<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY , 1996.
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
ABC BANCORP
(EXACT NAME OF ISSUER AS SPECIFIED IN ITS CHARTER)
GEORGIA 6022 58-1456434
(PRIMARY STANDARD (I.R.S. EMPLOYER I.D. NO.)
(STATE OR OTHER INDUSTRIAL
JURISDICTIONOF CLASSIFICATION CODE
INCORPORATION OR NUMBER)
ORGANIZATION)
310 FIRST STREET, S.E.
MOULTRIE, GEORGIA 31768
(912) 890-1111
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
KENNETH J. HUNNICUTT, PRESIDENT
310 FIRST STREET, S.E.
MOULTRIE, GEORGIA 31768
(912) 890-1111
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPY TO:
STEVEN E. FOX, ESQ. ROBERT T. MOLINET, ESQ.
ROGERS & HARDIN SMITH, GAMBRELL & RUSSELL
229 PEACHTREE STREET, N.E. SUITE 1800
2700 CAIN TOWER 3343 PEACHTREE ROAD, N.E.
ATLANTA, GEORGIA 30303 ATLANTA, GEORGIA 30326-1010
(404) 522-4700 (404) 264-2620
----------------
Approximate date of commencement of proposed sale to the public: Upon
consummation of the merger described herein and after the effective date of
this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED(1) REGISTERED(2) PER UNIT OFFERING PRICE(3) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock $1.00 par
Value.................. 736,277 $15.00 $11,044,148 $3,808.33
</TABLE>
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- --------------------------------------------------------------------------------
(1) This Registration Statement relates to the shares of Common Stock of the
Registrant to be issued to holders of shares of common stock of First
National Financial Corporation ("First National") in connection with the
Merger (as described herein).
(2) Represents the maximum number of shares of the Registrant's Common Stock
issuable upon consummation of the Merger.
(3) Estimated solely for the purpose of calculating the registration fee.
Pursuant to Rule 457(f)(2) under the Securities Act of 1933, as amended,
the proposed maximum aggregate offering price is based on the book value of
First National's common stock as of March 31, 1996. At such date and
assuming the exercise of all then-outstanding options to acquire First
National common stock, there were 660,205 shares of First National common
stock issued and outstanding having an aggregate book value of $5,593,143.
----------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ABC BANCORP
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM
NUMBER CAPTION HEADING IN PROSPECTUS
------ ------- ---------------------
<C> <S> <C>
A. Information About the Transaction
1. Forepart of Registration Outside Front Cover Page; Facing Page
Statement and Front Cover
Page of Prospectus
2. Inside Front and Outside Available Information and Sources of
Back Cover Pages of Information; Documents Incorporated by
Prospectus Reference; Table of Contents
3. Risk Factors, Ratio of Summary; Summary -- Selected
Earnings to Fixed Charges Consolidated Financial Data
and Other Information
4. Terms of the Transaction Summary; Proposed Merger; Comparative
Rights of Shareholders; Appendix A
5. Pro Forma Financial Summary
Information
6. Material Contacts with the Proposed Merger
Company Being Acquired
7. Additional Information *
Required for Reoffering by
Persons and Parties Deemed
to be Underwriters
8. Interests of Named Experts Experts; Legal Opinions
and Counsel
9. Disclosure of Commission *
Position on Indemnification
for Securities Act
Liabilities
B. Information About the Registrant
10. Information with Respect to *
S-3 Registrants
11. Incorporation of Certain *
Information by Reference
12. Information with Respect to Documents Incorporated by Reference;
S-2 or S-3 Registrants Summary-- The Parties; ABC
Management's Discussion and Analysis
of Financial Condition and Results of
Operations; Summary -- Selected
Consolidated Financial Data
13. Incorporation of Certain Documents Incorporated by Reference
Information by Reference
14. Information with Respect to *
Registrants Other than S-2
or S-3 Registrants
C. Information About the Company Be-
ing Acquired
15. Information with Respect to *
S-3 Companies
16. Information with Respect to *
S-2 or S-3 Companies
17. Information with Respect to Summary -- The Parties; Description of
Companies Other than S-2 or First National Financial Corporation
S-3 Companies
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM
NUMBER CAPTION HEADING IN PROSPECTUS
------ ------- ---------------------
<C> <S> <C>
D. Voting and Management Informa-
tion
18. Information if Proxies, Documents Incorporated by Reference;
Consents or Authorizations Summary; Special Meeting Information;
Are to be Solicited Proposed Merger; Comparative Rights of
Shareholders
19. Information if Proxies, *
Consents or Authorizations
Are Not to be Solicited,
or in an Exchange Offer
</TABLE>
- --------
* Inapplicable, not required or none.
<PAGE>
FIRST NATIONAL FINANCIAL CORPORATION
2627 DAWSON ROAD
ALBANY, GEORGIA 31707
, 1996
To the Shareholders of
First National Financial Corporation:
You are cordially invited to attend a Special Meeting of Shareholders of
First National Financial Corporation ("First National") to be held at the main
office lobby of First National Bank of South Georgia, 2627 Dawson Road,
Albany, Georgia on , , 1996, at .m. (the "Special Meeting"). At the
Special Meeting, you will be asked to consider and vote upon an Agreement and
Plan of Merger (the "Merger Agreement") dated as of April 15, 1996, which
provides for the merger (the "Merger") of First National with and into ABC
Bancorp ("ABC"). A copy of the Merger Agreement is attached to the
accompanying Proxy Statement/Prospectus as Appendix A.
Upon consummation of the Merger, each share (other than shares with respect
to which statutory dissenters' rights have been perfected) of the common stock
of First National outstanding immediately prior thereto (the "First National
Shares") will be converted into the right to receive that number of shares of
the common stock, $1.00 par value per share, of ABC ("ABC Common Stock")
having a value equal to (i) (A) 2.265 times the lesser of (1) 0.08 times the
total assets of First National, based on the average of the total assets of
First National as of the close of business for each of the 60 calendar days
immediately preceding the closing date (the "Closing Date") of the Merger (the
"Average Total Assets") or (2) the Total Equity of First National (as defined
herein), plus (B) 1.0 times the amount, if any, by which the Total Equity of
First National exceeds 0.08 times the Average Total Assets, (ii) plus the
aggregate exercise price of all options and warrants to purchase First
National Shares (whether or not any such option or warrant is then
exercisable) outstanding immediately prior to the effective time (the
"Effective Time") of the Merger (collectively, the "Options and Warrants"),
(iii) divided by (A) the aggregate number of First National Shares outstanding
immediately prior to the Effective Time, plus (B) the aggregate number of
First National Shares issuable upon the exercise of all Options and Warrants
(the "Merger Consideration"). Cash will be paid in lieu of issuing fractional
shares of ABC Common Stock. For purposes of the Merger, "Total Equity" means
First National's total stockholders' equity calculated under generally
accepted accounting principles, consistently applied, as of the close of
business on the day immediately preceding the Closing Date.
Also accompanying this letter are a Notice of Special Meeting and form of
Proxy for voting your First National Shares. Please sign, date and return to
First National as soon as possible the form of Proxy in the enclosed self-
addressed, stamped envelope. Before executing and returning the Proxy, you
should carefully read the accompanying Proxy Statement/Prospectus. It is
important that your First National Shares be voted whether or not you attend
the Special Meeting. If you attend the Special Meeting, you may vote in person
if you wish, even though you previously returned your Proxy.
First National's Board of Directors has fixed the close of business on ,
1996 as the record date for the Special Meeting. Accordingly, only
shareholders of record on that date will be entitled to notice of, and to vote
at, the Special Meeting or any adjournments or postponements thereof. Approval
of the Merger requires the affirmative vote of holders of a majority of the
outstanding First National Shares as of the record date. Holders of 136,800
First National Shares, representing approximately 27.6% of the shares entitled
to vote, have delivered to ABC irrevocable proxies pursuant to which ABC
intends to vote such shares in favor of the Merger. Accordingly, the
affirmative vote, in person or by proxy, of holders of not less than an
additional 110,905 First National Shares will be sufficient to approve the
Merger.
<PAGE>
The Board of Directors of First National believes that the proposed Merger,
on the terms and conditions set forth in the accompanying Proxy
Statement/Prospectus, is in the best interests of First National and its
shareholders and, therefore, unanimously recommends that you vote in favor of
the Merger and the Merger Agreement.
We look forward to your attendance at the Special Meeting.
If you have any questions, please feel free to contact the undersigned at
(912) 888-5600.
Very truly yours,
Raymond B. Phillips,
President
<PAGE>
FIRST NATIONAL FINANCIAL CORPORATION
2627 DAWSON ROAD
ALBANY, GEORGIA 31707
TELEPHONE: (912) 888-5600
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD , 1996
To the Shareholders of First National Financial Corporation:
Notice is hereby given that a Special Meeting of Shareholders (the "Special
Meeting") of First National Financial Corporation ("First National") will be
held at the main office lobby of First National Bank of South Georgia, 2627
Dawson Road, Albany, Georgia on , 1996, at .m., local time, for the
following purposes:
1. To consider and vote upon the Agreement and Plan of Merger dated as of
April 15, 1996, between First National and ABC Bancorp ("ABC") in the form
set forth in Appendix A to the accompanying Proxy Statement/Prospectus (the
"Merger Agreement") and the transactions contemplated thereby, including
the merger of First National with and into ABC (the "Merger"); and
2. To transact such other business as may properly come before the
Special Meeting and any adjournments or postponements thereof.
First National's Board of Directors has fixed the close of business on ,
1996, as the record date for the determination of shareholders entitled to
notice of and to vote at the Special Meeting and at any adjournment or
postponement thereof.
Any shareholder of First National shall have the right to dissent from the
Merger and receive payment in cash of the "fair value" for his or her shares
of First National Common Stock upon compliance with the procedures set forth
in Article 13 of the Georgia Business Corporation Code, a copy of which is
attached as Appendix B to the accompanying Proxy Statement/Prospectus. A vote
against the Merger will not, in and of itself, satisfy the requirements of
Article 13.
FIRST NATIONAL'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AND
THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
APPROVAL AND ADOPTION OF THE MERGER AND THE MERGER AGREEMENT.
By Order of the Board of Directors
Raymond B. Phillips, President
Albany, Georgia
, 1996
SHAREHOLDERS ARE URGED TO DATE, SIGN AND RETURN PROMPTLY THE ENCLOSED PROXY IN
THE ACCOMPANYING ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES. IF A SHAREHOLDER RECEIVES MORE THAN ONE PROXY BECAUSE HE OR SHE OWNS
SHARES REGISTERED IN DIFFERENT NAMES OR ADDRESSES, EACH PROXY SHOULD BE
COMPLETED AND RETURNED. YOUR COOPERATION WILL BE APPRECIATED. YOUR PROXY WILL
BE VOTED WITH RESPECT TO THE MATTERS IDENTIFIED THEREON IN ACCORDANCE WITH ANY
SPECIFICATIONS ON THE PROXY AND, IF NO SPECIFICATION IS MADE, YOUR PROXY WILL
BE VOTED FOR APPROVAL OF THE MERGER AND THE MERGER AGREEMENT.
<PAGE>
PROSPECTUS OF PROXY STATEMENT OF
ABC BANCORP FIRST NATIONAL FINANCIAL CORPORATION
FIRST NATIONAL FINANCIAL CORPORATION
SPECIAL MEETING OF SHAREHOLDERS
, 1996
This Proxy Statement/Prospectus is being furnished to shareholders of record
at , 1996 of First National Financial Corporation ("First National") in
connection with the solicitation of proxies by First National for use at the
Special Meeting of Shareholders of First National to be held at the main
office lobby of First National Bank of South Georgia, 2627 Dawson Road,
Albany, Georgia, on , 1996, at .m. local time, and at any
postponements or adjournments thereof (the "Special Meeting"). This Proxy
Statement/Prospectus and the form of proxy are being first mailed on or about
, 1996.
At the Special Meeting, First National's shareholders will be asked to
approve the Agreement and Plan of Merger (the "Merger Agreement"), dated as of
April 15, 1996, between First National and ABC Bancorp ("ABC"), and the
transactions contemplated thereby, including the merger of First National with
and into ABC (the "Merger" or the "Merger Proposal"). A copy of the Merger
Agreement is attached to this Proxy Statement/Prospectus as Appendix A. Upon
consummation of the Merger, each share (other than shares with respect to
which statutory dissenters' rights have been perfected) of common stock of
First National outstanding immediately prior thereto (the "First National
Shares") will be converted into the right to receive that number of shares of
the common stock, $1.00 par value per share, of ABC ("ABC Common Stock")
having a value equal to (i) (A) 2.265 times the lesser of (1) 0.08 times the
total assets of First National based on the average of the total assets of
First National as of the close of business for each of the 60 calendar days
immediately preceding the closing date (the "Closing Date") of the Merger (the
"Average Total Assets") or (2) the Total Equity of First National (as defined
herein), plus (B) 1.0 times the amount, if any, by which the Total Equity of
First National exceeds 0.08 times the Average Total Assets, (ii) plus the
aggregate exercise price of all options and warrants to purchase First
National Shares (whether or not any such option or warrant is then
exercisable) outstanding immediately prior to the effective time (the
"Effective Time") of the Merger (collectively, the "Options and Warrants"),
(iii) divided by (A) the aggregate number of First National Shares outstanding
immediately prior to the Effective Time, plus (B) the aggregate number of
First National Shares issuable upon the exercise of all Options and Warrants
(the "Merger Consideration"). Cash will be paid in lieu of issuing fractional
shares of ABC Common Stock. For purposes of the Merger, "Total Equity" means
First National's total stockholders' equity calculated under generally
accepted accounting principles, consistently applied, as of the close of
business on the day immediately preceding the Closing Date. For a more
complete description of the Merger Agreement and the terms of the Merger, see
"PROPOSED MERGER."
Approval of the Merger requires the affirmative vote of the holders of a
majority of the outstanding First National Shares and entitled to vote at the
Special Meeting. Holders of 136,800 First National Shares, representing
approximately 27.6% of the shares entitled to vote, have delivered to ABC
irrevocable proxies pursuant to which ABC intends to vote such shares in favor
of the Merger. Accordingly, the affirmative vote, in person or by proxy, of
holders of not less than an additional 110,905 First National Shares will be
sufficient to approve the Merger. Any shareholder of First National shall have
the right to dissent from the Merger and receive payment in cash of the "fair
value" for his or her First National Shares upon compliance with the
procedures set forth in Article 13 of the Georgia Business Corporation Code, a
copy of which is attached to this Proxy Statement/Prospectus as Appendix B. A
vote against the Merger will not, in and of itself, satisfy the requirements
of Article 13. See "PROPOSED MERGER--Rights of Dissenting Shareholders."
This Proxy Statement/Prospectus constitutes the Proxy Statement of First
National and the Prospectus of ABC covering the shares of its Common Stock to
be issued pursuant to the Merger Proposal. This Proxy Statement/Prospectus
does not cover any resales of ABC Common Stock to be received by the
shareholders of First National upon consummation of the Merger, and no person
is authorized to make use of this Proxy Statement/Prospectus in connection
with any such resale.
The outstanding shares of ABC Common Stock are, and the shares offered
hereby will be, approved for quotation on the Nasdaq National Market. The
closing sale price of ABC Common Stock, as reported on the Nasdaq National
Market on , 1996, was $ per share.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROXY
STATEMENT/PROSPECTUS. THE PROPOSED MERGER IS A COMPLEX TRANSACTION.
SHAREHOLDERS ARE STRONGLY URGED TO READ AND CONSIDER CAREFULLY THIS PROXY
STATEMENT/PROSPECTUS IN ITS ENTIRETY.
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER
OBLIGATIONS OF ANY BANK OR NON-BANK SUBSIDIARY AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS
ASSOCIATION INSURANCE FUND OR ANY OTHER FEDERAL OR STATE GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is , 1996.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION AND SOURCES OF INFORMATION...........................
DOCUMENTS INCORPORATED BY REFERENCE........................................
SUMMARY....................................................................
The Parties..............................................................
The Special Meeting......................................................
Financial Terms of the Merger............................................
Reasons for the Proposed Merger..........................................
Interests of Certain Persons in the Merger...............................
Recommendation of the Board of Directors of First National...............
Dissenters' Rights.......................................................
Certain Federal Income Tax Consequences..................................
Conditions; Amendments; Termination......................................
Comparative Shareholders' Rights.........................................
Recent or Proposed Transactions..........................................
Comparison of Certain Unaudited Per Share Data...........................
Selected Consolidated Financial Data.....................................
Summary Pro Forma Financial Data.........................................
Market Value of Securities and Dividends.................................
SPECIAL MEETING INFORMATION................................................
Purpose of Special Meeting...............................................
Date, Time and Place.....................................................
Record Date..............................................................
Vote Required............................................................
Proxies..................................................................
PROPOSED MERGER............................................................
Background of the Merger.................................................
Recommendations of the Boards of Directors; Reasons for the Merger.......
Opinion of First National Financial Advisor..............................
Description of Merger....................................................
Merger Consideration.....................................................
Payment of Cash in Lieu of Fractional Shares.............................
Surrender of Certificates................................................
Effective Date of Merger.................................................
Interests of Management in the Merger....................................
Rights of Dissenting Shareholders........................................
Certain Federal Income Tax Consequences of the Merger....................
Regulatory Approvals.....................................................
Business Pending the Merger..............................................
Other Provisions of the Agreement........................................
Operations of the Bank After the Merger..................................
Accounting Treatment.....................................................
Resale of ABC Common Stock...............................................
DESCRIPTION OF ABC BANCORP.................................................
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ABC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS...................................................
General................................................................
Results of Operations For Years Ended December 31, 1995, 1994 and
1993..................................................................
Results of Operations for Three Months Ended March 31, 1996 and 1995...
Average Balances and Net Income Analysis...............................
Rate and Volume Analysis...............................................
Noninterest Income.....................................................
Noninterest Expense....................................................
Asset/Liability Management.............................................
Maturities and Sensitivity of Loans to Changes in Interest Rates.......
Loan Portfolio.........................................................
Nonperforming Loans....................................................
Summary of Loan Loss Experience........................................
Allocation of Allowance for Loan Losses................................
Investment Portfolio...................................................
Types of Investments...................................................
Deposits...............................................................
Return on Assets and Shareholders' Equity..............................
Liquidity and Capital Resources........................................
Commitments and Lines of Credit........................................
Impact of Inflation....................................................
DESCRIPTION OF ABC COMMON STOCK..........................................
General................................................................
Common Stock...........................................................
Preferred Stock........................................................
Limitations on Directors' Liability....................................
Certain Antitakeover Provisions of ABC's Articles of Incorporation.....
Transfer Agent.........................................................
CERTAIN REGULATORY CONSIDERATIONS RELATING TO ABC........................
General................................................................
Payment of Dividends and Other Restrictions............................
Capital Adequacy.......................................................
Support of Subsidiary Banks............................................
FDIC Insurance Assessments.............................................
Recent Legislative and Regulatory Action...............................
Monetary Policy........................................................
Future Requirements....................................................
COMPARATIVE RIGHTS OF SHAREHOLDERS.......................................
Liquidity and Marketability............................................
Management.............................................................
Special Meetings.......................................................
Anti-Takeover Provisions...............................................
DESCRIPTION OF FIRST NATIONAL FINANCIAL CORPORATION......................
Business...............................................................
Employees..............................................................
Properties.............................................................
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Litigation............................................................
Management............................................................
Security Ownership of Management and Principal Shareholders...........
Certain Regulatory Considerations Relating to First National..........
FIRST NATIONAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................................
General...............................................................
Results of Operations For Three Months Ended March 31, 1996 and 1995..
Results of Operations For Years Ended December 31, 1995 and 1994......
Distribution of Assets, Liabilities and Stockholders' Equity; Interest
Rates and Interest Differential......................................
Rate/Volume Analysis of Net Interest Income...........................
Noninterest Income....................................................
Noninterest Expense...................................................
Asset/Liability Management............................................
Maturities and Sensitivity of Loans to Changes in Interest Rates......
Loan Portfolio........................................................
Nonperforming Assets..................................................
Summary of Loan Loss Experience.......................................
Investment Portfolio..................................................
Types of Investments..................................................
Deposits..............................................................
Return on Assets and Shareholders' Equity.............................
Liquidity and Capital Resources.......................................
Impact of Inflation...................................................
First National Shares.................................................
OTHER MATTERS...........................................................
EXPERTS.................................................................
LEGAL OPINIONS..........................................................
INDEX TO FINANCIAL INFORMATION..........................................
APPENDICES:
Appendix A: Agreement and Plan of Merger
Appendix B: Dissenters' Rights Under Article 13 of the Georgia Busi-
ness Corporation Code
Appendix C: Opinion of First National Financial Advisor
</TABLE>
iii
<PAGE>
AVAILABLE INFORMATION AND SOURCES OF INFORMATION
ABC has filed with the Securities and Exchange Commission (the "Commission")
a Registration Statement (the "Registration Statement") on Form S-4 under the
Securities Act of 1933, as amended (the "1933 Act"), covering the shares of
ABC Common Stock to be issued in connection with the Merger. This Proxy
Statement/Prospectus also constitutes the Prospectus of ABC filed as part of
the Registration Statement. This Proxy Statement/Prospectus does not contain
all of the information set forth in the Registration Statement. The
Registration Statement and the exhibits thereto can be inspected and copied at
the Commission's public reference room, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, as well as the Commission's regional offices located
at: CitiCorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661 and 7 World Trade Center, 13th Floor, New York, New York 10048. Copies
of such material also can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
Each of ABC and First National is subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "1934 Act") and, in
accordance therewith, files proxy statements, annual and quarterly reports and
other information with the Commission. The proxy statements, reports and other
information filed by each of ABC and First National with the Commission may be
inspected and copied, at prescribed rates, at the public reference facilities
maintained by the Commission at the addresses set forth above.
ALL INFORMATION CONCERNING ABC CONTAINED HEREIN HAS BEEN FURNISHED BY ABC,
AND ALL INFORMATION CONCERNING FIRST NATIONAL CONTAINED HEREIN HAS BEEN
FURNISHED BY FIRST NATIONAL. REFERENCES TO ABC AND FIRST NATIONAL IN THIS
PROXY STATEMENT/PROSPECTUS MEAN THE RESPECTIVE CORPORATIONS AND THEIR
CONSOLIDATED SUBSIDIARIES, EXCEPT AS THE CONTEXT MAY OTHERWISE INDICATE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL ANY SECURITIES
OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL ANY
SECURITIES COVERED BY THIS PROXY STATEMENT/PROSPECTUS IN ANY JURISDICTION
WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH AN OFFER. NEITHER
THE DELIVERY HEREOF NOR ANY DISTRIBUTION OF SECURITIES BY ABC MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE FACTS HEREIN SET FORTH SINCE THE DATE HEREOF.
DOCUMENTS INCORPORATED BY REFERENCE
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE RELATING
TO ABC AND FIRST NATIONAL WHICH ARE NOT PRESENTED HEREIN OR DELIVERED
HEREWITH. THESE DOCUMENTS (EXCLUDING UNINCORPORATED EXHIBITS) ARE AVAILABLE,
WITHOUT CHARGE, UPON ORAL OR WRITTEN REQUEST BY ANY PERSON (INCLUDING ANY
BENEFICIAL OWNER) TO WHOM THIS PROXY STATEMENT/PROSPECTUS HAS BEEN DELIVERED,
IN THE CASE OF DOCUMENTS RELATING TO ABC, FROM ABC BANCORP, 310 FIRST STREET,
S.E., P. O. BOX 1500, MOULTRIE, GEORGIA 31768, ATTN: SARA R. HALL, TELEPHONE
NO. (912) 890-1111, AND IN THE CASE OF DOCUMENTS RELATING TO FIRST NATIONAL,
FROM FIRST NATIONAL FINANCIAL CORPORATION, 2627 DAWSON ROAD, ALBANY, GEORGIA
31707, ATTN: RAYMOND B. PHILLIPS, TELEPHONE NO. (912) 888-5600. IN ORDER TO
INSURE TIMELY DELIVERY OF SUCH DOCUMENTS, ANY REQUEST SHOULD BE MADE BY ,
1996.
The following documents of ABC (Commission File No. 0-16181) are hereby
incorporated by reference:
1. ABC's Annual Report on Form 10-K for the year ended December 31, 1995;
2. ABC's Quarterly Report on Form 10-Q for the quarter ended March 31,
1996; and
3. ABC's Current Report on Form 8-K dated June 21, 1996.
1
<PAGE>
The following documents of First National (Commission File No. 0-20130) are
hereby incorporated by reference:
1. First National's Annual Report on Form 10-KSB for the year ended
December 31, 1995; and
2. First National's Quarterly Report on Form 10-QSB for the quarter ended
March 31, 1996.
Any statement contained in a document incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Proxy
Statement/Prospectus to the extent that a statement contained in this Proxy
Statement/Prospectus, or in any other subsequently filed document which is
also incorporated herein by reference, modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed to constitute
a part of this Proxy Statement/Prospectus except as so modified or superseded.
The information relating to ABC and First National contained in this Proxy
Statement/Prospectus should be read together with the information in the
documents incorporated herein by reference.
2
<PAGE>
SUMMARY
This summary is necessarily general and abbreviated and has been prepared to
assist First National shareholders in their review of this Proxy
Statement/Prospectus. The summary is not intended to be a complete explanation
of the matters covered in this Proxy Statement/Prospectus and is qualified in
all respects by reference to the more detailed information contained in, or
incorporated by reference into, this Proxy Statement/Prospectus, including the
Appendices hereto. Shareholders are urged to read carefully this Proxy
Statement/Prospectus and each of the Appendices hereto.
THE PARTIES
ABC Bancorp. ABC is a bank holding company organized under the laws of the
State of Georgia and registered with the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board") pursuant to the Bank Holding
Company Act of 1956, as amended (the "BHCA"). ABC, through its subsidiaries, is
engaged in the commercial banking business. Its primary source of earnings is
derived from income generated by the ownership and operation of its five
wholly-owned subsidiary banks: American Banking Company located in Moultrie,
Georgia; The Bank of Quitman located in Quitman, Georgia; Bank of Thomas County
located in Thomasville, Georgia; The Citizens Bank of Tifton located in Tifton,
Georgia; Cairo Banking Company located in Cairo, Georgia; and Southland Bank
(acquired on June 21, 1996) located in Dothan, Alabama. As of March 31, 1996,
ABC, on a consolidated basis, had total assets of $335.6 million, total loans
of $223.3 million, total deposits of $293.4 million and stockholders' equity of
$34.6 million. ABC's net income for 1995 was $4.3 million, or $1.29 per share;
its net income for the three months ended March 31, 1996 was $1.2 million, or
$0.37 per share. ABC's principal executive offices are located at 310 First
Street, S.E., P.O. Box 1500, Moultrie, Georgia 31766; its telephone number at
that address is (912) 890-1111.
First National Financial Corporation. First National is a bank holding
company organized under the laws of the State of Georgia and registered with
the Federal Reserve Board pursuant to the BHCA. First National owns all of the
outstanding common stock of First National Bank of South Georgia located in
Albany, Georgia ("the Bank"), a national bank which provides general banking
services in and around the Albany, Georgia area. As of March 31, 1996, First
National, on a consolidated basis, had total assets of $53.9 million, total
loans of $35.5 million, total deposits of $47.9 million and stockholders'
equity of $5.6 million. First National's net income for 1995 was $611,510, or
$1.13 per share; its net income for the three months ended March 31, 1996 was
$132,877, or $0.25 per share. First National's principal executive offices are
located at 2627 Dawson Road, Albany, Georgia 31707; its telephone number at
that address is (912) 888-5600.
THE SPECIAL MEETING
Date of Meeting, Time and Place. The Special Meeting will be held ,
1996, at : .m. at the main office lobby of the Bank, 2627 Dawson Road,
Albany, Georgia.
Record Date. All shareholders of record of First National as of the close of
business on , 1996 (the "Record Date") will be entitled to notice of and
to vote at the Special Meeting.
Purpose of Special Meeting. The purpose of the Special Meeting is to consider
and vote upon the Merger Agreement between First National and ABC and the
transactions contemplated thereby, including the Merger of First National with
and into ABC on the terms described in this Proxy Statement/Prospectus. A copy
of the Merger Agreement is attached to this Proxy Statement/Prospectus as
Appendix A.
Required Shareholder Vote. Approval of the Merger requires the affirmative
vote of the holders of a majority of the outstanding First National Shares and
entitled to vote at the Special Meeting. Holders of 136,800 First National
Shares, representing approximately 27.6% of the shares entitled to vote, have
delivered to ABC irrevocable proxies pursuant to which ABC intends to vote such
shares in favor of the Merger. Accordingly, the
3
<PAGE>
affirmative vote, in person or by proxy, of holders of not less than an
additional 110,905 First National Shares will be sufficient to approve the
Merger. See "VOTE REQUIRED" and "SPECIAL MEETING INFORMATION."
FINANCIAL TERMS OF THE MERGER
Structure. Under the Merger Agreement, First National will be merged with and
into ABC. ABC will be the surviving corporation in the Merger. As a result of
the Merger, the separate corporate existence of First National will cease, and
the Bank will become a wholly-owned subsidiary of ABC.
Merger Consideration. Upon consummation of the Merger, each First National
Share outstanding immediately prior thereto (other than shares with respect to
which statutory dissenters' rights have been perfected) will be converted into
the right to receive that number of shares of ABC Common Stock having a value
equal to (i) (A) 2.265 times the lesser of (1) 0.08 times the total assets of
First National based on the average of the total assets of First National as of
the close of business for each of the 60 calendar days immediately preceding
the closing date (the "Closing Date") of the Merger (the "Average Total
Assets"), or (2) the Total Equity of First National, plus (B) 1.0 times the
amount, if any, by which the Total Equity (as defined herein) of First National
exceeds 0.08 times the Average Total Assets, (ii) plus the aggregate exercise
price of all options and warrants to purchase First National Shares (whether or
not such option or warrant is then exercisable) outstanding immediately prior
to the effective time (the "Effective Time") of the Merger (collectively, the
"Options and Warrants"), (iii) divided by (A) the aggregate number of First
National Shares outstanding immediately prior to the Effective Time, plus (B)
the aggregate number of First National Shares issuable upon the exercise of all
Options and Warrants (the "Merger Consideration"). See "PROPOSED MERGER--Merger
Consideration." Cash will be paid in lieu of issuing fractional shares of ABC
Common Stock. See "PROPOSED MERGER--Payment of Cash in Lieu of Fractional
Shares." For purposes of the Merger, "Total Equity" means First National's
total stockholders' equity calculated under generally accepted accounting
principles, consistently applied, as of the close of business on the day
immediately preceding the Closing Date.
By way of illustration only, the following is an example of the Merger
Consideration into which each First National Share would be converted upon
consummation of the Merger based on First National's unaudited balance sheet as
of March 31, 1996 included elsewhere herein. This example assumes that Average
Total Assets of First National equal the year-to-date average total assets of
First National at March 31, 1996. The actual Merger Consideration will be
subject to a number of variables, including the actual Average Total Assets,
and may be higher or lower than the amount shown in this example. In the event
that the Merger Consideration as calculated at the consummation of the Merger
is less than the amount set forth in the example below by 10% or more (i.e., if
the actual Merger Consideration is less than $17.17), ABC and First National
will amend or supplement this Proxy Statement/Prospectus to provide a revised
example of the calculation of the Merger Consideration and will afford First
National shareholders the opportunity to revoke previously granted proxies.
If immediately prior to the Effective Time (i) the aggregate number of First
National Shares outstanding is 495,409, (ii) the aggregate number of First
National Shares issuable upon the exercise of all Options and Warrants is
169,670, (iii) the Average Total Assests is $52,957,000, (iv) the Total Equity
is $5,593,000, and (v) the aggregate exercise price of all Options and Warrants
is $1,735,228, then each First National Share outstanding immediately prior to
the Effective Time (other than shares with respect to which statutory
dissenters' rights have been perfected) will be converted into the right to
receive that number of shares of ABC Common Stock having a value equal to
$19.08, determined as follows:
4
<PAGE>
<TABLE>
<S> <C>
Average Total Assets........................................ $52,957,000
Multiple.................................................... X 0.08
-----------
$ 4,236,560
===========
Total Equity................................................ $ 5,593,000
===========
2.265 times lesser of (1) 0.08 times Average Total Assets,
or (2) Total Equity
(2.265 X $4,236,560)....................................... $ 9,595,808
plus amount by which Total Equity exceeds 0.08 times Average
Total Assets ($5,593,000-$4,236,560)....................... $ 1,356,440
-----------
$10,952,248
plus aggregate exercise price of Options and Warrants....... $ 1,735,228
-----------
$12,687,476
divided by aggregate number of First National Shares plus
number of First National Shares issuable upon exercise of
all Options and Warrants (495,409 + 169,670)............... 665,079
-----------
Merger Consideration........................................ $ 19.08
===========
</TABLE>
Number of Shares of ABC Common Stock. The number of shares of ABC Common
Stock into which a First National Share will be converted (other than shares
with respect to which statutory dissenters' rights have been perfected) will be
determined by dividing the Merger Consideration by the value of a share of ABC
Common Stock calculated in accordance with the Merger Agreement (the "Base
Period Trading Price"). Thus, a First National shareholder would receive, for
his or her First National Shares exchangeable for ABC Common Stock, that number
of shares of ABC Common Stock equal to the Merger Consideration times the
number of First National Shares to be exchanged for ABC Common Stock, divided
by the Base Period Trading Price, with cash being paid in lieu of fractional
shares of ABC Common Stock. For this purpose, the "Base Period Trading Price"
means the average of the daily high and low sales prices of a share of ABC
Common Stock as reported on the Nasdaq National Market for the 20 consecutive
trading days immediately preceding the five consecutive calendar days
immediately preceding the Effective Time; provided that for purposes of this
calculation, the Base Period Trading Price is deemed to equal (i) $16.00 in the
event the Base Period Trading Price is greater than $16.00 or (ii) $12.00 in
the event that the Base Period Trading Price is less than $12.00.
By way of illustration only, the following is an example of the number of
shares of ABC Common Stock that would be issued to a hypothetical holder of 100
First National Shares in connection with the Merger. This example is based on a
Base Period Trading Price of $16.00, which would be the Base Period Trading
Price under the terms of the Merger Agreement in the event that the average of
the daily high and low sales prices of a share of ABC Common Stock as reported
on the Nasdaq National Market for the 20 consecutive trading days immediately
preceding the five consecutive calendar days immediately preceding the
Effective Time is $16.00 or higher. On July , 1996, the daily high sales price
of ABC Common Stock as reported on the Nasdaq National Market was $ per share
and the daily low sales price was $ per share. The actual number of shares
of ABC Common Stock issuable to a First National shareholder is subject to
certain variables, including the actual Base Period Trading Price and the
number of First National Shares held by such shareholder, and may be higher or
lower than the number of shares shown in this example.
If immediately prior to the Effective Time (i) the Merger Consideration for
each First National Share is assumed to be $19.08 (as in the example above),
and (ii) the Base Period Trading Price is $16.00, then a First National
shareholder who owns 100 First National Shares would receive 119 shares of ABC
Common Stock (plus $4.00 cash in lieu of a fractional share) determined as
follows:
<TABLE>
<S> <C>
Merger Consideration................................................ $ 19.08
times number of Shares.............................................. 100
-------
Subtotal............................................................ $ 1,908
divided by the Base Period Trading Price............................ $ 16.00
-------
Number of Shares of ABC Common Stock................................ 119.25
=======
</TABLE>
5
<PAGE>
REASONS FOR THE PROPOSED MERGER
The Board of Directors of First National has determined that the proposed
Merger is in First National's best interest and the best interests of its
shareholders, customers, employees and community. In particular, the Board
determined that the proposed Merger will provide the Bank with increased
financial resources and the technical expertise available from ABC and its bank
subsidiaries. In addition, shareholders will benefit from ownership of a larger
financial institution whose common stock is traded on the Nasdaq National
Market.
First National has received an opinion from T. Stephen Johnson & Associates,
Inc., an investment banking and financial services firm located in Atlanta,
Georgia, regarding the fairness of the Merger to the First National
shareholders from a financial point of view, which opinion is attached to this
Proxy Statement/Prospectus as Appendix C. See "PROPOSED MERGER--Opinion of
First National Financial Advisor." The terms of the Merger have been reviewed
and unanimously approved by First National's Board of Directors.
ABC's Board of Directors has concluded that the Merger would be in the best
interests of ABC's shareholders and the employees, depositors and other
customers of ABC's subsidiaries, and is consistent with ABC's acquisition
strategy of developing a network of local banks in southern Georgia. ABC's
Board believes that the additional banking and other resources that will be
available to First National as a result of the Merger will enhance First
National's service to its customers. See "PROPOSED MERGER--Reasons for the
Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Raymond B. Phillips, the Chairman of the Board, President and Chief Executive
Officer of First National, and the other directors of First National have each
agreed to enter into noncompetition agreements with ABC effective as of the
Closing Date. In consideration for the execution of his noncompetition
agreement, Mr. Phillips will receive on the Effective Date the sum of $25,000
and title to a 1995 Chevrolet S10 Blazer owned by the Bank and currently driven
by Mr. Phillips. ABC has also agreed to cause each officer and employee of the
Bank to be eligible to participate in ABC's employee benefit plans and to
provide generally to employees of the Bank fringe benefits (including health
and welfare plans, vacation benefits and severance benefits) on terms and
conditions no less favorable than those provided to other employees of ABC's
other bank subsidiaries. In addition, all options and warrants held by
employees and directors of First National as of the Effective Time will be
cancelled and will be converted into the right to receive a portion of the
Merger Consideration. See "PROPOSED MERGER--Interests of Management in the
Merger."
RECOMMENDATION OF THE BOARD OF DIRECTORS OF FIRST NATIONAL
First National's Board of Directors has unanimously approved the Merger
Agreement and has agreed to support the Merger. The Board believes that the
terms of the Merger Proposal are in the best interests of First National's
shareholders and unanimously recommends to First National shareholders that
they vote in favor of the Merger and the Merger Proposal. See "PROPOSED
MERGER--Recommendations of the Boards of Directors."
DISSENTERS' RIGHTS
In accordance with the Georgia Business Corporation Code (the "GBCC"),
holders of First National Shares will be entitled to dissenters' rights in
connection with the Merger. The Merger Agreement provides, however, that if
holders of more than 7.5% of the issued and outstanding First National Shares
timely file with First National a written notice stating that such holders
intend to demand payment for their First National Shares, then ABC may elect
not to consummate the Merger. See "PROPOSED MERGER--Other Provisions of the
Agreement." HOLDERS OF FIRST NATIONAL SHARES WHO WISH TO EXERCISE THEIR
DISSENTERS' RIGHTS MUST SEND WRITTEN NOTICE OF THEIR INTENT TO DEMAND PAYMENT
FOR THEIR FIRST NATIONAL SHARES BEFORE THE SHAREHOLDERS OF FIRST NATIONAL VOTE
ON THE MERGER PROPOSAL AT THE SPECIAL MEETING ON , 1996. Such written
notice should be sent to the attention of Raymond B. Phillips, President, First
National Financial Corporation, 2627 Dawson Road, Albany, Georgia 31707. See
"PROPOSED MERGER--Dissenters' Rights" and the text of Article 13 of the GBCC
attached as Appendix B to this Proxy Statement/Prospectus.
6
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger, if and when consummated in accordance with the Merger Agreement,
will constitute a tax-free reorganization. First National shareholders will
recognize no gain or loss on the exchange of First National Shares, except with
respect to cash received in lieu of fractional shares. The foregoing summary is
based upon an opinion to First National provided by Rogers & Hardin, counsel to
ABC. Such opinion is not binding on the Internal Revenue Service (the
"Service"), and no advance ruling has been sought or obtained from any federal,
state, local or other taxing authority, including the Service. All First
National shareholders should consult their own tax advisors as to the specific
tax consequences to them of the Merger. See "PROPOSED MERGER--Certain Federal
Income Tax Consequences of the Merger."
CONDITIONS; AMENDMENTS; TERMINATION
Consummation of the Merger is contingent upon the approval of the Merger
Proposal by First National shareholders and certain regulatory authorities,
including the Federal Reserve Board (the "FRB") and the Georgia Department of
Banking and Finance (the "DBF"), and is subject to numerous other conditions.
See "PROPOSED MERGER--Other Provisions of the Agreement--Additional Conditions
to the Merger."
The Merger Agreement may be amended at any time by mutual agreement of the
Boards of Directors of ABC and First National; provided that after the approval
of First National shareholders has been obtained, the Merger Agreement may not
be amended or supplemented in any manner which will result in a decrease in the
consideration paid for First National Shares or which will otherwise materially
adversely affect the rights of First National's shareholders. The Merger
Agreement may also be terminated and the Merger abandoned, notwithstanding
prior shareholder approval, by mutual agreement of First National and ABC or by
either of them in the event of failure to satisfy the conditions to the Merger
prior to November 1, 1996, or if either party shall have breached any material
representation or warranty contained in the Merger Agreement and such breach
has not been cured within 30 days of notice thereof to the breaching party. See
"PROPOSED MERGER--Other Provisions of the Agreement--Waivers; Amendments;
Terminations."
COMPARATIVE SHAREHOLDERS' RIGHTS
The rights of shareholders of ABC and shareholders of First National differ
in a number of respects. For a description of the relative rights of such
shareholders, see "COMPARATIVE RIGHTS OF SHAREHOLDERS."
RECENT OR PROPOSED TRANSACTIONS
Southland Merger. On June 21, 1996, Southland Bancorporation ("Southland"),
an Alabama corporation and the sole shareholder of Southland Bank, an Alabama-
chartered state bank located in Dothan, Alabama was merged with and into ABC
(the "Southland Merger"), with Southland Bank thereupon becoming a wholly-owned
subsidiary of ABC. In connection with the Southland Merger, the Southland
shareholders received a combination of cash and shares of ABC Common Stock in
the aggregate amount of approximately $12 million. The description of the
Southland Merger Agreement is qualified in its entirety by reference to the
Agreement and Plan of Merger, dated as of December 18, 1995, by and between ABC
and Southland, as amended, a copy of which has been filed as an exhibit to the
Registration Statement of which this Proxy Statement/Prospectus is a part.
7
<PAGE>
Central Merger. ABC has announced a proposed merger with Central Bankshares,
Inc. ("Central"), a Georgia corporation and the sole shareholder of Central
Bank & Trust, a Georgia chartered state bank located in Cordele, Georgia.
Pursuant to an Agreement and Plan of Merger by and between ABC and Central,
dated as of December 29, 1995 (the "Central Merger Agreement"), Central will be
merged with and into ABC (the "Central Merger"), with Central Bank & Trust
thereupon becoming a wholly-owned subsidiary of ABC. In connection with the
Central Merger, the Central shareholders will receive shares of ABC Common
Stock having an aggregate value equal to 2.0 times the lesser of (1) 8.0% of
the total assets of Central based on the average of the total assets of Central
as of the close of business for each of the 60 calendar days immediately
preceding the consummation of the Central Merger or (2) the total equity of
Central, plus the amount, if any, by which the total equity of Central exceeds
8.0% of its total assets based on the average of the total assets of Central as
of the close of business for each of the 60 calendar days immediately preceding
the consummation of the Central Merger. As of March 31, 1996, Central had total
assets of approximately $50.1 million and total equity of approximately $4.3
million. The description of the Central Merger Agreement is qualified in its
entirety by reference to a copy thereof which has been filed as an exhibit to
the Registration Statement of which this Proxy Statement/Prospectus is a part.
The consummation of the Central Merger is subject to the satisfaction of a
number of conditions, including the receipt of the requisite shareholder
approval by the Central shareholders.
It is currently anticipated that the Central Merger will be consummated prior
to the consummation of the Merger. However, the actual timing of the
consummation of the Central Merger is dependent on a number of factors,
including the requisite shareholder approval. There can be no assurance as to
whether or when the Central Merger will be consummated.
The Merger and the Central Merger, if consummated, will result in the
issuance of a substantial number of new shares of ABC Common Stock which could
have a dilutive effect on the earnings per share of ABC, Southland, Central and
First National on a combined basis. For information regarding the effect of the
Merger, the Southland Merger and the Central Merger (collectively, the "ABC
Mergers") on ABC, see "Unaudited Pro Forma Condensed Consolidated Financial
Data."
COMPARISON OF CERTAIN UNAUDITED PER SHARE DATA
The following tables present selected historical, pro forma combined, and
equivalent First National per share data for (i) ABC and First National, (ii)
ABC on a pro forma basis, as if the Central Merger had been effective on the
dates indicated, and First National, (iii) ABC on a pro forma basis, as if the
Southland Merger had been effective on the dates indicated, and First National,
and (iv) ABC on a pro forma basis, as if the Central Merger and the Southland
Merger had been effective on the dates indicated, and First National. The
information is based on the historical financial statements of ABC, Central,
Southland and First National. The pro forma data do not purport to be
indicative of the results of future operations or the actual results that would
have occurred had the ABC Mergers been consummated at the beginnings of the
periods presented. The pro forma data give effect to the ABC Mergers and are
based on numerous assumptions and estimates. If the Merger is consummated as
anticipated, it will be accounted for as a pooling of interests. It is
anticipated that the Central Merger will be accounted for as a pooling of
interests and the Southland Merger will be accounted for as a purchase
transaction. The information presented below should be read in conjunction
with, and is qualified in its entirety by, the separate consolidated financial
statements, including applicable notes, of ABC and First National, and the
Unaudited Pro Forma Condensed Consolidated Financial Data, and notes thereto,
appearing elsewhere herein.
8
<PAGE>
<TABLE>
<CAPTION>
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1996
--------------------------------------------------------------
EQUIVALENT
FIRST NATIONAL
FIRST PRO FORMA AMOUNT PER
ABC NATIONAL COMBINED(1) SHARE(2)
-------------- ------------ ------------ ---------------
<S> <C> <C> <C> <C>
Net income per common
share.................. $ 0.37 $ 0.25 $ 0.34 $ 0.47
Dividends per common
share.................. 0.10 -- 0.08 0.12
Book value per common
share.................. 10.23 11.29 9.87 13.75
<CAPTION>
EQUIVALENT
FIRST NATIONAL
ABC/CENTRAL FIRST PRO FORMA AMOUNT PER
PRO FORMA(3) NATIONAL COMBINED(1) SHARE(2)
-------------- ------------ ------------ ---------------
<S> <C> <C> <C> <C>
Net income per common
share.................. $ 0.36 $ 0.25 $ 0.34 $ 0.47
Dividends per common
share.................. 0.09 -- 0.07 0.10
Book value per common
share.................. 10.05 11.29 9.75 13.59
<CAPTION>
EQUIVALENT
FIRST NATIONAL
ABC/SOUTHLAND FIRST PRO FORMA AMOUNT PER
PRO FORMA(4) NATIONAL COMBINED(1) SHARE(2)
-------------- ------------ ------------ ---------------
<S> <C> <C> <C> <C>
Net income per common
share.................. $ 0.38 $ 0.25 $ 0.35 $ 0.49
Dividends per common
share.................. 0.09 -- 0.08 0.11
Book value per common
share.................. 10.75 11.29 10.34 14.41
<CAPTION>
EQUIVALENT
ABC/CENTRAL/ FIRST NATIONAL
SOUTHLAND FIRST PRO FORMA AMOUNT PER
PRO FORMA(5) NATIONAL COMBINED(1) SHARE(2)
-------------- ------------ ------------ ---------------
<S> <C> <C> <C> <C>
Net income per common
share.................. $ 0.38 $ 0.25 $ 0.35 $ 0.49
Dividends per common
share.................. 0.08 -- 0.07 0.10
Book value per common
share.................. 10.53 11.29 10.19 14.20
</TABLE>
- --------
(1) See Unaudited Pro Forma Condensed Consolidated Financial Data included
elsewhere in this Proxy Statement/Prospectus.
(2) The equivalent shares information for First National in the above table is
computed assuming an exchange ratio of 690,259 shares of ABC Common Stock
(with an assumed market value of $16.00 per share) for all First National
Shares.
(3) Represents ABC on a pro forma basis to give effect to the Central merger as
if it had been consummated as of January 1, 1996 and assumes that ABC
issued an aggregate of 490,619 shares of ABC Common Stock in connection
therewith.
(4) Represents ABC on a pro forma basis to give effect to the Southland Merger
as if it had been consummated as of January 1, 1996 and assumes that ABC
issued an aggregate of 396,398 shares of ABC Common Stock for 51% of
Southland's shares and cash for 49% of Southland shares in connection
therewith, based on the actual price at consummation on June 21, 1996.
(5) Represents ABC on a pro forma basis to give effect to the Central and the
Southland Merger as if they had been consummated as of January 1, 1996 and
assumes that ABC issued an aggregate of 490,619 shares of ABC Common Stock
in connection with the Central Merger and 396,398 shares of ABC Common
Stock for 51% of Southland's shares and cash for 49% of Southland's shares.
9
<PAGE>
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1995
------------------------------------------------
EQUIVALENT
FIRST NATIONAL
FIRST PRO FORMA AMOUNT PER
ABC NATIONAL COMBINED(1) SHARE(2)
------------ -------- ----------- --------------
<S> <C> <C> <C> <C>
Net income per common share... $ 1.29 $1.12 $1.22 $ 1.70
Dividends per common share.... 0.35 -- 0.29 0.40
Book value per common share... 10.04 11.07 9.69 13.50
<CAPTION>
EQUIVALENT
ABC/ FIRST NATIONAL
CENTRAL FIRST PRO FORMA AMOUNT PER
PRO FORMA(3) NATIONAL COMBINED(1) SHARE(2)
------------ -------- ----------- --------------
<S> <C> <C> <C> <C>
Net income per common share... $ 1.26 $1.12 $1.20 $ 1.67
Dividends per common share.... 0.33 -- 0.28 0.39
Book value per common share... 9.86 11.07 9.57 13.33
<CAPTION>
EQUIVALENT
ABC/ FIRST NATIONAL
SOUTHLAND FIRST PRO FORMA AMOUNT PER
PRO FORMA(4) NATIONAL COMBINED(1) SHARE(2)
------------ -------- ----------- --------------
<S> <C> <C> <C> <C>
Net income per common share... $ 1.26 $1.12 $1.21 $ 1.69
Dividends per common share.... 0.31 -- 0.26 0.37
Book value per common share... 10.52 11.07 10.13 14.11
<CAPTION>
ABC/ EQUIVALENT
CENTRAL/ FIRST NATIONAL
SOUTHLAND FIRST PRO FORMA AMOUNT PER
PRO FORMA(5) NATIONAL COMBINED(1) SHARE(2)
------------ -------- ----------- --------------
<S> <C> <C> <C> <C>
Net income per common share... $ 1.24 $1.12 $1.19 $ 1.66
Dividends per common share.... 0.30 -- 0.26 0.36
Book value per common share... 10.30 11.07 9.97 13.89
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1994
------------------------------------------------
EQUIVALENT
FIRST NATIONAL
FIRST PRO FORMA AMOUNT PER
ABC NATIONAL COMBINED(1) SHARE(2)
------------ -------- ----------- --------------
<S> <C> <C> <C> <C>
Net income per common share... $1.05 $0.57 $0.94 $1.31
Dividends per common share.... 0.29 -- 0.24 0.34
<CAPTION>
EQUIVALENT
FIRST NATIONAL
ABC/CENTRAL FIRST PRO FORMA AMOUNT PER
PRO FORMA(3) NATIONAL COMBINED(1) SHARE(2)
------------ -------- ----------- --------------
<S> <C> <C> <C> <C>
Net income per common share... $1.03 $0.57 $0.94 $1.31
Dividends per common share.... 0.26 -- 0.21 0.30
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1993
------------------------------------------------
EQUIVALENT
FIRST NATIONAL
FIRST PRO FORMA AMOUNT PER
ABC NATIONAL COMBINED(1) SHARE(2)
------------ -------- ----------- --------------
<S> <C> <C> <C> <C>
Net income per common share... $1.04 $0.49 $0.89 $1.24
Dividends per common share.... 0.29 -- 0.21 0.29
<CAPTION>
EQUIVALENT
FIRST NATIONAL
ABC/CENTRAL FIRST PRO FORMA AMOUNT PER
PRO FORMA(5) NATIONAL COMBINED(1) SHARE(2)
------------ -------- ----------- --------------
<S> <C> <C> <C> <C>
Net income per common share... $0.98 $0.49 $0.86 $1.20
Dividends per common share.... 0.22 -- 0.17 0.24
</TABLE>
- --------
(1) See Unaudited Pro Forma Condensed Consolidated Financial Data included
elsewhere in this Proxy Statement.
(2) The equivalent shares information for First National in the above table is
computed assuming an exchange ratio of 690,259 shares of ABC Common Stock
(with an assumed market value of $16.00 per share) for all First National
Shares.
(3) Represents ABC on a pro forma basis to give effect to the Central Merger as
if it had been consummated as of January 1, 1993 and assumes that ABC
issued an aggregate of 490,619 shares of ABC Common Stock in connection
therewith.
(4) Represents ABC on a pro forma basis to give effect to the Southland Merger
as if it had been consummated as of January 1, 1995 and assumes that ABC
issued an aggregate of 396,398 shares of ABC Common Stock for 51% of
Southland's shares and cash for 49% of Southland shares in connection
therewith, based on the actual price at consummation on June 21, 1996.
(5) Represents ABC on a pro forma basis to give effect to the Central Merger as
if it had been consummated as of January 1, 1993 and the Southland Merger
as if it had been consummated as of January 1, 1995, and assumes that ABC
issued an aggregate of 490,619 shares of ABC Common Stock in connection
with the Central Merger and 396,398 shares of ABC Common Stock for 51% of
Southland's shares and cash for 49% of Southland's shares.
11
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following tables set forth selected historical financial data of ABC and
First National for each of the last five years and selected unaudited
historical financial data for the three months ended March 31, 1996 and 1995.
The selected historical financial data of each of ABC and First National have
been derived from and should be read in conjunction with the annual audited
consolidated financial statements of ABC and First National, as the case may
be, including the notes thereto, and the unaudited three months consolidated
financial statements of ABC and First National, as the case may be, including
the notes thereto, which are included elsewhere in this Proxy
Statement/Prospectus. The ABC Income Statement Data and Per Share Data for the
three months ended March 31, 1996 and 1995 and the balance sheet data at March
31, 1996 include, in the opinion of ABC's management, all adjustments necessary
to present fairly the information for such periods. Such adjustments consist
only of normal recurring adjustments. The First National Income Statement Data
and Per Share Data for the three months ended March 31, 1996 and 1995 and the
Balance Sheet Data at March 31, 1996 include, in the opinion of First
National's management, all adjustments necessary to present fairly the
information for such periods. Such adjustments consist only of normal recurring
adjustments. The data presented is not necessarily indicative of results to be
expected in the future.
ABC BANCORP AND SUBSIDIARIES
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------ ------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET
DATA:
Total assets........... $335,589 $293,942 $341,505 $292,799 $268,616 $259,386 $180,548
Total loans............ 223,305 195,387 214,251 192,124 161,747 150,945 100,648
Total deposits......... 293,385 256,534 300,988 256,869 238,225 234,470 158,543
Investment securities.. 56,916 46,215 50,260 46,505 45,937 35,161 30,272
Stockholders' equity... 34,575 31,251 33,935 30,450 19,959 19,405 18,654
SELECTED INCOME
STATEMENT DATA:
Interest income........ $ 7,051 $ 6,157 $ 26,703 $ 21,328 $ 19,697 $ 15,668 $ 15,861
Interest expense....... 2,941 2,348 10,673 7,828 7,732 6,692 8,457
-------- -------- -------- -------- -------- -------- --------
Net interest income.... 4,110 3,809 16,030 13,500 11,965 8,976 7,404
Provision for loan
losses................ 180 180 848 638 1,191 1,129 451
Other income........... 927 886 3,276 3,025 2,867 2,097 1,781
Other expenses......... 3,017 3,000 12,228 11,547 10,535 8,030 6,677
-------- -------- -------- -------- -------- -------- --------
Income before tax...... 1,840 1,515 6,230 4,340 3,106 1,914 2,057
Income tax expense..... 605 487 1,889 1,240 814 429 487
-------- -------- -------- -------- -------- -------- --------
Net income before
cumulative effect of
accounting change..... 1,235 1,028 4,341 3,100 2,292 1,485 1,570
Cumulative effect of
change in method of
accounting for income
taxes................. -- -- -- -- 346 -- --
-------- -------- -------- -------- -------- -------- --------
Net income............. $ 1,235 $ 1,028 $ 4,341 $ 3,100 $ 2,638 $ 1,485 $ 1,570
======== ======== ======== ======== ======== ======== ========
PER SHARE DATA:
Net income before
cumulative effect..... $ -- $ -- $ 1.29 $ 1.05 $ .91 $ 0.58 $ 0.61
Net income............. 0.37 0.31 1.29 1.05 1.04 0.58 0.61
Book value............. 10.23 9.32 10.04 9.10 8.49 7.64 7.05
Tangible book value.... 9.64 8.65 9.43 8.41 7.39 6.54 5.84
Dividends.............. 0.10 0.08 0.35 0.29 0.29 0.29 0.26
PROFITABILITY RATIOS:
Net income to average
total assets.......... 1.50% 1.42% 1.43% 1.15% 1.03% 0.78% 0.92%
Net income to average
stockholders' equity.. 14.56 13.23 13.44 13.99 13.6 8.0 8.8
Net interest margin.... 5.26 5.58 5.94 5.62 5.34 5.49 5.14
</TABLE>
12
<PAGE>
ABC BANCORP AND SUBSIDIARIES
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------- ----------------------------
1996 1995 1995 1994 1993 1992 1991
------ ------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
LOAN QUALITY RATIOS:
Net charge-offs to total loans.. 0.01% (0.08)% 0.16% 0.25% 1.02% 0.91% 0.24%
Reserve for loan losses to total
loans and OREO................. 1.98 2.03 1.99 1.96 2.20 2.64 1.25
Nonperforming assets to total
loans and OREO................. 1.88 2.25 1.08 2.04 2.66 4.66 1.26
Reserve for loan losses to
nonperforming loans............ 119 101 184 96 104 65 117
Reserve for loan losses to total
nonperforming assets........... 105 90 184 93 83 57 99
LIQUIDITY RATIOS:
Loans to total deposits......... 76 76 71 75 68 64 63
Loans to average earning
assets......................... 71 72 78 78 70 89 67
Noninterest-bearing deposits to
total deposits................. 15 17 19 19 16 15 16
CAPITAL ADEQUACY RATIOS:
Common stockholders' equity to
total assets................... 10.3% 10.6% 9.9% 10.4% 7.4% 7.5% 10.3%
Total stockholders' equity to
total assets................... 10.3 10.6 9.9 10.4 7.4 7.5 10.3
Dividend payout ratio........... 27 26 27 29 25 50 43
</TABLE>
FIRST NATIONAL FINANCIAL CORPORATION AND SUBSIDIARY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
--------------- ----------------------------------------
1996 1995 1995 1994 1993 1992 1991
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET
DATA:
Total assets........... 53,864 45,993 $53,651 $46,490 $42,689 $30,776 $15,568
Total loans............ 35,015 31,230 32,969 28,652 23,294 18,454 8,297
Total deposits......... 47,863 40,388 46,758 46,599 37,773 26,258 11,151
Investment securities.. 11,332 11,057 11,400 12,890 11,897 6,898 4,053
Stockholders' equity... 5,593 4,732 5,487 4,421 4,486 4,248 4,312
SELECTED INCOME
STATEMENT DATA:
Interest income........ 1,071 938 4,045 3,162 2,511 1,727 552
Interest expense....... 538 393 1,893 1,438 1,178 788 253
------- ------- ------- ------- ------- ------- -------
Net interest income.... 533 545 2,152 1,724 1,333 939 299
Provision for loan
losses................ 50 25 185 120 128 152 101
Other income........... 123 85 524 355 289 164 49
Other expenses......... 397 391 1,573 1,420 1,256 1,015 721
------- ------- ------- ------- ------- ------- -------
SELECTED BALANCE SHEET
DATA:
Income before tax...... 209 214 918 539 238 (64) (474)
Income tax expense..... 76 81 306 223 -- -- --
------- ------- ------- ------- ------- ------- -------
Net income before
cumulative effect..... 133 133 612 316 238 (64) (474)
------- ------- ------- ------- ------- ------- -------
Net income............. 133 133 $ 612 $ 316 $ 238 $ (64) $ (474)
======= ======= ======= ======= ======= ======= =======
PER SHARE DATA:
Net income (Fully
Diluted).............. .25 .25 $ 1.12 $ 0.57 $ 0.49 $ (.13) $ (1.04)
Book value............. 11.29 9.65 11.07 9.07 9.20 8.72 8.85
Tangible book value.... 11.28 9.60 11.06 9.00 9.11 8.57 8.66
Dividends.............. -- -- -- -- -- -- --
</TABLE>
13
<PAGE>
FIRST NATIONAL FINANCIAL CORPORATION AND SUBSIDIARY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------- -------------------------------------
1996 1995 1995 1994 1993 1992 1991
------ ----- ----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
PROFITABILITY RATIOS:
Net income to average
total assets.......... 1.01 1.15 1.25% 0.71% 0.65% (0.27)% (3.8)%
Net income to average
stockholders' equity.. 9.56 11.73 12.3 7.1 5.4 (1.50) (10.7)
Net interest margin.... 4.37 5.13 4.75 4.21 3.96 4.55 4.36
LOAN QUALITY RATIOS:
Net charge-offs to
total loans........... (.03)% -- 0.62% -- (.18)% (.03)% --
Reserve for loan losses
to total loans and
OREO.................. 1.33 1.49% 1.32 1.55 1.41 1.32 1.20
Nonperforming assets to
total loans and OREO.. .82 -- .001 N/A N/A N/A .05
Reserve for loan losses
to nonperforming
loans................. N/A N/A 19.3 N/A N/A N/A 25.3
Reserve for loan losses
to total nonperforming
assets................ 1.62 N/A 1.25 N/A N/A N/A 25.3
LIQUIDITY RATIOS:
Loans to total
deposits.............. 73.16 % 77.33% 70.51% 68.88% 61.67% 70.28% 74.4%
Loans to average
earning assets........ 71.48 70.22 72.76 69.91 69.11 89.40 89.5
Noninterest-bearing
deposits to total
deposits.............. 14.02 12.31 15.77 13.53 13.78 11.84 18.5
SELECTED BALANCED SHEET
DATA:
CAPITAL ADEQUACY RATIOS:
Common stockholders'
equity to total
assets................ 10.38 % 10.29% 10.23% 9.51% 10.51% 13.8% 27.7%
Total stockholders'
equity to total
assets................ 10.38 10.29 10.23 9.51 10.51 13.8 27.7
Dividend payout ratio.. -- -- -- -- -- -- --
</TABLE>
14
<PAGE>
SUMMARY PRO FORMA FINANCIAL DATA
The following unaudited pro forma financial data give effect, as appropriate,
to the Merger, the Central Merger and the Southland Merger as of the dates and
for the periods indicated and pursuant to the accounting bases described below.
The unaudited pro forma financial data are presented for information purposes
only and are not necessarily indicative of the combined financial position or
results of operations which actually would have occurred if the transactions
had been consummated at the date and for the periods indicated or which may be
obtained in the future. The information should be read in conjunction with the
unaudited pro forma financial information appearing elsewhere in this
Prospectus/Proxy Statement.
Selected Pro Forma Combined Data for ABC and First National. The following
unaudited pro forma combined data give effect to the acquisition of First
National by ABC as of March 31, 1996 and for the three-month period ended March
31, 1996 and as of December 31, 1995 and for each of the years ended December
31, 1995, 1994 and 1993, assuming such acquisition is accounted for as a
pooling of interests.
<TABLE>
<CAPTION>
AS OF MARCH 31, AS OF DECEMBER 31,
1996 1995
--------------- ------------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
BALANCE SHEET DATA:
Total assets............................... $389,453 $395,156
Cash....................................... 18,973 26,086
Federal funds sold......................... 24,635 45,475
Securities................................. 68,248 61,660
Loans, net................................. 253,892 242,948
Total deposits............................. 341,248 347,746
Stockholders' equity....................... 40,168 39,422
Book value per common share................ 9.87 9.69
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED DECEMBER 31,
MARCH 31, -----------------------------------
1996 1995 1994 1993
--------------------------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total Interest income.... $ 8,122 $ 30,748 $ 24,490 $ 22,207
Total Interest expense... 3,479 12,566 9,266 8,909
---------- ----------- ----------- -----------
Net interest income.... 4,643 18,182 15,224 13,298
Provision for loan
losses.................. 230 1,033 758 1,319
---------- ----------- ----------- -----------
Net interest income
after provision for
loan losses........... 4,413 17,149 14,466 11,979
Total noninterest
income.................. 1,050 3,800 3,380 3,156
Total noninterest
expense................. 3,414 13,801 12,967 11,791
Income tax expense....... 681 2,195 1,463 814
---------- ----------- ----------- -----------
Income from continuing
operations before
cumulative effect..... 1,368 4,953 3,416 2,530
Cumulative effect of
accounting change....... -- -- -- 346
---------- ----------- ----------- -----------
Income from continuing
operations............ $ 1,368 $ 4,953 $ 3,416 $ 2,876
========== =========== =========== ===========
Income from continuing
operations per share.. $ 0.34 $ 1.22 $ 0.94 $ 0.89
========== =========== =========== ===========
</TABLE>
15
<PAGE>
Selected Pro Forma Combined Data for ABC/Central and First National. The
following unaudited pro forma combined data as of and for the three months
ended March 31, 1996 and as of December 31, 1995 and for each of the years
ended December 31, 1995, 1994 and 1993, give effect to the acquisition of
Central by ABC, assuming such acquisition is accounted for as a pooling of
interests, and the acquisition of First National by ABC/Central, assuming such
acquisition is accounted for as a pooling of interests, as if all such
transactions had been consummated on March 31, 1996, or December 31, 1995, in
the case of the data included under "Balance Sheet Data," and at the beginning
of each period presented for "Income Statement Data."
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996 AS OF DECEMBER 31, 1995
--------------------- ------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
BALANCE SHEET DATA:
Total assets.......... $ 439,557 $ 446,309
Cash.................. 21,115 28,351
Federal funds sold.... 24,635 47,485
Securities............ 79,110 72,486
Loans, net............ 288,880 275,847
Total deposits........ 385,972 393,957
Stockholders' equity.. 44,468 43,629
Book value per common
share................ 9.75 9.57
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED DECEMBER 31,
MARCH 31, -----------------------------------
1996 1995 1994 1993
--------------------------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total Interest income.... $ 9,235 $ 34,889 $ 27,743 $ 25,325
Total Interest expense... 4,019 14,526 10,514 10,116
---------- ----------- ----------- -----------
Net interest income..... 5,216 20,363 17,229 15,209
Provision for loan
losses.................. 230 1,173 938 1,512
---------- ----------- ----------- -----------
Net interest income
after provision for
loan losses........... 4,986 19,190 16,291 13,697
Total noninterest
income.................. 1,230 4,397 4,047 3,767
Total nonintereset
expense................. 3,890 15,675 14,762 13,634
Income tax expense....... 786 2,460 1,703 979
---------- ----------- ----------- -----------
Income from continuing
operations before
cumulative effect..... 1,540 5,452 3,873 2,851
Cumulative effect of
accounting change....... -- -- -- 346
---------- ----------- ----------- -----------
Income from continuing
operations............ $ 1,540 $ 5,452 $ 3,873 $ 3,197
========== =========== =========== ===========
Income from continuing
operations per share.. $ 0.34 $ 1.20 $ 0.94 $ 0.86
========== =========== =========== ===========
</TABLE>
16
<PAGE>
Selected Pro Forma Combined Data for ABC/Southland and First National. The
following unaudited pro forma combined data as of March 31, 1996 and for the
three months ended March 31, 1996 and as of December 31, 1995 and for each of
the years ended December 31, 1995, 1994 and 1993, give effect to the
acquisition of Southland by ABC assuming the Southland Merger was accounted for
as a purchase transaction, and the acquisition of First National by
ABC/Southland, assuming such acquisition was accounted for as a pooling of
interests. The data with respect to the Southland Merger assume that the
transaction was consummated at March 31, 1996 or December 31, 1995 for "Balance
Sheet Data" and at the beginning of the period ended March 31, 1996 or December
31, 1995 for "Income Statement Data". The data with respect to the ABC/First
National Merger assume that the transaction was consummated at March 31, 1996
or December 31, 1995 for "Balance Sheet Data" and at the beginning of each
period presented for "Income Statement Data."
<TABLE>
<CAPTION>
AS OF MARCH 31, AS OF DECEMBER 31,
1996 1995
--------------- ------------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
BALANCE SHEET DATA:
Total assets............................... $496,382 $495,445
Cash....................................... 21,640 30,931
Federal funds sold......................... 18,842 39,904
Securities................................. 93,428 82,591
Loans, net................................. 328,772 313,090
Total deposits............................. 429,013 432,574
Borrowings................................. 12,108 8,525
Stockholders' equity....................... 46,197 45,220
Book value per common share................ 10.34 10.13
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED DECEMBER 31,
MARCH 31, -----------------------
1996 1995 1994 1993
------------ ------- ------- -------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total Interest income................... $10,498 $39,462 $24,490 $22,207
Total Interest expense.................. 4,685 17,341 9,266 8,909
------- ------- ------- -------
Net interest income................... 5,813 22,121 15,224 13,298
Provision for loan losses............... 230 1,105 758 1,319
------- ------- ------- -------
Net interest income after provision
for loan losses...................... 5,583 21,016 14,466 11,979
Total noninterest income................ 1,449 5,382 3,380 3,156
Total noninterest expense............... 4,592 18,311 12,967 11,791
Income tax expense...................... 867 2,730 1,463 814
------- ------- ------- -------
Income from continuing operations
before cumulative effect............. 1,573 5,357 3,416 2,530
Cumulative effect of accounting change.. -- -- -- 346
------- ------- ------- -------
Income from continuing operations..... $ 1,573 $ 5,357 $ 3,416 $ 2,876
======= ======= ======= =======
Income from continuing operations per
share................................ $ 0.35 $ 1.21 $ 0.94 $ 0.89
======= ======= ======= =======
</TABLE>
17
<PAGE>
Selected Pro Forma Combined Data for ABC/Central/Southland and First
National. The following unaudited pro forma combined data as of March 31, 1996
and for the three months ended March 31, 1996 and as of December 31, 1995 and
for each of the years ended December 31, 1995, 1994 and 1993, give effect to
the acquisition of Central by ABC, assuming such acquisition is accounted for
as a pooling of interests, and the acquisition of Southland by ABC, assuming
the Southland Merger was accounted for as a purchase transaction, and the
acquisition of First National by ABC/Central/Southland, assuming such
acquisition was accounted for as a pooling of interests. The data with respect
to the Southland Merger assume that the transaction was consummated at March
31, 1996 or December 31, 1995 for "Balance Sheet Data" and at the beginning of
the period ended March 31, 1996 or December 31, 1995 for "Income Statement
Data". The data with respect to the pooling transactions assume that the
transactions were consummated at March 31, 1996 or December 31, 1995 for
"Balance Sheet Data" and at the beginning of each period presented for "Income
Statement Data."
<TABLE>
<CAPTION>
AS OF MARCH 31, AS OF DECEMBER 31,
1996 1995
--------------- ------------------
DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
BALANCE SHEET DATA:
Total assets............................... $546,486 $546,598
Cash....................................... 23,782 33,196
Federal funds sold......................... 18,842 41,914
Securities................................. 104,290 93,417
Loans, net................................. 363,760 345,989
Total deposits............................. 473,837 478,785
Borrowings................................. 12,008 8,525
Stockholders' equity....................... 50,497 49,427
Book value per common share................ 10.19 9.97
</TABLE>
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED YEAR ENDED DECEMBER 31,
MARCH 31, -----------------------------------
1996 1995 1994 1993
------------------------ ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total Interest income....... $ 11,611 $ 43,603 $ 27,743 $ 25,325
Total Interest expense...... 5,225 19,301 10,514 10,116
----------- ----------- ----------- -----------
Net interest income....... 6,386 24,302 17,229 15,209
Provision for loan losses... 230 1,245 938 1,512
----------- ----------- ----------- -----------
Net interest income after
provision for loan
losses................... 6,156 23,057 16,291 13,697
Total noninterest income.... 1,629 5,979 4,047 3,767
Total noninterest expense... 5,068 20,185 14,762 13,634
Income tax expense.......... 972 2,995 1,703 979
----------- ----------- ----------- -----------
Income from continuing
operations before
cumulative effect........ 1,745 5,856 3,873 2,851
Cumulative effect of
accounting change.......... -- -- -- 346
----------- ----------- ----------- -----------
Income from continuing
operations............... $ 1,745 $ 5,856 $ 3,873 $ 3,197
=========== =========== =========== ===========
Income from continuing
operations per share..... $ 0.35 $ 1.19 $ 0.94 $ 0.86
=========== =========== =========== ===========
</TABLE>
18
<PAGE>
MARKET VALUE OF SECURITIES AND DIVIDENDS
ABC. ABC Common Stock is listed and traded on the Nasdaq National Market
under the symbol "ABCB". On April 15, 1996, the last day preceding the public
announcement of the Merger, the closing sale price for ABC Common Stock was
$ per share. On , 1996, the closing sale price for ABC Common Stock was
$ per share.
The following table sets forth the quarterly range of high and low closing
sale prices per share of ABC Common Stock from January 1, 1994 through July ,
1996, as reported on the Nasdaq National Market, together with the amounts of
cash dividends per share declared by ABC during each such quarter. For a
discussion of ABC's policies concerning the declaration of dividends and
regulatory restrictions on such declaration, see "DESCRIPTION OF ABC COMMON
STOCK--General."
<TABLE>
<CAPTION>
PRICES OF
COMMON STOCK
---------------
HIGH LOW CASH DIVIDENDS
------ ------- --------------
<S> <C> <C> <C>
1996
Third Quarter (through July , 1996)........... $ -- $ -- N/A
Second Quarter................................. $18.75 $ 14.00 $.10
First Quarter.................................. $15.00 $ 14.00 $.10
1995
Fourth Quarter................................. $14.75 $13.50 $.10
Third Quarter.................................. $14.50 $11.375 $.10
Second Quarter................................. $11.625 $9.50 $.075
First Quarter.................................. $10.125 $9.00 $.075
1994
Fourth Quarter................................. $13.75 $ 12.00 $.0714
Third Quarter.................................. $14.00 $ 12.75 $.0714
Second Quarter................................. $13.75 $ 12.25 $.0714
First Quarter(1)............................... N/A N/A $.0714
</TABLE>
- --------
(1) Prior to May 1994, quotations for ABC Common Stock were not reported on any
market, and there was no established public trading market for ABC Common
Stock. ABC Common Stock was included in the Nasdaq National Market
beginning on May 26, 1994.
ABC Common Stock was held by approximately 797 shareholders of record as of
March 31, 1996.
First National. There is no established public trading market for First
National Shares. There are, however, occasional transactions in First National
Shares as a result of private negotiations. Management of First National does
not maintain a record of the sales prices of trades of First National Shares.
First National has never paid dividends on First National Shares, nor does
First National have any current plans to initiate the payment of dividends. The
Merger Agreement prohibits the payment of dividends to First National's
shareholders pending the Merger. See "PROPOSED MERGER--Business Pending the
Merger."
First National Shares were held by approximately 575 shareholders of record
as of March 15, 1996.
19
<PAGE>
SPECIAL MEETING INFORMATION
PURPOSE OF SPECIAL MEETING
The purpose of the Special Meeting is to enable First National shareholders
to consider and vote upon the Merger Proposal. First National's Board of
Directors is not presently aware of any other matter which may come before the
Special Meeting.
DATE, TIME AND PLACE
The Board of Directors is soliciting proxies ("Proxies") from holders of
First National Shares for use at the Special Meeting to be held , 1996,
at . m., at the main office lobby of the Bank, 2627 Dawson Road, Albany,
Georgia.
RECORD DATE
Only shareholders of record as of the close of business on , 1996 (the
"Record Date") will be entitled to notice of and to vote and give Proxies for
purposes of voting at the Special Meeting. At the close of business on the
Record Date, there were 495,409 First National Shares issued and outstanding.
Each First National Share has one vote on the Merger Proposal.
VOTE REQUIRED
The affirmative vote of the holders of a majority of First National Shares
outstanding on the Record Date is required to approve and adopt the Merger
Agreement. Abstentions will, therefore, have the effect of votes against the
Merger Agreement. Proxies marked "AGAINST" will not be voted in favor of any
postponements or adjournments for the purpose of soliciting additional
proxies. Holders of 136,800 First National Shares, representing approximately
27.6% of the shares entitled to vote, have delivered to ABC irrevocable
proxies pursuant to which ABC intends to vote such shares in favor of the
Merger. Accordingly, the affirmative vote, in person or by proxy, of holders
of not less than an additional 110,905 First National Shares will be
sufficient to approve the Merger. No vote of the shareholders of ABC is
required in connection with the Merger. No directors or executive officers of
ABC own any First National Shares.
PROXIES
The accompanying Proxy is solicited by the Board of Directors of First
National. The Board of Directors requests that First National shareholders
mark, sign and date the accompanying Proxy and promptly return it to First
National in the enclosed envelope. If a Proxy is properly executed and
returned prior to the Special Meeting, it will be voted as indicated thereon
or, if no voting instructions are indicated thereon, such Proxy will be voted
in favor of the Merger Proposal. Although the Board of Directors knows of no
additional matters to be presented at the Special Meeting as of the date of
this Proxy Statement/Prospectus, the persons named in such Proxy, or their
substitutes, will have authority in their discretion to vote on any such
matters as may come before the Special Meeting.
It is currently expected that, on the scheduled date of the Special Meeting,
votes will be taken and the polls closed on the Merger Proposal. It is
possible, however, that there could be proposals for one or more adjournments
of the Special Meeting in order to permit further solicitation of proxies with
respect to approval of the Merger. The affirmative vote of a majority of the
shares voted on the question shall be necessary for approval of any such
adjournment proposal. An instruction to vote a Proxy for approval of the
Merger will also be deemed to constitute authority to vote at the discretion
of the holder of the Proxy upon any such adjournment proposal. An instruction
to vote a Proxy against approval of the Merger will be deemed to constitute an
instruction to the holder of the Proxy to vote against any such adjournment
proposal.
Any shareholder giving a Proxy has the right to revoke it at any time before
it is exercised. Therefore, execution of the Proxy will not affect the
shareholder's right to vote in person if he or she attends the Special
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Meeting. Revocation may be made before the Special Meeting by written notice
sent to Raymond B. Phillips, President, First National Financial Corporation,
2627 Dawson Road, Albany, Georgia 31707, by executing a subsequently dated
Proxy, or by attending the Special Meeting and voting in person.
First National will bear the cost of soliciting Proxies. Solicitation will
be made by mail, as well as by telephone or in person by certain directors,
officers and employees of First National (who will receive no additional
compensation for doing so). First National does not intend to pay compensation
for soliciting Proxies nor use any specially engaged employees of First
National or other paid solicitors.
PROPOSED MERGER
The following description of the material aspects of the Merger does not
purport to be complete and is qualified in its entirety by reference to the
Merger Agreement, a copy of which is attached as Appendix A to this Proxy
Statement/Prospectus and incorporated herein by reference. All shareholders
are urged to read the Merger Agreement in its entirety.
BACKGROUND OF THE MERGER
During the past several years, there has been a trend toward consolidation
in the banking industry. This trend has been fueled by recent national and
state legislation and has enabled participants in business combinations to
benefit from the economies of scale and greater efficiencies resulting from
the shared services, technology and purchasing power of the combined entities.
Banks have increasingly sought suitable acquisition candidates as a means of
utilizing excess capital and obtaining the benefits described above.
In the summer of 1995, the Board of Directors of First National began
evaluating the future prospects for First National. Two considerations, in
particular, affected the Board's decision to develop long term plans for First
National. First, the fifth anniversary of the opening of the Bank was to occur
in May 1996. Under Georgia law, new banks cannot be acquired until they have
been in existence for at least five years. Second, the employment agreement of
First National's Chairman of the Board, President and Chief Executive Officer,
Raymond B. Phillips, was set to expire in May 1996. Mr. Phillips had indicated
to the Board his desire to retire once his successor had been identified and
hired. The convergence of these two factors led to the Board's decision to
analyze whether to develop a long term plan for remaining independent and to
hire a new President and Chief Executive Officer to replace Mr. Phillips, or
to sell First National to another financial institution.
During the fourth quarter of 1995, First National's management was contacted
by several financial institutions that expressed an interest in acquiring
First National. Discussions with these institutions generally concerned the
range of price which they would be willing to pay for First National, subject
to normal due diligence, and the form of consideration to be received by First
National's shareholders in any such transaction.
On November 8, 1995, First National received an acquisition proposal from
PAB Bancshares, Inc., a bank holding company based in Valdosta, Georgia
("PAB"). Under the terms of the PAB proposal, each outstanding share of common
stock of First National would be converted into shares of outstanding stock of
PAB. Based on the proposed exchange ratio and the estimated value of PAB stock
at the time, the PAB proposal was valued by First National at approximately
$18.00 per share.
Management of First National evaluated the PAB proposal and, given the
relatively illiquid nature of the trading market for PAB's common stock,
decided not to accept the PAB offer at the present time. Rather, management
determined to solicit indications of interest from other potential acquirors.
In December 1995, First National entered into discussions with SunTrust
Banks, Inc., a bank holding company based in Atlanta, Georgia ("SunTrust"). On
December 18, 1995, SunTrust delivered to First National a proposed term sheet
outlining the proposed acquisition of First National by SunTrust at a price of
$18.50 per
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share. On January 5, 1996, First National and SunTrust entered into a
confidentiality agreement and SunTrust commenced its due diligence
investigation, in anticipation of the negotiation and preparation of a
definitive acquisition agreement. As a result of its due diligence
investigation, SunTrust identified certain loans which SunTrust believed had
characteristics that could have a negative impact on the price SunTrust was
willing to pay for First National. During the months of February and March
1995, representatives of First National and SunTrust met periodically to
discuss and evaluate such loans. As a result of this process, SunTrust
notified First National that it had reduced its offer from $18.50 per share to
$17.50 per share. On March 18, 1996, representatives First National and
SunTrust agreed on a price of $17.75 per share and, on March 18, 1996, the
Board of Directors of First National authorized management to proceed with the
negotiation and preparation of definitive acquisition agreement at the $17.75
per share price.
On March 18, 1996, the Board also approved the engagement of T. Stephen
Johnson & Associates, Inc. ("TSJ&A"), to render a fairness opinion with
respect to the consideration proposed to be paid by SunTrust. First National
selected TSJ&A because of the firm's reputation and knowledge of the Georgia
community bank market and experience with community bank mergers in Georgia,
as well as its broad breadth of bank regulatory experience. There has been no
material relationship between TSJ&A and its affiliates and First National or
its affiliates which existed for the past two years or is mutually understood
to be contemplated, except as discussed herein. See "--Opinion of First
National Financial Advisor."
As First National and SunTrust were finalizing the terms of a definitive
acquisition agreement, First National received an unsolicited acquisition
proposal on April 3, 1996 from ABC. The ABC proposal provided for the
acquisition of First National in exchange for ABC common stock in a
transaction valued at between $19.00 to $20.00 per First National Share.
At a meeting of the Board of Directors of First National held on April 8,
1996, the Board evaluated the SunTrust and ABC acquisition proposals. Given
that the ABC proposal represented a price per share for First National's
common stock that was higher than that being offered by SunTrust, the Board
decided to defer a decision on the SunTrust proposal so that the ABC proposal
could be more fully evaluated and negotiated.
On April 9, 1996, ABC entered into a confidentiality agreement and commenced
its due diligence investigation of First National. During the period from
April 9 to April 14, representatives of ABC and First National negotiated and
prepared a definitive acquisition agreement. In the meantime, SunTrust
established a deadline of noon on April 15 for First National to accept its
proposal or it would be withdrawn.
At a meeting of the Board of Directors of First National held on the morning
of April 15, 1996, the Board evaluated the ABC and SunTrust proposals, giving
consideration to, among other things, the price to be paid for each share of
common stock of First National, the form of consideration to be paid, the
structure of the combination, the financial condition of each purchaser and
the future prospects for the combined entity. Although First National had
advised SunTrust of the existence of a higher offer, SunTrust declined to
increase its bid. With the assistance of TSJ&A, the Directors thoroughly
analyzed both acquisition proposals. Based on this analysis the Board of
Directors determined the ABC proposal to be in the best interests of First
National and its shareholders. Although TSJ&A analyzed the proposed terms of
the ABC and SunTrust proposals from a financial point of view, it did not
recommend the amount of consideration to be paid. Immediately following the
Board meeting on April 15, a definitive merger agreement was executed by First
National and ABC.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS; REASONS FOR THE MERGER
First National. On April 15, 1996, the Board of Directors of First National
unanimously approved the adoption of the Merger Agreement, and the Board of
Directors of First National recommends that shareholders vote FOR approval and
adoption of the Merger Agreement and consummation of the transactions
contemplated thereby.
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In determining to approve the Merger Agreement and recommend that First
National's shareholders approve and adopt the Merger Agreement, the First
National Board considered and based their opinion as to the fairness of the
transactions contemplated by the Merger Agreement on the following factors:
(i) The possible alternatives to a sale or merger of First National,
including the prospects of continuing as an independent entity, the range
of values to the shareholders of such alternatives, and the timing and
likelihood of actually achieving those values. The Board compared First
National's continuing as an independent entity to combining with ABC,
particularly as to shareholder value. The Board considered the benefits
that could reasonably be expected to accrue to its shareholders from the
Merger, including the premium offered over First National's then-current
stock price or stock price unaffected by acquisition speculation and the
likelihood of a higher stock price for ABC's Common Stock than would be
achieved by First National operating on an independent basis unaffected by
acquisition speculation.
(ii) The financial advice of TSJ&A and the opinion of TSJ&A that the
Merger Consideration is fair, from a financial point of view, to First
National's shareholders. The opinion of TSJ&A is set forth in Appendix C to
this Proxy Statement/Prospectus.
(iii) The successful experience and favorable reputation of ABC's
executive management, together with ABC's business, operations, earnings
and financial condition on a historical and prospective basis.
(iv) The impact generally of the Merger on the various constituencies
served by First National, including its employees and customers.
(v) The non-financial terms and structure of the Merger; in particular,
the fact that the Merger qualifies as a tax-free reorganization to First
National's shareholders.
(vi) The possibility of liquidity of an investment in ABC Common Stock.
ABC has undertaken the obligation to include on the Nasdaq National Market
all shares of its common stock to be issued to First National's
shareholders upon consummation of the Merger, which, will provide First
National's shareholders greater liquidity in their investment than existed
prior to the Merger.
(vii) The likelihood of the Merger being approved by the appropriate
regulatory authorities.
(viii) The current and prospective economic environment, competitive
constraints and regulatory burdens facing financial institutions, including
First National.
Each of the above factors supports, directly or indirectly, the
determination of the Board of Directors of First National as to the fairness
of the Merger. The First National Board did not quantify or otherwise attempt
to assign relative weights to the specific factors considered in reaching its
determination; however, the First National Board placed a special emphasis on
the consideration payable in the Merger and the receipt of a favorable opinion
from its financial advisor. See "--Opinion of First National Financial
Advisor."
THE BOARD OF DIRECTORS OF FIRST NATIONAL UNANIMOUSLY RECOMMENDS THAT YOU
VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND CONSUMMATION OF THE
TRANSACTIONS CONTEMPLATED THEREBY.
ABC. ABC's Board of Directors has also concluded that the Merger would be in
the best interests of ABC's shareholders and the employees, depositors and
other customers of ABC's subsidiaries. In particular, ABC's Board concluded
that the Merger would be consistent with ABC's acquisition strategy described
above and would extend ABC's current market base with a well-managed
organization. ABC's Board also believes that the additional banking and other
resources that will be available to First National as a result of the Merger
will enhance First National's service to its customers.
OPINION OF FIRST NATIONAL FINANCIAL ADVISOR
T. Stephen Johnson & Associates, Inc. ("TSJ&A") is an investment banking and
financial services firm located in Atlanta, Georgia. As part of its investment
banking business, TSJ&A regularly engages in the review of the fairness of
bank acquisition transactions from a financial perspective and in the
valuation of banks and
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other businesses and their securities in connection with mergers, acquisitions
and other transactions. No instructions were given or limitations imposed by
the First National Board of Directors upon TSJ&A regarding the scope of its
investigation or the procedures it followed in rendering its opinion. In
consideration for its services, First National has paid TSJ&A a fee of $7,500,
plus $2,160 for consulting services provided on an hourly basis.
TSJ&A has rendered its opinion (the "Fairness Opinion") to the Board of
Directors of First National that the Merger consideration is fair to First
National shareholders from a financial point of view. A copy of the Fairness
Opinion, which sets forth certain assumptions made, matters considered and
limitations on the review undertaken, is attached as Appendix C to this Proxy
Statement/Prospectus and should be read in its entirety. The summary of the
Fairness Opinion set forth herein is qualified in its entirety by reference to
the text of the Fairness Opinion.
In arriving at its Fairness Opinion, TSJ&A reviewed certain publicly
available business and financial information relating to First National and
ABC; considered certain financial and stock market data of First National and
ABC, compared that data with similar data for certain other publicly-held
banks and bank holding companies in the southeastern United States and
considered the financial terms of certain other recent comparable community
bank acquisition transactions in three southeastern states; and considered
such other information, financial studies, analyses and investigations and
financial, economic and market criteria that it deemed relevant. In connection
with its review, TSJ&A did not independently verify the foregoing information
and relied on such information as being complete and accurate in all material
respects. Financial forecasts prepared by First National management and
submitted to TSJ&A were based on assumptions believed by TSJ&A to be
reasonable and to reflect currently available information; however, TSJ&A did
not independently verify such information. TSJ&A did not make an independent
evaluation or appraisal of the assets of First National or ABC.
