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FILED PURSUANT TO
RULE 424 (b) (3)
FILE NO: 333-14649
PROSPECTUS PROXY STATEMENT
OF OF
ABC BANCORP M & F FINANCIAL
CORPORATION
M & F FINANCIAL CORPORATION
SPECIAL MEETING OF SHAREHOLDERS
DECEMBER 31, 1996
This Proxy Statement/Prospectus is being furnished to shareholders of record
at November 29, 1996 of M & F Financial Corporation ("M & F") in connection
with the solicitation of proxies by M & F for use at the Special Meeting of
Shareholders of M & F to be held at the main office lobby of Merchants &
Farmers Bank, 109 West Third Street, Donalsonville, Georgia 31047 on December
31, 1996, at 11:00 a.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 December 2, 1996.
At the Special Meeting, M & F's shareholders will be asked to approve the
Agreement and Plan of Merger, dated as of September 12, 1996 (the "Merger
Agreement"), between M & F and ABC Bancorp ("ABC"), and the transactions
contemplated thereby, including the merger of M & F 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 of common stock of M & F outstanding immediately prior
thereto (the "M & F 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) 1.9 times the lesser of (1)
0.08 times the total assets of M & F based on the average of the total assets,
net of intangible assets, of M & F as of the close of business for each of the
60 calendar days immediately preceding the date which is five calendar days
prior to the closing date (the "Closing Date") of the Merger (the "Average
Total Assets"), or (2) the Total Equity of M & F, plus (B) 1.0 times the
amount, if any, by which the Total Equity of M & F exceeds 0.08 times the
Average Total Assets, (ii) divided by the aggregate number of outstanding M &
F 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 M & F' total stockholders' equity, net of intangible assets,
calculated under generally accepted accounting principles, consistently
applied, as of the close of business on the day immediately preceding the date
which is five calendar days prior to 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 M & F Shares entitled to vote at the Special
Meeting. Holders of 722,507 M & F Shares, representing approximately 66.2% of
the shares entitled to vote, have granted to ABC irrevocable proxies pursuant
to which ABC intends to vote such shares in favor of the Merger. Accordingly,
approval of the Merger is assured regardless of the vote of any other
shareholder of M & F. Any shareholder of M & F has the right to dissent and
demand any appraisal of the value of his or her shares in the event that the
Merger is approved and consummated. The rights of any dissenting shareholder
to receive the value of his or her shares through statutory appraisal process
is contingent upon strict 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 M & F 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 M
& F 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 November 29, 1996, was $17.25 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 December 3, 1996.
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TABLE OF CONTENTS
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AVAILABLE INFORMATION AND SOURCES OF INFORMATION........................... 2
DOCUMENTS INCORPORATED BY REFERENCE........................................ 2
SUMMARY.................................................................... 3
The Parties.............................................................. 3
The Special Meeting...................................................... 3
Financial Terms of the Merger............................................ 4
Reasons for the Proposed Merger.......................................... 6
Interests of Certain Persons in the Merger............................... 6
Recommendation of the Board of Directors of M & F........................ 6
Dissenters' Rights....................................................... 6
Certain Federal Income Tax Consequences.................................. 7
Conditions; Amendments; Termination...................................... 7
Comparative Shareholders' Rights......................................... 7
Comparison of Certain Unaudited Per Share Data........................... 8
Selected Consolidated Financial Data..................................... 9
Summary Pro Forma Financial Data......................................... 12
Market Value of Securities and Dividends................................. 13
SPECIAL MEETING INFORMATION................................................ 14
Purpose of Special Meeting............................................... 14
Date, Time and Place..................................................... 14
Record Date.............................................................. 14
Vote Required............................................................ 14
Proxies.................................................................. 14
PROPOSED MERGER............................................................ 15
Background of the Merger................................................. 15
Reasons for the Merger................................................... 16
Recommendation of M & F's Board of Directors............................. 17
Description of Merger.................................................... 17
Consideration for Shares................................................. 17
Payment of Cash in Lieu of Fractional Shares............................. 18
Surrender of Certificates................................................ 18
Effective Date of Merger................................................. 18
Interests of Management in the Merger.................................... 19
Rights of Dissenting Shareholders........................................ 19
Certain Federal Income Tax Consequences of the Merger.................... 20
Regulatory Approvals..................................................... 21
Issuance of Additional Shares............................................ 22
Business Pending the Merger.............................................. 22
Other Provisions of the Merger Agreement................................. 22
Operations of Merchants & Farmers Bank After the Merger.................. 23
Accounting Treatment..................................................... 23
Resale and ABC Common Stock.............................................. 23
DESCRIPTION OF ABC BANCORP................................................. 24
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ABC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................... 24
General................................................................ 24
Results of Operations For Years Ended December 31, 1995, 1994 and
1993.................................................................. 25
Results of Operations for the Nine Months Ended September 30, 1996 and
1995.................................................................. 26
Average Balances and Net Income Analysis............................... 27
Rate and Volume Analysis............................................... 28
Noninterest Income..................................................... 28
Noninterest Expense.................................................... 29
Asset/Liability Management............................................. 29
Maturities and Sensitivity of Loans to Changes in Interest Rates....... 31
Loan Portfolio......................................................... 31
Nonperforming Loans.................................................... 32
Summary of Loan Loss Experience........................................ 32
Allocation of Allowance for Loan Losses................................ 33
Investment Portfolio................................................... 34
Types of Investments................................................... 34
Deposits............................................................... 35
Return on Assets and Shareholders' Equity.............................. 36
Liquidity and Capital Resources........................................ 36
Commitments and Lines of Credit........................................ 37
Impact of Inflation.................................................... 37
DESCRIPTION OF ABC COMMON STOCK.......................................... 38
General................................................................ 38
Common Stock........................................................... 38
Preferred Stock........................................................ 38
Limitations on Directors' Liability.................................... 38
Transfer Agent......................................................... 39
CERTAIN REGULATORY CONSIDERATIONS RELATING TO ABC........................ 39
General................................................................ 39
Payment of Dividends and Other Restrictions............................ 40
Capital Adequacy....................................................... 40
Support of Subsidiary Banks............................................ 41
FDIC Insurance Assessments............................................. 42
Recent Legislative and Regulatory Action............................... 42
Monetary Policy........................................................ 43
Future Requirements.................................................... 43
COMPARATIVE RIGHTS OF SHAREHOLDERS....................................... 43
Liquidity and Marketability............................................ 44
Reporting Requirements................................................. 44
Management............................................................. 44
Special Meetings....................................................... 44
DESCRIPTION OF M & F FINANCIAL CORPORATION............................... 45
Business............................................................... 45
Employees.............................................................. 46
Properties............................................................. 46
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Litigation............................................................ 46
Management............................................................ 47
Security Ownership of Management and Principal Shareholders........... 48
Certain Regulatory Considerations Relating to M & F................... 49
M & F MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................................... 50
General............................................................... 50
Results of Operations For Years Ended December 31, 1995, 1994 and
1993................................................................. 50
Results of Operations For Nine Months Ended September 30, 1996 and
1995................................................................. 52
Average Balances and Net Income Analysis.............................. 53
Rate and Volume Analysis.............................................. 54
Noninterest Income.................................................... 54
Noninterest Expense................................................... 55
Asset/Liability Management............................................ 55
Maturities and Sensitivity of Loans to Changes in Interest Rates...... 56
Loan Portfolio........................................................ 57
Nonperforming Loans................................................... 57
Summary of Loan Loss Experience....................................... 58
Allocation of Allowance for Loan Losses............................... 58
Investment Portfolio.................................................. 59
Types of Investments.................................................. 59
Deposits.............................................................. 60
Return on Assets and Shareholders' Equity............................. 60
Liquidity and Capital Resources....................................... 61
Commitments and Lines of Credit....................................... 62
Impact of Inflation................................................... 62
M & F Shares.......................................................... 62
OTHER MATTERS........................................................... 63
EXPERTS................................................................. 63
LEGAL OPINIONS.......................................................... 63
INDEX TO FINANCIAL INFORMATION.......................................... 65
APPENDICES:
Appendix A: Agreement and Plan of Merger
Appendix B: Dissenters' Rights Under Article 13 of the Georgia Busi-
ness Corporation Code
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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, 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.
ABC is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "1934 Act"), and, in accordance therewith, ABC
files proxy statements, annual and quarterly reports and other information
with the Commission. All such proxy statements, reports and other information
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 M & F CONTAINED HEREIN HAS BEEN FURNISHED BY
M & F. REFERENCES TO ABC AND M & F 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 WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS
(EXCLUDING UNINCORPORATED EXHIBITS) ARE AVAILABLE WITHOUT CHARGE TO EACH
PERSON (INCLUDING ANY BENEFICIAL OWNER) TO WHOM THIS PROXY
STATEMENT/PROSPECTUS IS DELIVERED UPON WRITTEN OR ORAL REQUEST TO SARA R.
HALL, ABC BANCORP, 310 FIRST STREET, S.E., P. O. BOX 1500, MOULTRIE, GEORGIA
31768 (912) 890-1111. IN ORDER TO INSURE TIMELY DELIVERY OF SUCH DOCUMENTS,
ANY REQUEST SHOULD BE MADE BY DECEMBER 16, 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;
and
2. ABC's Quarterly Report on Form 10-Q for the quarter ended September
30, 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 contained in this Proxy Statement/Prospectus
should be read together with the information in the documents incorporated
herein by reference.
2
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SUMMARY
This summary is necessarily general and abbreviated and has been prepared to
assist M & F 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 eight
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; Southland Bank
located in Dothan, Alabama; Central Bank & Trust located in Cordele, Georgia;
and First National Bank of South Georgia located in Albany, Georgia. As of
September 30, 1996, ABC, on a consolidated basis, had total assets of $576.6
million, total loans of $409.8 million, total deposits of $478.4 million and
stockholders' equity of $52.5 million. ABC's net income for 1995 was $5.5
million, or $1.22 per share; its net income for the nine months ended September
30, 1996 was $4.8 million, or $1.01 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.
M & F Financial Corporation. M & F 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. M & F owns all of the outstanding common stock of
Merchants & Farmers Bank, Donalsonville, Georgia ("Merchants & Farmers Bank"),
a Georgia state bank which provides general banking services in Seminole
County, Georgia. As of September 30, 1996, M & F, on a consolidated basis, had
total assets of $42.1 million, total loans of $25.9 million, total deposits of
$33.6 million and stockholders' equity of $3.5 million. M & F's net income for
1995 was $464,600, or $.43 per share; its net income for the nine months ended
September 30, 1996 was $411,379, or $.38 per share. M & F's principal executive
offices are located at 109 West Third Street, Donalsonville, Georgia 31047, and
its telephone number is (912) 544-2112.
THE SPECIAL MEETING
Date of Meeting, Time and Place. The Special Meeting will be held December
31, 1996, at 11:00 a.m. at the main office lobby of Merchants & Farmers Bank,
109 West Third Street, Donalsonville, Georgia.
Record Date. All shareholders of record of M & F as of the close of business
on November 29, 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 M & F and ABC and the transactions
contemplated thereby, including the Merger of M & F 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.
3
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Required Shareholder Vote. Approval of the Merger requires the affirmative
vote of the holders of a majority of the outstanding M & F Shares entitled to
vote at the Special Meeting. Holders of 722,507 M & F Shares, representing
approximately 66.2% of the shares entitled to vote, have granted to ABC
irrevocable proxies pursuant to which ABC intends to vote such shares in favor
of the Merger. Accordingly, approval of the Merger is assured regardless of the
vote of any other shareholder of M & F. See "VOTE REQUIRED" and "SPECIAL
MEETING INFORMATION."
FINANCIAL TERMS OF THE MERGER
Structure. Under the Merger Agreement, M & F 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 M & F will cease, and Merchants &
Farmers Bank will become a wholly-owned subsidiary of ABC.
Consideration Amount. Upon consummation of the Merger, each M & F 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) 1.9 times the lesser of (1) 0.08 times the total assets of M & F
based on the average of the total assets, net of intangible assets, of M & F as
of the close of business for each of the 60 calendar days immediately preceding
the date which is five days prior to the closing date (the "Closing Date") of
the Merger (the "Average Total Assets"), or (2) the Total Equity of M & F, plus
(B) 1.0 times the amount, if any, by which the Total Equity of M & F exceeds
0.08 times the Average Total Assets, (ii) divided by the aggregate number of
then-outstanding M & F Shares (the "Merger Consideration"). For purposes of the
Merger, "Total Equity" means M & F's total stockholders' equity, net of
intangible assets, calculated under generally accepted accounting principles,
consistently applied, as of the close of business on the day immediately
preceding the date which is five days prior to the Closing Date. Cash will be
paid in lieu of issuing fractional shares of ABC Common Stock.
By way of illustration only, the following is an example of the Merger
Consideration into which each M & F Share would be converted upon consummation
of the Merger based on M & F's unaudited balance sheet as of September 30, 1996
included elsewhere herein. This example assumes that all outstanding options to
purchase M & F Shares have been exercised and that Average Total Assets of
M & F equal total assets (net of intangible assets) of M & F at September 30,
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 actual Merger Consideration
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 $5.00), other than by reason of
the issuance by M & F of additional M & F Shares to its shareholders pursuant
to Section 6.2(d) of the Merger Agreement, ABC and M & F will amend or
supplement this Proxy Statement/Prospectus to provide a revised example of the
calculation of the Merger Consideration and will afford M & F shareholders the
opportunity to revoke previously granted proxies.
If immediately prior to the consummation of the Merger (i) the aggregate
number of M & F Shares outstanding is 1,091,358, (ii) Average Total Assets are
$41,800,000, and (iii) Total Equity is $3,192,000, then each M & F Share
outstanding immediately prior to the consummation of the Merger (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 $5.56, determined as follows:
4
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Average Total Assets.......................................... $41,800,000
Multiple...................................................... x 0.08
-----------
$ 3,344,000
===========
Total Equity.................................................. $ 3,192,000
===========
1.9x lesser of 0.08 times Average Total Assets or Total Equity
(1.9 x $3,192,000)........................................... $ 6,064,800
plus amount by which Total Equity exceeds 0.08 times Average
Total Assets ................................................ N/A
-----------
$ 6,064,800
divided by aggregate number of M & F Shares outstanding....... 1,091,358
-----------
Merger Consideration.......................................... $ 5.56
===========
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Number of Shares of ABC Common Stock. The number of shares of ABC Common
Stock into which a M & F Share may 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 M & F shareholder who does not dissent would receive,
for his or her M & F Shares exchangeable for ABC Common Stock, that number of
shares of ABC Common Stock equal to the Merger Consideration times the number
of M & F 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 closing sales price 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 consummation of the Merger; provided that for purposes of this calculation,
the Base Period Trading Price is deemed to equal (i) $21.00 in the event the
Base Period Trading Price is higher than $21.00 or (ii) $16.00 in the event
that the Base Period Trading Price is less than $16.00.
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
M & F Shares in connection with the Merger. This example assumes a Base Period
Trading Price of $19.00, which was the closing sale price of ABC Common Stock
as reported on the Nasdaq National Market on September 30, 1996. The actual
number of shares of ABC Common Stock issuable to a M & F shareholder is subject
to certain variables, including the actual Base Period Trading Price and the
number of M & F 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 consummation of the Merger (i) the Merger
Consideration for each M & F Share is assumed to be $5.56 (as in the example
above), and (ii) the Base Period Trading Price is $19.00, then a M & F
shareholder who owns 100 M & F Shares would receive 29 shares of ABC Common
Stock (plus cash in lieu of any fractional share) determined as follows:
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Merger Consideration.............................................. $ 5.56
times number of M & F Shares...................................... 100
-------
Subtotal.......................................................... $556.00
divided by the Base Period Trading Price.......................... $ 19.00
-------
Number of Shares of ABC Common Stock.............................. 29.26
=======
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REASONS FOR THE PROPOSED MERGER
The Board of Directors of M & F has determined that the proposed Merger is in
M & F'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 Merchants & Farmers Bank with increased financial resources
and the technical expertise available from ABC and its bank subsidiaries. In
addition, by receiving ABC Common Stock, shareholders of M & F may benefit from
ownership of a larger financial institution whose common stock is traded on the
Nasdaq National Market.
Although the terms of the Merger have been reviewed and unanimously approved
by M & F's Board of Directors, M & F has not sought or received an opinion from
an independent third party regarding the fairness of the Merger to any of M & F
shareholders, nor was any special committee formed to negotiate or make
recommendations on behalf of M & F's shareholders.
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 the southeastern United
States. ABC's Board believes that the additional banking and other resources
that will be available to M & F as a result of the Merger will enhance M & F 's
service to its customers. See "PROPOSED MERGER--Reasons for the Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
ABC has agreed to cause Merchants & Farmers Bank to enter into an employment
agreement with John C. Mosely, the President of Merchants & Farmers Bank,
pursuant to which Mr. Mosely will serve as the President of Merchants & Farmers
Bank for at least one year following the Merger. ABC has also agreed to cause
each officer and employee of Merchants & Farmers Bank to be eligible to
participate in ABC's employee benefit plans. Furthermore, ABC has agreed to
provide generally to employees of Merchants & Farmers 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. See "PROPOSED MERGER--Interests of
Management in the Merger".
RECOMMENDATION OF THE BOARD OF DIRECTORS OF M & F
M & F's Board of Directors has unanimously approved the Merger Agreement and
has agreed to support the Merger. The Board of Directors believes that the
terms of the Merger Proposal are in the best interests of M & F's shareholders
and unanimously recommends to M & F shareholders that they vote in favor of the
Merger and the Merger Proposal. See "PROPOSED MERGER--Recommendation of M & F's
Board of Directors."
DISSENTERS' RIGHTS
In accordance with the Georgia Business Corporation Code (the "GBCC"),
holders of M & F Shares will be entitled to dissenters' rights in connection
with the Merger. The Merger Agreement provides, however, that if any
shareholder timely files with M & F a written notice stating that such
shareholder intends to demand payment for his or her M & F Shares, then ABC may
elect not to consummate the Merger. HOLDERS OF M & F SHARES WHO WISH TO
EXERCISE THEIR DISSENTERS' RIGHTS MUST SEND WRITTEN NOTICE OF THEIR INTENT TO
DEMAND PAYMENT FOR THEIR M & F SHARES BEFORE THE SHAREHOLDERS OF M & F VOTE ON
THE MERGER PROPOSAL AT THE SPECIAL MEETING ON DECEMBER 31, 1996. Such written
notice should be sent to the attention of Jerry G. Mitchell, Secretary, M & F
Financial Corporation, 109 West Third Street, Donalsonville, Georgia 31047. 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,
is expected to constitute a tax-free reorganization. M & F shareholders will
recognize no gain or loss on the exchange of M & F Shares, except with respect
to cash received in lieu of fractional shares. The foregoing summary is based
upon an opinion to M & F 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 M & F 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 proposed
Merger by M & F 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 Merger 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 M & F; provided that after the approval of M & F
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 M & F Shares or which will otherwise materially adversely affect the
rights of M & F's shareholders. The Merger Agreement may also be terminated,
and the Merger abandoned, notwithstanding prior shareholder approval, by mutual
agreement of M & F and ABC or by either of them in the event of failure to
satisfy the conditions to the Merger prior to January 31, 1997, 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 Merger Agreement--Waivers; Amendments; Terminations."
COMPARATIVE SHAREHOLDERS' RIGHTS
The rights of shareholders of ABC and shareholders of M & F differ in a
number of respects. For a description of the relative rights of such
shareholders, see "COMPARATIVE RIGHTS OF SHAREHOLDERS."
7
<PAGE>
COMPARISON OF CERTAIN UNAUDITED PER SHARE DATA
The following tables present selected historical, pro forma combined, and
equivalent M & F per share data for (i) ABC; (ii) M & F; and (iii) ABC on a pro
forma basis, as if the Merger had been effective on the dates indicated, and
M & F. The information is based on the historical financial statements of ABC
and M & F. 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 Merger
been consummated at the beginnings of the periods presented. The pro forma data
give effect to the Merger 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. 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 of
M & F, and the Unaudited Pro Forma Condensed Consolidated Financial Data, and
notes thereto, appearing elsewhere herein.
<TABLE>
<CAPTION>
AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996
------------------------------------
EQUIVALENT
M & F
PRO FORMA AMOUNT
ABC M & F COMBINED(1) PER SHARE(2)
----- ----- ----------- ------------
<S> <C> <C> <C> <C>
Net income per common share................ $0.96 $0.38 $0.98 $0.29
Dividends per common share................. 0.30 -- 0.28 0.08
Book value per common share................ 10.44 3.22 10.48 3.06
</TABLE>
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 1995
------------------------------------
EQUIVALENT
M & F
PRO FORMA AMOUNT
ABC M & F COMBINED(1) PER SHARE(2)
----- ----- ----------- ------------
<S> <C> <C> <C> <C>
Net income per common share................ $1.21 $0.43 $1.23 $0.36
Dividends per common share................. 0.35 -- 0.25 0.07
Book value per common share................ 9.73 2.89 8.98 2.63
</TABLE>
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 1994
------------------------------------
EQUIVALENT
M & F
PRO FORMA AMOUNT
ABC M & F COMBINED(1) PER SHARE(2)
----- ----- ----------- ------------
<S> <C> <C> <C> <C>
Net income per common share................ $0.96 $0.41 $0.99 $0.29
Dividends per common share................. 0.29 -- 0.20 0.06
</TABLE>
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 1993
------------------------------------
EQUIVALENT
M & F
PRO FORMA AMOUNT
ABC M & F COMBINED(1) PER SHARE(2)
----- ----- ----------- ------------
<S> <C> <C> <C> <C>
Net income per common share................ $0.88 $0.25 $0.89 $0.26
Dividends per common share................. 0.29 -- 0.17 0.05
</TABLE>
- --------
(1) See unaudited Pro Forma Condensed Consolidated Financial Data included
elsewhere in this Proxy Statement/Prospectus.
(2) The equivalent share information for M & F in the above table is computed
assuming an exchange ratio of 319,203 shares of ABC Common Stock (with an
assumed market value of $19 per share) for all M & F Shares.
8
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following tables set forth selected historical financial data of ABC and
M & F for each of the last five years and selected unaudited historical
financial data for the nine months ended September 30, 1996 and 1995. The
selected historical financial data of each of ABC and M & F have been derived
from and should be read in conjunction with the annual audited consolidated
financial statements of ABC and M & F, as the case may be, including the notes
thereto, and the unaudited nine months consolidated financial statements of ABC
and M & F, as the case may be, including the notes thereto, appearing elsewhere
herein. The ABC Income Statement Data and Per Share Data for the nine months
ended September 30, 1996 and 1995 and the balance sheet data at September 30,
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 M & F Income Statement Data and Per Share
Data for the nine months ended September 30, 1996 and 1995 and the Balance
Sheet Data at September 30, 1996 include, in the opinion of M & F'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
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------ ------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Total assets........... $576,643 $411,806 $446,309 $382,200 $350,645 $331,640 $238,860
Total loans............ 409,802 281,925 281,031 250,180 212,938 196,948 139,476
Total deposits......... 478,407 357,420 393,957 337,216 311,541 298,304 209,151
Investment securities.. 98,927 67,943 71,989 67,771 64,698 48,910 41,621
Stockholders' equity... 52,541 42,144 43,629 38,561 27,772 26,689 25,795
SELECTED INCOME STATEMENT DATA:
Interest income........ $ 31,682 $ 25,553 $ 34,889 $ 27,743 $ 25,325 $ 20,836 $ 20,731
Interest expense....... 13,780 10,603 14,525 10,514 10,116 9,126 11,364
-------- -------- -------- -------- -------- -------- --------
Net interest income.. 17,902 14,950 20,364 17,229 15,209 11,710 9,367
Provision for loan
losses................ 985 789 1,173 938 1,512 1,539 836
Other income........... 4,232 3,436 4,395 4,047 3,767 2,825 2,556
Other expenses......... 13,913 11,700 15,674 14,762 13,634 10,831 9,178
-------- -------- -------- -------- -------- -------- --------
Income before tax...... 7,236 5,897 7,912 5,576 3,830 2,165 1,909
Income tax expense..... 2,429 1,949 2,460 1,703 979 537 611
-------- -------- -------- -------- -------- -------- --------
Net income before
cumulative effect..... 4,807 3,948 5,452 3,873 2,851 1,628 1,298
Cumulative effect...... -- -- -- -- 346 --
-------- -------- -------- -------- -------- -------- --------
Net income........... $ 4,807 $ 3,948 $ 5,452 $ 3,873 $ 3,197 $ 1,628 $ 1,298
======== ======== ======== ======== ======== ======== ========
PER SHARE DATA:
Net income before
cumulative effect..... $ 1.01 $ 0.89 $ 1.22 $ 0.96 $ 0.79 $ 0.45 $ 0.35
Net income............. 1.01 0.89 1.22 0.96 0.88 0.45 0.35
Book value............. 10.44 9.45 9.73 8.68 8.05 7.32 7.07
Tangible book value.... 9.03 8.97 9.27 8.16 7.29 6.56 6.23
Dividends.............. 0.30 0.25 0.35 0.29 0.29 0.29 0.26
PROFITABILITY RATIOS:
Net income to average
total assets.......... 1.32% 1.29% 1.37% 1.09% 0.96% 0.64% 0.57%
Net income to average
stockholders' equity.. 13.79 12.64 13.24 12.87 11.91 6.30 5.21
Net interest margin.... 5.36 5.19 5.62 5.28 5.06 5.16 4.68
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------- ------------------------------------
1996 1995 1995 1994 1993 1992 1991
------ ------ ------ ------ ------ ----- -----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
LOAN QUALITY RATIOS:
Net charge-offs to total
loans.................. 0.17% 0.05% 0.18% 0.27% 0.86% 0.69% 0.37%
Reserve for loan losses
to total loans and
OREO................... 1.63 1.84 1.84 1.81 2.00 2.31 1.22
Nonperforming assets to
total loans and OREO... 1.39 1.19 1.12 1.70 2.18 4.07 1.42
Reserve for loan losses
to nonperforming
loans.................. 133.65 168.57 190.73 109.54 114.96 65.97 95.47
Reserve for loan losses
to total nonperforming
assets................. 117.45 154.36 164.89 106.40 91.54 56.88 85.92
LIQUIDITY RATIOS:
Loans to total
deposits............... 85.66 78.88 71.34 74.19 68.35 66.02 66.69
Loans to average earning
assets................. 91.98 73.45 77.50 76.73 70.82 86.76 69.67
Noninterest-bearing
deposits to total
deposits............... 13.38 14.16 17.68 17.17 14.80 14.38 14.06
CAPITAL ADEQUACY RATIOS:
Common stockholders'
equity to total
assets................. 9.11 10.23 9.78 10.09 7.92 8.05 10.80
Total stockholders'
equity to total
assets................. 9.11 10.23 9.78 10.09 7.92 8.05 10.80
Dividend payout ratio... 29.70 28.09 28.69 30.21 32.95 64.44 74.29
</TABLE>
10
<PAGE>
M & F FINANCIAL CORPORATION AND SUBSIDIARY
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------- ---------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------- -------- -------- -------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Total assets........... $42,121 $ 40,562 $ 44,830 $ 41,979 $39,229 $34,140 $33,413
Total loans............ 25,932 25,168 24,211 20,810 19,271 17,462 14,771
Total deposits......... 33,624 34,056 38,224 37,913 35,356 30,433 29,777
Investment securities.. 11,354 11,295 12,516 12,630 12,347 11,737 13,084
Stockholders' equity... 3,513 3,013 3,141 2,521 2,298 2,274 2,039
SELECTED INCOME STATEMENT DATA:
Interest income........ $ 2,585 $ 2,491 $ 3,342 $ 2,805 $ 2,557 $ 2,610 $ 2,888
Interest expense....... 1,314 1,257 1,700 1,268 1,151 1,356 1,767
------- -------- -------- -------- ------- ------- -------
Net interest income... 1,271 1,234 1,642 1,537 1,406 1,254 1,121
Provision for loan
losses................ 42 14 58 17 48 57 39
Other income........... 291 205 278 226 244 269 252
Other expenses......... 946 917 1,246 1,168 1,100 1,054 975
------- -------- -------- -------- ------- ------- -------
Income before tax..... 574 508 616 578 502 412 359
Income tax expense..... 163 132 151 134 128 113 90
------- -------- -------- -------- ------- ------- -------
Net income before
minority interest... 411 376 465 444 374 299 269
Minority interest..... -- -- -- -- 76 64 57
------- -------- -------- -------- ------- ------- -------
Net income............ $ 411 $ 376 $ 465 $ 444 $ 298 $ 235 $ 212
======= ======== ======== ======== ======= ======= =======
PER SHARE DATA:
Net income............. $ 0.38 $ 0.35 $ 0.43 $ 0.41 $ 0.25 $ 0.19 $ 0.17
Book value............. 3.22 2.77 2.89 2.32 2.12 1.85 1.66
Tangible book value.... 2.92 2.44 2.57 1.96 1.72 1.46 1.24
Dividends.............. -- -- -- -- -- -- --
PROFITABILITY RATIOS:
Net income to average
total assets.......... 1.31% 1.24% 1.13% 1.17% 0.84% 0.70% 0.63%
Net income to average
stockholders' equity.. 17.11 17.66 16.43 18.42 13.04 10.89 10.97
Net interest margin.... 4.42 4.41 4.36 4.43 4.32 4.19 3.66
LOAN QUALITY RATIOS:
Net charge-offs to
average total loans... 0.08 0.02 0.03 0.04 (0.22) 0.33 0.26
Reserve for loan losses
to total loans and
OREO.................. 1.24 1.03 1.24 1.20 1.25 0.86 1.01
Nonperforming assets to
total loans and OREO.. 0.37 0.08 0.04 0.09 0.29 0.38 0.52
Reserve for loan losses
to nonperforming
loans................. 331.96 1,233.33 3,000.00 1,315.79 430.36 227.27 288.46
Reserve for loan losses
to total nonperforming
assets................ 331.96 1,233.33 3,000.00 1,315.79 430.36 227.27 194.81
LIQUIDITY RATIOS:
Loans to total
deposits.............. 77.12 73.90 63.34 54.89 54.51 57.38 49.61
Loans to average
earning assets........ 67.65 67.39 64.22 59.92 59.16 58.34 48.18
Noninterest-bearing
deposits to total
deposits.............. 13.25 16.51 13.15 13.56 11.48 15.27 14.04
CAPITAL ADEQUACY RATIOS:
Common stockholders'
equity to total
assets................ 8.30 7.40 7.00 6.00 5.90 6.70 6.10
Total stockholders'
equity to total
assets................ 8.30 7.40 7.00 6.00 5.90 6.70 6.10
Dividend payout ratio.. -- -- -- -- -- -- --
</TABLE>
11
<PAGE>
SUMMARY OF PRO FORMA FINANCIAL DATA
The following unaudited selected pro forma financial data give effect to the
Merger as of the dates and for the periods indicated and pursuant to the
accounting basis described below. The unaudited pro forma financial data are
presented for informational purposes only and are not necessarily indicative of
the combined financial position or results of operations which actually would
have occurred if the transaction 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 the Proxy Statement/Prospectus.
