<PAGE>
Filed pursuant to Rule 424(b)(4)
Registration No. 333-47513
PAB BANKSHARES, INC.
3102 NORTH OAK STREET EXTENSION
VALDOSTA, GEORGIA 31602
May 13, 1998
Dear Fellow Shareholder:
We are pleased to enclose information relating to a Special Meeting of
Shareholders of PAB Bankshares, Inc. ("PAB") to be held in the main office of
PAB, 3102 North Oak Street Extension, Valdosta, Georgia, at 10:00 a.m. local
time on June 19, 1998. On December 31, 1997, PAB, Investors Financial
Corporation ("Investors") and Bainbridge National Bank, a wholly-owned
subsidiary of Investors, entered into a definitive agreement to combine PAB with
Investors by merging Investors into PAB (the "Merger"). The Merger has been
approved by the Board of Directors of both PAB and Investors.
The purpose of our Special Meeting is to consider and vote on the issuance
of shares of PAB common stock to Investors' shareholders in connection with the
Merger.
The Merger with Investors represents an exciting opportunity for PAB. As a
result of the Merger, and based on December 31, 1997 financial data PAB will
have pro forma combined assets of over $405.6 million, pro forma combined
deposits of approximately $332.0 million and pro forma combined shareholders'
equity of approximately $39.3 million.
The matter to be voted on by PAB shareholders requires approval by the
affirmative vote of a majority of the votes cast by holders of PAB Common Stock.
Shareholders are entitled to vote all shares of PAB Common Stock held by them on
May 8, 1998, which is the record date for the Special Meeting.
WE URGE YOU TO CONSIDER CAREFULLY THESE IMPORTANT MATTERS, WHICH ARE
DESCRIBED IN THE ATTACHED JOINT PROXY STATEMENT/PROSPECTUS. In order to ensure
that your vote is represented at the meeting, please indicate your choice on the
proxy form, date and sign it, and promptly return it in the enclosed envelope.
You are, of course, welcome to attend the meeting and to vote your shares in
person.
Sincerely,
/s/ R. Bradford Burnette
R. Bradford Burnette
President
<PAGE>
PAB BANKSHARES, INC.
3102 NORTH OAK STREET EXTENSION
VALDOSTA, GEORGIA 31602
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD AT 10:00 A.M. ON JUNE 19, 1998
May 13, 1998
To the Shareholders of PAB Bankshares, Inc.
A Special Meeting of Shareholders of PAB Bankshares, Inc. ("PAB") will be
held in the main office of PAB, 3102 North Oak Street Extension, in the City of
Valdosta, Georgia, at 10:00 a.m., Valdosta time, on June 19, 1998 to consider
and act upon:
1. The issuance of shares of Common Stock of PAB ("Common Stock")
pursuant to the merger of Investors Financial Corporation ("Investors") with and
into PAB, upon the terms and subject to the conditions set forth in the
Agreement and Plan of Merger, dated as of December 31, 1997 and amended on April
27, 1998, among PAB, Investors, and Bainbridge National Bank, a wholly-owned
subsidiary of Investors; and
2. The transaction of such other business as may properly come before the
meeting or any adjournments thereof.
Only holders of record of Common Stock, at the close of business on
May 8, 1998, are entitled to notice of and to vote at such meeting or any
adjournments thereof. Approval of the matters to be voted on at the Special
Meeting requires the affirmative vote of a majority of votes cast by holders of
Common Stock.
/s/ R. Bradford Burnette
R. Bradford Burnette
President
________________________________________________________________________________
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY, WHETHER OR NOT YOU PLAN
TO ATTEND THE SPECIAL MEETING
THE BOARD OF DIRECTORS OF PAB UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE TO
APPROVE THE MATTERS TO BE VOTED UPON AT THE SPECIAL MEETING
________________________________________________________________________________
<PAGE>
INVESTORS FINANCIAL CORPORATION
226 South Broad Street
BAINBRIDGE, GEORGIA 31717-3616
May 13, 1998
Dear Shareholder:
You are cordially invited to attend a special meeting of shareholders
("Investors Special Meeting") of INVESTORS FINANCIAL CORPORATION ("Investors")
to be held at the main office of Investors, located at 226 South Broad Street,
Bainbridge, Georgia, at 11:00 a.m., Bainbridge time, on June 18, 1998.
At this meeting, you will be asked to consider and vote upon the approval
of the Agreement and Plan of Merger (the "Merger Agreement") which provides for
the merger (the "Merger") by and among Investors, its wholly-owned subsidiary,
Bainbridge National Bank, and PAB Bankshares, Inc. ("PAB") whereby, among other
matters, Investors will merge into and with PAB and the shares of Investors
common stock, Investors warrants and Investors options will be converted into
the right to receive shares of common stock of PAB. If the proposed Merger is
consummated, each outstanding share of Investors common stock (excluding
treasury shares), each Investors warrant and each Investors option shall cease
to be outstanding and shall be converted into and exchanged for the right to
receive shares of PAB common stock. The affirmative vote of the holders of at
least a majority of the shares of Investors common stock entitled to vote at the
Investors Special Meeting is required for approval of the Merger Agreement and
the transactions contemplated therein.
Enclosed are the following: (i) Notice of Investors Special Meeting; (ii)
Joint Proxy Statement/Prospectus; and (iii) Proxy for the Investors Special
Meeting. The Joint Proxy Statement/Prospectus describes in more detail the
Merger Agreement and the proposed Merger, including a description of the
conditions on consummation of the Merger and the effects of the Merger on the
rights of Investors shareholders. Please give this information your careful
attention.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND ADOPTED THE MERGER
AGREEMENT AND CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREIN, AND
UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND
CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREIN. IN VIEW OF THE
IMPORTANCE OF THE ACTION TO BE TAKEN, WE URGE YOU TO COMPLETE, SIGN, AND DATE
THE ENCLOSED PROXY AND TO RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE, WHETHER
OR NOT YOU PLAN TO ATTEND THE INVESTORS SPECIAL MEETING (IF YOU ATTEND THE
INVESTORS SPECIAL MEETING, YOU MAY ELECT TO VOTE IN PERSON, EVEN IF YOU
PREVIOUSLY RETURNED YOUR PROXY).
We look forward to seeing you at the Investors Special Meeting.
Sincerely,
/s/ Bill J. Jones
Bill J. Jones
Chairman
<PAGE>
INVESTORS FINANCIAL CORPORATION
226 SOUTH BROAD STREET
BAINBRIDGE, GEORGIA 31717-3616
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD AT 11:00 A.M. ON JUNE 18, 1998
May 13, 1998
To the Shareholders of Investors Financial Corporation
NOTICE IS HEREBY GIVEN that a special meeting of shareholders ("Investors
Special Meeting") of Investors Financial Corporation ("Investors") will be held
at the main office of Investors, located at 226 South Broad Street, Bainbridge,
Georgia, at 11:00 a.m., Bainbridge time, on June 18, 1998, for the following
purposes:
1. THE MERGER. To consider and vote upon a proposal to approve the
Agreement and Plan of Merger, dated as of December 31, 1997 and amended on April
27, 1998 (the "Merger Agreement"), by and among Investors, Investors wholly-
owned subsidiary, Bainbridge National Bank, and PAB Bankshares, Inc. ("PAB"),
pursuant to which, among other matters, Investors will merge with and into PAB
(the "Merger") and the shares, warrants and options of Investors will be
converted into the right to receive shares of common stock of PAB, all as more
fully described in the accompanying Joint Proxy Statement/Prospectus. A copy of
the Merger Agreement is set forth in Appendix A to the accompanying Joint Proxy
Statement/Prospectus and is hereby incorporated by reference herein.
2. OTHER BUSINESS. To transact such other business as may properly come
before the Investors Special Meeting or any adjournments of the Investors
Special Meeting.
Only shareholders of record at the close of business on April 20, 1998,
are entitled to receive notice of and to vote at the Investors Special Meeting
or any adjournments thereof. Approval of the Merger Agreement and the
consummation of the transactions contemplated thereby requires the affirmative
vote of the holders of a majority of the shares of Investors common stock
entitled to vote at the Investors Special Meeting.
THE BOARD OF DIRECTORS OF INVESTORS UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND CONSUMMATION OF THE
TRANSACTIONS CONTEMPLATED THEREBY.
NOTICE OF RIGHT TO DISSENT. IF PROPOSAL 1 ABOVE IS APPROVED AND THE MERGER
CONTEMPLATED THEREBY IS CONSUMMATED, EACH HOLDER OF SHARES OF COMMON STOCK OF
INVESTORS WOULD HAVE THE RIGHT TO DISSENT FROM APPROVAL OF PROPOSAL 1 AND WOULD
BE ENTITLED TO THE RIGHTS AND REMEDIES OF DISSENTING SHAREHOLDERS, INCLUDING THE
RIGHT TO DEMAND PAYMENT OF THE FAIR VALUE OF SUCH SHAREHOLDER'S SHARES, PROVIDED
IN TITLE 14, CHAPTER 2, ARTICLE 13 ("ARTICLE 13") OF THE GEORGIA BUSINESS
CORPORATION CODE ("GBCC"). THE RIGHT OF ANY SUCH SHAREHOLDER TO ANY SUCH RIGHTS
AND REMEDIES IS CONTINGENT UPON CONSUMMATION OF THE MERGER. IN ADDITION, THE
RIGHT OF ANY SUCH SHAREHOLDER TO SUCH RIGHTS AND REMEDIES IS CONTINGENT UPON
STRICT COMPLIANCE WITH THE REQUIREMENTS SET FORTH IN ARTICLE 13 OF GBCC, THE
FULL TEXT OF WHICH IS ATTACHED AS APPENDIX C TO THE ACCOMPANYING JOINT PROXY
STATEMENT/PROSPECTUS. FOR A SUMMARY OF THE REQUIREMENTS OF ARTICLE 13, SEE "THE
MERGER - DISSENTERS' RIGHTS" IN THE ACCOMPANYING JOINT PROXY
STATEMENT/PROSPECTUS.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Judy M. Powell
Judy M. Powell
Secretary
<PAGE>
JOINT PROXY STATEMENT
---------------------
PAB BANKSHARES, INC. INVESTORS FINANCIAL CORPORATION
SPECIAL MEETING OF SHAREHOLDERS SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 19, 1998 TO BE HELD ON JUNE 18, 1998
PROSPECTUS
----------
PAB BANKSHARES, INC.
COMMON STOCK (NO PAR VALUE PER SHARE)
This Joint Proxy Statement/Prospectus is being furnished to holders of
common stock, $.10 par value (the "Investors Common Stock"), of Investors
Financial Corporation ("Investors"), a Georgia corporation, in connection with
the solicitation of proxies by the Investors Board of Directors for use at a
special meeting of Investors shareholders to be held at 11:00 a.m., Bainbridge
time, on June 18, 1998, at the main office of Investors, located at 226 South
Broad Street, Bainbridge, Georgia, and at any adjournment or adjournments
thereof (the "Investors Special Meeting") and to holders of common stock, no par
value (the "PAB Common Stock"), of PAB Bankshares, Inc. ("PAB"), a Georgia
corporation, in connection with the solicitation of proxies by the PAB Board of
Directors for use at a special meeting of PAB shareholders to be held at 10:00
a.m., Valdosta time, on June 19, 1998, at the main office of PAB located 3102
North Oak Street Extension, Valdosta, Georgia, and at any adjournment or
adjournments thereof (the "PAB Special Meeting").
The purpose of the Investors Special Meeting is to consider and vote
upon a proposal to approve an Agreement and Plan of Merger, dated as of December
31, 1997 and amended on April 27, 1998 (the "Merger Agreement"), by and among
Investors, its wholly-owned subsidiary, Bainbridge National Bank (the "Bank"),
and PAB which provides for, among other things, the merger of Investors with and
into PAB (the "Merger"). The purpose of the PAB Special Meeting is to consider
and vote upon a proposal to approve the issuance of shares of PAB Common Stock
in connection with the Merger (the "Issuance"). See "SUMMARY," "THE MERGER" and
Appendix A to this Joint Proxy Statement/Prospectus.
Upon consummation of the Merger, the outstanding shares of Investors
Common Stock (excluding treasury shares and shares held by shareholders who
perfect their dissenter's rights) and the outstanding warrants and options
convertible into Investors Common Stock shall cease to be outstanding and shall
be converted into and exchanged for the right to receive (subject to adjustment
as described below) that fraction of 1,710,114 shares of PAB Common Stock (the
"Merger Consideration") determined in accordance with the Merger Agreement. The
exchange ratios were developed to preserve the relative value of each companies'
stock price at the time of the announcement of the Merger and to preserve a
$10.00 difference in the consideration to be exchanged for each share of
Investors Common Stock and each Investors warrant and Investors option. Subject
to adjustment as described below, each share of Investors Common Stock shall be
exchanged for that number of shares of PAB Common Stock equal to the exchange
ratio calculated by dividing (A) the result obtained by dividing (i) the sum of
(a) the product of 1,710,114 multiplied by the base period trading price for PAB
Common Stock (the "BPTP" as defined in the Merger Agreement) plus (b) the
aggregate exercise price of the Investors warrants and Investors options by (ii)
588,278 (i.e., the total number of shares of Investors Common Stock outstanding
and underlying Investors options and Investors warrants) by (B) the BPTP (the
"Common Stock Exchange Ratio"). Subject to adjustment as described below, each
warrant and option convertible into Investors Common Stock shall be exchanged
for that number of shares of PAB Common Stock equal to the exchange ratio
calculated by the following: (A) the sum of (i) the product of 1,710,114
multiplied by the BPTP and (ii) the aggregate exercise price of the Investors
warrants and Investors options, divided by (B) 588,278, less (C) 10, divided by
(D) the BPTP (the "Warrant Exchange Ratio"). Adjustments maybe made in certain
circumstances relating to the expenses of Investors and the Bank incurred in
connection with the Merger. No adjustment however, is currently anticipated. The
last sales price of PAB Common Stock as reported on the American Stock Exchange
on May 12, 1998 was $20.00 per share, and on January 7, 1998, the last trading
day preceding public announcement of the Merger, was $11.94 per share. Assuming
a BPTP of the PAB Common Stock of $20.00, the Common Stock Exchange Ratio would
be 3.007512 and the Warrant Exchange Ratio would be 2.507512. See "THE MERGER-
Merger Consideration" and "THE MERGER-Adjustments to the Merger Consideration."
The actual value of the final Merger Consideration will not be determined until
after the shareholders vote at the Investors Special Meeting and the PAB Special
Meeting. It is currently anticipated that the Merger will be consummated not
later than June 30, 1998.
The Merger is intended to be a tax-free reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"). Generally, no gain or loss should be recognized for federal income tax
purposes by Investors shareholders and warrant holders as a result of the
Merger, except that gain or loss should be recognized with respect to cash
received in lieu of fractional shares. See "THE MERGER - Certain Federal Income
Tax Consequences."
This Joint Proxy Statement/Prospectus also constitutes a prospectus of
PAB relating to the 1,710,114 shares of PAB Common Stock issuable to Investors
shareholders in the Merger. See "CERTAIN DIFFERENCES IN THE RIGHTS OF PAB AND
INVESTORS SHAREHOLDERS."
<PAGE>
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 JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF PAB COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS
ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY.
The date of this Joint Proxy Statement/Prospectus is May 13,1998, and it is
being mailed or otherwise delivered to Investors shareholders and PAB
shareholders on or about such date.
2
<PAGE>
AVAILABLE INFORMATION
PAB is subject to the reporting and informational requirements of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder (the "Exchange Act"), and, in accordance therewith, files reports and
proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements, and other
information filed by PAB with the Commission may be inspected and copied at the
principal office of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N. W., Washington, D.C. 20549, at the Commission's Regional Offices at 7
World Trade Center, Suite 1300, New York, New York 10048, and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains an Internet web site that contains reports,
proxy and information statements and other information regarding issuers who
file electronically with the Commission. The address of that site is
http://www.sec.gov. The common stock of PAB is traded on the American Stock
Exchange, and reports, proxy statements, and other information concerning PAB
are available for inspection and copying at the offices of the American Stock
Exchange, 86 Trinity Place, New York, New York 10006, or 1730 M Street, N.W.,
Washington, D.C. 20036.
This Joint Proxy Statement/Prospectus does not contain all of the
information set forth in the Registration Statement on Form S-4, of which this
Joint Proxy Statement/Prospectus is a part, and exhibits thereto (together with
any amendments thereto, the "Registration Statement"), which has been filed by
PAB with the Commission under the Securities Act of 1933, as amended, and the
rules and regulations thereunder (the "Securities Act"), certain portions of
which have been omitted pursuant to the rules and regulations of the Commission
and to which portions reference is hereby made for further information.
Statements contained in this Joint Proxy Statement/Prospectus concerning the
provisions of certain documents filed as exhibits to the Registration Statement
are necessarily brief descriptions thereof containing an explanation of each
material feature, and are not necessarily complete, and each such statement is
qualified in its entirety by reference to the full text of such document.
Certain financial and other information relating to PAB is contained
in the documents indicated below under "Incorporation of Certain Information by
Reference." All information contained herein with respect to PAB and its
subsidiaries has been supplied by PAB, and all information with respect to
Investors and Bank has been supplied by Investors.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY PAB OR INVESTORS.
NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF THE SECURITIES TO WHICH THIS JOINT PROXY STATEMENT/PROSPECTUS
RELATES SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF PAB OR ANY OF ITS SUBSIDIARIES OR INVESTORS OR
ITS SUBSIDIARY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS JOINT PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO PURCHASE, ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT
RELATES OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO PURCHASE THE
SECURITIES OFFERED BY THIS JOINT PROXY STATEMENT/PROSPECTUS IN ANY JURISDICTION
IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT LAWFUL.
3
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents previously filed by PAB with the Commission (PAB
File No. 0-25422) under Section 13(a) or 15(d) of the Exchange Act are hereby
incorporated by reference in this Joint Proxy Statement/Prospectus:
(i) PAB's Annual Report on Form 10-KSB for the year ended
December 31, 1996; and
(ii) PAB's Current Report on Form 8-K filed January 16, 1998.
All documents filed by PAB pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Joint Proxy
Statement/Prospectus and prior to the date of the Investors Special Meeting and
the PAB Special Meeting are hereby incorporated by reference in this Joint Proxy
Statement/Prospectus and shall be deemed a part hereof from the date of filing
of such document.
Any statement contained herein, in any supplement hereto or in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of the Registration Statement
and this Joint Proxy Statement/Prospectus to the extent that a statement
contained herein, in any supplement hereto or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of the Registration Statement, this Joint Proxy
Statement/Prospectus, or any supplement hereto.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE
CERTAIN DOCUMENTS THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH
DOCUMENTS ARE AVAILABLE WITHOUT CHARGE UPON REQUEST FROM: PAB BANKSHARES, INC.,
3102 N. OAK STREET EXTENSION, VALDOSTA, GEORGIA 31602, ATTENTION: CORPORATE
SECRETARY, DENISE MCKENZIE, AS TO PAB DOCUMENTS; AND FROM INVESTORS FINANCIAL
CORPORATION, 226 SOUTH BROAD STREET, BAINBRIDGE, GEORGIA 31717-3616, ATTENTION:
CORPORATE SECRETARY, JUDY M. POWELL, AS TO INVESTORS DOCUMENTS. IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUESTS SHOULD BE MADE BY JUNE
11, 1998.
4
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
AVAILABLE INFORMATION.............................................................. 3
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.................................. 4
SUMMARY............................................................................ 8
Parties to the Merger............................................................. 8
Investors Special Meeting; Investors Record Date.................................. 8
PAB Special Meeting; PAB Record Date.............................................. 9
The Merger........................................................................ 9
Market Prices and Dividends....................................................... 12
Comparison of Certain Per Share Data.............................................. 14
Selected Financial Data........................................................... 16
Recent Developments............................................................... 19
GENERAL INFORMATION................................................................ 20
Investors Special Meeting......................................................... 20
Investors Record Date, Solicitation and Revocability of Proxies................... 20
Investors Vote Required........................................................... 21
Recommendation of Investors' Board of Directors................................... 21
PAB Special Meeting............................................................... 21
PAB Record Date, Solicitation and Revocability of Proxies......................... 21
PAB Vote Required................................................................. 22
Recommendation of PAB's Board of Directors........................................ 22
THE MERGER......................................................................... 23
General........................................................................... 23
Background of the Merger.......................................................... 23
Reasons for the Merger............................................................ 24
Opinion of Investors' Financial Advisor........................................... 26
Merger Consideration.............................................................. 30
Adjustments to the Merger Consideration........................................... 32
Fractional Shares................................................................. 33
Effective Time.................................................................... 33
Distribution of PAB Certificates.................................................. 33
Certain Federal Income Tax Consequences........................................... 34
Management and Operations after the Merger........................................ 35
Interests of Certain Persons in the Merger........................................ 35
Conditions to Consummation........................................................ 36
Regulatory Approvals.............................................................. 37
Amendment, Waiver, and Termination................................................ 37
Conduct of Business Pending the Merger............................................ 38
Expenses and Fees................................................................. 38
Accounting Treatment.............................................................. 39
Resales of PAB Common Stock....................................................... 39
Dissenters' Rights................................................................ 39
PRO FORMA COMBINED FINANCIAL DATA.................................................. 42
DESCRIPTION OF PAB................................................................. 46
Description of Business and Services Provided..................................... 46
Employees......................................................................... 46
Properties........................................................................ 46
Competition....................................................................... 47
Dividends......................................................................... 47
Deposits.......................................................................... 47
Lending........................................................................... 47
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Loan Review and Non-Performing Assets............................................. 48
Asset/Liability Management........................................................ 48
Investment Policy................................................................. 48
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF PAB...................................................... 49
Results of Operations............................................................. 49
Comparison of Years Ended December 31, 1997 and 1996.............................. 50
Interest Income................................................................... 50
Interest Expense.................................................................. 50
Provision for Loan Losses......................................................... 51
Non-interest Income............................................................... 51
Non-interest Expenses............................................................. 52
Income Taxes...................................................................... 52
Asset/Liability Management and Market Risk (Quantitative and Qualitative
Disclosures About Market Risk)................................................... 52
Interest Rate Sensitivity GAP up to One Year...................................... 54
Financial Condition............................................................... 54
Liquidity and Capital Resources................................................... 55
Year 2000 Issue................................................................... 56
Average Balance Sheets............................................................ 57
Average Yields Earned and Rates Paid.............................................. 58
Investment Portfolio.............................................................. 59
Loan Portfolio.................................................................... 61
Reserve for Possible Loan Losses.................................................. 62
Deposit Maturities................................................................ 64
Advances from Federal Home Loan Bank.............................................. 65
Interest Rate Sensitivity......................................................... 66
Impact of Inflation and Changing Prices........................................... 66
DESCRIPTION OF INVESTORS........................................................... 67
General........................................................................... 67
Employees......................................................................... 67
Properties........................................................................ 67
Competition....................................................................... 67
Dividends......................................................................... 67
Services.......................................................................... 67
Deposits.......................................................................... 68
Loans............................................................................. 68
Lending Policy.................................................................... 68
Loan Review and Non-Performing Assets............................................. 68
Assets/Liability Management....................................................... 68
Investment Policy................................................................. 68
Certain Relationships and Related Transactions.................................... 69
Ownership of Investors Common Stock............................................... 70
Executive Officers................................................................ 71
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF INVESTORS................................................ 72
Results of Operations and Financial Condition for Years ended December 31, 1997,
1996 and 1995.................................................................... 72
Summary........................................................................... 72
Net Interest Income............................................................... 73
Average Balances and Net Income Analysis.......................................... 73
Rate and Volume Analysis.......................................................... 75
Noninterest Income................................................................ 76
Noninterest Expense............................................................... 76
Asset/Liability Management........................................................ 77
Maturities and Sensitivity of Loans to Changes in Interest Rates.................. 78
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
Loan Portfolio.................................................................... 79
Nonperforming Loans............................................................... 79
Summary of Loan Loss Experience................................................... 80
Investment Portfolio.............................................................. 81
Types of Investments.............................................................. 82
Deposits.......................................................................... 83
Return on Assets and Shareholders' Equity......................................... 83
Liquidity and Capital Resources................................................... 83
Year 2000 Issue Costs............................................................. 84
Commitments and Lines of Credit................................................... 84
Impact of Inflation............................................................... 85
DESCRIPTION OF PAB COMMON STOCK.................................................... 85
General........................................................................... 85
Voting and Other Rights........................................................... 85
Distributions..................................................................... 85
PAB Preferred Stock............................................................... 86
CERTAIN DIFFERENCES IN THE RIGHTS OF SHAREHOLDERS OF PAB AND INVESTORS............. 86
Authorized Capital Stock.......................................................... 86
Directors......................................................................... 86
Special Meeting of Shareholders................................................... 87
Voting Requirements Generally..................................................... 87
Amendment of Articles of Incorporation and Bylaws................................. 87
Fair Price and Business Combinations Statutes..................................... 88
Advance Notice Requirements for Shareholder Proposals and Director Nominations.... 88
CERTAIN REGULATORY CONSIDERATIONS.................................................. 88
Holding Company Regulation Generally.............................................. 88
Payment of Dividends.............................................................. 89
Monetary Policy................................................................... 89
Capital Adequacy.................................................................. 89
Recent Legislative and Regulatory Action.......................................... 90
FDIC Insurance Assessments for the Banks.......................................... 91
EXPERTS............................................................................ 92
LEGAL MATTERS...................................................................... 92
OTHER MATTERS...................................................................... 92
INDEX TO FINANCIAL STATEMENTS...................................................... F-1
PAB Financial Statements.......................................................... F-2
Investors Financial Statements.................................................... F-28
</TABLE>
Appendix A - Agreement and Plan of Merger, dated as of December 31, 1997 and
amended on April 27, 1998, by and among PAB, Investors and the Bank.
Appendix B - Opinion of The Carson Medlin Company.
Appendix C - Copy of Title 14, Chapter 2, Article 13 of the Official Code of
Georgia relating to rights of Dissenting Shareholders.
7
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in
this Joint Proxy Statement/Prospectus. This summary is not intended to be a
complete description of the matters covered in this Joint Proxy
Statement/Prospectus and is subject to and qualified in its entirety by
reference to the more detailed information contained elsewhere in this Joint
Proxy Statement/Prospectus, including the Appendices hereto, and in the
documents incorporated by reference in this Joint Proxy Statement/Prospectus. A
copy of the Merger Agreement is set forth in Appendix A to this Joint Proxy
Statement/Prospectus and reference is made thereto for a complete description of
the terms of the Merger. Shareholders are urged to read carefully the entire
Joint Proxy Statement/Prospectus, including the Appendices. As used in this
Joint Proxy Statement/Prospectus, the terms "PAB" and "Investors" refer to such
corporations, respectively, and where the context requires, PAB and its
subsidiaries or Investors and its subsidiary.
PARTIES TO THE MERGER
PAB. PAB is a Georgia corporation and a bank holding company registered
under the Bank Holding Act of 1956, as amended (the "BHC Act"). PAB has three
state-chartered commercial bank subsidiaries which collectively operate six full
service banking offices and four automated teller machines ("ATMs") in four
counties in Georgia.
For the year ended December 31, 1997, PAB reported net income of $4.14
million and had total consolidated assets of $328.8 million and consolidated
shareholders' equity of $30.7 million.
PAB is continually evaluating acquisition opportunities and frequently
conducts due diligence activities in connection with possible acquisitions. As
a result, acquisition discussions and, in some cases, negotiations frequently
take place and future acquisitions involving cash, debt or equity securities can
be expected. Acquisitions typically involve the payment of a premium over book
and market value, and therefore some dilution of PAB's book value and/or net
income per common share may occur in connection with any such future
acquisitions. See "PRO FORMA COMBINED FINANCIAL DATA."
PAB's principal executive offices are located at 3102 North Oak Street
Extension, Valdosta, Georgia 31602, and its telephone number is 912/241-2775.
For additional information regarding PAB and its business, see "SUMMARY -
Selected Financial Data," "AVAILABLE INFORMATION," "INCORPORATION OF CERTAIN
INFORMATION BY REFERENCE," "DESCRIPTION OF PAB" AND "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF PAB."
Investors. Investors is a Georgia corporation and a bank holding company
registered under the BHC Act. Through its banking subsidiary, the Bank,
Investors provides a wide range of commercial and retail banking services. The
Bank operates two full service banking offices and two ATMs in Decatur County,
Georgia. Pursuant to the Merger Agreement, Investors will merge with and into
PAB, with PAB resulting as the surviving entity. The Bank will then merge into
First Community Bank of Southwest Georgia ("FCB"), a wholly-owned subsidiary of
PAB, with FCB resulting as the surviving entity.
For the year ended December 31, 1997, Investors reported net income of
$1.18 million and had total consolidated assets of $76.8 million and
consolidated shareholders' equity of $8.6 million.
Investors' principal executive offices are located at 226 South Broad
Street, Bainbridge, Georgia 31717-3616, and its telephone number is 912/248-
3800. For additional information regarding Investors and its business, see
"AVAILABLE INFORMATION," "DESCRIPTION OF INVESTORS," "SUMMARY - Selected
Financial Data," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF INVESTORS" and "CERTAIN REGULATORY CONSIDERATIONS."
INVESTORS SPECIAL MEETING; INVESTORS RECORD DATE
The Investors Special Meeting will be held at 11:00 a.m., Bainbridge time,
on June 18, 1998, at the main office of Investors, located at 226 South Broad
Street, Bainbridge, Georgia. At the Investors Special Meeting,
8
<PAGE>
Investors' shareholders will consider and vote upon approval of the Merger
Agreement and the consummation of the transactions contemplated therein.
Investors' Board of Directors has fixed the close of business on April 20, 1998
as the record date for determining the Investors shareholders entitled to
receive notice of and to vote at the Investors Special Meeting (the "Investors
Record Date"). As of the Investors Record Date, there were 470,000 shares of
Investors Common Stock issued and outstanding and entitled to be voted at the
Investors Special Meeting. For additional information with respect to the
Investors Special Meeting, including the Investors Record Date and votes
required for approval, see "GENERAL INFORMATION - Investors Special Meeting"
PAB SPECIAL MEETING; PAB RECORD DATE
The PAB Special Meeting will be held at 10:00 a.m.,Valdosta time, on June
19, 1998, at the main office of PAB, located at 3102 North Oak Street Extension,
Valdosta, Georgia. At the PAB Special Meeting, PAB's shareholders will consider
and vote upon approval of the Issuance. PAB's Board of Directors has fixed the
close of business on May 8, 1998 as the record date for determining the PAB
shareholders entitled to receive notice of and to vote at the PAB Special
Meeting (the "PAB Record Date"). As of the PAB Record Date, there were 5,661,386
shares of PAB Common Stock issued and outstanding and entitled to be voted at
the PAB Special Meeting. For additional information with respect to the PAB
Special Meeting, including the PAB Record Date and votes required for approval.
See "GENERAL INFORMATION - PAB Special Meeting."
THE MERGER
General. The Merger Agreement provides that Investors shall merge with and
into PAB, which shall be the surviving corporation of the Merger. Thereafter,
Investors shall cease to exist and Bank will become a wholly-owned subsidiary of
PAB until merged into FCB. At the time the Merger becomes effective, each
outstanding share of Investors Common Stock (excluding treasury shares and
shares held by shareholders who perfect their dissenter's rights) and each
warrant and option convertible into Investors Common Stock shall cease to be
outstanding and shall be converted into and exchanged for the right to receive
shares of PAB Common Stock. If the Merger Agreement is approved at the Investors
Special Meeting, all required governmental and other consents and approvals are
obtained, and all of the other conditions to the obligations of the parties to
consummate the Merger are either satisfied or waived (as permitted), the Merger
will be consummated. A copy of the Merger Agreement is set forth in Appendix A
to this Proxy Statement/Prospectus. See "THE MERGER."
Merger Consideration. The Merger Agreement provides that, at the effective
time of the Merger, PAB will issue and exchange the Merger Consideration for all
outstanding shares of Investors Common Stock (excluding shares held by Investors
or any of its subsidiaries or by PAB or any of its subsidiaries, in each case
other than a fiduciary capacity or as a result of debts previously contracted,
and shares held by shareholders who perfect heir dissenters rights) and all
outstanding warrants and options convertible into Investors Common Stock, all
upon the applicable exchange ratio calculated pursuant to the Merger Agreement.
See "THE MERGER - Merger Consideration."
Votes Required. Approval of the Merger Agreement and consummation of the
transactions contemplated therein requires the affirmative votes of the holders
of a majority of the outstanding shares of Investors Common Stock entitled to
vote at the Investors Special Meeting. Holders of Investors warrants and
Investors options do not have voting rights with respect to this matter unless
they convert their warrants or exercise their options into Investors Common
Stock prior to the Investors Record Date. As of the Investors Record Date,
Investors' directors and executive officers, and their affiliates, held
approximately 41.1% of the outstanding shares of Investors Common Stock entitled
to vote at the Investors Special Meeting. Approval of the Issuance requires the
affirmative vote of the holders of a majority of the total votes cast on the
proposal in person or by proxy at the PAB Special Meeting. As of the Investors
Record Date, PAB, its directors and executive officers, and their affiliates,
owned 10,500 shares of the outstanding shares of Investors Common Stock. As of
the PAB Record Date, PAB's directors and executive officers, and their
affiliates, held approximately 38.3% of the outstanding shares of PAB Common
Stock entitled to vote at the PAB Special Meeting. As of the PAB Record Date,
Investors, its directors and executive officers, and their affiliates, owned
36,145 shares of the outstanding shares of PAB Common Stock. See "GENERAL
INFORMATION - Investors Vote Required; PAB Vote Required."
9
<PAGE>
INVESTORS SHAREHOLDERS HAVE THE RIGHT TO DISSENT FROM APPROVAL OF THE
MERGER AGREEMENT AND OBTAIN PAYMENT FOR THE FAIR VALUE OF THEIR SHARES OF
INVESTORS COMMON STOCK BY FOLLOWING THE PROCEDURES DESCRIBED IN TITLE 14,
CHAPTER 2, ARTICLE 13 ("ARTICLE 13") OF THE GEORGIA BUSINESS CORPORATION CODE
("GBCC"). SEE APPENDIX C HERETO AND "THE MERGER - DISSENTERS' RIGHTS."
Recommendation of the Investors Board of Directors. The Board of Directors
of Investors believes that the Merger is in the best interests of Investors and
its shareholders, warrant holders and option holders and has unanimously
approved the Merger Agreement and the consummation of the transactions
contemplated therein. Investors' Board of Directors unanimously recommends that
the Investors shareholders vote FOR approval of the Merger Agreement and the
consummation of the transactions contemplated therein. In deciding to approve
the Merger Agreement and the consummation of the transactions contemplated
therein, Investors' Board of Directors considered a number of factors,
including, among other factors, the financial terms of the Merger, the
compatibility of the operations of Investors and PAB, increased liquidity for
shareholders, a comparison of the terms with comparable transactions, the
opinion of its financial advisors, alternatives to the Merger and the financial
condition, results of operations, and future prospects of Investors and PAB on a
combined basis. See "THE MERGER - Reasons for the Merger."
Recommendation of the PAB Board of Directors. The Board of Directors of
PAB believes that the Merger is in the best interests of PAB and its
shareholders and has unanimously approved the Merger Agreement, the consummation
of the transactions contemplated therein and the Issuance. PAB's Board of
Directors unanimously recommends that the PAB shareholders vote FOR approval of
the Issuance. In deciding to approve the Merger Agreement, the consummation of
the transactions contemplated therein and the Issuance, PAB's Board of Directors
considered a number of factors, including the compatibility of the operations of
PAB and Investors, and the financial condition, results of operations, and
future prospects of PAB and Investors on a combined basis. See "THE MERGER -
Reasons for the Merger."
Opinion Of Investors' Financial Advisor. The Carson Medlin Company
("Carson Medlin") has rendered an opinion to Investors that, based on and
subject to the procedures, matters, and limitations described in its opinion and
such other matters as it considered relevant, as of the date of its opinion, the
consideration to be received in the Merger was fair, from a financial point of
view, to the shareholders, warrant holders and option holders of Investors. The
opinion of Carson Medlin is attached as Appendix B to this Joint Proxy
Statement/Prospectus. Investors shareholders are urged to read the opinion in
its entirety for a description of the procedures followed, matters considered,
and limitations on the reviews undertaken in connection therewith. See "THE
MERGER - Opinion of Investors' Financial Advisor."
Effective Time. If the Merger is approved by the requisite votes of
Investors' shareholders and the Issuance is approved by the requisite votes of
PAB's shareholders, all required governmental and other consents and approvals
are obtained, and the other conditions to the obligations of the parties to
consummate the Merger are either satisfied or waived (as permitted), the Merger
will be consummated and will become effective on the date and at the time that a
Certificate of Merger is filed with the Secretary of State of the State of
Georgia (the "Effective Time"). Assuming satisfaction of all conditions to
consummation, the Merger is expected to be made effective during the second
quarter of 1998. PAB and Investors each has the right, acting unilaterally, to
terminate the Merger Agreement should the Merger not be consummated by June 30,
1998, but only if the failure to consummate the Merger on or before such date is
not caused by any breach of the Merger Agreement by the party electing to
terminate. See "THE MERGER - Effective Time" and "Amendment, Waiver, and
Termination."
Delivery of Investors Certificates. Promptly after the Effective
Time, each record holder of shares of Investors Common Stock, Investors warrants
or Investors options outstanding at the Effective Time will be mailed a
transmittal letter (with instructions) to use in effecting the surrender and
cancellation of those certificates in exchange for PAB Common Stock. PAB shall
not be obligated to deliver the consideration to which any former holder of
Investors Common Stock, Investors warrants or Investors options is entitled
until such holder surrenders such holder's certificate or certificates
representing such holder's shares, warrants or options for exchange. The
certificate or certificates so surrendered shall be duly endorsed as PAB may
require. See "THE MERGER - Distribution of PAB Certificates."
10
<PAGE>
Certain Federal Income Tax Consequences. The Merger is intended to be
a tax-free reorganization within the meaning of section 368(a) of the Code.
Generally, no gain or loss should be recognized for federal income tax purposes
by Investors shareholders and warrant holders as a result of the Merger, except
that gain or loss will be recognized with respect to cash received in lieu of
fractional shares. A condition to consummation of the Merger is the receipt by
each of PAB and Investors of an opinion of Troutman Sanders LLP, counsel to PAB,
as to the qualification of the Merger as a tax-free reorganization and certain
other federal income tax consequences of the Merger. Troutman Sanders LLP has
executed the opinion in the form which has been included as an Exhibit to the
Registration Statement regarding this Joint Proxy Statement/Prospectus, and such
opinion will be delivered to the parties upon closing of the Merger. See "THE
MERGER - Certain Federal Income Tax Consequences."
BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON
THE PARTICULAR CIRCUMSTANCES OF EACH INVESTORS SHAREHOLDER AND OTHER FACTORS,
EACH HOLDER OF INVESTORS COMMON STOCK IS URGED TO CONSULT SUCH HOLDER'S OWN TAX
ADVISER TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF THE
MERGER (INCLUDING THE APPLICATION AND EFFECT OF STATE AND LOCAL INCOME AND OTHER
TAX LAWS).
Interests of Certain Persons in the Merger. Certain members of
Investors' management and the Board of Directors of Investors have interests in
the Merger in addition to their interests as shareholders, warrant holders and
option holders of Investors generally. Three directors of Investors will be
appointed to the Board of Directors of PAB. Additionally, all Bank directors
will be elected to the Board of Directors of FCB for at least three years after
the consummation of the Merger. As of April 20, 1998, the directors and
officers of Investors owned 36,145 shares of PAB Common Stock, and the directors
and executive officers of PAB owned 10,500 shares of Investors Common Stock.
Tracy A. Dixon will become chief executive officer of FCB, Judy M. Powell will
become an executive officer of FCB and Major H. Brannen, Jr. will be offered an
executive officer position with FCB. Tracy A. Dixon and Judy M. Powell have
entered into employment agreements with FCB contingent upon consummation of the
Merger. The agreements provide for severance payments under several
circumstances. See "THE MERGER - Management and Operations After the Merger"
and "Interests of Certain Persons in the Merger."
For information regarding the number of shares and percentage
ownership of PAB Common Stock that will be acquired by each of the directors and
executive officers of Investors, see "THE MERGER - Interests of Certain Persons
in the Merger."
Conditions to Consummation. Consummation of the Merger is subject to
various conditions, including among other matters the following material
conditions: (i) requisite approvals of the Merger Agreement by the shareholders
of Investors and the Issuance by the shareholders of PAB; (ii) receipt of all
governmental and other consents and approvals necessary to permit consummation
of the Merger, including those of the Board of Governors of the Federal Reserve
System (the "Federal Reserve") and the Department of Banking and Finance of the
State of Georgia (the "DBF"); and (iii) satisfaction of certain other usual
conditions, including the receipt of the tax opinion discussed above. See "THE
MERGER - Conditions to Consummation" and "Amendment, Waiver, and Termination."
Regulatory Approvals. The Merger is subject to the prior approval of
the Federal Reserve and the DBF. On April 14, 1998, PAB received approval from
the DBF to acquire Investors subject to requisite approval by the shareholders
of Investors and PAB respectively, and the maintenance of the Bank's capital
adequacy by PAB after consummation of the Merger. On April 27, 1998, PAB
received approval from the Federal Reserve to acquire Investors pursuant to the
Merger. See "THE MERGER - Regulatory Approvals."
Conduct of Business Pending the Merger. PAB and Investors have each
agreed in the Merger Agreement to, among other things, operate their respective
businesses and the business of their respective subsidiaries only in the
ordinary course and to take no action that would adversely affect their
respective abilities to perform their respective covenants and agreements under
the Merger Agreement. In addition, Investors and Bank have agreed not to take
certain actions relating to their respective operations pending consummation of
the Merger without the prior
11
<PAGE>
written consent of PAB, except as otherwise permitted by the Merger Agreement,
including, among other things: (i) becoming responsible for any obligation for
borrowed money in excess of an aggregate of $50,000, except in accordance with
past practices; (ii) paying a quarterly dividend exceeding $0.14 per share, or
otherwise acquiring or exchanging any shares of its capital stock, or issuing
any additional shares of its capital stock or giving any person the right to
acquire any such shares, or issuing any long-term debt; (iii) subject to certain
exceptions, granting any increase in compensation or benefits, or paying any
bonus, to any of its directors, officers or employees; or (iv) modifying or
adopting any employee benefit plans, including any employment contract. See "THE
MERGER - Conduct of Business Pending the Merger."
Termination. The Merger Agreement may be terminated, and the Merger
abandoned, at any time prior to the Effective Time by mutual consent of the
Boards of Directors of Investors and PAB. In addition, the Merger Agreement may
be terminated, and the Merger abandoned, prior to the Effective Time by (a)
either PAB or Investors if (i) the other party breaches and does not timely cure
any representation, warranty, covenant or other agreement contained in the
Merger Agreement and such breach, individually or in the aggregate, has a
Material Adverse Effect, as defined in the Merger Agreement, on the non-
breaching party (ii) any consent or approval of certain regulatory authorities
is denied by final nonappealable action of such authority, or, (iii) the Merger
has not been consummated by June 30, 1998, or (b) PAB in the event that the
Board of Directors of Investors shall have failed to reaffirm, following a
written request by PAB for such reaffirmation after the other party shall have
received any inquiry or proposal with respect to an "Acquisition Proposal" (as
defined in the Merger Agreement), its approval of the Merger and the
transactions contemplated by the Merger Agreement (to the exclusion of any other
"Acquisition Proposal"), or shall have resolved not to reaffirm the Merger. See
"THE MERGER-Amendment, Waiver, and Termination."
Accounting Treatment. It is anticipated that the Merger will qualify
as a "pooling of interests" for financial reporting purposes. See "THE MERGER -
Accounting Treatment."
Resale of PAB Common Stock. The PAB Common Stock issued in connection
with the Merger will be freely transferable by the holders of such shares,
except for those holders who may be deemed to be "affiliates" (generally
including directors, certain executive officers, and 10% or more shareholders)
of Investors or PAB under applicable federal securities laws. See "THE MERGER -
Resale of PAB Common Stock."
Dissenter's Rights. Each holder of Investors Common Stock who
dissents from the Merger is entitled to the rights and remedies of a dissenting
shareholder set forth in Article 13 of the GBCC, subject to compliance with the
procedures set forth therein. Among other things, a dissenting shareholder is
entitled to receive an amount in cash equal to the "fair value" of such holder's
shares. A copy of Article 13 is set forth in Appendix C to this Proxy
Statement/Prospectus, and a summary thereof is included under "THE MERGER -
Dissenters' Rights." TO PERFECT DISSENTERS' RIGHTS, A SHAREHOLDER MUST COMPLY
WITH ARTICLE 13 WHICH REQUIRES, AMONG OTHER THINGS, THAT THE SHAREHOLDER GIVE
INVESTORS NOTICE OF SUCH HOLDER'S INTENTION TO DISSENT FROM THE MERGER AGREEMENT
PRIOR TO THE VOTE OF THE SHAREHOLDERS OF INVESTORS AT THE INVESTORS SPECIAL
MEETING AND THAT SUCH SHAREHOLDER NOT VOTE SUCH HOLDER'S SHARES IN FAVOR OF THE
MERGER AGREEMENT. ANY INVESTORS SHAREHOLDER WHO RETURNS A SIGNED PROXY BUT
FAILS TO PROVIDE INSTRUCTIONS AS TO THE MANNER IN WHICH SUCH HOLDER'S SHARES ARE
TO BE VOTED WILL BE DEEMED TO HAVE VOTED IN FAVOR OF THE MERGER AGREEMENT AND
THUS WILL NOT BE ENTITLED TO ASSERT DISSENTER'S RIGHTS.
Certain Differences in Shareholders' Rights. At the effective date,
holders of Investors Common Stock, Investors warrants and Investors options,
whose rights are governed by Investors' Articles of Incorporation and Bylaws and
by the GBCC will automatically become PAB shareholders, and their rights as PAB
shareholders will be determined by PAB's Articles of Incorporation and Bylaws
and by the GBCC. The rights of PAB shareholders differ from the rights of
Investors shareholders in certain important respects, including certain anti-
takeover effects. See "Certain Differences in the Rights of Shareholders of PAB
and Investors."
MARKET PRICES AND DIVIDENDS
PAB Common Stock is quoted and traded on the American Stock Exchange
under the symbol "PAB." As of May 8, 1998, there were approximately 5,661,386
shareholders of record of PAB Common Stock. Prior to July 9, 1996, there was no
established trading market for PAB Common Stock. PAB Common Stock began trading
on the American Stock
12
<PAGE>
Exchange on July 9, 1996. Trade prices prior to such date are to the best
knowledge of PAB. The following table sets forth the high and low sales prices
per share of PAB Common Stock on the American Stock Exchange, with respect to
each quarterly period since January 1, 1996.
Investors Common Stock is not traded on an established market.
Management of Investors is not aware of any trades of Investors Common Stock
occurring between October 1, 1996 and May 12, 1998.
<TABLE>
<CAPTION>
Sales Prices Per Sales Prices Per
Share of PAB Share of Investors
Common Stock Common Stock
---------------------------- ----------------------------------
High Low High Low
---------------------------- ----------------------------------
<S> <C> <C> <C> <C>
1996
First Quarter $ 7.00 $ 6.25 $13.50 $13.25
Second Quarter 7.50 7.00 16.50 13.25
Third Quarter 10.50 7.50 16.50 13.25
Fourth Quarter 10.94 10.44 N/A N/A
1997
First Quarter 10.69 9.44 N/A N/A
Second Quarter 11.00 10.13 N/A N/A
Third Quarter 11.38 10.50 N/A N/A
Fourth Quarter 12.06 10.56 N/A N/A
1998
First Quarter 27.38 11.75 N/A N/A
Second Quarter 23.75 20.00 N/A N/A
(through May 12,
1998)
</TABLE>
PAB has declared and paid cash dividends on the PAB Common Stock since 1983
(its first full year of operations). PAB paid cash dividends of $.135 per share
($749,082 in the aggregate) in fiscal year 1996, and $.175 per share ($988,423
in the aggregate) in fiscal year 1997. Per share amounts have been adjusted to
reflect a two-for-one stock split paid March 10, 1998 to PAB shareholders
of record on February 17, 1998.
The last reported sales price of the Investors Common Stock known to
management of Investors was $15.00 per share on September 30, 1996. As of
April 20, 1998, there were 470,000 shares of the Investors Common Stock
outstanding and 263 record holders of such shares.
On July 24, 1997, the last trading day prior to public announcement that
PAB and Investors had entered into a non-binding letter of intent to merge, the
last reported sales price per share of PAB Common Stock on the American Stock
Exchange was $11.13, an equivalent pro forma per share of Investors Common Stock
pursuant to the Merger Agreement of $34.37. On December 30, 1997, the last
trading day prior to the day on which PAB and Investors executed the Merger
Agreement, the last reported sales price per share of PAB Common Stock on the
American Stock Exchange was $11.69, Management of Investors is not aware of any
trades of the Investors Common Stock since September 1996. On May 12, 1998,
the last reported sales price per share of PAB Common Stock on the American
Stock Exchange was $20.00.
THE EXACT NUMBER OF SHARES OF PAB COMMON STOCK TO BE ISSUED IN EXCHANGE FOR
INVESTORS COMMON STOCK, INVESTORS WARRANTS AND INVESTORS OPTIONS IS DEPENDENT ON
THE CLOSING PRICES OF PAB COMMON STOCK AS REPORTED ON THE AMERICAN STOCK
EXCHANGE DURING THE TWENTY CONSECUTIVE TRADING DAYS ENDING FIVE DAYS PRIOR TO
THE EFFECTIVE DATE OF THE MERGER. THE ACTUAL MARKET PRICE OF A SHARE OF PAB
COMMON STOCK AT THE EFFECTIVE DATE OR ON THE DATE ON WHICH CERTIFICATES
REPRESENTING SUCH SHARES ARE RECEIVED BY FORMER HOLDERS OF INVESTORS COMMON
STOCK, INVESTORS WARRANTS OR INVESTORS OPTIONS MAY BE MORE OR LESS THAN THE LAST
SALES PRICE PER SHARE OF PAB COMMON STOCK ON MAY 12, 1998 (ON WHICH THE
EQUIVALENT PRO FORMA AMOUNTS WERE DETERMINED) OR ON THE DATE OF THE INVESTORS
SPECIAL MEETING. INVESTORS SHAREHOLDERS ARE URGED TO OBTAIN INFORMATION ON THE
13
<PAGE>
TRADING VALUE OF PAB COMMON STOCK THAT IS MORE RECENT THAN THAT PROVIDED IN THIS
JOINT PROXY STATEMENT/PROSPECTUS.
COMPARISON OF CERTAIN PER SHARE DATA
The following summary presents selected comparative per share data for PAB
and Investors on a historical basis and on a pro forma combined and equivalent
pro forma per share of Investors Common Stock basis assuming the Merger had been
effective during the periods presented. The Merger is reflected under the
pooling-of-interests method of accounting and pro forma data is derived
accordingly. The information shown below should be read in conjunction with
the historical financial statements of PAB and Investors, including the
respective notes thereto, included herein or incorporated by reference herein,
and with the unaudited pro forma financial information, including the notes
thereto, appearing elsewhere herein. The pro forma data is presented for
information purposes only and is not necessarily indicative of the results of
operations or combined financial position that would have resulted had the
Merger been consummated at the dates or during the periods indicated, nor are
they necessarily indicative of future results of operations or combined
financial position. See "AVAILABLE INFORMATION," "INCORPORATION OF CERTAIN
INFORMATION BY REFERENCE," "PRO FORMA COMBINED FINANCIAL DATA," "THE MERGER -
Accounting Treatment," "DESCRIPTION OF PAB," "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF PAB," "DESCRIPTION
OF INVESTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF INVESTORS," and "INDEX TO FINANCIAL STATEMENTS - PAB
Financial Statements and Investors Financial Statements."
<TABLE>
<CAPTION>
At or for the
Years Ended December 31,
------------------------
1997 1996 1995
--------- ----------- -----------
<S> <C> <C> <C>
PAB COMMON STOCK
Net income per common share:
Historical - basic/(1)/ $ .73 $ .61 $ .54
Historical - diluted/(1)/ .73 .60 .54
Pro forma PAB and Investors combined-basic/(1)(2)/ .73 .60 .53
Pro forma PAB and Investors combined - diluted/(1)(2)/ .72 .60 .53
Dividends per common share:
Historical/(1)/ .175 .135 .103
Pro forma PAB and Investors combined/(1)(2)/ .175 .135 .103
Book Value per common share:
Historical/(1)/ 5.44 4.83 4.31
Pro forma PAB and Investors combined/(1)(2)(3)/ 5.34 4.73 4.25
INVESTORS COMMON STOCK
Net income per common share:
Historical - basic $ 2.52 $ 2.06 $ 1.76
Historical - diluted 2.28 1.87 1.65
Equivalent pro forma PAB and Investors combined-basic/(4)(1)/ 2.12 1.74 1.54
Equivalent pro forma PAB and Investors combined - diluted/(4)(1)/ 2.09 1.74 1.54
Dividends per common share:
Historical .52 .44 .35
Equivalent pro forma combined/(4)(1)/ .51 .39 .30
Book Value per common share:
Historical 18.26 16.06 14.69
Equivalent pro forma PAB and Investors combined/(4)(1)/ 15.49 13.72 12.33
</TABLE>
___________________________
/(1)/ PAB and pro forma per share information has been adjusted to reflect a
two-for-one stock split in 1996 and a two-for-one stock split paid March 10,
1998 to PAB shareholders of record on February 17, 1998.
14
<PAGE>
/(2)/ Represents the pro forma combined information of PAB and Investors as if
the Merger was consummated on January 1 of the respective periods and was
accounted for under the pooling-of-interests method of accounting.
/(3)/ Determined by dividing pro forma combined shareholders' equity by pro
forma shares outstanding as follows:
<TABLE>
<CAPTION>
Date Equity Shares
---- ------ ------
<S> <C> <C>
12/31/97 $39,313,975 7,362,040
</TABLE>
/(4)/ Determined by multiplying the applicable pro forma PAB and Investors
combined amount by the assumed weighted average ratio based on an assumed PAB
Common Stock price of $20.00, which was the last sales price of PAB Common Stock
on May 12, 1998 as reported on the American Stock Exchange. Based on an
assumption that outstanding Investors options and warrants will not be converted
to Investors Common Stock prior to the Merger, the weighted average ratio is
computed as 2.9070 to 1 as follows:
<TABLE>
<CAPTION>
Investors Shares,
Options & Warrants PAB shares to be issued Exchange Ratio
-------------------------- ----------------------- --------------
<S> <C> <C> <C>
Common shares 470,000 1,413,530 3.0075
Common shares represented
by options and warrants 118,278 296,584 2.5075
------- --------- ------
Total weighted average 588,278 1,710,114 2.9070
======= ========= ======
</TABLE>
The PAB shares to be issued have been adjusted to reflect the two-for-one stock
split.
/(5)/ The Investors pro forma equivalent data presented above will change if
the actual Investors Common Stock, Investors warrants and Investors options
exchange ratios (which will be determined based upon the market price of PAB
Common Stock during a twenty-day measuring period ending five days prior to the
effective date) are different from the exchange ratios assumed in the table
above. This data is presented for illustration purposes only, and no inferences
are intended or may be drawn concerning the actual BPTP which may occur or the
resulting exchange ratios.
15
<PAGE>
SELECTED FINANCIAL DATA
Set forth as follows are certain historical consolidated selected financial data
relating to PAB and Investors. This financial data should be read in
conjunction with the historical financial statements of PAB and Investors,
including the respective notes thereto, appearing elsewhere or incorporated by
reference in this Joint Proxy Statement/Prospectus. See "AVAILABLE
INFORMATION," "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE," "DESCRIPTION
OF INVESTORS - Management's Discussion and Analysis of Financial Condition and
Results of Operations," and "INVESTORS FINANCIAL STATEMENTS."
PAB BANKSHARES, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
As of or for the years ended December 31,
------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Net interest income $ 13,083 $ 11,148 $ 10,291 $ 7,111 $ 5,826
Provision for possible loan losses 533 405 386 330 260
Net income $ 4,144 $ 3,349 $ 2,980 $ 1,945 $ 1,461
PER SHARE DATA:
Net income - basic/(1)/ $ .73 $ .61 $ .54 $ .43 $ .36
Net income - diluted/(1)/ .73 .60 .54 .43 .36
Cash dividends declared/(1)/ .175 .135 .103 .088 .088
Book value/(1)/ 5.44 4.83 4.31 3.51 3.10
Tangible book value/(1)/ 5.06 4.43 3.88 3.43 3.00
BALANCE SHEET SUMMARY:
Investments $ 52,622 $ 56,783 $ 62,691 $ 33,098 $ 29,998
Loans, net 221,998 195,856 169,229 115,499 105,581
Deposits 267,255 249,674 231,225 147,512 146,410
Assets 328,792 297,305 267,088 172,899 163,291
Long-term debt and other borrowings/(2)/
Federal Home Loan Bank advances 28,168 17,096 7,941 4,629 3,432
Other long-term debt -0- 1,200 2,700 2,000 -0-
Other borrowings -0- -0- -0- -0- -0-
Average shareholders' equity 29,035 25,049 22,422 15,563 12,096
Average total assets 302,983 281,429 248,333 167,996 150,810
FINANCIAL RATIOS:
Net income to average assets 1.37% 1.19% 1.20% 1.16% .97%
Overhead ratio/(3)/ 2.04% 2.04% 2.20% 2.35% 2.26%
Net income to average shareholders'
equity 14.27% 13.37% 13.29% 12.50% 12.08%
Dividend payout ratio/(4)/ 23.97% 22.13% 19.07% 20.47% 24.44%
Average shareholders' equity to average
total assets 9.58% 8.90% 9.03% 9.26% 8.02%
</TABLE>
/(1)/ All per share information has been adjusted to reflect a two-for-one stock
split in 1993 and 1996 and a two-for-one stock split paid March 10, 1998
to PAB shareholders of record on February 17, 1998
/(2)/ Does not include Federal Funds purchased for each of the respective
periods.
/(3)/ Represents noninterest expense less noninterest income divided by average
assets.
/(4)/ Represents dividends declared per share divided by basic net income per
share.
