UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-8622 For the Period Ended June 30, 1998
MainStreet Financial Corporation
(Exact Name of Registrant as Specified in its Charter)
Virginia 54-1046817
- ------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
P. O. Box 4831 Martinsville, Virginia 24115
- --------------------------------------------------------------------------------
(Address of Principal Executive Office) (Zip Code)
(540) 666-6724
--------------
(Registrant's Telephone Number, Including Area Code)
N/A
- --------------------------------------------------------------------------------
Former Name, Former Address, and Formal Fiscal Year,
if Changed Since Last Report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding at each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT JULY 31, 1998
----- ----------------------------
COMMON STOCK $5.00 PAR VALUE 14,098,707
<PAGE>
MAINSTREET FINANCIAL CORPORATION
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Consolidated Balance Sheets -- June 30, 1998 and 3
December 31, 1997
Consolidated Statements of Income -- Three Months and 4
Six Months Ended June 30, 1998 and 1997
Consolidated Statements of Cash Flows -- Six Months 5
Ended June 30, 1998 and 1997
Notes to Consolidated Financial Statements 6 - 12
Item 2. Management's Discussion and Analysis of Financial 13 - 17
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 6(a). Exhibits 17
Item 6(b). Reports on Form 8-K 17
2
<PAGE>
<TABLE>
MAINSTREET FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Unaudited
(In 000's Except Share Data)
<CAPTION>
<S> <C>
June 30 December 31
ASSETS 1998 1997
---- ----
Cash and Due From Banks $ 67,653 $ 47,202
Interest-Earning Deposits in Domestic Banks 585 494
Mortgage Loans Held for Sale 2,984 3,048
Federal Funds Sold 1,271 5,144
Securities Available for Sale (Amortized Cost of $849,487 at
June 30, 1998, and $689,193 at December 31, 1997) 852,803 693,957
Securities Held to Maturity (Approximate Market Values of $56,382
at June 30, 1998 and $74,321 at December 31, 1997)
Taxable 25,204 38,170
Nontaxable 29,745 34,073
--------- ---------
54,949 72,243
Loans, Net of Unearned Income and Deferred Fees 1,001,568 925,718
Less: Allowance for Loan Losses (14,121) (12,375)
---------- ---------
Loans, Net 987,447 913,343
Bank Premises and Equipment, Net 18,678 17,003
Other Real Estate Owned 1,285 1,424
Other Assets 54,300 40,384
---------- ----------
TOTAL ASSETS $2,041,955 $1,794,242
========== ==========
LIABILITIES
Deposits:
Demand Deposits (Noninterest-Bearing) $ 197,745 $ 149,940
Interest Checking Accounts 127,852 121,470
Savings Deposits 118,075 115,929
Money Market Investment Accounts 123,170 104,478
Time Deposits
Certificates of Deposit $100,000 and Over 150,430 154,982
Other 447,102 416,933
---------- ----------
Total Deposits 1,164,374 1,063,732
Repurchase Agreements Short-Term 200,115 213,871
Other Short -Term Debt 74,236 149,767
Repurchase Agreements Long-Term 220,597 63,466
Other Long-Term Debt 152,565 102,134
Corporation-Obligated Mandatorily Redeemable Capital Securities 50,000 50,000
Accrued Interest Payable 9,118 5,977
Other Liabilities 10,845 9,576
---------- ----------
TOTAL LIABILITIES 1,881,850 1,658,523
---------- ----------
SHAREHOLDERS' EQUITY
Preferred Stock, (Par Value $5 Per Share, Authorized 1,000,000
Shares; None Outstanding) --- ---
Common Stock, (Par Value $5 Per Share, Authorized 20,000,000
Shares; Issued and Outstanding 13,396,200 Shares in June,
1998 and 12,661,212 in December, 1997) 66,981 63,306
Capital in Excess of Par 27,798 12,399
Retained Earnings 63,346 57,501
Unearned Compensation (95) (176)
Accumulated Other Comprehensive Income 2,075 2,689
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 160,105 135,719
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,041,955 $1,794,242
========== ==========
See Notes to Consolidated Financial Statements.
3
<PAGE>
MAINSTREET FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In 000's Except Per Share Data)
Unaudited
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30 June 30 June 30
INTEREST INCOME 1998 1997 1998 1997
---- ---- ---- ----
Interest and Fees on Loans:
Taxable $22,814 $21,045 $44,652 $41,507
Nontaxable 97 19 183 51
Interest on Mortgage Loans Held for Sale 193 51 329 84
Interest and Dividends on Securities
Available for Sale 13,498 7,684 26,292 13,382
Interest and Dividends on Securities Held
to Maturity
Taxable 473 993 1,062 2,006
Nontaxable 408 479 836 976
Other Interest Income 69 131 267 259
------- ------- ------- -------
Total Interest Income 37,552 30,402 73,621 58,265
INTEREST EXPENSE
Deposits 11,070 10,021 21,683 19,611
Short-Term Borrowings 3,260 4,454 7,324 7,627
Long-Term Debt 6,159 730 11,284 1,657
------- ------- ------- -------
Total Interest Expense 20,489 15,205 40,291 28,895
------- ------- ------- -------
Net Interest Income 17,063 15,197 33,330 29,370
Provisions for Loan Losses 1,079 1,562 2,163 2,525
------- ------- ------- -------
Net Interest Income After Provision
for Loan Losses 15,984 13,635 31,167 26,845
NONINTEREST INCOME
Service Charges, Fees and Other 3,261 2,480 6,093 4,762
Trust Income 976 807 1,880 1,613
Securities Gains, Net 105 3 145 879
------- ------- ------- -------
4,342 3,290 8,118 7,254
------- ------- ------- -------
NONINTEREST EXPENSE
Salaries 4,884 4,263 9,489 8,467
Employee Benefits 1,768 1,395 3,777 3,061
Net Occupancy Expense 666 543 1,318 1,116
Equipment 1,051 928 2,038 1,859
Stationery and Supplies 237 192 491 444
Advertising 208 169 351 385
Other 3,878 2,794 6,995 5,871
------- ------- ------- -------
12,692 10,284 24,459 21,203
------- ------- ------- -------
Income Before Income Taxes 7,634 6,641 14,826 12,896
Income Tax Expense 2,477 2,134 4,771 4,105
------- ------- ------- -------
NET INCOME $ 5,157 $ 4,507 $10,055 $ 8,791
======= ======= ======= =======
Per Share
Basic:
NET INCOME $ .39 $ .36 $ .77 $ .70
======= ======= ======= =======
Dividends Per Share $ .15 $ .13 $ .30 $ .26
======= ======= ======= =======
Average Shares Outstanding 13,351 12,583 13,129 12,594
======= ======= ======= =======
Diluted:
NET INCOME $ .39 $ .36 $ .77 $ .70
======= ======= ======= =======
Average Shares Outstanding 13,390 12,622 13,173 12,635
======= ======= ======= =======
See Notes to Consolidated Financial Statements.
4
<PAGE>
MAINSTREET FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(In 000's)
<CAPTION>
Six Months Ended
----------------
Cash Flows From Operating Activities: June 30, 1998 June 30, 1997
------------- --------------
Net Income $ 10,055 $ 8,791
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities:
Provision for Loan Losses 2,163 2,525
Depreciation and Amortization 1,251 1,251
Amortization of Securities Premiums and Discounts, Net 1,454 880
Provision for Deferred Income Taxes (986) (750)
Gain on Sale of Securities, Net (145) (879)
Amortization of Intangibles 306 96
Mortgage Loan Originations Held for Sale (30,440) (11,294)
Mortgage Loans Sold 30,504 9,697
Changes in Other Assets and Other Liabilities:
Other Assets (1,913) (963)
Accrued Interest 2,975 778
Other Liabilities 561 1,187
--------- ---------
Net Cash Provided by Operating Activities 15,785 11,319
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash Acquired upon Acquisition 22,690 ---
Decrease in Interest-Earning Deposits in Domestic Banks 9 11
Purchases of Securities Available for Sale (280,026) (305,710)
Purchases of Securities Held to Maturity --- (6,732)
Proceeds from Sale of Securities Available for Sale 12,823 133,153
Proceeds from Calls and Maturities of Securities Available for Sale 119,771 51,804
Proceeds from Calls and Maturities of Securities Held to Maturity 17,857 14,851
Net Increase in Loans (13,901) (27,206)
Purchases of Bank Premises and Equipment (2,437) (1,701)
Proceeds From Sale of Bank Premises and Equipment 243 64
Net Decrease in Other Real Estate 139 107
Increase in Other Assets (441) (425)
--------- ---------
Net Cash Used in Investing Activities (123,273) (141,784)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase in Deposits 11,174 34,469
Net Increase (Decrease) in Repurchase Agreements Short-Term (13,756) 87,025
Net Increase (Decrease) in Other Short-Term Debt (78,875) 15,875
Net Increase in Repurchase Agreements Long-Term 157,131 ---
Net Decrease in FHLB Advances, Callable 2/97 --- (45,000)
Net Increase in Other Long-Term Debt 50,431 47,255
Cash Dividends (4,136) (3,368)
Proceeds from Issuance of Common Stock 2,097 1,007
--------- ---------
Net Cash Provided by Financing Activities 124,066 137,263
--------- ---------
Net Increase (Decrease) in Cash and Due From Banks 16,578 6,798
Cash and Cash Equivalents at Beginning of Period 52,346 58,265
--------- ---------
Cash and Cash Equivalents at End of Period $ 68,924 $ 65,063
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements of MainStreet Financial Corporation,
("MainStreet"), and its subsidiaries conform to generally accepted accounting
principles and to general banking industry practices. The interim period
consolidated financial statements are unaudited; however, in the opinion of
management, all adjustments of a normal and recurring nature which are necessary
for a fair presentation of the consolidated financial statements herein have
been included. The financial statements herein should be read in conjunction
with the notes to financial statements included in the Corporation's 1997 Form
10-K to the SEC. Mainstreet completed its acquisition of Regency Financial
Shares on March 10, 1998 which was accounted for using the pooling of interests
method of accounting. All prior year data has been restated to reflect this
acquisition. The results of the interim period are not necessarily indicative of
year-end results.
2. Supplemental Cash Flow Data
For purposes of the Statements of Cash Flow, MainStreet considers all Cash and
Due from Bank Accounts and Federal Funds Sold to be cash equivalents.
Supplemental Cash Flow Data at the date of consummation of the purchase of
Tysons Financial Corporation included in the June 30, 1998 cash flow statement
is as follows:
(In 000's)
ASSETS
Interest-Earning Deposits in Domestic Banks $ 100
Securities Available for Sale 14,231
Loans, Net of Unearned Income and Deferred Fees 63,318
Less: Allowance for Loan Losses (952)
--------
Loans, Net 62,366
Bank Premises and Equipment, Net 732
Other Assets 10,551
TOTAL ASSETS 87,980
LIABILITIES
Deposits:
Demand (Noninterest Bearing) 23,770
Certificates of Deposit $100,000 and over 9,481
Other Time Deposits 56,217
--------
Total Deposits 89,468
Other Short-Term Debts 3,344
Other Liabilities 874
--------
TOTAL LIABILITIES 93,686
--------
SHAREHOLDERS' EQUITY
Total Shareholders' Equity 16,984
--------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 110,670
--------
NET CASH AND CASH EQUIVALENTS ACQUIRED UPON $ 22,690
========
ACQUISITION OF TYTSONS FINANCIAL CORPORATION
6
<PAGE>
<TABLE>
3. Securities Available for Sale
The following sets forth the composition of securities available for sale, which
are carried at approximate market value at June 30, 1998:
<CAPTION>
Gross Gross Approx.
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
<S> <C>
U. S. Treasury Securities $ 8,840 $ 58 $ 14 $ 8,884
Obligations of U.S.
Government Agencies 48,788 231 191 48,828
Mortgage-Backed Securities 385,087 3,023 804 387,306
Collateralized Mortgage
Obligations and REMICs 306,182 1,397 870 306,709
Corporate Bonds 73,616 892 1,042 73,466
Other Securities 12,524 191 38 12,677
Obligations of States and
Political Subdivisions 14,450 484 1 14,933
-------- ------- -------- --------
Total Securities
Available for Sale $849,487 $ 6,276 $ 2,960 $852,803
======== ======= ======== ========
Gross gains and losses of $125,000 and $9,000, respectively, were realized on
sales and calls of securities available for sale for year-to-date June 30, 1998.
4. Securities Held to Maturity
The carrying and approximate market values and gross unrealized gains and losses
of securities held to maturity are as follows at June 30, 1998:
<CAPTION>
Gross Gross Approx.
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
Obligations of U.S.
