<PAGE>
As filed with the Securities and Exchange Commission on July 28, 1999
Registration No. 333-_____
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
______________________
PAB BANKSHARES, INC.
(Exact Name of Registrant as Specified in its Charter)
Georgia 6022 58-1473302
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of incorporation or Classification Code Number) Identification No.)
organization)
3102 North Oak Street Extension
Valdosta, Georgia 31602
912/241-2775
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
R. Bradford Burnette
PAB Bankshares, Inc.
3102 North Oak Street Extension
Valdosta, Georgia 31602
912/241-2775
(Address, including zip code, and telephone number, including area code, of
agent for service)
With copies to:
Thomas O. Powell, Esquire Gregory J. Rubis, Esquire
Troutman Sanders LLP Malizia Spidi & Fisch, PC
600 Peachtree Street, N.E. 1301 K Street, N.W.
Suite 5200 Suite 700 East
Atlanta, Georgia 30308-2216 Washington, D.C. 20005
404/885-3294 202/434-4660
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after the effective date of this Registration
Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Title of each Class Proposed Maximum Proposed Maximum
of Securities to be Amount to be Offering Price Aggregate Amount of
Registered Registered/(1)/ per Share Offering Price Registration Fee
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no
par value per share 1,323,554 /(2)/ $15,485,587/(3)/ $4,305.00
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
/(1)/ The number of shares to be registered is based upon an estimate of the
maximum number of shares of common stock of PAB Bankshares, Inc. ("PAB")
to be issued to the shareholders of Baxley Federal Savings Bank ("Baxley")
pursuant to the merger of PAB Interim Association No. 1 (the "Merger Sub")
with and into Baxley, as described in the Agreement and Plan of Merger,
dated as of June 3, 1999 (the "Merger Agreement"), by and between Baxley
and PAB, to be joined in by the Merger Sub, attached as Appendix A to the
Proxy Statement/Prospectus forming a part of this Registration Statement.
/(2)/ Not applicable.
/(3)/ Computed in accordance with Rule 457(f)(2) under the Securities Act of
1933, as amended, solely for the purpose of calculating the registration
fee. The registration fee was calculated based on the aggregate book value
of the maximum number of shares of Baxley Common Stock (551,481) to be
received by PAB in exchange for the securities registered hereby at June
30, 1999 ($15,485,587).
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended or until this Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), shall determine.
________________________________________________________________________________
<PAGE>
Proxy Statement of Prospectus of
Baxley Federal Savings Bank PAB Bankshares, Inc.
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
The Boards of Directors of Baxley Federal Savings Bank and PAB Bankshares,
Inc. have approved a merger in which Baxley will become a wholly-owned
subsidiary of PAB. PAB is a bank holding company that provides a wide range of
commercial and retail banking services in Georgia. We are sending you this proxy
statement/prospectus to ask you to vote in favor of the merger.
If the merger is approved, each share of your Baxley common stock
(excluding shares held by Baxley shareholders who perfect their dissenters'
rights) will be converted into the right to receive a number of shares of PAB
common stock which will be determined by a formula. This number of shares is the
exchange ratio. The precise exchange ratio will depend upon the average closing
price of PAB common stock over a 20 day trading period five days prior to the
effective time of the merger. If the average closing price of PAB common stock
is between $13.00 and $21.00, the exchange ratio will be 2.40. However, if the
average closing price of PAB common stock is greater than $21.00, the exchange
ratio will be lower and if the average closing price is lower than $13.00,
Baxley may terminate or renegotiate the merger so that the exchange ratio may be
increased. In addition, the number of shares of PAB common stock received in the
merger will be reduced if some of Baxley's merger-related expenses exceed
$100,000.
The merger will turn your Baxley shares into shares of a publicly-traded,
larger and more diversified financial services company. PAB common stock is
listed on the American Stock Exchange under the symbol "PAB."
The merger cannot be completed without the approval of Baxley shareholders.
Baxley has scheduled a special meeting of its shareholders to vote on the
merger.
Your vote is very important. Whether or not you plan to attend the special
shareholder meeting, please take the time to vote by completing and mailing the
enclosed proxy card. If you sign, date and mail your proxy card without
indicating how you want to vote, Baxley will vote your proxy in favor of the
merger. If you do not return your card, the effect will be the same as a vote
against the merger.
Each member of Baxley's Board of Directors supports the acquisition of
Baxley by PAB and Baxley's Board of Directors unanimously recommends that you
vote in favor of the merger.
This proxy statement/prospectus provides detailed information about the
merger. You should read it carefully. The merger involves certain risks. See
"Risk Factors" on page 9 of this proxy statement/prospectus.
The date, time and place of the special meeting are:
_________ ____, 1999, 4:30 p.m.
Baxley Federal Savings Bank
219 East Parker Street
Baxley, Georgia 31513-2001
_____________________________ ________________________________________
J.R. Frazier Alvin R. Tuten, Jr.
Chairman of the Board President and Chief Executive Officer
Neither the Securities and Exchange Commission nor any state securities
regulator has approved or disapproved of the securities to be issued under this
proxy statement/prospectus or determined if this proxy statement/prospectus is
accurate or adequate. Any representation to the contrary is a criminal offense.
These securities are not savings or deposit accounts or other obligations
of any bank or non-bank subsidiary of any of the parties, and they are not
insured by the Federal Deposit Insurance Corporation, the Bank Insurance Fund or
any other governmental agency.
This proxy statement/prospectus is dated _________ ____, 1999
and was first mailed to shareholders on or about _________ ____, 1999.
<PAGE>
REFERENCE TO ADDITIONAL INFORMATION
This proxy statement/prospectus incorporates important business and
financial information about PAB from documents that are not included in or
delivered with this proxy statement/prospectus. You can obtain documents
incorporated by reference in this proxy statement/prospectus (other than certain
exhibits to those documents) by requesting them in writing or by telephone from
PAB at the following address:
PAB Bankshares, Inc.
3102 North Oak Street Extension
Valdosta, Georgia 31602
Attention: Corporate Secretary
Telephone: (912) 241-2775
You will not be charged for any of the documents that you request (other
than certain exhibits to those documents). If you would like to request
documents, please do so by _______, 1999 in order to receive them before
Baxley's special shareholder meeting.
See "Where You Can Find More Information" on page 77.
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
219 East Parker Street
Baxley, Georgia 31513-2001
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
________ ____, 1999
To the Shareholders of Baxley Federal Savings Bank:
NOTICE IS HEREBY GIVEN that a special meeting of shareholders ("Special
Meeting") of Baxley Federal Savings Bank ("Baxley") will be held at the main
office of Baxley, located at 219 East Parker Street, Baxley, Georgia, at 4:30
p.m., local time, on ________ ____, 1999, for the following purposes:
1. To consider and vote upon a proposal to approve the Agreement and
Plan of Merger, dated as of June 3, 1999 (the "Merger Agreement"), by and
between Baxley and PAB Bankshares, Inc. ("PAB"), to be joined in by PAB Interim
Association No. 1, a wholly owned subsidiary of PAB (the "Merger Sub"), pursuant
to which, among other matters, the Merger Sub will merge with and into Baxley
(the "Merger") and shares of Baxley common stock will be converted into the
right to receive shares of common stock of PAB, all as more fully described in
the accompanying Proxy Statement/Prospectus. A copy of the Merger Agreement is
set forth in Appendix A to the accompanying Proxy Statement/Prospectus and is
hereby incorporated by reference herein.
2. To transact such other business as may properly come before
Baxley's Special Meeting or any postponements or adjournments thereof.
Only Baxley shareholders of record at the close of business on
__________ ____, 1999 are entitled to receive notice of and to vote at Baxley's
Special Meeting or any adjournments or postponements thereof. Approval of the
Merger Agreement and the consummation of the transactions contemplated thereby
requires the affirmative vote of the holders of two-thirds of the shares of
Baxley common stock entitled to vote at Baxley's Special Meeting.
BAXLEY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT BAXLEY
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 therein is consummated, each shareholder of Baxley will have
the right to dissent from approval of the Merger and will be entitled to the
rights and remedies of dissenting shareholders provided in 12 C.F.R. (S) 552.14
(the "Dissenters' Provisions"). The right of any such shareholder to any
dissenters' rights is contingent upon consummation of the Merger and upon strict
compliance with the requirements set forth in the Dissenters' Provisions, the
full text of which is set forth as Appendix B to the accompanying Proxy
Statement/Prospectus. For a summary of the requirements of the Dissenters'
Provisions, see "THE MERGER -- Dissenter and Appraisal Rights" in the
accompanying Proxy Statement/Prospectus.
Each shareholder, whether or not he or she plans to attend Baxley's
Special Meeting, is requested to sign, date and return the enclosed proxy
without delay in the enclosed postage-paid envelope. Any proxy given by the
shareholder may be revoked by filing with Baxley's Corporate Secretary a written
revocation or a duly executed proxy bearing a later date. Any shareholder
present at Baxley's Special Meeting may revoke his or her proxy and vote
personally on each matter brought before the Special Meeting. However, if you
are a shareholder whose shares are not registered in your own name, you will
need additional documentation from your record holder to vote personally at
Baxley's Special Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Jo Anne Quarterman, Corporate Secretary
- --------------------------------------------------------------------------------
IMPORTANT: The prompt return of proxies will save Baxley the expense of further
requests for proxies in order to insure a quorum at Baxley's Special Meeting. A
self-addressed envelope is enclosed for your convenience. No postage is
required if mailed in the United States.
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SUMMARY............................................................................... 1
The Companies....................................................................... 1
The Merger.......................................................................... 1
What Baxley Shareholders will Receive............................................... 1
Baxley's Reasons for the Merger..................................................... 1
Baxley's Special Meeting of Shareholders............................................ 1
Baxley Board of Directors' Recommendation to Baxley Shareholders.................... 1
Record Date; Voting Power........................................................... 1
Vote Required....................................................................... 2
Interests of Persons Involved in the Merger that are Different from Yours........... 2
Conditions to the Merger............................................................ 2
Termination of the Merger Agreement................................................. 2
Regulatory Approvals................................................................ 2
Accounting Treatment................................................................ 2
Important Federal Tax Consequences.................................................. 3
Dissenter and Appraisal Rights..................................................... 3
Market Prices of PAB and Baxley Common Stock; Dividend Payments..................... 4
PAB and Baxley Selected Comparative Per Share Data.................................. 5
PAB Selected Financial Data......................................................... 6
Baxley Selected Financial Data...................................................... 7
PAB and Baxley Pro Forma Selected Financial Data.................................... 8
RISK FACTORS.......................................................................... 9
A WARNING ABOUT FORWARD-LOOKING STATEMENTS............................................ 11
INFORMATION CONCERNING BAXLEY'S SPECIAL MEETING....................................... 12
General............................................................................. 12
The Special Meeting................................................................. 12
Matters to be Considered............................................................ 12
Vote Required....................................................................... 12
Voting of Proxies................................................................... 12
Revocability of Proxies............................................................. 13
Solicitation of Proxies............................................................. 13
Recommendation of Baxley's Board of Directors....................................... 13
Information About Baxley's Auditors................................................. 14
THE MERGER............................................................................ 15
General............................................................................. 15
Background of the Merger............................................................ 15
Baxley's Reasons for the Merger..................................................... 16
PAB's Reasons for the Merger........................................................ 17
Merger Consideration................................................................ 17
Fractional Shares................................................................... 17
Opinion of Trident.................................................................. 18
Effective Time...................................................................... 22
Distribution of PAB Certificates.................................................... 22
Certain Federal Income Tax Consequences............................................. 23
Management and Operations after the Merger.......................................... 24
Interests of Certain Persons in the Merger.......................................... 24
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Conditions to Consummation.......................................................... 25
Regulatory Approvals................................................................ 27
Amendment, Waiver and Termination................................................... 28
Conduct of Business Pending the Merger.............................................. 28
Expenses and Fees................................................................... 30
Accounting Treatment................................................................ 30
Resales of PAB Common Stock......................................................... 30
Dissenter and Appraisal Rights...................................................... 31
PRO FORMA COMBINED FINANCIAL DATA..................................................... 32
DESCRIPTION OF BAXLEY................................................................. 39
General............................................................................. 39
Lending Activities.................................................................. 39
Personnel........................................................................... 39
Competition......................................................................... 39
Baxley Supervision and Regulation................................................... 39
Federal Taxation.................................................................... 42
Selected Statistical Information.................................................... 43
Office Properties................................................................... 59
Legal Proceedings................................................................... 59
OUTSTANDING VOTING SECURITIES OF BAXLEY AND PRINCIPAL HOLDERS
THEREOF.............................................................................. 60
BAXLEY MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................................... 61
General............................................................................. 62
Year 2000 Compliance Disclosure..................................................... 61
Asset/Liability Management.......................................................... 63
Capital Resources and Liquidity..................................................... 63
Financial Condition at March 31, 1999 and March 31, 1998............................ 64
Comparison of Operating Results for the Three Months Ended March 31, 1999
and March 31, 1999................................................................. 65
Financial Condition at December 31, 1998 and December 31, 1997...................... 65
Comparison of Operating Results for the Years Ended December 31, 1998 and
December 31, 1997.................................................................. 65
General............................................................................. 65
Interest Income..................................................................... 66
Interest Expense.................................................................... 66
Yields Earned and Rates Paid........................................................ 66
Provisions for Loan Losses.......................................................... 66
Other Income and Other Expenses..................................................... 67
Financial Condition at December 31, 1997 and December 31, 1996...................... 67
Comparison of Operating Results for the Years ended December 31, 1997
and December 31, 1996............................................................. 68
General............................................................................. 68
Interest Income..................................................................... 68
Interest Expense.................................................................... 68
Provision for Loan Losses........................................................... 68
Other Income and Other Expenses..................................................... 68
Impact of Inflation and Changing Prices............................................. 69
CERTAIN DIFFERENCES IN THE RIGHTS OF BAXLEY SHAREHOLDERS AND
PAB SHAREHOLDERS.................................................................... 70
Authorized Capital Stock............................................................ 70
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Cumulative Voting................................................................... 70
Number and Election of Directors.................................................... 70
Nominations of Directors............................................................ 71
Removal of Directors................................................................ 71
Adjournment and Notice of Shareholder Meetings...................................... 71
Special Meetings of Shareholders.................................................... 71
Shareholder Proposals............................................................... 72
Indemnification of Officers and Directors........................................... 72
Limitation of Personal Liability of Directors....................................... 73
Amendment of Articles of Incorporation/Federal Stock Charter and Bylaws............. 73
REGULATORY CONSIDERATIONS............................................................. 74
General........................................................................... 74
Capital and Operational Requirements.............................................. 75
Distributions..................................................................... 76
"Source of Strength" Policy....................................................... 76
Recent Legislative Developments................................................... 76
EXPERTS............................................................................... 76
LEGAL MATTERS......................................................................... 76
SHAREHOLDER PROPOSALS AND OTHER MATTERS............................................... 77
WHERE YOU CAN FIND MORE INFORMATION................................................... 77
BAXLEY FINANCIAL STATEMENTS........................................................... F-1
</TABLE>
Appendix A - Agreement and Plan of Merger, dated as of June 3, 1999, by and
between Baxley Federal Savings Bank and PAB Bankshares, Inc., to be joined in by
PAB Interim Association No. 1
Appendix B - 12 C.F.R. (S) 552.14, Dissenter and Appraisal Rights
Appendix C - Opinion of Trident Securities, a division of McDonald Investments
Inc.
iii
<PAGE>
SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the
merger fully, and for more complete descriptions of the legal terms of the
merger, you should read carefully this entire document and the documents we have
referred you to. (The term "we" or "our" refers to both PAB and Baxley
together.)
The Companies (Pages 9 and 74)
PAB Bankshares, Inc.
3102 North Oak Extension
Valdosta, Georgia 31602
(912) 241-2775
PAB is a bank holding company. Through its banking subsidiaries, PAB
provides a wide range of commercial and retail banking services in Georgia.
Baxley Federal Savings Bank
219 East Parker Street
Baxley, Georgia 31513-2001
(912) 367-7791
Baxley is a federally chartered stock savings bank. Baxley is primarily a
real estate mortgage lender whose business revolves around the origination of
one-to-four family residential mortgage loans.
The Merger (Page 15)
The acquisition of Baxley by PAB is governed by a merger agreement. We
encourage you to read the merger agreement, which is attached as Appendix A.
What Baxley Shareholders will Receive (Page 17)
As a result of the merger, Baxley shareholders will receive a number of
shares of PAB common stock for each share of Baxley common stock that they own.
The number of shares will be determined by a formula which provides an exchange
ratio. The precise exchange ratio will depend upon the average closing price of
PAB common stock over a 20 day trading period five days prior to the effective
time of the merger. If the average closing price of PAB common stock is between
$13.00 and $21.00, the exchange ratio will be 2.40. However, if the average
closing price of PAB common stock is greater than $21.00, the exchange ratio
will be lower and if the average closing price is lower than $13.00, Baxley may
terminate or renegotiate the merger so that the exchange ratio may be increased.
In addition, the number of shares of PAB common stock you will receive in the
merger will be reduced if some of Baxley's merger-related expenses exceed
$100,000. The merger will turn your Baxley shares into shares of a publicly-
traded, larger and more diversified financial services company.
Baxley shareholders should not send in their stock certificates until
requested to do so after the merger is completed.
Baxley's or the Merger (Page 16)
Baxley's board of directors believes that the merger will create value for
Baxley shareholders. It also believes that PAB is offering a fair price to
Baxley shareholders for their Baxley common shares. The merger will turn your
Baxley shares into shares of a publicly-traded, larger and more diversified
financial services company. Baxley's board of directors believes that the merger
will enable Baxley to serve its customers better than its competitors by
offering more diverse products and services. In addition, since PAB's
subsidiaries are operated as community banks, the board believes that the same
commitment to customer service now existing at Baxley will continue following
the merger.
Baxley's Special Meeting of Shareholders (Page 12)
Baxley's special meeting of shareholders to vote on the merger will be held
at 219 East Parker Street, Baxley, Georgia, at 4:30 p.m., on ________ ___, 1999.
Baxley's Board of Directors' Recommendation to Baxley Shareholders (Page 13)
Baxley's board of directors believes that the merger is in the best
interest of Baxley shareholders and recommends that you vote "FOR" the proposal
to approve the merger agreement.
Record Date; Voting Power (Page 12)
You may vote at Baxley's special meeting if you owned Baxley shares as of
the close of business on ________ ___, 1999. You will have one vote for each
share of Baxley common stock you owned on that date.
1
<PAGE>
Vote Required (Page 12)
The merger must be approved by the holders of at least two-thirds of the
shares of Baxley common stock. As of July 20, 1999, Baxley's directors,
executive officers and their affiliates beneficially owned approximately 33.5%
of the outstanding shares of Baxley common stock entitled to vote at Baxley's
special meeting.
Interests of Persons Involved in the Merger that are Different from Yours
(Page 24)
Baxley's officers and directors may have interests in the merger that
differ from the interests of Baxley shareholders generally, including employment
arrangements for officers and continuation of their services as directors.
Conditions to the Merger (Page 25)
The completion of the merger depends on the fulfillment of a number of
conditions, including the following:
. Baxley shareholders must approve the merger agreement;
. we must receive all required regulatory approvals and any waiting periods
required by law must have passed;
. we must receive a letter from PAB's accountants confirming that the merger
will qualify as a pooling of interests transaction;
. we must receive a legal opinion confirming the tax-free nature of the
transaction;
. each parties' representations and warranties, which are contained in the
merger agreement, must be accurate in all material respects;
. each party must have delivered officers' certificates and its counsel's
legal opinions to the other; and
. shares of PAB common stock issuable pursuant to the merger must be approved
for listing on the American Stock Exchange.
Unless prohibited by law, either PAB or Baxley can elect to waive a
condition that has not been satisfied and complete the merger anyway. We cannot
be certain whether or when any of these conditions will be satisfied, or waived
where permissible, or that we will complete the merger.
Termination of the Merger Agreement (Page 82)
Notwithstanding the approval of the merger by the Baxley shareholders at
Baxley's special meeting, PAB and Baxley can agree at any time to terminate the
merger agreement before completing the merger.
Either PAB or Baxley can also terminate the merger agreement:
. if the merger is not approved by the holders of at least two-thirds of the
shares of Baxley common stock;
. if the other party materially violates any of its representations or
warranties under the merger agreement and fails to cure the violation;
. if we do not complete the merger by November 30, 1999; or
. if any government body whose approval is necessary to complete the merger
makes a final decision not to approve the merger.
PAB can also terminate the merger if Baxley receives an acquisition offer
from a third party and Baxley's board of directors fails to reaffirm the merger
at the request of PAB.
Regulatory Approvals (Page 27)
We cannot complete the merger unless we obtain the approval of the Office
of Thrift Supervision and the Federal Deposit Insurance Corporation. In
addition, the merger is subject to the approval of the Board of Governors of the
Federal Reserve System and the Georgia Department of Banking and Finance.
While we do not know of any reason why we would not obtain the regulatory
approvals in a timely manner, we cannot be certain when or if we will obtain
them.
2
<PAGE>
Accounting Treatment (Page 30)
We expect the merger to qualify as a pooling of interests transaction,
which means that PAB will treat PAB and Baxley as if they had always been
combined for accounting and financial reporting purposes.
Important Federal Tax Consequences (Page 23)
We expect that the merger will be tax-free to Baxley shareholders for
federal income tax purposes (except for tax payable because of cash received for
fractional shares or pursuant to the exercise of dissenters' rights).
Dissenter and Appraisal Rights (Page 31)
Federal law permits Baxley shareholders to dissent from the merger and to
have their shares appraised and the fair value paid to them in cash. To do this,
Baxley shareholders must follow specific procedures, including filing a written
notice with Baxley, prior to either abstaining from voting or voting against the
merger. If you hold shares of Baxley common stock and you follow the required
procedures, your Baxley shares will not become shares of PAB common stock.
Instead, your only right will be to receive the appraised value of your shares
of Baxley common stock in cash.
3
<PAGE>
Market Prices of PAB and Baxley Common Stock; Dividend Payments
<TABLE>
<CAPTION>
Sales Price Per Share of Cash Dividend
PAB Common Stock/(1)/ Declared
--------------------- --------
High Low
---- ---
<S> <C> <C> <C>
1996
First Quarter $ 7.00 $ 6.25 $ 0.030
Second Quarter 7.50 7.00 0.033
Third Quarter 10.50 7.50 0.035
Fourth Quarter 10.94 10.44 0.037
1997
First Quarter 10.69 9.44 0.040
Second Quarter 11.00 10.13 0.043
Third Quarter 11.38 10.50 0.045
Fourth Quarter 12.06 10.56 0.047
1998
First Quarter 27.38 11.75 0.060
Second Quarter 23.75 20.00 0.065
Third Quarter 23.38 18.13 0.070
Fourth Quarter 21.50 17.25 0.080
1999
First Quarter 19.68 15.38 0.090
Second Quarter (through
June 23, 1999) 17.38 14.63 0.095
</TABLE>
__________________
/(1)/ On June 2, 1999, the last trading day prior to the public announcement
that PAB and Baxley had agreed that PAB would acquire Baxley, the last
reported sales price per share of PAB common stock was $14.88.
PAB common stock was held by approximately 2,364 shareholders of
record as of June 23, 1999.
There is neither an established public trading market for shares of
Baxley common stock, nor are there any uniformly quoted price for such shares.
There are, however, occasional transactions in Baxley common stock as a result
of private negotiations. Management of Baxley does not maintain a record of the
sales prices of trades of Baxley common stock. The last two known sales of
Baxley common stock were reported to have occurred during 1998 at a price of
$30.00 per share. Baxley does not know whether these sales reflected inter-
dealer prices, without retail mark-ups, mark-downs or commissions.
In 1998, Baxley paid an annual dividend of $0.82 per share. In 1997,
Baxley paid a special cash dividend of $7.00 per share and an annual dividend of
$0.81 per share. In 1996, Baxley paid an annual dividend of $0.80 per share.
Baxley common stock was held by approximately 415 shareholders of
record as of ________, 1999.
Because the exchange ratio is fixed within certain average closing
prices of PAB common stock and because the closing price of PAB common stock is
subject to fluctuation, the market value of the shares of PAB common stock that
you may receive in the merger may increase or decrease prior to and following
the merger. You are urged to obtain current market quotations for PAB common
stock.
4
<PAGE>
PAB BANKSHARES, INC. AND SUBSIDIARIES AND
BAXLEY FEDERAL SAVINGS BANK
Selected Comparative Per Share Data
(Unaudited)
<TABLE>
<CAPTION>
As of or for the three
months ended As of or for the Years Ended December 31,
---------------------------------------------------
March 31, 1999 1998 1997 1996
------------------------ ----------------- ------------- -----------------
<S> <C> <C> <C> <C>
PAB Common Stock
Net income per common share:
Historical - basic/(1)/ $ 0.21 $ 0.80 $ 0.73 0.60
Historical - diluted/(1)/ 0.20 0.78 0.72 0.59
Pro forma PAB and Baxley
combined - basic /(1)//(2)/ 0.21 0.83 0.79 0.62
combined - diluted/(1)//(2)/ 0.21 0.81 0.78 0.62
Dividends per common share:
Historical/(1)/ 0.09 0.275 0.175 0.135
Pro forma PAB and Baxley combined/(1)//(2)/ 0.09 0.275 0.175 0.135
Book Value per common share:
Historical/(1)/ 6.25 6.17
Pro forma PAB and Baxley combined/(1)//(2)//(3)/ 6.96 6.88
Baxley Common Stock
Net income per common share:
Historical - basic 0.58 2.42 2.82 1.94
Historical - diluted 0.58 2.41 2.81 1.89
Equivalent pro forma PAB and Baxley
combined/(2)//(4)/ - basic 0.50 1.99 1.90 1.49
Equivalent pro forma PAB and Baxley
combined/(2)//(4)/ - diluted 0.50 1.94 1.87 1.49
Dividends per common share:
Historical 0.00 0.82 7.81 0.80
Equivalent pro forma combined/(5)/ 0.22 0.66 0.42 0.32
Book Value per common share:
Historical 27.48 27.13
Equivalent pro forma PAB and Baxley
combined/(2)/ 16.70 16.51
</TABLE>
_____________
/(1)/ 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.
/(2)/ Represents the pro forma combined information of PAB and Baxley 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 shareholder's equity by pro
forma shares outstanding as follows:
Equity Shares
03/31/99 $66,936,786 9,613,552
12/31/98 $66,063,809 9,604,049
/(4)/ Determined by multiplying the applicable pro forma amount by the assumed
exchange ratio of 2.40 to 1.
/(5)/ Determined by multiplying the applicable PAB historical amount by the
assumed exchange ratio of 2.40 to 1.
5
<PAGE>
PAB BANKSHARES, INC. AND SUBSIDIARIES
Selected Financial Data
(Unaudited)
<TABLE>
<CAPTION>
As of or for the
three months ended As of or for the years ended December 31,
-------------------------------------------------
March 31, 1999 1998 1997 1996
-------------------- ---------------- -------------- -------------
(Amounts in thousands, except per share data and percentages)
<S> <C> <C> <C> <C>
Summary of Operations:
Net interest income $ 5,155 $ 20,693 $ 19,094 $ 16,581
Provision for possible loan losses 162 903 793 633
Net income 1,722 6,651 6,003 4,819
Per Share Data:
Net income - basic/(1)/ $ 0.21 $ 0.80 $ 0.73 $ 0.60
Net income - diluted/(1)/ 0.20 0.78 0.72 0.59
Cash dividends declared/(1)/ 0.09 0.275 0.175 0.135
Book value /(1)/ 6.25 6.17 5.57 5.00
Tangible book value/(1)/ 5.93 5.84 5.20 4.55
Balance Sheet Summary:
Investments $ 86,499 $ 95,209 $ 83,439 $ 89,499
Loans, net 356,480 347,305 317,269 282,493
Deposits 404,018 413,256 386,643 367,359
Assets 505,358 513,742 471,901 433,549
Long-term debt and
other borrowings /(2)/ -0- -0- 2,184 3,384
Federal Home Loan Bank
advances 37,354 39,058 31,812 17,645
Other long-term debt -0- -0- -0- -0-
Other borrowings 3,962 2,339 1,005 170
Average shareholders' equity 51,605 48,584 43,470 38,611
Average total assets 497,014 492,822 452,725 413,546
Financial Ratios:
Net income to average assets 1.39% 1.35% 1.33% 1.17%
Overhead ratio /(3)/ 1.99% 1.99% 2.02% 2.10%
Net income to average
shareholders' equity 13.35% 13.69% 13.81% 12.48%
Dividend payout ratio /(4)/ 43.32% 34.22% 25.20% 28.79%
Average shareholder's equity
to average total assets 10.38% 9.86% 9.60% 9.34%
<CAPTION>
As of or for the years ended December 31,
-----------------------------------------
1995 1994
-------------- -------------
(Amounts in thousands, except per share data and percentages)
<S> <C> <C>
Summary of Operations:
Net interest income $ 15,424 $ 11,290
Provision for possible loan losses 593 538
Net income 4,306 3,030
Per Share Data:
Net income - basic/(1)/ $ 0.53 $ 0.42
Net income - diluted((1)/ 0.53 0.42
Cash dividends declared/(1)/ 0.103 0.088
Book value /(1)/ 4.56 3.84
Tangible book value/(1)/ 4.06 3.52
Balance Sheet Summary:
Investments $ 93,401 $ 59,341
Loans, net 246,789 188,283
Deposits 338,924 248,672
Assets 393,543 290,233
Long-term debt and
other borrowings /(2)/ 5,157 4,730
Federal Home Loan Bank
advances 8,941 5,629
Other long-term debt -0- -0-
Other borrowings -0- -0-
Average shareholders' equity 34,229 25,356
Average total assets 374,435 283,178
Financial Ratios:
Net income to average assets 1.15% 1.07%
Overhead ratio /(3)/ 2.25% 2.47%
Net income to average
shareholders' equity 12.58% 11.95%
Dividend payout ratio /(4)/ 21.93% 18.18%
Average shareholder's equity
to average total assets 9.14% 8.95%
</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.
/(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 divided by net income, including pooled
subsidiaries.
6
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
Selected Financial Data
(Unaudited)
<TABLE>
<CAPTION>
As of or for
the three
months ended As of or for the Years ended December 31,
--------------------------------------------------------------
March 31, 1999 1998 1997 1996(4) 1995 1994
-------------- ---------- ---------- ---------- ---------- ----------
(Amounts in thousands, except per share data and percentages)
<S> <C> <C> <C> <C> <C> <C>
Summary of Operations:
Net interest income $ 855 $ 3,477 $ 3,767 $ 3,659 $ 3,777 $ 3,340
Provision for possible loan -0- -0- -0- -0- -0- 60
losses
Net income 321 1,336 1,505 1,015 1,501 1,229
Per Share Data:
Net income - basic $ 0.58 $ 2.42 $ 2.82 $ 1.94 $ 2.92 $ 2.38
Net income - diluted 0.58 2.41 2.81 1.89 2.88 2.38
Cash dividends declared 0.00 0.82 7.81 0.80 3.75 0.70
Book value 27.48 27.15 24.86 30.06 28.53 29.02
Tangible book value 27.48 27.15 24.86 30.06 28.53 20.02
Balance Sheet Summary:
Investments $ 5,173 $ 5,249 $ 5,320 $ 5,473 $ 5,472 $ 5,315
Loans, net 86,461 88,038 87,640 84,024 80,418 76,515
Deposits 90,724 90,831 85,913 84,689 83,144 74,793
Average shareholders' equity 15,058 14,662 16,011 15,856 15,318 14,881
Average total assets 106,977 102,750 102,384 99,486 94,411 91,049
Financial Ratios:
Net income to average assets 1.20% 1.30% 1.47% 1.02% 1.59% 1.35%
Overhead ratio /(1)/ 1.34% 1.35% 1.37% 2.09% 1.55% 1.50%
Net income to average 8.52% 9.11% 9.40% 6.40% 9.80% 8.26%
shareholders' equity
Dividend payout ratio /(2)//(3)/ .00 33.85% 29.68% 41.71% 26.36% 29.50%
Average shareholders' equity to
average total assets 14.08% 14.27% 15.64% 15.94% 16.22% 16.34%
</TABLE>
__________________________
/(1)/ Represents noninterest expense less noninterest income divided by average
assets.
/(2)/ Represents dividends declared divided by net income.
/(3)/ Excludes special cash dividends paid in 1997 and 1995 of $7.00 and $3.00
per share, respectively.
/(4)/ The data shown for 1996 reflects a charge of approximately $493,000
connected with a one time special assessment from the Savings Association
Insurance Fund. See "BAXLEY MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Comparison of Operating
Results for the Years Ended December 31, 1997 and December 31, 1996 Other
--Income and Other Expenses."
7
<PAGE>
PAB BANKSHARES, INC. AND SUBSIDIARIES
AND BAXLEY FEDERAL SAVINGS BANK
Pro Forma Selected Financial Data
(Unaudited)
<TABLE>
<CAPTION>
As of or for the
three months ended,
As of or for the Years ended December 31,
----------------------------------------------------
March 31, 1999 1998 1997 1996 1995 1994
------------------- -------- -------- -------- -------- --------
(Amounts in thousands, except per share and ratio data and percentages)
<S> <C> <C> <C> <C> <C> <C>
Summary of Operations:
Net interest income $ 6,010 $ 24,170 $ 22,861 $ 20,241 $ 19,201 $ 15,260
Provision for possible loan losses 162 903 793 633 593 598
Net income 2,043 7,987 7,508 5,834 5,807 4,259
Per Share Data:
Net income - basic/(1)/ $ 0.21 $ 0.83 $ 0.79 $ 0.62 $ 0.62 $ 0.50
Net income - diluted/(1)/ 0.21 0.81 0.78 0.62 0.61 0.50
Cash dividends declared/(1)/ 0.09 0.275 0.175 0.135 0.103 0.088
Book value/(1)/ 6.96 6.88 6.23 5.98 5.54 5.05
Tangible book value/(1)/ 6.69 6.60 5.91 5.62 5.13 4.80
Balance Sheet Summary:
Investments $ 91,764 $100,493 $ 88,759 $ 94,972 $ 98,873 $ 64,656
Loans, net 442,941 435,343 404,909 366,517 327,207 264,798
Deposits 494,742 504,087 472,556 488,707 422,068 323,465
Assets 612,202 620,853 572,627 535,102 492,636 380,978
Long-term debt and other borrowings/(2)/ -0- -0- 2,184 3,384 5,157 4,730
Federal Home Loan Bank advances 37,354 39,058 31,812 17,645 8,941 5,629
Other long-term debt -0- -0- -0- -0- -0- -0-
Other borrowings 3,962 2,339 1,005 170 -0- -0-
Average shareholders' equity 66,663 63,246 59,481 54,467 49,547 40,237
Average total assets 603,991 595,572 555,109 513,032 468,846 374,227
Financial Ratios:
Net income to average assets 1.35% 1.34% 1.35% 1.14% 1.24% 1.14%
Overhead ratio/(3)/ 1.87% 1.88% 1.90% 2.10% 2.11% 2.23%
Net income to average shareholders' equity 12.26% 12.63% 12.62% 10.71% 11.72% 10.58%
Dividend payout ratio/(4)//(5)/ 36.51% 34.16% 26.09% 31.03% 23.08% 21.46%
Average shareholders' equity to average
total assets 11.04% 10.62% 10.72% 10.62% 10.57% 10.75%
</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.
/(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 divided by net income, including pooled
subsidiaries.
/(5)/ Excludes special cash dividends paid in 1997 and 1995 of $7.00 and $3.00
per share, respectively.
8
<PAGE>
RISK FACTORS
If the merger is consummated, you will receive shares of PAB common stock
in exchange for your shares of Baxley common stock (unless you dissent from the
merger and receive the appraised value of your shares of Baxley common stock in
cash). An investment in PAB common stock is subject to a number of risks and
uncertanties, many of which also apply to your existing investment in Baxley
common stock. Risks and uncertainties relating to economic conditions and other
matters that would affect other financial institutions in similar ways are
generally not summarized below. Those risks, among others, are highlighted on
page 11 under the heading "A Warning About Forward-Looking Statements."
However, there are a number of other risks and uncertainties relating to
PAB and your decision on the merger that you should consider in addition to the
risks and uncertainties associated with financial institutions generally. Many
of these risks and uncertainties could affect PAB's future financial results and
may cause PAB's future earnings and financial condition to be less favorable
than PAB's expectations. This section summarizes those risks.
PAB's operating costs after the merger and other recent acquisitions may be
greater than expected, and PAB's costs savings from the merger and other recent
acquisitions may be less than expected, or PAB may be unable to obtain those
cost savings as soon as expected.
PAB's rapid growth over the last several years resulting from acquisitions
it has made - as well as the possibility of future growth from acquisitions -
produces risks of unknown liabilities that may cause costs after the merger and
other past and potential future acquisitions to be greater than expected.
Expectations concerning future earnings depend in part on PAB being able to
combine the operations of acquired institutions with PAB's own operations
promptly and efficiently, and also on PAB being correct in its assumptions about
the financial impact of its acquisitions.
PAB has estimated that it can achieve cost savings as a result of its
acquisition of Baxley and its other recently completed acquisitions. There is a
risk that the anticipated savings may not be realized or that they may be less
than PAB expects.
PAB may be unable to successfully integrate Baxley and other acquired businesses
or may have more trouble integrating acquired businesses than expected.
There is a risk that the maintenance of an acquired institution's key
customers and personnel and the conversion of its systems and procedures to
PAB's systems and procedures - including Baxley's - may not be possible or
completed on schedule or may be more difficult and costly than expected, which
could cause the acquired operations to perform below expectations. Maintaining
an acquired institution's key customers and personnel and converting its systems
and procedures to PAB's systems and procedures is an important part of PAB's
acquisition program.
Prior to acquiring an institution, PAB frequently estimates that it will be
able to maintain most of the institution's key customers and personnel and
convert its systems and procedures with a minimal amount of costs and diversion
of management time and attention. There is a risk that integrating Baxley and
other acquired businesses may take a greater amount of resources than PAB
expects.
Baxley's directors may have interests in the merger that are different from
yours, which may present them with potential conflicts of interest.
In considering the recommendation of the merger by Baxley's board of
directors, you should be aware that Baxley's directors may have interests in the
merger that may present them with potential conflicts of interest. These
interests relate to, among other things, provisions in the merger agreement
regarding directors' indemnification, continuation of service on Baxley's board
of directors, as well as possible service on PAB's board of directors. There is
a risk that these interests may have influenced the decision by Baxley's board
of directors to recommend to you the merger. See "THE MERGER -- Interests of
Certain Persons in the Merger."
9
<PAGE>
Your merger consideration may be fixed despite a change in PAB's stock price.