16
<PAGE>
INVESTORS FINANCIAL CORPORATION AND SUBSIDIARY
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
As of or for the years ended December 31,
-----------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Interest income $ 5,970 $ 5,767 $ 5,484 $ 4,855 $ 4,685
Interest expenses 2,641 2,683 2,599 2,123 2,126
Net interest income 3,329 3,084 2,885 2,732 2,559
Provision for possible loan losses 144 120 132 120 120
Other income 705 602 568 528 602
Other expenses 2,072 2,050 2,088 2,162 2,152
------- ------- ------- ------- -------
Income before tax 1,818 1,516 1,233 978 889
Income tax expense 633 548 407 321 278
------- ------- ------- ------- -------
Net income $ 1,185 $ 968 $ 826 $ 657 $ 611
======= ======= ======= ======= =======
PER SHARE DATA:
Net income:
Basic $ 2.52 $ 2.06 $ 1.76 $ 1.40 $ 1.30
Diluted 2.28 1.87 1.65 1.34 1.25
Cash dividends declared .52 .44 .35 .30 -
Book value 18.26 16.06 14.69 11.89 12.15
Tangible book value 16.32 13.59 11.65 8.16 7.71
BALANCE SHEET SUMMARY:
Investment Securities $18,859 $21,209 $22,277 $17,507 $17,559
Loans, net 46,509 44,630 40,688 39,830 36,562
Deposits 64,726 65,390 62,816 60,457 58,690
Assets 76,820 75,469 73,681 70,276 68,746
Shareholders' equity 8,582 7,551 6,906 5,588 5,712
Long-term debt and other borrowings:
Federal Home Loan Bank advances 1,000 - 1,000 1,000 1,000
Other long-term debt 2,184 2,184 2,457 2,730 2,810
Other borrowings - - - - -
Average shareholders' equity 8,067 7,228 6,247 5,650 5,407
Average total assets 74,774 74,138 71,659 67,700 67,655
LIQUIDITY RATIOS:
Loans to total deposits 72.89% 69.19% 65.67% 66.67% 63.03%
Loans to average earning assets 68.93% 67.13% 63.74% 62.70% 60.83%
Noninterest-bearing deposits to total deposits 18.11% 17.30% 19.55% 17.47% 18.12%
FINANCIAL RATIOS:
Net income to average total assets 1.58% 1.31% 1.15% .94% .90%
Overhead ratio* 1.83% 1.95% 2.12% 2.34% 2.29%
Net income to average shareholders' equity 14.69% 13.39% 13.22% 11.63% 11.30%
Dividend payout ratio 20.63% 21.36% 19.89% 21.43% -
Average shareholders' equity to average
total assets 10.76% 9.75% 8.72% 8.11% 7.99%
</TABLE>
*Represents noninterest expense less noninterest income divided by average
assets
17
<PAGE>
PAB BANKSHARES, INC. AND SUBSIDIARIES
AND INVESTORS FINANCIAL CORPORATION AND SUBSIDIARY
PRO FORMA SELECTED FINANCIAL DATA
(UNAUDITED)
The following unaudited pro forma selected financial data reflects the combined
historical results of PAB and Investors giving effect to the Merger as if the
Merger had occurred as of or at the beginning of each of the periods presented.
This unaudited pro forma selected financial data should be read in conjunction
with the pro forma financial information included elsewhere herein. The
unaudited pro forma selected financial data is presented for informational
purposes only and is not necessarily indicative of the combined financial
position or results of operations which actually would have occurred if the
transactions had been consummated at the date and for the period indicated or
which may be obtained in the future.
<TABLE>
<CAPTION>
As of or for the years ended December 31,
----------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(amounts in thousands, except per share and ratio data and percentages)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Net interest income $ 16,412 $ 14,232 $ 13,176 $ 9,843 $ 8,385
Provision for possible loan losses 677 525 518 450 380
Net income $ 5,329 $ 4,317 $ 3,806 $ 2,602 $ 2,072
PER SHARE DATA:
Net income - basic/(1)/ $ .73 $ .60 $ .53 $ .42 $ .36
Net income - diluted(/1)/ .72 .60 .53 .42 .36
Cash dividends declared/(1)/ .175 .135 .103 .088 .088
Book value/(1)/ 5.34 4.73 4.25 3.45 3.17
Tangible book value/(1)/ 4.93 4.27 3.71 3.11 2.74
BALANCE SHEET SUMMARY:
Investments $ 71,481 $ 77,992 $ 84,368 $ 50,605 $ 47,557
Loans, net 268,507 240,486 209,917 155,329 142,143
Deposits 331,981 315,064 294,041 207,969 205,100
Assets 405,612 372,774 340,769 243,175 232,037
Long-term debt and other borrowings/(2)/
Federal Home Loan Bank advances 29,168 17,096 8,941 5,629 4,432
Other long-term debt 2,184 3,384 5,157 4,730 2,810
Other borrowings -0- -0- -0- -0- -0-
Average shareholders' equity 37,102 32,278 28,670 21,212 17,503
Average total assets 377,983 355,322 320,159 237,890 218,699
FINANCIAL RATIOS:
Net income to average assets 1.41% 1.21% 1.19% 1.09% .95%
Overhead ratio/(3)/ 2.00% 2.02% 2.18% 2.34% 2.26%
Net income to average shareholders' equity 14.36% 13.37% 13.28% 12.27% 11.84%
Dividend payout ratio/(4)/ 23.97% 22.50% 19.43% 20.95% 24.44%
Average shareholders' equity to average total 9.82% 9.08% 8.95% 8.92% 8.00%
assets
</TABLE>
/(1)/ All per share information has been adjusted to reflect a two-for-one
stock split in 1993 and 1996 and a two-for-one stock split paid March 10,
1998 to PAB shareholders of record February 17, 1998.
/(2)/ Does not include federal funds purchased for each of the respective
periods.
/(3)/ Represents noninterest expense less noninterest income divided by average
assets.
/(4)/ Represents dividends declared per share divided by basic net income per
share.
18
<PAGE>
RECENT DEVELOPMENTS
PAB's Pending Acquisition of Eagle Bancorp, Inc. On April 28, 1998, PAB and
Eagle Bancorp, Inc. ("Eagle") executed a letter of intent (the "Eagle
Agreement") pursuant to which the parties agreed to enter into a transaction
whereby Eagle will merge with and into PAB (the "Eagle Merger). The Eagle
Agreement provides that PAB will exchange one share of PAB Common Stock for each
share of Eagle common stock outstanding, with approximately 873,875 shares of
PAB Common Stock expected to be issued to Eagle shareholders. The parties expect
the Eagle Merger to be accounted for as a pooling of interests and expect to
consummate the transaction during the fourth quarter of 1998, subject to
approval of Eagle shareholders in accordance with applicable law, approval of
various regulatory authorities and other customary conditions of closing. No
assurance can be given that such conditions will be fulfilled or that the Eagle
Merger will be consummated.
Eagle is a bank holding company located in Statesboro, Georgia and is the
shareholder of Eagle Bank & Trust. Eagle Bank & Trust has two offices in
Statesboro, Georgia. As of March 31, 1998, on an unaudited basis, Eagle had
total assets of $66.3 million, deposits of $55.8 million, loans of $49.2 million
and stockholders' equity of $6.9 million. For the quarter ended March 31, 1998,
on an unaudited basis, Eagle had net income of $200,032. Because the operations
of Eagle are not material to PAB's financial condition or results of operations,
the pro forma financial information included herein does not reflect the pro
forma effects of consummation of the Eagle Merger.
<PAGE>
GENERAL INFORMATION
INVESTORS SPECIAL MEETING
This Joint Proxy Statement/Prospectus is being furnished by Investors to
its shareholders in connection with the solicitation of proxies by the Board of
Directors of Investors from holders of the outstanding shares of Investors
Common Stock for use at the Investors Special Meeting to be held at the main
office of Investors, located at 226 South Broad Street, Bainbridge, Georgia, at
11:00 a.m., Bainbridge time, on June 18, 1998 and at any adjournments thereof,
to consider and vote upon a proposal to approve the Merger Agreement and
consummation of the transactions contemplated therein, and to transact such
other business as may properly come before the Investors Special Meeting.
This document is also being furnished by PAB to Investors shareholders as a
prospectus in connection with the issuance by PAB of shares of PAB Common Stock
upon consummation of the Merger.
The Merger Agreement provides that Investors will merge with and into PAB.
PAB will be the surviving corporation of the Merger and will continue to be
governed by the laws of the State of Georgia. The Bank, Investors' national
banking subsidiary, will remain in existence as a wholly-owned subsidiary of PAB
until merged into FCB. At the Effective Time, PAB will issue and exchange the
Merger Consideration for all shares of issued and outstanding Investors Common
Stock (excluding treasury shares and shares held by shareholders who perfect
their dissenter's rights) and all warrants and options convertible into
Investors Common Stock, all of which shall cease to be outstanding and shall be
converted into and exchanged for that number of shares of PAB Common Stock equal
to the applicable exchange ratio as calculated pursuant to the Merger Agreement.
All shares of Investors Common Stock and warrants and options convertible into
investors Common Stock outstanding immediately before the Effective Time shall
as a result of the Merger no longer be outstanding and shall automatically be
canceled, retired and cease to exist, and each holder of a Investors stock
certificate, warrant or option shall case to have any rights with respect
thereto, except the right to receive the shares of PAB to be issued in
consideration therefor upon the surrender of such certificate, warrant or
option, and cash in lieu of fractional shares, without interest.
See "THE MERGER -Merger Consideration."
If the Merger Agreement is approved at the Investors Special Meeting and
the Issuance is approved at the PAB Special Meeting, all required governmental
and other consents and approvals are obtained, and all of the other conditions
to the obligations of the parties to consummate the Merger are either satisfied
or waived (as permitted), the Merger will be consummated. See "THE MERGER -
Effective Time."
INVESTORS RECORD DATE, SOLICITATION AND REVOCABILITY OF PROXIES
The Investors Board of Directors has fixed the close of business on April
20, 1998 as the Investors Record Date for determining the Investors shareholders
entitled to receive notice of and to vote at the Investors Special Meeting. Only
holders of record of Investors Common Stock as of the Investors Record Date are
entitled to notice of and to vote at the Investors Special Meeting. As of the
Investors Record Date, there were 470,000 shares of Investors Common Stock
issued and outstanding and held by approximately 263 record holders. Holders of
Investors Common Stock are entitled to one vote on each matter considered and
voted on at the Investors Special Meeting for each share of Investors Common
Stock held of record at the close of business on the Investors Record Date. The
presence, in person or by properly executed proxy, of the holders of a majority
of the outstanding shares of Investors Common Stock entitled to vote at the
Investors Special Meeting is necessary to constitute a quorum at the Investors
Special Meeting. Abstentions will be counted, but "broker non-votes" will not be
counted, as shares present for purposes of determining the presence of a quorum.
Neither abstentions nor "broker non-votes" will be counted as votes cast for
purposes of determining whether a proposal has received sufficient votes for
approval thus having the effect of a vote against the Merger.
Proxies in the form enclosed are solicited by Investors' Board of
Directors. Shares of Investors Common Stock represented by properly executed
proxies, if such proxies are received in time and are not revoked, will be voted
in accordance with the instructions indicated on the proxies. IF NO
<PAGE>
INSTRUCTIONS ARE INDICATED, SUCH PROXIES WILL BE VOTED FOR APPROVAL OF THE
MERGER AGREEMENT AND CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREIN, AND
AS DETERMINED BY A MAJORITY OF THE MEMBERS OF THE INVESTORS BOARD OF DIRECTORS
AS TO ANY OTHER MATTER THAT MAY COME BEFORE THE INVESTORS SPECIAL MEETING. ANY
HOLDER OF INVESTORS COMMON STOCK WHO RETURNS A SIGNED PROXY BUT FAILS TO PROVIDE
INSTRUCTIONS AS TO THE MANNER IN WHICH SUCH HOLDER'S SHARES ARE TO
19
<PAGE>
BE VOTED WILL BE DEEMED TO HAVE VOTED IN FAVOR OF APPROVAL OF THE MERGER
AGREEMENT AND CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREIN.
An Investors shareholder who has given a proxy may revoke it at any time
prior to its exercise at the Investors Special Meeting, by (i) giving written
notice of revocation to the Secretary of Investors, (ii) electing to vote in
person at the Investors Special Meeting, or (iii) properly submitting to
Investors a duly executed proxy bearing a later date. All written notices of
revocation and other communications with respect to revocation of proxies should
be addressed to Investors as follows: Investors Financial Corporation, 226 South
Broad Street, Bainbridge, Georgia 31717-3616, Attention: Corporate Secretary.
The expense of soliciting proxies for the Investors Special Meeting will be
paid for by Investors. In addition to the solicitation of shareholders of record
by mail, telephone or personal contact, Investors will be contacting brokers,
dealers, banks or voting trustees or their nominees who can be identified as
record holders of Investors Common Stock; such holders, after inquiry by
Investors, will provide information concerning the quantity of proxy and other
materials needed to supply such materials to beneficial owners, and Investors
will reimburse them for the expense of mailing the proxy materials to such
persons.
INVESTORS VOTE REQUIRED
Approval of the Merger Agreement and consummation of the transactions
contemplated therein requires the affirmative vote of a majority of the
outstanding shares of Investors Common Stock.
As of the Investors Record Date, Investors' directors and executive
officers, and their affiliates, held approximately 41.1% of the outstanding
shares of Investors Common Stock entitled to vote at the Investors Special
Meeting. As of the Investors Record Date, PAB, its directors and executive
officers, and their affiliates, held less than 2.3% of the outstanding shares of
Investors Common Stock.
RECOMMENDATION OF INVESTORS' BOARD OF DIRECTORS
For the reasons described below, the Board of Directors of Investors
unanimously adopted the Merger Agreement, believes the Merger is in the best
interests of Investors and its shareholders, warrant holders and option holders,
and unanimously recommends that shareholders of Investors vote FOR approval of
the Merger Agreement and the consummation of the transactions contemplated
therein. See "THE MERGER - Reasons for the Merger."
PAB SPECIAL MEETING
This Joint Proxy Statement/Prospectus is being furnished by PAB to its
shareholders in connection with the solicitation of proxies by the Board of
Directors of PAB from holders of the outstanding shares of PAB Common Stock for
use at the PAB Special Meeting to be held at the main office of PAB, located at
3102 North Oak Street Extension, Valdosta, Georgia, at 10:00 a.m., Valdosta
time, on June 19, 1998 and at any adjournments and postponements thereof, to
consider and vote upon a proposal to approve the Issuance and to transact such
other business as may properly come before the PAB Special Meeting.
If the Merger Agreement is approved at the Investors Special Meeting, the
Issuance is approved at the PAB Special Meeting, all required governmental and
other consents and approvals are obtained, and all of the other conditions to
the obligations of the parties to consummate the Merger are either satisfied or
waived (as permitted), the Merger will be consummated. See "THE MERGER -
Effective Time."
PAB RECORD DATE, SOLICITATION AND REVOCABILITY OF PROXIES
The PAB Board of Directors has fixed the close of business on May 8, 1998
as the PAB Record Date for determining the PAB shareholders entitled to receive
notice of and to vote at the PAB Special Meeting. Only holders of record of PAB
Common Stock as of the PAB Record Date are entitled to notice of and to vote at
the PAB Special Meeting. As of the PAB Record Date, there were 5,661,386 shares
of PAB Common Stock issued and outstanding and held by approximately 1,244
record holders. Holders of PAB Common Stock are entitled to one vote on each
matter considered and voted on at the PAB Special Meeting for each share of PAB
Common Stock held of record at the close of business on the PAB Record Date. The
presence, in person or by properly executed proxy, of the holders of a majority
of the outstanding shares of PAB Common Stock entitled to vote at the PAB
Special Meeting is necessary to constitute a quorum at the PAB Special Meeting.
Abstentions will be counted, but "broker
20
<PAGE>
non-votes" will not be counted, as shares present for purposes of determining
the presence of a quorum. Neither abstentions nor "broker non-votes" will be
counted as votes cast for purposes of determining whether a proposal has
received sufficient votes for approval.
Proxies in the form enclosed are solicited by PAB's Board of Directors.
Shares of PAB Common Stock represented by properly executed proxies, if such
proxies are received in time and are not revoked, will be voted in accordance
with the instructions indicated on the proxies. IF NO INSTRUCTIONS ARE
INDICATED, SUCH PROXIES WILL BE VOTED FOR APPROVAL OF THE ISSUANCE, AND AS
DETERMINED BY A MAJORITY OF THE MEMBERS OF THE PAB BOARD OF DIRECTORS AS TO ANY
OTHER MATTER THAT MAY COME BEFORE THE PAB SPECIAL MEETING. ANY HOLDER OF PAB
COMMON STOCK WHO RETURNS A SIGNED PROXY BUT FAILS TO PROVIDE INSTRUCTIONS AS TO
THE MANNER IN WHICH SUCH HOLDER'S SHARES ARE TO BE VOTED WILL BE DEEMED TO HAVE
VOTED IN FAVOR OF APPROVAL OF THE ISSUANCE.
A PAB shareholder who has given a proxy may revoke it at any time prior to
its exercise at the PAB Special Meeting by (i) giving written notice of
revocation to the Secretary of PAB, (ii) electing to vote in person at the PAB
Special Meeting, or (iii) properly submitting to PAB a duly executed proxy
bearing a later date. All written notices of revocation and other
communications with respect to revocation of proxies should be addressed to PAB
as follows: PAB Bankshares, Inc., 3102 North Oak Street Extension, Valdosta,
Georgia 31602, Attention: Corporate Secretary.
The expense of soliciting proxies for the PAB Special Meeting will be paid
for by PAB. In addition to the solicitation of shareholders of record by mail,
telephone or personal contact, PAB will be contacting brokers, dealers, banks or
voting trustees or their nominees who can be identified as record holders of PAB
Common Stock; such holders, after inquiry by PAB, will provide information
concerning the quantity of proxy and other materials needed to supply such
materials to beneficial owners, and PAB will reimburse them for the expense of
mailing the proxy materials to such persons.
PAB VOTE REQUIRED
Approval of the Issuance therein requires the affirmative vote of a
majority of the total votes cast on the proposal in person or by proxy at the
PAB Special Meeting. Although the affirmative vote of the PAB shareholders is
not required by the GBCC or any bank regulatory authority, in order to issue and
list the PAB Common Stock to be delivered to the Investors shareholders, warrant
holders and option holders as the Merger Consideration, the American Stock
Exchange Rules require PAB shareholder approval.
As of the PAB Record Date, PAB's directors and executive officers, and
their affiliates, held approximately 38.3% of the outstanding shares of PAB
Common Stock entitled to vote at the PAB Special Meeting. As of the PAB Record
Date, Investors, its directors and executive officers, and their affiliates,
held less than 1.0% of the outstanding shares of PAB Common Stock.
RECOMMENDATION OF PAB'S BOARD OF DIRECTORS
For the reasons described below, the Board of Directors of PAB unanimously
adopted the Merger Agreement, believes the Merger is in the best interests of
PAB and its shareholders, and unanimously recommends that shareholders of PAB
vote FOR approval of the Issuance. See "THE MERGER - Reasons for the Merger."
21
<PAGE>
THE MERGER
The following describes certain material information pertaining to the
Merger. This description does not purport to be complete and is qualified in
its entirety by reference to the Merger Agreement, a copy of which is set forth
in Appendix A to this Joint Proxy Statement/Prospectus and is incorporated
herein by reference. All shareholders are urged to read the Merger Agreement in
its entirety.
GENERAL
The Merger Agreement provides that Investors shall merge with and into PAB.
PAB will be the surviving corporation of the Merger and will continue to be
governed by the laws of the State of Georgia. At the time the Merger becomes
effective, each share of issued and outstanding Investors Common Stock
(excluding treasury shares and shares held by shareholders who perfect their
dissenter's rights) and each warrant and option convertible into Investors
Common Stock shall cease to be outstanding and shall be converted into and
exchanged for the right to receive shares of PAB Common Stock. If the Merger
Agreement is approved at the Investors Special Meeting, the Issuance is approved
at the PAB Special Meeting, all required governmental and other consents and
approvals are obtained, and all other conditions to the obligations of the
parties to consummate the Merger are either satisfied or waived (as permitted),
the Merger will be consummated. A copy of the Merger Agreement is set forth in
Appendix A of this Joint Proxy Statement/Prospectus. See " - Merger
Consideration."
BACKGROUND OF THE MERGER
At the direction of R. Bradford Burnette, President of PAB, in November
1996, D. Ramsay Simmons, Jr., a PAB director, and his brother, John M. Simmons,
an Investors director, initially discussed the possibility of a combination
between PAB and Investors. Investors held a special meeting of its Board of
Directors on November 18, 1996 and appointed a special committee of Bill J.
Jones, Tracy A. Dixon, John M. Simmons and Bruce W. Kirbo to meet with PAB and
to consider various strategic alternatives. On December 4, 1996, the Investors
special committee met with Messrs. Burnette, D. Ramsey Simmons, Jr. and James L.
Dewar, Jr. from PAB to review in general each entity's management philosophy,
markets, strengths and weaknesses. Representatives of PAB and Investors also had
preliminary discussions of issues such as potential cost savings which could
result from the possible combination of the entities; however, no definitive
conclusions were made as to these issues.
Messrs. Dixon and Burnette met again on December 19, 1996 and February 20,
1997 to discuss in general, among other matters, lending authorities, personnel,
operation procedures and equipment, banking facilities, directors, data
processing and auditing issues, as well as potential economies of scale and
improved products and services for our customers. The parties exchanged general
information concerning their respective customer bases. Subsequent to this
meeting, Messrs. Dixon and Burnette continued to have general discussions about
PAB and Investors. On February 12, 1997, the special committee met to receive an
update on the discussions with PAB representatives and to discuss various issues
relating to a possible business combination. Messrs. Dixon and Burnette met
again on February 20, 1997, and Mr. Burnette discussed in general terms certain
acquisition prices that PAB believed to be reasonable. PAB determined that it
could offer to acquire Investors at a price which would not cause dilution in
earnings per share based on assumptions of cost of the transaction and
reasonable potential savings to be realized. Investors' special committee met on
February 24, 1997 to discuss the issues proposed by Messrs. Dixon and Burnette.
Later on February 24, 1997, the special committee met with the full Investors
Board of Directors to discuss these matters.
Beginning in February, 1997, members of the Investors special committee
held information discussions with other banks which had expressed interest in
possibly acquiring Investors, and continued information discussions with PAB.
In connection with these meetings, preliminary price and structure terms were
discussed with two financial institutions other than PAB. These informal
discussions between members of the Investors special committee and the potential
acquirors continued between February, 1997 and June, 1997. During this same
period, the Investors Board of Directors met once or twice per month to discuss,
among other matters, the possible business combination.
On May 19, 1997, the Investors special committee met to consider the
various proposals for business combinations that had developed during these
information meetings. Based on these discussions, the preliminary price and
structure terms of these proposals and the reasons discussed below, the
Investors special committee concluded that a combination with PAB would be in
the best interest of Investors, its shareholders, employees, customers and
community. The Investors special committee decided against continuing merger
discussions with other possible acquirors due to the reasons discussed herein,
including the fact that the price terms indicated by such other possible
acquirors were below the preliminary acquisition prices discussed with PAB. PAB
was invited to make its highest and best offer. On May 27, 1997, Mr. Dixon met
with representatives of The Carson Medlin Company, an
22
<PAGE>
investment banking firm which specializes in securities of southeastern
financial institutions, to discuss in general recent acquisitions of financial
institutions.
On June 9, 1997, members of the Investors special committee met with
representatives of PAB. On June 17, 1997, Mr. Burnette met with members of the
Investors special committee and outlined the price and structure of PAB's
proposal. The Investors committee requested a special meeting of the Board of
Directors of Investors on June 25, 1997. During the special meeting, the Board
of Directors discussed the business of PAB and the opportunity presented by the
proposed business combination and approved PAB's proposal in general terms
whereby 1,710,114 shares of PAB would be exchanged for all outstanding shares,
warrants and options of Investors, subject to the full negotiation of a
definitive merger agreement with terms satisfactory to Investors. Tangible book
value, earnings per share, the growth potential of markets, liquidity of common
stock and projected earnings of the combined entities, among other financial and
non-financial matters, were considered. For additional information regarding the
information considered by the Investors' Board of Directors, see "The Merger-
Reasons for the Merger."
PAB delivered a non-binding letter of intent setting forth the price and
structure of the proposed business combination and other provisions typically
covered in such letters to Investors. On July 16, 1997, members of the
Investors special committee met with Carson Medlin to discuss, among other
matters, various pricing structures that are typical in acquisition agreements.
On July 18, 1997, Investors executed the letter of intent.
Subsequent to the execution of the letter of intent, the parties conducted
limited due diligence and negotiated the final terms and conditions of the
Merger Agreement and the ancillary documents. The Investors Board of Directors,
along with its financial and legal advisors, met on December 3, 1997, to discuss
the terms and conditions of the Merger Agreement and the related agreements.
After a review of the matters considered by the Board of Directors and the
special committee and the opinion of Carson Medlin that the consideration to be
received by Investors' shareholders under the terms of the Merger Agreement was
fair to Investors' shareholders from a financial point of view, the Board of
Directors unanimously approved the Merger Agreement and authorized the
appropriate officers of Investors to complete the negotiations, to execute the
Merger Agreement, and to take the appropriate actions necessary to consummate
the Merger as described above.
Investors conducted due diligence on PAB and its operations during December
1997. Investors' due diligence investigation of PAB included a review of PAB's
business practices and policies, including but not limited to employee benefits,
insurance risk and coverage, and general accounting and operational procedures
and policies. Also, Investors investigated the financial condition of PAB on a
historical and prospective basis. This investigation included a review of assets
quality and a comparison of the methodology of calculating the allowance for
loan losses of PAB and Investors. Investors reviewed PAB's investment portfolio
and evaluated PAB's fixed assets from a risk standpoint. Investors also hired an
outside consultant to supplement the loan portfolio diligence conducted by
Investors. On December 31, 1997, the parties executed the Merger Agreement.
PAB performed operational due diligence on Investors, which was led by R.
Bradford Burnette of PAB. Under the direction of senior officers of PAB, the
operations and financial functions of Investors were reviewed in detail to
determine the accuracy of financial data, as well as to determine the general
level of operational efficiency of Investors. This investigation consisted of
both on-site and off-site review of all areas of Investors. The due diligence
team concluded that the financial condition of Investors, as well as its
operational organization and efficiency was satisfactory and was accurately
presented in its current status.
PAB's credit due diligence was supplemented by an outside loan review firm
who did both on-site and off-site analysis of the loan portfolio of Investors
focusing upon compliance with lending rules and regulations, as well as the
proper margining of secured loans and the overall quality of the loan portfolio
taking into consideration the adequacy of its loan loss reserve. As a result of
this due diligence, PAB believes that Investors' loan portfolio and the reserve
for possible loan losses were accurate, adequate and properly established.
23
<PAGE>
REASONS FOR THE MERGER
The Investors Board of Directors, after consideration of relevant business,
financial, legal and market factors, approved the Merger Agreement. Investors'
Board of Directors, with the assistance of outside financial and legal advisors,
considered all material factors although it did not assign any relative or
specific weight to them. The material factors considered were as follows:
(i) The financial terms of the proposed Merger, including the
anticipated treatment of the Merger as a tax-free exchange of PAB Common Stock
for Investors Common Stock and Investors warrants.
(ii) A comparison of Investors' continuing as an independent entity to
combining with PAB, particularly as to shareholder value. The Board considered
the benefits that could reasonably be expected to accrue to Investors
shareholders, warrant holders and option holders from the Merger, including the
likelihood that the Merger Consideration represented a higher value for
Investors Common Stock than would be achieved by Investors operating on an
independent basis unaffected by acquisition speculation. Alternatives to the
Merger were also analyzed, including remaining independent and growing
internally or combining with other potential merger partners in light of the
economic conditions and prospects of the southwest Georgia banking market and
the competitive environment within the banking sector.
(iii) The increased liquidity of PAB Common Stock over Investors Common
Stock.
(iv) Certain financial and other information concerning PAB, including
among other information, information with respect to the business, operations,
condition and future prospects of PAB, particularly its capital position and
asset quality, including its ability to pay dividends.
(v) The anticipated synergies, efficiencies and economies of scale that
could be achieved by combining Investors with PAB, including, without
limitation, consolidation of certain banking facilities, higher lending limits
and greater expertise in specialized lending areas, such as mortgage lending,
SBA loans and commercial lending.
(vi) The Board's review, based upon its due diligence investigation of
PAB, of the business, operations, earnings and financial condition of PAB on an
historical and prospective basis, and the enhanced opportunities for growth and
expanded operations which will likely be made possible through coordinated
efforts with other PAB subsidiaries, such as increased the aggregate lending
limits of the collective institutions.
(vii) A comparison of the terms of the proposed Merger with comparable
transactions in the Southeast based primarily on the comparable transaction
analysis provided by The Carson Medlin Company.
(viii) Competitive factors and trends toward consolidation in the banking
industry.
(ix) The review by the Investors Board with its legal and financial
advisors of the provisions of the Merger Agreement and ancillary documents.
(x) Benefits of merging with PAB as compared with the dilution in
voting power which Investors shareholders will experience upon consummation of
the Merger as a result of owning a smaller portion of the total PAB Common
Stock.
(xi) The non-financial terms and structure of the Merger.
(xii) The likelihood of the Merger being approved by the appropriate
regulatory authorities.
(xiii) The impact generally of the Merger on the various constituencies
served by Investors.
(xiv) The fairness opinion of The Carson Medlin Company.
While each member of the Investors Board of Directors individually
considered the foregoing and other factors, the Investors Board did not
collectively assign any specific or relative weights to the factors considered
and did not make any determination with respect to any individual factor. The
Investors Board collectively made its determination with respect to the Merger
based upon the unanimous conclusion reached by its members, in light of the
factors that each of them considered appropriate, that the Merger is in the best
interest of the holders of Investors Common Stock, warrants and options.
24
<PAGE>
THE BOARD OF DIRECTORS OF INVESTORS UNANIMOUSLY RECOMMENDS THAT INVESTORS
SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND CONSUMMATION OF THE
TRANSACTIONS CONTEMPLATED THEREIN.
The PAB Board of Directors, after consideration of relevant business,
financial, legal and market factors, approved the Merger Agreement. PAB's Board
of Directors considered all material factors although it did not assign any
relative or specific weight to them. PAB, in considering the Merger, took into
account its stated strategic long-term goal of continuing to expand PAB
throughout Georgia, as well as adjoining states so as to become one of the
leading independent bank holding companies in the Southeast. In this regard, PAB
looked at the earnings potential of Investors giving consideration to Investors'
size, its stockholder base, management expertise, and its location. The PAB
Board also considered potential adverse consequences of transactions similar to
the Merger, including the need to expend substantial management time in order to
integrate the operations of each entity and thereby capture the benefits
contemplated by the Merger. After considering these factors, PAB determined that
the Merger would further its long-term goals and would enhance PAB's shareholder
value, while permitting PAB to continue to grow and expand as an independent
bank holding company. PAB expects the Merger to improve earnings per share in
the first year, based on assumptions of costs of the Merger and the assumption
of approximately $500,000 of potential cost savings in the first year of
combined operations, but no assurance can be given that difficulties will not be
encountered in integrating the operations of PAB and Investors or that the
benefits and attendant cost savings expected from such integration will be
realized. Any delays or unexpected costs incurred in connection with such
integration could affect the anticipated results of operations or financial
condition of PAB after the Merger.
THE BOARD OF DIRECTORS OF PAB UNANIMOUSLY RECOMMENDS THAT PAB SHAREHOLDERS
VOTE FOR APPROVAL OF THE ISSUANCE.
OPINION OF INVESTORS' FINANCIAL ADVISOR
Pursuant to an engagement letter dated October 6, 1997 (the "Engagement
Letter"), the Board of Directors of Investors retained Carson Medlin to act as
its financial advisor in connection with a potential acquisition of Investors.
As part of that engagement, Carson Medlin has rendered its opinion as to the
fairness of the Merger Consideration resulting from the terms of the Merger to
the shareholders of Investors from a financial point of view. Carson Medlin is a
National Association of Securities Dealers, Inc. member investment banking firm
which specializes in the securities of southeastern United States financial
institutions. As part of its investment banking activities, Carson Medlin is
regularly engaged in the valuation of southeastern United States financial
institutions and transactions relating to their securities, including mergers
and acquisitions. For these reasons and the favorable reputation of Carson
Medlin in the southeastern banking industry, the Board of Directors of Investors
retained Carson Medlin.
As part of its engagement, representatives of Carson Medlin attended the
meeting of Investors Board of Directors held on December 3, 1997, at which
meeting the terms of the proposed Merger were discussed and considered. Carson
Medlin delivered its written opinion (dated as of that date) to the Board of
Directors of Investors stating that the aggregate consideration to be provided
for in the Merger Agreement is fair, from a financial point of view, to the
shareholders of Investors. Carson Medlin subsequently confirmed such opinion in
writing as of the date of this Joint Proxy Statement/Prospectus. The full text
of Carson Medlin's written opinion dated the date of this Joint Proxy
Statement/Prospectus is attached as Appendix B to this Joint Proxy
Statement/Prospectus and should be read in its entirety with respect to the
procedures followed, assumptions made, matters considered and qualification and
limitations on the review undertaken by Carson Medlin in connection therewith.
The consideration to be received by Investors shareholders, warrant holders and
option holders in connection with the Merger is the result of negotiations
between Investors and PAB.
No limitations were imposed by the Board of Directors or management of
Investors upon Carson Medlin with respect to the investigations made or the
procedures followed by Carson Medlin in rendering its opinions.
Carson Medlin has relied upon, without independent verification, the
accuracy and completeness of the information reviewed by it for the purposes of
rendering its opinion. Carson Medlin did not undertake any independent
evaluation or appraisal of the assets and liabilities of Investors or PAB, nor
was it furnished with any such appraisals. Carson Medlin assumed that the
financial forecasts reviewed by it have been prepared on a basis reflecting the
best currently available judgments and estimates of the managements of Investors
and PAB, and that such projected financial results will be realized in the
amounts and at the times contemplated thereby. Neither PAB nor Investors
publicly discloses internal management projections of the type provided to
Carson Medlin. Such projections were not prepared for, or with a view toward,
public disclosure. Carson Medlin is not expert in the evaluation of loan
portfolios, underperforming or nonperforming assets, net charge-offs of such
assets or the adequacy of allowances for losses with respect thereto; has not
reviewed any individual credit files; and has assumed that the loan loss
allowances for each of Investors and PAB are in the aggregate adequate to cover
such losses. Carson Medlin assumed that the Merger will be recorded as a
pooling of interests under generally accepted
25
<PAGE>
accounting principles. Carson Medlin's opinion is necessarily based on economic,
market and other conditions as in effect on the date of its analysis, and on
information made available to it dated as of various earlier dates.
In connection with rendering its opinions, Carson Medlin performed a
variety of financial analyses. The preparation of a fairness opinion of this
nature involves various determinations as to the most appropriate and relevant
methods of financial analysis and the application of those methods to the
particular circumstances, and, therefore, is not readily susceptible to partial
analysis or summary description. Carson Medlin believes that its analyses must
be considered together as a whole and that selecting portions of such analyses
and the facts considered therein, without considering all other factors and
analyses, could create an incomplete view of the analyses and the process
underlying Carson Medlin's opinions. In its analyses, Carson Medlin made
numerous assumptions with respect to industry performance, business and economic
conditions, and other matters, many of which are beyond the control of Investors
and PAB and which may not be realized. Any estimates contained in Carson
Medlin's analyses are not necessarily predictive of future results or values,
which may be significantly more or less favorable than such estimates.
Estimates of values of companies do not purport to be appraisals or necessarily
reflect the prices at which such companies or their securities may actually be
sold. None of the analyses performed by Carson Medlin was assigned a greater
significance by Carson Medlin than any other.
In connection with its opinion, dated as of the date hereof, Carson Medlin
reviewed: (i) the Merger Agreement; (ii) the annual reports to shareholders of
PAB, including the audited financial statements for the four years ended
December 31, 1997 (iii) the annual reports to shareholders of Investors,
including audited financial statements for the four years ended December 31,
1997; (iv) certain financial and operating information with respect to the
business, operations and prospects of PAB and Investors; and (v) this Joint
Proxy Statement/Prospectus.
Carson Medlin also (i) held discussions with members of the senior
management of Investors and PAB regarding their respective historical and
current business operations, financial conditions and future prospects; (ii)
reviewed the historical market prices and trading activity for the common stock
of PAB and compared it with those of certain publicly traded companies which it
deemed to be relevant; (iii) compared the results of operations of PAB with
those of certain publicly traded companies which it deemed to be relevant; (iv)
compared the proposed financial terms of the Merger with the financial terms, to
the extent publicly available, of certain other recent business combinations of
commercial banking organizations; (v) analyzed the pro forma financial impact of
the Merger on PAB; and (vi) conducted such other studies, analyses, inquiries
and examinations as Carson Medlin deemed appropriate.
Valuation Methodologies. The following is a summary of the principal
analyses performed by Carson Medlin and presented to the Investors Board of
Directors on December 3, 1997, in connection with Carson Medlin's opinion of
that date.
Summary of Proposal. Carson Medlin reviewed the terms of the proposed
Merger, including the form of consideration, the exchange ratio, the closing
price of PAB's Common Stock as of December 1, 1997, and the resulting price per
share of Investors Common Stock pursuant to the proposed Merger. Under the terms
of the Merger Agreement, PAB will issue and exchange 1,710,114 shares of PAB
Common Stock for all the Investors Common Stock, all the Investors warrants and
Investors options at the exchange ratios defined in the Merger Agreement. The
following table illustrates the resulting exchange ratio for Investors common
shareholders, warrant holders and option holders based on a range of PAB Common
Stock closing prices:
<TABLE>
<CAPTION>
Per Share Value of
Per Share Price Paid Exchange Ratio for Consideration Paid
Exchange Ratio for to Investors Investors Warrant to Investors Warrant
Common Common Holders and Option Holders and Option
PAB Stock Price Shareholders Shareholders Holders Holders
--------------- ------------ ------------ ------- -------
<S> <C> <C> <C> <C>
$16.00 3.032644 $48.52 2.407644 $38.52
16.50 3.028836 49.98 2.422776 39.98
17.00 3.025326 51.43 2.437016 41.43
17.50 3.021874 52.88 2.450444 42.88
18.00 3.018682 54.34 2.463126 44.34
18.50 3.015666 55.79 2.475122 45.79
19.00 3.012803 57.24 2.486487 47.24
19.50 3.010089 58.70 2.497269 48.70
20.00 3.007512 60.15 2.507512 50.15
</TABLE>
26
<PAGE>
THE ABOVE INFORMATION HAS BEEN ADJUSTED TO REFLECT THE TWO-FOR-ONE
STOCK SPLIT PAID MARCH 10, 1998 TO PAB SHAREHOLDERS OF RECORD ON FEBRUARY 17,
1998.
Based on the closing price of PAB Common Stock on December 1, 1997 of
$22.13, Investors Common Stock shareholders would receive $34.17 per share and
Investors warrant holders and option holders would receive $24.17 per share for
total consideration of $18,918,137. Carson Medlin calculated that the total
consideration represented 228% of stated book value and 258% of tangible book
value at September 30, 1997, 16.5 times estimated 1997 earnings, an 18.9% core
deposit premium (defined as the aggregate transaction value minus stated book
value divided by core deposits) and 24.8% of total assets of Investors at
September 30, 1997.
Industry Comparative Analysis. In connection with rendering its opinion,
Carson Medlin compared selected operating results of Investors and PAB to those
of 49 publicly traded community commercial banks in Alabama, Florida, Georgia,
North Carolina, South Carolina, Virginia and West Virginia (the "SIBR Banks") as
contained in the Southeastern Independent Bank Review(TM), a proprietary
research publication prepared by Carson Medlin quarterly since 1991. The SIBR
Banks range in asset size from approximately $103 million to $2.4 billion and in
shareholders' equity from approximately $10.9 million to $235 million. Carson
Medlin considers this group of financial institutions more comparable to
Investors than larger, more widely traded regional financial institutions.
Carson Medlin compared, among other factors, profitability, capitalization, and
asset quality of Investors to these financial institutions. Carson Medlin noted
that based on results through the six months ended June 30, 1997:
. Investors had a return on average assets ("ROA") of 1.60%, and PAB had
an ROA of 1.46%, compared to mean ROA of 1.24% for the SIBR Banks.
. Investors had a return on average equity ("ROE") of 12.3%, and PAB had
an ROE of 15.4%, compared to mean ROE of 12.5% for the SIBR Banks;
. Investors had common equity to total assets at June 30, 1997 of
13.08%, and PAB's equity totaled 9.61%, compared to mean common equity
to total assets of 9.69% for the SIBR Banks; and
. Investors had non-performing assets (defined as loans 90 days past
due, nonaccrual loans and other real estate) to total loans net of
unearned income and other real estate at June 30, 1997 of 0.19%,
approximately the same as PAB's, compared to mean non-performing
assets to total loans net of unearned income and other real estate of
0.97% for the SIRB Banks.
This comparison indicated that Investors' financial performance was above
the average SIBR Bank for all of the factors considered. PAB's financial
performance also exceeded the average SIBR Bank for most of the factors
considered.
Carson Medlin also compared selected operating results of PAB to those of
five other publicly-traded community bank holding companies defined as those
with assets between $200 and $800 million (the "Peer Banks") located in Georgia.
The Peer Banks include: Century South Banks, Inc., First Banking Company of
Southeast Georgia, First State Corporation, Habersham Bancorp and Southwest
Georgia Financial Corp. Carson Medlin considers this group of community
financial institutions comparable to PAB as to financial characteristics, stock
price performance and trading volume. Carson Medlin compared selected balance
sheet data, asset quality, capitalization, profitability ratios and market
statistics using financial data at or for the nine months ended September 30,
1997 and market data as of December 1, 1997. This comparison showed, among other
things, that:
. for the nine months ended September 30, 1997, PAB's ROA was 1.40%
compared to a mean of 1.16% and a median of 1.40% for the Peer Banks;
. for the nine months ended September 30, 1997, PAB's ROE was 14.63%
compared to a mean of 11.41% and a median of 13.87% for the Peer
Banks;
. at September 30, 1997, PAB's stockholders' equity to total assets was
9.70% compared to a mean of 10.17% and a median of 10.21% for the Peer
Banks;
27
<PAGE>
. at September 30, 1997, PAB's non-performing assets to total assets
were 0.17% compared to a mean of 0.83% and a median of 0.78% for the
Peer Banks;
. at September 30, 1997, the ratio of PAB's loan reserves to total loans
was 1.26% compared to a mean of 1.59% and a median of 1.60% for the
Peer Banks; and
. at December 1, 1997, PAB's market capitalization was $62 million
compared to the Peer Banks which ranged from a low of $48 million to a
high of $182 million.
This comparison indicated that PAB's financial performance is above average
in comparison to the Peer Banks for most of the factors considered.
Comparable Transaction Analysis. Carson Medlin reviewed certain information
relating to 10 selected southwest Georgia bank mergers announced since January
1995 (the "Comparable Transactions"), The Comparable Transactions were
(acquiree/acquiror): Tifton Banks, Inc./First Liberty Financial Corp., Pineland
State Bank/South Banking Company, First National Bank of Effingham/First Banking
Company of Southeast Georgia, Central Bancshares/ABC Bancorp, Middle Georgia
Bank/First Liberty Financial Corp., Ogeechee Valley Bank/The Queensborough
Company, First National Financial Corp./ABC Bancorp, First State Bank/Mid-State
Banks, Bank Corporation of Georgia/Century South Banks, Inc., and Irwin
Bancorp/ABC Bancorp. Carson Medlin considered, among other factors, the
earnings, capital level, asset size and quality of assets of the acquired
financial institutions. Carson Medlin compared the transaction prices to stated
book values, earnings, total assets and core deposit premiums.
The eight Comparable Transactions had an average price to stated book value
of 181%, a price to earnings multiple of 16.9 times, a price to total assets of
17.8%, and a core deposit premium of 9.9%. The aggregate consideration paid to
Investors had a value of approximately $18.9 million based on the December 1,
1997 closing price for PAB Common Stock and the 855,057 shares of PAB Common
Stock to be issued under the terms of the Merger Agreement. This results in a
price to stated book value of 228%, a price to earnings multiple of 16.5 times,
a price to assets ratio of 24.8%, and a core deposit premium of 18.9%. Carson
Medlin determined that the aggregate consideration to be paid was above average
for most of the factors considered.
No company or transaction used in Carson Medlin's analyses is identical to
PAB, Investors or the contemplated transaction. Accordingly, the results of
these analyses necessarily involves complex considerations and judgments
concerning differences in financial and operating characteristics of PAB and
Investors and other facts that could affect the value of the companies to which
they have been compared.
Present Value Analysis. Carson Medlin calculated the present value of
Investors assuming that Investors remained an independent bank. For purposes of
this analysis, Carson Medlin utilized certain projections of Investors future
earnings and dividends. It assumed that the Investors Common Stock would be sold
at the end of five years at 200% of projected book value. This value was then
discounted to present value utilizing discount rates of 15% through 17%. These
rates were selected because, in Carson Medlin's experience, they represent the
rates that investors in securities such as the Investors Common Stock would
demand in light of the potential appreciation and risks. On the basis of these
assumptions, Carson Medlin calculated that the present value of Investors as an
independent bank ranged from $13.3 million to $14.4 million. The consideration
implied by the terms of the Merger Agreement was $18.9 million which falls above
the high end of the range under present value analysis. Carson Medlin noted that
the present value analysis was included because it is a widely used valuation
methodology, but noted that the results of such methodology are highly dependent
upon the numerous assumptions that must be made, including earnings growth
rates, dividend payout rates, terminal values and discount rates.
Stock Trading History. Carson Medlin reviewed and analyzed the historical
trading prices and volumes for the PAB Common Stock on a monthly basis since
September 1996 to November 1997. Carson Medlin also compared price performance
of the PAB Common Stock during this period to the eight Peer Banks. Carson
Medlin considers PAB Common Stock to be liquid and marketable in comparison with
these Peer Banks and other bank holding companies.
The ratio of month end stock price to trailing 12 months earnings per share
for the Peer Banks ranged from 12.5 times to 20.4 times over the past 15 months
ending November 30, 1997. PAB's stock price to earnings ratio ranged from 15.6
times to 18.8 times trailing 12 months earnings over the same period. PAB Common
Stock has
28
<PAGE>
traded on average at a slightly lower price to earnings ratio than the Peer
Banks from December 1996 through November 1997.
The month end stock price as a percentage of book value for Peer Banks over
the fifteen month period ended November 30, 1997 ranged from 184% to 219%. PAB's
month end stock price to book ratio ranged from 201% to 240% over the period.
PAB Common Stock has traded slightly below average on a price to book value
basis compared to the Peer Banks over the past two months but in general has
been in line with the Georgia Peer Group Banks.
Carson Medlin also examined the trading prices and volumes of Investors
Common Stock. Investors Common Stock has not traded in volumes sufficient to be
meaningful. Therefore, Carson Medlin did not place any weight on the market
price of the Investors Common Stock.
Contribution Analysis. Carson Medlin reviewed the relative contributions in
terms of various balance sheet and income statement components to be made by
Investors and PAB to the combined institution based on (i) balance sheet data at
September 30, 1997, and (ii) nine month earnings as of September 30, 1997. The
income statement and balance sheet components analyzed included total assets,
net loans, total deposits, shareholders' equity, and net income. This analysis
showed that, while Investors shareholders would own approximately 23.2% of the
aggregate outstanding shares of the combined institution based on the
consideration to be received, Investors was contributing 19.9% of total assets,
18.1% of net loans, 20.5% of total deposits, 21.7% of shareholders' equity, and
21.4% of nine months 1997 net income.
Other Analyses. Carson Medlin also prepared an overview of historical
financial performance of Investors and PAB, and a shareholder claims analysis.
The opinion expressed by Carson Medlin was based upon market, economic and
other relevant considerations as they existed and have been evaluated as of the
date of the opinion. Events occurring after the date of issuance of the opinion,
including but not limited to, changes affecting the securities markets, the
results of operations or material changes in the assets or liabilities of
Investors could materially affect the assumptions used in preparing the opinion.
In connection with its opinion dated as of the date of this Joint Proxy
Statement/Prospectus, Carson Medlin confirmed the appropriateness of its
reliance on the analyses used to render its December 3, 1997 opinion by
performing procedures to update certain of such analyses and reviewing the
assumptions on which its analyses were based and the factors considered in
connection therewith.
Compensation of Carson Medlin. Pursuant to the Engagement Letter, Investors
engaged Carson Medlin to review the terms of the transaction and to render a
fairness opinion in connection with the Merger. Investors paid Carson Medlin
$25,000.00 for its services pursuant to the terms of the Engagement Letter.
Investors also agreed to reimburse Carson Medlin for its reasonable out-of-
pocket expenses and to indemnify Carson Medlin against certain liabilities,
including certain liabilities under the federal securities law.
MERGER CONSIDERATION
The Merger Agreement provides that, at the Effective Time, PAB will issue
and exchange 1,710,114 shares of PAB Common Stock (subject to adjustment in
certain circumstances as described herein) (the "Merger Consideration") for all
the issued and outstanding (i) shares of Investors Common Stock (excluding
treasury shares and shares held by shareholders who perfect their dissenter's
rights) and (ii) warrants and options to purchase Investors Common Stock, all
upon the terms as set forth below. The exchange ratios were developed to
preserve the relative value of each companies' stock price at the time of the
announcement of the Merger and to preserve a $10.00 difference in the
consideration to be exchanged for each share of Investors Common Stock and each
Investors warrant and Investors option. The purpose of the adjustments is to
take into account any required adjustments to the Bank's loan loss reserve,
transaction costs to Investors and the Bank above an agreed upon range, the
exercise of Investors warrants and options and the payment of the exercise price
to Investors. See " -Adjustments to the Merger."
Investors Common Stock. The Merger Agreement provides that, at the
Effective Time, each issued and outstanding share of Investors Common Stock
(excluding treasury shares and shares held by shareholders who perfect their
dissenter's rights) shall cease to be outstanding and shall be converted into
and exchanged for the right to receive that multiple of a share of PAB Common
Stock, determined by the exchange ratio as follows: each share of Investors
Common Stock shall be exchanged for that number of shares of PAB Common Stock
equal to the exchange ratio calculated by dividing (A) the result obtained by
dividing (i) the sum of (a) the product of 1,710,114 multiplied by the BPTP plus
(b) the aggregate exercise price of the Investors warrants and Investors options
by (ii) 588,278 (i.e., the total number of shares of Investors Common Stock
outstanding and underlying Investors options and Investors warrants) by (B) the
BPTP. The BPTP shall be determined by calculating the base period trading price
for PAB Common Stock as reported on the American Stock Exchange for the 20
consecutive trading days immediately preceding five days prior to the Effective
Time of the Merger.
The following chart indicates the equivalent value of PAB Common Stock to
be received by Investors shareholders for each share of Investors Common Stock
based upon various assumed BPTP of PAB Common Stock:
29
<PAGE>
<TABLE>
<CAPTION>
Equivalent Value of PAB Common
Stock per share of Investors
BPTP of PAB Common Stock Merger Consideration Common Stock
------------------------ -------------------- ------------------------------
<S> <C> <C>
$16.00 3.032644 $48.52
16.50 3.028836 49.98
17.00 3.025326 51.43
17.50 3.021874 52.88
18.00 3.018682 54.34
18.50 3.015666 55.79
19.00 3.012803 57.24
19.50 3.010089 58.70
20.00 3.007512 60.15
20.50 3.005060 61.60
21.00 3.002725 63.06
21.50 3.000498 64.51
22.00 2.998373 65.96
22.50 2.996342 67.42
23.00 2.994400 68.87
23.50 2.992539 70.32
24.00 2.990757 71.78
24.50 2.989047 73.23
25.00 2.987406 74.69
25.50 2.985829 76.14
26.00 2.984313 77.59
26.50 2.982854 79.05
27.00 2.981449 80.50
27.50 2.980095 81.95
28.00 2.978789 83.41
28.50 2.977529 84.86
29.00 2.976313 86.31
</TABLE>
THE ABOVE INFORMATION HAS BEEN ADJUSTED TO REFLECT THE TWO-FOR-ONE
STOCK SPLIT PAID MARCH 10, 1998 TO PAB SHAREHOLDERS OF RECORD ON FEBRUARY 17,
1998.
Investors Warrants and Options. The Merger Agreement provides that, at the
Effective Time, each issued and outstanding Investors warrant and each Investors
option shall cease to be outstanding and shall be converted into and exchanged
for the right to receive that multiple of a share of PAB Common Stock,
determined by the exchange ratio as follows: each Investors warrant and
Investors option shall be exchanged for that number of shares of PAB Common
Stock equal to the exchange ratio calculated by the following (A) the sum of (i)
the product of 1,710,114 multiplied by the BPTP and (ii) the aggregate exercise
price of the Investors warrants and Investors options, divided by (B) 588,278,
less (C) 10, divided by (D) the BPTP.
30
<PAGE>
The following chart indicates the per share value of consideration paid to
Investors warrant holders and option holders for each Investors warrant and
option based upon various assumed BPTP of PAB Common Stock:
<TABLE>
<CAPTION>
Value of Spread in Exercise
BPTP of PAB Common Stock Merger Consideration Price
------------------------ -------------------- ---------------------------
<S> <C> <C>
$16.00 2.407644 $38.52
16.50 2.422776 39.98
17.00 2.437016 41.43
17.50 2.450444 42.88
18.00 2.463126 44.34
18.50 2.475122 45.79
19.00 2.486487 47.24
19.50 2.497269 48.70
20.00 2.507512 50.15
20.50 2.517255 51.60
21.00 2.526534 53.06
21.50 2.535382 54.51
22.00 2.543827 55.96
22.50 2.551897 57.42
23.00 2.559617 58.87
23.50 2.567007 60.32
24.00 2.574090 61.78
24.50 2.580884 63.23
25.00 2.587406 64.69
25.50 2.593672 66.14
26.00 2.599697 67.59
26.50 2.605495 69.05
27.00 2.611078 70.50
27.50 2.616458 71.95
28.00 2.621646 73.41
28.50 2.626652 74.86
29.00 2.631486 76.31
</TABLE>
THE ABOVE INFORMATION HAS BEEN ADJUSTED TO REFLECT THE TWO-FOR-ONE
STOCK SPLIT PAID MARCH 10, 1998 TO PAB SHAREHOLDERS OF RECORD ON FEBRUARY
17, 1998.
The exact number of shares of PAB Common Stock to be issued in exchange for
Investors Common Stock, Investors warrants and Investors options is dependent on
the closing prices of PAB Common Stock as reported on the American Stock
Exchange during the twenty consecutive trading days ending five days prior to
the effective date. The actual market price of a share of PAB Common Stock at
the effective date or on the date on which certificates representing such shares
are received by former holders of Investors Common Stock, Investors warrants or
Investors options may be more or less than the last sales price per share of PAB
Common Stock on May 12, 1998 (on which the equivalent pro forma amounts
were determined) or on the date of the Investors Special Meeting. Investors
shareholders are urged to obtain information on the trading value of PAB Common
Stock that is more recent than that provided in this Joint Proxy
Statement/Prospectus.
ADJUSTMENTS TO THE MERGER CONSIDERATION
The Merger Agreement provides that the final Merger Consideration to be
received for all of the shares of Investors Common Stock, Investors warrants and
Investors options shall be reduced, if and as necessary, by the following sum:
(i) the amount as agreed upon by the parties to the Merger Agreement on or prior
to January 15, 1998, that the Bank's loan loss reserve should be increased
relating to the Bank's classified loans as of January 15, 1998, plus (ii) all
----
amounts in excess of $150,000 paid or to be paid by Investors or Bank or both
for the fees and expenses of Carson Medlin, consultants, attorneys and
accountants by Investors or Bank in connection with the Merger and the due
diligence conducted by Investors or Bank in regard to the Merger. The parties
agreed on January 15, 1998, that the Bank's loan loss reserve did not need to be
increased. Accordingly, no adjustment will be made pursuant to clause (i) above.
As of May 4, 1998, the total amount of expenses was approximately $114,912. In
the event of an adjustment, the Merger Consideration shall be reduced by that
number of whole shares of PAB Common Stock equal to the dollar amount of such
adjustment divided by $21.00, and such number of shares of PAB Common Stock
shall be substituted for 1,710,114 in the exchange ratio calculations in the
Merger Agreement.
In the event that prior to the Effective Time (as defined below) holders of
Investors warrants and Investors options exercise such warrants and options by
paying the $10.00 exercise price per warrant or option, then in accordance with
the exchange ratio formula described above, PAB will issue a certain number of
shares in addition to 1,710,114 in order to take into account the additional
capital contributed upon exercise.
31
<PAGE>
FRACTIONAL SHARES
Pursuant to the terms of the Merger Agreement, each holder of shares of
Investors Common Stock, Investors warrants or Investors options exchanged
pursuant to the Merger, who would otherwise have been entitled to receive a
fraction of a share of PAB Common Stock shall receive, in lieu thereof, cash
(without interest) in an amount equal to such fractional part of a share of PAB
Common Stock multiplied by $21.00. No such holder will be entitled to
dividends, voting rights, or any other rights as a shareholder in respect of any
fractional shares.
EFFECTIVE TIME
If the Merger Agreement is approved by the requisite votes of Investors
shareholders, the Issuance is approved by the requisite votes of PAB
shareholders, and all other required governmental and other consents and
approvals are received, and if the other conditions to the obligations of the
parties to consummate the Merger are satisfied or waived (as permitted), the
Merger will be consummated and effected on the date and at the time a
Certificate of Merger, reflecting the Merger, is filed with the Secretary of
State of the State of Georgia (the "Effective Time"). Unless otherwise mutually
agreed upon in writing by the chief executive officers of each of PAB and
Investors, PAB and Investors have agreed to use their reasonable efforts to
cause the Effective Time to occur on 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, (ii) the
dates on which the shareholders of Investors approve the Merger Agreement and
the shareholders of PAB approve the Issuance or (iii) such later date as may be
mutually agreed upon in writing by the chief executive officers of PAB and
Investors. Assuming satisfaction of all conditions to consummation of the
Merger, the Merger is expected to be made effective during the second quarter of
1998. Either PAB or Investors may terminate the Merger Agreement if the Merger
has not been consummated by June 30, 1998, subject to certain limitations. See
"- Conditions to Consummation" and "- Amendment, Waiver and Termination."
DISTRIBUTION OF PAB CERTIFICATES
Promptly after the Effective Time, PAB shall mail appropriate transmittal
materials to each record holder of Investors Common Stock, Investors warrants
and Investors options for use in effecting the surrender and cancellation of
those certificates in exchange for PAB Common Stock (which shall contain an
affidavit for lost or stolen stock certificates and which shall specify that
delivery shall be effected, and risk of loss and title to the certificates
theretofore representing shares of Investors Common Stock shall pass, only upon
proper delivery of such certificates to PAB by the former shareholders, warrant
holders and option holders of Investors). INVESTORS SHAREHOLDERS, WARRANT
HOLDERS AND OPTION HOLDERS SHOULD NOT SURRENDER THEIR CERTIFICATES FOR EXCHANGE
UNTIL THEY RECEIVE SUCH LETTER OF TRANSMITTAL AND INSTRUCTIONS. After the
Effective Time, each holder of shares of Investors Common Stock, Investors
warrants and Investors options issued and outstanding at the Effective Time
shall surrender the certificate or certificates representing such shares to PAB,
and the certificates thus surrendered will be canceled. Unless otherwise
designated by an Investors shareholder, warrant holder or option holder on the
transmittal letter, certificates representing shares of PAB Common Stock issued
to Investors shareholder, warrant holder or option holder in connection with the
Merger will be issued and delivered to the tendering Investors shareholder,
warrant holder or option holder at the address on record with the Investors
transfer agent. PAB shall not be obligated to deliver the consideration to
which any former holder of Investors Common Stock or Investors warrants and
Investors options is entitled until such holder surrenders such holder's
certificate or certificates representing such holder's shares, warrants or
options for exchange. The certificate or certificates so surrendered shall be
duly endorsed as PAB may require. No party shall be liable to a holder of
Investors Common Stock, Investors warrants or Investors options for any property
delivered in good faith to a public official pursuant to any applicable
abandoned property law.