In connection with rendering the Fairness Opinion, TSJ&A performed a variety
of financial analyses, including those summarized below. The summary set forth
below does not purport to be a complete description of the analyses performed
by TSJ&A in this regard. The preparation of a fairness opinion involves
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of these methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. Accordingly, notwithstanding the separate factors
summarized below, TSJ&A believes that its analyses must be considered as a
whole and that selecting portions of its analyses and the factors considered
by it, without considering all analyses and factors, could create an
incomplete view of the evaluation process underlying its opinion. In
performing its analyses, TSJ&A made numerous assumptions with respect to
industry performance, business and economic conditions and other matters, many
of which are beyond First National's or ABC's control. The analyses performed
by TSJ&A are not necessarily indicative of actual values or future results,
which may be significantly more or less favorable than suggested by such
analyses. No company or transaction considered as a comparison in the analyses
is identical to First National, ABC or the Merger. Accordingly, an analysis of
the results of such comparisons is not mathematical; rather, it involves
complex considerations and judgments concerning differences in financial and
operating characteristics of companies and other factors that could affect the
public trading value of the companies involved in such comparisons. In
addition, the analyses performed do not purport to be appraisals or reflect
the process by which or the prices at which businesses actually may be sold or
the prices at which any securities may trade at the present time or at any
time in the future.
Merger Analysis. The Merger Consideration is dependent upon First National's
total assets and total equity. As of December 31, 1995, First National's total
assets and total equity were $53.7 million and $5.5 million, respectively. As
of April 30, 1996, First National's total assets and total equity were $57.85
million and $5.7 million, respectively. TSJ&A used April 30, 1996 figures for
purposes of its analysis. Assuming these figures, the Merger Consideration
would total $11.6 million with a per share value to the shareholders of First
National of $19.99, representing 2.027 times First National's estimated book
value and 18.90 times actual 1995 earnings.
The number of shares of ABC Common Stock into which a First National Share
will be converted is based on the average of the daily high and low sales
prices of a share of ABC Common Stock as reported on the
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Nasdaq National Market for the 20 consecutive trading days immediately
preceding the five consecutive calendar days immediately preceding the
Effective Time, subject to certain limitations. See "Proposed Merger--Merger
Consideration." At May 20, 1996, the closing sales price of a share of ABC
Common Stock on the Nasdaq National Market was $14.75.
Comparable Transactions Analysis. TSJ&A reviewed the Merger as of April 30,
1996, for the purpose of determining purchase premiums which could be used in
comparing the Merger with other announced transactions. TSJ&A reviewed the
purchase premiums paid in 52 transactions that were announced between July 1,
1995 and May 10, 1996 involving selling institutions headquartered in the
states of Alabama, Florida and Georgia. Of these transactions, 10 involved
selling institutions that have been determined to be comparable to First
National. The merger consideration in each transaction was common stock. The
purchase premiums in the Merger rank within the range of purchase premiums
paid in the comparable transactions. On average, the ten comparable
transactions reported an announced deal price to book value of 1.937 times and
an announced deal price to earnings of 16.84 times.
DESCRIPTION OF MERGER
Upon consummation of the transactions contemplated under the Merger
Agreement, First National will be merged with and into ABC. ABC will be the
surviving corporation after the Merger, and the articles of incorporation and
the bylaws of ABC will remain in effect as they were immediately prior to the
Merger. After the Merger, the Bank will be a wholly-owned subsidiary of ABC,
and the separate corporate identity of First National will cease to exist.
Upon consummation of the Merger, ABC intends to add one representative to the
Board of Directors of the Bank. See "Operations of the Bank After the Merger."
MERGER CONSIDERATION
Conversion of First National Shares. Upon consummation of the Merger, each
First National Share outstanding immediately prior thereto (other than shares
with respect to which statutory dissenters' rights have been perfected) will
be converted into the right to receive that number of shares of ABC Common
Stock having a value equal to (i) (A) 2.265 times the lesser of (1) 0.08 times
the Average Total Assets, or (2) the Total Equity of First National, plus (B)
1.0 times the amount, if any, by which the Total Equity of First National
exceeds 0.08 times the Average Total Assets, (ii) plus the aggregate exercise
price of all Options and Warrants, (iii) divided by (A) the aggregate number
of First National Shares outstanding immediately prior to the Effective Time,
plus (B) the aggregate number of First National Shares issuable upon the
exercise of all Options and Warrants (the "Merger Consideration"). Cash will
be paid in lieu of issuing fractional shares of ABC Common Stock. The Merger
Consideration was determined by arm's length negotiations between the parties,
taking into account the per share earnings, book value, and market value of
First National Shares, as well as the premiums paid for other financial
institutions in recent acquisitions in Georgia.
The number of shares of ABC Common Stock into which a First National Share
may be converted will be determined by dividing the Merger Consideration by
the Base Period Trading Price. Thus, a First National Shareholder who does not
dissent would receive, for his or her First National Shares exchangeable for
ABC Common Stock, a number of shares of ABC Common Stock equal to the Merger
Consideration times the number of First National Shares to be exchanged for
ABC Common Stock, divided by the Base Period Trading Price (the "Per Share
Merger Consideration"), with cash being paid in lieu of fractional shares of
ABC Common Stock. See "SUMMARY--Financial Terms of the Merger."
First National Options and Warrants. As of May 31, 1996, employees and
directors of First National held Options and Warrants to purchase an aggregate
of 169,670 First National Shares. Pursuant to the Merger Agreement, each
outstanding Option and Warrant is to be cancelled upon consummation of the
Merger and converted into whole shares of ABC Common Stock, plus cash in lieu
of any fractional shares, in an amount
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equal to (i) the aggregate number of First National Shares (the "Underlying
Shares") issuable upon the exercise of each such Option or Warrant immediately
prior to the Effective Time (whether or not any such Option or Warrant is then
exercisable), (ii) multiplied by the difference between (A) the Per Share
Merger Consideration and (B) the exercise price for each Underlying Share
subject to such Option or Warrant, (iii) divided by the Base Period Trading
Price.
PAYMENT OF CASH IN LIEU OF FRACTIONAL SHARES
No fractional shares of ABC Common Stock will be issued in the Merger. Each
First National shareholder who would otherwise have been entitled to receive a
fraction of a share of ABC Common Stock will receive, in lieu thereof, cash in
an amount equal to the Base Period Trading Price multiplied by the fraction of
share of ABC Common Stock to which such First National shareholder would
otherwise be entitled.
SURRENDER OF CERTIFICATES
If the Merger is approved, a Letter of Transmittal for use in surrendering
certificates representing First National Shares ("Old Certificates") in
exchange for certificates representing shares of ABC Common Stock will be
mailed to First National shareholders as soon as practicable after the
Effective Date. The Letter of Transmittal will contain instructions with
respect to the surrender of Old Certificates and the distribution of
certificates representing ABC Common Stock and cash, if any.
If any certificates for shares of ABC Common Stock are to be issued in a
name other than that for which an Old Certificate surrendered or exchanged is
issued, the Old Certificate so surrendered must be properly endorsed and
otherwise in proper form for transfer, and the person requesting the exchange
must affix any requisite stock transfer tax stamps to the Old Certificate
surrendered, provide funds for their purchase, or establish to the
satisfaction of the Exchange Agent that such taxes are not payable.
Unless and until Old Certificates (or evidence that the Old Certificates
have been lost, stolen or destroyed, accompanied by such security or indemnity
as shall be requested by First National) are presented to the Exchange Agent,
the holder thereof shall not be entitled to any consideration to be paid in
the Merger or to any dividends payable on ABC Common Stock. To the extent
permitted by law, former First National shareholders will be entitled to vote
after the Effective Date at any meeting of ABC shareholders the number of
shares of ABC Common Stock into which their respective First National Shares
are converted, regardless of whether they have exchanged certificates
representing their First National Shares for certificates representing ABC
Common Stock. On or after the Effective Date, upon surrender of his or her Old
Certificates (or evidence that the Old Certificates have been lost, stolen or
destroyed, accompanied by such security or indemnity as is requested by First
National) to the Exchange Agent, the holder thereof will be paid the
consideration to which the holder is entitled under the Merger Agreement,
including any dividends which theretofore became payable on any shares of ABC
Common Stock to which the holder is entitled. In no event will any holder of
First National Shares exchanged in the Merger be entitled to receive any
interest on any amounts held by the Exchange Agent or ABC.
After the consummation of the Merger, there will be no transfers on the
stock transfer books of First National or ABC of any First National Shares.
If, after the consummation of the Merger, Old Certificates are properly
presented to ABC, they will be cancelled and exchanged for the consideration
specified in the Merger Agreement, subject to applicable law and to the extent
that ABC has not paid any amounts to a public official pursuant to applicable
abandoned property laws. SHAREHOLDERS SHOULD NOT SEND IN THEIR STOCK
CERTIFICATES UNTIL RECEIPT OF THE LETTER OF TRANSMITTAL.
EFFECTIVE DATE OF MERGER
As used in this Proxy Statement/Prospectus, "Effective Date" means the date
on which ABC files an appropriate certificate of merger in the office of the
Georgia Secretary of State, or such other date as specified in such
certificate of merger. The Effective Date cannot occur before completion of
all conditions under the Merger
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Agreement, or authorized waiver thereof. See "--Other Provisions of the Merger
Agreement." The Merger Agreement provides that the parties shall use their
reasonable efforts to cause the Effective Date to occur on (a) the last
business day of the month in which occurs the last to occur of (i) the
effective date of any required consent (including regulatory consents) and
(ii) the date on which First National's shareholders approve the Merger
Agreement; or (b) such later time as the parties may mutually agree. It is
currently anticipated that the Effective Date will occur on, or as soon as
practicable after, , 1996. If the Merger has not occurred by November 1,
1996, unless such date is otherwise extended by agreement of the parties,
either First National or ABC has the right to terminate the Merger Agreement
in its entirety without penalty.
INTERESTS OF MANAGEMENT IN THE MERGER
Raymond B. Phillips, the Chairman of the Board, President and Chief
Executive Officer of First National, and the other directors of First National
have each agreed to enter into noncompetition agreements with ABC effective as
of the Closing Date. In consideration for the execution of his noncompetition
agreement, Mr. Phillips will receive on the Effective Date the sum of $25,000
and title to a 1995 Chevrolet S10 Blazer owned by the Bank and currently
driven by Mr. Phillips.
Following the Merger, ABC intends to provide generally to officers and
employees of the Bank fringe benefits (including health and welfare plans,
vacation benefits and severance benefits) on terms and conditions no less
favorable than those provided to officers and employees of ABC's other bank
subsidiaries from time to time. ABC will also cause each officer and employee
of the Bank to be eligible to participate in ABC's SEP/IRA Retirement Plan
(the "SEP Plan") according to the terms thereof. For purposes of the
eligibility and vesting provisions under ABC's pension plan, officers and
employees of the Bank shall receive credit for years of service at the Bank.
Under the SEP Plan, officers or employees of the Bank who have been employed
by the Bank during three of the five calendar years preceding the Effective
Date are eligible to participate in the SEP Plan.
RIGHTS OF DISSENTING SHAREHOLDERS
Holders of First National Shares are entitled to dissenters' rights under
Article 13 of the GBCC ("Article 13"). As described below, such rights allow
First National shareholders to dissent from the Merger and to obtain instead
payment of "fair value" for their First National Shares. A person having a
beneficial interest in First National Shares held of record in the name of
another person, such as a trustee, guardian, custodian, broker or nominee,
must act promptly to cause the record holder to follow the steps summarized
below properly and in a timely manner to perfect whatever dissenters' rights
the beneficial owner may have.
The following discussion is not a complete statement of the law pertaining
to dissenters' rights under the GBCC and is qualified in its entirety by the
full text of Article 13 which is reprinted in its entirety as Appendix B to
this Proxy Statement/Prospectus. All references in Article 13 and in this
summary to a "shareholder" are to the record holder of First National Shares
as to which dissenters' rights are asserted, if any.
A First National shareholder wishing to exercise dissenters' rights must
deliver to First National before the vote on the Merger Agreement a written
notice of such shareholder's intent ("Notice of Intent") to demand payment for
such shareholder's First National Shares. In addition, such shareholder must
not vote in favor of approval of the Merger Agreement. A vote against approval
of the Merger Agreement will not, in and of itself, constitute a written
demand for dissenters' rights satisfying the requirements of Article 13.
Under Article 13, First National must provide written notification
("Dissenters' Notice") to each dissenting shareholder within ten days after
the consummation of the Merger (i) stating where the demand for payment (the
"Payment Demand") must be sent and where and when certificates for
certificated shares must be deposited and (ii) setting a date by which First
National must receive the Payment Demand, which date (the "Payment Demand
Date") may not be fewer than 30 nor more than 60 days after the date on which
the Dissenters' Notice is delivered. A shareholder in receipt of a Dissenters'
Notice must deliver a Payment Demand and deposit such shareholder's
certificates on or prior to the Payment Demand Date in accordance with the
terms of the
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Dissenters' Notice. Within ten days after receipt of the Payment Demand or
within ten days after consummation of the Merger, whichever is later, First
National must make a written offer to each dissenting shareholder who has
filed a Payment Demand to pay an amount estimated to be the "fair value" of
the shares plus accrued interest. If the dissenting shareholder accepts First
National's offer by written notice to First National within 30 days of First
National's offer, payment must be made within 60 days after the offer was made
or consummation of the Merger, whichever occurs later.
A dissenting shareholder may notify First National, in writing, of such
shareholder's own estimate of the "fair value" of his or her shares, and
demand payment thereof, provided that such notice is delivered within 30 days
after First National's offer. In addition, if First National does not offer
payment within the time period set forth in the preceding paragraph, a
dissenting shareholder may demand delivery of certain financial information
regarding First National (which First National must provide within ten days
after receipt of such demand) and may, at any time within three years of the
consummation of the Merger, notify First National of such shareholder's own
estimate of the fair value of such shareholder's shares, and demand payment
thereof.
If a Payment Demand remains unsettled, then First National, within 60 days
after receipt of the Payment Demand, must bring an action in a court of
competent jurisdiction in the county contemplated by Section 14-2-1330(b) of
the GBCC requesting that the "fair value" of the shares be determined together
with accrued interest. If First National fails to bring such action within
such 60-day period, First National will be required to pay each dissenter
whose demand remains unsettled the amount demanded by such dissenting
shareholder.
The costs and expenses of any such action shall be determined by the court
and shall be assessed against First National. Notwithstanding the foregoing,
all or any part of such costs and expenses may be apportioned and assigned as
the court may deem equitable against any and all of the dissenting
shareholders who are party to the action and to whom First National shall have
made an offer to pay for the shares, if the court finds that such shareholder
acted arbitrarily, vexatiously or not in good faith in making a Payment
Demand. Such expenses may include reasonable compensation and expenses of
appraisers appointed by the court and fees and expenses of counsel and experts
employed by First National. If the court finds that First National failed to
comply with the requirements of Article 13, the court may award to any
shareholder who is a party to the proceeding such sum as the court may
determine to be reasonable compensation to any attorneys or experts employed
by the shareholder in the action.
Only a shareholder of record is entitled to assert dissenters' rights for
First National Shares registered in that holder's name. The demand for
dissenters' rights should be exercised by or on behalf of the holder of record
fully and correctly, as his or her name appears on his stock certificates. If
First National Shares are owned of record in a fiduciary capacity, such as by
a trustee, guardian or custodian, execution of the demand should be made in
that capacity, and if First National Shares are owned of record by more than
one person, such as a joint tenancy or tenants in common, the demand should be
executed by or on behalf of all joint owners. An authorized agent, including
one or more joint owners, may execute a demand for appraisal on behalf of a
holder of record, provided the agent must identify the record owner or owners
and expressly disclose the fact that, in executing the demand, the agent is
acting for such owner or owners.
If any holder of First National Shares who demands dissenters' rights with
respect to his or her shares fails to perfect, or effectively withdraws or
loses, his or her right to dissent, he or she will no longer have the right to
receive the "fair value" of his or her shares. Rather, such a shareholder will
only be entitled to receive the Merger Consideration described above. A First
National Shareholder will fail to perfect, or effectively withdraw or lose,
his or her right to dissent if he or she fails to deliver a Notice of Intent
to First National prior to the vote on the Merger Agreement, fails to vote
against approval of the Merger Agreement or abstain with respect to the Merger
Agreement, fails to file a Payment Demand with First National or delivers to
First National a written withdrawal of his or her Payment Demand.
28
<PAGE>
Failure to follow the steps required by Article 13 for perfecting
dissenters' rights will result in the loss of such rights. Consequently, any
First National shareholder of First National who desires to exercise his or
her dissenters' rights is urged to consult his or her legal advisor before
attempting to exercise such rights.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
Tax Opinion. The following discussion of certain Federal income tax
consequences of the Merger is based upon an opinion received from Rogers &
Hardin, counsel for ABC. Such opinion is not binding upon the Internal Revenue
Service (the "Service"), and no advance ruling has been sought or obtained
from any federal, state, local or other taxing authority, including the
Service. Insofar as the opinion of Rogers & Hardin is directed to the tax
treatment of First National shareholders, it does not purport to apply to all
First National shareholders. Certain First National shareholders may be in
special circumstances which are not addressed in such opinion. The opinion
also considers only Federal income taxes and does not take into account the
application of other Federal taxes or state or local taxes. In addition, the
opinion does not address any tax consequences of the Merger with respect to
any Options or Warrants. FOR THESE REASONS, FIRST NATIONAL SHAREHOLDERS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS AT THEIR OWN EXPENSE AS TO THE
SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER.
Such opinion is based upon the Internal Revenue Code of 1986, as amended
(the "Code"), the applicable regulations promulgated or proposed thereunder,
current rulings of the Service and judicial decisions as in effect on the date
of such opinion, all of which are subject to modification or challenge at any
time and perhaps with retroactive effect.
Tax-free Reorganization. The Merger, if and when consummated in accordance
with the Merger Agreement, will constitute a tax-free reorganization for
Federal income tax purposes within the meaning of Section 368(a)(1)(A) of the
Code.
Exchange of First National Shares Solely for ABC Common Stock. A First
National shareholder who receives solely shares of ABC Common Stock pursuant
to the Merger in exchange for First National Shares will recognize no gain or
loss, except with respect to cash, if any, received in lieu of a fractional
share of ABC Common Stock for such First National Shares. See "Cash in Lieu of
Fractional Shares of ABC Common Stock" below. The aggregate basis of the
shares of ABC Common Stock actually received by such First National
shareholder in exchange for First National Shares will be the same as the tax
basis of the First National Shares surrendered in exchange therefor, as
reduced by the ratable portion of such basis allocated to any fractional share
interest to which he or she may have been entitled. The holding period of the
ABC Common Stock received by such a shareholder will include the holding
period of the First National Shares surrendered in the exchange, provided the
First National Shares were held as a capital asset as of the Effective Date.
Cash in Lieu of Fractional Shares of ABC Common Stock. The payment of cash
to First National shareholders in exchange for First National Shares in lieu
of fractional shares of ABC Common Stock will be treated as if such fractional
shares were distributed as part of the exchange and then redeemed by ABC, and
the payment received by First National shareholders will be treated as having
been received as a distribution in full payment in exchange for such
fractional shares of ABC Common Stock. The resulting gain or loss will be
capital gain or loss (assuming the ABC Common Stock is a capital asset in the
First National shareholder's hands), which will be long term in nature if the
First National Shares exchanged therefor have been held (or are deemed to have
been held) more than one year.
Backup Withholding. Absent an applicable exemption, the Exchange Agent must
withhold 31% of the cash consideration to which any First National shareholder
is entitled in the Merger unless the shareholder provides his or her tax
identification number and certifies, under penalties of perjury, that such
number is correct. Accordingly, if requested by the Exchange Agent, each First
National shareholder should complete an IRS Form W-9 or substitute form to
provide the information and certification necessary to avoid this "backup
withholding."
29
<PAGE>
BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER WILL VARY DEPENDING UPON THE
PARTICULAR CIRCUMSTANCES OF EACH FIRST NATIONAL SHAREHOLDER AND OTHER FACTORS,
EACH FIRST NATIONAL SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS
TO THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE MERGER (INCLUDING THE
APPLICATION AND EFFECT OF STATE AND LOCAL INCOME AND OTHER TAX LAWS).
REGULATORY APPROVALS
The Merger was approved by the Federal Reserve Board under the BHCA on
, 1996 and by the Georgia Department of Banking and Finance on ,
1996. The Merger may not be consummated for 15 days after approval by the
Federal Reserve Board, during which time an action may be brought by the
United States Department of Justice challenging the Merger on antitrust
grounds.
BUSINESS PENDING THE MERGER
The Merger Agreement provides, among other limitations, that, pending
consummation of the Merger, First National will operate in the ordinary
course, will use its best efforts to preserve its businesses and business
organizations intact, comply with all applicable laws and make no material
changes in its customary business practices.
OTHER PROVISIONS OF THE AGREEMENT
Representations and Warranties. The Merger Agreement contains
representations and warranties by the parties regarding, among other things,
their respective organization, authorization to enter into the Agreement,
capitalization, pending and threatened litigation, contractual obligations,
compliance with applicable laws and regulations, financial statements and
filings with regulatory agencies. These representations and warranties will
not survive consummation of the Merger.
Additional Conditions to the Merger. The obligations of First National and
ABC to consummate the Merger are subject to the following additional
conditions, among others: approval and adoption of the Merger Agreement and
the Merger by the requisite vote of First National shareholders as solicited
by this Proxy Statement/Prospectus; absence of any order, judgment or decree
of any court or any government agency having jurisdiction over First National
or over ABC restraining or prohibiting the consummation of the Merger; the
inclusion of the ABC Common Stock to be issued in the Merger in the Nasdaq
National Market; and the effectiveness of the Registration Statement of which
this Proxy Statement/Prospectus is a part and the absence of a stop order
suspending such effectiveness. In addition, the obligation of ABC to
consummate the Merger is further subject to the satisfaction or waiver of a
number of conditions, including the continued truth and accuracy in all
material respects of the representations or warranties made by First National
in the Merger Agreement; First National's performance of all of its
obligations under the Merger Agreement; ABC's receipt of an opinion of counsel
to First National with respect to certain corporate matters; ABC's receipt of
a letter from First National's independent accountants with respect to the
financial information of First National contained herein; the execution of
noncompetition agreements by and between ABC and Raymond B. Phillips and each
of the other directors of First National in substantially the forms attached
as Exhibits 4 and 4A, respectively, to the Merger Agreement; First National
not having received Notices of Intent from holders of more than 7.5% of the
issued and outstanding First National Shares; ABC's receipt of an opinion of
Mauldin & Jenkins regarding the pooling of interest accounting treatment of
the Merger; and ABC's receipt of letter agreements from each holder of
outstanding Warrants and Options in substantially the forms attached as
Exhibits 5 and 6, respectively, to the Merger Agreement. First National's
obligation to consummate the Merger is also subject to the satisfaction or
waiver of a number of conditions, including the continued truth and accuracy
in all material respects of the representations or warranties made by ABC set
forth in the Merger Agreement; ABC's performance of all of its obligations
under the Merger Agreement; and First National's receipt of an opinion of
counsel to ABC with respect to certain corporate matters.
30
<PAGE>
Waivers; Amendments; Terminations. Any term or condition of the Merger
Agreement may be waived by the party entitled to the benefits thereof, and the
Agreement may be amended or supplemented at any time by written agreement of
the parties, except that after the Merger is approved by First National
shareholders, no such amendment or supplement may result in a decrease in the
consideration for First National Shares or otherwise materially adversely
affect the rights of First National shareholders without their approval. The
Merger Agreement provides that it may be terminated (a) by the mutual consent
of both parties; (b) by either party in the event of a material breach by the
other party of any representation or warranty contained in the Merger
Agreement which cannot be or has not been cured within 30 days after the
giving of notice of such breach to such party; (c) by either party in the
event that any consent or regulatory approval necessary to consummate the
Merger has been denied by final nonappealable action of such authority or if
any action taken by such authority is not appealed with the limit for such
appeal or if First National's shareholders fail to approve the Merger and the
Merger Agreement; (d) at any time after November 1, 1996, by either party in
the event the Merger has not been consummated on or before such date; (e) by
either party if it becomes clear that certain conditions precedent to such
party's obligations cannot be satisfied on or prior to November 1, 1996; or
(f) by First National upon the payment of the termination fee discussed below
in connection with its acceptance of a superior proposal.
Expenses of the Merger. First National and ABC each will bear their
respective costs and expenses incurred in connection with the Merger,
including the fees, expenses and disbursements of their respective counsel and
auditors and one-half of the printing expenses and filing fees in connection
with this Proxy Statement/Prospectus, whether or not the Merger is
consummated. Notwithstanding the foregoing, in the event that the Merger
Agreement is terminated by First National pursuant to Section 9.1(g) of the
Merger Agreement upon execution of a definitive agreement with a third party
or in the event that, prior the termination of the Merger Agreement, First
National receives a takeover proposal and, within one year of such
termination, enters into, approves, recommends or takes action with respect to
a merger, consolidation or other business combination with any other person,
then First National shall pay to ABC the sum of ABC's expenses, plus the sum
of $200,000.
OPERATIONS OF THE BANK AFTER THE MERGER
After the Merger is consummated, ABC intends to seek regulatory approval to
add Kenneth J. Hunnicutt, the President and Chief Executive Officer of ABC, to
the Board of Directors of the Bank. With the exception of replacing the Bank's
President, Raymond B. Philips, who intends to retire upon consummation of the
Merger, the parties intend that, after the Effective Date, the operations of
the Bank initially will continue unchanged. There can be no assurance,
however, that the operations of the Bank will continue unchanged indefinitely
and, as the sole shareholder of the Bank, ABC will be entitled to remove or
not reelect such officers or directors of the Bank and to make any other
changes in its business or operation in the future as ABC may deem necessary
or appropriate, subject to certain prior regulatory approval. ABC has agreed
to provide generally to officers and employees of the Bank comparable employee
benefits that ABC provides to officers and employees of its other banking
subsidiaries from time to time. See "--Interest of Certain Persons in the
Merger."
After the Effective Date, ABC anticipates that there will be a close liaison
and a high level of cooperation among all of ABC's subsidiaries resulting in
an improved ability to meet the needs of the communities served by the Bank
and ABC's other subsidiary banks.
ACCOUNTING TREATMENT
The Merger will be accounted for as a "pooling of interests" transaction.
RESALE OF ABC COMMON STOCK
All shares of ABC Common Stock received by First National shareholders in
the Merger will be freely transferable, except that shares of ABC Common Stock
received by persons who are deemed to be "affiliates" (as such term is defined
under the 1933 Act) of First National prior to the Merger may be resold by
them only in
31
<PAGE>
transactions permitted by the resale provisions of Rule 145 promulgated under
the 1933 Act (or Rule 144 in the case of such persons who become affiliates of
ABC) or as otherwise permitted under the 1933 Act. Persons who may be deemed
to be affiliates of ABC or First National generally include individuals or
entities that control, are controlled by, or are under common control with,
such party and may include certain officers and directors of such party as
well as principal shareholders of such party. The Merger Agreement requires
First National to use reasonable efforts to deliver or cause to be delivered
to ABC a letter agreement from each First National affiliate to the effect
that such person will not offer or sell or otherwise dispose of any of the
shares of ABC Common Stock issued to such person in or pursuant to the Merger
in violation of the 1933 Act or the rules and regulations promulgated by the
Commission thereunder.
DESCRIPTION OF ABC BANCORP
ABC is a bank holding company organized under the laws of the State of
Georgia and registered with the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board") pursuant to the Bank Holding Company Act
of 1956, as amended (the "BHCA"). ABC, through its subsidiaries, is engaged in
the commercial banking business. Its primary source of earnings is derived
from income generated by the ownership and operation of its five wholly-owned
subsidiary banks (the "Subsidiary Banks"): American Banking Company located in
Moultrie, Georgia; The Bank of Quitman located in Quitman, Georgia; Bank of
Thomas County located in Thomasville, Georgia; The Citizens Bank of Tifton
located in Tifton, Georgia; Cairo Banking Company located in Cairo, Georgia;
and Southland Bank (acquired on June 21, 1996) located in Dothan, Alabama. As
of March 31, 1996, ABC, on a consolidated basis, had total assets of $335.6
million, total loans of $223.3 million, total deposits of $243.4 million and
stockholders' equity of $34.6 million. ABC's net income for 1995 was $4.3
million, or $1.29 per share; its net income for the three months ended March
31, 1996 was $1.2 million, or $0.37 per share. ABC's principal executive
offices are located at 310 First Street, S.E., P.O. Box 1500, Moultrie,
Georgia 31768, and its telephone number is (912) 890-1111.
On June 21, 1996, Southland Bancorporation ("Southland"), a bank holding
company registered under the BHCA and operating Southland Bank with five
branches in southeastern Alabama, merged with and into ABC. See "SUMMARY--
Recent or Proposed Transactions."
ABC has also entered into an Agreement and Plan of Merger with Central
Bankshares, Inc. ("Central"), dated as of December 29, 1995, pursuant to which
Central would merge with and into ABC (the "Central Merger"). Central is a
bank holding company registered under the BHCA and operates Central Bank &
Trust with two branches in Cordele, Georgia. See "SUMMARY--Recent or Proposed
Transactions."
The ABC Mergers, if consummated, will result in the issuance of a
substantial number of new shares of ABC Common Stock which could have a
dilutive effect on the earnings per share of ABC, Southland, Central and First
National on a combined basis. For information regarding the effect of the ABC
Mergers on ABC, see "Unaudited Pro Forma Condensed Consolidated Financial
Data."
Additional information concerning ABC is contained in documents incorporated
in this Proxy Statement/Prospectus by reference. These documents are available
without charge upon written request to Sara R. Hall, ABC Bancorp, 310 First
Street, S.E., P. O. Box 1500, Moultrie, Georgia 31768, telephone no.
(912) 890-1111. In order to assure timely delivery of these documents, any
request should be made by , 1996.
32
<PAGE>
ABC MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
ABC's principal asset is its ownership of the Subsidiary Banks. Accordingly,
ABC's results of operations are primarily dependent upon the results of
operations of the Subsidiary Banks. The Subsidiary Banks conduct a commercial
banking business which consists of attracting deposits from the general public
and applying those funds to the origination of commercial, consumer and real
estate loans (including commercial loans collateralized by real estate). The
Subsidiary Banks' profitability depends primarily on net interest income,
which is the difference between interest income generated from interest-
earning assets (i.e., loans and investments) less the interest expense
incurred on interest-bearing liabilities (i.e., customer deposits and borrowed
funds). Net interest income is affected by the relative amounts of interest-
earning assets and interest-bearing liabilities, and the interest rate paid
and earned on these balances. Net interest income is dependent upon the
Subsidiary Banks' interest rate spread, which is the difference between the
average yield earned on its interest-earning assets and the average rate paid
on its interest-bearing liabilities. When interest-earning assets approximate
or exceed interest-bearing liabilities, any positive interest rate spread will
generate interest income. The interest rate spread is impacted by interest
rates, deposit flows and loan demand. Additionally, and to a lesser extent,
the profitability of the Subsidiary Banks is affected by such factors as the
level of non-interest income and expenses, the provision for loan losses and
the effective tax rate. Non-interest income consists primarily of loan and
other fees and income from the sale of loans and investment securities. Non-
interest expenses consist of compensation and benefits, occupancy-related
expenses, deposit insurance premiums paid to the FDIC and other operating
expenses.
RESULTS OF OPERATIONS FOR YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
ABC's results of operations are determined by its ability to effectively
manage interest income and expense, to minimize loan and investment losses, to
generate noninterest income and to control noninterest expense. Since interest
rates are determined by market forces and economic conditions beyond the
control of ABC, the ability to generate net interest income is dependent upon
the ability of the Subsidiary Banks to obtain an adequate spread between the
rate earned on interest-earning assets and the rate paid on interest-bearing
liabilities. Thus, the key performance measure for net interest income is the
interest margin or net yield, which is taxable-equivalent net interest income
divided by average earning assets.
The primary component of consolidated earnings is net interest income, or
the difference between interest income on interest-earning assets and interest
paid on interest-bearing liabilities. The net interest margin is net interest
income expressed as a percentage of average interest-earning assets. Interest-
earning assets consist of loans, investment securities and Federal funds sold.
Interest-bearing liabilities consist of deposits, of which approximately 17%
are noninterest-bearing. A portion of interest income is earned on tax-exempt
investments, such as state and municipal bonds. In an effort to state this
tax-exempt income and its resultant yields on a basis comparable to all other
taxable investments, an adjustment is made to analyze this income on a
taxable-equivalent basis.
The net interest margin increased by 32 basis points or 5.69% to 5.94% in
1995 as compared to 5.62% in 1994. This increase in net interest margin was
achieved by an increase of 103 basis points on average yield earned on
interest-earning assets accompanied by an increase of 94 basis points in
average rate paid on interest-bearing liabilities. Net interest income on a
taxable-equivalent basis was $16,314,000 in 1995 as compared to $13,814,000 in
1994, representing an increase of 18.10%. Net interest income on a taxable-
equivalent basis was $13,814,000 in 1994 as compared to $12,273,000 in 1993,
representing an increase of 12.56%. Net interest margin increased by 5.24% to
5.62% in 1994 from 5.34% in 1993 because average interest-earning assets
increased by 5.34% in 1994 as compared to 1993.
Average interest-earning assets increased by $28,559,000 or 11.62% to
$274,428,000 in 1995 from $245,869,000 in 1994. Average loans increased by
$24,341,000; average investments increased by $2,516,000; and average Federal
funds sold increased by $1,702,000. The increase in average interest-earning
assets was funded by an increase in average deposits of $22,869,000 or 9.52%
to $263,046,000 in 1995 from $240,177,000 in 1994. By comparison, average
interest-earning assets increased by $15,912,000 or 6.92% to $245,869,000 in
33
<PAGE>
1994 from $229,957,000 in 1993. During 1994, average deposits increased by
$9,424,000 or 4.08%, to $240,177,000 from $230,753,000 in 1993. Approximately
17% of the average deposits were noninterest-bearing deposits in 1995 as
compared to 16% noninterest-bearing deposits in 1994.
The allowance for loan losses represents a reserve for potential losses in
the loan portfolio. The adequacy of the allowance for loan losses is evaluated
periodically based on a review of all significant loans, with a particular
emphasis on nonaccruing, past due and other loans that management believes
require attention.
The provision for loan losses is a charge to earnings in the current period
to replenish the allowance and maintain it at a level management has
determined to be adequate. The provision for loan losses charged to earnings
amounted to $848,000 in 1995, $638,000 in 1994 and $1,191,000 in 1993. The
increase in the provision for loan losses in 1995 of $210,000 or 32.92%, as
compared with 1994, was accompanied by an increase of 11.52% in total loans in
1995 and an increase in the allowance for loan losses of 13.71%. Net charge-
offs represented 39.27% of the provision for loan losses in 1995 as compared
to 70.85% in 1994. The decrease in loan charge-offs in 1995 resulted from an
improvement in the quality of the collateral held as security on loans and the
ability of the creditors to service their debt. The loan charge-offs for 1995
represented .16% of average loans outstanding during the year as compared to
.25% for 1994. At December 31, 1995, the allowance for loan losses was 1.99%
of total loans outstanding as compared by an allowance for loan losses of
1.96% of total loans outstanding at December 31, 1994. The determination of
the allowance rests upon management's judgment about factors affecting loan
quality and assumptions about the local and national economy. Management
considers the year-end allowance for loan losses adequate to cover potential
losses in the loan portfolio.
Average total assets increased $34,700,000 or 12.92% to $303,190,000 in 1995
as compared to $268,490,000 in 1994. The increase in average total assets was
accompanied by an increase in average deposits of $22,869,000 or 9.52%.
Average total assets increased $11,843,000 or 4.61% to $268,490,000 in 1994 as
compared to $256,647,000 in 1993 and was accompanied by an increase in average
total deposits of $9,424,000 or 4.08% to $240,177,000 in 1994 from
$230,753,000 in 1993.
ABC has provided a valuation reserve of $228,000 against a deferred tax
asset of $286,000 recorded on the books of a subsidiary bank. The deferred tax
asset relates to a purchased tax net operating loss carryforward for which
utilization is limited to specified amounts in future years and can only be
used to offset taxable income of the subsidiary bank in future years.
RESULTS OF OPERATIONS FOR THREE MONTHS ENDED MARCH 31, 1996 AND 1995
The net interest margin decreased 33 basis points or 5.81% to 5.35% for the
three months ended March 31, 1996 as compared to 5.68% for the three months
ended March 31, 1995. This decrease in net interest margin was the result of
an increase of 43 basis points in average rate paid on interest-bearing
liabilities. Net interest income on a taxable-equivalent basis increased 7.79%
to $4,179,000 for the three months ended March 31, 1996 as compared to
$3,877,000 for the three months ended March 31, 1995. The increase in net
interest income was attributable to an increase of 12.66% in average loans to
$212,844,888 for the three months ended March 31, 1996 from $188,930,000 for
the three months ended March 31, 1995.
The provision for loan losses remained constant at $180,000 for the three
months ended March 31, 1996 and 1995. During the three months ended March 31,
1996, ABC recorded net loan charge-offs of $24,000 as compared to net loan
recoveries on charged-off loans of $32,000 for the three months ended March
31, 1995.
Net income increased $207,000 or 20.14% to $1,235,000 for the three months
ended March 31, 1996 as compared to $1,028,000 for the three months ended
March 31, 1995. This increase in net income was attributable primarily to the
increase in net interest income. Noninterest expense net of noninterest income
decreased $25,000 to $2,090,000 for the three months ended March 31, 1996 as
compared to $2,115,000 for the three months ended March 31, 1995.
Total assets increased $41,647,000 or 14.17% to $335,589,000 at March 31,
1996 as compared to total assets of $293,942,000 at March 31, 1995. Total
loans increased $27,918,000 or 14.29% to $223,305,000 at March 31, 1996 from
$195,387,000 at March 31, 1995. Total deposits increased $36,851,000 or 14.36%
to $293,385,000 from $256,534,000 at March 31, 1995.
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<PAGE>
AVERAGE BALANCES AND NET INCOME ANALYSIS
The following table sets forth the amount of ABC's interest income or
interest expense for each category of interest-earning assets and interest-
bearing liabilities and the average interest rate for total interest-earning
assets and total interest-bearing liabilities, net interest spread and net
yield on average interest-earning assets. Federally tax-exempt income is
presented on a taxable equivalent basis assuming a 34% Federal tax rate.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
1995 1994 1993
-------------------------- -------------------------- --------------------------
AVERAGE AVERAGE AVERAGE
INTEREST YIELD/ INTEREST YIELD/ INTEREST YIELD/
AVERAGE INCOME/ RATE AVERAGE INCOME/ RATE AVERAGE INCOME/ RATE
BALANCE EXPENSE PAID BALANCE EXPENSE PAID BALANCE EXPENSE PAID
-------- -------- ------- -------- -------- ------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans, net of unearned
interest.............. $205,023 $22,647 11.05% $180,682 $18,017 9.97% $159,976 $16,278 10.18%
Investment securities:
Taxable................ 38,781 2,271 5.86% 35,099 1,928 5.49% 32,581 1,997 6.08%
Tax-exempt............. 9,595 835 8.70% 10,761 924 8.59% 9,265 905 9.77%
Federal funds sold..... 21,029 1,234 5.87% 19,327 773 4.00% 27,865 825 2.96%
-------- ------- -------- ------- -------- -------
Total interest-earning
assets............... 274,428 26,987 9.83% 245,869 21,642 8.80% 229,957 20,005 8.70%
Noninterest-earning
assets:
Cash................... $ 15,741 $ 16,132 $ 16,035
Allowance for loan
losses ............... (4,072) (3,951) (2,950)
Unrealized gain on
available for sale
securities............ 61
Other assets........... 17,032 10,440 13,605
Total noninterest
earning assets....... 28,762 22,621 26,690
-------- -------- --------
Total assets.......... $303,190 $268,490 $256,647
======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing
liabilities:
Savings and interest-
bearing demand
deposits.............. $ 81,137 $ 2,484 3.06% $ 88,482 $ 2,539 2.87% $ 87,867 $ 2,686 3.06%
Time deposits.......... 138,036 7,887 5.71% 112,730 5,064 4.49% 108,288 4,808 4.44%
Other short-term
borrowings............ 5,308 302 5.69% 2,557 68 2.66%
Debt................... -- -- 1,931 157 8.13% 3,654 238 6.51%
-------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities.......... 224,481 10,673 4.75% 205,700 7,828 3.81% 199,809 7,732 3.87%
Noninterest-bearing
liabilities and stock-
holders' equity:
Demand deposits........ 43,873 38,965 34,598
Other liabilities...... 2,533 1,659 2,915
Stockholders' equity... 32,303 22,166 19,325
Total noninterest-
bearing liabilities
and stockholders'
equity............... 78,709 62,790 56,838
-------- -------- --------
Total liabilities and
stockholders'
equity............... $303,190 $268,490 $256,647
======== ======== ========
Interest rate spread.... 5.08% 4.99% 4.83%
===== ==== =====
Net interest income..... $16,314 $13,814 $12,273
======= ======= =======
Net interest margin..... 5.94% 5.62% 5.34%
===== ==== =====
</TABLE>
35
<PAGE>
RATE AND VOLUME ANALYSIS
The following table reflects the changes in net interest income resulting
from changes in interest rates and from asset and liability volume. Federally
tax-exempt interest is presented on a taxable-equivalent basis assuming a 34%
Federal tax rate. The change in interest attributable to rate has been
determined by applying the change in rate between years to average balances
outstanding in the later year. The change in interest due to volume has been
determined by applying the rate from the earlier year to the change in average
balances outstanding between years. Thus, changes that are not solely due to
volume have been consistently attributed to rate.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1995 VS. 1994 1994 VS. 1993
--------------------------- ---------------------------
CHANGES DUE TO CHANGES DUE TO
INCREASE ---------------- INCREASE ----------------
(DECREASE) RATE VOLUME (DECREASE) RATE VOLUME
---------- ------- -------- ---------- ------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in:
Income from earning
assets:
Interest and fees on
loans.............. $4,630 $ 2,203 $ 2,427 $1,739 $ (368) $ 2,107
Interest on securi-
ties:
Taxable........... 343 141 202 (60) (206) 137
Tax-exempt........ (89) 11 (100) 19 (127) 146
Interest on Federal
funds.............. 461 393 68 (52) 201 (253)
------ ------- ------- ------ ------ -------
Total interest
income......... $5,345 $ 2,748 $ 2,597 $1,637 $ (500) $ 2,137
------ ------- ------- ------ ------ -------
Expense from interest-
bearing liabilities:
Interest on savings
and interest-bearing
demand............... $ (55) $ 156 $ (211) $ (147) $ (166) $ 19
Interest on time de-
posits............... 2,823 1,686 1,137 256 59 197
Interest on short-term
deposits............. 234 161 73 68 -- 68
Interest on debt...... (157) -- (157) 81 31 (112)
------ ------- ------- ------ ------ -------
Total interest
expense........ $2,845 $ 2,003 $ 842 $ 96 $ (76) $ 172
------ ------- ------- ------ ------ -------
Net interest in-
come........... $2,500 $ 745 $ 1,755 $1,541 $ (424) $ 1,965
====== ======= ======= ====== ====== =======
</TABLE>
NONINTEREST INCOME
The most significant increase in noninterest income was an increase in
service charges on deposit accounts of $139,000 in 1995 over 1994,
representing an increase of 5.66%. This increase in service charges was
achieved by an increase in average deposits of $22,869,000 during 1995 as
compared to 1994. Total other income increased $158,000 or 5.51% in 1994,
which was attributable to an increase of $157,000 in service charges on
deposits. Following is a comparison of noninterest income for 1995, 1994 and
1993.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1994 1993
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service charges on deposit accounts................. $ 2,595 $ 2,456 $ 2,299
Other service charges, commissions and fees......... 301 224 230
Other income........................................ 380 345 338
------- ------- -------
$ 3,276 $ 3,025 $ 2,867
======= ======= =======
</TABLE>
NONINTEREST EXPENSE
Salaries and employee benefits increased $499,000 or 8.74% in 1995 over
1994. Salaries increased $297,000; bonuses increased $74,000; and employee
benefits increased $127,000. The increase in employee benefits was
attributable to an increase of $54,000 or 10.82% in retirement benefits as
compared to 1994. Deposit insurance
36
<PAGE>
premiums decreased $258,000 or 46.15% in 1995 as a result of the decrease in
assessments by the Federal Insurance Deposit Corporation which became
effective in early 1995. The most significant increase in noninterest expense
in 1994 as compared to 1993 was an increase of $158,000 or 54.48% in data
processing fees which was attributable to a major data processing conversion
completed in the first quarter of 1994. Following is an analysis of
noninterest expense for 1995, 1994 and 1993.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1994 1993
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Salaries and employee benefits...................... $ 6,210 $ 5,711 $ 5,238
Occupancy and equipment expense..................... 1,830 1,754 1,567
Deposit insurance premiums.......................... 301 559 551
Data Processing fees................................ 372 448 290
Other expense....................................... 3,515 3,075 2,889
------- ------- -------
$12,228 $11,547 $10,535
======= ======= =======
</TABLE>
ASSET/LIABILITY MANAGEMENT
A principal objective of ABC's asset/liability management strategy is to
minimize its exposure to changes in interest rates by matching the maturity
and repricing horizons of interest-earning assets and interest-bearing
liabilities. This strategy is overseen in part through the direction of ABC's
Asset and Liability Committee (the "ALCO Committee") which establishes
policies and monitors results to control interest rate sensitivity.
As part of ABC's interest rate risk management policy, the ALCO Committee
examines the extent to which its assets and liabilities are "interest rate-
sensitive" and monitors its interest rate-sensitivity "gap." An asset or
liability is considered to be interest rate-sensitive if it will reprice or
mature within the time period analyzed, usually one year or less. The interest
rate-sensitivity gap is the difference between the interest-earning assets and
interest-bearing liabilities scheduled to mature or reprice within such time
period. A gap is considered positive when the amount of interest rate-
sensitive assets exceeds the amount of interest rate-sensitive liabilities. A
gap is considered negative when the amount of interest rate-sensitive
liabilities exceeds the interest rate-sensitive assets. During a period of
rising interest rates, a negative gap would tend to adversely affect net
interest income, while a positive gap would tend to result in an increase in
net interest income. During a period of falling interest rates, a negative gap
would tend to result in an increase in net interest income, while a positive
gap would tend to adversely affect net interest income. If ABC's assets and
liabilities were equally flexible and moved concurrently, the impact of any
increase or decrease in interest rates on net interest income would be
minimal.
A simple interest rate "gap" analysis by itself may not be an accurate
indicator of how net interest income will be affected by changes in interest
rates. Accordingly, the ALCO Committee also evaluates how the repayment of
particular assets and liabilities is impacted by changes in interest rates.
Income associated with interest-earning assets and costs associated with
interest-bearing liabilities may not be affected uniformly by changes in
interest rates. In addition, the magnitude and duration of changes in interest
rates may have a significant impact on net interest income. For example,
although certain assets and liabilities may have similar maturities or periods
of repricing, they may not react identically to changes in market interest
rates. Interest rates on certain types of assets and liabilities fluctuate in
advance of changes in general market interest rates, while interest rates on
other types may lag behind changes in general market rates. In addition,
certain assets, such as adjustable rate mortgage loans, have features
(generally referred to as "interest rate caps") which limit changes in
interest rates on a short-term basis and over the life of the asset. In the
event of a change in interest rates, prepayment and early withdrawal levels
also could deviate significantly from those assumed in calculating the
interest-rate gap. The ability of many borrowers to service their debts also
may decrease in the event of an interest-rate increase.
37
<PAGE>
The following table sets forth the distribution of the repricing of ABC's
earning assets and interest-bearing liabilities as of December 31, 1995, the
interest rate sensitivity gap (i.e., interest rate sensitive assets less
interest rate sensitive liabilities), the cumulative interest rate sensitivity
gap ratio (i.e., interest rate sensitive assets divided by interest rate
sensitivity liabilities) and the cumulative sensitivity gap ratio. The table
also sets forth the time periods in which earning assets and liabilities will
mature or may reprice in accordance with their contractual terms. However, the
table does not necessarily indicate the impact of general interest rate
movements on the net interest margin since the repricing of various categories
of assets and liabilities is subject to competitive pressures and the needs of
ABC's customers. In addition, various assets and liabilities indicated as
repricing within the same period may in fact reprice at different times within
such period and at different rates.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
MATURING OR REPRICING WITHIN
---------------------------------------------------------
ZERO TO THREE THREE MONTHS ONE TO FIVE OVER FIVE
MONTHS TO ONE YEAR YEARS YEARS TOTAL
------------- ------------ ----------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Earning assets:
Federal funds sold.... $ 41,025 $ -- $ -- $ -- $ 41,025
Investment securi-
ties................. 2,135 10,683 29,355 8,087 50,260
Loans................. 87,283 20,548 84,858 21,562 214,251
-------- -------- -------- ------- --------
130,443 31,231 114,213 29,649 305,536
-------- -------- -------- ------- --------
Interest-bearing liabil-
ities:
Interest-bearing de-
mand deposits(1)..... -- 17,638 54,195 -- 71,833
Savings(1)............ -- -- 22,318 -- 22,318
Certificates less than
$100,000............. 22,344 52,575 35,715 -- 110,634
Certificates $100,000
and over............. 15,541 15,040 7,192 -- 37,773
Other short-term
borrowings........... 3,487 -- -- -- 3,487
-------- -------- -------- ------- --------
41,372 85,253 119,420 -- 246,045
-------- -------- -------- ------- --------
Interest rate sensitiv-
ity gap................ $ 89,071 $(54,022) $ (5,207) $29,649 $ 59,491
======== ======== ======== ======= ========
Cumulative interest rate
sensitivity gap........ $ 89,071 $ 35,049 $ 29,842 $59,491
======== ======== ======== =======
Interest rate sensitiv-
ity gap ratio.......... 3.15 0.37 0.96 N/A
======== ======== ======== =======
Cumulative interest rate
sensitivity gap ratio.. 3.15 1.28 1.12 1.24
======== ======== ======== =======
</TABLE>
- --------
(1) ABC has found that NOW checking accounts and savings deposits are
generally not sensitive to changes in interest rates and, therefore, it
has placed such liabilities in the "One to Five Years" category. It has
also found that the money-market check deposits reprice between three
months to one year, on the average.
MATURITIES AND SENSITIVITY OF LOANS TO CHANGES IN INTEREST RATES
ABC's loan portfolio, as of December 31, 1995, was made up primarily of
short-term fixed rate loans or variable rate loans. The average contractual
life on installment loans is approximately three years, while mortgages are
generally variable over one to five-year periods. Total loans as of December
31, 1995 are shown in the following table according to the following maturity
classifications: (i) one year or less; (ii) after one year through five years;
and (iii) after five years.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Maturity:
One year or less.................................. $107,831
After one year through five years................. 84,858
After five years.................................. 21,562
--------
$214,251
========
</TABLE>
38
<PAGE>
The following table summarizes loans at December 31, 1995 with the due dates
after one year which (i) have predetermined interest rates and (ii) have
floating or adjustable interest rates.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Predetermined interest rates........................ $106,420
Floating or adjustable interest rates............... --
--------
$106,420
========
</TABLE>
Records were not available to present the above information in each category
listed in the first paragraph above and could not be reconstructed without
undue burden.
LOAN PORTFOLIO
Management believes that ABC's loan portfolio is adequately diversified. The
loan portfolio contains no foreign or energy-related loans or significant
concentrations in any one industry, with the exception of agricultural loans,
which constituted approximately 26% of ABC's loan portfolio as of December 31,
1995. As of December 31, 1995, the ten largest loans of ABC accounted for
approximately 12% of ABC's total loans. As of December 31, 1995, ABC had
outstanding loan commitments of $39 million. The amounts of loans outstanding
at the indicated dates is shown in the following table according to type of
loan.
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------------------------------
1996 1995 1994 1993 1992 1991
--------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial and industri-
al..................... $ 24,829 $ 23,733 $ 23,531 $ 20,849 $ 19,650 $ 11,379
Agricultural............ 16,867 15,124 17,079 9,767 10,789 8,109
Real estate--construc-
tion................... 1,762 1,836 1,828 3,387 2,130 1,421
Real estate--mortgage,
farmland............... 43,255 40,053 34,887 29,489 24,922 14,129
Real estate--mortgage,
commercial............. 42,447 41,438 35,242 27,402 22,284 12,506
Real estate--mortgage,
residential............ 54,522 52,377 44,064 41,902 43,500 31,343
Consumer installment
loans.................. 38,857 38,973 34,213 27,231 25,979 19,007
Other................... 766 717 1,280 1,720 1,691 2,754
-------- -------- -------- -------- -------- --------
223,305 214,251 192,124 161,747 150,945 100,648
Less reserve for possi-
ble loan losses........ 4,428 4,272 3,757 3,571 4,013 1,257
-------- -------- -------- -------- -------- --------
Total loans........... $218,877 $209,979 $188,367 $158,176 $146,932 $ 99,391
======== ======== ======== ======== ======== ========
</TABLE>
39
<PAGE>
NONPERFORMING LOANS
A loan is placed on non-accrual status when, in management's judgment, the
collection of the interest income appears doubtful. Interest receivable that
has been accrued in prior years and is subsequently determined to have
doubtful collectibility is charged to the allowance for possible loan losses.
Interest on loans that are classified as non-accrual is recognized when
received. Past due loans are loans whose principal or interest is past due 90
days or more. In some cases, where borrowers are experiencing financial
difficulties, loans may be restructured to provide terms significantly
different from the original contractual terms.
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ----------------------------------
1996 1995 1994 1993 1992 1991
--------- ------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Loans accounted for on a
nonaccrual basis................ $3,718 $2,259 $3,460 $3,119 $5,605 $ 511
Installment loans and term loans
contractually past due ninety
days or more as to interest or
principal payments and still
accruing........................ 12 27 103 316 595 563
Loans, the terms of which have
been renegotiated to provide a
reduction or deferral of
interest or principal because of
deterioration in the financial
position of the borrower........ -- -- 358 -- -- --
Loans now current about which
there are serious doubts as to
the ability of the borrower to
comply with present loan
repayment terms................. -- -- -- -- -- --
------ ------ ------ ------ ------ ------
Total.......................... $3,730 $2,286 $3,921 $3,435 $6,200 $1,074
====== ====== ====== ====== ====== ======
</TABLE>
As of March 31, 1996 and December 31, 1995, 1994, 1993, 1992 and 1991, total
nonperforming loans were approximately 1.67%, 1.07%, 2.04%, 2.67%, 4.68% and
1.26%, respectively, of total loans outstanding at such dates.
In the opinion of management, any loans classified by regulatory authorities
as substandard or special mention that have not been disclosed above do not
(i) represent or result from trends or uncertainties which management
reasonably expects will materially impact future operating results, liquidity
or capital resources, nor (ii) represent material credits about which
management is aware of any information which causes management to have serious
doubts as to the ability of such borrowers to comply with the loan repayment
terms. Any loans classified by regulatory authorities as loss have been
charged off.
SUMMARY OF LOAN LOSS EXPERIENCE
The provision for possible loan losses is created by direct charges to
operations. Losses on loans are charged against the allowance in the period in
which such loans, in management's opinion, become uncollectible. Recoveries
during the period are credited to this allowance. The factors that influence
management's judgment in determining the amount charged to operating expense
are past loan experience, composition of the loan portfolio, evaluation of
possible future losses, current economic conditions and other relevant
factors. ABC's allowance for loan losses was approximately $4.3 million at
December 31, 1995, representing 2.01% of year-end total loans outstanding and
OREO, compared with approximately $3.8 million at December 31, 1994, which
represented 1.98% of year-end total loans outstanding and OREO.
The allowance for loan losses is reviewed quarterly based on management's
evaluation of current risk characteristics of the loan portfolio, as well as
the impact of prevailing and expected economic business conditions. Management
considers the allowance for loan losses adequate to cover possible loan losses
on each outstanding loan with particular emphasis on any problem loans.
40
<PAGE>
The following table presents an analysis of ABC's loan loss experience for
the periods indicated:
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED YEAR ENDED DECEMBER 31,
MARCH 31, -----------------------------------------------
1996 1995 1994 1993 1992 1991
--------- -------- -------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Average amount of loans
outstanding............ $217,199 $205,023 $180,682 $159,976 $118,313 $98,737
======== ======== ======== ======== ======== =======
Balance of reserve for
possible loan losses at
beginning of period.... $ 4,272 $ 3,757 $ 3,571 $ 4,013 $ 1,257 $ 1,046
-------- -------- -------- -------- -------- -------
Charge offs:
Commercial, financial,
industrial and
agricultural......... (2) (96) (431) (428) (406) (214)
Real estate........... 0 (103) (144) (1,851) (698) (200)
Consumer.............. (151) (531) (396) (374) (318) (41)
Recoveries:
Commercial, financial
and agricultural..... 25 90 74 273 26 44
Real estate........... 51 127 265 554 210 166
Consumer.............. 53 180 180 193 113 5
-------- -------- -------- -------- -------- -------
Net charge-offs..... $ (24) $ (333) $ (452) $ (1,633) $ (1,073) $ (240)
-------- -------- -------- -------- -------- -------
Additions to reserve
charged to operating
expenses............... $ 180 $ 848 $ 638 $ 1,191 $ 1,129 $ 451
-------- -------- -------- -------- -------- -------
Allowance for loan
losses of acquired
subsidiary............. $ -- $ -- $ -- $ -- $ 2,700 $ --
-------- -------- -------- -------- -------- -------
Balance of reserve
for possible loan
losses............. $ 4,428 $ 4,272 $ 3,757 $ 3,571 $ 4,013 $ 1,257
======== ======== ======== ======== ======== =======
Ratio of net loan
charge-offs to average
loans.................. 0.04% 0.16% .25% 1.02% .91% .24%
======== ======== ======== ======== ======== =======
</TABLE>
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
The following table sets forth the breakdown of the allowance for loan
losses by loan category for the periods indicated. Management believes the
allowance can be allocated only on an approximate basis. The allocation of the
allowance to each category is not necessarily indicative of future losses and
does not restrict the use of the allowance to absorb losses in any other
category.
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT MARCH 31, -------------------------------------
1996 1995 1994
------------------ ------------------ ------------------
PERCENT OF PERCENT OF PERCENT OF
LOANS IN LOANS IN LOANS IN
CATEGORY TO CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------ ----------- ------ ----------- ------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial,
industrial and
agricultural........... $ 970 19% $ 836 18% $ 919 21%
Real estate............. 1,505 63% 1,452 63% 1,425 60%
Consumer................ 870 18% 839 19% 824 19%
Unallocated............. 1,083 1,046 589
------ ---- ------ ---- ------ ----
$4,428 100% $4,272 100% $3,757 100%
====== ==== ====== ==== ====== ====
</TABLE>
41
<PAGE>
INVESTMENT PORTFOLIO
ABC manages the mix of asset and liability maturities in an effort to
control the effects of changes in the general level of interest rates of net
interest income. See "--Asset/Liability Management." Except for its effect on
the general level of interest rates, inflation does not have a material impact
on ABC due to the rate variability and short-term maturities of its earning
assets. In particular, approximately 50% of its loan portfolio is comprised of
loans which mature within one year or less. Mortgage loans, primarily with
five- to fifteen-year maturities, are also made on a variable rate basis with
rates being adjusted every one to five years. Additionally, 25% of the
investment portfolio matures within one year.
TYPES OF INVESTMENTS
The carrying value and estimated market value of investment securities are
as follows:
<TABLE>
<CAPTION>
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Securities Available for Sale De-
cember 31, 1995:
U.S. Government and agency secu-
rities......................... $37,174 $ 285 $ (93) $37,366
Mortgage-backed securities...... 2,282 69 (8) 2,343
Other securities................ 300 -- (18) 282
------- ------ ------- -------
$39,756 $ 354 $ (119) $39,991
======= ====== ======= =======
December 31, 1994:
U.S. Government and agency secu-
rities......................... $ 1,664 $ -- $ (14) $ 1,650
Other securities................ 300 -- (40) 260
------- ------ ------- -------
$1,964 $ -- $ (54) $ 1,910
======= ====== ======= =======
Securities Held to Maturity Decem-
ber 31, 1995:
State and municipal securities.. $10,269 $ 258 $ (65) $10,462
======= ====== ======= =======
December 31, 1994:
U.S. Government and agency secu-
rities......................... $32,159 $ 19 $(1,196) $30,982
State and municipal securities.. 9,819 114 (471) 9,462
Mortgage-backed securities...... 2,617 22 (59) 2,580
------- ------ ------- -------
$44,595 $ 155 $(1,726) $43,024
======= ====== ======= =======
December 31, 1993:
U.S. Government and agency secu-
rities......................... $32,033 $ 430 $ (42) $32,421
State and municipal securities.. 11,004 469 (78) 11,395
Mortgage-backed securities...... 2,600 140 -- 2,740
Other securities................ 300 -- -- 300
------- ------ ------- -------
$45,937 $1,039 $ (120) $46,856
======= ====== ======= =======
</TABLE>
42
<PAGE>
The following table represents maturities and weighted average yields of
investment securities held by ABC at December 31, 1995.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------------------------------------------------------
AFTER ONE YEAR AFTER FIVE YEARS
BUT WITHIN BUT WITHIN
WITHIN ONE YEAR FIVE YEARS TEN YEARS AFTER TEN YEARS
----------------- --------------- ----------------- ----------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
--------- ------- -------- ------ --------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and Other
U.S. government agen-
cies(1)............... $ 11,848 5.75% $ 28,143 6.22% $ -- -- % $ -- -- %
Obligations of states
and other political
subdivisions(1)(2).... 727 6.12 2,734 6.63 5,722 7.72 1,086 8.37
</TABLE>
- --------
(1) Yields were computed using coupon interest, adding discount accretion or
subtracting premium amortization, as appropriate, on a ratable basis over
the life of each security. The weighted average yield for each maturity
range was computed using the acquisition price of each security in that
range.
(2) Yields on securities of state and political subdivisions are stated on a
tax equivalent basis using a tax rate of 34%.
DEPOSITS
Average amount of deposits and average rate paid thereon, classified as to
noninterest-bearing demand deposits, interest-bearing demand and savings
deposits and time deposits, for the periods indicated are presented below.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1994
-------------- --------------
AMOUNT RATE AMOUNT RATE
-------- ----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Noninterest-bearing demand deposits.............. $ 43,873 -- % $ 38,965 -- %
Interest-bearing demand and savings deposits..... 81,137 3.06% 88,482 2.47%
Time deposits.................................... 138,036 5.71% 112,730 4.49%
-------- --------
Total deposits................................. $263,046 $240,177
======== ========
</TABLE>
ABC has a large, stable base of time deposits, with little or no dependence
on volatile deposits of $100,000 or more. The time deposits are principally
certificates of deposit and individual retirement accounts obtained for
individual customers.
The amounts of time certificates of deposit issued in amounts of $100,000 or
more as of December 31, 1995, are shown below by category, which is based on
time remaining until maturity of (i) three months or less, (ii) over three
through twelve months and (iii) over twelve months.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Three months or less................................ $15,541
Over three through twelve months.................... 15,040
Over twelve months.................................. 7,192
-------
Total............................................. $37,773
=======
</TABLE>
43
<PAGE>
RETURN ON ASSETS AND SHAREHOLDERS' EQUITY
The following table shows return on assets (net income divided by average
total assets), return on equity (net income divided by average shareholders'
equity), dividend payout ratio (dividends declared per share divided by net
income per share) and shareholders' equity to asset ratio (average
shareholders' equity divided by average total assets) for the periods
indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Return on assets............................... 1.43% 1.15% 1.03%
Return on equity............................... 13.44 13.99 13.65
Dividend payout ratio.......................... 27.13 28.57 25.96
Equity to assets ratio......................... 10.65 8.26 7.53
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Liquidity management involves the matching of the cash flow requirements of
customers, who may be either depositors desiring to withdraw funds or
borrowers needing assurance that sufficient funds will be available to meet
their credit needs, and the ability of ABC and the Subsidiary Banks to meet
those needs. ABC and the Subsidiary Banks seek to meet liquidity requirements
primarily through management of short-term investments (principally Federal
funds sold) and monthly amortizing loans. Another source of liquidity is the
repayment of maturing single payment loans. In addition, the Subsidiary Banks
maintain relationships with correspondent banks which could provide funds to
them on short notice, if needed.
The liquidity and capital resources of ABC and the Subsidiary Banks are
monitored on a periodic basis by state and Federal regulatory authorities. At
December 31, 1995, the Subsidiary Banks' short-term investments were adequate
to cover any reasonably anticipated immediate need for funds. During 1995, ABC
increased its capital by $125,000, representing proceeds from exercise of
common stock options. It also increased its capital by retaining net earnings
of $3,162,000 after payment of dividends. After recording an increase in
capital of $198,000 for unrealized gains on securities, net of taxes, total
capital increased during 1995 by $3,485,000. At December 31, 1995, total
capital of ABC amounted to $33,935,000. ABC and the Subsidiary Banks are aware
of no events or trends likely to result in a material change in their
liquidity. At December 31, 1995, there were no binding outstanding commitments
for capital expenditures. However, ABC anticipates that expenditures of
approximately $1,500,000 will be required for expansion or relocation of
properties which it plans to implement in 1996 in order to serve its customers
and meet the needs of the citizens in the communities served by the Subsidiary
Banks.
During the three months ended March 31, 1996, total capital increased
$640,000 to $34,575,000 at March 31, 1996. This increase in capital resulted
from the retention of net earnings of $897,000 (after deducting dividends to
shareholders of $338,000) and a decrease of $257,000 in unrealized gains on
securities available for sale, net of taxes.
In accordance with risk capital guidelines issued by the FRB, ABC is
required to maintain a minimum standard of total capital to weighted risk
assets of 8%. Additionally, all member banks must maintain "core" or "Tier 1"
capital of at least 4% of total assets ("leverage ratio"). Member banks
operating at or near the 4% capital level are expected to have well-
diversified risks, including no undue interest rate risk exposure, excellent
control systems, good earnings, high asset quality, and well managed on- and
off-balance sheet activities; and, in general, be considered strong banking
organizations with a composite 1 rating under the CAMEL rating system of
banks. For all but the most highly rated banks meeting the above conditions,
the minimum leverage ratio is to be 4% plus an additional 100 to 200 basis
points.
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<PAGE>
The following table summarizes the regulatory capital levels of ABC at
December 31, 1995.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------------------------------
ACTUAL REQUIRED EXCESS
--------------- --------------- ---------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Leverage capital............. $33,260 10.37% $12,824 4.00% $20,436 6.37%
Risk-based capital:
Core Capital............... 33,260 15.23 8,733 4.00 24,527 11.23
Total Capital.............. 36,008 16.49 17,466 8.00 18,542 8.49
</TABLE>
COMMITMENTS AND LINES OF CREDIT
In the ordinary course of business, the Subsidiary Banks have granted
commitments to extend credit to approved customers. Generally, these
commitments to extend credit have been granted on a temporary basis for
seasonal or inventory requirements and have been approved by each of the
Subsidiary Bank's Board of Directors. The Subsidiary Banks have also granted
commitments to approved customers for standby letters of credit. These
commitments are recorded in the financial statements when funds are disbursed
or the financial instruments become payable. The Subsidiary Banks use the same
credit policies for these off-balance sheet commitments as they do for
financial instruments that are recorded in the consolidated financial
statements. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Because many of the
commitment amounts expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements.
Following is a summary of the commitments outstanding at December 31, 1995
and 1994.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1994
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Commitments to extend credit...................... $ 36,024 $ 22,344
Credit card commitments........................... 2,883 2,345
Standby letters of credit......................... 905 590
----------- -----------
$ 39,812 $ 25,279
=========== ===========
</TABLE>
IMPACT OF INFLATION
The consolidated financial statements and related consolidated financial
data presented herein have been prepared in accordance with generally accepted
accounting principles and practices within the banking industry which require
the measurement of financial position and operating results in terms of
historical dollars without considering the changes in the relative purchasing
power of money over time due to inflation. Unlike most industrial companies,
virtually all the assets and liabilities of a financial institution are
monetary in nature. As a result, interest rates have a more significant impact
on a financial institution's performance than the effects of general levels of
inflation.
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<PAGE>
DESCRIPTION OF ABC COMMON STOCK
GENERAL
ABC's authorized capital stock consists of 15,000,000 shares of Common
Stock, $1.00 par value per share, of which 3,379,192 shares were issued and
outstanding as of March 31, 1996, and 5,000,000 shares of preferred stock,
none of which are issued and outstanding. ABC has reserved 6,667 shares of ABC
Common Stock for issuance pursuant to certain outstanding options to purchase
such shares.
COMMON STOCK
The holders of ABC Common Stock are entitled to receive dividends when, as
and if declared by the Board of Directors and paid by ABC out of funds legally
available therefor and to share ratably in the assets of ABC available for
distribution after the payment of all prior claims in the event of any
liquidation dissolution or winding-up of ABC. All outstanding shares of ABC
Common Stock are duly authorized and validly issued, fully paid and
nonassessable.
Under FRB policy, a bank holding company is expected to act as a source of
financial strength to each of its subsidiary banks and to commit resources to
support each such bank. Consistent with this policy, the FRB has stated that,
as a matter of prudent banking, a bank holding company generally should not
maintain a rate of cash dividends unless the available net income of the bank
holding company is sufficient to fully fund the dividends, and the prospective
rate of earnings retention appears to be consistent with its capital needs,
asset quality, and overall financial condition.
The ability of ABC to pay cash dividends is currently influenced, and in the
future could be further influenced, by bank regulatory policies or agreements
and by capital guidelines. Accordingly, the actual amount and timing of future
dividends, if any, will depend on, among other things, future earnings, the
financial condition of ABC and each of its Subsidiary Banks, the amount of
cash on hand at the holding company level, outstanding debt obligations, if
any, and the requirements imposed by regulatory authorities.
Holders of ABC Common Stock are entitled to one vote per share on all
matters requiring a vote of shareholders. The ABC Common Stock does not have
cumulative voting rights, which means that the holders of more than 50% of the
outstanding shares of ABC Common Stock voting for the election of directors
can elect 100% of the directors if they choose to do so. In such event, the
holders of the remaining shares of ABC Common Stock will not be able to elect
any of the directors.
PREFERRED STOCK
No shares of Preferred Stock have been issued. ABC's Board of Directors is
authorized to issue the Preferred Stock in one or more series and to fix and
determine, among other things, the dividend payable with respect to such
shares of Preferred Stock, including whether and in what manner such dividend
shall be accumulated; whether such shares shall be redeemable and, if so, the
prices, terms and conditions of such redemption; the amount payable on such
shares in the event of voluntary or involuntary liquidation; the nature of any
purchase, retirement or sinking fund provisions; the nature of any conversion
rights with respect to such shares; and the extent of the voting rights, if
any, of such shares. Certain of such rights may, under certain circumstances,
adversely affect the rights or interests of holders of Common Stock. In
addition, the Preferred Stock may be issued under certain circumstances as a
defensive device to thwart an attempted hostile takeover of ABC. See "--
Certain Antitakeover Provisions of ABC's Articles of Incorporation."
LIMITATIONS ON DIRECTORS' LIABILITY
ABC's Articles of Incorporation provide that no director of ABC shall be
liable to ABC or its shareholders for monetary damages for breach of duty of
care or other duty as a director, except for liability (i) for any
appropriation, in violation of his duties, of any business opportunity of ABC,
(ii) for acts or omissions not in
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<PAGE>
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) in respect of certain unlawful dividend payments or stock
redemptions or repurchases, or (iv) for any transaction from which the
director derived an improper personal benefit. The effect of these provisions
is to eliminate the rights of ABC and its shareholders (through shareholders'
derivative suits on behalf of ABC) to recover monetary damages against a
director for breach of fiduciary duty as a director (including breaches
resulting from grossly negligent behavior), except in the situations described
above. Insofar as indemnification for liabilities arising under the 1933 Act
may be permitted to directors, officers and controlling persons of ABC
pursuant to the foregoing, ABC has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
1933 Act and is, therefore, unenforceable.
CERTAIN ANTITAKEOVER PROVISIONS OF ABC'S ARTICLES OF INCORPORATION
ABC's Articles of Incorporation were amended in 1995 to increase the number
of authorized shares of Common Stock from 3,000,000 to 10,000,000 and to
authorize the creation of 5,000,000 shares of "blank check" preferred stock.
This amendment was approved by ABC's Board of Directors and adopted by ABC's
shareholders at ABC's annual meeting held on April 18, 1995. ABC further
increased the number of authorized shares of Common Stock from 10,000,000
shares to 15,000,000 shares, which increase was approved by ABC's shareholders
at ABC's annual meeting held on April 16, 1996. The issuance of these shares
may place ABC in a position to deter a future takeover attempt that some
shareholders may favor. In the event of a proposed merger, tender offer or
other attempt to gain control of ABC, it will be possible for the Board of
Directors to authorize the issuance of ABC's preferred stock to impede
completion of the proposed merger, tender offer or other attempt to gain
control. The Board of Directors, however, did not consider the potential
deterrent as a reason for establishing the number of its authorized shares.
There are 5,000,000 shares of authorized ABC preferred stock, but no such
shares outstanding at this time. ABC's Articles of Incorporation give the
Board the right to determine the number and terms (other than voting rights)
of shares of authorized preferred stock prior to issuance thereof, without
obtaining shareholder approval of such terms. The Board could thus choose to
issue a series of preferred stock to impede a threatened takeover attempt or
tender offer. However, ABC has no current plans to issue any shares of
preferred stock. The GBCC permits a corporation's articles of incorporation to
provide that its Board of Directors may determine all rights (including voting
rights) of preferred stock prior to the issuance of such stock; however, ABC's
Board of Directors has taken no action to date to authorize an amendment of
ABC's Articles of Incorporation to permit the Board to set voting rights for
the preferred stock.
TRANSFER AGENT
SunTrust Bank, Atlanta currently acts as the transfer agent for the ABC
Common Stock.
CERTAIN REGULATORY CONSIDERATIONS RELATING TO ABC
GENERAL
As a bank holding company, ABC is subject to the regulation and supervision
of the FRB and the DBF. The Subsidiary Banks are subject to supervision and
examination by applicable state and federal banking agencies, including the
FRB, FDIC and the DBF. The Subsidiary Banks are also subject to various
requirements and restrictions under federal and state law, including
requirements to maintain reserves against deposits, restrictions on the types
and amounts of loans that may be granted and the interest that may be charged
thereon, and limitations on the types of investments that may be made and the
types of services that may be offered. Various consumer laws and regulations
also affect the operations of the Subsidiary Banks. In addition to the impact
of regulation, commercial banks are affected significantly by the actions of
the FRB as it attempts to control the money supply and credit availability in
order to influence the economy.
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<PAGE>
The BHCA requires every bank holding company to obtain the prior approval of
the FRB before (i) it may acquire direct or indirect ownership or control of
more than 5% of the voting shares of any bank that it does not already
control; (ii) it or any of its subsidiaries, other than a bank, may acquire
all or substantially all of the assets of a bank; and (iii) it may merge or
consolidate with any other bank holding company. In addition, a bank holding
company is generally prohibited from engaging in, or acquiring, direct or
indirect control of the voting shares of any company engaged in non-banking
activities. This prohibition does not apply to activities found by the FRB, by
order or regulation, to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. Some of the activities
that the FRB has determined by regulation or order to be closely related to
banking are: (i) making or servicing loans and certain types of leases; (ii)
performing certain data processing services; (iii) acting as fiduciary or
investment or financial advisor; (iv) providing discount brokerage services;
(v) underwriting bank eligible securities; (vi) underwriting debt and equity
securities on a limited basis through separately capitalized subsidiaries; and
(vii) making investments in corporations or projects designed primarily to
promote community welfare.
In addition, the DBF requires information with respect to the financial
condition, operations, management and intercompany relationships of ABC and
the Subsidiary Banks and related matters. The DBF may also require such other
information as is necessary to keep itself informed as to whether the
provisions of Georgia law and the regulations and orders issued thereunder by
the DBF have been complied with, and the DBF may examine ABC. ABC is an
"affiliate" of the Subsidiary Banks under the Federal Reserve Act, which
imposes certain restrictions on (i) loans by the Subsidiary Banks to ABC; (ii)
investments in the stock or securities of ABC by the Subsidiary Banks; (iii)
the Subsidiary Bank's taking the stock or securities of an "affiliate" as
collateral for loans by the Subsidiary Banks to a borrower; and (iv) the
purchase of assets from ABC by the Subsidiary Banks. Further, a bank holding
company and its subsidiaries are prohibited from engaging in certain tie-in
arrangements in connection with any extension of credit, lease or sale of
property or furnishing of services.
PAYMENT OF DIVIDENDS AND OTHER RESTRICTIONS
ABC is a legal entity separate and distinct from its subsidiaries. There are
various legal and regulatory limitations under federal and state law on the
extent to which ABC's subsidiaries can pay dividends or otherwise supply funds
to ABC.
The principal source of ABC's cash revenues is dividends from its
subsidiaries, and there are certain limitations under federal and Georgia law
on the payment of dividends by such subsidiaries. The prior approval of the
FRB or the applicable state commissioner, as the case may be, is required if
the total of all dividends declared by any state member bank of the Federal
Reserve System in any calendar year exceeds the bank's net profits (as
defined) for that year combined with its retained net profits for the
preceding two calendar years, less any required transfers to surplus or a fund
for the retirement of any preferred stock. The relevant federal and state
regulatory agencies also have authority to prohibit a state member bank or
bank holding company, which would include ABC and the Subsidiary Banks
(including the Bank) from engaging in what, in the opinion of such regulatory
body, constitutes an unsafe or unsound practice in conducting its business.
The payment of dividends could, depending upon the financial condition of the
subsidiary, be deemed to constitute such an unsafe or unsound practice.
Under Georgia law (which would apply to any payment of dividends by the
Subsidiary Banks (including the Bank) to ABC), the prior approval of the
Georgia Commissioner of Banking and Finance is required before any cash
dividends may be paid by a state bank if (i) total classified assets at the
most recent examination of such bank exceed 80% of the equity capital (as
defined, which includes the reserve for loan losses) of such bank; (ii) the
aggregate amount of dividends declared or anticipated to be declared in the
calendar year exceeds 50% of the net profits (as defined) for the previous
calendar year; or (iii) the ratio of equity capital to adjusted total assets
is less than 6%.
ABC has obtained the approval of the Comissioner of Banking and Finance
allowing the Subsidiary Banks to issue aggregate cash dividends of up to
$4,843,000 in connection with the ABC Mergers.
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<PAGE>
In addition, the Subsidiary Banks are subject to limitations under Section
23A of the Federal Reserve Act with respect to extensions of credit to,
investments in, and certain other transactions with, ABC. Furthermore, loans
and extensions of credit are also subject to various collateral requirements.
CAPITAL ADEQUACY
The FRB has adopted risk-based capital guidelines for bank holding
companies. The minimum ratio of total capital ("Total Capital") to risk-
weighted assets (including certain off-balance sheet items, such as standby
letters of credit, is 8%). At least half of the Total Capital is to be
composed of common stock, minority interests in the equity accounts of
consolidated subsidiaries, noncumulative perpetual preferred stock and a
limited amount of perpetual preferred stock, less goodwill ("Tier I Capital").
The remainder may consist of subordinated debt, other preferred stock and a
limited amount of loan loss reserves.
In addition, the FRB has established minimum leverage ratio guidelines for
bank holding companies. These guidelines provide for a minimum ratio of Tier I
Capital to total assets, less goodwill (the "Leverage Ratio") of 3% for bank
holding companies that meet certain specified criteria, including those having
the highest regulatory rating. All other bank holding companies generally are
required to maintain a Leverage Ratio of at least 3% plus an additional
cushion of 100 to 200 basis points. The guidelines also provide that bank
holding companies experiencing internal growth or making acquisitions will be
expected to maintain strong capital positions substantially above the minimum
supervisory levels without significant reliance on intangible assets.
Furthermore, the FRB has indicated that it will consider a "tangible Tier I
capital leverage ratio" (deducting all intangibles) and other indicia of
capital strength in evaluating proposals for expansion or new activities.
Effective December 19, 1992, a new Section 38 to the Federal Deposit
Insurance Act implemented the prompt corrective action provisions that
Congress enacted as a part of the Federal Deposit Insurance Corporation
Improvement Act of 1991 (the "1991 Act"). The "prompt corrective action"
provisions set forth five regulatory zones in which all banks are placed
largely based on their capital positions. Regulators are permitted to take
increasingly harsh action as a bank's financial condition declines. Regulators
are also empowered to place in receivership or require the sale of a bank to
another depository institution when a bank's capital leverage ratio reaches
two percent. Better capitalized institutions are generally subject to less
onerous regulation and supervision than banks with lesser amounts of capital.
The FDIC has adopted regulations implementing the prompt corrective action
provisions of the 1991 Act, which place financial institutions in the
following five categories based upon capitalization ratios: (i) a "well
capitalized" institution has a total risk-based capital ratio of at least 10%,
a Tier I risk-based ratio of at least 6% and a leverage ratio of at least 5%;
(ii) an "adequately capitalized" institution has a total risk-based capital
ratio of at least 8%, a Tier I risk-based ratio of at least 4% and a leverage
ratio of at least 4%; (iii) an "undercapitalized" institution has a total
risk-based capital ratio of under 8%, a Tier I risk-based ratio of under 4% or
a leverage ratio of under 4%; (iv) a "significantly undercapitalized"
institution has a total risk-based capital ratio of under 6%, a Tier I risk-
based ratio of under 3% or a leverage ratio of under 3%; and (v) a "critically
undercapitalized" institution has a leverage ratio of 2% or less. Institutions
in any of the three undercapitalized categories would be prohibited from
declaring dividends or making capital distributions. The FDIC regulations also
establish procedures for "downgrading" an institution to a lower capital
category based on supervisory factors other than capital.
The downgrading of an institution's category is automatic in two situations:
(i) whenever an otherwise well-capitalized institution is subject to any
written capital order or directive, and (ii) where an undercapitalized
institution fails to submit or implement a capital restoration plan or has its
plan disapproved. The Federal banking agencies may treat institutions in the
well-capitalized, adequately capitalized and undercapitalized categories as if
they were in the next lower capital level based on safety and soundness
considerations relating to factors other than capital levels.
All insured institutions regardless of their level of capitalization are
prohibited by the Federal Deposit Insurance Corporation Improvement Act of
1991 (the "FDIC Act") from paying any dividend or making any other kind of
capital distribution or paying any management fee to any controlling person if
following the
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<PAGE>
payment or distribution the institution would be undercapitalized. While the
prompt corrective action provisions of the FDIC Act contain no requirements or
restrictions aimed specifically at adequately capitalized institutions, other
provisions of the FDIC Act and the agencies' regulations relating to deposit
insurance assessments, brokered deposits and interbank liabilities treat
adequately capitalized institutions less favorably than those that are well-
capitalized.
Under the FDIC's regulations, all of the Subsidiary Banks are "well
capitalized" institutions.
SUPPORT OF SUBSIDIARY BANKS
Under the FRB policy, ABC is expected to act as a source of financial
strength to, and to commit resources to support, each of the Subsidiary Banks.
This support may be required at times when, absent such FRB policy, ABC may
not be inclined to provide it. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a subsidiary bank will be assumed
by the bankruptcy trustee and entitled to a priority of payment.
As a result of the enactment of Section 206 of the Financial Institutions
Reform, Recovery and Enforcement Act ("FIRREA") on August 9, 1989, a
depository institution insured by the FDIC can be held liable for any loss
incurred by, or reasonably expected to be incurred by, the FDIC after August
9, 1989 in connection with (i) the default of a commonly controlled FDIC-
insured depository institution or (ii) any assistance provided by the FDIC to
any commonly controlled FDIC-insured depository institution "in danger of
default" is defined generally as the existence of certain conditions
indicating that a default is likely to occur in the absence of regulatory
assistance.
FDIC INSURANCE ASSESSMENTS
The Subsidiary Banks are subject to FDIC deposit insurance assessments for
the Bank Insurance Fund (the "BIF"). Since 1989, the annual FDIC deposit
insurance assessments increased from $.083 per $100 of deposits to a minimum
level of $.23 per $100 of deposits, an increase of 177%. The FDIC implemented
a risk-based assessment system whereby banks are assessed on a sliding scale
depending on their placement in nine separate supervisory categories, from
$.23 per $100 of deposits for the healthiest banks (those with the highest
capital, best management and best overall condition) to as much as $.31 per
$100 of deposits for the less-healthy institutions, for an average $.259 per
$100 of deposits.
On August 8, 1995, the FDIC lowered the BIF premium for "healthy" banks 83%
from $.23 per $100 in deposits to $.04 per $100 in deposits, while retaining
the $.31 level for the riskiest banks. The average assessment rate was
therefore reduced from $.232 to $.044 per $100 of deposits. The new rate took
effect on September 29, 1995. On November 14, 1995, the FDIC again lowered the
BIF premium for "healthy" banks from $.04 per $100 of deposits to zero for the
highest rated institutions (92% of the industry). As a result, the Subsidiary
Banks pay only the legally required annual minimum payment of $10,000 per year
for insurance as of January 1996.
RECENT LEGISLATIVE AND REGULATORY ACTION
On April 19, 1995, the four federal bank regulatory agencies adopted
revisions to the regulations promulgated pursuant to the Community
Reinvestment Act (the "CRA"), which are intended to set distinct assessment
standards for financial institutions. The revised regulations contain three
evaluation tests: (i) a lending test which will compare the institution's
market share of loans in low- and moderate-income areas to its market share of
loans in its entire service area and the percentage of a bank's outstanding
loans to low- and moderate- income areas or individuals; (ii) a services test
which will evaluate the provisions of services that promote the availability
of credit to low- and moderate-income areas; and (iii) an investment test,
which will evaluate an institution's record of investments in organizations
designed to foster community development, small- and minority-owned businesses
and affordable housing lending, including state and local government housing
or revenue bonds. The regulation is designed to reduce some paperwork
requirements of the current regulations and provide regulators, institutions
and community groups with a more objective and predictable manner with which
to evaluate the CRA performance of financial institutions. The rule became
effective on January 1, 1996, at which time evaluation under streamlined
procedures were scheduled to begin for institutions with assets of less than
$250 million that are owned by a holding company with total assets of less
than $1 billion. Until the regulators release guidelines for examiners that
interpret the rules, it is unclear what effect, if any, these regulations will
have on ABC and the Subsidiary Banks. Congress and various federal agencies
(including, in addition to the
50
<PAGE>
bank regulatory agencies, the Department of Housing and Urban Development, the
Federal Trade Commission and the Department of Justice) (collectively, the
"Federal Agencies") responsible for implementing the nation's fair lending
laws have been increasingly concerned that prospective home buyers and other
borrowers are experiencing discrimination in their efforts to obtain loans. In
recent years, the Department of Justice has filed suit against financial
institutions, which it determined had discriminated, seeking fines and
restitution for borrowers who allegedly suffered from discriminatory
practices. Most, if not all, of these suits have been settled (some for
substantial sums) without a full adjudication on the merits.
On March 8, 1994, the Federal Agencies, in an effort to clarify what
constitutes lending discrimination and specify the factors the agencies will
consider in determining if lending discrimination exists, announced a joint
policy statement detailing specific discriminatory practices prohibited under
the Equal Opportunity Act and the Fair Housing Act. In the policy statement,
three methods of proving lending discrimination were identified: (i) overt
evidence of discrimination, when a lender blatantly discriminates on a
prohibited basis; (ii) evidence of disparate treatment, when a lender treats
applicants differently based on a prohibited factor even where there is no
showing that the treatment was motivated by prejudice or a conscious intention
to discriminate against a person; and (iii) evidence of disparate impact, when
a lender applies a practice uniformly to all applicants, but the practice has
a discriminatory effect, even where such practices are neutral on their face
and are applied equally, unless the practice can be justified on the basis of
business necessity.
On September 23, 1994, President Clinton signed the Reigle Community
Development and Regulatory Improvement Act of 1994 (the "Regulatory
Improvement Act"). The Regulatory Improvement Act contains funding for
community development projects through banks and community development
financial institutions and also numerous regulatory relief provisions designed
to eliminate certain duplicative regulations and paperwork requirements. On
September 29, 1994, President Clinton signed the Reigle-Neal Interstate
Banking and Branching Efficiency Act of 1994 (the "Federal Interstate Bill")
which amended federal law to permit bank holding companies to acquire existing
banks in any state effective September 29, 1995, and to permit any interstate
bank holding company to merge its various bank subsidiaries into a single bank
with interstate branches after May 31, 1997. States have the authority to
authorize interstate branching prior to June 1, 1997, or, alternatively, to
opt out of interstate branching prior to that date. The Georgia Financial
Institutions Code was amended in 1994 to permit the acquisition of a Georgia
bank or bank holding company by out-of-state bank holding companies beginning
July 1, 1995. On September 29, 1995, the interstate banking provisions of the
Georgia Financial Institutions Code were superseded by the Federal Interstate
Bill.
In February 1996, Georgia adopted the "Georgia Interstate Branching Act,"
which permits Georgia-based banks and bank holding companies owning or
acquiring banks outside of Georgia and all non-Georgia banks and bank holding
companies owning or acquiring banks in Georgia to merge any lawfully acquired
bank into an interstate branch network. The Georgia Interstate Branching Act
also allows banks to establish de novo branch banks on a limited basis
beginning July 1, 1996. Beginning July 1, 1998, the number of de novo bank
branches which may be established will no longer be limited.
MONETARY POLICY
The earnings of ABC are affected by domestic and foreign economic
conditions, particularly by the monetary and fiscal policies of the United
States government and its agencies.
The FRB has had, and will continue to have, an important impact on the
operating results of commercial banks through its power to implement national
monetary policy in order, among other things, to mitigate recessionary and
inflationary pressures by regulating the national money supply. The techniques
used by the Federal Reserve Bank include setting the reserve requirements of
member banks and establishing the discount rate on member bank borrowings. The
FRB also conducts open market transactions in United States government
securities.
FUTURE REQUIREMENTS
Statutes and regulations are regularly introduced which contain wide-ranging
proposals for altering the structures, regulations and competitive
relationships of the nations's financial institutions. It cannot be predicted
whether or what form any proposed statute or regulation will be adopted or the
extent to which the business of ABC or any of the Subsidiary Banks may be
affected by such statute or regulation.
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<PAGE>
COMPARATIVE RIGHTS OF SHAREHOLDERS
Upon consummation of the Merger, First National shareholders will become ABC
shareholders whose rights will be governed by the GBCC and ABC's articles of
incorporation and bylaws.
