common Stock shall cease to have any rights with
respect to such shares except as otherwise provided herein or by law.
(g) The Exchange Ratio described in 1.1(f) shall be amended to reflect
any TBC stock split or stock dividend or reclassification (a "Stock
Event"), so that, at the Effective Time, each Commerce shareholder (except
those effectively exercising their dissenters rights of appraisal, as
described in Section 2.3) shall be entitled to receive a number of shares
of TBC Common Stock equal to what such shareholder would have received if
the shares of TBC Common Stock had been issued immediately prior to the
Stock Event. Any amendment to the Exchange Ratio resulting from a proposed
acquisition of another financial institution by TBC which is proposed to be
agreed upon prior to the Effective Time shall be subject to the approval of
Commerce, provided that Commerce shall consider the proposal in good faith
and shall not unreasonably withhold its consent. Commerce's consent to a
proposed acquisition shall be agreed upon in writing and executed by the
President of Commerce.
1.2 The Closing. The closing of the Merger (the "Closing") shall be no
later than the second business day following the satisfaction of the conditions
specified in Article III of this Plan of Merger (the "Closing Date"). The
Closing Date may be extended from time to time by the mutual agreement of the
parties. The Closing shall take place at 10:00 a.m. at the board room of TBC on
the Closing Date or at such other place as the parties may agree. At the
Closing, the parties shall exchange the various agreements, certificates,
instruments and documents to be delivered pursuant to the terms of this Plan of
Merger.
1.3 The Surviving Bank. The Merger shall have the effect provided in
Section 5-7A-2 of the ABC and Section 10-2B-11.06 of the ABCA. At the Effective
Time, Commerce shall cease to exist and The Bank will be the "Surviving Bank"
and shall continue as a subsidiary of TBC. The articles of incorporation and
bylaws of The Bank in effect immediately prior to the Effective Time will remain
the articles of incorporation and bylaws of the Surviving Bank until amended or
repealed in accordance with their provisions and applicable law. The combined
capitalization of Commerce and The Bank immediately prior to the Effective Time
shall be the capitalization of the Surviving Bank until changed by resolution of
the Board of Directors or by action of its shareholders. Except as provided or
described in Section 3.1(e) and in Section 6.6 the directors and officers of The
Bank immediately prior to the Effective Time shall be the directors and officers
of the Surviving Bank after the Effective Time until their successors have been
elected or qualified or until their resignation or removal according to law and
the bylaws of the Surviving Bank.
ARTICLE II
DISTRIBUTIONS TO COMMERCE SHAREHOLDERS
2.1 Delivery of Merger Consideration. On the Closing Date, TBC shall
deliver to Commerce the TBC Common Stock to be paid to Commerce shareholders
hereunder and cash in an amount necessary to pay for
A-3
<PAGE> 600
fractional shares (the "Merger Consideration"). Any interest earned on such cash
while in the hands of Commerce shall be the property of TBC. Commerce
subsequently shall deliver to the holders of certificates evidencing ownership
of Commerce Common Stock, immediately upon receipt from the holders thereof of
such certificates, duly executed and in proper form for transfer, the Merger
Consideration to which they are entitled pursuant to the following provisions:
(a) As soon as practical after the Effective Time, Commerce shall send
a notice and transmittal form to each record holder of a certificate
evidencing Commerce Common Stock, advising such holder of the Merger and
the procedure for surrendering to Commerce such certificate in exchange for
such holder's pro rata share of the Merger Consideration. Each holder of
such certificate, upon surrender of the same to Commerce in accordance with
such transmittal form, shall be entitled to receive such holder's pro rata
share of the Merger Consideration.
(b) No transfer taxes shall be payable by any holder of record of
Commerce Common Stock at the Effective Time in respect of the exchange of
certificates for the Merger Consideration. If the Merger Consideration for
the Commerce Common Stock provided for herein is to be delivered to any
person other than the registered holder of the Commerce Common Stock
surrendered for exchange, the amount of any stock-transfer or similar taxes
(whether imposed on the holder of record or such person) payable on account
of the transfer to such person shall be paid to Commerce by such person.
Commerce may refuse to make such exchange unless satisfactory evidence of
the payment of such taxes or exemption therefrom, is submitted.
(c) After the Effective Time, each outstanding certificate which
theretofore represented Commerce Common Stock shall, until surrendered for
exchange in accordance with this Section 2.1, be deemed for all purposes to
evidence only the right to receive the Merger Consideration. After the
Effective Time, there shall be no further registration or transfer of
Commerce Common Stock. No dividends or other distributions which are
declared on TBC Common Stock will be paid to persons otherwise entitled to
receive the same until the certificates representing Commerce Common Stock
have been surrendered in the manner herein provided, but upon such
surrender, such dividends or other distributions, from and after the
Effective Time, will be paid to such persons. In no event shall the persons
entitled to receive such dividends or other distributions be entitled to
receive interest on such dividends or other distributions.
(d) Any portion of the Merger Consideration deposited with Commerce
that remains unclaimed by the former holders of Commerce Common Stock one
hundred eighty (180) days after the Effective Time shall be repaid or
returned to TBC upon demand, and holders of Commerce Common Stock who have
not theretofore complied with this Section 2.1 shall thereafter look only
to TBC for payment of their claim for the Merger Consideration.
(e) Notwithstanding anything to the contrary set forth herein, if any
holder of Commerce Common Stock shall be unable to surrender his or her
certificates because such certificates have been lost or destroyed, such
holder may deliver in lieu thereof an indemnity bond in form and substance
and with surety satisfactory to TBC.
(f) Commerce shall not be entitled to vote or exercise any rights of
ownership with respect to the shares of TBC Common Stock held by it from
time to time hereunder, except that it shall receive and hold all dividends
or other distributions paid or distributed with respect to such shares of
TBC Common Stock for the account of the persons entitled thereto.
2.2 Stock Options. Commerce currently has outstanding options for the
purchase of 38,500 shares of Commerce Common Stock and has the legal obligation
to issue, and shall issue no more than, 2,275 additional shares under its
employee stock purchase plan. At the Effective Time, TBC shall assume the
Commerce stock option plan and TBC shall be vested with the rights and
privileges of Commerce under such plan. The plan shall remain unchanged except
that references to Commerce shall refer to TBC and all outstanding options or
rights to purchase Commerce Common Stock under the Commerce stock option plan
(the "Commerce Options") shall be converted into substitute options to acquire,
on substantially similar terms and conditions
A-4
<PAGE> 601
(including without limitation vesting schedule and duration) the same number of
shares of TBC Common Stock which the holders of the Commerce Options would have
been entitled to receive had they exercised their Commerce Options immediately
prior to the Effective Time and at a price per share of TBC Common Stock equal
to the exercise price for each Commerce option divided by the Exchange Ratio.
TBC shall file a registration statement with the SEC on Form S-8, or such other
form as may be appropriate, to register the shares of TBC Common Stock that may
be issued pursuant to the Commerce Options and shall take reasonable steps to
have such registration statement declared effective (and remain effective)
during the life of the Commerce Options.
2.3 Dissenting Shareholders. Any shares of Commerce stock held by persons
who have perfected their dissenters rights under the ABCA, and have not
effectively withdrawn or lost their dissenters rights under the ABCA, shall not
be converted pursuant to this Plan of Merger but shall be entitled only to such
rights as are granted them by the dissenters rights provisions of the ABCA.
Dissenting shareholders entitled to payment for shares of Commerce stock
pursuant to the Alabama dissenters rights statute shall receive payment from TBC
in an amount as determined pursuant to the ABCA.
ARTICLE III
CONDITIONS
3.1 Mutual Conditions. The obligations of Commerce and Corporation under
this Plan of Merger are subject to and conditioned upon the satisfaction, prior
to the Closing Date, of each of the following conditions except as both Commerce
and Corporation may waive in writing:
(a) Effective Registration Statement. The Registration Statement
shall have been declared effective and shall not be subject to a stop order
of the Securities and Exchange Commission (the "SEC"), and all applicable
state blue sky laws shall have been complied with.
(b) No Litigation. No suit, action, claim or other proceeding shall
have been threatened or pending before any court, administrative or
governmental agency which, in the reasonable opinion of Commerce or
Corporation, presents a significant risk of restraint or prohibition of the
transactions contemplated hereby or the attainment of material damages or
other relief against Commerce or its shareholders or Corporation or its
shareholders in connection therewith.
(c) Shareholder Approval. Approval of the Merger by the holders of a
majority of the outstanding shares of Commerce Common Stock.
(d) Approvals. Receipt of all authorizations, approvals and/or
consents of any third parties as well as the expiration of applicable
waiting periods, including federal or state governmental and/or regulatory
bodies and officials, necessary for the consummation of this Plan of Merger
and for the continuation in all material respects of the business of
Corporation, The Bank and Commerce, without interruption after the
Effective Time, in substantially the manner in which such business is now
conducted, and no such authorizations or approvals shall contain any
conditions or restrictions that Corporation reasonably believes will
materially restrict or limit the business or activities of Corporation or
The Bank or have a material adverse effect on their businesses, operations
or financial conditions taken as a whole.
(e) Employment Agreements. J. Daniel Sizemore and Ray Smith shall
have entered into Employment Agreements with The Bank substantially in the
forms attached hereto as Exhibits C and D, respectively.
3.2 Conditions in Favor of Commerce. All obligations of Commerce under
this Plan of Merger are subject to and conditioned upon the satisfaction, prior
to the Closing Date, of each of the following conditions except as Commerce may
waive in writing:
(a) Material Adverse Change. Since the date of this Plan of Merger,
there have been no material adverse changes, occurrences or developments in
the business of Corporation that have, or would be expected to have, a
material adverse effect on the business, operations or financial condition
of
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Corporation and Commerce shall not have discovered any fact or circumstance
not disclosed by Corporation prior to the date of this Plan of Merger that
has resulted in, or could reasonably be expected to result in, a material
adverse effect on the business, operations or financial condition of
Corporation.
(b) Federal Tax Opinion. An opinion of Balch & Bingham shall have
been received by Commerce 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 Commerce Common Stock for TBC
Common Stock will not give rise to gain or loss to the shareholders of
Commerce with respect to such exchange (except to the extent of any cash
received), and
(iii) neither Commerce nor Corporation 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 Code).
In rendering such tax opinion, counsel for Commerce shall be
entitled to rely upon representations of officers of Commerce reasonably
satisfactory in form and substance to such counsel.
(c) Representations, Warranties and Agreements. Each representation and
warranty of Corporation and The Bank contained in this Plan of Merger or in
any written statement listed on Schedule 3.2(c), including without
limitation, financial statements, disclosure letters, deeds, exhibits,
certificates, schedules or other documents delivered pursuant hereto or in
connection with the transactions contemplated hereby, that is qualified as
to materiality shall be true and correct, and each representation and
warranty that is not so qualified shall be true and correct in all material
respects, as of the date of the Plan of Merger and at the Closing Date as
if then made, except to the extent that any such representation and
warranty expressly relates to an earlier date (in which case any such
representation and warranty that is qualified as to materiality shall be
true and correct, and any such representation that is not so qualified
shall be true and correct in all material respects, as of such earlier
date). Corporation and The Bank shall have performed and complied with all
covenants, agreements and conditions required by this Plan of Merger to be
per formed or complied in all material respects with by them, or either of
them, prior to or at the Closing Date.
(d) Officers' Certificate. Receipt by Commerce of certificates in
form and content satisfactory to Commerce from the President and the Chief
Financial Officer of Corporation and The Bank or the President and Chief
Financial Officer of TBC as applicable, dated the Closing Date, to the
effect that the representations and warranties made herein by Corporation
and The Bank or TBC as applicable on the date hereof and on the Closing
Date are true and correct as set forth in Section 3.2(c) and that
Corporation or TBC as applicable and The Bank have performed the covenants,
obligations and agreements undertaken by them herein in all material
respects.
(e) Legal Opinion. Receipt by Commerce of an opinion of Haskell
Slaughter & Young, L.L.C., legal counsel for Corporation and The Bank,
substantially in the form attached hereto as Exhibit 3.2(e). In addition,
counsel may rely on representations and certificates of officers and
directors of Corporation and The Bank and certificates of public officials.
Such opinion shall be subject to reasonable and customary qualifications.
(f) Accountant's Letter. Commerce shall have received from Ernst &
Young LLP a letter dated the effective date of the Registration Statement
and the Closing Date, in form and substance reasonably satisfactory to
Commerce and customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the Registration Statement and pooling of interests transactions
similar to the Merger.
(g) Authorization of Merger. All actions necessary to authorize the
execution, delivery and performance of this Plan of Merger by Corporation
and The Bank and the consummation of the transactions contemplated hereby
shall have been duly and validly taken by the Boards of Directors and
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shareholders, as applicable, of Corporation and The Bank, and The Bank
shall have full power and right to merge with Commerce pursuant to the
Merger Agreement.
(h) Fairness Opinion. Commerce shall have received a fairness opinion
that the transaction is fair from a financial point of view to its
shareholders. The fairness opinion shall be delivered by an investment
banking firm for inclusion in the Prospectus/Proxy Statement and shall be
rendered by a firm chosen by Commerce and acceptable to Corporation.
Corporation shall not unreasonably withhold its opinion as to
acceptability.
(i) Proper Actions and Documentation. All actions required to be
taken by Corporation and The Bank in connection with the transactions
contemplated by this Plan of Merger shall have been taken, and all
documents incidental thereto shall be in a form and substance reasonably
satisfactory to Commerce, and Commerce shall have received copies of all
documents that it may have reasonably requested in connection with such
transactions.
(j) Minimum Equity. Corporation shall have shareholders equity at the
Effective Time of not less than $21,159,925, exclusive of costs associated
with this transaction and determined in accordance with GAAP.
(k) Environmental Report. Commerce shall have the right, in its
discretion and at its sole expense, to arrange with an environmental
consultant to prepare an environmental report based on the consultant's
inspection of the properties owned or leased by Corporation or The Bank or
upon which either The Bank or Corporation have a mortgage, lien or other
interest, and based on investigation of records relating to such properties
in the files of Corporation or The Bank or any government agency. Such
inspections, investigations and reports shall be concluded no later than
thirty (30) days after the date of this Plan of Merger. If such reports
indicate an absence of Hazardous Materials (as defined in Section 4.1(m)
hereof) on such properties, this Section 3.2(l) shall be deemed satisfied.
If, however, such reports indicate the presence of Hazardous Materials on
such properties, Commerce shall have the right to investigate those
properties further, and Commerce shall have the right to negotiate with
Corporation and The Bank concerning the appropriate allocation of costs for
any remediation indicated by such reports, prior to the Closing Date. In
the event that Commerce reasonably believes that any such Hazardous
Materials have a material adverse effect upon Corporation or The Bank, or
would have a material adverse effect upon Commerce if the Merger were
consummated, then Commerce's sole remedy shall be to terminate this Merger
Agreement at its option.
3.3 Conditions in Favor of Corporation and The Bank. All obligations of
Corporation and The Bank under this Plan of Merger are subject to and shall be
conditioned upon the satisfaction, prior to or on the Closing Date, of each of
the following conditions except as Corporation and The Bank may waive such
conditions in writing:
(a) Material Adverse Change. Since the date of this Plan of Merger
there have been no material adverse changes, occurrences or developments in
the business of Commerce that have, or would be expected to have, a
material adverse effect on the business, operations or financial condition
of Commerce and Corporation shall not have discovered any fact or
circumstance not disclosed by Commerce prior to the date of this Plan of
Merger that has resulted in, or could reasonably be expected to result in,
a material adverse effect on the business, operations or financial
condition of Commerce.
(b) Representations, Warranties and Agreements. Each representation and
warranty of Commerce contained in this Plan of Merger or in any written
statement listed on Schedule 3.3(b), including, without limitation,
financial statements, disclosure letters, deeds, exhibits, certificates,
schedules or other documents delivered pursuant hereto or in connection
with the transactions contemplated hereby, that is qualified as to
materiality shall be true and correct, and each representation and warranty
that is not so qualified shall be true and correct in all material
respects, as of the date of the Plan of Merger and at the Closing Date as
if then made, except to the extent that any such representation and
warranty expressly relates to an earlier date (in which case any such
representation and warranty that is qualified as to materiality shall be
true and correct, and any such representation that is not so qualified
shall be true and
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correct in all material respects, as of such earlier date). Commerce shall
have performed and complied with all covenants, agreements and conditions
required by this Plan of Merger to be performed or complied with in all
material respects by it prior to or at the Closing Date.
(c) Officer's Certificate. Receipt by Corporation and The Bank of a
certificate in form and content satisfactory to both of them from the
President and the Cashier of Commerce, dated the Closing Date, to the
effect that the representations and warranties made herein by Commerce on
the date hereof, and on the Closing Date, are true and correct as set forth
in Section 3.3(b), and that Commerce has performed the covenants,
obligations and agreements undertaken by it herein in all material
respects.
(d) Secretary's Certificate. Corporation and The Bank shall have
received in form and content satisfactory to both of them a certificate of
the Secretary or an Assistant Secretary of Commerce to the effect that all
necessary approvals of the Merger by the Board of Directors and
shareholders of Commerce were obtained at meetings duly called for such
purposes and as to the incumbency of all corporate officers of Commerce at
all relevant times.
(e) Legal Opinion. Receipt by Corporation and The Bank of an opinion
of Commerce's legal counsel, Balch & Bingham, substantially in the form
attached as Exhibit 3.3(e).
(f) Dissenter's Rights. Holders of not more than ten percent (10%) of
the outstanding shares of Commerce Stock shall have voted against approval
of, or given notice in writing to Commerce at or prior to the Commerce
shareholders' meeting that he or she dissents from, the transactions
contemplated by the Plan of Merger and the Merger Agreement.
(g) Environmental Report. Corporation shall have the right, in its
discretion and at its sole expense, to arrange with an environmental
consultant to prepare an environmental report based on the consultant's
inspection of the properties owned or leased by Commerce or upon which
Commerce has a mortgage, lien or other interest, and based on investigation
of records relating to such properties in the files of Commerce or any
government agency. Such inspections, investigations and reports shall be
concluded no later than thirty (30) days after the date of this Plan of
Merger. If such reports indicate an absence of Hazardous Materials (as
defined in Section 4.1(m) hereof) on such properties, or on other
properties where such Hazardous Materials endanger the Commerce properties,
this Section 3.3(g) shall be deemed satisfied. If, however, such reports
indicate the presence of Hazardous Materials on such properties,
Corporation shall have the right to investigate those properties further,
and Corporation shall have the right to negotiate with Commerce concerning
the appropriate allocation of costs for any remediation indicated by such
reports, prior to the Closing Date. In the event that Corporation
reasonably believes that any such Hazardous Materials have a material
adverse effect upon Commerce, or would have a material adverse effect upon
Corporation if the Merger were consummated, then Corporation's sole remedy
shall be to terminate this Merger Agreement at its option.
(h) Accountant's Letter. Corporation shall have received from Ernst &
Young LLP a letter dated the effective date of the Registration Statement
and the Closing Date, in form and substance reasonably satisfactory to
Corporation and customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the Registration Statement and pooling of interests transactions
similar to the Merger.
(i) Proper Actions and Documentation. All actions required to be
taken by Commerce by this Plan of Merger shall have been taken or satisfied
in all material respects, and all documents incidental thereto shall be in
a form and substance reasonably satisfactory to Corporation, The Bank and
their counsel, RAPJ, and Corporation and The Bank shall have received
copies of all documents that they may have reasonably requested in
connection with such transactions.
(j) Minimum Equity. Commerce shall have shareholders equity at the
Effective Time of not less than $6,548,045, excluding costs associated with
this transaction, and determined in accordance with GAAP.
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(k) Voting Agreements. The directors of Commerce shall have entered
into Voting Agreements in the form attached as Exhibit A whereby they each
agree to vote for the Merger.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of Commerce. Except as set forth in its
Disclosure Letter delivered to Corporation (the "Commerce Disclosure Letter")
simultaneously with the execution hereof, Commerce hereby represents and
warrants to Corporation and The Bank, as of the date hereof and up to and
including the Closing Date, as follows:
(a) Organization of Commerce.
(i) Commerce is an Alabama banking corporation duly organized,
validly existing and in good standing under the laws of the State of
Alabama, with full corporate power and authority, and possesses all
material governmental, regulatory and other permits, licenses and
authorizations necessary to carry on its business as now conducted and
to own and operate the properties and assets it owns or operates, to
enter into this Plan of Merger and the Merger and to perform its
obligations thereunder. Commerce is duly qualified or licensed to
transact business as a foreign corporation in good standing in the
states and foreign jurisdictions where the character of its assets or
the nature or conduct of the 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 the business, operations,
properties, or assets, or the condition, financial or otherwise, of
Commerce. The deposit accounts of Commerce are insured by the Federal
Deposit Insurance Corporation (the "FDIC") to the full extent permitted
under applicable law and the rules and regulations of the FDIC.
(ii) Commerce's authorized capital stock consists of 20,000,000
shares of common stock ($.01 par value), of which 656,770 shares are
outstanding, all of which are validly issued, fully paid and
non-assessable.
(iii) There are outstanding Commerce Options to purchase 38,500
shares of Commerce Common Stock issued under the Commerce stock option
plan (the "Option Plan"). The Commerce Options have been granted to the
persons named in Commerce's Disclosure Letter. The Commerce Options have
been validly authorized and issued pursuant to the terms of the Option
Plan, and the Option Plan has been adopted by a properly adopted
resolution of Commerce's Board of Directors and approved by the required
vote of Commerce's shareholders. Other than the Commerce Options and
other than the Commerce employee stock purchase plan, which is described
in the Commerce Disclosure Letter, Commerce has no outstanding
securities convertible into shares of capital stock or existing options,
warrants, calls, commitments or other rights of any character granted or
entered into by Commerce relating to its authorized, issued or unissued
capital stock, and no such rights will be granted or entered into.
(iv) There are no outstanding or unsatisfied preemptive rights or
rights of first refusal with respect to Commerce's capital stock.
(v) No shares of Commerce's capital stock will be issued between
the date hereof and the Effective Time except for shares issued as a
result of the exercise of, or in exchange for, outstanding Commerce
Options under the Option Plan as provided for in Section 2.2 and other
than the Commerce employee stock purchase plan, which is described in
the Commerce Disclosure Letter.
(vi) Attached to the Commerce Disclosure Letter are copies, as of
the date of such letter, of Commerce's articles of incorporation and
bylaws, both certified to be complete and correct by the Cashier or
Secretary of Commerce, the same to remain unchanged up to the Effective
Time.
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(b) Subsidiaries and Assets. Commerce does not have any direct or
indirect subsidiaries and does not have any interest in any partnership,
firm, association, corporation or joint venture other than investment
securities purchased and loans made in the regular and usual course of its
business.
(c) Financial Statements. Commerce has delivered, or will deliver
when prepared, to Corporation audited balance sheets of Commerce as of
December 31, 1996 and 1997, the related statements of operations, changes
in shareholders' equity and changes in financial position or statements of
cash flows for the periods then ended, and the related notes and related
opinions thereon as applicable (the "Commerce Financial Statements"). The
Commerce Financial Statements, as and when prepared, (i) present fairly the
financial condition of Commerce as of the respective dates indicated and
the results of operations, the changes in shareholders equity, the changes
in financial position and cash flows for the respective periods indicated;
(ii) have been prepared in accordance with generally accepted accounting
principles ("GAAP") as to audited statements and in a manner consistent
with past practice as to unaudited statements; (iii) contain and reflect
reserves for all material accrued liabilities and for all reasonably
anticipated losses, including but not limited to appropriate reserves for
loan and lease losses; and (iv) are based on the books and records of
Commerce.
(d) Absence of Undisclosed Liabilities. Except as and to the extent
reflected or reserved against in the Commerce Financial Statements or
disclosed in the Disclosure Letter, Commerce has no material liabilities or
obligations whether accrued, absolute, contingent or otherwise, including
governmental charges or lawsuits, or any tax liabilities due or to become
due and whether (i) incurred in respect of or measured by the income of
Commerce for any period up to the close of business on the respective dates
of the Commerce Financial Statements, or (ii) arising out of transactions
entered into, or any state of facts existing, prior thereto. Commerce does
not have any liabilities or obligations, either accrued or contingent,
which are material to Commerce and which have not been either (i) reflected
or disclosed in the Commerce Financial Statements for the year ended
December 31, 1997; or (ii) incurred subsequent to December 31, 1997, in the
ordinary course of business.
(e) Absence of Certain Changes or Events. Since December 31, 1997,
there has not been:
(i) any material adverse change in the condition (financial or
otherwise), assets, liabilities or business of Commerce;
(ii) any material adverse change in the character of the assets or
liabilities of Commerce;
(iii) any capital improvements, except for ordinary maintenance and
repairs, or any purchase of property by Commerce at a cost in excess of
$25,000 other than supplies in the ordinary course of business;
(iv) any physical damage, destruction or loss not covered by
insurance exceeding $25,000 in value or affecting in a material and
adverse way the property, assets, business or prospects of Commerce;
(v) any material change in the accounting methods or practices of
Commerce unless required by regulation or GAAP;
(vi) any material change in the capital structure of Commerce other
than as a result of the exercise of the Commerce Options;
(vii) any loss incurred or determined to be probable for Commerce
as a result of environmental problems which has or would be expected to
have a material adverse effect on the financial position of Commerce; or
(viii) any increase in the compensation payable or to become
payable by Commerce to any officer or employee or any bonus, except
bonuses accrued and reflected on the December 31, 1997 Commerce
Financial Statement, percentage compensation, service award or other
like benefit, granted, made or accrued or credited to any officer or
employee or any pension, retirement or
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deferred compensation payment agreed to, other than in accordance with
preexisting plans or normal and customary annual salary reviews and
adjustments and promotional increases.
(f) Tax Matters. Commerce has filed all federal, state, municipal and
local income, excise, property, special district, sales, transfer and other
tax returns and reports of information statements that are required to be
filed and has paid all taxes that have become due pursuant to such returns
or pursuant to any assessment that has become payable. The returns filed by
Commerce have been and will be accurately and properly prepared. To the
extent that any tax liability or assessment has accrued, but has not yet
become payable or has been proposed for assessment or determination but
remains unpaid, the same has been reflected as a liability on the books and
records of Commerce and the Commerce Financial Statements subject to normal
year-end adjustments. Since December 31, 1997, Commerce has not incurred
any liability with respect to any such taxes except for normal taxes
incurred in the ordinary and regular course of its business. Commerce has
not executed or filed with the Internal Revenue Service or any other taxing
authority any agreement extending the period for the assessment or
collection of any income taxes. There are no examinations, reviews, audits
or investigations of any tax return or report of Commerce that are
presently pending or threatened, and Commerce is not a party to any pending
action or proceeding by any governmental authority for assessment or
collection of income taxes.
(g) Title to Properties; Absence of Liens and Encumbrances;
Enforceability of Leases.
(i) Except as to property indicated in the Commerce Disclosure
Letter as being leased or mortgaged, Commerce has good and marketable
title to its assets, real and personal (including those reflected in the
Commerce Financial Statements, except for loans and investments and as
thereafter sold or otherwise disposed of in the ordinary course of
business and for adequate consideration), free and clear of all material
mortgages, pledges, liens, charges and encumbrances, except (A)
investment securities that are pledged to secure the deposit of public
monies or monies under the control of any court, (B) the lien of taxes
not yet due and payable or being contested in good faith by appropriate
proceedings, and (C) such imperfections of title and encumbrances, if
any, and such liens, if any, incidental to the conduct of Commerce's
business or the ownership of its assets as are not material in amount
and do not affect the value of, or interfere with the present use of,
Commerce's assets or otherwise materially impair its operations.
(ii) To the best knowledge of Commerce, the structures and
equipment owned or used by Commerce comply in all material respects with
applicable laws, regulations and ordinances and are in good operating
condition, subject to ordinary wear and tear.
(iii) The real property, if any, leased by Commerce is held by it
under valid and enforceable leases. Commerce is not in material default
under any such leases.
(h) Legal Proceedings. There are no material claims, actions, suits,
proceedings or investigations pending, or to the best knowledge of
Commerce, threatened by or against or otherwise affecting Commerce or its
assets, business or properties, or the transactions contemplated by the
Plan of Merger, or its directors, officers or employees in reference to
actions taken by them in such capacity at law or in equity, or before or by
any federal, state, municipal or other government department, commission,
board, agency, instrumentality or authority, nor to Commerce's knowledge is
there any valid basis for any such action, proceeding or investigation,
other than (i) claims by Commerce in the ordinary course of its business
for the recovery of loans or protection of its interest as a secured or
unsecured creditor, and (ii) claims fully covered by insurance. To the best
knowledge of Commerce, it is in compliance in all material respects with
laws, ordinances, rules, regulations, orders, licenses and permits that are
applicable to its business as now conducted, and it is not in material
default under any thereof.
(i) Authority Relative to This Plan of Merger.
(i) Commerce has the requisite corporate power and authority to
enter into this Plan of Merger and perform its obligations hereunder.
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(ii) The execution, delivery and performance of this Plan of Merger
by Commerce has been duly authorized and approved by the Board of
Directors of Commerce, subject to the required vote of its shareholders,
and subject to obtaining the regulatory approvals and other consents
contemplated by this Plan of Merger.
(iii) This Plan of Merger has been duly executed and delivered by
Commerce and constitutes a valid and binding obligation of Commerce
enforceable in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, reorganization, insolvency,
moratorium or other similar laws affecting creditors' rights generally
and principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
(iv) The consummation of the transactions contemplated by this Plan
of Merger will not in any material respect conflict with, violate or
result in a material breach of or material default in any (A) term,
condition or provision of the articles of incorporation or bylaws of
Commerce; (B) applicable law, rule, regulation or order of any court or
governmental agency; or (C) material agreement, lease, mortgage, note,
contract or commitment of any kind, oral or written, to which Commerce
is a party or by which its properties may be bound.
(j) Information Furnished to Corporation. The documents furnished by
Commerce to Corporation (the "Commerce Documents"), including but not
limited to the Commerce Disclosure Letter and the Commerce Financial
Statements, are true and complete copies of such documents and do not
contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements made therein, in the light
of the circumstances under which they were made, not misleading. There is
no fact that Commerce has not disclosed in the Commerce Documents or
otherwise to Corporation in writing which materially and adversely affects
the properties, business, prospects, profits or condition (financial or
otherwise) of Commerce or the ability of Commerce to perform this Plan of
Merger, except that Commerce makes no representation or warranty as to the
effect of general economic conditions, the condition of the financial
markets, future legislation or future regulatory action.
(k) Employee Benefit Plans.
(i) True, accurate and complete copies of all pension plans,
retirement plans, profit-sharing plans, stock option plans, deferred
compensation agreements, collective bargaining agreements, insurance
plans or any other similar employee benefit plans, agreements or
arrangements of Commerce (the "Plans") have been furnished to
Corporation.
(ii) Each Plan which is intended to provide tax-deferred benefits
under any provision of the Code meets all requirements that must be met
in order for such tax-deferred benefits to be available. There has been
no change in any of the documents delivered to Corporation under which
each Plan is maintained and no change, since each Plan's most recent
valuation date, in the operation of the Plan which could be expected to
adversely affect or alter the tax status of, or materially increase the
cost of maintaining, any such Plan.
(iii) The reporting and disclosure requirements of the Employee
Retirement Income Security Act of 1974 ("ERISA") and the Code, as
applicable, and the group health plan continuation coverage requirements
of the Code and ERISA have been fulfilled in all material respects.
Commerce has furnished to Corporation copies of all filings, if any,
with the Internal Revenue Service and the Department of Labor or other
applicable authority for each Plan's most recent plan year. The fair
market value of the assets of each such Plan (if any) is at least equal
to the present value of all liabilities of such Plan had such Plan been
terminated as of the date of the end of the Plan Year preceding the date
of this Plan of Merger.
(iv) Neither Commerce, any of the Plans, any of the trusts created
under any Plan nor any trustee, administrator or other fiduciary of a
Plan has, to their best knowledge, engaged in a "prohibited
transaction," as such term is defined in the applicable provisions of
the Code or of ERISA, or otherwise taken or omitted any action which
could subject the Plans, Commerce, any of the trusts created under a
Plan or any trustee or administrator thereof, or any party dealing with
such
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Plans or trusts, to a material tax or penalty on prohibited transactions
imposed by ERISA or the Code or otherwise, and neither Commerce, any
Plan, any trust created under a Plan nor any other fiduciary of any Plan
or its attendant trust has breached its fiduciary duties under ERISA in
a manner which could result in a direct or indirect material liability
to Commerce, or the trustee or administrator of any Plan.
(v) The Pension Benefit Guaranty Corporation has not instituted
proceedings to terminate (or appoint a trustee to administer) any Plan,
and no event has occurred or condition exists which might constitute
grounds under ERISA for the termination of (or the appointment of a
trustee to administer) any such Plan.
(vi) The minimum funding requirements under the Code and ERISA have
been satisfied with respect to each such Plan.
(l) Environmental Protection.
(i) None of the assets of Commerce (defined for purposes of this
subsection as the real property and tangible personal property owned or
leased by Commerce as of the date of this Plan of Merger and as of the
Effective Time) contain any hazardous materials, defined as any
substance whose nature and/or quantity or existence, use, manufacture or
effect render it subject to federal, state or local regulation as
potentially injurious to public health or welfare, including, without
limitation, friable asbestos or PCBs ("Hazardous Materials"), other than
in such quantities which are incidental and customary for the
maintenance and operation of such assets, e.g., cleaning fluids
("Incidental Quantities").
(ii) No notice or other communication has been received from any
governmental agency having jurisdiction over Commerce or to the best
knowledge of Commerce from any other person, with respect to any alleged
violation by Commerce of any federal, state or local laws, rules,
regulations, ordinances and codes governing Hazardous Materials and
which are applicable to the assets of Commerce.
(iii) All Hazardous Materials which have been remediated from any
assets of Commerce prior to or during their ownership by Commerce have
been handled in compliance with all applicable laws.
(iv) To Commerce's best knowledge, no collateral securing any loan
made by Commerce, as of the date of this Plan of Merger and as of the
Effective Time, contains any Hazardous Materials, other than in
Incidental Quantities.
(m) Material Contract Defaults. Commerce is not in default in any
material respect under the terms of any outstanding material contract,
agreement, lease or other commitment, which would have a material adverse
effect on the business, operations, properties or assets, or the condition,
financial or otherwise, of Commerce or under its articles of incorporation
or bylaws, and no event has occurred which, with notice or lapse of time,
or both, may be or become a material default of any such contract,
agreement, lease or other commitment or under the articles of incorporation
or bylaws of Commerce.
(n) Brokers and Finders. Neither Commerce nor any of its officers,
directors or employees have employed any broker or finder or incurred any
liability for any financial advisory, brokerage or finders fees or
commissions and no broker or finder has acted directly or indirectly for
Commerce in connection with this Plan of Merger or the transactions
contemplated hereby.
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4.2 Representations and Warranties of Corporation and The Bank. Except as
set forth in its Disclosure Letter delivered to Commerce (the "Corporation
Disclosure Letter") simultaneously with the execution hereof, Corporation and
The Bank hereby represent and warrant to Commerce as of the date hereof and up
to and including the Closing Date as follows (all representations and warranties
by Corporation include its subsidiaries):
(a) Organization. Corporation and The Bank are each duly organized,
validly existing and in good standing under the laws of Alabama, with full
corporate power and authority, and each possesses all material
governmental, regulatory and other permits, licenses and other
authorization, necessary to carry on their respective businesses as now
conducted and to own and operate the properties and assets each owns or
operates, to enter into this Plan of Merger and the Merger and to perform
its obligations thereunder. Corporation and The Bank are each duly
qualified or licensed to transact business as a foreign corporation in good
standing in the 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 the
business, operations, properties, or assets, or the condition, financial or
otherwise, of Corporation or The Bank. Corporation and The Bank have
delivered to Commerce complete and correct copies of their respective
articles of incorporation and bylaws, in each case amended through the date
of this Plan of Merger. The deposit accounts of The Bank are insured by the
FDIC to the full extent permitted under applicable law and the rules and
regulations of the FDIC.
(b) Corporation Capital Stock.
(i) The authorized capital stock of Corporation consists of (x)
30,000 shares of common stock of which 18,160 shares of common stock are
issued and outstanding and (y) 1,476 shares of preferred stock of which
no shares are issued and outstanding. Corporation Common Stock issued in
this Merger will be, when issued, duly authorized, validly issued, fully
paid and nonassessable. The Corporation Disclosure Letter will be
revised following the Warrior Merger to update this representation and
warranty for TBC.
(ii) Other than The Bank, Corporation does not own directly or
indirectly, beneficially or of record, more than five percent of the
outstanding stock of any other corporation and does not otherwise
control any company or bank.
(iii) There are not, and as of the Effective Time and thereafter
there will not be, outstanding securities convertible into or
exercisable or exchangeable for Corporation Common Stock or
Corporation's preferred stock.
(iv) There are no outstanding or unsatisfied preemptive rights or
rights of first refusal with respect to Corporation Common Stock or
Corporation's preferred stock.
(v) Except as disclosed to Commerce in the Corporation Disclosure
Letter, as of the date of this Agreement there are, and as of the
Closing Date and thereafter there will be, no outstanding agreements,
arrangements, or understandings of any kind -- to which Corporation or
The Bank is a party -- affecting or relating to the voting, issuance,
purchase, redemption, repurchase, or transfer of the Corporation Common
Stock or any other securities of Corporation or The Bank.
(vi) Attached to the Corporation Disclosure Letter are copies, as
of the date of such letter, of Corporation's articles of incorporation
and bylaws, certified to be complete and correct by the Cashier of such
entity, the same to remain unchanged up to the Effective Time.
(c) TBC Capital Stock. The authorized capital stock of TBC consists
of 25,000,000 shares of common stock, par value $.001, and 5,000,000 shares
of preferred stock, par value $.001. TBC will issue 5,448,000 shares of
common stock in the Corporation Merger such that immediately prior to the
Effective Time, not subject to the First Citizens, City National or Emerald
Mergers, there will be 5,448,000 shares of TBC Common Stock issued and
outstanding.
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(d) The Bank Capital Stock.
(i) The Bank's authorized capital stock consists of 16,000 shares
of common stock ($1.00 par value), of which 16,000 shares are issued and
outstanding, all of which are validly issued, fully paid and
non-assessable. Corporation owns beneficially and of record 15,960
shares of The Bank's issued and outstanding common stock free and clear
of any security interest, lien, claim, charge, restriction or
encumbrance.
(ii) There are no outstanding options, warrants or other rights to
purchase shares of The Bank's capital stock.
(iii) There are no outstanding or unsatisfied preemptive rights or
rights of first refusal with respect to The Bank's capital stock.
(iv) No shares of The Bank's capital stock will be issued between
the date hereof and the Effective Time.
(v) Attached to the Corporation Disclosure Letter are copies, as of
the date of such letter, of The Bank's articles of incorporation and
bylaws, both certified to be complete and correct by the Cashier of such
entity, the same to remain unchanged up to the Effective Time.
(e) Subsidiaries and Assets. Corporation (except for The Bank) and
The Bank do not have any direct or indirect subsidiaries and do not have
any interest in any partnership, firm, association, corporation, or joint
venture other than investment securities purchased and loans made in the
regular and usual course of its business.
(f) Financial Statements. Corporation has delivered or will deliver
when prepared to Commerce audited balance sheets of Corporation and The
Bank as of December 31, 1997, and the related statements of operations,
changes in shareholders' equity, and changes in financial position or
statements of cash flows for the year then ended, and the related notes and
related opinions thereon as applicable ("Corporation Financial
Statements"). Corporation Financial Statements, as and when prepared, (i)
present fairly the financial condition of Corporation and The Bank as of
the date indicated and the results of operations, the changes in
shareholders equity, the changes in financial position and cash flows for
the respective periods indicated; (ii) have been prepared in accordance
with generally accepted accounting principles ("GAAP") as to audited
statements and in a manner consistent with past practice as to unaudited
statements; (iii) contain and reflect reserves for all material accrued
liabilities and for all reasonably anticipated losses, including but not
limited to appropriate reserves for loan and lease losses; and (iv) are
based on the books and records of Corporation and The Bank.
(g) Absence of Undisclosed Liabilities. Except as and to the extent
reflected or reserved against in Corporation Financial Statements or
disclosed in the Corporation Disclosure Letter, each of Corporation and The
Bank has no material liabilities or obligations whether accrued, absolute,
contingent or otherwise, including, governmental charges or lawsuits, or
any tax liabilities due or to become due and whether (i) incurred in
respect of or measured by the income of Corporation or The Bank for any
period up to the close of business on the respective dates of the
Corporation Financial Statements, or (ii) arising out of transactions
entered into, or any state of facts existing, prior thereto. Neither of
Corporation or The Bank have any liabilities or obligations, either accrued
or contingent, which are material to Corporation or The Bank and which have
not been either (i) reflected or disclosed in the audited financial
statements of Corporation or The Bank for the year ended December 31, 1997
and provided to Commerce in writing; or (ii) incurred subsequent to
December 31, 1997, in the ordinary course of business.
(h) Absence of Certain Changes or Events. Since December 31, 1997,
there has not been:
(i) any material adverse change in the condition (financial or
otherwise), assets, liabilities or business of Corporation or The Bank;
(ii) any material adverse change in the character of the assets or
liabilities of Corporation or The Bank;
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(iii) any capital improvements, except for ordinary maintenance and
repairs, or any purchase of property by Corporation or The Bank at a
cost in excess of $25,000 other than supplies in the ordinary course of
business;
(iv) any physical damage, destruction or loss not covered by
insurance exceeding $25,000 in value or affecting in a material and
adverse way the property, assets, business or prospects of Corporation
or The Bank;
(v) any material change in the accounting methods or practices of
Corporation or The Bank unless required by law or GAAP;
(vi) any material change in the capital structure of Corporation or
The Bank;
(vii) any loss incurred or determined to be probable for
Corporation or The Bank as a result of environmental problems which has
or would be expected to have a material adverse effect on the financial
position of Corporation or The Bank; or
(viii) any increase in the compensation payable or to become
payable by Corporation or The Bank to any officer or employee or any
bonus, except bonuses accrued and reflected on the December 31, 1997
Corporation Financial Statements, percentage compensation, service award
or other like benefit, granted, made or accrued or credited to any
officer or employee or any pension, retirement, or deferred compensation
payment agreed to, other than in accordance with preexisting plans or
normal and customary annual salary reviews and adjustments and
promotional increases.
(i) Tax Matters. Corporation and The Bank have filed all federal,
state, municipal and local income, excise, property, special district,
sales, transfer and other tax returns and reports of information statements
that are required to be filed and have paid all taxes that have become due
pursuant to such returns or pursuant to any assessment that has become
payable. The returns filed by Corporation and The Bank have been and will
be accurately and properly prepared. To the extent that any tax liability
or assessment has accrued, but has not yet become payable or has been
proposed for assessment or determination but remains unpaid, the same has
been reflected as a liability on the books and records of Corporation and
The Bank and Corporation Financial Statements subject to normal year-end
adjustments. Since December 31, 1997, Corporation and The Bank have not
incurred any liability with respect to any such taxes except for normal
taxes incurred in the ordinary and regular course of its business.
Corporation and The Bank have not executed or filed with the Internal
Revenue Service or any other taxing authority any agreement extending the
period for assessment or collection of any income taxes. There are no
examinations, reviews, audits or investigations of any tax return or report
of Corporation or The Bank that are presently pending or threatened, and
Corporation is not and The Bank is not a party to any pending action or
proceeding by any governmental authority for assessment or collection of
income taxes.
(j) Title to Properties; Absence of Liens and Encumbrances, Leases
Enforceable.
(i) Except as to property indicated in the Corporation Disclosure
Letter as being leased or mortgaged, Corporation and The Bank have good
and marketable title to its assets, real and personal (including those
reflected in Corporation Financial Statements, except for loans and
investments as thereafter sold or otherwise disposed of in the ordinary
course of business and for adequate consideration), free and clear of
all material mortgages, pledges, liens, charges and encumbrances, except
(A) investment securities that are pledged to secure the deposit of
public monies or monies under the control of any court, (B) the lien of
taxes not yet due and payable or being contested in good faith by
appropriate proceedings, and (C) such imperfections of title and
encumbrances, if any, and such liens, if any, incidental to the conduct
of Corporation's or The Bank's business or the ownership of its assets
as are not material in amount and do not affect the value of, or
interfere with the present use of, Corporation's or The Bank's assets or
otherwise materially impair its operations.
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(ii) To the best knowledge of Corporation and The Bank, the
structures and equipment owned or used by Corporation and The Bank
comply in all material respects with applicable laws, regulations and
ordinances and are in good operating condition, subject to ordinary wear
and tear.
(iii) The real property, if any, leased by Corporation or The Bank
is held by each under valid and enforceable leases. Corporation and The
Bank are not in material default under any such leases.
(k) Legal Proceedings. There are no material claims, actions, suits,
proceedings or investigations pending, or to the best knowledge of
Corporation and The Bank, threatened, by or against, or otherwise affecting
Corporation or The Bank or its or their assets, business or properties, or
the transactions contemplated by the Plan of Merger, or its directors,
officers or employees in reference to actions taken by them in such
capacity at law or in equity, or before or by any federal, state, municipal
or other government department, commission, board, agency, instrumentality
or authority, nor to Corporation's or The Bank's knowledge is there any
valid basis for any such action, proceeding or investigation, other than
(i) claims by Corporation or The Bank in the ordinary course of its
business for the recovery of loans or protection of its interest as a
secured or unsecured creditor, and (ii) claims fully covered by insurance.
To the best knowledge of Corporation and The Bank, each is in compliance in
all material respects with laws, ordinances, rules, regulations, orders,
licenses and permits that are applicable to its business as now conducted
and is not in material default under any thereof.
(l) Authority Relative to This Plan of Merger.
(i) Corporation and The Bank each have the requisite corporate
power and authority to enter into this Plan of Merger and perform its
obligations hereunder.
(ii) The execution, delivery and performance of this Plan of Merger
by Corporation and The Bank has been duly authorized and approved by the
Board of Directors of Corporation and The Bank respectively, subject to
the required vote of its shareholders, and subject to obtaining the
regulatory approvals and other consents contemplated by this Plan of
Merger.
(iii) This Plan of Merger has been duly executed and delivered by
Corporation and The Bank and constitutes a valid and binding obligation
of Corporation and The Bank enforceable in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy,
reorganization, insolvency, moratorium or other similar laws affecting
creditors' rights generally and principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or
at law).
(iv) The consummation of the transactions contemplated by this Plan
of Merger will not in any material respect conflict with, violate or
result in a material breach of or material default in any (A) term,
condition or provision of the articles of incorporation or bylaws of
Corporation or The Bank; (B) applicable law, rule, regulation or order
of any court or governmental agency; or (C) material agreement, lease,
mortgage, note, contract or commitment of any kind, oral or written, to
which Corporation or The Bank is a party or by which its respective
properties may be bound.
(m) Information Furnished to Commerce. The documents furnished by
Corporation to Commerce (the "Corporation Documents"), including but not
limited to the Corporation Disclosure Letter and the Corporation Financial
Statements, are true and complete copies of such documents and do not
contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements made therein, in the light
of the circumstances under which they were made, not misleading. There is
no fact that Corporation and The Bank have not disclosed in the Corporation
Documents or Corporation Disclosure Letter in writing which materially and
adversely affects the properties, business, prospects, profits or condition
(financial or otherwise) of Corporation or The Bank or the ability of
Corporation or The Bank to perform this Plan of Merger, except that
Corporation and The Bank make no representation or warranty as to the
effect of general economic conditions, the condition of the financial
markets, future legislation or future regulatory action.
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(n) Employee Benefit Plans.
(i) True, accurate and complete copies of all pension plans,
retirement plans, profit-sharing plans, stock option plans, deferred
compensation agreements, collective bargaining agreements, insurance
plans or any other similar employee benefit plans, agreements or
arrangements of Corporation and The Bank (the "Plans") have been
furnished to Commerce.
(ii) Each Plan which is intended to provide tax-deferred benefits
under any provision of the Code meets all requirements that must be met
in order for such tax-deferred benefits to be available. There has been
no change in any of the documents delivered to Commerce under which each
Plan is maintained and no change, since each Plan's most recent
valuation date, in the operation of the Plan which could be expected to
adversely affect or alter the tax status of, or materially increase the
cost of maintaining, any such Plan.
(iii) The reporting and disclosure requirements of the Employee
Retirement Income Security Act of 1974 ("ERISA") and the Code, as
applicable, and the group health plan continuation coverage requirements
of the Code and ERISA have been fulfilled in all material respects.
Corporation has furnished to Commerce copies of all filings, if any,
with the Internal Revenue Service and the Department of Labor or other
applicable authority for each Plan's most recent plan year. The fair
market value of the assets of each such Plan (if any) is at least equal
to the present value of all liabilities of such Plan had such Plan been
terminated as of the date of the end of the Plan Year preceding the date
of this Plan of Merger.
(iv) Neither Corporation, The Bank, any of the Plans, any of the
trusts created under any Plan nor any trustee, administrator or other
fiduciary of a Plan has, to their best knowledge, engaged in a
"prohibited transaction," as such term is defined in the applicable
provisions of the Code or of ERISA, or otherwise taken or omitted any
action which could subject the Plans, Corporation, any of the trusts
created under a Plan or any trustee or administrator thereof, or any
party dealing with such Plans or trusts, to a material tax or penalty on
prohibited transactions imposed by ERISA or the Code or otherwise, and
neither Corporation, any Plan, any trust created under a Plan nor any
other fiduciary of any Plan or its attendant trust has breached its
fiduciary duties under ERISA in a manner which could result in a direct
or indirect material liability to Corporation, or the trustee or
administrator of any Plan.
(v) The Pension Benefit Guaranty Corporation has not instituted
proceedings to terminate (or appoint a trustee to administer) any Plan,
and no event has occurred or condition exists which might constitute
grounds under ERISA for the termination of (or the appointment of a
trustee to administer) any such Plan.
(vi) The minimum funding requirements under the Code and ERISA have
been satisfied with respect to each such Plan.
(o) Environmental Protection.
(i) None of the assets of Corporation or The Bank (defined for
purposes of this subsection as the real property and tangible personal
property owned or leased by Corporation or The Bank as of the date of
this Plan of Merger and as of the Effective Time) contain any hazardous
materials, defined as any substance whose nature and/or quantity or
existence, use, manufacture or effect render it subject to federal,
state or local regulation as potentially injurious to public health or
welfare, including, without limitation, friable asbestos or PCBs
("Hazardous Materials"), other than in such quantities which are
incidental and customary for the maintenance and operation of such
assets, e.g., cleaning fluids ("Incidental Quantities").
(ii) No notice or other communication has been received from any
governmental agency having jurisdiction over Corporation or The Bank or
to their best knowledge from any other person, with respect to any
alleged violation by Corporation or The Bank of any federal, state or
local laws,
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rules, regulations, ordinances and codes governing Hazardous Materials
and which are applicable to the assets of Corporation or The Bank.
(iii) All Hazardous Materials which have been remediated from any
assets of Corporation or The Bank prior to or during their ownership by
Corporation or The Bank have been handled in compliance with all
applicable laws.
(iv) To Corporation's and The Bank's best knowledge, no collateral
securing any loan made by Corporation or The Bank, as of the date of
this Plan of Merger and as of the Effective Time, contains any Hazardous
Materials, other than in Incidental Quantities.
(p) Material Contract Defaults. Corporation is not and The Bank is
not in default in any material respect under the terms of any outstanding
material contract, agreement, lease or other commitment, which would have a
material adverse effect on the business, operations, properties or assets,
or the condition, financial or otherwise, of Corporation or The Bank or
under their respective articles of association or bylaws and no event has
occurred which, with notice or lapse of time, or both, may be or become a
material default of any such contract, agreement, lease or other commitment
or under the articles of association or bylaws of Corporation or The Bank.
(q) Brokers and Finders. Neither Corporation, The Bank, nor any of
their officers, directors or employees have employed any broker or finder
or incurred any liability for any financial advisory, brokerage or finders
fees or commissions and no broker or finder has acted directly or
indirectly for Corporation or The Bank in connection with this Plan of
Merger or the transactions contemplated hereby.
ARTICLE V
COVENANTS
5.1 Covenants of Commerce. Commerce, as an inducement for Corporation and
The Bank to enter into this Plan of Merger covenants that:
(a) Access to Information Concerning Properties and Records. Commerce
will give to Corporation and The Bank and to their counsel, accountants and
other representatives ("advisors"), upon reasonable notice, during normal
business hours throughout the period prior to the Closing Date, full access
to Commerce's books, records, customer and loan files, contracts and
commitments. For the period prior to the Effective Time, Commerce shall
deliver to Corporation and The Bank such statements, schedules and reports
concerning the business, operations and financial condition of Commerce as
are regularly provided to its Board of Directors at such times as they are
regularly supplied to its Board of Directors.
(b) Preservation of Business. From the date of this Agreement,
Commerce will use its reasonable best efforts to preserve the business
organization of Commerce intact, to keep available to Corporation and the
Surviving Bank the services of the present employees of Commerce, and to
preserve for Corporation and the Surviving Bank the goodwill of the
suppliers, customers and others having business relations with Commerce.
(c) Conduct of Business. Until the Effective Time or the earlier
termination of this Plan of Merger, and except as contemplated by this Plan
of Merger or disclosed in the Disclosure Letter or as consented to or
otherwise approved by Corporation and The Bank in writing, which consent or
approval will not be unreasonably withheld:
(i) the business of Commerce shall be conducted only in the
ordinary course which, without limitation, shall include using its best
efforts to maintain in force the insurance policies now in effect, or
insurance policies providing substantially the same coverage to the
extent such coverage remains available to Commerce with acceptable
limitations and at a reasonable cost;
(ii) no change shall be made in the articles of incorporation or
bylaws of Commerce;
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(iii) except as a result of the cancellation or exercise of
Commerce Options granted pursuant to Commerce's Option Plan as
contemplated herein, other than as required by the Commerce employee
stock purchase plan, no change shall be made in the number of shares of
capital stock of Commerce issued and outstanding, nor shall any option,
warrant, call, convertible security, commitment or other right be
granted or made by Commerce relating to its authorized or issued capital
stock;
(iv) except in the ordinary course of business as previously
conducted, no purchase order, contract or commitment (other than
deposits, loan commitments and investments or the sale of other real
estate owned in the ordinary course of business of Commerce) shall be
entered into by or on behalf of Commerce extending for more than one
year or involving payment by Commerce of more than $25,000 in any one
contract or related series of contracts or otherwise materially
affecting its business;
(v) except as provided in Section 3.1(e), no employment agreement
or other agreement will be entered into with any employee of Commerce
and no Commerce employee's salary or benefits will be increased except
for normal annual increases as agreed to by Corporation in writing and
no employee benefit plan will be modified or amended;
(vi) Commerce shall use its best efforts, consistent with
conducting its business in accordance with its own business judgment, to
retain its depositors and customers and to preserve its business in its
present form and to preserve for Corporation and The Bank the good will
of the depositors, customers and others having business relations with
Commerce;
(vii) Commerce will duly comply in all material respects with all
laws applicable to it and to the conduct of its business, the failure to
comply with which could have a material adverse effect upon its
business;
(viii) no dividends shall be paid, or distributions made, with
respect to Commerce Stock;
(ix) no loan in excess of $50,000 will be made by Commerce without
providing Corporation with all relevant documents related thereto and
giving Corporation a reasonable opportunity to review such loan and
comment thereon;
(x) no security owned by Commerce will be sold and no new
securities will be purchased without Corporation's approval; and
(xi) the obligations under all employment, severance or other
agreements between Commerce and its employees related to the termination
of such agreements shall not be in excess of the amounts described in
the Employment Agreements attached to the Commerce Disclosure Letter.
(d) Confidentiality. Until the Merger is consummated, Commerce shall
not, without the prior written consent of Corporation and The Bank,
disclose to third parties, and shall use care to assure that its directors,
officers, employees and advisors do not disclose to third parties, any
confidential information, which shall include all information received from
Corporation and The Bank in the course of discussing, investigating,
negotiating and performing the transactions contemplated by this Plan of
Merger, whether such information has been obtained before or after the date
of execution of this Plan of Merger. The term "confidential information"
does not include information which (i) was known to Commerce, its
directors, officers, employees or advisors prior to the time of its
disclosure to Commerce by Corporation or The Bank; (ii) is or becomes
publicly known or available; or (iii) is independently developed or
discovered by Commerce or its directors, officers, employees or advisors
outside of the discussions, investigations, negotiations and performance
contemplated by this Plan of Merger. "Third parties" does not include the
directors, officers, employees or advisors of Corporation and The Bank.
In the event that the Merger is not consummated, or this Plan of
Merger is otherwise terminated, Commerce shall promptly return to
Corporation and The Bank all such confidential information and all copies
thereof, without retaining any copies, or to the extent agreed by
Corporation and The Bank, shall destroy information and documents not to be
returned, including all electronic images and confirm such
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destruction in writing to Corporation and The Bank, and thereafter, all
such information shall continue not to be disclosed by Commerce, or its
directors, officers, employees, agents and advisors to third parties
without the prior written consent of Corporation and The Bank.
(e) No Shopping. Neither Commerce nor any of its officers and
directors, will, and Commerce shall direct and use its best efforts to
cause its employees, agents and representatives, during the period
beginning on the date hereof and ending on the first to occur of (a) the
Effective Time or (b) the termination of this Plan of Merger (i) sell or
arrange for the sale of any Commerce Common Stock, other than as required
by the Commerce employee stock purchase plan; or (ii) negotiate, solicit or
encourage or authorize any person to solicit from any third party any
proposals relating to the merger or consolidation of Commerce, disposition
of the business or assets of Commerce or the acquisition of the capital
stock of Commerce; or (iii) except to the extent legally required for the
discharge by the board of directors of its fiduciary duties, make any
information concerning Commerce available to any person for the purpose of
affecting or causing a merger, consolidation or disposition of Commerce or
its assets or common stock.
(f) Information for Applications and Statements. Commerce shall
furnish all information to Corporation with respect to Commerce as
Corporation may reasonably request for inclusion in the Registration
Statement or the Proxy Statement and shall otherwise cooperate with
Corporation in the preparation and filing of such documents. Commerce shall
furnish to Corporation in a timely manner all information concerning
Commerce required for inclusion in all regulatory applications to be filed,
the Registration Statement and in any other notices or statements to be
made by Corporation to any governmental or regulatory body required to
consummate the Merger and register Corporation's Stock under federal and
state securities laws. The information relating to Commerce included in the
Registration Statement that is furnished by Commerce to Corporation will be
accurate and complete in all material respects, will not omit to state any
material fact required to be stated therein or necessary to prevent such
information from being misleading, and will comply in all material respects
with the requirements of federal law at the date of first mailing of the
Prospectus/Proxy Statement to the shareholders of Commerce.
(g) Shareholder Meeting. Commerce shall take all action necessary in
accordance with applicable law and its articles of incorporation and bylaws
to call, give notice of, convene and hold a meeting of its shareholders
(the "Special Meeting") for the purpose of approving and adopting this Plan
of Merger, the Merger and the transactions contemplated thereby. In
connection therewith, Commerce shall mail to all shareholders of record
entitled to vote at such meeting the Prospectus/Proxy Statement which shall
indicate that the Board of Directors of Commerce has, by resolution,
approved the Merger on the terms and subject to the conditions set forth in
this Plan of Merger. Subject to applicable laws and the fiduciary duties of
its directors, Commerce shall use reasonable efforts to solicit from its
shareholders proxies in favor of such adoption and approval and shall take
all other reasonable action necessary or helpful to secure a vote of its
shareholders in favor of the Merger.
(h) Affiliate's Letter. Commerce shall obtain and deliver to
Corporation prior to the filing of the Registration Statement a signed
letter in the form attached as Exhibit G from each Commerce shareholder who
may be deemed an "affiliate" of Commerce within the meaning of such term as
used in Rule 145 under the Securities Act of 1933.
(i) Transaction Expenses. Commerce shall not, directly or indirectly,
incur expenses greater than $100,000 in connection with this transaction.
(j) Accounting Methods. Commerce shall not change, in any material
respect, its methods of accounting in effect at its most recent fiscal year
end, except as required by changes in generally accepted accounting
principles, if applicable, as concurred by such parties' independent
accountants.
(k) Pooling and Tax-Free Reorganization Treatment. Unless required by
law, Commerce shall not intentionally or knowingly take or cause to be
taken any action, whether on or before the Effective
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Time, which would disqualify the Merger as a "pooling of interests" for
accounting purposes or as a "reorganization" within the meaning of Section
368(a) of the Code.
(l) Other Actions. Unless required by law, Commerce shall not
knowingly or intentionally take any action, or omit to take any action, if
such action or omission would, or reasonably might be expected to, result
in any of its representations and warranties set forth herein being or
becoming untrue in any material respect, or in any of the conditions to the
Merger set forth in this Plan of Merger not being satisfied, or (unless
such action is required by applicable law) which would materially adversely
affect the ability of Commerce or Corporation to obtain any consents or
approvals required for the consummation of the Merger without imposition of
a condition or restriction which would have a material adverse effect on
the Surviving Bank or which would otherwise materially impair the ability
of Commerce, Corporation or The Bank to consummate the Merger in accordance
with the terms of the Plan of Merger or materially delay such consummation.
5.2 Covenants of Corporation and Subsidiary. Corporation and The Bank, as
an inducement to Commerce to enter into this Plan of Merger, covenant that:
(a) Access to Information Concerning Properties and
Records. Corporation and The Bank will give to Commerce and to their
counsel, accountants and other representatives ("advisors"), upon
reasonable notice, during normal business hours throughout the period prior
to the Closing Date, full access to Corporation's and The Bank's books,
records, customer and loan files, contracts, and commitments. For the
period prior to the Effective Time, Corporation and The Bank shall deliver
to Commerce such statements, schedules and reports concerning the business,
operations and financial condition of Corporation and The Bank as are
regularly provided to its Board of Directors at such times as they are
regularly supplied to its Board of Directors. Corporation shall promptly
provide to Commerce copies of any definitive agreement respecting a merger
of Corporation or acquisition by Corporation of any corporation or business
whether by merger, consolidation, purchase of assets or otherwise.
(b) Conduct of Business. Until the Effective Time or the earlier
termination of this Plan of Merger, and except as contemplated by this Plan
of Merger (such as the stock split and increase in authorized shares of
Corporation referred to herein) or disclosed in the Disclosure Letter or as
consented to or otherwise approved by Commerce in writing, which consent or
approval will not be unreasonably withheld;
(i) the business of Corporation and The Bank shall be conducted only
in the ordinary course;
(ii) no change shall be made in the articles of incorporation or
bylaws of Corporation and The Bank;
(iii) Corporation and The Bank shall each use its best efforts,
consistent with conducting its business in accordance with its own
business judgment, to retain its depositors and customers and to
preserve its business in its present form and to preserve for
Corporation and The Bank the good will of the depositors, customers and
others having business relations with Corporation and The Bank; and
(iv) Corporation and The Bank will each duly comply in all material
respects with all laws applicable to it and to the conduct of its
business, the failure to comply with which will have a material adverse
effect upon its business.
(c) Approvals of Regulatory Authorities. As soon as practicable,
Corporation shall file applications with the proper regulatory authorities
for approval of the Merger and the acquisition of Commerce by Corporation
and shall thereafter take all action to obtain the approval of such
regulatory authorities. All of the representations contained in the
applications filed by Corporation and The Bank with regulators with or on
behalf of Commerce, will be, at the time they are made, accurate in all
material respects, except Corporation makes no representation or warranty
as to matters contained therein that are based on information provided by
Commerce. All filings, requests for approval or other submissions for any
regulatory approval shall be made available for review by Commerce prior to
filing.
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(d) Confidentiality. Until the Merger is consummated, Corporation and
The Bank shall not, without the prior written consent of Commerce, disclose
to third parties, and shall use care to assure that their directors,
officers, employees and advisors do not disclose to third parties, any
confidential information, which shall include all information received from
Commerce in the course of discussing, investigating, negotiating and
performing the transactions contemplated by this Plan of Merger, whether
such information has been obtained before or after the date of execution of
this Plan of Merger. The term "confidential information" does not include
information which (i) is known to Corporation or The Bank, or their
directors, officers, employees or advisors, prior to its disclosure to
Corporation or The Bank by Commerce; (ii) is or becomes publicly known or
available; or (iii) is independently developed or discovered by Corporation
or The Bank, or their directors, officers, employees or advisors outside of
the discussions, investigations, negotiations and performance contemplated
by this Plan of Merger. "Third parties" do not include directors, officers,
employees or advisors of Commerce.
In the event that the Merger is not consummated, or this Plan of
Merger is otherwise terminated, Corporation and The Bank shall promptly
return to Commerce all such confidential information and all copies
thereof, without retaining any copies, or to the extent agreed by Commerce,
shall destroy information and documents not to be returned, including all
electronic images, and confirm such destruction in writing to Commerce, and
thereafter, all such information shall continue not to be disclosed by
Corporation and The Bank and their directors, officers, employees or
advisors to third parties without Commerce's written consent.
(e) Registration Statement.
(i) TBC shall prepare and file the Registration Statement with the
SEC and any other applicable regulatory bodies and shall make all
applicable state securities filings and shall take all reasonable steps
necessary to cause the Registration Statement and state filings to be
declared effective and to maintain such effectiveness until all of the
shares of TBC Common Stock covered thereby have been distributed. TBC
shall promptly amend or supplement the Registration Statement to the
extent necessary in order to make the statements therein not misleading
or to correct any statements which have become false or misleading. TBC
shall use its reasonable best efforts to have the Proxy Statement
declared effective by the SEC under the provisions of the Exchange Act.
TBC shall provide Commerce with copies of all filings made pursuant to
this Section and shall consult with Commerce on responses to any
comments made by the Staff of the SEC with respect thereto.
(ii) The information specifically designated as being supplied by
Commerce for inclusion or incorporation by reference in the Registration
Statement shall not, at the time the Registration Statement is declared
effective, at the time the Proxy Statement is first mailed to holders of
Commerce Common Stock, at the time of the Special Meeting and at the
Effective Time, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in
order to make the statements therein, not misleading. The information
specifically designated as being supplied by Commerce for inclusion or
incorporation by reference in the Proxy Statement shall not, at the date
the Proxy Statement (or any amendment thereof or supplement thereto) is
first mailed to holders of Commerce Common Stock, at the time of the
Special Meeting and at the Effective Time, contain any untrue statement
of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they are made, not
misleading. If at any time prior to the Effective Time any event or
circumstance relating to Commerce or its officers or directors should be
discovered by Commerce which should be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement, Commerce
shall promptly inform Corporation. All documents, if any, that Commerce
is responsible for filing with the SEC in connection with the
transactions contemplated hereby will comply as to form and substance in
all material respects with the applicable requirements of the Securities
Act and the Exchange Act and the rules and regulations thereunder.
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(iii) The information specifically designated as being supplied by
TBC for inclusion or incorporation by reference in the Registration
Statement shall not, at the time the Registration Statement is declared
effective, at the time the Proxy Statement is first mailed to holders of
the Commerce Common Stock, at the time of the Special Meeting and at the
Effective Time, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in
order to make the statements therein, not misleading. The information
specifically designated as being supplied by TBC for inclusion or
incorporation by reference in the Proxy Statement in connection with the
Special Meeting shall not, at the date the Proxy Statement (or any
amendment thereof or supplement thereto) is first mailed to holders of
Commerce Common Stock, at the time of the Special Meeting or at the
Effective Time, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in
order to make the statements therein, not misleading. If at any time
prior to the Effective Time any event or circumstance relating to TBC or
its officers or Directors, should be discovered by TBC which should be
set forth in an amendment to the Registration Statement or a supplement
to the Proxy Statement, TBC should promptly inform Commerce and shall
promptly file such amendment to the Registration Statement. All
documents that Corporation is responsible for filing with the SEC in
connection with the transactions contemplated herein will comply as to
form and substance in all material respects with the applicable
requirements of the Securities Act and the Exchange Act and the rules
and regulations thereunder.
(iv) Prior to the Closing Date, TBC shall cause the shares of TBC
Common Stock to be issued in the Merger to be registered or qualified
under all applicable securities or Blue Sky laws of each of the states
and territories of the United States, and to take any other actions
which may be necessary to enable the TBC Common Stock to be issued in
the Merger to be distributed in each such jurisdiction.
(f) Due Diligence. Corporation shall deliver by the Closing Date all
opinions, certificates and other documents required to be delivered by it.
(g) Status Reports. Corporation shall advise Commerce from time to
time regarding Corporation's applications for regulatory approval of the
Merger and the Registration Statement and provide Commerce copies of all
comments, correspondence and approvals to or from regulators in connection
with the applications and Registration Statement, and give Commerce copies
of all regulatory approvals referred to in this Plan of Merger.
(h) Pooling and Tax-Free Reorganization Treatment. Unless required by
law, the Corporation and The Bank shall not intentionally take or cause to
be taken any action, whether on or before the Effective Time, which would
disqualify the Merger as a "pooling of interests" for accounting purposes
or as a "reorganization" within the meaning of Section 368(a) of the Code.
(i) Other Actions. Unless required by law, Corporation and The Bank
shall not knowingly or intentionally take any action, or omit to, take any
action, if such action or omission would, or reasonably might be expected
to, result in any of its representations and warranties set forth herein
being or becoming untrue in any material respect, or in any of the
conditions to the Merger set forth in this Plan of Merger not being
satisfied, or (unless such action is required by applicable law) which
would materially adversely affect the ability of Corporation and The Bank
or Commerce to obtain any consents or approvals required for the
consummation of the Merger without imposition of a condition or restriction
which would have a material adverse effect on the Surviving Bank or which
would otherwise materially impair the ability of Corporation and The Bank
or Commerce to consummate the Merger in accordance with the terms of the
Plan of Merger or materially delay such consummation.
(j) Initial Public Offering. The parties agree to begin immediately
to prepare a registration statement covering both the shares of TBC Common
Stock to be issued in the Merger and the IPO defined below. However, if for
market reasons, the parties agree that the registration statement should
not be filed before April 30, 1998, then at Commerce's option and request,
TBC agrees to file, upon three weeks written notice by Commerce to
Corporation, a registration statement covering TBC Common
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<PAGE> 621
Stock to be issued in the Merger. In any event, if not filed on or before
December 31, 1998, TBC shall file a single registration statement to
register both the shares of TBC Common Stock to be issued in the Merger and
an initial public offering of TBC Common Stock ("IPO") in a minimum amount
of $5 million, not including the Merger Consideration.
(k) Update of Corporation Disclosure Schedule. Upon completion of the
Warrior Merger, the Corporation Disclosure Schedule shall be updated by TBC
to provide accurate information regarding TBC pursuant to the
representations and warranties of Corporation made under Section 4.2 hereof
for the benefit of Commerce. It is intended that such information will not
reveal any material adverse change in the representations and warranties of
Section 4.2 or in the information provided to Commerce in the Corporation
Disclosure Schedule as of the date of this Agreement and absent any such
change shall not give rise to any right to terminate this Agreement.
ARTICLE VI
MISCELLANEOUS
6.1 Termination. This Plan of Merger may be terminated and the Merger
abandoned (either before or after approvals and authorizations by the
shareholders of Commerce contemplated hereby and without seeking further
shareholder approval) at any time prior to the Effective Time only in one of the
following manners:
(a) Mutual Agreement. By mutual written consent of the parties
authorized by their respective Boards of Directors at any time prior to the
Effective Time.
(b) Expiration of Time. By written notice from Commerce to
Corporation or from Corporation to Commerce, if the Closing Date shall not
have occurred on or before March 31, 1999, unless the failure to consummate
the Merger is the result of a willful and material breach of this Plan of
Merger by the party seeking to terminate this Plan of Merger.
(c) Unsatisfied Conditions. By written notice from the Board of
Directors of Commerce to Corporation or from the Board of Directors of
Corporation to Commerce, as the case may be, stating that the party giving
such notice elects to terminate this Plan of Merger and abandon the
transaction contemplated hereunder as of a stated date, which shall not be
less than ten business days after the date on which such notice is given,
because the party providing such notice will be unable, on or before
December 31, 1998, after having exercised all reasonable efforts and
actions, to meet or satisfy one or more specified conditions precedent to
the obligation of the other party to close under this Plan of Merger,
unless the other party waives the satisfaction of such conditions precedent
within such ten-day period. Such failure to satisfy a condition shall not
excuse a party for liability for any breach of this Agreement.
(d) Vote of Commerce Shareholders. By written notice from the Board
of Directors of Corporation if, upon a vote at a duly held meeting of the
shareholders of Commerce or any adjournment thereof, any required approval
of this Plan of Merger and the Merger by the holders of the Commerce Common
Stock shall not have been obtained.
(e) Regulatory/Governmental Approval. By written notice from the
Board of Directors of Commerce to Corporation or from the Board of
Directors of Corporation to Commerce, if any court of competent
jurisdiction or other governmental agency or authority shall have issued an
order, decree or ruling or taken any other action permanently enjoining,
restraining or otherwise prohibiting the Merger and such order, decree,
ruling or other action shall have become final and nonappealable.
6.2 Expenses and Damages. Each party shall pay its own expenses in
connection with the Plan of Merger and the Merger, except that Corporation shall
pay the costs (other than legal, accounting and investment banking costs, which
shall be paid by the party incurring such expense) of preparing the Registration
Statement, but Commerce shall pay the costs of printing and mailing the
Prospectus/Proxy Statement to the Commerce shareholders. Nothing contained in
this Section 6.2 shall be deemed to preclude
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<PAGE> 622
either party from seeking to recover damages which it incurs as a result of a
breach by the other party of this Plan of Merger or to obtain other legal or
equitable relief (including specific performance).
In the event Commerce shall be merged, consolidated or otherwise acquired
by a third party, other than Corporation and The Bank, and said transaction
shall have been agreed to prior to December 31, 1998, Commerce shall pay to
Corporation $195,000, which amount the parties agree is reasonable and full
liquidated damage and reasonable compensation to Corporation for its involvement
in the transaction contemplated by this Plan of Merger and it is not a penalty
or forfeiture.
6.3 No Liability Upon Proper Termination. Upon proper termination by
written notice as provided in Section 6.1 of this Plan of Merger, this Plan of
Merger shall be void and of no further effect, except as set forth in Section
6.2, and there shall be no liability by reason of this Plan of Merger or the
termination thereof on the part of either Corporation, The Bank, Commerce or the
directors, officers, employees, agents or shareholders of any of them, and all
such parties shall be released from all such liability, provided that any such
termination shall not excuse a party for liability for any breach of this
Agreement.
6.4 Amendments. This Plan of Merger may be amended by the parties at any
time before or after any required approval of matters presented in connection
with the Merger by the holders of Commerce Common Stock; provided, however, that
after such approval there shall be made no amendment that pursuant to the ABCA
requires further approval by such shareholders without such further approval.
Subject to the preceding sentence and subject to the performance of the
respective fiduciary obligations of each party, if at any time after the date
hereof, it shall appear that any change or changes in the structure of the
transactions contemplated hereby shall be necessary or desirable to comply with
applicable law, to insure that the transaction is tax deferred to Commerce's
shareholders or to comply with the requirements of regulatory authorities having
jurisdiction over the transactions so as to enable the transactions contemplated
hereby to be consummated, the parties hereto agree to use their reasonable best
efforts to effect such changes in this Plan of Merger and the other documents
contemplated hereby in taking such other actions as may be required to effect
such changes, provided that neither party hereto shall be required to agree to
any change in the amount or form of consideration set forth herein. This Plan of
Merger may not be amended except by an instrument in writing signed on behalf of
each of the parties.
6.5 Survival of Representations, Warranties and Covenants. The respective
representations, warranties, agreements and covenants of the parties in this
Plan of Merger shall survive the Effective Time. Each party shall be deemed to
have relied upon each and every representation and warranty of the other party,
regardless of any investigation heretofore or hereafter made by or on behalf of
such party.
6.6 Board Membership. Prior to the Effective Time, the Board of Directors
of Corporation shall increase the authorized number of directors, and upon the
Effective Time the Board of Directors of Corporation shall appoint four of the
current directors of Commerce as directors of Corporation to fill such
vacancies. For a period of three years following 1998, Corporation's management
shall nominate and recommend as directors of Corporation at least four of the
current directors of Commerce to serve as directions of Corporation, and
Corporation shall use its best efforts to cause the four nominated individuals
to be elected to Corporation's Board of Directors.
6.7 Employee Benefits. All employees of Commerce who continue as employees
of the Surviving Bank after the Merger shall receive service credits for
employment at Commerce prior to the Effective Time for purposes of meeting all
the eligibility requirements and all vesting requirements for all of the
Surviving Bank's benefit programs in which such employees shall become eligible
to participate on or after the Effective Time, including but not limited to
health, retirement, vacation and disability plans. At no expense to the
employee, the Surviving Bank shall provide continuation of medical insurance
coverage through COBRA for pre-existing medical conditions (to the extent such
condition is currently covered under the Commerce plan) to any employee of
Commerce who continues as an employee of Corporation or the Bank, and where such
medical insurance coverages available to such former employees of Commerce who
become employees of Corporation or The Bank would otherwise result in a loss of
such coverage as a result of a change in medical insurance resulting from the
Merger.
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6.8 Benefits of this Plan of Merger. This Plan of Merger and the rights
and obligations of Corporation, The Bank and Commerce hereunder shall not be
assigned by any party to any third party, except with the prior written consent
of the other. This Plan of Merger shall be binding upon and inure to the benefit
of the parties hereto and their respective permitted successors and assigns.
Nothing in this Plan of Merger, expressed or implied, is intended to confer upon
any person, other than the parties hereto, the shareholders of Commerce, and
their respective permitted successors and assigns, any rights or remedies under
or by reason of this Plan of Merger and, except as aforesaid, there are no
third-party beneficiaries of this Plan of Merger.
6.9 Notices. Any notice, request, instruction, legal process or other
instrument to be given or served hereunder by any party to another, shall be
deemed given or served if in writing and delivered personally or sent by
registered or certified mail, postage prepaid, to the respective party or
parties at the following addresses:
If to Corporation:
Mr. James A. Taylor
Chairman of the Board
218 Louisa Street
Warrior, Alabama 35180
With copies to:
Rothgerber, Appel, Powers & Johnson
Attn: William P. Johnson, Esq.
One Tabor Center
1200 17th Street, 30th Floor
Denver, Colorado 80202
and
Haskell Slaughter & Young, L.L.C.
Attn: F. Hampton McFadden, Jr., Esq.
1200 AmSouth/Harbert Plaza
1901 Sixth Avenue North
Birmingham, Alabama 35203
If to Commerce:
Mr. J. Daniel Sizemore
President and Chief Executive Officer
Commerce Bank of Alabama
Post Office Box 460
Albertville, Alabama 35950
With copies to:
Balch & Bingham
Attn: T. Kurt Miller, Esq.
Post Office Box 306
Birmingham, Alabama 35201
and to such other address or addresses as either party may designate to the
other by like notice as set forth above.
6.10 Publicity. Commerce, Corporation and The Bank shall use their best
efforts to have all publicity, press releases and other announcements relating
to this Plan of Merger and the transactions contemplated hereby reviewed in
advance by both Corporation and Commerce and their respective legal counsel.
6.11 Entire Agreement. This Plan of Merger contains the entire agreement
between the parties hereto with respect to the transactions contemplated hereby
and thereby supersedes all prior and contemporaneous
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<PAGE> 624
agreements, understandings, negotiations and discussions, whether oral or
written, of the parties, and there are no warranties, representations, covenants
or other agreements between the parties in connection with the subject matter
hereof except as specifically set forth herein.
6.12 Waiver or Modification. Any party to this Plan of Merger may, at any
time prior to the Effective Time, by action taken by its Board of Directors or
officers thereunto duly authorized, waive any of the terms or conditions of this
Plan of Merger or agree to an amendment or modification to this Plan of Merger
by an agreement in writing executed in the same manner (but not necessarily by
the same persons) as this Plan of Merger. No amendment, modification or waiver
of this Plan of Merger shall be binding unless executed in writing by the party
to be bound thereby. No waiver of any of the provisions of this Plan of Merger
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar), nor shall any waiver constitute a continuing waiver
unless expressly provided. Commerce's Board of Directors may authorize the
amendment or supplementation of this Plan of Merger or waiver of any provision
hereof or thereof, either before or after the approval of Commerce's
shareholders (and without seeking further shareholder approval to the extent
allowed by law), so long as such amendment, supplement or waiver does not result
in the reduction of the consideration given or result in an adverse tax or other
effect to Commerce's shareholders.
6.13 Controlling Law. This Plan of Merger shall be construed in accordance
with the laws of the State of Alabama, except to the extent that federal law is
applicable.
6.14 Counterparts. This Plan of Merger may be executed in any number of
copies, each of which shall be deemed an original, and all of which together
shall be deemed one and the same instrument.
6.15 Knowledge. Whenever the term "knowledge," "best knowledge" or similar
expression is used in this Plan of Merger, it shall mean knowledge of a party's
respective directors and officers.
6.16 No Rule of Construction. The parties acknowledge that this Plan of
Merger was initially prepared by Corporation and that all parties have read and
negotiated the language used in this Plan of Merger. The parties agree that,
because all parties participated in negotiating and drafting this Plan of
Merger, no rule of construction shall apply to this Plan of Merger which
construes ambiguous language in favor of or against any party by reason of that
party's role in drafting this Plan of Merger.
6.17 Binding Effect. This Plan of Merger shall be binding on, and shall
inure to the benefit of, the parties hereto, and their respective successors and
assigns, and no other person shall acquire or have any right under or by virtue
of this Plan of Merger. No party may assign any right or obligation hereunder
without the prior written consent of the other parties.
6.18 Cooperation.
(a) Corporation and Commerce shall together, or pursuant to an
allocation of responsibility agreed to between them, (i) cooperate with one
another in determining whether any filings are required to be made or
consents are required to be obtained in any jurisdiction prior to the
Effective Time in connection with the consummation of the transactions
contemplated hereby; provided that Commerce shall not be obligated by this
section 6.18(a)(i) to expend legal fees or similar expenses in order to
pursue litigation related thereto and cooperate in making any such filings
promptly and in seeking to obtain timely any such consents, (ii) use their
respective best efforts to cause to be lifted any injunction prohibiting
the Merger, or any part thereof, or the other transactions contemplated
hereby, and (iii) furnish to one another and to one another's counsel all
such information as may be required to effect the foregoing actions.
(b) Subject to the terms and conditions herein provided, and unless
this Plan of Merger shall have been validly terminated as provided herein,
each of Corporation and Commerce shall use all reasonable efforts (i) to
take, or cause to be taken, all actions necessary to comply promptly with
all legal requirements which may be imposed on such party (or any
subsidiaries or affiliates of such party) with respect to the Plan of
Merger and to consummate the transactions contemplated hereby and (ii) to
obtain (and to cooperate with the other party to obtain) any consent,
authorization, order or approval of, or any
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<PAGE> 625
exemption by, any governmental entity and/or any other public or private
third party which is required to be obtained or made by such party or any
of its subsidiaries or affiliates in connection with this Plan of Merger
and the transactions contemplated hereby. Each of Corporation and Commerce
will promptly cooperate with and furnish information to the other in
connection with any such burden suffered by, or requirement imposed upon,
either of them or any of their subsidiaries or affiliates in connection
with the foregoing. The parties shall, from time to time, and including as
of and upon the Closing Date, prepare and deliver to each other such
supplements and amendments to their respective disclosure letters as are
necessary or appropriate to assure the accuracy and completeness thereof;
provided that the furnishing of any such supplement shall not modify,
limit, or otherwise affect any representations or warranties of a party
contained in this Agreement or any right of a party to terminate this
Agreement.
IN WITNESS WHEREOF, pursuant to authority duly given by the respective
Boards of Directors of Corporation, The Bank and Commerce, this Plan of Merger
has been signed on behalf of said corporations by their respective Chairman of
the Board, President or Vice President, as the case may be, all on the date,
month and year first written above.