After the Effective Time, holders of certificates will have no rights with
respect to the shares of Investors Common Stock, Investors warrants or Investors
options represented thereby other than the right to surrender such certificates
and receive in exchange therefor the shares of PAB Common Stock to which such
holders are entitled, as described above. In addition, no dividend or other
distribution payable to holders of record of PAB Common Stock will be paid to
the holder of any Investors certificates until such holder surrenders such
certificates for exchange as instructed. Subject to applicable law, upon
surrender of the certificates, such holder will receive the certificates
representing the shares of PAB Common Stock issuable with respect to such shares
of Investors
32
<PAGE>
Common Stock, Investors warrants or Investors options, all withheld dividends or
other distributions (without interest) and any withheld cash payments (without
interest) to which such shareholder is entitled.
If any certificate for PAB Common Stock is to be issued in a name other
than that in which Investors certificate surrendered for exchange is issued, the
Investors certificate so surrendered shall be properly endorsed and otherwise in
proper form for transfer, and the person requesting such exchange shall affix
any requisite stock transfer tax stamps to the certificates surrendered, shall
provide funds for their purchase, or shall establish to the exchange agent's
satisfaction that such taxes are not payable.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING IS A SUMMARY DISCUSSION OF CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER. THE DISCUSSION IS INCLUDED FOR GENERAL INFORMATION
PURPOSES ONLY AND MAY NOT APPLY TO A PARTICULAR SHAREHOLDER OR WARRANT HOLDER IN
LIGHT OF SUCH SHAREHOLDER'S OR WARRANT HOLDER'S PARTICULAR CIRCUMSTANCES.
SHAREHOLDERS AND WARRANT HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICATION OF
STATE, LOCAL AND FOREIGN TAX LAWS AND POSSIBLE FUTURE CHANGES IN FEDERAL INCOME
TAX LAWS AND THE INTERPRETATION THEREOF, WHICH CAN HAVE RETROACTIVE EFFECT.
Troutman Sanders LLP, counsel to PAB, is of the opinion that, for federal
income tax purposes, the Merger will be treated as a reorganization within the
meaning of Section 368(a) of the Code. Accordingly, (i) Investors will
recognize no gain or loss upon the transfer of its assets to PAB in the Merger;
(ii) PAB will recognize no gain or loss on receipt of the assets of Investors in
exchange for PAB Common Stock in the Merger; (iii) the tax basis of the assets
of Investors in the hands of PAB will, in each case, be the same as the basis of
those assets in the hands of Investors immediately prior to the Merger; (iv) the
holding period of the assets of Investors in the hands of PAB will, in each
case, include the period during which such assets were held by Investors; (v)
the shareholders and warrant holders will recognize no gain or loss upon the
exchange of their Investors Common Stock and Investors warrants solely for
shares of PAB Common Stock in the Merger; (vi) the basis of the PAB Common Stock
received by the Investors shareholders and warrant holders in the Merger will,
in each case, be the same as the basis of the Investors Common Stock and
Investors warrants surrendered in exchange therefor; (vii) the holding period of
the PAB Common Stock received by the Investors shareholders and Investors
warrant holders will, in each case, include the period during which the
Investors Common Stock and Investors warrants surrendered in exchange therefor
were held by the exchanging shareholders and warrant holders, provided that the
Investors Common Stock and Investors warrants were held as a capital asset in
the hands of the exchanging shareholders and warrant holders on the date of the
exchange; and (viii) the payment of cash to Investors shareholders and warrant
holders in lieu of fractional share interests in PAB Common Stock will be
treated as if the fraction shares were distributed as part of the exchange and
then redeemed by PAB. These cash payments will be treated as having been
received as distributions in full payment in exchange for the stock redeemed as
provided in Section 302(a) of the Code. Generally, any gain or loss recognized
upon such exchange will be capital gain or loss, provided the fractional shares
would constitute a capital asset in the hands of the exchanging shareholders or
warrant holders. When solely cash is received by an Investors shareholder in
exchange for Investors Common Stock pursuant to the exercise of dissenters
rights, such cash will be treated as having been received in redemption of such
shareholder's Investors Common Stock, subject to the provisions and limitations
of Section 302 of the Code.
A condition to consummation of the Merger is the receipt by each of PAB and
Investors of an opinion of Troutman Sanders LLP as to the qualification of the
Merger as a tax-free reorganization and certain other federal income tax
consequences of the Merger. No ruling has been or will be requested from the
Internal Revenue Service with respect to the federal income tax consequences of
the Merger. Troutman Sanders LLP has executed the opinion in the form which has
been included as an Exhibit to the Registration Statement regarding this Joint
Proxy Statement/Prospectus, and such opinion will be delivered to the parties
upon closing of the Merger. The opinion is based in part on the truth and
accuracy of certain representations and statements of fact and assumptions of
fact, upon which, with the consent of PAB and Investors, Troutman Sanders LLP
may rely.
33
<PAGE>
The foregoing discussion of the federal income tax consequences of the
Merger is included for general information only. The discussion is based on the
currently existing provisions of the Code, existing and proposed Treasury
Regulations thereunder and current administrative rulings and court decisions.
All of the foregoing are subject to change, possibly retroactively, and any such
change could affect the validity of this discussion. The discussion relates
only to shareholders of Investors Common Stock and Investors warrants who hold
such stock or warrants as capital assets and who are citizens or residents of
the United States. The discussion does not address tax consequences of the
Merger to holders of Investors options (other than the Investors warrants),
nor to any other categories of holders of Investors Common Stock or Investors
warrants who may be entitled to special treatment under the Code (including,
without limitation, foreign persons, tax-exempt organizations and dealers in
stocks and securities). The discussion does not address the state, local or
foreign tax aspects of the Merger.
Because certain tax consequences of the Merger may vary depending upon the
particular circumstances of each holder, holders should consult their own tax
advisors with regard to the specific tax consequences of the Merger to them.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
PAB Directors. At the Effective Time, Investors will be merged into PAB and
the Bank will become a wholly-owned subsidiary of PAB. Thereafter, the Bank
will be merged into FCB. PAB will continue to operate in accordance with its
Articles of Incorporation and Bylaws as in effect on the date of the Merger
Agreement until otherwise amended or repealed after the Effective Time.
Following the consummation of the Merger, PAB shall add three Directors of
Investors to the PAB Board of Directors. Such three directors shall be
nominated by the Investors Board of Directors subject to approval by PAB, which
such approval shall not be unreasonably withheld. At the first annual meeting of
PAB shareholders following the effective date, PAB will nominate two such
Investors nominees to serve for a two-year term and one such Investors nominee
to serve for a three-year term and will recommend that PAB shareholders vote in
favor of their respective elections. Each newly-elected Investors nominee will
serve provided he or she retains at least 50% of the PAB Common Stock he or she
received in the Merger and refrains from conduct that would constitute "cause"
for removal under PAB's Articles of Incorporation or Bylaws. Each Investors
nominee who has attained the age of 60 as of December 31, 1997 will be exempt
from any mandatory retirement provisions applicable to such PAB directors.
Bank Directors. At the Effective Time, all Bank directors will be added to
the Board of Directors of FCB. Such new directors of FCB will be elected by PAB
to serve on the Board of Directors of FCB for at least three years after the
effective date. Directors of the Bank who have attained the age of 60 as of
December 31, 1997 will be exempt from the mandatory retirement provisions of the
FCB Bylaws or otherwise applicable to FCB directors and officers. Each newly
elected Bank director nominee will serve provided he or she retains at least 50%
of the PAB Common Stock he or she received in the Merger and refrains from
conduct that would constitute "cause" for removal under FCB's Charter or Bylaws.
PAB Executive Officers. The executive officers of PAB in office immediately
prior to the Effective Time shall serve as the executive officers of PAB from
and after the Effective Time in accordance with the Bylaws of PAB.
Bank Executive Officers. Upon the consummation of the merger of Bank into
FCB, Tracy A. Dixon will become chief executive officer of FCB, Judy M. Powell
will become an executive officer of FCB and Major H. Brannen, Jr. will be
offered an executive officer position with FCB.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
As of the Investors Record Date, the directors and executive officers of
Investors owned 36,145 shares of PAB Common Stock. Other than as described
herein, no director or executive officer of PAB or Investors, and no associate
of any such person, has any substantial interest, direct or indirect, in the
Merger, other than an interest arising from the ownership of Investors Common
Stock, Investors warrants and Investors options in which case the director or
officer receives no extra or special benefit not shared on a pro rata basis by
all other holders of Investors Common Stock.
Certain members of Investors' management and Board of Directors may be
deemed to have interests in the Merger in addition to their interests as
shareholders of Investors generally. In each case, the Board of Directors of
34
<PAGE>
Investors either was aware of these factors or, with respect to interests that
arose subsequent to the Merger Agreement, was aware of their potential, and
considered them, among other matters, in approving the Merger Agreement and the
transactions contemplated thereby. Tracy A. Dixon will become chief executive
officer and Judy M. Powell will become an executive officer of FCB when the Bank
is merged into FCB. Mr. Dixon and Ms. Powell have entered into employment
agreements, which are contingent upon consummation of the Merger, with FCB,
which provide that in the event of a change in control such as the acquisition,
merger or consolidation of PAB, and if FCB terminates either officer without
cause, he or she shall receive severance benefits. These severance benefits
include either (i) a lump sum equal to two and eleven twelfths (2-11/12)
multiplied by the officer's annual compensation from FCB, including salary,
bonuses, all perquisites and all other forms of compensation paid to such
officer for his benefit or the benefit of his family for the fiscal year during
the term of the employment agreement for which such compensation was highest or
(ii) twelve monthly payments totaling in the aggregate the sum in (i) above and
medical insurance and related benefits provided to such officer and his family
for a period of one year. Such severance payments, based upon the officers'
total compensation for 1997, would total approximately $321,417 and $154,875 for
Mr. Dixon and Ms. Powell, respectively. Additionally, FCB shall pay the
officer's base salary as accrued through the date of the termination of
employment at the higher of the rate in effect at time of termination and the
highest rate in effect at any time during the term of the employment agreement.
Major H. Brannen, Jr., director and executive officer of the Bank, has been
offered an executive officer position at FCB contingent upon consummation of the
Merger. The employment agreements restrict Mr. Dixon and Ms. Powell from (i)
disclosing the Bank's trade secrets, (ii) competing with the Bank for a period
of 12 months following termination within a 50 mile radius, and (iii) employing
any employee of the Bank for 18 months following termination. The employment
agreements also set forth compensation, benefits, duties and severance
arrangements which the parties believe are typical for transactions of this
magnitude. PAB has also agreed to indemnify present and former directors,
officers, employees and agents of Investors and the Bank against all claims
relating to their actions or omissions in such capacity. PAB has also agreed to
provide directors and officers insurance coverage covering Investors directors
and officers for three years from the effective date.
The Merger Agreement provides that, after the Effective Time, PAB will
provide generally to officers and employees of Investors, employee benefits
under employee benefit plans, on terms and conditions that, when taken as a
whole, are substantially similar to those currently provided by PAB and its
subsidiaries to their similarly situated officers and employees, provided that,
for a period of 12 months after the Effective Time, PAB shall provide generally
to officers and employees of Investors severance benefits in accordance with the
policies of either (i) Investors or (ii) PAB, whichever of (i) or (ii) will
provide the greater benefit to the officer or employee. For purposes of
participation, vesting and benefit accrual under such employee benefit plans,
service with Investors prior to the Effective Time will be treated as service
with PAB or its subsidiaries. The Merger Agreement also provides that PAB will
honor all employment, severance, consulting and other compensation contracts
previously disclosed to PAB between Investors and any current or former
director, officer or employee, and all provisions for vested amounts earned or
accrued through the Effective Time under Investors' benefit plans.
At the Effective Time, all rights with respect to Investors Common Stock
pursuant to stock options granted by Investors under the Investors Key Employee
Stock Option Plan (the "Investors Option Plan"), which are outstanding at the
Effective Time, whether or not then exercisable, will be exchanged for PAB
Common Stock.
CONDITIONS TO CONSUMMATION
The obligations of Investors, the Bank and PAB to consummate the Merger are
subject to the satisfaction or waiver (to the extent permitted) of the following
conditions: (i) the Merger, the Merger Agreement and all other documents and
instruments to be delivered in connection therewith shall have been approved by
the shareholders of Investors and the Issuance shall have been approved by the
shareholders of PAB, (ii) the required regulatory approvals described under
"Regulatory Approvals" shall have been received, generally without any
conditions or requirements which would, in the reasonable judgment of the Board
of Directors of either PAB or Investors, materially adversely affect the
economic or business benefits of the transactions contemplated by the Merger
Agreement so as to render inadvisable the consummation of the Merger, (iii) each
party shall have received any required consents of third parties; (iv) the
Registration Statement of which this Joint Proxy Statement/Prospectus is a part
shall have been declared effective by the Commission and shall not be subject to
a stop order or any threatened stop order, and the shares of PAB Common Stock
issuable in connection with the Merger shall have been qualified, registered or
otherwise approved for exchange under the securities laws of the various states
in which such qualification, registration or approval is required; (v) PAB and
Investors shall have received an opinion of Troutman Sanders LLP as to certain
tax matters; (vi) the other party's representations and warranties shall remain
accurate generally in all material respects, and the other party shall have
performed generally in all material respects all of the agreements, covenants,
acts and undertakings to be performed by it pursuant to the Merger Agreement,
and shall have delivered certificates confirming satisfaction of the foregoing
requirements; (vii) each party shall have received an opinion of the other
party's counsel, dated the closing date, as to certain matters; (viii) PAB and
Investors shall have received a letter from Stewart, Fowler & Stalvey, P.C. to
the effect that the Merger will qualify for pooling-of-interests accounting
treatment; (ix) PAB shall have received a letter from each affiliate of
Investors to the extent necessary to assure PAB that the share exchange and
subsequent holding period and compliance with Rule 145 of the Securities Act
contemplated in the Merger Agreement will qualify for pooling-of-interests
accounting treatment; (x) PAB shall have received from Stewart, Fowler &
Stalvey, P. C., letters with respect to certain financial information regarding
Investors and Bank; (xi) Investors shall have received a fairness opinion from
Carson Medlin dated as of the date of this Joint Proxy Statement/Prospectus;
(xii) the Shares of PAB Common
35
<PAGE>
Stock issued pursuant to the Merger shall have been approved for listing on the
American Stock Exchange; and (xiii) Messrs. Dixon and Brannen and Ms. Powell
each shall have been offered an employment agreement in substantially the form
attached to the Merger Agreement. The tax opinion will be delivered by Troutman
Sanders LLP upon closing of the Merger in the form which has been included as an
Exhibit to the Registration Statement regarding this Joint Proxy
Statement/Prospectus.
No assurances can be provided as to when or if all of the conditions
precedent to the Merger can or will be satisfied or waived by the appropriate
party. As of the date of this Joint Proxy Statement/Prospectus, the parties
know of no reason to believe that any of the conditions set forth above will not
be satisfied.
The conditions to consummation of the Merger may be waived, in whole or in
part, to the extent permissible under applicable law, by the party for whose
benefit the condition has been imposed, without the approval of either the
Investors shareholders or the PAB shareholders. Nevertheless, in the event that
the tax opinion of Troutman Sanders LLP is not deliverable at the closing of the
Merger or if the federal income tax consequences in the opinion differ
materially from those set forth herein, the parties may undertake to resolicit
the approvals of Investors' and PAB's shareholders to the Merger. See
"Amendment, Waiver, and Termination."
REGULATORY APPROVALS
The Merger is subject to the prior approval of the Federal Reserve under
the BHC Act, and the DBF under the Financial Institutions Code of Georgia (the
"FICG"). On April 14, 1998, PAB received approval from the DBF to acquire
Investors subject to Investors shareholder approval and the maintenance of
Bank's capital adequacy by PAB after the consummation of the Merger. On April
27, 1998, PAB received approval from the Federal Reserve to acquire Investors
pursuant to the Merger. The Merger may not be consummated before the fifteenth
day following the approval of the Merger by the Federal Reserve, during which
time the United States Department of Justice and other interested parties have
the opportunity to file suit seeking to enjoin consummation of the Merger on
antitrust grounds.
AMENDMENT, WAIVER AND TERMINATION
To the extent permitted by law, Investors and PAB, with the approval of
their respective Boards of Directors, may amend the Merger Agreement by written
agreement at any time without the approval of the shareholders of Investors,
provided that after the approval of the Merger by Investors' shareholders, no
amendment may decrease the consideration to be received by Investors
shareholders without the requisite approval of Investors shareholders.
Prior to or at the Effective Time, PAB, acting through its Board of
Directors, chief executive officer or other authorized officer, or Investors,
acting through its Board of Directors, may waive any default in the performance
of any term of the Merger Agreement by the other party, may waive or extend the
time for the fulfillment by the other party of any of its obligations under the
Merger Agreement, and may waive any of the conditions precedent to the
obligations of such party under the Merger Agreement, except any condition that,
if not satisfied, would result in the violation of an applicable law or
governmental regulation.
The Merger Agreement may be terminated, and the Merger abandoned, at any
time prior to the Effective Time by mutual consent of the Boards of Directors of
PAB and Investors. In addition, the Merger Agreement may be terminated, and the
Merger abandoned, prior to the Effective Time by either PAB or Investors if (i)
the other party breaches and does not timely cure any representation, warranty,
covenant or other agreement contained in the Merger Agreement and generally such
breach, individually or in the aggregate, has a "Material Adverse Effect" (as
defined in the Merger Agreement) on the non-breaching party, (ii) any consent or
approval of certain regulatory authorities is 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, (iii) the Investors shareholders or
PAB shareholders fail to vote their approval of the Merger Agreement and
Issuance, respectively, (iv) the Merger has not been consummated by June 30,
1998, but only if the failure to consummate the Merger on or before such date is
not caused by any breach of the Merger Agreement by the party electing to
terminate for this reason, or (v) by PAB in the event that the Board of
Directors of Investors shall have failed to reaffirm, following a written
request by PAB for such reaffirmation after Investors shall have received any
inquiry or proposal with respect to an "Acquisition Proposal" (as defined in the
Merger Agreement), its approval of the Merger (to the exclusion of any other
Acquisition Proposal), or shall have resolved not to reaffirm the Merger. See
"Expenses and Fees."
36
<PAGE>
CONDUCT OF BUSINESS PENDING THE MERGER
Each party generally has agreed in the Merger Agreement, unless the prior
consent of the other party is obtained, and except as otherwise contemplated by
the Merger Agreement, to operate their respective businesses only in the
ordinary course, to preserve their respective businesses and assets and to
maintain their respective rights and franchises and to take no action that would
adversely affect either the ability of either party to perform such party's
covenants and agreements under the Merger Agreement or the ability of either
party to obtain any consents or approvals pursuant to any contract, law, order
or permit that are required for the transactions contemplated by the Merger
Agreement. In addition, the Merger Agreement contains certain other
restrictions applicable to the conduct of the business of each party prior to
consummation of the Merger as described below.
Investors and Bank have agreed in the Merger Agreement that neither of them
will take certain actions relating to the operation of their respective
businesses pending consummation of the Merger without the prior approval of PAB.
Those actions generally include, without limitation: (i) amending its Articles
or Bylaws; (ii) becoming responsible for any obligation for borrowed money in
excess of an aggregate of $50,000, except in the ordinary course of their
respective businesses consistent with past practices; (iii) acquiring or
exchanging (other than exchanges in the ordinary course under employee benefit
plans) any shares of its capital stock of Investors or paying any dividend on
Investors Common Stock exceeding $0.14 per share and only if certain conditions
are satisfied; (iv) subject to certain exceptions, issuing, selling or pledging
additional shares of their respective capital stock, any rights to acquire any
such stock or any security convertible into such stock; (v) adjusting or
reclassifying any of its capital stock or selling or otherwise disposing of any
asset having a book value in excess of $25,000, other than in the ordinary
course of business, (vi) acquiring control over any real property; (vii)
granting any increase in compensation or benefits to its employees or officers
exceeding 5% (except as previously disclosed to the other party or as required
by law), paying any bonus (except as previously disclosed to the other party or
in accordance with any existing program or plan), entering into or amending any
severance agreements with its officers or granting any increase in compensation
or other benefits to any of its directors (except as previously disclosed to
the other party); (viii) entering into or amending any employment contract that
it does not have the unconditional right to terminate without certain liability;
(ix) subject to certain exceptions, adopting any new employee benefit plan or
program or materially changing any existing plan or program; (x) making any
significant changes in accounting methods, except for any change required by
law; (xi) commencing any litigation other than in accordance with past practice
or settling any litigation for money damages in excess of $25,000 or which place
material restrictions on the operations of Investors; or (xii) materially
amending or terminating any material contracts or waiving, releasing or
assigning any material rights or claims.
In addition, Investors has agreed that neither Investors nor its advisors
and other representatives will solicit, directly or indirectly, any acquisition
proposal from any other person or entity. Each party also has agreed not to
negotiate with respect to any such proposal, to provide information to any party
making such a proposal or to enter into any agreement with regard to any such
proposal, except in compliance with its legal obligations or the fiduciary
obligations of its Board of Directors.
EXPENSES AND FEES
The Merger Agreement provides that each party shall be responsible for its
own costs and expenses incurred in connection with the negotiation and
consummation of the transactions contemplated by the Merger Agreement. In
addition, if prior to the Effective Time, the Merger Agreement is terminated by
either party as a result of the other party's breach of such party's
representations, warranties, or agreements set forth the Merger Agreement, such
party will be required to pay an amount in cash equal to the non-breaching
party's reasonable direct costs and expenses relating to the Merger plus an
additional sum equal to $50,000. In addition to the foregoing, if the Merger
Agreement is terminated as a result of the imposition by regulatory authorities
of material restrictions or conditions in the consent of such regulatory
authority which relates to antitrust or competitive effect issues or because of
the failure of the regulatory authority to grant a necessary consent prior to
June 30, 1998 as a result of antitrust or competitive effects issues, PAB shall
pay to Investors one-half of the reasonable direct costs and expenses incurred
by or on behalf of Investors or Bank, or both, not to exceed $50,000.
ACCOUNTING TREATMENT
The Merger is anticipated to be accounted for on a pooling-of-interests
accounting basis. Under this method of accounting, as of the Effective Time,
the assets and liabilities of Investors would be added to those of PAB at their
recorded book values and the shareholders' equity accounts of PAB and Investors
would be combined
37
<PAGE>
on PAB's consolidated balance sheet. The unaudited pro forma financial
information contained in this Joint Proxy Statement/Prospectus has been prepared
using the pooling-of-interests accounting method to account for the Merger. See
"SUMMARY" and "PRO FORMA COMBINED FINANCIAL DATA."
RESALES OF PAB COMMON STOCK
The shares of PAB Common Stock issued in connection with the Merger will be
freely transferable under the Securities Act, except for shares issued to any
shareholder who may be deemed to be an "affiliate" (generally including, without
limitation, directors, certain executive officers, and beneficial owners of 10%
or more of any class of capital stock) of Investors for purposes of Rule 145
under the Securities Act as of the date of the Investors Special Meeting or for
purposes of applicable interpretations regarding pooling-of-interests accounting
treatment. Such affiliates may not sell their shares of PAB Common Stock
acquired in connection with the Merger except pursuant to an effective
registration statement under the Securities Act or an applicable exemption from
the registration requirements of the Securities Act and until such time as
financial results covering at least 30 days of combined operations of PAB and
Investors after the consummation of the Merger have been published. PAB will
place restrictive legends on certificates representing PAB Common Stock issued
to all persons who are deemed to be "affiliates" of Investors under Rule 145.
In addition, Investors has agreed to use its reasonable efforts to cause each
person or entity that is an "affiliate" to enter into a written agreement in
substantially the form attached to the Merger Agreement relating to such
restrictions on sale or other transfer. This Joint Proxy Statement/Prospectus
does not cover resales of PAB Common Stock received by any person who may be
deemed to be an affiliate of Investors.
DISSENTERS' RIGHTS
Pursuant to the provisions of Article 13 of the GBCC, if the Merger is
consummated, any holder of record of Investors Common Stock who (i) gives to
Investors, prior to the vote at the Investors Special Meeting with respect to
the approval of the Merger Agreement, written notice of such holder's intent to
demand payment for such holder's shares, and (ii) does not vote in favor
thereof, shall be entitled to receive, upon compliance with the statutory
requirements summarized below, the fair value of such holder's shares as of the
Effective Time, excluding any appreciation or depreciation in anticipation of
the Merger.
A record shareholder may assert dissenters' rights as to fewer than all the
shares registered in such holder's name only if such holder dissents with
respect to all shares beneficially owned by any one beneficial shareholder and
such holder notifies Investors in writing of the name and address of each person
on whose behalf such holder asserts dissenters' rights. The rights of such a
partial dissenter are determined as if the shares as to which such holder
dissents and such holder's other shares were registered in the name of different
shareholders.
The written objection requirement referred to above will not be satisfied
under the Georgia statutory provisions by merely voting against approval of the
Merger Agreement by proxy or in person at the Investors Special Meeting. Any
holder of Investors Common Stock who returns a signed proxy but fails to provide
instructions as to the manner in which such shares are to be voted will be
deemed to have voted in favor of the Merger and will not be entitled to assert
dissenters' rights of appraisal. In addition to not voting in favor of the
Merger Agreement, a shareholder wishing to preserve the right to dissent and
seek appraisal must give a separate written notice of such holder's intent to
demand payment for such holders shares if the Merger is effected, as hereinabove
provided.
Any written objection to the Merger Agreement satisfying the requirements
discussed above should be addressed as follows: Investors Financial
Corporation, 226 South Broad Street, Bainbridge, Georgia 31717-3616, Attention:
Corporate Secretary.
If the Merger is authorized at the Investors Special Meeting, Investors
must deliver a written dissenters' notice (the "Dissenters' Notice") to all
holders of Investors Common Stock who satisfied the foregoing requirements. The
Dissenters' Notice must be sent within ten days after the Effective Time and
must (i) state where the demand for payment must be sent and where and when
certificates for shares of Investors Common Stock must be deposited, (ii) inform
holders of uncertificated shares to what extent transfer of these shares will be
restricted after the demand for payment is received, (iii) set a date by which
Investors must receive the demand for payment (which date may not be fewer than
30 or more than 60 days after the Dissenters' Notice is delivered), and (iv) be
accompanied by a copy of Article 13.
38
<PAGE>
A record shareholder who receives the Dissenters' Notice must demand
payment and deposit such holder's certificates in accordance with the
Dissenters' Notice. Such shareholder will retain all other rights of a
shareholder until those rights are canceled or modified by the consummation of
the Merger. A RECORD SHAREHOLDER WHO DOES NOT DEMAND PAYMENT OR DEPOSIT SUCH
HOLDERS SHARE CERTIFICATES WHERE REQUIRED, EACH BY THE DATE SET IN THE
DISSENTERS' NOTICE, IS NOT ENTITLED TO PAYMENT FOR SUCH HOLDER'S SHARES UNDER
ARTICLE 13.
Except as described below, PAB (as the Surviving Corporation resulting from
the Merger) must, within ten days of the later of the Effective Time or receipt
of a payment demand, offer to pay to each dissenting shareholder who complied
with the payment demand and deposit requirements described above the amount the
Surviving Corporation estimates to be the fair value of such holder's shares,
plus accrued interest. Such offer of payment must be accompanied by (i) certain
recent Investors financial statements, (ii) the Surviving Corporation's estimate
of the fair value of the shares, (iii) an explanation of how the interest was
calculated, (iv) a statement of the dissenter's right to demand payment under
Section 14-2-1327 of the GBCC, and (v) a copy of Article 13. If the shareholder
accepts the Surviving Corporation's offer, payment must be made within 60 days
after the date of the making of the offer or the Effective Time, whichever is
later.
If the Merger is not effected within 60 days after the date set forth
demanding payment and depositing share certificates, Investors must return the
deposited certificates and release the transfer restrictions imposed on
uncertificated shares. If, after such return and release, the Merger is
effected, the Surviving Corporation must send a new Dissenters' Notice and
repeat the payment demand procedure described above.
Section 14-2-1327 of the GBCC provides that a dissenting shareholder may
notify the Surviving Corporation in writing of such holder's own estimate of the
fair value of such holder's shares and the interest due, and may demand payment
of such holder's estimate, if (i) such holder believes that the amount offered
by the Surviving Corporation is less than the fair value of such holder's shares
or that the interest due has been calculated incorrectly, or (ii) Investors
having failed to effect the Merger, 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. A DISSENTING SHAREHOLDER WAIVES
SUCH HOLDERS' RIGHT TO DEMAND PAYMENT UNDER SECTION 14-2-1327 UNLESS SUCH HOLDER
NOTIFIES THE SURVIVING CORPORATION OF SUCH HOLDERS DEMAND IN WRITING WITHIN 30
DAYS AFTER THE SURVIVING CORPORATION MAKES OR OFFERS PAYMENT FOR SUCH HOLDER'S
SHARES. If the Surviving Corporation does not offer payment within ten days of
the later of the Effective Time or receipt of a payment demand, then (i) the
shareholder may demand the financial statements and other information required
to accompany the Surviving Corporation's payment offer, and the Surviving
Corporation must provide such information within ten days after receipt of the
written demand, and (ii) the shareholder may notify the Surviving Corporation of
such holder's own estimate of the fair value of such holder's shares and the
amount of interest due, and may demand payment of that estimate.
If a demand for payment under Section 14-2-1327 remains unsettled, the
Surviving Corporation must commence a nonjury equitable valuation proceeding in
the Superior Court of Lowndes County, Georgia within 60 days after received the
payment demand and must petition the court to determine the fair value of the
shares and accrued interest. If the Surviving Corporation does not commence the
proceeding within those 60 days, it is required to pay each dissenting
shareholder whose demand remains unsettled, the amount demanded. The Surviving
Corporation is required to make all dissenting shareholders whose demands remain
unsettled parties to the proceeding and to serve a copy of the petition upon
each dissenting shareholder. The court may appoint appraisers to receive
evidence and to recommend a decision on fair value. Each dissenting shareholder
made a party to the proceeding is entitled to judgment for the fair value of
such holder's shares plus interest to the date of judgment.
The court in an appraisal proceeding commenced under the foregoing
provisions must determine the costs of the proceeding, excluding fees and
expenses of attorneys and experts for the respective parties, and must assess
those costs against the Surviving Corporation, except that the court may assess
the costs against all or some of the dissenting shareholders to the extent the
court finds they acted arbitrarily, vexatiously, or not in good faith in
demanding payment under Section 14-2-1327. The court also may assess the fees
and expenses of attorneys and experts for the respective parties against the
Surviving Corporation if the court finds the Surviving Corporation did not
substantially comply with the requirements of specified provisions of Article
13, or against either the Surviving Corporation or a dissenting shareholder if
the court finds that such party acted arbitrarily, vexatiously, or not in good
faith with respect to the rights provided by Article 13.
39
<PAGE>
If the court finds that the services of attorneys for any dissenting
shareholder were of substantial benefit to other dissenting shareholders
similarly situated, and that the fees for those services should not be assessed
against the Surviving Corporation, the court may award those attorneys
reasonable fees out of the amounts awarded the dissenting shareholders who were
benefited. No action by any dissenting shareholder to enforce dissenters'
rights may be brought more than three years after the Effective Time, regardless
of whether notice of the Merger and of the right to dissent was given by
Investors or the Surviving Corporation in compliance with the Dissenters' Notice
and payment offer requirements.
The foregoing is a summary of the material rights of the dissenting
shareholder of Investors, but is qualified in its entirety by reference to
Article 13, included in Appendix C to this Joint Proxy Statement/Prospectus.
Any Investors shareholder who intends to dissent from approval of the Merger
Agreement should carefully review the text of such provisions and should also
consult with such holder's attorney. No further notice of the events giving
rise to dissenters' rights or any steps associated therewith will be furnished
to Investor shareholders, except as indicated above or otherwise required by
law.
Any dissenting Investors shareholder who perfects such holder's right to be
paid the value of such holder's shares will recognize taxable gain or loss upon
receipt of cash for such shares for federal income tax purposes. See "Certain
Federal Income Tax Consequences."
40
<PAGE>
PAB BANKSHARES, INC. AND SUBSIDIARIES AND
INVESTORS FINANCIAL CORPORATION AND SUBSIDIARY
Pro Forma Financial Information
Pro Forma Condensed Combined Balance Sheet
December 31, 1997
The following pro forma condensed combined balance sheet combines the
historical consolidated balance sheets of PAB and Investors giving effect to the
Merger as if the Merger had been effective December 31, 1997. The acquisition
of Investors will be accounted for using the pooling-of-interests method of
accounting. The proposed acquisition will involve the acquisition of 100% of
the issued and outstanding shares, warrants and options of Investors in exchange
for 1,710,114 shares of PAB common stock (see note (a)). This pro forma
condensed combined balance sheet assumes that as part of the Merger, 1,710,114
shares of PAB Common Stock will be issued in exchange for all the shares of
Investors' Common Stock, Investors warrants and Investors options outstanding at
December 31, 1997. This pro forma condensed combined balance sheet should be
read in conjunction with the separate financial statements and related notes of
PAB and Investors appearing elsewhere in or incorporated by reference in this
Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
Pro forma
Pro forma PAB and
PAB Investors adjustments Investors combined
-------------------- ---------- ------------ ------------------
(Amounts in thousands)
<S> <C> <C> <C> <C>
Assets:
Cash and due from banks $ 18,234 4,005 -0- 22,239
Federal funds sold 11,720 2,848 -0- 14,568
Interest-earning deposits in other banks 6,445 200 -0- 6,645
Investment securities 52,622 18,859 -0- 71,481
Loans, net 221,998 46,509 -0- 268,507
Premises and equipment, net 7,673 1,720 -0- 9,393
Goodwill and intangibles 2,158 912 -0- 3,070
Foreclosed assets 385 -0- -0- 385
Other assets 7,557 1,767 -0- 9,324
-------- ------ ------ -------
Total assets $328,792 76,820 -0- 405,612
======== ====== ====== =======
Liabilities:
Deposits:
Non-interest bearing $ 48,496 11,724 -0- 60,220
Time deposits greater than $100,000 46,279 8,153 -0- 54,432
Other 172,480 44,849 -0- 217,329
-------- ------ ------ -------
Total deposits 267,255 64,726 -0- 331,981
Federal Home Loan Bank advances 28,168 1,000 -0- 29,168
Long-term debt -0- 2,184 -0- 2,184
Other borrowings -0- -0- -0- -0-
Other liabilities 2,637 328 -0- 2,965
-------- ------ ------ -------
Total liabilities 298,060 68,238 -0- 366,298
======== ====== ====== =======
Shareholders' equity:
Common stock 1,264 47 (47) 1,264
Surplus 15,935 4,563 47 20,545
Retained earnings 14,402 3,981 -0- 18,383
Treasury stock (983) -0- -0- (983)
Net unrealized holding gains (losses) on
investment securities 114 (9) -0- 105
-------- ------ ------ -------
Total shareholders' equity 30,732 8,582 -0- 39,314
-------- ------ ------ -------
Total liabilities and shareholders'
equity $328,792 76,820 -0- 405,612
======== ====== ====== =======
</TABLE>
41
<PAGE>
PAB BANKSHARES, INC. AND SUBSIDIARIES AND
INVESTORS FINANCIAL CORPORATION AND SUBSIDIARY
Pro Forma Financial Information
Pro Forma Condensed Combined Statements of Income
The following unaudited pro forma condensed combined consolidated
statements of income of PAB and Investors have been prepared for each of the two
years in the period ended December 31, 1997, and give effect to the proposed
acquisition of all issued and outstanding shares of Investors Common Stock,
warrants and options, in exchange for 1,710,114 shares of PAB Common Stock to be
issued to Investors shareholders, warrant holders and option holders using the
pooling-of-interests method of accounting giving effect to the Merger as if the
Merger had been effective as of the beginning of the periods presented. The pro
forma information assumes that 1,710,114 shares of PAB Common Stock will be
issued in exchange for all the shares of Investors Common Stock, Investors
warrants and Investors options outstanding at the Effective Date. The unaudited
pro forma condensed combined consolidated statements of income should be read in
conjunction with the separate historical financial statements and related notes
of PAB and Investors appearing elsewhere in or incorporated by reference in this
Joint Proxy Statement/Prospectus.
The pro forma combined statements of income are not necessarily indicative
of the results that actually would have occurred if the Merger had been
consummated at the dates indicated or which may be obtained in the future.
For the Twelve Months ended December 31, 1997
<TABLE>
<CAPTION>
Pro forma
PAB and
Pro forma Investors
PAB Investors adjustments combined
------------------- ---------- ----------- ----------
(Amounts in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Interest income $ 24,880 $ 5,970 -0- 30,850
Interest expense (11,797) (2,641) -0- (14,438)
------ ----- --- ------
Net interest income 13,083 3,329 -0- 16,412
Provision for loan losses (533) (144) -0- (677)
--- --- ---
Net interest income after provision
for loan losses 12,550 3,185 -0- 15,735
Noninterest income 2,840 705 -0- 3,545
Noninterest expense (9,024) (2,072) -0- (11,096)
------ ----- --- ------
Income before income taxes 6,366 1,818 -0- 8,184
Income taxes (2,222) (633) -0- (2,855)
----- --- --- -----
Net income $ 4,144 1,185 -0- 5,359
===== ===== === =====
Earnings per share (note d):
Basic .73 2.52 .73
=== ==== ===
Diluted .73 2.28 .72
=== ==== ===
Weighted average shares and share equivalents
outstanding (note c and d):
Basic 5,646 470 7,356
===== === =====
Diluted 5,712 520 7,422
===== === =====
</TABLE>
The unaudited pro forma income from continuing operations per common and
common equivalent shares is based upon the combined weighted and average number
of common shares and common share equivalents outstanding which include, where
appropriate, the assumed exercise or conversion of warrants or options. In
computing the unaudited pro forma income from continuing operations per common
share equivalent share, PAB uses the treasury stock method.
PAB BANKSHARES, INC. AND SUBSIDIARIES AND
INVESTORS FINANCIAL CORPORATION AND SUBSIDIARY
42
<PAGE>
Pro Forma Condensed Combined Statement of Income
For the Twelve Months ended December 31, 1996
<TABLE>
<CAPTION>
Pro forma
Pro forma PAB and Investors
PAB Investors adjustments combined
--------------------- ---------- ----------- ------------------
(Amounts in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Interest income $ 22,210 5,767 -0- 27,977
Interest expense (11,062) (2,683) -0- (13,745)
------ ----- --- ------
Net interest income 11,148 3,084 -0- 14,232
Provision for loan losses (405) (120) -0- (525)
--- --- --- ---
Net interest income after provision
for loan losses 10,743 2,964 -0- 13,707
Noninterest income 2,567 602 -0- 3,169
Noninterest expense (8,309) (2,050) -0- (10,359)
----- ----- --- ------
Income before income taxes and 5,001 1,516 -0- 6,517
Income taxes (1,652) (548) -0- (2,200)
----- --- --- -----
Net income $ 3,349 968 -0- 4,317
======== === === =====
Earnings per share (note d)
Basic .61 2.06 .60
=== ==== ===
Diluted .60 1.87 .60
=== ==== ===
Weighted average shares and share equivalents
outstanding (note c and d)
Basic 5,524 470 7,234
===== === =====
Diluted 5,558 518 7,268
===== === =====
</TABLE>
43
<PAGE>
PAB BANKSHARES, INC. AND SUBSIDIARIES AND
INVESTORS FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Pro Forma Financial Statements
The following notes describe the pro forma adjustments necessary to reflect
the proposed acquisition of Investors as described in note (a).
(a) On December 31, 1997, PAB entered into a merger agreement whereby PAB
will acquire all outstanding shares of Investors Common Stock,
Investors warrants and Investors options in exchange for 1,710,114
shares of PAB Common Stock, subject to certain adjustments.
(b) Reflects the assumed issuance of 1,710,114 shares of PAB Common Stock
in exchange for all of the outstanding Investors Common Stock,
Investors warrants and Investors options.
(c) Pro forma weighted average number of common shares and share
equivalents includes the historical amounts for PAB increased by the
additional shares that would have been outstanding had the acquisition
of Investors taken place as of the beginning of the respective periods
and by the assumed additional common share equivalents relating to
outstanding Investors warrants and stock options during the respective
periods.
(d) All PAB and pro forma per share information has been adjusted to
reflect a two-for-one stock split in 1993 and 1996 and a two-for-one
stock split paid March 10, 1998 to PAB Shareholders of record on
February 17, 1998.
44
<PAGE>
DESCRIPTION OF PAB
Description of Business and Services Provided
The primary business of PAB, as a bank holding company, is to manage the
business and affairs of its three commercial bank subsidiaries, The Park Avenue
Bank in Valdosta, Georgia, Farmers & Merchants Bank in Adel, Georgia, and First
Community Bank of Southwest Georgia in Bainbridge, Georgia (the three banking
subsidiaries are collectively referred to herein as the "PAB Banks").
PAB was organized in 1982 to own 100% of the stock of The Park Avenue Bank,
a state chartered commercial bank. Effective December 31, 1982, PAB became a
bank holding company, registered with the Federal Reserve Board and the Georgia
Department of Banking and Finance. In 1985, PAB acquired 87% of the stock and
control of Farmers & Merchants Bank, a state chartered commercial bank. PAB
subsequently increased its ownership to 99.9% of the stock of Farmers &
Merchants Bank. Effective January 1, 1995, PAB acquired 100% of the stock of
First Federal Savings Bank of Bainbridge, a federal stock savings bank which was
converted to a state chartered commercial bank and changed its name to First
Community Bank of Southwest Georgia in 1997.
The PAB Banks offer a full range of commercial banking services to
individuals, professional and business customers in their respective primary
service areas. These services include personal and business checking accounts
and savings and other types of certificates of deposit. The Park Avenue Bank
issues credit cards and acts as a merchant depository for cardholder drafts
under both VISA and MasterCard. The PAB Banks offer night depository and bank-
by-mail services and sell bank drafts and travelers checks (issued by an
independent entity). The PAB Banks do not presently offer trust and fiduciary
services.
The principal sources of income for the PAB Banks are interest and fees
collected on loans and interest on investment securities. The principal
expenses of the PAB Banks are interest paid on savings deposits, interest paid
on other borrowings by the PAB Banks, employee compensation, office expenses,
and other operating expenses.
EMPLOYEES
At December 31, 1997, PAB employed 14 full-time employees and six part-time
employees; The Park Avenue Bank employed 60 full-time employees and 13 part-time
employees; Farmers & Merchants Bank employed 21 full-time employees and 4 part-
time employees; and FCB employed 36 full-time employees and 11 part-time
employees. Each PAB Bank considers its relationships with its employees to be
good.
PROPERTIES
PAB's offices are located in The Park Avenue Bank's main office at 3102
North Oak Street Extension, Valdosta, Georgia 31602, and its telephone number is
912/242-7758.
The Park Avenue Bank's business is conducted at the following locations:
1. Main Office - 3102 North Oak Street Extension, Valdosta, Georgia
31602;
2. Downtown branch - 124 West Hill Avenue, Valdosta, Georgia 31601; and
3. Francis Lake Shopping Center branch - Highway 376, Lake Park, Georgia
31636.
The Park Avenue Bank owns its Main Office, Downtown and Francis Lake branches.
Farmers & Merchants Bank's business is conducted at 301 West Fourth Street,
Adel, Georgia 31620, in a building which it owns.
FCB's business is conducted at the following locations:
1. Main office - 400 E. Shotwell Street, Bainbridge, Georgia 31717; and
2. Cairo branch - 800 N. Broad Street, Cairo, Georgia 31728.
45
<PAGE>
FCB owns its main office and its Cairo branch.
COMPETITION
The PAB Banks experience competition in attracting and retaining business
and personal checking and savings accounts and in making commercial, consumer
and real estate loans in their respective primary service area. Direct
competition for such accounts comes from other commercial banks, savings
institutions, credit unions, brokerage firms and money market funds. The
primary factors in competing for loans are interest rates, loan origination fees
and the range of lending services offered. The competition for origination of
loans normally comes from other commercial banks, savings institutions, credit
unions and mortgage banking firms. Such entities may have competitive
advantages as a result of greater resources and higher lending limits (by virtue
of greater capitalization) or being subject to different regulations.
In order to compete with other financial institutions in their respective
primary service areas, each PAB Bank relies principally upon personal contacts
of their officers and directors, and upon local advertising and promotional
activities, to attract potential customers with the personalized and wide range
of financial services offered by an independent, locally-owned and managed
financial institution.
DIVIDENDS
PAB has declared and paid cash dividends on its common stock since 1983
(its first full year of operations). PAB paid cash dividends of $0.103 per share
($564,263 in the aggregate) in the fiscal year 1995, $.135 per share ($749,082)
in the aggregate) in the fiscal year 1996 and $.175 per share ($988,423 in the
aggregate) in the fiscal year 1997, as adjusted to reflect a two-for-one stock
split paid March 10, 1998 to PAB shareholders of record on February 17,
1998.
The primary source of funds available for the payment of cash dividends by
PAB are dividends from the PAB Banks. The ability of the PAB Banks to pay
dividends are subject to the provisions of the FICG and the rules of the DBF.
DEPOSITS
The PAB Banks' principal sources for loans and investments are checking,
savings, money market accounts, and other time deposits. Most of the PAB Banks'
deposits are obtained from individuals and small businesses. At December 31,
1997, The Park Avenue Bank had deposits of approximately $162.2 million; Farmers
& Merchants Bank had deposits of approximately $40.7 million; and FCB had
deposits of approximately $66.3 million.
The PAB Banks seek to attract new deposits by paying rates of interest on
certificates of deposit and money market accounts which are competitive in their
respective primary service areas. The PAB Banks generally do not pay brokers'
commissions in connection with the obtaining of deposits.
LENDING
The PAB Banks seek to attract deposits from the general public and use such
deposits, together with borrowings and other sources of funds, to originate and
purchase loans. The Park Avenue Bank and the Farmers & Merchants Bank each
offer a full range of short and medium commercial, consumer and real estate
loans. Commercial lending activities are directed principally toward businesses
whose demand for funds falls within the lending limits of the respective PAB
Bank. Consumer lending has been oriented primarily to the needs of the
respective PAB Banks' customers for such purposes as home remodeling, education
and automobiles. Real estate lending is oriented toward construction loans and
short-term commercial loans. Each PAB Bank also originates fixed and variable-
residential and other mortgage loans for its own account. The lending policies
and procedures of each PAB Bank are established and periodically reviewed by
each PAB Banks' Board of Directors.
The Park Avenue Bank's loan portfolio totaled $130.4 million at December
31, 1997, which was comprised of approximately 48.84% commercial loans,
commercial real estate and agri-business loans, 15.07% consumer loans, and
36.09% residential real estate mortgage loans. The Park Avenue Bank's loan to
deposit ratio at December 31, 1997 was approximately 80.44%.
46
<PAGE>
Farmers & Merchants Bank's loan portfolio totaled $33.3 million at December
31, 1997, which was comprised of approximately 61.18% commercial loans,
commercial real estate and agri-business loans, 13.82% consumer loans, and
25.00% residential real estate mortgage loans. Farmers & Merchants Bank's loan
to deposit ratio at December 31, 1997 was approximately 81.67%.
FCB's loan portfolio totaled $61.2 million at December 31, 1997, which was
comprised of approximately 63.42% residential real estate mortgage loans, 30.32%
commercial loans, commercial real estate and agri-business loans, and 6.26%
consumer loans. FCB's loan to deposit ratio at December 31, 1997 was
approximately 92.26%.
LOAN REVIEW AND NON-PERFORMING ASSETS
The PAB Banks' Loan Committee reviews the loan portfolios to determine
deficiencies and corrective action to be taken. Periodic reviews are conducted
of borrowers with total direct and indirect indebtedness exceeding certain
amounts and of all past-due loans. The amount varies from $150,000 to $250,000
depending on the individual banks. Past-due loans are reviewed weekly by
lending officers and a summary report is reviewed monthly by senior management
and by the PAB Banks' Loan Committees. The loan review function reviews
significant findings with PAB Banks' Boards monthly. In addition, the PAB Banks
maintain internal classifications of problem and potential problem loans. The
PAB Banks also have periodic reviews performed by outside experts whose findings
are reported to the PAB Banks' Board of Directors. These reviews are performed
annually or semi-annually depending on the individual bank.
ASSET/LIABILITY MANAGEMENT
The primary assets of each PAB Bank consists of its loan portfolio and
investment account. Consistent with the requirements of prudent banking
necessary to maintain liquidity, management of each PAB Bank seeks to match
maturities and rates of loans and the investment portfolio with those of
deposits, although exact matching is not always possible. Management seeks to
invest the largest portion of each PAB Banks' assets in commercial and agri-
business, consumer and residential real estate loans. Each PAB Bank anticipates
that loans will be limited to approximately 75% of deposits and capital funds.
It is anticipated that the PAB Banks' investment account will consist primarily
of marketable securities of the United States government, federal agencies and
state and municipal governments, generally with varied maturities.
Deposit accounts represent the majority of the liabilities of the PAB
Banks. These include transaction accounts, savings accounts, time deposits and
certificates of deposit.
The PAB Banks derive their income principally from interest charged on
loans and, to a lesser extent, from interest earned on investments, from fees
received in connection with the origination of loans and from other services.
The PAB Banks' principal expenses are anticipated to be interest expense on
deposits and operating expenses. The funds for such activities are provided
principally by operating revenues, deposit growth, purchase of federal funds
from other banks, repayment of outstanding loans and sale of loans and
investment securities.
INVESTMENT POLICY
The investment policy of each PAB Bank provides for a portfolio divided
among issues purchased to meet one or more of the following objects: (i) to
complement strategies developed in asset/liquidity management, including desired
liquidity levels; (ii) to maximize after tax income from funds not needed for
day-to-day operations and loan demands; and (iii) to provide collateral
necessary for acceptance of public funds. Management anticipates that its
policy will allow each PAB Bank to deal with seasonal deposits fluctuation and
to provide for basic liquidity consistent with the PAB Banks' loan demand. When
possible, maturation will match anticipated liquidity demands. Longer term
securities may be selected for a combination of yield and exemption from federal
income taxation when appropriate.
In general, the PAB Banks' investment policy is to place 100% of its
securities in the available-for-sale portfolio upon purchase. As of December
31, 1997, 100% of the PAB Banks' securities were in the available-for-sale
securities portfolio.
At December 31, 1997, $37,448,481 of the PAB Banks' securities consisted of
U.S. Treasury and Agency securities, $2,853,328 in securities of State and
Political Subdivisions, $8,437,358 in mortgage-backed securities and $3,882,999
in equity securities. The weighted average maturity of the portfolio is less
47
<PAGE>
than three years. The primary risks in the PAB Banks' securities portfolio
consists of: (i) credit risk, or the risk of default of the issuer.
Substantially all of the securities are in Treasury and Agency securities;
therefore, the credit risk is primarily limited to the risk of default of the
U.S. Government and its agencies; and (ii) interest rate risk, or the risk of
adverse movements of interest rates on the value of the portfolio. In general,
a rise in interest rates will cause the value of the PAB Banks' securities to
decline. The longer the maturity of an individual security, the greater effect
of a change in interest rates on its value.
48
<PAGE>
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF PAB
Years ended December 31, 1997 and 1996
This analysis has been prepared to provide insight into the consolidated
financial condition of PAB and addresses the factors which have affected PAB's
results of operations. Unless otherwise noted, the financial and other
information presented with respect to PAB in this discussion and elsewhere in
this Joint Proxy Statement/Prospectus generally includes the accounts of PAB's
subsidiary banks. PAB's consolidated financial statements and accompanying
notes which follow are an integral part of this review and should be read in
conjunction with it.
RESULTS OF OPERATIONS
PAB, including operations of its subsidiary banks, reported consolidated
net income of $4,144,133 ($.73 diluted earnings per share) for the year ended
December 31, 1997 compared to $3,348,554 ($.60 diluted earnings per share) for
the year ended December 31, 1996. Net interest income after provision for loan
losses was $12,550,367 and $10,743,043 for the years ended December 31, 1997 and
1996, respectively. The provision for loan losses was $532,900 and $405,000 for
the years ended December 31, 1997 and 1996, respectively. Noninterest income
totaled $2,839,954 and $2,566,756 for the years ended December 31, 1997 and
1996, respectively, and noninterest expenses totaled $9,023,701 and $8,309,243
for the years ended December 31, 1997 and 1996, respectively.
During the year ended December 31, 1996, as discussed later under "non-
interest expenses", PAB's thrift subsidiary (now converted to a commercial bank
charter) was assessed a charge of approximately $385,000 to recapitalize the
thrift industry insurance fund. Excluding the effects of the assessment and the
related tax effect thereon, PAB's net income for the year ended December 31,
1996 would have been $3,588,000 ($.65 diluted earnings per share) rather than
$3,349,000 ($.60 diluted earnings per share).
The following table summarizes the results of operations of PAB for the two
years ended December 31, 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1997
------------ -----------
(In Thousands)
<S> <C> <C>
Interest income $ 22,210 24,880
Interest expense (11,062) (11,797)
-------- -------
Net interest income 11,148 13,083
Provision for loan losses (405) (533)
Noninterest income 2,567 2,840
Special SAIF assessment (385)
Other noninterest expense (7,924) (9,024)
-------- -------
Income before taxes 5,001 6,366
Income taxes (1,652) (2,222)
-------- -------
Net income $ 3,349 4,144
======== =======
Return on assets (net income divided by average total assets) 1.19% 1.37%
Return on equity (net income divided by average equity) 13.37% 14.27%
Dividend payout ratio (dividends declared per share divided by diluted
net income per share) 22.31% 24.14%
Equity to assets ratio (average equity divided by average total assets) 9.10% 9.35%
</TABLE>
Comparison of Years Ended December 31, 1997 and 1996
49
<PAGE>
Operations for the year ended December 31, 1997 resulted in a net income of
approximately $4,144,000 compared to a net income of approximately $3,349,000
for the year ended December 31, 1996.
INTEREST INCOME
Total interest income increased approximately $2,670,000 for 1997 compared
to 1996. This increase is attributed to the factors explained in the following
paragraphs.
Interest earned on loans increased from approximately $18,034,000 in 1996
to approximately $20,898,000 in 1997, an increase of $2,864,000. This increase
was the combined effect of an increase in the average loan portfolio balance
from approximately $187.7 million in 1996 to $213.5 million in 1997 and an
increase in the rate earned on the loan portfolio from 9.61% in 1996 to 9.79% in
1997.
Interest earned on taxable investment securities decreased from
approximately $3,662,000 in 1996 to approximately $3,327,000 in 1997, a decrease
of $335,000. This decrease was the net effect of a decrease in the average
taxable investment portfolio balance from approximately $57.5 million in 1996 to
approximately $51.7 million in 1997 and an increase in the rate earned on the
taxable investment portfolio from 6.37% in 1996 to 6.43% in 1997.
Interest earned on nontaxable investment securities decreased from
approximately $156,000 in 1996 to approximately $131,000 in 1997, a decrease of
$25,000. This decrease was the combined effect of a decrease in the average
non-taxable investment portfolio balance from approximately $2.9 million in 1996
to approximately $2.6 million in 1997 and a decrease in the rate earned on the
non-taxable investment portfolio from 5.34% in 1996 to 5.07% in 1997.
Interest earned on interest-bearing deposits in banks increased from
approximately $84,000 in 1996 to approximately $226,000 in 1997, an increase of
$142,000. This increase was the combined effect of an increase in the average
interest-bearing deposits balance from $2.2 million in 1996 to $4.5 million in
1997 and an increase in the rate earned on the interest-bearing deposits from
3.84% in 1996 to 5.00% in 1997.
Interest earned on federal funds sold decreased from approximately $274,000
in 1996 to approximately $299,000 in 1997, an increase of $25,000. This
increase was the net effect of a decrease in the average federal funds sold
balance from approximately $6.6 million in 1996 to approximately $4.7 million in
1997 and an increase in the rate earned on the federal funds sold from 4.17% in
1996 to 6.32% in 1997.
INTEREST EXPENSE
Total interest expense increased approximately $735,000 in 1997 compared to
1996. This increase is attributed to the factors explained in the following
paragraphs.
This increase was the net effect of an increase in the average balance of
interest-bearing deposits from approximately $201.6 million in 1996 to
approximately $213.0 million in 1997 and a decrease in the average rate paid on
deposits from 4.97% in 1996 to 4.91% in 1997. The effect of these changes
increased the interest expense on interest-bearing deposits from approximately
$10,024,000 for the year ended December 31, 1996 to approximately $10,467,000
for the year ended December 31, 1997, an increase of $443,000. The increase in
interest-bearing deposits came from the local communities served by PAB's
subsidiary banks.
All other interest expense consisting principally of interest on notes and
mortgages payable, increased from approximately $1,038,000 for the year ended
December 31, 1996 to approximately $1,330,000 for the year ended December 31,
1997, an increase of $292,000. This increase was the combined effect of an
increase in the average balance of Federal Home Loan Bank advances from
approximately $15.5 million in 1996 to approximately $20.4 million in 1997 and
an increase in the average rate from 5.44% in 1996 to 6.02% in 1997. These
advances were to match fund mortgage loans made. Additionally, PAB had a note
payable to a correspondent bank which had a balance of $1,200,000 at December
31, 1996, which was repaid prior to maturity during the year ended December 31,
1997. The interest rate was the prime rate less .50% subject to a ceiling of
9.50% until July 1, 1999. Annual principal payments were scheduled to begin
July 1, 1997 and continue through the maturity date of July 1, 2004. The
purpose of this indebtedness to a correspondent bank was to partially fund the
acquisition of FCB (formerly First Federal Savings Bank of Bainbridge) effective
January 1, 1995 and to partially fund the acquisition of 123,106 shares of
treasury stock in September 1995.
50
<PAGE>
Interest of approximately $27,000 was paid on federal funds purchased
during the year ended December 31, 1997 and approximately $33,000 during the
year ended December 31, 1996. There was no federal funds purchased outstanding
at December 31, 1997 or 1996.
PROVISION FOR LOAN LOSSES
The provision for loan losses for the year ended December 31, 1997 as
compared to 1996 increased approximately $128,000. The balance of the allowance
for loan losses was approximately $2,865,000 at December 31, 1997 and
approximately $2,550,000 at December 31, 1996. Actual loan charge-offs net of
recoveries were approximately $218,000 for the year ended December 31, 1997 and
approximately $148,000 for the year ended December 31, 1996. Non-accrual loans
were approximately $202,000 at December 31, 1997 as compared to $291,000 at
December 31, 1996. Loans ninety days or more past due and still accruing
amounted to approximately $302,000 at December 31, 1997 and $241,000 at December
31, 1996. In determining an adequate level of loan loss reserves, such loans
were included in such consideration. The amount of the provision for loan
losses is a result of the amount of loans charged-off, the amount of loans
recovered and management's conclusion concerning the level of the allowance for
loan losses. The level of the allowance for loan losses is based upon a number
of factors, including PAB's subsidiary banks' past loan loss experience,
management's evaluation of the collectibility of loans, the general state of the
economy, specific impaired loans and other relevant factors.
Non-Interest Income
The following table presents the principal components of non-interest
income for the years ended December 31, 1996 and 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1997
----------- -----------
(In Thousands)
<S> <C> <C>
Service charges on deposit accounts $1,629 1,877
Insurance commissions 49 119
Equity in earnings of unconsolidated subsidiary 216 256
Securities gains (losses) 138 (14)
Gain (loss) on sale of loans 11 24
Gain on sale of other real estate 1 2
Gain (loss) on sale of assets 3 -0-
Other income 520 576
------ -----
Total Non-interest Income $2,567 2,840
====== =====
</TABLE>
Non-interest income for the year ended December 31, 1997 as compared to
1996 increased approximately $273,000. Service charges on deposit accounts for
the year ended December 31, 1997 as compared to 1996 increased approximately
$248,000. This increase was related primarily to an increase in the number of
transaction deposit accounts with NSF charges. Securities gains for the year
ended December 31, 1997 as compared to 1996 decreased approximately $152,000.