The following is a summary of the material differences of the rights of
First National shareholders, on the one hand, and the ABC shareholders, on the
other hand. As both First National and ABC are Georgia corporations, these
differences arise primarily from provisions of the articles of incorporation
and bylaws of each of First National and ABC.
The following summaries do not purport to be complete statements of the
rights of First National shareholders under First National's articles of
incorporation and bylaws compared with the rights of the ABC shareholders
under ABC's articles of incorporation and bylaws or a complete description of
the specific provisions referred to herein. The identification of specific
differences is not meant to indicate that other equally or more significant
differences do not exist. The summaries are qualified in their entirety by
reference to the GBCC and the governing corporate instruments of each of First
National and ABC.
LIQUIDITY AND MARKETABILITY
ABC Common Stock. As of March 31, 1996, all of the 3,379,192 shares of ABC
Common Stock then outstanding were freely tradeable except for approximately
712,190 shares held by "affiliates" of ABC, as such term is defined in Rule
144 under the 1933 Act, which shares may only be sold pursuant to an effective
registration statement under the 1933 Act or in compliance with Rule 144 or
another applicable exemption from the registration requirements of the 1933
Act.
First National Common Stock. First National Shares are not listed on any
national securities exchange or quoted on any interdealer quotation system.
There is no established market for First National Shares, and none is expected
to develop.
MANAGEMENT
ABC Board of Directors. The business and affairs of ABC are managed by or
under the direction of its Board of Directors. Each director is elected
annually by the ABC shareholders and may be removed and replaced, with or
without cause, by a majority vote of ABC shareholders at any meeting of such
holders. According to ABC's bylaws, ABC's Board of Directors shall consist of
ten members, provided that the number of directors may be increased or
decreased upon amendment to the bylaws by the Board of Directors. ABC's Board
of Directors currently consists of ten members.
First National Board of Directors. The business and affairs of First
National are managed by or under the direction of its Board of Directors. The
Board of Directors of First National is divided into three classes. Each class
is to consist, as nearly as possible, of one-third of the total number of
First National directors. At each annual meeting of First National
shareholders, successors to the class of directors whose term expired as of
the annual meeting are elected for a three-year term. Each may be removed and
replaced with cause by a majority vote of First National's shareholders at any
meeting of such holders and each director may be removed and replaced without
cause by the affirmative vote of no less than two-thirds of First National
shareholders at any meeting of such shareholders. According to First
National's bylaws, First National's Board of Directors shall consist of not
less than five and not more than 25 members. The number of First National
directors may be fixed or changed from time to time, within the minimum and
maximum, by the shareholders by the affirmative vote of two-thirds of the
issued and outstanding First National Shares entitled to vote in the election
of directors or by the Board of Directors by the affirmative vote of two-
thirds of all directors then in office. First National's Board of Directors
currently consists of ten members.
52
<PAGE>
SPECIAL MEETINGS
ABC Common Stock. Special meetings of the ABC shareholders may be called at
any time by ABC's Chairman of the Board, Vice Chairman of the Board,
President, Secretary or a majority of the directors of ABC. Special meetings
of the ABC shareholders also shall be called upon the written request of the
holders of 50% or more of all shares of capital stock of ABC entitled to vote
in an election of directors.
First National Common Stock. Special meetings of First National's
shareholders may be called at any time by the President or a majority of the
Board of Directors. Special meetings of First National's shareholders also
shall be called upon the written request of the holders of 25% or more of all
shares of capital stock of First National entitled to vote in an election of
directors.
ANTI-TAKEOVER PROVISIONS
ABC. ABC's Articles of Incorporation authorize 5,000,000 shares of preferred
stock and give the Board the right to determine the number and terms (other
than voting rights) of authorized preferred stock prior to the issuance
thereof, without obtaining shareholder approval of such terms. The Board could
thus choose to issue a series of preferred stock to impede a threatened
takeover attempt or tender offer.
First National. First National's Articles of Incorporation authorize
1,000,000 shares of preferred stock and give the Board the right to determine
the number and terms of shares of authorized preferred stock prior to issuance
thereof, without obtaining shareholder approval of such terms. The Board could
thus choose to issue a series of preferred stock to impede a threatened
takeover attempt or tender offer.
First National's Articles of Incorporation require that certain covered
transactions with any holder of 5% or more of First National's stock (an
"Interested Person") be approved by three-fourths of the entire Board of
Directors or by two-thirds of the shares of each class of voting stock of
First National. Covered transactions include mergers or consolidations, sales
or other dispositions of all or a substantial part of the assets of First
National, and the issuance or delivery of securities of First National.
First National's Articles of Incorporation require that certain business
combinations with any Interested Person be approved by a majority of the
shares of each class of stock not held by such Interested Person unless such
transaction involves consideration per share generally equal to the highest
price paid by such Interested Person in acquiring any shares of stock of that
class.
Amendments to First National's Articles of Incorporation require the
approval of 75% of the shares of each class of stock of First National.
53
<PAGE>
DESCRIPTION OF FIRST NATIONAL FINANCIAL CORPORATION
BUSINESS
General. First National is a bank holding company organized under the laws
of the State of Georgia and registered with the FRB pursuant to the BHCA.
First National owns all of the outstanding common stock of the Bank, a
national banking association that provides general banking services in and
around Albany, Georgia. At March 31, 1996, First National, on a consolidated
basis, had total assets of approximately $53.9 million, total loans of
approximately $35.5 million, total deposits of approximately $47.9 million and
total stockholders' equity of approximately $5.6 million. First National's net
income for 1995 was $611,510 or $1.13 per share.
The Bank is a full service commercial bank, without trust powers. The Bank
offers a full range of interest bearing and non-interest bearing accounts,
including commercial and retail checking accounts, money market accounts,
individual retirement accounts, regular interest bearing statement savings
accounts, certificates of deposit, commercial loans, real estate loans, home
equity loans and consumer/installment loans. In addition, the Bank provides
such consumer services as U.S. Savings Bonds, travelers checks, cashier's
checks, safe deposit boxes, bank by mail services, direct deposit and
automatic teller services.
For additional statistical information regarding First National, see "First
National Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Market Area and Competition. The primary service area for the Bank
encompasses approximately 80 square miles in and around Albany, Georgia. In
addition, the Bank services customers outside the Bank's primary service area,
but within other parts of Dougherty County. Competition among financial
institutions in this area is intense. There are 19 banking offices and no
offices of savings and loan associations within the primary service area of
the Bank. Most of these offices are branches of or are affiliated with major
bank holding companies.
The Bank is in competition with existing area financial institutions other
than commercial banks and savings and loan associations, including insurance
companies, consumer finance companies, brokerage houses, credit unions and
other business entities which have recently been invading the traditional
banking markets. Due to the growth of the Albany area, it is anticipated that
additional competition will continue from new entrants to the market.
Asset/Liability Management. It is the objective of the Bank to manage assets
and liabilities to provide a satisfactory, consistent level of profitability
within the framework of established cash, loan investment, borrowing and
capital policies. Certain of the officers of the Bank are responsible for
monitoring policies and procedures that are designed to ensure acceptable
composition of the asset/liability mix, stability and leverage of all sources
of funds while adhering to prudent banking practices. It is the overall
philosophy of management to support asset growth primarily through growth of
core deposits, which include deposits of all categories made by individuals,
partnerships and corporations. Management of the Bank seeks to invest the
largest portion of the Bank's assets in commercial, consumer and real estate
loans.
The Bank's asset/liability mix is monitored on a daily basis. A monthly
report reflecting interest-sensitive assets and interest-sensitive liabilities
is prepared and presented to the Loan Investment Committee of the Bank's Board
of Directors. The objective of this policy is to control interest-sensitive
assets and liabilities so as to minimize the impact of substantial movements
in interest rates on the Bank's earnings.
Correspondent Banking. Correspondent banking involves the providing of
services by one bank to another bank which cannot provide that service for
itself from an economic or practical standpoint. The Bank is required to
purchase correspondent services offered by larger banks, including check
collections, purchase of Federal Funds, security safekeeping, investment
services, coin and currency supplies, overline and liquidity loan
participations and sales of loans to or participations with correspondent
banks.
54
<PAGE>
The Bank may sell loan participations to correspondent banks with respect to
loans which exceed the Bank's lending limit. As of December 31, 1995, eight
loans with an aggregate principal balance of $2,424,000 were sold to other
banks.
Data Processing. The Bank has a data processing servicing agreement with
Bisys, Inc. This servicing agreement provides for the Bank to receive a full
range of data processing services including an automated general ledger,
deposit accounting, commercial, real estate and installment lending data
processing, payroll, central information file ("CIF") and ATM processing. The
data processing servicing agreement provides for the Bank to pay a monthly fee
based on the type, kind and volume of data processing services provided,
priced at a stipulated rate schedule.
EMPLOYEES
As of March 31, 1996, the Bank employed 22 full time and two part time
persons, including nine officers. The Bank will hire additional persons as
needed, including additional tellers and financial service representatives.
First National has no salaried employees, although certain executive officers
of the Bank hold parallel positions with First National. Management of the
Bank believes that its employee relations are good. There are no collective
bargaining agreements covering any of the Bank's employees.
PROPERTIES
First National operates out of a one-story commercial facility
(approximately 8,750 square feet), located on the corner of Dawson Road and
Westover Boulevard in Albany, Georgia, which facility houses the Bank's main
office. The facility consists of a retail banking floor with six teller
stations and four offices, and has a conference room, a vault, a night
depository, an automatic teller machine and five drive-in windows.
LITIGATION
There are no material pending legal proceedings to which First National or
the Bank is a party or of which any of their properties are subject; nor are
there material proceedings known to First National to be contemplated by any
governmental authority; nor are there material proceedings known to First
National, pending or contemplated, in which any director, officer or affiliate
or any principal security holder of First National, or any associate of any of
the foregoing is a party or has an interest adverse to First National or the
Bank.
MANAGEMENT
First National's directors and executive officers are as follows:
<TABLE>
<CAPTION>
NAME POSITION WITH FIRST NATIONAL
---- ----------------------------
<S> <C>
Willie Adams, Jr., M.D. ............. Class III Director
David J. Baranko..................... Treasurer and Chief Financial Officer
Robert V. Barkley.................... Class I Director
John L. Gay.......................... Class I Director
Waddell M. Hagins, Jr. .............. Class III Director
John M. Hemphill..................... Sr. Vice President (Bank)
Charles Alexander Kemp............... Class II Director
Glenn A. Kirbo....................... Secretary and Class I Director
W. Thomas Mitcham.................... Class III Director
R. Douglas Oliver.................... Class II Director
Raymond B. Phillips.................. Chairman of the Board, President, Chief
Executive Officer and Class II Director
W. Paul Wallace, Jr. ................ Class III Director
</TABLE>
55
<PAGE>
Each of the above directors has served on the Board of Directors of First
National since August 1989. First National has a classified Board of
Directors, whereby one-third of the members are elected each year at First
National's annual meeting of shareholders. Upon such election, each director
of First National will serve for a term of three years. First National's
officers are appointed by its Board of Directors and hold office at the will
of the Board.
Willie Adams, Jr., M.D., age 55, has been a medical doctor, engaged in the
practice of medicine in Albany, Georgia, since 1973. Dr. Adams serves as a
director of Magazine Mutual Insurance Company.
David J. Baranko, age 40, is a certified public accountant and has served as
Treasurer and Chief Financial Officer of First National and Vice
President/Cashier of the Bank since April 1995. Prior to his employment by
First National, Mr. Baranko served as Assistant Controller and Assistant
Cashier with First State Bank & Trust of Albany, Georgia from 1987 to 1995.
Robert V. Barkley, age 50, is currently engaged in real estate development
in Albany, Georgia. Prior to 1990, Mr. Barkley was President of Holman Motor
Company d/b/a Toyota Albany for approximately 10 years. From 1973 to 1988, Mr.
Barkley served as President of Bob Barkley Toyota, Inc. in Albany, Georgia.
John L. Gay, age 69, has been the owner and President of Gay Plumbing and
Heating, Inc., a mechanical contracting firm, since 1954, and the owner and
President of John L. Gay & Associates, Inc., a general contracting firm, since
1969. In addition, Mr. Gay served on the Board of Directors of Trust Company
Bank of South Georgia, N.A. from 1970 to 1989.
Waddell M. Hagins, Jr., age 60, has served as Secretary and a director of
Belk of Albany, Dawson and Americus, Georgia, a department store, since 1957
and as its Executive Vice President since 1983. In addition, Mr. Hagins has
served as General Manager of Belk of Albany since 1968.
John M. Hemphill, age 45, has served as Senior Vice President of the Bank
since May 1991. Mr. Hemphill also serves as Assistant Secretary of First
National. From January 1991 to May 1991, Mr. Hemphill served as Senior Lending
Consultant for Bank of Dodge County. From 1987 to 1990, he served as Vice
President of First Federal Savings and Loan, Griffin, Georgia.
Charles Alexander Kemp, age 47, has been the owner and Chief Executive
Officer of Health Systems Management, Inc., an administrative office for
kidney dialysis clinics, since 1983. In addition, Mr. Kemp has been the owner,
President and Chief Executive Officer of six dialysis clinics in Georgia,
North Carolina and South Carolina over the past ten years. Mr. Kemp is also a
director of South Georgia Banking Company of Omega, Georgia.
Glenn A. Kirbo, age 48, has served as Secretary of First National since
August 1989 and served as Treasurer of First National from August 1989 to
October 1990. In addition, he is an attorney-at-law who has been practicing
law in Albany, Georgia since 1978.
W. Thomas Mitcham, age 53, has been a dentist, engaged in private practice
in Albany, Georgia, since 1975.
R. Douglas Oliver, age 57, has served as President and Chief Executive
Officer of SGA Associates, Inc., a communications company, since 1993. From
1963 to 1993, Mr. Oliver served as Sales Manager and General Manager of WALB-
TV, an Albany, Georgia television station.
Raymond B. Phillips, age 69, has served as President and Chief Executive
Officer of First National since August 1989 and of the Bank since November
1989. Mr. Phillips has also served as Chairman of the Board of the Bank since
December 1989 and of First National since July 1991. He has been engaged in
the organization of First National and the Bank since March 1989. From 1969 to
February 1988, Mr. Phillips served as Chief Executive Officer and President of
Trust Company Bank of South Georgia, N.A. In addition, he served as Chairman
of the Board of Trust Company Bank of South Georgia, N.A. from 1975 to
February 1988.
56
<PAGE>
W. Paul Wallace, Jr., age 51, has served in various capacities with Wallace
Chevrolet, Inc. since 1978, and currently serves as its President.
There are no family relationships between any director or executive officer
and any other director or executive officer of First National.
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as of April 30, 1996 with
respect to ownership of the outstanding First National Shares by (i) all
persons known to First National to own beneficially more than 5% of the
outstanding First National Shares, (ii) each director and executive officer of
First National, and (iii) all executive officers and directors of First
National as a group.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT OF
BENEFICIAL OUTSTANDING
BENEFICIAL OWNER OWNERSHIP(1) SHARES
---------------- ------------ -----------
<S> <C> <C>
Willie Adams, Jr., M.D.(2)........................... 20,000 4.0%
Robert V. Barkley(2)................................. 23,200 4.6%
John L. Gay(3)....................................... 30,000 5.9%
Waddell M. Hagins, Jr.(4)............................ 20,600 4.1%
Charles Alexander Kemp(5)............................ 25,000 4.9%
Glenn A. Kirbo(6).................................... 38,300 7.5%
W. Thomas Mitcham(7)................................. 30,000 5.9%
R. Douglas Oliver(2)................................. 20,000 4.0%
Raymond B. Phillips(8)............................... 56,370 10.4%
W. Paul Wallace, Jr.(2).............................. 20,000 4.0%
All Executive Officers and Directors as a Group (12
persons)............................................ 290,970 44.3%
</TABLE>
- --------
(1) Except as otherwise indicated, each person named in this table possesses
sole voting and investment power with respect to the shares beneficially
owned by such person. "Beneficial Ownership" includes shares for which an
individual, directly or indirectly, has or shares voting or investment
power or both and also includes warrants and options which are exercisable
within sixty days of the date of this Proxy Statement/Prospectus.
Beneficial ownership as reported in the above table has been determined in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934. The
percentages are based upon 495,409 shares outstanding, except for certain
parties who hold presently exercisable warrants or options to purchase
shares. The percentages for those parties who hold presently exercisable
warrants or options are based upon the sum of 495,409 shares plus the
number of shares subject to presently exercisable warrants or options held
by them, as indicated in the following notes.
(2) Includes 10,000 shares subject to presently exercisable stock purchase
warrants granted in connection with First National's initial stock
offering.
(3) Includes 15,000 shares subject to presently exercisable stock purchase
warrants granted in connection with First National's initial stock
offering. Mr. Gay's address is North Sandy Beach Road, Leesburg, Georgia
31763.
(4) Includes 10,300 shares subject to presently exercisable stock purchase
warrants granted in connection with First National's initial stock
offering.
(5) Includes 12,500 shares subject to presently exercisable stock purchase
warrants granted in connection with First National's initial stock
offering. Mr. Kemp's address is 2406 N. Ridge Avenue, Tifton, Georgia
31794.
(6) Includes 15,000 shares subject to presently exercisable stock purchase
warrants granted in connection with First National's initial stock
offering. Mr. Kirbo's address is 2708 West Meade Road, Albany, Georgia
31707.
(7) Includes 15,000 shares subject to presently exercisable stock purchase
warrants granted in connection with First National's initial stock
offering. Mr. Mitcham's address is 634 5th Avenue, Albany, Georgia 31701.
(8) Includes 10,000 shares subject to presently exercisable stock purchase
warrants granted in connection with First National's initial stock
offering and 36,370 shares subject to presently exercisable stock options.
Mr. Phillips' business address is 2627 Dawson Road, Albany, Georgia 31707.
57
<PAGE>
CERTAIN REGULATORY CONSIDERATIONS RELATING TO FIRST NATIONAL
General. The regulatory considerations described under the caption "CERTAIN
REGULATORY CONSIDERATIONS RELATING TO ABC" apply equally to First National and
the Bank.
Regulation by the Comptroller of the Currency. As a national bank, the Bank
is subject to the supervision of the Comptroller of the Currency (the
"Comptroller") and, to a limited extent, the FDIC and the FRB.
Loans and extensions of credit by national banks are subject to legal
lending limitations. Under federal law, a national bank may grant unsecured
loans and extensions of credit in an amount up to 15% of its unimpaired
capital and surplus to any person. In addition, a national bank may grant
loans and extensions of credit to a single person in an amount up to 10% of
its unimpaired capital and surplus, provided that the transactions are fully
secured by readily marketable collateral having a market value determined by
reliable and continuously available price quotations. This 10% limitation is
separate from, and in addition to, the 15% limitation for unsecured loans.
Loans and extensions of credit may exceed the general lending limit if they
qualify under one of several exceptions. Such exceptions include certain loans
or extensions of credit arising from the discount of commercial or business
paper, the purchase of bankers' acceptances, loans secured by documents of
title, loans secured by U.S. obligations, and loans to or guaranteed by the
federal government.
Both First National and the Bank are subject to regulatory capital
requirements imposed by the FRB and the Comptroller. In 1989, both the FRB and
the Comptroller issued new risk-based capital guidelines for bank holding
companies and banks which make regulatory capital requirements more sensitive
to differences in risk profiles of various banking organizations. The capital
adequacy guidelines issued by the FRB are applied to bank holding companies on
a consolidated basis with the banks owned by the holding company. The
Comptroller's risk capital guidelines apply directly to national banks
regardless of whether they are a subsidiary of a bank holding company. Both
agencies' requirements (which are substantially similar), provide that banking
organizations must have capital equivalent to 8% of weighted risk assets. The
risk weights assigned to assets are based primarily on credit risks. Depending
upon the riskiness of a particular asset, it is assigned to a risk category.
For example, securities with an unconditional guarantee by the United States
government are assigned to the lowest risk category. A risk weight of 50% is
assigned to loans secured by owner-occupied one to four family residential
mortgages. The aggregate amount of assets assigned to each risk category is
multiplied by the risk weight assigned to that category to determine the
weighted values, which are added together to determine total risk-weighted
assets. At December 31, 1995, First National's total risk-based capital and
tier-one ratios were 16.8% and 15.6%, respectively. Both the FRB and the
Comptroller have also implemented new minimum capital leverage ratios to be
used in tandem with the risk-based guidelines in assessing the overall capital
adequacy of banks and bank holding companies. Under these rules, banking
institutions are required to maintain a ratio of 3% "Tier 1" capital to total
assets (net of goodwill). Tier 1 capital includes common stockholders equity,
noncumulative perpetual preferred stock and minority interests in the equity
accounts of consolidated subsidiaries.
Both the risk-based capital guidelines and the leverage ratio are minimum
requirements, applicable only to top-rated banking institutions. Institutions
operating at or near these levels are expected to have well-diversified risk,
excellent asset quality, high liquidity, good earnings and in general, have to
be considered strong banking organizations, rated composite 1 under the CAMEL
rating system for banks or the BOPEC rating system for bank holding companies.
Institutions with lower ratings and institutions with high levels of risk or
experiencing or anticipating significant growth are expected to maintain
ratios 100 to 200 basis points above the stated minimums.
The Comptroller recently amended the risk-based capital guidelines
applicable to national banks in an effort to clarify certain questions of
interpretation and implementation, specifically with regard to the treatment
of purchased mortgage servicing rights ("PMSRs") and other intangible assets.
The Comptroller's guidelines provide that intangible assets are generally
deducted from Tier 1 capital in calculating a bank's risk-based capital ratio.
However, certain intangible assets which meet specified criteria ("qualifying
intangibles") such as PMSRs
58
<PAGE>
are retained as a part of Tier 1 capital. The Comptroller currently maintains
that only PMSRs and purchased credit card relationships meet the criteria to
be considered qualifying intangibles. The Comptroller's guidelines formerly
provided that the amount of such qualifying intangibles that may be included
in Tier 1 capital was strictly limited to a maximum of 25% of total Tier 1
capital. The Comptroller has amended its guidelines to increase the limitation
of such qualifying intangibles from 25% to 50% of Tier 1 capital and further
to permit the inclusion of purchased credit card relationships as a qualifying
intangible asset.
In addition, the Comptroller has adopted rules which clarify treatment of
asset sales with recourse not reported on a bank's balance sheet. Among assets
affected are mortgages sold with recourse under Fannie Mae, Freddie Mac and
Farmer Mac programs. The rules clarify that even though those transactions are
treated as asset sales for bank Call Report purposes, those assets will still
be subject to a capital charge under the risk-based capital guidelines.
The Comptroller, the FRB and the FDIC recently adopted final regulations
revising their risk-based capital guidelines to further ensure that the
guidelines take adequate account of interest rate risk. Interest rate risk is
the adverse effect that changes in market interest rates may have on a bank's
financial condition and is inherent to the business of banking. Under the new
regulations, when evaluating a bank's capital adequacy, the agencies capital
standards now explicitly include a bank's exposure to declines in the economic
value of its capital due to changes in interest rates. The exposure of a
bank's economic value generally represents the change in the present value of
its assets, less the change in the value of its liabilities, plus the change
in the value of its interest rate off-balance sheet contracts. Concurrently,
the banking agencies have proposed a measurement process to identify bank's
that have high interest rate risk exposures. Under the proposed measurement
process, the agencies would employ a supervisory model that focuses on the
sensitivity of a bank's economic value to changes in interest rate risk as
well as various other quantitative factors to determine the adequacy of an
individual bank's capital for interest rate risk. After gaining experience
with the proposed supervisory measurement and assessment process, the agencies
intend to propose further regulations to establish an explicit risk-based
capital charge for interest rate risk.
As a national bank, the Bank is subject to examination and review by the
Comptroller. This examination is typically completed on-site at least annually
and is subject to off-site review as well. The Bank submits to the Comptroller
quarterly reports of condition, as well as such additional reports as may be
required by the national banking laws.
The scope of regulation and permissible activities of First National and the
Bank is subject to change by future federal and state legislation.
FIRST NATIONAL MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
First National's principal asset is its ownership of the Bank. Accordingly,
First National's results of operations are primarily dependent upon the
results of operations of the Bank. The Bank conducts a commercial banking
business which consists of attracting deposits from the general public and
applying those funds to the origination of commercial, consumer and real
estate loans (including commercial loans collateralized by real estate). The
Bank's profitability depends primarily on net interest income, which is the
difference between interest income generated from interest-earning assets
(i.e., loans and investments) less the interest expense incurred on interest-
bearing liabilities (i.e., customer deposits and borrowed funds). Net interest
income is affected by the relative amounts of interest-earning assets and
interest-bearing liabilities, and the interest rate paid and earned on these
balances. Net interest income is dependent upon the Bank's interest rate
spread, which is the difference between the average yield earned on its
interest-earning assets and the average rate paid on its interest-bearing
liabilities. When interest-earning assets approximate or exceed interest-
bearing liabilities, any
59
<PAGE>
positive interest rate spread will generate interest income. The interest rate
spread is impacted by interest rates, deposit flows and loan demand.
Additionally, and to a lesser extent, the Bank's profitability is affected by
such factors as the level of non-interest income and expenses, the provision
for loan losses and the effective tax rate. Non-interest income consists
primarily of loan and other fees and income from the sale of loans and
investment securities. Non-interest expenses consist of compensation and
benefits, occupancy-related expenses, regulatory assessments and other
operating expenses.
RESULTS OF OPERATIONS FOR THREE MONTHS ENDED MARCH 31, 1996
Interest income for the three months ended March 31, 1996, was $1.07 million
as compared to the 1995 amount of $938,000. This is an increase of $134,000.
The primary source of additional income was interest and fees on loans. This
category increased $110,000 to $866,000. The increased loan income in 1996 is
the result of the larger volume of outstanding loans. Also, interest on
federal funds sold increased in 1996 as a result of higher balances. Interest
on this category was $46,000 as compared to the 1995 amount of $3,000.
Interest expense for the first quarter of 1996 was $538,548 up from the 1995
level of $392,976. This increase is the result of a higher balance in the
interest bearing accounts in 1996 over the 1995 amount. Overall, net interest
income in the first quarter of 1996 was $532,739, down from the 1995 amount of
$544,649. This is a decrease of $11,910 or 2.75%. This decrease is a
reflection of the continuing trend in the banking industry as it must pay
higher rates to attract deposits and is unable to charge higher rates to its
borrowers.
During the first quarter of 1996, the provision for loan losses was $50,000
or twice the 1995 amount. The provision for loan losses represents the amount
of expense management has allocated to the current period to provide for
future possible loan losses. At March 31, 1996, the allowance for loan losses
was $475,000 or 1.34% of gross loans. The increased expense in 1996 is a
result of a larger loan portfolio and hence a larger provision is required.
Management considers the current allowance to be adequate to absorb possible
future losses; however, there can be no assurance that future charge-offs or
changes in local economic conditions will not require additional provisions.
The decrease in net interest income and the additional expense for the
provision for loan losses was more than offset by an increase in other income.
Total non-interest income increased in 1996 to $123,000 from the 1995 amount
of $85,000. This increase is due to increased charges on deposit accounts.
This category increased almost $30,000 or 42% to $100,912. This increase is
the result of a larger deposit base and is not the result of an overall
increase in the prices of the actual fees charged to individual customers.
Non-interest expense for the first quarter of 1996 was $397,327 as compared
to the 1995 amount of $390,705. This is a $6,600 increase or 1.69%. The only
major area of increase was salaries and employee benefits. This category
increased $11,000 to $213,000 from the 1995 amount of $202,000. This increase
was offset in part by decreases in other expense categories.
Overall, net income for the first quarter of 1996 remained nearly unchanged
from the 1995 level. First quarter earnings were $132,877 in 1996 as compared
to the 1995 amount of $132,860. Earnings per share were $0.25 in 1996 and in
1995.
RESULTS OF OPERATIONS FOR YEARS ENDED DECEMBER 31, 1995 AND 1994
First National's results of operations are determined by its ability to
effectively manage interest income and expense, to minimize loan and
investment losses, to generate noninterest income and to control noninterest
expense. Since interest rates are determined by market forces and economic
conditions beyond the control of First National, the ability to generate net
interest income is dependent upon the Bank's ability to obtain an adequate
spread between the rate earned on interest-earning assets and the rate paid on
interest-bearing liabilities. Thus, the key performance measure for net
interest income is the interest margin or net yield, which is taxable-
equivalent net interest income divided by average earning assets.
60
<PAGE>
The primary component of consolidated earnings is net interest income, or
the difference between interest income on interest-earning assets and interest
paid on interest-bearing liabilities. The net interest margin is net interest
income expressed as a percentage of average interest-earning assets. Interest-
earning assets consist of loans, investment securities and Federal funds sold.
Interest-bearing liabilities consist of deposits, of which approximately 16%
are noninterest-bearing, and borrowed funds.
For the years ended December 31, 1995 and 1994, net income amounted to
$611,510 and $315,732 respectively. For 1995, primary and fully diluted income
per share of common stock were $1.13 and $1.12, respectively, while income per
share for 1994 was $.57. Note that during 1995 and 1994, the outstanding
warrants and stock options were dilutive (i.e., upon exercise, they diluted
earnings per share by more than 3%), thus necessitating the disclosure of
primary and fully diluted income per share. Net income in 1995 increased by
$295,778 primarily due to the following reasons:
(a) Average earning assets have increased from $41.0 million at December 31,
1994 to $45.3 million at December 31, 1995, representing an increase of $4.3
million, or 10.5%. Below are the various components of earning assets for the
periods indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1994
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Federal funds sold................................. $ 1,615 $ 1,284
Taxable securities................................. 11,531 13,429
Net loans.......................................... 32,166 26,272
----------- -----------
Total earning assets............................. $45,312 $40,985
=========== ===========
</TABLE>
(b) As a consequence of the increase in earning assets, the net interest
income also increased from $1,723,539 for the year ended December 31, 1994 to
$2,152,367 for the year ended December 31, 1995. Additionally, the net yield
on earning assets has increased from 4.21% for the year ended December 31,
1994 to 4.75% for the year ended December 31, 1995. Below are the various
components of interest income and expense, as well as their yield/costs for
the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1995 1994
-------------------- --------------------
INTEREST YIELD INTEREST YIELD
INCOME/EXPENSE COST INCOME/EXPENSE COST
-------------- ----- -------------- -----
<S> <C> <C> <C> <C>
Interest income:
Federal funds sold.......... $ 96,795 5.94% $ 49,812 3.89%
Taxable securities.......... 643,605 5.58 667,158 4.97
Loans....................... 3,304,721 10.27 2,444,673 9.31
---------- ----------
Total..................... $4,045,121 8.93 $3,161,643 7.72
========== ==========
Interest expense:
NOW and money market depos-
its........................ $ 250,184 3.08% $ 209,164 2.65
Savings Deposits............ 72,819 2.91 79,666 2.88
Time Deposits............... 1,512,865 5.67 1,148,280 4.68
Borrowings.................. 56,886 6.15 994 5.88
---------- ----------
Total..................... $1,892,754 4.95 $1,438,104 4.09
========== ==========
Net interest income........... $2,152,367 $1,723,539
========== ==========
Net yield on earning assets... 4.75% 4.21%
===== ====
</TABLE>
61
<PAGE>
First National's net interest income for 1995 was $2,152,367 as compared to
$1,723,539 for 1994. Average yields on earning assets were 8.93% and 7.72% for
the years ended December 31, 1995 and 1994, respectively. The average costs of
funds for 1995 increased to 4.95% from the 1994 cost of 4.09%. The net
interest yield is computed by subtracting interest expense from interest
income and dividing the resulting figure by average interest-earning assets.
Net interest yields for the years ended December 31, 1995 and 1994 amounted to
4.75% and 4.21%, respectively. The increase in net interest yield is primarily
due to the fact that the yield on earning assets grew at a faster rate than
the growth in interest expense. Net interest income for 1995 as compared to
1994, increased by $428,828. The increase is due to two factors: (i) the
growth in average earning assets from $41.0 million in 1994 to $45.3 million
in 1995; and (ii) a growth rate on the yield on earning assets which was
greater than the growth rate of deposits and other borrowings.
For the year ended December 31, 1995, the allowance for loan losses declined
from $452,470 to $433,743. The allowance for loan losses as a percent of gross
loans declined from 1.55% at December 31, 1994 to 1.30% at December 31, 1995.
The reason for the decline in the allowance for loan losses is attributed to
the fact that the net charge-off of $203,727 exceeded the $185,000 provision
for the calendar year 1995. As of December 31, 1995, management considers the
allowance for loan losses to be adequate to absorb possible future losses.
However, there can be no assurance that charge-offs in future periods will not
exceed the allowance for loan losses or that additional provisions to the
allowance will not be required.
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY; INTEREST RATES
AND INTEREST DIFFERENTIAL
The following is a presentation of the average consolidated balance sheet of
First National for the years ended December 31, 1995 and 1994. This
presentation includes all major categories of interest-earning assets and
interest-bearing liabilities.
AVERAGE CONSOLIDATED ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1994
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and due from banks........................... $ 1,561 $ 1,347
----------- -----------
Taxable securities................................ 11,531 13,429
Federal funds sold................................ 1,615 1,284
Net loans......................................... 32,166 26,272
----------- -----------
Total earning assets............................ 45,312 40,985
----------- -----------
Other assets...................................... 2,173 2,240
----------- -----------
Total assets.................................... $ 49,046 $ 44,572
=========== ===========
</TABLE>
62
<PAGE>
AVERAGE CONSOLIDATED LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1994
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Non interest-bearing deposits.................... $ 5,469 $ 4,538
NOW and money market deposits.................... 8,108 7,887
Savings deposits................................. 2,511 2,775
Time deposits.................................... 26,695 24,523
Borrowings and federal funds purchased........... 927 17
Other liabilities................................ 342 387
----------- -----------
Total liabilities.............................. 44,052 40,127
----------- -----------
Common stock..................................... 2,457 2,437
Paid-in-capital.................................. 2,373 2,351
Retained earnings (deficit)...................... 370 (149)
Unrealized (loss) on securities.................. (206) (194)
----------- -----------
Total shareholders' equity..................... 4,994 4,445
----------- -----------
Total liabilities and shareholders' equity....... $ 49,046 $ 44,572
=========== ===========
</TABLE>
The following is an analysis of the net interest earnings of First National
for the year ended December 31, 1995, with respect to each major category of
interest-earning asset and each major category of interest-bearing liability.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-------------------------------
AVERAGE INTEREST AVERAGE
ASSETS AMOUNT EARNED YIELD
------ ---------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Taxable securities(1)..................... $ 11,531 $ 644 5.58%
Federal funds sold........................ 1,615 96 5.94
Net loans(1)(2)........................... 32,166 3,305 10.27
---------- ---------
Total earning assets.................... $ 45,312 $ 4,045 8.93
========== =========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-------------------------------
ASSETS AVERAGE INTEREST AVERAGE
LIABILITIES-- AMOUNT EARNED YIELD
------------- ---------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
NOW and money market deposits............ $ 8,108 $ 250 3.08%
Savings deposits......................... 2,511 73 2.91
Time deposits............................ 26,695 1,513 5.67
Borrowings and federal funds purchased... 927 57 6.15
---------- ---------
Total interest-bearing liabilities....... $ 38,241 $ 1,893 4.95
========== =========
</TABLE>
- --------
(1) During the year ended December 31, 1995, First National made no loans or
investments that qualify for tax-exempt treatment and, accordingly, had no
tax-exempt income.
(2) All loans were accruing interest at December 31, 1995. Interest earned on
net loans includes $131 in loan fees and loan service fees.
63
<PAGE>
Net interest earnings totalled $2,152,367 during the year ended December 31,
1995, for a net yield on interest-earning assets of 4.75%.
The following is an analysis of the net interest earnings of the Company for
the year ended December 31, 1994, with respect to each major category of
interest-earning asset and each major category of interest-bearing liability.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
----------------------------------------
AVERAGE INTEREST AVERAGE
AMOUNT EARNED YIELD
---------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Taxable securities............. $ 13,429(3) $ 667 $ 4.97%
Federal funds sold............. 1,284 50 3.89
Net loans...................... 26,272(1)(3) 2,445(2) 9.31
---------- ---------
Total earning assets......... $ 40,985 $ 3,162 7.72
========== =========
LIABILITIES
NOW and money market deposits.. $ 7,887 $ 209 2.65%
Savings deposits............... 2,775 80 2.88
Time deposits.................. 24,523 1,148 4.68
Borrowings..................... 17 1 5.88
---------- ---------
Total interest-bearing lia-
bilities.................... $ 35,202 $ 1,438 4.09
========== =========
</TABLE>
- --------
(1) All loans were accruing interest at December 31, 1994.
(2) Interest earned on net loans includes $142 in loan fees and loan service
fees.
(3) During the year ended December 31, 1994, the Company made no loans or
investments that qualify for tax-exempt treatment and, accordingly, had no
tax-exempt income.
Net interest earnings totalled $1,723,539 during the year ended December 31,
1994, for a net yield on interest-earning assets of 4.21%.
64
<PAGE>
RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
The following table shows the effect on interest income, interest expense
and net interest income due to changes in average balances and rates for the
years indicated. The effect of a change in average balance has been determined
by multiplying the average rate in the earlier period by the difference in
average balances between both time periods. The change in interest due to
volume and rate has been allocated in proportion to the relationship of the
absolute dollar amounts of the change in each.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1995 VS. 1994 1994 VS. 1993
--------------------------- ----------------------------
CHANGES DUE TO CHANGES DUE TO
---------------- ----------------
INCREASE INCREASE
VOLUME RATE (DECREASE) VOLUME RATE (DECREASE)
-------- ------ ---------- -------- ------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Taxable securities.... $ (180) $ 157 $(23) $ 218 $ (23) $195
Federal funds sold.... 15 31 46 81 51 (30)
Net loans............. 589 271 860 395 91 486
------- ------ ---- ------- ------- ----
Total interest in-
come............... 424 459 883 532 119 651
------- ------ ---- ------- ------- ----
Interest paid on:
NOW and money market
deposits............. 6 35 41 27 -- 27
Savings deposits...... (8) 1 (7) 17 (1) 16
Time deposits......... 108 257 35 235 (18) 217
Borrowings and federal
funds purchased...... 55 1 56 1 -- 1
------- ------ ---- ------- ------- ----
Total interest ex-
pense.............. 161 294 455 280 (19) 261
------- ------ ---- ------- ------- ----
Change in net interest
income................. $ 263 $ 165 $428 $ 252 $ 138 $390
======= ====== ==== ======= ======= ====
</TABLE>
NONINTEREST INCOME
Noninterest income for the years ended December 31, 1995 and 1994, amounted
to $523,482 and $354,835, respectively. As a percentage of average assets,
noninterest income increased from .80% in 1994 to 1.07% in 1995. This increase
is primarily due to gains from the sale of the guaranteed portion of SBA
loans. Noninterest income as a percentage of average total assets for 1995 and
1994 amounted to 1.07% and .80%, respectively. These improved results are due
primarily to fees earned on the sale of SBA loans.
The following table summarizes the major components of noninterest income
for the periods therein indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1994
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Service fees on deposit accounts................. $ 346 $ 271
(Loss) on sale of securities..................... (6) --
SBA fees and premiums............................ 117 --
Miscellaneous, other............................. 66 84
----------- -----------
Total noninterest income....................... $ 523 $ 355
=========== ===========
</TABLE>
65
<PAGE>
NONINTEREST EXPENSE
Noninterest expense increased from $1,419,642 during 1994 to $1,572,720 in
1995. As a percent of total average assets, noninterest expense has increased
from 3.19% in 1994 to 3.21% in 1995. Below are the components of noninterest
expense for the years 1995 and 1994.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1994
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Salaries and other personnel benefits............. $ 830 $ 715
Data processing charges........................... 72 85
Depreciation, amortization........................ 138 133
Regulatory assessment............................. 48 86
Legal and professional............................ 63 54
Other expenses.................................... 421 346
----------- -----------
Total noninterest expense....................... $ 1,572 $ 1,419
=========== ===========
</TABLE>
ASSET/LIABILITY MANAGEMENT
It is the objective of the Bank to manage assets and liabilities to provide
a satisfactory, consistent level of profitability within the framework of
established cash, loan investment, borrowing and capital policies. Certain of
the officers of the Bank are responsible for monitoring policies and
procedures that are designed to ensure acceptable composition of the
asset/liability mix, stability and leverage of all sources of funds while
adhering to prudent banking practices. It is the overall philosophy of
management to support asset growth primarily through growth of core deposits,
which include deposits of all categories made by individuals, partnerships and
corporations. Management of the Bank seeks to invest the largest portion of
the Bank's assets in commercial, consumer and real estate loans.
The Bank's asset/liability mix is monitored on a daily basis. A monthly
report reflecting interest-sensitive assets and interest-sensitive liabilities
is prepared and presented to the Loan Investment Committee of the Bank's Board
of Directors. The objective of this policy is to control interest-sensitive
assets and liabilities so as to minimize the impact of substantial movements
in interest rates on the Bank's earnings.
Net interest income, First National's primary source of earnings, fluctuates
with significant interest rate movements. To lessen the impact of these margin
swings, the balance sheet should be structured so that repricing opportunities
exist for both assets and liabilities in roughly equivalent amounts at
approximately the same time intervals. Imbalances in these repricing
opportunities at any point in time constitute interest rate sensitivity.
Interest rate sensitivity refers to the responsiveness of interest-bearing
assets and liabilities to changes in market interest rates. The rate sensitive
position, or gap, is the difference in the volume of rate sensitive assets and
liabilities, at a given time interval. The general objective of gap management
is to manage actively rate sensitive assets and liabilities so as to reduce
the impact of interest rate fluctuations on the net interest margin.
Management generally attempts to maintain a balance between rate sensitive
assets and liabilities as the exposure period is lengthened to minimize First
National's overall interest rate risks.
The asset mix of the balance sheet is continually evaluated in terms of
several variables: yield, credit quality, appropriate funding sources and
liquidity. To effectively manage the liability mix of the balance sheet
focuses on expanding the various funding sources. The interest rate
sensitivity position at year-end 1995 is presented below. Since all interest
rates and yield do not adjust at the same velocity, the gap is only a general
indicator of rate sensitivity.
66
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
MATURING OR REPRICING WITHIN
--------------------------------------------------------------------
ZERO TO THREE THREE MONTHS ONE TO FIVE SIX MONTHS OVER FIVE
MONTHS TO ONE YEAR YEARS TO ONE YEAR YEARS TOTAL
------------- ------------ ----------- ----------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Earning assets:
Loans................. $10,921 $ 2,320 $ 2,633 $17,029 $ 500 $33,403
US Government and
agency securities.... 783 -- 1,968 8,317 332 11,400
Federal funds sold.... 4,450 -- -- -- -- 4,450
------- ------- -------- ------- ------ -------
Total earning as-
sets............... $16,154 $ 2,320 $ 4,601 $25,346 $ 832 $49,253
======= ======= ======== ======= ====== =======
Supporting sources of
funds:
Borrowings (FHLB ad-
vance)............... $ -- $ -- $ 1,000 $ -- $ -- $ 1,000
Interest-bearing
demand deposits and
savings.............. 10,728 -- -- -- -- 10,728
Certificates less than
$100,000............. 3,882 4,124 8,465 5,688 37 22,196
Certificates $100,000
and over............. 1,546 905 2,658 1,351 -- 6,460
------- ------- -------- ------- ------ -------
Total interest-
bearing
liabilities........ $16,156 $ 5,029 $ 12,123 $ 7,039 $ 37 $40,384
======= ======= ======== ======= ====== =======
Interest rate
sensitivity gap........ (2) (2,709) (7,522) 18,307 795 8,869
Cumulative interest rate
sensitivity gap........ (2) (2,711) (10,233) 8,074 8,869 8,869
Interest rate
sensitivity gap ratio.. 1.0 .46 .38 3.60 22.49 1.22
Cumulative interest rate
sensitivity gap ratio.. 1.0 .87 .69 1.20 1.22 1.22
</TABLE>
As evidenced by the table above, First National is liability sensitive from
zero to one year and asset sensitive thereafter. In a declining interest rate
environment, a liability sensitive position (a gap ratio of less than 1.0) is
generally more advantageous since liabilities are repriced sooner than assets.
Conversely, in a rising interest rate environment, an asset sensitive position
(a gap ratio over 1.0) is generally more advantageous, as earning assets are
repriced sooner than liabilities. With respect to First National, an increase
in interest rate will result in lower earnings for the first year and higher
earnings thereafter. Conversely, a decline in interest rate will increase
income for the first year and reduce it for the period after one year. This,
however, assumes that all other factors affecting income remain constant.
As First National continues to grow, management will continuously structure
its rate sensitivity position to best hedge against rapidly rising or falling
interest rates. The Bank's Asset/Liability Committee meets on a quarterly
basis and develops management's strategy for the upcoming period. Such
strategy includes anticipations of future interest rate movements. Interest
rate risk will, nonetheless, fall within previously adopted policy parameters
to contain any risk.
67
<PAGE>
MATURITIES AND SENSITIVITY OF LOANS TO CHANGES IN INTEREST RATES
The following is an analysis of maturities of loans as of December 31, 1995.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
--------------------------------------
DUE IN DUE IN
ONE YEAR ONE TO DUE AFTER
OR LESS FIVE YEARS FIVE YEARS TOTAL
-------- ---------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial, financial and agricultur-
al.................................... $ 8,434 $1,700 $1,379 $11,513
Real estate--construction.............. 1,992 -- -- 1,992
------- ------ ------ -------
Total................................ $10,426 $1,700 $1,379 $13,505
======= ====== ====== =======
</TABLE>
In First National's experience, some receivables will be paid prior to
contractual maturity and others will be converted, extended or renewed.
Therefore, the tabulation of contractual payments should not be regarded as a
forecast of future cash collections.
The following is an analysis of sensitivities of loans to changes in
interest rates as of December 31, 1995. The figures exclude installment and
other personal loans.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
--------------------------------------
DUE IN DUE IN
ONE YEAR ONE TO DUE AFTER
OR LESS FIVE YEARS FIVE YEARS TOTAL
-------- ---------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Fixed rate loans......................... $ 5,389 $1,344 $ -- $ 6,733
Variable rate loans...................... 5,037 356 1,379 6,772
------- ------ ------ -------
Total.................................. $10,426 $1,700 $1,379 $13,505
======= ====== ====== =======
</TABLE>
LOAN PORTFOLIO
The Bank engages in a full complement of lending activities, including
commercial, consumer/installment and real estate loans.
Commercial lending is directed principally towards businesses whose demands
for funds fall within the Bank's legal lending limits and which are potential
deposit customers of the Bank. These loans include loans obtained for a
variety of business purposes, and are made to individual, partnership, or
corporate borrowers. The Bank places particular emphasis on loans to small and
medium sized businesses.
The Bank's consumer loans consist primarily of installment loans to
individuals for personal, family and household purposes, including automobile
loans and pre-approved lines of credit to individuals. this category of loans
includes lines of credit and term loans secured by second mortgages on
residences for a variety of purposes, including home improvements, education
and other personal expenditures.
The Bank's real estate loans consist of residential and commercial first and
second mortgage loans.
68
<PAGE>
The following table presents various categories of loans contained in the
Bank's loan portfolio as of December 31, 1995 and 1994 and the total amount of
all loans for such periods.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1995
------------------------
1995 1994
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Domestic:
Commercial, financial and agricultural........ $ 11,513 $ 9,829
Real estate--construction..................... 1,992 1,475
Real estate--mortgage......................... 12,016 13,031
Installment and other loans to individuals.... 7,882 4,770
----------- -----------
Subtotal.................................... 33,403 29,105
----------- -----------
Allowance for loan losses..................... (434) (452)
----------- -----------
Total (net of allowance)........................ $ 32,969 $ 28,653
=========== ===========
</TABLE>
NONPERFORMING ASSETS
As of December 31, 1995, there are no loans classified for regulatory
purposes as doubtful, substandard or special mention that have not been
disclosed in the above table, which: (i) represent or result from trends or
uncertainties which management reasonably expects will materially impact
future operating results, liquidity, or capital resources; or (ii) represent
material credits about which management possesses knowledge, causing them to
doubt receipt of payment in accordance with present loan repayment terms.
At December 31, 1995, First National had three loans with aggregate balances
of $658,000 for which the borrowers are experiencing financial difficulties.
Although these loans are not currently overdue, they are subject to constant
management attention and their classification is reviewed on a quarterly
basis.
Loans are classified as non-accruing when the probability of collection of
either principal or interest becomes doubtful. The balance classified as non-
accruing represents the net realizable value of the account, which is the most
realistic estimate of the amount First National expects to collect in final
settlement. If the account balance exceeds the estimated net realizable value,
the excess is written-off at the time this determination is made.
At December 31, 1995, all loans were accruing interest. with the exception
of the three loans discussed above, there are no other loans which are not
herein disclosed about which management possesses knowledge, causing them to
doubt receipt of payment in accordance with present loan repayment terms.
The following table presents information regarding nonaccrual, past due and
restructured loans as of December 31, 1995 and 1994:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1994
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Loans accounted for on a nonaccrual basis
Number:.......................................... 0 0
Amount:.......................................... $ -- $ --
Accruing loans which are contractually past due 90
days or more as to principal and interest
payments:
Number:.......................................... 1 0
Amount:.......................................... $ 23 $ --
Loans defined as "troubled debt restructurings":
Number:.......................................... 0 0
Amount:.......................................... $ -- $ --
</TABLE>
69
<PAGE>
SUMMARY OF LOAN LOSS EXPERIENCE
In considering the adequacy of First National's allowance for possible loan
losses, management has focused on the fact that as of December 31, 1995 34.5%
of outstanding loans are in the category of commercial and construction loans.
Management generally considers commercial loans to have a greater risk than
other categories of loans in First National's loan portfolio. At December 31,
1995, 75.0% of these commercial and construction loans, however, were made on
a secured basis. The related collateral consists primarily of improved
commercial real estate and equipment. Thus, management believes that the
secured condition of the preponderant portion of its commercial loan portfolio
greatly reduces any risk of loss inherently present in commercial loans.
A substantial portion of First National's consumer loan portfolio is also
secured. At December 31, 1995, the majority of First National's consumer loans
were secured by collateral primarily consisting of automobiles, boats and
second mortgages on real estate. Management believes that these loans involve
less risk than other categories of loans.
Real estate mortgage loans constitute 36.0% of outstanding loans. Management
does not consider these loans to have undue credit risk because these loans
are generally secured and represent commercial and residential real estate
mortgages for which the Bank will lend a maximum of 80% of the collateral's
appraised value.
The allowance for loan losses reflects an amount which, in management's
judgment, is adequate to provide for potential loan losses. Management's
determination of the proper level of the allowance for loan losses is based on
an ongoing analysis of the credit quality and loss potential of the portfolio,
actual loan loss experience relative to the size and characteristics of the
portfolio, changes in composition and risk characteristics of the portfolio
and anticipated impacts of national and regional economic policies and
conditions. Senior management and the Board of Directors of the Bank review
the adequacy of the allowance for loan losses on a monthly basis.
An analysis of the Bank's loss experience, including a breakdown for
possible loan losses, is furnished in the following table for the years ended
December 31, 1995 and 1994.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1994
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Balance at beginning of period................... $ 452 $ 332
----------- -----------
Charge-offs:
Commercial, financial and agricultural......... 205 --
Installment and other loans to individuals..... 15 --
----------- -----------
220 --
----------- -----------
Recoveries:
Installment and other loans to individuals..... 17 --
----------- -----------
Net charge-offs.................................. (203) --
----------- -----------
Provisions charged to operations................. 185 120
----------- -----------
Balance at end of period......................... $ 434 $ 452
=========== ===========
Ratio of allowance for loan losses to total loans
outstanding during the period................... 1.30% 1.55%
=========== ===========
Ratio of net charge offs to average loans out-
standing during the period...................... .62% -- %
=========== ===========
</TABLE>
70
<PAGE>
At December 31, 1995 and 1994, the allowance was allocated as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1995 1994
-------------------- --------------------
PERCENT OF PERCENT OF
LOANS IN EACH LOANS IN EACH
CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------ ------------- ------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial, financial and agri-
cultural........................ $167 34.5% $158 33.8%
Real estate--construction........ 34 6.0 33 5.0
Real estate--mortgage............ 125 36.0 160 44.8
Installment and other loans to
individuals..................... 100 23.5 90 16.4
Unallocated...................... 8 N/A 11 N/A
---- ----- ---- -----
Total.......................... $434 100.0% $452 100.0%
==== ===== ==== =====
</TABLE>
INVESTMENT PORTFOLIO
As of December 31, 1995, investment securities comprised approximately 21.2%
of First National's assets and net loans comprised approximately 61.4% of
First National's assets. The Bank invests primarily in obligations of the
United States or obligations guaranteed as to principal and interest by the
United States. In addition, the Bank enters into Federal Funds transactions
with its principal correspondent banks, and acts as a net seller of such
funds. The sale of Federal Funds amounts to a short-term loan from the Bank to
other banks.
TYPES OF INVESTMENTS
The following table presents, for the periods indicated, the book value of
First National's investments, reported by those available-for-sale and those
held-to-maturity.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1994
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Available for sale:
Obligations of U.S. Treasury and other U.S. agen-
cies............................................ $ 11,068 $ 11,890
Other securities................................. 332 306
----------- -----------
Total.......................................... $ 11,400 $ 12,196
=========== ===========
Held to maturity:
Obligations of U.S. Treasury and other U.S. agen-
cies............................................ $ -- $ 694
=========== ===========
</TABLE>
The following table indicates, for the year ended December 31, 1995, the
amount of investments due in (i) one year or less, and (ii) one to five years.
The Bank had no "held to maturity" securities at December 31, 1995.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------
WEIGHTED AVERAGE
AMOUNT YIELD
------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Available for sale:
Obligations of U.S. Treasury and other U.S.
agencies:
0-1 year...................................... $ 2,751 5.05%
Over 1 through 5 years........................ 8,317 5.57
Other securities:
No stated maturity.............................. 332 6.03
-------
Total............................................. $11,400 5.45
=======
</TABLE>
71
<PAGE>
DEPOSITS
The Bank offers a full range of interest bearing and non-interest bearing
accounts, including commercial and retail checking accounts, negotiable order
of withdrawal ("NOW") accounts, individual retirement accounts, regular
interest-bearing savings accounts and certificates of deposit with a range of
maturity date options. The sources of deposits are residents, businesses and
employees of businesses within the Bank's market area. Customers are obtained
through the personal solicitation of the Bank's officers and directors, direct
mail solicitation and advertisements published in the local media. The Bank
pays competitive interest rates on time and savings deposits up to the maximum
permitted by law or regulation. In addition, the Bank has implemented a
service charge fee schedule competitive with other financial institutions in
the Bank's market area, covering such matters as maintenance fees on checking
accounts, per item processing fees on checking accounts, returned check
charges and the like.
The following table presents, for the periods indicated, the average amount
of and average rate paid on each of the indicated deposit categories.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1994
------------ ------------
AMOUNT RATE AMOUNT RATE
------- ---- ------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Noninterest-bearing demand deposits.............. $ 5,469 N/A $ 4,538 N/A
NOW and money market deposits.................... 8,108 3.08% 7,887 2.65%
Savings deposits................................. 2,511 2.91% 2,775 2.88%
Time deposits.................................... 26,695 5.67% 24,523 4.68%
------- -------
Total deposits................................. $42,783 $39,723
======= =======
</TABLE>
First National has a large, stable base of time deposits, with little or no
dependence on volatile deposits of $100,000 or more. The time deposits are
principally certificates of deposit and individual retirement accounts
obtained for individual customers.
The amounts of time certificates of deposit issued in amounts of $100,000 or
more as of December 31, 1995, are shown below by category, which is based on
time remaining until maturity of (i) three months or less, (ii) over three
through twelve months and (iii) over twelve months.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Three months or less................................ $1,546
Three months through six months..................... 905
Over three through twelve months.................... 2,658
Over twelve months.................................. 1,351
------
Total............................................. $6,460
======
</TABLE>
RETURN ON ASSETS AND SHAREHOLDERS' EQUITY
The following table shows return on assets (net income divided by average
total assets), return on equity (net income divided by average shareholders'
equity), dividend payout ratio (dividends declared per share divided by net
income per share) and shareholders' equity to asset ratio (average
shareholders' equity divided by average total assets) for the periods
indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1994
----------- -----------
<S> <C> <C>
Return on assets................................ 1.25% 0.71%
Return on equity................................ 12.30 7.10
Dividend payout ratio........................... -- --
Equity to assets ratio.......................... 10.20 10.40
</TABLE>
72
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Liquidity represents the ability to provide steady sources of funds for loan
commitments and investment activities and to maintain sufficient funds to
cover deposit withdrawals and payment of debt and operating obligations. These
funds can be obtained by converting assets to cash or by attracting new
deposits. First National's primary source of liquidity comes from its ability
to maintain and increase deposits through the Bank. Deposits grew by $5.1
million in 1995. Below are the pertinent liquidity balances and ratios for the
years ended December 31, 1995 and 1994.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1994
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents........................ $ 6,924 $ 2,556
CDS, $100,000 and over........................... 6,460 5,336
CDS, $100,000 and over to total deposits......... 13.8% 12.8%
Loan to deposit ratio............................ 70.5% 68.9%
Marketable securities to total assets............ 21.2% 27.7%
Brokered deposits................................ -- --
</TABLE>
As the above balances and ratios indicate, management believes that First
National's liquidity position is sound. Management is unaware of any trends,
demands, commitments, events or uncertainties that will result in or are
reasonably likely to result in First National's liquidity increasing or
decreasing in any material way. First National is not aware of any current
recommendations by the regulatory authorities which, if implemented, would
have a material effect on First National's liquidity, capital resources or
results of operations.
There are now two primary measures of capital adequacy for banks and bank
holding companies: (i) risk-based capital guidelines; and (ii) the leverage
ratio.
The risk-based capital guidelines measure the amount of a bank's required
capital in relation to the degree of risk perceived in its assets and its off-
balance sheet items. For example, cash and Treasury Securities are placed
under a zero percent risk category while commercial loans are placed under the
one hundred percent risk category. Banks are required to maintain a minimum
risk-based capital ratio of 8.0%, with at least 4.0% consisting of Tier 1
capital. Under the risk-based capital guidelines, there are two "tiers" of
capital. Tier 1 capital consists of common shareholders' equity, non-
cumulative and cumulative (bank holding companies only), perpetual preferred
stock and minority interests. Goodwill is subtracted from the total. Tier 2
capital consists of the allowance for loan losses, hybrid capital instruments,
term subordinated debt and intermediate term preferred stock.
The second measure of capital adequacy relates to the leverage ratio. The
OCC has established a 3.0% minimum leverage ratio requirement. Note that the
leverage ratio is computed by dividing Tier 1 capital into total assets. Banks
that are not rated CAMEL 1 by their primary regulator should maintain a
minimum leverage ratio of 3.0% plus an additional cushion of at least 1 to 2
percent, depending upon risk profiles and other factors.
A new rule was recently adopted by the FRB, the OCC and the FDIC that adds a
measure of interest rate risk to the determination of supervisory capital
adequacy. In connection with this new rule, the agencies also proposed a
measurement process to measure interest rate risk. Under this proposal, all
items reported on the balance sheet, as well as off-balance sheet items, would
be reported according to maturity, repricing dates and cash flow
characteristics. A bank's reporting position would be multiplied by duration-
based risk factors and weighted according to rate sensitivity. The net risk
weighted position would be used in assessing capital adequacy. The objective
of this complex proposal is to determine the sensitivity of a bank to various
rising and declining interest rate scenarios. This proposal is under
consideration by the Federal banking regulators.
73
<PAGE>
The table below illustrates the Bank's and First National's regulatory
capital ratios at December 31, 1995.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
--------------------
ACTUAL REQUIRED
--------- ---------
<S> <C> <C>
BANK
Tier 1 Capital....................................... 12.7% 4.0%
Tier 2 Capital....................................... 1.2% n/a
Total risk-based capital ratio..................... 13.9% 8.0%
Leverage ratio....................................... 8.7% 3.0%
FIRST NATIONAL--CONSOLIDATED
Tier 1 Capital....................................... 15.6% 4.0%
Tier 2 Capital....................................... 1.2% n/a
Total risk-based capital ratio..................... 16.8% 8.0%
Leverage ratio....................................... 10.2% 3.0%
</TABLE>
The above ratios indicate that the capital positions of First National and
the Bank are sound and that First National is well positioned for future
growth.
At March 31, 1996, First National had cash and cash equivalents of $5.2
million or 9.69% of total assets. Additionally First National had $11.3
million of investment securities that could be converted to cash if necessary.
These securities represent 21% of total assets. During the first quarter of
1996, there is a slight change in First National's asset mix. Net loans
increased $2.046 million or 6.2%. This increase was funded primarily by a
$1.35 million decrease in federal funds sold. Federal funds sold at March 31,
1996, were $3.1 million or 5.76% of total assets. This change had a positive
impact on First National's earnings as loans have a higher yield than
federal funds sold. During the three months ended March 31, 1996, First
National also repaid the $1 million advance outstanding from the Federal Home
Loan Bank. This repayment had no adverse effect on First National's liquidity
and will reduce interest expense in future months. First National expects to
maintain its loan growth and anticipates funding it through deposit growth.
There are no trends, demands, commitments, events or uncertainties that will
result in or are reasonably likely to result in a material change in First
National's liquidity position.
During the three months ended March 31, 1996, net loans increased $2.046
million from the year end amount of almost $33 million to the quarter end
balance of $35 million. The March 31, 1996 loans represented 65% of total
assets and 73% of total deposits. This compares favorably to the December 31,
1995, loan to deposit ratio of 71%. While management expects to continue loan
growth during 1996, it may not be at the current rate during the remainder of
the year.
Non-interest bearing deposits decreased during the first quarter by $664,000
to just over $6.7 million. This represents 14% of total deposits. This
decrease was more than offset by an increase in interest bearing deposits
which increased $1.7 million to $41.2 million, or 4.5%. The primary source of
increase was in time deposits with balances under $100,000. This category
increased $1.2 million during the first quarter. The increase in this category
of deposits indicates that First National is increasing its "core" deposits
and not relying upon large customers to fund the increase in loans. At March
31, 1996, "jumbo" certificates (those having balances of over $100,000)
decreased $155,000 to $6.3 million.
IMPACT OF INFLATION
The consolidated financial statements and related consolidated financial
data presented herein have been prepared in accordance with generally accepted
accounting principles and practices within the banking industry which require
the measurement of financial position and operating results in terms of
historical dollars without considering the changes in the relative purchasing
power of money over time due to inflation. Unlike most industrial companies,
virtually all the assets and liabilities of a financial institution are
monetary in nature. As a result, interest rates have a more significant impact
on a financial institution's performance than the effects of general levels of
inflation.
74
<PAGE>
FIRST NATIONAL SHARES
The authorized capital stock of First National consists of 10,000,000 common
shares, $5.00 par value per share, 495,409 shares of which were issued and
outstanding at March 31, 1996, and 169,670 shares which were subject to
options and warrants, and 1,000,000 shares of preferred stock, $5.00 par value
per share, none of which were outstanding at March 15, 1996. On March 31,
1996, there were 575 holders of record of First National Shares. For
information concerning the market value of such shares and dividends during
the past three years, see "SUMMARY--Market Value of Securities and Dividends--
First National."
OTHER MATTERS
The Special Meeting is called for the purposes set forth in the Notice and
Proxy Statement/Prospectus. The First National Board of Directors does not
know of any matters for action by shareholders at such meeting other than the
matters described in the Notice and Proxy Statement/Prospectus. The enclosed
Proxy, however, will confer discretionary authority with respect to matters
which are not known to the Board of Directors at this time and which may
properly come before the Special Meeting. It is the intention of the persons
named in the Proxy to vote in pursuance of the Proxy with respect to such
matters in accordance with their best judgment.
EXPERTS
The consolidated financial statements of ABC as of December 31, 1995 and
1994 and for the years ended December 31, 1995, 1994 and 1993 included in this
Proxy Statement/Prospectus have been audited by Mauldin & Jenkins, independent
certified public accountants, to the extent indicated in their report included
herein, and are included herein in reliance upon such report and upon the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements of First National as of December 31,
1995 and 1994 and for the years ended December 31, 1995 and 1994 included in
this Proxy Statement/Prospectus have been audited by Francis & Company,
independent certified public accountants, to the extent indicated in their
report included herein, and are included herein in reliance upon such report
and upon the authority of said firm as experts in accounting and auditing.
Representatives of Francis & Company are expected to be present at the Special
Meeting.
The consolidated financial statements of Central as of December 31, 1995 and
1994 and for the years ended December 31, 1995, 1994 and 1993 included in this
Proxy Statement/Prospectus have been audited by Mauldin & Jenkins, independent
certified public accountants, to the extent indicated in their report included
herein, and are included in reliance upon such report and upon the authority
of such firm as experts in accounting and auditing.
The consolidated financial statements of Southland as of December 31, 1995
and 1994 and for each of the years in the three year period ended December 31,
1995, have been included herein and in this Proxy Statement/Prospectus in
reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, appearing elsewhere herein, and upon such report and upon
the authority of such firm as experts in accounting and auditing.
The report of KPMG Peat Marwick LLP covering the December 31, 1995
consolidated financial statements refers to a change in the method of
accounting for income taxes in 1993 to adopt the provisions of SFAS No. 109,
"Accounting For Income Taxes," and refers to a change in the method of
accounting for investments in debt and equity securities at January 1, 1994 to
adopt the provisions of SFAS No. 115 "Accounting For Certain Investments in
Debt and Equity Securities."
LEGAL OPINIONS
A legal opinion to the effect that the issuance of the shares of ABC Common
Stock offered hereby has been duly authorized by ABC and that such shares,
when issued in accordance with the Merger Agreement, will be duly issued and
outstanding and fully paid and non-assessable, has been rendered by Rogers &
Hardin. Rogers & Hardin has also rendered an opinion as to certain federal
income tax consequences of the Merger.
75
<PAGE>
INDEX TO FINANCIAL INFORMATION
Unaudited Pro Forma Condensed Consolidated Financial Data:
<TABLE>
<S> <C>
Introductory Note...................................................... PF-i
ABC Historical combined with First National Historical
-- Pro Forma Condensed Balance Sheet................................... PF-1
-- Pro Forma Condensed Statements of Income............................ PF-2
-- Notes to Pro Forma Condensed Financial Statements................... PF-4
ABC Historical combined with Central Historical
-- Pro Forma Condensed Balance Sheet................................... PF-5
-- Pro Forma Condensed Statements of Income............................ PF-6
-- Notes to Pro Forma Condensed Financial Statements................... PF-8
ABC/Central combined with First National Historical
-- Pro Forma Condensed Balance Sheet................................... PF-9
-- Pro Forma Condensed Statements of Income............................ PF-10
-- Notes to Pro Forma Condensed Financial Statements................... PF-12
ABC Historical combined with Southland Historical
-- Pro Forma Condensed Balance Sheet................................... PF-13
-- Pro Forma Condensed Statements of Income............................ PF-14
-- Notes to Pro Forma Condensed Financial Statements................... PF-15
ABC/Southland combined with First National Historical
-- Pro Forma Condensed Balance Sheet................................... PF-17
-- Pro Forma Condensed Statements of Income............................ PF-18
-- Notes to Pro Forma Condensed Financial Statements................... PF-20
ABC/Central combined with Southland Historical
-- Pro Forma Condensed Balance Sheet................................... PF-21
-- Pro Forma Condensed Statements of Income............................ PF-22
-- Notes to Pro Forma Condensed Financial Statements................... PF-23
ABC/Central/Southland combined with First National Historical
-- Pro Forma Condensed Balance Sheet................................... PF-25
-- Pro Forma Condensed Statements of Income............................ PF-26
-- Notes to Pro Forma Condensed Financial Statements................... PF-28
ABC Bancorp Historical Financial Data:
Consolidated Financial Statements--March 31, 1996 and 1995 (unaudited)
-- Consolidated Balance Sheets......................................... F-1
-- Consolidated Statements of Income................................... F-2
-- Consolidated Statements of Cash Flows............................... F-3
-- Notes to Consolidated Financial Statements.......................... F-4
Consolidated Financial Statements
-- Independent Auditors' Report........................................ F-5
-- Consolidated Balance Sheets--December 31, 1995 and 1994............. F-6
-- Consolidated Statements of Income--Years ended December 31, 1995,
1994 and 1993......................................................... F-7
</TABLE>
76
<PAGE>
<TABLE>
<S> <C>
-- Consolidated Statements of Stockholders' Equity--Years ended Decem-
ber 31, 1995, 1994 and 1993......................................... F-9
-- Consolidated Statements of Cash Flows--Years ended December 31,
1995, 1994 and 1993................................................... F-11
-- Notes to Consolidated Financial Statements.......................... F-13
First National Financial Corporation Historical Financial Data:
Consolidated Financial Statements--March 31, 1996 and 1995 (unaudited)
-- Consolidated Balance Sheets......................................... F-36
-- Consolidated Statements of Income................................... F-37
-- Consolidated Statements of Cash Flows............................... F-38
-- Notes to Consolidated Financial Statements.......................... F-39
Consolidated Financial Statements
-- Independent Auditors' Report........................................ F-42
-- Consolidated Balance Sheets--Years ended December 31, 1995 and
1994.................................................................. F-43
-- Consolidated Statements of Income--Years ended December 31, 1995,
1994 and 1993......................................................... F-44
-- Consolidated Statements of Changes in Shareholders' Equity--Years
ended December 31, 1995, 1994 and 1993................................ F-45
-- Consolidated Statements of Cash Flows--Years ended December 31,
1995, 1994 and 1993................................................... F-46
-- Notes to Consolidated Financial Statements.......................... F-47
Central Bankshares, Inc. Historical Financial Data:
Consolidated Financial Statements--March 31, 1996 and 1995 (unaudited)
-- Consolidated Balance Sheets......................................... F-65
-- Consolidated Statements of Income................................... F-66
-- Consolidated Statements of Cash Flows............................... F-67
-- Notes to Consolidated Financial Statements.......................... F-68
Consolidated Financial Statements
-- Independent Auditors' Report........................................ F-69
-- Consolidated Balance Sheets--Years ended December 31, 1995 and
1994.................................................................. F-70
-- Consolidated Statements of Income--Years ended December 31, 1995 and
1994.................................................................. F-71
-- Consolidated Statements of Stockholders' Equity--Years ended Decem-
ber 31, 1995 and 1994................................................. F-72
-- Consolidated Statements of Cash Flows--Years ended December 31, 1995
and 1994.............................................................. F-73
-- Notes to Consolidated Financial Statements.......................... F-75
Southland Bancorporation Historical Financial Data:
Consolidated Financial Statements
-- Consolidated Balance Sheets--March 31, 1996 and December 31, 1995
(unaudited)........................................................... F-95
-- Consolidated Statements of Earnings--Three Months ended March 31,
1996 and 1995....................................................... F-96
-- Consolidated Statements of Cash Flows--Three Months ended March 31,
1996 and 1995......................................................... F-97
-- Notes to Consolidated Financial Statements.......................... F-99
Consolidated Financial Statements
-- Independent Auditors' Report........................................ F-100
-- Consolidated Balance Sheets--December 31, 1995 and 1994............. F-101
-- Consolidated Statements of Earnings--Years ended December 31, 1995,
1994 and 1993......................................................... F-102
-- Consolidated Statements of Stockholders' Equity--Years ended Decem-
ber 31, 1995, 1994 and 1993......................................... F-105
-- Consolidated Statements of Cash Flows--Years ended December 31,
1995, 1994 and 1993................................................... F-106
-- Notes to Consolidated Financial Statements.......................... F-108
</TABLE>
77
<PAGE>
ABC BANCORP AND SUBSIDIARIES
COMBINED WITH FIRST NATIONAL FINANCIAL CORPORATION
PRO FORMA CONDENSED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The following unaudited pro forma condensed balance sheet as of March
31, 1996 has been prepared to reflect the acquisition by ABC of 100% of First
National after giving effect to the adjustments described in the notes to the
pro forma condensed financial statements. The acquisition will be accounted for
as a pooling of interest. These statements should be read in conjunction with
the other financial statements and notes thereto included in this Proxy
Statement.
<TABLE>
<CAPTION>
PRO FORMA
FIRST ADJUSTMENTS
ABC NATIONAL (NOTES A PRO FORMA
HISTORICAL HISTORICAL AND B) COMBINED
--------------------------------------- -----------
<S> <C> <C> <C> <C>
ASSETS
- ------
Cash and due from banks $ 16,855 $ 2,118 $ - $ 18,973
Federal funds sold 21,535 3,100 - 24,635
Investment securities 56,916 11,332 - 68,248
Loans, net 218,877 35,015 - 253,892
Premises and equipment 7,222 1,463 - 8,685
Investment in First National - - 5,593 (1) -
(5,593)(2)
Excess cost over fair value of assets
acquired 1,996 - - 1,996
Other assets 12,188 836 - 13,024
---------- -------- -------- ----------
$ 335,589 $ 53,864 $ - $ 389,453
========== ======== ======== ==========
LIABILITIES AND EQUITY
- ----------------------
Deposits $ 293,385 $ 47,863 $ - $ 341,248
Other liabilities 7,629 408 - 8,037
---------- -------- -------- ----------
Total liabilities 301,014 48,271 - 349,285
---------- -------- -------- ----------
EQUITY
- ------
Common stock 3,597 - 690(1) 4,287
Capital surplus 16,826 - 4,942(1) 21,768
Retained earnings 15,815 - - 15,815
Unrealized losses on securities
available for sale, net of taxes (108) - (39)(1) (147)
Treasury stock (1,555) - - (1,555)
Equity of First National - 5,593 (5,593)(2) -
---------- -------- -------- ----------
Total equity 34,575 5,593 - 40,168
---------- -------- -------- ----------
$ 335,589 $ 53,864 $ - $ 389,453
========== ======== ======== ==========
</TABLE>
PF-1
<PAGE>
ABC BANCORP AND SUBSIDIARIES
COMBINED WITH FIRST NATIONAL FINANCIAL CORPORATION
PRO FORMA CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following unaudited pro forma condensed statements of income have
been prepared to reflect the acquisition by ABC of 100% of First National after
giving effect to the adjustments described in the notes to the pro forma
condensed financial statements. The acquisition will be accounted for as a
pooling of interest. These statements should be read in conjunction with the
other financial statements and notes thereto included elsewhere in this Proxy
Statement.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 YEAR ENDED DECEMBER 31, 1994 YEAR ENDED DECEMBER 31, 1993
-------------------------------- -------------------------------- --------------------------------
FIRST PRO FORMA FIRST PRO FORMA FIRST PRO FORMA
ABC NATIONAL COMBINED ABC NATIONAL COMBINED ABC NATIONAL COMBINED
HISTORICAL HISTORICAL (NOTE A) HISTORICAL HISTORICAL (NOTE A) HISTORICAL HISTORICAL (NOTE A)
---------- ---------- --------- ---------- ----------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME $26,703 $4,045 $30,748 $21,328 $3,162 $24,490 $19,697 $2,510 $22,207
INTEREST EXPENSE 10,673 1,893 12,566 7,828 1,438 9,266 7,732 1,177 8,909
------- ------ ------- ------- ------ ------- ------- ------ -------
Net interest income 16,030 2,152 18,182 13,500 1,724 15,224 11,965 1,333 13,298
PROVISION FOR LOAN LOSSES 848 185 1,033 638 120 758 1,191 128 1,319
------- ------ ------- ------- ------ ------- ------- ------ -------
Net interest
income after
provision for
loan losses 15,182 1,967 17,149 12,862 1,604 14,466 10,774 1,205 11,979
OTHER INCOME 3,276 524 3,800 3,025 355 3,380 2,867 289 3,156
OTHER EXPENSE 12,228 1,573 13,801 11,547 1,420 12,967 10,535 1,256 11,791
------- ------ ------- ------- ------ ------- ------- ------ -------
Income from continuing
operations before
income taxes and
cumulative effect 6,230 918 7,148 4,340 539 4,879 3,106 238 3,344
INCOME TAXES 1,889 306 2,195 1,240 223 1,463 814 - 814
------- ------ ------- ------- ------ ------- ------- ------ -------
Income from continuing
operations before
cumulative effect 4,341 612 4,953 3,100 316 3,416 2,292 238 2,530
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE - - - - - - 346 - 346
------- ------ ------- ------- ------ ------- ------- ------ -------
Income from continuing
operations $ 4,341 $ 612 $ 4,953 $ 3,100 $ 316 $ 3,416 $ 2,638 $ 238 $ 2,876
======= ====== ======= ======= ====== ======= ======= ====== =======
INCOME PER SHARE FROM
CONTINUING OPERATIONS $ 1.22 $ 0.94 $ 0.89
======= ======= =======
</TABLE>
PF-2
<PAGE>
ABC BANCORP AND SUBSIDIARIES
COMBINED WITH FIRST NATIONAL FINANCIAL CORPORATION
PRO FORMA CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996 THREE MONTHS ENDED MARCH 31, 1995
----------------------------------- -----------------------------------
FIRST PRO FORMA FIRST PRO FORMA
ABC NATIONAL COMBINED ABC NATIONAL COMBINED
HISTORICAL HISTORICAL (NOTE A) HISTORICAL HISTORICAL (NOTE A)
----------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME $7,051 $ 1,071 $8,122 $6,157 $ 938 $ 7,095
INTEREST EXPENSE 2,941 538 3,479 2,348 393 2,741
------ ------- ------ ------ ------- -------
Net interest income 4,110 533 4,643 3,809 545 4,354
PROVISION FOR LOAN LOSSES 180 50 230 180 25 205
------ ------- ------ ------ ------- -------
Net interest income
after provision for
loan losses 3,930 483 4,413 3,629 520 4,149
OTHER INCOME 927 123 1,050 886 85 971
OTHER EXPENSE 3,017 397 3,414 3,000 391 3,391
------ ------- ------ ------ ------- -------
Income from continuing
operations before
income taxes and
cumulative effect 1,840 209 2,049 1,515 214 1,729
INCOME TAXES 605 76 681 487 81 568
------ ------- ------ ------ ------- -------
Income from operations
before cumulative effect 1,235 133 1,368 1,028 133 1,161
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE - - - - - -
------ ------- ------ ------ ------- -------
Income from continuing
operations $1,235 $ 133 $1,368 $1,028 $ 133 $ 1,161
====== ======= ====== ====== ======= =======
INCOME PER SHARE FROM CONTINUING
OPERATIONS $ 0.34 $ 0.29
====== =======
</TABLE>
PF-3
<PAGE>
ABC BANCORP AND SUBSIDIARIES
COMBINED WITH FIRST NATIONAL FINANCIAL CORPORATION
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
A. The pro forma condensed balance sheet has been prepared assuming the
transaction was consummated on March 31, 1996. The pro forma condensed
statements of income have been prepared assuming the transaction was
consummated on January 1, 1993, the beginning of the earliest fiscal year
presented.
B. The following pro forma adjustments have been applied to give effect to the
proposed transaction.
BALANCE SHEET:
(1) Issue of 690,259 shares of ABC common stock, $1 par value, in exchange
for 100% of the equity of First National.
(2) Elimination of investment in First National.
STATEMENTS OF INCOME:
(3) Pro forma income per common share is based on the average number of
common shares that would have been outstanding during the respective
periods. There are no dilutive common stock attributes.
PF-4
<PAGE>
ABC BANCORP AND SUBSIDIARIES
COMBINED WITH CENTRAL BANKSHARES, INC.
PRO FORMA CONDENSED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The following unaudited pro forma condensed balance sheet as of March
31, 1996 has been prepared to reflect the acquisition by ABC of 100% of Central
after giving effect to the adjustments described in the notes to the pro forma
condensed financial statements. The acquisition will be accounted for as a
pooling of interest. These statements should be read in conjunction with the
other financial statements and notes thereto included elsewhere in this Proxy
Statement.
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
ABC CENTRAL (NOTES A PRO FORMA
HISTORICAL HISTORICAL AND B) COMBINED
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
- ------
Cash and due from banks $ 16,855 $ 2,142 $ $ 18,997
Federal funds sold 21,535 21,535
Investment securities 56,916 10,862 67,778
Loans, net 218,877 34,988 253,865
Premises and equipment 7,222 1,074 8,296
Investment in Central 4,300 (1)
(4,300)(2)
Excess cost over fair value of assets
acquired 1,996 1,996
Other assets 12,188 1,038 13,226
-------- ------- ------- --------
$335,589 $50,104 $ $385,693
======== ======= ======= ========
LIABILITIES AND EQUITY
- ----------------------
Deposits $293,385 $44,724 $ $338,109
Other liabilities 7,629 1,080 8,709
-------- ------- ------- --------
Total liabilities 301,014 45,804 346,818
-------- ------- ------- --------
EQUITY
- ------
Common stock 3,597 491 (1) 4,088
Capital surplus 16,826 3,828 (1) 20,654
Retained earnings 15,815 15,815
Unrealized losses on securities
available for sale,
net of taxes (108) (19)(1) (127)
Treasury stock (1,555) (1,555)
Equity of Central 4,300 (4,300)(2)
-------- ------- ------- --------
Total equity 34,575 4,300 38,875
-------- ------- ------- --------
$335,589 $50,104 $ $385,693
======== ======= ======= ========
</TABLE>
PF-5
<PAGE>
ABC BANCORP AND SUBSIDIARIES
COMBINED WITH CENTRAL BANKSHARES, INC.
PRO FORMA CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following unaudited pro forma condensed statements of income have
been prepared to reflect the acquisition by ABC of 100% of Central after giving
effect to the adjustments described in the notes to the pro forma condensed
financial statements. The acquisition will be accounted for as a pooling of
interest. These statements should be read in conjunction with the other
financial statements and notes thereto included elsewhere in this Proxy
Statement.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 YEAR ENDED DECEMBER 31, 1994 YEAR ENDED DECEMBER 31, 1993
-------------------------------- -------------------------------- --------------------------------
PRO FORMA PRO FORMA PRO FORMA
ABC CENTRAL COMBINED ABC CENTRAL COMBINED ABC CENTRAL COMBINED
HISTORICAL HISTORICAL (NOTE A) HISTORICAL HISTORICAL (NOTE A) HISTORICAL HISTORICAL (NOTE A)
---------- ---------- --------- ---------- ----------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME $26,703 $4,141 $30,844 $21,328 $3,253 $24,581 $19,697 $3,118 $22,815
INTEREST EXPENSE 10,673 1,960 12,633 7,828 1,248 9,076 7,732 1,207 8,939
------- ------ ------- ------- ------ ------- ------- ------ -------
Net interest income 16,030 2,181 18,211 13,500 2,005 15,505 11,965 1,911 13,876
PROVISION FOR LOAN LOSSES 848 140 988 638 180 818 1,191 193 1,384
------- ------ ------- ------- ------ ------- ------- ------ -------
Net interest
income after
provision for
loan losses 15,182 2,041 17,223 12,862 1,825 14,687 10,774 1,718 12,492
OTHER INCOME 3,276 597 3,873 3,025 667 3,692 2,867 611 3,478
OTHER EXPENSE 12,228 1,874 14,102 11,547 1,795 13,342 10,535 1,843 12,378
------- ------ ------- ------- ------ ------- ------- ------ -------
Income from continuing
operations before
income taxes and
cumulative effect 6,230 764 6,994 4,340 697 5,037 3,106 486 3,592
INCOME TAXES 1,889 265 2,154 1,240 240 1,480 814 165 979
------- ------ ------- ------- ------ ------- ------- ------ -------
Income from continuing
operations before
cumulative effect 4,341 499 4,840 3,100 457 3,557 2,292 321 2,613
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE - - - - - - 346 - 346
------- ------ ------- ------- ------ ------- ------- ------ -------
Income from continuing
operations $ 4,341 $ 499 $ 4,840 $ 3,100 $ 457 $ 3,557 $ 2,638 $ 321 $ 2,959
======= ====== ======= ======= ====== ======= ======= ====== =======
INCOME PER SHARE FROM
CONTINUING OPERATIONS $ 1.26 $ 1.03 $ 0.98
======= ======= =======
</TABLE>
PF-6
<PAGE>
ABC BANCORP AND SUBSIDIARIES
COMBINED WITH CENTRAL BANKSHARES, INC.
PRO FORMA CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996 THREE MONTHS ENDED MARCH 31, 1995
----------------------------------- -----------------------------------
PRO FORMA PRO FORMA
ABC CENTRAL COMBINED ABC CENTRAL COMBINED
HISTORICAL HISTORICAL (NOTE A) HISTORICAL HISTORICAL (NOTE A)
----------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME $7,051 $ 1,113 $8,164 $6,157 $ 914 $ 7,071
INTEREST EXPENSE 2,941 540 3,481 2,348 403 2,751
------ ------- ------ ------ ------- -------
Net interest income 4,110 573 4,683 3,809 511 4,320
PROVISION FOR LOAN LOSSES 180 - 180 180 45 225
------ ------- ------ ------ ------- -------
Net interest income
after provision for
loan losses 3,930 573 4,503 3,629 466 4,095
OTHER INCOME 927 180 1,107 886 160 1,046
OTHER EXPENSE 3,017 476 3,493 3,000 476 3,476
------ ------- ------ ------ ------- -------
Income from continuing
operations before
income taxes and
cumulative effect 1,840 277 2,117 1,515 150 1,665
INCOME TAXES 605 105 710 487 57 544
------ ------- ------ ------ ------- -------
Income from operations
before cumulative effect 1,235 172 1,407 1,028 93 1,121
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE - - - - - -
------ ------- ------ ------ ------- -------
Income from continuing
operations $1,235 $ 172 $1,407 $1,028 $ 93 $ 1,121
====== ======= ====== ====== ======= =======
INCOME PER SHARE FROM CONTINUING
OPERATIONS $ 0.36 $ 0.29
====== =======
</TABLE>
PF-7
<PAGE>
ABC BANCORP AND SUBSIDIARIES
COMBINED WITH CENTRAL BANKSHARES, INC.
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
A. The pro forma condensed balance sheet has been prepared assuming the
transaction was consummated on March 31, 1996. The pro forma condensed
statements of income have been prepared assuming the transaction was
consummated on January 1, 1993, the beginning of the earliest fiscal year
presented.
B. The following pro forma adjustments have been applied to give effect to the
proposed transaction.
BALANCE SHEET:
(1) Issue of 490,619 shares of ABC common stock, $1 par value, in exchange
for 100% of the equity of Central.
(2) Elimination of investment in Central.
STATEMENTS OF INCOME:
(3) Pro forma income per common share is based on the average number of
common shares that would have been outstanding during the respective
periods. There are no dilutive common stock attributes.
PF-8
<PAGE>
ABC BANCORP AND SUBSIDIARIES
AND CENTRAL BANKSHARES, INC.
COMBINED WITH FIRST NATIONAL FINANCIAL CORPORATION
PRO FORMA CONDENSED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The following unaudited pro forma condensed balance sheet as of March
31, 1996 has been prepared to reflect the acquisition by ABC (after the proposed
acquisition of Central) of 100% of First National after giving effect to the
adjustments described in the notes to the pro forma condensed financial
statements. These statements should be read in conjunction with the other
financial statements and notes thereto included elsewhere in this Proxy
Statement.
<TABLE>
<CAPTION>
PRO FORMA
ABC FIRST ADJUSTMENTS
CENTRAL NATIONAL (NOTES A PRO FORMA
HISTORICAL HISTORICAL AND B) COMBINED
---------- ---------- ------------ -------------
ASSETS
- ------
<S> <C> <C> <C> <C>
Cash and due from banks $ 18,997 $ 2,118 $ $ 21,115
Federal funds sold 21,535 3,100 24,635
Investment securities 67,778 11,332 79,110
Loans, net 253,865 35,015 288,880
Premises and equipment 8,296 1,463 9,759
Investment in First National 5,593 (1)
(5,593) (2)
Excess cost over fair value of assets
acquired 1,996 1,996
Other assets 13,226 836 14,062
---------- ---------- ------------- ------------
$ 385,693 $ 53,864 $ $ 439,557
========== ========== ============= ============
LIABILITIES AND EQUITY
- ----------------------
Deposits $ 338,109 $ 47,863 $ $ 385,972
Other liabilities 8,709 408 9,117
---------- ---------- ------------- ------------
Total liabilities 346,818 48,271 395,089
---------- ---------- ------------- ------------
EQUITY
- ------
Common stock 4,088 690 (1) 4,778
Capital surplus 20,654 4,942 (1) 25,596
Retained earnings 15,815 15,815
Unrealized gains on securities
available for sale,
net of taxes (127) (39) (1) (166)
Treasury stock (1,555) (1,555)
Equity of First National 5,593 (5,593) (2)
---------- ---------- ------------- ------------
Total equity 38,875 5,593 44,468
---------- ---------- ------------- ------------
$ 385,693 $ 53,864 $ $ 439,557
========== ========== ============= ============
</TABLE>
PF-9
<PAGE>
ABC BANCORP AND SUBSIDIARIES
AND CENTRAL BANKSHARES, INC.