Government Agencies $ 1,819 $ 219 $ 9 $ 2,029
Mortgage-Backed Securities 20,479 580 180 20,879
Obligations of State and
Political Subdivisions 32,651 835 12 33,474
-------- -------- ------- ---------
Total Securities Held to Maturity $ 54,949 $ 1,634 201 $ 56,382
======== ======== ======= =========
</TABLE>
Gross gains and losses of $31,000 and $2,000, respectively, were realized on
calls of securities held to maturity for year-to-date June 30, 1998.
7
<PAGE>
5. Loan Portfolio
Major classifications of loans at June 30, 1998 and December 31, 1997 are
summarized below:
(In 000's)
1998 1997
---- ----
Commercial $ 483,761 $459,319
Real Estate 236,909 220,928
Consumer 293,084 257,901
---------- --------
Total Loans 1,013,754 938,148
Less: Unearned Income and Deferred Fees (12,186) (12,430)
---------- --------
Loans, Net of Unearned Income and
Deferred Fees 1,001,568 925,718
Less: Allowance for Loan Losses (14,121) (12,375)
---------- --------
Loans, Net $ 987,447 $913,343
========== ========
Interest on loans is computed by methods which generally result in level rates
of return on principal amounts outstanding. Loans are placed on nonaccrual
status when it becomes probable that the borrower will have difficulty meeting
either interest or principal payments and the loan is not in the process of
collection and is not well collateralized. For loans placed on nonaccrual, all
interest accrued in the current fiscal year is reversed against income while
prior year accrued interest is charged against the allowance for loan losses.
For payments on nonaccrual loans and impaired loans, amounts are applied first
as a recovery of principal and then as interest under the cost recovery method.
MainStreet considers a loan to be impaired when, based upon current information
and events, it believes it is probable that MainStreet will be unable to collect
all amounts due according to the contractual terms of the loan agreement.
MainStreet's impaired loans within the scope of SFAS 114 include nonaccrual
loans (excluding those collectively reviewed for impairment), troubled debt
restructurings, and certain other nonperforming loans. For collateral dependent
loans, MainStreet bases the measurement of these impaired loans on the fair
value of the loan's collateral properties. For all other loans, MainStreet bases
the measurement of these impaired loans on the more readily determinable of the
present value of expected future cash flows discounted at the loan's effective
interest rate or the observable market price. Impairment losses are recognized
through an increase in the allowance for loan losses and a corresponding charge
to the provision for loan losses. Adjustments to impairment losses due to
changes in the fair value of impaired loans' collateral properties are included
in the provision for loan losses. When an impaired loan is either sold,
transferred to other real estate owned or written down, any related valuation
allowance is charged off against the allowance for loan losses.
An allowance for loan losses is maintained in order to provide for losses in
collection of loans that can be currently estimated. The level of the allowance
for loan losses is based upon the quality of the loan portfolios as determined
by management after consideration of historical loan loss experience,
diversification as to the type of loans in the portfolios, the amount of
collateralized as compared to uncollateralized loans, banking industry standards
and averages, and general economic conditions. In preparing the consolidated
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
consolidated balance sheet and income and expense for the period. Actual results
could differ significantly from these estimates. In connection with the
determination of the allowance for loan losses and the valuation of real estate
owned, management obtains independent appraisals for significant properties.
Management believes that the allowance for loan losses and the valuation of real
estate owned are adequate. While management uses available information to
recognize losses on loans and real estate owned, future additions to the
allowance for loan losses and additional write-downs in the valuation of real
estate owned may be necessary based on changes in economic conditions. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review MainStreet's allowance for loan losses and
valuation of real estate owned. The following table shows the changes in the
allowance for loan losses arising from loans charged off and recoveries on loans
previously charged off by loan category; and additions to the allowance which
have been charged to operating expenses:
8
<PAGE>
<TABLE>
<CAPTION>
(In 000's)
June 30 June 30
1998 1997
---- ----
<S> <C>
Balance at December 31, 1997 and 1996 $ 12,375 $ 11,497
Change in Allowance due to Purchase Acquisition 952 ---
Charge-offs:
Commercial, Financial and Agricultural 465 1,507
Real Estate - Mortgage 189 58
Installment 1,088 901
-------- --------
1,742 2,466
Recoveries:
Commercial, Financial and Agricultural 60 288
Real Estate - Mortgage 1 ---
Installment 312 213
--------- --------
373 501
Net Charge-offs 1,369 1,965
Provision for Loan Losses 2,163 2,525
-------- --------
Balance at June 30, 1997 and June 30, 1996 $ 14,121 $ 12,057
======== ========
Nonaccrual loans and loans 90-days past due or more as to interest or principal
payments are considered by MainStreet to be nonperforming loans. Nonperforming
loans were .91% of loans, net of unearned income at June 30, 1998.
The following table presents aggregate loan amounts for nonaccrual and 90-day
due loans as of June 30, 1998 and December 31, 1997:
<CAPTION>
1998 1997
---- ----
Nonaccrual Loans $ 4,937 $ 4,245
Loans Past Due 90 Days or More 4,168 2,136
-------- --------
Total Nonperforming Loans 9,105 6,381
-------- --------
Other Real Estate Owned 1,285 822
Other Repossessed Assets 278 53
-------- --------
Total Foreclosed/Repossessed Assets 1,563 875
-------- --------
Total Nonperforming Loans and Foreclosed/Repossessed Assets $ 10,668 $ 7,256
======== ========
The effect of nonaccrual loans on interest income for the six months ended June
31, 1998 and 1997 was as follows:
<CAPTION>
1998 1997
---- ----
Gross Amount of Interest That Would Have Been Recorded
at Original Rate $ 497 $ 229
Interest That Was Reflected in Income 187 ---
------- --------
Net Impact on Interest Income $ 310 $ 229
======= ========
</TABLE>
At June 30, 1998 and December 31, 1997, the recorded investment in loans which
have been identified by MainStreet as impaired loans in accordance with
Statement of Financial Accounting Standards (SFAS) No. 114, "Accounting by
Creditors for Impairment of A Loan", totaled $3.2 million and $3.6 million,
respectively. The portion of the allowance for loan losses related to such loans
was $1.1 million and .6 million for June 30, 1998 and December 31, 1997.
9
<PAGE>
6. Contingencies and Other Matters
MainStreet completed its acquisition of Tysons Financial Corporation, McLean,
Virginia, effective February 28, 1998 at 11:59 p.m. having received all required
regulatory and shareholder approvals. Under terms of the agreement, each
shareholder of Tysons common stock received the equivalent of $14.50 per share
of MainStreet stock for each share held of Tysons stock. This resulted in an
exchange ratio of .527 shares of MainStreet's common stock for each share of
Tysons stock. Also under terms of the agreement, MainStreet agreed to purchase
Tyson's outstanding directors' warrants for the difference between the exercise
price per warrant and $14.50 . The warrants initially were converted into
Tysons' common stock. After this initial conversion, the common stock exchange
ratio, .527, was to be applied. In addition, MainStreet agreed to purchase
Tysons' directors' options for the difference between the exercise price per
option and $14.50 in MainStreet common stock. The outstanding directors' options
were at exercise prices of $9.125 and $12.50 and resulted in an exchange ratio
of .193 and .073, respectively. The outstanding shares of Tysons common stock,
directors' warrants, and directors' options of Tysons were exchanged for
approximately 611,175 shares of MainStreet's common stock.
MainStreet Financial Corporation completed its acquisition of Regency Financial
Shares, Incorporated, ("Regency"), Richmond, Virginia on March 10, 1998, having
received all required regulatory and shareholder approvals. Under terms of the
agreement, each shareholder of Regency common stock received the equivalent of
$13.00 per share of each share held of Regency stock. This resulted in an
exchange ratio of .474 shares of MainStreet's common stock for each share of
Regency stock. Each Regency director received the difference between the
exercise price per option and $13.00. This resulted in respective exchange
ratios of .237 and .219 shares of MainStreet's common stock for each Regency
director option, taking into consideration exercise prices of $6.50 and $7.00,
respectively. Each fractional share resulting from the conversion was settled at
$27.42 per share. The outstanding 1,430,134 shares of Regency common stock, and
the outstanding 5,500 directors' options were exchanged for approximately
678,993 shares of MainStreet's common stock.
MainStreet completed its acquisition of Ballston Bancorp, Incorporated,
("Ballston"), on July 17, 1998 at 11:59 p.m. having received all required
regulatory and shareholder approvals. This acquisition will be accounted for
using the pooling of interests method of accounting. Under terms of the
agreement, each shareholder of Ballston common stock was to receive the
equivalent of $12.04 per share for each share held of Ballston common stock.
This resulted in an exchange ratio of .4310 shares of MainStreet's common stock
for each share of Ballston stock. The outstanding shares of Ballston common
stock will exchange for approximately 697,938 of MainStreet common stock.
MainStreet and its subsidiaries, in the normal course of business, are involved
in various legal actions and proceedings. It is the opinion of management that
any liabilities arising from these matters and not covered by insurance, would
not have a material effect on MainStreet's financial position.
7. Comprehensive Income
On January 1, 1998, MainStreet adopted Statement of Financial Accounting
Standards No. 130 "Reporting Comprehensive Income". As required by the SFAS No.
130, prior year information has been modified to conform with the new
presentation.
Comprehensive income includes net income and all other changes to MainStreet's
equity, with the exception of transactions with shareholders ("other
comprehensive income"). MainStreet's only component of other comprehensive
income is the change in unrealized gains and losses on available for sale
securities.
10
<PAGE>
<TABLE>
MainStreet's total comprehensive income for the three month periods ended June
30, 1998 and 1997 was $5,667,000 and $7,992,000, respectively. Comprehensive
income for the six months ended June 30, 1998 and 1997 was $9,441,000 and
$9,754,000, respectively. Information concerning MainStreet's other
comprehensive income for the three month periods ended June 30, 1998 and 1997
and for the six months ended June 30, 1998 and 1997 is as follows:
<CAPTION>
<S> <C>
Three Months Ended Six Months Ended
------------------ ----------------
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
------------- ------------- ------------- -------------
Change in unrealized gains/(losses)
on available for sale securities $ 888 $ 5,367 $ (830) $ 2,357
Reclassification to realized gain
included in net income (103) (5) (115) (875)
Income tax expense relating to the change
in unrealized gains/(losses) on available
for sale securities (275) (1,877) 331 (519)
-------- -------- -------- --------
Other comprehensive income gain (loss) $ 510 $ 3,485 $ (614) $ 963
======== ======== ======== ========
8. Income Per Share
The following tables reconcile the numerator and denominator of the basic and
diluted computations for net income per share for the periods ended June 30,
1998 and 1997.
<CAPTION>
Three Months Ended June 30, 1998
--------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic EPS
Income available to common shareholders $ 5,157 $ 13,351 $ .39
========
Effect of Stock Options 48 39
----------- ----------
Diluted EPS
Income available to common
shareholders and assumed conversions $ 5,205 $ 13,390 $ .39
=========== =========== ========
<CAPTION>
Three Months Ended June 30, 1997
--------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic EPS
Income available to common shareholders $ 4,507 $ 12,583 $ .36
========
Effect of Stock Options --- 39
----------- ----------
Diluted EPS
Income available to common
shareholders and assumed conversions 4,507 $ 12,622 $ .36
=========== ========== ========
11
<PAGE>
<CAPTION>
Six Months Ended June 30, 1998
------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic EPS
Income available to common shareholders $ 10,055 $ 13,129 $ .77
========
Effect of Stock Options 97 44
----------- ----------
Diluted EPS
Income available to common
shareholders and assumed conversions 10,152 $ 13,173 $ .77
=========== ========== ========
<CAPTION>
Six Months Ended June 30, 1997
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic EPS
Income available to common shareholders $ 8,791 $ 12,594 $ .70
========
Effect of Stock Options --- 41
----------- ----------
Diluted EPS
Income available to common
shareholders and assumed conversions 8,791 $ 12,635 $ .70
=========== ========== ========
</TABLE>
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
Certain statements under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and elsewhere in this Quarter
Report and the documents incorporated herein by reference constitute
"forward-looking statements" within the meaning of the United States Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of the Corporation, or industry
results, to be materially different from any future results, performance, or
achievements expressed or implied by such forward-looking statements. Such
factors include, amount others, the following: general economic and business
conditions in the Corporation's market area, inflation, fluctuations in interest
rates, changes in government regulations and competition, which will, amount
other things, impact demand for loans and banking services: the ability of the
Corporation to implement its business strategy; and changes in, or the failure
to comply with, government regulations.
Forward-looking statements are intended to apply only at the time they are made.
Moreover, whether or not stated in connection with a forward-looking statement,
the Corporation undertakes no obligation to correct or update a forward-looking
statement should the Corporation later become aware that it is not likely to be
achieved. If the Corporation were to update or correct a forward-looking
statement, investors and others should not conclude that the Corporation will
make additional updates or corrections thereafter.