Unless you dissent from the merger and receive the appraised value of your
shares of Baxley common stock in cash, upon consummation of the merger, each
share of Baxley common stock will be converted into the right to receive a
number of shares of PAB common stock based on the average closing price of PAB
common stock over a 20 day trading period five days prior to the effective time
of the merger. If the average closing price of PAB common stock during this time
is between $13.00 and $21.00, you will receive 2.40 shares of PAB common stock.
Accordingly, there is a risk that you will receive less value for your shares of
Baxley common stock if PAB's average closing price is nearer to $13.00 than
$21.00. Although there are termination provisions in the merger agreement
associated with the price of PAB common stock if it drops below $13.00, Baxley's
Board of Directors may decide not to exercise them. See "THE MERGER Amendment,
Waiver and Termination." The price of PAB common stock when the merger takes
place may vary from its price at the date of this proxy statement/prospectus and
at the date of Baxley' special meeting. Such variations in the price of PAB
common stock may result from changes in the business, operations or prospects of
PAB, regulatory considerations, general market and economic conditions and other
factors. At the time of Baxley's special meeting, you will not know the exact
value of PAB common stock that you will receive when the merger is completed.
PAB could lose its key personnel or spend a greater amount of resources
attracting, retaining and motivating them than it has in the past.
R. Bradford Burnette, who has served as President, Chief Executive Officer
and a director of PAB since 1982 - and has been primarily responsible for the
development and expansion of PAB's business - does not have an employment
agreement with PAB. Although PAB maintains a $100,000 key-man life insurance
policy on Mr. Burnette and believes that its relations with him, as well as its
other key personnel, are good, there is a risk that PAB could lose the services
of Mr. Burnette or other key personnel. In addition, there is a risk that PAB
will have to expend a greater amount of resources attracting, retaining and
motivating such personnel, resulting in an increase in labor costs.
PAB's computer systems, or those of its service providers, suppliers, or
customers, may not operate properly on year 2000-sensitive dates.
The year 2000 issue refers generally to the data structure problem that
will prevent systems from properly recognizing dates after the year 1999. PAB
has appointed a year 2000 committee with a full-time year 2000 coordinator to
conduct a comprehensive review of its operational and financial systems to
determine how the year 2000 will impact the operation of these systems. The
committee has developed a plan to identify all critical systems and developed
solutions for all systems that are found not to be ready for the year 2000. In
addition, confirmations have been received from PAB's primary processing vendors
and counterparties that plans have been developed to address processing of
transactions in the year 2000. However, because the identification and solving
of all year 2000 issues is a complex problem, there is a risk that PAB's
computer systems and the systems of other companies with whom PAB conducts
business will not be ready for the year 2000 prior to December 31, 1999.
10
<PAGE>
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
We make forward-looking statements in this proxy statement/prospectus, and,
in the case of PAB, the public documents to which PAB refers, that are subject
to risks and uncertainties. These forward-looking statements include information
about possible or assumed future results of our operations or the performance of
PAB after the merger. Also, when we use any of the words "believes," "expects,"
"anticipates" or similar expressions, we are making forward-looking statements.
Many possible events or factors could affect our future financial results and
performance. This could cause our results or performance to differ materially
from those expressed in our forward-looking statements. You should consider
these important factors when you vote on the merger. Factors that may cause
actual results to differ materially from those contemplated by our forward-
looking statements include the following:
. PAB's operating costs after the merger and other recent acquisitions
may be greater than expected, and PAB's cost savings from the merger
and other recent acquisitions may be less than expected, or PAB may be
unable to obtain those cost savings as soon as expected;
. PAB may be unable to successfully integrate Baxley and other acquired
businesses or may have more trouble integrating acquired businesses
than expected;
. PAB could lose its key personnel or spend a greater amount of
resources attracting, retaining and motivating them than it has in the
past;
. Competition among depository and other financial institutions may
increase significantly;
. Changes in the interest rate environment may reduce operating margins;
. General economic or business conditions, including acquisition and
growth opportunities, may be worse than expected;
. Legislative or regulatory changes may adversely affect our businesses;
and
. Disruption in data processing caused by computer malfunctions
associated with the year 2000 problem may be greater than expected.
We have based our forward-looking statements on our current expectations
about future events. Although we believe that the expectations reflected in our
forward-looking statements are reasonable, we cannot guarantee you that these
expectations actually will be achieved. We are under no duty to update any of
the forward-looking statements after the date of this proxy statement/prospectus
to conform those statements to actual results. In evaluating these statements,
you should consider various factors, including the risks outlined in the section
entitled "Risk Factors," beginning on page 9. You should also consider the
cautionary statements contained in PAB's filings with the Securities and
Exchange Commission and Baxley's filings with the Office of Thrift Supervision.
These factors may cause our actual results to differ materially from our
forward-looking statements.
11
<PAGE>
INFORMATION CONCERNING BAXLEY'S SPECIAL MEETING
General
This proxy statement/prospectus (this "Proxy Statement/Prospectus") is
being mailed by Baxley to holders of its common stock, $0.01 par value per share
("Baxley Common Stock"), on or about ______ __, 1999, together with the notice
of the special meeting of shareholders of Baxley (the "Special Meeting") and a
form of proxy solicited by Baxley's Board of Directors for use at the Special
Meeting and at any adjournments or postponements thereof.
The Special Meeting
The Special Meeting will be held at the main office of Baxley, located at
219 East Parker Street, Baxley, Georgia 31513-2001, at 4:30 p.m., local time,
on ______ ____, 1999. Only holders of Baxley Common Stock of record at the
close of business on _________ ______, 1999 (the "Record Date") will be entitled
to receive notice of and to vote at the Special Meeting. As of the Record Date,
there were 551,481 shares of Baxley Common Stock outstanding and entitled to
vote, with each such share entitled to one vote.
Matters to be Considered
At the Special Meeting, Baxley shareholders will be asked to consider and
vote upon a proposal to approve the Agreement and Plan of Merger, dated as of
June 3, 1999 (the "Merger Agreement"), by and between Baxley and PAB, to be
joined in by PAB Interim Association No. 1, a wholly owned subsidiary of PAB
(the "Merger Sub"), pursuant to which, among other matters, the Merger Sub will
be merged with and into Baxley (the "Merger") and shares of Baxley Common Stock
will be converted into the right to receive shares of the common stock of PAB,
no par value per share ("PAB Common Stock"). Upon consummation of the Merger,
the Merger Sub will cease to exist and Baxley will become a wholly owned
subsidiary of PAB.
Vote Required
Under federal law, the affirmative vote of the holders of at least two-
thirds (2/3) of the outstanding shares of Baxley Common Stock entitled to vote
is required to approve and adopt the Merger Agreement. On the Record Date, there
were approximately 415 holders of record of Baxley Common Stock. On such date,
the directors and officers of Baxley and their affiliates beneficially owned,
and expressed their intent to vote in favor of the Merger, a total of
approximately 33.5% of the outstanding shares of Baxley Common Stock. At the
date of this Proxy Statement/Prospectus, neither PAB nor any of its affiliates
owned any of the outstanding shares of Baxley Common Stock.
Voting of Proxies
Shares of Baxley Common Stock represented by properly executed proxies
received at or prior to the Special Meeting will be voted at the Special Meeting
in the manner specified by the holders of such shares. Properly executed proxies
which do not contain voting instructions will be voted "FOR" approval and
adoption of the Merger Agreement, and as determined by a majority of Baxley's
Board of Directors, as to any other matter that may come before the Special
Meeting, including, among other things, a motion to adjourn or postpone the
Special Meeting to another time for the purpose of soliciting additional proxies
or otherwise. However, no proxy with instructions to vote against the merger
will be voted in favor of any adjournment or postponement of the Special
Meeting. Any shareholder present in person or by proxy (including broker non-
votes, which generally occur when a broker who holds shares in street name for a
customer does not have the authority to vote on certain non-routine matters
because its customer has not provided any voting instructions with respect to
the matter) at the Special Meeting who abstains from voting will be counted for
purposes of determining whether a quorum exists.
12
<PAGE>
Because approval of the Merger Agreement requires the affirmative vote of
at least two-thirds (2/3) of all the votes entitled to be cast at the Special
Meeting by Baxley shareholders, abstentions and broker non-votes will have the
same effect as negative votes. Accordingly, Baxley's Board of Directors urges
its shareholders to complete, date, and sign the accompanying form of proxy and
return it promptly in the enclosed, postage-paid envelope.
If any other matters are properly presented at the Special Meeting, the
person or persons named in the form of proxy enclosed with this Proxy
Statement/Prospectus and acting thereunder will have discretion to vote on such
matters in accordance with their best judgment, unless the proxy indicates
otherwise. Baxley has no knowledge of any matters to be presented at the Special
Meeting, other than the matters described in this Proxy Statement/Prospectus.
Revocability of Proxies
The grant of a proxy on the enclosed form of proxy does not preclude an
Baxley shareholder from voting in person or otherwise revoking a proxy. A Baxley
shareholder may revoke a proxy at any time prior to its exercise by delivering
to the Corporate Secretary of Baxley, a duly executed revocation or proxy
bearing a later date or by voting in person at the Special Meeting. All written
notices of revocation and other communications with respect to the revocation of
Baxley proxies should be addressed to Baxley Federal Savings Bank, 219 East
Parker Street, Baxley, Georgia 31513-2001, Attention: Corporate Secretary.
Attendance at the Special Meeting will not in and of itself constitute
revocation of a proxy.
Solicitation of Proxies
Baxley will bear the cost of the solicitation of proxies in connection with
the Special Meeting, except that PAB will pay the Securities and Exchange
Commission ("SEC") filing fee payable in connection with the Registration
Statement of which this Proxy Statement/Prospectus is a part and one-half of the
printing costs incurred in connection with the printing of such Registration
Statement and this Proxy Statement/Prospectus.
Solicitation of proxies may be made in person or by mail, telephone, or
facsimile, or other form of communication by directors, officers, and employees
of Baxley, who will not be specially compensated for such solicitation.
Nominees, fiduciaries, and other custodians will be requested to forward
solicitation materials to beneficial owners and to secure their voting
instructions, if necessary, and will be reimbursed for the expenses incurred in
sending proxy materials to beneficial owners.
No person is authorized to give any information or to make any
representation not contained in this Proxy Statement/Prospectus and, if given or
made, such information or representation should not be relied upon as having
been authorized by Baxley, PAB or any other person. The delivery of this Proxy
Statement/Prospectus does not, under any circumstances, create any implication
that there has been no change in the business or affairs of Baxley or PAB since
the date of the Proxy Statement/Prospectus.
Recommendation of Baxley's Board of Directors
Baxley's Board of Directors has unanimously approved the Merger Agreement
and the transactions contemplated thereby, believes that the Merger is in the
best interests of Baxley and its shareholders, and recommends that Baxley
shareholders vote "FOR" approval of the Merger Agreement.
In the course of reaching its decision to approve the Merger Agreement and
the transactions contemplated thereby, Baxley's Board of Directors, among other
things, consulted with its legal advisors regarding the legal terms of the
Merger Agreement and with its financial advisor, Trident Securities, a division
of McDonald Investments Inc. ("Trident"), as to the fairness, from a financial
point of view, of the consideration to be received by the holders of Baxley
Common Stock in the Merger. For a discussion of the factors considered by
Baxley's Board of Directors in reaching its conclusion, see "THE MERGER --
Background of the Merger" and "--Baxley's Reasons for the Merger."
Baxley shareholders should note that certain members of management and
directors of Baxley have certain interests in, and may derive certain benefits
as a result of, the Merger that are in addition to their interests as
shareholders of Baxley. See "THE MERGER -- Interests of Certain Persons in the
Merger."
13
<PAGE>
Information about Baxley's Auditors
A representative of H.H. Burnet & Company, P.C. is expected to be present
at the Special Meeting and will have the opportunity to make a statement and
respond to appropriate questions if he or she desires.
Baxley shareholders should not send any stock certificates with their
proxy cards.
14
<PAGE>
THE MERGER
The descriptions of the terms and conditions of the Merger, the Merger
Agreement, and any related documents in this Proxy Statement/Prospectus are
qualified in their entirety by reference to the copy of the Merger Agreement
attached as Appendix A to this Proxy Statement/Prospectus, to the federal
provisions governing dissenters' rights, a copy of which is attached as Appendix
B to this Proxy Statement/Prospectus, to the Registration Statement of which
this Proxy Statement/Prospectus is a part and to the exhibits to the
Registration Statement.
General
The Merger Agreement provides that the Merger Sub will merge with and into
Baxley with Baxley as the surviving bank in the Merger. As a result, Baxley will
become a wholly owned subsidiary of PAB, and the Merger Sub will cease to exist.
At the time the Merger becomes effective, each share of issued and outstanding
Baxley Common Stock (excluding shares held by PAB and its subsidiaries, Baxley
and Baxley shareholders who exercise their dissenters' rights) will be converted
into the right to receive a number of shares of PAB Common Stock which will be
determined by the formula set forth below in "Merger Consideration." If the
Merger Agreement is approved at the 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.
Background of the Merger
During the last several years, there has been a trend toward consolidation
in the banking industry. This trend has been fueled by, among other things,
recent national and state banking-related legislation and has enabled
participants in business combinations to benefit from the economies of scale and
greater efficiencies available to the combined entities. Financial institutions
have increasingly sought suitable combinations as a means of obtaining such
benefits.
Upon the recommendation of Baxley's Board of Directors, in May 1998,
Baxley's senior management met with Trident to review the state of the equity
markets for independent community-based financial institutions and to discuss
strategic alternatives to enhance shareholder value. After meeting with Trident,
Baxley's senior management reported to Baxley's Board of Directors that there
were certain factors that could limit the ability of Baxley to continue its
historical earnings performance. These factors included:
. shrinking profit margins in the traditional mortgage and deposit
gathering banking business;
. the need to broaden Baxley's product line in order to diversify
Baxley's revenues and reduce its dependence on residential real estate
lending;
. the likelihood of lower earnings during the implementation and start-
up periods of broadening Baxley's product line;
. the uncertainty of successfully diversifying Baxley's revenues;
. the need for a more significant commitment of resources to technology;
and
. the highly competitive and rapidly changing financial services
industry.
Faced with these factors, Baxley's Board of Directors retained Trident in
July 1998 to formally explore its strategic options, including using Trident's
best efforts as Baxley's financial advisor to solicit, confidentially,
indications of interest from various financial institutions and other
appropriate potential acquirers. Baxley selected Trident for reasons which
included, among others, its familiarity with Baxley's business and market area,
as well as its knowledge of southeastern financial institutions and its previous
experience with mergers and acquisitions involving financial institutions. The
goal of Baxley's Board of Directors was to obtain a high value for shareholders,
receive shares of stock that would enjoy greater liquidity and maintain a
community bank identity in the local market place. To achieve this goal, Trident
identified all of the financial institutions with operations in Georgia that
were traded on an active
15
<PAGE>
market or through the pink sheet system. From that universe, Trident selected
the companies most likely to be interested in a combination with Baxley based on
geographic proximity and the financial ability to fairly compensate Baxley
shareholders. Trident contacted prospective acquirers, including PAB, and, upon
obtaining confidentiality agreements, provided them with information on Baxley.
In October 1998, PAB and other interested parties submitted initial indications
of interest to Trident. Baxley conducted further discussions with PAB and other
interested parties and asked for final indications of interest from those
parties. In November 1998, Trident met with Baxley's Board of Directors to
evaluate the final indications of interest. Baxley's Board of Directors decided
that PAB's proposal met its criteria and represented the highest value to Baxley
shareholders. At that time, Baxley's Board of Directors voted to begin
negotiating a definitive merger agreement with PAB.
In March 1999, Trident performed an on-site due diligence examination of
PAB. On June 3, 1999, Trident and Baxley's legal counsel presented to Baxley's
Board of Directors a summary of the Merger Agreement, due diligence findings and
Trident's opinion that the consideration to be received from PAB was fair, from
a financial point of view, to Baxley shareholders. See " Opinion of Trident." At
the conclusion of this meeting the Merger Agreement was approved by Baxley's
Board of Directors. The Merger Agreement was approved by PAB's Board of
Directors as of June 1, 1999.
Baxley's Reasons for the Merger
Baxley's Board of Directors believes that the Merger is in the best
interest of Baxley shareholders. Baxley's Board of Directors considered a number
of factors in deciding to approve and recommend the terms of the Merger to
Baxley shareholders, including:
. the financial condition, results of operations, and future prospects
of Baxley;
. the value of the consideration to be received by Baxley shareholders
relative to the book value and earnings per share of Baxley Common
Stock;
. the competitive and regulatory environment for financial institutions
generally;
. the fact that the Merger will enable Baxley shareholders to exchange
their Baxley Common Stock (for which there is no established public
trading market) for shares of common stock of a larger and more
diversified entity, the stock of which is more widely held and more
actively traded;
. the likelihood of receiving requisite regulatory approvals;
. the expectation that the Merger will be a tax-free transaction to
Baxley shareholders (except for cash received for fractional shares of
Baxley Common Stock and by those who exercise their dissenters'
rights) for federal income tax purposes;
. the prospects for growth and expanded products and services, and other
anticipated positive impacts on the employees, customers and
communities served by Baxley;
. the financial and valuation analyses prepared by Trident;
. the potential for appreciation in the value of PAB Common Stock; and
. the nature and compatibility of PAB's management and business
philosophy with Baxley.
The foregoing discussion of the information and factors considered by
Baxley's Board of Directors is not intended to be exhaustive. Baxley's Board of
Directors did not assign any relative or specific weights to the foregoing
factors, and individual directors may have given different weights to different
factors.
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<PAGE>
PAB's Reasons for the Merger
PAB's Board of Directors, after consideration of relevant business,
financial, legal and market factors, approved the Merger Agreement. In reaching
this decision, PAB's Board of Directors considered all material factors,
although it did not assign any relative or specific weight to any individual
factor. PAB's Board of Directors also took into account its stated strategic
long-term goal of expanding 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 profit position of Baxley, giving
consideration to Baxley's size, its shareholder base and, management expertise.
After considering these factors, PAB determined that the Merger would help
accomplish its long-term goals and would enhance value for PAB shareholders,
while permitting PAB to continue to grow and expand as an independent bank
holding company.
Merger Consideration
The Merger Agreement provides that, at the date and time at which the
Articles of Combination reflecting the Merger become effective with the Office
of Thrift Supervision (the "Effective Time"), each issued and outstanding share
of Baxley Common Stock (excluding shares held by PAB or any of its subsidiaries
or by Baxley, in each case other than in a fiduciary capacity or as a result of
debts previously contracted, and excluding shares held by Baxley shareholders
who exercise their dissenters' rights) will be converted into 2.40 shares of PAB
Common Stock. However, if (i) the Deemed Market Value (as defined below), is
less than $13.00 per share, then Baxley may terminate or renegotiate the Merger
Agreement or (ii) the Deemed Market Value is greater than $21.00, then the
Merger Consideration (as defined below) will be reduced by an amount equal to
the product of (a) the Merger Consideration multiplied by (b) the ratio formed
by the Deemed Market Value less $21.00, divided by the Deemed Market Value.
Notwithstanding the preceding sentence, if prior to the Effective Time, PAB
shall have entered into a contract whereby PAB will become a subsidiary of
another corporation or will be merged into another corporation and less than a
majority of the members of the board of directors of the resulting corporation
were members of PAB's Board of Directors at the time of the execution of the
contract, then each share of Baxley Common Stock issued and outstanding at the
Effective Time will be converted into 2.40 shares of PAB Common Stock. For
purposes of the Merger Agreement, "Deemed Market Value" means the arithmetic
average of the closing price for one share of PAB Common Stock as reported by
the American Stock Exchange (the "Amex") for the 20 consecutive trading days
immediately preceding the date which is five calendar days prior to the
Effective Time. For purposes of the Merger Agreement, "Merger Consideration"
means 1,323,554.40 shares of PAB Common Stock.
The Merger Agreement provides that the Merger Consideration to be received
for all of the shares of Baxley Common Stock will be reduced, if and as
necessary, by all amounts in excess of $100,000 paid or to be paid by Baxley in
the event the costs and expenses of Baxley, including, filing, registration and
application fees, printing fees and fees of its own consultants, accountants and
counsel (except for those costs and expenses that are payable by Baxley to
Trident and PAB pursuant to the Merger Agreement). In the event of an
adjustment, the Merger Consideration will be reduced by the amount of such costs
and expenses in excess of $100,000 (the "Excess Amount") by subtracting from the
Merger Consideration the quotient obtained by dividing the Excess Amount by the
Deemed Market Value. As of _______ ___, 1999, the total amount of Baxley's
expenses was approximately $______.
In the event Baxley or PAB changes the number of their respective shares of
common stock issued and outstanding prior to the Effective Time as a result of a
stock split, stock dividend or similar recapitalization, the Merger
Consideration will be proportionately adjusted.
Fractional Shares
Pursuant to the terms of the Merger Agreement, each holder of shares of
Baxley Common Stock converted pursuant to the Merger, who would otherwise have
been entitled to receive a fraction of a share of PAB Common Stock will receive,
in lieu thereof, cash (without interest) in an amount equal to such fractional
part of a share of PAB Common Stock multiplied by the Deemed Market Value.
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<PAGE>
Opinion of Trident
On July 6, 1998, Trident was engaged to represent Baxley in merger
negotiations with other financial institutions and to render a fairness opinion
in the event of a successful merger transaction.
On June 3, 1999, Trident met with Baxley's Board of Directors to review the
proposed terms of the Merger Agreement. At that time, Trident presented a report
(the "Fairness Opinion Report") summarizing the financial terms of the Merger
and providing updated market information with respect to thrift mergers and
acquisitions. Trident also analyzed the advantages and disadvantages of the
Merger from a financial point of view. In addition, Trident rendered a written
opinion to Baxley's Board of Directors to the effect that, as of that date, the
consideration to be received by Baxley shareholders pursuant to the Merger
Agreement was fair to them from a financial point of view (the "Opinion"). The
financial fairness standard employed by Trident in rendering the Opinion was
whether such consideration was within the range of the economic values of
consideration that financial institutions having the characteristics of Baxley
and PAB might negotiate in comparable circumstances, not whether the
consideration proposed in the Merger Agreement is at or approaching the higher
end of such range.
An updated copy of the Opinion, which sets forth certain assumptions made,
matters considered and limitations on the reviews undertaken, is attached to
this Proxy Statement/Prospectus as Appendix C. Trident has consented to the
inclusion of the Opinion and summary of the Fairness Opinion Report in this
Proxy Statement/Prospectus.
The Opinion is directed to Baxley's Board of Directors and is directed only
to the fairness, from a financial point of view, of the consideration to be
received by Baxley shareholders based on conditions as they existed and could be
evaluated as of the date of the Opinion. The Opinion does not constitute a
recommendation to any Baxley shareholder as to how the shareholder should vote
at the Special Meeting, nor does the Opinion address the underlying business
decision to consummate the Merger. This summary of the Opinion is qualified in
its entirety by reference to the full text of the Opinion, which is attached to
this Proxy Statement/Prospectus as Appendix C. Baxley shareholders are urged to
read the Opinion in its entirety for a description of the assumptions made and
matters considered and the limits on the review undertaken in rendering the
Opinion.
In connection with rendering the Opinion, Trident reviewed and analyzed,
among other things, the following:
. the Merger Agreement;
. certain publicly available information concerning Baxley, including
the audited financial statements of Baxley for each of the years in
the three-year period ended December 31, 1998 and the unaudited
financial statements of Baxley for the three months ended March 31,
1999;
. certain publicly available information concerning PAB, including the
audited financial statements of PAB for each of the years in the
three-year period ended December 31, 1998 and the unaudited financial
statements of PAB for the three months ended March 31, 1999;
. certain other internal information, primarily financial in nature,
concerning the business and operations of Baxley and PAB furnished to
Trident by Baxley and PAB for purposes of Trident's analysis;
. information with respect to the trading market for PAB Common Stock;
. certain publicly available information with respect to other companies
that Trident believed to be comparable to Baxley and PAB and the
trading markets for such other companies' securities; and
. certain publicly available information concerning the nature and terms
of other transactions that Trident considered relevant to its inquiry.
Trident also met with certain officers and employees of Baxley and PAB to
discuss the foregoing, as well as other matters which it believed relevant to
its inquiry.
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<PAGE>
In its review and analyses and arriving at the Opinion, Trident assumed and
relied upon the accuracy and completeness of all of the financial and other
information provided to it by Baxley, or that was publicly available, the
accuracy of the representations and warranties of the officers and the employees
of Baxley and PAB with whom Trident held discussions, and the accuracy of the
representations and warranties of Baxley and PAB in the Merger Agreement, and
did not attempt independently to verify any such information. Trident further
assumed that there are no conditions in the regulatory approvals of the Merger
Agreement that will have a material adverse effect upon the contemplated
economic benefits of the Merger. The financial information provided to Trident
by Baxley was of the type normally produced by the management of Baxley and
reviewed by Baxley's Board of Directors at its regular meetings and the Board of
Directors and management of Baxley have represented to Trident that they have no
reason to believe that Trident's reliance thereon was unreasonable. Baxley's
Board of Directors, however, did not specifically review the information,
assumptions and other information provided by management to Trident for accuracy
and completeness. Trident did not conduct a physical inspection of the
properties or facilities of Baxley, nor did it make or obtain any independent
evaluations or appraisals of any of such properties or facilities.
In conducting its analyses and arriving at the Opinion, Trident considered
such financial and other factors as it deemed appropriate under the
circumstances including, among others, the following:
. the historical and current financial condition and results of
operations of Baxley and PAB, including interest income, interest
expense, net interest income, net interest margin, interest
sensitivity, non-interest expense, earnings, dividends, book value,
return on assets, return on equity, capitalization, the amount and
type of non-performing assets and the reserve for loan losses;
. the business prospects of Baxley and PAB;
. the economy in Baxley's and PAB's market areas;
. the historical and current market for Baxley Common Stock and PAB
Common Stock and for the equity securities of certain other companies
that Trident believed to be comparable to Baxley and PAB; and
. the nature and terms of certain other acquisition transactions that
Trident believed to be relevant.
Trident also took into account its assessment of general economic, market,
financial and regulatory conditions and trends, as well as its knowledge of the
financial institutions industry, its experience in connection with similar
transactions, and its knowledge of securities valuations generally. The Opinion
necessarily was based upon conditions in existence and subject to evaluation on
June 3, 1999, the date of the Opinion. The Opinion is, in any event, limited to
the fairness, from a financial point of view, of the consideration to be
received by the holders of Baxley Common Stock in the Merger and does not
address Baxley's underlying business decision to effect the Merger.
The summaries set forth below reflect all of the material analyses, factors
and assumptions considered by Trident and the material valuation methodologies
used by Trident in arriving at the Opinion as to fairness described above. The
preparation of a fairness opinion is a complex process and is not necessarily
susceptible to partial or summary description. Trident believes that its
analyses and the summary set forth below must be considered as a whole, and that
selecting portions of its analyses without considering all of the analyses, or
reviewing the summary without considering all factors and analyses, would create
an incomplete view of the processes underlying the analyses set forth in the
Fairness Opinion Report and the Opinion. Therefore, the ranges of valuations
resulting from any single analysis described below should not be taken to be
Trident's view of the actual value of Baxley or the combined company. In
performing its analyses, Trident made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of Baxley. The results of the
specific analyses performed by Trident may differ from Baxley's actual values or
actual future results as a result of changing economic conditions, changes in
company strategy and policies, as well as a number of other factors. Such
individual analyses were prepared to provide valuation guidance solely as part
of Trident's overall valuation analysis and the determination of the fairness,
from a financial point of view, of the consideration to be paid to Baxley's
shareholders. The analyses do not purport to be appraisals or to reflect the
prices at which a financial institution might actually be sold or the prices at
which any securities may trade at the present time or at any time in the future.
In addition, as described above, the Opinion and presentations to Baxley's Board
of Directors were among the many factors taken into consideration by Baxley's
Board of Directors in making its determination to approve the Merger Agreement.
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<PAGE>
State of the Market. Trident reviewed the current and historical trading
market for thrift and bank equities, and current and historical trends in the
acquisition markets for banks and thrifts. Trident focused on the acquisition
market for thrifts with particular attention to the segments of the market which
it believed to be the most relevant to Baxley, such as thrifts of similar size
and profitability, thrifts with similar capital structures and asset quality,
and thrifts located in the same geographic region.
Strategic Alternatives. Trident reviewed the following strategic
alternatives open to Baxley: (i) remain independent; (ii) merge with a larger
financial institution; and (iii) merge with an institution of similar size.
Financial Analysis of Baxley. Trident examined Baxley's financial
performance for the period January 1, 1996 through March 31, 1999 by analyzing
the composition of its balance sheet, adjusting and normalizing its earnings,
and calculating a variety of operating and financial ratios for Baxley. Trident
compared Baxley's deposit market share with other financial institutions
operating in the same market.
Peer Group Analysis. Trident evaluated Baxley's strengths and weaknesses by
comparing the financial performance of Baxley to that of the following groups of
stock thrift institutions based on regulatory financial information and
Generally Accepted Accounting Principles ("GAAP") financial information as of
March 31, 1999:
. all U.S. thrifts;
. Georgia thrifts;
. Southeast thrifts;
. thrifts of similar size ($50 to $150 million of assets); and
. Southeast thrifts of similar size.
This analysis compared a number of Baxley's historical financial ratios to
those of the peer groups, including but not limited to:
. balance sheet composition;
. key ratios;
. income and expense ratios for the trailing four quarters, the most
recent quarter, and the most recent calendar year;
. historical ROAA (defined as net income for the period divided by
average assets for the same period) and ROAE (defined as net income
for the period divided by average equity for the same period); and
. asset, loan, deposit and equity growth rates for selected periods.
Prospective Acquirers. Trident presented Baxley with a list of all publicly
traded financial institutions with operations in Georgia. These companies were
categorized based on Trident's perceived level of interest from the company and
its "fit" with Baxley.
The following is a summary of the Fairness Opinion Report presented to
Baxley's Board of Directors of Baxley on June 3, 1999:
Process. Trident reviewed the process that led to the Merger Agreement.
Trident performed a market check by contacting a group of the most logical
potential acquirers for Baxley based on such factors as liquidity of stock,
geographic scope of operations and financial ability to fairly compensate Baxley
shareholders. Upon receiving final indications of interest from certain of the
contacted parties, Baxley chose to negotiate an agreement with PAB because PAB's
offer represented the highest per share value to Baxley shareholders and
otherwise satisfied Baxley's Board of Directors' criteria.
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<PAGE>
At the time of the Fairness Opinion Report, PAB's offer still represented the
highest per share value to Baxley shareholders after making any necessary
adjustments to the other indications of interest for the current stock prices of
those companies.
Recent Developments. Trident reviewed changes in the equities and
acquisition markets for thrift institutions since beginning the process of
seeking indications of interest in August 1998. The following table outlines the
percentage change in various equity indices over that time period and over the
last 12 months:
<TABLE>
<CAPTION>
Banks*$500M
S&P 500 All Banks All Thrifts in Assets Thrift*$250 M
------- --------- ----------- --------- --------------
<S> <C> <C> <C> <C> <C>
6/1/98 - 6/1/99 19.5% 1.4% -18.5% -19.3% -25.4%
8/17/98 - 6/1/99 20.1% 7.9% -1.2% -11.6% -14.6%
Source: SNL Securities, LC
</TABLE>
_________________
* Less Than
During the same time period, the median stock price of the potential
acquirers contacted by Trident declined 24%. The decline in trading prices for
smaller financial institutions and potential acquirers reduces the ability of
those companies to pay high prices in stock transactions without incurring
earnings per share dilution. Trident also summarized changes in the composition
of Baxley's balance sheet and financial performance since the marketing period
began. Baxley's loans declined 2.5% between March 31, 1998 and March 31, 1999.
Net income and earnings per share declined 11.5% and 14.9%, respectively for the
12 months ended March 31, 1999 versus the same period ended March 31, 1998.
Trident discussed with Baxley's Board of Directors the impact of changes in
market conditions and changes in Baxley's financial condition on the control
value for Baxley Common Stock.
Contribution Analysis. Trident analyzed the contribution of each
institution to the pro forma company relative to the approximate ownership of
the pro forma company. The analysis indicated that Baxley shareholders would
hold approximately 13.8% of the pro forma diluted shares. Baxley's approximate
contributions are listed below by category:
Baxley PAB
------ ---
Assets 17.4% 82.6%
Equity 22.1% 77.9%
Tangible Equity 23.0% 77.0%
Net Income 16.3% 83.7%
Net Income (core)* 15.1% 84.9%
___________________
*Net income adjusted to exclude non-recurring items and loan loss
provisions
Summary of Proposed Transaction. Trident presented a summary to Baxley's
Board of Directors of the financial terms of the Merger and discussed the
advantages and disadvantages of the Merger from a financial point of view.
Due Diligence of PAB. In March of 1999, Trident conducted an on-site due
diligence review of PAB, the results of which were discussed with Baxley's Board
of Directors. During its investigation, Trident did not discover any conditions
that would prevent it from rendering its fairness opinion to Baxley's Board of
Directors. As discussed above, Trident relied, without independent verification,
upon the accuracy and completeness of all of the financial and other information
provided by PAB.
Trident, as part of its investment banking business, is continually engaged
in the valuation of businesses and their securities in connection with mergers
and acquisitions, negotiated underwriting, and valuations for corporate and
other purposes. Trident has extensive experience with the valuation of financial
institutions. In the ordinary course of its business, Trident may trade the
securities of Baxley and PAB for its own account and for the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities. Baxley's Board of Directors selected Trident as its financial
advisor because, among other reasons, of its familiarity with its business and
market area, its national reputation as an investment banking firm specializing
in financial institutions, and because of its substantial experience in
transactions similar to the Merger. Trident is not affiliated with Baxley or
PAB.
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For its services as financial advisor, Baxley paid Trident a $5,000
retainer and $10,000 for delivery of a report examining strategic alternatives
and providing a financial analysis. Baxley also paid Trident a fee of $25,000
upon execution of the Merger Agreement. A fee equal to 1.25% of the aggregate
merger consideration, less $40,000, will be payable to Trident upon consummation
of the Merger (a balance due of approximately $_______ based on the total merger
consideration as of ___________, 1999 and the aforementioned fee structure).
Baxley has also agreed to reimburse Trident for its reasonable out-of-pocket
expenses and to indemnify Trident against certain liabilities, including certain
liabilities under federal securities laws.
Effective Time
If the Merger Agreement is approved by the requisite votes of Baxley
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 the Articles
of Combination reflecting the Merger become effective with the Corporate
Secretary of the Office of Thrift Supervision (the "OTS"). Unless otherwise
mutually agreed upon in writing by the chief executive officers of each of PAB
and Baxley, PAB and Baxley will 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:
. 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;
. the date on which Baxley shareholders approve the Merger Agreement; or
. a later date if agreed upon in writing by the chief executive officers
of PAB and Baxley. Assuming satisfaction of all of the conditions to
consummation of the Merger, the Merger is expected to be made
effective during the fourth quarter of 1999.
Either PAB or Baxley may terminate the Merger Agreement prior to the
Effective Time, under certain circumstances. See "-- Conditions to Consummation"
and "-- Amendment, Waiver and Termination."
Distribution of PAB Certificates
Within 20 days after the Effective Time, PAB will mail appropriate
transmittal materials to each record holder of Baxley Common Stock for use in
effecting the surrender and cancellation of those certificates in exchange for
PAB Common Stock. Risk of loss and title to the certificates will remain with
the holder until proper delivery of such certificates to PAB by former Baxley
shareholders. Baxley shareholders should not surrender their certificates for
exchange until they receive a letter of transmittal and instructions from PAB.
After the Effective Time, each holder of shares of Baxley Common Stock, except
holders exercising dissenters' rights, issued and outstanding at the Effective
Time must surrender the certificate or certificates representing such shares to
PAB and will within 20 days after surrender thereof receive the consideration
they are entitled to under the Merger Agreement, together with all undelivered
dividends or distributions in respect of such shares (without interest thereon)
pursuant to the Merger Agreement. As provided in the Merger Agreement, each
record holder of Baxley Common Stock shall also receive cash in lieu of any
fractional share of PAB Common Stock to which such shareholder would be
otherwise entitled (without interest). PAB will not be obligated to deliver the
consideration to which any former holder of Baxley Common Stock is entitled
until the holder surrenders the certificate or certificates representing his or
her shares for exchange. The certificate or certificates so surrendered must be
duly endorsed as PAB may require. PAB will not be liable to a holder of Baxley
Common Stock for any property delivered in good faith to a public official
pursuant to any applicable abandoned property law.
After the Effective Time (and prior to the surrender of certificates of
Baxley Common Stock to PAB), record holders of certificates that represented
outstanding Baxley Common Stock immediately prior to the Effective Time will
have no rights with respect to the certificates other than the right to
surrender the certificates and receive in exchange therefor a certificate or
certificates representing the aggregate number of whole shares of PAB Common
Stock to which the holder is entitled pursuant to the Merger Agreement, together
with a check for the amount (without interest) representing any fractional
share.
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In the event that any dividend or distribution, the record date for which
is on or after the Effective Time, is declared by PAB on the PAB Common Stock,
no such dividend or other distributions will be delivered to the holder of a
certificate representing shares of Baxley Common Stock immediately prior to the
Effective Time until such holder surrenders such certificate as set forth above.
In addition, holders of certificates that represented outstanding Baxley
Common Stock immediately prior to the Effective Time will 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 such shares have been converted, even if
such holder has not surrendered such certificates for exchange as set forth
above.
Certain Federal Income Tax Consequences
The following is a summary of certain federal income tax consequences of
the Merger and the exchange by the holders of Baxley Common Stock of such shares
for shares of PAB Common Stock. This discussion applies only to Baxley
shareholders, if any, who hold their shares as a capital asset. This discussion
does not address all of the aspects of taxation that may be relevant to
particular Baxley shareholders in light of their personal investment or tax
circumstances, or to certain types of Baxley shareholders (including insurance
companies, financial institutions, broker-dealers, foreign corporations, persons
who receive stock through the exercise of stock options or otherwise as
compensation for services rendered and persons who are not citizens or residents
of the United States) subject to special treatment under the federal income tax
laws, nor does it discuss any state, local or foreign tax considerations.
Accordingly, each Baxley shareholder is urged to consult his or her own tax
advisor as to the specific tax consequences of the Merger, including the
applicable federal, state, local and foreign tax consequences of the Merger.
Neither PAB nor Baxley has requested or will receive an advance ruling from
the Internal Revenue Service (the "Service") as to the federal income tax
consequences of the Merger. Rather, a condition to consummation of the Merger is
the receipt by each of PAB and Baxley 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.
