<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 2, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
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>
F. HAMPTON MCFADDEN, JR. T. KURT MILLER MICHAEL D. WATERS
DONALD T. LOCKE 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>
===========================================================================================================================
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)
===========================================================================================================================
</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 of $11,813,000 at March
31, 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 SEC, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
================================================================================
<PAGE> 2
COMMERCE BANK OF ALABAMA
To Our Shareholders:
You are cordially invited to attend the Special Meeting of Shareholders
(the "Commerce Special Meeting") of Commerce Bank of Alabama ("Commerce") to be
held on , 1998, at : .m. local time, at ,
, . You will be asked to consider and vote upon a proposal
to approve an Amended and Restated Reorganization Agreement and Plan of Merger,
dated as of April 6, 1998 (the "Commerce Plan of Merger"), between Commerce, The
Banc Corporation, a Delaware corporation (the "Corporation"), and The Bank ("The
Bank"), an Alabama corporation and 99.75%-owned subsidiary of the Corporation,
and the transactions contemplated thereby (the "Commerce Merger"). The Commerce
Plan of Merger is included in the accompanying Prospectus-Joint Proxy Statement
as Annex A. 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 outstanding share
of Commerce's common stock, par value $0.01 per share (the "Commerce Common
Stock"), other than shares held by dissenting shareholders, will be converted
into the right to receive approximately 2.340 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 outstanding shares of Commerce Common Stock. 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.
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.
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, failures to vote or
abstentions will have the effect of a vote against the Commerce Plan of Merger
and the transactions contempated thereby.
WE URGE YOU TO CONSIDER CAREFULLY THESE IMPORTANT MATTERS, WHICH ARE
DESCRIBED IN THE ACCOMPANYING PROSPECTUS-JOINT PROXY STATEMENT. 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.
Sincerely,
<PAGE> 3
COMMERCE BANK OF ALABAMA
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD , 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 : .m. local
time, on , 1998, at , , , for the
following purposes:
1. To consider and vote upon a proposal to approve an Amended and
Restated Reorganization Agreement and Plan of Merger, dated as of April 6,
1998 (the "Commerce Plan of Merger"), between Commerce, The Banc
Corporation, a Delaware corporation (the "Corporation"), and The Bank, an
Alabama banking corporation and 99.75% owned subsidiary of the Corporation
("The Bank"), and the transactions contemplated thereby. The 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 2.340 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 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 Board of Commerce has fixed , 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
, 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:
You are cordially invited to attend the Special Meeting of Shareholders
(the "First Citizens Special Meeting") of First Citizens Bancorp, Inc. ("First
Citizens") to be held on , 1998, at : .m. local
time, at , , . You will be asked to consider and
vote upon a proposal to approve an 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
("Warrior"), The Banc Corporation, a Delaware corporation (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. 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 outstanding share of First Citizens's common
stock, par value $1.00 per share (the "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's common stock, par value
$.001 per share, subject to certain adjustments described in the First Citizens
Plan of Merger, 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 two-thirds of the outstanding shares of First Citizens
Common Stock. 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.
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.
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, failures to
vote or abstentions will have the effect of a vote against the First Citizens
Plan of Merger and the transactions contemplated thereby.
WE URGE YOU TO CONSIDER CAREFULLY THESE IMPORTANT MATTERS, WHICH ARE
DESCRIBED IN THE ACCOMPANYING PROSPECTUS-JOINT PROXY STATEMENT. 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.
Sincerely,
<PAGE> 5
FIRST CITIZENS BANCORP, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD , 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 : .m. local
time, on , 1998, at , , , for the
following purposes:
1. To consider and vote upon a proposal to approve an 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 (the "Corporation"), and First Citizens, and the transactions
contemplated thereby. The 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 has fixed , 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
, 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:
You are cordially invited to attend the Special Meeting of Shareholders
(the "City National Special Meeting") of City National Corporation ("City
National") to be held on , 1998, at : .m. local
time, at , , . You will be asked to consider and
vote upon a proposal to approve a 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 (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. 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 outstanding share of
City National's common stock, par value $1.00 per share (the "City National
Common Stock"), other than shares held by dissenting shareholders, will be
converted into the right to receive approximately 68.682 shares of Corporation
common stock, par value $.001 per share, subject to certain adjustments
described in the City National Plan of Merger, and City National will cease to
exist as a separate corporate entity. 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 two-thirds of the outstanding shares
of City National Common Stock. 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.
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.
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, failures to
vote or abstentions will have the effect of a vote against the City National
Plan of Merger and the transactions contemplated thereby.
WE URGE YOU TO CONSIDER CAREFULLY THESE IMPORTANT MATTERS, WHICH ARE
DESCRIBED IN THE ACCOMPANYING PROSPECTUS-JOINT PROXY STATEMENT. 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.
Sincerely,
<PAGE> 7
CITY NATIONAL CORPORATION
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD , 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 : .m. local time, on
, 1998, at , , , for the
following purposes:
1. To consider and vote upon a proposal to approve a 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 (the
"Corporation"), and City National, and the transactions contemplated
thereby. The 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 68.682 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 Board of City National has fixed , 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
, 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
PROPOSED MERGERS -- YOUR VOTE IS VERY IMPORTANT
The Board of Directors of The Banc Corporation has approved three merger
agreements which would result in Commerce Bank of Alabama, First Citizens
Bancorp, Inc. and City National Corporation 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 agreement with the
Corporation. However, 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 applicable merger is completed:
Commerce Shareholders
Approximately 2.340 shares of Corporation Common Stock for each share of
Commerce Common Stock you own.
First Citizens
Approximately 8.291 shares of Corporation Common Stock for each share of
First Citizens Common Stock you own.
City National
Approximately 68.682 shares of Corporation Common Stock for each share of
City National Common Stock you own.
Assuming all of the Mergers are consummated and no shareholders dissent,
here is what the approximate ownership percentages of Corporation Common Stock
would be by each group of shareholders:
<TABLE>
<CAPTION>
CURRENT CORPORATION FORMER COMMERCE FORMER FIRST CITIZENS FORMER CITY NATIONAL
STOCKHOLDERS SHAREHOLDERS SHAREHOLDERS SHAREHOLDERS
------------------- --------------- --------------------- --------------------
<S> <C> <C> <C>
62.81% 14.14% 6.10% 16.95%
</TABLE>
Here is what you are being asking 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> 9
PROSPECTUS-JOINT PROXY STATEMENT
<TABLE>
<S> <C> <C>
PROXY STATEMENT PROXY STATEMENT PROXY STATEMENT
OF OF OF
COMMERCE BANK FIRST CITIZENS CITY NATIONAL
OF ALABAMA BANCORP, INC. CORPORATION
FOR THE SPECIAL FOR THE SPECIAL FOR THE SPECIAL
MEETING OF SHAREHOLDERS MEETING OF SHAREHOLDERS MEETING OF SHAREHOLDERS
TO BE HELD TO BE HELD TO BE HELD
ON , 1998 ON , 1998 ON , 1998
</TABLE>
---------------------
PROSPECTUS
OF
THE BANC CORPORATION
This Prospectus relates to up to 4,042,722 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 , 1998, and any
adjournments and postponements thereof (the "Special Meetings"). See "The
Special Meetings."
---------------------
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 and the First
Citizens Merger, 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 or City National will be asked to approve and adopt the respective
Plans of Merger
(continued on next page)
---------------------
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 SEC OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS-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 , 1998.
<PAGE> 10
(continued from cover page)
(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 Amended and Restated Reorganization Agreement and Plan of Merger, dated as
of April 6, 1998, among 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 Amended and Restated Reorganization
Agreement and Plan of Merger dated as of April 15, 1998, by and among Warrior
Capital Corporation ("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 Reorganization Agreement and
Plan of Merger dated as of June 16, 1998, by and among City National, Warrior
and the Corporation (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
approximately 2.340 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 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 approximately 68.682 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 their 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
, 1998.
<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 regarding registrants that file electronically with the SEC at
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 and Commerce, First Citizens and
City National. The words "estimate," "project," "intend," "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, two or three of the Mergers 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;
- 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..................... x
SUMMARY OF PROSPECTUS-JOINT PROXY STATEMENT................. 1
The Companies............................................. 1
Recent Developments....................................... 2
Reasons For The Mergers................................... 2
The Special Meetings...................................... 2
Recommendations to Shareholders........................... 2
Vote Required............................................. 3
THE MERGER BETWEEN THE CORPORATION AND COMMERCE........... 3
What Commerce Shareholders Will Receive................ 3
Other Interests of Officers and Directors of Commerce
in the Commerce Merger................................ 3
Conditions to the Commerce Merger...................... 3
No Solicitation by Commerce............................ 4
Regulatory Approvals................................... 4
Termination of the Commerce Plan of Merger............. 4
Accounting Treatment................................... 4
Opinions of Financial Advisor.......................... 5
Certain United States Federal Income Tax
Consequences.......................................... 5
Dissenters' Rights of Commerce Shareholders............ 5
THE MERGER BETWEEN THE CORPORATION AND FIRST CITIZENS..... 5
What First Citizens Shareholders will Receive.......... 5
Other Interest of Officers and Directors of First
Citizens in the First Citizens Merger................. 5
Conditions to the First Citizens Merger................ 6
No Solicitation by First Citizens...................... 6
Regulatory Approvals................................... 6
Termination of the First Citizens Plan of Merger....... 6
Accounting Treatment................................... 6
Opinion of Financial Advisor........................... 7
Certain United States Federal Income Tax
Consequences.......................................... 7
Dissenters' Rights of First Citizens Shareholders...... 7
THE MERGER BETWEEN THE CORPORATION AND CITY NATIONAL...... 7
What City National Shareholders will Receive........... 7
Other Interests of Officers and Directors of City
National in the City National Merger.................. 7
Conditions to the City National Merger................. 8
Regulatory Approvals................................... 8
Termination of the City National Plan of Merger........ 8
Accounting Treatment................................... 8
Opinion of Financial Advisor........................... 8
Certain United States Federal Income Tax
Consequences.......................................... 9
Dissenters' Rights of City National Shareholders....... 9
Selected Historical and Pro Forma Financial Data.......... 9
Risk Factors.............................................. 10
Nasdaq Listing............................................ 10
Market and Market Prices.................................. 11
Comparative Per Share Information......................... 11
RISK FACTORS................................................ 12
The Mergers and the Companies -- Integration Risks........ 12
Potential Negative Impact on Earnings from the
Transactions........................................... 12
</TABLE>
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<TABLE>
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Need for Additional Capital............................... 13
Ability to Sustain Growth; Profitability.................. 13
Adequacy of Allowance for Loan Losses..................... 13
Interest Rate Risk and Asset/Liability Management......... 14
Limited Number of Banks................................... 14
Geographic Concentration; Significance of Local Economic
Conditions............................................. 14
Computer Technologies and Year 2000 Compliance............ 14
Supervision and Regulation................................ 15
Government Regulation and Legislation..................... 15
Anti-Takeover Considerations.............................. 16
FDIC Insurance............................................ 16
Dividend History and Restrictions on Ability to Pay
Dividends.............................................. 16
Dependence on Management.................................. 16
Competition............................................... 16
Monetary Policy........................................... 17
Possible Adverse Effects of Issuance of Preferred Stock... 17
Control by Certain Stockholders........................... 17
Absence of Public Market; Possible Volatility of Stock
Price.................................................. 17
Risks Relating to Federal Income Taxes.................... 17
THE SPECIAL MEETINGS........................................ 18
The Commerce Special Meeting.............................. 18
Date, Place and Time................................... 18
Record Date, Quorum and Voting......................... 18
Vote Required.......................................... 18
Voting and Revocation of Proxies....................... 18
Solicitation of Proxies................................ 19
The First Citizens Special Meeting........................ 19
Date, Place and Time................................... 19
Record Date, Quorum and Voting......................... 19
Vote Required.......................................... 19
Voting and Revocation of Proxies....................... 20
Solicitation of Proxies................................ 20
The City National Special Meeting......................... 20
Date, Place and Time................................... 20
Record Date, Quorum and Voting......................... 20
Vote Required.......................................... 20
Voting and Revocation of Proxies....................... 21
Solicitation of Proxies................................ 21
THE COMMERCE MERGER......................................... 22
Terms of the Commerce Merger.............................. 22
Background of the Commerce Merger......................... 22
Reasons for the Commerce Merger; Recommendation of
Commerce Board of Directors............................ 23
Opinion of Commerce's Financial Advisor................... 23
Effective Time of the Merger.............................. 23
Exchange of Certificates.................................. 24
Conditions to the Commerce Merger......................... 25
Representations and Covenants............................. 26
Regulatory Approvals...................................... 26
Business Pending the Merger............................... 26
Nasdaq Listing............................................ 27
Resale of Corporation Common Stock by Affiliates.......... 27
</TABLE>
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Interests of Certain Persons in the Commerce Merger....... 28
Accounting Treatment...................................... 29
Certain Federal Income Tax Consequences................... 29
No Solicitation of Transactions........................... 30
Expenses.................................................. 31
Indemnification........................................... 31
Rights of Dissenting Shareholders......................... 31
THE FIRST CITIZENS MERGER................................... 33
Terms of the First Citizens Merger........................ 33
Background of the First Citizens Merger................... 33
Reasons for the First Citizens Merger; Recommendation of
First Citizens Board of Directors...................... 34
Opinion of First Citizens's Financial Advisor............. 35
Effective Time of the Merger.............................. 35
Exchange of Certificates.................................. 35
Conditions to the First Citizens Merger................... 36
Representations and Covenants............................. 37
Regulatory Approvals...................................... 38
Business Pending the Merger............................... 38
Nasdaq Listing............................................ 39
Resale of Corporation Common Stock by Affiliates.......... 39
Interests of Certain Persons in the First Citizens
Merger................................................. 40
Accounting Treatment...................................... 40
Certain Federal Income Tax Consequences................... 41
No Solicitation of Transactions........................... 42
Expenses.................................................. 42
Indemnification........................................... 42
Rights of Dissenting Shareholders......................... 43
THE CITY NATIONAL MERGER.................................... 45
Terms of the City National Merger......................... 45
Background of the City National Merger.................... 45
Reasons for the City National Merger; Recommendation of
City National Board of Directors....................... 46
Opinion of City National's Financial Advisor.............. 46
Effective Time of the Merger.............................. 46
Exchange of Certificates.................................. 47
Conditions to the City National Merger.................... 48
Representations and Covenants............................. 49
Regulatory Approvals...................................... 49
Business Pending the Merger............................... 49
Nasdaq Listing............................................ 50
Resale of Corporation Common Stock by Affiliates.......... 50
Interests of Certain Persons in the City National
Merger................................................. 51
Accounting Treatment...................................... 51
Certain Federal Income Tax Consequences................... 52
Expenses.................................................. 53
Indemnification........................................... 53
Rights of Dissenting Shareholders......................... 54
OPERATIONS AND MANAGEMENT OF THE CORPORATION AFTER THE
MERGERS................................................... 56
Operations................................................ 56
Management................................................ 56
CONDENSED COMBINED PRO FORMA FINANCIAL INFORMATION.......... 57
SELECTED CONSOLIDATED FINANCIAL DATA -- CORPORATION......... 58
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- CORPORATION.................. 57
Basis of Presentation..................................... 57
Year 2000 Compliance...................................... 57
Results of Operations..................................... 58
Three Months Ended March 31, 1998, compared with three
months ended March 31, 1997........................... 58
Year Ended December 31, 1997, compared with years ended
December 31, 1996 and 1995............................ 58
Net Interest Income....................................... 58
Provision and Allowance for Loan Losses................... 62
Earning Assets............................................ 64
Deposits and Other Interest-Bearing Liabilities........... 65
Regulatory Capital Table.................................. 67
Impact of Inflation....................................... 67
Regulatory Matters........................................ 67
BUSINESS OF THE CORPORATION................................. 68
General................................................... 68
Recent Developments....................................... 68
Strategy.................................................. 68
Market Areas.............................................. 69
Growth Strategy........................................... 69
Lending Activities........................................ 69
Deposits.................................................. 70
Competition............................................... 70
SUPERVISION AND REGULATION.................................. 71
The Corporation -- Supervision and Regulation............. 71
The Bank and Emerald Bank................................. 73
Instability of Regulatory Structure....................... 77
Expanding Enforcement Authority........................... 77
Effect on Economic Environment............................ 77
Properties................................................ 77
MANAGEMENT OF CORPORATION................................... 78
Directors and Executive Officers.......................... 78
Classified Board of Directors............................. 80
Committees of the Board of Directors...................... 80
Executive Officer Compensation............................ 80
Director Compensation..................................... 82
Compensation Committee Interlocks and Insider
Participation.......................................... 82
Stock Option Plan......................................... 82
PRINCIPAL STOCKHOLDERS OF THE CORPORATION................... 84
SELECTED CONSOLIDATED FINANCIAL DATA -- COMMERCE............ 85
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- COMMERCE..................... 86
Basis of Presentation..................................... 86
Year 2000 Compliance...................................... 86
Results of Operations..................................... 86
Three months ended March 31, 1998, compared with three
months ended March 31, 1997........................... 86
Year ended December 31, 1997, compared with years ended
December 31, 1996 and 1995............................ 87
Net Interest Income....................................... 87
Provision and Allowance for Loan Losses................... 89
Earning Assets............................................ 91
Deposits and Other Interest-Bearing Liabilities........... 93
</TABLE>
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Capital Resources......................................... 94
Impact of Inflation....................................... 94
Regulatory Matters........................................ 94
BUSINESS OF COMMERCE........................................ 96
General................................................... 96
Business Strategy......................................... 96
Competition............................................... 96
Employees................................................. 97
Properties................................................ 97
Legal Proceedings......................................... 98
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT -- COMMERCE.................................... 99
MANAGEMENT.................................................. 100
Executive Compensation.................................... 100
Certain Relationships and Related Transactions............ 102
FIRST CITIZENS SELECTED FINANCIAL DATA (HISTORICAL)......... 103
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- FIRST CITIZENS............... 104
Basis of Presentation..................................... 104
Year 2000 Compliance...................................... 104
Results of Operations..................................... 104
Three Months Ended March 31, 1998, compared with three
months ended March 31, 1997........................... 104
Year Ended December 31, 1997, compared with years ended
December 31, 1996 and 1995............................ 105
Net Interest Income....................................... 105
Provision and Allowance for Loan Losses................... 108
Earning Assets............................................ 110
Deposits and Other Interest-Bearing Liabilities........... 112
Impact of Inflation....................................... 112
Regulatory Matters........................................ 112
BUSINESS OF FIRST CITIZENS.................................. 114
Bank Activities........................................... 114
Banking Facilities; Employees............................. 114
Competition............................................... 114
PRINCIPAL SHAREHOLDERS OF FIRST CITIZENS.................... 115
Security Ownership of Management.......................... 115
Executive Compensation.................................... 116
CITY NATIONAL SELECTED CONSOLIDATED FINANCIAL DATA
(HISTORICAL).............................................. 117
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS -- CITY NATIONAL.................... 118
Basis of Presentation..................................... 118
Year 2000 Compliance...................................... 118
Results of Operations..................................... 118
Three months ended March 31, 1998, compared with three
months ended March 31, 1997........................... 118
Year ended December 31, 1997, compared with years ended
December 31, 1996 and 1995............................ 119
Net Interest Income....................................... 121
Provisions and Allowance for Loan Losses.................. 122
Earning Assets............................................ 124
Deposits and Other Interest-Bearing Liabilities........... 125
Impact of Inflation....................................... 126
Regulatory Matters........................................ 126
BUSINESS OF CITY NATIONAL................................... 127
</TABLE>
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Bank Activities........................................... 127
Banking Facilities; Employees............................. 127
Competition............................................... 127
Principal Holders of Common Stock......................... 128
Security Ownership of Management.......................... 128
COMPARISON OF STOCKHOLDERS' RIGHTS.......................... 129
Comparison of Rights of Commerce Shareholders and
Corporation Stockholders............................... 129
Classes and Series of Capital Stock....................... 129
Size and Election of the Board of Directors............... 129
Removal of Directors...................................... 130
Other Voting Rights....................................... 130
Dividends................................................. 130
Conversion and Dissolution................................ 130
Amendment or Repeal of the Certificate of Incorporation
and Bylaws............................................. 130
Special Meetings of Stockholders.......................... 131
Liability of Directors.................................... 131
Advance Notice Provisions for Stockholder Proposals and
Stockholder Nominations of Directors................... 131
Indemnification of Directors and Officers................. 132
Comparison of Rights of First Citizens Shareholders and
Corporation Stockholders............................... 133
Classes and Series of Capital Stock....................... 133
Size and Election of the Board of Directors............... 134
Removal of Directors...................................... 134
Other Voting Rights....................................... 134
Dividends................................................. 134
Conversion and Dissolution................................ 134
Amendment or Repeal of the Certificate of Incorporation
and Bylaws............................................. 135
Special Meetings of Stockholders.......................... 135
Liability of Directors.................................... 135
Advance Notice Provisions for Stockholder Proposals and
Stockholder Nominations of Directors................... 136
Indemnification of Directors and Officers................. 136
Comparison of Rights of City National Shareholders and
Corporation Stockholders............................... 137
Classes and Series of Capital Stock....................... 137
Size and Election of the Board of Directors............... 138
Removal of Directors...................................... 138
Other Voting Rights....................................... 138
Dividends................................................. 138
Conversion and Dissolution................................ 138
Amendment or Repeal of the Certificate of Incorporation
and Bylaws............................................. 139
Special Meetings of Stockholders.......................... 139
Liability of Directors.................................... 139
Advance Notice Provisions for Stockholder Proposals and
Stockholder Nominations of Directors................... 140
Indemnification of Directors and Officers................. 141
DESCRIPTION OF CAPITAL STOCK OF THE CORPORATION............. 141
Authorized Capital Stock.................................. 141
The Corporation Common Stock.............................. 141
The Corporation Preferred Stock........................... 142
Certain Provisions of the Corporation Certificate and the
DGCL................................................... 142
Limitations on Liability of Officers and Directors........ 143
Transfer Agent and Registrar.............................. 143
EXPERTS..................................................... 144
LEGAL MATTERS............................................... 144
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ADDITIONAL INFORMATION...................................... 144
Other Business............................................ 144
INDEX TO FINANCIAL STATEMENTS............................... F-1
ANNEXES
A. 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. 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. Reorganization Agreement and Plan of Merger by and among
City National Corporation, Warrior Capital Corporation
and The Banc Corporation................................. C-1
D. Appraisal Rights -- Sections 10-2B-13.01 through
10-2B-13.32 of the Alabama Business Corporation Act...... D-1
</TABLE>
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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 the applicable 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 the
applicable 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 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>
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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>
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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 Corporation. The Banc Corporation (the "Corporation") is a bank
holding company registered under the Bank Holding Company Act of 1956, as
amended (the "BHCA"), and incorporated under the laws of Delaware in 1998 and
headquartered in Birmingham, Alabama. As of March 31, 1998, the Corporation had
assets of approximately $153.1 million, deposits of approximately $123.4 million
and stockholders equity of approximately $26.1 million. The principal
subsidiaries of the Corporation include The Bank, a banking corporation
organized and existing under the laws of Alabama and headquartered in
Birmingham, Alabama and Emerald Coast Bank ("Emerald Bank"), a banking
corporation organized and existing under the laws of Florida and headquartered
in Panama City Beach, Florida. The Corporation is the surviving entity of a
series of transactions pursuant to which Emerald Coast Bancshares, Inc.
("Emerald") changed its domicile from Florida to Delaware through a merger of
Emerald with and into the Corporation, and Warrior Capital Corporation
("Warrior"), an Alabama corporation and bank holding company for The Bank, was
merged with and into the Corporation (the "Warrior Merger"). See "Business of
Corporation." As used in this Prospectus-Joint Proxy Statement, the term
"Corporation" refers to The Banc Corporation and its predecessors, Emerald and
Warrior, and their respective subsidiaries and affiliates, unless the context
requires otherwise. The Bank has four locations in Alabama -- Birmingham (which
opened July 1, 1998), Warrior, Morris and Mt. Olive (all suburbs of Birmingham).
Emerald has three locations in Florida -- Panama City Beach, Destin and Seagrove
(all located in the panhandle of Florida along the Gulf Coast). 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 Bank. The Bank is an Alabama banking corporation and is a direct,
99.75% owned subsidiary of the Corporation with four offices located in
Birmingham, Warrior, Morris and Mt. Olive, Alabama. The Bank, formerly known as
Warrior Savings Bank, has been engaged in full-service commercial and retail
banking since 1957. The principal executive offices of The Bank are located at
218 Louisa Street, Warrior, Alabama 35180, and its telephone number is (205)
326-2265.
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 March 31, 1998, Commerce had total
assets of approximately $112.3 million, deposits of approximately $104.2 million
and shareholders' equity of approximately $6.6 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
March 31, 1998, First Citizens had total consolidated assets of approximately
$36.2 million, total consolidated deposits of approximately $32.6 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 a 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 March 31, 1998, City National had total assets of approximately
$83.3 million, deposits of approximately $70.3 million and shareholders' equity
of approximately $11.8 million. City National Bank is based in Sylacauga and has
additional branches in Minion 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.
1
<PAGE> 22
RECENT DEVELOPMENTS
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 March 31,
1998, CBS had total assets of approximately $42.8 million, total deposits of
approximately $36.2 million and total shareholders' equity of approximately $6.3
million.
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 believe the mergers will:
- 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; and
- Combine four strong management teams into one larger enterprise.
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.
THE SPECIAL MEETINGS
(See page , and )
The Commerce Special meeting will be held at ,
at .m. on , 1998.
The First Citizens Special meeting will be held at the
, at .m. on , 1998.
The City National Special meeting will be held at
, , on
, 1998, at .m.
RECOMMENDATIONS TO SHAREHOLDERS
To Commerce Shareholders:
The Commerce Board 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 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 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.
2
<PAGE> 23
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.
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 2.340 shares of Corporation
Common Stock.
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. For
example:
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. Sizemore will also have an employment
agreement with the Corporation.
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 Securities and Exchange
Commission 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
3
<PAGE> 24
- Receipt of an accountant's letter regarding accounting for the Commerce
Merger as a pooling of interests.
Any condition to the Commerce Merger may be waived by the company entitled
to assert the condition.
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 must be approved by the FDIC and the Alabama Banking
Department.
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.
4
<PAGE> 25
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 at
closing from an investment banking firm chosen by Commerce and acceptable to the
Corporation, as to the fairness of the Commerce Exchange Ratio from a financial
point of view to the shareholders of Commerce.
CERTAIN UNITED STATES 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. To review the
federal income tax consequences to Commerce shareholders in greater detail, see
pages and . Each of the Corporation and Commerce has conditioned
the Commerce Merger on the receipt of a legal opinion regarding certain federal
income tax consequences of the Commerce Merger.
The tax consequences to you of the Commerce Merger will depend on the facts
of your own situation. You should consult your tax advisor for a full
understanding of the tax consequences of the Commerce Merger.
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.
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.
First Citizens shareholders should not send in their stock certificates
until instructed to do so after the First Citizens Merger is completed.
OTHER INTEREST 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.
For example:
John F. Gittings, currently the Chief Executive Officer and Director
of First Citizens will, receive an employment contract from the
Corporation.
5
<PAGE> 26
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.
Any condition to the First Citizens Merger may be waived by the company
entitled to assert the condition.
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.
REGULATORY APPROVALS
(See Page )
The First Citizens Merger must be approved by the Federal Reserve Board
("Federal Reserve") and the Alabama Banking Department.
TERMINATION OF THE FIRST CITIZENS PLAN OF MERGER
(See Page )
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
6
<PAGE> 27
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 at closing from an investment banking firm chosen by First
Citizens and acceptable to the Corporation as to the fairness of the First
Citizens Exchange Ratio from a financial point of view to the shareholders of
First Citizens.
CERTAIN UNITED STATES 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. To review the federal income tax consequences to First
Citizens shareholders in greater detail, see pages and . Each of
the Corporation and First Citizens has conditioned the First Citizens Merger on
the receipt of a legal opinion regarding certain federal income tax consequences
of the First Citizens Merger.
The tax consequences of the First Citizens Merger to you will depend on the
facts of your own situation. You should consult your tax advisor for a full
understanding of the tax consequences of the First Citizens Merger.
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 68.682 shares of
Corporation Common Stock.
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.
For example:
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.
7
<PAGE> 28
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.
Any condition to the City National Merger may be waived by the company
entitled to assert the condition.
REGULATORY APPROVALS
(See Page )
The City National Merger must be approved by the Federal Reserve and the
Alabama Banking Department.
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 at closing from an investment banking firm chosen by City
National and acceptable to the Corporation, as to the fairness of the City
National Exchange Ratio from a financial point of view to the shareholders of
City National.
8
<PAGE> 29
CERTAIN UNITED STATES 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 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. To review the federal income tax consequences to City National
shareholders in greater detail, see pages and . Each of the
Corporation and City National has conditioned the City National Merger on the
receipt of a legal opinion regarding certain federal income tax consequences of
the City National Merger.
The tax consequences of the City National Merger to you will depend on the
facts of your own situation. You should consult your tax advisor for a full
understanding of the tax consequences of the City National Merger.
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 Mergers and the CBS Purchase (collectively, the "Transactions") will
increase the Corporation's assets from $153.1 million to $422.1 million as of
March 31, 1998, on a pro forma basis. In addition to the immediate increase in
asset size and the potential for improved future profitability, the Mergers will
allow the Corporation to expand its market area into what it believes are
desirable banking locations. Through the Mergers, the Corporation will increase
the number of its locations from 7 to 19. The resulting market area of the
Corporation will extend from 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 March 31,
1998, the Corporation would have had total assets of approximately $422.1
million, total deposits of approximately $366.6 million and total stockholders
equity of approximately $48.2 million. See "Business of the Corporation" and
"Pro Forma Condensed Financial Information."
9
<PAGE> 30
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
March 31, 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 three-month period ended March 31, 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
THREE MONTHS ENDED
MARCH 31, 1998
--------------------
PRO FORMA
ACTUAL COMBINED
-------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Assets...................................................... $153,130 $422,057
Loans, net of unearned interest............................. 86,569 253,136
Deposits.................................................... 123,380 366,644
Stockholders' equity........................................ 26,075 48,225
Net income.................................................. 295 689
Leverage ratio.............................................. 16.69% 11.41%
Tier 1 risk-based capital ratio............................. 22.50 16.29
Total risk-based capital ratio.............................. 23.53 17.37
</TABLE>
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 14.14% of the issued and
outstanding Corporation Common Stock, the former First Citizens shareholders
will receive approximately 663,280 shares of Corporation Common Stock,
representing approximately 6.10% of the issued and outstanding Corporation
Common Stock, and the former City National shareholders will receive
approximately 1,842,864 shares of Corporation Common Stock, representing
approximately 16.95% 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.
RISK FACTORS
(See Page )
See "Risk Factors" for a discussion of certain risk factors related to the
Transactions and the combined companies.
NASDAQ LISTING
(See Pages , and )
A subsequent listing application will be filed with the Nasdaq national
market system (NMS) to list the shares of the Corporation issued to the
shareholders of Commerce, First Citizens and City National. Although no
assurance can be given that the Nasdaq NMS will accept such shares of
Corporation Common Stock for listing, the companies anticipate that these shares
will qualify for listing. It is not a condition to the obligation of the
Corporation, Commerce, First Citizens or City National to consummate the Mergers
that such shares of Corporation Common Stock be approved for listing on the
Nasdaq NMS.
10
<PAGE> 31
MARKET AND MARKET PRICES
(See Page )
To date, there is no public market for the Corporation Common Stock. There
were approximately 60 holders of record of Corporation Common Stock as of June
30, 1998. Neither Emerald nor the Corporation has paid any dividends, 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 Directors.
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 2.340, 8.291 and 68.682 of shares of Corporation Common
Stock is 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 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. See "Risk Factors."
<TABLE>
<CAPTION>
PER COMMON SHARES
---------------------------------------------------------------------
INCOME (LOSS)
----------------------------------------------
THREE MONTHS
ENDED STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, MARCH 31, (BOOK VALUE)
-------------------------- ----------------- MARCH 31,
1995 1996 1997 1997 1998 1998
------ ------- ------- ------- ------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss):
Corporation
Historical................... $ .33 $ .15 $ .09 $ .04 $ .04 $ 3.88
Pro forma combined........... .21 .16 .20 .05 .06 4.44
Commerce
Historical................... (.85) (.47) .35 .13 .16 10.03
Pro forma equivalent(1)...... (.35) (.19) .14 .05 .07 4.13
First Citizens
Historical................... 2.59 5.33 5.64 1.57 1.92 42.07
Pro forma equivalent(1)...... .31 .64 .68 .19 .23 5.07
City National
Historical................... 26.73 20.68 23.25 1.26 3.90 439.37
Pro forma equivalent(1)...... .39 .30 .34 .02 .06 6.40
</TABLE>
- ---------------
(1) 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 2.430, 8.291 and 68.682.
11
<PAGE> 32
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 MERGERS AND THE COMPANIES -- INTEGRATION RISKS
The Corporation has recently completed a major business combination and is
still in the process of integrating its predecessors Emerald and Warrior. The
Corporation now owns two banks and, including those banks, will consolidate up
to six banks if the CBS Purchase and all the Mergers are consummated. 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 dedication of management
resources to such integration may detract attention from the day-to-day business
of the Corporation. There can be no assurance that there will not be substantial
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. While management of the Corporation, and Commerce, First Citizens,
City National and CBS (collectively, 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.
POTENTIAL NEGATIVE IMPACT ON EARNINGS FROM THE TRANSACTIONS
As a result of the Transactions, the Corporation's asset size will increase
substantially. The Corporation has not previously consummated an acquisition on
the same scale as the Transactions. 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; 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
Corporation will pay $7.3 million in cash for the CBS Purchase. Such cash will
reduce the cash reserves of the Corporation. As a result of the Transactions,
the Corporation's leverage ratio will [fall] from 16.69% at March 31, 1998, to
11.41% on a pro forma basis. Similarly, the Corporation's Tier 1 capital to
risk-based assets ratio will [decline] from 22.50% to 16.29%, and the
Corporation's total capital to risk-based assets ratio will drop from 23.53% to
17.37%. While all of three of these ratios declined, they are still in excess of
the "well capitalized" standard set by the Federal Reserve. See "Supervision and
Regulation."
In addition, as a result of the Transactions, the Corporation's management
must successfully integrate the operations of the Companies and their
subsidiaries with those of the Corporation and The Bank. 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. Accomplishment of these goals will require additional
expenditures by the Corporation which could negatively impact the Corporation's
net income. Completion of these tasks could divert management's attention from
other important issues. In addition, the process of combining the Companies with
the Corporation could have a material adverse effect on the operation of their
businesses, which could have an adverse effect on their combined operations. The
Corporation may also incur additional unexpected costs in connection with the
integration of the Transactions that could negatively impact the Corporation's
net income.
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NEED FOR ADDITIONAL CAPITAL
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 planned expansion and any public market for
Corporation Common Stock may be less liquid. The per share price of the
Corporation Common Stock in a public offering may be lower than the comparable
price attributed to the Corporation Common Stock in the Mergers.
ABILITY TO SUSTAIN GROWTH; PROFITABILITY
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 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, unforseen 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.
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."
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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 and Emerald 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 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 two banks. Due to its relatively small
existing base of banks and total assets, adverse results or events at a
particular bank 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 March 31,
1998, were derived from operations in relatively rural markets located in
Jefferson County, Alabama, and markets in Bay and Walton Counties in Florida.
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. However, in contrast to
Jefferson County, the economy of Bay and Walton Counties in Florida depends
substantially upon tourism, tourism-related industry and two major military
bases. 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.
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The Corporation has completed a thorough 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 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 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 and Emerald Bank are
subject to supervision and regulation by the FDIC and their 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.
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, Emerald Bank nor any of
the banks to be acquired in the Transactions is currently undercapitalized, but
there is no guarantee that they will not become undercapitalized in the future.
See "Supervision and Regulation."
GOVERNMENT REGULATION AND LEGISLATION
Regulatory agencies have the authority to prohibit or limit the banks'
activities or force the banks 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 and the Florida legislatures 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."
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ANTI-TAKEOVER CONSIDERATIONS
Certain provisions of the Corporation's Restated Certificate of
Incorporation, Amended and Restated 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 each of the Corporation's subsidiary banks 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 has never paid any cash dividends, and there can be no
assurance that dividends will be paid in the future. The principal business
operations of the Corporation will be 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 banks will compete as
financial intermediaries with other commercial banks, savings associations,
credit unions, mortgage banking companies, securities brokerage companies,
insurance companies and money market mutual funds operating in Alabama, Florida
and elsewhere. Many of these competitors have substantially greater resources
and lending limits than the Corporation and the banks and offer certain services
that the Corporation and the banks may not provide. In addition, non-depository
institution competitors are generally not subject to the extensive regulation
applicable to the Corporation and the banks. 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."
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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."
CONTROL BY CERTAIN STOCKHOLDERS
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 34% 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 the Corporation Common Stock.
There can be no assurance as to the liquidity of the Corporation Common Stock in
any markets that may develop for the 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 the Corporation Common
Stock they receive in the Mergers.
In the event a market develops, the market price of the 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. In addition, the stock market in recent years 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
the 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 -- Federal Income Tax Consequences," "The First
Citizens Merger -- Federal Income Tax Consequences" and "The City National
Merger -- 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 , 1998, at .m.
Record Date, Quorum and Voting. The Board of Directors of Commerce has
fixed the close of business on , 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 656,770 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 328,386 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 33.78% 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, 106,536
(16.22%)of the remaining 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.
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The Board of Directors of Commerce 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 , 1998, at .m.
Record Date, Quorum and Voting. The Board of Directors of First Citizens
has fixed the close of business on , 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, 19,492 (24.36%) of the remaining 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.
The Board of Directors of First Citizens 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 , 1998, at .m.
Record Date, Quorum and Voting. The Board of Directors of City National
has fixed the close of business on , 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 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
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<PAGE> 41
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, 9,770 (36.41%) of the remaining 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.
The Board of Directors of City National 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; it is not complete 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 an Amended and Restated Reorganization
Agreement and Plan of Merger (the "Commerce 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. As of March 31, 1998,
Commerce had total assets of approximately $112.3 million, deposits of
approximately $104.2 million and shareholders equity of approximately $6.6
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 2.340 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 14.14% 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.
BACKGROUND OF THE COMMERCE MERGER
Commerce has experienced rapid growth since its formation in 1995. As a
result of this growth, the Board of Directors of Commerce believed that the bank
needed additional capital and 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 an initial 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.
Between January 26, 1998, and February 10, 1998, representatives of Warrior
and Commerce negotiated possible acquisition terms. On February 10, 1998, a
letter of intent was executed by both parties setting forth the basic terms of
the Commerce Merger described in this Prospectus -- Joint Proxy Statement and a
press release concerning the letter of intent was published on or about February
14, 1998. A definitive agreement was then negotiated while each party conducted
a due diligence review of the other. Counsel for Commerce advised the Board
regarding the terms of the letter of intent and the Commerce Plan of Merger, and
the Commerce Plan of Merger was signed on April 6, 1998 with a First Amendment
dated as of April 15, 1998. Subsequently, the parties signed the Commerce
Amended and Restated Plan of Merger which superseded the previous agreement and
amendments and was dated as of April 6, 1998.
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<PAGE> 43
REASONS FOR THE COMMERCE MERGER; RECOMMENDATION OF COMMERCE BOARD OF DIRECTORS
By the unanimous vote of the members of the Commerce Board of Directors at
a special meeting held on 1998, 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 Warrior. 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 except that 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 were significant factors. In reaching its decision,
Commerce's Board consulted with counsel regarding the terms of the transaction
and with management of Commerce. It also considered the condition in the
Commerce Plan of Merger regarding the receipt of an opinion of a financial
advisor to be delivered at Closing regarding the fairness of the Merger to the
shareholders of Commerce from a financial point of view. The Commerce Board of
Directors also considered the factors and circumstances set forth in "Background
of the Commerce Merger," and the following:
(a) The alternatives to the Commerce Merger, including remaining an
independent institution in light of the current economic conditions of the
market and the competitive disadvantages of smaller institutions as
compared to larger financial institutions operating in the market;
(b) The value of the consideration to be received by the Commerce
shareholders relative to the book value and earnings per share of Commerce
common stock;
(c) The financial condition and results of operations of Warrior;
(d) The competitive and regulatory environment for financial
institutions generally; and
(e) The tax free nature of the Commerce Merger to the Commerce
shareholders.
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
It is a condition to Commerce's obligation to consummate the Commerce
Merger that Commerce receive, on or before the Closing Date, an opinion from a
financial adviser that the Commerce Merger is fair to the stockholders of
Commerce from a financial point of view. If such fairness opinion is not
received on or before the Closing Date, the Commerce Board of Directors does not
intend to waive the condition in the Commerce Plan of Merger that it receive a
fairness opinion unless the stockholders of Commerce approve such waiver.
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 on , 1998 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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<PAGE> 44
EXCHANGE OF CERTIFICATES
Exchange Agent. On the Closing Date, the Corporation shall deliver to
Commerce the Corporation Common Stock to be paid to Commerce shareholders
hereunder and cash in an amount necessary to pay for fractional shares (the
"Commerce Merger Consideration"). Any interest earned on such cash while in the
hands of Commerce shall be the property of the Corporation. 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 Commerce
Merger Consideration to which they are entitled pursuant to the following
provisions:
Exchange Procedures 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 the 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.
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.
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<PAGE> 45
CONDITIONS TO THE COMMERCE MERGER
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 Mauldin & Jenkins, LLC 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 hereby 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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<PAGE> 46
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 or 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.
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 each of the Companies 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 Superintendent and it
is expected that all requisite approvals will be received no later than
, 1998. Either of these governmental agencies could refuse
approval.
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, 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
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<PAGE> 47
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; (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.
NASDAQ LISTING
The Corporation expects to be approved to have the Corporation Common Stock
traded on the Nasdaq NMS after the Effective Time. However, such a listing is
not a condition to the Commerce Merger. There can be no assurance that the stock
will be approved for listing on Nasdaq, that an active public market for
Corporation Common Stock will develop after the Effective Time or, if developed,
that such a market will be sustained.
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
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<PAGE> 48
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 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
the 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 a minimum 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 Employer 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 Board of
Commerce and the Board of The Bank, has served as a consultant to The Bank on
the opening and operation of its Birmingham location since April 1998. Mr.
Sizemore receives $3,500 per month under the consulting arrangement.
Mr. Smith will be employed as the Executive Vice President of The Bank and
Branch 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
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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.
The terms of the foregoing employment arrangements have resulted from arm's
length negotiation between the parties involved following the 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.
Assuming an Exchange Ratio of 2.340, such persons would receive a total of
519,162 shares of Corporation Common Stock to be issued to shareholders of
Commerce in the Commerce Merger or a total of 33.79% 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 "Security
Ownership of Certain Beneficial Owners and Management."
ACCOUNTING TREATMENT
Consummation of the Commerce Merger is conditioned upon the receipt by the
Corporation and Commerce of a letter from Ernst & Young 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."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion of certain 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 is included for general
information only. This summary is not a complete description of all the tax
consequences of the Commerce Merger. 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.
Accordingly, each Commerce shareholder is advised to consult his or her own tax
advisor as to the specific tax consequences of the Commerce Merger.
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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
are 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 counsel. 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
Merger that the Corporation shall have received an opinion from Haskell
Slaughter & Young, L.L.C., its counsel, 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, concerning certain
of the federal income tax consequences of the Commerce Merger, substantially to
the effect that:
(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;
(v) The tax basis of the shares of Corporation Common Stock received
by a Commerce shareholder will be equal to the 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 certain 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 may furnish information and
access, in response to unsolicited requests therefor, concerning Commerce to
other corporations, partnerships, persons or other entities or groups, and may
participate in discussions and negotiate with such entities 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"), in response to unsolicited requests therefor, if the Board of
Directors of Commerce determines in its good faith judgment in the exercise of
its fiduciary duties that such action is appropriate in furtherance of the best
interest of its shareholders. Except as described in the preceding sentence,
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 it will notify the Corporation if it enters into a
confidentiality agreement with any third party in response to any unsolicited
request for information and access in connection with a possible Acquisition
Transaction, including providing the Corporation with the identity of the third
party and the proposed terms of such 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 Amended and
Restated 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
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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 certificates representing
shares in Commerce to the continuing bank for notation thereon that such demand
has been made.
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; it is not complete 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 an Amended and Restated Reorganization
Agreement and Plan of Merger dated as of April 15, 1998 (the "First Citizens
Plan of Merger"). As of March 31, 1998, First Citizens had total assets of
approximately $36.2 million, deposits of approximately $32.6 million and
shareholders' equity of approximately $3.2 million. 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 8.291 shares of
Corporation Common Stock. After completion of all of the Mergers, the former
holders of First Citizens Common Stock will receive 663,280 shares of
Corporation Common Stock representing approximately 6.10 percent 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 Board of First Citizens wanted to stay abreast of current bank values and
decided to meet with representatives of that firm. A meeting was held in the
board room of 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 acquirers 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 approximately January 1998, James A. Taylor, then the Chairman and Chief
Executive Officer of Warrior, contacted John Gittings regarding a possible
business combination between First Citizens and Warrior. The First Citizens
Board of Directors decided to approve preliminary discussions with Mr. Taylor.
A meeting between Mr. Taylor and representatives of First Citizens was held
on February 26, 1998. Mr. Taylor outlined the business plans for Warrior, which
included expanding Warrior'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.
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 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 believes 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 at least $5
million of additional capital through a public offering of its Common Stock in
1998.
On March 13, 1998, a letter of intent between Warrior and First Citizens
was signed setting forth the basic terms of the First Citizens Merger described
in this Prospectus-Joint Proxy Statement. A public announcement of the
transaction was promptly made. Subsequently, representatives of First Citizens
conducted a due diligence review of Warrior and Commerce. Also, representatives
of First Citizens, including legal counsel, 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. Counsel for
First Citizens met with the First Citizens Board of Directors to review the
draft agreement and the status of negotiations. After further negotiations with
Warrior, the First Citizens Board of Directors approved the First Citizens Plan
of Merger on the terms 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 at a special meeting held on March 31, 1998, the Board of Directors
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 except that the ability of the transaction to
satisfy First Citizens's capital needs and the opportunity to acquire a security
for which a public trading market could develop were significant factors. In
reaching its decision, First Citizens's Board of Directors consulted with
counsel regarding the terms of the transaction and with management of First
Citizens. It also considered the condition in the First Citizens Plan of Merger
regarding the receipt of an opinion of a financial advisor to be delivered at
closing regarding the fairness of the First Citizens Merger to the shareholders
of First Citizens from a financial point of view. The
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First Citizens Board also considered the factors and circumstances set forth in
"Background of the First Citizens Merger," and the following:
(a) The alternatives to the First Citizens Merger, including remaining
an independent institution in light of the current economic conditions of
the market and the competitive disadvantages to smaller institutions as
compared to larger financial institutions operating in the market;
(b) The value of the consideration to be received by the First
Citizens shareholders relative to the book value and earnings per share of
First Citizens common stock;
(c) The financial condition and results of operations of Warrior;
(d) The competitive and regulatory environment for financial
institutions generally; and
(e) The tax free nature of the First Citizens Merger to the
shareholders of First Citizens.
The foregoing factors are all of the material factors considered by the
Board of Directors of First Citizens in reaching its decision to recommend
approval of the First Citizens Merger.
OPINION OF FIRST CITIZENS'S FINANCIAL ADVISOR
It is a condition to First Citizens' obligation to consummate the First
Citizens Merger that First Citizens receive, on or before the Closing Date, an
opinion from a financial adviser that the First Citizens Merger is fair to the
stockholders of First Citizens from a financial point of view. If such fairness
opinion is not received on or before the Closing Date, the First Citizens Board
of Directors does not intend to waive the condition in the First Citizens Plan
of Merger that it receive a fairness opinion unless the stockholders of First
Citizens approve such waiver.