WARRIOR CAPITAL CORPORATION
By: /s/ JAMES A. TAYLOR
------------------------------------
James A. Taylor
Chairman and Chief Executive Officer
THE BANK
By: /s/ JOHNNY WALLIS
------------------------------------
Johnny Wallis
Chief Executive Officer
COMMERCE BANK OF ALABAMA
By: /s/ J. DANIEL SIZEMORE
------------------------------------
J. Daniel Sizemore
President and Chief Executive
Officer
THE BANC CORPORATION
By: /s/ JAMES A. TAYLOR
------------------------------------
James A. Taylor
Chairman of the Board
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<PAGE> 626
ANNEX B
THIRD AMENDED AND RESTATED REORGANIZATION
AGREEMENT AND PLAN OF MERGER
This Third Amended and Restated Reorganization Agreement and Plan of Merger
("Plan of Merger") is entered into as of the 15th day of April, 1998, by and
among Warrior Capital Corporation, an Alabama corporation ("Corporation"), The
Banc Corporation, a Delaware corporation ("TBC"), and First Citizens Bancorp,
Inc., an Alabama corporation ("Bancorp").
RECITALS:
WHEREAS, Corporation is a corporation existing under the laws of the State
of Alabama, with its principal office at 218 Louisa Street, Warrior, Alabama
35180, and is a registered bank holding company through ownership of 99.75% of
the outstanding shares of The Bank, an Alabama corporation ("The Bank").
WHEREAS, Bancorp is a bank existing under the laws of the State of Alabama,
having its principal offices at 915 South Alabama Avenue, Monroeville, Alabama
36461, and is a registered bank holding company through ownership of First
Citizens Bank of Monroe County ("FCB").
WHEREAS, prior to the Effective Time, Corporation will reincorporate via
merger with and into TBC (the "Warrior Merger"), with the separate corporate
existence of Corporation terminating upon the Effective Time of the Merger.
WHEREAS, Corporation has entered into that certain Third Amended and
Restated Reorganization Agreement and Plan of Merger, dated as of April 6, 1998,
by and between Commerce Bank of Alabama, an Alabama corporation ("Commerce"),
pursuant to which Commerce shall be merged with and into The Bank, a
wholly-owned subsidiary of TBC.
WHEREAS, Corporation has entered into that certain Second Amended and
Restated Reorganization Agreement and Plan of Merger, dated as of June 16, 1998,
by and between Corporation and City National Corporation, an Alabama corporation
("CNC"), pursuant to which CNC shall be merged with and into TBC, and TBC shall
be the surviving corporation.
WHEREAS, TBC has entered into that certain Reorganization Agreement and
Plan of Merger, dated as of June 2, 1998, by and between TBC and Emerald Coast
Bancshares, Inc., a Florida bank holding company ("Emerald"), pursuant to which
Emerald shall be merged with and into TBC, and TBC shall be the surviving
corporation.
WHEREAS, the respective Boards of Directors of Corporation and Bancorp have
determined that it is in the best interests and welfare of Corporation and
Bancorp and in the best interests of their respective shareholders that
Corporation and Bancorp merge on the terms and conditions hereinafter set forth.
WHEREAS, the respective Boards of Directors of Corporation and Bancorp
have, by resolutions, approved and authorized the execution and delivery of this
Plan of Merger and the merger of Bancorp with and into Corporation (the
"Merger") on the terms and conditions set forth herein.
WHEREAS, Corporation and Bancorp desire to merge in a transaction intended
to qualify as a tax-free reorganization under the provisions of Sections
368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue Code of 1986, as amended
(the "Code").
WHEREAS, the parties intend that this Plan of Merger shall constitute a
plan of reorganization as that term is used in Sections 354 and 361 of the Code.
WHEREAS, for accounting purposes, it is intended that the Merger be
accounted for as a "pooling of interests."
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<PAGE> 627
WHEREAS, TBC joins in this Plan of Merger to affirm and acknowledge the
obligations of Corporation that TBC will assume all of the obligations,
agreements, representations and warranties of Corporation by operation of law
subsequent to the Warrior Merger.
THEREFORE, in consideration of the mutual covenants, promises, agreements
and provisions contained herein and subject to the satisfaction of the terms and
conditions set forth herein, and intending to be legally bound hereby,
Corporation and Bancorp agree as follows:
ARTICLE I
PRINCIPAL TERMS OF THE MERGER
1.1 The Merger. Upon the terms and conditions of this Plan of Merger,
including the receipt of all requisite governmental and shareholder approvals,
and in accordance with the General Corporation Law of the State of Delaware (the
"DGCL"), the Alabama Business Corporation Act (the "ABCA") and the Alabama
Banking Code ("the ABC"), the acquisition of Bancorp by Corporation will be
carried out in the following manner:
(a) Bancorp will cooperate in the preparation and filing by
Corporation of such applications to the Board of Governors of the Federal
Reserve System (the "Fed"), the Alabama State Banking Department (the
"Department"), the Federal Deposit Insurance Corporation (the "FDIC") and
other regulatory authorities as may be necessary to obtain all governmental
approvals requisite to the consummation of the Merger;
(b) TBC, Corporation and Bancorp will each cooperate in preparing and
filing a registration statement (the "Registration Statement") pursuant to
the Securities Act of 1933 (the "1933 Act") for the common stock of TBC
(the "TBC Common Stock") to be issued in the Merger, which Registration
Statement will include a prospectus for the TBC Common Stock and a proxy
statement for the meeting of shareholders of Bancorp to approve the Merger
(collectively, the "Prospectus/Proxy Statement") and use their respective
best efforts to consummate the transactions contemplated by this Plan of
Merger;
(c) Bancorp shall call a meeting of its shareholders to approve the
Merger and, except as otherwise provided herein, shall solicit proxies to
vote in favor of the Merger.
(d) Subject to the provisions of this Plan of Merger, Articles of
Merger and a Certificate of Merger, substantially in the form of Exhibits B
and C, shall be duly executed and, on the Closing Date (as defined in
Section 1.2 hereof) or as soon thereafter as reasonably practicable, filed
with the Alabama Secretary of State in accordance with the ABCA and the
Delaware Secretary of State in accordance with the DGCL. Upon the issuance
of the certificate of approval (the "Certificate of Approval") from the
Superintendent of the Department, as required by Section 5-7A-4 of the ABC,
a copy of the Certificate of Approval shall be forwarded to the Alabama
Secretary of State for filing. The Merger shall become effective upon the
filing of the Articles of Merger and the Certificate of Approval with the
Alabama Secretary of State and the Certificate of Merger with the Delaware
Secretary of State (the "Effective Time").
(e) At the Effective Time, Bancorp shall merge with and into TBC. The
separate existence of Bancorp shall cease, and TBC shall continue as the
surviving entity (TBC, in its capacity as the corporation surviving the
Merger, is hereinafter sometimes referred to as the "Surviving
Corporation"). It is anticipated that First Citizens Bank of Monroe County,
an Alabama corporation and wholly-owned subsidiary of Bancorp, will be
merged with and into The Bank, an Alabama corporation and wholly-owned
subsidiary of TBC, simultaneously with the Merger.
(f) For each outstanding share of Bancorp common stock, $.01 par value
(the "Bancorp Common Stock"), held immediately prior to the Effective Time,
the shareholders of Bancorp (except those exercising their dissenters
rights of appraisal, as described in Section 2.3), will receive
consideration equal to the number of shares of TBC Common Stock which
shall, at and upon the Effective Time, comprise 6.01% of the issued and
outstanding shares of TBC Common Stock and represent 6.01% of the
shareholders' equity of TBC determined according to GAAP, divided by the
number of shares of Bancorp
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Common Stock issued and outstanding at and upon the Effective Time (the
"Exchange Ratio"). The Exchange Ratio shall be calculated giving effect to
the proposed acquisition of Commerce, the proposed acquisition of Emerald
and the proposed acquisition of CNC, but the total number of shares of TBC
Common Stock to be issued in the Merger shall not be decreased if one or
more of such acquisitions does not close. The Exchange Ratio shall be
calculated prior to, and excluding the effect of, the IPO (as described in
Section 5.2(j) of this Agreement). Any amendment to the Exchange Ratio as a
result of a proposed acquisition of another financial institution by TBC,
if agreed upon or proposed to close prior to the Effective Time, shall be
subject to the approval of Bancorp, provided that Bancorp shall consider
such proposal in good faith and not withhold its reasonable consent. Cash
will be paid in lieu of the issuance of fractional shares equal to $4.74
per share. As of the Effective Time, by virtue of the Merger and without
any action on the part of any holder of shares of Bancorp Common Stock,
each share of the Bancorp Common Stock issued and outstanding immediately
prior to the Effective Time shall cease to be outstanding and shall
automatically be canceled and retired, and each of the certificates
previously evidencing Bancorp Common Stock outstanding immediately prior to
the Effective Time shall thereafter be deemed, for all purposes, to
represent that number of shares of TBC Common Stock determined pursuant to
this Section 1.1(f), and, if applicable, the right to receive cash pursuant
to this Section 1.1(f). The holders of Bancorp Common Stock shall cease to
have any rights with respect to such shares except as otherwise provided
herein or by law.
(g) The Exchange Ratio described in 1.1(f) shall be amended to reflect
any TBC stock split or stock dividend or reclassification (a "Stock
Event"), so that, at the Effective Time, each Bancorp shareholder (except
those effectively exercising their dissenters rights of appraisal, as
described in Section 2.3) shall be entitled to receive a number of shares
of TBC Common Stock equal to what such shareholder would have received if
the shares of TBC Common Stock had been issued immediately prior to the
Stock Event. Any amendment to the Exchange Ratio resulting from a proposed
acquisition of another financial institution by TBC which is proposed to be
agreed upon prior to the Effective Time shall be subject to the approval of
Bancorp, provided that Bancorp shall consider the proposal in good faith
and shall not unreasonably withhold its consent. Bancorp's consent to a
proposed acquisition shall be agreed upon in writing and executed by the
President of Bancorp.
1.2 The Closing. The closing of the Merger (the "Closing") shall be no
later than the second business day following the satisfaction of the conditions
specified in Article III of this Plan of Merger (the "Closing Date"). The
Closing Date may be extended from time to time by the mutual agreement of the
parties. The Closing shall take place at 10:00 a.m. at the board room of TBC on
the Closing Date or at such other place as the parties may agree. At the
Closing, the parties shall exchange the various agreements, certificates,
instruments and documents to be delivered pursuant to the terms of this Plan of
Merger.
1.3 The Surviving Corporation. The Merger shall have the effect provided
in Section 5-7A-2 of the ABC, Section 10-2B-11.06 of the ABCA and Section 259 of
the DGCL. At the Effective Time, Bancorp shall cease to exist and TBC will be
the "Surviving Corporation." The articles of incorporation and bylaws of TBC in
effect immediately prior to the Effective Time will remain the articles of
incorporation and bylaws of the Surviving Corporation until amended or repealed
in accordance with their provisions and applicable law. The combined
capitalization of Bancorp and Corporation immediately prior to the Effective
Time shall be the capitalization of the Surviving Corporation until changed by
resolution of the Board of Directors or by action of its shareholders. Except as
provided or described in Section 3.1(e) and in Section 6.6 the directors and
officers of Corporation immediately prior to the Effective Time shall be the
directors and officers of the Surviving Corporation after the Effective Time
until their successors have been elected or qualified or until their resignation
or removal according to law and the bylaws of the Surviving Corporation.
ARTICLE II
DISTRIBUTIONS TO BANCORP SHAREHOLDERS
2.1 Delivery of Merger Consideration. On the Closing Date, TBC shall
deliver to the Surviving Corporation the TBC Common Stock to be paid to Bancorp
shareholders hereunder and cash in an amount
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necessary to pay for fractional shares (the "Merger Consideration"). Any
interest earned on such cash while in the hands of the Surviving Corporation
shall be the property of TBC. The Surviving Corporation subsequently shall
deliver to the holders of certificates evidencing ownership of Bancorp Common
Stock, immediately upon receipt from the holders thereof of such certificates,
duly executed and in proper form for transfer, the Merger Consideration to which
they are entitled pursuant to the following provisions:
(a) As soon as practical after the Effective Time, the Surviving
Corporation shall send a notice and transmittal form to each record holder
of a certificate evidencing Bancorp Common Stock, advising such holder of
the Merger and the procedure for surrendering to Bancorp such certificate
in exchange for such holder's pro rata share of the Merger Consideration.
Each holder of such certificate, upon surrender of the same to the
Surviving Corporation in accordance with such transmittal form, shall be
entitled to receive such holder's pro rata share of the Merger
Consideration.
(b) No transfer taxes shall be payable by any holder of record of
Bancorp Common Stock at the Effective Time in respect of the exchange of
certificates for the Merger Consideration. If the Merger Consideration for
the Bancorp Common Stock provided for herein is to be delivered to any
person other than the registered holder of the Bancorp Common Stock
surrendered for exchange, the amount of any stock-transfer or similar taxes
(whether imposed on the holder of record or such person) payable on account
of the transfer to such person shall be paid to the Surviving Corporation
by such person. The Surviving Corporation may refuse to make such exchange
unless satisfactory evidence of the payment of such taxes or exemption
therefrom is submitted.
(c) After the Effective Time, each outstanding certificate which
theretofore represented Bancorp Common Stock shall, until surrendered for
exchange in accordance with this Section 2.1, be deemed for all purposes to
evidence only the right to receive the Merger Consideration. After the
Effective Time, there shall be no further registration or transfer of
Bancorp Common Stock. No dividends or other distributions which are
declared on Corporation Common Stock will be paid to persons otherwise
entitled to receive the same until the certificates representing Bancorp
Common Stock have been surrendered in the manner herein provided, but upon
such surrender, such dividends or other distributions, from and after the
Effective Time, will be paid to such persons. In no event shall the persons
entitled to receive such dividends or other distributions be entitled to
receive interest on such dividends or other distributions.
(d) Any portion of the Merger Consideration deposited with Bancorp
that remains unclaimed by the former holders of Bancorp Common Stock one
hundred eighty (180) days after the Effective Time shall be repaid or
returned to Corporation upon demand, and holders of Bancorp Common Stock
who have not theretofore complied with this Section 2.1 shall there after
look only to Corporation for payment of their claim for the Merger
Consideration.
(e) Notwithstanding anything to the contrary set forth herein, if any
holder of Bancorp Common Stock shall be unable to surrender his or her
certificates because such certificates have been lost or destroyed, such
holder may deliver in lieu thereof an indemnity bond in form and substance
and with surety satisfactory to Corporation.
(f) >The Surviving Corporation shall not be entitled to vote or
exercise any rights of ownership with respect to the shares of TBC Common
Stock held by it from time to time here under, except that it shall receive
and hold all dividends or other distributions paid or distributed with
respect to such shares of TBC Common Stock for the account of the persons
entitled thereto.
2.2 Stock Options. Bancorp currently has outstanding options for the
purchase of 5,000 shares of Bancorp Common Stock. Prior to the Effective Time,
the holder of the options shall exercise all of said options at a price of
$28.96 per share and Bancorp shall terminate its stock option plan.
2.3 Dissenting Shareholders. Any shares of Bancorp stock held by persons
who have perfected their dissenters rights under the ABCA, and have not
effectively withdrawn or lost their dissenters rights under the ABCA, shall not
be converted pursuant to this Plan of Merger but shall be entitled only to such
rights as are granted them by the dissenters rights provisions of the ABCA.
Dissenting shareholders entitled to payment for
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shares of Bancorp stock pursuant to the Alabama dissenters rights statute shall
receive payment from TBC in an amount as determined pursuant to the ABCA.
ARTICLE III
CONDITIONS
3.1 Mutual Conditions. The obligations of Bancorp and Corporation under
this Plan of Merger are subject to and conditioned upon the satisfaction, prior
to the Closing Date, of each of the following conditions except as both Bancorp
and Corporation may waive in writing:
(a) Effective Registration Statement. The Registration Statement
shall have been declared effective and shall not be subject to a stop order
of the Securities and Exchange Commission (the "SEC"), and all applicable
state blue sky laws shall have been complied with.
(b) No Litigation. No suit, action, claim or other proceeding shall
have been threatened or pending before any court, administrative or
governmental agency which, in the reasonable opinion of Bancorp or
Corporation, presents a significant risk of restraint or prohibition of the
transactions contemplated hereby or the attainment of material damages or
other relief against Bancorp or its shareholders or Corporation or its
shareholders in connection therewith.
(c) Shareholder Approval. The holders of two-thirds of the
outstanding shares of Bancorp Common Stock shall have approved the Merger.
(d) Approvals. Receipt of all authorizations, approvals and/or
consents of any third parties as well as the expiration of applicable
waiting periods, including federal or state governmental and/or regulatory
bodies and officials, necessary for the consummation of this Plan of Merger
and for the continuation in all material respects of the business of
Corporation, The Bank and Bancorp, without interruption after the Effective
Time, in substantially the manner in which such business is now conducted
shall have been received, and no such authorizations or approvals shall
contain any conditions or restrictions that Corporation reasonably believes
will materially restrict or limit the business or activities of Corporation
or The Bank or have a material adverse effect on their businesses,
operations or financial conditions taken as a whole.
(e) Employment Agreement. Corporation shall have entered into an
employment agreement with John F. Gittings substantially in the form of
Exhibit C hereto.
3.2 Conditions in Favor of Bancorp. All obligations of Bancorp under this
Plan of Merger are subject to and conditioned upon the satisfaction, prior to
the Closing Date, of each of the following conditions except as Bancorp may
waive in writing:
(a) Material Adverse Change. Since the date of this Plan of Merger,
there have been no material adverse changes, occurrences or developments in
the business of Corporation that have, or would be expected to have, a
material adverse effect on the business, operations or financial condition
of Corporation and Bancorp shall not have discovered any fact or
circumstance not disclosed by Corporation prior to the date of this Plan of
Merger that has resulted in, or could reasonably be expected to result in,
a material adverse effect on the business, operations or financial
condition of Corporation.
(b) Federal Tax Opinion. An opinion of Balch & Bingham, LLP shall
have been received by Bancorp 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 Bancorp Common Stock for TBC
Common Stock will not give rise to gain or loss to the shareholders of
Bancorp with respect to such exchange (except to the extent of any cash
received), and
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(iii) neither Bancorp nor Corporation 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 Code).
In rendering such tax opinion, counsel for Bancorp shall be
entitled to rely upon representations of officers of Bancorp reasonably
satisfactory in form and substance to such counsel.
(c) Representations, Warranties and Agreements. Each representation and
warranty of Corporation and The Bank contained in this Plan of Merger or in
any written statement listed on Schedule 3.2(c), including without
limitation, financial statements, disclosure letters, deeds, exhibits,
certificates, schedules or other documents delivered pursuant hereto or in
connection with the transactions contemplated hereby, that is qualified as
to materiality shall be true and correct, and each representation and
warranty that is not so qualified shall be true and correct in all material
respects, as of the date of the Plan of Merger and at the Closing Date as
if then made, except to the extent that any such representation and
warranty expressly relates to an earlier date (in which case any such
representation and warranty that is qualified as to materiality shall be
true and correct, and any such representation that is not so qualified
shall be true and correct in all material respects, as of such earlier
date). Corporation and The Bank shall have per formed and complied with all
covenants, agreements and conditions required by this Plan of Merger to be
performed or complied in all material respects with by them, or either of
them, prior to or at the Closing Date.
(d) Officers' Certificate. Receipt by Bancorp of certificates in form
and content satisfactory to Bancorp from the President and the Chief
Financial Officer of Corporation, or the President and Chief Financial
Officer of TBC as applicable, dated the Closing Date, to the effect that
the representations and warranties made herein by Corporation and The Bank
or TBC as applicable on the date hereof and on the Closing Date are true
and correct as set forth in Section 3.2(c) and that Corporation and The
Bank have performed the covenants, obligations and agreements undertaken by
them herein in all material respects.
(e) Legal Opinion. Receipt by Bancorp of an opinion of Haskell
Slaughter & Young, L.L.C., legal counsel for Corporation, substantially in
the form attached hereto as Exhibit 3.2(e). In addition, counsel may rely
on representations and certificates of officers and directors of
Corporation and The Bank and certificates of public officials. Such opinion
shall be subject to reasonable and customary qualifications.
(f) Accountant's Letter. Bancorp shall have received from Ernst &
Young LLP a letter dated the effective date of the Registration Statement
and the Closing Date, in form and substance reasonably satisfactory to
Bancorp and customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the Registration Statement and pooling of interests transactions
similar to the Merger.
(g) Authorization of Merger. All actions necessary to authorize the
execution, delivery and performance of this Plan of Merger by Corporation
and the consummation of the transactions contemplated hereby shall have
been duly and validly taken by the Board of Directors and shareholders, as
applicable, of Corporation, and Corporation shall have full power and right
to merge with Bancorp pursuant to the Merger Agreement.
(h) Fairness Opinion. Bancorp shall have received a fairness opinion
that the transaction is fair from a financial point of view to its
shareholders. The fairness opinion shall be delivered by an investment
banking firm for inclusion in the Prospectus/Proxy Statement and shall be
rendered by a firm chosen by Bancorp and acceptable to Corporation.
Corporation shall not unreasonably withhold its opinion as to
acceptability.
(i) Proper Actions and Documentation. All actions required to be
taken by Corporation and The Bank in connection with the transactions
contemplated by this Plan of Merger shall have been taken, and all
documents incidental thereto shall be in a form and substance reasonably
satisfactory to Bancorp, and Bancorp shall have received copies of all
documents that it may have reasonably requested in connection with such
transactions.
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(j) Minimum Equity. Corporation shall have shareholders equity at the
Effective Time of not less than $27,707,970, exclusive of costs associated
with this transaction and determined in accordance with GAAP.
(k) Environmental Report. Bancorp shall have the right, in its
discretion and at its sole expense, to arrange with an environmental
consultant to prepare an environmental report based on the consultant's
inspection of the properties owned or leased by Corporation or upon which
Corporation has a mortgage, lien or other interest, and based on
investigation of records relating to such properties in the files of
Corporation or any government agency. Such inspections, investigations and
reports shall be concluded no later than thirty (30) days after the date of
this Plan of Merger. If such reports indicate an absence of Hazardous
Materials (as defined in Section 4.1(m) hereof) on such properties, this
Section 3.2(l) shall be deemed satisfied. If, however, such reports
indicate the presence of Hazardous Materials on such properties, Bancorp
shall have the right to investigate those properties further, and Bancorp
shall have the right to negotiate with Corporation concerning the
appropriate allocation of costs for any remediation indicated by such
reports, prior to the Closing Date. In the event that Bancorp reasonably
believes that any such Hazardous Materials have a material adverse effect
upon Corporation, or would have a material adverse effect upon Bancorp if
the Merger were consummated, then Bancorp's sole remedy shall be to
terminate this Merger Agreement at its option.
(l) Commerce Acquisition. Corporation shall have completed the
acquisition of Commerce pursuant to the terms of the Second Amended and
Restated Reorganization Agreement and Plan of Merger dated April 6, 1998
between Corporation, The Bank and Commerce.
3.3 Conditions in Favor of Corporation. All obligations of Corporation
under this Plan of Merger are subject to and shall be conditioned upon the
satisfaction, prior to or on the Closing Date, of each of the following
conditions except as Corporation may waive such conditions in writing:
(a) Material Adverse Change. Since the date of this Plan of Merger
there have been no material adverse changes, occurrences or developments in
the business of Bancorp that have, or would be expected to have, a material
adverse effect on the business, operations or financial condition of
Bancorp and Corporation shall not have discovered any fact or circumstance
not disclosed by Bancorp prior to the date of this Plan of Merger that has
resulted in, or could reason ably be expected to result in, a material
adverse effect on the business, operations or financial condition of
Bancorp.
(b) Representations, Warranties and Agreements. Each representation
and warranty of Bancorp contained in this Plan of Merger or in any written
statement listed on Schedule 3.3(b), including, without limitation,
financial statements, disclosure letters, deeds, exhibits, certificates,
schedules or other documents delivered pursuant hereto or in connection
with the transactions contemplated hereby, that is qualified as to
materiality shall be true and correct, and each representation and warranty
that is not so qualified shall be true and correct in all material
respects, as of the date of the Plan of Merger and at the Closing Date as
if then made, except to the extent that any such representation and
warranty expressly relates to an earlier date (in which case any such
representation and warranty that is qualified as to materiality shall be
true and correct, and any such representation that is not so qualified
shall be true and correct in all material respects, as of such earlier
date). Bancorp shall have performed and complied with all covenants,
agreements and conditions required by this Plan of Merger to be performed
or complied with in all material respects by it prior to or at the Closing
Date.
(c) Officer's Certificate. Receipt by Corporation of a certificate in
form and content satisfactory to it from the President and the Cashier of
Bancorp, dated the Closing Date, to the effect that the representations and
warranties made herein by Bancorp on the date hereof, and on the Closing
Date, are true and correct as set forth in Section 3.3(b), and that Bancorp
has performed the covenants, obligations and agreements undertaken by it
herein in all material respects.
(d) Secretary's Certificate. Corporation shall have received in form
and content satisfactory to it a certificate of the Secretary or an
Assistant Secretary of Bancorp to the effect that all necessary approvals
of the Merger by the Board of Directors and shareholders of Bancorp were
obtained at meetings duly
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called for such purposes and as to the incumbency of all corporate officers
of Bancorp at all relevant times.
(e) Legal Opinion. Receipt by Corporation of an opinion of Bancorp's
legal counsel, Balch & Bingham, LLP substantially in the form attached as
Exhibit 3.3(e). In addition, such counsel may rely on representations and
certificates of officers and directors of Bancorp and certificates of
public officials. Such opinion shall be subject to reasonable and customary
qualifications.
(f) Dissenter's Rights. Holders of not more than ten percent (10%) of
the out standing shares of Bancorp Stock shall have voted against approval
of, or given notice in writing to Bancorp at or prior to the Bancorp
shareholders' meeting that he or she dissents from, the transactions
contemplated by the Plan of Merger and the Merger Agreement.
(g) Environmental Report. Corporation shall have the right, in its
discretion and at its sole expense, to arrange with an environmental
consultant to prepare an environmental report based on the consultant's
inspection of the properties owned or leased by Bancorp or upon which
Bancorp has a mortgage, lien or other interest, and based on investigation
of records relating to such properties in the files of Bancorp or any
government agency. Such inspections, investigations and reports shall be
concluded no later than thirty (30) days after the date of this Plan of
Merger. If such reports (copies of which shall be furnished to Bancorp)
indicate an absence of Hazardous Materials (as defined in Section 4.1(m)
hereof) on such properties, or on other properties where such Hazardous
Materials endanger the Bancorp properties, this Section 3.3(g) shall be
deemed satisfied. If, however, such reports (copies of which shall be
furnished to Bancorp) indicate the presence of Hazardous Materials on such
properties, Corporation shall have the right to investigate those
properties further, and Corporation shall have the right to negotiate with
Bancorp concerning the appropriate allocation of costs for any remediation
indicated by such reports, prior to the Closing Date. In the event that
Corporation reasonably believes that any such Hazardous Materials have a
material adverse effect upon Bancorp, or would have a material adverse
effect upon Corporation if the Merger were consummated, then Corporation's
sole remedy shall be to terminate this Merger Agreement at its option.
(h) Accountant's Letter. Corporation shall have received from Ernst &
Young LLP a letter dated the effective date of the Registration Statement
and the Closing Date, in form and substance reasonably satisfactory to
Corporation and customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the Registration Statement and pooling of interests transactions
similar to the Merger.
(i) Proper Actions and Documentation. All actions required to be
taken by Bancorp by this Plan of Merger shall have been taken or satisfied
in all material respects, and all documents incidental thereto shall be in
a form and substance reasonably satisfactory to Corporation and its
counsel, and Corporation shall have received copies of all documents that
they may have reasonably requested in connection with such transactions.
(j) Minimum Equity. Bancorp shall have shareholders equity at the
Effective Time of not less than $3,141,564.00, excluding costs associated
with this transaction, and determined in accordance with GAAP.
(k) Voting Agreements. The directors of Bancorp shall have entered
into Voting Agreements in the form attached as Exhibit A whereby they each
agree to vote for the Merger.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of Bancorp. Except as set forth in its
Disclosure Letter delivered to Corporation (the "Bancorp Disclosure Letter")
simultaneously with the execution hereof, Bancorp hereby represents and warrants
to Corporation, as of the date hereof and up to and including the Closing Date
as follows (all representations and warranties by Bancorp include its
subsidiaries):
(a) Organization of Bancorp. Bancorp is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Alabama, with full corporate power and authority, and possesses all
material governmental, regulatory and other permits, licenses and
authorizations necessary to carry on its business as now conducted and to
own and operate the properties and assets it owns or operates, to enter
into this Plan of Merger and the Merger and to perform its obligations
thereunder. Bancorp is duly qualified or licensed to transact business as a
foreign corporation in good standing in the states and foreign
jurisdictions where the character of its assets or the nature or conduct of
the 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 the business, operations, properties, or assets, or the
condition, financial or otherwise, of Bancorp. The deposit accounts of FCB
are insured by the Federal Deposit Insurance Corporation (the "FDIC") to
the full extent permitted under applicable law and the rules and
regulations of the FDIC.
(b) Bancorp Capital Stock.
(i) Bancorp's authorized capital stock consists of 10,000,000
shares of common stock ($1.00 par value), of which 75,000 shares are
outstanding, all of which are validly issued, fully paid and
non-assessable.
(ii) Other than FCB, Bancorp does not own directly, beneficially or
of record, more than five percent of the outstanding stock of any other
corporation and does not otherwise control any company or bank.
(iii) There are outstanding Bancorp Options to purchase 5,000
shares of Bancorp Common Stock issued under the Bancorp stock option
plan (the "Option Plan"). The Bancorp Options have been granted to the
persons named in Bancorp's Disclosure Letter. The Bancorp Options have
been validly authorized and issued pursuant to the terms of the Option
Plan, and the Option Plan has been adopted by a properly adopted
resolution of Bancorp's Board of Directors. Other than the Bancorp
Options, Bancorp has no outstanding securities convertible into shares
of capital stock or existing options, warrants, calls, commitments or
other rights of any character granted or entered into by Bancorp
relating to its authorized, issued or unissued capital stock, and no
such rights will be granted or entered into.
(iv) There are no outstanding or unsatisfied preemptive rights or
rights of first refusal with respect to Bancorp's capital stock.
(v) No shares of Bancorp's capital stock will be issued between the
date hereof and the Effective Time except for shares issued as a result
of the exercise of, or in exchange for, outstanding Bancorp Options
under the Option Plan as provided for in Section 2.2.
(vi) Attached to the Bancorp Disclosure Letter are copies, as of
the date of such letter, of Bancorp's articles of incorporation and
bylaws, both certified to be complete and correct by the Cashier or
Secretary of Bancorp, the same to remain unchanged up to the Effective
Time.
(c) Subsidiaries and Assets. Bancorp (other than FCB) does not have
any direct or indirect subsidiaries and does not have any interest in any
partnership, firm, association, corporation or joint venture other than
investment securities purchased and loans made in the regular and usual
course of its business.
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(d) Financial Statements. Bancorp has delivered, or will deliver when
prepared, to Corporation audited balance sheets of Bancorp as of December
31, 1996 and 1997, the related statements of operations, changes in
shareholders' equity and changes in financial position or statements of
cash flows for the periods then ended, and the related notes and related
opinions thereon as applicable (the "Bancorp Financial Statements"). The
Bancorp Financial Statements, as and when prepared, (i) present fairly the
financial condition of Bancorp as of the respective dates indicated and the
results of operations, the changes in shareholders equity, the changes in
financial position and cash flows for the respective periods indicated;
(ii) have been prepared in accordance with generally accepted accounting
principles ("GAAP") as to audited statements and in a manner consistent
with past practice as to unaudited statements; (iii) contain and reflect
reserves for all material accrued liabilities and for all reasonably
anticipated losses, including but not limited to appropriate reserves for
loan and lease losses; and (iv) are based on the books and records of
Bancorp and FCB.
(e) Absence of Undisclosed Liabilities. Except as and to the extent
reflected or reserved against in the Bancorp Financial Statements or
disclosed in the Disclosure Letter, Bancorp has no material liabilities or
obligations whether accrued, absolute, contingent or otherwise, including
governmental charges or lawsuits, or any tax liabilities due or to become
due and whether (i) incurred in respect of or measured by the income of
Bancorp for any period up to the close of business on the respective dates
of the Bancorp Financial Statements, or (ii) arising out of transactions
entered into, or any state of facts existing, prior thereto. Bancorp does
not have any liabilities or obligations, either accrued or contingent,
which are material to Bancorp and which have not been either (i) reflected
or disclosed in the Bancorp Financial Statements for the year ended
December 31, 1997; or (ii) incurred subsequent to December 31, 1997, in the
ordinary course of business.
(f) Absence of Certain Changes or Events. Since December 31, 1997,
there has not been:
(i) any material adverse change in the condition (financial or
otherwise), assets, liabilities or business of Bancorp;
(ii) any material adverse change in the character of the assets or
liabilities of Bancorp;
(iii) any capital improvements, except for ordinary maintenance and
repairs, or any purchase of property by Bancorp at a cost in excess of
$25,000 other than supplies in the ordinary course of business;
(iv) any physical damage, destruction or loss not covered by
insurance exceeding $25,000 in value or affecting in a material and
adverse way the property, assets, business or prospects of Bancorp;
(v) any material change in the accounting methods or practices of
Bancorp unless required by regulation or GAAP;
(vi) any material change in the capital structure of Bancorp other
than as a result of the exercise of the Bancorp Options;
(vii) any loss incurred or determined to be probable for Bancorp as
a result of environmental problems which has or would be expected to
have a material adverse effect on the financial position of Bancorp; or
(viii) any increase in the compensation payable or to become
payable by Bancorp to any officer or employee or any bonus, except
bonuses accrued and reflected on the December 31, 1997 Bancorp Financial
Statements, percentage compensation, service award or other like
benefit, granted, made or accrued or credited to any officer or employee
or any pension, retirement or deferred compensation payment agreed to,
other than in accordance with preexisting plans or normal and customary
annual salary reviews and adjustments and promotional increases.
(g) Tax Matters. Bancorp has filed all federal, state, municipal and
local income, excise, property, special district, sales, transfer and other
tax returns and reports of information statements that are
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required to be filed and has paid all taxes that have become due pursuant
to such returns or pursuant to any assessment that has become payable. The
returns filed by Bancorp have been and will be accurately and properly
prepared. To the extent that any tax liability or assessment has accrued,
but has not yet become payable or has been proposed for assessment or
determination but remains unpaid, the same has been reflected as a
liability on the books and records of Bancorp and the Bancorp Financial
Statements subject to normal year-end adjustments. Since December 31, 1997,
Bancorp has not incurred any liability with respect to any such taxes
except for normal taxes incurred in the ordinary and regular course of its
business. Bancorp has not executed or filed with the Internal Revenue
Service or any other taxing authority any agreement extending the period
for the assessment or collection of any income taxes. There are no
examinations, reviews, audits or investigations of any tax return or report
of Bancorp that are presently pending or threatened, and Bancorp is not a
party to any pending action or proceeding by any governmental authority for
assessment or collection of income taxes.
(h) Title to Properties; Absence of Liens and Encumbrances;
Enforceability of Leases.
(i) Except as to property indicated in the Bancorp Disclosure
Letter as being leased or mortgaged, Bancorp has good and marketable
title to its assets, real and personal (including those reflected in the
Bancorp Financial Statements, except for loans and investments and as
thereafter sold or otherwise disposed of in the ordinary course of
business and for adequate consideration), free and clear of all material
mortgages, pledges, liens, charges and encumbrances, except (A)
investment securities that are pledged to secure the deposit of public
monies or monies under the control of any court, (B) the lien of taxes
not yet due and payable or being contested in good faith by appropriate
proceedings, and (C) such imperfections of title and encumbrances, if
any, and such liens, if any, incidental to the conduct of Bancorp's
business or the ownership of its assets as are not material in amount
and do not affect the value of, or interfere with the present use of,
Bancorp's assets or otherwise materially impair its operations.
(ii) To the best knowledge of Bancorp, the structures and equipment
owned or used by Bancorp comply in all material respects with applicable
laws, regulations and ordinances and are in good operating condition,
subject to ordinary wear and tear.
(iii) The real property, if any, leased by Bancorp is held by it
under valid and enforceable leases. Bancorp is not in material default
under any such leases.
(i) Legal Proceedings. There are no material claims, actions, suits,
proceedings or investigations pending, or to the best knowledge of Bancorp,
threatened by or against or otherwise affecting Bancorp or its assets,
business or properties, or the transactions contemplated by the Plan of
Merger, or its directors, officers or employees in reference to actions
taken by them in such capacity at law or in equity, or before or by any
federal, state, municipal or other government department, commission,
board, agency, instrumentality or authority, nor to Bancorp's knowledge is
there any valid basis for any such action, proceeding or investigation,
other than (i) claims by Bancorp in the ordinary course of its business for
the recovery of loans or protection of its interest as a secured or
unsecured creditor, and (ii) claims fully covered by insurance. To the best
knowledge of Bancorp, it is in compliance in all material respects with
laws, ordinances, rules, regulations, orders, licenses and permits that are
applicable to its business as now conducted, and it is not in material
default under any thereof.
(j) Authority Relative to This Plan of Merger.
(i) Bancorp has the requisite corporate power and authority to
enter into this Plan of Merger and perform its obligations hereunder,
subject to the required vote of its shareholders and to obtaining the
regulatory approvals and other consents contemplated by this Plan of
Merger.
(ii) The execution, delivery and performance of this Plan of Merger
by Bancorp has been duly authorized and approved by the Board of
Directors of Bancorp, subject to the required vote of its shareholders,
and subject to obtaining the regulatory approvals and other consents
contemplated by this Plan of Merger.
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(iii) This Plan of Merger has been duly executed and delivered by
Bancorp and constitutes a valid and binding obligation of Bancorp
enforceable in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, reorganization, insolvency,
moratorium or other similar laws affecting creditors' rights generally
and principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
(iv) The consummation of the transactions contemplated by this Plan
of Merger will not in any material respect conflict with, violate or
result in a material breach of or material default in any (A) term,
condition or provision of the articles of incorporation or bylaws of
Bancorp; (B) applicable law, rule, regulation or order of any court or
governmental agency; or (C) material agreement, lease, mortgage, note,
contract or commitment of any kind, oral or written, to which Bancorp is
a party or by which its properties may be bound.
(k) Information Furnished to Corporation. The documents furnished by
Bancorp to Corporation (the "Bancorp Documents"), including but not limited
to the Bancorp Disclosure Letter and the Bancorp Financial Statements, are
true and complete copies of such documents and do not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. There is no fact
that Bancorp has not disclosed in the Bancorp Documents or otherwise to
Corporation in writing which materially and adversely affects the
properties, business, prospects, profits or condition (financial or
otherwise) of Bancorp or the ability of Bancorp to perform this Plan of
Merger, except that Bancorp makes no representation or warranty as to the
effect of general economic conditions, the condition of the financial
markets, future legislation or future regulatory action.
(l) Employee Benefit Plans.
(i) True, accurate and complete copies of all pension plans,
retirement plans, profit-sharing plans, stock option plans, deferred
compensation agreements, collective bargaining agreements, insurance
plans or any other similar employee benefit plans, agreements or
arrangements of Bancorp (the "Plans") have been furnished to
Corporation.
(ii) Each Plan which is intended to provide tax-deferred benefits
under any provision of the Code meets all requirements that must be met
in order for such tax-deferred benefits to be available. There has been
no change in any of the documents delivered to Corporation under which
each Plan is maintained and no change, since each Plan's most recent
valuation date, in the operation of the Plan which could be expected to
adversely affect or alter the tax status of, or materially increase the
cost of maintaining, any such Plan.
(iii) The reporting and disclosure requirements of the Employee
Retirement Income Security Act of 1974 ("ERISA") and the Code, as
applicable, and the group health plan continuation coverage requirements
of the Code and ERISA have been fulfilled in all material respects.
Bancorp has furnished to Corporation copies of all filings, if any, with
the Internal Revenue Service and the Department of Labor or other
applicable authority for each Plan's most recent plan year. The fair
market value of the assets of each such Plan (if any) is at least equal
to the present value of all liabilities of such Plan had such Plan been
terminated as of the date of the end of the Plan Year preceding the date
of this Plan of Merger.
(iv) Neither Bancorp, any of the Plans, any of the trusts created
under any Plan nor any trustee, administrator or other fiduciary of a
Plan has, to their best knowledge, engaged in a "prohibited
transaction," as such term is defined in the applicable provisions of
the Code or of ERISA, or otherwise taken or omitted any action which
could subject the Plans, Bancorp, any of the trusts created under a Plan
or any trustee or administrator thereof, or any party dealing with such
Plans or trusts, to a material tax or penalty on prohibited transactions
imposed by ERISA or the Code or otherwise, and neither Bancorp, any
Plan, any trust created under a Plan nor any other fiduciary of any Plan
or its attendant trust has breached its fiduciary duties under ERISA in
a
B-12
<PAGE> 638
manner which could result in a direct or indirect material liability to
Bancorp, or the trustee or administrator of any Plan.
(v) The Pension Benefit Guaranty Corporation has not instituted
proceedings to terminate (or appoint a trustee to administer) any Plan,
and no event has occurred or condition exists which might constitute
grounds under ERISA for the termination of (or the appointment of a
trustee to administer) any such Plan.
(vi) The minimum funding requirements under the Code and ERISA have
been satisfied with respect to each such Plan.
(m) Environmental Protection.
(i) None of the assets of Bancorp (defined for purposes of this
subsection as the real property and tangible personal property owned or
leased by Bancorp as of the date of this Plan of Merger and as of the
Effective Time) contain any hazardous materials, defined as any
substance whose nature and/or quantity or existence, use, manufacture or
effect render it subject to federal, state or local regulation as
potentially injurious to public health or welfare, including, without
limitation, friable asbestos or PCBs ("Hazardous Materials"), other than
in such quantities which are incidental and customary for the
maintenance and operation of such assets, e.g., cleaning fluids
("Incidental Quantities").
(ii) No notice or other communication has been received from any
governmental agency having jurisdiction over Bancorp or to the best
knowledge of Bancorp from any other person, with respect to any alleged
violation by Bancorp of any federal, state or local laws, rules,
regulations, ordinances and codes governing Hazardous Materials and
which are applicable to the assets of Bancorp.
(iii) All Hazardous Materials which have been remediated from any
assets of Bancorp prior to or during their ownership by Bancorp have
been handled in compliance with all applicable laws.
(iv) To Bancorp's best knowledge, no collateral securing any loan
made by Bancorp, as of the date of this Plan of Merger and as of the
Effective Time, contains any Hazardous Materials, other than in
Incidental Quantities.
(n) Material Contract Defaults. Bancorp is not in default in any
material respect under the terms of any outstanding material contract,
agreement, lease or other commitment, which would have a material adverse
effect on the business, operations, properties or assets, or the condition,
financial or otherwise, of Bancorp or under its articles of incorporation
or bylaws, and no event has occurred which, with notice or lapse of time,
or both, may be or become a material default of any such contract,
agreement, lease or other commitment or under the articles of incorporation
or bylaws of Bancorp.
(o) Brokers and Finders. Neither Bancorp nor any of its officers,
directors or employees have employed any broker or finder or incurred any
liability for any financial advisory, brokerage or finders fees or
commissions and no broker or finder has acted directly or indirectly for
Bancorp in connection with this Plan of Merger or the transactions
contemplated hereby.
4.2 Representations and Warranties of Corporation. Except as set forth in
its Disclosure Letter delivered to Bancorp (the "Corporation Disclosure Letter")
simultaneously with the execution hereof, Corporation hereby represents and
warrants to Bancorp as of the date hereof and up to and including the Closing
Date as follows (all representations and warranties by Corporation include its
subsidiaries):
(a) Organization. Corporation is a corporation duly organized,
validly existing and in good standing under the laws of Alabama, with full
corporate power and authority, and possesses all material governmental,
regulatory and other permits, licenses and other authorization, necessary
to carry on its business as now conducted and to own and operate the
properties and assets it owns or operates, to enter into this Plan of
Merger and the Merger and to perform its obligations thereunder.
Corporation is duly qualified or licensed to transact business as a foreign
corporation in good standing in the states and foreign
B-13
<PAGE> 639
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 the business, operations, properties, or assets, or the
condition, financial or otherwise, of Corporation. Corporation has
delivered to Bancorp complete and correct copies of its articles of
incorporation and bylaws, in each case amended through the date of this
Plan of Merger. The deposit accounts of The Bank are insured by the FDIC to
the full extent permitted under applicable law and the rules and
regulations of the FDIC.
(b) Corporation Capital Stock.
(i) The authorized capital stock of Corporation consists of (x)
30,000 shares of common stock of which 18,160 shares of common stock are
issued and outstanding and (y) 1,476 shares of preferred stock of which
no shares are issued and outstanding. Corporation Common Stock issued in
this Merger will be, when issued, duly authorized, validly issued, fully
paid and nonassessable. The Corporation Disclosure Letter will be
revised following the Warrior Merger to update this representation and
warranty for TBC.
(ii) Other than The Bank, Corporation does not own directly or
indirectly, beneficially or of record, more than five percent of the
outstanding stock of any other corporation and does not otherwise
control any company or bank.
(iii) There are not, and as of the Effective Time and thereafter
there will not be, outstanding securities convertible into or
exercisable or exchangeable for Corporation Common Stock or
Corporation's preferred stock.
(iv) There are no outstanding or unsatisfied preemptive rights or
rights of first refusal with respect to Corporation Common Stock or
Corporation's preferred stock.
(v) Except as disclosed to Bancorp in the Corporation Disclosure
Letter, as of the date of this Agreement there are, and as of the
Closing Date and thereafter there will be, no outstanding agreements,
arrangements, or understandings of any kind, to which Corporation is a
party, affecting or relating to the voting, issuance, purchase,
redemption, repurchase, or transfer of the Corporation Common Stock or
any other securities of Corporation or The Bank.
(vi) Attached to the Corporation Disclosure Letter are copies, as
of the date of such letter, of Corporation's articles of incorporation
and bylaws, certified to be complete and correct by the Cashier of such
entity, the same to remain unchanged up to the Effective Time.
(c) TBC Capital Stock. The authorized capital stock of TBC consists
of 25,000,000 shares of common stock, par value $.001, and 5,000,000 shares
of preferred stock, par value $.001. TBC will issue 5,448,000 shares of
common stock in the Warrior Merger such that immediately prior to the
Effective Time, not subject to the Commerce, City National or Emerald
Mergers, there will be 5,448,000 shares of TBC issued and outstanding.
(d) Subsidiaries and Assets. Corporation (except for The Bank) does
not have any direct or indirect subsidiaries and does not have any interest
in any partnership, firm, association, corporation, or joint venture other
than investment securities purchased and loans made in the regular and
usual course of its business.
(e) Financial Statements. Corporation has delivered or will deliver
when pre pared to Bancorp audited balance sheets of Corporation as of
December 31, 1997, and the related statements of operations, changes in
shareholders' equity, and changes in financial position or statements of
cash flows for the year then ended, and the related notes and related
opinions thereon as applicable ("Corporation Financial Statements").
Corporation Financial Statements, as and when prepared, (i) present fairly
the financial condition of Corporation and The Bank as of the date
indicated and the results of operations, the changes in shareholders
equity, the changes in financial position and cash flows for the respective
periods indicated; (ii) have been prepared in accordance with generally
accepted accounting principles ("GAAP") as to audited statements and in a
manner consistent with past practice as to unaudited
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<PAGE> 640
statements; (iii) contain and reflect reserves for all material accrued
liabilities and for all reasonably anticipated losses, including but not
limited to appropriate reserves for loan and lease losses; and (iv) are
based on the books and records of Corporation.
(f) Absence of Undisclosed Liabilities. Except as and to the extent
reflected or reserved against in Corporation Financial Statements or
disclosed in the Corporation Disclosure Letter, Corporation has no material
liabilities or obligations whether accrued, absolute, contingent or
otherwise, including, governmental charges or lawsuits, or any tax
liabilities due or to become due and whether (i) incurred in respect of or
measured by the income of Corporation for any period up to the close of
business on the respective dates of the Corporation Financial Statements,
or (ii) arising out of transactions entered into, or any state of facts
existing, prior thereto. Corporation has no liabilities or obligations,
either accrued or contingent, which are material to Corporation and which
have not been either (i) reflected or disclosed in the audited financial
statements of Corporation for the year ended December 31, 1997 and provided
to Bancorp in writing; or (ii) incurred subsequent to December 31, 1997, in
the ordinary course of business.
(g) Absence of Certain Changes or Events. Since December 31, 1997,
there has not been:
(i) any material adverse change in the condition (financial or
otherwise), of the assets, liabilities or business of Corporation;
(ii) any material adverse change in the character of the assets or
liabilities of Corporation;
(iii) any capital improvements, except for ordinary maintenance and
repairs, or any purchase of property by Corporation at a cost in excess
of $25,000 other than supplies in the ordinary course of business;
(iv) any physical damage, destruction or loss not covered by
insurance exceeding $25,000 in value or affecting in a material and
adverse way the property, assets, business or prospects of Corporation;
(v) any material change in the accounting methods or practices of
Corporation unless required by law or GAAP;
(vi) any material change in the capital structure of Corporation;
(vii) any loss incurred or determined to be probable for
Corporation or The Bank as a result of environmental problems which has
or would be expected to have a material adverse effect on the financial
position of Corporation; or
(viii) any increase in the compensation payable or to become
payable by Corporation to any officer or employee or any bonus, except
bonuses accrued and reflected on the December 31, 1997 Corporation
Financial Statements, percentage compensation, service award or other
like benefit, granted, made or accrued or credited to any officer or
employee or any pension, retirement, or deferred compensation payment
agreed to, other than in accordance with preexisting plans or normal and
customary annual salary reviews and adjustments and promotional
increases.
(h) Tax Matters. Corporation has filed all federal, state, municipal
and local income, excise, property, special district, sales, transfer and
other tax returns and reports of information statements that are required
to be filed and have paid all taxes that have become due pursuant to such
returns or pursuant to any assessment that has become payable. The returns
filed by Corporation have been and will be accurately and properly
prepared. To the extent that any tax liability or assessment has accrued,
but has not yet become payable or has been proposed for assessment or
determination but remains unpaid, the same has been reflected as a
liability on the books and records of Corporation and the Corporation
Financial Statements subject to normal year-end adjustments. Since December
31, 1997, Corporation has not incurred any liability with respect to any
such taxes except for normal taxes incurred in the ordinary and regular
course of its business. Corporation has not executed or filed with the
Internal Revenue Service or any other taxing authority any agreement
extending the period for assessment or collection of any income taxes.
There are no examinations, reviews, audits or investigations of any tax
B-15
<PAGE> 641
return or report of Corporation that is presently pending or threatened,
and Corporation is not a party to any pending action or proceeding by any
governmental authority for assessment or collection of income taxes.
(i) Title to Properties; Absence of Liens and Encumbrances, Leases
Enforceable.
(i) Except as to property indicated in the Corporation Disclosure
Letter as being leased or mortgaged, Corporation has good and marketable
title to its assets, real and personal (including those reflected in
Corporation Financial Statements, except for loans and investments as
thereafter sold or otherwise disposed of in the ordinary course of
business and for adequate consideration), free and clear of all material
mortgages, pledges, liens, charges and encumbrances, except (A)
investment securities that are pledged to secure the deposit of public
monies or monies under the control of any court, (B) the lien of taxes
not yet due and payable or being contested in good faith by appropriate
proceedings, and (C) such imperfections of title and encumbrances, if
any, and such liens, if any, incidental to the conduct of Corporation's
business or the ownership of its assets as are not material in amount
and do not affect the value of, or interfere with the present use of,
Corporation's assets or otherwise materially impair its operations.
(ii) To the best knowledge of Corporation, the structures and
equipment owned or used by Corporation comply in all material respects
with applicable laws, regulations and ordinances and are in good
operating condition, subject to ordinary wear and tear.
(iii) The real property, if any, leased by Corporation is held by
it under valid and enforceable leases. Corporation is not in material
default under any such leases.
(j) Legal Proceedings. There are no material claims, actions, suits,
proceedings or investigations pending, or to the best knowledge of
Corporation, threatened, by or against, or otherwise affecting Corporation
or its assets, business or properties, or the transactions contemplated by
the Plan of Merger, or its directors, officers or employees in reference to
actions taken by it in such capacity at law or in equity, or before or by
any federal, state, municipal or other government department, commission,
board, agency, instrumentality or authority, nor to Corporation's knowledge
is there any valid basis for any such action, proceeding or investigation,
other than (i) claims by Corporation in the ordinary course of its business
for the recovery of loans or protection of its interest as a secured or
unsecured creditor, and (ii) claims fully covered by insurance. To the best
knowledge of Corporation, Corporation is in compliance in all material
respects with laws, ordinances, rules, regulations, orders, licenses and
permits that are applicable to its business as now conducted and is not in
material default under any thereof.
(k) Authority Relative to This Plan of Merger.
(i) Corporation has the requisite corporate power and authority to
enter into this Plan of Merger and perform its obligations hereunder.
(ii) The execution, delivery and performance of this Plan of Merger
by Corporation has been duly authorized and approved by the Board of
Directors of Corporation, subject to the required vote of its
shareholders, and subject to obtaining the regulatory approvals and
other consents contemplated by this Plan of Merger.
(iii) This Plan of Merger has been duly executed and delivered by
Corporation and constitutes a valid and binding obligation of
Corporation enforceable in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, reorganization,
insolvency, moratorium or other similar laws affecting creditors' rights
generally and principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(iv) The consummation of the transactions contemplated by this Plan
of Merger will not in any material respect conflict with, violate or
result in a material breach of or material default in any (A) term,
condition or provision of the articles of incorporation or bylaws of
Corporation; (B) applicable law, rule, regulation or order of any court
or governmental agency; or (C) material
B-16
<PAGE> 642
agreement, lease, mortgage, note, contract or commitment of any kind,
oral or written, to which Corporation is a party or by which its
properties may be bound.
(l) Information Furnished to Bancorp. The documents furnished by
Corporation to Bancorp (the "Corporation Documents"), including but not
limited to the Corporation Disclosure Letter and the Corporation Financial
Statements, are true and complete copies of such documents and do not
contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements made therein, in the light
of the circumstances under which they were made, not misleading. There is
no fact that Corporation has not disclosed in the Corporation Documents or
Corporation Disclosure Letter in writing which materially and adversely
affects the properties, business, prospects, profits or condition
(financial or otherwise) of Corporation or the ability of Corporation to
perform this Plan of Merger, except that Corporation makes no
representation or warranty as to the effect of general economic conditions,
the condition of the financial markets, future legislation or future
regulatory action.
(m) Employee Benefit Plans.
(i) True, accurate and complete copies of all pension plans,
retirement plans, profit-sharing plans, stock option plans, deferred
compensation agreements, collective bar gaining agreements, insurance
plans or any other similar employee benefit plans, agreements or
arrangements of Corporation (the "Plans") have been furnished to
Bancorp.
(ii) Each Plan which is intended to provide tax-deferred benefits
under any provision of the Code meets all requirements that must be met
in order for such tax-deferred benefits to be available. There has been
no change in any of the documents delivered to Bancorp under which each
Plan is maintained and no change, since each Plan's most recent
valuation date, in the operation of the Plan which could be expected to
adversely affect or alter the tax status of, or materially increase the
cost of maintaining, any such Plan.
(iii) The reporting and disclosure requirements of the Employee
Retirement Income Security Act of 1974 ("ERISA") and the Code, as
applicable, and the group health plan continuation coverage requirements
of the Code and ERISA have been fulfilled in all material respects.
Corporation has furnished to Bancorp copies of all filings, if any, with
the Internal Revenue Service and the Department of Labor or other
applicable authority for each Plan's most recent plan year. The fair
market value of the assets of each such Plan (if any) is at least equal
to the present value of all liabilities of such Plan had such Plan been
terminated as of the date of the end of the Plan Year preceding the date
of this Plan of Merger.
(iv) Neither Corporation, any of the Plans, any of the trusts
created under any Plan nor any trustee, administrator or other fiduciary
of a Plan has, to their best knowledge, engaged in a "prohibited
transaction," as such term is defined in the applicable provisions of
the Code or of ERISA, or otherwise taken or omitted any action which
could subject the Plans, Corporation, any of the trusts created under a
Plan or any trustee or administrator thereof, or any party dealing with
such Plans or trusts, to a material tax or penalty on prohibited
transactions imposed by ERISA or the Code or otherwise, and neither
Corporation, any Plan, any trust created under a Plan nor any other
fiduciary of any Plan or its attendant trust has breached its fiduciary
duties under ERISA in a manner which could result in a direct or
indirect material liability to Corporation, or the trustee or
administrator of any Plan.
(v) The Pension Benefit Guaranty Corporation has not instituted
proceedings to terminate (or appoint a trustee to administer) any Plan,
and no event has occurred or condition exists which might constitute
grounds under ERISA for the termination of (or the appointment of a
trustee to administer) any such Plan.
(vi) The minimum funding requirements under the Code and ERISA have
been satisfied with respect to each such Plan.
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<PAGE> 643
(n) Environmental Protection.
(i) None of the assets of Corporation (defined for purposes of this
subsection as the real property and tangible personal property owned or
leased by Corporation or The Bank as of the date of this Plan of Merger
and as of the Effective Time) contain any hazardous materials, defined
as any substance whose nature and/or quantity or existence, use,
manufacture or effect render it subject to federal, state or local
regulation as potentially injurious to public health or welfare,
including, without limitation, friable asbestos or PCBs ("Hazardous
Materials"), other than in such quantities which are incidental and
customary for the maintenance and operation of such assets, e.g.,
cleaning fluids ("Incidental Quantities").
(ii) No notice or other communication has been received from any
governmental agency having jurisdiction over Corporation or The Bank or
to their best knowledge from any other person, with respect to any
alleged violation by Corporation of any federal, state or local laws,
rules, regulations, ordinances and codes governing Hazardous Materials
and which are applicable to the assets of Corporation.
(iii) All Hazardous Materials which have been remediated from any
assets of Corporation prior to or during their ownership by Corporation
have been handled in compliance with all applicable laws.
(iv) >To Corporation's best knowledge, no collateral securing any
loan made by Corporation, as of the date of this Plan of Merger and as
of the Effective Time, contains any Hazardous Materials, other than in
Incidental Quantities.
(o) Material Contract Defaults. Corporation is not in default in any
material respect under the terms of any outstanding material contract,
agreement, lease or other commitment, which would have a material adverse
effect on the business, operations, properties or assets, or the condition,
financial or otherwise, of Corporation or under its articles of association
or bylaws and no event has occurred which, with notice or lapse of time, or
both, may be or become a material default of any such contract, agreement,
lease or other commitment or under the articles of association or bylaws of
Corporation.
(p) Brokers and Finders. Neither Corporation nor any of its officers,
directors or employees have employed any broker or finder or incurred any
liability for any financial advisory, brokerage or finders fees or
commissions and no broker or finder has acted directly or indirectly for
Corporation in connection with this Plan of Merger or the transactions
contemplated hereby.
ARTICLE V
COVENANTS
5.1 Covenants of Bancorp. Bancorp, as an inducement for Corporation to
enter into this Plan of Merger, covenants that:
(a) Access to Information Concerning Properties and Records. Bancorp
will give to Corporation and to its counsel, accountants and other
representatives ("advisors"), upon reasonable notice, during normal
business hours throughout the period prior to the Closing Date, full access
to Bancorp's books, records, customer and loan files, contracts and
commitments. For the period prior to the Effective Time, Bancorp shall
deliver to Corporation such statements, schedules and reports concerning
the business, operations and financial condition of Bancorp as are
regularly provided to its Board of Directors at such times as they are
regularly supplied to its Board of Directors.
(b) Preservation of Business. From the date of this Agreement,
Bancorp will use its reasonable best efforts to preserve the business
organization of Bancorp intact, to keep available to Corporation and the
Surviving Corporation the services of the present employees of Bancorp, and
to preserve for Corporation and the Surviving Corporation the goodwill of
the suppliers, customers and others having business relations with Bancorp.
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(c) Conduct of Business. Until the Effective Time or the earlier
termination of this Plan of Merger, and except as contemplated by this Plan
of Merger or disclosed in the Disclosure Letter or as consented to or
otherwise approved by Corporation in writing, which consent or approval
will not be unreasonably withheld:
(i) the business of Bancorp shall be conducted only in the ordinary
course which, without limitation, shall include using its best efforts
to maintain in force the insurance policies now in effect, or insurance
policies providing substantially the same coverage to the extent such
coverage remains available to Bancorp with acceptable limitations and at
a reasonable cost;
(ii) no change shall be made in the articles of incorporation or
bylaws of Bancorp;
(iii) except as a result of the cancellation or exercise of Bancorp
Options granted pursuant to Bancorp's Option Plan as contemplated
herein, no change shall be made in the number of shares of capital stock
of Bancorp issued and outstanding, nor shall any option, warrant, call,
convertible security, commitment or other right be granted or made by
Bancorp relating to its authorized or issued capital stock;
(iv) except in the ordinary course of business as previously
conducted, no purchase order, contract or commitment (other than
deposits, loan commitments and investments or the sale of other real
estate owned in the ordinary course of business of Bancorp) shall be
entered into by or on behalf of Bancorp extending for more than one year
or involving payment by Bancorp of more than $25,000 in any one contract
or related series of contracts or otherwise materially affecting its
business;
(v) except as provided in Section 3.1(e), no employment agreement
or other agreement will be entered into with any employee of Bancorp and
no Bancorp employee's salary or benefits will be increased except for
normal annual increases as agreed to by Corporation in writing and no
employee benefit plan will be modified or amended;
(vi) Bancorp shall use its best efforts, consistent with conducting
its business in accordance with its own business judgment, to retain its
depositors and customers and to preserve its business in its present
form and to preserve for Corporation and The Bank the good will of the
depositors, customers and others having business relations with Bancorp;
(vii) Bancorp will duly comply in all material respects with all
laws applicable to it and to the conduct of its business, the failure to
comply with which could have a material adverse effect upon its
business;
(viii) no dividends shall be paid, or distributions made, with
respect to Bancorp Stock;
(ix) no loan in excess of $50,000 will be made by Bancorp without
providing Corporation with all relevant documents related thereto and
giving Corporation a reasonable opportunity to review such loan and
comment thereon;
(x) no security owned by Bancorp will be sold and no new securities
will be purchased without Corporation's approval; and
(xi) the obligations under all employment, severance or other
agreements between Bancorp and its employees related to the termination
of such agreements shall not be in excess of the amounts described in
the Employment Agreements attached to the Bancorp Disclosure Letter.
(d) Confidentiality. Until the Merger is consummated, Bancorp shall
not, with out the prior written consent of Corporation, disclose to third
parties, and shall use care to assure that its directors, officers,
employees and advisors do not disclose to third parties, any confidential
information, which shall include all information received from Corporation
in the course of discus sing, investigating, negotiating and performing the
transactions contemplated by this Plan of Merger, whether such information
has been obtained before or after the date of execution of this Plan of
Merger. The term "confidential information" does not include information
which (i) was known to Bancorp, its directors, officers, employees or
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advisors prior to the time of its disclosure to Bancorp by Corporation;
(ii) is or becomes publicly known or available; or (iii) is independently
developed or discovered by Bancorp or its directors, officers, employees or
advisors outside of the discussions, investigations, negotiations and
performance contemplated by this Plan of Merger. "Third parties" does not
include the directors, officers, employees or advisors of Corporation.
In the event that the Merger is not consummated, or this Plan of
Merger is otherwise terminated, Bancorp shall promptly return to
Corporation all such confidential information and all copies thereof,
without retaining any copies, or to the extent agreed by Corporation, shall
destroy information and documents not to be returned, including all
electronic images and confirm such destruction in writing to Corporation,
and thereafter, all such information shall continue not to be disclosed by
Bancorp, or its directors, officers, employees, agents and advisors to
third parties without the prior written consent of Corporation.
(e) No Shopping. Neither Bancorp nor any of its officers and
directors, will, and Bancorp shall direct and use its best efforts to cause
its employees, agents and representatives, during the period beginning on
the date hereof and ending on the first to occur of (a) the Effective Time
or (b) the termination of this Plan of Merger (i) sell or arrange for the
sale of any Bancorp Common Stock, other than as required by the Bancorp
employee stock purchase plan; or (ii) negotiate, solicit or encourage or
authorize any person to solicit from any third party any proposals relating
to the merger or consolidation of Bancorp, disposition of the business or
assets of Bancorp or the acquisition of the capital stock of Bancorp; or
(iii) except to the extent legally required for the discharge by the board
of directors of its fiduciary duties, make any information concerning
Bancorp available to any person for the purpose of affecting or causing a
merger, consolidation or disposition of Bancorp or its assets or common
stock.
(f) Information for Applications and Statements. Bancorp shall
furnish all information to Corporation with respect to Bancorp as
Corporation may reasonably request for inclusion in the Registration
Statement or the Proxy Statement and shall otherwise cooperate with
Corporation in the preparation and filing of such documents. Bancorp shall
furnish to Corporation in a timely manner all information concerning
Bancorp required for inclusion in all regulatory applications to be filed,
the Registration Statement and in any other notices or statements to be
made by Corporation to any governmental or regulatory body required to
consummate the Merger and register Corporation's Stock under federal and
state securities laws. The information relating to Bancorp included in the
Registration Statement that is furnished by Bancorp to Corporation will be
accurate and complete in all material respects, will not omit to state any
material fact required to be stated therein or necessary to prevent such
information from being misleading, and will comply in all material respects
with the requirements of federal law at the date of first mailing of the
Prospectus/Proxy Statement to the shareholders of Bancorp.
(g) Shareholder Meeting. Bancorp shall take all action necessary in
accordance with applicable law and its articles of incorporation and bylaws
to call, give notice of, convene and hold a meeting of its shareholders
(the "Special Meeting") for the purpose of approving and adopting this Plan
of Merger, the Merger and the transactions contemplated thereby. In
connection therewith, Bancorp shall mail to all shareholders of record
entitled to vote at such meeting the Prospectus/Proxy Statement which shall
indicate that the Board of Directors of Bancorp has, by resolution,
approved the Merger on the terms and subject to the conditions set forth in
this Plan of Merger. Subject to applicable laws and the fiduciary duties of
its directors, Bancorp shall use reasonable efforts to solicit from its
shareholders proxies in favor of such adoption and approval and shall take
all other reasonable action necessary or helpful to secure a vote of its
shareholders in favor of the Merger.
(h) Affiliate's Letter. Bancorp shall obtain and deliver to
Corporation prior to the filing of the Registration Statement a signed
letter in the form attached as Exhibit G from each Bancorp shareholder who
may be deemed an "affiliate" of Bancorp within the meaning of such term as
used in Rule 145 under the Securities Act of 1933.
(i) Transaction Expenses. Bancorp shall not, directly or indirectly,
incur expenses greater than $100,000 in connection with this transaction.
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(i) Accounting Methods. Bancorp shall not change, in any material
respect, its methods of accounting in effect at its most recent fiscal year
end, except as required by changes in generally accepted accounting
principles, if applicable, as concurred by such parties' independent
accountants.
(j) Pooling and Tax-Free Reorganization Treatment. Unless required by
law, Bancorp shall not intentionally or knowingly take or cause to be taken
any action, whether on or before the Effective Time, which would disqualify
the Merger as a "pooling of interests" for accounting purposes or as a
"reorganization" within the meaning of Section 368(a) of the Code.
(k) Other Actions. Unless required by law, Bancorp shall not
knowingly or intentionally take any action, or omit to take any action, if
such action or omission would, or reasonably might be expected to, result
in any of its representations and warranties set forth herein being or
becoming untrue in any material respect, or in any of the conditions to the
Merger set forth in this Plan of Merger not being satisfied, or (unless
such action is required by applicable law) which would materially adversely
affect the ability of Bancorp or Corporation to obtain any consents or
approvals required for the consummation of the Merger without imposition of
a condition or restriction which would have a material adverse effect on
the Surviving Corporation or which would otherwise materially impair the
ability of Bancorp or Corporation to consummate the Merger in accordance
with the terms of the Plan of Merger or materially delay such consummation.
5.2 Covenants of Corporation. Corporation, as an inducement to Bancorp to
enter into this Plan of Merger, covenants that:
(a) Access to Information Concerning Properties and
Records. Corporation will give to Bancorp and to their counsel,
accountants and other representatives ("advisors"), upon reasonable notice,
during normal business hours throughout the period prior to the Closing
Date, full access to Corporation's books, records, customer and loan files,
contracts, and commitments. For the period prior to the Effective Time,
Corporation shall deliver to Bancorp such statements, schedules and reports
concerning the business, operations and financial condition of Corporation
as are regularly provided to its Board of Directors at such times as they
are regularly supplied to its Board of Directors. Corporation shall
promptly provide to Bancorp copies of any definitive agreement respecting a
merger of Corporation or acquisition by Corporation of any corporation or
business whether by merger, consolidation, purchase of assets or otherwise.
(b) Conduct of Business. Until the Effective Time or the earlier
termination of this Plan of Merger, and except as contemplated by this Plan
of Merger (such as the stock split and increase in authorized shares of
Corporation referred to herein) or disclosed in the Disclosure Letter or as
consented to or otherwise approved by Bancorp in writing, which consent or
approval will not be unreasonably withheld;
(i) the business of Corporation shall be conducted only in the
ordinary course;
(ii) no change shall be made in the articles of incorporation or
bylaws of Corporation;
(iii) Corporation shall use its best efforts, consistent with
conducting its business in accordance with its own business judgment, to
retain its depositors and customers and to preserve its business in its
present form and to preserve for Corporation the good will of the
depositors, customers and others having business relations with
Corporation; and
(iv) Corporation will duly comply in all material respects with all
laws applicable to it and to the conduct of its business, the failure to
comply with which will have a material adverse effect upon its business.
(c) Approvals of Regulatory Authorities. As soon as practicable,
Corporation shall file applications with the proper regulatory authorities
for approval of the Merger and the acquisition of Bancorp by Corporation
and shall thereafter take all action to obtain the approval of such
regulatory authorities. All of the representations contained in the
applications filed by Corporation with regulators with or on behalf of
Bancorp, will be, at the time they are made, accurate in all material
respects, except Corporation
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makes no representation or warranty as to matters contained therein that
are based on information provided by Bancorp. All filings, requests for
approval or other submissions for any regulatory approval shall be made
available for review by Bancorp prior to filing.
(d) Confidentiality. Until the Merger is consummated, Corporation
shall not, without the prior written consent of Bancorp, disclose to third
parties, and shall use care to assure that their directors, officers,
employees and advisors do not disclose to third parties, any confidential
information, which shall include all information received from Bancorp in
the course of discussing, investigating, negotiating and performing the
transactions contemplated by this Plan of Merger, whether such information
has been obtained before or after the date of execution of this Plan of
Merger. The term "confidential information" does not include information
which (i) is known to Corporation or its directors, officers, employees or
advisors, prior to its disclosure to Corporation by Bancorp; (ii) is or
becomes publicly known or available; or (iii) is independently developed or
discovered by Corporation, or its directors, officers, employees or
advisors outside of the discussions, investigations, negotiations and
performance contemplated by this Plan of Merger. "Third parties" do not
include directors, officers, employees or advisors of Bancorp.
In the event that the Merger is not consummated, or this Plan of
Merger is otherwise terminated, Corporation shall promptly return to
Bancorp all such confidential information and all copies thereof, without
retaining any copies, or to the extent agreed by Bancorp, shall destroy
information and documents not to be returned, including all electronic
images, and confirm such destruction in writing to Bancorp, and thereafter,
all such information shall continue not to be disclosed by Corporation and
its directors, officers, employees or advisors to third parties without
Bancorp's written consent.
(e) Registration Statement.
(i) TBC shall prepare and file the Registration Statement with the
SEC and any other applicable regulatory bodies and shall make all
applicable state securities filings and shall take all reasonable steps
necessary to cause the Registration Statement and state filings to be
declared effective and to maintain such effectiveness until all of the
shares of TBC Common Stock covered thereby have been distributed. TBC
shall promptly amend or supplement the Registration Statement to the
extent necessary in order to make the statements therein not misleading
or to correct any statements which have become false or misleading. TBC
shall use its reasonable best efforts to have the Proxy Statement
declared effective by the SEC under the provisions of the Exchange Act.
TBC shall provide Bancorp with copies of all filings made pursuant to
this Section and shall consult with Bancorp on responses to any comments
made by the Staff of the SEC with respect thereto.
(ii) The information specifically designated as being supplied by
Bancorp for inclusion or incorporation by reference in the Registration
Statement shall not, at the time the Registration Statement is declared
effective, at the time the Proxy Statement is first mailed to holders of
Bancorp Common Stock, at the time of the Special Meeting and at the
Effective Time, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in
order to make the statements therein, not misleading. The information
specifically designated as being supplied by Bancorp for inclusion or
incorporation by reference in the Proxy Statement shall not, at the date
the Proxy Statement (or any amendment thereof or supplement thereto) is
first mailed to holders of Bancorp Common Stock, at the time of the
Special Meeting and at the Effective Time, contain any untrue statement
of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they are made, not
misleading. If at any time prior to the Effective Time any event or
circumstance relating to Bancorp or its officers or directors should be
discovered by Bancorp which should be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement, Bancorp
shall promptly inform TBC. All documents, if any, that Bancorp is
responsible for filing with the SEC in connection with the transactions
contemplated hereby will comply as to form and substance in all material
respects with the applicable requirements of the Securities Act and the
Exchange Act and the rules and regulations thereunder.
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(iii) The information specifically designated as being supplied by
TBC for inclusion or incorporation by reference in the Registration
Statement shall not, at the time the Registration Statement is declared
effective, at the time the Proxy Statement is first mailed to holders of
the Bancorp Common Stock, at the time of the Special Meeting and at the
Effective Time, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in
order to make the statements therein, not misleading. The information
specifically designated as being supplied by TBC for inclusion or
incorporation by reference in the Proxy Statement in connection with the
Special Meeting shall not, at the date the Proxy Statement (or any
amendment thereof or supplement thereto) is first mailed to holders of
Bancorp Common Stock, at the time of the Special Meeting or at the
Effective Time, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in
order to make the statements therein, not misleading. If at any time
prior to the Effective Time any event or circumstance relating to TBC or
its officers or Directors, should be discovered by TBC which should be
set forth in an amendment to the Registration Statement or a supplement
to the Proxy Statement, Corporation should promptly inform Bancorp and
shall promptly file such amendment to the Registration Statement. All
documents that Corporation or TBC is responsible for filing with the SEC
in connection with the transactions contemplated herein will comply as
to form and substance in all material respects with the applicable
requirements of the Securities Act and the Exchange Act and the rules
and regulations thereunder.
(iv) Prior to the Closing Date, TBC shall cause the shares of TBC
Common Stock to be issued in the Merger to be registered or qualified
under all applicable securities or Blue Sky laws of each of the states
and territories of the United States, and to take any other actions
which may be necessary to enable TBC Common Stock to be issued in the
Merger to be distributed in each such jurisdiction.
(f) Due Diligence. Corporation shall deliver by the Closing Date all
opinions, certificates and other documents required to be delivered by it.
(g) Status Reports. Corporation shall advise Bancorp from time to
time regarding Corporation's applications for regulatory approval of the
Merger and the Registration Statement and provide Bancorp copies of all
comments, correspondence and approvals to or from regulators in connection
with the applications and Registration Statement, and give Bancorp copies
of all regulatory approvals referred to in this Plan of Merger.
(h) Pooling and Tax-Free Reorganization Treatment. Unless required by
law, the Corporation shall not intentionally take or cause to be taken any
action, whether on or before the Effective Time, which would disqualify the
Merger as a "pooling of interests" for accounting purposes or as a
"reorganization" within the meaning of Section 368(a) of the Code.
(i) Other Actions. Unless required by law, Corporation shall not
knowingly or intentionally take any action, or omit to, take any action, if
such action or omission would, or reasonably might be expected to, result
in any of its representations and warranties set forth herein being or
becoming untrue in any material respect, or in any of the conditions to the
Merger set forth in this Plan of Merger not being satisfied, or (unless
such action is required by applicable law) which would materially adversely
affect the ability of Corporation or Bancorp to obtain any consents or
approvals required for the consummation of the Merger without imposition of
a condition or restriction which would have a material adverse effect on
the Surviving Corporation or which would otherwise materially impair the
ability of Corporation or Bancorp to consummate the Merger in accordance
with the terms of the Plan of Merger or materially delay such consummation.
(j) Initial Public Offering. The parties agree to begin immediately
to prepare a registration statement covering both the shares of TBC Common
Stock to be issued in the Merger and the IPO defined below. However, if the
registration statement should not be filed before June 30, 1998, then at
Bancorp's option and request, TBC agrees to file, upon three weeks written
notice by Bancorp to TBC, a registration statement covering TBC Common
Stock to be issued in the Merger. In any event, if not filed on or before
December 31, 1998, TBC shall file a single registration statement to
register both the shares
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<PAGE> 649
of TBC Common Stock to be issued in the Merger and an initial public
offering of TBC Common Stock ("IPO") in a minimum amount of $5 million, not
including the Merger Consideration.
(k) Update of Corporation Disclosure Schedule. Upon completion of the
Warrior Merger, the Corporation Disclosure Schedule shall be updated by TBC
to provide accurate information regarding TBC pursuant to the
representations and warranties of Corporation made under Section 4.2 hereof
for the benefit of Bancorp. It is intended that such information will not
reveal any material adverse change in the representations and warranties of
Section 4.2 or in the information provided to Bancorp in the Corporation
Disclosure Schedule as of the date of this Agreement and absent any such
change shall not give rise to any right to terminate this Agreement.
ARTICLE VI
MISCELLANEOUS
6.1 Termination. This Plan of Merger may be terminated and the Merger
abandoned (either before or after approvals and authorizations by the
shareholders of Bancorp contemplated hereby and without seeking further
shareholder approval) at any time prior to the Effective Time only in one of the
following manners:
(a) Mutual Agreement. By mutual written consent of the parties
authorized by their respective Boards of Directors at any time prior to the
Effective Time.
(b) Expiration of Time. By written notice from Bancorp to Corporation
or from Corporation to Bancorp, if the Closing Date shall not have occurred
on or before March 31, 1999, unless the failure to consummate the Merger is
the result of a willful and material breach of this Plan of Merger by the
party seeking to terminate this Plan of Merger.
(c) Unsatisfied Conditions. By written notice from the Board of
Directors of Bancorp to Corporation or from the Board of Directors of
Corporation to Bancorp, as the case may be, stating that the party giving
such notice elects to terminate this Plan of Merger and abandon the
transaction contemplated hereunder as of a stated date, which shall not be
less than ten business days after the date on which such notice is given,
because the party providing such notice will be unable, on or before March
31, 1999, after having exercised all reasonable efforts and actions, to
meet or satisfy one or more specified conditions precedent to the
obligation of the other party to close under this Plan of Merger, unless
the other party waives the satisfaction of such conditions precedent within
such ten-day period. Such failure to satisfy a condition shall not excuse a
party for liability for any breach of this Agreement.
(d) Vote of Bancorp Shareholders. By written notice from the Board of
Directors of Corporation if, upon a vote at a duly held meeting of the
shareholders of Bancorp or any adjournment thereof, any required approval
of this Plan of Merger and the Merger by the holders of the Bancorp Common
Stock shall not have been obtained.
(e) Regulatory/Governmental Approval. By written notice from the
Board of Directors of Bancorp to Corporation or from the Board of Directors
of Corporation to Bancorp, if any court of competent jurisdiction or other
governmental agency or authority shall have issued an order, decree or
ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the Merger and such order, decree, ruling or other
action shall have become final and nonappealable.
6.2 Expenses and Damages. Each party shall pay its own expenses in
connection with the Plan of Merger and the Merger, except that Corporation shall
pay the costs (other than legal, accounting and investment banking costs, which
shall be paid by the party incurring such expense) of preparing the Registration
Statement, but Bancorp shall pay the costs of printing and mailing the
Prospectus/Proxy Statement to the Bancorp shareholders. Nothing contained in
this Section 6.2 shall be deemed to preclude either party from seeking to
recover damages which it incurs as a result of a breach by the other party of
this Plan of Merger or to obtain other legal or equitable relief (including
specific performance).
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6.3 No Liability Upon Proper Termination. Upon proper termination by
written notice as provided in Section 6.1 of this Plan of Merger, this Plan of
Merger shall be void and of no further effect, except as set forth in Section
6.2, and there shall be no liability by reason of this Plan of Merger or the
termination thereof on the part of either Corporation, Bancorp or the directors,
officers, employees, agents or shareholders of any of them, and all such parties
shall be released from all such liability, provided that any such termination
shall not excuse a party for liability for any breach of this Agreement.
6.4 Amendments. This Plan of Merger may be amended by the parties at any
time before or after any required approval of matters presented in connection
with the Merger by the holders of Bancorp Common Stock; provided, however, that
after such approval there shall be made no amendment that pursuant to the ABCA
requires further approval by such shareholders without such further approval.
Subject to the preceding sentence and subject to the performance of the
respective fiduciary obligations of each party, if at any time after the date
hereof, it shall appear that any change or changes in the structure of the
transactions contemplated hereby shall be necessary or desirable to comply with
applicable law, to insure that the transaction is tax deferred to Bancorp's
shareholders or to comply with the requirements of regulatory authorities having
jurisdiction over the transactions so as to enable the transactions contemplated
hereby to be consummated, the parties hereto agree to use their reasonable best
efforts to effect such changes in this Plan of Merger and the other documents
contemplated hereby in taking such other actions as may be required to effect
such changes, provided that neither party hereto shall be required to agree to
any change in the amount or form of consideration set forth herein. This Plan of
Merger may not be amended except by an instrument in writing signed on behalf of
each of the parties.
6.5 Survival of Representations, Warranties and Covenants. The respective
representations, warranties, agreements and covenants of the parties in this
Plan of Merger shall survive the Effective Time. Each party shall be deemed to
have relied upon each and every representation and warranty of the other party,
regardless of any investigation heretofore or hereafter made by or on behalf of
such party.
6.6 Employee Benefits. All employees of Bancorp who continue as employees
of the Surviving Corporation after the Merger shall receive service credits for
employment at Bancorp prior to the Effective Time for purposes of meeting all
the eligibility requirements and all vesting requirements for all of the
Surviving Corporation's benefit programs in which such employees shall become
eligible to participate on or after the Effective Time, including but not
limited to health, retirement, vacation and disability plans. At no expense to
the employee, the Surviving Corporation shall provide continuation of medical
insurance coverage through COBRA for pre-existing medical conditions (to the
extent such condition is currently covered under the Bancorp plan) to any
employee of Bancorp who continues as an employee of Corporation or the Bank, and
where such medical insurance coverages available to such former employees of
Bancorp who become employees of Corporation or The Bank would otherwise result
in a loss of such coverage as a result of a change in medical insurance
resulting from the Merger.
6.7 Benefits of this Plan of Merger. This Plan of Merger and the rights
and obligations of Corporation and Bancorp hereunder shall not be assigned by
any party to any third party, except with the prior written consent of the
other. This Plan of Merger shall be binding upon and inure to the benefit of the
parties hereto and their respective permitted successors and assigns. Nothing in
this Plan of Merger, expressed or implied, is intended to confer upon any
person, other than the parties hereto, the shareholders of Bancorp, and their
respective permitted successors and assigns, any rights or remedies under or by
reason of this Plan of Merger and, except as aforesaid, there are no third-party
beneficiaries of this Plan of Merger.
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6.8 Notices. Any notice, request, instruction, legal process or other
instrument to be given or served hereunder by any party to another, shall be
deemed given or served if in writing and delivered personally or sent by
registered or certified mail, postage prepaid, to the respective party or
parties at the following addresses:
If to Corporation:
Mr. James A. Taylor
Chairman of the Board
218 Louisa Street
Warrior, Alabama 35180
With copies to:
Rothgerber, Appel, Powers & Johnson
Attn: William P. Johnson, Esq.
One Tabor Center
1200 17th Street, 30th Floor
Denver, Colorado 80202
and
Haskell Slaughter & Young, L.L.C.
Attn: F. Hampton McFadden, Jr., Esq.
1200 AmSouth/Harbert Plaza
1901 Sixth Avenue North
Birmingham, Alabama 35203
If to Bancorp:
First Citizens Bancorp, Inc.
Post Office Box 807
Monroeville, Alabama 36461
With copies to:
Balch & Bingham
Attn: Michael D. Waters, Esq.
Post Office Box 78
Montgomery, Alabama 36101
and to such other address or addresses as either party may designate to the
other by like notice as set forth above.
6.9 Publicity. Bancorp and Corporation shall use their best efforts to
have all publicity, press releases and other announcements relating to this Plan
of Merger and the transactions contemplated hereby reviewed in advance by both
Corporation and Bancorp and their respective legal counsel.