The opinion will be based upon certain representations of fact provided by PAB
and Baxley. The representations of fact have not been and will not be
independently verified by Troutman Sanders LLP. The opinion will be also based
upon the Internal Revenue Code of 1986, as amended (the "Code"), regulations
thereunder, administrative rulings and practice by the Service, and judicial
authority, in each case existing at the time the opinion is delivered, and all
of which is subject to change, possibly retroactively. Any change in applicable
law or pertinent facts could affect the continuing validity of the opinion and
this discussion. In addition, a tax opinion is not binding upon the Service, and
there can be no complete assurance, and none is given, that the Service will not
take a position which is contrary to one or more positions reflected in the
opinion, or that any portion of the opinion will be upheld by the courts if
challenged by the Service. PAB and Baxley have represented in the Merger
Agreement that neither they, nor their affiliates, have taken any action or have
knowledge of any fact or circumstance that is reasonably likely to prevent the
Merger from qualifying as a reorganization which is tax-free to Baxley
shareholders pursuant to Section 368(a) of the Code. Based on the foregoing, it
is anticipated that the tax opinion will state, among other matters, that:
. the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code, and PAB, the Merger Sub and Baxley will
each be a party to the reorganization within the meaning of Section
368(b) of the Code;
. no gain or loss will be recognized by PAB or Baxley as a result of the
Merger;
. no gain or loss will be recognized by Baxley shareholders upon the
exchange of Baxley Common Stock for PAB Common Stock pursuant to the
Merger (except with respect to cash received in lieu of a fractional
share interest in PAB Common Stock);
. the receipt of cash in lieu of fractional shares of PAB Common Stock
will be treated as if fractional shares were distributed as part of
the exchange and then were redeemed by PAB;
. a Baxley shareholder who perfects his or her appraisal rights under
federal law and who receives payment in cash for the "fair value" of
his or her shares of Baxley Common Stock will be treated as having
exchanged such shares for cash in a redemption subject to Section 302
of the Code, and the Baxley
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shareholder generally will recognize capital gain or loss in such
exchange equal to the difference between the cash received and the tax
basis of such shares;
. the aggregate tax basis of the shares of PAB Common Stock received by
a Baxley shareholder pursuant to the Merger will be the same as the
aggregate tax basis of the shares of Baxley Common Stock surrendered
in exchange therefor, excluding any basis allocable to a fractional
share of PAB Common Stock for which cash is received; and
. the holding period of shares of PAB Common Stock received by a Baxley
shareholder will include the holding period or periods of the shares
of Baxley Common Stock exchanged therefor, provided that the shares of
Baxley Common Stock are held as a capital asset within the meaning of
Section 1221 of the Code at the Effective Time.
The discussion set forth above does not address the state, local or foreign
tax aspects of the Merger. The discussion is based on 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 which may be retroactive in effect, and any such change could
affect the continuing validity of this discussion.
Each Baxley shareholder is urged to consult his or her personal tax and
financial advisor as to his or her specific federal income tax consequences,
based on his or her own particular status and circumstances, and also as to any
state, local, foreign or other tax consequences arising out of the Merger.
Management and Operations After the Merger
PAB and Merger Sub Officers and Directors. At the Effective Time, the
Merger Sub will be merged with and into Baxley. The Merger Sub will cease to
exist and Baxley will become a wholly-owned subsidiary of PAB. Baxley will
continue to be governed by the federal laws applicable to federally chartered
stock savings banks and its federal stock charter and bylaws as in effect on the
date of the Merger Agreement until otherwise amended or repealed after the
Effective Time. Baxley, with the approval of PAB, will select two of its
directors to be appointed as directors of PAB following the Merger. The Merger
Agreement provides that at the next annual meeting of PAB, one of these
directors will be nominated to serve for a one year term and that the other will
be nominated to serve for a two year term.
After the Merger, the directors and officers of PAB in office at the
Effective Time will remain in their positions in accordance with the Bylaws of
PAB, and the directors of the Merger Sub in office immediately prior to the
Effective Time will become additional directors of Baxley.
Baxley Directors. The Directors of Baxley in office at the Effective Time
may continue, at their discretion, to serve as directors of Baxley. As a
condition of continuing to serve as a director of Baxley after the Effective
Time, each former director of Baxley must retain and beneficially own at least
50% of the PAB Common Stock he received pursuant to the Merger Agreement for so
long as he remains a Baxley director. In addition, the directors of the Merger
Sub in office immediately prior to the Effective Time will become additional
directors of Baxley.
Baxley Executive Officers. Upon the consummation of the Merger, the
executive officers of Baxley in office immediately prior to the Effective Time
will continue to serve as the executive officers of Baxley.
Interests of Certain Persons in the Merger
General. Certain members of Baxley's management and Board of Directors may
be deemed to have interests in the Merger in addition to their interests as
shareholders of Baxley generally. These interests include, among others, certain
proposed employee benefits, an employment agreement with Baxley's current
President and Chief Executive Officer and certain insurance coverage, as
hereinafter described
Employee Benefits. The Merger Agreement provides that, after the Effective
Time, and until December 31, 1999, PAB will provide generally to employees of
Baxley, in accordance with the normal benefit package provided to Baxley
employees, who remain employees of Baxley after the Effective Time, health
insurance, long-term disability insurance and a year-end bonus not to exceed one
month's pay. Following December 31, 1999, PAB will provide
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generally to those who remain employees of Baxley after the Effective Time,
employee benefits under employee benefit plans (other than stock option or other
plans involving the potential issuance of PAB Common Stock), 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. Furthermore, PAB will waive any pre-existing condition
exclusion under any employee health plan to the extent the condition was covered
under the relevant Baxley benefit plan and the individual was covered by the
Baxley benefit plan on the date which immediately precedes the Effective Time.
For purposes of participation, vesting and benefit accrual under PAB's employee
benefit plans, service with Baxley prior to the Effective Time will be treated
as service with PAB or its subsidiaries. Prior to the Effective Time, Baxley
must cancel and terminate all of its employee benefit plans and, to the extent
permitted by the terms of its plans and applicable law, equitably distribute to
participants any proceeds resulting from termination.
Employment Agreement. Baxley and its President and Chief Executive Officer,
Alvin R. Tuten, Jr., are currently bound by an employment agreement that
provides, among other things, for a payment to Mr. Tuten following a change in
control of Baxley. In order to avoid payment under the terms of the existing
employment agreement and as a condition to the Merger, Baxley and Mr. Tuten will
cancel the existing contract prior to the Merger, and as of the Effective Time,
Baxley and Mr. Tuten will enter into an employment agreement pursuant to which
Mr. Tuten will continue to serve as President and Chief Executive Officer (the
"Employment Agreement"). The Employment Agreement is for a term of three years
and provides for an annual base salary equal to Mr. Tuten's compensation paid by
Baxley as of the date of the Merger Agreement (subject to potential
adjustments). During the term of the Employment Agreement, Mr. Tuten will be
entitled to certain benefits substantially similar to those provided to certain
executive officers of PAB and its affiliated companies.
As with Mr. Tuten's current agreement, in the event that Mr. Tuten's
employment is terminated during the term of the Employment Agreement other than
for "cause" or if Baxley breaches the Employment Agreement, he will be entitled
to receive the compensation and benefits otherwise payable for the remaining
portion of the term of the Employment Agreement (subject to certain conditions).
The Employment Agreement generally restricts Mr. Tuten from (i) disclosing
Baxley's or its affiliates' trade secrets, (ii) competing with Baxley within a
50 mile radius of Baxley's offices for a period of two years following the
Employment Agreement's termination, and (iii) employing any employee of Baxley
or its affiliates or soliciting any customer of Baxley or its affiliates for 18
months following the Employment Agreement's termination.
Directors. The members of Baxley's Board of Directors will remain as
directors following the Merger and will receive board fees at a rate that can be
controlled by PAB. In addition, Baxley, with the approval of PAB, will select
two of the directors of Baxley to be appointed as directors of PAB following the
Merger. The Merger Agreement provides that at the next annual meeting of PAB,
one of these two directors will be nominated to serve for a one year term and
that the other will be nominated for a two year term. Directors of PAB currently
receive directors' fees in the amount of $3,000 per year, $300 per Board of
Directors' meeting attended and $100 per committee meeting attended.
Insurance. PAB has generally agreed to provide directors' and officers'
insurance coverage at the Effective Time for Baxley's directors and officers
either, at PAB's election, (i) by purchasing continuation coverage under
Baxley's current policy for directors and officers for a period of not less than
three years after the Effective Time or (ii) by obtaining coverage under PAB's
current directors' and officers' policy to provide coverage for Baxley's
directors and officers on a prior acts basis for a period of not less than three
years prior to the Effective Time.
Conditions to Consummation
The obligations of Baxley and PAB to consummate the Merger are subject to
the satisfaction or waiver (to the extent permitted) of the following
conditions:
. Baxley shareholders must have approved the Merger Agreement and the
consummation of the Merger as and to the extent required by law;
. the required regulatory approvals described under "Regulatory
Approvals" must have been received, generally without any conditions
or requirements which would, in the reasonable judgment of PAB's or
Baxley's Board of Directors, materially adversely affect the economic
or business benefits of the
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transactions contemplated by the Merger Agreement so as to render
inadvisable the consummation of the Merger;
. each party must have received all consents (other than those described
in (ii) above) required for consummation of the Merger and for the
prevention of a default under any contract of such party which, if not
obtained or made, would reasonably likely have, individually or in the
aggregate, a material adverse effect on such party, generally without
any conditions or requirements which would, in the reasonable judgment
of PAB's or Baxley's Board of Directors, 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;
. no court or regulatory authority must have taken any action which
prohibits, restricts or makes illegal the consummation of the
transactions contemplated by the Merger Agreement;
. the Registration Statement, of which this Proxy Statement/Prospectus
is a part, must have been declared effective by the SEC, no stop order
suspending the effectiveness of Registration Statement may have been
issued, no action, suit, proceeding or investigation by the SEC to
suspend the effectiveness of the Registration Statement may have been
initiated and be continuing and all necessary approvals under federal
and state securities laws relating to the issuance or trading of the
shares of PAB Common Stock issuable pursuant to the Merger must have
been received;
. each party must have received a letter from Stewart, Fowler & Stalvey,
P.C. to the effect that the Merger will qualify for pooling of
interests accounting treatment;
. each party must have received an opinion of Troutman Sanders LLP as to
the matters set forth above under "Certain Federal Income Tax
Consequences;"
. the other party's representations and warranties must remain accurate,
and the other party must have performed all of the agreements and
covenants to be performed by it pursuant to the Merger Agreement, and
must have delivered certificates confirming satisfaction of the
foregoing requirements and certain other matters;
. each party must have received an opinion of the other party's counsel,
dated the closing date as to certain matters;
. PAB must have received letters from Stewart, Fowler & Stalvey, P.C.
with respect to certain financial information regarding Baxley;
. PAB must have received from each "affiliate" of Baxley an agreement
stating, among other things, that he or she will act in a manner to
assure that the Merger will qualify for pooling of interests
accounting treatment;
. PAB must have received from certain of the executive officers and
directors of Baxley an agreement stating, among other things, that he
or she will support the Merger and not compete against PAB under
certain conditions;
. Baxley must have delivered to PAB documentation evidencing the pre-
closing termination of the employment agreement with Alvin R. Tuten,
Jr. and Mr. Tuten must have entered into a new employment agreement
with Baxley; and
. the shares of PAB Common Stock issuable pursuant to the Merger must
have been approved for listing on the Amex.
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 Proxy Statement/Prospectus, the parties know of no
reason to believe that any of the conditions set forth above will not be
satisfied.
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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 Baxley
shareholders.
Regulatory Approvals
The Merger is subject to the prior approval of the OTS, the Federal Deposit
Insurance Corporation (the "FDIC"), the Board of Governors of the Federal
Reserve System (the "Federal Reserve"), and the Georgia Department of Banking
and Finance (the "Georgia Department"). Under these agencies' regulations, they
are required, when approving a transaction such as the Merger, to take into
consideration the financial and managerial resources (including the competence,
experience and integrity of the officers, directors and principal shareholders)
and future prospects of the existing and proposed institutions and the
convenience and needs of the communities to be served. In considering the
financial resources and future prospects of the existing and proposed
institutions, the OTS, the FDIC, the Federal Reserve and the Georgia Department
will, among other things, evaluate the adequacy of the capital level of the
parties to the proposed transaction.
In addition, federal regulations will prohibit the Merger if it would
result in a monopoly or be in furtherance of any combination or conspiracy to
monopolize or to attempt to monopolize the business of banking in any part of
the United States, or if its effect in any section of the country would be
substantially to lessen competition or to tend to create a monopoly, or if it
would in any other manner result in a restraint of trade, unless the federal
regulators find that the anti-competitive effects of a merger are clearly
outweighed in the public interest by the probable effect of the transaction in
meeting the convenience and needs of the of the communities to be served. In
addition, under the Community Reinvestment Act of 1978, as amended (the "CRA"),
the OTS, the FDIC and the Federal Reserve must take into account the record of
performance of PAB's and Baxley's in meeting the credit needs of the entire
community, including low-and moderate-income neighborhoods, served by such
institutions.
The Merger generally may not be consummated until 15 days following the
date of applicable federal regulatory approval, during which time the United
States Department of Justice (the "Justice Department") may challenge the Merger
on antitrust grounds. The commencement of an antitrust action would stay the
effectiveness of the regulatory agency's approval unless a court specifically
ordered otherwise. PAB has been informed by staff at the Federal Reserve that,
in the view of such staff, the Merger does not raise antitrust concerns. Further
PAB and Baxley believe that the Merger does not raise any other significant
regulatory concerns.
The Merger cannot proceed in the absence of the requisite regulatory
approvals. There can be no assurance that any regulatory approvals will be
obtained or as to the dates of any such approvals. There can also be no
assurance that our regulatory approvals will not contain a condition or
requirement which causes them to fail to satisfy the conditions set forth in the
Merger Agreement. See "-- Conditions to Consummation."
Federal regulations provide for the publication of notices and the
administrative hearings relating to the federal filings noted above and permit
interested parties to intervene in the proceedings. If interested parties
intervene, administrative and judicial proceedings relating to both federal
filings could substantially delay the regulatory approvals required for
consummation of the Merger.
PAB and Baxley will file all applications and notices and have taken (or
will take) other appropriate action with respect to any requisite approvals or
other action of any governmental authority.
The Merger Agreement provides that the obligation of each of PAB and Baxley
to consummate the Merger is conditioned upon the receipt of all requisite
regulatory approvals, including the approval of the OTS and the Federal Reserve.
There can be no assurance that any governmental agency will approve or take any
other required action with respect to the Merger, and, if approvals are received
or action is taken, there can be no assurance as to the date of such approvals
or action, that such approvals or action will not be conditioned upon matters
that would cause the parties to abandon the Merger, or that no action will be
brought challenging such approvals or action, including a challenge by the
Justice Department or, if such a challenge is made, the result thereof.
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PAB and Baxley are not aware of any governmental approvals or actions that
may be required for consummation of the Merger other than as discussed above.
Should any other approval or action be required, PAB and Baxley currently
contemplate that such approval or action would be sought.
See "-- Effective Time," "-- Conditions to Consummation" and "-- Amendment,
Waiver and Termination."
Amendment, Waiver and Termination
To the extent permitted by law, Baxley 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 Baxley shareholders, provided
that, after the approval of the Merger by Baxley shareholders, no amendment may
decrease the consideration to be received without the approval of such
shareholders.
Prior to or at the Effective Time, either PAB or Baxley 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.
The Merger Agreement may be terminated, and the Merger abandoned, at any
time prior to the Effective Time, by mutual consent of PAB's and Baxley's Boards
of Directors. In addition, the Merger Agreement may be terminated, and the
Merger abandoned, prior to the Effective Time by either PAB or Baxley if:
. the other party breaches and does not timely cure any representation
or warranty contained in the Merger Agreement;
. any consent of any regulatory authority required for consummation of
the Merger 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, or Baxley shareholders fail to approve the
Merger Agreement at the Special Meeting;
. the Merger has not been consummated by November 30, 1999; or
. any of the conditions precedent to the obligation of the terminating
party to consummate the Merger cannot be satisfied by November 30,
1999.
In addition, the Merger Agreement may be terminated by Baxley's Board of
Directors in the event that the Deemed Market Value of PAB Common Stock is less
than $13.00 per share upon delivery of written notice to PAB at least three days
prior to consummation. The Merger Agreement may also be terminated by PAB in
the event that Baxley's Board of Directors fails to reaffirm, following a
written request by PAB for such reaffirmation, after Baxley has received an
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
determines not to reaffirm the Merger.
Conduct of Business Pending Consummation
Under the terms of the Merger Agreement, Baxley has agreed, except as
otherwise contemplated by the Merger Agreement or with the prior written consent
of PAB, to (i) operate its business only in the usual, regular and ordinary
course, (ii) preserve intact its business organizations and assets and maintain
its rights and franchises, (iii) use its reasonable efforts to cause its
representations and warranties to be correct at all times, and (iv) take no
action which would (a) adversely affect the ability of any party to obtain any
consents required for the transactions contemplated by the Merger Agreement
without imposition of a condition or restriction which, in the reasonable
judgment of PAB's Board of Directors, would so materially adversely impact the
economic or business benefits of the transactions contemplated by the Merger
Agreement as to render inadvisable the consummation of the Merger or (b)
adversely affect in any material respect the ability of either party to perform
its covenants and agreements under the Merger Agreement.
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In addition, Baxley has agreed in the Merger Agreement not to take certain
actions relating to the operation of its businesses pending consummation of the
Merger without the prior consent of the Chief Executive Officer of PAB (which
consent will not be unreasonably withheld). Such actions include, without
limitation:
. amending the federal stock charter, bylaws or other governing
instruments of Baxley;
. becoming responsible for any obligation for borrowed money in excess
of an aggregate of $50,000, except in the ordinary course of business
of Baxley consistent with past practices or allowing the imposition of
a lien on any asset of Baxley;
. acquiring or exchanging (other than exchanges in the ordinary course
under employee benefit plans) any shares (or securities convertible
into any shares) of capital stock of Baxley or paying any dividend on
Baxley Common Stock, except that Baxley may pay the pro rata amount of
its regular annual dividend of $0.82 per share to shareholders;
. subject to certain exceptions, issuing, selling or pledging additional
shares of Baxley Common Stock, any rights to acquire any such stock or
any security convertible into such stock;
. adjusting or reclassifying any capital stock of Baxley or issuing or
authorizing the issuance of any other securities in respect of or in
substitution for shares of Baxley Common Stock or, disposing of any
asset other than in the ordinary course;
. acquiring control over any real property, subject to certain
exceptions;
. purchasing any securities or making any material investments in any
person or otherwise acquiring direct or indirect control over any
person subject to certain exceptions;
. granting any increase in compensation or benefits to the employees or
officers of Baxley exceeding 5% (except as previously disclosed to
PAB, as required by law), paying any bonus, entering into or amending
any severance agreements with officers of Baxley, granting any
increase in compensation or other benefits to directors of Baxley
(except as previously disclosed to PAB);
. entering into or amending (unless required by law) any employment
contract that Baxley does not have the unconditional right to
terminate without certain liability;
. subject to certain exceptions, adopting any new employee benefit plan
of Baxley or materially changing any existing plan or program;
. making any significant change in tax or accounting methods, except for
any change required by law or GAAP, consistently applied;
. commencing any litigation other than in accordance with past practice
or settling any litigation for money damages in excess of $25,000 or
which places material restrictions on the operations of Baxley; or
. except in the ordinary course of business, modifying, amending or
terminating any material contracts or waiving, releasing or assigning
any material rights or claims.
In addition, Baxley has agreed that neither it, nor its affiliates or
representatives, will solicit an Acquisition Proposal (as defined in Section
11.1 of the Merger Agreement), other than the transactions contemplated by the
Merger Agreement. Pursuant to the Merger Agreement, except to the extent
necessary to comply with the fiduciary duties of Baxley's Board of Directors as
determined by it after consulting with and considering the advice of counsel,
neither Baxley, nor any affiliate or representative thereof, will furnish any
non-public information that it is not legally obligated to furnish, or negotiate
with respect to, or enter into any contract with respect to, any Acquisition
Proposal, but Baxley may communicate information about such an Acquisition
Proposal to its shareholders if and to the extent that it is
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required to do so in order to comply with its legal obligations as advised by
counsel. In the Merger Agreement, Baxley also agreed to terminate any
negotiations conducted prior to the date of the Merger Agreement with any
parties other than PAB with respect to any of the foregoing and agreed to use
its reasonable efforts to cause its representatives to comply with any of the
foregoing. Baxley has further agreed to promptly advise PAB following the
receipt of any Acquisition Proposal and the material details thereof.
Expenses and Fees
The Merger Agreement provides that each party will be responsible for its
own direct costs and expenses incurred in connection with the negotiation and
consummation of the transactions contemplated by the Merger Agreement, except
that PAB will pay the filing fee in connection with the Registration Statement
and this Proxy Statement/Prospectus and one-half of the printing costs incurred
in connection with printing the Registration Statement and this Proxy
Statement/Prospectus. If the Merger Agreement is terminated prior to the
Effective Time by either party as a result of the other party's breach of its
representations, warranties or agreements set forth in the Merger Agreement,
such breaching party will pay to the terminating party, as its sole remedy, the
reasonable direct costs and expenses incurred by the terminating party in
connection with the Merger, plus $50,000. If prior to the Effective Time, the
Merger Agreement is terminated by PAB because Baxley's Board of Directors has
failed to reaffirm its approval of the Merger and the transactions contemplated
by the Merger Agreement, following a written request by PAB for such
reaffirmation, after Baxley has received an inquiry or proposal with respect to
another Acquisition Proposal, Baxley will pay to PAB, within 12 months of the
date of such termination, an amount in cash equal to $750,000.
Accounting Treatment
The Merger is anticipated to be accounted for on a pooling of interests
basis. Under this method of accounting, as of the Effective Time the assets and
liabilities of Baxley would be added to those of PAB at their recorded book
values and the shareholders' equity accounts of PAB and Baxley would be combined
on PAB's consolidated balance sheet. The unaudited pro forma financial
information contained in this Proxy Statement/Prospectus has been prepared using
the pooling of interests accounting method. For more information, see the pro
forma combined financial data contained in this Proxy Statement/Prospectus.
Resales of PAB Common Stock
The shares of PAB Common Stock to be issued to Baxley shareholders in the
Merger have been registered under the Securities Act of 1933, as amended (the
"Securities Act"). Such shares may be traded freely and without restriction by
those shareholders not deemed to be "affiliates" of Baxley or PAB as that term
is defined under the Securities Act. Any subsequent transfer of such shares,
however, by any person who is an affiliate of Baxley at the time the Merger is
submitted for a vote or consent of the shareholder of Baxley will, under
existing law, require either:
. the further registration under the Securities Act of the shares of PAB
Common Stock to be transferred;
. compliance with Rule 145 promulgated under the Securities Act
(permitting limited sales under certain circumstances); or
. the availability of another exemption from registration.
An "affiliate" of Baxley, as defined by the rules promulgated pursuant to
the Securities Act, is a person who directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with
Baxley. In addition, under the requirements for the pooling of interests method
of accounting, the shares of PAB Common Stock issued to affiliates are not
transferable until such time as financial results covering at least 30 days of
combined operations of PAB and Baxley have been published. The foregoing
restrictions are expected to apply to the directors, certain officers, and the
beneficial holders of 10% or more of Baxley Common Stock (and to certain
relatives or the spouse of any such person and any trust, estates, corporations,
or other entities in which any such person has a 10% or greater beneficial or
equity interest).
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In addition, Baxley has agreed that it will use its reasonable efforts to
cause each person or entity that is an "affiliate" for purposes of complying
with Rule 145 and the pooling of interests accounting rules to enter into a
written agreement relating to such restrictions on sale or other transfer.
Dissenter and Appraisal Rights
Pursuant to 12 C.F.R. Section 552.14 (the "Dissenters' Provisions"), any
Baxley shareholder who desires to receive the "fair value" of his or her Baxley
Common Stock in cash rather than to receive shares of PAB Common Stock as part
of the Merger may do so if he or she complies with the Dissenters' Provisions.
The following is a summary of the Dissenters' Provisions and is qualified in its
entirety by the copy of the Dissenters' Provisions attached to this Proxy
Statement/Prospectus as Appendix B, which is incorporated by reference herein.
The Dissenters' Provisions provide that any dissenting shareholder desiring
to object to the Merger and receive payment in cash for his or her shares of
Baxley Common Stock must deliver, prior to the vote of Baxley shareholders on
the Merger, written notice of his or her intent to demand appraisal of and
payment for his or her shares of Baxley Common Stock. The notice must be
delivered to Baxley Federal Savings Bank, Attention: Corporate Secretary, 219
East Parker Street, Baxley, Georgia 31513-2001. The demand must be in addition
to, and separate from, any proxy or vote against the Merger. Any dissenting
shareholder must not vote in favor of the Merger.
If the Merger is approved by Baxley shareholders, Baxley is required within
10 days of the Effective Time, to send by mail written notice (the "Dissenters'
Notice") to each Baxley shareholder who filed a written notice of his or her
intent to dissent and who has not voted in favor of the Merger. The Dissenters'
Notice must:
. make an offer to each dissenting shareholder to pay for dissenting
shares at a specified price deemed by PAB to be the fair value
thereof; and
. state that within 60 days of the Effective Time, the dissenting
shareholder must (a) send to the OTS and Baxley by registered or
certified mail, a written petition demanding a determination of the
fair market value of the stock of all of Baxley shareholders if an
agreement is not reached and (b) submit to PAB's transfer agent his or
her certificates of Baxley Common Stock for notation thereon that an
appraisal and payment have been demanded with respect to such stock
and that appraisal proceedings are pending.
Any dissenting shareholder who fails to meet any one of the requirements
set forth in the preceding sentence will no longer be entitled to appraisal
rights under the Dissenters' Provisions and will be deemed to have accepted the
terms offered under the Merger. The Dissenters' Notice is to be sent to each
dissenting shareholder at his or her address as it appears in the Baxley stock
transfer books or at such address as the dissenting shareholder supplies by
notice to Baxley.
Notwithstanding the foregoing, at any time within 60 days after the
Effective Time, any dissenting shareholder will have the right to withdraw his
or her demand for appraisal and to accept the terms offered upon the Merger.
The Director of the OTS (the "Director") will, as he or she may elect,
either appoint one or more independent persons, or direct appropriate staff of
the OTS, to appraise the shares of Baxley Common Stock in which appraisal rights
have been properly exercised to determine their fair market value, as of the
Effective Time, exclusive of any element of value arising from the
accomplishment or expectation of the Merger. The staff of the OTS will review
and provide an opinion on appraisals prepared by independent persons as to the
suitability of the appraisal methodology and the adequacy of the analysis and
supportive data. The Director, after consideration of the appraisal report and
the advice of the appropriate staff, will, if he or she concurs in the valuation
of the shares, direct payment by PAB of the appraised fair market value of the
shares, upon surrender of the certificates representing such stock. Payment will
be made, together with interest from the Effective Time, at a rate deemed
equitable by the Director.
The costs and expenses of any proceeding under the Dissenter Provisions may
be apportioned and assessed by the Director as he or she may deem equitable
against all or some of the parties. In making this determination, the Director
will consider whether any party acted arbitrarily, vexatiously, or not in good
faith in respect to the rights provided by the Dissenters' Provisions.
31
<PAGE>
PAB BANKSHARES, INC. AND SUBSIDIARIES AND
BAXLEY FEDERAL SAVINGS BANK
Pro Forma Condensed Combined Balance Sheet
December 31, 1998
(Unaudited)
The following unaudited pro forma condensed combined balance sheet combines the
historical consolidated balance sheets of PAB and Baxley as if the Merger had
been effective December 31, 1998. The acquisition of Baxley 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 of Baxley in exchange for 1,323,554 shares of PAB Common Stock (see note
(a)). This pro forma condensed combined balance sheet assumes that as part of
the Merger, 1,323,554 shares of PAB Common Stock will be issued in exchange for
all of the shares of Baxley Common Stock outstanding at December 31, 1998 at an
exchange ratio of 2.40. This pro forma condensed combined balance sheet should
be read in conjunction with the separate financial statements and related notes
of PAB and Baxley appearing elsewhere in, or incorporated by reference in, this
Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
Historical Historical Pro Forma Pro Forma
Assets PAB Baxley Adjustment Consolidated
- ------ --- ------ ---------- -------------
<S> <C> <C> <C> <C>
Cash and due from banks $ 26,369 853 -0- 27,222
Federal funds sold 15,630 775 -0- 16,405
Interest bearing deposits 1,934 9,979 -0- 11,913
Investment securities 95,244 5,249 -0- 100,493
Net loans 347,305 88,038 -0- 435,343
Premises and equipment 13,621 1,506 -0- 15,127
Goodwill and intangibles 2,714 -0- -0- 2,714
Foreclosed assets 438 -0- -0- 438
Other assets 10,487 711 -0- 11,198
-------- ------- --- -------
Total Assets $513,742 107,111 -0- 620,853
======== ======= === =======
Liabilities
- -----------
Deposits:
Noninterest bearing $ 68,633 3,566 -0- 72,199
Time deposits greater than $100,000 60,778 21,207 -0- 81,985
Other interest bearing 283,845 66,058 -0- 349,903
-------- ------- --- -------
Total Deposits 413,256 90,831 -0- 504,087
Federal funds purchased 3,824 -0- -0- 3,824
FHLB advances 39,058 -0- -0- 39,058
Other borrowed funds 2,339 -0- -0- 2,339
Long term debt -0- -0- -0- -0-
Other liabilities 4,163 1,318 -0- 5,481
-------- ------- --- -------
Total Liabilities 462,640 92,149 -0- 554,789
-------- ------- --- -------
Shareholders' Equity
- --------------------
Common stock 1,217 6 (6) 1,217
Surplus 25,810 5,280 6 31,096
Retained earnings 23,740 8,595 -0- 32,335
Treasury stock -0- -0- -0- -0-
Accumulated other comprehensive income 335 1,081 -0- 1,416
-------- ------- --- -------
Total Shareholders' Equity 51,102 14,962 -0- 66,064
-------- ------- --- -------
Total Shareholders' Equity and Liabilities $513,742 107,111 -0- 620,853
======== ======= === =======
Tier I Capital to Assets 9.6% 13.1% 10.2%
======== ======= =======
Debt to Equity Ratio 9.1 6.2 8.4
======== ======= =======
</TABLE>
32
<PAGE>
PAB BANKSHARES, INC. AND SUBSIDIARIES AND
BAXLEY FEDERAL SAVINGS BANK
Pro Forma Condensed Combined Balance Sheet
March 31, 1999
(Unaudited)
The following unaudited pro forma condensed combined balance sheet combines the
historical consolidated balance sheets of PAB and Baxley as if the Merger had
been effective March 31, 1999. The acquisition of Baxley 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 of
Baxley in exchange for 1,323,554 shares of PAB Common Stock (see note (a)).
This pro forma condensed combined balance sheet assumes that as part of the
Merger, 1,323,554 shares of PAB Common Stock will be issued in exchange for all
of the shares of Baxley Common Stock outstanding at December 31, 1998 at an
exchange ratio of 2.40. This pro forma condensed combined balance sheet should
be read in conjunction with the separate financial statements and related notes
of PAB and Baxley appearing elsewhere in, or incorporated by reference in, this
Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
Historical Historical Pro Forma Pro Forma
Assets PAB Baxley Adjustment Consolidated
- ------ --- ------ ---------- -------------
<S> <C> <C> <C> <C>
Cash and due from banks $ 21,095 882 -0- 21,977
Federal funds sold 12,280 650 -0- 12,930
Interest bearing deposits 1,499 11,455 -0- 12,954
Investment securities 86,591 5,173 -0- 91,764
Net loans 356,480 86,461 -0- 442,941
Premises and equipment 13,809 1,480 -0- 15,289
Goodwill and intangibles 2,625 -0- -0- 2,625
Foreclosed assets 477 45 -0- 522
Other assets 10,503 697 -0- 11,200
-------- ------- --- -------
Total Assets $505,359 106,843 -0- 612,202
======== ======= === =======
Liabilities
- -----------
Deposits:
Noninterest bearing $ 59,273 3,043 -0- 62,316
Time deposits greater than $100,000 62,325 19,778 -0- 82,103
Other interest bearing 282,420 67,903 -0- 350,323
-------- ------- --- -------
Total Deposits 404,018 90,724 -0- 494,742
Federal funds purchased 4,063 -0- -0- 4,063
FHLB advances 37,354 -0- -0- 37,354
Long term debt 3,962 -0- -0- 3,962
Other borrowed funds -0- -0- -0- -0-
Other liabilities 4,180 965 -0- 5,145
-------- ------- --- -------
Total Liabilities 453,577 91,689 -0- 545,266
-------- ------- --- -------
Shareholders' Equity
- --------------------
Common stock 1,217 6 (6) 1,217
Surplus 25,924 5,280 6 31,210
Retained earnings 24,716 8,915 -0- 33,631
Treasury stock -0- -0- -0- -0-
Accumulated other comprehensive income (75) 953 -0- 878
-------- ------- --- -------
Total Shareholders' Equity 51,782 15,154 -0- 66,936
-------- ------- --- -------
Total Shareholders' Equity and Liabilities $505,359 106,843 -0- 612,202
-------- ======= === =======
Tier I Capital to Assets 9.9% 13.4% 10.5%
======== ======= =======
Debt to Equity Ratio 8.8 6.1 8.2
======== ======= =======
</TABLE>
33
<PAGE>
PAB BANKSHARES, INC. AND SUBSIDIARIES AND
BAXLEY FEDERAL SAVINGS BANK
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 Baxley give effect to the proposed acquisition of all of the
issued and outstanding shares of Baxley Common Stock in exchange for 2.40 shares
of PAB Common Stock for each share of Baxley Common Stock to be issued to Baxley
shareholders using the pooling of interests method of accounting and 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 1,323,554 shares
of PAB Common Stock will be issued in exchange for all of the shares of Baxley
Common Stock outstanding immediately prior to the Effective Time. The pro forma
condensed combined consolidated statements of income should be read in
conjunction with the separate financial statements and related notes of PAB and
Baxley appearing elsewhere in, or incorporated by reference in, this Proxy
Statement/Prospectus.
For the three months ended March 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Historical Historical Pro Forma Pro Forma
PAB Baxley Adjustments Consolidated
--- ------ ----------- ------------
(Amounts in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Interest income $ 9,770 1,942 -0- 11,712
Interest expense (4,615) (1,087) -0- (5,702)
---------------------------------------------------------------------
Net interest income 5,155 855 -0- 6,010
Provision for loan losses (162) -0- -0- (162)
---------------------------------------------------------------------
Net interest income after provision
for loan losses 4,993 855 -0- 5,848
Noninterest income 1,584 103 -0- 1,687
Noninterest expense (4,058) (460) -0- (4,518)
---------------------------------------------------------------------
Income before income taxes 2,519 498 -0- 3,017
Income tax expense (benefit) (797) (177) -0- (974)
---------------------------------------------------------------------
Net Income $ 1,722 321 -0- 2,043
=====================================================================
Earnings per share:
Basic $ 0.21 0.58 0.21
======= ====== ======
Diluted $ $0.20 0.58 0.21
======= ====== ======
Weighted average shares outstanding:*
Basic 8,286 551 9,609
======= ====== ======
Diluted 8,451 553 9,778
======= ====== ======
</TABLE>
__________________________
* (see note (c))
34
<PAGE>
PAB BANKSHARES, INC. AND SUBSIDIARIES AND
BAXLEY FEDERAL SAVINGS BANK
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 Baxley give effect to the proposed acquisition of all of the
issued and outstanding shares of Baxley Common Stock in exchange for 2.40 shares
of PAB Common Stock for each share of Baxley Common Stock to be issued to Baxley
shareholders using the pooling of interests method of accounting and 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 1,323,554 shares
of PAB Common Stock will be issued in exchange for all of the shares of Baxley
Common Stock outstanding immediately prior to the Effective Time. The pro forma
condensed combined consolidated statements of income should be read in
conjunction with the separate financial statements and related notes of PAB and
Baxley appearing elsewhere in, or incorporated by reference in, this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
For the year ended December 31, 1998
(Unaudited)
Historical Historical Pro Forma Pro Forma
PAB Baxley Adjustments Consolidated
--- ------ ----------- ------------
(Amounts in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Interest income $ 39,697 7,912 -0- 47,609
Interest expense (19,004) (4,435) -0- (23,439)
---------------------------------------------------------------------
Net interest income 20,693 3,477 -0- 24,170
Provision for loan losses (903) -0- -0- (903)
---------------------------------------------------------------------
Net interest income after provision for
loan losses 19,790 3,477 -0- 23,267
Noninterest income 5,623 419 -0- 6,042
Noninterest expense (15,415) (1,810) -0- (17,225)
---------------------------------------------------------------------
Income before income taxes 9,998 2,086 -0- 12,084
Income tax expense (benefit) (3,347) (750) -0- (4,097)
---------------------------------------------------------------------
Net Income $ 6,651 1,336 -0- 7,987
=====================================================================
Earnings per share:
Basic $ 0.80 2.42 0.83
======== ====== =======
Diluted $ 0.78 2.41 0.81
======== ====== =======
Weighted average shares outstanding:*
Basic 8,279 551 9,603
======== ====== =======
Diluted 8,490 553 9,817
======== ====== =======
</TABLE>
______________________
* (see note (c))
35
<PAGE>
PAB BANKSHARES, INC. AND SUBSIDIARIES AND
BAXLEY FEDERAL SAVINGS BANK
Pro Forma Condensed Combined Statement of Income
For the Year ended December 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Historical Historical Pro Forma Pro Forma
PAB Baxley Adjustment Consolidated
--------------- -------------- --------------- ----------------
(Amounts in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Interest income $ 36,064 8,022 -0- 44,086
Interest expense (16,970) (4,255) -0- (21,225)
------------------------------------------------------------------
Net interest income 19,094 3,767 -0- 22,861
Provision for loan losses (793) -0- -0- (793)
------------------------------------------------------------------
Net interest income after provision
for loan losses 18,301 3,767 -0- 22,068
Noninterest income 4,310 427 -0- 4,737
Noninterest expense (13,446) (1,829) -0- (15,275)
------------------------------------------------------------------
Income before income taxes 9,165 2,365 -0- 11,530
Income taxes (3,162) (860) -0- (4,022)
------------------------------------------------------------------
Net Income $ 6,003 1,505 -0- 7,508
==================================================================
Earnings per share:
Basic $0.73 2.82 0.79
======== ====== =======
Diluted 0.72 2.81 0.78
======== ====== =======
Weighted average shares outstanding:*
Basic 8,221 535 9,491
======== ====== =======
Diluted 8,304 536 9,577
======== ====== =======
</TABLE>
- ------------------
* (see note (c))
36
<PAGE>
PAB BANKSHARES, INC. AND SUBSIDIARIES AND
BAXLEY FEDERAL SAVINGS BANK
Pro Forma Condensed Combined Statement of Income
For the Year ended December 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Historical Historical Pro Forma Pro Forma
PAB Baxley Adjustment Consolidated
--------------- ------------- --------------- ----------------
(Amounts in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Interest income $ 32,591 7,788 -0- 40,379
Interest expense (16,009) (4,129) -0- (20,138)
-----------------------------------------------------------------
Net interest income 16,582 3,659 -0- 20,241
Provision for loan losses (633) -0- -0- (633)
-----------------------------------------------------------------
Net interest income after provision
for loan losses 15,949 3,659 -0- 19,608
Noninterest income 3,851 409 -0- 4,260
Noninterest expense (12,530) (2,491) -0- (15,021)
-----------------------------------------------------------------
Income before income taxes 7,270 1,577 -0- 8,847
Income taxes (2,451) (562) -0- (3,013)
-----------------------------------------------------------------
Net Income $ 4,819 1,015 -0- 5,834
=================================================================
Earnings per share:
Basic $0.60 1.94 0.62
======== ====== =======
Diluted $0.59 1.89 0.62
======== ====== =======
Weighted average shares outstanding:*
Basic 8,098 524 9,364
======== ====== =======
Diluted 8,154 536 9,450
======== ====== =======
</TABLE>
- -------------------
* (see note (c))
37
<PAGE>
PAB BANKSHARES, INC. AND SUBSIDIARIES AND
BAXLEY FEDERAL SAVINGS BANK
Notes to Pro Forma Financial Statements
The following notes describe the pro forma adjustments necessary to
reflect the proposed acquisition of Baxley as described in note (a).