Selected Pro Forma Combined Financial Data for ABC and M & F. The following
unaudited pro forma combined data give effect to the acquisition of M & F by
ABC as of September 30, 1996 and for the nine-month period ended September 30,
1996 and as of December 31, 1995 and for each of the years ended December 31,
1995, 1994 and 1993, assuming such acquisition was accounted for as a pooling
of interests. The data assume that the transaction was consummated on September
30, 1996 for "Balance Sheet Data" and at the beginning of each period presented
for "Income Statement Data."
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, 1996 DECEMBER 31, 1995
------------------ -----------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
BALANCE SHEET DATA:
Total assets.............................. $618,764 $491,139
Cash...................................... 29,915 29,841
Federal funds sold........................ 9,270 51,855
Securities................................ 110,281 84,505
Loans, net................................ 428,723 299,758
Total deposits............................ 512,030 444,369
Stockholders' equity...................... 56,054 46,770
Book value per common share............... 10.48 9.73
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, -----------------------------------
1996 1995 1994 1993
--------------------------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total interest income..... $38,822 $46,941 $30,548 $27,882
Total interest expense.... 17,400 21,000 11,782 11,267
----------- ----------- ----------- -----------
Net interest income...... 21,422 25,941 18,766 16,615
Provision for loan
losses................... 1,056 1,303 955 1,560
----------- ----------- ----------- -----------
Net interest income after
provision for loan
losses.................. 20,366 24,638 17,811 15,055
Total noninterest income.. 5,090 6,255 4,273 4,011
Total noninterest
expense.................. 17,369 21,375 15,930 14,734
Income tax expense........ 2,821 3,144 1,837 1,107
----------- ----------- ----------- -----------
Income from minority
interest in net income
of subsidiary and
cumulative effect of
accounting change 5,266 6,374 4,317 3,225
Minority interest in net
income of subsidiary..... -- -- -- 76
----------- ----------- ----------- -----------
Income from continuing
operations before
cumulative effect....... 5,266 6,374 4,317 3,149
Cumulative effect of
accounting change........ -- -- -- 346
----------- ----------- ----------- -----------
Income from continuing
operations.............. $ 5,266 $ 6,374 $ 4,317 $ 3,495
=========== =========== =========== ===========
Income from continuing
operations per share.... $ 0.98 $ 1.23 $ 0.99 $ 0.89
=========== =========== =========== ===========
</TABLE>
12
<PAGE>
MARKET VALUE OF SECURITIES AND DIVIDENDS
ABC. ABC Common Stock is included in the Nasdaq National Market under the
symbol "ABCB". On September 11, 1996, the last day preceding the public
announcement of the Merger on which ABC Common Stock was traded, the closing
sale price for ABC Common Stock was $19.50 per share. On November 29, 1996, the
closing sale price for ABC Common Stock was $17.25 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 October
15, 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
First Quarter........... $15.00 $14.00 $.10
Second Quarter.......... $18.75 $14.00 $.10
Third Quarter........... $19.75 $17.75 $.10
Fourth Quarter (through
November 29, 1996)..... $20.25 $17.00 N/A
1995
First Quarter........... $10.125 $ 9.00 $.075
Second Quarter.......... $11.625 $ 9.50 $.075
Third Quarter........... $14.50 $11.375 $.10
Fourth Quarter.......... $14.75 $13.50 $.10
1994
First Quarter(1)........ N/A N/A $.0714
Second Quarter.......... $13.75 $12.25 $.0714
Third Quarter........... $14.00 $12.75 $.0714
Fourth Quarter.......... $13.75 $12.00 $.0714
</TABLE>
- --------
(1) Prior to May 1994, quotations for the ABC Common Stock were not reported on
any market, and there was no established public trading market for the ABC
Common Stock. The ABC Common Stock was included in the Nasdaq National
Market beginning on May 26, 1994.
ABC Common Stock was held by approximately 1,245 shareholders of record as of
September 30, 1996.
M & F. M & F Shares are not publicly traded. There are, however, occasional
transactions in M & F Shares as a result of private negotiations. M & F is
aware of the price paid in some sales of M & F Shares but is not aware of the
price paid in all transfers of M & F Shares. The last transaction in M & F
Shares known to M & F occurred in January, 1996 at a price of $2.32 per M & F
Share.
M & F has paid no dividends to its shareholders and the Merger Agreement
prohibits the payment of any such dividends pending the Merger. See "PROPOSED
MERGER--Business Pending the Merger," below.
M&F Shares were held by nine shareholders of record as of September 30, 1996.
13
<PAGE>
SPECIAL MEETING INFORMATION
PURPOSE OF SPECIAL MEETING
The purpose of the Special Meeting is to enable M & F shareholders to
consider and vote upon the Merger Proposal. M & F'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 M &
F Shares for use at the Special Meeting to be held December 31, 1996, at 11:00
a.m., at the main office lobby of Merchants & Farmers Bank, 109 West Third
Street, Donalsonville, Georgia.
RECORD DATE
Only shareholders of record as of the close of business on November 29, 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 1,091,358 M & F shares outstanding. Each M & F Share
outstanding has one vote on the Merger Proposal.
VOTE REQUIRED
The affirmative vote of the holders of a majority of M & F Shares
outstanding on the Record Date are 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 722,507 M & F Shares, representing approximately 66.2% of
the shares entitled to vote, have granted to ABC irrevocable proxies pursuant
to which ABC intends to vote such shares in favor of the Merger. Accordingly,
approval of the Merger is assured regardless of the vote of any other
shareholder of M & F. No vote of the shareholders of ABC is required in
connection with the Merger. No directors or executive officers of ABC own any
M & F Shares.
PROXIES
The accompanying Proxy is solicited by the Board of Directors of M & F. The
Board of Directors requests that M & F shareholders mark, sign and date the
accompanying Proxy and promptly return it to M & F in the enclosed envelope.
If a Proxy is properly executed and returned prior to the Special Meeting, it
will be voted as indicated thereon; 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 the 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
14
<PAGE>
Meeting. Revocation may be made before the Special Meeting by written notice
sent to Jerry G. Mitchell, Secretary, M & F Financial Corporation, 109 West
Third Street, Donalsonville, Georgia 31047, by executing a subsequently dated
Proxy, or by attending the Special Meeting and voting in person.
M & F 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 M & F (who will receive no additional compensation for doing so).
M & F does not intend to pay compensation for soliciting Proxies or use any
specially engaged employees of M & F 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 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.
M & F Directors and officers have had no discussions with potential suitors
prior to their conversations with ABC. At a Board of Directors meeting in the
early summer of 1996, the directors discussed whether M & F might want to
consider a strategic merger with a larger institution in order that Merchants
& Farmers Bank might have economies of scale to deliver a broader range of
banking services more efficiently to customers in a very competitive market.
The following parameters were agreed upon as desirable in any prospective
merger: (i) liquidity of stock; (ii) continued autonomy of Merchants & Farmers
Bank; (iii) continued ownership role and involvement by local board of
directors; (iv) a merger partner with an understanding and appreciation of
agricultural and rural lending; (v) increased legal lending limits; and (vi) a
transaction structured to defer tax consequences until liquidation by
individual shareholders.
Mr. Joseph F. Hall, a director of M & F, has had a collegial professional
relationship with ABC Bancorp. At a social meeting in Moultrie, Georgia in
July of 1996, Mr. Hall mentioned to Mr. Kenneth J. Hunnicutt, President of
ABC, that the Board of M & F had discussed the possibility of merging with a
larger organization. Mr. Hunnicutt stated that ABC might be interested and
suggested that the matter be pursued further.
On August 5, 1996, Mr. Hall and two other M & F directors, Mr. R.G. Heard
and Mr. David Rach went to Moultrie, Georgia, and met with Mr. Hunnicutt to
discuss the common interests and philosophy of the two organizations.
Subsequent to these discussions, the Board members engaged in many informal
discussions. The general consensus of the Board members was that the matter
should be pursued. The Directors as a group were concerned about a lack of
liquidity of M & F stock and the fact that the stock does not pay a cash
dividend because of M & F's outstanding indebtedness, and is not expected to
pay dividends in the future.
On August 14, 1996, Mr. Rach, together with Mr. John C. Mosely, a director
of M & F and President of Merchants & Farmers Bank, met with Mr. Hunnicutt in
Dothan, Alabama, at the offices of Southland Bank, an ABC subsidiary, to
discuss Mr. Mosely's compatibility with the ABC organization. These
discussions were positive and M & F management decided to further pursue the
matter.
On August 20, 1996, Mr. W. Edwin Lane, Jr. and Mr. Hunnicutt of ABC met with
the entire Board of M & F, except Mr. Heard and Mr. Carr, to further discuss
the mutual interests of the organizations and the possibility of a merger. At
that meeting, an informal offer to purchase was extended subject to further
review of financial information by ABC. The terms of the informal offer were
contingent on the negotiation of a definitive agreement and included a
purchase price based on 1.9 times the equity of M & F less goodwill.
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The following day, at the request of Mr. Mosely and Mr. Rach, Mr. Lane
arranged for them to meet with Mr. John McDuffie of the accounting firm of
Mauldin & Jenkins. Mr. McDuffie explained the calculations involved in
determining the exchange ratio. He presented examples of how the exchange
evaluation would be determined and provided comparisons of this method with
alternative methods of evaluation.
Subsequent to this meeting, there were numerous phone calls between Mr. Rach
and the ABC management team, and Mr. Rach indicated to ABC that the Board of
Directors of M & F desired to proceed. A draft agreement was distributed on
August 27, 1996, to M & F directors and counsel for M & F.
On September 8, 1996, the Board of Directors of M & F met with counsel to
discuss the proposed agreement. The Board of Directors of M & F either owned
or represented one hundred percent of the stock of M & F; thus, after
discussion with counsel, the Board concluded that they were under no legal
duty to seek other offers. The Board approved the draft agreement, subject to
the negotiation of minor items. The Board concluded that ABC was a very
appropriate merger partner for M & F. ABC was large enough to offer the
economies of scale sought and to provide a liquid market for the stock to be
received in the exchange. ABC allowed M & F to maintain Merchants & Farmers
Bank as a freestanding state bank with a local Board of Directors which the
Board viewed as beneficial to the community as well as the shareholders. The
Board further concluded that the sale of control premium in the transaction
was adequate.
On September 12, 1996 the Board of Directors authorized the President and
the Secretary of M & F to sign the definitive Merger Agreement.
REASONS FOR THE MERGER
In considering whether to approve the Merger with ABC, the Board of
Directors of M & F evaluated the future role of M & F in the changing banking
environment in light of its managerial resources, financial condition and
recent results of operations. The Board considered such things as potential
increased competition from bank and non-bank sources, prospects for future
growth through mergers, acquisitions and branching, and the ability of M & F
to develop new commercial products on a cost-effective basis. The Board also
considered (i) information concerning the relative financial condition,
results of operations, dividend records and growth potential of M & F and ABC;
(ii) the value of the consideration offered to M & F's shareholders relative
to the market value and book value of M & F Shares and M & F's earnings; (iii)
the relative strengths and compatibility of the management of the two
organizations; (iv) the market price data and relative liquidity of ABC Common
Stock and the lack of an active market for M & F stock; (v) the financial
terms of other recent business combinations in the banking industry,
particularly in Georgia; (vi) the dividend payment history of M & F compared
to that of ABC; (vii) the tax consequences of the Merger; and (viii) the
desire of M & F shareholders holding a majority of M & F shares for greater
liquidity.
After reviewing these factors, the Board of Directors of M & F concluded
that M & F's employees and customers will benefit from the opportunities
offered by affiliation with a larger financial institution strategically
located in an expanded market in south Georgia and from a financial base which
will permit more rapid development of new products and services. Customers of
M & F will benefit from the convenience of improved product availability.
Shareholders of M & F who receive ABC Common Stock may, in addition to an
immediate recognition of value, benefit from ownership of a larger financial
institution and from ownership of common stock which is traded on the Nasdaq
National Market. The Merger will also provide M & F with access to the
expertise of a larger institution, improving its service capabilities.
The Board of Directors of M & F believes that the Merger will better enable
M & F to meet the needs of the community which it serves and will permit more
aggressive competition with other financial institutions located in and around
southeastern Georgia. For these reasons, the Board of Directors of M & F
believes that the proposed Merger is in M & F's best interest and the best
interests of its shareholders, customers, employees and community.
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The terms of the Merger have been reviewed and unanimously approved by M &
F's Board of Directors. In that regard, M & F's Board of Directors determined
that the Merger is fair to, and in the best interests of, M & F's
shareholders, M & F's customers and employees and the communities in which M &
F operates based upon its evaluation of the considerations described above in
"--Reasons for the Merger."
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 and would extend
ABC's current market base with a well-managed financial institution. ABC's
Board also believes that the additional banking and other resources that will
be available to M & F as a result of the Merger will enhance M & F's service
to its customers.
M & F has not sought or received an opinion from an independent third party
regarding the fairness of the Merger to any of M & F shareholders, nor was any
special committee formed to negotiate or make recommendations on behalf of M &
F shareholders.
RECOMMENDATION OF M & F'S BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF M & F HAS CAREFULLY CONSIDERED THE MERGER
PROPOSAL, HAS UNANIMOUSLY APPROVED THE MERGER, AND UNANIMOUSLY RECOMMENDS A
VOTE IN FAVOR OF THE MERGER AGREEMENT AND MERGER PROPOSAL.
DESCRIPTION OF MERGER
Upon consummation of the transactions contemplated under the Merger
Agreement, M & F 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, Merchants & Farmers Bank will be a wholly-owned subsidiary
of ABC, under the operation of its current management, and the separate
corporate identity of M & F will cease to exist. Upon consummation of the
Merger, ABC intends to add one representative to the Board of Directors of
Merchants & Farmers Bank. See "Operations of Merchants & Farmers Bank After
the Merger."
CONSIDERATION FOR SHARES
Upon consummation of the Merger, each M & F 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) 1.9 times
the lesser of (1) 0.08 times the Average Total Assets, or (2) the Total Equity
of M & F, plus (B) 1.0 times the amount, if any, by which the Total Equity of
M & F exceeds 0.08 times the Average Total Assets, (ii) divided by the
aggregate number of then-outstanding M & F Shares (the "Merger
Consideration"). 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 M & F Shares, as well as the price paid for
other financial institutions in recent acquisitions in Georgia.
The number of shares of ABC Common Stock into which a M & F Share may be
converted will be determined by dividing the Merger Consideration by the Base
Period Trading Price. Thus, a M & F Shareholder who does not dissent would
receive, for his or her M & F Shares exchangeable for ABC Common Stock, a
number of shares of ABC Common Stock equal to the Merger Consideration times
the number of M & F 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. See "SUMMARY--Financial Terms of the Merger."
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PAYMENT OF CASH IN LIEU OF FRACTIONAL SHARES
No fractional shares of ABC Common Stock will be issued in the Merger. Each
M & F 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 M & F shareholder would otherwise be
entitled.
SURRENDER OF CERTIFICATES
At the Effective Time of the Merger, each holder of M & F Shares will be
required to surrender his or her certificates previously representing M & F
Shares ("Old Certificates"), properly endorsed and otherwise in proper form
for transfer. Promptly following such surrender, ABC will issue shares of ABC
Common Stock issuable to such holder pursuant to the Merger Agreement, plus
cash in lieu of fractional shares.
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 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 ABC 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 M & F) are properly presented to ABC, 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 M & F 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 M & F Shares are converted, regardless of whether they
have exchanged certificates representing their M & F 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 M & F) to ABC, 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
M & F Shares exchanged in the Merger be entitled to receive any interest on
any amounts held by ABC.
After the consummation of the Merger, there will be no transfers on the
stock transfer books of M & F or ABC of any M & F 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.
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 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 M & F' 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, December 31, 1996. If the Merger has not
occurred by January 31, 1997, unless such date is otherwise extended by
agreement of the parties, either M & F or ABC has the right to terminate the
Merger Agreement in its entirety without penalty.
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INTERESTS OF MANAGEMENT IN THE MERGER
John C. Mosely, the Chief Executive Officer and President of Merchants &
Farmers Bank, has agreed to enter into a one year employment agreement with
Merchants & Farmers Bank effective as of the Closing Date.
Following the Merger, ABC intends to provide generally to officers and
employees of Merchants & Farmers 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
eligible officer and employee of Merchants & Farmers Bank to participate in
ABC's SEP/IRA Retirement Plan (the "SEP Plan") according to the terms of the
SEP Plan. For purposes of the eligibility and vesting provisions under ABC's
pension plan, officers and employees of Merchants & Farmers Bank shall receive
credit for years of service at Merchants & Farmers Bank. Under the SEP Plan,
officers or employees of Merchants & Farmers Bank who have been employed by
Merchants & Farmers 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 M & F Shares are entitled to dissenters' rights under Article 13
of the GBCC ("Article 13"). As described below, such rights allow M & F
shareholders to dissent from the Merger and to obtain instead payment of "fair
value" for their M & F Shares. A person having a beneficial interest in M & F
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 M & F Shares as to
which dissenters' rights are asserted, if any.
A M & F shareholder wishing to exercise dissenters' rights must deliver to M
& F 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 M & F 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, M & F 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 M & F 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 Dissenters' Notice. Within ten days
after receipt of the Payment Demand or within ten days after consummation of
the Merger, whichever is later, M & F 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 M & F's offer by written notice to M & F within
30 days of M & F'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 M & F, in writing, of such shareholder's
own estimate of the "fair value" of his shares and demand payment thereof,
provided that such notice is delivered within 30 days after
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M & F's offer. In addition, if M & F 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 M & F (which M & F
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 M & F 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 M & F, 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 M & F fails to bring such action within such 60-day
period, M & F 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 M & F. 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 M & F 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 M & F. If the
court finds that M & F 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 M
& F 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 name appears on his stock certificates. If M & F 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 M &
F 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 M & F 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 M & F
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 M & F
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 M & F or delivers to M & F a written withdrawal of
his or her Payment Demand.
Failure to follow the steps required by Article 13 for perfecting
dissenters' rights will result in the loss of such rights. Consequently, any
shareholder of M & F 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 M & F shareholders, it does not purport to apply to all M & F
shareholders. Certain M & F shareholders may be in special circumstances which
are not addressed in such opinion. The opinion also
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considers only Federal income taxes and does not take into account the
application of other Federal taxes or state or local taxes. FOR THESE REASONS,
M & F SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AT THEIR OWN
EXPENSE AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER IN THEIR OWN
SITUATIONS.
The 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 M & F Shares Solely for ABC Common Stock. A M & F shareholder
who receives solely shares of ABC Common Stock pursuant to the Merger will
recognize no gain or loss, except with respect to cash received in lieu of a
fractional share of ABC Common Stock, if any. 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 M & F shareholder will be the same as
the tax basis of M & F 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
M & F Shares surrendered in the exchange, provided the M & F 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 M & F shareholders 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 M & F 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 M & F shareholder's hands), which will be long term in nature if
the M & F Shares exchanged therefor have been held (or are deemed to have been
held) more than one year.
Backup Withholding. Absent an applicable exemption, ABC must withhold 31% of
the cash consideration to which any M & F 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 ABC, each M & F shareholder should complete an
IRS Form W-9 or substitute form to provide the information and certification
necessary to avoid this "backup withholding."
BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER WILL VARY DEPENDING UPON THE
PARTICULAR CIRCUMSTANCES OF EACH M & F SHAREHOLDER AND OTHER FACTORS, EACH M &
F 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 requires the approval of the Federal Reserve Board (the "FRB")
under the BHCA and the Georgia Department of Banking and Finance (the "DBF").
Applications for such approvals were filed with the FRB and the DBF on October
24, 1996 and October 28, 1996, respectively. The Merger may not be consummated
for 15 days after approval by the FRB, during which time an action may be
brought by the United States Department of Justice challenging the Merger on
antitrust grounds.
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ISSUANCE OF ADDITIONAL SHARES
The Merger Agreement prohibits the issuance or sale of M & F Shares or
options to purchase M & F Shares pending the consummation of the Merger,
except that M & F may sell additional M & F Shares to any person who is a
holder of M & F Shares as of the date of the Merger Agreement, so long as such
sale does not cause Total Equity to exceed 8.0% of Average Total Assets. M & F
intends to sell additional M & F Shares to its existing shareholders in the
amount so permitted under the Merger Agreement prior to consummation of the
Merger.
BUSINESS PENDING THE MERGER
The Merger Agreement provides, among other limitations, that, pending
consummation of the Merger, M & F will operate in the ordinary course, will
use its best efforts to preserve its businesses and business organizations
intact, will comply with all applicable laws and will make no material changes
in its customary business practices.
OTHER PROVISIONS OF THE MERGER 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 M & F 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 M & F 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 M & F 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 M & F in the Merger Agreement; M & F's
performance of all of its obligations under the Merger Agreement; ABC's
receipt of an opinion of counsel to M & F with respect to certain corporate
matters; ABC's receipt of a letter from M & F's independent accountants with
respect to the financial information of M & F contained herein; the execution
of an employment agreement by and between Merchants & Farmers Bank and John
Mosely in substantially the form attached as Exhibit 5 to the Merger
Agreement; and ABC's receipt of an opinion from Mauldin & Jenkins regarding
the pooling of interests accounting treatment of the Merger. M & F'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 M & F's receipt of an opinion of counsel to
ABC with respect to certain corporate matters.
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 M & F shareholders,
no such amendment or supplement may result in a decrease in the consideration
for M & F Shares or otherwise materially adversely affect the rights of M & F
shareholders without their approval. The Merger Agreement provides that it may
be terminated (i) by the mutual consent of both parties; (ii) by either party
in the event of a material breach
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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; (iii) 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 M & F's shareholders fail to approve the Merger and the Merger
Agreement; (iv) at any time after January 31, 1997, by either party in the
event the Merger has not been consummated on or before such date; (v) by
either party if it becomes clear that certain conditions precedent to such
party's obligations cannot be satisfied on or prior to January 31, 1997; or
(vi) by M & F upon the payment of the termination fee discussed below in
connection with its acceptance of an alternative proposal. In the event of
termination as a result of a material breach of the Merger Agreement, the non-
breaching party shall be entitled to liquidated damages in the amount of
$250,000.
Expenses of the Merger. M & F 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 M & F 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, M & F 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 M & F shall pay to ABC the
sum of ABC's expenses, plus the sum of $250,000.
OPERATIONS OF MERCHANTS & FARMERS BANK AFTER THE MERGER
After the Merger is consummated, Merchants & Farmers Bank will remain a
state bank organized under the laws of the State of Georgia. Following the
Merger, ABC intends to seek the approval of the FDIC to add Kenneth J.
Hunnicutt, the President and Chief Executive Officer of ABC, to the Board of
Directors of Merchants & Farmers Bank. The parties intend that, after the
Effective Date, the operations of Merchants & Farmers Bank initially will
continue unchanged. There can be no assurance, however, that the operations of
Merchants & Farmers Bank will continue unchanged indefinitely and, as the sole
shareholder of Merchants & Farmers Bank, ABC will be entitled to remove or not
reelect such officers or directors of Merchants & Farmers 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 Merchants &
Farmers Bank comparable employee benefits that ABC provides to officers and
employees of its other banking subsidiaries from time to time. See "--Interest
of Management 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 Merchants &
Farmers 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 M & F 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 M & F prior to the Merger may be resold by them only in
transactions permitted by the resale provisions of Rule 145 promulgated under
the 1933 Act (or Rule 144 in the case of such
23
<PAGE>
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 M & F 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 M & F to use reasonable efforts to deliver or cause to be
delivered to ABC a letter agreement from each M & F 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 persons in or pursuant to the Merger
in violation of the 1933 Act or the rules and regulations promulgated by the
Commission thereunder.
In addition, in order to qualify the Merger as a "pooling of interests" for
accounting purposes, affiliates of M & F may not sell the ABC Common Stock
that they receive in the Merger until 30 days of combined financial results of
ABC and M & F have been published following the Merger.
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 eight 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;
Southland Bank located in Dothan, Alabama ("Southland"); Central Bank & Trust
located in Cordele, Georgia ("Central"); and First National Bank of South
Georgia located in Albany, Georgia ("First National"). As of September 30,
1996, ABC, on a consolidated basis, had total assets of $576.6 million, total
loans of $409.8 million, total deposits of $478.4 million and stockholders'
equity of $52.5 million. ABC's net income for 1995 was $5.5 million, or $1.22
per share; and its net income for the nine months ended September 30, 1996 was
$4.8 million, or $1.01 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.
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 December 16, 1996.
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,
its 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
24
<PAGE>
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 noninterest income and expenses, the provision for loan losses and the
effective tax rate. Noninterest income consists primarily of loan and other
fees and income from the sale of loans and investment securities. Noninterest
expenses consist of compensation and benefits, occupancy-related expenses,
deposit insurance premiums paid to the FDIC and other operating expenses.
The results of operations for the years ended December 31, 1995, 1994 and
1993 and nine months ended September 30, 1996 and 1995 include the operations
of the five wholly-owned subsidiary banks held prior to 1996 and the
operations of Central and First National which were acquired in 1996 in
transactions that were accounted for as poolings of interest. The results of
operations for the nine months ended September 30, 1996 also include the
operations of Southland since June 21, 1996, the date of its acquisition,
which transaction was accounted for as a purchase.
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 15%
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 31 basis points or 5.76% to 5.69% in
1995 as compared to 5.38% in 1994. This increase in net interest margin was
achieved by an increase of 109 basis points in average yield earned on
interest-earning assets accompanied by an increase of 101 basis points in
average rate paid on interest-bearing liabilities. Net interest income on a
taxable-equivalent basis was $20,648,000 in 1995 as compared to $17,543,000 in
1994, representing an increase of 17.70%. Net interest income on a taxable-
equivalent basis was $17,543,000 in 1994 as compared to $15,517,000 in 1993,
representing an increase of 13.06%. Net interest margin increased by 4.26% to
5.38% in 1994 from 5.16% in 1993 because average interest-earning assets
increased by 8.43% while interest-bearing liabilities increased only 4.91% in
1994 as compared to 1993. Average interest rates did not fluctuate
significantly during 1994 as compared to 1993.
Average interest-earning assets increased by $36,589,000 or 11.22% to
$362,622,000 in 1995 from $326,033,000 in 1994. Average loans increased by
$33,389,000; average investments increased by $973,000; and average Federal
funds sold increased by $2,227,000. The increase in average interest-earning
assets was funded by an increase in average deposits of $30,302,000 or 9.54%
to $347,981,000 in 1995 from $317,679,000 in 1994. By comparison, average
interest-earning assets increased by $25,342,000 or 8.43% to $326,033,000 in
1994 from $300,691,000 in 1993. During 1994, average deposits increased by
$18,232,000 or 6.09%, to $317,679,000 from $299,447,000 in 1993. Approximately
15% of the average deposits were noninterest-bearing deposits in 1995 and
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.