COMBINED WITH FIRST NATIONAL FINANCIAL CORPORATION
PRO FORMA CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The following unaudited pro forma condensed statements of income have
been prepared to reflect the acquisition by ABC (after the proposed acquisition
of Central) of 100% of First National after giving effect to the adjustments
described in the notes to the pro forma condensed financial statements. These
statements should be read in conjunction with the other financial statements and
notes thereto included elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 YEAR ENDED DECEMBER 31, 1994 YEAR ENDED DECEMBER 31, 1993
-------------------------------- -------------------------------- --------------------------------
ABC FIRST PRO FORMA ABC FIRST PRO FORMA ABC FIRST PRO FORMA
CENTRAL NATIONAL COMBINED CENTRAL NATIONAL COMBINED CENTRAL NATIONAL COMBINED
HISTORICAL HISTORICAL (NOTE A) HISTORICAL HISTORICAL (NOTE A) HISTORICAL HISTORICAL (NOTE A)
---------- ---------- --------- ---------- ----------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME $ 30,844 $ 4,045 $ 34,889 $ 24,581 $ 3,162 $ 27,743 $ 22,815 $ 2,510 $ 25,325
INTEREST EXPENSE 12,633 1,893 14,526 9,076 1,438 10,514 8,939 1,177 10,116
------- ------ ------- ------- ------ ------- ------- ------ -------
Net interest income 18,211 2,152 20,363 15,505 1,724 17,229 13,876 1,333 15,209
PROVISION FOR LOAN LOSSES 988 185 1,173 818 120 938 1,384 128 1,512
------- ------ ------- ------- ------ ------- ------- ------ -------
Net interest
income after
provision for
loan losses 17,223 1,967 19,190 14,687 1,604 16,291 12,492 1,205 13,697
OTHER INCOME 3,873 524 4,397 3,692 355 4,047 3,478 289 3,767
OTHER EXPENSE 14,102 1,573 15,675 13,342 1,420 14,762 12,378 1,256 13,634
------- ------ ------- ------- ------ ------- ------- ------ -------
Income from continuing
operations before
income taxes and
cumulative effect 6,994 918 7,912 5,037 539 5,576 3,592 238 3,830
INCOME TAXES 2,154 306 2,460 1,480 223 1,703 979 979
------- ------ ------- ------- ------ ------- ------- ------ -------
Income from continuing
operations before
cumulative effect 4,840 612 5,452 3,557 316 3,873 2,613 238 2,851
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE - - - - - - 346 - 346
------- ------ ------- ------- ------ ------- ------- ------ -------
Income from continuing
operations $ 4,840 $ 612 $ 5,452 $ 3,557 $ 316 $ 3,873 $ 2,959 $ 238 $ 3,197
======= ====== ======= ======= ====== ======= ======= ====== =======
INCOME PER SHARE FROM
CONTINUING OPERATIONS $ 1.20 $ 0.94 $ 0.86
======= ======= =======
</TABLE>
PF-10
<PAGE>
ABC BANCORP AND SUBSIDIARIES
AND CENTRAL BANKSHARES, INC.
COMBINED WITH FIRST NATIONAL FINANCIAL CORPORATION
PRO FORMA CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996 THREE MONTHS ENDED MARCH 31, 1995
----------------------------------- -----------------------------------
ABC FIRST PRO FORMA ABC FIRST PRO FORMA
CENTRAL NATIONAL COMBINED CENTRAL NATIONAL COMBINED
COMBINED HISTORICAL (NOTE A) COMBINED HISTORICAL (NOTE A)
----------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME $8,164 $ 1,071 $9,235 $7,071 $ 938 $ 8,009
INTEREST EXPENSE 3,481 538 4,019 2,751 393 3,144
------ ------- ------ ------ ------- -------
Net interest income 4,683 533 5,216 4,320 545 4,865
PROVISION FOR LOAN LOSSES 180 50 230 225 25 250
------ ------- ------ ------ ------- -------
Net interest income
after provision for
loan losses 4,503 483 4,986 4,095 520 4,615
OTHER INCOME 1,107 123 1,230 1,046 85 1,131
OTHER EXPENSE 3,493 397 3,890 3,476 391 3,867
------ ------- ------ ------ ------- -------
Income from continuing
operations before
income taxes and
cumulative effect 2,117 209 2,326 1,665 214 1,879
INCOME TAXES 710 76 786 544 81 625
------ ------- ------ ------ ------- -------
Income from operations
before cumulative effect 1,407 133 1,540 1,121 133 1,254
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE - - - - - -
------ ------- ------ ------ ------- -------
Income from continuing
operations $1,407 $ 133 $1,540 $1,121 $ 133 $ 1,254
====== ======= ====== ====== ======= =======
INCOME PER SHARE FROM CONTINUING
OPERATIONS $ 0.34 $ 0.28
====== =======
</TABLE>
PF-11
<PAGE>
ABC BANCORP AND SUBSIDIARIES
AND CENTRAL BANKSHARES, INC.
COMBINED WITH FIRST NATIONAL FINANCIAL CORPORATION
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
A. The pro forma condensed balance sheet has been prepared assuming the
transaction was consummated on March 31, 1996. The pro forma condensed
statements of income have been prepared assuming the transaction was
consummated at the beginning of the earliest period presented.
B. The following pro forma adjustments have been applied to give effect to the
proposed transactions described in this Proxy Statement.
BALANCE SHEET:
(1) Issue of 690,259 shares of ABC common stock, $1 par value, in exchange
for 100% of the equity of First National.
(2) Elimination of investment in First National.
STATEMENTS OF INCOME:
(3) Pro forma income per common share is based on the average number of
common shares that would have been outstanding during the
respective periods.
PF-12
<PAGE>
ABC BANCORP AND SUBSIDIARIES
COMBINED WITH SOUTHLAND BANCORPORATION
PRO FORMA CONDENSED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The following unaudited pro forma condensed balance sheet as of March
31, 1996 has been prepared to reflect the acquisition by ABC of 100% of
Southland after giving effect to the adjustments described in the notes to the
pro forma condensed financial statements. The acquisition will be accounted for
as a purchase transaction. These statements should be read in conjunction with
the other financial statements and notes thereto included elsewhere in this
Proxy Statement.
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
ABC SOUTHLAND (NOTES A PRO FORMA
HISTORICAL HISTORICAL AND B) COMBINED
---------- ---------- --------------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
- ----------------------------------------
Cash and due from banks $ 16,855 $ 2,667 $ $ 19,522
Federal funds sold 21,535 (5793) (1) 15,742
Investment securities 56,916 25,180 82,096
Loans, net 218,877 74,880 293,757
Premises and equipment 7,222 2,544 500 (2) 10,266
Investment in Southland 11,822 (1)
(11,822) (2)
Excess cost over fair value of assets
acquired 1,996 2,250 (2)
2,504 (2) 6,750
Other assets 12,188 2,197 14,385
---------- ---------- -------------- ------------
$ 335,589 $ 107,468 $ (539) $ 442,518
========== ========== ============== ============
LIABILITIES AND EQUITY
- ----------------------
Deposits $ 293,385 $ 87,865 $ $ 381,250
Other liabilities 7,629 1,027 8,656
Long-term debt 12,008 12,008
---------- ---------- --------------- -----------
Total liabilities 301,014 100,900 401,914
========== ========== =============== ===========
EQUITY
- ------
Common stock 3,597 396 (1) 3,993
Capital surplus 16,826 5,633 (1) 22,459
Retained earnings 15,815 15,815
Unrealized losses on securities
available for sale,
net of taxes (108) (108)
Treasury stock (1,555) (1,555)
Equity of Southland 6,568 (6,568) (2)
---------- ---------- --------------- -----------
Total equity 34,575 6,568 (539) 40,604
---------- ---------- --------------- -----------
$ 335,589 $ 107,468 $ (539) $ 442,518
========== ========== ============== ============
</TABLE>
PF-13
<PAGE>
ABC BANCORP AND SUBSIDIARIES
COMBINED WITH SOUTHLAND BANCORPORATION
PRO FORMA CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following unaudited pro forma condensed statements of income have
been prepared to reflect the acquisition by ABC of 100% of Southland after
giving effect to the adjustments described in the notes to the pro forma
condensed financial statements. The acquisition will be accounted for as a
purchase transaction. These statements should be read in conjunction with the
other financial statements and notes thereto included elsewhere in this Proxy
Statement.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------------------------------
PRO FORMA
ABC SOUTHLAND ADJUSTMENTS PRO FORMA
HISTORICAL HISTORICAL (NOTE B) COMBINED
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME $ 26,703 $ 9,033 $ 319 (4) $ 35,417
INTEREST EXPENSE 10,673 4,775 15,448
---------- ---------- ----------- -----------
Net interest income 16,030 4,258 319 19,969
Provision for loan losses 848 72 920
---------- ---------- ----------- -----------
Net interest income
after provision for
loan losses 15,182 4,186 319 19,049
OTHER INCOME 3,276 1,582 4,858
OTHER EXPENSE 12,228 4,101 409 (3) 16,738
---------- ---------- ----------- -----------
Income from continuing
operations before
income taxes 6,230 1,667 (728) 7,169
INCOME TAXES 1,889 643 (108)(5) 2,424
---------- ---------- ----------- -----------
Income from continuing $
operations 4,341 $ 1,024 $ (620) $ 4,745
=========== ========== =========== ===========
INCOME PER SHARE FROM
CONTINUING OPERATIONS $ 1.26
===========
THREE MONTHS ENDED MARCH 31, 1996
----------------------------------------------------
PRO FORMA
ABC SOUTHLAND ADJUSTMENTS PRO FORMA
HISTORICAL HISTORICAL (NOTE B) COMBINED
------------ ---------- ------------ -----------
INTEREST INCOME $ 7,051 $ 2,456 $ (80)(4) $ 9,427
INTEREST EXPENSE 2,941 1,206 4,147
------------ ---------- -------- -----------
Net interest income 4,110 1,250 (80) 5,280
PROVISION FOR LOAN LOSSes 180 180
------------ ---------- -------- -----------
Net interest income
after provision for
loan losses 3,930 1,250 (80) 5,100
OTHER INCOME 927 399 1,326
OTHER EXPENSE 3,017 1,076 102 (3) 4,195
------------ ---------- -------- -----------
Income from continuing
operations before
income taxes 1,840 573 (182) 2,231
INCOME TAXES 605 213 (27)(5) 791
------------ ---------- ------- -----------
Income from continuing $
operations 1,235 $ 360 $ (155) $ 1,440
============ ========== ======== ============
INCOME PER SHARE FROM
CONTINUING OPERATIONS $ 0.38
============
</TABLE>
PF-14
<PAGE>
ABC BANCORP AND SUBSIDIARIES
COMBINED WITH SOUTHLAND BANCORPORATION
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
A. The pro forma condensed balance sheet has been prepared assuming the
transaction was consummated on March 31, 1996. The pro forma condensed
statements of income have been prepared assuming the transaction was
consummated at the beginning of each period presented.
B. The following pro forma adjustments have been applied to give effect to the
proposed transaction described in this Proxy Statement.
BALANCE SHEET:
(1) Payment of $5,793,000 in cash (representing 49% of total consideration)
and issue of 396,398 of ABC common in exchange for 100% of the equity
of Southland for a total consideration of $11,822,000.
(2) Elimination of investment in Southland and allocation of purchase
price as follows:
(a) Write-up of land and buildings to approximate market value.
(b) $2,250,000, representing approximately 50% of the excess of
purchase price over the fair value of net assets acquired, has
been tentatively allocated as a premium paid for the customer
deposit base. The allocation is subject to a statistical study to
determine the ultimate customer deposit base premium. For
purposes of the pro forma financial statements, the premium is
being amortized over a period of 10 years.
(c) The remainder of the excess of purchase price over the fair
value of net assets acquired amounting to $2,504,000 has been
considered to be goodwill and is being amortized over a period of
15 years.
PF-15
<PAGE>
STATEMENTS OF INCOME:
(3) Pro forma adjustments to income resulting from the allocation of
the purchase price of Southland as follows:
(a) Depreciation of the write-up of buildings using the straight-
line method over the estimated average remaining life of 30 years.
(b) Amortization of the customer deposit base premium using the
straight-line method over a period of 10 years.
(c) Amortization of goodwill using the straight-line method over a
period of 15 years.
(4) Loss of interest on Federal funds sold used to fund the
acquisition using an average rate of 5.5%.
(5) Tax effect of pro forma adjustments for reduction in interest
income using a tax rate of 34%.
C. The following is the effect of the purchase adjustments described in Note
B(3) of Notes to the Pro Forma Condensed Financial Statements of ABC
Bancorp and Subsidiaries Combined with Southland Bancorporation.
<TABLE>
<CAPTION>
DEPRECIATION AMORTIZATION
OF WRITE-UP OF DEPOSIT AMORTIZATION
OF BANK BASE OF
YEAR ENDING DECEMBER 31, BUILDINGS PREMIUM GOODWILL TOTAL
------------------------ ----------- ------------ ------------ --------
<S> <C> <C> <C> <C>
1996 $17,000 $225,000 $167,000 $409,000
1997 17,000 225,000 167,000 409,000
1998 17,000 225,000 167,000 409,000
1999 17,000 225,000 167,000 409,000
2000 17,000 225,000 167,000 409,000
</TABLE>
PF-16
<PAGE>
ABC BANCORP AND SUBSIDIARIES
AND SOUTHLAND BANCORPORATION
COMBINED WITH FIRST NATIONAL FINANCIAL CORPORATION
PRO FORMA CONDENSED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The following unaudited pro forma condensed balance sheet as of March
31, 1996 has been prepared to reflect the acquisition by ABC (after the proposed
acquisition of Southland) of 100% of First National after giving effect to the
adjustments described in the notes to the pro forma condensed financial
statements. These statements should be read in conjunction with the other
financial statements and notes thereto included elsewhere in this Proxy
Statement.
<TABLE>
<CAPTION>
PRO FORMA
ABC FIRST ADJUSTMENTS
SOUTHLAND NATIONAL (NOTES A PRO FORMA
COMBINED HISTORICAL AND B) COMBINED
--------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
- ------
Cash and due from banks $ 19,522 $ 2,118 $ $ 21,640
Federal funds sold 15,742 3,100 18,842
Investment securities 82,096 11,332 93,428
Loans, net 293,757 35,015 328,772
Premises and equipment 10,266 1,463 11,729
Investment in First National 5,593 (1)
(5,593) (2)
Excess cost over fair value of assets
acquired 6,750 6,750
Other assets 14,385 836 15,221
--------- ---------- ------------- -------------
$ 442,518 $ 53,864 $ $ 496,382
========= ========== ============= =============
LIABILITIES AND EQUITY
- ----------------------
Deposits $ 381,150 $ 47,863 $ $ 429,013
Other liabilities 8,656 408 9,064
Long-term debt 12,108 12,108
--------- ---------- ------------- -------------
Total liabilities 401,914 48,271 450,185
--------- ---------- ------------- -------------
EQUITY
- ------
Common stock 3,993 690 (1) 4,683
Capital surplus 22,459 4,942 (1) 27,401
Retained earnings 15,815 15,815
Unrealized losses on securities
available
for sale, net of taxes (108) (39) (1) (147)
Treasury stock (1,555) (1,555)
Equity of First National 5,593 (5,593) (2)
--------- ---------- --------------- ------------
Total equity 40,604 5,593 46,197
--------- ---------- --------------- ------------
$ 442,518 $ 53,864 $ $ 496,382
========== ========== ============== =============
</TABLE>
PF-17
<PAGE>
ABC BANCORP AND SUBSIDIARIES
AND SOUTHLAND BANCORPORATION
COMBINED WITH FIRST NATIONAL FINANCIAL CORPORATION
PRO FORMA CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The following unaudited pro forma condensed statements of income have
been prepared to reflect the acquisition by ABC (after the proposed acquisition
of Southland) of 100% of First National after giving effect to the adjustments
described in the notes to the pro forma condensed financial statements. These
statements should be read in conjunction with the other financial statements and
notes thereto included elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 YEAR ENDED DECEMBER 31, 1994 YEAR ENDED DECEMBER 31, 1993
-------------------------------- -------------------------------- --------------------------------
ABC FIRST PRO FORMA FIRST PRO FORMA FIRST PRO FORMA
SOUTHLAND NATIONAL COMBINED ABC NATIONAL COMBINED ABC NATIONAL COMBINED
HISTORICAL HISTORICAL (NOTE A) HISTORICAL HISTORICAL (NOTE A) HISTORICAL HISTORICAL (NOTE A)
---------- ---------- --------- ---------- ----------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME $35,417 $4,045 $39,462 $21,328 $3,162 $24,490 $19,697 $2,510 $22,207
INTEREST EXPENSE 15,448 1,893 17,341 7,828 1,438 9,266 7,732 1,177 8,909
------- ------ ------- ------- ------ ------- ------- ------ -------
Net interest income 19,969 2,152 22,121 13,500 1,724 15,224 11,965 1,333 13,298
PROVISION FOR LOAN LOSSES 920 185 1,105 638 120 758 1,191 128 1,319
------- ------ ------- ------- ------ ------- ------- ------ -------
Net interest
income after
provision for
loan losses 19,049 1,967 21,016 12,862 1,604 14,466 10,774 1,205 11,979
OTHER INCOME 4,858 524 5,382 3,025 355 3,380 2,867 289 3,156
OTHER EXPENSE 16,738 1,573 18,311 11,547 1,420 12,967 10,535 1,256 11,791
------- ------ ------- ------- ------ ------- ------- ------ -------
Income from continuing
operations before
income taxes and
cumulative effect 7,169 918 8,087 4,340 539 4,879 3,106 238 3,344
INCOME TAXES 2,424 306 2,730 1,240 223 1,463 814 - 814
------- ------ ------- ------- ------ ------- ------- ------ -------
Income from continuing
operations before
cumulative effect 4,745 612 5,357 3,100 316 3,416 2,292 238 2,530
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE - - - - - - 346 - 346
------- ------ ------- ------- ------ ------- ------- ------ -------
Income from continuing
operations $ 4,745 $ 612 $ 5,357 $ 3,100 $ 316 $ 3,416 $ 2,638 $ 238 $ 2,876
======= ====== ======= ======= ====== ======= ======= ====== =======
INCOME PER SHARE FROM
CONTINUING OPERATIONS $ 1.21 $ 0.94 $ 0.89
======= ======= =======
</TABLE>
PF-18
<PAGE>
ABC BANCORP AND SUBSIDIARIES
AND SOUTHLAND BANCORPORATION
COMBINED WITH FIRST NATIONAL FINANCIAL CORPORATION
PRO FORMA CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996 THREE MONTHS ENDED MARCH 31, 1995
----------------------------------- -----------------------------------
ABC FIRST PRO FORMA ABC FIRST PRO FORMA
SOUTHLAND NATIONAL COMBINED SOUTHLAND NATIONAL COMBINED
COMBINED HISTORICAL (NOTE A) COMBINED HISTORICAL (NOTE A)
----------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME $9,427 $ 1,071 $10,498 $8,347 $ 938 $ 9,285
INTEREST EXPENSE 4,147 538 4,685 3,428 393 3,821
------ ------- ------ ------ ------- -------
Net interest income 5,280 533 5,813 4,919 545 5,464
PROVISION FOR LOAN LOSSES 180 50 230 232 25 257
------ ------- ------ ------ ------- -------
Net interest income
after provision for
loan losses 5,100 483 5,583 4,687 520 5,207
OTHER INCOME 1,326 123 1,449 1,254 85 1,339
OTHER EXPENSE 4,195 397 4,592 4,184 391 4,575
------ ------- ------ ------ ------- -------
Income from continuing
operations before
income taxes and
cumulative effect 2,231 209 2,440 1,757 214 1,971
INCOME TAXES 791 76 867 631 81 712
------ ------- ------ ------ ------- -------
Income from operations
before cumulative effect 1,440 133 1,573 1,126 133 1,259
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE - - - - - -
------ ------- ------ ------ ------- -------
Income from continuing
operations $1,440 $ 133 $1,573 $1,126 $ 133 $ 1,259
====== ======= ====== ====== ======= =======
INCOME PER SHARE FROM CONTINUING
OPERATIONS $ 0.35 $ 0.28
====== =======
</TABLE>
PF-19
<PAGE>
ABC BANCORP AND SUBSIDIARIES
AND SOUTHLAND BANCORPORATION
COMBINED WITH FIRST NATIONAL FINANCIAL CORPORATION
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
A. The pro forma condensed balance sheet has been prepared assuming the
transaction was consummated on March 31, 1996. The pro forma condensed
statement of income have been prepared assuming the transaction was
consummated at the beginning of each period presented.
B. The following pro forma adjustments have been applied to give effect to the
proposed transactions described in this Proxy Statement.
BALANCE SHEET:
(1) Issue of 690,259 shares of ABC common stock in exchange for 100%
of the equity of First National.
(2) Elimination of investment in First National.
C. The following is the effect of the purchase adjustments described in Note
B(3) of Notes to the Pro Forma Condensed Financial Statements of ABC
Bancorp and Subsidiaries Combined with Southland Bancorporation.
<TABLE>
<CAPTION>
DEPRECIATION AMORTIZATION
OF WRITE-UP OF DEPOSIT AMORTIZATION
OF BANK BASE OF
YEAR ENDING DECEMBER 31, BUILDINGS PREMIUM GOODWILL TOTAL
------------------------ ----------- ------------ ------------ --------
<S> <C> <C> <C> <C>
1996 $17,000 $225,000 $167,000 $409,000
1997 17,000 225,000 167,000 409,000
1998 17,000 225,000 167,000 409,000
1999 17,000 225,000 167,000 409,000
2000 17,000 225,000 167,000 409,000
</TABLE>
No tax effects relating to the purchase adjustments have been recorded
because the Company is acquiring the stock of Southland and will not be
allowed any taxable deductions for the above adjustments.
PF-20
<PAGE>
ABC BANCORP AND SUBSIDIARIES
AND CENTRAL BANKSHARES, INC.
COMBINED WITH SOUTHLAND BANCORPORATION
PRO FORMA CONDENSED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The following unaudited pro forma condensed balance sheet as of March
31, 1996 has been prepared to reflect the acquisition by ABC (after the proposed
acquisition of Central) of 100% of Southland after giving effect to the
adjustments described in the notes to the pro forma condensed financial
statements. These statements should be read in conjunction with the other
financial statements and notes thereto included elsewhere in this Proxy
Statement.
<TABLE>
<CAPTION>
PRO FORMA
ABC ADJUSTMENTS
CENTRAL SOUTHLAND (NOTES A PRO FORMA
COMBINED HISTORICAL AND B) COMBINED
---------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
ASSETS
- ------
Cash and due from banks $ 18,997 $ 2,667 $ - $ 21,664
Federal funds sold 21,535 - (5,793)(1) 15,742
Investment securities 67,778 25,180 - 92,958
Loans, net 253,865 74,880 - 328,745
Premises and equipment 8,296 2,544 500 (2) 11,340
Investment in Southland - - 11,822 (1)
(11,822)(2) -
Excess cost over fair value of assets
acquired 1,996 - 2,250 (2)
2,504 (2) 6,750
Other assets 13,226 2,197 - 15,423
-------- -------- -------- --------
$385,693 $107,468 $ (539) $492,622
======== ======== ======== ========
LIABILITIES AND EQUITY
- ----------------------
Deposits $338,109 $ 87,865 $ - $425,974
Other liabilities 8,709 1,027 - 9,736
Long-term debt - 12,008 - 12,008
-------- -------- ------- ---------
Total liabilities 346,818 100,900 - 447,718
-------- -------- ------- --------
EQUITY
- ------
Common stock 4,088 - 396 (1) 4,484
Capital surplus 20,654 - 5,633 (1) 26,287
Retained earnings 15,815 - - 15,815
Unrealized gains on securities
available for sale,
net of taxes (127) - - (127)
Treasury stock (1,555) - - (1,555)
Equity of Southland 6,568 (6,568)(2)
-------- -------- -------- --------
Total equity 38,875 6,568 (539) 44,904
-------- -------- -------- --------
$385,693 $107,468 $ (539) $492,622
======== ======== ======== ========
</TABLE>
PF-21
<PAGE>
ABC BANCORP AND SUBSIDIARIES
AND CENTRAL BANKSHARES, INC.
COMBINED WITH SOUTHLAND BANCORPORATION
PRO FORMA CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The following unaudited pro forma condensed statements of income have
been prepared to reflect the acquisition by ABC (after the proposed acquisition
of Central) of 100% of Southland after giving effect to the adjustments
described in the notes to the pro forma condensed financial statements. These
statements should be read in conjunction with the other financial statements and
notes thereto included elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------
ABC PRO FORMA
CENTRAL SOUTHLAND ADJUSTMENTS PRO FORMA
COMBINED HISTORICAL (NOTE B) COMBINED
-------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME $30,844 $9,033 $ (319)(4) $39,558
INTEREST EXPENSE 12,633 4,775 17,408
------- ------ ------ -------
Net interest income 18,211 4,258 (319) 22,150
PROVISION FOR LOAN LOSSES 988 72 1,060
------- ------ ------ -------
Net interest income
after provision for
loan losses 17,223 4,186 (319) 21,090
OTHER INCOME 3,873 1,582 5,455
OTHER EXPENSE 14,102 4,101 409 (3) 18,612
------- ------ ------ -------
Income from continuing
operations before
income taxes 6,994 1,667 (728) 7,933
INCOME TAXES 2,154 643 (108)(5) 2,689
------- ------ ------ -------
Income from continuing
operations $ 4,840 $1,024 $ (620) $ 5,244
======= ======= ====== =======
INCOME PER SHARE FROM
CONTINUING OPERATIONS $ 1.24
=======
YEAR ENDED DECEMBER 31, 1996
------------------------------------------------
ABC PRO FORMA
CENTRAL SOUTHLAND ADJUSTMENTS PRO FORMA
COMBINED HISTORICAL (NOTE B) COMBINED
-------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME $ 8,164 $2,456 $ (80)(4) $10,540
INTEREST EXPENSE 3,481 1,206 4,687
------- ------ ------ -------
Net interest income 4,683 1,250 (80) 5,853
PROVISION FOR LOAN LOSSes 180 180
------- ------ ------ -------
Net interest income 4,503 1,250 (80) 5,673
after provision for
loan losses
OTHER INCOME 1,107 399 1,506
OTHER EXPENSE 3,493 1,076 102 (3) 4,671
------- ------ ------ -------
Income from continuing
operations before
income taxes 2,117 573 (182) 2,508
INCOME TAXES 710 213 (27)(5) 896
------- ------ ------ -------
Income from continuing
operations $ 1,407 $ 360 $ (155) 1,612
======= ====== ====== =======
INCOME PER SHARE FROM
CONTINUING OPERATIONS $ 0.38
=======
</TABLE>
PF-22
<PAGE>
ABC BANCORP AND SUBSIDIARIES
AND CENTRAL BANKSHARES, INC.
COMBINED WITH SOUTHLAND BANCORPORATION
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
A. The pro forma condensed balance sheet has been prepared assuming the
transaction was consummated on March 31, 1996. The pro forma condensed
statements of income have been prepared assuming the transa ction was
consummated at the beginning of each period presented.
B. The following pro forma adjustments have been applied to give effect to the
proposed transactions described in this Proxy Statement.
BALANCE SHEET:
(1) Payment of $5,793,000 in cash (representing 49% of total consideration)
and issue of 396,398 of ABC common in exchange for 100% of the equity
of Southland for a total consideration of $ 11,822,000.
(2) Elimination of investment in Southland and allocation of purchase
price as follows:
(a) Write-up of land and buildings to approximate market value.
(b) $2,250,000, representing approximately 50% of the excess of
purchase price over the fair value of net assets acquired, has been
tentatively allocated as a premium paid for the customer deposit
base. The allocation is subject to a statistical study to determine
the ultimate customer deposit base premium. For purposes of the pro
forma financial statements, the premium is being amortized over a
period of 10 years.
(c) The remainder of the excess of purchase price over the fair value
of net assets acquired amounting to $2,504,000 has been considered
to be goodwill and is being amortized over a period of 15 years.
PF-23
<PAGE>
STATEMENTS OF INCOME:
(3) Pro forma adjustments to income resulting from the allocation of
the purchase price of Southland as follows:
(a) Depreciation of the write-up of buildings using the straight-
line method over the estimated average remaining life of 30 years.
(b) Amortization of the customer deposit base premium using the
straight-line method over a period of 10 years.
(c) Amortization of goodwill using the straight-line method over a
period of 15 years.
(4) Loss of interest on Federal funds sold used to fund the
acquisition using an average rate of 5.5%.
(5) Tax effect of pro forma adjustments for reduction in interest
income using a tax rate of 34%.
C. The following is the effect of the purchase adjustments described in Note
B(3) of Notes to the Pro Forma Condensed Financial Statements of ABC
Bancorp and Subsidiaries Combined with Southland Bancorporation.
<TABLE>
<CAPTION>
DEPRECIATION AMORTIZATION
OF WRITE-UP OF DEPOSIT AMORTIZATION
OF BANK BASE OF
YEAR ENDING DECEMBER 31, BUILDINGS PREMIUM GOODWILL TOTAL
------------------------ ----------- ------------ ------------ --------
<S> <C> <C> <C> <C>
1996 $17,000 $225,000 $167,000 $409,000
1997 17,000 225,000 167,000 409,000
1998 17,000 225,000 167,000 409,000
1999 17,000 225,000 167,000 409,000
2000 17,000 225,000 167,000 409,000
</TABLE>
No tax effects relating to the purchase adjustments have been recorded
because the Company is acquiring the stock of Southland and will not be
allowed any taxable deductions for the above adjustments.
PF-24
<PAGE>
ABC BANCORP AND SUBSIDIARIES,
CENTRAL BANKSHARES, INC.
AND SOUTHLAND BANCORPORATION
COMBINED WITH FIRST NATIONAL FINANCIAL CORPORATION
PRO FORMA CONDENSED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The following unaudited pro forma condensed balance sheet as of March
31, 1996 has been prepared to reflect the acquisition by ABC (after the proposed
acquisitions of Central and Southland) of 100% of First National after giving
effect to the adjustments described in the notes to the pro forma condensed
financial statements. These statements should be read in conjunction with the
other financial statements and notes thereto included elsewhere in this Proxy
Statement.
<TABLE>
<CAPTION>
ABC PRO FORMA
CENTRAL FIRST ADJUSTMENTS
SOUTHLAND NATIONAL (NOTES A PRO FORMA
COMBINED HISTORICAL AND B) COMBINED
--------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
ASSETS
- ------
Cash and due from banks $ 21,664 $ 2,118 $ $ 23,782
Federal funds sold 15,742 3,100 18,842
Investment securities 92,958 11,332 104,290
Loans, net 328,745 35,015 363,760
Premises and equipment 11,340 1,463 12,803
Investment in First National 5,593 (1)
(5,593) (2)
Excess cost over fair value of assets
acquired 6,750 6,750
Other assets 15,423 836 16,259
--------- ---------- ------------ -------------
$ 492,622 $ 53,864 $ $ 546,486
========= ========== ============ =============
LIABILITIES AND EQUITY
- ----------------------
Deposits $ 425,874 $ 47,863 $ $ 473,837
Other liabilities 9,736 408 10,144
Long-term debt 12,108 12,008
--------- ---------- ----------- --------------
Total liabilities 447,718 48,271 495,989
========= ========== =========== ==============
EQUITY
- ------
Common stock 4,484 690 (1) 5,174
Capital surplus 26,287 4,942 (1) 31,229
Retained earnings 15,815 15,815
Unrealized losses on securities
available for sale,
net of taxes (127) (39) (1) (166)
Treasury stock (1,555) (1,555)
Equity of First National 5,593 (5,593) (2)
--------- ---------- ------------- ------------
Total equity 44,904 5,593 50,497
--------- ---------- ------------- ------------
$ 492,622 $ 53,864 $ $ 546,486
========= ========== ============= ============
</TABLE>
PF-25
<PAGE>
ABC BANCORP AND SUBSIDIARIES,
CENTRAL BANKSHARES, INC.
AND SOUTHLAND BANCORPORATION
COMBINED WITH FIRST NATIONAL FINANCIAL CORPORATION
PRO FORMA CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The following unaudited pro forma condensed statements of income have
been prepared to reflect the acquisition by ABC (after the proposed acquisitions
of Central and Southland) of 100% of First National after giving effect to the
adjustments described in the notes to the pro forma condensed financial
statements. These statements should be read in conjunction with the other
financial statements and notes thereto included elsewhere in this Proxy
Statement.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 YEAR ENDED DECEMBER 31, 1994 YEAR ENDED DECEMBER 31, 1993
-------------------------------- -------------------------------- --------------------------------
ABC
CENTRAL FIRST PRO FORMA ABC FIRST PRO FORMA ABC FIRST PRO FORMA
SOUTHLAND NATIONAL COMBINED CENTRAL NATIONAL COMBINED CENTRAL NATIONAL COMBINED
HISTORICAL HISTORICAL (NOTE A) HISTORICAL HISTORICAL (NOTE A) HISTORICAL HISTORICAL (NOTE A)
---------- ---------- --------- ---------- ----------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME $39,558 $4,045 $43,603 $24,581 $3,162 $27,743 $22,815 $2,510 $25,325
INTEREST EXPENSE 17,408 1,893 19,301 9,076 1,438 10,514 8,939 1,177 10,116
------- ------ ------- ------- ------ ------- ------- ------ -------
Net interest income 22,150 2,152 24,302 15,505 1,724 17,229 13,876 1,333 15,209
PROVISION FOR LOAN LOSSES 1,060 185 1,245 818 120 938 1,384 128 1,512
------- ------ ------- ------- ------ ------- ------- ------ -------
Net interest
income after
provision for
loan losses 21,090 1,967 23,057 14,687 1,604 16,291 12,492 1,205 13,697
OTHER INCOME 5,455 524 5,979 3,692 355 4,047 3,478 289 3,767
OTHER EXPENSE 18,612 1,573 20,185 13,342 1,420 14,762 12,378 1,256 13,634
------- ------ ------- ------- ------ ------- ------- ------ -------
Income from continuing
operations before
income taxes and
cumulative effect 7,933 918 8,851 5,037 539 5,576 3,592 238 3,830
INCOME TAXES 2,689 306 2,995 1,480 223 1,703 979 - 979
------- ------ ------- ------- ------ ------- ------- ------ -------
Income from continuing
operations before
cumulative effect 5,244 612 5,856 3,557 316 3,873 2,613 238 2,851
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE - - - - - - 346 - 346
------- ------ ------- ------- ------ ------- ------- ------ -------
Income from continuing
operations $ 5,244 $ 612 $ 5,856 $ 3,557 $ 316 $ 3,873 $ 2,959 $ 238 $ 3,197
======= ====== ======= ======= ====== ======= ======= ====== =======
INCOME PER SHARE FROM
CONTINUING OPERATIONS $ 1.19 $ 0.94 $ 0.86
======= ======= =======
</TABLE>
PF-26
<PAGE>
ABC BANCORP AND SUBSIDIARIES,
CENTRAL BANKSHARES, INC.
AND SOUTHLAND BANCORPORATION
COMBINED WITH FIRST NATIONAL FINANCIAL CORPORATION
PRO FORMA CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996 THREE MONTHS ENDED MARCH 31, 1995
----------------------------------- -----------------------------------
ABC ABC
CENTRAL FIRST PRO FORMA CENTRAL FIRST PRO FORMA
SOUTHLAND NATIONAL COMBINED SOUTHLAND NATIONAL COMBINED
COMBINED HISTORICAL (NOTE A) COMBINED HISTORICAL (NOTE A)
----------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME $10,540 $ 1,071 $11,611 $9,261 $ 938 $10,199
INTEREST EXPENSE 4,687 538 5,225 3,831 393 4,224
------ ------- ------ ------ ------- -------
Net interest income 5,853 533 6,386 5,430 545 5,975
PROVISION FOR LOAN LOSSES 180 50 230 277 25 302
------ ------- ------ ------ ------- -------
Net interest income
after provision for
loan losses 5,673 483 6,156 5,153 520 5,673
OTHER INCOME 1,506 123 1,629 1,414 85 1,499
OTHER EXPENSE 4,671 397 5,068 4,660 391 5,051
------ ------- ------ ------ ------- -------
Income from continuing
operations before
income taxes and
cumulative effect 2,508 209 2,717 1,907 214 2,121
INCOME TAXES 896 76 972 688 81 769
------ ------- ------ ------ ------- -------
Income from operations
before cumulative effect 1,612 133 1,745 1,219 133 1,352
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE - - - - - -
------ ------- ------ ------ ------- -------
Income from continuing
operations $1,612 $ 133 $1,745 $1,219 $ 133 $ 1,352
====== ======= ====== ====== ======= =======
INCOME PER SHARE FROM CONTINUING
OPERATIONS $ 0.35 $ 0.27
====== =======
</TABLE>
PF-27
<PAGE>
ABC BANCORP AND SUBSIDIARIES,
CENTRAL BANKSHARES, INC.
AND SOUTHLAND BANCORPORATION
COMBINED WITH FIRST NATIONAL FINANCIAL CORPORATION
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
A. The pro forma condensed balance sheet has been prepared assuming the
transaction was consummated on March 31, 1996. The pro forma condensed
statements of income have been prepared assuming the transaction was
consummated on January 1, 1993, the beginning of the earliest fiscal year
presented.
B. The following pro forma adjustments have been applied to give effect to the
proposed transactions described in this Proxy Statement.
BALANCE SHEET:
(1) Issue of 690,259 shares of ABC common stock in exchange for 100%
of the equity of First National.
(2) Elimination of investment in First National.
C. The following is the effect of the purchase adjustments described in Note
B(3) of Notes to the Pro Forma Condensed Financial Statements of ABC
Bancorp and Subsidiaries Combined with Southland Bancorporation.
<TABLE>
<CAPTION>
DEPRECIATION AMORTIZATION
OF WRITE-UP OF DEPOSIT AMORTIZATION
OF BANK BASE OF
YEAR ENDING DECEMBER 31, BUILDINGS PREMIUM GOODWILL TOTAL
------------------------ ----------- ------------ ------------ --------
<S> <C> <C> <C> <C>
1996 $17,000 $225,000 $167,000 $409,000
1997 17,000 225,000 167,000 409,000
1998 17,000 225,000 167,000 409,000
1999 17,000 225,000 167,000 409,000
2000 17,000 225,000 167,000 409,000
</TABLE>
No tax effects relating to the purchase adjustments have been recorded
because the Company is acquiring the stock of Southland and will not be
allowed any taxable deductions for the above adjustments.
PF-28
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS MAR 31, 1996 DEC 31, 1995
- ------------------------------------------------- ------------ ------------
<S> <C> <C>
Cash and due from banks $ 16,855 $ 23,612
Securities available for sale, at fair value 46,618 39,991
Securities held to maturity, at cost 10,298 10,269
(fair value $10,479 and $10,462, respectively)
Federal funds sold 21,535 41,025
Loans 223,305 214,251
Less allowance for loan losses 4,428 4,272
-------- --------
Loans, net 218,877 209,979
-------- --------
Premises and equipment, net 7,222 6,942
Other assets 14,184 9,687
-------- --------
$335,589 $341,505
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------------------
Deposits
Noninterest-bearing demand $ 45,125 $ 58,430
Interest-bearing demand 74,410 71,833
Savings 24,075 22,318
Time, $100,000 and over 38,653 37,773
Other time 111,122 110,634
-------- --------
Total deposits 293,385 300,988
Securities sold under repurchase agreements and
other borrowing 529 3,487
Other time 7,100 3,095
-------- --------
Total liabilities 301,014 307,570
-------- --------
Stockholders' equity
Common stock, par value $1;
10,000,000 shares authorized,
3,597,074 shares issued 3,597 3,597
Capital surplus 16,826 16,826
Retained earnings 15,815 14,918
Unrealized gains (losses) on securities
available for sale, net of taxes (108) 149
-------- --------
36,130 35,490
Less cost of 217,882 shares acquired for
the treasury (1,555) (1,555)
-------- --------
Total stockholders' equity 34,575 33,935
-------- --------
$335,589 $341,505
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-1
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Interest income
Interest and fees on loans $ 5,872 $ 5,176
Interest on taxable securities 668 516
Interest on nontaxable securities 134 133
Interest on deposits in other banks 0 18
Interest on Federal funds sold 377 314
---------- ----------
7,051 6,157
---------- ----------
Interest expense
Interest on deposits 2,910 2,291
Interest on securities sold under repurchase
agreements and other borrowings 31 57
---------- ----------
2,941 2,348
---------- ----------
Net interest income 4,110 3,809
Provision for loan losses 180 180
---------- ----------
Net interest income after provision for
loan losses 3,930 3,629
---------- ----------
Other income
Service charges on deposit accounts 668 602
Other service charges, commissions and fees 233 229
Other 26 55
---------- ----------
Total other income 927 886
---------- ----------
Other expense
Salaries and employee benefits 1,670 1,519
Equipment expense 270 278
Occupancy expense 207 231
Amortization of intangible assets 79 79
Data processing fees 346 337
Directors fees 49 47
FDIC premiums 3 145
Other operating expenses 393 364
---------- ----------
Total other expenses 3,017 3,000
---------- ----------
Income before income taxes 1,840 1,515
Applicable income taxes 605 487
---------- ----------
Net income $ 1,235 $ 1,028
========== ==========
Income per common share $0.37 $0.31
========== ==========
Average shares outstanding 3,379,192 3,352,525
========== ==========
</TABLE>
F-2
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,235 $ 1,028
--------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 227 199
Provision for loan losses 180 180
Amortization of intangible assets 79 67
Other prepaids, deferrals and accruals, net (547) (941)
--------- ---------
Total adjustments (61) (495)
--------- ---------
Net cash provided by (used in)
operating activities 1,174 533
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of securities held for
investment 6,145 3,928
Purchase of securities available for sale (12,561) (3,607)
Purchase of securities held for investment (500) --
(Increase) decrease in Federal funds sold 19,490 (1,663)
(Increase) decrease in loans (9,153) (3,510)
Purchase of premises and equipment (483) (217)
--------- ---------
Net cash provided by (used in) investing
activities 2,938 (5,069)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits (8,613) (20)
Net increase (decrease) in repurchase agreements (2,694) (1,198)
Increase (decrease) of long-term debt -- 2,000
Dividends paid (338) (230)
--------- ---------
Net cash provided by (used in) financing
activities (11,645) 543
--------- ---------
Net increase (decrease) in cash and due from Banks ($ 7,533) ($ 3,993)
Cash and due from banks at beginning of year 24,388 20,495
--------- ---------
Cash and due from banks at end of quarter $ 16,855 $ 16,502
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of ABC Bancorp and subsidiaries ("the
Company") conform to generally accepted accounting principles and to general
practices within the banking industry. The interim consolidated financial
statements included herein are unaudited, but reflect all adjustments which, in
the opinion of management, are necessary for a fair presentation of the
consolidated financial position and results of operations for the interim
periods presented. All adjustments reflected in the interim financial
statements are of normal, recurring nature. Such financial statements should
be read in conjunction with the financial statements and notes thereto and the
report of independent auditors included in the Company's Form 10-K Annual Report
for the year ended December 31, 1995. The results of operations for the three
months ended March 31, 1996 are not necessarily indicative of the results to be
expected for the full year.
NOTE 2. STOCKHOLDERS' EQUITY
As of July 17, 1995, a 4-for-3 stock split in the form of a Common Stock
dividend on the outstanding shares of the Company's Common Stock became
effective. Fractional shares were paid in cash. All per share information
reflects retroactively this stock split.
F-4
<PAGE>
INDEPENDENT AUDITOR'S REPORT
- -----------------------------------------------------------------------------
To the Board of Directors
ABC Bancorp
Moultrie, Georgia
We have audited the accompanying consolidated balance sheets of ABC
BANCORP AND SUBSIDIARIES as of December 31, 1995 and 1994, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ABC Bancorp
and Subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements,
effective January 1, 1993, the Company changed its method of accounting for
income taxes.
/s/ Mauldin & Jenkins
------------------------
Albany, Georgia
January 24, 1996
F-5
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(Dollars in Thousands)
- ----------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1995 1994
- ------ -------- --------
<S> <C> <C>
Cash and due from banks $ 23,612 $ 20,089
Federal funds sold 41,025 21,902
Securities available for sale,
at fair value (Note 2) 39,991 1,910
Securities held to maturity,
at cost (fair value $10,462
and $43,024) (Note 2) 10,269 44,595
Loans (Note 3) 214,251 192,124
Less allowance for loan losses 4,272 3,757
--------- ---------
Loans, net 209,979 188,367
--------- ---------
Premises and equipment, net (Note 4) 6,942 7,171
Other assets 9,687 8,765
--------- ---------
$341,505 $292,799
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Deposits
Noninterest-bearing demand $ 58,430 $ 48,450
Interest-bearing demand 71,833 63,262
Savings 22,318 23,644
Time, $100,000 and over 37,773 27,291
Other time 110,634 94,222
-------- ---------
Total deposits 300,988 256,869
Securities sold under repurchase
agreements 1,887 2,338
Other short-term borrowings 1,600 -
Other liabilities 3,095 3,142
--------- --------
Total liabilities 307,570 262,349
--------- --------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 8)
STOCKHOLDERS' EQUITY (Note 10)
Common stock, par value $1;
10,000,000 shares authorized,
3,597,074 and 2,697,987 shares
issued, respectively 3,597 2,698
Capital surplus 16,826 17,728
Retained earnings 14,918 11,753
Unrealized gains (losses) on
securities available for sale, net
of taxes 149 (49)
-------- ---------
35,490 32,130
Less cost of shares acquired for the
treasury, 217,882 and 183,412
shares, respectively (1,555) (1,680)
--------- ---------
Total stockholders' equity 33,935 30,450
--------- ---------
$ 341,505 $292,799
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Dollars in Thousands)
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 22,647 $ 18,017 $ 16,278
Interest on taxable securities 2,271 1,863 1,892
Interest on nontaxable securities 551 610 597
Interest on deposits in other banks 65 105
Interest on Federal funds sold 1,234 773 825
-------- -------- --------
26,703 21,328 19,697
-------- -------- --------
INTEREST EXPENSE
Interest on deposits 10,371 7,603 7,476
Interest on securities sold
under repurchase agreements 77 68 18
Interest on other borrowings 225 157 238
-------- -------- --------
10,673 7,828 7,732
-------- -------- --------
Net interest income 16,030 13,500 11,965
PROVISION FOR LOAN LOSSES (Note 3) 848 638 1,191
-------- -------- --------
Net interest income
after provision for
loan losses 15,182 12,862 10,774
-------- -------- --------
OTHER INCOME
Service charges on deposit
accounts 2,595 2,456 2,299
Other service charges,
commissions and fees 301 224 230
Other 380 345 338
-------- -------- --------
3,276 3,025 2,867
-------- -------- --------
OTHER EXPENSES
Salaries and employee benefits
(Note 5) 6,210 5,711 5,238
Equipment expense 1,074 1,091 723
Occupancy expense 756 663 844
Amortization of intangible assets 268 268 279
Data processing fees 372 448 290
Directors fees 314 291 270
FDIC premiums 301 559 551
Other operating expenses (Note 6) 2,933 2,516 2,340
-------- -------- --------
12,228 11,547 10,535
-------- -------- --------
</TABLE>
F-7
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Dollars in Thousands)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Income before income taxes
and cumulative effect of
accounting change $ 6,230 $ 4,340 $ 3,106
APPLICABLE INCOME TAXES (Note 7) 1,889 1,240 814
--------- ------- -------
Income before cumulative
effect of accounting change 4,341 3,100 2,292
CUMULATIVE EFFECT OF CHANGE IN METHOD
OF ACCOUNTING FOR INCOME TAXES - - 346
--------- --------- --------
Net income $ 4,341 $ 3,100 $ 2,638
========= ========= ========
INCOME PER COMMON SHARE:
Income before cumulative effect
of accounting change $ 1.29 $ 1.05 $ 0.91
Cumulative effect of accounting
change - - 0.13
--------- --------- --------
Net income (Note 1) $ 1.29 $ 1.05 $ 1.04
========= ========= ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-8
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Dollars in Thousands)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- CAPITAL RETAINED
SHARES PAR VALUE SURPLUS EARNINGS
--------- --------- ------- --------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1992 1,950,487 $1,950 $10,152 $ 7,571
Net income 2,638
Cash dividends paid, $.29 per share (672)
Purchase of 143,024 shares of treasury
stock - - - -
--------- ------ ------- -------
BALANCE, DECEMBER 31, 1993 1,950,487 1,950 10,152 9,537
Net income - - - 3,100
Cash dividends declared, $.29 per share - - - (884)
Proceeds from sale of stock, net of stock
offering expense 747,500 748 7,576 -
Net change in unrealized losses on
securities available for sale, net of taxes - - - -
--------- ------ ------- -------
BALANCE, DECEMBER 31, 1994 2,697,987 2,698 17,728 11,753
Net income - - - 4,341
Cash dividends declared, $.35 per share - - - (1,176)
Four-for-three common stock split 899,087 899 (899) -
Purchase of fractional shares - - (3) -
Stock issued under stock option purchase plan - - - -
Net change in unrealized gains on
securities available for sale, net of taxes - - - -
--------- ------ ------- -------
BALANCE, DECEMBER 31, 1995 3,597,074 $3,597 $16,826 $14,918
========= ====== ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-9
<PAGE>
<TABLE>
<CAPTION>
UNREALIZED
GAINS (LOSSES)
ON SECURITIES
AVAILABLE TREASURY STOCK
FOR SALE, --------------------
NET OF TAXES SHARES COST TOTAL
- -------------- -------- --------- -------
<S> <C> <C> <C>
$ - 40,388 $ (268) $19,405
- - - 2,638
- - - (672)
- 143,024 (1,412) (1,412)
------- ------- ------- -------
- 183,412 (1,680) 19,959
- - - 3,100
- - - (884)
- - - 8,324
(49) - - (49)
------- ------- ------- -------
(49) 183,412 (1,680) 30,450
- - - 4,341
- - - (1,176)
- 61,137 - -
- - - (3)
- (26,667) 125 125
198 - - 198
------- ------- ------- -------
$ 149 217,882 $(1,555) $33,935
======= ======= ======= =======
</TABLE>
F-10
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Dollars in Thousands)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,341 $ 3,100 $ 2,638
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 936 809 638
Amortization of intangible assets 268 268 279
Provision for loan losses 848 638 1,191
Provision for deferred taxes (160) (22) (170)
Write-downs of other real estate owned - 53 -
(Increase) decrease in interest receivable (775) (804) 100
Increase (decrease) in interest payable 190 104 (90)
Increase (decrease) in taxes payable (29) 184 76
Other prepaids, deferrals and accruals, net (653) 798 (178)
-------- -------- --------
Total adjustments 625 2,028 1,846
-------- -------- --------
Net cash provided by operating activities 4,966 5,128 4,484
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in interest-bearing deposits in banks - 1,257 100
Purchases of securities available for sale (21,690) (1,664) -
Purchases of securities held to maturity (1,654) (7,524) (24,502)
Proceeds from maturities of securities available for sale 4,086 - -
Proceeds from maturities of securities held to maturity 15,778 8,531 13,587
(Increase) decrease in Federal funds sold (19,123) 9,673 9,565
Increase in loans, net (22,460) (30,829) (12,435)
Purchase of premises and equipment (717) (2,303) (382)
Proceeds from the sale of premises and equipment 24 22 26
-------- -------- --------
Net cash used in investing activities (45,756) (22,837) (14,041)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in deposits 44,119 18,644 3,755
Increase (decrease) in repurchase agreements (451) (842) 3,117
Proceeds from other borrowings 1,600 - 1,412
Repayment of long-term debt - (4,677) (15)
Dividends paid (1,077) (645) (672)
Proceeds from stock offering, net - 8,324 -
Proceeds from exercise of stock options 125 - -
Purchase of fractional shares (3) - -
Purchase of shares of stock for the treasury - - (1,412)
-------- -------- --------
Net cash provided by financing activities 44,313 20,804 6,185
-------- -------- --------
</TABLE>
F-11
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Dollars in Thousands)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Net increase (decrease) in cash and due from banks $ 3,523 $ 3,095 $(3,372)
Cash and due from banks at beginning of year 20,089 16,994 20,366
------- ------- -------
Cash and due from banks at end of year $23,612 $20,089 $16,994
======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for:
Interest $10,483 $ 7,724 $ 7,822
Income taxes $ 2,078 $ 1,078 $ 562
NONCASH TRANSACTIONS
Net change in unrealized gains (losses)
on securities available for sale $ 289 $ (54) $ -
Property transferred from premises and equipment
to other real estate owned $ - $ 103 $ -
Dividends declared $ 338 $ 239 $ -
</TABLE>
See Notes to Consolidated Financial Statements.
F-12
<PAGE>
ABC BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION
ABC Bancorp, headquartered in Moultrie, Georgia, is the holding
company (the "Company") for five community banks ("the Banks") located
in the south Georgia cities of Moultrie, Quitman, Tifton, Cairo and
Thomasville. The Banks operate 11 banking offices and two drive-
through facilities within ABC Bancorp's market area. Through its
Banks, ABC Bancorp operates a full service banking business and offers
a broad range of retail and commercial banking services to its
customers. The Company and the Banks are subject to the regulations of
certain Federal and state agencies and are periodically examined by
those regulatory agencies.
The accounting and reporting policies of the Company conform to
generally accepted accounting principles and general practices within
the financial services industry. In preparing the financial
statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the
date of the balance sheet and revenues and expenses for the period.
Actual results could differ from those estimates.
The principles which significantly affect the determination of
financial position, results of operations and cash flows are
summarized below.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and due from banks
includes cash on hand and amounts due from banks (including
cash items in process of clearing). Cash flows from loans
originated by the Banks, deposits, interest-bearing deposits and
Federal funds purchased and sold are reported net.
The Company maintains amounts due from banks which, at times,
may exceed Federally insured limits. The Company has not
experienced any losses in such accounts.
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
SECURITIES AVAILABLE FOR SALE
Securities classified as available for sale are those debt securities
that the Company intends to hold for an indefinite period of time, but
not necessarily to maturity. Any decision to sell a security
classified as available for sale would be based on various factors,
including significant movements in interest rates, changes in the
maturity mix of the Company's assets and liabilities, liquidity needs,
regulatory capital considerations and other similar factors.
Securities available for sale are carried at fair value. Unrealized
gains or losses are reported as increases or decreases in
stockholders' equity, net of the related deferred tax effect. Realized
gains or losses, determined on the basis of the cost of specific
securities sold, are included in earnings.
SECURITIES HELD TO MATURITY
Securities classified as held to maturity are those debt securities
the Company has both the intent and ability to hold to maturity
regardless of changes in market conditions, liquidity needs or changes
in general economic conditions. These securities are carried at cost
adjusted for amortization of premium and accretion of discount,
computed by the interest method over their contractual lives. The sale
of a security within three months of its maturity date or after
collection of at least 85 percent of the principal outstanding at the
time the security was acquired is considered a maturity for purposes
of classification and disclosure.
A decline in the fair value below cost of any available for sale or
held to maturity security that is deemed other than temporary is
charged to earnings resulting in the establishment of a new cost basis
for the security.
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
LOANS AND INTEREST INCOME
Loans are stated at principal amounts outstanding less unearned income
and the allowance for loan losses. Interest income on loans is
credited to income based on the principal amount outstanding at the
respective rate of interest except for add-on interest on certain
instalment loans for which interest is recognized on the sum-of-the-
months method.
Accrual of interest income is discontinued on loans when, in the
opinion of management, collection of such interest income becomes
doubtful. When a loan is placed on nonaccrual status, all interest
previously accrued but not collected is reversed against current
interest income. Accrual of interest on such loans is resumed when, in
management's judgment, the collection of interest and principal
becomes probable.
Fees on loans and costs incurred in origination of loans are
recognized at the time the loan is placed on the books. Because loan
fees are not significant and the majority of loans have maturities of
one year or less, the results on operations are not materially
different than the results which would be obtained by accounting for
loan fees and costs in accordance with generally accepted accounting
principles.
The allowance for loan losses is established through a provision for
loan losses charged to expense. Loans are charged against the
allowance for loan losses when management believes that collectibility
of the principal is unlikely. The allowance is an amount that
management believes will be adequate to absorb estimated losses on
existing loans that may become uncollectible, based on evaluation of
the collectibility of loans and prior loss experience. This evaluation
also takes into consideration such factors as changes in the nature
and volume of the loan portfolio, overall portfolio quality, review of
specific problem loans and current economic conditions that may affect
the borrower's ability to pay. Certain estimates are susceptible to
change in the near term. Such estimates include the creditworthiness
of significant borrowers and the collateral value of delinquent loans.
While management uses the best information available to make its
evaluation, future adjustments to the allowance may be necessary if
there are significant changes in economic conditions. In addition,
regulatory agencies, as an integral part of their examination process,
periodically review the Company's allowance for loan losses, and may
require the Company to record additions to the allowance based on
their judgment about information available to them at the time of
their examinations.
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
LOANS AND INTEREST INCOME (CONTINUED)
Impaired loans are measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate or,
as a practical expedient, at the loan's observable market price or the
fair value of the collateral if the loan is collateral dependent. A
loan is impaired when it is probable the creditor will be unable to
collect all contractual principal and interest payments due in
accordance with the terms of the loan agreement. Accrual of interest
on an impaired loan is discontinued when management believes, after
considering collection efforts and other factors, that the borrower's
financial condition is such that collection of interest is doubtful.
Cash collections on impaired loans are credited to the loans
receivable balance, and no interest income is recognized on those
loans until the principal balance has been collected.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed principally by the
straight-line method over the following estimated useful lives:
Years
-----
Buildings and improvements 15-40
Furniture and equipment 5-7
OTHER REAL ESTATE OWNED
Other real estate owned (OREO) represents properties acquired through
foreclosure or other proceedings. OREO is held for sale and is
recorded at the lower of the recorded amount of the loan or fair value
of the properties less estimated costs of disposal. Any write-down to
fair value at the time of transfer to OREO is charged to the allowance
for loan losses. Property is evaluated regularly to ensure the
recorded amount is supported by its current fair value and valuation
allowances to reduce the carrying amount to fair value less estimated
costs to dispose are recorded as necessary. Subsequent decreases in
fair value and increases in fair value, up to the value established at
foreclosure, are recognized as charges or credits to noninterest
expense. OREO is reported net of allowance for losses in the Company's
financial statements.
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INTANGIBLE ASSETS
Intangible assets, arising from excess of purchase price over
net assets acquired of purchased banks, are being amortized on
the straight-line method over various periods not exceeding 25
years.
INCOME TAXES
The Company and its subsidiaries file a consolidated income tax
return. Each subsidiary provides for income taxes based on its
contribution to income taxes (benefits) of the consolidated group.
As of January 1, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes".
SFAS No. 109 requires a balance sheet approach to accounting for
income taxes and requires that deferred tax assets and liabilities be
adjusted in the period of enactment for the effect of an enacted
change in tax laws or rates. The adoption of SFAS No. 109 resulted in
an income tax benefit of $345,937, which has been included in the
consolidated statement of income for the year ended December 31, 1993
as a cumulative effect.
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and
operating loss and tax credit carryforwards and deferred tax
liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported amounts
of assets and liabilities and their tax bases. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities
are adjusted for the effect of changes in tax laws on the date of
enactment.
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Accounting Standards Board Statement No. 107, "Disclosures
About Fair Value of Financial Instruments," requires disclosure of
fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to
estimate that value. In cases where quoted market prices are not
available, fair values are based on estimates using present value or
other valuation techniques. Those techniques are significantly
affected by the assumptions used, including the discount rate and
estimates of future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets
and, in many cases, could not be realized in immediate settlement of
the instrument. Statement No. 107 excludes certain financial
instruments from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent the underlying
value of the Company.
The following methods and assumptions were used by the Company
in estimating the fair value of its financial instruments:
Carrying amounts approximate fair values for the following
instruments:
Cash and due from banks
Federal funds sold
Securities available for sale
Variable rate loans that reprice frequently
Credit card loans and equity line loans
Variable rate money market accounts
Variable rate certificates of deposit
Short-term borrowing
Accrued interest receivable
Accrued interest payable
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Quoted market prices, where available, or if not available,
based on quoted market prices of comparable instruments for
securities held to maturity.
Discounted cash flows using interest rates currently being
offered on instruments with similar terms and with similar
credit quality:
All loans except variable rate loans described above
Fixed rate certificates of deposit
Commitments to extend credit and standby letters of credit are not
recorded until such commitments are funded. The value of these
commitments are the fees charged to enter into such agreements. These
commitments do not represent a significant value to the Company until
such commitments are funded. The Company has determined that such
instruments do not have a distinguishable fair value and no fair value
has been assigned to these instruments.
EARNINGS PER SHARE
Earnings per share are calculated on the basis of the weighted
average number of shares outstanding. All per share data for
prior years have been adjusted to reflect the four-for-three
stock split effected in the form of a stock dividend to
shareholders of record as of July 17, 1995.
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 2. INVESTMENTS IN SECURITIES
Effective January 1, 1994, the Bank adopted Financial Accounting
Standards Board Statement No. 115 "Accounting for Certain Investments in
Debt and Equity Securities." Upon adoption, the Company transferred
$300,005 of marketable equity securities from securities held to
maturity to securities available for sale. The securities available for
sale were marked to fair value resulting in a net unrealized loss of
$11,986 which was included in stockholders' equity at $11,986.
Under special provisions adopted by the Financial Accounting Standards
Board in October 1995, the Company transferred $20,188,243 from
securities held to maturity to securities available for sale on December
31, 1995, resulting in a net unrealized gain of $94,743 which was
included in stockholders' equity at $62,531 net of related taxes of
$32,212.
The amortized cost and approximate fair values of investments in
securities at December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
(DOLLARS IN THOUSANDS)
-------------------------------------------------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
DECEMBER 31, 1995:
U. S. GOVERNMENT AND AGENCY SECURITIES $37,174 $285 $ (93) $37,366
MORTGAGE-BACKED SECURITIES 2,282 69 (8) 2,343
OTHER SECURITIES 300 - (18) 282
------- ---- ------- -------
$39,756 $354 $ (119) $39,991
======= ==== ======= =======
December 31, 1994:
U. S. Government and agency securities $ 1,664 $ - $ (14) $ 1,650
Other securities 300 - (40) 260
------- ---- ------- -------
$ 1,964 $ - $ (54) $ 1,910
======= ==== ======= =======
SECURITIES HELD TO MATURITY
DECEMBER 31, 1995:
STATE AND MUNICIPAL SECURITIES $10,269 $258 $ (65) $10,462
======= ==== ======= =======
December 31, 1994:
U. S. Government and agency securities $32,159 $ 19 $(1,196) $30,982
State and municipal securities 9,819 114 (471) 9,462
Mortgage-backed securities 2,617 22 (59) 2,580
------- ---- ------- -------
$44,595 $155 $(1,726) $43,024
======= ==== ======= =======
</TABLE>
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. INVESTMENTS IN SECURITIES (CONTINUED)
There were no sales of securities during 1995, 1994 or 1993.
The amortized cost and fair value of securities as of December 31, 1995
by contractual maturity are shown below. Maturities may differ from
contractual maturities in mortgage-backed securities because the
mortgages underlying the securities may be called or repaid without any
penalties. Therefore, these securities are not included in the maturity
categories in the following maturity summary.
<TABLE>
<CAPTION>
SECURITIES AVAILABLE FOR SALE SECURITIES HELD TO MATURITY
----------------------------- -----------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
---------- ---------- ------------- ---------
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $11,541 $11,566 $ 727 $ 724
Due from one year to five years 25,633 25,800 2,734 2,748
Due from five to ten years - - 5,722 5,891
Due after ten years - - 1,086 1,099
Mortgage-backed securities 2,282 2,343 - -
Marketable equity securities 300 282 - -
------- ------- ------- -------
$39,756 $39,991 $10,269 $10,462
======= ======= ======= =======
</TABLE>
Securities with a carrying value of $33,837,773 and $28,616,565
at December 31, 1995 and 1994, respectively, were pledged to
secure public deposits and for other purposes.
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of loans is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
-------- --------
(DOLLARS IN THOUSANDS)
----------------------
<S> <C> <C>
Commercial and financial $ 23,733 $ 23,531
Agricultural 15,124 17,079
Real estate - construction 1,836 1,828
Real estate - mortgage, farmland 40,053 34,887
Real estate - mortgage, commercial 41,438 35,242
Real estate - mortgage, residential 52,377 44,064
Consumer instalment loans 38,976 34,220
-------- --------
Other 717 1,280
214,254 192,131
Unearned discount (3) (7)
Allowance for loan losses (4,272) (3,757)
-------- --------
$209,979 $188,367
======== ========
</TABLE>
At December 31, 1995, executive officers and directors, and companies in
which they have a 10 percent or more beneficial ownership, were indebted
to the Company in the aggregate amount of $7,792,000. The interest rates
on these loans were substantially the same as rates prevailing at the
time of the transaction and repayment terms are customary for the type
of loan involved. Following is a summary of transactions:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
-------- --------
(DOLLARS IN THOUSANDS)
----------------------
<S> <C> <C>
BALANCE, BEGINNING OF YEAR $ 7,234 $ 8,506
Advances 5,030 4,670
Repayments (4,715) (4,890)
Transactions due to changes
in directors 243 (1,052)
-------- --------
BALANCE, END OF YEAR $ 7,792 $ 7,234
======== ========
</TABLE>
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------
1995 1994
------- -------
(Dollars in Thousands)
------------------------
<S> <C> <C>
Balance, beginning of year $ 3,757 $ 3,571
Provision charged to operations 848 638
Loans charged off (730) (971)
Recoveries 397 519
-------- -------
Balance, end of year $ 4,272 $ 3,757
Information with respect to impaired loans as of and for the
year ended December 31, 1995 is as follows:
(Dollars in
Thousands)
---------
Loans receivable for which there is a related allowance for
credit losses $ 1,006
Loans receivable for which there is no related allowance for
credit losses 1,253
-------
Total impaired loans $ 2,259
=======
Allowance provided for impaired loans included in the
allowance for loan losses $ 163
=======
Average balance $ 3,089
=======
Interest income recognized $ 161
=======
</TABLE>
F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
Loans on which the accrual of interest had been discontinued or
reduced amounted to $3,817,699 at December 31, 1994. The
reduction in interest income associated with nonaccrual and
renegotiated loans for 1994 and 1993 is as follows. For 1995,
nonaccrual loans have been included in the impaired loan
information above.
<TABLE>
<CAPTION>
December 31,
--------------------
1994 1993
-------- --------
(Dollars in Thousands)
----------------------
<S> <C> <C>
Income in accordance with original loan terms $ 324 $ 201
Income recognized 37 9
------- ------
$ 287 $ 192
======= ======
NOTE 4. PREMISES AND EQUIPMENT, NET
Major classifications of these assets are summarized as follows:
December 31,
----------------------
1995 1994
-------- ---------
(Dollars in Thousands)
----------------------
Land $ 1,563 $ 1,564
Buildings 5,446 5,271
Equipment 5,936 6,223
Construction in progress 182 -
------- -------
13,127 13,058
Accumulated depreciation (6,185) (5,887)
======= =======
$ 6,942 $ 7,171
======= =======
</TABLE>
Depreciation expense for the years ended December 31, 1995, 1994
and 1993 was $886,320, $738,562 and $462,368, respectively.
F-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 5. EMPLOYEE BENEFIT PLANS
The Company and all subsidiaries have adopted simplified
employee pension plans for substantially all employees. These
plans are SEP-IRA defined contribution plans. Contributions to
these plans charged to expense during 1995, 1994 and 1993
amounted to $540,766, $499,254 and $484,870, respectively.
NOTE 6. DEFERRED COMPENSATION PLANS
The Company and two subsidiary Banks have entered into separate
deferred compensation arrangements with certain executive
officers and directors. The plans call for certain amounts
payable at retirement, death or disability. The estimated
present value of the deferred compensation is being accrued over
the remaining expected term of active employment. The Company
and Banks have purchased life insurance policies which they
intend to use to finance this liability. Aggregate compensation
expense under the plans were $54,724, $81,295 and $83,459 for
1995, 1994 and 1993, respectively, and is included in other
operating expenses.
NOTE 7. INCOME TAXES
The total income taxes in the consolidated statements of income
are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
1995 1994 1993
------- -------- ------
(Dollars in Thousands)
------------------------------
<S> <C> <C> <C>
Current $ 2,049 $ 1,262 $ 638
Deferred (160) (22) 176
------- ------- -----
$ 1,889 $ 1,240 $ 814
======= ======= =====
</TABLE>
F-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 7. INCOME TAXES (Continued)
The Company's provision for income taxes differs from the
amounts computed by applying the Federal income tax statutory
rates to income before income taxes. A reconciliation of the
differences is as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------
1995 1994 1993
----------------- ------------------ ------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------- -------- -------- -------
(Dollars in Thousands)
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tax provision at statutory rate $2,118 34 % $1,475 34 % $1,056 34 %
Increase (decrease) resulting from:
Tax-exempt interest (216) (3) (246) (6) (274) (9)
Amortization of excess
cost over assets acquired 32 - 37 1 49 2
Changes in valuation allowance
for deferred taxes (72) (1) (50) (1) - -
Other 27 - 24 1 (17) (1)
------ ----- ------ ----- ------- -----
Provision for income taxes $1,889 30 % $1,240 29 % $ 814 26 %
====== ====== ====== ===== ====== =====
</TABLE>
Net deferred income tax assets of $486,260 and $411,710 at
December 31, 1995 and 1994, respectively, are included in other
assets. The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------
1995 1994
---------- ----------
(Dollars in Thousands)
-----------------------
<S> <C> <C>
Deferred tax assets:
Loan loss reserves $ 836 $ 640
Deferred compensation 148 138
Other real estate 18
Other 34 68
Net operating loss tax carryforward 285 310
Less valuation allowance (228) (300)
------ ------
1,075 874
------ ------
Deferred tax liabilities:
Deprecation and amortization (253) (179)
Amortization of intangible assets (250) (283)
Unrealized gain on securities available for sale (86) -
------ ------
(589) (462)
------ ------
Net deferred tax assets $ 486 $ 412
====== ======
</TABLE>
F-26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
NOTE 8. COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, the Company has entered into
off-balance-sheet financial instruments which are not reflected
in the financial statements. These financial instruments include
commitments to extend credit and standby letters of credit.
Such financial instruments are included in the financial
statements when funds are disbursed or the instruments become
payable. These instruments involve, to varying degrees,
elements of credit risk in excess of the amount recognized in
the balance sheet.
The Company's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument
for commitments to extend credit and standby letters of credit
is represented by the contractual amount of those instruments.
The Company uses the same credit and collateral policies for
these off-balance-sheet financial instruments as it does for
on-balance-sheet financial instruments. A summary of the
Company's commitments is as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1995 1994
---------- ----------
(Dollars in Thousands)
-----------------------------
<S> <C> <C>
Commitments to extend credit $ 36,024 $ 22,344
Credit card commitments 2,883 2,345
Standby letters of credit 905 590
--------- --------
$ 39,812 $ 25,279
========= ========
</TABLE>
Commitments to extend credit generally have fixed expiration
dates or other termination clauses and may require payment of a
fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The credit risk
involved in issuing these financial instruments is essentially
the same as that involved in extending loans to customers. The
Company evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Company upon extension of credit, is
based on management's credit evaluation of the customer.
Collateral held varies but may include real estate and
improvements, marketable securities, accounts receivable, crops,
livestock, inventory, equipment and personal property.
F-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 8. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
Credit card commitments are unsecured.
Standby letters of credit are conditional commitments issued by
the Company to guarantee the performance of a customer to a
third party. Those guarantees are primarily issued to support
public and private borrowing arrangements. The credit risk
involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers.
Collateral held varies as specified above and is required in
instances which the Company deems necessary.
In the normal course of business, the Company is involved in
various legal proceedings. In the opinion of management and
counsel for the Company, any liability resulting from such
proceedings would not have a material adverse effect on the
Company's financial statements.
NOTE 9. CONCENTRATIONS OF CREDIT
The Banks make agricultural, agribusiness, commercial,
residential and consumer loans to customers primarily in the
twelve county area surrounding Moultrie in south central Georgia.
A substantial portion of the Company's customers' abilities to
honor their contracts is dependent on the business economy in
the geographical area served by the Banks.
Although the Company's loan portfolio is diversified, there is a
relationship in this region between the agricultural economy and
the economic performance of loans made to nonagricultural
customers. The Company's lending policies for agricultural and
nonagricultural customers require loans to be
well-collateralized and supported by cash flows. Collateral for
agricultural loans include equipment, crops, livestock and land.
Credit losses from loans related to the agricultural economy is
taken into consideration by management in determining the
allowance for loan losses.
A substantial portion of the Company's loans are secured by real
estate in the Company's primary market area. In addition, a
substantial portion of the real estate owned is located in those
same markets. Accordingly, the ultimate collectibility of a
substantial portion of the Company's loan portfolio and the
recovery of a substantial portion of the carrying amount of real
estate owned are susceptible to changes in market conditions in
the Company's primary market area.
F-28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 9. CONCENTRATIONS OF CREDIT (Continued)
The Company has a concentration of funds on deposit at its
primary correspondent bank at December 31, 1995, as follows:
Noninterest-bearing accounts $ 15,448,169
Federal funds sold 25,550,000
------------
$ 40,998,169
============
NOTE 10. STOCKHOLDERS' EQUITY
The primary source of funds available to the Parent Company is
the payment of dividends by the subsidiary Banks. Banking
regulations limit the amount of dividends that may be paid
without prior approval of the Banks' regulatory agency.
Approximately $2,381,100 are available to be paid as dividends
by the Bank subsidiaries at December 31, 1995.
Banking regulations also require the Company to maintain
minimum capital levels in relation to Company assets. At
December 31, 1995, the Company's capital ratios were considered
adequate based on regulatory minimum capital requirements. The
minimum capital requirements and the actual capital ratios for
the Company at December 31, 1995 are as follows:
Regulatory
Actual Requirement
-------- -----------
Leverage capital ratio 10.37 % 4.00 %
Risk based capital ratios:
Core capital 15.23 4.00
Total capital 16.49 8.00
F-29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 11. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value and estimated fair value of the Company's
financial instruments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------
1995 1994
-------------------------- -------------------------
CARRYING FAIR Carrying Fair
VALUE VALUE Value Value
---------- ---------- ----------- ---------
(DOLLARS IN THOUSANDS)
-------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and short-term investments $ 64,637 $ 64,637 $ 41,991 $ 41,991
======== ======== ======== ========
Investments in securities $ 50,260 $ 50,453 $ 46,505 $ 44,934
======== ======== ======== ========
Loans $214,251 $205,845 $192,124 $185,314
Allowance for loan losses (4,272) - (3,757) -
-------- -------- -------- --------
Loans, net $209,979 $205,845 $188,367 $185,314
======== ======== ======== ========
FINANCIAL LIABILITIES:
Noninterest-bearing demand $ 58,430 $ 58,430 $ 48,450 $ 48,450
Interest-bearing demand 71,833 71,833 63,262 63,262
Savings 22,318 22,318 23,644 23,644
Time deposits 148,407 150,186 121,513 121,595
-------- -------- -------- --------
Total deposits $300,988 $302,767 $256,869 $256,951
======== ======== ======== ========
Short-term borrowings $ 3,487 $ 3,487 $ 2,338 $ 2,338
======== ======== ======== ========
</TABLE>
F-30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 12. CONDENSED FINANCIAL INFORMATION OF ABC BANCORP
(PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Cash $ 1,027 $ 1,307
Interest-bearing deposits in banks 2,060 1,500
Investment in subsidiaries 27,607 24,461
Other assets 3,856 3,838
------- -------
Total assets $34,550 $31,106
======= =======
LIABILITIES
Other liabilities $ 615 $ 656
------- -------
Total liabilities 615 656
------- -------
STOCKHOLDERS' EQUITY 33,935 30,450
------- -------
Total liabilities and stockholders' equity $34,550 $31,106
======= =======
</TABLE>
F-31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12. CONDENSED FINANCIAL INFORMATION OF ABC BANCORP
(PARENT COMPANY ONLY) (Continued)
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Dollars in Thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1995 1994 1993
------- ------- -------
Income
Dividends from subsidiaries $ 1,815 $ 1,170 $ 1,150
Interest 106 84 11
Fee and rental income 2,757 2,427 1,950
Other income 25 94 32
------- ------- -------
Total income 4,703 3,775 3,143
------- ------- -------
Expense
Interest - 111 193
Amortization and depreciation 423 436 423
Other expense 2,944 2,644 1,926
------- ------- -------
Total expense 3,367 3,191 2,542
------- ------- -------
Income before income taxes (benefits)
and equity in undistributed earnings
of subsidiaries 1,336 584 601
Income taxes (benefits) (58) (55) 147
------- ------- -------
Income before equity in undistributed
earnings of subsidiaries 1,394 639 454
Equity in undistributed earnings
of subsidiaries 2,947 2,461 2,184
------- ------- -------
Net income $ 4,341 $ 3,100 $ 2,638
======= ======= =======
</TABLE>
F-32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 12. CONDENSED FINANCIAL INFORMATION OF ABC BANCORP
(PARENT COMPANY ONLY) (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Dollars in Thousands)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,341 $ 3,100 $ 2,638
------- ------- -------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 155 168 144
Amortization of intangible assets 268 268 279
Undistributed earnings of subsidiaries (2,947) (2,461) (2,184)
Increase in interest receivable (9) (6) -
Increase (decrease) in taxes payable (180) 30 19
Provision for deferred taxes 14 5 204
(Increase) decrease in due from
subsidiaries (55) 45 (49)
Other prepaids, deferrals and accruals, net (88) 50 (56)
------- ------- -------
Total adjustments (2,842) (1,901) (1,643)
------- ------- -------
Net cash provided by operating
activities 1,499 1,199 995
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in interest-bearing deposits in banks (560) (1,500) -
Purchases of premises and equipment (281) (243) (22)
Proceeds from sale of premises 17 - -
Contribution of capital to subsidiary bank - (1,500) -
------- ------- -------
Net cash used in investing activities (824) (3,243) (22)
------- ------- -------
</TABLE>
F-33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12. CONDENSED FINANCIAL INFORMATION OF ABC BANCORP
(PARENT COMPANY ONLY) (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Dollars in Thousands)
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from long-term debt $ - $ - $ 1,412
Repayment of long-term debt - (4,677) (15)
Proceeds from sale of stock, net of
stock offering expense 8,324
Proceeds from exercise of stock options 125 - -
Purchase of treasury stock - - (1,412)
Purchase of fractional shares (3) - -
Dividends paid (1,077) (645) (672)
------- ------- -------
Net cash provided by (used in)
financing activities (955) 3,002 (687)
------- ------- -------
Net increase (decrease) in cash (280) 958 286
Cash at beginning of year 1,307 349 63
------- ------- -------
Cash at end of year $ 1,027 $ 1,307 $ 349
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid during the year for interest $ - $ 111 $ 193
</TABLE>
F-34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
NOTE 13. PENDING ACQUISITIONS
The Company has entered into a definitive merger agreement with
Southland Bancorporation, Dothan, Alabama pursuant to which it
would acquire all of the outstanding stock of Southland
Bancorporation in exchange for a combination of cash and the
Company's common stock. The total merger consideration will
approximate $11.4 million. Total assets of Southland
Bancorporation at December 31, 1995 were approximately $101
million. The merger is subject to approval by Southland
Bancorporation shareholders and certain regulatory authorities
and the registration of the Company's common stock to be issued
in connection with the merger. As a result of the merger,
Southland Bank, a wholly-owned subsidiary of Southland
Bancorporation, will become a wholly-owned subsidiary of the
Company. The merger will be accounted for as a purchase
transaction.
The Company has also entered into a definitive merger agreement
with Central Bankshares, Inc., Cordele, Georgia whereby it would
acquire all of the outstanding common stock of Central
Bankshares, Inc. in exchange for the Company's common stock.
The total merger consideration will approximate $8.3 million.
Total assets of Central Bankshares at December 31, 1995 were
approximately $51 million. The merger is subject to approval by
Central Bankshares, Inc. shareholders and certain regulatory
authorities and the registration of the Company's common stock
to be issued in connection with the merger. As a result of the
merger, Central Bank & Trust, a wholly-owned subsidiary of
Central Bankshares, Inc., will become a wholly-owned subsidiary
of the Company. The merger will be accounted for as a pooling
of interests.
F-35
<PAGE>
FIRST NATIONAL FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER
MARCH 31, 31,
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks............................. $ 2,118,356 $ 2,474,112
Federal funds sold.................................. 3,100,000 4,450,000
----------- -----------
Total cash and cash equivalents................... $ 5,218,356 $ 6,924,112
----------- -----------
Securities
Available for sale at fair value.................. $11,331,982 $11,399,640
Loans, net.......................................... 35,015,157 32,969,161
Property and equipment.............................. 1,463,355 1,479,509
Other assets........................................ 834,840 878,446
----------- -----------
Total Assets...................................... $53,863,690 $53,650,868
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits
Non-interest bearing deposits..................... $ 6,710,216 $ 7,374,007
Interest bearing deposits......................... 41,152,567 39,384,184
----------- -----------
Total deposits.................................. $47,862,783 $46,758,191
Other borrowings.................................... -- 1,000,000
Other liabilities................................... 407,764 405,361
----------- -----------
Total Liabilities................................. $48,270,547 $48,163,552
----------- -----------
Shareholders' Equity................................
Common stock, $5.00 par value, 10,000,000 shares
authorized,
495,409 shares issued.............................. $ 2,477,045 $ 2,477,045
Additional paid in capital.......................... 2,396,134 2,396,134
Retained earnings................................... 758,742 625,865
Unrealized (loss) on securities available for sale
(net of taxes)..................................... (38,778) (11,728)
----------- -----------
Total Shareholders' equity...................... $ 5,593,143 $ 5,487,316
----------- -----------
Total liabilities and Shareholders' equity........ $53,863,690 $53,650,868
=========== ===========
Refer to notes to financial statements
</TABLE>
F-36
<PAGE>
FIRST NATIONAL FINANCIAL CORPORATION
CONSOLIDATED INCOME STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31,
<TABLE>
<CAPTION>
1996 1995
---------- --------
<S> <C> <C>
Interest Income:
Interest and fees on loans................................ $ 866,422 $756,644
Interest on investment securities......................... 158,369 178,381
Interest on federal funds sold............................ 46,496 2,600
---------- --------
Total interest income.................................... $1,071,287 $937,625
Interest expense........................................... 538,548 392,976
---------- --------
Net interest ncome....................................... $ 532,739 $544,649
Provision for possible loan losses......................... 50,000 25,000
---------- --------
Net interest income after provision for loan losses...... $ 482,739 $519,649
---------- --------
Other income:
Service charges on deposit accounts....................... $ 100,912 $ 71,286
SRA fees and premiums..................................... 6,402 6,259
Other income.............................................. 15,704 13,470
(Loss) on sale of securities.............................. -- (5,614)
---------- --------
Total other income....................................... $ 123,018 $ 85,401
---------- --------
Other expenses:
Salaries and employee benefits............................ $ 213,049 $202,087
Equipment and occupancy expense........................... 18,378 20,375
Depreciation and amortization expense..................... 31,255 34,822
Data processing expense................................... 21,838 20,678
Advertising and business development...................... 5,860 5,526
Supplies and printing..................................... 12,549 11,636
Other operating expense................................... 94,398 95,581
---------- --------
Total other expense...................................... $ 397,327 $390,705
---------- --------
Income before taxes........................................ $ 208,430 $214,345
Income tax expense......................................... 75,553 81,485
---------- --------
Net income................................................. $ 132,877 $132,860
========== ========
Primary income per share................................... $ 0.25 $ 0.25
========== ========
Fully diluted income per share............................. $ 0.24 $ 0.25
========== ========
</TABLE>
Refer to notes to financial statements
F-37
<PAGE>
FIRST NATIONAL FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Interest Income:
Net Income........................................... $ 132,877 $ 132,860
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ...................... 31,255 34,822
Deferred income taxes............................... (14,109) --
Net amortization of premiums on securities.......... 5,474 5,493
Provision for possible loan losses.................. 50,000 25,000
(Increase) decrease in other assets................. 87,664 (207,769)
Increase in other liabilities....................... 2,403 196,690
----------- ----------
Net cash provided by operating activities............. $ 295,564 $ 187,096
----------- ----------
Cash flows from investing activities:
Proceeds from sale of securities..................... $ -- $1,493,438
Proceeds from maturities of securities............... 500,000 1,500,000
Purchase of securities............................... (500,000) (946,375)
(Increase) in loans.................................. (2,099,996) (2,602,502)
Purchase of premises and equipment: (9,916) (12,839)
----------- ----------
Net cash (used) in investing activities............... $(2,105,912) $ (568,278)
----------- ----------
Cash flows from financing activities:
Issuance of common stock............................. $ -- $ 31,500
(Decrease) in borrowings............................. (1,000,000) --
(Decrease) in federal funds purchased................ -- 600,000
Increase (decrease) in deposits...................... 1,104,592 (1,211,727)
----------- ----------
Net cash provided (used) by financing activities...... $ 104,592 $ (580,227)
----------- ----------
Net (decrease) in cash and cash equivalents........... $(1,705,756) $ (961,409)
Cash and cash equivalents, beginning of period........ 6,924,112 2,556,047
----------- ----------
Cash and cash equivalents, end of period.............. $ 5,218,356 $1,594,638
=========== ==========
SUPPLEMENTAL INFORMATION
Income taxes paid..................................... $ -- $ 77,331
Interest paid......................................... $ 543,917 $ 364,235
</TABLE>
Refer to notes to financial statements
F-38
<PAGE>
FIRST NATIONAL FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF ORGANIZATION
First National Financial Corporation, Albany, Georgia (the "Company"), was
incorporated under the laws of the State of Georgia on August 3, 1989, for the
purpose of becoming a bank holding company with respect to a proposed national
bank, First National Bank of South Georgia (the "Bank") located in Albany,
Georgia. Upon commencement of the Bank's principal operations on May 29, 1991,
the Company acquired 100 percent of the Bank's voting stock by injecting
$3,800,000 into the BAnk's capital accounts.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Reclassification. The consolidated financial
statements include the accounts of the Company and the Bank. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Certain prior year amounts have been reclassified to conform to the current
year presentation.
Basis of Accounting. The accounting and reporting policies of the Company
conform to generally accepted accounting principles and to general practices
in the banking industry. The Company uses the accrual basis of accounting by
recognizing revenues when they are earned and recognizing expenses in the
period incurred, without regarding the time of receipt of payment of cash.
Investment Securities. The Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investment in Debt and Equity
Securities" ("SFAS 115") on January 1, 1994. SFAS 115 requires investments in
equity and debt securities to be classified into three categories:
1. Held-to-maturity securities: These are securities which the Company has
the ability and intent to hold until maturity. These securities are
stated at cost, adjusted for amortization of premiums and the accretion
of discounts.
2. Trading securities: These are securities which are bought and held
principally for the purpose of selling in the near future. Trading
securities are reported at fair market value, and related unrealized
gains and losses are recognized in the income statement.
F-39
<PAGE>
FIRST NATIONAL FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - CONTINUED
3. Available-for-sale securities: These are securities which are not
classified as either held-to-maturity or as trading securities. These
securities are reported at fair market value. Unrealized gains and losses
are reported, net of tax, as separate components of shareholders' equity.
Unrealized gains and losses are excluded from the income statement.
Loans, Interest and Fee Income on Loans. Loans are stated at the principal
balance outstanding. Unearned discount, unamortized loan fees and the
allowance for possible loan losses are deducted from total loans in the
statement of condition. Interest income is recognized over the term of the
loan based on the principal amount outstanding. Points on real estate loans
are taken into income to the extent they represent the direct cost of
initiating a loan. The amount in excess of direct costs is deferred and
amortized over the expected life of the loan.
Loans are generally placed on non-accrual status when principal or interest
becomes ninety days past due, or when payment in full is not anticipated. When
a loan is placed on non-accrual status, interest accrued but not received in
generally reversed against interest income. If collectibility is in doubt,
cash receipts on non-accrual loans are not recorded as interest income, but
are used to reduce principal.
Allowance for Possible Loan Losses. The provisions for loan losses charged
to operating expense reflect the amount deemed appropriate by management to
establish an adequate reserve to meet the present and foreseeable risk
characteristics of the current loan portfolio. Management's judgement is based
on periodic and regular evaluation of individual loans, the overall risk
characteristics of the various portfolio segments, past experience with losses
and prevailing and anticipated economic conditions. Loans which are determined
to be uncollectible are charged against the allowance. Provisions for loan
losses and recoveries on loans previously charged-off are added to the
allowance.
Property and Equipment. Building, furniture and equipment are stated at
cost, net of accumulated depreciation. Depreciation is computed using the
straight line method over the estimated useful lives of the related assets.
Maintenance and repairs are charged to operations, while major improvements
are capitalized. Upon retirement, sales or other disposition of property and
equipment, the cost and accumulated depreciation are eliminated from the
accounts, and gain or loss is included in income from operations.
Income Taxes. The consolidated financial statements have been prepared on
the accrual basis. When income and expenses are recognized in different
periods for financial reporting purposes and for purposes of computing income
taxes currently payable, deferred taxes are provided on such temporary
differences.
F-40
<PAGE>
FIRST NATIONAL FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 2--CONTINUED
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"),
Under SFAS 109, deferred tax assets and liabilities are recognized for the
expected future tax consequences of events that have been recognized in the
financial statements or tax return. Deferred tax assets and liabilities are
measured using the enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be realized or
settled.
Statement of Cash Flows. For purposes of reporting cash flows, cash and cash
equivalents include cash on hand, amounts due from banks and federal funds
sold. Generally, federal funds are purchased or sold for one day periods.
Earnings Per Share. The weighted average number of shares outstanding as
well as of all the common stock equivalents must be considered for purposes of
computing earnings per share. Note that common stock equivalents are
securities that enable their holders to obtain additional shares of common
stock. Options and warrants are common stock equivalents. They are used in the
computation of earnings per share only if, upon exercise, they dilute earnings
per share by 34 or more. To compute earnings per share, adjusted net income is
divided by the sum of weighted average shares of common stock outstanding and
of common stock equivalents.
Whenever the market price of a share of common stock exceeded the exercise
price of any warrant or option during the calendar years 1996 and 1995, an
increase equal to the number of shares which would be issuable on any such
exercise of warrants and stock options was reflected as a common stock
equivalent. However, the rule for the treasury stock method states that common
stock equivalents may not exceed 20% of the outstanding shares. Thus, if upon
exercise, excess funds were available to acquire more than the 20% limit on
common stock equivalents, any excess proceeds were assumed to be invested in
treasury securities and the income from those investments used to adjust net
income accordingly.
Purchases for purposes of the primary earnings per share calculation were
assumed to have been made at the average price of a share of common stock
during the corresponding calendar year, while purchases for purposes of the
fully diluted calculation were assumed to have been made at the quarter end
price of a share of stock.
NOTE 3--BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three month
period ended March 31, 1996 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1996. For further
information, refer to the financial statements and footnotes thereto included
in Form 10-KSB for the year ended December 31, 1995.