(a) On June 3, 1999, PAB entered into the Merger Agreement whereby PAB
will acquire the 551,481 outstanding shares of Baxley Common Stock in exchange
for shares of PAB Common Stock. Pursuant to the terms of the Merger Agreement,
the number of shares of PAB Common Stock exchanged will be determined by a
formula. This number of shares is the exchange ratio. The precise exchange ratio
will depend upon the Deemed Market Value of PAB Common Stock. If the Deemed
Market Value of PAB Common Stock is less than $13.00 per share, then Baxley may
terminate or renegotiate the Merger Agreement or if the Deemed Market Value is
greater than $21.00, then the Merger Consideration will be reduced by an amount
equal to the product of (a) the Merger Consideration multiplied by (b) the ratio
formed by the Deemed Market Value less $21.00, divided by the Deemed Market
Value.
(b) Reflects the issuance of 1,323,554 shares of PAB Common Stock in
exchange for all of the outstanding shares of Baxley Common Stock.
(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 Baxley taken
place as of the beginning of the respective periods.
(d) All PAB and pro forma per share information has been adjusted to
reflect three two-for-one stock splits in 1993, 1996 and 1998.
38
<PAGE>
DESCRIPTION OF BAXLEY
General
The principal business of Baxley is attracting retail deposits from the
general public and investing those funds primarily in adjustable rate mortgages
("ARMS") secured by one to four family residences and commercial real estate. To
a lesser extent, Baxley engages in consumer, commercial and residential
construction lending. Baxley's revenues are derived principally from interest on
mortgages and other loans, interest and dividends on investment securities and
short-term investments, and other fees and service charges. Baxley's primary
source of funds is deposits from the communities in which it has offices. At
March 31, 1999, Baxley had no brokered deposits and no Federal Home Loan Bank
("FHLB") advances.
Lending Activities
Baxley principally originates and underwrites ARMs secured by one to four
family residences. Baxley also originates and underwrites consumer, commercial
real estate and residential construction loans, all primarily for retention in
its portfolio. To a lesser extent, Baxley originates long-term, fixed rate one
to four family residential mortgages. Although federal regulations allow Baxley
to make or purchase loans nationwide, Baxley makes loans largely in Appling,
Jeff Davis, Glynn and Wayne Counties, Georgia and purchases loan participations
primarily in Georgia.
Personnel
As of March 31, 1999, Baxley had 32 full-time employees. The employees are
not represented by a collective bargaining unit and Baxley considers its
relationship with its employees to be good.
Competition
Baxley is the only savings institution located in the Appling, Jeff Davis
and Wayne Counties market area. However, Baxley faces significant competition in
these counties from other financial institutions both in making mortgage and
consumer loans and in attracting deposits. Baxley's competition for loans comes
principally from commercial banks, savings institutions and savings banks,
mortgage banking companies (many of which are subsidiaries of major commercial
banks), federal credit unions, insurance companies and other institutional
lenders. Its most direct competition for deposits has historically come from
commercial banks, savings institutions, credit unions and other financial
institutions. Baxley faces additional competition for deposits from short-term
money market funds and other corporate and government securities funds. In light
of the elimination of federal interest rate controls on deposits, Baxley faces
increasing competition among financial institutions for deposits. Competition
may increase as a result of the continuing reduction in the effective
restrictions on the interstate operations of financial institutions. Some of
Baxley's competitors, whether traditional financial institutions or otherwise,
have greater financial and marketing resources than those of Baxley.
Baxley competes for loans principally through the interest rates and loan
fees it charges and the efficiency and quality of services it provides to
borrowers. Baxley competes for deposits through pricing and the offering of a
variety of deposit accounts.
Baxley Supervision and Regulation
General. As a federally chartered savings association insured by the
Savings Association Insurance Fund (the "SAIF"), Baxley is subject to extensive
regulation by the OTS and the FDIC. Lending activities and other investments
must comply with various federal statutory and regulatory requirements. Baxley
is also subject to certain reserve requirements promulgated by the Federal
Reserve.
The OTS, in conjunction with the FDIC, regularly examines Baxley and
prepares reports for the consideration of Baxley's Board of Directors on any
deficiencies that they find in Baxley's operations. Baxley's relationship with
its depositors and borrowers is also regulated to a great extent by federal law,
especially in such matters as the ownership of savings accounts and the form and
content of Baxley's mortgage documents.
39
<PAGE>
Baxley must file reports with the OTS and the FDIC concerning its
activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with or
acquisitions of other savings institutions. This regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of the SAIF and depositors.
The regulatory structure also gives the regulatory authorities extensive
discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the classification of
assets and the establishment of adequate loan loss reserves for regulatory
purposes. Any change in such regulations, whether by the OTS, the FDIC or the
Congress, could have a material adverse impact on Baxley and its operations.
Insurance of Deposit Accounts. Baxley's deposit accounts are insured by
the SAIF to a maximum of $100,000 for each insured member (as defined by law and
regulation). The FDIC has the authority, should it initiate proceedings to
terminate an institution's deposit insurance, to suspend the insurance of any
such institution without tangible capital. However, if a savings association has
positive capital when it includes qualifying intangible assets, the FDIC cannot
suspend deposit insurance unless capital declines materially, the institution
fails to enter into and remain in compliance with an approved capital plan, or
the institution is operating in an unsafe or unsound manner.
Regardless of an institution's capital level, insurance of deposits may be
terminated by the FDIC upon a finding that the institution has engaged in unsafe
or unsound practices, is in an unsafe or unsound condition to continue
operations or has violated any applicable law, regulation, rule, order or
condition imposed by the FDIC or the institution's primary regulator. The
management of Baxley is unaware of any practice, condition or violation that
might lead to termination of its deposit insurance.
The FDIC charges an annual assessment for the insurance of deposits based
on the risk a particular institution poses to its deposit insurance fund. This
risk classification is based on an institution's capital group and supervisory
subgroup assignment.
Regulatory Capital Requirements. OTS capital regulations require savings
institutions to meet three capital standards: (i) tangible capital of at least
1.5% of total adjusted assets, (ii) a leverage ratio (core capital) of at least
4.0% of total adjusted assets and (iii) a risk based capital requirement of at
least 8.0% of total risk-weighted assets. Regulations that enable the OTS to
take prompt corrective action against savings institutions without sufficient
capital effectively impose higher capital requirements. See "BAXLEY MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
Capital Resources and Liquidity."
Dividend and Other Capital Distribution Limitations. OTS regulations
require Baxley to give the OTS 30 days' advance notice of any proposed
declaration of dividends, and the OTS has the authority under its supervisory
powers to prohibit the payment of dividends. In addition, Baxley may not declare
or pay a cash dividend on its capital stock if the effect thereof would be to
reduce the regulatory capital of Baxley below the amount required for the
liquidation account established pursuant to Baxley's Conversion.
In January 1999, the OTS issued an amendment to its current regulations
with respect to capital distributions by savings associations. The amended
regulations were effective April 1, 1999. Under the new regulation, savings
associations that would remain at least adequately capitalized following the
capital distribution, and that meet other specified requirements, are not
required to file a notice or application for capital distributions (such as cash
dividends) declared below specified amounts. Under the new regulation, savings
associations which are eligible for expedited treatment under current OTS
regulations are not required to file an application with the OTS if (i) the
savings association would remain at least adequately capitalized following the
capital distribution, (ii) the amount of capital distribution does not exceed an
amount equal to the savings association's net income for that year to date, plus
the savings association's retained net income for the previous two years and
(iii) the proposed capital distribution would not violate any applicable law,
regulation, agreement with or condition of the OTS. Thus, under the new
regulation, only undistributed net income for the prior two years may be
distributed in addition to the current year's undistributed net income without
the filing of an application with the OTS. Savings associations which do not
qualify for expedited treatment or which desire to make a capital distribution
in excess of the specified amount, must file an application with, and obtain the
approval of, the OTS prior to making the capital distribution. A savings
association that is not required
40
<PAGE>
to file an application is also not required to file a notice with the OTS prior
to making the capital distribution, unless (i) the savings association would not
be well capitalized following the distribution, or (ii) the proposed
distribution would reduce the amount of or retire any part of the savings
association's common stock, preferred stock or debt instruments included in
capital, or (iii) the savings association is a subsidiary of a savings and loan
holding company. The new OTS limitations on capital distributions are similar to
the limitations imposed upon national banks.
Qualified Thrift Lender Test. The Home Owners' Loan Act ("HOLA"), as
amended, requires savings institutions to meet a QTL test. If Baxley maintains
an appropriate level of Qualified Thrift Investments (primarily residential
mortgages and related investments, including certain mortgage-backed securities)
("QTIs") and otherwise qualifies as a QTL, it will continue to enjoy full
borrowing privileges from the FHLB of Atlanta. The required percentage of QTIs
is 65% of portfolio assets (defined as all assets minus intangible assets,
property used by the institution in conducting its business, and liquid assets
in an amount not exceeding 20% of total assets). Certain assets are subject to a
percentage limitation of 20% of portfolio assets. In addition, savings
associations may include shares of stock of the FHLBs, FNMA, and FHLMC as
qualifying QTIs. As of March 31, 1999, Baxley was in compliance with its QTL
requirement with substantially all of its assets invested in QTIs.
A savings association that does not meet a QTL test must either convert to
a bank charter or comply with the following restrictions on its operations: (i)
the savings association may not engage in any new activity or make any new
investment, directly or indirectly, unless such activity or investment is
permissible for a national bank; (ii) the branching powers of the savings
association shall be restricted to those of a national bank; (iii) the savings
association shall not be eligible to obtain any advances from its FHLB; and (iv)
payment of dividends by the savings association shall be subject to the rules
regarding payment of dividends by a national bank. Upon the expiration of three
years from the date the savings association ceases to be a QTL, it must cease
any activity and not retain any investment not permissible for a national bank
and immediately repay any outstanding FHLB advances (subject to safety and
soundness considerations).
Liquidity Requirements. All savings associations are required to maintain
an average daily balance of liquid assets equal to a certain percentage of the
sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings associations. At March 31, 1999, the required liquid asset
ratio was 4% and Baxley's liquidity was 17.0%.
Federal Home Loan Bank System. Baxley is a member of the FHLB of Atlanta,
which is one of 12 regional FHLBs that Administer the home financing credit
function of savings associations. Each FHLB serves as a reserve or central bank
for its members within its assigned region. It is funded primarily from proceeds
derived from the sale of consolidated obligations of the FHLB System. It makes
loans to members (i.e., advances) in accordance with policies and procedures
established by the Board of Directors of the FHLB.
As a member, Baxley is required to purchase and maintain stock in the FHLB
of Atlanta in an amount equal to at least 1% of its aggregate unpaid residential
mortgage loans, home purchase contracts or similar obligations at the beginning
of each year. At March 31, 1999, Baxley had $786,200 in FHLB stock, which was in
compliance with this requirement.
Federal Reserve. The Federal Reserve requires all depository institutions
to maintain non-interest bearing reserves at specified levels against their
transaction accounts (primarily checking, NOW and Super NOW checking accounts)
and non-personal time deposits. The balances maintained to meet the reserve
requirements imposed by the Federal Reserve may be used to satisfy the liquidity
requirements that are imposed by the OTS.
Savings associations have authority to borrow from the Federal Reserve's
"discount window," but Federal Reserve policy generally requires savings
association to exhaust all OTS sources before borrowing from the Federal
Reserve. Baxley had no such borrowings at March 31, 1999.
41
<PAGE>
Federal Taxation
Savings Institutions are subject to the provisions of the Code, in the same
general manner as other corporations. However, savings institutions such as
Baxley, which meet certain definitional tests and other conditions prescribed by
the Code, may benefit from certain favorable provisions regarding their
deductions from taxable income for annual additions to their bad debt reserve.
The amount of the bad debt deduction that a qualifying savings institution may
claim with respect to additions to its reserve for bad debts is subject to
certain limitations.
Prior to certain changes to the Code in 1996, thrift institutions enjoyed a
tax advantage over banks with respect to determining additions to its bad debt
reserves. All thrift institutions, prior to 1996, were generally allowed a
deduction for additions to a reserve for bad debts. In contrast, only "small
banks" (the average adjusted bases of all assets of such institution equals $500
million or less) were allowed a similar deduction for additions to their bad
debt reserves. In addition, while small banks were only allowed to use the
experience method in determining their annual addition to a bad debt reserve,
all thrift institutions generally enjoyed a choice between (i) the percentage of
taxable income method and, (ii) the experience method, for determining the
annual addition to their bad debt reserve. This choice of methods provided a
distinct advantage to thrift institutions that continually experienced little or
no losses from bad debts, over small banks in a similar situation, because
thrift institutions in comparison to small banks were generally allowed a
greater tax deduction by using the percentage of taxable income method (rather
than the experience method) to determine their deductible addition to their bad
debt reserves.
The Code was revised in August 1996 to equalize the taxation of thrift
institutions and banks, effective for taxable years beginning after 1995. All
thrift institutions are now subject to the same provisions as banks with respect
to deductions for bad debt. Now, only thrift institutions that are treated as
small banks may continue to account for bad debts under the reserve method;
however, such institutions may only use the experience method for determining
additions to their bad debt reserve. Thrift institutions that are not treated as
small banks may no longer use the reserve method to account for their bad debts
but must alternatively use the specific charge-off method.
The revisions to the Code in 1996 also provided that all thrift
institutions must generally recapture any "applicable excess reserves" into
their taxable income, over a six year period beginning in 1996; however, such
recapture may be delayed up to two years if a thrift institution meets a
residential-lending test. Generally, a thrift institution's applicable excess
reserves equals the excess of (i) the balance of its bad debt reserves as of the
close of its taxable year beginning before January 1, 1996, over (ii) the
balance of such reserves as of the close of its last taxable year beginning
before January 1, 1988 ("Pre-1988 reserves"). Baxley will not be required to
recapture any amounts into income with regard to any applicable excess reserves
because the balance of its bad debt reserves as of the close of its taxable year
beginning before January 1, 1996 did not exceed the balance of its Pre-1988
reserves.
In addition, all thrift institutions must continue to keep track of their
Pre-1988 reserves because this amount remains subject to recapture in the future
under the Code. A thrift institution such as Baxley, would generally be required
to recapture into its taxable income its Pre-1988 reserves in the case of
certain excess distributions to, and redemptions of, shareholders (e.g., stock
repurchases) . For taxable years after 1995, Baxley will account for its bad
debts under the reserve method. Any additions to Baxley's bad debt reserves
after 1995 will generally not be subject to the recapture provisions of the
Code. The balance of Baxley's Pre-1988 reserves equaled $1,875,393.
For taxable years ending after 1986, the Code disallows 100% of a savings
association's interest expense deemed allocated to certain tax exempt
obligations acquired after August 7, 1986. Interest expense allocable to (i)
tax-exempt obligations acquired after August 7, 1986 which are not subject to
this rule, and (ii) tax-exempt obligations issued after 1982 but before August
8, 1986, are subject to the rule which applied prior to the Code disallowing the
deductibility of 20% of the interest expense.
The Code imposes a tax ("AMT") on alternative minimum taxable income
("AMTI") at a rate of 20%. AMTI is increased by certain preference items defined
in the Code. Only a portion of AMTI can be offset by net operating loss
carryovers; however, Baxley currently has no net operating loss carryovers. AMTI
is also adjusted by determining the tax treatment of certain items in a manner
that negates the deferral of income resulting from the regular tax
42
<PAGE>
treatment of those items. Thus, Baxley's AMTI is increased by an amount equal to
75% of the amount by which Baxley's adjusted current earnings exceeds its AMTI
(determined without regard to this adjustment and prior to reduction for net
operating losses).
Baxley's federal income tax returns have not been examined by the Service
for the past five years.
Selected Statistical Information
The tables and schedules on the following pages set forth certain
significant statistical data with respect to: (i) the distribution of assets,
liabilities and retained earnings of, and the interest rates and interest
differentials experienced by Baxley; (ii) the investment portfolio of Baxley;
(iii) the loan portfolio of Baxley, including types of loans, sensitivity to
changes in interest rates and information on nonperforming loans; (iv) summary
of the loan loss experience and reserves for loan losses of Baxley; (v) types of
deposits of Baxley; and (vi) selected financial ratios for Baxley.
I. Distribution Of Assets, Liabilities And Stockholders' Equity; Interest
----------------------------------------------------------------------
Rates And Interest Differentials
--------------------------------
A. The condensed average balance sheets for the periods indicated are
presented below:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1998 1997
------------------- -------------------
(Dollars in thousands)
ASSETS
------
<S> <C> <C>
Cash and due from banks $ 719 $ 731
Investment securities 1,925 2,232
Other interest earning assets 7,992 10,381
Loans, net 88,540 85,412
Mortgage-backed securities, net 1,159 1,564
Other assets 2,323 2,164
-------- --------
Total Assets $102,658 $102,484
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Deposits: Demand $ 16,646 $ 17,042
Savings 4,600 5,150
Certificate of Deposits 65,675 63,125
-------- --------
Total Deposits 86,921 85,317
Other Borrowings 0 21
Other Liabilities 1,074 1,125
-------- --------
Total Liabilities $ 87,995 $ 86,463
-------- --------
Stockholders' Equity $ 14,663 $ 16,021
-------- --------
Total Liabilities and Stockholders' Equity $102,658 $102,484
======== ========
</TABLE>
43
<PAGE>
B. Interest Rates. The following table sets forth for the periods indicated
--------------
information regarding: (i) the total dollar amounts of interest income from
interest-earning assets and the resulting average yields; (ii) the total dollar
amounts of interest expense from interest-bearing liabilities and the resulting
average costs; (iii) net interest income; (iv) interest rate spread; (v) net
interest-earning assets; (vi) the net yield earned on interest-earning assets;
and (vii) the ratio of total interest-earning assets to total interest-bearing
liabilities.
<TABLE>
<CAPTION>
Year Ended December 31, 1998
----------------------------------------------------------
Average Balance Annual Interest Yield/Cost
------------------ ----------------- -------------
(Dollars in thousands)
<S> <C> <C> <C>
Interest-earning assets:
Loans receivable, net $ 88,540 $ 7,375 8.33%
Mortgage-backed securities, net 1,159 79 6.82
Investment securities 1,925 117 6.08
Other interest-earning assets 7,992 341 4.27
----------- -------------
Total interest-earning assets $ 99,616 $ 7,912 7.94
Non-interest-earning assets 3,042
-----------
Total Assets $ 102,658
===========
Interest-bearing liabilities:
Deposits:
Demand $ 13,398 $ 392 2.93%
Savings 4,600 149 3.24
Certificate of Deposit 65,675 3,894 5.93
Advances from FHLB - - -
Other Borrowings - - -
----------- -------------
Total interest-bearing liabilities $ 83,673 $ 4,435 5.30
-------------
Non-interest-bearing liabilities 4,322
-----------
Total Liabilities $ 87,995
Stockholders' Equity 14,663
-----------
Total Liabilities and Stockholders' Equity $ 102,658
===========
Net interest income/interest rate spread $ 3,477 2.64%
=============
Net interest-earning assets/net yield on interest-earning
assets $ 15,943 3.49%
===========
Ratio of average interest-bearing assets to average
interest-bearing liabilities 119.05%
</TABLE>
44
<PAGE>
B. Interest Rates. (cont'd.)
--------------
<TABLE>
<CAPTION>
Year Ended December 31, 1997
----------------------------------------------------------
Average Balance Annual Interest Yield/Cost
------------------ ----------------- -------------
(Dollars in thousands)
<S> <C> <C> <C>
Interest-earning assets:
Loans receivable, net $ 85,412 $ 7,273 8.52%
Mortgage-backed securities, net 1,564 111 7.10
Investment securities 2,232 137 6.14
Other interest-earning assets 10,381 501 4.83
----------- -------------
Total interest-earning assets $ 99,589 $ 8,022 8.06
-------------
Non-interest-earning assets 2,895
-----------
Total Assets $ 102,484
===========
Interest-bearing liabilities:
Deposits:
Demand $ 13,958 $ 420 3.01%
Savings 5,150 172 3.34
Certificate of Deposit 63,125 3,661 5.80
Advances from FHLB - - -
Other Borrowings 21 2 9.52
----------- -------------
Total interest-bearing liabilities $ 82,254 $ 4,255 5.17
-------------
Non-interest bearing liabilities 4,209
-----------
Total Liabilities $ 86,463
Stockholders' Equity 16,021
-----------
Total Liabilities and Stockholders' Equity $ 102,484
===========
Net interest income/interest rate spread $ 3,767 2.89%
=============
Net interest-earning assets/net yield on interest-earning
assets $ 17,335 3.78%
===========
Ratio of average interest-bearing assets to average
interest-bearing liabilities 121.07%
</TABLE>
45
<PAGE>
B. Interest Rates. (cont'd.)
--------------
<TABLE>
<CAPTION>
Year Ended December 31, 1996
----------------------------------------------------------
Average Balance Annual Interest Yield/Cost
------------------ ----------------- -------------
(Dollars in thousands)
<S> <C> <C> <C>
Interest-earning assets:
Loans receivable, net $ 81,995 $ 7,025 8.57%
Mortgage-backed securities, net 1,907 137 7.18
Investment securities 2,221 131 5.90
Other interest-earning assets 9,802 495 5.05
----------- -------------
Total interest-earning assets $ 95,925 $ 7,788 8.12
-------------
Non-interest-earning assets 3,444
-----------
Total Assets $ 99,369
==========
Interest-bearing liabilities:
Deposits:
Demand $ 14,680 $ 431 2.94%
Savings 5,028 169 3.36
Certificate of Deposit 59,934 3,522 5.88
Advances from FHLB - - -
Other Borrowings 67 7 10.45
----------- --------------
Total interest-bearing liabilities $ 79,709 $ 4,129 5.18
--------------
Non-interest bearing liabilities 3,791
-----------
Total Liabilities $ 83,500
Stockholders' Equity 15,869
-----------
Total Liabilities and Stockholders' Equity $ 99,369
===========
Net interest income/interest rate spread $ 3,659 2.94%
=============
Net interest-earning assets/net yield on interest-earning
assets $ 16,216 3.81%
===========
Ratio of average interest-bearing assets to average
interest-bearing liabilities 120.34%
</TABLE>
46
<PAGE>
B. Interest Rates. (cont'd.)
--------------
The following table shows weighted average interest rates at the date
indicated.
At December 31, 1998
--------------------
Weighted average interest rate on:
Loan portfolio 7.94%
Investment portfolio 5.82%
All interest-earning assets 7.44%
Weighted average interest rate on:
Savings deposits 5.08%
All interest-bearing liabilities 5.08%
Weighted average interest rate spread /(1)/ 2.36
___________________
/(1)/ Weighted average interest rate on all interest-earning assets at the end
of the period less the weighted average interest rate of all interest-bearing
liabilities at the end of the period.
C. Rate/Volume Analysis. The table below sets forth certain information
--------------------
regarding changes in interest income and interest expense of Baxley for the
periods indicated. For each category of interest-earning asset and interest-
bearing liability, information is provided on changes attributable to (i)
changes in volume (changes in volume multiplied by prior rate); (ii) changes in
rates (change in rate multiplied by prior volume); and (iii) changes in rate-
volume (changes in rate multiplied by changes in volume).
<TABLE>
<CAPTION>
Year Ended December 31, 1998 vs. 1997
Increase (Decrease)
Due to
--------------------------------------------------------------------
Volume Rate Rate/Volume Total
------------- -------------- --------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest Income:
Loan $ 267 $ (162) $ (6) $ 99
Mortgage-backed securities (29) (4) 1 (32)
Investment securities (19) (1) 0 (20)
Other interest-bearing assets (115) (58) 13 (160)
------- --------- ---------- --------
Total $ 104 $ (225) $ 8 $ (113)
------- --------- ---------- --------
Interest expense:
Deposits $ 114 $ 66 $ 76 $ 256
Other borrowings (2) (2) (2) (2)
------- --------- ---------- --------
Total $ 112 $ 64 $ 78 $ 254
------- --------- ---------- --------
Net change in interest income $ (8) $ (289) $ (70) $ (367)
======= ========= ========== ========
</TABLE>
47
<PAGE>
C. Rate/Volume Analysis. (cont'd.)
--------------------
<TABLE>
<CAPTION>
Year Ended December 31, 1997 vs. 1996
Increase (Decrease)
Due to
--------------------------------------------------------------------
Volume Rate Rate/Volume Total
------------- -------------- --------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest Income:
Loan $ 293 $ (41) $ (2) $ 250
Mortgage-backed securities (25) (2) 0 (27)
Investment securities 1 5 0 6
Other interest-bearing assets 29 (22) (1) 6
-------- -------- --------- -------
Total $ 298 $ (60) $ (3) $ 235
-------- -------- --------- -------
Interest expense:
Deposits $ 171 $ 39) $ (54) $ 78
Other borrowings (5) (1) 0 (6)
-------- -------- --------- -------
Total $ 166 $ (40) $ 54 $ 72
-------- -------- --------- -------
Net change in interest income $ 132 $ (20) $ 51 $ 163
======== ======== ========= =======
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1996 vs. 1995
Increase (Decrease)
Due to
Volume Rate Rate/Volume Total
------------- -------------- --------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest Income:
Loan $ 244 $ (143) $ (5) $ 96
Mortgage-backed securities (8) (4) 0 (12)
Investment securities 4 12 0 16
Other interest-bearing assets 137 (52) (16) 69
------- -------- ---------- --------
Total $ 377 $ (187) $ (21) $ 169
------- -------- ---------- --------
Interest expense:
Deposits $ 292 $ (9) $ 13 $ 296
Other borrowings (7) (1) 0 (8)
------- -------- ---------- --------
Total $ 285 $ (10) $ 13 $ 288
------- -------- ---------- --------
Net change in interest income $ 92 $ (177) $ (34) $ (119)
======= ======== ========== ========
</TABLE>
48
<PAGE>
II. Investment Portfolio
--------------------
A. Types of Investments. The carrying amounts of investment securities at the
--------------------
dates indicated are summarized as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
----------------- -----------------
(Dollars in thousands)
<S> <C> <C>
U.S. Treasury and other U.S. government agencies
and corporations $ 1,765 $ 2,013
</TABLE>
B. Maturities. The amounts of investment securities in the following category
----------
as of December 31, 1998 are shown in the following table according to maturity
classifications (i) one year or less; (ii) after one year through five years;
(iii) after five years and through 10 years; and (iv) after 10 years.
<TABLE>
<CAPTION>
U.S. Treasury and
Other U.S. Government
Agencies and Corporations
-------------------------
(Dollars in thousands)
Amount Average Yield /(1)/
------ -------------------
<S> <C> <C>
Maturity: One year or less $1,009 6.14%
After one year through five years 756 5.53
After five years through 10 years - -
After 10 years - -
------ ----
Totals $1,765 5.88%
------
</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. The weighted average
yield for each maturity range was computed using the acquisition price of each
security in that range.
49
<PAGE>
III. Loan Portfolio
--------------
A. Types of Loans. The amount of loans outstanding at the indicated dates
--------------
are shown in the following table according to type of loan.
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1998 1997
------------------ -------------------
(Dollars in thousands)
<S> <C> <C>
Commercial loan $ 646 $ 443
Mortgage loans 84,055 84,029
Consumer loans 4,547 4,774
------------
$ 89,248 $ 89,246
Less - Loans in process 300 697
Allowance for loan losses 746 753
Deferred loan fees 164 156
------------ -----------
Total Loans $ 88,038 $ 87,640
------------ -----------
</TABLE>
B. Nonperforming Loans. The following table presents, at the dates
-------------------
indicated, the aggregate amounts of nonperforming loans for the categories
indicated.
<TABLE>
<CAPTION>
Year Ended
December 31,
------------------------------------------------------------------
1998 1997 1996 1995
---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Loans accounted for on a non-accrual basis
$ 317 $ 306 $ 204 $ 46
Loan contractually past due 90 days or more as to
interest or principal payments
0 0 0 0
Loans, the terms of which have been renegotiated
to provide a reduction or deferral of interest or
principal because of a deterioration in the
financial position of the borrower
0 0 0 0
Loans now current about which there are serious
doubts as to the ability of the borrower to comply
with present loan repayments
0 0 0 0
Nonperforming loans to total assets .30% .30% .20% .05%
------ ----- ------ -----
</TABLE>
C. Commitments. The banks provide commitments to their most credit worthy
-----------
customers only. Commitments are normally for a period up to six months or until
the customer notifies the bank to terminate the commitment and are provided for
a fee of 1% of the amount committed. Interest rates on loans made pursuant to
commitments are determined at the time that the commitment is made or the loan
is established.
50
<PAGE>
D. Present Value Estimates by Interest Rate Scenario
-------------------------------------------------
<TABLE>
<CAPTION>
*** Change in Interest Rates ***
ASSETS -400 bp -300 bp -200 bp -100 bp No Change +100 bp +200 bp +300 bp +400 bp
- ------ ------- ------- ------- -------- --------- ------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MORTGAGE LOANS & SECURITIES
Fixed-Rate Single-Family
First-Mortgage
Loans & MBS: $ 34,808 $ 34,290 $ 33,809 $ 33,379 $ 32,921 $ 32,165 $ 31,118 $ 29,962 $ 28,800
Adjustable-Rate Single-
Family First-Mortgage
Loans & MBS: 42,651 42,084 41,631 41,275 40,964 40,581 40,007 39,194 38,168
Multifamily &
Non-residential Mortgage
Loans & Securities: 8,015 7,839 7,668 7,505 7,350 7,199 7,056 6,916 6,784
Construction &
Land Loans: 542 529 518 507 497 487 478 470 462
Second Mortgage Loans
& Securities: 4,130 4,076 4,025 3,976 3,928 3,883 3,839 3,797 3,756
Other Assets Related to
Mortgage Loans &
Securities:
Net Nonperforming
Mortgage Loans (288) (284) (280) (277) (274) (270) (264) (257) (249)
Accrued Interest
Receivable 459 459 459 459 459 459 459 459 459
Float on Escrows on
Owned Mortgage 0 0 0 0 0 0 0 1 1
Less:
Miscellaneous (2) (1) (1) (2) (3) (1) (1) 0 (2)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total Mortgage Loans
& Securities $ 90,315 $ 88,992 $ 87,829 $ 86,822 $ 85,842 $ 84,503 $ 82,692 $ 80,542 $ 78,179
NONMORTGAGE LOANS
Commercial Loans: $ 705 $ 692 $ 681 $ 669 $ 658 $ 647 $ 636 $ 625 $ 615
Consumer Loans: 4,672 4,624 4,577 4,532 4,487 4,444 4,400 4,358 4,317
</TABLE>
51
<PAGE>
D. Present Value Estimates by Interest Rate Scenario
-------------------------------------------------
<TABLE>
<CAPTION>
*** Change in Interest Rates ***
ASSETS -400 bp -300 bp -200 bp -100 bp No Change +100 bp +200 bp +300 bp +400 bp
- ------ ------- ------- ------- -------- --------- ------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Other Assets Related
to Nonmortgage Loans
& Securities:
Net Nonperforming
Nonmortgage Loans (162) (160) (158) (157) (155) (153) (152) (150) (149)
Accrued Interest
Receivable
92 92 92 92 92 90 92 92 92
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total Nonmortgage
Loans $ 5,307 $ 5,248 $ 5,192 $ 5,136 $ 5,082 $ 5,028 $ 4,976 $ 4,925 $ 4,875
CASH, DEPOSITS & SECURITIES
Cash, Non-Interest-Earning
Deposits,
Overnight Federal
Funds $ 1,651 $ 1,651 $ 1,651 $ 1,651 $ 1,651 $ 1,651 $ 1,651 $ 1,651 $ 1,651
Equities & All
Mutual Funds 2,117 2,036 1,955 1,875 1,794 1,713 1,633 1,552 1,471
Govt & Agency
Securities 1,828 1,813 1,798 1,784 1,769 1,755 1,741 1,728 1,714
Term Federal Funds
& Interest-
Earning Deposits 10,010 10,003 9,995 9,985 9,978 9,970 9,961 9,952 9,946
-------- -------- ------- -------- -------- ------- -------- ------- --------
Total Cash,
Deposits,
& Securities $ 15,606 $ 15,503 $ 15,399 $ 15,295 $ 15,192 $ 15,089 $ 14,986 $ 14,884 $ 14,782
REPOSSESSED ASSETS - - - - - - - - -
OFFICE PREMISES &
EQUIPMENT 1,506 1,506 1,506 1,506 1,506 1,506 1,506 1,506 1,506
-------- -------- ------- ------- -------- ------- -------- -------- --------
$ 1,506 $ 1,506 $ 1,506 $ 1,506 $ 1,506 $ 1,506 $ 1,506 $ 1,506 $ 1,506
OTHER ASSETS
Miscellaneous 924 924 924 924 924 924 924 924 924
Deposit Intangibles:
Retail CD
Intangible (184) 57 71 84 97 109 120 131 143
Transaction Account
Intangible (55) (28) 10 175 390 601 801 987 1,160
MMDA Intangible (9) (2) 24 65 139 217 294 369 442
</TABLE>
52
<PAGE>
D. Present Value Estimates by Interest Rate Scenario
-------------------------------------------------
<TABLE>
<CAPTION>
*** Change in Interest Rates ***
ASSETS -400 bp -300 bp -200 bp -100 bp No Change +100 bp +200 bp +300 bp +400 bp
- ------ ------- ------- ------- -------- --------- ------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Passbook Account
Intangible (46) (22) (14) (6) 16 132 278 416 544
Non-Interest-Bearing
Account Intangible 37 105 171 235 295 353 408 460 511
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total Other
Assets $ 667 $ 1,034 $ 1,186 $ 1,477 $ 1,861 $ 2,336 $ 2, 825 $ 3,287 $ 3,724
-------- -------- -------- -------- -------- -------- -------- -------- --------
TOTAL ASSETS $113,401 $112,283 $111,112 $110,236 $109,483 $108,462 $106,985 $105,144 $103,066
======== ======== ======== ======== ======== ======== ======== ======== ========
LIABILITIES
- -----------
DEPOSITS
Fixed-Rate, Fixed-
Maturity:
Maturing in 12
Months of less $ 59,888 $ 59,585 $ 59,292 $ 58,996 $ 58,707 $ 58,421 $ 58,136 $ 57,858 $ 57,580
Maturing in 13
Months or More 12,202 11,956 11,716 11,483 11,257 11,038 10,825 10,617 10,416
Demand 21,532 21,531 21,531 21,532 21,531 21,532 21,531 21,531 21,530
------- -------- -------- -------- -------- -------- -------- -------- --------
Total Deposits $ 93,622 $ 93,072 $ 92,539 $ 92,011 $ 91,495 $ 90,991 $ 90,492 $ 90,006 $ 89,526
-------- -------- -------- -------- -------- -------- -------- -------- --------
Borrowings
$ _ $ - $ - $ - $ - $ - $ - $ - $ -
-------- -------- -------- -------- -------- -------- -------- -------- --------
OTHER LIABILITIES
Escrow Accounts $ 6 $ 6 $ 6 $ 6 $ 5 $ 5 $ 5 $ 5 $ 5
Miscellaneous 590 590 589 589 591 590 590 590 590
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total Liabilities $ 94,218 $ 93,668 $ 93,134 $ 92,606 $ 92,091 $ 91,586 $ 91,087 $ 90,601 $ 90,121
======== ======== ======== ======== ======== ======== ======== ======== ========
ASSETS $113,401 $112,283 $111,112 $110,236 $109,483 $108,462 $106,985 $105,144 $103,066
</TABLE>
53
<PAGE>
D. Present Value Estimates by Interest Rate Scenario
-------------------------------------------------
<TABLE>
<CAPTION>
*** Change in Interest Rates ***
ASSETS -400 bp -300 bp -200 bp -100 bp No Change +100 bp +200 bp +300 bp +400 bp
- ------ ------- ------- ------- -------- --------- ------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES 94,218 93,668 93,134 92,606 92,091 91,586 91,087 90,601 90,121
OFF-BALANCE-SHEET
POSITIONS - - - - - - - - -
-------- -------- -------- -------- -------- -------- -------- -------- --------
NET PORTFOLIO
VALUE $ 19,183 $ 18,615 $ 17,978 $ 17,630 $ 17,392 $ 16,876 $ 15,898 $ 14,543 $ 12,945
======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
54
<PAGE>
***INTEREST RATE SENSITIVITY OF NET PORTFOLIO VALUE (NPV)***
<TABLE>
<CAPTION>
Net Portfolio Value NPV as % of PV of Assets
Change
in Rates $ Amount $ Change % Change NPV Ratio Change
-------- -------- -------- -------- --------- ------
<S> <C> <C> <C> <C> <C>
+400 bp $ 12,945 -4,448 -26% 12.56% -333 bp
+300 bp 14,543 2,849 -16% 13.83% -205 bp
+200 bp 15,898 -1,494 - 9% 14.86% -103 bp
+100 bp 16,876 - 516 - 3% 15.56% - 33 bp
0 bp 17,392 15.89%
-100 bp 17,630 238 + 1% 15.99% + 11 bp
-200 bp 17,978 585 + 3% 16,18% + 29 bp
-300 bp 18,615 1,223 + 7% 16.58% + 69 bp
-400 bp 19,183 1,791 +10% 16.92% +103 bp
</TABLE>
<TABLE>
<CAPTION>
12-31-98 9-30-98 12-31-97
-------- ------- --------
<S> <C> <C> <C>
*** RISK MEASURES: 200 BP RATE SHOCK ***
Pre-Shock NPV Ratio: NPV as % of PV of Assets 15.89% 15.91% 16.12%
Exposure Measure: Post-Shock NPV Ratio 14.86% 15.05% 14.52%
Sensitivity Measure: Decline in NPV Ratio 103 bp 86 bp 160 bp
</TABLE>
55
<PAGE>
IV. Summary of Loan Loss Experience
-------------------------------
The following table summarizes loan balances at the end of each period and
average balances during the year for each category; changes in the reserve for
possible loan losses arising from loans charged off and recoveries on loans
previously charged off; additions to the reserve which have been charged to
operating expenses; and the ratio of net charge-offs during the period to
average loans.