12
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Item 2. Management's Discussion and Analysis of Financial Conditions and
Results of Operations
Overview
MainStreet Financial Corporation reported year-to-date earnings of $10.1 million
at June 30, 1998 compared to $8.8 million at June 30, 1997, an increase of $1.3
million, or 14.4%. These year-to-date earnings for 1998 produced a return on
average assets of 1.04% and a return on average equity of 13.26%. This compares
to a return on average assets of 1.19% and a return on average equity of 14.09%
for the same period in 1997. The earnings per diluted share for the six months
ended June 30, 1998 was $.77, an increase of $.07 per share over the six months
$.70 per share earned in 1997.
Earnings for the second quarter of 1998 were $5.2 million compared to $4.5
million for the same period in 1997, an increase of $.7 million, or 14.4%. These
earnings equate to $.39 and $.36 per diluted share for the second quarter of
1998 and 1997, respectively. The return on average assets and the return on
average equity for the second quarter of 1998 were 1.03% and 12.94%,
respectively. The return on average assets and the return on average equity for
the second quarter of 1997 were 1.17% and 14.26%, respectively.
The principal reasons for the increases in both second quarter and year-to-date
earnings were higher levels of net interest income and noninterest income,
excluding securities gains. The increase in net interest income, for both the
second quarter and first six months of 1998 was principally attributable to
acquiring and maintaining a higher level of earning assets compared with the
same periods a year ago.
During the first quarter of 1998, MainStreet completed the acquisitions of
Regency Financial Shares in Richmond, Virginia and Tysons Financial Corporation
in McLean, Virginia. The acquisition of Regency was accounted for using the
pooling of interests method of accounting. All prior year data has been restated
to reflect this acquisition. The acquisition of Tysons was accounted for as a
purchase and was effective after the close of business on February 28, 1998.
Accordingly, none of Tysons' financial history is reflected in prior period
MainStreet financial results. For more detail on the acquisitions of Regency and
Tysons, see Notes 2 and 6 to The Consolidated Financial Statements.
Net Interest Income
Net interest income, the difference between total interest income and total
interest expense, is MainStreet's principal source of earnings. The amount of
net interest income is determined by the volume of interest-earning assets, the
level of rates earned on those assets, and the cost of supporting funds. The
difference between rates earned on interest-earning assets (with an adjustment
made to tax exempt income to provide comparability with taxable income) and the
cost of supporting funds is measured by the net interest margin.
Net interest income for the first six months of 1998 was $33.3 million, an
increase of $4.0 million, or 13.5%, over the $29.3 million for the first six
months of 1997. The acquisition of Tysons Financial Corporation added $1.6
million in net interest margin for 1998. Total interest income increased $15.4
million while total interest expense increased $11.4 million for the first six
months of 1998 compared to the first six months of 1997. The net interest margin
was 3.71% and 4.27% for year-to-date June 1998 and June 1997, respectively.
Average interest-earning assets year-to-date increased $432.4 million, or 30.6%
in 1998 over 1997 levels. Average loans, net of unearned income, increased $83.7
million. The remaining $348.7 million increase in interest-earning assets was
primarily due to investments. These increases in loans and investments were
funded primarily by an increase in average interest-bearing liabilities which
increased $391.2 million in 1998 over 1997. MainStreet has continued its
leveraging strategy in order to enhance earnings and to utilize, to the greatest
extent possible, MainStreet's strong capital position. Included in this
strategy, was also a transfer of certain short-term liabilities into long-term
liabilities. Interest expense on long-term debt for the first six months of 1998
was $11.3 million compared to $1.7 million for the same period a year ago. Also,
in November 1997, MainStreet issued $50,000,000 in corporation-obligated
mandatorily redeemable capital securities. This expense for the six months ended
June 30, 1998 was $2.2 million. The acquisition of Tysons Financial Corporation
added $65.3 million and $47.5 million in interest-earning assets and
interest-bearing liabilities, respectively.
Net interest income for the three months ended June 30, 1998 was $17.1 million
compared to $15.2 million, an increase of $1.9 million, or 12.3%. The net
interest margin for the second quarter of 1998 was 3.69% and 4.25% for the
second quarter of 1997. Total average interest-earning assets for the second
quarter of 1998 increased $433.9 million over the same period in 1997 primarily
due to increased investments along with an increase in average loans net of
unearned income. Total average interest-bearing liabilities increased $382.7
million in the second quarter of 1998 compared to 1997.
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Provision for Loan Losses
A provision for loan losses is charged to earnings for the purpose of
establishing an allowance for loan losses. Losses are in turn, charged to this
allowance rather than being reported as a direct expense. For the first six
months of 1998 the provision for loan losses was $2.2 million down $.3 million
in comparison to the first six months of 1997.
The provision for loan losses for the second quarter of 1998 was $1.1 million in
comparison to $1.6 million in 1997. One of the affiliate banks had an above
normal charge-off in the second quarter of 1997 causing an additional provision
to be increased.
Noninterest Income
Noninterest income, excluding securities gains, was $8.0 million and $6.4
million, for the first six months of 1998 and 1997, respectively, an increase of
$1.6 million, or 25.1%. Service charges, fees and commissions accounted for $1.3
million with the remaining $.3 million due to increased trust income. Of the
$1.3 million increase in fee incomes, $.4 million was due to the sale of certain
mortgage servicing in the second quarter of 1998. The remainder of the increase,
along with the increase in trust income, was primarily due to increased charges.
Noninterest income, excluding securities gains, for the second quarter of 1998
was $4.2 million compared to $3.3 million for the second quarter of 1997. As
mentioned in the year-to-date comparison, $.4 million was a gain on the sale of
mortgage servicing. The remainder was due to increased charges.
Securities Gains
Securities gains year-to-date June 30, 1998 were $.1 million compared to $.9
million year-to-date June 30, 1997. The gains in 1997 were attributed to the
sales of adjustable rate mortgage backed securities due to the high level of
prepayments on those securities which accelerated expense related to
amortization of bond premiums.
Securities gains for the second quarter of 1998 were $105 thousand compared to
$3 thousand for the second quarter of 1997.
Noninterest Expense
Total noninterest expense for the six months of 1998 was $24.5 million, an
increase of $3.3 million, or 15.4% over the same period in 1997. Of this
increase, $1.5 million are operating expenses associated with Tysons Financial
Corporation. Excluding these expenses, the 1998 noninterest expense would have
increased $1.7 million, or 8.23%. Salaries and employee benefits increased $1.7
million for the first six months of 1998 in comparison to the same period in
1997. Of this amount $.5 million were Tysons' expenses and the remaining $1.2
million was due to the staffing of a new branch along with additional
compensation awards. Other noninterest expenses were $7.0 million for
year-to-date June 30, 1998 compared to $5.9 million for year-to-date June
30,1997, an increase of $1.1 million. Of this amount, Tysons expenses were $.7
million which were mainly associated with professional fees, intangible
expenses, and franchise tax expense. The remaining $.4 million of expenses were
due to expenses related to the acquisitions in the current year along with
certain separation agreements due to restructuring of the Corporation. The
expense in 1997 also included $.6 million of expenses associated with a kiting
scheme.
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Noninterest expense for the second quarter of 1998 was $12.7 million in compared
to $10.3 million for the same period in 1997, an increase of $2.4 million, or
23.4%. Of this amount $1.0 million was the increase in salaries and employee
benefits due to the staffing of a new branch, additional compensation expense,
and the acquisition of Tysons. The other noninterest expense category increased
$1.1 million in the second quarter of 1998 over 1997 primarily due to separation
agreements, acquisition costs, and Tysons expenses, as mentioned in the
year-to-date analysis.
Financial Condition
Total assets at June 30, 1998 were $2.0 billion, an increase of $247.7 million,
or 13.8%, over year-end assets of $1.8 billion. A part of this increase was due
to the acquisition of Tysons Financial Corporation, effective at the close of
business on February 28, 1998. Tysons' assets at June 30, 1998 were $116.9
million, or 6.51% of the increase from year-end.
Investments, including securities available for sale and securities held to
maturity, were $907.8 million at June 30, 1998 compared to $766.2 million at
December 31, 1997, an increase of $141.6 million. Tysons' investments at June
30, 1998 were $37.5 million. The remainder of the increase was funded by an
increase in deposits and borrowings. At June 30, 1998, securities available for
sale accounted for 93.9% of the investment portfolio while securities held to
maturity accounted for 6.1% of the investment portfolio. All securities acquired
in the acquisitions of Tysons and Regency were converted to the available for
sale category along with new purchases in 1998. All of Regency's securities were
previously held in the available for sale category. This distribution of the
investment portfolio allows flexibility in the management of interest rate risk,
liquidity, and capital adequacy.
Loans, net of unearned income, were $1.0 billion at June 30, 1998, an increase
of $75.9 million over December 31, 1997. Tysons' loans, net of unearned income
at June 30, 1998 were $61.9 million. A discussion on credit quality can be found
in the Asset Quality section of this analysis.
Other assets at June 30, 1998 were $54.3 million compared to $40.4 million at
December 31, 1997, an increase of $13.9 million, or $34.5%. Of this increase
$11.3 million was the balance of other assets for Tysons' Financial Corporation
at June 30, 1998. The greatest component of other assets for Tysons was the $9.1
million intangible recorded at the time of the acquisition.
Total deposits at June 30, 1998 were $1.2 billion, up from the $1.1 billion at
year end 1997. Tysons' deposits at June 30, 1998 were $91.7 million. The largest
increases were in demand deposits, money market accounts, and other time
deposits.
Borrowings at June 30, 1998 and December 31, 1997 were $697.5 million and $579.2
million, respectively. Borrowings increased $118.3 million at June 30, 1998, or
20.4%, over the outstanding borrowings at December 31, 1997 which were primarily
used in MainStreet's leverage strategy to fund investments. The acquisition of
Tysons Financial Corporation was immaterial to the increase in borrowings. The
following is a breakdown of the borrowings at June 30, 1998 and December 31,
1997.
June 30, 1998 December 31, 1997
------------- -----------------
Short-term Repurchase Agreements $ 200,115 $ 213,871
Short-term FHLB Advances --- 61,000
Federal Funds Purchased 12,500 38,000
Corporate Cash Management Accounts 37,840 30,195
Treasury Tax and Loan Notes 23,896 20,572
Long-Term Repurchase Agreements 220,597 63,466
Long-Term FHLB Advances 152,389 101,936
Corporation-Obligated Mandatorily
Redeemable Capital Securities 50,000 50,000
Capital Lease 176 198
----------- -----------
$ 697,513 $ 579,238
=========== ===========
Asset Quality
Centralized credit risk management provides more uniform levels of
standardization and underwriting among MainStreet affiliates. MainStreet manages
credit risk through a number of methods including loan grading, industry type,
and underwriting collateral. A formal loan review function provides an
independent assessment of credit ratings, credit quality, and credit process.
Management believes that early detection of credit problems through regular
reviews of borrowers' financial performance and collateral values is an
important factor in overall credit quality.
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Nonperforming assets were $10.7 million at June 30, 1998 compared to $9.3
million at December 31, 1997. Nonperforming loans were $9.1 million and $7.7
million at June 30, 1998 and December 31, 1997, respectively. The ratio of
nonperforming loans to loans, net of unearned income, was .91% at June 30, 1998
and .83% at December 31, 1997. At June 30, 1998 and December 31, 1997,
nonaccrual loans comprised $4.9 million and $3.9 million, respectively of loans,
net of unearned income. The ratio of the allowance for loan losses to
nonperforming loans was 155.09% and 160.76%, at June 30, 1998 and December 31,
1997, respectively. The net charge-off ratio at June 30, 1998 was .28% versus
.42% at December 31, 1997. The allowance for loan losses to actual loans, net of
unearned income, was 1.41% at June 30, 1998 compared to 1.34% at December 31,
1997.
Shareholders' Equity
Total shareholders' equity at June 30, 1998 was $160.1 million compared to
$135.7 million at December 31, 1997, an increase of $24.4 million of which $16.9
million was associated with the acquisition of Tysons Financial Corporation.
Dividends per share were $.15 for the second quarter of 1998 and $.30
year-to-date June 30, 1998. At June 30, 1998, the leverage and risk based
capital ratios were 9.22% and 17.68%, respectively. The capital position remains
strong with ratios well above regulatory prescribed minimums.
Liquidity
The measurement of liquidity is performed by monitoring ratios that indicate the
level of liquid assets relative to liabilities, the dependence on potential
volatile funding sources, and the relationship of loans to deposits. While
relying on core deposit relationships as the basis of liquidity, MainStreet has
also sought additional sources of liquidity primarily with the Federal Home Loan
Bank, regional and super-regional banks and top tier investment banking firms.
Year 2000 Update
MainStreet Financial Corporation continues to devote significant time and
resources to manage our Year 2000 project. The Year 2000 Task Force, an ad hoc
committee comprised of representatives from various corporate activities
continues to provide management with guidance and oversight in addresssing the
Company's Year 2000 initiatives. Activities and recommendations of this
committee are provided to the CEOs of all affiliate organizations and the Board
of Directors of the holding company and all affiliate organizations and other
related parties. MainStreet's evaluation of our systems and facilities has been
completed and remediation of mission critical core applications performed by the
software provider is complete. Evaluation of the risks posed by other vendors,
business partners and major loan customers continues on schedule.