Equity in earnings of unconsolidated subsidiary increased approximately $40,000.
This represents PAB's 50% interest in the earnings of Empire Financial Services,
Inc., an unconsolidated subsidiary which is 50% owned by FCB, which was acquired
by PAB effective January 1, 1995. All other income increased from approximately
$584,000 for the year ended December 31, 1996 to approximately $721,000 in 1997.
51
<PAGE>
NONINTEREST EXPENSES
The following table presents the principal components of noninterest
expenses for the years ended December 31, 1996 and 1997:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997
----------- ----------
(In Thousands)
<S> <C> <C>
Compensation $3,597 4,128
Other personnel expenses 745 954
Occupancy expense of bank premises 406 430
Furniture and equipment expense 778 838
Federal deposit insurance 103 64
Special SAIF assessment 385 -0-
Postage and courier services 194 228
Supplies 270 358
Amortization 108 108
Other operating expenses 1,723 1,916
------ -----
Total Noninterest Expenses $8,309 9,024
====== =====
</TABLE>
Noninterest expenses for the year ended December 31, 1997 as compared to
1996, increased approximately $715,000 or 8.6% ($1,100,000 or 13.9% excluding
special SAIF assessment in 1996).
Compensation and other personnel expenses increased approximately $740,000
reflecting an increase in the number of employees, in wage levels and in the
cost of employee benefits. During the quarter ended September 30, 1996, the
much publicized pending legislation which would result in a special SAIF
assessment to recapitalize the insurance fund was signed into law. This
assessment affected PAB's then thrift subsidiary, FCB, and resulted in an
assessment of $.657 per $100 of domestic deposits held as of March 31, 1995.
This assessment amounted to $385,000. Federal deposit insurance decreased
$39,000 for the year ended December 31, 1997 compared to 1996 as a result of
reductions in federal deposit insurance premium rates. All other expenses
increased approximately $399,000 or 11.8%. The increases were primarily
attributed to a larger volume of business.
INCOME TAXES
The effective tax rate for the year ended December 31, 1996 was 33.0%
compared to 34.9% for the year ended December 31, 1997.
ASSET/LIABILITY MANAGEMENT AND MARKET RISK (QUANTITATIVE AND QUALITATIVE
DISCLOSURES-ABOUT MARKET RISK)
PAB's financial performance is impacted by, among other factors, interest
rate risk and credit risk. PAB utilizes no derivatives to mitigate its credit
risk, relying instead on strict underwriting standards, loan review and an
adequate loan loss reserve. See "Management's Discussion and Analysis or Plan
of Operation".
Interest rate risk is the risk of loss in value due to changes in interest
rates. This risk is addressed by PAB's Asset Liability Management Committee
("ALCO"), which includes senior management representatives. The ALCO monitors
and considers methods of managing interest rate risk by monitoring changes in
net portfolio value ("NPV") and net interest income under various interest rate
scenarios. The ALCO attempts to manage the various components of PAB's balance
sheet to minimize the impact of sudden and sustained changes in interest rates
on NPV and net interest income.
PAB's exposure to interest rate risk is reviewed on at least a quarterly
basis by its Board of Directors and the ALCO. Interest rate risk exposure is
measured using interest rate sensitivity analysis to determine PAB's change in
NPV in the event of hypothetical changes in interest rates. If potential
changes to NPV and net interest income resulting from hypothetical interest rate
swings are not within limits acceptable by the PAB Board, the Board may direct
management to adjust its asset and liability mix to bring interest rate risk
within acceptable limits.
52
<PAGE>
In order to reduce the exposure to interest rate fluctuations, PAB has
developed strategies to manage its liquidity, shorten the effective maturities
of certain interest-earning assets and increase the effective maturities of
certain interest-bearing liabilities. First, PAB has put greater emphasis on
adjustable rate loans, which generally reprice in one year or short-term loans.
Second, PAB has focused its investment activities on short- and medium-term
securities. Third, PAB has attempted to maintain and increase its regular
savings and transaction deposit accounts, which are considered to be relatively
resistant to changes in interest rates. Fourth, PAB has utilized long-term
borrowings to adjust the term to repricing of its liabilities.
Interest rate sensitivity analysis is used to measure PAB's interest rate
risk by computing estimated changes in NPV of its cash flows from assets and
liabilities in the event of a range of assumed changes in market interest rates.
NPV represents the market value of portfolio equity and is equal to the market
value of assets minus the market value of liabilities. This analysis assesses
the risk of loss in market rate sensitive instruments in the event of sudden and
sustained increases and decreases in market interest rates of two hundred basis
points. The following tables present PAB's projected change in NPV and net
interest income for the various rate shock levels as of December 31, 1997. NPV
values and impact on net interest income for PAB are regularly calculated
internally. All market rate sensitive instruments presented in these tables are
classified as available-for-sale. PAB has no trading securities.
CHANGES IN NET PORTFOLIO VALUE:
- -------------------------------
<TABLE>
<CAPTION>
MARKET
VALUE OF
CHANGE IN PORTFOLIO ACTUAL PERCENT
INTEREST RATES EQUITY CHANGE CHANGE
- -------------------- ----------- ----------- ---------
<S> <C> <C> <C>
200 basis point rise $ 6,203,000 (6,267,000) (50.3%)
Base Rate Scenario 12,470,000 -0- .00
200 basis point decline 19,623,000 7,153,000 57.4%
CHANGES IN NET INTEREST INCOME:
- ---------------------------------
NET
CHANGE IN INTEREST ACTUAL PERCENT
INTEREST RATES INCOME CHANGE CHANGE
- ------------------ ----------- ---------- -------
<S> <C> <C> <C>
200 basis point rise $28,474,400 811,000 2.9%
Base Rate Scenario 27,663,000 -0- .00
200 basis point decline 26,320,000 (1,343,000) (4.9%)
</TABLE>
The preceding table indicates that at December 31, 1997, in the event of a
sudden and sustained increase in prevailing market interest rates, PAB's NPV
would be expected to decrease and in the event of a decrease in prevailing
market rates, PAB's net interest income would be expected to decrease. At
December 31, 1997, PAB's estimated changes in NPV were acceptable to the PAB
Board of Directors.
NPV is calculated based on the net present value of estimated cash flows
utilizing market prepayment assumptions and market rates of interest provided by
independent consultants and other public sources.
Computation of forecasted effects of hypothetical interest rate changes are
based on numerous assumptions, including relative levels of market interest
rates, loan prepayments and deposit decay and should not be relied upon as
indicative of actual future results. Further, the computations do not
contemplate any actions the ALCO could undertake in response to changes in
interest rates.
Certain shortcomings are inherent in the method of analysis presented in
the computation of NPV. Actual values may differ from those projections
presented should market conditions vary from assumptions used in the calculation
of NPV. Certain assets, such as adjustable rate loans, have features which
restrict changes in interest rates on a short-term basis and over the life of
the assets. In addition, the proportion of adjustable rate loans in PAB's
portfolio could decrease in future periods if market interest rates remain at or
decrease below current levels due to refinance activity. Further, in the event
of a change in interest rates, prepayment and early withdrawal levels would
likely deviate significantly from those assumed in the NPV. Finally, the
ability of many borrowers to repay their adjustable rate loans may decrease in
the event of interest rate increases.
53
<PAGE>
INTEREST RATE SENSITIVITY GAP UP TO ONE YEAR
As of December 31, 1997, excluding NOW and savings accounts, which PAB does
not consider to be rate sensitive, PAB has a positive interest sensitivity gap
up to one year. The following table presents the interest-sensitivity gap of
PAB, the ratio of rate sensitive assets to rate sensitive liabilities and
comfort ranges as of December 31, 1998.
<TABLE>
<CAPTION>
UP TO
ONE YEAR
---------
(Dollars In Thousands)
<S> <C>
Total rate sensitive assets $ 134,049
Total rate sensitive liabilities 122,744
---------
Interest-sensitivity gap $ 11,305
=========
GAP ratio 1.09
=========
Comfort range .90-1.20
=========
</TABLE>
FINANCIAL CONDITION
PAB, including its subsidiary banks, reported consolidated total assets of
approximately $328.8 million at December 31, 1997 and $297.3 million at December
31, 1996 representing an increase of approximately $31.5 million for the year
ended December 31, 1997. Loan growth exceeded deposit growth as loans increased
approximately $26.7 million and deposits increased approximately $17.5 million.
Additionally, funds were provided by operations of $5.1 million, sale of stock
of $.1 million, Federal Home Loan Bank advances of $11.1 million, decrease in
investment securities of $4.3 million and decrease in federal funds sold of $2.8
million. These funds were used to purchase additional bank premises and
equipment of $1.1 million, pay dividends of $.7 million, increase interest-
bearing deposits $1.9 million, increase cash by $8.5 million, acquire life
insurance policies of $.8 million and decrease note payable to correspondent
bank by $1.2 million. The growth in loans and deposits is attributable to
several factors, including growth in the customer base due to the business
development efforts of the management team, the pricing of loans and deposits
and the favorable economic conditions experienced in the markets served by PAB's
subsidiary banks. The acquisition of life insurance policies was attributed to
the acquisition of single deposit life insurance policies on certain key
employees added to the deferred compensation plan which was established in 1994.
While the benefits to be paid pursuant to the plan are to be funded from the
general assets of PAB, the life insurance policies provide the primary funding
source. The balance of such cash values at December 31, 1997 was approximately
$2,747,000.
The changes in interest rates as previously discussed are reflective of
interest rates in general and market conditions, including competition. Changes
in short-term funds, including cash and due from banks, federal funds sold,
interest-bearing deposits and investment securities, are reflective of the
liquidity position of PAB.
PAB's capital to assets ratio as of December 31, 1997 and 1996 was 9.35%
and 9.10%, respectively.
PAB and its subsidiary banks are subject to various regulatory capital
requirements administered by the state and federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on PAB's and its subsidiary banks' financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, PAB and its subsidiary banks must meet specific capital
guidelines that involve quantitative measures of assets, liabilities and certain
off-balance-sheet items as calculated under regulatory accounting practices.
The capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the maintenance of minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to risk-
weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management
54
<PAGE>
believes, as of December 31, 1997 and 1996, that PAB and its subsidiary banks
meet all capital adequacy requirements to which they are subject.
As of December 31, 1997, the most recent notification from banking
regulators categorized PAB and its subsidiary banks as well capitalized under
the regulatory framework for prompt corrective action. To be categorized as
adequately capitalized, PAB and its subsidiary banks must maintain minimum total
risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the
table. There have been no conditions or events since that notification that
management believes have changed the institutions' category.
PAB's actual capital amounts and ratios and the minimum amounts and ratios
under the capital adequacy and prompt corrective action provisions are presented
below:
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL: ADEQUACY PURPOSES: ACTION PROVISIONS:
------------------ ------------------- -------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- ------- --------- ------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996
Total Capital
(to Risk Weighted Assets) $27,180 13.56% 16,034 $8.0% 20,043 $10.0%
Tier 1 Capital
(to Risk Weighted Assets) 24,674 12.31% 8,017 $4.0% 12,026 $ 6.0%
Tier 1 Capital
(to Average Assets) 24,674 8.55% 11,549 $4.0% 14,437 $ 5.0%
As of December 31, 1997
Total Capital
(to Risk Weighted Assets) 32,184 14.67% 17,552 $8.0% 21,940 $10.0%
Tier 1 Capital
(to Risk Weighted Assets) 29,442 13.42% 8,776 $4.0% 13,164 $ 6.0%
Tier 1 Capital
(to Average Assets) 29,442 9.40% 12,522 $4.0% 15,652 $ 5.0%
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Liquidity management involves the matching of the cash flow requirements of
customers, for the withdrawal of funds or the funding of additional loans, and
the ability of PAB's subsidiary banks to meet those requirements. Management
monitors and maintains appropriate levels of assets and liabilities so that
maturities of assets are such that adequate funds are provided to meet estimated
customer withdrawals and loan requests.
PAB's subsidiary banks' liquidity position depends primarily upon the
liquidity of its assets relative to its need to respond to short-term demand for
funds caused by withdrawals from deposit accounts and loan funding commitments.
Primary sources of liquidity are scheduled payments on its loans and interest on
its subsidiary banks' investments. PAB's subsidiary banks may also utilize their
cash and due from banks, short-term deposits with financial institutions,
federal funds sold and investment securities to meet liquidity requirements. At
December 31, 1997, PAB's subsidiary banks' cash and due from banks were
approximately $20.2 million (after reduction for their required reserves of $1.3
million), their short-term deposits with financial institutions were $3.2
million and their federal funds sold were $11.7 million. The effect of the
required reserves is to reduce available liquidity. All of the above can be
converted to cash on short notice. The sale of investments, which had a market
value of approximately $52.6 million at December 31, 1997, can also be used to
meet liquidity requirements, to the extent the investments are not pledged to
secure public funds on deposit as required by law. Securities with a market
value of $28.2 million were pledged as of December 31, 1997.
PAB's subsidiary banks' funding needs are based primarily on the volume of
lending. The primary funding source is from new deposits. PAB's subsidiary banks
seek to attract new deposits by paying rates of interest on deposit accounts
which are competitive in their respective primary service areas. PAB's
subsidiary banks generally do not pay brokers' commissions in connection with
the obtaining of deposits or have deposits outside the primary service area.
PAB's subsidiary banks do not pay premiums to attract deposits. As of December
31, 1997, the average cost for deposit liabilities was approximately 5.23%.
PAB's subsidiary banks continue to expect that new deposits will serve as its
primary funding source.
55
<PAGE>
PAB's subsidiary banks also have the ability, on a short-term basis, to
borrow and purchase federal funds from other financial institutions. PAB's
subsidiary banks are members of the Federal Home Loan Bank of Atlanta and as
such have the ability to secure advances therefrom, although the cost of such
advances exceed lower cost alternatives such as deposits from the local
communities. PAB's subsidiary banks had advances outstanding from the Federal
Home Loan Bank of Atlanta of $28.2 million at December 31, 1997 at an average
rate of 6.20%.
The average loan to deposit ratio for PAB at December 31, 1997 was 84.1%
compared to 79.5% at December 31, 1996.
PAB has announced its plans to acquire Investors and has signed a Merger
Agreement. The anticipated effective date is prior to June 30, 1998. The
transaction is to be consummated by the issuance of 1,710,114 shares of PAB
Common Stock in exchange for the outstanding common stock, warrants, and options
of Investors. It is anticipated that the Merger will qualify as a "pooling of
interests" for financial reporting purposes. Regulatory and shareholder
approvals will be required.
On February 10, 1998, PAB announced plans to effect a two-for-one stock
split on March 10, 1998 to shareholders of record on February 17, 1998.
Management is not aware of any trends, events or uncertainties that will
have or that are reasonably likely to have a material effect on PAB's liquidity,
capital resources or operations, including recommendations by regulatory
authorities which would have such an effect.
YEAR 2000 ISSUE
Based on a preliminary study, PAB expects to spend approximately $200,000
to $250,000 from 1998 through 1999 to modify its computer information systems
enabling proper processing of transactions relating to the year 2000 and beyond.
PAB continues to evaluate appropriate courses of corrective action, including
replacement of certain systems whose associated costs would be recorded as
assets and amortized. Accordingly, PAB does not expect the amounts required to
be expensed over the next two years to have a material effect on its financial
position or results of operations. The amount expensed in 1997 was immaterial.
56
<PAGE>
AVERAGE BALANCE SHEETS
The following table presents average balance sheets for the years ended
December 31, 1996 and 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
ASSETS 1996 1997
------ ------ -------
(Dollars in thousands)
<S> <C> <C>
Cash and Cash Equivalents:
Cash and Due From Banks $ 10,727 11,967
Interest-Bearing Deposits in Other Banks 1,342 3,493
Federal Funds Sold and Securities Purchased Under
Agreement to Resell 6,566 4,738
-------- -------
Total Cash and Cash Equivalents 18,635 20,198
Time Deposits 836 1,027
Investment Securities 60,275 54,196
Investment in Unconsolidated Subsidiary 142 118
Loans, Net of Allowance for Loan Losses and unearned
Interest 185,232 210,782
Bank Premises and Equipment 6,672 7,160
Land and Building of Former Banking Offices 387 415
Land Held for Future Development 367 282
Property Acquired in Settlement of Loans 422 142
Accrued Interest Receivable 3,230 3,488
Goodwill 2,320 2,212
Cash Value of Life Insurance 1,732 2,135
Other Assets 802 828
-------- -------
Total Assets $281,052 302,983
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Deposits:
Demand $ 34,551 36,621
NOW 52,145 51,431
Savings 17,460 17,310
Time 131,995 144,284
-------- -------
236,151 249,646
Federal Funds Purchased 628 633
Notes Payable 2,100 954
Advances from Federal Home Loan Bank 15,493 20,391
Accrued Interest 652 749
Other Liabilities 982 1,575
-------- -------
Total Liabilities 256,006 273,948
-------- -------
Stockholders' Equity:
Common Stock 1,264 1,264
Additional Paid in Capital 15,183 15,879
Retained Earnings 9,941 12,956
Unrealized Gain (Loss) on Available-for-Sale Securities (77) (60)
-------- -------
26,311 30,039
Treasury Stock (1,265) (1,004)
-------- -------
25,046 29,035
-------- -------
Total Liabilities and Stockholders' Equity $281,052 302,983
======== =======
</TABLE>
57
<PAGE>
AVERAGE YIELDS EARNED AND RATES PAID
The following table presents the average balances, average yields and
interest earned on interest-earning assets and average rates and interest paid
on interest-bearing liabilities for the years ended December 31, 1996 and 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1997
-------------------- ----------------------
AVERAGE INCOME/ YIELDS/ AVERAGE INCOME/ YIELDS/
BALANCES EXPENSE RATES BALANCES EXPENSE RATES
-------- ------- -------- -------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Average yield on loans /(1)(3)/ $187,676 18,034 9.61% 213,468 20,898 9.79%
Average yield on taxable
investment securities 57,467 3,662 6.37 51,703 3,326 6.43
Average yield on non-tax-
able investment securities /(2)/ 2,917 156 5.34 2,577 131 5.08
Average yield on interest-
bearing deposits in banks 2,178 84 3.84 4,520 226 5.00
Average yield on Federal
Funds sold 6,566 274 4.17 4,738 299 6.31
-------- ------ ---- ------- ------ ----
Average yield on all
interest-earning assets $256,804 22,210 8.65% 277,006 24,880 8.98%
======== ====== ==== ======= ====== ====
Average rate paid on NOW
account deposits $ 52,145 1,659 3.18% 51,431 1,539 2.99%
Average rate paid on savings
deposits 17,460 543 3.11 17,310 528 3.06
Average rate paid on time deposits 131,995 7,822 5.93 144,284 8,399 5.82
Average rate paid on advances from
Federal Home Loan Bank 15,493 843 5.44 20,391 1,227 6.02
Average rate paid on other long-term
indebtedness 2,100 162 7.71 954 77 8.07
Average rate paid on Federal Funds
purchased 628 33 5.25 633 27 4.27
-------- ------ ---- ------- ------ ----
Average rate paid on all interest-bearing
liabilities $219,821 11,062 5.04% 235,003 11,797 5.02%
======== ====== ==== ======= ====== ====
Average net yield on interest-earning
assets (net interest income as a
percentage of average interest-earning
assets) 4.34% 4.72%
==== ====
</TABLE>
___________________
/(1)/ Non-accruing loans have been included in the "average amount outstanding"
and average loans have not been reduced by the allowance for loan losses.
/(2)/ Interest income on tax exempt securities has not been calculated on a tax
equivalent basis.
/(3)/ Loan fees included in interest income amounted to approximately $691,000
in 1996 and $951,000 in 1997.
58
<PAGE>
The table below sets forth certain information regarding changes in
interest income and interest expense for the periods indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (1) changes in volume
(changes in volume multiplied by old rate); (2) changes in rates (change in rate
multiplied by old volume); (3) changes in rate-volume (changes in rate
multiplied by the change in volume). The net change attributable to both volume
and rate, which cannot be segregated, has been allocated proportionately to
change due to volume and change due to rate.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1995 VS. 1996 1996 VS. 1997
----------------- -----------------
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO DUE TO
---------- ----------
VOLUME RATE NET VOLUME RATE NET
------- ----- ------ ------- ----- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Loans $2,292 (242) 2,050 2,520 344 2,864
Taxable investment securities 284 103 387 (371) 35 (336)
Non-taxable investment securities 30 (31) (1) (18) (7) (25)
Interest-bearing deposits in banks (74) (30) (104) 111 31 142
Federal Funds sold 88 (121) (33) (30) 55 25
------ ---- ----- ----- ---- -----
Total 2,620 (321) 2,299 2,212 458 2,670
------ ---- ----- ----- ---- -----
Interest Expense:
NOW account deposits 30 11 41 (22) (98) (120)
Savings deposits (33) (11) (44) (5) (10) (15)
Time deposits 883 82 965 721 (144) 577
Federal Funds purchased 31 -0- 31 -0- (6) (6)
Advances from Federal Home Loan Bank 480 (28) 452 287 97 384
Other long-term indebtedness (6) 3 (3) (93) 8 (85)
------ ---- ----- ----- ---- -----
Total 1,385 57 1,442 888 (153) 735
------ ---- ----- ----- ---- -----
Net Interest Income $1,235 (378) 857 1,324 611 1,935
====== ==== ===== ===== ==== =====
</TABLE>
59
<PAGE>
INVESTMENT PORTFOLIO
The following table presents investments in obligations of (1) U.S. Treasury
and other U.S. government agencies and corporations, (2) states of the U.S. and
political subdivisions and (3) other securities as of December 31, 1996 and
1997.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
-------- --------
SECURITIES SECURITIES SECURITIES SECURITIES
AVAILABLE- HELD-TO- AVAILABLE- HELD-TO
FOR SALE MATURITY FOR SALE MATURITY
---------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury and other
U.S. government agencies
and corporations $51,335 -0- 45,582 -0-
States of the U.S. and
political subdivisions 2,246 -0- 2,804 -0-
Other securities 3,157 -0- 4,044 -0-
------- --- ------ ---
Total 56,738 -0- 52,430 -0-
Unrealized gains (losses)
on available-for-sale-securities 45 -0- 192 -0-
------- --- ------ ---
$56,783 -0- 52,622 -0-
======= === ====== ===
</TABLE>
(1) Securities available-for-sale are carried at market value and securities
held-to-maturity are carried at amortized cost.
60
<PAGE>
The following table presents the amortized cost (cost for equity securities)
of investments in obligations of (1) U.S. Treasury and other U.S. government
agencies and corporations, (2) states of the U.S. and political subdivisions and
(3) other securities as of December 31, 1997 that are due (1) in one year or
less, (2) after one year through five years, (3) after five years through ten
years and (4) after ten years. In addition, the table provides the weighted
average yield for each range of maturities.
<TABLE>
<CAPTION>
AMOUNT AT DECEMBER 31, 1997 DUE IN
AFTER ONE THROUGH AFTER ONE THROUGH
ONE YEAR OR LESS FIVE YEARS TEN YEARS AFTER TEN YEARS TOTAL
--------------------------------------------------------------------------------------------------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
---------- --------- ---------- --------- ---------- -------- --------- -------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U. S. Treasury
and other
U. S.
Government
Agencies and
Corporations $8,977 5.98% 26,807 6.51% 4,920 6.71% 4,878 6.79% 45,582 6.46%
States of the
U.S. and
Political
Subdivisions
(1)(2) 396 9.14% 2,101 7.79% 214 7.03% 934 18% 2,804 7.80%
Other -0- .00% -0- .00% -0- .00% 4,044 6.25% 4,044 6.25%
securities ---------- --------- ---------- --------- ---------- -------- --------- -------- --------- ---------
(2)(3)
Total $9,373 6.12% 28,908 6.60% 5,134 6.73% 9,015 6.52% 52,430 6.51%
========== ========= ========== ========= ========== ======== ========= ======== ========= =========
</TABLE>
(1) Yields on tax exempt obligations have not been computed on a tax equivalent
basis.
(2) As of December 31, 1997, there was no aggregate book values of any issuer
which exceeded 10% of stockholders' equity.
(3) Consists of domestic corporate notes, stocks and mutual funds which are
comprised of Federal Home Loan Bank of Atlanta and Georgia Bankers Bank
stock and mutual funds consisting predominately of U.S. Government
securities. Yield represents yield earned for 1997.
LOAN PORTFOLIO
Before reduction for the allowance for loan losses, the loan portfolio
totaled approximately $224.9 million at December 31, 1997 which was an increase
of approximately $26.5 million from December 31, 1996 or 13.4%. During the year
ended December 31, 1997, average net loans were approximately $210.8 million
compared to $185.2 million in 1996, an increase of approximately $25.6 million.
During the year ended December 31, 1995, average net loans were approximately
$161.7 million. These average loan levels reflected a greater rate of growth
from 1996 to 1997 of $25.6 million compared to the rate of growth from 1995 to
1996 of $23.5 million.
The following table sets forth information summarizing the composition of
the loan portfolio at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
------------ ----------
(Dollars in thousands)
<S> <C> <C>
Commercial, financial and agricultural $ 33,183 39,078
Real estate - construction 10,645 13,311
Real estate - mortgage 126,951 143,879
Installment loans to individuals and other 23,074 23,925
Loans secured by deposits 4,586 4,812
Overdrafts 270 195
Foreign loans -0- -0-
-------- -------
198,709 225,200
Deferred loan fees, net (143) (164)
Unearned interest (160) (173)
-------- -------
198,406 224,863
Allowance for loan losses (2,550) (2,865)
-------- -------
Loans, Net $195,856 221,998
======== =======
</TABLE>
61
<PAGE>
The following table sets forth certain information at December 31, 1997
regarding the dollar amount of loans for the categories indicated maturing based
on their contractual terms to maturity. Demand loans, loans having no stated
schedule of repayments and no stated maturity and overdrafts are reported as due
in one year or less.
<TABLE>
<CAPTION>
AMOUNTS AT DECEMBER 31, 1997 DUE IN
----------------------------------------
AFTER ONE
YEAR
ONE YEAR THROUGH DUE AFTER
OR LESS FIVE YEARS FIVE YEARS TOTAL
-------- ---------- ---------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $19,819 13,128 6,131 39,078
Real estate - construction 10,789 1,714 808 13,311
Loans secured by deposits 3,602 1,159 51 4,812
------- ------ ----- ------
Total $34,210 16,001 6,990 57,201
======= ====== ===== ======
</TABLE>
The following table presents the total amount of loans shown in the
preceding table which are due after one year and which have fixed interest rates
and have variable interest rates.
<TABLE>
<S> <C>
Loans maturing after one year with:
Fixed interest rates $ 9,356
Variable interest rates 13,635
-------
Total $22,991
=======
</TABLE>
The following table presents information concerning outstanding balances of
nonperforming loans at December 31, 1996 and 1997. Nonperforming loans consists
of loans which have been placed on nonaccrual status or are past due more than
ninety days with respect to principal or interest.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1997
----------- --------
(Dollars in thousand)
<S> <C> <C>
Loans accounted for on a nonaccrual basis (1) $ 291 368
Accruing loans which are contractually past
due 90 days or more as to principal or
interest payments (1) 241 178
Other loans which are "troubled debt
restructurings" (1) -0- -0-
</TABLE>
For the year ended December 31, 1997, for loans accounted for on a
nonaccrual basis and other loans which are "troubled debt restructurings" as
defined in Statement of Financial Accounting Standards No. 15, the gross
interest income that would have been reported if the loans had been current in
accordance with their original terms and had been outstanding throughout the
period or since origination, if held for part of the period, was approximately
$32,000 and the amount of interest income on those loans that was included in
net income for the period was approximately $17,000.
A loan is placed on non-accrual status when the loan has been delinquent for
ninety days except where an analysis of related collateral values reflects
sufficient collateral to secure principal and accrued interest. When accrual of
interest is discontinued, all unpaid accrued interest is reversed.
As of December 31, 1997, in the opinion of management, there are no
additional problem loans of significance which are not now disclosed under
information concerning non-accrual, past due and restructured loans.
As of December 31, 1997, there are no loan concentrations exceeding 10% of
total loans which are not otherwise disclosed previously as a category of loans.
As of December 31, 1997, there are no other interest-bearing assets that
would be required to be disclosed as nonaccrual, past due or restructured loans
if such assets were loans.
(1) There are no foreign loans.
62
<PAGE>
RESERVE FOR POSSIBLE LOAN LOSSES
An allowance for loan losses is established through a provision for loan
losses charged to expenses. Loans are charged against the allowance for loan
losses when management believes that the collectibility of the principal is
unlikely. The allowance is an amount that management believes will be adequate
to absorb possible losses on existing loans that may become uncollectible based
on evaluations of the collectibility of loans and prior loan loss experience.
The evaluations take into consideration such factors as changes in the nature
and volume of the loan portfolio, overall portfolio quality, review of specific
problem loans, specific impaired loans and current economic conditions that may
affect the borrowers' ability to pay.
The reserve for possible loan losses was approximately 1.27% of outstanding
loans at December 31, 1997 and 1.29% at December 31, 1996. The reserve was
increased to approximately $2,865,000 at December 31, 1997 from approximately
$2,550,000 at December 31, 1996. Nonperforming loans increased from
approximately $291,000 at December 31, 1996 to approximately $368,000 at
December 31, 1997, representing .16% of total loans. Management believes that
the reserve for loan losses of approximately $2,865,000 at December 31, 1997 is
adequate due to the $261,000 of charge offs in the year ended December 31, 1997
and the fact that approximately $162.0 million or 71.9% of the banks' loan
portfolio consisted of loans secured by real estate and deposit accounts.
The following table sets forth an analysis of loss experience for the
periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1997
------------- ----------
(Dollars in thousands))
<S> <C> <C>
Balance at beginning of period $2,294 2,550
------ -----
Charge-Off's:
Domestic:
Commercial, financial and agricultural 18 56
Real estate - construction -0- -0-
Real estate - mortgage 83 36
Installment loans to individuals 60 169
Loans secured by deposits -0- -0-
Overdrafts -0- -0-
Foreign -0- -0-
------ -----
161 261
------ -----
Recoveries:
Domestic:
Commercial, financial and agricultural -0- -0-
Real estate, construction -0- -0-
Real estate - mortgage -0- 16
Installment loans to individuals 12 27
Loans secured by deposits -0- -0-
Overdrafts -0- -0-
Foreign -0- -0-
------ -----
12 43
------ -----
Net Charge-Off's 149 218
------ -----
Additions charged to operations 405 533
------ -----
Balance at end of period $2,550 2,865
====== =====
Ratio of net charge-off's during the period to
average loans outstanding during the period $.08% .10%
====== =====
</TABLE>
63
<PAGE>
The banks have allocated the reserve for possible loan losses according to
the amounts deemed to be reasonably necessary at each year end to provide for
the possibility of losses being incurred within the categories of loans set
forth in the table below based on management's evaluation of the loan portfolio.
The amounts and percentages of such components of the reserve for possible loan
losses at December 31, 1996 and 1997 and the percent of loans in each category
to total loans are presented below.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
1996 1997
--------------------- --------------------
PERCENT PERCENT
OF LOANS OF LOANS
IN EACH IN EACH
CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------- ------------ ------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Domestic:
Commercial, financial and
agricultural $ 437 16.70% 509 17.35%
Real estate - construction 140 5.36 173 5.91
Real estate - mortgage 1,670 63.89 1,872 63.89
Installment loans to
individuals 303 11.61 311 10.62
Loan secured by deposits -0- 2.31 -0- 2.14
Overdrafts -0- .13 -0- .09
Foreign -0- .00 -0- .00
Unallocated -0- .00 -0- .00
------ ------ ----- ------
$2,550 100.00% 2,865 100.00%
====== ====== ===== ======
</TABLE>
The following table sets forth an analysis of the average amount outstanding
and the average rate paid for all deposits for the categories and periods
indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1997
--------- --------
AVERAGE AVERAGE AVERAGE AVERAGE
AMOUNT RATE PAID AMOUNT RATE PAID
--------- ---------- ------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Deposits in domestic bank
offices:
Noninterest-bearing demand deposits $ 34,551 .00% 36,621 .00%
Interest-bearing demand deposits 52,145 3.18 51,431 2.99
Savings deposits 17,460 3.11 17,310 3.06
Time deposits 131,995 5.93 144,284 5.82
Deposits in foreign banking offices -0- .00 -0- .00
-------- -------
Total $236,151 249,646
======== =======
</TABLE>
DEPOSIT MATURITIES
The principal sources of funds for the Banks' loans and investments are
demand, time, savings and other deposits and borrowings. The Banks offer a
variety of deposit accounts including checking and NOW accounts, savings and
time accounts, certificates of deposit and money market accounts. As of
December 31, 1997, total deposits were approximately $267.3 million compared to
approximately $249.7 million at December 31, 1996. Although, in some instances,
time deposits greater than $100,000 may be more sensitive to changes in interest
rates, substantially all the Banks' deposits are derived from within their
primary service areas which management believes are not as interest rate
sensitive as are more urban service areas. The Banks do not have any brokered
deposits.
64
<PAGE>
The following table summarizes maturity information for time deposits
greater than $100,000 at December 31, 1997.
<TABLE>
<CAPTION>
(Dollars in thousands))
<S> <C>
Three months or less $12,069
Over three through six months 10,498
Over six through twelve months 21,039
Over twelve months 2,673
-------
Total $46,279
=======
</TABLE>
ADVANCES FROM FEDERAL HOME LOAN BANK
The following table shows the Company's borrowings from the Federal Home
Loan Bank and the weighted average interest rates thereon at the end of the last
two years. Also provided are the maximum amount of borrowings and the average
amounts outstanding as well as weighted average interest rates for the two
years.
<TABLE>
<CAPTION>
FEDERAL HOME
LOAN BANK
ADVANCES
-----------------------
(Dollars in thousands)
<S> <C>
Balance at December 31:
1997 $28,168
1996 17,096
Weighted Average Interest
Rate At Year End:
1997 6.20%
1996 6.42%
Maximum Amount Outstanding
At Any Month's End:
1997 $28,168
1996 22,650
Average Amount Outstanding
During The Year:
1997 $20,391
1996 15,493
Weighted Average Interest
Rate During The Year:
1997 6.02%
1996 5.44%
</TABLE>
INTEREST RATE SENSITIVITY
The relative interest rate sensitivity of the Banks' assets and liabilities
indicates the extent to which the Banks' net interest income may be affected by
interest rate movements. The Banks' ability to reprice assets and liabilities
in the same dollar amounts and at the same time minimizes interest rate risks.
One method of measuring the impact of interest rate changes on net interest
income is to measure, in a number of time frames, the interest-sensitivity gap,
by subtracting interest-sensitive liabilities from interest-sensitive assets, as
reflected in the following table. Such interest-sensitivity gap represents the
risk, or opportunity, in repricing. If more assets than liabilities are
repriced at a given time in a rising rate environment, net interest income
improves; in a declining rate environment, net interest income deteriorates.
Conversely, if more liabilities than assets are repriced while interest rates
are rising, net interest income deteriorates; if interest rates are falling, net
interest income improves.
65
<PAGE>
The following table presents the interest sensitivity gap of the companies
as of December 31, 1997.
<TABLE>
<CAPTION>
OVER OVER
3 3 MONTHS 1 YEAR
MONTHS THROUGH THROUGH OVER
OR LESS 12 MONTHS 5 YEARS 5 YEARS TOTAL
-------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
(Dollars in thousands)
Interest-earning assets:
Short-term deposits $ 2,198 1,000 -0- -0- 3,198
Loans 86,828 18,857 61,388 57,790 224,863
Investment securities 3,454 9,992 26,368 12,616 52,430
Federal funds sold 11,720 -0- -0- -0- 11,720
-------- ------- ------ ------- -------
Total interest-earning assets 104,200 29,849 87,756 70,406 292,211
-------- ------- ------ ------- -------
Interest-bearing liabilities:
NOW, savings and money
market accounts (1) -0- -0- -0- -0- -0-
Time deposits 34,749 79,590 33,815 -0- 148,154
Advances from Federal Home
Loan Bank 488 7,917 13,791 5,972 28,168
-------- ------- ------ ------- -------
Total interest-bearing liabilities 35,237 87,507 47,606 5,972 176,322
-------- ------- ------ ------- -------
Interest-sensitivity gap $ 68,963 (57,658) 40,150 64,434 115,889
======== ======= ====== ======= =======
Cumulative interest sensitivity GAP $ 68,963 11,305 51,455 115,889
======== ======= ====== =======
Interest Sensitivity GAP ratio 2.96 .34 1.84 11.79
======== ======= ====== =======
Cumulative interest
sensitivity GAP ratio 2.96 1.09 1.30 1.66
======== ======= ====== =======
</TABLE>
Comfort range .90 - 1.20
(1) Not considered rate sensitive.
IMPACT OF INFLATION AND CHANGING PRICES
The majority of assets and liabilities of a financial institution are
monetary in nature and therefore differ greatly from most commercial and
industrial companies that have significant investments in fixed assets, such as
property, plant and equipment, and inventories and therefore are primarily
impacted by interest rates rather than changing prices. While the general level
of inflation underlies most interest rates, interest rates react more to change
in the expected rate of inflation and to changes in monetary and fiscal policy.
Net interest income and the interest rate spread are good measures of the
company's ability to react to changing interest rates. This information is
presented in further detail in the section entitled "Average Yields Earned and
Rates Paid".
66
<PAGE>
DESCRIPTION OF INVESTORS
GENERAL
Investors is a bank holding company operating a community bank in
Bainbridge, Georgia. Investors was incorporated under the laws of Georgia in
1991 and commenced operations that year by acquiring 100% of the outstanding
shares of Bank. All of Investors' activities are currently conducted by its
wholly-owned community banking subsidiary.
Employees
As of February 4, 1998, the Bank had an aggregate of 28 full-time
equivalent employees, and Investors had no full-time equivalent employees.
Neither Investors, nor the Bank is a party to any collective bargaining
agreement, and Investors and the Bank believes that their employee relations are
good.
PROPERTIES
The Bank's main office is located at 226 South Broad Street in downtown
Bainbridge, Georgia and occupies approximately 16,300 square feet and has four
drive-through lanes. In addition, the Bank has one full service branch office
located at 1510 Dothan Road on the west side of Bainbridge. This branch office
occupies approximately 2,700 square feet. The Bank has two ATMs, one located at
the Bank's main office and one located at a stand-alone building at the
Bainbridge Mall. The Bank owns all of its banking facilities.
COMPETITION
The banking business in general and in the Bank's market area is highly
competitive. The Bank competes as a financial intermediary with other
commercial banks, savings and loan associations, credit unions, mortgage banking
companies, consumer finance companies, credit associations, securities
brokerages, insurance companies and money market mutual funds operating in
Decatur and Seminole Counties, surrounding areas and elsewhere. In addition,
recent legislative and regulatory changes and technological advances have
enabled customers to conduct banking activities without regard to geographic
barriers through computer-based banking and similar services. Many of these
competitors have substantially greater resources and lending limits, more
diversified markets and larger branch networks than Investors and are able to
offer similar services at varying costs. In addition, with the enactment of the
Riegle-Neal Act and other laws and regulations affecting interstate and
intrastate bank expansion, Georgia banks located outside of Decatur and Seminole
Counties may now branch into the Bank's market area, and banks which are not
located in Georgia may acquire a bank located in Georgia and then branch into
the Bank's market area. The effect of such acquisitions and branch
establishments may be to further increase the competition faced by Investors.
DIVIDENDS
During 1997, Investors paid quarterly dividends as follows: first quarter,
$.12 per share; second quarter, $.12 per share; third quarter, $.14 per share
and fourth quarter, $.14 per share. On March 31, 1998, Investors paid a $.14 per
share dividend. Although Investors intends to continue paying cash dividends,
the amount and frequency of cash dividends will be determined by Investors'
Board of Directors after consideration of earnings, capital requirements and the
financial condition of Investors. No assurances can be given that cash dividends
will be declared in the future. Additionally, Investors' ability to pay cash
dividends will be dependent on cash dividends paid to it by the Bank. The
ability of the Bank to pay dividends to Investors is restricted by applicable
regulatory requirements.
SERVICES
The Bank is community-oriented, with an emphasis on lending to small
businesses and professionals and providing other customary banking services,
such as consumer and commercial checking accounts, NOW accounts, savings
accounts, certificates of deposit, lines of credit, Mastercard and VISA accounts
and money transfers. The
67
<PAGE>
Bank finance commercial and consumer transactions, makes secured and unsecured
loans, including residential mortgage loans, and provides a variety of other
banking services.
Deposits
The Bank offer a full range of depository accounts and services to both
consumers and businesses. At December 31, 1997, the Bank's deposit base,
totaling approximately $64.9 million, consisted of approximately $11.8 million
in non-interest-bearing demand deposits (18.3% of total deposits), approximately
$16.1 million in interest-bearing demand deposits (including money market
accounts) (24.8% of total deposits), approximately $5.5 million in savings
deposits (8.4% of total deposits), approximately $23.3 million in time deposits
in amounts less than $100,000 (35.9% of total deposits), and approximately $8.2
million in time deposits of $100,000 or more (12.6% of total deposits).
LOANS
The Bank makes both secured and unsecured loans to individuals, firms and
corporations, and both consumer and commercial lending operations include
various types of credit for its customers. Secured loans include first and
second real estate mortgage loans. The Bank also makes direct installment loans
to consumers on both a secured and unsecured basis. At December 31, 1997,
consumer, real estate (including mortgage and construction loans) and commercial
loans represented approximately 23.7%, 60.7%, and 15.6%, respectively, of the
Bank's total loan portfolio. The Bank makes a variety of real estate loans,
including loans for residential real estate construction, acquisition and
development loans, as well as loans for other purposes that are secured by real
estate.
Specific risk elements associated with the Bank's lending categories
include, among other factors, the following:
<TABLE>
<S> <C>
Commercial, financial and agricultural Industry concentrations, inability to monitor the
condition of collateral (inventory, accounts receivable
and vehicles), lack of borrower management expertise,
increased competition, and specialized or obsolete
equipment as collateral
Real estate - construction Inadequate collateral and long-term financing agreements
Real estate - mortgage Changes in local economy and caps on variable rate loans
Installment loans to individuals Loss of borrower's employment, changes in local economy,
the inability to monitor collateral (vehicle, boats and
mobile homes)
</TABLE>
LENDING POLICY
The current lending strategy of the Bank is to offer consumer, real estate
and commercial credit services to individuals and entities that meet the Bank's
credit standards. The Bank provides its lending officers with written
guidelines for lending activities. Lending authority is delegated by the Board
of Directors of the Bank to loan officers, each of whom is limited in the amount
of secured and unsecured loans which he or she can make to a single borrower or
related group of borrowers.
LOAN REVIEW AND NON-PERFORMING ASSETS
The Bank's Loan Committee reviews the Bank's portfolio to determine
deficiencies and corrective action to be taken. Periodic reviews are conducted
of borrowers with total direct and indirect indebtedness of $100,000 or more and
of all past-due loans. Past-due loans are reviewed at least monthly by lending
officers and a summary
68
<PAGE>
report is reviewed monthly by senior management and by the Bank's Loan
Committee. The loan review function periodically reviews all relationships over
$100,000, whether current or past due. The loan review function reviews
significant findings with the Board quarterly. In addition, the Bank maintains
internal classifications of problem and potential problem loans. The Bank also
has periodic reviews performed by outside experts whose findings are reported to
its Board of Directors
ASSET/LIABILITY MANAGEMENT
The Bank's Board of Directors is charged with establishing policies to
manage the assets and liabilities of the Bank. The Board's task is to manage
asset growth, net interest margin, liquidity and capital. The Board directs the
Bank's overall acquisition and allocation of funds. On a monthly basis, the
Bank's Board of Directors receives a report with regard to the monthly asset and
liability funds budget and income and expense budget in relation to the actual
composition and flow of funds, the ratio of the amount of rate-sensitive assets
to the amount of rate-sensitive liabilities, the ratio of loan loss reserves to
outstanding loans, and other variables, such as expected loan demand, investment
opportunities, core deposit growth within specified categories, regulatory
changes, monetary policy adjustments and the overall condition of the local,
state and national economy.
INVESTMENT POLICY
The Bank's investment portfolio policy is to maximize income consistent
with liquidity, asset quality and regulatory constraints. The policy is
reviewed from time to time by the Bank's Board of Directors. Individual
transactions, portfolio composition and performance are reviewed and approved by
the Bank's Board of Directors or a committee thereof. The President of the Bank
implements the policy and reports to the Bank's full Board of Directors on a
monthly basis information concerning sales, purchases, resultant gains or
losses, average maturity, federal taxable equivalent yields, and appreciation or
depreciation by investment categories.
In general, the Bank's investment policy is to place 100% of its securities
in the Available for Sale portfolio upon purchase. As of December 31, 1997,
100% of the Bank's securities were in the Available for Sale security portfolio.
At December 31, 1997, $9,100,272 of the Bank's securities consisted of
single maturity, fixed-rate U.S. Treasury and Agency securities, $169,777 in
municipal securities, and $9,603,520 in mortgage backed securities with a
weighted average maturity of the portfolio of less than three years. The
primary risks in the Bank's securities portfolio consist of:
Credit risk, or the risk of default of the issuer. Substantially all of
the securities are in Treasury and Agency securities; therefore, the
credit risk is primarily limited to the risk of default of the U.S.
Government and its agencies.
Interest rate risk, or the risk of adverse movements in interest rates on
the value of the portfolio. In general, a rise in interest rates will
cause the value of the Bank's securities to decline. The longer the
maturity of an individual security, the greater the effect of a change in
interest rates on its value.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Bank has had, and expects to have in the future, banking transactions
in the ordinary course of business with directors and officers of Investors and
the Bank and their associates, including corporations in which such officers or
directors are shareholders, directors and/or officers, on the same terms
(including interest rates and collateral) as those prevailing at the time for
comparable transactions with other persons. Such transactions have not involved
more than the normal risk of collectibility or presented other unfavorable
features. At December 31, 1997, loans to directors and officers and their
associates totaled $3,199,940, or 37.29% of total shareholders' equity.
69
<PAGE>
OWNERSHIP OF INVESTORS COMMON STOCK
The following table provides the number of shares and percentages of
outstanding shares of Investors Common Stock which were owned at April 20, 1998,
by the directors and executive officers of Investors or the Bank. Percentages of
shares of Investors beneficially owned are based on 470,000 shares outstanding
at April 20, 1998, except that in the case of persons who beneficially own
shares pursuant to the right to acquire shares through the exercise of options
and warrants, shares subject to such person's options or warrants are included
in the denominator for calculating such person's percentage ownership.
Percentages which are less than 1% are listed as not applicable.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
PERCENTAGE OF PERCENTAGE OF PAB
Number of Investors INVESTORS SHARES SHARES BENEFICIALLY
NAME OF BENEFICIAL OWNER Shares Beneficially BENEFICIALLY OWNED AFTER
Owned * OWNED MERGER**
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bill J. Jones 53,595/(1)/ 11.0% 2.1%
Chairman of the Board of Directors
- -----------------------------------------------------------------------------------------------------------------------------
Tracy A. Dixon 30,985/(2)/ 6.4% 1.2%
President, Chief Executive Officer
and Director
- -----------------------------------------------------------------------------------------------------------------------------
Major H. Brannen, Jr. 3,200/(3)/ N/A N/A
Executive Vice President and Director
- -----------------------------------------------------------------------------------------------------------------------------
Judy M. Powell 1,500 N/A N/A
Executive Vice President
- -----------------------------------------------------------------------------------------------------------------------------
Thomas H. Dollar, II 6,000/(4)/ 1.3% N/A
Director
- -----------------------------------------------------------------------------------------------------------------------------
J. W. Harrell 44,075/(5)/ 9.0% 1.7%
Director
- -----------------------------------------------------------------------------------------------------------------------------
Hilda N. Hines, 61,125/(6)/ 12.5% 2.5%/(13)/
Director
- -----------------------------------------------------------------------------------------------------------------------------
Bruce W. Kirbo 9,675/(7)/ 2.1% N/A
Director
- -----------------------------------------------------------------------------------------------------------------------------
Paul Kwilecki 4,915/(8)/ 1.0% N/A/(14)/
Director
- -----------------------------------------------------------------------------------------------------------------------------
T. Steele Malone 4,440/(9)/ N/A N/A
Director
- -----------------------------------------------------------------------------------------------------------------------------
J. M. Simmons 43,040/(10)/ 8.9% 2.0%/(15)/
Director
- -----------------------------------------------------------------------------------------------------------------------------
E. J. Perry, III 33,481/(11)/ 7.0% 1.3%
Director
- -----------------------------------------------------------------------------------------------------------------------------
All directors and executive officers
as a group 296,031/(12)/ 51.7% 11.3%
(12 persons)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Except as otherwise indicated, the persons named in the above table have
sole voting and investment power with respect to all shares of common
stock shown as beneficially owned by them. Information as to beneficial
ownership of common stock has been furnished by the respective persons
listed in the above table.
** Percentages of PAB shares beneficially owned after the Merger assume (i)
that no Investors warrants or options are exercised prior to the
Effective Time and (ii) a Common Stock Exchange Ratio of 2.994400 and a
Warrant Exchange Ratio of 2.559617 (based on a BPTP of $23.00).
Percentages of PAB Common Stock beneficially owned after the Merger are
based upon the sum of the 5,661,385 shares of PAB Common Stock
outstanding on April 15, 1998 plus the 1,710,114 shares of PAB Common
Stock to be issued pursuant to the Merger.
/(1)/ Includes 19,400 shares held as custodian for the benefit of
grandchildren, to which he disclaims beneficial ownership. Includes
17,865 shares which may be acquired through the exercise of outstanding
warrants.
/(2)/ Includes 11,710 shares which may be acquired through the exercise of
options and outstanding warrants.
/(3)/ Includes 2,100 shares held in his wife's name to which he disclaims
beneficial ownership.
/(4)/ Includes 5,000 shares held by Dollar Farm Products Co. over which
he has voting power.
/(5)/ Does not include 19,485 shares held by members of his family who are not
living at his residence to which he disclaims beneficial ownership.
Includes 20,600 shares which may be acquired through the exercise of
outstanding warrants.
/(6)/ Includes 20,375 shares which may be acquired through the exercise of
outstanding warrants.
70
<PAGE>
/(7)/ Includes 3,065 shares which may be acquired through the exercise of
outstanding warrants
/(8)/ Includes 1,638 shares which may be acquired through the exercise of
outstanding warrants.
/(9)/ Does not include 4,000 shares owned by members of his family to which he
disclaims beneficial ownership. Includes 3,080 shares which may be
acquired through the exercise of outstanding warrants.
/(10)/ Includes 14,113 shares which may be acquired through the exercise
of outstanding warrants.
/(11)/ Includes 6,000 shares held by his children to which he disclaims
beneficial ownership. Includes 10,360 shares which may be acquired
through the exercise of outstanding warrants.
/(12)/ Includes 102,806 shares which may be acquired through the exercise of
outstanding warrants and options.
/(13)/ Includes 12,500 shares of PAB Common Stock held by Ms. Hines.
/(14)/ Includes 1,145 shares of PAB Common Stock held by Mr. Kwilecki.
/(15)/ Includes 22,500 shares of PAB Common Stock held by Mr. Simmons.
71
<PAGE>
EXECUTIVE OFFICERS
Executive officers of Investors are elected by the Board of Directors
annually at the first meeting of the Board following the annual meeting of
Investors shareholders and hold office until such officers' successors are
chosen and qualified, unless they sooner resign or are removed from office by
the Board of Directors.
Information is set forth below with respect to the age, positions with
Investors and its subsidiary, and business experience of the executive officers
of Investors as of April 20, 1998.
<TABLE>
<CAPTION>
NAME (AGE) PRINCIPAL POSITION AND BUSINESS EXPERIENCE
- --------- ------------------------------------------
<S> <C>
Tracy A. Dixon (56) Mr. Dixon currently serves as Director, President and Chief
Executive Officer of the Bank and Investors. He has held these
positions since the inception of the Bank and Investors in 1991.
During his 32 years of banking, Mr. Dixon worked with the C&S
National Bank in Savannah and Atlanta prior to moving to Bainbridge,
Georgia in 1987 as the City Executive Officer for the C&S National
Bank in Bainbridge.
Major H. Brannen, Jr. (38) Mr. Brannen currently serves as Director and Senior Vice President
of the Bank. He has served in those capacities since 1995.
Previously he worked for Crossroads Bank in Perry, Georgia and
Citizens Bank in Vienna, Georgia as a commercial lender. Mr.
Brannen is currently in charge of the lending function of the Bank
and has worked with commercial loans since 1988.
Judy M. Powell (45) Ms. Powell has 22 years of banking experience and has served as
Chief Operations Officer for the Bank since its inception in 1991.
She currently serves as Secretary of the Board of Directors for the
Bank and Investors.
</TABLE>
72
<PAGE>
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF INVESTORS
Years ended December 31, 1997, 1996 and 1995
This analysis has been prepared to provide insight into the consolidated
financial condition of Investors and addresses the factors which have affected
Investors' results of operations. Unless otherwise noted, the financial and
other information presented with respect to Investors in this discussion and
elsewhere in this Joint Proxy Statement/Prospectus generally includes the
accounts of the Bank. The management discussion should be read in conjunction
with Investors' consolidated financial statements and accompanying notes
included herein which follow are an integral part of this analysis.
RESULTS OF OPERATIONS AND FINANCIAL CONDITION FOR YEARS ENDED DECEMBER 31, 1997,
1996 AND 1995
SUMMARY
Net income for 1997 was $1,185,000, a 22.4% increase from Investors' net
income of $968,000 in 1996. Net income for 1996 was $968,000, or 17.2% over 1995
net income of $826,000. The increase in net income in 1997 over 1996 resulted
primarily from an increase in interest income and fees resulting from higher
loan demand and the Bank's ability to limit increases in its operating expenses.
Specifically, Investors had an increase in net interest income of $245,000, an
increase in noninterest income of $103,000, an increase in provision for loan
losses of $24,000, an increase in noninterest expense of $22,000 and an increase
in applicable income taxes of $85,000.
Investors' results of operations are generally 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.
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. Since interest rates are determined by
market forces and economic conditions beyond the control of Investors, the
ability to generate net interest income is dependent upon Investors' ability to
obtain an adequate spread between the rate earned on interest-earning assets and
the rate paid on interest-bearing liabilities. Thus, a key performance measure
for net interest income is the net interest margin or net yield, which is
taxable-equivalent net interest income divided by average earning assets.
Interest-earning assets consist of loans, investment securities and Federal
funds sold. Interest-bearing liabilities consist of deposits, long-term debt and
short-term borrowings. As of December 31, 1997 and 1996 approximately 15% of
Investors' deposits were 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 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 by the Bank's management 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
$144,000 in 1997, $120,000 in 1996 and $132,000 in 1995. Investors recorded net
loan charge-offs of $87,000 in 1997, $70,000 in 1996 and $48,000 in 1995. At
December 31, 1997, the allowance for loan losses was 1.42% of total loans
outstanding as compared to an allowance for loan losses of 1.36% of total loans
outstanding at December 31, 1996 and 1.37% of total loans outstanding at
December 31, 1995. The determination of the allowance rests upon management's
judgment about factors affecting loan quality and assumptions about the local
73
<PAGE>
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 $636,000, or .86%, to $74,774,000 in 1997 as
compared to $74,138,000 in 1996. The increase in average total assets from 1996
to 1997 was accompanied by a decrease in average deposits of $664,000 and an
increase in average borrowings of $473,000. Average total assets increased
$2,479,000, or 3.46%, to $74,138,000 in 1996 as compared to $71,659,000 in 1995.
The increase in total assets from 1995 to 1996 was accompanied by an increase of
$2,913,000 in average deposits and a decrease of $1,023,000 in average
borrowings.
Following is a condensed summary of the increase in net income for 1997,
1996, and 1995.
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- ----------------
<S> <C> <C> <C>
Net interest income $ 3,329,000 $ 3,084,000 $ 2,885,000
Provision for loan losses 144,000 120,000 132,000
Other income 705,000 602,000 568,000
Other expense 2,072,000 2,050,000 2,088,000
----------------- ----------------- ----------------
Income before income taxes 1,818,000 1,516,000 1,233,000
Applicable income taxes 633,000 548,000 407,000
----------------- ----------------- ----------------
Net income $ 1,185,000 $ 968,000 $ 826,000
================= ================ ================
</TABLE>
NET INTEREST INCOME
The net interest margin increased 29 basis points (or 6.33%) to 4.87% in
1997 from 4.58% in 1996. This increase in net interest margin resulted from a
nominal increase in interest-earning assets accompanied by an increase of 17
basis points in interest earned on assets to 8.73% in 1997 as compared to 8.56%
in 1996. Interest paid on interest-bearing liabilities decreased nine basis
points to 4.62% in 1997 as compared to 4.71% in 1996. Interest-earning assets
increased 1.56% to $68,445,000 in 1997 as compared to $67,395,000 in 1996.
Average loans increased $2,864,000; average federal funds sold increased
$489,000; while average investment securities, including certificates of deposit
in other banks, decreased $2,303,000 from 1996 levels. Interest-bearing
liabilities increased only $201,000 or .35% to $57,164,000 in 1997 as compared
to $56,963,000 in 1996. Net interest income on a taxable-equivalent basis was
$3,332,000 in 1997 as compared to $3,089,000 in 1996, representing an increase
of 7.87%.
The net interest margin increased 12 basis points (or 2.69%) to 4.58% in
1996 as compared to 4.46% in 1995. This increase in net interest margin resulted
from an increase of 4.13% in interest-earning assets to $67,395,000 in 1996 from
$64,722,000 in 1995. Average loans increased $2,821,000; average investment
securities, including certificates of deposits in other banks, increased
$1,506,000; while average federal funds decreased $1,654,000 from 1995 levels.
Interest-bearing liabilities increased by only 2.72% to $56,983,000 in 1996 from
$55,472,000 in 1995. Average yield on interest-earning assets increased nine
basis points to 8.56% in 1996 as compared to 8.47% in 1995, while interest paid
on interest-bearing liabilities increased only three basis points to 4.71% in
1996 as compared to 4.68% in 1995. Approximately 15% of the average deposits
were noninterest-bearing deposits in 1997, 1996 and 1995. Net interest income on
a taxable-equivalent basis was $3,089,000 in 1996 as compared to $2,886,000 in
1995, representing an increase of 7.03%.