6.10 Entire Agreement. This Plan of Merger contains the entire agreement
between the parties hereto with respect to the transactions contemplated hereby
and thereby supersedes all prior and contemporaneous agreements, understandings,
negotiations and discussions, whether oral or written, of the parties, and there
are no warranties, representations, covenants or other agreements between the
parties in connection with the subject matter hereof except as specifically set
forth herein.
6.11 Waiver or Modification. Any party to this Plan of Merger may, at any
time prior to the Effective Time, by action taken by its Board of Directors or
officers thereunto duly authorized, waive any of the terms or conditions of this
Plan of Merger or agree to an amendment or modification to this Plan of Merger
by an agreement in writing executed in the same manner (but not necessarily by
the same persons) as this Plan of Merger. No amendment, modification or waiver
of this Plan of Merger shall be binding unless executed in writing by the party
to be bound thereby. No waiver of any of the provisions of this Plan of Merger
shall be
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deemed or shall constitute a waiver of any other provisions hereof (whether or
not similar), nor shall any waiver constitute a continuing waiver unless
expressly provided. Bancorp's Board of Directors may authorize the amendment or
supplementation of this Plan of Merger or waiver of any provision hereof or
thereof, either before or after the approval of Bancorp's shareholders (and
without seeking further shareholder approval to the extent allowed by law), so
long as such amendment, supplement or waiver does not result in the reduction of
the consideration given or result in an adverse tax or other effect to Bancorp's
shareholders.
6.12 Controlling Law. This Plan of Merger shall be construed in accordance
with the laws of the State of Alabama, except to the extent that federal law is
applicable.
6.13 Counterparts. This Plan of Merger may be executed in any number of
copies, each of which shall be deemed an original, and all of which together
shall be deemed one and the same instrument.
6.14 Knowledge. Whenever the term "knowledge," "best knowledge" or similar
expression is used in this Plan of Merger, it shall mean knowledge of a party's
respective directors and officers.
6.15 No Rule of Construction. The parties acknowledge that this Plan of
Merger was initially prepared by Corporation and that all parties have read and
negotiated the language used in this Plan of Merger. The parties agree that,
because all parties participated in negotiating and drafting this Plan of
Merger, no rule of construction shall apply to this Plan of Merger which
construes ambiguous language in favor of or against any party by reason of that
party's role in drafting this Plan of Merger.
6.16 Binding Effect. This Plan of Merger shall be binding on, and shall
inure to the benefit of, the parties hereto, and their respective successors and
assigns, and no other person shall acquire or have any right under or by virtue
of this Plan of Merger. No party may assign any right or obligation hereunder
without the prior written consent of the other parties.
6.17 Cooperation.
(a) Corporation and Bancorp shall together, or pursuant to an
allocation of responsibility agreed to between them, (i) cooperate with one
another in determining whether any filings are required to be made or
consents are required to be obtained in any jurisdiction prior to the
Effective Time in connection with the consummation of the transactions
contemplated hereby; provided that Bancorp shall not be obligated by this
section 6.17(a)(i) to expend legal fees or similar expenses in order to
pursue litigation related thereto and cooperate in making any such filings
promptly and in seeking to obtain timely any such consents, (ii) use their
respective best efforts to cause to be lifted any injunction prohibiting
the Merger, or any part thereof, or the other transactions contemplated
hereby, and (iii) furnish to one another and to one another's counsel all
such information as may be required to effect the foregoing actions.
(b) Subject to the terms and conditions herein provided, and unless
this Plan of Merger shall have been validly terminated as provided herein,
each of Corporation and Bancorp shall use all reasonable efforts (i) to
take, or cause to be taken, all actions necessary to comply promptly with
all legal requirements which may be imposed on such party (or any
subsidiaries or affiliates of such party) with respect to the Plan of
Merger and to consummate the transactions contemplated hereby and (ii) to
obtain (and to cooperate with the other party to obtain) any consent,
authorization, order or approval of, or any exemption by, any governmental
entity and/or any other public or private third party which is required to
be obtained or made by such party or any of its subsidiaries or affiliates
in connection with this Plan of Merger and the transactions contemplated
hereby. Each of Corporation and Bancorp will promptly cooperate with and
furnish information to the other in connection with any such burden
suffered by, or requirement imposed upon, either of them or any of their
subsidiaries or affiliates in connection with the foregoing. The parties
shall, from time to time, and including as of and upon the Closing Date,
prepare and deliver to each other such supplements and amendments to their
respective disclosure letters as are necessary or appropriate to assure the
accuracy and completeness thereof; provided that the furnishing of any such
supplement shall not modify, limit, or otherwise affect any representations
or warranties of a party contained in this Agreement or any right of a
party to terminate this Agreement.
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IN WITNESS WHEREOF, pursuant to authority duly given by the respective
Boards of Directors of Corporation and Bancorp, this Plan of Merger has been
signed on behalf of said corporations by their respective Chairman of the Board,
President or Vice President, as the case may be, all on the date, month and year
first written above.
WARRIOR CAPITAL CORPORATION
By: /s/ JAMES A. TAYLOR
------------------------------------
James A. Taylor
Chairman and Chief Executive Officer
THE BANC CORPORATION
By: /s/ JAMES A. TAYLOR
------------------------------------
James A. Taylor
Chairman of the Board
FIRST CITIZENS BANCORP, INC.
By: /s/ JOHN F. GITTINGS
------------------------------------
John F. Gittings
Chairman and Chief Executive Officer
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<PAGE> 654
ANNEX C
SECOND AMENDED AND RESTATED REORGANIZATION AGREEMENT AND PLAN OF MERGER
This Second Amended and Restated Reorganization Agreement and Plan of
Merger ("Plan of Merger") is entered into this 16th day of June, 1998, by and
between City National Corporation, an Alabama corporation ("CNC"), Warrior
Capital Corporation, an Alabama corporation ("Warrior"), and The Banc
Corporation, a Delaware corporation ("TBC").
RECITALS:
WHEREAS, CNC is a bank holding company existing under the laws of the State
of Alabama, with its principal office at 126 North Broadway, Sylacauga, Alabama
35150 and is a registered bank holding company through ownership of 98.84% of
the issued and outstanding shares of City National Bank of Sylacauga, a bank
chartered under the laws of the United States ("CNB").
WHEREAS, Warrior is a bank holding company existing under the laws of the
State of Alabama, with its principal office at 218 Louisa Street, Warrior,
Alabama 35180, and is a registered bank holding company through ownership of
99.75% of the outstanding shares of The Bank, a bank chartered under the laws of
the State of Alabama.
WHEREAS, the respective Boards of Directors of CNC and Warrior have
determined that it is in the best interests and welfare of CNC and Warrior and
in the best interests of their respective shareholders that CNC and Warrior
merge on the terms and conditions hereinafter set forth.
WHEREAS, prior to the Effective Time, Warrior will reincorporate via merger
with and into TBC (the "Warrior Merger") with the separate corporate existence
of Warrior terminating upon the effective time of the Warrior Merger. The
officers and directors of Warrior will become the officers and directors of TBC,
the shareholders of Warrior will own all of the outstanding shares of TBC and
TBC shall accede to Warrior's obligations hereunder by operation of law.
WHEREAS, Warrior has entered into that certain Third Amended and Restated
Reorganization Agreement and Plan of Merger, dated as of April 6, 1998, among
Warrior, The Bank, TBC and Commerce Bank of Alabama ("Commerce"), pursuant to
which Commerce shall be merged with and into The Bank, and TBC shall be the
Surviving Corporation.
WHEREAS, Warrior has entered into that Third Amended and Restated
Reorganization Agreement and Plan of Merger, dated as of April 15, 1998, among
Warrior, TBC and First Citizens Bancorp, Inc. ("First Citizens"), pursuant to
which First Citizens shall be merged with and into TBC, and TBC shall be the
Surviving Corporation.
WHEREAS, Warrior has entered into that certain Reorganization Agreement and
Plan of Merger, dated as of June 2, 1998, by and between Warrior and Emerald
Coast Bancshares, Inc., a Florida bank holding company ("Emerald"), pursuant to
which, Emerald shall be merged with and into TBC, and TBC shall be the Surviving
Corporation.
WHEREAS, the respective Boards of Directors of CNC and Warrior have, by
resolutions, approved and authorized the execution and delivery of this Plan of
Merger and the merger of CNC with and into Warrior (the "Merger") on the terms
and conditions set forth herein;
WHEREAS, CNC and Warrior desire to merge in a transaction intended to
qualify as a tax-free reorganization under the provision of Section 368(a)(1)(A)
of the Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, the parties intend that this Plan of Merger shall constitute a
plan of reorganization as that term is used in Sections 354 and 361 of the Code;
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WHEREAS, for accounting purposes, it is intended that the Merger be
accounted for as a "pooling of interests;"
WHEREAS, TBC joins in this Plan of Merger to affirm and acknowledge that it
will assume all of the obligations, agreements, representations and warranties
of Warrior by operation of law subsequent to the Warrior Merger.
THEREFORE, in consideration of the mutual covenants, promises, agreements
and provisions contained herein and subject to the satisfaction of the terms and
conditions set forth herein, and intending to be legally bound hereby, CNC and
Warrior agree as follows:
SECTION 1
THE MERGER
1.1 The Merger. Upon the terms and conditions of this Plan of Merger,
including the receipt of all requisite governmental and shareholder approvals,
and in accordance with the General Corporation Law of the State of Delaware (the
"DGCL"), the Alabama Business Corporation Act (the "ABCA") and the Alabama
Banking Code ("the ABC"), at the Effective Time, CNC shall merge with and into
TBC. At the Effective Time the separate existence of CNC shall cease, and TBC
shall continue as the surviving entity (TBC, in its capacity as the corporation
surviving the Merger, is hereinafter sometimes referred to as the "Surviving
Corporation"). CNB will be merged with and into The Bank simultaneously with the
Merger.
1.2 The Closing. The closing of the Merger (the "Closing") shall be no
later than the second business day following the satisfaction of the conditions
specified in Section 7 of this Plan of Merger (the "Closing Date"). The Closing
Date may be extended from time to time by the mutual agreement of the parties.
The Closing shall take place at 10:00 a.m. at the offices of Haskell Slaughter &
Young, L.L.C. on the Closing Date or at such other place as the parties may
agree. At the Closing, the parties shall exchange the various agreements,
certificates, instruments and documents to be delivered pursuant to the terms of
this Plan of Merger.
1.3 Effective Time. Subject to the provisions of this Plan of Merger,
Articles of Merger and a Certificate of Merger, substantially in the form of
Exhibits B and C, shall be duly executed and, on the Closing Date (as defined in
section 1.2 hereof) or as soon thereafter as reasonably practicable, filed with
the Alabama Secretary of State in accordance with the ABCA and with the Delaware
Secretary of State pursuant to the DGCL as necessary. Upon the issuance of the
certificate of approval (the "Certificate of Approval") from the superintendent
of the Alabama Banking Department (the "Department"), as required by Section 5-
7A-4 of the ABC, a copy of the Certificate of Approval shall be forwarded to the
Alabama Secretary of State for filing. The Merger shall become effective upon
the filing of the Articles of Merger and the Certificate of Approval with the
Alabama Secretary of State and the Certificate of Merger with the Delaware
Secretary of State (the "Effective Time").
1.4 Effect of the Merger. The Merger shall have the effect provided in
Section 259 of the DGCL, Section 5-7A-2 of the ABC and Section 10-2B-11.06 of
the ABCA.
SECTION 2
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATION;
EXCHANGE OF CERTIFICATES
2.1 Effect on Capital Stock. For each outstanding share of CNC common
stock, $.01 par value (the "CNC Common Stock"), held immediately prior to the
Effective Time, the stockholders of CNC (except those exercising their
dissenters rights of appraisal, as described in Section 2.3), will receive
consideration (the "Merger Consideration") equal to the number of shares of TBC
Common Stock which shall, immediately following the Effective Time, comprise
18.14% of the issued and outstanding shares of TBC Common Stock and represent
18.14% of the shareholders' equity of TBC determined according to GAAP,
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divided by the number of shares of CNC Common Stock issued and outstanding at
and upon the Effective Time (the "Exchange Ratio"). The Exchange Ratio shall be
calculated giving effect to the proposed acquisition (the "Commerce
Acquisition") of Commerce, the proposed acquisition (the "Citizens Acquisition")
of First Citizens and the proposed acquisition (the "Emerald Acquisition") of
Emerald by TBC, but the total number of shares of TBC Common Stock to be issued
in the Merger shall not be decreased if one or more of such acquisitions does
not close. Any amendment to the Exchange Ratio as a result of the proposed
acquisition of another financial institution by TBC, if agreed upon or proposed
to close prior to the Effective Time, shall be subject to the approval of CNC,
provided that CNC shall consider such proposal in good faith and not withhold
its reasonable consent. As of the Effective Time, by virtue of the Merger and
without any action on the part of any holder of shares of CNC Common Stock, each
share of the CNC Common Stock issued and outstanding immediately prior to the
Effective Time shall cease to be outstanding and shall automatically be canceled
and retired. The holders of CNC Common Stock shall cease to have any rights with
respect to such shares except as otherwise provided herein or by law.
The Exchange Ratio shall be amended to reflect any TBC or CNC stock split
or stock dividend or reclassification (a "Stock Event"), so that, at the
Effective Time, each CNC shareholder (except those effectively exercising their
dissenters rights of appraisal, as described in Section 2.3) shall be entitled
to receive a number of shares of TBC Common Stock equal to what such shareholder
would have received if the shares of TBC Common Stock had been issued
immediately prior to the Stock Event.
2.2 Delivery of Merger Consideration. On the Closing Date, the Surviving
Corporation shall deliver to the holders of certificates evidencing ownership of
CNC Common Stock, immediately upon receipt from the holders thereof of such
certificates, duly executed and in proper form for transfer, the Merger
Consideration to which they are entitled pursuant to the following provisions:
(a) As soon as practical after the Effective Time, the Surviving
Corporation shall send a notice and transmittal form to each record holder
of a certificate evidencing CNC Common Stock, advising such holder of the
Merger and the procedure for surrendering to CNC such certificate in
exchange for such holder's pro rata share of the Merger Consideration. Each
holder of such certificate, upon surrender of the same to the Surviving
Corporation in accordance with such transmittal form, shall be entitled to
receive such holder's pro rata share of the Merger Consideration.
(b) No transfer taxes shall be payable by any holder of record of CNC
Common Stock at the Effective Time in respect of the exchange of
certificates for the Merger Consideration. If the Merger Consideration for
the CNC Common Stock provided for herein is to be delivered to any person
other than the registered holder of the CNC Common Stock surrendered for
exchange, the amount of any stock-transfer or similar taxes (whether
imposed on the holder of record or such person) payable on account of the
transfer to such person shall be paid to the Surviving Corporation by such
person. The Surviving Corporation may refuse to make such exchange unless
satisfactory evidence of the payment of such taxes or exemption therefrom
is submitted.
(c) After the Effective Time, each outstanding certificate which
theretofore represented CNC Common Stock shall, until surrendered for
exchange in accordance with this Section 2.2, be deemed for all purposes to
evidence only the right to receive the Merger Consideration. After the
Effective Time, there shall be no further registration or transfer of CNC
Common Stock. No dividends or other distributions which are declared on TBC
Common Stock will be paid to persons otherwise entitled to receive the same
until the certificates representing CNC Common Stock have been surrendered
in the manner herein provided, but upon such surrender, such dividends or
other distributions, from and after the Effective Time, will be paid to
such persons. In no event shall the persons entitled to receive such
dividends or other distributions be entitled to receive interest on such
dividends or other distributions.
(d) Notwithstanding anything to the contrary set forth herein, if any
holder of CNC Common Stock shall be unable to surrender his or her
certificates because such certificates have been lost or destroyed, such
holder may deliver in lieu thereof an indemnity bond in form and substance
and with surety satisfactory to TBC.
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2.3 Dissenting Shareholders. Any shares of CNC Common Stock held by
persons who have perfected their dissenters rights under the ABCA, and have not
effectively withdrawn or lost their dissenters rights under the ABCA, shall not
be converted pursuant to this Plan of Merger but shall be entitled only to such
rights as are granted them by the dissenters rights provisions of the ABCA.
Dissenting shareholders entitled to payment for shares of CNC stock pursuant to
the Alabama dissenters rights statute shall receive payment from TBC in an
amount as determined pursuant to the ABCA.
2.4 Certificate of Incorporation of the Surviving Corporation. The
certificate of incorporation of TBC, attached as Exhibit , shall
be in effect immediately prior to the Effective Time and will remain the
certificate of incorporation of the Surviving Corporation until amended or
repealed in accordance with their provisions and applicable law.
2.5 Bylaws of the Surviving Corporation. The bylaws of TBC, attached as
Exhibit , shall be in effect immediately prior to the Effective Time and
will remain the bylaws of the Surviving Corporation until amended or repealed in
accordance with their provisions and applicable law.
2.6 Capitalization of the Surviving Corporation. The combined
capitalization of CNC and TBC immediately prior to the Effective Time shall be
the capitalization of the Surviving Corporation until changed by resolution of
the Board of Directors or by action of its shareholders.
2.7 Directors and Officers of the Surviving Corporation. The directors and
officers of TBC immediately following the Effective Time shall be the directors
and officers of the Surviving Corporation, to serve until their successors have
been elected or qualified or until their resignation or removal according to law
and the bylaws of the Surviving Corporation.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF CNC
Except as set forth in the Disclosure Schedule delivered to Warrior by CNC
(the "CNC Disclosure Schedule") simultaneously with the execution hereof, CNC
hereby represents and warrants to Warrior, as of the date hereof and up to and
including the Closing Date as follows (all representations and warranties by CNC
include its subsidiaries):
3.1 Organization of CNC. CNC is a corporation duly organized, validly
existing and in good standing under the laws of the State of Alabama, with full
corporate power and authority, and possesses all material governmental,
regulatory and other permits, licenses and authorizations necessary to carry on
its business as now conducted and to own and operate the properties and assets
it owns or operates, to enter into this Plan of Merger and the Merger and to
perform its obligations thereunder. CNC is duly qualified or licensed to
transact business as a foreign corporation in good standing in the states and
foreign jurisdictions where the character of its assets or the nature or conduct
of the 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 the business, operations, properties or assets, or the condition,
financial or otherwise, of CNC. The deposit accounts of CNB are insured by the
Federal Deposit Insurance Corporation (the "FDIC") to the full extent permitted
under applicable law and the rules and regulations of the FDIC.
3.2 CNC Capital Stock.
(a) CNC's authorized capital stock consists of 100,000 shares of
common stock, $1.00 par value per share, of which 26,832 shares are
outstanding, all of which are validly issued.
(b) Other than CNB and Freedom Financial Services, Inc. ("Freedom"),
CNC does not own directly, beneficially or of record, more than five
percent of the outstanding stock of any other corporation and does not
otherwise control any company or bank.
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(c) CNC has no outstanding securities convertible into shares of
capital stock or existing options, warrants, calls, commitments or other
rights of any character granted or entered into by CNC relating to its
authorized, issued or unissued capital stock, and no such rights will be
granted or entered into.
(d) There are no outstanding or unsatisfied preemptive rights or
rights of first refusal with respect to CNC's capital stock.
(e) No shares of CNC's capital stock will be issued between the date
hereof and the Effective Time.
(f) Attached to the CNC Disclosure Schedule are copies, as of the date
of such letter, of CNC's articles of incorporation and bylaws, both
certified to be complete and correct by the Cashier or Secretary of CNC,
the same to remain unchanged up to the Effective Time.
3.3 Subsidiaries and Assets. CNC (other than CNB and Freedom) does not
have any direct or indirect subsidiaries and does not have any interest in any
partnership, firm, association, corporation or joint venture other than
investment securities purchased and loans made in the regular and usual course
of its business.
3.4 Financial Statements. CNC has delivered to Warrior balance sheets of
CNC as of December 31, 1996 and 1997, and March 31, 1998, the related statements
of operations, changes in shareholders' equity and changes in financial position
or statements of cash flows for the periods then ended, and the related notes
and related opinions thereon as applicable (the "CNC Financial Statements"). The
CNC Financial Statements, as and when prepared, (i) with the exception of the
statement for and as of the period ended March 31, 1998, have been audited, (ii)
present fairly the financial condition of CNC as of the respective dates
indicated and the results of operations, the changes in shareholders equity, the
changes in financial position and cash flows for the respective periods
indicated; (iii) have been prepared in accordance with generally accepted
accounting principles ("GAAP") as to audited statements and in a manner
consistent with past practice as to unaudited statements; (iv) contain and
reflect reserves for all material accrued liabilities and for all reasonably
anticipated losses, including but not limited to appropriate reserves for loan
and lease losses; and (v) are based on the books and records of CNC.
3.5 Absence of Undisclosed Liabilities. Except as and to the extent
reflected or reserved against in the CNC Financial Statements or disclosed in
the CNC Disclosure Schedule, CNC has no material liabilities or obligations
whether accrued, absolute, contingent or otherwise, including governmental
charges or lawsuits, or any tax liabilities due or to become due and whether (i)
incurred in respect of or measured by the income of CNC for any period up to the
close of business on the respective dates of the CNC Financial Statements, or
(ii) arising out of transactions entered into, or any state of facts existing,
prior thereto. CNC does not have any liabilities or obligations, either accrued
or contingent, which are material to CNC and which have not been either (i)
reflected or disclosed in the CNC Financial Statements for the year ended
December 31, 1997; or (ii) incurred subsequent to December 31, 1997, in the
ordinary course of business.
3.6 Absence of Certain Changes or Events. Since December 31, 1997, there
has not been:
(a) any material adverse change in the condition (financial or
otherwise), assets, liabilities or business of CNC;
(b) any material adverse change in the character of the assets or
liabilities of CNC;
(c) any capital improvements, except for ordinary maintenance and
repairs, or any purchase of property by CNC at a cost in excess of $25,000
other than supplies in the ordinary course of business;
(d) any physical damage, destruction or loss not covered by insurance
exceeding $25,000 in value or affecting in a material and adverse way the
property, assets, business or prospects of CNC;
(e) any material change in the accounting methods or practices of CNC
unless required by regulation or GAAP;
(f) any material change in the capital structure of CNC;
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(g) any loss incurred or determined to be probable for CNC as a result
of environmental problems which has or would be expected to have a material
adverse effect on the financial position of CNC; or
(h) any increase in the compensation payable or to become payable by
CNC to any officer or employee or any bonus, except bonuses accrued and
reflected on the December 31, 1997 CNC Financial Statements, percentage
compensation, service award or other like benefit, granted, made or accrued
or credited to any officer or employee or any pension, retirement or
deferred compensation payment agreed to, other than in accordance with
preexisting plans or normal and customary annual salary reviews and
adjustments and promotional increases.
3.7 Tax Matters. CNC has filed all federal, state, municipal and local
income, excise, property, special district, sales, transfer and other tax
returns and reports of information statements that are required to be filed and
has paid all taxes that have become due pursuant to such returns or pursuant to
any assessment that has become payable. The returns filed by CNC have been and
will be accurately and properly prepared. To the extent that any tax liability
or assessment has accrued, but has not yet become payable or has been proposed
for assessment or determination but remains unpaid, the same has been reflected
as a liability on the books and records of CNC and the CNC Financial Statements
subject to normal year-end adjustments. Since December 31, 1997, CNC has not
incurred any liability with respect to any such taxes except for normal taxes
incurred in the ordinary and regular course of its business. CNC has not
executed or filed with the Internal Revenue Service or any other taxing
authority any agreement extending the period for the assessment or collection of
any income taxes. There are no examinations, reviews, audits or investigations
of any tax return or report of CNC that are presently pending or threatened, and
CNC is not a party to any pending action or proceeding by any governmental
authority for assessment or collection of income taxes.
3.8 Title to Properties; Absence of Liens and Encumbrances; Enforceability
of Leases.
(a) Except as to property indicated in the CNC Disclosure Schedule as
being leased or mortgaged, CNC has good and marketable title to its assets,
real and personal (including those reflected in the CNC Financial
Statements, except for loans and investments and as thereafter sold or
otherwise disposed of in the ordinary course of business and for adequate
consideration), free and clear of all material mortgages, pledges, liens,
charges and encumbrances, except (A) investment securities that are pledged
to secure the deposit of public monies or monies under the control of any
court, (B) the lien of taxes not yet due and payable or being contested in
good faith by appropriate proceedings, and (C) such imperfections of title
and encumbrances, if any, and such liens, if any, incidental to the conduct
of CNC's business or the ownership of its assets as are not material in
amount and do not affect the value of, or interfere with the present use
of, CNC's assets or otherwise materially impair its operations.
(b) To the best knowledge of CNC, the structures and equipment owned
or used by CNC comply in all material respects with applicable laws,
regulations and ordinances and are in good operating condition, subject to
ordinary wear and tear.
(c) The real property, if any, leased by CNC is held by it under valid
and enforceable leases. CNC is not in material default under any such
leases.
3.9 Legal Proceedings. There are no material claims, actions, suits,
proceedings or investigations pending, or to the best knowledge of CNC,
threatened by or against or otherwise affecting CNC or its assets, business or
properties, or the transactions contemplated by the Plan of Merger, or its
directors, officers or employees in reference to actions taken by them in such
capacity at law or in equity, or before or by any federal, state, municipal or
other government department, commission, board, agency, instrumentality or
authority, nor to CNC's knowledge is there any valid basis for any such action,
proceeding or investigation, other than (i) claims by CNC in the ordinary course
of its business for the recovery of loans or protection of its interest as a
secured or unsecured creditor, and (ii) claims fully covered by insurance. To
the best knowledge of CNC, it is in compliance in all material respects with
laws, ordinances, rules, regulations, orders, licenses and permits that are
applicable to its business as now conducted, and it is not in material default
under any thereof.
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3.10 Authority Relative to This Plan of Merger.
(a) CNC has the requisite corporate power and authority to enter into
this Plan of Merger and perform its obligations hereunder, subject to the
required vote of its shareholders and to obtaining the regulatory approvals
and other consents contemplated by this Plan of Merger.
(b) The execution, delivery and performance of this Plan of Merger by
CNC has been duly authorized and approved by the Board of Directors of CNC,
subject to the required vote of its shareholders, and subject to obtaining
the regulatory approvals and other consents contemplated by this Plan of
Merger.
(c) This Plan of Merger has been duly executed and delivered by CNC
and constitutes a valid and binding obligation of CNC enforceable in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, reorganization, insolvency, moratorium or other
similar laws affecting creditors' rights generally and principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
(d) The consummation of the transactions contemplated by this Plan of
Merger will not in any material respect conflict with, violate or result in
a material breach of or material default in any (A) term, condition or
provision of the articles of incorporation or bylaws of CNC; (B) applicable
law, rule, regulation or order of any court or governmental agency; or (C)
material agreement, lease, mortgage, note, contract or commitment of any
kind, oral or written, to which CNC is a party or by which its properties
may be bound.
3.11 No Untrue Representations. The documents furnished by CNC to Warrior
(the "CNC Documents"), including but not limited to the CNC Disclosure Schedule
and the CNC Financial Statements, are true and complete copies of such documents
and do not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading. There is no
fact that CNC has not disclosed in the CNC Documents or otherwise to Warrior in
writing which materially and adversely affects the properties, business,
prospects, profits or condition (financial or otherwise) of CNC or the ability
of CNC to perform this Plan of Merger, except that CNC makes no representation
or warranty as to the effect of general economic conditions, the condition of
the financial markets, future legislation or future regulatory action.
3.12 Employee Benefit Plans.
(a) Except as described in the CNC Documents or set forth in the CNC
Disclosure Schedule, CNC has neither established nor maintains nor is
obligated to make contributions to or under or otherwise participate in (i)
any bonus or other type of incentive compensation plan, program, agreement,
policy, commitment, contract or arrangement (whether or not set forth in a
written document), (ii) any pension, profit-sharing, retirement or other
plan, program or arrangement, or (iii) any other employee benefit plan,
fund or program, including, but not limited to, those described in Section
3(3) of ERISA. All such plans (individually, a "Plan" and collectively, the
"Plans") have been operated and administered in all material respects in
accordance with, as applicable, ERISA, the Internal Revenue Code of 1986,
as amended, Title VII of the Civil Rights Act of 1964, as amended, the
Equal Pay Act of 1967, as amended, the Age Discrimination in Employment Act
of 1967, as amended, and the related rules and regulations adopted by those
federal agencies responsible for the administration of such laws. No act or
failure to act by CNC has resulted in a "prohibited transaction" (as
defined in ERISA) with respect to the Plans that is not subject to a
statutory or regulatory exception. No "reportable event" (as defined in
ERISA) has occurred with respect to any of the Plans which is subject to
Title IV of ERISA. CNC has not previously made, is not currently making,
and is not obligated in any way to make, any contributions to any
multi-employer plan within the meaning of the Multi-Employer Pension Plan
Amendments Act of 1980.
(b) Except as described in the CNC Documents or set forth in the CNC
Disclosure Schedule, CNC is not a party to any oral or written (i) union,
guild or collective bargaining agreement which agreement covers employees
in the United States (nor is it aware of any union organizing activity
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currently being conducted in respect to any of its employees), (ii)
agreement with any executive officer or other key employee the benefits of
which are contingent, or the terms of which are materially altered, upon
the occurrence of a transaction of the nature contemplated by this Plan of
Merger and which provides for the payment of in excess of $25,000, or (iii)
agreement or plan, including any stock option plan, stock appreciation
rights plan, restricted stock plan or stock purchase plan, any of the
benefits of which will be increased, or the vesting the benefits of which
will be accelerated, by the occurrence of any of the transactions
contemplated by this Plan of Merger or the value of any of the benefits of
which will be calculated on the basis of any of the transactions
contemplated by this Plan of Merger.
3.13 Environmental Protection.
(a) To the knowledge of CNC, none of the assets of CNC (defined for
purposes of this subsection as the real property and tangible personal
property owned or leased by CNC as of the date of this Plan of Merger and
as of the Effective Time) contain any hazardous materials, defined as any
substance whose nature and/or quantity or existence, use, manufacture or
effect render it subject to federal, state or local regulation as
potentially injurious to public health or welfare, or to the environment,
including, without limitation, friable asbestos, petroleum products or PCBs
("Hazardous Materials"), other than in such quantities which are incidental
and customary for the maintenance and operation of such assets, e.g.,
cleaning fluids ("Incidental Quantities").
(b) No notice or other communication has been received from any
governmental agency having jurisdiction over CNC or to the best knowledge
of CNC from any other person, with respect to any alleged violation by CNC
of any federal, state or local laws, rules, regulations, ordinances and
codes governing Hazardous Materials and which are applicable to the assets
of CNC.
(c) All Hazardous Materials which have been remediated from any assets
of CNC prior to or during their ownership by CNC have been handled in
compliance with all applicable laws.
(d) To CNC's best knowledge, no collateral securing any loan made by
CNC, as of the date of this Plan of Merger and as of the Effective Time,
contains any Hazardous Materials, other than in Incidental Quantities.
3.14 Material Contract Defaults. CNC is not in default in any material
respect under the terms of any outstanding material contract, agreement, lease
or other commitment, which would have a material adverse effect on the business,
operations, properties or assets, or the condition, financial or otherwise, of
CNC or under its articles of incorporation or bylaws, and no event has occurred
which, with notice or lapse of time, or both, may be or become a material
default of any such contract, agreement, lease or other commitment or under the
articles of incorporation or bylaws of CNC.
3.15 Brokers and Finders. Neither CNC nor any of its officers, directors
or employees have employed any broker or finder or incurred any liability for
any financial advisory, brokerage or finders fees or commissions and no broker
or finder has acted directly or indirectly for CNC in connection with this Plan
of Merger or the transactions contemplated hereby.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF WARRIOR
Except as set forth in its Disclosure Schedule delivered to CNC (the
"Warrior Disclosure Schedule") simultaneously with the execution hereof, Warrior
hereby represents and warrants to CNC as of the date hereof and up to and
including the Closing Date as follows (all representations and warranties by
Warrior include its subsidiaries):
4.1 Organization. Warrior is a corporation duly organized, validly
existing and in good standing under the laws of Alabama, with full corporate
power and authority, and possesses all material governmental, regulatory and
other permits, licenses and other authorization, necessary to carry on its
business as now conducted and to own and operate the properties and assets it
owns or operates, to enter into this Plan of
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Merger and the Merger and to perform its obligations thereunder. Warrior is duly
qualified or licensed to transact business as a foreign corporation in good
standing in the 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 the business, operations, properties, or
assets, or the condition, financial or otherwise, of Warrior. The deposit
accounts of The Bank are insured by the FDIC to the full extent permitted under
applicable law and the rules and regulations of the FDIC.
4.2 Warrior Capital Stock.
(a) The authorized capital stock of Warrior consists of (x) 30,000
shares, $.001 par value per share, of common stock of which 18,160 shares
of common stock are outstanding, all of which are validly issued, fully
paid and non-assessable, and (y) 1,476 shares of preferred stock, $.001 par
value per share, of which no shares are issued and outstanding. TBC Common
Stock issued in this Merger will be, when issued, duly authorized, validly
issued, fully paid and nonassessable. The Warrior Disclosure Schedule will
be revised following the Warrior Merger to update this representation and
warranty for TBC.
(b) Other than The Bank and Taylor Acquisition Corporation ("TAC"),
Warrior does not own directly or indirectly, beneficially or of record,
more than five percent of the outstanding stock of any other corporation
and does not otherwise control any company or bank.
(c) Other than as set forth on the Warrior Disclosure Schedule, there
are not, and as of the Effective Time and thereafter there will not be,
outstanding securities convertible into or exercisable or exchangeable for
Warrior Common Stock or Warrior's preferred stock.
(d) There are no outstanding or unsatisfied preemptive rights or
rights of first refusal with respect to Warrior Common Stock or Warrior's
preferred stock.
(e) Except as disclosed to CNC in the Warrior Disclosure Schedule, as
of the date of this Agreement there are, and as of the Closing Date and
thereafter there will be, no outstanding agreements, arrangements, or
understandings of any kind, to which Warrior is a party, affecting or
relating to the voting, issuance, purchase, redemption, repurchase, or
transfer of the Warrior Common Stock or any other securities of Warrior.
(f) Attached to the Warrior Disclosure Schedule are copies, as of the
date of such letter, of Warrior's articles of incorporation and bylaws,
certified to be complete and correct by the Secretary of such entity, the
same to remain unchanged up to the Effective Time.
4.3 Subsidiaries and Assets. Warrior (except for The Bank and TAC) does
not have any direct or indirect subsidiaries and does not have any interest in
any partnership, firm, association, corporation, or joint venture other than
investment securities purchased and loans made in the regular and usual course
of its business.
4.4 Financial Statements. Warrior has delivered to CNC balance sheets of
Warrior as of December 31, 1996 and 1997 and March 31, 1998, and the related
statements of operations, changes in shareholders' equity, and changes in
financial position or statements of cash flows for the year then ended, and the
related notes and related opinions thereon as applicable ("Warrior Financial
Statements"). Warrior Financial Statements, as and when prepared, (i) with the
exception of the statement for and as of the period ended March 31, 1998, have
been audited, (ii) present fairly the financial condition of Warrior as of the
date indicated and the results of operations, the changes in shareholders
equity, the changes in financial position and cash flows for the respective
periods indicated; (iii) have been prepared in accordance with generally
accepted accounting principles ("GAAP") as to audited statements and in a manner
consistent with past practice as to unaudited statements; (iv) contain and
reflect reserves for all material accrued liabilities and for all reasonably
anticipated losses, including but not limited to appropriate reserves for loan
and lease losses; and (v) are based on the books and records of Warrior.
4.5 Absence of Undisclosed Liabilities. Except as and to the extent
reflected or reserved against in Warrior Financial Statements or disclosed in
the Warrior Disclosure Schedule, Warrior has no material
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liabilities or obligations whether accrued, absolute, contingent or other wise,
including, governmental charges or lawsuits, or any tax liabilities due or to
become due and whether (i) incurred in respect of or measured by the income of
Warrior for any period up to the close of business on the respective dates of
the Warrior Financial Statements, or (ii) arising out of transactions entered
into, or any state of facts existing, prior thereto. Warrior has no liabilities
or obligations, either accrued or contingent, which are material to Warrior and
which have not been either (i) reflected or disclosed in the audited financial
statements of Warrior for the year ended December 31, 1997 and provided to CNC
in writing; or (ii) incurred subsequent to December 31, 1997, in the ordinary
course of business.
4.6 Absence of Certain Changes or Events. Since December 31, 1997, there
has not been:
(a) any material adverse change in the condition (financial or
otherwise), of the assets, liabilities or business of Warrior;
(b) any material adverse change in the character of the assets or
liabilities of Warrior;
(c) any capital improvements, except for ordinary maintenance and
repairs, or any purchase of property by Warrior at a cost in excess of
$25,000 other than supplies in the ordinary course of business;
(d) any physical damage, destruction or loss not covered by insurance
exceeding $25,000 in value or affecting in a material and adverse way the
property, assets, business or prospects of Warrior;
(e) any material change in the accounting methods or practices of
Warrior unless required by law or GAAP;
(f) any material change in the capital structure of Warrior;
(g) any loss incurred or determined to be probable for Warrior as a
result of environmental problems which has or would be expected to have a
material adverse effect on the financial position of Warrior; or
(h) any increase in the compensation payable or to become payable by
Warrior to any officer or employee or any bonus, except bonuses accrued and
reflected on the December 31, 1997 Warrior Financial Statements, percentage
compensation, service award or other like benefit, granted, made or accrued
or credited to any officer or employee or any pension, retirement, or
deferred compensation payment agreed to, other than in accordance with
preexisting plans or normal and customary annual salary reviews and
adjustments and promotional increases.
4.7 Tax Matters. Warrior has filed all federal, state, municipal and local
income, excise, property, special district, sales, transfer and other tax
returns and reports of information statements that are required to be filed and
have paid all taxes that have become due pursuant to such returns or pursuant to
any assessment that has become payable. The returns filed by Warrior have been
and will be accurately and properly prepared. To the extent that any tax
liability or assessment has accrued, but has not yet become payable or has been
proposed for assessment or determination but remains unpaid, the same has been
reflected as a liability on the books and records of Warrior and the Warrior
Financial Statements subject to normal year-end adjustments. Since December 31,
1997, Warrior has not incurred any liability with respect to any such taxes
except for normal taxes incurred in the ordinary and regular course of its
business. Warrior has not executed or filed with the Internal Revenue Service or
any other taxing authority any agreement extending the period for assessment or
collection of any income taxes. There are no examinations, reviews, audits or
investigations of any tax return or report of Warrior that is presently pending
or threatened, and Warrior is not a party to any pending action or proceeding by
any governmental authority for assessment or collection of income taxes.
4.8 Title to Properties; Absence of Liens and Encumbrances, Leases
Enforceable.
(a) Except as to property indicated in the Warrior Disclosure Schedule
as being leased or mortgaged, Warrior has good and marketable title to its
assets, real and personal (including those reflected in Warrior Financial
Statements, except for loans and investments as thereafter sold or
otherwise disposed of in the ordinary course of business and for adequate
consideration), free and clear of all material mortgages, pledges, liens,
charges and encumbrances, except (A) investment securities that are pledged
to secure the deposit of public monies or monies under the control of any
court, (B) the lien
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of taxes not yet due and payable or being contested in good faith by
appropriate proceedings, and (C) such imperfections of title and
encumbrances, if any, and such liens, if any, incidental to the conduct of
Warrior's business or the ownership of its assets as are not material in
amount and do not affect the value of, or interfere with the present use
of, Warrior's assets or otherwise materially impair its operations.
(b) To the best knowledge of Warrior, the structures and equipment
owned or used by Warrior comply in all material respects with applicable
laws, regulations and ordinances and are in good operating condition,
subject to ordinary wear and tear.
(c) The real property, if any, leased by Warrior is held by it under
valid and enforceable leases. Warrior is not in material default under any
such leases.
4.9 Legal Proceedings. There are no material claims, actions, suits,
proceedings or investigations pending, or to the best knowledge of Warrior,
threatened, by or against, or otherwise affecting Warrior or its assets,
business or properties, or the transactions contemplated by the Plan of Merger,
or its directors, officers or employees in reference to actions taken by it in
such capacity at law or in equity, or before or by any federal, state, municipal
or other government department, commission, board, agency, instrumentality or
authority, nor to Warrior's knowledge is there any valid basis for any such
action, proceeding or investigation, other than (i) claims by Warrior in the
ordinary course of its business for the recovery of loans or protection of its
interest as a secured or unsecured creditor, and (ii) claims fully covered by
insurance. To the best knowledge of Warrior, Warrior is in compliance in all
material respects with laws, ordinances, rules, regulations, orders, licenses
and permits that are applicable to its business as now conducted and is not in
material default under any thereof.
4.10 Authority Relative to This Plan of Merger.
(a) Warrior has the requisite corporate power and authority to enter
into this Plan of Merger and perform its obligations hereunder, subject to
the required vote of its shareholders and to obtaining the regulatory
approvals and other consents contemplated by this Plan of Merger.
(b) The execution, delivery and performance of this Plan of Merger by
Warrior has been duly authorized and approved by the Board of Directors of
Warrior, subject to the required vote of its shareholders, and subject to
obtaining the regulatory approvals and other consents contemplated by this
Plan of Merger.
(c) This Plan of Merger has been duly executed and delivered by
Warrior and constitutes a valid and binding obligation of Warrior
enforceable in accordance with its terms, except as such enforceability may
be limited by applicable bankruptcy, reorganization, insolvency, moratorium
or other similar laws affecting creditors' rights generally and principles
of equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
(d) The consummation of the transactions contemplated by this Plan of
Merger will not in any material respect conflict with, violate or result in
a material breach of or material default in any (A) term, condition or
provision of the articles of incorporation or bylaws of Warrior; (B)
applicable law, rule, regulation or order of any court or governmental
agency; or (C) material agreement, lease, mortgage, note, contract or
commitment of any kind, oral or written, to which Warrior is a party or by
which its properties may be bound.
4.11 No Untrue Representations. The documents furnished by Warrior to CNC
(the "Warrior Documents"), including but not limited to the Warrior Disclosure
Schedule and the Warrior Financial Statements, are true and complete copies of
such documents and do not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. There is no fact that Warrior has not disclosed in the Warrior
Documents or Warrior Disclosure Schedule in writing which materially and
adversely affects the properties, business, prospects, profits or condition
(financial or otherwise) of Warrior or the ability of Warrior to perform this
Plan of Merger, except that Warrior makes no representation or warranty as to
the
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effect of general economic conditions, the condition of the financial markets,
future legislation or future regulatory action.
4.12 Employee Benefit Plans.
(a) Except as described in the Warrior Documents or set forth in the
Warrior Disclosure Schedule, Warrior has neither established nor maintains
nor is obligated to make contributions to or under or otherwise participate
in (i) any bonus or other type of incentive compensation plan, program,
agreement, policy, commitment, contract or arrangement (whether or not set
forth in a written document), (ii) any pension, profit-sharing, retirement
or other plan, program or arrangement, or (iii) any other employee benefit
plan, fund or program, including, but not limited to, those described in
Section 3(3) of ERISA. All such plans (individually, a "Plan" and
collectively, the "Plans") have been operated and administered in all
material respects in accordance with, as applicable, ERISA, the Internal
Revenue Code of 1986, as amended, Title VII of the Civil Rights Act of
1964, as amended, the Equal Pay Act of 1967, as amended, the Age
Discrimination in Employment Act of 1967, as amended, and the related rules
and regulations adopted by those federal agencies responsible for the
administration of such laws. No act or failure to act by Warrior has
resulted in a "prohibited transaction" (as defined in ERISA) with respect
to the Plans that is not subject to a statutory or regulatory exception. No
"reportable event" (as defined in ERISA) has occurred with respect to any
of the Plans which is subject to Title IV of ERISA. Warrior has not
previously made, is not currently making, and is not obligated in any way
to make, any contributions to any multi-employer plan within the meaning of
the Multi-Employer Pension Plan Amendments Act of 1980.
(b) Except as described in the Warrior Documents or set forth in the
Warrior Disclosure Schedule, Warrior is not a party to any oral or written
(i) union, guild or collective bargaining agreement which agreement covers
employees in the United States (nor is it aware of any union organizing
activity currently being conducted in respect to any of its employees),
(ii) agreement with any executive officer or other key employee the
benefits of which are contingent, or the terms of which are materially
altered, upon the occurrence of a transaction of the nature contemplated by
this Plan of Merger and which provides for the payment of in excess of
$25,000, or (iii) agreement or plan, including any stock option plan, stock
appreciation rights plan, restricted stock plan or stock purchase plan, any
of the benefits of which will be increased, or the vesting the benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Plan of Merger or the value of any of the benefits of
which will be calculated on the basis of any of the transactions
contemplated by this Plan of Merger.
4.13 Environmental Protection.
(a) To the knowledge of Warrior, none of the assets of Warrior
(defined for purposes of this subsection as the real property and tangible
personal property owned or leased by Warrior as of the date of this Plan of
Merger and as of the Effective Time) contain any hazardous materials,
defined as any substance whose nature and/or quantity or existence, use,
manufacture or effect render it subject to federal, state or local
regulation as potentially injurious to public health or welfare, or the
environment, including, without limitation, friable asbestos, petroleum
products or PCBs ("Hazardous Materials"), other than in such quantities
which are incidental and customary for the maintenance and operation of
such assets, e.g., cleaning fluids ("Incidental Quantities").
(b) No notice or other communication has been received from any
governmental agency having jurisdiction over Warrior or to their best
knowledge from any other person, with respect to any alleged violation by
Warrior of any federal, state or local laws, rules, regulations, ordinances
and codes governing Hazardous Materials and which are applicable to the
assets of Warrior.
(c) All Hazardous Materials which have been remediated from any assets
of Warrior prior to or during their ownership by Warrior have been handled
in compliance with all applicable laws.
(d) To Warrior's best knowledge, no collateral securing any loan made
by Warrior, as of the date of this Plan of Merger and as of the Effective
Time, contains any Hazardous Materials, other than in Incidental
Quantities.
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4.14 Material Contract Defaults. Warrior is not in default in any material
respect under the terms of any outstanding material contract, agreement, lease
or other commitment, which would have a material adverse effect on the business,
operations, properties or assets, or the condition, financial or otherwise, of
Warrior or under its articles of association or bylaws and no event has occurred
which, with notice or lapse of time, or both, may be or become a material
default of any such contract, agreement, lease or other commitment or under the
articles of association or bylaws of Warrior.
4.15 Brokers and Finders. Neither Warrior nor any of its officers,
directors or employees have employed any broker or finder or incurred any
liability for any financial advisory, brokerage or finders fees or commissions
and no broker or finder has acted directly or indirectly for Warrior in
connection with this Plan of Merger or the transactions contemplated hereby.
SECTION 5
ACCESS TO INFORMATION CONCERNING PROPERTIES AND RECORDS
5.1 Access to Information. CNC and Warrior will give to one another and to
their respective counsel, accountants and other representatives ("advisors"),
upon reasonable notice, during normal business hours throughout the period prior
to the Closing Date, full access to their respective books, records, customer
and loan files, contracts and commitments. For the period prior to the Effective
Time, CNC and Warrior shall deliver to one another such statements, schedules
and reports concerning the business, operations and financial condition of CNC
and Warrior as are regularly provided to their respective Board of Directors at
such times as they are regularly supplied to their respective Board of
Directors. Warrior shall promptly provide to CNC copies of any definitive
agreement respecting a merger of Warrior or acquisition by Warrior of any
corporation or business whether by merger, consolidation, purchase of assets or
otherwise.
5.2 Return of Records. If the transactions contemplated hereby are not
consummated and this Plan of Merger terminates, each party agrees to promptly
return all documents, contracts, records or properties of the other party and
all copies thereof furnished pursuant to this Section 5 or otherwise. All
information disclosed by any party or any affiliate or representative of any
party shall be deemed to be "Confidential Information" under the terms of the
Letter of Intent dated May 16, 1998, between CNC and Warrior (the
"Confidentiality Agreement").
5.3 Effect of Access.
(a) Nothing contained in this Section 5 shall be deemed to create any
duty or responsibility on the part of either party to investigate or
evaluate the value, validity or enforceability of any contract, lease or
other asset included in the assets of the other party.
(b) With respect to matters as to which any party has made express
representations or warranties herein, the parties shall be entitled to rely
upon such express representations and warranties irrespective of any
investigations made by such parties, except to the extent that such
investigations result in actual knowledge of the inaccuracy or falsehood of
particular representations and warranties.
SECTION 6
COVENANTS
CNC and Warrior, each as an inducement for the other to enter into this
Plan of Merger, covenant that:
6.1 Preservation of Business. From the date of this Agreement, CNC will
use its reasonable best efforts to preserve the business organization of CNC
intact, to keep available to the Surviving Corporation the services of the
present employees of CNC, and to preserve for the Surviving Corporation the
goodwill of the suppliers, customers, depositors and others having business
relations with CNC.
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6.2 Material Transactions. Until the Effective Time or the earlier
termination of this Plan of Merger, and except as contemplated by this Plan of
Merger or disclosed in the Disclosure Schedules or as consented to or otherwise
approved by CNC and Warrior in writing, as the case may be, which consent or
approval will not be unreasonably withheld:
(a) the business of CNC shall be conducted only in the ordinary course
and CNC will not encumber any asset or enter into any transaction or make
any contract or commitment relating to its properties, assets and
businesses, other than in the ordinary course of business or as otherwise
disclosed herein;
(b) no change shall be made in the articles of incorporation or bylaws
of CNC;
(c) no change shall be made in the number of shares of capital stock
of CNC issued and outstanding, nor shall any option, warrant, call,
convertible security, commitment or other right be granted or made by CNC
relating to its authorized or issued capital stock;
(d) except in the ordinary course of business as previously conducted,
no purchase order, contract or commitment (other than deposits, loan
commitments and investments or the sale of other real estate owned in the
ordinary course of business of CNC) shall be entered into by or on behalf
of CNC extending for more than one year or involving payment by CNC of more
than $10,000 in any one contract or related series of contracts or
otherwise materially affecting its business;
(e) except as provided in Section 7.1(f), no employment agreement or
other agreement will be entered into with any employee of CNC and no
employee's salary or benefits will be increased except for normal annual
increases in the ordinary course and no employee benefit plan will be
modified or amended except as required by law provided that at the
Effective Time CNC shall be permitted to pay cash bonuses and make ordinary
contributions to its employee benefit plans for which it has made
year-to-date accruals as shown on the CNC Financial Statements;
(f) CNC will comply in all material respects with all laws applicable
to it and to the conduct of its business, if failure to comply could have a
material adverse effect upon its business;
(g) except for the normal dividend of $1.50 per quarter customarily
paid by CNC as reflected in the CNC Financial Statements, no dividends
shall be paid, or distributions made, with respect to CNC Stock;
(h) no loan other than in the ordinary course of business will be made
by CNC without providing Warrior with all relevant documents related
thereto and giving Warrior a reasonable opportunity to review such loan and
comment thereon;
(i) no security owned by CNC will be sold and no new securities will
be purchased without the approval of Warrior; and
(j) the obligations under all employment, severance or other
agreements between CNC and its employees related to the termination of such
agreements shall not be in excess of the amounts described in the
Employment Agreements attached to the CNC Disclosure Schedule.
6.3 Confidentiality. Until the Merger is consummated, CNC or Warrior shall
not, without the prior written consent of the other party, as the case may be,
disclose to third parties, and shall use care to assure that its directors,
officers, employees and advisors do not disclose to third parties any
information regarding the Merger or any confidential information, which shall
include all information received from the other party, as the case may be, in
the course of discus sing, investigating, negotiating and performing the
transactions contemplated by this Plan of Merger, whether such information has
been obtained before or after the date of execution of this Plan of Merger. The
term "confidential information" does not include information which (i) was known
to the other party, as the case may be, its directors, officers, employees or
advisors prior to the time of its disclosure to such party by the other party;
(ii) is or becomes publicly known or available; or (iii) is independently
developed or discovered by the other party or their respective directors,
officers, employees or
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advisors outside of the discussions, investigations, negotiations and
performance contemplated by this Plan of Merger. "Third parties" does not
include the directors, officers, employees or advisors of the other party.
6.4 CNC Shareholder Meeting. As soon as reasonably practicable, CNC shall
take all action necessary in accordance with applicable law and its articles of
incorporation and bylaws to call, give notice of, convene and hold a meeting of
its shareholders (the "Special Meeting") for the purpose of approving and
adopting this Plan of Merger, the Merger and the transactions contemplated
thereby. In connection therewith, CNC shall mail to all shareholders of record
entitled to vote at such meeting the Prospectus/Proxy Statement which shall
indicate that the Board of Directors of CNC has, by resolution, approved the
Merger on the terms and subject to the conditions set forth in this Plan of
Merger. Subject to applicable laws and the fiduciary duties of its directors,
CNC shall use reasonable efforts to solicit from its shareholders proxies in
favor of such adoption and approval and shall take all other reasonable action
necessary or helpful to secure a vote of its shareholders in favor of the
Merger.
6.5 Affiliate's Letters. CNC and Warrior shall use their respective best
efforts to obtain and deliver to one another prior to the Special Meeting a
signed letter in the form attached as Exhibit 6.5 from each of their respective
officers, directors or shareholders who may be deemed an "affiliate" of CNC or
Warrior, as appropriate within the meaning of such term as used in Rule 145
under the Securities Act.
6.6 Accounting Methods. Neither CNC nor Warrior shall change, in any
material respect, its methods of accounting in effect at its most recent fiscal
year end, except as required by changes in generally accepted accounting
principles, if applicable, as concurred by such parties' independent
accountants.
6.7 Approvals of Regulatory Authorities. Warrior will supervise the
preparation and the filing by CNC of such applications to the Board of Governors
of the Federal Reserve System (the "Fed"), the Alabama State Banking Department
(the "Department"), the Federal Deposit Insurance Corporation (the "FDIC") and
other regulatory authorities as may be necessary to obtain all governmental
approvals requisite to the consummation of the Merger. As soon as practicable,
Warrior shall file applications with the proper regulatory authorities for
approval of the Merger and the acquisition of CNC by Warrior and shall
thereafter take all action to obtain the approval of such regulatory
authorities. All of the representations contained in the applications filed by
Warrior with regulators with or on behalf of CNC, will be, at the time they are
made, accurate in all material respects, except Warrior makes no representation
or warranty as to matters contained therein that are based on information
provided by CNC. All filings, requests for approval or other submissions for any
regulatory approval shall be made available for review by CNC prior to filing.
6.8 Securities Matters.
(a) Warrior and TBC shall prepare and file the Registration Statement
with the SEC and any other applicable regulatory bodies and shall make all
applicable state securities filings and shall take all reasonable steps
necessary to cause the Registration Statement and state filings to be
declared effective and to maintain such effectiveness until all of the
shares of TBC Common Stock covered thereby have been distributed. Warrior
and TBC shall promptly amend or supplement the Registration Statement to
the extent necessary in order to make the statements therein not misleading
or to correct any statements which have become false or misleading. Warrior
shall use its reasonable best efforts to have the Registration Statement
declared effective by the SEC under the provisions of the Exchange Act.
Warrior shall provide CNC with copies of all filings made pursuant to this
Section and shall consult with CNC on responses to any comments made by the
Staff of the SEC with respect thereto.
(b) The information specifically designated as being supplied by CNC
for inclusion or incorporation by reference in the Registration Statement
shall not, at the time the Registration Statement is declared effective, at
the time the Proxy Statement is first mailed to holders of CNC Common
Stock, at the time of the Special Meeting and at the Effective Time,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, not misleading. The information specifically
designated as being supplied by CNC for inclusion or incorporation by
reference in the Proxy Statement shall not, at the date the Proxy Statement
(or any amendment thereof or supplement thereto) is first mailed to holders
of CNC Common Stock, at the time
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of the Special Meeting and at the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they are made, not misleading.
If at any time prior to the Effective Time any event or circumstance
relating to CNC or its officers or directors should be discovered by CNC
which should be set forth in an amendment to the Registration Statement or
a supplement to the Proxy Statement, CNC shall promptly inform Warrior. All
documents, if any, that CNC is responsible for filing with the SEC in
connection with the transactions contemplated hereby will comply as to form
and substance in all material respects with the applicable requirements of
the Securities Act and the Exchange Act and the rules and regulations
thereunder.
(c) The information specifically designated as being supplied by
Warrior for inclusion or incorporation by reference in the Registration
Statement shall not, at the time the Registration Statement is declared
effective, at the time the Proxy Statement is first mailed to holders of
the CNC Common Stock, at the time of the Special Meeting and at the
Effective Time, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order
to make the statements therein, not misleading. The information
specifically designated as being supplied by Warrior for inclusion or
incorporation by reference in the Proxy Statement in connection with the
Special Meeting shall not, at the date the Proxy Statement (or any
amendment thereof or supplement thereto) is first mailed to holders of CNC
Common Stock, at the time of the Special Meeting or at the Effective Time,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, not misleading. If at any time prior to the
Effective Time any event or circumstance relating to Warrior or its
officers or Directors, should be discovered by Warrior which should be set
forth in an amendment to the Registration Statement or a supplement to the
Proxy Statement, Warrior should promptly inform CNC and shall promptly file
such amendment to the Registration Statement. All documents that Warrior is
responsible for filing with the SEC in connection with the transactions
contemplated herein will comply as to form and substance in all material
respects with the applicable requirements of the Securities Act and the
Exchange Act and the rules and regulations thereunder.
(d) Prior to the Closing Date, Warrior shall cause the shares of
Warrior Common Stock to be issued in the Merger to be registered or
qualified under all applicable securities or Blue Sky laws of each of the
states and territories of the United States, and to take any other actions
which may be necessary to enable the Warrior Common Stock to be issued in
the Merger to be distributed in each such jurisdiction.
6.9 Due Diligence. CNC and Warrior shall each deliver by the Closing Date
all opinions, certificates and other documents required to be delivered by it.
6.10 Status Reports. CNC and Warrior shall advise one another from time to
time regarding the applications for regulatory approval of the Merger and
provide one another copies of all comments, correspondence and approvals to or
from regulators in connection with the applications, and give one another copies
of all regulatory approvals referred to in this Plan of Merger.
6.11 Pooling and Tax-Free Reorganization Treatment. Unless required by
law, neither CNC nor Warrior shall take or cause to be taken any action, whether
on or before the Effective Time, which would disqualify the Merger as a "pooling
of interests" for accounting purposes or as a "reorganization" within the
meaning of Section 368(a) of the Code.
6.12 Other Actions. Unless required by law, neither CNC nor Warrior shall
knowingly or intentionally take any action, or omit to take any action, if such
action or omission would, or reasonably might be expected to, result in any of
its representations and warranties set forth herein being or becoming untrue in
any material respect, or in any of the conditions to the Merger set forth in
this Plan of Merger not being satisfied, or (unless such action is required by
applicable law) which would materially adversely affect the ability of Warrior
or CNC to obtain any consents or approvals required for the consummation of the
Merger without imposition of a condition or restriction which would have a
material adverse effect on the Surviving Corporation or which would otherwise
materially impair the ability of Warrior or CNC to consummate the Merger in
accordance with the terms of the Plan of Merger or materially delay such
consummation.
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6.13 Update of Warrior Disclosure Schedule. Upon completion of the Warrior
Merger, the Warrior Disclosure Schedule shall be updated by TBC to provide
accurate information regarding TBC pursuant to the representations and
warranties of Warrior made under Section 4 hereof for the benefit of CNC. It is
intended that such information will not reveal any material adverse change in
the representations and warranties of Section 4 or in the information provided
to CNC in the Warrior Disclosure Schedule as of the date of this Agreement and
absent any such change shall not give rise to any right to terminate this
Agreement.
6.14 No Shopping. Neither CNC nor any of its officers and directors, will,
and CNC will direct and use its best efforts to cause its employees, agents and
representatives, during the period beginning on the date hereof and ending on
the first to occur of (a) the Effective Time or (b) the termination of this Plan
of Merger (i) sell or arrange for the sale of any CNC Common Stock, other than
as required by the CNC employee stock purchase plan; (ii) negotiate, solicit or
encourage or authorize any person to solicit from any third party any proposals
relating to the merger or consolidation of CNC, disposition of the business or
assets of CNC or the acquisition of the capital stock of CNC (an "Acquisition
Proposal"); or (iii) except to the extent legally required for the discharge by
the board of directors of its fiduciary duties, make any information concerning
CNC available to any person for the purpose of affecting or causing a merger,
consolidation or disposition of CNC or its assets or common stock.
SECTION 7
CONDITIONS
7.1 Mutual Conditions. The obligations of CNC and Warrior under this Plan
of Merger are subject to and conditioned upon the satisfaction, prior to the
Closing Date, of each of the following conditions except as both CNC and Warrior
may waive in writing:
(a) Information Package. The Registration Statement shall have been
declared effective and no stop order shall be in effect, and all applicable
federal securities or state blue sky laws shall have been complied with or
an exemption thereunder shall be available.
(b) No Litigation. No suit, action, claim or other proceeding shall
have been threatened or pending before any court, administrative or
governmental agency which, in the reasonable opinion of CNC or Warrior,
presents a significant risk of restraint or prohibition of the transactions
contemplated hereby or the attainment of material damages or other relief
against CNC or its shareholders or Warrior or its shareholders in
connection therewith.
(c) Shareholder Approval. The holders of two-thirds of the
outstanding shares of CNC Common Stock shall have approved the Merger.
(d) Approvals. Receipt of all authorizations, approvals and/or
consents of any third parties as well as the expiration of applicable
waiting periods, including federal or state governmental and/or regulatory
bodies and officials, necessary for the consummation of this Plan of Merger
and for the continuation in all material respects of the business of
Warrior and CNC, without interruption after the Effective Time, in
substantially the manner in which such business is now conducted shall have
been received, and no such authorizations or approvals shall contain any
conditions or restrictions that CNC or Warrior reasonably believes will
materially restrict or limit the business or activities of the Surviving
Corporation subsequent to the Merger, or have a material adverse effect on
their businesses, operations or financial conditions taken as a whole.
(e) Dissenter's Rights. Holders of not more than ten percent (10%) of
the out standing shares of CNC Common Stock shall have voted against
approval of, or given notice in writing to CNC at or prior to the CNC
shareholders' meeting that he or she dissents from, the transactions
contemplated by the Plan of Merger and the Merger Agreement.
(f) Employment Agreement. Warrior shall have entered into a
definitive employment agreement with Gordon R. Boyles and W.P. Riley at the
Effective Time, substantially in the form of Exhibit 7.1(f).
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7.2 Conditions in Favor of CNC. All obligations of CNC under this Plan of
Merger are subject to and conditioned upon the satisfaction, prior to the
Closing Date, of each of the following conditions except as CNC may waive in
writing:
(a) Material Adverse Change. Since the date of this Plan of Merger,
there have been no material adverse changes, occurrences or developments in
the business of Warrior that have, or would be expected to have, a material
adverse effect on the business, operations or financial condition of
Warrior, and CNC shall not have discovered any fact or circumstance not
disclosed by Warrior prior to the date of this Plan of Merger that has
resulted in, or could reasonably be expected to result in, a material
adverse effect on the business, operations or financial condition of
Warrior.
(b) Representations, Warranties and Agreements. Each representation
and warranty of Warrior contained in this Plan of Merger or in any Warrior
Document, including without limitation, financial statements, the Warrior
Disclosure Schedules, deeds, exhibits, certificates, schedules or other
documents delivered pursuant hereto or in connection with the transactions
contemplated hereby, that is qualified as to materiality shall be true and
correct, and each representation and warranty that is not so qualified
shall be true and correct in all material respects, as of the date of the
Plan of Merger and at the Closing Date as if then made, except to the
extent that any such representation and warranty expressly relates to an
earlier date (in which case any such representation and warranty that is
qualified as to materiality shall be true and correct, and any such
representation that is not so qualified shall be true and correct in all
material respects, as of such earlier date). Warrior and The Bank shall
have performed and complied with all covenants, agreements and conditions
required by this Plan of Merger to be performed or complied with in all
material respects by them, or either of them, prior to or at the Closing
Date.
(c) Officers' Certificate. Receipt by CNC of certificates in form and
content satisfactory to CNC from the President and the Chief Financial
Officer of Warrior or the President and Chief Financial Officer of TBC as
applicable dated as of the Closing Date, to the effect that the
representations and warranties made herein by Warrior or TBC as applicable,
on the date hereof and on the Closing Date are true and correct as set
forth in Section 4 and that Warrior has performed the covenants,
obligations and agreements undertaken by it herein in all material
respects.
(d) Legal Opinion. Receipt by CNC of an opinion of legal counsel for
Warrior, Haskell Slaughter & Young, L.L.C., substantially in the form
attached hereto as Exhibit 7.2(d). Such opinion shall be subject to
reasonable and customary qualifications.
(e) Federal Tax Opinion. An opinion of Balch & Bingham LLP shall have
been received by CNC to the effect that for federal income tax purposes the
Merger will constitute a reorganization within the meaning of section
368(a) of the Internal Revenue Code, and the exchange in the Merger of CNC
Common Stock for TBC Common Stock will not give rise to gain or loss to the
shareholders of CNC (except to the extent of any cash received), which
opinion may be based upon representations of officers of CNC reasonably
satisfactory in form and substance to such counsel.
(f) Accountant's Letter. CNC shall have received from Ernst & Young
LLP, a letter dated as of the date of the mailing of the Prospectus-Proxy
Statement and the Closing Date, in form and substance reasonably
satisfactory to CNC and customary in scope and substance for letters
delivered by independent public accountants in connection with pooling of
interests transactions similar to the Merger.
(g) Secretary's Certificate. CNC shall have received in form and
content satisfactory to it of the Secretary or an Assistant Secretary of
Warrior to the effect that all necessary approvals of the Merger by the
Board of Directors and shareholders of Warrior were obtained at meetings
duly called for such purposes and as to the incumbency of all corporate
officers of Warrior at all relevant times.
(h) Proper Actions and Documentation. All actions required to be
taken by Warrior in connection with the transactions contemplated by this
Plan of Merger shall have been taken, and all documents incidental thereto
shall be in a form and substance reasonably satisfactory to CNC, and CNC
shall have received copies of all documents that it may have reasonably
requested in connection with such transactions.
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(i) Minimum Equity. Warrior shall have shareholders equity at the
Effective Time of not less than $30,849,534, exclusive of costs associated
with this or related transactions and determined in accordance with GAAP.
(j) The Persons listed on Exhibit 7.2(j) shall have been elected or
qualified to serve as directors or officers, as appropriate, of Warrior as
of the Effective Time.
(k) Fairness Opinion. CNC shall have received a fairness opinion form
Porter, White & Co. to the effect that the Merger is fair to its
shareholders from a financial point of view.
7.3 Conditions in Favor of Warrior. All obligations of Warrior under this
Plan of Merger are subject to and shall be conditioned upon the satisfaction,
prior to or on the Closing Date, of each of the following conditions except as
Warrior may waive such conditions in writing:
(a) Material Adverse Change. Since the date of this Plan of Merger
there have been no material adverse changes, occurrences or developments in
the business of CNC that have, or would be expected to have, a material
adverse effect on the business, operations or financial condition of CNC,
and Warrior shall not have discovered any fact or circumstance not
disclosed by CNC prior to the date of this Plan of Merger that has resulted
in, or could reasonably be expected to result in, a material adverse effect
on the business, operations or financial condition of CNC.
(b) Representations, Warranties and Agreements. Each representation
and warranty of CNC contained in this Plan of Merger or in any CNC
document, including, without limitation, financial statements, the CNC
Disclosure Schedules, deeds, exhibits, certificates, schedules or other
documents delivered pursuant hereto or in connection with the transactions
contemplated hereby, that is qualified as to materiality shall be true and
correct, and each representation and warranty that is not so qualified
shall be true and correct in all material respects, as of the date of the
Plan of Merger and at the Closing Date as if then made, except to the
extent that any such representation and warranty expressly relates to an
earlier date (in which case any such representation and warranty that is
qualified as to materiality shall be true and correct, and any such
representation that is not so qualified shall be true and correct in all
material respects, as of such earlier date). CNC shall have performed and
complied with all covenants, agreements and conditions required by this
Plan of Merger to be performed or complied with in all material respects by
it prior to or at the Closing Date.
(c) Officer's Certificate. Receipt by Warrior of a certificate in
form and content satisfactory to it from the President and the Chief
Financial Officer of CNC, dated the Closing Date, to the effect that the
representations and warranties made herein by CNC on the date hereof, and
on the Closing Date, are true and correct as set forth in Section 3, and
that CNC has performed the covenants, obligations and agreements undertaken
by it herein in all material respects.
(d) Secretary's Certificate. Warrior shall have received in form and
content satisfactory to it a certificate of the Secretary or an Assistant
Secretary of CNC to the effect that all necessary approvals of the Merger
by the Board of Directors and shareholders of CNC were obtained at meetings
duly called for such purposes and as to the incumbency of all corporate
officers of CNC at all relevant times.
(e) Legal Opinion. Receipt by Warrior of an opinion of CNC's legal
counsel, Balch & Bingham LLP, substantially in the form attached as Exhibit
7.3(e). In addition, such counsel may rely on representations and
certificates of officers and directors of CNC and certificates of public
officials. Such opinion shall be subject to reasonable and customary
qualifications.
(f) Federal Tax Opinion. An opinion of Haskell Slaughter & Young,
L.L.C. shall have been received by Warrior to the effect that for federal
income tax purposes the Merger will constitute a reorganization within the
meaning of section 368(a) of the Internal Revenue Code, which opinion may
be based upon representations of officers of Warrior reasonably
satisfactory in form and substance to such counsel.
(g) Accountant's Letter. Warrior shall have received from Ernst &
Young LLP a letter dated the date of the mailing of the Prospectus-Proxy
Statement and the Closing Date, in form and substance
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reasonably satisfactory to Warrior and customary in scope and substance for
letters delivered by independent public accountants in connection with
pooling of interests transactions similar to the Merger.
(h) Proper Actions and Documentation. All actions required to be
taken by CNC by this Plan of Merger shall have been taken or satisfied in
all material respects, and all documents incidental thereto shall be in a
form and substance reasonably satisfactory to Warrior and its counsel, and
Warrior shall have received copies of all documents that they may have
reasonably requested in connection with such transactions.
(i) Minimum Equity. CNC shall have shareholders equity at the
Effective Time of not less than $11,517,899, excluding costs associated
with this transaction, and determined in accordance with GAAP.
SECTION 8
TERMINATION
8.1 Termination. This Plan of Merger may be terminated and the Merger
abandoned (either before or after approvals and authorizations by the
shareholders of CNC and Warrior con templated hereby and without seeking further
shareholder approval) at any time prior to the Effective Time only in one of the
following manners:
(a) Mutual Agreement. By mutual written consent of the parties
authorized by their respective Boards of Directors at any time prior to the
Effective Time.
(b) by either CNC or Warrior:
(i) if, upon a vote at a duly held meeting of stockholders or any
adjournment thereof, any required approval of the holders of shares of
Warrior Common Stock or CNC Common Stock shall not have been obtained;
(ii) if the Merger shall not have been consummated on or before
March 31, 1999, unless the failure to consummate the Merger is the
result of a willful and material breach of this Plan of Merger by the
party seeking to terminate this Plan of Merger; provided, however, that
the passage of such period shall be tolled for any part thereof (but not
exceeding 60 days in the aggregate) during which any party shall be
subject to a nonfinal order, decree, ruling or action restraining,
enjoining or otherwise prohibiting the consummation of the Merger or the
calling or holding of a meeting of stockholders;
(iii) if any court of competent jurisdiction or other governmental
entity shall have issued an order, decree or ruling or taken any other
action permanently enjoining, restraining or otherwise prohibiting the
Merger and such order, decree, ruling or other action shall have become
final and nonappealable;
(iv) in the event of a breach by the other party of any
representation, warranty, covenant or other agreement contained in this
Plan of Merger which (A) would give rise to the failure of a condition
set forth in Section 7.2(a) or (b) or Section 7.3(a) or (b), as
applicable, and (B) cannot be or has not been cured within 30 days after
the giving of written notice to the breaching party of such breach (a
"Material Breach") (provided that the terminating party is not then in
Material Breach of any representation, warranty, covenant or other
agreement contained in this Plan of Merger); or
(c) By either CNC or Warrior in the event that (i) all of the
conditions to the obligation of such party to effect the Merger set forth
in Section 9.1 shall have been satisfied and (ii) any condition to the
obligation of such party to effect the Merger set forth in Section 7.2 (in
the case of CNC) or Section 7.3 (in the case of Warrior) is not capable of
being satisfied prior to the end of the period referred to in Section
8.1(b)(ii).
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8.2 Effect of Termination. In the event of termination of this Plan of
Merger as provided in Section 8.1, this Plan of Merger shall forthwith become
void and have no effect, without any liability or obligation on the part of any
party, other than the provisions of Sections 6.2, 8.2 and 8.6, and except to the
extent that such termination results from the willful and material breach by a
party of any of its representations, warranties, covenants or other agreements
set forth in this Plan of Merger.
8.3 Amendment. This Plan of Merger may be amended by the parties at any
time before or after any required approval of matters presented in connection
with the Merger by the holders of shares of CNC Common Stock and Warrior Common
Stock; provided, however, that after any such approval, there shall be made no
amendment that pursuant to Section 251(d) of the DGCL or the ABCA requires
further approval by such stockholders without the further approval of such
stockholders. This Plan of Merger may not be amended except by an instrument in
writing signed on behalf of each of the parties.
8.4 Extension; Waiver. At any time prior to the Effective Time of the
Merger, the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties contained in this Plan of Merger or in any
document delivered pursuant to this Plan of Merger or (c) subject to the proviso
of Section 8.3, waive compliance with any of the agreements or conditions
contained in this Plan of Merger. Any agreement on the part of a party to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. The failure of any party to this Plan of
Merger to assert any of its rights under this Plan of Merger or otherwise shall
not constitute a waiver of such rights.
8.5 Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Plan of Merger pursuant to Section 8.1, an amendment of this
Plan of Merger pursuant to Section 8.3, or an extension or waiver pursuant to
Section 8.4 shall, in order to be effective, require in the case of CNC or
Warrior, action by its Board of Directors or the duly authorized designee of the
Board of Directors.
8.6 Expenses and Damages. Each party shall pay its own expenses in
connection with the Plan of Merger and the Merger. Nothing contained in Section
8.7 shall be deemed to preclude either party from seeking to recover damages
which it incurs as a result of a breach by the other party of this Plan of
Merger or to obtain other legal or equitable relief (including specific
performance).
8.7 Termination Fee. In the event that (a) CNC terminates this Agreement
pursuant to Section 8.1 in order to entertain, negotiate or enter into an
Acquisition Proposal or (b) by Warrior if there has been a breach by CNC of any
of the covenants contained in Section 6 that results in an Acquisition Proposal
for no later than five business days after such termination; CNC shall pay to
Warrior an amount in cash equal to $1,000,000 and the costs directly
attributable to the loss of the operations center [which the parties agree
equals $810,000].
8.8 No Liability Upon Proper Termination. Upon proper termination by
written notice as provided in Section 8.1 of this Plan of Merger, this Plan of
Merger shall be void and of no further effect, except as set forth in Section
8.2, and there shall be no liability by reason of this Plan of Merger or the
termination thereof on the part of either Warrior, CNC or the directors,
officers, employees, agents or shareholders of any of them, and all such parties
shall be released from all such liability, provided that any such termination
shall not excuse a party for liability for any breach of this Agreement.
SECTION 9
MISCELLANEOUS
9.1 Survival of Representations, Warranties and Covenants. The respective
representations, warranties, agreements and covenants of the parties in this
Plan of Merger shall survive the Effective Time. Each party shall be deemed to
have relied upon each and every representation and warranty of the other party,
regardless of any investigation heretofore or hereafter made by or on behalf of
such party.
9.2 Employee Benefits. All employees of CNC who continue as employees of
the Surviving Corporation after the Merger shall receive service credits for
employment at CNC prior to the Effective Time for
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purposes of meeting all the eligibility requirements and all vesting
requirements for all of the Surviving Corporation's benefit programs in which
such employees shall become eligible to participate on or after the Effective
Time, including but not limited to health, retirement, vacation and disability
plans. The Surviving Corporation will waive waiting periods and pre-existing
conditions limitations under its group health plan (within the meaning of
Section 5000(b)(i) of the Internal Revenue Code of 1986, as amended) for those
employees of CNC who continue as employees of The Surviving Corporation after
the Merger and who had coverage under compatible group health plans of CNC
immediately prior to the Effective Time. The Surviving Corporation shall provide
the opportunity for continuation of coverage through COBRA for any former CNC
employee who participated as or who had a right to elect participation as a
COBRA continued under CNC's group health plans immediately prior to the
Effective Time.
9.3 Benefits of this Plan of Merger. This Plan of Merger and the rights
and obligations of Warrior and CNC hereunder shall not be assigned by any party
to any third party, except with the prior written consent of the other. This
Plan of Merger shall be binding upon and inure to the benefit of the parties
hereto and their respective permitted successors and assigns. Nothing in this
Plan of Merger, expressed or implied, is intended to confer upon any person,
other than the parties hereto, the shareholders of CNC, and their respective
permitted successors and assigns, any rights or remedies under or by reason of
this Plan of Merger and, except as aforesaid, there are no third-party
beneficiaries of this Plan of Merger.
9.4 Notices. Any notice, request, instruction, legal process or other
instrument to be given or served hereunder by any party to another, shall be
deemed given or served if in writing and delivered personally or sent by
registered or certified mail, postage prepaid, to the respective party or
parties at the following addresses:
If to Warrior:
Mr. James A. Taylor
Chairman of the Board
218 Louisa Street
Warrior, Alabama 35180
With copies to:
Haskell Slaughter & Young, L.L.C.
Attn: F. Hampton McFadden, Jr., Esq.
1200 AmSouth/Harbert Plaza
1901 Sixth Avenue North
Birmingham, Alabama 35203
and
Rothgerber, Johnson & Lyons LLP
Attn: William P. Johnson, Esq.
One Tabor Center
1200 17th Street, 30th Floor
Denver, Colorado 80202
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If to CNC:
W.T. Campbell, Jr.
Chairman of the Board
City National Corporation
Post Office Box 128
Sylacauga, Alabama 35150
With copies to:
T. Kurt Miller, Esq.
Balch & Bingham
Suite 2600, AmSouth/Harbert Plaza
1901 Sixth Avenue
North Birmingham, Alabama 35203
and to such other address or addresses as either party may designate to the
other by like notice as set forth above.
9.5 Publicity. CNC and Warrior shall ensure that all publicity, press
releases and other announcements relating to this Plan of Merger and the
transactions contemplated hereby are reviewed in advance by both Warrior and CNC
and their respective legal counsel and shall not make any such announcements
without the written approval of the other party.
9.6 Entire Agreement. This Plan of Merger contains the entire agreement
between the parties hereto with respect to the transactions contemplated hereby
and thereby supersedes all prior and contemporaneous agreements, understandings,
negotiations and discussions, whether oral or written, of the parties, and there
are no warranties, representations, covenants or other agreements between the
parties in connection with the subject matter hereof except as specifically set
forth herein.
9.7 Waiver or Modification. Any party to this Plan of Merger may, at any
time prior to the Effective Time, by action taken by its Board of Directors or
officers thereunto duly authorized, waive any of the terms or conditions of this
Plan of Merger or agree to an amendment or modification to this Plan of Merger
by an agreement in writing executed in the same manner (but not necessarily by
the same persons) as this Plan of Merger. No amendment, modification or waiver
of this Plan of Merger shall be binding unless executed in writing by the party
to be bound thereby. No waiver of any of the provisions of this Plan of Merger
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar), nor shall any waiver constitute a continuing waiver
unless expressly provided. CNC's Board of Directors may authorize the amendment
or supplementation of this Plan of Merger or waiver of any provision hereof or
thereof, either before or after the approval of CNC's shareholders (and without
seeking further shareholder approval to the extent allowed by law), so long as
such amendment, supplement or waiver does not result in the reduction of the
consideration given or result in an adverse tax or other effect to CNC's
shareholders.
9.8 Controlling Law. This Plan of Merger shall be construed in accordance
with the laws of the State of Alabama, except to the extent that federal law is
applicable.
9.9 Counterparts. This Plan of Merger may be executed in any number of
copies, each of which shall be deemed an original, and all of which together
shall be deemed one and the same instrument.
9.10 Knowledge. Whenever the term "knowledge," "best knowledge" or similar
expression is used in this Plan of Merger, it shall mean knowledge of a party's
respective directors and officers.
9.11 No Rule of Construction. The parties acknowledge that this Plan of
Merger was initially prepared by CNC and that all parties have read and
negotiated the language used in this Plan of Merger. The parties agree that,
because all parties participated in negotiating and drafting this Plan of
Merger, no rule of construction shall apply to this Plan of Merger which
construes ambiguous language in favor of or against any party by reason of that
party's role in drafting this Plan of Merger.
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9.12 Binding Effect. This Plan of Merger shall be binding on, and shall
inure to the benefit of, the parties hereto, and their respective successors and
assigns, and no other person shall acquire or have any right under or by virtue
of this Plan of Merger. No party may assign any right or obligation hereunder
without the prior written consent of the other parties.
9.13 Cooperation.
(a) Warrior and CNC shall together, or pursuant to an allocation of
responsibility agreed to between them, (i) cooperate with one another in
determining whether any filings are required to be made or consents are
required to be obtained in any jurisdiction prior to the Effective Time in
connection with the consummation of the transactions contemplated hereby;
and cooperate in making any such filings promptly and in seeking to obtain
timely any such consents, (ii) use their respective best efforts to cause
to be lifted any injunction prohibiting the Merger, or any part thereof, or
the other transactions contemplated hereby, and (iii) furnish to one
another and to one another's counsel all such information as may be
required to effect the foregoing actions.
(b) Subject to the terms and conditions herein provided, and unless
this Plan of Merger shall have been validly terminated as provided herein,
each of Warrior and CNC shall use all reasonable efforts (i) to take, or
cause to be taken, all actions necessary to comply promptly with all legal
requirements which may be imposed on such party (or any subsidiaries or
affiliates of such party) with respect to the Plan of Merger and to
consummate the transactions contemplated hereby and (ii) to obtain (and to
cooperate with the other party to obtain) any consent, authorization, order
or approval of, or any exemption by, any governmental entity and/or any
other public or private third party which is required to be obtained or
made by such party or any of its subsidiaries or affiliates in connection
with this Plan of Merger and the transactions contemplated hereby. Each of
Warrior and CNC will promptly cooperate with and furnish information to the
other in connection with any such burden suffered by, or requirement
imposed upon, either of them or any of their subsidiaries or affiliates in
connection with the foregoing. The parties shall, from time to time, and
including as of and upon the Closing Date, prepare and deliver to each
other such supplements and amendments to their respective Disclosure
Schedules as are necessary or appropriate to assure the accuracy and
completeness thereof; provided that the furnishing of any such supplement
shall not modify, limit, or otherwise affect any representations or
warranties of a party contained in this Agreement or any right of a party
to terminate this Agreement.
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IN WITNESS WHEREOF, pursuant to authority duly given by the respective
Boards of Directors of Warrior and CNC, this Plan of Merger has been signed on
behalf of said corporations by their respective Chairman of the Board, President
or Vice President, as the case may be, all on the date, month and year first
written above.
CITY NATIONAL CORPORATION
By: /s/ W.T. CAMPBELL, JR.
------------------------------------
W.T. Campbell, Jr.
Chairman of the Board
WARRIOR CAPITAL CORPORATION
By: /s/ JAMES A. TAYLOR
------------------------------------
James A. Taylor
Chairman of the Board
THE BANC CORPORATION
By: /s/ JAMES A. TAYLOR
------------------------------------
James A. Taylor
Chairman of the Board
C-25
<PAGE> 679
ANNEX D
ARTICLE 13
DISSENTERS' RIGHTS
---------------------
DIVISION A
RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
sec. 10-2B-13.01. Definitions.
(1) "Corporate action" means the filing of articles of merger or share
exchange by the probate judge or Secretary of State, or other action giving
legal effect to a transaction that is the subject of dissenters' rights.
(2) "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.
(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Section 10-2B-13.02 and who exercises that right when and
in the manner required by Sections 10-2B-13.20 through 10-2B-13.28.
(4) "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 unless exclusion would be inequitable.
(5) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans, or, if none, at a rate that is fair and
equitable under all circumstances.