25
<PAGE>
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 $1,173,000 in 1995, $938,000 in 1994 and $1,512,000 in 1993. The
increase in the provision for loan losses in 1995 of $235,000, or 25.05%, as
compared with 1994 was accompanied by an increase of 12.33% in total loans in
1995 and an increase in the allowance for loan losses of 14.56%. Net charge-
offs represented 43.82% of the provision for loan losses in 1995 as compared
to 73.13% 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 .19% of average loans outstanding during the year as compared to
.29% for 1994. At December 31, 1995, the allowance for loan losses was 1.84%
of total loans outstanding as compared to an allowance for loan losses of
1.81% 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 $43,994,000 or 12.39% to $398,949,000 in 1995
as compared to $354,955,000 in 1994. The increase in average total assets was
accompanied by an increase in average deposits of $30,302,000 or 9.54%.
Average total assets increased $21,131,000 or 6.33% to $354,955,000 in 1994 as
compared to $333,824,000 in 1993 and was accompanied by an increase in average
total deposits of $18,232,000 or 6.09% to $317,679,000 in 1994 from
$299,447,000 in 1993.
ABC has provided a valuation reserve of $228,000 against a deferred tax
asset of $285,000 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 that subsidiary bank. At December 31, 1995,
approximately $840,000 was available to offset income of the subsidiary bank
in future years.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
The net interest margin increased 17 basis points or 3.23% to 5.43% for the
nine months ended September 30, 1996 as compared to 5.26% for the nine months
ended September 30, 1995. This increase in net interest margin resulted from
an increase of 61 basis points in interest earned on earning assets combined
with an increase of 16 basis points in average rate paid on interest-bearing
liabilities. Net interest income on a taxable-equivalent basis increased
19.77% to $18,148,000 for the nine months ended September 30, 1996 as compared
to $15,153,000 for the nine months ended September 30, 1995.
The provision for loan losses increased $196,000 to $985,000 for the nine
months ended September 30, 1996 as compared to $789,000 for the nine months
ended September 30, 1995. The provision for loan losses of $77,000 recorded by
Southland during the nine months ended September 30, 1996 accounted for
approximately 40% of the total increase. The provision for loan losses
recorded during the nine months ended September 30, 1995 did not include any
provision for loans of that subsidiary because the acquisition was accounted
for as a purchase transaction, and accordingly, the operations for Southland
have been included since the date of acquisition on June 21, 1996. The
additional increase of $119,000 resulted from an increase in average loans of
$39,247,000 (excluding Southland) during the nine-months period in 1996 as
compared to the same period in 1995.
Net income increased $859,000 or 21.76% to $4,807,000 for the nine months
ended September 30, 1996 as compared to $3,948,000 for the nine months ended
September 30, 1995. Approximately 40% of this increase represents net income
of $343,000 contributed by the purchased subsidiary, Southland. Net interest
income of ABC and its subsidiaries excluding Southland increased $1,591,000
offset by an increase in provision for loan losses of $119,000 and an increase
in all other net noninterest expense of $956,000, resulting in a net increase
of $516,000 in net income for the consolidated group excluding Southland.
Total assets increased $165,557,000 or 40.27% to $576,643,000 at September
30, 1996 as compared to total assets of $411,806,000 at September 30, 1995. Of
the total increase in assets, Southland contributed $119,859,000 or an
increase of 29.11%. Total loans increased $127,877,000 to $409,802,000 at
September 30,
26
<PAGE>
1996 as compared to $281,925,000 at September 30, 1995. Southland contributed
$83,235,000 of the increase in loans and all other banks contributed
$44,642,000. Total deposits increased $120,987,000, of which $93,831,000 were
attributable to Southland. The deposits contributed by Southland accounted for
an increase of 26.25% while the increase in deposits in all other banks
accounted for an increase of 7.60%.
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.............. $269,433 $29,439 10.93% $236,044 $23,234 9.84% $210,075 $20,875 9.94%
Investment securities:
Taxable................ 59,786 3,500 5.85% 57,647 3,038 5.27% 49,799 2,926 5.88%
Tax-exempt............. 9,595 835 8.70% 10,761 924 8.59% 9,265 905 9.77%
Federal funds sold..... 23,808 1,399 5.88% 21,581 861 3.99% 31,552 927 2.94%
-------- ------- -------- ------- -------- -------
Total interest-
earning assets....... 362,622 35,173 9.70% 326,033 28,057 8.61% 300,691 25,633 8.52%
-------- ------- -------- ------- -------- -------
Noninterest-earning
assets:
Cash................... $ 18,983 $ 19,197 $ 18,957
Allowance for loan
losses................ (4,952) (4,730) (3,551)
Unrealized gain on
available for sale
securities............ (187) (395)
Other assets........... 22,483 14,850 17,727
Total noninterest-
earning assets....... 36,327 28,922 33,133
-------- -------- --------
Total assets......... $398,949 $354,955 $333,824
======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing
liabilities:
Savings and interest-
bearing demand
deposits.............. $103,992 $ 3,189 3.07% $112,229 $ 3,151 2.81% $110,829 $ 3,273 2.95%
Time deposits.......... 191,233 10,971 5.74% 158,718 7,126 4.49% 148,116 6,602 4.46%
Other short-term
borrowings............ 6,355 365 5.74% 2,796 80 2.86% 168 3 1.79
Debt................... -- -- 1,931 157 8.13% 3,654 238 6.51%
-------- ------- -------- ------- -------- -------
Total interest-
bearing
liabilities.......... 301,580 14,525 4.82% 275,674 10,514 3.81% 262,767 10,116 3.85%
Noninterest-bearing
liabilities and stock-
holders' equity:
Demand deposits........ 52,756 46,732 40,502
Other liabilities...... 3,431 2,445 3,706
Stockholders' equity... 41,182 30,104 26,849
-------- -------- --------
Total noninterest-
bearing liabilities
and stockholders'
equity............... 97,369 79,281 71,057
-------- -------- --------
Total liabilities and
stockholders'
equity.............. $398,949 $354,955 $333,824
======== ======== ========
Interest rate spread.... 4.88% 4.80% 4.67%
===== ==== ====
Net interest income..... $20,648 $17,543 $15,517
======= ======= =======
Net interest margin..... 5.69% 5.38% 5.16%
===== ==== ====
</TABLE>
27
<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.............. $6,205 $ 2,918 $ 3,287 $2,359 $ (222) $ 2,581
Interest on
securities:
Taxable........... 462 349 113 112 (349) 461
Tax-exempt........ (89) 11 (100) 19 (127) 146
Interest on Federal
funds.............. 538 449 89 (66) 227 (293)
------ ------- ------- ------ ------ -------
Total interest
income......... $7,116 $ 3,727 $ 3,389 $2,424 $ (471) $ 2,895
------ ------- ------- ------ ------ -------
Expense from interest-
bearing liabilities:
Interest on savings
and interest-bearing
demand............... $ 38 $ 269 $ (231) $ (122) $ (163) $ 41
Interest on time
deposits............. 3,845 2,385 1,460 524 51 473
Interest on short-term
deposits............. 285 183 102 77 30 47
Interest on debt...... (157) -- (157) (81) 31 (112)
------ ------- ------- ------ ------ -------
Total interest
expense........ $4,011 $ 2,837 $ 1,174 $ 398 $ (51) $ 449
------ ------- ------- ------ ------ -------
Net interest
income......... $3,105 $ 890 $ 2,215 $2,026 $ (420) $ 2,446
====== ======= ======= ====== ====== =======
</TABLE>
NONINTEREST INCOME
The most significant increase in noninterest income was an increase in
service charges on deposit accounts of $221,000 in 1995 over 1994,
representing an increase of 6.85%. This increase in service charges was
achieved by an increase in average deposits of $30,302,000 during 1995 as
compared to 1994. Total other income increased $280,000 or 7.43% in 1994,
which was attributable to an increase of $159,000 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................. $ 3,449 $ 3,228 $ 3,069
Other service charges, commissions and fees......... 402 316 344
Other income........................................ 544 503 354
------- ------- -------
$ 4,395 $ 4,047 $ 3,767
======= ======= =======
</TABLE>
28
<PAGE>
NONINTEREST EXPENSE
Salaries and employee benefits increased $642,000 or 8.85% in 1995 over
1994. Salaries increased $408,000; bonuses increased $94,000; and employee
benefits increased $140,000. Deposit insurance premiums decreased $287,000 or
39.48% 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 $113,000 or 25.45% 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...................... $ 7,898 $ 7,256 $ 6,608
Occupancy and equipment expense..................... 2,346 2,246 2,025
Deposit insurance premiums.......................... 440 727 705
Data Processing fees................................ 478 557 444
Other expense....................................... 4,512 3,976 3,852
------- ------- -------
$15,674 $14,762 $13,634
======= ======= =======
</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
29
<PAGE>
interest-rate gap. The ability of many borrowers to service their debts also
may decrease in the event of an interest-rate increase.
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...... $ 47,485 $ -- $ -- $ -- $ 47,485
Investment securities... 4,045 15,434 39,215 13,295 71,989
Loans................... 113,609 33,171 111,382 22,869 281,031
-------- -------- -------- ------- --------
165,139 48,605 150,597 36,164 400,505
-------- -------- -------- ------- --------
INTEREST-BEARING
LIABILITIES:
Interest-bearing demand
deposits(1)............ -- 24,740 65,755 -- 90,495
Savings(1).............. -- -- 27,468 -- 27,468
Certificates less than
$100,000............... 36,101 74,214 43,989 -- 154,304
Certificates $100,000
and over............... 20,634 22,725 8,670 -- 52,029
Other short-term
borrowings............. 4,487 -- -- -- 4,487
-------- -------- -------- ------- --------
61,222 121,679 145,882 -- 328,783
-------- -------- -------- ------- --------
Interest rate sensitivity
gap...................... $103,917 $(73,074) $ 4,715 $36,164 $ 71,722
======== ======== ======== ======= ========
Cumulative interest rate
sensitivity gap.......... $103,917 $ 30,843 $ 35,558 $71,722
======== ======== ======== =======
Interest rate sensitivity
gap ratio................ 2.70 0.40 1.03 N/A
======== ======== ======== =======
Cumulative interest rate
sensitivity gap ratio.... 2.70 1.17 1.11 1.22
======== ======== ======== =======
</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, on the average, the money-market check deposits reprice
between three months to one year.
30
<PAGE>
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...................................... $146,780
After one year through five years..................... 111,382
After five years...................................... 22,869
--------
$281,031
========
</TABLE>
The following table summarizes loans at December 31, 1995 with the due dates
after one year which (i) have predetermined interest rates or (ii) have
floating or adjustable interest rates.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Predetermined interest rates............................ $134,251
Floating or adjustable interest rates................... --
--------
$134,251
========
</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 residential real
estate mortgage loans, which constituted approximately 24% of ABC's loan
portfolio as of December 31, 1995. As of December 31, 1995, the ten largest
loans of ABC accounted for approximately 10% of ABC's total loans. As of
December 31, 1995, ABC had outstanding loan commitments of $47 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,
SEPTEMBER 30, --------------------------------------------
1996 1995 1994 1993 1992 1991
------------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial and
industrial............. $ 69,016 $ 45,671 $ 37,374 $ 30,270 $ 25,554 $ 15,969
Agricultural............ 36,036 18,527 20,031 12,061 12,627 8,274
Real estate--
construction........... 13,364 3,577 3,688 5,787 3,247 2,028
Real estate--mortgage,
farmland............... 51,144 41,420 36,485 31,451 25,335 14,479
Real estate--mortgage,
commercial............. 81,232 52,443 45,702 34,956 30,337 20,595
Real estate--mortgage,
residential............ 97,484 68,554 59,641 56,910 58,101 42,715
Consumer installment
loans.................. 56,459 50,020 45,891 39,649 40,008 32,657
Other................... 5,067 819 1,368 1,854 1,739 2,759
-------- -------- -------- -------- -------- --------
409,802 281,031 250,180 212,938 196,948 139,476
Less reserve for
possible loan losses... 6,689 5,184 4,525 4,273 4,585 1,709
-------- -------- -------- -------- -------- --------
Total loans........... $403,113 $275,847 $245,655 $208,665 $192,363 $137,767
======== ======== ======== ======== ======== ========
</TABLE>
31
<PAGE>
NONPERFORMING LOANS
A loan is placed on nonaccrual 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 nonaccrual 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,
SEPTEMBER 30, ----------------------------------
1996 1995 1994 1993 1992 1991
------------- ------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Loans accounted for on a
nonaccrual basis............ $4,974 $2,271 $3,511 $3,208 $6,345 $1,213
Installment loans and term
loans contractually past due
ninety days or more as to
interest or principal
payments and still
accruing.................... 41 447 262 509 605 577
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...................... $5,015 $2,718 $4,131 $3,717 $6,950 $1,790
====== ====== ====== ====== ====== ======
</TABLE>
As of September 30, 1996 and December 31, 1995, 1994, 1993, 1992 and 1991,
total nonperforming loans were approximately 1.22%, .97%, 1.65%, 1.75%, 3.53%
and 1.28%, 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, or (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 $5.2 million at
December 31, 1995, representing 1.84% of year-end total loans outstanding and
OREO, compared with approximately $4.5 million at December 31, 1994, which
represented 1.81% 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.
32
<PAGE>
The following table presents an analysis of ABC's loan loss experience for
the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, ------------------------------------------------
1996 1995 1994 1993 1992 1991
------------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Average amount of loans
outstanding............ $337,021 $269,433 $236,044 $210,075 $163,948 $137,370
======== ======== ======== ======== ======== ========
Balance of reserve for
possible loan losses at
beginning of period.... $ 5,184 $ 4,525 $ 4,273 $ 4585 $ 1,709 $ 1,396
-------- -------- -------- -------- -------- --------
Charge offs:
Commercial, financial,
industrial and
agricultural......... (75) (301) (462) (573) (410) (214)
Real estate........... (144) (103) (338) (1,883) (1,055) (667)
Consumer.............. (844) (550) (437) (460) (320) (41)
Recoveries:
Commercial, financial,
industrial and
agricultural......... 54 97 90 290 26 44
Real estate........... 136 127 265 556 282 350
Consumer.............. 182 216 196 246 113 5
-------- -------- -------- -------- -------- --------
Net charge-offs..... $ (691) $ (514) $ (686) $ (1,824) $ (1,364) $ (523)
-------- -------- -------- -------- -------- --------
Additions to reserve
charged to operating
expenses............... $ 985 $ 1,173 $ 938 $ 1,512 $ 1,540 $ 836
-------- -------- -------- -------- -------- --------
Allowance for loan
losses of acquired
subsidiary............. $ 1,211 $ -- $ -- $ -- $ 2,700 $ --
-------- -------- -------- -------- -------- --------
Balance of reserve for
possible loan
losses............... $ 6,689 $ 5,184 $ 4,525 $ 4,273 $ 4,585 $ 1,709
======== ======== ======== ======== ======== ========
Ratio of net loan
charge-offs to average
loans.................. 21% .19% .29% .87% .83% .38%
======== ======== ======== ======== ======== ========
</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 SEPTEMBER 30, -------------------------------------
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........... $1,555 26% $1,205 23% $1,164 23%
Real estate............. 2,444 59% 1,894 59% 1,748 58%
Consumer................ 1,282 15% 993 18% 988 19%
Unallocated............. 1,408 1,092 625
------ --- ------ --- ------ ---
$6,689 100% $5,184 100% $4,525 100%
====== === ====== === ====== ===
</TABLE>
33
<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 on 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 52% 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, 27% of the
investment portfolio matures within one year.
TYPES OF INVESTMENTS
The amortized cost and approximate fair 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
December 31, 1995:
U.S. Government and agency
securities..................... $50,211 $381 $ (171) $50,421
Mortgage-backed securities...... 7,897 126 (8) 8,015
Other securities................ 300 -- (18) 282
------- ---- ------- -------
$58,408 $507 $ (197) $58,718
======= ==== ======= =======
December 31, 1994:
U.S. Government and agency
securities..................... $18,093 $-- $ (669) $17,424
Mortgage-backed securities 907 4 (33) 878
Other securities................ 300 -- (40) 260
------- ---- ------- -------
$19,300 $ 4 $ (742) $18,562
======= ==== ======= =======
Securities Held to Maturity
December 31, 1995:
State and municipal securities.. $10,269 $258 $ (65) $10,462
Mortgage-backed securities 3,002 -- (15) 2,987
------- ---- ------- -------
$13,271 $258 $ (80) $13,449
======= ==== ======= =======
December 31, 1994:
U.S. Government and agency
securities..................... $33,352 $ 19 $(1,235) $32,136
State and municipal securities.. 9,819 114 (471) 9,462
Mortgage-backed securities...... 6,038 22 (308) 5,752
------- ---- ------- -------
$49,209 $155 $(2,014) $47,350
======= ==== ======= =======
</TABLE>
34
<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 BUT
WITHIN ONE YEAR WITHIN FIVE YEARS WITHIN 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
agencies (1).......... $ 15,599 5.68% $ 45,616 6.15% $ 505 6.51% $ -- -- %
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................. $ 52,756 -- % $ 46,732 -- %
Interest-bearing demand
and savings deposits..... 103,992 3.07% 112,229 2.81%
Time deposits............. 191,233 5.74% 158,718 4.49%
-------- --------
Total deposits.......... $347,981 $317,679
======== ========
</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 12 months and (iii) over 12 months.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Three months or less.................................. $20,634
Over three through 12 months.......................... 22,725
Over 12 months........................................ 8,670
-------
Total............................................... $52,029
=======
</TABLE>
35
<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................................. 1.37% 1.09% 0.96%
Return on equity................................. 13.24 12.87 11.91
Dividend payout ratio............................ 28.69 30.21 32.95
Equity to assets ratio........................... 10.32 8.48 8.04
</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 $210,000, representing proceeds from exercise of
common stock options. It also increased its capital by retaining net earnings
of $4,164,000 after payment of dividends. After recording an increase in
capital of $694,000 for unrealized gains on securities, net of taxes, total
capital increased during 1995 by $5,068,000. At December 31, 1995, total
capital of ABC amounted to $43,629,000. 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 nine months ended September 30, 1996, total capital increased
$8,912,000 to $52,541,000 at September 30, 1996. This increase in capital
resulted from the retention of net earnings of $3,628,000 (after deducting
dividends to shareholders of $1,179,000) a decrease of $691,000 in unrealized
gains on securities available for sale, net of taxes and a net increase of
$5,975,000 related to merger transactions.
In accordance with risk capital guidelines issued by the Federal Reserve
Board, 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.
36
<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........... $41,806 9.93% $16,839 4.00% $24,967 5.93%
Risk-based capital:
Core Capital............. 41,806 14.52 11,518 4.00 30,288 10.52
Total Capital............ 45,419 15.77 23,037 8.00 22,382 7.77
</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...................... $ 42,666 $ 31,904
Credit card commitments........................... 2,883 2,345
Standby letters of credit......................... 1,433 989
----------- -----------
$ 46,982 $ 35,238
=========== ===========
</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.
37
<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 5,031,537 shares were issued and
outstanding as of September 30, 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 Federal Reserve Board 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
Federal Reserve Board 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, without shareholder approval, 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 as a defensive device to thwart an attempted hostile takeover of ABC.
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
38
<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.
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, the 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.
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
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.
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<PAGE>
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 Merchants & Farmers 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 Merchants & Farmers Bank) to ABC), the prior
approval of the DBF 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%.
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
40
<PAGE>
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 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 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.
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<PAGE>
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 paid only the legally required annual minimum payment of $10,000 per
year for insurance as of January 1996.
On October 8, 1996 the FDIC implemented a 65.7 basis point special
assessment in order to bring the Savings Association Insurance Fund ("SAIF")
to the legally mandated 1.25% reserve ratio. The Subsidiary Banks' aggregate
SAIF assessment (on a pre-tax basis), to be paid on November 27, 1996, will be
$263,000.
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 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
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<PAGE>
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 structure, regulations and competitive
relationships of the nations's financial institutions. It cannot be predicted
whether or in 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.
COMPARATIVE RIGHTS OF SHAREHOLDERS
Upon consummation of the Merger, M & F 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 M &
F shareholders, on the one hand, and the ABC shareholders, on the other hand.
Because both M & F and ABC are Georgia corporations, these differences arise
primarily from provisions of the articles of incorporation and bylaws of each
of M & F and ABC.
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<PAGE>
The following summaries do not purport to be complete statements of the
rights of M & F shareholders under M & F'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 M & F and ABC.
LIQUIDITY AND MARKETABILITY
ABC Common Stock. As of September 30, 1996, all of the 5,031,537 shares of
ABC Common Stock then outstanding were freely tradeable except for
approximately 770,844 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.
M & F Common Stock. M & F Shares are not registered with the Commission or
listed on any national securities exchange or quoted on any interdealer
quotation system. There is no established market for M & F Shares, and none is
expected to develop.
REPORTING REQUIREMENTS
ABC Common Stock. ABC is a reporting company under the 1934 Act and files
annual and quarterly financial reports with the Commission.
M & F Common Stock. M & F is not subject to any financial reporting
regulations.
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.
M & F Board of Directors. The business and affairs of M & F are managed by
or under the direction of its Board of Directors. Each director is elected
annually by the M & F shareholders and may be removed and replaced, with or
without cause, by a majority vote of M & F' shareholders at any meeting of
such holders. According to M & F's bylaws, M & F's Board of Directors shall
consist of not less than three nor more than 25 members. The number of M & F
directors may be fixed or changed from time to time, within the minimum and
maximum, by the shareholders by the affirmative vote of a majority of the
issued and outstanding M & F Shares entitled to vote in the election of
directors or by the Board of Directors. M & F's Board of Directors currently
consists of nine members.
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.
M & F Common Stock. Special meetings of M & F's shareholders may be called
at any time by M & F's Chairman of the Board, President or Board of Directors.
Special meetings of M & F's shareholders also shall be called upon the written
request of the holders of 25% or more of all shares of capital stock of M & F
entitled to vote in an election of directors.
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<PAGE>
DESCRIPTION OF M & F FINANCIAL CORPORATION
BUSINESS
General. M & F is a bank holding company organized under the laws of the
State of Georgia and registered with the FRB pursuant to the BHCA. M & F owns
all of the outstanding common stock of Merchants & Farmers Bank, a Georgia
state bank that provides general banking services in Seminole County, Georgia.
At September 30, 1996, M & F, on a consolidated basis, had total assets of
approximately $42.1 million, total loans of approximately $25.9 million, total
deposits of approximately $33.6 million and total stockholders' equity of
approximately $3.5 million. M & F's net income for 1995 was $464,600 or $.43
per share; its net income for the nine months ended September 30, 1996 was
$411,379, or $.38 per share.
Merchants & Farmers Bank serves its primary market area of Seminole County,
Georgia from its headquarters located in Donalsonville, Georgia. The banking
business in this market is highly competitive. Merchants & Farmers Bank
competes for both deposits and loan customers with many other financial
institutions with equal or greater resources than are available to Merchants &
Farmers Bank. Such institutions include other commercial banks, credit union
insurance companies, brokerage firms and other financial services companies.
Merchants & Farmers Bank operates a full service commercial banking business
and provides a wide range of banking services, including checking and savings
accounts; various types of certificates of deposit; agricultural, consumer,
commercial and real estate loans; safe deposit boxes; drive-in banking
facilities, 24-hour telephone banking and access to 24-hour teller machines
through various networks. A description of Merchants & Farmers Bank's primary
banking activities is set forth below.
Deposits. Merchants & Farmers Bank offers a wide range of commercial and
consumer deposit accounts, including checking accounts, money market checking
accounts, negotiable order of withdrawal (NOW) accounts, individual retirement
accounts, time certificates of deposit and regular savings accounts. The
sources of deposits typically are residents and businesses and their employees
within Merchants & Farmers Bank's market area. Merchants & Farmers Bank pays
competitive interest rates on time and savings deposits and has implemented a
service charge fee schedule competitive with other financial institutions in
its market area. For additional information, including the amounts of deposits
of various types and information concerning deposits greater than or equal to
$100,000, see "M & F Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Lending Activities. Merchants & Farmers Bank's lending activities include
agricultural, real estate, consumer and commercial loans. Merchants & Farmers
Bank's agricultural loans are made for crop production expenses and to finance
the purchase of farm-related equipment. Its real estate loan portfolio
includes traditional first mortgage loans to individuals on single-family
homes, loans secured by farmland, and construction loans. Merchants & Farmers
Bank also makes consumer loans, consisting primarily of installment loans to
individuals for personal, family and household purposes, including loans for
automobiles, home improvements and investments. Merchants & Farmers Bank's
commercial lending is directed principally toward businesses located within
its defined trade area with a demand for funds that falls within its legal
lending limits. Merchants & Farmers Bank also targets businesses that are
existing or are potential deposit customers.
Lending decisions are based upon determination of the borrower's ability and
willingness to repay the loan, which in turn are impacted by such factors as
an individual borrower's income, job stability, length of time as a resident
in the community, previous credit history and collateral for the loan and a
commercial borrower's cash flow, sales trend and inventory levels and relevant
economic conditions. In the case of agricultural loans, Merchants & Farmers
Bank typically looks to the borrower's cash flow as the principal source of
repayment and generally secures repayment by a security interest in the crops
or farm-related equipment and, in some cases, an assignment of crop insurance
or a mortgage on real estate. Risks associated with loans can be significant
and include, but are not limited to, fraud, bankruptcy, economic downturn,
deteriorated or non-existing collateral and changes in interest rates.
Agricultural loans carry additional risks, including fluctuating commodity
prices and the risk of adverse weather conditions.
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<PAGE>
Investment Activities. After establishing necessary cash reserves and
funding loans, Merchants & Farmers Bank invests its remaining liquid assets in
investments allowed under banking laws and regulations. It invests primarily
in obligations of the United States or obligations guaranteed as to principal
and interest by the United States and other taxable securities and in certain
obligations of states and municipalities. Risks associated with these
investments include, but are not limited to, mismanagement in terms of
interest rate, maturity and concentration. For additional information
concerning investment activities, see the information set forth under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Asset/Liability Management. It is management's objective to manage Merchants
& Farmers Bank's assets and liabilities to provide a satisfactory, consistent
level of profitability within the framework of established cash, loan,
investment, borrowing and capital policies. Certain officers of the Bank are
charged with the responsibility for developing and monitoring policies and
procedures that are designed to ensure acceptable composition of the
asset/liability mix. It is management's overall philosophy to support asset
growth primarily through growth of core deposits, which includes deposits of
all categories made by individuals, partnerships and corporations. Merchants &
Farmers Bank's asset/liability mix is monitored on a timely basis with a
report reflecting interest-sensitive assets and interest-sensitive liabilities
being prepared and presented to the asset/liability committee of it's Board of
Directors on a monthly basis. In addition, Merchants & Farmers Bank's
liquidity is monitored on a monthly basis by its Board of Directors. The
objective of this policy is to manage interest-sensitive assets and
liabilities so as to minimize the impact of substantial movements in interest
rates on its earnings. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
EMPLOYEES
As of September 30, 1996, M & F and Merchants & Farmers Bank had a total of
21 full-time equivalent and two part-time employees to whom they provide a
variety of benefits. M & F has no salaried employees, although certain
executive officers hold parallel positions with Merchants & Farmers Bank. Both
M & F and Merchants & Farmers Bank consider employee relations to be
excellent, and neither is a party to any collective bargaining agreement.
PROPERTIES
The principal offices of M & F and Merchants & Farmers Bank are located at
109 West Third Street, Donalsonville, Georgia 31047. Merchants & Farmers Bank
owns these facilities without encumbrance.
LITIGATION
M & F and Merchants & Farmers Bank are not parties to, nor is any of their
property the subject of, any material pending legal proceedings, other than
ordinary routine litigation incidental to their business, and no such
proceedings are known to be contemplated by governmental authorities.
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MANAGEMENT
The following table sets forth, as of September 30, 1996, certain
information regarding each director and executive officer of M & F. Each
director has served as a director of M & F since 1985. Prior to 1994, seven of
the nine directors served as directors of Merchants & Farmers Bank on a
rotation basis. Since 1994, all nine directors have also served as directors
of Merchants & Farmers Bank. M & F will cease to exist upon the Merger;
accordingly, the directors and executive officers of M & F will no longer
serve in such capacities following the effective date of the Merger. No
changes are expected in the management of Merchants & Farmers Bank as a result
of the proposed transaction, other than the appointment of an additional
director to the Board by ABC, subject to the prior approval of the FDIC.
<TABLE>
<CAPTION>
POSITIONS WITH M & F AND
NAME AGE PRINCIPAL OCCUPATION MERCHANTS & FARMERS BANK
---- --- -------------------- ------------------------
<S> <C> <C> <C>
David I. Rach........... 49 Engineering consultant; Chairman of the Board and
President of Barfab, Inc. President of M & F; Vice
Chairman of Merchants &
Farmers Bank; Director
R. G. Heard............. 63 Retired farmer; President of Vice Chairman and Vice
Spring Creek Farms, Inc. President of M & F; Director
Charles R. Burke........ 69 President, B & B Electric Director
and Furniture Company
H. Wayne Carr........... 69 Farmer; President of Treasurer of M & F; Director
Blackbottom Farms, Inc.
J. B. Clarke............ 69 Owner, Clarke Realty Co. Director
Joseph S. Hall.......... 59 Farmer; President of North Director
American Farms, Inc.