MainStreet Financial Corporation has a written test plan addressing mission
critical core applications, mainframe hardware and operating system. Testing of
mission critical core applications began in second quarter 1998 and is on
schedule for completion prior to December 31, 1998. We have identified certain
non-mission critical applications that are not Year 2000 compliant. These
non-mission critical systems are currently scheduled for replacement during 1998
and 1999. The availability and continued use of these automated processes is
dependent on the company's ability to meet these schedules. Costs associated
with the purchase and installation of these systems continue to be considered
normal technology improvements consistent with the planned growth of the company
and a part of the normal budgetary process.
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<PAGE>
In addition, we continue with our highly successful education programs that
focus on providing current, accurate information on the problem to employees,
local industry, small businesses and community leaders in an effort to encourage
others to also become proactive. MainStreet Financial Corporation believes these
initiatives will ensure we successfully meet the Year 2000 challenges faced by
our company and our communities.
New Accounting Development
On June 15, 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (FAS 133). FAS 133 is effective for all
fiscal quarters of all fiscal years beginning after June 15, 1999 (January 1,
2000 for MainStreet). FAS 133 requires that all derivative instruments be
recorded on the balance sheet at their fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designated as part of a hedge
transaction and, if it is, the type of hedge transaction. Currently, MainStreet
does not have any investments in derivative instruments or any hedging
activities. MainStreet does anticipate that in the near future, these forms of
investment may be utilized and will adopt FAS 133.
Contingencies and Other Matters
This discussion is found in Note 6 of the Notes to Consolidated Financial
Statements in this report.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The information required by Part II, Item 1, of the Form 10-Q appears on page 9
of Part I, Item 1, Note 6, of this report and is herein incorporated by
reference.
Item 6(a). Exhibits
3. 1. Articles of Incorporation are presented herein.
4. Bylaws of the Corporation are presented herein.
Item 6(b). Reports on Form 8-K
Form 8-K filed June 4, 1998, regarding the name change of Registrant from
MainStreet BankGroup Incorporated to MainStreet Financial Corporation.
Form 8-K filed July 21, 1998, regarding the completion of the acquisition of
Ballston Bancorp, Incorporated.
99. Financial Data Schedule
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereof duly authorized.
(Registrant) MAINSTREET FINANCIAL CORPORATION
Date 8/13/98 /s/ James E. Adams
------------- ----------------------------------
James E. Adams
Chief Financial Officer/Executive Vice
President/Treasurer
18
Exhibit 3(1)
ARTICLES OF INCORPORATION
OF
MAINSTREET FINANCIAL CORPORATION
I.
The name of the Corporation is MAINSTREET FINANCIAL CORPORATION. [06-01-98]
II.
The purpose for which the Corporation is formed is to transact any or
all lawful business, not required to be specifically stated in these Articles,
for which corporations may be incorporated under the Virginia Stock Corporation
Act, as amended from time to time, including without limitation, the right to
acquire, own, manage and dispose of the capital stock and other securities of
banks and other corporations.
III.
The Corporation shall have authority to issue 1,000,000 shares of
preferred stock of a par value of $5.00 per share and 20,000,000 shares of
common stock of a par value of $5.00 per share. [3/08/96]
Preferred Stock. Authority is expressly vested in the Board of
Directors to divide the preferred stock into series and, within the following
limitations, to fix and determine the relative rights and preferences of the
shares of any series so established and to provide for the issuance thereof.
Each series shall be so designated as to distinguish the shares thereof from the
shares of all other series and classes. All shares of preferred stock shall be
identical except as to the following relative rights and preferences, as to
which there may be variations between different series:
(a) The rate of dividend, the time of payment and the dates from
which dividends shall be cumulative, and the extent of
participation rights, if any;
(b) Any right to vote with holders of shares of any other series
or class and any right to vote as a class, either generally or
as a condition to specified corporate action;
(c) The price at and the terms and conditions on which shares may
be redeemed;
(d) The amount payable upon shares in event of involuntary
liquidation;
(e) The amount payable upon shares in event of voluntary
liquidation;
(f) Sinking fund provisions for the redemption or purchase of
shares; and
(g) The term and conditions on which shares may be converted, if
the shares of any series are issued with the privilege of
conversion.
Prior to the issuance of any shares of a series of preferred stock the
Board of Directors shall establish such series by adopting a resolution setting
forth the designation and number of shares of the series and the relative rights
and preferences thereof to the extent that variations are permitted by the
provisions hereof.
All series of preferred stock shall rank on a parity as to dividends
and assets with all other series according to the respective dividend rates and
amounts distributable upon any voluntary or involuntary liquidation of the
Corporation fixed for each such series and without preference or priority of any
series over any other series; but all shares of the preferred stock shall be
preferred over the common stock as to both dividends and amounts distributable
upon any voluntary or involuntary liquidation of the Corporation. All shares of
any one series shall be identical.
Common Stock. The holders of the common stock shall, to the exclusion
of the holders of any other class of stock of the Corporation, have the sole and
full power to vote for the election of directors and for all other purposes
without limitation except only (i) as otherwise provided in the certificate of
serial designation for a particular series of preferred stock, and (ii) as
otherwise expressly provided by the then existing statutes of the Commonwealth
of Virginia. The holders of the common stock shall have one vote for each share
of common stock held by them.
Subject to the provisions of certificates of serial designation for
series of preferred stock, the holders of shares of common stock shall be
entitled to receive dividends if, when and as declared by the Board of Directors
out of funds legally available therefor and to the net assets remaining after
payment of all liabilities upon voluntary or involuntary liquidation of the
Corporation.
Preemptive Rights. No holder of shares of any class of stock of the
Corporation shall have any preemptive or preferential right to purchase or
subscribe to (i) any shares of any class of stock of the Corporation, whether
now or hereafter authorized; (ii) any warrants, rights or options to purchase
any such stock; or (iii) any securities or obligations convertible into any such
stock or into warrants, rights or options to purchase any such stock. [4-16-85]
Participating Cumulative Preferred Stock, Series A.
The Corporation has designated 100,000 shares of the authorized but
unissued shares of the Corporation's Preferred Stock, par value $5.00 per share,
as Participating Cumulative Preferred, Series A (hereinafter referred to as
"Series A Preferred Stock"). The terms of the Series A Preferred Stock, in the
respect in which the shares of such series may vary from shares of any and all
other series of Preferred Stock, are as follows:
(a) Dividends and Distributions.
(1) Subject to the prior and superior rights of the holders of
any shares of any series of Preferred Stock ranking prior and
superior to the shares of Series A Preferred Stock with
respect to dividends, the holders of shares of Series A
Preferred Stock in preference to the holders of Common Stock
and of any other junior stock, shall be entitled to receive,
when, as and if declared by the Board of Directors out of
funds legally available therefor, dividends payable quarterly
on March 31, June 30, September 30 and December 31 (each such
date being referred to herein as a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment
Date after the first issuance of a share or fraction of a
share of Series A Preferred Stock, in an amount per share
(rounded to the nearest cent) equal to the greater of (a)
$17.00 or (b) subject to the provision for adjustment
hereinafter set forth, 100 times the aggregate per share
amount of all cash dividends, and 100 times the aggregate per
share amount (payable in kind) of all non-cash dividends or
other distributions other than a dividend payable in shares of
Common Stock or a subdivision of the outstanding shares of
Common Stock (by reclassification or otherwise), declared on
the Common Stock since the immediately preceding Quarterly
Dividend Payment Date, or, with respect to the first Quarterly
Dividend Payment Date, since the first issuance of any share
or fraction of a share of Series A Preferred Stock. In the
event the Corporation shall at any time after January 18, 1990
(the "Rights Declaration Date"), (i) declare any dividend on
Common Stock payable in shares of Common Stock, (ii) subdivide
the outstanding Common Stock, or (iii) combine the outstanding
Common Stock into a smaller number of shares, then in each
such case the amount to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event
under clause (b) of the preceding sentence shall be adjusted
by multiplying such amount by a fraction, the numerator of
which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding
immediately prior to such event.
(2) The Corporation shall declare a dividend or distribution
on the Series A Preferred Stock as provided in paragraph (1)
above immediately after it declares a dividend or distribution
on the Common Stock (other than a dividend payable in shares
of Common Stock); provided that, in the event no dividend or
distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date
and the next subsequent Quarterly Dividend Payment Date, a
dividend at the rate of $17.00 per share on the Series A
Preferred Stock shall nevertheless be payable on such
subsequent Quarterly Dividend Payment Date.
(3) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from the
Quarterly Dividend Payment Date next preceding the date of
issue of such shares of Series A Preferred Stock, unless the
date of issue of such shares is prior to the record date for
the first Quarterly Dividend Payment Date, in which case
dividends on such shares shall begin to accrue from the date
of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record
date for the determination of holders of shares of Series A
Preferred Stock entitled to receive a quarterly dividend and
before such Quarterly Dividend Payment Date, in either of
which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued
but unpaid dividends shall not bear interest. Dividends paid
on the shares of Series A Preferred Stock in an amount less
than the total amount of such dividends at the time accrued
and payable on such shares shall be allocated pro rata and on
a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Series A Preferred
Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be no
more than 30 days prior to the date fixed for the payment
thereof.
(b) Voting Rights. The holders of shares of Series A Preferred
Stock shall have the following voting rights:
(1) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Preferred Stock shall entitle
the holder thereof to 100 votes on all matters submitted to a
vote of the shareholders of the Corporation. In the event the
Corporation shall at any time after the Rights Declaration
Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common
Stock, or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the number of
votes per share to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event
shall be adjusted by multiplying such number by a fraction,
the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(2) Except as otherwise provided herein, in the Articles of
Incorporation or under applicable law, the holders of shares
of Series A Preferred Stock and the holders of shares of
Common Stock shall vote together as one voting group on all
matters submitted to a vote of stockholders of the
Corporation.
(3) (i) If at any time dividends on any shares of Series A Preferred
Stock shall be in arrears in an amount equal to six quarterly
dividends thereon, the occurrence of such contingency shall
mark the beginning of a period (a "default period") that shall
extend until such time when all accrued and unpaid dividends
for all previous quarterly dividend periods and for the
current quarterly dividend period on all shares of Series A
Preferred Stock then outstanding shall have been declared and
paid or set apart for payment. During each default period, all
holders of the outstanding shares of Series A Preferred Stock
together with any other series of Preferred Stock then
entitled to such a vote under the terms of the Articles of
Incorporation, voting as a separate voting group, shall be
entitled to elect two members of the Board of Directors of the
Corporation.
(ii) During any default period, such voting right of the holders of
Preferred Stock may be exercised initially at a special
meeting called pursuant to subparagraph (iii) of this
Subsection b(3) or at any annual meeting of stockholders, and
thereafter at annual meetings of stockholders, provided that
neither such voting right nor the right of the holders of any
other series of Preferred Stock, if any, to increase, in
certain cases, the authorized number of Directors shall be
exercised unless the holders of ten percent (10%) in number of
shares of Preferred Stock outstanding shall be present in
person or by proxy. The absence of a quorum of the holders of
Common Stock shall not affect the exercise by the holders of
Preferred Stock of such voting right initially during an
existing default period, they shall have the right, voting as
a separate voting group, to elect Directors to fill such
vacancies, if any, in the Board of Directors as may then exist
up to two (2) Directors, or if such right is exercised at an
annual meeting, to elect two (2) Directors. If the number
which may be so elected at any special meeting does not amount
to the required number, the holders of the Preferred Stock
shall have the right to make such increase in the number of
Directors as shall be necessary to permit the election by them
of the required number. After the holders of the Preferred
Stock shall have exercised their right to elect Directors in
any default period and during the continuance of such period,
the number of Directors shall not be increased or decreased
except by vote of the holders of Preferred Stock as herein
provided or pursuant to the rights of any equity securities
ranking senior to or pari passu with the Series A Preferred
Stock.
(iii)Unless the holders of Preferred Stock shall, during an
existing default period, have previously exercised their right
to elect Directors, the Board of Directors may order, or any
stockholder or stockholders owning in the aggregate not less
than ten percent (10%) of the total number of shares of
Preferred Stock outstanding, irrespective of any and all
series, may request, the calling of a special meeting of the
holders of Preferred Stock, which meeting shall thereupon be
called by the Chairman, the President, the Treasurer, a Vice
Chairman, a Vice-President or the Secretary of the
Corporation. Notice of such meeting and of any annual meeting
at which holders of Preferred Stock are entitled to vote
pursuant to this paragraph (b) (3) (iii) shall be given to
each holder of record of Preferred Stock by mailing a copy of
such notice to him at his last address as the same appears on
the books of the Corporation. Such meeting shall be called for
a time not earlier than 10 days and not later than 60 days
after such order or request. In the event such meeting is not
called within 60 days after such order or request, such
meeting may be called on similar notice by any stockholder or
stockholders owning in the aggregate not less than ten percent
(10%) of the total number of shares of Preferred Stock
outstanding. Notwithstanding the provisions of this paragraph
(b) (3) (iii), no such special meeting shall be called during
the period within 60 days immediately preceding the date fixed
for the next annual meeting of the stockholders.