(6) "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.
(7) "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.
(8) "Shareholder" means the record shareholder or the beneficial
shareholder.
- ---------------
History. Acts 1994, No. 94-245.
Collateral references. Am. Jur. 2d, Corporations, sec. 2574 et seq.
C.J.S. C.J.S., Corporations, sec. 799 et seq.
COMMENTARY
(1) Section 10-2B-13.01 of this Act is a new provision, setting forth
definitions in relation to provisions governing dissenters' rights under Chapter
13. The format is similar to that utilized in the indemnification provisions of
Chapter 8, and in Section 10-2B-8.51. As with the definitions under Section
10-2B-8.51, these are "special definitions," applicable only to Chapter 13.
(2) The definition of "corporate action" in Section 10-2B-13.01 of this Act
was not included in section 10-2A-162 or 10-2A-163 of the former Alabama Act,
nor does it appear in the ABA version of RMBCA section 13.01. The Alabama
Drafting Committee felt it desirable to have a stated definition of "corporate
action," since the term is the trigger for dissenters' rights under Chapter 13,
and also is a reference point for other items governing the exercise of
dissenters' rights.
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(3) The definition of "corporation" brings forward the conventional usage
of "corporation" under former Ala. 10-2A-162 and 10-2A-163, while the definition
of "dissenter" is a new term, descriptive of one who dissents and exercises
dissenters' rights under these provisions.
(4) The definition of "fair value" is significant in defining "fair value"
as the value of shares "immediately before the effectuation of the corporate
action . . . excluding any appreciation or depreciation in anticipation
of . . . action unless exclusion would be inequitable." Though this is similar
to the definition under former Ala. 10-2A-163(a) of "fair value" as value on
"the day prior to the date on which the vote was taken . . . excluding any
appreciation or depreciation," and also consistent with the concept of appraisal
as a fair payment for the value of shares before a merger, there is no inequity
"exclusion" under Alabama law. There is considerable Delaware case law on the
subject; and the exception might be employed, albeit indirectly, to reflect
synergy associated with the transaction.
(5) The definition of "interest" states that interest runs from the
effective date of action until payment. As such, it is consistent with former
Ala. 10-2A-163(f), though the provision that interest be computed "at the
average rate currently paid by the corporation in its principal bank loans" is
new. The language in Ala. 10-2A-163(f) required it to be "fair and equitable."
(6) The definition of "record shareholder" is not a term used in former
Ala. 10-2A-162 or 10-2A-163, though the definition is consistent with that in
former Ala. 10-2A-48 and Ala. 10-2A-51 governing voting, absent the stated
exception for "beneficial" ownership as reflected on a "nominee certificate."
The definition, as with that of "beneficial shareholder" is directed toward
Section 10-2B-13.03, entitled "Dissent by Nominees and Beneficial Owners." The
definition, though not employed under the former statute, is consistent with the
conventional usage of "beneficial owner" in Alabama. The definition of
"shareholder" is significant in including both record holders and beneficial
holders of shares.
sec. 10-2B-13.02. Right to dissent.
(a) A shareholder is entitled to dissent from, and obtain payment of
the fair value of his or her 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 (i) if shareholder approval is required for the merger by Section
10-2B-11.03 or the articles of incorporation and the shareholder is
entitled to vote on the merger or (ii) if the corporation is a subsidiary
that is merged with its parent under Section 10-2B-11.04;
(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 by all, or substantially all,
of the property of the corporation other than in the usual and regular
course of business, if the shareholder is entitled to vote on the sale or
exchange, including a sale in dissolution, 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) To the extent that the articles of incorporation of the
corporation so provide, an amendment of the articles of incorporation that
materially and adversely affects rights in respect to a dissenter's shares
because it:
(i) Alters or abolishes a preferential right of the shares;
(ii) 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;
(iii) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities;
(iv) 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;
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or
(v) 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 Section 10-2B-6.04; or
(5) Any corporate action taken pursuant to a shareholder vote to the
extent 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 shares under
this chapter may not challenge the corporate action creating his or her
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
- ---------------
History. Acts 1994, No. 94-245.
Editor's note. Former similar law: Code 1940, T.10, sec. 21(62).
COMMENTARY
(1) Section 10-2B-13.02(a)of this Act is a successor to section
10-2A-162(a) of the former Alabama Act, in providing in subsection (a)(1) and
subsection (a)(2), respectively, for shareholders to dissent from a "merger" and
a "sale or exchange . . . of . . . property," and to former Ala. 10-2A-171, in
providing in subsection (a)(2) for dissent to a "share exchange." As respects
dissent to a merger transaction in subsection (a)(1), the qualifications
relating to short term mergers in Ala. 10-2A-162(c) are brought forward by the
prescription in subsection (a)(1)(i) that dissenters' rights exist if
"shareholder approval is required," and in subsection (a)(1)(ii) that they exist
"if the corporation is a subsidiary that is merged with its parent." The
statement in subsection (a)(1)(i) as to shareholder approval also excluded the
circumstance presented by Section 10-2B-11.03(g), where approval by holders of
stock in the surviving corporation is not required if there is no more than a
"20 percent" increase in "shares of the surviving corporation outstanding."
(2) Section 10-2B-13.02(a)(4) differs from former Ala. 10-2A-162(a) in
allowing holders to dissent from certain amendments to the articles of
incorporation, where the dissent is authorized by the articles of incorporation.
Also, Section 10-2B-13.02(a)(5) differs in allowing dissent from "any corporate
action requiring a shareholder vote if the articles of incorporation, bylaws, or
a board resolution so provides." As respects amendments, they must "materially
and adversely" affect a shareholder's rights, and involve (i) an alteration of
preferential rights, (ii) the creation or alteration of redemption rights, (iii)
an alteration of preemptive rights, (iv) a limitation on voting rights or on the
right to cumulative votes, or (v) a reduction of ownership to fractional shares,
which are to be acquired for cash. The rights afforded are not as extensive as
those under the ABA version of RMBCA section 13.02(a)(4), where there is no
requirement that dissent from amendments be included in a corporation's articles
of incorporation. As for the authorization for dissent to other transactions
requiring a vote of shareholders, it is noteworthy that such rights are afforded
not only by a provision in the articles of incorporation; but by a bylaw
provision or a resolution of the corporation's board of directors.
(3) Section 10-2B-13.02(b) is a new provision, making "dissent" pursuant to
Section 10-2B-13.02 an exclusive remedy for the shareholder, except where the
action is "unlawful or fraudulent with respect to the shareholder or the
corporation." There is a considerable body of case law, and substantial legal
commentary, on the issue of exclusivity or non-exclusivity of the appraisal
remedy. As may be noted in the Official Comment to Section 10-2B-13.02, the
approach taken here follows the pattern in New York and Delaware. Presumably, a
shareholder seeking injunctive relief to nullify a proposed transaction, and/or
seeking recession or other damages, would not necessarily be precluded where the
requisite "fraud" or "unlawful(ness)" can be shown.
(4) Not carried forward in Section 10-2B-13.02 is the so-called "market
exception" of former Ala. 10-2A-162(c), under which dissenters' rights are
excluded "if the shares of [a] class or series [are] registered on a national
securities exchange on the date fixed to determine the shareholders entitled to
vote . . . unless the articles of incorporation . . . otherwise provide."
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<PAGE> 682
sec. 10-2B-13.03. Dissent as to fewer than all shares held -- Beneficial
owners.
(a) A record shareholder may assert dissenters' rights as to fewer than all
of the shares registered in his or her name only if he or she dissents with
respect to all shares beneficially owned by any one person and notifies the
corporation in writing of the name and address of each person on whose behalf he
or she asserts dissenters' rights. The rights of a partial dissenter under this
subsection are determined as if the shares to which he or she dissents and his
or her other shares were registered in the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares
held on his or her behalf only if:
(1) He or she submits to the corporation the record shareholder's
written consent to the dissent not later than the time the beneficial
shareholder asserts dissenters' rights; and
(2) He or she does so with respect to all shares of which he or she is
the beneficial shareholder or over which he or she has power to direct the
vote.
- ---------------
History: Acts 1994, No. 94-245.
COMMENTARY
(1). Section 10-2B-13.03(a) is a new provision, drawing to some extent on
the rule in Section 10-2A-162(b) of the former Alabama Act, but which, along
with Section 10-2B-13.03(b), should be read in terms of the explanation in the
Official Comment to Section 10-2B-13.03. As with former Ala. 10-2A-162, and
correspondingly with Ala. 10-2A-51, it acknowledges that the right to vote, and
dissent, lies with the individual in whose name the stock is registered. In many
cases, this will be a direct nominee, i.e., a broker, and in other cases, this
will be a derivative nominee, such as a depository. The new rule, like former
Ala. 10-2A-162(b), is designed to allow, and assure, that a nominee holding
shares for more than one beneficial owner may act for one owner and not the
other, and where the nominee votes, or dissents, it is in respect to all shares
of the particular owner represented. Unlike Ala. 10-2A-162(b), subsection
10-2B-13.03(a) of this Act also states that the record holder must in such cases
notify the corporation in writing of the name and address of the holder on whose
behalf a dissent is made.
(2). Section 10-2B-13.03(b) is an entirely new provision, allowing for
direct assertion of dissenters' rights by the beneficial owner where that owner
(1) submits the record holder's written consent, and (2) dissents with respect
to all of his shares.
---------------------
DIVISION B
PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS.
sec. 10-2B-13.20. Notice of rights.
(a) If proposed corporate action creating dissenters' rights under Section
10-2B-13.02 is submitted to a vote at a shareholders' meeting, the meeting
notice must state that shareholders are or may be entitled to assert dissenters'
rights under this article and be accompanied by a copy of this article.
(b) If corporate action creating dissenters' rights under Section
10-2B-13.02 is taken without a vote of shareholders, the corporation shall (1)
notify in writing all shareholders entitled to assert dissenters' rights that
the action was taken; and (2) send them the dissenters' notice described in
Section 10-2B-13.22.
- ---------------
History. Acts 1994, No. 94-245.
Cross references. This law is referred to in: sec.sec. 10-2B-13.1, 10-2B-13.31.
COMMENTARY
(1) Section 10-2B-13.20(a) is a new provision, requiring that, where
dissenters' rights apply in a transaction requiring shareholder action at a
meeting, the meeting notice must state this fact and include a
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copy of the "chapter" granting such rights. This typically will be done in
accordance with proxy rules in the case of a publicly traded corporation; but
with enactment of Section 10-2B-13.20(a), it will also be mandated by statute.
(2) Section 10-2B-13.20(b) extends the same rule to transactions which
afford dissenters' rights, but for which no vote is required, such as short-form
mergers. The notice in this case is that "the action was taken," and that the
rights are available. Notice is prescribed in Section 10-2B-13.22.
CASE NOTES
Cited in Morris v. Peoples Indep. Bancshares, Inc. 632 So. 2d 1340 (Ala. 1994).
sec. 10-2B-13.21. REQUIREMENTS FOR EXERCISE OF RIGHTS.
(a) If proposed corporate action creating dissenters' rights under Section
10-2B-13.02 is submitted to a vote at a shareholder's meeting, a shareholder who
wishes to assert dissenters' rights (1) must deliver to the corporation before
the vote is taken written notice of his or her intent to demand payment or his
or her shares if the proposed action is effectuated; and (2) must not vote his
or her shares in favor of the proposed action.
(b) A shareholder who does not satisfy the requirements of subsection (a)
is not entitled to payment for his or her shares under this article.
- ---------------
History Acts 1994, No. 94-245.
Cross references. This law is referred to in: sec.sec. 10-2B-13.22.
COMMENTARY
Section 10-2B-13.21(a) and 10-2B-13.21(b), respectively, of this Act carry
forward the requirement of former section 10-2A-163(a) that a dissenting
shareholder file a written objection prior to the shareholder meeting, and that
a shareholder who fails to comply "is not entitled to payment" for the shares.
sec. 10-2B-13.22. Dissenters' notice.
(a) If proposed corporate action creating dissenters' rights under Section
10-2B-13.02 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of Section 10-2B-13.21.
(b) The dissenters' notice must be sent no later than 10 days after the
corporate action was taken, and must:
(1) State where the payment demand must be sent;
(2) Inform holders of shares to what extent transfer of the shares
will be restricted after the payment demand is received;
(3) Supply a form for demanding payment;
(4) 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 subsection (a) notice is delivered; and
(5) Be accompanied by a copy of this article.
- ---------------
History Acts 1994, No. 94-245.
Cross references. This law is referred to in: sec.sec. 10-2B-13.20,
10-2B-13.23, 10-2B-13.26.
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COMMENTARY
(1) Section 10-2B-13.22(a) of this Act is a new provision, placing an
affirmative obligation on the corporation to notify complying dissenters of the
completed shareholder action.
(2) Section 10-2B-13.22(b) requires such notice to be sent "no later than
10 days after the corporate action was taken." Section 10-2B-13.22(b) also
prescribes the form of the notice, which must include (1) a statement as to
where payment demand must be sent, (2) information to holders as to any
post-demand restrictions on share transfer, (3) a form for demanding payment,
(4) a date by which payment demand must be made which is not fewer than 30, nor
greater than 60 days after notice from the corporation is received, and (5) a
copy of the chapter authorizing dissenters' rights. Under former Ala.
10-2A-163(a), the obligation was on the dissenting shareholder to make a payment
demand within 10 days of the shareholder vote, or 15 days of the mailing of a
merger plan, where the plan did not require shareholder approval.
(3) It is noteworthy that, under the ABA version of RMBCA Chapter 13, which
requires shares to be surrendered upon the making of a payment demand, Section
10-2B-13.22(b)(1) requires that the notice include information as to when and
where certificates for certificated shares are to be deposited. Since under the
ABA version of the RMBCA, a corporation may issue shares without certificates,
section 10-2B-13.22(b)(2) of the ABA's version of the RMBCA also requires that
the notice inform holders of "uncertificated" shares to what extent transfer is
to be restricted.
(4) The ABA version of RMBCA Section 13.22(b)(3) requires that the form for
demanding payment include the date of the first announcement to news media or
shareholders of terms of the proposed corporate action and that the person
asserting dissenters' rights certify whether or not he acquired beneficial
ownership of the shares before that date. The information relates to an
alternative procedure under the ABA version of RMBCA Section 13.27, under which
a corporation may withhold payment required by Section 10-2B-13.25 from a
dissenter unless he was the beneficial owner of the shares before the date set
forth in the dissenters' notice as the date of the first announcement to news
media or shareholders of terms of the proposed corporate action. The ABA
alternative procedure was rejected by the Alabama Drafting Committee, thereby
rendering the additional information under the ABA version of RMBCA Section
13.22(b)(3) unnecessary.
sec. 10-2B-13.23. Duty to demand payment.
(a) A shareholder sent a dissenters' notice described in Section
10-2B-13.22 must demand payment in accordance with the terms of the dissenters'
notice.
(b) The shareholder who demands payment retains all other rights of a
shareholder until those rights are canceled or modified by the taking of the
proposed corporate action.
(c) A shareholder who does not demand payment by the date set in the
dissenters' notice is not entitled to payment for his or her shares under this
article.
(d) A shareholder who demands payment under subsection (a) may not
thereafter withdraw that demand and accept the terms offered under the proposed
corporate action unless the corporation shall consent thereto.
- ---------------
History Acts 1994, No. 94-245.
Cross references. This law is referred to in: sec.sec. 10-2B-13.25.
COMMENTARY
(1) Section 10-2B-13.23(a) of this Act brings forward the requirement of
Section 10-2A-163(a) of the former Alabama Act that, following shareholder
action or required notice in a transaction not mandating a shareholder vote, the
shareholder must make a written demand on the corporation for payment. However,
unlike Ala. 10-2A-163(a), the demand is in response to a required notice under
Section 10-2B-13.22, rather than being self-initiated by the dissenting holder.
Moreover, the respective 10 day and 15 day time
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requirements are deleted, in favor of time periods established by the
corporation under Section 10-2B-13.22(b)(4), which may not be fewer than 30, nor
greater than 60, days after notice.
(2) Under the ABA version of chapter 13, certificates are required to be
deposited in accord with terms of the notice, whereas under former Ala.
10-2A-163(d), certificates (subject to temporary surrender for notation under
Ala. 10-2A-163(h)) were not surrendered until agreement has been reached with
the dissenter to accept the "fair value" offered by the corporation, or upon a
court determination of "fair value" under Ala. 10-2A-163(e). As indicated by the
modified language of Section 10-2B-13.23(a) above, the Alabama Drafting
Committee retained the current Alabama approach.
(3) Section 10-2B-13.23(b) preserves "all other rights" of ownership to the
dissenting holder until cancellation or modification by the proposed corporate
action. This is in contrast to the approach under former Ala. 10-2A-163, under
which "(a)ny shareholder making . . . demand shall there after be entitled only
to payment . . . and shall not be entitled to vote or to exercise any other
rights of a shareholder."
(4) Section 10-2B-13.23(c) denies the right "to payment" to shareholders
who do not demand payment. A similar result was achieved by the next-to-last
sentence of Ala. 10-2A-163(a), which stated that "(a)ny shareholder failing to
make demand within the applicable 10-day or 15-day period shall be bound by the
terms of the proposed corporate action."
5. Section 10-2B-13.23(d) is a new provision added by the Alabama Committee
to clarify that a shareholder who demands payment may not thereafter withdraw
the demand and accept the terms offered under the proposed corporate action.
sec. 10-2B-13.24. Share restrictions
(a) Within 20 days after making a formal payment demand, each shareholder
demanding payment shall submit the certificate or certificates representing his
or her shares to the corporation for (1) notation thereon by the corporation
that such demand has been made and (2) return to the shareholder by the
corporation.
(b) The failure to submit his or her shares for notation shall, at the
option of the corporation, terminate the shareholders' rights under this article
unless a court of competent jurisdiction, for good and sufficient cause, shall
otherwise direct.
(c) If shares represented by a certificate on which notation has been made
shall be transferred, each new certificate issued therefor shall bear similar
notation, together with the name of the original dissenting holder of such
shares.
(d) A transferee of such shares shall acquire by such transfer no rights in
the corporation other than those which the original dissenting shareholder had
after making demand for payment of the fair value thereof.
- ---------------
History. Acts 1994, No. 94-245.
COMMENTARY
(1) Section 10-2B-13.24 of this Act follows virtually verbatim the text of
section 10-2A-163(h) of the former Alabama Act.
(2) Under the ABA version of RMBCA section 13.24, provision is made for the
corporation to restrict transfer of "uncertificated" shares from the time demand
is made until a merger or other corporate action giving rise to dissenters'
rights is effected. Such restrictions are also required to be included in a
dissenters' notice pursuant to Section 10-2B-13.22(b)(2) of the ABA version.
Since Alabama does not provide for issuance of "uncertificated" shares, the
rules under the ABA version of Section 10-2B-13.24 are inapplicable. Therefore,
the Alabama Committee deleted the language of the section in its entirety.
(3) Since Alabama traditionally has required a shareholder to surrender his
shares temporarily following a payment demand for the purpose of "notation," the
Alabama Committee continued this procedure by bringing forward the language of
former Ala. 10-2A-163(h) in section 10-2B-13.24 of this Act.
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(4) Section 10-2B-13.24 of this Act requires that within 20 days of a
formal payment demand, a shareholder who has made a demand must submit his share
certificate or certificates to the corporation, so that a notation to that
effect may be placed on such certificate or certificates, and the shares
returned with the notation.
(5) Under Section 10-2B-13.24(b) of this Act, a shareholder's failure to
submit shares for notation will, at the corporation's option, terminate the
holder's rights as a dissenter unless a court of competent jurisdiction directs
otherwise.
(6) Section 10-2B-13.24 should be read in connection with Section
10-2B-13.23(b), which provides, that a shareholder who demands payment retains
all other rights of ownership unless they are canceled or modified by
effectuation of the proposed corporate action. This is in contrast to former
Ala. 10-2A-163, which stated that a shareholder making demand for payment is
"not entitled to vote or to exercise any other rights of a shareholder." Thus,
the restriction incurred by shares as a result of the holder's payment demand is
not as severe under this Act, at least until the time corporate action has been
taken.
(7) Section 10-2B-13.23(c) provides that where shares bearing a notation,
and accompanying restrictions, are transferred, each new certificate must bear a
similar notation, along with the name of the original, dissenting holder. A
transferee of shares takes only those rights of the original holder following a
demand for payment.
sec. 10-2B-13.25. Offer of payment.
(a) As soon as the proposed corporate action is taken, or upon receipt of a
payment demand, the corporation shall offer to pay each dissenter who complied
with Section 10-2B-13.23 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 the offer, an income
statement 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
Section 10-2B-13.28; and
(5) A copy of this article.
(c) Each dissenter who agrees to accept the corporation's offer of payment
in full satisfaction of his or her demand must surrender to the corporation the
certificate or certificates representing his or her shares in accordance with
terms of the dissenters' notice. Upon receiving the certificate or certificates,
the corporation shall pay each dissenter the fair value of his or her shares,
plus accrued interest, as provided in subsection (a). Upon receiving payment, a
dissenting shareholder ceases to have any interest in the shares.
- ---------------
History. Acts 1994, No. 94-245.
Cross references. This law is referred to in: sec.sec. 10-2B-13.28,
10-2B-13.30.
COMMENTARY
(1) Section 10-2B-13.25 of this Act is a successor to the "payment"
provisions of sections 10-2A-163(a) and 10-2A-163(c) of the former Alabama Act,
under which the corporation must, within 10 days of the corporate action, give
notice to those making a demand for payment, and make an offer of payment.
(2) Under section 10-2A-163(c) of the former Alabama Act, an offer must be
accompanied by the latest (but not more than 12 months prior to the offer)
balance sheet for the dissenter's corporation, and the corporation's profit-loss
statement for the 12 months ending with the balance sheet. If within 30 days of
the
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corporate action, the shareholder agrees to the proposed payment, then payment
must be made within 90 days of the action.
(3) The ABA version of RMBCA section 13.24 requires that upon receiving a
payment demand, or upon taking corporate action, the corporation make an
estimate of the fair value of the dissenter's shares plus accrued interest, and
pay that amount to the dissenter. The rationale of an immediate payment prior to
agreement was that the shareholder will have use of the funds, which is deemed
an appropriate quid pro quo for termination of the dissenter's rights in the
shares. The Alabama Drafting Committee rejected the immediate payment approach
of the ABA version, deciding instead to continue the approach of former Ala.
10-2A-163(a), which entailed only an offer of payment to a dissenting holder.
(4) Section 10-2B-13.25(b), as modified, requires the corporation to send
each dissenter (a) a balance sheet for the year ending "no more than 16 months
before the date of the offer, an income statement and interim financial
statements, (b) a statement of the corporation's estimate of fair value, (c) an
explanation of interest was calculated, (d) a statement of the dissenter's
rights under new Section 10-2B-13.28 to demand payment if dissatisfied with the
offer, and (e) a copy of this chapter.
(5) Section 10-2B-13.25(c) was added by the Alabama Committee to parallel
the procedure under former Ala. 10-2A-163(d), which stated that a shareholder
who accepts a corporation's offer of payment surrenders his share certificates,
and upon receiving payment, ceases to have any interest in the surrendered
shares.
SEC. 10-2B-13.26. Failure to take action
(a) If the corporation does not take the proposed action within 60 days
after the date set for demanding payment, the corporation shall release the
transfer restrictions imposed on shares.
(b) If, after releasing transfer restrictions, the corporation takes the
proposed action, it must send a new dissenters' notice under Section 10-2B-13.22
and repeat the payment demand procedure.
- ---------------
History Acts 1994, No. 94-245.
COMMENTARY
(1) Section 10-2B-13.26 of this Act has the same effect as Section
10-2A-163(b) of the former Alabama Act. Under Ala. 10-2A-163(b), if "proposed
corporate action shall be abandoned or rescinded" or if other specified actions
result in corporate action not being taken, "then the right of [a] shareholder
to be paid the fair value of his shares shall cease and his status as a
shareholder shall be restored, without prejudice to any corporate proceedings
which may have been taken during the interim." Section 10-2B-13.26(a) of this
Act simply states that if the action is not taken within 60 days of the date for
demanding payment, the corporation shall release restrictions on shares. Both
provisions have the effect of restoring a shareholder to his pre-demand status
where shares are without restriction and are applicable to both (1) permanent
abandonment of proposed corporate action, and (2) mere failure to effect such
action within the statutory time period.
(2) Section 10-2B-13.26(b) is a logical result, and effect, of section
10-2B-13.26(a). It states that where the corporation takes the proposed action
after release of restrictions pursuant to Section 10-2B-13.26(a), it must send a
new dissenters' notice and repeat the payment demand procedures.
sec. 10-2B-13.27. Reserved.
Reserved.
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sec. 10-2B-13.28. Procedure if shareholder dissatisfied with corporation's
offer or failure to perform.
(a) A dissenter may notify the corporation in writing of his or her own
estimate of the fair value of his or her shares and amount of interest due, and
demand payment of his or her estimate, or reject the corporation's offer under
Section 10-2B-13.25 and demand payment of the fair value of his or her shares
and interest due, if:
(1) The dissenter believes that the amount offered under Section
10-2B-13.25 is less than the fair value of his or her shares or that the
interest due is incorrectly calculated;
(2) The corporation fails to make an offer under Section 10-2B-13.25
within 60 days after the date set for demanding payment; or
(3) The corporation, having failed to take the proposed action, does
not release the transfer restrictions imposed on shares within 60 days
after the date set for demanding payment.
(b) A dissenter waives his or her right to demand payment under this
section unless he or she notifies the corporation of his or her demand in
writing under subsection (a) within 30 days after the corporation offered
payment for his or her shares.
- ---------------
History. Acts 1994, No. 94-245.
Cross references This law is referred to in: sec. 10-2B-13.1, 10-2B-13.25,
10-2B-13.30, 10-2B-13.31.
COMMENTARY
1. Section 10-2B-13.28(a) of this Act is a new provision, allowing a
dissatisfied dissenter to give written notice to the corporation of his estimate
of fair value, plus interest, or simply to reject the corporation's offer of
payment under Section 10-2B-13.25 and demand payment of fair value and interest
due. This may be done under one of three conditions, namely, where (1) the
dissenter believes the amount offered is less than the fair value or that
interest is incorrectly calculated, (2) the corporation has failed to meet the
60 day deadline in Section 10-2B-13.25, or (3) the corporation has not taken the
corporate action within the time stated in Section 10-2B-13.26, but has not
released the restrictions imposed on transfer under Section 10-2B-13.24.
2. Section 10-2B-13.28(b) provides that a dissenter waives his rights under
subsection (a) if he fails to notify the corporation of his demand in writing
within 30 days of the corporation's offer of payment. This differs from the ABA
version of RMBCA section 13.28(b), under which the 30 day period runs from the
time of the corporation's payment of its estimate of fair value.
---------------------
DIVISION C
JUDICIAL APPRAISAL OF SHARES
sec. 10-2B-13.30. Commencement of proceedings
(a) If a demand for payment under Section 10-2B-13.28 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 in the circuit court of
the county where the corporation's principal office (or, if none in this state,
its registered office) is located. If the 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.
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(c) The corporation shall make all dissenters (whether or not residents of
this state) whose demands remain unsettled parties to the proceeding as in an
action against their shares, and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided under the Alabama Rules of Civil Procedure.
(d) After service is completed, the corporation shall deposit with the
clerk of the court an amount sufficient to pay unsettled claims of all
dissenters party to the action in an amount per share equal to its prior
estimate of fair value, plus accrued interest, under Section 10-2B-13.25.
(e) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) 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. The dissenters are entitled to the same
discovery rights as parties in other civil proceedings.
(f) Each dissenter made a party to the proceeding is entitled to judgment
for the amount the court finds to be the fair value of his or her shares, plus
accrued interest. If the court's determination as to the fair value of a
dissenter's shares, plus accrued interest, is higher than the amount estimated
by the corporation and deposited with the clerk of the court pursuant to
subsection (d), the corporation shall pay the excess to the dissenting
shareholder. If the court's determination as to fair value, plus accrued
interest, of a dissenter's shares is less than the amount estimated by the
corporation and deposited with the clerk of the court pursuant to subsection
(d), then the clerk shall return the balance of funds deposited, less any costs
under Section 10-2B-13.31, to the corporation.
(g) Upon payment of the judgment, and surrender to the corporation of the
certificate or certificates representing the appraised shares, a dissenting
shareholder ceases to have any interest in the shares.
- ---------------
History. Acts 1994, No. 94-245.
Cross references. This law is referred to in: sec.sec. 10-2B-13.31.
COMMENTARY
(1) Section 10-2B-13.30(a) of this Act supersedes Section 10-2A-163(e) of
the former Alabama Act. It provides that if a payment demand remains
"unsettled," the corporation must bring action within 60 days after demand to
have the fair value of the shares determined. The rule under this Act is more
straightforward than under the former Alabama Act. Under Ala. 10-2A-163(e), if
within 30 days of the corporate action, there is no agreement, the corporation
"within 30 days after receipt of written demand . . given 60 days after the date
on which . . corporate action was effected, shall, or at its election -- at any
time within such period of 60 days may, file a petition in any court of
competent jurisdiction in the county . . where the registered office . . is
located requesting that the fair value . . be found and determined." The new
procedure under Section 10-2B-13.30(a) is far simpler and less encumbered by
overlapping time periods. Where a corporation fails to meet the 60 day deadline,
it must pay a dissenter "the amount demanded."
(2) Section 10-2B-13.30(b) of this Act, unlike the former Alabama Act
provision which required that the petition be filed in the county of the
registered office, requires the petition to be filed in the county of the
corporation's principal office, if there is one in Alabama. The petition is
filed in the county of the registered office if there is not a principal office
in the state. Where a foreign corporation does not have a registered office,
proceedings must be commenced "where the registered office of the domestic
corporation merged or whose shares were acquired by the foreign corporation was
located." This is consistent with the procedure under former Ala. 10-2A-163(e).
(3) Section 10-2B-13.30(c) also is consistent with procedure under former
Ala. 10-2A-163(e) in requiring all dissenters whose demands are unsettled to be
made parties, and to be served with the petition. The procedure for service of
nonresidents by mail or publication is essentially the same.
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(4) Section 10-2B-13.30(d) does not appear in the ABA version of RMBCA
section 13.30, and was added by the Alabama Drafting Committee. It requires that
once the unsettled demands of all dissenters have been drawn together, and those
individuals have been made party to the appraisal proceeding, the corporation
must pay to the clerk of court an amount sufficient to satisfy those demands at
the per-share price offered by the corporation under Section 10-2B-13.25, plus
accrued interest.
(5) Section 10-2B-13.30(e) of this Act is a counterpart to former Ala.
10-2A-163(e) in granting "plenary" and "exclusive" jurisdiction to the court,
and providing for appointment of appraisers and granting of their authority. It
adds a provision that "dissenters are entitled to the same discovery rights as
parties in other civil proceedings."
(6) Section 10-2B-13.30(f) of this Act, as with former Ala. 10-2A-163(e)
and 10-2A-163(f), entitles dissenting shareholders to a judgment for the fair
value of their shares plus accrued interest. It is the counterpart of section
13.30(e) of the RMBCA, under which the corporation is obliged to pay a dissenter
(1) the amount by which fair value plus interest exceeds the amount previously
paid pursuant to payment-upon-demand procedure of ABA section 13.25, or (2) fair
value plus interest of acquired shares for which such payment was withheld
pursuant to the after-acquires-shares procedure of ABA section 13.27. As
discussed in the Reporter's Note following Section 10-2B-13.25 of this chapter,
the Alabama Committee rejected the ABA approach under which the corporation
makes payment of the amount of its estimate prior to resolution of the fair
value issue. The Alabama Committee elected instead to retain in Section
10-2B-13.25 of this Act the existing Alabama procedure under which an offer of
payment is made to a dissenter upon receipt of a payment demand. However, where
an appraisal procedure is triggered, subsection (d) of this section requires
payment to the clerk of court of an amount sufficient to meet claims of all
dissenters at the per-share amount offered by the corporation under Section
10-2B-13.25(a), plus accrued interest. Consistent therewith, 10-2B-13.30(f)
requires the corporation to pay directly to a dissenter the amount by which a
judicial determination of fair value exceeds the amount deposited under
subsection (d); the clerk is to refund to the corporation any excess of the
amount deposited over the court's determination of fair value. Any costs
pursuant to Section 10-2B-13.31 are deducted from the amount refunded to the
corporation.
(7) The concluding sentence of Section 10-2B-13.30(f) follows the rule
prescribed by former Ala. 10-2A-163(e), whereby upon payment of the judgment and
surrender of share certificates to the corporation, a dissenting holder ceases
to have any interest in the shares.
(8) A notable difference in the appraisal procedure under Section
10-2B-13.30 and the procedure in former Ala. 10-2A-163(e) is the absence in
Section 10-2B-13.30 of a provision allowing a dissenting shareholder to file
suit in the name of the corporation where the corporation itself fails to
institute proceedings. Since a corporation's obligation to bring an action is
fixed, there typically will be no need under Section 10-2B-13.30 of such a
residual right if a dissenter's payment demand under Section 10-2B-13.28 remains
unsettled.
SEC. 10-2B-13.31. Court costs and counsel fees.
(a) The court in an appraisal proceeding commenced under Section
10-2B-13.30 shall determine all costs of the proceeding, including compensation
and expenses of appraisers appointed by the court. The court shall assess the
costs against the corporation, except that the court may assess 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 Section 10-2B-13.28.
(b) The court may also assess the reasonable fees and expenses of counsel
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 Sections 10-2B-13.20 through 10-2B-13.28; 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 chapter.
(c) If the court finds that the services of counsel 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,
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the court may award to these counsel reasonable fees to be paid out of the
amounts awarded the dissenters who were benefitted.
- ---------------
History. Acts 1994, No. 94-245.
Cross references. This law is referred to in: sec.sec. 10-2B-13.30.
COMMENTARY
(1) Section 10-2B-13.31 of this Act is a successor to section 10-2A-163(g)
of the former Alabama Act in providing for payment of court costs and counsel
fees.
(2) Under Section 10-2B-13.31(a), the court assesses costs against the
corporation, though where dissenters are found to have "acted arbitrarily,
vexatiously, or not in good faith," the court may assess costs against them.
(3) Under Section 10-2B-13.31(b), expenses for counsel and experts may be
assessed (1) against the corporation and in favor of dissenters where the
corporation did not "substantially comply with . . .Section 10-2B-13.20 through
Section 10-2B-13.28," or against either the corporation or a dissenter if the
party acted "arbitrarily, vexatiously, or not in good faith."
(4) Under Section 10-2B-13.31(c), the court may award counsel fees from
awards to dissenters who are benefitted by the services of counsel of a
similarly situated dissenter, where such "should not be assessed against the
corporation" and the services were of "substantial benefit" to such dissenters.
(5) The former procedure in Ala. 10-2A-163(g) was essentially that
prescribed in subsections (a), (b), and (c) of 10-2B-13.31 of this Act, in
providing generally for costs to be assessed against the corporation. The former
Act differed somewhat from section 10-2B-13.31 in providing for apportionment to
dissenters where the corporation "made an offer" and the failure to accept was
"arbitrary or vexatious or not in good faith." Under the former Act, expenses
include both attorneys' fees and appraisers' fees, but exclude fees to experts
of a party. Where fair value materially exceeds the amount the corporation
offered, or the corporation made no offer, the court under the former Act could
award reasonable compensation to a dissenter for "experts employed in the
proceeding."
sec. 10-2B-13.32. Powers of corporation as to shares acquired pursuant to
payment
Shares acquired by a corporation pursuant to payment of the agreed value
therefor or to payment of the judgment entered therefor, as in this chapter
provided, may be held and disposed of by such corporation as in the case of
other treasury shares, except that, in the case of a merger or share exchange,
they may be held and disposed of as the plan of merger or share exchange may
otherwise provide.
- ---------------
History: Acts 1994, No. 94-245.
COMMENTARY
(1) Section 10-2B-13.32 of this Act is a counterpart to section
10-2A-163(i) of the former Alabama Act. The only change in language is the
substitution of "share exchange" in Section 10-2B-13.32 for "consolidation" in
Ala. 10-2A-163(i). The consolidation of corporations in a single statutory
transaction is not provided for under this Act.
(2) Since the ABA version of the RMBCA does not continue the concept of
"treasury shares," there is no need for a provision similar to Ala. 10-2A-163(i)
in the ABA version of Chapter 13. In view of the Alabama Committee's retention
of the "treasury share" concept in this Act, Section 10-2B-13.32 is a helpful
clarification of the status of shares reacquired by a corporation through a
shareholder's exercise of dissenters' rights.
(3) Section 10-2B-13.32 makes it clear that shares acquired by a
corporation pursuant to the exercise of dissenters' rights by shareholders or
through an appraisal proceeding have the status of "treasury shares." As such,
they are deemed to be authorized and issued, but not outstanding. They may be
held and disposed of in a manner similar to other treasury shares, except where
a plan of merger or share exchange may otherwise provide.
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ANNEX E
, 1998
Board of Directors
Commerce Bank of Alabama
301 North Broad Street
Albertville, AL 35950
Members of the Board of Directors:
Commerce Bank of Alabama ("Commerce") proposes to enter into a Third
Amended and Restated Reorganization Agreement and Plan of Merger ("Plan of
Merger") pursuant to which Commerce will be merged (the "Commerce Merger") with
The Bank ("The Bank"), a wholly owned subsidiary of Warrior Capital Corporation
("Warrior"). Prior to the effective date of the Commerce Merger, Warrior will be
merged into The Banc Corporation (the "Corporation"), a newly formed Delaware
corporation and the Corporation will continue as the surviving entity. It is
also expected, but is not a condition of the Commerce Merger, that the following
bank holding companies (the "Other Companies"), First Citizens Bancorp, Inc.
("Bancorp"), City National Corporation ("City National"), Commercial Bancshares
of Roanoke, Inc. ("CBS") and Emerald Coast Bancshares, Inc. (following the
conversion of its Florida state bank subsidiary Emerald Coast Bank into a thrift
institution) ("Emerald") will be merged into the Corporation (the "Other
Mergers") simultaneously with the Commerce Merger. As a result, the Other
Companies would be merged with and into the Corporation, with the Corporation
surviving, and Commerce and the bank subsidiaries of the Other Companies (except
the thrift successor of Emerald Coast Bank) would be merged with and into The
Bank, with The Bank surviving the Corporation would retain the thrift successor
of Emerald Coast Bank as a separate subsidiary.
At the time of the Commerce Merger, each outstanding share of Commerce
common stock, other than shares held by dissenting shareholders, will be
converted into the right to receive approximately 2.335 shares of the
Corporation common stock (the "Consideration"). Giving effect to the Commerce
Merger and the Other Mergers and assuming they close as contemplated, Commerce
shareholders (each a "Shareholder") collectively will own approximately 13.93
percent of the outstanding shares of common stock of the Corporation at the
effective date. In the event that a Shareholder dissents from the Commerce
Merger, such Shareholder will be entitled to such rights as are granted by the
dissenters rights provisions of the Alabama Business Warrior Act.
As a condition to the Commerce Merger, the Corporation will have filed a
registration statement (the "Registration Statement") pursuant to the Securities
Act of 1933 covering the common stock of the Corporation to be issued in the
Commerce Merger and such Registration Statement shall have been declared
effective.
You have asked us whether, in our opinion, the Consideration proposed to be
paid to the Commerce Shareholders is fair, from a financial point of view, to
the Commerce Shareholders.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Plan of Merger and the Registration Statement;
(2) Reviewed certain historical business and financial information
relating to Commerce, the Corporation, Warrior, and Other Companies;
(3) Reviewed other pertinent internally generated reports with regard
to the separate businesses and prospects of Commerce, the Corporation,
Warrior and Other Companies, including, among other things, the strategic
objectives of each company and the potential benefits which might be
realized through consummation of the Commerce Merger;
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<PAGE> 693
(4) Participated with senior management in discussions of Commerce,
the Corporation, Warrior and Other Companies with regard to said strategic
objectives which might be realized through consummation of the Commerce
Merger;
(5) Reviewed public information regarding selected comparable publicly
traded companies deemed relevant to the Commerce Merger;
(6) Reviewed the financial terms and data of selected comparable
business combinations among banks or bank holding companies deemed relevant
to the Commerce Merger;
(7) Reviewed certain information pertaining to operational changes
which could potentially result in prospective cost savings or revenue
enhancements relative to the Commerce Merger; and
(8) Conducted such other financial studies, analyses and
investigations as we deemed appropriate.
The written opinions provided by us are necessarily based upon economic,
monetary, financial market and other relevant conditions as of the dates
thereof.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed any responsibility for independently verifying such information or
undertaken an independent valuation or appraisal of any of the assets or
liabilities of Commerce, Warrior, Bancorp, City National, CBS, Emerald or the
Corporation. In addition, we have not assumed any obligation to conduct, nor
have we conducted, any physical inspection of the properties or facilities of
Commerce, Warrior, Bancorp, City National, CBS, Emerald or the Corporation. With
respect to the financial pro-forma information, we have assumed that they have
been reasonably prepared and reflect the best current available estimates and
judgments of Commerce, Warrior, Bancorp, City National, CBS, Emerald and the
Corporation management as to the financial condition of the companies upon the
effective date, and we have relied upon the foregoing in preparing our opinion.
Further, we understand that the Commerce Merger will be accounted for as a
pooling of interests under generally accepted accounting principles and that the
Commerce Merger and Other Mergers will constitute tax-free reorganizations
within the meaning of the United States Internal Revenue Code of 1986.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated, and on the information made available to us
as of the date hereof. We have assumed that in the course of obtaining the
necessary regulatory or other consents or approvals (contractual or otherwise)
for the Commerce Merger, no restriction will be imposed or will have a material
adverse effect on the contemplated benefits of the Commerce Merger. We have
further assumed that, except for the Plan of Merger, neither Commerce nor the
Other Companies are a party to any pending transaction, including external
financing, recapitalization or merger other than those described herein, except
in the ordinary course of business.
This opinion is for the use and benefit of the Board of Directors of
Commerce. Our opinion does not address the merits and underlying decision by
Commerce to engage in the Commerce Merger and does not constitute a
recommendation to any Shareholder as to how such Shareholder should vote on the
proposed Commerce Merger. We are not expressing any opinion as to the fairness
of the consideration received by a Shareholder who dissents to the Commerce
Merger.
We express no opinion as to the fairness of the Commerce Merger to
Shareholders who are directors, or participate in management, or are similarly
affiliated with Commerce.
We are not expressing any opinion herein as to the prices at which the
Corporation shares will trade following consummation of the Commerce Merger. We
are not expressing any opinion as to the value of options, if any, outstanding
on Commerce common shares.
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<PAGE> 694
On the basis of and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Consideration proposed to be paid to the Shareholders
of Commerce is fair, from a financial point of view, to the Shareholders of
Commerce.
Very truly yours,
PORTER, WHITE & COMPANY, INC.
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ANNEX F
, 1998
Board of Directors
First Citizens Bancorp, Inc.
915 South Alabama Avenue
Monroeville, AL 36461
Members of the Board of Directors:
First Citizens Bancorp, Inc. ("First Citizens") proposes to enter into a
Third Amended and Restated Reorganization Agreement and Plan of Merger ("Plan of
Merger") pursuant to which First Citizens will be merged (the "First Citizens
Merger") with The Bank Corporation (the "Corporation"), a proposed successor to
Warrior Capital Corporation ("Warrior"), and First Citizens's bank subsidiary,
First Citizens Bank of Monroe County, would be merged with The Bank ("The
Bank"), a wholly owned subsidiary of the Corporation. Upon the effective date of
the First Citizens Merger, First Citizens will be merged into the Corporation
and the Corporation will continue as the surviving entity. It is also expected,
but is not a condition of the First Citizens Merger, that the following bank
holding companies and bank (the "Other Companies"), Commerce Bank of Alabama
("Commerce"), City National Corporation ("City National"), Commercial Bancshares
of Roanoke, Inc. ("CBS") and Emerald Coast Bancshares, Inc. (following the
conversion of its Florida state bank subsidiary Emerald Coast Bank into a thrift
institution) ("Emerald") will be merged into or acquired by the Corporation (the
"Other Mergers") simultaneously with the First Citizens Merger. As a result, the
Other Companies, which are bank holding companies, would be merged with and into
the Corporation, with the Corporation surviving, and Commerce and the bank
subsidiaries of the Other Companies (except the thrift successor of Emerald
Coast Bank) would be merged with and into The Bank, with The Bank surviving. The
Corporation would retain the thrift successor of Emerald Coast Bank as a
separate subsidiary.
At the time of the First Citizens Merger, each outstanding share of First
Citizens common stock, other than shares held by dissenting shareholders, will
be converted into the right to receive approximately 8.291 shares of the
Corporation common stock (the "Consideration"). Giving effect to the First
Citizens Merger and the Other Mergers and assuming they close as contemplated,
First Citizens shareholders (each a "Shareholder") collectively will own
approximately 6.01 percent of the outstanding shares of common stock of the
Corporation at the effective date. In the event that a Shareholder dissents from
the First Citizens Merger, such Shareholder will be entitled to such rights as
are granted by the dissenter's rights provisions of the Alabama Business
Corporation Act.
As a condition to the First Citizens Merger, the Corporation will have
filed a registration statement (the "Registration Statement") pursuant to the
Securities Act of 1933 covering the common stock of the Corporation to be issued
in the First Citizens Merger and such Registration Statement shall have been
declared effective.
You have asked us whether, in our opinion, the Consideration proposed to be
paid to the Shareholders of First Citizens is fair, from a financial point of
view, to the Shareholders of First Citizens.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Plan of Merger and the Registration Statement;
(2) Reviewed certain historical business and financial information
relating to First Citizens, the Corporation, Warrior, and Other Companies;
(3) Reviewed other pertinent internally generated reports with regard
to the separate businesses and prospects of First Citizens, the
Corporation, Warrior and Other Companies, including, among other
F-1
<PAGE> 696
things, the strategic objectives of each company and the potential benefits
which might be realized through consummation of the First Citizens Merger;
(4) Participated with senior management in discussions of First
Citizens, the Corporation, Warrior and Other Companies with regard to said
strategic objectives which might be realized through consummation of the
First Citizens Merger;
(5) Reviewed public information regarding selected comparable publicly
traded companies deemed relevant to the First Citizens Merger;
(6) Reviewed the financial terms and data of selected comparable
business combinations among banks or bank holding companies deemed relevant
to the First Citizens Merger;
(7) Reviewed certain information pertaining to operational changes
which could potentially result in prospective cost savings or revenue
enhancements relative to the First Citizens Merger; and
(8) Conducted such other financial studies, analyses and
investigations as we deemed appropriate.
The written opinions provided by us are necessarily based upon economic,
monetary, financial market and other relevant conditions as of the dates
thereof.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed any responsibility for independently verifying such information or
undertaken an independent valuation or appraisal of any of the assets or
liabilities of First Citizens, Warrior, Commerce, City National, CBS, Emerald or
the Corporation. In addition, we have not assumed any obligation to conduct, nor
have we conducted, any physical inspection of the properties or facilities of
First Citizens, Warrior, Commerce, City National, CBS, Emerald or the
Corporation. With respect to the financial pro-forma information, we have
assumed that they have been reasonably prepared and reflect the best current
available estimates and judgments of First Citizens, Warrior, Commerce, City
National, CBS, Emerald and the Corporation management as to the financial
condition of the companies upon the effective date, and we have relied upon the
foregoing in preparing our opinion. Further, we understand that the First
Citizens Merger will be accounted for as a pooling of interests under generally
accepted accounting principles and that the First Citizens Merger and Other
Mergers will constitute tax-free reorganizations within the meaning of the
United States Internal Revenue Code of 1986.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated, and on the information made available to us
as of the date hereof. We have assumed that in the course of obtaining the
necessary regulatory or other consents or approvals (contractual or otherwise)
for the First Citizens Merger, no restriction will be imposed or will have a
material adverse effect on the contemplated benefits of the First Citizens
Merger. We have further assumed that, except for the Plan of Merger, neither
First Citizens nor the Other Companies are a party to any pending transaction,
including external financing, recapitalization or merger other than those
described herein, except in the ordinary course of business.
This opinion is for the use and benefit of the Board of Directors of First
Citizens. Our opinion does not address the merits and underlying decision by
First Citizens to engage in the First Citizens Merger and does not constitute a
recommendation to any Shareholder as to how such Shareholder should vote on the
proposed First Citizens Merger. We are not expressing any opinion as to the
fairness of the consideration received by a Shareholder who dissents to the
First Citizens Merger.
We express no opinion as to the fairness of the First Citizens Merger to
Shareholders who are directors, or participate in management, or are similarly
affiliated with First Citizens.
We are not expressing any opinion herein as to the prices at which the
Corporation shares will trade following consummation of the First Citizens
Merger. We are not expressing any opinion as to the value of options, if any,
outstanding on First Citizens common shares.
F-2
<PAGE> 697
On the basis of and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Consideration proposed to be paid to the Shareholders
of First Citizens is fair, from a financial point of view, to the Shareholders
of First Citizens.
Very truly yours,
PORTER, WHITE & COMPANY, INC.
F-3
<PAGE> 698
ANNEX G
, 1998
Board of Directors
City National Corporation
Post Office Box 3150
Sylacauga, Alabama 35150
Members of the Board of Directors:
City National the Corporation ("City National") proposes to enter into a
Second Amended and Restated Reorganization Agreement and Plan of Merger ("Plan
of Merger") pursuant to which City National will be merged (the "City National
Merger") with The Banc Corporation (the "Corporation"), a proposed successor to
Warrior Capital Corporation ("Warrior") and City National's bank subsidiary,
City National Bank, would be merged with The Bank ("The Bank"), a wholly owned
subsidiary of the Corporation. Upon the effective date of the City National
Merger, City National will be merged into the Corporation, and the Corporation
will continue as the surviving entity. It is also expected, but is not a
condition of the City National Merger, that the following bank holding companies
and bank (the "Other Companies"), First Citizens Bancorp, Inc. ("First
Citizens"), Commerce Bank of Alabama ("Commerce"), Commercial Bancshares of
Roanoke, Inc. ("CBS") and Emerald Coast Bancshares, Inc. (following the
conversion of its Florida state bank subsidiary Emerald Coast Bank into a thrift
institution) ("Emerald") will be merged into or acquired by the Corporation (the
"Other Mergers") simultaneously with the City National Merger. As a result, the
Other Companies, which are bank holding companies, would be merged with and into
the Corporation, with the Corporation surviving, and Commerce and the bank
subsidiaries of the Other Companies (except the thrift successor of Emerald
Coast Bank) would be merged with and into The Bank, with The Bank surviving. The
Corporation would retain the thrift successor of Emerald Coast Bank as a
separate subsidiary.
At the time of the City National Merger, each outstanding share of City
National common stock, other than shares held by dissenting shareholders, will
be converted into the right to receive approximately 74.538 shares of the
Corporation common stock (the "Consideration"). Giving effect to the City
National Merger and the Other Mergers and assuming they close as contemplated,
City National shareholders (each a "Shareholder") collectively will own
approximately 18.14 percent of the outstanding shares of common stock of the
Corporation at the effective date. In the event that a Shareholder dissents from
the City National Merger, such Shareholder will be entitled to such rights as
are granted by the dissenters rights provisions of the Alabama Business the
Corporation Act.
As a condition to the City National Merger, the Corporation will have filed
a registration statement (the "Registration Statement") pursuant to the
Securities Act of 1933 covering the common stock of the Corporation to be issued
in the City National Merger and such Registration Statement shall have been
declared effective.
You have asked us whether, in our opinion, the Consideration proposed to be
paid to the City National Shareholders is fair, from a financial point of view,
to the City National Shareholders.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Plan of Merger and the Registration Statement;
(2) Reviewed certain historical business and financial information
relating to City National, the Corporation, Warrior, and Other Companies;
(3) Reviewed other pertinent internally generated reports with regard
to the separate businesses and prospects of City National, the Corporation,
Warrior and Other Companies, including, among other things, the strategic
objectives of each company and the potential benefits which might be
realized through consummation of the City National Merger;
G-1
<PAGE> 699
(4) Participated with senior management in discussions of City
National, the Corporation, Warrior and Other Companies with regard to said
strategic objectives which might be realized through consummation of the
City National Merger;
(5) Reviewed public information regarding selected comparable publicly
traded companies deemed relevant to the City National Merger;
(6) Reviewed the financial terms and data of selected comparable
business combinations among banks or bank holding companies deemed relevant
to the City National Merger;
(7) Reviewed certain information pertaining to operational changes
which could potentially result in prospective cost savings or revenue
enhancements relative to the City National Merger; and
(8) Conducted such other financial studies, analyses and
investigations as we deemed appropriate.
The written opinions provided by us are necessarily based upon economic,
monetary, financial market and other relevant conditions as of the dates
thereof.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed any responsibility for independently verifying such information or
undertaken an independent valuation or appraisal of any of the assets or
liabilities of City National, the Corporation, First Citizens, Commerce, CBS,
Emerald or Warrior. In addition, we have not assumed any obligation to conduct,
nor have we conducted, any physical inspection of the properties or facilities
of City National, the Corporation, First Citizens, Commerce, CBS, Emerald or
Warrior. With respect to the financial pro-forma information, we have assumed
that they have been reasonably prepared and reflect the best current available
estimates and judgments of City National, the Corporation, First Citizens,
Commerce, CBS, Emerald and Warrior management as to the financial condition of
the companies upon the effective date, and we have relied upon the foregoing in
preparing our opinion. Further, we understand that the City National Merger will
be accounted for as a pooling of interests under generally accepted accounting
principles and that the City National Merger and Other Mergers will constitute
tax-free reorganizations within the meaning of the United States Internal
Revenue Code of 1986.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated, and on the information made available to us
as of the date hereof. We have assumed that in the course of obtaining the
necessary regulatory or other consents or approvals (contractual or otherwise)
for the City National Merger, no restriction will be imposed or will have a
material adverse effect on the contemplated benefits of the City National
Merger. We have further assumed that, except for the Plan of Merger, neither
City National nor the Other Companies are a party to any pending transaction,
including external financing, recapitalization or merger other than those
described herein, except in the ordinary course of business.
This opinion is for the use and benefit of the Board of Directors of City
National. Our opinion does not address the merits and underlying decision by
City National to engage in the City National Merger and does not constitute a
recommendation to any Shareholder as to how such Shareholder should vote on the
proposed City National Merger. We are not expressing any opinion as to the
fairness of the consideration received by a Shareholder who dissents from the
City National Merger.
We express no opinion as to the fairness of the City National Merger to
Shareholders who are directors, or participate in management, or are similarly
affiliated with City National.
We are not expressing any opinion herein as to the prices at which the
Corporation shares will trade following consummation of the City National
Merger. We are not expressing any opinion as to the value of options, if any,
outstanding on City National common shares.
G-2
<PAGE> 700
On the basis of and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Consideration proposed to be paid to the Shareholders
of City National is fair, from a financial point of view, to the Shareholders of
City National.
Very truly yours,
PORTER, WHITE & COMPANY, INC.
G-3
<PAGE> 701
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
THE BANC CORPORATION
Section 102(b)(7) of the DGCL grants corporations the right to limit or
eliminate the personal liability of their directors in certain circumstances in
accordance with provisions therein set forth. The Corporation's Restated
Certificate of Incorporation contains a provision eliminating or limiting
director liability to the Corporation and its stockholders for monetary damages
arising from acts or omissions in the director's capacity as a director. The
provision does not, however, eliminate or limit the personal liability of a
director (i) for any breach of such director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
the Delaware statutory provision making directors personally liable, under a
negligence standard, for unlawful dividends or unlawful stock purchases or
redemptions, or (iv) for any transaction from which the director derived an
improper personal benefit. This provision offers persons who serve on the Board
of Directors of the Corporation protection against awards of monetary damages
resulting from breaches of their duty of care (except as indicated above). As a
result of this provision, the ability of the Corporation or a stockholder
thereof to successfully prosecute an action against a director for a breach of
his duty of care is limited. However, the provision does not affect the
availability of equitable remedies such as an injunction or rescission based
upon a director's breach of his duty of care. The SEC has taken the position
that the provision will have no effect on claims arising under the Federal
securities laws.
Section 145 of the DGCL grants corporations the right to indemnify their
directors, officers, employees and agents in accordance with the provisions
therein set forth. The Corporation's Amended and Restated Bylaws provide for
mandatory indemnification rights, subject to limited exceptions, to any
director, officer, employee, or agent of the Corporation who, by reason of the
fact that he or she is a director, officer, employee, or agent of the
Corporation, is involved in a legal proceeding of any nature. Such
indemnification rights include reimbursement for expenses incurred by such
director, officer, employee, or agent in advance of the final disposition of
such proceeding in accordance with the applicable provisions of the DGCL.
The Corporation has entered into agreements with all of its Directors and
its executive officers pursuant to which the Corporation has agreed to indemnify
such Directors and executive officers against liability incurred by them by
reason of their services of a Director to the fullest extent allowable under
applicable law.
See Item 22 of this Registration Statement on Form S-4.
ITEM 21. EXHIBITS.
Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
(2)-1 -- Third Amended and Restated Reorganization Agreement and Plan
of Merger, dated as of April 6, 1998, by and among Warrior
Capital Corporation, The Banc Corporation, The Bank and
Commerce Bank of Alabama, attached to this Registration
Statement as Annex A to the Prospectus-Joint Proxy
Statement, is hereby incorporated herein by reference. List
of Exhibits to Reorganization Agreement and Plan of Merger.
(2)-2 -- Third Amended and Restated Reorganization Agreement Plan of
Merger, dated as of April 15, 1998, by and among Warrior
Capital Corporation, The Banc Corporation and First Citizens
Bancorp, attached to this Registration Statement as Annex B
to the Prospectus-Joint Proxy Statement, is hereby
incorporated herein by reference. List of Exhibits to
Reorganization Agreement and Plan of Merger.
</TABLE>
II-1
<PAGE> 702
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
(2)-3 -- Second Amended and Restated Reorganization Agreement and
Plan of Merger, dated as of June 16, 1998, by and among
Warrior Capital Corporation, The Banc Corporation and City
National Corporation attached to this Registration Statement
as Annex C to the Prospectus-Joint Proxy Statement, is
hereby incorporated herein by reference.
(2)-4 -- Agreement and Plan of Merger, dated as of June 19, 1998, by
and among Warrior Capital Corporation, The Banc Corporation
and Commercial Bancshares of Roanoke, Inc.
(2)-5 -- Reorganization Agreement and Plan of Merger, dated as of
June 2, 1998, by and among The Bank Corporation and Emerald
Coast Bancshares, Inc.
(2)-6 -- Agreement and Plan of Merger, dated as of September 9, 1998
by Warrior Capital Corporation and The Banc Corporation.
(3)-1 -- Restated Certificate of Incorporation of The Banc
Corporation.
(3)-2 -- Bylaws of The Banc Corporation.
(5) -- Form of Opinion of Haskell Slaughter & Young, L.L.C., as to
the legality of the shares of the Corporation Common Stock
being registered.
(8)-1 -- Form of Opinion of Haskell Slaughter & Young, L.L.C., as to
certain federal income tax consequences of the Commerce
Merger.
(8)-2 -- Form of Opinion of Balch & Bingham, LLP as to certain
federal income tax consequences of the Commerce Merger.
(8)-3 -- Form of Opinion of Haskell Slaughter & Young, L.L.C., as to
certain federal income tax consequences of the First
Citizens Merger.
(8)-4 -- Form of Opinion of Balch & Bingham, LLP as to certain
federal income tax consequences of the First Citizens
Merger.
(8)-5 -- Form of Opinion of Haskell Slaughter & Young, L.L.C., as to
certain federal income tax consequences of the City National
Merger.
(8)-6 -- Form of Opinion of Balch & Bingham, LLP as to certain
federal income tax consequences of the City National Merger.
(10)-1 -- Form of Employment Agreement by and between The Banc
Corporation and J. Daniel Sizemore.
(10)-2 -- Form of Employment Agreement by and between The Banc
Corporation and Ray Smith.
(10)-3 -- Form of Employment Agreement by and between The Banc
Corporation and John F. Gittings.
(10)-4 -- Form of Employment Agreement by and between The Banc
Corporation and W.T. Campbell, Jr.
(10)-5 -- Form of Employment Agreement by and between The Banc
Corporation and Gordon R. Boyles.
(10)-6 -- Form of Employment Agreement by and between The Banc
Corporation and William P. Riley.
(10)-7 -- Form of Employment Agreement by and between The Banc
Corporation and James A. Taylor.
(10)-8 -- Form of Employment Agreement by and between The Banc
Corporation and Terry DuBose.
(16) -- Letter from Dudley, Hopton-Jones, Sims & Freeman, PLLP. as
to change in accountants.
(21) -- Subsidiaries of the Corporation.
(23)-1 -- Consent of Ernst & Young LLP.
(23)-2 -- Consent of Dudley, Hopton-Jones, Sims & Freeman, PLLP.
(23)-3 -- Consent of Dudley, Hopton-Jones, Sims & Freeman, PLLP.
(23)-4 -- Consent of Dudley, Hopton-Jones, Sims & Freeman, PLLP.
(23)-5 -- Consent of Dudley, Hopton-Jones, Sims & Freeman, PLLP.
(23)-6 -- Consent of Mauldin & Jenkins, LLC.*
</TABLE>
II-2
<PAGE> 703
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
(23)-7 -- Consent of Cochran, Wheeler & Kennedy, P.C.
(23)-8 -- Consent of Saltmarsh, Cleaveland & Gund.*
(23)-9 -- Consent of Haskell Slaughter & Young, L.L.C. (included in
the opinion filed as Exhibits (5) and (8)-1, (8)-2 and
(8)-3.
(23)-10 -- Consent of Balch & Bingham, LLP (included in the opinions
filed as Exhibit (8)-4, (8)-5 and (8)-6.
(23)-11 -- Consent of Porter, White & Company.
(23)-12 -- Consent of Porter, White & Company.
(23)-13 -- Consent of Porter, White & Company.
(24) -- Powers of Attorney. See the signature page to original
filing of this Registration Statement on Form S-4.
(27) -- Financial Data Schedule.*
(99)-1 -- Commerce Proxy.
(99)-2 -- First Citizens Proxy.
(99)-3 -- City National Proxy.
(99)-4 -- Consent of J. Daniel Sizemore.
(99)-5 -- Consent of T. Mandell Tillman.
(99)-6 -- Consent of Steven C. Hays.
(99)-7 -- Consent of Randall G. Jones.
(99)-8 -- Form of Consent of W. T Campbell, Jr.
(99)-9 -- Consent of K. Earl Durden.
(99)-10 -- Consent of Terry DuBose.
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 22. UNDERTAKINGS.
(1) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(2) The undersigned Registrant hereby undertakes as follows: that prior to
any public re-offering of the securities registered hereunder through use of a
prospectus which is part of the 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 re-offering prospectus will contain the information called
for by the applicable registration form with respect to re-offerings by persons
who may be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(3) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (2) 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
II-3
<PAGE> 704
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, 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.
(4) 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 subject of and included in
the Registration Statement when it became effective.
(5) 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, 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.
II-4
<PAGE> 705
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Birmingham, State of
Alabama on October 1, 1998.
THE BANC CORPORATION
By: /s/ JAMES A. TAYLOR
------------------------------------
James A. Taylor
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board and Chief October 1, 1998
- ----------------------------------------------------- Executive Officer
James A. Taylor
* Executive Vice President and October 1, 1998
- ----------------------------------------------------- Chief Financial Officer
David R. Carter (Principal Financial and
Accounting Officer)
* Director October 1, 1998
- -----------------------------------------------------
James R. Andrews, M.D.
* Director October 1, 1998
- -----------------------------------------------------
Charles Barkley
* Director October 1, 1998
- -----------------------------------------------------
Peter N. Dichiara
* Director October 1, 1998
- -----------------------------------------------------
Larry R. House
* Director October 1, 1998
- -----------------------------------------------------
Thomas E. Jernigan, Jr.
* Director October 1, 1998
- -----------------------------------------------------
James Mailon Kent, Jr.
* Director October 1, 1998
- -----------------------------------------------------
Mayer Mitchell
* Director October 1, 1998
- -----------------------------------------------------
Ronald W. Orso, M.D.
* Director October 1, 1998
- -----------------------------------------------------
Harold Ripps
</TABLE>
II-5
<PAGE> 706
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Director October 1, 1998
- -----------------------------------------------------
Richard M. Scrushy
* Director October 1, 1998
- -----------------------------------------------------
Michael Stephens
* Director October 1, 1998
- -----------------------------------------------------
Larry D. Striplin, Jr.
* Director October 1, 1998
- -----------------------------------------------------
James A. Taylor, Jr.
* Director October 1, 1998
- -----------------------------------------------------
Marie Swift
* Director October 1, 1998
- -----------------------------------------------------
Johnny Wallis
*By: /s/ JAMES A. TAYLOR
-------------------------------------------------
James A. Taylor
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 707
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C> <C>
(2)-1 -- Third Amended and Restated Reorganization Agreement and Plan
of Merger, dated as of April 6, 1998, by and among Warrior
Capital Corporation, The Banc Corporation, The Bank and
Commerce Bank of Alabama, attached to this Registration
Statement as Annex A to the Prospectus-Joint Proxy
Statement, is hereby incorporated herein by reference. List
of Exhibits to Reorganization Agreement and Plan of Merger.
(2)-2 -- Third Amended and Restated Reorganization Agreement Plan of
Merger, dated as of April 15, 1998, by and among Warrior
Capital Corporation, The Banc Corporation and First Citizens
Bancorp, attached to this Registration Statement as Annex B
to the Prospectus-Joint Proxy Statement, is hereby
incorporated herein by reference. List of Exhibits to
Reorganization Agreement and Plan of Merger.
(2)-3 -- Second Amended and Restated Reorganization Agreement and
Plan of Merger, dated as of June 16, 1998, by and among
Warrior Capital Corporation, The Banc Corporation and City
National Corporation attached to this Registration Statement
as Annex C to the Prospectus-Joint Proxy Statement, is
hereby incorporated herein by reference.
(2)-4 -- Agreement and Plan of Merger, dated as of June 19, 1998, by
and among Warrior Capital Corporation, The Banc Corporation
and Commercial Bancshares of Roanoke, Inc.
(2)-5 -- Reorganization Agreement and Plan of Merger, dated as of
June 2, 1998, by and among the Banc Corporation and Emerald
Coast Bancshares, Inc.
(2)-6 -- Agreement and Plan of Merger, dated as of September 9, 1998,
by Warrior Capital Corporation and The Banc Corporation.
(3)-1 -- Restated Certificate of Incorporation of The Banc
Corporation.
(3)-2 -- Bylaws of The Banc Corporation.
(5) -- Form of Opinion of Haskell Slaughter & Young, L.L.C., as to
the legality of the shares of the Corporation Common Stock
being registered.
(8)-1 -- Form of Opinion of Haskell Slaughter & Young, L.L.C., as to
certain federal income tax consequences of the Commerce
Merger.
(8)-2 -- Form of Opinion of Balch & Bingham, LLP as to certain
federal income tax consequences of the Commerce Merger.
(8)-3 -- Form of Opinion of Haskell Slaughter & Young, L.L.C., as to
certain federal income tax consequences of the First
Citizens Merger.
(8)-4 -- Form of Opinion of Balch & Bingham, LLP as to certain
federal income tax consequences of the First Citizens
Merger.
(8)-5 -- Form of Opinion of Haskell Slaughter & Young, L.L.C., as to
certain federal income tax consequences of the City National
Merger.
(8)-6 -- Form of Opinion of Balch & Bingham, LLP as to certain
federal income tax consequences of the City National Merger.
(10)-1 -- Form of Employment Agreement by and between The Banc
Corporation and J. Daniel Sizemore.
(10)-2 -- Form of Employment Agreement by and between The Banc
Corporation and Ray Smith.
(10)-3 -- Form of Employment Agreement by and between The Banc
Corporation and John F. Gittings.
(10)-4 -- Form of Employment Agreement by and between The Banc
Corporation and W. T. Campbell, Jr.
</TABLE>
<PAGE> 708
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C> <C>
(10)-5 -- Form of Employment Agreement by and between The Banc
Corporation and Gordon R. Boyles.
(10)-6 -- Form of Employment Agreement by and between The Banc
Corporation and William P. Riley.
(10)-7 -- Form of Employment Agreement by and between The Banc
Corporation and James A. Taylor.
(10)-8 -- Form of Employment Agreement by and between The Banc
Corporation and Terry DuBose.
(16) -- Letter from Dudley, Hopton-Jones, Sims & Freeman, PLLP.
(21) -- Subsidiaries of the Corporation.
(23)-1 -- Consent of Ernst & Young LLP.
(23)-2 -- Consent of Dudley, Hopton-Jones, Sims & Freeman, PLLP.
(23)-3 -- Consent of Dudley, Hopton-Jones, Sims & Freeman, PLLP.
(23)-4 -- Consent of Dudley, Hopton-Jones, Sims & Freeman, PLLP.
(23)-5 -- Consent of Dudley, Hopton-Jones, Sims & Freeman, PLLP.
(23)-6 -- Consent of Mauldin & Jenkins, LLC.*
(23)-7 -- Consent of Cochran, Wheeler & Kennedy, P.C.
(23)-8 -- Consent of Saltmarsh, Cleaveland & Gund.*
(23)-9 -- Consent of Haskell Slaughter & Young, L.L.C. (included in
the opinion filed as Exhibits (5) and (8)-1, (8)-2 and
(8)-3.
(23)-10 -- Consent of Balch & Bingham, LLP (included in the opinion
filed as Exhibit (8)-4, (8)-5 and (8)-6.
(23)-11 -- Consent of Porter, White & Company.
(23)-12 -- Consent of Porter, White & Company.
(23)-13 -- Consent of Porter, White & Company.
(24) -- Powers of Attorney. See the signature page to original
filing of this Registration Statement on Form S-4.
(27) -- Financial Data Schedule.*
(99)-1 -- Commerce Proxy.
(99)-2 -- First Citizens Proxy.
(99)-3 -- City National Proxy.
(99)-4 -- Consent of J. Daniel Sizemore.
(99)-5 -- Consent of T. Mandell Tillman.
(99)-6 -- Consent of Steven C. Hays.
(99)-7 -- Consent of Randall E. Jones.
(99)-8 -- Form of Consent of W.T. Campbell, Jr.
(99)-9 -- Consent of K. Earl Durden.
(99)-10 -- Consent of Terry Dubose.
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 2.4
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
WARRIOR CAPITAL CORPORATION
AND
COMMERCIAL BANCSHARES OF ROANOKE, INC.
DATED AS OF
JUNE 19, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CAPTION PAGE
- ------- ----
<S> <C> <C>
ARTICLE I -- NAME
1.1 Name............................................................................................1
ARTICLE 2 -- MERGER -- TERMS AND CONDITIONS
2.1 Applicable Law..................................................................................1
2.2 Corporate Existence.............................................................................1
2.3 Articles of Incorporation and Bylaws............................................................2
2.4 Resulting Corporation's Officers and Board......................................................2
2.5 Stockholder Approval............................................................................2
2.6 Further Acts....................................................................................2
2.7 Effective Date and Closing......................................................................2
2.8 Subsidiary Bank Merger..........................................................................3
ARTICLE 3 -- CONVERSION OF BANCSHARES STOCK
3.1 Conversion of Bancshares Stock..................................................................3
3.2 Surrender of Bancshares Stock...................................................................3
3.3 Interest .......................................................................................3
3.4 Dissenting Rights...............................................................................3
ARTICLE 4 -- REPRESENTATIONS, WARRANTIES AND COVENANTS OF WARRIOR
4.1 Organization....................................................................................4
4.2 Financial Statements............................................................................4
4.3 No Conflict with Other Instrument...............................................................5
4.4 Approval of Agreements..........................................................................5
4.5 Disclosure......................................................................................5
ARTICLE 5 - REPRESENTATIONS, WARRANTIES AND COVENANTS OF BANCSHARES
5.1 Organization....................................................................................5
5.2 Capital Stock...................................................................................6
5.3 Subsidiaries....................................................................................6
5.4 Financial Statements; Taxes.....................................................................6
5.5 Absence of Certain Changes or Events............................................................7
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
5.6 Title and Related Matters.......................................................................9
5.7 Commitments.....................................................................................9
5.8 Charter and Bylaws..............................................................................9
5.9 Litigation.....................................................................................10
5.10 Material Contract Defaults.....................................................................10
5.11 No Conflict with Other Instrument..............................................................10
5.12 Governmental Authorization.....................................................................10
5.13 Absence of Regulatory Communications...........................................................10
5.14 Absence of Material Adverse Change.............................................................11
5.15 Insurance......................................................................................11
5.16 Pension and Employee Benefit Plans.............................................................11
5.17 Buy-Sell Agreement.............................................................................11
5.18 Brokers........................................................................................11
5.19 Approval of Agreements.........................................................................11
5.20 Disclosure.....................................................................................12
5.21 Environmental Matters..........................................................................12
ARTICLE 6 - ADDITIONAL COVENANTS
6.1 Additional Covenants of Warrior................................................................12
6.2 Additional Covenants of Bancshares.............................................................14
ARTICLE 7 - MUTUAL COVENANTS AND AGREEMENTS
7.1 Best Efforts; Cooperation......................................................................15
7.2 Press Release..................................................................................16
7.3 Mutual Disclosure..............................................................................16
7.4 Access to Properties and Records...............................................................16
7.5 Notice of Adverse Changes......................................................................16
ARTICLE 8 - CONDITIONS TO OBLIGATIONS OF ALL PARTIES
8.1 Approval by Shareholders.......................................................................17
8.2 Regulatory Authority Approval..................................................................17
8.3 Litigation.....................................................................................17
ARTICLE 9 - CONDITIONS TO OBLIGATIONS OF BANCSHARES
9.1 Representations, Warranties and Covenants......................................................17
9.2 Adverse Changes................................................................................18
9.3 Closing Certificate............................................................................18
9.4 Legal Opinion..................................................................................18
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE 10 - CONDITIONS TO OBLIGATIONS OF WARRIOR
10.1 Representations, Warranties and Covenants......................................................19
10.2 Adverse Changes................................................................................19
10.3 Closing Certificate............................................................................19
10.4 Legal Opinion .....................................................................20
ARTICLE 11 - TERMINATION OF REPRESENTATIONS AND WARRANTIES.......................................................20
ARTICLE 12 - NOTICES.............................................................................................20
ARTICLE 13 - AMENDMENT OR TERMINATION
13.1 Amendment......................................................................................21
13.2 Termination....................................................................................21
13.3 Damages........................................................................................22
ARTICLE 14 - DEFINITIONS
ARTICLE 15 - MISCELLANEOUS
15.1 Expenses.......................................................................................28
15.2 Benefit and Assignment.........................................................................28
15.3 Governing Law..................................................................................28
15.4 Counterparts...................................................................................28
15.5 Headings.......................................................................................28
15.6 Severability...................................................................................29
15.7 Construction...................................................................................29
15.8 Return of Information..........................................................................29
15.9 Equitable Remedies.............................................................................29
15.10 Attorneys' Fees................................................................................29
15.11 No Waiver......................................................................................29
15.12 Remedies Cumulative............................................................................30
15.13 Entire Contract................................................................................30
</TABLE>
iii
<PAGE> 5
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is made and entered into as of this
the 19th day of June, 1998, by and between COMMERCIAL BANCSHARES OF ROANOKE,
INC. ("Bancshares"), a Delaware corporation, and WARRIOR CAPITAL CORPORATION
("Warrior"), an Alabama corporation.
WITNESSETH
WHEREAS, Bancshares operates as a bank holding company for its wholly
owned subsidiary, Commercial Bank of Roanoke (the "Bank") and for its subsidiary
Commercial Bancshares Services, Inc., ("Services"), with its principal office in
Roanoke, Alabama; and
WHEREAS, Warrior is a bank holding company with a subsidiary bank in
Alabama, The Bank ("Warrior Bank"); and
WHEREAS, Bancshares wishes to merge with Warrior;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the Parties hereto agree as follows:
ARTICLE 1
NAME
1.1 NAME. The name of the corporation resulting from the Merger shall
be "Warrior Capital Corporation."
ARTICLE 2
MERGER -- TERMS AND CONDITIONS
2.1 APPLICABLE LAW. On the Effective Date, Bancshares shall be merged
with and into Warrior (herein referred to as the "Resulting Corporation"
whenever reference is made to it as of the time of merger or thereafter). The
Merger shall be undertaken pursuant to the provisions of and with the effect
provided in the ABCA. The offices and facilities of Bancshares and of Warrior
shall become the offices and facilities of the Resulting Corporation.
2.2 CORPORATE EXISTENCE. On the Effective Date the corporate existence
of Bancshares and of Warrior shall, as provided in the DGCL, be merged into and
continued in the Resulting Corporation, and the Resulting Corporation shall be
deemed to be the same corporation as Bancshares and Warrior. All rights,
franchises and interests of Bancshares and Warrior, respectively, in and to
every type of property (real, personal and mixed) and choses in action shall be
transferred to and vested in the Resulting Corporation by virtue of the Merger
without any deed
1
<PAGE> 6
or other transfer. The Resulting Corporation on the Effective Date, and without
any order or other action on the part of any court or otherwise, shall hold and
enjoy all rights of property, franchises and interests, including appointments,
designations and nominations and all other rights and interests as trustee,
executor, administrator, transfer agent and registrar of stocks and bonds,
guardian of estates, assignee, and receiver and in every other fiduciary
capacity and in every agency, and capacity, in the same manner and to the same
extent as such rights, franchises and interests were held or enjoyed by
Bancshares and Warrior, respectively, on the Effective Date.
2.3 ARTICLES OF INCORPORATION AND BYLAWS. On the Effective Date, the
certificate of incorporation and bylaws of the Resulting Corporation shall be
the restated certificate of incorporation and bylaws of Warrior as they exist
immediately before the Effective Date.
2.4 RESULTING CORPORATION'S OFFICERS AND BOARD. The board of directors
and the officers of the Resulting Corporation on the Effective Date shall
consist of those persons serving in such capacities of Warrior as of the
Effective Date.
2.5 STOCKHOLDER APPROVAL. This Agreement shall be submitted to the
shareholders of Bancshares at the Stockholders Meeting to be held as promptly as
practicable consistent with the satisfaction of the conditions set forth in this
Agreement. Upon approval by the requisite vote of the shareholders of Bancshares
as required by applicable Law, the Merger shall become effective as soon as
practicable thereafter in the manner provided in section 2.7 hereof.
2.6 FURTHER ACTS. If, at any time after the Effective Date, the
Resulting Corporation shall consider or be advised that any further assignments
or assurances in law or any other acts are necessary or desirable (i) to vest,
perfect confirm or record, in the Resulting Corporation, title to and possession
of any property or right of Bancshares or Warrior, acquired as a result of the
Merger, or (ii) otherwise to carry out the purposes of this Agreement, Warrior
and its officers and directors shall execute and deliver all such proper deeds,
assignments and assurances in law and do all acts necessary or proper to vest,
perfect or confirm title to, and possession of, such property or rights in the
Resulting Corporation and otherwise to carry out the purposes of this Agreement;
and the proper officers and directors of the Resulting Corporation are fully
authorized in the name of Bancshares or Warrior, or otherwise, to take any and
all such action.
2.7 EFFECTIVE DATE AND CLOSING. Subject to the terms of all
requirements of Law and the conditions specified in this Agreement the Merger
shall become effective on the date specified in the Certificate of Merger to be
issued by the Secretary of State of the State of Delaware (such time being
herein called the "Effective Date"). Assuming all other conditions stated in
this Agreement have been or will be satisfied as of the Closing, the Closing
shall take place at the offices of Warrior, in Birmingham, Alabama, at 10:00
a.m. on a date specified by Warrior that shall be as soon as reasonably
practicable after the later to occur of the Stockholder Meeting or all required
regulatory approvals under Section 8.2, or at such other place and time that the
Parties may mutually agree.
2
<PAGE> 7
2.8 SUBSIDIARY BANK MERGER. Warrior and Bancshares anticipate that
sometime after the Effective Date the Bank will merge with and into Warrior
Bank, Warrior's Subsidiary bank. The exact timing and structure of such merger
have not been finalized at this time, and Warrior in its discretion will
finalize such timing and structure at a later date. Bancshares will cooperate
with Warrior, including the call of any special meetings of the board of
directors of the Bank and the filing of any regulatory applications, in the
execution of appropriate documentation relating to such merger. The Parties
agree that the closing of the merger of the Bank with Warrior Bank is not a
condition precedent to the Merger.
ARTICLE 3
CONVERSION OF BANCSHARES STOCK
3.1 CONVERSION OF BANCSHARES STOCK.
(a) On the Effective Date, each share of common stock of
Bancshares outstanding and held of record by Bancshares's shareholders (the
"Bancshares Stock"), shall be converted by operation of law and without any
action by any holder thereof into the right to receive cash as specified below.
Specifically, the total amount of cash to be paid for Bancshares Stock (the
"Merger Consideration") shall in the aggregate (and subject to Section 3.4
hereof) equal $6,976,000. Each share of Bancshares Stock shall be entitled to
receive an amount of cash equal to the amount obtained by dividing the Merger
Consideration by the total number of shares of Bancshares Stock outstanding on
the Effective Date.
(b) If the Effective Date has not occurred by 5:00 p.m. on
October 19, 1998, then the Merger Consideration shall be increased by an amount
equal to the total net earnings of Bancshares determined in accordance with GAAP
on a consolidated basis, between October 19, 1998, and the Effective Date,
inclusive. For this purpose, neither the expenses incurred by Bancshares for
audited financial statements of Bancshares to be used by Warrior as part of its
registration statements related to other acquisitions nor expenses incurred by
Bancshares relating to the Merger shall be charged against earnings.
(c) Simultaneously with the execution of this Agreement,
Warrior has paid to Bancshares $100,000 in cash. This sum shall be credited to
the Merger Consideration but shall not be refundable by Bancshares under any
circumstance unless Warrior terminates this Agreement under Section 13.2(b) or
(c) as a result of a material breach of this Agreement by Bancshares.
3.2 SURRENDER OF BANCSHARES STOCK. After the Effective Date, each
holder of an outstanding certificate or certificates which prior thereto
represented shares of Bancshares Stock who is entitled to receive cash as set
forth in Section 3.1 hereof shall be entitled, upon surrender to Warrior of
their certificate or certificates representing shares of Bancshares Stock (or an
affidavit or affirmation by such holder of the loss, theft, or destruction of
such certificate or certificates in such form as Warrior may reasonably
require), to receive in exchange therefor the cash into and for which the shares
of Bancshares Stock so surrendered shall have been converted. Until so
3
<PAGE> 8
surrendered and exchanged, each such outstanding certificate which, prior to the
Effective Date, represented shares of Bancshares Stock and which is to be
converted into cash as set forth in Section 3.1 hereof shall for all purposes
evidence the right to receive such cash. Within five days after the Effective
Date, Warrior shall mail to each stockholder of Bancshares appropriate
documentation and instructions necessary for the surrender of Bancshares
certificates and the receipt of the Merger Consideration.
3.3 INTEREST. No interest shall be paid on the Merger Consideration.
3.4 DISSENTING RIGHTS. Any shareholder of Bancshares who shall not have
voted in favor of this Agreement and who has complied with the applicable
procedures set forth in the ABCA, relating to rights of dissenting shareholders,
shall be entitled to receive payment for the fair value of his Bancshares Stock.
If after the Effective Date a dissenting shareholder of Bancshares fails to
perfect, or effectively withdraws or loses his right to appraisal and payment
for his shares of Bancshares Stock, Warrior shall pay and deliver the Merger
Consideration to which such holder of shares of Bancshares Stock is entitled
under Section 3.1 (without interest) upon surrender by such holder of the
certificate or certificates representing shares of Bancshares Stock held by him
or her.
ARTICLE 4
REPRESENTATIONS, WARRANTIES AND COVENANTS OF WARRIOR
Warrior represents, warrants and covenants to and with Bancshares as
follows:
4.1 ORGANIZATION. Warrior is a corporation duly organized, validly
existing and in good standing under the Laws of the State of Alabama. Warrior
has the necessary corporate powers to carry on its business as presently
conducted and is qualified to do business in every jurisdiction in which the
character and location of the Assets owned by it or the nature of the business
transacted by it requires qualification or in which the failure to qualify
could, individually or in the aggregate, have a Material Adverse Effect.
4.2 FINANCIAL STATEMENTS. Warrior has delivered to Bancshares copies of
the following financial statements of Warrior.