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. The First Citizens Merger shall become effective upon the filing
of a certified merger agreement with the Alabama 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
Exchange Agent. On the Closing Date, Corporation shall deliver to First
Citizens the Corporation Common Stock to be paid to First Citizens shareholders
hereunder and cash in an amount necessary to pay for fractional shares (the
"First Citizens Merger Consideration"). Any interest earned on such cash while
in the hands of First Citizens shall be the property of Corporation. First
Citizens subsequently shall deliver to the holders of certificates evidencing
ownership of First Citizens Common Stock, immediately upon receipt from the
holders thereof of such certificates, duly executed and in proper form for
transfer, the First Citizens Merger Consideration to which they are entitled
pursuant to the following provisions:
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,
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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
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 the 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.
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 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.
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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 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 Dudley,
Hopton-Jones, Sims & Freeman, PLLP ("Dudley, Hopton") 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 hereby 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.
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
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shares or similar transactions, except that each of the Companies 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 First Citizens Merger must be approved by the Federal Reserve and the
Alabama Banking Department. The Corporation's application was approved on
, 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 or except to the extent legally required for the discharge by the board
of directors of its fiduciary duties, 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
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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) 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.
NASDAQ LISTING
The Corporation expects to be approved to have the Corporation Common Stock
traded on the Nasdaq NMS after the Effective Time. However, such a listing is
not a condition to the First Citizens Merger. There can be no assurance that the
stock will be approved for listing on Nasdaq, that an active public market for
Corporation Common Stock will develop after the Effective Time or, if developed,
that such a market will be sustained.
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
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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 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 (the "Gittings Employment
Agreement"). 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 the Gittings Employment Agreement have resulted from arm's
length negotiation between the parties involved following the 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.
Assuming an Exchange Ratio of 8.291, such persons would receive a total of
280,534 shares of the 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
by the Corporation and First Citizens of a letter from Ernst & Young 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.
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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.
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."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion of certain 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 is included for
general information only. This summary is not a complete description of all the
consequences of the First Citizens Merger. 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. Accordingly, each First Citizens shareholder is advised to consult
his or her own tax advisor as to the specific tax consequences of the First
Citizens Merger.
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 are 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. 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
Merger that the Corporation shall have received an opinion from Haskell
Slaughter & Young, L.L.C., its counsel, 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,
concerning certain of the federal income tax consequences of the First Citizens
Merger, substantially to the effect that:
(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;
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(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;
(v) The tax basis of the shares of Corporation Common Stock received
by a First Citizens shareholder will be equal to the 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 certain 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 may furnish
information and access, in response to unsolicited requests therefor, concerning
First Citizens to other corporations, partnerships, persons or other entities or
groups, and may 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"), in response to unsolicited requests
therefor, if the Board of Directors of First Citizens determines in its good
faith judgment in the exercise of its fiduciary duties that such action is
appropriate in furtherance of the best interest of its shareholders. Except as
described in the preceding sentence, 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 it will
notify the Corporation if it enters into a confidentiality agreement with any
third party in response to any unsolicited request for information and access in
connection with a possible Acquisition Transaction, including providing the
Corporation with the identity of the third party and the proposed terms of such
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 Amended and
Restated 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
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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.
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.
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.
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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
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; it is not complete 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 (the "City National 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"). As of March 31,
1998, City National had total assets of approximately $83.3 million, deposits of
approximately $70.3 million and shareholders equity of approximately $11.8
million. City National Bank is based in Sylacauga and has branches in Minion 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 68.682 shares of
Corporation Common Stock. The former City National shareholders will receive
1,842,864 shares of Common Stock, representing approximately 16.95% 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 Board of City National 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 approximately April, 1998, James A. Taylor, the Chairman of Warrior,
contacted W.T. Campbell, Jr., regarding a possible business combination between
City National and Warrior. The Board of City National decided to approve
preliminary discussions with Mr. Taylor.
A meeting between Mr. Taylor and representatives of City National was held
May 12, 1998. Mr. Taylor outlined the business plans for Warrior, which included
expanding Warrior'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.
City National's Board believes Warrior'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 Warrior is a relatively new
company, a combination with Warrior offers an opportunity for City National to
become part of a larger banking enterprise that would enable City National to
diversify its risk of operations. Because there is no public trading market for
the common stock of City National, the Board believes that a combination with
Warrior would provide more liquidity for the holders of City National Common
Stock than is presently offered.
In particular, the Board of City National considered it significant that
Warrior had plans to grow by acquiring additional banks, including a pending
acquisition of Commerce, First Citizens, Emerald, and CBS, and to raise
additional capital through a public offering of its common stock.
On May 15, 1998, a letter of intent between Warrior and City National was
signed setting forth the basic terms of the City National Merger described in
this Prospectus -- Joint Proxy Statement. A public
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announcement concerning negotiations regarding the transaction was also made.
Thereafter, representatives of City National conducted a due diligence review of
Warrior and other banks to be acquired by the Corporation. Also, a
representative of City National, including legal counsel, reviewed and
negotiated drafts of a proposed definitive agreement. Copies of the proposed
agreement were also distributed to each member of the City National Board of
Directors. Counsel for City National met with the City National Board of
Directors to review the draft agreement and the status of negotiations. After
further negotiations with Warrior, the City National Board of Directors approved
the City National Plan of Merger on the terms described in this
Prospectus -- Joint Proxy Statement.
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
except that the City National Board of Directors considered the opportunity to
acquire a security for which a public trading market could develop was a
significant factor. In reaching its decision, the City National Board of
Directors consulted with counsel regarding the terms of the transaction and with
management of City National. It also considered the condition in the City
National Plan of Merger regarding the receipt 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. The City National Board of
Directors also considered the factors and circumstances set forth in "Background
of the City National Merger," and the following:
(a) The alternatives to the City National Merger, including remaining
an independent institution in light of the current economic conditions of
the market and the competitive disadvantages to smaller institutions as
compared to larger financial institutions operating in the market;
(b) The value of the consideration to be received by the City National
shareholders relative to the book value and earnings per share of City
National common stock;
(c) The financial condition and results of operations of Warrior;
(d) The competitive and regulatory environment for financial
institutions generally; and
(e) The tax free nature of the City National Merger to the City
National shareholders.
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
It is a condition to City National's obligation to consummate the City
National Merger that City National receive, on or before the Closing Date, an
opinion from a financial adviser that the City National Merger is fair to the
stockholders of City National from a financial point of view. If such fairness
opinion is not received on or before the Closing Date, the City National Board
of Directors does not intend to waive the condition in the City National Plan of
Merger that it receive a fairness opinion unless the stockholders of City
National approve such waiver.
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. The City National Merger shall become effective upon the filing
of the merger agreement with the Alabama Secretary of State (the "Effective
Time"). It is presently anticipated
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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
Exchange Agent. On the Closing Date, Corporation shall deliver to City
National the Corporation Common Stock to be paid to City National shareholders
hereunder and cash in an amount necessary to pay for fractional shares (the
"City National Merger Consideration"). Any interest earned on such cash while in
the hands of City National shall be the property of Corporation. City National
subsequently shall deliver to the holders of certificates evidencing ownership
of City National Common Stock, immediately upon receipt from the holders thereof
of such certificates, duly executed and in proper form for transfer, the City
National Merger Consideration to which they are entitled pursuant to the
following provisions:
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 the
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.
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 share payment and any dividends or other distributions to which they
may be entitled under the City National Plan of Merger.
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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 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 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 Dudley, Hopton 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 $35,816,000, 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 hereby or the attainment of material damages or
other relief against City 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
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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 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.
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 and the
Alabama Banking Department. The Corporation's application was approved on
, 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 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
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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.
NASDAQ LISTING
The Corporation expects to be approved to have the Corporation Common Stock
traded on the Nasdaq NMS after the Effective Time. However, such a listing is
not a condition to the City National Merger. There can be no assurance that the
stock will be approved for listing on Nasdaq, that an active public market for
Corporation Common Stock will develop after the Effective Time or, if developed,
that such a market will be sustained.
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 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.
Assuming an Exchange Ratio of 68.682, such persons would receive a total of
557,423 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 by
the Corporation and City National of a letter from Ernst & Young 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
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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."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion of certain 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 is included for
general information only. This summary is not a complete description of all the
consequences of the City National Merger. 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. Accordingly, each City National shareholder is advised to consult
his or her own tax advisor as to the specific tax consequences of the City
National Merger.
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 are 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. 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
Merger that the Corporation shall have received an opinion from Haskell
Slaughter & Young, L.L.C., its counsel, and it is a condition to
52
<PAGE> 73
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, concerning certain of the federal income tax consequences of the City
National Merger, substantially to the effect that:
(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;
(v) The tax basis of the shares of Corporation Common Stock received
by a City National shareholder will be equal to the tax 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 certain 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.
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 Amended and
Restated 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
53
<PAGE> 74
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.
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 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
54
<PAGE> 75
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.
55
<PAGE> 76
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. The Corporation's
management shall nominate and recommend as directors of the Corporation at least
four of the current directors of Commerce to serve as directors of the
Corporation, and the Corporation shall use its best efforts to cause the four
nominated individuals to be elected to the Corporation's Board of Directors. In
addition, J. Daniel Sizemore will become the President, the Chief Operating
Officer and a Director of the Corporation.
56
<PAGE> 77
CONDENSED COMBINED PRO FORMA FINANCIAL INFORMATION
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 as of March 31, 1998, (ii) the
condensed consolidated statement of financial condition of Commerce Bank of
Alabama ("Commerce") as of March 31, 1998, (iii) the condensed consolidated
statement of financial condition of First Citizens Bancorp ("First Citizens") as
of March 31, 1998, (iv) the condensed consolidated statement of financial
condition of City National Corporation ("City National") as of March 31, 1998,
(v) the condensed consolidated statement of financial condition of Commercial
Bancshares of Roanoke ("Commercial") as of March 31, 1998, (vi) adjustments to
give affect to the proposed purchase method combination with Commercial and the
proposed pooling of interest 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 March 31, 1998.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of financial
condition of The Banc Corporation, Commerce, First Citizens, City National and
Commercial. The pro forma information provided below may not be indicative of
future results.
57
<PAGE> 78
<TABLE>
<CAPTION>
AS OF MARCH 31, 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>
ASSETS
Cash and due from banks................ $ 12,328 $ 5,800 $ 1,258 $ 2,238 $ 1,429 $ 595(a) $ 16,348
(7,300)(c)
Interest bearing deposits in other
banks................................ -- -- -- 200 200 -- 400
Federal funds sold..................... 3,000 4,550 1,820 1,810 6,750 -- 17,930
Investment securities available for
sale................................. 7,775 15,638 1,867 35,929 2,298 -- 63,507
Investment securities held to
maturity............................. 28,920 753 -- -- 15,757 -- 45,430
Loans, net of unearned................. 86,569 81,811 29,636 39,442 15,678 -- 253,136
Less: Allowance for loan losses........ (1,141) (814) (305) (497) (326) -- (3,083)
-------- -------- ------- ------- -------- -------- --------
Net loans...................... 85,428 80,997 29,331 38,945 15,352 -- 250,053
-------- -------- ------- ------- -------- -------- --------
Premises and equipment, net............ 11,073 2,788 569 2,642 295 1,039(c) 18,406
Intangibles, net....................... 410 -- -- -- -- -- 410
Other assets........................... 4,196 1,783 1,333 1,575 686 -- 9,573
-------- -------- ------- ------- -------- -------- --------
Total assets................... $153,130 $112,309 $36,178 $83,339 $ 42,767 $ (5,666) $422,057
======== ======== ======= ======= ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing.................. $ 19,413 $ 9,915 $ 3,453 $11,076 $ 6,868 $ -- $ 50,725
Interest-bearing..................... 103,967 94,332 29,133 59,143 29,344 -- 315,919
-------- -------- ------- ------- -------- -------- --------
Total deposits................. 123,380 104,247 32,586 70,219 36,212 -- 366,644
Federal funds purchased and other
borrowed funds....................... 2,105 537 -- -- -- -- 2,642
Accrued expenses and other
liabilities.......................... 1,551 938 437 1,169 294 -- 4,389
-------- -------- ------- ------- -------- -------- --------
Total liabilities.............. 127,036 105,722 33,023 71,388 36,506 -- 373,675
Minority interest in equity of
subsidiary........................... 19 -- -- 138 -- 157
Stockholders' Equity
Common stock......................... 6 7 75 27 20 5(a) 11
5(b)
(114)(b)
(20)(c)
Surplus.............................. 18,878 7,017 1,914 4,135 3,527 590(a) 32,590
13,262(b)
(13,206)(b)
(3,527)(c)
Retained earnings (accumulated
deficit)........................... 7,219 (427) 1,161 7,482 2,696 (2,696)(c) 15,435
Accumulated other comprehensive
income (loss)...................... (28) (10) 5 222 18 (18)(c) 189
Treasury stock, at cost.............. -- -- -- (53) -- 53(b) --
-------- -------- ------- ------- -------- -------- --------
Total stockholders' equity..... 26,075 6,587 3,155 11,813 6,261 (5,666) 48,225
-------- -------- ------- ------- -------- -------- --------
Total liabilities and
stockholders' equity......... $153,130 $112,309 $36,178 $83,339 $ 42,767 $ (5,666) $422,057
======== ======== ======= ======= ======== ======== ========
</TABLE>
58
<PAGE> 79
- ---------------
(a) To record the exercise of 57,000 stock options by an officer of The Banc
Corporation and 5,000 stock options by an officer of First Citizens prior to
merger.
(b) To record the exchange of 4,042,722 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 COMMERCE CITY
CITIZENS BANK OF NATIONAL
BANCORP ALABAMA CORPORATION TOTAL
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Outstanding shares of acquired corporation....... 80,000 656,630 26,832
Conversion ratio................................. 8.2905375 2.340153 68.681574
---------- ---------- ----------
The Banc Corporation shares to be issued......... 663,243 1,536,615 1,842,864 4,042,722
Par value of shares to be issued at $.001 per
share.......................................... $ 1 $ 2 $ 2 $ 5
Total common stock and surplus of acquired
corporation.................................... 2,134 7,024 4,109 13,267
---------- ---------- ---------- ----------
Excess recorded as an increase in contributed
capital...................................... 2,133 7,022 4,107 13,262
---------- ---------- ---------- ----------
To eliminate acquired corporations capital stock
Common stock at par value...................... (80) (7) (27) (114)
Surplus........................................ (2,054) (7,017) (4,135) (13,206)
Treasury stock................................. -- -- 53 53
---------- ---------- ---------- ----------
(2,134) (7,024) (4,109) (13,267)
---------- ---------- ---------- ----------
Net change in equity.................... $ -- $ -- $ -- $ --
========== ========== ========== ==========
</TABLE>
(c) Purchase of 100% of the outstanding common stock of The Commercial
Bancshares of Roanoke for approximately $7.3 million. 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.
59
<PAGE> 80
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 and subsidiaries on a historical basis for the
three months ended March 31, 1998 and 1997, and the years ended December 31,
1997, 1996, and 1995, (ii) the condensed consolidated statements of income of
Commerce for the three months ended March 31, 1998 and 1997 and the periods
ended December 31, 1997, and 1996, (iii) the condensed consolidated statements
of income of First Citizens for the three months ended March 31, 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 three months ended
March 31, 1998 and 1997 and the years ended December 31, 1997, 1996 and 1995,
(v) the condensed consolidated statements of income of Commercial for the three
months ended March 31, 1998 and the year ended December 31, 1997, (vi)
adjustments to give affect to the proposed purchase method combination with
Commercial and the proposed pooling of interest 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 three
months ended March 31, 1998 and the year ended December 31, 1997 and included in
(v) above for Commercial.
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 Commercial. 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 MARCH 31, 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............ $ 2,692 $ 2,140 $ 829 $ 1,648 $ 745 $ (122)(a) $ 7,932
Interest expense........... 1,212 1,283 331 682 331 -- 3,839
---------- -------- ------- ------- -------- ------ -----------
Net interest
income.......... 1,480 857 498 966 414 (122) 4,093
Provision for loan
losses................... 112 126 39 133 35 -- 445
---------- -------- ------- ------- -------- ------ -----------
Net interest income after
provision for loan
losses................. 1,368 731 459 833 379 (122) 3,648
Noninterest income......... 269 292 121 190 250 -- 1,122
Noninterest expenses....... 1,317 875 349 839 491 9(a) 3,880
---------- -------- ------- ------- -------- ------ -----------
Income before
income taxes.... 320 148 231 184 138 (131) 890
Income tax expense
(benefit)................ 25 40 87 79 18 (48)(a) 201
---------- -------- ------- ------- -------- ------ -----------
Net income
(loss).......... 295 108 144 105 120 (83) 689
Other comprehensive income
(loss), net of tax:
Unrealized gain (loss) on
securities available
for sale............... 4 (38) -- (13) 1 -- (46)
---------- -------- ------- ------- -------- ------ -----------
Comprehensive income
(loss)................... $ 299 $ 70 $ 144 $ 92 $ 121 $ (83) $ 643
========== ======== ======= ======= ======== ====== ===========
Basic earnings per share... $ 0.04 $ 0.16 $ 1.92 $ 3.90 $ 0.60 $ 0.06
========== ======== ======= ======= ======== ===========
Average number of shares
outstanding.............. 6,660,293 656,444 75,000 26,922 200,000 10,705,045
========== ======== ======= ======= ======== ===========
</TABLE>
60
<PAGE> 81
- ---------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
(a) To reflect the reduction of in interest earning
assets of $7,300,000 from the cash purchase of
Commercial Bancshares of Roanoke at 6.7%......... $ (122)
Depreciation on allocation of purchase price to
premises and equipment (30 year period).......... (9)
-------
Decrease in income before tax benefit............ $ (131)
=======
Income tax benefit at 37%........................ $ (48)
=======
</TABLE>
61
<PAGE> 82
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED MARCH 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........................... $ 1,772 $ 1,564 $ 679 $ 1,671 $ -- $ 5,686
Interest expense.......................... 774 837 279 726 -- 2,616
---------- -------- ------- ------- -------- ----------
Net interest income.............. 998 727 400 945 -- 3,070
Provision for loan losses................. 118 115 15 183 -- 431
---------- -------- ------- ------- -------- ----------
Net interest income after provision for
loan losses........................... 880 612 385 762 -- 2,639
Noninterest income........................ 132 147 110 152 -- 541
Noninterest expenses...................... 844 658 307 853 -- 2,662
---------- -------- ------- ------- -------- ----------
Income before income taxes....... 168 101 188 61 -- 518
Income tax expense (benefit).............. 28 17 70 27 -- 142
---------- -------- ------- ------- -------- ----------
Net income (loss)................ 140 84 118 34 -- 376
Other comprehensive loss, net of tax:
Unrealized loss on securities available
for sale.............................. (27) (83) (6) (473) -- (589)
---------- -------- ------- ------- -------- ----------
Comprehensive income (loss)............... $ 113 $ 1 $ 112 $ (439) $ -- $ (213)
========== ======== ======= ======= ======== ==========
Basic earnings per share.................. $ 0.04 $ 0.13 $ 1.57 $ 1.26 $ 0.05
========== ======== ======= ======= ==========
Average number of shares outstanding...... 3,980,993 655,565 75,000 26,999 8,028,965
========== ======== ======= ======= ==========
</TABLE>
62
<PAGE> 83
<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............ $ 8,514 $ 7,513 $ 2,957 $ 6,721 $ 3,114 $(488)(a) $ 28,331
Interest expense........... 3,799 4,028 1,215 2,911 1,307 -- 13,260
---------- -------- ------- ------- -------- ----- ----------
Net interest
income.......... 4,715 3,485 1,742 3,810 1,807 (488) 15,071
Provision for loan
losses................... 663 584 218 384 401 -- 2,250
---------- -------- ------- ------- -------- ----- ----------
Net interest income after
provision for loan
losses................. 4,052 2,901 1,524 3,426 1,406 (488) 12,821
Noninterest income......... 590 578 415 737 980 -- 3,300
Noninterest expenses....... 4,045 3,131 1,303 3,367 2,010 36(a) 13,892
---------- -------- ------- ------- -------- ----- ----------
Income before
income taxes.... 597 348 636 796 376 (524) 2,229
Income tax expense
(benefit)................ 192 120 213 170 68 (194)(a) 569
---------- -------- ------- ------- -------- ----- ----------
Net income
(loss).......... 405 228 423 626 308 (330) 1,660
Other comprehensive income,
net of tax:
Unrealized gain on
securities available
for sale............... 12 40 12 198 8 -- 270
---------- -------- ------- ------- -------- ----- ----------
Comprehensive income
(loss)................... $ 417 $ 268 $ 435 $ 824 $ 316 $(330) $ 1,930
========== ======== ======= ======= ======== ===== ==========
Basic earnings per share... $ 0.09 $ 0.35 $ 5.64 $ 23.25 $ 1.54 $ 0.20
========== ======== ======= ======= ======== ==========
Average number of shares
outstanding.............. 4,290,593 655,565 75,000 26,910 200,000 8,332,465
========== ======== ======= ======= ======== ==========
</TABLE>
- ---------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
(a) To reflect the reduction of in interest earning
assets of $7,300,000 from the cash purchase of
Commercial Bancshares of Roanoke at 6.7%....... $ (488)
Depreciation on allocation of purchase price to
premises and equipment (30 year period)........ (36)
-------
Decrease in income before tax benefit.......... $ (524)
=======
Income tax benefit at 37%...................... $ (194)
=======
</TABLE>
63
<PAGE> 84
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------------------------------------
HISTORICAL
--------------------------------------------------
THE COMMERCE FIRST CITY
BANC BANK OF CITIZENS NATIONAL PRO FORMA PRO FORMA
CORPORATION(A) ALABAMA BANCORP CORPORATION ADJUSTMENTS COMBINED
-------------- -------- -------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest Income......................... $ 5,433 $ 4,056 $ 2,437 $ 6,027 $ -- $ 17,953
Interest expense........................ 2,386 2,170 1,008 2,460 -- 8,024
---------- -------- ------- ------- ------- ----------
Net interest income............ 3,047 1,886 1,429 3,567 -- 9,929
Provision for loan losses............... 205 372 43 346 -- 966
---------- -------- ------- ------- ------- ----------
Net interest income after provision
for loan losses..................... 2,842 1,514 1,386 3,221 -- 8,963
Noninterest income...................... 473 380 430 683 -- 1,966
Noninterest expenses.................... 2,501 2,268 1,232 3,211 -- 9,212
---------- -------- ------- ------- ------- ----------
Income before income taxes..... 814 (374) 584 693 -- 1,717
Income tax expense (benefit)............ 157 (81) 184 133 -- 393
---------- -------- ------- ------- ------- ----------
Net income (loss).............. 657 (293) 400 560 -- 1,324
Other comprehensive income (loss), net
of tax:
Unrealized gain (loss) on securities
available for sale.................. 7 (12) (15) (267) -- (287)
---------- -------- ------- ------- ------- ----------
Comprehensive income (loss)............. $ 664 $ (305) $ 385 $ 293 $ -- $ 1,037
========== ======== ======= ======= ======= ==========
Basic earnings (loss) per share......... $ 0.15 $ (0.47) $ 5.33 $ 20.68 $ 0.16
========== ======== ======= ======= ==========
Average number of shares outstanding.... 4,290,593 618,854 75,000 27,063 8,257,043
========== ======== ======= ======= ==========
</TABLE>
- ---------------
(a) The consolidated financial data for The Banc Corporation includes the
operations of its subsidiaries, The Emerald Coast Bank for the period August
30, 1996 (date of inception) to December 31, 1996, and The Bank for the year
ended December 31, 1996.
64
<PAGE> 85
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------------------------------------
HISTORICAL
-----------------------------------------------------
THE COMMERCE FIRST CITY
BANC BANK OF CITIZENS NATIONAL PRO FORMA PRO FORMA
CORPORATION(A) ALABAMA(B) 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 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
Other comprehensive income, net of tax:
Unrealized gain on securities
available for sale................. 63 -- 117 1,486 -- 1,666
---------- -------- ------- ------- ------- ----------
Comprehensive income (loss)............ $ 961 $ (470) $ 311 $ 2,211 $ -- $ 3,013
========== ======== ======= ======= ======= ==========
Basic earnings (loss) per share........ $ 0.33 $ (0.85) $ 2.59 $ 26.73 $ 0.21
============== ========== ========= =========== ==========
Average number of shares outstanding... 2,716,200 550,000 75,000 27,149 6,527,417
============== ========== ========= =========== ==========
</TABLE>
- ---------------
(a) The statement of income for The Banc Corporation reflects the operations for
Warrior Capital Corporation and its subsidiary, The Bank. The Emerald Coast
Bank was not formed until August, 1996.
(b) The statement of income for Commerce Bank of Alabama is from the date of
inception (April 6, 1995) to December 31, 1995.
65
<PAGE> 86
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 as of March 31, 1998, (ii) the
condensed consolidated statement of financial condition of Commerce Bank of
Alabama ("Commerce") as of March 31, 1998, (iii) the condensed consolidated
statement of financial condition of First Citizens Bancorp ("First Citizens") as
of March 31, 1998, (iv) the condensed consolidated statement of financial
condition of City National Corporation ("City National") as of March 31, 1998,
(v) adjustments to give affect to the proposed pooling of interest 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 March 31,
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 MARCH 31, 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>
ASSETS
Cash and due from banks........................... $ 12,328 $ 5,800 $ 1,258 $ 2,238 $ 595(a) $ 22,219
Interest bearing deposits in other banks.......... -- -- -- 200 -- 200
Federal funds sold................................ 3,000 4,550 1,820 1,810 -- 11,180
Investment securities available for sale.......... 7,775 15,638 1,867 35,929 -- 61,209
Investment securities held to maturity............ 28,920 753 -- -- -- 29,673
Loans, net of unearned............................ 86,569 81,811 29,636 39,442 -- 237,458
Less: Allowance for loan losses................... (1,141) (814) (305) (497) -- (2,757)
-------- -------- ------- ------- --------- --------
Net loans................................. 85,428 80,997 29,331 38,945 -- 234,701
-------- -------- ------- ------- --------- --------
Premises and equipment, net....................... 11,073 2,788 569 2,642 -- 17,072
Intangibles, net.................................. 410 -- -- -- -- 410
Other assets...................................... 4,196 1,783 1,333 1,575 -- 8,887
-------- -------- ------- ------- --------- --------
Total assets.............................. $153,130 $112,309 $36,178 $83,339 $ 595 $385,551
======== ======== ======= ======= ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing............................. $ 19,413 $ 9,915 $ 3,453 $11,076 $ -- $ 43,857
Interest-bearing................................ 103,967 94,332 29,133 59,143 -- 286,575
-------- -------- ------- ------- --------- --------
Total deposits............................ 123,380 104,247 32,586 70,219 -- 330,432
Federal funds purchased and other borrowed
funds........................................... 2,105 537 -- -- -- 2,642
Accrued expenses and other liabilities............ 1,551 938 437 1,169 -- 4,095
-------- -------- ------- ------- --------- --------
Total liabilities......................... 127,036 105,722 33,023 71,388 -- 337,169
-------- -------- ------- ------- --------- --------
Minority interest in equity of subsidiary......... 19 -- -- 138 -- 157
Stockholders' Equity
Common stock.................................... 6 7 75 27 5(a) 11
5(b)
(114)(b)
Surplus......................................... 18,878 7,017 1,914 4,135 590(a) 32,590
13,262(b)
(13,206)(b)
Retained earnings (accumulated deficit)......... 7,219 (427) 1,161 7,482 15,435
Accumulated other comprehensive income (loss)... (28) (10) 5 222 189
Treasury stock, at cost......................... -- -- -- (53) 53(b) --
-------- -------- ------- ------- --------- --------
Total stockholders' equity................ 26,075 6,587 3,155 11,813 595 48,225
-------- -------- ------- ------- --------- --------
Total liabilities and stockholders'
equity.................................. $153,130 $112,309 $36,178 $83,339 $ 595 $385,551
======== ======== ======= ======= ========= ========
</TABLE>
- ---------------
(a) To record the exercise of 57,000 stock options by officers of The Banc
Corporation and its subsidiary and 5,000 stock options by an officer of
First Citizens prior to merger.
(b) To record the exchange of 4,042,722 shares of The Banc Corporation common
stock for all of the outstanding shares of the following accounted for as a
pooling of interest.
66
<PAGE> 87
<TABLE>
<CAPTION>
FIRST COMMERCE CITY
CITIZENS BANK OF NATIONAL
BANCORP ALABAMA CORPORATION TOTAL
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Outstanding shares of acquired corporation....... 80,000 656,630 26,832
Conversion ratio................................. 8.2905375 2.340153 68.681574
---------- ---------- ----------
The Banc Corporation shares to be issued......... 663,243 1,536,615 1,842,864 4,042,722
Par value of shares to be issued at $.001 per
share.......................................... $ 1 $ 2 $ 2 $ 5
Total common stock and surplus of acquired
corporation.................................... 2,134 7,024 4,109 13,267
---------- ---------- ---------- ----------
Excess recorded as an increase in contributed
capital...................................... 2,133 7,022 4,107 13,262
---------- ---------- ---------- ----------
To eliminate acquired corporations capital stock
Common stock at par value...................... (80) (7) (27) (114)
Surplus........................................ (2,054) (7,017) (4,135) (13,206)
Treasury stock................................. -- -- 53 53
---------- ---------- ---------- ----------
(2,134) (7,024) (4,109) (13,267)
---------- ---------- ---------- ----------
Net change in equity.................... $ -- $ -- $ -- $ --
========== ========== ========== ==========
</TABLE>
67
<PAGE> 88
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 and subsidiaries on a historical basis for the
three months ended March 31, 1998 and 1997, and the years ended December 31,
1997, 1996, and 1995, (ii) the condensed consolidated statements of income of
Commerce for the three months ended March 31, 1998 and 1997 and the periods
ended December 31, 1997, and 1996, (iii) the condensed consolidated statements
of income of First Citizens for the three months ended March 31, 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 three months ended
March 31, 1998 and 1997 and the years ended December 31, 1997, 1996 and 1995,
(v) adjustments to give affect to the proposed pooling of interest 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 THE PERIOD ENDED MARCH 31, 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......................... $ 2,692 $ 2,140 $ 829 $ 1,648 $ -- $ 7,309
Interest expense........................ 1,212 1,283 331 682 -- 3,508
---------- -------- ------- ------- -------- -----------
Net interest income............ 1,480 857 498 966 -- 3,801
Provision for loan losses............... 112 126 39 133 -- 410
---------- -------- ------- ------- -------- -----------
Net interest income after provision
for loan losses..................... 1,368 731 459 833 -- 3,391
Noninterest income...................... 269 292 121 190 -- 872
Noninterest expenses.................... 1,317 875 349 839 -- 3,380
---------- -------- ------- ------- -------- -----------
Income before income taxes..... 320 148 231 184 -- 883
Income tax expense...................... 25 40 87 79 -- 231
---------- -------- ------- ------- -------- -----------
Net income..................... 295 108 144 105 -- 652
Other comprehensive income (loss),
net of tax:
Unrealized gain (loss) on securities
available for sale.................. 4 (38) -- (13) -- (47)
---------- -------- ------- ------- -------- -----------
Comprehensive income.................... $ 299 $ 70 $ 144 $ 92 $ -- $ 605
========== ======== ======= ======= ======== ===========
Basic earnings per share................ $ 0.04 $ 0.16 $ 1.92 $ 3.90 $ 0.06
========== ======== ======= ======= ===========
Average number of shares outstanding.... 6,660,293 656,444 75,000 26,922 10,705,045
========== ======== ======= ======= ===========
</TABLE>
68
<PAGE> 89
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED MARCH 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........................... $ 1,772 $ 1,564 $ 679 $ 1,671 $ -- $ 5,686
Interest expense.......................... 774....... 837 279 726 -- 2,616
---------- -------- ------- ------- -------- ----------
Net interest income.............. 998....... 727 400 945 -- 3,070
Provision for loan losses................. 118 115 15 183 -- 431
---------- -------- ------- ------- -------- ----------
Net interest income after provision for
loan losses........................... 880 612 385 762 -- 2,639
Noninterest income........................ 132 147 110 152 -- 541
Noninterest expenses...................... 844 658 307 853 -- 2,662
---------- -------- ------- ------- -------- ----------
Income before income taxes....... 168 101 188 61 -- 518
Income tax expense........................ 28 17 70 27 -- 142
---------- -------- ------- ------- -------- ----------
Net income....................... 140 84 118 34 -- 376
Other comprehensive loss, net of tax:
Unrealized loss on securities available
for sale.............................. (27) (83) (6) (473) -- (589)
---------- -------- ------- ------- -------- ----------
Comprehensive income (loss)............... $ 113 $ 1 $ 112 $ (439) $ -- $ (213)
========== ======== ======= ======= ======== ==========
Basic earnings per share.................. $ 0.04 $ 0.13 $ 1.57 $ 1.26 $ 0.05
========== ======== ======= ======= ==========
Average number of shares outstanding...... 3,980,993 655,565 75,000 26,999 8,028,965
========== ======== ======= ======= ==========
</TABLE>
69
<PAGE> 90
<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........................... $ 8,514 $ 7,513 $ 2,957 $ 6,721 $ -- $ 25,705
Interest expense.......................... 3,799 4,028 1,215 2,911 -- 11,953
---------- -------- ------- ------- -------- ----------
Net interest income.............. 4,715 3,485 1,742 3,810 -- 13,752
Provision for loan losses................. 663 584 218 384 -- 1,849
---------- -------- ------- ------- -------- ----------
Net interest income after provision for
loan losses........................... 4,052 2,901 1,524 3,426 -- 11,903
Noninterest income........................ 590 578 415 737 -- 2,320
Noninterest expenses...................... 4,045 3,131 1,303 3,367 -- 11,846
---------- -------- ------- ------- -------- ----------
Income before income taxes.............. 597 348 636 796 -- 2,377
Income tax expense........................ 192 120 213 170 -- 695
---------- -------- ------- ------- -------- ----------
Net income....................... 405 228 423 626 -- 1,682
Other comprehensive income, net of tax:
Unrealized gain on securities available
for sale.............................. 12 40 12 198 -- 262
---------- -------- ------- ------- -------- ----------
Comprehensive income...................... $ 417 $ 268 $ 435 $ 824 $ -- $ 1,944
========== ======== ======= ======= ======== ==========
Basic earnings per share.................. $ 0.09 $ 0.35 $ 5.64 $ 23.25 $ 0.20
========== ======== ======= ======= ==========
Average number of shares outstanding...... 4,290,593 655,565 75,000 26,910 8,332,465
========== ======== ======= ======= ==========
</TABLE>
70
<PAGE> 91
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------------------------------------
HISTORICAL
--------------------------------------------------
THE COMMERCE FIRST CITY
BANC BANK OF CITIZENS NATIONAL PRO FORMA PRO FORMA
CORPORATION(A) ALABAMA BANCORP CORPORATION ADJUSTMENTS COMBINED
-------------- -------- -------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest Income......................... $ 5,433 $ 4,056 $ 2,437 $ 6,027 $ -- $ 17,953
Interest expense........................ 2,386 2,170 1,008 2,460 -- 8,024
---------- -------- ------- ------- -------- ----------
Net interest income............ 3,047 1,886 1,429 3,567 -- 9,929
Provision for loan losses............... 205 372 43 346 -- 966
---------- -------- ------- ------- -------- ----------
Net interest income after provision
for loan losses..................... 2,842 1,514 1,386 3,221 -- 8,963
Noninterest income...................... 473 380 430 683 -- 1,966
Noninterest expenses.................... 2,501 2,268 1,232 3,211 -- 9,212
---------- -------- ------- ------- -------- ----------
Income before income taxes..... 814 (374) 584 693 -- 1,717
Income tax expense (benefit)............ 157 (81) 184 133 -- 393
---------- -------- ------- ------- -------- ----------
Net income (loss).............. 657 (293) 400 560 -- 1,324
Other comprehensive income (loss), net
of tax:
Unrealized gain (loss) on securities
available for sale.................. 7 (12) (15) (267) -- (287)
---------- -------- ------- ------- -------- ----------
Comprehensive income (loss)............. $ 664 $ (305) $ 385 $ 293 $ -- $ 1,037
========== ======== ======= ======= ======== ==========
Basic earnings (loss) per share......... $ 0.15 $ (0.47) $ 5.33 $ 20.68 $ 0.16
========== ======== ======= ======= ==========
Average number of shares outstanding.... 4,290,593 618,854 75,000 27,063 8,257,043
========== ======== ======= ======= ==========
</TABLE>
- ---------------
(a) The consolidated financial data for The Banc Corporation includes the
operations of its subsidiaries, The Emerald Coast Bank for the period August
30, 1996 (date of inception) to December 31, 1996, and The Bank for the year
ended December 31, 1996.
71
<PAGE> 92
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
-------------------------------------------------------------------------------
HISTORICAL
----------------------------------------------------
THE COMMERCE FIRST CITY
BANC BANK OF CITIZENS NATIONAL PRO FORMA PRO FORMA
CORPORATION(A) ALABAMA(B) 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 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
Other comprehensive income, net of tax:
Unrealized gain on securities
available for sale................. 63 -- 117 1,486 -- 1,666
---------- -------- ------- ------- ------ ----------
Comprehensive income (loss)............ $ 961 $ (470) $ 311 $ 2,211 $ -- $ 3,013
========== ======== ======= ======= ====== ==========
Basic earnings (loss) per share........ $ 0.33 $ (0.85) $ 2.59 $ 26.73 $ 0.21
========== ======== ======= ======= ==========
Average number of shares outstanding... 2,716,200 550,000 75,000 27,149 6,527,417
========== ======== ======= ======= ==========
</TABLE>
- ---------------
(a) The statement of income for The Banc Corporation reflects the operations of
Warrior Capital Corporation and its subsidiary, The Bank. The Emerald Coast
Bank was not formed until August, 1996.
(b) The statement of income for Commerce Bank of Alabama is from the date of
inception (April 6, 1995) to December 31, 1995.
72
<PAGE> 93
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 as of March 31, 1998, (ii) the
condensed consolidated statement of financial condition of Commerce Bank of
Alabama ("Commerce") as of March 31, 1998, (iii) the condensed consolidated
statement of financial condition of City National Corporation ("City National")
as of March 31, 1998, (iv) the condensed consolidated statement of financial
condition of Commercial Bancshares of Roanoke ("Commercial") as of March 31,
1998, (v) adjustments to give affect to the proposed purchase method combination
with Commercial and the proposed pooling of interest 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 March 31, 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 Commercial. The
pro forma information provided below may not be indicative of future results.
<TABLE>
<CAPTION>
AS OF MARCH 31, 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>
ASSETS
Cash and due from banks........................ $ 12,328 $ 5,800 $ 2,238 $ 1,429(a) $ 450 $ 14,945
(c) (7,300)
Interest bearing deposits in other banks....... -- -- 200 200 -- 400
Federal funds sold............................. 3,000 4,550 1,810 6,750 -- 16,110
Investment securities available for sale....... 7,775 15,638 35,929 2,298 -- 61,640
Investment securities held to maturity......... 28,920 753 -- 15,757 -- 45,430
Loans, net of unearned......................... 86,569 81,811 39,442 15,678 -- 223,500
Less: Allowance for loan losses................ (1,141) (814) (497) (326) -- (2,778)
-------- -------- ------- ------- -------- --------
Net loans.............................. 85,428 80,997 38,945 15,352 -- 220,722
-------- -------- ------- ------- -------- --------
Premises and equipment, net.................... 11,073 2,788 2,642 295(c) 1,039 17,837
Intangibles, net............................... 410 -- -- -- -- 410
Other assets................................... 4,196 1,783 1,575 686 -- 8,240
-------- -------- ------- ------- -------- --------
Total assets........................... $153,130 $112,309 $83,339 $42,767 $ (5,811) $385,734
======== ======== ======= ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing.......................... $ 19,413 $ 9,915 $11,076 $ 6,868 $ -- $ 47,272
Interest-bearing............................. 103,967 94,332 59,143 29,344 -- 286,786
-------- -------- ------- ------- -------- --------
Total deposits......................... 123,380 104,247 70,219 36,212 -- 334,058
Federal funds purchased and other borrowed
funds........................................ 2,105 537 -- -- -- 2,642
Accrued expenses and other liabilities......... 1,551 938 1,169 294 -- 3,952
-------- -------- ------- ------- -------- --------
Total liabilities...................... 127,036 105,722 71,388 36,506 -- 340,652
Minority interest in equity of subsidiary...... 19 -- 138 -- 157
Stockholders' Equity
Common stock................................. 6 7 27 20(a) -- 10
(b) 4
(b) (34)
(c) (20)
Surplus...................................... 18,878 7,017 4,135 3,527(a) 450 30,457
(b) 11,129
(b) (11,152)
(c) (3,527)
Retained earnings (accumulated deficit)...... 7,219 (427) 7,482 2,696(c) (2,696) 14,274
Accumulated other comprehensive income
(loss)..................................... (28) (10) 222 18(c) (18) 184
Treasury stock, at cost...................... -- -- (53) --(b) 53 --
-------- -------- ------- ------- -------- --------
Total stockholders' equity............. 26,075 6,587 11,813 6,261 (5,811) 44,925
-------- -------- ------- ------- -------- --------
Total liabilities and stockholders'
equity............................... $153,130 $112,309 $83,339 $42,767 $ (5,811) $385,734
======== ======== ======= ======= ======== ========
</TABLE>
73
<PAGE> 94
- ---------------
(a) To record the exercise of 57,000 stock options by officers of The Banc
Corporation and its subsidiary.
(b) To record the exchange of 3,379,479 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>
COMMERCE CITY
BANK OF NATIONAL
ALABAMA CORPORATION TOTAL
---------- ----------- -----------
<S> <C> <C> <C>
Outstanding shares of acquired corporation.................. 656,630 26,832
Conversion ratio............................................ 2.340153 68.681574
---------- -----------
The Banc Corporation shares to be issued.................... 1,536,615 1,842,864 3,379,479
Par value of shares to be issued at $.001 per share......... $ 2 $ 2 $ 4
Total common stock and surplus of acquired corporation...... 7,024 4,109 11,133
---------- ----------- -----------
Excess recorded as an increase in contributed capital... 7,022 4,107 11,129
---------- ----------- -----------
To eliminate acquired corporations capital stock
Common stock at par value................................. (7) (27) (34)
Surplus................................................... (7,017) (4,135) (11,152)
Treasury stock............................................ -- 53 53
---------- ----------- -----------
(7,024) (4,109) (11,133)
---------- ----------- -----------
Net change in equity............................... $ -- $ -- $ --
========== =========== ===========
</TABLE>
(c) Purchase of 100% of the outstanding common stock of The Commercial
Bancshares of Roanoke for $7.3 million. 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.
74
<PAGE> 95
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 and subsidiaries on a historical basis for the
three months ended March 31, 1998 and 1997, and the years ended December 31,
1997, 1996, and 1995, (ii) the condensed consolidated statements of income of
Commerce for the three months ended March 31, 1998 and 1997 and the periods
ended December 31, 1997 and 1996, (iii) the condensed consolidated statements of
income of City National for the three months ended March 31, 1998 and 1997 and
the years ended December 31, 1997, 1996 and 1995, (iv) the condensed
consolidated statements of income of Commercial for the three months ended March
31, 1998 and the year ended December 31, 1997, (v) adjustments to give affect to
the proposed purchase method combination with Commercial and the proposed
pooling of interest 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 three months ended March 31, 1998 and
the year ended December 31, 1997 are included in (iv) above for Commercial.
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 Commercial. 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 MARCH 31, 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..................... $ 2,692 $ 2,140 $ 1,648 $ 745 $(122)(a) $ 7,103
Interest expense.................... 1,212 1,283 682 331 -- 3,508
---------- -------- ------- -------- ----- -----------
Net interest income........ 1,480 857 966 414 (122) 3,595
Provision for loan losses........... 112 126 133 35 -- 406
---------- -------- ------- -------- ----- -----------
Net interest income after
provision for loan losses....... 1,368 731 833 379 (122) 3,189
Noninterest income.................. 269 292 190 250 -- 1,001
Noninterest expenses................ 1,317 875 839 491 9(a) 3,531
---------- -------- ------- -------- ----- -----------
Income before income
taxes.................... 320 148 184 138 (131) 659
Income tax expense (benefit)........ 25 40 79 18 (48)(a) 114
---------- -------- ------- -------- ----- -----------
Net income (loss).......... 295 108 105 120 (83) 545
Other comprehensive income (loss),
net of tax:
Unrealized gain (loss) on
securities available for sale... 4 (38) (13) 1 -- (46)
---------- -------- ------- -------- ----- -----------
Comprehensive income (loss)......... $ 299 $ 70 $ 92 $ 121 $ (83) $ 499
========== ======== ======= ======== ===== ===========
Basic earnings per share............ $ 0.04 $ 0.16 $ 3.90 $ 0.60 $ 0.05
=========== ======== =========== ========== ===========
Average number of shares
outstanding....................... 6,660,293 656,444 26,922 200,000 10,041,802
=========== ======== =========== ========== ===========
</TABLE>
- ---------------
75
<PAGE> 96
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
(a) To reflect the reduction of in interest earning assets
of $7,300,000 from the cash purchase of Commercial
Bancshares of Roanoke at 6.7%........................... $ (122)
Depreciation on allocation of purchase price to premises
and equipment (30 year period).......................... (9)
-----------
Decrease in income before tax benefit................... $ (131)
===========
Income tax benefit at 37%............................... $ (48)
===========
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED MARCH 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................................... $ 1,772 $ 1,564 $ 1,671 $ -- $ 5,007
Interest expense.................................. 774 837 726 -- 2,337
---------- -------- ------- ------- ----------
Net interest income...................... 998 727 945 -- 2,670
Provision for loan losses......................... 118 115 183 -- 416
---------- -------- ------- ------- ----------
Net interest income after provision for loan
losses........................................ 880 612 762 -- 2,254
Noninterest income................................ 132 147 152 -- 431
Noninterest expenses.............................. 844 658 853 -- 2,355
---------- -------- ------- ------- ----------
Income before income taxes............... 168 101 61 -- 330
Income tax expense................................ 28 17 27 -- 72
---------- -------- ------- ------- ----------
Net income............................... 140 84 34 -- 258
Other comprehensive loss, net of tax:
Unrealized loss on securities available for
sale.......................................... (27) (83) (473) -- (583)
---------- -------- ------- ------- ----------
Comprehensive income (loss)....................... $ 113 $ 1 $ (439) $ -- $ (325)
========== ======== ======= ======= ==========
Basic earnings per share.......................... $ 0.04 $ 0.13 $ 1.26 $ 0.04
========== ======== ======= ==========
Average number of shares outstanding.............. 3,980,993 655,565 26,999 7,365,722
========== ======== ======= ==========
</TABLE>
76
<PAGE> 97
<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...................... $ 8,514 $ 7,513 $ 6,721 $ 3,114 $(488)(a) $ 25,374
Interest expense..................... 3,799 4,028 2,911 1,307 -- 12,045
---------- -------- ------- -------- ----- ----------
Net interest income......... 4,715 3,485 3,810 1,807 (488) 13,329
Provision for loan losses............ 663 584 384 401 -- 2,032
---------- -------- ------- -------- ----- ----------
Net interest income after provision
for loan losses.................. 4,052 2,901 3,426 1,406 (488) 11,297
Noninterest income................... 590 578 737 980 -- 2,885
Noninterest expenses................. 4,045 3,131 3,367 2,010 36(a) 12,589
---------- -------- ------- -------- ----- ----------
Income before income
taxes..................... 597 348 796 376 (524) 1,593
Income tax expense (benefit)......... 192 120 170 68 (194)(a) 356
---------- -------- ------- -------- ----- ----------
Net income (loss)........... 405 228 626 308 (330) 1,237
Other comprehensive income, net of
tax:
Unrealized gain on securities
available for sale............... 12 40 198 8 -- 258
---------- -------- ------- -------- ----- ----------
Comprehensive income (loss).......... $ 417 $ 268 $ 824 $ 316 $(330) $ 1,495
========== ======== ======= ======== ===== ==========
Basic earnings per share............. $ 0.09 $ 0.35 $ 23.25 $ 1.54 $ 0.16
========== ======== ======= ======== ==========
Average number of shares
outstanding........................ 4,290,593 655,565 26,910 200,000 7,669,222
========== ======== ======= ======== ==========
</TABLE>
- ---------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
(a) To reflect the reduction of in interest earning assets of
$7,300,000 from the cash purchase of Commercial
Bancshares of Roanoke at 6.7%............................ $ (488)
Depreciation on allocation of purchase price to premises
and equipment (30 year period)............................ (36)
-------
Decrease in income before tax benefit..................... $ (524)
=======
Income tax benefit at 37%................................. $ (194)
=======
</TABLE>
77
<PAGE> 98
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------------------
HISTORICAL
---------------------------------------
THE COMMERCE CITY
BANC BANK OF NATIONAL PRO FORMA PRO FORMA
CORPORATION(A) ALABAMA CORPORATION ADJUSTMENTS COMBINED
-------------- -------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest Income.................................. $ 5,433 $ 4,056 $ 6,027 $ -- $ 15,516
Interest expense................................. 2,386 2,170 2,460 -- 7,016
---------- -------- ------- ------- ----------
Net interest income..................... 3,047 1,886 3,567 -- 8,500
Provision for loan losses........................ 205 372 346 -- 923
---------- -------- ------- ------- ----------
Net interest income after provision for loan
losses....................................... 2,842 1,514 3,221 -- 7,577
Noninterest income............................... 473 380 683 -- 1,536
Noninterest expenses............................. 2,501 2,268 3,211 -- 7,980
---------- -------- ------- ------- ----------
Income before income taxes.............. 814 (374) 693 -- 1,133
Income tax expense (benefit)..................... 157 (81) 133 -- 209
---------- -------- ------- ------- ----------
Net income (loss)....................... 657 (293) 560 -- 924
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities available
for sale..................................... 7 (12) (267) -- (272)
---------- -------- ------- ------- ----------
Comprehensive income (loss)...................... $ 664 $ (305) $ 293 $ -- $ 652
========== ======== ======= ======= ==========
Basic earnings (loss) per share.................. $ 0.15 $ (0.47) $ 20.68 $ 0.12
========== ======== ======= ==========
Average number of shares outstanding............. 4,290,593 618,854 27,063 7,593,800
========== ======== ======= ==========
</TABLE>
- ---------------
(a) The consolidated financial data for The Banc Corporation includes the
operations of its subsidiaries, The Emerald Coast Bank for the period August
30,1996 (date of inception) to December 31, 1996, and The Bank for the year
ended December 31, 1996.