(iv)In any default period, the holders of Common Stock, and other
classes of stock of the Corporation if applicable, shall
continue to be entitled to elect the whole number of Directors
until the holders of Preferred Stock shall have exercised
their right to elect two (2) Directors voting as a separate
voting group, after the exercise of which right (x) the
Directors so elected by the holders of Preferred Stock shall
continue in office until their successors shall have been
elected by such holders or until the expiration of the default
period, and (y) any vacancy in the Board of Directors may
(except as provided in paragraph (b)(3)(ii) be filled by vote
of a majority of the remaining Directors theretofore elected
by the voting group which elected the Directors whose office
shall have become vacant. References in this paragraph
(b)(3)(iv) to Directors elected by a particular voting group
shall include Directors elected by such Directors to fill
vacancies as provided in clause (y) of the foregoing sentence.
(v)Immediately upon the expiration of a default period, (x) the
right of the holders of Preferred Stock, as a separate voting
group, to elect Directors shall cease, (y) the term of any
Directors elected by the holders of Preferred Stock, as a
separate voting group, shall terminate, and (z) the number of
Directors shall be such number as may be provided for in, or
pursuant to, the Articles of Incorporation or bylaws
irrespective of any increase made pursuant to the provisions
of paragraph 5(b)(3)(ii) (such number being subject, however,
to change thereafter in any manner provided by law or in the
Articles of Incorporation or bylaws). Any vacancies in the
Board of Directors affected by the provisions of clauses (y)
and (z) in the preceding sentence may be filled by a majority
of the remaining Directors, even though less than a quorum.
(4) Except as set forth herein or as otherwise provided in the
Articles of Incorporation, holders of Series A Preferred Stock
shall have no special voting rights and their consent shall
not be required (except to the extent they are entitled to
vote with holders of Common Stock as set forth herein) for
taking any corporate action.
(c) Certain Restrictions.
(1) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as
provided in Subsection (a) are in arrears, thereafter and
until all accrued and unpaid dividends and distributions,
whether or not declared, on shares of Series A Preferred Stock
outstanding shall have been paid in full, the Corporation
shall not:
(i) declare or pay or set apart for payment any dividends (other
than dividends payable in shares of any class or classes of
stock of the Corporation ranking junior to the Series A
Preferred Stock) or make any other distributions on, any class
of stock of the Corporation ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to
the Series A Preferred Stock and shall not redeem, purchase or
otherwise acquire, directly or indirectly, whether
voluntarily, for a sinking fund, or otherwise any shares of
any class of stock of the Corporation ranking junior (either
as to dividends or upon liquidation, dissolution or winding
up) to the Series A Preferred Stock, provided that,
notwithstanding the foregoing, the Corporation may at any time
redeem, purchase or otherwise acquire shares of stock of any
such junior class in exchange for, or out of the net cash
proceeds from the concurrent sale of, other shares of stock of
any such junior class;
(ii) declare or pay dividends on or make any other distributions on
any shares of stock ranking on a parity (either as to
dividends or upon litigation, dissolution or winding up) with
the Series A Preferred Stock, except dividends paid ratably on
the Series A Preferred Stock and all such parity stock on
which dividends are payable or in arrears in proportion to the
total amounts to which the holders of all such shares are then
entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with
the Series A Preferred Stock, provided that the Corporation
may at any time redeem, purchase or otherwise acquire shares
of any such parity stock in exchange for shares of any stock
of the Corporation ranking junior (either as to dividends or
upon dissolution, liquidation or winding up) to the Series A
Preferred Stock;
(iv) purchase or otherwise acquire for consideration any shares of
Series A Preferred Stock, or any shares of stock ranking on a
parity with the Series A Preferred Stock, except in accordance
with a purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and
other relative rights and preferences of the respective series
and classes, shall determine in good faith will result in fair
and equitable treatment among the respective series or
classes.
(2) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration
any shares of stock of the Corporation unless the Corporation
could, under paragraph (1) Subsection (c), purchase or
otherwise acquire such shares at such time and in such manner.
(d) Reacquired Shares. Any shares of a Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any
manner whatsoever shall be retired and cancelled promptly
after the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of
Preferred Stock to be created by resolution or resolutions of
the Board of Directors, subject to the conditions and
restrictions on issuance set forth herein.
(e) Liquidation, Dissolution or Winding Up.
(1) Upon any voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, no distribution shall be
made to the holders of shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding
up) to the Series A Preferred Stock unless, prior thereto, the
holders of shares of Series A Preferred Stock shall have
received $100 per share, plus an amount equal to accrued and
unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment (the "Series A
Liquidation Preference"). Following the payment of the full
amount of the Series A Liquidation Preference, no additional
distributions shall be made to the holders of shares of Series
A Preferred Stock unless, prior thereto, the holders of shares
of Common Stock shall have received an amount per share (the
"Common Adjustment") equal to the quotient obtained by
dividing (i) the Series A Liquidation Preference by (ii) 100
(as appropriately adjusted as set forth in subparagraph 3
below to reflect such events as stock splits, stock dividends
and recapitalizations with respect to the Common Stock) (such
number in clause (ii) being hereinafter referred to as the
"Adjustment Number"). Following the payment of the full amount
of the Series A Liquidation Preference and the Common
Adjustment in respect of all outstanding shares of Series A
Preferred Stock and Common Stock, respectively, holders of
Series A Preferred Stock and holders of shares of Common Stock
shall receive their ratable and proportionate share of the
remaining assets to be distributed in the ratio of the
Adjustment Number to 1 with respect to such Series A Preferred
Stock and Common Stock, on a per share basis, respectively.
(2) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series A
Liquidation Preference and the liquidation preferences of all
other series of Preferred Stock, if any, then such remaining
assets shall be distributed ratably to the holders of all such
shares in proportion to their respective liquidation
preferences. In the event, however, that there are not
sufficient assets available to permit payment in full of the
Common Adjustment, then such remaining assets shall be
distributed ratably to the holders of Common Stock.
(3) In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on Common
Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of
shares, then in each such case the Adjustment Number in effect
immediately prior to such event shall be adjusted by
multiplying such Adjustment Number by a fraction, the
numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(f) Consolidation, Merger, Share Exchange, etc.
In case the Corporation shall enter into any consolidation,
merger, share exchange, combination or other transaction in
which the shares of Common Stock are exchanged for or changed
into other stock or securities, cash and/or any other
property, then in any such case the shares of Series A
Preferred Stock shall at the same time be similarly exchanged
or changed in an amount per share (subject to the provision
for adjustment hereinafter set forth) equal to 100 times the
aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, into which or
for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on Common
Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding
Common Stock into a smaller number of shares, then in each
such case the amount set forth in the preceding sentence with
respect to the exchange or change of shares of Series A
Preferred Stock shall be adjusted by multiplying such amount
by a fraction, the numerator of which is the number of shares
of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event.
(g) Redemption. The outstanding shares of Series A Preferred Stock
may be redeemed at the option of the Board of Directors as a
whole, but not in part, at any time, or from time to time, at
a cash price per share equal to (i) 100% of the product of the
Adjustment Number times the Average Market Value (as such term
is hereinafter defined) of the Common Stock, plus (ii) all
dividends which on the redemption date have accrued on the
shares to be redeemed and have not been paid or declared and a
sum sufficient for the payment thereof set apart, without
interest. The "Average Market Value" is the average of the
closing sale prices of a share of the Common Stock during the
30-day period immediately preceding the date before the
redemption date on the Composite Tape for New York Stock
Exchange Listed Stocks, or, if such stock is not quoted on the
Composite Tape, on the New York Stock Exchange, or, if such
stock is not listed on such exchange, on the principal United
States securities exchange registered under the Securities
Exchange Act of 1934, as amended, on which such stock is
listed, or, if such stock is not listed on any such exchange,
the average of the closing bid quotations with respect to a
share of Common Stock during such 30-day period on the
National Association of Securities Dealer, Inc. Automated
Quotation System or any system then in use, or if no such
quotations are available, the fair market value of a share of
the Common Stock as determined by the Board of Directors in
good faith.
(h) Ranking. The Series A Preferred Stock shall rank on a parity
with all other series of Preferred Stock as to the payment of
dividends and the distribution of assets, unless the terms of
any such series shall provide otherwise.
(i) Amendment. Except as permitted by the Virginia Stock
Corporation Act, the Articles of Incorporation or the Bylaws,
the Articles of Incorporation shall not be further amended in
any manner that would adversely affect the preferences, rights
or powers of the Series A Preferred Stock.
(j) Fractional Shares. Series A Preferred Stock may be issued in
fractions of one-hundredth of a share (and integral multiples
thereof) which shall entitle the holder, in proportion to such
holders' fractional shares, to exercise voting rights, receive
dividends, participate in distributions and to have the
benefit of all other rights of holders of Series A Preferred
Stock.
IV.
The initial registered office shall be located at 46 West Main Street,
in the City of Martinsville, Virginia, and the initial registered agent shall be
William F. Stone, Jr., who is a resident of Virginia and a member of the
Virginia State Bar, and whose business address is the same as the address of the
initial registered office.
V.
The number of Directors constituting the initial Board of Directors
shall be four, and the names and addresses of the persons who are to serve as
the initial Directors are as follows:
Name Address
---- -------
Irving M. Groves, Jr. P. O. Box 4751
Martinsville, Virginia 24112
John M. Beducian P. O. Box 4751
Martinsville, Virginia 24112
Charles C. Broun P. O. Box 4751
Martinsville, Virginia 24112
Darrell G. Swanigan P. O. Box 725
Hillsville, Virginia 24343
VI.
1. To the full extent that the Virginia Stock Corporation Act, as
it exists on the date hereof or may hereafter be amended,
permits the limitation or elimination of the liability of
directors or officers, a Director or officer of the
Corporation shall not be liable to the Corporation or its
stockholders for monetary damages.
2. To the full extent permitted and in the manner prescribed by
the Virginia Stock Corporation Act as it exists on the date
hereof or may hereafter be amended, and any other applicable
law, the Corporation shall indemnify a Director or officer of
the Corporation who is or was a party to any proceeding by
reason of the fact that he is or was such a Director or
officer or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise. The Board of Directors is
hereby empowered, by majority vote of a quorum of
disinterested Directors, to contract in advance to indemnify
any Director or officer.
3. The Board of Directors is hereby empowered, by majority vote
of a quorum of disinterested Directors, to cause the
Corporation to indemnify or contract in advance to indemnify
any person not specified in Section 2 of this Article who was
or is a party to any proceeding, by reason of the fact that he
is or was an employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or
other enterprise, to the same extent as if such person were
specified as one to whom indemnification is granted in Section
2.
4. The Corporation may purchase and maintain insurance to
indemnify it against the whole or any portion of the liability
assumed by it in accordance with this Article and may also
procure insurance, in such amounts as the Board of Directors
may determine, on behalf of any person who is or was a
Director, officer, employee or agent of the Corporation, or is
or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or
other enterprise, against any liability asserted against or
incurred by such person in any such capacity or arising from
his status as such, whether or not the Corporation would have
power to indemnify him against such liability under the
provisions of this Article.
5. In the event there has been a change in the composition of a
majority of the Board of Directors after the date of the
alleged act or omission with respect to which indemnification
is claimed, any determination as to indemnification and
advancement of expenses with respect to any claim for
indemnification made pursuant to Section 1 of this Article VI
shall be made by special legal counsel agreed upon by the
Board of Directors and the proposed indemnitee. If the Board
of Directors and the proposed indemnitee are unable to agree
upon such special legal counsel, the Board of Directors and
the proposed indemnitee each shall select a nominee, and the
nominees shall select such special legal counsel.
6. The provisions of this Article VI shall be applicable to all
actions, claims, suits or proceedings commenced after the
adoption hereof by shareholders, whether arising from any
action taken or failure to act before or after such adoption.
No amendment, modification or repeal of this Article shall
diminish the rights provided hereby or diminish the right to
indemnification with respect to any claim, issue or matter in
any then pending or subsequent proceeding that is based in any
material respect on any alleged action or failure to act prior
to such amendment, modification or repeal.
7. Reference herein to Directors, officers, employees or agents
shall include former Directors, officers, employees and agents
and their respective heirs, executors and administrators.
[4/13/87]
VII.