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1998 1997 1996
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
A. Average amount of loans outstanding $ 88,540 $ 85,412 $ 81,995
--------------- --------------- ---------------
B. Balance of reserve for possible loan
losses at beginning of period $ 753 $ 766 $ 783
--------------- --------------- ---------------
C. Loans charged off:
Commercial $ - $ - $ -
Mortgage - - -
Consumer 15 20 22
--------------- --------------- ---------------
$ 15 $ 20 $ 22
--------------- --------------- ---------------
D. Recoveries of loans previously charged off:
Commercial $ - $ - $ -
Mortgage - - -
Consumer 8 7 5
--------------- --------------- ---------------
$ 8 $ 7 $ 5
--------------- --------------- ---------------
E. Net loans charged off during period: $ 7 $ 13 $ 17
--------------- --------------- ---------------
Additions to reserve charged
to operating expense during period/(1)/ $ - $ - $ -
--------------- --------------- ---------------
F. Balance of reserve for possible
loan losses at end of period $ 746 $ 753 $ 766
--------------- --------------- ---------------
G. Ratio of net loans charged off during the
period to average loans outstanding .01% .02% .02%
--------------- --------------- ---------------
</TABLE>
_______________________
/(1)/ Although the provisions in prior years exceeded the minimum provision
required by regulatory authorities, Baxley's Board of Directors believes that
the provision has not been in excess of the amount required to maintain the
reserve at a sufficient level to cover potential losses. The amount charged to
operations and the related balance in the reserve for loan losses is based upon
periodic evaluations of the loan portfolio by management. These evaluations
consider several factors including, but not limited to, general economic
conditions, loan portfolio composition, prior loan loss experience and
management's estimation of future potential losses.
56
<PAGE>
The following table sets forth the breakdown of the allowance for loan
losses by loan category at December 31, 1998. Management believes that the
allowance can be allocated by category only on an approximate basis. The
allocation of the allowance to each category is not necessarily indicative of
further losses and does not restrict the use of the allowance to absorb losses
in any category.
<TABLE>
<CAPTION>
Loans in Each Allowance as a
Category as a Percentage of
Percentage of Outstanding
Total Gross Gross Loans in
Type of Loan Allowance Loans Category
- ------------------------------------------ --------- ---------------- ------------------
(Dollars in thousands)
<S> <C> <C> <C>
Single-family mortgage loans 109 91.8% 0.1%
Commercial real estate loans 396 2.4 19.1
Commercial business loans 67 .7 10.4
Consumer loans 174 5.1 3.8
---------- -------------- -------------
Total 746 100.0% 33.4%
========== ============== =============
</TABLE>
V. Deposits
--------
A. Average deposits, classified as demand deposits, savings deposits and time
certificates of deposit for the periods indicated are presented below:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1998 1997
----------------- -----------------
(Dollars in thousands)
<S> <C> <C>
Demand deposits $ 16,646 $ 17,042
Savings deposits 4,600 5,150
Time certificates of deposits 65,675 63,125
--------------- ---------------
Total deposits $ 86,921 $ 85,317
=============== ==============
</TABLE>
B. The amounts of time certificates of deposit issued in amounts of $100,000
or more as of December 31, 1998 are shown below by category, which is based on
time remaining until maturity of (i) three months or less, (ii) over three
through six months, (iii) over six through 12 months and (iv) over 12 months.
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C>
Three months or less $ 6,279
Over three through six months 6,256
Over six through 12 months 8,355
Over 12 months 317
--------------
Total $ 21,207
==============
</TABLE>
57
<PAGE>
VI. Selected Financial Ratios and Other Data /(1)/:
--------------------------------------------
<TABLE>
<CAPTION>
At or For the Year Ended
December 31,
----------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Return on average assets 1.30% 1.47% 1.02% 1.59% 1.35% 1.36%
Return on average equity 9.11 9.40 6.40 9.80 8.26 8.49
Average equity to average assets 14.28 15.63 15.97 16.18 16.38 16.06
Interest rate spread /(1)/ 2.64 2.89 2.94 3.33 3.20 3.24
Net yield on average interest-earning assets /(2)/
3.49 3.78 3.81 4.16 3.84 3.85
Other expenses to average assets 1.76 1.78 2.51 1.92 1.86 1.83
Retained earnings to total assets 8.02 7.66 10.35 10.01 11.43 10.60
Nonperforming loans and real estate owned to
total assets .30 .30 .20 .05 .59 .75
Average interest-earning assets to average
interest-bearing liabilities 119.05 121.07 120.34 119.71 118.56 117.38
Nonperforming loans and real estate owned to
total loans /(3)/ .35 .35 .24 .06 .70 .93
Number of:
Deposit accounts 7,961 8,145 8,125 8,098 7,703 7,705
Mortgage loans 1,839 1,988 1,968 1,954 1,993 1,988
Full-service customer service facilities 2 2 2 2 2 2
</TABLE>
___________________________
/(1)/ The interest rate spread represents the difference between the weighted-
average rate on interest-earning assets and the weighted-average rate on
interest-bearing liabilities.
/(2)/ Represents net interest income as a percentage of average interest-
earning assets.
/(3)/ Includes all loans contractually past due 90 days or more.
58
<PAGE>
Office Properties
Baxley conducts its business through its two full-service offices located
in Baxley and Hazlehurst, Georgia. The following table sets forth information
relating to Baxley's offices as of December 31, 1998, including the net book
value of the real estate and buildings owned by Baxley.
<TABLE>
<CAPTION>
Net Book Value at
Location Owned/Leased Date Opened December 31, 1998
- -------- ------------ ----------- -----------------
<S> <C> <C> <C>
Main Office Owned 1974 $ 771,768
219 East Parker Street
Baxley, Georgia 31513-2001
Branch Office Owned 1976 451,421
100 East Jarman Street
Hazlehurst, Georgia 31539
Lake Lodge Owned 1997 282,620
Baxley, Georgia ----------
Total $1,505,809
==========
</TABLE>
Legal Proceedings
There are no material pending legal proceedings to which Baxley is a party
or to which any of its property is subject.
59
<PAGE>
OUTSTANDING VOTING SECURITIES OF BAXLEY
AND PRINCIPAL HOLDERS THEREOF
The following tables set forth certain information as of June 30, 1999,
regarding shares of Baxley Common Stock beneficially owned by (i) each of
Baxley's directors, including Baxley's President and Chief Executive Officer,
(ii) all directors and executive officers of Baxley as a group, and (iii) each
person known by Baxley to be the beneficial owner of more than 5% of Baxley
Common Stock. Except as otherwise noted below, the information in the tables is
based on information furnished by each owner to Baxley. Each director and
executive officer shown below has the address of Baxley at 219 East Parker
Street, Baxley, Georgia 31513-2001. The table excludes 27,192 shares of Baxley
Common Stock that were previously allocated to employees through an employee
stock ownership plan trust for which non-employee directors of Baxley serve in a
fiduciary capacity as trustees or members of the committee overseeing the trust.
While employees are entitled to vote the shares allocated to their trust
accounts, the committee may direct the trustees to vote, subject to their
fiduciary duties, shares for which no timely voting instructions have been
received.
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial Percent
Name of Beneficial Owner Ownership of Class
- ------------------------ --------- --------
<S> <C> <C>
Directors and executive officers:
Dennis L. Altman, Jr............................................... 13,035 2.4
William A. Baker................................................... 12,826 2.3
Grady Branch....................................................... 23,575 4.3
J.R. Frazier....................................................... 24,880 4.5
Kennith D. McLeod.................................................. 29,856 5.4
Omer M. McLean..................................................... 4,745 *
R.O. Rogers........................................................ 8,425 1.5
Alvin R. Tuten, Jr................................................. 28,078 5.1
Directors and executive officers as a group (17 persons)........... 184,774 33.5
Other beneficial owners:
Mr. Thomas D. Stewart, Sr./(1)/
P.O. Box 57
Baxley, Georgia 31513.............................................. 34,974 6.3
</TABLE>
_________________
* Represents holdings of less than 1%
/(1)/ The information regarding Mr. Stewart is based on information derived
from Baxley's shareholder records and a copy of a Schedule 13G provided
to Baxley by Mr. Stewart in 1998.
60
<PAGE>
BAXLEY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The purpose of this discussion is to focus on information about Baxley's
financial condition and results of operations, which is not otherwise apparent
from such financial statements. Reference should be made to those statements and
the selected financial data presented elsewhere for an understanding of the
following discussion and analysis.
General
The business of Baxley has been that of a financial intermediary,
consisting primarily of attracting deposits from the general public and using
such deposits to originate mortgage loans secured by one-to-four family
residences, commercial real estate and, to a lesser extent, consumer and
residential construction loans. Baxley maintains a portion of its assets in
investment securities, including obligations of the U.S. Government and federal
agencies and other short-term investments. Baxley's profitability depends
primarily on its net interest income which is the difference between the income
it receives on its loan and investment portfolios and its cost of funds, which
consists of interest paid on deposits. Net interest income is also affected by
the relative amounts of interest-earning assets and interest-bearing
liabilities. When interest-earning assets approximate or exceed interest-bearing
liabilities, any positive interest rate spread will generate net interest
income. To a lesser extent, Baxley's profitability is also affected by the level
of other income and expenses. Other income consists principally of loan and
servicing fees and service charges on deposit accounts. Other expenses consist
of compensation and benefits, occupancy related expenses, deposit insurance
premiums and other operating expenses. The operations of Baxley are influenced
significantly by general economic conditions and by policies of financial
institution regulatory agencies, including the OTS and the FDIC. Baxley's cost
of funds is influenced by interest rates on competing investments and general
market interest rates. Lending activities are affected by the demand for
financing of real estate and other types of loans, which in turn is affected by
the interest rates at which such financing may be offered.
Year 2000 Compliance Disclosure
As the year 2000 approaches, the issues and challenges of moving to the new
millennium are becoming increasingly more visible. The year 2000 computer issue
was brought about by programmers saving storage space on computers by utilizing
shortened date entries. The method that was used expressed the year in two
digits; for example, January 1, 1998 was recorded as 01-01-98. If these date
functions are not corrected before the year 2000 arrives, affected software
systems, and devices containing computer chips or clocks would automatically
roll back to 1900 instead of moving forward to 2000. Some affected software and
devices will function without incident. Others may experience erroneous results
or the interruption of a process.
Baxley began the process of preparing for the century date change in 1997
when a year 2000 committee was appointed by its Board of Directors. The
committee was charged with the responsibility of developing a comprehensive year
2000 compliance plan utilizing the guidelines set forth by the Federal Financial
Institutions Examination Council ("FFIEC"). The plan was developed with the full
support of Baxley's executive management and was approved by Baxley's Board of
Directors.
The plan is divided into the following phases:
Phase 1: Awareness
A comprehensive list of functional business applications, hardware,
operating systems and environmental concerns were developed. At this
stage, Baxley determined which applications were mission critical
business applications.
61
<PAGE>
Phase 2: Assessment
A complete analysis was performed in order to determine the current
status of the compliance of each system, as well as the compliance of
related hardware and operating systems. From this evaluation, a
comprehensive list was developed reflecting which systems were year
2000 compliant, and which systems would require upgrades to become
compliant.
Phase 3: Renovation
A plan was developed to ensure that each system deemed to be
noncompliant in Phase 2 would meet compliance guidelines set forth by
the FFIEC. Where applicable, outside vendors were brought in to
assist with the solution.
Phase 4: Each system that required any form of remediation (as well as systems
deemed compliant during Phase 2) was tested for year 2000 compliance.
The testing was conducted by the user departments and reviewed by the
year 2000 committee and Baxley management.
Phase 5: Implementation
As each system was remediated and tested, it was migrated into the
production environment.
Baxley set a goal of December 31, 1998 to have all mission critical systems
ready for the year 2000. Baxley believes that it has met that goal and that all
of its mission critical systems can process date/time data into the year 2000
and beyond including leap year calculations.
Baxley relies on a third party service bureau to handle its core data
processing. The service bureau developed its year 2000 compliance plan in 1997.
The service bureau's system that Baxley utilizes for its core processing has
been remediated, tested and is in use by Baxley at this time. Baxley and the
service bureau have tested this system, processing hundreds of transactions
utilizing future year 2000 dates. The tests have been successful with no year
2000 problems being noted. Baxley will continue to test systems throughout 1999.
If the service bureau cannot accurately process data, Baxley will very likely
experience significant delays, mistake or failures. These delays, mistakes or
failures could have a significant negative impact on its financial condition and
operating results. Accurate data processing is a mission critical business
application.
Baxley has taken steps to address the year 2000 readiness of all of its
customers and third party vendors. Baxley has coordinated with, and has
documentation from, all of its third party vendors. Baxley has, and will
continue to correspond with its commercial customers concerning the importance
of the year 2000 issue and the effects that it could have on their businesses.
Baxley has experienced most of its cost associated with becoming year 2000
compliant. The year 2000 project has cost Baxley approximately $35,000 through
March 31, 1999. Most of this cost is associated with the purchase of new
computer hardware and software and will be capitalized rather than realized all
in one period. Management believes that future costs associated with year 2000
will be minimal.
Although Baxley has taken, and will continue to take, measures to assure
year 2000 readiness, the risks of unforeseen difficulties or cost still remain.
Baxley recognizes this fact and has developed contingency plans for all mission
critical systems in the event that one or more systems should fail. If Baxley's
service bureau's system fails, then Baxley will attempt to locate an alternative
service bureau that is year 2000 compliant. If Baxley is unsuccessful, the
employees of Baxley will enter deposit and loan transactions by hand in its
general ledger and compute loan payments and deposit balances and interest with
computers and calculators. If this extremely labor intensive approach is
necessary, management and all employees will become much less efficient and
Baxley will function solely to maintain its operations in a very basic manner
until the existing service bureau, or a replacement, can again provide reliable
data processing services.
In conclusion, Baxley management believes, taking into consideration all
internal and external systems, hardware and software test results, third party
and customer risk assessments, that its overall exposure to year 2000 related
problems will be low.
62
<PAGE>
Asset/Liability Management
Baxley has employed various strategies intended to minimize the adverse
effect of interest rate risk on future operations by providing a better match
between the interest rate sensitivity of its assets and liabilities and by
expanding its activities which are not directly dependent on interest rate
spreads. Baxley's strategies are intended to stabilize net interest income for
the long-term by protecting its interest rate spread against increases in
interest rates.
These strategies include the origination or purchase of ARMs and short-term
lending products and the concentration of other interest-earning assets in short
term investments, including FHLB overnight investments. In addition, Baxley has
significantly increased its ARM lending in recent years from 27.7% of total
assets for fiscal 1986 to 44.52% for 1998. Baxley's asset/liability management
strategies have helped to reduce, but not eliminate, the exposure of its
earnings to future interest rate increases.
Liability management in the form of adjusting the interest rates and
deposit terms to prevailing market conditions also plays a significant role in
Baxley's asset/liability policy. During periods of high interest rates,
management believes it is prudent to offer competitive rates on short-term
deposits and less competitive rates for long-term deposits. This allows Baxley
to benefit quickly from declines in interest rates. Likewise, offering more
competitive rates on long-term deposits during low interest rate periods allows
Baxley to extend the repricing and/or maturity of its liabilities, thus reducing
its exposure to rising interest rates. However, the failure to accurately
predict the movement of future interest rates can lead to adverse effects on net
interest income. Under rules of the OTS that are not yet in effect, Baxley has
not been deemed to have greater than normal interest rate risk.
Capital Resources and Liquidity
Baxley must have minimum core capital (the leverage ratio) of at least 4.0%
of adjusted total assets, minimum tangible capital of at least 1.5% of adjusted
total assets and risk-based capital standards of at least 8.0% of total risk-
weighted assets.
The minimum core capital or leverage ratio may be increased by the OTS
based on its assessment of the institution's risk management systems and the
level of overall risk in the individual institution.
The following table presents Baxley's capital position relative to its
minimum capital requirements at March 31, 1999 and December 31, 1998:
March 31, 1999
--------------
<TABLE>
<CAPTION>
Percentage
Amount of Assets
------ ---------
(Dollars in thousands)
<S> <C> <C>
Tangible capital $ 14,199 13.4
Minimum tangible capital
requirements 1,588 greater than 1.5
-------- ----
Excess $12, 611 11.9
======== ====
Core capital $ 14,199 13.4
Minimum core capital
requirements 4,235 greater than 4.0
-------- ----
Excess $ 9,964 9.4
======== ====
Risk-based capital $ 15,583 27.7
Minimum risk-based capital
requirements 4,501 greater than 8.0
-------- ----
Excess $ 11,082 19.7
======== ====
</TABLE>
63
<PAGE>
December 31, 1998
-----------------
<TABLE>
<CAPTION>
Percentage
Amount of Assets
------ ---------
(Dollars in thousands)
<S> <C> <C>
Tangible capital $ 13,878 13.1
Minimum tangible capital
requirements 1,590 greater than 1.5
-------- ----
Excess $ 12,288 11.6
======== ====
Core capital $ 13,878 13.1
Minimum core capital
requirements $ 3,181 greater than 3.0
Excess -------- ----
$ 10,697 10.1
======== ====
Risk-based capital $ 15,365 26.7
Minimum risk-based capital
requirements 4,607 greater than 8.0
-------- ----
Excess $ 10,758 18.7
======== ====
</TABLE>
As of March 31, 1999 and December 31, 1998, Baxley substantially exceeded
all of the required minimum capital amounts as demonstrated by the chart above.
In addition to these minimum capital requirements, the OTS effectively imposes
higher capital requirements through its ability to take prompt corrective action
against undercapitalized institutions. Baxley met these higher capital
requirements as it was deemed a well capitalized institution as of March 31,
1999 and December 31, 1998.
Baxley has traditionally maintained levels of liquidity in excess of levels
required by regulatory authorities. As a member of the FHLB, Baxley is required
to maintain a daily average balance of cash and eligible liquidity investments
in an amount equal to a monthly average of 5.0% of withdrawable savings and
short term borrowings. Baxley's liquidity level was 17.04% at March 31, 1999,
14.26% at December 31, 1998 and 12.39% at December 31, 1997.
Baxley's operational needs, demand for loan disbursements and savings
withdrawals can be met by loan principal and interest payments, new deposits and
excess liquid assets. While significant loan demand, deposit withdrawal,
increased delinquencies and increased foreclosed properties could alter this
condition, Baxley has sufficient borrowing capacity through FHLB advances and
other short term borrowings to manage such an occurrence. Management does not
foresee any liquidity problems in 1999. In the past five fiscal years, Baxley
borrowed $500,000 for a 10-day period in February, 1995 from the FHLB.
Financial Condition at March 31, 1999 and March 31, 1998
Total assets decreased $267,539 in the first quarter from December 31,
1998. Deposit growth was flat for the quarter ending March 31, 1999. Loan demand
was also off during the same three months and two participation loans paid off
during the first quarter. Baxley did not encourage loan growth during the first
quarter of 1999. Baxley invested the excess money from loan pay-offs in interest
bearing deposits to increase the liquidity level.
Baxley has been experiencing competitive pressures on its deposit rates due
to the opening of a new bank at the end of 1997. Baxley continues to monitor the
competitive nature of the market and does not anticipate any major moves that
might materially affect Baxley.
Interest bearing deposits increased $1,476,403 in the first quarter ending
March 31, 1999 because of the decrease in loan demand.
64
<PAGE>
Retained earnings increased $320,597 or 0.3% of total assets at March 31,
1999 as a result of earnings for the three months ended March 31, 1999.
Comparison of Operating Results for the Three Months Ended March 31, 1999 and
March 31, 1998
Interest income on loans decreased $102,877 because of the decrease in
loans in the amount of $1,576,449. Interest expenses on deposits continues to
increase from prior years. This increase is a result of rate increases of
interest bearing liabilities. Interest income on interest bearing deposits
increased $75,740 for the quarter ending March 31, 1999 as a result of the
increase in interest bearing deposits as discussed above.
Baxley remains aware of the current market climate and the possibility of
future rate adjustment. Management continues to position Baxley in an effort to
best react to this volatile market condition.
Baxley has determined, based on its review of the loan portfolio, which
included a review of historic, economic, individual loan analysis, and other
pertinent factors, that the allowance for loan losses is adequate at March 31,
1999. Based on this analysis, no provision for loan losses was required.
Other income and expenses has remained fairly constant compared with prior
years. Baxley has not had any material events that have affected either other
income or other assets. The increase in other expenses was primarily
attributable to increases in compensation and related employee benefits and data
processing expenses.
Baxley continually examines each phase of its operations for opportunities
to reduce expenses.
Financial Condition at December 31, 1998 and December 31, 1997
Total assets increased $6,385,197 or 6.3% from December 31, 1997 to
December 31, 1998. This increase was due to the growth in core deposits, mostly
in higher paying certificates of deposit for the last six months of 1998.
Deposit growth had been flat for the 12 months prior to June 30, 1998. During
that time, Baxley monitored the competitive nature of the market and was
therefore able to pick up additional deposit monies during the last two quarters
of the year.
Loan demand remained stable, increasing $397,757 or 0.4% during 1998.
Baxley did not encourage loan growth during that time of falling rates. Baxley
invested the excess money from core deposits in interest bearing deposits to
increase its liquidity level.
The balance in the Real Estate Acquired in Settlement of Loans account
remained at $-0- at December 31, 1998. This was representative of management's
commitment to maintain higher quality loans and quick turn around of its
foreclosed property.
Retained earnings increased by $883,538 for the year ending December 31,
1998. As mentioned previously, Baxley declared a dividend of $0.82 per share
totaling $452,214 in December 1998, and had earnings for the 12 months ending
December 31, 1998 of $1,335,572. As discussed above, Baxley's capital position
was substantially in excess of all regulatory requirements.
Comparison of Operating Results for the Years Ended December 31, 1998 and
December 31, 1997
General
Baxley reported net income of $1,335,752 in 1998, a decrease of $169,287.
The return-on-average assets for the 1998 period decreased from 1.47% for the
1997 period to 1.30% for the 1998 period. This decrease was due primarily to a
tightening in interest margins in 1998. ARMs continued to fall and Baxley
attempted to remain competitive with local banks on deposit interest rates.
Baxley's yield on interest-earning assets dropped from 8.06% in 1997 to 7.94% in
1998 while the yield on interest-bearing liabilities increased from 5.17% to
5.30% during this same period. This caused a lowering in the interest rate
spread of 25 basis points. Net interest income after provision for loan losses
decreased by $289,682. Other income also decreased by a total of $8,008 and
other
65
<PAGE>
expenses decreased $18,523. Several factors, as discussed below, contributed to
the increases and decreases in these areas.
Interest Income
Total interest income decreased $109,551 for the year or 1.4%. Average
loans increased $3,128,000 during the year ended December 31, 1998. However,
the decrease in interest income was due to the fact that the yield from the 1997
period to the 1998 period dropped 12 basis points.
Interest Expense
Total interest expense increased $180,131 or 4.1 % for the year. The
increase was attributed to an increase in average interest-bearing deposits of
$1,440,000. The average rate paid on these liabilities increased by 13 basis
points during the year.
Yields Earned and Rates Paid
Net interest income is affected by (i) the difference between rates of
interest earned on interest-earning assets and rates of interest paid on
interest-bearing liabilities (interest rate spread) and (ii) the relative
amounts of interest-earning assets and interest-bearing liabilities. When
interest-earning assets approximate or exceed interest-bearing liabilities, any
positive interest rate spread will generate net interest income. Financial
institutions have traditionally used interest rate spreads as a measure of net
interest income. Another indication of an institution's net interest income is
its "net yield on interest earning-assets" which is net interest income divided
by average interest-earning assets. The following table sets forth information
with respect to weighted average contractual yields on loans, yields on
investments and the cost of funds on deposits and borrowings for the periods
indicated.
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------------
1998 1997 1996
--------------- --------------- ------------
<S> <C> <C> <C>
(In percentages)
Weighted average yield on:
Loans 8.33 8.52 8.57
Mortgage-backed securities, net 6.82 7.10 7.18
Investment securities 6.08 6.14 5.90
Interest earning deposits in other banks 4.27 4.83 5.05
---- ---- -----
Total weighted average yield on all interest
earning assets 7.94 8.06 8.12
---- ---- -----
Weighted average rate paid on:
Deposits:
Demand 2.93 3.01 2.94
Savings 3.24 3.34 3.36
Certificate of deposit 5.93 5.80 5.88
Other borrowings .00 9.52 10.45
---- ---- -----
Total weighted average rate paid on all interest-bearing liabilities 5.30 5.17 5.18
---- ---- -----
Weighted average interest rate spread (spread between weighted average
yield on all interest earning assets and rate paid on all interest
earning liabilities) 2.64 2.89 2.94
==== ==== ====
Net yield on average interest-earning assets (net interest income as a
percentage of average interest earning assets) 3.49 3.78 2.89
==== ==== ====
</TABLE>
66
<PAGE>
Provision for Loan Losses
Baxley's provision for loan losses was based on management's evaluation of
the risk elements inherent in the loan portfolio. The elements included
possible declines in the value of collateral due to changing economic conditions
and depreciation over time, size and composition of the loan portfolio, current
economic conditions that might affect a borrower's ability to pay, review of
specific problem loans, findings and recommendations from regulatory
examinations, historical charge-off experience and levels of non-performing and
past due loans. Based upon management's review of these elements, Baxley
determined that the allowance for loan losses was adequate during 1998.
Therefore, no additional provision for loan losses was required.
Other Income and Other Expenses
Other income remained fairly constant compared with prior years. During
1998, Baxley did not have any material events that affected either other income
or other assets.
Other expenses decreased $18,523 or 1.0% during 1998. Expenses for
employee benefit plans decreased $71,396 or 29.2% because the last shares were
released from Baxley's Employee Stock Option Plan ("ESOP") plan in June 1997 and
the last shares were awarded in Baxley's Recognition and Retention Plan in May
1997.
During 1998, Baxley continually examined each phase of its operations for
opportunities to reduce expenses. Baxley incurred $750,473 in income tax
expense for 1998 based on applicable income tax rates at December 31, 1998.
Financial Condition at December 31, 1997 and December 31, 1996
Total assets decreased $826,985 from December 31, 1996 to December 31,
1997. Loan balances increased $3,616,096 or 4.3%. Loan demand remained strong
throughout 1997 and management took advantage of this demand by offering
competitive loan products and exceptional service. The majority of the increase
in loans was in the one-to-four family residential mortgage category. However,
interest bearing deposits decreased $4,428,835, which accounted for the overall
decrease in Baxley's assets during 1997. Interest bearing deposits decreased
because Baxley paid a dividend of $7.00 per share in September 1997 totaling
$3,860,367.
The balance in the Real Estate Acquired in Settlement of Loans account
remained at $-0- at December 31, 1997. This was representative of management's
commitment to maintain higher quality loans and quick turn around of its
foreclosed property.
Deposits remained fairly stable with an increase at year-end of $1,223,219
or 1.4%. This increase represented an increase in the local market for deposits.
Prior to 1997, generally all of the growth had been in higher paying
certificates of deposit. During 1997, Baxley experienced some competitive
pressures on its deposit rates; but, has been able to maintain its position
without a significant decrease in its interest margin.
Retained earnings decreased by $2,802,028 for the year ending December 31,
1997. As mentioned above, a special dividend of $7.00 per share totaling
$3,860,367 was paid during the third quarter of 1997. Baxley declared this
dividend after review of its financial condition, earnings performance and
anticipated future needs. This review indicated a sound financial condition and
Baxley believed there would be little or no impact as a result of this special
dividend. Baxley declared a dividend of $0.81 per share totaling $446,700 in
December 1997.
Earnings for the 12 months ending December 31, 1997 totaled $1,505,039.
Miscellaneous stock options and ESOP activities resulted in minor adjustments to
equity during this period. Baxley's capital position was substantially in
excess of all regulatory requirements during this period.
67
<PAGE>
Comparison of Operating Results for the Years Ended December 31, 1997 and
December 31, 1996
General
Baxley reported net income of $1,505,039 in 1997, an increase of $490,284.
The return-on-average assets for the 1997 period increased to 1.47% from 1.02%
for the 1996 period. This increase was due primarily to an increase in interest
income and a decrease in other expenses. Net interest income after provision
for loan losses increased by $107,788. Other income increased by a total of
$18,149 and other expenses decreased $663,062. Several factors, as discussed
below, contributed to the increases and decreases in these areas.
Interest Income
Total interest income increased $234,010 for the year or 3.0%. The major
portion of this rise in interest income was in loans where interest income from
loans increased $247,271 or 3.5%.
Average loans increased $3,417,000 during the year ended December 31, 1997,
resulting in higher interest income. However, the smaller increase in interest
income was due to the fact that the increase in yield from the 1996 period to
the 1997 period dropped six basis points.
Interest Expense
Total interest expense increased $126,222 or 3.1% for the year. The
increase was attributed to an increase in average interest-bearing deposits of
$2,591,000. The average rate paid on these liabilities decreased by one basis
point during the year. Baxley's interest rate spread dropped from 2.94% in 1996
to 2.89% in 1997.
Provision for Loan Losses
Baxley's provision for loan losses was based on management's evaluation of
the risk elements inherent in the loan portfolio. The elements included
possible declines in the value of collateral due to changing economic conditions
and depreciation over time, size and composition of the loan portfolio, current
economic conditions that might affect a borrower's ability to pay, review of
specific problem loans, findings and recommendations from regulatory
examinations, historical charge-off experience and levels of non-performing and
past due loans. Based upon management's review of these elements, Baxley
determined that the allowance for loan losses was adequate during 1997.
Therefore, no additional provision for loan losses was required.
Other Income and Other Expenses
Other income increased $18,149 or 4.4% during 1997. Deposit service
charges accounted for the majority of this increase. An increase in deposit
balances as well as an emphasis by management to collect non-sufficient funds
fees were the reasons for the increase in deposit service charges.
Other expenses decreased $663,062 or 26.6% during 1997. In 1996, all
thrifts had to pay a special assessment to recapitalize the SAIF. This
assessment cost Baxley $492,598 in 1996. Because of the special assessment,
Baxley's federal insurance premiums were significantly lower for the year ended
December 31, 1997. Federal insurance premiums decreased $122,876 or 69.7%, not
including the special assessment. Compensation, employee benefit plans and
other personnel expenses decreased $97,533 or 9.5% due to the retirement of two
long-time employees at the end of 1996. Also, expenses for employee benefit
plans decreased because the last shares were released from the ESOP plan in June
1997 and the last shares were awarded in Baxley's Recognition and Retention Plan
in May 1997.
During 1997, Baxley continually examined each phase of its operations for
opportunities to reduce expenses. Baxley incurred $860,353 in income tax
expense for the year based on applicable income tax rates at December 31, 1997.
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Impact of Inflation and Changing Prices
Baxley's financial statements and related data presented in this Proxy
Statement/Prospectus have been prepared in accordance with GAAP, which require
the measurement of financial position and operating results in terms of
historical dollars, without considering changes in the relative purchasing power
of money over time due to inflation.
The majority of assets and liabilities of Baxley are monetary in nature;
therefore, they differ greatly from most commercial and industrial companies
that have significant investments in fixed assets and inventories. However,
inflation does have an important impact on the growth of total assets of
financial institutions and the resulting need to increase equity capital at
higher than normal rates in order to maintain an appropriate equity-to-asset
ratio.
A significant impact of inflation is reflected in other expenses and
operating costs which tend to rise during periods of inflation.
Interest rates generally have a more significant impact on a financial
institution's performance than does inflation. Interest rates do not
necessarily move in the same direction or to the same extent as the prices of
goods and services. In the current interest rate environment, liquidity and the
maturity structure of Baxley's assets and liabilities are critical to the
maintenance of acceptable performance levels.
Management believes the most significant impact on financial results is
Baxley's ability to react to changes in interest rates. Management attempts to
maintain an essentially balanced position between interest sensitive assets and
liabilities in order to protect against wide interest rate fluctuations.
However, even if management could achieve a balanced position, there would still
remain interest rate risk because of the uncertainty in the assumptions used to
calculate prepayment and withdrawal levels.
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CERTAIN DIFFERENCES IN THE RIGHTS OF
BAXLEY SHAREHOLDERS
AND PAB SHAREHOLDERS
At the Effective Time, the shareholders of Baxley, a federal stock
association, will become shareholders of PAB, a Georgia corporation, and, as a
result, Georgia law will govern shareholder rights after the consummation of the
Merger. Differences between the Georgia Business Corporation Code (the "GBCC")
and the laws and regulations of the OTS (collectively, "OTS Regulations") and
between PAB's Articles of Incorporation (the "PAB Articles") and PAB's Bylaws
(the "PAB Bylaws") and Baxley's Federal Stock Charter (the "Baxley Charter") and
Baxley's Bylaws (the "Baxley Bylaws") will result in certain changes in the
rights of Baxley shareholders. Set forth below is a summary comparison of the
material differences between the rights of Baxley shareholders and PAB
shareholders.
The information set forth below does not purport to be a complete
discussion of the differences in the rights of Baxley shareholders and PAB
shareholders and is qualified in its entirety by reference to the full text of
the Baxley Charter and the Baxley Bylaws, the PAB Articles and the PAB Bylaws,
and the applicable provisions of the GBCC and OTS Regulations to which Baxley
shareholders are referred.
Authorized Capital Stock
Baxley. Baxley is authorized to issue 8,000,000 shares of common stock,
$0.01 par value per share, of which 551,481 shares are currently issued and
outstanding. Baxley is also authorized to issue 2,000,000 shares of preferred
stock, $.01 par value per share, of which no shares are issued and outstanding.
PAB. PAB is authorized to issue 98,500,000 shares of common stock, no par
value per share, of which 8,290,197 shares were issued and outstanding as of
June 23, 1999. As of June 23, 1999, 399,550 shares of PAB Common Stock were
reserved for issuance upon the exercise of outstanding stock options under the
PAB 1994 Employee Stock Option Plan, 377,310 shares of PAB Common Stock were
reserved for issuance under the PAB Dividend Reinvestment and Common Stock
Purchase Plan and no shares of PAB Common Stock were reserved for issuance under
the PAB 1999 Stock Option Plan. PAB is also authorized to issue 1,500,000
shares of preferred stock, no par value per share, of which no shares were
issued and outstanding as of June 23, 1999. Any shares of a series of preferred
stock issued may have such designations, powers, preferences, and rights as
conferred on it by PAB's Board of Directors.
Cumulative Voting
Baxley. The Baxley Charter provides that every shareholder entitled to vote
in an election for directors has the right to cumulate his or her votes.
Cumulative voting means the right to vote the number of shares owned by a
shareholder for as many persons as there are directors to be elected and for
whose election the shareholder has a right to vote, or to cumulate votes by
giving one candidate as many votes as the number of directors to be elected
multiplied by the number of the shareholder's shares, or to distribute such
votes on the same principle among any number of candidates.
PAB. Under the GBCC, unless a corporation's articles of incorporation
provide otherwise, shareholders are not granted cumulative voting rights. The
PAB Articles do not provide for cumulative voting rights. Accordingly, each PAB
shareholder is entitled to one vote for each share held of record by such
holder.
Number and Election of Directors
Baxley. The Baxley Bylaws provide that the number of directors must be
fixed at eight and that the directors must be divided into three classes as
nearly equal in number as possible. The members of each class are elected for a
term of three years and until their successors are elected and qualified. One
class is elected annually.
PAB. The PAB Articles provide that PAB's Board of Directors must not have
less than nine members and that the number of directors may be fixed from time
to time by a majority vote of the PAB directors. Pursuant to the
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GBCC, PAB's Board of Directors may not exceed 25 members. PAB's Board of
Directors currently has 15 members and, after the Effective Time, will be
increased to 17 members to accommodate the two Baxley directors who will serve
as directors of PAB pursuant to the Merger Agreement. Similar to Baxley's Board
of Directors, PAB's Board of Directors is divided into three classes as nearly
equal in number as possible. The members of each class are elected for a term of
three years and until their successors are elected and qualified. One class is
elected annually.
Nominations of Directors
Baxley. The Baxley Bylaws provide that Baxley's Board of Directors is to
act as a nominating committee for the selection of management nominees for
election as directors. Baxley shareholder nominations are permitted and will be
voted upon at any annual meeting of shareholders if made in writing and
delivered to the Secretary of Baxley at least five days prior to the date of the
annual meeting. Neither the Baxley Bylaws nor the Baxley Charter requires any
specific information to be contained in the written notice of nomination.
Baxley's Board of Directors is required to post any shareholder nominations in a
conspicuous place in each office of Baxley and to print ballots containing the
names of all nominees for director within 20 days prior to the annual meeting. A
failure of Baxley's Board of Directors to act permits nominations for directors
to be made by Baxley shareholders at the annual meeting by any shareholder
entitled to vote at such meeting.
PAB. PAB's Board of Directors also serves as the nominating committee for
the selection of management nominees for election as directors. PAB shareholder
nominations are permitted at any annual meeting of shareholders and such
nominations will be voted upon in accordance with the SEC's discretionary voting
rules.
Removal of Directors
Baxley. Under the Baxley Bylaws, at a meeting of shareholders called
expressly for that purpose, any director may be removed only for cause by a vote
of a majority of the shares then entitled to vote at the election of directors.
If less than the entire Baxley Board of Directors is to be removed, no director
may be removed if the votes cast against the removal would be sufficient to
elect a director cumulatively at an election of the class of directors of which
the director is a part.
PAB. Pursuant to the PAB Articles and the GBCC, a member of PAB's Board of
Directors may be removed only at a meeting of shareholders called expressly for
that purpose and by a two-thirds (2/3) vote of the total issued and outstanding
shares of PAB Common Stock.
Adjournment and Notice of Shareholder Meetings
Baxley. The Baxley Bylaws require that notice of any shareholder meeting
be delivered to shareholders entitled to vote at such meeting not fewer than 20
days nor more than 50 days before the date of the meeting. The Baxley Bylaws
provide that when any shareholders' meeting is adjourned for 30 days or more,
notice of the adjourned meeting must be given as in the case of an original
meeting. It is not necessary to give any notice of the time and place of any
meeting adjourned for less than 30 days or of the business to be transacted at
the meeting, other than an announcement at the meeting to which such adjournment
is taken.