78
<PAGE> 99
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------------------------
HISTORICAL
-----------------------------------------
THE COMMERCE CITY
BANC BANK OF NATIONAL PRO FORMA PRO FORMA
CORPORATION(A) ALABAMA(B) 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 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
Other comprehensive income, net of tax:
Unrealized gain on securities available for
sale........................................ 63 -- 1,486 -- 1,549
---------- -------- ------- ----------- ----------
Comprehensive income (loss)..................... $ 961 $ (470) $ 2,211 $ -- $ 2,702
========== ======== ======= =========== ==========
Basic earnings (loss) per share................. $ 0.33 $ (0.85) $ 26.73 $ 0.20
========== ======== ======= ==========
Average number of shares outstanding............ 2,716,200 550,000 27,149 5,864,174
========== ======== ======= ==========
</TABLE>
- ---------------
(a) The statement of income for The Banc Corporation reflects the operations of
Warrior Capital Corporation and its subsidiary, The Bank. The Emerald Coast
Bank was not formed until August, 1996.
(b) The statement of income for Commerce Bank of Alabama is from the date of
inception (April 6, 1995) to December 31, 1995.
79
<PAGE> 100
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 as of March 31, 1998, (ii) the
condensed consolidated statement of financial condition of Commerce Bank of
Alabama ("Commerce") as of March 31, 1998, (iii) the condensed consolidated
statement of financial condition of First Citizens Bancorp ("First Citizens") as
of March 31, 1998, (iv) the condensed consolidated statement of financial
condition of Commercial Bancshares of Roanoke ("Commercial") as of March 31,
1998, (v) adjustments to give affect to the proposed purchase method combination
with Commercial and the proposed pooling of interest 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 March 31, 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 Commercial. The
pro forma information provided below may not be indicative of future results.
<TABLE>
<CAPTION>
AS OF MARCH 31, 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>
ASSETS
Cash and due from banks...................... $ 12,328 $ 5,800 $ 1,258 $ 1,429(a) $ 595 $ 14,110
(c) (7,300)
Interest bearing deposits in other banks..... -- -- -- 200 -- 200
Federal funds sold........................... 3,000 4,550 1,820 6,750 -- 16,120
Investment securities available for sale..... 7,775 15,638 1,867 2,298 -- 27,578
Investment securities held to maturity....... 28,920 753 -- 15,757 -- 45,430
Loans, net of unearned....................... 86,569 81,811 29,636 15,678 -- 213,694
Less: Allowance for loan losses.............. (1,141) (814) (305) (326) -- (2,586)
-------- -------- ------- ------- ------- --------
Net loans............................ 85,428 80,997 29,331 15,352 -- 211,108
-------- -------- ------- ------- ------- --------
Premises and equipment, net.................. 11,073 2,788 569 295(c) 1,039 15,764
Intangibles, net............................. 410 -- -- -- -- 410
Other assets................................. 4,196 1,783 1,333 686 -- 7,998
-------- -------- ------- ------- ------- --------
Total assets......................... $153,130 $112,309 $36,178 $42,767 $(5,666) $338,718
======== ======== ======= ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing........................ $ 19,413 $ 9,915 $ 3,453 $ 6,868 $ -- $ 39,649
Interest-bearing........................... 103,967 94,332 29,133 29,344 -- 256,776
-------- -------- ------- ------- ------- --------
Total deposits....................... 123,380 104,247 32,586 36,212 -- 296,425
Federal funds purchased and other borrowed
funds...................................... 2,105 537 -- -- -- 2,642
Accrued expenses and other liabilities....... 1,551 938 437 294 -- 3,220
-------- -------- ------- ------- ------- --------
Total liabilities.................... 127,036 105,722 33,023 36,506 -- 302,287
Minority interest in equity of subsidiary.... 19 -- -- -- -- 19
Stockholders' Equity
Common stock............................... 6 7 75 20(a) 5 9
(b) 3
(b) (87)
(c) (20)
Surplus.................................... 18,878 7,017 1,914 3,527(a) 590 28,483
(b) 9,155
(b) (9,071)
(c) (3,527)
Retained earnings (accumulated deficit).... 7,219 (427) 1,161 2,696(c) (2,696) 7,953
Accumulated other comprehensive income
(loss)................................... (28) (10) 5 18(c) (18) (33)
Treasury stock, at cost.................... -- -- -- -- --
-------- -------- ------- ------- ------- --------
Total stockholders' equity........... 26,075 6,587 3,155 6,261 (5,666) 36,412
-------- -------- ------- ------- ------- --------
Total liabilities and stockholders'
equity............................. $153,130 $112,309 $36,178 $42,767 $(5,666) $338,718
======== ======== ======= ======= ======= ========
</TABLE>
80
<PAGE> 101
- ---------------
(a) To record the exercise of 57,000 stock options by officers of The Banc
Corporation and its subsidiary and 5,000 stock options by an 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 interest.
<TABLE>
<CAPTION>
FIRST COMMERCE
CITIZENS BANK OF
BANCORP ALABAMA TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
Outstanding shares of acquired corporation.................. 80,000 656,630
Conversion ratio............................................ 8.2905375 2.340153
---------- ----------
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...... 2,134 7,024 9,158
---------- ---------- ----------
Excess recorded as an increase in contributed capital..... 2,133 7,022 9,155
---------- ---------- ----------
To eliminate acquired corporations capital stock
Common stock at par value................................. (80) (7) (87)
Surplus................................................... (2,054) (7,017) (9,071)
Treasury stock............................................ -- -- --
---------- ---------- ----------
(2,134) (7,024) (9,158)
---------- ---------- ----------
Net change in equity $ -- $ -- $ --
========== ========== ==========
</TABLE>
(c) Purchase of 100% of the outstanding common stock of The Commercial
Bancshares of Roanoke for $7.3 million. 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.
81
<PAGE> 102
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 and subsidiaries on a historical basis for the
three months ended March 31, 1998 and 1997, and the years ended December 31,
1997, 1996, and 1995, (ii) the condensed consolidated statements of income of
Commerce for the three months ended March 31, 1998 and 1997 and the periods
ended December 31, 1997 and 1996, (iii) the condensed consolidated statements of
income of First Citizens for the three months ended March 31, 1998 and 1997 and
the years ended December 31, 1997, 1996 and 1995, (iv) the condensed
consolidated statements of income of Commercial for the three months ended March
31, 1998 and the year ended December 31, 1997, (v) adjustments to give affect to
the proposed purchase method combination with Commercial and the proposed
pooling of interest 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 three months ended March 31, 1998 and
the year ended December 31, 1997 are included in (iv) above for Commercial.
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 Commercial. 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 MARCH 31, 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...................... $ 2,692 $ 2,140 $ 829 $ 745 $ (122)(a) $ 6,284
Interest expense..................... 1,212 1,283 331 331 -- 3,157
---------- -------- ------- -------- -------- ----------
Net interest income......... 1,480 857 498 414 (122) 3,127
Provision for loan losses............ 112 126 39 35 -- 312
---------- -------- ------- -------- -------- ----------
Net interest income after provision
for loan losses.................. 1,368 731 459 379 (122) 2,815
Noninterest income................... 269 292 121 250 -- 932
Noninterest expenses................. 1,317 875 349 491 9(a) 3,041
---------- -------- ------- -------- -------- ----------
Income before income
taxes..................... 320 148 231 138 (131) 706
Income tax expense (benefit)......... 25 40 87 18 (48)(a) 122
---------- -------- ------- -------- -------- ----------
Net income (loss)........... 295 108 144 120 (83) 584
Other comprehensive income (loss),
net of tax:
Unrealized gain (loss) on
securities available for sale.... 4 (38) -- 1 -- (33)
---------- -------- ------- -------- -------- ----------
Comprehensive income (loss).......... $ 299 $ 70 $ 144 $ 121 $ (83) $ 551
========== ======== ======= ======== ======== ==========
Basic earnings per share............. $ 0.04 $ 0.16 $ 1.92 $ 0.60 $ 0.07
========== ======== ======= ======== ==========
Average number of shares
outstanding........................ 6,660,293 656,444 75,000 200,000 8,859,713
========== ======== ======= ======== ==========
- ---------------
(a) To reflect the reduction of in interest earning assets of
$7,300,000 from the cash purchase of Commercial
Bancshares of Roanoke
at 6.7%................................................. $ (122)
Depreciation on allocation of purchase price to premises
and equipment (30 year period).......................... (9)
-------
Decrease in income before tax benefit..................... $ (131)
=======
Income tax benefit at 37%................................. $ (48)
=======
</TABLE>
82
<PAGE> 103
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED MARCH 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..................................... $ 1,772 $ 1,564 $ 679 $ -- $ 4,015
Interest expense.................................... 774 837 279 -- 1,890
---------- -------- ------- ------- ----------
Net interest income........................ 998 727 400 -- 2,125
Provision for loan losses........................... 118 115 15 -- 248
---------- -------- ------- ------- ----------
Net interest income after provision for loan
losses.......................................... 880 612 385 -- 1,877
Noninterest income.................................. 132 147 110 -- 389
Noninterest expenses................................ 844 658 307 -- 1,809
---------- -------- ------- ------- ----------
Income before income taxes................. 168 101 188 -- 457
Income tax expense.................................. 28 17 70 -- 115
---------- -------- ------- ------- ----------
Net income................................. 140 84 118 -- 342
Other comprehensive loss, net of tax:
Unrealized loss on securities available for
sale............................................ (27) (83) (6) -- (116)
---------- -------- ------- ------- ----------
Comprehensive income................................ $ 113 $ 1 $ 112 $ -- $ 226
========== ======== ======= ======= ==========
Basic earnings per share............................ $ 0.04 $ 0.13 $ 1.57 $ 0.06
========== ======== ======= ==========
Average number of shares outstanding................ 3,980,993 655,565 75,000 6,178,356
========== ======== ======= ==========
</TABLE>
83
<PAGE> 104
<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........................ $ 8,514 $ 7,513 $ 2,957 $ 3,114 $ (488)(a) $ 21,610
Interest expense....................... 3,799 4,028 1,215 1,307 -- 10,349
---------- -------- ------- -------- ------- ----------
Net interest income........... 4,715 3,485 1,742 1,807 (488) 11,261
Provision for loan losses.............. 663 584 218 401 -- 1,866
---------- -------- ------- -------- ------- ----------
Net interest income after provision
for loan losses.................... 4,052 2,901 1,524 1,406 (488) 9,395
Noninterest income..................... 590 578 415 980 -- 2,563
Noninterest expenses................... 4,045 3,131 1,303 2,010 36(a) 10,525
---------- -------- ------- -------- ------- ----------
Income before income taxes.... 597 348 636 376 (524) 1,433
Income tax expense (benefit)........... 192 120 213 68 (194)(a) 399
---------- -------- ------- -------- ------- ----------
Net income (loss)............. 405 228 423 308 (330) 1,034
Other comprehensive income, net of tax:
Unrealized gain on securities
available for sale................. 12 40 12 1 -- 65
---------- -------- ------- -------- ------- ----------
Comprehensive income (loss)............ $ 417 $ 268 $ 435 $ 309 $ (330) $ 1,099
========== ======== ======= ======== ======= ==========
Basic earnings per share............... $ 0.09 $ 0.35 $ 5.64 $ 1.54 $ 0.16
========== ======== ======= ======== ==========
Average number of shares outstanding... 4,290,593 655,565 75,000 200,000 6,487,956
========== ======== ======= ======== ==========
</TABLE>
- ---------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
(a) To reflect the reduction of in interest earning assets of
$7,300,000 from the cash purchase of Commercial Bancshares
of Roanoke at 6.7%......................................... $ (488)
Depreciation on allocation of purchase price to premises
and equipment (30 year period)............................. (36)
--------
Decrease in income before tax benefit...................... $ (524)
========
Income tax benefit at 37%.................................. $ (194)
========
</TABLE>
84
<PAGE> 105
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------------------
HISTORICAL
------------------------------------
THE COMMERCE FIRST
BANC BANK OF CITIZENS PRO FORMA PRO FORMA
CORPORATION(A) ALABAMA BANCORP ADJUSTMENTS COMBINED
-------------- -------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest Income................................... $ 5,433 $ 4,056 $ 2,437 $ -- $ 11,926
Interest expense.................................. 2,386 2,170 1,008 -- 5,564
---------- -------- ------- ------ ----------
Net interest income...................... 3,047 1,886 1,429 -- 6,362
Provision for loan losses......................... 205 372 43 -- 620
---------- -------- ------- ------ ----------
Net interest income after provision for loan
losses........................................ 2,842 1,514 1,386 -- 5,742
Noninterest income................................ 473 380 430 -- 1,283
Noninterest expenses.............................. 2,501 2,268 1,232 -- 6,001
---------- -------- ------- ------ ----------
Income before income taxes............... 814 (374) 584 -- 1,024
Income tax expense (benefit)...................... 157 (81) 184 -- 260
---------- -------- ------- ------ ----------
Net income (loss)........................ 657 (293) 400 -- 764
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities available
for sale...................................... 7 (12) (15) -- (20)
---------- -------- ------- ------ ----------
Comprehensive income (loss)....................... $ 664 $ (305) $ 385 $ -- $ 744
========== ======== ======= ====== ==========
Basic earnings (loss) per share................... $ 0.15 $ (0.47) $ 5.33 $ 0.12
========== ======== ======= ==========
Average number of shares outstanding.............. 4,290,593 618,854 75,000 6,402,047
========== ======== ======= ==========
</TABLE>
- ---------------
(a) The consolidated financial data for The Banc Corporation includes the
operations of its subsidiaries, The Emerald Coast Bank for the period August
30, 1996 (date of inception) to December 31, 1996, and The Bank for the year
ended December 31, 1996.
85
<PAGE> 106
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------------------
HISTORICAL
---------------------------------------
THE COMMERCE FIRST
BANC BANK OF CITIZENS PRO FORMA PRO FORMA
CORPORATION(A) ALABAMA(B) 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 before income taxes............. 1,365 (711) 255 -- 909
Income tax expense (benefit).................... 467 (241) 61 -- 287
---------- -------- ------- ------ ----------
Net income (loss)...................... 898 (470) 194 -- 622
Other comprehensive income, net of tax:
Unrealized gain on securities available for
sale........................................ 63 -- 117 -- 180
---------- -------- ------- ------ ----------
Comprehensive income (loss)..................... $ 961 $ (470) $ 311 $ -- $ 802
========== ======== ======= ====== ==========
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 4,666,526
========== ======== ======= ==========
</TABLE>
- ---------------
(a) The statement of income for The Banc Corporation reflects the operations of
Warrior Capital Corporation and its subsidiary, The Bank. The Emerald Coast
Bank was not formed until August, 1996.
(b) The statement of income for Commerce Bank of Alabama is from the date of
inception (April 6, 1995) to December 31, 1995.
86
<PAGE> 107
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 as of March 31, 1998, (ii) the
condensed consolidated statement of financial condition of Commerce Bank of
Alabama ("Commerce") as of March 31, 1998, (iii) the condensed consolidated
statement of financial condition of First Citizens Bancorp ("First Citizens") as
of March 31, 1998, (iv) adjustments to give affect to the proposed pooling of
interest 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 March 31,
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 MARCH 31, 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>
ASSETS
Cash and due from banks........................... $ 12,328 $ 5,800 $ 1,258 $ 595(a) $ 19,981
Federal funds sold................................ 3,000 4,550 1,820 -- 9,370
Investment securities available for sale.......... 7,775 15,638 1,867 -- 25,280
Investment securities held to maturity............ 28,920 753 -- -- 29,673
Loans, net of unearned............................ 86,569 81,811 29,636 -- 198,016
Less: Allowance for loan losses................... (1,141) (814) (305) -- (2,260)
-------- -------- ------- ------- --------
Net loans................................ 85,428 80,997 29,331 -- 195,756
-------- -------- ------- ------- --------
Premises and equipment, net....................... 11,073 2,788 569 -- 14,430
Intangibles, net.................................. 410 -- -- -- 410
Other assets...................................... 4,196 1,783 1,333 -- 7,312
-------- -------- ------- ------- --------
Total assets............................. $153,130 $112,309 $36,178 $ 595 $302,212
======== ======== ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing............................. $ 19,413 $ 9,915 $ 3,453 $ -- $ 32,781
Interest-bearing................................ 103,967 94,332 29,133 -- 227,432
-------- -------- ------- ------- --------
Total deposits........................... 123,380 104,247 32,586 -- 260,213
Federal funds purchased and other borrowed
funds........................................... 2,105 537 -- -- 2,642
Accrued expenses and other liabilities............ 1,551 938 437 -- 2,926
-------- -------- ------- ------- --------
Total liabilities........................ 127,036 105,722 33,023 -- 265,781
Minority interest in equity of subsidiary......... 19 -- -- -- 19
Stockholders' Equity
Common stock.................................... 6 7 75 5(a) 9
3(b)
(87)(b)
Surplus......................................... 18,878 7,017 1,914 590(a) 28,483
9,155(b)
(9,071)(b)
Retained earnings (accumulated deficit)......... 7,219 (427) 1,161 7,953
Accumulated other comprehensive income (loss)... (28) (10) 5 (83)
-------- -------- ------- ------- --------
Total stockholders' equity............... 26,075 6,587 3,155 595 36,412
-------- -------- ------- ------- --------
Total liabilities and stockholders'
equity................................. $153,130 $112,309 $36,178 $ 595 $302,212
======== ======== ======= ======= ========
</TABLE>
- ---------------
(a) To record the exercise of 57,000 stock options by officers of The Banc
Corporation and its subsidiary and 5,000 stock options exercised by an
officer of First Citizens before the merger.
87
<PAGE> 108
(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 interest.
<TABLE>
<CAPTION>
FIRST COMMERCE
CITIZENS BANK OF
BANCORP ALABAMA TOTAL
---------- ----------- ----------
<S> <C> <C> <C>
Outstanding shares of acquired corporation.................. 80,000 656,630
Conversion ratio............................................ 8.2905375 2.340153
---------- ---------
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...... 2,134 7,024 9,158
---------- --------- ----------
Excess recorded as an increase in contributed capital..... 2,133 7,022 9,155
---------- --------- ----------
To eliminate acquired corporations capital stock
Common stock at par value................................. (80) (7) (87)
Surplus................................................... (2,054) (7,017) (9,071)
Treasury stock............................................ -- -- --
---------- --------- ----------
(2,134) (7,024) (9,158)
---------- --------- ----------
Net change in equity............................... $ -- $ -- $ --
========== ========= ==========
</TABLE>
88
<PAGE> 109
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 and subsidiaries on a historical basis for the
three months ended March 31, 1998 and 1997, and the years ended December 31,
1997, 1996, and 1995, (ii) the condensed consolidated statements of income of
Commerce for the three months ended March 31, 1998 and 1997 and the periods
ended December 31, 1997, and 1996, (iii) the condensed consolidated statements
of income of First Citizens for the three months ended March 31, 1998 and 1997
and the years ended December 31, 1997, 1996 and 1995, (iv) adjustments to give
affect to the proposed pooling of interest 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. Proforma 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 MARCH 31, 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..................................... $ 2,692 $ 2,140 $ 829 $ -- $ 5,661
Interest expense.................................... 1,212 1,283 331 -- 2,826
---------- -------- ------- ------- ----------
Net interest income........................ 1,480 857 498 -- 2,835
Provision for loan losses........................... 112 126 39 -- 277
---------- -------- ------- ------- ----------
Net interest income after provision for loan
losses.......................................... 1,368 731 459 -- 2,558
Noninterest income.................................. 269 292 121 -- 682
Noninterest expenses................................ 1,317 875 349 -- 2,541
---------- -------- ------- ------- ----------
Income before income taxes................. 320 148 231 -- 699
Income tax expense.................................. 25 40 87 -- 152
---------- -------- ------- ------- ----------
Net income................................. 295 108 144 -- 547
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities available for
sale............................................ 4 (38) -- -- (34)
---------- -------- ------- ------- ----------
Comprehensive income................................ $ 299 $ 70 $ 144 $ -- $ 513
========== ======== ======= ======= ==========
Basic earnings per share............................ $ 0.04 $ 0.16 $ 1.92 $ 0.06
========== ======== ======= ==========
Average number of shares outstanding................ 6,660,293 656,444 75,000 8,859,713
========== ======== ======= ==========
</TABLE>
89
<PAGE> 110
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED MARCH 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..................................... $ 1,772 $ 1,564 $ 679 $ -- $ 4,015
Interest expense.................................... 774 837 279 -- 1,890
---------- -------- ------- ------- ----------
Net interest income........................ 998 727 400 -- 2,125
Provision for loan losses........................... 118 115 15 -- 248
---------- -------- ------- ------- ----------
Net interest income after provision for loan
losses.......................................... 880 612 385 -- 1,877
Noninterest income.................................. 132 147 110 -- 389
Noninterest expenses................................ 844 658 307 -- 1,809
---------- -------- ------- ------- ----------
Income before income taxes................. 168 101 188 -- 457
Income tax expense.................................. 28 17 70 -- 115
---------- -------- ------- ------- ----------
Net income................................. 140 84 118 -- 342
Other comprehensive (loss), net of tax:
Unrealized loss on securities available for
sale............................................ (27) (83) (6) -- (116)
---------- -------- ------- ------- ----------
Comprehensive income................................ $ 113 $ 1 $ 112 $ -- $ 226
========== ======== ======= ======= ==========
Basic earnings per share............................ $ 0.04 $ 0.13 $ 1.57 $ 0.06
=========== ======== ======== ==========
Average number of shares outstanding................ 3,980,993 655,565 75,000 6,178,356
=========== ======== ======== ==========
</TABLE>
90
<PAGE> 111
<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..................................... $ 8,514 $ 7,513 $ 2,957 $ -- $ 18,984
Interest expense.................................... 3,799 4,028 1,215 -- 9,042
---------- -------- ------- ------ ----------
Net interest income........................ 4,715 3,485 1,742 -- 9,942
Provision for loan losses........................... 663 584 218 -- 1,465
---------- -------- ------- ------ ----------
Net interest income after provision for loan
losses.......................................... 4,052 2,901 1,524 -- 8,477
Noninterest income.................................. 590 578 415 -- 1,583
Noninterest expenses................................ 4,045 3,131 1,303 -- 8,479
---------- -------- ------- ------ ----------
Income before income taxes................. 597 348 636 -- 1,581
Income tax expense.................................. 192 120 213 -- 525
---------- -------- ------- ------ ----------
Net income................................. 405 228 423 -- 1,056
Other comprehensive income, net of tax:
Unrealized gain on securities available for
sale............................................ 12 40 12 -- 64
---------- -------- ------- ------ ----------
Comprehensive income................................ $ 417 $ 268 $ 435 $ -- $ 1,120
========== ======== ======= ====== ==========
Basic earnings per share............................ $ 0.09 $ 0.35 $ 5.64 $ 0.16
========== ======== ======= ==========
Average number of shares outstanding................ 4,290,593 655,565 75,000 6,487,956
========== ======== ======= ==========
</TABLE>
91
<PAGE> 112
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------------------
HISTORICAL
------------------------------------
THE COMMERCE FIRST
BANC BANK OF CITIZENS PRO FORMA PRO FORMA
CORPORATION(A) ALABAMA BANCORP ADJUSTMENTS COMBINED
-------------- -------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest Income................................... $ 5,433 $ 4,056 $ 2,437 $ -- $ 11,926
Interest expense.................................. 2,386 2,170 1,008 -- 5,564
---------- -------- ------- ------ ----------
Net interest income...................... 3,047 1,886 1,429 -- 6,362
Provision for loan losses......................... 205 372 43 -- 620
---------- -------- ------- ------ ----------
Net interest income after provision for loan
losses........................................ 2,842 1,514 1,386 -- 5,742
Noninterest income................................ 473 380 430 -- 1,283
Noninterest expenses.............................. 2,501 2,268 1,232 -- 6,001
---------- -------- ------- ------ ----------
Income before income taxes............... 814 (374) 584 -- 1,024
Income tax expense (benefit)...................... 157 (81) 184 -- 260
---------- -------- ------- ------ ----------
Net income (loss)........................ 657 (293) 400 -- 764
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities available
for sale...................................... 7 (12) (15) -- (20)
---------- -------- ------- ------ ----------
Comprehensive income (loss)....................... $ 664 $ (305) $ 385 $ -- $ 744
========== ======== ======= ====== ==========
Basic earnings (loss) per share................... $ 0.15 $ (0.47) $ 5.33 $ 0.12
========== ======== ======= ==========
Average number of shares outstanding.............. 4,290,593 618,854 75,000 6,402,047
========== ======== ======= ==========
</TABLE>
- ---------------
(a) The consolidated financial data for The Banc Corporation includes the
operations of its subsidiaries, The Emerald Coast Bank for the period August
30, 1996 (date of inception) to December 31, 1996, and The Bank for the year
ended December 31, 1996.
92
<PAGE> 113
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------------------
HISTORICAL
---------------------------------------
THE COMMERCE FIRST
BANC BANK OF CITIZENS PRO FORMA PRO FORMA
CORPORATION(A) ALABAMA(B) 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 before income taxes............. 1,365 (711) 255 -- 909
Income tax expense (benefit).................... 467 (241) 61 -- 287
---------- -------- ------- ------- ----------
Net income (loss)...................... 898 (470) 194 -- 622
Other comprehensive income, net of tax:
Unrealized gain on securities available for
sale........................................ 63 -- 117 -- 180
---------- -------- ------- ------- ----------
Comprehensive income (loss)..................... $ 961 $ (470) $ 311 $ -- $ 802
========== ======== ======= ======= ==========
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 4,666,526
========== ======== ======= ==========
</TABLE>
- ---------------
(a)The statement of income for The Banc Corporation reflects the operations of
Warrior Capital Corporation and its subsidiary, The Bank. The Emerald Coast
Bank was not formed until August, 1996.
(b)The statement of income for Commerce Bank of Alabama is from the date of
inception (April 6, 1995) to December 31, 1995.
93
<PAGE> 114
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 as of March 31, 1998, (ii) the
condensed consolidated statement of financial condition of Commerce Bank of
Alabama ("Commerce") as of March 31, 1998, (iii) the condensed consolidated
statement of financial condition of City National Corporation ("City National")
as of March 31, 1998, (iv) adjustments to give affect to the proposed pooling of
interest 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 March 31,
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 MARCH 31, 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>
ASSETS
Cash and due from banks........................... $ 12,328 $ 5,800 $ 2,238 $ 450(a) $ 20,816
Interest bearing deposits in other banks.......... -- -- 200 -- 200
Federal funds sold................................ 3,000 4,550 1,810 -- 9,360
Investment securities available for sale.......... 7,775 15,638 35,929 -- 59,342
Investment securities held to maturity............ 28,920 753 -- -- 29,673
Loans, net of unearned............................ 86,569 81,811 39,442 -- 207,822
Less: Allowance for loan losses................... (1,141) (814) (497) -- (2,452)
-------- -------- ------- -------- --------
Net loans................................ 85,428 80,997 38,945 -- 205,370
-------- -------- ------- -------- --------
Premises and equipment, net....................... 11,073 2,788 2,642 -- 16,503
Intangibles, net.................................. 410 -- -- -- 410
Other assets...................................... 4,196 1,783 1,575 -- 7,554
-------- -------- ------- -------- --------
Total assets............................. $153,130 $112,309 $83,339 $ 450 $349,228
======== ======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing............................. $ 19,413 $ 9,915 $11,076 $ -- $ 40,404
Interest-bearing................................ 103,967 94,332 59,143 -- 257,442
-------- -------- ------- -------- --------
Total deposits........................... 123,380 104,247 70,219 -- 297,846
Federal funds purchased and other borrowed
funds........................................... 2,105 537 -- -- 2,642
Accrued expenses and other liabilities............ 1,551 938 1,169 -- 3,658
-------- -------- ------- -------- --------
Total liabilities........................ 127,036 105,722 71,388 -- 304,146
Minority interest in equity of subsidiary......... 19 -- 138 -- 157
Stockholders' Equity
Common stock.................................... 6 7 27 --(a) 10
4(b)
(34)(b)
Surplus......................................... 18,878 7,017 4,135 450(a) 30,457
11,129(b)
(11,152)(b)
Retained earnings (accumulated deficit)........... 7,219 (427) 7,482 14,274
Accumulated other comprehensive income (loss)..... (28) (10) 222 184
Treasury stock, at cost........................... -- -- (53) 53(b) --
-------- -------- ------- -------- --------
Total stockholders' equity............... 26,075 6,587 11,813 450 44,925
-------- -------- ------- -------- --------
Total liabilities and stockholders'
equity................................. $153,130 $112,309 $83,339 $ 450 $349,228
======== ======== ======= ======== ========
</TABLE>
94
<PAGE> 115
- ---------------
(a) To record the exercise of 57,000 stock options by officers of The Banc
Corporation and its subsidiary before merger.
(b) To record the exchange of 3,379,479 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>
COMMERCE CITY
BANK OF NATIONAL
ALABAMA CORPORATION TOTAL
---------- ----------- ----------
<S> <C> <C> <C>
Outstanding shares of acquired corporation.................. 656,630 26,832
Conversion ratio............................................ 2.340153 68.681574
---------- ----------
The Banc Corporation shares to be issued.................... 1,536,615 1,842,864 3,379,479
Par value of shares to be issued at $.001 per share......... $ 2 $ 2 $ 4
Total common stock and surplus of acquired corporation...... 7,024 4,109 11,133
---------- ---------- ----------
Excess recorded as an increase in contributed capital..... 7,022 4,107 11,129
---------- ---------- ----------
To eliminate acquired corporations capital stock
Common stock at par value................................. (7) (27) (34)
Surplus................................................... (7,017) (4,135) (11,152)
Treasury stock............................................ -- 53 53
---------- ---------- ----------
(7,024) (4,109) (11,133)
---------- ---------- ----------
Net change in equity............................... $ -- $ -- $ --
========== ========== ==========
</TABLE>
95
<PAGE> 116
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 and subsidiaries on a historical basis for the
three months ended March 31, 1998 and 1997, and the years ended December 31,
1997, 1996, and 1995, (ii) the condensed consolidated statements of income of
Commerce for the three months ended March 31, 1998 and 1997 and the periods
ended December 31, 1997, and 1996, (iii) the condensed consolidated statements
of income of City National for the three months ended March 31, 1998 and 1997
and the years ended December 31, 1997, 1996 and 1995, (iv) adjustments to give
affect to the proposed pooling of interest 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 ENDED MARCH 31, 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.................................. $ 2,692 $ 2,140 $ 1,648 $ -- $ 6,480
Interest expense................................. 1,212 1,283 682 -- 3,177
---------- -------- -------- ---------- ----------
Net interest income.......................... 1,480 857 966 -- 3,303
Provision for loan losses........................ 112 126 133 -- 371
---------- -------- -------- ---------- ----------
Net interest income after provision for loan
losses....................................... 1,368 731 833 -- 2,932
Noninterest income............................... 269 292 190 -- 751
Noninterest expenses............................. 1,317 875 839 -- 3,031
---------- -------- -------- ---------- ----------
Income before income taxes................... 320 148 184 -- 652
Income tax expense............................... 25 40 79 -- 144
---------- -------- -------- ---------- ----------
Net income................................... 295 108 105 -- 508
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities available
for sale..................................... 4 (38) (13) -- (47)
---------- -------- -------- ---------- ----------
Comprehensive income............................. $ 299 $ 70 $ 92 $ -- $ 461
========== ======== ======== ========== ==========
Basic earnings per share......................... $ 0.04 $ 0.16 $ 3.90 $ 0.05
=========== ======== =========== ==========
Average number of shares outstanding............. 6,660,293 656,444 26,922 10,041,802
=========== ======== =========== ==========
</TABLE>
96
<PAGE> 117
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED MARCH 31, 1997
---------------------------------------------------------------
HISTORICAL
------------------------------------
THE COMMERCE CITY
BANC BANC OF NATIONAL PRO FORMA PRO FORMA
CORPORATION ALABAMA CORPORATION ADJUSTMENTS COMBINED
----------- -------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest Income.................................. $ 1,772 $ 1,564 $ 1,671 $ -- $ 5,007
Interest expense................................. 774 837 726 -- 2,337
---------- -------- ------- ---------- ----------
Net interest income..................... 998 727 945 -- 2,670
Provision for loan losses........................ 118 115 183 -- 416
---------- -------- ------- ---------- ----------
Net interest income after provision for loan
losses....................................... 880 612 762 -- 2,254
Noninterest income............................... 132 147 152 -- 431
Noninterest expenses............................. 844 658 853 -- 2,355
---------- -------- ------- ---------- ----------
Income before income taxes.............. 168 101 61 -- 330
Income tax expense............................... 28 17 27 -- 72
---------- -------- ------- ---------- ----------
Net income.............................. 140 84 34 -- 258
Other comprehensive loss, net of tax:
Unrealized loss on securities available for
sale......................................... (27) (83) (473) -- (583)
---------- -------- ------- ---------- ----------
Comprehensive income (loss)...................... $ 113 $ 1 $ (439) $ -- $ (325)
========== ======== ======= ========== ==========
Basic earnings per share......................... $ 0.04 $ 0.13 $ 1.26 $ 0.04
========== ======== ======= ==========
Average number of shares outstanding............. 3,980,993 655,565 26,999 7,365,722
========== ======== ======= ==========
</TABLE>
97
<PAGE> 118
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 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................................... $ 8,514 $ 7,513 $ 6,721 $ -- $ 22,748
Interest expense.................................. 3,799 4,028 2,911 -- 10,738
---------- -------- ------- ------- ----------
Net interest income...................... 4,715 3,485 3,810 -- 12,010
Provision for loan losses......................... 663 584 384 -- 1,631
---------- -------- ------- ------- ----------
Net interest income after provision for loan
losses........................................ 4,052 2,901 3,426 -- 10,379
Noninterest income................................ 590 578 737 -- 1,905
Noninterest expenses.............................. 4,045 3,131 3,367 -- 10,543
---------- -------- ------- ------- ----------
Income before income taxes............... 597 348 796 -- 1,741
Income tax expense................................ 192 120 170 -- 482
---------- -------- ------- ------- ----------
Net income............................... 405 228 626 -- 1,259
Other comprehensive income, net of tax:
Unrealized gain on securities available for
sale.......................................... 12 40 198 -- 250
---------- -------- ------- ------- ----------
Comprehensive income.............................. $ 417 $ 268 $ 824 $ -- $ 1,509
========== ======== ======= ======= ==========
Basic earnings per share.......................... $ 0.09 $ 0.35 $ 23.25 $ 0.16
========== ======== ======= ==========
Average number of shares outstanding.............. 4,290,593 655,565 26,910 7,669,222
========== ======== ======= ==========
</TABLE>
98
<PAGE> 119
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------------------
HISTORICAL
---------------------------------------
THE COMMERCE CITY
BANC BANK OF NATIONAL PRO FORMA PRO FORMA
CORPORATION(A) ALABAMA CORPORATION ADJUSTMENTS COMBINED
-------------- -------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest Income.................................. $ 5,433 $ 4,056 $ 6,027 $ -- $ 15,516
Interest expense................................. 2,386 2,170 2,460 -- 7,016
---------- -------- ------- ------- ----------
Net interest income..................... 3,047 1,886 3,567 -- 8,500
Provision for loan losses........................ 205 372 346 -- 923
---------- -------- ------- ------- ----------
Net interest income after provision for loan
losses....................................... 2,842 1,514 3,221 -- 7,577
Noninterest income............................... 473 380 683 -- 1,536
Noninterest expenses............................. 2,501 2,268 3,211 -- 7,980
---------- -------- ------- ------- ----------
Income before income taxes.............. 814 (374) 693 -- 1,133
Income tax expense (benefit)..................... 157 (81) 133 -- 209
---------- -------- ------- ------- ----------
Net income (loss)....................... 657 (293) 560 -- 924
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities available
for sale..................................... 7 (12) (267) -- (272)
---------- -------- ------- ------- ----------
Comprehensive income (loss)...................... $ 664 $ (305) $ 293 $ -- $ 652
========== ======== ======= ======= ==========
Basic earnings (loss) per share.................. $ 0.15 $ (0.47) $ 20.68 $ 0.12
========== ======== ======= ==========
Average number of shares outstanding............. 4,290,593 618,854 27,063 7,593,800
========== ======== ======= ==========
</TABLE>
- ---------------
(a) The consolidated financial data for The Banc Corporation includes the
operations of its subsidiaries, The Emerald Coast Bank for the period August
30, 1996 (date of inception) to December 31, 1996, and The Bank for the year
ended December 31, 1996.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------------------------
HISTORICAL
-----------------------------------------
THE COMMERCE CITY
BANC BANK OF NATIONAL PRO FORMA PRO FORMA
CORPORATION(A) ALABAMA(B) 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 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
Other comprehensive income, net of tax:
Unrealized gain on securities available for
sale........................................ 63 -- 1,486 -- 1,549
---------- -------- ------- ------- ----------
Comprehensive income (loss)..................... $ 961 $ (470) $ 2,211 $ -- $ 2,702
========== ======== ======= ======= ==========
Basic earnings (loss) per share................. $ 0.33 $ (0.85) $ 26.73 $ 0.20
========== ======== ======= ==========
Average number of shares outstanding............ 2,716,200 550,000 27,149 5,864,174
========== ======== ======= ==========
</TABLE>
- ---------------
(a) The statement of income for The Banc Corporation reflects the operations of
Warrior Capital Corporation and its subsidiary, The Bank. The Emerald Coast
Bank was not formed until August, 1996.
(b) The statement of income for Commerce Bank of Alabama is from the date of
inception (April 6, 1995) to December 31, 1995.
99
<PAGE> 120
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 as of March 31, 1998, (ii) the
condensed consolidated statement of financial condition of Commerce Bank of
Alabama ("Commerce") as of March 31, 1998, (iii) the condensed consolidated
statement of financial condition of Commercial Bancshares of Roanoke
("Commercial") as of March 31, 1998, (iv) adjustments to give affect to the
proposed purchase method combination with Commercial and the proposed pooling of
interest method business combination 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 March 31, 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 Commercial. The pro forma
information provided below may not be indicative of future results.
<TABLE>
<CAPTION>
AS OF MARCH 31, 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>
ASSETS
Cash and due from banks........................... $ 12,328 $ 5,800 $ 1,429(a) $ 450 $ 12,707
(c) (7,300)
Interest bearing deposits in other banks.......... -- -- 200 -- 200
Federal funds sold................................ 3,000 4,550 6,750 -- 14,300
Investment securities available for sale.......... 7,775 15,638 2,298 -- 25,711
Investment securities held to maturity............ 28,920 753 15,757 -- 45,430
Loans, net of unearned............................ 86,569 81,811 15,678 -- 184,058
Less: Allowance for loan losses................... (1,141) (814) (326) -- (2,281)
-------- -------- ------- ------- --------
Net loans................................ 85,428 80,997 15,352 -- 181,777
-------- -------- ------- ------- --------
Premises and equipment, net....................... 11,073 2,788 295(c) 1,039 15,195
Intangibles, net.................................. 410 -- -- -- 410
Other assets...................................... 4,196 1,783 686 -- 6,665
-------- -------- ------- ------- --------
Total assets............................. $153,130 $112,309 $42,767 $(5,811) $302,395
======== ======== ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing............................. $ 19,413 $ 9,915 $ 6,868 $ -- $ 36,196
Interest-bearing................................ 103,967 94,332 29,344 -- 227,643
-------- -------- ------- ------- --------
Total deposits........................... 123,380 104,247 36,212 -- 263,839
Federal funds purchased and other borrowed
funds........................................... 2,105 537 -- -- 2,642
Accrued expenses and other liabilities............ 1,551 938 294 -- 2,783
-------- -------- ------- ------- --------
Total liabilities........................ 127,036 105,722 36,506 -- 269,264
Minority interest in equity of subsidiary......... 19 -- -- -- 19
Stockholders' Equity
Common stock.................................... 6 7 20(a) -- 8
(b) 2
(b) (7)
(c) (20)
Surplus......................................... 18,878 7,017 3,527(a) 450 26,350
(b) 7,022
(b) (7,017)
(c) (3,527)
Retained earnings (accumulated deficit)......... 7,219 (427) 2,696(c) (2,696) 6,792
Accumulated other comprehensive income (loss)... (28) (10) 18(c) (18) (38)
-------- -------- ------- ------- --------
Total stockholders' equity............... 26,075 6,587 6,261 (5,811) 33,112
-------- -------- ------- ------- --------
Total liabilities and stockholders'
equity................................. $153,130 $112,309 $42,767 $(5,811) $302,395
======== ======== ======= ======= ========
</TABLE>
100
<PAGE> 121
- ---------------
(a) To record the exercise of 57,000 stock options by officers of The Banc
Corporation and its subsidiary before merger.
(b) To record the exchange of 1,536,615 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>
COMMERCE
BANK OF
ALABAMA
----------
<S> <C>
Outstanding shares of acquired corporation.................. 656,630
Conversion ratio............................................ 2.340153
----------
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...... 7,024
----------
Excess recorded as an increase in contributed capital..... 7,022
----------
To eliminate acquired corporations capital stock
Common stock at par value................................. (7)
Surplus................................................... (7,017)
Treasury stock............................................ --
----------
(7,024)
----------
Net change in equity.................................. $ --
==========
</TABLE>
(c) Purchase of 100% of the outstanding common stock of The Commercial
Bancshares of Roanoke for $7.3 million. 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.
101
<PAGE> 122
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 and subsidiaries on a historical basis for the
three months ended March 31, 1998 and 1997, and the years ended December 31,
1997, 1996, and 1995, (ii) the condensed consolidated statements of income of
Commerce for the three months ended March 31, 1998 and 1997 and the periods
ended December 31, 1997, and 1996, (iii) the condensed consolidated statements
of income of Commercial for the three months ended March 31, 1998 and the year
ended December 31, 1997, (iv) adjustments to give affect to the proposed
purchase method combination with Commercial and the proposed pooling of interest
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 three
months ended March 31, 1998 and the year ended December 31, 1997 are included in
(iv) above for Commercial.