74
<PAGE>
AVERAGE BALANCES AND NET INCOME ANALYSIS
The following tables set forth the amount of Investors' 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. Non-accruing loans
are not material to the total amount of loans outstanding, and such loans have
been included in average loans.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------------
1997 1996
----------------------------------------------- ---------------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Paid Balance Expense Rate Paid
-------------- --------------- ------------- -------------- ------------- ---------
(Dollars in thousands)
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans, net of unearned interest $ 47,255 $ 4,693 9.93% $ 44,391 $ 4,371 9.85%
Investment securities:
Taxable 19,279 1,176 6.10% 21,622 1,322 6.11%
Nontaxable 170 11 6.47% 169 11 6.51%
Bank owned CD's 139 9 6.47% 100 6 6.00%
Federal funds sold 1,602 85 5.31% 1,113 62 5.57%
-------------- --------------- -------------- -------------
Total interest-earning assets 68,445 5,974 8.73% 67,395 5,772 8.56%
-------------- --------------- -------------- -------------
Noninterest-earning assets:
Cash 2,463 2,430
Allowance for loan losses (649) (608)
Unrealized gain on available
for sale securities (138) (157)
Other assets 4,653 5,078
-------------- --------------
Total noninterest-earning assets 6,329 6,743
-------------- --------------
Total assets $ 74,774 $ 74,138
=========== ===========
</TABLE>
75
<PAGE>
AVERAGE BALANCES AND NET INCOME ANALYSIS (CONTINUED)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------
1997 1996
------------------------------------------ ---------------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Paid Balance Expense Rate Paid
------------- ------------ --------------- ------------- ------------ ---------
(Dollars in thousands)
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest-bearing liabilities:
Savings and interest-bearing demand deposits $ 22,308 $ 650 2.91% $ 21,927 $ 640 2.92%
Time deposits 31,685 1,783 5.63% 32,338 1,849 5.72%
Other short-term borrowings 89 6 6.74% 150 9 6.00%
Other borrowings 3,082 203 6.59% 2,548 185 7.26%
------------- ------------ ------------- ------------
Total interest-bearing liabilities 57,164 2,642 4.62% 56,963 2,683 4.71%
------------- ------------ ------------- ------------
Noninterest-bearing liabilities and
stockholders' equity:
Demand deposits 9,304 9,696
Other liabilities 239 251
Stockholders' equity 8,067 7,228
------------- -------------
Total noninterest-bearing liabilities
and stockholders' equity 17,610 17,175
------------- -------------
Total liabilities and stockholders' equity $ 74,774 $ 74,138
============= =============
Interest rate spread 4.11% 3.85%
============== =========
Net interest income $ 3,332 $ 3,089
========= ==========
Net interest margin 4.87% 4.58%
=============== =========
</TABLE>
76
<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,
-------------------------------------------------------------------------
1997 vs. 1996 1996 vs. 1995
-------------------------------------------------------------------------
Increase Changes Due To Increase Changes Due To
--------------------- ---------------------
(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 $ 322 $ 40 $ 282 $ 305 $ 29 $ 276
Interest on securities:
Taxable (146) (3) (143) 136 21 115
Nontaxable - (1) 1 11 - 11
Bank owned CD's 3 1 2 (38) - (38)
Interest on Federal funds sold 23 (4) 27 (126) (14) (112)
-------------------------------------------------------------------------
Total interest income 202 33 169 288 36 252
-------------------------------------------------------------------------
Expense from interest-bearing
liabilities:
Interest on savings and interest-
bearing demand deposits 10 (1) 11 (31) (25) (6)
Interest on time deposits (66) (29) (37) 214 64 150
Interest on short-term borrowings (3) 1 (4) 6 1 5
Interest on other borrowings 18 (21) 39 (104) (16) (88)
-------------------------------------------------------------------------
Total interest expense (41) (50) 9 85 24 61
-------------------------------------------------------------------------
Net interest income $ 243 $ 83 $ 160 $ 203 $ 12 $ 191
====== ====== ======== ====== ====== ========
</TABLE>
77
<PAGE>
NONINTEREST INCOME
Noninterest income increased $103,000 to $705,000 in 1997 from $602,000 in
1996. The most significant increase represents an increase in service charges on
deposit accounts of $81,000. 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 1997 and 1996.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1997 1996
--------------------- ----------------
(Dollars in thousands)
--------------------------------------------
<S> <C> <C>
Service charges on deposit accounts $ 536 $ 455
Other service charges, commissions and fees 23 28
Net realized gains (losses) on securities transactions (2) 4
Other income 148 115
$ 705 $ 602
================= ============
</TABLE>
NONINTEREST EXPENSE
Salaries and employee benefits decreased $11,000, or 1.13%, in 1997 from
1996. Amortization of intangible assets decreased $19,000, or 7.09%, in 1997
from 1996. All other noninterest expense increased $52,000 for a total increase
of $22,000, or 1.07%, over the corresponding amounts in 1996. Following is an
analysis of noninterest expense for 1997 and 1996.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1997 1996
----------------------- ---------------
(Dollars in thousands)
--------------------------------------------
<S> <C> <C>
Salaries and employee benefits $ 960 $ 971
Occupancy and equipment expense 374 370
Amortization of intangible assets 249 268
Other expense 489 441
$ 2,072 $ 2,050
================== ===========
</TABLE>
78
<PAGE>
ASSET/LIABILITY MANAGEMENT
As part of Investors' interest rate risk management policy, a committee
composed of outside directors and officers of the Bank (the "Bank 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 Investors' assets and
liabilities were equally flexible and moved concurrently, the impact of any
increase or decrease in interest rates on net 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 Bank 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 cost 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 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 general 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
Investors' earning assets and interest-bearing liabilities as of December 31,
1997, the interest rate sensitivity gap (i.e., interest rate sensitive assets
less interest rate sensitive liabilities), the cumulative interest rate gap
ratio (i.e., interest rate sensitive assets divided by interest rate sensitive
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 Investors'
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.
79
<PAGE>
<TABLE>
<CAPTION>
At December 31, 1997
-------------------------------------------------------------------
Maturing or Repricing
-------------------------------------------------------------------
After Three After One
Within Months Year After
Three Within Within Three
Months One Year Three Years Years Total
----------- ----------- ----------- --------- ---------
(Dollars in thousands)
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EARNING ASSETS:
Interest-bearing deposits $ - $ 200 $ - $ - $ 200
Federal funds sold 2,848 - - - 2,848
Investment securities 1,316 3,592 5,679 8,272 18,859
Loans 15,966 4,524 12,454 14,236 47,180
----------- ----------- ----------- ------------ ---------
20,130 8,316 18,133 22,508 69,087
----------- ----------- ----------- ------------ ---------
INTEREST-BEARING LIABILITIES:
Interest-bearing demand deposits (1) 3,684 - 12,396 - 16,080
Savings (1) - - 5,453 - 5,453
Certificates less than $100,000 5,468 11,628 4,552 1,668 23,316
Certificates, $100,000 and over 1,800 4,532 1,235 586 8,153
Other borrowings 3,184 - - - 3,184
----------- ----------- ----------- ------------ ---------
14,136 16,160 23,636 2,254 56,186
----------- ----------- ----------- ------------ ---------
INTEREST RATE SENSITIVITY GAP $ 5,994 $ (7,844) $ (5,503) $ 20,254 $ 12,901
======== ========= ========= ======== ========
CUMULATIVE INTEREST RATE SENSITIVITY GAP $ 5,994 $ (1,850) $ (7,353) $ 12,901
======== ========= ========= ========
INTEREST RATE SENSITIVITY GAP RATIO 1.42 0.51 0.77 9.99
======== ========= ========= =========
CUMULATIVE INTEREST RATE SENSITIVITY GAP RATIO 1.42 0.94 0.86 1.23
======== ========= ========= ========
</TABLE>
(1) Investors 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 Three Years" category. It has
also found that, on the average, the money-market check deposits reprice
within three months.
80
<PAGE>
MATURITIES AND SENSITIVITY OF LOANS TO CHANGES IN INTEREST RATES
Investors' loan portfolio, as of December 31, 1997, 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, 1997 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, 1997
-----------------------
(Dollars in
Thousands)
-----------------------
<S> <C>
Maturity:
One year or less $ 20,490
After one year through five years 23,140
After five years 3,550
-----------------------
$ 47,180
==================
</TABLE>
The following table summarizes loans at December 31, 1997 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, 1997
---------------------
(Dollars in
Thousands)
---------------------
<S> <C>
Predetermined interest rates $ 26,690
Floating or adjustable interest rates -
---------------------
$ 26,690
</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.
81
<PAGE>
LOAN PORTFOLIO
Management believes that Investors' 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 54% of
Investors' loan portfolio as of December 31, 1997. As of December 31, 1997,
Investors had outstanding loan commitments of $9.9 million. The amounts of loans
outstanding at the indicated dates are shown in the following table according to
type of loan.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------
1997 1996
--------------------- --------------------
(Dollars in thousands)
----------------------------------------------------
<S> <C> <C>
Commercial and financial $ 5,487 $ 4,489
Agricultural 1,889 1,216
Real estate - construction 509 847
Real estate - mortgage, farmland 2,519 2,739
Real estate - mortgage, other 25,606 24,197
Consumer installment loans 11,157 11,731
Other 13 25
--------------------- --------------------
47,180 45,244
Allowance for loan losses (671) (614)
Loans, net $ 46,509 $ 44,630
=================== =================
</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,
---------------------------------------------------
1997 1996
--------------------- ----------------------
(Dollars in thousands)
---------------------------------------------------
<S> <C> <C>
Loans accounted for on a nonaccrual basis $ 104 $ 113
Installment loans and term loans contractually past due ninety
days
or more as to interest or principal payments and still accruing 9 24
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 $ 113 $ 137
=================== ===================
</TABLE>
82
<PAGE>
As of December 31, 1997, total nonperforming loans were approximately .24% and
.30%, 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 due experience, composition of the loan portfolio, evaluation of possible
future losses, current economic conditions and other relevant factors.
Investors' allowance for loan losses was approximately $671,000 at December 31,
1997, representing 1.42% of year end total loans outstanding, compared with
approximately $614,000 at December 31, 1996, which represented 1.36% of year end
total loans outstanding.
The allowance for loan losses is regularly reviewed 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. No
assurance can be given, however, that adverse economic circumstances will not
result in increased losses in the Bank's loan portfolio, and require greater
provisions for loan losses in the future.
The following table presents an analysis of Investors' loan loss experience
for the periods indicated:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1997 1996
---------------- ---------------
(Dollars in thousands)
-----------------------------------------
<S> <C> <C>
Average amount of loans outstanding $ 47,255 $ 44,391
=============== =============
Balance of reserve for possible loan losses at beginning of period $ 614 $ 564
--------------- -------------
Charge-offs:
Commercial, financial and agricultural (16) (38)
Real estate - -
Consumer (80) (43)
Recoveries:
Commercial, financial and agricultural 1 2
Real estate - -
Consumer 8 9
--------------- -------------
Net charge-offs (87) (70)
Additions to reserve charged to operating expenses 144 120
Balance of reserve for possible loan losses $ 671 $ 614
=============== =============
Ratio of net loan charge-offs to average loan .18% .16%
=============== =============
</TABLE>
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
83
<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,
-------------------------------------------------------------
1997 1996
-------------------------- ----------------------
Percent of Percent of
Loans in Loans in
Category Category
to Total to Total
Amount Loans Amount Loans
---------- ------------- ----------- -------------
(Dollars in thousands)
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial,
industrial and agricultural $ 168 16% $ 154 13%
Real estate 248 61 227 61
Consumer 121 23 110 26
Unallocated 134 -- 123 --
$ 671 100% $ 614 100%
======== ========= ======== =========
</TABLE>
INVESTMENT PORTFOLIO
Investors 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 Investors due to the rate variability and short-term maturities of its
earning assets. In particular, approximately 43% 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, 26% of the investment portfolio matures or reprices within one
year.
TYPES OF INVESTMENTS
The amortized cost and fair value of investment securities are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------------- ------------- -------------- -------------
(Dollars in thousands)
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities Available for Sale
December 31, 1997:
U.S. Government and agency securities $ 9,100 $ 21 $ (20) $ 9,101
State and municipal securities 170 - - 170
Mortgage-backed securities 9,604 41 (57) 9,588
$ 18,874 $ 62 $ (77) $ 18,859
============= ========== ========== =============
December 31, 1996:
U.S. Government and agency securities $ 9,291 $ 13 $ (79) $ 9,225
State and municipal securities 170 - - 170
Mortgage-backed securities 11,901 39 (126) 11,814
$ 21,362 $ 52 $ (205) $ 21,209
============= ========== ========== =============
</TABLE>
84
<PAGE>
The following table represents maturities and weighted average yields of
investment securities held by Investors at December 31, 1997.
<TABLE>
<CAPTION>
Year Ended December 31, 1997
------------------------------------------------------------------------------------------------
After One Year but After Five Years
Within One Year Within Five Years but Within Ten After Ten Years
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) $ 3,802 5.96% $ 14,887 6.25% $ - - % $ - - %
Obligations of states and
other political subdivisions
/(1)/ /(2)/ 70 8.57 100 8.64 - - - -
</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,
----------------------------------------------------------------
1997 1996
------------------------------- ----------------------------
Amount Rate Amount Rate
----------- ------------ ---------- ------------
(Dollars in thousands)
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Noninterest-bearing demand deposits $ 9,304 --% $ 9,696 --%
Interest-bearing demand and savings deposits 22,308 2.91 21,927 2.92
Time deposits 31,685 5.63 32,338 5.72
---------- ----------
Total deposits $ 63,297 $ 63,961
========== ==========
</TABLE>
Investors 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, 1997, 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,
1997
-----------------------
(Dollars in thousands)
-----------------------
<S> <C>
Three months or less $ 1,800
Over three through twelve months 4,532
Over twelve months 1,821
------------------
Total $ 8,153
==================
</TABLE>
85
<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,
--------------------------
1997 1996
----------- ----------
<S> <C> <C>
Return on assets 1.58% 1.31%
Return on equity 14.69 13.39
Dividends payout ratio 20.63 21.36
Equity to assets ratio 10.79 9.75
</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 Investors to meet those needs. Investors seeks 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, Investors maintains relationships with correspondent banks which
could provide funds to them on short notice, if needed.
The liquidity and capital resources of Investors are monitored on a periodic
basis by state and Federal regulatory authorities. At December 31, 1997,
Investors' short-term investments were adequate to cover any reasonably
anticipated immediate need for funds. Investors was aware of no events or
trends likely to result in a material change in their liquidity. At December
31, 1997, Investors' asset ratios were considered adequate based on guidelines
established by regulatory authorities. During 1997, Investors increased its
capital by retaining net earnings of $940,000. After recording an increase in
capital of $91,000 for unrealized gains on securities, net of taxes, total
capital increased during 1997 by $1,031,000. At December 31, 1997, total
capital of Investors amounted to $8,582,000. At December 31, 1997, there were
no outstanding commitments for any major capital expenditures.
Investors has entered into a definitive Merger Agreement with PAB, pending
approval by regulatory authorities and shareholders of Investors. If approvals
are obtained, it is expected the Merger will be consummated during the second
quarter of 1998. Upon consummation of the Merger, the Bank will be merged with
and into FCB and will thereafter be operated as a branch of FCB. Management
believes that the Merger will not adversely impact the liquidity of Investors.
In accordance with risk capital guidelines issued by the Federal Reserve
Board, Investors 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.
86
<PAGE>
The following table summarizes the regulatory capital levels of Investors at
December 31, 1997.
<TABLE>
<CAPTION>
December 31, 1997
-----------------------------------------------------------------------------------
Actual Required Excess
------------------------- --------------------------- -----------------------
Amount Percent Amount Percent Amount Percent
------------------------- --------------------------- -----------------------
(Dollars in thousands)
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Leverage capital $ 9,759 12.98 % $ 3,007 4.00% $ 6,752 8.98%
Risk-based capital:
Core capital 9,759 20.12 1,941 4.00 7,818 16.12
Total capital 10,366 21.37 3,881 8.00 6,485 13.37
</TABLE>
YEAR 2000 ISSUE COSTS
Based on a preliminary study by management of Investors, Investors expects to
incur approximately $175,000, which has been budgeted for 1998 and 1999, to
modify its information systems appropriately to accurately process information
for the year 2000 and beyond. Investors continues to evaluate appropriate
courses of corrective action, including replacement of certain systems whose
associated costs would be recorded as assets and amortized. Management expects
that the costs to convert Investors' information systems to year 2000 compliance
will not have a material impact on Investors' consolidated financial statements.
COMMITMENTS AND LINES OF CREDIT
In the ordinary course of business, Investors 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 Investors' Board of Directors. Investors
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 polities 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, 1997 and
1996.
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1997 1996
---------------- --------------
(Dollars in Thousands)
-----------------------------------------
<S> <C> <C>
Commitments to extend credit $ 9,320 $ 6,686
Standby letters of credit 555 315
$ 9,875 $ 7,001
============ ===========
</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. Various information shown elsewhere herein under "-Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Investors" will assist in the understanding of how well Investors is positioned
to react to changing interest rates and inflationary trends. In particular, the
summary of net
87
<PAGE>
interest income, the maturity distributions and the compositions of the loan and
security portfolios and the data on the interest sensitivity of loans and
deposits should be considered.
DESCRIPTION OF PAB COMMON STOCK
GENERAL
PAB is authorized to issue 15 million shares of common stock, no par value,
of which 5,661,386 shares were issued and outstanding as of May 8, 1998. As
of May 8, 1998, 200,000 shares of PAB Common Stock were reserved for issuance
upon the exercise of outstanding stock options and purchases under the PAB
Incentive Stock Option Plan. PAB Common Stock is traded on the American Stock
Exchange under the trading symbol "PAB." The number of shares has been adjusted
to reflect a two-for-one stock split paid March 10, 1998 to PAB shareholders of
record on February 17, 1998.
VOTING AND OTHER RIGHTS
The holders of PAB Common Stock are entitled to one vote per share, and, in
general, a majority of votes cast with respect to a matter sufficient to
authorize action upon a routine matters. Directors are elected by a plurality
of the votes cast, and each shareholder entitled to vote in such election is
entitled to vote each share for as many persons as there are directors to be
elected. In elections for directors, such shareholders do not have the right to
accumulate their votes.
In the event of liquidation, holders of PAB Common Stock would be entitled
to receive pro rata any assets legally available for distribution to
shareholders with respect to shares held by them, subject to any prior rights of
any PAB preferred stock then outstanding.
PAB Common Stock does not have any preemptive rights, redemption
privileges, sinking fund privileges or conversion rights. All the outstanding
shares of PAB Common Stock are, and upon issuance the shares of PAB Common Stock
to be issued to Investors, shareholders will be, validly issued, fully paid and
nonassessable.
DISTRIBUTIONS
The holders of PAB Common Stock are entitled to receive dividends or
distributions as the PAB Board may declare out of funds legally available for
such payments. The payment of distributions by PAB is subject to the
restrictions of Georgia law applicable to the declaration of distributions by a
business corporation. The corporation generally may not authorize and make
distributions if, after giving effect thereto, it would be unable to meet its
debts as they become due in their usual course of business or if the
corporation's total assets would be less than the sum of its total liabilities
plus the amount that would be needed, if it were to be dissolved at the time of
distribution, to satisfy claims upon dissolution of shareholders who have
preferential rights superior to the rights of the holders of its common stock.
In addition, the payment by distribution to shareholders is subject to any prior
rights of outstanding preferred stock. Share dividends, if any are declared,
may be paid from authorized but unissued shares.
The ability of PAB to pay distributions is effected by the ability of the
PAB Banks to pay dividends. The ability of the PAB Banks, as well as PAB to pay
dividends in the future currently is and could be further influenced by bank
regulatory requirements and capital guidelines. See "Certain Regulatory
Considerations."
PAB PREFERRED STOCK
PAB is authorized to issue 1,500,000 shares of preferred stock, of which
none were issued as of May 8, 1998. The preferred stock would have such
preferences as conferred to it by PAB directors at the time of its
issuance.
CERTAIN DIFFERENCES IN THE RIGHTS OF SHAREHOLDERS OF PAB AND INVESTORS
At the Effective Time, shareholders, warrant holders and option holders of
Investors automatically will become shareholders of PAB, and their rights as
shareholders will be governed by PAB's Articles of Incorporation
88
<PAGE>
and Bylaws. The following is a summary of the material differences between the
rights of shareholders of PAB and Investors. PAB and Investors are both Georgia
corporations governed by the GBCC. The following summary does not purport to be
a complete statement of the difference in the rights of Investors shareholders
and PAB shareholders. This summary is qualified in its entirety by reference to
the full text of the GBCC and the Articles of Incorporation and Bylaws of each
entity.
AUTHORIZED CAPITAL STOCK
PAB. PAB is authorized to issue 15,000,000 shares of common stock, no par
value, of which 5,661,386 shares were issued and outstanding as of May 8,
1998. As of May 8, 1998, 200,000 shares of PAB Common Stock were reserved for
issuance upon the exercise of outstanding stock options and purchases under the
PAB Incentive Stock Option Plan. PAB is also authorized to issue 1,500,000
shares of preferred stock, of which none were issued as of May 8, 1998.
Investors. Investors is authorized to issue 10,000,000 shares of common
stock, par value $0.10 per share, of which 470,000 shares were issued and
outstanding as of May 8, 1998. As of May 8, 1998, 2,850 shares of
Investors Common Stock were reserved for issuance upon the exercise of
outstanding stock options and purchases under the Investors Option Plan.
Investors is also authorized to issue 5,000,000 shares of a special class of
stock, par value $1.00 per share, of which no shares were issued and outstanding
as of May 8, 1998.
DIRECTORS
PAB. The PAB Articles of Incorporation provide for a Board of Directors
having not less than nine members, and the number of directors may be fixed from
time to time by a majority vote of the PAB directors. Vacancies may be filled
for the unexpired term by the affirmative vote of a majority of the remaining
directors. The PAB Board of Directors currently has ten members.
Pursuant to PAB's Articles, a member of the PAB Board may only be removed
by a two-thirds vote of the total issued and outstanding shares of PAB Common
Stock.
Investors. The Bylaws of Investors provide for a Board of Directors with
the number of directors fixed by resolution of the Board of Directors or
shareholders from time-to-time. The Board is divided into three classes with the
directors in each class serving three year terms. Vacancies, unless the
shareholders have elected a successor, may be filled by a majority vote of the
remaining directors; however, if the vacant office was held by a director
elected by a particular voting group, only the holders of shares of that voting
group or the remaining directors elected by that voting group shall be entitled
to fill the vacancy. The Investors Board of Directors currently has seven
members.
Investors' Bylaws provide that a director or directors may be removed by
the shareholders only with cause; provided that directors elected by a
particular voting group may be removed only by the shareholders in that voting
group.
SPECIAL MEETING OF SHAREHOLDERS
PAB. Under the PAB Bylaws, special meetings may be called by (i) the
Chairman, (ii) the President, (iii) the Chairman or President when so directed
by the Board of Directors or by two directors in writing or (iv) the Chairman or
President when so requested by the shareholders in writing. Under the PAB
Articles, a two-thirds vote of the total issued and outstanding shares of PAB
Common Stock is required in order to call a special meeting of shareholders.
Investors. The Investors Bylaws provide that special meetings of
shareholders of one or more classes or series of shares may be called at any
time by (i) the Board of Directors, (ii) the Chairman of the Board, (iii) the
President and (iv) Investors upon the written request of the holders of the
shares representing two-thirds or more of the votes entitled to be cast on each
issue proposed to be considered at the special meeting.
89
<PAGE>
VOTING REQUIREMENTS GENERALLY
PAB. According to the PAB Articles, each shareholder receives one vote for
each share held of record by such holder. The affirmative vote of the majority
of the shares represented at the meeting and entitled to vote on the subject
matter is the act of the shareholders, except as otherwise provided by law or
the PAB Articles. A two-thirds vote of the issued and outstanding shares of the
PAB Common Stock is required to (i) approve any merger or consolidation of PAB
with or into any other corporation and the sale, lease, exchange or other
disposition of all, or substantially all, of the assets of PAB to or with any
other corporation, person or entity, with respect to which the approval of PAB's
shareholders is required by the GBCC, (ii) remove a member of the PAB Board of
Directors, (iii) call a special meeting of the shareholders and (iv) alter,
amend, delete or rescind any portion of the provision requiring a two-thirds
vote for certain actions.
Investors. The Investors Bylaws provide that unless required by the GBCC
or the Articles of Incorporation, each outstanding share of any class or series
having voting rights shall be entitled to one vote on each matter that is
submitted to a vote at a shareholders' meeting. Unless otherwise required by
the GBCC, the Investors Articles or the Investors Bylaws, if a quorum exists,
then action on a matter by a voting group is approved if the votes cast within
the voting group favoring the action exceed the votes cast opposing the action.
AMENDMENT OF ARTICLES OF INCORPORATION AND BYLAWS
PAB. Under the PAB Articles, a two-thirds vote of the total issued and
outstanding shares of PAB Common Stock is required in order to alter, amend,
delete or rescind the provision in the Articles of Incorporation requiring a
two-thirds vote for certain actions. The Bylaws may be altered or amended and
new Bylaws may be adopted by PAB's Board of Directors at any annual, regular or
special meeting of the Board of Directors.
Investors. The Investors Articles provide that any amendment, alteration
or repeal of the Articles of Incorporation that would otherwise require
shareholder action to effect may not be so effected unless either (i) 80% of the
Board of Directors recommend such action to the shareholders and the shareholder
approval requirements otherwise imposed are satisfied or (ii) the holders of
two-thirds of the shares entitled to vote regarding the approval of such action
affirmatively vote therefor and the requirements otherwise imposed for
recommendation of such action by the Board are satisfied.
The Bylaws of Investors require the approval of either 80% of the Board of
Directors or the holders of shares representing two-thirds of the votes entitled
to be cast on the amendment of the Bylaws in order to alter, amend or repeal (i)
the special meeting provision, (ii) the provisions regarding the number,
election, term of office and removal of directors and (iii) the advance notice
requirements for shareholder proposals and nominations. Except as provided
under the GBCC or the Bylaws, the Investors Board of Directors shall have the
power to alter, amend or repeal the Bylaws or adopt new Bylaws. Any Bylaws
adopted by the Board of Directors may be altered, amended or repealed, and new
Bylaws adopted, by the shareholders of Investors. The shareholders may
prescribe in adopting any Bylaw or Bylaws that the Bylaw or Bylaws so adopted
shall not be altered, amended or repealed by the Investors Board of Directors.
FAIR PRICE AND BUSINESS COMBINATIONS STATUTES
PAB. The PAB Articles and Bylaws do not elect to opt into Sections 14-2-
1110 through 14-2-1113 of the GBCC (the "Fair Price Statute") nor into Sections
14-2-1131 through 14-2-1133 of the GBCC (the "Business Combinations Statute").
Investors. The Bylaws of Investors provide that the Fair Price Statute and
the Business Combinations Statute, which provide certain anti-takeover
protections to a corporation, are applicable to Investors.
ADVANCE NOTICE REQUIREMENTS FOR SHAREHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
PAB. The PAB Articles and Bylaws do not contain any advance notice
requirements.
90
<PAGE>
Investors. The Investors Bylaws establish advance notice procedures with
regard to shareholder proposals and shareholder nomination of candidates for
election as directors. For business or a nomination to be brought properly by a
shareholder, the shareholder must have given timely notice of the business or
nomination in writing to the Secretary of Investors. To be timely, a
shareholder's notice of business or nomination must be delivered or mailed to
and received at the principal offices of Investors on or before the later to
occur of (i) 14 days prior to the annual meeting or (ii) five days after notice
of the meeting is provided to the shareholders. The notice must contain certain
information required by the Bylaws. Investors may reject a shareholder proposal
or nomination that is not made in accordance with such procedures.
CERTAIN REGULATORY CONSIDERATIONS
HOLDING COMPANY REGULATION GENERALLY
PAB and Investors are registered bank holding companies subject to
regulation by the Federal Reserve under the BHC Act. PAB and Investors are
required to file financial information with the Federal Reserve periodically and
are subject to periodic examination by the Federal Reserve.
The BHC requires every bank holding company to obtain the prior approval of
the Federal Reserve 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 Federal
Reserve, 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 Federal Reserve has determined by regulation or order to be closely
related to banking are: making or servicing loans and certain types of leases,
performing certain data processing services, acting as fiduciary or investment
or financial advisor, providing discount brokerage services, underwriting bank
eligible securities, 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.
PAB and Investors must also register with the DBF and file periodic
information with the DBF. As part of such registration, the DBF requires
information with respect to the financial condition, operations, management and
intercompany relationships of PAB, the PAB Banks, Investors and the Bank 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 PAB or Investors.
PAB and Investors are "affiliates" of the PAB Banks and the Bank,
respectively, under the Federal Reserve Act, which imposes certain restrictions
on (i) loans by the PAB Banks to PAB or by the Bank to Investors, (ii)
investments in the stock or securities of PAB or Investors by the PAB Banks or
the Bank, respectively, (iii) the PAB Banks or the Bank's taking the stock or
securities of an "affiliate" as collateral for loans by the PAB Banks or the
Bank to a borrower and (iv) the purchase of assets from PAB or Investors by the
PAB Banks or the Bank, respectively. 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.
The PAB Banks are state banks chartered under the Financial Institutions
Code of Georgia and are subject to examination by the DBF. The DBF regulates or
monitors all areas of the PAB Banks' operations and activities, including
reserves, loans, mergers, issuance of securities, payment of dividends, interest
rates and establishment of branches.
The Bank is a national bank chartered under the National Bank Act and is
subject to examination by the Office of the Comptroller of the Currency (the
"OCC"). The OCC regulates or monitors all areas of the Bank's operations and
activities, including reserves, loans, mergers, issuance of securities, payments
of dividends, interest rates and establishment of branches.
91
<PAGE>
PAYMENT OF DIVIDENDS
PAB and Investors are legal entities separate and distinct from their
respective subsidiary banks. Most of the revenues of PAB and Investors result
from dividends paid to them by their respective subsidiary banks. There are
statutory and regulatory requirements applicable to the payment of dividends by
the PAB Banks and the Bank, as well as by PAB and Investors to their
shareholders.
Under the regulations of the OCC, the Bank may declare dividends out of its
net profits. The approval of OCC is required if the total of all dividends
declared by a national banking association exceed the total of its net profits
for the year combined with its retained net profits for the preceding two years.
The payment of dividends by the PAB Banks is subject to the Financial
Institutions Code of Georgia and the regulations of the DBF promulgated
thereunder which, among other things, provides that the PAB Banks may pay
dividends in cash or property only if they are not insolvent and the payment of
dividends would not render them insolvent. Additionally, the PAB Banks may pay
dividends only out of their retained earnings, and no dividends may be paid if
paid-in capital plus unappropriated retained earnings are less than 20% of their
capital stock. Further, dividends may not be declared and paid without the
approval of DBF if (i) their total classified assets exceed 80% of their equity
capital, (ii) their ratio of equity capital to adjusted total assets is less
than 6%, or (iii) the aggregate amount of dividends declared or anticipated to
be declared in the calendar year exceeds 50% of their net profits, after taxes
but before dividends, for the previous calendar year.
The payment of dividends by PAB and the PAB Banks and by Investors and the
Bank may also be affected or limited by other factors, such as the requirement
to maintain adequate capital above regulatory guidelines. In addition, if, in
the opinion of the applicable regulatory authority, a bank under its
jurisdiction is engaged in or is about to engage in an unsafe or unsound
practice (which, depending upon the financial condition of the banks, could
include the payment of dividends), such authority may require, after notice and
hearing, that such bank cease and desist from such practice. For 1997, PAB's
cash dividend payout to shareholders was 24.14% of net income, and Investors'
cash dividend payout to shareholders was 20.63% of net income.
MONETARY POLICY
The results of operations of the PAB Banks and the Bank are affected by
credit policies of monetary authorities, particularly the Federal Reserve. The
instruments of monetary policy employed by the Federal Reserve include open
market operations in U.S. government securities, changes in the discount rate on
bank borrowings and changes in reserve requirements against bank deposits. In
view of changing conditions in the national economy and in the money markets, as
well as the effect of actions by monetary and fiscal authorities, including the
Federal Reserve, no prediction can be made as to possible future changes in
interest rates, deposit levels, loan demand or the business and earnings of the
PAB Banks or the Bank.
CAPITAL ADEQUACY
The Federal Reserve and the OCC have implemented substantially identical
risk-based rules for assessing bank and bank holding company capital adequacy.
These regulations establish minimum capital standards in relation to assets and
off-balance sheet exposures as adjusted for credit risk. Banks and bank holding
companies are required to have (i) a minimum level of total capital (as defined)
to risk-weighted assets of 8%; (ii) a minimum Tier 1 Capital (as defined) to
risk-weighted assets of 4%; and (iii) a minimum 3% leverage ratio of Tier 1
Capital to total average assets for the most highly-rated banks and bank holding
companies. "Tier 1 Capital" generally consists of common equity not including
unrecognized gains and losses on securities, minority interests in equity
accounts of consolidated subsidiaries and certain perpetual preferred stock less
certain intangibles. The Federal Reserve and the OCC will require a bank
holding company and a bank, respectively, to maintain a leverage ratio greater
than 3% if either is experiencing or anticipating significant growth or is
operating with less than well-diversified risks in the opinion of the Federal
Reserve. The Federal Reserve and the OCC use the leverage ratio in tandem with
the risk-based ratio to assess the capital adequacy of banks and bank holding
companies.
The OCC and the Federal Reserve have proposed amending the capital
adequacy standards to provide for the consideration of interest rate risk in the
overall determination of a bank's capital ratio, requiring banks with
92
<PAGE>
greater interest rate risk to maintain adequate capital for the risk. The
proposed revisions are not expected to have a significant effect on PAB's, the
PAB Banks', Investors' or the Bank's capital requirements, if adopted in their
current form.
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 required to take increasingly harsh action as
a bank's financial condition declines. Regulators are also empowered to place
in receivership or require the sale of a bank to another depository institution
when a bank's capital leverage ratio reaches two percent. Better capitalized
institutions are generally subject to less onerous regulation and supervision
than banks with lesser amounts of capital.
The FDIC has adopted regulations implementing the prompt corrective action
provisions of the 1991 Act, which place financial institutions in the following
five categories based upon capitalization ratios: (i) a "well capitalized"
institution has a total risk-based capital ratio of at least 10%, a Tier 1 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 1 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 1 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 1 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. Under the FDIC's regulations, PAB's
subsidiary banks and the Bank are all "well capitalized" institutions.
Set forth below are pertinent capital ratios for PAB, the PAB Banks,
Investors and the Bank as of December 31, 1997.
<TABLE>
<CAPTION>
Minimal Capital Requirement PAB PAB Banks Investors Bank
--- --------- --------- ----
<S> <C> <C> <C> <C>
Tier 1 Capital to Risk-based Assets: 4.00%/1/ 13.42% 11.92% 15.83% 20.12%
Total Capital to Risk-based Assets: 8.00%/2/ 14.67% 13.17% 17.08% 21.37%
Leverage Ratio (Tier 1 Capital to Total Average
Assets): 3.00%/3/ 9.40% 8.27% 10.34% 12.98%
</TABLE>
________________
/1/ Minimum required ratio for "well capitalized"
banks is 6%
/2/ Minimum required ratio for "well capitalized"
banks is 10%
/3/ Minimum required ratio for "well capitalized"
banks is 5%
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 regulation contains 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
93
<PAGE>
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. This regulation became effective on January 1, 1996, at which time
evaluation under streamlined procedures began for institutions with assets of
less than $250 million that are owned by a holding company with total assets of
less than $1 billion.
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 that agencies will
consider in determining if lending discrimination exists, announced a joint
policy statement detailing specific discriminatory practices prohibited under
the Equal Credit Opportunity Act and the Fair Housing Act. In the policy
statement, three methods of proving lending discrimination were identified: (i)
overt evidence of discrimination, when a lender blatantly discriminates on a
prohibited basis, (ii) evidence of disparate treatment, when a lender treats
applicants differently based on a prohibited factor even where there is no
showing that the treatment was motivated by prejudice or a conscious intention
to discriminate against a person, and (iii) evidence of disparate impact, when a
lender applies a practice uniformly to all applicants, but the practice has a
discriminatory effect, even where such practices are neutral on their face and
are applied equally, unless the practice can be justified on the basis of
business necessity.
On September 23, 1994, President Clinton signed the Riegle 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 Riegle-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 any interstate bank holding
company is permitted to merge its various bank subsidiaries into a single bank
with interstate branches after May 31, 1998. States have the authority to
authorize interstate branching prior to June 1, 1998, or alternatively, to opt
out of interstate branching prior to that date. The Georgia legislature did not
opt out.
On January 26, 1996, the Georgia Legislature adopted a bill (the "Georgia
Intrastate Bill") to permit, effective July 1, 1996, any Georgia bank or group
of affiliated banks under one holding company to establish new or additional
branch banks in any three counties within the State of Georgia in which it is
not currently operating. After July 1, 1998, all restrictions on state-wide
branching will be removed. Prior to adoption of the Georgia Intrastate Bill,
Georgia only permitted branching via merger or consolidation with an existing
bank or in certain other limited circumstances.
On July 3, 1997, President Clinton signed legislation to clarify that
branches of state-chartered banks operating in host states are covered by the
laws of their home chartering state. The Riegle-Neal Amendment Act of 1997 is
intended to preserve the dual banking system by having state banks come under
only the rules of their chartering states. Other legislation dealing with bank
modernization is in various stages of the legislative process and no prediction
as to the outcome or the impact of such legislation can be made at this time.
FDIC INSURANCE ASSESSMENTS FOR THE BANKS
The Bank and the PAB Banks are subject to FDIC deposit insurance
assessments for the Bank Insurance Fund (the "BIF"). In the first five months of
1995, the Bank was assessed $.23 per $100 of deposits, based on a
94
<PAGE>
risk-based system whereby banks were assessed on a sliding scale depending upon
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.
During 1996, PAB's then thrift subsidiary, FCB, was assessed a charge of
$.657 per $100 of domestic deposits held as of March 31, 1995, which amounted to
approximately $385,000, to recapitalize the thrift industry insurance fund.
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 new rate took effect on September 29,
1995 retroactive to June 1, 1995. On September 15, 1995, the FDIC refunded
$38,433 to the Bank for premium overpayments in the second and third quarter of
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 Bank has paid only the legally required
annual minimum payment of $2,000 per year for insurance beginning in January
1996, and the PAB Banks have collectively paid $64,240 for insurance beginning
in 1997 and $103,175 in 1996.
On September 29, 1996, the Economic Growth and Regulatory Paperwork
Reduction Act of 1996 was enacted (the "1996 Act"). The 1996 Act's primary
accomplishment was to provide for the recapitalization of the Savings
Association Insurance Fund ("SAIF") by levying a one-time special assessment on
SAIF deposits to bring the fund to a reserve ratio equal to $.25 per $100 of
insured deposits and to provide that beginning in 1998, BIF assessments would be
used to help pay off the $780 million in annual interest payments on the $8
billion Financing Corporation ("FICO") bonds issued in the late 1980s as part of
the government rescue of the thrift industry. The law provides that BIF
assessments for FICO bond payments must be set at a rate equal to 20% of the
SAIF rates for such assessments for 1997, 1998 and 1999. After 1999, all FDIC
insured institutions will pay the same assessment rates. For the first six
months of 1998, the assessment for the FICO bond payments will be $.0132 per
$100 of deposits for BIF deposits and $.0648 per $100 of deposits for SAIF
deposits.
EXPERTS
The consolidated financial statements of PAB as of December 31, 1997 and
1996, and for each of the years in the two-year period ended December 31, 1997,
have been incorporated by reference herein and in the registration statement in
reliance upon the report of Stewart, Fowler & Stalvey, P.C., independent
certified public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Investors at December 31, 1997 and
1996, and for each of the years in the two-year period ended December 31, 1997
have been included herein and in the registration statement in reliance upon the
report of Mauldin & Jenkins, LLC, independent certified public accountants,
included herein, and upon the authority of said firm as experts in accounting
and auditing.
LEGAL MATTERS
The legality of the shares of PAB Common Stock being offered hereby is
being passed upon for PAB by Troutman Sanders LLP, Atlanta, Georgia. Troutman
Sanders LLP, counsel for PAB, also will opine as to certain federal income tax
consequences of the Merger. See "THE MERGER - Certain Federal Income Tax
Consequences."
95
<PAGE>
OTHER MATTERS
As of the date of this Joint Proxy Statement/Prospectus, Investors' Board
of Directors knows of no matters that will be presented for consideration at the
Investors Special Meeting other than as described in this Joint Proxy
Statement/Prospectus. However, if any other matter shall come before the
Investors Special Meeting or any adjournments thereof and shall be voted upon,
the proposed proxy will be deemed to confer authority to the individuals named
as authorized therein to vote the shares represented by such proxy as to any
such matters that fall within the purposes set forth in the Notice of Investors
Special Meeting as determined by a majority of the Board of Directors of
Investors.
As of the date of this Joint Proxy Statement/Prospectus, PAB's Board of
Directors knows of no matters that will be presented for consideration at the
PAB Special Meeting other than as described in this Joint Proxy
Statement/Prospectus. However, if any other matter shall come before the PAB
Special Meeting or any adjournments thereof and shall be voted upon, the
proposed proxy will be deemed to confer authority to the individuals named as
authorized therein to vote the shares represented by such proxy as to any such
matters that fall within the purposes set forth in the Notice of PAB Special
Meeting as determined by a majority of the Board of Directors of PAB.
96
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
PAB BANKSHARES, INC. AND SUBSIDIARIES
Independent Auditors' Report F-2
Consolidated Balance Sheets - December 31, 1997 and 1996 F-3
Consolidated Statements of Income - Years ended December 31, 1997 and
1996 F-4
Consolidated Statements of Stockholders' Equity - Years ended December
31, 1997 and 1996 F-5
Consolidated Statements of Cash Flows - Years ended December 31, 1997
and 1996 F-6
Notes to Consolidated Financial Statements - December 31, 1997 and 1996 F-7
INVESTORS FINANCIAL CORPORATION AND SUBSIDIARY
Independent Auditors' Report F-28
Consolidated Balance Sheets - December 31, 1997 and 1996 F-29
Consolidated Statements of Income - Years ended December 31, 1997 and
1996 F-30
Consolidated Statements of Stockholders' Equity - Years ended December
31, 1997 and 1996 F-31
Consolidated Statements of Cash Flows - Years ended December 31, 1997
and 1996 F-32
Notes to Consolidated Financial Statements - December 31, 1997 and 1996 F-37
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
PAB Bankshares, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of PAB
Bankshares, Inc. and its Subsidiaries as of December 31, 1996 and 1997, and the
related consolidated statements of income, stockholders' equity and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
PAB Bankshares, Inc. and its Subsidiaries as of December 31, 1996 and 1997, and
the consolidated results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
/s/ Stewart, Fowler & Stalvey, P.C.
- -----------------------------------
Stewart, Fowler & Stalvey, P.C.
Valdosta, Georgia
January 23, 1998
F-2
<PAGE>
PAB BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
------
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------------ -----------
<S> <C> <C>
Cash and Cash Equivalents:
Cash and due from banks $ 9,739,420 18,234,261
Interest-bearing deposits in other banks 3,907,836 3,247,147
Federal funds sold and securities purchased under
agreement to resell 14,515,000 11,720,075
------------ -----------
Total Cash and Cash Equivalents 28,162,256 33,201,483
Time Deposits 595,000 3,198,000
Investment Securities available-for-sale, at fair value, Notes 1 and 2 56,783,089 52,622,166
Investment in Unconsolidated Subsidiary, Notes 1 and 19 130,872 66,749
Loans, Net of Allowance for Loan Losses ($2,550,242 - 1996; $2,865,478 - 1997)
and Unearned Interest, Notes 1, 5, 8 and 16 195,856,247 221,997,963
Bank Premises and Equipment, Notes 1 and 3 6,707,165 7,672,646
Property Acquired in Settlement of Loans and Other Real Estate Owned:
Land and building of former banking offices, Notes 1 and 4 445,457 315,277
Land held for future development, Note 1 366,790 -0-
Property acquired in settlement of loans, Note 1 334,596 384,790
Accrued Interest Receivable 3,175,569 3,667,040
Cash Value of Life Insurance, Note 10 1,957,298 2,783,838
Goodwill, Note 1 2,266,170 2,158,266
Other Assets, Note 1 524,372 723,564
------------ -----------
Total Assets $297,304,881 328,791,782
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Deposits:
Demand $ 40,203,157 48,495,956
NOW 51,926,581 53,919,883
Savings 17,431,631 16,685,772
Time, $100,000 and over, Note 6 45,525,141 46,278,966
Other time, Note 6 94,587,414 101,874,639
------------ -----------
249,673,924 267,255,216
Notes Payable, Note 7 1,200,000 -0-
Advances from Federal Home Loan Bank, Note 8 17,096,499 28,168,166
Accrued Interest Payable 725,549 698,291
Advance Payments by Borrowers for Taxes and Insurance 159,505 180,322
Dividends Payable 210,214 268,466
Other Liabilities, Note 10 1,172,677 1,489,480
------------ -----------
Total Liabilities 270,238,368 298,059,941
------------ -----------
Stockholders' Equity:
Common stock, no par value, 15,000,000 shares authorized,
2,908,119 shares (1996 - 2,892,639) issued and 2,825,963
shares (1996 - 2,802,849) outstanding 1,263,745 1,263,745
Preferred stock, no par value, 1,500,000 shares authorized,
no shares issued or outstanding -0- -0-
Additional paid in capital 15,609,717 15,934,580
Retained earnings 11,246,210 14,401,920
</TABLE>
F-3
<PAGE>
<TABLE>
<S> <C> <C>
Unrealized gains (losses) on available-for-sale securities,
net of applicable deferred income taxes 21,388 114,785
------------ -----------
28,141,060 31,715,030
Treasury stock, at cost (82,156 shares; 1996 - 89,790) (1,074,547) (983,189)
------------ -----------
27,066,513 30,731,841
------------ -----------
Total Liabilities and Stockholders' Equity $297,304,881 328,791,782
============ ===========
</TABLE>
F-4
<PAGE>
PAB BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------
1996 1997
------------- -----------
<S> <C> <C>
Interest Income:
Interest and fees on loans, Note 1 $18,034,306 20,897,682
Interest on investment securities:
Taxable 3,662,105 3,326,581
Tax exempt 155,760 130,780
Interest on federal funds sold 273,787 299,237
Interest on deposits in banks 83,654 225,970
----------- ----------
Total 22,209,612 24,880,250
----------- ----------
Interest Expense:
Interest on deposits 10,023,870 10,466,506
Interest on federal funds purchased 32,897 26,611
Interest on notes and mortgages, Note 7 161,657 76,688
Interest on advances from Federal Home Loan Bank, Note 8 843,145 1,227,178
----------- ----------
Total 11,061,569 11,796,983
----------- ----------
Net Interest Income 11,148,043 13,083,267
Provision for Loan Losses, Notes 1 and 5 405,000 532,900
----------- ----------
Net Interest Income After Provision for Loan Losses 10,743,043 12,550,367
----------- ----------
Other Income:
Service charges on deposit accounts 1,628,670 1,876,687
Insurance commissions 49,183 118,586
Equity in earnings of unconsolidated subsidiary, Note 19 215,692 255,877
Gain (Loss) on sale of loans 11,412 23,955
Gain (Loss) on sale of other real estate 1,328 2,154
Gain (Loss) on sale of assets 2,951 -0-
Securities gains (losses), Note 1 137,718 (13,824)
Other income 519,802 576,519
----------- ----------
Total 2,566,756 2,839,954
----------- ----------
Other Expenses:
Compensation 3,596,876 4,127,764
Other personnel expenses, Notes 9 and 10 745,028 953,430
Occupancy expense of bank premises 405,827 429,758
Furniture and equipment expense 778,640 837,498
Federal deposit insurance 103,175 64,240
Special SAIF assessment 384,882 -0-
Postage and courier services 194,568 228,428
Supplies 269,672 358,318
Amortization, Note 1 107,903 107,903
Other operating expenses 1,722,672 1,916,362
----------- ----------
Total 8,309,243 9,023,701
----------- ----------
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Income Before Income Taxes 5,000,556 6,366,620
Income Taxes, Notes 1 and 13 1,652,002 2,222,487
----------- ----------
Net Income $ 3,348,554 4,144,133
=========== ==========
Earnings Per Share, Note 1:
Basic $ .61 .73
=========== ==========
Diluted $ .60 .73
=========== ==========
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
PAB BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
UNREALIZED
GAINS
(LOSSES) ON
AVAILABLE-
FOR-SALE
SECURITIES,
NET OF
ADDITIONAL APPLICABLE
COMMON PREFERRED PAID IN RETAINED DEFERRED TREASURY
STOCK STOCK CAPITAL EARNINGS INCOME TAXES STOCK TOTAL
---------- --------- ---------- ---------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1995 1,263,745 -0- 14,744,822 8,646,738 184,469 1,461,043 23,378,731
Issuance of 6,692 shares at
$10.50 to directors in lieu
of fees -0- -0- 70,265 -0- -0- -0- 70,265
Issuance of 33,825 shares at
$14.06 average through dividend
reinvestment plan -0- -0- 475,415 -0- -0- -0- 475,415
Issuance of 18,039 shares at $13.92
average through common stock
purchase plan -0- -0- 251,062 -0- -0- -0- 251,062
Net Income -0- -0- -0- 3,348,554 -0- -0- 3,348,554
Dividends -0- -0- -0- (749,082) -0- -0- (749,082)
Acquisition of 2,474
shares of treasury stock -0- -0- -0- -0- -0- 30,925 (30,925)
Sale of 34,880 shares of
treasury stock -0- -0- 68,153 -0- -0- (417,421) 485,574
Change in unrealized gains and
(losses) on available-for-sale
securities, net of applicable
deferred income taxes -0- -0- -0- -0- (163,081) -0- (163,081)
---------- --- ---------- ---------- -------- --------- ----------
Balances, December 31, 1996 1,263,745 -0- 15,609,717 11,246,210 21,388 1,074,547 27,066,513
Issuance of 7,634 shares at
$12.50 to directors
in lieu of fees -0- -0- 4,069 -0- -0- (91,358) 95,427
Issuance of 13,075
shares at $20.65 average
through dividend
reinvestment plan -0- -0- 270,062 -0- -0- -0- 270,062
Issuance of 2,405 shares
at $21.09 average through
common stock purchase plan -0- -0- 50,732 -0- -0- -0- 50,732
Net Income -0- -0- -0- 4,144,133 -0- -0- 4,144,133
Dividends -0- -0- -0- (988,423) -0- -0- (988,423)
Change in unrealized gains and
(losses) on available-for-sale
securities, net of applicable
deferred income taxes -0- -0- -0- -0- 93,397 -0- 93,397
---------- --- ---------- ---------- -------- --------- ----------
Balances, December 31, 1997 $1,263,745 -0- 15,934,580 14,401,920 114,785 983,189 30,731,841
========== === ========== ========== ======== ========= ==========
</TABLE>
F-7
<PAGE>
PAB BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------------
1996 1997
------------- ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 3,348,554 4,144,133
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 523,828 658,566
Deferred income taxes 73,364 (104,564)
Provision for loan losses 405,000 532,900
Amortization 107,903 107,903
Amortization (accretion) of subsidiary acquisition adjustments (178,209) (45,989)
(Gain) loss on sale of assets (2,951) -0-
(Gain) loss on sale of loans (11,412) (23,955)
(Gain) loss on sale of other real estate owned (1,328) (2,154)
Securities (gains) losses (137,718) 13,824
Minority interests 495 595
Equity in earnings of unconsolidated subsidiary (215,692) (255,877)
Dividend received from unconsolidated subsidiary 220,000 320,000
Change in assets and liabilities:
(Increase) decrease in accrued interest receivable (141,578) (491,471)
Increase (decrease) in accrued interest payable 44,931 (27,258)
(Increase) decrease in other assets (12,117) (112,420)
Increase (decrease) in income taxes payable (24,235) -0-
Increase (decrease) in other liabilities 464,920 378,276
------------ -----------
Net cash provided (used) by operating activities 4,463,755 5,092,509
------------ -----------
Cash Flows From Investing Activities:
Capital expenditures (1,103,578) (1,127,077)
Proceeds from sale of assets 72,810 -0-
(Increase) decrease in time deposits 608,400 (2,603,000)
(Increase) decrease in loans (26,906,225) (26,697,307)
Purchase of life insurance policies/increase in cash value (415,844) (826,540)
Principal payments on mortgage-backed securities 1,132,434 943,011
Purchase of available-for-sale securities (16,266,624) (18,970,048)
Proceeds from sales of available-for-sale securities 5,900,797 7,076,801
Proceeds from maturities of available-for-sale securities 12,459,057 10,777,183
Proceeds from calls of available-for-sale securities 2,747,421 4,509,296
------------ -----------
Net cash provided (used) by investing activities (21,771,352) (26,917,681)
------------ -----------
Cash Flows From Financing Activities:
Proceeds of additional stock issued 247,322 50,732
Increase (decrease) in time deposits 13,493,975 8,041,050
Increase (decrease) in other deposits 4,954,473 9,540,242
Advances from Federal Home Loan Bank 79,507,000 21,850,000
Payments on long-term indebtedness (71,851,574) (11,978,333)
Dividends paid (212,602) (660,109)
Acquisition of treasury stock (30,925) -0-
Proceeds from sale of treasury stock 485,574 -0-
Decrease in advance payments by borrowers for taxes and insurance (48,260) 20,817
------------ -----------
Net cash provided (used) by financing activities 26,544,983 26,864,399
------------ -----------
Net Increase (Decrease) in Cash and Cash Equivalents 9,237,386 5,039,227
Cash and Cash Equivalents at Beginning of Period 18,924,870 28,162,256
------------ -----------
Cash and Cash Equivalents at End of Period $ 28,162,256 33,201,483
============ ===========
Supplemental Disclosures of Cash Flow Information
- -------------------------------------------------
Cash Paid During The Period For:
</TABLE>
F-8
<PAGE>
<TABLE>
<S> <C> <C>
Interest $ 11,016,638 11,824,241
============ ===========
Income taxes $ 1,551,270 2,366,006
============ ===========
Schedule of Non-Cash Investing and Financing Activities
- -------------------------------------------------------
Total increase (decrease) in unrealized losses on securities available-for-sale $ 270,188 (144,549)
============ ===========
Stock issued to directors in payment of fees and stock issued through dividend
reinvestment plan $ 545,680 365,489
============ ===========
</TABLE>
F-9
<PAGE>
PAB BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-----------------------------
Note 1 - Summary of Significant Accounting Policies
- ---------------------------------------------------
Nature of operations: PAB Bankshares, Inc. is engaged in the activity of
providing traditional banking services through its banking subsidiaries
consisting of The Park Avenue Bank (Valdosta, Georgia), the Farmers and
Merchants Bank (Adel, Georgia) and First Community Bank of Southwest Georgia
(Formerly First Federal Savings Bank of Bainbridge) (Bainbridge, Georgia). Park
Avenue Bank and Farmers and Merchants Bank are state chartered banks and First
Community Bank of Southwest Georgia is a federally chartered thrift institution
which was converted to a commercial bank charter in 1997. The Banks primarily
grant agribusiness, commercial, consumer and real estate loans with a market
area that includes predominately Lowndes County, Cook County, Decatur County and
Grady County and the immediate outlying areas. The composition of the Banks'
loan portfolio is detailed in Note 5 of these financial statements. The Banks
limit investment securities to U.S. Treasury obligations, obligations of other
U.S. Government agencies and corporations, obligations of state and political
subdivisions and selected mutual funds. The Banks also purchase time deposits
with other banks in denominations generally not exceeding $100,000 per bank and
sells federal funds to major correspondent banks. Through First Community Bank
of Southwest Georgia, PAB Bankshares, Inc. also owns one-half of the issued and
outstanding stock of an unconsolidated service corporation subsidiary, Empire
Financial Services, Inc., which is primarily engaged in the origination and
servicing of commercial real estate loans.
Consolidated financial statements: The accompanying consolidated financial
statements include the accounts of PAB Bankshares, Inc. and its subsidiaries
consisting of Park Avenue Bank (100% owned), Farmers & Merchants Bank (99.9%
owned) and First Community Bank of Southwest Georgia (100% owned). Intercompany
transactions and balances have been eliminated in consolidation.
Investment securities: Effective January 1, 1994, debt securities that
management has the ability and intent to hold to maturity are classified as
held-to-maturity and carried at cost adjusted for amortization of premiums and
accretion of discounts using methods approximating the interest method. Other
securities are classified as available-for-sale and are carried at fair value.
Unrealized gains and losses on securities available-for-sale are recognized as
direct increases or decreases in stockholders' equity. Cost of securities sold
is determined using the specific identification method. Effective January 1,
1996, all securities are classified as available-for-sale.
Bank premises and equipment and related depreciation: Assets, including
land held for future development, are stated at cost, less depreciation.
Depreciation of bank premises and equipment, including a building of a former
banking office, is computed using the straight-line method over the estimated
useful lives of the assets. Expenditures for maintenance, repairs, removals and
betterments which do not materially prolong the useful lives of the assets are
charged to income as incurred. The cost of property retired or sold, and the
related accumulated depreciation, is removed from the accounts, and any gain or
loss, after taking into consideration proceeds from sale, is transferred to
income.
Loans and allowance for losses on loans: Loans are stated at the amount of
unpaid principal, reduced by unearned interest and an allowance for loan losses.
Unearned interest on installment loans is recognized as income over the terms of
the loans by the interest method. Interest on other loans is calculated by
using the simple interest method on daily balances of the principal amount
outstanding. The Banks provide for possible loan losses in amounts based upon
management's evaluation of the collectibility of loans and other relevant
factors including the nature of the portfolio, credit concentrations, trends in
historical loss experience, specific impaired loans and economic conditions.
Allowances for impaired loans are generally determined based on collateral
values or the present value of estimated cash flows. The allowance is increased
by a provision for loan losses, which is charged to expense, and reduced by
charge-offs, net of recoveries. A loan is placed on non-accrual status when the
loan has been delinquent for ninety days, except where an analysis of related
collateral values reflects sufficient collateral to secure principal and accrued
interest. When accrual of interest is discontinued, all unpaid accrued interest
is reversed.
Loan fees: For longer term loans secured by real estate that are
originated and retained in the Banks' loan portfolios, loan origination fees and
certain direct loan origination costs are deferred and amortized to interest
income over the contractual life of the loan using the interest method. For
other loans, fees are included in income as charged to the customer and the
direct costs of origination are expensed as incurred. Such method of accounting
for loan fees is in conformity with generally accepted accounting principles in
all material respects.
F-10
<PAGE>
Note 1 - Summary of Significant Accounting Policies (Continued)
- ---------------------------------------------------------------
Other real estate owned: Real estate acquired in settlement of loans is
initially recorded at market value at acquisition less estimated costs to sell
and subsequently carried at the lower of cost or market value less estimated
costs to sell. Costs related to holding and maintaining real estate are charged
to operations and costs relating to improvement of the real estate are
capitalized. Land acquired and held for future development is carried at cost.
Amortization: Goodwill is being amortized over a twenty-five year period
by the straight-line method. The Company continually reviews goodwill and other
intangible assets on an objective and subjective basis for any impairment which
might effect the carrying value or remaining life of the intangible asset.
Subjective factors considered include the legal and regulatory environment,
demand, competition and other economic factors. On an objective basis, the
Company computes the discounted present value of projected subsidiary net income
and compares the result with the carrying value of goodwill. If the carrying
value exceeds the discounted present value of projected net income, the Company
records a write-down or reduces the remaining period of amortization. To date,
the Company has not had to make any such adjustments.