F-41
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
First National Financial Corporation
Albany, Georgia
We have audited the accompanying consolidated balance sheets of First
National Financial Corporation, Albany, Georgia (the "Company") and its
subsidiary, First National Bank of South Georgia (the "Bank") as of December 31,
1995 and 1994, and the related consolidated statements of income, consolidated
changes in shareholders' equity and consolidated cash flows for each of the
three years in the period ended December 31, 1995. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. These audits include examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. These audits also include assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
First National Financial Corporation as of December 31, 1995 and 1994, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
FRANCIS & CO., CPA's
Atlanta, Georgia
February 9, 1996
F-42
<PAGE>
FIRST NATIONAL FINANCIAL CORPORATION
ALBANY, GEORGIA
CONSOLIDATED BALANCE SHEETS
ASSETS
------
<TABLE>
<CAPTION>
December 31,
------------------------
1995 1994
----------- -----------
<S> <C> <C>
Cash and due from banks $ 2,474,112 $ 1,986,047
Federal funds sold (Note 5) 4,450,000 570,000
----------- -----------
Total cash and cash equivalents $ 6,924,112 $ 2,556,047
----------- -----------
Securities (Notes 2, 3 & 4):
Available-for-sale at fair values $11,399,640 $12,195,716
Held-to-maturity (Market value of
$686,062 at December 31, 1994) - - 694,151
Loans, net (Notes 2, 6 & 7) 32,969,161 28,652,512
Property and equipment, net (Notes 2 & 8) 1,479,509 1,534,253
Other assets 878,446 857,770
----------- -----------
Total Assets $53,650,868 $46,490,449
=========== ===========
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
Liabilities:
Deposits
<S> <C> <C>
Non-interest bearing deposits $ 7,374,007 $ 5,627,022
Interest bearing deposits 39,384,184 35,972,210
----------- -----------
Total deposits (Note 9) $46,758,191 $41,599,232
Other borrowings 1,000,000 - -
Other liabilities 405,361 470,576
----------- -----------
Total Liabilities $48,163,552 $42,069,808
----------- -----------
Commitments and contingencies
(Notes 11, 15 & 18)
Shareholders' Equity (Note 12):
Common stock, $5.00 par value, 10,000,000
shares authorized, 495,409 and 487,409
shares issued and outstanding
at Dec. 31, 1995 and 1994 $ 2,477,045 $ 2,437,045
Paid-in-capital 2,396,134 2,350,634
Retained earnings 625,865 14,355
Unrealized loss on
securities available for sale (11,728) (381,393)
----------- -----------
Total Shareholders' Equity $ 5,487,316 $ 4,420,641
----------- -----------
Total Liabilities
and Shareholders' Equity $53,650,868 $46,490,449
=========== ===========
</TABLE>
Refer to notes to the consolidated financial statements.
F-43
<PAGE>
FIRST NATIONAL FINANCIAL CORPORATION
ALBANY, GEORGIA
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------------
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $3,304,721 $2,444,673 $1,958,408
Interest on investment securities 643,605 667,158 472,301
Interest on federal funds sold 96,795 49,812 79,913
----------- ----------- ----------
Total interest income $4,045,121 $3,161,643 $2,510,622
Interest on deposits
and borrowings (Note 14) $1,892,754 $1,438,104 $1,177,363
----------- ----------- ----------
Net interest income 2,152,367 1,723,539 $1,333,259
Provision for possible loan losses $ 185,000 $ 120,000 $ 128,011
----------- ----------- ----------
Net interest income after
provision for loan losses $1,967,367 $1,603,539 $1,205,248
----------- ----------- ----------
Other income:
Service fees on deposit accounts $ 346,227 $ 270,667 $ 252,406
(Loss) on sale of securities (5,614) - - - -
SBA fees and premiums 116,792 - - - -
Miscellaneous, other 66,077 84,168 36,339
----------- ----------- ----------
Total other income $ 523,482 $ 354,835 $ 354,835
----------- ----------- ----------
Other expenses:
Salaries $ 672,658 $ 569,413 $ 471,439
Employee benefits 157,726 145,772 121,046
Supplies and printing 33,094 28,234 34,080
Depreciation and amortization 138,094 132,907 131,931
Data processing 72,345 85,593 74,624
Advertising and business development 37,551 56,367 45,554
Premises related expense 61,581 56,786 54,145
Other operating expenses (Note 13) 399,671 344,570 322,345
----------- ----------- ----------
Total Expenses $1,572,720 $1,419,642 $1,255,892
=========== =========== ==========
Income before taxes $ 918,129 $ 538,732 $ 238,101
Income tax expense (Notes 2 & 16) 306,619 223,000 0
----------- ----------- ----------
Net income $ 611,510 $ 315,732 $ 238,101
=========== =========== ==========
Primary income per share (Note 2) $ 1.13 $ .57 $ .49
=========== =========== ==========
Fully diluted income per share (Note 2) $ 1.12 $ .57 $ .49
=========== =========== ==========
</TABLE>
Refer to notes to the consolidated financial statements.
F-44
<PAGE>
FIRST NATIONAL FINANCIAL CORPORATION
ALBANY, GEORGIA
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
Number Paid Retained Unrealized Total
of Common in Earnings Gain on Shareholders'
Shares Stock Capital (Deficit) Securities Equity
-------- ---------- ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 487,409 $2,437,045 $2,350,634 $(539,478) $ - - $4,248,201
------- ---------- ---------- --------- -------- ----------
Net income, 1993 - - - - - 238,101 - - 238,101
Balance, December 31, 1993 487,409 $2,437,045 $2,350,634 $(301,377) $ - - $4,486,302
------- ---------- ---------- --------- -------- ----------
Net income, 1994 - - - - - - 315,732 - - 315,732
Unrealized (loss) on securities - - - - - - - - (381,393) (381,393)
------- ---------- ---------- --------- -------- ----------
Balance, December 31, 1994 487,409 $2,437,045 $2,350,634 $ 14,355 $(381,393) $4,420,641
------- ---------- ---------- --------- -------- ----------
Net income, 1995 - - - - - - 611,510 - - 611,510
Exercise of options 8,000 40,000 45,500 - - - - 85,500
Unrealized (loss) on securities - - - - - - - - 369,665 369,665
------- ---------- ---------- --------- -------- ----------
Balance, December 31, 1995 495,409 $2,477,045 $2,396,134 $ 625,865 $ (11,728) $5,487,316
======= ========== ========== ========= ======== ==========
</TABLE>
Refer to notes to the consolidated financial statements.
F-45
<PAGE>
FIRST NATIONAL FINANCIAL CORPORATION
ALBANY, GEORGIA
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended
December 31,
-------------------------------------------
<S> <C> <C> <C>
1995 1994 1993
----------- ----------- ----------
Cash flows from operating
activities:
Net Income $ 611,510 $ 315,732 $ 238,101
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 138,094 132,907 131,931
Net amortization of premiums on
securities 21,977 35,906 27,899
Provision for possible loan losses 185,000 120,000 128,011
(Increase) in other assets (41,416) (297,584) (230,049)
Increase in other liabilities (65,215) 41,189 159,632
----------- ------------ -----------
Net cash provided by operating activities $ 849,950 $ 348,150 $ 455,525
----------- ------------ -----------
Cash flows from investing activities:
Proceeds from sales of securities $ 1,493,438 - - $ - -
Proceeds from maturities of securities 1,800,000 2,800,000 2,350,000
Purchase of securities (1,455,523) (4,209,904) (7,377,309)
(Increase) in loans (4,501,649) (5,478,413) (4,967,777)
Purchase of premises and equipment (62,610) (40,952) (18,060)
----------- ------------ -----------
Net cash used in investing activities $(2,726,344) $(6,929,269) $(10,013,146)
----------- ------------ -----------
Cash flows from financing activities:
Issuance of common stock $ 85,500 $ - - $ - -
Borrowings 1,000,000 - - - -
Increase in deposits 5,158,959 3,826,384 11,514,977
----------- ------------ -----------
Net cash provided from financing activities $ 6,244,459 $ 3,826,384 $11,514,977
Net increase in cash and cash equivalents $ 4,368,065 $(2,754,735) $ 1,957,356
Cash and cash equivalents, beginning of period 2,556,047 5,310,782 3,353,426
----------- ------------ -----------
Cash and cash equivalents, end of period $ 6,924,112 $2,556,047 $ 5,310,782
============ ============ ===========
SUPPLEMENTAL INFORMATION:
Income taxes paid $ 314,331 $ 225,488 $ - -
============ ============ ===========
Interest paid $ 1,801,603 $1,446,431 $ 1,216,891
============ ============ ===========
</TABLE>
Refer to notes to the consolidated financial statements.
F-46
<PAGE>
FIRST NATIONAL FINANCIAL CORPORATION
Albany, Georgia
Notes to Consolidated Financial Statements
December 31, 1995
NOTE 1 - SUMMARY OF ORGANIZATION
First National Financial Corporation, Albany, Georgia (the "Company"),
was incorporated under the laws of the State of Georgia on August 3, 1989, for
the purpose of becoming a bank holding company with respect to a proposed
national bank, First National Bank of South Georgia (the "Bank") located in
Albany, Georgia. Upon commencement of the Bank's principal operations on May
29, 1991, the Company acquired 100 percent of the Bank's voting stock by
injecting $3,800,000 into the Bank's capital accounts.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Reclassification. The consolidated financial
-------------------------------------------
statements include the accounts of the Company and the Bank. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Certain prior year amounts have been reclassified to conform to the current year
presentation.
Basis of Accounting. The accounting and reporting policies of the
--------------------
Company conform to generally accepted accounting principles and to general
practices in the banking industry. The Company uses the accrual basis of
accounting by recognizing revenues when they are earned and recognizing expenses
in the period incurred, without regarding the time of receipt or payment of
cash.
Investment Securities. The Company adopted Statement of Financial
----------------------
Accounting Standards No. 115, "Accounting for Certain Investment in Debt and
Equity Securities" ("SFAS 115") on January 1, 1994. SFAS 115 requires
investments in equity and debt securities to be classified into three
categories:
1. Held-to-maturity securities: These are securities which the Company
has the ability and intent to hold until maturity. These securities
are stated at cost, adjusted for amortization of premiums and the
accretion of discounts.
2. Trading securities: These are securities which are bought and held
principally for the purpose of selling in the near future. Trading
securities are reported at fair market value, and related unrealized
gains and losses are recognized in the income statement.
F-47
<PAGE>
FIRST NATIONAL FINANCIAL CORPORATION
Albany, Georgia
Notes to Consolidated Financial Statements
December 31, 1995
3. Available-for-sale securities: These are securities which are not
classified as either held-to-maturity or as trading securities. These
securities are reported at fair market value. Unrealized gains and
losses are reported, net of tax, as separate components of
shareholders' equity. Unrealized gains and losses are excluded from
the income statement.
Loans, Interest and Fee Income on Loans. Loans are stated at the principal
----------------------------------------
balance outstanding. Unearned discount, unamortized loan fees and the allowance
for possible loan losses are deducted from total loans in the statement of
condition. Interest income is recognized over the term of the loan based on the
principal amount outstanding. Points on real estate loans are taken into income
to the extent they represent the direct cost of initiating a loan. The amount
in excess of direct costs is deferred and amortized over the expected life of
the loan.
Loans are generally placed on non-accrual status when principal or interest
becomes ninety days past due, or when payment in full is not anticipated. When
a loan is placed on non-accrual status, interest accrued but not received is
generally reversed against interest income. If collectibility is in doubt, cash
receipts on non-accrual loans are not recorded as interest income, but are used
to reduce principal.
Allowance for Possible Loan Losses. The provisions for loan losses charged
-----------------------------------
to operating expense reflect the amount deemed appropriate by management to
establish an adequate reserve to meet the present and foreseeable risk
characteristics of the current loan portfolio. Management's judgement is based
on periodic and regular evaluation of individual loans, the overall risk
characteristics of the various portfolio segments, past experience with losses
and prevailing and anticipated economic conditions. Loans which are determined
to be uncollectible are charged against the allowance. Provisions for loan
losses and recoveries on loans previously charged-off are added to the
allowance.
The Company adopted Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan," (SFAS 114") on January 1,
1995. Under the new standard, a loan is considered impaired, based on current
information and events, if it is probable that the Company will be unable to
collect the scheduled payments of principal or interest when due
F-48
<PAGE>
FIRST NATIONAL FINANCIAL CORPORATION
Albany, Georgia
Notes to Consolidated Financial Statements
December 31, 1995
according to the contractual terms of the loan agreement. The measurement of
impaired loans is generally based on the present value of expected future cash
flows discounted at the historical effective interest rate, except that all
collateral-dependent loans are measured for impairment based on the fair value
of the collateral. The adoption of SFAS 114 resulted in no change to the
allowance for credit losses at January 1, 1995.
In October, 1994, FASB issued Statement of Financial Accounting Standards
No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosure" (SFAS 118). SFAS 118 amends SFAS 114 to allow a creditor to use
existing methods for recognizing interest income on an impaired loan, rather
than the methods prescribed in SFAS 114.
Property and Equipment. Building, furniture and equipment are stated at
-----------------------
cost, net of accumulated depreciation. Depreciation is computed using the
straight line method over the estimated useful lives of the related assets.
Maintenance and repairs are charged to operations, while major improvements are
capitalized. Upon retirement, sale or other disposition of property and
equipment, the cost and accumulated depreciation are eliminated from the
accounts, and gain or loss is included in income from operations.
Income Taxes. The consolidated financial statements have been prepared on
-------------
the accrual basis. When income and expenses are recognized in different periods
for financial reporting purposes and for purposes of computing income taxes
currently payable, deferred taxes are provided on such temporary differences.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under
SFAS 109, deferred tax assets and liabilities are recognized for the expected
future tax consequences of events that have been recognized in the financial
statements or tax return. Deferred tax assets and liabilities are measured
using the enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be realized or settled.
Statement of Cash Flows. For purposes of reporting cash flows, cash and
------------------------
cash equivalents include cash on hand, amounts due from banks and federal funds
sold. Generally, federal funds are purchased or sold for one day periods.
F-49
<PAGE>
FIRST NATIONAL FINANCIAL CORPORATION
Albany, Georgia
Notes to Consolidated Financial Statements
December 31, 1995
Earnings Per Share. The weighted average number of shares outstanding as
-------------------
well as of all the common stock equivalents must be considered for purposes of
computing earnings per share. Note that common stock equivalents are securities
that enable their holders to obtain additional shares of common stock. Options
and warrants are common stock equivalents. They are used in the computation of
earnings per share only if, upon exercise, they dilute earnings per share by 3%
or more. To compute earnings per share, adjusted net income is divided by the
sum of weighted average shares of common stock outstanding and of common stock
equivalents.
Whenever the market price of a share of common stock exceeded the exercise
price of any warrant or option during the calendar years 1995 and 1994, an
increase equal to the number of shares which would be issuable on any such
exercise of warrants and stock options was reflected as a common stock
equivalent. However, the rule for the treasury stock method states that common
stock equivalents may not exceed 20% of the outstanding shares. Thus, if upon
exercise, excess funds were available to acquire more than the 20% limit on
common stock equivalents, any excess proceeds were assumed to be invested in
treasury securities and the income from those investments used to adjust net
income accordingly.
Purchases for purposes of the primary earnings per share calculation were
assumed to have been made at the average price of a share of common stock during
the corresponding calendar year, while purchases for purposes of the fully
diluted calculation were assumed to have been made at the calendar year-end
price of a share of stock.
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Primary earnings per share $1.13 $ .57 $ .49
===== ===== =====
Fully diluted earnings per share $1.12 $ .57 $ .49
===== ===== =====
Weighted average number of common
stock and common stock equivalents 561,123 584,891 487,409
======= ======= =======
</TABLE>
F-50
<PAGE>
FIRST NATIONAL FINANCIAL CORPORATION
Albany, Georgia
Notes to Consolidated Financial Statements
December 31, 1995
NOTE 3 - SECURITIES AVAILABLE-FOR-SALE
The amortized costs and estimated market values of securities available-
for-sale as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury $ 7,784,234 $43,016 $(34,525) $ 7,792,725
U.S. Agency 3,301,746 13,147 (39,408) 3,275,485
FHLB Stock 160,300 - - - - 160,300
Bankers' Bank Stock 57,130 - - - - 57,130
Fed. Reserve Stock 114,000 - - - - 114,000
----------- ------- -------- -----------
Total securities $11,417,410 $56,163 $(73,933) $11,399,640
=========== ======= ======== ===========
</TABLE>
The amortized costs and estimated market values of securities available-
for-sale as of December 31, 1994 are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury $ 9,414,777 $ - - $(398,525) $ 9,016,252
U.S. Agency 3,052,677 - - (179,343) 2,873,334
FHLB Stock 135,000 - - - - 135,000
Bankers' Bank Stock 57,130 - - - - 57,130
Fed. Reserve Stock 114,000 - - - - 114,000
----------- ------ --------- -----------
Total securities $12,773,584 $ - - $(577,868) $12,195,716
=========== ====== ========= ===========
</TABLE>
The amortized cost and estimated market values of securities available-for-
sale as of December 31, 1995, by contractual maturity, are shown below. Note
that expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
As of December 31, 1995 Cost Value
- -------------------------------------- ----------- -----------
<S> <C> <C>
Due in one year or less $ 2,755,880 $ 2,750,900
Due after one through five years 8,330,100 8,317,310
Other securities (no maturity) 331,430 331,430
----------- -----------
Total securities, December 31, 1995 $11,417,410 $11,399,640
=========== ===========
</TABLE>
F-51
<PAGE>
FIRST NATIONAL FINANCIAL CORPORATION
Albany, Georgia
Notes to Consolidated Financial Statements
December 31, 1995
During 1995, sales of available-for-sale securities aggregated $1,493,438.
Gross losses on those sales were $5,614. During 1994, no securities were sold.
At December 31, 1995 and 1994, securities with a par value of $650,000 were
pledged as collateral to secure public deposits and for other purposes as
required or permitted by law.
NOTE 4 - SECURITIES HELD-TO-MATURITY
There were no securities designated as held-to-maturity as of December 31,
1995.
The amortized cost and estimated market values of securities held-to-
maturity as of December 31, 1994 are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury $694,151 $ - - $(8,089) $686,062
-------- ------ ------- --------
Total securities $694,151 $ - - $(8,089) $686,062
======== ====== ======= ========
</TABLE>
NOTE 5 - FEDERAL FUNDS PURCHASED OR SOLD
The Bank is required to maintain legal cash reserves computed by applying
prescribed percentages to its various types of deposits. When the Bank's cash
reserves are in excess of the required amount, it may lend the excess cash to
other banks on a daily basis.
As of December 31, 1995 and 1994, the Company lent, in the aggregate,
$4,450,000 and $570,000, respectively, through the federal funds market.
F-52
<PAGE>
FIRST NATIONAL FINANCIAL CORPORATION
Albany, Georgia
Notes to Consolidated Financial Statements
December 31, 1995
NOTE 6 - LOANS
The composition of loans by major loan category as of December 31, 1995 and
1994 is presented below:
<TABLE>
<CAPTION>
Loan Category 1995 1994
- ------------- ----------- -----------
<S> <C> <C>
Commercial, financial & agricultural $11,512,612 $ 9,829,100
Real estate-construction 1,992,319 1,475,225
Real estate-mortgage 12,015,965 13,030,623
Installment 7,882,008 4,770,034
----------- -----------
Loans, gross $33,402,904 $29,104,982
Deduct: Allowance for loan losses 433,743 452,470
----------- -----------
Loans, net $32,969,161 $28,652,512
=========== ===========
</TABLE>
At December 31, 1995 and 1994, all loans were accruing interest.
NOTE 7 - ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is a valuation reserve available to
absorb future loan charge-offs. The allowance is increased by provisions
charged to operating expense and by recoveries of loans which were
previously written-off. The allowance is decreased by the aggregate loan
balances which were deemed uncollectible during the year.
The activity within the allowance for loan losses account as of December
31, 1995, 1994 and 1993 is summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1995 1994 1993
------- ------- -------
Balance, beginning of year $ 452,470 $332,034 $247,000
Provisions charged to expense 185,000 120,000 128,011
Recoveries of amounts charged-off 16,622 670 683
Less: amount charged-off (220,349) (234) (43,660)
--------- -------- ----------
Balance, end of year $ 433,743 $452,470 $332,034
========= ======== ==========
</TABLE>
F-53
<PAGE>
FIRST NATIONAL FINANCIAL CORPORATION
Albany, Georgia
Notes to Consolidated Financial Statements
December 31, 1995
NOTE 8 - PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Components of property and equipment included in the consolidated balance sheets
at December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------
1995 1994
------------ -----------
<S> <C> <C>
Land $ 373,882 $ 373,882
---------- ----------
Land improvements, at cost $ 19,500 $ 19,500
Less: Accumulated depreciation (17,875) (13,975)
---------- ----------
Total leasehold improvements $ 1,625 $ 5,525
---------- ----------
Building $1,022,088 $1,022,088
Less: Accumulated depreciation (149,620) (116,971)
---------- ----------
Total building $ 872,468 $ 905,117
---------- ----------
Furniture and equipment, at cost $ 561,673 $ 513,559
Less: Accumulated depreciation (330,139) (263,830)
---------- ----------
Total furniture and equipment $ 231,534 $ 249,729
---------- ----------
Total property and equipment, net $1,479,509 $1,534,253
========== ==========
</TABLE>
Land improvements are depreciated over 5 years, building over 31.5 years,
and furniture and equipment range from 5 to 20 years. Depreciation expenses
amounted to $117,354, $112,167 and $111,191 in 1995, 1994 and 1993,
respectively.
NOTE 9 - DEPOSITS
Following is a detail of the deposit accounts at December 31, 1995 and
1994:
<TABLE>
<CAPTION>
December 31,
------------------------
1995 1994
----------- -----------
<S> <C> <C>
Non-interest bearing deposits $ 7,374,007 $ 5,627,022
Interest bearing deposits:
NOW accounts 4,548,137 4,813,467
Money market accounts 4,026,386 3,485,525
Savings 2,153,626 3,070,080
Time, less than $100,000 22,195,571 19,266,889
Time, $100,000 and over 6,460,464 5,336,249
----------- -----------
Total deposits $46,758,191 $41,599,232
=========== ===========
</TABLE>
F-54
<PAGE>
FIRST NATIONAL FINANCIAL CORPORATION
Albany, Georgia
Notes to Consolidated Financial Statements
December 31, 1995
NOTE 10 - OTHER BORROWINGS
At December 31, 1995, the Company had a $1.0 million outstanding advance
from the Federal Home Loan Bank. The above advance carries an interest rate of
6.03% and matures July 5, 1996. The advance is secured by first liens on
residential properties being carried on the Bank's books.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
Please refer to Note 15 concerning a contract the Company executed with the
Bank's chief executive officer. Additionally, Note 18 describes financial
instruments with off-balance sheet risk.
NOTE 12 - SHAREHOLDERS' EQUITY
In December, 1989, the Company offered for sale 550,000 shares of its
10,000,000 authorized shares of common stock, $5.00 par value per share. The
Company, upon commencement of principal operations on May 29, 1991, had sold and
issued 487,409 shares at $10.00 per share. During 1995, options for 8,000
shares were exercised for a total amount of $85,500.
With each initial purchase of one share of Company's common stock, each of
the Company's ten original directors was issued a warrant to purchase an
additional share at $10.00 per share. The warrants may be exercised at any time
prior to May 29, 2001. During 1991, 117,800 such warrants were issued in the
aggregate to the Company's ten directors. No additional such warrants have been
issued or exercised since inception.
The Company's shareholders adopted an incentive stock option plan (the
"Plan") covering 200,000 shares of common stock. The Plan is administered by
the Company's Board of Directors and provides for the granting of options to
purchase shares of common stock to officers and other key employees. Generally,
the shares optioned may be exercised no later than ten years from the date of
grant and at a price not less than the fair market value of the Company's common
stock on the date the options were granted. During 1995, no options were
granted under the Plan. However, 8,000 options were exercised for an aggregate
amount of $85,500 under the Plan. During 1994, the Board of Directors granted
10,500
F-55
<PAGE>
FIRST NATIONAL FINANCIAL CORPORATION
Albany, Georgia
Notes to Consolidated Financial Statements
December 31, 1995
options that can be exercised at $12.00 per share. No stock options were
exercised during 1994. As of December 31, 1995, there were 27,500 stock options
outstanding under the Plan.
In accordance with an employment agreement more fully discussed under Note
15, one officer was granted options to purchase 4,874 shares of the Company's
common stock for each of the calendar years ended December 31, 1995 and 1994 at
an average exercise price of $10.54 per share. Prior to 1994, the above officer
was granted options to purchase 9,748 shares of common stock at a price of
$10.00 per share. Note that these options were not granted pursuant to the
Plan. As of December 31, 1995, none of these options had been exercised.
NOTE 13 - OTHER OPERATING EXPENSES
A summary of other operating expenses for the years ended December 31,
1995, 1994 and 1993 follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Insurance $ 24,614 $ 27,108 $ 27,276
Transportation and postage 42,428 35,966 31,527
Regulatory fees and assessments 48,302 85,706 65,389
Regulatory examinations 25,211 23,878 19,214
Legal and professional 62,733 53,922 53,478
Correspondent bank charges 25,617 21,895 18,763
Repairs and maintenance
agreements 22,486 19,136 22,451
Other operating expenses 148,280 76,959 84,247
-------- -------- --------
Total other operating expenses $399,671 $344,570 $322,345
======== ======== ========
</TABLE>
NOTE 14 - INTEREST EXPENSE
Interest expenses on deposits and short-term borrowings for the years ended
December 31, 1995, 1994 and 1993 are presented below:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
NOW accounts $ 119,318 $ 105,021 $ 81,077
Money market accounts 130,866 104,143 100,918
Savings 72,819 79,666 63,904
Time, under $100,000 1,148,629 904,264 713,117
Time, $100,000 and over 364,236 244,016 218,347
Other borrowings 45,983 - - - -
Federal funds purchased 10,903 994 - -
---------- ---------- ----------
Total interest expense $1,892,754 $1,438,104 $1,177,363
</TABLE>
F-56
<PAGE>
FIRST NATIONAL FINANCIAL CORPORATION
Albany, Georgia
Notes to Consolidated Financial Statements
December 31, 1995
NOTE 15 - RELATED PARTY TRANSACTIONS
The Company entered into an employment agreement with one of its directors
who also serves as president and chief executive officer (the "CEO") of the
Bank. The agreement commenced June 1, 1989 and expires May 29, 1996. The
agreement provides for an annual base salary of $108,000, and, beginning January
1, 1994, an annual cash performance bonus equalling 5% of the annual income of
the Bank, not to exceed 50% of his annual salary. Additionally, under the
Agreement, as of December 31, 1995, the CEO has earned 19,496 options and may
earn an additional 4,874 options during 1996. The exercise price for the
options which were already earned ranged from $10.00 per share to $11.08 per
share. For each of the calendar years ended December 31, 1995 and 1994, the CEO
earned 4,874 options with an average exercise price of $10.54 per share. The
above options may be exercised at the earlier of seven years from the date of
grant or ten years from May 29, 1991. During 1995 and 1994, expenses incurred
with respect to the agreement with the CEO approximated $176,753 and $147,180,
respectively.
In the ordinary course of business, the Bank makes loans to officers and
directors of the Company or the Bank. These loans are made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with unrelated persons.
Loans to directors, principal shareholders, officers of the Company or the
Bank, and their related parties, either directly or indirectly, were as follows:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Balance, beginning of year $ 1,293,008 $ 1,071,224
Loan proceeds 1,710,770 1,520,366
Less: Loan pay-offs (1,467,820) (1,298,582)
----------- -----------
Balance, end of year $ 1,535,958 $ 1,293,008
=========== ===========
</TABLE>
At December 31, 1995 and 1994, deposits by directors, their related
interests and principal shareholders amounted to $1,082,900 and $998,105,
respectively. In addition, several directors were compensated, exclusive of
salaries, for services performed or for sales of goods to the Company or the
Bank. Such compensation aggregated $40,483 and $4,708 for the years ended
December 31, 1995 and 1994, respectively. Additionally, during 1995 and 1994
members of the Board of Directors were paid, in the aggregate, $18,675 and
F-57
<PAGE>
FIRST NATIONAL FINANCIAL CORPORATION
Albany, Georgia
Notes to Consolidated Financial Statements
December 31, 1995
$14,995, respectively, for attending and participating in Board and Committee
meetings.
Please refer to Note 12 for a discussion concerning the directors and
organizers stock warrants. Note 12 also discusses the incentive stock option
plan which may be awarded to officers and key employees.
NOTE 16 - INCOME TAXES
The Company adopted SFAS No. 109, "Accounting for Income Taxes". Under
SFAS No. 109, deferred tax assets or liabilities are computed based on the
difference between the financial statement and income tax basis of assets and
liabilities using the enacted marginal tax rate. Deferred income tax expenses
or credits are based on the changes in the asset or liability from period to
period.
As of December 31, 1995, 1994 and 1993, the Company's provision for income
taxes consisted of the following:
<TABLE>
<CAPTION>
1995 1994 1993
--------- ----------- ------------
<S> <C> <C> <C>
Current $ 311,412 $ 225,488 $ 106,079
Deferred (4,793) (1,451) 1,726
Benefit of loss carryforward - - (1,037) (107,805)
--------- --------- ---------
Federal income tax expense $ 306,619 $ 223,000 $ - -
========= ========= =========
</TABLE>
Deferred income taxes consist of the following:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Provision for loan losses, net $ (4,793) $ - - $ - -
Contributions - - (1,726) 1,726
Depreciation - - 275 - -
--------- ---------- -------
Total $ (4,793) $ (1,451) $ 1,726
========= ========= =======
</TABLE>
The Company's provision for income taxes differs from the amounts computed
by applying the federal income tax statutory rates to income before income
taxes.
F-58
<PAGE>
FIRST NATIONAL FINANCIAL CORPORATION
Albany, Georgia
Notes to Consolidated Financial Statements
December 31, 1995
A reconciliation of federal statutory income taxes to the Company's actual
income tax provision as of December 31, 1995, 1994 and 1993 follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1995 1994 1993
--------- ----------- ------------
Income taxes at statutory rate $ 312,163 $183,169 $ 76,109
Provision for loan losses (4,793) 40,948 30,304
Non-deductible expenses (751) - - - -
Other - - (1,117) (106,413)
---------- ---------- ---------
Total $ 306,619 $223,000 $ - -
========== ========== =========
</TABLE>
NOTE 17 - PROFIT SHARING PLAN
In November, 1992, the Bank established a Profit Sharing Plan for the
benefit of its employees. The Bank contributes a percentage of the annual
compensation of each eligible participant to the Profit Sharing Plan. Total
expense relating to the Profit Sharing Plan for the years ended December 31,
1995, 1994 and 1993 amounted to $45,000, $38,000 and $28,690, respectively.
NOTE 18 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company is party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments which include commitments to extend credit and
standby letters of credit involve, to varying degrees, elements of credit and
interest rate risk in excess of the amounts recognized in the balance sheets.
The contract amounts of those instruments reflect the extent of involvement the
Company has in particular classes of financial instruments.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. At December 31, 1995 and 1994, unfunded
commitments to extend credit were $3,849,754 and $6,673,565, respectively. The
Company evaluates each customer's credit worthiness on a case-by-case basis.
The amount of collateral obtained, if deemed necessary by the Company upon
extension of
F-59
<PAGE>
FIRST NATIONAL FINANCIAL CORPORATION
Albany, Georgia
Notes to Consolidated Financial Statements
December 31, 1995
credit, is based on management's credit evaluation of the counter-party.
Collateral varies but may include accounts receivable, inventory, property,
plant, and equipment, and income producing commercial properties.
At December 31, 1995 and 1994, commitments under letters of credit
aggregated approximately $353,200 and $178,700, respectively. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. Collateral varies but may include
accounts receivable, inventory, equipment, marketable securities and property.
Since most of the letters of credit are expected to expire without being drawn
upon, they do not necessarily represent future cash requirements.
The Company's exposure to credit loss in the event of non-performance by
the other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amounts of those
instruments. The Company uses the same credit policies in making commitments
and conditional obligations as it does for on-balance sheet instruments.
The Company makes commercial, agricultural, real estate and consumer loans
to businesses and individuals generally located within a thirty-mile radius of
downtown Albany, Georgia. Many of the loan customers are also depositors.
Concentration of credit by loan category is set forth under Note 6 of this
report. As a matter of policy and regulatory requirements, the Bank will
generally not extend credit to any single borrower or group of related borrowers
in excess of 25% of the Bank's stated capital. As of December 31, 1995, the
Bank's stated capital amounted to approximately $4.5 million.
NOTE 19 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments" ("SFAS 107"), requires the disclosure of
estimated fair values for all financial instruments, both on-and-off balance
sheet assets and liabilities, whose values may be practically estimated, along
with pertinent information on those financial instruments whose values may not
be so estimated.
F-60
<PAGE>
FIRST NATIONAL FINANCIAL CORPORATION
Albany, Georgia
Notes to Consolidated Financial Statements
December 31, 1995
Fair value estimates are made at a specific point in time and are based on
relevant market information which is continuously changing. Because no quoted
market prices exist for a significant portion of the Company's financial
instruments, fair values for such instruments are based on management's
assumptions with respect to future economic conditions, estimated discount
rates, estimates of the amount and timing of future cash flows, expected loss
experience and other factors. These estimates are subjective in nature
involving uncertainties and matters of significant judgment. Therefore, they
cannot be determined with precision. Note that changes in the assumption could
significantly affect the estimates. The following disclosures should not be
considered a substitute for the liquidation value of the Company and its
subsidiary, but rather a good-faith estimate of the increase or decrease in
value of financial instruments held by the Company since purchase, origination
or issuance. The Company has not undertaken any steps to value any assets or
liabilities that are not considered financial instruments. For example,
premises, equipment, core deposits, intangibles and goodwill are not considered
financial instruments.
The following methods and assumptions were used by the Company in
estimating the fair value of its financial instruments.
1. Cash and due from banks and interest bearing deposits with other banks:
---------------------------------------------------------------------------
Fair value equals the carrying value of such assets.
2. Investment securities and investment securities available-for-sale:
-----------------------------------------------------------------------
Fair values for investment securities are based on quoted market prices.
3. Federal funds sold and securities purchased under agreements to resell:
--------------------------------------------------------------------------
Due to the short term nature of these assets, the carrying values of these
assets approximate their fair value.
4. Loans: For variable rate loans, (those repricing within six months or
----------
less) fair values are based on carrying values. Fixed rate commercial loans,
other installment loans and certain real estate mortgage loans were valued using
discounted cash flows. The discount rate used to determine the present value of
these loans was based on interest rates currently being charged by the Company
on comparable loans as to credit risk and term.
F-61
<PAGE>
FIRST NATIONAL FINANCIAL CORPORATION
Albany, Georgia
Notes to Consolidated Financial Statements
December 31, 1995
5. Off-balance sheet instruments: The Company's loan commitments are
----------------------------------
negotiated at current market rates and are relatively short-term in nature and,
as a matter of policy, the Company generally makes commitments for fixed rate
loans for relatively short periods of time. Therefore, the estimated value of
the Company's loan commitment approximates carrying amount.
6. Deposit liabilities: The fair values of demand deposits are, as
------------------------
required by SFAS 107, equal to the carrying value of such deposits. Demand
deposits include non-interest bearing deposits, savings accounts, NOW accounts
and money market demand accounts.
Discounted cash flows have been used to value fixed rate term deposits and
variable rate term deposits having reached an interest rate floor. The discount
rate used is based on interest rates currently being offered by the Company on
comparable deposits as to amount and term.
7. Short-term borrowings: The carrying value of federal funds purchased,
--------------------------
securities sold under agreements to repurchase and other short-term borrowings
approximates their carrying values.
8. FHLB and other borrowings: The fair value of the Company's fixed rate
------------------------------
borrowings are estimated using discounted cash flows, based on the Company's
current incremental borrowing rates or similar types of borrowing arrangements.
The carrying amount of the Company's variable rate borrowings approximates their
fair values.
<TABLE>
<CAPTION>
At December 31, 1995
------------------------
Carrying Estimated
Amount Fair Value
----------- -----------
<S> <C> <C>
Assets:
Cash and due from banks $ 2,474,112 $ 2,474,112
Investment securities
available for sale 11,399,640 11,399,640
Federal funds sold and
securities purchased
under agreements to resell 4,450,000 4,450,000
Loans 32,969,161 32,885,600
Liabilities:
Non-interest
bearing deposits 7,374,007 7,374,007
Interest bearing deposits 39,384,184 39,429,100
FHLB and other borrowings 1,000,000 1,000,000
</TABLE>
F-62
<PAGE>
FIRST NATIONAL FINANCIAL CORPORATION
Albany, Georgia
Notes to Consolidated Financial Statements
December 31, 1995
NOTE 20 - DIVIDENDS
To date, the Company has paid no dividends. Future dividend policy will
depend on the Bank's and Company's earnings, capital requirements, financial
condition and other factors considered relevant by the Company's Board of
Directors. The Bank is restricted in its ability to pay dividends under the
national banking laws and regulations of the Comptroller of the Currency (the
"OCC"). Generally, these restrictions require the Bank to pay dividends derived
solely from net profits. Moreover, OCC prior approval is required if dividends
declared in any calendar year exceed the Bank's net profit for that year
combined with its retained net profits for the preceding two years.
NOTE 21 - PARENT COMPANY FINANCIAL INFORMATION
This information should be read in conjunction with the other notes to the
consolidated financial statements.
Parent Company Balance Sheets
-----------------------------
<TABLE>
<CAPTION>
December 31,
------------------------
Assets 1995 1994
- -------------------------------------- ----------- -----------
<S> <C> <C>
Cash and cash equivalents $ 822,495 $ 735,783
Receivables 7,033 5,813
Investment securities 200,760 200,357
Investment in Bank 4,461,543 3,477,597
Other assets 2,086 7,091
---------- ----------
Total Assets $5,493,917 $4,426,641
========== ==========
Liabilities and Shareholders' Equity
- --------------------------------------
Liabilities:
Accrued expenses $ 6,601 $ 6,000
---------- ----------
Total Liabilities $ 6,601 $ 6,000
---------- ----------
Shareholders' Equity:
Common stock $2,477,045 $2,437,045
Paid-in-capital 2,396,134 2,350,634
Retained earnings 625,865 14,355
Unrealized loss, securities
available for sale by subsidiary (11,728) (381,393)
---------- ----------
Total Shareholders' Equity $5,487,316 $4,420,641
---------- ----------
Total Liabilities and Capital $5,493,917 $4,426,641
========== ==========
</TABLE>
F-63
<PAGE>
FIRST NATIONAL FINANCIAL CORPORATION
Albany, Georgia
Notes to Consolidated Financial Statements
December 31, 1995
Parent Company Statements of Income
-----------------------------------
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------
<S> <C> <C> <C>
1995 1994 1993
---------- ---------- ---------
Interest income $ 33,196 $ 28,544 $ 23,270
Interest expense - - - - - -
---------- ---------- ---------
Net interest margin $ 33,196 $ 28,544 $ 23,270
==========
Operating expenses:
Legal and professional $ (16,229) $ (16,351) $ (15,126)
Amortization of organization costs (5,006) (5,006) (5,006)
Other operating expense (14,732) (13,318) (13,094)
Equity in undistributed
earnings of Bank 614,281 321,863 248,057
---------- ---------- ----------
Net Income $ 611,510 $ 315,732 $ 238,101
========== ========== ==========
</TABLE>
Parent Company Statements of Cash Flows
---------------------------------------
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------
<S> <C> <C> <C>
1995 1994 1993
---------- ---------- ---------
Cash flows from operating activities:
Net income $ 611,510 $ 315,732 $ 238,101
Equity in undistributed
(earnings) of Bank (614,281) (321,863) (248,057)
Amortization of organization costs 5,006 5,006 5,006
Increase in accrued expenses 601 4,110 990
Decrease in other assets (1,624) 2,996 2,981
----------- ----------- ----------
Net cash provided by
operating activities 1,212 5,981 $ (979)
----------- ----------- ----------
Cash flow from investing activities:
Proceeds from exercise
of stock options $ 85,500 $ - - $ - -
=========== =========== ===========
Net cash provided from
financing activities 85,500 - - - -
----------- ----------- ----------
Net increase (decrease) in cash $ 86,712 $ 5,981 $ (979)
----------- ----------- ----------
Cash, beginning of period 735,783 729,802 730,781
----------- ----------- ----------
Cash, end of period $ 822,495 $ 735,783 $ 729,802
=========== =========== ==========
</TABLE>
F-64
<PAGE>
CENTRAL BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
ASSETS 1996 1995
---- ----
<S> <C> <C>
Cash and due from banks $ 2,141,940 $ 1,588,742
Federal funds sold - 880,000
Securities available for sale, at fair value 7,977,966 6,070,924
Securities held for investment, at cost 2,883,580 3,251,178
Loans, less allowance for loan losses of $445,115
and $371,884 34,988,252 29,774,901
Office properties and equipment, net 1,073,524 1,190,573
Accrued interest receivable 737,889 572,472
Other assets 300,601 1,485,772
----------- -----------
$50,103,752 $44,814,562
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing demand $ 3,514,460 $ 2,728,987
Interest-bearing demand 9,668,049 9,205,791
Savings 3,148,812 3,046,732
Time, $100,000 and over 8,005,442 4,149,535
Other time 20,387,251 21,469,634
----------- -----------
Total deposits 44,724,014 40,600,679
----------- -----------
Accrued interest and other liabilities 1,080,051 454,911
----------- -----------
Total liabilities 45,804,065 41,055,590
----------- -----------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Capital stock, common, par value $1; 10,000,000
shares authorized, and 218,130 shares issued
and outstanding 218,130 218,130
Additional paid-in capital 2,423,300 2,423,300
Retained earnings 1,677,502 1,098,322
Unrealized gains (losses) on securities
available for sale, net of taxes (19,245) 19,220
----------- -----------
Total stockholders' equity 4,299,687 3,758,972
----------- -----------
$50,103,752 $44,814,562
=========== ===========
</TABLE>
F-65
<PAGE>
CENTRAL BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1996 1995
---- ----
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 925,450 $764,822
Investment securities and time deposits 171,281 143,712
Other interest income 16,228 5,853
---------- --------
1,112,959 914,387
---------- --------
INTEREST EXPENSE
Interest on deposits 539,327 397,345
Interest on borrowed money 800 5,950
---------- --------
540,127 403,295
---------- --------
Net interest income 572,832 511,092
PROVISION FOR LOAN LOSSES - 45,000
---------- --------
Net interest income after provision
for loan losses 572,832 466,092
---------- --------
OTHER INCOME
Service charges 127,873 113,694
Other income 51,755 45,925
---------- --------
179,628 159,619
---------- --------
GENERAL AND ADMINISTRATIVE EXPENSES
Employee compensation and benefits 227,431 210,687
Occupancy and equipment 77,480 90,635
Other operating expenses 170,522 174,859
---------- --------
475,433 476,181
---------- --------
Income before income taxes 277,027 149,530
APPLICABLE INCOME TAXES 104,578 57,099
---------- --------
Net income $ 172,449 $ 92,431
========== ========
PER SHARE OF COMMON STOCK
Net income $ .79 $ .42
========== ========
</TABLE>
F-66
<PAGE>
CENTRAL BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
1996 1995
------ ------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 172,449 $ 92,431
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 33,516 38,857
Provision for loan losses - 45,000
Changes in assets and liabilities:
(Increase) decrease in accrued interest receivable 7,866 (21,895)
(Increase) decrease in other assets 999,292 (25,451)
Decrease in accrued interest payable (97,277) (65,926)
(Increase) decrease in accrued expenses and
other liabilities 485,432 (8,962)
----------- ----------
Net cash provided by operating activities 1,601,278 54,054
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in Federal funds sold 2,010,000 700,000
Purchases of securities available for sale (819,417) (1,447,465)
Proceeds from sales of securities available for sale 660,797 1,115,432
Net increase in loans (2,089,075) (1,184,487)
Purchases of property and equipment - (5,930)
----------- ----------
Net cash used in investing activities (237,695) (822,450)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of dividends - (108,850)
Net increase (decrease) in customer deposits (1,486,822) 1,852,819
----------- ----------
Net cash provided by (used in) financing
activities (1,486,822) 1,743,969
----------- ----------
Net increase (decrease) in cash and due from banks (123,239) 975,573
Cash and due from banks at beginning of period 2,265,179 613,169
----------- ----------
Cash and due from banks at end of period $ 2,141,940 $1,588,742
=========== ==========
F-67
<PAGE>
CENTRAL BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) The accompanying unaudited consolidated financial statements, which are for
interim periods, do not include all disclosures provided in the annual
consolidated financial statements. These financial statements and the notes
thereto should be read in conjunction with the annual financial statements
and the notes thereto for the years ended December 31, 1995 and 1994
included elsewhere in this Proxy Statement/Prospectus.
(2) All material intercompany balances and transactions have
been eliminated.
(3) In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (which are of a normal
recurring nature) necessary for a fair presentation of the financial
statements. The results of operations for the three months ended March 31,
1996 are not necessarily indicative of the results to be expected for the
full year.
F-68
<PAGE>
INDEPENDENT AUDITOR'S REPORT
- -------------------------------------------------------------------------------
TO THE BOARD OF DIRECTORS
CENTRAL BANKSHARES, INC.
CORDELE, GEORGIA
We have audited the accompanying consolidated balance sheets of CENTRAL
BANKSHARES, INC. AND SUBSIDIARY as of December 31, 1995 and 1994, and the
related consolidated statements of income, stockholders' equity and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Central
Bankshares, Inc. and subsidiary, as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
/s/ Mauldin & Jenkins
-----------------------------
Macon, Georgia
January 26, 1996
F-69
<PAGE>
CENTRAL BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
YEARS ENDED DECEMBER 31, 1995 AND 1994
- --------------------------------------------------------------------------------
ASSETS 1995 1994
----------- -----------
Cash and due from banks $ 2,265,179 $ 613,169
Federal funds sold 2,010,000 1,580,000
Securities available for sale, at fair value
(Note 2) 7,657,910 4,761,587
Securities held for investment, at cost (fair value
$3,153,364 and $3,806,937) (Note 2) 3,167,994 4,086,463
Loans, less allowance for loan losses of $477,618
and $316,348 (Note 3) 32,899,177 28,635,414
Office properties and equipment, net (Note 4) 1,107,040 1,223,500
Accrued interest receivable 745,755 550,577
Other assets 1,299,893 1,460,321
----------- -----------
$51,152,948 $42,911,031
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing demand $ 3,855,460 $ 3,826,152
Interest-bearing demand 10,088,278 9,764,121
Savings 2,996,337 3,028,255
Time, $100,000 and over 7,796,339 3,381,390
Other time 21,474,422 18,747,942
----------- -----------
Total deposits 46,210,836 38,747,860
Accrued interest and other liabilities 734,867 473,397
----------- -----------
Total liabilities 46,945,703 39,221,257
----------- -----------
Commitments and contingent liabilities (Note 7)
Stockholders' equity (Notes 6 and 9)
Capital stock, common, par value $1; 10,000,000
shares authorized, and 218,130 shares issued
and outstanding 218,130 218,130
Additional paid-in capital 2,423,300 2,423,300
Retained earnings 1,505,053 1,114,741
Unrealized gains (losses) on securities
available for sale, net of taxes 60,762 (66,397)
----------- -----------
Total stockholders' equity 4,207,245 3,689,774
----------- -----------
$51,152,948 $42,911,031
=========== ===========
See Notes to Consolidated Financial Statements.
F-70
<PAGE>
CENTRAL BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995 AND 1994
- --------------------------------------------------------------------------------
1995 1994
----------- -----------
Interest income
Interest and fees on loans $ 3,488,170 $ 2,771,563
Investment securities and time deposits 582,433 441,072
Other interest income 70,851 39,967
----------- -----------
4,141,454 3,252,602
----------- -----------
Interest expense
Interest on deposits 1,953,037 1,236,982
Interest on borrowed money 6,486 10,851
----------- -----------
1,959,523 1,247,833
----------- -----------
Net interest income 2,181,931 2,004,769
Provision for loan losses (Note 3) 139,774 180,000
----------- -----------
Net interest income after provision for
loan losses 2,042,157 1,824,769
----------- -----------
Other income
Service charges 507,685 500,964
Net realized gains (losses) on sales of
securities available for sale (14,432) 1,820
Other income 103,022 164,503
----------- -----------
596,275 667,287
----------- -----------
General and administrative expenses
Employee compensation and benefits 952,094 903,265
Occupancy and equipment 279,587 273,938
FDIC insurance premiums 90,502 81,975
Advertising 58,631 46,047
Directors fees and benefits 50,268 52,069
Other operating expenses 442,812 437,179
----------- -----------
1,873,894 1,794,473
----------- -----------
Income before income taxes 764,538 697,583
Applicable income taxes (Note 5) 265,341 240,324
----------- -----------
Net income $ 499,197 $ 457,259
=========== ===========
Per share of common stock
Net income $ 2.20 $ 2.03
=========== ===========
See Notes to Consolidated Financial Statements.
F-71
<PAGE>
CENTRAL BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unrealized
Gains
(Losses) on
Securities
Available
Common Stock Additional for Sale,
---------------------- Paid-in Retained Net of
Shares Par Value Capital Earnings Taxes Total
------- --------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 220,000 $220,000 $2,450,000 $ 657,482 $ - $3,327,482
Net income - - - 457,259 - 457,259
Purchase and simultaneous
retirement of the Company's
common stock (1,870) (1,870) (26,700) - - (28,570)
Net change in unrealized
gains (losses) on securities
available for sale, net of
taxes - - - - - (66,397)
------- -------- ---------- ---------- -------- ----------
Balance, December 31, 1994 218,130 218,130 2,423,300 1,114,741 (66,397) 3,689,774
Net income - - - 499,197 - 499,197
Payment of dividends - - - (108,885) - (108,885)
Net change in unrealized
gains (losses) on securities
available for sale, net of
taxes - - - - 127,159 127,159
------- -------- ---------- ---------- -------- ----------
Balance, December 31, 1995 218,130 $218,130 $2,423,300 $1,505,053 $ 60,762 $4,207,245
======= ======== ========== ========== ======== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-72
<PAGE>
CENTRAL BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
- --------------------------------------------------------------------------------
1995 1994
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 499,197 $ 457,259
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 184,329 191,161
Provision for loan losses 139,774 180,000
Amortization on investments 8,447 42,560
Deferred income tax (benefits) expense (48,205) 51,712
Net realized gains (losses) on securities
available for sale 15,738 (1,820)
Changes in assets and liabilities:
Increase in accrued interest receivable (195,178) (81,624)
(Increase) decrease in other assets 61,870 (1,121,855)
Increase in accrued interest payable 118,173 93,842
(Increase) decrease in accrued expenses and
other liabilities 191,502 (80,453)
----------- -----------
Net cash provided by (used in) operating
activities 975,647 (269,218)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in Federal funds sold (430,000) (727,000)
Purchases of securities available for sale (7,396,446) (3,948,789)
Proceeds from sales of securities available
for sale 3,143,929 3,303,253
Proceeds from maturities of securities
available for sale 1,629,725 1,250,000
Purchases of securities held for investment - (3,540,719)
Proceeds from maturities of securities held
for investment 819,478 805,047
Net increase in loans (4,403,538) (1,620,796)
Purchases of property and equipment (40,876) (98,667)
----------- -----------
Net cash used in investing activities (6,677,728) (4,577,671)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of dividends (108,885) -
Repayment of note payable - (61,973)
Net increase in customer deposits 7,462,976 3,205,160
Purchase of common stock for the treasury - (28,570)
----------- -----------
Net cash provided by financing activities 7,354,091 3,114,617
----------- -----------
F-73
<PAGE>
CENTRAL BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
- --------------------------------------------------------------------------------
1995 1994
----------- -----------
Net increase (decrease) in cash and due from banks $1,652,010 $(1,732,272)
Cash and due from banks at beginning of year 613,169 2,345,441
---------- -----------
Cash and due from banks at end of year $2,265,179 $ 613,169
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash payments for:
Interest $1,841,350 $1,154,955
Income taxes $ 207,474 $ 263,119
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITY
Other real estate acquired in settlement of loans $ 98,623 $ 216,660
Net change in unrealized gains (losses) on
securities available for sale $ 127,159 $ (66,397)
See Notes to Consolidated Financial Statements.
F-74
<PAGE>
CENTRAL BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Central Bankshares, Inc. is a one-bank holding company whose
business is presently conducted by its wholly-owned subsidiary,
Central Bank and Trust. The Company provides a full range of
banking services to individual and corporate customers in its
primary market of Crisp County, Georgia and surrounding
counties. The Company is subject to competition from other
financial institutions and the regulations of certain federal
and state agencies. The Company is periodically examined by
certain regulatory authorities.
Basis of Presentation
The consolidated financial statements include the accounts of
the Company and its subsidiary. Significant intercompany
transactions and accounts are eliminated in consolidation. The
accounting and reporting policies of the Company and its
subsidiary conform to generally accepted accounting principles
and with general practices within the banking industry. In
preparing the financial statements, management is required to
make estimates and assumptions that effect the reported amounts
of assets and liabilities as of the date of the balance sheet
and revenues and expenses for the period. Actual results could
differ from those estimates.
The principles which significantly affect the determination of
financial position, results of operations and cash flows are
summarized below:
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and due from banks
includes cash on hand and amounts due from banks (including cash
items in process of clearing). Cash flows from loans originated
by the Company, deposits, interest-bearing deposits, Federal
funds purchased and sold are reported net.
The Company maintains amounts due from banks which, at times,
may exceed Federally insured limits, and has experienced no
related losses.
F-75
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Securities Available for Sale
Securities classified as available for sale are those debt
securities that the Company intends to hold for an indefinite
period of time, but not necessarily to maturity. Any decision
to sell a security classified as available for sale would be
based on various factors, including significant movements in
interest rates, changes in the maturity mix of the Company's
assets and liabilities, liquidity needs, regulatory capital
considerations and other similar factors. Securities available
for sale are carried at fair value. Unrealized gains and losses
are reported as increases and decreases in stockholders' equity,
net of the related deferred tax effect. Realized gains or
losses, determined on the basis of the cost of specific
securities sold, are included in earnings.
Securities Held for Investment
Securities classified as held for investment are those debt
securities the Company has both the intent and ability to hold
to maturity regardless of changes in market conditions,
liquidity needs or changes in general economic conditions.
These securities are carried at cost adjusted for amortization
of premium and accretion of discount, computed by the interest
method over their contractual lives. The sale of a security
within three months of its maturity date or after collection of
at least 85 percent of the principal outstanding at the time the
security was acquired is considered a maturity for purposes of
classification and disclosure.
A decline in the fair value below cost of any available for sale
or held to maturity security that is deemed other than temporary
is charged to earnings resulting in the establishment of a new
cost basis for the security.
Loans
Loans are stated at the amount of unpaid principal, reduced by
unearned discount. Interest on loans is credited to income on a
daily basis based upon the principal amount outstanding, except
for certain installment loans which is credited to income based
on the sum-of-the-months-digits method, the results of which are
not materially different from generally accepted accounting
principles.
F-76
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans (Continued)
Accrual of interest income is discontinued on loans when, in the
opinion of management, collection of such interest income
becomes doubtful. Accrual of interest on such loans is resumed
when, in management's judgment, the collection of interest and
principal becomes probable.
Loan Fees
Fees on loans and costs incurred in origination of loans are
recognized at the time the loan is placed on the books. Because
loan fees are not significant and the majority of loans have
maturities of one year or less, the results of this method of
accounting are not materially different than the results which
would be obtained by accounting for loan costs in accordance
with generally accepted accounting principles.
Allowance for Loan Losses
The allowance for loan losses is established through a provision
for loan losses charged to expenses. Loans are charged against
the allowance for loan losses when management believes that the
collectibility of the principal is unlikely. The allowance is
an amount that management believes will be adequate to absorb
possible losses on existing loans that may become uncollectible,
based on evaluations of the collectibility of loans and prior
loan loss experience. This evaluation also takes into
consideration such factors as changes in the nature and volume
of the loan portfolio, overall portfolio quality, review of
specific problem loans, and current economic conditions that may
affect the borrower's ability to pay. Certain estimates are
susceptible to change in the near term. Such estimates include
the creditworthiness of significant borrowers and the collateral
value of delinquent loans. While management uses the best
information available to make its evaluation, future adjustments
to the allowance may be necessary if there are significant
changes in economic conditions. In addition, regulatory
agencies, as an integral part of their examination process,
periodically review the Company's allowance for loan losses, and
may require the Company to record additions to the allowance
based on their judgment about information available to them at
the time of their examinations.
F-77
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Allowance for Loan Losses (Continued)
Impaired loans are measured based on the present value of
expected future cash flows discounted at the loan's effective
interest rate or, as a practical expedient, at the loan's
observable market price or the fair value of the collateral if
the loan is collateral dependent. A loan is impaired when it
is probable the creditor will be unable to collect all
contractual principal and interest payments due in accordance
with the terms of the loan agreement. Accrual of interest on an
impaired loan is discontinued when management believes, after
considering collection efforts and other factors, that the
borrower's financial condition is such that collection of
interest is doubtful. Cash collections on impaired loans are
credited to the loans receivable balance, and no interest income
is recognized on those loans until the principal balance has
been collected.
Office Buildings and Equipment
Office buildings and equipment are stated at cost less
accumulated depreciation, computed on the straight-line method
over the estimated useful lives of the assets.
Income Taxes
The Company and its subsidiary file a consolidated income tax
return. The subsidiary provides for income taxes based on its
contribution to income taxes (benefits) of the consolidated
group.
Provisions for income taxes are based on amounts reported in the
consolidated statements of income after exclusion of nontaxable
income such as interest on state and municipal securities and
include deferred taxes on temporary differences in the
recognition of income and expense for tax and financial
statement purposes.
F-78
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes (Continued)
Deferred taxes are computed on the liability method whereby
deferred tax assets are recognized for deductible temporary
differences and operating loss and tax credit carryforwards and
deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between
the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not
that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for
the effect of changes in tax laws on the date of enactment.
Fair Value of Financial Instruments
Financial Accounting Standards Board Statement No. 107,
"Disclosures About Fair Value of Financial Instruments",
requires disclosure about fair value information about financial
instruments, whether or not recognized in the balance sheet, for
which it is practicable to estimate that value. In cases where
quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot
be substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement of the
instrument. Statement No. 107 excludes certain financial
instruments from its disclosure requirements. The aggregate
fair value amounts presented do not represent the underlying
value of the Company.
F-79
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Financial Value of Financial Instruments (Continued)
The following methods and assumptions were used by the Company
in estimating the fair value of its financial instruments:
Carrying amounts approximate fair values for the following
instruments:
Cash and due from banks Federal funds sold
Securities available for sale Variable rate loans that
Variable rate money markets reprice frequently
Variable rate certificates of Accrued interest receivable
deposit
Accrued interest payable and
other liabilities
Quoted market prices, where available, of if not available,
based upon quoted market prices of comparable instruments for
securities held for investment.
Discounted cash flows using interest rates currently being
offered on instruments with similar terms and with similar
credit quality:
All loans except variable rate loans described above
Fixed rate certificates of deposits
Commitments to extend credit and standby letters of credit are
not recorded until such commitments are funded. The value of
these commitments are the fees charged to enter into such
agreements. These commitments do not represent a significant
value to the Company until such commitments are funded. The
Company has determined that such instruments do not have a
distinguishable fair value and no fair value has been assigned
to these instruments.
F-80
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Earnings Per Share
Earnings per share are calculated on the basis of the weighted
average number of shares outstanding. The effect of the stock
options outstanding (see Note 6) are included in the computation
of the weighted average number of shares outstanding since the
effect of options is considered to be dilutive.
Reclassifications
Certain items on the consolidated financial statements as of and
for the year ended December 31, 1994 have been reclassified with
no effect on net income, to be consistent with the
classifications adopted for the year ended December 31, 1995.
NOTE 2. INVESTMENTS IN SECURITIES
The amortized cost and fair values of investments in
securities as of December 31, 1995 and 1994 are summarized as
follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Securities Available for Sale
December 31, 1995:
U. S. Treasury securities $ 499,889 $ 2,611 $ - $ 502,500
U. S. Government agencies 1,451,259 36,576 - 1,487,835
Mortgage-backed securities 5,614,699 57,393 (4,517) 5,667,575
----------- --------- ---------- ----------
$7,565,847 $ 96,580 $ (4,517) $7,657,910
=========== ========= =========== ==========
December 31, 1994:
U. S. Treasury securities $2,977,008 $ - $ (64,698) $2,912,310
U. S. Government agencies 984,215 - (12,810) 971,405
Mortgage-backed securities 907,025 4,482 (33,635) 877,872
----------- --------- ---------- ----------
$4,868,248 $ 4,482 $ (111,143) $4,761,587
=========== ========= =========== ==========
</TABLE>
F-81
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 2. INVESTMENTS IN SECURITIES (Continued)
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ----------- ------
<S> <C> <C> <C> <C>
Securities Held for Investment:
December 31, 1995:
Mortgage-backed securities $3,002,394 $ - $ (14,630) $2,987,764
Federal Home Loan Bank stock 165,600 - - 165,600
---------- ---------- ---------- ----------
$3,167,994 $ - $ (14,630) $3,153,364
December 31, 1994:
U. S. Government agencies, one
to five years $ 500,000 $ - $ (30,715) $ 469,285
Mortgage-backed securities 3,420,863 321 (249,132) 3,172,052
Federal Home Loan Bank stock 165,600 - - 165,600
---------- ---------- ---------- ----------
$4,086,463 $ 321 $ (279,847) $3,806,937
</TABLE>
Gross realized gain or loss from the sale of securities
available for sale for the years ended December 31, 1995 and
1994 was $15,738 and $1,820, respectively.
The amortized cost and fair value of securities as of December
31, 1995 by contractual maturity are shown below. Maturities
may differ from contractual maturities in mortgage-backed
securities because the mortgages underlying the securities may
be called or repaid without penalty. Federal Home Loan Bank
stock has no contractual maturity. Therefore, these securities
are not included in the maturity categories in the following
maturity summary:
<TABLE>
<CAPTION>
Securities Available for Sale Securities Held for Investment
----------------------------- ------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ------ --------- -----
<S> <C> <C> <C> <C>
Due in one year or less $ 991,835 $ 999,140 $ - $ -
Due from one year to five years 454,174 485,885 - -
Due from five years to ten years 505,140 505,310 - -
Mortgage-backed securities 5,614,698 5,667,575 3,002,394 2,987,764
Federal Home Loan Bank stock - - 165,600 165,600
---------- ---------- ---------- ----------
$7,565,847 $7,657,910 $3,167,994 $3,153,364
========== ========== ========== ==========
</TABLE>
F-82
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 2. INVESTMENTS IN SECURITIES (Continued)
Securities with a carrying value of $6,104,297 and
$4,527,324 at December 31, 1995 and 1994, respectively, were
pledged to secure public deposits and for other purposes.
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
A comparative summary of loans receivable as of December
31, 1995 and 1994, is as follows:
1995 1994
----------- -----------
Real estate:
Construction and land development $ 697,869 $ 384,971
Secured by farmland 1,319,053 1,514,974
Secured by residential property 9,604,145 9,300,414
Secured by other real estate 4,123,444 3,788,888
Agricultural 3,402,984 2,696,759
Commercial 7,476,559 4,269,320
Consumer 6,650,828 6,908,351
Other 101,913 88,385
----------- -----------
33,376,795 28,952,062
Reserve for loan losses (477,618) (316,648)
----------- -----------
$32,899,177 $28,635,414
=========== ===========
The Company primarily lends money to customers located in the
immediate geographic area.
As of December 31, 1995 and 1994, the Company serviced loans for
others in the amounts of $13,819,850 and $12,642,411,
respectively.
The Company had no loans it considered to be impaired other than
the loans on which the accrual of interest had been
discontinued. Loans on which the accrual of interest had been
discontinued amounted to $10,450 and $50,574 at December 31,
1995 and 1994, respectively. There was no significant amount
of interest recognized on nonaccrual loans in either year.
F-83
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
At December 31, 1995 and 1994, certain executive officers and
directors, and companies in which they have a 10 percent or more
ownership, were indebted to the Company. The interest rates on
these loans were substantially the same as rates prevailing at
the time of the transaction, and repayment terms are customary.
Following is a summary of transactions:
December 31,
----------------------------
1995 1994
------------ -----------
Balance, beginning of year $1,587,622 $1,125,486
Advances 1,853,368 1,369,937
Repayments (1,665,706) (907,801)
Balance, end of year $1,775,284 $1,587,622
Changes in the allowance for loan losses are summarized as
follows:
December 31,
----------------------------
1995 1994
----------- -----------
Balance, beginning of year $ 316,648 $ 369,517
Provision charged to operations 139,774 180,000
Recoveries 24,590 33,111
Loans charged off (3,394) (265,980)
---------- ----------
Balance, end of year $ 477,618 $ 316,648
========== ==========
F-84
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4. OFFICE PROPERTIES AND EQUIPMENT
At December 31, 1995 and 1994, office properties and equipment
consisted of the following:
1995 1994
----------- -----------
Land $ 204,498 $ 204,498
Buildings and improvements 628,449 627,703
Furniture, equipment and automobiles 1,359,872 1,330,020
----------- ----------
2,192,819 2,162,221
Accumulated depreciation (1,085,779) (938,721)
----------- ----------
$ 1,107,040 $1,223,500
========== ==========
For the years ended December 31, 1995 and 1994, depreciation
expense amounted to $157,336 and $164,174, respectively.
NOTE 5. INCOME TAXES
The components of the income tax provision for the years ended
December 31, 1995 and 1994 were as follows:
1995 1994
----------- -----------
Current tax expense $ 313,546 $ 188,612
Deferred tax (benefit) expense (48,205) 51,712
---------- ----------
$ 265,341 $ 240,324
========== ==========
The Company's provision for income taxes differs from amounts
computed by applying the Federal income tax statutory rates to
income before income taxes. A reconciliation of the differences
is as follows:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1995
---------------------- ---------------------
Amount Percent Amount Percent
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Tax provision at statutory rate $259,943 34.0 % $237,178 34.0 %
State income taxes 10,257 1.3 - -
Other items, net (4,859) (.6) 3,146 .5
-------- ------- -------- -------
Provision for income taxes $265,341 34.7 % $240,324 34.5 %
======== ======== ======== =======
</TABLE>
F-85
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5. INCOME TAXES (Continued)
Net deferred income tax liabilities of $7,646 and $55,851 at
December 31, 1995 and 1994, respectively, are included in other
liabilities. The components of deferred income taxes are as
follows:
December 31,
----------------------------
1995 1994
----------- -----------
Deferred tax assets:
Loan loss reserves $ 92,857 $ 45,334
Deferred benefits payable 24,646 9,569
Writedown of other real estate owned 4,951 744
--------- ---------
122,454 55,647
--------- ---------
Deferred tax liabilities:
Depreciation and amortization 100,136 98,961
Income from life insurance contracts 29,964 -
Other liabilities - 12,537
--------- ---------
130,100 111,498
--------- ---------
Net deferred tax liabilities $ 7,646 $ 55,851
========= =========
NOTE 6. STOCK OPTIONS AND EARNINGS PER SHARE
The Company granted stock options to the President and Senior
Vice-President for the purchase of 9,990 and 7,200 shares,
respectively, of the Company's common stock. The option price
is $10 per share (market value at date of grant) and the options
are exercisable until October 1996. No options have expired,
been exercised or canceled since granted. The options may be
canceled, reduced or modified if the Board of Directors
considers it necessary in connection with any proposed issuance
of the Company's common stock.
Income per share of common stock includes the effect of the
stock options mentioned above as if the option had been
exercised at January 1, 1995. The number of common shares
outstanding was increased by the number of shares issuable under
the stock option and this theoretical increase in the number of
common shares was reduced by the number of common shares which
are assumed to have been repurchased with the applicable portion
of the proceeds from the exercise of the options. Repurchase
price was assumed to be the average market value during the year.
F-86
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 7. COMMITMENTS AND CONTINGENT LIABILITIES
In the ordinary course of business, the Company may enter into
off balance sheet financial instruments which are not reflected
in the consolidated financial statements. These instruments
include commitments to extend credit, standby letters of credit
and liability for assets held in trust. Such financial
instruments are recorded in the consolidated financial
statements when funds are disbursed or the instruments become
payable. These instruments involve, to varying degrees,
elements of credit risk in excess of the amount recognized in
the balance sheet.
The Company's exposure to credit losses in the event of
nonperformance by the other party to the financial instrument
for commitments to extend credit and standby letters of credit
is represented by the contractual amount of those instruments.
The Company uses the same credit policies for these off balance
sheet financial instruments as it does for other instruments
that are recorded in the consolidated financial statements. A
summary of the Company's commitments is as follows:
1995 1994
---------- ----------
Commitments to extend credit $2,792,471 $2,885,600
Standby letters of credit 175,100 220,300
---------- ----------
$2,967,571 $3,105,900
========== ==========
Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since
many of the commitment amounts expire without being drawn upon,
the total commitment amounts do not necessarily represent future
cash requirements. The credit risk involved in issuing these
financial instruments is essentially the same as that involved
in extending other loans to customers. The Company evaluates
each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained, is based on management's credit
evaluation of the customer. Collateral held varies but may
include real estate and improvements, marketable securities,
accounts receivable, inventory, equipment and personal property.
Standby letters of credit are conditional commitments issued by
the Company to guarantee the performance of a customer to a
third party. Those guarantees are primarily issued to support
public and private borrowing arrangements. The credit risk
involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers.
F-87
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 7. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
Collateral held varies as specified above and is required in
instances which the Company deems necessary.
The Company does not anticipate any material losses as a result
of the commitments.
The nature of the business of the Company is such that it
ordinarily results in a certain amount of litigation. In the
opinion of management, there is no litigation in which the
outcome will have a material effect on the consolidated
financial statements.
NOTE 8. CONCENTRATIONS OF CREDIT
The Company makes agricultural, agribusiness, commercial,
residential and consumer loans to customers primarily in its
market area of Crisp County, Georgia and surrounding counties.
A substantial portion of the Company's customers' abilities to
honor their contracts is dependent on the agribusiness economy
in this market area.
Although the Company's loan portfolio is diversified, there is a
relationship in this region between the agricultural economy and
the economic performance of loans made to nonagricultural
customers. The Company's lending policies for agricultural and
nonagricultural customers require loans to be
well-collateralized and supported by cash flows. Collateral
for agricultural loans include equipment, crops, livestock, and
land. Credit losses from loans related to the agricultural
economy is taken into consideration by management in determining
the allowance for loan losses.
A substantial portion of the Company's loans are secured by real
estate in the Company's primary market area. In addition, a
substantial portion of the real estate owned is located in those
same markets. Accordingly, the ultimate collectibility of a
substantial portion of the Company's loan portfolio and the
recovery of a substantial portion of the carrying amount of real
estate owned are susceptible to changes in the market conditions
in the Company's primary market area.
F-88
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 8. CONCENTRATIONS OF CREDIT (Continued)
Most of the Company's loan customers are also depositors of the
Company. The concentrations of credit by type of loan are also
set forth in Note 3. Standby letters of credit are granted
primarily to commercial borrowers of the Company. The Company,
as a matter of policy, does not generally extend credit to any
single borrower or group of related borrowers in excess of 25%
of the Company's combined capital stock and capital surplus
accounts ($2,641,430) which amounted to $660,358 at December 31,
1995.
The Company has a concentration of funds on deposit at its
principle correspondent bank at December 31, 1995, as follows:
Noninterest-bearing accounts $1,404,124
Federal funds sold 1,480,000
----------
$2,884,124
==========
NOTE 9. STOCKHOLDERS' EQUITY
The primary source of funds available to the Parent Company is
the payment of dividends by the subsidiary. Banking regulations
limit the amount of dividends that may be paid without prior
approval of the subsidiary Bank's regulatory agency.
Approximately $249,600 are available to be paid as dividends by
the subsidiary Bank at December 31, 1995.
Banking regulations also require the Company to maintain minimum
capital levels in relation to Company assets. At December 31,
1994, the Company's capital ratios were considered adequate
based on regulatory requirements. The minimum capital
requirements and the actual capital ratios for the Bank at
December 31, 1995 are as follows:
Actual Requirement
-------- ------------
Leverage capital ratio 8.35 % 4.00 %
Risk based capital ratios:
Core capital 11.86 % 4.00 %
Total capital 13.12 % 8.00 %
F-89
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value and estimated fair value of the Company's
financial instruments are as follows:
Carrying Fair
Value Value
----------- -----------
Financial assets:
Cash and short-term investments $ 4,275,179 $ 4,275,179
=========== ===========
Investments in securities $10,825,904 $10,811,274
=========== ===========
Loans $33,376,795 $33,053,000
Allowance for loan losses 477,618 -
----------- -----------
Loans, net $32,899,177 $33,053,000
=========== ===========
Financial liabilities:
Noninterest-bearing demand $ 3,855,460 $ 3,855,460
Interest-bearing demand 10,088,278 10,088,278
Savings 2,996,337 2,996,337
Time deposits 29,270,761 29,288,000
----------- -----------
Total deposits $46,210,836 $46,228,075
=========== ===========
F-90
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 11. CONDENSED FINANCIAL INFORMATION ON CENTRAL BANKSHARES, INC.
(PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
1995 1994
---------- ----------
Assets
Cash $ 14,053 $ 12,055
Due from subsidiary - -
Unamortized organization costs 30,990 43,386
Investment in subsidiary 4,162,202 3,634,984
---------- ----------
Total assets $4,207,245 $3,690,425
========== ==========
Liabilities
Due to subsidiary $ - $ 651
---------- ----------
Stockholders' equity 4,207,245 3,689,774
---------- ----------
Total liabilities and
stockholders' equity $4,207,245 $3,690,425
========== ==========
F-91
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 11. CONDENSED FINANCIAL INFORMATION ON CENTRAL BANKSHARES, INC.
(PARENT COMPANY ONLY) (Continued)
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
--------- ---------
Income, dividends received $108,885 $ 99,000
Expense, other 14,769 17,500
--------- ---------
Income before income tax
benefits and equity in undistributed
earnings of subsidiary 94,116 81,500
Income tax benefits 5,021 5,950
--------- ---------
Income before equity in
undistributed earnings of
subsidiary 99,137 87,450
Equity in undistributed earnings of
subsidiary 400,060 369,809
--------- ---------
Net income $ 499,197 $ 457,259
========= =========
F-92
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 11. CONDENSED FINANCIAL INFORMATION ON CENTRAL BANKSHARES, INC.
(PARENT COMPANY ONLY) (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
-------- --------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $499,197 $457,259
-------- --------
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of organization costs 12,396 12,390
Undistributed earnings of subsidiary (400,059) (369,809)
Decrease in due from subsidiary - 2,107
Increase (decrease) in due to subsidiary (651) 651
-------- --------
Total adjustments (388,314) (354,661)
-------- --------
Net cash provided by operating
activities 110,883 102,598
-------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES
Dividends paid (108,885) -
Retirement of debt - (61,973)
Retirement of treasury stock - (28,570)
-------- --------
Net cash used in financing
activities (108,885) (90,543)
-------- --------
Net increase in cash 1,998 12,055
Cash at beginning of year 12,055 -
-------- --------
Cash at end of year $ 14,053 $ 12,055
======== ========
F-93
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 12. PENDING MERGER
The directors of the Company have entered into a definitive
merger agreement with ABC Bancorp, a multi-bank holding company
with headquarters in Moultrie, Georgia, whereby ABC Bancorp
would acquire all of the outstanding common stock of the Company
in exchange for common stock of ABC Bancorp. The merger is
subject to approval by the Company's shareholders and certain
regulatory authorities. Upon completion of the merger, Central
Bank & Trust will become a wholly-owned subsidiary of ABC
Bancorp. The merger will be accounted for as a pooling of
interests.
F-94
<PAGE>
SOUTHLAND BANCORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
Unaudited
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
ASSETS MARCH 31, 1996 DECEMBER 31, 1995
- ---------------------------------------- -------------- -----------------
<S> <C> <C>
Cash and due from banks $ 2,667 $ 4,845
Investment securities held to maturity 11,968 1,660
Investment securities available for sale 13,212 19,271
Loans 76,054 71,371
Less allowance for loan losses (1,174) (1,229)
-------- --------
Net loans 74,880 70,142
Premises and equipment 2,543 2,695
Other real estate 246 339
Other assets 1,952 1,855
-------- --------
Total assets $107,468 $100,807
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------
Deposits:
Noninterest bearing $ 8,663 $ 9,295
Interest bearing 71,425 68,124
Time deposits $100,000 and over 7,777 7,409
-------- --------
Total deposits 87,865 84,828
Borrowings 12,008 8,525
Other liabilities 1,027 1,138
-------- --------
Total liabilities 100,900 94,491
-------- --------
Stockholders' Equity:
Common stock, Class A, no par:
1,800,000 shares authorized;
509,556 shares issued 26 26
Common stock, Class B, par value
$8.50 per share, 380 shares
authorized; none issued
Preferred stock, Class A, par value
$5.00 per share, 6,000 shares
authorized; none issued
Additional paid-in-capital 2,575 2,575
Unrealized holding (loss) gain on
investment securities available for (104) 4
sale,
net of tax
Retained earnings, substantially 4,137 3,777
restricted
Treasury shares at cost, 21,474 shares (66) (66)
-------- --------
Total stockholders' equity 6,568 6,316
Total liabilities and stockholders' $107,468 $100,807
equity ======== ========
See accompanying notes to consolidated financial statements
</TABLE>
F-95
<PAGE>
SOUTHLAND BANCORPORATION AND SUBSIDIARY
Consolidated Statements of Earnings
Unaudited
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1996 1995
----------------- -----------------
<S> <C> <C>
Interest income:
Loans, including fees $2,041 $1,981
Interest-bearing deposits in other
financial institutions 15 --
Interest and dividends on investment
securities held to maturity
Taxable 199 13
Tax-exempt -- 1
Interest on investment securities
available for sale 201 275
------ ------
Total interest income 2,456 2,270
------ ------
Interest expense:
Deposits 1,042 930
Borrowings 164 150
------ ------
Total interest expense 1,206 1,080
------ ------
Net interest income 1,250 1,190
Provision for loan losses -- 52
------ ------
Net interest income after
provision for loan losses 1,250 1,138
------ ------
Other income:
Service charges on deposit accounts 161 159
Gain on sales of investment securities
available for sale 3 --
Gain on sales of loans 87 108
Other 148 101
------ ------
Total other income 399 368
------ ------
Other expenses:
Salaries and employee benefits 557 539
Net occupancy 91 107
Equipment 56 38
FDIC insurance 6 52
Other real estate, net 31 44
Other 335 302
------ ------
Total other expenses 1,076 1,082
------ ------
Earnings from continuing operations
before income taxes 573 424
Income tax expense 213 171
------ ------
Earnings from continuing operations 360 253
Discontinued operations net of
income tax benefit --- (12)
------ -------
Net earnings $ 360 $ 241
====== ======
Per share amounts:
Earnings from continuing operations $.74 $.52
====== ======
Net earnings $.74 $.49
====== ======
See accompanying notes to consolidated
financial statements
</TABLE>
F-96
<PAGE>
SOUTHLAND BANCORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1996 1995
----------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 360 $ 241
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 93 97
Provision for loan losses -- 52
(Accretion) of discounts and
amortization of premiums on
investment securities 18 (2)
Gain on sales of investment
securities available for sale (3) --
Loss on sale premises and equipment 1 1
Gain on sale of other real estate -- (8)
Provisions for losses of other real estate 23 43
Gain on sales of loans (87) (108)
(Increase) decrease in other assets (57) 81
(Decrease) increase in other liabilities (111) 267
------- -------
Net cash provided by
operating activities 237 664
------- -------
Cash flows from investing activities:
Proceeds from calls of investment
securities available for sale 7,000 --
Proceeds from sales of investment
securities available for sale 2,080 --
Purchase of investment securities
held to maturity (9,000) --
Purchase of investment securities
available for sale (4,580) (2,936)
Principal repayments of investment
securities held to maturity 85 7
Principal repayments of investment
securities available for sale 510 322
Net purchases of Federal Home
Loan Bank stock (480) (2)
Net increase in loans (5,625) (1,920)
Proceeds from sales of loans 974 1,785
Purchase of premises and equipment (29) (39)
Proceeds from sale of premises
and equipment 58 (24)
Proceeds from sale of other real estate 70 260
------- -------
Net cash used in investing activities (8,937) (2,547)
------- -------
</TABLE>
continued
F-97
<PAGE>
<TABLE>
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1996 1995
----------------- -----------------
<S> <C> <C>
Cash flows from financing activities:
Net (decrease) increase in noninterest
bearing deposits (632) 559
Net increase in interest-bearing deposits 3,300 4,269
Net increase in time deposits,
$100,000 and over 371 1,858
Principal payments on notes payable (67) (1)
Net increase in Federal Home Loan
Bank advances 3,550 --
------- -------
Net cash provided by financing activities 6,522 6,685
------- -------
Net (decrease) increase in cash and
cash equivalents (2,178) 4,802
Cash and cash equivalents at
beginning of period 4,845 3,793
Cash and cash equivalents at end of period $ 2,667 $ 8,595
======= =======
Supplemental schedule of cash flow
information:
Cash paid during the period for:
Interest $ 1,374 $ 969
======= =======
Income taxes $ 5 $ --
======= =======
See accompanying notes to consolidated financial statements
</TABLE>
F-98
<PAGE>
SOUTHLAND BANCORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996 and 1995
(Unaudited)
(1) The accompanying unaudited consolidated financial statements, which are for
interim periods, do not include all disclosures provided in the annual
consolidated financial statements. These financial statements and the
notes thereto should be read in conjunction with the annual financial
statements and the notes thereto for the years ended December 31, 1995,
1994, and 1993 included elsewhere in this Proxy Statement/Prospectus.
(2) All material intercompany balances and transactions have been eliminated.
(3) In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (which are of a normal
recurring nature) necessary for a fair presentation of the financial
statements. The results of operations for the three months ended March 31,
1996 are not necessarily indicative of the results to be expected for the
full year.
F-99
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors and Stockholders
Southland Bancorporation:
We have audited the accompanying consolidated balance sheets of Southland
Bancorporation and subsidiary as of December 31, 1995 and 1994, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Southland
Bancorporation and subsidiary at December 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
As discussed in Notes 1 and 9, the Company changed its method of accounting for
income taxes in 1993 to adopt the provisions of Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes. As discussed in Note
1, the Company changed its method of accounting for investments in debt and
equity securities at January 1, 1994 to adopt the provisions of Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities.
/s/ KPMG Peat Marwick LLP
--------------------------
Atlanta, Georgia
January 19, 1996
F-100
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1995 and 1994
<TABLE>
<CAPTION>
Assets 1995 1994
------- ------------ -----------
<S> <C> <C>
Cash and due from banks (note 2) $ 4,844,760 3,793,519
Investment securities available for sale (notes 3 and 8) 19,271,117 13,323,249
Investment security held to maturity (fair value of $1,659,470
and $1,681,655 in 1995 and 1994, respectively) (notes 3 and 8) 1,659,934 1,731,077
Loans held for sale -- 291,733
Loans, net of unearned income of $238,848 and $253,031 in
1995 and 1994, respectively (notes 4 and 8) 71,371,295 69,731,944
Less allowance for loan losses (note 4) (1,229,603) (1,331,778)
------------ ----------
Net loans 70,141,692 68,400,166
Premises and equipment, net (note 5) 2,695,917 3,040,736
Other real estate, net (note 6) 338,652 953,130
Deferred taxes (note 9) 424,816 713,207
Other assets 1,429,810 1,122,820
------------ ----------
Total assets $100,806,698 93,369,637
============ ==========
See accompanying notes to consolidated financial statements. (Continued)
</TABLE>
F-101
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Consolidated Balance Sheets, Continued
December 31, 1995 and 1994
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity 1995 1994
------------------------------------- ---------- ----------
<S> <C> <C>
Deposits:
Noninterest-bearing $ 9,295,421 7,115,041
Interest-bearing 68,125,482 65,818,158
Time deposits $100,000 and over 7,406,845 6,405,120
----------- -----------
Total deposits 84,827,748 79,338,319
Borrowings (note 8) 8,524,969 8,479,214
Other liabilities 1,138,459 695,091
----------- -----------
Total liabilities 94,491,176 88,512,624
----------- -----------
Stockholders' equity (note 11):
Common stock, Class A, no par value; 1,800,000 shares
authorized; 509,556 shares issued 26,065 26,065
Common stock, Class B, par value $8.50 per share, 360
shares authorized, none issued -- --
Preferred stock, Class A, par value $5.00 per share,
6,000 shares authorized, none issued -- --
Additional paid-in capital 2,575,204 2,575,204
Net unrealized holding gain(loss) on investment securities
available for sale (notes 1 and 3) 3,638 (452,969)
Retained earnings, substantially restricted 3,777,134 2,775,232
Treasury stock at cost, 21,474 shares (66,519) (66,519)
----------- -----------
Total stockholders' equity 6,315,522 4,857,013
----------- -----------
Commitments and contingencies (notes 4 and 11)
Total liabilities and stockholders' equity $100,806,698 93,369,637
============ ==========
See accompanying notes to consolidated financial statements. (Continued)
F-102
</TABLE>
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Consolidated Statements of Earnings
Years Ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
1995 1994 1993
--------- ----------- ----------
<S> <C> <C> <C>
Interest income:
Loans, including fees $7,645,653 6,491,895 6,428,140
Federal funds sold -- 56,077 37,287
Investment securities held to maturity:
Taxable 155,049 59,969 33,472
Tax-exempt 2,851 7,934 14,355
Investment securities available for sale:
Taxable 1,229,420 777,430 463,200
Tax-exempt 177 -- --
---------- --------- ---------
Total interest income 9,033,150 7,393,305 6,976,454
Interest expense:
Deposits (including interest on time deposits $100,000
and over of $419,496, $197,533, and $304,566 in 1995,
1994, and 1993 respectively) 4,183,861 3,131,406 3,015,164
Federal funds purchased 1,138 44,912 --
Borrowings 589,708 419,867 244,622
---------- --------- ---------
Total interest expense 4,774,707 3,596,185 3,259,786
--------- --------- ---------
Net interest income 4,258,443 3,797,120 3,716,668
Provision for loan losses (note 4) (71,874) (582,022) (536,049)
---------- --------- ---------
Net interest income after provision for loan losses 4,186,569 3,215,098 3,180,619
---------- --------- ---------
Other income:
Service charges on deposit accounts 774,568 732,717 888,109
Loss on sales of investment securities available for sale (note 3) (1,553) -- --
Gain on sales of investment securities held to maturity (note 3) -- -- 35,301
Trading account gains -- -- 112,338
Gain on sales of loans 298,261 251,391 765,072
Loan servicing fees 166,121 104,512 --
Correspondent fees 161,373 -- --
Other 183,120 217,970 381,614
--------- --------- ---------
Total other income 1,581,890 1,306,590 2,182,434
--------- --------- ---------
See accompanying notes to consolidated financial staements. (Continued)
F-103
</TABLE>
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Consolidated Statements of Earnings, Continued
Years Ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ------------ -----------
<S> <C> <C> <C>
Other expenses:
Salaries and employee benefits (note 7) 2,012,059 1,931,480 1,867,338
Net occupancy 680,976 790,681 660,298
Equipment 117,318 120,137 207,420
FDIC insurance 120,049 234,396 217,465
Other real estate, net 176,825 217,269 212,372
Other 993,625 1,203,880 1,177,888
---------- --------- ---------
Total other expenses 4,100,852 4,497,843 4,342,781
---------- --------- ---------
Earnings from continuing operations
before income taxes and cumulative
effect of change in accounting method 1,667,607 23,845 1,020,272
Income tax expense (benefit) (note 9) 643,358 (62,866) 371,853
---------- --------- ---------
Earnings from continuing operations
before cumulative effect of change
in accounting method 1,024,249 86,711 648,419
Discontinued operations:
Loss from operations of discontinued
insurance agency, net of income tax
benefits of $11,512, $44,134, and $29,853
in 1995, 1994, and 1993, respectively (note 12) (22,347) (85,673) (57,951)
---------- --------- ---------
Earnings before cumulative effect of change
in accounting method 1,001,902 1,038 590,468
Cumulative effect of change in accounting method (notes 1 and 9) -- -- 49,054
---------- --------- ---------
Net earnings $1,001,902 1,038 639,522
========== ========= =========
Per share amounts:
Earnings from continuing operations before cumulative
effect of change in accounting method $ 2.10 .18 1.33
========== ========= =========
Earnings before cumulative effect of change in
accounting method $ 2.05 -- 1.21
Cumulative effect of change in accounting method -- -- .10
---------- --------- ---------
Net earnings $ 2.05 -- 1.31
========== ========= =========
Weighted average common shares outstanding, including
common stock equivalents 488,082 488,082 488,082
========== ========= =========
See accompanying notes to consolidated financial statements.
F-104
</TABLE>
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
Net
unrealized
holding
gain (loss)
on
investment
Additional securities
Common Common paid-in available Retained Treasury
shares stock capital for sale, earnings stock Total
----------- ----------- ---------- ------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1992 509,566 $ 26,065 2,575,204 -- 2,134,672 (66,519) 4,669,422
Net Earnings -- -- -- -- 639,522 -- 639,522
-------- ---------- --------- ---------- ----------- ---------- ----------
Balance at December 31,
1993 509,566 26,065 2,575,204 -- 2,774,194 (66,519) 5,308,944
Effect of adoption of
FAS 115,
Accounting
for Certain
Investments
in Debt and
Equity
Securities, on
January 1, 1994 (note 1) -- -- -- 79,241 -- -- 79,241
Change in unrealized
gain (loss)
on investment
securities
available for
sale, net of
tax effect -- -- -- (532,210) -- -- (532,210)
Net earnings -- -- -- -- 1,038 -- 1,038
-------- ---------- --------- ---------- ----------- ---------- ----------
Balance at December 31,
1994 509,566 26,065 2,575,204 (452,969) 2,775,232 (66,519) 4,857,013
Net earnings -- -- -- -- 1,001,902 -- 1,001,902
Change in unrealized
gain
(loss) on
investment
securities
available
for sale, net of tax
effect -- -- -- 456,607 -- -- 456,607
-------- ---------- --------- ---------- ----------- ---------- ----------
Balance at December 31,
1995 509,566 $ 26,065 2,575,204 3,638 3,777,134 (66,519) 6,315,522
========= ========== ========= ========= =========== ========== =========
See accompanying notes to consolidated financial statements.