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 Commercial. 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 MARCH 31, 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............................... $ 2,692 $ 2,140 $ 745 $ (122)(a) $ 5,455
Interest expense.............................. 1,212 1,283 331 -- 2,826
---------- -------- -------- ---------- ----------
Net interest income.................. 1,480 857 414 (122) 2,629
Provision for loan losses..................... 112 126 35 -- 273
---------- -------- -------- ---------- ----------
Net interest income after provision for loan
losses.................................... 1,368 731 379 (122) 2,356
Noninterest income............................ 269 292 250 -- 811
Noninterest expenses.......................... 1,317 875 491 9(a) 2,692
---------- -------- -------- ---------- ----------
Income before income taxes........... 320 148 138 (131) 475
Income tax expense (benefit).................. 25 40 18 (48)(a) 35
---------- -------- -------- ---------- ----------
Net income (loss).................... 295 108 120 (83) 440
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities
available for sale........................ 4 (38) 1 -- (33)
---------- -------- -------- ---------- ----------
Comprehensive income (loss)................... $ 299 $ 70 $ 121 $ (83) $ 407
========== ======== ======== ========== ==========
Basic earnings per share...................... $ 0.04 $ 0.16 $ 0.60 $ 0.05
========== ======== ======== ==========
Average number of shares outstanding.......... 6,660,293 656,444 200,000 8,196,470
========== ======== ======== ==========
</TABLE>
- ---------------
<TABLE>
<S> <C> <C> <C> <C> <C>
(a) To reflect the reduction of in interest earning assets of
$7,300,000 from the cash purchase of Commercial Bancshares of
Roanoke at 6.7%................................................... $ (122)
Depreciation on allocation of purchase price to premises and
equipment (30 year period)........................................ (9)
--------
Decrease in income before tax benefit............................. $ (129)
========
Income tax benefit at 37%......................................... $ (48)
========
</TABLE>
102
<PAGE> 123
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED MARCH 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............................................. $ 1,772 $ 1,564 $ -- $ 3,336
Interest expense............................................ 774 837 -- 1,611
---------- -------- ------ ----------
Net interest income................................ 998 727 -- 1,725
Provision for loan losses................................... 118 115 -- 233
---------- -------- ------ ----------
Net interest income after provision for loan losses....... 880 612 -- 1,492
Noninterest income.......................................... 132 147 -- 279
Noninterest expenses........................................ 844 658 -- 1,502
---------- -------- ------ ----------
Income before income taxes......................... 168 101 -- 269
Income tax expense.......................................... 28 17 -- 45
---------- -------- ------ ----------
Net income......................................... 140 84 -- 224
Other comprehensive loss, net of tax:
Unrealized loss on securities available for sale.......... (27) (83) -- (110)
---------- -------- ------ ----------
Comprehensive income........................................ $ 113 $ 1 $ -- $ 114
========== ======== ====== ==========
Basic earnings per share.................................... $ 0.04 $ 0.13 $ 0.04
========== ======== ==========
Average number of shares outstanding........................ 3,980,993 655,565 5,515,113
========== ======== ==========
</TABLE>
103
<PAGE> 124
<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................................. $ 8,514 $ 7,513 $ 3,114 $(488)(a) $ 18,653
Interest expense................................ 3,799 4,028 1,307 -- 9,134
--------- -------- -------- ----- ----------
Net interest income.................... 4,715 3,485 1,807 (488) 9,519
Provision for loan losses....................... 663 584 401 -- 1,648
--------- -------- -------- ----- ----------
Net interest income after provision for loan
losses...................................... 4,052 2,901 1,406 (488) 7,871
Noninterest income.............................. 590 578 980 -- 2,148
Noninterest expenses............................ 4,045 3,131 2,010 36(a) 9,222
--------- -------- -------- ----- ----------
Income before income taxes............. 597 348 376 (524) 797
Income tax expense.............................. 192 120 68 (194)(a) 186
--------- -------- -------- ----- ----------
Net income............................. 405 228 308 (330) 611
Other comprehensive income, net of tax:
Unrealized gain on securities available for
sale........................................ 12 40 1 -- 53
--------- -------- -------- ----- ----------
Comprehensive income (loss)..................... $ 417 $ 268 $ 309 $(330) $ 664
========= ======== ======== ===== ==========
Basic earnings per share........................ $ 0.09 $ 0.35 $ 1.54 $ 0.10
========= ======== ======== ==========
Average number of shares outstanding............ 4,290,593 655,565 200,000 5,824,713
========= ======== ======== ==========
</TABLE>
- ---------------
<TABLE>
<S> <C> <C> <C> <C> <C>
(a) To reflect the reduction of in interest earning assets of $7,300,000
from the cash purchase of Commercial Bancshares of Roanoke at
6.7%................................................................ $ (488)
Depreciation on allocation of purchase price to premises and
equipment (30 year period).......................................... (36)
----------
Decrease in income before tax benefit............................... $ (524)
==========
Income tax benefit at 37%........................................... $ (194)
==========
</TABLE>
104
<PAGE> 125
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
----------------------------------------------------
HISTORICAL
-------------------------
THE COMMERCE
BANC BANK OF PRO FORMA PRO FORMA
CORPORATION(A) ALABAMA ADJUSTMENTS COMBINED
-------------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest Income........................................... $ 5,433 $ 4,056 $ -- $ 9,489
Interest expense.......................................... 2,386 2,170 -- 4,556
---------- -------- ---------- ----------
Net interest income.............................. 3,047 1,886 -- 4,933
Provision for loan losses................................. 205 372 -- 577
---------- -------- ---------- ----------
Net interest income after provision for loan losses..... 2,842 1,514 -- 4,356
Noninterest income........................................ 473 380 -- 853
Noninterest expenses...................................... 2,501 2,268 -- 4,769
---------- -------- ---------- ----------
Income before income taxes....................... 814 (374) -- 440
Income tax expense........................................ 157 (81) -- 76
---------- -------- ---------- ----------
Net income (loss)................................ 657 (293) -- 364
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities available for
sale.................................................. 7 (12) -- (5)
---------- -------- ---------- ----------
Comprehensive income (loss)............................... $ 664 $ (305) $ -- $ 359
========== ======== ========== ==========
Basic earnings (loss) per share........................... $ 0.15 $ (0.47) $ 0.06
========== ======== ==========
Average number of shares outstanding...................... 4,290,593 618,854 5,738,804
========== ======== ==========
</TABLE>
- ---------------
(a) The consolidated financial data for The Banc Corporation includes the
operations of its subsidiaries, The Emerald Coast Bank for the period August
30, 1996 (date of inception) to December 31, 1996, and The Bank for the year
ended December 31, 1996.
105
<PAGE> 126
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
-------------------------------------------------------
HISTORICAL
----------------------------
THE COMMERCE
BANC BANK OF PRO FORMA PRO FORMA
CORPORATION(A) ALABAMA(B) 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
Other comprehensive income, net of tax:
Unrealized gain on securities available for sale....... 63 -- -- 63
---------- -------- ------ ----------
Comprehensive income (loss).............................. $ 961 $ (470) $ -- $ 491
========== ======== ====== ==========
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>
- ---------------
(a) The statement of income for The Banc Corporation reflects the operations of
Warrior Capital Corporation and its subsidiary, The Bank. The Emerald Coast
Bank was not formed until August, 1996.
(b) The statement of income for Commerce Bank of Alabama is from the date of
inception (April 6, 1995) to December 31, 1995.
106
<PAGE> 127
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 as of March 31, 1998, (ii) the
condensed consolidated statement of financial condition of Commerce Bank of
Alabama ("Commerce") as of March 31, 1998, (iii) adjustments to give affect to
the proposed pooling of interest method business combination 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 March 31,
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 MARCH 31, 1998
-------------------------------------------------
HISTORICAL
----------------------
THE COMMERCE
BANC BANK OF PRO FORMA PRO FORMA
CORPORATION ALABAMA ADJUSTMENTS COMBINED
----------- -------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks..................................... $ 12,328 $ 5,800 $ 450(a) $ 18,578
Federal funds sold.......................................... 3,000 4,550 -- 7,550
Investment securities available for sale.................... 7,775 15,638 -- 23,413
Investment securities held to maturity...................... 28,920 753 -- 29,673
Loans, net of unearned...................................... 86,569 81,811 -- 168,380
Less: Allowance for loan losses............................. (1,141) (814) -- (1,955)
-------- -------- ------- --------
Net loans.......................................... 85,428 80,997 -- 166,425
-------- -------- ------- --------
Premises and equipment, net................................. 11,073 2,788 -- 13,861
Intangibles, net............................................ 410 -- -- 410
Other assets................................................ 4,196 1,783 -- 5,979
-------- -------- ------- --------
Total assets....................................... $153,130 $112,309 $ 450 $265,889
======== ======== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing....................................... $ 19,413 $ 9,915 $ -- $ 29,328
Interest-bearing.......................................... 103,967 94,332 -- 198,299
-------- -------- ------- --------
Total deposits..................................... 123,380 104,247 -- 227,627
Federal funds purchased and other borrowed funds............ 2,105 537 -- 2,642
Accrued expenses and other liabilities...................... 1,551 938 -- 2,489
-------- -------- ------- --------
Total liabilities.................................. 127,036 105,722 -- 232,758
Minority interest in equity of subsidiary................... 19 -- -- 19
Stockholders' Equity
Common stock.............................................. 6 7 --(a) 8
2(b)
(7)(b)
Surplus................................................... 18,878 7,017 450(a) 26,350
7,022(b)
(7,017)(b)
Retained earnings (accumulated deficit)................... 7,219 (427) 6,792
Accumulated other comprehensive income (loss)............. (28) (10) (38)
-------- -------- ------- --------
Total stockholders' equity......................... 26,075 6,587 450 33,112
-------- -------- ------- --------
Total liabilities and stockholders' equity......... $153,130 $112,309 $ 450 $265,889
======== ======== ======= ========
</TABLE>
107
<PAGE> 128
- ---------------
(a) To record the exercise of 57,000 stock options by officers of The Banc
Corporation and its subsidiary before merger.
(b) To record the exchange of 1,536,615 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>
COMMERCE
BANK OF
ALABAMA
--------
<S> <C>
Outstanding shares of acquired corporation.................. 656,630
Conversion ratio............................................ 2.340153
----------
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...... 7,024
----------
Excess recorded as an increase in contributed capital..... 7,022
----------
To eliminate acquired corporations capital stock
Common stock at par value................................. (7)
Surplus................................................... (7,017)
Treasury stock............................................ --
----------
(7,024)
----------
Net change in equity.............................. $ --
==========
</TABLE>
108
<PAGE> 129
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 and subsidiaries on a historical basis for the
three months ended March 31, 1998 and 1997, and the years ended December 31,
1997, 1996, and 1995, (ii) the condensed consolidated statements of income of
Commerce for the three months ended March 31, 1998 and 1997 and the periods
ended December 31, 1997, and 1996, (iii) adjustments to give affect to the
proposed pooling of interest method business combination with Commerce, (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 Commerce. The pro forma information may not necessarily be
indicative of future results. Proforma 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 MARCH 31, 1998
------------------------------------------------
HISTORICAL
----------------------
THE COMMERCE
BANC BANK OF PRO FORMA PRO FORMA
CORPORATION ALABAMA ADJUSTMENTS COMBINED
----------- -------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest Income............................................. $ 2,692 $ 2,140 $ -- $ 4,832
Interest expense............................................ 1,212 1,283 -- 2,495
--------- ------- ------- ---------
Net interest income................................ 1,480 857 -- 2,337
Provision for loan losses................................... 112 126 -- 238
--------- ------- ------- ---------
Net interest income after provision for loan losses....... 1,368 731 -- 2,099
Noninterest income.......................................... 269 292 -- 561
Noninterest expenses........................................ 1,317 875 -- 2,192
--------- ------- ------- ---------
Income before income taxes......................... 320 148 -- 468
Income tax expense.......................................... 25 40 -- 65
--------- ------- ------- ---------
Net income......................................... 295 108 -- 403
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities available for
sale.................................................. 4 (38) -- (34)
--------- ------- ------- ---------
Comprehensive income........................................ $ 299 $ 70 $ -- $ 369
========= ======= ======= =========
Basic earnings per share.................................... $ 0.04 $ 0.16 $ 0.05
========= ======= =========
Average number of shares outstanding........................ 6,660,293 656,444 8,196,470
========= ======= =========
</TABLE>
109
<PAGE> 130
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED MARCH 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............................................. $ 1,772 $ 1,564 $ -- $ 3,336
Interest expense............................................ 774 837 -- 1,611
---------- -------- ----- ----------
Net interest income................................ 998 727 -- 1,725
Provision for loan losses................................... 118 115 -- 233
---------- -------- ----- ----------
Net interest income after provision for loan losses....... 880 612 -- 1,492
Noninterest income.......................................... 132 147 -- 279
Noninterest expenses........................................ 844 658 -- 1,502
---------- -------- ----- ----------
Income before income taxes......................... 168 101 -- 269
Income tax expense.......................................... 28 17 -- 45
---------- -------- ----- ----------
Net income......................................... 140 84 -- 224
Other comprehensive loss, net of tax:
Unrealized loss on securities available for sale.......... (27) (83) -- (110)
---------- -------- ----- ----------
Comprehensive income........................................ $ 113 $ 1 $ -- $ 114
========== ======== ===== ==========
Basic earnings per share.................................... $ 0.04 $ 0.13 $ 0.04
========== ======== ==========
Average number of shares outstanding........................ 3,980,993 655,565 5,515,113
========== ======== ==========
</TABLE>
110
<PAGE> 131
<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............................................. $ 8,514 $ 7,513 $ -- $ 16,027
Interest expense............................................ 3,799 4,028 -- 7,827
--------- ------- ------- ---------
Net interest income................................ 4,715 3,485 -- 8,200
Provision for loan losses................................... 663 584 -- 1,247
--------- ------- ------- ---------
Net interest income after provision for loan losses..... 4,052 2,901 -- 6,953
Noninterest income.......................................... 590 578 -- 1,168
Noninterest expenses........................................ 4,045 3,131 -- 7,176
--------- ------- ------- ---------
Income before income taxes......................... 597 348 -- 945
Income tax expense.......................................... 192 120 -- 312
--------- ------- ------- ---------
Net income......................................... 405 228 -- 633
Other comprehensive income, net of tax:
Unrealized gain on securities available for sale........ 12 40 -- 52
--------- ------- ------- ---------
Comprehensive income........................................ $ 417 $ 268 $ -- $ 685
========= ======= ======= =========
Basic earnings per share.................................... $ 0.09 $ 0.35 $ 0.11
========= ======= =========
Average number of shares outstanding........................ 4,290,593 655,565 5,824,713
========= ======= =========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------
HISTORICAL
-------------------------
THE COMMERCE
BANC BANK OF PRO FORMA PRO FORMA
CORPORATION(A) ALABAMA ADJUSTMENTS COMBINED
-------------- -------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest Income............................................. $ 5,433 $ 4,056 $ -- $ 9,489
Interest expense............................................ 2,386 2,170 -- 4,556
--------- ------- ------- ---------
Net interest income................................ 3,047 1,886 -- 4,933
Provision for loan losses................................... 205 372 -- 577
--------- ------- ------- ---------
Net interest income after provision for loan losses....... 2,842 1,514 -- 4,356
Noninterest income.......................................... 473 380 -- 853
Noninterest expenses........................................ 2,501 2,268 -- 4,769
--------- ------- ------- ---------
Income before income taxes......................... 814 (374) -- 440
Income tax expense (benefit)................................ 157 (81) -- 76
--------- ------- ------- ---------
Net income (loss).................................. 657 (293) -- 364
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities available for sale... 7 (12) -- (5)
--------- ------- ------- ---------
Comprehensive income (loss)................................. $ 664 $ (305) $ -- $ 359
========= ======= ======= =========
Basic earnings (loss) per share............................. $ 0.15 $ (0.47) $ 0.06
========= ======= =========
Average number of shares outstanding........................ 4,290,593 618,854 5,738,804
========= ======= =========
</TABLE>
- ---------------
(a) The consolidated financial data for The Banc Corporation includes the
operations of its subsidiaries, The Emerald Coast Bank for the period August
30, 1996 (date of inception) to December 31, 1996, and The Bank for the year
ended December 31, 1996.
111
<PAGE> 132
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------
HISTORICAL
---------------------------
THE COMMERCE
BANC BANK OF PRO FORMA PRO FORMA
CORPORATION(A) ALABAMA(B) 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
Other comprehensive income, net of tax:
Unrealized gain on securities available for sale........ 63 -- -- 63
---------- -------- ------ ----------
Comprehensive income (loss)............................... $ 961 $ (470) $ -- $ 491
========== ======== ====== ==========
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>
- ---------------
(a) The statement of income for The Banc Corporation reflects the operations of
Warrior Capital Corporation and its subsidiary, The Bank. The Emerald Coast
Bank was not formed until August, 1996.
(b) The statement of income for Commerce Bank of Alabama is from the date of
inception (April 6, 1995) to December 31, 1995.
112
<PAGE> 133
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 as of March 31, 1998, (ii) the
condensed consolidated statement of financial condition of First Citizens
Bancorp ("First Citizens") as of March 31, 1998, (iii) the condensed
consolidated statement of financial condition of City National Corporation
("City National") as of March 31, 1998, (iv) the condensed consolidated
statement of financial condition of Commercial Bancshares of Roanoke
("Commercial") as of March 31, 1998, (v) adjustments to give affect to the
proposed purchase method combination with Commercial and the proposed pooling of
interest 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 March
31, 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
Commercial. The pro forma information provided below may not be indicative of
future results.
<TABLE>
<CAPTION>
AS OF MARCH 31, 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>
ASSETS
Cash and due from banks....................... $ 12,328 $ 1,258 $ 2,238 $ 1,429 $ 595(a) $ 10,548
(7,300)(c)
Interest bearing deposits in other banks...... -- -- 200 200 400
Federal funds sold............................ 3,000 1,820 1,810 6,750 13,380
Investment securities available for sale...... 7,775 1,867 35,929 2,298 47,869
Investment securities held to maturity........ 28,920 -- -- 15,757 44,677
Loans, net of unearned........................ 86,569 29,636 39,442 15,678 171,325
Less: Allowance for loan losses............... (1,141) (305) (497) (326) (2,269)
-------- ------- ------- ------- ------- --------
Net loans............................... 85,428 29,331 38,945 15,352 -- 169,056
-------- ------- ------- ------- ------- --------
Premises and equipment, net................... 11,073 569 2,642 295 1,039(c) 15,618
Intangibles, net.............................. 410 -- -- -- 410
Other assets.................................. 4,196 1,333 1,575 686 7,790
-------- ------- ------- ------- ------- --------
Total assets......................... $153,130 $36,178 $83,339 $42,767 $(5,666) $309,748
======== ======= ======= ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing......................... $ 19,413 $ 3,453 $11,076 $ 6,868 $ 40,810
Interest-bearing............................ 103,967 29,133 59,143 29,344 221,587
-------- ------- ------- ------- ------- --------
Total deposits....................... 123,380 32,586 70,219 36,212 $ -- 262,397
Federal funds purchased and other borrowed
funds....................................... 2,105 -- -- -- 2,105
Accrued expenses and other liabilities........ 1,551 437 1,169 294 3,451
-------- ------- ------- ------- ------- --------
Total liabilities.................... 127,036 33,023 71,388 36,506 -- 267,953
Minority interest in equity of subsidiary..... 19 -- 138 -- 157
Stockholders' Equity
Common stock.................................. 6 75 27 20 5(a) 9
3(b)
(107)(b)
(20)(c)
Surplus....................................... 18,878 1,914 4,135 3,527 590(a) 25,568
6,240(b)
(6,189)(b)
(3,527)(c)
Retained earnings........................... 7,219 1,161 7,482 2,696 (2,696)(c) 15,862
Accumulated other comprehensive income
(loss).................................... (28) 5 222 18 (18)(c) 199
Treasury stock, at cost..................... -- -- (53) -- 53(b) --
-------- ------- ------- ------- ------- --------
Total stockholders' equity........... 26,075 3,155 11,813 6,261 (5,666) 41,638
-------- ------- ------- ------- ------- --------
Total liabilities and stockholders'
equity............................. $153,130 $36,178 $83,339 $42,767 $(5,666) $309,748
======== ======= ======= ======= ======= ========
</TABLE>
113
<PAGE> 134
- ---------------
(a) To record the exercise of 57,000 stock options by officers of The Banc
Corporation and its subsidiary and 5,000 stock options by an officer of
First Citizens prior to the merger.
(b) To record the exchange of 2,506,107 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............................................ 8.2905375 68.681574
--------- ----------
The Banc Corporation shares to be issued.................... 663,243 1,842,864 2,506,107
Par value of shares to be issued at $.001 per share......... $ 1 $ 2 $ 3
Total common stock and surplus of acquired corporation...... 2,134 4,109 6,243
--------- ---------- ----------
Excess recorded as an increase in contributed capital..... 2,133 4,107 6,240
--------- ---------- ----------
To eliminate acquired corporations capital stock Common
stock at par value........................................ (80) (27) (107)
Surplus................................................... (2,054) (4,135) (6,189)
Treasury stock............................................ -- 53 53
--------- ---------- ----------
(2,134) (4,109) (6,243)
--------- ---------- ----------
Net change in equity............................... $ -- $ -- $ --
========= ========== ==========
</TABLE>
(c) Purchase of 100% of the outstanding common stock of The Commercial
Bancshares of Roanoke for 7.3 million. 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.
114
<PAGE> 135
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 and subsidiaries on a historical basis for the
three months ended March 31, 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 three months ended March 31, 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 three months ended March 31, 1998
and 1997 and the years ended December 31, 1997, 1996 and 1995, (iv) the
condensed consolidated statements of income of Commercial for the three months
ended March 31, 1998 and the year ended December 31, 1997, (v) adjustments to
give affect to the proposed purchase method combination with Commercial and the
proposed pooling of interest method business combinations with 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 three months ended March 31,
1998 and the year ended December 31, 1997 are included in (iv) above for
Commercial.
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 Commercial. 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.
115
<PAGE> 136
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED MARCH 31, 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........................ $ 2,692 $ 829 $ 1,648 $ 745 $(122)(a) $ 5,792
Interest expense....................... 1,212 331 682 331 2,556
---------- ------- ------- -------- ----- ----------
Net interest income........... 1,480 498 966 414 (122) 3,236
Provision for loan losses.............. 112 39 133 35 319
---------- ------- ------- -------- ----- ----------
Net interest income after provision
for loan losses.................... 1,368 459 833 379 (122) 2,917
Noninterest income..................... 269 121 190 250 830
Noninterest expenses................... 1,317 349 839 491 9(a) 3,005
---------- ------- ------- -------- ----- ----------
Income before income taxes.... 320 231 184 138 (131) 742
Income tax expense..................... 25 87 79 18 (48)(a) 161
---------- ------- ------- -------- ----- ----------
Net income.................... 295 144 105 120 (83) 581
Other comprehensive income (loss), net
of tax:
Unrealized gain (loss) on securities
available for sale................. 4 -- (13) 8 (1)
---------- ------- ------- -------- ----- ----------
Comprehensive income................... $ 299 $ 144 $ 92 $ 128 $ (83) $ 580
========== ======= ======= ======== ===== ==========
Basic earnings per share............... $ 0.04 $ 1.92 $ 3.90 $ 0.60 $ 0.06
========== ======= ======= ======== ==========
Average number of shares outstanding... 6,660,293 75,000 26,922 200,000 9,168,868
========== ======= ======= ======== ==========
- ---------------
(a) To reflect the reduction of interest earning assets of
$7,300,000 from the cash purchase of Commercial Bancshares
of Roanoke at 6.7%......................................... $ (122)
Depreciation on allocation of purchase price to premises
and equipment (30 year period)............................. (9)
-------
Decrease in income before tax benefit...................... $ (131)
=======
Income tax benefit at 37%.................................. $ (48)
=======
</TABLE>
116
<PAGE> 137
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED MARCH 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.................................... $ 1,772 $ 679 $ 1,671 $ 4,122
Interest expense................................... 774 279 726 1,779
---------- ------- ------- ------- ----------
Net interest income....................... 998 400 945 $ -- 2,343
Provision for loan losses.......................... 118 15 183 316
---------- ------- ------- ------- ----------
Net interest income after provision for loan
losses......................................... 880 385 762 -- 2,027
Noninterest income................................. 132 110 152 394
Noninterest expenses............................... 844 307 853 2,004
---------- ------- ------- ------- ----------
Income before income taxes................ 168 188 61 -- 417
Income tax expense................................. 28 70 27 125
---------- ------- ------- ------- ----------
Net income................................ 140 118 34 -- 292
Other comprehensive loss, net of tax:
Unrealized loss on securities available for
sale........................................... (27) (6) (473) (506)
---------- ------- ------- ------- ----------
Comprehensive income (loss)........................ $ 113 $ 112 $ (439) $ -- $ (214)
========== ======= ======= ======= ==========
Basic earnings per share........................... $ 0.04 $ 1.57 $ 1.26 $ 0.12
========== ======= ======= ==========
Average number of shares outstanding............... 3,980,993 75,000 26,999 2,513,852
========== ======= ======= ==========
</TABLE>
117
<PAGE> 138
<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....................... $ 8,514 $ 2,957 $ 6,721 $ 3,114 $(488)(a) $ 20,818
Interest expense...................... 3,799 1,215 2,911 1,307 9,232
---------- ------- ------- -------- ----- ----------
Net interest income.......... 4,715 1,742 3,810 1,807 (488) 11,586
Provision for loan losses............. 663 218 384 401 1,666
---------- ------- ------- -------- ----- ----------
Net interest income after provision
for loan losses................... 4,052 1,524 3,426 1,406 (488) 9,920
Noninterest income.................... 590 415 737 980 2,722
Noninterest expenses.................. 4,045 1,303 3,367 2,010 36(a) 10,761
---------- ------- ------- -------- ----- ----------
Income before income taxes... 597 636 796 376 (524) 1,881
Income tax expense.................... 192 213 170 68 (194)(a) 449
---------- ------- ------- -------- ----- ----------
Net income................... 405 423 626 308 (330) 1,432
Other comprehensive income, net of
tax:
Unrealized gain on securities
available for sale................ 12 12 198 8 230
---------- ------- ------- -------- ----- ----------
Comprehensive income.................. $ 417 $ 435 $ 824 $ 316 $(330) $ 1,662
========== ======= ======= ======== ===== ==========
Basic earnings per share.............. $ 0.09 $ 5.64 $ 23.26 $ 1.54 $ 0.21
========== ======= ======= ======== ==========
Average number of shares
outstanding......................... 4,290,593 75,000 26,910 200,000 6,798,345
========== ======= ======= ======== ==========
</TABLE>
- ---------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
(a) To reflect the reduction of interest earning assets of
$7,300,000 from the cash purchase of Commercial
Bancshares of Roanoke at 6.7%............................ $ (488)
Depreciation on allocation of purchase price to premises
and equipment (30 year period)........................... (36)
-------
Decrease in income before tax benefit.................... $ (524)
=======
Income tax benefit at 37%................................ $ (194)
=======
</TABLE>
118
<PAGE> 139
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------------------
HISTORICAL
---------------------------------------
THE FIRST CITY
BANC CITIZENS NATIONAL PRO FORMA PRO FORMA
CORPORATION(A) BANCORP CORPORATION ADJUSTMENTS COMBINED
-------------- -------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest Income................................... $ 5,433 $ 2,437 $ 6,027 $ 13,897
Interest expense.................................. 2,386 1,008 2,460 5,854
---------- ------- ------- ------- ----------
Net interest income...................... 3,047 1,429 3,567 -- 8,043
Provision for loan losses......................... 205 43 346 594
---------- ------- ------- ------- ----------
Net interest income after provision for loan
losses........................................ 2,842 1,386 3,221 -- 7,449
Noninterest income................................ 473 430 683 1,586
Noninterest expenses.............................. 2,501 1,232 3,211 6,944
---------- ------- ------- ------- ----------
Income before income taxes............... 814 584 693 -- 2,091
Income tax expense................................ 157 184 133 474
---------- ------- ------- ------- ----------
Net income............................... 657 400 560 -- 1,617
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities available
for sale...................................... 7 (15) (267) (275)
---------- ------- ------- ------- ----------
Comprehensive income.............................. $ 664 $ 385 $ 293 $ -- $ 1,342
========== ======= ======= ======= ==========
Basic earnings per share.......................... $ 0.15 $ 5.33 $ 20.69 $ 0.24
========== ======= ======= ==========
Average number of shares outstanding.............. 4,290,593 75,000 27,063 6,808,832
========== ======= ======= ==========
</TABLE>
- ---------------
(a) The consolidated financial data for The Banc Corporation includes the
operations of its subsidiaries, The Emerald Coast Bank for the period August
30, 1996 (date of inception) to December 31, 1996, and The Bank for the year
ended December 31, 1996.
119
<PAGE> 140
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------------------
HISTORICAL
---------------------------------------
THE FIRST CITY
BANC CITIZENS NATIONAL PRO FORMA PRO FORMA
CORPORATION(A) 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
Other comprehensive income, net of tax:
Unrealized gain on securities available for
sale.......................................... 63 117 1,486 1,666
---------- ------- ------- ------- ----------
Comprehensive income.............................. $ 961 $ 311 $ 2,211 $ -- $ 3,483
========== ======= ======= ======= ==========
Basic earnings per share.......................... $ 0.33 $ 2.59 $ 26.70 $ 0.35
========== ======= ======= ==========
Average number of shares outstanding.............. 2,716,200 75,000 27,149 5,240,334
========== ======= ======= ==========
</TABLE>
- ---------------
(a) The statement of income for The Banc Corporation reflects the operations of
Warrior Capital Corporation and its subsidiary, The Bank. The Emerald Coast
Bank was not formed until August, 1996.
120
<PAGE> 141
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 as of March 31, 1998, (ii) the
condensed consolidated statement of financial condition of First Citizens
Bancorp ("First Citizens") as of March 31, 1998, (iii) the condensed
consolidated statement of financial condition of City National Corporation
("City National") as of March 31, 1998, (iv) adjustments to give affect to the
proposed pooling of interest 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 March 31, 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 MARCH 31, 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>
ASSETS
Cash and due from banks............................ $ 12,328 $ 1,258 $ 2,238 $ 595(a) $ 16,419
Interest bearing deposits in other banks........... -- -- 200 200
Federal funds sold................................. 3,000 1,820 1,810 6,630
Investment securities available for sale........... 7,775 1,867 35,929 45,571
Investment securities held to maturity............. 28,920 -- 0 28,920
Loans, net of unearned............................. 86,569 29,636 39,442 155,647
Less: Allowance for loan losses.................... (1,141) (305) (497) (1,943)
-------- ------- ------- ------- --------
Net loans................................. 85,428 29,331 38,945 -- 153,704
-------- ------- ------- ------- --------
Premises and equipment, net........................ 11,073 569 2,642 14,284
Intangibles, net................................... 410 -- -- 410
Other assets....................................... 4,196 1,333 1,575 7,104
-------- ------- ------- ------- --------
Total assets.............................. $153,130 $36,178 $83,339 $ 595 $273,242
======== ======= ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing.............................. $ 19,413 $ 3,453 $11,076 $ $ 33,942
Interest-bearing................................. 103,967 29,133 59,143 192,243
-------- ------- ------- ------- --------
Total deposits............................ 123,380 32,586 70,219 -- 226,185
Federal funds purchased and other borrowed funds... 2,105 -- -- 2,105
Accrued expenses and other liabilities............. 1,551 437 1,169 3,157
-------- ------- ------- ------- --------
Total liabilities......................... 127,036 33,023 71,388 -- 231,447
Minority interest in equity of subsidiary.......... 19 -- 138 157
Stockholders' Equity
Common stock..................................... 6 75 27 5(a) 9
3(b)
(107)(b)
Surplus.......................................... 18,878 1,914 4,135 590(a) 25,568
6,240(b)
(6,189)(b)
Retained earnings................................ 7,219 1,161 7,482 15,862
Accumulated other comprehensive income (loss).... (28) 5 222 199
Treasury stock, at cost.......................... -- -- (53) 53(b) --
-------- ------- ------- ------- --------
Total stockholders' equity................ 26,075 3,155 11,813 595 41,638
-------- ------- ------- ------- --------
Total liabilities and stockholders'
equity.................................. $153,130 $36,178 $83,339 $ 595 $273,242
======== ======= ======= ======= ========
</TABLE>
121
<PAGE> 142
- ---------------
(a) To record the exercise of 57,000 stock options by officers of The Banc
Corporation and its subsidiary and 5,000 stock options by an officer of
First Citizens prior to merger.
(b) To record the exchange of 2,506,107 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............................................ 8.2905375 68.681574
--------- ----------
The Banc Corporation shares to be issued.................... 663,243 1,842,864 2,506,107
Par value of shares to be issued at $.001 per share......... $ 1 $ 2 $ 3
Total common stock and surplus of acquired corporation...... 2,134 4,109 6,243
--------- ---------- ----------
Excess recorded as an increase in contributed capital..... 2,133 4,107 6,240
--------- ---------- ----------
To eliminate acquired corporations capital stock
Common stock at par value................................. (80) (27) (107)
Surplus................................................... (2,054) (4,135) (6,189)
Treasury stock............................................ -- 53 53
--------- ---------- ----------
(2,134) (4,109) (6,243)
--------- ---------- ----------
Net change in equity............................... $ -- $ -- $ --
========= ========== ==========
</TABLE>
122
<PAGE> 143
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 and subsidiaries on a historical basis for the
three months ended March 31, 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 three months ended March 31, 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 three months ended March 31, 1998
and 1997 and the years ended December 31, 1997, 1996 and 1995, (iv) adjustments
to give affect to the proposed pooling of interest 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 MARCH 31, 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.................................... $ 2,692 $ 829 $1,648 $ $ 5,169
Interest expense................................... 1,212 331 682 2,225
---------- ------- ------ ------- ----------
Net interest income....................... 1,480 498 966 -- 2,944
Provision for loan losses.......................... 112 39 133 284
---------- ------- ------ ------- ----------
Net interest income after provision for loan
losses......................................... 1,368 459 833 -- 2,660
Noninterest income................................. 269 121 190 580
Noninterest expenses............................... 1,317 349 839 2,505
---------- ------- ------ ------- ----------
Income before income taxes................ 320 231 184 -- 735
Income tax expense................................. 25 87 79 191
---------- ------- ------ ------- ----------
Net income................................ 295 144 105 -- 544
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities available
for sale....................................... 4 -- (13) (9)
---------- ------- ------ ------- ----------
Comprehensive income............................... $ 299 $ 144 $ 92 $ -- $ 535
========== ======= ====== ======= ==========
Basic earnings per share........................... $ 0.04 $ 1.92 $ 3.90 $ 0.06
========== ======= ====== ==========
Average number of shares outstanding............... 6,660,293 75,000 26,922 9,168,868
========== ======= ====== ==========
</TABLE>
123
<PAGE> 144
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED MARCH 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.................................... $ 1,772 $ 679 $1,671 $ $ 4,122
Interest expense................................... 774 279 726 1,779
---------- ------- ------ ------- ----------
Net interest income....................... 998 400 945 -- 2,343
Provision for loan losses.......................... 118 15 183 316
---------- ------- ------ ------- ----------
Net interest income after provision for loan
losses......................................... 880 385 762 -- 2,027
Noninterest income................................. 132 110 152 394
Noninterest expenses............................... 844 307 853 2,004
---------- ------- ------ ------- ----------
Income before income taxes................ 168 188 61 -- 417
Income tax expense................................. 28 70 27 125
---------- ------- ------ ------- ----------
Net income................................ 140 118 34 -- 292
Other comprehensive loss, net of tax:
Unrealized loss on securities available for
sale........................................... (27) (6) (473) (506)
---------- ------- ------ ------- ----------
Comprehensive income (loss)........................ $ 113 $ 112 $ (439) $ -- $ (214)
========== ======= ====== ======= ==========
Basic earnings per share........................... $ 0.04 $ 1.57 $ 1.26 $ 0.04
========== ======= ====== ==========
Average number of shares outstanding............... 3,980,993 75,000 26,999 6,494,845
========== ======= ====== ==========
</TABLE>
124
<PAGE> 145
<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.................................... $ 8,514 $ 2,957 $ 6,721 $ 18,192
Interest expense................................... 3,799 1,215 2,911 7,925
---------- ------- ------- ------- ----------
Net interest income....................... 4,715 1,742 3,810 -- 10,267
Provision for loan losses.......................... 663 218 384 1,265
---------- ------- ------- ------- ----------
Net interest income after provision for loan
losses......................................... 4,052 1,524 3,426 -- 9,002
Noninterest income................................. 590 415 737 1,742
Noninterest expenses............................... 4,045 1,303 3,367 8,715
---------- ------- ------- ------- ----------
Income before income taxes................ 597 636 796 -- 2,029
Income tax expense................................. 192 213 170 575
---------- ------- ------- ------- ----------
Net income................................ 405 423 626 -- 1,454
Other comprehensive income, net of tax:
Unrealized gain on securities available for
sale........................................... 12 12 198 222
---------- ------- ------- ------- ----------
Comprehensive income............................... $ 417 $ 435 $ 824 $ -- $ 1,676
========== ======= ======= ======= ==========
Basic earnings per share........................... $ 0.09 $ 5.64 $ 23.26 $ 0.21
========== ======= ======= ==========
Average number of shares outstanding............... 4,290,593 75,000 26,910 6,798,345
========== ======= ======= ==========
</TABLE>
125
<PAGE> 146
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------------------
HISTORICAL
---------------------------------------
THE FIRST CITY
BANC CITIZENS NATIONAL PRO FORMA PRO FORMA
CORPORATION(A) BANCORP CORPORATION ADJUSTMENTS COMBINED
-------------- -------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest Income.................................. $ 5,433 $ 2,437 $ 6,027 $ 13,897
Interest expense................................. 2,386 1,008 2,460 5,854
---------- ------- ------- ---------- ----------
Net interest income..................... 3,047 1,429 3,567 -- 8,043
Provision for loan losses........................ 205 43 346 594
---------- ------- ------- ---------- ----------
Net interest income after provision for loan
losses....................................... 2,842 1,386 3,221 -- 7,449
Noninterest income............................... 473 430 683 1,586
Noninterest expenses............................. 2,501 1,232 3,211 6,944
---------- ------- ------- ---------- ----------
Income before income taxes.............. 814 584 693 -- 2,091
Income tax expense............................... 157 184 133 474
---------- ------- ------- ---------- ----------
Net income.............................. 657 400 560 -- 1,617
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities available
for sale..................................... 7 (15) (267) (275)
---------- ------- ------- ---------- ----------
Comprehensive income............................. $ 664 $ 385 $ 293 $ -- $ 1,342
========== ======= ======= ========== ==========
Basic earnings per share......................... $ 0.15 $ 5.33 $ 20.69 $ 0.24
========== ======= ======= ==========
Average number of shares outstanding............. 4,290,593 75,000 27,063 6,808,832
========== ======= ======= ==========
</TABLE>
- ---------------
(a) The consolidated financial data for The Banc Corporation includes the
operations of its subsidiaries, The Emerald Coast Bank for the period August
30, 1996 (date of inception) to December 31, 1996, and The Bank for the year
ended December 31, 1996.
126
<PAGE> 147
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------------------
HISTORICAL
---------------------------------------
THE FIRST CITY
BANC CITIZENS NATIONAL PRO FORMA PRO FORMA
CORPORATION(A) 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
Other comprehensive income, net of tax:
Unrealized gain on securities available for
sale......................................... 63 117 1,486 1,666
---------- ------- ------- ---------- ----------
Comprehensive income............................. $ 961 $ 311 $ 2,211 $ -- $ 3,483
========== ======= ======= ========== ==========
Basic earnings per share......................... $ 0.33 $ 2.59 $ 26.70 $ 0.35
========== ======= ======= ==========
Average number of shares outstanding............. 2,716,200 75,000 27,149 5,240,334
========== ======= ======= ==========
</TABLE>
- ---------------
(a) The statement of income for The Banc Corporation reflects the operations of
Warrior Capital Corporation and its subsidiary, The Bank. The Emerald Coast
Bank was not formed until August, 1996.
127
<PAGE> 148
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 as of March 31, 1998, (ii) the
condensed consolidated statement of financial condition of First Citizens
Bancorp ("First Citizens") as of March 31, 1998, (iii) the condensed
consolidated statement of financial condition of Commercial Bancshares of
Roanoke ("Commercial") as of March 31, 1998, (iv) adjustments to give affect to
the proposed purchase method combination with Commercial and the proposed
pooling of interest 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 March 31,
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 Commercial. The pro forma
information provided below may not be indicative of future results.
<TABLE>
<CAPTION>
AS OF MARCH 31, 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>
ASSETS
Cash and due from banks..................................... $ 12,328 $ 1,258 $ 1,429 $ 595(a) $ 8,310
(7,300)(c)
Interest bearing deposits in other banks.................... -- -- 200 200
Federal funds sold.......................................... 3,000 1,820 6,750 11,570
Investment securities available for sale.................... 7,775 1,867 2,298 11,940
Investment securities held to maturity...................... 28,920 -- 15,757 44,677
Loans, net of unearned...................................... 86,569 29,636 15,678 131,883
Less: Allowance for loan losses............................. (1,141) (305) (326) (1,772)
-------- ------- ------- --------- --------
Net loans........................................... 85,428 29,331 15,352 -- 130,111
-------- ------- ------- --------- --------
Premises and equipment, net................................. 11,073 569 295 1,039(c) 12,976
Intangibles, net............................................ 410 -- -- 410
Other assets................................................ 4,196 1,333 686 6,215
-------- ------- ------- --------- --------
Total assets........................................ $153,130 $36,178 $42,767 $ (5,666) $226,409
======== ======= ======= ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing....................................... $ 19,413 $ 3,453 $ 6,868 $ 29,734
Interest-bearing.......................................... 103,967 29,133 29,344 162,444
-------- ------- ------- --------- --------
Total deposits...................................... 123,380 32,586 36,212 $ -- 192,178
Federal funds purchased and other borrowed funds............ 2,105 -- -- 2,105
Accrued expenses and other liabilities...................... 1,551 437 294 2,282
-------- ------- ------- --------- --------
Total liabilities................................... 127,036 33,023 36,506 -- 196,565
Minority interest in equity of subsidiary................... 19 -- -- 19
Stockholders' Equity
Common stock.............................................. 6 75 20 5(a) 7
1(b)
(80)(b)
(20)(c)
Surplus................................................... 18,878 1,914 3,527 590(a) 21,461
2,133(b)
(2,054)(b)
(3,527)(c)
Retained earnings......................................... 7,219 1,161 2,696 (2,696)(c) 8,380
Accumulated other comprehensive income (loss)............. (28) 5 18 (18)(c) (23)
Treasury stock, at cost................................... -- -- -- --
-------- ------- ------- --------- --------
Total stockholders' equity.......................... 26,075 3,155 6,261 (5,666) 29,825
-------- ------- ------- --------- --------
Total liabilities and stockholders' equity.......... $153,130 $36,178 $42,767 $ (5,666) $226,409
======== ======= ======= ========= ========
</TABLE>
- ---------------
(a) To record the exercise of 57,000 stock options by officers of The Banc
Corporation and its subsidiary and 5,000 stock options by an officer of
First Citizens prior to merger.
128
<PAGE> 149
(b) To record the exchange of 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
CITIZENS
BANCORP
----------
<S> <C>
Outstanding shares of acquired corporation.................. 80,000
Conversion ratio............................................ 8.2905375
----------
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...... 2,134
----------
Excess recorded as an increase in contributed capital..... 2,133
----------
To eliminate acquired corporations capital stock
Common stock at par value................................. (80)
Surplus................................................... (2,054)
Treasury stock............................................ --
----------
(2,134)
----------
Net change in equity............................... $ --
==========
</TABLE>
(c) Purchase of 100% of the outstanding common stock of The Commercial
Bancshares of Roanoke for $7.3 million. 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.
129
<PAGE> 150
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 and subsidiaries on a historical basis for the
three months ended March 31, 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 three months ended March 31, 1998 and 1997 and the years
ended December 31, 1997, 1996 and 1995, (iii) the condensed consolidated
statements of income of Commercial for the three months ended March 31, 1998 and
the year ended December 31, 1997, (iv) adjustments to give affect to the
proposed purchase method combination with Commercial and the proposed pooling of
interest 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 three months ended March 31, 1998 and the year ended December 31, 1997 are
included in (iii) above for Commercial.
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 Commercial. The pro forma information may
not necessarily be indicative of future results. Proforma 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 MARCH 31, 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.................................. $ 2,692 $ 829 $ 745 $ (122)(a) $ 4,144
Interest expense................................. 1,212 331 331 1,874
---------- ------- -------- ------ ----------
Net interest income..................... 1,480 498 414 (122) 2,270
Provision for loan losses........................ 112 39 35 186
---------- ------- -------- ------ ----------
Net interest income after provision for loan
losses....................................... 1,368 459 379 (122) 2,084
Noninterest income............................... 269 121 250 640
Noninterest expenses............................. 1,317 349 491 9(a) 2,166
---------- ------- -------- ------ ----------
Income before income taxes.............. 320 231 138 (131) 558
Income tax expense (benefit)..................... 25 87 18 (48)(a) 82
---------- ------- -------- ------ ----------
Net income (loss)....................... 295 144 120 (83) 476
Other comprehensive income, net of tax:
Unrealized gain on securities available for
sale......................................... 4 -- 8 12
---------- ------- -------- ------ ----------
Comprehensive income (loss)...................... $ 299 $ 144 $ 128 $ (83) $ 488
========== ======= ======== ====== ==========
Basic earnings per share......................... $ 0.04 $ 1.92 $ 0.60 $ 0.06
========== ======= ======== ==========
Average number of shares outstanding............. 6,660,293 75,000 200,000 7,323,536
========== ======= ======== ==========
</TABLE>
- ---------------
<TABLE>
<S> <C> <C> <C> <C> <C>
(a) To reflect the reduction of interest earning assets of $7,300,000
from the cash purchase of Commercial Bancshares of Roanoke at 6.7%... $ (122)
Depreciation on allocation of purchase price to premises and
equipment (30 year period)........................................... (9)
----------
Decrease in income before tax benefit................................ $ (131)
==========
Income tax benefit at 37%............................................ $ (48)
==========
</TABLE>
130
<PAGE> 151
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED MARCH 31, 1997
-------------------------------------------------
HISTORICAL
----------------------
THE FIRST
BANC CITIZENS PRO FORMA PRO FORMA
CORPORATION BANCORP ADJUSTMENTS COMBINED
----------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest Income..................................... $ 1,772 $ 679 $ $ 2,451
Interest expense.................................... 774 279 1,053
---------- ------- ------ ----------
Net interest income....................... 998 400 -- 1,398
Provision for loan losses........................... 118 15 133
---------- ------- ------ ----------
Net interest income after provision for loan
losses......................................... 880 385 -- 1,265
Noninterest income.................................. 132 110 242
Noninterest expenses................................ 844 307 1,151
---------- ------- ------ ----------
Income before income taxes................ 168 188 -- 356
Income tax expense.................................. 28 70 98
---------- ------- ------ ----------
Net income................................ 140 118 -- 258
Other comprehensive loss, net of tax:
Unrealized loss on securities available for
sale........................................... (27) (6) (33)
---------- ------- ------ ----------
Comprehensive income................................ $ 113 $ 112 $ -- $ 225
========== ======= ====== ==========
Basic earnings per share............................ $ 0.04 $ 1.57 $ 0.06
========== ======= ==========
Average number of shares outstanding................ 3,980,993 75,000 4,644,236
========== ======= ==========
</TABLE>
131
<PAGE> 152
<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.................................. $ 8,514 $ 2,957 $ 3,114 $(488)(a) $ 14,097
Interest expense................................. 3,799 1,215 1,307 6,321
---------- ------- -------- ----- ----------
Net interest income..................... 4,715 1,742 1,807 (488) 7,776
Provision for loan losses........................ 663 218 401 1,282
---------- ------- -------- ----- ----------
Net interest income after provision for loan
losses....................................... 4,052 1,524 1,406 (488) 6,494
Noninterest income............................... 590 415 980 1,985
Noninterest expenses............................. 4,045 1,303 2,010 36(a) 7,394
---------- ------- -------- ----- ----------
Income before income taxes.............. 597 636 376 (524) 1,085
Income tax expense (benefit)..................... 192 213 68 (194)(a) 279
---------- ------- -------- ----- ----------
Net income (loss)....................... 405 423 308 (330) 806
Other comprehensive income, net of tax:
Unrealized gain on securities available for
sale......................................... 12 12 8 32
---------- ------- -------- ----- ----------
Comprehensive income (loss)...................... $ 417 $ 435 $ 316 $(330) $ 838
========== ======= ======== ===== ==========
Basic earnings per share......................... $ 0.09 $ 5.64 $ 1.54 $ 0.16
========== ======= ======== ==========
Average number of shares outstanding............. 4,290,593 75,000 200,000 4,953,836
========== ======= ======== ==========
- ---------------
(a) To reflect the reduction of interest earning assets of $7,300,000 from
the cash purchase of Commercial Bancshares of Roanoke at 6.7%........... $ (488)
Depreciation on allocation of purchase price to premises and equipment
(30 year period)........................................................ (36)
--------
Decrease in income before tax benefit................................... $ (524)
========
Income tax benefit at 37%............................................... $ (194)
========
</TABLE>
132
<PAGE> 153
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
----------------------------------------------------
HISTORICAL
-------------------------
THE FIRST
BANC CITIZENS PRO FORMA PRO FORMA
CORPORATION(A) BANCORP ADJUSTMENTS COMBINED
-------------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest Income............................................. $ 5,433 $ 2,437 $ 7,870
Interest expense............................................ 2,386 1,008 3,394
---------- ------- ------- ----------
Net interest income................................ 3,047 1,429 -- 4,476
Provision for loan losses................................... 205 43 248
---------- ------- ------- ----------
Net interest income after provision for loan losses....... 2,842 1,386 -- 4,228
Noninterest income.......................................... 473 430 903
Noninterest expenses........................................ 2,501 1,232 3,733
---------- ------- ------- ----------
Income before income taxes......................... 814 584 -- 1,398
Income tax expense.......................................... 157 184 341
---------- ------- ------- ----------
Net income......................................... 657 400 -- 1,057
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities available for sale... 7 (15) (8)
---------- ------- ------- ----------
Comprehensive income........................................ $ 664 $ 385 $ -- $ 1,049
========== ======= ======= ==========
Basic earnings per share.................................... $ 0.15 $ 5.33 $ 0.21
========== ======= ==========
Average number of shares outstanding........................ 4,290,593 75,000 4,953,836
========== ======= ==========
</TABLE>
- ---------------
(a) The consolidated financial data for The Banc Corporation includes the
operations of its subsidiaries, The Emerald Coast Bank for the period August
30, 1996 (date of inception) to December 31, 1996, and The Bank for the year
ended December 31, 1996.