Earnings per share: Earnings per share are computed on the weighted
average number of shares and common equivalent shares outstanding. Weighted
average shares used in the computation of earnings per share were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 YEAR ENDED DECEMBER 31, 1997
--------------------------- ----------------------------
WEIGHTED PER- WEIGHTED PER-
AVERAGE SHARE AVERAGE SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Basic Earnings Per Share:
Net Income $3,348,554 5,523,742 $.61 $4,144,133 5,645,634 $.73
Effect of Dilutive Securities:
Stock Options -0- 34,018 -0- 65,386
---------- --------- ---------- ---------
Diluted Earning Per Share:
Net Income $3,348,554 5,557,760 $.60 $4,144,133 5,711,020 $.73
========== ========= ==== ========== ========= ====
</TABLE>
The weighted average shares used in calculating earnings per share
information has been adjusted to reflect a two-for-one stock split to be paid on
March 10, 1998 to stockholders of record February 17, 1998. No other
transactions occurred after December 31, 1997 and before issuance of the
financial statements that would have changed materially the number of common
shares or potential common shares outstanding at December 31, 1997 if the
transaction had occurred before the end of the period.
Income taxes: Deferred income taxes are reported for temporary differences
between items of income or expense reported in the financial statements and
those reported for income tax purposes. At December 31, 1996 and 1997, other
assets included a deferred income tax charge of $359,323 and $412,746,
respectively.
Cash and cash equivalents: For purposes of the statements of cash flows,
cash and cash equivalents include cash on hand, amounts due from banks and
Federal Funds sold.
Investment in unconsolidated subsidiary: Investment in unconsolidated
subsidiary is accounted for under the equity method.
Off balance sheet financial instruments: In the ordinary course of
business, the Banks have entered into off balance sheet financial instruments
consisting of commitments to extend credit and standby letters of credit. Such
financial instruments are recorded in the financial statements when they become
payable.
Use of estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that effect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
F-11
<PAGE>
Note 1 - Summary of Significant Accounting Policies (Continued)
- ---------------------------------------------------------------
Certain significant estimates: Material estimates that are particularly
susceptible to significant change relate to the determination of the allowance
for losses on loans and the valuation of real estate acquired in connection with
foreclosures or in satisfaction of loans. In connection with the determination
of allowances for losses on loans and the valuation of foreclosed real estate,
management obtains independent appraisals for significant properties.
While management uses available information to recognize losses on loans
and foreclosed real estate, future additions to the allowances may be necessary
based on changes in local economic conditions. In addition, regulatory
agencies, as an integral part of their examination process, periodically review
the Banks' allowances for losses on loans and foreclosed real estate. Such
agencies may require the Banks to recognize additions to the allowances based on
their judgments about information available to them at the time of their
examination. It is at least reasonably possible that the allowances for losses
on loans and foreclosed real estate may change in the near term.
Stock-based compensation: In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards (SFAS) No.
123, Accounting for Stock-Based Compensation. The Company has elected to
disclose the proforma effect on net income as if the fair value based method of
accounting for stock options had been used.
Fair values of financial instruments: Statement of Financial Accounting
Standards No. 107, Disclosures about Fair Value of Financial Instruments,
requires disclosure of fair value information about financial instruments,
whether or not recognized in the statement of financial condition. 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 instruments.
Statement No. 107 excludes certain financial instruments and all nonfinancial
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 its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the balance
sheet for cash and cash equivalents approximate those assets' fair values.
Time deposits: Fair values for time deposits are estimated using a
discounted cash flow analysis that applies interest rates currently being
offered on certificates to a schedule of aggregated contractual maturities on
such time deposits.
Investment securities: Fair values for investment securities are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
Loans: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying amounts.
The fair values for other loans (for example, fixed rate commercial real estate
and rental property mortgage loans and commercial and industrial loans) are
estimated using discounted cash flow analysis, based on interest rates currently
being offered for loans with similar terms to borrowers of similar credit
quality. Loan fair value estimates include judgments regarding future expected
loss experience and risk characteristics. The carrying amount of accrued
interest receivable approximates its fair value.
Deposits: The fair values disclosed for demand deposits (for example,
checking accounts, interest-bearing checking accounts and savings accounts) are,
by definition, equal to the amount payable on demand at the reporting date (that
is, their carrying amounts). The fair values for certificates of deposit are
estimated using a discounted cash flow calculation that applies interest rates
currently being offered on certificates to a schedule of aggregated contractual
maturities on such time deposits. The carrying amount of accrued interest
payable approximates fair value.
Short-term borrowings, notes payable and advances from Federal Home Loan
Bank: The carrying amounts of short-term borrowings, notes payable and advances
from the Federal Home Loan Bank approximate their fair values.
F-12
<PAGE>
Note 1 - Summary of Significant Accounting Policies (Continued)
- ---------------------------------------------------------------
Other liabilities: Commitments to extend credit were evaluated and fair
value was estimated using the terms for similar agreements, taking into account
the remaining terms of the agreements and the present creditworthiness of the
counterparties. For fixed-rate loan commitments, fair value also considers the
difference between current levels of interest rates and the committed rates.
Advertising: The Company expenses advertising costs as they are incurred.
Advertising costs charged to expense were $168,935 and $163,371 for the years
ended December 31, 1996 and 1997, respectively.
Capital structure: During 1996, the Company had a two-for-one stock split.
The effect of the stock split was applied retroactively to previous years.
During 1997 the number of shares of common stock was increased from 4,000,000 to
15,000,000 shares. Also, during 1997, the Articles of Incorporation were
restated to authorize the issuance of 1,500,000 shares of preferred stock. As
of December 31, 1997, no shares of preferred stock had been issued. On February
10, 1998, the Company announced its plans to affect a two-for-one stock split on
March 10, 1998 for shareholders of record February 17, 1998. The effect of the
stock split has been reflected in all per share calculations for all periods
presented. In 1993, the Company converted to "no par value" stock and retained
its common stock account at the pre-1993 amount. Subsequently, all transactions
involving common stock have been recorded in additional paid-in capital.
New accounting standards: In March 1995, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards No. 121 (SFAS)
(Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of). This statement established accounting standards for the
impairment of long-lived assets, certain identifiable intangibles and goodwill
related to those assets to be held and used and for long-lived assets and
certain identifiable intangibles to be disposed of. This statement requires that
long-lived assets and other identifiable intangibles to be held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. In
performing the review for recoverability, the entity should estimate the future
cash flows expected to result from the use of the asset and its eventual
disposition. If the sum of the expected future cash flows is less than the
carrying amount of the asset, an impairment loss is recognized. Otherwise, an
impairment loss is not recognized. Measurement of an impairment loss for long-
lived assets and identifiable intangibles that an entity expects to hold and use
should be based on the fair value of the asset. The statement requires that
long-lived assets and certain identifiable intangibles to be disposed of be
reported at the lower of carrying amount or fair value less cost to sell, except
for assets that are covered by APB Opinion No. 30 (Reporting The Results Of
Operations - Reporting The Effects Of Disposal Of A Segment Of A Business And
Extraordinary, Unusual And Infrequently Occurring Events And Transactions).
Assets that are covered by Opinion 30 will continue to be reported at the lower
of carrying amount or net realizable value. This statement was effective for
fiscal years beginning after December 15, 1995. The adoption of this statement
did not have a material impact on the Company's financial statements.
In October 1995, the FASB issued SFAS No. 123 (Accounting for Stock-Based
Compensation). This statement establishes financial accounting and reporting
standards for stock-based employee compensation plans. Those plans include all
arrangements by which employees receive shares of stock or other equity
instruments of the employer or the employer incurs liabilities to employees in
amounts based on the price of the employer's stock. Examples are stock purchase
plans, stock options, restricted stock and stock appreciation rights. The
statement also applies to transactions in which an entity issues its equity
instruments to acquire goods or services from non-employees. Those transactions
must be accounted for based on the fair value of the consideration received or
the fair value of the equity instruments issued, whichever is more reliably
measurable. The statement defines a fair value based method of accounting for
an employee stock option or similar equity instrument and encourages all
entities to adopt that method of accounting for all of their employee stock
compensation plans. However, it also allows an entity to continue to measure
compensation cost for those plans using the intrinsic value based method of
accounting prescribed by APB Opinion No. 25 (Accounting For Stock Issued To
Employees). Entities electing to remain with the accounting in Opinion 25, must
make proforma disclosures of net income and, if presented, earnings per share,
as if the fair value based method of accounting defined in this statement had
been applied. The Company elected to continue to apply Opinion 25 and thus
provide proforma disclosures of net income and earnings per share. This
statement is effective for fiscal years beginning after December 15, 1995. The
adoption of this statement did not have a material impact on the Company's
financial statements.
In June 1996, the FASB issued SFAS No. 125 (Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities). This
statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. Those
standards are based on consistent application of a financial-components approach
that focuses on control. Under that approach, after a transfer of financial
assets, an entity recognizes the financial and servicing assets it controls and
the liabilities it has incurred, derecognizes financial assets when control has
been surrendered and derecognizes liabilities when extinguished. This statement
provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings. The statement
applies to transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996. However, as a result of an
amendment to SFAS No. 125 by the FASB in December 1996, certain provisions of
SFAS No. 125 are deferred for an additional year. Adoption of the new
accounting standard did not have a material impact on the Company's financial
statements.
In February 1997, the FASB issued SFAS No. 128 (Earnings Per Share). This
statement establishes standards for computing and presenting earnings per share
and applies to entities with publicly held common stock or potential common
stock. This statement simplifies the standards for computing earnings per share
previously found in APB Opinion No. 15 (Earnings Per Share) and makes them
comparable to international earnings per share standards. It replaces the
presentation of primary earnings per share with a presentation of basic earnings
per share. It also requires dual presentation of basic and diluted earnings per
share on the face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator of the
basic earnings per share computation to the numerator and denominator of the
diluted earnings per share computation. Basic earnings per share excludes
dilution and is computed by dividing income available to common stockholders by
the weighted-average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity. Diluted earnings per share is computed similarly
to fully diluted earnings per share pursuant to Opinion 15. This statement is
effective for financial statements issued for periods ending after December 15,
1997. The adoption of this statement did not have a material impact on the
company's financial statements.
In February 1997, the FASB issued SFAS No. 129 (Disclosure of Information
about Capital Structure). This statement establishes standards for disclosing
information about an entity's capital structure. It applies to all entities.
This statement continues the previous requirements to disclose certain
information about an entity's capital structure found in APB Opinions No. 10
(Omnibus Opinion - 1996), No. 15 (Earnings Per Share) and FASB No. 47
(Disclosure Of Long-Term Obligations), for entities that were subject to the
requirements of those standards. This statement is effective for financial
statements issued for periods ending after December 15, 1997. The adoption of
this statement did not have a material impact on the Company's financial
statements.
In June 1997, the FASB issued SFAS No. 130 (Reporting Comprehensive
Income). This statement establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. This statement requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. This statement
does not require a specific format for that financial statement but requires
that an enterprise display an amount representing total comprehensive income for
the period in that financial statement. This statement requires that an
enterprise (a) classify items of other comprehensive income by their nature in a
financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position. This
statement is effective for fiscal years beginning after December 15, 1997. The
adoption of this statement is not expected to have a material impact on the
Company's financial statements.
In June 1997, the FASB issued SFAS No. 131 (Disclosures About Segments of
an Enterprise and Related Information). This statement establishes standards
for the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
This statement requires that a public business enterprise report financial and
descriptive information about its reportable operating segments. Operating
segments are components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. Generally, financial information is required to be reported on the
basis that it is used internally for evaluating segment performance and deciding
how to allocate resources to segments. The statement requires that a public
business enterprise report a measure of segment profit or loss, certain specific
revenue and expense items and segment assets. It requires reconciliations of
total segment revenues, total segment profit or loss, total segment assets and
other amounts disclosed for segments to corresponding amounts in the
enterprise's general-purpose financial statements. It requires that all public
business enterprises report information about the revenues derived from the
enterprise's products or services (or groups of similar products and services),
about the Countries in which the enterprise earns revenues and holds assets and
about major customers regardless of whether that information is used in making
operating decisions. The statement also requires that a public business
enterprise report descriptive information about the way that the operating
segments were determined, the products and services provided by the operating
segments, differences between the measurements used in reporting segment
information and those used in the enterprise's general-purpose financial
statements and changes in the measurement of segment amounts from period to
period. This statement is effective for financial statements for periods
beginning after December 15, 1997. The adoption of this statement is not
expected to have a material impact on the Company's financial statements.
Note 2 - Investment Securities
- ------------------------------
Investment securities are carried in the accompanying balance sheets as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------
1996 1997
----------- ----------
<S> <C> <C>
Available-for-sale $56,783,089 52,622,166
Held-to-maturity -0- -0-
----------- ----------
$56,783,089 52,622,166
=========== ==========
</TABLE>
Securities available-for-sale consist of the following:
- ---------------------------------------------------------
As of December 31, 1996:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury Obligations $13,511,331 53,696 2,979 13,562,048
Obligations of other U.S.
Government agencies and corporations 27,467,859 160,915 87,970 27,540,804
Obligations of state and political
subdivisions 2,246,103 43,884 15,450 2,274,537
Mortgage backed securities 10,355,464 169,297 115,920 10,408,841
Domestic corporate notes 99,969 134 -0- 100,103
Federal Home Loan Bank stock 1,900,900 -0- -0- 1,900,900
Mutual Funds 1,000,000 -0- 144,813 855,187
Community Financial Services, Inc. stock 105,669 -0- -0- 105,669
Other stock 50,000 -0- 15,000 35,000
----------- ------- ----------- ----------
$56,737,295 427,926 382,132 56,783,089
=========== ======= =========== ==========
</TABLE>
F-13
<PAGE>
Note 2 - Investment Securities (Continued)
- ------------------------------------------
As of December 31, 1997:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury Obligations $11,146,387 104,613 -0- 11,251,000
Obligations of other U.S.
Government agencies and
corporations 26,113,426 126,724 42,669 26,197,481
Obligations of state and
political subdivisions 2,803,880 55,650 6,202 2,853,328
Mortgage backed securities 8,322,382 149,093 34,117 8,437,358
Federal Home Loan Bank
stock 2,810,600 -0- -0- 2,810,600
Mutual Funds 1,000,000 -0- 146,395 853,605
Community Financial Services,
Inc. stock 183,794 -0- -0- 183,794
Other stock 50,000 -0- 15,000 35,000
----------- ------- ------- ----------
$52,430,469 436,080 244,383 52,622,166
=========== ======= ======= ==========
</TABLE>
The amortized cost and estimated market value of debt securities at
December 31, 1997, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call of prepayment
penalties.
<TABLE>
<CAPTION>
SECURITIES
AVAILABLE-FOR-SALE
-----------------------
MARKET
COST VALUE
----------- ----------
<S> <C> <C>
Due in one year or less $ 9,345,803 9,366,509
Due after one year through five years 28,919,194 29,184,981
Due after five years through ten years 5,134,893 5,180,046
Due after ten years 4,986,185 5,007,631
----------- ----------
$48,386,075 48,739,167
=========== ==========
</TABLE>
Proceeds from calls of available-for-sale securities during 1996 were
$2,747,421 with no gains and losses being recognized. Proceeds from sales of
available-for-sale securities during 1996 were $5,900,797. Gross gains of
$196,730 and gross losses of $59,012 were realized on those sales. Effective
January 1, 1996, debt securities with an amortized cost of $1,609,517 were
transferred from held-to-maturity to available-for-sale. The securities had an
unrealized gain of $61,650. Management made the transfer in response to its
decision to eliminate the held-to-maturity classification.
Proceeds from calls of available-for-sale securities during 1997 were
$4,509,296 with gross gains of $6,984 and gross losses of $2,592 being
recognized. Proceeds from sales of available-for-sale securities during 1997
were $7,076,801. Gross losses of $18,216 were realized on those sales.
Securities with a book value of approximately $19,889,000 (market value
$20,083,000) and $27,975,297 (market value $28,192,116) at December 31, 1996 and
1997, respectively, were pledged to secure public monies as required by law.
F-14
<PAGE>
Note 3 - Bank Premises and Equipment
- ------------------------------------
Bank premises and equipment are stated at cost less accumulated depreciation,
and include the following:
<TABLE>
<CAPTION>
DECEMBER 31, ESTIMATED
------------------
1996 1997 USEFUL LIVES
------------- ----------- ------------
<S> <C> <C> <C>
Land $ 1,465,857 1,966,197
Bank premises and improvements 4,303,776 4,613,149 5-40 years
Furniture, fixtures and equipment 2,812,587 3,547,045 5-15 years
Automobiles 104,983 167,764 3- 5 years
----------- ----------
8,687,203 10,294,155
Less accumulated depreciation (1,980,038) (2,621,509)
----------- ----------
$ 6,707,165 7,672,646
=========== ==========
</TABLE>
Depreciation expense amounted to $523,828 and $658,566 for the years ended
December 31, 1996 and 1997, respectively.
Note 4 - Land and Building of Former Banking Offices
- ----------------------------------------------------
Land and building of former banking offices are stated at cost less accumulated
depreciation and include the following:
<TABLE>
<CAPTION>
DECEMBER 31, ESTIMATED
-----------------
1996 1997 USEFUL LIVES
------ ------ ------------
<S> <C> <C> <C>
Land $ 166,000 41,000
Building 452,047 462,719 30 years
--------- --------
618,047 503,719
Less accumulated depreciation (172,590) (188,442)
--------- --------
$ 445,457 315,277
========= ========
</TABLE>
The building is currently being leased. Fair value of these assets exceeds book
value.
Note 5 - Loans
- --------------
Major classifications of loans are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
---- ----
<S> <C> <C>
Commercial, financial and agricultural $ 33,182,855 39,077,389
Real estate - construction 10,645,091 13,311,092
Real estate - mortgage 126,951,312 143,878,835
Installment loans to individuals and other 23,074,049 23,925,402
Loans secured by deposits 4,585,917 4,811,835
Overdrafts 270,136 195,200
------------ -----------
198,709,360 225,199,753
Deferred loan fees, net (143,469) (163,538)
Unearned interest (159,402) (172,774)
------------ -----------
198,406,489 224,863,441
Allowance for loan losses (2,550,242) (2,865,478)
------------ -----------
Loans, Net $195,856,247 221,997,963
============ ===========
</TABLE>
F-15
<PAGE>
Note 5 - Loans (Continued)
- --------------------------
The Banks did not have any loans classified as impaired at December 31, 1996.
At December 31, 1997, the total recorded investment in impaired loans, all of
which had allowances determined in accordance with SFAS No. 114 and No 118,
amounted to approximately $367,570. The average recorded investment in impaired
loans amounted to approximately $183,785 for the year ended December 31, 1997.
The allowance for loan losses related to impaired loans amounted to
approximately $42,495 at December 31, 1997. Interest income on impaired loans
of $17,202 was recognized for cash payments received in 1997. The Banks have no
commitments to loan additional funds to borrowers whose loans are classified as
impaired.
First mortgage loans on residential (one-to-four units) real estate are
pledged to secure advances from the Federal Home Loan Bank (See Note 8). The
advances must be fully secured after discounting the qualifying loans at 75% of
the principal balances outstanding.
At December 31, 1996 and 1997, the Company was servicing mortgage loans for
the benefit of others totaling approximately $18,773,000 and $21,346,000,
respectively. While such loans were originated by the Company, the entire cost
of originating the loans has been allocated to the loans with no cost being
allocated to the mortgage servicing rights, since management believes the amount
to be immaterial. Revenue from mortgage servicing activities amounted to
$59,171 and $42,592 for the years ended December 31, 1996 and 1997,
respectively.
Transactions in the allowance for losses on loans were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1997
------------- -----------
<S> <C> <C>
Balance, January 1 $ 2,293,723 2,550,242
Provision for losses charged to
operating expenses 405,000 532,900
Recoveries 12,213 43,396
------------ ----------
Total 2,710,936 3,126,538
Less loans charged off (160,694) (261,060)
------------ ----------
Balance, December 31 $ 2,550,242 2,865,478
============ ==========
</TABLE>
Note 6 - Deposits
- -----------------
At December 31, 1997, the scheduled maturities of certificates of deposit are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1998 $114,555,014
1999 20,434,457
2000 8,029,111
2001 2,197,814
2002 2,937,209
------------
$148,153,605
============
</TABLE>
Note 7 - Notes Payable
- ----------------------
Notes payable consists of the following:
<TABLE>
DECEMBER 31,
------------
1996 1997
------------ ----------
<S> <C> <C>
Trust Company Bank, interest payable quarterly, interest rate .50%
below prime with a ceiling of 9.50% until July 1, 1999, equal annual
principal payments beginning July 1, 1997, maturity date of
July 1, 2004, collateralized by stock of First Community Bank
of Southwest Georgia acquired effective January 1, 1995. $ 1,200,000 -0-
============ ==========
</TABLE>
F-16
<PAGE>
Note 8 - Advances From Federal Home Loan Bank
- ---------------------------------------------
Advances from the Federal Home Loan Bank consists of the following:
<TABLE>
DECEMBER 31,
------------
1996 1997
------------ ----------
<S> <C> <C>
Advances payable, interest payable monthly, combination of fixed and
variable interest rates which averaged 6.42% and 6.20% at
December 31, 1996, and 1997, respectively, various repayment options,
maturities through August 2, 2010. $ 17,096,499 28,168,166
============ ==========
</TABLE>
Maturities of the advances for the succeeding five years are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1998 $ 7,340,137
1999 6,523,667
2000 6,257,201
2001 651,408
2002 1,423,620
</TABLE>
The advances are collateralized as provided in Note 5.
Note 9 - Profit Sharing Plan and 401(k) Plan
- --------------------------------------------
An employee profit sharing plan and 401(k) plan is provided for qualified
employees. The plans are qualified under the Internal Revenue Code. The Board
of Directors makes an annual determination of the contribution to the profit
sharing plan. By law and pursuant to the terms and provisions of the employee
profit sharing plan, a contribution up to a maximum of 15% of the total
qualified employee compensation may be made. Under the 401(k) plan, employees
may make salary deferral contributions of 10% to 15% of qualified employee
compensation. The Company will make matching contributions at a level
determined by the Board of Directors. Amounts contributed to the plans for the
years ended December 31, 1996 and 1997 totaled $201,551 and $224,620,
respectively.
Note 10 - Deferred Compensation Plan
- ------------------------------------
Effective January 1, 1994, the Company adopted a deferred compensation plan
for the benefit of key employees. While the plan is to be funded from the
general assets of the Company, life insurance policies were acquired for the
purpose of serving as the primary funding source. As of December 31, 1996 and
1997, the cash values of these policies were $1,927,428 and $2,747,030,
respectively, and the liability accrued for benefits payable under the plan was
$169,364 and $275,596, respectively.
Note 11 - Employee Stock Option Plan
- ------------------------------------
The Company's Stock Option Plan authorizes the granting of stock options to
its full-time employees for up to 200,000 shares of common stock. Under the
plan, the exercise price of each option equals the market price of the Company's
stock on the grant date, and an option's maximum term is ten years. Options are
granted as administered by the Board of Directors and, with limited exceptions,
vest on a straight-line basis over a five year period beginning February 26,
1997. The fair value of each option grant is estimated on the grant date using
an option-pricing model with the following weighted-average assumptions used for
grants in 1997: dividend yield of 1.65%, risk free interest rate of 5.57%,
expected lives of 5 years for the options and a volatility rate of 14.2%.
Weighted-average assumptions used for grants in 1996 are as follows: dividend
yield of 1.65%, risk-free interest rate of 7.50%, expected lives of five years
for the options and a volatility rate of 23.0%.
F-17
<PAGE>
Note 11 - Employee Stock Option Plan (Continued)
- ------------------------------------------------
A summary of the status of the Company's stock option plan as of December
31, 1996 and 1997, as adjusted for the effect of a two-for-one stock split as
disclosed in Note 23, and the changes during the years then ended is presented
below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 YEAR ENDED DECEMBER 31, 1997
---------------------------- ----------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
FIXED EXERCISE EXERCISE
OPTIONS SHARES PRICE SHARES PRICE
------- ------ ----- ------ -----
<S> <C> <C> <C> <C>
Outstanding at beginning of year -0- $ .00 144,000 $ 6.25
Granted 144,000 6.25 132,000 10.07
Exercised -0- .00 -0- .00
Forfeited -0- .00 (500) 8.08
-------- --------
Outstanding at end of year 144,000 6.25 275,500
======== ========
Exercisable at December 31 40,000 6.25 109,300 8.18
Weighted-average fair value
of options granted during the year $ 1.92 2.09
</TABLE>
The following table summarizes information about fixed stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
-------------------------------------- --------------------------
WEIGHTED-
RANGE OF AVERAGE WEIGHTED WEIGHTED-
OR ACTUAL NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
PRICES AT 12/31/97 LIFE PRICE AT 12/31/97 PRICE
- -------- ----------- ----------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
$ 6.25 144,000 8 Years $ 6.25 60,800 $ 6.25
10.07 131,500 9 Years 10.07 48,500 10.07
------- --------
$ 6.25 to $10.07 275,500 109,300
======= ========
</TABLE>
If the Company had used the fair value based method of accounting for its
employee stock option plan, as prescribed by Statement of Financial Accounting
Standards No. 123, compensation cost in net income for the year ended December
31, 1997 would have increased by $133,545, resulting in net income of
$4,053,914, net of tax. Basic earnings per share would have declined from $.73
to $.72 and diluted earnings per share would have declined from $.73 to $.72.
If the Company had used the fair value based method of accounting for its
employee stock option plan for the year ended December 31, 1996, compensation
cost and net income would not have changed.
Note 12 - Directors Deferred Stock Purchase Plan
- ------------------------------------------------
On April 18, 1994, the Company's shareholders approved the Directors
Deferred Stock Purchase Plan (the "Director Plan"), which provides that a
director of the Company or any subsidiary may elect to receive shares of common
stock of the Company in lieu of the cash compensation otherwise payable as
director's fees for services as a member of the Board of Directors or any
committee thereof. The shares of common stock issuable to an electing director
shall be issued on January 15 following each fiscal year in a whole number
(rounded down) resulting from the amount of such director's fees (or a portion
thereof as determined by such director) for such previous fiscal year divided by
100% of the fair market value of the common stock as of January 1 of such
previous fiscal year. The Director Plan covers 50,000 shares of common stock,
which may be authorized for issuance and delivery thereunder. The Director Plan
shall remain in effect for five years (through January 15, 1999) or until
termination by the Board, whichever occurs first. The Director Plan is
administered by the Board of Directors of the Company. The Company has issued
6,692 and 7,634 shares of common stock under the Director Plan for the years
ended December 31, 1996 and 1997, respectively.
F-18
<PAGE>
Note 13 - Income Taxes
- ----------------------
Income tax expense is comprised of federal and state income taxes as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1997
---- ----
<S> <C> <C>
Current expense $1,578,638 2,327,051
Deferred (credit) 73,364 (104,564)
---------- ---------
$1,652,002 2,222,487
========== =========
</TABLE>
Income tax at the statutory rate of 34% is reconciled to the Company's actual
provision as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997
---------- ---------
<S> <C> <C>
Tax at statutory rate $1,700,189 2,164,651
State income taxes 107,087 227,370
Tax exempt interest and dividend exclusion (180,017) (165,406)
Amortization of goodwill 36,687 36,687
Increase in cash value of life insurance policies (20,914) (27,038)
Other 8,970 (13,777)
---------- ---------
Actual income tax expense $1,652,002 2,222,487
========== =========
</TABLE>
Deferred tax liabilities have been provided for taxable temporary
differences related to accumulated depreciation, stock dividends and unrealized
gains on available-for-sale securities. Deferred tax assets have been provided
for deductible temporary differences related to unrealized losses on available-
for-sale securities, the allowance for loan losses, deferred compensation and
purchase accounting adjustments. The net deferred tax assets in the
accompanying balance sheets include the following components:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $797,452 924,166
Purchase accounting adjustments 54,110 14,880
Deferred compensation plan 63,918 103,999
Other -0- 22,828
-------- ---------
915,480 1,065,873
-------- ---------
Deferred tax liabilities:
Bank premises and equipment and
depreciation 430,227 474,607
Stock dividends 77,065 77,057
Unrealized gains on available-
for-sale securities 24,294 76,927
Other 24,571 24,536
-------- ---------
556,157 653,127
-------- ---------
Net deferred tax assets $359,323 412,746
======== =========
</TABLE>
No valuation allowance was established in view of the Company's tax
strategies coupled with anticipated future taxable income as evidenced by the
Company's earnings potential.
F-19
<PAGE>
Note 13 - Income Taxes (Continued)
- ----------------------------------
Through 1995, thrift institutions were allowed, for tax purposes, a special
deduction for bad debts based on a percentage of taxable income before such
deduction, subject to various limitations provided by the Internal Revenue Code.
The Company's thrift subsidiary had an allowable percentage of 8%. Effective
January 1, 1996, only the experience method is allowable for computing the
provision for bad debts for tax purposes. Additionally, any excess bad debt
deductions taken after December 31, 1987, must be recaptured over a six year
period. The effect of changing the method of computing bad debts had no effect
upon the income tax provision of the Company's thrift subsidiary inasmuch as the
excess deductions had been subjected to the deferred income tax provision.
For tax purposes, included in retained earnings of the Company's thrift
subsidiary (now converted to a commercial bank) at December 31, 1997, is
approximately $2,033,000 of accumulated bad debt deductions for which no
deferred income tax liability has been recorded. This amount represents an
allocation of income to bad debt deductions for tax purposes only. Reduction of
amounts so allocated for purposes other than tax bad debt losses or adjustments
arising from carry-back of net operating losses would give rise to income for
tax purposes only, which would be subject to income taxes at the then prevailing
corporate rate.
Note 14 - Dividend Reinvestment and Common Stock Purchase Plan
- --------------------------------------------------------------
On December 20, 1993, the Company's Board of Directors approved a dividend
reinvestment and common stock purchase plan. The purpose of the plan is to
provide shareholders of record of the Company's common stock, who elect to
participate in the plan, with a simple and convenient means to reinvest
automatically cash dividends and make additional voluntary cash purchases of
shares of common stock without the expense of brokerage commissions or other
fees. Eligible participants may purchase common stock through automatic
reinvestment of common stock dividends on all of their shares or not less than
50% of their shares and make additional voluntary cash payments of not less than
$50 nor more than $1,000, in the aggregate, for each calendar year. The price of
common stock purchased with dividends will be 100% of the fair market value of
the stock. The price of common stock purchased with voluntary cash payments will
be 100% of the fair market value of the stock. Among amendments to the plan
effective January 1, 1998, is the elimination of the 50% minimum participation
level for dividend reinvestment. During the year ended December 31, 1997, 15,840
shares were issued through the plan at an average of $20.25 per share. During
the year ended December 31, 1996, 51,864 shares were issued through the plan at
an average of $14.01 per share.
Note 15 - Commitments, Contingencies and Financial Instruments With Off-Balance
- -------------------------------------------------------------------------------
Sheet Risk
- ----------
The consolidated financial statements do not reflect various commitments
and contingent liabilities which arise in the normal course of business and
which involve elements of credit risk, interest rate risk and liquidity risk.
These commitments and contingent liabilities are commitments to extend credit
and standby letters of credit. A summary of the Banks' commitments and
contingent liabilities is as follows:
<TABLE>
<CAPTION>
NOTIONAL AMOUNT
---------------
DECEMBER 31,
-------------
1996 1997
---- ----
<S> <C> <C>
Commitments to extend credit $19,052,000 27,195,000
Standby letters of credit 1,657,000 2,126,000
</TABLE>
Commitments to extend credit and standby letters of credit all include
exposure to some credit loss in the event of nonperformance by the customer.
The Banks' credit policies and procedures for credit commitments are the same as
those for extensions of credit that are reported in the financial statements.
Because these instruments have fixed maturity dates and because many of them
expire without being drawn upon, they do not generally present any significant
liquidity risk to the Banks. The Banks' have not incurred any losses on their
commitments in either 1996 or 1997.
F-20
<PAGE>
The nature of the business of the Company and the Banks is such that they
are ordinarily subjected to a certain amount of litigation. In the opinion of
management and counsel, there is no litigation in which the outcome will have a
material effect on the financial statements.
Note 16 - Related Party Transactions
- ------------------------------------
At December 31, 1996 and 1997, loans to all officers, directors and
employees and their associates aggregated approximately $8,331,479 and
$10,164,790, respectively.
Management believes that all of the above transactions were entered into in the
normal course of business on substantially the same terms and conditions,
including interest rates and collateral, as those prevailing at the same time
for comparable transactions with other customers and did not involve more than
normal credit risk or present other unfavorable features.
The primary source of funds available for the payment of cash dividends are
dividends received by PAB Bankshares, Inc. from subsidiary Banks. The Banks are
limited by banking regulations as to the amount of dividends that may be paid
without prior approval of the Banks' regulatory agency. Retained earnings of the
Banks against which dividends may be charged is approximately $7,458,000 at
December 31, 1997 and the amount of dividends which may be paid within one year
is approximately $2,340,000.
The Banks are required to maintain average balances with the Federal
Reserve Bank. The average amount of those reserve balances for the year ended
December 31, 1997 was approximately $1,306,000.
The Company and the Banks are subject to various regulatory capital
requirements administered by the state and federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Company's and the Banks' financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Company and the Banks must meet specific capital
guidelines that involve quantitative measures of assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices. The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the maintenance of minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to risk-
weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1996 and 1997, that
the Company and the Banks meets all capital adequacy requirements to which it is
subject.
Note 17 - Regulatory Matters
- ----------------------------
The most recent notification from Banking regulators categorized the
Company and the Banks as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, the Company and
the Banks must maintain minimum total risk-based, Tier I risk-based, and Tier I
leverage ratios as set forth in the table. There have been no conditions or
events since that notification that management believes have changed the
institution's category.
The Company's actual capital amounts and ratios and the minimum amounts and
ratios under the capital adequacy and prompt corrective action provisions are
presented below:
F-21
<PAGE>
Note 17 - Regulatory Matters (Continued)
- ----------------------------------------
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES: ACTION PROVISIONS:
------------------- ------------------- -------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- ------- -------- ------- -------- -------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital
(to Risk Weighted Assets) $27,180 13.56% 16,034 $8.0% 20,043 $10.0%
Tier 1 Capital
(to Risk Weighted Assets) 24,674 12.31% 8,017 $4.0% 12,026 $ 6.0%
Tier 1 Capital
(to Average Assets) 24,674 8.55% 11,549 $4.0% 14,437 $ 5.0%
As of December 31, 1997:
Total Capital
(to Risk Weighted Assets) $32,184 14.67% 17,552 $8.0% 21,940 $10.0%
Tier 1 Capital
(to Risk Weighted Assets) 29,442 13.42% 8,776 $4.0% 13,164 $ 6.0%
Tier 1 Capital
(to Average Assets) 29,442 9.40% 12,522 $4.0% 15,652 $ 5.0%
</TABLE>
Note 18 - Concentrations of Credit Risk
- ---------------------------------------
In addition to the concentrations of credit risk disclosures in notes one
and five, the Company and its subsidiaries maintains its cash in bank deposit
accounts which usually exceed federally insured limits and sells federal funds
to correspondent banks on an unsecured basis. The Company and its subsidiaries
has not experienced any losses in such accounts. Management believes the Company
and its subsidiaries is not exposed to any significant credit risk on cash and
cash equivalents and federal funds sold.
Note 19 - Investment in Unconsolidated Subsidiary
- -------------------------------------------------
On August 14, 1985, the Board of Directors of the Company's subsidiary
(First Community Bank of Southwest Georgia) approved participation in the
formation of a new service corporation, Empire Financial Services, Inc.
("Empire") with its home office located in Milledgeville, Georgia. The primary
purpose of the service corporation is the origination and servicing of
commercial real estate loans. Since the formation of the service corporation,
First Community has participated in loans originated by Empire when deemed
appropriate by management.
First Community owns 50% of the outstanding stock of Empire. First
Community accounts for its investment in Empire under the equity method. The
investment in Empire exceeded First Community's share of the underlying net
assets by $51,447 at December 31, 1997, and is being amortized on the straight-
line method over twenty-five years.
Following is a summary of unaudited financial position at December 31, 1996
and 1997 and unaudited results of operations of Empire for the years ended
December 31, 1996 and 1997:
F-22
<PAGE>
Note 19 - Investment in Unconsolidated Subsidiary (Continued)
- -------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1997
-------- --------
<S> <C> <C>
Current assets $ 217,270 438,363
Premises and equipment 424,210 427,981
---------- ---------
Total Assets $ 641,480 866,344
========== =========
Current liabilities $ 409,743 771,380
Stockholders' equity 231,737 94,964
---------- ---------
Total Liabilities and Stockholders' Equity $ 641,480 866,344
========== =========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------
1996 1997
---------- ---------
<S> <C> <C>
Total revenue $1,811,282 1,724,445
========== =========
Net income $ 498,328 503,236
========== =========
First Federal's proportionate share
of net income $ 249,164 251,618
========== =========
</TABLE>
F-23
<PAGE>
Note 20 - Financial Information of PAB Bankshares, Inc. (Parent Only)
- --------------------------------------------------------------------
Condensed balance sheets of PAB Bankshares, Inc. as of December 31, 1996
and 1997 and related statements of income and cash flows for the years then
ended are as follows:
<TABLE>
<CAPTION>
BALANCE SHEETS
--------------
DECEMBER 31,
----------------
ASSETS 1996 1997
------ -------- --------
<S> <C> <C>
Cash on deposit with subsidiary banks $ 452,559 1,985,605
Investment in:
Park Avenue Bank 13,403,173 14,626,656
Farmers & Merchants Bank 4,041,039 4,348,746
First Community Bank of Southwest Georgia 9,272,166 9,074,811
Property, Plant and Equipment, net of accumulated
depreciation 468,424 673,885
Land held for future development 366,790 -0-
Land at site of former banking facility of
subsidiary 125,000 -0-
Other assets 457,562 658,944
----------- ----------
Total Assets $28,586,713 31,368,647
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Dividends payable $ 210,214 268,466
Notes payable 1,200,000 -0-
Other liabilities 109,986 368,340
----------- ----------
1,520,200 636,806
----------- ----------
Stockholders' Equity:
Common stock 1,263,745 1,263,745
Additional paid in capital 15,609,717 15,934,580
Retained earnings, net of unrealized gains (losses)
on available-for-sale securities of
subsidiaries 11,267,598 14,516,705
----------- ----------
28,141,060 31,715,030
Less: Treasury Stock, at cost (1,074,547) (983,189)
----------- ----------
27,066,513 30,731,841
----------- ----------
Total Liabilities and Stockholders' Equity $28,586,713 31,368,647
=========== ==========
</TABLE>
F-24
<PAGE>
Note 20 - Financial Information of PAB Bankshares, Inc. (Parent Only)
- --------------------------------------------------------------------
(Continued)
- ----------
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
--------------------
YEAR ENDED DECEMBER 31,
---------------------------
1996 1997
---------- ----------
<S> <C> <C>
Income:
Equity in earnings of subsidiary banks:
Park Avenue Bank $2,476,434 2,791,419
Farmers & Merchants Bank 549,467 654,480
First Community Bank of Southwest Georgia 847,476 1,233,650
Interest Income:
Subsidiary banks 15,957 15,246
Computer service income and management
fees from subsidiary banks 504,109 1,084,887
Other income 49,601 3,831
---------- ---------
4,443,044 5,783,513
Expenses 1,400,972 1,965,770
---------- ---------
Income before taxes 3,042,072 3,817,743
Income taxes (benefit) (306,482) (326,390)
---------- ---------
Net Income $3,348,554 4,144,133
========== =========
</TABLE>
F-25
<PAGE>
Note 20 - Financial Information of PAB Bankshares, Inc. (Parent Only)
- --------------------------------------------------------------------
(Continued)
- ----------
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
------------------------
YEAR ENDED DECEMBER 31,
--------------------------
1996 1997
------- ----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 3,348,554 4,144,133
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 131,497 203,094
Equity in earnings of subsidiary banks (3,873,377) (4,679,549)
(Gains) Loss on sale of assets (1,795) -0-
Dividends received from subsidiaries:
Park Avenue Bank 850,000 2,170,812
Farmers & Merchants Banks 179,838 370,167
First Community Bank of Southwest Georgia 379,586 1,391,123
Deferred income taxes 8,001 18,772
Change in assets and liabilities (14,139) 136,487
----------- ----------
Net cash provided (used) by operating
activities 1,008,165 3,755,039
----------- ----------
Cash Flows From Investing Activities:
Proceeds from sale of assets 68,901 -0-
Capital expenditures (259,694) (405,678)
(Increase) Decrease in cash value of life insurance (1,573) (6,938)
----------- ----------
Net cash provided (used) by investing
activities (192,366) (412,616)
----------- ----------
Cash Flows From Financing Activities:
Dividends paid (212,602) (660,109)
Repayment of notes payable (1,500,000) (1,200,000)
Proceeds from issuance of stock 732,896 50,732
Acquisition of treasury stock (30,925) -0-
----------- ----------
Net cash provided (used) by financing activities (1,010,631) (1,809,377)
----------- ----------
Net Increase (Decrease) in Cash (194,832) 1,533,046
Cash and Cash Equivalents at Beginning of Period 647,391 452,559
----------- ----------
Cash and Cash Equivalents at End of Period $ 452,559 1,985,605
=========== ==========
Supplemental Disclosures of Cash Flow Information
- -------------------------------------------------
Cash paid during the period for:
Interest $ 161,657 76,688
=========== ==========
Income taxes (received) (219,952) (319,875)
=========== ==========
</TABLE>
F-26
<PAGE>
Note 21 - Fair Values of Financial Instruments
- ----------------------------------------------
The estimated fair values of the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997
------------------------- ------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE VALUE VALUE
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 28,162,256 28,162,256 33,201,483 33,201,483
Time deposits 595,000 595,000 3,198,000 3,198,000
Investment securities 56,783,089 56,783,089 52,622,166 52,622,166
Loans, net of allowance for
loan losses 195,856,247 193,605,247 221,997,963 221,109,963
Accrued interest receivable 3,175,569 3,175,569 3,667,040 3,667,040
Financial liabilities:
Deposits 249,673,924 251,538,924 267,255,216 269,981,216
Notes payable 1,200,000 1,200,000 -0- -0-
Advances from Federal Home
Loan Bank 17,096,499 17,096,499 28,168,166 28,168,166
Accrued interest payable 725,549 725,549 698,291 698,291
</TABLE>
The carrying amounts in the preceding table are included in the balance sheet
under the applicable captions.
<TABLE>
<CAPTION>
NOTIONAL FAIR NOTIONAL FAIR
AMOUNT VALUE AMOUNT VALUE
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Other:
Commitments to extend credit $ 19,052,000 19,052,000 27,195,000 27,195,000
Standby letters of credit 1,657,000 1,657,000 2,126,000 2,126,000
</TABLE>
F-27
<PAGE>
Note 22 - Quarterly Results of Operations (Unaudited)
- ----------------------------------------------------
The following is a summary of the quarterly results of operations for the
two years ended December 31, 1997:
<TABLE>
<CAPTION>
QUARTERLY PERIOD ENDED
------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
--------- -------- ------------- ------------
(In Thousands, Except PerSshare Data)
<S> <C> <C> <C> <C>
Year Ended December 31, 1996:
Interest income $ 5,313 5,494 5,682 5,744
Interest expense (2,721) (2,695) (2,795) (2,873)
------- ------ ------ ------
Net interest income 2,592 2,799 2,887 2,871
Provision for loan losses (76) (77) (176) (76)
------- ------ ------ ------
Net interest income after provision for
loan losses 2,516 2,722 2,711 2,795
Other income 583 593 745 646
Special SAIF assessment -0- -0- (385) -0-
Other expenses (1,922) (1,915) (1,959) (2,170)
------- ------ ------ ------
Income before income taxes 1,177 1,400 1,112 1,271
Income taxes (396) (470) (398) (347)
------- ------ ------ ------
Net income $ 781 930 714 924
======= ====== ====== ======
Basic earnings per share $ .14 .17 .13 .17
======= ====== ====== ======
Diluted earnings per share $ .14 .16 .13 .17
======= ====== ====== ======
Year Ended December 31, 1997:
Interest income $ 5,858 6,088 6,362 6,572
Interest expense (2,791) (2,866) (2,996) (3,144)
------- ------ ------ ------
Net interest income 3,067 3,222 3,366 3,428
Provision for loan losses (97) (97) (184) (155)
------- ------ ------ ------
Net interest income after provision for
loan losses 2,970 3,125 3,182 3,273
Other income 643 756 664 777
Other expenses (2,082) (2,165) (2,298) (2,479)
------- ------ ------ ------
Income before income taxes 1,531 1,716 1,548 1,571
Income taxes (513) (579) (572) (558)
------- ------ ------ ------
Net income $ 1,018 1,137 976 1,013
======= ====== ====== ======
Basic earnings per share $ .18 .19 .18 .18
======= ====== ====== ======
Diluted earnings per share $ .18 .19 .18 .18
======= ====== ====== ======
</TABLE>
Note 23 - Subsequent Events
- ---------------------------
The Company has announced its plans to acquire Investors Financial
Corporation (Parent Company of Bainbridge National Bank) and has a signed merger
agreement. The anticipated effective date is prior to May 31, 1998. The
transaction is to be consummated by the issuance of 855,057 (1,710,114 as
adjusted for two-for-one stock split) shares of Company common stock in exchange
for the outstanding common stock and options of Investors Financial Corporation.
It is anticipated that the merger will qualify as a "pooling of interest" for
financial reporting purposes. Regulatory and stockholder approvals will be
required.
On February 10, 1998, the Company announced plans to effect a two-for-
one stock split on March 10, 1998 to shareholders of record February 17, 1998.
Per share information has been adjusted to reflect the stock split for all
periods presented.
F-28
<PAGE>
INDEPENDENT AUDITOR'S REPORT
________________________________________________________________________________
To the Board of Directors
Investors Financial Corporation and Subsidiary
Bainbridge, Georgia
We have audited the accompanying consolidated balance sheets of
Investors Financial Corporation and subsidiary as of December 31, 1997 and 1996,
and the related consolidated statements of income, stockholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Investor's
Financial Corporation and subsidiary as of December 31, 1997 and 1996, 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
- -----------------------------
Mauldin & Jenkins, LLC
Albany, Georgia
January 9, 1998
F-29
<PAGE>
INVESTORS FINANCIAL CORPORATION
AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1997 and 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Assets 1997 1996
------ -----------------------------------------
<S> <C> <C>
Cash and due from banks $ 4,005,299 $ 3,708,799
Interest-bearing deposits in banks 200,000 100,000
Federal funds sold 2,848,129 970,000
Securities available for sale, at fair value 18,859,450 21,208,807
Loans 47,180,301 45,244,349
Less allowance for loan losses 671,328 613,864
----------- -----------
Loans, net 46,508,973 44,630,485
----------- -----------
Premises and equipment, net 1,719,863 1,879,405
Intangible assets 912,160 1,160,920
Other assets 1,766,262 1,810,503
----------- -----------
$76,820,136 $75,468,919
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Deposits
Noninterest-bearing demand $11,723,504 $11,314,854
Interest-bearing demand 16,079,815 15,388,791
Savings 5,453,469 5,546,022
Time, $100,000 and over 8,153,182 9,175,056
Other time 23,315,922 23,965,404
----------- -----------
Total deposits 64,725,892 65,390,127
Long-term debt 2,184,000 2,184,000
Federal Home Loan Bank advances 1,000,000 -
Other liabilities 328,110 344,244
----------- -----------
Total liabilities 68,238,002 67,918,371
----------- -----------
Commitments and contingent liabilities
Stockholders' equity
Common stock, par value $.10; 10,000,000 shares
authorized 470,000 issued and outstanding 47,000 47,000
Capital surplus 4,562,976 4,562,976
Retained earnings 3,981,476 3,041,056
Unrealized losses on securities available for sale, net of tax (9,318) (100,484)
----------- -----------
Total stockholders' equity 8,582,134 7,550,548
----------- -----------
$76,820,136 $75,468,919
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-30
<PAGE>
INVESTORS FINANCIAL CORPORATION
AND SUBSIDIARY
Consolidated Statements of Income
Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
1997 1996
-----------------------------------------
<S> <C> <C>
Interest Income
Interest and fees on loans $4,692,870 $4,370,916
Interest on taxable securities 1,176,138 1,321,694
Interest on nontaxable securities 6,932 6,920
Interest on deposits in other banks 8,565 6,223
Interest on Federal funds sold 85,453 61,881
---------- ----------
5,969,958 5,767,634
---------- ----------
Interest expense 2,438,805 2,497,399
Interest on deposits 202,683 185,320
---------- ----------
Interest on other borrowings 2,641,488 2,682,719
---------- ----------
Net interest income 3,328,470 3,084,915
Provision for loan losses 144,000 120,000
---------- ----------
Net interest income after provision for loan losses 3,184,470 2,964,915
---------- ----------
Other income
Service charges on deposit accounts 536,331 454,876
Other service charges, commissions and fees 23,238 28,452
Net realized gains (losses) on securities available for sale (1,854) 3,673
Other 147,506 114,719
---------- ----------
705,221 601,720
---------- ----------
Other expenses
Salaries and employee benefits 959,966 971,200
Equipment expenses 197,161 196,988
Occupancy expense 176,909 172,524
Amortization of intangible assets 248,760 268,009
Other operating expenses 489,536 441,224
---------- ----------
2,072,332 2,049,945
---------- ----------
Income before income taxes 1,817,359 1,516,690
Applicable income taxes 632,539 548,497
---------- ----------
Net income $1,184,820 $ 968,193
========== ==========
Basic earnings per share $ 2.52 $ 2.06
========== ==========
Diluted earnings per share $ 2.28 $ 1.87
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
F-31
<PAGE>
INVESTORS FINANCIAL CORPORATION
AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1997 and 1996
________________________________________________________________________________
<TABLE>
<CAPTION>
Unrealized
Gains
(Losses) on
Securities
Available for Total
Common Stock Capital Retained Sale, Stockholders'
------------------
Shares Par Value Surplus Surplus Net of Tax Equity
------- --------- ---------- ----------- -------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 470,000 $47,000 $4,562,976 $2,279,663 $ 16,638 $6,906,277
Net income - - - 968,193 - 968,193
Cash dividends declared,
$.44 per share - - - (206,800) - (206,800)
Net change in unrealized losses
on securities available for
sale, net of tax - - - - (117,122) (117,122)
------- ------- ---------- ---------- --------- ----------
Balance, December 31, 1996 470,000 47,000 4,562,976 3,041,056 (100,484) 7,550,548
Net income - - - 1,184,820 - 1,184,820
Cash dividends declared,
$.52 per share - - - (244,400) - (244,400)
Net change in unrealized gains on
securities available for sale, - - - - 91,166 91,166
net of tax ------- ------- ---------- ---------- --------- ----------
Balance, December 31, 1997 470,000 $47,000 $4,562,976 $3,981,476 $ (9,318) $8,582,134
======= ======= ========== ========== ========= ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-32
<PAGE>
INVESTORS FINANCIAL CORPORATION
AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended December 31, 1997 and 1996
________________________________________________________________________________
<TABLE>
<CAPTION>
1997 1996
----------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES $ 1,184,820 $ 968,193
----------- -----------
Net income
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation 184,573 191,684
Amortization of intangible assets 248,760 268,009
Provision for loan losses 144,000 120,000
Provision for deferred income taxes (54,548) (50,396)
Net realized (gains) losses on securities available for sale 1,854 (3,673)
(Increase) decrease in interest receivable 56,956 (114,338)
Increase (decrease) in interest payable (20,269) 21,613
Increase (decrease) in taxes payable 11,986 (119,099)
Other prepaids, deferrals and accruals, net (12,982) (49,950)
----------- -----------
Total adjustments 560,330 263,850
----------- -----------
Net cash provided by operating activities 1,745,150 1,232,043
----------- -----------
INVESTING ACTIVITIES
Increase in interest bearing-deposits in banks (100,000) -
Proceeds from sales of securities available for sale 792,368 1,974,624
Purchase of securities available for sale (2,000,060) (7,625,053)
Proceeds from maturities of securities available for sale 3,693,325 6,544,808
(Increase) decrease in Federal funds sold (1,878,129) 576,579
Increase in loans, net (2,022,488) (4,062,271)
Purchase of premises and equipment (25,031) (217,680)
----------- -----------
Net cash used in investing activities (1,540,015) (2,808,993)
----------- -----------
FINANCING ACTIVITIES
Increase (decrease) in deposits (664,235) 2,574,197
Increase (decrease) in other borrowings 1,000,000 (1,000,000)
Principal payments on note payable - (273,000)
Dividends paid (244,400) (206,800)
----------- -----------
Net cash provided by financing activities 91,365 1,094,397
----------- -----------
</TABLE>
F-33
<PAGE>
INVESTORS FINANCIAL CORPORATION
AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1997 1996
------------------------------------------
<S> <C> <C>
Net increase (decrease) in cash and due from banks $ 296,500 $ (482,553)
Cash and due from banks at beginning of year 3,708,799 4,191,352
---------- ----------
Cash and due from banks at end of year $4,005,299 $3,708,799
========== ==========
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for: $2,661,757 $2,661,106
Interest
$ 675,101 $ 717,992
Income taxes
NONCASH TRANSACTION
Net unrealized gains (losses) on securities available for sale $ 138,130 $ (177,457)
</TABLE>
See Notes to Consolidated Financial Statements
F-34
<PAGE>
INVESTORS FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Investors Financial Corporation (the Company) is a bank holding
company whose business is conducted by its wholly-owned subsidiary,
Bainbridge National Bank, (the Bank). The Bank is a commercial bank
located in Bainbridge, Decatur County, Georgia. The Bank provides a
full range of banking services in its primary market area of Decatur
County and the surrounding counties.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the
Company and its subsidiary. Significant intercompany transactions
and accounts are eliminated in consolidation.
The accounting and reporting policies of the Company conform to
generally accepted accounting principles and general practices within
the financial services industry. In preparing the financial
statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the
date of the balance sheet and revenues and expenses for the period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash on hand, cash items in process of collection, and amounts due
from banks are included in cash and cash equivalents.
The Company maintains amounts due from banks which, at times, may
exceed Federally insured limits. The Company has not experienced any
losses in such accounts.
F-35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SECURITIES
Securities are classified based on management's intention on the date
of purchase. Securities which management has the intent to hold for
an indefinite period of time, but not necessarily to maturity are
classified as available for sale and are recorded at fair value with
net unrealized gains and losses included in stockholders' equity net
of tax.
Interest and dividends on securities, including amortization of
premiums and accretion of discounts, are included in interest income.
Realized gains and losses from the sales of securities are determined
using the specific identification method.
LOANS
Loans are carried at their principal amounts outstanding less the
allowance for loan losses. Interest income on loans is credited to
income based on the principal amount outstanding.
Loan origination fees and certain direct loan costs are recognized at
the time the loan is recorded. Because net origination loan fees and
costs are not material, the results of operations are not materially
different than the results which would be obtained by accounting for
loan fees and costs in accordance with generally accepted accounting
principles.
The allowance for loan losses is maintained at a level that
management believes to be adequate to absorb potential losses in the
loan portfolio. Management's determination of the adequacy of the
allowance is based on an evaluation of the portfolio, past loan loss
experience, current economic conditions, volume, growth, composition
of the loan portfolio, and other risks inherent in the portfolio. In
addition, regulatory agencies, as an integral part of their
examination process, periodically review the Company's allowance for
loan losses, and may require the Company to record additions to the
allowance based on their judgment about information available to them
at the time of their examinations.
F-36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOANS (CONTINUED)
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as
they become due. When accrual of interest is discontinued, all
unpaid accrued interest is reversed. Interest income is subsequently
recognized only to the extent cash payments are received.
A loan is impaired when it is probable the Company will be unable to
collect all principal and interest payments due in accordance with
the terms of the loan agreement. Individually identified impaired
loans are measured based on the present value of payments expected to
be received, using the contractual loan rate as the discount rate.
Alternatively, measurement may be based on observable market prices
or, for loans that are solely dependent on the collateral for
repayment, measurement may be based on the fair value of the
collateral. If the recorded investment in the impaired loan exceeds
the measure of fair value, a valuation allowance is established as a
component of the allowance for loan losses. Changes to the valuation
allowance are recorded as a component of the provision for loan
losses.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed principally by the straight-
line method over the estimated useful lives of the assets.
INTANGIBLE ASSETS
Intangible assets represent the excess of costs over net tangible
assets acquired by the Bank, less accumulated amortization of
$2,062,746 and $1,813,986 at December 31, 1997 and 1996,
respectively. Core deposit intangibles are being amortized over a
period of ten years. Goodwill is being amortized over a period of
fifteen years. Covenants not to compete and organization costs were
being amortized over a period of five years.
F-37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
OTHER REAL ESTATE OWNED
Other real estate owned represents properties acquired through
foreclosure. Other real estate owned is held for sale and is carried
at the lower of the recorded amount of the loan or fair value of the
properties less estimated selling costs. Any write-down to fair
value at the time of transfer to other real estate owned is charged
to the allowance for loan losses. Subsequent gains or losses on sale
and any subsequent adjustment to the value are recorded as other
expenses.
INCOME TAXES
Income tax expense consists of current and deferred taxes. Current
income tax provisions approximate taxes to be paid or refunded for
the applicable year. Deferred tax assets and liabilities are
recognized on the temporary differences between the bases of assets
and liabilities as measured by tax laws and their bases as reported
in the financial statements. Deferred tax expense or benefit is then
recognized for the change in deferred tax assets or liabilities
between periods.
Recognition of deferred tax balance sheet amounts is based on
management's belief that it is more likely than not that the tax
benefit associated with certain temporary differences, tax operating
loss carryforwards, and tax credits will be realized. A valuation
allowance is recorded for those deferred tax items for which it is
more likely than not that realization will not occur.
The Company and the Bank file a consolidated income tax return. Each
entity provides for income taxes based on its contribution to income
taxes (benefits) of the consolidated group.
EARNINGS PER SHARE
Basic earnings per share are computed by dividing net income by the
weighted average number of shares of common stock outstanding.
Diluted earnings per share are computed by dividing net income by the
sum of the weighted average number of shares of common stock
outstanding and potential common shares. Potential common shares
consist of warrants and stock options. Earnings per share for the
year ended December 31, 1996 has been restated to reflect the
adoption of Statement of Financial Accounting Standards No. 128,
"Earnings per Share".
F-38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CURRENT ACCOUNTING DEVELOPMENTS
In June 1996, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities". ("SFAS No. 125"). This statement
provides standards for distinguishing transfers of financial assets
that are sales from those that are secured borrowings, and provides
guidance on the recognition and measurement of asset servicing
contracts and on debt extinguishments. As issued, SFAS No. 125 is
effective for transactions occurring after December 31, 1996.
However, as a result of an amendment to SFAS No. 125 by the FASB in
December 1996, certain provision of SFAS No. 125 are deferred for an
additional year. Adoption of the new accounting standard is not
expected to have a material impact on the Company's financial
statements.
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share."
This statement simplifies the standards for computing earnings per
share previously set forth in APB Opinion No. 15, "Earnings per
Share," and makes them comparable to international Earnings per Share
("EPS") standards. It replaces the presentation of primary EPS with
a presentation of basic EPS. It also requires dual presentation of
basic and diluted EPS on the face of the income statement for all
entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS
computation. Basic EPS excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity. Diluted EPS is computed
similarly to fully diluted EPS pursuant to APB Opinion No. 15. This
statement is effective for financial statements issued for periods
ending after December 15, 1997. The adoption of this statement did
not have a material impact on the Company's financial statements.