PAB. Except as required by the GBCC, the PAB Bylaws require that notice of
any shareholder meeting be delivered to shareholders entitled to vote at such
meeting not fewer than 10 days nor more than 50 days before the date of the
meeting. Under the GBCC, if a shareholders' meeting is adjourned, notice need
not be given of the meeting's new date, time and place if they are announced at
the meeting before adjournment. However, if a new record date for the adjourned
meeting is or must be fixed, notice of the adjourned meeting must be given to
persons who are shareholders as of the new record date.
Special Meetings of Shareholders
Baxley. OTS Regulations provide that, unless otherwise provided in the
Baxley Charter, special meetings of shareholders may be called by Baxley's Board
of Directors or upon the request of the holders of 10% or more of the shares
entitled to vote at the meeting, or by such other persons as may be specified in
the Baxley Bylaws. The
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Baxley Bylaws provide that special meetings of shareholders may be called at any
time by the Chairman of Baxley's Board of Directors, the President of Baxley, or
a majority of Baxley's Board of Directors. The Baxley Bylaws provide that the
Chairman of Baxley's Board of Directors, the President of Baxley or the
Secretary of Baxley must call a special meeting of shareholders upon the written
request of the holders of not less than 10% of all of the outstanding capital
stock entitled to vote at the meeting.
PAB. Under the PAB Bylaws, special meetings may be called by the Chairman of
PAB's Board of Directors, the President of PAB, or the Chairman of PAB's Board
of Directors or the President of PAB when so directed by PAB's Board of
Directors or by two or more directors in writing. In addition, the PAB Articles
permit shareholders to call a special meeting upon the written request of the
holders of at least two-thirds (2/3) of all of the outstanding capital stock
entitled to vote at the meeting.
Shareholder Proposals
Baxley. The Baxley Bylaws require that any new business proposed to be taken
up at an annual meeting of Baxley shareholders by any shareholder must be stated
in writing and filed with the Secretary of Baxley at least five days before the
date of the annual meeting in order to be considered and voted upon at such
meeting. However, Baxley shareholders are permitted to make any proposal at an
annual meeting which proposal may be discussed and considered but will not be
voted upon until any adjourned, special or annual meeting taking place 30 days
or more thereafter.
PAB. PAB shareholders are permitted to make any proposal at any annual
meeting which proposal may be discussed and considered. However, pursuant to
the SEC's proxy rules, PAB management is able to vote proxies in its discretion
if (i) PAB receives notice of the proposal at least 45 days before the date on
which PAB first mailed its proxy materials for the prior year's annual meeting
statement and advises shareholders in the current proxy statement about the
nature of the proposal and how management intends to vote on such matter or (ii)
PAB does not receive notice of the proposal at least 45 days before the date on
which PAB first mailed its proxy materials for the prior year's annual meeting.
Indemnification of Officers and Directors
Baxley. The Baxley Charter and the Baxley Bylaws do not address the issue of
officer and director indemnification. OTS Regulations provide that a savings
association must indemnify any director, officer or employee by reason of the
fact that he or she is or was a director, officer or employee only (i) if a
final judgment on the merits is in his or her favor or (ii) in case of
settlement, a final judgment against him or her, or a final judgment in his or
her favor, other than on the merits, if a majority of the disinterested
directors determine that he or she was acting in good faith and within what he
or she reasonably could perceive to be in the scope of his or her employment and
in the best interests of the association. An association must give the OTS 60
days notice of its intent to indemnify.
There is no parallel provision in the Baxley Charter or the Baxley Bylaws to
that in the PAB Articles which requires Baxley to advance to an officer,
director or other employer the expenses of defending an action brought against
him in such capacity. OTS Regulations permit a savings association's board of
directors to advance payment of such expenses and authorized the board to obtain
such agreement or to apply such conditions as it deems necessary to ensure
repayment in the event the indemnification is later determined to be improper.
In contrast to the GBCC, neither OTS Regulations, the Baxley Charter nor the
Baxley Bylaws requires mandatory indemnification of officers, directors and
other employees for reasonable expenses incurred in defense of any claim or
action when any such officer, director or employee has prevailed on the merits
of such claim or action.
Under OTS Regulations, an association is permitted, but not required, to
obtain insurance to protect itself and its directors, officers and employees.
Unlike the GBCC, OTS Regulations do not permit insurance to be obtained by
Baxley for losses stemming from the willful or criminal misconduct of any
director, officer or employee. Baxley maintains insurance to the extent allowed
by OTS Regulations for the benefit of its officers and directors.
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PAB. Sections 14-2-850 through 14-2-859 of the GBCC provide for the
indemnification of directors and officers of Georgia corporations against
expenses, judgments, fines and settlements in connection with litigation. Under
these provisions, indemnification is available if it is determined that the
proposed indemnitee acted in good faith and reasonably believed (i) in the case
of conduct in his or her official capacity, that such conduct was in the best
interests of the corporation, (ii) in all other cases, that such conduct was at
least not opposed to the best interests of the corporation, and (iii) with
respect to any criminal action or proceeding, that the individual had no
reasonable cause to believe his or her conduct was unlawful. To the extent that
a proposed indemnitee has been successful on the merits or otherwise in defense
of any action, suit or proceeding (or any claim, issue or matter therein), he or
she must be indemnified against expenses (including attorney fees) actually and
reasonably incurred by him or her in connection therewith.
Under the GBCC, indemnification permitted in connection with a proceeding
by or in the right of the corporation is limited to reasonable expenses incurred
in connection with the proceeding. A corporation may not indemnify a director
or officer in connection with a proceeding in which he was adjudged liable on
the basis that personal benefit was improperly received by him or her.
The PAB Bylaws provide that PAB may indemnify any person who is involved in
any actual or threatened action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she is or was
a director, officer, employee or agent of PAB, or is or was serving at the
request of PAB as a director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, against expenses
(including attorney's fees), judgments, fines, and amounts paid in settlement,
in accordance with Georgia law. In the case of a claim, issue, or matter as to
which a person has been adjudged to be liable to PAB, the PAB Bylaws only permit
indemnification to the extent that the Superior Court or the court in which such
action or suit was brought determines upon application that such person is
fairly and reasonably entitled to indemnity for such expenses as the court deems
proper. The PAB Bylaws also provide for mandatory indemnification of directors,
officers, employees, or agents of PAB in the circumstances required by Georgia
law.
Limitation of Personal Liability of Directors
Baxley. There is no provision limiting director liability in the Baxley
Charter or the Baxley Bylaws and such limitation is not permitted by OTS
Regulations.
PAB. The GBCC permits a corporation to include a provision in its articles
of incorporation eliminating or limiting the personal liability of a director to
the corporation or its shareholders for damages for breach of the director's
duty of care or other duty as a director, subject to certain limitations. The
PAB Articles include such a provision which, as set forth below, limits such
liability to the fullest extent permitted under applicable law.
The PAB Articles provide that a director will not be personally liable to
PAB or its shareholders for monetary damages for breach of fiduciary duty as a
director except for (i) any appropriation, in violation of his or her duties, of
any business opportunity of the corporation, (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of the law,
(iii) the types of liability set forth in Section 14-2-832 of the GBCC, dealing
with unlawful distributions to shareholders, and (iv) any transactions from
which the director derived an improper personal benefit.
While these provisions provide directors with protection from awards of
monetary damages for breaches of their duty of care, they do not eliminate such
duty. Accordingly, these provisions will have no effect on the availability of
equitable remedies such as an injunction or rescission based on a director's
breach of his or her duty of care. The provisions described above apply to an
officer of PAB only if he or she is a director of PAB and is acting in his or
her capacity as director, and do not apply to officers of PAB who are not
directors.
Amendment of Articles of Incorporation/Federal Stock Charter and Bylaws
Baxley. OTS Regulations and the Baxley Charter provide that, except as
otherwise provided, no amendment may be made unless it is first proposed and
approved by Baxley's Board of Directors and thereafter approved by a majority of
the shareholders. OTS Regulations further provide that if the proposed charter
amendment is not covered by certain provisions specified in OTS Regulations, an
association first must obtain the
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prior approval of the OTS. The Baxley Bylaws provide that they may be amended by
either a majority of the shareholders or a majority of Baxley's Board of
Directors.
PAB. Under the PAB Articles, a two-thirds (2/3) 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 (2/3) vote for certain actions. The PAB 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 PAB's Board of Directors.
REGULATORY CONSIDERATIONS
The following discussion sets forth certain of the material elements of the
regulatory framework applicable to banks and bank holding companies and provides
certain specific information related to PAB and Baxley.
General
As a registered bank holding company, PAB is subject to the supervision of,
and to regular inspection by, the Federal Reserve. The bank subsidiaries of PAB
are organized as state chartered banks, which are subject to regulation,
supervision and examination by the Georgia Department. Baxley is a federal
stock association, which is subject to regulation, supervision and examination
by the OTS. Upon consummation of the Merger, Baxley will be the only subsidiary
of PAB that is not a state chartered bank. In addition to banking laws,
regulations and regulatory agencies, PAB, its subsidiaries and Baxley are
subject to various other laws and regulations and supervision and examination by
other regulatory agencies, all of which, directly or indirectly, affect the
operations and management of PAB and Baxley and their ability to make
distributions. The following discussion summarizes certain aspects of those
laws and regulations that affect PAB and Baxley.
The activities of PAB and those of the banks it controls or, in which it
holds more than 5% of the voting stock, are limited to banking, managing or
controlling banks, furnishing services to or performing services for its
subsidiaries or any other activity that the Federal Reserve determines to be so
closely related to banking or managing or controlling banks as to be a proper
incident thereto. In making such determinations, the Federal Reserve is
required to consider whether the performance of such activities by a bank
holding company or its subsidiaries can reasonably be expected to produce
benefits to the public such as greater convenience, increased competition or
gains in efficiency that outweigh possible adverse effects, such as undue
concentration of resources, decreased or unfair competition, conflicts of
interest or unsound banking practices. Generally, bank holding companies, such
as PAB, are required to obtain prior approval of the Federal Reserve to engage
in any new activity or to acquire more than 5% of any class of voting stock of
any company.
Bank holding companies are also required to obtain the prior approval of
the Federal Reserve before acquiring more than 5% of any class of voting stock
of any bank that is not already majority owned by the bank holding company.
Pursuant to the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 (the "Interstate Banking and Branching Act"), bank holding companies became
able to acquire banks in states other than their home states beginning September
29, 1995, without regard to the permissibility of such acquisitions under state
law, but subject to any state requirement that the bank has been organized and
operating for a minimum period of time, not to exceed five years, and the
requirement that the bank holding company, prior to or following the proposed
acquisition, controls no more than 10% of the total amount of deposits of
insured depository institutions in the United States and less than 30% of such
deposits in that state (or such lesser or greater amount set by state law).
The Interstate Banking and Branching Act also authorizes banks to merge
across state lines, subject to certain restrictions, thereby creating interstate
branches. Pursuant to the Interstate Banking and Branching Act, a bank is now
able to open new branches in a state in which it does not already have banking
operations if the state enacts a law permitting such de novo branching.
Proposals to change the laws and regulations governing the banking industry
are frequently introduced in the U.S. Congress, in the state legislatures and
before the various bank regulatory agencies. The likelihood and timing of any
such proposals or bills being enacted and the impact they might have on PAB, its
subsidiaries and Baxley cannot be determined at this time.
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Capital and Operational Requirements
The Federal Reserve, the FDIC and the OTS have issued substantially similar
risk-based and leverage capital guidelines applicable to U.S. banking
organizations. In addition, those regulatory agencies may from time to time
require that a banking organization maintain capital above the minimum levels,
whether because of its financial condition or actual or anticipated growth. The
Federal Reserve risk-based guidelines define a two-tier capital framework.
"Tier I capital" consists of common and qualifying preferred shareholders'
equity, less certain intangibles and other adjustments. "Tier II capital"
consists of subordinated and other qualifying debt, and the allowance for credit
losses up to 1.25% of risk-weighted assets. The sum of Tier I capital and Tier
II capital less investments in unconsolidated subsidiaries represents qualifying
"total capital," at least 50% of which must consist of Tier I capital. Risk-
based capital ratios are calculated by dividing Tier I capital and total capital
by risk-weighted assets. Assets and off-balance sheet exposures are assigned to
one of four categories of risk weights, based primarily on relative credit risk.
The minimum Tier I capital ratio is 4% and the minimum total capital ratio is
8%. PAB's Tier I capital and total risk-based capital ratios under these
guidelines at March 31, 1999 were 11.28% and 12.30% respectively, and Baxley's
were 13.40% and 13.40% respectively.
The "leverage ratio" is determined by dividing Tier I capital by adjusted
average total assets. Although the stated minimum ratio is 3%, most banking
organizations are required to maintain ratios of at least 100 to 200 basis
points above 3%. PAB's and Baxley's leverage ratios at March 31, 1999 were
9.94% and 27.70%, respectively.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), among other things, identifies five capital categories for insured
depository institutions (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized) and requires the respective U.S. federal regulatory agencies
to implement systems for "prompt corrective action" for insured depository
institutions that do not meet minimum capital requirements within such
categories. FDICIA imposes progressively more restrictive constraints on
operations, management and capital distributions, depending on the category in
which an institution is classified. Failure to meet the capital guidelines
could also subject a banking institution to capital raising requirements. An
"undercapitalized" bank must develop a capital restoration plan and its parent
holding company must guarantee that bank's compliance with the plan. The
liability of the parent holding company under any such guarantee is limited to
the lesser of 5% of the bank's assets at the time it became undercapitalized or
the amount needed to comply with the plan. Furthermore, in the event of the
bankruptcy of the parent holding company, such guarantee would take priority
over the parent's general unsecured creditors. In addition, FDICIA requires the
various regulatory agencies to prescribe certain non-capital standards for
safety and soundness related generally to operations and management, asset
quality and executive compensation and permits regulatory action against a
financial institution that does not meet such standards.
The various regulatory agencies have adopted substantially similar
regulations that define the five capital categories identified by FDICIA, using
the total risk-based capital, Tier I risk-based capital and leverage capital
ratios as the relevant capital measures. Such regulations establish various
degrees of corrective action to be taken when an institution is considered
undercapitalized. Under the regulations, a "well capitalized" institution must
have a Tier I capital ratio of at least 6%, a total capital ratio of at least
10% and a leverage ratio of a least 5% and not be subject to a capital directive
order. An "adequately capitalized" institution must have a Tier I capital ratio
of at least 4%, a total capital ratio of at least 8% and a leverage ratio of at
least 4%, or 3% in some cases. Under these guidelines, each of PAB's banking
subsidiaries and Baxley is considered "well capitalized."
Banking agencies have also adopted regulations which mandate that
regulators take into consideration concentrations of credit risk and risks from
non-traditional activities, as well as an institution's ability to manage those
risks, when determining the adequacy of an institution's capital. That
evaluation will be made as a part of the institution's regular safety and
soundness examination. Banking agencies also have adopted final regulations
requiring regulators to consider interest rate risk (when the interest rate
sensitivity of an institution's assets does not match the sensitivity of its
liabilities or its off-balance sheet position) in the determination of a bank's
capital adequacy. Concurrently, banking agencies have proposed a methodology
for evaluating interest rate risk. After gaining experience with the proposed
measurement process, those banking agencies intend to propose further
regulations to establish an explicit risk-based capital charge for interest rate
risk.
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Distributions
PAB and Baxley derive funds for cash distributions to their respective
shareholders from a variety of sources, including cash and temporary
investments. The primary source of PAB's funds, however, is dividends received
from its banking subsidiaries. Each of PAB's banking subsidiaries and Baxley is
subject to various general regulatory policies and requirements relating to the
payment of dividends, including requirements to maintain capital above
regulatory minimums. The appropriate U.S. federal regulatory authority is
authorized to determine under certain circumstances relating to the financial
condition of the bank or bank holding company that the payment of dividends
would be an unsafe or unsound practice and to prohibit payment thereof.
In addition to the foregoing, the ability of PAB's banking subsidiaries and
Baxley to pay dividends may be affected by the various minimum capital
requirements and the capital and non-capital standards established under FDICIA,
as described above. The rights of PAB, Baxley, their respective shareholders
and their respective creditors to participate in any distribution of the assets
or earnings of their respective subsidiaries is further subject to the prior
claims of creditors of the respective subsidiaries.
"Source of Strength" Policy
According to Federal Reserve policy, bank holding companies are expected to
act as a source of financial strength to each subsidiary bank and to commit
resources to support each such subsidiary. This support may be required at
times when a bank holding company may not be able to provide such support.
Similarly, under the cross-guarantee provisions of the Federal Deposit Insurance
Act, in the event of a loss suffered or anticipated by the FDIC -- either as a
result of default of a banking subsidiary of a bank holding company such as PAB
or related to FDIC assistance provided to a subsidiary in danger of default --
the other banking subsidiaries of such bank holding company may be assessed for
the FDIC's loss, subject to certain exceptions.
Recent Legislative Developments
Because of concerns relating to the competitiveness and the safety and
soundness of the financial services industry, the United States Congress
continues to consider a number of wide-ranging proposals for altering the
structure, regulation, and competitive relationships of the nation's financial
institutions. Among such bills are proposals to prohibit depository
institutions and bank holding companies (such as PAB) from conducting certain
types of activities, to subject depository institutions to increased disclosure
and reporting requirements, to alter the statutory separation of commercial and
investment banking, to require federal savings banks (such as Baxley) to convert
to commercial bank charters and to further expand the powers of depository
institutions, bank holding companies, and competitors of depository
institutions. It cannot be predicted whether or in what form any of these
proposals will be adopted or the extent to which the business of PAB and Baxley
may be affected thereby.
EXPERTS
The consolidated financial statements of PAB as of December 31, 1998 and
1997, and for each of the years in the three-year period ended December 31, 1998
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 financial statements of Baxley as of and for the years ended at
December 31, 1998 and 1997 included in this Proxy Statement/Prospectus and in
the Registration Statement have been audited by H.H. Burnet & Company, P.C.,
independent certified public accountants, as set forth in their report thereon
included herein on such financial statements and are included in reliance upon
such report given upon the authority of such firm as experts on accounting and
auditing.
76
<PAGE>
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, will also opine as to certain federal income tax
consequences of the Merger. See "The Merger -- Certain Federal Income Tax
Consequences." Certain additional legal matters relating to the Merger are being
passed upon for PAB by Troutman Sanders LLP, Atlanta, Georgia, and for Baxley by
Malizia Spidi & Fisch, PC, Washington, D.C.
SHAREHOLDER PROPOSALS AND OTHER MATTERS
In order to be eligible for inclusion in Baxley's proxy materials for next
year's annual meeting of Baxley shareholders, if the Merger is not consummated,
any shareholder proposal to take action at that meeting must be received at
Baxley's main office at 219 East Parker Street, Baxley, Georgia 31513-2001, no
later than November 26, 1999.
In the event that Baxley receives notice of a shareholder proposal to take
action at next year's annual meeting of Baxley shareholders, if the Merger is
not consummated before the time of such meeting, that is not submitted for
inclusion in Baxley's proxy material, or is submitted for inclusion but is
properly excluded from its proxy material, the persons named in the proxy sent
by Baxley to its shareholders intend to exercise their discretion to vote on the
shareholder proposal in accordance with their best judgment if notice of the
proposal is not received at Baxley's main office by _______________. The Bylaws
of Baxley provide that if notice of a shareholder proposal to take action at
next year's annual meeting is not received at Baxley's main office within five
days of that meeting, the proposal will not be eligible for presentation at that
meeting.
Baxley's Board of Directors is not aware of any business to come before the
Special Meeting other than those matters described in this Proxy
Statement/Prospectus. However, if any other matters should properly come before
the Special Meeting or any adjournment or postponement of the Special Meeting,
it is intended that proxies will be voted in accordance with the judgment of the
persons named on the proxy. If Baxley did not have notice of a matter on or
before ___________, 1999, it is expected that the persons named on the
accompanying proxy card will exercise discretionary authority when voting on
that matter; provided, however, that no proxy that is voted against the proposal
to approve the Merger Agreement will be voted in favor of any adjournment or
postponement.
Any shareholder proposal intended for inclusion in PAB's proxy statement
for next year's annual meeting of shareholders must be received at the principal
offices of PAB not later than November 29, 1999. In addition, the proxy
solicited by PAB's Board of Directors for that meeting will confer discretionary
authority to vote on any shareholder proposal presented at that meeting unless
PAB is provided with notice of such proposal by February 11, 2000.
WHERE YOU CAN FIND MORE INFORMATION
PAB files annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any reports, statements or
other information filed by PAB at the SEC's public reference rooms in Washington
D.C., New York, New York, or Chicago, Illinois. Please call the SEC at 1-800-
SEC-0330 for further information on the public reference rooms. PAB's SEC
filings are also available to the public from commercial document retrieval
services and at the Internet web site maintained by the SEC at
"http://www.sec.gov." Reports, proxy statements and other information should
also be available for inspection at the Amex at 86 Trinity Place, New York, New
York 10006.
PAB has filed a Registration Statement on Form S-4 to register with the SEC
PAB Common Stock to be issued to Baxley shareholders in the Merger. This Proxy
Statement/Prospectus is a part of that Registration Statement and constitutes a
prospectus of PAB in addition to a proxy statement of Baxley for the Special
Meeting. As allowed by SEC rules, this Proxy Statement/Prospectus does not
contain all of the information you can find in the Registration Statement or the
exhibits to the Registration Statement.
The SEC allows PAB to "incorporate by reference" information into this
Proxy Statement/Prospectus, which means that we can disclose important
information to you by referring you to another document filed
77
<PAGE>
separately with the SEC by PAB. The information incorporated by reference is
deemed to be part of this Proxy Statement/Prospectus, except for any information
superseded by information in the Proxy Statement/Prospectus. This Proxy
Statement/Prospectus incorporates by reference the documents set forth below
that PAB has previously filed with the SEC. These documents contain important
information about PAB and its business.
PAB Filings (SEC File No. 1-11923) Period/As of date
- ---------------------------------- ----------------------------
. PAB's Annual Report on Form 10-K as filed on Year ended December 31, 1998
March 31, 1999
. PAB's Quarterly Report on Form 10-Q as filed on Quarter ended March 31, 1999
May 14, 1999
. The description of PAB common stock
contained in PAB's Registration Statement
on Form 8-A/A, as filed on July 3, 1996,
and any amendment or report filed for
the purpose of updating such description
PAB further incorporates by reference additional documents that PAB files
with the SEC between the date of this Proxy Statement/Prospectus and the
consummation of the Merger or the termination of the Merger Agreement. These
documents include periodic reports, such as Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as proxy
statements.
PAB has supplied all of the information contained or incorporated by
reference in this Proxy Statement/Prospectus relating to PAB and Baxley has
supplied all of the information contained in this Proxy Statement/Prospectus
relating to Baxley.
If you are a Baxley shareholder, you can obtain any of the documents
incorporated by reference in this Proxy Statement/Prospectus from PAB, the SEC
or the SEC's Internet web site as described above. Documents incorporated by
reference are available from PAB without charge, excluding all exhibits, except
those that PAB has specifically incorporated by reference in this Proxy
Statement/Prospectus. Baxley shareholders may obtain documents incorporated by
referenced in this Proxy Statement/Prospectus by requesting them in writing or
by telephone from PAB. See "REFERENCE TO ADDITIONAL INFORMATION" located on the
inside front cover of this Proxy Statement/Prospectus for further details on how
to request documents incorporated by reference.
You should rely only on the information contained or incorporated by
reference in this Proxy Statement/Prospectus to vote on the Merger. We have not
authorized anyone to provide you with information that is different from what is
contained in this Proxy Statement/Prospectus. This Proxy Statement/Prospectus
is dated _________, 1999. You should not assume that the information contained
in this Proxy Statement/Prospectus is accurate as of any date other than such
date, and neither the mailing of this Proxy Statement/Prospectus to Baxley
shareholders nor the issuance of PAB Common Stock in the Merger may create any
implication to the contrary. This Proxy Statement/Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, any
securities, or the solicitation of a proxy, in any jurisdiction to or from any
person to whom it is not lawful to make any such offer or solicitation in such
jurisdiction. Neither the delivery of this Proxy Statement/Prospectus nor any
distribution of securities made hereunder may, under any circumstances, create
an implication that there has been no change in the affairs of PAB or Baxley
since the date hereof or that the information herein is correct as of any time
subsequent to its date.
78
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Audited Financial Statements
Report of H.H. Burnet & Company, P.C., Independent Auditors............... F-2
Statements of Financial Condition as of December 31, 1998 and 1997........ F-3
Statements of Income for the twelve months ended December 31, 1998,
1997 and 1996........................................................... F-5
Statements of Changes in Stockholders' Equity for the twelve months
ended December 31, 1998, 1997 and 1996.................................. F-7
Statements of Cash Flows for the twelve months ended December 31, 1998,
1997 and 1996........................................................... F-8
Notes to Financial Statements............................................. F-11
Unaudited Financial Statements
Balance Sheets as of March 31, 1999....................................... F-31
Statements of Income and Comprehensive Income for the three months
ended March 31, 1999 and 1998........................................... F-33
Statements of Cash Flows for the three months ended March 31, 1999 and
1998.................................................................... F-35
Notes to Unaudited Financial Statements................................... F-37
</TABLE>
F-1
<PAGE>
February 3, 1999
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Baxley Federal Savings Bank
Baxley, Georgia 31513
We have audited the accompanying statements of financial condition of
Baxley Federal Savings Bank as of December 31, 1998 and 1997, and the related
statements of income, changes in stockholders' equity and cash flows for each of
the years in the three year period ended December 31, 1998. These financial
statements are the responsibility of the institution's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We have 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 financial statements referred to above present
fairly in all material respects, the financial position of Baxley Federal
Savings Bank as of December 31, 1998 and 1997, and the results of its operations
and its cash flows for each of the years in the three year period ended December
31, 1998, in conformity with generally accepted accounting principles.
Respectfully submitted,
/s/ H. H. BURNET & COMPANY, P.C.
F-2
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
BAXLEY, GEORGIA
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31,
1998 1997
------------------------------
<S> <C> <C>
ASSETS
- ------
Cash and Due from Banks $ 853,460 $ 800,191
Interest Bearing Deposits in Banks 9,978,729 4,316,447
Federal Funds Sold 775,000 400,000
------------ ------------
Total Cash and Cash Equivalents $ 11,607,189 $ 5,516,638
Investment Securities Available for Sale,
at Fair Value (Note 1 & 2) 4,462,333 4,571,058
Loans Receivable (Net) (Note 1 & 3) 88,037,502 87,639,745
Premises and Equipment, Net
(Note 1 & 4) 1,505,809 1,554,103
Investment Required By Law -
Federal Home Loan Bank Stock,
at Cost (Note 6) 786,200 749,400
Accrued Interest Receivable (Note 5) 589,240 600,625
Other Assets 122,641 94,148
------------ ------------
Total Assets $107,110,914 $100,725,717
============ ============
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
<TABLE>
<CAPTION>
LIABILITIES
- -----------
<S> <C> <C>
Deposits (Note 7) $90,831,155 $85,912,544
Accrued Interest Expense 60,818 68,195
Other Liabilities 805,275 599,802
Dividends Payable 452,214 446,700
----------- -----------
Total Liabilities $92,149,462 $87,027,241
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
BAXLEY, GEORGIA
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31,
1998 1997
-----------------------------------------
<S> <C> <C>
STOCKHOLDERS' EQUITY (Note 1 & 11)
- --------------------
Common Stock $.01 par value, shares
authorized - 8,000,000,
shares issued and outstanding, 1998
and 1997 - 551,481 $ 5,515 $ 5,515
Additional Paid-In Capital 5,280,496 5,280,496
Common Stock Acquired by ESOP (Note 13) 0 0
Common Stock Acquired by RRP (Note 15) 0 0
Retained Earnings (Note 9) 8,594,646 7,711,108
Accumulated Other Comprehensive Income 1,080,795 701,357
------------ ------------
Total Stockholders' Equity $ 14,961,452 $ 13,698,476
------------ ------------
Commitments (Note 10)
Total Liabilities and
Stockholders' Equity $107,110,914 $100,725,717
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
BAXLEY, GEORGIA
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Twelve Months
Ended
INTEREST AND December 31,
DIVIDEND INCOME 1998 1997 1996
- --------------- ---------- ---------- ----------
<S> <C> <C> <C>
Interest -
Loans (Note 1) $7,375,261 $7,272,503 $7,025,232
Mortgage-Backed Securities 79,165 110,947 136,680
Investment Securities 116,998 137,394 130,857
Federal Funds & FHLB Overnight 270,113 436,717 435,489
Dividends 70,806 64,333 59,626
---------- ---------- ----------
Total Interest & Dividend Income $7,912,343 $8,021,894 $7,787,884
---------- ---------- ----------
INTEREST EXPENSE
- ----------------
Interest on Deposits (Note 7) $4,434,906 $4,252,710 $4,121,069
Interest on Other Borrowings
(Note 13) 0 2,065 7,484
---------- ---------- ----------
Total Interest Expense $4,434,906 $4,254,775 $4,128,553
---------- ---------- ----------
Net Interest Income $3,477,437 $3,767,119 $3,659,331
Provision for Loan Loss (Note 1 & 3) 0 0 0
---------- ---------- ----------
Net Interest & Dividend Income
After Provision for Loan Loss $3,477,437 $3,767,119 $3,659,331
---------- ---------- ----------
OTHER INCOME
- ------------
Loan Fees $ 118,532 $ 108,539 $ 122,400
Other Fees 271,496 288,102 257,765
Other Income 28,717 30,112 28,439
---------- ---------- ----------
Total Other Income $ 418,745 $ 426,753 $ 408,604
---------- ---------- ----------
OTHER EXPENSES
- --------------
Compensation -
Officers, Directors, Employees $ 732,118 $ 688,108 $ 690,902
Employee Benefit Plans and
Other Personnel Expenses (Note 12) 172,808 244,204 338,943
Office Occupancy 167,937 160,826 162,831
Furniture & Equipment Expense 114,080 100,353 93,576
Advertising 55,525 66,196 53,214
Stationery and Supplies 95,061 98,962 83,033
Professional Expense 48,465 48,697 45,754
Federal Insurance Premiums 51,534 53,514 176,390
SAIF Special Assessment 0 0 492,598
Supervisory Examinations 32,827 32,606 31,551
Data Processing Expense 191,642 188,075 175,500
Other Expenses 146,949 146,939 147,250
Loss on Sale of Foreclosed Property 1,011 0 0
---------- ---------- ----------
Total Other Expenses $1,809,957 $1,828,480 $2,491,542
---------- ---------- ----------
Income Before Income Tax Expense $2,086,225 $2,365,392 $1,576,393
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
BAXLEY, GEORGIA
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Twelve Months
Ended
December 31,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Income Tax Expense (Note 8) $ 750,473 $ 860,353 $ 561,638
----------- ----------- -----------
Net Income $ 1,335,752 $ 1,505,039 $ 1,014,755
----------- ----------- -----------
Other Comprehensive Income,
Before Tax:
Unrealized holding gains
arising during the period $ 611,996 $ 390,326 $ 152,245
Income tax expense related
to items of other
comprehensive income (232,558) ( 148,324) ( 57,853)
----------- ----------- -----------
Other Comprehensive Income,
net of tax $ 379,438 $ 242,002 $ 94,392
----------- ----------- -----------
Comprehensive Income $ 1,715,190 $ 1,747,041 $ 1,109,147
=========== =========== ===========
Per Share Data Based on
Weighted Average
Outstanding Shares
Basic Earnings Per Share $ 2.42 $ 2.82 $ 1.94
=========== =========== ===========
Diluted Earnings Per share $ 2.41 $ 2.81 $ 1.89
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
BAXLEY, GEORGIA
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Common Common Accumulated
--------------------- Additional Stock Stock Other
Number of Paid-In Acquired by Acquired by Retained Comprehensive
Shares Amount Capital ESOP RRP Earnings Income
--------- --------- ----------- ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1995 527,601 $ 5,276 $ 4,926,348 $ (92,581) $ (62,820) $ 9,921,677 $ 364,963
Common Stock Issued
Under Stock Option
Plans 1,519 $ 15 $ 15,174 $ 0 $ 0 $ 0 $ 0
Common Stock Issued
by RRP 0 35,094 0 35,520 0 0
Comprehensive Income
Net Income for Twelve
Months Ended
December 31, 1996 0 0 0 0 1,014,755 0
Other Comprehensive Income,
Net of Tax
Change in Unrealized
Appreciation on Securities
Available for Sale, Net
of Tax of $281,540 0 0 0 0 0 94,392
Payment to ESOP 0 0 46,290 0 0 0
Less: Dividends Declared
$.80 Per Share 0 0 0 0 (423,296) 0
Compensation Expense for
Market Value Over
Cost for ESOP
Allocations 0 22,736 0 0 0 0
--------- ---------- ----------- ------------ ----------- ------------- ----------
Balance,
December 31, 1996 529,120 $ 5,291 $ 4,999,352 $ (46,291) $ (27,300) $ 10,513,136 $ 459,355
========= ========== =========== ============ =========== ============= ==========
</TABLE>
<TABLE>
<CAPTION>
Total
-----------
<S> <C>
Balance,
December 31, 1995 $ 15,062,863
Common Stock Issued
Under Stock Option
Plans $ 15,189
Common Stock Issued
by RRP 70,614
Comprehensive Income
Net Income for Twelve
Months Ended
December 31, 1996 1,014,755
Other Comprehensive Income,
Net of Tax
Change in Unrealized
Appreciation on Securities
Available for Sale, Net
of Tax of $281,540 94,392
Payment to ESOP 46,290
Less: Dividends Declared
$.80 Per Share (423,296)
Compensation Expense for
Market Value Over
Cost for ESOP
Allocations 22,736
------------
Balance,
December 31, 1996 $ 15,903,543
============
</TABLE>
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
BAXLEY, GEORGIA
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Common Common Accumulated
--------------------- Additional Stock Stock Other
Number of Paid-In Acquired by Acquired by Retained Comprehensive
Shares Amount Capital ESOP RRP Earnings Income
--------- --------- ----------- ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Common Stock Issued
Under Stock Option
Plans 22,361 $ 224 $ 233,386 $ 0 $ 0 $ 0 $ 0
Common Stock Issued
by RRP 0 27,628 0 27,300 0 0
Comprehensive Income
Net Income for Twelve
Months Ended
December 31, 1997 0 0 0 0 1,505,039 0
Other Comprehensive Income,
Net of Tax
Change in Unrealized
Appreciation on Securities
Available for Sale, Net
of Tax of $429,864 0 0 0 0 0 242,002
Payment to ESOP 0 0 46,291 0 0 0
Less: Dividends Paid
$7.00 Per Share 0 0 0 0 (3,860,367) 0
Compensation Expense for
Market Value Over
Cost for ESOP Allocations 0 30,130 0 0 0 0
Less: Dividends Declared
$.81 Per Share 0 0 0 0 0 ( 446,700) 0
------- ------ ----------- --------- ---------- ----------- ------------
Balance,
December 31, 1997 551,481 $5,515 $5,280,496 $ 0 $ 0 $ 7,711,108 $ 701,357
======= ====== =========== ========= ========== =========== =============
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Common Stock Issued
Under Stock Option
Plans $ 223,610
Common Stock Issued
by RRP 54,928
Comprehensive Income
Net Income for Twelve
Months Ended
December 31, 1997 1,505,039
Other Comprehensive Income,
Net of Tax
Change in Unrealized
Appreciation on Securities
Available for Sale, Net
of Tax of $429,864 242,002
Payment to ESOP 46,291
Less: Dividends Paid
$7.00 Per Share ( 3,860,367)
Compensation Expense for
Market Value Over
Cost for ESOP Allocations 30,130
Less: Dividends Declared
$.81 Per Share ( 446,700)
------------
Balance,
December 31, 1997 $ 13,698,476
============
</TABLE>
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
BAXLEY, GEORGIA
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Common Common Accumulated
--------------------- Additional Stock Stock Other
Number of Paid-In Acquired by Acquired by Retained Comprehensive
Shares Amount Capital ESOP RRP Earnings Income
--------- --------- ----------- ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Comprehensive Income
Net Income for Twelve
Months Ended
December 31, 1998 0 0 0 0 0 1,335,752 0
Other Comprehensive Income,
Net of Tax
Change in Unrealized
Appreciation on Securities
Available for Sale, Net
of Tax of $662,423 0 0 0 0 0 0 379,438
Less: Dividends Declared
$.82 Per Share 0 0 0 0 ( 452,214) 0
------- ------ ---------- --------- ---------- ------------- -------------
Balance,
December 31, 1998 551,481 $5,515 $5,280,496 $ 0 $ 0 $ 8,594,646 $ 1,080,795
======= ====== ========== ========= ========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Comprehensive Income
Net Income for Twelve
Months Ended
December 31, 1998 1,335,752
Other Comprehensive Income,
Net of Tax
Change in Unrealized
Appreciation on Securities
Available for Sale, Net
of Tax of $662,423 379,438
Less: Dividends Declared
$.82 Per Share ( 452,214)
------------
Balance,
December 31, 1998 $ 14,961,452
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
BAXLEY, GEORGIA
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Twelve Months
Ended
December 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows from Operating
Activities:
Net Income $1,335,752 $1,505,039 $1,014,755
---------- ---------- ----------
Adjustments to Reconcile
Net Income to Net Cash
Provided by Operating
Activities:
Depreciation $ 133,041 $ 121,708 $ 113,759
(Discount Accretion) Net of
Premium Amortization 1,821 299 3,247
Provision for Loan
Losses 0 0 0
Compensation Expense on
Issuance of Stock Options 0 0 0
Compensation Expense for Market
Value Over Cost for ESOP
Allocations 0 30,130 22,736
Expense for Issuance of Common
Stock to MRP/DRP Participants 0 54,928 70,614
FHLB Stock Dividend (36,800) (50,300) (30,900)
(Gain) Loss on Sale of
REO 1,011 0 0
(Gain) Loss on Sale of Premises
and Equipment 0 0 4,684
Deferred Charges, Net 8,263 13,228 (21,990)
Changes in Operating Assets
and Liabilities:
(Increase) Decrease in
Accrued Interest Receivable 11,385 (29,231) 25,178
(Increase) Decrease in
Other Assets (34,244) 29,445 (30,363)
Increase (Decrease) in
Accrued Interest Payable (7,377) (2,155) (58,131)
Increase (Decrease) in
Other Liabilities (27,086) 74,657 133,069
---------- ---------- ----------
Total Adjustments $ 50,014 $ 242,709 $ 231,903
---------- ---------- ----------
Net Cash Provided by
Operating Activities $1,385,766 $1,747,748 $1,246,658
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
BAXLEY, GEORGIA
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Twelve Months
Ended
December 31,
1998 1997 1996
----------- ----------- -------------
<S> <C> <C> <C>
Cash Flows from Investing Activities:
(Increase) Decrease in Loans $ (548,061) $(3,635,075) $(3,656,907)
Purchase of Securities
Available for Sale (752,968) (503,394) (1,741,610)
Proceeds from Maturities and
Principal Repayments of
Securities Available for Sale 1,471,870 1,096,410 1,920,458
Purchases of Premises
and Equipment (84,747) (306,388) (73,514)
Proceeds from Sale of
Other Real Estate Owned 146,780 0 73,100
----------- ----------- ------------
Net Cash Used By
Investing Activities $ 232,874 $(3,348,447) $ (3,478,473)
----------- ----------- ------------
Cash Flows from Financing Activities:
Net Deposits from Customers $ 4,918,611 $ 1,223,219 $ 1,544,837
Proceeds from Issuance of
Stock Options 0 223,610 15,190
Payment on Other Borrowings 0 (43,075) (40,077)
Dividends Paid (446,700) (4,283,663) (395,701)
----------- ----------- -----------
Net Cash Provided By
Financing Activities $ 4,471,911 $(2,879,909) $ 1,124,249
----------- ----------- -----------
Net Increase (Decrease) in
Cash and Cash Equivalents $ 6,090,551 $(4,480,608) $(1,107,566)
Cash and Cash Equivalents at
Beginning of Year 5,516,638 9,997,246 11,104,812
----------- ----------- -----------
Cash and Cash Equivalents at
End of Year $11,607,189 $ 5,516,638 $ 9,997,246
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
BAXLEY, GEORGIA
STATEMENTS OF CASH FLOWS
For the Twelve Months
Ended
December 31,
1998 1997 1996
----------- ----------- -----------
Supplemental Disclosures
of Cash Flow Information:
Cash Paid For:
Interest $4,442,283 $4,256,930 $4,186,684
Income Taxes 727,300 807,591 493,191
Supplemental Disclosures of Non-Cash Investing Activities:
Loans Receivable of approximately $142,041, $5,750, and $73,100 were
transferred to Real Estate Acquired in Settlement of Loans and Other Repossessed
Assets during the years ended December 31, 1998, 1997, and 1996, respectively.