N. E. King, Sr. ........ 68 Real estate developer Director
Jerry G. Mitchell....... 54 Veterinarian; Owner of Secretary of M & F; Chairman
Southwest Georgia Veterinary of the Board of Merchants &
Hospital Farmers Bank; Director
John C. Mosely.......... 50 President and Chief President and Chief
Executive Officer of Executive Officer of
Merchants & Farmers Bank Merchants & Farmers Bank;
Assistant Treasurer of
M & F; Director
</TABLE>
All of M & F's directors and executive officers hold office for a term of
one year or until their respective successors are duly elected and qualified.
Except as described under the caption "PROPOSED MERGER--Interests of
Management in the Merger," there are no arrangements or understandings between
any of the directors, executive officers or any other persons pursuant to
which any of M & F's directors or executive officers have been selected for
their respective positions. No family relationships exist between any director
or executive officer.
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<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS
The following table sets forth, as of September 30, 1996, the total number
of M & F Shares beneficially owned by each director of M & F, each beneficial
owner of five percent or more the outstanding M & F Shares, and all directors
and executive officers of M & F as a group. The number of M & F Shares shown
as being beneficially owned by each director are those over which he has
either sole or shared voting or investment power. Unless otherwise indicated,
the persons listed below have sole voting and investment power with respect to
their shares. At September 30, 1996, M & F had 1,091,358 shares of common
stock outstanding.
<TABLE>
<CAPTION>
SHARES
NAME OF BENEFICIALLY PERCENT OF
BENEFICIAL OWNER OWNED(1) CLASS(2)
---------------- ------------ ----------
<S> <C> <C>
David I. Rach...................................... 142,540 13.06%
2013 Stonewood Drive
Dothan, Alabama 36301
R. G. Heard........................................ 142,540 13.06%
Route 1
Brinson, Georgia 31125
Charles R. Burke................................... 142,540(2) 13.06%
P. O. Box 82
Donalsonville, Georgia 31745
H. Wayne Carr...................................... 142,540 13.06%
1489 Highway 39 North
Donalsonville, Georgia 31745
J. B. Clarke....................................... 142,540(3) 13.06%
P. O. Box 1007
Donalsonville, Georgia 31745
Joseph S. Hall..................................... 142,540 13.06%
Route 4, Box 475
Donalsonville, Georgia 31745
N. E. King, Sr..................................... 142,540(4) 13.06%
P. O. Box 535
Donalsonville, Georgia 31745
Jerry G. Mitchell.................................. 67,890 6.23%
Route 1, Box 83-F
Donalsonville, Georgia 31745
John C. Mosely..................................... 25,688 2.35%
P.O. Box 524
Donalsonville, Georgia 31745
All directors and executive officers as a group.... 1,091,358 100.00%
</TABLE>
- --------
(1) The information contained in this column is based upon information
furnished to M & F by the individuals identified above and shareholder
records of M & F.
(2) Includes 58,711 shares owned of record by Mr. Burke's wife and 25,000
shares owned of record by his son, with respect to which he may be deemed
to share voting and investment power.
(3) Mr. Clarke is deemed to share voting and investment power of 142,540
shares owned of record by his wife.
(4) Mr. King is deemed to share voting and investment power for 142,540
shares owned of record by his wife.
48
<PAGE>
CERTAIN REGULATORY CONSIDERATIONS RELATING TO M & F
General. The regulatory considerations described under the caption "CERTAIN
REGULATORY CONSIDERATIONS RELATING TO ABC" apply equally to M & F and
Merchants & Farmers Bank.
Capital Requirements. At September 30, 1996, Merchants & Farmers Bank had a
Tier 1 leverage ratio of 9.5%, a Tier 1 risk-based ratio of 14.65%, and a
Total risk-based ratio of 15.82%. At September 30, 1996, M & F and Merchants &
Farmers Bank had the requisite capital levels to qualify as well-capitalized.
49
<PAGE>
M & F MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
M & F's principal asset is its ownership of Merchants & Farmers Bank.
Accordingly, M & F's results of operations are primarily dependent upon the
results of operations of Merchants & Farmers Bank. Merchants & Farmers 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). Merchants & Farmers 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 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, Merchants & Farmers 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, deposit insurance premiums paid to the
FDIC and other operating expenses.
RESULTS OF OPERATIONS FOR YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
M & F'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 the M & F, the ability to generate net interest income is dependent
upon Merchants & Farmers 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.
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
11.60% 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 decreased slightly to 4.59% in 1995 as compared to
4.69% in 1994. This decrease in net interest margin resulted from a
disproportionate increase in interest earned on earning assets and interest
paid on interest-bearing liabilities. Average yield on earning assets
increased by 76 basis points or 9.11% to 9.10% in 1995 from 8.34% in 1994
while interest paid on interest bearing liabilities increased 94 basis points
or 23.21% to 4.99% in 1995 from 4.05% in 1994. At the same time, interest-
bearing liabilities increased $2,839,000 or 9.08% to $34,092,000 in 1995 from
$31,253,000 in 1994 while earning assets increased $2,971,000 or 8.55% to
$37,703,000 in 1995 from $34,732,000. Net interest income on a taxable-
equivalent basis was $1,730,000 in 1995 as compared to $1,630,000 in 1994,
representing an increase of 6.13%. Net interest income on a taxable-equivalent
basis was $1,630,000 in 1994 as compared to $1,481,000 in 1993, representing
an increase of 10.06%. Net interest margin increased slightly to 4.59% in 1994
from 4.55% in 1993 because average yield on interest-earning assets increased
at a greater rate than the average interest rate paid on interest-bearing
liabilities.
50
<PAGE>
Average interest-earning assets increased $2,971,000 or 8.55% to $37,703,000
in 1995 from $34,732,000 in 1994. Average loans increased $2,856,000; average
investments decreased $120,000; and average Federal funds sold increased
$235,000. The increase in average interest-earning assets was funded by an
increase in average deposits of $1,287,000 or 3.87% to $34,564,000 in 1995
from $33,277,000 in 1994 and an increase in average short-term borrowings of
$1,581,000 or 232.16% to $2,262,000 in 1995 from $681,000 in 1994. The
significant increase in short-term borrowings was required because the
increase in deposits was not sufficient to fund the increased loan demand as
represented by the 13.65% increase in average loans. By comparison, average
interest- earning assets increased $2,155,000 or 6.62% to $34,732,000 in 1994
from $32,577,000 in 1993. During 1994, average deposits increased $1,847,000
or 5.88%, to $33,277,000 from $31,430,000 in 1993. Approximately 11.60% of the
average deposits were noninterest-bearing deposits in 1995 as compared to
11.50% in 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 $58,000 in 1995, $17,000 in 1994 and $49,000 in 1993. Merchants &
Farmers Bank has not sustained any substantial loan losses in recent years as
evidenced by net loan charge-offs of $8,000 in 1995, net loan charge-offs of
$8,000 in 1994 and net recoveries of $42,000 in 1993. At December 31, 1995,
the allowance for loan losses was 1.24% of total loans outstanding as compared
to an allowance for loan losses of 1.20% of total loans outstanding at
December 31, 1994 and 1.25% of total loans outstanding at December 31, 1993.
The determination of the allowance rests upon management's judgement 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 $3,192,000 or 8.43% to $41,039,000 in 1995 as
compared to $37,847,000 in 1994. The increase in average total assets was
accompanied by an increase in average deposits of $1,287,000 and an increase
in average short-term borrowings of $1,581,000. Average total assets increased
$2,436,000 or 6.88% to $37,847,000 in 1994 as compared to $35,411,000 in 1993.
The increase in total assets was accompanied by an increase of $1,847,000 in
average deposits and an increase of $413,000 in average short-term borrowings.
Following is a condensed summary of the increase in net income in 1995 as
compared to 1994.
<TABLE>
<CAPTION>
INCREASE IN
1995 1994 NET INCOME
---------- ---------- -----------
<S> <C> <C> <C>
Net interest income..................... $1,642,000 $1,537,000 $105,000
Provision for loan losses............... 58,000 17,000 41,000
Other income............................ 278,000 226,000 52,000
Other expense........................... 1,246,000 1,168,000 78,000
---------- ---------- --------
Income before income taxes............ 616,000 578,000 38,000
Applicable income taxes................. 151,000 134,000 17,000
---------- ---------- --------
Net income............................ $ 465,000 $ 444,000 $ 21,000
========== ========== ========
</TABLE>
51
<PAGE>
RESULTS OF OPERATIONS FOR NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
The net interest margin increased nine basis points to 4.73% for the nine
months ended September 30, 1996 as compared to 4.64% for the nine months ended
September 30, 1995. The increase in net interest margin was attributable to an
increase in average loans of $1,177,000 with a small increase in average yield
of two basis points and an increase in average balances on Federal funds sold
of $483,000. Net interest income on a taxable-equivalent basis increased
$60,000, or 4.62%, to $1,360,000 for the nine months ended September 30, 1996
as compared to $1,300,000 for the nine months ended September 30, 1995. The
increase in net interest income resulted from an increase of $117,000 in
interest income on earning assets offset by an increase of $57,000 in interest
paid on liabilities.
The provision for loan losses amounted to $42,000 for the nine months ended
September 30, 1996 as compared to $14,000 for the nine months ended September
30, 1995. The increase in the provision for loan losses resulted from an
increase in average loans of $1,177,000 during the nine months ended September
30, 1996 as compared to the comparable period in 1995. During the nine months
ended September 30, 1996, Merchants & Farmers Bank recorded net loan charge-
offs of $20,000 as compared to net loan charge-offs of $5,000 for the nine
months ended September 30, 1995.
Net income increased $35,000 or 9.31% to $411,000 for the nine months ended
September 30, 1996 as compared to $376,000 for the nine months ended September
30, 1995. Noninterest income increased $86,000 to $291,000 in 1996 from
$205,000 in 1995. This increase in noninterest income resulted from an
increase of $96,000 in service charges on deposit accounts, a decrease of
$13,000 in gains on securities transactions and an increase of $3,000 in other
noninterest income. Noninterest expense increased $29,000 to $946,000 in 1996
from $917,000 in 1995. Salaries and employee benefits increased $17,000 and
all other noninterest expense increased $12,000.
Total assets increased $1,559,000 or 3.84% to $42,121,000 at September 30,
1996 as compared to $40,562,000 at September 30, 1995. Total loans increased
$764,000 or 3.04% to $25,932,000 at September 30, 1996 from $25,168,000 at
September 30, 1995. Total deposits decreased $432,000 to $33,624,000 at
September 30, 1996 from $34,056,000 at September 30, 1995. Short-term
borrowings increased $1,650,000 to $3,650,000 at September 30, 1996 from
$2,000,000 at September 30, 1995.
52
<PAGE>
AVERAGE BALANCES AND NET INCOME ANALYSIS
The following table sets forth the amount of M & F'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
------------------------- -------------------------
AVERAGE AVERAGE
INTEREST YIELD/ INTEREST YIELD/
AVERAGE INCOME/ RATE AVERAGE INCOME/ RATE
BALANCE EXPENSE PAID BALANCE EXPENSE PAID
------- -------- ------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans, net of unearned
interest................ $23,782 $2,490 10.47% $20,926 $2,005 9.58%
Investment securities:
Taxable................ 9,444 613 6.49 9,543 580 6.08
Tax-exempt............. 3,311 262 7.91 3,332 270 8.10
Federal funds sold....... 1,166 65 5.57 931 42 4.51
------- ------ ------- ------
Total interest-
earning assets...... 37,703 3,430 9.10 34,732 2,897 8.34
------- ------ ------- ------
Noninterest-earning assets:
Cash..................... $ 1,083 $ 1,093
Allowance for loan
losses.................. (265) (256)
Unrealized gain on
available for sale
securities.............. 12 8
Other assets............. 2,506 2,270
------- -------
Total noninterest-
earning assets...... 3,336 3,115
------- -------
Total assets......... $41,039 $37,847
======= =======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing
liabilities:
Savings and interest-
bearing demand
deposits................ $10,582 $ 345 3.26% $11,072 $ 340 3.07%
Time deposits............ 19,973 1,108 5.55 18,379 816 4.44
Other short-term
borrowings.............. 2,262 133 5.88 681 31 4.55
Debt..................... 1,275 114 8.94 1,121 80 7.14
------- ------ ------- ------
Total interest-
bearing
liabilities......... 34,092 1,700 4.99 31,253 1,267 4.05
------- ------ ------- ------
Noninterest-bearing
liabilities and
stockholders' equity:
Demand deposits.......... 4,009 3,826
Other liabilities........ 107 358
Stockholders' equity..... 2,831 2,410
------- -------
Total noninterest-
bearing liabilities
and stockholders'
equity.............. 6,947 6,594
------- -------
Total liabilities and
stockholders'
equity.............. $41,039 $37,847
======= =======
Interest rate spread....... 4.11% 4.29%
===== ====
Net interest income........ $1,730 $1,630
====== ======
Net interest margin........ 4.59% 4.69%
===== ====
</TABLE>
53
<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................ $485 $ 211 $ 274 $272 $ 32 $ 240
Interest on
securities:
Taxable.............. 33 39 (6) (46) (31) (15)
Tax-exempt........... (8) (6) (2) 50 (12) 62
Interest on Federal
funds................ 23 12 11 (11) 15 (26)
---- ------- ------- ---- ------- -------
Total interest
income............. 533 256 277 265 4 261
---- ------- ------- ---- ------- -------
Expense from interest-
bearing liabilities:
Interest on savings and
interest-bearing
demand deposits....... 5 20 (15) 46 1 45
Interest on time
deposits.............. 292 221 71 14 15 (1)
Interest on short-term
borrowings............ 102 30 72 22 8 14
Interest on debt....... 34 23 11 34 18 16
---- ------- ------- ---- ------- -------
Total interest
expense............ 433 294 139 116 42 74
---- ------- ------- ---- ------- -------
Net interest
income............. $100 $ (38) $ 138 $149 $ (38) $ 187
==== ======= ======= ==== ======= =======
</TABLE>
NONINTEREST INCOME
Noninterest income increased $52,000 to $278,000 in 1995 from $226,000 in
1994. The most significant increases represent an increase in service charges
on deposit accounts of $29,000 and an increase of $12,000 in net realized
gains on securities transactions in 1995 over 1994. The increase in service
charges on deposit accounts was due primarily to an increase in NSF charges on
returned checks. Following is a comparison of noninterest income for 1995 and
1994.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------
1995 1994
------ ------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Service charges on deposit accounts........................ $ 217 $ 188
Other service charges, commissions and fees................ 20 20
Net realized gains on securities transactions.............. 17 5
Other income............................................... 24 13
------ ------
$ 278 $ 226
====== ======
</TABLE>
54
<PAGE>
NONINTEREST EXPENSE
Salaries and employee benefits increased $100,000 or 17.85%, in 1995 over
1994. Deposit insurance premiums decreased $33,000 or 44.59% and director fees
increased $4,000, or 10.81% in 1995 over 1994. All other noninterest expense
increased $8,000 for a total increase of $79,000 or 6.76% over the
corresponding amounts in 1994. Following is an analysis of noninterest expense
for 1995 and 1994.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------
1995 1994
------ ------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Salaries and employee benefits............................. $ 660 $ 560
Occupancy and equipment expense............................ 195 208
Deposit insurance premiums................................. 41 74
Director fees and benefits................................. 41 37
Other expense.............................................. 310 289
------ ------
$1,247 $1,168
====== ======
</TABLE>
ASSET/LIABILITY MANAGEMENT
As part of M & F's interest rate risk management policy, a committee
composed of the investment officer, senior vice-president and Board of
Directors (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 M & F'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 react in different degrees to changes in market
interest rates. Interest rates on certain types of assets and liabilities
fluctuate in advance of changes in general market 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.
The following table sets forth the distribution of the repricing of M & F'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
55
<PAGE>
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 Merchants & Farmers Bank'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.... $4,370 $ -- $ -- $ -- $ 4,370
Investment
securities........... 2,395 1,828 2,338 5,955 12,516
Loans................. 11,469 2,145 7,932 2,665 24,211
------ ------- ------- ------ -------
18,234 3,973 10,270 8,620 41,097
INTEREST-BEARING
LIABILITIES:
Interest-bearing
demand deposits(1)... -- 4,558 5,459 -- 10,017
Savings(1)............ -- -- 2,146 -- 2,146
Certificates less than
$100,000............. 4,417 4,987 3,434 -- 12,838
Certificates, $100,000
and over............. 4,469 1,307 2,421 -- 8,197
Debt.................. 2,700 -- -- 500 3,200
------ ------- ------- ------ -------
11,586 10,852 13,460 500 36,398
------ ------- ------- ------ -------
Interest rate
sensitivity gap........ $6,648 $(6,879) $(3,190) $8,120 $ 4,699
====== ======= ======= ====== =======
Cumulative interest rate
sensitivity gap........ $6,648 $ (231) $(3,421) $4,699
====== ======= ======= ======
Interest rate
sensitivity gap ratio.. 1.57 0.37 0.76 17.24
====== ======= ======= ======
Cumulative interest rate
sensitivity gap ratio.. 1.57 0.99 0.90 1.13
====== ======= ======= ======
</TABLE>
- --------
(1) M & F 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, on the average, the money-market check deposits reprice
between three months to one year.
MATURITIES AND SENSITIVITY OF LOANS TO CHANGES IN INTEREST RATES
M & F'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 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........................................... $13,614
After one year through five years.......................... 7,932
After five years........................................... 2,665
-------
$24,211
=======
</TABLE>
56
<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................................. $10,597
Floating or adjustable interest rates........................ --
-------
$10,597
=======
</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 M & F'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 residential real
estate mortgage loans, which constituted approximately 39% of M & F's loan
portfolio as of December 31, 1995. As of December 31, 1995, the ten largest
loans of M & F accounted for approximately 25% of M & F's total loans. As of
December 31, 1995, M & F had outstanding loan commitments of $2.7 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,
SEPTEMBER 30, ----------------
1996 1995 1994
------------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Commercial and financial................... $ 578 $ 561 $ 759
Agricultural............................... 2,792 3,177 3,032
Real estate--mortgage, farmland............ 5,440 4,835 3,805
Real estate--mortgage, other............... 11,061 9,412 8,139
Consumer instalment, net of unearned
interest.................................. 6,054 5,984 4,800
Other...................................... 7 242 275
------- ------- -------
25,932 24,211 20,810
------- ------- -------
Allowance for loan losses.................. (322) (300) (250)
------- ------- -------
Loans, net $25,610 $23,911 $20,560
======= ======= =======
</TABLE>
NONPERFORMING LOANS
A loan is placed on nonaccrual 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 nonaccrual 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,
SEPTEMBER 30, --------------
1996 1995 1994
------------- ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Loans accounted for on a nonaccrual basis.......... $27 $ -- $ 7
Installment loans and term loans contractually past
due ninety days or more as to interest or
principal payments and still accruing............. 70 10 12
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................ -- -- --
Loans now current about which there are serious
doubts as to the ability of the borrower to comply
with present loan repayment terms................. -- -- --
--- ------ ------
Total............................................ $97 $ 10 $ 19
=== ====== ======
</TABLE>
57
<PAGE>
As of September 30, 1996 and December 31, 1995 and 1994, total nonperforming
loans were approximately .37%, .04% and .09%, 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. M & F's allowance for loan losses was approximately $300,000 at
December 31, 1995, representing 1.24% of year-end total loans outstanding,
compared with approximately $250,000 at December 31, 1994, which represented
1.20% of year-end total loans outstanding.
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.
The following table presents an analysis of M & F's loan loss experience for
the periods indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ----------------
1996 1995 1994
------------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Average amount of loans outstanding........... $24,855 $23,782 $20,926
======= ======= =======
Balance of reserve for possible loan losses at
beginning of period.......................... $ 300 $ 250 $ 241
------- ------- -------
Charge offs:
Commercial, financial and agricultural...... $ (31) $ -- $ (17)
Consumer.................................... (2) (13) (13)
Recoveries:
Commercial, financial and agricultural...... 3 -- 10
Consumer.................................... 10 5 12
------- ------- -------
Net (charge-offs) recoveries.............. $ (20) (8) $ (8)
Additions to reserve charged to operating
expenses..................................... $ 42 58 $ 17
------- ------- -------
Balance of reserve for possible loan
losses..................................... $ 322 $ 300 $ 250
======= ======= =======
Ratio of net loan charge-offs to average
loans........................................ .08% .03% .04%
======= ======= =======
</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
58
<PAGE>
allocation of the allowances 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 SEPTEMBER 30, -------------------------------------
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........... $ 71 13% $ 66 15% $ 55 18%
Real Estate............. 61 64 57 59 48 57%
Consumer................ 68 23 63 26 53 25%
Unallocated............. 122 -- 114 -- 94 --
---- --- ---- --- ---- ---
$322 100% $300 100% $250 100%
==== === ==== === ==== ===
</TABLE>
INVESTMENT PORTFOLIO
M & F manages the mix of asset and liability maturities in an effort to
control the effects of changes in the general level of interest rates on 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 M & F due to the rate variability and short-term maturities of its earning
assets. In particular, approximately 56% of the loan portfolio is comprised of
loans which mature or reprice 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,
34% of the investment portfolio matures within one year.
TYPES OF INVESTMENTS
The amortized cost and estimated fair value of investment securities are as
follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED COST GAINS LOSSES FAIR VALUE
-------------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Securities Available for Sale
December 31, 1995:
U.S. Government and agency
securities................ $3,152 $49 $ (12) $3,189
Mortgage-backed
securities................ 3,367 47 (7) 3,407
------ --- ----- ------
$6,519 $96 $ (19) $6,596
====== === ===== ======
December 31, 1994:
U.S. Government and agency
securities................ $4,458 $24 $ (25) $4,457
Mortgage-backed
securities................ 2,861 1 (159) 2,703
------ --- ----- ------
$7,319 $25 $(184) $7,160
====== === ===== ======
Securities Held to Maturity
December 31, 1995:
U.S. Government and agency
securities................ $ 59 $ 1 $ -- $ 60
State and municipal
securities................ 4,159 79 (41) 4,197
Mortgage-backed
securities................ 1,702 10 (10) 1,702
------ --- ----- ------
$5,920 $90 $ (51) $5,959
====== === ===== ======
December 31, 1994:
U.S. Government and agency
securities................ $ 62 $-- $ (1) $ 61
State and municipal
securities................ 3,318 4 (189) 3,133
Mortgage-backed
securities................ 2,090 -- (101) 1,989
------ --- ----- ------
$5,470 $ 4 $(291) $5,183
====== === ===== ======
</TABLE>
59
<PAGE>
The following table represents maturities and weighted average yields of
investment securities held by M & F at December 31, 1995.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
--------------------------------------------------------------------------
AFTER FIVE YEARS
AFTER ONE YEAR BUT BUT
WITHIN ONE YEAR WITHIN FIVE YEARS WITHIN 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
agencies(1)........... $ 1,120 7.22% $ 5,844 6.07% $ 907 7.38% $ 485 6.85%
Obligations of states
and other political
subdivisions(1)(2).... 50 7.33 1,047 7.49 2,497 7.16 565 7.04
</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......... $ 4,009 -- % $ 3,826 -- %
Interest-bearing demand and savings
deposits................................... 10,582 3.26 11,072 3.07
Time deposits............................... 19,973 5.55 18,379 4.44
------- -------
Total deposits............................ $34,564 $32,277
======= =======
</TABLE>
M & F 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 12 months and (iii) over 12 months.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Three months or less.................................... $4,469
Over three through 12 months............................ 1,307
Over 12 months.......................................... 2,421
------
Total................................................. $8,197
======
</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
60
<PAGE>
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......................................... 1.13% 1.17%
Return on equity......................................... 16.43 18.42
Dividend payout ratio.................................... -- --
Equity to assets ratio................................... 6.90 6.37
</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 M & F and Merchants & Farmers Bank to
meet those needs. M & F and Merchants & Farmers Bank 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,
Merchants & Farmers Bank maintains relationships with correspondent banks
which could provide funds to them on short notice, if needed.
The liquidity and capital resources of M & F and Merchants & Farmers Bank
are monitored on a periodic basis by state and Federal regulatory authorities.
At December 31, 1995, Merchants & Farmers Bank's short-term investments were
adequate to cover any reasonably anticipated immediate need for funds. M & F
and Merchants & Farmers Bank were aware of no events or trends likely to
result in a material change in their liquidity. At December 31, 1995, M & F's
and Merchants & Farmers Bank's capital asset ratios were considered adequate
based on guidelines established by regulatory authorities. During 1995, M & F
increased its capital by retaining net earnings of $465,000. After recording
an increase in capital of $156,000 for unrealized gains on securities, net of
taxes, total capital increased during 1995 by $621,000. At December 31, 1995,
total capital of M & F amounted to $3,141,000. At December 31, 1995, there
were no outstanding commitments for any major capital expenditures.
During the nine months ended September 30, 1996, total capital increased
$372,000 to $3,513,000 at September 30, 1996. This increase in capital
resulted from net earnings for the nine months of $411,000, offset by $52,000
in unrealized losses on securities available for sale, net of taxes. Sale of
treasury stock also increased capital by $13,000.
M & F has entered into a definitive merger agreement with ABC, pending
approval by regulatory authorities and shareholders of M & F. If approvals are
obtained, it is expected the merger will be consummated on December 31, 1996.
Upon consummation of the merger, the Bank will continue to operate as a
wholly-owned subsidiary of ABC. Management believes that the merger will not
adversely impact the liquidity of Merchants & Farmers Bank.
In accordance with risk capital guidelines issued by the Federal Reserve
Board, M & F 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.
61
<PAGE>
The following table summarizes the regulatory capital levels of M & F 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................ $3,801 9.01% $1,687 4.00% $2,114 5.01%
Risk-based capital:
Core capital.................. 3,801 14.07 1,081 4.00 2,720 10.07
Total capital................. 4,101 15.18 2,161 8.00 1,940 7.18
</TABLE>
COMMITMENTS AND LINES OF CREDIT
In the ordinary course of business, Merchants & Farmers Bank has 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 Merchants &
Farmers Bank's Board of Directors. Merchants & Farmers Bank has 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 Bank uses 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..................... $ 2,704 $ 2,428
Standby letters of credit........................ 11 40
----------- -----------
$ 2,715 $ 2,468
=========== ===========
</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.
M & F SHARES
The authorized capital stock of M & F consists of 5,000,000 common shares,
$1.00 par value, of which 1,228,609 shares were issued with 137,251 shares
held in treasury and 1,091,358 shares outstanding at September 30, 1996. On
September 30, 1996, there were nine holders of record of M & F Shares. For
information concerning the market value of such shares and dividends during
the past three years, see "MARKET VALUE OF SECURITIES AND DIVIDENDS--M & F."
62
<PAGE>
OTHER MATTERS
The Special Meeting is called for the purposes set forth in the Notice and
Proxy Statement/Prospectus. The 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 LLC,
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 M & F 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 Mauldin & Jenkins LLC, 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 Mauldin & Jenkins are expected to be present at the Special Meeting, will
have the opportunity to make a statement if they desire to do so, and are
expected to be available to respond to appropriate questions.
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.
63
<PAGE>
INDEX TO FINANCIAL INFORMATION
Unaudited Pro Forma Condensed Consolidated Financial Data:
<TABLE>
<S> <C>
Introductory Note........................................................ PF-i
ABC Bancorp and Subsidiaries Pro Forma Financial Statements to Reflect
Acquisitions Consummated in 1996
--Pro Forma Condensed Statements of Income.............................. PF-1
--Notes to Pro Forma Condensed Financial Statements..................... PF-2
ABC Bancorp and Subsidiaries Combined with M & F Financial Corporation
--Pro Forma Condensed Balance Sheet..................................... PF-3
--Pro Forma Condensed Statements of Income.............................. PF-4
--Notes to Pro Forma Condensed Financial Statements..................... PF-6
ABC Bancorp Historical Financial Data:
Consolidated Financial Statements--September 30, 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-7
--Consolidated Balance Sheets--December 31, 1995 and 1994............... F-9
--Consolidated Statements of Income--Years ended December 31, 1995, 1994
and 1993............................................................... F-10
--Consolidated Statements of Stockholders' Equity--Years ended December
31, 1995, 1994
and 1993............................................................... F-12
--Consolidated Statements of Cash Flows--Years ended December 31, 1995,
1994 and 1993.......................................................... F-13
--Notes to Consolidated Financial Statements............................ F-15
M & F Financial Corporation Historical Financial Data:
Consolidated Financial Statements--September 30, 1996 and 1995
(unaudited)
--Consolidated Balance Sheets........................................... F-41
--Consolidated Statements of Income..................................... F-42
--Consolidated Statements of Cash Flows................................. F-43
--Notes to Consolidated Financial Statements............................ F-44
Consolidated Financial Statements
--Independent Auditors' Report.......................................... F-45
--Consolidated Balance Sheets--December 31, 1995 and 1994............... F-46
--Consolidated Statements of Income--Years ended December 31, 1995 and
1994................................................................... F-47
--Consolidated Statements of Stockholders' Equity--Years ended December
31, 1995 and 1994...................................................... F-48
--Consolidated Statements of Cash Flows--Years ended December 31, 1995
and 1994............................................................... F-49
--Notes to Consolidated Financial Statements............................ F-51
</TABLE>
65
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The Unaudited Pro Forma Condensed Consolidated Financial Data included
herein give effect to the Merger. M & F's information is combined in this
Proxy Statement/Prospectus. M & F information is combined with ABC using the
pooling of interests method of accounting.