133
<PAGE> 154
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
-------------------------------------------------
HISTORICAL
----------------------
THE
BANC FIRST
CORPORATION CITIZENS PRO FORMA PRO FORMA
(A) 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
Other comprehensive income, net of tax:
Unrealized gain on securities available for sale.......... 63 117 180
---------- ------- ------- ----------
Comprehensive income........................................ $ 961 $ 311 $ -- $ 1,272
========== ======= ======= ==========
Basic earnings per share.................................... $ 0.33 $ 2.59 $ 0.32
========== ======= ==========
Average number of shares outstanding........................ 2,716,200 75,000 3,379,443
========== ======= ==========
</TABLE>
- ---------------
(a) The statement of income for The Banc Corporation reflects the operations for
Warrior Capital Corporation and its subsidiary, The Bank. The Emerald Coast
Bank was not formed until August, 1996.
134
<PAGE> 155
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 as of March 31, 1998, (ii) the
condensed consolidated statement of financial condition of First Citizens
Bancorp ("First Citizens") as of March 31, 1998, (iii) adjustments to give
affect to the proposed pooling of interest method business combination with
First Citizens, (iv) the pro forma combined condensed statement of financial
condition of The Banc Corporation and subsidiaries as if such combinations had
occurred on March 31, 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 MARCH 31, 1998
--------------------------------------------------
HISTORICAL
----------------------
THE FIRST
BANC CITIZENS PRO FORMA PRO FORMA
CORPORATION BANCORP ADJUSTMENTS COMBINED
----------- -------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks..................................... $ 12,328 $ 1,258 $ 595(a) $ 14,181
Federal funds sold.......................................... 3,000 1,820 4,820
Investment securities available for sale.................... 7,775 1,867 9,642
Investment securities held to maturity...................... 28,920 -- 28,920
Loans, net of unearned...................................... 86,569 29,636 116,205
Less: Allowance for loan losses............................. (1,141) (305) (1,446)
-------- ------- ---------- --------
Net loans.......................................... 85,428 29,331 -- 114,759
-------- ------- ---------- --------
Premises and equipment, net................................. 11,073 569 11,642
Intangibles, net............................................ 410 -- 410
Other assets................................................ 4,196 1,333 5,529
-------- ------- ---------- --------
Total assets....................................... $153,130 $36,178 $ 595 $189,903
======== ======= ========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing....................................... $ 19,413 $ 3,453 $ 22,866
Interest-bearing.......................................... 103,967 29,133 133,100
-------- ------- ---------- --------
Total deposits..................................... 123,380 32,586 -- 155,966
Federal funds purchased and other borrowed funds............ 2,105 -- 2,105
Accrued expenses and other liabilities...................... 1,551 437 1,988
-------- ------- ---------- --------
Total liabilities.................................. 127,036 33,023 -- 160,059
Minority interest in equity of subsidiary................... 19 -- 19
Stockholders' Equity
Common stock.............................................. 6 75 5(a) 7
1(b)
(80)(b)
Surplus................................................... 18,878 1,914 590(a) 21,461
2,133(b)
(2,054)(b)
Retained earnings........................................... 7,219 1,161 8,380
Accumulated other comprehensive income (loss)............... (28) 5 (23)
-------- ------- ---------- --------
Total stockholders' equity......................... 26,075 3,155 595 29,825
-------- ------- ---------- --------
Total liabilities and stockholders' equity......... $153,130 $36,178 $ 595 $189,903
======== ======= ========== ========
</TABLE>
- ---------------
(a) To record the exercise of 57,000 stock options by officers of The Banc
Corporation and its subsidiary and 5,000 stock options by an officer of
First Citizens prior to merger.
(b) To record the exchange of 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.
135
<PAGE> 156
<TABLE>
<CAPTION>
FIRST
CITIZENS
BANCORP
---------
<S> <C>
Outstanding shares of acquired corporation.................. 80,000
Conversion ratio............................................ 8.2905375
---------
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...... 2,134
---------
Excess recorded as an increase in contributed capital..... 2,133
---------
To eliminate acquired corporations capital stock
Common stock at par value................................. (80)
Surplus................................................... (2,054)
Treasury stock............................................ --
---------
(2,134)
---------
Net change in equity............................... $ --
=========
</TABLE>
136
<PAGE> 157
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 and subsidiaries on a historical basis for the
three months ended March 31, 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 three months ended March 31, 1998 and 1997 and the years
ended December 31, 1997, 1996 and 1995, (iii) adjustments to give affect to the
proposed pooling of interest method business combination with First Citizens,
(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 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 MARCH 31, 1998
-------------------------------------------------
HISTORICAL
----------------------
THE FIRST
BANC CITIZENS PRO FORMA PRO FORMA
CORPORATION BANCORP ADJUSTMENTS COMBINED
----------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest Income............................................. $ 2,692 $ 829 $ $ 3,521
Interest expense............................................ 1,212 331 1,543
---------- ------- -------- ----------
Net interest income................................ 1,480 498 -- 1,978
Provision for loan losses................................... 112 39 151
---------- ------- -------- ----------
Net interest income after provision for loan losses....... 1,368 459 -- 1,827
Noninterest income.......................................... 269 121 390
Noninterest expenses........................................ 1,317 349 1,666
---------- ------- -------- ----------
Income before income taxes......................... 320 231 -- 551
Income tax expense.......................................... 25 87 112
---------- ------- -------- ----------
Net income......................................... 295 144 -- 439
Other comprehensive income, net of tax:
Unrealized gain on securities available for sale.......... 4 -- 4
---------- ------- -------- ----------
Comprehensive income........................................ $ 299 $ 144 $ -- $ 443
========== ======= ======== ==========
Basic earnings per share.................................... $ 0.04 $ 1.92 $ 0.06
========== ======= ==========
Average number of shares outstanding........................ 6,660,293 75,000 7,323,536
========== ======= ==========
</TABLE>
137
<PAGE> 158
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED MARCH 31, 1997
-------------------------------------------------
HISTORICAL
----------------------
THE FIRST
BANC CITIZENS PRO FORMA PRO FORMA
CORPORATION BANCORP ADJUSTMENTS COMBINED
----------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest Income............................................. $ 1,772 $ 679 $ $ 2,451
Interest expense............................................ 774 279 1,053
---------- ------- ------- ----------
Net interest income................................ 998 400 -- 1,398
Provision for loan losses................................... 118 15 133
---------- ------- ------- ----------
Net interest income after provision for loan losses....... 880 385 -- 1,265
Noninterest income.......................................... 132 110 242
Noninterest expenses........................................ 844 307 1,151
---------- ------- ------- ----------
Income before income taxes......................... 168 188 -- 356
Income tax expense.......................................... 28 70 98
---------- ------- ------- ----------
Net income......................................... 140 118 -- 258
Other comprehensive loss, net of tax:
Unrealized loss on securities available for sale.......... (27) (6) (33)
---------- ------- ------- ----------
Comprehensive income........................................ $ 113 $ 112 $ -- $ 225
========== ======= ======= ==========
Basic earnings per share.................................... $ 0.04 $ 1.57 $ 0.06
========== ======= ==========
Average number of shares outstanding........................ 3,980,993 75,000 4,644,236
========== ======= ==========
</TABLE>
138
<PAGE> 159
<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............................................. $ 8,514 $ 2,957 $ $ 11,471
Interest expense............................................ 3,799 1,215 5,014
---------- ------- ------- ----------
Net interest income................................ 4,715 1,742 -- 6,457
Provision for loan losses................................... 663 218 881
---------- ------- ------- ----------
Net interest income after provision for loan losses....... 4,052 1,524 -- 5,576
Noninterest income.......................................... 590 415 1,005
Noninterest expenses........................................ 4,045 1,303 5,348
---------- ------- ------- ----------
Income before income taxes......................... 597 636 -- 1,233
Income tax expense.......................................... 192 213 405
---------- ------- ------- ----------
Net income......................................... 405 423 -- 828
Other comprehensive income, net of tax:
Unrealized gain on securities available for sale.......... 12 12 24
---------- ------- ------- ----------
Comprehensive income........................................ $ 417 $ 435 $ -- $ 852
========== ======= ======= ==========
Basic earnings per share.................................... $ 0.09 $ 5.64 $ 0.17
========== ======= ==========
Average number of shares outstanding........................ 4,290,593 75,000 4,953,836
========== ======= ==========
</TABLE>
139
<PAGE> 160
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
----------------------------------------------------
HISTORICAL
-------------------------
THE FIRST
BANC CITIZENS PRO FORMA PRO FORMA
CORPORATION(A) BANCORP ADJUSTMENTS COMBINED
-------------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest Income............................................. $ 5,433 $ 2,437 $ $ 7,870
Interest expense............................................ 2,386 1,008 3,394
---------- ------- ------- ----------
Net interest income................................ 3,047 1,429 -- 4,476
Provision for loan losses................................... 205 43 248
---------- ------- ------- ----------
Net interest income after provision for loan losses....... 2,842 1,386 -- 4,228
Noninterest income.......................................... 473 430 903
Noninterest expenses........................................ 2,501 1,232 3,733
---------- ------- ------- ----------
Income before income taxes......................... 814 584 -- 1,398
Income tax expense.......................................... 157 184 341
---------- ------- ------- ----------
Net income......................................... 657 400 -- 1,057
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities available for sale... 7 (15) (8)
---------- ------- ------- ----------
Comprehensive income........................................ $ 664 $ 385 $ -- $ 1,049
========== ======= ======= ==========
Basic earnings per share.................................... $ 0.15 $ 5.33 $ 0.21
========== ======= ==========
Average number of shares outstanding........................ 4,290,593 75,000 4,953,836
========== ======= ==========
</TABLE>
- ---------------
(a) The consolidated financial data for The Banc Corporation includes the
operations of its subsidiaries, The Emerald Coast Bank for the period August
30, 1996 (date of inception) to December 31, 1996, and The Bank for the year
ended December 31, 1996.
140
<PAGE> 161
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
----------------------------------------------------
HISTORICAL
-------------------------
THE FIRST
BANC CITIZENS PRO FORMA PRO FORMA
CORPORATION(A) 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
Other comprehensive income, net of tax:
Unrealized gain on securities available for sale.......... 63 117 180
---------- ------- -------- ----------
Comprehensive income........................................ $ 961 $ 311 $ -- $ 1,272
========== ======= ======== ==========
Basic earnings per share.................................... $ 0.33 $ 2.59 $ 0.32
========== ======= ==========
Average number of shares outstanding........................ 2,716,200 75,000 3,379,443
========== ======= ==========
</TABLE>
- ---------------
(a) The statement of income for The Banc Corporation reflects the operations of
Warrior Capital Corporation and its subsidiary, The Bank. The Emerald Coast
Bank was not formed until August, 1996.
141
<PAGE> 162
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 as of March 31, 1998, (ii) the
condensed consolidated statement of financial condition of City National
Corporation ("City National") as of March 31, 1998, (iii) the condensed
consolidated statement of financial condition of Commercial Bancshares of
Roanoke ("Commercial") as of March 31, 1998, (iv) adjustments to give affect to
the proposed purchase method combination with Commercial and the proposed
pooling of interest 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 March 31,
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 Commercial. The pro forma
information provided below may not be indicative of future results.
<TABLE>
<CAPTION>
AS OF MARCH 31, 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>
ASSETS
Cash and due from banks........................... $ 12,328 $ 2,238 $ 1,429 $ 450(a) $ 9,145
(7,300)(c)
Interest bearing deposits in other banks.......... -- 200 200 400
Federal funds sold................................ 3,000 1,810 6,750 11,560
Investment securities available for sale.......... 7,775 35,929 2,298 46,002
Investment securities held to maturity............ 28,920 -- 15,757 44,677
Loans, net of unearned............................ 86,569 39,442 15,678 141,689
Less: Allowance for loan losses................... (1,141) (497) (326) (1,964)
-------- ------- ------- ------- ---------
Net loans................................ 85,428 38,945 15,352 -- 139,725
-------- ------- ------- ------- ---------
Premises and equipment, net....................... 11,073 2,642 295 1,039(c) 15,049
Intangibles, net.................................. 410 -- -- 410
Other assets...................................... 4,196 1,575 686 6,457
-------- ------- ------- ------- ---------
Total assets............................. $153,130 $83,339 $42,767 $(5,811) $ 273,425
======== ======= ======= ======= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing............................. $ 19,413 $11,076 $ 6,868 $ $ 37,357
Interest-bearing................................ 103,967 59,143 29,344 192,454
-------- ------- ------- ------- ---------
Total deposits........................... 123,380 70,219 36,212 -- 229,811
Federal funds purchased and other borrowed
funds........................................... 2,105 -- -- 2,105
Accrued expenses and other liabilities............ 1,551 1,169 294 3,014
-------- ------- ------- ------- ---------
Total liabilities........................ 127,036 71,388 36,506 -- 234,930
Minority interest in equity of subsidiary......... 19 138 -- 157
Stockholders' Equity
Common stock.................................... 6 27 20 2(b) 8
(27)(b)
(20)(c)
Surplus......................................... 18,878 4,135 3,527 450(a) 23,435
4,107(b)
(4,135)(b)
(3,527)(c)
Retained earnings............................... 7,219 7,482 2,696 (2,696)(c) 14,701
Accumulated other comprehensive income (loss)... (28) 222 18 (18)(c) 194
Treasury stock, at cost......................... -- (53) -- 53(b) --
-------- ------- ------- ------- ---------
Total stockholders' equity............... 26,075 11,813 6,261 (5,811) 38,338
-------- ------- ------- ------- ---------
Total liabilities and stockholders'
equity................................. $153,130 $83,339 $42,767 $(5,811) $ 273,425
======== ======= ======= ======= =========
</TABLE>
- ---------------
(a) To record the exercise of 57,000 stock options by officers of The Banc
Corporation and its subsidiary before merger.
142
<PAGE> 163
(b) To record the exchange of 1,842,864 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>
CITY
NATIONAL
CORPORATION
-----------
<S> <C>
Outstanding shares of acquired corporation.................. 26,832
Conversion ratio............................................ 68.681574
---------
The Banc Corporation shares to be issued.................... 1,842,864
Par value of shares to be issued at $.001 per share......... $ 2
Total common stock and surplus of acquired corporation...... 4,109
---------
Excess recorded as an increase in contributed capital..... 4,107
---------
To eliminate acquired corporations capital stock
Common stock at par value................................. (27)
Surplus................................................... (4,135)
Treasury stock............................................ 53
---------
(4,109)
---------
Net change in equity............................... $ --
=========
</TABLE>
(c) Purchase of 100% of the outstanding common stock of The Commercial
Bancshares of Roanoke for $7.3 million. 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.
143
<PAGE> 164
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 and subsidiaries on a historical basis for the
three months ended March 31, 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 three months ended March 31, 1998 and 1997 and the years
ended December 31, 1997, 1996 and 1995, (iii) the condensed consolidated
statements of income of Commercial for the three months ended March 31, 1998 and
the year ended December 31, 1997, (iv) adjustments to give affect to the
proposed purchase method combination with Commercial and the proposed pooling of
interest 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 three months ended March 31, 1998 and the year ended December 31, 1997 are
included in (iii) above for Commercial.
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 Commercial. The pro forma information may
not necessarily be indicative of future results. Proforma 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 YEAR ENDED MARCH 31, 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.................................. $ 2,692 $ 1,648 $ 745 $(122)(a) $ 4,963
Interest expense................................. 1,212 682 331 2,225
---------- ------- -------- ----- ----------
Net interest income..................... 1,480 966 414 (122) 2,738
Provision for loan losses........................ 112 133 35 280
---------- ------- -------- ----- ----------
Net interest income after provision for loan
losses....................................... 1,368 833 379 (122) 2,458
Noninterest income............................... 269 190 250 709
Noninterest expenses............................. 1,317 839 491 9(a) 2,656
---------- ------- -------- ----- ----------
Income before income taxes.............. 320 184 138 (131) 511
Income tax expense (benefit)..................... 25 79 18 (48)(a) 74
---------- ------- -------- ----- ----------
Net income (loss)....................... 295 105 120 (83) 437
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities available
for sale..................................... 4 (13) 1 (8)
---------- ------- -------- ----- ----------
Comprehensive income............................. $ 299 $ 92 $ 121 $ (83) $ 429
========== ======= ======== ===== ==========
Basic earnings per share......................... $ 0.04 $ 3.90 $ 0.60 $ 0.05
========== ======= ======== ==========
Average number of shares outstanding............. 6,660,293 26,922 200,000 8,505,625
========== ======= ======== ==========
- ---------------
(a) To reflect the reduction of interest earning assets of $7,300,000 from
the cash purchase of Commercial Bancshares of Roanoke at 6.7%........... $ (122)
Depreciation on allocation of purchase price to premises and equipment
(30 year period)........................................................ (9)
--------
Decrease in income before tax benefit................................... $ (131)
========
Income tax benefit at 37%............................................... $ (48)
========
</TABLE>
144
<PAGE> 165
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED MARCH 31, 1997
----------------------------------------------------
HISTORICAL
-------------------------
THE CITY
BANC NATIONAL PRO FORMA PRO FORMA
CORPORATION CORPORATION ADJUSTMENTS COMBINED
----------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest Income............................................. $ 1,772 $ 1,671 $ $ 3,443
Interest expense............................................ 774 726 1,500
---------- ------- -------- ----------
Net interest income................................ 998 945 -- 1,943
Provision for loan losses................................... 118 183 301
---------- ------- -------- ----------
Net interest income after provision for loan losses....... 880 762 -- 1,642
Noninterest income.......................................... 132 152 284
Noninterest expenses........................................ 844 853 1,697
---------- ------- -------- ----------
Income before income taxes......................... 168 61 -- 229
Income tax expense.......................................... 28 27 55
---------- ------- -------- ----------
Net income......................................... 140 34 -- 174
Other comprehensive loss, net of tax:
Unrealized loss on securities available for sale.......... (27) (473) (500)
---------- ------- -------- ----------
Comprehensive income (loss)................................. $ 113 $ (439) $ -- $ (326)
========== ======= ======== ==========
Basic earnings per share.................................... $ 0.04 $ 1.26 $ 0.03
========== ======= ==========
Average number of shares outstanding........................ 3,980,993 26,999 5,831,602
========== ======= ==========
</TABLE>
<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.................................. $ 8,514 $ 6,721 $ 3,114 $(488)(a) $ 17,861
Interest expense................................. 3,799 2,911 1,307 8,017
---------- ------- -------- ----- ----------
Net interest income..................... 4,715 3,810 1,807 (488) 9,844
Provision for loan losses........................ 663 384 401 1,448
---------- ------- -------- ----- ----------
Net interest income after provision for loan
losses....................................... 4,052 3,426 1,406 (488) 8,396
Noninterest income............................... 590 737 980 2,307
Noninterest expenses............................. 4,045 3,367 2,010 36(a) 9,458
---------- ------- -------- ----- ----------
Income before income taxes.............. 597 796 376 (524) 1,245
Income tax expense (benefit)..................... 192 170 68 (194)(a) 236
---------- ------- -------- ----- ----------
Net income (loss)....................... 405 626 308 (330) 1,009
Other comprehensive income, net of tax:
Unrealized gain on securities available for
sale......................................... 12 198 8 218
---------- ------- -------- ----- ----------
Comprehensive income (loss)...................... $ 417 $ 824 $ 316 $(330) $ 1,227
========== ======= ======== ===== ==========
Basic earnings per share......................... $ 0.09 $ 23.26 $ 1.54 $ 0.16
========== ======= ======== ==========
Average number of shares outstanding............. 4,290,593 26,910 200,000 6,135,102
========== ======= ======== ==========
</TABLE>
- ---------------
<TABLE>
<S> <C> <C> <C> <C> <C>
(a) To reflect the reduction of interest earning assets of $7,300,000 from
the cash purchase of Commercial Bancshares of Roanoke at 6.7%........... $ (488)
Depreciation on allocation of purchase price to premises and equipment
(30 year period)........................................................ (36)
--------
Decrease in income before tax benefit................................... $ (524)
========
Income tax benefit at 37%............................................... $ (194)
========
</TABLE>
145
<PAGE> 166
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------
HISTORICAL
-----------------------------
THE CITY
BANC NATIONAL PRO FORMA PRO FORMA
CORPORATION (A) CORPORATION ADJUSTMENTS COMBINED
--------------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest Income........................................... $ 5,433 $ 6,027 $ $ 11,460
Interest expense.......................................... 2,386 2,460 4,846
---------- ------- ------- ----------
Net interest income.............................. 3,047 3,567 -- 6,614
Provision for loan losses................................. 205 346 551
---------- ------- ------- ----------
Net interest income after provision for loan losses..... 2,842 3,221 -- 6,063
Noninterest income........................................ 473 683 1,156
Noninterest expenses...................................... 2,501 3,211 5,712
---------- ------- ------- ----------
Income before income taxes....................... 814 693 -- 1,507
Income tax expense........................................ 157 133 290
---------- ------- ------- ----------
Net income....................................... 657 560 -- 1,217
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities available for
sale.................................................. 7 (267) (260)
---------- ------- ------- ----------
Comprehensive income...................................... $ 664 $ 293 $ -- $ 957
========== ======= ======= ==========
Basic earnings per share.................................. $ 0.15 $ 20.69 $ 0.20
========== ======= ==========
Average number of shares outstanding...................... 4,290,593 27,063 6,145,589
========== ======= ==========
</TABLE>
- ---------------
(a) The consolidated financial data for The Banc Corporation includes the
operations of its subsidiaries, The Emerald Coast Bank for the period August
30, 1996 (date of inception) to December 31, 1996, and The Bank for the year
ended December 31, 1996.
146
<PAGE> 167
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
-------------------------------------------------------
HISTORICAL
----------------------------
THE CITY
BANC NATIONAL PRO FORMA PRO FORMA
CORPORATION(A) 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
Other comprehensive income, net of tax:
Unrealized gain on securities available for sale........ 63 1,486 1,549
---------- ------- ------- ----------
Comprehensive income...................................... $ 961 $ 2,211 $ -- $ 3,172
========== ======= ======= ==========
Basic earnings per share.................................. $ 0.33 $ 26.70 $ 0.35
========== ======= ==========
Average number of shares outstanding...................... 2,716,200 27,149 4,577,091
========== ======= ==========
</TABLE>
- ---------------
(a) The statement of income for The Banc Corporation reflects the operations of
Warrior Capital Corporation and its subsidiary, The Bank. The Emerald Coast
Bank was not formed until August, 1996.
147
<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 as of March 31, 1998, (ii) the
condensed consolidated statement of financial condition of City National
Corporation ("City National") as of March 31, 1998, (iii) adjustments to give
affect to the proposed pooling of interest 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
March 31, 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 MARCH 31, 1998
-----------------------------------------------------
HISTORICAL
-------------------------
THE CITY
BANC NATIONAL PRO FORMA PRO FORMA
CORPORATION CORPORATION ADJUSTMENTS COMBINED
----------- ----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks.................................... $ 12,328 $ 2,238 $ 450(a) $ 15,016
Interest bearing deposits in other banks................... -- 200 200
Federal funds sold......................................... 3,000 1,810 4,810
Investment securities available for sale................... 7,775 35,929 43,704
Investment securities held to maturity..................... 28,920 0 28,920
Loans, net of unearned..................................... 86,569 39,442 126,011
Less: Allowance for loan losses............................ (1,141) (497) (1,638)
-------- ------- ------- --------
Net loans......................................... 85,428 38,945 -- 124,373
-------- ------- ------- --------
Premises and equipment, net................................ 11,073 2,642 13,715
Intangibles, net........................................... 410 -- 410
Other assets............................................... 4,196 1,575 5,771
-------- ------- ------- --------
Total assets...................................... $153,130 $83,339 $ 450 $236,919
======== ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing...................................... $ 19,413 $11,076 $ $ 30,489
Interest-bearing......................................... 103,967 59,143 163,110
-------- ------- ------- --------
Total deposits.................................... 123,380 70,219 -- 193,599
Federal funds purchased and other borrowed funds........... 2,105 -- 2,105
Accrued expenses and other liabilities..................... 1,551 1,169 2,720
-------- ------- ------- --------
Total liabilities................................. 127,036 71,388 -- 198,424
Minority interest in equity of subsidiary.................. 19 138 157
Stockholders' Equity
Common stock............................................. 6 27 2(b) 8
(27)
Surplus.................................................. 18,878 4,135 450(a) 23,435
4,107(b)
(4,135)(b)
Retained earnings.......................................... 7,219 7,482 14,701
Accumulated other comprehensive income (loss).............. (28) 222 194
Treasury stock, at cost.................................... -- (53) 53(b) --
-------- ------- ------- --------
Total stockholders' equity........................ 26,075 11,813 450 38,338
-------- ------- ------- --------
Total liabilities and stockholders' equity........ $153,130 $83,339 $ 450 $236,919
======== ======= ======= ========
</TABLE>
- ---------------
(a) To record the exercise of 57,000 stock options by officers of The Banc
Corporation and its subsidiary before merger.
148
<PAGE> 169
(b) To record the exchange of 1,842,864 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>
CITY
NATIONAL
CORPORATION
-----------
<S> <C>
Outstanding shares of acquired corporation.................. 26,832
Conversion ratio............................................ 68.681574
----------
The Banc Corporation shares to be issued.................... 1,842,864
Par value of shares to be issued at $.001 per share......... $ 2
Total common stock and surplus of acquired corporation...... 4,109
----------
Excess recorded as an increase in contributed capital..... 4,107
----------
To eliminate acquired corporations capital stock
Common stock at par value................................. (27)
Surplus................................................... (4,135)
Treasury stock............................................ 53
----------
(4,109)
----------
Net change in equity............................... $ --
==========
</TABLE>
149
<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 and subsidiaries on a historical basis for the
three months ended March 31, 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 three months ended March 31, 1998 and 1997 and the years
ended December 31, 1997, 1996 and 1995, (iii) adjustments to give affect to the
proposed pooling of interest method business combination with City National,
(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 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 MARCH 31, 1998
----------------------------------------------------
HISTORICAL
-------------------------
THE CITY
BANC NATIONAL PRO FORMA PRO FORMA
CORPORATION CORPORATION ADJUSTMENTS COMBINED
----------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest Income............................................ $ 2,692 $ 1,648 $ 4,340
Interest expense........................................... 1,212 682 1,894
---------- ------- ---------- ----------
Net interest income............................... 1,480 966 -- 2,446
Provision for loan losses.................................. 112 133 245
---------- ------- ---------- ----------
Net interest income after provision for loan losses...... 1,368 833 -- 2,201
Noninterest income......................................... 269 190 459
Noninterest expenses....................................... 1,317 839 2,156
---------- ------- ---------- ----------
Income before income taxes........................ 320 184 -- 504
Income tax expense......................................... 25 79 104
---------- ------- ---------- ----------
Net income........................................ 295 105 -- 400
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities available for
sale................................................... 4 (13) (9)
---------- ------- ---------- ----------
Comprehensive income....................................... $ 299 $ 92 $ -- $ 391
========== ======= ========== ==========
Basic earnings per share................................... $ 0.04 $ 3.90 $ 0.05
========== ======= ==========
Average number of shares outstanding....................... 6,660,293 26,922 8,505,625
========== ======= ==========
</TABLE>
150
<PAGE> 171
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED MARCH 31, 1997
----------------------------------------------------
HISTORICAL
-------------------------
THE CITY
BANC NATIONAL PRO FORMA PRO FORMA
CORPORATION CORPORATION ADJUSTMENTS COMBINED
----------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest Income............................................. $ 1,772 $ 1,671 $ 3,443
Interest expense............................................ 774 726 1,500
---------- ------- ------- ----------
Net interest income................................ 998 945 -- 1,943
Provision for loan losses................................... 118 183 301
---------- ------- ------- ----------
Net interest income after provision for loan losses....... 880 762 -- 1,642
Noninterest income.......................................... 132 152 284
Noninterest expenses........................................ 844 853 1,697
---------- ------- ------- ----------
Income before income taxes......................... 168 61 -- 229
Income tax expense.......................................... 28 27 55
---------- ------- ------- ----------
Net income......................................... 140 34 -- 174
Other comprehensive loss, net of tax:
Unrealized loss on securities available for sale.......... (27) (473) (500)
---------- ------- ------- ----------
Comprehensive income (loss)................................. $ 113 $ (439) $ -- $ (326)
========== ======= ======= ==========
Basic earnings per share.................................... $ 0.04 $ 1.26 $ 0.03
========== ======= ==========
Average number of shares outstanding........................ 3,980,993 26,999 5,831,602
========== ======= ==========
</TABLE>
151
<PAGE> 172
<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............................................. $ 8,514 $ 6,721 $ 15,235
Interest expense............................................ 3,799 2,911 6,710
---------- ------- ------- ----------
Net interest income................................ 4,715 3,810 -- 8,525
Provision for loan losses................................... 663 384 1,047
---------- ------- ------- ----------
Net interest income after provision for loan losses....... 4,052 3,426 -- 7,478
Noninterest income.......................................... 590 737 1,327
Noninterest expenses........................................ 4,045 3,367 7,412
---------- ------- ------- ----------
Income before income taxes......................... 597 796 -- 1,393
Income tax expense.......................................... 192 170 362
---------- ------- ------- ----------
Net income......................................... 405 626 -- 1,031
Other comprehensive income, net of tax:
Unrealized gain on securities available for sale.......... 12 198 210
---------- ------- ------- ----------
Comprehensive income........................................ $ 417 $ 824 $ -- $ 1,241
========== ======= ======= ==========
Basic earnings per share.................................... $ 0.09 $ 23.26 $ 0.17
========== ======= ==========
Average number of shares outstanding........................ 4,290,593 26,910 6,135,102
========== ======= ==========
</TABLE>
152
<PAGE> 173
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------
HISTORICAL
----------------------------
THE CITY
BANC NATIONAL PRO FORMA PRO FORMA
CORPORATION(A) CORPORATION ADJUSTMENTS COMBINED
-------------- ----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest Income............................................ $ 5,433 $ 6,027 $ $ 11,460
Interest expense........................................... 2,386 2,460 4,846
--------- ------- ------- ---------
Net interest income............................... 3,047 3,567 -- 6,614
Provision for loan losses.................................. 205 346 551
--------- ------- ------- ---------
Net interest income after provision for loan losses...... 2,842 3,221 -- 6,063
Noninterest income......................................... 473 683 1,156
Noninterest expenses....................................... 2,501 3,211 5,712
--------- ------- ------- ---------
Income before income taxes........................ 814 693 -- 1,507
Income tax expense......................................... 157 133 290
--------- ------- ------- ---------
Net income........................................ 657 560 -- 1,217
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities available for
sale................................................... 7 (267) (260)
--------- ------- ------- ---------
Comprehensive income....................................... $ 664 $ 293 $ -- $ 957
========= ======= ======= =========
Basic earnings per share................................... $ 0.15 $ 20.69 $ 0.20
========= ======= =========
Average number of shares outstanding....................... 4,290,593 27,063 6,145,589
========= ======= =========
</TABLE>
- ---------------
(a) The consolidated financial data for The Banc Corporation includes the
operations of its subsidiaries, The Emerald Coast Bank for the period August
30, 1996 (date of inception) to December 31, 1996, and The Bank for the year
ended December 31, 1996.
153
<PAGE> 174
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
-------------------------------------------------------
HISTORICAL
----------------------------
THE CITY
BANC NATIONAL PRO FORMA PRO FORMA
CORPORATION(A) 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
Other comprehensive income, net of tax:
Unrealized gain on securities available for sale........ 63 1,486 1,549
---------- ------- ------- ----------
Comprehensive income...................................... $ 961 $ 2,211 $ -- $ 3,172
========== ======= ======= ==========
Basic earnings per share.................................. $ 0.33 $ 26.70 $ 0.35
========== ======= ==========
Average number of shares outstanding...................... 2,716,200 27,149 4,577,091
========== ======= ==========
</TABLE>
- ---------------
(a) The statement of income for The Banc Corporation reflects the operations of
Warrior Capital Corporation and its subsidiary, The Bank. The Emerald Coast
Bank was not formed until August, 1996.
154
<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 as of March 31, 1998, (ii) the
condensed consolidated statement of financial condition of Commercial Bancshares
of Roanoke ("Commercial") as of March 31, 1998, (iii) adjustments to give affect
to the proposed purchase method combination with Commercial (iv) the pro forma
combined condensed statement of financial condition of The Banc Corporation and
subsidiaries as if such combinations had occurred on March 31, 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 Commercial. The pro forma information
provided below may not be indicative of future results.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
----------------------------------------------------
HISTORICAL
------------------------
THE COMMERCIAL
BANC BANCSHARES PRO FORMA PRO FORMA
CORPORATION OF ROANOKE ADJUSTMENTS COMBINED
----------- ---------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks................................... $ 12,328 $ 1,429 $ 450(a) $ 6,907
(7,300)(b)
Interest bearing deposits in other banks.................. -- 200 200
Federal funds sold........................................ 3,000 6,750 9,750
Investment securities available for sale.................. 7,775 2,298 10,073
Investment securities held to maturity.................... 28,920 15,757 44,677
Loans, net of unearned.................................... 86,569 15,678 102,247
Less: Allowance for loan losses........................... (1,141) (326) (1,467)
---------- ------- ------- --------
Net loans........................................ 85,428 15,352 -- 100,780
---------- ------- ------- --------
Premises and equipment, net............................... 11,073 295 1,039(b) 12,407
Intangibles, net.......................................... 410 -- 410
Other assets.............................................. 4,196 686 4,882
---------- ------- ------- --------
Total assets..................................... $ 153,130 $42,767 $(5,811) $190,086
========== ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing..................................... $ 19,413 $ 6,868 $ $ 26,281
Interest-bearing........................................ 103,967 29,344 133,311
---------- ------- ------- --------
Total deposits................................... 123,380 36,212 -- 159,592
Federal funds purchased and other borrowed funds.......... 2,105 -- 2,105
Accrued expenses and other liabilities.................... 1,551 294 1,845
---------- ------- ------- --------
Total liabilities................................ 127,036 36,506 -- 163,542
Minority interest in equity of subsidiary................. 19 -- 19
Stockholders' Equity
Common stock............................................ 6 20 (20)(b) 6
Surplus................................................. 18,878 3,527 450(a) 19,328
(3,527)(b)
Retained earnings....................................... 7,219 2,696 (2,696)(b) 7,219
Accumulated other comprehensive income (loss)........... (28) 18 (18)(b) (28)
---------- ------- ------- --------
Total stockholders' equity....................... 26,075 6,261 (5,811) 26,525
---------- ------- ------- --------
Total liabilities and stockholders' equity....... $ 153,130 $42,767 $(5,811) $190,086
========== ======= ======= ========
</TABLE>
- ---------------
(a) To record the exercise of 57,000 stock options by officers of The Banc
Corporation and its subsidiary before merger.
(b) Purchase of 100% of the outstanding common stock of The Commercial
Bancshares of Roanoke for $7.3 million. 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.
155
<PAGE> 176
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 and subsidiaries on a historical basis for the
three months ended March 31, 1998 and the year ended December 31, 1997 (ii) the
condensed consolidated statements of income of Commercial for the three months
ended March 31, 1998 and the year ended December 31, 1997, (iii) adjustments to
give affect to the proposed purchase method combination with Commercial
Bancshares, (iv) the pro forma combined condensed consolidated statements of
income of The Banc Corporation as if such combinations 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. Accordingly, only the condensed
consolidated statements of income for the three months ended March 31, 1998 and
the year ended December 31, 1997 are included in (ii) above for Commercial.
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 Commercial. 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 MARCH 31, 1998
----------------------------------------------------
HISTORICAL
------------------------
THE COMMERCIAL
BANC BANCSHARES PRO FORMA PRO FORMA
CORPORATION OF ROANOKE ADJUSTMENTS COMBINED
----------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest Income........................................... $ 2,692 $ 745 $(122)(a) $ 3,315
Interest expense.......................................... 1,212 331 1,543
---------- -------- ----- ----------
Net interest income.............................. 1,480 414 (122) 1,772
Provision for loan losses................................. 112 35 147
---------- -------- ----- ----------
Net interest income after provision for loan losses..... 1,368 379 (122) 1,625
Noninterest income........................................ 269 250 519
Noninterest expenses...................................... 1,317 491 9(a) 1,817
---------- -------- ----- ----------
Income before income taxes....................... 320 138 (131) 327
Income tax expense (benefit).............................. 25 18 (48)(a) (5)
---------- -------- ----- ----------
Net income (loss)................................ 295 120 (83) 332
Other comprehensive income, net of tax:
Unrealized gain on securities available for sale........ 4 1 5
---------- -------- ----- ----------
Comprehensive income (loss)............................... $ 299 $ 121 $ (83) $ 337
========== ======== ===== ==========
Basic earnings per share.................................. $ 0.04 $ 0.60 $ 0.05
========== ======== ==========
Average number of shares outstanding...................... 6,660,293 200,000 6,660,293
========== ======== ==========
- ---------------
(a) To reflect the reduction of interest earning assets of $7,300,000 from the cash
purchase of Commercial Bancshares of Roanoke at 6.7%............................ $(122)
Depreciation on allocation of purchase price to premises and equipment (30 year
period)......................................................................... (9)
-----
Decrease in income before tax benefit........................................... $(131)
=====
Income tax benefit at 37%....................................................... $ (48)
=====
</TABLE>
156
<PAGE> 177
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------
HISTORICAL
-------------------------
THE COMMERCIAL
BANC BANCHSARES PRO FORMA PRO FORMA
CORPORATION OF ROANOKE ADJUSTMENTS COMBINED
----------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest Income........................................ $ 8,514 $ 3,114 $(488)(a) $ 11,140
Interest expense....................................... 3,799 1,307 5,106
---------- -------- ----- ----------
Net interest income........................... 4,715 1,807 (488) 6,034
Provision for loan losses.............................. 663 401 1,064
---------- -------- ----- ----------
Net interest income after provision for loan
losses............................................. 4,052 1,406 (488) 4,970
Noninterest income..................................... 590 980 1,570
Noninterest expenses................................... 4,045 2,010 36(a) 6,091
---------- -------- ----- ----------
Income before income taxes.................... 597 376 (524) 449
Income tax expense (benefit)........................... 192 68 (194)(a) 66
---------- -------- ----- ----------
Net income (loss)............................. 405 308 (330) 383
Other comprehensive income, net of tax:
Unrealized gain on securities available for sale..... 12 8 -- 20
---------- -------- ----- ----------
Comprehensive income (loss)............................ $ 417 $ 316 $(330) $ 403
========== ======== ===== ==========
Basic earnings per share............................... $ 0.09 $ 1.54 $ 0.09
========== ======== ==========
Average number of shares outstanding................... 4,290,593 200,000 4,290,593
========== ======== ==========
</TABLE>
- ---------------
<TABLE>
<S> <C> <C> <C> <C>
(a) To reflect the reduction of interest earning assets of $7,300,000 from the cash
purchase of Commercial Bancshares of Roanoke at 6.7%........................... $(488)
Depreciation on allocation of purchase price to premises and equipment (30 year
period)........................................................................ (36)
-----
Decrease in income before tax benefit.......................................... $(524)
=====
Income tax benefit at 37%...................................................... $(194)
=====
</TABLE>
157
<PAGE> 178
SELECTED CONSOLIDATED FINANCIAL DATA - CORPORATION
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
WARRIOR CAPITAL CORPORATION
THREE MONTHS YEAR ENDED ONLY(B) YEAR ENDED
ENDED MARCH 31, DECEMBER 31, 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.......................... $153,130 $99,890 $138,843 $87,856 $65,792 $59,831 $57,501
Total loans........................... 86,569 53,960 70,219 43,075 33,391 31,053 29,337
Investment securities................. 36,695 26,746 32,547 25,183 18,539 18,322 17,339
Deposits.............................. 123,380 85,961 106,508 74,131 58,849 53,623 51,898
Stockholders' equity.................. 26,075 13,379 23,406 13,419 6,929 6,194 5,591
Selected Statement of Income Data:
Interest income....................... 2,692 1,772 8,514 5,433 4,859 4,253 4,215
Interest expense...................... 1,212 774 3,799 2,386 2,056 1,655 1,683
-------- ------- -------- ------- ------- ------- -------
Net interest income................. 1,480 998 4,715 3,047 2,803 2,598 2,532
Provision for loan losses............. 112 118 663 205 120 70 200
Noninterest income.................... 269 132 590 473 553 596 543
Noninterest expense................... 1,317 844 4,045 2,501 1,871 1,920 1,836
-------- ------- -------- ------- ------- ------- -------
Income before tax..................... 320 168 597 814 1,365 1,204 1,039
Income tax expense.................... 25 28 192 157 467 361 239
-------- ------- -------- ------- ------- ------- -------
Net income.......................... $ 295 $ 140 $ 405 $ 657 $ 898 $ 843 $ 800
======== ======= ======== ======= ======= ======= =======
Per Share Data:
Net income -- basic................... $ 0.04 $ 0.04 $ 0.09 $ 0.15 $ 99.21 $ 93.05 $ 78.52
Dividends............................. -- 15.00 26.00 23.50 25.00 22.00 --
</TABLE>
- ---------------
(a) All dividends per share are historical amounts of Warrior which merged into
the Corporation during 1998.
(b) Emerald was not formed until April 1997, when it acquired its wholly-owned
subsidiary Emerald Bank, which began operations on August 30, 1996.
158
<PAGE> 179
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 subsidiaries of the Corporation include The Bank,
a bank organized and existing under the laws of Alabama and headquartered in
Birmingham, Alabama and Emerald Coast Bank ("Emerald Bank"), a bank organized
and existing under the laws of Florida and headquartered in Panama City Beach,
Florida. The Corporation is the surviving entity of a series of transactions
pursuant to which Emerald Coast Bancshares, Inc. ("Emerald") changed its
domicile from Florida to Delaware through a merger of Emerald with and into the
Corporation, and Warrior Capital Corporation, an Alabama corporation and bank
holding company for The Bank was merged with and into the Corporation (the
"Warrior Merger"). 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 July -- , 1998, and was
accounted for as a pooling of interests. 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 March 31, 1998 represents pro forma
combined operations and the portion of this discussion covering the period
January 1, 1995 to December 31, 1995 represents the operations of Warrior as a
stand alone company.
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 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 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 the Corporation, provides a
goal of having all of the Corporation's systems and applications changed 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 the Corporation's financial
condition or results of operations.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998, COMPARED WITH THREE MONTHS ENDED MARCH 31,
1997
Net income increased $155,000, or 110.7% to $295,000 for the three months
ended March 31, 1998, from $140,000 for the three months ended March 31, 1997.
Return on average assets for the period ended March 31, 1998, was .81% compared
to .60% for the three months ended March 31, 1997, and the return on
159
<PAGE> 180
average equity was 4.73% for the three months ended March 31, 1998, compared to
4.26% for the corresponding period in 1997.
Net interest income increased $482,000, or 48.3% to $1,480,000 for the
period ended March 31, 1998, from $998,000 for the same period in 1997, as
interest income increased $920,000 and interest expense increased $438,000. The
increase in net interest income was due to an increase in loan volume and the
fact that Emerald's operations were beginning to mature.
On October 28, 1997, Warrior increased its capital base through a sale and
redemption of its common stock in a private placement transaction. As a result,
total equity for Warrior increased by $12,178,000. On a consolidated basis,
total capital increased by $12,696,000 to $26,075,000 as of March 31, 1998,
compared with capital of $13,379,000 at March 31, 1997.
YEAR ENDED DECEMBER 31, 1997, COMPARED WITH YEARS ENDED DECEMBER 31, 1996 AND
1995
The Corporation's net income decreased $252,000, or 38.4% to $405,000 in
1997 from $657,000 in 1996, which in turn decreased 26.8% from $898,000 in 1995.
Return on average assets in 1997 was .36% compared to .90% in 1996 and 1.42% in
1995. Return on average equity was 2.80% in 1997 compared to 7.02% in 1996 and
13.69% in 1995. The decreases are directly attributable to the results of
operations of Emerald Bank.
Net interest income increased $1,668,000, or 54.74% to $4,715,000 in 1997
from $3,047,000 in 1996, which in turn increased $244,000, or 8.70% from 1995.
The increase in net interest income was due to an increase in average earning
assets to $100,205,000, or 51.12% in 1997 from $66,308,000 in 1996, which
increased 13.93% from $58,477,000 in 1995.
The provision for loan losses was $663,000 in 1997, compared to $205,000 in
1996 and $120,000 in 1995. While asset quality and loan loss experience has
improved, the fact that Emerald Bank was a de novo bank and had to fund its
reserve for bad debt during its start up has caused the loan loss provision to
be abnormally high for this period. The Corporation's allowance for loan losses
as a percentage of its loans was 1.48% at December 31, 1997, compared to 1.63%
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 155.16% at December
31, 1997, compared to 88.55% at December 31, 1996, and 1,466.67% at December 31,
1995. The Corporation had net charge-offs of $329,000 in 1997, resulting in a
ratio of net charge-offs to average loans of .54%. This compares to $161,000 and
.47% in 1996 and $87,000 and .26% in 1995.
Noninterest income increased $117,000, or 24.7%, to $590,000 in 1997 from
$473,000 in 1996, which decreased $80,000, or 14.5% from $553,000 in 1995. Most
of the increase in 1997 is attributable to the fact that Emerald opened in 1996
and continued to grow in 1997. The decrease in 1996 is attributable to certain
commissions and fees being reclassified as fees on loans in 1996.
Noninterest expense increased $1,544,000, or 61.7% to $4,045,000 in 1997
from $2,501,000 in 1996, which increased $630,000, or 33.7% from $1,871,000 in
1995. Again, most of the increases are attributable to the fact that Emerald
opened in 1996 and continued to grow in 1997.
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.