F-39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CURRENT ACCOUNTING DEVELOPMENTS (CONTINUED)
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting and
display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose
financial statements. This statement requires that all items that
are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other
financial statements. This statement does not require a specific
format for that financial statement but requires that an enterprise
display an amount representing total comprehensive income for the
period in that financial statement. This statement requires that an
enterprise classify items of other comprehensive income by their
nature in a financial statement and display the accumulated balance
or other comprehensive income by their nature in a financial
statement and display the accumulated balance or other comprehensive
income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position.
This statement is effective for fiscal years beginning after December
15, 1997. The adoption of this statement is not expected to have a
material impact on the Company's financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". This statement
requires that a public business enterprise report financial and
descriptive information about its reportable operating segments.
Operating segments are components of an enterprise about which
separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. Generally,
financial information is required to be reported on the basis that it
is used internally for evaluating segment performance and deciding
how to allocate resources to segments. The statement requires that
a business enterprise report a measure of segment profit or loss,
certain specific revenue and expense items and segment assets. It
requires reconciliations of total segment revenues, total segment
profit or loss, total segment assets and other amounts disclosed for
segments to corresponding amounts in the enterprise's general-purpose
financial statements. It requires that the enterprise report
information about the revenues derived from the enterprise's products
or services, about the countries in which the enterprise earns
revenues and hold assets and about major customers. This statement
is effective for financial statements for periods beginning after
December 15, 1997. The adoption of this statement is not expected to
have a material impact on the Company's financial statements.
F-40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
NOTE 2. SECURITIES
The amortized cost and fair value of securities are summarized as
follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
DECEMBER 31, 1997:
U. S. GOVERNMENT AND AGENCY
SECURITIES $ 9,100,272 $ 21,304 $ (20,248) $ 9,101,328
STATE AND MUNICIPAL
SECURITIES 169,777 78 44) 169,811
MORTGAGE-BACKED SECURITIES 9,603,520 41,777 (56,986) 9,588,311
--------------- -------------- -------------- ---------------
$ 18,873,569 $ 63,159 $ (77,278) $ 18,859,450
=============== ============== ============== ===============
December 31, 1996:
U. S. Government and agency
securities $ 9,290,920 $ 13,112 $ (78,552) $ 9,225,480
State and municipal securities 169,470 313 (13) 169,770
Mortgage-backed securities 11,900,665 38,519 (125,627) 11,813,557
--------------- -------------- -------------- ---------------
$ 21,361,055 $ 51,944 $ (204,192) $ 21,208,807
=============== ============== ============== ===============
</TABLE>
The amortized cost and fair value of securities as of December 31,
1997 by contractual maturity are shown below. Maturities may differ
from contractual maturities in mortgage-backed securities because the
mortgages underlying the securities may be called or prepaid with or
without penalty. 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
---------------- ----------------
<S> <C> <C>
Due in one year or less $ 3,869,192 $ 3,871,920
Due from one year to five years 5,400,857 5,399,219
Mortgage-backed securities 9,603,520 9,588,311
---------------- ----------------
$ 18,873,569 $ 18,859,450
================ ================
</TABLE>
F-41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
<TABLE>
<CAPTION>
NOTE 2. SECURITIES (CONTINUED)
Securities with a carrying value of $7,481,279 and $8,636,481 at
December 31, 1997 and 1996, respectively, were pledged to secure
public deposits and for other purposes.
Gains and losses on sales of securities available for sale consist of
the following:
DECEMBER 31,
---------------------------------------
1997 1996
----------------- -----------------
<S> <C> <C>
Gross gains on sales of securities $ 934 $ 11,094
Gross losses on sales of securities (2,788) (7,421)
----------------- -----------------
Net realized gains (losses) on sales of
securities available for sale $ (1,854) $ 3,673
================= =================
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of loans is summarized as follows:
<CAPTION>
DECEMBER 31,
------------------------------------------
1997 1996
------------------ ------------------
<S> <C> <C>
Commercial and financial $ 5,486,663 $ 4,489,035
Agricultural 1,889,573 1,216,009
Real estate - construction 509,154 847,007
Real estate - mortgage, farmland 2,518,763 2,739,021
Real estate - mortgage, other 25,605,761 24,197,187
Consumer installment 11,157,382 11,731,090
Other 13,005 25,000
------------------ ------------------
47,180,301 45,244,349
Allowance for loan losses (671,328) (613,864)
------------------ ------------------
Loans, net $ 46,508,973 $ 44,630,485
================== ==================
</TABLE>
F-42
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1997 1996
------------------ ------------------
<S> <C> <C>
BALANCE, BEGINNING OF YEAR $ 613,864 $ 563,710
Provision charged to operations 144,000 120,000
Loans charged off (95,692) (80,833)
Recoveries 9,156 10,987
------------------ ------------------
BALANCE, END OF YEAR $ 671,328 $ 613,864
================== ==================
</TABLE>
The total recorded investment in impaired loans was $103,848 and
$112,960 at December 31, 1997 and 1996, respectively. Included in
these loans were $49,000 that had related allowances for loan losses
of $3,100 in 1997. There were no impaired loans that had related
allowances in 1996. The average recorded investment in impaired loans
for 1997 and 1996 was $80,750 and $78,000, respectively. Interest
income on impaired loans of $2,326 and $2,116 was recognized for cash
payments received for the year ended December 31, 1997, and 1996,
respectively.
The Company has granted loans to certain directors, executive
officers, and related entities of the Company and the Bank. The
interest rates on these loans were substantially the same as rates
prevailing at the time of the transaction and repayment terms are
customary for the type of loan involved. Following is a summary of
transactions:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1997 1996
------------------ ------------------
<S> <C> <C>
BALANCE, BEGINNING OF YEAR $ 2,347,044 $ 2,534,953
Advances 4,261,077 5,344,997
Repayments (3,408,181) (5,532,906)
------------------ ------------------
BALANCE, END OF YEAR $ 3,199,940 $ 2,347,044
================== ==================
</TABLE>
F-43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
NOTE 4. PREMISES AND EQUIPMENT, NET
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1997 1996
----------------- -----------------
<S> <C> <C>
Land $ 208,800 $ 208,800
Buildings and improvements 1,656,173 1,656,173
Equipment 1,114,251 1,089,220
2,979,224 2,954,193
Accumulated depreciation (1,259,361) (1,074,788)
----------------- -----------------
$ 1,719,863 $ 1,879,405
================= =================
</TABLE>
NOTE 5. OTHER BORROWINGS
As of December 31, 1997, pursuant to an agreement with Federal Home
Loan Bank of Atlanta, the Bank has received advances totaling
$1,000,000 bearing interest at a variable rate (5.63% at December 31,
1997). Under the terms of the agreement, interest is payable quarterly
and the advances are due on April 24, 2000. The Bank will have to pay
a penalty if they make a prepayment of principal before the maturity
date. The advances are secured by a blanket floating lien of all the
Bank's residential real estate loans.
F-44
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
<TABLE>
NOTE 6. LONG-TERM DEBT
Long-term debt represents a loan by the Company with a correspondent
bank. Under terms of the loan agreement, $2,730,000 was borrowed in
1995 and the proceeds were used to repay existing debt. Interest
accrues on the debt at a variable rate. The effective rate at
December 31, 1997 was 7.65%. Interest only is payable quarterly. The
loan is for a period of ten years with principal payable in equal
semiannual installments, each in the amount of $136,500. Following is
a schedule of principal payments for the next five years and
thereafter.
<S> <C>
1998 $ 273,000
1999 273,000
2000 273,000
2001 273,000
2002 273,000
Later years 819,000
---------------
$ 2,184,000
===============
The loan has no penalty for prepayment and is secured by all of the
issued and outstanding stock of the Bank.
The loan agreement contains restrictive provisions that limit or
prevent creating liens on or disposing of the stock of the subsidiary.
There are also other restrictions on mergers, acquisitions,
consolidations, certain leases, sales or transfers of assets, capital
expenditures, stockholders' equity and payment of dividends in event
of default. As of December 31, 1997, the Company was in compliance
with all covenants and provisions of the loan agreement except those
pertaining to the possible merger with PAB Bancshares, Inc. explained
in Note 15. However, the Company has received a waiver from the
Correspondent Bank for these covenant violations.
NOTE 7. EMPLOYEE BENEFIT PLAN
The Bank has a 401(k) salary deferral plan which allows employees to
defer up to 16% of their salary with partially matching Bank
contributions. Bank contributions to this plan charged to expense
amounted to $13,006 and $12,018 in 1997 and 1996, respectively.
NOTE 8. INCOME TAXES
The provision for income taxes consists of the following:
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1996
---------------- ----------------
<S> <C> <C>
Current $ 687,087 $ 598,893
Deferred (54,548) (50,396)
--------------- ---------------
$ 632,539 $ 548,497
=============== ===============
</TABLE>
F-45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
<TABLE>
<CAPTION>
<S> <C>
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:
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------
1997 1996
------------------------------ ---------------------------
AMOUNT PERCENT Amount Percent
------------- ------------ ------------- ---------
<S> <C> <C> <C> <C>
Tax provision at statutory rate $ 617,902 34 % $ 515,675 34 %
Increase (decrease) resulting from:
Tax-exempt interest (18,474) (1) (3,757) -
State income tax 42,250 3 39,445 3
Amortization of goodwill 7,058 - 7,058 -
Other items, net (16,197) (1) (9,924) (1)
------------- ------------ ------------- ---------
Provision for income taxes $ 632,539 35 % $ 548,497 36 %
============= ============ ============= =========
The components of deferred income taxes are as follows:
<CAPTION>
DECEMBER 31,
---------------------------------------
1997 1996
----------------- -----------------
<S> <C> <C>
Deferred tax assets:
Loan loss reserves $ 218,260 $ 192,866
Unrealized loss on securities available for sale 4,801 51,764
----------------- -----------------
223,061 244,630
Deferred tax liabilities:
Amortization of core deposits 94,748 123,902
----------------- -----------------
Net deferred tax assets $ 128,313 $ 120,728
================= =================
</TABLE>
F-46
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
NOTE 9. STOCK WARRANTS AND STOCK OPTION PLAN
STOCK WARRANTS
The organizers of the Company and the Bank purchased 231,760 shares of
the common stock at a price of $10 per share, the same price at which
shares were offered to others. In recognition of the financial risks
undertaken by the organizers, the Company granted each organizer an
opportunity to purchase, for a nominal price, warrants to purchase one
additional share for every two shares he or she purchased in the
offering.
The warrants became exercisable on the date the Bank opened for
business and are exercisable in whole or in part at any time during
the ten year period following that date, at an exercise price equal to
$10 per share. The warrants are nontransferable, other than by will or
the laws of descent and distribution, but shares issued pursuant to
the exercise of warrants will be transferable, subject to compliance
with applicable securities laws. The warrant exercise price is subject
to upward adjustment, and the warrants are subject to defeasance if
not exercised, in the event that the OCC issues a capital directive or
other order requiring the Bank to obtain additional capital. The
maximum number of shares that can be purchased pursuant to the
Warrants Agreement amounts to 115,428 shares.
STOCK OPTION PLAN
The Company has adopted a Key Employee Incentive Option Plan covering
50,000 shares of the common stock, which is intended to qualify for
favorable tax treatment under Section 422 of the Internal Revenue
Code. The Stock Option Plan will be administered by the Board of
Directors of the Company and will provide for the granting of options
to purchase shares of the common stock to officers and other key
employees of the Company and its subsidiary. The purchase price under
all such options intended to qualify as incentive options will not be
less than the fair market value of the shares of common stock on the
date of grant. Options will be exercisable upon such terms as may be
determined by the body administering the Stock Option Plan, but in any
event, all options, whether intended to qualify as incentive options
or not, will be exercisable no later than ten years after the date of
grant.
F-47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
<TABLE>
<CAPTION>
NOTE 9. STOCK WARRANTS AND STOCK OPTION PLAN (CONTINUED)
Other pertinent information related to the plan is as follows:
DECEMBER 31,
---------------------------------------
1997 1996
----------------- -----------------
NUMBER OF SHARES
---------------------------------------
<S> <C> <C>
Under option, beginning of year 2,850 2,850
Granted - -
Expired - -
----------------- -----------------
Under option, end of year 2,850 2,850
================= =================
Options exercisable, end of year 2,850 2,850
================= =================
Available to grant, end of year 46,350 46,350
================= =================
AVERAGE PRICES
---------------------------------------
Under option, end of year $ 10 $ 10
If options granted under the Stock Option Plan qualify as incentive
options under Section 422, no taxable income will be recognized by
the recipient of the options as a result of the grant or exercise of
the options. If options do not qualify as incentive options, income
will be recognized by the recipient upon exercise of the option to
the extent of the difference in the option exercise price and the
fair market value of the common stock, and a corresponding deduction
to taxable income will be created for the Company.
SPECIAL STOCK
The Company is authorized to issue up to 5,000,000 shares of a
special class of stock, $1 par value per share. Liquidation
preferences and other such items are subject to establishment by the
Board of Directors. No special stock has been issued.
F-48
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
<TABLE>
<CAPTION>
<S> <C>
NOTE 10. 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. A summary of the Company's
commitments is as follows:
DECEMBER 31,
---------------------------------------
1997 1996
----------------- -----------------
<S> <C> <C>
Commitments to extend credit $ 9,320,000 $ 6,686,000
Standby letters of credit 555,400 315,000
----------------- -----------------
$ 9,875,400 $ 7,001,000
================= =================
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,
crops, marketable securities, accounts receivable, inventory,
equipment, and personal property.
Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and private
borrowing arrangements. The credit risk involved in issuing letters
of credit is essentially the same as that involved in extending loan
facilities to customers. Collateral held varies as specified above
and is required in instances which the Company deems necessary.
</TABLE>
F-49
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
NOTE 10. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
In the normal course of business, the Company is involved in various
legal proceedings. In the opinion of management of the Company, any
liability resulting from such proceedings would not have a material
effect on the Company's financial statements.
NOTE 11. CONCENTRATIONS OF CREDIT
The Company originates primarily commercial, residential, and consumer
loans to customers in the Decatur County and surrounding counties.
The ability of the majority of the Company's customers to honor their
contractual loan obligations is dependent on the economy in
Bainbridge, 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 considerations by management in determining the
allowance for loan losses.
A substantial portion of these loans are secured by real estate in the
Company's primary market area. In addition, a substantial portion of
the other real estate owned is located in those same markets.
Accordingly, the ultimate collectibility of the loan portfolio and the
recovery of the carrying amount of other real estate owned are
susceptible to changes in market conditions in the Company's primary
market area. The other significant concentrations of credit by type
of loan are set forth in Note 3.
F-50
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
NOTE 12. REGULATORY MATTERS
The Bank is subject to certain restrictions on the amount of dividends
that may be declared without prior regulatory approval. At December
31, 1997, approximately $2,065,095 of retained earnings were
available for dividend declaration without regulatory approval.
The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory, and
possibly additional discretionary, actions by regulators that, if
undertaken, could have a direct material effect on the financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and Bank must meet
specific capital guidelines that involve quantitative measures of the
assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Company and Bank capital
amounts and classification are also subject to qualitative judgments
by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company and the Bank to maintain minimum amounts
and ratios of total and Tier I capital to risk-weighted assets and of
Tier I capital to average assets. Management believes, as of December
31, 1997, the Company and the Bank meet all capital adequacy
requirements to which it is subject.
As of December 31, 1997, the most recent notification from the OCC
categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the following
table. There are no conditions or events since that notification that
management believes have changed the Bank's category.
F-51
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
NOTE 12. REGULATORY MATTERS (CONTINUED)
The Bank's actual capital amounts and ratios are presented in the
following table.
<TABLE>
<CAPTION>
TO BE WELL
FOR CAPITAL CAPITALIZED UNDER
ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
------------------------------ -------------------------- ---------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------------- ----------- --------------- -------- ---------------- --------
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1997
TOTAL CAPITAL
(TO RISK WEIGHTED ASSETS):
BAINBRIDGE NATIONAL BANK $ 10,366,316 21.37% $ 3,881,225 8 % $ 4,851,531 10%
TIER I CAPITAL
(TO RISK WEIGHTED ASSETS):
BAINBRIDGE NATIONAL BANK $ 9,759,074 20.12% $ 1,940,612 4% $ 2,910,919 6%
TIER I CAPITAL
(TO AVERAGE ASSETS):
BAINBRIDGE NATIONAL BANK $ 9,759,074 12.98% $ 3,007,470 4% $ 3,759,337 5%
As of December 31, 1996
Total Capital
(to Risk Weighted Assets):
Bainbridge National Bank $ 9,104,850 19.16% $ 3,801,608 8% $ 4,752,009 10%
Tier I Capital
(to Risk Weighted Assets):
Bainbridge National Bank $ 8,510,649 17.91% $ 1,900,759 4% $ 2,851,139 6%
Tier I Capital
(to Average Assets):
Bainbridge National Bank $ 8,510,649 11.49% $ 2,962,802 4% $ 3,703,503 5%
</TABLE>
F-52
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
NOTE 13. EARNINGS PER COMMON SHARE
The following is a reconciliation of net income (the numerator) and
the weighted average shares outstanding (the denominator) used in
determining basic and diluted earnings per share.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
---------------------------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------------- ---------------- -----------------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE
NET INCOME $ 1,184,820 470,000 $ 2.52
=================
EFFECT OF DILUTIVE SECURITIES
WARRANTS - 47,529
STOCK OPTIONS - 1,174
----------------- ----------------
DILUTIVE EARNINGS PER SHARE
NET INCOME $ 1,184,820 518,703 $ 2.28
================= ================ =================
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------------- ---------------- -----------------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE
Net income $ 968,193 470,000 $ 2.06
=================
EFFECT OF DILUTIVE SECURITIES
Warrants - 47,529
Stock options - 1,174
----------------- ----------------
DILUTIVE EARNINGS PER SHARE
Net income $ 968,193 518,703 $ 1.87
================= ================ =================
</TABLE>
F-53
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
NOTE 14. PARENT COMPANY FINANCIAL INFORMATION
The following information presents the condensed balance sheets of
Investors Financial Corporation and statements of income and cash
flows as of and for the years ended December 31, 1997 and 1996.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
<S> <C> <C>
ASSETS
Cash $ 136,324 $ 123,994
Investment in subsidiary 10,661,917 9,571,085
Due from subsidiary 6,718 66,713
----------------- -----------------
Total assets $ 10,804,959 $ 9,761,792
================= =================
LIABILITIES:
Long-term debt $ 2,184,000 $ 2,184,000
Other liabilities 38,825 27,244
----------------- -----------------
Total liabilities 2,222,825 2,211,244
----------------- -----------------
STOCKHOLDERS' EQUITY 8,582,134 7,550,548
----------------- -----------------
Total liabilities and stockholders' equity $ 10,804,959 $ 9,761,792
================= =================
</TABLE>
F-54
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
NOTE 14. PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
<S> <C> <C>
INCOME, dividends from subsidiary $ 300,000 $ 700,000
----------------- -----------------
EXPENSE
Interest 163,091 175,736
Other expense 39,700 9,250
----------------- -----------------
202,791 184,986
----------------- -----------------
Income before income tax benefits and
equity in undistributed earnings of
subsidiary 97,209 515,014
INCOME TAX BENEFITS 87,945 62,895
----------------- -----------------
Income before equity in undistributed
earnings of subsidiary 185,154 577,909
EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARY 999,666 390,284
----------------- -----------------
Net income $ 1,184,820 $ 968,193
================= =================
</TABLE>
F-55
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
NOTE 14. PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1997 1996
------------------ ------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,184,820 $ 968,193
------------------ ------------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed earnings of subsidiary (999,666) (390,284)
Increase in taxes payable 59,994 25,281
Decrease in interest payable (405) (50,804)
Other assets and liabilities, net 11,987 (50,563)
------------------ ------------------
Total adjustments (928,090) (466,370)
------------------ ------------------
Net cash provided by operating activities 256,730 501,823
------------------ ------------------
FINANCING ACTIVITIES
Repayment of debt - (273,000)
Dividends paid (244,400) (206,800)
------------------ ------------------
Net cash used in financing activities (244,400) (479,800)
------------------ ------------------
Net increase in cash 12,330 22,023
Cash at beginning of year 123,994 101,971
------------------ ------------------
Cash at end of year $ 136,324 $ 123,994
================== ==================
SUPPLEMENTAL DISCLOSURE
Cash paid during the year for interest $ 163,496 $ 226,540
</TABLE>
NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments. In cases where
quoted market prices are not available, fair values are based on estimates using
discounted cash flow methods. Those methods are significantly affected by the
assumptions used, including the discount rates and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. The use of different methodologies
may have a material effect on the estimated fair value amounts. Also, the fair
value estimates presented herein are based on pertinent information available to
management as of December 31, 1997 and 1996. Such amounts have not been
revalued for purposes of these financial statements since those dates and,
therefore, current estimates of fair value may differ significantly from the
amounts presented herein.
The following methods and assumptions were used by the Company in
estimating fair values of financial instruments as disclosed herein:
CASH, DUE FROM BANKS, INTEREST-BEARING DEPOSITS AND FEDERAL FUNDS SOLD:
The carrying amounts of cash, due from banks, interest-bearing
deposits and Federal funds sold approximate their fair value.
AVAILABLE FOR SALE SECURITIES:
Fair values for securities are based on quoted market prices.
LOANS:
For variable-rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on
carrying values. For other loans, the fair values are estimated
using discounted cash flow methods, using interest rates
currently being offered for loans with similar terms to borrowers
of similar credit quality. Fair values for impaired loans are
estimated using discounted cash flow methods or underlying
collateral values.
DEPOSITS:
The carrying amounts of demand deposits, savings deposits, and
variable-rate certificates of deposit approximate their fair
values. Fair values for fixed-rate certificates of deposit are
estimated using discounted cash flow methods, using interest
rates currently being offered on certificates.
LONG-TERM DEBT & FEDERAL HOME LOAN BANK BORROWINGS:
The carrying amounts of the Company's Long-term debt and Federal
Home Loan Bank borrowings approximate their fair value.
OFF-BALANCE SHEET INSTRUMENTS:
Fair values of the Company's off-balance sheet financial
instruments are based on fees charged to enter into similar
agreements. However, commitments to extend credit and standby
letters of credit do not represent a significant value to the
Company until such commitments are funded. The Company has
determined that these instruments do not have a distinguishable
fair value and no fair value has been assigned.
The carrying value and estimated fair value of the Company's financial
instruments were as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
------------------------ -------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-
term investments $ 7,053,428 $ 7,053,428 $ 4,778,799 $ 4,778,799
Investments in
securities $18,859,450 $18,859,450 $21,208,807 $21,208,807
=========== =========== =========== ===========
Loans $47,180,301 $46,908,664 $45,244,349 $45,016,310
Allowance for loan
losses (671,328) - (613,864) -
----------- ----------- ----------- -----------
Loans net $46,508,973 $46,908,664 $44,630,485 $45,016,310
=========== =========== =========== ===========
Financial liabilities:
Noninterest
bearing demand $11,723,504 $11,723,504 $11,314,854 $11,314,854
Interest-bearing
demand 16,079,815 16,079,815 15,388,791 15,388,791
Savings 5,453,469 5,453,469 5,546,022 5,546,022
Time deposits 31,469,104 31,740,006 33,140,460 33,458,041
----------- ----------- ----------- -----------
Total Deposits $64,725,892 $64,996,794 $65,390,127 $65,707,708
=========== =========== =========== ===========
Long-term Debt $ 2,184,000 $ 2,184,000 $ 2,184,000 $ 2,184,000
=========== =========== =========== ===========
Federal Home Loan
Bank advances $ 1,000,000 $ 1,000,000 $ _ $ -
=========== =========== =========== ===========
</TABLE>
NOTE 16. PENDING MERGER
The directors of the Company have entered into a definitive
agreement with PAB Bancshares, Inc., a multi-bank holding
company with headquarters in Valdosta, Georgia, whereby, PAB
F-56
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
NOTE 15. PENDING MERGER (CONTINUED)
Bancshares, Inc. would acquire all of the outstanding common
stock of the Company in exchange for common stock of PAB
Bancshares, Inc. The merger is subject to approval by the
Company's shareholders and certain regulatory authorities. Upon
completion of the merger, the Bank will be merged with and into
First Community Bank of Southwest Georgia (a wholly-owned
subsidiary of PAB Bancshares, Inc.)
F-57
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of December 31, 1997, by and among Investors Financial Corporation
("Investors"), a corporation organized and existing under the laws of the State
of Georgia, with its principal office located in Bainbridge, Georgia, Bainbridge
National Bank ("Bank"), a national bank and a wholly-owned subsidiary of
Investors, with its main office located in Bainbridge, Georgia, and PAB
Bankshares, Inc. ("PAB"), a corporation organized and existing under the laws of
the State of Georgia, with its principal office located in Valdosta, Georgia.
PREAMBLE
The Boards of Directors of Bank, Investors and PAB are of the opinion that
the transaction described herein is in the best interest of the parties and
their respective shareholders. This Agreement provides for the merger of
Investors with and into PAB under the Articles of Incorporation and Bylaws of
PAB. At the effective time of such merger, the outstanding shares of the
capital stock of Investors and the outstanding warrants and options convertible
into the capital stock of Investors shall be converted into the right to receive
shares of the common stock of PAB (except as provided herein). As a result,
shareholders, warrant holders and option holders of Investors shall become
shareholders of PAB and immediately thereafter the Bank will be merged into and
with First Community Bank of Southwest Georgia ("FCB"), a wholly-owned
subsidiary of PAB. The transaction described in this Agreement is subject to the
approvals of the shareholders of PAB, Investors and Bank, the Board of Governors
of the Federal Reserve System and the Department of Banking and Finance of the
State of Georgia, and the satisfaction of certain other conditions described in
this Agreement. It is the intention of the parties to this Agreement that the
Merger (i) for federal income tax purposes shall qualify as a "reorganization"
within the meaning of Section 368(a) of the Internal Revenue Code, and (ii) for
accounting purposes shall qualify for treatment as a "pooling of interests".
Certain terms used in this Agreement are defined in Section 11.1 of this
Agreement.
NOW, THEREFORE, in consideration of the above and the mutual warranties,
representations, covenants and agreements set forth herein, the parties agree as
follows:
ARTICLE I
TRANSACTION AND TERMS OF MERGER
1.1 Merger. Subject to the terms and conditions of this Agreement, at the
Effective Time, Investors shall be merged with and into PAB 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"). PAB shall be the Surviving
Corporation resulting from the Merger and the separate existence of Investors
shall cease. 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 Investors and PAB.
1.2 Time and Place of Closing. The Closing will take place at 9:30 a.m. on
the date that the Effective Time occurs (or the immediately preceding day if the
Effective Time is earlier than 9:30 a.m.), or at such other time as the Parties,
acting through their Chief Executive Officers, may mutually agree. The place of
Closing shall be at the offices of Troutman Sanders LLP, Atlanta, Georgia, or
such other place as may be mutually agreed upon by the Parties.
1.3 Effective Time. The Merger contemplated by this Agreement shall become
effective on the date and at the time the Articles of Merger reflecting the
Merger shall become effective with the Secretary of State of the State of
Georgia. 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 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, (ii) the date on which the respective
shareholders of PAB, Investors and Bank, voting separately, approve this
Agreement, or (iii) such later date as may be mutually agreed upon in writing by
the Chief Executive Officers of each Party.
<PAGE>
ARTICLE 2
TERMS OF MERGER
2.1 Articles of Incorporation. The Articles of Incorporation of PAB 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 PAB in effect immediately prior to the Effective
Time shall be the Bylaws of the Surviving Corporation until otherwise amended or
repealed.
2.3 Directors of PAB. The directors of PAB in office immediately prior to
the Effective Time, together with three (3) additional persons who previously
served on the board of directors of Investors who will be appointed to serve as
directors of PAB, shall serve as the directors of the Surviving Corporation from
and after the Effective Time in accordance with the Bylaws of the Surviving
Corporation. Such additional PAB directors will be nominated by the Board of
Directors of Investors, subject to approval by PAB which such approval shall not
be unreasonably withheld. At the first annual meeting of PAB shareholders
following the Closing, PAB will nominate two (2) such Investors' nominees to
serve for a two (2) year term and one such Investors' nominee to serve for a
three (3) year term and will recommend that PAB shareholders vote in favor of
their respective elections. Each newly elected Investors' nominee will serve
provided he or she retains at least fifty percent (50%) of the PAB Common Stock
he or she received in the Merger, and refrains from conduct that would
constitute "cause" for removal under PAB's Articles of Incorporation or Bylaws.
Each Investors' nominee who has attained the age of 60 as of the date of this
Agreement will be exempt from any mandatory retirement provisions applicable to
such PAB directors.
2.4 Directors of FCB. The directors of Bank in office prior to the
Effective time will be added to the Board of Directors of FCB. Such new
directors of FCB will be elected by PAB to serve on the Board of Directors of
FCB for at least three (3) years after the Closing. Directors of Bank who have
attained the age of sixty (60) as of the date of this Agreement will be exempt
from the Mandatory Retirement provisions of Section 3.9 of the FCB Bylaws or
otherwise applicable to FCB directors and officers. Each newly elected Bank
director nominee will serve provided he or she retains at least fifty percent
(50%) of the PAB Common Stock he or she received in the Merger, and refrains
from conduct that would constitute "cause" for removal under FCB's Charter or
Bylaws.
2.5 Officers of PAB. The officers of PAB in office immediately prior to
the Effective Time, together with such additional persons as may thereafter be
elected, shall serve as the officers of PAB from and after the Effective Time in
accordance with the Bylaws of PAB.
2.6 Officers of FCB. The officers of FCB in office immediately prior to
the Effective Time, together with such additional persons as may thereafter be
elected, shall serve as the officers of FCB from and after the Effective Time in
accordance with the Bylaws of FCB; provided, that Tracy A. Dixon shall be the
Chief Executive Officer of FCB, Jeff Hanson shall be the President of FCB and
Hal Brannen shall be the Executive Vice President - Lending of FCB to the extent
such persons are available and agree to such employment.
ARTICLE 3
MANNER OF CONVERTING SHARES, WARRANTS AND OPTIONS
3.1 Conversion of Shares, Warrants and Options. 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, warrants and options
of the constituent corporations shall be converted as follows:
(a) Each share of PAB Common Stock issued and outstanding immediately
prior to the Effective Time shall remain issued and outstanding from and after
the Effective Time; and
(b) Subject to adjustment as outlined below and the conditions set
forth herein, PAB will issue and exchange 855,057 shares of PAB Common Stock
(the "Merger Consideration") for all the Investors Common Stock and all the
Investors Warrants and Investors Options as follows: (i) each share of Investors
Common Stock shall be exchanged for that number of shares of PAB Common Stock
equal to that exchange ratio formed by the sum of the product of 855,057
multiplied by the BPTP plus the aggregate exercise price of the Investors
Warrants and Investors Options, divided by 588,278, as numerator, and the BPTP,
as denominator ([(855,057)(BPTP) + ($10 x 118,278) 588,278] BPTP), and (ii) each
warrant and option convertible into Investors Common Stock shall be exchanged
for that number of shares of PAB Common Stock
A-2
<PAGE>
equal to that exchange ratio formed by (a) the sum of the product of 855,057
multiplied by the BPTP plus the aggregate exercise price of the Investors
Warrants and Investors Options, divided by (b) 588,278, less (c) 10, divided by
(d) the BPTP ([[(855,057)(BPTP) + ($10 x 118,278)] 588,278] - 10] BPTP).
The following chart indicates the number of shares to be received by
Investors shareholders for each share of Investors Common Stock based upon
various assumed BPTP of PAB Common Stock:
<TABLE>
<CAPTION>
Equivalent Value of PAB Common
Stock per share of
BPTP of PAB Common Stock Exchange Ratio Investors Common Stock
- ------------------------ -------------- ----------------------
<S> <C> <C>
$19.00 1.559311 $29.63
20.00 1.554020 31.08
21.00 1.549233 32.53
22.00 1.544881 33.99
23.00 1.540908 35.44
</TABLE>
The following chart indicates the number of PAB shares to be received by
Investors warrant holders and option holders for each Investors warrant and
option based upon various assumed BPTP of PAB Common Stock:
<TABLE>
<CAPTION>
Value of Spread in
BPTP of PAB Common Stock Exchange Ratio Exercise Price
- ------------------------ -------------- --------------
<S> <C> <C>
$19.00 1.032995 $19.63
20.00 1.054020 21.08
21.00 1.073043 22.53
22.00 1.090336 23.99
23.00 1.106125 25.44
</TABLE>
(c) Each share of Investors Common Stock (excluding shares held by
PAB or any of its Subsidiaries or by Investors, in each case other than in a
fiduciary capacity or as a result of debts previously contracted, and excluding
shares held by shareholders who perfect their dissenters' rights of appraisal as
provided in Section 3.4 of this Agreement), each Investors Warrant and each
Investors Option issued and outstanding at the Effective Time shall cease to be
outstanding and shall be converted into and exchanged for the right to receive
the Merger Consideration; and
(d) The Merger Consideration shall be reduced by the sum determined
as follows: (i) the amount as agreed upon by the Parties on the date specified
in Section 10.1(g) of this Agreement, that the Bank's loan loss reserve should
be increased relating to the Bank's classified loans as of the date specified in
Section 10.1(g) of this Agreement, plus (ii) all amounts in excess of $150,000
----
paid or to be paid by Investors or Bank or both for the fees and expenses of The
Carson Medlin Company, consultants, attorneys, accountants and the like by
Investors or Bank in connection with the Merger and the due diligence conducted
by Investors or Bank in regard to the Merger. In the event the Parties cannot
agree upon the Bank's loan loss reserve increase, this Agreement shall terminate
as if it were terminated pursuant to Section 10.1(a) of this Agreement. In the
event of an adjustment pursuant to this Section 3.1(d), the Merger Consideration
shall be reduced by that number of whole shares of PAB Common Stock equal to the
dollar amount determined in accordance with Section 3.1(d) divided by $21.00 and
such number of shares of PAB Common Stock shall be substituted for 855,057 in
the formulae set forth in Section 3.1(b) of this Agreement.
3.2 Anti-Dilution Provisions. In the event Investors or PAB changes the
number of shares of Investors Common Stock or PAB 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 Merger Consideration shall be proportionately
adjusted.
3.3 Shares Held by Bank or PAB. Each of the shares of Investors Common
Stock held by Investors or by any PAB Companies, 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.
A-3
<PAGE>
3.4 Dissenting Shareholders. Any holder of shares of Investors Common
Stock who perfects his dissenters' rights of appraisal in accordance with and as
contemplated by Sections 14-2-1301, et seq. of the GBCC shall be entitled to
-- ---
receive the value of such shares in cash as determined pursuant to such
provision of Law; provided, however, that no such payment shall be made to any
dissenting shareholder unless and until such dissenting shareholder has complied
with the applicable provisions of the GBCC and surrendered to Investors the
certificate or certificates representing the shares for which payment is being
made. In the event that after the Effective Time a dissenting shareholder of
Investors fails to perfect, or effectively withdraws or loses, his right to
appraisal and of payment for his shares, Investors shall issue and deliver the
consideration to which such holder of shares of Investors Common Stock is
entitled under this Article 3 (without interest) upon surrender by such holder
of the certificate or certificates representing shares of Investors Common Stock
held by him.
3.5 Fractional Shares. Notwithstanding any other provision of this
Agreement, each holder of shares of Investors Common Stock, Investors Warrants
or Investors Options exchanged pursuant to the Merger, who would otherwise have
been entitled to receive a fraction of a share of PAB 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 Investors Common Stock, Investors Warrants or Investors Options
multiplied by the deemed value of one share of PAB Common Stock at the Effective
Time. The deemed value of one share of PAB Common Stock at the Effective Time or
the date of exercise, as the case may be, shall be Twenty-One Dollars ($21) per
share. No such holder will be entitled to dividends, voting rights, or any other
rights as a shareholder in respect of any fractional shares.
ARTICLE 4
EXCHANGE OF SHARES
4.1 Exchange Procedures. Promptly after the Effective Time, PAB shall, as
exchange agent, mail to the former shareholders, warrant holders or option
holders of Investors appropriate transmittal materials (which shall specify that
delivery shall be effected, and risk of loss and title to the certificates
theretofore representing shares of Investors Common Stock, Investors Warrants or
Investors Options shall pass, only upon proper delivery of such certificates to
PAB). After the Effective Time, each holder of shares of Investors Common Stock
(other than shares to be canceled pursuant to Section 3.3 of this Agreement or
as to which dissenters' rights of appraisal have been perfected as provided in
Section 3.4 of this Agreement), Investors Warrants or Investors Options issued
and outstanding at the Effective Time shall surrender the certificate or
certificates representing such shares, warrants or options to PAB and shall
promptly upon surrender thereof receive in exchange therefor the consideration
provided in Section 3.1 of this Agreement, together with all undelivered
dividends or distributions in respect of such shares (without interest thereon)
pursuant to Section 4.2 of this Agreement. To the extent required by Section
3.5 of this Agreement, each holder of shares of Investors Common Stock,
Investors Warrants or Investors Options issued and outstanding at the Effective
Time also shall receive, upon surrender of the certificate or certificates
representing such shares, cash in lieu of any fractional share of PAB Common
Stock to which such holder may be otherwise entitled (without interest). PAB
shall not be obligated to deliver the consideration to which any former holder
of Investors Common Stock, Investors Warrants or Investors Options is entitled
as a result of the Merger until such holder surrenders his certificate or
certificates representing the shares, warrants or options of Investors Common
Stock, Investors Warrants or Investors Options for exchange as provided in this
Section 4.1. The certificate or certificates of Investors Common Stock,
Investors Warrants or Investors Options so surrendered shall be duly endorsed as
PAB may require. Any other provision of this Agreement notwithstanding, PAB
shall not be liable to a holder of Investors Common Stock, Investors Warrants or
Investors Options for any amounts paid or property delivered in good faith to a
public official pursuant to any applicable abandoned property Law.
4.2 Rights of Former Shareholders, Warrant Holders or Option Holders. At
the Effective Time, the stock transfer books of Investors shall be closed as to
holders of Investors Common Stock, Investors Warrants or Investors Options
immediately prior to the Effective Time and no transfer of Investors Common
Stock, Investors Warrants or Investors Options by any such holder shall
thereafter be made or recognized. Until surrendered for exchange in accordance
with the provisions of Section 4.1 of this Agreement, each certificate
theretofore representing shares of Investors Common Stock, Investors Warrants or
Investors Options (other than shares to be canceled pursuant to Sections 3.3 and
3.4 of this Agreement) shall from and after the Effective Time represent for all
purposes only the right to receive the consideration provided in Sections 3.1
and 3.5 of this Agreement in exchange therefor. To the extent permitted by Law,
former shareholders, warrant holders or option holders of record of Investors
shall be entitled to vote after the Effective Time at any meeting of PAB
shareholders the number of whole shares of PAB Common Stock into which their
respective shares of Investors Common Stock, Investors Warrants or Investors
Options are converted, regardless of whether such holders have exchanged their
certificates representing
A-4
<PAGE>
Investors Common Stock, Investors Warrants or Investors Options for certificates
representing PAB Common Stock in accordance with the provisions of this
Agreement. Whenever a dividend or other distribution is declared by PAB on the
PAB Common Stock, the record date for which is at or after the Effective Time,
the declaration shall include dividends or other distributions on all shares
issuable pursuant to this Agreement, but no dividend or other distribution
payable to the holders of record of PAB Common Stock as of any time subsequent
to the Effective Time shall be delivered to the holder of any certificate
representing shares of Investors Common Stock, Investors Warrants or Investors
Options issued and outstanding at the Effective Time until such holder
surrenders such certificate for exchange as provided in Section 4.1 of this
Agreement. However, upon surrender of such Investors Common Stock certificate,
Investors Warrant or Investors Option, both the PAB 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, warrant or option represented by such certificate.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF INVESTORS AND BANK
Investors and Bank, jointly and severally, hereby represent and warrant to
PAB as follows:
5.1 Organization, Standing, and Power. Investors 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.
Bank is a national bank duly organized, validly existing, and in good standing
under the Laws of the United States. Investors and Bank each have the corporate
power and authority to carry on their respective businesses as now conducted and
to own, lease and operate their respective Assets. Neither Investors nor Bank
owns any property or conducts any business outside of the State of Georgia which
would require either of them to be qualified as a foreign corporation in any
jurisdiction.
5.2 Authority; No Breach By Agreement.
(a) Investors and Bank each have the corporate power and authority
necessary to execute, deliver and perform their respective 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 Bank, subject to the approval of this Agreement by the holders of more
than (i) two-thirds (2/3) of the outstanding Bank Common Stock, and (ii) a
majority of the outstanding shares of Investors Common Stock. Subject to such
requisite shareholder approval and Consents of Regulatory Authorities, this
Agreement represents a legal, valid, and binding obligation of Investors and
Bank, enforceable against Investors and Bank 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) Except as Previously Disclosed, neither the execution and
delivery of this Agreement by either Investors or Bank or both, nor the
consummation by either Investors or Bank or both of the transactions
contemplated hereby, nor compliance by either Investors or Bank or both with any
of the provisions hereof, will (i) conflict with or result in a breach of any
provision of Investors' Articles of Incorporation or Bylaws; (ii) conflict with
or result in a breach of any provision of Bank's Charter or Bylaws, or (iii)
constitute or result in a Default under, or require any Consent pursuant to, or
result in the creation of any Lien on either Investors or Bank or both under,
any Contract or Permit of either Investors or Bank or both, 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 either Investors
or Bank or both, or, (iv) subject to receipt of the requisite approvals referred
to in Section 9.1(a) and (b) of this Agreement, violate any Law or Order
applicable to either Investors or Bank or both 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 IRS 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 either Investors or Bank or
both, no notice to, filing with, or Consent of, any public body or authority is
necessary for the consummation by Investors and Bank of the Merger and the other
transactions contemplated in this Agreement.
A-5
<PAGE>
5.3 Capital Stock and Other Securities.
(a) The authorized capital stock of Investors consists of 10,000,000
shares of Investors Common Stock. As of the date of this Agreement, there are
(i) 470,000 shares of Investors Common Stock issued and outstanding; (ii)
115,428 shares of Investors Common Stock reserved for issuance upon the exercise
of issued and outstanding Investors warrants; and (iii) 2,850 shares of
Investors Common Stock reserved for issuance upon the exercise of issued and
outstanding stock options under the Key Employee Incentive Stock Option Plan.
No more than 470,000 shares of Investors Common Stock (assuming that none of the
Investors Warrants or Investors Options are exercised prior to the Effective
Time), 115,428 Investors Warrants and 2,850 Investors Option shares will be
issued and outstanding at the Effective Time. All of the issued and outstanding
shares of capital stock of Investors 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 Investors has been issued in violation of any
preemptive rights of the current or past shareholders of Investors.
(b) Except as set forth in Section 5.3(a) of this Agreement or
provided pursuant to the Investors Warrants or Investors Options as Previously
Disclosed, there are no shares of capital stock or other equity securities of
Investors 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 Investors or contracts, commitments, understandings, or arrangements by
which Investors 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 Investors' Subsidiaries. Other than Bank, Investors has no
subsidiaries.
5.5 Financial Statements. Investors has Previously Disclosed, and
delivered to PAB prior to the execution of this Agreement, copies of all
Investors Financial Statements for periods ended prior to the date hereof and
will deliver to PAB copies of all Investors Financial Statements prepared
subsequent to the date hereof. The Investors Financial Statements (as of the
dates thereof and for the periods covered thereby) (i) are or will be, if dated
after the date of this Agreement, in accordance with the books and records of
Investors, which are or will be, materially complete and correct and which have
been or will have been maintained in accordance with good business practices,
and (ii) present or will present fairly the financial position of Investors as
of the dates indicated and the results of operations, changes in shareholders'
equity, and cash flows of Investors 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).
5.6 Absence of Undisclosed Liabilities. Neither Investors nor Bank has any
Liabilities that are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on either Investors or Bank, except
Liabilities which are accrued or reserved against in the consolidated balance
sheets of Investors as of December 31, 1996 and June 30, 1997 included in the
Investors Financial Statements or reflected in the notes thereto. Neither
Investors nor Bank has incurred or paid any Liability since June 30, 1997,
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 Investors
or Bank.
5.7 Absence of Certain Changes or Events. Since June 30, 1997, (i) there
have been no events, changes or occurrences which have had, or are reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
Investors, and (ii) neither Investors nor Bank has 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
Investors provided in Article 7 of this Agreement.
5.8 Tax Matters.
(a) All Tax returns required to be filed by or on behalf of Investors
or Bank 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,
1996, 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 Investors, and all returns filed are complete and accurate in all
material respects to the Knowledge of Investors. All Taxes shown on filed
returns have been paid as of the date of this Agreement, and there is no audit
examination, deficiency, or refund
A-6
<PAGE>
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 Investors, except as reserved against in the Investors
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) Neither Investors nor Bank 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 Investors or Bank, which deficiency is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Investors.
(c) Adequate provision for any Taxes due or to become due by
Investors or Bank for the period or periods through and including the date of
the respective Investors Financial Statements has been made and is reflected on
such Investors Financial Statements.
(d) Deferred Taxes of Investors or Bank have been provided for in
accordance with GAAP. Effective January 1, 1993, Investors adopted Financial
Accounting Standards Board Statement 109, "Accounting for Income Taxes."
(e) Investors and Bank are in compliance with, and their respective
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
Investors.
5.9 Allowance. The Allowance shown on the consolidated balance sheets of
Investors included in the most recent Investors Financial Statements dated prior
to the date of this Agreement was, and the Allowance shown on the consolidated
balance sheets of Investors included in the Investors 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 Bank and
other extensions of credit (including letters of credit and commitments to make
loans or extend credit) by Bank as of the dates thereof, except where the
failure of such Allowance to be so adequate is not reasonably likely to have a
Material Adverse Effect on Investors.
5.10 Assets. Except as Previously Disclosed or as disclosed or reserved
against in the Investors Financial Statements, Investors and Bank each has good
and marketable title, free and clear of all Liens, to all of their respective
Assets. All material tangible properties used in the business of Investors and
Bank are in good condition, reasonable wear and tear excepted, and are usable in
the ordinary course of business consistent with Investors and Bank's past
practices. All Assets which are material to Investors' and Bank's respective
businesses held under leases or subleases by either Investors or Bank, 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
either Investors or Bank provide adequate coverage under current industry
practices against loss or Liability, and the fidelity and blanket bonds in
effect as to which Bank is a named insured are reasonably sufficient. The
Assets of Bank include all assets required to operate the business of Bank as
presently conducted.
5.11 Environmental Matters.
(a) To the Knowledge of Investors, Investors, Bank, their respective
Participation Facilities, and 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
Investors.
(b) There is no Litigation pending or, to the Knowledge of Investors,
threatened before any court, governmental agency or authority or other forum in
which either Investors or Bank or any of their respective Participation
Facilities have been or, with respect to threatened Litigation, may be named as
a defendant (i) for alleged noncompliance
A-7
<PAGE>
(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
either Investors or Bank or any of their respective Participation Facilities,
except for such Litigation pending or threatened that is not reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect on
Investors.
(c) To the Knowledge of Investors, there is no Litigation pending or
threatened before any court, governmental agency or board or other forum in
which any of Bank's Loan Properties (or Bank 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
threatened that is not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Investors.
(d) To the Knowledge of Investors, 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 Investors.
(e) To the Knowledge of Investors, there have been no releases of
Hazardous Material or oil in, on, under or affecting any Participation Facility
or Loan Property, except such as are not reasonably likely to have, individually
or in the aggregate, a Material Adverse Effect on Investors.
(f) Notwithstanding the foregoing, with respect to any of its Loan
Properties, Bank has not conducted any independent investigation and is making
these representations and warranties only with respect to its Knowledge.
5.12 Compliance with Laws. Investors is duly registered as a bank holding
company under the BHC Act. Bank is duly registered as a bank under the laws of
the United States. Bank 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 Investors, 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 Investors. Neither Investors nor Bank:
(a) 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 Investors; and
(b) except as Previously Disclosed, 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 (i) asserting either
Investors or Bank 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 either Investors or Bank, (ii) threatening to revoke
any Permits, the revocation of which is reasonably likely to have, individually
or in the aggregate, a Material Adverse Effect on either Investors or Bank, or
(iii) requiring Investors or Bank 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 businesses, or in any manner relates to
their respective capital adequacy, credit or reserve policies, management, or
the payment of dividends.
5.13 Labor Relations. Neither Investors nor Bank is the subject of any
Litigation asserting that either of them has committed an unfair labor practice
(within the meaning of the National Labor Relations Act or comparable state law)
or seeking to compel Investors to bargain with any labor organization as to
wages or conditions of employment, nor is there any strike or other labor
dispute involving either of them, pending or threatened, nor to their respective
Knowledge, is there any activity involving Investors' or Bank's employees
seeking to certify a collective bargaining unit or engaging in any other
organization activity.
5.14 Employee Benefit Plans.
(a) Investors has Previously Disclosed, and delivered or made
available to PAB prior to the execution of
A-8
<PAGE>
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 Investors or any Affiliate thereof for
the benefit of employees, retirees, dependents, spouses, directors, independent
contractors, or other beneficiaries and under which such persons are eligible to
participate (collectively, the "Investors Benefit Plans"). Any of the Investors
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 "Investors ERISA
Plan." Each Investors 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 "Investors Pension Plan". No Investors Pension Plan is or has been a multi-
employer plan within the meaning of Section 3(37) of ERISA.
(b) All Investors 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 Investors. Each Investors 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 IRS, and Investors
is not aware of any circumstances likely to result in revocation of any such
favorable determination letter. Bank has not engaged in a transaction with
respect to any Investors Benefit Plan that, assuming the taxable period of such
transaction expired as of the date hereof, would subject any Investors Companies
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 Investors.
(c) No Investors 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, and the
fair market value of the assets of any such plan exceeds the plan's "benefit
liabilities," as that term is defined in Section 4001(a)(16) of ERISA, when
determined under actuarial factors that would apply if the plan terminated in
accordance with all applicable legal requirements. Since the date of the most
recent actuarial valuation, there has been (i) no material change in the
financial position of any Investors Pension Plan, (ii) no change in the
actuarial assumptions with respect to any Investors Pension Plan, and (iii) no
increase in benefits under any Investors 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 Investors or
materially affect the funding status of any such plan. Neither any Investors
Pension Plan nor any "single-employer plan," within the meaning of Section
4001(a)(15) of ERISA, currently or formerly maintained by Investors, or the
single-employer plan of any entity which is considered one employer with
Investors 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 Investors. Investors has not provided, and is
not required to provide, security to a Investors Pension Plan or to any single-
employer plan of an ERISA Affiliate pursuant to Section 401(a)(29) of the
Internal Revenue Code.
(d) Within the six-year period preceding the Effective Time, no
Liability under Subtitle C or D of Title IV of ERISA has been or is expected to
be incurred by Investors 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 Investors.
Except as Previously Disclosed, Investors has not incurred any withdrawal
Liability with respect to a multi-employer plan under Subtitle B of Title IV of
ERISA (regardless of whether based on contributions of an ERISA Affiliate),
which Liability is reasonably likely to have a Material Adverse Effect on
Investors. 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 Investors Pension Plan or by any ERISA
Affiliate within the 12-month period ending on the date hereof.
(e) Except as required under Title I, Part 6 of ERISA and Internal
Revenue Code Section 4980 B, neither Investors nor Bank has any obligations to
provide health and life benefits under any of the Investors Benefit Plans to
former employees and there are no restrictions on the rights of Investors to
amend or terminate any such Plan without incurring any Liability thereunder,
which Liability is reasonably likely to have a Material Adverse Effect on
Investors.
(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,
A-9
<PAGE>
severance, unemployment compensation, golden parachute or otherwise) becoming
due to any officer, director or any employee of Investors from Investors under
any Investors Benefit Plan or otherwise, (ii) increase any benefits otherwise
payable under any Investors 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 Investors and its 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 Investors Financial Statements to the extent
required by and in accordance with GAAP.
5.15 Material Contracts. Except as Previously Disclosed or otherwise
reflected in the Investors Financial Statements, neither Investors, Bank nor any
of their respective Assets, businesses or operations, is a party to, or is bound
or affected by, or receives benefits under, (i) any employment, severance,
termination, consulting or retirement Contract providing for aggregate payments
to any Person in any calendar year in excess of $50,000, or (ii) any Contract
relating to the borrowing of money by Investors or Bank or the guarantee by
Investors or Bank 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), (together with all Contracts referred
to in Sections 5.10 and 5.14(a) of this Agreement, the "Investors Contracts").
Neither Investors nor Bank is in Default under any Investors Contract, other
than Defaults which are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Investors. Except as Previously
Disclosed, all of the indebtedness of Investors or Bank for money borrowed is
prepayable at any time by Investors or Bank without penalty or premium.
5.16 Legal Proceedings. There is no Litigation pending, or, to the
Knowledge of Investors, threatened against either Investors or Bank, or against
any of their Assets, interests, or rights that is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Investors or
Bank, nor are there any Orders of any Regulatory Authorities, other governmental
authorities, or arbitrators outstanding against either Investors or Bank, that
are reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on either Investors or Bank
5.17 Reports. Since January 1, 1991, Investors and Bank have timely filed
all reports and statements, together with any amendments required to be made
with respect thereto, that they were required to file with Regulatory
Authorities and any applicable state securities or banking authorities, except
failures to file which are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Investors. 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, each such report and document
did not contain any untrue statement of a material fact or omit 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.
5.18 Statements True and Correct. No statement, certificate, instrument or
other writing furnished or to be furnished by Investors or Bank or any Affiliate
thereof to PAB 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 Investors
or Bank or any Affiliate thereof for inclusion in the Registration Statement to
be filed by PAB 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 Investors or Bank or any
Affiliate thereof for inclusion in the Joint Proxy Statement to be mailed to
Investors' shareholders in connection with the Investors Meeting and the PAB
Meeting, and any other documents to be filed by Investors 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 Joint Proxy Statement, when first mailed to
the shareholders of Investors and PAB, 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 Joint Proxy Statement or any amendment
thereof or supplement thereto, at the time of the Investors Meeting and the PAB
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 either the
Investors Meeting or the PAB Meeting. All documents that Investors or any
Affiliate thereof is responsible for filing with any Regulatory Authority in
connection with the transactions contemplated
A-10
<PAGE>
hereby will comply as to form in all material respects with the provisions of
applicable Law.
5.19 Accounting, Tax and Regulatory Matters. Neither Investors, Bank nor
any Affiliate thereof has taken any action or has any Knowledge of any fact or
circumstance that is reasonably likely to (i) prevent the Merger from qualifying
for pooling-of-interests accounting treatment or as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code, or (ii) materially
impede or delay receipt of any Consents of Regulatory Authorities referred to in
Section 9.1(b) of this Agreement or result in the imposition of a condition or
restriction of the type referred to in the second sentence of such Section. To
the Knowledge of Investors, there exists no fact, circumstance, or reason why
the requisite Consents referred to in Section 9.1(b) of this Agreement cannot be
received in a timely manner without the imposition of any condition or
restriction of the type described in the second sentence of such Section 9.1(b)
other than with respect to anti-trust or competitive effects issues.
5.20 State Takeover Laws. Investors has not taken any necessary action
which would require the transaction contemplated by this Agreement to comply
with any applicable state takeover Law.
5.21 Articles of Incorporation Provisions. Investors has taken all actions
so that the entering into of this Agreement and the consummation of the Merger
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 Investors (other than voting, dissenters' appraisal or
other similar rights) or restrict or impair the ability of PAB to vote, or
otherwise to exercise the rights of a shareholder with respect to, shares of
Investors that may be acquired or controlled by it.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF PAB
PAB hereby represents and warrants to Investors as follows:
6.1 Organization, Standing, and Power. PAB 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. PAB
has the corporate power and authority to carry on its business as now conducted
and to own, lease and operate its Assets. PAB 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 PAB.
6.2 Authority, No Breach By Agreement.
(a) PAB has the corporate power and authority necessary to execute,
deliver and perform its obligations under this Agreement and to consummate the
transaction contemplated hereby. The execution, delivery and performance of
this Agreement and the consummation of the Merger contemplated herein, have been
duly and validly authorized by all necessary corporate action in respect thereof
on the part of PAB subject to the approval of this Agreement by the holders of a
majority of the votes cast in person or by proxy by holders of shares of PAB
Common Stock at the PAB Meeting. Subject to such requisite PAB shareholder
approval, this Agreement represents a legal, valid, and binding obligation of
PAB, enforceable against PAB 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 PAB, nor
the consummation by PAB of the transaction contemplated hereby, nor compliance
by PAB with any of the provisions hereof, will (i) conflict with or result in a
breach of any provision of PAB'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 PAB Companies under, any
Contract or Permit of any PAB Companies, 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 PAB, or, (iii) subject to receipt of
the requisite approvals referred to in Section 9.1(b) of this Agreement, violate
any Law or Order applicable to any PAB Companies or any of their respective
Assets.
A-11
<PAGE>
(c) No notice to, filing with, or Consent of, any public body or
authority is necessary for the consummation by PAB of the Merger and the other
transactions contemplated in this Agreement other than (i) in connection or
compliance with the provisions of the Securities Laws, applicable state
corporate and Securities Laws, (ii) Consents required from Regulatory
Authorities, (iii) notices to or filings with the IRS or the Pension Benefit
Guaranty Corporation with respect to any employee benefit plans, and (iv)
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 PAB.
6.3 Capital Stock.
(a) The authorized capital stock of PAB consists of 15,000,000 shares
of PAB Common Stock. At the close of business on June 30, 1997, there were
2,817,645 shares of PAB Common Stock issued and outstanding. PAB is authorized
to issue one or more series of preferred stock with such powers, preferences and
rights as may be established by PAB's Board of Directors. As of the date of
this Agreement no preferred stock has been issued. As of June 30, 1997 and as
of the date of this Agreement, 200,000 shares of PAB Common Stock were reserved
for issuance upon the exercise of issued and outstanding stock options under the
1994 Employee Stock Option Plan ("PAB Option Plan"), 38,332 shares were reserved
pursuant to options granted to PAB directors under the Directors Deferred Stock
Purchase Plan (the "PAB Director Plan"). All of the issued and outstanding
shares of PAB Common Stock are, and all of the shares of PAB Common Stock to be
issued in exchange for shares of Investors 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 PAB Common Stock has been, and none
of the shares of PAB Common Stock to be issued in exchange for shares of
Investors Common Stock, Investors Warrants and Investors Options upon
consummation of the Merger will be, issued in violation of any preemptive rights
of the current or past shareholders of PAB.
(b) Except as set forth in Section 6.3(a) of this Agreement, or as
provided pursuant to the PAB Option Plan, or the PAB Director Plan or as
Previously Disclosed, as of the date of this Agreement, there are no shares of
capital stock or other equity securities of PAB 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 PAB or contracts, commitments,
understandings, or arrangements by which PAB 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.
6.4 Financial Statements. PAB has Previously Disclosed and delivered to
Investors prior to the execution of this Agreement copies of all PAB Financial
Statements for periods ended prior to the date hereof and will deliver to
Investors copies of all PAB Financial Statements prepared subsequent to the date
hereof. The PAB Financial Statements (as of the dates thereof and the periods
covered thereby) (i) are or, if dated after the date of this Agreement, will be
in accordance with the books and records of the PAB Companies, which are or will
be, materially complete and correct and which have been or will have been,
maintained in accordance with good business practices, and (ii) present or will
present, fairly the consolidated financial position of the PAB Companies as of
the dates indicated and the consolidated results of operations, changes in
shareholders' equity, and cash flows of the PAB 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).