The ABC historical amounts were derived from consolidated financial
statements of ABC included herein. M & F historical amounts were derived from
the consolidated financial statements of M & F included herein.
The Unaudited Pro Forma Condensed Consolidated Financial Data do not purport
to present the financial position of ABC had the Merger actually been
consummated on the dates indicated. In addition, the Unaudited Pro Forma
Condensed Consolidated Financial Data are not necessarily indicative of the
future results of operations of ABC and should be read in conjunction with the
historical financial statements of ABC and M & F, including the notes thereto,
included herein.
PF-i
<PAGE>
ABC BANCORP AND SUBSIDIARIES
PRO FORMA FINANCIAL STATEMENTS TO
REFLECT ACQUISITIONS CONSUMMATED IN 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
A pro forma balance sheet is not required since ABC's consolidated balance
sheet as of September 30, 1996 already reflects the acquisitions of Central
Bankshares, Inc. ("Central"), First National Financial Corporation ("First
National"), and Southland Bancorporation ("Southland"), all of which were
consummated prior to September 30, 1996.
The following unaudited pro forma condensed statements of income have been
prepared to reflect the acquisition of Southland, which acquisition was
accounted for as a purchase transaction, as if the acquisition had been
consummated at the beginning of each period presented. The financial data
included in the columns captioned "ABC and Subsidiaries Excluding Southland"
and "ABC Historical" include the financial data for Central and First
National, which acquisitions were accounted for as poolings of interests.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
----------------------------------------------
ABC AND
SUBSIDIARIES PRO FORMA
EXCLUDING SOUTHLAND PRO FORMA COMBINED
SOUTHLAND HISTORICAL ADJUSTMENTS (NOTE A)
------------ ---------- ----------- ---------
<S> <C> <C> <C> <C>
Interest income................ $28,900 $7,579 $(242)(1) $36,237
Interest expense............... 12,359 3,727 -- 16,086
------- ------ ----- -------
Net interest income............ 16,541 3,852 (242) 20,151
Provision for loan loss........ 908 106 -- 1,014
------- ------ ----- -------
Net interest income after pro-
vision for loan losses........ 15,633 3,746 (242) 19,137
Other income................... 3,789 1,010 -- 4,799
Other expense.................. 12,753 3,404 266 (2) 16,423
------- ------ ----- -------
Income from continuing opera-
tions before income taxes..... 6,669 1,352 (508) 7,513
Income taxes................... 2,205 535 (82)(3) 2,658
------- ------ ----- -------
Income from continuing opera-
tions (4)..................... $ 4,464 $ 817 $(426) $ 4,855
======= ====== ===== =======
Income per share from continu-
ing operations................ $ 0.96
=======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------------------
PRO FORMA
ABC SOUTHLAND PRO FORMA COMBINED
HISTORICAL HISTORICAL ADJUSTMENTS (NOTE A)
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Interest income................. $34,889 $9,033 $(323)(1) $43,599
Interest expense................ 14,525 4,775 -- 19,300
------- ------ ------ -------
Net interest income............. 20,364 4,258 (323) 24,299
Provision for loan loss......... 1,173 72 -- 1,245
------- ------ ------ -------
Net interest income after provi-
sion for loan losses........... 19,191 4,186 (323) 23,054
Other income.................... 4,395 1,582 -- 5,977
Other expense................... 15,674 4,101 354 (2) 20,129
------- ------ ------ -------
Income from continuing opera-
tions before income taxes...... 7,912 1,667 (677) 8,902
Income taxes.................... 2,460 643 (110)(3) 2,993
------- ------ ------ -------
Income from continuing opera-
tions (4)...................... $ 5,452 $1,024 $ (567) $ 5,909
======= ====== ====== =======
Income per share from continuing
operations..................... $ 1.21
=======
</TABLE>
PF-1
<PAGE>
ABC BANCORP AND SUBSIDIARIES
PRO FORMA FINANCIAL STATEMENTS TO REFLECT ACQUISITIONS CONSUMMATED IN 1996
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
PRO FORMA ADJUSTMENTS:
(1) Loss of interest income on Federal funds sold used to fund the acquisition
of Southland using an average interest rate of 5.5%.
(2) Amortization of excess cost of assets acquired over their fair value at
date of acquisition using the straight-line method over a period of 15
years.
(3) Tax effect of pro forma adjustment for reduction in interest income using
a tax rate of 34%.
(4) The amortization of excess cost resulting from the acquisition of
Southland, accounted for as a purchase transaction, will have the effect
of decreasing income by $354,000 in each of the following five years. No
tax effect relating to the purchase adjustment will be recognized because
the Company is acquiring the stock of Southland and will not be allowed a
tax deduction for the amortization.
PF-2
<PAGE>
ABC BANCORP AND SUBSIDIARIES
COMBINED WITH M & F FINANCIAL CORPORATION
PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The following unaudited pro forma condensed balance sheet as of September
30, 1996 has been prepared to reflect the acquisition by ABC of 100% of M & F
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 interests. These statements should be read in conjunction with the
other financial statements and notes thereto included in this Proxy Statement.
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
ABC M & F (NOTES A PRO FORMA
HISTORICAL HISTORICAL AND B) COMBINED
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks......... $ 27,214 $ 2,701 $ -- $ 29,915
Federal funds sold.............. 9,270 -- -- 9,270
Investment securities........... 98,927 11,354 -- 110,281
Loans, net...................... 403,113 25,610 -- 428,723
Premises and equipment.......... 12,935 1,013 -- 13,948
Investment in M & F............. 3,513 (1)
-- (3,513)(2) --
Excess cost over fair value of
assets acquired................ 7,084 321 -- 7,405
Other assets.................... 18,100 1,122 -- 19,222
-------- ------- ------ --------
$576,643 $42,121 $ -- $618,764
======== ======= ====== ========
LIABILITIES AND EQUITY
Deposits........................ $478,407 $33,623 $ -- $512,030
Other liabilities............... 5,151 285 -- 5,436
Other borrowings................ 36,220 3,650 -- 39,870
Long-term debt.................. 4,324 1,050 -- 5,374
-------- ------- ------ --------
Total liabilities............. 524,102 38,608 -- 562,710
-------- ------- ------ --------
EQUITY
Common stock.................... 5,249 -- 319 (1) 5,568
Capital surplus................. 28,525 -- 3,194 (1) 31,719
Retained earnings............... 21,011 -- -- 21,011
Unrealized gains on securities
available for sale, net of tax-
es............................. (689) -- -- (689)
Treasury stock.................. (1,555) -- -- (1,555)
Equity of M & F................. -- 3,513 (3,513)(2) --
-------- ------- ------ --------
Total equity.................. 52,541 3,513 -- 56,054
-------- ------- ------ --------
$576,643 $42,121 $ -- $618,764
======== ======= ====== ========
</TABLE>
PF-3
<PAGE>
ABC BANCORP AND SUBSIDIARIES
COMBINED WITH M & F 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 M & F 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
interests. These statements should be read in conjunction with the other
financial statements and notes thereto included in this Proxy Statement.
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------------------- -------------------------------
PRO FORMA PRO FORMA
ABC M & F COMBINED ABC M & F COMBINED
HISTORICAL HISTORICAL (NOTE A) HISTORICAL HISTORICAL (NOTE A)
---------- ---------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Interest income......... $36,237 $2,585 $38,822 $25,553 $2,491 $28,044
Interest expense........ 16,086 1,314 17,400 10,603 1,257 11,860
------- ------ ------- ------- ------ -------
Net interest income..... 20,151 1,271 21,422 14,950 1,234 16,184
Provision for loan
loss................... 1,014 42 1,056 789 14 803
------- ------ ------- ------- ------ -------
Net interest income af-
ter provision for loan
losses................. 19,137 1,229 20,366 14,161 1,220 15,381
Other income............ 4,799 291 5,090 3,436 205 3,641
Other expense........... 16,423 946 17,369 11,700 917 12,617
------- ------ ------- ------- ------ -------
Income from continuing
operations before
income taxes........... 7,513 574 8,087 5,897 508 6,405
Income taxes............ 2,858 163 2,821 1,949 132 2,081
------- ------ ------- ------- ------ -------
Income from continuing
operations............. $ 4,855 $ 411 $ 5,266 $ 3,948 $ 376 $ 4,324
======= ====== ======= ======= ====== =======
Income per share from
continuing operations.. $ 0.98 $ 0.90
======= =======
</TABLE>
PF-4
<PAGE>
ABC BANCORP AND SUBSIDIARIES
COMBINED WITH M & F FINANCIAL CORPORATION
PRO FORMA CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 YEAR ENDED DECEMBER 31, 1994 YEAR ENDED DECEMBER 31, 1993
------------------------------- ------------------------------- -------------------------------
PRO FORMA PRO FORMA PRO FORMA
ABC M & F COMBINED ABC M & F COMBINED ABC M & F 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........ $43,599 $3,342 $46,941 $27,743 $2,805 $30,548 $25,325 $2,557 $27,882
Interest expense....... 19,300 1,700 21,000 10,514 1,268 11,782 10,116 1,151 11,267
------- ------ ------- ------- ------ ------- ------- ------ -------
Net interest income.... 24,299 1,642 25,941 17,229 1,537 18,766 15,209 1,406 16,615
Provision for loan
loss.................. 1,245 58 1,303 938 17 955 1,512 48 1,560
------- ------ ------- ------- ------ ------- ------- ------ -------
Net interest income
after provision for
loan losses........... 23,054 1,584 24,638 16,291 1,520 17,811 13,697 1,358 15,055
Other income........... 5,977 278 6,255 4,047 226 4,273 3,767 244 4,011
Other expense.......... 20,129 1,246 21,375 14,762 1,188 15,930 13,634 1,100 14,734
------- ------ ------- ------- ------ ------- ------- ------ -------
Income from continuing
operations before
income taxes and
cumulative effect..... 8,902 616 9,518 5,576 578 6,154 3,830 502 4,332
Income taxes........... 2,993 151 3,144 1,703 134 1,837 979 128 1,107
------- ------ ------- ------- ------ ------- ------- ------ -------
Income before minority
interest in net income
of subsidiary and
cumulative effect of
accounting change..... 5,909 485 6,374 3,873 444 4,317 2,851 374 3,225
Minority interest in
net income of
subsidiary -- -- -- -- -- -- -- 76 76
------- ------ ------- ------- ------ ------- ------- ------ -------
Income from continuing
operations before
cumulative effect..... 5,909 465 6,374 3,873 444 4,317 2,851 298 3,149
Cumulative effect of
accounting change..... -- -- -- -- -- -- 346 -- 346
------- ------ ------- ------- ------ ------- ------- ------ -------
Income from continuing
operations............ $ 5,909 $ 465 $ 6,374 $ 3,873 $ 444 $ 4,317 $ 3,197 $ 298 $ 3,495
======= ====== ======= ======= ====== ======= ======= ====== =======
Income per share from
continuing
operations............ $ 1.23 $ 0.99 $ 0.89
======= ======= =======
</TABLE>
PF-5
<PAGE>
ABC BANCORP AND SUBSIDIARIES
COMBINED WITH M & F 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 September 30, 1996. The pro forma 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:
BALANCE SHEET:
(1) Issue of 319,203 shares of ABC common stock, $1 par value, in exchange
for 100% of the equity of M & F.
(2) Elimination of investment in M & F.
STATEMENTS OF INCOME:
(3) Pro forma income per common share is based on the average number of
shares that would have been outstanding during the respective periods.
PF-6
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 27,214 $ 28,351
Federal funds sold 9,270 47,485
Securities available for sale, at fair value 73,243 58,718
Securities held for investment, at cost 25,684 13,271
Loans 409,802 281,031
Less allowance for loan losses 6,689 5,184
-------- --------
Loans, net 403,113 275,847
-------- --------
Premises and equipment, net 12,935 9,529
Other assets 25,184 13,108
-------- --------
$576,643 $446,309
======== ========
Liabilities and Stockholders' Equity
Deposits:
Noninterest-bearing demand $ 64,001 $ 69,661
interest-bearing demand 93,403 90,495
Savings 38,076 27,468
Time, $100,000 and over 68,427 52,029
Other time 214,500 154,304
-------- --------
Total deposits 478,407 393,957
Notes payable 4,324 --
Securities sold under repurchase agreements 701 1,887
Other short term borrowings 35,519 2,600
Other liabilities 5,151 4,236
-------- --------
Total liabilities 524,102 402,680
-------- --------
STOCKHOLDERS' EQUITY
Common stock, par value $1; 15,000,000 shares au-
thorized 5,249,419 and 4,703,919 shares issued,
respectively 5,249 4,704
Surplus 28,525 23,234
Retained earnings 21,011 17,048
Unrealized gain (losses) on securities available
for sale, net of taxes (689) 198
-------- --------
54,096 45,184
Less cost of 217,882 shares acquired for the
treasury (1,555) (1,555)
-------- --------
Total stockholders' equity 52,541 43,629
-------- --------
$576,643 $446,309
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-1
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 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 $26,975 $21,616
Interest on taxable securities 3,429 2,630
Interest on nontaxable securities 477 395
Interest on Federal funds sold 801 912
--------- ---------
31,682 25,553
--------- ---------
INTEREST EXPENSE
Interest on deposits 13,083 10,330
Interest on securities sold under repurchase agreements
and other borrowings 697 273
--------- ---------
13,780 10,603
--------- ---------
Net interest income 17,902 14,950
PROVISION FOR LOAN LOSSES 985 789
--------- ---------
Net interst income after provision for loan losses 16,917 14,161
--------- ---------
OTHER INCOME
Service charges on deposit accounts 3,084 2,552
Other service charges, commissions and fees 883 484
Security transactions, net (12) --
Other 277 400
--------- ---------
4,232 3,436
--------- ---------
OTHER EXPENSES
Salaries and employee benefits 7,347 5,968
Equipment expense 1,196 898
Occupancy expense 868 1,020
Other operating expenses 4,502 3,814
--------- ---------
13,913 11,700
--------- ---------
Income before income taxes 7,236 5,897
APPLICABLE INCOME TAXES 2,429 1,949
--------- ---------
Net income $ 4,807 $ 3,948
========= =========
Income per common share $ 1.01 $ 0.89
========= =========
Average shares outstanding 4,778,543 4,453,410
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
F-2
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(DOLLARS IN THOUSANDS)
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,807 $ 3,948
------- -------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 889 852
Amortization of intangible assets 872 225
Provision for loan losses 985 789
Other prepaids, deferrals and accruals, net (4,807) (2,404)
------- -------
Total adjustments (2,061) (538)
------- -------
Net cash provided by operating activities 2,746 3,410
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment securities 23,499 15,896
Purchase of investment securities (28,336) (16,366)
Proceeds from sales of securities available for sale 1,600 1,499
Decrease in Federal funds sold 38,215 1,353
Net increase in loans (48,310) (32,138)
Net cash paid for purchased subsidiary (3,888) --
Purchase of premises and equipment (1,441) (570)
------- -------
Net cash used in investing activities (18,661) (30,326)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits (7,046) 20,519
Net decrease in repurchase agreements (1,186) (597)
Proceeds from short-term borrowings 21,119 5,774
Proceeds from long-term debt 4,000 --
Repayment of long-term debt (1,096) --
Dividends paid (1,179) (947)
Purchase of fractional shares (6) (3)
Proceeds from exercise of stock options of pooled
subsidiary 172 75
------- -------
Net cash provided by financing activities 14,778 24,821
------- -------
Net decrease in cash and due from banks (1,137) (2,095)
Cash and due from banks at beginning of period 28,351 23,093
------- -------
Cash and due from banks at end of period $27,214 $20,998
======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
ABC BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. METHOD OF PRESENTATION
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.
All material intercompany balances and transactions have been eliminated.
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 nine months ended September 30, 1996 are not
necessarily indicative of the results to be expected for the full year.
NOTE 2. RECENT ACQUISITIONS
On June 21, 1996, the Company acquired all of the outstanding common stock
of Southland Bancorporation ("Southland") in exchange for 402,271 shares of
the Company's common stock and $5,880,392 in cash. The excess of purchase
price over net book value of assets acquired amounted to $5,310,222. The fair
value of assets acquired was deemed to approximate their recorded value;
therefore, the excess cost will be accounted for as goodwill and amortized
over a period of 15 years. Immediately following the merger, Southland was
liquidated and its wholly-owned subsidiary, Southland Bank, became a wholly-
owned subsidiary of the Company.
The acquisition has been accounted for as a purchase transaction and,
accordingly, the operations of Southland Bank will be included in the
consolidated financial statements of the Company only from June 21, 1996, the
date of acquisition. Had the acquisition of Southland Bank occurred on January
1, 1995, pro forma unaudited consolidated results of operations (after
restatement for the poolings of interest described below) for the nine months
ended September 30, 1996 and 1995 would have been as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
---------------
1996 1995
------- -------
(DOLLARS IN
THOUSANDS,
EXCEPT PER
SHARE DATA)
<S> <C> <C>
Net interest income $20,151 $18,510
Other income 4,799 4,664
Net income 4,855 4,689
Net income per share 0.96 0.97
</TABLE>
On July 31, 1996, the Company acquired all of the outstanding common stock
of Central Bankshares, Inc. ("Central") in exchange for 524,300 shares of the
Company's common stock and a nominal amount of cash in lieu of fractional
shares. Immediately following the merger, Central was liquidated and its
wholly-owned subsidiary, Central Bank & Trust, became a wholly-owned
subsidiary of the Company. On August 31, 1996, the Company acquired all of the
outstanding common stock of First National Financial Corporation ("First
National") in exchange for 725,774 shares of the Company's common stock and a
nominal amount of cash in lieu of fractional shares. Immediately following the
merger, First National was liquidated and its wholly-owned subsidiary, First
National Bank of South Georgia, became a wholly-owned subsidiary of the
Company.
F- 4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 2. RECENT ACQUISITIONS (CONTINUED)
The acquisitions of Central and First National have been accounted for
as poolings of interests and, accordingly, all prior financial
statements have been restated to include the accounts and operations of
the pooled companies. Net interest income and net income of the
separate companies for periods preceding the mergers are summarized as
follows:
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1996 1995
---------- ----------
(DOLLARS IN THOUSANDS)
------------------------
Net interest income:
ABC $ 14,361 $ 11,758
Central 1,801 1,554
First National 1,740 1,638
---------- ----------
Combined $ 17,902 $ 14,950
========== ==========
Net income:
ABC $ 3,704 $ 3,184
Central 518 308
First National 585 456
---------- ----------
Combined $ 4,807 $ 3,948
========== ==========
NOTE 3. PENDING MERGER
The Company has entered into a definitive merger agreement with M & F
Financial Corporation, Donalsonville, Georgia whereby it would acquire
all of the outstanding common stock of M & F Financial Corporation in
exchange for the Company's common stock. The total merger consideration
will approximate $6 million. Total assets of M & F at September 30,
1996 were approximately $42 million. The merger is subject to approval
by M & F Financial Corporation 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,
Merchants and Farmers Bank, a wholly-owned subsidiary of M & F
Financial Corporation, will become a wholly-owned subsidiary of the
Company. The merger will be accounted for as a pooling of interests.
F-5
<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 did not audit the
financial statements of First National Financial Corporation, which statements
reflect total assets of $53.7 million and $46.5 million as of December 31, 1995
and 1994, respectively, and total revenue of $4.6 million, $3.5 million and $2.8
million for the three years in the period ended December 31, 1995. These
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to data included for First National
Financial Corporation, is based solely on the report of the other auditors.
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, based upon our audits and the report of other auditors, 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.
<PAGE>
================================================================================
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 LLC
- ------------------------------------------
Albany, Georgia
January 24, 1996, except for Note 2 as to
which the date is August 31, 1996
2
<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 $ 28,351 $ 22,688
Federal funds sold 47,485 24,052
Securities available for sale, at fair value (Note 3) 58,718 18,562
Securities held to maturity, at cost (fair value $13,449
and $47,350) (Note 3) 13,271 49,209
Loans (Note 4) 281,031 250,180
Less allowance for loan losses 5,184 4,525
-------------- -------------
Loans, net 275,847 245,655
-------------- -------------
Premises and equipment, net (Note 5) 9,529 9,929
Other assets 13,108 12,105
-------------- -------------
$ 446,309 $ 382,200
============== =============
Liabilities and Stockholders' Equity
- ------------------------------------
Deposits
Noninterest-bearing demand $ 69,661 $ 57,903
Interest-bearing demand 90,495 81,325
Savings 27,468 29,743
Time, $100,000 and over 52,029 36,008
Other time 154,304 132,237
-------------- -------------
Total deposits 393,957 337,216
Securities sold under repurchase agreements 1,887 2,338
Other short-term borrowings 2,600 -
Other liabilities 4,236 4,085
-------------- -------------
Total liabilities 402,680 343,639
-------------- -------------
Commitments and contingent liabilities (Note 9)
Stockholders' equity (Note 11)
Common stock, par value $1; 10,000,000 shares authorized,
4,703,919 and 3,794,794 shares issued, respectively 4,704 3,795
Capital surplus 23,234 24,061
Retained earnings 17,048 12,881
Unrealized gains (losses) on securities available for sale, net of taxes 198 (496)
------------- -------------
45,184 40,241
Less cost of shares acquired for the treasury,
217,882 and 183,412 shares, respectively (1,555) (1,680)
------------- -------------
Total stockholders' equity 43,629 38,561
------------- -------------
$ 446,309 $ 382,200
============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Dollars in Thousands)
- --------------------------------------------------------------------------------
1995 1994 1993
-------- -------- --------
Interest Income
Interest and fees on loans $ 29,439 $ 23,234 $ 20,875
Interest on taxable securities 3,496 2,971 2,806
Interest on nontaxable securities 551 610 597
Interest on deposits in other banks 4 67 120
Interest on Federal funds sold 1,399 861 927
-------- -------- --------
34,889 27,743 25,325
Interest expense
Interest on deposits 14,160 10,277 9,857
Interest on securities sold under
repurchase agreements 77 68 18
Interest on other borrowings 288 169 241
-------- -------- --------
14,525 10,514 10,116
-------- -------- --------
Net interest income 20,364 17,229 15,209
Provision for loan losses (Note 4) 1,173 938 1,512
-------- -------- --------
Net interest income after provision
for loan losses 19,191 16,291 13,697
-------- -------- --------
Other income
Service charges on deposit accounts 3,449 3,228 3,069
Other service charges, commissions and fees 402 316 344
Net realized gains (losses) on sales of
securities available for sale (20) 2 -
Other 564 501 354
-------- -------- --------
4,395 4,047 3,767
-------- -------- --------
Other expenses
Salaries and employee benefits (Note 6) 7,898 7,256 6,608
Equipment expense 1,401 1,393 995
Occupancy expense 945 853 1,030
Amortization of intangible assets 289 289 300
Data processing fees 478 557 444
Directors fees 383 358 345
FDIC premiums 440 727 705
Other operating expenses (Note 7) 3,840 3,329 3,207
-------- -------- --------
15,674 14,762 13,634
-------- -------- --------
4
<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 $ 7,912 $ 5,576 $ 3,830
Applicable income taxes (Note 8) 2,460 1,703 979
----------------- ----------------- -----------------
Income before cumulative effect of
accounting change 5,452 3,873 2,851
Cumulative effect of change in method of accounting
for income taxes - - 346
----------------- ----------------- -----------------
Net income $ 5,452 $ 3,873 $ 3,197
================= ================= =================
Income per common share:
Income before cumulative effect of accounting change $ 1.22 $ 0.96 $ 0.79
Cumulative effect of accounting change - - 0.09
----------------- ----------------- -----------------
Net income (Note 1) $ 1.22 $ 0.96 $ 0.88
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
5
<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
---------------------------------
Shares Par Value Surplus
------------ --------------- ----------------
<S> <C> <C> <C>
Balance, December 31, 1992 3,055,918 $ 3,056 $ 16,534
Net income - - -
Cash dividends paid, $.29 per share - - -
Purchase and simultaneous retirement of common
stock of pooled subsidiary (4,457) (4) (26)
Purchase of 143,024 shares of treasury stock - - -
------------ --------------- ----------------
Balance, December 31, 1993 3,051,461 3,052 16,508
Net income - - -
Cash dividends declared, $.29 per share - - -
Purchase and simultaneous retirement of common
stock of pooled subsidiary (4,167) (4) (24)
Proceeds from sale of stock, net of stock offering expense 747,500 747 7,577
Net change in unrealized losses on securities available
for sale, net of taxes - - -
------------ --------------- ----------------
Balance, December 31, 1994 3,794,794 3,795 24,061
Net income - - -
Cash dividends declared, $.35 per share - - -
Cash dividends paid by pooled subsidiary - - -
Exercise of options by shareholders of pooled subsidiary 10,038 10 75
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 4,703,919 $ 4,704 $ 23,234
============ =============== ================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unrealized
Gains (Losses)
on Securities
Available
Retained for Sale,
Earnings Net of Taxes
-------------- -----------------
<S> <C> <C>
Balance, December 31, 1992 $ 7,367 $ -
Net income 3,197 -
Cash dividends paid, $.29 per share (672) -
Purchase and simultaneous retirement of common
stock of pooled subsidiary - -
Purchase of 143,024 shares of treasury stock - -
-------------- -----------------
Balance, December 31, 1993 9,892 -
Net income 3,873 -
Cash dividends declared, $.29 per share (884) -
Purchase and simultaneous retirement of common
stock of pooled subsidiary - -
Proceeds from sale of stock, net of stock offering expense - -
Net change in unrealized losses on securities available
for sale, net of taxes - (496)
-------------- -----------------
Balance, December 31, 1994 12,881 (496)
Net income 5,452 -
Cash dividends declared, $.35 per share (1,176) -
Cash dividends paid by pooled subsidiary (109) -
Exercise of options by shareholders of pooled subsidiary - -
Four-for-three common stock split - -
Purchase of fractional shares - -
Stock issued under stock option purchase plan
Net change in unrealized gains on securities available
for sale, net of taxes - 694
-------------- -----------------
Balance, December 31, 1995 $ 17,048 $ 198
============== =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Treasury Stock
-----------------------------------
Shares Cost
------------- ---------------
<S> <C> <C>
Balance, December 31, 1992 40,388 $ (268)
Net income - -
Cash dividends paid, $.29 per share - -
Purchase and simultaneous retirement of common
stock of pooled subsidiary - -
Purchase of 143,024 shares of treasury stock 143,024 (1,412)
------------- ---------------
183,412 (1,680)
Balance, December 31, 1993 - -
Net income - -
Cash dividends declared, $.29 per share
Purchase and simultaneous retirement of common
stock of pooled subsidiary - -
Proceeds from sale of stock, net of stock offering expense - -
Net change in unrealized losses on securities available
for sale, net of taxes - -
------------- ---------------
Balance, December 31, 1994 183,412 (1,680)
Net income - -
Cash dividends declared, $.35 per share - -
Cash dividends paid by pooled subsidiary - -
Exercise of options by shareholders of pooled subsidiary - -
Four-for-three common stock split 61,137 -
Purchase of fractional shares - -
Stock issued under stock option purchase plan (26,667) 125
Net change in unrealized gains on securities available
for sale, net of taxes - -
------------- ---------------
Balance, December 31, 1995 217,882 $ (1,555)
============= ===============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Total
---------------
<S> <C>
Balance, December 31, 1992 $ 26,689
Net income 3,197
Cash dividends paid, $.29 per share (672)
Purchase and simultaneous retirement of common
stock of pooled subsidiary (30)
Purchase of 143,024 shares of treasury stock (1,412)
---------------
Balance, December 31, 1993 27,772
Net income 3,873
Cash dividends declared, $.29 per share (884)
Purchase and simultaneous retirement of common
stock of pooled subsidiary (28)
Proceeds from sale of stock, net of stock offering expense 8,324
Net change in unrealized losses on securities available
for sale, net of taxes (496)
---------------
Balance, December 31, 1994 38,561
Net income 5,452
Cash dividends declared, $.35 per share (1,176)
Cash dividends paid by pooled subsidiary (109)
Exercise of options by shareholders of pooled subsidiary 85
Four-for-three common stock split -
Purchase of fractional shares (3)
Stock issued under stock option purchase plan 125
Net change in unrealized gains on securities available
for sale, net of taxes 694
---------------
Balance, December 31, 1995 $ 43,629
===============
</TABLE>
6
<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 $ 5,452 $ 3,873 $ 3,197
---------- --------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,287 1,212 1,048
Amortization of intangible assets 268 268 279
Provision for loan losses 1,173 938 1,512
Provision for deferred taxes (213) 29 (171)
Net realized (gains) losses on securities availabe for sale 20 (2) -
Write-downs of other real estate owned - 53 -
(Increase) decrease in interest receivable (970) (886) 66
Increase (decrease) in interest payable 399 189 (117)
Increase in taxes payable 74 108 169
Other prepaids, deferrals and accruals, net (698) (575) (687)
--------- --------- -------
Total adjustments 1,340 1,334 2,099
--------- --------- -------
Net cash provided by operating activities 6,792 5,207 5,296
--------- --------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in interest-bearing deposits in banks - 1,257 200
Purchases of securities available for sale (30,541) (9,822) -
Purchases of securities held to maturity (1,654) (11,065) (33,515)
Proceeds from maturities of securities available for sale 7,516 1,250 -
Proceeds from maturities of securities held to maturity 16,597 12,136 17,483
Proceeds from sales of securities available for sale 4,637 3,303 -
(Increase) decrease in Federal funds sold (23,433) 12,695 8,590
Increase in loans, net (31,365) (37,928) (17,812)
Purchase of premises and equipment (821) (2,443) (819)
Proceeds from the sale of premises and equipment 24 22 26
--------- --------- -------
Net cash used in investing activities (59,040) (30,595) (25,847)
--------- --------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in deposits 56,741 25,675 13,237
Increase (decrease) in repurchase agreements (451) (842) 3,117
Proceeds from other borrowings 2,600 - 1,474
Repayment of long-term debt - (4,739) (15)
Dividends paid (1,186) (645) (672)
Proceeds from stock offering, net - 8,324 -
Proceeds from sale of stock of pooled subsidiary 85 - -
Proceeds from exercise of stock options 125 - -
Purchase of fractional shares (3) - -
Purchase of shares of stock for the treasury - - (1,412)
Purchase of treasury stock of pooled subsidiary - (28) (30)
--------- -------- -------
Net cash provided by financing activities 57,911 27,745 15,699
--------- -------- -------
</TABLE>
7
<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 $ 5,663 $ 2,357 $ (4,852)
Cash and due from banks at beginning of year 22,688 20,331 25,183
-------- -------- --------
Cash and due from banks at end of year $ 28,351 $ 22,688 $ 20,331
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for:
Interest $ 14,126 $ 10,325 $ 10,233
Income taxes $ 2,599 $ 1,566 $ 635
NONCASH TRANSACTIONS
Net change in unrealized gains (losses)
on securities available for sale $ 1,048 $ (738) $ -
Property transferred from premises and equipment
to other real estate owned $ - $ 103 $ -
Dividends declared $ 338 $ 239 $ -
</TABLE>
See Notes to Consolidated Financial Statements.