160
<PAGE> 181
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(1)..................... $ 61,016 $6,226 10.20% $34,189 $3,609 10.55% $32,852 $3,323 10.12%
Investment securities
Taxable....................... 24,473 1,474 6.02 17,894 1,045 5.84 16,119 935 5.80
Tax-exempt.................... 2,254 188 8.34 1,993 177 8.89 1,726 209 12.11
-------- ------ ------- ------ ------- ------
Total investment
securities............. 26,727 1,662 6.22 19,887 1,222 6.15 17,845 1,144 6.41
Federal funds sold............ 12,039 654 5.43 11,780 623 5.29 7,164 418 5.83
Other investments............. 423 36 8.51 452 39 8.63 616 45 7.31
-------- ------ ------- ------ ------- ------
Total interest-earning
assets(2).............. 100,205 8,578 8.56 66,308 5,493 8.28 58,477 4,930 8.43
Non interest-earning assets:
Cash and due from banks......... 5,124 3,888 3,326
Premises and equipment.......... 5,756 1,943 1,283
Accrued interest and other
assets........................ 2,107 1,946 866
Allowance for loan losses....... (1,039) (704) (660)
-------- ------- -------
Total assets............. $112,153 $73,381 $63,292
======== ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Demand deposits................. $ 23,409 $ 928 3.96% $11,347 $ 360 3.17% $ 9,695 $ 293 3.02%
Savings deposits................ 16,243 614 3.78 15,790 601 3.81 15,275 561 3.67
Time deposits................... 39,439 2,180 5.53 24,761 1,425 5.76 21,290 1,202 5.65
-------- ------ ------- ------ ------- ------
Total deposits........... 79,091 3,722 4.71 51,898 2,386 4.60 46,260 2,056 4.44
Other short-term borrowings..... 1,385 77 5.56 -- -- -- --
-------- ------ ------- ------ ------- ------
Total interest-bearing
liabilities............ 80,476 3,799 4.72 51,898 2,386 4.60 46,260 2,056 4.44
Non-interest bearing liabilities
Demand deposits................. 16,028 10,594 9,524
Accrued interest and other
liabilities................... 1,203 1,530 947
Shareholders' equity............ 14,446 9,359 6,561
-------- ------- -------
Total liabilities and
shareholders' equity... $112,153 $73,381 $63,292
======== ======= =======
Net interest income/net interest
spread.......................... 4,779 3.84% 3,107 3.68% 2,874 3.99%
===== ===== =====
Net yield on earning assets....... 4.77% 4.68% 4.91%
===== ===== =====
Taxable equivalent adjustment:
Investment securities........... 64 60 71
------ ------ ------
Net interest income............... $4,715 $3,047 $2,803
====== ====== ======
</TABLE>
161
<PAGE> 182
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.................... $ 61,016 $34,189 $32,852 $26,827 $1,337 10.20% 10.55% 10.12% $6,226 $3,609
Investment securities
Taxable................... 24,473 17,894 16,119 6,579 1,775 6.02 5.84 5.80 1,474 1,045
Tax-exempt................ 2,254 1,993 1,726 261 267 8.34 8.89 12.11 188 177
-------- ------- ------- ------- ------ ------ ------
Total investment
securities........ 26,727 19,887 17,845 6,840 2,042 6.22 6.15 6.41 1,662 1,222
Federal funds sold.......... 12,039 11,780 7,164 259 4,616 5.43 5.29 5.83 654 623
Other investments........... 423 452 616 (29) (164) 8.51 8.63 7.31 36 39
-------- ------- ------- ------- ------ ------ ------
Total earning
assets............ $100,205 $66,308 $58,477 $33,897 $7,831 8.56 8.28 8.43 8,578 5,493
======== ======= ======= ======= ======
INTEREST-BEARING
LIABILITIES:
Deposits:
Demand.................... $ 23,409 $11,347 $ 9,695 $12,062 $1,652 3.96 3.17 3.02 928 360
Savings................... 16,243 15,790 15,275 453 515 3.78 3.81 3.67 614 601
Time...................... 39,439 24,761 21,290 14,678 3,471 5.53 5.76 5.65 2,180 1,425
-------- ------- ------- ------- ------ ------ ------
Total
interest-bearing
deposits.......... 79,091 51,898 46,260 27,193 5,638 4.71 4.60 4.44 3,722 2,386
Other short-term
borrowings.............. 1,385 -- -- 1,385 -- 5.56 -- -- 77 --
-------- ------- ------- ------- ------ ------ ------
Total
interest-bearing
liabilities....... $ 80,476 $51,898 $46,260 $28,578 $5,638 4.72 4.60 4.44 3,799 2,386
======== ======= ======= ======= ======
Net interest income/net
interest spread........... 3.84% 3.68% 3.99% $4,779 $3,107
===== ===== ===== ====== ======
Net yield on earning
assets.................... 4.77% 4.68% 4.91%
===== ===== =====
Net cost of funds........... 3.79% 3.60% 3.52%
===== ===== =====
<CAPTION>
INTEREST VARIANCE ATTRIBUTED TO (1)
INCOME/ ------------------------------
EXPENSE 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.................... $3,323 $2,617 $286 $2,739 $(122) $142 $144
Investment securities
Taxable................... 935 429 110 396 33 104 6
Tax-exempt................ 209 11 (32) 22 (11) 26 (58)
------ ------ ---- ------ ----- ---- ----
Total investment
securities........ 1,144 440 78 418 22 130 (52)
Federal funds sold.......... 418 31 205 14 17 246 (41)
Other investments........... 45 (3) (6) (2) (1) (14) 8
------ ------ ---- ------ ----- ---- ----
Total earning
assets............ 4,930 3,085 563 3,169 (84) 504 59
INTEREST-BEARING
LIABILITIES:
Deposits:
Demand.................... 293 568 67 383 185 52 15
Savings................... 561 13 40 17 (4) 20 20
Time...................... 1,202 755 223 845 (90) 200 23
------ ------ ---- ------ ----- ---- ----
Total
interest-bearing
deposits.......... 2,056 1,336 330 1,245 91 272 58
Other short-term
borrowings.............. -- 77 -- -- 77 -- --
------ ------ ---- ------ ----- ---- ----
Total
interest-bearing
liabilities....... 2,056 1,413 330 1,245 168 272 58
Net interest income/net
interest spread........... $2,874 $1,672 $233 $1,924 $(252) $232 $ 1
====== ====== ==== ====== ===== ==== ====
Net yield on earning
assets....................
Net cost of funds...........
</TABLE>
162
<PAGE> 183
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 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. 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 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. 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.
163
<PAGE> 184
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
(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............... $ 704 $ 660 $ 627 $ 580 $ 428
Charges-offs
Commercial, financial and agricultural....... 185 -- -- -- --
Consumer..................................... 210 202 124 43 64
------- ------- ------- ------- -------
Total charge-offs.............................. 395 202 124 43 64
Recoveries:
Consumer..................................... 66 41 37 20 16
------- ------- ------- ------- -------
Net charge-offs................................ 329 161 87 23 48
Addition to allowance charged ton operating
expense...................................... 663 205 120 70 200
------- ------- ------- ------- -------
Allowance for loan losses --
balance at end of period..................... $ 1,038 $ 704 $ 660 $ 627 $ 580
======= ======= ======= ======= =======
Loans at end of period, net of unearned
income....................................... $70,219 $43,075 $33,191 $31,053 $29,337
Ratio of ending allowance to ending loans...... 1.48% 1.63% 1.99% 2.02% 1.98%
Average loans, net of unearned income.......... $61,016 $34,189 $32,852 $29,977 $29,063
Ratio of net charge-offs to average loans...... 0.54% 0.47% 0.26% 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
(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.............. $ 198 19% $111 16% $101 15% $101 16% $ 80 14%
Real
estate - construction..... 234 22 93 13 41 6 45 7 26 4
Real estate - mortgage...... 403 39 304 43 288 44 279 45 271 47
Consumer.................... 203 20 196 28 230 35 202 32 203 35
------ --- ---- --- ---- --- ---- --- ---- ---
$1,038 100% $704 100% $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........................................... $484 $719 $ 4 $ 7 $ 12
Past Due............................................. 185 76 41 62 314
Restructured......................................... - - - - -
---- ---- --- --- ----
Total...................................... $669 $795 $45 $69 $326
==== ==== === === ====
</TABLE>
164
<PAGE> 185
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 $61.0 million
in 1997 compared to $34.2 million in 1996 and $32.9 million in 1995. At December
31, 1997, total loans net of unearned interest were $70.2 million compared to
$43.1 million at December 31, 1996, and $33.4 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......... $13,515 $ 7,031 $ 5,360 $ 5,221 $ 4,291
Real estate -- construction.................... 15,854 5,707 2,075 2,262 1,340
Real estate -- mortgage........................ 27,440 18,660 14,628 13,894 13,709
Consumer....................................... 13,753 12,026 11,710 10,043 10,257
------- ------- ------- ------- -------
Total loans.......................... 70,562 43,424 33,773 31,420 29,597
Unearned interest & fees....................... (343) (349) (382) (367) (260)
Allowance for loan losses...................... (1,038) (704) (660) (627) (580)
------- ------- ------- ------- -------
Net loans............................ $69,181 $42,371 $32,731 $30,426 $28,017
======= ======= ======= ======= =======
</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................... $ 7,573 $ 3,741 $2,201 $13,515 $ 4,517 $ 783
Real estate -- construction..... 9,418 5,807 629 15,854 5,902 532
Real estate -- mortgage......... 10,504 14,187 2,749 27,440 14,416 2,521
Consumer........................ 7,355 6,398 -- 13,753 6,225 299
------- ------- ------ ------- ------- ------
$34,850 $30,133 $5,579 $70,562 $31,060 $4,135
======= ======= ====== ======= ======= ======
</TABLE>
The information presented in the above table is based on the contractual
maturities of the individuals 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.
165
<PAGE> 186
Investment Securities. The investment securities portfolio is a
significant component of the Corporation's total earning assets. Total
securities averaged $26.7 million in 1997, compared to $19.9 million in 1996 and
$17.8 million in 1995. At December 31, 1997, the total securities portfolio was
$32.3 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.................. $28,570 $22,175 $15,044
State and political subdivisions............................ 3,545 2,776 3,208
Other investments........................................... 460 476 537
------- ------- -------
Total investment securities....................... $32,575 $25,427 $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 Held to
Maturity:
U.S. Treasury and
Govt Agencies...... $ 899 6.27% $ 2,742 6.25% $ 4,888 6.46% $ -- -- $ 8,529 6.38%
Other Investments.... 200 10.10 200 10.10
Securities available
for sale:
U.S. Treasury and
Govt Agencies...... $7,900 5.01 7,317 6.24 4,823 7.19 -- -- 20,040 5.98
State and political
subdivision........ 565 7.62 1,472 5.74 1,112 4.86 397 4.77% 3,546 5.63
------ ---- ------- ----- ------- ---- ---- ---- ------- -----
Total
securities.. $9,364 5.29% $11,731 6.18% $10,823 6.95% $397 4.77% $32,315 6.15%
====== ======= ======= ==== =======
</TABLE>
Short-Term Investments. Short-term investments, which consist primarily of
federal funds sold, averaged $12.5 million in 1997, compared to $12.2 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 $32.6 million, or 52.2% to
$95.1 million during 1997, from $62.5 million in 1996. Average total deposits
increased $6.7 million, or 12.0% in 1996, from $55.8 million in 1995. The
majority of these increases are attributable to the formation of Emerald Bank in
Florida in 1996.
166
<PAGE> 187
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... $16,028 -- $10,594 -- $ 9,524 --
Interest bearing demand deposits....... 23,409 3.96% 11,347 3.17% 9,695 3.02%
Savings deposits....................... 16,243 3.78 15,790 3.81 15,275 3.67
Time deposits.......................... 39,439 5.53 24,761 5.76 21,290 5.65
------- ------- -------
Total average deposits....... $95,119 4.71 $62,492 4.60 $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 65.9% at December 31,
1997, compared to 58.1% 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>
$5,420 $2,086 $4,168 $1,619 $13,293
========= ========= ========= ========= =========
</TABLE>
Approximately 41% of the Corporation's time deposits over $100,000 had
scheduled maturities within three months. The Corporation believes that large
denomination certificate of deposit customers tend to be extremely sensitive to
interest rate levels, making these deposits less reliable sources of funding for
liquidity planning purposes than core deposits. While some financial
institutions partially fund their balance sheets using large certificates of
deposits obtained through brokers, these broker deposits are generally expensive
and are unreliable as long-term funding sources. Accordingly, the Corporation
does not actively buy brokered deposits.
167
<PAGE> 188
REGULATORY CAPITAL TABLE
The table below represents the Corporation's actual regulatory and minimum
regulatory capital requirements at December 31, 1997 ($ 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.............. $24,458 28.27% $7,273 8.00% $9,091 10.00%
(to Risk Weighted Assets)
Tier 1 Capital............. 23,420 27.07 3,637 4.00 5,455 6.00
(to Risk Weighted Assets)
Tier 1 Capital............. 23,420 19.62 4,797 4.00 5,997 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 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. The Corporation intends to comply with this standard in 1998.
168
<PAGE> 189
BUSINESS OF THE CORPORATION
GENERAL
The Corporation is a bank holding company incorporated under the laws of
Delaware in 1998 and headquartered in Birmingham, Alabama. As of March 31, 1998,
the Corporation had assets of approximately $153.1 million, deposits of
approximately $123.4 million and stockholders equity of approximately $26.1
million. The principal subsidiaries of the Corporation include The Bank and
Emerald Bank. The Corporation is the surviving entity of a series of
transactions occurring in 1998 pursuant to which Emerald changed its domicile
from Florida to Delaware through a merger of Emerald with and into the
Corporation and Warrior merged into the Corporation.
The Corporation was incorporated under the laws of Delaware in 1998 to be
the surviving corporation in the Warrior Merger, which was consummated on
, 1998. As part of the Warrior Merger, Emerald reincorporated from
Florida into Delaware by means of a merger with the Corporation in which the
former Emerald shareholders received a total of 1,379,958 shares of Corporation
Common Stock and the former Warrior shareholders received a total of 5,448,000
shares of Corporation Common Stock.
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 March 31, 1998, CBS had total assets of approximately $41.3 million, total
deposits of approximately $36.6 million and total shareholders' equity of
approximately $4.5 million.
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
14.14% 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 6.10% of the issued and outstanding Corporation
Common Stock; and the former City National shareholders will receive a total of
1,842,864 shares of Corporation Stock, representing approximately 16.95% of the
issued and outstanding Corporation Common Stock. None of the Mergers is
conditioned upon one another.
Assuming the Transactions had occurred as of March 31, 1998, the
Corporation would have had total assets of approximately $422.1 million, total
deposits of approximately $366.6 million and total stockholders equity of
approximately $48.2 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 small to medium-sized 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 banks 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 banks focus on residential mortgage, consumer, commercial and real
estate construction lending to customers in their market areas. The banks also
offer a variety of deposit programs to individuals and businesses and other
organizations at interest rates generally consistent with local market
conditions. In
169
<PAGE> 190
addition, the banks offer 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.
MARKET AREAS
Other than Birmingham, Alabama, the Corporation primarily operates in
non-metropolitan areas with 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 will open a new location in Decatur,
Alabama on or about September 10, 1998. Decatur is home to a new Boeing Rocket
Plant which is expected to open in . The Corporation operates
through Emerald Bank in Bay and Walton counties in Florida. Panama City, Destin
and Seagrove are tourism based communities located in the panhandle of Florida
along the Gulf Coast, one of the fastest growing areas of Florida.
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.
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, to
individuals and businesses and other organizations that are located in or
conduct a substantial portion of their business in the banks' market areas. The
Corporation's total loans at March 31, 1998, were $86.6 million, or 68.8% 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 $54.9 million, or 63.2% of
total loans at March 31, 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 or 30 year amortization schedule. Adjustable rate loans generally
have a term of 15 years. The banks typically charge an origination fee.
The banks' nonresidential mortgage loans include commercial, industrial and
raw land loans. The commercial real estate loans are typically used to provide
financing for motels, retail establishments and offices. The banks generally
require nonresidential mortgage loans to have an 80% loan-to-value ratio and
usually underwrite their 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 years and may have
payments through the date of maturity based on a 15 to 20 year amortization
schedule. Terms on construction loans are usually less than twelve months and
often require personal guarantees.
Consumer Loans. Consumer lending includes installment lending to
individuals in the banks' market areas and consists of loans to purchase
automobiles, recreational vehicles, mobile homes and appliances. Consumer loans
constituted $16.3 million, or 18.8% of the Corporation's loan portfolio at March
31, 1998.
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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 eight to ten years on mobile home loans, depending on
whether the collateral is new or used.
Commercial, Financial, and Agricultural Loans. The banks make 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 banks attempt to reduce their 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 banks also make unsecured
commercial loans. Commercial, financial, and agricultural loans constituted
$14.9 million, or 17.2% of the Corporation's loan portfolio at March 31, 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. Each of the banks' loan officers establishes a
watch list of loans to be reviewed quarterly by each of the banks' Board of
Directors. The Loan Committee, which includes the Chief Lending Officer of The
Bank and the President of Emerald 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 banks 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 banks are
certificates of deposit. Certificates of deposit in excess of $100,000 are held
primarily by customers in the banks' market areas.
Deposit rates are set weekly by senior management of each of the banks,
subject to approval by management of the Corporation. Management believes that
the rates the banks offer are competitive with those offered by other
institutions in the banks' market areas. The Corporation focuses on customer
service, not high rates, to attract and retain deposits.
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COMPETITION
The banks encounter 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 banks do 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."
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 the 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 banks 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 -- SUPERVISION AND REGULATION
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 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 and Emerald Bank. The payment of dividends by The Bank and Emerald
Bank to the Corporation is subject to certain restrictions imposed by federal
banking laws, regulations and authorities. As of March 31, 1998, an aggregate of
approximately $1.7 million was available for payment of dividends by The Bank
and Emerald Bank to the Corporation under applicable restrictions, without
regulatory approval. See "-- The Bank and Emerald 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 and Emerald Bank. Regulatory authorities
could impose administratively stricter limitations on the ability of the banks
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
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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 by regulation 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.
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
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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 March 31, 1998, the Corporation's
ratio of Tier 1 capital to total risk-weighted assets was 27.07%, and its ratio
of total capital to total risk-weighted assets was 28.27%. 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 March 31, 1998, the Corporation's leverage
ratio was 19.62%.
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 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, such as the
Corporation, would, under the circumstances set forth in the presumption,
constitute acquisition of control of the Corporation.
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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.
THE BANK AND EMERALD BANK
The deposits of The Bank, an Alabama-chartered banking corporation, and
Emerald Bank, a Florida-chartered banking corporation, are insured by the Bank
Insurance Fund ("BIF") of the FDIC. Neither The Bank nor Emerald Bank is a
member of the Federal Reserve System; therefore, The Bank is subject to
supervision and regulation by the FDIC and the Alabama Banking Department and
Emerald Bank is subject to supervision and regulation by the FDIC and the
Florida Banking Department. Such supervision and regulation subjects The Bank
and Emerald Bank to special restrictions, requirements, potential enforcement
actions and periodic examination by the FDIC and the Alabama Banking Department
or the Florida Banking Department. Because the Federal Reserve regulates the
bank holding company parent of The Bank and Emerald Bank, the Federal Reserve
also has supervisory authority which directly affects The Bank and Emerald 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.
Florida law provides that a Florida-charterd bank can establish a branch
anywhere in Florida. 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. Florida law does not permit de novo branching
by an out-of-state bank.
Restrictions on Transactions With Affiliates and Insiders. Transactions
between either The Bank or Emerald Bank and their 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
or Emerald Bank and their 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 and Emerald 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 and Emerald 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 and Emerald Bank. Under federal law, neither The Bank nor
Emerald Bank can pay a dividend if, after paying the dividend, that bank would
be "undercapitalized."
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The FDIC may declare a dividend payment to be unsafe and unsound even though The
Bank and Emerald 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.
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 and the Florida Banking Departments also conduct
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 19.32%, and Emerald Bank's ratio of Tier 1 capital to total risk-weighted
assets was 12.60% and its ratio of total capital to total risk-weighted assets
was 13.50%. 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 and Emerald Bank are 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.
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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 and Emerald 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.
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. Both the
Alabama and the Florida Banking Departments also have broad enforcement powers
over The Bank, and Emerald Bank, respectively, 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.
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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 and Emerald Bank are 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 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 and Emerald 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 company. 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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<PAGE> 199
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 locations in Warrior,
Morris, Mt. Olive and Decatur. The Corporation leases each of the Emerald Coast
Bank locations but has the right to purchase these locations in the future.
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<PAGE> 200
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 June 30, 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
Peter N. Dichiara...................... 42 Director
D. Terry DuBose........................ 50 Director
K. Earl Durden......................... 61 Director
Larry R. House......................... 54 Director
Thomas E. Jernigan, Jr................. 33 Director
James Mailon Kent, Jr.................. 47 Director
Mayer Mitchell......................... 65 Director
Ronald W. Orso, M.D.................... 52 Director
Harold Ripps........................... 59 Director
Richard M. Scrushy..................... 45 Director
Michael E. Stephens.................... 54 Director
Larry D. Striplin, Jr.................. 68 Director
Marie Swift............................ 56 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
James A. Taylor has been Chairman of the Board 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, a
publicly-traded bank holding company based in Birmingham, Alabama, from 1986
until his retirement in April 1996. 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 July 1998. 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 July 1998. 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 1996, Mr. Taylor
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<PAGE> 201
served as outside general counsel to Alabama National BanCorporation. From
August 1990 until March 1996, Mr. Taylor was in private practice with a law firm
in Birmingham, Alabama.
James R. Andrews, M.D. has been a director of the Corporation since July
1998 and served as a director of Warrior from October 1997 until the Warrior
Merger. Dr. Andrews served as a director of Alabama National BanCorporation 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 July 1998 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 July 1998
and served as a director of Warrior until the Warrior Merger. Mr. Dichiara is
the President of City Wholesale Grocery, a grocery supply company based in
Birmingham, Alabama.
D. Terry DuBose has been Vice Chairman of the Board of the Corporation
since July 1998. Mr. DuBose served as the Chairman of the Board and Chief
Executive Officer of Emerald from April 1997 until the Warrior Merger and has
been Chairman of the Board and Chief Executive Officer of Emerald Coast Bank
since its formation in August 1996. From 1972 until 1996, Mr. DuBose served as
Chair and CEO of the Northwest Division of Southtrust Bank of Florida, N.A.
K. Earl Durden has been a director of the Corporation since July 1998 and
served as a director of Emerald from April 1997 until the Warrior Merger. Mr.
Durden has been a director of Emerald Coast Bank since its formation in August
1996. Mr. Durden is the President of Rail Management and Consulting, Inc. a
short line railroad entity based in Panama City, Florida.
Larry R. House has been a director of the Corporation since July 1998. 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 July
1998 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 July
1998 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 The Bank 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 July 1998. 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 July 1998
and served as a director of Warrior from October 1997 until the Warrior Merger.
Dr. Orso served as a director of Alabama National BanCorporation 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 July 1998. 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
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<PAGE> 202
member of the Board of Directors of the Corporation since July 1998. 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 and a member of the Board of Directors of Capstone Capital
Corporation ("Capstone"), a publicly traded real estate investment trust.
Michael Stephens has been a director of the Corporation since July 1998. 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.
Larry D. Striplin, Jr. has been a member of the Board of Directors of the
Corporation since June 1998. 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 July 1998 and
served as Secretary and a director of Warrior (formerly Warrior Savings Bank)
from 1982 until the Warrior Merger. Ms. Swift has been President of The Bank of
Warrior since January 1998.
Johnny Wallis has been a director of the Corporation since July 1998 and
served as the Chairman of the Board, President and Chief Executive Officer of
Warrior from 1982 until October 1997. Mr. Wallis served as Chairman of the
Board, President and Chief Executive Officer of The Bank of Warrior until
January 1998, and has been Chairman of the Board and Chief Executive Officer of
The Bank of Warrior since January 1998.
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. , and have terms expiring
in 1999, Messrs. , , and
have terms expiring in 2000, and Messrs. ,
and 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. Durden, Dichiara and Jernigan.
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<PAGE> 203
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. Striplen and
Kent and Dr. Orso.
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, 1995, 1996 and
1997, 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 $100,000 (collectively, the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL RESTRICTED ------------
COMPENSATION(1) OTHER STOCK SECURITIES ALL OTHER
NAME AND ---------------------- ANNUAL AWARDS UNDERLYING COMPENSATION
PRINCIPAL POSITION HELD YEAR SALARY ($) BONUS ($) COMPENSATION ($) OPTIONS (#) ($)(2)
- ----------------------- ---- ---------- --------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
James A. Taylor........
Chairman of the Board
D. Terry DuBose........
Johnny Wallis..........
Marie Swift............
</TABLE>
- ---------------
(1) Dollar value of perquisites and other benefits were less than the lesser of
$50,000 or 10% of total salary and bonus for each Named Executive Officer.
(2) Represents the dollar value of insurance premiums paid by the Corporation
with respect to life, health, dental and disability insurance and automobile
allowance for the benefit of the Named Executive Officer.
Option Grants in 1997. The following table contains information concerning
the grant of stock options under the Corporation Option Plans (as defined below)
to the Named Executive Officers in 1997:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUALS GRANTS(1) POTENTIAL REALIZABLE VALUE
--------------------------------------------------------- AT ASSUMED ANNUAL RATES
NUMBER OF PERCENT OF OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE OR TERM(2)(3)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION --------------------------
NAME GRANTED (#)(4) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- ---- -------------- ------------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
D. Terry DuBose...........
</TABLE>
- ---------------
(1) The potential realizable value is calculated based on the term of the option
at its time of grant (ten years). It is calculated by assuming that the
stock price on the date of grant appreciates at the indicated annual rate
compounded annually for the entire term of the option and that the option is
exercised and sold on the last day of its term for the appreciated stock
price. No gain to the optionee is possible unless the stock price increases
over the option term, which will benefit all stockholders.
(2) These options are 100% vested.
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
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<PAGE> 204
stock options under the Corporation Option Plans. 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"), 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, the base
compensation shall immediately become $250,000.
Pursuant to the Taylor Agreement, Mr. Taylor will be entitled to recieve
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 a 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, base directors' fees and benefits 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
Messrs. , and served on the
Compensation Committee of the Board of Directors of the Corporation during
199 .
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
shares of Common Stock, including shares of Common
Stock for issuance upon the exercise of options granted to officers, directors,
consultants and employees of the Corporation 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.
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
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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 200 .
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<PAGE> 206
PRINCIPAL STOCKHOLDERS OF THE CORPORATION
The following table sets forth certain information regarding beneficial
stock ownership of the Corporation as of July , 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 July ,
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 and
Chief Executive Officer 578,400(1) %
James A. Taylor, Jr.................. Executive Vice President and
General Counsel, Director 135,000
James R. Andrews, M.D. .............. Director 285,000
Charles Barkley...................... Director 210,000
Peter N. Dichiara.................... Director 210,000(2)
D. Terry DuBose...................... Director 250,222(3)
K. Earl Durden....................... Director 410,200(4)
Larry R. House....................... Director 103,800 *
Thomas E. Jernigan, Jr............... Director 1,000 *
James Mailon Kent, Jr................ Director 210,000
Mayer Mitchell....................... Director 105,000 *
Ronald W. Orso, M.D. ................ Director 210,000(5)
Harold Ripps......................... Director 210,000
Richard M. Scrushy................... Director 210,000
Michael Stephens..................... Director 230,510
Larry D. Striplin, Jr. .............. Director 210,000
Marie Swift.......................... Director 52,500 *
Johnny Wallis........................ Director 105,000 *
--------- -----
All executive officers and directors
as a group (18 persons)............ 3,726,632 34.12%
</TABLE>
- ---------------
* Less than one percent.
(1) Does not include 32,100 shares owned by his wife, 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 157,927 shares as Trustee for the Emerald Coast Profit Sharing
Plan, 14,357 shares owned by his wife, and 6,153 shares owned by his
children.
(4) Includes 205,100 shares held in M.E.D. Trust.
(5) Includes 210,000 shares as Trustee of Birmingham OB/GYN, P.A. Pension Plan.
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<PAGE> 207
SELECTED CONSOLIDATED FINANCIAL DATA -- COMMERCE
TABLE CONTAINING SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 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................................. $112,309 $84,061 $104,962 $68,455 $33,959
Total loans.................................. 81,811 62,089 77,269 51,163 22,324
Investment securities........................ 16,391 10,870 11,860 6,156 3,551
Deposits..................................... 104,247 76,443 97,445 61,467 28,675
Stockholders' equity......................... 6,587 6,232 6,511 6,232 5,032
SELECTED STATEMENT OF INCOME DATA:
Interest income.............................. 2,140 1,564 7,513 4,056 1,478
Interest expense............................. 1,283 837 4,028 2,170 765
-------- ------- -------- ------- -------
Net interest income.................. 857 727 3,485 1,886 713
Provision for loan losses.................... 126 115 584 372 226
Noninterest income........................... 292 147 578 380 91
Noninterest expense.......................... 875 658 3,131 2,268 1,289
-------- ------- -------- ------- -------
Income (loss) before tax..................... 148 101 348 (374) (711)
Income tax expense (benefit)................. 40 17 120 (81) (241)
-------- ------- -------- ------- -------
Net income (loss).................... $ 108 $ 84 $ 228 $ (293) $ (470)
======== ======= ======== ======= =======
PER SHARE DATA:
Net income (loss)
-- Basic.................................. $ 0.16 $ 0.13 $ 0.35 $ (0.47) $ (0.85)
-- Diluted................................ 0.16 0.13 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.
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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
forward-looking statements and information that are based on the 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 Commerce's financial condition, results of
operations and liquidity; year 2000 compliance issues and market risk
disclosures. The risks and uncertainties that may effect 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.
RESULTS OF OPERATIONS
Three months ended March 31, 1998, compared with three months ended March 31,
1997
Net income increased $24,000, or 28.6% to $108,000 for the three months
ended March 31, 1998, from $84,000 for the three months ended March 31, 1997.
Return on average assets for the period ended March 31, 1998 was .40% compared
to .44% for the three months ended March 31, 1997, and the return on average
equity was 6.60% for the three months ended March 31, 1998 compared to 5.39% for
the corresponding period in 1997.
Net interest income increased $130,000, or 17.9% to $857,000 for the period
ended March 31, 1998 from $727,000 for the same period in 1997, as interest
income increased $576,000 and interest expense increased $446,000. The increase
in net interest income was due to an increase in loan volume and the fact that
the operation was beginning to mature.
188
<PAGE> 209
Total capital increased by $355,000 to $6.6 million as of March 31, 1998,
compared with capital of $6.2 million at March 31, 1997.
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 directly the result of the bank
being a new start up institution.
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.
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.
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<PAGE> 210
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>
190
<PAGE> 211
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
191
<PAGE> 212
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>
192
<PAGE> 213
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 loans 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>
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<PAGE> 214
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>
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<PAGE> 215
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>
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<PAGE> 216
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.
These brokered deposits have matured 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 and its subsidiaries 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.
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<PAGE> 217
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.
197
<PAGE> 218
BUSINESS OF COMMERCE
GENERAL
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 business banking for small to medium sized
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
198
<PAGE> 219
campaigns, and to allocate and diversify their assets among loans and securities
of the highest yield and in locations with the greatest demand.
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 for banking business 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 7 employees
to staff the Boaz Branch, including a branch manager, 3 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.
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
operation center 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.
The Guntersville Office is a full service branch located at the corner of
Henry and O'Brig Streets in Guntersville. Commerce owns approximately 1.5 acres
of land on which it is located. A portion of the real property is mortgaged
under a note dated October 5, 1995 due to mature on October 5, 2005. The
approximate balance of the note was $67,630 as of December 31, 1997. This
mortgage was an accommodation for the seller.
The Gadsden Office is located at 701 Forrest Avenue in the central business
district in Gadsden, Alabama. Commerce leases a portion of the building and
certain surrounding real property. The building was formerly the main offices of
a savings and loan. Commerce is leasing the ground floor and a second floor
board room, for a total of approximately 5,000 square feet of space.
199
<PAGE> 220
The Rainbow City Office is a full service branch presently located in a
temporary modular facility at 3015 Second Street in Rainbow City. Commerce owns
the modular building and the approximately 1.8 acres of land on which it is
located. Construction will soon begin on the permanent branch facility to be
opened on the same site.
The Boaz Office will be located at the corner of Billy Dyar Boulevard and
Snead Street. Commerce owns the lot and the house that is now on it.
Construction is planned to begin by year end of 1998.
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 is in receipt of a notice from the FDIC informing Commerce of a
possible sanction of civil money penalties in the amount of $1,800. This
assessment is due to the untimely filing of Commerce's Reports of Condition and
Income for the period ending June 30, 1997. Commerce has filed a request for a
waiver of this penalty citing circumstances beyond Commerce's control as the
reason for the late filing. As of , 1998, the FDIC had not informed
Commerce of a determination in the matter.
The Reports of Condition and Income for Commerce for the period ending
December 31, 1997, were not filed timely. Bank Management expects to receive a
notice within the next six months of an assessment of civil money penalties not
to exceed $2,400 as a result of this late filing. Commerce does not have plans
to contest this assessment.
200
<PAGE> 221
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT -- COMMERCE
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 656,630 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) 4.3%
Pat M. Courington, Jr. ..................................... 41,733(3) 6.4
Larry D. Grimes, M.D. ...................................... 8,000 1.2
Steven C. Hays.............................................. 31,733(4) 4.8
Gordon Henderson............................................ 25,350(5) 3.9
Randall E. Jones............................................ 20,500 3.1
William O. Ramsey........................................... 21,500(6) 3.3
T. Mandell Tillman.......................................... 20,200(7) 3.1
J. Daniel Sizemore*......................................... 36,034(8) 5.3
Charles E. Watts, Jr. ...................................... 7,800 1.2
EXECUTIVE OFFICER WHO IS NOT ALSO A DIRECTOR
G. Ray Smith................................................ 14,000(9) 2.1
All Executive Officers and Directors as a Group (11
persons).................................................. 254,850(10) 37.0%
</TABLE>
- ---------------
* Indicates that the director is also an executive officer.
(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 656,630 shares of common stock
outstanding plus for each person listed the number of shares of Bank common
stock which such person has a right to acquire within 60 days under
Commerce's stock option plan.
(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.
(10) Percentage for the group is calculated by including as outstanding shares
[33,000] shares subject to options.
201
<PAGE> 222
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 Surviving Corporation 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.
202
<PAGE> 223
Directors are paid a monthly fee of $500 for board meetings and a monthly
fee of $100 for committee meetings.
Options. The following table shows for each executive officer listed in
the table all certain information representing stock options granted in 1997.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING % OF TOTAL
OPTIONS OPTIONS GRANTED
GRANTED TO EMPLOYEES IN EXERCISE OR BASE EXPIRATION
NAME (#) FISCAL YEAR PRICE ($/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. Daniel J. 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 director.
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.
203
<PAGE> 224
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 collectability or present other unfavorable features.
204
<PAGE> 225
FIRST CITIZENS
SELECTED FINANCIAL DATA (HISTORICAL)
<TABLE>
<CAPTION>
CONSOLIDATED
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------ -----------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------- ------- ------- ------- ------- ------- -------
(A) (A)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED STATEMENT OF FINANCIAL
CONDITION DATA:
Total assets.......................... $36,178 $31,502 $35,096 $31,623 $26,665 $21,164 $20,073
Total loans........................... 29,636 25,455 30,193 24,378 14,494 10,196 9,666
Investment securities................. 1,867 2,931 2,176 3,133 6,393 7,505 6,354
Deposits.............................. 32,586 28,477 31,563 28,643 24,213 19,126 18,038
Stockholders' equity.................. 3,155 2,687 3,011 2,576 2,191 1,913 1,882
SELECTED STATEMENT OF INCOME DATA:
Interest income....................... 829 679 2,957 2,437 1,809 1,521 1,500
Interest expense...................... 331 279 1,215 1,008 786 616 536
------- ------- ------- ------- ------- ------- -------
Net interest income............ 498 400 1,742 1,429 1,023 905 964
Provision for loan losses............. 39 15 218 43 -- 19 --
Noninterest income.................... 121 110 415 430 348 321 286
Noninterest expense................... 349 307 1,303 1,232 1,116 1,089 991
------- ------- ------- ------- ------- ------- -------
Income before tax..................... 231 188 636 584 255 118 259
Income tax expense.................... 87 70 213 184 61 11 63
------- ------- ------- ------- ------- ------- -------
Net income..................... $ 144 $ 118 $ 423 $ 400 $ 194 $ 107 $ 196
======= ======= ======= ======= ======= ======= =======
PER SHARE DATA:
Net income (loss)
--basic............................. $ 1.92 $ 1.57 $ 5.64 $ 5.33 $ 2.59 $ 1.43 $ 2.61
--diluted........................... 1.89 1.55 5.56 5.30 -- -- --
Dividends............................. -- -- -- -- -- -- --
</TABLE>
- ---------------
(a) First Citizens acquired its wholly-owned subsidiary, First Citizens Bank, in
January 1995.
205
<PAGE> 226
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 the Management's
belief as well as certain assumptions made by, and information currently
available to the 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 effect 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.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1998, compared with three months ended March 31,
1997.
Net Income increased $26,000, or 22.0% to $144,000 for the three months
ended March 31, 1998, from $118,000 for the three months ended March 31, 1997.
Return on average assets for the period ended March 31, 1998, was 1.62% compared
to 1.50% for the three months ended March 31, 1997, and the return on average
equity was 18.68% for the three months ended March 31, 1998, compared to 17.9%
for the corresponding period in 1997.
Net interest income increased $98,000, or 24.5% to $498,000 for the period
ended March 31, 1998, from $400,000 for the same period in 1997, as interest
income increased $150,000 and interest expense increased $52,000. The increase
in net interest income was due to an increase in loan volume.
Total capital increased by $468,000 to $3.2 million as of March 31, 1998,
compared with capital of $2.7 million at March 31, 1997.
206
<PAGE> 227
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 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.
207
<PAGE> 228
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>
208
<PAGE> 229
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.
209
<PAGE> 230
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 rising, following 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 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. 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 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.
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.
210
<PAGE> 231
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
------- ------- ------- ------- -------
(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
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
(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>
211
<PAGE> 232
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 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 $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>
212
<PAGE> 233
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 individuals 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
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
<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.
213
<PAGE> 234
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,
214
<PAGE> 235
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.
215
<PAGE> 236
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 March 31, 1998, First Citizens
had total consolidated assets of approximately $36.2 million, total consolidated
deposits of approximately $32.6 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.
BANKING FACILITIES; EMPLOYEES
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.
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.
216
<PAGE> 237
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.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
NAME AND ADDRESS BENEFICIALLY OWNED(1) SHARES OWNED
- ---------------- --------------------- -------------
<S> <C> <C>
Charlie Deer................................................ 11,385 15.18%
Post Office Box 667
Monroeville, Alabama 36461
Lawerence A. Knight, Jr..................................... 8,775 11.70%
800 N. Mt. Pleasant
Monroeville, Alabama 36460
R. Alan Deer................................................ 6,575 8.8%
258 Buckhead Circle
Birmingham, Alabama 35216
John F. Gittings............................................ 5,200(2) 6.5%
702 Main Street
Monroeville, Alabama 36460
Mark Buntyn................................................. 4,097 5.46%
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 75,000 shares of common stock
outstanding plus for each person listed the number of shares of Bank common
stock which such person has a right to acquire within 60 days under the
Bank's stock option plan.
(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
- ---- -------- --------------------- ------------------
<S> <C> <C> <C>
Sam Carter............................ Director 2,450 3.267%
Charlie Deer.......................... Director 11,385 15.180
William H. Eddins..................... President and Director 1,700 2.267
Grover C. Feaster, Jr................. Director 250 0.333
John F. Gittings...................... CEO, Director 5,200(2) 6.5
George A. Hughes...................... Director 2,176 2,901
Joseph William Jones.................. Director 1,900 2.533
Lawerence A. Knight, Jr. ............. Chairman of the Board 8,775 11.700
All Directors and Executive Officers
as a Group (8 persons).............. 33,836 42.30%(3)
</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) Percentage for the group is calculated by including as outstanding shares
5,000 shares subject to options.
217
<PAGE> 238
SELECTED CONSOLIDATED FINANCIAL DATA -- CITY NATIONAL
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------- -----------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- -------- ------- ------- ------- ------- -------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED STATEMENT OF FINANCIAL
CONDITION DATA:
Total assets.................. $83,339 $83,060 $83,996 $84,238 $74,323 $68,520 $65,706
Total loans................... 39,442 33,633 39,149 34,659 31,473 29,162 27,239
Investment securities......... 35,929 42,299 35,857 43,066 36,714 27,415 31,883
Deposits...................... 70,219 71,624 71,270 70,642 61,369 58,952 55,108
Stockholders' equity.......... 11,813 10,615 11,754 11,120 10,994 8,926 9,346
SELECTED STATEMENT OF INCOME
DATA:
Interest income............... 1,648 1,671 6,720 6,026 5,673 5,026 4,911
Interest expense.............. 682 726 2,910 2,460 2,324 1,815 1,663
------- ------- ------- ------- ------- ------- -------
Net interest income... 966 945 3,810 3,566 3,349 3,211 3,248
Provision for loan losses..... 133 183 384 346 203 78 98
Noninterest income............ 190 152 737 683 629 544 744
Noninterest expense........... 839 853 3,368 3,210 3,010 2,515 2,598
------- ------- ------- ------- ------- ------- -------
Income before tax............. 184 61 795 693 765 1,162 1,296
Income tax expense............ 79 27 170 133 40 266 288
------- ------- ------- ------- ------- ------- -------
Net income............ $ 105 $ 34 $ 625 $ 560 $ 725 $ 896 $ 1,008
======= ======= ======= ======= ======= ======= =======
PER SHARE DATA:
Net income -- basic........... $ 3.90 $ 1.26 $ 23.25 $ 20.68 $ 26.73 $ 33.00 $ 37.45
Dividends..................... 1.50 1.40 5.70 5.60 5.30 4.90 5.16
</TABLE>
218
<PAGE> 239
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 effect 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.
RESULTS OF OPERATIONS
Three months ended March 31, 1998, compared with three months ended March 31,
1997
Net income increased $71,000, or 208.8% to $105,000 for the three months
ended March 31, 1998, from $34,000 for the three months ended March 31, 1997.
Return on average assets for the period ended March 31, 1998 was .50% compared
to .16% for the three months ended March 31, 1997, and the return on average
equity was 3.56% for the three months ended March 31, 1998 compared to 1.25% for
the corresponding period in 1997.
Net interest income increased $21,000, or 2.2% to $966,000 for the period
ended March 31, 1998 from $945,000 for the same period in 1997, as interest
income decreased $23,000 and interest expense decreased $44,000. The increase in
net interest income was due to an increase in loan volume.
Total capital increased by $1.2 million to $11.8 million as of March 31,
1998, compared with capital of $10.6 million at March 31, 1997. Other than net
income, the primary cause for the increase in capital is due to an increase in
the unrealized gain on securities available for sale.
219
<PAGE> 240
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 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
220
<PAGE> 241
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.
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>
221
<PAGE> 242
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.
222
<PAGE> 243
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 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. 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 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.
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.
223
<PAGE> 244
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
------- ------- ------- ------- -------
(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
------- -------- ------- -------- ------- -------- ------- -------- ------- --------
(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>
224
<PAGE> 245
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 loans 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.
225
<PAGE> 246
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>
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<PAGE> 247
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.
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<PAGE> 248
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 March 31, 1998, City
National had total consolidated assets of approximately $83.3 million, total
consolidated deposits of approximately $70.3 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.
BANKING FACILITIES; EMPLOYEES
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.
The 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.
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.
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<PAGE> 249
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.
<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 8,116 30.2%
Executive Officers as a
Group (9) Persons......
</TABLE>
- ---------------
* Less than one percent
(1) See footnote (1) to the table above at "Principal Holders of Common Stock."
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
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<PAGE> 250
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 $4800 for legal services performed for City
National.
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 continue to 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 Commerce's Bylaws (the "Commerce Bylaws"), on the
other hand. The information set forth below is qualified in its entirety by
reference to the Corporation 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, 656,630 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. As
of , there were shares of the Corporation Common
Stock outstanding. In addition, there were outstanding options under the
Corporation stock option plans to purchase an additional shares
of the Corporation Common Stock. An additional shares of the
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 the
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 , 1998, there were
no shares of the Corporation Preferred Stock issued and outstanding, and the
Board of Directors of the Corporation has no present intention of issuing shares
of the 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 and the Corporation
Bylaws provide 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
directors, but in any event shall consist of at least three directors and that
the size of the
230
<PAGE> 251
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 only with cause and only by the vote of the holders of a majority of the
shares of capital stock entitled to vote thereon.
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 the 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
Certificate or the Corporation Bylaws, the vote of the holders of a majority of
the shares of capital 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 Certificate authorizes for issuance shares of
Preferred Stock, par value $.001 per share, and provides that such shares of the
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 the Corporation Common Stock)
as shall be stated in the Corporation Certificate or resolutions providing for
the issuance of the Corporation Preferred Stock. If the Board of Directors were
to designate such a series of the 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.
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<PAGE> 252
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.
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 may be called by the President and shall be called
by the President or the Secretary at the request in writing by a majority of the
Board of Directors or by the holders of at least a majority of the outstanding
shares of capital stock of the Corporation entitled to vote.
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. Each of the
Corporation Certificate and the Commerce Articles includes such a provision
which, as set forth below, limits such liability to the fullest extent permitted
under applicable law.
Each of the Corporation Certificate and the Commerce Articles 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 of Incorporation 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. 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 shareholder. For business to be properly brought before an
annual meeting by a shareholder,
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<PAGE> 253
the shareholder must have given timely notice thereof in writing to the
Secretary of the Corporation. To be timely, a shareholder's notice must be
delivered or mailed and received at the principal executive offices of the
Corporation not less than 60 days nor more than 90 days prior to the meeting;
provided, however, that in the event that less than 70 days' notice or prior to
public disclosure of the date of the meeting is given or made to shareholders,
notice by the shareholder to be timely must be so received not later than the
close of business on the 10th day following the day on which such notice of the
date of the annual meeting was mailed or such public disclosure was made. A
shareholder's notice to the Secretary shall set forth as to each matter the
shareholder proposes to bring before the annual meeting (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (ii) the name and address,
as they appear on the Corporation's books, of the shareholder proposing such
business, (iii) the class and number of shares of the Corporation which are
beneficially owned by the shareholder, and (iv) any material interest of the
shareholder in such business.
The Corporation Restated Certificate provides that nominations of persons
for election to the Board of Directors of the Corporation may be made at a
meeting of shareholders by or at the direction of the Board of Directors or by
any shareholder of the Corporation entitled to vote for the election of
Directors at the meeting who complies with the notice procedures set forth in
the Certificate of Incorporation. Such nominations, other than those made by or
at the direction of the Board of Directors, shall be made pursuant to timely
notice in writing to the Secretary of the Corporation. To be timely, a
shareholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Corporation not less than 60 days nor more
than 90 days prior to the meeting, provided; however, that in the event that
less than 70 days' notice or prior public disclosure of the date of the meeting
is given or made to shareholders, notice by the shareholder to be timely must be
so received not later than the close of business on the 10th day following the
date on which such notice of the date of the meeting was mailed or such public
disclosure was made. Such shareholder's notice shall set forth (i) as to each
person whom the shareholder proposes to nominate for election or re-election as
a director, (A) the name, age, business address and residence address of such
person, (B) the principal occupation or employment of such person, (C) the class
and number of shares of the Corporation which are beneficially owned by such
person, and (D) any other information relating to such person that is required
to be disclosed in solicitations of proxies for election of Directors, or is
otherwise required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (including without limitation such persons'
written consent to being named in the proxy statement as a nominee and to
serving as a Director if elected); and (ii) as to the shareholder giving the
notice (1) the name and address, as they appear on the Corporation's books, of
such shareholder and (2) the class and number of shares of the Corporation which
are beneficially owned by such shareholder.
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 reasonable 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.
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
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<PAGE> 254
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 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 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 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. As
of , there were shares of the Corporation Common
Stock outstanding. In addition, there were outstanding options under the
Corporation stock option plans to purchase an additional shares
of the Corporation Common Stock. An additional shares of the
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 the
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 , 1998, there were
no shares of the Corporation Preferred Stock issued and outstanding, and the
Board of Directors of the Corporation has no present intention of issuing shares
of the Corporation Preferred Stock.
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<PAGE> 255
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 and the Corporation
Bylaws provide 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
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 only with cause and only by the vote of the holders of a majority of the
shares of capital stock entitled to vote thereon.
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 the 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
Certificate or the Corporation Bylaws, the vote of the holders of a majority of
the shares of capital 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.
The Corporation. The Corporation Common Stock has no conversion features.
The Corporation Certificate authorizes for issuance shares of
Preferred Stock, par value $.001 per share, and provides that such shares of the
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 the Corporation Common Stock)
as shall be stated in the Corporation Certificate or resolutions providing for
the issuance of the Corporation Preferred Stock. If the Board of
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Directors were to designate such a series of the 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 may be called by the President and shall be called
by the President or the Secretary at the request in writing by a majority of the
Board of Directors or by the holders of at least a majority of the outstanding
shares of capital stock of the Corporation entitled to vote.