It shall be in the Corporation's best interest for the Board of
Directors, when evaluating another person's or corporation's proposal (i) to
make a tender offer or exchange offer for any equity security of the
Corporation, (ii) to merge or consolidate with the Corporation, or (iii) to
acquire all or substantially all of the assets of the Corporation (an
"acquisition proposal"), to consider:
(a) not only the consideration being offered in such acquisition
proposal in relation to the current market price of the
Corporation's securities or assets, but also in relation to
the current value of the Corporation in a freely negotiated
transaction and in relation to the Board of Directors'
estimate of the future value of the Corporation as an
independent company;
(b) other factors including, without limitation, the social,
economic and legal effects of the proposed transaction on the
Corporation's and its subsidiaries' employees, depositors,
loan customers and the communities served by the Corporation
and its subsidiaries; and
(c) other factors which the Board of Directors may deem relevant
to a specific acquisition proposal, the relevance of such
factors to be conclusively presumed by their inclusion in the
written minutes of the meeting(s) of the Board of Directors at
which any specific acquisition proposal is considered.
[4-16-85]
VIII.
Except as otherwise required by the Virginia Stock Corporation Act, by
these Articles of Incorporation, or by the board of directors acting pursuant to
Subsection C of Section 13.1-707 of the Virginia Stock Corporation Act, or any
successor provision, the vote required to approve an amendment or restatement of
these Articles of Incorporation, other than an amendment or restatement that
amends or affects Article VII or these Articles or the shareholder vote required
by the Virginia Stock Corporation Act to approve a merger, share exchange, sale
or all or substantially all of the corporation's assets or the dissolution of
the corporation, shall be a majority of all votes entitled to be cast by each
voting group entitled to vote on the amendment. [11/28/89]
- -------------------------
Dated: February 9, 1977
Revisions as of June 1, 1998
Exhibit 3(2)
Bylaws
of
MAINSTREET FINANCIAL CORPORATION
Incorporated Under The Laws
Of The Commonwealth Of Virginia
Adopted February 9, 1977
(And Including Amendments Adopted
Thereto Through June 17, 1998)
<PAGE>
MainStreet Financial Corporation
Bylaws
Article I
Meetings Of Stockholders
1.1 Places of Meetings. All meetings of the stockholders shall be held at such
place, either within or without the State of Virginia, as from time to time may
be designated by the Board of Directors.
1.2 Annual Meeting. The annual meeting of stockholders, for the election of
Directors and transaction of such other business as may come before the meeting,
shall be held in each year at a date and time annually fixed by the Board of
Directors.
1.3 Special Meetings. Special meetings of the stockholders for any purpose or
purposes may be called at any time by the Chairman of the Board, by the
Vice-Chairman of the Board, the President, or by a majority of the Board of
Directors. No business shall be transacted and no corporate action shall be
taken at a special meeting other than that stated in the notice of the meeting.
1.4 Notice of Meeting. Unless waived in the manner prescribed by law, notice of
each meeting of stockholders shall be given in writing, and shall state the
place, day and hour of every meeting of the stockholders and, in case of a
special meeting, such notice shall be mailed not less than ten nor more than
sixty days before the date of the meeting to each stockholder of record entitled
to vote at such meeting at his address which appears in the stock transfer books
of the Company.
1.5 Quorum. Any number of stockholders together holding a majority of the
outstanding shares of capital stock entitled to vote with respect to the
business to be transacted, who shall be present in person or represented by
proxy at any meeting duly called, shall constitute a quorum for the transaction
of business. If less than a quorum shall be in attendance at the time for which
a meeting shall have been called, the meeting may be adjourned from time to time
by a majority of the stockholders present or represented by proxy without notice
other than by announcement at the meeting until a quorum shall attend.
1.6 Voting. At any meeting of the stockholders, each stockholder of a class
entitled to vote on any matter coming before the meeting shall, as to such
matter, have one vote, in person or by proxy, for each share of capital stock of
such class standing in his or her name on the stock transfer books of the
Corporation on the date, not more than seventy days prior to such meeting, as
designated by the Board of Directors, for the purpose of determining
stockholders entitled to vote, as the date on which the stock transfer books of
the Corporation are to be closed or as the record date. Every proxy shall be in
writing, dated and signed by the stockholder entitled to vote or his or her duly
authorized attorney-in-fact. At a meeting where a quorum is present the
affirmative vote of the majority of the shares represented at the meeting and
entitled to vote shall be the act of the stockholders.
1.7 Conduct of Meeting. At each meeting of the stockholders the Chairman of the
Board, or the President, shall act as chairman and preside. In their absence,
the Chairman of the Board may designate another officer of the Corporation who
need not be a Director to preside. The Secretary of the Corporation or an
Assistant Secretary or in their absence, a person whom the chairman of such
meeting shall appoint, shall act as secretary of such meeting.
1.8 Inspectors. An appropriate number of inspectors for any meeting of
stockholders may be appointed by the chairman of such meeting. Inspectors so
appointed will open and close the polls, will receive and take charge of proxies
and ballots, and will decide all questions as to the qualifications of voters,
validity of proxies and ballots, and the number of votes properly cast.
1.9 Shareholder Proposals. To be properly brought before an annual meeting of
shareholders, business must be (i) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (ii)
otherwise properly brought before the meeting by or at the direction of the
Board of Directors, or (iii) otherwise properly brought before the meeting by a
shareholder. In addition to any other applicable requirements for business to be
properly brought before an annual meeting by a shareholder, the shareholder must
have given notice thereof in writing either by personal delivery or by United
States mail, postage prepaid, to the Secretary of the Corporation by the first
day of December of the year preceding the Annual Meeting at which the proposal
is sought to be presented. A shareholder's notice to the Secretary of the
Corporation 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 (including the specific proposal to be
presented) and the reasons for conducting such business at the annual meeting;
(ii) the name and record address of the shareholder proposing such business;
(iii) the class and number of shares of the Corporation that are beneficially
owned by the shareholder; and (iv) any material interest of the shareholder in
such business. In the event that a shareholder attempts to bring business before
an annual meeting without complying with the provisions of this Article 1.9, the
Chairman of the meeting shall declare to the meeting that the business was not
properly brought before the meeting in accordance with the foregoing procedures,
and such business shall not be transacted. No business shall be conducted at the
annual meeting except in accordance with the procedures set forth in this
Article 1.9, provided, however, that nothing in this Article 1.9 shall be deemed
to preclude discussion by any shareholder of any business properly brought
before the annual meeting.
ARTICLE II
Directors
2.1 General Powers. The property, business and affairs of the Corporation shall
be managed by the Board of Directors, and, except as otherwise expressly
provided by law, in accordance with the Articles of Incorporation or these
Bylaws, all of the powers of the Corporation shall be vested in such Board.
2.2 Number of Directors. The number of Directors constituting the Board of
Directors shall be eleven (11).
2.3 Election and removal of Directors. Directors shall be elected at each annual
meeting of the stockholders to succeed those Directors whose terms have expired
and to fill any vacancies then existing. Directors shall hold their offices for
terms of one year and until their successors are elected and qualified. Any
vacancy occurring in the Board of Directors, including a vacancy resulting from
an increase in the number of authorized Directors, may be filled by the
affirmative majority vote of the remaining Directors, though less than a quorum
of the Board, and the term of office of any Director so elected shall expire on
the date fixed for the expiration of the term of office of the Director to which
such Director was so elected unless the vacancy is sooner filled by the
stockholders. Any Director may be removed from office at a meeting of
stockholders called expressly for that purpose by the vote of stockholders
constituting a majority of the votes entitled to be cast at an election of
Directors.
2.4 Term of Office. Each Director (unless he sooner dies resigns, or is removed
from office) shall hold office until the next annual meeting of stockholders or
until his successor shall have been elected and qualifies.
2.5 Quorum. Except with regard to the approval of a plan of merger or a sale of
all or substantial part of the Company's assets, a majority of the number of
Directors pursuant to these Bylaws at the time of the meeting, shall constitute
a quorum for the transaction of business. The act of a majority of Directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors. A plan of merger or sale of all or a substantial portion of the
assets of the company shall require the presence and action of at least
two-thirds (2/3) of the Directors. Any one or more members of the Board of
Directors may participate in a meeting of the Board by means of a conference
telephone or similar communication equipment allowing all persons participating
in the meeting to hear each other at the same time and participation by such
means shall constitute presence in person. Less than a quorum may adjourn any
meeting.
2.6 Meetings of Directors.
(a) Place of Meeting. Meetings of the Board of Directors shall
be held at such place and at such time, either within or
without the State of Virginia as may be designated by the
Board, or upon call of the Chairman of the Board or the
President.
(b) Organizational Meeting. An organizational meeting shall be
held as soon as practicable after the adjournment of the
annual meeting of stock-holders at which the Board of
Directors is elected, for the purpose of electing officers,
and for transacting such other business as may properly come
before the meeting.
(c) Regular Meeting. Regular meetings of the Board of
Directors shall be held at such time and place as the Board
may designate, or upon call of the Chairman of the Board, or
the President, and no notice thereof need be given.
(d) Special Meeting. Special meetings of the Board of
Directors may be held at any time or place upon the call of
the Chairman of the Board or the President, or any three
members of the Board. Notice of each such meeting shall be
given to each Director by mail at his business or residence
address at least twenty-four hours before the meeting, or by
telephoning or telegraphing notice to him at least twenty-four
hours before the meeting. Meetings may be held at any time
without notice if all of the Directors are present, or if
those not present waive notice in writing either before or
after the meeting. The notice of meetings of the Board need
not state the purpose of the meeting.
(e) Conduct of Meetings. At each meeting of the Board of
Directors, the Chairman of the Board, or the President, shall
act as chairman and preside. In their absence, the Chairman of
the Board may designate another officer of the Corporation who
need not be a Director, to preside. The Secretary of the
Corporation or an Assistant Secretary, or in their absence, a
person whom the chairman of such meeting shall appoint, shall
act as secretary of such meeting.
Any action required or permitted to be taken by the Board may be taken
without a meeting if all Directors consent in writing to the adoption of a
resolution authorizing the action. The resolution and the written consents of
the directors shall be filed with the minutes of the proceedings of the Board
meetings. Unless otherwise provided by the Board of Directors, the regular
meetings of the Board shall be held in the Board Room of the Church and
Ellsworth Office of Piedmont Trust Bank, Martinsville, Virginia on the third
Wednesday of February, June, August, October and December at 11:00 a.m.
2.7 Compensation. Directors, and members of any committee of the Board who are
not officers of the Corporation or subsidiaries thereof, shall be paid such
compensation as the Board of Directors from time to time may determine, by
resolution, for services as a Director, or as Chairman or a member of any
committee of the Board, and shall, in addition, be reimbursed for personal
automobile mileage expense and/or airline travel expense incurred by reason of
attendance at Board Meetings. The reimbursement rate for automobile travel will
be at the same rate paid to employees of the Corporation. Directors may be
allowed a fee and expenses for attendance at all meetings, but nothing herein
shall preclude Directors and members of any committee of the Board who are not
otherwise officers of the Corporation from serving the Corporation in other
capacities and receiving compensation for such other services.
2.8 Eligibility for Service as a Director. No person shall be eligible to serve
as a Director unless, when his term commences, he is not less than twenty-one
(21) years of age nor more than sixty-eight (68) years of age. No Director shall
be eligible for re-election after he has attained the age of sixty-eight (68)
years. No Director who is an officer of the Corporation or any subsidiary shall
be eligible for election after he has retired from the Corporation. Any person
serving as a Director on the date of the adoption of this Section who will be
sixty-five (65) years of age or older as of the date of the 1995 annual meeting
shall be entitled to serve as a Director until he has attained the age of
seventy (70) years of age.
2.9 Nominations of Directors. Subject to the rights of holders of any class or
series of stock having a preference over the common stock as to dividends or
upon liquidation, nominations for the election of Directors shall be made by the
Board of Directors or a committee appointed by the Board of Directors or by any
shareholder entitled to vote in the election of Directors generally. However,
any shareholder entitled to vote in the election of Directors generally may
nominate one or more persons for election as Directors at a meeting only if
written notice of such shareholder's intent to make such nomination or
nominations has been given, either by personal delivery or by United States
mail, postage prepaid, to the Secretary of the Corporation not later than (i)
with respect to an election to be held at an annual meeting of shareholders,
ninety (90) days in advance of such meeting, and (ii) with respect to an
election to be held at a special meeting of shareholders for the election of
Directors, the close of business on the seventh day following the date on which
notice of such meeting is first given to shareholders. Each notice shall set
forth: (a) the name and address of the shareholder who intends to make the
nomination and of the person or persons to be nominated; (b) a representation
that the shareholder is a holder of record of stock of the Corporation entitled
to vote at such meeting and intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the notice; (c) a
description of all arrangements or understandings between the shareholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
shareholder; (d) such other information regarding each nominee proposed by such
shareholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission, had the
nominee been nominated, or intended to be nominated, by the Board of Director;
and (e) the consent of each nominee to serve as a Director of the Corporation if
so elected. The Chairman of the meeting may refuse to acknowledge the nomination
of any person not made in compliance with the foregoing procedure.