8
<PAGE>
ABC BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Financial Statement Presentation
ABC Bancorp (the "Company") is a multi-bank holding
company whose business is presently conducted by its
subsidiary banks (the "Banks"). Through its Banks, the
Company operates a full service banking business and
offers a broad range of retail and commercial banking
services to its customers located in a market area which
includes South Georgia and Southeast Alabama. 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 Company's consolidated financial statements include
the accounts of the Company and its subsidiaries. All
significant intercompany transactions and accounts have
been eliminated in consolidation. Results of operations of
purchased banks are included from the dates of
acquisition. Following the purchase method of accounting,
the assets and liabilities of purchased banks are stated
at estimated fair values at the date of acquisition.
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.
9
<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.
10
<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.
11
<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.
12
<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.
13
<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
14
<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.
15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. RECENT ACQUISITIONS
On June 21, 1996, the Company acquired all of the outstanding
common stock of Southland Bancorporation ("Southland") in
exchange for 402,271 shares of the Company's common stock and
$5,880,392 in cash. The excess of purchase price over net book
value of assets acquired amounted to $5,310,222. The fair
value of assets acquired was deemed to approximate their
recorded value; therefore, the excess cost will be accounted
for as goodwill and amortized over a period of 15 years.
Immediately following the merger, Southland was liquidated and
its wholly-owned subsidiary, Southland Bank, became a
wholly-owned subsidiary of the Company.
The acquisition has been accounted for as a purchase
transaction and, accordingly, the operations of Southland Bank
will be included in the consolidated financial statements of
the Company only from June 21, 1996, the date of acquisition.
The consolidated financial statements of the Company for the
years ended December 31, 1995, 1994 and 1993 do not include
the operations of Southland Bank. Had the acquisition of
Southland Bank occurred on January 1, 1993, pro forma
unaudited consolidated results of operations (after
restatement for the poolings of interest described below) for
the years ended December 31, 1995, 1994 and 1993 would have
been as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1995 1994 1993
----------------- --------------- ---------------
<S> <C> <C> <C>
Net interest income $ 24,299 $ 20,703 $ 18,603
Other income 5,978 5,354 5,949
Net income 5,887 3,307 3,270
Net income per share 1.18 0.72 0.78
</TABLE>
16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. RECENT ACQUISITIONS (Continued)
On July 31, 1996, the Company acquired all of the outstanding
common stock of Central Bankshares, Inc. ("Central") in
exchange for 523,826 shares of the Company's common stock and
a nominal amount of cash in lieu of fractional shares.
Immediately following the merger, Central was liquidated and
its wholly-owned subsidiary, Central Bank & Trust, became a
wholly-owned subsidiary of the Company. On August 31, 1996,
the Company acquired all of the outstanding common stock of
First National Financial Corporation ("First National") in
exchange for 725,774 shares of the Company's common stock and
a nominal amount of cash in lieu of fractional shares.
Immediately following the merger, First National was
liquidated and its wholly-owned subsidiary, First National
Bank of South Georgia, became a wholly-owned subsidiary of the
Company.
The acquisitions of Central and First National have been
accounted for as poolings of interests and, accordingly, all
prior financial statements have been restated to include the
accounts and operations of the pooled companies. Net interest
income and net income of the separate companies for periods
preceding the mergers are summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1995 1994 1993
-------------- -------------- -------------
<S> <C> <C> <C>
Net interest income:
ABC $ 16,030 $ 13,500 $ 11,965
Central 2,182 2,005 1,911
First National 2,152 1,724 1,333
----------- ----------- ----------
Combined $ 20,364 $ 17,229 $ 15,209
=========== =========== ==========
Net income:
ABC $ 4,341 $ 3,100 $ 2,638
Central 499 457 321
First National 612 316 238
----------- ----------- ----------
Combined $ 5,452 $ 3,873 $ 3,197
=========== =========== ==========
</TABLE>
17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3. 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 $18,083,139 of marketable
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 gain of
$144,469 which was included in stockholders' equity at
$91,274, net of related taxes of $53,195.
Under special provisions adopted by the Financial Accounting
Standards Board in October 1995, the Company transferred
$21,180,546 from securities held to maturity to securities
available for sale on December 31, 1995, resulting in a net
unrealized gain of $131,346 which was included in
stockholders' equity at $86,689, net of related taxes of
$44,657.
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
Cost Gains Losses
-------------- -------------- -------------
(Dollars in Thousands)
--------------------------------------------------
<S> <C> <C> <C>
Securities Available for Sale
December 31, 1995:
U. S. Government and agency securities $ 50,211 $ 381 $ (171)
Mortgage-backed securities 7,897 126 (8)
Other securities 300 - (18)
--------- ----------- ----------
$ 58,408 $ 507 $ (197)
========= =========== ==========
December 31, 1994:
U. S. Government and agency securities $ 18,093 $ - $ (669)
Mortgage-backed securities 907 4 (33)
Other securities 300 - (40)
--------- ----------- ----------
$ 19,300 $ 4 $ (742)
========= =========== ==========
Securities Held to Maturity
December 31, 1995:
State and municipal securities $ 10,269 $ 258 $ (65)
Mortgage-backed securities 3,002 - (15)
--------- ----------- ----------
$ 13,271 $ 258 $ (80)
========= =========== ==========
December 31, 1994:
U. S. Government and agency securities $ 33,352 $ 19 $ (1,235)
State and municipal securities 9,819 114 (471)
Mortgage-backed securities 6,038 22 (308)
--------- ----------- ----------
$ 49,209 $ 155 $ (2,014)
========= =========== ==========
<CAPTION>
Fair
Value
--------------------
(Dollars in Thousands)
--------------------
<S> <C>
Securities Available for Sale
December 31, 1995:
U. S. Government and agency securities $ 50,421
Mortgage-backed securities 8,015
Other securities 282
-----------
$ 58,718
===========
December 31, 1994:
U. S. Government and agency securities $ 17,424
Mortgage-backed securities 878
Other securities 260
-----------
$ 18,562
===========
Securities Held to Maturity
December 31, 1995:
State and municipal securities $ 10,462
Mortgage-backed securities 2,987
-----------
$ 13,449
===========
December 31, 1994:
U. S. Government and agency securities $ 32,136
State and municipal securities 9,462
Mortgage-backed securities 5,752
-----------
$ 47,350
===========
</TABLE>
18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3. INVESTMENTS IN SECURITIES (Continued)
Gross realized gains and gross realized losses from sales of
securities were as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1995 1994
---------------- -----------------
(Dollars in Thousands)
---------------------------------------
<S> <C> <C>
Gross realized gains $ - $ 2
Gross realized losses (20) -
---------------- -----------------
Net realized gains $ (20) $ 2
================ =================
</TABLE>
There were no sales of securities during 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
----------------------------------
Amortized Fair
Cost Value
--------------- -------------
(Dollars in Thousands)
----------------------------------
Due in one year or less $ 15,288 $ 15,316
Due from one year to five years 34,418 34,600
Due from five to ten years 505 505
Due after ten years - -
Mortgage-backed securities 7,897 8,015
Marketable equity securities 300 282
------------ -------------
$ 58,408 $ 58,718
============ =============
<CAPTION>
Securities Held to Maturity
----------------------------------
Amortized Fair
Cost Value
--------------- ------------
(Dollars in Thousands)
----------------------------------
<S> <C> <C>
Due in one year or less $ 727 $ 724
Due from one year to five years 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 3,002 2,987
Marketable equity securities - -
------------ ------------
$ 13,271 $ 13,449
============ ============
</TABLE>
Securities with a carrying value of $40,592,070 and
$33,793,889 at December 31, 1995 and 1994, respectively, were
pledged to secure public deposits and for other purposes.
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4. 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 $ 45,671 $ 37,374
Agricultural 18,527 20,031
Real estate - construction 3,577 3,688
Real estate - mortgage, farmland 41,420 36,485
Real estate - mortgage, commercial 52,443 45,702
Real estate - mortgage, residential 68,554 59,641
Consumer instalment loans 50,020 45,891
Other 819 1,368
------------- -------------
281,031 250,180
Allowance for loan losses (5,184) (4,525)
------------- -------------
$ 275,847 $ 245,655
============= =============
</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 $11,103,000. 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 $ 10,115 $ 10,703
Advances 8,594 7,560
Repayments (7,849) (7,096)
Transactions due to changes in directors 243 (1,052)
------------- -------------
Balance, end of year $ 11,103 $ 10,115
============= =============
</TABLE>
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4. LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
1995 1994 1993
----------------- ---------------- ----------------
(Dollars in Thousands)
------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $ 4,525 $ 4,273 $ 4,585
Provision charged to operations 1,173 938 1,512
Loans charged off (954) (1,237) (2,916)
Recoveries 440 551 1,092
-------------- ------------- -------------
Balance, end of year $ 5,184 $ 4,525 $ 4,273
============== ============= =============
</TABLE>
Information with respect to impaired loans as of and for the
year ended December 31, 1995 is as follows:
<TABLE>
<CAPTION>
(Dollars in
Thousands)
--------------
<S> <C>
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>
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4. LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
Loans on which the accrual of interest had been discontinued
or reduced amounted to $3,868,273 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
============= ==============
</TABLE>
NOTE 5. PREMISES AND EQUIPMENT, NET
Major classifications of these assets are summarized as
follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1995 1994
---------------- ----------------
(Dollars in Thousands)
----------------------------------------
<S> <C> <C>
Land $ 2,160 $ 2,161
Buildings 7,096 6,921
Equipment 7,858 8,067
Construction in progress 182 -
------------- -------------
17,296 17,149
Accumulated depreciation (7,767) (7,220)
------------- -------------
$ 9,529 $ 9,929
============= =============
</TABLE>
Depreciation expense for the years ended December 31, 1995,
1994 and 1993 was $1,161,010, $1,014,903 and $732,811,
respectively.
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6. EMPLOYEE BENEFIT PLANS
The Company and its 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 $585,766, $537,254 and $513,560, respectively.
NOTE 7. 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 8. 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 $ 2,673 $ 1,675 $ 912
Deferred (213) 29 175
Benefit of loss carryforward - (1) (108)
----------- ------------ -----------
$ 2,460 $ 1,703 $ 979
=========== ============ ===========
</TABLE>
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8. 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 $ 2,690 34 % $ 1,895 34 % $ 1,300 34 %
Increase (decrease) resulting from:
Tax-exempt interest (216) (3) (246) (4) (274) (7)
Amortization of excess
cost over assets acquired 32 1 37 1 49 1
Changes in valuation allowance
for deferred taxes (72) (1) (50) (1) - -
Benefit from utilization of net
operating loss carryforward - - (1) - (106) (2)
Other 26 - 68 1 10 -
-------- --------- -------- --------- -------- ---------
Provision for income taxes $ 2,460 31 % $ 1,703 31 % $ 979 26 %
======== ========= ======== ========= ======== =========
</TABLE>
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8. INCOME TAXES (Continued)
Net deferred income tax assets of $454,000 and $584,000 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 $ 929 $ 681
Deferred compensation 173 138
Other real estate 5 18
Other 34 78
Net operating loss tax carryforward 285 310
Less valuation allowance (228) (300)
Unrealized loss on securities available for sale - 232
-------------- -------------
1,198 1,157
-------------- -------------
Deferred tax liabilities:
Depreciation and amortization (353) (278)
Amortization of intangible assets (250) (283)
Other (30) (12)
Unrealized gain on securities available for sale (111)
-------------- -------------
(744) (573)
-------------- -------------
Net deferred tax assets $ 454 $ 584
============== =============
</TABLE>
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9. 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 $ 42,666 $ 31,904
Credit card commitments 2,883 2,345
Standby letters of credit 1,433 989
---------- ------
$ 46,982 $ 35,238
========== =========
</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.
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9. 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 10. CONCENTRATIONS OF CREDIT
The Banks make agricultural, agribusiness, commercial, residential and
consumer loans to customers primarily in the counties of southwest
Georgia and southeast Alabama.
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.
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10. CONCENTRATIONS OF CREDIT (Continued)
The Company has a concentration of funds on deposit at its primary
correspondent bank at December 31, 1995, as follows:
<TABLE>
<S> <C>
Noninterest-bearing accounts $ 16,852,293
Federal funds sold 31,480,000
------------
$ 48,332,293
============
</TABLE>
NOTE 11. 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 $2,630,000 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:
<TABLE>
<CAPTION>
Regulatory
Actual Requirement
---------- -----------
<S> <C> <C>
Leverage capital ratio 9.93 % 4.00 %
Risk based capital ratios:
Core capital 14.52 4.00
Total capital 15.77 8.00
</TABLE>
28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12. 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 $ 75,836 $ 75,836 $ 46,740 $ 46,740
============== ============== =============== =============
Investments in securities $ 71,989 $ 72,167 $ 67,771 $ 65,912
============== ============== =============== =============
Loans $ 281,031 $ 271,784 $ 250,180 $ 242,602
Allowance for loan losses (5,184) - (4,525) -
-------------- -------------- --------------- -------------
Loans, net $ 275,847 $ 271,784 $ 245,655 $ 242,602
============== ============== =============== =============
Financial liabilities:
Noninterest-bearing demand $ 69,661 $ 69,661 $ 57,903 $ 57,903
Interest-bearing demand 90,495 90,495 81,325 81,325
Savings 27,468 27,468 29,743 29,743
Time deposits 206,333 208,175 168,245 168,327
-------------- -------------- --------------- -------------
Total deposits $ 393,957 $ 395,799 $ 337,216 $ 337,298
============== ============== =============== =============
Short-term borrowings $ 4,487 $ 4,487 $ 2,338 $ 2,338
============== ============== =============== =============
</TABLE>
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13. 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 $ 1,863 $ 2,055
Interest-bearing deposits in banks 2,060 1,500
Investment in subsidiaries 36,231 31,574
Other assets 4,097 4,094
----------- -----------
Total assets $ 44,251 $ 39,223
=========== ===========
Liabilities
Other liabilities $ 622 $ 662
----------- -----------
Total liabilities 622 662
----------- -----------
Stockholders' equity 43,629 38,561
----------- -----------
Total liabilities and stockholders' equity $ 44,251 $ 39,223
=========== ===========
</TABLE>
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13. 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>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Income
Dividends from subsidiaries $ 1,922 $ 1,269 $ 1,150
Interest 139 113 34
Fee and rental income 2,757 2,427 1,950
Other income 25 94 32
--------- --------- ---------
Total income 4,843 3,903 3,166
--------- --------- ---------
Expense
Interest - 111 193
Amortization and depreciation 440 453 434
Other expense 2,977 2,679 1,954
--------- --------- ---------
Total expense 3,417 3,243 2,581
--------- --------- ---------
Income before income taxes (benefits)
and equity in undistributed earnings
of subsidiaries 1,426 660 585
Income taxes (benefits) (63) (61) 145
--------- --------- ---------
Income before equity in undistributed
earnings of subsidiaries 1,489 721 440
Equity in undistributed earnings
of subsidiaries 3,963 3,152 2,757
--------- --------- ---------
Net income $ 5,452 $ 3,873 $ 3,197
========= ========= =========
</TABLE>
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13. 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 $ 5,452 $ 3,873 $ 3,197
---------- --------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 172 185 155
Amortization of intangible assets 268 268 279
Undistributed earnings of subsidiaries (3,963) (3,152) (2,757)
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 (56) 47 (51)
Other prepaids, deferrals and accruals, net (88) 58 (114)
---------- --------- ---------
Total adjustments (3,842) (2,565) (2,265)
---------- --------- ---------
Net cash provided by operating
activities 1,610 1,308 932
---------- --------- ---------
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>
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13. 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 $ - $ - $ 1,474
Repayment of long-term debt - (4,739) (15)
Proceeds from sale of stock, net of
stock offering expense - 8,324 -
Proceeds from exercise of stock options 125 - -
Proceeds from exercise of stock options
of pooled subsidiary 86 - -
Purchase of treasury stock (29) (1,412)
Purchase of fractional shares (3) - -
Dividends paid (1,186) (645) (672)
----------- ----------- -----------
Net cash provided by (used in)
financing activities (978) 2,911 (625)
----------- ----------- -----------
Net increase (decrease) in cash (192) 976 285
Cash at beginning of year 2,055 1,079 794
----------- ----------- -----------
Cash at end of year $ 1,863 $ 2,055 $ 1,079
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid during the year for interest $ - $ 111 $ 193
</TABLE>
33
<PAGE>
M & F FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
Assets 1996 1995
------------ ------------
<S> <C> <C>
Cash and due from banks $ 2,700,581 $ 1,490,491
Federal funds sold - 4,370,000
Securities available for sale, at fair value 5,041,732 6,595,924
Securities held to maturity, at cost (fair value
$6,232,415 and $5,958,969) 6,312,626 5,920,122
Loans 25,932,455 24,210,995
Less allowance for loan losses 322,123 300,000
------------ ------------
Loans, net 25,610,332 23,910,995
------------ ------------
Premises and equipment, net 1,013,206 995,131
Excess cost over assets acquired 320,710 351,952
Other assets 1,121,887 1,195,729
------------ ------------
$ 42,121,074 $ 44,830,344
============ ============
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing demand $ 4,455,147 $ 5,026,010
Interest-bearing demand 8,388,314 10,016,868
Savings 2,433,321 2,146,155
Time, $100,000 and over 5,468,749 8,197,430
Other time 12,878,061 12,837,555
------------ ------------
Total deposits 33,623,592 38,224,018
Notes payable 1,050,000 1,200,000
Short-term borrowings 3,650,000 2,000,000
Other liabilities 284,745 265,150
------------ ------------
Total liabilities 38,608,337 41,689,168
------------ ------------
Commitments and contingent liabilities
Stockholders' equity
Common stock, par value $1; 5,000,000 shares
authorized, 1,228,609 shares issued 1,228,609 1,228,609
Retained earnings 2,548,928 2,135,433
Unrealized gains (losses) on securities available
for sale, net of taxes (1,278) 50,811
------------ ------------
3,776,259 3,414,853
Less cost of shares acquired for the treasury 263,522 273,677
------------ ------------
3,512,737 3,141,176
------------ ------------
$ 42,121,074 $ 44,830,344
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
M & F FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Interest income
Interest and fees on loans $1,949,265 $1,853,420
Interest on taxable securities 408,262 466,941
Interest on nontaxable securities 172,247 128,393
Interest on deposits in other banks 5,481 12,630
Interest on Federal funds sold 49,612 30,049
---------- ----------
2,584,867 2,491,433
---------- ----------
Interest expense
Interest on deposits 1,112,218 1,062,202
Interest on other borrowings 201,833 195,059
---------- ----------
1,314,051 1,257,261
---------- ----------
Net interest income 1,270,816 1,234,172
Provision for loan losses 42,000 14,000
---------- ----------
Net interest income after provision for loan losses 1,228,816 1,220,172
---------- ----------
Other income
Service charges on deposit accounts 253,457 156,651
Other service charges, commissions and fees 23,764 22,003
Security transactions, net 8,695 21,899
Other 5,583 4,582
---------- ----------
291,499 205,135
---------- ----------
Other expenses
Salaries and employee benefits 498,378 481,370
Equipment expense 82,078 62,265
Occupancy expense 79,567 79,976
Other operating expenses 286,240 293,843
---------- ----------
946,263 917,454
---------- ----------
Income before income taxes 574,052 507,853
Applicable income taxes 162,673 131,584
---------- ----------
Net income $ 411,379 $ 376,269
========== ==========
Income per common share $ 0.38 $ 0.35
========== ==========
Average shares outstanding 1,091,358 1,086,069
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
M & F FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 411,379 $ 376,269
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 51,890 49,220
Amortization of intangible assets 31,242 31,242
Provision for loan losses 42,000 14,000
Security transactions, net (8,695) (21,899)
Other prepaids, deferrals and accruals, net 120,273 (85,238)
----------- -----------
Total adjustments 236,710 (12,675)
----------- -----------
Net cash provided by operating activities 648,089 363,594
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of securities held to maturity 351,642 330,236
Proceeds from maturities of securities available for sale 1,392,674 1,350,502
Purchase of securities held to maturity (744,146) -
Purchase of securities available for sale (1,098,828) (2,000,030)
Proceeds from sales of securities available for sale 1,190,117 1,851,887
Decrease in Federal funds sold 4,370,000 3,710,000
Decrease in interest-bearing deposits in banks 198,272
Net increase in loans (1,741,337) (4,363,946)
Purchase of premises and equipment (69,965) (60,711)
----------- -----------
Net cash provided by investing activities 3,650,157 1,016,210
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in deposits (4,600,426) (3,857,144)
Principal payments on note payable (150,000) (150,000)
Increase in short-term borrowings 1,650,000 2,000,000
Proceeds from exercise of stock options 12,270 -
----------- -----------
Net cash used in financing activities (3,088,156) (2,007,144)
----------- -----------
Net increase (decrease) in cash and due from banks 1,210,090 (627,340)
Cash and due from banks at beginning of period 1,490,491 1,993,741
----------- -----------
Cash and due from banks at end of period $ 2,700,581 $ 1,366,401
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
M & F FINANCIAL CORPORATION
AND SUBSIDIARY
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 nine months ended
September 30, 1996 are not necessarily indicative of the results to be
expected for the full year.
(4) 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, Merchants & Farmers Bank will become a
wholly-owned subsidiary of ABC Bancorp. The merger will be accounted
for as a pooling of interests.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
================================================================================
To the Board of Directors
M & F Financial Corporation and Subsidiary
Donalsonville, Georgia
We have audited the accompanying consolidated balance sheets of the M
& F Financial Corporation 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 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 M & F
Financial Corporation 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 LLC
- -----------------------------------
Albany, Georgia
April 26, 1996
<PAGE>
M & F FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
================================================================================
<TABLE>
<CAPTION>
Assets 1995 1994
- ------ ----------- -----------
<S> <C> <C>
Cash and due from banks $ 1,490,491 $ 1,993,741
Interest-bearing deposits in banks - 298,272
Federal funds sold 4,370,000 3,940,000
Securities available for sale, at fair value (Note 2) 6,595,924 7,159,754
Securities held to maturity, at cost (fair value
$5,958,969 and $5,183,022) (Note 2) 5,920,122 5,469,793
Loans (Note 3) 24,210,995 20,809,789
Less allowance for loan losses (Note 3) 300,000 250,000
----------- -----------
Loans, net 23,910,995 20,559,789
----------- -----------
Premises and equipment, net (Note 4) 995,131 999,098
Excess cost over assets acquired (Note 1) 351,952 393,608
Other assets 1,195,729 1,164,821
----------- -----------
$44,830,344 $41,978,876
=========== ===========
Liabilities and Stockholders' Equity
- ------------------------------------
Deposits
Noninterest-bearing demand $ 5,026,010 $ 5,140,760
Interest-bearing demand 10,016,868 8,310,579
Savings 2,146,155 2,344,125
Time, $100,000 and over 8,197,430 9,589,387
Other time 12,837,555 12,527,976
----------- -----------
Total deposits 38,224,018 37,912,827
Federal Home Loan Bank advances (Note 5) 2,000,000
Note payable (Note 6) 1,200,000 1,350,000
Other liabilities 265,150 195,281
----------- -----------
Total liabilities 41,689,168 39,458,108
----------- -----------
Commitments and contingent liabilities (Note 9)
Stockholders' equity (Note 11)
Common stock, par value $1; 5,000,000 shares authorized;
1,228,609 shares issued 1,228,609 1,228,609
Retained earnings 2,135,433 1,670,833
Unrealized gains (losses) on securities available
for sale, net of taxes 50,811 (104,997)
----------- -----------
3,414,853 2,794,445
Less cost of shares acquired for the treasury 273,677 273,677
----------- -----------
Total stockholders' equity 3,141,176 2,520,768
----------- -----------
$44,830,344 $41,978,876
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
M & F FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995 AND 1994
================================================================================
<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
Interest income
Interest and fees on loans $ 2,490,018 $2,005,413
Interest on taxable securities 597,242 572,308
Interest on nontaxable securities 173,281 177,774
Interest on deposits in other banks 16,243 8,090
Interest on Federal funds sold 64,942 41,790
----------- ----------
3,341,726 2,805,375
----------- ----------
Interest expense
Interest on deposits 1,453,243 1,156,806
Interest on other borrowings (Notes 5 and 6) 246,569 111,018
----------- ----------
1,699,812 1,267,824
----------- ----------
Net interest income 1,641,914 1,537,551
Provision for loan losses (Note 3) 57,699 17,309
----------- ----------
Net interest income after provision for loan losses 1,584,215 1,520,242
----------- ----------
Other income
Service charges on deposit accounts 217,265 187,646
Other service charges, commissions and fees 19,816 19,662
Security transactions, net 17,215 5,453
Other 24,076 13,106
----------- ----------
278,372 225,867
----------- ----------
Other expense
Salaries and employee benefits (Note 7) 660,343 560,109
Equipment expense 87,639 121,879
Occupancy expense 106,941 85,726
Amortization of intangible assets 41,656 41,656
FDIC premiums 41,140 73,774
Directors' fees 41,400 36,900
Office supplies 28,704 31,110
Other operating expenses 239,115 217,094
----------- ----------
1,246,938 1,168,248
----------- ----------
Income before income taxes 615,649 577,861
Applicable income taxes (Note 8) 151,049 133,730
----------- ----------
Net income $ 464,600 $ 444,131
=========== ==========
Per share of common stock
Net income $ 0.43 $ 0.41
=========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
M & F FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
====================================================================================================================================
<CAPTION>
Unrealized
Gains (Losses)
on Securities
Common Stock Available
---------------------------- Capital Retained for Sale,
Shares Par Value Surplus Earnings Net of Taxes
--------- ----------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 1,228,609 $ 1,228,609 $ 34,291 $1,309,179 $ -
Net income - - - 444,131 -
Purchase of stock in subsidiary - - (34,291) (82,477) -
Net change in unrealized losses
on securities available for sale,
net of taxes - - - - (104,997)
------------ ----------- ---------- ----------- -----------
Balance, December 31, 1994 1,228,609 1,228,609 - 1,670,833 (104,997)
Net income - - - 464,600 -
Net change in unrealized
gains (losses) on securities
available for sale, net of taxes - - - - 155,808
----------- ------------ ----------- ----------- ----------
Balance, December 31, 1995 1,228,609 $ 1,228,609 $ - $ 2,135,433 $ 50,811
=========== ============ =========== =========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
================================================================================
<TABLE>
<CAPTION>
Treasury Stock Total
------------------------------ Stockholders'
Shares Cost Equity
---------- ---------- -------------
<S> <C> <C> <C>
Balance, December 31, 1993 142,540 $ (273,677) $ 2,298,402
Net income - - 444,131
Purchase of stock in subsidiary - - (116,768)
Net change in unrealized losses
on securities available for sale,
net of taxes - - (104,997)
-------- ----------- -------------
Balance, December 31, 1994 142,540 (273,677) 2,520,768
Net income - - 464,600
Net change in unrealized
gains (losses) on securities
available for sale, net of taxes - - 155,808
---------- ----------- -------------
Balance, December 31, 1995 142,540 $ (273,677) $ 3,141,176
========== =========== =============
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
M & F FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
================================================================================
<TABLE>
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 464,600 $ 444,131
------------ -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 69,187 80,864
Amortization of excess costs 41,656 41,656
Provision for loan losses 57,699 17,309
Provision for deferred income taxes (9,899) (3,236)
Securities transactions, net (17,215) (5,453)
Increase in interest receivable (96,015) (174,517)
Increase in interest payable 41,368 22,412
Increase (decrease) in taxes payable 24,131 (48,128)
Other prepaids, deferrals and accruals, net (889) (345,250)
----------- -----------
Total adjustments 110,023 (414,343)
----------- -----------
Net cash provided by operating activities 574,623 29,788
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities available for sale (2,215,391) (1,374,631)
Proceeds from sales of securities available for sale 2,807,453 1,005,156
Proceeds from maturities of securities available for sale 225,056 -
Purchases of securities held to maturity (999,436) (1,125,844)
Proceeds from maturities of securities held to maturity 549,107 1,058,784
(Increase) decrease in Federal funds sold (430,000) 930,000
Decrease in interest-bearing deposits in banks 298,272 201,728
Increase in loans, net (3,408,905) (1,546,462)
Purchase of premises and equipment (65,220) (81,658)
Purchase of stock in subsidiary - (574,788)
------------ -----------
Net cash used in investing activities (3,239,064) (1,507,715)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in deposits 311,191 2,556,787
Principal payments on note payable (150,000) (1,042,800)
Proceeds from long-term debt 2,000,000 1,500,000
Dividends paid to minority shareholders by subsidiary - (23,655)
------------ -----------
Net cash provided by financing activities 2,161,191 2,990,332
------------ -----------
</TABLE>
6
<PAGE>
M & F FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
================================================================================
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Net increase (decrease) in cash and due from banks $ (503,250) $ 1,512,405
Cash and due from banks at beginning of year 1,993,741 481,336
----------- -----------
Cash and due from banks at end of year $1,490,491 $ 1,993,741
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $1,658,444 $ 1,245,412
Income taxes $ 136,817 $ 185,094
NONCASH TRANSACTION
Unrealized (gains) losses on securities available for sale $ (236,073) $ 159,086
</TABLE>
See Notes to Consolidated Financial Statements.