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. Each of the
Corporation Certificate and the Commerce Articles includes such a provision
which, as set forth below, limits such liability to the fullest extent permitted
under applicable law.
Each of the Corporation Certificate and the Commerce Articles 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
First Citizens Articles of Incorporation do not contain such provisions.
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Advance Notice Provisions for Stockholder Proposals and Stockholder Nominations
of Directors
First Citizens. Neither the First Citizens Articles of Incorporation 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. 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 shareholder. For business to be properly brought before an
annual meeting by a shareholder, the shareholder must have given timely notice
thereof in writing to the Secretary of the Corporation. To be timely, a
shareholder's notice must be delivered or mailed and received at the principal
executive offices of the Corporation not less than 60 days nor more than 90 days
prior to the meeting; provided, however, that in the event that less than 70
days' notice or prior to public disclosure of the date of the meeting is given
or made to shareholders, notice by the shareholder to be timely must be so
received not later than the close of business on the 10th day following the day
on which such notice of the date of the annual meeting was mailed or such public
disclosure was made. A shareholder's notice to the Secretary shall set forth as
to each matter the shareholder proposes to bring before the annual meeting (i) a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (ii)
the name and address, as they appear on the Corporation's books, of the
shareholder proposing such business, (iii) the class and number of shares of the
Corporation which are beneficially owned by the shareholder, and (iv) any
material interest of the shareholder in such business.
The Corporation Restated Certificate provides that nominations of persons
for election to the Board of Directors of the Corporation may be made at a
meeting of shareholders by or at the direction of the Board of Directors or by
any shareholder of the Corporation entitled to vote for the election of
Directors at the meeting who complies with the notice procedures set forth in
the Certificate of Incorporation. Such nominations, other than those made by or
at the direction of the Board of Directors, shall be made pursuant to timely
notice in writing to the Secretary of the Corporation. To be timely, a
shareholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Corporation not less than 60 days nor more
than 90 days prior to the meeting, provided; however, that in the event that
less than 70 days' notice or prior public disclosure of the date of the meeting
is given or made to shareholders, notice by the shareholder to be timely must be
so received not later than the close of business on the 10th day following the
date on which such notice of the date of the meeting was mailed or such public
disclosure was made. Such shareholder's notice shall set forth (i) as to each
person whom the shareholder proposes to nominate for election or re-election as
a director, (A) the name, age, business address and residence address of such
person, (B) the principal occupation or employment of such person, (C) the class
and number of shares of the Corporation which are beneficially owned by such
person, and (D) any other information relating to such person that is required
to be disclosed in solicitations of proxies for election of Directors, or is
otherwise required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (including without limitation such persons'
written consent to being named in the proxy statement as a nominee and to
serving as a Director if elected); and (ii) as to the shareholder giving the
notice (1) the name and address, as they appear on the Corporation's books, of
such shareholder and (2) the class and number of shares of the Corporation which
are beneficially owned by such shareholder.
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 reasonable 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.
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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 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 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 City National's Bylaws (the "City National
Bylaws"), on the other hand. The information set forth below is qualified in its
entirety by reference to the Corporation 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. As
of , there were shares of the Corporation Common
Stock outstanding. In addition, there were outstanding options under the
Corporation Option Plans to purchase an additional shares of the
Corporation Common Stock. An additional shares of the Corporation
Common
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Stock have been reserved for future option grants under such plans. The Board of
Directors of the Corporation has the authority to issue the 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 , 1998, there were no shares of the
Corporation Preferred Stock issued and outstanding, and the Board of Directors
of the Corporation has no present intention of issuing shares of the 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 and the Corporation
Bylaws provide 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
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 only with cause and only by the vote of the holders of a majority of the
shares of capital stock entitled to vote thereon.
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.
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 the 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
Certificate or the Corporation Bylaws, the vote of the holders of a majority of
the shares of capital 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.
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The Corporation. The Corporation Common Stock has no conversion features.
The Corporation Certificate authorizes for issuance shares of
Preferred Stock, par value $.001 per share, and provides that such shares of the
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 the Corporation Common Stock)
as shall be stated in the Corporation Certificate or resolutions providing for
the issuance of the Corporation Preferred Stock. If the Board of Directors were
to designate such a series of the 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 Articles of Incorporation of City National 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
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.
The Corporation. The Corporation Bylaws provide that a special meeting of
the Corporation stockholders may be called by the President and shall be called
by the President or the Secretary at the request in writing by a majority of the
Board of Directors or by the holders of at least a majority of the outstanding
shares of capital stock of the Corporation entitled to vote.
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. Each of the
Corporation Certificate and the Commerce Articles includes such a provision
which, as set forth below, limits such liability to the fullest extent permitted
under applicable law.
Each of the Corporation Restated Certificate and the City National Articles
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
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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
City National Articles of Incorporation 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. 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 shareholder. For business to be properly brought before an
annual meeting by a shareholder, the shareholder must have given timely notice
thereof in writing to the Secretary of the Corporation. To be timely, a
shareholder's notice must be delivered or mailed and received at the principal
executive offices of the Corporation not less than 60 days nor more than 90 days
prior to the meeting; provided, however, that in the event that less than 70
days' notice or prior to public disclosure of the date of the meeting is given
or made to shareholders, notice by the shareholder to be timely must be so
received not later than the close of business on the 10th day following the day
on which such notice of the date of the annual meeting was mailed or such public
disclosure was made. A shareholder's notice to the Secretary shall set forth as
to each matter the shareholder proposes to bring before the annual meeting (i) a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (ii)
the name and address, as they appear on the Corporation's books, of the
shareholder proposing such business, (iii) the class and number of shares of the
Corporation which are beneficially owned by the shareholder, and (iv) any
material interest of the shareholder in such business.
The Corporation Restated Certificate provides that nominations of persons
for election to the Board of Directors of the Corporation may be made at a
meeting of shareholders by or at the direction of the Board of Directors or by
any shareholder of the Corporation entitled to vote for the election of
Directors at the meeting who complies with the notice procedures set forth in
the Corporation Restated Certificate. Such nominations, other than those made by
or at the direction of the Board of Directors, shall be made pursuant to timely
notice in writing to the Secretary of the Corporation. To be timely, a
shareholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Corporation not less than 60 days nor more
than 90 days prior to the meeting, provided; however, that in the event that
less than 70 days' notice or prior public disclosure of the date of the meeting
is given or made to shareholders, notice by the shareholder to be timely must be
so received not later than the close of business on the 10th day following the
date on which such notice of the date of the meeting was mailed or such public
disclosure was made. Such shareholder's notice shall set forth (i) as to each
person whom the shareholder proposes to nominate for election or re-election as
a director, (A) the name, age, business address and residence address of such
person, (B) the principal occupation or employment of such person, (C) the class
and number of shares of the Corporation which are beneficially owned by such
person, and (D) any other information relating to such person that is required
to be disclosed in solicitations of proxies for election of Directors, or is
otherwise required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (including without limitation such persons'
written consent to being named in the proxy statement as a nominee and to
serving as a Director if elected); and (ii) as to the shareholder giving the
notice (1) the name and address, as they appear on the Corporation's books, of
such shareholder and (2) the class and number of shares of the Corporation which
are beneficially owned by such shareholder.
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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 reasonable 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.
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 the Corporation Common Stock.
THE CORPORATION COMMON STOCK
Holders of the 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
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that may be applicable to any outstanding shares of Preferred Stock, holders of
the 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 the Corporation Common Stock are, and the shares to be issued in the
Merger will be, when issued pursuant to the 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 the 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.
THE 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 the Corporation Common Stock and one or more series of the
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 the Corporation Common Stock and one or more series of the
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 the
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 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 the shareholders, 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 shareholder. The Corporation Restated Certificate provides that
nominations of persons for election to the Board of Directors of the Corporation
may be made at a meeting of shareholders by or at the direction of the Board of
243
<PAGE> 264
Directors or by any shareholder of the Corporation entitled to vote for the
election of Directors at the meeting who complies with the notice procedures set
forth in the Corporation Certificate. See "Comparison of Stockholders Rights."
For business to be properly brought before an annual meeting by a shareholder,
the shareholder 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 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
.
244
<PAGE> 265
EXPERTS
The consolidated financial statements of The Banc Corporation for the
indicated periods detailed in the Index to Financial Statements appearing in
this Prospectus-Joint Proxy Statement and Registration Statement have been
audited by , independent auditors, as set forth in their reports
thereon appearing elsewhere herein, and are included in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
, independent public accountants, serve as the independent
accountants for Commerce. One or more representatives of , will
be present at the Special Meeting to respond to appropriate questions of the
stockholders and to make a statement, if they desire to do so.
, independent public accountants, serve as the independent
accountants for First Citizens. One or more representatives of ,
will be present at the Special Meeting to respond to appropriate questions of
the stockholders and to make a statement, if they desire to do so.
, independent public accountants, serve as the independent
accountants for City National. One or more representatives of ,
will be present at the Special Meeting to respond to appropriate questions of
the stockholders and to make a statement, if they desire to do so.
LEGAL MATTERS
The validity of the shares of the 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 are 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.
245
<PAGE> 266
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
THE BANC CORPORATION
Report of Independent Auditors.............................. F-
Consolidated Balance Sheets as of December 31,
and ........................ F-
Consolidated Statements of Operations for the Years ended
December 31, , and
........................................... F-
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, ,
and ....................................... F-
Consolidated Statements of Cash Flows for the Years ended
December 31, , and
........................................... F-
Notes to Consolidated Financial Statements.................. F-
WARRIOR CAPITAL CORPORATION AND SUBSIDIARY
Independent Auditor's Report................................ F-
Consolidated Financial Statements:
Statements of Financial Condition........................... F-
Statements of Income and Comprehensive Income............... F-
Statements of Changes in Stockholders' Equity............... F-
Statements of Cash Flows.................................... F-
Notes to Financial Statements............................... F-
Condensed Consolidated Statement of Financial Condition
(Unaudited)
EMERALD COAST BANCSHARES INC. AND SUBSIDIARY
Independent Auditor's Report................................ F-
Consolidated Statement of Financial Condition............... F-
Consolidated Statement of Operations........................ F-
Consolidated Statement of Changes in Stockholders' Equity... F-
Consolidated Statement of Cash Flows........................ F-
Notes to Consolidated Financial Statements.................. F-
Condensed Consolidated Statement of Financial Condition
(Unaudited)
EMERALD COAST BANK AND SUBSIDIARY
Independent Auditor's Report................................ F-
Consolidated Statement of Financial Condition............... F-
Consolidated Statement of Operations........................ F-
Consolidated Statement of Changes in Stockholders' Equity... F-
Consolidated Statement of Cash Flows........................ F-
Notes to Consolidated Financial Statements.................. F-
EMERALD COAST BANK
Independent Auditor's Report................................ F-
Statement of Financial Condition............................ F-
Statement of Operations..................................... F-
Statement of Changes in Stockholders' Equity................ F-
Statement of Cash Flows..................................... F-
Notes to Financial Statements............................... F-
</TABLE>
F-1
<PAGE> 267
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
COMMERCE BANK OF ALABAMA
Report of Independent Auditors.............................. F-
Consolidated Balance Sheets as of December 31, 1997 and
1996...................................................... F-
Consolidated Statements for the Years ended December 31,
1997, 1996 and 1995....................................... F-
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1997, 1996 and 1995.............. F-
Consolidated Statements of Cash Flows for the Years ended
December 31, 1997, 1996 and 1995.......................... F-
Notes to Consolidated Financial Statements.................. F-
Condensed Consolidated Statement of Financial Condition
(Unaudited)............................................... F-
FIRST CITIZENS BANCORP, INC.
Report of Independent Auditors.............................. F-
Consolidated Balance Sheets as of December 31, 1997 and
1996...................................................... F-
Consolidated Statements of Operations for the Years ended
December 31, 1997, 1996 and 1995.......................... F-
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1997, 1996 and 1995.............. F-
Consolidated Statements of Cash Flows for the Years ended
December 31, 1997, 1996 and 1995.......................... F-
Notes to Consolidated Financial Statements.................. F-
Condensed Consolidated Statement of Financial Condition
(Unaudited)............................................... F-
CITY NATIONAL CORPORATION
Report of Independent Auditors.............................. F-
Consolidated Balance Sheets as of December 31, 1997 and
1996...................................................... F-
Consolidated Statements of Operations for the Years ended
December 31, 1997, 1996 and 1995.......................... F-
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1997, 1996 and 1995.............. F-
Consolidated Statements of Cash Flows for the Years ended
December 31, 1997, 1996 and 1995.......................... F-
Notes to Consolidated Financial Statements.................. F-
Condensed Consolidated Statement of Financial Condition
(Unaudited)............................................... F-
COMMERCIAL BANCSHARES OF ROANOKE, INC.
Report of Independent Auditors.............................. F-
Consolidated Balance Sheets as of December 31, 1997 and
1996...................................................... F-
Consolidated Statements of Operations for the Years ended
December 31, 1997, 1996 and 1995.......................... F-
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1997, 1996 and 1995.............. F-
Consolidated Statements of Cash Flows for the Years ended
December 31, 1997, 1996 and 1995.......................... F-
Notes to Consolidated Financial Statements.................. F-
Condensed Consolidated Statement of Financial Condition
(Unaudited)............................................... F-
</TABLE>
F-2
<PAGE> 268
CONTENTS
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
INDEPENDENT AUDITOR'S REPORT
CONSOLIDATED FINANCIAL STATEMENTS:
Statements of Financial Condition
Statements of Income and Comprehensive Income
Statements of Changes in Stockholders' Equity
Statements of Cash Flows
Notes to Financial Statements
</TABLE>
<PAGE> 269
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.
Birmingham, Alabama
February 5, 1998
<PAGE> 270
WARRIOR CAPITAL 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 $ 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 4,948 1,154
Accrued interest receivable 853 739
Intangible, net 415 432
Other assets 330 335
-------- --------
TOTAL ASSETS $ 82,846 $ 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 10,238 436
Retained earnings 7,673 7,111
Accumulated other comprehensive loss (37) (41)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 17,890 7,515
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 82,846 $ 66,639
======== ========
</TABLE>
See Accompanying Notes to Consolidated
Financial Statements.
<PAGE> 271
WARRIOR CAPITAL 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 $ 3,530 $ 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
<PAGE> 272
WARRIOR CAPITAL 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
Other Total
Common Retained Comprehensive Stockholders'
Stock Surplus Earnings Loss Equity
----- ------- -------- ---- ------
<S> <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)
PROCEEDS FROM ISSUANCE OF 7,456 SHARES OF
COMMON STOCK, NET OF DIRECT COSTS 7 9,802 -- -- 9,809
OTHER COMPREHENSIVE INCOME -- -- -- 4 4
-------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 1997 $ 16 $ 10,238 $ 7,673 $ (37) $ 17,890
======== ======== ======== ======== ========
</TABLE>
<PAGE> 273
WARRIOR CAPITAL CORPORATION 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 $ 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
======== ======== ========
</TABLE>
<PAGE> 274
WARRIOR CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
For the Years Ended December 31, 1997, 1996 and 1995
(In Thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
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) $3,718 $ -- $ --
====== ====== ======
</TABLE>
See Accompanying Notes to Consolidated
Financial Statements.
<PAGE> 275
WARRIOR CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(In Thousand, Except Per Share Data)
NOTE 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.
<PAGE> 276
WARRIOR CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(In Thousand, Except Per Share Data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Loans and Allowance for Loan Losses - 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.
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.
<PAGE> 277
WARRIOR CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(In Thousand, Except Per Share Data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
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.
NOTE 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.
<PAGE> 278
WARRIOR CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(In Thousand, Except Per Share Data)
NOTE 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.
<PAGE> 279
WARRIOR CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(In Thousand, Except Per Share Data)
NOTE 3 - INVESTMENT SECURITIES - CONTINUED
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>
NOTE 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.
<PAGE> 280
WARRIOR CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(In Thousand, Except Per Share Data)
NOTE 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>
NOTE 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) 3,860 --
------- -------
Net premises and equipment $ 4,948 $ 1,154
======= =======
</TABLE>
NOTE 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.
<PAGE> 281
WARRIOR CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(In Thousand, Except Per Share Data)
NOTE 7 - RETIREMENT PLANS - CONTINUED
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.
NOTE 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>
<PAGE> 282
WARRIOR CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(In Thousand, Except Per Share Data)
NOTE 8 - INCOME TAX EXPENSE - CONTINUED
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>
NOTE 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>
<PAGE> 283
WARRIOR CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(In Thousand, Except Per Share Data)
NOTE 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.
NOTE 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>
NOTE 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.
<PAGE> 284
WARRIOR CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(In Thousand, Except Per Share Data)
NOTE 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
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.
<PAGE> 285
WARRIOR CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(In Thousand, Except Per Share Data)
NOTE 12 - REGULATORY RESTRICTIONS - CONTINUED
The Company and its subsidiary's actual capital amounts and ratios are also
presented in the table.
<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
(to Risk Weighted Assets):
Consolidated $18,081 38.51% $ 3,756 8.00% $ 4,695 10.00%
Bank 8,305 19.32 3,439 8.00 4,299 10.00
Tier I Capital
(to Risk Weighted Assets):
Consolidated 17,494 37.26 1,878 4.00 2,817 6.00
Bank 7,654 17.80 1,720 4.00 2,579 6.00
Tier I Capital
(to Average Assets):
Consolidated 17,494 26.11 2,680 4.00 3,350 5.00
Bank 7,654 11.42 2,680 4.00 3,350 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 10.60 2,680 4.00 3,350 5.00
Bank 6,865 10.21 2,689 4.00 3,361 5.00
</TABLE>
<PAGE> 286
WARRIOR CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(In Thousand, Except Per Share Data)
NOTE 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>
NOTE 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.
NOTE 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.
<PAGE> 287
WARRIOR CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(In Thousands, Except Per Share Data)
NOTE 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 $ 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>
<PAGE> 288
WARRIOR CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(In Thousands, Except Per Share Data)
NOTE 17 - 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 3,860 --
Other assets 148 1
------- -------
$18,776 $ 7,538
======= =======
LIABILITIES - ACCOUNTS PAYABLE AND DEFERRED TAXES $ 886 $ 23
STOCKHOLDERS' EQUITY 17,890 7,515
------- -------
$18,776 $ 7,538
======= =======
</TABLE>
<PAGE> 289
WARRIOR CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(In Thousands, Except Per Share Data)
NOTE 17 - 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>
<PAGE> 290
WARRIOR CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(In Thousands, Except Per Share Data)
NOTE 17 - PARENT COMPANY - CONTINUED
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>
<PAGE> 291
Warrior Capital Corporation
Condensed Consolidated Statement of Financial Condition (Unaudited)
As of March 31, 1998
(In Thousands)
<TABLE>
<CAPTION>
March 31,
1998
---------
<S> <C>
ASSETS
Cash and due from banks $ 3,782
Federal funds sold 3,000
Investment securities available for sale 216
Investment securities held to maturity 28,920
Loans, net of unearned 42,791
Less: Allowance for loan losses (700)
--------
Net loans 42,091
--------
Premises and equipment, net 5,546
Other assets 3,342
--------
TOTAL ASSETS $ 86,897
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing $ 13,367
Interest-bearing 51,672
--------
TOTAL DEPOSITS 65,039
Accrued expenses and other liabilities 1,239
--------
TOTAL LIABILITIES 66,278
Minority interest in equity of subsidiary 19
Stockholders' Equity
Common stock, par value $1 per share; authorized 30,000 shares; 18
18,160 shares issued and outstanding
Surplus 12,606
Retained earnings 8,013
Accumulated other comprehensive loss (37)
--------
TOTAL STOCKHOLDERS' EQUITY 20,600
--------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 86,897
========
</TABLE>
See Note to Unaudited Condensed Financial Statements.
<PAGE> 292
Warrior Capital Corporation
Condensed Consolidated Statements of Income and Comprehensive Income (Unaudited)
Three Months Ended March 31, 1998 and 1997
(In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Interest Income $ 1,574 $ 1,260
Interest expense 649 550
------- -------
Net interest income 925 710
Provision for loan losses 34 45
------- -------
Net interest income after provision for loan losses 891 665
Noninterest income 137 122
Noninterest expenses 639 466
------- -------
Income before income taxes 389 321
Income tax expense 50 113
------- -------
Net income 339 208
Other comprehensive loss, net of tax:
Unrealized loss on securities available for sale -- (6)
------- -------
Comprehensive income $ 339 $ 202
======= =======
Basic earnings per share $ 18.85 $ 22.97
======= =======
Average number of shares outstanding 17,985 9,054
======= =======
</TABLE>
See Note to Unaudited Condensed Financial Statements.
<PAGE> 293
Warrior Capital Corporation
Condensed Consolidated Statement of Changes in Stockholders' Equity (Unaudited)
Three Months Ended March 31, 1998
(In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
Accumulated
Other Total
Common Retained Comprehensive Stockholders'
Stock Surplus Earnings Loss Equity
------- ------- ------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 $ 16 $10,238 $ 7,674 $ (37) $17,891
Net income -- -- 339 -- 339
Issuance of 1,650 shares of
common stock 2 2,368 -- -- 2,370
------- ------- ------- ------- -------
Balance at March 31, 1998 $ 18 $12,606 $ 8,013 $ (37) $20,600
======= ======= ======= ======= =======
</TABLE>
See Note to Unaudited Condensed Financial Statements.
<PAGE> 294
Warrior Capital Corporation
Condensed Consolidated Statements of Cash Flow (Unaudited)
Three Months Ended March 31, 1998 and 1997
(In Thousands)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Net cash provided by operating activites $ 358 $ 416
-------- --------
Cash flows from investing activities:
Net decrease in federal funds sold 14,000 1,225
Proceeds from sales of securities available for sale 7 6
Proceeds from maturities of investment securities held to maturity -- 2,616
Purchases of investment securities held to maturity (5,125) (3,681)
Net increase in loans (10,381) (1,617)
Purchases of premises and equipment (630) (24)
-------- --------
Net cash used in investing activities (2,129) (1,475)
-------- --------
Cash flows from financing activities:
Net increase in deposit accounts 1,153 1,983
Proceeds from issuance of common stock 862 --
Cash dividends paid -- (135)
-------- --------
Net cash provided by financing activities 2,015 1,848
-------- --------
Net increase in cash and due from banks 244 789
Cash and due from banks at beginning of period 3,538 3,388
-------- --------
Cash and due from banks at end of period $ 3,782 $ 4,177
======== ========
Supplemental Cash Flow Information:
Selected cash payments and noncash activities were as follows:
Cash payments for income taxes $ 6 $ --
Cash payments for interest 528 423
</TABLE>
See Note to Unaudited Condensed Financial Statements.
<PAGE> 295
WARRIOR CAPITAL CORPORATION
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 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 priniciples for
interim financial information and, accordingly, do not include all of the 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.
<PAGE> 296
EMERALD COAST BANCSHARES INC. AND SUBSIDIARY
PANAMA CITY BEACH, FLORIDA
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditor's Report 1
Consolidated Statement of Financial Condition 2
Consolidated Statement of Operations 3
Consolidated Statement of Changes in Stockholders' Equity 4
Consolidated Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6
</TABLE>
<PAGE> 297
[SC&G LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Emerald Coast Bancshares, Inc. and Subsidiary
Panama City Beach, Florida
We have audited the accompanying consolidated statement of financial condition
of Emerald Coast Bancshares, Inc. and Subsidiary as of December 31, 1997, and
the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for the eight and one half months then ended. 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 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 Emerald Coast
Bancshares, Inc. and Subsidiary as of December 31, 1997, and the consolidated
results of their operations and their cash flows for the eight and one half
months then ended 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
-1-
<PAGE> 298
EMERALD COAST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Cash and due from banks $ 3,496,277
Securities available for sale 8,529,253
Loans receivable, net of allowance for loan losses
of $387,826 37,437,148
Accrued interest receivable 358,349
Premises and equipment 5,587,492
Deferred income taxes 448,535
Other assets 139,995
------------
TOTAL ASSETS $ 55,997,049
============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Demand deposits $ 11,296,263
NOW and money market deposits 9,267,938
Savings deposits 526,242
Other time deposits 21,532,177
------------
Total deposits 42,622,620
Federal funds purchased 7,670,000
Accrued interest payable 177,812
Other liabilities 10,994
------------
Total liabilities 50,481,426
------------
COMMITMENTS AND CONTINGENCIES --
STOCKHOLDERS' EQUITY:
Common stock, $5 par value; 10,000,000 shares
authorized, 626,000 shares issued and outstanding 3,130,000
Surplus 3,130,000
Accumulated deficit (750,104)
Net unrealized depreciation on available-for-sale
securities, net of taxes of $3,465 5,727
------------
Total stockholders' equity 5,515,623
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 55,997,049
============
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements
-2-
<PAGE> 299
EMERALD COAST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
EIGHT AND ONE HALF MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
INTEREST INCOME:
Loans receivable and fees on loans $ 2,160,877
Investment securities 319,365
Federal funds sold 21,656
-----------
Total interest income 2,501,898
-----------
INTEREST EXPENSE:
Deposits 1,198,941
Federal funds purchased 74,727
-----------
Total interest expense 1,273,668
-----------
Net interest income 1,228,230
PROVISION FOR LOAN LOSSES 260,000
-----------
Net interest income after provision for loan losses 968,230
-----------
NONINTEREST INCOME:
Service charges on deposit accounts 57,987
Other income 43,867
-----------
Total noninterest income 101,854
-----------
NONINTEREST EXPENSES:
Salaries and employee benefits 775,532
Occupancy expense 104,492
Other expense 623,689
-----------
Total noninterest expenses 1,503,713
-----------
LOSS BEFORE INCOME TAX BENEFIT (433,629)
INCOME TAX BENEFIT 110,209
-----------
NET LOSS $ (323,420)
===========
NET LOSS PER SHARE OF COMMON STOCK $ .52
===========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements
-3-
<PAGE> 300
EMERALD COAST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
EIGHT AND ONE HALF MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Net
Unrealized
Appreciation
(Depreciation)
on Available-
Common Accumulated for-Sale
Stock Surplus Deficit Securities Total
---------- ---------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, APRIL 16, 1997 -
Date of formation $3,130,000 $3,130,000 $ (426,684) $ (22,831) $ 5,810,485
Net loss (323,420) (323,420)
Net change in unrealized
appreciation (depreciation)
on available-for-sale securities,
net of tax of $15,221 28,558 28,558
---------- ---------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1996 $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
-4-
<PAGE> 301
EMERALD COAST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
EIGHT AND ONE HALF MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (323,420)
Adjustments to reconcile net loss to net cash
used in operating activities -
Depreciation and amortization 234,361
Provision for loan losses 260,000
Net accretion/amortization on securities (6,045)
Net gain on sale of securities (4,747)
Deferred income taxes (110,209)
Change in operating assets and liabilities -
Increase in accrued interest receivable (148,697)
Decrease in other assets 30,411
Increase in accrued interest payable and other liabilities 64,786
------------
Net cash used in operating activities (3,560)
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities (7,987,778)
Proceeds from sales and maturities of available-for-sale securities 4,316,495
Net increase in loans (14,828,435)
Net purchases of premises and equipment (2,470,987)
------------
Net cash used in investing activities (20,970,705)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in non-interest bearing demand, NOW,
money market and savings deposits 6,724,322
Net increase in time deposits 7,903,759
Net increase in federal funds purchased 7,670,000
------------
Net cash provided by financing activities 22,298,081
------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,323,816
CASH AND CASH EQUIVALENTS, APRIL 16, 1997 -
Date of Formation 2,172,461
------------
CASH AND CASH EQUIVALENTS, DECEMBER 31, 1997 $ 3,496,277
============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 1,202,295
============
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
-5-
<PAGE> 302
EMERALD COAST BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 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 was accounted for as a
pooling-of-interest.
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.
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.
-6-
<PAGE> 303
EMERALD COAST BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
-6-
(Sheet II)
<PAGE> 304
EMERALD COAST BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 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, are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. government and agency securities $8,520,061 $ 13,347 $ (4,155) $8,529,253
========== ========== ========== ==========
</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 an amortized cost and a fair value of
approximately $5,612,000 and $5,619,400, respectively at December 31, 1997,
were pledged to secure public deposits and for other purposes required or
permitted by law.
-6-
(Sheet III)
<PAGE> 305
EMERALD COAST BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 3 - LOANS RECEIVABLE
The components of loans in the consolidated statement of financial condition
are as follows:
<TABLE>
<S> <C>
Commercial $ 14,214,394
Real estate 18,988,419
Consumer 2,035,360
Lines of credit 2,610,200
------------
37,848,373
Net deferred loan fees (23,399)
Allowance for loan losses (387,826)
------------
Loans receivable, net $ 37,437,148
============
</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.
An analysis of the change in the allowance for loan losses follows:
<TABLE>
<S> <C>
Balance, at April 16, 1997 $ 142,500
Loans charged off (14,674)
Provision for loan losses 260,000
---------
Balance, at December 31, 1997 $ 387,826
=========
</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 eight and a half months ended
December 31, 1997. Interest income on those loans is recorded only when
received.
-6-
(Sheet IV)
<PAGE> 306
EMERALD COAST BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 4 - PREMISES AND EQUIPMENT
Components of premises and equipment included in the consolidated statement
of financial condition were as follows:
<TABLE>
<S> <C>
Land $ 1,164,072
Land improvements 330,447
Buildings and improvements 2,457,491
Furniture and equipment 1,519,935
Software 272,084
Vehicles 132,123
Leasehold improvements 17,491
-----------
5,893,643
Less: Accumulated depreciation and amortization (309,036)
-----------
5,584,607
Construction in progress 2,885
-----------
$ 5,587,492
===========
</TABLE>
Depreciation and amortization expense charged to operations amounted to $
234,361 for the eight and a half months ended December 31, 1997.
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>
<S> <C>
Year ending
December 31,
------------
1998 $22,836
1999 22,836
2000 11,418
-------
Total minimum lease payments $57,090
=======
</TABLE>
Rental expense relating to operating leases, including leases that expired
during 1997, amounted to approximately $52,180 in 1997.
-6-
(Sheet V)
<PAGE> 307
EMERALD COAST BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 5 - TIME DEPOSITS
The aggregate amount of time deposits, each with a minimum denomination of
$100,000, was approximately $8,994,500 in 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>
NOTE 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.
NOTE 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.
-6-
(Sheet VI)
<PAGE> 308
EMERALD COAST BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 8 - INCOME TAXES
The financial statements of the Company reflect a zero income tax provision
for current federal and state income taxes for the eight and a half months
ended December 31, 1997, as a result of the net operating loss incurred. The
deferred tax benefit for 1997 primarily relates to the expected future
benefit from the 1997 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.
The tax effects of each type of significant item that gave rise to deferred
income taxes are:
<TABLE>
<S> <C>
Deferred tax assets:
Expected benefit of net operating loss carryforwards $ 305,790
Allowance for loan losses 146,210
---------
452,000
Deferred tax liabilities:
Net unrealized appreciation on available-for-sale securities (3,465)
---------
$ 448,535
=========
</TABLE>
NOTE 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.
NOTE 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.
-6-
(Sheet VII)
<PAGE> 309
EMERALD COAST BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 10 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Financial Instruments (Continued):
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 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.
-6-
(Sheet VIII)
<PAGE> 310
EMERALD COAST BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 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.
NOTE 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, was approximately
$2,335,000. 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 at December 31, 1997.
NOTE 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 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 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.
-6-
(Sheet IX)
<PAGE> 311
EMERALD COAST BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 13 - REGULATORY MATTERS (CONTINUED)
<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>
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%
</TABLE>
NOTE 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.
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.
-6-
(Sheet X)
<PAGE> 312
EMERALD COAST BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 14 - FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
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.
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
Carrying Fair
Amount Value
----------- -----------
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ 3,496,277 $ 3,496,277
Securities available-for-sale 8,529,253 8,529,253
Loans receivable 37,437,148 37,495,223
Accrued interest receivable 358,349 358,349
Financial liabilities:
Deposits 42,622,620 42,607,998
Federal funds purchased 7,670,000 7,670,000
Accrued interest payable 177,812 177,812
</TABLE>
-6-
(Sheet XI)
<PAGE> 313
EMERALD COAST BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 15 - SUBSEQUENT EVENT
Subsequent to yearend 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.
-6-
(Sheet XII)
<PAGE> 314
Emerald Coast Bancshares, Inc.
Condensed Consolidated Statement of Financial Condition (Unaudited)
As of March 31, 1998
(In Thousands)
<TABLE>
<CAPTION>
March 31,
1998
--------
<S> <C>
ASSETS
Cash and due from banks $ 8,546
Investment securities available for sale 7,559
Loans, net of unearned 43,778
Less: Allowance for loan losses (441)
--------
Net loans 43,337
--------
Premises and equipment, net 5,527
Other assets 1,264
--------
TOTAL ASSETS $ 66,233
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing $ 6,046
Interest-bearing 52,295
--------
TOTAL DEPOSITS 58,341
Federal funds purchased and other borrowed funds 2,105
Accrued expenses and other liabilities 312
--------
TOTAL LIABILITIES 60,758
Stockholders' Equity
Common stock, par value $5 per share; authorized shares $10,000,000;
626,000 shares issued and outstanding 3,130
Surplus 3,130
Accumulated deficit (794)
Accumulated other comprehensive income 9
--------
TOTAL STOCKHOLDERS' EQUITY 5,475
--------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 66,233
========
See Note to Unaudited Condensed Financial Statements.
</TABLE>
<PAGE> 315
Emerald Coast Bancshares, Inc.
Condensed Statements of Loss and Comprehensive Loss (Unaudited)
Three Months Ended March 31, 1998 and 1997
(In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
Bank
Consoldated Only
1998 1997
--------- ---------
<S> <C> <C>
Interest Income $ 1,118 $ 512
Interest expense 563 224
--------- ---------
Net interest income 555 288
Provision for loan losses 78 73
--------- ---------
Net interest income after provision for loan losses 477 215
Noninterest income 114 10
Gain on sale of securities 18 --
Noninterest expenses 678 378
--------- ---------
Loss before income tax benefit (69) (153)
Income tax benefit (25) (85)
--------- ---------
Net loss (44) (68)
Other comprehensive income (loss), net of tax:
Unrealized gain(loss) on securities available for sale 4 (21)
--------- ---------
Comprehensive loss $ (40) $ (89)
========= =========
Basic loss per share $ (0.07) $ (0.11)
========= =========
Average number of shares outstanding 626,000 626,000
========= =========
</TABLE>
See Note to Unaudited Condensed Financial Statements.
<PAGE> 316
Emerald Coast Bancshares, Inc.
Condensed Consolidated Statement of Changes in Stockholders' Equity (Unaudited)
Three Months Ended March 31, 1998
(In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
Accumulated
Other Total
Common Accumulated Comprehensive Stockholders'
Stock Surplus Deficit Income Equity
------ ----------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 $3,130 $ 3,130 $ (750) $ 5 $ 5,515
Net loss -- -- (44) -- (44)
Other comprehensive income -- -- -- 4 4
------ ----------- -------- ------------- ------------
Balance at March 31, 1998 $3,130 $ 3,130 $ (794) $ 9 $ 5,475
====== =========== ======== ============= ============
</TABLE>
See Note to Unaudited Condensed Financial Statements.
<PAGE> 317
Emerald Coast Bancshares, Inc.
Condensed Statements of Cash Flow (Unaudited)
Three Months Ended March 31, 1998 and 1997
(In Thousands)
<TABLE>
<CAPTION>
Bank
Consolidated Only
1998 1997
------------- --------
<S> <C> <C>
Net cash provided (used) by operating activites $ 86 $ (58)
------------- --------
Cash flows from investing activities:
Proceeds from sales of securities available for sale 1,745 --
Proceeds from maturities of investment securities available for sale 1,000 400
Purchases of investment securities available for sale (1,751) (401)
Purchase of stock in FHLB (168) --
Net increase in loans (5,978) (9,504)
Purchases of premises and equipment (37) (1,024)
------------- --------
Net cash used in investing activities (5,189) (10,529)
------------- --------
Cash flows from financing activities:
Net increase in deposit accounts 15,718 9,751
Net decrease in short-term borrowings (5,565) --
------------- --------
Net cash provided by financing activities 10,153 9,751
------------- --------
Net increase (decrease) in cash and cash equivalents 5,050 (836)
Cash and cash equivalents at beginning of period 3,496 2,100
------------- --------
Cash and cash equivalents at end of period $ 8,546 $ 1,264
============= ========
Supplemental Cash Flow Information:
Selected cash payments and noncash activities were as follows:
Cash payments for income taxes $ -- $ --
Cash payments for interest 484 187
</TABLE>
See Note to Unaudited Condensed Financial Statements.
<PAGE> 318
EMERALD COAST BANCSHARES, INC.
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 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 priniciples for
interim financial information and, accordingly, do not include all of the 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.
<PAGE> 319
EMERALD COAST BANK AND SUBSIDIARY
PANAMA CITY BEACH, FLORIDA
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
CONTENTS
PAGE
Independent Auditor's Report 1
Consolidated Statement of Financial Condition 2
Consolidated Statement of Operations 3
Consolidated Statement of Changes in Stockholders' Equity 4
Consolidated Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6
<PAGE> 320
[SC&G Letterhead]
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Emerald Coast Bank
Panama City Beach, Florida
We have audited the accompanying consolidated statement of financial condition
of Emerald Coast Bank and Subsidiary as of December 31, 1997, and the related
consolidated statements of operations, changes in 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 consolidated 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 Emerald Coast
Bank and Subsidiary as of 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.
/s/ Saltmarsh, Cleaveland & Gund
Pensacola, Florida
March 9, 1998, except for Note 15,
as to which date is May 4, 1998
-1-
<PAGE> 321
EMERALD COAST BANK AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash and due from banks $3,496,277
Securities available for sale 8,529,253
Loans receivable, net of allowance for loan losses
of $387,826 37,437,148
Accrued interest receivable 358,349
Premises and equipment 5,587,492
Deferred income taxes 448,535
Other assets 128,440
---------------
TOTAL ASSETS $55,985,494
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Demand deposits $11,312,686
NOW and money market deposits 9,267,938
Savings deposits 526,242
Other time deposits 21,532,177
---------------
Total deposits 42,639,043
Federal funds purchased 7,670,000
Accrued interest payable 177,812
Other liabilities 10,994
---------------
Total liabilities 50,497,849
COMMITMENTS AND CONTINGENCIES -
STOCKHOLDERS' EQUITY:
Common stock, $5 par value; 10,000,000 shares
authorized, 626,000 shares issued and outstanding 3,130,000
Surplus 3,100,000
Accumulated deficit (748,082)
Net unrealized appreciation on available-for-sale
securities, net of taxes of $3,465 5,727
---------------
Total stockholders' equity 5,487,645
---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $55,985,494
===============
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements
-2-
<PAGE> 322
EMERALD COAST BANK AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
INTEREST INCOME:
Loans receivable and fees on loans $2,694,995
Investment securities 388,516
Federal funds sold 30,935
---------------
Total interest income 3,114,446
INTEREST EXPENSE:
Deposits 1,474,472
Federal funds purchased 76,869
Total interest expense 1,551,341
Net interest income 1,563,105
PROVISION FOR LOAN LOSSES 332,500
Net interest income after provision for loan losses 1,230,605
---------------
NONINTEREST INCOME:
Service charges on deposit accounts 67,667
Other income 47,027
Total noninterest income 114,694
NONINTEREST EXPENSES:
Salaries and employee benefits 1,016,915
Occupancy expense 152,177
Other expense 765,245
---------------
Total noninterest expenses 1,934,337
LOSS BEFORE INCOME TAX BENEFIT (589,038)
INCOME TAX BENEFIT 195,250
NET LOSS $ (393,788)
===============
NET LOSS PER SHARE OF COMMON STOCK $ (.63)
===============
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements
-3-
<PAGE> 323
EMERALD COAST BANK AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Net
Unrealized
Appreciation
(Depreciation)
on Available-
Common Accumulated for-Sale
Stock Surplus Deficit Securities Total
------- ------- ---------- --------------- -----
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997 3,130,000 3,130,000 (354,294) (1,861) 5,903,845
Capital contribution to
holding company (30,000) (30,000)
Net loss (393,788) (393,788)
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 $3,100,000 $(748,082) $5,727 $5,487,645
=============== ================ =============== ================ ==============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-4-
<PAGE> 324
EMERALD COAST BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(393,788)
Adjustments to reconcile net loss to net cash
used in operating activities -
Depreciation and amortization 282,987
Provision for loan losses 332,500
Net accretion/amortization on securities (5,584)
Net gain on sale of securities (4,747)
Deferred income taxes (195,250)
Change in operating assets and liabilities -
Increase in accrued interest receivable (246,200)
Decrease in other assets 41,998
Increase in accrued interest payable and other liabilities 115,933
---------------
Net cash used in operating activities (72,151)
---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities (9,037,053)
Proceeds from sales and maturities of available-for-sale securities 4,966,495
Net increase in loans (25,993,276)
Net purchases of premises and equipment (3,506,404)
---------------
Net cash used in investing activities (33,570,238)
---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in non-interest bearing demand, NOW,
money market and savings deposits 13,703,835
Net increase in time deposits 13,695,216
Net increase in federal funds purchased 7,670,000
Capital contribution to holding company (30,000)
---------------
Net cash provided by financing activities 35,039,051
---------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,396,662
CASH AND CASH EQUIVALENTS, AT BEGINNING OF YEAR 2,099,615
---------------
CASH AND CASH EQUIVALENTS, AT END OF YEAR $3,496,277
===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $1,442,402
===============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-5-
<PAGE> 325
EMERALD COAST BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Ownership:
Emerald Coast Bank (the "Bank") is a wholly-owned subsidiary of Emerald
Coast Bankshares, Inc., (the "Company"), a bank holding company
organized under the laws of the State of Florida.
Principles of Consolidation:
The consolidated financial statements include the accounts of the Bank
and 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 four 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.
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.
-6-
<PAGE> 326
EMERALD COAST BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 Bank and its subsidiary are included in the consolidated income tax
returns of the Company, 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 number of shares
outstanding.
-6-
(Sheet II)
<PAGE> 327
EMERALD COAST BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 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, are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ----------- ---------- -----
<S> <C> <C> <C> <C>
U.S. government and agency securities $8,520,061 $13,347 $(4,155) $8,529,253
=============== ============== =============== ==============
</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 an amortized cost and a fair value of
approximately $5,612,000 and $5,619,400, respectively at December 31,
1997, were pledged to secure public deposits and for other purposes
required or permitted by law.
-6-
(Sheet III)
<PAGE> 328
EMERALD COAST BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 3 - LOANS RECEIVABLE
The components of loans in the consolidated statement of financial
condition are as follows:
<TABLE>
<S> <C>
Commercial $14,214,394
Real estate 18,988,419
Consumer 2,035,360
Lines of credit 2,610,200
----------------
37,848,373
Net deferred loan fees (23,399)
Allowance for loan losses (387,826)
Loans receivable, net $37,437,148
================
</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.
An analysis of the change in the allowance for loan losses follows:
<TABLE>
<S> <C>
Balance, at January 1, 1997 $ 70,000
Loans charged off (14,674)
Provision for loan losses 332,500
Balance, at December 31, 1997 $387,826
================
</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 in 1997. Interest
income on those loans is recorded only when received.
-6-
(Sheet IV)
<PAGE> 329
EMERALD COAST BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 4 - PREMISES AND EQUIPMENT
Components of premises and equipment included in the consolidated
statement of financial condition were as follows:
<TABLE>
<CAPTION>
<S> <C>
Land $1,164,072
Land improvements 330,447
Buildings and improvements 2,457,491
Furniture and equipment 1,519,935
Software 272,084
Vehicles 132,123
Leasehold improvements 17,491
----------------
5,893,643
Less: Accumulated depreciation and amortization (309,036)
----------------
5,584,607
Construction in progress 2,885
----------------
$5,587,492
================
</TABLE>
Depreciation and amortization expense charged to operations amounted to
$ 282,987 for the year ended December 31, 1997, respectively.
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>
Year ending
December 31,
------------
<S> <C>
1998 $22,836
1999 22,836
2000 11,418
----------------
Total minimum lease payments $57,090
================
</TABLE>
Rental expense relating to operating leases, including leases that
expired during 1997, amounted to approximately $52,180 in 1997.
-6-
(Sheet V)
<PAGE> 330
EMERALD COAST BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 5 - TIME DEPOSITS
The aggregate amount of time deposits, each with a minimum denomination
of $100,000, was approximately $8,664,500 in 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>
NOTE 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.
NOTE 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.
-6-
(Sheet VI)
<PAGE> 331
EMERALD COAST BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 8 - INCOME TAXES
The financial statements of the Bank reflect a zero income tax provision
for current federal and state income taxes for the year ended December
31, 1997, as a result of the net operating loss incurred. The deferred
tax benefit for 1997 primarily relates to the expected future benefit
from the 1997 net operating loss. The net operating loss carryforwards
available to the Bank will expire in 2011 and 2012 and amounted to
approximately $811,000 at December 31, 1997.
The tax effects of each type of significant item that gave rise to
deferred income taxes are:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax assets:
Expected benefit of net operating loss carryforwards $305,790
Allowance for loan losses 146,210
----------------
452,000
Deferred tax liabilities:
Net unrealized appreciation on available-for-sale securities (3,465)
----------------
Net deferred tax asset $448,535
================
</TABLE>
NOTE 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.
NOTE 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.
-6-
(Sheet VII)
<PAGE> 332
EMERALD COAST BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 10 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Financial Instruments (Continued):
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 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>
<CAPTION>
<S> <C>
Commitments to extend credit $4,284,000
================
Standby letters of credit $525,385
================
</TABLE>
Other:
In the ordinary course of business, the Bank has various outstanding
contingent liabilities that are not reflected in the accompanying
financial statements. In addition, the Bank 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 Bank.
-6-
(Sheet VIII)
<PAGE> 333
EMERALD COAST BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 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
balances held at 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.
NOTE 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, was
approximately $2,335,000. 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 at December 31, 1997.
NOTE 13 - REGULATORY MATTERS
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.
Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Bank must meet specific capital guidelines
that involve quantitative measures of the Bank's assets, liabilities,
and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are
also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital
(as defined) to average assets (as defined). Management believes, as of
December 31, 1997, that the Bank meets all capital adequacy requirements
to which it is subject.
As of December 31, 1997, the most recent notification that the Bank had
received from the FDIC categorized the Bank as well capitalized under
the regulatory framework for prompt corrective action. To be categorized
as well capitalized the Bank must maintain minimum total risk-based,
Tier I risk-based, and Tier I leverage ratios as set forth in the table.
There are no conditions or events since that notification that
management believes have changed the Bank's category.
<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
(to Risk Weighted Assets) $5,869,744 13.50% > $3,479,387 > 8.0% > $4,349,234 > 10.0%
Tier I Capital
(to Risk Weighted Assets) $5,481,918 12.60% > $1,739,694 > 4.0% > $2,609,540 > 6.0%
Tier I Capital
(to Average Assets) $5,481,918 10.47% > $2,093,360 > 4.0% > $2,616,700 > 5.0%
</TABLE>
-6-
(Sheet IX)
<PAGE> 334
EMERALD COAST BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 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.
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
heir 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.
-6-
(Sheet XI)
<PAGE> 335
EMERALD COAST BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 14 - FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
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
Carrying Fair
Amount Value
------------- -----------
<S> <C> <C>
Financial assets:
Cash and cash equivalents $3,496,277 $3,496,277
Securities available-for-sale 8,529,253 8,529,253
Loans receivable 37,437,148 37,495,223
Accrued interest receivable 358,349 358,349
Financial liabilities:
Deposits 42,622,620 42,607,998
Federal funds purchased 7,670,000 7,670,000
Accrued interest payable 177,812 177,812
</TABLE>
NOTE 15 - SUBSEQUENT EVENT
Subsequent to yearend 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.