Article III
Committees of the Board
3.1 Standing Committees. The standing committees of the Board of Directors, the
membership, frequency of meetings and function of which are set forth below
shall be:
(a) Executive Committee
(b) Audit Committee
(c) Corporate Objectives and Finance Committee
(d) Corporate Governance and Nominating Committee
(e) Compensation Committee
(f) Corporate Responsibility and Compliance Committee
3.2 Other Committees. The Board of Directors may appoint such other committees
for such purposes and with such lawful powers as it may determine.
3.3 Members; Quorum. The Chairman of the Board shall appoint the members of each
committee, subject to the approval of the Board of Directors, which members
shall continue to serve on said committees until their successors are appointed;
provided, however, that any member of any Committee may be removed by the Board
upon a majority vote thereof at any regular or special meeting of the Board. The
Chairman of the Board shall fill any vacancy in any committee by the appointment
of another director, subject to the approval of the Board.
A majority of the members of any committee must be present to
constitute a quorum. A majority of those committee members present and voting at
any committee meeting shall decide each matter considered.
3.4 Secretary to Committees. Unless otherwise specifically set forth herein, the
Secretary or an Assistant Secretary of the Corporation shall serve as Secretary
for all meetings of the standing committees. If neither are available, the
committee Chairman shall appoint a member of the committee to serve as
Secretary.
3.5 Ex Officio Status. Unless otherwise specifically provided in this Article
III, the Chief Executive Officer shall be an ex officio member of each standing
committee.
3.6 Executive Committee.
(a) Membership. The Executive Committee shall consist of the
Chairman of the Board, the Chief Executive Officer if the same
person does not hold both the Office of Chairman of the Board
and the Office of Chief Executive Officer and the Chairman of
each of the other standing committees; provided only, that the
membership must at all times include not less than four (4)
outside directors. The Chairman of the Board shall serve as
Chairman of the committee and may at his discretion designate
a Vice-Chairman from among the membership to serve in his
absence.
(b) Frequency of Meetings. The Executive Committee shall meet
at such times as the Chairman or a majority of the committee
deems necessary.
(c) Function. The Executive Committee shall possess and
exercise, when the Board is not in session, all the powers of
the Board of Directors which the Board may lawfully delegate.
The Executive Committee shall keep a record of its proceedings
and report its proceedings and the actions taken by it to the
Board of Directors.
3.7 Audit Committee.
(a) Membership. The Audit Committee shall consist of at least
three (3) and not more than six (6) non-employee directors.
All members of the Audit Committee must be independent of
management and free from any relationship that, in the opinion
of the Board of Directors, would interfere with the exercise
of independent judgment as a committee member. The committee
shall be chaired by a member appointed by the Board of
Directors upon recommendation of the Chairman of the Board.
The committee shall appoint a member of the internal audit
staff to serve as Secretary to the Committee and may in its
discretion appoint one or more Assistant Secretaries. The
Chief Executive Officer shall not be an Ex Officio Member of
this Committee.
(b) Frequency of Meetings. The committee shall meet at least
three (3) times annually and at such other times as may be
necessary for the committee to discharge its duties.
(c) Function. The Audit Committee is charged with the
responsibility of recommending the selection of independent
accountants and auditors; reviewing and approving the scope of
the accountant's examination and any non-audit services to be
performed by the independent accountants; reviewing
examination reports by the independent accountants and
regulatory agencies; approving the internal audit plan and
reviewing the results thereof; ensuring that an adequate
system of internal control has been implemented within the
Corporation and is being effectively followed; reviewing
appropriate standards of proper conduct for the employees of
the Corporation as set forth by the Corporate Responsibility
and Compliance Committee in the Company's Code of Ethics; and
monitoring compliance with such standards. The Audit Committee
shall keep a record of its proceedings and the actions taken
by it and report these proceedings and actions to the Board of
Directors.
3.8 Corporate Objectives and Finance Committee.
(a) Membership. The Corporate Objectives and Finance Committee
shall consist of not less than five (5) or more than eight (8)
directors at least three (3) of which are non-employee outside
directors. The Chairman of the committee shall be appointed by
the Chairman of the Board with the approval of the Board of
Directors. The Corporation's Chief Financial Officer shall be
an ex officio member of the committee. The committee shall
keep a record of its proceedings and report its proceedings to
the Board of Directors.
(b) Frequency of Meetings. The Corporate Objectives and
Finance Committee shall meet at least twice annually and at
such other times as may be necessary in the discharge of its
duties.
(c) Function. The Corporate Objectives and Finance Committee
shall be responsible for: overseeing the strategic planning
process and assisting management with setting a strategic
direction for the Corporation; monitoring the operational and
financial results of the Corporation; reviewing and
recommending to the Board of Directors, dividend policies and
payments; reviewing the risk management policy; and
recommending to management and the Board of Directors such
financial and other policies as will best advance the
Corporation's operating strategies and financial objectives.
3.9 Corporate Responsibility and Compliance Committee.
(a) Membership. The Committee shall consist of not less than
three (3) nor more than six (6) Directors one of whom shall
also serve as a member of the Audit Committee. The Chairman of
the committee shall be appointed by the Board upon the
recommendation of the Chairman of the Board. The Chief
Executive Officer shall be an ex officio member of the
committee. The committee shall keep a record of its
proceedings and report its proceedings to the Board of
Directors.
(b) Frequency of Meetings. The committee shall meet at least
twice annually and otherwise as may be necessary for the
performance of its duties.
(c) Function. The Corporate Responsibility and Compliance
Committee shall be responsible for ensuring that ethical
behavior and proper compliance standards are established and
maintained throughout the Corporation. The committee shall
also be responsible for ensuring that management adopts and
enforces policies for the appropriate treatment of employees
and customers and behaves as a responsible corporate citizen.
Further the committee shall review and monitor the
effectiveness of policies and procedures adopted by the
Corporation and its subsidiaries for ensuring compliance with
the Community Reinvestment Act.
3.10 Corporate Governance and Nominating Committee.
(a) Membership. The committee shall consist of not less than
three (3) nor more than six (6) non-employee directors and
either the Chief Executive Officer or the President. The
Chairman of the committee shall be a non-employee director
appointed by the Board of Directors upon the recommendation of
the Chairman of the Board. The committee may meet in executive
session, to evaluate the performance of the Chief Executive
Officer or otherwise, and the Chief Executive Officer or the
President whichever is a member of the committee shall not be
entitled to be present at such a meeting. At such executive
session(s) the absence of the Chief Executive Officer or
President shall not be counted for purposes of determining
whether a quorum exists. The committee shall keep a record of
its proceedings and report its proceedings to the Board of
Directors.
(b) Frequency of Meetings. The committee shall meet at least
twice annually and at such other times as may be necessary for
the committee to discharge its duties.
(c) Function. The Corporate Governance and Nominating
Committee shall be responsible for: conducting the evaluation
of the Chief Executive Officer and the Board itself; the
selection, nomination and orientation of new directors;
education of directors on an on-going basis; creating a
specific succession plan for the Chief Executive officer and
assisting management with the development and implementation
of a comprehensive management succession plan.
3.11 Compensation Committee.
(a) Membership. The membership shall consist of not less than
three (3) nor more than six (6) non-employee directors at
least one of whom shall also be a member of the Corporate
Governance Committee. The Chairman of the committee shall be
appointed by the Board of Directors upon the recommendation of
the Chairman of the Board. The committee shall keep a record
of its proceedings and report its proceedings to the Board of
Directors.
(b) Frequency of Meetings. The Compensation Committee shall
meet at least twice annually and at such other times as may be
necessary for the Committee to discharge its duties.
(c) Function. The Compensation Committee shall be responsible for
creating a performance-based compensation program for the
Executive Officers of the Corporation and the CEOs of the
subsidiaries; assisting management with the development of a
performance-based compensation program for the officers of the
Corporation and its subsidiaries; evaluating management
performance generally and approving a compensation program for
the elected officers of the Corporation. The committee shall
also review and approve any significant changes to the
Corporation's benefits plans whether qualified or
non-qualified and recommend appropriate changes in director
compensation to the Board of Directors.
ARTICLE IV
Officers
4.1 Number and Manner of Election of Officers; Terms of Appointment. The
officers of the Corporation shall include:
(a) A Chairman of the Board, a Chief Executive Officer, a
President, a Secretary, a Chief Financial Officer and
Treasurer, one or more Senior Vice Presidents, one or more
Assistant Secretaries and may include one or more Vice
Chairmen of the Board, each of whom shall be elected by the
Board.
(b) Such other officers as the Chairman of the Board or
President may deem necessary, each of whom shall be appointed
by the Chairman of the Board, President or a Vice Chairman.
Officers of subsidiaries of the Corporation shall be elected
and have their compensation set in the same manner as
comparable officers of the Corporation.
One person may hold more than one office except that the offices of
President and Secretary may not be held by the same person.
4.2 Term of Office. The officers designated in Section 4.l(a) and the Chief
Auditor if any, shall be elected annually by the Board at its organizational
meeting. Such officers unless otherwise removed shall each hold office until the
next organizational meeting of the Board of Directors or until their successors
are elected. The Chairman of the Board, Chief Executive Officer and the
President shall be chosen from among the Directors. The officers designated in
Section 4.l(b) may be appointed at any time by the Chairman of the Board, the
Chief Executive Officer, the President or a Vice Chairman, and shall serve at
the pleasure of the Board of Directors.
4.3 Removal Any officer of the Corporation may be removed from office, with or
without cause, at any time, by the Board of Directors. Any officer appointed by
the Chairman of the Board, the Chief Executive Officer, the President or a Vice
Chairman may be removed from office by him with or without cause at any time.
4.4 Resignations. Any officer may resign at any time by giving written notice to
the Board, Chairman of the Board, President or the Secretary. Such resignation
shall be effective on the date of receipt of such notice or any later date
specified therein, and unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
4.5 Vacancies, New Offices and Promotions. A vacancy for whatever cause in any
office may be filled at any time for the unexpired portion of the term, in the
manner prescribed in these Bylaws for regular election or appointment to such
office. New offices may be created and filled, and the promotions and changes in
officers' titles may be made at any time in the manner prescribed in these
Bylaws for regular election or appointment to such office.
4.6 Chairman of the Board. The Chairman of the Board may also serve as the Chief
Executive Officer if so designated by the Board of Directors and shall have
general supervision of the policies and operations of the Corporation subject to
the direction and control of the Board. He shall preside at all meetings of the
stockholders, the Board of Directors and the Executive Committee. He shall have
the power to sign checks, orders, contracts, leases, notes, drafts and other
documents and instruments in connection with the business of the Corporation,
and have such other powers and perform such other duties as shall be designated
by the Board of Directors or as may be incidental to his office. The Chairman of
the Board shall have the authority to appoint officers of the Corporation below
the rank of Senior Vice President.
4.7 Chief Executive Officer. The Chief Executive Officer shall have supervision
of the policies and management of the Corporation. He shall have the power to
sign checks, orders, contracts, leases, notes, drafts and other documents and
instruments in connection with the business of the Corporation and have such
other powers and perform such other duties as may be assigned to him by Board of
Directors or as may be incidental to his office. In the absence of the Chairman
of the Board, he shall preside at meetings of Stockholders, meetings of the
Board of Directors and the Executive Committee. The Chief Executive Officer
shall have the authority to appoint officers of the Corporation below the rank
of Senior Vice President.
4.8 President. The President shall be the Chief Operating Officer and shall
participate in the supervision of the policies and management of the
Corporation, and may, if so designated by the Board of Directors, be the Chief
Executive Officer of the Corporation. He shall perform all duties incidental to
the office of President and shall perform such other duties as may be assigned
to him from time to time by the Board of Directors or the Chairman of the Board.
In the absence of the Chairman of the Board, he shall preside at meetings of
stockholders, meetings of the Board of Directors and the Executive Committee. He
shall have the same power to sign for the Corporation and to appoint officers as
prescribed in these Bylaws for the Chairman of the Board and the Chief Executive
Officer.
4.9 Vice Chairman of the Board of Directors. A Vice Chairman of the Board shall
participate in the supervision of the policies and operations of the Bank and
shall have such other duties as may be assigned to him from time to time by the
Board of Directors or the Chairman of the Board. In the absence of the Chairman
of the Board and the President, a Vice Chairman, as designated by the Chairman
of the Board, shall preside at meetings of the stockholders and of the Board of
Directors. A Vice Chairman shall have the authority to appoint officers of the
Corporation below the rank of Senior Vice President.