(i) Consolidated balance sheets as of December 31, 1996, and
December 31, 1997, and as of March 31, 1998;
(ii) Consolidated statements of operations for each of the
two years ended December 31, 1996 and 1997, and for the three months ended March
31, 1998;
(iii) Consolidated statements of cash flows for each of the
two years ended December 31, 1996 and 1997, and for the three months ended March
31, 1998; and
4
<PAGE> 9
(iv) Consolidated statements of changes in shareholders'
equity for the two years ended December 31, 1996 and 1997, and for the three
months ended March 31, 1998.
All such financial statements are in all material respects in accordance with
the books and records of Warrior and have been prepared in accordance with GAAP
applied on a consistent basis throughout the periods indicated.
4.3 NO CONFLICT WITH OTHER INSTRUMENT. The consummation of the
transactions contemplated by this Agreement will not result in a breach of or
constitute a Default (without regard to the giving of notice or the passage of
time) under any material Contract, indenture, mortgage, deed of trust or other
material agreement or instrument to which Warrior or any of its Subsidiaries is
a party or by which they or their Assets may be bound; will not conflict with
any provision of the restated certificate of incorporation or bylaws of Warrior
or the articles of incorporation or bylaws of any of its Subsidiaries; and will
not violate any provision of any Law, regulation, judgment or decree binding on
them or any of their Assets.
4.4 APPROVAL OF AGREEMENT. The board of directors of Warrior has
approved this Agreement and the transactions contemplated by it and has
authorized the execution and delivery by Warrior of this Agreement. This
Agreement constitutes the legal, valid and binding obligation of Warrior,
enforceable against it in accordance with its terms. Approval of this Agreement
by the stockholders of Warrior is not required by applicable Law. Subject to the
matters referred to in section 8.2, Warrior has full power, authority and legal
right to enter into this Agreement and to consummate the transactions
contemplated by this Agreement. Warrior has no Knowledge of any fact or
circumstance under which the appropriate regulatory approvals required by
section 8.2 will not be granted without the imposition of material conditions or
material delays.
4.5 DISCLOSURE. No representation or warranty, or any statement or
certificate furnished or to be furnished to Bancshares by Warrior, contains or
will contain any untrue statement of a material fact, or omits or will omit to
state a material fact necessary to make the statements contained in this
Agreement or in any such statement or certificate not misleading.
ARTICLE 5
REPRESENTATIONS, WARRANTIES AND
COVENANTS OF BANCSHARES
Bancshares represents, warrants and covenants to and with Warrior, as
follows:
5.1 ORGANIZATION. Bancshares and Services are each Delaware
corporations, and the Bank is an Alabama banking corporation. Each Bancshares
Company is duly organized, validly existing and in good standing under the
respective Laws of its jurisdiction of incorporation and has all requisite power
and authority to carry on its business as it is now being conducted and is
qualified to do business in every jurisdiction in which the character and
location of the Assets owned by it or the nature of the business transacted by
it requires qualification or in which the failure to qualify
5
<PAGE> 10
could, individually, or in the aggregate, have a Material Adverse Effect. The
deposit accounts of the Bank are insured by the Federal Deposit Insurance
Corporation to the full extent permitted under applicable Law.
5.2 CAPITAL STOCK. (i) As of June 1, 1998, the authorized capital stock
of Bancshares consisted of 600,000 shares of common stock, $.10 par value per
share, 200,000 shares of which were issued and outstanding. All of such shares
which are outstanding are validly issued, fully paid and nonassessable and not
subject to preemptive rights. Bancshares does not have any arrangements or
commitments obligating it to issue shares of its capital stock or any securities
convertible into or having the right to purchase shares of its capital stock.
5.3 SUBSIDIARIES. Bancshares has no direct Subsidiaries other than the
Bank and Services and there are no Subsidiaries of the Bank. Bancshares owns all
of the issued and outstanding capital stock of the Bank and Services free and
clear of any liens, claims or encumbrances of any kind. All of the issued and
outstanding shares of capital stock of the Subsidiaries have been validly issued
and are fully paid and non-assessable. As of June 1, 1998, there were 260,000
shares of Class A common stock, par value $1.00 per share, authorized of the
Bank, 2,000 of which were issued and outstanding and wholly owned by Bancshares,
10,000 shares of Class B common stock par value $1.00 per share authorized of
the Bank, 1,400 of which were outstanding and owned as qualifying shares by Bank
directors, and 1,000 shares of common stock, par value $.01 per share,
authorized by Services, 100 of which were issued and outstanding and wholly
owned by Bancshares. No Subsidiary has any arrangements or commitments
obligating it to issue shares of its capital stock or any securities convertible
into or having the right to purchase shares of its capital stock.
5.4 FINANCIAL STATEMENTS; TAXES. (a) Bancshares has delivered to
Warrior copies of the following unaudited financial statements and other
financial information of Bancshares:
(i) Consolidated statements of financial condition as of
December 31, 1996 and 1997;
(ii) Consolidated statements of income for each of the two
years ended December 31, 1996 and 1997;
(iii) Consolidated statements of stockholders' equity for
each of the two years ended December 31, 1996, and 1997;
(iv) Consolidated statements of cash flows for the two years
ended December 31, 1996 and 1997; and
(v) Financial information regarding the financial position
and operations as of March 31, 1998.
6
<PAGE> 11
All of the foregoing financial statements are in all material respects
in accordance with the books and records of Bancshares and present fairly the
financial condition of Bancshares as of the respective dates indicated and the
results of operations, changes in shareholders' equity, changes in financial
position and cash flows for the respective periods indicated. Such financial
statements contain and reflect reserves for all material accrued Liabilities and
for all reasonably anticipated Losses, including but not limited to appropriate
reserves for loan and lease losses.
(b) Except as set forth on Schedule 5.4(b), to the Knowledge
of Bancshares, all Tax returns required to be filed by or on behalf of
Bancshares have been timely filed (or requests for extensions therefor have been
timely filed and granted and have not expired), and all returns filed are
complete and accurate in all material respects. All Taxes shown on these returns
to be due and all additional assessments received have been paid. The amounts
recorded for Taxes on the balance sheets provided under section 5.4(a) are, to
the Knowledge of Bancshares, sufficient in all material respects for the payment
of all unpaid federal, state, county, local, foreign and other Taxes (including
any interest or penalties) of Bancshares accrued for or applicable to the period
ended on the dates thereof, and all years and periods prior thereto and for
which Bancshares may at such dates have been liable in its own right or as a
transferee of the Assets of, or as successor to, any other corporation or other
party. To the Knowledge of Bancshares, no audit, examination or investigation is
presently being conducted or, to the Knowledge of Bancshares, threatened by any
taxing authority which is likely to result in a material Tax Liability, no
material unpaid Tax deficiencies or additional Liability of any sort has been
proposed by any governmental representative and no agreements for extension of
time for the assessment of any material amount of Tax have been entered into by
or on behalf of Bancshares. Bancshares has not executed an extension or waiver
of any statute of limitations on the assessment or collection of any Tax due
that is currently in effect.
(c) To the Knowledge of Bancshares, each Bancshares Company
has withheld from its employees (and timely paid to the appropriate governmental
entity) proper and accurate amounts for all periods in material compliance with
all Tax withholding provisions of applicable federal, state, foreign and local
Laws (including without limitation, income, social security and employment Tax
withholding for all types of compensation). Each Bancshares Company is in
compliance with, and its records contain all information and documents
(including 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 Code.
5.5 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth on
Schedule 5.5, since the date of the most recent balance sheet provided under
section 5.4(a)(i) above, no Bancshares Company has
(a) issued, delivered or agreed to issue or deliver any stock,
bonds or other corporate securities (whether authorized and unissued or held in
the treasury) except shares which may have been issued as director's qualifying
shares;
7
<PAGE> 12
(b) borrowed or agreed to borrow any funds or incurred, or
become subject to, any material Liability (absolute or contingent) except
borrowings, obligations (including purchase of federal funds) and Liabilities
incurred in the ordinary course of business and consistent with past practice;
(c) except for expenses incurred as a result of the Merger,
paid any material obligation or Liability (absolute or contingent) other than
current Liabilities reflected in or shown on the most recent balance sheet
referred to in section 5.4(a)(i) and current Liabilities incurred since that
date in the ordinary course of business and consistent with past practice;
(d) declared or made, or agreed to declare or make, any
payment of dividends or distributions of any Assets of any kind whatsoever to
shareholders, or purchased or redeemed, or agreed to purchase or redeem,
directly or indirectly, or otherwise acquire, any of its outstanding securities;
(e) except in the ordinary course of business, sold or
transferred, or agreed to sell or transfer, any of its Assets, or canceled, or
agreed to cancel, any debts or claims;
(f) except in the ordinary course of business, entered or
agreed to enter into any agreement or arrangement granting any preferential
rights to purchase any of its Assets, or requiring the consent of any party to
the transfer and assignment of any of its Assets;
(g) suffered any Losses or waived any rights of value which in
either event in the aggregate are material considering its business as a whole;
(h) except in the ordinary course of business, made or
permitted any amendment or termination of any Contract, agreement or license to
which it is a party if such amendment or termination is material considering its
business as a whole;
(i) except for existing employment agreements with John T.
Landers and Rodney Johnston and except in accordance with normal and usual
practice, made any accrual or arrangement for or payment of bonuses or special
compensation of any kind or any severance or termination pay to any present or
former officer or employee;
(j) except in accordance with normal and usual practice,
increased the rate of compensation payable to or to become payable to any of its
officers or employees or made any material increase in any profit sharing,
bonus, deferred compensation, savings, insurance, pension, retirement or other
employee benefit plan, payment or arrangement made to, for or with any of its
officers or employees;
(k) failed to operate its business in the ordinary course so
as to preserve its business intact and to preserve the goodwill of its customers
and others with whom it has business relations;
8
<PAGE> 13
(l) entered into any other material transaction other than in
the ordinary course of business; or
(m) agreed in writing, or otherwise, to take any action
described in clauses (a) through (m) above.
Between the date hereof and the Effective Date, no Bancshares Company,
without the express written approval of Warrior, will do any of the things
listed in clauses (a) through (m) of this section 5.5 except as permitted
therein or as contemplated in this Agreement, and no Bancshares Company will
enter into or amend any material Contract, other than Loans or renewals thereof
entered into in the ordinary course of business, without the express written
consent of Warrior.
5.6 TITLE AND RELATED MATTERS. To its Knowledge, Bancshares has good
and marketable title to all the properties, interest in properties and Assets,
real and personal, that are material to the business of Bancshares, reflected in
the most recent balance sheet referred to in section 5.4(a)(i), or acquired
after the date of such balance sheet (except properties, interests and Assets
sold or otherwise disposed of since such date, in the ordinary course of
business), free and clear of all mortgages, Liens, pledges, charges or
encumbrances except (i) mortgages and other encumbrances referred to in the
notes to such balance sheet, (ii) Liens for current Taxes not yet due and
payable and (iii) such imperfections of title and easements as do not materially
detract from or interfere with the present use of the properties subject thereto
or affected thereby, or otherwise materially impair present business operations
at such properties. To the Knowledge of Bancshares, the material structures and
equipment of each Bancshares Company comply in all material respects with the
requirements of all applicable Laws.
5.7 COMMITMENTS. Except as set forth in Schedule 5.7, no Bancshares
Company is a party to any oral or written (i) Contracts for the employment of
any officer or employee which is not terminable on 30 days' (or less) notice,
(ii) profit sharing, bonus, deferred compensation, savings, stock option,
severance pay, pension or retirement plan, agreement or arrangement, (iii) loan
agreement, indenture or similar agreement relating to the borrowing of money by
such party, (iv) guaranty of any obligation for the borrowing of money or
otherwise, excluding endorsements made for collection, and guaranties made in
the ordinary course of business, (v) consulting or other similar material
Contracts, (vi) collective bargaining agreement, (vii) agreement with any
present or former officer, director or shareholder of such party, or (viii)
other Contract, agreement or other commitment which is material to the business,
operations, property, prospects or Assets or to the condition, financial or
otherwise, of any Bancshares Company. Complete and accurate copies of all
Contracts, plans and other items so listed have been made or will be made
available to Warrior for inspection.
5.8 CHARTER AND BYLAWS. Schedule 5.8 contains true and correct copies
of the articles of incorporation and bylaws of each Bancshares Company,
including all amendments thereto, as currently in effect. There will be no
changes in such articles of incorporation or bylaws prior to the Effective Date,
without the prior written consent of Warrior.
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5.9 LITIGATION. Except as set forth on Schedule 5.9, there is no
Litigation (whether or not purportedly on behalf of Bancshares) pending or, to
the Knowledge of Bancshares, threatened against or affecting any Bancshares
Company (nor does Bancshares have Knowledge of any facts which are likely to
give rise to any such Litigation) at law or in equity, or before or by any
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, or before any arbitrator of any kind, which involves the
possibility of any judgment or Liability not fully covered by insurance in
excess of a reasonable deductible amount or which may have a Material Adverse
Effect on Bancshares, and no Bancshares Company is in Default with respect to
any judgment, order, writ, injunction, decree, award, rule or regulation of any
court, arbitrator or governmental department, commission, board, bureau, agency
or instrumentality, which Default would have a Material Adverse Effect on
Bancshares. To the Knowledge of Bancshares, each Bancshares Company has complied
in all material respects with all material applicable Laws and Regulations
including those imposing Taxes, of any applicable jurisdiction and of all
states, municipalities, other political subdivisions and Agencies, in respect of
the ownership of its properties and the conduct of its business, which, if not
complied with, would have a Material Adverse Effect on Bancshares.
5.10 MATERIAL CONTRACT DEFAULTS. Except as disclosed on Schedule 5.10,
no Bancshares Company is in Default in any material respect under the terms of
any material Contract, agreement, lease or other commitment which is or may be
material to the business, operations, properties or Assets, or the condition,
financial or otherwise, of such company and, to the Knowledge of Bancshares,
there is no event which, with notice or lapse of time, or both, may be or become
an event of Default under any such material Contract, agreement lease or other
commitment in respect of which adequate steps have not been taken to prevent
such a Default from occurring.
5.11 NO CONFLICT WITH OTHER INSTRUMENT. The consummation of the
transactions contemplated by this Agreement will not result in the breach of any
term or provision of or constitute a Default under any material Contract,
indenture, mortgage, deed of trust or other material agreement or instrument to
which any Bancshares Company is a party and will not conflict with any provision
of the charter or bylaws of any Bancshares Company.
5.12 GOVERNMENTAL AUTHORIZATION. Each Bancshares Company has all
Permits that, to the Knowledge of Bancshares, are or will be legally required to
enable any Bancshares Company to conduct its business in all material respects
as now conducted by each Bancshares Company.
5.13 ABSENCE OF REGULATORY COMMUNICATIONS. Except as provided in
Schedule 5.13, no Bancshares Company is subject to, nor has any Bancshares
Company received during the past three years, any written communication directed
specifically to it from any Agency to which it is subject or pursuant to which
such Agency has imposed or has indicated it may impose any material restrictions
on the operations of it or the business conducted by it or in which such Agency
has raised any material question concerning the condition, financial or
otherwise, of such company.
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5.14 ABSENCE OF MATERIAL ADVERSE CHANGE. To the Knowledge of
Bancshares, since the date of the most recent balance sheet provided under
section 5.4(a)(i), 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 any Bancshares Company.
5.15 INSURANCE. Each Bancshares Company has in effect insurance
coverage and bonds with reputable insurers which, in respect to amounts, types
and risks insured, management of Bancshares reasonably believes to be adequate
for the type of business conducted by such company. No Bancshares Company is
liable for any material retroactive premium adjustment. All insurance policies
and bonds are valid, enforceable and in full force and effect, and no Bancshares
Company has received any notice of any material premium increase or cancellation
with respect to any of its insurance policies or bonds. Within the last three
years, no Bancshares Company has been refused any insurance coverage which it
has sought or applied for, and it has no reason to believe that existing
insurance coverage cannot be renewed as and when the same shall expire, upon
terms and conditions as favorable as those presently in effect, other than
possible increases in premiums that do not result from any extraordinary loss
experience. All policies of insurance presently held or policies containing
substantially equivalent coverage will be outstanding and in full force with
respect to each Bancshares Company at all times from the date hereof to the
Effective Date.
5.16 PENSION AND EMPLOYEE BENEFIT PLANS. Schedule 5.16 sets forth all
current employee benefit plans of Bancshares. Bancshares plans to file
documentation to terminate its pension plan prior to the Effective Date.
5.17 BUY-SELL AGREEMENT. To the Knowledge of Bancshares, there are no
agreements among any of its shareholders granting to any person or persons a
right of first refusal in respect of the sale, transfer, or other disposition of
shares of outstanding securities by any shareholder of Bancshares, any similar
agreement or any voting agreement or voting trust in respect of any such shares.
5.18 BROKERS. All negotiations relative to this Agreement and the
transactions contemplated by this Agreement have been carried on by Bancshares
directly with Warrior and without the intervention of any other Person, either
as a result of any act of Bancshares, or otherwise, in such manner as to give
rise to any valid claim against Bancshares for a finder's fee, brokerage
commission or other like payment.
5.19 APPROVAL OF AGREEMENTS. The board of directors of Bancshares has
approved this Agreement and the transactions contemplated by this Agreement and
has authorized the execution and delivery by Bancshares of this Agreement.
Subject to the matters referred to in section 8.2, Bancshares has full power,
authority and legal right to enter into this Agreement, and, upon appropriate
vote of the shareholders of Bancshares in accordance with this Agreement,
Bancshares shall have full power, authority and legal right to consummate the
transactions contemplated by this Agreement.
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5.20 DISCLOSURE. No representation or warranty, nor any statement or
certificate furnished or to be furnished to Warrior by Bancshares, contains or
will contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary to make the statements contained in this
Agreement or in any such statement or certificate not misleading.
5.21 ENVIRONMENTAL MATTERS.
(a) To the Knowledge of Bancshares, none of the assets of
Bancshares ("assets" being defined for purposes of this section as the real
property and tangible personal property owned or leased by any Bancshares
Company as of the date of this Agreement and as of the Effective Date) contain
any hazardous materials, defined as any substance whose nature and/or quantity
or existence, use, manufacturer or effect render it subject to federal, state or
local regulation as potentially injurious to public health or welfare, or to the
environment, including, without limitation, friable asbestos, petroleum products
or PCBs ("Hazardous Materials"), other than in such quantities which are
incidental and customary for the maintenance and operation of such assets, e.g.,
cleaning fluids ("Incidental Quantities").
(b) No notice or other communication has been received from
any Agency having jurisdiction over any Bancshares Company or to the Knowledge
of Bancshares from any other Person, with respect to any alleged violation by
any Bancshares Company of any federal, state or local Laws, rules, regulations,
ordinances and codes governing Hazardous Materials and which are applicable to
the assets of any Bancshares Company.
(c) To the Knowledge of Bancshares, all Hazardous Materials
which have been remediated from any assets of any Bancshares Company prior to or
during their ownership by Bancshares have been handled in compliance with all
applicable Laws.
ARTICLE 6
ADDITIONAL COVENANTS
6.1 ADDITIONAL COVENANTS OF WARRIOR. Warrior covenants to and with
Bancshares as follows:
(a) Regulatory Filings. No later than 14 calendar days
following the date of this Agreement, Warrior shall prepare and file in form
reasonably satisfactory to Bancshares and its counsel, an application with the
Board of Governors of the Federal Reserve System and with the Alabama State
Banking Department (and with such other Agencies as may be required by Law)
seeking approval of the Merger. Copies of such filings shall be furnished to
Bancshares and its counsel.
(b) No Control of Bancshares by Warrior. Notwithstanding any
other provision hereof, until the Effective Date, the authority to establish and
implement the business policies of Bancshares shall continue to reside solely in
Bancshares's officers and board of directors.
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(c) Employee Benefit Matters. All employees of Bancshares
(including its Subsidiaries) who continue as employees of the Resulting
Corporation (including its Subsidiaries) after the Merger shall receive service
credit for employment at Bancshares prior to the Effective Date for purposes of
meeting all the eligibility requirements and all vesting requirements for all of
the Resulting Corporation's benefit programs in which such employees shall
become eligible to participate on or after the Effective Date, including but not
limited to health, retirement, vacation and disability plans. The Resulting
Corporation will waive waiting periods and pre-existing conditions limitations
under its group health plan (within the meaning of Section 5000(b)(i) of the
Internal Revenue Code of 1986, as amended) for those employees of Bancshares who
continue as employees of the Resulting Corporation after the Merger and who had
coverage under compatible group health plans of Bancshares immediately prior to
the Effective Date. The Resulting Corporation shall provide the opportunity for
continuation of coverage through COBRA for any former Bancshares employee who
participated as or who had a right to elect participation as a COBRA continued
under Bancshares' group health plans immediately prior to the Effective Date.
(d) Consulting Agreement. Warrior shall enter into a
Consulting Agreement with John M. Schuessler, dated the Effective Date, and
providing for the following:
(i) The term of such agreement shall be three
years.
(ii) A consulting fee of $2,000 per month shall be
paid to Mr. Schuessler during the term of the Agreement; and
(iii) All current insurance policies and other
benefits received by Mr. Schuessler from Bancshares or its Subsidiaries shall be
continued, at the expense of the Bank, and Mr. Schuessler shall be entitled to
continue at his expense major medical benefits for his wife through the
cafeteria plan arrangements currently in effect.
(e) Indemnification.
(i) From and after the Effective Date, Warrior
shall indemnify and advance costs and expenses (including reasonable attorneys
fees, disbursements and expenses) and hold harmless each present and former
director and/or officer of Bancshares or its Subsidiaries determined as of the
Effective Date (the "Indemnified Parties"), against any costs or expenses
(including reasonable attorney's fees), judgments, fines, losses, claims,
damages, settlements or liabilities (collectively, "Costs") incurred in
connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative (each a "Claim"), arising out
of or pertaining to matters existing or occurring at or prior to the Effective
Date, whether asserted or claimed prior to, at or after the Effective Date to
the fullest extent that Bancshares or any of its Subsidiaries would have been
permitted under Alabama Law and its Articles of Incorporation or Bylaws in
effect on the date hereof, to indemnify such person (and also advance expenses
as incurred to the fullest extent permitted under applicable Law).
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(ii) Any Indemnified Party wishing to claim
indemnification under this Section 6.1(e) shall notify Warrior within forty-five
(45) days after the Indemnified Party's receipt of a notice of any Claim, but
the failure to so notify shall not relieve Warrior of any Liability it may have
to such Indemnified Party if such failure does not materially prejudice Warrior.
In the event of any claim (whether arising before or after the Effective Date),
(i) Warrior shall have the right to assume the defense thereof, and Warrior
shall not be liable to such Indemnified Parties for any legal expenses of other
counsel or any other expenses subsequently incurred by such Indemnified Parties
in connection with the defense thereof, except that if Warrior elects not to
assume such defense, or counsel for the Indemnified Parties advises that there
are issues which raise conflicts of interest between Warrior and the Indemnified
Parties, the Indemnified Parties may retain counsel satisfactory to them, and
Warrior shall pay the reasonable fees and expense of such counsel for the
Indemnified Parties promptly after statements therefor are received; provided,
however, that Warrior shall be obligated pursuant to this paragraph (ii) to pay
for only one firm of counsel for all Indemnified Parties in any jurisdiction
unless the use of one counsel for such Indemnified Parties will present such
counsel with a conflict of interest, (ii) the Indemnified Parties will cooperate
in the defense of any such matter, and (iii) Warrior shall not be liable for any
settlement effected without its prior written consent which shall not be
unreasonably withheld. If such indemnity with respect to any Indemnified Party
is unenforceable against Warrior, then Warrior and the Indemnified Party shall
contribute to the amount payable in such proportion as is appropriate to reflect
relative faults and benefits.
(iii) For a period of six (6) years after the
Effective Date, Warrior shall maintain in effect the current policies for
directors and officer liability insurance maintained by Bancshares (provided
that Warrior may substitute therefore policies of at least the same coverage and
amounts containing terms and conditions which are no less advantageous to such
directors and officers) with respect to claims arising from facts or events
which occurred before the Effective Date.
(iv) If Warrior or any of its successors and
assigns (i) shall consolidate with or merge into any other corporation or entity
and shall not be the continuing or surviving corporation or entity of such
consolidation or merger, or (ii) shall transfer all or substantially all of its
property and assets to any individual, corporation or other entity, then, in
each such case, proper provision shall be made so that the successors and
assigns of Warrior and its Subsidiaries shall assume the obligations set forth
in this section.
(v) The provisions of this Section 6.1(e) are
intended to be for the benefit of, and shall be enforceable by each Indemnified
Party, and each Indemnified Party's heirs and representatives.
6.2 ADDITIONAL COVENANTS OF BANCSHARES. Bancshares covenants to and
with Warrior as follows:
(a) Operations. Bancshares will conduct its business and the
business of each Bancshares Company in a proper and prudent manner and will use
its best efforts to maintain its
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relationships with its depositors, customers and employees. No Bancshares
Company will engage in any material transaction outside the ordinary course of
business or make any material change in its accounting policies or methods of
operation, nor will Bancshares permit the occurrence of any change or event
which would render any of the representations and warranties in Article 5 hereof
untrue in any material respect at and as of the Effective Date with the same
effect as though such representations and warranties had been made at and as of
such Effective Date.
(b) Stockholders Meeting; Best Efforts. Bancshares will
cooperate with Warrior in the preparation of any regulatory filings and will
cause the Stockholders Meeting to be held for the purpose of approving the
Merger as soon as practicable after the date hereof, and will use its best
efforts to bring about the transactions contemplated by this Agreement,
including stockholder approval of this Agreement, as soon as practicable unless
this Agreement is terminated as provided herein.
(c) Prohibited Negotiations. Except with respect to this
Agreement and the transactions contemplated hereby, no Bancshares Company nor
any affiliate thereof nor any investment banker, attorney, accountant, or other
representative (collectively, "Representatives") retained by any Bancshares
Company shall directly or indirectly solicit any Acquisition Proposal by any
Person. Except to the extent necessary to comply with the fiduciary duties of
Bancshares' Board of Directors as advised in writing by counsel to such Board of
Directors, no Bancshares Company or any 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, and each Bancshares Company shall direct and use its reasonable
efforts to cause all of its Representatives not to engage in any of the
foregoing, but Bancshares 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 in writing by counsel
to such Board of Directors. Bancshares shall promptly notify Warrior orally and
in writing in the event that any Bancshares Company receives any inquiry or
proposal relating to any such Acquisition Proposal. Bancshares shall immediately
cease and cause to be terminated any existing activities, discussions, or
negotiations with any Persons other than Warrior conducted heretofore with
respect to any of the foregoing.
(d) Financial Statements and Monthly Status Reports.
Bancshares shall furnish to Warrior as soon as practicable, copies of all
financial statements and reports as it shall send to its stockholders and of
such regular and periodic reports as Bancshares may file with any Agency; and
with reasonable promptness, such additional financial data as Warrior may
reasonably request.
ARTICLE 7
MUTUAL COVENANTS AND AGREEMENTS
7.1 BEST EFFORTS, COOPERATION. Subject to the terms and conditions
herein provided, Warrior and Bancshares each agrees to use its best efforts
promptly to take, or cause to be taken, all actions and do, or cause to be done,
all things necessary, proper or advisable under applicable Laws
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or otherwise, including, without limitation, promptly making required deliveries
of stockholder lists and stock transfer reports and attempting to obtain all
necessary Consents and waivers and regulatory approvals, including the holding
of any regular or special board meetings, to consummate and make effective, as
soon as practicable, the transactions contemplated by this Agreement. The
officers of each Party to this Agreement shall fully cooperate with officers and
employees, accountants, counsel and other representatives of the other Parties
not only in fulfilling the duties hereunder of the Party of which they are
officers but also in assisting, directly or through direction of employees and
other persons under their supervision or control, such as stock transfer agents
for the Party, the other Parties requiring information which is reasonably
available from such Party.
7.2 PRESS RELEASE. Each Party hereto agrees that, unless approved by
the other Parties in advance, such Party will not make any public announcement,
issue any press release or other publicity or confirm any statements by any
person not a party to this Agreement concerning the transactions contemplated
hereby. Notwithstanding the foregoing, each Party hereto reserves the right to
make any disclosure if such Party, in its reasonable discretion, deems such
disclosure required by Law. In that event, such Party shall provide to the other
Party the text of such disclosure sufficiently in advance to enable the other
Party to have a reasonable opportunity to comment thereon.
7.3 MUTUAL DISCLOSURE. Each Party hereto agrees to promptly furnish to
each other Party hereto its public disclosures and filings not precluded from
disclosure by Law including but not limited to call reports, applications,
reports to Agencies, quarterly or special reports to shareholders, Tax returns,
registration statements relating to the issuance of securities and similar
documents.
7.4 ACCESS TO PROPERTIES AND RECORDS. Each Party hereto shall afford
the officers and authorized representatives of the other Party full access to
the Assets, books and records of such Party in order that such other Parties may
have full opportunity to make such investigation as they shall desire of the
affairs of such Party and shall furnish to such Parties such additional
financial and operating data and other information as to its businesses and
Assets as shall be from time to time reasonably requested. All such information
that may be obtained by any such Party will be held in confidence by such party,
will not be disclosed by such Party or any of its representatives except in
accordance with this Agreement, and will not be used by such Party for any
purpose other than the accomplishment of the Merger as provided herein.
7.5 NOTICE OF ADVERSE CHANGES. 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 (i) is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on it or (ii) would 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.
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ARTICLE 8
CONDITIONS TO OBLIGATIONS OF ALL PARTIES
The obligations of Warrior and Bancshares to cause the transactions
contemplated by this Agreement to be consummated shall be subject to the
satisfaction, in the sole discretion of the Party relying upon such conditions,
on or before the Effective Date of all the following conditions, except as such
Parties may waive such conditions in writing:
8.1 APPROVAL BY SHAREHOLDERS. At the Stockholders Meeting, this
Agreement and the matters contemplated by this Agreement shall have been duly
approved by the vote of the holders of not less than the requisite number of the
issued and outstanding voting securities of Bancshares as is required by
applicable Law and Bancshares's articles of incorporation and bylaws.
8.2 REGULATORY AUTHORITY APPROVAL. (a) Orders, Consents and approvals,
in form and substance reasonably satisfactory to Warrior and Bancshares, shall
have been entered by the Board of Governors of the Federal Reserve System and
other appropriate bank regulatory Agencies (i) granting the authority necessary
for the consummation of the transactions contemplated by this Agreement, and
(ii) satisfying all other requirements prescribed by Law.
(b) Each Party shall have obtained any and all other Consents
required for consummation of the Merger (other than those referred to in Section
8.2(a) of this Agreement) 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.
8.3 LITIGATION. There shall be no pending or threatened material
Litigation in any court or any pending or threatened proceeding by any
governmental commission, board or Agency, with a view to seeking or in which it
is sought to restrain or prohibit consummation of the transactions contemplated
by this Agreement or in which it is sought to obtain divestiture, rescission or
damages in connection with the transactions contemplated by this Agreement and
no investigation by any Agency shall be pending or threatened which might result
in any such suit, action or other proceeding.
ARTICLE 9
CONDITIONS TO OBLIGATIONS OF BANCSHARES
The obligations of Bancshares to cause the transactions contemplated by
this Agreement to be consummated shall be subject to the satisfaction on or
before the Effective Date of all the following conditions except as Bancshares
may waive such conditions in writing:
9.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. Notwithstanding any
investigation made by or on behalf of Bancshares, all representations and
warranties of Warrior contained in this Agreement shall be true in all material
respects on and as of the Effective Date as if such
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representations and warranties were made on and as of such Effective Date, and
Warrior shall have performed in all material respects all agreements and
covenants required by this Agreement to be performed by it on or prior to the
Effective Date.
9.2 ADVERSE CHANGES. There shall have been no changes after the date of
the most recent balance sheet provided under section 4.2(a)(i) hereof in the
results of operations (as compared with the corresponding period of the prior
fiscal year), Assets, Liabilities, financial condition or affairs of Warrior
which in their total effect constitute a Material Adverse Effect, nor shall
there have been any material changes in the Laws governing the business of
Warrior which would impair the rights of Bancshares or its shareholders pursuant
to this Agreement.
9.3 CLOSING CERTIFICATE. In addition to any other deliveries required
to be delivered hereunder, Bancshares shall have received a certificate from the
President or a Vice President and from the Secretary or Assistant Secretary of
Warrior dated as of the Closing certifying that:
(a) the Board of Directors of Warrior has duly adopted
resolutions approving the substantive terms of this Agreement and authorizing
the consummation of the transactions contemplated by this Agreement and such
resolutions have not been amended or modified and remain in full force and
effect;
(b) each person executing this Agreement on behalf of Warrior
is an officer of Warrior holding the office or offices specified therein and the
signature of each person set forth on such certificate is his or her genuine
signature;
(c) such persons have no knowledge of a basis for any material
claim, in any court or before any Agency or arbitration or otherwise against, by
or affecting Warrior or the business, prospects, condition (financial or
otherwise), or Assets of Warrior which would prevent the performance of this
Agreement or the transactions contemplated by this Agreement or declare the same
unlawful or cause the rescission thereof;
(d) to such persons' knowledge, the Proxy Statement delivered
to Bancshares's shareholders, or any amendments or revisions thereto so
delivered, as of the date thereof, did not contain or incorporate by reference
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances under which they were made (it being
understood that such persons need not express a statement as to information
concerning or provided by Bancshares for inclusion in such Proxy Statement); and
(e) the conditions set forth in this Article 9 insofar as they
relate to Warrior have been satisfied.
9.4 LEGAL OPINION. Bancshares shall receive an opinion of legal counsel
for Warrior, Haskell Slaughter & Young, L.L.C., substantially in the form
attached hereto as Exhibit 1. In
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addition, such counsel may rely on representations and certificates of officers
and directors of Warrior and certificates of public officials, and such opinion
shall be subject to reasonable and customary qualifications.
ARTICLE 10
CONDITIONS TO OBLIGATIONS OF WARRIOR
The obligations of Warrior to cause the transactions contemplated by
this Agreement to be consummated shall be subject to the satisfaction on or
before the Effective Date of all of the following conditions except as Warrior
may waive such conditions in writing:
10.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. Notwithstanding any
investigation made by or on behalf of Warrior, all representations and
warranties of Bancshares contained in this Agreement shall be true in all
material respects on and as of the Effective Date as if such representations and
warranties were made on and as of the Effective Date, and Bancshares shall have
performed in all material respects all agreements and covenants required by this
Agreement to be performed by it on or prior to the Effective Date.
10.2 ADVERSE CHANGES. There shall have been no changes after the date
of the most recent balance sheet provided under section 5.4(a)(i) hereof in the
results of operations (as compared with the corresponding period of the prior
fiscal year), Assets, Liabilities, financial condition, or affairs of Bancshares
which constitute a Material Adverse Effect, nor shall there have been any
material changes in the laws governing the business of Bancshares which would
impair Warrior's rights pursuant to this Agreement.
10.3 CLOSING CERTIFICATE. In addition to any other deliveries required
to be delivered hereunder, Warrior shall have received a certificate from
Bancshares executed by the President or Vice President and from the Secretary or
Assistant Secretary of Bancshares dated as of the Closing certifying that:
(a) the Board of Directors of Bancshares has duly adopted
resolutions approving the substantive terms of this Agreement and authorizing
the consummation of the transactions contemplated by this Agreement and such
resolutions have not been amended or modified and remain in full force and
effect;
(b) the shareholders of Bancshares have duly adopted
resolutions approving the substantive terms of the Merger and the transactions
contemplated thereby and such resolutions have not been amended or modified and
remain in full force and effect;
(c) each person executing this Agreement on behalf of
Bancshares is an officer of Bancshares holding the office or offices specified
therein and the signature of each person set forth on such certificate is his or
her genuine signature;
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(d) the articles of incorporation and bylaws of each
Bancshares Company referenced in section 5.8 hereof remain in full force and
effect and have not been amended or modified since the date hereof;
(e) to such persons' knowledge, the Proxy Statement delivered
to Bancshares's shareholders, or any amendments or revisions thereto so
delivered, as of the date thereof, did not contain or incorporate by reference
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances under which they were made (it being
understood that such persons need only express a statement as to information
concerning or provided by Bancshares for inclusion in such Proxy Statement); and
(f) the conditions set forth in this Article 10 insofar as
they relate to Bancshares have been satisfied.
10.4 LEGAL OPINION. Warrior shall receive an opinion of Bancshares'
legal counsel, Balch & Bingham LLP, substantially in the form attached as
Exhibit 2. In addition, such counsel may rely on representations and
certificates of officers and directors of Bancshares' and certificates of public
officials and such opinion may be subject to reasonable and customary
qualifications.
ARTICLE 11
TERMINATION OF REPRESENTATIONS AND WARRANTIES
All representations and warranties provided in Articles 4 and 5 of this
Agreement or in any closing certificate pursuant to Articles 9 and 10 shall
terminate and be extinguished at and shall not survive the Effective Date. All
covenants, agreements and undertakings required by this Agreement to be
performed by any Party hereto following the Effective Date shall survive such
Effective Date and be binding upon such Party. If the Merger is not consummated,
all representations, warranties, obligations, covenants, or agreements hereunder
or in any certificate delivered hereunder relating to the transaction which is
not consummated shall be deemed to be terminated or extinguished, except that
the last sentence of Section 7.4, and sections 7.2, 13.3, 3.1(c), Article 11,
Article 15 and any applicable definitions of Article 14, shall survive. Items
disclosed in the Exhibits and Schedules attached hereto are incorporated into
this Agreement and form a part of the representations, warranties, covenants or
agreements to which they relate.
ARTICLE 12
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, by registered or certified mail, postage pre-paid, 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 received:
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(a) If to Bancshares to: John M. Schuessler, The Commercial
Bank of Roanoke, 548 Main Street, Roanoke, Alabama 36274-1435, facsimile
334/863-4151, Extension 116, with copies to Michael D. Waters, Balch & Bingham
LLP, Post Office Box 78, Montgomery, Alabama 36101-0078, facsimile 334/269-3115,
or as may otherwise be specified by Bancshares in writing to Warrior.
(b) If to Warrior, to James A. Taylor, Sr., Warrior Capital
Corporation, 17 North 20th Street, Birmingham, Alabama 35203, facsimile
205/324-8060, with a copy to James A. Taylor, Jr., at the same address and
facsimile or as may otherwise be specified in writing by Warrior to Bancshares.
ARTICLE 13
AMENDMENT OR TERMINATION
13.1 AMENDMENT. This Agreement may be amended by the mutual consent of
Warrior and Bancshares before or after approval of the transactions contemplated
herein by the shareholders of Bancshares.
13.2 TERMINATION. This Agreement may be terminated at any time prior to
or on the Effective Date whether before or after action thereon by the
shareholders of Bancshares, as follows:
(a) by the mutual written consent of the respective boards of
directors of Bancshares and Warrior;
(b) by the board of directors of either Party (provided that
the terminating Party is not then in material breach of any representation,
warranty, covenant, or other 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 10.1 of
this Agreement in the case of Warrior and section 9.1 of this Agreement in the
case of Bancshares;
(c) by the board of directors of either Party (provided that
the terminating Party is not then in material breach of any representation,
warranty, 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 if
any of the conditions to the obligations of such Party contained in this
Agreement in Article 9 as to Bancshares or Article 10 as to Warrior shall not
have been satisfied in full; or
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(d) at any time by the board of directors of Bancshares if the
Effective Date has not occurred by 5:00 p.m. on October 19, 1998,
notwithstanding the provisions of Section 3.1(b), provided that Bancshares is
not then in material breach of this Agreement which gives Warrior the right to
terminate this Agreement under Section 13.2(b) or (c) hereof..
13.3 DAMAGES. In the event of termination pursuant to section 13.2,
this Agreement shall become void and have no effect, except as provided in
Article 11, and except that Bancshares and Warrior shall be liable for damages
for any wilful breach of warranty, representation, covenant or other agreement
contained in this Agreement.
ARTICLE 14
DEFINITIONS
(a) The following terms, which are capitalized in this Agreement, shall
have the meanings set forth below for the purpose of this Agreement:
Acquisition Proposal Shall mean, with respect to a Party, any
tender offer or exchange offer or any proposal for a
merger, acquisition of all of the stock or assets of,
or other business combination involving such Party or
any of its Subsidiaries or the acquisition of a
substantial equity interest in, or a substantial
portion of the assets of, such Party or any of its
Subsidiaries.
Agencies Shall mean, collectively, the Federal Trade
Commission, the United States Department of Justice,
the Board of the Governors of the Federal Reserve
System, the Federal Deposit Insurance Corporation,
the Office of Thrift Supervision, all state
regulatory agencies having jurisdiction over the
Parties and their respective Subsidiaries, HUD, the
VA, the FHA, the GNMA, the FNMA, the FHLMC, the NYSE,
and the SEC.
Agreement Shall mean this Agreement and Plan of Merger and the
Exhibits and Schedules delivered pursuant hereto and
incorporated herein by reference.
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
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of such Person or any Affiliate of such Person and
wherever located.
Bancshares Commercial Bancshares of Roanoke, Inc., a Delaware
corporation.
Bancshares Company Shall mean Bancshares, the Bank, any
Subsidiary of Bancshares or the Bank, or any person
or entity acquired as a Subsidiary of Bancshares or
the Bank in the future and owned by Bancshares or the
Bank at the Effective Date.
Bancshares Stock Shares of common stock, par value $.10 per share, of
Bancshares.
Bank The Commercial Bank of Roanoke, an Alabama banking
corporation.
Closing The submission of the certificates of officers, legal
opinions and other actions required to be taken in
order to consummate the Merger in accordance with
this Agreement.
Consent Any consent, approval, authorization, clearance,
exemption, waiver, or similar affirmation by any
Person pursuant to any Contract, Law, Order, or
Permit.
Contract 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.
Default Shall mean (i) any breach or violation of or default
under any Contract, Order or Permit, (ii) 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 (iii) 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.
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DGCL Delaware General Corporation Law.
Effective Date Means the date and time at which the Merger becomes
effective as defined in section 2.7 hereof.
ERISA The Employee Retirement Income Security Act of 1974,
as amended.
Exhibits 1 through 2, 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.
GAAP Means generally accepted accounting principles
applicable to banks and bank holding companies
consistently applied during the periods involved.
Hazardous Materials Means those materials defined in section 5.21 hereof.
Incidental Quantities Means those items defined in section 5.21 hereof.
Knowledge Means the actual knowledge of the Chairman,
President, Chief Financial Officer, Chief Accounting
Officer, Chief Credit Officer, General Counsel or any
Senior or Executive Vice President of Warrior, in the
case of knowledge of Warrior, or of Bancshares and
the Bank, in the case of knowledge of Bancshares.
Law 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 Agency.
Liability Any direct or indirect, primary or secondary,
liability, indebtedness, obligation, penalty, cost or
expense (including, without limitation, costs of
investigation, collection and defense), 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
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contingent, liquidated or unliquidated, matured or
unmatured, or otherwise.
Lien Any conditional sale agreement, default of title,
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
of, 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 other Liens incurred in the
ordinary course of the banking business, (iii) Liens
in the form of easements and restrictive covenants on
real property which do not materially adversely
affect the use of such property by the current owner
thereof, and (iv) Liens which are not reasonably
likely to have, individually or in the aggregate, a
Material Adverse Effect on a Party.
Litigation Any action, arbitration, complaint, criminal
prosecution, governmental or other examination or
investigation, hearing, inquiry, administrative or
other proceeding but shall not include regular,
periodic examinations of depository institutions and
their Affiliates by regulatory authorities, relating
to or affecting a Party, its business, its Assets
(including Contracts related to it), or the
transactions contemplated by this Agreement relating
to or affecting a Party, its business, its Assets
(including Contracts related to it), or the
transactions contemplated by this Agreement.
Loan Property 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.
Loss Any and all direct or indirect payments, obligations,
recoveries, deficiencies, fines, penalties, interest,
assessments, losses, diminution in the value of
Assets, damages, punitive, exemplary or consequential
damages (including, but not limited to, lost income
and profits and interruptions of business),
liabilities, costs, expenses (including without
limitation, reasonable attorneys' fees and expenses,
and
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consultant's fees and other costs of defense or
investigation), and interest on any amount payable to
a third party as a result of the foregoing.
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 (i) the
financial position, Assets, business, or results of
operations of such Party and its Subsidiaries, taken
as a whole, or (ii) 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 effect" 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 generally accepted
accounting principles 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, and (z) the Merger and compliance with the
provisions of this Agreement on the operating
performance of the Parties.
Merger The merger of Bancshares with Warrior as contemplated
in this Agreement.
Merger Consideration The distribution of cash for Bancshares
Stock as provided in section 3.1(a) hereof.
Order 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 Agency.
Party Shall mean Bancshares or Warrior, and "Parties" shall
mean both Bancshares and Warrior.
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Permit 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 or business.
Person 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 The proxy statement used by Bancshares to
solicit the approval of its stockholders of the
Merger contemplated by this Agreement.
Resulting Corporation Warrior, as the surviving corporation resulting from
the Merger.
Services Commercial Bancshares Services, Inc., an Alabama
corporation, and Subsidiary of Bancshares.
Stockholders Meeting The special meeting of stockholders of Bancshares
called to approve the transactions contemplated by
this Agreement.
Subsidiaries Shall mean all those corporations, banks,
associations, or other entities of which the entity
in question owns or controls 5% or more of the
outstanding equity securities either directly or
through an unbroken chain of entities as to each of
which 5% 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.
Tax or Taxes Means any federal, state, county, local, foreign, and
other taxes, assessments, charges, fares, and
impositions, including interest and penalties thereon
or with respect thereto.
Warrior Warrior shall mean Warrior Capital Corporation, an
Alabama corporation.
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Warrior Bank The Bank, an Alabama banking corporation and
Subsidiary of Warrior.
1933 Act The Securities Act of 1933, as amended.
1934 Act The Securities Exchange Act of 1934, as amended.
ARTICLE 15
MISCELLANEOUS
15.1 EXPENSES. (a) Except as otherwise provided in this Section 15.1,
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 if the Merger is not closed, Warrior shall
reimburse Bancshares for expenses incurred in the preparation of audited
financial statements of Bancshares to be used by Warrior as part of its
registration statements related to other acquisitions by Warrior.
(b) Nothing contained in this Section 15.1 shall constitute or shall be
deemed to constitute liquidated damages for the willful breach by a Party of the
terms of this Agreement or otherwise limit the rights of the nonbreaching Party.
15.2 BENEFIT AND 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. It is contemplated that Warrior will enter into an agreement of merger
with The Banc Corporation, a Delaware corporation, and that The Banc Corporation
will become subject to, and be bound by, Warrior's obligations under this
Agreement.
15.3 GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with the Laws of the State of Alabama.
15.4 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed to constitute an original. Each such counterpart shall
become effective when one counterpart has been signed by each Party thereto.
15.5 HEADINGS. The headings of the various articles and sections of
this Agreement are for convenience of reference only and shall not be deemed a
part of this Agreement or considered in construing the provisions thereof.
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15.6 SEVERABILITY. Any term or provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining terms and provisions thereof or affecting the
validity or enforceability of such provision in any other jurisdiction, and if
any term or provision of this Agreement is held by any court of competent
jurisdiction to be void, voidable, invalid or unenforceable in any given
circumstance or situation, then all other terms and provisions, being severable,
shall remain in full force and effect in such circumstance or situation and the
term or provision shall remain valid and in effect in any other circumstances or
situation.
15.7 CONSTRUCTION. Use of the masculine pronoun herein shall be deemed
to refer to the feminine and neuter genders and the use of singular references
shall be deemed to include the plural and vice versa, as appropriate. No
inference in favor of or against any Party shall be drawn from the fact that
such Party or such Party's counsel has drafted any portion of this Agreement.
15.8 RETURN OF INFORMATION. In the event of termination of this
Agreement prior to the Effective Date, each Party shall return to the other,
without retaining copies thereof, all confidential or non-public documents, work
papers and other materials obtained from the other Party in connection with the
transactions contemplated in this Agreement and shall keep such information
confidential, not disclose such information to any other person or entity, and
not use such information in connection with its business.
15.9 EQUITABLE REMEDIES. The Parties hereto agree that, in the event
of a breach of this Agreement by either Party, the other Party may be without an
adequate remedy at law owing to the unique nature of the contemplated
transactions. In recognition thereof, in addition to (and not in lieu of) any
remedies at law that may be available to the nonbreaching Party, the
non-breaching Party shall be entitled to obtain equitable relief, including the
remedies of specific performance and injunction, in the event of a breach of
this Agreement by the other Party, and no attempt on the part of the
non-breaching Party to obtain such equitable relief shall be deemed to
constitute an election of remedies by the non-breaching Party that would
preclude the non-breaching Party from obtaining any remedies at law to which it
would otherwise be entitled.
15.10 ATTORNEYS' FEES. If any Party hereto shall bring an action at law
or in equity to enforce its rights under this Agreement (including an action
based upon a misrepresentation or the breach of any warranty, covenant,
agreement or obligation contained herein), the prevailing Party in such action
shall be entitled to recover from the other Party its costs and expenses
incurred in connection with such action (including fees, disbursements and
expenses of attorneys and costs of investigation).
15.11 NO WAIVER. No failure, delay or omission of or by any Party in
exercising any right, power or remedy upon any breach or Default of any other
Party shall impair any such rights, powers or remedies of the Party not in
breach or Default, nor shall it be construed to be a wavier of any such right,
power or remedy, or an acquiescence in any similar breach or Default; nor shall
any waiver of any single breach or Default be deemed a waiver of any other
breach or default theretofore or
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thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any Party of any provisions of this Agreement must be
in writing and be executed by the Parties to this Agreement and shall be
effective only to the extent specifically set forth in such writing.
15.12 REMEDIES CUMULATIVE. All remedies provided in this Agreement, by
law or otherwise, shall be cumulative and not alternative.
15.13 ENTIRE CONTRACT. This Agreement and the documents and instruments
referred to herein constitute the entire contract between the parties to this
Agreement and supersede all other understandings with respect to the subject
matter of this Agreement.
IN WITNESS WHEREOF, Bancshares and Warrior have caused this Agreement
to be signed by their respective duly authorized officers as of the date first
above written.
ATTEST: COMMERCIAL BANCSHARES OF
ROANOKE, INC.
By: By:
--------------------------- ----------------------------------
Its: Its:
----------------------- ------------------------------
(CORPORATE SEAL)
ATTEST: WARRIOR CAPITAL CORPORATION
By: By:
--------------------------- ----------------------------------
Its: Its:
----------------------- ------------------------------
(CORPORATE SEAL)
30
<PAGE> 1
EXHIBIT (2)-5
REORGANIZATION AGREEMENT AND PLAN OF MERGER
This Reorganization Agreement and Plan of Merger ("Plan of Merger") is
entered into as of the 2nd day of June, 1998, by and between The Banc
Corporation, a Delaware corporation ("TBC"), and Emerald Coast Bancshares, Inc.,
a Florida corporation ("Emerald").
R E C I T A L S:
WHEREAS, TBC is a bank holding company existing under the laws of the
State of Delaware, and is the successor in interest to Warrior Capital
Corporation ("Warrior") and is a registered bank holding company through
ownership of 99.75% of the outstanding shares of The Bank, a bank chartered
under the laws of the State of Alabama ("The Bank").
WHEREAS, Emerald is a bank holding company existing under the laws of
the State of Florida, with its principal office at 7522 Front Beach Road, Panama
City Beach, Florida 32408, and is a registered bank holding company through
ownership of all of the issued and outstanding shares of Emerald Coast Bank, a
bank chartered under the laws of the State of Florida ("Emerald Coast Bank").
WHEREAS, the respective Boards of Directors of TBC and Emerald have
determined that it is in the best interests and welfare of TBC and Emerald and
in the best interests of their respective shareholders that TBC and Emerald
merge on the terms and conditions hereinafter set forth.
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WHEREAS, the respective Boards of Directors of TBC and Emerald have, by
resolutions, approved and authorized the execution and delivery of this Plan of
Merger and the merger of Emerald with and into TBC (the "Merger") on the terms
and conditions set forth herein.
WHEREAS, TBC and Emerald desire to merge in a transaction intended to
qualify as a tax-free reorganization under the provisions of Sections
368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
WHEREAS, the parties intend that this Plan of Merger shall constitute a
plan of reorganization as that term is used in Sections 354 and 361 of the Code.
WHEREAS, for accounting purposes, it is intended that the Merger be
accounted for as a "pooling of interests."
THEREFORE, in consideration of the mutual covenants, promises,
agreements and provisions contained herein and subject to the satisfaction of
the terms and conditions set forth herein, and intending to be legally bound
hereby, TBC and Emerald agree as follows:
SECTION 1.--THE MERGER
1.1 The Merger. Upon the terms and conditions of this Plan of
Merger, including the receipt of all requisite governmental and shareholder
approvals, and in accordance with the General Corporation Law of the State of
Delaware (the "DGCL") and the Florida Business Corporation Act (the "FBCA") at
the Effective Time, Emerald shall merge with and into TBC. At the Effective
Time, the separate existence of Emerald shall cease, and TBC shall continue as
the surviving entity (TBC, in its capacity as the corporation surviving the
Merger, is hereinafter some-
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times referred to as the "Surviving Corporation"). Emerald Coast Bank will
become a wholly-owned subsidiary of TBC simultaneously with the Merger.
1.2 The Closing. The closing of the Merger (the "Closing") shall
be no later than the second business day following the satisfaction of the
conditions specified in Section 3 of this Plan of Merger (the "Closing Date").
The Closing Date may be extended from time to time by the mutual agreement of
the parties. The Closing shall take place at 10:00 a.m. at the offices of
Haskell Slaughter & Young, L.L.C. on the Closing Date or at such other place as
the parties may agree. At the Closing, the parties shall exchange the various
agreements, certificates, instruments and documents to be delivered pursuant to
the terms of this Plan of Merger.
1.3 Effective Time. Subject to the provisions of this Plan of
Merger, Articles of Merger and a Certificate of Merger, substantially in the
form of Exhibits B and C, shall be duly executed and, on the Closing Date (as
defined in section 1.2 hereof) or as soon thereafter as reasonably practicable,
filed with the Secretary of State of the state of Florida (the "Florida
Secretary of State") and the Secretary of State of the state of Delaware (the
"Delaware Secretary of State") in accordance with the FBCA and the DGCL. The
Merger shall become effective upon the filing of the Articles of Merger with the
Florida Secretary of State and the Certificate of Merger with the Delaware
Secretary of State (the "Effective Time").
1.4 Effect of the Merger. The Merger shall have the effect
provided in Section 259 of the DGCL and Section 658.45 of the FBCA.
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<PAGE> 4
SECTION 2.--EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATION; EXCHANGE OF CERTIFICATES
2.1 Effect on Capital Stock. For each outstanding share of Emerald
common stock, $.01 par value (the "Emerald Common Stock"), held immediately
prior to the Effective Time, the shareholders of Emerald (except those
exercising their dissenters rights of appraisal, as described in Section 2.3),
will receive consideration equal to approximately 2.02044 shares of TBC Common
Stock (the "Exchange Ratio"). As of the Effective Time, by virtue of the Merger
and without any action on the part of any holder of shares of Emerald Common
Stock, each share of the Emerald Common Stock issued and outstanding immediately
prior to the Effective Time shall cease to be outstanding and shall
automatically be canceled and retired. The holders of Emerald Common Stock shall
cease to have any rights with respect to such shares except as otherwise
provided herein or by law.
The Exchange Ratio shall be amended to reflect any TBC or Emerald stock
split or stock dividend or reclassification (a "Stock Event"), so that, at the
Effective Time, each Emerald shareholder (except those effectively exercising
their dissenters rights of appraisal, as described in Section 2.3) shall be
entitled to receive a number of shares of TBC Common Stock equal to what such
shareholder would have received if the shares of TBC Common Stock had been
issued immediately prior to the Stock Event.
2.2 Delivery of Merger Consideration. On the Closing Date, the
Surviving Corporation shall deliver to the holders of certificates evidencing
ownership of Emerald Common Stock, immediately upon receipt from the holders
thereof of such certificates, duly executed and
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in proper form for transfer, the Merger Consideration to which they are entitled
pursuant to the following provisions:
(a) As soon as practical after the Effective Time, the
Surviving Corporation shall send a notice and transmittal form to each record
holder of a certificate evidencing Emerald Common Stock, advising such holder of
the Merger and the procedure for surrendering to Emerald such certificate in
exchange for such holder's pro rata share of the Merger Consideration. Each
holder of such certificate, upon surrender of the same to the Surviving
Corporation in accordance with such transmittal form, shall be entitled to
receive such holder's pro rata share of the Merger Consideration.
(b) No transfer taxes shall be payable by any holder of
record of Emerald Common Stock at the Effective Time in respect of the exchange
of certificates for the Merger Consideration. If the Merger Consideration for
the Emerald Common Stock provided for herein is to be delivered to any person
other than the registered holder of the Emerald Common Stock surrendered for
exchange, the amount of any stock-transfer or similar taxes (whether imposed on
the holder of record or such person) payable on account of the transfer to such
person shall be paid to the Surviving Corporation by such person. The Surviving
Corporation may refuse to make such exchange unless satisfactory evidence of the
payment of such taxes or exemption therefrom is submitted.
(c) After the Effective Time, each outstanding
certificate which theretofore represented Emerald Common Stock shall, until
surrendered for exchange in accordance with this Section 2.2, be deemed for all
purposes to evidence only the right to receive the Merger Consideration. After
the Effective Time, there shall be no further registration or transfer of
Emerald Com-
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<PAGE> 6
mon Stock. No dividends or other distributions which are declared on TBC Common
Stock will be paid to persons otherwise entitled to receive the same until the
certificates representing Emerald Common Stock have been surrendered in the
manner herein provided, but upon such surrender, such dividends or other
distributions, from and after the Effective Time, will be paid to such persons.
In no event shall the persons entitled to receive such dividends or other
distributions be entitled to receive interest on such dividends or other
distributions.
(d) Notwithstanding anything to the contrary set forth
herein, if any holder of Emerald Common Stock shall be unable to surrender his
or her certificates because such certificates have been lost or destroyed, such
holder may deliver in lieu thereof an indemnity bond in form and substance and
with surety satisfactory to TBC.
2.3 Dissenting Shareholders. Any shares of Emerald Common Stock
held by persons who have perfected their dissenters rights under the FBCA, and
have not effectively withdrawn or lost their dissenters rights under the FBCA,
shall not be converted pursuant to this Plan of Merger but shall be entitled
only to such rights as are granted them by the dissenters rights provisions of
the FBCA. Dissenting shareholders entitled to payment for shares of Emerald
stock pursuant to the Florida dissenters rights statute shall receive payment
from TBC in an amount as determined pursuant to the FBCA.
2.4 Certificate of Incorporation of the Surviving Corporation. The
certificate of incorporation of TBC, attached as Exhibit 2.4, shall be in effect
immediately prior to the Effective Time and will remain the articles of
incorporation of the Surviving Corporation until amended or repealed in
accordance with their provisions and applicable law.
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2.5 Bylaws of the Surviving Corporation. The bylaws of TBC,
attached as Exhibit 2.5, shall be in effect immediately prior to the Effective
Time and will remain the bylaws of the Surviving Corporation until amended or
repealed in accordance with their provisions and applicable law.
2.6 Capitalization of the Surviving Corporation. The combined
capitalization of Emerald and TBC immediately prior to the Effective Time shall
be the capitalization of the Surviving Corporation until changed by resolution
of the Board of Directors or by action of its shareholders.
2.7 Directors and Officers of the Surviving Corporation. The
directors and officers of TBC immediately following the Effective Time shall be
the directors and officers, as set forth on Exhibit 2.7, to serve until their
successors have been elected or qualified or until their resignation or removal
according to law and the bylaws of the Surviving Corporation.
SECTION 3.--REPRESENTATIONS AND WARRANTIES OF EMERALD.
Except as set forth in the Disclosure Schedule delivered to TBC by
Emerald (the "Emerald Disclosure Schedule") simultaneously with the execution
hereof, Emerald hereby represents and warrants to TBC, as of the date hereof and
up to and including the Closing Date as follows (all representations and
warranties by Emerald include its subsidiaries):
3.1 Organization of Emerald. Emerald is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Florida, with full corporate power and authority, and possesses all material
governmental, regulatory and other permits, licenses and authorizations
necessary to carry on its business as now conducted and to own and operate the
prop-
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erties and assets it owns or operates, to enter into this Plan of Merger and the
Merger and to perform its obligations thereunder. Emerald is duly qualified or
licensed to transact business as a foreign corporation in good standing in the
states and foreign jurisdictions where the character of its assets or the nature
or conduct of the 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 the business, operations, properties or assets, or the
condition, financial or otherwise, of Emerald. The deposit accounts of Emerald
Coast Bank are insured by the Federal Deposit Insurance Corporation (the "FDIC")
to the full extent permitted under applicable law and the rules and regulations
of the FDIC.
3.2 Emerald Capital Stock.
(a) Emerald's authorized capital stock consists of
10,000,000 shares of common stock, $.01 par value per share, of which 626,000
shares are outstanding, all of which are validly issued and outstanding.
(b) Other than Emerald Coast Bank and Emerald Coast
Financial Management, Inc., Emerald does not own directly, beneficially or of
record, more than five percent of the outstanding stock of any other corporation
and does not otherwise control any company or bank.
(c) Emerald has no outstanding securities convertible
into shares of capital stock or existing options, warrants, calls, commitments
or other rights of any character granted or entered into by Emerald relating to
its authorized, issued or unissued capital stock, and no such rights will be
granted or entered into.
(d) There are no outstanding or unsatisfied preemptive
rights or rights of first refusal with respect to Emerald's capital stock.
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(e) No shares of Emerald's capital stock will be issued
between the date hereof and the Effective Time.
(f) Attached to the Emerald Disclosure Schedule are
copies, as of the date of such letter, of Emerald's articles of incorporation
and bylaws, both certified to be complete and correct by the Cashier or
Secretary of Emerald, the same to remain unchanged up to the Effective Time.
3.3 Subsidiaries and Assets. Emerald (other than Emerald Coast
Bank and Emerald Coast Financial Management, Inc.) does not have any direct or
indirect subsidiaries and does not have any interest in any partnership, firm,
association, corporation or joint venture other than investment securities
purchased and loans made in the regular and usual course of its business.
3.4 Financial Statements. Emerald has delivered to TBC balance
sheets of Emerald as of December 31, 1996 and 1997, and [March 31, 1998,] the
related statements of operations, changes in shareholders' equity and changes in
financial position or statements of cash flows for the periods then ended, and
the related notes and related opinions thereon as applicable (the "Emerald
Financial Statements"). The Emerald Financial Statements, as and when prepared,
(i) with the exception of the statement for and as of the period ended [March
31, 1998,] have been audited, (ii) present fairly the financial condition of
Emerald as of the respective dates indicated and the results of operations, the
changes in shareholders equity, the changes in financial position and cash flows
for the respective periods indicated; (iii) have been prepared in accordance
with generally accepted accounting principles ("GAAP") as to audited statements
and in a manner consistent with past practice as to unaudited statements; (iv)
contain and reflect reserves for all material accrued liabilities and for all
reasonably anticipated losses, including but not limited to
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appropriate reserves for loan and lease losses; and (v) are based on the books
and records of Emerald and Emerald Coast Bank.
3.5 Absence of Undisclosed Liabilities. Except as and to the
extent reflected or reserved against in the Emerald Financial Statements or
disclosed in the Emerald Disclosure Schedule, Emerald has no material
liabilities or obligations whether accrued, absolute, contingent or otherwise,
including governmental charges or lawsuits, or any tax liabilities due or to
become due and whether (i) incurred in respect of or measured by the income of
Emerald for any period up to the close of business on the respective dates of
the Emerald Financial Statements, or (ii) arising out of transactions entered
into, or any state of facts existing, prior thereto. Emerald does not have any
liabilities or obligations, either accrued or contingent, which are material to
Emerald and which have not been either (i) reflected or disclosed in the Emerald
Financial Statements for [the year ended December 31, 1997]; or (ii) incurred
subsequent to [December 31, 1997,] in the ordinary course of business.
3.6 Absence of Certain Changes or Events. Since [December 31,
1997], there has not been:
(a) any material adverse change in the condition
(financial or otherwise), assets, liabilities or business of Emerald;
(b) any material adverse change in the character of the
assets or liabilities of Emerald;
(c) any capital improvements, except for ordinary
maintenance and repairs, or any purchase of property by Emerald at a cost in
excess of $25,000 other than supplies in the ordinary course of business;
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(d) any physical damage, destruction or loss not covered
by insurance exceeding $25,000 in value or affecting in a material and adverse
way the property, assets, business or prospects of Emerald;
(e) any material change in the accounting methods or
practices of Emerald unless required by regulation or GAAP;
(f) any material change in the capital structure of
Emerald;
(g) any loss incurred or determined to be probable for
Emerald as a result of environmental problems which has or would be expected to
have a material adverse effect on the financial position of Emerald; or
(h) any increase in the compensation payable or to become
payable by Emerald to any officer or employee or any bonus, except bonuses
accrued and reflected on the [December 31, 1997] Emerald Financial Statements,
percentage compensation, service award or other like benefit, granted, made or
accrued or credited to any officer or employee or any pension, retirement or
deferred compensation payment agreed to, other than in accordance with
preexisting plans or normal and customary annual salary reviews and adjustments
and promotional increases.
3.7 Tax Matters. Emerald has filed all federal, state, municipal
and local income, excise, property, special district, sales, transfer and other
tax returns and reports of information statements that are required to be filed
and has paid all taxes that have become due pursuant to such returns or pursuant
to any assessment that has become payable. The returns filed by Emerald have
been and will be accurately and properly prepared. To the extent that any tax
liability or assessment has accrued, but has not yet become payable or has been
proposed for assessment or determination but remains unpaid, the same has been
reflected as a liability on the books and rec-
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ords of Emerald and the Emerald Financial Statements subject to normal year-end
adjustments. Since [December 31, 1997], Emerald has not incurred any liability
with respect to any such taxes except for normal taxes incurred in the ordinary
and regular course of its business. Emerald has not executed or filed with the
Internal Revenue Service or any other taxing authority any agreement extending
the period for the assessment or collection of any income taxes. There are no
examinations, reviews, audits or investigations of any tax return or report of
Emerald that are presently pending or threatened, and Emerald is not a party to
any pending action or proceeding by any governmental authority for assessment or
collection of income taxes.
3.8 Title to Properties; Absence of Liens and Encumbrances;
Enforceability of Leases.
(a) Except as to property indicated in the Emerald
Disclosure Schedule as being leased or mortgaged, Emerald has good and
marketable title to its assets, real and personal (including those reflected in
the Emerald Financial Statements, except for loans and investments and as
thereafter sold or otherwise disposed of in the ordinary course of business and
for adequate consideration), free and clear of all material mortgages, pledges,
liens, charges and encumbrances, except (A) investment securities that are
pledged to secure the deposit of public monies or monies under the control of
any court, (B) the lien of taxes not yet due and payable or being contested in
good faith by appropriate proceedings, and (C) such imperfections of title and
encumbrances, if any, and such liens, if any, incidental to the conduct of
Emerald's business or the ownership of its assets as are not material in amount
and do not affect the value of, or interfere with the present use of, Emerald's
assets or otherwise materially impair its operations.
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<PAGE> 13
(b) To the best knowledge of Emerald, the structures and
equipment owned or used by Emerald comply in all material respects with
applicable laws, regulations and ordinances and are in good operating condition,
subject to ordinary wear and tear.
(c) The real property, if any, leased by Emerald is held
by it under valid and enforceable leases. Emerald is not in material default
under any such leases.
3.9 Legal Proceedings. There are no material claims, actions,
suits, proceedings or investigations pending, or to the best knowledge of
Emerald, threatened by or against or otherwise affecting Emerald or its assets,
business or properties, or the transactions contemplated by the Plan of Merger,
or its directors, officers or employees in reference to actions taken by them in
such capacity at law or in equity, or before or by any federal, state, municipal
or other government department, commission, board, agency, instrumentality or
authority, nor to Emerald's knowledge is there any valid basis for any such
action, proceeding or investigation, other than (i) claims by Emerald in the
ordinary course of its business for the recovery of loans or protection of its
interest as a secured or unsecured creditor, and (ii) claims fully covered by
insurance. To the best knowledge of Emerald, it is in compliance in all material
respects with laws, ordinances, rules, regulations, orders, licenses and permits
that are applicable to its business as now conducted, and it is not in material
default under any thereof.
3.10 Authority Relative to This Plan of Merger.
(a) Emerald has the requisite corporate power and
authority to enter into this Plan of Merger and perform its obligations
hereunder, subject to the required vote of its shareholders and to obtaining the
regulatory approvals and other consents contemplated by this Plan of Merger.
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(b) The execution, delivery and performance of this Plan
of Merger by Emerald has been duly authorized and approved by the Board of
Directors of Emerald, subject to the required vote of its shareholders, and
subject to obtaining the regulatory approvals and other consents contemplated by
this Plan of Merger.
(c) This Plan of Merger has been duly executed and
delivered by Emerald and constitutes a valid and binding obligation of Emerald
enforceable in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, reorganization, insolvency, moratorium or
other similar laws affecting creditors' rights generally and principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law).
(d) The consummation of the transactions contemplated by
this Plan of Merger will not in any material respect conflict with, violate or
result in a material breach of or material default in any (A) term, condition or
provision of the articles of incorporation or bylaws of Emerald; (B) applicable
law, rule, regulation or order of any court or governmental agency; or (C)
material agreement, lease, mortgage, note, contract or commitment of any kind,
oral or written, to which Emerald is a party or by which its properties may be
bound.
3.11 No Untrue Representations. The documents furnished by Emerald
to TBC (the "Emerald Documents"), including but not limited to the Emerald
Disclosure Schedule and the Emerald Financial Statements, are true and complete
copies of such documents and do not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
made therein, in light of the circumstances under which they were made, not
misleading. There is no fact that Emerald has not disclosed in the Emerald
Documents or otherwise to TBC in writing which materially and adversely affects
the properties, business, prospects, prof-
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its or condition (financial or otherwise) of Emerald or the ability of Emerald
to perform this Plan of Merger, except that Emerald makes no representation or
warranty as to the effect of general economic conditions, the condition of the
financial markets, future legislation or future regulatory action.
3.12 Employee Benefit Plans.
(a) Except as described in the Emerald Documents or set
forth on Exhibit 3.12(a) to the Emerald Disclosure Schedule, Emerald has neither
established nor maintains nor is obligated to make contributions to or under or
otherwise participate in (i) any bonus or other type of incentive compensation
plan, program, agreement, policy, commitment, contract or arrangement (whether
or not set forth in a written document), (ii) any pension, profit-sharing,
retirement or other plan, program or arrangement, or (iii) any other employee
benefit plan, fund or program, including, but not limited to, those described in
Section 3(3) of ERISA. All such plans (individually, a "Plan" and collectively,
the "Plans") have been operated and administered in all material respects in
accordance with, as applicable, ERISA, the Internal Revenue Code of 1986, as
amended, Title VII of the Civil Rights Act of 1964, as amended, the Equal Pay
Act of 1967, as amended, the Age Discrimination in Employment Act of 1967, as
amended, and the related rules and regulations adopted by those federal agencies
responsible for the administration of such laws. No act or failure to act by
Emerald has resulted in a "prohibited transaction" (as defined in ERISA) with
respect to the Plans that is not subject to a statutory or regulatory exception.
No "reportable event" (as defined in ERISA) has occurred with respect to any of
the Plans which is subject to Title IV of ERISA. Emerald has not previously
made, is not currently making,
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and is not obligated in any way to make, any contributions to any multi-employer
plan within the meaning of the Multi-Employer Pension Plan Amendments Act of
1980.
(b) Except as described in the Emerald Documents or set
forth on Exhibit 3.12(b) to the Emerald Disclosure Schedule, Emerald is not a
party to any oral or written (i) union, guild or collective bargaining agreement
which agreement covers employees in the United States (nor is it aware of any
union organizing activity currently being conducted in respect to any of its
employees), (ii) agreement with any executive officer or other key employee the
benefits of which are contingent, or the terms of which are materially altered,
upon the occurrence of a transaction of the nature contemplated by this Plan of
Merger and which provides for the payment of in excess of $25,000, or (iii)
agreement or plan, including any stock option plan, stock appreciation rights
plan, restricted stock plan or stock purchase plan, any of the benefits of which
will be increased, or the vesting the benefits of which will be accelerated, by
the occurrence of any of the transactions contemplated by this Plan of Merger or
the value of any of the benefits of which will be calculated on the basis of any
of the transactions contemplated by this Plan of Merger.
3.13 Environmental Protection.
(a) None of the assets of Emerald (defined for purposes
of this subsection as the real property and tangible personal property owned or
leased by Emerald as of the date of this Plan of Merger and as of the Effective
Time) contain any hazardous materials, defined as any substance whose nature
and/or quantity or existence, use, manufacture or effect render it subject to
federal, state or local regulation as potentially injurious to public health or
welfare, or to the environment, including, without limitation, friable asbestos,
petroleum products or PCBs
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("Hazardous Materials"), other than in such quantities which are incidental and
customary for the maintenance and operation of such assets, e.g., cleaning
fluids ("Incidental Quantities").
(b) No notice or other communication has been received
from any governmental agency having jurisdiction over Emerald or to the best
knowledge of Emerald from any other person, with respect to any alleged
violation by Emerald of any federal, state or local laws, rules, regulations,
ordinances and codes governing Hazardous Materials and which are applicable to
the assets of Emerald.
(c) All Hazardous Materials which have been remediated
from any assets of Emerald prior to or during their ownership by Emerald have
been handled in compliance with all applicable laws.
(d) To Emerald's best knowledge, no collateral securing
any loan made by Emerald, as of the date of this Plan of Merger and as of the
Effective Time, contains any Hazardous Materials, other than in Incidental
Quantities.
3.14 Material Contract Defaults. Emerald is not in default in any
material respect under the terms of any outstanding material contract,
agreement, lease or other commitment, which would have a material adverse effect
on the business, operations, properties or assets, or the condition, financial
or otherwise, of Emerald or under its articles of incorporation or bylaws, and
no event has occurred which, with notice or lapse of time, or both, may be or
become a material default of any such contract, agreement, lease or other
commitment or under the articles of incorporation or bylaws of Emerald.
3.15 Brokers and Finders. Neither Emerald nor any of its officers,
directors or employees have employed any broker or finder or incurred any
liability for any financial advisory,
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brokerage or finders fees or commissions and no broker or finder has acted
directly or indirectly for Emerald in connection with this Plan of Merger or the
transactions contemplated hereby.
3.16 Emerald Shareholder Investor Qualification. A sufficient number of
shareholders of Emerald are "Accredited Investors" as defined in Rule 501(a) of
Regulation D promulgated by the Securities and Exchange Commission ("SEC") under
the Securities Act of 1933, as amended (the "Securities Act") so that the
private placement of the TBC Common Stock to be issued to the shareholders of
Emerald in the Merger may qualify for an exemption under Section 4(2) of the
Securities Act.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF TBC.
Except as set forth in its Disclosure Schedule delivered to Emerald
(the "TBC Disclosure Schedule"), simultaneously with the execution hereof, TBC
hereby represents and warrants to Emerald as of the date hereof and up to and
including the Closing Date as follows (all representations and warranties by TBC
include its subsidiaries) and its predecessor Warrior Capital Corporation:
4.1 Organization. TBC is a corporation duly organized, validly
existing and in good standing under the laws of Delaware, with full corporate
power and authority, and possesses all material governmental, regulatory and
other permits, licenses and other authorization, necessary to carry on its
business as now conducted and to own and operate the properties and assets it
owns or operates, to enter into this Plan of Merger and the Merger and to
perform its obligations thereunder. TBC is duly qualified or licensed to
transact business as a foreign corporation in good standing in the states and
foreign jurisdictions where the character of its assets or the nature or
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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 the business, operations, properties, or assets, or the condition,
financial or otherwise, of TBC. The deposit accounts of The Bank are insured by
the FDIC to the full extent permitted under applicable law and the rules and
regulations of the FDIC.
4.2 TBC Capital Stock.
(a) The authorized capital stock of TBC consists of
25,000,000 shares of common stock of which [5,488,000] shares of common stock
are issued and outstanding and 5,000,000 shares of preferred stock of which no
shares are issued and outstanding. TBC Common Stock issued in this Merger will
be, when issued, duly authorized, validly issued, fully paid and nonassessable.
(b) Other than The Bank and Taylor Acquisition
Corporation ("TAC"), TBC does not own directly or indirectly, beneficially or of
record, more than five percent of the outstanding stock of any other corporation
and does not otherwise control any company or bank.
(c) Other than as set forth on the TBC Disclosure
Schedule, there are not, and as of the Effective Time and thereafter there will
not be, outstanding securities convertible into or exercisable or exchangeable
for TBC Common Stock or TBC's preferred stock.
(d) There are no outstanding or unsatisfied preemptive
rights or rights of first refusal with respect to TBC Common Stock or TBC's
preferred stock.
(e) Except as disclosed to Emerald in the TBC Disclosure
Schedule, as of the date of this Agreement there are, and as of the Closing Date
and thereafter there will be, no outstanding agreements, arrangements, or
understandings of any kind, to which TBC is a party,
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affecting or relating to the voting, issuance, purchase, redemption, repurchase,
or transfer of the TBC Common Stock or any other securities of TBC or The Bank.
(f) Attached to the TBC Disclosure Schedule are copies of
TBC's articles of incorporation and bylaws, certified to be complete and correct
by the Secretary of such entity, the same to remain unchanged up to the
Effective Time.
4.3 Subsidiaries and Assets. TBC (except for The Bank and TAC)
does not have any direct or indirect subsidiaries and does not have any interest
in any partnership, firm, association, corporation, or joint venture other than
investment securities purchased and loans made in the regular and usual course
of its business.
4.4 Financial Statements. TBC has delivered to Emerald balance
sheets of TBC as of December 31, 1996 and 1997, [and March 31, 1998,] and the
related statements of operations, changes in shareholders' equity, and changes
in financial position or statements of cash flows for the year then ended, and
the related notes and related opinions thereon as applicable ("TBC Financial
Statements"). TBC Financial Statements, as and when prepared, (i) with the
exception of the statement for and as of the period ended [March 31, 1998,] have
been audited, (ii) present fairly the financial condition of TBC as of the date
indicated and the results of operations, the changes in shareholders equity, the
changes in financial position and cash flows for the respective periods
indicated; (iii) have been prepared in accordance with generally accepted
accounting principles ("GAAP") as to audited statements and in a manner
consistent with past practice as to unaudited statements; (iv) contain and
reflect reserves for all material accrued liabilities and for all reasonably
anticipated losses, including but not limited to appropriate reserves for loan
and lease losses; and (v) are based on the books and records of TBC.
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4.5 Absence of Undisclosed Liabilities. Except as and to the
extent reflected or reserved against in TBC Financial Statements or disclosed in
the TBC Disclosure Schedule, TBC has no material liabilities or obligations
whether accrued, absolute, contingent or otherwise, including, governmental
charges or lawsuits, or any tax liabilities due or to become due and whether (i)
incurred in respect of or measured by the income of TBC for any period up to the
close of business on the respective dates of the TBC Financial Statements, or
(ii) arising out of transactions entered into, or any state of facts existing,
prior thereto. TBC has no liabilities or obligations, either accrued or
contingent, which are material to TBC and which have not been either (i)
reflected or disclosed in the audited financial statements of TBC for the [year
ended December 31, 1997] and provided to Emerald in writing; or (ii) incurred
subsequent to [December 31, 1997,] in the ordinary course of business.
4.6 Absence of Certain Changes or Events. Since [December 31,
1997,] there has not been:
(a) any material adverse change in the condition
(financial or otherwise), of the assets, liabilities or business of TBC;
(b) any material adverse change in the character of the
assets or liabilities of TBC;
(c) any capital improvements, except for ordinary
maintenance and repairs, or any purchase of property by TBC at a cost in excess
of $25,000 other than supplies in the ordinary course of business;
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(d) any physical damage, destruction or loss not covered
by insurance exceeding $25,000 in value or affecting in a material and adverse
way the property, assets, business or prospects of TBC;
(e) any material change in the accounting methods or
practices of TBC unless required by law or GAAP;
(f) any material change in the capital structure of TBC;
(g) any loss incurred or determined to be probable for
TBC as a result of environmental problems which has or would be expected to have
a material adverse effect on the financial position of TBC; or
(h) any increase in the compensation payable or to become
payable by TBC to any officer or employee or any bonus, except bonuses accrued
and reflected on the December 31, 1997 TBC Financial Statements, percentage
compensation, service award or other like benefit, granted, made or accrued or
credited to any officer or employee or any pension, retirement, or deferred
compensation payment agreed to, other than in accordance with preexisting plans
or normal and customary annual salary reviews and adjustments and promotional
increases.
4.7 Tax Matters. TBC has filed all federal, state, municipal and
local income, excise, property, special district, sales, transfer and other tax
returns and reports of information statements that are required to be filed and
have paid all taxes that have become due pursuant to such returns or pursuant to
any assessment that has become payable. The returns filed by TBC have been and
will be accurately and properly prepared. To the extent that any tax liability
or assessment has accrued, but has not yet become payable or has been proposed
for assessment or determination but remains unpaid, the same has been reflected
as a liability on the books and records
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of TBC and the TBC Financial Statements subject to normal year-end adjustments.
Since [December 31, 1997,] TBC has not incurred any liability with respect to
any such taxes except for normal taxes incurred in the ordinary and regular
course of its business. TBC has not executed or filed with the Internal Revenue
Service or any other taxing authority any agreement extending the period for
assessment or collection of any income taxes. There are no examinations,
reviews, audits or investigations of any tax return or report of TBC that is
presently pending or threatened, and TBC is not a party to any pending action or
proceeding by any governmental authority for assessment or collection of income
taxes.
4.8 Title to Properties; Absence of Liens and Encumbrances, Leases
Enforceable.
(a) Except as to property indicated in the TBC Disclosure
Schedule as being leased or mortgaged, TBC has good and marketable title to its
assets, real and personal (including those reflected in TBC Financial
Statements, except for loans and investments as thereafter sold or otherwise
disposed of in the ordinary course of business and for adequate consideration),
free and clear of all material mortgages, pledges, liens, charges and
encumbrances, except (A) investment securities that are pledged to secure the
deposit of public monies, FHLB advances or monies under the control of any
court, (B) the lien of taxes not yet due and payable or being contested in good
faith by appropriate proceedings, and (C) such imperfections of title and
encumbrances, if any, and such liens, if any, incidental to the conduct of TBC's
business or the ownership of its assets as are not material in amount and do not
affect the value of, or interfere with the present use of, TBC's assets or
otherwise materially impair its operations.
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(b) To the best knowledge of TBC, the structures and
equipment owned or used by TBC comply in all material respects with applicable
laws, regulations and ordinances and are in good operating condition, subject to
ordinary wear and tear.
(c) The real property, if any, leased by TBC is held by
it under valid and enforceable leases. TBC is not in material default under any
such leases.
4.9 Legal Proceedings. There are no material claims, actions,
suits, proceedings or investigations pending, or to the best knowledge of TBC,
threatened, by or against, or otherwise affecting TBC or its assets, business or
properties, or the transactions contemplated by the Plan of Merger, or its
directors, officers or employees in reference to actions taken by it in such
capacity at law or in equity, or before or by any federal, state, municipal or
other government department, commission, board, agency, instrumentality or
authority, nor to TBC's knowledge is there any valid basis for any such action,
proceeding or investigation, other than (i) claims by TBC in the ordinary course
of its business for the recovery of loans or protection of its interest as a
secured or unsecured creditor, and (ii) claims fully covered by insurance. To
the best knowledge of TBC, TBC is in compliance in all material respects with
laws, ordinances, rules, regulations, orders, licenses and permits that are
applicable to its business as now conducted and is not in material default under
any thereof.
4.10 Authority Relative to This Plan of Merger.
(a) TBC has the requisite corporate power and authority
to enter into this Plan of Merger and perform its obligations hereunder, subject
to the required vote of its shareholders and to obtaining the regulatory
approvals and other consents contemplated by this Plan of Merger.
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(b) The execution, delivery and performance of this Plan
of Merger by TBC has been duly authorized and approved by the Board of Directors
of TBC, subject to the required vote of its shareholders, and subject to
obtaining the regulatory approvals and other consents contemplated by this Plan
of Merger.