F-105
</TABLE>
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---------- ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,001,902 1,038 639,522
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 384,493 409,112 335,188
Provision for loan losses 71,874 582,022 536,049
Deferred tax expense (benefit) (16,014) (156,000) (68,000)
(Accretion) of discounts and amortization of
premiums on investment securities (19,310) 25,631 143,565
Loss on sales of investment securities available for sale 1,553 -- --
Gain on sales of investment securities held to maturity -- -- (35,301)
Proceeds from sale of trading securities -- -- 8,518,969
Gain on sale of trading securities -- -- (112,338)
Loss on sale of premises and equipment 744 633 11,646
Loss on sale of other real estate 37,433 101,973 68,424
Provision for losses of other real estate 104,059 86,063 64,926
Loss on sale of repossessed property -- 3,203 6,577
Gain on sales of loans (298,261) (251,391) (765,072)
Cumulative effect of change in accounting method -- -- (49,054)
(Increase) decrease in other assets (306,990) (553,958) 1,296,510
Increase (decrease) in other liabilities 443,368 312,749 (28,366)
------------ ----------- -----------
Net cash provided by operating activities 1,404,851 561,075 10,563,245
------------ ----------- -----------
Cash flows from investing activities:
Proceeds from sale of investment securities held to maturity -- -- 1,012,675
Proceeds from maturity of investment securities held to maturity 50,000 55,000 150,000
Proceeds from calls of investments securities held to maturity 10,000 15,000 --
Proceeds from calls of investment securities available for sale 10,000,000 -- --
Proceeds from sales of investment securities available for sale 1,631,744 -- --
Purchase of investment securities held to maturity -- -- (13,378,379)
Purchase of investment securities available for sale (18,290,798) (3,436,619) --
Principal repayments of investment securities held to maturity 15,762 18,059 1,052,971
Principal repayments of investment securities available for sale 1,487,436 1,524,388 --
Net (purchases) redemptions of Federal Home Loan Bank stock (2,100) 31,900 --
Net increase in loans (5,128,606) (23,120,487) (54,049,059)
Proceeds from sales of loans 3,928,589 27,078,423 54,144,972
Purchase of premises and equipment (95,066) (296,862) (1,324,208)
Proceeds from sale of premises and equipment 54,648 61,411 29,424
Proceeds from sale of other real estate 449,597 126,412 388,032
Proceeds from sale of repossessed property -- 10,500 22,858
------------ ----------- -----------
Net cash (used in) provided by investing activities (5,888,794) 2,067,125 (11,950,714)
------------ ----------- -----------
See accompanying notes to consolidated financial statements. (Continued)
F-106
</TABLE>
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Consolidated Statements of Cash Flows, Continued
Years Ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in noninterest bearing deposits 2,180,380 (947,186) (1,110,131)
Net increase (decrease) in interest-bearing deposits 2,307,324 (6,662,277) 4,330,503
Net increase (decrease) in time deposits, $100,000 and over 1,001,725 (104,604) 152,265
Principal payments on notes payable (6,437) (20,719) (105,468)
Proceeds from issuance of note payable 52,192 115,000 100,000
Net increase in Federal Home Loan Bank advances -- 1,000,000 700,000
---------- ---------- ----------
Net cash provided by (used in) financing activities 5,535,184 (6,619,786) 4,067,169
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 1,051,241 (3,991,586) 2,679,700
Cash and cash equivalents at beginning of year 3,793,519 7,785,105 5,105,405
---------- ---------- ----------
Cash and cash equivalents at end of year $4,844,760 3,793,519 7,785,105
========== ========== ==========
Supplemental schedule of cash flow information:
Cash paid during the year for:
Interest $4,312,181 3,523,087 3,358,402
========== ========== ==========
Income taxes $ 601,605 250,000 335,116
========== ========== ==========
Supplemental information on noncash transactions:
Transfers from loans to other real estate $ 160,196 478,401 685,131
========== ========== ==========
Transfers to investment securities available for sale
from investment securities held to maturity $ -- -- 12,270,147
========== ========== ==========
Transfers from investment securities available for sale
to investment securities held to maturity $ -- 75,643 --
========== ========== ==========
Transfer from premises and equipment to other real estate $ -- 145,618 --
========== ========== ==========
Loans to facilitate $ 183,585 306,959 --
========== ========== ==========
Effect of adoption of FAS 115, Accounting for Certain
Investments in Debt and Equity Securities, on
January 1, 1994 $ -- 79,241 --
========== ========== ==========
Change in unrealized gain (loss) on investment securities
available for sale, net of tax effect of $304,405 and
$354,807 in 1995 and 1994, respectively $ 456,607 (532,210) --
========== ========== ==========
See accompanying notes to consolidated financial statements.
F-107
</TABLE>
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1995, 1994, and 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
(A) ORGANIZATION AND BASIS OF FINANCIAL STATEMENT PRESENTATION
----------------------------------------------------------
The accompanying consolidated financial statements include the accounts of
Southland Bancorporation (the Corporation) and its wholly-owned subsidiary,
Southland Bank (the Bank) collectively as the Company. All significant
intercompany accounts and transactions have been eliminated in consolidation.
The Company provides a full range of banking services to individual and
corporate customers in its primary market area of Dothan, Alabama and
surrounding counties. The Bank is subject to competition from other financial
institutions. The Company is subject to the regulations of certain federal and
state agencies and undergoes periodic examinations by those authorities.
A substantial portion of the Company's loans are secured by real estate in
the Company's primary market area. In addition, a substantial portion of other
real estate is located in those same markets. Accordingly, the ultimate
collectibility of a substantial portion of the Company's loan portfolio and the
recovery of a substantial portion of the carrying amount of other real estate
are susceptible to changes in market conditions in the Company's primary market
area.
The accounting principles and reporting policies of the Company, and the
methods of applying these principles, conform with generally accepted accounting
principles and with general practice within the banking industry. Certain items
in the prior year's financial statements have been reclassified to conform with
the current financial statement presentation.
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 balance sheet and revenues and expenses for
the period. Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change
in the near-term relate to the determination of the allowance for loan losses
and the valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowance
for loan losses, management periodically reviews the creditworthiness of
significant borrowers and evaluates the collateral position of delinquent loans.
Management obtains independent appraisals for significant properties in
determining the allowance for loan losses and the valuation of other real
estate.
Management believes that the allowances for losses on loans and other real
estate are adequate. While management uses available information to recognize
losses on loans
F-108
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
-----------------------------------------------------
(A) ORGANIZATION AND BASIS OF FINANCIAL STATEMENT PRESENTATION, CONTINUED
---------------------------------------------------------------------
and other real estate, future additions to the allowances may be necessary
based on changes in economic conditions, particularly in the Company's primary
market area. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Company's allowances for
losses on loans and other real estate. Such agencies may require the Company to
recognize additions to the allowances based on their judgments about information
available to them at the time of their examination.
(B) CASH EQUIVALENTS
----------------
For purposes of the statements of cash flows, the Company considers amounts
due from financial institutions and federal funds sold to be cash equivalents.
Federal funds sold are generally sold for one-day periods.
(C) INVESTMENT SECURITIES
---------------------
The Company adopted Statement of Financial Accounting Standards (FAS) 115,
Accounting for Certain Investments in Debt and Equity Securities, effective
January 1, 1994. In accordance with FAS 115, investments are classified in
three categories: held to maturity securities (reported at amortized cost),
trading securities (reported at fair value), and available for sale securities
(reported at fair value). Designation of an investment security as held to
maturity, trading, or available for sale is made at the time the security is
purchased, based on the Company's intent and ability to hold the security.
Investment securities to be held to maturity are carried at cost adjusted for
amortization of premiums and accretion of discounts to maturity. Unrealized
gains or losses on trading securities are included in earnings. The Company did
not have any trading account securities at December 31, 1995 or 1994. Unrealized
gains or losses on available for sale securities are excluded from earnings and
reported as a separate component of stockholders' equity, net of the related
income tax effect. Gains or losses on the sale of investment securities are
computed on the specific identification method, and recognized in earnings on
the trade date.
At adoption of FAS 115, the Company transferred certain investment
securities with a total amortized cost of $12,270,147 and fair value of
$12,393,960 from held to maturity to investment securities available for sale.
The unrealized net holding gains on investment securities available for sale at
January 1, 1994 totaled $123,813 and were included as a separate component of
stockholders' equity of $79,241, net of income taxes of $44,572 upon the
Corporation's adoption of FAS 115.
F-109
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
-----------------------------------------------------
(C) INVESTMENT SECURITIES, CONTINUED
--------------------------------
Purchase premiums and discounts on investment securities are amortized and
accreted to interest income using the level yield method on the outstanding
principal balances. In establishing the accretion of discounts and amortization
of premiums, the Company utilizes market based prepayment assumptions. Interest
and dividend income are recognized when earned.
A decline in the fair value below cost of any available for sale or held to
maturity security that is deemed other than temporary is charged to earnings
resulting in the establishment of a new cost basis for the security.
(D) LOANS AND INTEREST INCOME
-------------------------
Loans are stated at principal amounts outstanding less unearned income and
the allowance for loan losses. Interest income on loans is credited to earnings
based on the principal amount outstanding at the respective rate of interest
except for add on installment loans for which interest is recognized on the
"Rule of 78's" method. It is the general policy of the Bank to discontinue the
accrual of interest when principal or interest payments are delinquent for more
than 90 days and the ultimate collection of either is in doubt.
Loans held for sale are carried at the lower of aggregate cost or market.
Gains or losses on disposition are recorded in other income, based on the net
proceeds received and the recorded investment in the loan sold. For sales of
the Small Business Association (SBA) guaranteed portion of loans, the basis in
the portion of the loan sold is determined by allocating the loan carrying value
to the portion sold and portion retained based on the relative fair values of
the portion sold and portion retained. Such gains or losses are adjusted by the
amount of any excess servicing fee receivables resulting from the transactions.
Accrual of interest on loans is discontinued either when reasonable doubt
exists as to the full, timely collection on interest or principal or when a loan
becomes contractually past due by 90 days or more with respect to interest or
principal. When a loan is placed on nonaccrual status, all interest previously
accrued, but not collected, is reversed against current period interest income.
Income on such loans is then recognized only to the extent that cash is received
and where the future collection of principal is probable. Interest accruals are
recorded on such loans only when they are brought fully current with respect to
interest and principal and when, in the judgment of management, the loans are
estimated to be fully collectible as to both principal and interest.
F-110
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
-----------------------------------------------------
(D) LOANS AND INTEREST INCOME, CONTINUED
------------------------------------
In May 1993, the Financial Accounting Standards Board (FASB) issued FAS
114, Accounting by Creditors for Impairment of a Loan. FAS 114 requires
impaired loans to be measured based on the present value of expected future cash
flows, discounted at the loan's effective interest rate, or at the loan's
observable market price, or the fair value of the collateral if the loan is
collateral dependent, beginning in 1995. In October 1994, the FASB issued FAS
118, Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosures, which amends the requirements of FAS 114 regarding interest income
recognition and related disclosure requirements. Initial adoption of FAS 114
and FAS 118 must be reflected prospectively. The Company adopted FAS 114 and
FAS 118 on January 1, 1995 and the impact to the consolidated financial
statements was not material. At December 31, 1995, pursuant to the definition
within FAS 114, the Company had $480,000 of impaired loans, which includes one
loan for $180,000 with a valuation allowance of $68,000. No valuation allowance
was deemed necessary for the remaining $300,000 of impaired loans.
(E) ALLOWANCE FOR LOAN LOSSES
-------------------------
Additions to the allowance for loan losses are based on management's
evaluation of the loan portfolio under current economic conditions, including
such factors as the volume and character of loans outstanding, past loss
experience, general economic conditions, and such other factors which, in
management's judgment, deserve recognition in estimating loan losses. Loans are
charged to the allowance when, in the opinion of management, such loans are
deemed to be uncollectible. Provisions for loan losses and recoveries of loans
previously charged to the allowance are added to the allowance.
(F) PREMISES AND EQUIPMENT
----------------------
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is provided on the straight-line method over the estimated useful
lives of the respective assets which range from 3 to 30 years. Leasehold
improvements are amortized on a straight-line basis over the life of the
respective lease or, if shorter, the estimated useful life of the improvements.
F-111
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
-----------------------------------------------------
(G) OTHER REAL ESTATE
-----------------
Other real estate is reported net of the allowance for losses. Other real
estate represents property acquired through foreclosure or deeded to the Bank in
lieu of foreclosure on real estate mortgage loans on which the borrowers have
defaulted as to payment of principal and interest. For real estate acquired
through foreclosure, a new cost basis is established through a charge to the
allowance for loan losses, at fair value at the time of foreclosure less costs
to sell. Subsequent to foreclosure, foreclosed assets are carried at the lower
of fair value less estimated costs to sell, or cost, with the difference
recorded as a valuation allowance, on an individual asset basis. Subsequent
decreases in fair value and increases in fair value, up to the value established
at foreclosure, are recognized as charges or credits to other expense.
(H) INCOME TAXES
------------
During 1993, the Company adopted FAS 109 Accounting for Income Taxes.
Under the asset and liability method of FAS 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax basis and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable earnings in the years in which those
temporary differences are expected to be recovered or settled. Under FAS 109,
the effect on deferred tax assets and liabilities of a change in tax rates is
recognized in earnings in the period that includes the enactment date.
Upon adoption in 1993, the Company applied the provisions of FAS 109
without restating prior years' financial statements. The cumulative effect of
the change in the method of accounting for income taxes was $49,054 and is
reported separately in the 1993 financial statements.
(I) EMPLOYEE BENEFIT PLAN
---------------------
The Bank has a defined contribution plan which covers substantially all
employees. The Bank contributes amounts to the defined contribution plan
subject to minimums established by regulation and maximums allowed for tax
purposes.
F-112
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
-----------------------------------------------------
(J) EARNINGS PER SHARE
------------------
Earnings per common share is based on the weighted average number of shares
outstanding during each period. The effect of outstanding stock options is not
significant to the computation of earnings per share.
(K) RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
In October 1995, the FASB issued FAS 123, Accounting for Stock-Based
Compensation. FAS 123 establishes financial accounting and reporting standards
for stock-based employee compensation plans. Those plans include all
arrangements by which employees receive shares of stock or other equity
instruments of the employer or the employer incurs liabilities to employees in
amounts based on the price of the employer's stock. Such instruments include
stock purchase plans, stock options, restricted stock, and stock appreciation
rights. FAS 123 also applies to transactions in which an entity issues its
equity instruments to acquire goods or services from nonemployees.
A new method of accounting for stock-based compensation arrangements with
employees is established by FAS 123. The new method is a fair value based
method rather than the intrinsic value based method. However, FAS 123 does not
require an entity to adopt the new fair value based method for purposes of
preparing its basic financial statements. Entities are allowed (1) to continue
to use their existing method or (2) adopt the FAS 123 fair value based method.
The selected method would apply to all of an entity's compensation plans and
transactions
FAS 123 requires that an employer's financial statements include certain
disclosures about stock-based employee compensation arrangements regardless of
the method used to account for them. The accounting requirements of this
statement are effective for transactions entered into in fiscal years that begin
after December 15, 1995. The disclosure requirements are effective for
financial statements for fiscal years beginning after December 15, 1995. The
Company has not determined the impact of adopting FAS 123.
(2) CASH AND DUE FROM BANKS
-----------------------
The Bank is required to maintain certain daily reserve balances in
accordance with Federal Reserve Board requirements. The required balances were
$25,000 and $68,000 at December 31, 1995 and 1994, respectively.
F-113
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(3) INVESTMENT SECURITIES
---------------------
The amortized cost, gross unrealized gains and losses, and approximate
fair value of investment securities held to maturity at December 31, 1995 and
1994, respectively, were as follows:
<TABLE>
<CAPTION>
1995
-----------------------------------------------------
Gross Gross Approximate
Amortized unrealized unrealized fair
cost gains losses value
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Debt securities:
State and political subdivisions $ 15,015 1,357 -- 16,372
U.S. government agencies 33,808 3,863 -- 37,671
Mortgage-backed securities 1,008,611 322 6,006 1,002,927
---------- ------ --------- ---------
1,057,434 5,542 6,006 1,056,970
Other securities:
Stock in Federal Home Loan
Bank of Atlanta 602,500 -- -- 602,500
---------- ------ --------- ---------
$1,659,934 5,542 6,006 1,659,470
========== ====== ========= =========
1995
-----------------------------------------------------
Gross Gross Approximate
Amortized unrealized unrealized fair
cost gains losses value
--------- ---------- ---------- -----------
<C> <C> <C> <C>
State and political subdivisions $ 74,017 1,406 -- 75,423
U.S. government agencies 46,286 3,820 -- 50,106
Mortgage-backed securities 1,010,374 84 54,732 955,726
---------- ------ --------- ---------
1,130,677 5,310 54,732 1,081,255
Other securities:
Stock in Federal Home Loan
Bank of Atlanta 600,400 -- -- 600,400
---------- ------ --------- ---------
$1,731,077 5,310 54,732 1,681,655
========== ====== ========= =========
</TABLE>
The stock in the Federal Home Loan Bank of Atlanta, which is carried at cost,
has no contractual maturity, has no quoted fair value, and no ready market
exists; therefore, the fair value of such stock is assumed to approximate cost
in the above summary. The investment in the stock is required by law of every
member of the Federal Home Loan Bank system.
F-114
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(3) INVESTMENT SECURITIES, CONTINUED
--------------------------------
The amortized cost and approximate fair value of investment securities held to
maturity at December 31, 1995, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
1995
-------------------------
Approximate
Amortized fair
cost value
--------- -----------
<S> <C> <C>
Due after one year through five years $ 15,015 16,372
Due after five years through ten years -- --
Due after ten years 33,808 37,671
--------- ---------
48,823 54,043
Mortgage-backed securities 1,008,611 1,002,927
--------- ---------
$ 1,057,434 1,056,970
=========== =========
</TABLE>
There were no sales of investment securities held to maturity during 1995 or
1994. Proceeds from sales of investments securities during 1993 were
$1,012,675. Gross gains of $35,301 were realized on those sales in 1993.
The amortized cost, gross unrealized gains and losses, and approximate fair
value of investment securities available for sale at December 31, 1995 were as
follows:
<TABLE>
<CAPTION>
1995
---------------------------------------------------
Gross Gross Approximate
Amortized unrealized unrealized fair
cost gains losses value
----------- ---------- --------- -----------
<S> <C> <C> <C> <C>
State and political subdivisions $ 357,519 -- 2 357,517
U.S. government agencies 7,982,427 26,636 -- 8,009,063
Mortgage-backed securities 10,934,921 16,713 47,097 10,904,537
----------- ------- ------ ----------
$19,274,867 43,349 47,099 19,271,117
=========== ======= ====== ==========
</TABLE>
In 1994, the Bank transferred four investment securities from available for
sale to held to maturity. These securities carried total unrealized holding
gains of $11,520 at the date of transfer. These unrealized holding gains are
included as a component of amortized cost and are being amortized over the
remaining life of the securities. The total unamortized holding gains at
December 31, 1995 and 1994 amounted to $9,813 and $10,667, respectively. The
portion of these unamortized holding gains included in the unrealized gain on
available for sale securities, net of tax, at December 31, 1995 and the
unrealized loss on available for salesecurities, net of tax, at December 31,
1994 was $5,888 and $6,400, respectively.
F-115
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(3) INVESTMENT SECURITIES, CONTINUED
--------------------------------
The amortized cost, gross unrealized gains and losses, and approximate fair
value of investment securities available for sale at December 31, 1994 were as
follows:
<TABLE>
<CAPTION>
1994
-------------------------------------------------
<S> <C> <C> <C> <C>
Gross Gross Approximate
Amortized unrealized unrealized fair
cost gains losses value
---------- ---------- ----------- -----------
Mortgage-backed securities $14,088,864 -- 765,615 13,323,249
=========== ===== ======= ==========
</TABLE>
The amortized cost and approximate fair value of investment securities
available for sale at December 31, 1995, by contractual maturity, are shown
below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
<TABLE>
<CAPTION>
1995
-----------------------
Approximate
Amortized fair
cost value
---------- -----------
<S> <C> <C>
Due after one year through five years $5,982,427 6,009,063
Due after five years through ten years 2,000,000 2,000,000
Due after ten years 357,519 357,517
Mortgage-backed securities 10,934,921 10,904,537
----------- -----------
$19,274,867 19,271,117
=========== ==========
</TABLE>
Proceeds from sales of investment securities available for sale were
$1,631,744 for the year ended December 31, 1995. Gross losses of $1,553 were
realized on those sales for the year ended December 31, 1995. No sales of
investment securities available for sale occurred during 1994 or 1993.
Securities having an approximate amortized cost of $1,308,000 and $2,075,000
at December 31, 1995 and 1994, respectively, were pledged to secure public
funds. In addition, securities having an approximate amortized cost of
$2,100,000 and $647,000 at December 31, 1995 and 1994, respectively, were
pledged to secure FHLB advances.
F-116
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(4) LOANS AND ALLOWANCE FOR LOAN LOSSES
-----------------------------------
At December 31, 1995 and 1994, the composition of the loan
portfolio was as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Commercial, financial, and agricultural $29,382,692 22,113,615
Real estate - mortgage 38,290,739 42,903,896
Installment loans 3,635,583 4,218,936
Other 62,281 495,497
---------- ----------
Total loans 71,371,295 69,731,944
Less allowance for loan losses (1,229,603) (1,331,778)
----------- ----------
Loans, net $70,141,692 68,400,166
=========== ==========
A summary of the transactions in the allowance for loan losses follows:
1995 1994 1993
---- ---- ----
Balance at beginning of year $1,331,778 883,083 880,780
Provision charged to operating expense 71,874 582,022 536,049
Recoveries of loans previously charged off 163,129 156,113 42,830
Loans charged off (337,178) (289,440) (576,576)
-------- ---------- ---------
Balance at end of year $1,229,603 1,331,778 883,083
========== ========= =========
</TABLE>
Nonaccrual loans at December 31, 1995 and 1994 totaled $303,000 and
$1,200,000, respectively. Foregone interest on these loans was $42,840 in 1995,
$85,659 in 1994, and $12,211 in 1993.
Certain directors and officers of the Bank are loan customers of the Bank.
Total loans outstanding to these persons at December 31, 1995 and 1994 amounted
to $482,410 and $393,216, respectively. The change from 1994 to 1995 reflects
payments of $431,089 and advances of $520,283. Such loans are made in the
ordinary course of business on substantially the same terms as those prevailing
at the time for comparable transactions with other customers, including interest
rate and collateral, and in the opinion of management do not represent more than
a normal credit risk or present unfavorable features.
Proceeds from the sale of loans during 1995, 1994, and 1993 were
$3,928,589, $27,078,423, and $54,144,972 and realized gains were $298,261,
$251,391, and $765,072, respectively. There were no sales of real estate
mortgage loans in 1995. Sales of real estate mortgage loans accounted for
$19,786,981 and $45,797,271 of total sales in 1994 and 1993, respectively. At
December 31, 1995 and 1994, the Company was servicing certain Small Business
Administration loans for others with aggregate principal balances of
approximately $14,612,000 an $13,705,000, respectively.
F-117
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(5) PREMISES AND EQUIPMENT
----------------------
A summary of premises and equipment at December 31, 1995 and 1994 follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Construction in progress $ 38,900 17,300
Land 541,943 553,063
Buildings 2,423,210 2,466,627
Furniture and equipment 2,789,727 2,723,332
Leasehold improvements 50,650 50,650
--------- ---------
5,844,430 5,810,972
Less accumulated depreciation and amortization 3,148,513 2,770,236
---------- ---------
Total $2,695,917 3,040,736
========= =========
</TABLE>
Depreciation and amortization charged to operating expense was $384,493,
$409,112, and $335,188 in 1995, 1994, and 1993 respectively.
(6) OTHER REAL ESTATE
-----------------
A summary of the transactions in the allowance for losses of other
real estate for the years ended December 31, 1995, and 1994, and 1993 follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year $ 226,394 140,332 105,406
Provision charged to earnings 104,059 91,000 64,926
Charge-offs (34,988) (4,938) (30,000)
------- ------- -------
Balance at end of year $ 295,465 226,394 140,332
======= ======= =======
</TABLE>
Other real estate, net, as of December 31, 1995 and 1994 totaled
$338,652 and $953,130, respectively, and consist primarily of commercial
properties.
(7) EMPLOYEE BENEFIT PLAN
---------------------
Employees of the Bank may contribute up to 15 percent of their annual
salary to the Bank's defined contribution retirement plan. Under the provisions
of the plan, the Bank is required to match the employees' contributions up to 3
percent of their annual salary and may make additional discretionary
contributions.
Contributions to the plan by the Bank totaled $84,905, $81,164, and $78,340
for the years ended December 31, 1995, 1994, and 1993, respectively.
F-118
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(8) BORROWINGS
----------
Borrowings at December 31, 1995 and 1994 are summarized as follows:
December 31
-------------------
1995 1994
---- ----
Advances from the Federal Home Loan Bank of
Atlanta under the terms of the adjustable rate
credit program, maturing in equal amounts of
$2,000,000 on March 30, 1996, 1997 and 1998,
respectively, and $1,000,000 on January 28,
1996. The interest rates at December 31,
1995 range from 5.8875 percent to 5.9575 percent
and are based on the 90-day LIBOR rate. The
advances are collateralized by real estate
mortgage loans of $7,861,834 and $5,966,345
at December 31, 1995 and 1994, respectively,
and by securities having an approximate
amortized cost of $2,100,000 and $647,000 at
December 31, 1995 and 1994, respectively. $7,000,000 7,000,000
Notes payable to various individuals, including
certain directors, bearing interest at a prime
rate (8.50 at December 31, 1995) plus one percent.
Principal and interest payments are due quarterly
through March 2001. 1,400,000 1,400,000
Note payable to an individual bearing interest
at 13 percent with principal and interest payments
due monthly through 2016. 124,969 79,214
---------- ---------
$8,524,969 8,479,214
========== =========
The Bank has available a revolving line of credit with the Federal Home Loan
Bank of Atlanta bearing interest under the terms of an adjustable rate credit
program. The amount available was $10,000,000 at December 31, 1995 and 1994,
respectively. Advances drawn on the line of credit are to be collateralized by
U.S. government agencies securities.
F-119
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(8) BORROWINGS, CONTINUED
--------------------
Aggregate maturities of borrowings at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Total
----------
<S> <C>
1996 $3,563,310
1997 2,184,364
1998 2,185,552
1999 206,890
2000 164,463
Thereafter 220,390
----------
$8,524,969
==========
</TABLE>
(9) INCOME TAXES
------------
As discussed in note 1, the Company adopted FAS 109 as of January 1, 1993.
Total income tax expense (benefit) for the years ended December 31, 1995,
1994, and 1993 was allocated as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
---------- ----------- -----------
<S> <C> <C> <C>
Income from continuing operations $ 643,358 (62,866) 371,853
========= =========== ===========
Loss from discontinued operations $ (11,512) (44,134) (29,853)
========= =========== ===========
Stockholders' equity, for unrealized gains (losses)
on investment securities available for sale $ 304,405 (301,979) --
========= =========== ===========
Components of income tax expense (benefit) for the years ended December
31, 1995, 1994, and 1993
are as follows:
1995
-------------------------------
Current Deferred Total
------- -------- ------
Federal $580,141 (15,794) 564,347
State 67,719 (220) 67,499
-------- ----------
Totals $647,860 (16,014) 631,846
======== ========= ========
1994
---------------------------------
Current Deferred Total
------- -------- -----
Federal $ 49,000 (143,000) (94,000)
State -- (13,000) (13,000)
-------- --------- ---------
Totals $ 49,000 (156,000) (107,000)
======== ======== ========
</TABLE>
F-120
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
<TABLE>
(9) INCOME TAXES, CONTINUED
-----------------------
1993
------------------------------
Current Deferred Total
------- -------- -----
<S> <C> <C> <C>
Federal $382,000 (58,000) 324,000
State 28,000 (10,000) 18,000
-------- --------- -------
Totals $410,000 (68,000) 342,000
======== ========= =======
</TABLE>
The provisions for income taxes for 1995, 1994, and 1993 are more than that
computed by applying the U.S. federal corporate tax rate of 34 percent to
earnings from continuing operations before income taxes and cumulative effect of
a change in accounting method for the following reasons:
<TABLE>
<CAPTION>
1995 1994 1993
----- ------ ------
<S> <C> <C> <C>
Amount computed at statutory rate $ 566,986 8,107 346,892
Increase (reduction) in income taxes resulting from:
Tax exempt interest (4,942) (4,630) (4,874)
State income tax, net of federal income tax benefit 46,869 (8,580) 11,880
Internal Revenue Service exam settled -- (59,443) --
Other, net 34,445 1,680 17,955
------- -------- -------
$ 643,358 (62,866) 371,853
========= ========= =======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
-------- -------
<S> <C> <C>
Deferred tax assets:
Loans, principally due to allowance for loan losses $ 328,385 431,807
Unrealized loss on investment securities available for sale -- 301,979
Premises and equipment, principally due to differences
in depreciation -- 8,238
Other real estate 124,521 17,922
Deferred compensation 31,135 --
Deferred income -- 10,699
Other 28,160 --
------- -------
Total gross deferred tax assets 512,201 770,645
Less valuation allowance -- --
-------- -------
Net deferred tax assets 512,201 770,645
-------- -------
</TABLE>
F-121
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
(9) INCOME TAXES, CONTINUED
-----------------------
<S> <C> <C>
1995 1994
------ ------
Deferred tax liabilities:
Tax exempt discount accretion 1,814 1,448
Unrealized gain on investment securities
available for sale 2,425 --
Federal Home Loan Bank stock dividends 3,187 8,439
Prepaid expenses 25,069 13,742
Repossessed property 29,700 29,700
Premises and equipment, principally due to
differences in depreciation 22,387 --
Other 2,803 4,109
-------- -------
Total gross deferred tax liabilities 87,385 57,438
-------- -------
Net deferred tax asset $424,816 713,207
======== =======
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based upon the level of
historical taxable income and projection for future taxable income over the
periods which the temporary differences resulting in the deferred tax assets are
deductible, management believes it is more likely than not that the Company will
realize the benefits of these deductible differences.
(10) STOCK OPTIONS
-------------
The Corporation has granted nonqualified compensatory stock options to
certain employees. The options may only be exercised at five years from the
grant date. The following is summary of the options outstanding at December 31,
1995:
<TABLE>
<CAPTION>
Options Exercise
Grant date granted price Total
---------- -------- ------- --------
<S> <C> <C> <C>
January 22, 1992 5,436 $ 8.33 $45,282
January 4, 1993 5,556 9.68 53,782
January 22, 1994 5,763 10.00 57,630
-------- --------
16,755 $156,694
======== ========
</TABLE>
No options were granted during the year ended December 31, 1995. Options
forfeited totaled 3,529, 3,296, and 4,494 during the years ended December 31,
1995, 1994, and 1993, respectively. The exercise price for options granted is
based on a discounted per share book value at the date of grant, as no ready
market is available.
F-122
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(11) COMMITMENTS AND CONTINGENCIES
-----------------------------
The Bank is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit, and standby
letters of credit. Such instruments involve elements of credit risk in excess
of the amounts recognized in the financial statements.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of these
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does in granting credit in transactions recorded
in the financial statements.
The off-balance sheet financial instruments whose contract amounts
represent credit risk as of December 31, 1995, are as follows:
Commitments to extend credit $2,662,000
Standby letters of credit $ 19,000
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
Standby letters of credit and financial guarantees written are conditional
commitments issued by the Bank to guarantee the performance of a customer to a
third party. Those guarantees are primarily issued to support public and
private borrowing arrangements. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan facilities to
customers. The Bank holds various assets as collateral supporting those
commitments for which collateral is deemed necessary.
The Bank is involved in various legal actions arising in the normal course
of business. In the opinion of management, based upon consultation with legal
counsel, the ultimate resolution of the proceedings will not have a material
adverse effect upon the financial position of the Bank.
On November 26, 1989, the Bank entered into a Memorandum of Understanding
with the Federal Deposit Insurance Corporation and the Banking Department of the
State of Alabama whereby the Bank agreed to take certain affirmative actions.
The Memorandum was revised in March 1993. The actions required of the Bank
primarily include (a) developing a management plan which defines lines of
authority and responsibilities for each officer; (b) retaining qualified
management including a chief executive officer and senior lending officer; (c)
establishing a committee of directors to review each officer's performance at
least annually; (d) developing a three-year capital plan that provides for
maintenance of specified levels of capital, projections of growth and future
capital needs and contingency plans that identify alternate sources of capital;
F-123
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(11) COMMITMENTS AND CONTINGENCIES, CONTINUED
----------------------------------------
(e) establishing a program for maintaining an adequate allowance for loan
losses; (f) reducing substandard assets to specified levels by certain dates;
(g) developing written action plans to eliminate the basis of criticism for
significant classified loans; (h) ceasing extension of credit to borrowers with
loans classified below certain levels; (i) revising the funds management policy
to include an increase in the minimum target ratio for liquidity and reducing
the Bank's reliance upon potentially volatile liabilities to fund long-term
assets; (j) preparation of annual budgets; (k) obtaining regulatory approval
prior to paying dividends and (l) correcting certain internal control
deficiencies and violations of rules and regulations.
On September 12, 1994, the Corporation entered into a Memorandum of
Understanding with the Federal Reserve Bank of Atlanta (FRB) whereby the
Corporation agreed to take certain affirmative actions. The actions required of
the Corporation primarily include (a) no increase in its borrowings or insurance
of debt without the prior written approval of the FRB; (b) by no later than
September 30, 1994, the Corporation will submit to the FRB, and thereafter
comply with, a written plan to service its outstanding debt and any other cash
obligations for at least a five-year period; (c) the Corporation will
immediately notify the FRB of any anticipated deviations to the written plan;
(d) the Corporation will not (i) purchase or redeem treasury stock or (ii)
declare or pay dividends to its stockholders without the prior written approval
of the FRB. The Corporation is to submit its request to the FRB thirty days
before the date on which it wishes to take any such action; (e) the Corporation
will maintain a separate checking account ("separate account") for the proceeds
of any insurance of debt (including debt incurred in connection with the
issuance of equity) approved by the FRB; (f) the Corporation will notify the FRB
at least thirty days prior to the payment of any salary or other compensation at
the parent company level. Along with such notification, the Corporation will
provide the FRB with justification for such compensation payment(s) and
information detailing the source of funding for the payment(s); (g) within
thirty days of the end of each calendar quarter, the Corporation will continue
to submit to the FRB a written progress report detailing the form and manner of
all actions taken to comply with this Memorandum and the results thereof. The
Corporation submitted the debt service/capital plan (the Plan) to the FRB which
was approved by the Corporation's board of directors on September 30, 1994.
According to the Plan, the Corporation will (1) issue up to $1,000,000 in new
equity, in maximum amounts of $250,000 in each of the next four years, (2) use
the equity proceeds, in part, to retire 25 percent of the principal balance of
its outstanding debt over the next five years, (3) extend the maturities of the
remaining principal balance of the debt maturing in the next five years, and (4)
establish a cash reserve of approximately $500,000 that can be used for capital
injections into the Corporation, if necessary, or for longer-term debt servicing
needs. No corporate dividends or corporate salary expenses are projected in the
Plan.
At December 31, 1995, the Corporation and Bank believe they were in
compliance with the requirements as defined in each of the memorandums of
understanding.
F-124
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(12) SALE OF INSURANCE AGENCY
------------------------
During 1995, the Bank sold the property and casualty book of business
developed by its subsidiary, Southland Insurance Agency, Inc. In conjunction
with the sale, the Bank discontinued its insurance agency operations.
Accordingly, all related operating activity for the insurance agency has been
reclassified and reported as discontinued operations. Under the terms of the
sales agreement, the sales price is based on a percentage of future insurance
premiums underwritten by the buyer and is to be adjusted upon the one-year
anniversary of the sales agreement based on policies in force at that time. The
Company did not recognize any gain on the sale in 1995. Such gain will be
recorded when the sales proceeds are determined in 1996.
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------
FAS 107, Disclosures about Fair Value of Financial Instruments, requires
disclosure of fair value information about financial instruments, whether
or not recognized on the face of the balance sheet, for which it is
practicable to estimate that value. Fair value estimates are made at a
specific point in time, based on relevant market information and
information about the financial instrument. These estimated do not reflect
any premium or discount that could result form offering for sale at one
time the Company's entire holdings of a particular financial instrument.
Because no market exists for a portion of the Company's financial
instruments, fair value estimates are based on judgments regarding future
expected loss experience, current economic conditions, risk characteristics
of various financial instruments, and other factors. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and, therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates. Fair value estimates
are based on existing on-and-off balance sheet financial instruments
without attempting to estimate the value of anticipated future business and
the value of assets and liabilities that are not considered financial
instruments. In addition, the tax ramifications related to the realization
of the unrealized gains and losses can have a significant effect on fair
value estimates and have not been considered in any of the estimates The
assumptions used in the estimation of the fair value of the Company's
financial instruments are explained below. Where quoted market prices are
not available, fair values are based on estimates using discounted cash
flow and other valuation techniques. Discounted cash flows can be
significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. The following fair value estimates
cannot be substantiated by comparison to independent markets and should not
be considered representative of the liquidation value of the Company's
financial instruments, but rather a good-faith estimate of the fair value
of financial instruments held by the Company. FAS 107 excludes certain
financial instruments and all non-financial instruments from its disclosure
requirements.
The following methods and assumptions were used by the Company in
estimating the fair value of its financial instruments:
(A) CASH AND DUE FROM BANKS
-----------------------
Fair value equals the carrying value of such assets.
(B) INVESTMENT SECURITIES
---------------------
The fair value of investment securities is based on quoted market prices.
(C) LOANS
-----
The fair value of loans is calculated using discounted
cash flows by loan type. The discount rate used to determine the
present value of the loan portfolio is an estimated market discount
rate that reflects the credit and interest rate risk inherent in the
loan portfolio. The estimated maturity is based on the Company's
historical experience with repayments adjusted to estimate the effect
of current market conditions. The carrying amount of accrued interest
approximates its fair value.
F-125
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
----------------------------------------------
(D) DEPOSITS
--------
As required by FAS 107, the fair value of deposits with no stated maturity,
such as non-interest bearing demand deposits, NOW accounts, savings, and
money market deposit accounts, is equal to their carrying values.
Certificates of deposit have been valued using discounted cash flows. The
discount rate used is based on estimated market rates for deposits of
similar remaining maturities.
(E) BORROWINGS
----------
The fair value of borrowings has been determined using discounted cash
flows. The discount rate used is based on estimated market rates for
borrowings of similar remaining maturities.
The carrying value and estimated fair value of the Company's financial
instruments at December 31, 1995 are as follows (in thousands):
Estimated
Carrying fair
amount value
-------- ---------
Financial assets:
Cash and due from banks $ 4,845 4,845
======= ======
Investment securities $20,931 20,931
======= ======
Loans, net $70,142 69,985
======= ======
Financial liabilities:
Deposits $84,828 85,041
======= ======
Borrowings $ 8,525 8,540
======= ======
F-126
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(14) FINANCIAL INFORMATION OF SOUTHLAND BANCORPORATION (PARENT COMPANY ONLY)
-----------------------------------------------------------------------
<TABLE>
<CAPTION>
Balance Sheets
December 31, 1995 and 1994
Assets 1995 1994
------- ----- ------
<S> <C> <C>
Cash and cash equivalents $ 180,496 11,090
Investment in Bank 7,628,333 6,274,556
Premises and equipment 680 --
Other assets 73,743 67,342
---------- ----------
Total assets $7,883,252 6,352,988
========== ==========
Liabilities and Stockholders' Equity
-----------------------------------
Liabilities:
Note payable $1,524,969 1,479,214
Other liabilities 42,761 16,761
---------- ---------
Total liabilities 1,567,730 1,495,975
Stockholders' equity:
Common stock 26,065 26,065
Additional paid-in capital 2,575,204 2,575,204
Net unrealized loss on investment securities
available for sale 3,638 (452,969)
Retained earnings 3,777,134 2,775,232
Treasury stock (66,519) (66,519)
---------- ----------
Total stockholders' equity 6,315,522 4,857,013
---------- ----------
Total liabilities and stockholders' equity $7,883,252 6,352,988
========== ==========
Statements of Earnings
Years Ended December 31, 1995, 1994, and 1993
1995 1994 1993
---- ---- ----
Interest income $ 479 485 1,432
Interest expense (146,851) (119,875) (100,754)
Dividends from Bank 300,000 -- 50,000
Other expense (93,896) (2,699) (230)
---------- -------- ---------
Income (loss) before income tax benefit 59,732 (122,089) (49,552)
Income tax benefit 45,000 44,000 34,000
Undistributed equity in earnings of Bank 897,170 79,127 655,074
---------- -------- ---------
Net earnings $1,001,902 1,038 639,522
========== ======== =========
</TABLE>
F-127
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(14) FINANCIAL INFORMATION OF SOUTHLAND BANCORPORATION (PARENT COMPANY ONLY),
------------------------------------------------------------------------
CONTINUED
---------
<TABLE>
<CAPTION>
Statements of Cash Flows
Years Ended December 31, 1995, and 1994, and 1993
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $1,001,902 1,038 639,522
Adjustments to reconcile net earnings to
net cash provided by (used in) operating
activities:
Undistributed equity in earnings of Bank (897,170) (79,127) (655,074)
Increase in other assets (6,401) (44,269) 23,073
Increase (decrease) in other liabilities 26,000 16,761 (102,749)
--------- -------- --------
Net cash provided by (used in)
operating activities 124,331 (105,597) (95,228)
--------- --------- -------
Cash flows from investing activities:
Purchase of premises and equipment (680) -- --
--------- --------- -------
Net cash used in financing activities (680) -- --
--------- --------- -------
Cash flows from financing activities:
Principal payments on note payable (6,437) (20,719) (105,468)
Proceeds from issuance of note payable 52,192 115,000 100,000
--------- -------- -------
Net cash provided by (used in)
financing activities 45,755 94,281 (5,468)
--------- -------- -------
Increase (decrease) in cash and cash equivalents 169,406 (11,316) (100,696)
Cash and cash equivalents, beginning of year 11,090 22,406 123,102
--------- -------- --------
Cash and cash equivalents, ending of year $ 180,496 11,090 22,406
========= ======== ========
Supplemental schedule of cash flow information:
Cash paid during the year for:
Interest $ 145,931 114,096 100,226
========= ======== ========
Income taxes $ -- 250,000 335,116
========= ======== ========
</TABLE>
F-128
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(14) FINANCIAL INFORMATION OF SOUTHLAND BANCORPORATION (PARENT COMPANY ONLY),
------------------------------------------------------------------------
CONTINUED
---------
Dividends paid by the Bank are the primary source of funds available to the
Corporation for payment of dividends to its stockholders and other needs.
Federal and state statutes and regulations impose restrictions on the amount of
dividends that may be declared by the Bank. In addition, the Bank is also
required to maintain minimum amounts of capital as defined by banking
regulators, which could further limit the availability of dividends from the
Bank. Regulatory authorities have restricted the Bank from paying any dividends
without obtaining prior regulatory consent (see note 11). On March 29, 1995,
the Bank obtained approval to pay quarterly dividends of $100,000 to the
Corporation following the end of each calendar quarter beginning March 31, 1995.
Payment of these dividends is contingent upon the Bank meeting certain capital
and core earnings requirements. Accordingly, at December 31, 1995,
substantially all of the Corporation's investment in the Bank is restricted as
to dividend payments by the Bank to the Corporation.
(15) PENDING MERGER
--------------
On December 8, 1995, the Company and ABC Bancorp (ABC) announced the
signing of an Agreement and Plan of Merger (the Agreement) which provides for
the merger of the Company with and into ABC. The transaction is expected to be
accounted for as a purchase. The Agreement is subject to approval by the
shareholders of the Corporation and certain regulatory authorities, and is
expected to close in 1996.
Under the terms of the Agreement, upon consumption of the merger, each
outstanding share of the Corporation's stock will be converted into cash and
stock of ABC, based on each shareholders' elections, in an amount equal to 1.8
times the book value of the Corporations' stock at the valuation date, as
defined in the Agreement. In any case, the number of shares of the
Corporation's stock to be converted into cash will not be less than 35 percent
nor more than 49 percent of the total outstanding shares of the Corporation.
F-129
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
ABC BANCORP
AND
FIRST NATIONAL FINANCIAL CORPORATION
As of April 15, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Preamble................................................................... A-1
ARTICLE 1 TERMS OF MERGER................................................ A-1
1.1 Merger......................................................... A-1
1.2 Time and Place of Closing...................................... A-2
1.3 Effective Time................................................. A-2
ARTICLE 2 ARTICLE, BYLAWS, MANAGEMENT.................................... A-2
2.1 Articles of Incorporation...................................... A-2
2.2 Bylaws......................................................... A-2
2.3 Directors and Officers......................................... A-2
ARTICLE 3 MANNER OF CONVERTING AND EXCHANGING SHARES..................... A-3
3.1 Conversion of Shares........................................... A-3
3.2 Exchange of Shares............................................. A-4
3.3 Anti-Dilution Provisions....................................... A-5
3.4 Shares Held by TARGET or PURCHASER............................. A-5
3.5 TARGET Bank.................................................... A-5
3.6 Rights of Former TARGET Shareholders........................... A-5
3.7 Treatment of OPtions and Warrants.............................. A-6
ARTICLE 4 REPRESENTATIONS AND WARRANTS OF TARGET......................... A-6
4.1 Organization, Standing and Power............................... A-6
4.2 Authority; No Breach........................................... A-7
4.3 Capital Stock.................................................. A-8
4.4 TARGET Subsidiaries............................................ A-8
4.5 Financial Statements........................................... A-9
4.6 Absence of Undisclosed Liabilities............................. A-9
4.7 Absence of Certain Changes or Events........................... A-9
4.8 Tax Matters.................................................... A-10
4.9 TARGET Allowance for Possible Loan Losses...................... A-11
4.10 Assets......................................................... A-11
4.11 Environmental Matters.......................................... A-11
4.12 Compliance with Laws........................................... A-13
4.13 Labor Relations................................................ A-13
4.14 Employee Benefit Plans......................................... A-14
4.15 Material Contracts............................................. A-16
4.16 Legal Proceedings.............................................. A-16
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
4.17 Reports........................................................ A-17
4.18 Statements True and Correct.................................... A-17
4.19 Accounting, Tax and Regulatory Matters......................... A-18
4.20 Charter Provisions............................................. A-18
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF PURCHASER.................... A-18
5.1 Organization, Standing and Power............................... A-18
5.2 Authority; No Breach........................................... A-18
5.3 Capital Stock.................................................. A-19
5.4 PURCHASER Susidiaries.......................................... A-20
5.5 Financial Statements........................................... A-21
5.6 Absence of Undisclosed Liabilities............................. A-21
5.7 Absence of Certain Changes or Events........................... A-21
5.8 Tax Matters.................................................... A-22
5.9 PURCHASER Allowance for Possible Loan Losses................... A-23
5.10 Assets......................................................... A-23
5.11 Environmental Matters.......................................... A-23
5.12 Compliance with Laws........................................... A-25
5.13 Labor Relations................................................ A-25
5.14 Employee Benefit Plans......................................... A-25
5.15 Legal Proceedings.............................................. A-28
5.16 Reports........................................................ A-28
5.17 Statements True and Correct.................................... A-28
5.18 Accounting, Tax and Regulatory Matters......................... A-29
5.19 Charter Provisions............................................. A-29
ARTICLE 6 CONDUCT OF BUSINESS PENDING CONSUMMATION....................... A-30
6.1 Affirmative Covenants of TARGET................................ A-30
6.2 Negative Covenants of TARGET................................... A-30
6.3 Covenants of PURCHASER......................................... A-32
6.4 Adverse Changes in Condition................................... A-32
6.5 Reports........................................................ A-32
ARTICLE 7 ADDITIONAL AGREEMENTS.......................................... A-33
7.1 Registration Statement; Proxy Statement; Shareholder Approval.. A-33
7.2 Listing........................................................ A-33
7.3 Applications................................................... A-33
7.4 Filings with State Offices..................................... A-34
7.5 Agreements as to Efforts to Consummate......................... A-34
7.6 Investigation and Confidentiality.............................. A-34
7.7 Press Releases................................................. A-35
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
7.8 No Solicitation................................................ A-35
7.9 Tax Treatment.................................................. A-37
7.10 Agreement of Affiliates........................................ A-37
7.11 Employee Benefits and Contracts................................ A-38
7.12 Large Deposits................................................. A-38
7.13 Indemnification................................................ A-38
7.14 Irrevocable Proxies............................................ A-39
7.15 Noncompetition Agreements...................................... A-39
7.16 TARGET Options and Warrants.................................... A-39
ARTICLE 8 CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE.............. A-39
8.1 Conditions to Obligations of Each Party........................ A-39
8.2 Conditions to Obligations of PURCHASER......................... A-40
8.3 Conditions to Obligations of TARGET............................ A-42
ARTICLE 9 TERMINATION.................................................... A-43
9.1 Termination.................................................... A-43
9.2 Effect of Termination.......................................... A-44
ARTICLE 10 MISCELLANEOUS.................................................. A-44
10.1 Definitions.................................................... A-44
10.2 Expenses....................................................... A-53
10.3 Brokers and Finders............................................ A-53
10.4 Entire Agreement............................................... A-54
10.5 Amendments..................................................... A-54
10.6 Waivers........................................................ A-54
10.7 Assignment..................................................... A-55
10.8 Notices........................................................ A-55
10.9 Governing Law.................................................. A-56
10.10 Counterparts................................................... A-56
10.11 Captions....................................................... A-56
10.12 Enforcement of Agreement....................................... A-56
10.13 Severability................................................... A-56
10.14 Survival....................................................... A-57
</TABLE>
iii
<PAGE>
[CAPTION]
<TABLE>
LIST OF EXHIBITS
----------------
Exhibit Number Description
- -------------- -----------
<S> <C>
1. List of Holders (S3.7).
2. Form of agreement of affiliates of First National Financial
Corporation (S7.10).
3. Irrevocable Proxy (S7.14).
4. Form of Noncompetition Agreement with Mr. Phillips
(S7.15).
4A. Form of Noncompetition Agreement with Directors other
than Mr. Phillips (S7.15).
5. Form of letter from Holders of Warrants (S7.16).
6. Form of letter from Holders of Options (S7.16).
7. Matters as to which Smith, Gambrell & Russell will opine
(S8.2(d)).
8. Matters as to which Rogers & Hardin will opine
(S8.3(d)).
</TABLE>
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and entered
into as of April 15, 1996, by and between FIRST NATIONAL FINANCIAL CORPORATION
("TARGET"), a corporation organized and existing under the laws of the State of
Georgia, with its principal office located in Albany, Georgia, and ABC BANCORP
("PURCHASER"), a corporation organized and existing under the laws of the State
of Georgia, with its principal office located in Moultrie, Georgia.
Preamble
---------
Certain terms used in this Agreement are defined in Section 10.1 hereof.
The Boards of Directors of TARGET and PURCHASER are of the opinion that the
transactions described herein are in the best interests of the parties and their
respective shareholders. This Agreement provides for the combination of TARGET
with PURCHASER pursuant to the merger of TARGET with and into PURCHASER, as a
result of which the outstanding shares of the capital stock of TARGET shall be
converted into the right to receive shares of common stock of PURCHASER (except
as provided herein), and the shareholders of TARGET shall become shareholders of
PURCHASER (except as provided herein). The transactions described in this
Agreement are subject to the approvals of the shareholders of TARGET, the Board
of Governors of the Federal Reserve System, the Georgia Department of Banking
and Finance and the satisfaction of certain other conditions described in this
Agreement. It is the intention of the parties to this Agreement that the Merger
for federal income tax purposes shall qualify as a "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code.
Following the Closing of the Merger, First National Bank of South Georgia, a
wholly-owned national bank subsidiary of TARGET (the "Bank"), will be operated
as a separate subsidiary of PURCHASER.
NOW, THEREFORE, in consideration of the above and the mutual warranties,
representations, covenants and agreements set forth herein, the parties agree as
follows:
ARTICLE 1
TERMS OF MERGER
---------------
1.1 Merger. Subject to the terms and conditions of this Agreement, at the
------
Effective Time, TARGET shall be merged with and into PURCHASER in accordance
with the provisions of Section 14-2-1101 of the GBCC and with the effect
provided in Section 14-2-1106 of the GBCC (the "Merger"). PURCHASER shall be
the Surviving Corporation resulting from the Merger. The Merger shall be
consummated pursuant to the terms of this Agreement, which has been approved and
adopted by the respective Boards of Directors of TARGET and PURCHASER.
<PAGE>
1.2 Time and Place of Closing. The Closing shall take place at 10:00 a.m. on
-------------------------
the date that the Effective Time occurs or at such other time as the Parties,
acting through their chief executive officers or chief financial officers, may
mutually agree (the "Closing Date"). The place of Closing shall be at the
offices of Rogers & Hardin, Atlanta, Georgia, or such other place as may be
mutually agreed upon by the Parties.
1.3 Effective Time. The Merger and other transactions contemplated by this
--------------
Agreement shall become effective on the date and at the time the Georgia
Articles of Merger reflecting the Merger shall become effective with the
Secretary of State of the State of Georgia (the "Effective Time"). Subject to
the terms and conditions hereof, unless otherwise mutually agreed upon in
writing by the chief executive officers of each Party, the Parties shall use
their reasonable efforts to cause the Effective Time to occur on (a) the last
business day of the month in which occurs the last to occur of (i) the effective
date (including expiration of any applicable waiting period) of the last
required Consent of any Regulatory Authority having authority over and approving
or exempting the Merger and (ii) the date on which the shareholders of TARGET
approve this Agreement to the extent such approval is required by applicable
Law; or (b) such later date as may be mutually agreed upon in writing by the
chief executive officers or chief financial officers of each Party.
ARTICLE 2
ARTICLES, BYLAWS, MANAGEMENT
----------------------------
2.1 Articles of Incorporation. The Articles of Incorporation of PURCHASER in
-------------------------
effect immediately prior to the Effective Time shall be the Articles of
Incorporation of the Surviving Corporation until otherwise amended or repealed.
2.2 Bylaws. The Bylaws of PURCHASER in effect immediately prior to the
------
Effective Time shall be the Bylaws of the Surviving Corporation until otherwise
amended or repealed.
2.3 Directors and Officers. The directors of PURCHASER in office immediately
----------------------
prior to the Effective Time shall serve as the directors of the Surviving
Corporation from and after the Effective Time in accordance with the Bylaws of
the Surviving Corporation. The officers of PURCHASER in office immediately
prior to the Effective Time, together with such additional persons as may
thereafter be elected, shall serve as the officers of PURCHASER from and after
the Effective Time in accordance with the Bylaws of PURCHASER. The directors
and officers of TARGET Bank immediately prior to the Effective Time shall serve
as the initial directors and officers of TARGET Bank from and after the
Effective Time in accordance with the Bylaws of TARGET Bank.
2
<PAGE>
ARTICLE 3
MANNER OF CONVERTING AND EXCHANGING SHARES
------------------------------------------
3.1 Conversion of Shares. Subject to the provisions of this Article 3, at
--------------------
the Effective Time, by virtue of the Merger and without any action on the part
of the holders thereof, the shares of PURCHASER and TARGET shall be converted as
follows:
(a) Each share of PURCHASER Common Stock issued and outstanding
immediately prior to the Effective Time shall remain issued and outstanding from
and after the Effective Time.
(b) Each share of TARGET Common Stock outstanding immediately prior to
the Effective Time, other than shares with respect to which statutory
dissenters' rights have been perfected (the "Dissenting Shares") and shares held
in TARGET's treasury which shall be cancelled without consideration at the
Effective Time (the "Outstanding TARGET Shares"), shall automatically be
converted at the Effective Time into the right to receive whole shares of
PURCHASER Common Stock, plus cash in lieu of fractional shares pursuant to
subparagraph (c) below, if applicable, in an amount equal to (i) the Merger
Consideration, plus (ii) the Aggregate Option Consideration, divided by
(iii) the Aggregate TARGET Shares (the "Per Share Merger Consideration"). In
accordance with the provisions of this Section 3.1, each TARGET shareholder who
does not dissent shall receive the number of shares, or such fractions of a
share (subject to paragraph (b) below), of PURCHASER Common Stock which shall be
equal to the (i) the Per Share Merger Consideration divided by the Base Period
Trading Price (the "Exchange Ratio"), (ii) multiplied by the aggregate number of
Outstanding TARGET Shares such shareholder holds as of the Effective Time.
(c) Notwithstanding any other provision of this Agreement, each holder of
shares of TARGET Common Stock exchanged pursuant to the Merger who would
otherwise have been entitled to receive a fraction of a share of PURCHASER
Common Stock (after taking into account all certificates delivered by such
holder) shall receive, in lieu thereof, cash (without interest) in an amount
equal to such fractional part of a share of PURCHASER Common Stock multiplied by
the Base Period Trading Price. No such holder will be entitled to dividends,
voting rights, or any other rights as a shareholder in respect of any fractional
shares.
(d) Each share of the TARGET Common Stock that is not an Outstanding
TARGET Share as of the Effective Time shall be cancelled without consideration
therefor.
(e) Outstanding TARGET Shares held by TARGET shareholders who, prior to
the Effective Time, have met the requirements of Article 13 of the GBCC with
3
<PAGE>
respect to shareholders dissenting from the Merger ("Dissenting TARGET
Shareholders") shall not be converted in the Merger, but all such shares shall
be cancelled and the holders thereof shall thereafter have only such rights as
are granted to dissenting shareholders under Article 13 of the GBCC; provided,
however, that if any such shareholder fails to perfect his or her rights as a
dissenting shareholder with respect to his or her Outstanding TARGET Shares in
accordance with Article 13 of the GBCC, such shares held by such shareholder
shall, upon the happening of that event, be treated the same as all other
holders of TARGET Common Stock who have not dissented as to the Merger.
3.2 Exchange of Shares. Prior to the Effective Time, PURCHASER shall select
------------------
a bank or trust company reasonably acceptable to TARGET to act as exchange agent
(the "Exchange Agent") to effectuate the delivery of the Merger Consideration to
holders of TARGET Common Stock. Promptly following the Effective Time, the
Exchange Agent shall send to each holder of Outstanding TARGET Shares
immediately prior to the Effective Time a form of letter of transmittal (the
"Letter of Transmittal") for use in exchanging certificates previously
evidencing shares of TARGET Common Stock ("Old Certificates"). The Letter of
Transmittal will contain instructions with respect to the surrender of Old
Certificates and the distribution of cash and certificates representing
PURCHASER Common Stock, which certificates shall be deposited with the Exchange
Agent by PURCHASER as of the Effective time. If any certificates for shares of
PURCHASER Common Stock are to be issued in a name other than that for which an
Old Certificate surrendered or exchanged is issued, the Old Certificate so
surrendered shall be properly endorsed and otherwise in proper form for transfer
and the person requesting such exchange shall affix any requisite stock transfer
tax stamps to the Old Certificate surrendered or provide funds for their
purchase or establish to the satisfaction of the Exchange Agent that such taxes
are not payable. Unless and until Old Certificates (or evidence that such
certificates have been lost, stolen or destroyed accompanied by such security or
indemnity as shall be requested by TARGET) are presented to the Exchange Agent,
the holder thereof shall not be entitled to the consideration to be paid in
exchange therefor pursuant to the Merger, to any dividends payable on any
PURCHASER Common Stock to which he or she is entitled, or to exercise any rights
as a shareholder of PURCHASER Common Stock. Subject to applicable law and to the
extent that the same has not yet been paid to a public official pursuant to
applicable abandoned property laws, upon surrender of his or her Old
Certificates, the holder thereof shall be paid the consideration to which he or
she is entitled. All such property, if held by the Exchange Agent for payment
or delivery to the holders of unsurrendered Old Certificates and unclaimed at
the end of one (1) year from the Effective Time, shall at such time be paid or
redelivered by the Exchange Agent to PURCHASER and after such time any holder of
an Old Certificate who has not surrendered such certificate shall, subject to
applicable laws and to the extent that the same has not yet been paid to a
public official pursuant to applicable abandoned property laws, look as a
general creditor only to PURCHASER for payment or delivery of such property.
4
<PAGE>
In no event will any holder of TARGET Common Stock exchanged in the Merger be
entitled to receive any interest on any amounts held by the Exchange Agent or
PURCHASER.
3.3 Anti-Dilution Provisions. In the event TARGET or PURCHASER changes the
------------------------
number of shares of TARGET Common Stock or PURCHASER Common Stock, respectively,
issued and outstanding prior to the Effective Time as a result of a stock split,
stock dividend or similar recapitalization with respect to such stock and the
record date therefor (in the case of a stock dividend) or the effective date
therefor (in the case of a stock split or similar recapitalization) shall be
prior to the Effective Time, the Exchange Ratio shall be proportionately
adjusted.
3.4 Shares Held by TARGET or PURCHASER. Each of the shares of TARGET Common
----------------------------------
Stock held by any TARGET Company or by any PURCHASER Company, in each case other
than in a fiduciary capacity or as a result of debts previously contracted,
shall be canceled and retired at the Effective Time and no consideration shall
be issued in exchange therefor.
3.5 TARGET Bank. After consummation of the Merger, TARGET Bank shall be a
-----------
separate subsidiary of PURCHASER.
3.6 Rights of Former TARGET Shareholders. At the Effective Time, the stock
------------------------------------
transfer books of TARGET shall be closed as to holders of TARGET Common Stock
immediately prior to the Effective Time and no transfer of TARGET Common Stock
by any such holder shall thereafter be made or recognized. Until surrendered
for exchange in accordance with the provisions of Section 3.2 of this Agreement,
each Old Certificate (other than shares to be canceled pursuant to
Section 3.1(d) of this Agreement) shall from and after the Effective Time
represent for all purposes only the right to receive the consideration provided
in Section 3.1 of this Agreement in exchange therefor. To the extent permitted
by Law, former shareholders of record of TARGET shall be entitled to vote after
the Effective Time at any meeting of shareholders of PURCHASER the number of
whole shares of PURCHASER Common Stock into which their respective shares of
TARGET Common Stock are converted, regardless of whether such holders have
exchanged their certificates representing TARGET Common Stock for certificates
representing PURCHASER Common Stock in accordance with the provisions of this
Agreement. Whenever a dividend or other distribution is declared by PURCHASER on
the PURCHASER Common Stock, the record date for which is at or after the
Effective Time, the declaration shall include dividends or other distributions
on all shares issuable pursuant to this Agreement, but no dividend or other
distribution payable to the holders of record of PURCHASER Common Stock as of
any time subsequent to the Effective Time shall be delivered to the holder of
any certificate representing shares of TARGET Common Stock issued and
outstanding at the Effective Time until such holder surrenders such certificate
for exchange as provided in Section 3.2 of this
5
<PAGE>
Agreement. However, upon surrender of such TARGET Common Stock certificate, both
the PURCHASER Common Stock certificate (together with all such undelivered
dividends or other distributions without interest) and any undelivered cash
payments to be paid for fractional share interests (without interest) shall be
delivered and paid with respect to each share represented by such certificate.
3.7 Treatment of Options and Warrants. Pursuant to Section 7.16 hereof, each
---------------------------------
option ("TARGET Option") or warrant ("TARGET Warrant") to purchase shares of
TARGET Common Stock issued by TARGET, outstanding and unexercised immediately
prior to the Effective Time, if any, is to be cancelled upon consummation of the
Merger, and all rights in respect thereof will cease to exist. As consideration
for the cancellation of all of the TARGET Options and TARGET Warrants, each
TARGET Option or TARGET Warrant shall automatically be converted at the
Effective Time into the right to receive whole shares of PURCHASER Common Stock,
plus cash in lieu of fractional shares pursuant to subparagraph 3.1(c) above, if
applicable, in an amount equal to (i) the aggregate number of Option Shares
which each holder (a "Holder") of TARGET Options or TARGET Warrants, as the case
may be, could have been converted into immediately prior to the Effective Date
(whether or not such TARGET Option or TARGET Warrant is then exercisable),
multiplied by (ii) the difference between (A) the Per Share Merger Consideration
and (B) the exercise price for each Option Share subject to such TARGET Option
or TARGET Warrant, divided by (iii) the Base Period Trading Price. The name of
each Holder and the number of TARGET Options and TARGET Warrants owned by such
Holder is set forth on Exhibit 1 hereto.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF TARGET
----------------------------------------
TARGET hereby represents and warrants to PURCHASER as follows:
4.1 Organization, Standing and Power. TARGET is a corporation duly
--------------------------------
organized, validly existing, and in good standing under the Laws of the State of
Georgia, and is duly registered as a bank holding company under the BHC Act.
TARGET has the corporate power and authority to carry on its business as now
conducted and to own, lease and operate its Assets. TARGET is duly qualified or
licensed to transact business as a foreign corporation in good standing in the
States of the United States and foreign jurisdictions where the character of its
assets or the nature or conduct of its business requires it to be so qualified
or licensed, except for such jurisdictions in which the failure to be so
qualified or licensed is not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on TARGET.
6
<PAGE>
4.2 Authority; No Breach
--------------------
(a) TARGET has the corporate power and authority necessary to execute,
deliver and perform its obligations under this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated herein,
including the Merger, have been duly and validly authorized by all necessary
corporate action in respect thereof on the part of TARGET, subject to the
approval of this Agreement by the holders of a majority of the outstanding
TARGET Common Stock. Subject to such requisite shareholder approval, this
Agreement represents a legal, valid and binding obligation of TARGET,
enforceable against TARGET in accordance with its terms (except in all cases as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar Laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought).
(b) Neither the execution and delivery of this Agreement by TARGET, nor
the consummation by TARGET of the transactions contemplated hereby, nor
compliance by TARGET with any of the provisions hereof, will (i) conflict with
or result in a breach of any provision of TARGET's Articles of Incorporation or
Bylaws, or (ii) constitute or result in a Default under, or require any Consent
pursuant to, or result in the creation of any Lien on any Asset of any TARGET
Company under, any Contract or Permit of any TARGET Company, where such Default
or Lien, or any failure to obtain such Consent, is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on TARGET, or,
(iii) subject to receipt of the requisite approvals referred to in
Section 8.1(b) of this Agreement, violate any Law or Order applicable to any
TARGET Company or any of their respective Assets.
(c) Other than in connection or compliance with the provisions of the
Securities Laws, applicable state corporate and securities Laws, and other than
Consents required from Regulatory Authorities, and other than notices to or
filings with the Internal Revenue Service or the Pension Benefit Guaranty
Corporation with respect to any employee benefit plans, and other than Consents,
filings or notifications which, if not obtained or made, are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
TARGET, no notice to, filing with, or Consent of any public body or authority is
necessary for the consummation by TARGET of the Merger and the other
transactions contemplated in this Agreement.
7
<PAGE>
4.3 Capital Stock.
-------------
(a) The authorized capital stock of TARGET consists of (i) 10,000,000
shares of TARGET Common Stock, of which 495,409 shares are issued and
outstanding as of the date of this Agreement, and (ii) 1,000,000 shares of
Preferred Stock, none of which are issued or outstanding as of the date of this
Agreement. All of the issued and outstanding shares of capital stock of TARGET
are duly and validly issued and outstanding and are fully paid and nonassessable
under the GBCC. None of the outstanding shares of capital stock of TARGET has
been issued in violation of any preemptive rights of the current or past
shareholders of TARGET.
(b) Except as set forth in Section 4.3(a) of this Agreement or as
Previously Disclosed, there are no shares of capital stock or other equity
securities of TARGET outstanding and no outstanding options, warrants, scrip,
rights to subscribe to, calls, or commitments of any character whatsoever
relating to, or securities or rights convertible into or exchangeable for,
shares of the capital stock of TARGET or contracts, commitments, understandings,
or arrangements by which TARGET is or may be bound to issue additional shares of
its capital stock or options, warrants, or rights to purchase or acquire any
additional shares of its capital stock.
4.4 TARGET Subsidiaries. TARGET has Previously Disclosed all of the TARGET
-------------------
Subsidiaries as of the date of this Agreement. TARGET owns all of the issued
and outstanding shares of capital stock of TARGET Bank, and TARGET Bank owns all
of the issued and outstanding stock of each other TARGET Subsidiary. No equity
securities of any TARGET Subsidiary are or may become required to be issued
(other than to a TARGET Company) by reason of any options, warrants, scrip,
rights to subscribe to, calls, or commitments of any character whatsoever
relating to, or securities or rights convertible into or exchangeable for,
shares of the capital stock of any such Subsidiary, and there are no Contracts
by which any TARGET Subsidiary is bound to issue (other than to a TARGET
Company) additional shares of its capital stock or options, warrants, or rights
to purchase or acquire any additional shares of its capital stock or by which
any TARGET Company is or may be bound to transfer any shares of the capital
stock of any TARGET Subsidiary (other than to a TARGET Company). There are no
Contracts relating to the rights of any TARGET Company to vote or to dispose of
any shares of the capital stock of any TARGET Subsidiary. All of the shares of
capital stock of each TARGET Subsidiary held by a TARGET Company are fully paid
and nonassessable under the applicable corporation Law of the jurisdiction in
which such Subsidiary is incorporated or organized and are owned by the TARGET
Company free and clear of any Lien. Each TARGET Subsidiary is either a bank or
a corporation, and is duly organized, validly existing, and (as to corporations)
in good standing under the Laws of the jurisdiction in which it is incorporated
or organized, and has the corporate power and authority necessary for it to own,
lease and operate its
8
<PAGE>
Assets and to carry on its business as now conducted. Each TARGET Subsidiary is
duly qualified or licensed to transact business as a foreign corporation in good
standing in the States of the United States and foreign jurisdictions where the
character of its Assets or the nature or conduct of its business requires it to
be so qualified or licensed, except for such jurisdictions in which the failure
to be so qualified or licensed is not reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on TARGET. Each TARGET Subsidiary
that is a depository institution is an insured institution as defined in the
Federal Deposit Insurance Act and applicable regulations thereunder.
4.5 Financial Statements. TARGET has Previously Disclosed, and delivered to
--------------------
PURCHASER prior to the execution of this Agreement, copies of all TARGET
Financial Statements for periods ended prior to the date hereof and will deliver
to PURCHASER copies of all TARGET Financial Statements prepared subsequent to
the date hereof. The TARGET Financial Statements (as of the dates thereof and
for the periods covered thereby) (a) are or, if dated after the date of this
Agreement, will be in accordance with the books and records of the TARGET
Companies, which are or will be, as the case may be, complete and correct in all
material respects and which have been or will have been, as the case may be,
maintained in accordance with good business practices, and (b) present or will
present, as the case may be, fairly the consolidated financial position of the
TARGET Companies as of the dates indicated and the consolidated results of
operations, changes in shareholders' equity, and cash flows of the TARGET
Companies for the periods indicated, in accordance with GAAP (subject to any
exceptions as to consistency specified therein or as may be indicated in the
notes thereto or, in the case of interim financial statements, to normal
recurring year-end adjustments that are not material).
4.6 Absence of Undisclosed Liabilities. Except as Previously Disclosed, no
----------------------------------
TARGET Company has any Liabilities that are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on TARGET, except
Liabilities which are accrued or reserved against in the consolidated balance
sheet of TARGET as of December 31, 1995 included in the TARGET Financial
Statements or reflected in the notes thereto. Except as Previously Disclosed,
no TARGET Company has incurred or paid any Liability since December 31, 1995,
except for such Liabilities incurred or paid in the ordinary course of business
consistent with past business practice and which are not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on TARGET.
4.7 Absence of Certain Changes or Events. Since December 31, 1995, (a) there
------------------------------------
have been no events, changes or occurrences which have had, or are reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
TARGET, and (b) the TARGET Companies have not taken any action, or failed to
take any action, prior to the date of this Agreement, which action or failure,
if taken after the date of this Agreement,
9
<PAGE>
would represent or result in a material breach or violation of any of the
covenants and agreements of TARGET provided in Article 7 of this Agreement.
4.8 Tax Matters.
-----------
(a) All Tax returns required to be filed by or on behalf of any of the
TARGET Companies have been duly filed or requests for extensions have been
timely filed, granted, and have not expired for periods ended on or before
December 31, 1995, and on or before the date of the most recent fiscal year end
immediately preceding the Effective Time, except to the extent that all such
failures to file, taken together, are not reasonably likely to have a Material
Adverse Effect on TARGET, and all returns filed are complete and accurate to the
Knowledge of TARGET. All Taxes shown on filed returns have been paid. As of
the date of this Agreement, there is no audit examination, deficiency, or refund
Litigation with respect to any Taxes that is reasonably likely to result in a
determination that would have, individually or in the aggregate, a Material
Adverse Effect on TARGET, except as reserved against in the TARGET Financial
Statements delivered prior to the date of this Agreement. All Taxes and other
Liabilities due with respect to completed and settled examinations or concluded
Litigation have been paid.
(b) None of the TARGET Companies has executed an extension or waiver of
any statute of limitations on the assessment or collection of any Tax due that
is currently in effect, and no unpaid tax deficiency has been asserted in
writing against or with respect to any TARGET Company, which deficiency is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on TARGET.
(c) Adequate provision for any Taxes due or to become due for any of the
TARGET Companies for the period or periods through and including the date of the
respective TARGET Financial Statements has been made and is reflected on such
TARGET Financial Statements.
(d) Deferred Taxes of the TARGET Companies have been provided for in
accordance with GAAP.
(e) Each of the TARGET Companies is in compliance with, and its records
contain all information and documents (including, without limitation, properly
completed IRS Forms W-9) necessary to comply with, all applicable information
reporting and Tax withholding requirements under federal, state and local Tax
Laws, and such records identify with specificity all accounts subject to backup
withholding under Section 3406 of the Internal Revenue Code, except for such
instances of noncompliance and such omissions as are not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on TARGET.
10
<PAGE>
(f) Effective January 1, 1993, TARGET adopted Financial Accounting
Standards Board Statement 109, "Accounting for Income Taxes."
4.9 TARGET Allowance for Possible Loan Losses. The allowance for possible
-----------------------------------------
loan or credit losses (the "TARGET Allowance") shown on the consolidated balance
sheets of TARGET included in the most recent TARGET Financial Statements dated
prior to the date of this Agreement was, and the TARGET Allowance shown on the
consolidated balance sheets of TARGET included in the TARGET Financial
Statements as of dates subsequent to the execution of this Agreement will be, as
of the dates thereof, adequate (within the meaning of GAAP and applicable
regulatory requirements or guidelines) to provide for losses relating to or
inherent in the loan and lease portfolios (including accrued interest
receivables) of the TARGET Companies and other extensions of credit (including
letters of credit and commitments to make loans or extend credit) by the TARGET
Companies as of the dates thereof except where the failure of such TARGET
Allowance to be so adequate is not reasonably likely to have a Material Adverse
Effect on TARGET.
4.10 Assets. Except as Previously Disclosed or as disclosed or reserved
------
against in the TARGET Financial Statements, or where the failure to own good and
marketable title is not reasonably likely to have a Material Adverse Effect on
TARGET, the TARGET Companies have good and marketable title, free and clear of
all Liens, to all of their respective Assets. All material tangible properties
used in the businesses of the TARGET Companies are in good condition, reasonable
wear and tear excepted, and are usable in the ordinary course of business
consistent with TARGET's past practices. All Assets which are material to
TARGET's business on a consolidated basis, held under leases or subleases by any
of the TARGET Companies are held under valid Contracts enforceable in accordance
with their respective terms (except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, or other Laws
affecting the enforcement of creditors' rights generally and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceedings
may be brought), and each such Contract is in full force and effect. TARGET has
Previously Disclosed, and delivered to PURCHASER prior ot the execution of this
Agreement, copies of the policies of fire, theft, liability, and other insurance
maintained with respect to the Assets or businesses of the TARGET Companies and,
in the opinion of TARGET management, provide adequate coverage under current
industry practices against loss or Liability, and, in the opinion of TARGET
management, the fidelity and blanket bonds in effect as to which any of the
TARGET Companies is a named insured are reasonably sufficient. The Assets of
the TARGET Companies include all assets required to operate the business of the
TARGET Companies as presently conducted.
4.11 Environmental Matters.
---------------------
11
<PAGE>
(a) Each TARGET Company, its Participation Facilities and its Loan
Properties are, and have been, in compliance with all Environmental Laws, except
for violations which are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on TARGET.
(b) There is no Litigation pending or, to the Knowledge of TARGET,
threatened before any court, governmental agency or authority or other forum in
which any TARGET Company or any of its Participation Facilities has been or,
with respect to threatened Litigation, may be named as a defendant (i) for
alleged noncompliance (including by any predecessor) with any Environmental Law
or (ii) relating to the release into the environment of any Hazardous Material
or oil, whether or not occurring at, on, under or involving a site owned, leased
or operated by any TARGET Company or any of its Participation Facilities, except
for such Litigation pending or, to the Knowledge of TARGET, threatened that is
not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on TARGET.
(c) There is no Litigation pending or, to the Knowledge of TARGET,
threatened before any court, governmental agency or board or other forum in
which any of its Loan Properties (or any TARGET Company in respect of such Loan
Property) has been or, with respect to threatened litigation, may be named as a
defendant or potentially responsible party (i) for alleged noncompliance
(including by any predecessor) with any Environmental Law or (ii) relating to
the release into the environment of any Hazardous Material or oil, whether or
not occurring at, on, under or involving a Loan Property, except for such
Litigation pending or, to the Knowledge of TARGET, threatened that is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on TARGET.
(d) To the Knowledge of TARGET, there is no reasonable basis for any
Litigation of a type described in subsections (b) or (c), except such as is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on TARGET.
(e) During the period of (i) any TARGET Company's ownership or operation
of any of their respective current properties, (ii) any TARGET Company's
participation in the management of any Participation Facility, or (iii) any
TARGET Company's holding of a security interest in a Loan Property, there have
been no releases of Hazardous Material or oil in, on, under or affecting any
such property, Participation Facility, or to the Knowledge of TARGET Loan
Property, except such as are not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on TARGET.
(f) Prior to the period of (i) any TARGET Company's ownership or
operation of any of their respective current properties, (ii) any TARGET
Company's
12
<PAGE>
participation in the management of any Participation Facility, or (iii) any
TARGET Company's holding of a security interest in a Loan Property, to the
Knowledge of TARGET, there were no releases of Hazardous Material or oil in, on,
under or affecting any such property, Participation Facility or Loan Property,
except such as are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on TARGET.
4.12 Compliance with Laws.
--------------------
(a) TARGET is duly registered as a bank holding company under the
BHC Act. Each TARGET Company has in effect all Permits necessary for it to own,
lease or operate its Assets and to carry on its business as now conducted,
except for those Permits the absence of which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on TARGET, and there
has occurred no Default under any such Permit, other than Defaults which are not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on TARGET.
(b) Except as Previously Disclosed no TARGET Company:
(i) is in violation of any Laws, Orders or Permits applicable to its
business or employees conducting its business, except for violations which are
not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on TARGET; and
(ii) has received any notification or communication from any agency
or department of federal, state, or local government or any Regulatory Authority
or the staff thereof (A) asserting that any TARGET Company is not in compliance
with any of the Laws or Orders which such governmental authority or Regulatory
Authority enforces, where such noncompliance is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on TARGET,
(B) threatening to revoke any Permits, the revocation of which is reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
TARGET, or (C) requiring any TARGET Company to enter into or consent to the
issuance of a cease and desist order, formal agreement, directive, commitment or
memorandum of understanding, or to adopt any Board resolution or similar
undertaking, which restricts materially the conduct of its business, or in any
manner relates to its capital adequacy, its credit or reserve policies, its
management, or the payment of dividends.
4.13 Labor Relations. No TARGET Company is the subject of any Litigation
---------------
asserting that it or any other TARGET Company has committed an unfair labor
practice (within the meaning of the National Labor Relations Act or comparable
state law) or seeking to compel it or any other TARGET Company to bargain with
any labor organization as to
13
<PAGE>
wages or conditions of employment, nor is there any strike or other labor
dispute involving any TARGET Company, pending or, to its Knowledge, threatened,
or to its Knowledge, is there any activity involving any TARGET Company's
employees seeking to certify a collective bargaining unit or engaging in any
other organization activity.
4.14 Employee Benefit Plans.
----------------------
(a) TARGET has Previously Disclosed, and delivered or made available to
PURCHASER prior to the execution of this Agreement, copies in each case of all
pension, retirement, profit-sharing, deferred compensation, stock option,
employee stock ownership, severance pay, vacation, bonus, or other incentive
plans all other written employee programs, arrangements, or agreements, all
medical, vision, dental, or other health plans, all life insurance plans, and
all other employee benefit plans or fringe benefit plans, including, without
limitation, "employee benefit plans," as that term is defined in Section 3(3) of
ERISA, currently adopted, maintained by, sponsored in whole or in part by, or
contributed to by any TARGET Company or Affiliate thereof for the benefit of
employees, retirees, dependents, spouses, directors, independent contractors, or
other beneficiaries and under which employees, retirees, dependents, spouses,
directors, independent contractors, or other beneficiaries are eligible to
participate (collectively, the "TARGET Benefit Plans"). Any of the TARGET
Benefit Plans which is an "employee pension benefit plan," as that term is
defined in Section 3(2) of ERISA, is referred to herein as a "TARGET ERISA
Plan." Each TARGET ERISA Plan which is also a "defined benefit plan" (as
defined in Section 414(j)) of the Internal Revenue Code) is referred to herein
as a "TARGET Pension Plan." No TARGET Pension Plan is or has been a multi-
employer plan within the meaning of Section 3(37) of ERISA.
(b) All TARGET Benefit Plans are in compliance with the applicable terms
of ERISA, the Internal Revenue Code, and any other applicable Laws the breach or
violation of which are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on TARGET. Each TARGET ERISA Plan which is
intended to be qualified under Section 401(a) of the Internal Revenue Code has
received a favorable determination letter from the Internal Revenue Service, and
TARGET is not aware of any circumstances likely to result in revocation of any
such favorable determination letter. To the Knowledge of TARGET, no TARGET
Company has engaged in a transaction with respect to any TARGET Benefit Plan
that, assuming the taxable period of such transaction expired as of the date
hereof would subject any TARGET Company to a tax or penalty imposed by either
Section 4975 of the Internal Revenue Code or Section 502(i) of ERISA in amounts
which are reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on TARGET.
14
<PAGE>
(c) No TARGET ERISA Plan which is a defined benefit pension plan has any
"unfunded current liability," as that term is defined in Section 302(d)(8)(A) of
ERISA, based on actuarial assumptions set forth for such plan's most recent
actuarial valuation. Since the date of the most recent actuarial valuation,
there has been (i) no material change in the financial position of any TARGET
Pension Plan, (ii) no change in the actuarial assumptions with respect to any
TARGET Pension Plan, and (iii) no increase in benefits under any TARGET Pension
Plan as a result of plan amendments or changes in applicable law, which is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on TARGET or materially adversely affect the funding status of any such
plan. Neither any TARGET Pension Plan nor any "single-employer plan," within
the meaning of Section 4001(a)(15) of ERISA, currently or formerly maintained by
any TARGET Company, or the single-employer plan of any entity which is
considered one employer with TARGET under Section 4001 of ERISA or Section 414
of the Internal Revenue Code or Section 302 of ERISA (whether or not waived)
(an "ERISA Affiliate") has an "accumulated funding deficiency" within the
meaning of Section 412 of the Internal Revenue Code or Section 302 of ERISA,
which is reasonably likely to have a Material Adverse Effect on TARGET. No
TARGET Company has provided, or is required to provide, security to a TARGET
Pension Plan or to any single-employer plan of an ERISA Affiliate pursuant to
Section 401(a)(29) of the Code.
(d) Within the six-year period preceding the Effective Time, no
Liability under Subtitle C or D of Title IV or ERISA has been or is expected to
be incurred by any TARGET Company with respect to any ongoing, frozen or
terminated single-employer plan or the single-employer plan of any ERISA
Affiliate, which Liability is reasonably likely to have a Material Adverse
Effect on TARGET. Except as Previously Disclosed, no TARGET Company has incurred
any withdrawal Liability with respect to a multi-employer plan under Subtitle B
of Title TV or ERISA (regardless of whether based on contributions of an ERISA
Affiliate), which Liability is reasonably likely to have a Material Adverse
Effect on TARGET. No notice of a "reportable event," within the meaning of
Section 4043 of ERISA for which the 30-day reporting requirement has not been
waived, has been required to be filed for any TARGET Pension Plan or by any
ERISA Affiliate within the 12-month period ending on the date hereof.
(e) No TARGET Company has any obligations for retiree health and life
benefits under any of the TARGET Benefit Plans and there are no restrictions on
the rights of such TARGET Company to amend or terminate any such Plan without
incurring any Liability thereunder, which Liability is reasonably likely to have
a Material Adverse Effect on TARGET.
(f) Except as Previously Disclosed, neither the execution and delivery
of this Agreement nor the consummation of the transactions contemplated hereby
will (i) result
15
<PAGE>
in any payment (including, without limitation, severance, unemployment
compensation, golden parachute or otherwise) becoming due to any director or any
employee of any TARGET Company from any TARGET Company under any TARGET Benefit
Plan or otherwise, (ii) increase any benefits otherwise payable under any TARGET
Benefit Plan, or (iii) result in any acceleration of the time of payment or
vesting of any such benefit.
(g) The actuarial present values of all accrued deferred compensation
entitlements (including, without limitation, entitlements under any executive
compensation, supplemental retirement, or employment agreement) of employees and
former employees of any TARGET Company and their respective beneficiaries, other
than entitlements accrued pursuant to funded retirement plans subject to the
provisions of Section 412 of the Internal Revenue Code or Section 302 of ERISA,
have been fully reflected on the TARGET Financial Statements to the extent
required by and in accordance with GAAP.
4.15 Material Contracts. Except as Previously Disclosed, or otherwise
------------------
reflected in the TARGET Financial Statements, none of the TARGET Companies, nor
any of their respective Assets, businesses or operations, is a party to, or is
bound or affected by, or receives benefits under, (a) any employment, severance,
termination, consulting or retirement Contract providing for aggregate payments
to any Person in any calendar year in excess of $50,000, (b) any Contract
relating to the borrowing of money by any TARGET Company or the guarantee by any
TARGET Company of any such obligation (other than Contracts evidencing deposit
liabilities, purchases of federal funds, fully secured repurchase agreements,
trade payables, and Contracts relating to borrowings or guarantees made in the
ordinary course of business), and (c) any Contracts between or among TARGET
Companies (together with all Contracts referred to in Sections 4.10 and 4.14(a)
of this Agreement, the "TARGET Contracts"). None of the TARGET Companies is in
Default under any TARGET Contract, other than Defaults which are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
TARGET. All of the indebtedness of any TARGET Company for money borrowed is
prepayable at any time by such TARGET Company without penalty or premium.
4.16 Legal Proceedings. Except as Previously Disclosed, there is no
-----------------
Litigation instituted or pending or, to the Knowledge of TARGET, threatened (or
unasserted but considered probable of assertion and which, if asserted, would
have at least a reasonable probability of an unfavorable outcome) against any
TARGET Company, or against any Asset, interest, or right of any of them, that is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on TARGET, nor are there any Orders of any Regulatory Authorities, other
governmental authorities, or arbitrators outstanding against any TARGET Company,
that are reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on TARGET.
16
<PAGE>
4.17 Reports. Since January 1, 1993, each TARGET Company has timely filed
-------
all reports and statements, together with any amendments required to be made
with respect thereto, that it was required to file with (a) the SEC, including,
but not limited to, Forms 10-K, Forms 10-Q, Forms 8-K, and proxy statements,
(b) other Regulatory Authorities, and (c) any applicable state securities or
banking authorities (except, in the case of state securities authorities,
failures to file which are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on TARGET). As of their respective dates,
each of such reports and documents, including the financial statements,
exhibits, and schedules thereto, complied as to form in all material respects
with all applicable Laws. As of its respective date, none of such reports and
documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
4.18 Statements True and Correct. No statement, certificate, instrument
---------------------------
or other writing furnished or to be furnished by any TARGET Company or any
Affiliate thereof to PURCHASER pursuant to this Agreement or any other document,
agreement or instrument referred to herein contains or will contain any untrue
statement of material fact or will omit to state a material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. None of the information supplied or to be supplied by any
TARGET Company or any Affiliate thereof for inclusion in the Registration
Statement to be filed by PURCHASER with the SEC, will, when the Registration
Statement becomes effective, be false or misleading with respect to any material
fact, or omit to state any material fact necessary to make the statements
therein not misleading. None of the information supplied or to be supplied by
any TARGET Company or any Affiliate thereof for inclusion in the Proxy Statement
to be mailed to TARGET's shareholders in connection with the Shareholders'
Meeting, and any other documents to be filed by any TARGET Company or any
Affiliate thereof with the SEC or any other Regulatory Authority in connection
with the transactions contemplated hereby, will, at the respective time such
documents are filed, and with respect to the Proxy Statement, when first mailed
to the shareholders of TARGET, be false or misleading with respect to any
material fact, or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, or, in the case of the Proxy Statement or any amendment thereof
or supplement thereto, at the time of the Shareholders' Meeting, be false or
misleading with respect to any material fact, or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of any proxy for the Shareholders' Meeting. All documents that
any TARGET Company or any Affiliate thereof is responsible for filing with any
Regulatory Authority in connection with the transactions contemplated hereby
will comply as to form in all material respects with the provisions of
applicable Law.
17
<PAGE>
4.19 Accounting, Tax and Regulatory Matters. Except as Previously Disclosed,
--------------------------------------
no TARGET Company or any Affiliate thereof has taken any action or has any
Knowledge of any fact or circumstance that is reasonably likely to (a) prevent
the transactions contemplated hereby, including the Merger, from qualifying as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code, or (b) materially impede or delay receipt of any Consents of Regulatory
Authorities referred to in Section 8.1 (b) of this Agreement or result in the
imposition of a condition or restriction of the referred to in the second
sentence of such Section. To the Knowledge of TARGET, there exists no fact,
circumstance, or reason why the requisite Consents referred to in Section 8.1(b)
of this Agreement cannot be received in a timely manner without the imposition
of any condition or restriction of the type described in the second sentence of
such Section 8.1(b).