4.10 Secretary. The Secretary shall: a) keep the minutes of all meetings of the
Stockholders, the Board of Directors, the Standing Committees, and such other
Committees as the Board may designate; b) see that all notices of such meetings
required to be given by the Corporation are duly given and served in accordance
with these Bylaws or as required by law; c) be custodian of the corporate
records and of the seal of the Corporation and have authority to affix the seal
to any documents requiring such seal and to attest the same; d) sign with the
Chief Executive Officer certificates for shares of the Corporation the issuance
of which shall have been authorized by resolution of the Board of Directors; and
e) in general perform all duties incident to the office of Secretary and such
other duties as from time to time may be assigned to him by the Board of
Directors or the Chief Executive Officer. In the absence of the Secretary, an
Assistant Secretary shall act in his stead.
4.11 Chief Financial Officer and Treasurer. The Chief Financial Officer and
Treasurer shall have charge of and be responsible for all funds, securities,
receipts and disbursements of the Corporation, and shall deposit all monies and
securities of the Corporation in such banks and depositories as shall be
designated by the Board of Directors or the Chief Executive Officer, and perform
such other duties as may be incidental to the office. The Chief Financial
Officer and Treasurer shall be responsible (i) for maintaining adequate
financial accounts and records in accordance with generally accepted accounting
practices; (ii) for the preparation of appropriate operating budgets and
financial statements; and (iii) for the preparation and filing of all tax
returns required by law. The Chief Financial officer shall have the same power
to sign for the Corporation as prescribed in these By-Laws for the Chairman of
the Board and the Chief Executive Officer.
4.12 Powers and Duties of Other Officers. The powers and duties of all other
officers of the Corporation shall be those usually pertaining to their
respective offices, subject to the direction and control of the Board of
Directors and as otherwise provided in these Bylaws, or as prescribed by the
Chief Executive Officer.
4.13 Execution of Documents. The Chief Executive Officer, Chairman of the Board,
President, any officer being a member of the Corporation's management staff who
is also a person in charge of and responsible for any department within the
Corporation and any other officer to the extent such officer is so designated
and authorized by the Chief Executive Officer, the Chairman of the Board, the
President, or any other officer who is a member of the Corporation's management
staff who is in charge of and responsible for any department within the
Corporation, are hereby authorized on behalf of the Corporation to sell, assign,
lease, mortgage, transfer, deliver and convey any real or personal property now
or hereafter owned by or standing in the name of the Corporation or its nominee,
or held by this Corporation as collateral security, and to execute and deliver
such deeds, contracts, assignments or other papers or documents as may be
appropriate in the circumstances; to purchase and acquire any personal property
including loan portfolios and to execute and deliver such agreements, contracts
or other papers or documents as may be appropriate in the circumstances; to
execute any indemnity and fidelity bonds, proxies or other papers or documents
of like or different character necessary, desirable or incidental to the conduct
of its business; provided, however, that the signature of any such officer shall
be attested in each case by the Secretary, or an Assistant Secretary. 4.14
Powers of Officers and Management Staff. The Chief Executive Officer, the
President, and those officers so designated and authorized by the Chief
Executive Officer are authorized for and on behalf of the Corporation, and to
the extent permitted by law and by policy; to make loans and discounts; to
purchase or acquire drafts, notes, stocks, bonds, and other securities for
investment of funds held by the Corporation; to execute and purchase
acceptances; to appoint, empower and direct all necessary agents and attorneys;
to sign and give any notice required to be given; to demand payment and/or to
declare due for any default any debt or obligation due or payable to the
Corporation upon demand or authorized to be declared due; to foreclose any
mortgages, to exercise any option, privilege or election to forfeit, terminate,
extend or renew any lease; to authorize and direct any proceedings for the
collection of any money or for the enforcement of any right or obligation; to
adjust, settle and compromise all claims of every kind and description in favor
of or against the Corporation, and to give receipts, releases and discharges
therefor; to borrow money and in connection therewith to make, execute and
deliver notes, bonds or other evidences of indebtedness; to pledge or
hypothecate any securities or any stocks, bonds, notes or any property real or
personal held or owned by the Corporation, or to rediscount any notes or other
obligations held or owned by the Corporation, to employ or direct the employment
of all personnel, including elected and appointed officers, and the dismissal of
them at pleasure, and in furtherance of and in addition to the powers
hereinabove set forth to do all such acts and to take all such proceedings as in
his or her judgment are necessary and incidental to the operation of the
Corporation.
Other persons in the employment of the Corporation, including but not
limited to officers and other members of the management staff, may be authorized
by the Chief Executive Officer, to perform the powers set forth above, subject,
however, to such limitations and conditions as are set forth in the
authorization given to such persons.
4.15 Bonds. Each officer and employee of the Corporation shall give bond
covering the honest and faithful performance of his duties. The form and amount
of such bonds, and the name of the company providing the surety, shall be
approved annually by the Board of Directors at its organizational meeting, the
premiums thereon to be paid by the Corporation.
ARTICLE V
Capital Stock
5.1 Certificates. The shares of capital stock of the Corporation shall be
evidenced by certificates in forms prescribed by the Board of Directors and
executed in any manner permitted by law and stating thereon the information
required by law. Transfer agents and/or registrars for one or more classes of
the stock of the Corporation may be appointed by the Board of Directors and may
be required to countersign certificates representing stock of such class or
classes. If any officer whose signature or facsimile thereof shall have been
used on a stock certificate shall for any reason cease to be an officer of the
Corporation and such certificate shall not then have been delivered by the
Corporation, the Board of Directors may nevertheless adopt such certificate and
it may then be issued and delivered as though such person had not ceased to be
an officer of the Corporation.
5.2 Lost, Destroyed and Stolen Certificated Securities. Holders of the stock of
the Corporation shall immediately notify the Corporation of any loss,
destruction or mutilation of the certificate(s) therefor, and if the Corporation
has not previously received notice that the certificate(s) has/have been
acquired by a bona fide purchaser, the Corporation may cause one or more new
certificates for the same number of shares in the aggregate to be issued to such
stockholder upon the surrender of the mutilated certificate or upon satisfactory
proof of such loss or destruction, and the deposit of a bond in such form and
amount and with such surety as the Corporation may require and the satisfaction
by the stockholder of any other reasonable requirements imposed by the
Corporation.
5.3 Transfer of Stock. The stock of the Corporation shall be transferable or
assignable only on the Books of the Corporation by the holders in person or by
an attorney in fact upon surrender of the Certificate for such shares duly
endorsed and, if sought to be transferred by an attorney in fact, accompanied by
a written power of attorney to have the same transferred on the books of the
Corporation. The Corporation shall recognize, however, the exclusive right of
the person registered on its books as the owner of shares to receive dividends
and to vote as such owner. To the extent that any provision of the Rights
Agreement between the Corporation and Crestar Bank, as Rights Agent, dated as of
January 18, 1990, is deemed to constitute a restriction on the transfer of any
securities of the Corporation, including, without limitation, the Rights, as
defined therein, such restriction is hereby authorized by the bylaws of the
Corporation.
5.4 Closing of Transfer Books and Fixing Record Date. For the purpose of
determining stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to receive payment of any
dividend, or in order to make a determination of stockholders for any other
proper purpose, the Board of Directors may provide, that the stock transfer
books shall be closed for a stated period but not to exceed in any case, seventy
(70) days or such other number of days as permitted by the Virginia Stock
Corporation Act.
In lieu of closing the stock transfer books, the Board of Directors may
fix in advance a date as the record date for any such determination of
stockholders, such date in any case to be not more than seventy days (70) or
such other number of days as permitted by the Virginia Stock Corporation Act
prior to the date on which the particular action, requiring such determination
of stockholders, is to be taken. If the stock transfer books are not closed and
no record date is fixed for the determination of stockholders entitled to notice
or to vote at a meeting of stockholders, or stockholders entitled to receive
payment of a dividend, the date on which notices of the meeting are mailed or
the date on which the resolution of the Board of Directors declaring such
dividend is adopted, as the case may be, shall be the record date for such
determination of stockholders. When a determination of stockholders entitled to
vote at any meeting of the stockholders has been made as provided in this
section such determination shall apply to any adjournment thereof.
ARTICLE VI
Miscellaneous Provisions
6.1 Seal. The seal of the Corporation shall consist of a flat-face circular die,
of which there may be any number of counterparts, and on which there shall be
engraved the word "Seal" and the name of the Corporation. Any officer of the
Corporation designated in writing by the Chief Executive Officer or Secretary
shall have authority to affix and attest the seal. Failure to use the corporate
seal shall not affect the validity of any instrument.
6.2 Voting of Stock Held. Unless otherwise provided by resolution of the Board
of Directors or of the Executive Committee, the Chairman of the Board, the
President, or any Senior Vice President may from time to time appoint an
attorney or attorneys or agent or agents of this Corporation, in the name and on
behalf of this Corporation, to cast the vote which this Corporation may be
entitled to cast as a stockholder or otherwise in any other corporation, any of
whose stock or securities may be held by this Corporation at meetings of the
holders of the stock or other securities of such other corporation or to consent
in writing to any action by any such other corporation. Such officer shall
instruct the person or persons so appointed as to the manner of casting such
votes or giving such consent and may execute or cause to be executed on behalf
of this Corporation such written proxies, consents, waivers or other instruments
as may be necessary or proper. In lieu of an appointment of an attorney or agent
the officer may himself attend any meetings of the holders of stock of other
securities of any such other corporation and there vote or exercise any or all
power of this Corporation as the holder of such stock or other securities of
such other corporation.
6.3 Checks, Notes and Drafts. Checks, notes, drafts and other orders for the
payment of money shall be signed by the Chairman of the Board, President,
Secretary, Chief Financial Officer and Treasurer, Controller or such other
officer(s) as the Board of Directors from time to time may authorize. The
signature of any such person may be a facsimile.
6.4 Fiscal Year. The fiscal year of the Corporation shall be the calendar year.
ARTICLE VII
Emergency By-Laws
7.1 The Emergency Bylaws provided in this Article VII shall be operative during
any emergency resulting from any catastrophic event including an attack the
United States or any nuclear or atomic disaster notwithstanding any different
provision in the preceding Articles of the Bylaws or in the Articles of
Incorporation of the Corporation or in the Virginia Stock Corporation Act (other
than those provisions relating to emergency Bylaws). To the extent not
inconsistent with these Emergency Bylaws the Bylaws provided in the preceding
articles shall remain in effect during such emergency and upon the termination
of such emergency the Emergency Bylaws shall cease to be operative unless and
until another such emergency shall occur.
During any such emergency:
(a) Any meeting of the Board of Directors may be called by any
officer of the Corporation or by any Director. The notice
thereof shall specify the time and place of the meeting. To
the extent feasible, notice shall be given only to such of the
Directors as it may be feasible to reach at the time, by such
means as may be feasible at the time, including publication or
radio, and at a time less than twenty-four hours before the
meeting if deemed necessary by the person giving notice.
Notice shall be similarly given, to the extent feasible, to
the other persons referred to in (b) below,
(b) At any meeting of the Board of Directors, a quorum shall
consist of a majority of the number of Directors fixed at the
time in accordance with Article II of the Bylaws. If the
Directors present at any particular meeting shall be fewer
than the number required for such quorum, other persons
present may be included in the number necessary to make up
such quorum, and shall be deemed Directors for such particular
meeting as determined by the following provisions and in the
following order of priority:
(i) Officers designated in Section 4.l(a) of
the Bylaws, not already serving as Directors, in the
order of their seniority of first election to such
offices, or if two or more shall have been first
elected to such offices on the same day, in the order
of their seniority in age;
(ii) All other officers of the Corporation
in the order of their seniority of first election to
such offices, or if two or more shall have been first
elected to such offices on the same day, in the order
of their seniority in age; and
(iii) Any other persons that are designated
on a list that shall have been approved by the Board
of Directors before the emergency, such persons to be
taken in such order of priority and subject to such
conditions as may be provided in the resolution
approving the list.
(c) The Board of Directors, during as well as before any such
emergency, may provide, and from time to time modify, lines of
succession in the event that during such an emergency any or
all officers or agents of the Corporation shall for any reason
be rendered incapable of discharging their duties.
(d) The Board of Directors, during as well as before any such
emergency, may, effective in the emergency, change the
principal office, or designate several alternative offices, or
authorize the officers to do so.
No officer, Director or employee acting in accordance with these
Emergency Bylaws shall be liable except for willful misconduct.
These Emergency Bylaws shall be subject to repeal or change by further
action of the Board of Directors or by action of the stockholders, except that
no such repeal or change shall modify the provisions of the next preceding
paragraph with regard to action or inaction prior to the time of such repeal or
change. Any such amendment of these Emergency Bylaws may make any further or
different provision that may be practical and necessary for the circumstances of
the emergency.
Article VIII
Amendments
8.1 These Bylaws may be amended, altered, or repealed at any meeting of the
Board of Directors by affirmative vote of a majority of the number of Directors
fixed by resolution of the Board pursuant to these Bylaws. The stockholders
entitled to vote in an election of Directors, however, shall have the power to
rescind, alter, amend or repeat any Bylaws and to enact Bylaws which, if
expressly so provided, may not be amended, altered or repealed by the Board of
Directors.
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0
0
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</TABLE>