(c) This Plan of Merger has been duly executed and
delivered by TBC and constitutes a valid and binding obligation of TBC
enforceable in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, reorganization, insolvency, moratorium or
other similar laws affecting creditors' rights generally and principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law).
(d) The consummation of the transactions contemplated by
this Plan of Merger will not in any material respect conflict with, violate or
result in a material breach of or material default in any (A) term, condition or
provision of the articles of incorporation or bylaws of TBC; (B) applicable law,
rule, regulation or order of any court or governmental agency; or (C) material
agreement, lease, mortgage, note, contract or commitment of any kind, oral or
written, to which TBC is a party or by which its properties may be bound.
4.11 No Untrue Representations. The documents furnished by TBC to
Emerald (the "TBC Documents"), including but not limited to the TBC Disclosure
Schedule and the TBC Financial Statements, are true and complete copies of such
documents and do not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading. There is
no fact that TBC has not disclosed in the TBC Documents or TBC Disclosure
Schedule in writing which materially and adversely affects the properties,
business, prospects,
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profits or condition (financial or otherwise) of TBC or the ability of TBC to
perform this Plan of Merger, except that TBC makes no representation or warranty
as to the effect of general economic conditions, the condition of the financial
markets, future legislation or future regulatory action.
4.12 Employee Benefit Plans.
(a) Except as described in the TBC Documents or set forth
on Exhibit 4.12(a) to the TBC Disclosure Schedule, TBC has neither established
nor maintains nor is obligated to make contributions to or under or otherwise
participate in (i) any bonus or other type of incentive compensation plan,
program, agreement, policy, commitment, contract or arrangement (whether or not
set forth in a written document), (ii) any pension, profit-sharing, retirement
or other plan, program or arrangement, or (iii) any other employee benefit plan,
fund or program, including, but not limited to, those described in Section 3(3)
of ERISA. All such plans (individually, a "Plan" and collectively, the "Plans")
have been operated and administered in all material respects in accordance with,
as applicable, ERISA, the Internal Revenue Code of 1986, as amended, Title VII
of the Civil Rights Act of 1964, as amended, the Equal Pay Act of 1967, as
amended, the Age Discrimination in Employment Act of 1967, as amended, and the
related rules and regulations adopted by those federal agencies responsible for
the administration of such laws. No act or failure to act by TBC has resulted in
a "prohibited transaction" (as defined in ERISA) with respect to the Plans that
is not subject to a statutory or regulatory exception. No "reportable event" (as
defined in ERISA) has occurred with respect to any of the Plans which is subject
to Title IV of ERISA. TBC has not previously made, is not currently making, and
is not obligated in any way to make, any contributions to any multi-employer
plan within the meaning of the Multi-Employer Pension Plan Amendments Act of
1980.
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(b) Except as described in the TBC Documents or set forth
on Exhibit 4.12(b) to the TBC Disclosure Schedule, TBC is not a party to any
oral or written (i) union, guild or collective bargaining agreement which
agreement covers employees in the United States (nor is it aware of any union
organizing activity currently being conducted in respect to any of its
employees), (ii) agreement with any executive officer or other key employee the
benefits of which are contingent, or the terms of which are materially altered,
upon the occurrence of a transaction of the nature contemplated by this Plan of
Merger and which provides for the payment of in excess of $25,000, or (iii)
agreement or plan, including any stock option plan, stock appreciation rights
plan, restricted stock plan or stock purchase plan, any of the benefits of which
will be increased, or the vesting the benefits of which will be accelerated, by
the occurrence of any of the transactions contemplated by this Plan of Merger or
the value of any of the benefits of which will be calculated on the basis of any
of the transactions contemplated by this Plan of Merger.
4.13 Environmental Protection.
(a) None of the assets of TBC (defined for purposes of
this subsection as the real property and tangible personal property owned or
leased by TBC as of the date of this Plan of Merger and as of the Effective
Time) contain any hazardous materials, defined as any substance whose nature
and/or quantity or existence, use, manufacture or effect render it subject to
federal, state or local regulation as potentially injurious to public health or
welfare, or the environment, including, without limitation, friable asbestos,
petroleum products or PCBs ("Hazardous Materials"), other than in such
quantities which are incidental and customary for the maintenance and operation
of such assets, e.g., cleaning fluids ("Incidental Quantities").
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(b) No notice or other communication has been received
from any governmental agency having jurisdiction over TBC or to their best
knowledge from any other person, with respect to any alleged violation by TBC of
any federal, state or local laws, rules, regulations, ordinances and codes
governing Hazardous Materials and which are applicable to the assets of TBC.
(c) All Hazardous Materials which have been remediated
from any assets of TBC prior to or during their ownership by TBC have been
handled in compliance with all applicable laws.
(d) To TBC's best knowledge, no collateral securing any
loan made by TBC, as of the date of this Plan of Merger and as of the Effective
Time, contains any Hazardous Materials, other than in Incidental Quantities.
4.14 Material Contract Defaults. TBC is not in default in any
material respect under the terms of any outstanding material contract,
agreement, lease or other commitment, which would have a material adverse effect
on the business, operations, properties or assets, or the condition, financial
or otherwise, of TBC or under its articles of association or bylaws and no event
has occurred which, with notice or lapse of time, or both, may be or become a
material default of any such contract, agreement, lease or other commitment or
under the articles of association or bylaws of TBC.
4.15 Brokers and Finders. Neither TBC nor any of its officers,
directors or employees have employed any broker or finder or incurred any
liability for any financial advisory, brokerage or finders fees or commissions
and no broker or finder has acted directly or indirectly for TBC in connection
with this Plan of Merger or the transactions contemplated hereby.
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SECTION 5.--ACCESS TO INFORMATION CONCERNING PROPERTIES AND RECORDS.
5.1 Access to Information. Emerald and TBC will give to one
another and to their respective counsel, accountants and other representatives
("advisors"), upon reasonable notice, during normal business hours throughout
the period prior to the Closing Date, full access to their respective books,
records, customer and loan files, contracts and commitments. For the period
prior to the Effective Time, Emerald and TBC shall deliver to one another such
statements, schedules and reports concerning the business, operations and
financial condition of Emerald and TBC as are regularly provided to their
respective Board of Directors at such times as they are regularly supplied to
their respective Board of Directors.
5.2 Return of Records. If the transactions contemplated hereby are
not consummated and this Plan of Merger terminates, each party agrees to
promptly return all documents, contracts, records or properties of the other
party and all copies thereof furnished pursuant to this Section 5 or otherwise.
All information disclosed by any party or any affiliate or representative of any
party shall be deemed to be "Confidential Information" under the terms of the
Letter of Intent dated May 15, 1998, between Emerald and TBC (the
"Confidentiality Agreement").
5.3 Effect of Access.
(a) Nothing contained in this Section 5 shall be deemed
to create any duty or responsibility on the part of either party to investigate
or evaluate the value, validity or enforceability of any contract, lease or
other asset included in the assets of the other party.
(b) With respect to matters as to which any party has
made express representations or warranties herein, the parties shall be entitled
to rely upon such express representations and warranties irrespective of any
investigations made by such parties, except to the extent that
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such investigations result in actual knowledge of the inaccuracy or falsehood of
particular representations and warranties.
SECTION 6.--COVENANTS
Emerald and TBC, each as an inducement for the other to enter into this
Plan of Merger, covenant that:
6.1 Preservation of Business. From the date of this Agreement,
Emerald and TBC will use their respective reasonable best efforts to preserve
the business organization of Emerald and TBC intact, to keep available to the
Surviving Corporation the services of the present employees of Emerald and TBC,
and to preserve for the Surviving Corporation the goodwill of the suppliers,
customers, depositors and others having business relations with Emerald and TBC.
6.2 Material Transactions. Until the Effective Time or the earlier
termination of this Plan of Merger, and except as contemplated by this Plan of
Merger or disclosed in the Disclosure Schedules or as consented to or otherwise
approved by Emerald and TBC in writing, as the case may be, which consent or
approval will not be unreasonably withheld:
(a) the business of Emerald and TBC shall be conducted
only in the ordinary course and neither Emerald nor TBC will encumber any asset
or enter into any transaction or make any contract or commitment relating to
their respective properties, assets and businesses, other than in the ordinary
course of business or as otherwise disclosed herein;
(b) no change shall be made in the articles of
incorporation or bylaws of Emerald or TBC;
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(c) except as provided in TBC's Disclosure Schedule, no
change shall be made in the number of shares of capital stock of Emerald or TBC
issued and outstanding, nor shall any option, warrant, call, convertible
security, commitment or other right be granted or made by Emerald or TBC
relating to its authorized or issued capital stock;
(d) except in the ordinary course of business as
previously conducted, no purchase order, contract or commitment (other than
deposits, loan commitments and investments or the sale of other real estate
owned in the ordinary course of business of Emerald or TBC) shall be entered
into by or on behalf of Emerald or TBC extending for more than one year or
involving payment by Emerald or TBC of more than $50,000 in any one contract or
related series of contracts or otherwise materially affecting its business;
(e) no employment agreement or other agreement will be
entered into with any employee of TBC and no employee's salary or benefits will
be increased except for normal annual increases as agreed to in writing and no
employee benefit plan will be modified or amended except as required by law;
(f) Emerald and TBC will comply in all material respects
with all laws applicable to them and to the conduct of their business, if
failure to comply could have a material adverse effect upon its business;
(g) no dividends shall be paid, or distributions made,
with respect to Emerald or TBC Stock;
(h) no loan other than in the ordinary course of business
will be made by Emerald without providing TBC with all relevant documents
related thereto and giving TBC a reasonable opportunity to review such loan and
comment thereon;
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(i) no loan other than in the ordinary course of business
will be made by TBC without providing Emerald with all relevant documents
related thereto and giving Emerald a reasonable opportunity to review such loan
and comment thereon;
(j) no security owned by Emerald will be sold and no new
securities will be purchased without the approval of TBC; and
(k) the obligations under all employment, severance or
other agreements between Emerald or TBC and their respective employees related
to the termination of such agreements shall not be in excess of the amounts
described in the Employment Agreements attached to the Emerald or TBC Disclosure
Schedule.
6.3 Confidentiality. Until the Merger is consummated, Emerald or
TBC shall not, without the prior written consent of the other party, as the case
may be, disclose to third parties, and shall use care to assure that its
directors, officers, employees and advisors do not disclose to third parties any
information regarding the Merger or any confidential information, which shall
include all information received from the other party, as the case may be, in
the course of discussing, investigating, negotiating and performing the
transactions contemplated by this Plan of Merger, whether such information has
been obtained before or after the date of execution of this Plan of Merger. The
term "confidential information" does not include information which (i) was known
to the other party, as the case may be, its directors, officers, employees or
advisors prior to the time of its disclosure to such party by the other party;
(ii) is or becomes publicly known or available; or (iii) is independently
developed or discovered by the other party or their respective directors,
officers, employees or advisors outside of the discussions, investigations,
negotiations
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and performance contemplated by this Plan of Merger. "Third parties" does not
include the directors, officers, employees or advisors of the other party.
6.4 Emerald Shareholder Meeting. As soon as reasonably
practicable, Emerald shall take all action necessary in accordance with
applicable law and its articles of incorporation and bylaws to call, give notice
of, convene and hold a meeting of its shareholders (the "Special Meeting") for
the purpose of approving and adopting this Plan of Merger, the Merger and the
transactions contemplated thereby. In connection therewith, Emerald shall mail
to all shareholders of record entitled to vote at such meeting the Offering
Circular and Proxy Statement which shall indicate that the Board of Directors of
Emerald has, by resolution, approved the Merger on the terms and subject to the
conditions set forth in this Plan of Merger. Subject to applicable laws and the
fiduciary duties of its directors, Emerald shall use reasonable efforts to
solicit from its shareholders proxies in favor of such adoption and approval and
shall take all other reasonable action necessary or helpful to secure a vote of
its shareholders in favor of the Merger.
6.5 TBC Shareholder Meeting. As soon as reasonably practicable,
TBC shall take all action necessary in accordance with applicable law and its
articles of incorporation and bylaws to call, give notice of, convene and hold a
meeting of its shareholders (the "Special Meeting") for the purpose of approving
and adopting this Plan of Merger, the Merger and the transactions contemplated
thereby. In connection therewith, TBC shall mail to all shareholders of record
entitled to vote at such meeting the Offering Circular and Proxy Statement which
shall indicate that the Board of Directors of TBC has, by resolution, approved
the Merger on the terms and subject to the conditions set forth in this Plan of
Merger. Subject to applicable laws and the fiduciary duties of its directors,
TBC shall use reasonable efforts to solicit from its shareholders proxies in
favor
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of such adoption and approval and shall take all other reasonable action
necessary or helpful to secure a vote of its shareholders in favor of the
Merger.
6.6 Affiliate's Letters. Emerald and TBC shall use their
respective best efforts to obtain and deliver to one another prior to the
Special Meeting a signed letter in the form attached as Exhibit 6.6 from each of
their respective officers, directors or shareholders who may be deemed an
"affiliate" of Emerald or TBC, as appropriate within the meaning of such term as
used in Rule 145 under the Securities Act.
6.7 Accounting Methods. Neither Emerald nor TBC shall change, in
any material respect, its methods of accounting in effect at its most recent
fiscal year end, except as required by changes in generally accepted accounting
principles, if applicable, as concurred by such parties' independent
accountants.
6.8 Approvals of Regulatory Authorities. Emerald and TBC will
cooperate in the preparation and the filing by TBC of such applications to the
Board of Governors of the Federal Reserve System (the "Fed"), the Federal
Deposit Insurance Corporation (the "FDIC"), the Florida Banking Department and
the Office of Thrift Supervision (the "OTS"), and other regulatory authorities
as may be necessary to obtain all governmental approvals requisite to the
consummation of the Merger. As soon as practicable, TBC shall file applications
with the proper regulatory authorities for approval of the Merger and the
acquisition of Emerald by TBC and shall thereafter take all action to obtain the
approval of such regulatory authorities. All of the representations contained in
the applications filed by TBC with regulators with or on behalf of Emerald, will
be, at the time they are made, accurate in all material respects, except TBC
makes no representation or warranty as to matters contained therein that are
based on information pro-
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vided by Emerald. All filings, requests for approval or other submissions for
any regulatory approval shall be made available for review by Emerald prior to
filing.
6.9 Securities Matters.
(a) TBC shall prepare and distribute to the shareholders
of Emerald an information package including an Offering Circular and Proxy
Statement (collectively the "Information Package") designed to provide such
shareholders with such information as needed about this Plan of Merger and the
Merger in order to qualify the private placement of TBC Shares into which the
Emerald Shares are to be converted pursuant to this Plan of Merger for the
exemption under the Securities Act provided by Section 4(2). Emerald shall
provide TBC with such information and documentation as shall be reasonably
requested by TBC in order to prepare the Information Package.
(b) The information specifically designated as being
supplied by Emerald for inclusion in the Information Package shall not, at the
time the Information Package is delivered to the shareholders of Emerald, at the
time of the meeting of the Emerald shareholders and at the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein not misleading. If at any time prior to the Effective Time any event or
circumstance relating to Emerald, or its officers or directors, should be
discovered by Emerald which should be set forth in an amendment or a supplement
to the Information Package, Emerald shall promptly inform TBC, and TBC shall
promptly prepare and distribute such amendment or supplement.
(c) The information specifically designated as being
supplied by TBC for inclusion in the Information Package shall not, at the time
the Information Package is delivered to the
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shareholders of Emerald and at the Effective Time, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, not misleading. If
at any time prior to the Effective Time any event or circumstance relating to
TBC, or its officers or directors, should be discovered by TBC which should be
set forth in an amendment or a supplement to the Information Package, TBC shall
promptly inform Emerald and shall promptly prepare and distribute such amendment
or supplement to the Information Package.
(d) Prior to the Closing Date, TBC shall cause, to the
extent required, the shares of TBC Common Stock to be issued pursuant to the
Merger to be registered or qualified under all applicable securities or Blue Sky
laws of each of the states and territories of the United States, and to take any
other actions which may be necessary to enable the TBC Common Stock to be issued
pursuant to the Merger to be distributed in each such jurisdiction.
6.10 Due Diligence. Emerald and TBC shall each deliver by the
Closing Date all opinions, certificates and other documents required to be
delivered by it.
6.11 Status Reports. Emerald and TBC shall advise one another from
time to time regarding the applications for regulatory approval of the Merger
and provide one another copies of all comments, correspondence and approvals to
or from regulators in connection with the applications, and give one another
copies of all regulatory approvals referred to in this Plan of Merger.
6.12 Pooling and Tax-Free Reorganization Treatment. Unless required
by law, neither Emerald nor TBC shall take or cause to be taken any action,
whether on or before the Effective Time, which would disqualify the Merger as a
"pooling of interests" for accounting purposes or as a "reorganization" within
the meaning of Section 368(a) of the Code.
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6.13 Other Actions. Unless required by law, neither Emerald nor TBC
shall knowingly or intentionally take any action, or omit to take any action, if
such action or omission would, or reasonably might be expected to, result in any
of its representations and warranties set forth herein being or becoming untrue
in any material respect, or in any of the conditions to the Merger set forth in
this Plan of Merger not being satisfied, or (unless such action is required by
applicable law) which would materially adversely affect the ability of TBC or
Emerald to obtain any consents or approvals required for the consummation of the
Merger without imposition of a condition or restriction which would have a
material adverse effect on the Surviving Corporation or which would otherwise
materially impair the ability of TBC or Emerald to consummate the Merger in
accordance with the terms of the Plan of Merger or materially delay such
consummation.
6.14 Conversion of Emerald Coast Bank. Emerald and TBC shall
prepare and submit the necessary applications with the Fed, the FDIC and the OTS
and the appropriate notice to the Florida Banking Department to convert Emerald
Coast Bank into a federal savings association. Emerald shall thereafter take all
action to obtain the approval of such regulatory agencies to implement the
conversion.
6.15 No Shopping. Neither Emerald nor any of its officers and
directors will, and Emerald shall direct and use its best efforts to cause its
employees, agents and representatives, during the period beginning on the date
hereof and ending on the first to occur of (a) the Effective Time or (b) the
termination of this Plan of Merger, (i) sell or arrange for sale of any Emerald
Common Stock, other than as required by the Emerald employee stock purchase
plan; (ii) negotiate, solicit or encourage or authorize any person to solicit
from any third party any proposals relating to the merger or consolidation of
Emerald, disposition of the business or assets
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of Emerald or the acquisition of the capital stock of Emerald; or (iii) except
to the extent legally required for the discharge by the board of directors of
its fiduciary duties, make any information concerning Emerald available to any
person for the purpose of affecting or causing a merger, consolidation or
disposition of Emerald or its assets or common stock.
SECTION 7.--CONDITIONS
7.1 Mutual Conditions. The obligations of Emerald and TBC under
this Plan of Merger are subject to and conditioned upon the satisfaction, prior
to the Closing Date, of each of the following conditions except as both Emerald
and TBC may waive in writing:
(a) Information Package. The Information Package shall
have been distributed, and all applicable federal securities or state blue sky
laws shall have been complied with or an exemption thereunder shall be
available.
(b) No Litigation. No suit, action, claim or other
proceeding shall have been threatened or pending before any court,
administrative or governmental agency which, in the reasonable opinion of
Emerald or TBC, presents a significant risk of restraint or prohibition of the
transactions contemplated hereby or the attainment of material damages or other
relief against Emerald or its shareholders or TBC or its shareholders in
connection therewith.
(c) Shareholder Approval. The holders of two-thirds of
the outstanding shares of Emerald Common Stock and a majority of the outstanding
shares of TBC Common Stock shall have approved the Merger.
(d) Approvals. Receipt of all authorizations, approvals
and/or consents of any third parties as well as the expiration of applicable
waiting periods, including federal or state gov-
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ernmental and/or regulatory bodies and officials, necessary for the consummation
of this Plan of Merger and for the continuation in all material respects of the
business of TBC and Emerald, without interruption after the Effective Time, in
substantially the manner in which such business is now conducted shall have been
received, and no such authorizations or approvals shall contain any conditions
or restrictions that Emerald or TBC reasonably believes will materially restrict
or limit the business or activities of the Surviving Corporation subsequent to
the Merger, or have a material adverse effect on their businesses, operations or
financial conditions taken as a whole.
(e) Assumed Agreements. TBC shall have acknowledged its
obligations under the merger and employment agreements set forth in the Emerald
Disclosure Schedule.
(f) Dissenter's Rights. Holders of not more than ten
percent (10%) of the outstanding shares of Emerald Common Stock shall have voted
against approval of, or given notice in writing to Emerald at or prior to the
Emerald shareholders' meeting that he or she dissents from, the transactions
contemplated by the Plan of Merger and the Merger Agreement.
7.2 Conditions in Favor of Emerald. All obligations of Emerald
under this Plan of Merger are subject to and conditioned upon the satisfaction,
prior to the Closing Date, of each of the following conditions except as Emerald
may waive in writing:
(a) Material Adverse Change. Since the date of this Plan
of Merger, there have been no material adverse changes, occurrences or
developments in the business of TBC that have, or would be expected to have, a
material adverse effect on the business, operations or financial condition of
TBC, and Emerald shall not have discovered any fact or circumstance not
disclosed by TBC prior to the date of this Plan of Merger that has resulted in,
or could reasonably be
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expected to result in, a material adverse effect on the business, operations or
financial condition of TBC.
(b) Representations, Warranties and Agreements. Each
representation and warranty of TBC contained in this Plan of Merger or in any
TBC Document, including without limitation, financial statements, the TBC
Disclosure Schedules, deeds, exhibits, certificates, schedules or other
documents delivered pursuant hereto or in connection with the transactions
contemplated hereby, that is qualified as to materiality shall be true and
correct, and each representation and warranty that is not so qualified shall be
true and correct in all material respects, as of the date of the Plan of Merger
and at the Closing Date as if then made, except to the extent that any such
representation and warranty expressly relates to an earlier date (in which case
any such representation and warranty that is qualified as to materiality shall
be true and correct, and any such representation that is not so qualified shall
be true and correct in all material respects, as of such earlier date). TBC and
The Bank shall have performed and complied with all covenants, agreements and
conditions required by this Plan of Merger to be performed or complied with in
all material respects by them, or either of them, prior to or at the Closing
Date.
(c) Officers' Certificate. Receipt by Emerald of a
certificate in form and content satisfactory to Emerald from the President and
the Chief Financial Officer of TBC, dated as of the Closing Date, to the effect
that the representations and warranties made herein by TBC on the date hereof
and on the Closing Date are true and correct as set forth in Section 4 and that
TBC has performed the covenants, obligations and agreements undertaken by it
herein in all material respects.
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(d) Legal Opinion. Receipt by Emerald of an opinion of
legal counsel for TBC, Haskell Slaughter & Young, L.L.C., substantially in the
form attached hereto as Exhibit 7.2(d). In addition, counsel may rely on
representations and certificates of officers and directors of TBC and
certificates of public officials. Such opinion shall be subject to reasonable
and customary qualifications.
(e) Federal Tax Opinion. An opinion of Powell Goldstein
Frazier & Murphy LLP shall have been received by Emerald to the effect that for
federal income tax purposes the Merger will constitute a reorganization within
the meaning of section 368(a) of the Internal Revenue Code, which opinion may be
based upon representations of officers of Emerald reasonably satisfactory in
form and substance to such counsel.
(f) Accountant's Letter. Emerald shall have received from
Ernst & Young LLP a letter dated as of the date of the mailing of the
Information Package and the Closing Date, in form and substance reasonably
satisfactory to Emerald and customary in scope and substance for letters
delivered by independent public accountants in connection with pooling of
interests transactions similar to the Merger.
(g) Secretary's Certificate. Emerald shall have received
in form and content satisfactory to it of the Secretary or an Assistant
Secretary of TBC to the effect that all necessary approvals of the Merger by the
Board of Directors and shareholders of TBC were obtained at meetings duly called
for such purposes and as to the incumbency of all corporate officers of TBC at
all relevant times.
(h) Proper Actions and Documentation. All actions
required to be taken by TBC in connection with the transactions contemplated by
this Plan of Merger shall have been
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taken, and all documents incidental thereto shall be in a form and substance
reasonably satisfactory to Emerald, and Emerald shall have received copies of
all documents that it may have reasonably requested in connection with such
transactions.
(i) Minimum Equity. Emerald shall have shareholders
equity at the Effective Time of not less than [$5,820,000], exclusive of costs
associated with this transaction and determined in accordance with GAAP.
7.3 Conditions in Favor of TBC. All obligations of TBC under this
Plan of Merger are subject to and shall be conditioned upon the satisfaction,
prior to or on the Closing Date, of each of the following conditions except as
TBC may waive such conditions in writing:
(a) Material Adverse Change. Since the date of this Plan
of Merger there have been no material adverse changes, occurrences or
developments in the business of Emerald that have, or would be expected to have,
a material adverse effect on the business, operations or financial condition of
Emerald, and TBC shall not have discovered any fact or circumstance not
disclosed by Emerald prior to the date of this Plan of Merger that has resulted
in, or could reasonably be expected to result in, a material adverse effect on
the business, operations or financial condition of Emerald.
(b) Representations, Warranties and Agreements. Each
representation and warranty of Emerald contained in this Plan of Merger or in
any Emerald document, including, without limitation, financial statements, the
Emerald Disclosure Schedules, deeds, exhibits, certificates, schedules or other
documents delivered pursuant hereto or in connection with the transactions
contemplated hereby, that is qualified as to materiality shall be true and
correct, and each representation and warranty that is not so qualified shall be
true and correct in all material
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respects, as of the date of the Plan of Merger and at the Closing Date as if
then made, except to the extent that any such representation and warranty
expressly relates to an earlier date (in which case any such representation and
warranty that is qualified as to materiality shall be true and correct, and any
such representation that is not so qualified shall be true and correct in all
material respects, as of such earlier date). Emerald shall have performed and
complied with all covenants, agreements and conditions required by this Plan of
Merger to be performed or complied with in all material respects by it prior to
or at the Closing Date.
(c) Officer's Certificate. Receipt by TBC of a
certificate in form and content satisfactory to it from the President and the
Chief Financial Officer of Emerald, dated the Closing Date, to the effect that
the representations and warranties made herein by Emerald on the date hereof,
and on the Closing Date, are true and correct as set forth in Section 3, and
that Emerald has performed the covenants, obligations and agreements undertaken
by it herein in all material respects.
(d) Secretary's Certificate. TBC shall have received in
form and content satisfactory to it a certificate of the Secretary or an
Assistant Secretary of Emerald to the effect that all necessary approvals of the
Merger by the Board of Directors and shareholders of Emerald were obtained at
meetings duly called for such purposes and as to the incumbency of all corporate
officers of Emerald at all relevant times.
(e) Legal Opinion. Receipt by TBC of an opinion of
Emerald's legal counsel, Powell Goldstein Frazier & Murphy LLP, substantially in
the form attached as Exhibit 7.3(e). In addition, such counsel may rely on
representations and certificates of officers and directors of
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Emerald and certificates of public officials. Such opinion shall be subject to
reasonable and customary qualifications.
(f) Federal Tax Opinion. An opinion of Haskell Slaughter
& Young, L.L.C. shall have been received by TBC to the effect that for federal
income tax purposes the Merger will constitute a reorganization within the
meaning of section 368(a) of the Internal Revenue Code, which opinion may be
based upon representations of officers of TBC reasonably satisfactory in form
and substance to such counsel.
(g) Accountant's Letter. TBC shall have received from
Ernst & Young a letter dated the date of the Offering Memorandum and the Closing
Date, in form and substance reasonably satisfactory to TBC and customary in
scope and substance for letters delivered by independent public accountants in
connection with pooling of interests transactions similar to the Merger.
(h) Proper Actions and Documentation. All actions
required to be taken by Emerald by this Plan of Merger shall have been taken or
satisfied in all material respects, and all documents incidental thereto shall
be in a form and substance reasonably satisfactory to TBC and its counsel, and
TBC shall have received copies of all documents that they may have reasonably
requested in connection with such transactions.
(i) Minimum Equity. TBC shall have shareholders equity at
the Effective Time of not less than [$20,600,000] excluding costs associated
with this transaction, and determined in accordance with GAAP.
(j) Real Estate Matters. Emerald and its shareholders
shall have entered into an agreement regarding the sale and leaseback of certain
real estate and the grant of an option by
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Emerald to repurchase the real estate at fair value in such form that does not
prevent the Merger from being accounted for as a pooling of interests.
(k) Conversion of Emerald Coast Bank. Emerald shall have
successfully converted Emerald Coast Bank into a federal savings association, as
defined by Section 3 of the Federal Deposit Insurance Corporation Act, regulated
by the Office of Thrift Supervision.
SECTION 8.--TERMINATION
8.1 Termination. This Plan of Merger may be terminated and the
Merger abandoned (either before or after approvals and authorizations by the
shareholders of Emerald and TBC contemplated hereby and without seeking further
shareholder approval) at any time prior to the Effective Time only in one of the
following manners:
(a) Mutual Agreement. By mutual written consent of the
parties authorized by their respective Boards of Directors at any time prior to
the Effective Time.
(b) by either Emerald or TBC:
(i) if, upon a vote at a duly held meeting of
stockholders or any adjournment thereof, any required approval of the holders of
shares of TBC Common Stock or Emerald Common Stock shall not have been obtained;
(ii) if the Merger shall not have been
consummated on or before December 31, 1998, unless the failure to consummate the
Merger is the result of a willful and material breach of this Plan of Merger by
the party seeking to terminate this Plan of Merger; provided, however, that the
passage of such period shall be tolled for any part thereof (but not
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exceeding 60 days in the aggregate) during which any party shall be subject to a
nonfinal order, decree, ruling or action restraining, enjoining or otherwise
prohibiting the consummation of the Merger or the calling or holding of a
meeting of stockholders;
(iii) if any court of competent jurisdiction or
other governmental entity shall have issued an order, decree or ruling or taken
any other action permanently enjoining, restraining or otherwise prohibiting the
Merger and such order, decree, ruling or other action shall have become final
and nonappealable;
(iv) in the event of a breach by the other party
of any representation, warranty, covenant or other agreement contained in this
Plan of Merger which (A) would give rise to the failure of a condition set forth
in Section 7.2(a) or (b) or Section 7.3(a) or (b), as applicable, and (B) cannot
be or has not been cured within 30 days after the giving of written notice to
the breaching party of such breach (a "Material Breach") (provided that the
terminating party is not then in Material Breach of any representation,
warranty, covenant or other agreement contained in this Plan of Merger);
(c) By either Emerald or TBC in the event that (i) all of
the conditions to the obligation of such party to effect the Merger set forth in
Section 9.1 shall have been satisfied and (ii) any condition to the obligation
of such party to effect the Merger set forth in Section 7.2 (in the case of
Emerald) or Section 7.3 (in the case of TBC) is not capable of being satisfied
prior to the end of the period referred to in Section 8.1(b)(ii); or
(d) By TBC or Emerald, if TBC's or Emerald's Board of
Directors shall have determined, in the exercise of its fiduciary duties under
applicable law, not to recommend the
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Merger to the holders of TBC Common Stock or the holders of Emerald Common Stock
or shall have withdrawn such recommendation;
8.2 Effect of Termination. In the event of termination of this
Plan of Merger as provided in Section 8.1, this Plan of Merger shall forthwith
become void and have no effect, without any liability or obligation on the part
of any party, other than the provisions of Sections 6.2, 8.2 and 8.6, and except
to the extent that such termination results from the willful and material breach
by a party of any of its representations, warranties, covenants or other
agreements set forth in this Plan of Merger.
8.3 Amendment. This Plan of Merger may be amended by the parties
at any time before or after any required approval of matters presented in
connection with the Merger by the holders of shares of Emerald Common Stock and
TBC Common Stock; provided, however, that after any such approval, there shall
be made no amendment that pursuant to Section 251(d) of the DGCL requires
further approval by such stockholders without the further approval of such
stockholders. This Plan of Merger may not be amended except by an instrument in
writing signed on behalf of each of the parties.
8.4 Extension; Waiver. At any time prior to the Effective Time of
the Merger, the parties may (a) extend the time for the performance of any of
the obligations or other acts of the other parties, (b) waive any inaccuracies
in the representations and warranties contained in this Plan of Merger or in any
document delivered pursuant to this Plan of Merger or (c) subject to the proviso
of Section 8.3, waive compliance with any of the agreements or conditions
contained in this Plan of Merger. Any agreement on the part of a party to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. The failure of any
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party to this Plan of Merger to assert any of its rights under this Plan of
Merger or otherwise shall not constitute a waiver of such rights.
8.5 Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Plan of Merger pursuant to Section 8.1, an amendment of this
Plan of Merger pursuant to Section 8.3, or an extension or waiver pursuant to
Section 8.4 shall, in order to be effective, require in the case of Emerald or
TBC, action by its Board of Directors or the duly authorized designee of the
Board of Directors.
8.6 Expenses and Damages. Each party shall pay its own expenses in
connection with the Plan of Merger and the Merger. Nothing contained in Section
8.7 shall be deemed to preclude either party from seeking to recover damages
which it incurs as a result of a breach by the other party of this Plan of
Merger or to obtain other legal or equitable relief (including specific
performance).
8.7 No Liability Upon Proper Termination. Upon proper termination
by written notice as provided in Section 8.1 of this Plan of Merger, this Plan
of Merger shall be void and of no further effect, except as set forth in Section
8.2, and there shall be no liability by reason of this Plan of Merger or the
termination thereof on the part of either TBC, Emerald or the directors,
officers, employees, agents or shareholders of any of them, and all such parties
shall be released from all such liability, provided that any such termination
shall not excuse a party for liability for any breach of this Agreement.
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SECTION 9. MISCELLANEOUS
9.1 Survival of Representations, Warranties and Covenants. The
respective representations, warranties, agreements and covenants of the parties
in this Plan of Merger shall survive the Effective Time. Each party shall be
deemed to have relied upon each and every representation and warranty of the
other party, regardless of any investigation heretofore or hereafter made by or
on behalf of such party.
9.2 Employee Benefits. All employees of Emerald who continue as
employees of the Surviving Corporation after the Merger shall receive service
credits for employment at Emerald prior to the Effective Time for purposes of
meeting all the eligibility requirements and all vesting requirements for all of
the Surviving Corporation's benefit programs in which such employees shall
become eligible to participate on or after the Effective Time, including but not
limited to health, retirement, vacation and disability plans. The Surviving
Corporation will waive waiting periods and pre-existing conditions limitations
under its group health plan (within the meaning of Section 5000(b)(i) of the
Internal Revenue Code of 1986, as amended) for those employees of Emerald who
continue as employees of The Surviving Corporation after the Merger and who had
coverage under compatible group health plans of Emerald immediately prior to the
Effective Time. The Surviving Corporation shall provide the opportunity for
continuation of coverage through COBRA for any former Emerald employee who
participated as or who had a right to elect participation as a COBRA continuee
under Emerald's group health plans immediately prior to the Effective Time.
9.3 Benefits of this Plan of Merger. This Plan of Merger and the
rights and obligations of TBC and Emerald hereunder shall not be assigned by any
party to any third party, except with
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the prior written consent of the other. This Plan of Merger shall be binding
upon and inure to the benefit of the parties hereto and their respective
permitted successors and assigns. Nothing in this Plan of Merger, expressed or
implied, is intended to confer upon any person, other than the parties hereto,
the shareholders of Emerald, and their respective permitted successors and
assigns, any rights or remedies under or by reason of this Plan of Merger and,
except as aforesaid, there are no third-party beneficiaries of this Plan of
Merger.
9.4 Notices. Any notice, request, instruction, legal process or
other instrument to be given or served hereunder by any party to another, shall
be deemed given or served if in writing and delivered personally or sent by
registered or certified mail, postage prepaid, to the respective party or
parties at the following addresses:
If to TBC:
Mr. James A. Taylor
The Banc Corporation
Chairman of the Board
17 North 20th Street
Birmingham, Alabama 35203
With copies to:
Haskell Slaughter & Young, L.L.C.
Attn: F. Hampton McFadden, Jr., Esq.
1200 AmSouth/Harbert Plaza
1901 Sixth Avenue North
Birmingham, Alabama 35203
and
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Rothgerber, Appel, Powers & Johnson
Attn: William P. Johnson, Esq.
One Tabor Center
1200 17th Street, 30th Floor
Denver, Colorado 80202
If to Emerald:
Mr. Terry DuBose
Emerald Coast Bancshares, Inc.
Post Office Box 18439
Panama City Beach, Florida 32417
With copies to:
Powell Goldstein Frazer & Murphy L.L.P.
Attn: Walter G. Moeling, IV
191 Peachtree Street NE, 16th Floor
Atlanta, Georgia 30303
and to such other address or addresses as either party may designate to the
other by like notice as set forth above.
9.5 Publicity. Emerald and TBC shall ensure that all publicity,
press releases and other announcements relating to this Plan of Merger and the
transactions contemplated hereby are reviewed in advance by both TBC and Emerald
and their respective legal counsel and shall not make any such announcements
without the written approval of the other party.
9.6 Entire Agreement. This Plan of Merger contains the entire
agreement between the parties hereto with respect to the transactions
contemplated hereby and thereby supersedes all prior and contemporaneous
agreements, understandings, negotiations and discussions, whether oral or
written, of the parties, and there are no warranties, representations, covenants
or other agreements between the parties in connection with the subject matter
hereof except as specifically set forth herein.
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9.7 Waiver or Modification. Any party to this Plan of Merger may,
at any time prior to the Effective Time, by action taken by its Board of
Directors or officers thereunto duly authorized, waive any of the terms or
conditions of this Plan of Merger or agree to an amendment or modification to
this Plan of Merger by an agreement in writing executed in the same manner (but
not necessarily by the same persons) as this Plan of Merger. No amendment,
modification or waiver of this Plan of Merger shall be binding unless executed
in writing by the party to be bound thereby. No waiver of any of the provisions
of this Plan of Merger shall be deemed or shall constitute a waiver of any other
provisions hereof (whether or not similar), nor shall any waiver constitute a
continuing waiver unless expressly provided. TBC's Board of Directors may
authorize the amendment or supplementation of this Plan of Merger or waiver of
any provision hereof or thereof, either before or after the approval of TBC's
shareholders (and without seeking further shareholder approval to the extent
allowed by law), so long as such amendment, supplement or waiver does not result
in the reduction of the consideration given or result in an adverse tax or other
effect to TBC's shareholders.
9.8 Controlling Law. This Plan of Merger shall be construed in
accordance with the laws of the State of Alabama, except to the extent that
federal law is applicable.
9.9 Counterparts. This Plan of Merger may be executed in any
number of copies, each of which shall be deemed an original, and all of which
together shall be deemed one and the same instrument.
9.10 Knowledge. Whenever the term "knowledge," "best knowledge" or
similar expression is used in this Plan of Merger, it shall mean knowledge of a
party's respective directors and officers.
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9.11 No Rule of Construction. The parties acknowledge that this
Plan of Merger was initially prepared by TBC and that all parties have read and
negotiated the language used in this Plan of Merger. The parties agree that,
because all parties participated in negotiating and drafting this Plan of
Merger, no rule of construction shall apply to this Plan of Merger which
construes ambiguous language in favor of or against any party by reason of that
party's role in drafting this Plan of Merger.
9.12 Binding Effect. This Plan of Merger shall be binding on, and
shall inure to the benefit of, the parties hereto, and their respective
successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Plan of Merger. No party may assign any right or
obligation hereunder without the prior written consent of the other parties.
9.13 Cooperation.
(a) TBC and Emerald shall together, or pursuant to an allocation
of responsibility agreed to between them, (i) cooperate with one another in
determining whether any filings are required to be made or consents are required
to be obtained in any jurisdiction prior to the Effective Time in connection
with the consummation of the transactions contemplated hereby; and cooperate in
making any such filings promptly and in seeking to obtain timely any such
consents, (ii) use their respective best efforts to cause to be lifted any
injunction prohibiting the Merger, or any part thereof, or the other
transactions contemplated hereby, and (iii) furnish to one another and to one
another's counsel all such information as may be required to effect the
foregoing actions.
(b) Subject to the terms and conditions herein provided, and
unless this Plan of Merger shall have been validly terminated as provided
herein, each of TBC and Emerald shall use all rea-
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sonable efforts (i) to take, or cause to be taken, all actions necessary to
comply promptly with all legal requirements which may be imposed on such party
(or any subsidiaries or affiliates of such party) with respect to the Plan of
Merger and to consummate the transactions contemplated hereby and (ii) to obtain
(and to cooperate with the other party to obtain) any consent, authorization,
order or approval of, or any exemption by, any governmental entity and/or any
other public or private third party which is required to be obtained or made by
such party or any of its subsidiaries or affiliates in connection with this Plan
of Merger and the transactions contemplated hereby. Each of TBC and Emerald will
promptly cooperate with and furnish information to the other in connection with
any such burden suffered by, or requirement imposed upon, either of them or any
of their subsidiaries or affiliates in connection with the foregoing. The
parties shall, from time to time, and including as of and upon the Closing Date,
prepare and deliver to each other such supplements and amendments to their
respective Disclosure Schedules as are necessary or appropriate to assure the
accuracy and completeness thereof; provided that the furnishing of any such
supplement shall not modify, limit, or otherwise affect any representations or
warranties of a party contained in this Agreement or any right of a party to
terminate this Agreement.
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IN WITNESS WHEREOF, pursuant to authority duly given by the respective
Boards of Directors of TBC and Emerald, this Plan of Merger has been signed on
behalf of said corporations by their respective Chairman of the Board, President
or Vice President, as the case may be, all on the date, month and year first
written above.
THE BANC CORPORATION
By:
-----------------------------------------
James A. Taylor
Chairman of the Board
EMERALD COAST BANCSHARES, INC.
By:
-----------------------------------------
Its:
-------------------------------------
55
<PAGE> 1
EXHIBIT (2)-6
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated this 9th day of September, 1998, by
and between The Banc Corporation, a Delaware corporation ("The Banc Corporation"
or the "Surviving Corporation"), and Warrior Capital Corporation, an Alabama
corporation ("Warrior" and, together with The Banc Corporation, the "Constituent
Corporations").
W I T N E S S E T H:
WHEREAS, The Banc Corporation is a corporation duly organized and
existing under the laws of the State of Delaware with its principal office
located at 17 North 20th Street, Birmingham, Alabama 35203; and
WHEREAS, Warrior is a corporation duly organized and existing under the
laws of the State of Alabama with its principal office located at 218 Louisa
Street, Warrior, Alabama 35180; and
WHEREAS, The Banc Corporation has an authorized capitalization
consisting of 30,000,000 shares, comprised of 25,000,000 shares of common stock,
par value $.001 per share ("The Banc Corporation Common Stock") and 5,000,000
shares of preferred stock, par value $.001 per share; and
WHEREAS, Warrior has an authorized capitalization consisting of 31,434
shares, comprised of 30,000 shares of common stock, par value $1.00 per share
("Warrior Common Stock"), and 1,434 shares of preferred stock, par value $10.00
per share ("Warrior Preferred Stock"); and
WHEREAS, the Board of Directors of each of Warrior and The Banc
Corporation has determined that it is advisable and in the best interests of the
Constituent Corporations that Warrior be merged with and into The Banc
Corporation under and pursuant to the Alabama Business Corporation Act and the
Delaware General Corporation Law, each of which permits such merger, and on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, subject to the approval of the respective stockholders
and shareholders of each of the Constituent Corporations as required by law, in
consideration of the premises and the mutual covenants, agreements,
representations and warranties herein contained and of the benefits to accrue to
the parties hereto, it is agreed that, in accordance with the applicable
statutes of the State of Alabama and the State of Delaware, Warrior shall be
merged with and into The Banc Corporation, which shall be the Surviving
Corporation, and that the terms and conditions of such merger, the mode of
carrying it into effect and the manner and basis of converting and exchanging
the shares of each of the Constituent Corporations into shares of the Surviving
Corporation shall be as follows:
<PAGE> 2
ARTICLE I
THE MERGER; EFFECT OF THE MERGER
(a) Warrior shall be merged with and into The Banc Corporation
(the "Merger") in accordance with the applicable provisions of the Delaware
General Corporation Law and the Alabama Business Corporation Act and, at the
Effective Time (as that term is hereinafter defined), the separate existence of
Warrior shall cease, and The Banc Corporation (i) shall continue in existence as
the Surviving Corporation, (ii) shall be governed by the laws of the State of
Delaware, (iii) shall maintain a registered office in the State of Delaware at
Corporation Trust Center, 1209 Orange Street in the City of Wilmington, County
of New Castle, Zip Code 19801 and (iv) shall be obligated for the payment of the
fair value of any shares held by a shareholder of Warrior who has complied with
the requirements of Section 10-2B-13.01-13.41 of the Alabama Business
Corporation Act.
(b) At the Effective Time, the Surviving Corporation shall
thereupon and thereafter possess all the rights, privileges, powers and
franchises, as well of a public as on a private nature, of each of the
Constituent Corporations, and be subject to all the restrictions, disabilities
and duties of each of the Constituent Corporations; and all and singular, the
rights, privileges, powers and franchises of each of the Constituent
Corporations, and all property, real, personal and mixed, and all debts due to
either of the Constituent Corporations on whatever account, as well for stock
subscriptions as all other things in action or belonging to each of the
Constituent Corporations shall be vested in the Surviving Corporation; and all
property, rights, privileges, powers and franchises, and all and every other
interest shall be thereafter as effectually the property of the Surviving
Corporation as they were of the several and respective Constituent Corporations;
and the title to any real estate vested by deed or otherwise under the laws of
the State of Delaware or elsewhere in either of the Constituent Corporations,
shall not revert or be in any way impaired by reason of the Merger; but all
rights of creditors and all liens upon any property of either of the Constituent
Corporations shall be preserved unimpaired, and all debts, liabilities and
duties of each of the Constituent Corporations shall thenceforth attach to the
Surviving Corporation, and may be enforced against it to the same extent as if
said debts, liabilities and duties had been incurred or contracted by it; all in
accordance with Section 259(a) of the Delaware General Corporation Law and
Section 10-2B-11.06 of the Alabama Business Corporation Act.
(c) If at any time the Surviving Corporation shall consider or be
advised that any further action is necessary or desirable to carry out the
provisions hereof and to vest the Surviving Corporation with full right, title
and interest to all assets, property, rights, privileges, powers and franchises
of either of the Constituent Corporations, the officers and directors of the
Constituent Corporations are fully authorized in the name of their corporation
or otherwise to take, and shall take, all such lawful and necessary action.
2
<PAGE> 3
ARTICLE II
CERTIFICATE OF INCORPORATION OF SURVIVING CORPORATION
From and after the Effective Time, the Restated Certificate of
Incorporation of The Banc Corporation, as in effect immediately prior to the
Effective Time, shall be the Certificate of Incorporation of the Surviving
Corporation.
ARTICLE III
CONVERSION OF SHARES
(a) At the Effective Time, each share of The Banc Corporation
Common Stock outstanding immediately prior to the Effective Time shall be
cancelled and shall not be converted into any security or otherwise converted as
a result of the Merger. The certificates for such shares shall be surrendered or
nullified by reason of the effectiveness of the Merger.
(b) At the Effective Time, each share of Warrior Common Stock
outstanding immediately prior to the Effective Time shall be cancelled and
retired and shall be converted into 300 shares of The Banc Corporation Common
Stock.
(c) As soon as practical after the Effective Time, The Banc
Corporation shall send a notice and transmittal form to each record holder of a
certificate evidencing Warrior Common Stock, advising such holder of the Merger
and the procedure for surrendering to The Banc Corporation such certificates in
exchange for shares of The Banc Corporation pursuant to Article III (b) hereof.
After the Effective Time, each outstanding certificate which heretofore
represented Warrior Common Stock shall, until surrendered for exchange in
accordance with this Article III, be deemed for all purposes to evidence only
the right to receive the number of shares of The Banc Corporation pursuant to
this Article III. After the Effective Time, there shall be no further
registration or transfer of Warrior Common Stock.
ARTICLE IV
BYLAWS AND DIRECTORS, ETC.
(a) From and after the Effective Time, the bylaws of The Banc
Corporation, as in effect immediately prior to the Effective Time, shall be the
bylaws of the Surviving Corporation until the same may be altered, amended or
repealed as provided therein and under applicable law.
(b) The directors of Warrior immediately prior to the Effective
Time shall be the directors of the Surviving Corporation until their successors
have been duly elected and qualified.
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<PAGE> 4
(c) The officers of Warrior immediately prior to the Effective
Time shall be the officers of the Surviving Corporation until their successors
have been duly elected and qualified.
(d) If, at or after the Effective Time, a vacancy shall exist in
the Board of Directors of the Surviving Corporation, or in any of the offices
specified above, such vacancy may be filled in the manner provided in the bylaws
of the Surviving Corporation.
ARTICLE V
SHAREHOLDER APPROVAL; FILING DATE
This Agreement and Plan of Merger shall be submitted and recommended to
the respective stockholders and shareholders of each of the Constituent
Corporations as provided by the applicable laws of the State of Delaware and the
State of Alabama. If this Agreement and Plan of Merger is duly approved and
adopted by the requisite votes of the stockholders and shareholders of the
respective Constituent Corporations, this Agreement and Plan of Merger shall be
executed, and promptly thereafter the parties hereto will cause the Merger to be
consummated by filing (i) with the Secretary of State of the State of Delaware
this Agreement and Plan of Merger or a Certificate of Merger, in such form as
required by, and executed, acknowledged and certified in accordance with, the
relevant provisions of the Delaware General Corporation Law, and (ii) with the
Secretary of State of the State of Alabama Articles of Merger in such form as
required by, and executed in accordance with, the relevant provisions of the
Alabama Business Corporation Act (the time of the later of such filings being
the "Effective Time").
ARTICLE VI
MODIFICATION AND WAIVER
The Banc Corporation and Warrior, by mutual consent of their respective
Boards of Directors, may terminate, amend, modify and supplement this Agreement
and Plan of Merger in such manner as may be agreed upon by them in writing at
any time before or after approval thereof by the stockholders of the Banc
Corporation or the shareholders of Warrior or both; provided, however, that
after any such approval, no amendment, modification or supplement to this
Agreement and Plan of Merger shall be made which by law requires further
approval by such stockholders or shareholders without such further approval. At
any time prior to the Effective Time, The Banc Corporation or Warrior may,
pursuant to action by their respective Board of Directors, to the extent legally
allowed, extend the time for or waive the performance of any of the obligations
of the other or waive compliance by the other with any of the covenants or
conditions contained in this Agreement. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such party.
4
<PAGE> 5
ARTICLE VII
COUNTERPARTS
This Agreement and Plan of Merger may be executed in counterparts, each
of which when so executed shall be deemed to be an original, and such
counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, The Banc Corporation and Warrior, each pursuant to
the approval and authority duly given by resolutions adopted by its Board of
Directors, have caused this Agreement and Plan of Merger to be executed by their
respective officers thereunto duly authorized.
THE BANC CORPORATION,
a Delaware corporation
By
------------------------------------------
James A. Taylor
Chairman of the Board and
Chief Executive Officer
WARRIOR CAPITAL CORPORATION
an Alabama corporation
By
------------------------------------------
James A. Taylor
Chairman of the Board
5
<PAGE> 1
EXHIBIT (3)-1
RESTATED CERTIFICATE OF INCORPORATION
OF
THE BANK CORPORATION
The Bank Corporation, a corporation organized and existing under and
by virtue of the Delaware General Corporation Law ("DGCL"), does hereby certify
that:
The present name of the corporation is The Bank Corporation (the
"Corporation");
The filing date of the original Certificate of Incorporation with the
Delaware Secretary of State was April 7, 1998.
Pursuant to Sections 242 and 245 of the DGCL, the provisions of the
Certificate of Incorporation are hereby restated and integrated and further
amended into the single instrument which is hereinafter set forth, and which is
entitled the Restated Certificate of Incorporation of The Bank Corporation.
The Board of Directors and the stockholders of the Corporation duly
adopted this Restated Certificate of Incorporation pursuant to the provisions
of Sections 242 and 245 of the DGCL in the form set forth as follows:
ARTICLE I
The name of the Corporation is The Banc Corporation.
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street in the City of
Wilmington, County of New Castle, Zip Code 19801, and the name of the
registered agent at such office is The Corporation Trust Company.
ARTICLE III
The purposes of the Corporation are to engage in any lawful act or
activity for which corporations may be organized under the DGCL, including but
not limited to the following:
SECTION 3.1 To engage in any lawful act or activity for which
corporations may be organized under the DGCL;
SECTION 3.2 To purchase and sell the stock of banks.
<PAGE> 2
SECTION 3.3 To acquire, and pay for in cash, stock or bonds of
this Corporation or otherwise, the goodwill, rights, assets and property, and
to undertake or assume the whole or any part of the obligations or liabilities
of any person, firm, association or corporation;
SECTION 3.4 To acquire, hold, use, sell, assign, lease, grant
licenses in respect of, mortgage or otherwise dispose of letters patent of the
United States or any foreign country, patent rights, licenses and privileges,
inventions, improvements and processes, copyrights, trademarks and trade names,
relating to or useful in connection with any business of this Corporation;
SECTION 3.5 To acquire by purchase, subscription or otherwise, and
to receive, hold, own, guarantee, sell, assign, exchange, transfer, mortgage,
pledge or otherwise dispose of or deal in and with any of the shares of the
capital stock, or any voting trust certificates in respect of the shares of
capital stock, scrip, warrants, rights, bonds, debentures, notes, trust
receipts, and other securities, obligations, choses in action and evidences of
indebtedness or interest issued or created by any corporations, joint stock
companies, syndicates, associations, firms, trusts or persons, public or
private, or by the government of the United States of America, or by any
foreign government, or by any state, territory, province, municipality or other
political subdivision or by any governmental agency, and as owner thereto to
possess and exercise all the rights, powers and privileges of ownership,
including the right to execute consents and vote thereon, and to do any and all
acts and things necessary or advisable for the preservation, protection,
improvement and enhancement in value thereof;
SECTION 3.6 To borrow or raise money for any of the purposes of
the Corporation and, from time to time without limit as to amount, to draw,
make, accept, endorse, execute and issue promissory notes, drafts, bills of
exchange, warrants, bonds, debentures and other negotiable or non-negotiable
instruments and evidences of indebtedness, and to secure the payment of any
thereof and of the interest thereon by mortgage upon or pledge, conveyance or
assignment in trust of the whole or any part of the property of the
Corporation, whether at the time owned or thereafter acquired, and to sell,
pledge or otherwise dispose of such bonds or other obligations of the
Corporation for its corporate purposes;
SECTION 3.7 To purchase, receive, take by grant, gift, devise,
bequest or otherwise, lease, or otherwise acquire, own, hold, improve, employ,
use and otherwise deal in and with real or personal property, or any interest
therein, wherever situated, and to sell, convey, lease, exchange, transfer or
otherwise dispose of, or mortgage or pledge, all or any of the Corporation's
property and assets, or any interest therein, wherever situated; and
SECTION 3.8 In general, to possess and exercise all the powers and
privileges granted by the DGCL or by any other law of Delaware or by this
Restated Certificate of Incorporation together with any powers incidental
thereto, so far as such powers and privileges are necessary or convenient to
the conduct, promotion or attainment of the business or purposes of the
Corporation.
SECTION 3.9 The business and purposes specified in the foregoing
clauses shall, except where otherwise expressed, be in nowise limited or
restricted by reference to, or inference from,
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the terms of any other clause in this Restated Certificate of Incorporation,
but the business and purposes specified in each of the foregoing clauses of
this Article shall be regarded as an independent business and purpose.
ARTICLE IV
SECTION 4.1 AUTHORIZATION OF CAPITAL. The total number of shares
of all classes of capital stock which the Corporation shall have authority to
issue is Thirty Million (30,000,000) shares, comprised of Twenty-Five Million
(25,000,000) shares of Common Stock, with a par value of $.001 per share and
Five Million (5,000,000) shares of Preferred Stock, with a par value of $.001
per share, as the Board of Directors may decide to issue pursuant to Section
4.3, which constitutes a total authorized capital of all classes of capital
stock of Thirty Thousand Dollars ($30,000.00).
A description of the respective classes of stock and a statement of
the designations, preferences, voting powers, relative, participating, optional
or other special rights and privileges, and the qualifications, limitations and
restrictions of the Series C Preferred Stock, such other Preferred Stock as the
Board of Directors may by resolution or resolutions decide to issue, and the
Common Stock are as follows:
SECTION 4.2 COMMON STOCK.
(a) Voting Rights. Except as otherwise required
by law or this Certificate of Incorporation, each holder of
Common tock shall have one vote in respect of each share of
stock held by him of record on the books of the Corporation
for the election of Directors and on all matters submitted to
a vote of stockholders of the Corporation.
(b) Dividends. Except as otherwise provided by
the resolution or resolutions of the Board of Directors
providing for the issuance of any series of Preferred Stock
pursuant to Section 4.3, the holders of shares of Common
Stock shall be entitled to receive, when and if declared by
the board of Directors, out of the assets of the Corporation
which are by law available thereof, dividends payable either
in cash, in property or in shares of capital stock.
(c) Dissolution, Liquidation or Winding Up.
Except as otherwise provided by the resolution or resolutions
of the Board of Directors providing for the issuance of any
series of Preferred Stock pursuant to section 4.3, in the
event of any dissolution, liquidation or winding up of the
affairs of the Corporation, after distribution in full of the
preferential amounts, if any, to be distributed to the
holders of the Series C Preferred Stock, the rights of the
holders of Common Stock to receive any remaining assets of
the Corporation shall be as provided in subsection 4.2(e).
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SECTION 4.3 PREFERRED STOCK. The Board of Directors of
the Corporation is authorized subject to the limitations prescribed by
law and the provisions of this Section 4.3, to adopt one or more
resolutions to provide for the issuance from time to time in one or
more series of any number of shares of Preferred Stock, up to a
maximum of five million (5,000,000) shares, and to establish the
number of shares to be included in each such series, and to fix the
designation, relative rights, preferences, qualifications and
limitations of the shares of each such series. The authority of the
Board of Directors with respect to each such series shall include, but
not be limited to, a determination of the following:
(a) The number of shares constituting that
series and the distinctive designation of that series;
(b) The dividend rate on the shares of that
series, whether dividends shall be cumulative and, if so,
from which date or dates, and whether they should be payable
in preference to, or in another relation to, the dividends
payable on any other class or classes or series of stock;
(c) Whether that series shall have voting
rights, in addition to the voting rights provided by law,
and, if so, the terms of such voting rights;
(d) Whether that series shall have conversion or
exchange privileges and, if so, the terms and conditions of
such conversion or exchange, including provision for
adjustments for the conversion or exchange rate in such
events as the Board of Directors shall determine;
(e) Whether or not the shares of that series
shall be redeemable and, if so, the terms and conditions of
such redemption, including the manner of selecting shares for
redemption if less than all shares are to be redeemed, the
date or dates upon or after which they shall be redeemable,
and the amount per share payable in case of redemption, which
amount may vary under different conditions and at different
redemption dates;
(f) Whether that series shall be entitled to the
benefit of a sinking fund to be applied to the purchase or
redemption of shares of that series and, if so, the terms and
amounts of such sinking funds;
(g) The rights of the shares of that series to
the benefit of conditions and restrictions upon the creation
of indebtedness of the Corporation or any subsidiary, upon
the issuance of any additional stock (including additional
shares of such series or of any other series) and upon the
payment of dividends or the making of other distributions on,
and the purchase, redemption or other acquisition by the
Corporation or any subsidiary of, any outstanding stock of
the Corporation;
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(h) The right of the shares of that series in the
event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation and whether such
rights shall be in preference to, or in other relation to,
the comparable rights or any other class or classes or series
of stock; and
(i) Any other relative, participating, optional
or other special rights, qualifications, limitations or
restrictions of that series.
ARTICLE V
SECTION 5.1 GENERAL PROVISIONS. The business and affairs of the
Corporation shall be managed under the direction of the Board of Directors. The
exact number of Directors shall be fixed from time to time by, or in the manner
provided in, the Bylaws of the Corporation, and may be increased or decreased
as therein provided. Directors of the Corporation need not be elected by ballot
unless required by the Bylaws.
SECTION 5.2 CLASSIFICATION OF BOARD OF DIRECTORS. The Directors
shall be divided into three (3) classes. Each such class shall consist, as
nearly as may be possible, of one-third of the total number of Directors, and
any remaining Directors shall be included within such groups as the Board of
Directors shall designate. The first class of Directors will be elected for a
term which expires in 1999. The second class will be elected for a term which
expires in 2000. The third class will be elected to a term which expires in
2001. At each annual meeting of stockholders, beginning in 1999, successors to
the class of Directors whose term expires at the annual meeting shall be
elected for a three-year term. If the number of Directors is changed, any
increase or decrease shall be apportioned among the classes so as to maintain
the number of Directors in each class as nearly equal as possible, but in no
Case shall a decrease in the number of Directors shorten the term of any
incumbent Director. A Director may be removed from office for cause only and,
subject to such removal, death, resignation, retirement or disqualification,
shall hold office until the annual meeting for the year in which his term
expires and until his successor shall be elected and qualify. No alteration,
amendment or repeal of this Article V or the Bylaws of the Corporation shall be
effective to shorten the term of any Director holding office at the time of
such alteration, amendment or repeal, to permit any such Director to be removed
without cause, or to increase the number of Directors in any class or in the
aggregate from that existing at the time of such alteration, amendment or
repeal until the expiration of the terms of office of all Directors then
holding office, unless (i) in the case of this Article V, such alteration,
amendment or repeal has been approved by the holders of all shares of stock
entitled to vote thereon, or (ii) in the case of the Bylaws, such alteration,
amendment or repeal has been approved by either the holders of all shares
entitled to vote thereon or by a vote of a majority of the entire Board of
Directors.
SECTION 5.3 DIRECTORS APPOINTED BY A SPECIFIC CLASS OF
STOCKHOLDERS. To the extent that any holders of any class or series of stock
other than Common Stock issued by the Corporation shall have the separate
right, voting as a class or series, to elect Directors, the Directors elected
by such class or series shall be deemed to constitute an additional class of
Directors and
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shall have a term of office for one year or such other period as may be
designated by the provisions of such class or series providing such separate
voting right to the holders of such class or series of stock, and any such
class of Directors shall be in addition to the classes designated above.
SECTION 5.4 NOMINATIONS. Advance notice of nominations for the
election of Directors shall be given in the manner and to the extent provided
in the Bylaws of the Corporation.
SECTION 5.5 VACANCIES. Vacancies and newly created directorships
resulting from any increase in the authorized number of Directors may be filled
by a majority of the Board of Directors, and any vacancies on the Board of
Directors resulting from death, resignation, removal or other cause shall only
be filled by the affirmative vote of a majority of the remaining Directors then
in office, even though less than a quorum of the Board of Directors, or by a
sole remaining Director. Any Director elected in accordance with the preceding
sentence of this Section 5.5 shall hold office for the remainder of the full
term of the Directors whose vacancy is so filled and until such Director's
successor shall have been elected and qualified.
ARTICLE VI
The Corporation is to have perpetual existence.
ARTICLE VII
In furtherance and not in limitation of the powers conferred upon it
by law, the Board of Directors is expressly authorized:
SECTION 7.1 To adopt, repeal, alter or amend the Bylaws of the
Corporation by a vote of a majority of the entire Board of Directors.
SECTION 7.2 To authorize and cause to be executed mortgages and
liens upon the real and personal property of the Corporation.
SECTION 7.3 To set apart, out of any of the funds of the
Corporation available for dividends, a reserve or reserves for any proper
purpose and to abolish any such reserve in the manner in which it was created.
SECTION 7.4 By a majority of the whole Board of Directors, to
designate one or more committees, each committee to consist of one or more of
the Directors of the Corporation. The Board of Directors may designate one or
more Directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee. The Bylaws may
provide that, in the absence or disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to
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act at the meeting in the place of any such absent or disqualified member. Any
such committee, to the extent provided in the resolution of the Board of
Directors, or in the Bylaws of the Corporation, shall have and may exercise all
the powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending the Bylaws of the Corporation; and, unless the resolution or Bylaws
expressly so provide, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock.
SECTION 7.5 When and as authorized by the stockholders in
accordance with statute, to sell, lease or exchange all or substantially all of
the property and assets of the Corporation, including its goodwill and its
corporate franchises, upon such terms and conditions and for such
consideration, which may consist in whole or in part of money or property,
including shares of stock in and/or other securities of any other corporation
or corporations, as the Board of Directors shall deem expedient and for the
best interests of the Corporation.
ARTICLE VIII
SECTION 8.1 Except as provided in Section 8.2 of this Article
VIII, any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of the
stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders. Advance notice of items of business to be
considered at any meeting of the stockholders shall be given in the manner and
to the extent provided in the Bylaws of the Corporation.
SECTION 8.2 Notwithstanding the foregoing, this Article VIII shall
not apply to the Corporation if it does not have a class of voting stock that
is either (i) listed on a national securities exchange, (ii) authorized for
quotation on an inter dealer quotation system of the registered national
securities association, or (iii) held of record by more than two thousand
(2,000) stockholders.
ARTICLE IX
SECTION 9.1 LIMITATION OF LIABILITY OF DIRECTORS. A Director of
the Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a Director,
except for liability (i) for any breach of the Director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the DGCL, or (iv) for any transaction from which the
Director derived an improper personal benefit.
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If the DGCL is amended after the date hereof to authorized action by
corporations organized pursuant to the DGCL to further eliminate or limit the
personal liability of directors, then the liability of a Director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the DGCL, as amended.
SECTION 9.2 INDEMNIFICATION OF DIRECTORS.
(a) Each person who was or is made a party to, or is
threatened to be made a party to, or is involved in, any threatened,
pending or completed action, suit or proceeding, whether formal or
informal, whether of a civil, criminal, administrative or
investigative nature (hereinafter a "proceeding"), by reason of the
fact that he or she, or a person of whom he or she is the legal
representative, is or was a Director of the Corporation, whether the
basis of such proceeding is an alleged action or inaction in an
official capacity or in any other capacity while serving as a
Director, shall be indemnified and held harmless by the Corporation to
the fullest extent permissible under Delaware law, as the same exists
or may hereafter exist in the future (but, in the case of any future
change, only to the extent that such change permits the Corporation to
provide broader indemnification rights than the law permitted prior to
such change), against all costs, charges, expenses, liabilities and
losses (including, without limitation, attorneys' fees, judgments,
fines, Employee Retirement Income Security Act of 1974 ("ERISA")
excise taxes, or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by such person in
connection therewith, and such indemnification shall continue as to a
person who has ceased to be a Director and shall inure to the benefit
of his or her heirs, executors and administrators.
(b) The Corporation shall pay expenses actually incurred
in connection with any proceeding in advance of its final disposition;
provided, however, that if Delaware law then requires, the payment of
such expenses incurred in advance of the final disposition of a
proceeding shall be made only upon delivery to the Corporation of an
undertaking, by or on behalf of such Director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such
Director or officer is not entitled to be indemnified.
(c) If a claim under subsection 9.2(a) hereof is not paid
in full by the Corporation within thirty (30) days after a written
claim has been received by the Corporation, the claimant may at any
time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim and, if successful in whole or in part, the
claimant shall be entitled to be paid also the expense of prosecuting
such claim. Neither the failure of the Corporation (including its
Board of Directors, independent legal counsel or its stockholders) to
have made a determination that indemnification of the claimant is
permissible in the circumstances because the claimant has met the
applicable standard of conduct, if any, nor an actual determination by
the Corporation (including its Board of Directors, independent legal
counsel or its stockholders) that the claimant has not met the
standard of conduct, shall be a defense to the action or create a
presumption that the claimant has not met the standard of conduct.
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SECTION 9.3 INDEMNIFICATION OF OFFICERS, EMPLOYEES AND AGENTS.
The Corporation may provide indemnification to employees and agents of the
Corporation to the fullest extent permissible under Delaware law.
SECTION 9.4 EXPENSES AS A WITNESS. To the extent that any
Director, officer, employee or agent of the Corporation is, by reason of such
position, or position with another entity at the request of the Corporation, a
witness in any action, suit or proceeding, he or she shall be indemnified
against all costs and expenses actually and reasonably incurred by him or her
on his or her behalf in connection therewith.
SECTION 9.5 INSURANCE. The Corporation may maintain insurance, at
its expense, to protect itself and any Director, officer, employee or agent of
the Corporation or another corporation, partnership, joint venture, trust or
other enterprise against any such expense, liability or loss, whether or not
the Corporation would have the power to indemnify such person against such
expense, liability or loss under Delaware law.
SECTION 9.6 INDEMNITY AGREEMENTS. The Corporation may enter into
agreements with any Director, officer, employee or agent of the Corporation
providing for indemnification to the fullest extent permissible under Delaware
law.
SECTION 9.7 SEPARABILITY. Each and every paragraph, sentence, term
and provision of this Article IX is separate and distinct so that if any
paragraph, sentence, term or provision hereof shall be held to be invalid or
unenforceable for any reason, such invalidity or unenforceability shall not
affect the validity or enforceability of any other paragraph, sentence, term or
provision hereof. To the extent required, any paragraph, sentence, term or
provision of this Article IX may be modified by a court of competent
jurisdiction to preserve its validity and to provide the claimant with, subject
to the limitations set forth in this Article IX and any agreement between the
Corporation and claimant, the broadest possible indemnification permitted under
applicable law.
SECTION 9.8 CONTRACT RIGHT. Each of the rights conferred on
Directors of the Corporation by Sections 9.1, 9.2 and 9.4 of this Article IX,
and on officers, employees or agents of the Corporation by Section 9.4 of this
Article, shall be a contract right, and any repeal or amendment of the
provisions of this Article shall not adversely affect any right hereunder of
any person existing at the time of such repeal or amendment with respect to any
act or omission occurring prior to the time of such repeal or amendment, and,
further, shall not apply to any proceeding, irrespective of when the proceeding
is initiated, arising from the service of such person prior to such repeal or
amendment.
SECTION 9.9 NONEXCLUSIVITY. The rights conferred in this Article
shall not be exclusive of any other rights that any person may have or
hereafter acquire under any statute, Bylaw, agreement, vote of stockholders or
disinterested Directors or otherwise.
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ARTICLE X
The Corporation reserves the right to amend, alter or repeal any
provision contained in this Restated Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are subject to this reservation.
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IN WITNESS WHEREOF, The Bank Corporation has caused this Certificate
to be signed by James A. Taylor, Sr., its Chairman of the Board and Chief
Executive Officer, this 5th day of June, 1998.
THE BANK CORPORATION
By /s/ James A. Taylor, Jr.
------------------------------------
James A. Taylor, Jr.
Secretary
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EXHIBIT (3)-2
================================================================================
BY-LAWS
OF
THE BANC CORPORATION
(A DELAWARE CORPORATION)
================================================================================
<PAGE> 2
TABLE OF CONTENTS*
TO
BY-LAWS
OF
THE BANC CORPORATION
================================================================================
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I
OFFICES
Section 1.1. Location ............................................. 1
Section 1.2. Change of Location.................................... 1
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.1. Annual Meeting.......................................... 1
Section 2.2. Special Meetings........................................ 2
Section 2.3. List of Stockholders Entitled to Vote................... 2
Section 2.4. Notice of Meetings...................................... 3
Section 2.5. Adjourned Meetings and Notice Thereof................... 3
Section 2.6. Quorum.................................................. 3
Section 2.7. Voting.................................................. 4
Section 2.8. Action by Consent of Stockholders....................... 4
</TABLE>
- --------
*The Table of Contents appears here for convenience only and should not be
considered a part of the Bylaws.
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<TABLE>
<S> <C> <C>
ARTICLE III
BOARD OF DIRECTORS
Section 3.1. General Powers.......................................... 5
Section 3.2. Number of Directors..................................... 5
Section 3.3. Qualification........................................... 5
Section 3.4. Election ............................................... 5
Section 3.5. Term ............................................... 6
Section 3.6. Resignation and Removal................................. 6
Section 3.7. Vacancies............................................... 6
Section 3.8. Quorum and Voting....................................... 7
Section 3.9. Regulations............................................. 7
Section 3.10. Annual Meeting.......................................... 8
Section 3.11. Regular Meetings........................................ 8
Section 3.12. Special Meetings........................................ 8
Section 3.13. Notice of Meetings; Waiver of Notice.................... 8
Section 3.14. Committees of Directors................................. 9
Section 3.15. Powers and Duties of Committees......................... 10
Section 3.16. Compensation of Directors............................... 10
Section 3.17. Action Without Meeting.................................. 10
ARTICLE IV
OFFICERS
Section 4.1. Principal Officers...................................... 11
Section 4.2. Election of Principal Officers; Term of Office.......... 11
Section 4.3. Subordinate Officers, Agents and Employees.............. 12
Section 4.4. Delegation of Duties of Officers........................ 12
Section 4.5. Removal of Officers..................................... 12
Section 4.6. Resignations............................................ 12
Section 4.7. Chairman of the Board................................... 12
Section 4.8. President............................................... 13
Section 4.9. Vice President.......................................... 13
Section 4.10. Secretary............................................... 13
Section 4.11. Treasurer............................................... 14
Section 4.12. Controller.............................................. 14
Section 4.13. Bond.................................................... 14
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE V
CAPITAL STOCK
Section 5.1. Issuance of Certificates of Stock....................... 14
Section 5.2. Signatures on Stock Certificates........................ 15
Section 5.3. Stock Ledger............................................ 15
Section 5.4. Regulations Relating to Transfer........................ 15
Section 5.5. Transfers............................................... 16
Section 5.6. Cancellation............................................ 16
Section 5.7. Lost, Destroyed, Stolen and Mutilated Certificates...... 16
Section 5.8. Fixing of Record Dates.................................. 17
ARTICLE VI
INDEMNIFICATION
Section 6.1. Indemnification......................................... 18
Section 6.2. Indemnification Insurance............................... 18
ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 7.1. Corporate Seal.......................................... 19
Section 7.2. Fiscal Year............................................. 19
Section 7.3. Waiver of Notice........................................ 19
Section 7.4. Execution of Instruments, Contracts, Etc................ 20
ARTICLE VIII
AMENDMENTS
Section 8.1. By Stockholders......................................... 20
Section 8.2. By Directors............................................ 21
</TABLE>
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BY-LAWS
OF
THE BANC CORPORATION
ARTICLE I
OFFICES
Section 1.1. Location. The address of the registered office of The Banc
Corporation (the "Corporation") in the State of Delaware and the name of the
registered agent at such address shall be as specified in the Certificate of
Incorporation or, if subsequently changed, as specified in the most recent
Statement of Change filed pursuant to law. The Corporation may also have other
offices at such places within or without the State of Delaware as the Board of
Directors may from time to time designate or the business of the Corporation may
require.
Section 1.2. Change of Location. In the manner permitted by law, the
Board of Directors or the registered agent may change the address of the
Corporation's registered office in the State of Delaware and the Board of
Directors may make, revoke or change the designation of the registered agent.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.1. Annual Meeting. The annual meeting of the stockholders of
the Corporation for the election of Directors and for the transaction of such
other business as may properly come before the meeting shall be held at the
registered office of the Corporation, or at such other place within or without
the State of Delaware as the Board of Directors may fix by resolution or as set
forth in the notice of the meeting. In the event that the Board of Directors
shall not otherwise fix
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the time, date and place of meeting, the annual meeting shall be held at such
place, on such date, and at such time as the Board of Directors shall each year
fix, which date shall be within thirteen (13) months of the last annual meeting
of stockholders or, if no such meeting has been held, the date of incorporation.
Section 2.2. Special Meetings. Special meetings of stockholders, unless
otherwise prescribed by law, may be called at any time by the Chairman of the
Board, by the President or by order of the Board of Directors. Special meetings
of stockholders prescribed by law for the election of Directors shall be called
by the Board of Directors, the Chairman of the Board, the President, or the
Secretary whenever required to do so pursuant to applicable law. Special
meetings of stockholders shall be held at such time and such place, within or
without the State of Delaware, as shall be designated in the notice of meeting.
Section 2.3. List of Stockholders Entitled to Vote. The officer who has
charge of the stock ledger of the Corporation shall prepare and make, or cause
to be prepared and made, at least ten days before every meeting of stockholders,
a complete list, based upon the record date for such meeting determined pursuant
to Section 5.8, of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if such place
shall not be so specified, at the place where the meeting is to be held. The
list also shall be produced and kept at the time and place of the meeting during
the whole time thereof, and may be inspected by any stockholder who is present.
The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list of stockholders
entitled to vote at any meeting, or to inspect the books of the Corporation, or
to vote in person or by proxy at any meeting of stockholders.
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Section 2.4. Notice of Meetings. Written notice of each annual and
special meeting of stockholders, other than any meeting the giving of notice of
which is otherwise prescribed by law, stating the place, date and hour of the
meeting, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called, shall be delivered or mailed, in writing, at least
ten but not more than fifty days before the date of such meeting, to each
stockholder entitled to vote thereat. If mailed, such notice shall be deposited
in the United States mail, postage prepaid, directed to such stockholder at his
address as the same appears on the records of the Corporation. An affidavit of
the Secretary, an Assistant Secretary or the transfer agent of the Corporation
that notice has been duly given shall be evidence of the facts stated therein.
Section 2.5. Adjourned Meetings and Notice Thereof. Any meeting of
stockholders may be adjourned to another time or place, and the Corporation may
transact at any adjourned meeting any business which might have been transacted
at the original meeting. Notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the adjournment
is taken, unless (a) any adjournment or series of adjournments caused the
original meeting to be adjourned for more than thirty days after the date
originally fixed therefor, or (b) a new record date is fixed for the adjourned
meeting. If notice of an adjourned meeting is given, such notice shall be given
to each stockholder of record entitled to vote at the adjourned meeting in the
manner prescribed in Section 2.4 for the giving of notice of meetings.
Section 2.6. Quorum. At any meeting of stockholders, except as
otherwise expressly required by law or by the Certificate of Incorporation, the
holders of record of a majority of the outstanding shares of capital stock
entitled to vote or act at such meeting shall be present or represented by proxy
in order to constitute a quorum for the transaction of any business, but less
than a quorum shall have power to adjourn any meeting until a quorum shall be
present. When a quorum is once present to organize a meeting, the quorum cannot
be destroyed by the subsequent withdrawal or revocation of the proxy of any
stockholder. Shares of capital stock owned by the Corporation or by another
corporation, if a majority of the shares of such other corporation
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entitled to vote in the election of Directors is held by the Corporation, shall
not be counted for quorum purposes or entitled to vote.
Section 2.7. Voting. At any meeting of stockholders, each stockholder
holding, as of the record date, shares of stock entitled to be voted on any
matter at such meeting shall have one vote on each such matter submitted to vote
at such meeting for each such share of stock held by such stockholder, as of the
record date, as shown by the list of stockholders entitled to vote at the
meeting, unless the Certificate of Incorporation provides for more or less than
one vote for any share, on any matter, in which case every reference in these
By-laws to a majority or other proportion of stock shall refer to such majority
or other proportion of the votes of such stock.
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by proxy, provided that no
proxy shall be voted or acted upon after three years from its date, unless the
proxy provides for a longer period. A duly executed proxy shall be irrevocable
if it states that it is irrevocable and if, and only so long as, it is coupled
with an interest, whether in the stock itself or in the Corporation generally,
sufficient in law to support an irrevocable power.
The Board of Directors, the Chairman of the Board, the President, or
the person presiding at a meeting of stockholders may appoint one or more
persons to act as inspectors of voting at any meeting with respect to any matter
to be submitted to a vote of stockholders at such meeting, with such powers and
duties, not inconsistent with applicable law, as may be appropriate.
Section 2.8. Action by Consent of Stockholders. Unless otherwise
provided in the Certificate of Incorporation, whenever any action by the
stockholders at a meeting thereof is required or permitted by law, the
Certificate of Incorporation, or these By-laws, such action may be taken without
a meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by all of the holders of the
outstanding stock having not
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less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted. Prompt notice of the taking of such action without a meeting
and by less than unanimous written consent shall be given to those stockholders
who have not consented in writing.
ARTICLE III
BOARD OF DIRECTORS
Section 3.1. General Powers. The property, business and affairs of the
Corporation shall be managed by or under the direction of a Board of Directors.
The Board of Directors may exercise all such powers of the Corporation and have
such authority and do all such lawful acts and things as are permitted by law,
the Certificate of Incorporation or these By-laws.
Section 3.2. Number of Directors. The Board of Directors of the
Corporation shall consist of one or more members. The exact number of Directors
which shall constitute the whole Board of Directors shall be fixed from time to
time by resolution adopted by a majority of the whole Board of Directors. Until
the number of Directors has been so fixed by the Board of Directors, the number
of Directors constituting the whole Board of Directors shall be thirty (30).
After fixing the number of Directors constituting the whole Board of Directors,
the Board of Directors may, by resolution adopted by a majority of the whole
Board of Directors, from time to time change the number of Directors
constituting the whole Board of Directors.
Section 3.3. Qualification. Directors must be natural persons but need
not be stockholders of the Corporation. Directors who willfully neglect or
refuse to produce a list of stockholders entitled to vote at any meeting for the
election of Directors shall be ineligible for election to any office at such
meeting.
Section 3.4. Election. Except as otherwise provided by law, the
Certificate of Incorporation or these By-laws, after the first meeting of the
Corporation at which Directors are
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elected, Directors of the Corporation shall be elected in each year at the
annual meeting of stockholders, or at a special meeting in lieu of the annual
meeting called for such purpose, by a plurality of votes cast at such meeting.
The voting on Directors at any such meeting shall be by written ballot unless
otherwise provided in the Certificate of Incorporation.
Section 3.5. Term. Each Director shall hold office until his successor
is duly elected and qualified, except in the event of the earlier termination of
his term of office by reason of death, resignation, removal or other reason.
Section 3.6. Resignation and Removal. Any Director may resign at any
time upon written notice to the Board of Directors, the Chairman of the Board,
the President or the Secretary. The resignation of any Director shall take
effect upon receipt of notice thereof or at such later time as shall be
specified in such notice, and unless otherwise specified therein, the acceptance
of such resignation shall not be necessary to make it effective.
Any Director or the entire Board of Directors may be removed, with or
without cause, by the holders of a majority of the shares of capital stock then
entitled to vote at an election of Directors, except as otherwise provided by
applicable law.
Section 3.7. Vacancies. Vacancies in the Board of Directors and newly
created Directorships resulting from any increase in the authorized number of
Directors shall be filled by a majority of the Directors then in office, though
less than a quorum, or by a sole remaining Director.
If one or more Directors shall resign from the Board of Directors
effective at a future date, a majority of the Directors then in office,
including those who have so resigned at a future date, shall have power to fill
such vacancy or vacancies, the vote thereon to take effect and the vacancy to be
filled when such resignation or resignations shall become effective, and each
Director so chosen shall hold office as provided in this Section 3.7 in the
filling of other vacancies.
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Each Director chosen to fill a vacancy on the Board of Directors shall
hold office until the next annual election of Directors and until his successor
shall be elected and qualified.
Section 3.8. Quorum and Voting. Unless the Certificate of Incorporation
provides otherwise, at all meetings of the Board of Directors, a majority of the
total number of Directors shall be present to constitute a quorum for the
transaction of business. A Director interested in a contract or transaction may
be counted in determining the presence of a quorum at a meeting of the Board of
Directors which authorizes the contract or transaction. In the absence of a
quorum, a majority of the Directors present may adjourn the meeting until a
quorum shall be present.
Unless the Certificate of Incorporation provides otherwise, members of
the Board of Directors or any committee designated by the Board of Directors may
participate in a meeting of the Board of Directors or such committee by means of
a conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in
such a meeting shall constitute presence in person at such meeting.
The vote of the majority of the Directors present at a meeting at which
a quorum is present shall be the act of the Board of Directors unless the
Certificate of Incorporation or these By-laws shall require a vote of a greater
number.
Section 3.9. Regulations. The Board of Directors may adopt such rules
and regulations for the conduct of the business and management of the
Corporation, not inconsistent with law or the Certificate of Incorporation or
these By-laws, as the Board of Directors may deem proper. The Board of Directors
may hold its meetings and cause the books and records of the Corporation to be
kept at such place or places within or without the State of Delaware as the
Board of Directors may from time to time determine. A member of the Board of
Directors, or a member of any committee designated by the Board of Directors
shall, in the performance of his duties, be fully protected in relying in good
faith upon the books of account or reports made to the Corporation by any of its
officers, by an independent certified public accountant, or by an appraiser
selected
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with reasonable care by the Board of Directors or any committee of the Board of
Directors or in relying in good faith upon other records of the Corporation.