4.20 Charter Provisions. Each TARGET Company has taken all action so that
------------------
the entering into of this Agreement and the consummation of the Merger and
the other transactions contemplated by this Agreement do not and will not result
in the grant of any rights to any Person under the Articles of Incorporation,
Bylaws or other governing instruments of any TARGET Company or restrict or
impair the ability of PURCHASER to vote, or otherwise to exercise the rights of
a shareholder with respect to, shares of any TARGET Company that may be acquired
or controlled by it.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PURCHASER
-------------------------------------------
PURCHASER hereby represents and warrants to TARGET as follows:
5.1 Organization, Standing and Power. PURCHASER is a corporation duly
--------------------------------
organized, validly existing, and in good standing under the laws of the State of
Georgia, and is duly registered as a bank holding company under the BHC Act.
PURCHASER has the corporate power and authority to carry on its business as now
conducted and to own, lease and operate its Assets. PURCHASER is duly qualified
or licensed to transact business as a foreign corporation in good standing in
the States of the United States and foreign jurisdictions where the character of
its Assets or the nature or conduct of its business requires it to be so
qualified or licensed, except for such jurisdictions in which the failure to be
so qualified or licensed is not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on PURCHASER.
5.2 Authority; No Breach.
--------------------
(a) PURCHASER has the corporate power and authority necessary to execute,
deliver and perform its obligations under this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this
18
<PAGE>
Agreement and the consummation of the transactions contemplated herein,
including the Merger, have been duly and validly authorized by all necessary
corporate action in respect thereof on the part of PURCHASER. This Agreement
represents a legal, valid and binding obligation of PURCHASER, enforceable
against PURCHASER in accordance with its terms (except in all cases as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar Laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought).
(b) Neither the execution and delivery of this Agreement by PURCHASER,
nor the consummation by PURCHASER of the transactions contemplated hereby, nor
compliance by PURCHASER with any of the provisions hereof will (i) conflict with
or result in a breach of any provision of PURCHASER's Articles of Incorporation
or Bylaws, or (ii) constitute or result in a Default under, or require any
Consent pursuant to, or result in the creation of any Lien on any Asset of any
PURCHASER Company under, any Contract or Permit of any PURCHASER Company, where
such Default or Lien, or any failure to obtain such Consent, is reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
PURCHASER, or, (iii) subject to receipt of the requisite approvals referred to
in Section 8.1(b) of this Agreement, violate any Law or Order applicable to any
PURCHASER Company or any of their respective Assets.
(c) Other than in connection or compliance with the provisions of the
Securities Laws, applicable state corporate and securities Laws, and rules of
the NASD, and other than Consents required from Regulatory Authorities, and
other than notices to or filings with the Internal Revenue Service or the
Pension Benefit Guaranty Corporation with respect to any employee benefit plans,
and other than Consents, filings or notifications which, if not obtained or
made, are not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on PURCHASER, no notice to, filing with, or Consent of
any public body or authority is necessary for the consummation by PURCHASER of
the Merger and the other transactions contemplated in this Agreement.
5.3 Capital Stock.
-------------
(a) The authorized capital stock of PURCHASER consists of (i) 10,000,000
shares of PURCHASER Common Stock, of which 3,379,192 shares are issued and
outstanding as of the date of this Agreement, and (ii) 5,000,000 shares of
Preferred Stock, none of which are issued or outstanding as of the date of this
Agreement. All of the issued and outstanding shares of PURCHASER Common Stock
are, and all of the shares of PURCHASER Common Stock to be issued in exchange
for shares of TARGET Common Stock upon consummation of the Merger, when issued
in accordance with the terms of this
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<PAGE>
Agreement, will be, duly and validly issued and outstanding and fully paid and
nonassessable under the GBCC. None of the outstanding shares of PURCHASER Common
Stock has been, and none of the shares of PURCHASER Common Stock to be issued in
exchange for shares of TARGET Common Stock upon consummation of the Merger will
be, issued in violation of any preemptive rights of the current or past
shareholders of PURCHASER.
(b) Except as set forth in Section 5.3(a) of this Agreement, or as
Previously Disclosed, there are no shares of capital stock or other equity
securities of PURCHASER outstanding and no outstanding options, warrants, scrip,
rights to subscribe to, calls, or commitments of any character whatsoever
relating to, or securities or rights convertible into or exchangeable for,
shares of the capital stock of PURCHASER or contracts, commitments,
understandings, or arrangements by which PURCHASER is or may be bound to issue
additional shares of its capital stock or options, warrants, or rights to
purchase or acquire any additional shares of its capital stock.
5.4 PURCHASER Subsidiaries. PURCHASER has Previously Disclosed all of the
----------------------
PURCHASER Subsidiaries as of the date of this Agreement. PURCHASER owns all of
the issued and outstanding shares of capital stock of each PURCHASER Subsidiary.
No equity securities of any PURCHASER Subsidiary are or may become required to
be issued (other than to a PURCHASER Company) by reason of any options,
warrants, scrip, rights to subscribe to, calls, or commitments of any character
whatsoever relating to, or securities or rights convertible into or exchangeable
for, shares of the capital stock of any such Subsidiary, and there are no
Contracts by which any PURCHASER Subsidiary is bound to issue (other than to a
PURCHASER Company) additional shares of its capital stock or options, warrants,
or rights to purchase or acquire any additional shares of its capital stock or
by which any PURCHASER Company is or may be bound to transfer any shares of the
capital stock of any PURCHASER Subsidiary (other than to a PURCHASER Company).
There are no Contracts relating to the rights of any PURCHASER Company to vote
or to dispose of any shares of the capital stock of any PURCHASER Subsidiary.
All of the shares of capital stock of each PURCHASER Subsidiary held by a
PURCHASER Company are fully paid and nonassessable under the applicable
corporation Law of the jurisdiction in which such Subsidiary is incorporated or
organized and are owned by the PURCHASER Company free and clear of any Lien.
Each PURCHASER Subsidiary is either a bank or a corporation, and is duly
organized, validly existing, and (as to corporations) in good standing under the
Laws of the jurisdiction in which it is incorporated or organized, and has the
corporate power and authority necessary for it to own, lease and operate its
Assets and to carry on its business as now conducted. Each PURCHASER Subsidiary
is duly qualified or licensed to transact business as a foreign corporation in
good standing in the States of the United States and foreign jurisdictions where
the character of its Assets or the nature or conduct of its business requires it
to be so qualified or licensed, except for such jurisdictions in which the
failure to be so qualified or licensed is not reasonably likely to have,
individually or in the
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<PAGE>
aggregate, a Material Adverse Effect on PURCHASER. Each PURCHASER Subsidiary
that is a depository institution is an insured institution as defined in the
Federal Deposit Insurance Act and applicable regulations thereunder.
5.5 Financial Statements. PURCHASER has Previously Disclosed and delivered
--------------------
to TARGET prior to the execution of this Agreement copies of all PURCHASER
Financial Statements for periods ended prior to the date hereof and will deliver
to TARGET copies of all PURCHASER Financial Statements prepared subsequent to
the date hereof. The PURCHASER Financial Statements (as of the dates thereof
and for the periods covered thereby) (a) are or, if dated after the date of this
Agreement, will be in accordance with the books and records of the PURCHASER
Companies, which are or will be, as the case may be, complete and correct in all
material respects and which have been or will have been, as the case may be,
maintained in accordance with good business practices, and (b) present or will
present, as the case may be, fairly the consolidated financial position of the
PURCHASER Companies as of the dates indicated and the consolidated results of
operations, changes in shareholders' equity, and cash flows of the PURCHASER
Companies for the periods indicated, in accordance with GAAP (subject to
exceptions as to consistency specified therein or as may be indicated in the
notes thereto or, in the case of interim financial statements, to normal
recurring year-end adjustments that are not material).
5.6 Absence of Undisclosed Liabilities. No PURCHASER Company has any
----------------------------------
Liabilities that are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on PURCHASER, except Liabilities which are
accrued or reserved against in the consolidated balance sheet of PURCHASER as of
December 31, 1995 included in the PURCHASER Financial Statements or reflected in
the notes thereto. No PURCHASER Company has incurred or paid any Liability
since December 31, 1995, except for such Liabilities incurred or paid in the
ordinary course of business consistent with past business practice and which are
not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on PURCHASER.
5.7 Absence of Certain Changes or Events. Since December 31, 1995, except as
------------------------------------
disclosed in SEC Documents filed by PURCHASER prior to the date of this
Agreement, (a) there have been no events, changes or occurrences which have had,
or are reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on PURCHASER, and (b) the PURCHASER Companies have not taken any
action, or failed to take any action, prior to the date of this Agreement, which
action or failure, if taken after the date of this Agreement, would represent or
result in a material breach or violation of any of the covenants and agreements
of PURCHASER provided in Article 7 of this Agreement.
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<PAGE>
5.8 Tax Matters.
-----------
(a) All Tax returns required to be filed by or on behalf of any of the
PURCHASER Companies have been timely filed or requests for extensions have been
timely filed, granted, and have not expired for periods ended on or before
December 31, 1995, and on or before the date of the most recent fiscal year end
immediately preceding the Effective Time, except to the extent that all such
failures to file, taken together, are not reasonably likely to have a Material
Adverse Effect on PURCHASER, and all returns filed are complete and accurate to
the Knowledge of PURCHASER. All Taxes shown on filed returns have been paid.
As of the date of this Agreement, there is no audit examination, deficiency, or
refund Litigation with respect to any Taxes that is reasonably likely to result
in a determination that would have, individually or in the aggregate, a Material
Adverse Effect on PURCHASER, except as reserved against in the PURCHASER
Financial Statements delivered prior to the date of this Agreement. All Taxes
and other Liabilities due with respect to completed and settled examinations or
concluded Litigation have been paid.
(b) None of the PURCHASER Companies has executed an extension or waiver
of any statute of limitations on the assessment or collection of any Tax due
that is currently in effect, and no unpaid tax deficiency has been asserted in
writing against or with respect to any PURCHASER Company, which deficiency is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on PURCHASER.
(c) Adequate provision for any Taxes due or to become due for any of the
PURCHASER Companies for the period or periods through and including the date of
the respective PURCHASER Financial Statements has been made and is reflected on
such PURCHASER Financial Statements.
(d) Deferred Taxes of the PURCHASER Companies have been provided for in
accordance with GAAP.
(e) Each of the PURCHASER Companies is in compliance with, and its
records contain all information and documents (including, without limitation,
properly completed IRS Forms W-9) necessary to comply with, all applicable
information reporting and Tax withholding requirements under federal, state and
local Tax Laws, and such records identify with specificity all accounts subject
to backup withholding under Section 3406 of the Internal Revenue Code, except
for such instances of noncompliance and such omissions as are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
PURCHASER.
(f) Effective January 1, 1993, PURCHASER adopted Financial Accounting
Standards Board Statement 109, "Accounting for Income Taxes."
22
<PAGE>
5.9 PURCHASER Allowance for Possible Loan Losses. The allowance for possible
--------------------------------------------
loan or credit losses (the "PURCHASER Allowance") shown on the consolidated
balance sheets of PURCHASER included in the most recent PURCHASER Financial
Statements dated prior to the date of this Agreement was, and the PURCHASER
Allowance shown on the consolidated balance sheets of PURCHASER included in the
PURCHASER Financial Statements as of dates subsequent to the execution of this
Agreement will be, as of the dates thereof, adequate (within the meaning of GAAP
and applicable regulatory requirements or guidelines) to provide for losses
relating to or inherent in the loan and lease portfolios (including accrued
interest receivables) of the PURCHASER Companies and other extensions of credit
(including letters of credit and commitments to make loans or extend credit) by
the PURCHASER Companies as of the dates thereof except where the failure of such
PURCHASER Allowance to be so adequate is not reasonably likely to have a
Material Adverse Effect on PURCHASER.
5.10 Assets. Except as Previously Disclosed or as disclosed or reserved
------
against in the PURCHASER Financial Statements, the PURCHASER Companies have good
and marketable title, free and clear of all Liens, to all of their respective
Assets. All material tangible properties used in the businesses of the
PURCHASER Companies are in good condition, reasonable wear and tear excepted,
and are usable in the ordinary course of business consistent with PURCHASER's
past practices. All Assets which are material to PURCHASER's business on a
consolidated basis, held under leases or subleases by any of the PURCHASER
Companies, are held under valid Contracts enforceable in accordance with their
respective terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or other Laws affecting the
enforcement of creditors' rights generally and except that the availability of
the equitable remedy of specific performance or injunctive relief is subject to
the discretion of the court before which any proceedings may be brought), and
each such Contract is in full force and effect. The policies of fire, theft,
liability, and other insurance maintained with respect to the Assets or
businesses of the PURCHASER Companies provide adequate coverage under current
industry practices against loss or Liability, and the fidelity and blanket bonds
in effect as to which any of the PURCHASER Companies is a named insured are
reasonably sufficient. The Assets of the PURCHASER Companies include all assets
required to operate the business of the PURCHASER Companies as presently
conducted.
5.11 Environmental Matters.
---------------------
(a) Each PURCHASER Company, its Participation Facilities and its Loan
Properties are, and have been, in compliance with all Environmental Laws, except
for violations which are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on PURCHASER.
23
<PAGE>
(b) There is no Litigation pending or, to the Knowledge of PURCHASER,
threatened before any court, governmental agency or authority or other forum in
which any PURCHASER Company or any of its Participation Facilities has been or,
with respect to threatened Litigation, may be named as a defendant (i) for
alleged noncompliance (including by any predecessor) with any Environmental Law
or (ii) relating to the release into the environment of any Hazardous Material
(as defined below) or oil, whether or not occurring at, on, under or involving a
site owned, leased or operated by any PURCHASER Company or any of its
Participation Facilities, except for such Litigation pending or, to the
Knowledge of Purchaser, threatened that is not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on PURCHASER.
(c) There is no Litigation pending or, to the Knowledge of Purchaser,
threatened before any court, governmental agency or board or other forum in
which any of its Loan Properties (or any PURCHASER Company in respect of such
Loan Property) has been or, with respect to threatened Litigation, may be named
as a defendant or potentially responsible party (i) for alleged noncompliance
(including by any predecessor), with any Environmental Law or (ii) relating to
the release into the environment of any Hazardous Material or oil, whether or
not occurring at, on, under or involving a Loan Property, except for such
Litigation pending or, to the Knowledge of Purchaser, threatened that is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on PURCHASER.
(d) To the Knowledge of PURCHASER, there is no reasonable basis for any
Litigation of a type described in subsections (b) or (c), except such as is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on PURCHASER.
(e) During the period of (i) any PURCHASER Company's ownership or
operation of any of their respective current properties, (ii) any PURCHASER
Company's participation in the management of any Participation Facility, or
(iii) any PURCHASER Company's holding of a security interest in a Loan Property,
there have been no releases of Hazardous Material or oil in, on, under or
affecting such property, Participation Facility or Loan Property, except such as
are not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on PURCHASER.
(f) Prior to the period of (i) any PURCHASER Company's ownership or
operation of any of their respective current properties, (ii) any PURCHASER
Company's participation in the management of any Participation Facility, or
(iii) any PURCHASER Company's holding of a security interest in a Loan Property,
to the Knowledge of PURCHASER, there were no releases of Hazardous Material or
oil in, on, under or affecting any such property, Participation Facility or Loan
Property, except such as are not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on PURCHASER.
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<PAGE>
5.12 Compliance with Laws. PURCHASER is duly registered as a bank
--------------------
holding company under the BHC Act. Each PURCHASER Company has in effect all
Permits necessary for it to own, lease or operate its Assets and to carry on its
business as now conducted, except for those Permits the absence of which are not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on PURCHASER, and there has occurred no Default under any such Permit,
other than Defaults which are not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on PURCHASER.
(a) No PURCHASER Company:
(i) is in violation of any Laws, Orders or Permits applicable to
its business or employees conducting its business, except for violations
which are not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on PURCHASER; or
(ii) has received any notification or communication from any agency
or department of federal, state, or local government or any Regulatory
Authority or the staff thereof (A) asserting that any PURCHASER Company is
not in compliance with any of the Laws or Orders which such governmental
authority or Regulatory Authority enforces, where such noncompliance is
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on PURCHASER, (B) threatening to revoke any Permits, the
revocation of which is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on PURCHASER, or (C) requiring any
PURCHASER Company to enter into or consent to the issuance of a cease and
desist order, formal agreement, directive, commitment or memorandum of
understanding, or to adopt any Board resolution or similar undertaking, which
restricts materially the conduct of its business, or in any manner relates to
its capital adequacy, its credit or reserve policies, its management, or the
payment of dividends.
5.13 Labor Relations. No PURCHASER Company is the subject of any Litigation
---------------
asserting that it or any other PURCHASER Company has committed an unfair labor
practice (within the meaning of the National Labor Relations Act or comparable
state law) or seeking to compel it or any other PURCHASER Company to bargain
with any labor organization as to wages or conditions of employment, nor is
there any strike or other labor dispute involving any PURCHASER Company, pending
or, to its Knowledge, threatened, or to its Knowledge, is there any activity
involving any PURCHASER Company's employees seeking to certify a collective
bargaining unit or engaging in any other organization activity.
5.14 Employee Benefit Plans.
----------------------
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<PAGE>
(a) PURCHASER has Previously Disclosed and delivered or made available to
TARGET prior to the execution of this Agreement copies in each case of all
pension, retirement, profit-sharing, deferred compensation, stock option,
employee stock ownership, severance pay, vacation, bonus, or other incentive
plans, all other written employee programs, arrangements, or agreements, all
medical, vision, dental, or other health plans, all life insurance plans, and
all other employee benefit plans or fringe benefit plans, including, without
limitation, "employee benefit plans," as that term is defined in Section 3(3) of
ERISA, currently adopted, maintained by, sponsored in whole or in part by, or
contributed to by any PURCHASER Company or Affiliate thereof for the benefit of
employees, retirees, dependents, spouses, directors, independent contractors, or
other beneficiaries and under which employees, retirees, dependents, spouses,
directors, independent contractors, or other beneficiaries are eligible to
participate (collectively, the "PURCHASER Benefit Plans). Any of the PURCHASER
Benefit Plans which is an "employee pension benefit plan," as that term is
defined in Section 3(2) of ERISA, is referred to herein as a "PURCHASER ERISA
Plan." Each PURCHASER ERISA Plan which is also a "defined benefit plan" (as
defined in Section 414(j)) of the Internal Revenue Code) is referred to herein
as a "PURCHASER Pension Plan." No PURCHASER Pension Plan is or has been a
multi-employer plan within the meaning of Section 3(37) of ERISA.
(b) All PURCHASER Benefit Plans are in compliance with the applicable
terms of ERISA, the Internal Revenue Code, and any other applicable Laws the
breach or violation of which are reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on PURCHASER. Each PURCHASER ERISA
Plan which is intended to be qualified under Section 401(a) of the Internal
Revenue Code has received a favorable determination letter from the Internal
Revenue Service, and PURCHASER is not aware of any circumstances likely to
result in revocation of any such favorable determination letter. To the
Knowledge of PURCHASER, no PURCHASER Company has engaged in a transaction with
respect to any PURCHASER Benefit Plan that, assuming the taxable period of such
transaction expired as of the date hereof would subject any PURCHASER Company to
a tax or penalty imposed by either Section 4975 of the Internal Revenue Code or
Section 502(i) of ERISA in amounts which are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on PURCHASER.
(c) No PURCHASER ERISA Plan which is a defined benefit pension plan has
any "unfunded current liability," as that term is defined in Section
302(d)(8)(A) of ERISA, based on actuarial assumptions set forth for such plan's
most recent actuarial valuation. Since the date of the most recent actuarial
valuation, there has been (i) no material change in the financial position of
any PURCHASER Pension Plan, (ii) no change in the actuarial assumptions with
respect to any PURCHASER Pension Plan, and (iii) no increase in benefits under
any PURCHASER Pension Plan as a result of plan amendments or changes in
applicable Law which is reasonably likely to have, individually or in the
26
<PAGE>
aggregate, a Material Adverse Effect on PURCHASER or materially adversely affect
the funding status of any such plan. Neither any PURCHASER Pension Plan nor any
"single-employer plan," within the meaning of Section 4001(a)(15) of ERISA,
currently or formerly maintained by any PURCHASER Company, or the single-
employer plan of any ERISA Affiliate has an "accumulated funding deficiency"
within the meaning of Section 412 of the Internal Revenue Code or Section 302 of
ERISA, which is reasonably likely to have a Material Adverse Effect on
PURCHASER. No PURCHASER Company has provided, or is required to provide,
security to a PURCHASER Pension Plan or to any single-employer plan of an ERISA
Affiliate pursuant to Section 401(a)(29) of the Code.
(d) No Liability under Subtitle C or D of Title IV or ERISA has been or
is expected to be incurred by any PURCHASER Company with respect to any ongoing,
frozen or terminated single-employer plan or the single-employer plan of any
ERISA Affiliate, which Liability is reasonably likely to have a Material Adverse
Effect on PURCHASER. No PURCHASER Company has incurred any withdrawal Liability
with respect to a multi-employer plan under Subtitle B of Title IV or ERISA
(regardless of whether based on contributions of an ERISA Affiliate), which
Liability is reasonably likely to have a Material Adverse Effect on PURCHASER.
No notice of a "reportable event" within the meaning of Section 4043 of ERISA
for which the 30-day reporting requirement has not been waived, has been
required to be filed for any PURCHASER Pension Plan or by any ERISA Affiliate
within the 12-month period ending on the date hereof
(e) Except as Previously Disclosed, (i) no PURCHASER Company has any
obligations for retiree health and life benefits under any of the PURCHASER
Benefit Plans and (ii) there are no restrictions on the rights of such PURCHASER
Company to amend or terminate any such Plan without incurring any Liability
thereunder, which Liability is reasonably likely to have a Material Adverse
Effect on PURCHASER.
(f) Except as Previously Disclosed, neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated hereby will
(i) result in any payment (including, without limitation, severance,
unemployment compensation, golden parachute or otherwise) becoming due to any
director or any employee of any PURCHASER Company from any PURCHASER Company
under any PURCHASER Benefit Plan or otherwise, (ii) increase any benefits
otherwise payable under any PURCHASER Benefit Plan, or (iii) result in any
acceleration of the time of payment or vesting of any such benefit.
(g) The actuarial present values of all accrued deferred compensation
entitlements (including, without limitation, entitlements under any executive
compensation, supplemental retirement, or employment agreement) of employees and
former employees of any PURCHASER Company and their respective beneficiaries,
other than entitlements
27
<PAGE>
accrued pursuant to funded retirement plans subject to the provisions of Section
412 of the Internal Revenue Code or Section 302 of ERISA, have been fully
reflected on the PURCHASER Financial Statements to the extent required by and in
accordance with GAAP.
5.15 Legal Proceedings. There is no Litigation instituted or pending,
-----------------
or, to the Knowledge of PURCHASER, threatened (or unasserted but considered
probable of assertion and which if asserted would have at least a reasonable
probability of an unfavorable outcome) against any PURCHASER Company, or against
any Asset, interest, or right of any of them, that is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on PURCHASER, nor
are there any Orders of any Regulatory Authorities, other governmental
authorities, or arbitrators outstanding against any PURCHASER Company, that are
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on PURCHASER.
5.16 Reports. Since January 1, 1993, each PURCHASER Company has timely
-------
filed all reports and statements, together with any amendments required to be
made with respect thereto, that it was required to file with (a) the SEC,
including, but not limited to, Forms 10-K, Forms 10-Q, Forms 8-K, and proxy
statements, (b) other Regulatory Authorities, and (c) any applicable state
securities or banking authorities (except, in the case of state securities
authorities, failures to file which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on PURCHASER). As
of their respective dates, each of such reports and documents, including the
financial statements, exhibits, and schedules thereto, complied as to form in
all material respects with all applicable Laws. As of its respective date, none
of such reports and documents contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements made therein, in light of the circumstances under which
they were made, not misleading.
5.17 Statements True and Correct. No statement, certificate, instrument
---------------------------
or other writing furnished or to be furnished by any PURCHASER Company or any
Affiliate thereof to TARGET pursuant to this Agreement or any other document,
agreement or instrument referred to herein contains or will contain any untrue
statement of material fact or will omit to state a material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. None of the information supplied or to be supplied by any
PURCHASER Company or any Affiliate thereof for inclusion in the Registration
Statement to be filed by PURCHASER with the SEC, will, when the Registration
Statement becomes effective, be false or misleading with respect to any material
fact, or omit to state any material fact necessary to make the statements
therein not misleading. None of the information supplied or to be supplied by
any PURCHASER Company or any Affiliate thereof for inclusion in the Proxy
Statement to be mailed to TARGET's shareholders in connection with the
Shareholders' Meeting, and any other
28
<PAGE>
documents to be filed by any PURCHASER Company or any Affiliate thereof with the
SEC or any other Regulatory Authority in connection with the transactions
contemplated hereby, will, at the respective time such documents are filed, and
with respect to the Proxy Statement, when first mailed to the shareholders of
TARGET, be false or misleading with respect to any material fact, or omit to
state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, or, in the case of
the Proxy Statement or any amendment thereof or supplement thereto, at the time
of the Shareholders' Meeting, be false or misleading with respect to any
material fact, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of any
proxy for the Shareholders' Meeting. All documents that any PURCHASER Company or
any Affiliate thereof is responsible for filing with any Regulatory Authority in
connection with the transactions contemplated hereby will comply as to form in
all material respects with the provisions of applicable Law.
5.18 Accounting, Tax and Regulatory Matters. No PURCHASER Company or any
--------------------------------------
Affiliate thereof has taken any action or has any Knowledge of any fact or
circumstance that is reasonably likely to (a) prevent the transactions
contemplated hereby, including the Merger, from qualifying as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code, or (b)
materially impede or delay receipt of any Consents of Regulatory Authorities
referred to in Section 9.1(b) of this Agreement or result in the imposition of a
condition or restriction of the type referred to in the second sentence of such
Section. To the Knowledge of PURCHASER, there exists no fact, circumstance, or
reason why the requisite Consents referred to in Section 9.1(b) of this
Agreement cannot be received in a timely manner without the imposition of any
condition or restriction of the type described in the second sentence of such
Section 9.1(b).
5.19 Charter Provisions. Each PURCHASER Company has taken all action so
------------------
that the entering into of this Agreement and the consummation of the Merger and
the other transactions contemplated by this Agreement do not and will not result
in the grant of any rights to any Person under the Articles of Incorporation,
Bylaws or other governing instruments of any PURCHASER Company or restrict or
impair the ability of any TARGET shareholder to vote, or otherwise to exercise
the rights of a shareholder with respect to, shares of PURCHASER Common Stock
that may be acquired or controlled by it.
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ARTICLE 6
CONDUCT OF BUSINESS PENDING CONSUMMATION
----------------------------------------
6.1 Affirmative Covenants of TARGET. Unless the prior written consent of
-------------------------------
PURCHASER shall have been obtained, and except as otherwise contemplated herein,
TARGET shall, and shall cause each of its Subsidiaries: (a) to operate its
business in the usual, regular, and ordinary course; (b) to preserve intact its
business organization and Assets and maintain its rights and franchises; (c) to
use its reasonable efforts to cause its representations and warranties to be
correct at all times; and (d) to take no action which would (i) adversely affect
the ability of any Party to obtain any Consents required for the transactions
contemplated hereby without imposition of a condition or restriction of the type
referred to in the second sentence of Section 8.1(b) of this Agreement or (ii)
adversely affect in any material respect the ability of either Party to perform
its covenants and agreements under this Agreement.
6.2 Negative Covenants of TARGET. From the date of this Agreement until the
----------------------------
earlier of the Effective Time or the termination of this Agreement, TARGET
covenants and agrees that it will not do or agree or commit to do, or permit any
of its Subsidiaries to do or agree or commit to do, any of the following without
the prior written consent of the chief executive officer or chief financial
officer of PURCHASER, which consent shall not be unreasonably withheld:
(a) amend the Articles of Incorporation, Bylaws or other governing
instruments of any TARGET Company; or
(b) incur any additional debt obligation or other obligation for borrowed
money (other than indebtedness of a TARGET Company to another TARGET Company) in
excess of an aggregate of $50,000 (for the TARGET Companies on a consolidated
basis) except in the ordinary course of the business of TARGET Companies
consistent with past practices (which shall include, for TARGET Subsidiaries
that are depository institutions, creation of deposit liabilities, purchases of
federal funds, receipt of Federal Home Loan Bank advances, and entry into
repurchase agreements fully secured by U.S. government or agency securities), or
impose, or suffer the imposition, on any share of stock held by any TARGET
Company of any Lien or permit any such Lien to exist; or
(c) repurchase, redeem, or otherwise acquire or exchange (other than
exchanges in the ordinary course under employee benefit plans), directly or
indirectly, any shares, or any securities convertible into any shares, of the
capital stock of any TARGET Company, or declare or pay any dividend or make any
other distribution in respect of TARGET's capital stock; or
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(d) except for the issuance of TARGET Options to purchase 4,874 shares of
TARGET Common Stock at an exercise price of $11.08 per share to the Bank's
President and Chief Executive Officer, Raymond B. Phillips ("Mr. Phillips"), or
as otherwise permitted hereby, or as Previously Disclosed, issue, sell, pledge,
encumber, authorize the issuance of, or enter into any Contract to issue, sell,
pledge, encumber, or authorize the issuance of or otherwise permit to become
outstanding, any additional shares of TARGET Common Stock or any other capital
stock of any TARGET Company, or any stock appreciation rights, or any option,
warrant, conversion, or other right to acquire any such stock, or any security
convertible into any such stock; or
(e) adjust, split, combine or reclassify any capital stock of any TARGET
Company or issue or authorize the issuance of any other securities in respect of
or in substitution for shares of TARGET Common Stock or sell, lease, mortgage or
otherwise dispose of or otherwise encumber (i) any shares of capital stock of
any TARGET Subsidiary (unless any such shares of stock are sold or otherwise
transferred to another TARGET Company) or (ii) any Asset having a book value in
excess of $50,000 other than in the ordinary course of business for reasonable
and adequate consideration; or
(f) acquire direct or indirect control over any Person, other than in
connection with (i) internal reorganizations or consolidations involving
existing Subsidiaries, (ii) foreclosures in the ordinary course of business, or
(iii) acquisitions of control by a depository institution Subsidiary in its
fiduciary capacity; or
(g) grant any increase in compensation or benefits to the employees or
officers of any TARGET Company (including such discretionary increases as may be
contemplated by existing employment agreements), except in accordance with past
practice Previously Disclosed or as required by Law; pay any bonus except for
any bonus properly payable to Mr. Phillips under the Employment Agreement dated
December 20, 1993 between the Bank and Mr. Phillips or otherwise payable in
accordance with past practice Previously Disclosed or the provisions of any
applicable program or plan adopted by its Board of Directors prior to the date
of this Agreement; enter into or amend any severance agreements with officers of
any TARGET Company; grant any increase in fees or other increases in
compensation or other benefits to directors of any TARGET Company or in
accordance with past practice Previously Disclosed; or
(h) enter into or amend any employment Contract between any TARGET
Company and any Person (unless such amendment is required by Law) that the
TARGET Company does not have the unconditional right to terminate without
Liability (other than Liability for services already rendered), at any time on
or after the Effective Time; or
31
<PAGE>
(i) adopt any new employee benefit plan of any TARGET Company or make any
material change in or to any existing employee benefit plans of any TARGET
Company other than any such change that is required by Law or that, in the
opinion of counsel, is necessary or advisable to maintain the tax qualified
status of any such plan; or
(j) make any significant change in any accounting methods or systems of
internal accounting controls, except as may be appropriate to conform to changes
in regulatory accounting requirements or GAAP; or
(k) commence any Litigation other than in accordance with past practice,
settle any Litigation involving any Liability of any TARGET Company for money
damages in excess of $50,000 or which involves material restrictions upon the
operations of any TARGET Company; or
(l) except in the ordinary course of business, modify, amend or terminate
any material Contract or waive, release, compromise or assign any material
rights or claims.
6.3 Covenants of PURCHASER. From the date of this Agreement until the earlier
----------------------
of the Effective Time or the termination of this Agreement, PURCHASER covenants
and agrees that it shall continue to conduct its business and the business of
its Subsidiaries in a manner designed in its reasonable judgment, to enhance the
long-term value of the PURCHASER Common Stock and the business prospects of the
PURCHASER Companies and, to the extent consistent therewith, to use all
reasonable efforts to preserve intact the PURCHASER Companies' core businesses
and goodwill with their respective employees and the communities they serve.
6.4 Adverse Changes in Condition. Each Party agrees to give written notice
----------------------------
promptly to the other Party upon becoming aware of the occurrence or impending
occurrence of any event or circumstance relating to it or any of its
Subsidiaries which (a) is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on it or (b) is reasonably likely to cause
or constitute a material breach of any of its representations, warranties, or
covenants contained herein, and to use its reasonable efforts to prevent or
promptly to remedy the same.
6.5 Reports. Each Party and its Subsidiaries shall file all reports required
-------
to be filed by it with Regulatory Authorities between the date of this Agreement
and the Effective Time and shall deliver to the other Party copies of all such
reports promptly after the same are filed. If financial statements are
contained in any such reports filed with the SEC, such financial statements will
fairly present the consolidated financial position of the
32
<PAGE>
entity filing such statements as of the dates indicated and the consolidated
results of operations, changes in shareholders' equity, and cash flows for the
periods then ended in accordance with GAAP (subject in the case of interim
financial statements to normal recurring year-end adjustments that are not
material). As of their respective dates, such reports filed with the SEC will
comply in all material respects with the Securities Laws and will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Any financial statements contained in any other reports to another
Regulatory Authority shall be prepared in accordance with Laws applicable to
such reports.
ARTICLE 7
ADDITIONAL AGREEMENTS
---------------------
7.1 Registration Statement; Proxy Statement; Shareholder Approval. As soon
-------------------------------------------------------------
as practicable after execution of this Agreement, PURCHASER shall file the
Registration Statement with the SEC, and shall use its best efforts to cause the
Registration Statement to become effective under the 1933 Act and take any
action required to be taken under the applicable state Blue Sky or securities
Laws in connection with the issuance of the shares of PURCHASER Common Stock
upon consummation of the Merger. TARGET shall furnish all information
concerning it and the holders of its capital stock as PURCHASER may reasonably
request in connection with such action. TARGET shall call a Shareholders'
Meeting, to be held as soon as reasonably practicable after the Registration
Statement is declared effective by the SEC, for the purpose of voting upon
approval of the merger and this Agreement and such other related matters as it
deems appropriate. In connection with the Shareholders' Meeting, (a) PURCHASER
shall prepare and file on TARGET's behalf a Proxy Statement (which shall be
included in the Registration Statement) with the SEC and mail it to its
shareholders, (b) the Parties shall furnish to each other all information
concerning them that they may reasonably request in connection with such Proxy
Statement, (c) the Board of Directors of TARGET shall recommend (subject to
compliance with their fiduciary duties as advised by counsel) to its
shareholders that they approve this Agreement, and (d) the Board of Directors
and officers of TARGET shall use their reasonable efforts to obtain such
shareholders' approval (subject to compliance with their fiduciary duties as
advised by counsel).
7.2 Listing. PURCHASER shall use its best efforts to list, prior to the
-------
Effective Time, on NASDAQ, the shares of PURCHASER Common Stock to be issued to
the holders of TARGET Common Stock pursuant to the Merger.
7.3 Applications. PURCHASER shall promptly prepare and file, and TARGET
------------
shall cooperate in the preparation and, where appropriate, filing of,
applications with all
33
<PAGE>
Regulatory Authorities having jurisdiction over the transactions contemplated by
this Agreement seeking the requisite Consents necessary to consummate the
transactions contemplated by this Agreement.
7.4 Filings with State Offices. Upon the terms and subject to the conditions
--------------------------
of this Agreement, PURCHASER shall execute and file the Georgia Articles of
Merger with the Secretary of State of the State of Georgia in connection with
the Closing.
7.5 Agreement as to Efforts to Consummate. Subject to the terms and
-------------------------------------
conditions of this Agreement, each Party agrees to use, and to cause its
Subsidiaries to use, its best efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper, or
advisable under applicable Laws, as promptly as practicable so as to permit
consummation of the Merger at the earliest possible date and to otherwise enable
consummation of the transactions contemplated hereby and shall cooperate fully
with the other Party hereto to that end (it being understood that any amendments
to the Registration Statement filed by PURCHASER in connection with the
PURCHASER Common Stock to be issued in the Merger or a resolicitation of proxies
as a consequence of an acquisition agreement by PURCHASER or any of its
Subsidiaries shall not violate this covenant), including, without limitation,
using its efforts to lift or rescind any Order adversely affecting its ability
to consummate the transactions contemplated herein and to cause to be satisfied
the conditions referred to in Article 9 of this Agreement. Each Party shall
use, and shall cause each of its Subsidiaries to use, its best efforts to obtain
all Consents necessary or desirable for the consummation of the transactions
contemplated by this Agreement.
7.6 Investigation and Confidentiality.
---------------------------------
(a) Prior to the Effective Time, each Party will keep the other Party
advised of all material developments relevant to its business and to
consummation of the Merger and shall permit the other Party to make or cause to
be made such investigation of the business and properties of it and its
Subsidiaries and of their respective financial and legal conditions as the other
Party reasonably requests, provided that such investigation shall be reasonably
related to the transactions contemplated hereby and shall not interfere
unnecessarily with normal operations. No investigation by a Party shall affect
the representations and warranties of the other Party.
(b) Except as may be required by applicable Law or legal process, and
except for such disclosure to those of its directors, officers, employees and
representatives as may be appropriate or required in connection with the
transactions contemplated hereby, each Party shall hold in confidence all
nonpublic information obtained from the other Party (including work papers and
other material derived therefrom) as a result of this Agreement or in connection
with the transactions contemplated hereby (whether so obtained before or
34
<PAGE>
after the execution hereof) until such time as the Party providing such
information consents to its disclosure or such information becomes otherwise
publicly available. Promptly following any termination of this Agreement, each
of the Parties agrees to use its best efforts to cause its respective directors,
officers, employees and representatives to destroy or return to the providing
party all such nonpublic information (including work papers and other material
retrieved therefrom), including all copies thereof. Each Party shall, and shall
cause its advisers and agents to, maintain the confidentiality of all
confidential information furnished to it by the other Party concerning its and
its Subsidiaries' businesses, operations, and financial positions and shall not
use such information for any purpose except in furtherance of the transactions
contemplated by this Agreement. If this Agreement is terminated prior to the
Effective Time, each Party shall promptly return all documents and copies
thereof and all work papers containing confidential information received from
the other Party, except one copy of certain materials that can be retained for
legal files in accordance with the provisions of the Confidentiality Agreements.
(c) Each Party agrees to give the other Party notice as soon as
practicable after any determination by it of any fact or occurrence relating to
the other Party which it has discovered through the course of its investigation
and which represents, or is reasonably likely to represent, either a material
breach of any representation, warranty, covenant or agreement of the other Party
or which has had or is reasonably likely to have a Material Adverse Effect on
the other Party.
(d) It is hereby agreed that this Section 7.6 shall supersede in its
entirety that certain Confidentiality Agreement dated April 9, 1996, between
PURCHASER and TARGET.
7.7 Press Releases. Prior to the Effective Time, TARGET and PURCHASER shall
--------------
consult with each other as to the form and substance of any press release or
other public disclosure materially related to this Agreement or any other
transaction contemplated hereby; provided, however, that nothing in this
Section 7.7 shall be deemed to prohibit any Party from making any disclosure
which its counsel deems necessary or advisable in order to satisfy such Party's
disclosure obligations imposed by Law.
7.8 No Solicitation. (a) TARGET shall not, nor shall it permit any of its
---------------
Subsidiaries to, nor shall it authorize or permit any officer, director of
employee of, or any investment banker, attorney or other advisor or
representative of, TARGET or any of its Subsidiaries to, (i) solicit or
initiate, or encourage the submission of, any takeover proposal or (ii)
participate in any discussions or negotiations regarding, or furnish to any
person any information with respect to, or take any other action to facilitate
any inquiries or the making of any proposal that constitutes, or may reasonably
be expected to lead to, any takeover proposal; provided, however, that, if in
the opinion of its Board of Directors, after
35
<PAGE>
consultation with counsel, such failure to act would be inconsistent with its
fiduciary duties to shareholders under applicable law, TARGET may, in response
to an unsolicited takeover proposal, and subject to compliance with subparagraph
(c) below, (A) furnish information with respect to TARGET to any Person pursuant
to a confidentiality agreement and (B) participate in negotiations regarding
such takeover proposal. Without limiting the foregoing, it is understood that
any violation of the restrictions set forth in the immediately preceding
sentence by any executive officer of TARGET or any of its Subsidiaries or any
investment banker, attorney or other advisor or representative of TARGET or any
of its Subsidiaries, whether or not such person is purporting to act on behalf
of TARGET or any of its Subsidiaries or otherwise, shall be deemed to be a
breach of this Section 7.8 by TARGET. For purposes of this Agreement, "takeover
proposal" means an inquiry, proposal or acquisition or purchase of a substantial
amount of assets of TARGET or any of its Subsidiaries (other than investors in
the ordinary course of business) or of over 20% of any class of equity
securities of TARGET or any of its Subsidiaries or any tender offer or exchange
offer that if consummated would result in any Person beneficially owning 20% or
more of any class of equity securities of TARGET or any of its Subsidiaries, or
any merger, consolidation, business combination, sale of substantially all
assets, recapitalization, liquidation, dissolution or similar transaction
involving TARGET or any of its Subsidiaries other than the transactions
contemplated by this Agreement, or any other transaction the consummation of
which would reasonably be expected to impede, interfere with, prevent or
materially delay the Merger or which would reasonably be expected to dilute
materially the benefits to PURCHASER of the transactions contemplated hereby.
(b) Except as set forth herein, neither the Board of Directors of TARGET nor
any committee thereof shall (i) withdraw or modify, or propose to withdraw or
modify, in a manner adverse to PURCHASER, the approval or recommendation of such
Board of Directors or any such committee of this Agreement or the Merger,
(ii) approve or recommend, or propose to approve or recommend, any takeover
proposal or (iii) enter into any agreement with respect to any takeover
proposal. Notwithstanding the foregoing, if in the opinion of the TARGET Board
of Directors, after consultation with counsel, failure to do so would be
inconsistent with its fiduciary duties to TARGET shareholders under applicable
law, then, prior to the Shareholders' Meeting, the TARGET Board of Directors may
(subject to the terms of this and the following sentences) withdraw or modify
its approval or recommendation of this Agreement or the Merger, approve or
recommend a superior proposal, or enter into an agreement with respect to a
superior proposal, in each case at any time after the second business day
following PURCHASER's receipt of written notice (a "Notice of Superior
Proposal") advising PURCHASER that the TARGET Board of Directors has received a
superior proposal, specifying the material terms and conditions of such superior
proposal and identifying the Person making such superior proposal; provided that
TARGET shall not enter into an agreement with respect to a superior proposal
unless TARGET shall have furnished PURCHASER with written notice no later than
12:00 noon
36
<PAGE>
one (1) day in advance of any date that it intends to enter into such agreement.
In addition, if TARGET proposes to enter into an agreement with respect to any
takeover proposal, it shall concurrently with entering into such agreement pay,
or cause to be paid, to PURCHASER the Expenses and the Termination Fee (as
defined in Section 10.2(b). For purposes of this Agreement, a "superior
proposal" means any bona fide takeover proposal to acquire, directly or
indirectly, for consideration consisting of cash and/or securities, more than
50% of the shares of TARGET Common Stock or TARGET Bank then outstanding or all
or substantially all of the assets of TARGET or TARGET Bank and otherwise on
terms which the TARGET Board of Directors determines in its good faith judgment
(based on the advice of a financial advisor of recognized reputation) to be more
favorable to its shareholders than the Merger.
(c) In addition to the obligations of TARGET set forth in paragraph (b) above,
TARGET shall immediately advise PURCHASER orally and in writing of any request
for information or of any takeover proposal, or any inquiry with respect to or
which could lead to any takeover proposal, the material terms and conditions of
such request, takeover proposal or inquiry, and the identity of the person
making any takeover proposal or inquiry. TARGET shall keep PURCHASER fully
informed of the status and details (including amendments or proposed amendments)
of any such request, takeover proposal or inquiry.
(d) Nothing contained in this Section 7.8 shall prohibit TARGET from making
any disclosure to TARGET's shareholders if, in the opinion of the TARGET Board
of Directors, after consultation with counsel, failure to so disclose would be
inconsistent with its fiduciary duties to its shareholders under applicable law;
provided that TARGET does not, except as permitted by subparagraph (b) above,
withdraw or modify, or propose to withdraw or modify, its position with respect
to the Merger or approve or recommend, or propose to approve or recommend, a
takeover proposal.
7.9 Tax Treatment. Each of the Parties undertakes and agrees to use its
-------------
reasonable efforts to cause the Merger, and to take no action which would cause
the Merger not, to qualify for treatment as a "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code for federal income tax
purposes.
7.10 Agreement of Affiliates. TARGET has Previously Disclosed all
-----------------------
Persons whom it reasonably believes are "affiliates" of TARGET for purposes of
Rule 145 under the 1933 Act. TARGET shall use its reasonable efforts to cause
each such Person to deliver to PURCHASER not later than thirty (30) days after
the date of this Agreement, a written agreement, substantially in the form of
Exhibit 2 hereto, providing that such Person will not sell, pledge, transfer, or
otherwise dispose of the shares of TARGET Common Stock held by such Person
except as contemplated by such agreement or by this Agreement and will not sell,
pledge, transfer, or otherwise dispose of the shares of PURCHASER Common Stock
to
37
<PAGE>
be received by such Person upon consummation of the Merger except in
compliance with applicable provisions of the 1933 Act and the rules and
regulations thereunder. Regardless of whether each such affiliate has provided
the written agreement referred to in this Section, PURCHASER shall be entitled
to place restrictive legends upon certificates for shares of PURCHASER Common
Stock issued to affiliates of TARGET pursuant to this Agreement to enforce the
provisions of this Section.
7.11 Employee Benefits and Contracts. Following the Effective Time,
-------------------------------
PURCHASER shall provide generally to officers and employees of the TARGET
Companies employee benefits under employee benefit plans (other than stock
option or other plans involving the potential issuance of PURCHASER Common
Stock), on terms and conditions which when taken as a whole are substantially
similar to those currently provided by the PURCHASER Companies to their
similarly situated officers and employees, provided that for a period of twelve
(12) months after the Effective Time, PURCHASER shall provide generally to
officers and employees of TARGET Companies severance benefits in accordance with
the policies of either (i) TARGET as Previously Disclosed, or (ii) PURCHASER,
whichever of (i) or (ii) will provide the greater benefit to the officer or
employee. For purposes of participation and vesting under such employee benefit
plans, the service of the employees of the TARGET Companies prior to the
Effective Time shall be treated as service with a PURCHASER Company
participating in such employee benefit plans. PURCHASER also shall honor in
accordance with their terms all employment, severance, consulting and other
compensation Contracts Previously Disclosed to PURCHASER between any TARGET
Company and any current or former director, officer, or employee thereof and all
provisions for vested benefits or other vested amounts earned or accrued through
the Effective Time under the TARGET Benefit Plans.
7.12 Large Deposits. Prior to the Closing, TARGET will provide PURCHASER
--------------
with a list of all certificates of deposit or checking, savings or other
deposits owned by persons who, to the Knowledge of the TARGET, had deposits
aggregating more than $100,000 and a list of all certificates of deposit or
checking, savings or other deposits owned by directors and officers of TARGET
and the Bank and their affiliates in an amount aggregating more than $100,000 as
of the last day of the calendar month immediately prior to the Closing.
7.13 Indemnification. PURCHASER agrees that all rights to
---------------
indemnification and all limitations of liability existing in favor of the
officers and directors of TARGET and TARGET Bank ("Indemnified Parties") as
provided in their respective articles of incorporation and bylaws as of the date
hereof with respect to matters occurring prior to the Effective Time shall
survive the Merger and shall continue in full force and effect, without any
amendment thereto, for a period of not less than six (6) years from the
Effective Time;
38
<PAGE>
provided, however, that all rights to any indemnification in respect of any
claim asserted or made within such period shall continue until the final
disposition of such claim.
7.14 Irrevocable Proxies. Concurrent with the execution hereof, TARGET
-------------------
shall obtain and deliver to PURCHASER irrevocable proxies in substantially the
form of Exhibit 3 hereto from each member of TARGET's Board of Directors.
7.15 Noncompetition Agreements. TARGET shall use its best efforts to
-------------------------
cause Mr. Phillips and each other member of its Board of Directors to execute
and deliver to PURCHASER, on or before the Closing Date, Noncompetition
Agreements substantially in the forms attached hereto as Exhibits 4 and 4A,
respectively.
7.16 TARGET Options and Warrants. TARGET shall use its best efforts to
---------------------------
cause (i) each Holder of TARGET Warrants listed on Exhibit 1 hereto to execute
and deliver to PURCHASER, on or before the Closing Date, a letter in the form of
Exhibit 5 hereto signed by such Holder, and (ii) each Holder of TARGET Options
listed on Exhibit 1 hereto to execute and deliver to PURCHASER, on or before the
Closing Date, a letter in the form of Exhibit 6 hereto signed by such Holder.
ARTICLE 8
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
-------------------------------------------------
8.1 Conditions to Obligations of Each Party. The respective obligations of
---------------------------------------
each Party to perform this Agreement and consummate the Merger and the other
transactions contemplated hereby are subject to the satisfaction of the
following conditions, unless waived by both Parties pursuant to Section 10.6 of
this Agreement:
(a) Shareholder Approval. The shareholders of TARGET shall have approved
--------------------
this Agreement, and the consummation of the transactions contemplated hereby,
including the Merger, as and to the extent required by Law or by the provisions
of any governing instruments.
(b) Regulatory Approvals. All Consents of, filings and registrations
--------------------
with, and notifications to, all Regulatory Authorities required for consummation
of the Merger shall have been obtained or made and shall be in full force and
effect, and all waiting periods required by Law shall have expired. No Consent
obtained from any Regulatory Authority which is necessary to consummate the
transactions contemplated hereby shall be conditioned or restricted in a manner
(including, without limitation, requirements relating to the raising of
additional capital or the disposition of Assets) which, in the reasonable
judgment of the Board of Directors of either Party, would so materially
adversely impact the economic or business benefits of the transactions
contemplated by this Agreement so as to
39
<PAGE>
render inadvisable the consummation of the Merger; provided, however, that no
such condition or restriction shall be deemed to be materially adverse unless it
materially differs from terms and conditions customarily imposed by any
Regulatory Authority in connection with similar transactions.
(c) Consents and Approvals. Each Party shall have obtained any and all
----------------------
Consents required for consummation of the Merger (other than those referred to
in Section 8.1(b) of this Agreement) or for the preventing of any Default under
any Contract or Permit of such Party which, if not obtained or made, is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on such Party.
(d) Legal Proceedings. No court or governmental or regulatory authority
-----------------
of competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any Law or Order (whether temporary, preliminary or permanent) or taken
any other action which prohibits, materially restricts or makes illegal
consummation of the transactions contemplated by this Agreement.
(e) Registration Statement. The Registration Statement shall be
----------------------
effective under the 1933 Act, no stop orders suspending the effectiveness of the
Registration Statement shall have been issued, no action, suit, proceeding or
investigation by the SEC to suspend the effectiveness thereof shall have been
initiated and be continuing, and all necessary approvals under state securities
Laws or the 1933 Act or 1934 Act relating to the issuance or trading of the
shares of PURCHASER Common Stock issuable pursuant to the Merger shall have been
received.
(f) NASDAQ Listing. The shares of PURCHASER Common Stock issuable
--------------
pursuant to the Merger shall have been approved for listing on NASDAQ.
(g) Tax Matters. TARGET shall have received a written opinion of counsel
-----------
from Rogers & Hardin, in form reasonably satisfactory to it, substantially to
the effect that for federal income tax purposes (a) the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code, and (b) the exchange in the Merger of TARGET Common Stock for PURCHASER
Common Stock will not give rise to gain or loss to the shareholders of TARGET
with respect to such exchange (except to the extent of any cash received).
8.2 Conditions to Obligations of PURCHASER. The obligations of PURCHASER to
--------------------------------------
perform this Agreement and consummate the Merger and the other transactions
contemplated hereby are subject to the satisfaction of the following conditions,
unless waived by PURCHASER pursuant to Section 10.6(a) of this Agreement:
40
<PAGE>
(a) Representations and Warranties. The representations and warranties
------------------------------
of TARGET set forth or referred to in this Agreement shall be true and correct
in all respects as of the date of this Agreement and as of the Effective Time
with the same effect as though all such representations and warranties had been
made on and as of the Effective Time (provided that representations and
warranties which are confined to a specified date shall speak only as of such
date), except (i) as expressly contemplated by this Agreement, or (ii) for
representations and warranties (other than the representations and warranties
set forth in Section 4.3 of this Agreement, which shall be true in all respects)
the inaccuracies of which relate to matters that are not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on TARGET.
(b) Performance of Agreements and Covenants. Each and all of the
---------------------------------------
agreements and covenants of TARGET to be performed and complied with pursuant to
this Agreement and the other agreements contemplated hereby prior to the
Effective Time shall have been duly performed and complied with in all material
respects.
(c) TARGET shall have delivered to PURCHASER (i) a certificate, dated as
of the Effective Time and signed on its behalf by its chief executive officer,
to the effect that the conditions of its obligations set forth in
Sections 8.2(a) and 8.2(b) of this Agreement have been satisfied, and
(ii) certified copies of resolutions duly adopted by TARGET's Board of Directors
and shareholders evidencing the taking of all corporate action necessary to
authorize the execution, delivery and performance of this Agreement, and the
consummation of the transactions contemplated hereby, all in such reasonable
detail as PURCHASER and its counsel shall reasonably request.
(d) Opinion of Counsel. TARGET shall have delivered to PURCHASER an
------------------
opinion of Smith, Gambrell & Russell, counsel to TARGET, dated as of the
Closing, in substantially the form of Exhibit 7 hereto.
(e) Accountant's Letters. PURCHASER shall have received from Mauldin &
--------------------
Jenkins letters dated not more than five (5) days prior to (i) the date of the
Proxy Statement and (ii) the Effective Time, with respect to certain financial
information regarding TARGET, in form and substance reasonably satisfactory to
PURCHASER, which letters shall be based upon customary specified procedures
undertaken by such firm.
(f) Noncompetition Agreements. Mr. Phillips and each other member of
-------------------------
TARGET's Board of Directors shall have executed and delivered a Noncompetition
Agreement substantially in the forms of Exhibits 4 and 4A, respectively.
41
<PAGE>
(g) Dissenting Shareholders. Holders of not more than seven and one-half
-----------------------
(7.5%) percent of the issued and outstanding TARGET Common Stock shall have
timely filed written notice with TARGET that they intend to demand payment for
their shares.
(h) Opinion of Accountant. PURCHASER shall have received an opinion of
---------------------
Mauldin & Jenkins to the effect that the Merger qualifies for a pooling of
interests within the meaning of APB No. 16 if consummated in accordance with
this Agreement.
(i) Letters from Holders. PURCHASER shall have received from each Holder
--------------------
of TARGET Warrants a letter substantially in the form of Exhibit 5 hereto and
shall have received from each Holder of TARGET Options a letter substantially in
the form of Exhibit 6 hereto, in each case signed by such Holder.
8.3 Conditions to Obligations of TARGET. The obligations of TARGET to
-----------------------------------
perform this Agreement and consummate the Merger and the other transactions
contemplated hereby are subject to the satisfaction of the following conditions,
unless waived by TARGET pursuant to Section 10.6(b) of this Agreement:
(a) Representations and Warranties. The representations and warranties
------------------------------
of PURCHASER set forth or referred to in this Agreement shall be true and
correct in all respects as of the date of this Agreement and as of the Effective
Time with the same effect as though all such representations and warranties had
been made on and as of the Effective Time (provided that representations and
warranties which are confined to a specified date shall speak only as of such
date), except (i) as expressly contemplated by this Agreement, or (ii) for
representations and warranties (other than the representations and warranties
set forth in Section 5.3 of this Agreement, which shall be true in all respects)
the inaccuracies of which relate to matters that are not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on PURCHASER.
(b) Performance of Agreements and Covenants. Each and all of the
---------------------------------------
agreements and covenants of PURCHASER to be performed and complied with pursuant
to this Agreement and the other agreements contemplated hereby prior to the
Effective Time shall have been duly performed and complied with in all material
respects.
(c) Certificates. PURCHASER shall have delivered to TARGET (i) a
------------
certificate, dated as of the Effective Time and signed on its behalf by its
chief executive officer and its chief financial officer, to the effect that the
conditions of its obligations set forth in Section 8.3(a) and 8.3(b) of this
Agreement have been satisfied, and (ii) certified copies of resolutions duly
adopted by PURCHASER's Board of Directors evidencing the taking of all corporate
action necessary to authorize the execution, delivery and performance
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of this Agreement, and the consummation of the transactions contemplated hereby,
all in such reasonable detail as TARGET and its counsel shall reasonably
request.
(d) Opinion of Counsel. PURCHASER shall have delivered to TARGET an
------------------
opinion of Rogers & Hardin, counsel to PURCHASER, dated as of the Closing, in
substantially the form of Exhibit 4 hereto.
ARTICLE 9
TERMINATION
-----------
9.1 Termination. Notwithstanding any other provision of this Agreement, and
-----------
notwithstanding the approval of this Agreement by the shareholders of TARGET,
this Agreement may be terminated and the Merger abandoned at any time prior to
the Effective Time:
(a) By mutual consent of the Board of Directors of PURCHASER and the
Board of Directors of TARGET; or
(b) By the Board of Directors of either Party (provided that the
terminating Party is not then in material breach of any representation,
warranty, covenant, or other agreement contained in this Agreement) in the event
of a material breach by the other Party of any representation or warranty
contained in this Agreement which cannot be or has not been cured within thirty
(30) days after the giving of written notice to the breaching Party of such
breach and which breach would provide the non-breaching party the ability to
refuse to consummate the Merger under the standard set forth in Section 8.2(a)
of this Agreement in the case of PURCHASER and Section 8.3(a) of this Agreement
in the case of TARGET; or
(c) By the Board of Directors of either Party (provided that the
terminating Party is not then in material breach of any representation,
warranty, covenant, or other agreement contained in this Agreement) in the event
of a material breach by the other Party of any covenant or agreement contained
in this Agreement which cannot be or has not been cured within (30) days after
the giving of written notice to the breaching Party of such breach; or
(d) By the Board of Directors of either Party (provided that the
terminating Party is not then in material breach of any representation,
warranty, covenant, or other agreement contained in this Agreement) in the event
(i) any Consent of any Regulatory Authority required for consummation of the
Merger and the other transactions contemplated hereby has been denied by final
nonappealable action of such authority or if any action taken by such authority
is not appealed within the time limit for appeal, or (ii)
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if the shareholders of TARGET fail to approve this Agreement and the
transactions contemplated hereby as required by the GBCC at the Shareholders'
Meetings where the transactions were presented to such shareholders for approval
and voted upon; or
(e) By the Board of Directors of either Party in the event that the
Merger shall not have been consummated by November 1, 1996 but only if the
failure to consummate the transactions contemplated hereby on or before such
date is not caused by any breach of this Agreement by the Party electing to
terminate pursuant to this Section 9.1 (e); or
(f) By the Board of Directors of either Party (provided that the
terminating Party is not then in material breach of any representation,
warranty, covenant, or other agreement contained in this Agreement) in the event
that any of the conditions precedent to the obligations of such Party to
consummate the Merger cannot be satisfied or fulfilled by the date specified in
Section 9.1(e) of this Agreement.
(g) By the Board of Directors of TARGET in connection with entering into
a definitive agreement in accordance with Section 7.8(b), provided that it has
complied with all provisions thereof, including the notice provisions therein,
and that it makes simultaneous payment of the Expenses and the Termination Fee.
9.2 Effect of Termination. In the event of the termination and abandonment
---------------------
of this Agreement pursuant to Section 9.1 of this Agreement, this Agreement
shall become void and have no effect, except (i) as provided in Section 10.14,
and (ii) a termination pursuant to Section 9.1 of this Agreement shall not
relieve the breaching Party from Liability for an uncured willful breach of a
representation, warranty, covenant, or agreement giving rise to such
termination.
ARTICLE 10
MISCELLANEOUS
-------------
10.1 Definitions. Except as otherwise provided herein, the capitalized
-----------
terms set forth below (in their singular and plural forms as applicable) shall
have the following meanings:
"Acquisition Proposal" with respect to a Party shall mean any tender offer or
exchange offer or any proposal for a merger, acquisition of all of the stock or
Assets of, or other business combination involving such Party or any of its
Subsidiaries or the acquisition of a substantial equity interest in, or a
substantial portion of the Assets of, such Party or any of its Subsidiaries.
44
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"Affiliate" of a Person shall mean: (a) any other Person directly, or
indirectly through one or more intermediaries, controlling, controlled by or
under common control with such Person or (b) any officer, director, partner,
employer, or direct or indirect beneficial owner of any 10% or greater equity or
voting interest of such Person.
"Aggregate Option Consideration" shall mean the aggregate exercise price of
all options and warrants to purchase TARGET Common Stock outstanding immediately
prior to the Effective Time (whether or not such option or warrant is then
exercisable).
"Aggregate TARGET Shares" shall mean the aggregate number of outstanding
shares of TARGET Common Stock plus the aggregate number of Option Shares
outstanding immediately prior to the Effective Time.
"Agreement" shall mean this Agreement and Plan of Merger and the Exhibits
delivered pursuant hereto and incorporated herein by reference.
"Assets" of a Person shall mean all of the assets, properties, businesses and
rights of such Person of every kind, nature, character and description, whether
real, personal or mixed, tangible or intangible, accrued or contingent, or
otherwise relating to or utilized in such Person's business, directly or
indirectly, in whole or in part, whether or not carried on the books and records
of such Person, and whether or not owned in the name of such Person or any
Affiliate of such Person and wherever located.
"Base Period Trading Price" shall mean the average of the daily high and low
sales prices of a share of PURCHASER Common Stock as reported on NASDAQ for the
twenty (20) consecutive trading days immediately preceding five (5) consecutive
calendar days immediately preceding the Effective Time; provided however, that
for purposes of this calculation, the Base Period Trading Price shall be deemed
to equal (i) $16.00 in the event the Base Period Trading Price is greater than
$16.00 or (ii) $12.00 in the event the Base Period Trading Price is less than
$12.00.
"Bank" shall have the meaning provided in the Preamble to this Agreement.
"BHC Act" shall mean the federal Bank Holding Company Act of 1956, as amended.
"Closing" shall mean the closing of the transactions contemplated hereby, as
described in Section 1.2 of this Agreement.
"Closing Date" shall have the meaning provided in Section 1.2 of this
Agreement.
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"Consent" shall mean any consent, approval, authorization, clearance,
exemption, waiver, or similar affirmation by any Person pursuant to any
Contract, Law, Order, or Permit.
"Contract" shall mean any written or oral agreement, arrangement,
authorization, commitment, contract, indenture, instrument, lease, obligation,
plan, practice, restriction, understanding or undertaking of any kind or
character, or other document to which any Person is a party or that is binding
on any Person or its capital stock, Assets or business.
"Default" shall mean (a) any breach or violation of or default under any
Contract, Order or Permit, (b) any occurrence of any event that with the passage
of time or the giving of notice or both would constitute a breach or violation
of or default under any Contract, Order or Permit, or (c) any occurrence of any
event that with or without the passage of or the giving of notice would give
rise to a right to terminate or revoke, change the current terms of, or
renegotiate, or to accelerate, increase, or impose any Liability under, any
Contract, Order or Permit.
"Dissenting Shares" shall have the meaning provided in Section 3.1(b) of this
Agreement.
"Dissenting TARGET Shareholders" shall have the meaning provided in Section
3.1(l) of this Agreement.
"Effective Time" shall mean the date and time at which the Merger becomes
effective as defined in Section 1.3 of this Agreement.
"Environmental Laws" shall mean all Laws which are administered, interpreted
or enforced by the United States Environmental Protection Agency and state and
local agencies with primary jurisdiction over pollution or protection of the
environment.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Plan" shall have the meaning provided in Section 4.14 of this
Agreement.
"Exchange Agent" shall have the meaning provided in Section 3.2 of this
Agreement.
"Exchange Ratio" shall have the meaning provided in Section 3.1(b) of this
Agreement.
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<PAGE>
"Exhibits" 1 through 3, inclusive, shall mean the Exhibits so marked, copies
of which are attached to this Agreement. Such Exhibits are hereby incorporated
by reference herein and made a part hereof and may be referred to in this
Agreement and any other related instrument or document without being attached
hereto.
"Expenses" shall have the meaning provided in Section 10.2 of this Agreement.
"GAAP" shall mean generally accepted accounting principles, consistently
applied during the periods involved.
"Georgia Articles of Merger" shall mean the Articles of Merger to be executed
by PURCHASER and filed with the Secretary of State of the State of Georgia
relating to the Merger as contemplated by Section 1.3 of this Agreement.
"GBCC" shall mean the Georgia Business Corporation Code.
"Hazardous Material" shall mean any pollutant, contaminant, or hazardous
substance within the meaning of the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. (S) 9601 et seq.,
or any similar federal, state or local Law.
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder.
"IRS" shall mean the Internal Revenue Service.
"Knowledge" as used with respect to a Person shall mean the Knowledge after
reasonable due inquiry of the Chairman, President, Chief Financial Officer,
Chief Accounting Officer, Chief Credit Officer, or any Senior or Executive Vice
President of such Person.
"Law" shall mean any code, law, ordinance, regulation, reporting or licensing
requirement, rule, or statute applicable to a Person or its Assets, Liabilities
or business, including, without limitation, those promulgated, interpreted or
enforced by any of the Regulatory Authorities.
"Letter of Transmittal" shall have the meaning provided in Section 3.2 of this
Agreement.
"Liability" shall mean any direct or indirect, primary or secondary,
liability, indebtedness, obligation, penalty, cost or expense (including,
without limitation, costs of
47
<PAGE>
investigation, collection and defense), claim, deficiency, guaranty or
endorsement of or by any Person (other than endorsements of notes, bills,
checks, and drafts presented for collection or deposit in the ordinary course of
business) of any type, whether accrued, absolute or contingent, liquidated or
unliquidated, matured or unmatured, or otherwise.
"Lien" shall mean any conditional sale agreement, default of title, easement,
encroachment, encumbrance, hypothecation, infringement, lien, mortgage, pledge,
reservation, restriction, security interest, title retention or other security
arrangement, or any adverse right or interest, charge, or claim of any nature
whatsoever of, on, or with respect to any property or property interest, other
than (i) Liens for current property Taxes not yet due and payable, (ii) for
depository institution Subsidiaries of a Party, pledges to secure deposits and
other Liens incurred in the ordinary course of the banking business, and
(iii) Liens which are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on a Party.
"Litigation" shall mean any action, arbitration, cause of action, claim,
complaint, criminal prosecution, demand letter, governmental or other
examination or investigation, hearing, inquiry, administrative or other
proceeding, or notice (written or oral) by any Person alleging potential
Liability or requesting information relating to or affecting a Party, its
business, its Assets (including, without limitation, Contracts related to it),
or the transactions contemplated by this Agreement, but shall not include
regular, periodic examinations of depository institutions and their Affiliates
by Regulatory Authorities.
"Loan Property" shall mean any property owned by the Party in question or by
any of its Subsidiaries or in which such Party or Subsidiary holds a security
interest, and, where required by the context, includes the owner or operator of
such property, but only with respect to such property.
"Material" for purposes of this Agreement shall be determined in light of the
facts and circumstances of the matter in question, provided that any specific
monetary amount stated in this Agreement shall determine materiality in that
instance.
"Material Adverse Effect" on a Party shall mean an event, change or occurrence
which has a material adverse impact on (a) the financial position, business, or
results of operations of such Party and its Subsidiaries, taken as a whole, or
(b) the ability of such Party to perform its obligations under this Agreement or
to consummate the Merger or the other transactions contemplated by this
Agreement, provided that "material adverse impact" shall not be deemed to
include the impact of (x) changes in banking and similar Laws of general
applicability or interpretations thereof by courts or governmental authorities,
(y) changes in generally accepted accounting principles or regulatory accounting
principles generally applicable to banks and their holding companies, and
(z) the Merger and
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<PAGE>
compliance with the provisions of this Agreement on the operating
performance of the Parties.
"Merger" shall mean the merger of TARGET with and into PURCHASER referred to
in Section 1.1 of this Agreement.
"Merger Consideration" shall mean (i) (A) 2.265 times the lesser of
(1) 0.08 times the total assets of TARGET or (2) the Total Equity of TARGET,
plus (B) 1.0 times the amount, if any, by which the Total Equity of TARGET
- ----
exceeds 0.08 times the total assets of TARGET, based on the average of the
total assets of TARGET as of the close of business for each of the sixty (60)
calendar days immediately preceding the Closing Date.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"NASDAQ" shall mean the Nasdaq National Market.
"1933 Act" shall mean the Securities Act of 1933, as amended.
"1934 Act" shall mean the Securities Exchange Act of 1934, as amended.
"Old Certificates" shall have the meaning provided in Section 3.2 of this
Agreement.
"Option Shares" shall mean the shares of TARGET Common Stock issuable by
TARGET in connection with the exercise of any TARGET Option or TARGET Warrant
(whether or not such option or warrant is then exercisable).
"Order" shall mean any administrative decision or award, decree, injunction,
judgment, order, quasi-judicial decision or award, ruling, or writ of any
federal, state, local or foreign or other court, arbitrator, mediator, tribunal,
administrative agency or Regulatory Authority.
"Outstanding TARGET Shares" shall have the meaning provided in
Section 3.1(b) of this Agreement.
"Participation Facility" shall mean any facility or property in which the
Party in question or any of its Subsidiaries participates in the management
(including any property or facility held in a joint venture) and, where required
by the context, said term means the owner or operator of such facility or
property, but only with respect to such facility or property.
49
<PAGE>
"Party" shall mean either TARGET or PURCHASER, and "Parties" shall mean both
TARGET and PURCHASER.
"Per Share Merger Consideration" shall have the meaning set forth in
Section 3.1(b) of this Agreement.
"Permit" shall mean any federal, state, local, and foreign governmental
approval, authorization, certificate, easement, filing, franchise, license,
notice, permit, or right to which any, Person is a party or that is or may be
binding upon or inure to the benefit of any Person or its capital stock, Assets,
Liabilities, or business.
"Person" shall mean a natural person or any legal, commercial or governmental
entity, such as, but not limited to, a corporation, general partnership, joint
venture, limited partnership, limited liability company, trust, business
association, group acting in concert, or any person acting in a representative
capacity.
"Previously Disclosed" shall mean information (a) delivered in writing prior
to the date of this Agreement in the manner and to the Party and counsel
described in Section 10.8 of this Agreement and describing in reasonable detail
the matters contained therein, provided that in the case of Subsidiaries
acquired after the date of this Agreement, such information may be so delivered
by the acquiring Party to the other Party prior to the date of such acquisition,
or (b) disclosed prior to the date of this Agreement by one Party to the other
in an SEC Document delivered to such other Party in which the specific
information has been identified by the Party making the disclosure.
"Proxy Statement" shall mean the proxy statement used by TARGET to solicit the
approval of its shareholders of the transactions contemplated by this Agreement
and shall include the prospectus of PURCHASER relating to shares of PURCHASER
Common Stock to be issued to the shareholders of TARGET.
"PURCHASER Allowance" shall have the meaning provided in Section 5.9 of this
Agreement.
"PURCHASER Benefit Plans" shall have the meaning set forth in Section 5.14 of
this Agreement.
"PURCHASER Common Stock" shall mean the $1.00 par value common stock of
PURCHASER.
"PURCHASER Companies" shall mean, collectively, PURCHASER and all PURCHASER
Subsidiaries.
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"PURCHASER Financial Statements" shall mean (i) the consolidated statements of
condition (including related notes and schedules, if any) of PURCHASER as
December 31, 1995, 1994 and 1993, and the related statements of income, changes
in shareholders' equity, and cash flows (including related notes and schedules,
if any) for each of the three years ended December 31, 1995, 1994, and 1993, as
filed by PURCHASER in SEC Documents and (ii) the consolidated statements of
condition of PURCHASER (including related notes and schedules, if any) and
related statements of income, changes in shareholders' equity, and cash flows
(including related notes and schedules, if any) included in SEC Documents filed
with respect to periods ended subsequent to December 31, 1995.
"PURCHASER Stock Plans" shall mean the existing stock option and other stock-
based compensation plans.
"PURCHASER Subsidiaries" shall mean the Subsidiaries of PURCHASER.
"Record Date" shall have the meaning provided in Section 3.1(e) of this
Agreement.
"Registration Statement" shall mean the Registration Statement on Form S-4, or
other appropriate form, filed with the SEC by PURCHASER under the 1933 Act in
connection with the transactions contemplated by this Agreement.
"Regulatory Authorities" shall mean, collectively, the Federal Trade
Commission, the United States Department of Justice, the Board of the Governors
of the Federal Reserve System, the Office of the Comptroller of the Currency,
the Federal Deposit Insurance Corporation, all state banking and other
regulatory agencies having jurisdiction over the Parties and their respective
Subsidiaries, the NASD, and the SEC.
"SEC Documents" shall mean all reports and registration statements filed, or
required to be filed, by a Party or any of its Subsidiaries with any Regulatory
Authority pursuant to the Securities Laws.
"Securities Laws" shall mean the 1933 Act, the 1934 Act, the Investment
Company Act of 1940, as amended, the Investment Advisors Act of 1940, as
amended, the Trust Indenture Act of 1939, as amended, state blue sky laws, and
the rules and regulations of any Regulatory Authority promulgated thereunder.
"Shareholders' Meeting" shall mean the meeting of the shareholders of TARGET
to be held pursuant to Section 7.1 of this Agreement, including any adjournment
or adjournments thereof.
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"Subsidiaries" shall mean all those corporations, banks, associations, or
other entities of which the entity in question owns or controls 5% or more of
the outstanding equity securities either directly or through an unbroken chain
of entities as to each of which 5 % or more of the outstanding equity securities
is owned directly or indirectly by its parent; provided, however, there shall
not be included any such entity acquired through foreclosure or any such entity
the equity securities of which are owned or controlled in a fiduciary capacity.
"Surviving Corporation" shall mean PURCHASER as the surviving corporation
resulting from the Merger.
"TARGET Allowance" shall have the meaning provided in Section 4.9 of this
Agreement.
"TARGET Bank" shall mean First National Bank of South Georgia, Albany, a
Georgia state-chartered bank and a TARGET Subsidiary.
"TARGET Benefit Plans" shall have the meaning set forth in Section 5.14 of
this Agreement.
"TARGET Common Stock" shall mean the $5.00 par value Common Stock of TARGET.
"TARGET Companies" shall mean, collectively, TARGET and all TARGET
Subsidiaries.
"TARGET Financial Statements" shall mean (a) the consolidated balance sheets
(including related notes and schedules, if any) of TARGET as of
December 31, 1995, 1994 and 1993, and the related statements of income, changes
in shareholders' equity, and cash flows (including related notes and schedules,
if any) for each of the three fiscal years ended December 31, 1995, 1994, 1993,
as previously furnished by TARGET to Purchaser, and (b) the consolidated balance
sheets of TARGET (including related notes and schedules, if any) and related
statements of income, changes in shareholders' equity, and cash flows (including
related notes and schedules, if any) with respect to periods ended subsequent to
December 31, 1995.
"TARGET Option" shall have the meaning set forth in Section 3.7 of this
Agreement.
"TARGET Stock Plans" shall mean the existing stock option and other stock-
based compensation plans of TARGET.
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"TARGET Subsidiaries" shall mean the Subsidiaries of TARGET, which shall
include the TARGET Subsidiaries described in Section 4.4 of this Agreement and
any Person acquired as a Subsidiary of TARGET in the future and owned by TARGET
at the Effective Time.
"TARGET Warrant" shall have the meaning set forth in Section 3.7 of this
Agreement.
"Taxes" shall mean any federal, state, county, local, foreign and other taxes,
assessments, charges, fares, and impositions, including interest and penalties
thereon or with respect thereto.
"Termination Fee" shall have the meaning provided in Section 10.2 of this
Agreement.
"Total Equity of TARGET" shall mean TARGET's total stockholders' equity
calculated under GAAP as of the close of business on the day immediately
preceding the Closing Date.
10.2 Expenses.
--------
(a) Except as otherwise provided in this Section 10.2, each of the
Parties shall bear and pay all direct costs and expenses incurred by it or on
its behalf in connection with the transactions contemplated hereunder, including
filing, registration and application fees, printing fees, and fees and expenses
of its own financial or other consultants, investment bankers, accountants, and
counsel (the "Expenses"), except that each of the Parties shall bear and pay
one-half of the filing fees payable in connection with the Registration
Statement and the Proxy Statement and printing costs incurred in connection with
the printing of the Registration Statement and the Proxy Statement.
(b) TARGET shall pay, or cause to be paid, in same day funds to
PURCHASER the sum of (i) all of PURCHASER's Expenses, plus (ii) $200,000 (the
"Termination Fee") upon demand if (A) TARGET terminates this Agreement pursuant
to Section 9.1(g) or (B) prior to the termination of this Agreement (other than
by TARGET pursuant to Section 9.1(b)), a takeover proposal shall have been made
and TARGET shall have entered into an agreement with respect to, or approves
or recommends or takes any action to facilitate, such takeover proposal. The
amount of Expenses so payable shall be the amount set forth in an estimate
delivered by PURCHASER, subject to an upward or downward adjustment.
10.3 Brokers and Finders. Except as Previously Disclosed, each of the
-------------------
Parties represents and warrants that neither it nor any of its officers,
directors, employees, or
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Affiliates has employed any broker or finder or incurred any Liability for any
financial advisory fees, investment bankers' fees, brokerage fees, commissions,
or finders' fees in connection with this Agreement or the transactions
contemplated hereby. In the event of a claim by any broker or finder based upon
its representing or being retained by or allegedly representing or being
retained by TARGET or PURCHASER, each of TARGET and PURCHASER, as the case may
be, agrees to indemnify and hold the other Party harmless of and from any
Liability in respect of any such claim.
10.4 Entire Agreement. Except as otherwise expressly provided herein,
----------------
this Agreement (including the documents and instruments referred to herein)
constitutes the entire agreement between the Parties with respect to the
transactions contemplated hereunder and supersedes all prior arrangements or
understandings with respect thereto, written or oral (except, as to Section
8.6(b) of this Agreement, with respect to the Confidentiality Agreements).
Nothing in this Agreement expressed or implied, is intended to confer upon any
Person, other than the Parties or their respective successors, any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
other than as provided in Section 7.13 of this Agreement.
10.5 Amendments. To the extent permitted by Law, this Agreement may be
----------
amended by a subsequent writing signed by each of the Parties upon the approval
of the Boards of Directors of each of the Parties; provided, however, that after
any such approval by the holders of TARGET Common Stock, there shall be made no
amendment decreasing the consideration to be received by TARGET shareholders
without the further approval of such shareholders.
10.6 Waivers.
-------
(a) Prior to or at the Effective Time, PURCHASER, acting through
its Board of Directors, chief executive officer or other authorized officer,
shall have the right to waive any Default in the performance of any term of this
Agreement by TARGET, to waive or extend the time for the compliance or
fulfillment by TARGET of any and all of its obligations under this Agreement,
and to waive any or all of the conditions precedent to the obligations of
PURCHASER under this Agreement, except any condition which, if not satisfied,
would result in the violation of any Law. No such waiver shall be effective
unless in writing signed by a duly authorized officer of PURCHASER .
(b) Prior to or at the Effective Time, TARGET, acting through its
Board of Directors, chief executive officer or other authorized officer, shall
have the right to waive any Default in the performance of any term of this
Agreement by PURCHASER, to waive or extend the time for the compliance or
fulfillment by PURCHASER of any and all of its obligations under this Agreement,
and to waive any or all of the conditions precedent to the
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obligations of TARGET under this Agreement, except any condition which, if not
satisfied, would result in the violation of any Law. No such waiver shall be
effective unless in writing signed by a duly authorized officer of TARGET.
(c) The failure of any Party at any time or times to require
performance of any provision hereof shall in no manner affect the right of such
Party at a later time to enforce the same or any other provision of this
Agreement. No waiver of any condition or of the breach of any term contained in
this Agreement in one or more instances shall be deemed to be or construed as a
further or continuing waiver of such condition or breach or a waiver of any
other condition or of the breach of any other term of this Agreement.
10.7 Assignment. Except as expressly contemplated hereby, neither this
----------
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any Party hereto (whether by operation of Law or otherwise) without
the prior written consent of the other Party. Subject to the immediately
preceding sentence, this Agreement will be binding upon, inure to the benefit
of, and be enforceable by the Parties and their respective successors and
assigns.
10.8 Notices. All notices or other communications which are required or
-------
permitted hereunder shall be in writing and sufficient if delivered by hand, by
facsimile transmission, by registered or certified mail, postage pre-paid, or by
courier or overnight carrier, to the persons at the addresses set forth below
(or at such other address as may be provided hereunder), and shall be deemed to
have been delivered as of the date so delivered:
PURCHASER: ABC Bancorp
310 First Street, S.E.
Moultrie, Georgia 31768
Telecopy Number: (912) 890-2235
Attention: President
Copy to Counsel: Rogers & Hardin
2700 Cain Tower, Peachtree Center
229 Peachtree Street, N.E.
Atlanta, Georgia 30303
Telecopy Number: (404) 525-2224
Attention: Steven E. Fox, Esq.
TARGET: First National Financial Corporation
2627 Dawson Road
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Albany, Georgia 31707-1748
Telecopy Number: (912) 888-5359
Attention: President
Copy to Counsel: Smith, Gambrell & Russell
Suite 1800
3343 Peachtree Road, N.E.
Atlanta, Georgia 30326-1010
Telecopy Number: (404) 815-3509
Attention: Robert T. Molinet, Esq.
10.9 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the Laws of the State of Georgia, without regard to any
applicable conflicts of Laws, except to the extent that the federal laws of the
United States may apply to the Merger.
10.10 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
10.11 Captions. The captions contained in this Agreement are for reference
--------
purposes only and are not part of this Agreement.
10.12 Enforcement of Agreement. The Parties hereto agree that irreparable
------------------------
damage would occur in the event that any of the provisions of this Agreement was
not performed in accordance with its specific terms or was otherwise breached.
It is accordingly agreed that the Parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
10.13 Severability. Any term or provision of this Agreement which is
------------
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
56
<PAGE>
10.14 Survival. The respective representations, warranties, obligations,
--------
covenants and agreements of the Parties shall not survive the Effective Time or
the termination and abandonment of this Agreement, except that (i) Articles Two,
Three and Ten and Sections 7.6(b), 7.9, 7.11 and 7.13 of this Agreement shall
survive the Effective Time; and (ii) Sections 7.6(b), 7.8(b), 9.2, 10.2 and
10.14 shall survive the termination and abandonment of this Agreement.
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed on its behalf and its corporate seal to be hereunto affixed and
attested by its officers as of the day and year first above written.
ATTEST: ABC BANCORP
/s/ Sara R. Hall By: /s/ Kenneth J. Hunnicutt
- ---------------- -----------------------------
Secretary Its: President
-------------------------
[CORPORATE SEAL]
ATTEST: FIRST NATIONAL FINANCIAL
CORPORATION
/s/ By /s/ Raymond B. Phillips
- ---------------- -----------------------------
Secretary Its: President
-------------------------
[CORPORATE SEAL]
57
<PAGE>
EXHIBIT 1
---------
OUTSTANDING INCENTIVE STOCK OPTIONS GRANTED PURSUANT TO
1991 INCENTIVE STOCK OPTION PLAN
<TABLE>
<CAPTION>
Option Exercise
Option Holder Shares Price
- --------------- ------ --------
<S> <C> <C>
Raymond B. Phillips 4,000 $10.50
4,000 $10.50
4,000 $12.00
John M. Hemphill 2,500 $10.50
2,500 $10.50
2,500 $12.00
JoAnn Kitchens 1,000 $10.50
1,000 $10.50
1,000 $12.00
Kathleen Lovelace 1,000 $10.50
1,000 $10.50
1,000 $12.00
Albert Vineyard 1,000 $10.50
1,000 $12.00
-----
Total 27,500
======
</TABLE>
STOCK OPTIONS GRANTED PURSUANT TO EMPLOYMENT CONTRACT
<TABLE>
<CAPTION>
Option Exercise
Option Holder Shares Price
- ----------------- ------ --------
<S> <C> <C>
Raymond B. Phillips 4,874 $10.00
4,874 $10.00
4,874 $10.00
4,874 $11.08
4,874* $11.08
-----
Total 24,370
======
</TABLE>
<PAGE>
* Pursuant to the terms of Mr. Phillips' Employment Contract, these options
will be granted to Mr. Phillips at the expiration of the Employment
Contract on May 29, 1996.
<PAGE>
OUTSTANDING STOCK PURCHASE WARRANTS
<TABLE>
<CAPTION>
Number of Exercise
Warrant Holder Warrants Price
- -------------- --------- --------
<S> <C> <C>
Willie Adams, Jr., M.D. 10,000 $10.00
Robert V. Barkley 10,000 $10.00
John L. Gay 15,000 $10.00
Waddell M. Hagins, Jr. 10,300 $10.00
C. Alex Kemp 12,500 $10.00
Glenn A. Kirbo 15,000 $10.00
W. Thomas Mitcham 15,000 $10.00
R. Douglas Oliver 10,000 $10.00
Raymond B. Phillips 10,000 $10.00
W. Paul Wallace, Jr. 10,000 $10.00
------
Total 117,800
=======
</TABLE>
<PAGE>
-2-
<PAGE>
EXHIBIT 2
---------
AFFILIATE AGREEMENT
-------------------
ABC Bancorp
310 First Street, S.E.
Moultrie, Georgia 31768
Attention: President
Ladies and Gentlemen:
The undersigned is a shareholder of First National Financial Corporation
("Target"), a corporation organized under the laws of the State of Georgia and
located in Albany, Georgia, and will become a shareholder of ABC Bancorp
("Purchaser") pursuant to the transactions described in the Agreement and Plan
of Merger, dated as of April 15, 1996 (the "Agreement"), by and between Target
and Purchaser. Under the terms of the Agreement, Target will be merged into and
with Purchaser (the "Merger"), and the shares of the $5.00 par value common
stock of Target ("Target Common Stock") will be converted into and exchanged for
shares of the $1.00 par value common stock of Purchaser ("Purchaser Common
Stock"). This Affiliate Agreement represents an agreement between the
undersigned and Purchaser regarding certain rights and obligations of the
undersigned in connection with the shares of Purchaser to be received by the
undersigned as a result of the Merger.
In consideration of the Merger and the mutual covenants contained herein, the
undersigned and Purchaser hereby agree as follows:
1. Affiliate Status. The undersigned understands and agrees that as to
----------------
Target the undersigned is an "affiliate" under Rule 145(c) as defined in Rule
405 of the Rules and Regulations of the Securities and Exchange Commission
("SEC") under the Securities Act of 1933, as amended ("1933 Act"), and the
undersigned anticipates that the undersigned will be such an "affiliate" at the
time of the Merger.
2. Covenants and Warranties of Undersigned. The undersigned represents,
---------------------------------------
warrants and agrees that:
<PAGE>
(a) The Purchaser Common Stock received by the undersigned as a result
of the Merger will be taken for his or her own account and not for others,
directly or indirectly, in whole or in part.
(b) Purchaser has informed the undersigned that any distribution by the
undersigned of Purchaser Common Stock has not been registered under the 1933 Act
and that shares of Purchaser Common Stock received pursuant to the Merger can
only be sold by the undersigned (i) following registration under the 1933 Act,
or (ii) in conformity with the volume and other requirements of Rule 145
(d) promulgated by the SEC as the same now exist or may hereafter be amended, or
(iii) to the extent some other exemption from registration under the 1933 Act
might be available. The undersigned understands that Purchaser is under no
obligation to file a registration statement with the SEC covering the
disposition of the undersigned's shares of Purchaser Common Stock.
(c) The undersigned agrees not to offer to sell, sell or otherwise
dispose of any shares of PURCHASER Common Stock until such time as financial
results covering at least 30 days of post-Merger combined operations have been
published, either by issuance of a quarterly earnings report on Form 10-Q or
other public issuance (such as a press release) which includes such information.
3. Restrictions on Transfer.
------------------------
(a) The undersigned understands and agrees that stop transfer instructions
with respect to the shares of Purchaser Common Stock received by the undersigned
pursuant to the Merger will be given to Purchaser's Transfer Agent and that
there will be placed on the certificates for such shares, or shares issued in
substitution thereof, a legend stating in substance:
"The shares represented by this certificate may not be sold, transferred or
otherwise disposed of except or unless (i) covered by an effective
registration statement under the Securities Act of 1933, as amended, (ii) in
accordance with (x) Rule 145(d) (in the case of shares issued to an
individual who is not an affiliate of Purchaser) or (y) Rule 144 (in the
---
case of shares issued to an individual who is an affiliate of Purchaser) of
the Rules and Regulations of such Act, or (iii) in accordance with a legal
opinion satisfactory to counsel for Purchaser that such sale or transfer is
otherwise exempt from the registration requirements of such Act."
(b) Such legend will also be placed on any certificate representing
Purchaser securities issued subsequent to the original issuance of the Purchaser
Common Stock pursuant to the Merger as a result of any stock dividend, stock
split, or other
2
<PAGE>
recapitalization as long as the Purchaser Common Stock issued to
the undersigned pursuant to the Merger has not been transferred in such manner
to justify the removal of the legend therefrom. In addition, if the provisions
of Rules 144 and 145 are amended to eliminate restrictions applicable to the
Purchaser Common Stock received by the undersigned pursuant to the Merger, or at
the expiration of the restrictive period set forth in Rule 145(d), Purchaser,
upon the request of the undersigned, will cause the certificates representing
the shares of Purchaser Common Stock issued to the undersigned in connection
with the Merger to be reissued free of any legend relating to the restrictions
set forth in Rules 144 and 145(d) upon receipt by Purchaser of an opinion of its
counsel to the effect that such legend may be removed.