Total increase in unrealized gain on securities available for sale was
$611,997, $390,326, and $152,246 for the years ending December 31, 1998, 1997
and 1996, respectively.
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
The accounting and reporting policies of Baxley Federal Savings Bank
conform to generally accepted accounting principles and to general practice
within the savings and loan industry. The following is a description of the more
significant of those policies that the Institution follows in preparing and
presenting its financial statements.
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Prior to June 19, 1990, Baxley Federal Savings Bank was a Federally
Chartered Mutual Savings and Loan Institution regulated by the Office of
Thrift Supervision (OTS). In a special meeting held June 19, 1990, members
of Baxley Federal Savings and Loan Association adopted a Federal Mutual
Savings Bank Charter and the corporate name was changed to Baxley Federal
Savings Bank. Baxley Federal Savings Bank converted from a federally
chartered mutual savings bank to a federally chartered stock savings bank
on June 27, 1991. Operations are conducted at the home office in Baxley,
Georgia and a branch office in Hazlehurst, Georgia.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Material estimates that are particularly susceptible to significant
change relate to the determination of the allowance for losses on loans and
the valuation of foreclosed real estate. In connection with the
determination of the estimated losses on loans and foreclosed real estate,
management obtains appraisals for significant properties.
The Bank extends credit to customers throughout its market area with a
concentration in real estate mortgage loans secured by one to four family
residences. The real estate loan portfolio is substantially secured by
properties located throughout Southeast Georgia. Although the Bank has a
diversified loan portfolio, a substantial portion of its borrowers' ability
to repay such loans is dependent upon the economy in the Bank's market
area.
While management uses available information to recognize losses on
loans and foreclosed real estate, further reductions in the carrying
amounts of loans and foreclosed assets 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 estimated losses
on loans and foreclosed real estate. Such agencies may require the Bank to
recognize additional losses based on their judgments about information
available to them at the time of their examination. Because of these
factors, it is reasonably possible that the estimated losses on loans and
foreclosed real estate may change materially in the
F-11
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
Use of Estimates - Continued
- ----------------
near term. However, the amount of the change that is reasonably possible cannot
be estimated.
Investments in Securities
- -------------------------
Baxley Federal adopted FASB 115 effective January 1, 1994. As of this date,
the Bank's investments in securities have been classified as securities
available for sale.
Securities available for sale consist of bonds, notes, debentures and
certain equity securities not classified as trading securities or as securities
to be held to maturity.
Prior to 1994, all of Baxley Federal's investments were classified as held
to maturity.
Unrealized holding gains and losses, net of tax, on securities available
for sale are included in other comprehensive income.
Gains and losses on the sale of securities available for sale are
determined using the specific-identification method.
The amortization of premiums and the accretion of discounts are recognized
in interest income using methods approximating the interest method over the
period of maturity.
Loans and the Allowance for Loan Losses
- ---------------------------------------
Loans are stated at their unpaid principal balances net of unearned
discounts, allowance for loan losses and deferred loan fees. Unearned discount
is taken into income using the interest method.
Loan origination and commitment fees, as well as certain direct origination
costs, are deferred and amortized as a yield adjustment over the lives of the
related loans using the interest method. Amortization of deferred loan fees is
discontinued when a loan is placed on nonaccrual status.
In May 1993, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 114 "Accounting by Creditors for
Impairment of a Loan" ("SFAS 114"). SFAS 114 requires impaired loans to be
measured based on the present value of expected future cash flows, discounted at
the loan's effective interest rate, or at the loan's observable market price, or
the fair value of the collateral if the loan is collateral dependent, beginning
in fiscal 1996. In October 1994, the FASB issued Statement of Financial
Accounting Standards No. 118, "Accounting by Creditors for Impairment of a Loan-
Income Recognition and Disclosures" ("SFAS 118") which amends SFAS 114 to
require information about the recorded investment in certain impaired loans and
eliminates its provisions regarding how a creditor
F-12
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
Loans and the Allowance for Loan Losses - Continued
- ---------------------------------------
should report income on an impaired loan. SFAS 118 allows creditors to use
existing methods for recognizing income on impaired loans, including methods
required by certain industry regulators. The Company adopted SFAS 114 and SFAS
118 effective January 1, 1996. This adoption required no increase to the
allowance for loan losses and had no impact on net income in 1996.
Interest income generally is not recognized on specific impaired loans
unless the likelihood of further loss is remote. Interest payments received on
such loans are applied as a reduction of the loan principal balance. Interest
income on other impaired loans is recognized only to the extent of interest
payments received.
The allowance for loan losses is maintained at a level which, in
management's judgment, is adequate to absorb credit losses inherent in the loan
portfolio. The amount of the allowance is based on management's evaluation of
the collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, specific impaired
loans, economic conditions and other risks inherent in the portfolio. 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.
The Bank provides separate valuation allowances for estimated losses on
consumer loans and estimated losses on mortgage loans and real estate owned.
Additions to allowances are charged to expense and reduced by charge-offs, net
of recoveries.
Foreclosed Real Estate
- ----------------------
Foreclosed real estate includes both formally foreclosed property and in-
substance foreclosed property. In-substance foreclosed properties are those
properties for which the institution has taken physical possession, regardless
of whether formal foreclosure proceedings have taken place. At the time of
foreclosure, foreclosed real estate is recorded at the lower of the carrying
amount or fair value less cost to sell, which becomes the property's new basis.
Any write-downs based on the asset's fair value at date of acquisition are
charged to the allowance for loan losses. After foreclosure, these assets are
carried at the lower of their new cost basis or fair value less cost to sell.
Costs incurred in maintaining foreclosed real estate and subsequent adjustments
to the carrying amount of the property are included in income (loss) on
foreclosed real estate. Costs relating to improvement of the real estate are
capitalized.
Premises and Equipment
- ----------------------
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is calculated principally on the straight-line method over the
estimated useful lives of the assets. Costs incurred for maintenance and repairs
are expensed currently.
F-13
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
Income Taxes
- ------------
Income taxes are provided for the tax effects of the transactions reported
in the financial statements and consist of taxes currently due plus deferred
taxes related primarily to differences between the basis of available-for-sale
securities, allowance for loan losses, estimated losses on foreclosed real
estate, accumulated depreciation and deferred loan expenses. The deferred tax
assets and liabilities represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled. Deferred tax assets and liabilities are
reflected at income tax rates applicable to the period in which the deferred tax
assets or liabilities are expected to be realized or settled. As changes in tax
laws or rates are enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes.
Loan Origination and Commitment Fees
- ------------------------------------
Loan origination fees, net of certain direct origination costs, are
deferred and amortized on a basis that approximates level yield over the
contractual lives of the underlying loans. In addition, fees for a commitment to
originate or purchase loans are offset against direct loan origination costs
incurred to make such commitments. The net amounts are deferred and, if the
commitment is exercised, recognized over the life of the related loan as a yield
adjustment or, if the commitment expires unexercised, recognized as income upon
expiration of the commitment. For the twelve months ended December 31, 1998,
1997, and 1996, respectively, net income included $49,900, $10,783, and $45,126
net of nonrefundable fees and costs. Loans receivable is reduced by $164,474 and
$156,211 of unamortized nonrefundable fees and costs at December 31, 1998 and
1997.
Cash and Cash Equivalents
- -------------------------
The Bank considers all cash and amounts due from depository institutions,
interest-bearing deposits in other banks and federal funds sold to be cash
equivalents for purposes of the statements of cash flows.
Earnings Per Share
- ------------------
In March 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share". SFAS No. 128 establishes standards for computing and presenting earnings
per share ("EPS") and applies to all entities with publicly held common stock or
potential common stock. Basic EPS excludes dilution and is computed by dividing
earnings available to common stockholders by the weighted-average number of
common shares outstanding for the period. Diluted EPS includes the potential
dilutive securities using the treasury stock method. The Bank adopted the
requirements of SFAS No. 128 in the year ended December 31, 1997. Prior years
EPS amounts have been restated to conform to SFAS 128. Basic earnings per share
is computed by dividing net income by the weighted average number of shares
outstanding of 551,481, 534,576, and 524,006
F-14
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
Earnings Per Share -- Continued
- -------------------------------
during the years ended December 31, 1998, 1997, and 1996, respectively. The
dilutive effect of stock options in the number of 1,204, 1,204, and 12,303 has
been considered in the computation of diluted earnings per share for the three
years ended December 31, 1998.
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 Bank.
The following methods and assumptions were used by the Bank in estimating its
fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the statement
of financial condition for cash and cash equivalents approximate those
assets' fair values.
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 value for other 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. Fair values for impaired loans are estimated using
discounted cash flow analysis or underlying collateral values, where
applicable. The carrying amount of accrued interest receivable approximates
its fair value.
Deposits: The fair values disclosed for demand deposits (for example,
interest-bearing checking accounts and passbook 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
F-15
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
Deposits: - Continued
----------------------
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: The carrying amounts of short-term borrowings
approximate their fair values.
Reclassifications
- -----------------
Certain reclassifications of prior year amounts have been made to
conform to those classifications used in the accompanying financial statements.
Recent Accounting Pronouncements
- --------------------------------
SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information" was issued in June 1997 and is effective for the Bank
for the year beginning January 1, 1998. SFAS No. 131 establishes standards
for reporting operating segments by public business enterprises in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. SFAS No. 131 also establishes standards for related
disclosures about products and services, geographic areas, and major
customers. The Bank does not have any significant changes to its reporting
format in response to SFAS No. 131.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" was issued in June 1998 and establishes accounting and
reporting standards for derivative instruments and hedging activities. SFAS
No. 133 will be effective for the Bank's year ending December 31, 2000. The
Bank does not currently have any derivative instruments nor is it involved
in hedging activities.
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" (SOP 98-1) which provides guidance
for the accounting of such costs. SOP 98-1 is effective for the Bank for
the year ending December 31, 1999. This SOP is not expected to have a
significant effect on the Bank.
In April 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities"
(SOP 98-5) which requires costs of start-up activities and organization
costs to be expensed as incurred. The adoption of SOP 98-5 will not have
any effect on the Bank.
F-16
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
(2) INVESTMENT SECURITIES
---------------------
The carrying amounts of investment securities as shown in Baxley
Federal's statements of financial condition and their approximate fair
values at December 31, 1998 and 1997 are as follows:
December 31, 1998
-----------------
Securities Available for Sale
- -----------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gain Losses Value
---------- ---------- ---------- ----------
U.S. Government
Obligations $1,002,126 $ 7,640 $ 0 $1,009,766
Federal Agency
Obligations 752,681 3,655 ( 867) 755,469
Other Securities 88,561 1,708,806 (3,813) 1,793,554
Mortgage Backed
Securities 875,747 27,797 0 903,544
---------- ---------- -------- ----------
$2,719,115 $1,747,898 $( 4,680) $4,462,333
========== ========== ======== ==========
December 31, 1997
-----------------
Securities Available for Sale
- -----------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gain Losses Value
---------- ---------- ---------- ----------
U.S. Government
Obligations $2,005,486 $ 7,805 $ ( 86) $2,013,205
Federal Agency
Obligations 0 0 0 0
Other Securities 88,561 1,102,926 (5,137) 1,186,350
Mortgage Backed
Securities 1,345,791 29,311 (3,599) 1,371,503
---------- ---------- -------- ----------
$3,439,838 $1,140,042 $ (8,822) $4,571,058
========== ========== ======== ==========
The scheduled maturities of securities available for sale at December
31, 1998 were as follows:
Amortized Fair
Cost Value
----------- -----------
No Contractual Maturity $ 88,561 $1,793,554
Due in One Year or Less 1,046,512 1,054,571
Due After One Year Through
Five Years 752,681 755,469
Due After Five Years Through
Ten Years 703,846 716,639
Due After Ten Years 127,515 142,100
---------- ----------
$2,719,115 $4,462,333
========== ==========
F-17
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
INVESTMENT SECURITIES - Continued
- ---------------------
The amortized cost and fair value of mortgage-backed securities are
presented by contractual maturity in the preceding table. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations without call or prepayment penalties.
Assets in the amount of $1,750,000 for each of the twelve months ended
December 31, 1998 and 1997, are pledged to various local governing authorities
to secure public deposits and for other purposes required or permitted by law.
The Bank did not sell any investments during the years ending December
31, 1998 and 1997.
(3) LOANS RECEIVABLE
----------------
Loans receivable at December 31, 1998 and 1997 consisted of the following:
December 31,
1998 1997
----------- -----------
First Mortgage Loans $79,305,579 $78,314,774
Equity Line Loans 1,018,919 1,186,283
Loans to Depositors,
Secured by Savings 1,190,818 1,478,842
Participation 2,076,087 2,853,458
Consumer and Other 5,656,352 5,412,487
----------- -----------
$89,247,755 $89,245,844
----------- -----------
Less:
Loans in Process $ 300,091 $ 696,688
Unearned Interest 0 0
Allowance for Loan Losses 745,688 753,200
Net Deferred Loan Origination Fees 164,474 156,211
----------- -----------
$ 1,210,253 $ 1,606,099
----------- -----------
$88,037,502 $87,639,745
=========== ===========
At December 31, 1998 and 1997, the Bank had nonaccrual loans
aggregating approximately $316,361 and $305,110, respectively, for which
impairment had not been recognized.
The institution was servicing loans sold aggregating -0- for both
periods ended December 31, 1998 and 1997.
Loans with carrying amounts of $138,280 and $-0- were transferred to
foreclosed real estate in 1998 and 1997, respectively.
Loans receivable includes loans to officers, directors and employees
of the Bank totaling approximately $974,186 and $987,732 at December 31,
1998 and 1997, respectively. During 1998, $193,316 of new loans were made
and repayments totaled $206,862.
F-18
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
LOANS RECEIVABLE - Continued
----------------
Loans to directors and executive officers are made on substantially
the same terms as loans to others. Mortgage loans are offered to employees
at an interest rate which is one-half of one percent below the then going
rate. Also, no loan fees are charged. Consumer loans are offered to
employees at an interest rate which is one percent less than the then going
rate.
An analysis of changes in the allowance for loan losses is as follows:
For the Twelve Months Ended
December 31,
1998 1997 1996
---------- ---------- ---------
Balance at Beginning
of Period $753,200 $766,521 $783,101
Provision for Loan Loss 0 0 0
-------- -------- --------
$753,200 $766,521 $783,101
-------- -------- --------
Loans Charged Off $ 14,940 $ 19,806 $ 21,552
Less: Recoveries 7,428 6,485 4,972
-------- -------- --------
Net Loan Charge-Offs $ 7,512 $ 13,321 $ 16,580
-------- -------- --------
Balance at End
of Period $745,688 $753,200 $766,521
======== ======== ========
At December 31, 1998, the total recorded investment in impaired loans,
all of which had allowances determined in accordance with SFAS No. 114 and
No. 118, amounted to $53,940. The allowance for loan losses related to
impaired loans amounted to $13,865 at December 31, 1998.
(4) PREMISES AND EQUIPMENT
----------------------
Premises and equipment are summarized as follows:
December 31,
1998 1997
---------- ----------
Land $ 160,831 $ 160,831
Buildings and improvements 1,749,488 1,748,287
Furniture, fixtures and equipment 760,429 676,883
---------- ----------
$2,670,748 $2,586,001
Less: Accumulated depreciation 1,164,939 1,031,898
---------- ----------
$1,505,809 $1,554,103
========== ==========
The income statements include depreciation expense of $133,041,
$121,708, and $113,759 for the years ended December 31, 1998, 1997 and
1996, respectively.
F-19
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
(5) ACCRUED INTEREST RECEIVABLE
---------------------------
Accrued interest receivable is summarized as follows:
December 31,
1998 1997
-------- --------
Loans $545,992 $553,070
Investment Securities 21,943 20,425
Mortgage-Backed Securities 5,114 7,922
Other 16,191 19,208
-------- --------
$589,240 $600,625
======== ========
(6) INVESTMENTS REQUIRED BY LAW
---------------------------
Investment in stock of a Federal Home Loan Bank is carried at cost and
is required of those institutions which utilize its services. No ready
market exists for the stock, and it has no quoted market value.
(7) DEPOSITS
--------
Deposits at December 31 are summarized as follows:
<TABLE>
<CAPTION>
Weighted
Average
Rate at
December 1998 1997
31, 1998 Amount Percent Amount Percent
-------- ----------- ------- ------ -----------
<S> <C> <C> <C> <C> <C>
Demand and NOW
Accounts including
non-interest-
bearing deposits of
$3,565,833 in 1998
and $3,443,550 in
1997. 1.35% $10,927,803 12.03% $10,357,999 12.06%
Money Market 3.00 6,221,984 6.85 6,821,605 7.94
Passbook Savings 3.00 4,381,269 4.82 4,852,276 5.64
----------- -------- ----------- -----------
$21,531,056 23.70% $22,031,880 25.64%
----------- -------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
Weighted
Average
Rate at
December 1998 1997
31, 1998 Amount Percent Amount Percent
-------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Certificates of Deposit
0.00% to 3.99% 3.66% $ 567,562 .62% - -
4.00% to 4.49% 4.02 342,917 .38 $975,410 1.14%
4.50% to 4.99% 4.85 1,191,646 1.30 - -
5.00% to 5.49% 5.22 9,327,019 10.30 - -
5.50% to 5.99% 5.77 10,982,486 12.09 27,653,978 32.19
6.00% to 6.49% 6.05 44,154,475 48.60 31,609,059 36.79
6.50% to 6.99% 6.74 1,233,119 1.36 1,574,206 1.83
7.00% to 7.99% 7.00 1,500,875 1.65 2,068,011 2.41
8.00% to 8.99% - - - - -
9.00% to 9.99% - - - - -
----------- ----------- ----------- -----------
$69,300,099 76.30% $63,880,664 74.36%
----------- ----------- ----------- -----------
5.00% $90,831,155 100.00% $85,912,544 100.00%
=========== =========== =========== ===========
</TABLE>
F-20
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
DEPOSITS - Continued
--------
The aggregate amount of jumbo certificates of deposit with a minimum
denomination of $100,000 was $21,206,768 and $16,384,893 at December 31,
1998 and 1997, respectively.
At December 31, 1998, scheduled maturities of certificates of deposit
are as follows:
Year Ending December 31,
------------------------
1999 $58,316,277
2000 7,330,818
2001 1,845,897
2002 1,320,486
2003 426,621
After 2003 60,000
-----------
Total $69,300,099
===========
The Bank held deposits of approximately $3,413,907 and $4,083,067 for
related parties at December 31, 1998 and 1997, respectively.
Interest expense on deposits for the periods indicated is summarized
as follows:
For the Twelve Months Ended
December 31,
1998 1997 1996
----------- ----------- -----------
Passbook accounts $ 149,228 $ 172,088 $ 169,014
NOW & ICMA accounts 391,846 419,719 430,726
Certificates 3,916,968 3,679,196 3,538,663
---------- ---------- ----------
$4,458,042 $4,271,003 $4,138,403
Less:
Early withdrawal penalties 23,136 18,293 17,334
---------- ---------- ----------
Total $4,434,906 $4,252,710 $4,121,069
========== ========== ==========
(8) INCOME TAXES
------------
For income tax purposes, the Bank is permitted an annual bad debt
deduction (not related to amounts of loan losses actually anticipated
and charged to operations) in computing taxable income. The bad debt
deduction is generally based on a percentage of taxable income before bad
debt deduction or on actual bad debt experience. The maximum bad debt
deduction allowable based on a percentage of taxable income is 8% beginning
January 1, 1987. Bad debt deductions in excess of actual losses are deemed
tax preference items and are subject to a minimum tax. The Institution used
the percentage of taxable income method to determine the allowable bad debt
deduction.
Tax bad debt reserves created from income tax deductions are used to
absorb losses on loans. If the reserves are used for any other purpose,
such amounts are subject to tax at the then applicable rates. Since the
Bank does not intend to use the reserves for purposes other
F-21
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
INCOME TAXES - Continued
------------
than to absorb loan losses, deferred income taxes have not been provided on
such reserves. Retained earnings at December 31, 1998 and 1997 included
approximately $2,537,220 for which no provision for income taxes was made.
In the future, if the Bank does not meet Federal income tax requirements
necessary to permit it to deduct bad debts based on a percentage of taxable
income, these amounts could become taxable under the then prevailing rates.
The unrecorded deferred liability on this amount was approximately
$964,144.
The provision for federal and state income taxes differs from that
computed by applying statutory rates to income before income tax expense,
as indicated in the following analysis:
For the Twelve Months Ended
December 31,
1998 1997 1996
----------- ----------- -----------
"Expected" tax expense $ 805,687 $ 913,654 $ 601,286
Meals 354 482 645
Tax-exempt dividend 0 0 0
Tax-exempt securities (22,031) (32,238) (30,662)
Other (5,483) (5,922) (7,135)
Profit on REOS 0 0 0
Dividends on ESOP stock 0 (1,286) (2,486)
Benefit of state income tax
deduction (25,620) (26,389) (9,104)
Compensation expense - ESOP 0 12,052 9,094
Non-deductible interest 500 0 0
Tax exempt interest on
loans (2,934) 0 0
--------- --------- ---------
Actual income tax expense $ 750,473 $ 860,353 $ 561,638
========= ========= =========
The current and deferred amounts of these tax provisions are as
follows:
For the Twelve Months Ended
December 31,
1998 1997 1996
--------- --------- ---------
Current
Federal $651,002 $740,822 $468,591
State 64,049 65,972 22,760
-------- -------- --------
$715,051 $806,794 $491,351
-------- -------- --------
Deferred
Federal $ 31,693 $ 47,921 $ 62,889
State 3,729 5,638 7,398
-------- -------- --------
$ 35,422 $ 53,559 $ 70,287
-------- -------- --------
Total Expense $750,473 $860,353 $561,638
======== ======== ========
F-22
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
INCOME TAXES - Continued
------------
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are
presented below:
For the Twelve Months Ended
December 31,
1998 1997
------------ ------------
Deferred Tax Assets
Accounting Change $ 0 $ 28,642
Allowance for Loan Losses 143,874 146,728
Other 7,209 6,116
--------- ---------
Total Deferred Tax Assets $ 151,083 $ 181,486
--------- ---------
Deferred Tax Liabilities
Depreciation 52,220 49,598
Deferred loan expenses 159,314 156,917
FASB 115 market value adjustment 662,423 429,864
--------- ---------
Total Deferred Tax Liabilities $ 873,957 $ 636,379
--------- ---------
Net Deferred Tax Assets (Liabilities)
Under SFAS 109 $(722,874) $(454,893)
========= =========
Due to the expectation of future taxable income, valuation reserves
were determined to be immaterial.
(9) RETAINED EARNINGS
-----------------
In connection with the insurance of savings accounts, the Institution
is required to maintain a federal insurance reserve. The reserve, which
aggregated $965,900 at December 31, 1998, is not a valuation allowance and
has not been created by charges against earnings. It represents a
restriction on retained earnings of the Institution.
(10) COMMITMENTS AND CONTINGENT LIABILITIES
--------------------------------------
In the normal course of business, there are various outstanding
commitments and contingent liabilities such as guarantees, commitments to
extend credit, etc., which are not reflected in the accompanying financial
statements. The Bank does not anticipate losses as a result of these
transactions.
The Bank had commitments on mortgage loans of approximately $951,000
and $818,000 at December 31, 1998 and 1997, respectively.
Commitments under lines of credit for loans totaled approximately
$1,618,000 and $1,701,000 at December 31, 1998 and 1997, respectively. It
is the opinion of management that such commitments do not involve more than
the normal risk of loss.
F-23
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
(11) STOCKHOLDERS' EQUITY AND REGULATORY MATTERS
-------------------------------------------
On February 19, 1991, the Board of Directors of Baxley Federal Savings
Bank adopted a Plan of Conversion (Plan) to convert from a Federally
chartered mutual savings bank to a Federally chartered stock savings bank.
The Plan was approved by regulatory authorities and Institution members at
a special meeting.
Federal regulations permit Baxley Federal to pay dividends only from
net earnings and retained earnings and do not permit Baxley Federal to pay
cash dividends on common stock if its net worth would be reduced below the
level required by the regulations or the amount required for the
liquidation account established by the Plan of Conversion. In order to
grant a priority to eligible account holders (as defined in the Plan of
Conversion) in the event of future liquidation, Baxley Federal at the time
of conversion, established a liquidation account in an amount equal to its
net worth as of December 31, 1990, adjusted as described below. In the
event of future liquidation of Baxley Federal, eligible account holders who
continue to maintain their deposit accounts shall be entitled to receive a
distribution from the liquidation account based on their proportionate
share of the then total remaining qualifying deposits. The total amount of
the liquidation account will be decreased as the balances of eligible
account holders are reduced on annual determination dates subsequent to the
conversion. No dividends may be paid to stockholders if such dividends
reduce the stockholders' equity of Baxley Federal below the amount required
for the liquidation account.
Baxley Federal may not declare or pay a cash dividend on, or
repurchase any of its common stock, if the effect thereof would cause the
stockholders' equity of Baxley Federal to be reduced below either the
amount required for the liquidation account or the fully phased-in
regulatory capital requirement imposed by the OTS.
The Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA) was signed into law on December 19, 1991. Regulations implementing
the prompt corrective action provisions of FDICIA includes significant
changes to the legal and regulatory environment for insured depository
institutions, including reductions in insurance coverage for certain kinds
of deposits, increased supervision by the Federal regulatory agencies,
increased reporting requirements for insured institutions, and new
regulations concerning internal controls, accounting and operations.
The prompt corrective action regulations define specific capital
categories based on an institution's capital ratios. The capital
categories, in declining order, are "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" and
"critically undercapitalized." Institutions categorized as "under-
capitalized" or worse are subject to certain restrictions, including the
requirement to file a capital plan with its primary Federal regulator,
prohibitions on the payment of dividends and management fees, restrictions
on executive compensation and increased supervisory monitoring, among other
things. Other restrictions may be imposed on the institution either by its
primary Federal regulator or by the
F-24
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
(11) STOCKHOLDERS' EQUITY AND REGULATORY MATTERS - Continued
-------------------------------------------
Federal Deposit Insurance Corporation, including requirements to raise
additional capital, sell assets or sell the entire institution. Once an
institution becomes "critically undercapitalized," it must generally be
placed in receivership or conservatorship within 90 days.
To be considered "well capitalized," an institution must generally
have a leverage ratio of at least 5%, a Tier 1 risk-based capital ratio of
at least 6% and a total risk-based capital ratio of at least 10%. An
institution is deemed to be "critically undercapitalized" if it has a
tangible equity ratio of 2% or less.
While the Office of Thrift Supervision (OTS) and the Financial
Institutions Reform Recovery and Enforcement Act of 1989 (FIRREA) minimum
capital requirements were not changed by FDICIA, an OTS regulated thrift
rating will be determined using thresholds associated with the above
capital categories. OTS minimum capital requirements are 1.5% tangible
capital, 3% core capital and 8% risk-based capital. Therefore, an OTS-
regulated thrift could meet all three of its OTS minimum capital
requirements yet still be "undercapitalized" for purposes of prompt
corrective action under FDICIA.
Baxley Federal's capital position remains high compared to its peers
and is substantially in excess of all regulatory requirements. The Savings
Bank is not under any agreement with regulatory authorities nor is it aware
of any current recommendations by regulatory authorities which, if they
were to be implemented, would have a material effect on liquidity, capital
resources or operations of the Savings Bank. The Bank was categorized as
"well capitalized" under the aforementioned FDICIA requirements. The
following is a summary of the Bank's compliance with capital standards as
of December 31, 1998.
<TABLE>
<CAPTION>
For Capital
Adequacy Purposes and to Be
Adequately Capitalized under the
Prompt Corrective Action
Actual Provisions
----------------- ---------------------
Amount Ratio Amount Ratio
-------- ------- -------- -------
(dollars in Thousands) (dollars in Thousands)
<S> <C> <C> <C> <C>
As of December 31, 1998:
Total Risk-Based Capital
(to Risk-Weighted * *
Assets) $15,365 26.7% $4,607 8.0%
Tier 1 Capital
(to Risk-Weighted
Assets) 13,878 24.1% 2,303 4.0%
Tier 1 Capital
(to Adjusted Total
Assets) 13,878 13.1% 4,241 4.0%
Tangible Capital
(to Adjusted Total
Assets) 13,878 13.1% 1,590 1.5%
As of December 31, 1997:
Total Risk-Based Capital
(to Risk-Weighted
Assets) 13,680 24.9% 4,384 8.0%
Tier 1 Capital
(to Risk-Weighted
Assets) 12,994 23.7% 2,192 4.0%
Tier 1 Capital
(to Adjusted Total
Assets) 12,994 13.0% 4,001 4.0%
Tangible Capital
(to Adjusted Total
Assets) 12,994 13.0% 1,500 1.5%
</TABLE>
* Greater than or equal to sign.
F-25
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
(12) PENSION AND RETIREMENT PLANS
----------------------------
The Bank participates in the Financial Institutions Retirement Fund.
The Bank makes contributions to the plan equal to the amounts accrued for
pension expense. In this master multiple employer plan, the accumulated
benefits and plan assets are not determined or allocated separately by
individual employers. The Bank had no required contributions for the
current plan year ending June, 1998. The total pension expense was $-0-,
$9,861, and $30,042 for the years ended December 31, 1998, 1997 and 1996,
for this Institution.
On December 31, 1988, the Bank adopted the 401K thrift plan through
the Financial Institutions Thrift Plan to commence March 1,1989. The plan
covers substantially all of its employees. The employee participating may
defer up to 15% of gross income. The Bank will match $.25 on a dollar of
the employees contribution but will only consider the first 6% of the
employees' total contribution as a ceiling on its matching responsibility.
The total pension expense for the Bank's portion for the years ended
December 31, 1998, 1997 and 1996, was $10,396, $9,806, and $10,211,
respectively.
(13) EMPLOYEE STOCK OWNERSHIP PLAN
-----------------------------
In connection with its conversion to stock form on June 27, 1991,
Baxley Federal established a leveraged Employee Stock Ownership Plan
("ESOP") for employees age 21 or older who have at least one year of
credited service. As part of the conversion, the ESOP borrowed $293,250
from an unrelated third party lender and purchased 29,325 shares of Baxley
Federal stock at $10 per share for a total of $293,250. All dividends
received by the ESOP were used to pay debt service. The ESOP shares
initially were pledged as collateral for its debt. As the debt was repaid,
shares were released from collateral and allocated to active employees,
based on the proportion of debt service paid in the year. The loan has
been fully repaid as of December 31, 1997. The Bank accounted for its ESOP
in accordance with Statement of Position 93-6. Accordingly, the debt of
the ESOP was recorded as debt and the shares pledged as collateral were
reported as unearned ESOP shares in the statement of financial position.
As shares were released from collateral, the Bank reported compensation
expense equal to the current market price of the shares, and the shares
became outstanding for earnings-per-share (EPS) computations. Dividends on
allocated ESOP shares were recorded as a reduction of retained earnings;
dividends on unallocated ESOP shares were recorded as a reduction of debt
and accrued interest. ESOP compensation expense was $-0-, $51,673, and
$64,327 for the years ended December 31, 1998, 1997 and 1996, respectively.
F-26
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
(13) EMPLOYEE STOCK OWNERSHIP PLAN - Continued
-----------------------------
The ESOP shares as of December 31 were as follows:
<TABLE>
<CAPTION>
1997
-----------
<S> <C>
Allocated shares 25,306.341
Shares released for allocation 4,018.659
Unreleased shares -
-----------
Total ESOP shares 29,325.000
===========
Fair value of unreleased shares at
December 31 $ 0
===========
</TABLE>
(14) STOCK OPTION PLANS
------------------
Also, in connection with the conversion, the Board of Directors
adopted an Incentive Stock Option Plan ("Incentive Plan") and a Stock
Option Plan for Outside Directors ("Directors Stock Option Plan"). Common
stock in an aggregate amount equal to 10% of the shares issued in the
conversion was reserved for issuance by Baxley Federal for stock options to
be granted (at no cost to them) to directors and officers of Baxley
Federal.
Officers of Baxley Federal are eligible to receive options under the
Incentive Plan. The Incentive Plan provides for the granting of options
over the next 10 years, after which no options may be granted. The option
price may not be less than 100% of the fair market value of the shares of
common stock on the date of the grant and no option shall be exercisable
more than 10 years after the date it is granted. 36,660 shares of common
stock have been reserved for options under the Incentive Plan. On June 27,
1991, options to purchase 36,660 shares were granted to purchase common
stock of Baxley Federal at the initial public offering price of $10.00 per
share.
Under the Directors Stock Option Plan, at the time of conversion, each
eligible member of the Board was granted a single nonstatutory option to
purchase shares of common stock. Under the Directors Stock Option Plan,
12,215 shares of common stock were reserved for issuance to eligible
directors of Baxley Federal. On June 27, 1991, options to purchase 12,215
shares were granted to purchase common stock of Baxley Federal at the
initial public offering price of $10.00 per share. Seven Board Members were
granted options to purchase 1,745 shares each. All directors' stock options
were exercised by the year ending December 31, 1995.
F-27
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
(14) STOCK OPTION PLANS - Continued
------------------
The following is a summary of activity in the Incentive Stock Option
Plan:
<TABLE>
<CAPTION>
Incentive Stock Option Plan
-----------------------------------
December 31,
1998 1997 1996
----------- ----------- --------
<S> <C> <C> <C>
Options outstanding at
beginning of period 2,394 24,755 26,274
Options exercised 0 22,361 1,519
Options expired 2,394 0 0
------ ------- -------
Options outstanding at
End of Period 0 2,394 24,755
====== ======= =======
Option prices per share:
Options exercised $ 10 $ 10 $ 10
Options outstanding at
End of Period $ 10 $ 10 $ 10
</TABLE>
(15) BANK RECOGNITION AND RETENTION PLAN AND TRUSTS
----------------------------------------------
Baxley Federal established a Management Recognition and Retention Plan
and Trust ("MRP") and a Directors Recognition and Retention Plan and Trust
("DRP") (collectively, the "RRPs") as a method of providing officers and
directors of Baxley Federal a proprietary interest in the Institution in a
manner designed to encourage such persons to remain with Baxley Federal.
The terms of each RRP were identical, and only the participants varied.
Baxley Federal contributed funds to the RRPs to enable the MRP to purchase
three percent and the DRP to purchase one percent of the total number of
shares of common stock sold in the conversion. Because of excess stock
subscription orders, shares were not available for purchase by the RRPs. In
this event the RRPs may, following the conversion, purchase authorized but
unissued shares of common stock from the Institution subject to
stockholders' approval. Baxley Federal was authorized by the Board of
Directors to issue 16,250 shares of common stock out of its authorized but
unissued shares to the RRP at a purchase price of $10.00 per share, which
was the same as the purchase price in the conversion, with such shares to
be allocated 75% to MRP and 25% to DRP. The RRPs were submitted to
stockholders for ratification and approved in April, 1992. Baxley Federal
then issued 16,250 shares of common stock to the RRPs.
The participants earned shares at the rate of 20% of the aggregate
number of shares covered by the award at the end of each full twelve months
of employment as of the anniversary date of such award. 2,730 shares of
stock were awarded in May, 1997 and 3,552 shares were awarded in May 1996.
All shares had been awarded by December 31, 1997. Expense for issuance of
common stock to the MRP/DRP participants in the amounts of $-0-, $54,928,
and $70,614 were incurred during the twelve month period ended April, 1998,
1997 and 1996, respectively.
F-28
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
(16) DISCLOSURE OF ACCUMULATED OTHER COMPREHENSIVE INCOME
----------------------------------------------------
During the first quarter ending March 31, 1998, Baxley Federal adopted
FASB No. 130, Reporting Comprehensive Income. Statement No. 130 requires
the reporting of comprehensive income in addition to net income from
operations. Comprehensive income is a more inclusive financial reporting
methodology that includes disclosure of certain financial information that
historically has not been recognized in the calculation of net income.