Section 3.10. Annual Meeting. An annual meeting of the Board of
Directors shall be called and held for the purpose of organization, election of
officers and transaction of any other business. If such meeting is held promptly
after and at the place specified for the annual meeting of stockholders, no
notice of the annual meeting of the Board of Directors need be given. Otherwise,
such annual meeting shall be held at such time (not more than thirty days after
the annual meeting of stockholders) and place as may be specified in a notice of
the meeting.
Section 3.11. Regular Meetings. Regular meetings of the Board of
Directors shall be held at the time and place, within or without the State of
Delaware, as shall from time to time be determined by the Board of Directors.
After there has been such determination and notice thereof has been given to
each member of the Board of Directors, no further notice shall be required for
any such regular meeting. Except as otherwise provided by law, any business may
be transacted at any regular meeting.
Section 3.12. Special Meetings. Special meetings of the Board of
Directors may, unless otherwise prescribed by law, be called from time to time
by the Chairman of the Board or the President, and shall be called by the
Chairman of the Board, the President or the Secretary upon the written request
of a majority of the whole Board of Directors directed to the Chairman of the
Board, the President or the Secretary. Except as provided below, notice of any
special meeting of the Board of Directors, stating the time, place and purpose
of such special meeting, shall be given to each Director.
Section 3.13. Notice of Meetings; Waiver of Notice. Notice of any
meeting of the Board of Directors shall be deemed to be duly given to a Director
(i) if mailed to such Director addressed to him at his address as it appears
upon the books of the Corporation, or at the address last made known in writing
to the Corporation by such Director as the address to which such notices are to
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be sent, at least five days before the day on which such meeting is to be held,
or (ii) if sent to him at such address by telegraph, cable, radio or wireless
not later than the day before the day on which such meeting is to be held, or
(iii) if delivered to him personally or orally, by telephone or otherwise, not
later than the day before the day on which such meeting is to be held. Each such
notice shall state the time and place of the meeting and the purposes thereof.
Notice of any meeting of the Board of Directors need not be given to
any Director if waived by him in writing (or by telegram, cable, radio or
wireless and confirmed in writing) whether before or after the holding of such
meeting, or if such Director is present at such meeting. Any meeting of the
Board of Directors shall be a duly constituted meeting without any notice
thereof having been given if all Directors then in office shall be present
thereat.
Section 3.14. Committees of Directors. The Board of Directors may, by
resolution or resolutions passed by a majority of the whole Board of Directors,
designate one or more committees, each committee to consist of one or more of
the Directors of the Corporation.
Except as hereinafter provided, vacancies in membership of any
committee shall be filled by the vote of a majority of the whole Board of
Directors. The Board of Directors may designate one or more Directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of
any member of a committee (and his alternate appointed pursuant to the
immediately preceding sentence, if any), the member or members thereof present
at any meeting and not disqualified from voting, whether or not he or they
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member. Members of a committee shall hold office for such period as may be fixed
by a resolution adopted by a majority of the whole Board of Directors, subject,
however, to removal at any time by the vote of a majority of the whole Board of
Directors.
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Section 3.15. Powers and Duties of Committees. Any committee, to the
extent provided in the resolution or resolutions creating such committee, shall
have and may exercise all the powers and authority of the Board of Directors in
the management of the business and affairs of the Corporation, and may authorize
the seal of the Corporation to be affixed to all papers which may require it. No
such committee shall have the power or authority with regard to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending the By-laws. The Board of Directors may, in the resolution creating
a committee, grant to such committee the power and authority to declare a
dividend or authorize the issuance of stock.
Each committee may adopt its own rules of procedure and may meet at
stated times or on such notice as such committee may determine. Except as
otherwise permitted by these By-laws, each committee shall keep regular minutes
of its proceedings and report the same to the Board of Directors when required.
Section 3.16. Compensation of Directors. Each Director shall be
entitled to receive for attendance at each meeting of the Board of Directors or
any duly constituted committee thereof which he attends, such fee as is fixed by
the Board and in connection therewith shall be reimbursed by the Corporation for
travel expenses. The fees to such Directors may be fixed in unequal amounts
among them, taking into account their respective relationships to the
Corporation in other capacities. These provisions shall not be construed to
preclude any Director from receiving compensation in serving the Corporation in
any other capacity.
Section 3.17. Action Without Meeting. Unless otherwise restricted by
the Certificate of Incorporation, any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee thereof may be
taken without a meeting if a written consent thereto is signed by all members of
the Board of Directors or of such committee, as the case may be, and
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such written consent is filed with the minutes of proceedings of the Board of
Directors or such committee.
ARTICLE IV
OFFICERS
Section 4.1. Principal Officers. The principal officers of the
Corporation shall be elected by the Board of Directors and may include a
Chairman of the Board, a President, a Secretary and a Treasurer and may, at the
discretion of the Board of Directors, also include a Vice Chairman of the Board,
one or more Vice Presidents, and a Controller. Except as otherwise provided in
the Certificate of Incorporation or these By-laws, one person may hold the
offices and perform the duties of any two or more of said principal offices
except the offices and duties of President and Vice President or of Chairman of
the Board or President and Secretary. None of the principal officers need be
Directors of the Corporation.
Section 4.2. Election of Principal Officers; Term of Office. The
principal officers of the Corporation shall be elected annually by the Board of
Directors at such annual meeting of the Board of Directors. Failure to elect any
principal officer annually shall not dissolve the Corporation.
If the Board of Directors shall fail to fill any principal office at an
annual meeting, or if any vacancy in any principal office shall occur, or if any
principal office shall be newly created, such principal office may be filled at
any regular or special meeting of the Board of Directors.
Each principal officer shall hold office until his successor is duly
elected and qualified, or until his earlier death, resignation or removal,
provided that the terms of office of all Vice Presidents shall terminate at any
annual meeting of the Board of Directors at which the President is elected.
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Section 4.3. Subordinate Officers, Agents and Employees. In addition to
the principal officers, the Corporation may have one or more Assistant
Treasurers, Assistant Secretaries, and such other subordinate officers, agents
and employees as the Board of Directors may deem advisable, each of whom shall
hold office for such period and have such authority and perform such duties as
the Board of Directors, the Chairman of the Board, the President, or any officer
designated by the Board of Directors, may from time to time determine. The Board
of Directors at any time may appoint and remove, or may delegate to any
principal officer the power to appoint and to remove, any subordinate officer,
agent or employee of the Corporation.
Section 4.4. Delegation of Duties of Officers. The Board of Directors
may delegate the duties and powers of any officer of the Corporation to any
other officer or to any Director for a specified period of time for any reason
that the Board of Directors may deem sufficient.
Section 4.5. Removal of Officers. Any officer of the Corporation may be
removed, with or without cause, by resolution adopted by a majority of the
Directors then in office at any regular or special meeting of the Board of
Directors or by a written consent signed by all of the Directors then in office.
Section 4.6. Resignations. Any officer may resign at any time by giving
written notice of resignation to the Board of Directors, to the Chairman of the
Board, to the President or to the Secretary. Any such resignation shall take
effect upon receipt of such notice or at any later time specified therein.
Unless otherwise specified in the notice, the acceptance of a resignation shall
not be necessary to make the resignation effective.
Section 4.7. Chairman of the Board. The Chairman of the Board shall
preside at all meetings of stockholders and of the Board of Directors at which
he is present. The Chairman of the Board shall have such other powers and
perform such other duties as may be assigned to him from time to time by the
Board of Directors.
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Section 4.8. President. The President shall, in the absence of the
Chairman of the Board, preside at all meetings of the stockholders and of the
Board of Directors at which he is present. The President shall be the chief
executive officer of the Corporation and shall have general supervision over the
business and affairs of the Corporation and shall be responsible for carrying
out the policies and objectives established by the Board of Directors. The
President shall have all powers and duties usually incident to the office of the
President, except as specifically limited by a resolution of the Board of
Directors. The President shall have such other powers and perform such other
duties as may be assigned to him from time to time by the Board of Directors.
Section 4.9. Vice President. In the absence or disability of the
President or if the office of President be vacant, the Vice Presidents in the
order determined by the Board of Directors, or if no such determination has been
made, in the order of their seniority, shall perform the duties and exercise the
powers of the President, subject to the right of the Board of Directors at any
time to extend or confine such powers and duties or to assign them to others.
Any Vice President may have such additional designation in his title as the
Board of Directors may determine. The Vice Presidents shall generally assist the
President in such manner as the President shall direct. Each Vice President
shall have such other powers and perform such other duties as may be assigned to
him from time to time by the Board of Directors or the President.
Section 4.10. Secretary. The Secretary shall act as Secretary of all
meetings of stockholders and of the Board of Directors at which he is present,
shall record all the proceedings of all such meetings in a book to be kept for
that purpose, shall have supervision over the giving and service of notices of
the Corporation, and shall have supervision over the care and custody of the
records and seal of the Corporation. The Secretary shall be empowered to affix
the corporate seal to documents, the execution of which on behalf of the
Corporation under its seal is duly authorized, and when so affixed may attest
the same. The Secretary shall have all powers and duties usually incident to the
office of Secretary, except as specifically limited by a resolution of the Board
of Directors. The Secretary shall have such other powers and perform such other
duties as may be assigned to him from time to time by the Board of Directors or
the President.
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Section 4.11. Treasurer. The Treasurer shall have general supervision
over the care and custody of the funds and over the receipts and disbursements
of the Corporation and shall cause the funds of the Corporation to be deposited
in the name of the Corporation in such banks or other depositaries as the Board
of Directors may designate. The Treasurer shall have supervision over the care
and safekeeping of the securities of the Corporation. The Treasurer shall have
all powers and duties usually incident to the office of Treasurer, except as
specifically limited by a resolution of the Board of Directors. The Treasurer
shall have such other powers and perform such other duties as may be assigned to
him from time to time by the Board of Directors or the President.
Section 4.12. Controller. The Controller shall be the chief accounting
officer of the Corporation and shall have supervision over the maintenance and
custody of the accounting operations of the Corporation, including the keeping
of accurate accounts of all receipts and disbursements and all other financial
transactions. The Controller shall have all powers and duties usually incident
to the office of Controller, except as specifically limited by a resolution of
the Board of Directors. The Controller shall have such other powers and perform
such other duties as may be assigned to him from time to time by the Board of
Directors or the President.
Section 4.13. Bond. The Board of Directors shall have power, to the
extent permitted by law, to require any officer, agent or employee of the
Corporation to give bond for the faithful discharge of his duties in such form
and with such surety or sureties as the Board of Directors may determine.
ARTICLE V
CAPITAL STOCK
Section 5.1. Issuance of Certificates of Stock. Each stockholder of
the Corporation shall be entitled to a certificate or certificates in such form
as shall be approved by the Board of Directors, certifying the number of shares
of capital stock of the Corporation owned by such stockholder.
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Section 5.2. Signatures on Stock Certificates. Certificates for shares
of capital stock of the Corporation shall be signed by, or in the name of the
Corporation by, the Chairman of the Board, the President or a Vice President and
by, or in the name of the corporation by, the Secretary, the Treasurer, an
Assistant Secretary or an Assistant Treasurer. Any of or all the signatures on
the certificates may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, such certificate may be issued by the
Corporation with the same effect as if such signer were such officer at the date
of issue.
Section 5.3. Stock Ledger. A record of all certificates for capital
stock issued by the Corporation shall be kept by the Secretary or any other
officer or employee of the Corporation designated by the Secretary or by any
transfer clerk or transfer agent appointed pursuant to Section 5.4 hereof. Such
record shall show the name and address of the person, firm or corporation in
which certificates for capital stock are registered, the number of shares
represented by each such certificate, the date of each such certificate, and in
case of certificates which have been canceled, the dates of cancellation
thereof.
The Corporation shall be entitled to treat the holder of record of
shares of capital stock as shown on the stock ledger as the owner thereof and as
the person entitled to receive dividends thereon, to vote such shares and to
receive notice of meetings, and for all other purposes. The Corporation shall
not be bound to recognize any equitable or other claim to or interest in any
share of capital stock on the part of any other person whether or not the
Corporation shall have express or other notice thereof.
Section 5.4. Regulations Relating to Transfer. The Board of Directors
may make such rules and regulations as it may deem expedient, not inconsistent
with law, the Certificate of Incorporation or these By-laws, concerning
issuance, transfer and registration of certificates for shares of capital stock
of the Corporation. The Board of Directors may appoint, or authorize any
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principal officer to appoint, one or more transfer clerks or one or more
transfer agents and one or more registrars and may require all certificates for
capital stock to bear the signature or signatures of any of them.
Section 5.5. Transfers. Transfers of capital stock shall be made on the
books of the Corporation only upon delivery to the Corporation or its transfer
agent of (i) a written direction of the registered holder named in the
certificate or such holder's attorney lawfully constituted in writing, (ii) the
certificate for the shares of capital stock being transferred, and (iii) a
written assignment of the shares of capital stock evidenced thereby.
Section 5.6. Cancellation. Each certificate for capital stock
surrendered to the Corporation for exchange or transfer shall be canceled and no
new certificate or certificates shall be issued in exchange for any existing
certificate (other than pursuant to Section 5.7) until such existing certificate
shall have been canceled.
Section 5.7. Lost, Destroyed, Stolen and Mutilated Certificates. In the
event that any certificate for shares of capital stock of the Corporation shall
be mutilated, the Corporation shall issue a new certificate in place of such
mutilated certificate. In case any such certificate shall be lost, stolen or
destroyed, the Corporation may, in the discretion of the Board of Directors or a
committee designated thereby with power so to act, issue a new certificate for
capital stock in the place of any such lost, stolen or destroyed certificate.
The applicant for any substituted certificate or certificates shall surrender
any mutilated certificate or, in the case of any lost, stolen or destroyed
certificate, furnish satisfactory proof of such loss, theft or destruction of
such certificate and of the ownership thereof. The Board of Directors or such
committee may, in its discretion, require the owner of a lost or destroyed
certificate, or his representatives, to furnish to the Corporation a bond with
an acceptable surety or sureties and in such sum as will be sufficient to
indemnify the Corporation against any claim that may be made against it on
account of the lost, stolen or destroyed certificate or the issuance of such new
certificate. A new certificate may be
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issued without requiring a bond when, in the judgment of the Board of Directors,
it is proper to do so.
Section 5.8. Fixing of Record Dates.
(a) The Board of Directors may fix, in advance, a record date, which
shall not be more than fifty nor less than ten days before the date of any
meeting of stockholders, nor more than fifty days prior to any other action, for
the purpose of determining stockholders entitled to notice of or to vote at such
meeting of stockholders or any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or to receive payment of any
dividend or other distribution or allotment of any rights, or to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action.
(b) If no record date is fixed by the Board of Directors:
(i) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close
of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held;
(ii) The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when
no prior action by the Board of Directors is necessary, shall be the
day on which the first consent is expressed;
(iii) The record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
(c) A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided that the Board of Directors may fix a new record date for the
adjourned meeting.
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ARTICLE VI
INDEMNIFICATION
Section 6.1. Indemnification. The Corporation shall, to the full extent
permitted by applicable law, indemnify any person (and the heirs, executors and
administrators of such person) who, by reason of the fact that he is or was a
Director, officer, employee or agent of the Corporation or of a constituent
corporation absorbed by the Corporation in a consolidation or merger or is or
was serving at the request of the Corporation or such constituent corporation as
a director, officer, employee or agent of any other corporation, partnership,
joint venture, trust or other enterprise, was or is a party or is threatened to
be a party to:
(a) any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation), against
expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in
connection with any such action, suit or proceeding, or,
(b) any threatened, pending or completed action or suit by or
in the right of the Corporation to procure a judgment in its favor,
against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such
action or suit.
Any indemnification by the Corporation pursuant hereto shall be made
only in the manner and to the extent authorized by applicable law, and any such
indemnification shall not be deemed exclusive of any other rights to which those
seeking indemnification may otherwise be entitled.
Section 6.2. Indemnification Insurance. The Corporation shall have
power to purchase and maintain insurance on behalf of any person who is or was a
Director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a Director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any such
capacity, or
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arising out of his status as such, whether or not the Corporation would have the
power to indemnify him against such liability under applicable law.
ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 7.1. Corporate Seal. The seal of the Corporation shall be
circular in form with the name of the Corporation in the circumference and the
words "Corporate Seal, Delaware" in the center. The seal may be used by causing
it to be affixed or impressed, or a facsimile thereof may be reproduced or
otherwise used in such manner as the Board of Directors may determine.
Section 7.2. Fiscal Year. The fiscal year of the Corporation shall be
fixed by the Board of Directors.
Section 7.3. Waiver of Notice. Whenever any notice is required to be
given under any provision of law, the Certificate of Incorporation, or these
By-laws, a written waiver thereof, signed by the person or persons entitled to
such notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the stockholders, Directors, or members of
a committee of Directors, need be specified in any written waiver of notice
unless so required by the Certificate of Incorporation.
Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened.
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Section 7.4. Execution of Instruments, Contracts, Etc.
(a) All checks, drafts, bills of exchange, notes or other obligations
or orders for the payment of money shall be signed in the name of the
Corporation by the President or such other officer or officers or person or
persons, as the Board of Directors may from time to time designate.
(b) Except as otherwise provided by law, the Board of Directors, any
committee given specific authority in the premises by the Board of Directors, or
any committee given authority to exercise generally the powers of the Board of
Directors during the intervals between meetings of the Board of Directors, may
authorize any officer, employee or agent, in the name of and on behalf of the
Corporation, to enter into or execute and deliver deeds, bonds, mortgages,
contracts and other obligations or instruments, and such authority may be
general or confined to specific instances.
(c) All applications, written instruments and papers required by or
filed with any department of the United States Government or any state, county,
municipal or other governmental official or authority, may, if permitted by
applicable law, be executed in the name of the Corporation by any principal
officer or subordinate officer of the Corporation, or, to the extent designated
for such purpose from time to time by the Board of Directors, by an employee or
agent of the Corporation. Such designation may contain the power to substitute,
in the discretion of the person named, one or more other persons.
ARTICLE VIII
AMENDMENTS
Section 8.1. By Stockholders. These By-laws may be amended, altered or
repealed, or new By-laws may be adopted, at any meeting of stockholders by the
vote of the holders of not less than a majority of the outstanding shares of
stock entitled to vote thereat, provided that, in the case
20
<PAGE> 25
of a special meeting, notice that an amendment is to be considered and acted
upon shall be inserted in the notice or waiver of notice of said meeting.
Section 8.2. By Directors. To the extent permitted by the Certificate
of Incorporation, these By-laws may be amended, altered or repealed, or new
By-laws may be adopted, at any regular or special meeting of the Board of
Directors by the affirmative vote of a majority of the whole Board.
21
<PAGE> 1
EXHIBIT (5)
LAW OFFICES HASKELL
SLAUGHTER & YOUNG, L.L.C.
1200 AMSOUTH/HARBERT PLAZA
1901 SIXTH AVENUE NORTH
BIRMINGHAM, ALABAMA 35203-2618
FACSIMILE (205) 324-1133
TELEPHONE (205) 251-1000
[FORM OF OPINION]
September ___, 1998
The Banc Corporation
17 North 20th Street
Birmingham, AL 35203
RE: REGISTRATION STATEMENT ON FORM S-4 --
THE BANC CORPORATION
OUR FILE NO. 83621-003
Gentlemen:
We have served as counsel for The Banc Corporation, a corporation
organized and existing under the laws of the State of Delaware (the
"Corporation"), in connection with the registration under the Securities Act of
1933, as amended, pursuant to the Corporation's Registration Statement on Form
S-4, as amended (Commission File No. 333-58493) (the "Registration Statement"),
of up to 4,042,722 shares of Common Stock, par value $.001 per share, of the
Corporation (the "Shares") to be issued pursuant to that certain Third Amended
and Restated Agreement and Plan of Merger, dated as of April 6,1998, by and
among the Corporation, Warrior Capital Corporation, The Bank and Commerce Bank
of Alabama, that certain Third Amended and Restated Reorganization Agreement and
Plan of Merger, dated April 15, 1998, by and among the Corporation, Warrior
Capital Corporation and First Citizens Bancorp, Inc., and that certain Second
Amended and Restated Reorganization Agreement and Plan of Merger, dated June 16,
1998, by and among the Corporation, Warrior Capital Corporation and City
National Corporation (collectively the "Agreements"). This opinion is furnished
to you pursuant to the requirements of Form S-4. .
<PAGE> 2
The Banc Corporation
September __, 1998
Page 2
In connection with this opinion, we have examined and are familiar with
originals or copies (certified or otherwise identified to our satisfaction) of
such documents, corporate records and other instruments relating to the
incorporation of the Corporation and to the authorization and issuance of the
Shares and the authorization and adoption of the Agreements as we have deemed
necessary and appropriate.
Based upon the foregoing, and having regard for such legal
considerations as we have deemed relevant, it is our opinion that:
1. The Shares have been duly authorized.
2. Upon issuance, sale and delivery of the Shares as contemplated
in the Registration Statement and the Agreements, the Shares will be legally
issued, fully paid and nonassessable.
We do hereby consent to the reference to our firm under the heading
"Legal Matters" in the Registration Statement and to the filing of this Opinion
as an Exhibit thereto.
Very truly yours,
HASKELL SLAUGHTER & YOUNG, L.L.C.
By
------------------------------------------
Robert E. Lee Garner
<PAGE> 1
EXHIBIT (8)-1
________ ___, 1998
The Banc Corporation
17 North 20th Street
Birmingham, Alabama 35203
RE: THIRD AMENDED AND RESTATED REORGANIZATION AGREEMENT AND PLAN
OF MERGER BY AND AMONG WARRIOR CAPITAL CORPORATION, THE BANC
CORPORATION, THE BANK AND COMMERCE BANK OF ALABAMA
Gentlemen:
We have acted as counsel to The Banc Corporation, a Delaware
corporation ("TBC"), in connection with the proposed merger (the "Merger") of
Commerce Bank of Alabama, an Alabama corporation ("Commerce"), with and into The
Bank, an Alabama corporation ("The Bank") and 99.75%-owned subsidiary of TBC,
pursuant to the terms of the Third Amended and Restated Reorganization
Agreement and Plan of Merger, dated as of April 6, 1998 (the "Plan of Merger"),
by and among Warrior Capital Corporation, an Alabama corporation, TBC, The Bank
and Commerce, as described in more detail in the Plan of Merger and in the
Registration Statement on Form S-4 (Commission File No. 333-58493) to be filed
by TBC with the Securities and Exchange Commission, as amended (the
"Registration Statement"). This opinion is being provided in satisfaction of the
conditions set forth in Section 7.3(f) of the Plan of Merger. All capitalized
terms, unless otherwise specified, have the meaning assigned to them in the
Registration Statement.
In connection with this opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
(i) the Plan of Merger, (ii) the Registration Statement, and (iii) such other
documents as we have deemed necessary or appropriate in order to enable us to
render the opinion below. In our examination, we have assumed the genuineness of
all signatures, the legal capacity of all natural persons, the authenticity of
all documents submitted to us as originals, the conformity to original documents
of all documents submitted to us as certified, conformed or photostatic copies
and the authenticity of the originals of such copies. In rendering the opinion
set forth below, we have relied upon certain written representations and
covenants of TBC, The Bank, Commerce and the Commerce shareholders which are
annexed hereto (the "Representations and Warranties").
In rendering our opinion, we have considered the applicable provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations, pertinent judicial authorities, interpretive rulings of the
Internal Revenue Service and such other authorities as we have considered
relevant.
-1-
<PAGE> 2
Based upon and subject to the foregoing and assuming that, as of the
Effective Time of the Merger and following the Merger there will be no acts or
omissions which will violate or be inconsistent with any of the Representations
and Warranties, we are of the opinion that:
(i) Provided the Merger qualifies as a statutory merger
under the Alabama Business Corporation Act, the Merger will constitute
a reorganization within the meaning of Section 368(a) of the Code, and
TBC, The Bank and Commerce will each be a "party to the reorganization"
within the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by TBC, The Bank
or Commerce as a result of the Merger;
(iii) No gain or loss will be recognized by a Commerce
shareholder who receives solely shares of TBC Common Stock in exchange
for Commerce Common Stock;
(iv) The receipt of cash by a Commerce shareholder in lieu
of fractional shares of TBC Common Stock will be treated as if the
fractional shares were distributed as part of the exchange and then
were redeemed by TBC. These payments will be treated as having been
received as distributions in full payment in exchange for the stock
redeemed as provided in Section 302(a) of the Code, provided the
redemption is not essentially equivalent to a dividend;
(v) The tax basis of the shares of TBC Common Stock
received by a Commerce shareholder will be equal to the tax bases of
the Commerce Common Stock exchanged therefor, excluding any basis
allocable to a fractional share of TBC Common Stock for which cash is
received; and
(vi) The holding period of the shares of TBC Common Stock
received by a Commerce shareholder will include the holding period or
periods of the Commerce Common Stock exchanged therefor, provided that
the Commerce Common Stock are held as a capital asset within the
meaning of Section 1221 of the Code at the Effective Time of the
Merger.
Except as set forth above, we express no opinion as to the tax
consequences, whether federal, state, local or foreign, to any party to the
Merger or of any transactions related to the Merger or contemplated by the Plan
of Merger.
-2-
<PAGE> 3
We hereby consent to the reference to our Firm under the heading "Legal
Matters" in the Prospectuses which form a part of the Registration Statement,
and to the filing of this opinion as an Exhibit thereto.
Very truly yours,
-3-
<PAGE> 1
EXHIBIT (8)-2
[FORM OF TAX OPINION OF BALCH & BINGHAM LLP]
, 1998
-------------
Commerce Bank of Alabama
Post Office Box 460
Albertville, Alabama 35950
Ladies and Gentlemen:
We have acted as special counsel to the Commerce Bank of Alabama, an
Alabama corporation ("Commerce"), in connection with certain transactions to be
undertaken pursuant to the Second Amended and Restated Reorganization Agreement
and Plan of Merger dated as of April 6, 1998 (the "Plan of Merger") by and among
Commerce, Warrior Capital Corporation, an Alabama corporation ("Warrior"), The
Banc Corp, a Delaware corporation ("TBC") and The Bank, an Alabama corporation
and 99.75% owned subsidiary of TBC (the "Bank"), and in connection with the
filing of a Registration Statement on Form S-4 Registration No. 333-58493 (the
"Registration Statement") by TBC in connection therewith. Commerce will merge
with and into the Bank with the Bank surviving the merger (the "Commerce
Merger") pursuant to the Plan of Merger. This opinion is being delivered
pursuant to Section 3.2(b) of the Plan of Merger.
Except as otherwise provided, capitalized terms not defined herein have
the meanings set forth in the Registration Statement or in certificates
delivered to us by Commerce and TBC (the "Certificates"). All section
references, unless otherwise indicated, are to the Internal Revenue Code of
1986, as amended (the "Code").
For the purpose of rendering this opinion, we have examined originals,
certified copies or copies otherwise identified to our satisfaction as being
true copies of the original of the following documents (including all exhibits
and schedules attached thereto):
(a) the Plan of Merger;
(b) the Management Certificate signed by an authorized
officer of TBC and the Bank and attached as Exhibit
A;
<PAGE> 2
Commerce Bank of Alabama
, 1998
- ---------------------- --------
Page 2
(c) the Management Certificate signed by an authorized
officer of Commerce and attached as Exhibit B;
(d) the Registration Statement; and
(e) such other instruments and documents related to the
consummation of the Merger and the transactions
contemplated thereby as we have deemed necessary or
appropriate.
In connection with rendering this opinion, we have assumed (without any
independent investigation or review thereof):
1. that original documents (including signatures) are
authentic, documents submitted to us as copies conform to the original
documents, and there is (or will be prior to the Closing) due execution and
delivery of all documents where due execution and delivery are a prerequisite to
the effectiveness thereof;
2. the truth and accuracy at all relevant times
(including the Effective Time), of all representations, warranties and
statements made or agreed to by Commerce, the Bank and TBC, their managements,
employees, officers, directors and stockholders in connection with the Commerce
Merger, including but not limited to those set forth in the Plan of Merger and
the Certificates; that any such representation, warranty or statement made "to
the best knowledge of" or otherwise similarly qualified is correct without such
qualification; that all covenants contained in such Plan of Merger are performed
without waiver or breach of any material provision thereof;
3. that no outstanding indebtedness of Commerce, the
Bank or TBC has or will represent equity for tax purposes; no outstanding equity
of Commerce, the Bank or TBC has represented or will represent indebtedness for
tax purposes; no outstanding security, instrument, agreement or arrangement that
provides for, contains or represents either a right to acquire Commerce Common
Stock or to share in the appreciation thereof constitutes or will constitute
"stock" for purposes of Section 368(c) of the Code; and
4. that the Commerce Merger will be consummated pursuant
to the Plan of Merger and will be effective under applicable state law.
<PAGE> 3
Commerce Bank of Alabama
, 1998
- ---------------------- --------
Page 3
Based on our examination of the foregoing items and subject to the
limitations, qualifications and assumptions set forth herein, we are of the
opinion that for federal income tax purposes:
(i) The Commerce Merger will constitute a reorganization
within the meaning of Section 368(a) of the Code, and TBC, the Bank and Commerce
will each be a party to the reorganization within the meaning of Section 368(b)
of the Code;
(ii) No gain or loss will be recognized by TBC, Commerce
or the Bank as a result of the Commerce Merger;
(iii) No gain or loss will be recognized by a Commerce
shareholder who receives solely shares of TBC Common Stock in exchange for
Commerce Common Stock;
(iv) The receipt of cash in lieu of fractional shares of
TBC Common Stock will be treated as if the fractional shares were distributed as
part of the exchange and then were redeemed by TBC. These payments will be
treated as having been received as distributions in full payment in exchange for
the stock redeemed as provided in Section 302(a) of the Code, provided the
redemption is not essentially equivalent to a dividend;
(v) The aggregate tax basis of the shares of TBC Common
Stock received by a Commerce shareholder will be equal to the aggregate tax
basis of the Commerce Common Stock exchanged therefor, excluding any basis
allocable to a fractional share of TBC Common Stock for which cash is received;
(vi) The holding period of the shares of TBC Common Stock
received by a Commerce shareholder will include the holding period or periods of
the Commerce Common Stock exchanged therefor, provided that the Commerce Common
Stock is held as a capital asset within the meaning of Section 1221 of the Code
at the Effective Time.
This opinion does not address the various state, local or foreign tax
consequences that may result from the Commerce Merger. In addition, no opinion
is expressed as to any federal income tax consequence of the Commerce Merger
except as specifically set forth herein and this opinion may not be relied upon
except with respect to the consequences specifically discussed herein. In
particular, we express no opinion regarding, among other things (i) the tax
consequences of the Commerce Merger that may be relevant to particular
securityholders of Commerce such as dealers in securities, foreign persons,
holders of options or warrants, and holders of shares acquired upon exercise of
stock options or in other compensatory transactions, (ii) the tax consequences
to Commerce shareholders of other transactions effected prior to or after the
Commerce Merger
<PAGE> 4
Commerce Bank of Alabama
, 1998
- ---------------------- --------
Page 4
(whether or not such transactions are consummated in connection with the
Commerce Merger), and (iii) the tax consequences of the Commerce Merger to
Commerce, the Bank and TBC under Section 1502 of the Code and the Income Tax
Regulations issued thereunder.
No opinion is expressed as to any transactions other than the Commerce
Merger as described in the Plan of Merger or to any other transaction whatsoever
including the Commerce Merger if all the transactions described in the Plan of
Merger are not consummated in accordance with their terms and without waiver of
any material provision thereof. To the extent any of the representations,
warranties, statements and assumptions material to our opinion and upon which we
have relied are not complete, correct, true and accurate in all material
respects at all relevant times, our opinion would be adversely affected and
should not be relied upon.
This opinion only represents our best judgment as to the federal income
tax consequences of the Commerce Merger and is not binding on the Internal
Revenue Service or the courts. The conclusions are based on the Code, existing
judicial decisions, administration regulations and published rulings. No
assurance can be given that future legislative, judicial or administrative
changes would not adversely affect the accuracy of the conclusions stated
herein. Nevertheless, by rendering this opinion we undertake no responsibility
to advise you of any new developments in the application or interpretation of
the federal income tax laws.
We understand that counsel for TBC, Haskell, Slaughter & Young, L.L.C.,
has rendered a tax opinion substantially similar to this opinion concerning the
federal income tax consequences of the Commerce Merger.
This opinion has been delivered to you for the purpose of filing with
the Registration Statement and may not be distributed or otherwise made
available to any other person or entity without our prior written consent. We
consent to the use of this form of opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in the
Registration Statement.
Sincerely,
<PAGE> 1
EXHIBIT 8.3
___________ ___, 1998
The Banc Corporation
17 North 20th Street
Birmingham, Alabama 35203
RE: THIRD AMENDED AND RESTATED REORGANIZATION AGREEMENT AND PLAN
OF MERGER BY AND AMONG WARRIOR CAPITAL CORPORATION, THE BANC
CORPORATION AND FIRST CITIZENS BANCORP, INC.
Gentlemen:
We have acted as counsel to The Banc Corporation, a Delaware
corporation ("TBC"), in connection with the proposed merger (the "Merger") of
First Citizens Bancorp, Inc., an Alabama corporation ("Bancorp"), with and into
TBC, pursuant to the terms of the Third Amended and Restated Reorganization
Agreement and Plan of Merger, dated as of April 15, 1998 (the "Plan of Merger"),
by and among Warrior Capital Corporation, an Alabama corporation, TBC and
Bancorp, as described in more detail in the Plan of Merger and in the
Registration Statement on Form S-4 (Commission File No. 333-58493) filed by TBC
with the Securities and Exchange Commission, as amended (the "Registration
Statement"). All capitalized terms, unless otherwise specified, have the meaning
assigned to them in the Registration Statement.
In connection with this opinion, we have examined and are familiar
with originals or copies, certified or otherwise identified to our
satisfaction, of (i) the Plan of Merger, (ii) the Registration Statement, and
(iii) such other documents as we have deemed necessary or appropriate in order
to enable us to render the opinion below. In our examination, we have assumed
the genuineness of all signatures, the legal capacity of all natural persons,
the authenticity of all documents submitted to us as originals, the conformity
to original documents of all documents submitted to us as certified, conformed
or photostatic copies and the authenticity of the originals of such copies. In
rendering the opinion set forth below, we have relied upon certain written
representations and covenants of TBC, Bancorp and the Bancorp shareholders
which are annexed hereto (the "Representations and Warranties").
In rendering our opinion, we have considered the applicable provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations, pertinent judicial authorities, interpretive rulings of the
Internal Revenue Service and such other authorities as we have considered
relevant.
<PAGE> 2
Based upon and subject to the foregoing and assuming that, as of the
Effective Time of the Merger and following the Merger there will be no acts or
omissions which will violate or be inconsistent with any of the Representations
and Warranties, we are of the opinion that:
(i) Provided the Merger qualifies as a statutory merger
under the General Corporation Law of the State of Delaware and the
Alabama Business Corporation Act, the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code, and
TBC and Bancorp will each be a "party to the reorganization" within
the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by TBC or Bancorp
as a result of the Merger;
(iii) No gain or loss will be recognized by a Bancorp
shareholder who receives solely shares of TBC Common Stock in exchange
for Bancorp Common Stock;
(iv) The receipt of cash by a Bancorp shareholder in lieu
of fractional shares of TBC Common Stock will be treated as if the
fractional shares were distributed as part of the exchange and then
were redeemed by TBC. These payments will be treated as having been
received as distributions in full payment in exchange for the stock
redeemed as provided in Section 302(a) of the Code, provided the
redemption is not essentially equivalent to a dividend;
(v) The tax basis of the shares of TBC Common Stock
received by a Bancorp shareholder will be equal to the tax bases of
the Bancorp Common Stock exchanged therefor, excluding any basis
allocable to a fractional share of TBC Common Stock for which cash is
received;
(vi) The holding period of the shares of TBC Common Stock
received by a Bancorp shareholder will include the holding period or
periods of the Bancorp Common Stock exchanged therefor, provided that
the Bancorp Common Stock are held as a capital asset within the
meaning of Section 1221 of the Code at the Effective Time of the
Merger; and
(vii) Where solely cash is received by a Bancorp
shareholder in exchange for his Bancorp Common Stock pursuant to the
exercise of dissenters' rights, such cash will be treated as having
been received in redemption of his Bancorp Common Stock, subject to
the provisions and limitations of Section 302 of the Code.
2
<PAGE> 3
Except as set forth above, we express no opinion as to the tax
consequences, whether federal, state, local or foreign, to any party to the
Merger or of any transactions related to the Merger or contemplated by the Plan
of Merger.
We hereby consent to the reference to our Firm under the heading
"Legal Matters" in the Prospectuses which form a part of the Registration
Statement, and to the filing of this opinion as an Exhibit thereto.
Very truly yours,
HASKELL SLAUGHTER & YOUNG, L.L.C.
By
-----------------------------------
Ross N. Cohen
3
<PAGE> 1
EXHIBIT (8)-4
[FORM OF TAX OPINION OF BALCH & BINGHAM LLP]
, 1998
------------ --
First Citizens Bancorp, Inc.
Post Office Box 807
Monroeville, Alabama 36461
Ladies and Gentlemen:
We have acted as special counsel to First Citizens Bancorp, Inc., an
Alabama corporation ("First Citizens"), in connection with certain transactions
to be undertaken pursuant to the Second Amended and Restated Reorganization
Agreement and Plan of Merger dated as of April 15, 1998 (the "Plan of Merger")
by and among First Citizens, Warrior Capital Corporation, an Alabama corporation
("Warrior"), and The Banc Corp, a Delaware corporation ("TBC") and in connection
with the filing of a Registration Statement on Form S-4 Registration No.
333-58493 (the "Registration Statement") by TBC in connection therewith. First
Citizens will merge with and into TBC with TBC surviving the merger (the "First
Citizens Merger") pursuant to the Plan of Merger. This opinion is being
delivered pursuant to Section 3.2(b) of the Plan of Merger.
Except as otherwise provided, capitalized terms not defined herein have
the meanings set forth in the Registration Statement or in certificates
delivered to us by First Citizens and TBC (the "Certificates"). All section
references, unless otherwise indicated, are to the Internal Revenue Code of
1986, as amended (the "Code").
For the purpose of rendering this opinion, we have examined originals,
certified copies or copies otherwise identified to our satisfaction as being
true copies of the original of the following documents (including all exhibits
and schedules attached thereto):
(a) the Plan of Merger;
(b) the Management Certificate signed by an authorized
officer of TBC and attached as Exhibit A;
<PAGE> 2
First Citizens Bancorp, Inc.
, 1998
- -------------------- --
Page 2
(c) the Management Certificate signed by an authorized
officer of First Citizens and attached as Exhibit B;
(d) the Registration Statement; and
(e) such other instruments and documents related to the
consummation of the First Citizens Merger and the
transactions contemplated thereby as we have deemed
necessary or appropriate.
In connection with rendering this opinion, we have assumed (without any
independent investigation or review thereof):
1. that original documents (including signatures) are
authentic, documents submitted to us as copies conform to the original
documents, and there is (or will be prior to the Closing) due execution and
delivery of all documents where due execution and delivery are a prerequisite to
the effectiveness thereof;
2. the truth and accuracy at all relevant times
(including the Effective Time), of all representations, warranties and
statements made or agreed to by First Citizens and TBC, their managements,
employees, officers, directors and stockholders in connection with the First
Citizens Merger, including but not limited to those set forth in the Plan of
Merger and the Certificates; that any such representation, warranty or statement
made "to the best knowledge of" or otherwise similarly qualified is correct
without such qualification; that all covenants contained in such Plan of Mergers
are performed without waiver or breach of any material provision thereof;
3. that no outstanding indebtedness of First Citizens or
TBC has or will represent equity for tax purposes; no outstanding equity of
First Citizens or TBC has represented or will represent indebtedness for tax
purposes; no outstanding security, instrument, agreement or arrangement that
provides for, contains or represents either a right to acquire First Citizens
Common Stock or to share in the appreciation thereof constitutes or will
constitute "stock" for purposes of Section 368(c) of the Code; and
4. that the First Citizens Merger will be consummated
pursuant to the Plan of Merger and will be effective under applicable state law.
<PAGE> 3
First Citizens Bancorp, Inc.
, 1998
- -------------------- --
Page 3
Based on our examination of the foregoing items and subject to the
limitations, qualifications and assumptions set forth herein, we are of the
opinion that for federal income tax purposes:
(i) The First Citizens Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code, and TBC and
First Citizens will each be a party to the reorganization within the meaning of
Section 368(b) of the Code;
(ii) No gain or loss will be recognized by TBC or First
Citizens as a result of the First Citizens Merger;
(iii) No gain or loss will be recognized by a First
Citizens shareholder who receives solely shares of TBC Common Stock in exchange
for First Citizens Common Stock;
(iv) The receipt of cash in lieu of fractional shares of
TBC Common Stock will be treated as if the fractional shares were distributed as
part of the exchange and then were redeemed by TBC. These payments will be
treated as having been received as distributions in full payment in exchange for
the stock redeemed as provided in Section 302(a) of the Code, provided the
redemption is not essentially equivalent to a dividend;
(v) The aggregate tax basis of the shares of TBC Common
Stock received by a First Citizens shareholder will be equal to the aggregate
tax basis of the First Citizens Common Stock exchanged therefor, excluding any
basis allocable to a fractional share of TBC Common Stock for which cash is
received;
(vi) The holding period of the shares of TBC Common Stock
received by a First Citizens shareholder will include the holding period or
periods of the First Citizens Common Stock exchanged therefor, provided that the
First Citizens Common Stock is held as a capital asset within the meaning of
Section 1221 of the Code at the Effective Time.
This opinion does not address the various state, local or foreign tax
consequences that may result from the First Citizens Merger. In addition, no
opinion is expressed as to any federal income tax consequence of the First
Citizens Merger except as specifically set forth herein and this opinion may not
be relied upon except with respect to the consequences specifically discussed
herein. In particular, we express no opinion regarding, among other things (i)
the tax consequences of the First Citizens Merger that may be relevant to
particular securityholders of First Citizens such as dealers in securities,
foreign persons, holders of options or warrants, and holders of shares acquired
upon exercise of stock options or in other compensatory transactions, (ii) the
tax consequences to First Citizens stockholders of other transactions effected
prior to or after the First Citizens Merger
<PAGE> 4
First Citizens Bancorp, Inc.
, 1998
- -------------------- --
Page 4
(whether or not such transactions are consummated in connection with the First
Citizens Merger), and (iii) the tax consequences of the First Citizens Merger to
First Citizens and TBC under Section 1502 of the Code and the Income Tax
Regulations issued thereunder.
No opinion is expressed as to any transactions other than the First
Citizens Merger as described in the Plan of Merger or to any transaction
whatsoever including the First Citizens Merger if all the transactions described
or contemplated in the Plan of Merger and the Registration Statement (including
the agreements referred to therein) are not consummated in accordance with their
terms and without waiver of any material provision thereof. To the extent any of
the representations, warranties, statements and assumptions material to our
opinion and upon which we have relied are not complete, correct, true and
accurate in all material respects at all relevant times, our opinion would be
adversely affected and should not be relied upon.
This opinion only represents our best judgment as to the federal income
tax consequences of the First Citizens Merger and is not binding on the Internal
Revenue Service or the courts. The conclusions are based on the Code, existing
judicial decisions, administration regulations and published rulings. No
assurance can be given that future legislative, judicial or administrative
changes would not adversely affect the accuracy of the conclusions stated
herein. Nevertheless, by rendering this opinion we undertake no responsibility
to advise you of any new developments in the application or interpretation of
the federal income tax laws.
We understand that counsel for TBC, Haskell, Slaughter & Young, L.L.C.,
has rendered a tax opinion substantially similar to this opinion concerning the
federal income tax consequences of the First Citizens Merger.
This opinion has been delivered to you for the purpose of filing with
the Registration Statement and may not be distributed or otherwise made
available to any other person or entity without our prior written consent. We
consent to the use of this form of opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in the
Registration Statement.
Sincerely,
<PAGE> 1
EXHIBIT 8.5
__________ ___, 1998
The Banc Corporation
17 North 20th Street
Birmingham, Alabama 35203
RE: SECOND REORGANIZATION AGREEMENT AND PLAN OF MERGER BY AND AMONG
CITY NATIONAL CORPORATION, WARRIOR CAPITAL CORPORATION AND THE
BANC CORPORATION
Gentlemen:
We have acted as counsel to The Banc Corporation, a Delaware
corporation ("TBC"), in connection with the proposed merger (the "Merger") of
City National Corporation, an Alabama corporation ("CNC"), with and into TBC,
pursuant to the terms of the Second Reorganization Agreement and Plan of Merger,
dated as of June 16, 1998 (the "Plan of Merger"), by and among Warrior Capital
Corporation, an Alabama corporation, TBC and CNC, as described in more detail in
the Plan of Merger and in the Registration Statement on Form S-4 (Commission
File No. 333-58493) filed by TBC with the Securities and Exchange Commission, as
amended (the "Registration Statement"). All capitalized terms, unless otherwise
specified, have the meaning assigned to them in the Registration Statement.
In connection with this opinion, we have examined and are familiar
with originals or copies, certified or otherwise identified to our
satisfaction, of (i) the Plan of Merger, (ii) the Registration Statement, and
(iii) such other documents as we have deemed necessary or appropriate in order
to enable us to render the opinion below. In our examination, we have assumed
the genuineness of all signatures, the legal capacity of all natural persons,
the authenticity of all documents submitted to us as originals, the conformity
to original documents of all documents submitted to us as certified, conformed
or photostatic copies and the authenticity of the originals of such copies. In
rendering the opinion set forth below, we have relied upon certain written
representations and covenants of TBC, CNC and the CNC shareholders which are
annexed hereto (the "Representations and Warranties").
In rendering our opinion, we have considered the applicable provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations, pertinent judicial authorities, interpretive rulings of the
Internal Revenue Service and such other authorities as we have considered
relevant.
1
<PAGE> 2
Based upon and subject to the foregoing and assuming that, as of the
Effective Time of the Merger and following the Merger there will be no acts or
omissions which will violate or be inconsistent with any of the Representations
and Warranties, we are of the opinion that:
(i) Provided the Merger qualifies as a statutory merger
under the General Corporation Law of the State of Delaware and the
Alabama Business Corporation Act, the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code, and
TBC and CNC will each be a "party to the reorganization" within the
meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by TBC or CNC as a
result of the Merger;
(iii) No gain or loss will be recognized by a CNC
shareholder who receives solely shares of TBC Common Stock in exchange
for CNC Common Stock;
(iv) The receipt of cash by a CNC shareholder in lieu of
fractional shares of TBC Common Stock will be treated as if the
fractional shares were distributed as part of the exchange and then
were redeemed by TBC. These payments will be treated as having been
received as distributions in full payment in exchange for the stock
redeemed as provided in Section 302(a) of the Code, provided the
redemption is not essentially equivalent to a dividend;
(v) The tax basis of the shares of TBC Common Stock
received by a CNC shareholder will be equal to the tax bases of the
CNC Common Stock exchanged therefor, excluding any basis allocable to
a fractional share of TBC Common Stock for which cash is received;
(vi) The holding period of the shares of TBC Common Stock
received by a CNC shareholder will include the holding period or
periods of the CNC Common Stock exchanged therefor, provided that the
CNC Common Stock are held as a capital asset within the meaning of
Section 1221 of the Code at the Effective Time of the Merger; and
(vii) Where solely cash is received by a CNC shareholder in
exchange for his CNC Common Stock pursuant to the exercise of
dissenters' rights, such cash will be treated as having been received
in redemption of his CNC Common Stock, subject to the provisions and
limitations of Section 302 of the Code.
2
<PAGE> 3
Except as set forth above, we express no opinion as to the tax
consequences, whether federal, state, local or foreign, to any party to the
Merger or of any transactions related to the Merger or contemplated by the Plan
of Merger.
We hereby consent to the reference to our Firm under the heading
"Legal Matters" in the Prospectuses which form a part of the Registration
Statement, and to the filing of this opinion as an Exhibit thereto.
Very truly yours,
HASKELL SLAUGHTER & YOUNG, L.L.C.
By
-----------------------------------------
Ross N. Cohen
3
<PAGE> 1
EXHIBIT (8)-6
[FORM OF TAX OPINION OF BALCH & BINGHAM LLP]
, 1998
----------- --
City National Corporation
Post Office Box 128
Sylacauga, Alabama 35150
Ladies and Gentlemen:
We have acted as special counsel to City National Corporation, an
Alabama corporation ("City National"), in connection with certain transactions
to be undertaken pursuant to the Amended and Restated Reorganization Agreement
and Plan of Merger dated as of June 16, 1998 (the "Plan of Merger") by and among
City National Corporation, an Alabama corporation ("City National"), Warrior
Capital Corporation, an Alabama corporation ("Warrior"), and The Banc Corp, a
Delaware corporation ("TBC") and in connection with the filing of a Registration
Statement on Form S-4 Registration No. 333-58493 (the "Registration Statement")
by TBC in connection therewith. City National will merge with and into TBC with
TBC surviving the merger (the "City National Merger") pursuant to the Plan of
Merger. This opinion is being delivered pursuant to Section 3.2(b) of the Plan
of Merger.
Except as otherwise provided, capitalized terms not defined herein have
the meanings set forth in the Registration Statement or in certificates
delivered to us by City National and TBC (the "Certificates"). All section
references, unless otherwise indicated, are to the Internal Revenue Code of
1986, as amended (the "Code").
For the purpose of rendering this opinion, we have examined originals,
certified copies or copies otherwise identified to our satisfaction as being
true copies of the original of the following documents (including all exhibits
and schedules attached thereto):
(a) the Plan of Merger;
(b) the Management Certificate signed by an authorized
officer of TBC and attached as Exhibit A;
<PAGE> 2
City National Corporation
, 1998
- ------------------ --
Page 2
(c) the Management Certificate signed by an authorized
officer of City National and attached as Exhibit B;
(d) the Registration Statement; and
(e) such other instruments and documents related to the
consummation of the City National Merger and the
transactions contemplated thereby as we have deemed
necessary or appropriate.
In connection with rendering this opinion, we have assumed (without any
independent investigation or review thereof):
1. that original documents (including signatures) are
authentic, documents submitted to us as copies conform to the original
documents, and there is (or will be prior to the Closing) due execution and
delivery of all documents where due execution and delivery are a prerequisite to
the effectiveness thereof;
2. the truth and accuracy at all relevant times
(including the Effective Time), of all representations, warranties and
statements made or agreed to by City National and TBC, their managements,
employees, officers, directors and stockholders in connection with the City
National Merger, including but not limited to those set forth in the Plan of
Merger and the Certificates; that any such representation, warranty or statement
made "to the best knowledge of" or otherwise similarly qualified is correct
without such qualification; that all covenants contained in such Plan of Mergers
are performed without waiver or breach of any material provision thereof;
3. that no outstanding indebtedness of City National or
TBC has or will represent equity for tax purposes; no outstanding equity of City
National or TBC has represented or will represent indebtedness for tax purposes;
no outstanding security, instrument, agreement or arrangement that provides for,
contains or represents either a right to acquire City National Common Stock or
to share in the appreciation thereof constitutes or will constitute "stock" for
purposes of Section 368(c) of the Code; and
4. that the City National Merger will be consummated
pursuant to the Plan of Merger and will be effective under applicable state law.
<PAGE> 3
City National Corporation
, 1998
- ------------------ --
Page 3
Based on our examination of the foregoing items and subject to the
limitations, qualifications and assumptions set forth herein, we are of the
opinion that for federal income tax purposes:
(i) The City National Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code, and TBC and
City National will each be a party to the reorganization within the meaning of
Section 368(b) of the Code;
(ii) No gain or loss will be recognized by TBC or City
National as a result of the City National Merger;
(iii) No gain or loss will be recognized by a City National
shareholder who receives solely shares of TBC Common Stock in exchange for City
National Common Stock;
(iv) The receipt of cash in lieu of fractional shares of
TBC Common Stock will be treated as if the fractional shares were distributed as
part of the exchange and then were redeemed by TBC. These payments will be
treated as having been received as distributions in full payment in exchange for
the stock redeemed as provided in Section 302(a) of the Code, provided the
redemption is not essentially equivalent to a dividend;
(v) The aggregate tax basis of the shares of TBC Common
Stock received by a City National shareholder will be equal to the aggregate tax
basis of the City National Common Stock exchanged therefor, excluding any basis
allocable to a fractional share of TBC Common Stock for which cash is received;
(vi) The holding period of the shares of TBC Common Stock
received by a City National shareholder will include the holding period or
periods of the City National Common Stock exchanged therefor, provided that the
City National Common Stock is held as a capital asset within the meaning of
Section 1221 of the Code at the Effective Time.
This opinion does not address the various state, local or foreign tax
consequences that may result from the City National Merger. In addition, no
opinion is expressed as to any federal income tax consequence of the City
National Merger except as specifically set forth herein and this opinion may not
be relied upon except with respect to the consequences specifically discussed
herein. In particular, we express no opinion regarding, among other things (i)
the tax consequences of the City National Merger that may be relevant to
particular securityholders of City National such as dealers in securities,
foreign persons, holders of options or warrants, and holders of shares acquired
upon exercise of stock options or in other compensatory transactions, (ii) the
tax consequences to City National stockholders of other transactions effected
prior to or after the City National Merger
<PAGE> 4
City National Corporation
, 1998
- ------------------ --
Page 4
(whether or not such transactions are consummated in connection with the City
National Merger), and (iii) the tax consequences of the City National Merger to
City National and TBC under Section 1502 of the Code and the Income Tax
Regulations issued thereunder.
No opinion is expressed as to any transactions other than the City
National Merger as described in the Plan of Merger or to any transaction
whatsoever including the City National Merger if all the transactions described
or contemplated in the Plan of Merger and the Registration Statement (including
the agreements referenced therein) are not consummated in accordance with their
terms and without waiver of any material provision thereof. To the extent any of
the representations, warranties, statements and assumptions material to our
opinion and upon which we have relied are not complete, correct, true and
accurate in all material respects at all relevant times, our opinion would be
adversely affected and should not be relied upon.
This opinion only represents our best judgment as to the federal income
tax consequences of the City National Merger and is not binding on the Internal
Revenue Service or the courts. The conclusions are based on the Code, existing
judicial decisions, administration regulations and published rulings. No
assurance can be given that future legislative, judicial or administrative
changes would not adversely affect the accuracy of the conclusions stated
herein. Nevertheless, by rendering this opinion we undertake no responsibility
to advise you of any new developments in the application or interpretation of
the federal income tax laws.
We understand that counsel for TBC, Haskell, Slaughter & Young, L.L.C.,
has rendered a tax opinion substantially similar to this opinion concerning the
federal income tax consequences of the City National Merger.
This opinion has been delivered to you for the purpose of filing with
the Registration Statement and may not be distributed or otherwise made
available to any other person or entity without our prior written consent. We
consent to the use of this form of opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in the
Registration Statement.
Sincerely,
<PAGE> 1
EXHIBIT (10)-1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement) is effective [___________],
1998 (the "Effective Date"), by and between WARRIOR SAVINGS BANK, an Alabama
banking corporation ("Bank"), and WARRIOR CAPITAL CORPORATION, an Alabama
corporation ("WCC"; hereinafter together with the Bank collectively referred to
as "Employer"); and DANIEL J. SIZEMORE ("Executive").
Recitals
WHEREAS, the Bank is a wholly-owned subsidiary of WCC;
WHEREAS, Pursuant to that certain Reorganization Agreement and Plan of
Merger dated _____________, 1998 among WCC, the Bank and Commerce Bank of
Alabama ("Commerce") (the "Merger Agreement"), the parties have agreed that
Commerce shall be acquired by WCC, including that Commerce may merge with and
into the Bank; and
WHEREAS, Executive has been and continues to serve as the Chief
Executive Officer and President of Commerce and, as a condition to the
consummation of the transactions provided for in the Merger Agreement, Executive
and Employer have agreed to enter into this Agreement;
Agreement
NOW THEREFORE, in consideration of the mutual recitals and covenants
contained herein, the parties hereby agree as follows:
1. EMPLOYMENT. Employer agrees to employ Executive and Executive agrees
to be employed by Employer, subject to the terms and provisions of this
Agreement.
2. TERM. The employment of Executive by Employer as provided in Section
1 will be for a period of three (3) years commencing on the Effective Time (as
defined in the Merger Agreement), renewable daily for a three year term and
terminable by Employer only upon three (3) years notice or otherwise as provided
in Section 7.
1
<PAGE> 2
3. DUTIES; EXTENT OF SERVICES. Executive shall perform for Employer all
duties incident to the positions of President and Chief Operating Officer of
WCC, President and Chief Executive Officer of the Bank (which shall be the lead
bank of WCC), and Chief Executive Officer of Commerce (if Commerce is not merged
into the Bank) or the Branch President of the Bank's Albertville branch (if
Commerce is merged into the Bank). At the next meeting of the board of directors
of WCC and each of its subsidiary banks, which shall take place prior to or as
of the Effective Date, Executive shall be elected to serve as a director of WCC
and each of its subsidiary banks, and thereafter for the remaining term of this
Agreement, at each annual meeting of the board of directors of WCC and each of
its subsidiary banks, Executive shall be nominated to serve as a director of WCC
and each of its subsidiary banks. In addition, Executive shall engage in such
other services for Employer or its affiliates as Employer from time to time
shall direct. Executive shall use his best efforts in, and devote his entire
time, attention, and energy, to Employer's business; provided that nothing
contained herein is intended to prohibit Executive from spending a reasonable
amount of time managing his personal investments and discharging his civic
responsibilities as long as such activities do not interfere with his duties and
obligations under this Agreement.
4. COMPENSATION.
During the Term of this Agreement:
a. Executive's total annual cash compensation shall be an
amount not less than $270,000.00 (includes salary, director's fees, and
bonus).
b. Life Insurance: Term life insurance equal to three times
base compensation, plus life insurance policies on dependents in
amounts and as currently provided by Commerce.
c. Health Insurance: Fully paid (employee and dependents,
customary plan).
d. Automobile: $1,000 per month car allowance, plus mileage at
current IRS-allowed reimbursed rates.
e. Country Club Dues: Payment of dues and assessments at
Gadsden Country Club and initiation fee and dues and assessments at a
country club in Birmingham to be determined jointly by Executive and
WCC; provided that Employer shall pay no more than $15,000 of the
initiation fee to the Birmingham country club.
f. Retirement: Standard plans offered by Employer, including
profit-sharing, 401K, etc.
2
<PAGE> 3
g. Civic clubs: Employer pays fees for any clubs which
Executive joins at Employer's request.
h. Vacation, sick days, holidays: pursuant to Employer's
standard policies.
i. Other executive compensation plans: Full participation in
other executive level compensation plans offered by WCC and affiliates
until termination of agreement. Executive (as with other employees of
Commerce) shall receive service credit for employment at Commerce prior
to the Effective Time for purposes of meeting all the eligibility
requirements and all vesting requirements for all of Employer's benefit
programs which such employees shall become eligible to participate in
on or after the Effective Time, including but not limited to
compensation, health, retirement, vacation and disability plans.
5. DISCLOSURE OF INFORMATION. Executive will not, during or after the
term of this Agreement, (i) disclose any written confidential information of
Employer to any person, firm, corporation, association, or other entity not
employed by or affiliated with Employer for any reason on purpose whatsoever, or
(ii) use any written confidential information for any reason other than to
further the business of Employer. Executive agrees to return any written
confidential information, and all copies thereof, upon the termination of
Executive's employment (whether hereunder or otherwise).
6. COMPETITION. Except as specifically provided otherwise in this
Agreement, during the period of his employment by Employer and for such time as
Employer is paying to Executive all of the compensation provided in Section 4,
Executive will not, directly or indirectly, carry on or engage in a similar
business or solicit or do similar business with any customer of Bank or WCC's
bank subsidiaries in any counties where the Bank or WCC's bank subsidiaries have
places of business on the date of termination.
7. TERMINATION.
a. Employer shall be obligated to comply with all provisions
of this Agreement and may terminate Executive only For Cause. "For
Cause" shall mean (i) any act on the part of Executive which
constitutes fraud or willful malfeasance of duty or an act of moral
turpitude and is demonstrably likely to lead to material injury to Bank
or WCC, (ii) a felony conviction of Executive; or (iii) the suspension
or removal of Executive by federal or state banking regulatory
authorities; provided, that "For Cause" shall not include Executive's
medical disability.
b. If Employer terminates Executive's employment hereunder
"For Cause" or if Executive terminates his employment hereunder
Executive shall not be entitled to any further compensation from
Employer and the provisions of Section 6 shall survive for one year
following the date of such termination.
3
<PAGE> 4
c. If Employer terminates Executive other than "For Cause",
(i) all rights and obligations specified in Section 6 shall survive any
such termination for three years following the date of such termination
and, (ii) Executive shall continue to receive the compensation provided
for in Section 4 for three years following the date of such
termination.
d. The provisions of Section 5 shall survive regardless of any
termination of Executive's employment hereunder, whether voluntary or
involuntary.
8. NOTICE. For the purposes of this Agreement, notices and demands
shall be deemed given when mailed by United States mail, addressed in the case
of Bank to Warrior Savings Bank, P. O. Box 490, Warrior, Alabama 35180-0490,
Attention: Chairman of the Board of Directors, with a copy to WCC at Warrior
Capital Corporation; P. O. Box 490, Warrior, Alabama 35180-0490, Attention:
Chief Executive Officer; or in the case of Executive, to ______________________.
9. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such modification, waiver or discharge is agreed to
in writing. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Alabama. This Agreement
supersedes and cancels any prior employment agreement or understanding entered
into between Executive and Bank or Executive and Commerce.
10. VALIDITY. The invalidity of any provision or provisions of this
Agreement shall not affect any other provision of this Agreement, which shall
remain in full force and effect, nor shall the invalidity of a portion of any
provision of this Agreement affect the balance of such provision.
11. PARTIES. This Agreement shall be binding upon and shall inure to
the benefit of any successors or assigns to Bank or WCC. Executive may not
assign any of his rights or delegate any of his duties or obligations under this
Agreement or any portion hereof.
12. DEFINITIONS. Any capitalized terms not otherwise defined herein
shall have the meanings ascribed to them in the Merger Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by Executive and by a duly authorized officer of each of Bank and WCC as of the
date first above written.
Witnesses: "EXECUTIVE":
4
<PAGE> 5
- ----------------------------------- ---------------------------------------
Daniel J. Sizemore
"BANK":
Attest: WARRIOR SAVINGS BANK
By: By:
-------------------------------- ------------------------------------
Its: Secretary Its: Chairman of the Board of Directors
[Corporate Seal]
"WCC"
Attest: WARRIOR CAPITAL CORPORATION
By: By:
-------------------------------- ------------------------------------
Its: Secretary Its: Chief Executive Officer
[Corporate Seal]
5
<PAGE> 1
EXHIBIT (10)-2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement) is effective [___________],
1998 (the "Effective Date"), by and between WARRIOR SAVINGS BANK, an Alabama
banking corporation ("Bank"), and WARRIOR CAPITAL CORPORATION, an Alabama
corporation ("WCC"; hereinafter together with the Bank collectively referred to
as "Employer"); and RAY SMITH ("Executive").
Recitals
WHEREAS, the Bank is a wholly-owned subsidiary of WCC;
WHEREAS, Pursuant to that certain Reorganization Agreement and Plan of
Merger dated _____________, 1998 among WCC, the Bank and Commerce Bank of
Alabama ("Commerce") (the "Merger Agreement"), the parties have agreed that
Commerce shall be acquired by WCC, including that Commerce may merge with and
into the Bank; and
WHEREAS, Executive has been and continues to serve as the Chief
Executive Officer and President of Commerce and, as a condition to the
consummation of the transactions provided for in the Merger Agreement, Executive
and Employer have agreed to enter into this Agreement;
Agreement
NOW THEREFORE, in consideration of the mutual recitals and covenants
contained herein, the parties hereby agree as follows:
1. EMPLOYMENT. Employer agrees to employ Executive and Executive agrees
to be employed by Employer, subject to the terms and provisions of this
Agreement.
2. TERM. The employment of Executive by Employer as provided in Section
1 will be for a period of three (3) years commencing on the Effective Time (as
defined in the Merger Agreement), renewable on the third anniversary date of
this Agreement and upon the third anniversary of each such renewal (i.e., if
renewed, for a three year period, if not renewed, for remaining two years) and
terminable by Employer only upon prior notice for a period equal to the
remaining term or otherwise as provided in Section 7.
1
<PAGE> 2
3. DUTIES; EXTENT OF SERVICES. Executive shall perform for Employer all
duties incident to the positions of President of Bank and Branch President of
Marshall and Etowah County branches (if Bank remains separate from Employer's
lead bank) or Executive Vice President of the Employer's lead bank and Branch
President of the Etowah and Marshall County branches (if the Bank is merged into
Employer's lead bank). In addition, /Executive shall engage in such other
services for Employer or its affiliates as Employer from time to time shall
direct. Executive shall use his best efforts in, and devote his entire time,
attention, and energy, to Employer's business; provided that nothing contained
herein is intended to prohibit Executive from spending a reasonable amount of
time managing his personal investments and discharging his civic
responsibilities as long as such activities do not interfere with his duties and
obligations under this Agreement.
4. COMPENSATION.
During the Term of this Agreement:
a. Executive's total annual cash compensation shall be an
amount not less than $150,000.00 (includes salary, director's fees, and
bonus).
b. Life Insurance: Term life insurance equal to three times
base compensation, plus life insurance policies on dependents in
amounts and as currently provided by Commerce.
c. Health Insurance: Fully paid (employee and dependents,
customary plan).
d. Automobile: $650 per month car allowance, plus mileage at
current IRS- allowed reimbursed rates.
e. Country Club Dues: Payment of dues and assessments at
Gadsden Country Club.
f. Retirement: Standard plans offered by Employer, including
profit-sharing, 401K, etc.
g. Civic clubs: Employer pays fees for any clubs which
Executive joins at Employer's request.
h. Vacation, sick days, holidays: pursuant to Employer's
standard policies.
i. Other executive compensation plans: Full participation in
other executive level compensation plans offered by WCC and affiliates
until termination of agreement. Executive (as with other employees of
Commerce) shall receive service credit for employment at Commerce
2
<PAGE> 3
prior to the Effective Time for purposes of meeting all the eligibility
requirements and all vesting requirements for all of Employer's benefit
programs which such employees shall become eligible to participate in
on or after the Effective Time, including but not limited to
compensation, health, retirement, vacation and disability plans.
5. DISCLOSURE OF INFORMATION. Executive will not, during or after the
term of this Agreement, (i) disclose any written confidential information of
Employer to any person, firm, corporation, association, or other entity not
employed by or affiliated with Employer for any reason on purpose whatsoever, or
(ii) use any written confidential information for any reason other than to
further the business of Employer. Executive agrees to return any written
confidential information, and all copies thereof, upon the termination of
Executive's employment (whether hereunder or otherwise).
6. COMPETITION. Except as specifically provided otherwise in this
Agreement, during the period of his employment by Employer and for such time as
Employer is paying to Executive all of the compensation provided in Section 4,
Executive will not, directly or indirectly, carry on or engage in a similar
business or solicit or do similar business with any customer of Bank or WCC's
bank subsidiaries in any counties where the Bank or WCC's bank subsidiaries have
places of business on the date of termination.
7. TERMINATION.
a. Employer shall be obligated to comply with all provisions
of this Agreement and may terminate Executive only For Cause. "For
Cause" shall mean (i) any act on the part of Executive which
constitutes fraud or willful malfeasance of duty or an act of moral
turpitude and is demonstrably likely to lead to material injury to Bank
or WCC, (ii) a felony conviction of Executive; or (iii) the suspension
or removal of Executive by federal or state banking regulatory
authorities; provided, that "For Cause" shall not include Executive's
medical disability.
b. If Employer terminates Executive's employment hereunder
"For Cause" or if Executive terminates his employment hereunder
Executive shall not be entitled to any further compensation from
Employer and the provisions of Section 6 shall survive for one year
following the date of such termination.
c. If Employer terminates Executive other than "For Cause",
(i) all rights and obligations specified in Section 6 shall survive any
such termination for three years following the date of such termination
and, (ii) Executive shall continue to receive the compensation provided
for in Section 4 for three years following the date of such
termination.
d. The provisions of Section 5 shall survive regardless of any
termination of Executive's employment hereunder, whether voluntary or
involuntary.
3
<PAGE> 4
8. NOTICE. For the purposes of this Agreement, notices and demands
shall be deemed given when mailed by United States mail, addressed in the case
of Bank to Warrior Savings Bank, P. O. Box 490, Warrior, Alabama 35180-0490,
Attention: Chairman of the Board of Directors, with a copy to WCC at Warrior
Capital Corporation; P. O. Box 490, Warrior, Alabama 35180-0490, Attention:
Chief Executive Officer; or in the case of Executive, to ___________________
___________________________.
9. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such modification, waiver or discharge is agreed to
in writing. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Alabama. This Agreement
supersedes and cancels any prior employment agreement or understanding entered
into between Executive and Bank or Executive and Commerce.
10. VALIDITY. The invalidity of any provision or provisions of this
Agreement shall not affect any other provision of this Agreement, which shall
remain in full force and effect, nor shall the invalidity of a portion of any
provision of this Agreement affect the balance of such provision.
11. PARTIES. This Agreement shall be binding upon and shall inure to
the benefit of any successors or assigns to Bank or WCC. Executive may not
assign any of his rights or delegate any of his duties or obligations under this
Agreement or any portion hereof.
12. DEFINITIONS. Any capitalized terms not otherwise defined herein
shall have the meanings ascribed to them in the Merger Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by Executive and by a duly authorized officer of each of Bank and WCC as of the
date first above written.
Witnesses: "EXECUTIVE":
- ----------------------- --------------------------
Ray Smith
"BANK":
Attest: WARRIOR SAVINGS BANK
4
<PAGE> 5
By: By:
------------------------------ ------------------------------------
Its: Secretary Its: Chairman of the Board of Directors
[Corporate Seal]
"WCC"
Attest: WARRIOR CAPITAL CORPORATION
By: By:
------------------------------ ------------------------------------
Its: Secretary Its: Chief Executive Officer
[Corporate Seal]
5
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement) is effective [___________],
1998 (the "Effective Date"), by and between FIRST CITIZENS BANK OF MONROE
COUNTY, an Alabama banking corporation ("Bank"), and WARRIOR CAPITAL
CORPORATION, an Alabama corporation (the "WCC"; hereinafter together with the
Bank collectively referred to as "Employer"); and JOHN GITTINGS ("Executive").
Recitals
WHEREAS, the Bank is a wholly-owned subsidiary of WCC;
WHEREAS, pursuant to that certain Reorganization Agreement and Plan of
Merger, dated ________, 1998, among WCC and First Citizens Bancorp, Inc. ("FCB")
(the "Merger Agreement"), the parties have agreed that FCB shall be acquired by
WCC; and
WHEREAS, Executive has been and continues to serve as the Chief
Executive Officer of Bank and, as a condition to the consummation of the
transactions provided for in the Merger Agreement, Executive and Employer have
agreed to enter into this Agreement;
Agreement
NOW THEREFORE, in consideration of the mutual recitals and covenants
contained herein, the parties hereby agree as follows:
1. EMPLOYMENT. Employer agrees to employ Executive and Executive agrees
to be employed by Employer, subject to the terms and provisions of this
Agreement.
2. TERM. The employment of Executive by Employer as provided in Section
1 will be for a period of three (3) years commencing on the Effective Time (as
defined in the Merger Agreement), renewable on the third anniversary date of
this Agreement and upon the third anniversary of each such renewal (i.e., if
renewed, for a three year period, if not renewed, for remaining two years) and
terminable by Employer only upon prior notice for a period equal to the
remaining term or otherwise as provided in Section 7.
3. DUTIES; EXTENT OF SERVICES. Executive shall perform for Employer all
duties incident to the position of Chief Executive Officer of Bank. In addition,
Executive shall engage in such other
1
<PAGE> 2
services for Employer or its affiliates as Employer from time to time shall
direct. Executive shall use his best efforts in, and devote his entire time,
attention, and energy, to Employer's business; provided that nothing contained
herein is intended to prohibit Executive from spending a reasonable amount of
time managing his personal investments and discharging his civic
responsibilities as long as such activities do not interfere with his duties and
obligations under this Agreement.
4. COMPENSATION.
During the Term of this Agreement:
a. Executive's total annual cash compensation shall be an
amount not less than $100,000.00 (includes salary, director's fees and
bonus).
b. Life Insurance: Term life insurance equal to three times
base compensation, plus life insurance policies on dependents in
amounts and as currently provided by FCB.
c. Health Insurance: Fully paid (employee and dependents,
customary plan).
d. Automobile: Bank shall furnish Executive with an automobile
commensurate with Executive's position at WCC's discretion.
e. Retirement: Standard plans offered by Employer, including
profit-sharing, 401K, etc.
f. Vacation, sick days, holidays: pursuant to Employer's
standard policies.
g. Other executive compensation plans: Full participation in
other executive level compensation plans offered by Bank and affiliates
until termination of agreement.
5. DISCLOSURE OF INFORMATION. Executive will not, during or after the
term of this Agreement, (i) disclose any written confidential information of
Employer to any person, firm, corporation, association, or other entity not
employed by or affiliated with Employer for any reason on purpose whatsoever, or
(ii) use any written confidential information for any reason other than to
further the business of Employer. Executive agrees to return any written
confidential information, and all copies thereof, upon the termination of
Executive's employment (whether hereunder or otherwise).
6. COMPETITION. Except as specifically provided otherwise in this
Agreement, during the period of his employment by Employer and for such time as
Employer is paying to Executive all of the compensation provided in Section 4,
Executive will not, directly or indirectly, carry on or engage in a similar
business or solicit or do similar business with any customer of Bank or WCC's
2
<PAGE> 3
bank subsidiaries in any counties where Bank or WCC's bank subsidiaries have
places of business on the date of termination.
7. TERMINATION.
a. Employer shall be obligated to comply with all provisions
of this Agreement and may terminate Executive only For Cause. "For
Cause" shall mean (i) any act on the part of Executive which
constitutes fraud or willful malfeasance of duty or an act of moral
turpitude and is demonstrably likely to lead to material injury to Bank
or WCC, (ii) a felony conviction of Executive; or (iii) the suspension
or removal of Executive by federal or state banking regulatory
authorities; provided, that "For Cause" shall not include Executive's
medical disability.
b. If Employer terminates Executive's employment hereunder
"For Cause" or if Executive terminates his employment hereunder
Executive shall not be entitled to any further compensation from
Employer and the provisions of Section 6 shall survive for one year
following the date of such termination.
c. If Employer terminates Executive other than "For Cause",
(i) all rights and obligations specified in Section 6 shall survive any
such termination for three years following the date of such termination
and, (ii) Executive shall continue to receive the compensation provided
for in Section 4 for three years following the date of such
termination.
d. The provisions of Section 5 shall survive regardless of any
termination of Executive's employment hereunder, whether voluntary or
involuntary.
8. NOTICE. For the purposes of this Agreement, notices and demands
shall be deemed given when mailed by United States mail, addressed in the case
of Bank to First Citizens Bank of Monroe County, 915 South Alabama Avenue,
Monroeville, Alabama 36461, Attention: Chairman of the Board of Directors, with
a copy to WCC at Warrior Capital Corporation; P.O. Box 490, Warrior Alabama
35180-0490, Attention: Chief Executive Officer; or in the case of Executive, to
_____________________________________________.
9. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such modification, waiver or discharge is agreed to
in writing. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Alabama. This Agreement
supersedes and cancels any prior employment agreement or understanding entered
into between Executive and Bank or Executive and FCB.
3
<PAGE> 4
10. VALIDITY. The invalidity of any provision or provisions of this
Agreement shall not affect any other provision of this Agreement, which shall
remain in full force and effect, nor shall the invalidity of a portion of any
provision of this Agreement affect the balance of such provision.
11. PARTIES. This Agreement shall be binding upon and shall inure to
the benefit of any successors or assigns to Bank or WCC. Executive may not
assign any of his rights or delegate any of his duties or obligations under this
Agreement or any portion hereof.
12. DEFINITIONS. Any capitalized terms not otherwise defined herein
shall have the meanings ascribed to them in the Merger Agreement.
4
<PAGE> 5
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by Executive and by a duly authorized officer of each of Bank and WCC as of the
date first above written.
Witnesses: "EXECUTIVE":
- ---------------------------- --------------------------------------
John Gittings
"BANK":
Attest: FIRST CITIZENS BANK OF MONROE
COUNTY
By: By:
------------------------- ------------------------------------
Its: Secretary Its: Chairman of the Board of Directors
[Corporate Seal]
"WCC"
Attest: WARRIOR CAPITAL CORPORATION
By: By:
------------------------- ------------------------------------
Its: Secretary Its: Chief Executive Officer
[Corporate Seal]
5
<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is effective July 7, 1998
(the "Effective Date"), by and between THE BANK, an Alabama banking corporation
("Bank"), and WARRIOR CAPITAL CORPORATION, an Alabama corporation ("WCC";
hereinafter together with the Bank collectively referred to as "Employer"); and
W. T. CAMPBELL, JR., ("Executive").
RECITALS
WHEREAS, Pursuant to that certain Reorganization Agreement and Plan
of Merger dated June 16, 1998 among WCC and City National Corporation ("CNC")
(the "Merger Agreement"), the parties have agreed that CNC shall merge with and
into WCC and City National Bank of Sylacauga shall be merged with and into The
Bank;
WHEREAS, The Bank is a wholly-owned subsidiary of WCC; and
WHEREAS, Executive has been and continues to serve as the Chairman of
the Board of the City National Bank of Sylacauga and, Executive and Employer
have agreed to enter into this Agreement;
AGREEMENT
NOW THEREFORE, in consideration of the mutual recitals and covenants
contained herein, the parties hereby agree as follows:
1. EMPLOYMENT. Employer agrees to employ Executive and Executive agrees
to be employed by Employer, subject to the terms and provisions of this
Agreement.
2. TERM. The employment of Executive by Employer as provided in Section
1 will be a period of three (3) years commencing on the Effective Time (as
defined in the Merger Agreement), and terminable by Employer only upon prior
notice for a period equal to the remaining term or otherwise as provided in
Section 7.
3. DUTIES, EXTENT OF SERVICES. Executive shall perform for Employer all
duties incident to the position of Chairman of the Board of The Bank of
Sylacauga. In addition, Executive shall engage in such other services for
Employer or its affiliates as Employer from time to time shall reasonably
direct. Executive shall devote appropriate time, attention, and energy, to
Employer's business; provided that nothing contained herein is intended to
prohibit Executive from spending a reasonable amount of time managing his law
practice, or other business ventures, personal investments and discharging his
civic responsibilities.
<PAGE> 2
4. COMPENSATION.
During the Term of this Agreement:
a. Executive's annual cash compensation shall be an amount not less
than $135,000.00 (includes base salary only).
b. Life Insurance: Term life insurance as currently provided by CNB.
c. Health Insurance: Fully paid (customary plan).
d. Retirement: Standard plans offered by Employer, including
profit-sharing, 401K, etc.
e. Vacation, sick days, holidays: pursuant to Employer's standard
policies.
f. Full participation in other executive level compensation plans,
privileges and benefits offered by Employer and its affiliates until termination
of agreement.
5. DISCLOSURE OF INFORMATION. Executive will not, during or after the
term of this Agreement, (i) disclose any written confidential information of
Employer to any person, firm, corporation, association, or other entity not
employed by or affiliated with Employer for any reason or purpose whatsoever, or
(ii) use any written confidential information for any reason other than to
further the business of Employer. Executive agrees to return any written
confidential information, and all copies thereof, upon the termination of
Executive's employment (whether hereunder or otherwise).
6. COMPETITION. Except as specifically provided otherwise in this
Agreement, during the period of his employment by Employer and for such time as
Employer is paying to Executive all of the compensation provided in Section 4,
Executive will not, directly or indirectly, carry on or engage in similar
business or solicit or do similar business with any customer of Bank or WCC's
bank subsidiaries in any counties where the Bank or WCC's bank subsidiaries have
places of business on the date of termination.
7. TERMINATION.
a. Employer shall be obligated to comply with all provisions of this
Agreement and may terminate Executive only For Cause. "For Cause" shall
mean (i) any act on the part of Executive which constitutes fraud or
willful malfeasance of duty or an act of moral turpitude and is
demonstrably likely to lead to material injury to Bank or WCC, (ii) a
felony conviction of Executive; or (iii) the suspension or removal of
Executive by federal or state
Page 2
<PAGE> 3
banking regulatory authorities; provided, that "For Cause" shall not
include Executive's medical disability.
b. If Employer terminates Executive's employment hereunder "For
Cause" or if Executive terminates his employment hereunder Executive
shall not be entitled to any further compensation from Employer and the
provisions of Section 6 shall survive for one year following the date
of such termination.
c. If Employer terminates Executive other than "For Cause", (i) all
rights and obligations specified in Section 6 shall survive any such
termination for three years following the date of such termination and,
(ii) Executive shall continue to receive the compensation provided for
in Section 4, paragraphs a through f, for three years following the
date of such termination.
d. The provisions of Section 5 shall survive regardless of any
termination of Executive's employment hereunder, whether voluntary or
involuntary.
8. NOTICE. For the purpose of this Agreement, notices and demands
shall be deemed given when mailed by United States mail, addressed in the case
of Bank to The Bank, P.O. Box 490, Warrior, Alabama 35180-0490, Attention:
Chairman of the Board of Directors, with a copy to WCC at Warrior Capital
Corporation; P.O. Box 490, Warrior, Alabama 35180-0490, Attention: Chief
Executive Officer; or in the case of Executive, to W. T. Campbell, Jr., 2219
Lang Circle, Sylacauga, AL 35150.
9. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such modification, waiver or discharge is agreed to
in writing. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Alabama. This Agreement
supersedes and cancels any prior employment agreement or understanding entered
into between Executive and Employer or Executive and CNC or CNB.
10. VALIDITY. The invalidity of any provision or provisions of this
Agreement shall not affect any other provision of this Agreement, which shall
remain in full force and effect, nor shall the invalidity of a portion of any
provision of this Agreement affect the balance of such provision.
11. PARTIES. This Agreement shall be binding upon and shall inure to
the benefit of any successors or assigns to Bank or WCC. Executive may not
assign any of his rights or delegate any of his duties or obligations under this
Agreement or any portion hereof.
12. DEFINITIONS. Any capitalized terms not otherwise defined herein
shall have the meanings ascribed to them in the Merger Agreement.
Page 3
<PAGE> 4
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by Executive and by a duly authorized officer of each of Bank and WCC as of the
date first above written.
Witness: "Executive":
/s/ Kim H. Menis /s/ W. T. Campbell, Jr.
- ----------------------------- ----------------------------------------
W. T. Campbell, Jr.
"Bank":
Attest: THE BANK
By: By:
--------------------------- -------------------------------------
Its: Secretary Its: Chairman of the Board of Directors
(Corporate Seal)
"WCC"
Attest: WARRIOR CAPITAL CORPORATION
By: By:
--------------------------- -------------------------------------
Its: Secretary Its: Chairman of the Board of Directors
(Corporate Seal)
Page 4
<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is effective June 16, 1998
(the "Effective Date"), by and between CITY NATIONAL BANK OF SYLACAUGA, a
national banking corporation ("Bank"), and WARRIOR CAPITAL CORPORATION, an
Alabama corporation ("WCC"; hereinafter together with the Bank collectively
referred to as "Employer"); and GORDON R. BOYLES ("Executive").
RECITALS
WHEREAS, Pursuant to that certain Reorganization Agreement and Plan of
Merger dated June 16, 1998 among WCC and City National Corporation ("CNC")
(the "Merger Agreement"), the parties have agreed that CNC shall merge with and
into WCC and City National Bank of Sylacauga shall be merged with and into The
Bank, an Alabama banking corporation;
WHEREAS, the Bank is a subsidiary of CNC; and
WHEREAS, Executive has been and continues to employed by the Bank and,
as a condition to the consummation of the transactions provided for in the
Merger Agreement, Executive and Employer have agreed to enter into this
Agreement;
AGREEMENT
NOW THEREFORE, in consideration of the mutual recitals and covenants
contained herein, the parties hereby agree as follows:
1. EMPLOYMENT. Employer agrees to employ Executive and Executive agrees
to be employed by Employer, subject to the terms and provisions of this
Agreement.