-6-
(Sheet XII)
<PAGE> 336
EMERALD COAST BANK
PANAMA CITY BEACH, FLORIDA
FINANCIAL STATEMENTS
DECEMBER 31, 1996
CONTENTS
PAGE
Independent Auditor's Report 1
Statement of Financial Condition 2
Statement of Operations 3
Statement of Changes in Stockholders' Equity 4
Statement of Cash Flows 5
Notes to Financial Statements 6
<PAGE> 337
SC&G LOGO
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Emerald Coast Bank
Panama City Beach, Florida
We have audited the accompanying statement of financial condition of Emerald
Coast Bank as of December 31, 1996, and the related statements of operations,
changes in stockholders' equity, and cash flows for the four months 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 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 financial position of Emerald Coast Bank as of
December 31, 1996, and the results of its operations and its cash flows for the
four months then ended in conformity with generally accepted accounting
principles.
Saltmarsh, Cleaveland & Gund
Pensacola, Florida
March 18, 1997
-1-
<PAGE> 338
EMERALD COAST BANK
STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Cash and due from banks $1,689,615
Federal funds sold 410,000
Securities available for sale 4,436,071
Loans receivable, net of allowance for loan losses
of $70,000 11,776,372
Accrued interest receivable 112,149
Premises and equipment 2,364,075
Deferred income taxes 257,990
Other assets 170,438
-----------
TOTAL ASSETS $21,216,710
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Demand deposits $5,092,673
NOW and money market deposits 2,128,003
Savings deposits 182,355
Other time deposits 7,836,961
-----------
Total deposits 15,239,992
Accrued interest payable 68,873
Other liabilities 4,000
-----------
Total liabilities 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
Surplus 3,130,000
Accumulated deficit (354,294)
Net unrealized depreciation on available-for-sale
securities, net of taxes of $1,240 (1,861)
-----------
Total stockholders' equity 5,903,845
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $21,216,710
===========
</TABLE>
The accompanying notes are an integral
part of these financial statements
-2-
<PAGE> 339
EMERALD COAST BANK
STATEMENT OF OPERATIONS
FOUR MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
INTEREST INCOME:
Loans receivable and fees on loans $ 249,957
Investment securities 40,049
Federal funds sold 70,098
---------
Total interest income 360,104
INTEREST EXPENSE ON DEPOSITS 139,112
Net interest income 220,992
PROVISION FOR LOAN LOSSES 70,000
Net interest income after provision for loan losses 150,992
---------
NONINTEREST INCOME:
Service charges on deposit accounts 3,123
Other income 6,547
Total noninterest income 9,670
NONINTEREST EXPENSES:
Salaries and employee benefits 269,328
Occupancy expense 48,492
Other expense 231,104
---------
Total noninterest expenses 548,924
LOSS BEFORE INCOME TAX BENEFIT (388,262)
INCOME TAX BENEFIT (256,750)
NET LOSS $(131,512)
=========
NET LOSS PER SHARE OF COMMON STOCK $(0.21)
========
</TABLE>
The accompanying notes are an integral
part of these financial statements
-3-
<PAGE> 340
EMERALD COAST BANK
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOUR MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Net
Unrealized
Depreciation
on Available-
Common Accumulated for-Sale
Stock Surplus Deficit Securities Total
<S> <C> <C> <C> <C> <C>
ISSUANCE OF COMMON STOCK $3,120,000 $3,120,000 $ - $ - $6,240,000
Expenses incurred during
startup period (222,782) (222,782)
---------- ---------- --------- ------- ----------
BALANCE, AUGUST 30, 1996 -
Date of Bank inception 3,120,000 3,120,000 (222,782) - 6,017,218
Issuance of common stock 10,000 10,000 20,000
Net loss (131,512) (131,512)
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
========== ========== ========= ======= ==========
</TABLE>
The accompanying notes are an integral
part of these financial statements
-4-
<PAGE> 341
EMERALD COAST BANK
STATEMENT OF CASH FLOWS
FOUR MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (131,512)
Adjustments to reconcile net loss to net cash
used in operating activities -
Depreciation and amortization 62,678
Provision for loan losses 70,000
Net accretion/amortization on securities 737
Amortization of organization expenses 9,441
Deferred income taxes (256,750)
Change in operating assets and liabilities -
Increase in accrued interest receivable (112,149)
Increase in other assets (58,408)
Increase in accrued interest payable and other liabilities 43,787
-----------
Net cash used in operating activities (372,176)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities (4,439,909)
Net increase in loans (11,846,372)
Net purchases of premises and equipment (1,117,080)
-----------
Net cash used in investing activities (17,403,361)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in non-interest bearing demand, NOW,
money market and savings deposits 7,403,031
Net increase in time deposits 7,836,961
Issuance of common stock 20,000
-----------
Net cash provided by financing activities 15,259,992
-----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,515,545)
CASH AND CASH EQUIVALENTS, AUGUST 30, 1996 -
Date of Bank inception 4,615,160
CASH AND CASH EQUIVALENTS, DECEMBER 31, 1996 $2,099,615
===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 70,239
===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
-5-
<PAGE> 342
EMERALD COAST BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization:
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 reflected as a reduction of capital
at the date of Bank inception.
Nature of Business:
Emerald Coast 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 branch
locations 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 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 nor 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.
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.
-6-
(Sheet II)
<PAGE> 343
EMERALD COAST BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
For other nonperforming loans for which impairment has not been
recognized the accrual of interest is discontinued on a loan when
management believes after considering economic and business
conditions that the borrower's financial condition is such that the
collection of interest is questionable.
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 currently enacted
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.
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 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 of common stock outstanding.
-6-
(Sheet III)
<PAGE> 344
EMERALD COAST BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 2 - INVESTMENT SECURITIES
Securities have been classified in the 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, 1996, are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
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, 1996, 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, 1996, are as follows:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
<S> <C> <C>
Due in one year or less $ 499,994 $500,270
Due from one to five years 3,939,178 3,935,801
---------- ---------
$4,439,172 $4,436,071
========== ==========
</TABLE>
Investment securities with an amortized cost and a fair value of
approximately $250,000 at December 31, 1996, were pledged to secure
public deposits and for other purposes required or permitted by law.
-6-
(Sheet III)
<PAGE> 345
EMERALD COAST BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 3 - LOANS RECEIVABLE
The components of loans in the statement of financial condition are as
follows:
<TABLE>
<S> <C>
Commercial $ 4,724,795
Real estate 5,559,481
Consumer 852,162
Lines of credit 731,200
-----------
11,867,638
Unearned discount and fees (21,266)
Allowance for loan losses (70,000)
-----------
Loans receivable, net $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.
An analysis of the change in the allowance for loan losses follows:
<TABLE>
<S> <C>
Balance, at August 30, 1996 $ -0-
Provision for loan losses 70,000
----------
Balance, at December 31, 1996 $ 70,000
==========
</TABLE>
NOTE 4 - PREMISES AND EQUIPMENT
Components of premises and equipment included in the statement of
financial condition were as follows:
<TABLE>
<S> <C>
Land $1,164,072
Furniture and equipment 839,128
Vehicles 131,791
Leasehold improvements 35,986
----------
2,170,977
Less: Accumulated depreciation and amortization (62,678)
----------
2,108,299
Construction in progress 255,776
----------
$2,364,075
==========
</TABLE>
Depreciation and amortization expense charged to operations amounted to
$62,678 for the four months ended December 31, 1996.
-6-
(Sheet V)
<PAGE> 346
EMERALD COAST BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 5 - TIME DEPOSITS
The aggregate amount of CDs, each with a minimum denomination of
$100,000, was approximately $3,773,000 at December 31, 1996.
At December 31, 1996, the scheduled maturities of CDs are as follows:
1997 $1,606,645
1998 5,869,316
1999 10,000
2000 351,000
----------
$7,836,961
NOTE 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.
NOTE 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 compensation cost
is not considered significant; therefore, it is not reflected in the
financial statements at December 31, 1996.
-6-
(Sheet VI)
<PAGE> 347
EMERALD COAST BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 8 - INCOME TAXES
The financial statements of the Bank reflect a zero income tax
provision for current federal and state income taxes for the four
months ended December 31, 1996, as a result of the net operating loss
incurred. The deferred tax benefit for 1996 primarily relates to the
expected benefit of net operating loss carryforwards amounting to
approximately $680,000 at December 31, 1996. The net operating loss
carryforward available to the Bank will expire in 2011.
The tax effects of each type of significant item that gave rise to
deferred income taxes are:
<TABLE>
<S> <C>
Deferred tax assets:
Expected benefit of net operating loss carryforwards $230,360
Allowance for loan losses 26,390
Net unrealized depreciation on available-for-sale securities 1,240
--------
$257,990
</TABLE>
NOTE 9 - EMPLOYEE BENEFIT PLAN
In 1996, the Bank adopted 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 1996.
NOTE 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 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.
-6-
(Sheet VII)
<PAGE> 348
EMERALD COAST BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 10 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Financial Instruments: (Continued)
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 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 1996.
A summary of the notional amounts of the Bank's financial instruments
with off-balance-sheet risk at December 31, 1996, follows:
Commitments to extend credit $2,704,884
==========
Standby letters of credit $ 58,300
==========
Commitments:
At December 31, 1996, the Bank had purchase commitments outstanding
related to the construction of branch banking facilities in Panama City
Beach and Destin, Florida in the amounts of approximately $993,000
and $770,000, respectively. In addition, the Bank had purchase
commitments outstanding for equipment amounting to approximately
$397,000 at December 31, 1996.
-6-
(Sheet VII)
<PAGE> 349
EMERALD COAST BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 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. Uninsured balances amounted to
approximately $410,500 at December 31, 1996. 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.
NOTE 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, 1996, was
approximately $1,164,000. Also, certain related parties maintain
deposit balances with the Bank in the aggregate amount of
approximately $2,718,000 at December 31, 1996.
NOTE 13 - REGULATORY MATTERS
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.
Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier I capital (as defined in
the regulations) to risk-weighted assets (as defined), and of Tier I
capital (as defined) to average assets (as defined). Management
believes, as of December 31, 1996, that the Bank meets all capital
adequacy requirements to which it is subject.
As of December 31, 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, 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 institution's category.
<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, 1996:
Total Capital
(to Risk Weighted Assets) $5,975,706 41.47% => $1,152,781 => 8.0% => $1,440,976 => 10.0%
Tier I Capital
(to Risk Weighted Assets) $5,905,706 40.98% => $576,390 => 4.0% => $864,586 => 6.0%
Tier I Capital
(to Average Assets) $5,905,706 34.48% => $685,120 => 4.0% => $856,400 => 5.0%
</TABLE>
-6-
(Sheet VII)
<PAGE> 350
COMMERCE BANK OF ALABAMA
FINANCIAL REPORT
DECEMBER 31, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITOR'S REPORT................................
FINANCIAL STATEMENTS
Balance sheets............................................
Statements of operations..................................
Statements of stockholders' equity........................
Statements of cash flows..................................
Notes to financial statements.............................
</TABLE>
2
<PAGE> 351
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
3
<PAGE> 352
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.
4
<PAGE> 353
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.
5
<PAGE> 354
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.
6
<PAGE> 355
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.
7
<PAGE> 356
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.
8
<PAGE> 357
COMMERCE BANK OF ALABAMA
NOTES TO FINANCIAL STATEMENTS -- (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 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
9
<PAGE> 358
COMMERCE BANK OF ALABAMA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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
December 15, 1997. The adoption of this statement is not expected to have a
material impact on the Bank's financial statements.
10
<PAGE> 359
COMMERCE BANK OF ALABAMA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
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>
11
<PAGE> 360
COMMERCE BANK OF ALABAMA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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>
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>
12
<PAGE> 361
COMMERCE BANK OF ALABAMA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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>
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
13
<PAGE> 362
COMMERCE BANK OF ALABAMA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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
--------------------- ---------------------
BASIC BASIC 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>
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.
14
<PAGE> 363
COMMERCE BANK OF ALABAMA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 instalments, 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>
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>
15
<PAGE> 364
COMMERCE BANK OF ALABAMA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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>
<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.
16
<PAGE> 365
COMMERCE BANK OF ALABAMA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
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,
17
<PAGE> 366
COMMERCE BANK OF ALABAMA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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>
<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.
18
<PAGE> 367
COMMERCE BANK OF ALABAMA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
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>
19
<PAGE> 368
COMMERCE BANK OF ALABAMA
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION (UNAUDITED)
AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
MARCH 31,
1998
--------------
(IN THOUSANDS)
<S> <C>
ASSETS
Cash and due from banks..................................... $ 5,800
Federal funds sold.......................................... 4,550
Investment securities held to maturity...................... 753
Investment securities available for sale.................... 15,638
Loans, net of unearned...................................... 81,811
Less: Allowance for loan losses............................. (814)
--------
Net loans......................................... 80,997
--------
Premises and equipment, net................................. 2,788
Other assets................................................ 1,783
--------
Total assets...................................... $112,309
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing....................................... $ 9,915
Interest-bearing.......................................... 94,332
--------
Total deposits.................................... 104,247
Accrued expenses and other liabilities...................... 1,475
--------
Total liabilities................................. 105,722
Stockholders' Equity
Common stock, par value $.01 per share; authorized
20,000,000 shares; 656,630 shares issued and
outstanding............................................ 7
Surplus................................................... 7,017
Accumulated deficit....................................... (427)
Accumulated other comprehensive loss...................... (10)
--------
Total stockholders' equity........................ 6,587
--------
Total liabilities and stockholders' equity........ $112,309
========
</TABLE>
See Note to Unaudited Condensed Financial Statements.
20
<PAGE> 369
COMMERCE BANK OF ALABAMA
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS EXCEPT
PER SHARE DATA)
<S> <C> <C>
Interest Income............................................. $ 2,140 $ 1,564
Interest expense............................................ 1,283 837
-------- --------
Net interest income............................... 857 727
Provision for loan losses................................... 126 115
-------- --------
Net interest income after provision for loan
losses.......................................... 731 612
Noninterest income.......................................... 292 147
Gain on sale of securities.................................. -- --
Noninterest expenses........................................ 875 658
-------- --------
Income before income taxes.................................. 148 101
Income tax expense.......................................... 40 17
-------- --------
Net income........................................ 108 84
Other comprehensive loss, net of tax:
Unrealized loss on securities available for sale.......... (38) (83)
-------- --------
Comprehensive income........................................ $ 70 $ 1
======== ========
Earnings per share --
Basic..................................................... $ 0.16 $ 0.13
======== ========
Dilutive.................................................. $ 0.16 $ 0.13
======== ========
Average number of shares outstanding --
Basic..................................................... 656,444 655,565
======== ========
Dilutive.................................................. 663,427 662,548
======== ========
</TABLE>
See Note to Unaudited Condensed Financial Statements.
21
<PAGE> 370
COMMERCE BANK OF ALABAMA
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 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................................ -- -- 108 -- 108
350 shares issued under employee stock
purchase plan........................... -- 6 -- -- 6
Other comprehensive loss.................. -- -- -- (38) (38)
-- ------ ----- ---- ------
Balance at March 31, 1998................. $7 $7,017 $(427) $(10) $6,587
== ====== ===== ==== ======
</TABLE>
See Note to Unaudited Condensed Financial Statements.
22
<PAGE> 371
COMMERCE BANK OF ALABAMA
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Net cash provided by operating activities................... $ 393 $ 563
-------- --------
Cash flows from investing activities:
Net decrease (increase) in federal funds sold............. 2,085 (2,920)
Proceeds from sales of securities available for sale...... -- 500
Proceeds from maturities of investment securities
available for sale..................................... 3,789 1,074
Purchases of investment securities available for sale..... (10,151) (6,309)
Proceeds from maturities of investment securities held to
maturity............................................... 1,750 --
Net increase in loans..................................... (4,552) (11,826)
Purchase of stock in FHLB................................. (31) --
Purchases of premises and equipment....................... (10) (55)
-------- --------
Net cash used by investing activities............. (7,120) (19,536)
-------- --------
Cash flows from financing activities:
Net increase in deposit accounts.......................... 6,802 14,976
Principal payments on long-term debt...................... (2) (2)
Net increase in short-term borrowings..................... 80 31
Proceeds from issuance of common stock.................... 6 3
-------- --------
Net cash provided by financing activities......... 6,886 15,008
-------- --------
Net increase (decrease) in cash and due from banks.......... 159 (3,965)
Cash and due from banks at beginning of period.............. 5,641 7,610
-------- --------
Cash and due from banks at end of period.................... $ 5,800 $ 3,645
======== ========
Supplemental Cash Flow Information:
Selected cash payments and noncash activities were as
follows:
Cash payments for income taxes......................... $ -- $ --
Cash payments for interest............................. 1,252 785
</TABLE>
See Note to Unaudited Condensed Financial Statements.
23
<PAGE> 372
COMMERCE BANK OF ALABAMA
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 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.
24
<PAGE> 373
CONTENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
INDEPENDENT AUDITOR'S REPORT................................
CONSOLIDATED FINANCIAL STATEMENTS:
Statements of Financial Condition.........................
Statements of Income and Comprehensive Income.............
Statements of Changes in Stockholders' Equity.............
Statements of Cash Flows..................................
Notes to Financial Statements.............................
</TABLE>
25
<PAGE> 374
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
26
<PAGE> 375
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.
27
<PAGE> 376
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.
28
<PAGE> 377
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.
29
<PAGE> 378
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.
30
<PAGE> 379
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
31
<PAGE> 380
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
32
<PAGE> 381
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.
33
<PAGE> 382
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>
34
<PAGE> 383
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
35
<PAGE> 384
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>
36
<PAGE> 385
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.
37
<PAGE> 386
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>
38
<PAGE> 387
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.
39
<PAGE> 388
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>
40
<PAGE> 389
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>
41
<PAGE> 390
FIRST CITIZENS BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION (UNAUDITED)
AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
MARCH 31,
1998
--------------
(IN THOUSANDS)
<S> <C>
ASSETS
Cash and due from banks..................................... $ 1,258
Federal funds sold.......................................... 1,820
Investment securities available for sale.................... 1,867
Loans, net of unearned...................................... 29,636
Less: Allowance for loan losses............................. (305)
-------
Net loans......................................... 29,331
-------
Premises and equipment, net................................. 569
Other assets................................................ 1,333
-------
Total assets...................................... $36,178
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing......................................... $ 3,453
Interest-bearing............................................ 29,133
-------
Total deposits.................................... 32,586
Accrued expenses and other liabilities...................... 437
-------
Total liabilities................................. 33,023
Stockholders' Equity
Common stock, par value $1 per share; authorized
10,000,000 shares; 75,000 shares issued................ 75
Surplus................................................... 1,914
Retained earnings......................................... 1,161
Accumulated other comprehensive income.................... 5
-------
Total stockholders' equity........................ 3,155
-------
Total liabilities and stockholders' equity........ $36,178
=======
</TABLE>
See Note to Unaudited Condensed Financial Statements.
42
<PAGE> 391
FIRST CITIZENS BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS EXCEPT
PER SHARE DATA)
<S> <C> <C>
Interest Income............................................. $ 829 $ 679
Interest expense............................................ 331 279
------- -------
Net interest income............................... 498 400
Provision for loan losses................................... 39 15
------- -------
Net interest income after provision for loan
losses........................................... 459 385
Noninterest income.......................................... 121 110
Gain on sale of securities.................................. -- --
Noninterest expenses........................................ 349 307
------- -------
Income before income taxes.................................. 231 188
Income tax expense.......................................... 87 70
------- -------
Net income........................................ 144 118
Other comprehensive loss, net of tax:
Unrealized loss on securities available for sale.......... -- (6)
------- -------
Comprehensive income........................................ $ 144 $ 112
======= =======
Earnings per share --
Basic..................................................... $ 1.92 $ 1.57
======= =======
Diluted................................................... $ 1.89 $ 1.55
======= =======
Average number of shares outstanding --
Basic..................................................... 75,000 75,000
======= =======
Diluted................................................... 76,113 76,113
======= =======
</TABLE>
See Note to Unaudited Condensed Financial Statements.
43
<PAGE> 392
FIRST CITIZENS BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 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.................................. -- -- 144 -- 144
--- ------ ------ ------- ------
Balance at March 31, 1998................... $75 $1,914 $1,161 $ 5 $3,155
=== ====== ====== ======= ======
</TABLE>
See Note to Unaudited Condensed Financial Statements.
44
<PAGE> 393
FIRST CITIZENS BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------ ------
(IN THOUSANDS)
<S> <C> <C>
Net cash provided by operating activities................... $ 249 $ 55
------ ------
Cash flows from investing activities:
Net increase in federal funds sold........................ (1,820) (310)
Proceeds from maturities of investment securities
available for sale..................................... 708 300
Purchases of investment securities available for sale..... (400) --
Net decrease (increase) in loans.......................... 557 (1,073)
Purchases of premises and equipment....................... (3) (26)
------ ------
Net cash used in investing activities................ (958) (1,109)
------ ------
Cash flows from financing activities:
Net increase (decrease) in deposit accounts............... 1,023 (166)
Net decrease in federal funds purchased................... (100) --
------ ------
Net cash provided (used) by financing activities..... 923 (166)
------ ------
Net increase (decrease) in cash and due from banks.......... 214 (1,220)
Cash and due from banks at beginning of period.............. 1,044 2,249
------ ------
Cash and due from banks at end of period.................... $1,258 $1,029
====== ======
Supplemental Cash Flow Information:
Selected cash payments and noncash activities were as
follows:
Cash payments for income taxes......................... $ 46 $ 123
Cash payments for interest............................. 381 292
</TABLE>
See Note to Unaudited Condensed Financial Statements.
45
<PAGE> 394
FIRST CITIZENS BANCORP, INC.
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 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.
46
<PAGE> 395
CONTENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
INDEPENDENT AUDITOR'S REPORT................................
CONSOLIDATED FINANCIAL STATEMENTS:
Statements of Financial Condition.........................
Statements of Income and Comprehensive Income.............
Statements of Changes in Stockholders' Equity.............
Statements of Cash Flows..................................
Notes to Financial Statements.............................
</TABLE>
47
<PAGE> 396
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
48
<PAGE> 397
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-50
<PAGE> 398
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-51
<PAGE> 399
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-52
<PAGE> 400
CITY NATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<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-53
<PAGE> 401
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-54
<PAGE> 402
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-55
<PAGE> 403
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-56
<PAGE> 404
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-57
<PAGE> 405
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-58
<PAGE> 406
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-59
<PAGE> 407
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-60
<PAGE> 408
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-61
<PAGE> 409
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-62
<PAGE> 410
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-63
<PAGE> 411
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-64
<PAGE> 412
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-65
<PAGE> 413
CITY NATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION (UNAUDITED)
AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
MARCH 31,
1998
--------------
(IN THOUSANDS)
<S> <C>
ASSETS
Cash and due from banks..................................... $ 2,238
Interest bearing deposits in other banks.................... 200
Federal funds sold.......................................... 1,810
Investment securities available for sale.................... 35,929
Loans, net of unearned...................................... 39,442
Less: Allowance for loan losses............................. (497)
-------
Net loans......................................... 38,945
-------
Premises and equipment, net................................. 2,642
Other assets................................................ 1,575
-------
Total assets...................................... $83,339
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing....................................... $11,076
Interest-bearing.......................................... 59,143
-------
Total deposits.................................... 70,219
Accrued expenses and other liabilities...................... 1,169
-------
Total liabilities................................. 71,388
Minority interest in equity of subsidiary................... 138
Stockholders' Equity
Common stock, par value $1 per share; authorized 100,000
shares; 27,149 shares issued........................... 27
Surplus................................................... 4,135
Retained earnings......................................... 7,482
Accumulated other comprehensive income.................... 222
Treasury stock, at cost -- 263 shares..................... (53)
-------
Total stockholders' equity........................ 11,813
-------
Total liabilities and stockholders' equity........ $83,339
=======
</TABLE>
See Note to Unaudited Condensed Financial Statements.
F-66
<PAGE> 414
CITY NATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(IN THOUSANDS EXCEPT
PER SHARE DATA)
<S> <C> <C>
Interest Income............................................. $ 1,648 $ 1,671
Interest expense............................................ 682 726
------- -------
Net interest income.................................. 966 945
Provision for loan losses................................... 133 183
------- -------
Net interest income after provision for loan losses....... 833 762
Noninterest income.......................................... 140 151
Gain on sale of securities.................................. 50 1
Noninterest expenses........................................ 839 853
------- -------
Income before income taxes............................. 184 61
Income tax expense.......................................... 79 27
------- -------
Net income........................................... 105 34
Other comprehensive loss, net of tax:
Unrealized loss on securities available for sale.......... (13) (473)
------- -------
Comprehensive income(loss).................................. $ 92 $ (439)
======= =======
Basic earnings per share.................................... $ 3.90 $ 1.26
======= =======
Average number of shares outstanding........................ 26,922 26,999
======= =======
</TABLE>
See Note to Unaudited Condensed Financial Statements.
F-67
<PAGE> 415
CITY NATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TREASURY TOTAL
COMMON RETAINED COMPREHENSIVE STOCK STOCKHOLDERS'
STOCK SURPLUS EARNINGS LOSS 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.......................... -- -- 105 -- -- 105
Dividends declared.................. -- -- (40) -- -- (40)
Sale of 100 shares of treasury
stock............................. -- 9 -- -- 16 25
Purchase of 83 shares of treasury
stock............................. -- -- -- -- (16) (16)
Other comprehensive loss............ -- -- -- (13) -- (13)
--- ------ ------ ---- ---- -------
Balance at March 31, 1998........... $27 $4,135 $7,482 $222 $(53) $11,813
=== ====== ====== ==== ==== =======
</TABLE>
See Note to Unaudited Condensed Financial Statements.
F-68
<PAGE> 416
CITY NATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Net cash provided by operating activities................... $ 549 $ 194
------- -------
Cash flows from investing activities:
Net decrease in federal funds sold........................ 1,430 160
Proceeds from sales of securities available for sale...... 3,705 576
Proceeds from maturities of investment securities
available for sale..................................... 5,883 411
Purchases of investment securities available for sale..... (9,648) (997)
Purchase of stock in FHLB................................. -- (25)
Net (increase) decrease in loans.......................... (444) 964
Purchases of premises and equipment....................... (186) (74)
------- -------
Net cash provided by investing activities......... 740 1,015
------- -------
Cash flows from financing activities:
Net (decrease) increase in deposit accounts............... (1,051) 982
Net decrease in advance from FHLB......................... -- (1,600)
Proceeds from sale of treasury stock...................... 25 --
Purchase of treasury stock................................ (16) (25)
Cash dividends paid....................................... (40) (38)
------- -------
Net cash used by financing activities............. (1,082) (681)
------- -------
Net increase in cash and due from banks..................... 207 528
Cash and due from banks at beginning of period.............. 2,031 2,696
------- -------
Cash and due from banks at end of period.................... $ 2,238 $ 3,224
======= =======
Supplemental Cash Flow Information:
Selected cash payments and noncash activities were as
follows:
Cash payments for income taxes......................... $ 41 $ --
Cash payments for interest............................. 597 725
</TABLE>
See Note to Unaudited Condensed Financial Statements.
F-69
<PAGE> 417
CITY NATIONAL CORPORATION
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 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 priniciples 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-70
<PAGE> 418
CONTENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
INDEPENDENT AUDITOR'S REPORT................................
CONSOLIDATED FINANCIAL STATEMENTS:..........................
Statements of Financial Condition.........................
Statements of Income and Comprehensive Income.............
Statements of Changes in Stockholders' Equity.............
Statements of Cash Flows..................................
Notes to Financial Statements.............................
</TABLE>
F-71
<PAGE> 419
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-72
<PAGE> 420
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-73
<PAGE> 421
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.............................................. 92 164 176
------ ------ ------
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-74
<PAGE> 422
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-75
<PAGE> 423
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-76
<PAGE> 424
COMMERCIAL BANCSHARES OF ROANOKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(IN THOUSAND, EXEPT 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-77
<PAGE> 425
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-78
<PAGE> 426
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-79
<PAGE> 427
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-80
<PAGE> 428
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-81
<PAGE> 429
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 $156
==== ==== ====
</TABLE>
9. RELATED PARTY TRANSACTIONS
The Bank has entered into transactions with its directors, executive
officers, significant shareholders and their affiliates (related parties). Such
transactions were made in the ordinary course of business on
F-82
<PAGE> 430
COMMERCIAL BANCSHARES OF ROANOKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. RELATED PARTY TRANSACTIONS -- CONTINUED
substantially the same terms and conditions, including interest rates and
collateral, as those prevailing at the same time for comparable transactions
with other customers, and did not, in the opinion of management, involve more
than normal credit risk or present other unfavorable features. Changes in
related party loans for the year ended December 31, 1997 were as follows:
<TABLE>
<CAPTION>
BALANCE BALANCE
DECEMBER 31, 1996 ADVANCES REPAYMENTS DECEMBER 31, 1997
- ----------------- -------- ---------- -----------------
<S> <C> <C> <C>
325...$.... $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-83
<PAGE> 431
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-84
<PAGE> 432
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-85
<PAGE> 433
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-86
<PAGE> 434
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-87
<PAGE> 435
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-88
<PAGE> 436
COMMERCIAL BANCSHARES OF ROANOKE, INC.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION (UNAUDITED)
AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
MARCH 31,
1998
--------------
(IN THOUSANDS)
<S> <C>
ASSETS
Cash and due from banks..................................... $ 1,429
Interest bearing deposits in other banks.................... 200
Federal funds sold.......................................... 6,750
Investment securities available for sale.................... 2,298
Investment securities held to maturity...................... 15,757
Loans, net of unearned...................................... 15,678
Less: Allowance for loan losses............................. (326)
-------
Net loans......................................... 15,352
-------
Premises and equipment, net................................. 295
Other assets................................................ 686
-------
Total assets...................................... $42,767
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing....................................... $ 6,868
Interest-bearing.......................................... 29,344
-------
Total deposits.................................... 36,212
Accrued expenses and other liabilities...................... 295
-------
Total liabilities................................. 36,507
Stockholders' Equity
Common stock, par value $.10 per share; authorized 600,000
shares; 200,000 shares issued.......................... 20
Surplus................................................... 3,526
Retained earnings......................................... 2,696
Accumulated other comprehensive income.................... 18
-------
Total stockholders' equity........................ 6,260
-------
Total liabilities and stockholders' equity........ $42,767
=======
</TABLE>
See Note to Unaudited Condensed Financial Statements.
F-89
<PAGE> 437
COMMERCIAL BANCSHARES OF ROANOKE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE
INCOME (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(IN THOUSANDS EXCEPT
PER SHARE DATA)
<S> <C> <C>
Interest Income............................................. $ 745 $ 788
Interest expense............................................ 331 327
-------- --------
Net interest income............................... 414 461
Provision for loan losses................................... 35 16
-------- --------
Net interest income after provision for loan
losses........................................... 379 445
Noninterest income.......................................... 250 303
Gain on sale of securities.................................. -- --
Noninterest expenses........................................ 491 487
-------- --------
Income before income taxes................................ 138 261
Income tax expense.......................................... 18 86
-------- --------
Net income........................................ 120 175
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities available for sale... 1 (7)
-------- --------
Comprehensive income........................................ $ 121 $ 168
======== ========
Basic earnings per share.................................... $ 0.60 $ 0.88
======== ========
Average number of shares outstanding........................ 200,000 200,000
======== ========
</TABLE>
See Note to Unaudited Condensed Financial Statements.
F-90
<PAGE> 438
COMMERCIAL BANCSHARES OF ROANOKE, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 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.................................. -- -- 120 -- 120
Other comprehensive income.................. -- -- -- 1 1
--- ------ ------ --- ------
Balance at March 31, 1998................... $20 $3,526 $2,696 $18 $6,260
=== ====== ====== === ======
</TABLE>
See Note to Unaudited Condensed Financial Statements.
F-91
<PAGE> 439
COMMERCIAL BANCSHARES OF ROANOKE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Net cash provided by operating activities................... $ 261 $ 366
------- -------
Cash flows from investing activities:
Net decrease in interest bearing deposits................. -- 100
Net increase in federal funds sold........................ (2,625) (1,425)
Proceeds from maturities of investment securities
available for sale..................................... 100 200
Purchases of investment securities available for sale..... (1,225) --
Proceeds from maturities of investment securities held to
maturity............................................... 2,351 1,455
Purchase of investment securities held to maturity........ (549) (385)
Proceeds from maturity of other investments............... -- 100
Net decrease (increase) in loans.......................... 684 (1,233)
Purchases of premises and equipment....................... (32) (36)
------- -------
Net cash (used) provided by investing
activities....................................... (1,296) (1,224)
------- -------
Cash flows provided by financing activities:
Net increase in deposit accounts.......................... 997 1,207
------- -------
Net (decrease) increase in cash and due from banks.......... (38) 349
Cash and due from banks at beginning of period.............. 1,467 1,486
------- -------
Cash and due from banks at end of period.................... $ 1,429 $ 1,835
======= =======
Supplemental Cash Flow Information:
Selected cash payments and noncash activities were as
follows:
Cash payments for income taxes......................... $ 69 $ --
Cash payments for interest............................. 350 354
</TABLE>
See Note to Unaudited Condensed Financial Statements.
F-92
<PAGE> 440
COMMERCIAL BANCSHARES OF ROANOKE, INC.
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 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-93
<PAGE> 441
ANNEX A
AMENDED AND RESTATED REORGANIZATION AGREEMENT
AND PLAN OF MERGER
This 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, Corporation has entered into that certain Reorganization Agreement
and Plan of Merger dated as of June 2, 1998, by and between Corporation and
Emerald Coast Bancshares, Inc., a Florida bank holding company ("Emerald"),
pursuant to which, prior to the Effective Time, Emerald will reincorporate via
merger with and into The Banc Corporation, a newly-formed Delaware corporation
("TBC"), and Corporation will be merged (the "Warrior Merger") with and into TBC
with the separate corporate existence of Corporation terminating upon the
Effective Time of the Merger all as set forth in the Warrior Plan of Merger;
WHEREAS, Corporation has entered into that certain 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, Corporation has entered into that certain Reorganization Agreement
and Plan of Merger, dated as of June , 1998, by and between Corporation, TBC
and City National Corporation ("CNC") in which CNC shall be merged with and into
TBC and TBC will 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;
WHEREAS, for accounting purposes, it is intended that the Merger be
accounted for as a "pooling of interests;" and
A-1
<PAGE> 442
WHEREAS, TBC joins in this Plan of Merger to affirm and acknowledge the
obligations of Corporation that TBC will assume 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 14.14% of the issued and
outstanding shares of TBC Common Stock and represent 14.14% 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 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
A-2
<PAGE> 443
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 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
A-3
<PAGE> 444
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 (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
A-4
<PAGE> 445
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 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.
A-5
<PAGE> 446
(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 Mauldin
and Jenkins 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
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.
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(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 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) Taylor Share Purchase. Subject to regulatory approvals, James A.
Taylor and James A. Taylor, Jr. shall have purchased 1,050 shares of
Corporation Common Stock at a per share price of $1,436, for an aggregate
purchase price of $1,507,800. In the event the Taylors are unable to
purchase the full 1,050 shares because of a lack of appropriate regulatory
approvals, the Taylors will purchase the maximum number of shares allowable
by the appropriate regulatory agencies and the Corporation shall cause the
remainder of the 1050 shares to be purchased by an individual, or
individuals, acceptable to the appropriate regulatory agencies within 10
days of the Taylor's share purchase.
(l) 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
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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). 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 Dudley,
Hopton-Jones, Sims & Freeman, L.L.P. 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.
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(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.
(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.
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(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.
(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
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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 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 1,379,958 shares of
common stock in the Emerald reincorporation and 5,448,000 shares of common
stock in the Corporation Merger such that at the Effective Time, not
subject to the First Citizens or City National Mergers, there will be
6,827,958 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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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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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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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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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
Chairman and 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> 470
ANNEX B
AMENDED AND RESTATED REORGANIZATION AGREEMENT
AND PLAN OF MERGER
This 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, Corporation has entered into that certain Reorganization Agreement
and Plan of Merger, dated as of June 2, 1998, by and between Corporation and
Emerald Coast Bancshares, Inc., a Florida bank holding company ("Emerald"),
pursuant to which, prior to the Effective Time, Emerald will reincorporate via
merger with and into TBC, and Corporation will be merged (the "Warrior Merger")
with and into TBC with the separate corporate existence of Corporation
terminating upon the Effective Time of the Merger all as set forth in the
Warrior Plan of Merger.
WHEREAS, Corporation has entered into that certain 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 Reorganization Agreement
and Plan of Merger, dated as of June , 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, 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."
WHEREAS, TBC joins in this Plan of Merger to affirm and acknowledge the
obligations of Corporation that TBC will assume by operation of law subsequent
to the Warrior Merger.
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<PAGE> 471
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, 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, 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 6.10% of the issued and
outstanding shares of TBC Common Stock and represent 6.10% of the
shareholders' equity of TBC determined according to GAAP, divided by the
number of shares of Bancorp 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
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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 and Section 10-2B-11.06 of the ABCA. 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 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,
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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 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.
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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
(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).
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In rendering such tax opinion, counsel for Bancorp shall be
entitled to rely upon represen tations 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 Dudley,
Hopton-Jones, Sims & Freeman, L.L.P. 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 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 rea sonably
satisfactory to Bancorp, and Bancorp 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 $27,707,970.00, exclusive of costs
associated with this transaction and determined in accordance with GAAP.
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(k) Taylor Share Purchase. James A. Taylor and James A. Taylor, Jr.
shall have purchased 1,050 shares of Corporation Common Stock at a per
share price of $1,436, for an aggregate purchase price of $1,507,800.
(l) 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.
(m) Commerce Acquisition. Corporation shall have completed the
acquisition of Commerce pursuant to the terms of the 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 Dudley,
Hopton- Jones, Sims & Freeman, L.L.P. 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
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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
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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. Prior to the Closing Date,
Corporation shall issue 1,050 additional shares of common stock in
accordance with Section 3.2(k) hereof, and thereafter shall undertake a
100-for-1 stock split, increasing the number of issued and outstanding
shares of Corporation Common Stock to 18,160,000 shares. 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 1,379,958 shares of
common stock in the Emerald reincorporation and 5,448,000 shares of common
stock in the Warrior Merger such that at the Effective Time, not subject to
the Commerce or City National Mergers, there will be 6,827,958 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
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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.
(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
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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 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
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<PAGE> 486
(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 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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(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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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.
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
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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 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.
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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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ANNEX C
REORGANIZATION AGREEMENT AND PLAN OF MERGER
This 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, 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, prior to the Effective Time, Emerald will reincorporate via merger with
and into TBC, and Warrior will be merged (the "Warrior Merger") with and into
TBC with the separate corporate existence of Warrior terminating upon the
effective time of the Warrior Merger all as set forth in the Warrior Plan of
Merger. The officers and directors of Warrior will become the officers and
directors of TBC, the shareholders of Warrior will own 79.79% of the outstanding
shares of TBC and TBC shall accede to Warrior's obligations hereunder by
operation of law.
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 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."
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.
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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, 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 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 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").
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
16.95% of the issued and outstanding shares of TBC Common Stock and represent
16.95% of the shareholders' equity of TBC determined according to GAAP, 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 Bank of Alabama ("Commerce") and the proposed
acquisition (the "Citizens Acquisition") of First Citizens Bancorp ("Citizens")
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
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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.
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.
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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 26,845 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.
(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.
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(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;
(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.
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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 rec ords 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.
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.
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(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
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.
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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 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.
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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 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
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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 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.
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(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 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
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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.
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
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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.
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
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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 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
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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 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
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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.
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.
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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).
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
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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 Dudley,
Hopton-Jones, Sims & Freeman, P.L.L.P., 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.
(i) Minimum Equity. Warrior shall have shareholders equity at the
Effective Time of not less than $35,816,000, 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
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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 Dudley
Hopton-Jones Sims & Freeman LLP a letter dated the date of the mailing of
the Prospectus-Proxy Statement and the Closing Date, in form and substance
reasonably satisfactory to Warrior and cus tomary in scope and substance
for letters delivered by independent public accountants in connec tion 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.
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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).
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.
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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 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 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.
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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
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
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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.
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
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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 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
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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.
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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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<PAGE> 523
(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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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.
D-10
<PAGE> 532
(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.
D-11
<PAGE> 533
(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.
D-12
<PAGE> 534
(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, 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.
D-13
<PAGE> 535
(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.
D-14
<PAGE> 536
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 -- 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 -- 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> 537
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
(2)-3 -- 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 -- Plan of Merger dated as of June 19, 1998, by and among
Warrior Capital Corporation, The Banc Corporation and
Commercial Bancshares of Roanoke, Inc.*
(3)-1 -- Restated Certificate of Incorporation of The Banc
Corporation.*
(3)-2 -- Bylaws of The Banc Corporation.*
(5) -- Opinion of Haskell Slaughter & Young, L.L.C., as to the
legality of the shares of the Corporation Common Stock being
registered.*
(8)-1 -- Opinion of Haskell Slaughter & Young, L.L.C., as to certain
federal income tax consequences of the Commerce Merger.*
(8)-2 -- Opinion of Balch & Bingham, LLP as to certain federal income
tax consequences of the Commerce Merger.*
(8)-3 -- Opinion of Haskell Slaughter & Young, L.L.C., as to certain
federal income tax consequences of the First Citizens
Merger.*
(8)-4 -- Opinion of Balch & Bingham, LLP as to certain federal income
tax consequences of the First Citizens Merger.*
(8)-5 -- Opinion of Haskell Slaughter & Young, L.L.C., as to certain
federal income tax consequences of the City National
Merger.*
(8)-6 -- 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 -- Employment Agreement by and between The Banc Corporation and
James A. Taylor.
(11) -- Statement re: Computation of Per Share Earnings.*
(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 Mauldin & Jenkins, LLC.*
(23)-4 -- Consent of Haskell Slaughter & Young, L.L.C. (included in
the opinion filed as Exhibits (5) and (8)-1).*
</TABLE>
II-2
<PAGE> 538
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
(23)-5 -- Consent of Balch & Bingham, LLP (included in the opinions
filed as Exhibit (8)-2).
(24) -- Powers of Attorney. See the signature page to original
filing of this Registration Statement on Form S-4.
(99)-1 -- Commerce Proxy.*
(99)-2 -- First Citizens Proxy.*
(99)-3 -- City National Proxy.*
</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 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-3
<PAGE> 539
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 July 2, 1998.
THE BANC CORPORATION
By: /s/ JAMES A. TAYLOR
------------------------------------
James A. Taylor
Chairman of the Board and
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James A. Taylor, Jr. and David R. Carter, and
each of them, his attorney-in-fact with power of substitution for him in any and
all capacities, to sign any amendments, supplements, subsequent registration
statements relating to the offering to which this Registration relates, or other
instruments he deems necessary or appropriate, and to file the same, with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact or his substitute may do or cause to be done by virtue
hereof.
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>
/s/ JAMES A. TAYLOR Chairman of the Board and Chief July 2, 1998
- ----------------------------------------------------- Executive Officer
James A. Taylor
/s/ DAVID R. CARTER Executive Vice President and July 2, 1998
- ----------------------------------------------------- Chief Financial Officer
David R. Carter (Principal Financial and
Accounting Officer)
/s/ JAMES R. ANDREWS, M.D. Director July 2, 1998
- -----------------------------------------------------
James R. Andrews, M.D.
/s/ CHARLES BARKLEY Director July 2, 1998
- -----------------------------------------------------
Charles Barkley
/s/ PETER N. DICHIARA Director July 2, 1998
- -----------------------------------------------------
Peter N. Dichiara
/s/ D. TERRY DUBOSE Director July 2, 1998
- -----------------------------------------------------
D. Terry DuBose
/s/ K. EARL DURDEN Director July 2, 1998
- -----------------------------------------------------
K. Earl Durden
/s/ LARRY R. HOUSE Director July 2, 1998
- -----------------------------------------------------
Larry R. House
</TABLE>
II-4
<PAGE> 540
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ THOMAS E. JERNIGAN, JR. Director July 2, 1998
- -----------------------------------------------------
Thomas E. Jernigan, Jr.
/s/ JAMES MAILON KENT, JR. Director July 2, 1998
- -----------------------------------------------------
James Mailon Kent, Jr.
/s/ MAYER MITCHELL Director July 2, 1998
- -----------------------------------------------------
Mayer Mitchell
/s/ RONALD W. ORSO, M.D. Director July 2, 1998
- -----------------------------------------------------
Ronald W. Orso, M.D.
/s/ HAROLD RIPPS Director July 2, 1998
- -----------------------------------------------------
Harold Ripps
/s/ RICHARD M. SCRUSHY Director July 2, 1998
- -----------------------------------------------------
Richard M. Scrushy
/s/ MICHAEL STEPHENS Director July 2, 1998
- -----------------------------------------------------
Michael Stephens
/s/ LARRY D. STRIPLIN, JR. Director July 2, 1998
- -----------------------------------------------------
Larry D. Striplin, Jr.
/s/ JAMES A. TAYLOR, JR. Director July 2, 1998
- -----------------------------------------------------
James A. Taylor, Jr.
/s/ MARIE SWIFT Director July 2, 1998
- -----------------------------------------------------
Marie Swift
/s/ JOHNNY WALLIS Director July 2, 1998
- -----------------------------------------------------
Johnny Wallis
</TABLE>
II-5
<PAGE> 541
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C> <C>
(2)-1 -- 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 -- 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 -- 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 -- 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)-4 -- Plan of Merger dated as of June 19, 1998, by and among
Warrior Capital Corporation, The Banc Corporation and
Commercial Bancshares of Roanoke, Inc.*
(3)-1 -- Restated Certificate of Incorporation of The Banc
Corporation.*
(3)-2 -- Bylaws of The Banc Corporation.*
(5) -- Opinion of Haskell Slaughter & Young, L.L.C., as to the
legality of the shares of the Corporation Common Stock being
registered.*
(8)-1 -- Opinion of Haskell Slaughter & Young, L.L.C., as to certain
federal income tax consequences of the Commerce Merger.*
(8)-2 -- Opinion of Balch & Bingham, LLP as to certain federal income
tax consequences of the Commerce Merger.*
(8)-3 -- Opinion of Haskell Slaughter & Young, L.L.C., as to certain
federal income tax consequences of the First Citizens
Merger.*
(8)-4 -- Opinion of Balch & Bingham, LLP as to certain federal income
tax consequences of the First Citizens Merger.*
(8)-5 -- Opinion of Haskell Slaughter & Young, L.L.C., as to certain
federal income tax consequences of the City National
Merger.*
(8)-6 -- 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.*
</TABLE>
<PAGE> 542
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C> <C>
(10)-6 -- Form of Employment Agreement by and between The Banc
Corporation and William P. Riley.*
(10)-7 -- Employment Agreement by and between The Banc Corporation and
James A. Taylor.*
(11) -- Statement re: Computation of Per Share Earnings.*
(21) -- Subsidiaries of the Corporation.*
(23)-1 -- Consent of Ernst & Young LLP.*
(23)-2 -- Consent of Dudley, Hopton-Jones, Sims & Freeman, LLP.
(23)-3 -- Consent of Mauldin & Jenkins, LLC.*
(23)-4 -- Consent of Haskell Slaughter & Young, L.L.C. (included in
the opinion filed as Exhibits (5) and (8)-1).
(23)-5 -- Consent of Balch & Bingham, LLP (included in the opinion
filed as Exhibit (8)-2).
(24) -- Powers of Attorney. See the signature page to original
filing of this Registration Statement on Form S-4.
(99)-1 -- Commerce Proxy.*
(99)-2 -- First Citizens Proxy.*
(99)-3 -- City National Proxy.*
</TABLE>
- ---------------
* To be filed by amendment.