6.5 Absence of Undisclosed Liabilities. No PAB Companies have any
Liabilities that are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on PAB, except Liabilities which are
accrued or reserved against in the consolidated balance sheets of PAB as of
December 31, 1996 and June 30, 1997 included in the PAB Financial Statements or
reflected in the notes thereto. No PAB Companies have incurred or paid any
Liability since June 30, 1997, 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 PAB.
6.6 Absence of Certain Changes or Events. Since June 30, 1997, except as
Previously Disclosed, (i) there have been no events, changes or occurrences
which have had, or are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on PAB, and (ii) the PAB 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 PAB provided in Article 7 of this Agreement.
6.7 Tax Matters.
A-12
<PAGE>
(a) All Tax returns required to be filed by or on behalf of any of
the PAB 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, 1996, 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 PAB, and all returns filed are complete and accurate in all
material respects to the Knowledge of PAB. 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 PAB, except as reserved against in the
PAB 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) Except as Previously Disclosed, none of the PAB 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 PAB
Companies, which deficiency is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on PAB.
(c) Adequate provision for any Taxes due or to become due for any of
the PAB Companies for the period or periods through and including the date of
the respective PAB Financial Statements has been made and is reflected on such
PAB Financial Statements.
(d) Deferred Taxes of the PAB Companies have been provided for in
accordance with GAAP. Effective January 1, 1993, PAB adopted Financial
Accounting Standards Board Statement 109, "Accounting for Income Taxes."
6.8 Compliance with Laws. PAB is duly registered as a bank holding company
under the BHC Act. Each of the PAB Companies has in effect all permits necessary
to own, lease or operate their Assets and to carry on their business as now
conducted, except for those Permits the absence of which are not reasonably like
to have, individually or in the aggregate, a Material Adverse Effect on PAB, 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 PAB. None of the PAB Companies:
(a) 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 PAB; and
(b) except as Previously Disclosed, 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 (i) asserting that
any of the PAB Companies are 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 PAB, (ii) threatening to revoke any Permits, the
revocation of which is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on PAB, or (iii) requiring any PAB
Companies 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.
6.9 Legal Proceedings. There is no Litigation instituted or pending, or,
to the Knowledge of PAB, threatened against any PAB Companies, 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 PAB, nor are
there any Orders of any Regulatory Authorities, other governmental authorities,
or arbitrators outstanding against any PAB Companies, that are reasonably likely
to have, individually or in the aggregate a Material Adverse Effect on PAB.
6.10 Reports. Since January 1, 1993, each of the PAB Companies has filed
all reports and statements, together with any amendments required to be made
with respect thereto, that it was required to file with (i) the SEC, including,
but not limited to, Forms 10-K, Forms 10-Q, Forms 8-K, and proxy statements,
(ii) other Regulatory Authorities, and (iii) 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 PAB). As of their respective dates,
each of such reports and documents, including the financial statements,
exhibits, and schedules thereto, complied in all
A-13
<PAGE>
material respects with all applicable Laws. As of their respective dates, each
such report and document did not, in all material respects, contain any untrue
statement of a material fact or omit 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.
6.11 Statements True and Correct. No statement, certificate, instrument or
other writing furnished or to be furnished by any PAB Companies or any Affiliate
thereof to Investors 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 PAB
Companies or any Affiliate thereof for inclusion in the Registration Statement
to be filed by PAB 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 PAB Companies or any
Affiliate thereof for inclusion in the Joint Proxy Statement to be mailed to
Investors shareholders and PAB shareholders in connection with the Investors
Meeting and the PAB Meeting, and any other documents to be filed by any PAB
Companies 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 Joint Proxy
Statement, when first mailed to the shareholders of Investors and PAB, 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 Joint Proxy
Statement or any amendment thereof or supplement thereto, at the time of each of
the Investors Meeting and the PAB 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 either of such shareholders' meetings. All documents that any PAB
Companies 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.
6.12 Accounting, Tax and Regulatory Matters. No PAB Company or any
Affiliate thereof has taken any action or has any Knowledge of any fact or
circumstance that is reasonably likely to (i) prevent the Merger from qualifying
for pooling-of-interests accounting treatment or as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code, or (ii) materially
impede or delay receipt of any Consents of Regulatory Authorities referred to in
Section 9.1(b) of this Agreement or result in the imposition of a condition or
restriction of the type referred to in the second sentence of such Section
9.1(b). To the Knowledge of PAB, there exists no fact, circumstance, or reason
why the requisite Consents referred to in Section 9.1(b) of this Agreement
cannot be received in a timely manner without the imposition of any condition or
restriction of the type described in the second sentence of such Section 9.1(b)
other than with respect to Consents with respect to anti-trust or competitive
effects issues.
6.13 Allowance. The Allowance shown on the consolidated balance sheets of
PAB included in the most recent PAB Financial Statements dated prior to the date
of this Agreement was, and the Allowance shown on the consolidated balance
sheets of PAB included in the PAB 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 PAB Subsidiaries and
other extensions of credit (including letters of credit and commitments to make
loans or extend credit) by the PAB Subsidiaries as of the dates thereof, except
where the failure of such Allowance to be so adequate is not reasonably likely
to have a Material Adverse Effect on PAB.
6.14 Environmental Matters.
(a) To the Knowledge of PAB, the PAB Subsidiaries, their respective
Participation Facilities, and 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
PAB.
(b) There is no Litigation pending or, to the Knowledge of PAB,
threatened before any court, governmental agency or authority or other forum in
which either PAB or any PAB Subsidiary or any of their respective Participation
Facilities have 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 either PAB or PAB Subsidiary or
any of their respective Participation Facilities, except for such Litigation
pending or threatened that is
A-14
<PAGE>
not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on PAB.
(c) To the Knowledge of PAB, there is no Litigation pending or
threatened before any court, governmental agency or board or other forum in
which any of the PAB Subsidiaries' Loan Properties 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 threatened that is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on PAB.
(d) To the Knowledge of PAB, 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 PAB.
(e) To the Knowledge of PAB, there have been no releases of Hazardous
Material or oil in, on, under or affecting any Participation Facility or Loan
Property, except such as are not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on PAB.
(f) Notwithstanding the foregoing, with respect to any of its Loan
Properties, neither PAB nor any PAB Subsidiary has conducted any independent
investigation and is making these representations and warranties only with
respect to its Knowledge.
ARTICLE 7
CONDUCT OF BUSINESS PENDING CONSUMMATION
7.1 Affirmative Covenants of Investors and Bank. From the date of this
Agreement until the earlier of the Effective Time or the termination of this
Agreement unless the prior written consent of PAB shall have been obtained, and
except as otherwise contemplated herein, Investors and Bank, jointly and
severally, agree: (a) to operate their respective businesses in the usual,
regular, and ordinary course; (b) to preserve intact their respective business
organizations and Assets and maintain their respective rights and franchises;
(c) to use their respective reasonable efforts to cause its representations and
warranties to be correct at all times; (d) to vote all its shares of Bank Common
Stock in favor of the Merger at any Bank Shareholders Meeting; and (e) 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 last
sentence of Section 9.1(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.
7.2 Negative Covenants of Investors. From the date of this Agreement until
the earlier of the Effective Time or the termination of this Agreement,
Investors and Bank, jointly and severally, covenant and agree that neither of
them will do or agree or commit to do, any of the following without the prior
written consent of the Chief Executive Officer of PAB, which consent shall not
be unreasonably withheld:
(a) amend the Articles, Bylaws or other governing instruments of
Investors or the Charter, Bylaws or other governing instruments of Bank; or
(b) incur any additional debt obligation or other obligation for
borrowed money in excess of an aggregate of $50,000 except in the ordinary
course of the business of Investors and Bank consistent with past practices
(which shall include creation of deposit liabilities, purchases of federal
funds, and entry into repurchase agreements fully secured by U.S. government or
agency securities), or impose, or suffer the imposition, on any share of stock
of Bank held by Investors of any Lien or permit any such Lien to exist; or
(c) repurchase, redeem, or otherwise acquire or exchange (other than
exchanges in the ordinary course under employee benefit plans), directly or
indirectly, any shares, or any securities convertible into any shares, of the
capital stock of Investors, or declare or pay any dividend or make any other
distribution in respect of Investors capital stock provided that Investors may,
in its sole discretion (to the extent legally and contractually permitted to do
so), but shall not be obligated to, declare and pay each quarter a cash dividend
on the shares of Investors Common Stock at a rate not in excess of fourteen
cents ($.14) per share if the following conditions are satisfied: (i) the
anticipated dividend record and payment date shall have been Previously
Disclosed to PAB and such date may not be changed without the prior written
consent of PAB; and (ii) any
A-15
<PAGE>
dividend declared or payable on the shares of Investors Common Stock for the
period following the date on which the Effective Time occurred shall, unless
otherwise agreed upon in writing by the Parties, be declared with a record date
prior to the Effective Time only if the normal record date for payment of such
quarterly dividend to holders of PAB Common Stock is before the Effective Time;
provided that in all circumstances Investors shareholders shall be entitled to
receive a cash dividend for each quarter prior to, and during which, the date on
which the Effective Time occurs and thereafter Investors shareholders shall
receive dividends if and to the extent that a dividend is declared and paid to
PAB shareholders, and provided, further that if (i) the PAB dividend record date
for the quarter in which the Effective Time occurs is prior to the Effective
Time and (ii) the Effective Time is prior to the Investors dividend record date
for such quarter, then Investors shareholders shall be entitled to receive a
cash dividend in an amount equal to the cash dividend paid to PAB shareholders
for such quarter; or
(d) except for this Agreement, or as Previously Disclosed, or in
connection with the exercise of any Investors Options or Investors Warrants,
issue or sell, pledge, encumber, authorize the issuance of, enter into any
Contract to issue, sell, pledge, encumber, or authorize the issuance of, or
otherwise permit to become outstanding, any additional shares of any Investors
Common Stock, or any stock appreciation rights, or any option, warrant,
conversion, or other right to acquire any such stock; or
(e) adjust, split, combine or reclassify any capital stock of
Investors or issue or authorize the issuance of any other securities in respect
of or in substitution for shares of either Investors or Bank's Common Stock or
sell, lease, mortgage or otherwise dispose of or otherwise encumber any Asset
having a book value in excess of $25,000 other than in the ordinary course of
business for reasonable and adequate consideration; or
(f) acquire direct or indirect control over any real property, other
than in connection with (i) foreclosures in the ordinary course of business, or
(ii) acquisitions of control by Investors in its fiduciary capacity; or
(g) grant any increase in compensation or benefits to the employees
or officers of Bank (including such discretionary increases as may be
contemplated by existing employment agreements) exceeding five percent (5%)
individually or in the aggregate on an annual basis, 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
either Investors or Bank; grant any increase in fees or other increases in
compensation or other benefits to directors of either Investors or Bank except
in accordance with past practice Previously Disclosed; or
(h) enter into or amend any employment Contract between Investors and
any Person (unless such amendment is required by Law) that Investors 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 Investors or make any
material change in or to any existing employee benefit plans of Investors 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 Investors for money
damages in excess of $25,000 or material restrictions upon the operations of
Investors; 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.
7.3 Covenants of PAB. From the date of this Agreement until the earlier
of the Effective Time or the termination of this Agreement, unless the prior
written consent of Investors shall have been obtained, PAB covenants and agrees
that it shall (i) 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 PAB Common Stock and the business prospects of the PAB
Companies, (ii) to the extent consistent therewith use all reasonable efforts to
preserve intact the PAB Companies' core businesses and goodwill with their
respective employees and the communities they serve, (iii) use its reasonable
efforts to cause its representations and
A-16
<PAGE>
warranties to be correct at all times, (iv) take no action which would (a)
adversely affect the ability of any Party to obtain any Consents required for
the transaction contemplated hereby without imposition of a condition or
restriction of the type referred to in the last sentence of Section 9.1(b) of
this Agreement, or (b) adversely affect in any material respect the ability of
either Party to perform its covenants and agreements under this Agreement, and
(v) not repurchase, redeem, or otherwise acquire or exchange (other than
exchanges in the ordinary course under employee benefit plans or purchases in
the open market to fund its dividend reinvestment plan), directly or indirectly,
any shares or any securities convertible into any shares, of the capital stock
of PAB.
7.4 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 (i) is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on it or (ii) 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.
7.5 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 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 8
ADDITIONAL AGREEMENTS
8.1 Shareholder Approvals. Each Party shall take, in accordance with
applicable law, applicable Amex or NASDAQ rules and its respective Articles of
Incorporation and Bylaws, all action necessary to convene, respectively, the PAB
Meeting to consider and vote upon the issuance of the shares of PAB Common Stock
to be issued in the Merger pursuant to this Agreement and any other matters
required to be approved by PAB shareholders for consummation of the Merger
(including any adjournment), and the Investors Meeting to consider and vote upon
the approval of this Agreement and any other matters required to be approved by
Investors shareholders for consummation of the Merger (including any
adjournment), respectively, as promptly as practicable after the Registration
Statement is declared effective. The Board of Directors of each PAB and
Investors shall (subject in the case of Investors to compliance with its
fiduciary duties as advised by counsel) recommend such approval, and each of PAB
and Investors (subject to the direction of the Investors Board acting in
compliance with its fiduciary duties as advised by counsel) shall take all
reasonable lawful action to solicit such approval by its respective
shareholders.
8.2 Registration Statement.
(a) Each of PAB and Investors agrees to cooperate in the preparation
of a Registration Statement to be filed by PAB with the SEC in connection with
the issuance of PAB Common Stock in the Merger (including the Joint Proxy
Statement and all related documents). Provided Investors has cooperated as
required above, PAB agrees to file the Registration Statement with the SEC as
promptly as practicable, but in no event later than 60 days after the date of
this Agreement. Each of Investors and PAB agrees to use all reasonable efforts
to cause the Registration Statement to be declared effective under the 1933 Act
as promptly as reasonably practicable after filing thereof. PAB also agrees to
use all reasonable efforts to obtain all necessary state securities law or "Blue
Sky" permits and approvals required to carry out the transactions contemplated
by this Agreement. Investors agrees to furnish PAB all information concerning
Investors, Bank, their respective officers, directors and shareholders as may be
reasonably requested in connection with the foregoing.
(b) Each of Investors and PAB agrees, as to itself and its
Subsidiaries, that none of the information supplied or to be supplied by it for
inclusion or incorporation by reference in (i) the Registration Statement will,
at the time the Registration Statement and each amendment or supplement thereto,
if any, becomes effective under the 1933 Act, contain any
A-17
<PAGE>
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading,
and (ii) the Joint Proxy Statement and any amendment or supplement thereto will,
at the date of mailing to shareholders and at the times of the PAB Meeting and
Investors Meeting, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading with respect to any material fact, or which
will omit to state any material fact necessary in order to make the statements
therein not false or misleading or necessary to correct any statement in any
earlier statement in the Joint Proxy Statement or any amendment or supplement
thereto. Each of Investors and PAB further agrees that if it shall become aware
prior to the Effective Date of any information that would cause any of the
statements in the Joint Proxy Statement to be false or misleading with respect
to any material fact, or to omit to state any material fact necessary to make
the statements therein not false or misleading, to promptly inform the other
party thereof and to take the necessary steps to correct the Joint Proxy
Statement.
(c) In the case of PAB, PAB will advise Investors, promptly after PAB
receives notice thereof, of the time when the Registration Statement has become
effective or any supplement or amendment has been filed, or of the issuance of
any stop order or the suspension of the qualification of the PAB Common Stock
for offering or sale in any jurisdiction, of the initiation or threat of any
proceeding for any such purpose, or of any request by the SEC for the amendment
or supplement of the Registration Statement or for additional information.
8.3 Applications. PAB shall promptly prepare and file, Investors and Bank
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. PAB
shall permit Investors and Bank to review (and approve with respect to
information relating to Investors) such applications prior to filing same.
8.4 Filings with State Offices. Upon the terms and subject to the
conditions of this Agreement, PAB shall execute and file the Articles of Merger
with the Secretary of State of the State of Georgia in connection with the
Closing.
8.5 Agreement as to Efforts to Consummate. Subject to the terms and
conditions of this Agreement, each Party agrees to use its reasonable efforts to
take all actions, and to do 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 PAB in connection with the PAB Common Stock to be issued in
the Merger or a resolicitation of proxies as a consequence of an acquisition
agreement by PAB or any of its Subsidiaries shall not violate this covenant),
including, without limitation, using its reasonable 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 its reasonable efforts to
obtain all Consents necessary or desirable for the consummation of the
transactions contemplated by this Agreement.
8.6 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 transaction 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) Each Party shall, and shall cause its advisers and agents to,
maintain the confidentiality of all confidential information furnished to it by
any other Party concerning its and its Subsidiaries' businesses, operations, and
financial condition except in furtherance of the transaction contemplated by
this Agreement. In the event that a Party is required by applicable law or
valid court process to disclose any such confidential information then such
Party shall provide the other Party with prompt written notice of any such
requirement so that the other Party may seek a protective order or other
appropriate remedy and/or waive compliance with this Section 8.6. If in the
absence of a protective order or other remedy or the receipt of a waiver by the
other Party, a Party is nonetheless, in the written opinion of counsel, legally
compelled to disclose any such confidential information to any tribunal or else
stand liable for contempt or suffer other censure or penalty, a Party may,
without liability hereunder, disclose to such tribunal only that portion of the
confidential information which such
A-18
<PAGE>
counsel advises such Party is legally required to be disclosed, provided that
such disclosing Party use its best efforts to preserve the confidentiality of
such confidential information, including without limitation, by cooperating with
the other Party to obtain an appropriate protective order or other reliable
assurance that confidential treatment will be accorded such confidential
information by such tribunal. 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.
(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.
8.7 Press Releases. Prior to the Effective Time, Investors and PAB 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
8.7 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.
8.8 Certain Actions. Except with respect to this Agreement and the
transactions contemplated hereby, neither Investors nor any Affiliate thereof
nor any investment banker, attorney, accountant or other representative
(collectively "Representatives") retained by Investors shall directly or
indirectly solicit any Acquisition Proposal by any Person. Except to the extent
necessary to comply with the fiduciary duties of Investors Board of Directors as
determined by the Investors Board of Directors after consulting with and
considering the advice of counsel, neither Investors nor any Affiliate or
Representative thereof shall furnish any non-public information that it is not
legally obligated to furnish, negotiate with respect to, or enter into any
Contract with respect to, any Acquisition Proposal, but Investors may
communicate information about such an Acquisition Proposal to its shareholders
if and to the extent that it is required to do so in order to comply with its
legal obligations as advised by counsel. Investors shall promptly notify PAB
verbally and in writing in the event that Investors receives any inquiry or
proposal relating to any such transaction. Investors shall (i) immediately cease
and cause to be terminated any existing activities, discussions or negotiations
with any Persons conducted heretofore with respect to any of the foregoing, and
(ii) direct and use its reasonable efforts to cause all of its Representatives
not to engage in any of the foregoing.
8.9 Accounting and 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 pooling-of-interests accounting
treatment and treatment as a "reorganization" within the meaning of Section
368(a) of the Internal Revenue Code for federal income tax purposes.
8.10 State Takeover Laws. Investors shall take all reasonable steps to
exempt the transactions contemplated by this Agreement from, or if necessary
challenge the validity or applicability of, any applicable state takeover Law.
8.11 Articles of Incorporation Provisions. Investors shall take all
necessary action to ensure that the entering into of this Agreement and the
consummation of the Merger does not and will not result in the grant of any
rights to any Person under the Articles, Bylaws or other governing instruments
of Investors (other than voting, dissenters' appraisal or other similar rights)
or restrict or impair the ability of PAB to vote, or otherwise to exercise the
rights of a shareholder with respect to, shares of Investors that may be
acquired or controlled by it.
8.12 Agreement of Affiliates. Investors has Previously Disclosed all
Persons whom it reasonably believes is an "affiliate" of Investors for purposes
of Rule 145 under the 1933 Act. Investors shall use its reasonable efforts to
cause each such Person to deliver to PAB not later than 30 days after the date
of this Agreement, a written agreement, substantially in the form of Exhibit A,
providing that such Person will not sell, pledge, transfer, or otherwise dispose
of the shares of Investors 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 PAB 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
and until such time as the financial results covering at least 30 days of
combined operations of PAB and Investors have been published within the meaning
of Section 201.01 of the SEC's Codification of Financial Reporting Policies. If
the Merger will qualify for pooling-of-interests accounting treatment, (i)
shares of PAB Common Stock issued to such affiliates of Investors in exchange
for shares of Investors Common Stock, Investors Warrants and Investors Options
and (ii) shares of PAB Common Stock held
A-19
<PAGE>
by affiliates of PAB, shall not be transferable until such time as financial
results referred to in this Section 8.12 have been published as set forth in
this Section 8.12, regardless of whether each such affiliate has provided the
written agreement referred to in this Section 8.12 (and PAB shall be entitled to
place restrictive legends upon certificates for shares of PAB Common Stock
issued to affiliates of Investors pursuant to this Agreement to enforce the
provisions of this Section 8.12); provided, further that no affiliate either of
PAB or Investors may dispose of or reduce the risks of ownership in their
respective shares of PAB Common Stock or Investors Common Stock within 30 days
prior to the Effective Time. PAB shall not be required to maintain the
effectiveness of the Registration Statement under the 1933 Act for the purposes
of resale of PAB Common Stock by such affiliates.
8.13 Employee Benefits and Contracts. Following the Effective Time, PAB
shall provide generally to officers and employees of Investors employee benefits
under employee benefit plans on terms and conditions which when taken as a whole
are substantially similar to those currently provided by the PAB Companies to
their similarly situated officers and employees; provided, that, for a period of
12 months after the Effective Time, PAB shall provide generally to officers and
employees of Investors Entities severance benefits in accordance with the
policies of either (i) Investors as Previously Disclosed pursuant to this
Section 8.13, or (ii) PAB, whichever of (i) or (ii) will provide the greater
benefit to the officer or employee. PAB shall waive any pre-existing condition
exclusion under any employee health plan for which any employees and/or officers
and dependents covered by Investors Benefit Plans as of Closing shall become
eligible by virtue of the preceding sentence, to the extent (i) such pre-
existing condition was covered under the Investors Benefit Plans and (ii) the
individual affected by the pre-existing condition was covered by the Investors
Entity's corresponding plan on the date which immediately precedes the Effective
Time. For purposes of participation, vesting and benefit accrual under such
employee benefit plans, the service of the employees of Investors or Bank prior
to the Effective Time shall be treated as service with the PAB Companies
participating in such employee benefit plans. PAB also shall honor in
accordance with their terms all employment, severance, consulting and other
compensation Contracts Previously Disclosed to PAB between Investors or Bank 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 Investors Benefit Plans. PAB or FCB will enter into
mutually acceptable employment contracts with Tracy A. Dixon, Major H. Brannen,
Jr. and Judy Powell as of the Closing Date to the extent such persons are
available and agree to such employment .
8.14 Exchange Listing. PAB shall use its reasonable efforts to list, prior
to the Effective Time, on the Amex, subject to official notice of issuance, the
shares of PAB Common Stock to be issued to the holders of Investors Common
Stock, Investors Warrants and Investors Options pursuant to the Merger.
8.15 D&O Coverage. At the Effective Time, PAB will provide, at its
election, directors and officers insurance coverage for Investors' directors and
officers either (i) by purchasing continuation coverage under Investors' current
policy for directors and officers for a period not less than three (3) years
after the Effective Time, or (ii) obtain coverage under PAB's current directors
and officers policy to provide coverage for Investors' directors and officers on
a prior acts basis for a period not less than three (3) years prior to the
Effective Time.
8.16 Indemnification.
(a) With respect to all claims brought during the period of five (5)
years after the Effective Time, PAB shall indemnify, defend and hold harmless
present and former directors, officers, employees and agents of Investors and
Bank (the "Investors Entities") (each an "Indemnification Party") against all
Liabilities arising out of actions or omissions arising out of the Indemnified
Party's service or services as directors, officers, employees or agents of an
Investor Entity, or at the request of an Investor Entity, of another
corporation, partnership, joint venture, trust or other enterprise occurring at
or prior to the Effective Time (including transactions contemplated by this
Agreement) to the fullest extent permitted under Georgia Law and the articles of
incorporation and bylaws of Investors as in effect on the date hereof, including
provisions relating to advances of expenses incurred in the defense of any
Litigation and whether or not any Investors Entity or PAB is insured against any
such matter. Without limiting the foregoing, in any case in which approval by
the Surviving Corporation is required to effectuate any indemnification, the
Surviving Corporation shall direct, at the election of the Indemnified Party,
that the determination of any such approval shall be made by independent counsel
mutually agreed upon between PAB and the Indemnified Party.
(b) Any Indemnified Party wishing to claim indemnification under
paragraph (a) of this Section 8.16, upon learning of any such Liability of
Litigation, shall promptly notify PAB thereof. In the event of any such
Litigation (whether arising before or after the Effective Time), (i) the
Surviving Corporation shall have the right to assume the defense thereof and
A-20
<PAGE>
the Surviving Corporation shall not be liable to such Indemnified Parties for
any legal expenses of other counsel or any other expenses subsequently incurred
by such Indemnified Parties in connection with the defense thereof, except that
if the Surviving Corporation elects not to assume such defense or counsel for
the Indemnified Parties advised that there are substantive issues which raise
conflicts of interest between the Surviving Corporation and the Indemnified
Parties, the Indemnified Parties may retain counsel satisfactory to them, and
the Surviving Corporation shall pay all reasonable fees and expenses of such
counsel for the Indemnified Parties promptly as statements therefor are
received; provided, that the Surviving Corporation shall be obligated pursuant
to this paragraph (b) to pay for only one firm of counsel for all Indemnified
Parties in any jurisdiction, (ii) the Indemnified Parties will cooperate in the
defense of any such Litigation, and (iii) the Surviving Corporation shall not be
liable for any settlement effected without its prior written consent; and
provided further that the Surviving Corporation shall not have any obligation
thereunder to any Indemnified Party when and if a court of competent
jurisdiction shall determine, and such determination shall have become final,
that the indemnification of such Indemnified Party in the manner contemplated
hereby is prohibited by applicable law.
ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
9.1 Conditions to Obligations of Each Party. The respective obligations
of each Party to perform this Agreement and consummate the Merger are subject to
the satisfaction of the following conditions, unless waived by both Parties
pursuant to Section 11.6 of this Agreement:
(a) Shareholder Approval. The respective shareholders of PAB,
--------------------
Investors, and Bank shall have approved this Agreement, and the consummation of
the Merger as and to the extent required by Law and by the provisions of any of
its 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.
(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 9.1(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, restricts or makes illegal
consummation of the transactions contemplated by this Agreement.
(e) Registration Statement. The Registration Statement shall be
----------------------
effective under the 1933 Act, no stop orders suspending the effectiveness of the
Registration Statement shall have been issued, no action, suit, proceeding or
investigation by the SEC to suspend the effectiveness thereof shall have been
initiated and be continuing, and all necessary approvals under state securities
Laws or the 1933 Act or 1934 Act relating to the issuance or trading of the
shares of PAB Common Stock issuable pursuant to the Merger shall have been
received.
(f) Pooling Letters. Each of the Parties shall have received a
---------------
letter, dated as of the Effective Time, in form and substance reasonably
acceptable to such Party, from Stewart, Fowler & Stalvey, P.C. to the effect
that the Merger will qualify for pooling-of-interests accounting treatment.
(g) Tax Matters. Investors, Bank and PAB shall have received a
-----------
written opinion of counsel from Troutman Sanders LLP in form reasonably
satisfactory to each of them (the "Tax Opinion"), to the effect that for federal
income tax purposes (i) the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code,
A-21
<PAGE>
(ii) the exchange in the Merger of Investors Common Stock, Investors Warrants
and Investors Options for PAB Common Stock will not give rise to gain or loss to
the stockholders, warrant holders and option holders of Investors with respect
to such exchange (except to the extent of any cash received), and (iii) none of
Investors, Bank or PAB will recognize gain or loss as a consequence of the
Merger except for income and deferred gain recognized pursuant to Treasury
regulations issued under Section 1502 of the Internal Revenue Code. In rendering
such Tax Opinion, Troutman Sanders LLP shall be entitled to rely upon
representations of officers of Investors, Bank and PAB reasonably satisfactory
in form and substance to such counsel.
9.2 Conditions to Obligations of PAB. The obligations of PAB 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 PAB pursuant to Section 11.6(a) of this Agreement:
(a) Representations and Warranties. The representations and
------------------------------
warranties of Investors and Bank set forth or referred to in this Agreement
shall be true and correct in all material 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 and correct in all material 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 Investors.
(b) Performance of Agreements and Covenants. Each and all of the
---------------------------------------
agreements and covenants of Investors and Bank 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. Investors and Bank shall have delivered to PAB (i)
------------
certificates, dated as of the Effective Time and signed on its behalf by their
respective Chief Executive Officers and Chief Financial Officers, to the effect
that the conditions of its obligations set forth in Section 9.2(a) and 9.2(b) of
this Agreement have been satisfied, and (ii) certified copies of resolutions
duly adopted by Investors and Bank 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 PAB and
its counsel shall request.
(d) Opinion of Counsel. PAB shall have received an opinion Alston &
------------------
Bird LLP, counsel to Investors and Bank, dated as of the Closing, in form
reasonably satisfactory to PAB, as to the matters set forth in Exhibit C hereto.
(e) Accountant's Letters. PAB shall have received from Stewart,
--------------------
Fowler & Stalvey, P.C. letters dated not more than five (5) days prior to (i)
the date of the Joint Proxy Statement and (ii) the Effective Time, with respect
to certain financial information regarding Investors and Bank, in form and
substance reasonably satisfactory to PAB, which letters shall be based upon
customary specified procedures undertaken by such firm. If such letters are not
delivered within the five (5) day time limits above, this condition shall be
waived by PAB.
(f) Affiliates Agreements. PAB shall have received from each
---------------------
affiliate of Investors the affiliates' letters referred to in Section 8.12
hereof, to the extent necessary to assure in the reasonable judgment of PAB that
the transaction contemplated hereby will qualify for pooling-of-interests
accounting treatment.
9.3 Conditions to Obligations of Investors and Bank. The obligations of
Investors and Bank 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 Investors and Bank pursuant to Section
11.6(b) of this Agreement:
(a) Representations and Warranties. The representations and
------------------------------
warranties of PAB set forth or referred to in this Agreement shall be true and
correct in all material 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 6.3 of this Agreement, which
shall be true and correct in all material 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 PAB.
A-22
<PAGE>
(b) Performance of Agreements and Covenants. Each and all of the
---------------------------------------
agreements and covenants of PAB 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. PAB shall have delivered to Investors (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 9.3(a) and 9.3(b) of this
Agreement have been satisfied, and (ii) certified copies of resolutions duly
adopted by PAB'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 Investors and its counsel shall request.
(d) Opinion of Counsel. Investors and Bank shall have received an
------------------
opinion of Troutman Sanders LLP, counsel to PAB, dated as of the Effective Time,
in form reasonably satisfactory to Investors and Bank, as to matters set forth
in Exhibit D hereto.
(e) Fairness Opinion. Investors shall have received a "fairness
----------------
opinion" with respect to the Merger dated as of the date of the Joint Proxy
Statement from a recognized investment banking firm or appraisal firm, that the
Merger and property to be received by the shareholders of Investors therein, is
fair from a financial point of view to the shareholders of Investors.
(f) Share Listing. The shares of PAB Common Stock issuable pursuant
-------------
to the Merger shall have been approved for listing on the Amex.
(g) Employment Agreements. FCB shall have offered to each of Tracy
---------------------
A. Dixon, Major H. Brannen, Jr. and Judy Powell the employment agreements in
substantially the form set forth in Exhibit B to this Agreement.
ARTICLE 10
TERMINATION
10.1 Termination. Notwithstanding any other provision of this Agreement,
and notwithstanding the approval of this Agreement by the shareholders of
Investors and Bank, this Agreement may be terminated and the Merger abandoned at
any time prior to the Effective Time:
(a) By mutual consent of the respective Boards of Directors of PAB,
Investors and Bank; or
(b) By the Board of Directors of any 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 breach by the other Parties of any representation or warranty 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 and which breach
would provide the non-breaching party the ability to refuse to consummate the
Merger under the standard set forth in Section 9.2(a) of this Agreement in the
case of PAB and Section 9.3(a) of this Agreement in the case of Investors; or
(c) By the Board of Directors of any 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 shall have 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) the shareholders of either PAB or Investors fail to vote their
approval of this Agreement and the transaction contemplated hereby at their
respective shareholders' meetings where the transaction was presented to such
shareholders for approval and voted upon; or
(d) By the Board of Directors of any Party in the event that the
Merger shall not have been consummated by May 31, 1998, but only if the failure
to consummate the transactions contemplated hereby on or before such date is not
caused by any breach of this Agreement by the Party electing to terminate
pursuant to this Section 10.1(d); or
A-23
<PAGE>
(e) By the Board of Directors of any 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 10.1(d) of this Agreement; or
(f) By PAB in the event that the Board of Directors of Investors
shall have failed to reaffirm, following a written request by PAB for such
reaffirmation after Investors shall have received any inquiry or proposal with
respect to an Acquisition Proposal, its approval of the Merger (to the exclusion
of any other Acquisition Proposal), or shall have resolved not to reaffirm the
Merger.
(g) By the Board of Directors of PAB, at any time prior to 5:00 p.m.,
Eastern time, on January 15, 1998, without any Liability it if determines in its
reasonable good faith judgment that the Asset quality of Investors or the status
of litigation involving Investors (or any other liability or undisclosed
contingency of Investors), are materially less favorable to PAB than as set
forth in materials Previously Disclosed or provided to PAB by Investors and its
financial advisor; or
(h) By the Board of Directors of Investors, at any time prior to 5:00
p.m., Eastern time, on January 15, 1998, without any Liability it if determines
in its reasonable good faith judgment that the Asset quality of PAB or the
status of litigation involving PAB (or any other liability or undisclosed
contingency of PAB), are materially less favorable to Investors than as set
forth in materials Previously Disclosed or provided to Investors by PAB.
10.2 Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 10.1 of this Agreement, this
Agreement shall become void and have no effect, except that (i) the provisions
of this Section 10.2 and Article 11 and Section 8.6(b) of this Agreement shall
survive any such termination and abandonment, and (ii) a termination pursuant to
Sections 10.1(b) or 10.1(e) of this Agreement shall not relieve the breaching
Party from Liability for an uncured willful breach of a representation,
warranty, covenant, or agreement giving rise to such termination provided that
such Liability shall be determined solely in accordance with the effect of
Section 11.2(b) of this Agreement.
10.3 Non-Survival of Representations and Covenants. The respective
representations, warranties, obligations, covenants, and agreements of the
Parties shall not survive the Effective Time except for this Section 10.3 and
Articles 2, 3, 4, and 11 and Section 8.12 of this Agreement.
ARTICLE 11
MISCELLANEOUS
11.1 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: (i) any other Person directly, or
indirectly through one or more intermediaries, controlling, controlled by or
under common control with such Person or (ii) any officer, director, partner,
employer, or direct or indirect beneficial owner of any 10% or greater equity or
voting interest of such Person.
"AGREEMENT" shall mean this Agreement and Plan of Merger, including the
Exhibits delivered pursuant hereto and incorporated herein by reference.
"ALLOWANCE" shall mean the allowance for possible loan or credit losses
for the periods set forth in Section 5.9 of this Agreement.
"AMEX" shall mean the American Stock Exchange.
"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
A-24
<PAGE>
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.
"BHC ACT" shall mean the federal Bank Holding Company Act of 1956, as
amended.
"BPTP" shall mean the base period trading price for PAB Common Stock as
reported on AMEX for the 20 consecutive trading days immediately preceding five
days prior to the Effective Time.
"BANK" shall have the meaning set forth on page 1 of this Agreement.
"CLOSING" shall mean the closing of the transaction contemplated hereby,
as described 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 (i) any breach or violation of or default under any
Contract, Order or Permit, (ii) any occurrence of any event that with the
passage of time or the giving of control or both would constitute a breach or
violation of or default under any Contract, Order or Permit, or (iii) any
occurrence of any event that with or without the passage of time or the giving
of notice would give rise to a right to terminate or revoke, change the current
terms of, or renegotiate, or to accelerate, increase, or impose any Liability
under, any Contract, Order or Permit.
"EFFECTIVE TIME" shall mean the date and time at which the Articles of
Merger reflecting the Merger shall become effective with the Secretary of State
of the State of Georgia.
"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 jurisdiction over pollution or protection of the
environment.
"EQUITY RIGHTS" shall mean all arrangements, calls, commitments,
Contracts, options, rights to subscribe to, scrip, understandings, warrants, or
other binding obligations of any character whatsoever relating to, or securities
or rights convertible into or exchangeable for, shares of the capital stock of a
Person or by which a Person is or may be bound to issue additional shares of its
capital stock or other Equity Rights.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA AFFILIATE" shall have the meaning provided in Section 5.14 of this
Agreement.
"ERISA PLAN" shall have the meaning provided in Section 5.14 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.
"FICG" shall mean the Financial Institutions Code of Georgia.
"GAAP" shall mean generally accepted accounting principles, consistently
applied during the periods involved.
"GBCC" shall mean the Georgia Business Corporation Code.
"GEORGIA ARTICLES OF MERGER" shall mean the Articles of Merger to be
executed by PAB, Investors and Bank and
A-25
<PAGE>
filed with the Secretary of State of the State of Georgia relating to the Merger
as contemplated by Section 1.1 of this Agreement.
"HAZARDOUS MATERIAL" shall mean any pollutant, contaminant, or hazardous
substance within the meaning of the Comprehensive Environment Response,
Compensation, and Liability Act, 42 U.S.C. (S)(S) 9601 et seq., or any similar
federal, state or local Law.
"IRS" shall mean the Internal Revenue Service.
"INTERNAL REVENUE CODE" shall mean the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder.
"INVESTORS BENEFIT PLANS" shall have the meaning set forth in Section 5.14
of this Agreement.
"INVESTORS COMMON STOCK" shall mean the $.10 par value common stock of
Investors.
"INVESTORS FINANCIAL STATEMENTS" shall mean (i) the consolidated balance
sheets (including related notes and schedules, if any) of Investors as of June
30, 1997, and as of December 31, 1996, 1995, 1994 and 1993, and the related
statements of income, changes in shareholders' equity, and cash flows (including
related notes and schedules, if any) for the six months ended June 30, 1997, and
for each of the four fiscal years ended December 31, 1996, 1995, 1994 and 1993,
and (ii) the consolidated balance sheets of Investors (including related notes
and schedules, if any) and related statements of income, changes in
shareholders' equity, and cash flows (including related notes and schedules, if
any) with respect to periods ended subsequent to June 30, 1997, with related
prior year comparable financial statements.
"INVESTORS MEETING" shall mean the special meeting of the shareholders of
Investors or any adjournment thereof to vote on the matters set forth in the
Joint Proxy Statement.
"INVESTORS OPTIONS" shall mean those options issued under the Investors
Financial Corporation 1990 Key Employee Incentive Stock Option Plan.
"INVESTORS WARRANTS" shall mean the ten-year, ten dollar ($10.00) per
share warrants exercisable by the holder thereof to acquire a number of shares
of Investors Common Stock equal to the number of warrants.
"JOINT PROXY STATEMENT" shall mean the joint proxy statement used by
Investors and PAB to solicit the approval of their respective shareholders of
the transactions contemplated by this Agreement and shall include the prospectus
of PAB relating to shares of PAB Common Stock to be issued to the shareholders,
warrant holders and option holders of Investors and other proxy solicitation
materials of PAB and Investors consisting of a part thereof.
"KNOWLEDGE" as used with respect to a Person shall mean the knowledge
after due inquiry of the Chairman, President, Chief Financial Officer, Chief
Accounting Officer, Chief Credit Officer, General Counsel, any Assistant or
Deputy General Counsel, or any Senior or Executive Vice President of such
Person.
"LAW" shall mean any code, law, ordinance, regulation, reporting or
licensing requirement, rule, or statute applicable to a Person or its Assets,
Liabilities or business, including, without limitation, those promulgated,
interpreted or enforced by any of the Regulatory Authorities.
"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
A-26
<PAGE>
Subsidiaries of a Party, pledges to secure deposits and other Liens incurred in
the ordinary course of the banking business, (iii) Liens which are not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on a Party; and (iv) Liens which have been Previously Disclosed.
"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 (i) the financial position,
business, or results of operations of such Party and its Subsidiaries, taken as
a whole, or (ii) the ability of such Party to perform its obligations under this
Agreement or to consummate the Merger or the other transactions contemplated by
this Agreement, provided that "material adverse 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
and (y) changes in GAAP or regulatory accounting principles generally applicable
to banks and their holding companies.
"MERGER" shall mean the merger of Investors with and into PAB referred to
in Section 1.1 of this Agreement.
"MERGER CONSIDERATION" shall mean the aggregate consideration to be
received for all of the shares of Investors Common Stock, Investors Warrants and
Investors Options.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"NASDAQ" shall mean The Nasdaq Stock Market, Inc.'s National Market.
"1933 ACT" shall mean the Securities Act of 1933, as amended.
"1934 ACT" shall mean the Securities Exchange Act of 1934, as amended.
"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.
"PAB COMMON STOCK" shall mean the no par value common stock of PAB.
"PAB COMPANIES" shall mean, collectively, PAB and all PAB Subsidiaries.
"PAB FINANCIAL STATEMENTS" shall mean (i) the consolidated statements of
condition (including related notes and schedules, if any) of PAB as of June 30,
1997, and as of December 31, 1996, 1995, 1994 and 1993, and the related
statements of income, changes in shareholders' equity, and cash flows (including
related notes and schedules, if any) for the six months ended June 30, 1997, and
for each of the four years ended December 31, 1996, 1995, 1994, and 1992, as
filed by PAB in SEC Documents and (ii) the consolidated statements of condition
of PAB (including related notes and schedules, if any) and related statements of
income, changes in shareholders' equity, and cash flows (including related notes
and schedules, if any) included in SEC Documents filed with respect to periods
ended subsequent to December 31, 1996.
"PAB MEETING" shall mean the special meeting of the shareholders of PAB or
any adjournment thereof to vote on the matters set forth in the Joint Proxy
Statement.
A-27
<PAGE>
"PAB SUBSIDIARIES" shall mean the subsidiaries of PAB, including FCB.
"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 Investors, Bank, or PAB, and "Parties" shall
mean Investors, Bank and PAB.
"PERMIT" shall mean any federal, state, local, and foreign governmental
approval, authorization, certificate, easement, filing, franchise, license,
notice, permit, or right to which any Person is a party or that is or may be
binding upon or inure to the benefit of any Person or its capital stock, Assets,
Liabilities, or business.
"PERSON" shall mean a natural person or any legal, commercial or
governmental entity, such as, but not limited to, a corporation, general
partnership, joint venture, limited partnership, limited liability company,
trust, business association, group acting in concert, or any person acting in a
representative capacity.
"PREVIOUSLY DISCLOSED" shall mean information delivered in writing prior
to the date specified in Section 10.1(g) of this Agreement in the manner and to
the Party or counsel or both described in Section 11.8 of this Agreement and
entitled "Previously Disclosed Information Delivered Pursuant to the Agreement
and Plan of Merger" describing in reasonable detail the matters contained
therein or identifying the information disclosed, 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.
"REGISTRATION STATEMENT" shall mean the Registration Statement on Form S-
4, or other appropriate form, filed with the SEC by PAB under the 1933 Act in
connection with the transactions contemplated by this Agreement.
"REGULATORY AUTHORITIES" shall mean, collectively, the Federal Trade
Commission, the United States Department of Justice, the Board of the Governors
of the Federal Reserve System, the Office of the Comptroller of the Currency,
the Federal Deposit Insurance Corporation, all state regulatory agencies having
jurisdiction over the Parties and their respective Subsidiaries, the Amex, 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.
"SEC" shall mean the Securities and Exchange Commission.
"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, and the rules and
regulations of any Regulatory Authority promulgated thereunder.
"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 PAB as the surviving corporation
resulting from the Merger.
"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.
11.2 Expenses.
(a) General. Except as otherwise provided in this Section 11.2, 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
A-28
<PAGE>
filing, registration and application fees, printing fees, and fees and expenses
of its own financial or other consultants, investment bankers, accountants, and
counsel.
(b) Breach by either Party. In addition to the foregoing, if prior
----------------------
to the Effective Time, this Agreement is terminated by either Party as a result
of the other Party's breach of such party's representations, warranties, or
agreements set forth herein of this Agreement such Party shall pay to the non-
breaching Party as its sole and exclusive remedy resulting from such
termination, an amount in cash equal to the sum of:
(i) the reasonable direct costs and expenses incurred by or on
behalf of the non-breaching Party in connection with the
transactions contemplated by this Agreement, plus
----
(ii) the sum of $50,000.
which sum represents compensation for the non-breaching Party's loss as the
result of the transaction contemplated by this Agreement not being consummated.
(c) Failure to Obtain Anti-trust Consent. In addition to the
------------------------------------
foregoing, if this Agreement is terminated as a result of the imposition by
Regulatory Authorities of material conditions or restrictions in such Regulatory
Authorities' Consents which related to anti-trust or competitive effects issues
or because of the failure of a Regulatory Authority to grant a necessary consent
prior to May 31, 1998 as a result of anti-trust or competitive effects issues,
then PAB shall pay to Investors one-half of the reasonable direct costs and
expenses incurred by or on behalf of Investors or Bank or both, such one-half
not to exceed the sum of $50,000.
11.3 Brokers and Finders. Investors 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 bankers' fees, brokerage fees, commissions, or finders' fees in
connection with this Agreement or the transactions contemplated hereby except
Investors has engaged The Carson Medlin Company to render a fairness opinion and
other investment banking advice which fees shall not exceed the sum of $25,000
plus its reasonable out of pocket costs and expenses. In the event of a claim
by any broker or finder based upon his or its representing or being retained by
or allegedly representing or being retained by Investors, Investors agrees to
indemnify and hold PAB harmless of and from any Liability in respect of any such
claim.
11.4 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
transaction contemplated hereunder and supersedes all prior arrangements or
understandings with respect thereto, written or oral. 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.
11.5 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 Investors Common Stock, there shall be made
no amendment decreasing the consideration to be received by Investors
shareholders without the further approval of such shareholders.
11.6 Waivers.
(a) Prior to or at the Effective Time, PAB, 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 Investors, to waive or extend the time for the compliance or fulfillment by
Investors of any and all of its obligations under this Agreement, and to waive
any or all of the conditions precedent to the obligations of PAB 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 PAB.
(b) Prior to or at the Effective Time, Investors, acting through its
Board of Directors, shall have the right to waive any Default in the performance
of any term of this Agreement by PAB, to waive or extend the time for the
compliance or fulfillment by PAB of any and all of its obligations under this
Agreement, and to waive any or all of the conditions precedent to the
obligations of Investors under this Agreement, except any condition which, if
not satisfied, would result in the violation of
A-29
<PAGE>
any Law. No such waiver shall be effective unless in writing signed by a duly
authorized officer of Investors.
(c) The failure of any Party at any time or times to require
performance of any provision hereof shall in no manner affect the right of such
Party at a later time to enforce the same or any other provision of this
Agreement. No waiver of any condition or of the breach of any term contained in
this Agreement in one or more instances shall be deemed to be or construed as a
further or continuing waiver of such condition or breach or a waiver of any
other condition or of the breach of any other term of this Agreement.
11.7 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 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.
11.8 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:
PAB: PAB Bankshares, Inc.
3102 North Oak Street Ext.
Valdosta, Georgia 31602
912/241-2774 - FAX
Attn: R. Bradford Burnette, President
Copy to Counsel: Tillman, McTier, Coleman, Talley, Newbern & Kurrie
910 N. Patterson Street
Valdosta, Georgia 31601
912/333-0885 - FAX
Attn: Thompson Kurrie, Jr., Esquire
Troutman Sanders LLP
600 Peachtree Street, N.E., Suite 5200
Atlanta, Georgia 30308-2218
404/885-3900 - FAX
Attn: Thomas O. Powell, Esquire
Investors and Bank: Investors Financial Corporation
226 South Broad Street
Bainbridge, Georgia 31717
912/248-3826 - FAX
Attn: Bill J. Jones, Chairman
Copy to Counsel: Kirbo & Kendrick
206 West Waters Street
Bainbridge, Georgia 31717-0425
Attn: Bruce W. Kirbo, Esquire
Alston & Bird LLP
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
404/881-7777 - FAX
Attn: Ralph F. MacDonald, III, Esquire
11.9 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.
A-30
<PAGE>
11.10 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.
11.11 Captions. The captions contained in this Agreement are for reference
purposes only and are not part of this Agreement.
11.12 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.
11.13 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 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.
11.14 Interpretation of Agreement. The parties hereto acknowledge and agree
that each party has participated in the drafting of this Agreement and that this
document has been reviewed by the respective counsel for the parties hereto and
the normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be applied to the interpretation
of this Agreement. No inference in favor, or against, any party shall be drawn
from the fact that one party has drafted any portion hereof.
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 officers thereunto as of the day and year first above written.
"INVESTORS"
ATTEST: INVESTORS FINANCIAL CORPORATION
/s/ /s/ Bill J. Jones
- ------------------------------ -------------------------------------
______________, Secretary Bill J. Jones, Chairman
(CORPORATE SEAL)
"BANK"
ATTEST: BAINBRIDGE NATIONAL BANK
/s/ /s/ Bill J. Jones
- ------------------------------ ------------------------------------
______________, Secretary Bill J. Jones, Chairman
(BANK SEAL)
"PAB"
ATTEST: PAB BANKSHARES, INC.
/s/ /s/ R. Bradford Burnette
- ------------------------------ ------------------------------------
_____________, Secretary R. Bradford Burnette, President
(CORPORATE SEAL)
A-31
<PAGE>
AMENDMENT NO. 1
to
AGREEMENT AND PLAN OF MERGER
This Amendment No. I ("Amendment No. I "), dated as of April 27, 1998,
amends as specified below that certain Agreement and Plan of Merger, dated as of
December 31, 1997, by and among Investors Financial Corporation, a corporation
organized and existing under the laws of the State of Georgia ("Investors"),
Bainbridge National Bank, a national bank and wholly-owned subsidiary of
Investors (the "Bank"), and PAB Bankshares, Inc., a corporation organized and
existing under the laws of the State of Georgia ("PAB") (the "Merger
Agreement").
WHEREAS, each of Investors, the Bank and PAB has determined that the
transactions contemplated by the Merger Agreement are in its best interests;
NOW THEREFORE, in consideration of the above and the mutual warranties,
representations, covenants and agreements set forth in the Merger Agreement and
herein, the Merger Agreement shall be amended as follows:
1. Section 10. 1 (d) is hereby deleted and replaced in its entirety with the
following:
"(d) By the Board of Directors of any Party in the event that the Merger
shall not have been consummated by June 30, 1998, but only if the failure to
consummate the transactions contemplated hereby on or before such date is not
caused by any breach of this Agreement by the Party electing to terminate
pursuant to this Section 10.1(d); provided that the Parties shall continue to
use their best efforts to cause the Merger to be consummated on or before May
29,1998."
2. Section I 1.2(c) is hereby deleted and replaced in its entirety with the
following:
"(c) Failure to Obtain Anti-Trust Consent In addition to the foregoing,
------------------------------------
if this Agreement is terminated as a result of the imposition by Regulatory
Authorities of material conditions or restrictions in such Regulatory
Authorities' Consents which related to anti-trust or competitive effects issues
or because of the failure of a Regulatory Authority to grant a necessary consent
prior to June 30, 1998 as a result of anti-trust or competitive effects issues,
then PAB shall pay to Investors one-half of the reasonable direct costs and
expenses incurred by or on behalf of Investors or Bank or both, such one-half
not to exceed the sum of $50,000."
A-32
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Amendment No. 1 to
be executed on its behalf and its corporate seal to be hereunto affixed and
attested by officers thereunto as of the day and year first above written.
"INVESTORS"
ATTEST: INVESTORS FINANCIAL CORPORATION
/s/ Joanne P. Sullivan /s/ Tracy A. Dixon
- ------------------------ ------------------------
Name: Joanne P. Sullivan Name: Tracy A. Dixon
Title: Assistant Vice President Tide: President and Chief Executive Officer
"BANK"
ATTEST: BAINBRIDGE NATIONAL BANK
/s/ Joanne P. Sullivan /s/ Tracy A. Dixon
- ------------------------ ------------------------
Name: Joanne P. Sullivan Name: Tracy A. Dixon
Title: Assistant Vice President Title: President and Chief Executive Officer
"PAB"
ATTEST: PAB BANKSHARES, INC.
/s/ C. Larry Wilkinson /s/ R. Bradford Burnette
- ------------------------ ------------------------
Name: C. Larry Wilkinson Name: R. Bradford Burnette
Tide: Executive Vice President Tide: President and Chief Executive Officer
2
<PAGE>
APPENDIX B
May 13, 1998
Board of Directors
Investors Financial Corporation
226 South Broad Street
Bainbridge, GA 31717-3616
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, of the aggregate consideration to be received by the shareholders of
Investors Financial Corporation ("Investors") under the terms of a certain
Agreement and Plan of Merger dated December 31, 1997 (the "Agreement") pursuant
to which Investors will be merged with and into PAB Bankshares, Inc. ("PAB")
(the "Merger"). Under the terms of the Agreement, PAB will issue and exchange
1,710,114 shares of PAB Common Stock for all the Investors Common Stock and all
the Investors Warrants and Investors Options at the Exchange Ratios defined in
the Agreement. The foregoing summary of the Merger is qualified in its entirety
by reference to the Agreement.
The Carson Medlin Company is a National Association of Securities Dealers, Inc.
(NASD) member investment banking firm which specializes in the securities of
southeastern United States financial institutions. As part of our investment
banking activities, we are regularly engaged in the valuation of southeastern
United States financial institutions and transactions relating to their
securities. We regularly publish our research on independent community banks
regarding their financial and stock price performance. We are familiar with the
commercial banking industry in Georgia and the major commercial banks operating
in that market. We have been retained by Investors in a financial advisory
capacity to render our opinion hereunder, for which we will receive
compensation.
In reaching our opinion, we have analyzed the respective financial positions,
both current and historical, of PAB and Investors. We have reviewed: (i) the
Agreement; (ii) the annual reports to shareholders of PAB, including audited
financial statements for the four years ended December 31, 1997; (iii) the
annual reports to shareholders of Investors, including audited financial
statements for the four years ended December 31, 1997; (iv) certain financial
and operating information with respect to the business, operations and prospects
of PAB and Investors; and (v) this Joint Proxy Statement Prospectus. We also:
(i) held discussions with members of the senior management of PAB and Investors
regarding historical and current business operations, financial condition and
future prospects of their respective companies; (ii) reviewed the historical
market prices and trading activity for the common stocks of PAB and Investors
and compared them with those of certain publicly traded companies which we
deemed to be relevant; (iii) compared the results of operations of PAB and
Investors with those of certain banking companies which we deemed to be
relevant; (iv) compared the proposed financial terms of the Merger with the
financial terms, to the extent publicly available, of certain other recent
business combinations of commercial banking organizations; (v) analyzed the pro
forma financial impact of the Merger on PAB; and (vi) conducted such other
studies, analyses, inquiries and examinations as we deemed appropriate.
We have relied upon and assumed, without independent verification, the accuracy
and completeness of all information provided to us. We have not performed or
considered any independent appraisal or evaluation of the assets of Investors or
PAB. The opinion we express herein is necessarily based upon market, economic
and other relevant considerations as they exist and can be evaluated as of the
date of this letter.
Based upon the foregoing, it is our opinion that the aggregate consideration
provided for in the Agreement is fair, from a financial point of view, to the
shareholders of Investors Financial Corporation.
Very truly yours,
/s/ The Carson MedLin Company
THE CARSON MEDLIN COMPANY
B-1
<PAGE>
APPENDIX C
ARTICLE 13
GEORGIA DISSENTERS' RIGHTS STATUTES
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. (Code 1981, (S) 14-2-1301, enacted by Ga. L. 1988, p. 1070, (S) l;
Ga. L. 1993, p. 1231, (S) 6.)
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;
<PAGE>
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 the shares;
b. Creates, alters, or abolishes a right in respect of
redemption, including a provision respecting a sinking fund for the
redemption or repurchase, of the shares;
c. Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities;
d. Excludes or limits the right of the shares to vote on any
matter, or to cumulate votes, other than a limitation by dilution
through issuance of shares or other securities with similar voting
rights;
e. Reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be
acquired for cash under Code Section 14-2-604; or
f. Cancels, redeems, or repurchases all or part of the shares
of the class; or
5. Any corporate action taken pursuant to a shareholder vote to the
extent that Article 9 of this chapter, the articles of incorporation,
bylaws, or a resolution of the board of directors provides that voting or
nonvoting shareholders are entitled to dissent and obtain payment for their
shares.
(b) 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. (Code 1981, (S) 14-
2-1302, enacted by Ga. L. 1988, p. 1070, (S) 1; Ga. L. 1989, p. 946, (S)
58.)
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. (Code 1981, (S)
14-2-1303, enacted by Ga. L. 1988, p. 1070, (S) 1.)
C-2
<PAGE>
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.
(Code 1981, (S) 14-2-1320, enacted by Ga. L. 1988, p. 1070, (S) 1; Ga. L. 1993,
p. 1231, (S) 17.)
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. (Code 1981, (S) 14-2-1321, enacted by Ga. L. 1988, p. 1070,
(S) 1.)
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 nor 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. (Code 1981, (S) 14-2-
1322, enacted by Ga. L. 1988, p. 1070, (S) 1.)
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 cancelled or modified by the taking of the
proposed corporate action.
C-3
<PAGE>
(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. (Code
1981, (S) 14-2-1323, enacted by Ga. L. 1988, p. 1070, (S) 1.)
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 cancelled or modified by the taking of the proposed corporate action.
(Code 1981, (S) 14-2-1324, enacted by Ga. L. 1988, p. 1070, (S) 1.)
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.
(Code 1981, (S) 14-2-1325, enacted by Ga. L. 1988, p. 1070, (S) 1; Ga. L. 1989,
p. 946, (S) 59; Ga. L. 1993, p. 1231, (S) 18.)
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. (Code 1981, (S) 14-2-1326, enacted by Ga. L. 1988, p. 1070, (S) 1;
Ga. L. 1990, p. 257, (S) 20.)
14-2-1327. PROCEDURES IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.
C-4
<PAGE>
(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. (Code 1981, (S) 14-2-1327, enacted by Ga. L. 1988, p. 1070, (S) 1; Ga.
L. 1989, p. 946, (S) 60; Ga. L. 1990, p. 257, (S) 21; Ga. L. 1993, p. 1231,
(S) 19.)
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
non-jury 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.
(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. (Code 1981, (S) 14-2-1330,
enacted by Ga. L. 1988, p. 1070, (S) 1; Ga. L. 1989, p. 946; (S) 61; Ga. L.
1993, p. 1231, (S) 20.)
14-2-1331. COURT COSTS AND COUNSEL FEES.
C-5
<PAGE>
(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 courts find 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 to the dissenters who were benefited. (Code 1981, (S)
14-2-1331, enacted by Ga. L. 1988, p. 1070, (S) 1.)
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. (Code 1981, (S) 14-2-1332, enacted by Ga. L. 1988, p.
1070, (S) 1.)
C-6