7
<PAGE>
M & F FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Financial Statement Presentation
M & F Financial Corporation (the Company) is a one-bank holding
company whose business is presently conducted by its wholly-owned
subsidiary, Merchants & Farmers Bank (the Bank) with operations in
Donalsonville, Georgia. The Bank provides a full range of banking
services to individual and corporate customers in its primary market
area of Seminole County and surrounding counties. The Company and
the Bank 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 Bank, deposits, interest-bearing deposits and Federal funds
purchased and sold are reported net.
The Bank maintains amounts due from banks which, at times, may
exceed Federally insured limits. The Bank has not experienced any
losses in such accounts.
8
<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 Bank 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 Bank'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 Bank 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 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.
9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans and Interest Income (Continued)
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 Bank's allowance for loan losses, and may
require the Bank to record additions to the allowance based on their
judgment about information available to them at the time of their
examinations.
10
<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 on the straight-
line method over the following estimated useful lives:
Years
---------
Buildings and improvements 15-40
Furniture and equipment 5-7
11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 Bank's financial statements.
Intangible Assets
Intangible assets, arising from excess of purchase price over net
assets acquired upon purchase of the subsidiary bank, are being
amortized on the straight-line method over various periods not
exceeding 17 years.
Income Taxes
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.
12
<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 Bank.
The following methods and assumptions were used by the Bank 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
Variable rate money market accounts
Variable rate certificates of deposit
Short-term borrowing
Accrued interest receivable
Accrued interest payable
Quoted market prices, where available, or if not available, based
on quoted market prices of comparable instruments for the following
instruments:
Securities held to maturity
Notes payable and other borrowing
13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Value of Financial Instruments (Continued)
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 Bank 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.
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 Bank transferred
$6,943,912 from securities being held to maturity to securities
available for sale. The securities available for sale were marked to
fair value resulting in a net unrealized gain of $221,662 which was
included in stockholders' equity at $146,297 net of related taxes of
$75,365.
14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 2. INVESTMENTS IN SECURITIES (Continued)
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
------------ --------- ----------- ----------
<S> <C> <C> <C> <C>
Securities Available for Sale
December 31, 1995:
U. S. Government and
agency securities $ 3,151,995 $ 49,091 $ (11,733) $3,189,353
Mortgage-backed securities 3,366,942 46,501 (6,872) 3,406,571
------------ --------- ----------- ----------
$ 6,518,937 $ 95,592 $ (18,605) $6,595,924
============ ========= =========== ==========
December 31, 1994:
U. S. Government and
agency securities $ 4,457,454 $ 24,508 $ (25,373) $4,456,589
Mortgage-backed securities 2,861,386 773 (158,994) 2,703,165
------------ --------- ------------ ----------
$ 7,318,840 $ 25,281 $ (184,367) $7,159,754
============ ========= ============ ==========
Securities Held to Maturity
December 31, 1995:
U. S. Government and
agency securities $ 58,534 $ 986 $ - $ 59,520
State and municipal securities 4,159,101 78,436 (40,757) 4,196,780
Mortgage-backed securities 1,702,487 10,243 (10,061) 1,702,669
------------ --------- ------------ ----------
$ 5,920,122 $ 89,665 $ (50,818) $5,958,969
============ ========= ============ ==========
December 31, 1994:
U. S. Government and
agency securities $ 61,610 $ - $ (416) $ 61,194
State and municipal securities 3,317,640 4,213 (189,117) 3,132,736
Mortgage-backed securities 2,090,543 - (101,451) 1,989,092
------------ --------- ------------ ----------
$ 5,469,793 $ 4,213 $ (290,984) $5,183,022
============ ========= ============ ==========
</TABLE>
15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 2. INVESTMENTS IN SECURITIES (Continued)
Proceeds from sales of securities available for sale during 1995 were
$2,807,453. Gross gains of $23,788 and gross losses of $6,573 were
realized on those sales.
Proceeds from sales of securities available for sale during 1994 were
$1,005,156. Gross gains of $5,453 were realized on those sales.
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 prepaid without
penalty. Therefore, these securities are not included in the maturity
categories in the following maturity summary.
<TABLE>
<CAPTION>
Securities Available for Sale Securities Held to Maturity
------------------------------- ------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Due in one year or less $ 1,049,714 $ 1,061,891 $ 108,535 $ 109,520
Due from one year to five years 733,339 735,269 1,046,960 1,068,077
Due from five to ten years 888,135 907,180 2,497,140 2,524,726
Due after ten years 480,807 485,013 565,000 553,977
Mortgage-backed securities 3,366,942 3,406,571 1,702,487 1,702,669
------------- ------------- ------------- -------------
$ 6,518,937 $ 6,595,924 $ 5,920,122 $ 5,958,969
============= ============= ============= =============
</TABLE>
Securities with a par value of $9,244,000 and $5,515,000 at December
31, 1995 and 1994, respectively, were pledged to secure public
deposits and for other purposes.
16
<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
----------- -----------
<S> <C> <C>
Commercial and financial $ 560,977 $ 758,985
Agricultural 3,176,872 3,031,939
Real estate - mortgage, farmland 4,834,805 3,804,923
Real estate - mortgage, other 9,412,621 8,138,836
Consumer instalment, net of unearned interest 5,983,729 4,800,111
Other 241,991 274,995
------------ ------------
24,210,995 20,809,789
Allowance for loan losses (300,000) (250,000)
------------ ------------
Loans, net $23,910,995 $20,559,789
============ ============
</TABLE>
At December 31, 1995, the Bank had no loans which were considered to
be impaired.
Loans on which the accrual of interest had been discontinued or
reduced amounted to $7,563 at December 31, 1994. There were no
nonaccruing loans at December 31, 1995. There was no significant
reduction in interest income associated with nonaccrual loans.
17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
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 $1,711,776. 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
------------- -------------
<S> <C> <C>
Balance, beginning of year $ 1,001,189 $ 800,857
Advances 1,726,636 1,060,820
Repayments (1,016,049) (860,488)
------------- -------------
Balance, end of year $ 1,711,776 $ 1,001,189
============= =============
<CAPTION>
Changes in the allowance for loan losses are as follows:
December 31,
------------------------------
1995 1994
------------- -------------
<S> <C> <C>
Balance, beginning of year $ 250,000 $ 240,744
Provision charged to operations 57,699 17,309
Loans charged off (12,856) (30,065)
Recoveries 5,157 22,012
------------- -------------
Balance, end of year $ 300,000 $ 250,000
============= =============
</TABLE>
18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 4. PREMISES AND EQUIPMENT, NET
Major classifications of these assets are summarized as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1995 1994
------------ ------------
<S> <C> <C>
Land $ 86,986 $ 86,986
Buildings 897,725 897,725
Equipment 839,586 774,366
Leasehold improvements 35,039 35,039
------------ ------------
1,859,336 1,794,116
Accumulated depreciation (864,205) (795,018)
------------ ------------
$ 995,131 $ 999,098
============ ============
</TABLE>
Depreciation expense for the years ended December 31, 1995 and 1994
was $69,187 and $80,864, respectively.
NOTE 5. FEDERAL HOME LOAN BANK ADVANCES
Federal Home Loan Bank advances consisted of the following at December
31, 1995:
<TABLE>
<S> <C>
Federal Home Loan Bank, principal due July 12,1996, $ 500,000
interest due monthly at Federal Home Loan Bank daily
rate, collateralized by investment securities.
Federal Home Loan Bank, principal due March 21, 2002, 1,000,000
interest due monthly at LIBOR plus twenty-five basis
points, collateralized by investment securities.
Federal Home Loan Bank, principal due June 5, 2005, 500,000
interest due monthly at 6.48%, collateralized
by investment securities.
-----------
$ 2,000,000
===========
</TABLE>
At December 31, 1995, the Bank had pledged securities with a market
value of $2,336,414 to secure the advances.
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 5. FEDERAL HOME LOAN BANK ADVANCES (Continued)
Aggregate maturities on Federal Home Loan Bank advances at
December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996 $ 500,000
1997 -
1998 -
1999 -
2000 -
Later years 1,500,000
------------
$ 2,000,000
============
</TABLE>
NOTE 6. NOTE PAYABLE
Note payable consisted of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1995 1994
------------ ------------
<S> <C> <C>
The Bankers Bank - principal due in 10 annual $ 1,200,000 $ 1,350,000
instalments of $150,000 each beginning ============ ============
December 31, 1994, interest at prime minus
50 basis points due quarterly, collateralized
by stock in the subsidiary bank.
<CAPTION>
Aggregate maturities on note payable at December 31, 1995 are as follows:
<S> <C>
1996 $ 150,000
1997 150,000
1998 150,000
1999 150,000
2000 150,000
Later years 450,000
------------
$ 1,200,000
============
</TABLE>
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 7. EMPLOYEE BENEFIT PLANS
The Bank has a 401K profit-sharing plan covering all employees,
subject to certain minimum age and service requirements. The amount of
the contribution is at the discretion of the Bank's Board of
Directors, and is based on a percentage of individual employee
salaries, not to excess the amount allowable under the Internal
Revenue Code. The contribution was $39,740 and $36,336 for the years
ended December 31, 1995 and 1994, respectively.
The Bank has a noncontributory pension plan covering substantially all
of its employees. No contributions were made during 1995 or 1994
because the plan was fully funded. The Bank has filed an application
with the Internal Revenue Service for a determination letter that the
plan is qualified and that the termination will be qualified under the
Internal Revenue Code. Based on calculations by actuaries, the
present value of all accrued benefits as of October 1, 1995 was
$165,334 on a plan termination basis. The market value of the plan
assets on October 1, 1995 was reported as $222,085, which amount was
more than sufficient to cover the termination liability. On December
11, 1995, the plan assets were transferred to a Merchants & Farmers
Bank certificate of deposit in the amount of $230,308, pending final
settlement of termination benefits to participants covered by the
plan.
NOTE 8. INCOME TAXES
The total income taxes in the consolidated statements of income are as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
Current $ 160,948 $ 136,966
Deferred (9,899) (3,236)
---------- ----------
$ 151,049 $ 133,730
========== ==========
</TABLE>
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 8. 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
------------------------ ------------------------
Amount Percent Amount Percent
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Tax provision at statutory rate $ 209,321 34 % $ 196,473 34 %
Increase (decrease) resulting from:
Tax-exempt interest (56,674) (9) (60,608) (10)
Amortization (2,343) - (4,348) (1)
Other items, net 745 - 2,213 -
---------- ----------- ---------- -----------
Provision for income taxes $ 151,049 25 % $ 133,730 23 %
========== =========== ========== ===========
</TABLE>
Net deferred income tax assets of $35,057 and $105,423 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
---------- ----------
<S> <C> <C>
Deferred tax assets:
Loan loss reserve $ 73,602 $ 53,983
Unrealized loss on securities available for sale - 54,089
---------- ----------
73,602 108,072
---------- ----------
Deferred tax liabilities:
Depreciation 12,369 2,649
Unrealized gain on securities available for sale 26,176 -
---------- ---------
38,545 2,649
---------- ----------
Net deferred tax assets $ 35,057 $ 105,423
========== ==========
</TABLE>
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 9. COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, the Bank has entered into off-
balance-sheet financial instruments which are not reflected in the
financial statements. These financial instruments include commitments
to extend credit and standby letters of credit. Such financial
instruments are included in the financial statements when funds are
disbursed or the instruments become payable. These instruments
involve, to varying degrees, elements of credit risk in excess of the
amount recognized in the balance sheet.
The Bank's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend
credit and standby letters of credit is represented by the contractual
amount of those instruments. The Bank 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 Bank's commitments is as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------
1995 1994
---------- ----------
<S> <C> <C>
Commitments to extend credit $2,703,977 $2,428,067
Standby letters of credit 11,400 40,000
---------- ----------
$2,715,377 $2,468,067
========== ==========
</TABLE>
Commitments to extend credit generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Since
many of the commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent future
cash requirements. The credit risk involved in issuing these
financial instruments is essentially the same as that involved in
extending loans to customers. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Bank upon extension of credit, is
based on management's credit evaluation of the customer. Collateral
held varies but may include real estate and improvements, marketable
securities, accounts receivable, crops, livestock, inventory,
equipment and personal property.
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 9. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
Credit card commitments are unsecured.
Standby letters of credit are conditional commitments issued by the
Bank to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and private
borrowing arrangements. The credit risk involved in issuing letters
of credit is essentially the same as that involved in extending loan
facilities to customers. Collateral held varies as specified above
and is required in instances which the Bank deems necessary.
In the normal course of business, the Bank is involved in various
legal proceedings. In the opinion of management and counsel for the
Bank, any liability resulting from such proceedings would not have a
material adverse effect on the Bank's financial statements.
NOTE 10. CONCENTRATIONS OF CREDIT
The Bank makes agricultural, agribusiness, commercial, residential and
consumer loans to customers primarily in Seminole County.
A substantial portion of the Bank's customers' abilities to honor
their contracts is dependent on the business economy in Donalsonville,
Georgia and surrounding areas.
Although the Bank'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
Bank'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 Bank's loans are secured by real estate
in the Bank'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 Bank'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 Bank's primary market area.
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 10. CONCENTRATIONS OF CREDIT (Continued)
The concentrations of credit by type of loan are set forth in Note 3.
Significant concentrations of credit risk that are not evident from
the summary in Note 3 include:
The Bank has a concentration of funds on deposit at its primary
Correspondent Bank at December 31, 1995, as follows:
<TABLE>
<CAPTION>
<S> <C>
Noninterest-bearing accounts $ 951,215
Federal funds sold 4,220,000
----------
$5,171,215
==========
</TABLE>
NOTE 11. 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
Bank's regulatory agency. Approximately $283,000 are available to be
paid as dividends by the bank subsidiary at December 31, 1995.
Banking regulations also require the Bank to maintain minimum capital
levels in relation to Bank 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 Bank at December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
Regulatory
Actual Requirement
--------- ------------
<S> <C> <C>
Leverage capital ratio 9.01 % 4.00 %
Risk based capital ratios:
Core capital 14.07 % 4.00 %
Total capital 15.18 % 8.00 %
</TABLE>
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 12. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value and estimated fair values of the Company's
financial instruments at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Carrying Fair
Value Value
------------ ------------
Financial assets:
<S> <C> <C>
Cash and short-term investments $ 5,860,491 $ 5,860,491
============ ============
Investment securities $ 12,516,046 $ 12,554,893
============ ============
Loans $ 24,210,995 $ 24,104,000
Less allowance for loan losses (300,000) -
------------ ------------
$ 23,910,995 $ 24,104,000
============ ============
Financial liabilities:
Noninterest-bearing demand $ 5,026,010 $ 5,026,010
Interest-bearing demand 10,016,868 10,016,868
Savings 2,146,155 2,146,155
Time deposits 21,034,985 21,886,000
------------ ------------
$ 38,224,018 $ 39,075,033
============ ============
Long-term debt $ 1,200,000 $ 1,200,000
============ ============
Federal Home Loan Bank advances $ 2,000,000 $ 2,000,000
============ ============
</TABLE>
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 13. CONDENSED FINANCIAL INFORMATION ON M & F FINANCIAL
CORPORATION (PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Assets
Cash $ 115,459 $ 39,406
Due from subsidiary bank - 18,352
Other assets 1,175 2,375
Goodwill 351,952 393,608
Investment in subsidiary bank, at equity 3,851,696 3,379,398
Real estate owned 29,350 29,350
Improvements, net of depreciation of $30,174
and $26,760 4,775 8,279
---------- ----------
$4,354,407 $3,870,768
========== ==========
Liabilities and Stockholders' Equity
Liabilities
Note payable $1,200,000 $1,350,000
Accrued income taxes payable 13,231 -
---------- ----------
1,213,231 1,350,000
---------- ----------
Stockholders' equity
Common stock, $1 par value per share;
5,000,000 shares authorized; 1,228,609
shares issued 1,228,609 1,228,609
Retained earnings 2,135,433 1,670,833
Unrealized gains (losses) on securities
available for sale, net of taxes 50,811 (104,997)
---------- ----------
3,414,853 2,794,445
Less cost of treasury stock, 142,540 shares 273,677 273,677
---------- ----------
3,141,176 2,520,768
---------- ----------
$4,354,407 $3,870,768
========== ==========
</TABLE>
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 13. CONDENSED FINANCIAL INFORMATION ON M & F FINANCIAL
CORPORATION (PARENT COMPANY ONLY) (Continued)
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
Income
Dividends from subsidiary bank $ 250,000 $ 176,345
Interest 6,682 2,383
Rents 14,700 14,700
--------- ---------
Total income 271,382 193,428
--------- ---------
Expense
Amortization 41,656 41,656
Interest 114,007 80,038
Miscellaneous 21,830 29,382
--------- ---------
Total expenses 177,493 151,076
--------- ---------
Income before income tax benefits
and equity in undistributed net
income of subsidiary bank 93,889 42,352
Income tax benefits 54,221 48,117
--------- ---------
Income before equity in undistributed
net income of subsidiary bank 148,110 90,469
Equity in undistributed net income of
subsidiary bank 316,490 353,662
--------- ---------
Net income $ 464,600 $ 444,131
========= =========
</TABLE>
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 13. CONDENSED FINANCIAL INFORMATION ON M & F FINANCIAL
CORPORATION (PARENT COMPANY ONLY) (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 464,600 $ 444,131
---------- ----------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 3,504 3,504
Amortization 41,656 41,656
Undistributed earnings of subsidiary (316,490) (353,662)
Increase (decrease) in income taxes
payable 31,583 (25,220)
Decrease in interest payable - (5,003)
Other prepaids, deferrals and
accruals, net 1,200 1,199
---------- ----------
Total adjustments (238,547) (337,526)
---------- ----------
Net cash provided by
operating activities 226,053 106,605
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of stock in subsidiary - (574,788)
---------- ----------
Net cash used in investing
activities - (574,788)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt - 1,500,000
Repayment of long-term debt (150,000) (1,042,800)
---------- ----------
Net cash provided by (used in)
financing activities (150,000) 457,200
---------- ----------
Net increase (decrease) in cash 76,053 (10,983)
Cash at beginning of year 39,406 50,389
---------- ----------
Cash at end of year $ 115,459 $ 39,406
========== ==========
</TABLE>
28
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
ABC BANCORP
AND
M & F FINANCIAL CORPORATION
As of September 12, 1996
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Preamble................................................................... A-1
ARTICLE 1 TERMS OF MERGER................................................ A-1
1.1 Merger......................................................... A-1
1.2 Time and Place of Closing...................................... A-1
1.3 Effective Time................................................. A-2
ARTICLE 2 ARTICLES, 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-2
3.1 Conversion of Shares........................................... A-2
3.2 Exchange of Shares............................................. A-3
3.3 Anti-Dilution Provisions....................................... A-4
3.4 Shares Held by TARGET or PURCHASER............................. A-4
3.5 TARGET Bank.................................................... A-4
3.6 Rights of Former TARGET Shareholders........................... A-4
3.7 Options........................................................ A-5
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF TARGET....................... A-5
4.1 Organization, Standing and Power............................... A-5
4.2 Authority; No Breach........................................... A-5
4.3 Capital Stock.................................................. A-6
4.4 TARGET Subsidiaries............................................ A-6
4.5 Financial Statements........................................... A-7
4.6 Absence of Undisclosed Liabilities............................. A-7
4.7 Absence of Certain Changes or Events........................... A-7
4.8 Tax Matters.................................................... A-8
4.9 TARGET Allowance for Possible Loan Losses...................... A-9
4.10 Assets......................................................... A-9
4.11 Environmental Matters.......................................... A-9
4.12 Compliance with Laws........................................... A-10
4.13 Labor Relations................................................ A-11
4.14 Employee Benefit Plans......................................... A-11
4.15 Material Contracts............................................. A-13
4.16 Legal Proceedings.............................................. A-13
4.17 Reports........................................................ A-13
4.18 Statements True and Correct.................................... A-14
4.19 Accounting, Tax and Regulatory Matters......................... A-14
4.20 Charter Provisions............................................. A-14
</TABLE>
A-i
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF PURCHASER.............. A-15
5.1 Organization, Standing and Power......................... A-15
5.2 Authority; No Breach..................................... A-15
5.3 Capital Stock............................................ A-16
5.4 PURCHASER Subsidiaries................................... A-16
5.5 Financial Statements..................................... A-17
5.6 Absence of Undisclosed Liabilities....................... A-17
5.7 Absence of Certain Changes or Events..................... A-17
5.8 Tax Matters.............................................. A-18
5.9 PURCHASER Allowance for Possible Loan Losses............. A-18
5.10 Assets................................................... A-19
5.11 Environmental Matters.................................... A-19
5.12 Compliance with Laws..................................... A-20
5.13 Labor Relations.......................................... A-21
5.14 Employee Benefit Plans................................... A-21
5.15 Legal Proceedings........................................ A-23
5.16 Reports.................................................. A-23
5.17 Statements True and Correct.............................. A-23
5.18 Accounting, Tax and Regulatory Matters................... A-24
5.19 Charter Provisions....................................... A-24
ARTICLE 6 CONDUCT OF BUSINESS PENDING CONSUMMATION................. A-24
6.1 Affirmative Covenants of TARGET.......................... A-24
6.2 Negative Covenants of TARGET............................. A-24
6.3 Covenants of PURCHASER................................... A-26
6.4 Adverse Changes in Condition............................. A-26
6.5 Reports.................................................. A-26
ARTICLE 7 ADDITIONAL AGREEMENTS.................................... A-27
7.1 Registration Statement; Proxy Statement; Shareholder
Approval................................................. A-27
7.2 Listing.................................................. A-27
7.3 Applications............................................. A-27
7.4 Filings with State Offices............................... A-27
7.5 Agreement as to Efforts to Consummate.................... A-28
7.6 Investigation and Confidentiality........................ A-28
7.7 Press Releases........................................... A-29
7.8 No Solicitation.......................................... A-29
7.9 Tax Treatment............................................ A-30
7.10 Agreement of Affiliates.................................. A-31
7.11 Employee Benefits and Contracts.......................... A-31
7.12 Large Deposits........................................... A-31
7.13 Indemnification.......................................... A-31
7.14 Irrevocable Proxies...................................... A-32
ARTICLE 8 CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE........ A-32
</TABLE>
A-ii
<PAGE>
<TABLE>
<S> <C> <C>
8.1 Conditions to Obligations of Each Party.................. A-32
8.2 Conditions to Obligations of PURCHASER................... A-33
8.3 Conditions to Obligations of TARGET...................... A-34
ARTICLE 9 TERMINATION.............................................. A-35
9.1 Termination.............................................. A-35
9.2 Effect of Termination.................................... A-36
ARTICLE 10 MISCELLANEOUS............................................ A-36
10.1 Definitions.............................................. A-36
10.2 Expenses................................................. A-43
10.3 Brokers and Finders...................................... A-43
10.4 Entire Agreement......................................... A-44
10.5 Amendments............................................... A-44
10.6 Waivers.................................................. A-44
10.7 Assignment............................................... A-45
10.8 Notices.................................................. A-45
10.9 Governing Law............................................ A-46
10.10 Counterparts............................................. A-46
10.11 Captions................................................. A-46
10.12 Enforcement of Agreement................................. A-46
10.13 Severability............................................. A-46
10.14 Survival................................................. A-46
</TABLE>
A-iii
<PAGE>
LIST OF EXHIBITS
----------------
Exhibit Number Description
- -------------- -----------
1. Form of agreement of affiliates of M & F Financial
Corporation ((S) 7.10).
2. Matters as to which Martin, Snow, Grant & Napier will
opine ((S) 8.2(d)).
3. Matters as to which Rogers & Hardin will opine ((S)
8.3(d)).
4. Irrevocable Proxy ((S)7.14).
5. Form of Employment Agreement between Merchants and Farmers
Bank and John C. Mosely ((S) 8.2(f)).
A-iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and entered
into as of September 12, 1996, by and between M & F FINANCIAL CORPORATION
("TARGET"), a corporation organized and existing under the laws of the State of
Georgia, with its principal office located in Donalsonville, 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, Merchants and Farmers Bank, a wholly-
owned Georgia state bank subsidiary of TARGET, 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.
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
<PAGE>
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.
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.
A-2
<PAGE>
(b) Each Outstanding TARGET Share 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 (d)
below, if applicable) in an amount equal to (i) (A) 1.9 times the lesser of (1)
0.08 times the Average 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 Average Total Assets of TARGET, divided by (ii) the
------- --
aggregate number of Outstanding TARGET Shares (the "Merger Consideration").
(c) 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 (d) below), of PURCHASER Common Stock
which shall be equal to the (i)(A) the aggregate Merger Consideration payable to
such shareholder pursuant to Section 3.1(b) divided by (B) the Base Period
------- --
Trading Price (the "Exchange Ratio"), multiplied by (ii) the aggregate number of
---------- --
Outstanding TARGET Shares such shareholder holds as of the Effective Time.
(d) 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.
(e) 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.
(f) Outstanding TARGET Shares held by TARGET shareholders who, prior
to the Effective Time, have met the requirements of Article 13 of the GBCC with
respect to shareholders dissenting from the Merger ("Dissenting Shares") 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. At the Effective Time, each holder of Outstanding
------------------
TARGET Shares shall surrender to Purchaser his or her certificate or
certificates previously evidencing shares of TARGET Common Stock ("Old
Certificates"). Promptly following such surrender, PURCHASER shall issue the
shares of PURCHASER Common Stock issuable to such shareholder pursuant to
subparagraph (c) above and shall pay any cash due in lieu of fractional shares
pursuant to subparagraph (d) above. All Old Certificates so surrendered shall be
properly endorsed and otherwise in proper form for transfer and, if any
certificate for shares of PURCHASER Common Stock is to be issued in a name other
than that for which an Old Certificate surrendered is issued, the person
requesting such issuance 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
A-3
<PAGE>
the PURCHASER 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 PURCHASER, 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. With respect to all such property held for payment
or delivery to the holders of unsurrendered Old Certificates and unclaimed at
the end of one (1) year from the Effective 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. 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 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
A-4
<PAGE>
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 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 Options. Each warrant, stock option or other right, if any, to
-------
purchase shares of TARGET Common Stock issued and outstanding immediately prior
to the Effective Time shall be cancelled (whether or not such warrant, option or
other right is then exercisable), and all rights in respect thereof shall cease
to exist, without any conversion thereof or payment of any consideration
therefor.
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.
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).
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<PAGE>
(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.
4.3 Capital Stock.
-------------
(a) The authorized capital stock of TARGET consists of 5,000,000
shares of TARGET Common Stock, of which 1,091,358 shares are issued and
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) 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
A-6
<PAGE>
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 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
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
sheets of TARGET as of December 31, 1995 and June 30, 1996 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
June 30, 1996, 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 June 30, 1996, (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
A-7
<PAGE>
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 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.