2. TERM. The employment of Executive by Employer as provided in Section
1 will be for a period of three (3) years commencing on June 16, 1998.
3. DUTIES: EXTENT OF SERVICES. Executive shall perform for Employer all
duties incident to the position of Vice-Chairman of the Board of Bank. In
addition, Executive shall engage in such other services for Employer or its
affiliates as Employer from time to time shall direct. Executive shall use his
best efforts in, and devote his entire time, attention, and energy, to
Employer's business; provided that nothing contained herein is intended to
prohibit Executive from spending a reasonable amount of time managing his
personal investments and discharging his civic responsibilities as long as such
activities do not interfere with his duties and obligations under this
agreement.
<PAGE> 2
4. COMPENSATION.
During the Term of this Agreement:
a. Executive's total annual cash compensation shall be an amount not
less than $95,000,00 (includes salary).
b. Life Insurance: Term life insurance as currently provided by CNB.
c. Health Insurance: Fully paid (customary plan).
d. Automobile: Bank shall furnish Executive with an automobile
commensurate with Executive's position.
e. Retirement: Standard plans offered by Employer, including
profit-sharing, 401K, etc.
f. Vacation, sick days, holidays: pursuant to Employer's standard
policies.
g. Full participation in other executive level compensation plans,
privileges and benefits offered by Bank or The Bank and their
affiliates until termination of agreement.
5. DISCLOSURE OF INFORMATION. Executive will not, during or after the
term of this Agreement, (i) disclose any written confidential information of
Employer to any person, firm, corporation, association, or other entity not
employed by or affiliated with Employer for any reason or purpose whatsoever, or
(ii) use any written confidential information for any reason other than to
further the business of Employer. Executive agrees to return any written
confidential information, and all copies thereof, upon the termination of
Executive's employment (whether hereunder or otherwise).
6. COMPETITION. Except as specifically provided otherwise in this
Agreement, during the period of his employment by Employer and for such time as
Employer is paying to Executive all of the compensation provided in Section 4,
Executive will not, directly or indirectly, carry on or engage in similar
business or solicit or do similar business with any customer of Bank or WCC's
bank subsidiaries in any counties where the Bank or WCC's bank subsidiaries have
places of business on the date of termination.
7. TERMINATION.
a. Employer shall be obligated to comply with all provisions of this
Agreement and may terminate Executive only For Cause. "For Cause" shall
mean (i) any act on the part of Executive which constitutes fraud or
willful malfeasance of duty or an act of moral turpitude and is
demonstrably likely to lead to material injury to Bank or WCC, (ii) a
felony
Page 2
<PAGE> 3
conviction of Executive; or (iii) the suspension or removal of
Executive by federal or state banking regulatory authorities; provided,
that "For Cause" shall not include Executive's medical disability.
b. If Employer terminates Executive's employment hereunder
"For Cause" or if Executive terminates his employment hereunder
Executive shall not be entitled to any further compensation from
Employer and the provisions of Section 6 shall survive for one year
following the date of such termination.
c. If Employer terminates Executive other than "For Cause",
(i) all rights and obligations specified in Section 6 shall survive any
such termination for three years following the date of such termination
and, (ii) Executive shall continue to receive the compensation provided
for in Section 4 for three years following the date of such
termination.
d. The provisions of Section 5 shall survive regardless of any
termination of Executive's employment hereunder, whether voluntary of
involuntary.
8. NOTICE. For the purpose of this Agreement, notices and demands
shall be deemed given when mailed by United States mail, addressed in the case
of Bank to City National Bank of Sylacauga, Sylacauga, Alabama, Attention:
Chairman of the Board of Directors, with a copy to WCC at Warrior Capital
Corporation; P.O. Box 490, Warrior, Alabama 35180-0490, Attention: Chief
Executive Officer;, or in the case of Executive, to Gordon R. Boyles, 2036
Arrowhead Drive, Sylacauga, AL 35150.
9. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such modification, waiver or discharge is agreed to
in writing. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Alabama. This Agreement
supersedes and cancels any prior employment agreement or understanding entered
into between Executive and Employer or Executive and CNC or CNB.
10. VALIDITY. The invalidity of any provision or provisions of this
Agreement shall not affect any other provision of this Agreement, which shall
remain in full force and effect, nor shall the invalidity of a portion of any
provision of this Agreement affect the balance of such provision.
11. PARTIES. This Agreement shall be binding upon and shall inure to
the benefit of any successors or assigns to Bank or WCC. Executive may not
assign any of his rights or delegate any of his duties or obligations under this
Agreement or any portion hereof
12. DEFINITIONS. Any capitalized terms not otherwise defined herein
shall have the meanings ascribed to them in the Merger Agreement.
13, In the Event that CNC and WCC do not merge, then WCC shall be
deemed released from this contract.
Page 3
<PAGE> 4
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by Executive and by a duly authorized officer of each of Bank and WCC as of the
date first above written.
Witness: "Executive":
/s/ Kim H. Menis /s/ Gordon R. Boyles
- ------------------------------- ----------------------------------------
Gordon R. Boyles
Attest: CITY NATIONAL BANK OF SYLACAUGA
By: /s/ F. Parker Cather By: /s/ W.T. Campbell
------------------------------- -------------------------------------
Its: Secretary Its: Chairman of the Board of Directors
(Corporate Sea])
"WCC"
Attest: WARRIOR CAPITAL CORPORATION
By: By:
------------------------------- -------------------------------------
Its: Secretary Its: Chief Executive Officer
(Corporate Seal)
Page 4
<PAGE> 1
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is effective June 16, 1998
(the "Effective Date"), by and between CITY NATIONAL BANK OF SYLACAUGA ("CNB"),
a national banking corporation ("Bank"), and WARRIOR CAPITAL CORPORATION, an
Alabama corporation ("WCC"; hereinafter together with the Bank collectively
referred to as "Employer"); and WILLIAM P. RILEY ("Executive").
RECITALS
WHEREAS, Pursuant to that certain Reorganization Agreement and Plan of
Merger dated June 16, 1998 among WCC and City National Corporation ("CNC") (the
"Merger Agreement"), the parties have agreed that CNC shall merge with and into
WCC and City National Bank of Sylacauga shall be merged with and into The Bank,
an Alabama banking corporation;
WHEREAS, the Bank is a subsidiary of CNC; and
WHEREAS, Executive has been and continues to employed by the Bank and,
as a condition to the consummation of the transactions provided for in the
Merger Agreement, Executive and Employer have agreed to enter into this
Agreement;
AGREEMENT
NOW THEREFORE, in consideration of the mutual recitals and covenants
contained herein, the parties hereby agree as follows:
1. EMPLOYMENT. Employer agrees to employ Executive and Executive agrees
to be employed by Employer, subject to the terms and provisions of this
Agreement.
2. TERM. The employment of Executive by Employer as provided in Section
1 will be for a period of three (3) years commencing on June 16, 1998.
3. DUTIES: EXTENT OF SERVICES. Executive shall perform for Employer all
duties incident to the position of President and CEO of Bank and, after merger,
The Bank of Sylacauga. In addition, Executive shall engage in such other
services for Employer or its affiliates as Employer from time to time shall
direct. Executive shall use his best efforts in, and devote his entire time,
attention, and energy, to Employer's business; provided that nothing contained
herein is intended to prohibit Executive from spending a reasonable amount of
time managing his personal investments and discharging his civic
responsibilities as long as such activities do not interfere with his duties and
obligations under this agreement.
<PAGE> 2
4. COMPENSATION.
During the Term of this Agreement:
a. Executive's annual base salary shall be an amount not less than
$90,000.00.
b. Life Insurance: Term life insurance as currently provided by CNB.
c. Health Insurance: Fully paid (customary plan).
d. Automobile: Bank shall furnish Executive with an automobile
commensurate with Executive's position.
e. Retirement: Standard plans offered by Employer, including
profit-sharing, 401K, etc.
f. Vacation, sick days, holidays: pursuant to Employer's standard
policies.
g. Full participation in other executive level compensation plans,
privileges and benefits offered by Bank or The Bank and their
affiliates until termination of agreement.
h. Executive shall be reimbursed for his moving expense to
Sylacauga, Alabama, up to $5,000.00 provided such move takes place
within 24 months.
5. DISCLOSURE OF INFORMATION. Executive will not, during or after the
term of this Agreement, (i) disclose any written confidential information of
Employer to any person, firm, corporation, association, or other entity not
employed by or affiliated with Employer for any reason or purpose whatsoever, or
(ii) use any written confidential information for any reason other than to
further the business of Employer. Executive agrees to return any written
confidential information, and all copies thereof, upon the termination of
Executive's employment (whether hereunder or otherwise).
6. COMPETITION. Except as specifically provided otherwise in this
Agreement, during the period of his employment by Employer and for such time as
Employer is paying to Executive all of the compensation provided in Section 4,
Executive will not, directly or indirectly, carry on or engage in similar
business or solicit or do similar business with any customer of Bank or WCC's
bank subsidiaries in any counties where the Bank or WCC's bank subsidiaries have
places of business on the date of termination.
Page 2
<PAGE> 3
7. TERMINATION.
a. Employer shall be obligated to comply with all provisions of this
Agreement and may terminate Executive only For Cause. "For Cause" shall
mean (i) any act on the part of Executive which constitutes fraud or
willful malfeasance of duty or an act of moral turpitude and is
demonstrably likely to lead to material injury to Bank or WCC, (ii) a
felony conviction of Executive; or (iii) the suspension or removal of
Executive by federal or state banking regulatory authorities; provided,
that "For Cause" shall not include Executive's medical disability.
b. If Employer terminates Executive's employment hereunder "For
Cause" or if Executive terminates his employment hereunder Executive
shall not be entitled to any further compensation from Employer and the
provisions of Section 6 shall survive for one year following the date
of such termination.
c. If Employer terminates Executive other than "For Cause", (i) all
rights and obligations specified in Section 6 shall survive any such
termination for three years following the date of such termination and,
(ii) Executive shall continue to receive the compensation provided for
in Section 4 for three years following the date of such termination.
d. The provisions of Section 5 shall survive regardless of any
termination of Executive's employment hereunder, whether voluntary of
involuntary.
8. NOTICE. For the purpose of this Agreement, notices and demands shall
be deemed given when mailed by United States mail, addressed in the case of Bank
to City National Bank of Sylacauga, Sylacauga, Alabama, Attention: Chairman of
the Board of Directors, with a copy to WCC at Warrior Capital Corporation; P.O.
Box 490, Warrior, Alabama 35180-0490, Attention: Chief Executive Officer; or in
the case of Executive, to William P. Riley, 2120 Cahaba Crest Drive, Birmingham,
AL 35242.
9. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such modification, waiver or discharge is agreed to
in writing. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Alabama. This Agreement
supersedes and cancels any prior employment agreement or understanding entered
into between Executive and Employer or Executive and CNC or CNB.
10. VALIDITY. The invalidity of any provision or provisions of this
Agreement shall not affect any other provision of this Agreement, which shall
remain in full force and effect, nor shall the invalidity of a portion of any
provision of this Agreement affect the balance of such provision.
11. PARTIES. This Agreement shall be binding upon and shall inure to
the benefit of any successors or assigns to Bank or WCC. Executive may not
assign any of his rights or delegate any of his duties or obligations under this
Agreement or any portion hereof.
Page 3
<PAGE> 4
12. DEFINITIONS. Any capitalized terms not otherwise defined herein
shall have the meanings ascribed to them in the Merger Agreement.
13. In the Event that CNC and WCC do not merge, then WCC shall be
deemed released from this contract.
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by Executive and by a duly authorized officer of each of Bank and WCC
as of the date first above written.
Witness: "Executive":
/s/ Lisa Guy /s/ William P. Riley
- ---------------------------- ----------------------------------------
William P. Riley
Attest: CITY NATIONAL BANK OF SYLACAUGA
By: /s/ F. Parker Cather By:/s/ W. T. Campbell, Jr.
------------------------- -------------------------------------
Its: Secretary Its: Chairman of the Board of Directors
(Corporate Seal)
WCC
Attest:
WARRIOR CAPITAL CORPORATION
By: By:
------------------------- -------------------------------------
Its: Secretary Its: Chief Executive Officer
(Corporate Seal)
Page 4
<PAGE> 1
EXHIBIT (10)-7
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made by and among
WARRIOR CAPITAL CORPORATION (the "Company"), and James A. Taylor, an individual
resident of Alabama (the "Executive") as of the 1st day of November, 1997.
1. Employment. The Company shall employ the Executive, and the
Executive shall continue to serve the Company, as Chairman of the Board,
President and Chief Executive Officer and as Chairman of the Board of a bank to
be based in Birmingham which will be the Company's Birmingham bank subsidiary, a
wholly owned subsidiary of the Company, and any other position agreed upon by
the parties, upon the terms and conditions set forth herein. The Executive shall
have such authority and responsibilities consistent with his position and which
may be set forth in the Company's bylaws or assigned by the Company's Board from
time to time. The Executive shall devote his business time, attention, skill and
efforts to the performance of his duties hereunder, except during periods of
illness or periods of vacation and leaves of absence consistent with Company
policy. The Executive may devote reasonable periods of time to serve as a
director or advisor to other organizations, to charitable and community
activities and to managing his personal investments, provided that such
activities do not materially interfere with the performance of his duties
hereunder and are not in conflict or competitive with, or adverse to, the
interests of the Company.
2. Term. Unless earlier terminated as provided herein, the Executive's
employment under this Agreement shall be for a continuing term (the "Term") of
three years which shall be extended automatically (without further action of the
Company or the Executive) each day for an additional day so that the remaining
term shall continue to be three years; provided that either
1
<PAGE> 2
party may at any time, by written notice to the other, fix the Term to a finite
term of three years, without further automatic extension, commencing with the
date of such notice.
3. Compensation and Benefits.
(a) Executive shall receive a base salary of $150,000 per annum,
pro rated, for work done pursuant to this Agreement between the date of its
signing and December 31, 1997. The base salary shall be paid monthly. Beginning
January 1, 1998, the Company shall pay the Executive a salary at a rate of not
less than $150,000 per annum for the first full calendar year of this Agreement
(through December 31, 1998), $200,000 per annum for the second full calendar
year of this Agreement (through December 31, 1999) and $250,000 per annum for
the third full calendar year of this Agreement; provided, however, that in the
event of a Change in Control or an initial public offering by the Company, the
Executive's base salary shall be at least $250,000. The Company's Board (or its
compensation committee) shall review the Executive's salary at least annually
and may increase the Executive's base salary if it determines in its sole
discretion that an increase is appropriate. The Company or the Bank shall also
pay to the Executive Directors' fees for serving on the various Board of
Directors of the Company, the Bank or any branches of the Bank or any other
subsidiaries of the Company or the Bank.
(b) The Executive shall participate in a management incentive
program and shall receive quarterly payments of fifteen percent (15%) of his
annual base salary then in effect. The first quarterly bonus payment shall be
due March 31, 1998 for the quarter then ended. In addition, the Company's Board
of Directors shall annually consider the Executive's performance, and determine
if any additional bonus is appropriate.
2
<PAGE> 3
(c) If at any time during the Term, or within 90 days thereafter,
the Company completes an Initial Public Offering or if there shall occur a
Change in Control, the Executive shall be granted an option to purchase shares
of the voting common stock of the Company, which option shall be fully vested at
the date of grant. The number of shares, the purchase price of each share and
the term of the option shall be determined by the Board of Directors of the
Company. In addition, in the event the Company shall adopt a stock option plan
in the future, the Executive shall be entitled to participate in and be eligible
for the grant of stock options, restricted stock and other awards thereunder.
(d) The Executive shall participate in all retirement, welfare,
deferred compensation, life and health insurance and other benefit plans or
programs of the Company now or hereafter applicable to the Executive or
applicable generally to employees of the Company or to a class of employees that
includes senior executives of the Company upon reaching 64 years of age. Prior
to reaching age 64, the Executive may participate in all retirement, welfare,
deferred compensation, life and health insurance and other benefit plans or
programs of the Company now or hereafter applicable to the Executive or
applicable generally to employees of the Company or to a class of employees that
includes senior executives of the Company if Executive is not covered under any
similar plan or plans, the premium or provision of which are paid by third
parties. During any period during the Term that the Executive is subject to a
Disability, and during the 180 day period of physical or mental infirmity
leading up to the Executive's Disability, the amount of the Executive's
compensation provided under this Section 3 shall be reduced by the sum of the
amounts, if any, paid to the Executive for the same period under any disability
benefit or pension plan of the Company or any of its subsidiaries. The Company
shall purchase a "Key Man" life
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insurance policy in the face amount of $6,000,000 and disability insurance with
a benefit of up to a maximum of $25,000 per month, assuming Executive qualifies
for such an amount of disability insurance under such benefit programs or plans.
Upon the expiration of five years from the date hereof, Executive shall be
entitled to purchase this policy from the Company. Executive shall also be
entitled to receive up to $10,000 per annum for medical expenses not covered by
insurance.
(e) The Company shall provide to the Executive an automobile owned
or leased by the Company of a make and model appropriate to the Executive's
status or, in lieu thereof, shall provide the Executive with an annual allowance
of not less than $15,000 to partially cover the cost of the business use of an
automobile owned or leased by the Executive.
(f) The Company shall reimburse the Executive's reasonable
expenses for initiation fees, dues and capital assessments for athletic, country
and dining club memberships currently held by the Executive; provided that if
the Executive during the term of his employment with the Company ceases his
membership in any such clubs and any bonds or other capital payments made by the
Company are repaid to the Executive, the Executive shall pay over such payments
to the Company.
(g) The Company shall reimburse the Executive for travel, seminar
and other expenses related to the Executive's duties which are incurred and
accounted for in accordance with the historic practices of the Company.
(h) Executive shall be entitled to four weeks of paid vacation per
year.
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4. Termination.
(a) The Executive's employment under this Agreement may be
terminated prior to the end of the Term only as follows:
(i) upon the death of the Executive;
(ii) by the Company due to the Disability of the Executive
upon delivery of a Notice of Termination to the Executive;
(iii) by the Company for Cause upon delivery of a Notice of
Termination to the Executive; and
(iv) by the Executive for Good Reason upon delivery of a
Notice of Termination to the Company after any occurrence of a Change
in Control or in the event of a Constructive Termination.
(b) If the Executive's employment with the Company shall be
terminated during the Term (i) by reason of the Executive's death, or (ii) by
the Company for Disability or Cause, the Company shall pay to the Executive (or
in the case of his death, the Executive's estate) within fifteen days after the
Termination Date a lump sum cash payment equal to the Accrued Compensa tion and,
if such termination is other than by the Company for Cause, the Pro Rata Bonus.
(c) If the Executive's employment with the Company shall be
terminated by the Company in violation of this Agreement, by the Executive for
Good Reason or in the event of a Constructive Termination, in addition to other
rights and remedies available in law or equity, the Executive shall be entitled
to the following:
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(i) the Company shall pay the Executive in cash within
fifteen days of the Termination Date an amount equal to all Accrued
Compensation and the Pro Rata Bonus;
(ii) the Company shall pay to the Executive in cash at the
end of each of the thirty-six consecutive thirty day periods following
the Termination Date an amount equal to one-twelfth of the sum of the
Base Amount (including any increases in base salary called for by
Section 3(a) of this Agreement) plus the Bonus Amount (including any
increases in bonus amount called for by Section 3(b) of this Agreement)
plus all benefits provided in Section 3 and all Director's fees,
including retainers, to which the Executive would be entitled for the
same period, or within 30 days, at the Executive's option, a lump sum
equal to the present value of the payments due under this paragraph
(c)(ii); provided, however, that such lump sum amount shall be reduced
to its net present value assuming an interest rate equal to six percent
(6%) and 36 equal monthly payments commencing on the Termination Date;
(iii) for the period from the Termination Date through the
date that Executive attains the age of 75 (the "Continuation Period"),
the Company shall at its expense continue on behalf of the Executive
and his dependents and beneficiaries the life insurance, disability,
medical, dental and hospitalization benefits provided (x) to the
Executive at any time during the 90-day period prior to the Change in
Control or at any time thereafter or (y) to other similarly situated
executives who continue in the employ of the Company during the
Continuation Period. The
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coverage and benefits (including deductibles and costs) provided in
this Section 4(c)(iii) during the Continuation Period shall be no less
favorable to the Executive and his dependents and beneficiaries than
the most favorable of such coverages and benefits during any of the
periods referred to in clauses (x) and (y) above. The Company's
obligation hereunder with respect to the foregoing benefits shall be
limited to the extent that the Executive obtains any such benefits
pursuant to a subsequent employer's benefit plans, in which case the
Company may reduce the coverage of any benefits it is required to
provide the Executive hereunder as long as the aggregate coverages and
benefits of the combined benefit plans are no less favorable to the
Executive than the coverages and benefits required to be provided
hereunder. Further, all benefits under this subsection (iii) (other
than health insurance and other medical and hospitalization benefits
which shall continue for the entire Continuation Period) shall not be
continued longer than three years after the Termination Date, even if
the Executive has not obtained such other benefits under another
employer's benefit plan. This subsection (iii) shall not be interpreted
so as to limit any benefits to which the Executive or his dependents or
beneficiaries may be entitled under any of the Company's employee
benefit plans, programs or practices following the Executive's
termination of employment, including without limitation, retiree
medical and life insurance benefits; and
(iv) the restrictions on any outstanding incentive awards
(including stock options) granted to the Executive under any Company's
stock option plan or under any other incentive plan or arrangement
shall lapse and such incentive award shall
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become 100% vested, all stock options and stock appreciation rights
granted to the Executive shall be immediately exercisable and shall be
100% vested. The period in which Executive may exercise any option
granted shall be the full term of such option.
(d) The Executive shall not be required to mitigate the amount of
any payment provided for in this Agreement by seeking other employment or
otherwise, and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to the Executive in any subsequent employment
except as provided in Section 4(c)(iii).
(e) In the event that any payment or benefit (within the meaning
of Section 280 G(b)(2) of the Internal Revenue Code of 1986, as amended (the
"Code")) to the Executive (or for his benefit) paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise in connection
with, or arising out of, his relationship with the Company or a change in
ownership or effective control of the Company or of a substantial portion of its
assets (a "Payment" or "Payments"), would be subject to the excise tax imposed
by Section 4999 of the Code or if that certain Plan and Agreement of Merger
dated as of November 1, 1997 by and between Taylor Acquisition Corporation,
Warrior Capital Corporation and Warrior Merger Corporation was determined not to
be a valid tax-free reorganization pursuant to Section 368 of the Code and the
Executive was found to owe tax on the Merger Consideration as defined therein,
or any interest or penalties are incurred by the Executive with respect to any
such excise or other taxes (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax" and any
other tax together with any such interest and penalties are herein referred to
as "Other Taxes"), then the Executive will be entitled to receive an additional
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payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties, other than interest
and penalties imposed by reason of the Executive's failure to file timely a tax
return or pay taxes shown due on his return, imposed with respect to such Other
Tax and the Excise Tax), including any Excise Tax or Other Tax imposed upon the
Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal
to the Excise Tax or Other Taxes imposed upon the Payments.
(f) The severance pay and benefits provided for in this Section 4
shall be in lieu of any other severance or termination pay to which the
Executive may be entitled under any Company severance or termination plan,
program, practice or arrangement. The Executive's entitlement to any other
compensation or benefits shall be determined in accordance with the Company's
employee benefit plans and other applicable programs, policies and practices
then in effect.
5. Trade Secrets. The Executive shall not, at any time, either
during the Term of his employment or after the Termination Date, if such
Termination is for cause, use or disclose any Trade Secrets of the Company,
except in fulfillment of his duties as the Executive during his employment, for
so long as the pertinent information or data remain Trade Secrets, whether or
not the Trade Secrets are in written or tangible form.
6. Successors; Binding Agreement.
(a) This Agreement shall be binding upon and shall inure to the
benefit of the Company, its Successors and Assigns and the Company shall
require any Successors and Assigns to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession or assignment had taken place.
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(b) Neither this Agreement nor any right or interest hereunder
shall be assignable or transferable by the Executive, his beneficiaries or legal
representatives, except by will or by the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal personal representative.
7. Fees and Expenses. The Company shall pay all legal fees and
related expenses (including but not limited to the costs of experts, accountants
and counsel) incurred by the Executive as they become due as a result of (a) the
Executive's termination of employment (including all such fees and expenses, if
any, incurred in contesting or disputing any such termination of employment)
and (b) the Executive seeking to obtain or enforce any right or benefit provided
by this Agreement; provided, however, that the circumstances set forth in
clauses (a) and (b) occurred on or after a Change in Control.
8. Notice. For the purposes of this Agreement, notices and all
other communications provided for in the Agreement (including the Notice of
Termination) shall be in writing and shall be deemed to have been duly given
when personally delivered or sent by certified mail, return receipt requested,
postage prepaid, addressed to the respective addresses last given by each party
to the other, provided that all notices to the Company shall be directed to the
attention of the Board of Directors with a copy to the Secretary of the Company.
All notices and communications shall be deemed to have been received on the date
of delivery thereof.
9. Settlement of Claims. The Company's obligation to make the
payments provided for in this Agreement and to otherwise perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the Company may have against the Executive or others. The Company may,
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however, withhold from any benefits payable under this Agreement all federal,
state, city or other taxes as shall be required pursuant to any law or
governmental regulation or ruling,
10. Modification and Waiver. No provisions of this Agreement may
be modified, waived or discharged unless such waiver, modification or discharge
is agreed to in writing and signed by the Executive and the Company. No waiver
by any party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
11. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Alabama
without giving effect to the conflict of laws principles thereof. Any action
brought by any party to this Agreement shall be brought and maintained in a
court of competent jurisdiction in the State of Alabama.
12. Severability. The provisions of this Agreement shall be deemed
severable, and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
13. Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto and supersedes all prior agreements, if
any, understandings and arrangements, oral or written, between the parties
hereto with respect to the subject matter hereof.
14. Headings. The headings of Sections herein are included solely
for convenience of reference and shall not control the meaning or interpretation
of any of the provisions of this Agreement.
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15. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
16. Demand Registration Rights.
(a) Subject to the provisions of this Section 16(a), upon the
Executive's termination of employment, for any reason, and after the Company
completes its Initial Public Offering the Executive may request registration for
sale under the Act of all or part of the Common Stock then held by him
(excluding, for purposes of this Section 16(a), shares subject to the stock
options held by the Executive as to which the vesting provisions shall not have
lapsed). Any such request shall specify the number of shares proposed to be
registered and sold and the name of the managing underwriter of the proposed
offering (who must be acceptable to the Company in its reasonable discretion).
(b) Exceptions. The Company shall not be required to effect a
demand registration under the Act pursuant to Section 16(a) above if (i) the
aggregate market value of the shares of Common Stock proposed to be registered
does not equal or exceed $1,000,000; (ii) within twelve months prior to any such
request for registration, a registration of securities of the Company has been
effected in which the Executive had the right to participate pursuant to this
Section 16 or Section 17 hereof; (iii) the Company receives such request for
registration within 180 days preceding the anticipated effective date of a
proposed underwritten public offering of securities of the Company approved by
the Company's Board of Directors prior to the Company's receipt of such request;
or (iv) the Board of Directors of the Company reasonably determines in good
faith that effecting such a demand registration at such time would have a
material adverse effect upon
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a proposed sale of all (or substantially all) of the assets of the Company, or a
merger, reorganization, recapitalization or similar transaction materially
affecting the capital structure or equity ownership of the Company which is
actively being negotiated with another party whose identity is disclosed to the
Executive; provided, however, that the Company may only delay a demand
registration pursuant to this Section 16(b)(iv) for a period not exceeding 6
months (or until such earlier time as such transaction is consummated or no
longer proposed). The Company shall promptly notify the Executive in writing of
any decision not to effect any such request for registration pursuant to this
Section 16(b), which notice shall set forth in detail the reason for such
decision and shall include an undertaking by the Company to promptly notify the
Executive as soon as a demand registration may be effected.
(c) Reduction. If the managing underwriters advise the Company and
the Executive participating in the demand registration in writing that in their
opinion the number of shares of Common Stock held by the Executive which they
requested to be included in such registration exceeds the number which can be
sold in such offering, then the amount of such shares that may be included in
such registration shall be reduced to the number of shares that the managing
underwriters determine is marketable.
(d) Withdrawal. The Executive may withdraw at any time before a
registration state ment filed pursuant to this section is declared effective, in
which event the Company may withdraw such registration statement. If the
Company withdraws a registration statement under this Section 16(d) in respect
of a registration for which the Company would otherwise be required to pay some
expenses under Section 18(c), (d) and (e) hereof, then the Executive shall be
liable to the Company for all expenses of such registration specified in Section
18(c), (d) and (e) hereof.
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17. Piggyback Registration Rights.
(a) Rights. Subject to the provisions of this Section 17, after
the Company completes its Initial Public Offering, if the Company proposes to
make a registered public offering of any of its securities under the Act
(whether to be sold by it or by one or more third parties), other than an
offering pursuant to a demand registration under Section 16 hereof or an
offering registered on Form S-8, Form S-4 or comparable forms, the Company
shall, not less than 45 days prior to the proposed filing date of the
registration form, give written notice of the proposed registration to the
Executive, and at the written request of the Executive delivered to the Company
within 15 days after the receipt of such notice, shall include in such
registration and offering, and in any underwriting of such offering, all shares
of Common Stock as may have been designated in the Executive's request.
(b) Primary Offering Reduction. If a registration in which the
Executive has the right to participate pursuant to this Section 17 is an
underwritten primary registration on behalf of the Company, and the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold in such offering, the Company shall include in such
registration (i) first, the securities of the Company proposed to be sold, and
(ii) second, the Common Stock owned by the Executive.
(c) Secondary Offering Reduction. If a registration in which the
Executive has the right to participate pursuant to this Section 17 is an
underwritten secondary registration, and the managing underwriters advise the
Company in writing that in their opinion the number of shares requested to be
included in such registration exceeds the number of shares which can be sold in
such offering, then the Company shall include in such offering the number of
shares of Common
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Stock owned and proposed to be sold by the Company and by any other participants
(including Executive) proposing (and entitled) to sell shares pursuant to such
registration which the underwriters advise the Company can be sold in the
offering, in proportion to the number of shares of Common Stock so requested by
each of them to be included.
18. Other Registration Issues.
(a) The Company shall have no obligation to file a registration
statement pursuant to Section 16 hereof, or to include shares of Common Stock
owned by the Executive in a registration statement pursuant to Section 17
hereof, unless and until the Executive has furnished the Company with all
information and statements about or pertaining to the Executive in such
reasonable detail as is reasonably deemed by the Company to be necessary or
appropriate with respect to the preparation of the registration statement.
Whenever any Executive has requested that any shares of Common Stock be
registered pursuant to Sections 16 or 17 hereof, subject to the provisions of
those Sections, the Company shall, as expeditiously as reasonably possible:
(i) prepare and file with the SEC a registration
statement with respect to such shares and use its best efforts to cause
such registration statement to become effective as soon as reasonably
practicable thereafter (provided that before filing a registration
statement or prospectus or any amendments or supplements thereto, the
Company shall furnish counsel for the Executive with copies of all such
documents proposed to be filed);
(ii) prepare and file with the SEC such amendments and
supplements to such registration statement and prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for a period of not less than
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nine months or until the underwriters have completed the distribution
described in such registration statement, whichever occurs first;
(iii) furnish to the Executive such number of copies of
such registration statement, each amendment and supplement thereto, the
prospectus included in such registration statement (including each
preliminary prospectus), and such other documents as the Executive may
reasonably request;
(iv) use its best efforts to register or qualify such
shares under such other securities or Blue Sky Laws of such
jurisdictions as the Executive reasonably requests (and to maintain
such registrations and qualifications effective for a period of nine
months or until the underwriters have completed the distribution of
such shares, whichever occurs first), and to do any and all other acts
and things which may be necessary or advisable to enable the Executive
or underwriters to consummate the disposition in such jurisdictions of
such shares; provided, however, that the Company will not be required
to (a) qualify generally to do business in any jurisdiction where it
would not be required but for this Section 18(a)(iv), or (b) subject
itself to taxation in any such jurisdiction; provided, further, that,
notwithstanding anything to the contrary in this Agreement with
respect to the bearing of expenses, if any such jurisdiction shall
require that expenses incurred in connection with the qualification of
such shares in that jurisdiction be borne in part or full by the
Executive, then the Executive shall pay such expenses to the extent
required by such jurisdiction;
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(v) cause all such shares to be listed on securities
exchanges, if any, on which similar securities issued by the Company
are then listed;
(vi) provide a transfer agent and registrar for all such
shares not later than the effective date of such registration
statements;
(vii) enter into such customary agreements (including an
underwriting agreement in customary form) and take all such other
actions as the Executive and underwriters reasonably request (and
subject to approval by the Company's counsel) in order to expedite or
facilitate the disposition of such shares; and
(viii) make available for inspection by the Executive, by
any underwriter participating in any distribution pursuant to such
registration statement, and by any attorney, accountant or other agent
retained by the Executive or underwriter, or by any such underwriter,
all financial and other records, pertinent corporate documents, and
properties (other than confidential intellectual property) of the
Company; provided, however, that the Company can condition delivery of
any informaion, records or corporate documents upon the receipt from
the Executive and the underwriter and their counsel, accountants,
advisors and agents, of a confidentiality agreement in form and
substance acceptable to the Company and its counsel in the exercise of
their exclusive discretion,
(b) Holdback Agreement. In the event that the Company effects an
underwritten public offering of any of the Company's equity securities, the
Executive agrees, if requested by the managing underwriters, not to effect any
sale or distribution, including any sale pursuant to Rule 144
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under the Act, of any equity securities (except as part of such underwritten
offering) during the 180-day period commencing with the effective date of the
registration statement for such offering.
(c) Stockholder Expenses. If, pursuant to Section 16 or 17 hereof,
shares of Common Stock owned by the Executive are included in a registration
statement, then the Executive shall pay all transfer taxes, if any, relating to
the sale of his shares, the fees and expenses of his own counsel, and his pro
rata portion of any underwriting discounts, fees or commissions or the
equivalent thereof.
(d) The Company's Expenses. Except for the fees and expenses
specified in Section 18(c) hereof and except as provided in this Section 18(d),
the Company shall pay all expenses incident to the registration and to the
Company's performance of or compliance with this Agreement, including, without
limitation, all registration and filing fees, fees and expenses of compliance
with securities or Blue Sky Laws, underwriting discounts, fees and commissions
(other than the Executive's pro rata portion of any underwriting discounts or
commissions or the equivalent thereof), printing expenses, messenger and
delivery expenses, and fees and expenses of counsel for the Company and all
independent certified public accountants and other persons retained by the
Company. If the Company shall previously have paid, pursuant to this Section
18(d), the expenses of a registration, then the Executive shall pay all expenses
described in this Section 18(d) (but not expenses described in Section 18(e)
hereof).
(e) Other. With respect to any registration pursuant to Section 16
or 17 hereof, the Company shall pay its internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties) and the expenses and fees for
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listing the securities to be registered on exchanges on which similar securities
issued by the Company are then listed.
(f) Indemnity. In the event that any shares of Common Stock owned
by the Executive are offered or sold by means of a registration statement
pursuant to Section 16 or 17 hereof, the Company agrees to indemnify and hold
harmless the Executive and each person, if any, who controls or may control the
Executive within the meaning of the Act (the Executive and any such other
persons being hereinafter referred to individually as an "Indemnified Person"
and collectively as "Indemnified Persons") from and against all demands, claims,
actions or causes of action, assessments, losses, damages, liabilities, costs
and expenses, including, without limitation, interest, penalties and reasonable
attorneys fees and disbursements, asserted against, resulting to, imposed upon
or incurred by such Indemnified Person, jointly or severally, directly or
indirectly (hereinafter referred to in this Section 18(f) in the singular as a
"claim" and in the plural as "claims"), based upon, arising out of or resulting
from any untrue statement or alleged untrue statement of a material fact
contained in the registration statement, any preliminary or final prospectus
contained therein, or any amendment or supplement thereto, or any document
incident to registration or qualification of any such shares, or any omission or
alleged omission to state therein a material fact necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading, or any violation by the Company of the Act of any state
securities or Blue Sky Laws, except insofar as such claim is based upon, arises
out of or results from information developed or certified by the Executive for
use in connection with the registration statement or arises out of or results
from the omission of information and known to the Executive prior to the
violation or alleged violation, provided, that the maximum amount of
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liability in respect of such indemnification shall be limited, in the case of
the Company or the Executive, respectively, to an amount equal to the net
proceeds actually received by the Company or the Executive, respectively, from
the sale of such shares effected pursuant to such registration. The Executive
agrees to indemnify and hold harmless the Company, its officers and directors,
and each person, if any, who controls or may control the Company within the
meaning of the Act (the Company, its officers and directors, and any such
persons also being hereinafter referred to individually in this context as an
"Indemnified Person" and collectively as "Indemnified Persons") from and against
all claims based upon, arising out of, or resulting from any untrue statement of
a material fact contained in the registration statement, or any omission to
state therein a material fact necessary in order to make the statement made
therein, in the light of the circumstances under which they were made, not
misleading, to the extent that such claim is based upon, arises out of, or
results from information developed or certified by the Executive for use in
connection with the registration statement or arises out of, or results from an
omission of information known to the Executive prior to the violation or alleged
violation. The indemnifications set forth herein shall be in addition to any
liability the Company or the Executive may otherwise have to the Indemnified
Persons. Promptly after actually receiving definitive notice of any claim in
respect of which an Indemnified Person may seek indemnification under this
Section 18(f), such Indemnified Person shall submit written notice thereof to
either the Company or the Executive, as the case may be (sometimes being
hereinafter referred to as an "Indemnifying Person"). The omission of the
Indemnified Person to so notify the Indemnifying Person of any such claim shall
not relieve the Indemnifying Person from any liability it may have hereunder
except to the extent that (a) such liability was caused or increased by such
omission, or (b) the ability of the
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Indemnifying Person to reduce such liability was materially adversely affected
by such omission. In addition, the omission of the Indemnified Person to notify
the Indemnifying Person of any such claim shall not relieve the Indemnifying
Person from any liability it may have otherwise than hereunder. The Indemnifying
Person shall have the right to undertake, by counsel or representatives of its
own choosing, the defense, compromise or settlement (without admitting liability
of the Indemnified Person) of any such claim asserted, such defense, compromise
or settlement to be undertaken at the expense and risk of the Indemnifying
Person, and the Indemnified Person shall have the right to engage separate
counsel, at its own expense, whom counsel for the Indemnifying Person shall keep
informed and consult with in a reasonable manner. In the event the Indemnifying
Person shall elect not to undertake such defense by its own representatives, the
Indemnifying Person shall give prompt written notice of such election to the
Indemnified Person, and the Indemnified Person shall undertake the defense,
compromise or settlement (without admitting liability of the Indemnified Person)
thereof on behalf of and for the account and risk of the Indemnifying Person by
counsel or other representatives designed by the Indemnified Person. In the
event that any claim shall arise out of a transaction or cover any period or
periods wherein the Company and the Executive shall each be liable hereunder for
part of the liability or obligation arising therefrom, then the parties shall,
each choosing its own counsel and bearing its own expenses, defend such claim,
and no settlement or compromise of such claim may be made without the joint
consent or approval of the Company and the Executive. Notwithstanding the
foregoing, no Indemnifying Person shall be obligated hereunder with respect to
amounts paid in settlement or any claim if such settlement is effected without
the consent of such Indemnifying Person (which consent shall not be unreasonably
withheld).
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19. Definitions. For purposes of this Agreement, the following
terms shall have the following meanings:
(a) "Accrued Compensation" shall mean an amount which shall
include all amounts earned or accrued through the Termination Date but not paid
as of the Termination Date including without limitation, (i) base salary, (ii)
reimbursement for reasonable and necessary expenses incurred by the Executive on
behalf of the Company during the period ending on the Termination Date, and
(iii) bonuses and incentive compensation, including stock options, (other than
the Pro Rata Bonus).
(b) "Act" shall mean the Securities Act of 1933, as amended.
(c) "Base Amount" shall mean the greater of the Executive's annual
base salary (i) at the rate in effect on the Termination Date or (ii) at the
highest rate in effect at any time during the ninety day period prior to the
Change in Control, and shall include all amounts of his base salary that are
deferred under the qualified and non-qualified employee benefit plans of the
Company or any other agreement or arrangement,
(d) "Bonus Amount" shall mean the greater of (i) the most recent
annual bonus paid or payable to the Executive, or, if greater, the annual bonus
paid or payable for the year ended prior to the fiscal year during which a
Change in Control occurred, (ii) the average of the annual bonuses paid or
payable during the three full fiscal years ended prior to the Termination Date
or, if greater, the three full fiscal years ended prior to the Change in Control
(or, in each case, such lesser period for which annual bonuses were paid or
payable to the Executive), or (iii) the bonuses scheduled to be paid quarterly
during the applicable year during the Term under Section 3(a).
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(e) The termination of the Executive's employment shall be for
"Cause" if it is a result of:
(i) any act that (A) constitutes, on the part of the
Executive, fraud, dishonesty gross or malfeasance of duty and (B) is
demonstrably likely to lead to material injury to the Company or
resulted or was intended to result in direct or indirect gain to or
personal enrichment of the Executive; or
(ii) the conviction (from which no appeal may be or is
timely taken) of the Executive of a felony; or
(iii) the suspension or removal of the Executive by federal
or state bank ing regulatory authorities acting under lawful authority
pursuant to provisions of federal or state law or regulation which may
be in effect from time to time;
provided, however, that in the case of clause (i) above, such conduct shall not
constitute Cause:
(x) unless (A) there shall have been delivered to the
Executive a written notice setting forth with specificity the reasons
that the Board believes the Executive's conduct constitutes the
criteria set forth in clause (i), (B) the Executive shall have been
provided the opportunity to be heard in person by the Board (with the
assistance of the Executive's counsel if the Executive so desires), and
(C) after such hearing, the termination is evidenced by a resolution
adopted in good faith by two-thirds of the members of the Board (other
than the Executive); or
(y) if such conduct (A) was believed by the Executive in
good faith to have been in or not opposed to the interests of the
Company, and (B) was not
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<PAGE> 24
intended to and did not result in the direct or indirect gain to or
personal enrichment of the Executive.
(f) A "Change in Control" shall mean the occurrence during the
Term of any of the following events:
(i) An acquisition (other than directly from the Company)
of any voting securities of the Company (the "Voting Securities") by
any "Person" (as the term person is used for purposes of Section 13(d)
or 14(d) of the Securities Exchange Act of 1934 (the "1934 Act"))
immediately after which such Person has "Beneficial Ownership" (within
the meaning of Rule 13d-3 promulgated under the 1934 Act) of 20% or
more of the combined voting power of the Company's then outstanding
Voting Securities; provided, however, that in determining whether a
Change in Control has occurred, Voting Securities which are acquired in
a "Non-Control Acquisition" (as hereinafter defined) shall not
constitute an acquisition which would cause a Change in Control. A
"Non-Control Acquisition" shall mean an acquisition by (1) an employee
benefit plan (or a trust forming a part thereof) maintained by (x) the
Company or (y) any corporation or other Person of which a majority of
its voting power or its equity securities or equity interest is owned
directly or indirectly by the Company (a "Subsidiary"), (2) the Company
or any Subsidiary, or (3) any Person in connection with a "Non-Control
Transaction" (as hereinafter defined).
(ii) The individuals who, as of the date of this
Agreement, are members of the Board (the "Incumbent Board") cease for
any reason to constitute at least
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<PAGE> 25
two-thirds of the Board; provided, however, that if the election, or
nomination for election by the Company's stockholders, of any new
director was approved by a vote of at least two-thirds of the Incumbent
Board, such new director shall, for purposes of this Agreement, be
considered as a member of the Incumbent Board; provided, further,
however, that no individual shall be considered a member of the
Incumbent Board if such individual initially assumed office as a result
of either an actual or threatened "Election Contest" (as described in
Rule 14a-11 promulgated under the 1934 Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board (a "Proxy Contest") including by reason of
any agreement intended to avoid or settle any Election Contest or Proxy
Contest; or
(iii) Approval by stockholders of the Company of:
(A) A merger, consolidation or reorganization
involving the Company, unless
(1) the stockholders of the Company, immediately
before such merger, consolidation or reorganization, own,
directly or indirectly, immediately following such merger,
consolidation or reorganization, at least two-thirds of the
combined voting power of the outstanding voting securities of
the corporation resulting from such merger or consolidation or
reorganization (the "Surviving Corporation") in substantially
the same proportion as their owner-
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<PAGE> 26
ship of the Voting Securities immediately before such merger,
consolidation or reorganization, and
(2) the individuals who were members of the
Incumbent Board immediately prior to the execution of the
agreement providing for such merger, consolidation or
reorganization constitute at least two-thirds of the members
of the board of directors of the Surviving Corporation. (A
transaction described in clauses (1) and (2) shall herein be
referred to as a "Non-Control Transaction.")
(B) A complete liquidation or dissolution of the
Company; or
(C) An agreement for the sale or other disposition of
all or substantially all of the assets of the Company to any
Person (other than a transfer to a Subsidiary).
(iv) Notwithstanding anything contained in this Agreement
to the contrary, if the Executive's employment is terminated prior to
a Change in Control and the Executive reasonably demonstrates that such
termination (A) was at the request of a third party who has indicated
an intention or taken steps reasonably calculated to effect a Change in
Control and who effectuates a Change in Control (a "Third Party") or
(B) otherwise occurred in connection with, or in anticipation of, a
Change in Control which actually occurs, then for all purposes of this
Agreement, the date of a Change in Control with respect to the
Executive shall mean the date immediately prior to the date of such
termination of the Executive's employment.
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<PAGE> 27
(g) "Constructive Termination" shall mean Executive's voluntary
Termination of Service within ninety (90) days following the occurrence of one
or more of the following events, except if such event is approved in writing by
Executive prior to its occurrence:
(i) A material breach of this Agreement by the Company
that is not remedied within thirty (30) business days after receiving
written notification by Executive of such failure; or
(ii) A material reduction in Executive's title or
responsibilities unless replaced with a new title or new
responsibilities of comparable stature or value to the Company within
thirty (30) business days.
(h) "Continuation Period" shall have the meaning ascribed to it in
Section 4(c)(iii).
(i) "Disability" shall mean a physical or mental infirmity which
impairs the Executive's ability to substantially perform his duties with the
Company for a period of 180 consecutive days, as determined by an independent
physician selected with the approval of both the Company and the Executive.
(j) "Effective Date" shall mean the day that the Company closes
its Initial Public Offering.
(k) "Good Reason" shall mean the occurrence after a Change in
Control of any of the events or conditions described in subsections (i) through
(viii) hereof:
(i) a change in the Executive's status, title, position
or responsibilities (including reporting responsibilities) which, in
the Executive's reasonable judgment, represents an adverse change from
his status, title, position or responsibilities as in effect at any
time within ninety days preceding the date of a Change in
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<PAGE> 28
Control or at any time thereafter; the assignment to the Executive of
any duties or responsibilities which, in the Executive's reasonable
judgment, are inconsistent with his status, title, position or
responsibilities as in effect at any time within ninety days preceding
the date of a Change in Control or at any time thereafter; any removal
of the Executive from or failure to reappoint or reelect him to any of
such offices or positions, except in connection with the termination of
his employment for Disability, Cause, as a result of his death or by
the Executive other than for Good Reason, or any other change in
condition or circumstances that in the Executive's reasonable judgment
makes it materially more difficult for the Executive to carry out the
duties and responsibilities of his office than existed at any time
within ninety days preceding the date of Change in Control or at any
time thereafter;
(ii) a reduction in the Executive's base salary or any
failure to pay the Executive any compensation or benefits to which he
is entitled within five days of the date due;
(iii) the Company's requiring the Executive to be based at
any place outside a 30-mile radius from the executive offices occupied
by the Executive immediately prior to the Change in Control, except for
reasonably required travel on the Company's business which is not
materially greater than such travel requirements prior to the Change
in Control;
(iv) the failure by the Company to (A) continue in effect
(without reduction in benefit level and/or reward opportunities) any
material compensation or employee benefit plan in which the Executive
was participating at any time within
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<PAGE> 29
ninety days preceding the date of a Change in Control or at any time
thereafter, unless such plan is replaced with a plan that provides
substantially equivalent compensation or benefits to the Executive or
(B) provide the Executive with compensation and benefits, in the
aggregate, at least equal (in terms of benefit levels and/or reward
opportunities) to those provided for under each other employee benefit
plan, program and practice in which the Executive was participating at
any time within ninety days preceding the date of a Change in Control
or at any time thereafter;
(v) the insolvency or the filing (by any party, including
the Company) of a petition for bankruptcy of the Company, which
petition is not dismissed within sixty days;
(vi) any material breach by the Company of any provision
of this Agreement;
(vii) any purported termination of the Executive's
employment for Cause by the Company which does not comply with the
terms of this Agreement; or
(viii) the failure of the Company to obtain an agreement,
satisfactory to the Executive, from any Successors and Assigns to
assume and agree to perform this Agreement, as contemplated in Section
6 hereof.
Any event or condition described in clause (i) through (viii) above which occurs
prior to a Change in Control but which the Executive reasonably demonstrates (A)
was at the request of a Third Party, or (B) otherwise arose in connection with,
or in anticipation of, a Change in Control which actually occurs, shall
constitute Good Reason for purposes of this Agreement, notwithstanding that
29
<PAGE> 30
it occurred prior to the Change in Control. The Executive's right to terminate
his employment for Good Reason shall not be affected by his incapacity due to
physical or mental illness.
(l) "Notice of Termination" shall mean a written notice of
termination from the Company or the Executive which specifies an effective date
of termination, indicates the specific termination provision in this Agreement
relied upon, and sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision of indicated.
(m) "Initial Public Offering" shall mean the closing of the first
public offering of the Company's Common Stock registered under the Act in which
aggregate proceeds to the Company, net of all underwriting discounts and
commissions and other expenses of issuance and distribution as stated in the
prospectus relating to such offering, are equal to at least Five Million Dollars
($5,000,000).
(n) "Incentive Stock Option Plan" shall mean any incentive Stock
Option Plan adopted by the Company's Board of Directors.
(o) "Pro Rata Bonus" shall mean an amount equal to the Bonus
Amount multiplied by a fraction the numerator of which is the number of days in
the applicable year through the Termination Date and the denominator of which is
365.
(p) "Successors and Assigns" shall mean a corporation or other
entity acquiring all or substantially all the assets and business of the Company
(including this Agreement), whether by operation of law or otherwise.
(q) "Termination Date" shall mean, in the case of the Executive's
death, his date of death, and in all other cases, the date specified in the
Notice of Termination.
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<PAGE> 31
(r) "Trade Secrets" shall mean any information, including but not
limited to technical or non-technical data, a formula, a pattern, a compilation,
a program, a device, a method, a technique, a drawing, a process, financial
data, financial plans, product plans, information on customers, or a list of
actual or potential customers or suppliers, which: (i) derives economic value,
actual or potential, from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain economic value
from its disclosure or use, and (ii) is the subject of efforts that are
reasonable under the circumstances to maintain its secrecy.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed and its seal to be affixed hereunto by its officers thereunto duly
authorized, and the Executive has signed and sealed this Agreement, effective as
of the date first above written.
WARRIOR CAPITAL CORPORATION
By
-------------------------------------
Marie Swift, Secretary
ATTEST:
- -------------------------------------------
-------------------
Corporate Secretary
( CORPORATE SEAL )
EXECUTIVE:
(L.S.)
-------------------------------
James A. Taylor
31
<PAGE> 1
EXHIBIT (10)-8
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the date below written by
and between The Banc Corporation (the "Holding Company"), a Delaware
corporation; Emerald Coast Bank ("Bank"); and Terry DuBose ("Mr. DuBose"), an
individual resident of Panama City Beach, Florida.
WITNESSETH:
WHEREAS, the Holding Company is the successor in interest to Emerald
Coast Bankshares, Inc., formerly a Florida holding company and the sole
shareholder of the Bank; and
WHEREAS, the Holding Company has been reincorporated as a Delaware
corporation, and has merged with Warrior Capital Corporation, an Alabama
corporation, with the Holding Company being the survivor (the "Reorganization");
and
WHEREAS, the Bank shall conduct all of the business of the Holding
Company in the state of Florida; and
WHEREAS, the Holding Company and the Bank desire to secure the services
of Mr. DuBose pursuant to the terms of this Agreement; and
WHEREAS, Mr. DuBose desires to serve the Holding Company and the Bank
pursuant to the terms of this Agreement;
NOW THEREFORE, for and in consideration of the above premises and the
mutual covenants and agreements hereinafter set forth, the receipt and
sufficiency of which are hereby acknowledged and accepted, the parties hereto
agree as follows:
1. Employment. The Bank hereby employs Mr. DuBose and Mr. DuBose
hereby accepts employment to serve as Chairman of the Board and Chief Executive
Officer of the Bank upon the terms and conditions set forth in this Agreement.
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2. Chairman of the Board and Chief Executive Officer of the Bank.
a. Term. Mr. DuBose's employment hereunder as Chairman
of the Board and Chief Executive Officer of the Bank shall begin the
effective date of the Reorganization. The term of Mr. DuBose's
employment shall continue for a period of three (3) years from such
date (the "Term"), subject to earlier termination pursuant to Section 6
below and subject to extension as follows: At the end of each calendar
day during the initial three-year term or any extension of this
Agreement, the Term shall automatically be extended for an additional
calendar day, unless either party gives written notice to the other of
intent not to extend this Agreement thereafter, in which event this
Agreement shall terminate on the third anniversary following such
notice.
b. Duties and Responsibilities. As Chairman of the Board
and Chief Executive Officer, Mr. DuBose (i) shall faithfully perform
such executive services and duties as are reasonably necessary to
conduct the business of the Bank, subject to the direction of policies
established by the Board of Directors of the Bank (the "Bank Board");
(ii) shall devote his time, attention and energies on a full time basis
as is reasonably required in the performance of his duties hereunder,
including any duties he may hereafter become obligated to perform as an
officer or a member of the Board of Directors of the Holding Company;
provided, however, that with approval of the Bank Board, from time to
time Mr. DuBose may serve, or continue to serve, on the boards of
directors of, and hold any other offices or positions in, companies or
organizations, which, in such Board's judgment, will not present any
material conflict of interest with the Holding Company or any of its
subsidiaries or affiliates or divisions, or unfavorably affect the
performance of Mr. DuBose's duties pursuant to this Agreement, or will
not violate
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<PAGE> 3
any applicable statute or regulation; (iii) shall assume, perform and
discharge such duties and responsibilities assigned to him by the Bank;
(iv) shall not, without the prior written consent of the Bank Board,
engage in any other profit-making activities, except for passive
investments which shall consume only a nominal amount of his time.
c. Authority. As Chairman of the Board and Chief
Executive Officer of the Bank, Mr. DuBose shall report and be
responsible only to the Bank Board. Subject to the direction of the
Board of Directors of the Bank, Mr. DuBose shall have full management
discretion with regard to the operations of the Bank, including by way
of illustration and without limitation, authority to hire, compensate
and terminate all other employees of the Bank.
d. Directorships. The Holding Company shall cause Mr.
DuBose to be elected to the Board of Directors of the Holding Company
and the Bank. The Holding Company shall also cause Mr. DuBose to be
elected as Vice Chairman of the Board of Directors of the Holding
Company, with reporting authority to the Chairman of the Board of the
Holding Company and to the Holding Company Board of Directors.
e. Compensation.
(i) Remuneration. The Bank shall pay Mr. DuBose
an annual remuneration of not less than Two Hundred
Thirty-five Thousand Dollars ($235,000.00) per year commencing
as of the effective date of this Agreement, payable to Mr.
DuBose in such installments as salary payments are customarily
made to executives of the Bank. Mr. DuBose shall also be
entitled to an annual incentive bonus of not less than the sum
of $25,000 ("Bonus Payments") provided certain agreed upon
financial targets are met. Mr. DuBose's salary shall be
subject
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<PAGE> 4
to periodic review by the Bank Board, which review shall be
consistent with the Holding Company's policies regarding
salary increases for executives of subsidiaries serving in
positions comparable to that of Mr. DuBose and shall take into
account Mr. DuBose's level of responsibility and job
performance. Mr. DuBose's base salary shall not be subject to
any decreases.
(ii) Discretionary Compensation. Mr. DuBose shall
be entitled to such discretionary compensation, stock options,
and deferred compensation, if any, as may be made available
from time to time to executives of the Bank or of the Holding
Company serving in positions comparable to that of Mr. DuBose,
all as may be declared or authorized from time to time by the
Board of the Bank or of the Holding Company.
(iii) Payment of Club Fees, Etc. The Holding
Company shall pay Mr. DuBose such additional amounts as may be
necessary to reimburse him for such reasonable club initiation
fees and dues as are approved by the Bank.
(iv) Participation in Benefit Plans. Mr. DuBose
shall be entitled to participate in any and all health,
disability, bonus, retirement, stock option or stock purchase
plan and any other present or future employee benefit plan or
program as may be made available from time to time to
executives of subsidiaries of the Holding Company.
f. Vacation. Mr. DuBose shall be entitled to three (3)
weeks of vacation with pay (or such greater amount of time as may be
approved from time to time by the Bank Board) during each calendar
year.
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<PAGE> 5
g. Reimbursement of Expenses and Automobile. The Bank
shall pay or reimburse Mr. DuBose for all reasonable travel and other
expenses incurred by Mr. DuBose in the performance of his obligations
under this Agreement. The Bank shall provide Mr. DuBose an automobile
for his use.
h. Life Insurance. The Holding Company shall pay or
provide for the payment of the premiums on that certain life insurance
policy on Mr. DuBose's life which is in effect on the date hereof and
which had a face amount of ________________ ________________
($__________) as of the date of this Agreement.
3. Benefits Payable Upon Disability or Death.
a. Disability Benefits. In the event of the Disability
(as hereinafter defined) of Mr. DuBose during the term of this
Agreement, the Bank shall pay Mr. DuBose a monthly disability benefit
based upon his monthly salary at the time he became disabled until the
earlier of the date Mr. DuBose is no longer subject to a disability or
until he attains age sixty-five (65), and shall continue to pay or
provide for the payment of the premiums on that certain life insurance
policy as provided in Section 2(h) hereof for the same period described
in Section 3(a)(ii).
As used in this Agreement, the term "disability" shall mean
the complete inability of Mr. DuBose to perform his duties under this
Agreement as determined by an independent physician selected with the
approval of the Bank and Mr. DuBose.
b. Services During Disability. During the period during
which Mr. DuBose is entitled to receive payments under Section 3(a),
Mr. DuBose shall, to the extent that he is physically and mentally able
to do so, furnish information and assistance to the Bank, and, in
addition, upon reasonable request in writing on behalf of the Bank
Board, or an
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<PAGE> 6
executive officer designated by such Board, from time to time, make
himself available to the Bank to undertake reasonable assignments
consistent with the dignity, importance, and scope of his prior
position and his physical and mental health. During such period of
service, Mr. DuBose shall be responsible and report to, and be subject
to the supervision of, the Bank Board or an executive officer
designated by the Bank Board, as to the method and manner in which he
shall perform such assignments, subject always to the provisions of
this Section 3(b), and shall keep such Board, or such executive
officer, appropriately informed of his progress in each such
assignment.
4. Restriction on Competition and Nonsolicitation of Employees
a. Restriction on Competition. Mr. DuBose agrees that
during his employment as Chairman of the Board and Chief Executive
Officer, he shall not, without the prior written consent of the Bank
Board, either directly or indirectly, for himself, as a consultant to,
or as a management, supervisory or executive employee of any bank or
bank holding company, perform services or furnish advice related to the
business of banking.
b. Nonsolicitation of Employees. Mr. DuBose agrees that
during his employment as Chairman of the Board and Chief Executive
Officer, he shall not, either directly or indirectly, alone or in any
capacity, attempt to solicit or induce any person employed by the
Holding Company or the Bank to leave such employment.
5. Restriction on Competition and Nonsolicitation of Employees
after Termination of Employment.
a. Upon termination of Mr. DuBose's employment hereunder
for Cause (as defined below) during the term of this Agreement, or upon
Mr. DuBose's resignation,
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<PAGE> 7
Mr. DuBose shall not directly or indirectly, within any county in which
the Holding Company is doing business at the time of termination or
resignation, become employed or associated as an officer, director,
consultant or in any other capacity, in any business which is in
competition with the Bank, nor will Mr. DuBose, directly or indirectly,
render any services to or solicit the business of any person or entity
to which the Bank rendered service during his employment under this
Agreement, nor will Mr. DuBose, directly or indirectly, employ or seek
to employ any person who is employed by the Holding Company or any of
its subsidiaries (including the Bank), nor shall Mr. DuBose induce any
such person to leave employment with the Holding Company or the Bank.
This covenant shall be binding upon Mr. DuBose for a period of one (1)
year from the date of the termination of his employment for Cause, or
the date of Mr. DuBose's resignation, whichever is the case. For the
purpose of this Agreement, the following businesses shall be considered
as being businesses in competition with the Holding Company:
(i) any state or federally chartered bank or
savings and loan association (whether stock
or mutual);
(ii) any industrial bank or savings bank; (iii)
any credit union;
(iv) any bank holding company; or
(v) any branch or subsidiary of any of the
foregoing.
b. Mr. DuBose, the Bank and the Holding Company have
entered into this Agreement in good faith in connection with the
Reorganization, believing the same to be valid and enforceable. Mr.
DuBose acknowledges (i) that the rights and privileges granted to the
Bank and the Holding Company in this Agreement are of a special and
unique
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<PAGE> 8
character which gives them a peculiar value, the loss of which may not
be reasonably or adequately compensated for by damages in an action at
law, and (ii) that a breach thereof by Mr. DuBose will cause the Bank
and the Holding Company great and irreparable injury and damage.
Accordingly, Mr. DuBose hereby agrees that the Bank and the
Holding Company shall be entitled to remedies of injunction, specific
performance and other equitable relief to prevent or cure a breach of
the agreements contained in this Agreement. This provision shall not be
construed as a waiver of any other rights or remedies the Bank or the
Holding Company may have for damages or otherwise.
c. In the event any provision or portion of this
Agreement is deemed to be invalid or unenforceable, in whole or in
part, for any reason, the remainder thereof shall not be invalidated or
rendered unenforceable or otherwise adversely affected. Without
limiting the generality of the foregoing, if the provisions of the
preceding paragraphs of this Section 5 shall be deemed to create a
restriction which is unreasonable as to duration or geographical area,
any or all, the parties agree that the provisions of this Agreement
shall be enforceable for such duration and in such geographical area as
any court of competent jurisdiction may determine to be reasonable.
6. Termination of Employment as Chairman of the Board and Chief
Executive Officer.
a. Resignation.
(i) Mr. DuBose may resign his employment
hereunder as Chairman of the Board and Chief Executive Officer
without "Good Reason" at any time during the term of this
Agreement by giving written notice to the Bank Board and the
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<PAGE> 9
Chairman of the Holding Company Board, in which event neither
the Bank nor the Holding Company shall have any further
obligation to Mr. DuBose.
(ii) Mr. DuBose may resign his employment
hereunder as Chairman of the Board and Chief Executive Officer
with "Good Reason" at any time during the term of this
Agreement. As used herein, "Good Reason" shall mean a material
breach of this Agreement by the Bank or the Holding Company
(including any material diminution in compensation or
responsibilities), in which event the Bank shall be required
to continue to meet its obligation to Mr. DuBose under Section
2 for a period of three (3) years from the effective date of
the termination.
b. Termination.
(i) The Holding Company may terminate, without
cause, Mr. DuBose's employment hereunder as Chairman of the
Board and Chief Executive Officer at any time during the term
of this Agreement by giving written notice to Mr. DuBose, in
which event the Bank shall be required to continue to meet its
obligations to Mr. DuBose under Section 2 hereof for a period
of three (3) years following the delivery of the notice.
(ii) The Holding Company may terminate Mr.
DuBose's employment hereunder as Chairman of the Board and
Chief Executive Officer with "Cause" at any time during this
Agreement. As used herein, the termination of Mr. DuBose's
employment for "Cause" shall include termination because of
Mr. DuBose's personal dishonesty; act(s) of moral turpitude,
gross negligence; willful misconduct with respect to his
duties hereunder; willful violation of any law, rule, or
regulation which, in the reasonable opinion of the Board of
Directors of the Bank,
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<PAGE> 10
would materially impair Mr. DuBose's ability to perform his
duties under this Agreement or would have a material adverse
effect on the business of the Holding Company or the Bank;
material breach of any provision of this Agreement; or Mr.
DuBose's removal and permanent prohibition from participating
in the conduct of the affairs of the Bank by an order issued
by any governmental agency having jurisdiction over the Bank.
c. Further Obligations. Upon resignation by Mr. DuBose
pursuant to Section 6(a)(i), and upon termination of Mr. DuBose for
Cause pursuant to Section 6(b)(ii) of this Agreement, the Bank and
Holding Company shall have no further obligation to Mr. DuBose or his
personal representative, except for (i) compensation accrued hereunder
and unpaid at the effective date of such termination, (ii) any accrued
deferred compensation benefits to which Mr. DuBose would have been
entitled upon such termination if this Agreement had never existed.
7. Change in Control.
a. Upon occurrence of a Change in Control, the Bank
shall pay to Mr. DuBose as severance pay and liquidated damages an
amount equal to Average Monthly Compensation (as hereinafter defined)
for a period of thirty-six (36) consecutive months, and shall continue
to provide to Mr. DuBose during such period the benefits specified in
Section 2, in addition to any benefits or continuation coverage
mandated by law. Such amounts shall be paid at the same frequency as
Mr. DuBose's then base salary is paid. As used herein, the term
"Average Monthly Compensation" shall mean the quotient determined by
dividing by twelve (12) the highest aggregate annual compensation
(i.e., base salary and bonus) received by the Executive during the
preceding three (3)
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consecutive twelve-month periods during which the Executive has been
employed by the Bank.
Notwithstanding any other provisions to this Agreement, if the
aggregate of the payments provided for in this Agreement and the other
payments and benefits which Mr. DuBose has the right to receive from
the Bank (the "Total Payments") would constitute a "parachute payment,"
as defined in Section 280G(b)(2) of the Internal Revenue Code, Mr.
DuBose shall receive the Total Payments unless the (a) after-tax amount
that would be retained by Mr. DuBose (after taking into account all
federal, state and local income taxes payable by Mr. DuBose and the
amount of any excise taxes payable by Mr. DuBose under Code Section
4999 that would be payable by Mr. DuBose (the "Excise Taxes") ) if he
were to receive the Total Payments has a lesser aggregate value than
(b) the after-tax amount that would be retained by Mr. DuBose (after
taking into account all federal, state and local income taxes payable
by Mr. DuBose) if he were to receive the Total Payments reduced to the
largest amount as would result in no portion of the Total Payments
being subject to any Excise Taxes (the "Reduced Payments"), in which
case Mr. DuBose shall be entitled only to the Reduced Payments. If Mr.
DuBose is to receive the Reduced Payments, he shall be entitled to
determine which of the Total Payments, and the relative portions of
each, are to be reduced.
b. As used herein, a "Change in Control" shall mean any
one of the following events:
1. the acquisition by any person or persons
acting in concert of the then outstanding voting securities of
the Holding Company or the Bank, if, after the transaction,
the acquiring person (or persons) owns, controls or holds with
-11-
<PAGE> 12
power to vote twenty-five percent (25%) or more of any class
of voting securities of the Holding Company or the Bank or
such other transaction as may be described under 12 C.F.R.
Section 225.41(b)(1) or any successor thereto;
2. within any twelve (12) month period
(beginning on or after the Effective Date), the persons who
were directors of the Holding Company or the Bank immediately
before the beginning of such twelve (12) month period (the
"Incumbent Directors") shall cease to constitute at least a
majority of such Board of Directors; provided, that any
director who was not a Director as of the Effective Date shall
be deemed to be an Incumbent Director if that Director was
elected to such Board of Directors by, or on the
recommendation of, or with the approval of, at least
two-thirds (2/3) of the Directors who then qualified as
Incumbent Directors; and provided further, that no Director
whose initial assumption of office is in connection with an
actual or threatened election contest (as such terms are used
in Rule 14a-11 of Regulation 14A promulgated under the
Securities Exchange Act of 1934) relating to the election of
Directors shall be deemed to be an Incumbent Director;
3. the approval by the stockholders of the
Holding Company or the Bank of a reorganization, merger or
consolidation, with respect to which persons who were the
stockholders of the Holding Company or the Bank immediately
prior to such reorganization, merger or consolidation do not,
immediately thereafter, own more than fifty percent (50%) of
the combined voting power entitled to vote in the election of
Directors of the reorganized, merged or consolidated company's
then outstanding voting securities; or
-12-
<PAGE> 13
4. the sale, transfer or assignment of all or
substantially all of the assets of the Holding Company or the
Bank to any third party.
"Change in Control" shall not include The Bank Corporation's
or the Bank's acquisition of Commerce Bank of Alabama, First Citizens
Bancorp, City National Corporation or Commercial Bancshares of Roanoke,
Inc.
8. Covenants.
The covenants of Mr. DuBose set forth in Sections 4 and 5 above are of
the essence of this Agreement. Each of such covenants shall be deemed and shall
be construed as a separate and independent covenant, and should any party or
provision of any of such covenants be declared invalid by a court of competent
jurisdiction, such invalidity shall in no way render invalid or unenforceable
any other part or provision thereof or any separate covenant of Mr. DuBose not
declared invalid. The covenants in Sections 4 and 5 above shall terminate upon a
Change in Control.
9. Notices.
Any notice required or permitted to be given to Mr. DuBose pursuant to
this Agreement shall be sufficiently given if sent by first-class mail to Mr.
DuBose's home address: ____________________________________________________, or
if hand-delivered to Mr. DuBose. Any notice required or permitted to be given to
the Holding Company pursuant to this Agreement shall be sufficiently given if
sent to the Bank by first-class mail to its main office or if hand-delivered to
the President, with a copy to the Holding Company, Attention: Chairman of the
Board.
-13-
<PAGE> 14
10. Miscellaneous.
a. Assignment. The assignment by Mr. DuBose of this
Agreement or any interest herein, or of any money due or to become due
by reason of the terms hereof, without the prior written consent of the
Holding Company or the Bank, shall be void. The rights and obligations
of the Holding Company and the Bank hereunder shall inure to the
benefit of and shall be binding upon the successors and assigns of the
Holding Company and the Bank.
b. Entire Agreement. This Agreement embodies the entire
agreement of the parties hereto relating to the subject matter hereof.
No amendment or modification of this Agreement shall be valid or
binding upon the Holding Company or the Bank unless made in writing and
signed by a duly authorized officer of the Holding Company and the
Bank, nor shall any amendment or modification of this Agreement be
valid or binding upon Mr. DuBose unless made in writing and signed by
him.
c. Waiver. The waiver by one party of a breach of any
provision(s) of this Agreement by the other party shall not operate or
be construed as a waiver of any subsequent breach of the same or any
other provision by the other party.
d. Application of Florida Law. This Agreement shall be
construed in accordance with the laws of the State of Florida.
e. Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original and all
of which together shall constitute one and the same Agreement.
-14-
<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have executed this Agreement and
have affixed their seals hereto this _____ day of _____________________, 1998.
THE BANC CORPORATION
By:
--------------------------------
Title:
-------------------------------
Attest:
-----------------------------
[CORPORATE SEAL]
EMERALD COAST BANK
By:
--------------------------------
Title:
-------------------------------
Attest:
-----------------------------
[CORPORATE SEAL]
(Seal)
----------------------------
TERRY DUBOSE
-15-
<PAGE> 1
EXHIBIT 16
Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549
RE: The Banc Corporation
File No. 333-58493
Ladies and Gentlemen:
We have read the response of The Banc Corporation to be included in its
Amendment No. 2 to Registration Statement on Form S-4 dated September _____. In
connection therewith, we concur with the statement made by the registrant and
confirm that, during the two years ended December 31, 1997 and the subsequent
interim period preceding ___________, there were no disagreements between The
Banc Corporation and us on any matter of accounting principles or practices, or
financial statement disclosure that would have caused us to make reference to
the subject matter of such disagreement if not resolved to our satisfaction.
Very truly yours,
DUDLEY, HOPTON-JONES, SIMS & FREEMAN PLLP
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF
THE BANC CORPORATION
<TABLE>
<CAPTION>
Name of Subsidiary State of Organization
- ------------------ ---------------------
<S> <C>
The Bank Alabama
Taylor Acquisition Corporation Alabama
</TABLE>
<PAGE> 1
EXHIBIT (23)-1
CONSENT OF ERNST & YOUNG LLP
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated September 10, 1998, except for Note 3 as to which the
date is September 25, 1998, included in the Proxy Statement of The Banc
Corporation that is made a part of the Registration Statement (Amendment No. 2
to Form S-4 No. 333-58493) and Prospectus of The Banc Corporation.
Birmingham, Alabama
September 28, 1998
<PAGE> 1
EXHIBIT (23)-2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts"; and to
the use of our report dated February 5, 1998 with respect to the consolidated
financial statements of Warrior Capital Corporation and Subsidiary included in
the Proxy Statement of The Banc Corporation that is made a part of the
Registration Statement (Amendment No. 2 to Form S-4 No. 333-58493) and the
Prospectus of The Banc Corporation.
Birmingham, Alabama
September 30, 1998
Dudley, Hopton-Jones, Sims & Freeman PLLP
<PAGE> 1
EXHIBIT (23)-3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts"; and to the
use of our report dated May 6, 1998 with respect to the consolidated financial
statements of First Citizens Bancorp, Inc. and Subsidiary included in the Proxy
Statement of The Banc Corporation that is made a part of the Registration
Statement (Amendment No. 2 to Form S-4 No. 333-58493) and the Prospectus of The
Banc Corporation.
Birmingham, Alabama
September 30, 1998
Dudley, Hopton-Jones, Sims & Freeman PLLP
<PAGE> 1
EXHIBIT (23)-4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts"; and to the
use of our report dated January 8, 1998 with respect to the consolidated
financial statements of City National Corporation and Subsidiary included in
the Proxy Statement of The Banc Corporation that is made a part of the
Registration Statement (Amendment No. 2 to Form S-4 No. 333-58493) and the
Prospectus of The Banc Corporation.
Birmingham, Alabama
September 30, 1998
Dudley, Hopton-Jones, Sims & Freeman PLLP
<PAGE> 1
EXHIBIT (23)-5
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts"; and to the
use of our report dated June 11, 1998 with respect to the consolidated financial
statements of Commercial Bancshares of Roanoke, Inc. and Subsidiaries included
in the Proxy Statement of The Banc Corporation that is made a part of the
Registration Statement (Amendment No. 2 to Form S-4 No. 333-58493) and the
Prospectus of The Banc Corporation.
Birmingham, Alabama
September 30, 1998
Dudley, Hopton-Jones, Sims & Freeman PLLP
<PAGE> 1
EXHIBIT (23)-7
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts"; and to
the use of our report dated January 12, 1996 with respect to financial
statements of Commerce Bank of Alabama included in the Proxy Statement of The
Banc Corporation that is made a part of the Registration Statement (Amendment
No. 2 to Form S-4 No. 333-58493) and the Prospectus of The Banc Corporation.
Cochran, Wheeler and Kennedy, P.C.
September 28, 1998
<PAGE> 1
EXHIBIT (23)-11
PORTER, WHITE & COMPANY
CONSENT OF PORTER, WHITE & COMPANY, INC.
We hereby consent to the inclusion in this Registration Statement on Form
S-4 of The Banc Corporation of the form of our letter to the Board of Directors
of Commerce Bank of Alabama, included as Annex E to the Prospectus-Joint Proxy
Statement that is part of the Registration Statement, and to the references to
such letter and to our firm in such Prospectus-Joint Proxy Statement. In giving
such consent we do not hereby admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933 or the
rules and regulations of the Securities and Exchange Commission thereunder.
PORTER, WHITE & COMPANY, INC.
By: /s/ CHARLES K. PORTER
------------------------------------
Charles K. Porter
Executive Vice President
September 30, 1998
<PAGE> 1
EXHIBIT (23)-12
PORTER, WHITE & COMPANY
CONSENT OF PORTER, WHITE & COMPANY, INC.
We hereby consent to the inclusion in this Registration Statement on Form
S-4 of The Banc Corporation of the form of our letter to the Board of Directors
of First Citizens Bancorp, Inc., included as Annex F to the Prospectus-Joint
Proxy Statement that is part of the Registration Statement, and to the
references to such letter and to our firm in such Prospectus-Joint Proxy
Statement. In giving such consent we do not hereby admit that we come within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933 or the rules and regulations of the Securities and Exchange
Commission thereunder.
PORTER, WHITE & COMPANY, INC.
By: /s/ CHARLES K. PORTER
------------------------------------
Charles K. Porter
Executive Vice President
September 30, 1998
<PAGE> 1
EXHIBIT (23)-13
PORTER, WHITE & COMPANY
CONSENT OF PORTER, WHITE & COMPANY, INC.
We hereby consent to the inclusion in this Registration Statement on Form
S-4 of The Banc Corporation of the form of our letter to the Board of Directors
of City National Corporation, included as Annex G to the Prospectus-Joint Proxy
Statement that is part of the Registration Statement, and to the references to
such letter and to our firm in such Prospectus-Joint Proxy Statement. In giving
such consent we do not hereby admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933 or the
rules and regulations of the Securities and Exchange Commission thereunder.
PORTER, WHITE & COMPANY, INC.
By: /s/ CHARLES K. PORTER
------------------------------------
Charles K. Porter
Executive Vice President
September 30, 1998
<PAGE> 1
SOLICITED BY THE EXHIBIT (99)-1
BOARD OF DIRECTORS
PROXY
COMMERCE BANK OF ALABAMA
The undersigned hereby constitutes and appoints and ,
or either of them, as proxies, each with full power of substitution, to vote the
number of shares of common stock of Commerce Bank of Alabama ("Commerce") which
the undersigned would be entitled to vote if personally present at the Special
Meeting of Shareholders to be held at , .m., local
time, on , 1998, and at any adjournment or postponement thereof (the
"Special Meeting") upon the proposal described in the Prospectus-Joint Proxy
Statement and the Notice of Special Meeting of Shareholders, both dated
, 1998 as follows:
1. MERGER. To consider and vote upon a proposal to approve the Third
Amended and Restated Reorganization Agreement and Plan of Merger, dated
as of April 6, 1998, by and among Commerce, The Banc Corporation, a
Delaware corporation (the "Corporation") and The Bank pursuant to which
Commerce will merge with The Bank, a subsidiary of the Corporation, and
the holders of Commerce common stock will receive Corporation common
stock, all as more fully described in the accompanying Prospectus-Joint
Proxy Statement.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Special Meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSAL 1 ABOVE.
Please sign exactly as name appears on the related envelope. When shares are
held jointly, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
Dated:
--------------------, 1998
--------------------------------
Signature
--------------------------------
Signature if held jointly
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF COMMERCE AND MAY BE REVOKED
PRIOR TO ITS EXERCISE.
<PAGE> 1
PROXY EXHIBIT (99)-2
FIRST CITIZENS BANCORP, INC.
SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints and
, or either of them, as proxies, each with full power of
substitution, to vote the number of shares of common stock of First Citizens
Bancorp, Inc. ("First Citizens")which the undersigned would be entitled to vote
if personally present at the Special Meeting of Shareholders to be held at
, .m., local time, on , 1998, and at any adjournment
or postponement thereof (the "Special Meeting") upon the proposal described in
the Prospectus-Joint Proxy Statement and the Notice of Special Meeting of
Shareholders, both dated , 1998 as follows:
1. MERGER. To consider and vote upon a proposal to approve the Third
Amended and Restated Reorganization Agreement and Plan of Merger, dated
as of April 15, 1998, by and between First Citizens and the Banc
Corporation, a Delaware corporation (the "Corporation"), pursuant to
which First Citizens will merge with the Corporation and the holders of
First Citizens common stock will receive Corporation common stock, all
as more fully described in the accompanying Prospectus-Joint Proxy
Statement.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Special Meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSAL 1 ABOVE.
Please sign exactly as name appears on the related envelope. When shares are
held jointly, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
Dated: , 1998
--------------------------
--------------------------------------
Signature
--------------------------------------
Signature if held jointly
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF FIRST CITIZENS AND MAY BE
REVOKED PRIOR TO ITS EXERCISE.
<PAGE> 1
SOLICITED BY THE EXHIBIT (99)-3
BOARD OF DIRECTORS
PROXY
CITY NATIONAL CORPORATION
The undersigned hereby constitutes and appoints and ,
or either of them, as proxies, each with full power of substitution, to vote the
number of shares of common stock of City National Corporation ("City National")
which the undersigned would be entitled to vote if personally present at the
Special Meeting of Shareholders to be held at , .m.,
local time, on , 1998, and at any adjournment or postponement thereof
(the "Special Meeting") upon the proposal described in the Prospectus-Joint
Proxy Statement and the Notice of Special Meeting of Shareholders, both dated
, 1998 as follows:
1. MERGER. To consider and vote upon a proposal to approve the Second
Amended and Restated Reorganization Agreement and Plan of Merger, dated
as of June 16, 1998, by and between City National and The Banc
Corporation, a Delaware corporation (the "Corporation"), pursuant to
which City National will merge with the Corporation, and the holders of
City National common stock will receive Corporation common stock, all as
more fully described in the accompanying Prospectus-Joint Proxy
Statement.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Special Meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSAL 1 ABOVE.
Please sign exactly as name appears on the related envelope. When shares are
held jointly, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
Dated:
-------------------------, 1998
Signature
-------------------------------------
-------------------------------------
Signature if held jointly
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF CITY NATIONAL AND MAY BE
REVOKED PRIOR TO ITS EXERCISE.
<PAGE> 1
EXHIBIT (99)-4
CONSENT
The undersigned hereby consents to the reference to such person in the
Registration Statement on Form S-4 filed by The Banc Corporation on October 1,
1998 (the "Registration Statement") as a person being a Director of The Banc
Corporation.
/s/ J. DANIEL SIZEMORE
- --------------------------------------
J. Daniel Sizemore
September 30, 1998
<PAGE> 1
EXHIBIT (99)-5
CONSENT
The undersigned hereby consents to the reference to such person in the
Registration Statement on Form S-4 filed by The Banc Corporation on October 1,
1998 (the "Registration Statement") as a person being a Director of The Banc
Corporation.
/s/ T. MANDELL TILLMAN
- --------------------------------------
T. Mandell Tillman
September 30, 1998
<PAGE> 1
EXHIBIT (99)-6
CONSENT
The undersigned hereby consents to the reference to such person in the
Registration Statement on Form S-4 filed by The Banc Corporation on October 1,
1998 (the "Registration Statement") as a person being a Director of The Banc
Corporation.
/s/ STEVEN C. HAYS
- --------------------------------------
Steven C. Hays
September 30, 1998
<PAGE> 1
EXHIBIT (99)-7
CONSENT
The undersigned hereby consents to the reference to such person in the
Registration Statement on Form S-4 filed by The Banc Corporation on October 1,
1998 (the "Registration Statement") as a person being a Director of The Banc
Corporation.
/s/ RANDELL E. JONES
- --------------------------------------
Randell E. Jones
September 30, 1998
<PAGE> 1
EXHIBIT (99)-8
CONSENT
The undersigned hereby consents to the reference to such person in the
Registration Statement on Form S-4 filed by The Banc Corporation on October 1,
1998 (the "Registration Statement") as a person being a Director of The Banc
Corporation.
/s/ W. T. CAMPBELL, JR.
- --------------------------------------
W. T. Campbell, Jr.
September 30, 1998
<PAGE> 1
EXHIBIT (99)-9
CONSENT
The undersigned hereby consents to the reference to such person in the
Registration Statement on Form S-4 filed by The Banc Corporation on October 1,
1998 (the "Registration Statement") as a person being a Director of The Banc
Corporation.
/s/ K. EARL DURDEN
- --------------------------------------
K. Earl Durden
September 25, 1998
<PAGE> 1
EXHIBIT (99)-10
CONSENT
The undersigned hereby consents to the reference to such person in the
Registration Statement on Form S-4 filed by The Banc Corporation on October 1,
1998 (the "Registration Statement") as a person being a Director of The Banc
Corporation.
/s/ TERRY DUBOSE
- --------------------------------------
Terry DuBose
September 25, 1998