4. Understanding of Restrictions on Dispositions. The undersigned has
---------------------------------------------
carefully read the Agreement and this Affiliate Agreement and discussed their
requirements and impact upon his or her ability to sell, transfer, or otherwise
dispose of the shares of Purchaser Common Stock received by the undersigned in
connection with the Merger, to the extent he or she believes necessary, with his
or her counsel or counsel for Target.
5. Filing of Reports by Purchaser. Purchaser agrees for a period of three
------------------------------
years after the effective date of the Merger, to file on a timely basis all
reports required to be filed by it pursuant to Section 13 of the Securities
Exchange Act of 1934, as amended, so that the public information provisions of
Rule 145(d) promulgated by the SEC as the same are presently in effect will be
available to the undersigned in the event the undersigned desires to transfer
any shares of Purchaser Common Stock issued to the undersigned pursuant to the
Merger.
6. Transfer Under Rule 145(d). If the undersigned desires to sell or
--------------------------
otherwise transfer the shares of Purchaser Common Stock received by him or her
in connection with the Merger at any time during the restrictive period set
forth in Rule 145(d), the undersigned will provide the necessary representation
letter to the Transfer Agent for Purchaser Common Stock, together with such
additional information as the Transfer Agent may reasonably request. If
Purchaser's counsel concludes that such proposed sale or transfer complies with
the requirements of Rule 145(d), Purchaser shall cause such counsel to provide
such opinions as may be necessary to Purchaser's Transfer Agent so that the
undersigned may complete the proposed sale or transfer.
7. Acknowledgments. The undersigned recognizes and agrees that the foregoing
---------------
provisions also apply with respect to Target Common Stock held by, and Purchaser
Common Stock issued in connection with the Merger to, (a) the undersigned's
spouse, (b) any relative of the undersigned or of the undersigned's spouse who
has the same home as the undersigned, (c) any trust or estate in which the
undersigned, the undersigned's spouse, and any such relative collectively own at
least a 10% beneficial interest or of which any of the
3
<PAGE>
foregoing serves as trustee, executor or in any similar capacity, and (d) any
corporation or other organization in which the undersigned, the undersigned's
spouse and any such relative collectively own at least 10% of any class of
equity securities or of the equity interest. The undersigned further recognizes
that, in the event that the undersigned is a director or executive officer of
Purchaser or becomes a director or executive officer of Purchaser upon
consummation of the Merger, among other things, any sale of Purchaser Common
Stock by the undersigned within a period of less than six months following the
effective time of the Merger may subject the undersigned to liability pursuant
to Section 16(b) of the Securities Exchange Act of 1934, as amended.
8. Miscellaneous. This Affiliate Agreement is the complete agreement
-------------
between Purchaser and the undersigned concerning the subject matter hereof. Any
notice required to be sent to any parry hereunder shall be sent by registered or
certified mail, return receipt requested, using the addresses set forth herein
or such other address as shall be furnished in writing by the parties. This
Affiliate Agreement shall be governed by the laws of the State of Georgia.
This Affiliate Agreement is executed as of the _____ day of ____________,
1996.
Very truly yours,
----------------------------
Signature
----------------------------
Print Name
----------------------------
----------------------------
----------------------------
----------------------------
Address
----------------------------
Telephone No.
AGREED TO AND ACCEPTED as of
- ----------------, 1996
4
<PAGE>
ABC BANCORP
By:_________________________
Its:_____________________
5
<PAGE>
EXHIBIT 3
---------
IRREVOCABLE PROXY
-----------------
This Irrevocable Proxy is given by the undersigned, ______________
("Shareholder"), in favor of ABC Bancorp, a Georgia corporation ("ABC"), as of
the ____ day of April, 1996.
WHEREAS, ABC and First National Financial Corporation, a Georgia corporation
("Target"), have entered into an Agreement and Plan of Merger dated as of
April 12, 1996 (the "Merger Agreement") (capitalized terms used but not defined
herein shall have the same meaning assigned to such terms in the Merger
Agreement), pursuant to which ABC proposes to acquire the entire equity interest
in Target by means of a merger (the "Merger") of Target with and into ABC;
WHEREAS, Shareholder owns, as of the date hereof, _________ shares of Target
Common Stock (the "Existing Shares", together with any shares of Target Common
Stock acquired after the date hereof and prior to the termination hereof,
hereinafter collectively referred to as the "Shares"); and
WHEREAS, ABC has entered into the Merger Agreement in reliance on
Shareholder's agreement to support the Merger, including the granting of
Shareholder's Irrevocable Proxy hereunder.
NOW, THEREFORE, with respect to the Merger Agreement and the transactions
contemplated thereby and in accordance with the Georgia Business Corporation
Code, Shareholder hereby irrevocably makes, constitutes and appoints ABC to act
as Shareholder's true and lawful proxy and attorney-in-fact in the name and on
behalf of Shareholder, solely for the limited purpose set forth herein, with
full power to appoint a substitute or substitutes solely for the limited purpose
set forth herein. Shareholder further directs ABC, and ABC hereby agrees, to
vote all of the Shares which are entitled to vote at any meeting of the
shareholders of Target (whether annual or special and whether or not an
adjourned meeting), or by written consent in the place and stead of Shareholder,
in favor of the Merger as set forth in the Merger Agreement. ABC shall have no
right to vote the shares with respect to any other matters. By giving this
proxy, Shareholder hereby revokes any other proxy granted by Shareholder at any
time with respect to the Shares and no subsequent proxies will be given with
respect thereto by Shareholder. THE PROXY GRANTED HEREBY IS COUPLED WITH AN
INTEREST AND IS IRREVOCABLE. The proxy granted hereby shall not be terminated by
any act of Shareholder or by operation of law, by lack of appropriate power of
authority, or by the occurrence of any other event or events and shall be
binding upon all beneficiaries, heirs at law, legatees, distributees,
successors, assigns and legal representatives of Shareholder. Shareholder agrees
to use all good faith efforts to cause any record owner of the Shares of which
Shareholder is the beneficial owner to grant to ABC a proxy of the same effect
as that contained herein. Shareholder shall perform such
<PAGE>
further acts and execute such further documents as may be required to vest in
ABC the sole power to vote the Shares during the term of the proxy granted
herein. The proxy granted herein shall expire on the earlier of (i) the date on
which ABC and Shareholder mutually consent in writing to terminate this
Irrevocable Proxy, (ii) the date of the Closing, or (iii) the termination of the
Merger Agreement in accordance with the terms thereof. Notwithstanding anything
herein to the contrary, the proxy granted hereby and power herein conferred upon
ABC (or any substitute or substitutes) may not be exercised prior to the receipt
by ABC and Target of the Consents of the Regulatory Authorities (as contemplated
by the Merger Agreement).
IN WITNESS WHEREOF, Shareholder has executed and delivered this Irrevocable
Proxy as of the date set forth above.
----------------------
(Name)
----------------------
(Signature)
2
<PAGE>
EXHIBIT 4
---------
NONCOMPETITION AGREEMENT
------------------------
This NONCOMPETITION AGREEMENT (the "Agreement") is executed as of the ___ day
of ______________, 1996, by and between ABC BANCORP, a Georgia corporation
("ABC"), and RAYMOND D. PHILLIPS (the "Shareholder").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, pursuant to an Agreement and Plan of Merger dated as of
April 15, 1996 (the "Merger Agreement") by and among ABC and First National
Financial Corporation ("First National"), First National will merge with and
into ABC (the "Merger"), and each shareholder of First National will receive
shares of common stock of ABC in exchange for their shares of common stock of
First National;
WHEREAS, as a result of the Merger, ABC will acquire the business and goodwill
of First National and its wholly-owned subsidiary, First National Bank of South
Georgia (the "Bank");
WHEREAS, this Agreement has been entered into as a condition and inducement
to the Merger;
WHEREAS, the Bank is a full service bank, offering a wide range of financial
services, including deposit and credit services (the "Business");
WHEREAS, the Shareholder is a shareholder of First National, a Director and
executive officer of both First National and the Bank, and possesses extensive
knowledge of certain information that is deemed confidential by First National
and the Bank and is the subject of reasonable efforts by First National and/or
the Bank to maintain its confidentiality, including, but not limited to,
technical or non-technical data, formulas, compilations, programs, methods,
techniques, financial data, financial plans, product plans and lists of actual
or potential customers or suppliers (the "Trade Secrets"); and
WHEREAS, as a shareholder of First National, the Shareholder will benefit
from the Merger.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties intending to be legally bound agree as follows:
<PAGE>
1. Payment to Mr. Phillips. Upon execution and delivery of this Agreement,
-----------------------
ABC shall pay to Mr. Phillips the sum of Twenty-Five Thousand ($25,000.00)
Dollars and shall cause the Bank to transfer to Mr. Phillips title to that
certain 1994 Chevrolet S10 Blazer currently driven by him.
2. Term. The term of this Agreement shall commence on the date hereof and
----
shall continue for a period of three (3) years thereafter.
3. Non-Competition Agreement. During the term of this Agreement, the
-------------------------
Shareholder shall not, directly or indirectly, by himself, on behalf of or in
conjunction with any other person or legal entity, or for or on behalf of any
person, company or other entity, engage in any business in competition with the
Business of the Bank as presently conducted. This restriction shall apply to
the geographic area consisting of Dougherty County, Georgia (the "Territory").
The Shareholder is also prohibited during the term of this Agreement from owning
more than five percent (5%) of any bank or financial institution that engages in
any business in competition with the Business of the Bank in the Territory. The
Shareholder agrees that, because of his knowledge of the Trade Secrets of the
Bank, the Shareholder's competition with the Bank in the foregoing manner would
substantially and irreparably damage and impair the Business of the Bank.
4. Customer Protection. During the term of this Agreement, the Shareholder
-------------------
will not directly or indirectly, by himself, on behalf of or in conjunction with
any other person or legal entity, or for or on behalf of any other person,
company or entity, solicit or accept, or attempt to solicit or accept, any
business from any of the Bank's customers, for the purpose of providing products
or services competitive with those provided by the Bank in connection with the
Business as presently conducted. This restriction shall apply to the geographic
area consisting of the Territory.
5. Non-Solicitation of Employees. During the term of this agreement,
-----------------------------
the Shareholder, for his private purposes or as an employee, officer, director,
agent, customer, independent contractor or in any other relationship to any
person or entity, shall refrain from recruiting or hiring directly any employee
of the Bank, or assisting others in doing so, whether or not such other employee
has a written contract with the Bank.
6. Non-Disclosure. During the term of this Agreement, without ABC's prior
--------------
written consent, the Shareholder will not directly or indirectly, use, duplicate
or record, disclose, divulge or communicate to any person or entity in any
manner, any Trade Secret or other confidential information of the Bank.
2
<PAGE>
7. Injunctive Relief. Breach of any covenant herein by the Shareholder
-----------------
will result in irreparable harm to ABC for which there will be no adequate
remedy at law. Accordingly, upon any such breach, ABC will be entitled to an
injunction in action to any other rights and remedies, including the award of
damages, available at law or in equity. ABC will not have to prove money damages
to enforce any provision of this Agreement.
8. Benefit. This Agreement shall be binding upon the parties hereto, and
-------
shall operate for the benefit of the Shareholder and ABC and any of ABC's
successors and assigns.
9. Governing Law and Severability. This Agreement shall be governed by the
------------------------------
laws of Georgia. In the event that any term or provision of this Agreement is
held to be unreasonable, the same shall not fail, but shall be deemed amended
only to the extent necessary to render it reasonable, and the parties agree to
be bound by the same as thus amended. If any provision is determined by a court
to be invalid or unenforceable, and the court refuses to amend such provision to
render it enforceable, such provision shall be deemed severed from the remainder
of the Agreement and the remaining provisions shall continue in full force and
effect.
10. Entire Agreement. This Agreement constitutes the entire agreement of the
----------------
parties. Except as required pursuant to paragraph 8 hereof, no waiver or
modification of this Agreement of any covenant, condition or limitation shall be
valid unless in writing and signed by all parties.
11. Enforcement Costs. If any legal action or other proceeding is brought for
-----------------
the enforcement of this Agreement, or because of an alleged dispute, breach,
default or misrepresentation in connection with any provision of this Agreement,
the prevailing party shall be entitled to recover reasonable attorneys' fees,
court costs and all expenses (including, without limitation, all such fees,
costs and expenses incident to arbitration, appellate, bankruptcy and post-
judgment proceedings), incurred in that action or proceeding, in addition of any
other relief to which such party or parties may be entitled. Attorneys' fees
shall include, without limitation, paralegal fees, investigative fees, expert
witness fees, administrative costs and all other charges billed by the attorney
to the prevailing party.
IN WITNESS WHEREOF, the parties have executed this Agreement under seal, to be
effective as of the date set forth above.
SHAREHOLDER:
________________________(SEAL)
3
<PAGE>
[SIGNATURES CONTINUED ON PAGE 4]
4
<PAGE>
ABC BANCORP
By:______________________________
Its:__________________________
5
<PAGE>
EXHIBIT 4A
----------
NONCOMPETITION AGREEMENT
------------------------
This NONCOMPETITION AGREEMENT (the "Agreement") is executed as of the ___ day
of ______________, 1996, by and between ABC BANCORP, a Georgia corporation
("ABC"), and __________________ (the "Shareholder").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, pursuant to an Agreement and Plan of Merger dated as of
April 15, 1996 (the "Merger Agreement") by and among ABC and First National
Financial Corporation ("First National"), First National will merge with and
into ABC (the "Merger"), and each shareholder of First National will receive
shares of common stock of ABC in exchange for their shares of common stock of
First National;
WHEREAS, as a result of the Merger, ABC will acquire the business and goodwill
of First National and its wholly-owned subsidiary, First National Bank of South
Georgia (the "Bank");
WHEREAS, this Agreement has been entered into as a condition and inducement to
the Merger;
WHEREAS, the Bank is a full service bank, offering a wide range of financial
services, including deposit and credit services (the "Business");
WHEREAS, the Shareholder is a shareholder of First National, a Director of
both First National and the Bank, and possesses extensive knowledge of certain
information that is deemed confidential by First National and the Bank and is
the subject of reasonable efforts by First National and/or the Bank to maintain
its confidentiality, including, but not limited to, technical or non-technical
data, formulas, compilations, programs, methods, techniques, financial data,
financial plans, product plans and lists of actual or potential customers or
suppliers (the "Trade Secrets"); and
WHEREAS, as a shareholder of First National, the Shareholder will benefit from
the Merger.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties intending to be legally bound agree as follows:
12. Term. The term of this Agreement shall commence on the date hereof and
----
shall continue for a period of three (3) years thereafter.
<PAGE>
Appendix B
TEXT OF ARTICLE 13 OF THE
GEORGIA BUSINESS CORPORATION CODE
PART 1.
RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
14-2-1301. Definitions.
As used in this article, the term:
(1) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.
(2) "Corporate action" means the transaction or other action by the
corporation that creates dissenters' rights under Code Section 14-2-1302.
(3) "Corporation" means the issuer of shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer.
(4) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Code Section 14-2-1302 and who exercises that right when
and in the manner required by Code Sections 14-2-1320 through 14-2-1327.
(5) "Fair value," with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action.
(6) "Interest" means interest from the effective date of the corporate
action until the date of payment, at a rate that is fair and equitable under all
the circumstances.
(7) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(8) "Shareholder" means the record shareholder or the beneficial
shareholder.
B-1
<PAGE>
14-2-1302. Right to dissent.
(a) A record shareholder of the corporation is entitled to dissent from,
and obtain payment of the fair value of his shares in the event of, any of the
following corporate actions:
(1) Consummation of a plan of merger to which the corporation is a party:
(A) If approval of the shareholders of the corporation is required
for the merger by Code Section 14-2-1103 or the articles of incorporation
and the shareholder is entitled to vote on the merger, or
(B) If the corporation is a subsidiary that is merged with its
parent under Code Section 14-2-1104;
(2) Consummation of a plan of share exchange to which the corporation is
a party as the corporation whose shares will be acquired, if the shareholder is
entitled to vote on the plan;
(3) Consummation of a sale or exchange of all or substantially all of the
property of the corporation if a shareholder vote is required on the sale or
exchange pursuant to Code Section 14-2-1202, but not including a sale pursuant
to court order or a sale for cash pursuant to a plan by which all or
substantially all of the net proceeds of the sale will be distributed to the
shareholders within one year after the date of sale;
(4) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preferential right of shares;
(B) Creates, alters, or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities;
(D) Excludes or limits the right of the shares to vote on any
matter, or to cumulate votes, other than a limitation by dilution through
issuance of shares or other securities with similar voting rights;
(E) Reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be acquired
for cash under Code Section 14-2-604; or
(F) Cancels, redeems, or repurchases all or part of the shares of the
class; or
(5) Any corporate action taken pursuant to a shareholder vote to the
extent that Article 9 of this chapter, the articles of incorporation, bylaws, or
a resolution of the board of directors provides that voting or nonvoting
shareholders are entitled to dissent and obtain payment for their shares.
B-2
<PAGE>
(b) A shareholder entitled to dissent and obtain payment for his
shares under this article may not challenge the corporate action creating
his entitlement unless the corporate action fails to comply with procedural
requirements of this chapter or the articles of incorporation or bylaws of
the corporation or the vote required to obtain approval of the corporate
action was obtained by fraudulent and deceptive means, regardless of
whether the shareholder has exercised dissenter's rights.
(c) Notwithstanding any other provision of this article, there shall
be no right of dissent in favor of the holder of shares of any class or
series which, at the record date fixed to determine the shareholders
entitled to receive notice of and to vote at a meeting at which a plan of
merger or share exchange or a sale or exchange of property or an amendment
of the articles of incorporation is to be acted on, were either listed on a
national securities exchange or held of record by more than 2,000
shareholders, unless;
(1) In the case of a plan of merger or share exchange, the
holders of shares of the class or series are required under the plan
of merger or share exchange to accept for their shares anything except
shares of the surviving corporation or another publicly held
corporation which at the effective date of the merger or share
exchange are either listed on a national securities exchange or held
of record by more than 2,000 shareholders, except for scrip or cash
payments in lieu of fractional shares; or
(2) The articles of incorporation or a resolution of the board
of directors approving the transaction provides otherwise.
14-2-1303. Dissent by nominees and beneficial owners.
A record shareholder may assert dissenters' rights as to fewer than all the
shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one beneficial shareholder and notifies the
corporation in writing of the name and address of each person on whose behalf he
asserts dissenters' rights. The rights of a partial dissenter under this Code
section are determined as if the shares as to which he dissents and his other
shares were registered in the names of different shareholders.
PART 2.
PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
14-2-1320. Notice of dissenters' rights.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the meeting
notice must state that shareholders are or may be entitled to assert
dissenters' rights under this article and be accompanied by a copy of this
article.
(b) If corporate action creating dissenters' rights under Code Section
14-2-1302 is taken without a vote of shareholders, the corporation shall notify
in writing all shareholders entitled to assert dissenters' rights that the
action was taken and send them the dissenters' notice described in Code Section
14-2-1322 no later than ten days after the corporate action was taken.
B-3
<PAGE>
14-2-1321. Notice of intent to demand payment.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record
shareholder who wishes to assert dissenters' rights:
(1) Must deliver to the corporation before the vote is taken written
notice of his intent to demand payment for his shares if the proposed
action is effectuated; and
(2) Must not vote his shares in favor of the proposed action.
(b) A record shareholder who does not satisfy the requirements of
subsection (a) of this Code section is not entitled to payment for his shares
under this article.
14-2-1322. Dissenters' notice.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is authorized at a shareholders' meeting, the corporation
shall deliver a written dissenters' notice to all shareholders who satisfied the
requirements of Code Section 14-2-1321.
(b) The dissenters' notice must be sent no later than ten days after the
corporate action was taken and must:
(1) State where the payment demand must be sent and where and when
certificates for certified shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer
of the shares will be restricted after the payment demand is received;
(3) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than 30 no more than 60 days after the
date the notice required in subsection (a) of this Code section is
delivered; and
(4) Be accompanied by a copy of this article.
14-2-1323. Duty to demand payment.
(a) A record shareholder sent a dissenters' notice described in Code
Section 14-2-1322 must demand payment and deposit his certificates in accordance
with the terms of the notice.
(b) A record shareholder who demands payment and deposits his share
under subsection (a) of this Code section retains all other rights of a
shareholder until these rights are canceled or modified by the taking of the
proposed corporate action.
(c) A record shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this article.
B-4
<PAGE>
14-2-1324. Share restrictions.
(a) The corporation may restrict the transfer of uncertificated shares
from the date the demand for their payment is received until the proposed
corporate action is taken or the restrictions released under Code Section
14-2-1326.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
14-2-1325. Offer of payment.
(a) Except as provided in Code Section 14-2-1327, within ten days of the
later of the date the proposed corporate action is taken or receipt of a payment
demand, the corporation shall by notice to each dissenter who complied with Code
Section 14-2-1323 offer to pay to such dissenter the amount the corporation
estimates to be the fair value of his or her shares, plus accrued interest.
(b) The offer of payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal year
ending not more an 16 months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for
that year, and the latest available interim financial statements, if any,
(2) A statement of the corporation's estimate of the fair value of
the shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under Code
Section 14-2-1327; and
(5) A copy of this article.
(c) If the shareholder accepts the corporation's offer by written notice
to the corporation within 30 days after the corporation's offer or is deemed to
have accepted such offer by failure to respond with said 30 days, payment for
his or her shares shall be made within 60 days after the making of the offer or
the taking of the proposed corporate action, whichever is later.
14-2-1326. Failure to take action.
(a) If the corporation does not take the proposed action within 60 days
after the date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If, after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under Code Section 14-2-1322 and repeat the payment demand
procedure.
B-5
<PAGE>
14-2-1327. Procedure if shareholder dissatisfied with payment or offer.
(a) A dissenter may notify the corporation in writing of his own estimate
of the fair value of his shares and amount of interest due, and demand payment
of his estimate of the fiar value of his shares and interest due, if:
(1) The dissenter believes that the amount offered under Code Section
14-2-1325 is less than the fair value of his shares or that the interest
due is incorrectly calculated; or
(2) The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within 60 days after the date set for
demanding payment.
(b) A dissenter waives his or her right to demand payment under this Code
section and is deemed to have accepted the corporation's offer unless he or she
notifies the corporation of his or her demand in writing under subsection (a)
of this Code section within 30 days after the corporation offered payment for
his or her shares, as provided in Code Section 14-2-1325.
(c) If the corporation does not offer payment within the time set forth
in subsection (a) of Code Section 14-2-1325:
(1) The shareholder may demand the information required under
subsection (b) of Code Section 14-2-1325, and the corporation shall provide
the information to the shareholder within ten days after receipt of a
written demand for the information; and
(2) The shareholder may at any time, subject to the limitations
period of Code Section 14-2-1332, notify the corporation of his own
estimate of the fair value of his shares and the amount of interest due and
demand payment of his estimate of the fair value of his shares and interest
due.
PART 3.
JUDICIAL APPRAISAL OF SHARES
14-2-1330. Court action.
(a) If a demand for payment under Code Section 14-2-1327 remains
unsettled, the corporation shall commence a proceeding within 60 days after
receiving the payment demand and petition the court to determine the fair value
of the shares and accrued interest. If the corporation does not commence the
proceeding within the 60 day period, it shall pay each dissenter whose demand
remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding, which shall be a
nonjury equitable valuation proceeding, in the superior court of the county
where a corporation's registered office is located. If the surviving corporation
is a foreign corporation without a registered office in this state, it shall
commence the proceeding in the county in this state where the registered office
of the domestic corporation merged with or whose shares were acquired by the
foreign corporation was located.
B-6
<PAGE>
(c) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding, which
shall have the effect of an action quasi in rem against their shares. The
corporation shall serve a copy of the petition in the proceeding upon each
dissenting shareholder who is a resident of this state in the manner provided by
law for the service of a summons and complaint, and upon each nonresident
dissenting shareholder either by registered or certified mail or by publication,
or in any other manner permitted by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) of this Code section is plenary and exclusive. The court
may appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers described
in the order appointing them or in any amendment to it. Except as otherwise
provided in this chapter, Chapter 11 of Title 9, known as the "Georgia Civil
Practice Act," applies to any proceeding with respect to dissenters' rights
under this chapter.
(e) Each dissenter made a party to the proceeding is entitled to judgment
for the amount which the court finds to be the fair value of his shares, plus
interest to the date of judgement.
14-2-1331. Court costs and counsel fees.
(a) The court in an appraisal proceeding commenced under Code Section
14-2-1330 shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court, but not
including fees and expenses of attorneys and experts for the respective parties.
The court shall assess the costs against the corporation, except that the court
may assess the costs against all or some of the dissenters, in amounts the court
finds equitable, to the extent the court finds the dissenters acted arbitrarily,
vexatiously, or not in good faith in demanding payment under Code
Section 14-2-1327.
(b) The court may also assess the fees and expenses of attorneys and
experts for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of Code Sections 14-2-1320 through 14-2-1327; or
(2) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good
faith with respect to the rights provided by this article.
(c) If the court finds that the services of attorneys for any dissenter
were of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to these attorneys reasonable fees to be paid out of the amounts
awarded the dissenters who were benefitted.
14-2-1332. Limitation of actions.
No action by any dissenter to enforce dissenters' rights shall be brought
more than three years after the corporate action was taken, regardless of
whether notice of the corporate action and of the right to dissent was given
by the corporation in compliance with the provisions of Code Section 14-2-1320
and Code Section 14-2-1322.
B-7
<PAGE>
APPENDIX C
[LETTERHEAD OF T. STEPHEN JOHNSON & ASSOCIATES APPEARS HERE]
May 21, 1996
Board of Directors
First National Financial Corporation
2627 Dawson Road
Albany, Georgia 31708-1748
Dear Directors:
T. Stephen Johnson & Associates, Inc., Roswell, Georgia ("TSJ&A") has been asked
to render an opinion as to the fairness from a financial point of view of the
consideration to be received by the shareholders of First National Financial
Corporation ("First National") in connection with the proposed merger of First
National with and into ABC Bancorp ("ABC"), pursuant to an Agreement and Plan of
Merger (the "Merger Agreement") dated as of April 15, 1996 (the "Merger"). The
Merger Agreement calls for each outstanding share of First National's common
stock to be converted into the right to receive that number of shares of ABC's
common stock having a value equal to 2.265 times 0.08 times the total assets of
First National plus 1.0 times the amount by which total equity of First National
exceeds 0.08 times the total assets of First National plus the aggregate
exercise price of all options and warrants to purchase First National common
shares outstanding immediately prior to the effective time of the Merger, all
divided by the aggregate number of then-outstanding First National shares.
TSJ&A is an investment banking and consulting firm that specializes in the
valuation of closely-held corporations and provides fairness opinions as part of
its practice. Because of its prior experience in the appraisal of Southeastern
financial institutions involved in mergers, it has developed an expertise in
fairness opinions related to the securities of Southeastern financial
institutions. TSJ&A has been retained by First National for the purpose of
rendering a fairness opinion for which fixed compensation will be received.
TSJ&A was previously engaged by First National to provide analysis and
comparison of two merger offers of which this Merger was one. TSJ&A provided
analysis to assist the Directors in making their decision to approve the Merger
Agreement and to recommend the Merger to First National's shareholders. TSJ&A
has been compensated for this analysis work on an hourly basis.
C-1
<PAGE>
First National Financial Corporation
May 21, 1996
Page 2
In performing its analysis, TSJ&A relied upon and assumed without independent
verification, the accuracy and completeness of all information provided to it.
TSJ&A has not performed any independent appraisal or evaluation of the assets of
First National or of ABC or any of its subsidiaries. As such, TSJ&A does not
express an opinion as to the fair market value of First National. The opinion of
financial fairness expressed herein is necessarily based on market, economic and
other relevant considerations as they exist and can be evaluated as of May 21,
1996.
In arriving at its opinion, TSJ&A reviewed and analyzed audited and unaudited
financial information regarding First National and ABC, the Merger, the Merger
Agreement, national, state and local peer group information as well as publicly
available information regarding actual comparable transactions.
The merger consideration to be received by First National's shareholders is
subject to change with changes in First National's total assets and total
equity. The merger consideration will be based on the average of total assets of
First National as of the close of business for each of the 60 calendar days
immediately preceding the closing date of the Merger. As of December 31, 1995,
First National reported total assets and total equity of $53.7 million and $5.5
million, respectively. As of April 30, 1996, total assets and total equity were
reported at $57.85 million and $5.7 million, respectively. TSJ&A used April 30,
1996 figures in its Merger Analysis. Accordingly, the merger consideration would
total $11.6 million and the per share value to the shareholders of First
National would total $19.99. The $11.6 million consideration would represent
2.027 time First National's estimated book value and 18.90 times actual 1995
earnings.
The number of shares of ABC common stock into which a First National share will
be converted will be based on a 20 day Nasdaq National Market close price
collared at $16.00 per share and cuffed at $12.00 per share. At May 20, 1996,
the Nasdaq National Market close price for ABC was reported at $14.75 per share,
within the price range.
TSJ&A reviewed the Merger as of April 30, 1996, for the purpose of determining
purchase premiums which could be used in comparing the Merger with other
announced transactions. TSJ&A reviewed the purchase premiums paid in 52
transactions that were announced between July 1, 1995 and May 10, 1996 involving
selling institutions headquartered in the states of Alabama, Florida and
Georgia. Of these transactions, 10 involved selling institutions that have been
determined to be comparable transactions. They include institutions representing
commercial bank institutions in the with total assets less than $100 million.
The merger consideration in each transaction was common stock. A listing of
these transactions is attached. The purchase premiums in the Merger rank within
the range of purchase premiums paid in the comparable transactions. On average,
the ten comparable transactions reported an announced deal price to book value
of 1.937 times and an announced deal price to earnings of 16.84 times.
C-2
<PAGE>
First National Financial Corporation
May 21,1996
Page 3
Therefore, in consideration of the above, it is the opinion of TSJ&A that, based
on the structure of the Merger and the analyses that have been performed, the
consideration to be received by the shareholders of First National is fair from
a financial point of view.
Sincerely,
/s/ T. Stephen Johnson & Associates, Inc.
- -----------------------------------------
T. Stephen Johnson & Associates, Inc.
C-3
<PAGE>
Deals Announced from 7/1/95 to 4/30/96
Targets in Florida, Georgia and Alabama
Targets are Commercial Banks with Total Assets less than $100 Million
Consideration in 100% Common Stock
<TABLE>
<CAPTION>
Seller: Seller: Seller: Seller:
Latest Total Shareholders Equity/
Bank/ Financial Assets Equity Assets
Buyer ST Seller City ST Thrift Date ($000) ($000) (%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
South Alabama Bancorp AL First Monco Bancshrs Monroeville AL Bank 12/31/95 94,927 11,098 11.69
Whitney Holding Corp. LA Amrican Bank & Trst Pensacola FL Bank 12/31/95 67,120 4,684 6.98
Regions Financial AL First Gwinnett Bcshr Norcross GA Bank 06/30/95 62,816 7,408 11.79
Westside Financial GA Eastside Holding Snellville GA Bank 09/30/95 54,773 6,137 11.20
NationsBank Corp. NC North Florida Bk Crp Madison FL Bank 06/30/95 51,770 3,633 7.02
Whitney Holding Corp. LA Liberty Holding Co. Pensacola FL Bank 12/31/95 51,358 5,428 10.57
ABC Bancorp, Inc. GA Central Bankshares Cordele GA Bank 06/30/95 46,618 3,831 8.22
Regions Financial AL Rockdale Community Conyers GA Bank 09/30/95 44,118 6,665 15.11
First Nat'l Bancorp GA Bank of Heard County Franklin GA Bank 03/31/95 38,644 4,205 10.88
Citi-Bancshares FL Citizens First Bcshr Ocala FL Bank 03/31/95 38,481 3,072 7.98
- -----------------------------------------------------------------------------------------------------------------------------------
Average Figures $55,063 $5,616 10.14
--------------------------------------------------------
Seller: Seller: Ann'd Ann'd Ann'd
Tangible Tang Deal Deal Deal Pr/
Equity Eqty/ Announce Value Consider Pr/Bk 4-Qtr
($000) Assets ($) Date Status ($M) Type (%) EPS (x)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
South Alabama Bancorp 0 11.69 04/29/96 Non Binding 16.7 Com Stock 150.48 13.76
Whitney Holding Corp. 4,684 6.98 04/18/96 Pending 10.2 Com Stock 217.76 18.58
Regions Financial 7,408 11.79 10/24/95 Pending 13.8 Com Stock 185.72 12.95
Westside Financial 6,039 11.03 12/21/95 Pending 8.6 Com Stock 140.13 12.30
NationsBank Corp. 3,633 7.02 07/26/95 Completed 5.8 Com Stock 159.65 16.71
Whitney Holding Corp. 5,422 10.56 04/23/96 Pending 14.0 Com Stock 257.92 24.56
ABC Bancorp, Inc. 3,787 8.13 01/04/96 Pending 7.6 Com Stock 198.38 15.73
Regions Financial 6,665 15.11 03/13/96 Pending 13.0 Com Stock 195.05 16.71
First Nat'l Bancorp 4,205 10.88 07/25/95 Completed 6.8 Com Stock 161.71 14.95
Citi-Bancshares 3,072 7.98 09/29/95 Pending 8.3 Com Stock 270.18 22.13
- -----------------------------------------------------------------------------------------------------------------------
$4,492 10.12 193.70 16.84
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Georgia Business Corporation Code (the "Georgia Code") provides that the
Articles of Incorporation may include a provision eliminating or limiting the
personal liability of a director, other than: (i) for any appropriation, in
violation of the director's duties, of any business opportunity of the
corporation; (ii) for acts or omissions which involve intentional misconduct
or unlawful violation of laws; (iii) for certain unlawful distributions; and
(iv) for any transaction from which the director received an improper personal
benefit. The Georgia Code further provides that a corporation may indemnify a
director if the director acted in a manner he believed in good faith to be in
or not opposed to the best interest of the corporation and, in the case of any
criminal proceeding, he had no reasonable cause to believe that his conduct
was unlawful. A corporation may not indemnify a director, however, in
connection with a proceeding by or in the right of the corporation in which
the director was adjudged liable to the corporation, or in connection with any
other proceeding in which the director was adjudged liable on the basis that
personal benefit was improperly received by the director. The Georgia Code
provides for mandatory indemnification of a director unless otherwise limited
by a corporation's Articles of Incorporation, to the extent of reasonable
expenses incurred by the director in connection with a proceeding.
A further limitation on indemnification imposed by the Georgia Code is that
in the case of indemnification in connection with a proceeding by or in the
right of the corporation, indemnification is limited to reasonable expenses
incurred in connection with the proceeding.
Article XI of ABC's Amended Articles of Incorporation (the "Articles")
provides that no director shall be personally liable to ABC or its
stockholders for monetary damages for any breach of the duty of care or other
duty as a director, except that such liability shall not be eliminated: (i)
for any appropriation, in violation of a director's duties, of any business
opportunity of the corporation, (ii) for acts or omissions which involve
intentional misconduct or a knowing violation of law, (iii) for certain
unlawful distributions, or (iv) for any transaction from which the director
derived an improper personal benefit.
The Georgia Code permits a corporation to indemnify a director if the
director seeking indemnification acted in a manner he believed in good faith
to be in or not opposed to the best interest of such corporation and, in the
case of any criminal proceeding, that he had no reasonable cause to believe
his conduct was unlawful.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a. Exhibits and Exhibit Index
4.1 Articles of Incorporation of ABC, as amended (incorporated by reference
to Exhibit 2.1 to ABC's Regulation A Offering Statement on Form 1-A (File
No. 24A-2630) filed August 14, 1987).
4.2 Amendment to Amended Articles of Incorporation dated May 26, 1995
(incorporated by reference to Exhibit 3.1.1 to ABC's Form 10-K filed
March 28, 1996).
4.3 Amendment to Amended Articles of Incorporation, dated June 3, 1996.
4.4 Bylaws of ABC, as amended (incorporated by reference to Exhibit 2.2 to
ABC's Regulation A Offering Statement on Form 1-A (File No. 24A-2630)
filed August 14, 1987).
5.1 Opinion of Rogers & Hardin regarding legality of securities being
registered (including their consent).
8.1 Opinion of Rogers & Hardin regarding certain tax matters (including their
consent).
10.1 1985 Incentive Stock Option Plan (filed as Exhibit 5.1 to ABC's
Regulation A Offering Statement on Form 1-A (File No. 24A-2630), filed
with the Commission on August 14, 1987 and incorporated herein by
reference).
II-1
<PAGE>
10.2 Incentive Stock Option Agreement with Kenneth J. Hunnicutt dated October
17, 1985 (filed as Exhibit 5.2 to ABC's Regulation A Offering Statement
on Form 1-A (File No. 24A-2630), filed with the Commission on August 14,
1987 and incorporated herein by reference).
10.3 Deferred Compensation Agreement for Kenneth J. Hunnicutt dated December
16, 1986 (filed as Exhibit 5.3 to ABC's Regulation A Offering Statement
on Form 1-A (File No. 24A-2630), filed with the Commission on August 14,
1987 and incorporated herein by reference).
10.4 Security Deed in favor of M.I.A., Co. dated December 31, 1984 (filed as
Exhibit 5.4 to ABC's Regulation A Offering Statement on Form 1-A (File
No. 24A-2630), filed with the Commission on August 14, 1987 and
incorporated herein by reference).
10.5 Loan Agreement and Master Term Note dated December 30, 1986 (filed as
Exhibit 5.5 to ABC's Regulation A Offering Statement on Form 1-A (File
No. 24A-2630), filed with the Commission on August 14, 1987 and
incorporated herein by reference).
10.6 Executive Salary Continuation Agreement dated February 14, 1984 (filed as
Exhibit 10.6 to ABC's Annual Report on Form 10-KSB (File Number 2-71257),
filed herewith with the Commission on March 27, 1989 and incorporated
herein by reference).
10.7 1992 Incentive Stock Option Plan and Option Agreement for K. J. Hunnicutt
(filed as Exhibit 10.7 to ABC's Annual Report on Form 10-KSB (File Number
0-16181), filed with the Commission on March 30, 1993 and incorporated
herein by reference.)
10.8 Executive Employment Agreement with Kenneth J. Hunnicutt dated September
20, 1994 (filed as Exhibit 10.8 to ABC's Annual Report on Form 10-KSB
(File Number 0-016181), filed with the Commission on March 30, 1995 and
incorporated herein by reference).
10.9 Executive Consulting Agreement with Eugene M. Vereen dated September 20,
1994 (filed as Exhibit 10.9 to ABC's Annual Report on Form 10-KSB (File
Number 0-16181), filed with the Commission on March 30, 1995 and
incorporated herein by reference).
10.10 Agreement and Plan of Merger by and between ABC and Southland
Bancorporation dated as of December 18, 1995 (filed as Exhibit 10.10 to
ABC's Annual Report on Form 10-K (File No. 0-16181), filed with the
Commission on March 28, 1996 and incorporated herein by reference), and
Amendment No. 1 thereto dated as of April 16, 1996 (filed as part of
Appendix A to Amendment No. 1 to ABC's Registration on Form S-4
(Registration No. 333-2387), filed with the Commission on May 21, 1996
and incorporated herein by reference).
10.11 Agreement and Plan of Merger by and between ABC and Central Bankshares,
Inc., dated as of December 29, 1995 (filed as Exhibit 10.11 to ABC's
Annual Report on Form 10-K (File No. 0-16181), filed with the Commission
on March 28, 1996 and incorporated herein by reference), and Amendment
No. 1 thereto dated as of April 26, 1996 (filed as part of Appendix A to
ABC's Registration on Form S-4 (Registration No. 333-05861), filed with
the Commission on June 12, 1996 and incorporated herein by reference).
10.12 Agreement and Plan of Merger by and between ABC and First National
Financial Corporation dated as of April 15, 1996 (filed as Exhibit 10.12
to Amendment No. 1 to ABC's Registration on Form S-4 (Registration No.
333-2387), filed with the Commission on May 21, 1996 and incorporated
herein by reference).
21.1 Schedule of subsidiaries of ABC Bancorp.
23.1 Consent of Mauldin & Jenkins.
23.2 Consent of Mauldin & Jenkins.
23.3Consent of KPMG Peat Marwick LLP.
II-2
<PAGE>
23.4 Consent of Francis & Co., CPAs.
23.5 Consent of T. Stephen Johnson & Associates, Inc., Financial Advisor.
23.6 Consent of Rogers & Hardin (contained in Exhibits 5.1 and 8.1 hereto).
24.1 Powers of attorney (included in the Signature page hereto)
99.1 Letter of Transmittal and Instructions.
99.2 Form of Exchange Agreement by and between SunTrust Bank, Atlanta and ABC
Bancorp.
99.3 Form of proxy card.
b. Financial Statement Schedules.
No financial statement schedules are required to be filed with this
Registration Statement.
c. Reports, Opinions or Appraisals.
None.
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) If the Registrant is a foreign private issuer, to file a post-
effective amendment to the registration statement to include any financial
statements required by Rule 3-19 of this chapter at the start of any
delayed offering or throughout a continuous offering. Financial statements
and information otherwise required by Section 10(a)(3) of the Act need not
be furnished, provided, that the Registrant includes in the prospectus, by
means of a post-effective amendment, financial, financial statements
required pursuant to this paragraph (a)(4) and other information necessary
to ensure that all other information in the prospectus is at least as
current as the date of those financial statements. Notwithstanding the
foregoing, with respect to registration
II-3
<PAGE>
statements on Form F-3, a post-effective amendment need not be filed to
include financial statements and information required by Section 10(a)(3)
of the Act or Rule 3-19 of this chapter if such financial statements and
information are contained in periodic reports filed with or furnished to
the Commission by the Registrant pursuant to section 13 or section 15(d) of
the Securities Exchange Act of 1934 that are incorporated by reference in
the Form F-3.
(b) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
(c) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(d) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(e) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against the public policy as expressed in
the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(f) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(g) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Moultrie,
State of Georgia, on July 16, 1996.
ABC BANCORP
/s/ Kenneth J. Hunnicutt
By: _________________________________
Kenneth J. Hunnicutt, President
and Chief Executive Officer
In accordance with requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in their
capacities and on the dates indicated.
Each person whose signature appears below hereby authorizes Kenneth J.
Hunnicutt and W. Edwin Lane, Jr., and each of them, to file one or more
amendments (including post-effective amendments) to the Registration
Statement, with all exhibits thereto, which amendments may make such changes
as any of such persons deems appropriate, and each person, individually and in
each capacity stated below, hereby appoints each of such persons as attorney-
in-fact and agent, with full power of substitution and resubstitution, to
execute in his name and on his behalf any such amendments to the Registration
Statement, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes, may lawfully do or come to be done
by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ------------------------------- -------------------
<S> <C> <C>
/s/ Kenneth J. Hunnicutt President, Chief Executive July 16, 1996
____________________________________ Officer and Director (Principal
KENNETH J. HUNNICUTT Executive Officer)
/s/ W. Edwin Lane, Jr. Executive Vice President and July 16, 1996
____________________________________ Chief Financial Officer
W. EDWIN LANE, JR. (Principal Financial Officer
and Principal Accounting
Officer)
/s/ J. Raymond Fulp Director July 16, 1996
____________________________________
J. RAYMOND FULP
/s/ Williard E. Lasseter Chairman of the Board and July 16, 1996
____________________________________ Director
WILLIARD E. LASSETER
Director , 1996
____________________________________
BOBBY B. LINDSEY
/S/ HAL L. LYNCH Director July 16, 1996
____________________________________
HAL L. LYNCH
/s/ Joseph C. Parker Director July 16, 1996
____________________________________
JOSEPH C. PARKER
/s/ Eugene M. Vereen, Jr. Director July 16, 1996
____________________________________
EUGENE M. VEREEN, JR.
/s/ Doyle Weltzbarker Vice Chairman and Director July 16, 1996
____________________________________
DOYLE WELTZBARKER
Director , 1996
____________________________________
HENRY C. WORTMAN
/s/ Johnny Floyd Director July 16, 1996
____________________________________
JOHNNY FLOYD
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
4.1 Articles of Incorporation of ABC, as amended (incorporated by reference
to Exhibit 2.1 to ABC's Regulation A Offering Statement on Form 1-A (File
No. 24A-2630) filed August 14, 1987).
4.2 Amendment to Amended Articles of Incorporation dated May 26, 1995
(incorporated by reference to Exhibit 3.1.1 to ABC's Form 10-K filed
March 28, 1996).
4.3 Amendment to Amended Articles of Incorporation, dated June 3, 1996.
4.4 Bylaws of ABC, as amended (incorporated by reference to Exhibit 2.2 to
ABC's Regulation A Offering Statement on Form 1-A (File No. 24A-2630)
filed August 14, 1987).
5.1 Opinion of Rogers & Hardin regarding legality of securities being
registered (including their consent).
8.1 Opinion of Rogers & Hardin regarding certain tax matters (including their
consent).
10.1 1985 Incentive Stock Option Plan (filed as Exhibit 5.1 to ABC's
Regulation A Offering Statement on Form 1-A (File No. 24A-2630), filed
with the Commission on August 14, 1987 and incorporated herein by
reference).
10.2 Incentive Stock Option Agreement with Kenneth J. Hunnicutt dated October
17, 1985 (filed as Exhibit 5.2 to ABC's Regulation A Offering Statement
on Form 1-A (File No. 24A-2630), filed with the Commission on August 14,
1987 and incorporated herein by reference).
10.3 Deferred Compensation Agreement for Kenneth J. Hunnicutt dated December
16, 1986 (filed as Exhibit 5.3 to ABC's Regulation A Offering Statement
on Form 1-A (File No. 24A-2630), filed with the Commission on August 14,
1987 and incorporated herein by reference).
10.4 Security Deed in favor of M.I.A., Co. dated December 31, 1984 (filed as
Exhibit 5.4 to ABC's Regulation A Offering Statement on Form 1-A (File
No. 24A-2630), filed with the Commission on August 14, 1987 and
incorporated herein by reference).
10.5 Loan Agreement and Master Term Note dated December 30, 1986 (filed as
Exhibit 5.5 to ABC's Regulation A Offering Statement on Form 1-A (File
No. 24A-2630), filed with the Commission on August 14, 1987 and
incorporated herein by reference).
10.6 Executive Salary Continuation Agreement dated February 14, 1984 (filed as
Exhibit 10.6 to ABC's Annual Report on Form 10-KSB (File Number 2-71257),
filed herewith with the Commission on March 27, 1989 and incorporated
herein by reference).
10.7 1992 Incentive Stock Option Plan and Option Agreement for K. J. Hunnicutt
(filed as Exhibit 10.7 to ABC's Annual Report on Form 10-KSB (File Number
0-16181), filed with the Commission on March 30, 1993 and incorporated
herein by reference.)
10.8 Executive Employment Agreement with Kenneth J. Hunnicutt dated September
20, 1994 (filed as Exhibit 10.8 to ABC's Annual Report on Form 10-KSB
(File Number 0-016181), filed with the Commission on March 30, 1995 and
incorporated herein by reference).
10.9 Executive Consulting Agreement with Eugene M. Vereen dated September 20,
1994 (filed as Exhibit 10.9 to ABC's Annual Report on Form 10-KSB (File
Number 0-16181), filed with the Commission on March 30, 1995 and
incorporated herein by reference).
10.10 Agreement and Plan of Merger by and between ABC and Southland
Bancorporation dated as of December 18, 1995 (filed as Exhibit 10.10 to
ABC's Annual Report on Form 10-K (File No. 0-16181), filed with the
Commission on March 28, 1996 and incorporated herein by reference), and
Amendment No. 1 thereto dated as of April 16, 1996 (filed as part of
Appendix A to Amendment No. 1 to ABC's Registration on Form S-4
(Registration No. 333-2387), filed with the Commission on May 21, 1996
and incorporated herein by reference).
<PAGE>
10.11 Agreement and Plan of Merger by and between ABC and Central Bankshares,
Inc., dated as of December 29, 1995 (filed as Exhibit 10.11 to ABC's
Annual Report on Form 10-K (File No. 0-16181), filed with the Commission
on March 28, 1996 and incorporated herein by reference), and Amendment
No. 1 thereto dated as of April 26, 1996 (filed as part of Appendix A to
ABC's Registration on Form S-4 (Registration No. 333-05861), filed with
the Commission on June 12, 1996 and incorporated herein by reference).
10.12 Agreement and Plan of Merger by and between ABC and First National
Financial Corporation dated as of April 15, 1996 (filed as Exhibit 10.12
to Amendment No. 1 to ABC's Registration on Form S-4 (Registration No.
333-2387), filed with the Commission on May 21, 1996 and incorporated
herein by reference).
21.1 Schedule of subsidiaries of ABC Bancorp.
23.1 Consent of Mauldin & Jenkins.
23.2 Consent of Mauldin & Jenkins.
23.3Consent of KPMG Peat Marwick LLP.
23.4 Consent of Francis & Co., CPAs.
23.5 Consent of T. Stephen Johnson & Associates, Inc., Financial Advisor.
23.6 Consent of Rogers & Hardin (contained in Exhibits 5.1 and 8.1 hereto).
24.1 Powers of attorney (included in the Signature page hereto)
99.1 Letter of Transmittal and Instructions.
99.2 Form of Exchange Agreement by and between SunTrust Bank, Atlanta and ABC
Bancorp.
99.3 Form of proxy card.
<PAGE>
EXHIBIT 4.3
ARTICLES OF AMENDMENT
OF THE ARTICLES OF INCORPORATION
OF ABC BANCORP
Pursuant to the provisions of Section 14-2-1006 of the Georgia Business
Corporation Code, as amended (the "Code"), the undersigned, on behalf of ABC
BANCORP (the "Corporation"), hereby submits the following information:
1. The name of the Corporation is ABC BANCORP.
2. Pursuant to Section 14-2-1003 of the Code, the following amendment to
the Articles of Incorporation of the Corporation was duly adopted by the Board
of Directors on February 20, 1996 and by the Shareholders on April 16, 1996.
Effective as of the date hereof, the Articles of Incorporation of the
Corporation are hereby amended by deleting Article V thereof in its entirety and
adding the following Article V thereto:
V.
The maximum amount of shares of stock that this corporation shall be
authorized to issue shall be 20,000,000 shares which are to be divided
into two classes as follows:
15,000,000 shares of Common Stock, par value $1.00 per share; and
5,000,000 shares of Preferred Stock.
The Common Stock may be created and issued from time to time in one or
more series with voting rights for each series as determined by the
Board of Directors of the corporation and set forth in the resolution
or resolutions providing for the creation and issuance of the stock in
such series. The Preferred Stock may be created and issued from time
to time in one or more series with such designations, preferences,
limitations, conversion rights, cumulative, relative, participating,
optional or other rights, including voting rights, qualifications,
limitations or restrictions thereof as determined by the Board of
Directors of the corporation and set forth in
<PAGE>
the resolution or restrictions providing for the creation and issuance
of the stock in such series.
3. All other provisions of the Articles of Incorporation of the
Corporation shall remain in full force and effect.
EXECUTED this 3rd day of June, 1996.
ABC BANCORP
By: /s/ KENNETH J. HUNNICUTT
----------------------------
Kenneth J. Hunnicutt
Chief Executive Officer and President
ATTEST:
/s/ SARA R. HALL
- ----------------
Sara R. Hall
Secretary
<PAGE>
EXHIBIT 5.1
July 16, 1996
ABC Bancorp
310 First Street, S.E.
Moultrie, Georgia 31776
Ladies and Gentlemen:
You have requested our opinion in connection with the Form S-4
Registration Statement to be filed with the Securities and Exchange Commission
by ABC Bancorp (the "Corporation") on July 17, 1996, with respect to the offer
and sale by the Corporation of not more than 736,277 shares of common stock,
$1.00 per value per share, of the Corporation (the "Shares") to certain security
holders of First National Corporation ("First National") upon the consummation
of the merger of First National with and into the consummation of the merger of
First National with and into the Corporation, all as further described in the
Registration Statement.
We have examined such records and documents and have made such
investigation of law as we have deemed necessary under the circumstances.
Based on that examination and investigation, it is our opinion that,
when issued and sold in the manner described in the Registration Statement
(including all exhibits thereto) and in compliance with the Securities Act of
1933, as amended, and applicable state Blue Sky laws, (i) the Shares will be
duly authorized and validly issued; and (ii) the Shares will be fully paid and
non-assessable.
We consent to the use of our name under the captions "Proposed Merger -
Certain Federal Income Tax Consequences of the Merger," and "Legal Opinions" in
the prospectus included in the Registration Statement and to the filing of this
opinion as Exhibit 5.1 to the Registration Statement.
Very truly yours,
/s/ Rogers & Hardin
---------------------------
ROGERS & HARDIN
<PAGE>
July 17, 1996
ABC Bancorp
310 First Street, S.E.
Moultrie, Georgia 31768
First National Financial Corporation
2627 Dawson Road
Albany, Georgia 31707
Re: Federal Income Tax Consequences of Proposed Merger of First National
Financial Corporation with and into ABC Bancorp
Gentlemen:
We have acted as counsel for ABc Bancorp ("ABC") in connection with the
proposed merger (the "Merger") of First National Financial Corporation ("First
National") with and into ABC, pursuant to the Agreement and Plan of Merger (the
"Merger Agreement") dated as of April 15, 1996, by and between ABC and First
National. In our capacity as counsel for ABC and as provided in the Merger
Agreement, we have been requested to render our opinion regarding certain of the
federal income tax consequences of the Merger.
We understand that this opinion will be filed as an exhibit to the
Registration Statement on Form S-4 (the "Registration Statement") that will be
filed by ABC with the Securities and Exchange Commission relating to the
securities that will be issued by ABC pursuant to the Merger Agreement and that
this opinion will be referred to in the Proxy Statement/Prospectus that will be
a part of the Registration Statement. We hereby consent to such use of and
reference to this opinion.
All terms used herein without definition shall have the respective
meanings specified in the Merger Agreement and, unless otherwise indicated, all
section references herein are to the Internal Revenue Code of 1986, as amended.
<PAGE>
ABC Bancorp
First National Financial Corporation
July 17, 1996
Page 2
INFORMATION RELIED UPON
-----------------------
In rendering this opinion, we have examined such documents as we have
deemed appropriate, including the Merger Agreement and the Registration
Statement. In the course of such examination, we have assumed, with your
consent, that all documents submitted to us as photocopies faithfully reproduce
the originals thereof, that all such originals are authentic, that all such
documents have been or will be duly executed to the extent required, and that
all statements set forth in such documents are accurate. We have also obtained
such additional information and representations as we have deemed relevant and
necessary through consultations with various representatives of ABC and First
National. In addition, we have obtained written certificates from the
managements of ABC and First National to verify certain relevant facts that have
been represented to us or that we have assumed in rendering this opinion. Such
certificates are attached as Exhibits to this opinion. With your consent, we
have assumed that the representations made in such certificates are true on the
date hereof and will be true at the Effective Time.
OPINION
-------
Based upon the foregoing, it is our opinion that:
(1) The Merger will constitute a "reorganization" within the meaning of
Section 368(a)(1)(A), and ABC and First National will each be "a party to a
reorganization" within the meaning of Section 368(b).
(2) No gain or loss will be recognized by ABC or First National as a result
of the Merger.
(3) A First National shareholder will not recognize gain on his or her
exchange of First National Shares in the Merger in excess of the amount of cash,
if any, received by him or her for such First National Shares.
(4) The tax basis of any ABC Common Stock received by a First National
shareholder in the Merger in exchange for First National Shares will be the same
as the tax basis of his or her First National Shares exchanged in the Merger,
decreased by the total amount of any cash received by such shareholder for such
First National Shares and increased by the total amount of any gain recognized
in such exchange.
(5) A First National shareholder's holding period of any ABC
<PAGE>
ABC Bancorp
First National Financial Corporation
July 17, 1996
Page 3
Common Stock received by him or her in the Merger in exchange for First National
Shares will include the holding period of his or her First National Shares
exchanged in the Merger, provided that he or she held the First National Shares
as a capital asset at the Effective Time.
The opinion expressed herein is based upon existing statutory, regulatory,
and judicial authority, any of which may be changed at any time with retroactive
effect. In addition, such opinion is based solely on the documents that we have
examined, the additional information that we have obtained and the
representations that have been made to us and cannot be relied upon if any of
the facts contained in such documents or in such additional information is, or
later becomes, inaccurate or if any of the representations made to us is, or
later becomes, inaccurate. Finally, our opinion is limited to the tax matters
specifically addressed herein, and we have not been asked to address, nor have
we addressed, any other tax consequences of the Merger. Specifically, but
without limitation, we express no opinion with respect to the tax consequences
to any holder of any Option or Warrant upon the cancellation of such Option or
Warrant and the receipt of shares of ABC Common Stock and/or cash with respect
thereto pursuant to the Merger Agreement.
Very truly yours,
/s/ Rogers & Hardin
----------------------
ROGERS & HARDIN
<PAGE>
EXHIBIT 21.1
Schedule of Subsidiaries of ABC Bancorp
State of Organization
Name of Subsidiary or Incorporation
- ------------------ ---------------------
American Banking Company Georgia
The Bank of Quitman Georgia
Bank of Thomas County Georgia
The Citizens Bank of Tifton Georgia
Cairo Banking Company Georgia
Southland Bank, Dothan Alabama
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use of our report dated January 24, 1996
relating to the consolidated financial statements of ABC Bancorp included in the
Registration Statement on Form S-4 and to the reference of our Firm under the
caption "Experts" in the Prospectus/Proxy Statement.
/s/ Mauldin & Jenkins
-------------------------
MAULDIN & JENKINS
July 17, 1996
Albany, Georgia
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use of our report dated January 26, 1996
relating to the consolidated financial statements of Central Bankshares, Inc.
included in the Registration Statement on Form S-4 and to the reference of our
Firm under the caption "Experts" in the Prospectus/Proxy Statement.
/s/ Mauldin & Jenkins
-------------------------
MAULDIN & JENKINS
July 17, 1996
Albany, Georgia
<PAGE>
EXHIBIT 23.3
------------
Independent Accountant's Consent
--------------------------------
The Board of Directors
Southland Bancorporation:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the Prospectus.
Our report refers to a change in the method of accounting for income taxes in
1993 to adopt the provisions of Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes," and a change in the method of accounting for
investments in debt and equity securities to adopt the provisions of Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities," at January 1, 1994.
/s/ KPMG Peat Marwick LLP
-------------------------
KPMG Peat Marwick LLP
Atlanta, Georgia
July 15, 1996
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 of our
report dated February 9, 1996, relating to the financial statements of First
National Financial Corporation, Albany, Georgia, and to the reference to our
Firm under the caption "Experts" in the Prospectus/Proxy Statement.
/s/ Francis & Co., CPA's
Atlanta, Georgia
July 17, 1996
<PAGE>
EXHIBIT 23.5
[LETTERHEAD OF T. STEPHEN JOHNSON & ASSOCIATES, INC. GOES HERE]
We hereby consent to the use in this Registration on Form S-4 of our opinion
dated May 21, 1996, concerning the fairness from a financial point of view of
the consideration to be received by connection with the proposed merger of First
National with and into ABC Bancorp.
Atlanta, Georgia
July 15, 1996
/s/ T. Stephen Johnson & Associates, Inc.
-----------------------------------------
T. Stephen Johnson & Associates
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
To Accompany Certificates Representing
Shares of Common Stock
of
FIRST NATIONAL FINANCIAL CORPORATION
Surrendered in connection with the Merger of
First National Financial Corporation with and into ABC BANCORP
To: ____________________________________________________
Exchange Agent
Attention: ____________________
By Mail: By Hand:
____________________ ______________________
____________________ ______________________
____________________ ______________________
DO NOT SEND CERTIFICATES OR THIS LETTER OF TRANSMITTAL
TO FIRST NATIONAL FINANCIAL CORPORATION OR ABC BANCORP.
PLEASE READ ACCOMPANYING INSTRUCTIONS CAREFULLY
In connection with the merger (the "Merger") of First National Financial
Corporation, a Georgia corporation (the "Company"), with and into ABC Bancorp, a
Georgia corporation ("ABC"), the undersigned registered holder(s) of the stock
certificate(s) (the "Certificates") formerly representing shares of common
stock, $1.00 par value per share, of the Company ("Company Common Stock"), or
the transferee or assignee of such registered holder(s), hereby surrenders the
Certificates in exchange for certificates representing shares of common stock,
$1.00 par value per share, of ABC (the "ABC Common Stock") pursuant to the terms
of the Merger Agreement. (Unless otherwise provided herein, all capitalized
terms used herein are defined in the Instructions).
1
<PAGE>
COMPANY SHARES TO WHICH THIS
LETTER OF TRANSMITTAL RELATES
IMPORTANT: Shareholders must list below the Company Shares to which this Letter
of Transmittal relates.
Certificate No. Shares Represented by Each Certificate
--------------- --------------------------------------
_______________ _____________________________
_______________ _____________________________
_______________ _____________________________
_______________ _____________________________
_______________ _____________________________
Total Shares:
________________________________________________________________________________
(Name(s) of Registered Holder(s) -- Please Print)
________________________________________________________________________________
(Address)
________________________________________________________________________________
(Tax Identification or Social Security Numbers)
YOU MUST ENCLOSE CERTIFICATES FOR YOUR COMPANY SHARES WITH THIS LETTER OF
TRANSMITTAL (DULY ENDORSED IN BLANK OR OTHERWISE IF REQUIRED --SEE INSTRUCTIONS
3 AND 4) IN A FORM ACCEPTABLE FOR TRANSFER ON THE BOOKS OF THE COMPANY.
2
<PAGE>
SPECIAL PAYMENT INSTRUCTIONS
(See Instruction 4)
To be completed ONLY if the certificate(s) for ABC Common Stock to be
issued are to be registered in the name of someone other than the registered
-----
holder(s) of the Company Shares.
Certificate(s) for ABC Common Stock to be made issued to:*
Name: _______________________________________________________
(Please Print)
Address: ___________________________________________________
___________________________________________________
___________________________________________________
(Including Zip Code)
_________________________________________________________________
(Tax Identification or Social Security Number)**
*Only one recipient may be designated. Please attach additional sheets if
necessary.
**Section 6109 of the Internal Revenue Code of 1986, as amended (the "Code"),
requires recipients of dividends, interest and other payments to furnish
identifying numbers to the persons making such payments, who must report such
payments to the Internal Revenue Service. Recipients of such payments must
provide identification numbers whether or not they are required to file a tax
return or are covered by social security. The Code provides a penalty for
failure to provide such a number when required to do so.
SPECIAL DELIVERY INSTRUCTIONS
(See Instruction 6)
To be completed ONLY if the certificate(s) for ABC Common Stock to be
issued are to be registered in the name of the registered holder(s) of the
Company Shares but are to be sent to another person or to an address other than
the person or address to which this Letter of Transmittal was mailed.
Certificate(s) for ABC Common Stock to be delivered to:*
Name: _______________________________________________________
(Please Print)
Address: ____________________________________________________
____________________________________________________
(Including Zip Code)
*Please attach additional sheets if necessary.
3
<PAGE>
ACKNOWLEDGMENTS, REPRESENTATIONS, WARRANTIES AND
AUTHORIZATIONS OF THE UNDERSIGNED
1. I, the undersigned, hereby acknowledge receipt of the Proxy Statement
and agree that all actions, instructions and orders in this Letter of
Transmittal are subject to the terms and conditions of the Agreement and Plan of
Merger relating to the merger (the "Merger Agreement"), the Proxy Statement and
the Instructions applicable to this Letter of Transmittal. I also represent and
warrant that I have full authority to give the representations, certifications
and instructions contained in this Letter of Transmittal and to surrender the
Company Shares pursuant to the Merger, and I will, upon receipt, execute any
additional documents necessary or desirable to complete the exchange of Company
Shares for shares of ABC Common Stock. My signature below authorizes the
Exchange Agent to follow and to rely upon all representations, certifications
and instructions contained in this Letter of Transmittal. This Letter of
Transmittal shall survive my death or incapacity and shall be binding upon my
heirs, personal representatives and assigns.
2. I hereby authorize and instruct the Exchange Agent to deliver the
certificates covered hereby, and to receive on my behalf, in exchange for the
Company Shares represented by such certificates, any certificate(s) for ABC
Common Stock issuable to me.
3. I acknowledge that for each share of Company Common Stock I own I will
receive consideration payable in shares of ABC Common Stock according to the
terms of the Merger Agreement.
4. Unless otherwise indicated above, please issue certificate(s)
representing the ABC Common Stock to which the undersigned is entitled in the
name, and mail them to the address, indicated below. The undersigned agrees to
pay transfer taxes, if any, due where ABC Common Stock is issued to a name
different from that in which the Company Shares surrendered are registered. The
undersigned certifies that any tax identification or social security number
provided herein is true, correct and complete.
5. I understand that the definitive terms pursuant to which the Merger
will be effected, including the amount and form of consideration to be received
by holders of Company Shares, the effect of this Letter of Transmittal, and
certain conditions to the consummation of the transaction, are summarized in the
Proxy Statement, and all of such definitive terms and conditions are set forth
in full in the Merger Agreement, which is appended to the Proxy Statement.
4
<PAGE>
SHAREHOLDERS MUST SIGN BELOW
FOR THIS LETTER OF TRANSMITTAL
TO BE VALID
(See Instruction 2)
Please sign exactly as your name(s) appear(s) on your certificate(s). If
the Company Shares with respect to which this Letter of Transmittal applies are
registered in the name of two or more owners, all such owners must sign
personally. Executors, administrators, trustees and persons signing for
corporations or partnerships should so indicate. By signing this form persons
signing as executors, administrators or trustees and persons signing for
corporations or partnerships represent and warrant that they have requisite
legal authority to sign in the capacity indicated. Certificate(s) for ABC
Common Stock will be issued only in the name of the person(s) submitting this
Letter of Transmittal and will be mailed unless the Special Delivery or Special
Payment Instructions are completed. If any of your certificate(s) is registered
in your name or if you are signing in a representative capacity, see
Instructions 4 and 5, respectively.
Name of Owner (Please Print): ______________________________________________
Address: ___________________________________________________________________
Signature: ___________________________________ Date: ______________________
Name of Owner (Please Print): ______________________________________________
Address: ___________________________________________________________________
Signature: ______________________________ Date: ___________________________
____________________________________________________________________________
SIGNATURE GUARANTEE
(See Instructions 3 and 4)
Signature(s)
Guaranteed: _____________________________________________
(Name of Firm Providing Signature Guarantee;
Please Print)
(Authorized Signature) _______________________________
Note: In the event that the certificates representing the ABC Common Stock are
to be issued in the name of the registered holder as inscribed on the
surrendered Company Share certificates, the surrendered certificate need
not be endorsed, and no guarantee of the signature on the Letter of
Transmittal is required.
(ALSO COMPLETE SUBSTITUTE FORM W-9 ON NEXT PAGE)
5
<PAGE>
INSTRUCTIONS
FOR THE
LETTER OF TRANSMITTAL
IN CONNECTION WITH THE MERGER OF
FIRST NATIONAL FINANCIAL CORPORATION
WITH AND INTO
ABC BANCORP
TO FIRST NATIONAL FINANCIAL CORPORATION SHAREHOLDERS:
First National Financial Corporation (the "Company") has mailed a Proxy
Statement/Prospectus dated _____________ __, 1996 (the "Proxy Statement"), to
each Company shareholder. The Proxy Statement describes the proposed merger
(the "Merger") of the Company with and into ABC Bancorp ("ABC") to be voted upon
by the Company shareholders at the Special Meeting held _____________ __, 1996.
The Merger was approved by the Company shareholders at the Special Meeting. In
accordance with the terms of the Agreement and Plan of Merger dated as of April
15, 1996, between the Company and ABC (the "Merger Agreement"), upon the
completion of all conditions under the Merger Agreement and the filing of
appropriate articles of merger in the office of the Georgia Secretary of State
(the "Effective Time"), each share of the common stock of the Company
outstanding immediately prior to the consummation of the Merger (the "Company
Shares"), other than shares held by shareholders who dissent from the Merger,
will be converted into the right to receive shares of the common stock, $1.00
par value per share, of ABC ("ABC Common Stock") having a value equal to (i) (A)
2.0 times the lesser of (1) 0.08 times the total assets of the Company or (2)
the Total Equity of the Company, plus (B) 1.0 times the amount, if any, by
----
which the Total Equity of the Company exceeds 0.08 times the total assets of
the Company, based on the average of the total assets of the Company as of the
close of business for each of the 60 calendar days immediately preceding the
closing date of the Merger, (ii) divided by the aggregate number of then-
outstanding Company Shares (the "Merger Consideration"). Cash will be paid in
lieu of issuing fractional shares of ABC Common Stock. For purposes of the
Merger, "Total Equity" means the Company's total stockholders' equity calculated
under generally accepted accounting principles, consistently applied, as of the
close of business on the day immediately preceding the closing date of the
Merger.
Questions and requests for information, additional copies of the Letter of
Transmittal or assistance relating to the Letter of Transmittal should be
directed to _________________ at the Exchange Agent (telephone: (404)
___________________).
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INSTRUCTIONS
1. DEADLINE FOR LETTER OF TRANSMITTAL. To be effective, the Letter
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of Transmittal (or a facsimile thereof) properly executed, and accompanied by
the certificates representing the Company Shares covered thereby, must be
received by the Exchange Agent, at one of its two addresses set forth on the
first page of the Letter of Transmittal. Company shareholders are requested to
send in their Letters of Transmittal and certificates for Company Shares no
later than _______________, 1996. Any Company shareholder who did not vote in
favor of and objects to the Merger in strict compliance with Article 13 of the
Georgia Business Corporation Code ("GBCC") in order to exercise his or her right
of dissent should not complete the Letter of Transmittal. Such dissenting
Company shareholder should comply with the provisions of Article 13 of the GBCC,
a copy of which is attached to the Proxy Statement as Appendix B.
2. SIGNATURES. The Letter of Transmittal must be signed by or on
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behalf of the registered holder(s) of the certificate(s) transmitted. If the
Company Shares covered by the Letter of Transmittal are registered in the names
of two or more owners, all such owners must sign. The signature(s) on the
Letter of Transmittal should correspond exactly to the name(s) written on the
face of the certificate(s) transmitted unless the Company Shares covered by the
Letter of Transmittal have been assigned by the registered holder, in which
event the Letter of Transmittal should be signed in exactly the same form as the
name of the last assignee appears in the transfers attached to or endorsed on
the certificate(s). See Instructions 4(a) and 4(b).
If the Letter of Transmittal is signed by an agent, attorney,
administrator, executor, guardian, trustee, or any person in any other fiduciary
or representative capacity, or by an officer of a corporation on behalf of the
corporation, the person signing must give such person's full title in such
capacity. In addition, see Instruction 5.
3. ISSUANCE OF CHECK AND NEW CERTIFICATES IN SAME NAME. IF ANY CHECK
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OR CERTIFICATE REPRESENTING ABC COMMON STOCK IS TO BE MADE PAYABLE TO OR ISSUED
IN THE NAME OF THE REGISTERED HOLDER AS INSCRIBED ON THE SURRENDERED COMPANY
SHARE CERTIFICATE(S), THE SURRENDERED CERTIFICATE(S) NEED NOT BE ENDORSED AND NO
GUARANTEE OF THE SIGNATURE ON THE LETTER OF TRANSMITTAL IS REQUIRED. For
corrections in name or changes in name not involving changes in ownership, see
Instruction 4(d).
4. ISSUANCE OF CHECK OR NEW CERTIFICATE IN DIFFERENT NAMES. If any
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check is to be made payable in the name of a person other than the registered
-----
holder of the surrendered certificate(s) or if any certificate representing ABC
Common Stock is to be issued in the name of someone other than the registered
-----
holder of the surrendered certificate(s), you must follow the guidelines listed
below:
(a) ENDORSEMENT AND GUARANTEE. The certificate(s) surrendered must
-------------------------
be properly endorsed (or accompanied by appropriate stock powers properly
executed by the registered holder of such certificate(s)) to the person who is
to receive the ABC Common Stock. The signature of the registered holder to the
endorsement or stock powers must correspond with the name as written upon the
face of the certificate(s) in every particular and must be guaranteed by a
commercial bank or trust
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company in the United States or by a member firm of any national securities
exchange or of the National Association of Securities Dealers, Inc.
(b) TRANSFEREE'S SIGNATURE. The Letter of Transmittal must be signed
----------------------
by the transferee or assignee or by his agent and should not be signed by the
transferor or assignor. The signature of such transferee or assignee must be
guaranteed by a commercial bank or trust company or by a member firm of any
national securities exchange or of the National Association of Securities
Dealers, Inc.
(c) TRANSFER TAXES. In the event that any transfer or other taxes
--------------
become payable by reason of the issuance of ABC Common Stock or a check in any
name other than that of the registered holder, the Letter of Transmittal must be
accompanied by a check in payment of any transfer or other taxes required by
reason of such issuance in such different name or proper evidence that such tax
has been paid or is not payable.
(d) CORRECTION OF OR CHANGE IN NAME. For a correction of name or for
-------------------------------
a change in name which does not involve a change in ownership, proceed as
follows: for a change in name by marriage, etc., the surrendered certificate(s)
should be endorsed, e.g., "Mary Doe, now by marriage Mrs. Mary Jones," with the
signature guaranteed by a commercial bank or trust company or by a member firm
of any national securities exchange or (of the National Association of
Securities Dealers, Inc. For a correction in name, the surrendered
certificate(s) should be endorsed, e.g., "James E. Brown, incorrectly inscribed
as J. E. Brown," with the signature guaranteed as aforesaid.
YOU SHOULD CONSULT YOUR OWN TAX ADVISOR AS TO ANY POSSIBLE TAX CONSEQUENCES
RESULTING FROM THE ISSUANCE OF ANY CHECK OR ANY CERTIFICATE REPRESENTING ABC
COMMON STOCK IN A NAME DIFFERENT FROM THAT OF THE REGISTERED HOLDER OF THE
SURRENDERED CERTIFICATE(S).
5. SUPPORTING EVIDENCE. In case the Letter of Transmittal,
-------------------
certificate endorsement or stock power is executed by an agent, attorney,
administrator, executor, guardian, trustee, or any other person acting in a
fiduciary or representative capacity, or by an officer of a corporation on
behalf of the corporation, there must be submitted with the Letter of
Transmittal, surrendered certificate(s), and/or stock powers documentary
evidence of appointment and authority to act in such capacity (including court
orders and corporate resolutions where necessary), as well as evidence of the
authority of the person making such execution to assign, sell or transfer
shares. Such documentary evidence of authority must be in form satisfactory to
the Exchange Agent and the Company.
6. SPECIAL INSTRUCTIONS FOR DELIVERIES BY THE EXCHANGE AGENT. Unless
---------------------------------------------------------
instructions to the contrary are given in the Special Delivery Instructions Box
or Special Payment Instructions Box, any check or certificate representing ABC
Common Stock to be distributed upon the surrender of Company Shares will be
mailed to the address set forth above the owner's signature.
7. INADEQUATE SPACE. If there is insufficient space to complete any
----------------
box or sign the Letter of Transmittal, please attach additional sheets.
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8. INDICATION OF CERTIFICATE NUMBERS. The Letter of Transmittal must
---------------------------------
indicate the certificate number(s) of the certificate(s) representing the
Company Shares covered thereby. If the space provided on the Letter of
Transmittal is inadequate, such information should be listed separately on
additional sheets and attached to the Letter of Transmittal.
9. METHOD OF DELIVERY. The method of delivery of all documents is at
------------------
the option and risk of the holder of Company Shares, but, if delivery is by
mail, registered mail, with return receipt requested, properly insured is
recommended. It is suggested that you mail as early as possible.
10. PAYMENT WILL BE MADE BY ABC CERTIFICATE. Normally, a single
---------------------------------------
certificate representing ABC Common Stock will be issued; however, if for tax
purposes or otherwise you wish to have the stock certificates issued in
particular denominations, explicit written instructions to the Exchange Agent
should be provided.
11. LOST CERTIFICATES. If any of your certificates representing
-----------------
Company Shares has been lost, stolen or destroyed, you should notify
_____________ (telephone: (404) ________________) for instructions as to how to
proceed. The Letter of Transmittal and related documents cannot be processed
until the lost, stolen or destroyed certificate has been replaced. Replacement
takes a minimum of 7 days.
12. SIGNATURE ON SUBSTITUTE FORM W-9. Each shareholder is required
--------------------------------
to provide ABC with a correct Taxpayer Identification Number ("TIN") on
Substitute Form W-9, which is in the Letter of Transmittal, and to indicate that
such holder is not subject to backup withholding by checking the box in Part 2
of the form. Failure to provide the information on the form may subject the
shareholder to 31% backup withholding on the cash consideration paid. The box
on the form may be checked if the holder of Company Shares has not been issued a
TIN and has applied for a number or intends to apply for a number in the near
future. If the box is checked and ABC is not provided with a TIN within 60
days, ABC will withhold 31% of the consideration paid thereafter until the TIN
is provided to ABC.
13. VOTING RIGHTS AND DIVIDENDS. Holders of Company Shares shall
---------------------------
continue to have the same voting rights to which they were previously entitled,
and the right to receive all dividends paid on Company Shares deposited by them
with the Exchange Agent, until such time as the Merger becomes effective.
14. CONSTRUCTION. All questions with respect to the Letter of
------------
Transmittal will be determined by the Company, which determination shall be
final and binding. With the consent of the Company, the Exchange Agent may (but
is not required to) waive any material defects or variances in the manner in
which the Letter of Transmittal has been completed and submitted so long as the
intent of the holder of Company Shares submitting the Letter of Transmittal is
reasonably clear.
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15. MISCELLANEOUS. Neither the Company nor the Exchange Agent shall
-------------
be under any duty to give notification of defects in the Letter of Transmittal,
and they shall not incur any liability for failure to give such notice.
All Letters of Transmittal shall be construed in accordance with the terms
and conditions of the Merger Agreement.
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EXHIBIT 99.2
EXCHANGE AGENT AGREEMENT
THIS EXCHANGE AGENT AGREEMENT (the "Agreement") dated as of ____________,
1996 is by and among ___________________, with principal offices ______________
in Atlanta, Georgia ("Bank") and ABC BANCORP, a Georgia corporation
("Acquiror").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, Acquiror and First National Financial Corporation ("First
National") are parties to an Agreement and Plan of Merger dated as of April 15,
1995 (the "Merger Agreement"). Following the satisfaction or waiver of certain
conditions set forth in the Merger Agreement, First National will be merged with
and into the Acquiror (the "Merger"), which will be the surviving corporation of
the Merger. A true and correct copy of the Merger Agreement, together with
specimen stock certificates representing shares of First National Common Stock,
$1.00 par value per share ("First National Shares"), have been delivered to the
Bank prior to the execution of this Agreement;
WHEREAS, the Merger Agreement provides that, upon consummation of the
Merger and proper presentment of the stock certificates representing First
National Shares, each First National Share outstanding immediately prior to the
Effective Time of the Merger, as defined in the Merger Agreement (the "Effective
Time of the Merger"), other than shares as to which statutory dissenters' rights
have been perfected, will be converted into the right to receive consideration
equal to the Merger Consideration (as specified in the Merger Agreement),
payable in whole shares of the common stock, $1.00 par value per share, of ABC
("ABC Common Stock");
WHEREAS, for purposes of determining the number of shares of ABC Common
Stock into which a First National Share may be converted, the "Base Period
Trading Price" means the average of the daily high and low sales prices of a
share of the Acquiror's Common Stock as reported on NASDAQ/NMS for the twenty
(20) consecutive trading days immediately preceding five (5) consecutive
calendar days immediately preceding the Effective Time (as defined in the Merger
Agreement"); provided however, that for purposes of this calculation, the Base
Period Trading Price shall be deemed to equal (i) $16.00 in the event the Base
Period Trading Price is greater than $16.00 or (ii) $12.00 in the event the Base
Period Trading Price is less than $12.00; and
WHEREAS, Acquiror desires to appoint Bank to act as Exchange Agent to
effect the exchange described herein, and Bank desires to accept such
appointment. (For convenience, hereinafter in this Agreement First National
Shares outstanding immediately prior to the Effective Time of the Merger are
called "Shares," the certificates representing such shares are called
"Certificates," and the holders of such Certificates are called "Shareholders").
NOW, THEREFORE, based on the mutual covenants set forth herein, and other
good and valuable consideration, the adequacy and sufficiency of which is hereby
acknowledged by each party,
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and with the intent to be legally bound, the parties hereto hereby represent,
warrant and agree as follows:
1. APPOINTMENT. Acquiror hereby appoints Bank as
-----------
Exchange Agent to make payments to Shareholders in accordance with the
provisions of Article 3 of the Merger Agreement, which provisions are
incorporated herein by reference, and Bank hereby accepts such appointment and
agrees to act as Exchange Agent in accordance with the terms of Article 3 of the
Merger Agreement, and the remaining provisions of this Agreement.
2. DUTIES OF BANK. Bank's duties as Exchange Agent shall be as set forth
--------------
in Article 3 of the Merger Agreement and as follows:
(a) Upon receipt of a Letter of Transmittal and related Certificates, Bank
shall determine whether (i) the Letter of Transmittal has been properly
completed, and (ii) the accompanying Certificate(s) are in proper order
(including proper endorsement, if required). If the Letter of Transmittal
and/or Certificates are not in proper order, Bank shall advise the
presenter promptly.
(b) Bank shall also verify by examining stop transfer records of First
National to be furnished to Bank by ABC as to lost, stolen, destroyed or
otherwise invalid Certificates that no stop order has been issued against
the Shares represented by the surrendered Certificates, the registration of
the Certificates should be checked against the certified list of
Shareholders of record of First National Shares at the Effective Time of
the Merger.
(c) If Certificates are surrendered to Bank with instructions to deliver
the check and/or the certificates of ABC Common Stock in a name other than
the name of the record holder, Bank shall determine whether each such
Certificate is properly endorsed or accompanied by an appropriate stock
power and the signatures thereon are guaranteed by an eligible guarantor
institution (bank, broker, savings and loan association or credit union)
with membership in an approved Medallion Signature Guarantee Program
pursuant to Rule 17Ad-5 of the Securities and Exchange Commission. Where a
Letter of Transmittal is signed by a trustee, executor, administrator,
guardian, officer of a corporation, attorney-in-fact or other person acting
in a fiduciary capacity and the surrendered Certificate is not registered
in the fiduciary's name, the Letter of Transmittal must be accompanied by
proper evidence of the signer's authority to act. If more than one person
is the record holder of the surrendered Certificate, each person must sign
the Letter of Transmittal. Any necessary stock transfer stamps must be
affixed to the Certificate, or funds in lieu thereof must be furnished to
Bank.
(d) Bank shall promptly notify the Acquiror if a person submits a Letter
of Transmittal to Bank and alleges that the Certificate or Certificates
representing the Shares to which the Letter of Transmittal relates have
been lost, stolen or destroyed. Bank shall then instruct such person as to
the procedure for obtaining a bond of indemnification reasonably
satisfactory to Bank and to Acquiror.
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(e) Bank shall promptly notify Acquiror if Bank receives any Certificate
bearing the name of a person on the list of those persons who have taken
steps to perfect their dissenters' rights, which list shall be provided to
Bank by Acquiror.
(f) After examining the Certificates which have been surrendered to Bank
and the accompanying Letters of Transmittal, Bank shall be obligated to
issue certificates for shares of ABC Common Stock (and checks for
fractional shares) and deliver same in accordance with Article 3 of the
Merger Agreement and in accordance with the duly completed Letters of
Transmittal.
(g) Bank shall cancel all those Certificates which have been surrendered
to it and with respect to which issuance of a check and/or certificates for
shares of ABC Common Stock has been made. All such Certificates so
surrendered and cancelled shall be held by Bank until Bank's duties as
Exchange Agent shall terminate, at which time Acquiror will take delivery
of the Certificates and other documents in the possession of the Exchange
Agent concerning the records of the former Shareholders.
(h) Bank shall maintain on a continuing basis, for the term of this
Agreement, a list of Shareholders who have not yet surrendered their
Certificates.
(i) In examining and processing Certificates and Letters of Transmittal
submitted hereunder and making issuances therefor, Bank shall in all cases
act as promptly as practicable.
(j) Bank's duties as Exchange Agent shall continue until the earliest of:
(i) the payment of all amounts due to Shareholders under Article 3 of the
Merger Agreement; (ii) the notification by Acquiror to Bank that Acquiror
has appointed a new exchange agent that satisfies the qualifications
specified in Section 8(c) of this Agreement; (iii) the issuance of all
certificates (and checks for fractional shares) for shares of ABC Common
Stock pursuant to the terms of Article 3 of the Merger Agreement; (iv) a
date which is one year after the Effective Time of the Merger; or (v) the
termination of the Merger Agreement prior to the consummation of the Merger
for any reason whatsoever. Upon termination, the Exchange Agent will direct
the Shareholders to the new agent or the Acquiror as appropriate. If notice
of the appointment of a new exchange agent is given to Bank at any time,
Bank shall transfer all blank certificates then held by it under this
Agreement to the new exchange agent upon receipt of a copy of a fully
executed exchange agent agreement with such new exchange agent.
3. SPECIAL INSTRUCTIONS, ETC. Bank shall be entitled to request further
-------------------------
instruction of Acquiror and may rely upon any letter of instruction executed by
Acquiror. In performing its duties hereunder, Bank shall follow the same
standards, customs and practices as it follows in its stock transfer business
generally.
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4. COOPERATION. Each party to this Agreement shall furnish to the other
------------
upon request, such additional documents, information and other material as may
be reasonably required by the requesting party in order to carry out the purpose
and intent of this Agreement.
5. LIABILITY OF BANK HEREUNDER. Bank may rely, and shall be protected in
---------------------------
acting or refraining from acting, on any instrument reasonably believed by it to
be genuine and to have been executed or presented by the proper party or
parties. Bank may rely on and shall be protected in acting upon the written or
oral instructions, with respect to any matter relating to its actions as
Exchange Agent specifically covered by this Agreement, or supplementing or
qualifying any such actions, of counsel for Acquiror or of officers of Acquiror;
and shall be entitled to request further instructions from such persons to act
in accordance therewith. Bank may appoint attorneys satisfactory to it
(including attorneys of Acquiror), and the advice or opinion of such attorneys
shall constitute a full and complete authorization in respect of any action
taken, suffered or omitted by Bank hereunder in good faith and in accordance
with such advice or opinion. Bank shall not be liable for any action taken or
omitted by it in accordance with this Agreement, nor for any action taken or
omitted by it in good faith in accordance with the advice of its attorney or any
attorney for Acquiror. If Bank consults with counsel concerning any of its
duties or obligations as Exchange Agent pursuant hereto, or in case it becomes
involved in litigation on account of being Exchange Agent pursuant hereto, then
its costs, expenses and reasonable attorneys' fees shall be paid equally by
Acquiror.
Bank shall have no duty of inquiry nor incur any liability in the event of
any payment being made to Shareholders for Shares against which a "stop" order
or transfer restriction may apply, unless it is furnished, on a timely basis,
with an accurate list of Shares (including certificate numbers) subject to such
orders or restrictions.
Bank is to act hereunder solely as Exchange Agent and shall have no
liabilities or obligations except for its own gross negligence or willful
misconduct as determined by a court of competent jurisdiction.
7. FEES AND EXPENSES OF BANK. As compensation for services rendered as
-------------------------
Exchange Agent hereunder, the Bank shall be entitled to fees as set forth in
Exhibit A attached hereto and incorporated herein by this reference.
8. MISCELLANEOUS PROVISIONS.
------------------------
(a) This Agreement may be executed in several counterparts, each of which
shall be an original, but all of which together shall constitute but one
instrument, and it shall become effective whenever each party shall have
executed at least one counterpart.
(b) This Agreement shall bind and inure to the benefit of the parties and
their respective successors and assigns.
(c) Bank may resign its appointment upon 30 days' written notice to
Acquiror. In case of the resignation of Bank hereunder, Acquiror may by
written instrument appoint as successor exchange agent any bank or trust
company located in the United States having capital and surplus at least
equal to that of Bank and which has trust powers and is a member of The
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Stock Transfer Association, Inc. Such successor shall have all the rights,
powers, obligations and immunities of Bank hereunder and such additional
obligations as Acquiror shall require.
(d) This Agreement may not be amended in any respect to adversely affect
the rights of the Shareholders.
(e) This Agreement shall be governed by and construed in accordance with
the laws of the State of Georgia, without regard to any applicable
conflicts of laws.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf as of the date first above written.
[NAME OF BANK]
By: ________________________
Title: __________________
ABC BANCORP
By: ________________________
Title: _____________________
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EXHIBIT 99.3
PROXY
FIRST NATIONAL FINANCIAL CORPORATION
2627 DAWSON ROAD
ALBANY, GEORGIA 31707-1748
Telephone: (912) 888-5600
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF FIRST NATIONAL FINANCIAL CORPORATION
The undersigned hereby appoints Raymond B. Phillips and Glenn A. Kirbo, or
either of them, as Proxies, each with the power to appoint his or her
substitute, and hereby authorizes them to represent and to vote, as designated
below, all shares of common stock of First National Financial Corporation which
the undersigned is entitled to vote at the Special Meeting of Shareholders (the
"Meeting") to be held on _____________, 1996, or any adjournment or postponement
thereof, on the following matters:
1. PROPOSAL TO APPROVE AND ADOPT THE AGREEMENT AND PLAN OF MERGER BETWEEN
FIRST NATIONAL FINANCIAL CORPORATION AND ABC BANCORP PROVIDING FOR THE
MERGER OF FIRST NATIONAL FINANCIAL CORPORATION WITH AND INTO ABC
BANCORP.
FOR ___________ AGAINST ___________ ABSTAIN _______
2. In their discretion upon such other business as may properly come
before the Meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE
MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO
DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR PROPOSAL NO. 1.
---
Please sign exactly as name appears on stock certificate(s). If there are
two or more owners, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign full corporate name by president or other authorized
officer. If a partnership, please sign in partnership name by authorized
person.
Dated: ___________________ ______________________________________________
(Signature)
______________________________________________
(Signature if held jointly)
Your vote is important.
Please mark, sign, date and
return this Proxy promptly,
using the enclosed envelope.
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