(f) Effective January 1, 1993, TARGET adopted Financial Accounting
Standards Board Statement 109, "Accounting for Income Taxes."
A-8
<PAGE>
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, maintained in accordance with, and are in the amounts
required by GAAP and applicable regulatory requirements or guidelines as of the
dates thereof except where the failure of such TARGET Allowance to be so
maintained 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. The
policies of fire, theft, liability, and other insurance maintained with respect
to the Assets or businesses of the TARGET 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 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.
---------------------
(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.
A-9
<PAGE>
(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 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
A-10
<PAGE>
(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 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
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<PAGE>
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.
(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 in any payment (including, without limitation, severance,
unemployment compensation, golden parachute
A-12
<PAGE>
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.
4.17 Reports. Except as Previously Disclosed since January 1, 1993, each
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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 all Regulatory Authorities. As of their respective dates, each of
such reports and documents, including the financial statements, exhibits, and
schedules thereto, complied in all material respects with all applicable Laws.
As of their respective dates, none of such reports or 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.
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<PAGE>
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.
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.
A-14
<PAGE>
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 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
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<PAGE>
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)
15,000,000 shares of PURCHASER Common Stock, of which 5,031,404 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 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.
PURCHASER has reserved 6,667 shares of PURCHASER Common Stock for issuance under
the PURCHASER Stock Plans, pursuant to which options to purchase not more than
6,667 shares of PURCHASER Common Stock are outstanding as of the date of this
Agreement.
(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
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<PAGE>
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 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 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 sheets of PURCHASER as
of December 31, 1995 and June 30, 1996 included in the PURCHASER Financial
Statements or reflected in the notes thereto. No PURCHASER Company has incurred
or paid any Liability since June 30, 1996, 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 June 30, 1996, 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) Effective January 1, 1993, PURCHASER adopted Financial
Accounting Standards Board Statement 109, "Accounting for Income Taxes."
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.
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<PAGE>
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.
(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.
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<PAGE>
(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.
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,
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<PAGE>
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.
----------------------
(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.
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<PAGE>
(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
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 accrued pursuant
A-22
<PAGE>
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 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 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
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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 8.1(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 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).
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.
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
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(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
(d) except for this Agreement, or pursuant to the exercise of stock
options outstanding as of the date hereof and pursuant to the terms thereof in
existence on the date hereto, 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, provided that nothing herein shall restrict or
otherwise limit TARGET from selling additional shares of TARGET Common Stock to
any Person who is a holder of TARGET Common Stock as of the date hereof, so long
as such sale does not cause the Total Equity of TARGET to exceed 8.0% of the
Average Total Assets of TARGET; 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 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
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<PAGE>
Company; grant any increase in fees or other increases in compensation or other
benefits to directors of any TARGET Company except for the payment of an amount
not to exceed $10,000 to each director of TARGET Bank in consideration of the
termination of TARGET Bank's Director's Defined Benefit Plan 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
(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 entity filing such
statements as of the
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<PAGE>
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 and which shall include an explanation of
the restrictions on resale with respect to the shares of PURCHASER Common Stock
received by the holders of TARGET Common Stock in the Merger) 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 the NASDAQ/NMS, 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 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.
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<PAGE>
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 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.
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<PAGE>
(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.
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 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
A-29
<PAGE>
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 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
nationally 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.
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<PAGE>
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 1 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 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; provided, however, that all rights to any indemnification
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<PAGE>
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 4 hereto from each member of TARGET'S Board of Directors.
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 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
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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) NASD Listing. The shares of PURCHASER Common Stock issuable
------------
pursuant to the Merger shall have been approved for listing on the NASDAQ/NMS.
(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:
(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 Martin, Snow, Grant & Napier, counsel to TARGET, dated as of the
Closing, in substantially the form of Exhibit 2 hereto, which opinion may be
rendered in accordance with the
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<PAGE>
Interpretive Standards on Legal Opinions to Third Parties in Corporate
Transactions promulgated by the Corporate and Banking Law Section of the State
Bar of Georgia (January 1, 1992) (the "Interpretive Standards").
(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) Employment Agreement. John C. Mosely shall have executed and
--------------------
delivered an Employment Agreement substantially in the form of Exhibit 5 hereto.
(g) Dissenting Shareholders. No shareholder of TARGET shall have
-----------------------
exercised his or her dissenter's rights.
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 of this
Agreement, and the consummation of the transactions contemplated hereby, all in
such reasonable detail as TARGET and its counsel shall reasonably request.
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(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 3 hereto, which opinion may be rendered in
accordance with the Interpretive Standards.
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 PURCHASER at any time prior to September 21, 1996, if
PURCHASER determines in its sole good faith judgment that the financial
condition, business or prospects of TARGET are unsatisfactory to PURCHASER based
on PURCHASER'S due diligence conducted prior to such date; provided that (i)
PURCHASER shall inform TARGET upon such termination as to the reasons for
PURCHASER'S determination and (ii) that this Section 9.1(a) shall not limit in
any way the due diligence investigation of TARGET which PURCHASER may perform or
otherwise affect any other rights which PURCHASER has after the date hereof
under the terms of this Agreement;
(b) By mutual consent of the Board of Directors of PURCHASER and the
Board of Directors 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 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
(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
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
(e) 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) if the shareholders of
TARGET fail to approve this Agreement and
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<PAGE>
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
(f) By the Board of Directors of either Party in the event that the
Merger shall not have been consummated by January 31, 1997, provided the failure
to consummate the transactions contemplated hereby on or before such date was
not caused by any breach of this Agreement by the Party electing to terminate
pursuant to this Section 9.1 (f); or
(g) 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(f) of this Agreement.
(h) 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(c) or (d) of this
Agreement shall entitle the non-breaching Party to the sum of $250,000 to be
paid by the breaching Party, as and for liquidated damages, which shall be sole
remedy of either Party against the other under this Agreement pursuant to
O.C.G.A. (S)13-6-7. The Parties agree that the amount specified as liquidated
damages hereunder represents a good faith and reasonable estimate by the Parties
of the amount of damages that the non-breaching Party would expect to incur in
the event of a default under this Agreement and is not intended as a penalty.
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.
"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.
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<PAGE>
"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.
"Average Total Assets of TARGET" shall mean TARGET's total Assets, net of
all intangible assets, based on the average of the total Assets, net of
intangible assets, of TARGET as of the close of business for each of the sixty
(60) calendar days immediately preceding the date which is five (5) calendar
days before the Closing Date.
"Base Period Trading Price" shall mean the average of the daily closing
price of a share of PURCHASER 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; provided, however, that
for purposes of this calculation, the Base Period Trading Price shall be deemed
to equal (i) $21.00 in the event the Base Period Trading Price is greater than
$21.00 or (ii) $16.00 in the event the Base Period Trading Price is less than
$16.00.
"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.
"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(f) of
this Agreement.
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<PAGE>
"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.
"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.
"Interpretive Standards" shall have the meaning provided in Section 8.2(d)
of this Agreement.
"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.
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<PAGE>
"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 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
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<PAGE>
accounting principles generally applicable to banks and their holding companies,
and (z) the Merger and 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 have the meaning provided in Section 3.1(b) of
this Agreement.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"NASDAQ/NMS" shall mean the National Market System of the National
Association of Securities Dealers Automated Quotations System.
"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.
"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 mean all shares of TARGET outstanding
immediately prior to the Effective Time, other than Dissenting Shares and shares
held in TARGET's treasury which shall be cancelled without consideration at the
Effective Time.
"Participation Facility" shall mean any facility or property in which the
Party in question or any of its Subsidiaries participates in the management
(including any property or facility held in a joint venture) and, where required
by the context, said term means the owner or operator of such facility or
property, but only with respect to such facility or property.
"Party" shall mean either TARGET or PURCHASER, and "Parties" shall mean
both TARGET and PURCHASER.
"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.
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<PAGE>
"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.
"PURCHASER Financial Statements" shall mean (i) the consolidated statements
of condition (including related notes and schedules, if any) of PURCHASER as of
June 30, 1996, and as of December 31, 1995 and 1994, and the related statements
of income, changes in shareholders' equity, and cash flows (including related
notes and schedules, if any) for the six months ended June 30, 1996, and 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 June 30, 1996.
"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.
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<PAGE>
"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.
"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 Merchants and Farmers Bank, 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 $1.00 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 June 30,
1996, and as of December 31, 1995 and 1994, and the related statements of
income, changes in shareholders' equity, and cash flows (including related notes
and schedules, if any) for the six months ended June 30, 1996, and 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
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flows (including related notes and schedules, if any) with respect to periods
ended subsequent to June 30, 1996.
"TARGET Stock Plans" shall mean the existing stock option and other stock-
based compensation plans of TARGET.
"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.
"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,
net of intangible assets, calculated under GAAP as of the close of business on
the day immediately preceding the day which is five (5) calendar days before the
Closing Date; provided, however, that for purposes of the calculation of the
-------- -------
Merger Consideration pursuant to Section 3.1(b) hereof, no adjustments shall be
made to Total Equity of TARGET for any item that appears on the books and
records of TARGET as of the close of business on September 13, 1996, except as a
result of events occurring between such date and the close of business on the
day immediately preceding the day which is five (5) calendar days before 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) $250,000 (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 within one (1) year of such termination, TARGET enters 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 Affiliates has employed any broker or finder or
incurred any Liability for any financial advisory fees, investment
A-43
<PAGE>
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 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
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<PAGE>
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
TARGET: M & F Financial Corporation
109 West Third Street
P.O. Box 278
Donalsonville, Georgia 31745
Telecopy Number: (912) 524-2508
Attention: President
Copy to Counsel: Martin, Snow, Grant & Napier
240 Third Street
P.O. Box 1606
Macon, Georgia 31202
Telecopy Number: (912) 743-4204
Attention: Edward J. Harrell
A-45
<PAGE>
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.
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 President
[CORPORATE SEAL]
A-46
<PAGE>
ATTEST: M & F FINANCIAL CORPORATION
/s/ Jerry G. Mitchell By:/s/ David I. Rach
- --------------------- -----------------------------------------
Secretary President
[CORPORATE SEAL]
A-47
<PAGE>
EXHIBIT 1
---------
AFFILIATE AGREEMENT
-------------------
ABC Bancorp
310 First Street, S.E.
Moultrie, Georgia 31768
Attention: President
Ladies and Gentlemen:
The undersigned is a shareholder of M & F Financial Corporation ("Target"),
a corporation organized under the laws of the State of Georgia and located in
Donalsonville, 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 September 12, 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 $1.00 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:
(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
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<PAGE>
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.
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 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
A-49
<PAGE>
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, at
Purchaser's expense, 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
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.
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<PAGE>
This Affiliate Agreement is executed as of the _____ day of
_________________, 199__.
Very truly yours,
____________________________
Signature
____________________________
Print Name
____________________________
____________________________
____________________________
____________________________
Address
____________________________
Telephone No.
AGREED TO AND ACCEPTED as of
____________________, 199__
ABC BANCORP
By:_________________________
Its:_____________________
A-51
<PAGE>
EXHIBIT 2
---------
MATTERS AS TO WHICH
MARTIN, SNOW, GRANT & NAPIER WILL OPINE
1. Target is a corporation duly organized, existing and in good
standing under the laws of the State of Georgia with corporate power and
authority (a) to conduct its business as described in the proxy statement used
to solicit the approval by the shareholders of Target of the transactions
contemplated by the Agreement ("Proxy Statement"), and (b) to own and use its
Assets.
2. Target Bank is a Georgia chartered state bank duly organized and
validly existing under the laws of the State of Georgia with all requisite power
and authority to conduct its business as described in the Proxy Statement, and
to own and use its Assets. The deposits of Target Bank are insured by the
Federal Deposit Insurance Corporation to the extent provided by law.
3. Target's authorized shares consist of 5,000,00 shares of Common
Stock, $____ par value, of which ________ shares were outstanding as of
_________________. The outstanding shares of Target Common Stock have been duly
authorized and validly issued, were not issued in violation of any statutory
preemptive rights of shareholders, and are fully paid and nonassessable. To our
Knowledge, except as Previously Disclosed, there are no options, subscriptions,
warrants, calls, rights or commitments obligating Target to issue equity
securities or acquire its equity securities.
4. Target owns directly or indirectly all the issued and outstanding
shares of the capital stock of Target Bank. To our knowledge, there are no
options, subscriptions, warrants, calls, rights or commitments obligating Target
Bank to issue equity securities or acquire its equity securities.
5. The execution and delivery by Target of the Agreement do not, and if
Target were now to perform its obligations under the Agreement such performance
would not, result in any violation of the Articles of Incorporation or Bylaws of
Target or the Articles of Incorporation or Bylaws of Target Bank or, to our
Knowledge, result in any breach of, or default or acceleration under, any
material Contract or Order to which Target or Target Bank is a party or by which
Target or Target Bank is bound.
6. Target has duly authorized the execution and delivery of the
Agreement and all performance by Target thereunder and has duly executed and
delivered the Agreement.
7. The Agreement is enforceable against Target.
A-52
<PAGE>
EXHIBIT 3
---------
MATTERS AS TO WHICH
ROGERS & HARDIN WILL OPINE
1. Purchaser is a corporation duly organized, existing and in good
standing under the laws of the State of Georgia with corporate power and
authority (a) to conduct its business as described in the proxy statement used
to solicit the approval by the shareholders of Target of the transactions
contemplated by the Agreement ("Proxy Statement"), and (b) to own and use its
Assets.
2. Purchaser's authorized shares consist of 15,000,000 shares of Common
Stock, $1.00 par value per share, of which __________ shares were outstanding as
of _____________, and 5,000,000 shares of Preferred Stock, none of which were
outstanding as of ____________. The outstanding shares of Purchaser Common
Stock have been duly authorized and validly issued, were not issued in violation
of any statutory preemptive rights of shareholders, and are fully paid and
nonassessable. To our Knowledge, except as Previously Disclosed, there are no
options, subscriptions, warrants, calls, rights or commitments obligating
Purchaser to issue equity securities or acquire its equity securities. The
shares of Purchaser Common Stock to be issued to the shareholders of Target upon
consummation of the Merger have been registered under the Securities Act of
1933, as amended, and when issued in accordance with the Agreement, will be
validly issued, fully paid and nonassessable.
3. The execution and delivery by Purchaser of the Agreement do not, and
if Purchaser were now to perform its obligations under the Agreement such
performance would not, result in any violation of the Articles of Incorporation
or Bylaws of Purchaser or, to our knowledge, result in any breach of, or default
or acceleration under, any material Contract or Order to which Purchaser is a
party or by which Purchaser is bound.
4. Purchaser has duly authorized the execution and delivery of the
Agreement and all performance by Purchaser thereunder and has duly executed and
delivered the Agreement.
5. The Agreement is enforceable against Purchaser.
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<PAGE>
EXHIBIT 4
---------
IRREVOCABLE PROXY
-----------------
This Irrevocable Proxy is given by the undersigned, ______________
("Shareholder"), in favor of ABC Bancorp, a Georgia corporation ("ABC"), as of
the 12th day of September, 1996.
WHEREAS, ABC and M & F Financial Corporation, a Georgia corporation
("Target"), have entered into an Agreement and Plan of Merger dated as of
September 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
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)
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<PAGE>
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)
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<PAGE>
EXHIBIT 5
---------
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is effective as of ___________,
19___, by and between MERCHANTS AND FARMERS BANK, a Georgia bank (the "Bank"),
and JOHN C. MOSELY, a resident of the State of Georgia (the "Executive").
WHEREAS, ABC Bancorp, a Georgia corporation ("ABC"), has acquired all of
the equity interest of the Bank by means of a merger pursuant to an Agreement
and Plan of Merger dated as of September 12, 1996 the ("Merger Agreement");
WHEREAS, the Bank is now a wholly-owned subsidiary of ABC;
WHEREAS, the Executive is the President and Chief Executive Officer of the
Bank and desires to continue his employment with the Bank in such capacity;
WHEREAS, ABC desires that the Executive continue to serve in the capacity
of President and Chief Executive Officer of the Bank; and
WHEREAS, the Bank and the Executive, in conjunction with and pursuant to
the terms of the Merger Agreement, desire to set forth in writing the terms and
conditions of the Executive's continued employment with the Bank.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. Employment and Duties.
---------------------
(a) The Bank hereby agrees to continue to employ the Executive and
the Executive agrees to continue employment in his capacity as President and
Chief Executive Officer of the Bank to act in accordance with the terms and
conditions set forth herein. The Executive also consents to serve as a director
of the Bank for which he will be paid a monthly director's fee of $300. During
the term of this Agreement, the Executive agrees that this position will be his
principal employment, that he will serve the Bank faithfully and to the best of
his ability and that he will devote his full business time, attention and skills
to the operation of the business of the Bank, subject to reasonable absences for
vacation and illness, and that he will perform such duties, functions and
responsibilities in connection with such position and consistent with the
foregoing as are from time to time delegated to the Executive by the Board of
Directors of the Bank (the "Board"); provided, however, that the foregoing shall
-------- -------
not be deemed to restrict the Executive from devoting a reasonable amount of
time and attention to the management of his personal affairs and investments, so
long as such activities do not interfere with the responsible performance of the
Executive's duties hereunder. The
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<PAGE>
Executive shall provide the Board with periodic reports on, and keep it informed
on a current basis concerning, the business and affairs of the Bank.
(b) The Bank shall provide the Executive with a private office,
secretarial and administrative assistance, office equipment, supplies and other
facilities and services suitable to the Executive's position to be located at
109 West Third Street, Donalsonville, Georgia, 31745, or at a comparable
location within Seminole County, Georgia.
2. Term. The term ("Term") of this Agreement shall commence on the
----
date hereof and shall continue until the first anniversary of the date hereof
unless earlier terminated pursuant to Section 4 hereof.
3. Compensation. In consideration of the services to be rendered by
------------
the Executive to the Bank hereunder, the Bank hereby agrees to pay or otherwise
provide the Executive the following compensation and benefits, it being
understood that the Bank shall have the right to deduct therefrom all taxes
which may be required to be deducted or withheld under any provision of
applicable law (including, without limitation, Social Security payments, income
tax withholding and other required deductions now in effect or which may become
effective by law any time during the Term):
(a) Salary. The Executive shall receive an annual salary of
------
("Salary") of $83,208 to be paid in equal installments in accordance with the
Bank's salary payment practices in effect from time to time for executives of
the Bank. The Bank may consider and declare from time to time increases in the
Salary.
(b) Compensation Pursuant to Plans. During the Term, the Executive
------------------------------
shall be included as a participant in all present and future employee benefit,
retirement and compensation plans generally available to employees of the Bank,
consistent with his Salary and his position with the Bank, including, without
limitation, the Bank's (or ABC's) pension plan and hospitalization, major
medical, disability and group life insurance plans.
(c) Expenses. The Executive shall be entitled to receive
--------
reimbursement for all reasonable expenses incurred by him in connection with the
fulfillment of his duties hereunder, upon receipt of appropriate vouchers
therefor, provided that the Executive has complied with all reasonable policies
and procedures relating to the reimbursement of such expenses as shall, from
time to time, be established by the Bank.
(d) Vacation and Perquisites. For so long as the Executive is
------------------------
employed by the Bank hereunder, the Executive shall be entitled to such paid
vacation and such perquisites, including, without limitation, the use of an
automobile and a local country club membership, as are provided to other
executive officers of ABC's banking subsidiaries.
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<PAGE>
4. Termination.
-----------
(a) This Agreement shall terminate on the earliest to occur of the
following events: (i) on the mutual agreement of the Bank and the Executive;
(ii) the death of the Executive or Executive's voluntary retirement; (iii) the
Executive becoming unable to perform a substantial portion of his duties as
described herein due to injury, illness or disability (mental or physical) as
determined by an independent physician selected by the Bank and reasonably
satisfactory to the Executive for a period of two (2) consecutive months or any
aggregate period of four (4) months in any twelve (12) month period
("Disability"); or (iv) immediately upon the Bank giving written notice to the
Executive of termination for Cause (as defined herein).
(b) The Bank may terminate the Executive's employment under this
Agreement at any time for Cause. The termination shall be evidenced by written
notice to the Executive, which shall specify the cause for termination. "Cause"
shall exist if: (i) the Executive is convicted of (from which no appeal may be
taken), or pleads guilty to, any act of fraud, misappropriation or embezzlement,
or any felony; (ii) in the reasonable determination of the Board, the Executive
has engaged in conduct or activity materially damaging to the business of the
Bank (it being understood, however, that unintentional physical damage to any
property of the Bank by the Executive shall not be a ground for such a
determination by the Board); or (iii) the Executive has failed, without
reasonable cause, to devote his full business time and best efforts to the
business of the Bank as provided in Section 1(a) hereof and, after written
notice from the Bank of such failure, the Executive at any time thereafter again
so fails.
(c) The Executive may terminate his employment under this Agreement
at any time for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean (i) the assignment to the Executive of duties or responsibilities
which are materially inconsistent with the responsibilities of an executive
officer holding the office of the Executive; (ii) a material breach by the Bank
of any of the material provisions of this Agreement; or (iii) the Bank's
requiring the Executive to be based at any place outside a fifty mile radius
from Donalsonville, Georgia, except for reasonably required travel on the Bank's
business.
(d) In the event that the Executive's employment hereunder is
terminated by the Bank other than for Cause, the Executive shall be entitled to
continue to receive from the Bank for an additional 12-month period his Salary
at the rate in effect at the time of such termination.
(e) Notwithstanding anything to the contrary herein, the Bank agrees
to give the Executive sixty (60) days' prior notice in the event the Bank shall
terminate the Executive after the Term of this Agreement.
5. Representations and Warranties.
------------------------------
(a) The Executive represents and warrants to the Bank that: (i) he
has the full power and authority to execute, deliver and perform this Agreement,
and that he has taken all actions necessary to secure all approvals required in
connection herewith and therewith; (ii) this Agreement has been duly authorized,
executed and delivered by him and constitutes his valid and binding agreement,
enforceable against him in accordance with its terms; and (iii) the execution,
delivery and
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performance of this Agreement and the consummation of the transactions
contemplated hereby will not, with the passage of time or the giving of notice
or both, violate or conflict with, constitute a breach of or default under,
result in the loss of any material benefit under, or permit the acceleration of
or entitle any party to accelerate any obligation under or pursuant to, any
material mortgage, lien, leases, agreement, instrument, order, arbitration
award, judgment or decree to which he is a party or by which he or any of his
assets are bound.
(b) The Bank hereby represents and warrants to the Executive that:
(i) this Agreement has been duly authorized, executed and delivered by it, and
constitutes the valid and binding agreement of it, enforceable against it in
accordance with its terms; (ii) it has the full power and authority to execute,
deliver and perform this Agreement and has taken all necessary action to secure
all approvals required in connection herewith; and (iii) the execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby will not, with the passage of time or the giving of notice
or both, violate or conflict with, constitute a breach of or default under,
result in the loss of any material benefit under, or permit the acceleration of
or entitle any party to accelerate any obligation under or pursuant to, its
charter or bylaws or any material mortgage, lien, lease, agreement, instrument,
order, arbitration award, judgment or decree to which it is a party or by which
it or any of its assets are bound.
6. Restrictive Covenants. Acknowledging that (i) he has intimate
---------------------
knowledge of the business of the Bank which, if exploited by him, in
contravention of this Agreement, would seriously adversely and irreparably
affect the value of the Bank and the ability of ABC to continue to operate the
Bank following the consummation of the merger contemplated by the Merger
Agreement; (ii) the provisions of this Section 6 are reasonable and necessary to
protect the legitimate interests of ABC; (iii) the provisions of this Section 6
are reasonable and necessary to protect the goodwill of the Bank acquired by ABC
pursuant to the Merger Agreement; (iv) any violation of this Section 6 will
result in irreparable injury to ABC and the Bank and that damages at law would
not be reasonable or adequate compensation to ABC and the Bank for a violation
of this Section 6; and (v) that in the course of his employment with the Bank,
as contemplated by this Agreement, and as a result of the position of trust that
he will hold under this Agreement, he will obtain private and confidential
information and proprietary data relating to ABC, the Bank and other affiliates
of ABC, including, without limitation, financial information, product
information and other data that are valuable assets and property rights of the
Bank and ABC and its affiliates (collectively referred to as "Confidential
Information"), the Executive hereby agrees as follows:
(a) The Executive shall not, during the Term of this Agreement or
any time after the termination of this Agreement, either directly or indirectly,
disclose or use any Confidential Information acquired during his employment with
the Bank, unless (i) the Confidential Information has been made public through
no action or fault of the Executive, or (ii) its disclosure is requested or
compelled by applicable law or regulatory agency. The Executive further agrees
that after the termination of this Agreement, or at such other time as the Bank
requests, the Executive will return to the Bank all documents, papers and
records constituting Confidential Information, and all copies of same in the
Executive's possession and control.
(b) For a period of one (1) year after termination of the
Executive's employment hereunder pursuant to Section 4(b) or by the Executive
without Good Reason, the
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Executive shall not directly or indirectly provide banking or bank-related
services to, or solicit the banking or bank-related business of, any customer of
the Bank at the time of such provision of services or solicitation which the
Executive served either alone or with others while employed by the Bank in any
city, town, borough, township, village or other place in which the Executive
performed services for the Bank while employed by it, or assist any actual or
potential competitor of the Bank to provide banking or bank-related services to
or solicit any such customer's banking or bank-related business in any such
place.
(c) While the Executive is employed by the Bank and for a period of
one (1) year after termination of the Executive's employment hereunder pursuant
to Section 4(b) or by the Executive without Good Reason, the Executive shall
not, directly or indirectly, as principal, agent, or trustee, or through the
agency of any corporation, partnership, trade association, agent or agency,
engage in any banking or bank-related business or venture which competes with
the business of the Bank as conducted during the Executive's employment by the
Bank within Seminole County, Georgia and the contiguous counties thereto.
(d) In addition to all other remedies provided at law or at equity,
the Bank may petition and obtain from a court of law or equity both temporary
and permanent injunctive relief without the necessity of proving actual damages
and without posting bond or other security to prevent a breach by the Executive
of any covenant contained in this Section 6, as well as to an equitable
accounting of all earnings and profits and other benefits arising out of any
such violations.
7. Notices. Any notice or other communication required or permitted to
-------
be given hereunder shall be in writing and deemed to have been given when
delivered in person or when dispatched by telegram or electronic facsimile
transfer (confirmed in writing by mail, registered or certified, return receipt
requested, postage prepaid, simultaneously dispatched) to the addresses
specified below.
If to the Executive: John C. Mosely
109 West Third Street
Donalsonville, Georgia 31745
Facsimile: (912) 524-2508
If to the Bank: Merchants and Farmers Bank
c/o ABC Bancorp
310 First Street, S.E.
Moultrie, Georgia 31768
Facsimile: (912) 890-2235
Attn: President
or to such other address or fax number as either party may from time to time
designate in writing to the other.
8. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties hereto relating to the subject matter hereof, and supersedes
all prior agreements and understandings, whether oral or written, with respect
to the same. No modification, alteration,
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amendment or recision of or supplement to this Agreement shall be valid or
effective unless the same is in writing and signed by both parties hereto.
9. Governing Law. This Agreement and the rights and duties of the
-------------
parties hereunder shall be governed by, construed under and enforced in
accordance with the laws of the State of Georgia.
10. Assignment. This Agreement shall inure to the benefit of and be
----------
binding upon the parties hereto and their respective heirs, personal
representatives, successors and permitted assigns. The rights, duties and
obligations under this Agreement are assignable by the Bank to a successor of
all or substantially all of the business or assets of the Bank. The rights,
duties and obligations of the Executive under this Agreement shall not be
assignable.
11. Survival. The respective obligations of the parties under Section 6
--------
hereof shall survive the termination of this Agreement.
IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed and
delivered, and the Executive has executed and delivered this Agreement, all as
of the day and year first above written.
MERCHANTS AND FARMERS BANK
By:
----------------------------------------
Its:
-------------------------------
(SEAL)
-------------------------------------
JOHN C. MOSELY
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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.
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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.
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(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.
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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 certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(3) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than 30 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 shares under
subsection (a) of this Code section retains all other rights of a shareholder
until these rights are canceled or modified by the taking of the proposed
corporate action.
(c) A record shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this article.
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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 than 16 months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for
that year, and the latest available interim financial statements, if any,
(2) A statement of the corporation's estimate of the fair value of the
shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under Code
Section 14-2-1327; and
(5) A copy of this article.
(c) If the shareholder accepts the corporation's offer by written notice to
the corporation within 30 days after the corporation's offer or is deemed to
have accepted such offer by failure to respond within said 30 days, payment for
his or her shares shall be made within 60 days after the making of the offer or
the taking of the proposed corporate action, whichever is later.
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.
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14-2-1327. Procedure if shareholder dissatisfied with payment or offer.
(a) A dissenter may notify the corporation in writing of his own estimate
of the fair value of his shares and amount of interest due, and demand payment
of his estimate of the fair value of his shares and interest due, if:
(1) The dissenter believes that the amount offered under Code Section
14-2-1325 is less than the fair value of his shares or that the interest
due is incorrectly calculated; or
(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.
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(c) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding, 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 judgment.
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.
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