December 31, 1998
---------------------------------------
Current-
Beginning Period Ending
Balance Change Balance
--------- --------- ----------
Unrealized Gains on
Securities $701,357 $379,438 $1,080,795
-------- -------- ----------
Accumulated Other
Comprehensive Income $701,357 $379,438 $1,080,795
-------- -------- ----------
December 31, 1997
---------------------------------------
Current-
Beginning Period Ending
Balance Change Balance
--------- --------- ----------
Unrealized Gains on
Securities $459,355 $242,002 $ 701,357
-------- -------- ----------
Accumulated Other
Comprehensive Income $459,355 $242,002 $ 701,357
-------- -------- ----------
December 31, 1996
---------------------------------------
Current-
Beginning Period Ending
Balance Change Balance
--------- --------- ----------
Unrealized Gains on
Securities $364,963 $ 94,392 $ 459,355
-------- -------- ----------
Accumulated Other
Comprehensive Income $364,963 $ 94,392 $ 459,355
-------- -------- ----------
F-29
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
(17) FAIR VALUES OF FINANCIAL INSTRUMENTS
------------------------------------
The estimated fair values of the Bank's financial instruments are as
follows:
<TABLE>
<CAPTION>
1998 1997
-------------------------- --------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and due from Banks $ 853,460 $ 853,460 $ 800,191 $ 800,191
Interest Bearing Deposits in Banks 9,978,729 9,978,729 4,316,447 4,316,447
Federal Funds Sold 775,000 775,000 400,000 400,000
Investment Securities 4,462,333 4,462,333 4,571,058 4,571,058
Loans Net of Allowance 88,037,502 90,125,000 87,639,745 90,363,000
Accrued Interest Receivable 589,240 589,240 600,625 600,625
------------ ------------ ----------- ------------
Total Financial Assets $104,696,264 $106,783,762 $98,328,066 $101,051,321
============ ============ =========== ============
Financial Liabilities:
Deposits $ 90,831,155 $ 91,495,000 $85,912,544 $ 86,176,000
Other Borrowings 0 0 0 0
Accrued Interest payable 60,818 60,818 68,195 68,195
------------ ------------ ----------- ------------
Total Financial Liabilities $ 90,891,973 $ 91,555,818 $85,980,739 $ 86,244,195
============ ============ =========== ============
</TABLE>
The carrying amounts in the preceding table are included in the
statements of financial condition under the applicable captions. It is not
practicable to estimate the fair value of Federal Home Loan Bank (FHLB)
stock because it is not marketable. The carrying amount of that investment
is reported in the statements of financial condition.
F-30
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
- ------
Cash and Due from Banks $ 881,526 $ 853,460
------------ -----------
Interest Bearing Deposits in Banks 11,455,132 9,978,729
Federal Funds Sold 650,000 775,000
------------ -----------
Total Cash and Cash Equivalents $ 12,986,658 $11,607,189
Investment Securities Available for
Sale, at Fair Value 4,386,729 4,462,333
Loans Receivable, Net (Note 1 & 2) 86,461,053 88,037,502
Premises and Equipment, Net (Note 1) 1,479,670 1,505,809
Investment Required by Law -
Federal Home Loan Bank Stock, at Cost 786,200 786,200
Accrued Interest Receivable 583,837 589,240
Other Assets 159,228 122,641
------------ ------------
Total Assets $106,843,375 $107,110,914
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
LIABILITIES
- -----------
Deposits (Note 3) $ 90,723,998 $ 90,831,155
Accrued Interest Expense 78,032 60,818
Other Liabilities 887,037 805,275
Dividends Payable 0 452,214
------------ ------------
Total Liabilities $ 91,689,067 $ 92,149,462
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
STOCKHOLDERS' EQUITY (Note 1)
- --------------------
Common Stock $.01 par value, shares
authorized - 8,000,000,
shares issued and outstanding
March 31, 1999, 551,481 $ 5,515 $ 5,515
Additional Paid in Capital 5,280,496 5,280,496
Retained Earnings 8,915,243 8,594,646
Accumulated Other Comprehensive
Income 953,054 1,080,795
------------ ------------
Total Stockholders' Equity $ 15,154,308 $ 14,961,452
------------ ------------
Total Liabilities and Stockholders'
Equity $106,843,375 $107,110,914
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Three Months
Ended
March 31,
1999 1998
---------- -----------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
- ----------------------------
Interest
Loans (Note 1) $1,755,814 $1,858,691
Mortgage-backed Securities 14,967 22,988
Investment Securities 27,644 30,331
Federal Funds & FHLB Overnight 125,475 49,735
Dividends 18,579 16,687
---------- ----------
Total Interest & Dividend Income $1,942,479 $1,978,432
---------- ----------
INTEREST EXPENSE
- ----------------
Interest on Deposits $1,087,063 $1,077,881
Interest on Other Borrowings 0 0
---------- ----------
Total Interest Expense $1,087,063 $1,077,881
---------- ----------
Net Interest Income $ 855,416 $ 900,551
Provision for Loan Loss (Note 1) 0 0
---------- ----------
Net Interest and Dividend Income After
Provision for Loan Loss $ 855,416 $ 900,551
---------- ----------
OTHER INCOME
- ------------
Loan Fees $ 28,506 $ 28,897
Other Fees 65,414 66,983
Other Income 8,514 7,943
---------- ----------
Total Other Income $ 102,434 $ 103,823
---------- ----------
OTHER EXPENSES
- --------------
Compensation - Officers, Directors,
Employees $ 198,420 $ 184,990
Employee Benefit Plans and Other
Personnel Expenses 42,591 43,180
Office Occupancy 38,083 38,237
Furniture & Equipment Expense 27,549 25,656
Advertising 12,387 10,579
Stationery & Supplies 26,838 24,081
Professional Expense 13,107 12,177
Federal Insurance Premiums 13,278 13,167
Supervisory Examinations 7,942 8,462
Data Processing Expense 51,027 47,582
Other Expenses 28,916 33,052
---------- ----------
Total Other Expenses $ 460,138 $ 441,163
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Three Months
Ended
March 31,
1999 1998
------------ ------------
<S> <C> <C>
Income Before Income Tax Expense $ 497,712 $ 563,211
------------ ------------
Income Tax Expense:
Current $ 175,515 $ 198,888
Deferred 1,600 1,611
------------ ------------
Total Income Tax Expense (Note 4) $ 177,115 $ 200,499
------------ ------------
Net Income $ 320,597 $ 362,712
------------ ------------
Other Comprehensive Income,
Before Tax:
Unrealized Holding Gains (Losses)
Arising During the Period $( 206,033) $ 150,295
Income Tax Benefit (Expense) Related
to Items of Other Comprehensive
Income 78,292 ( 57,112)
------------ ------------
Other Comprehensive Income,
Net of Tax $ ( 127,741 $ 93,183)
------------ ------------
Comprehensive Income $ 192,856 $ 455,895
============ ============
Per Share Data Based
on Weighted Average Outstanding
Shares
Basic Earnings Per Share $ .58 $ .66
------------ ------------
Diluted Earnings Per Share $ .58 $ .66
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months
Ended
March 31,
1999 1998
---------- ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 320,597 $ 362,712
---------- ------------
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating
Activities:
Depreciation $ 31,803 $ 30,093
(Discount Accretion) Net of Premium
Amortization 146 524
Provision for Loan Losses 0 0
Deferred Charges, Net 17,580 (8,900)
(Gain) Loss on Sale of Other
Repossessed Assets 0 511
FHLB Stock Dividend 0 (36,800)
Changes in Operating Assets and Liabilities:
Increase (Decrease) in Accrued
Interest Payable 17,214 23,031
Increase (Decrease) in Other Liabilities 160,055 160,186
Decrease (Increase) in Accrued
Interest Receivable 5,403 1,004
Decrease (Increase) in Other Assets 8,413 (30,177)
---------- ------------
Total Adjustments $ 240,614 $ 139,472
---------- ------------
Net Cash Provided by Operating
Activities $ 561,211 $ 502,184
---------- ------------
Cash Flows from Investing Activities:
(Increase) Decrease in Loans $1,513,869 $ (1,015,301)
Purchases of Securities Available
for Sale (503,947) 0
Purchases of Premises and Equipment (5,664) (28,240)
Proceeds from Maturities and Principal
Repayments of Securities Available
for Sale 373,371 90,153
Proceeds from Sale of Other Real
Estate Owned and Other Repossessed
Assets 0 6,000
Proceeds from Sale of Premises and
Equipment 0 0
---------- ------------
Net Cash Used by Investing Activities $1,377,629 $ (947,388)
---------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
----------- -----------
<S> <C> <C>
Cash Flows from Financing Activities:
Net Deposits from Customers $ (107,157) $ 219,257
Proceeds from Issuance of Stock Option 0 0
Dividends Paid (452,214) (446,700)
----------- -----------
Net Cash Provided by Financing
Activities $ (559,371) $ (227,443)
----------- -----------
Net Increase (Decrease) in Cash
and Cash Equivalents $ 1,379,469 $ (672,647)
Cash and Cash Equivalents at
Beginning of Period 11,607,189 5,516,638
----------- -----------
Cash and Cash Equivalents at
End of Period $12,986,658 $ 4,843,991
=========== ===========
Supplemental Disclosures of Cash
Flow Information:
Cash Paid During the Year For:
Interest $ 1,069,849 $ 1,054,850
Income Taxes 0 0
</TABLE>
Supplemental Disclosures of Non-Cash Investing Activities:
Total increase (decrease) in unrealized gain on securities available for
sale was $(127,741) and $93,183 for the years ending March 31, 1999 and 1998.
The accompanying notes are an integral part of these financial statements.
F-36
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
The accounting and reporting policies of Baxley Federal Savings Bank
conform to generally accepted accounting principles and to general practice
within the savings and loan industry.
The information included in the accompanying financial statements and
related notes as of March 31, 1999 and December 31, 1998 and for the three
months ended March 31, 1999 and 1998 is unaudited, but in the opinion of
management, reflects all adjustments (consisting of normal recurring
adjustments) necessary for a fair statement of the results of such interim
periods.
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Baxley Federal Savings Bank was a Federally Chartered Mutual Savings
and Loan Institution regulated by the Office of Thrift Supervision (OTS).
In a special meeting held June 19, 1990, members of Baxley Federal Savings
and Loan Association adopted a Federal Mutual Savings Bank Charter and the
corporate name was changed to Baxley Federal Savings Bank. Baxley Federal
Savings Bank converted from a federally chartered mutual savings bank to a
federally chartered stock savings bank on June 27, 1991. Operations are
conducted at the home office in Baxley, Georgia and a branch office in
Hazlehurst, Georgia.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Material estimates that are particularly susceptible to significant
change relate to the determination of the allowance for losses on loans and
the valuation of foreclosed real estate. In connection with the
determination of the estimated losses on loans and foreclosed real estate,
management obtains appraisals for significant properties.
The Bank extends credit to customers throughout its market area with a
concentration in real estate mortgage loans secured by one to four family
residences. The real estate loan portfolio is substantially secured by
properties located throughout Southeast Georgia. Although the Bank has a
diversified loan portfolio, a substantial portion of its borrowers' ability
to repay such loans is dependent upon the economy in the Bank's market
area.
F-37
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
Use of Estimates - Continued
----------------
While management uses available information to recognize losses on
loans and foreclosed real estate, further reductions in the carrying
amounts of loans and foreclosed assets 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
estimated losses on loans and foreclosed real estate. Such agencies may
require the Bank to recognize additional losses based on their judgments
about information available to them at the time of their examination.
Because of these factors, it is reasonably possible that the estimated
losses on loans and foreclosed real estate may change materially in the
near term. However, the amount of the change that is reasonably possible
cannot be estimated.
Loans and the Allowance for Loan Losses
---------------------------------------
Loans are stated at their unpaid principal balances net of unearned
discounts, allowance for loan losses and deferred loan fees. Unearned
discount is taken into income using the interest method.
Loan origination and commitment fees, as well as certain direct
origination costs, are deferred and amortized as a yield adjustment over
the lives of the related loans using the interest method. Amortization of
deferred loan fees is discontinued when a loan is placed on nonaccrual
status.
Generally, interest income is not recognized on specific impaired
loans unless the likelihood of further loss is remote. Interest payments
received on such loans are applied as a reduction of the loan principal
balance. Interest income on other impaired loans is recognized only to
the extent of interest payments received.
The allowance for loan losses is maintained at a level which, in
management's judgment, is adequate to absorb credit losses inherent in
the loan portfolio. The amount of the allowance is based on management's
evaluation of the collectibility of the loan portfolio, including the
nature of the portfolio, credit concentrations, trends in historical loss
experience, specific impaired loans, economic conditions and other risks
inherent in the portfolio. 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.
F-38
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
Loans and the Allowance for Loan Losses - Continued
---------------------------------------
The Bank provides separate valuation allowances for estimated losses
on consumer loans and estimated losses on mortgage loans and real estate
owned. Additions to allowances are charged to expense and reduced by
charge-offs, net of recoveries.
Investments in Securities
-------------------------
Baxley Federal adopted FASB 115 effective January 1, 1994. As of
this date, the Bank's investments in securities are classified in one
category and accounted for as follows:
. Securities Available for Sale. Securities available for sale
consist of bonds, notes, debentures and certain equity securities
not classified as trading securities or as securities to be held
to maturity.
Prior to 1994 all of Baxley Federal's investments were classified as
held to maturity.
Unrealized holding gains and losses, net of tax, on securities
available for sale are reported as a net amount in a separate component
of shareholders' equity until realized.
Gains and losses on the sale of securities available for sale are
determined using the specific-identification method.
The amortization of premiums and the accretion of discounts are
recognized in interest income using methods approximating the interest
method over the period of maturity.
Foreclosed Real Estate
----------------------
Foreclosed real estate is carried at the lower of cost or fair value
minus estimated costs to sell and consists of real estate acquired
through foreclosure in settlement of loans. Costs relating to holding and
maintaining real estate are charged to operations and costs relating to
improvement of real estate are capitalized.
Income Taxes
------------
Income taxes are provided for the tax effects of the transactions
reported in the financial statements and consist of taxes currently due
plus deferred taxes related primarily to
F-39
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
Income Taxes - Continued
------------
differences between the basis of available for sale securities, allowance
for loan losses, estimated losses on foreclosed real estate, accumulated
depreciation and deferred loan expenses. The deferred tax assets and
liabilities represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets
and liabilities are recovered or settled. Deferred tax assets and
liabilities are reflected at income tax rates applicable to the period in
which the deferred tax assets or liabilities are expected to be realized
or settled. As changes in tax laws or rates are enacted, deferred tax
assets and liabilities are adjusted through the provision for income
taxes.
Premises and Equipment
----------------------
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is calculated principally on the straight-line
method over the estimated useful lives of the assets. Costs incurred for
maintenance and repairs are expensed currently.
Deferred Income
---------------
The Bank's method of accounting for nonrefundable fees and costs
associated with lending, committing to lend or purchase loans are in
accordance with FASB 91. These fees and costs are deferred and recognized
as income or expense over the life of the loan as an adjustment of yield.
The unamortized balance is reported on the balance sheet as part of the
loan balance to which they relate.
Statement of Cash Flows
-----------------------
The Bank considers all cash and amounts due from depository
institutions, interest-bearing deposits in other banks, and federal funds
sold to be cash equivalents for purposes of the statements of cash flows.
Earnings Per Share
------------------
In March 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share". SFAS No. 128 establishes standards for computing
and presenting earnings per share ("EPS") and applies to all entities
with publicly held common stock or potential common stock. Basic EPS
excludes dilution and is computed by dividing earnings available to
common stockholders by
F-40
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
Earnings Per Share - Continued
------------------
the weighted-average number of common shares outstanding for the period.
Diluted EPS includes the potential dilutive securities using the treasury
stock method. The Bank adopted the requirements of SFAS No. 128 in the
year ended December 31, 1997. Prior years EPS amounts have been restated
to conform to SFAS 128. Basic earnings per share is computed by dividing
net income by the weighted-average number of shares outstanding of
551,481 during the period ended March 31, 1999. The dilutive effect of
stock options in the number of 1,204 has been considered in the
computation of diluted earnings per share for the period ended March 31,
1999.
Reclassifications
-----------------
Certain reclassifications of prior year amounts have been made to
conform to those classifications used in the accompanying financial
statements.
(2) LOANS RECEIVABLE, NET
---------------------
Loans receivable consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- ------------
<S> <C> <C>
One to Four Family
Residential Mortgage $73,744,529 $73,300,000
Equity Line 1,497,526 1,018,919
Loans to Depositors,
Secured by Savings 1,170,513 1,190,818
Participation 1,656,066 2,076,087
Consumer and Other 10,000,206 11,661,931
----------- -----------
$88,068,840 $89,247,755
----------- -----------
Less:
Loans in Process $ 688,625 $ 300,091
Allowance for Loan Losses 737,108 745,688
Deferred Loan Fees 182,054 164,474
----------- -----------
$ 1,607,787 $ 1,210,253
----------- -----------
Total $86,461,053 $88,037,502
=========== ===========
</TABLE>
F-41
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
(3) Deposits
--------
Deposits are summarized as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- ------------
<S> <C> <C>
Non-interest Bearing NOW Accounts $ 3,043,415 $ 3,565,833
NOW Accounts 7,990,075 7,361,970
Money Market Deposit Accounts 6,222,733 6,221,984
Passbook Accounts 4,586,356 4,381,269
----------- -----------
Total Passbook and Transaction
Accounts $21,842,579 $21,531,056
Certificate Accounts 68,881,419 69,300,099
----------- -----------
Total Deposits $90,723,998 $90,831,155
----------- -----------
</TABLE>
(4) Income Taxes
------------
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities are presented below:
<TABLE>
<CAPTION>
March 31,
1999
---------
<S> <C>
Deferred Tax Assets:
Accounting Change $ 0
Allowance for Loan Losses 140,613
Other 6,728
---------
Total Deferred Tax Assets $ 147,341
---------
Deferred Tax Liabilities:
Depreciation $ 51,165
FASB 115 Market Value Adjustment 584,130
Deferred Loan Fees 158,226
---------
Total Deferred Tax Liabilities $ 793,521
---------
Net Deferred Tax Assets (Liabilities)
Under SFAS 109 $(646,180)
=========
</TABLE>
Due to the expectation of future taxable income, valuation reserves
were determined to be immaterial.
Tax bad debt reserves created from income tax deductions are used to
absorb losses on loans. If the reserves are used for any other purpose,
such amounts are subject to tax at the then applicable rates. Since the
Bank does not intend to use the reserves for purposes other than to absorb
loan losses, deferred income taxes have not been provided on such reserves.
F-42
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
Income Taxes - Continued
------------
Actual expense differs from the "expected" tax expense as follows:
<TABLE>
<CAPTION>
Three Months
Ended
March 31,
1999 1998
-------- ---------
<S> <C> <C>
Expected Tax Expense $190,199 $ 214,981
Tax Exempt Dividend (1,074) (4,439)
Tax Exempt Securities (8,682) (4,633)
Other (3,328) (5,410)
-------- ---------
Actual Income Tax Expense $177,115 $ 200,499
======== =========
</TABLE>
F-43
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of June 3, 1999 by and between Baxley Federal Savings Bank ("Baxley"), a
federally chartered stock savings bank, with its principal office located in
Baxley, Georgia; 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; to be joined in by PAB Interim Association No. 1,
a stock savings bank to be chartered under the Laws of the United States and to
become a wholly-owned subsidiary of PAB ("Interim").
PREAMBLE
The Boards of Directors of Baxley and PAB, and once it is chartered,
Interim, 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 Interim with and into Baxley (the "Merger"). At the
effective time of the Merger, the outstanding shares of the capital stock of
Baxley shall be converted into the right to receive shares of the common stock
of PAB (except as provided herein). As a result, shareholders of Baxley shall
become shareholders of PAB. The transaction described in this Agreement is
subject to the approvals of the shareholders of Baxley and Interim, applicable
Regulatory Authorities 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."
Immediately following the Closing, Baxley will remain in existence under
its Federal Stock Charter and Bylaws, as in effect immediately prior to the
Effective Time, as a wholly-owned subsidiary of PAB.
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, Interim shall be merged with and into Baxley in accordance with
the applicable provisions of the regulations of the OTS. Baxley shall be the
Surviving Bank resulting from the Merger, and the separate existence of Interim
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 Baxley, PAB and Interim.
A-1
<PAGE>
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 Combination
reflecting the Merger shall become effective with the Corporate Secretary of the
OTS. 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 shareholders of
Baxley approve this Agreement, or (iii) such later date as may be mutually
agreed upon in writing by the Chief Executive Officers of each Party.
1.4 Execution of Support and Non-Competition Agreements. Immediately
prior to the execution of this Agreement and as a condition hereto, each of the
executive officers and directors of Baxley listed in Exhibit D attached hereto
---------
shall execute and deliver to PAB a Support and Non-Competition Agreement in
substantially the form attached hereto as Exhibit A.
---------
ARTICLE 2
TERMS OF MERGER
2.1 Federal Stock Charter. Pursuant to the Merger, the Federal Stock
Charter of Baxley in effect immediately prior to the Effective Time shall be the
Federal Stock Charter of the Surviving Bank until otherwise amended or repealed.
2.2 Bylaws. Pursuant to the Merger, the Bylaws of Baxley in effect
immediately prior to the Effective Time shall be the Bylaws of the Surviving
Bank until otherwise amended or repealed.
2.3 Directors of PAB. The directors of PAB in office immediately prior to
the Effective Time, together with two additional persons who previously served
on the Board of Directors of Baxley (the "Baxley Directors") who will be
appointed to serve as directors of PAB, shall serve as the directors of PAB from
and after the Effective Time in accordance with the Articles of Incorporation
and Bylaws of PAB and applicable Law. The Baxley Directors shall be selected by
the Board of Directors of Baxley, subject to approval by PAB, which approval
shall not be unreasonably withheld. At the first annual meeting of PAB
shareholders following the Closing, PAB will nominate one of the Baxley
Directors to serve for a one year term and the other Baxley Director to serve
for a two year term and will recommend that PAB shareholders vote in favor of
both such elections. The Baxley Directors shall serve and refrain from conduct
that would constitute "cause" for removal under the Articles of Incorporation
and Bylaws of
A-2
<PAGE>
PAB. In the event any Baxley Director has attained the age of 70 as of the date
of this Agreement, at the sole discretion of PAB, such director shall be exempt
from any mandatory retirement provisions applicable to PAB directors for a
period not to exceed two years.
2.4 Directors of the Surviving Bank. Except as otherwise provided in this
Section 2.4, the directors of Baxley in office immediately prior to the
Effective Time, together with such additional persons as may thereafter be
elected, shall serve as the directors of the Surviving Bank each to hold office
in accordance with the Federal Stock Charter and Bylaws of the Surviving Bank
and applicable Law. As a condition of serving as a director of the Surviving
Bank, each former director of Baxley shall retain and beneficially own (as
determined in accordance with Rule 13d-3 under the 1934 Act) at least 50% of the
PAB Common Stock he received pursuant to this Agreement. Listed in Exhibit G
---------
attached hereto are the number, names, residence addresses and terms of the
directors of the Surviving Bank.
2.5 Officers of the Surviving Bank. The officers of Baxley immediately
prior to the Effective Time, together with such additional persons as may
thereafter be elected, shall serve as the officers of the Surviving Bank, each
to hold office in accordance with the Bylaws of the Surviving Bank.
2.6 Name of the Surviving Bank. The name of the Surviving Bank shall be
"Baxley Federal Savings Bank."
2.7 Existence of the Surviving Bank. Following the Effective Time, PAB
intends to operate the Surviving Bank under its Federal Stock Charter and Bylaws
and as a wholly-owned subsidiary of PAB for such time as the Board of Directors
of PAB may determine to be in the best interests of PAB and its shareholders.
ARTICLE 3
MANNER OF CONVERTING SHARES AND OPTIONS
3.1 Conversion of Shares. Subject to the provisions of this Article 3, at
the Effective Time, by virtue of the Merger and without any action on the part
of the holders thereof, the shares of PAB and Baxley 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.
(b) Subject to adjustment as outlined below and the representations,
warranties and conditions set forth in this Agreement, each share of Baxley
Common Stock issued and outstanding at the Effective Time shall be converted
into 2.40 shares of PAB Common Stock for a total of 1,323,554.40 shares of PAB
Common Stock (the "Merger Consideration"); provided, however, that if (i) the
-------- -------
Deemed Market Value is less than $13.00 per share, then Baxley may terminate or
renegotiate this Agreement in its sole discretion by delivery of written notice
to PAB within three calendar days prior to the Effective Time; or (ii) the
Deemed Market Value is greater than $21.00, then the Merger Consideration shall
be reduced by an amount equal to the product of (A) the Merger Consideration
multiplied by (B) the quotient of the difference between
A-3
<PAGE>
the Deemed Market Value less $21.00, divided by the Deemed Market Value.
Notwithstanding the preceding sentence and subject to the representations,
warranties and conditions set forth in this Agreement, if prior to the Effective
Time PAB shall have entered into a Contract whereby PAB shall become a
subsidiary of another corporation or shall be merged into another corporation
and less than a majority of the members of the Board of Directors of the
resulting corporation were members of the Board of Directors of PAB at the time
of the execution of the Contract (a "Change in Control"), then each share of
Baxley Common Stock issued and outstanding at the Effective Time shall be
converted into 2.40 shares of PAB Common Stock.
The following table provides illustrative examples showing the Merger
Consideration and the number of shares of PAB Common Stock into which each share
of Baxley Common Stock would be exchanged based upon various assumed Deemed
Market Values. The following table assumes that a Change in Control shall not
have occurred with respect to PAB prior to the Effective Time.
<TABLE>
<CAPTION>
Number of shares of PAB
Number of shares of PAB Common Stock to
Common Stock comprising be received for each share
Deemed Market Value the Merger Consideration of Baxley Common Stock
------------------- ------------------------ --------------------------
<S> <C> <C>
$13.00 1,323,554.40 2.4000
17.00 1,323,554.40 2.4000
19.00 1,323,554.40 2.4000
21.00 1,323,554.40 2.4000
23.00 1,208,462.72 2.1913
25.00 1,111,785.76 2.0160
27.00 1,029,431.20 1.8666
</TABLE>
(c) Each share of Baxley Common Stock (excluding shares held by PAB or any
of its Subsidiaries or by Baxley, in each case other than in a fiduciary
capacity or as a result of debts previously contracted, and excluding shares
held by Baxley shareholders who perfect their dissenters' rights of appraisal as
provided in Section 3.4 of this Agreement) issued and outstanding at the
Effective Time shall cease to be outstanding and shall be converted into and
exchanged for the right to receive a number of shares of PAB Common Stock as set
forth above in Section 3.1(b).
(d) In the event the costs and expenses incurred by Baxley or on its
behalf in connection with the transactions contemplated hereunder, including
filing, registration and application fees, printing fees and fees and expenses
of its own consultants, accountants, and counsel (except for those costs and
expenses that shall be payable by (i) Baxley to Trident Financial Corporation
(or other reputable investment banking firm) and (ii) PAB pursuant to Section
11.2 of this Agreement), exceed $100,000, the Merger Consideration shall be
reduced by the amount of such costs and expenses in excess of $100,000 (the
"Excess Amount") by subtracting from the Merger Consideration the quotient
obtained by dividing the Excess Amount by the Deemed Market Value.
A-4
<PAGE>
3.2 Anti-Dilution Provisions. In the event Baxley or PAB changes the
number of shares of Baxley 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 Baxley or PAB. Each share of Baxley Common Stock held
by Baxley 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.
3.4 Dissenting Shareholders. Any holder of shares of Baxley Common Stock
who perfects his dissenters' rights of appraisal in accordance with and as
contemplated by 12 C.F.R. Section 552.14 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 12 C.F.R. Section 552.14 and surrendered to the
transfer agent for PAB 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 Baxley fails to perfect, or effectively withdraws or
loses, his right to appraisal and of payment for his shares, PAB shall issue and
deliver the consideration to which such holder of shares of Baxley Common Stock
is entitled under this Article 3 (without interest) upon surrender by such
holder of the certificate or certificates representing the shares of Baxley
Common Stock held by him.
3.5 Fractional Shares. Notwithstanding any other provision of this
Agreement, each holder of shares of Baxley Common Stock 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 PAB Common Stock multiplied
by the Deemed Market Value.
ARTICLE 4
EXCHANGE OF SHARES
4.1 Exchange Procedures. Within 20 days after the Effective Time, PAB
shall, as exchange agent, mail to the former shareholders of Baxley appropriate
transmittal materials (which shall specify that delivery shall be effected, and
risk of loss and title to the certificates theretofore representing shares of
Baxley Common Stock shall pass, only upon proper delivery of such certificates
to PAB). After the Effective Time, each holder of shares of Baxley 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) issued and outstanding at the Effective Time
shall surrender the certificate or certificates representing such shares to PAB
and shall within 20 days after 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)
A-5
<PAGE>
pursuant to Section 4.2 of this Agreement. To the extent required by Section 3.5
of this Agreement, each holder of shares of Baxley Common Stock 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 Baxley Common Stock is entitled as a
result of the Merger until such holder surrenders his certificate or
certificates representing the shares of Baxley Common Stock for exchange as
provided in this Section 4.1. The certificate or certificates of Baxley Common
Stock 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 Baxley Common Stock 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. At the Effective Time, the stock
transfer books of Baxley shall be closed as to holders of Baxley Common Stock
immediately prior to the Effective Time, and no transfer of Baxley Common Stock
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 Baxley Common Stock (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. 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 Baxley Common Stock 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 Baxley Common Stock certificate, 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 represented by such certificate.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BAXLEY
Baxley hereby represents and warrants to PAB as follows:
5.1 Organization, Standing and Power. Baxley is a federal stock savings
bank, organized and validly existing under the Laws of the United States and has
the corporate power and authority to carry on its business as now conducted and
to own, lease and operate its Assets.
A-6
<PAGE>
5.2 Authority; No Breach By Agreement.
(a) Baxley has the corporate power and authority necessary to execute,
deliver and perform its obligations under this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated herein,
including the Merger, have been duly and validly authorized by all necessary
corporate action in respect thereof on the part of Baxley, subject to the
approval of this Agreement by its shareholders as contemplated by Section 8.1 of
this Agreement. Subject to such requisite shareholder approval and Consents of
applicable Regulatory Authorities (and assuming due authorization, execution and
delivery by PAB and Interim), this Agreement represents a legal, valid and
binding obligation of Baxley, enforceable against Baxley 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). The
affirmative vote of the holders of at least two-thirds (66 2/3%) of the
outstanding shares of Baxley Common Stock is the only shareholder vote required
for approval by Baxley of this Agreement and the transactions contemplated
hereby.
(b) Except as Previously Disclosed, neither the execution and delivery of
this Agreement by Baxley nor the consummation by Baxley of the transactions
contemplated hereby, nor compliance by Baxley with any of the provisions hereof,
will (i) conflict with or result in a breach of any provision of Baxley's
Federal Stock Charter 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 Baxley under, any Contract or Permit of Baxley, 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 Baxley, or
(iii) 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 Baxley
or any of its Assets.
(c) Other than in connection or compliance with the provisions of the
applicable Securities Laws and rules of the NASD, 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 Baxley no notice to, filing with or
Consent of, any public body or authority is necessary for the consummation by
Baxley of the Merger and the other transactions contemplated in this Agreement.
5.3 Capital Stock and Other Securities.
(a) The authorized capital stock of Baxley consists of 8,000,000 shares of
Baxley Common Stock and 2,000,000 shares of Baxley Preferred Stock. As of the
date of this Agreement, there are 551,481 shares of Baxley Common Stock issued
and outstanding. As of the date of this Agreement, no shares of Baxley
Preferred Stock have been issued. No more than
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551,481 shares of Baxley Common Stock will be issued and outstanding at the
Effective Time. All of the issued and outstanding shares of capital stock of
Baxley are duly and validly issued and outstanding and are fully paid and
nonassessable. None of the outstanding shares of capital stock of Baxley has
been issued in violation of any preemptive rights of the current or past
shareholders of Baxley.
(b) Except as set forth in Section 5.3(a) of this Agreement, there are no
shares of capital stock or other equity securities of Baxley 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 Baxley or
contracts, commitments, understandings or arrangements by which Baxley 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 Baxley's Subsidiaries. Baxley has no Subsidiaries.
5.5 Financial Statements. Baxley has Previously Disclosed, and delivered
to PAB prior to the execution of this Agreement, copies of all Baxley Financial
Statements for periods ended prior to the date hereof and will deliver to PAB
copies of all Baxley Financial Statements prepared subsequent to the date
hereof. The Baxley 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 Baxley, 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 Baxley as of the dates indicated and
the results of operations, changes in shareholders' equity and cash flows of
Baxley 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. Baxley has no Liabilities that
are reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on Baxley, except Liabilities which are accrued or reserved
against in the balance sheets of Baxley as of December 31, 1998 and March 31,
1999 included in the Baxley Financial Statements or reflected in the notes
thereto. Baxley has not incurred or paid any Liability since March 31, 1999,
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 Baxley.
5.7 Absence of Certain Changes or Events. Since March 31, 1999, (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
Baxley, (ii) Baxley has 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 Baxley provided in Article 7
of this Agreement, and (iii) Baxley has conducted its business in the ordinary
and usual course (excluding the incurrence of expenses in connection with this
Agreement and the transactions contemplated hereby).
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5.8 Tax Matters.
(a) All Tax returns required to be filed by or on behalf of Baxley 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, 1998, 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 Baxley,
and all returns filed are complete and accurate in all Material respects to the
Knowledge of Baxley. 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
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 Baxley, except as reserved against in the Baxley 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) Baxley has not 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 Baxley, which deficiency is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Baxley.
(c) Adequate provision for any Taxes due or to become due by Baxley for
the period or periods through and including the date of the Baxley Financial
Statements has been made and is reflected on such Baxley Financial Statements.
(d) Deferred Taxes of Baxley have been provided for in accordance with
GAAP.
(e) Baxley is in compliance with, and its records contain all information
and documents (including, without limitation, properly completed IRS Forms W-9)
necessary to comply with, all applicable information reporting and Tax
withholding requirements under federal, state and local Tax Laws, and such
records identify with specificity all accounts subject to backup withholding
under Section 3406 of the Internal Revenue Code, except for such instances of
noncompliance and such omissions as are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Baxley.
(f) Baxley has not made any payments, is not obligated to make any
payments or is not a party to any contract, agreement or other arrangement that
could obligate it to make any payments that would be disallowed as a deduction
under Section 280G or 162(m) of the Internal Revenue Code.
(g) There are no Material Liens with respect to Taxes upon any of the
Assets of Baxley.
(h) There has not been an ownership change, as defined in Internal Revenue
Code Section 382(g), of Baxley that occurred during or after any Taxable Period
in which Baxley incurred a net operating loss that carries over to any Taxable
Period ending after December 31, 1996.
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(i) Baxley has not filed any consent under Section 341(f) of the Internal
Revenue Code concerning collapsible corporations.
(j) All Material elections with respect to Taxes affecting Baxley as of
the date of this Agreement have been or will be timely made as Previously
Disclosed. After the date of this Agreement, no Material election with respect
to Taxes will be made without the prior consent of PAB, which consent will not
be unreasonably withheld.
(k) Baxley does not currently have or has not had a permanent
establishment in any foreign country, as defined in any applicable tax treaty or
convention between the United States and such foreign country.
5.9 Allowance. The Allowance shown on the balance sheets of Baxley
included in the most recent Baxley Financial Statements dated prior to the date
of this Agreement was, and the Allowance shown on the balance sheets of Baxley
included in the Baxley 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 Baxley and other extensions of
credit (including letters of credit and commitments to make loans or extend
credit) by Baxley 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 Baxley.
5.10 Assets. Except as Previously Disclosed or as disclosed or reserved
against in the Baxley Financial Statements, Baxley has good and marketable
title, free and clear of all Liens, to all of its Assets. All Material tangible
properties used in the business of Baxley are in good condition, reasonable wear
and tear excepted, and are usable in the ordinary course of business consistent
with Baxley's past practices. All Assets which are Material to Baxley's
business held under leases or subleases by Baxley, 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 business of Baxley provide
adequate coverage under current industry practices against loss or Liability,
and the fidelity and blanket bonds in effect as to which Baxley is a named
insured are reasonably sufficient. Baxley has not received notice from any
insurance carrier that (i) such insurance will be canceled or that coverage
thereunder will be reduced or eliminated or (ii) premium costs with respect to
such policies of insurance will be substantially increased. The Assets of
Baxley include all assets required to operate the business of Baxley as
presently conducted.
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5.11 Environmental Matters.
(a) To the Knowledge of Baxley, its Participation Facilities and Loan
Properties are, and have been, in full 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 Baxley.
(b) To the Knowledge of Baxley, there is no litigation pending or
threatened before any court, governmental agency, board, authority or other
forum in which Baxley or any of its Participation Facilities or 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, whether or not occurring at, on, under or
involving a site owned, leased or operated by Baxley or any of its Participation
Facilities or Loan Properties, except for such Litigation pending or threatened
which is not likely to have, individually or in the aggregate, a Material
Adverse Effect on Baxley.
(c) To the Knowledge of Baxley, there is no reasonable basis for any
Litigation of a type described above in Section 5.11(b), except such as is not
likely to have, individually or in the aggregate, a Material Adverse Effect on
Baxley.
(d) To the Knowledge of Baxley, there have been no releases, spills or
discharges of Hazardous Material or other conditions involving Hazardous
Materials in, on, under or affecting any Participation Facility or Loan
Property, except such as are not likely to have, individually or in the
aggregate, a Material Adverse Effect on Baxley.
5.12 Compliance with Laws. Baxley is duly chartered as a federal stock
savings bank under applicable Law and is an "insured institution" as defined in
the Federal Deposit Insurance Act and applicable regulations thereunder, and the
deposits in which are insured by the Savings Association Insurance Fund. Baxley
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 likely to have, individually or in the aggregate, a
Material Adverse Effect on Baxley, 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 Baxley. Baxley:
(a) is not in violation of any Laws, Environmental Laws, Orders or
Permits applicable to its business or employees conducting its business, except
for violations which are not likely to have, individually or in the aggregate, a
Material Adverse Effect on Baxley; and
(b) has not 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 Baxley is not in compliance with any of the
Laws, Environmental 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 Baxley,
(ii) threatening to revoke any Permits, the revocation of which is reasonably
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likely to have, individually or in the aggregate, a Material Adverse Effect on
Baxley, or (iii) requiring Baxley 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 resolution of the Board of Directors of Baxley 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. Baxley is not the subject of any Litigation
asserting that it has committed an unfair labor practice (within the meaning of
the National Labor Relations Act or comparable state Law) or seeking to compel
Baxley to bargain with any labor organization as to wages or conditions of
employment, nor is Baxley a party to or bound by any collective bargaining
agreement, Contract or other agreement or understanding with a labor union or
labor organization, nor is there any strike or other labor dispute involving
Baxley, pending or threatened, nor is there any activity involving Baxley's
employees seeking to certify a collective bargaining unit or engaging in any
other organization activity.
5.14 Employee Benefit Plans.
(a) Baxley has Previously Disclosed, and delivered or made available to
PAB prior to the execution of this Agreement, correct and complete 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 Baxley 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 "Baxley Benefit Plans"). Any of the Baxley
Benefit Plans which is an "employee welfare benefit plan," as that term is
defined in Section 3(l) of ERISA, or an "employee pension benefit plan," as that
term is defined in Section 3(2) of ERISA, is referred to herein as a "Baxley
ERISA Plan." Each Baxley ERISA Plan which is also a "defined benefit plan" (as
defined in Section 414(j) of the Internal Revenue Code or Section 3(35) of
ERISA) is referred to herein as a "Baxley Pension Plan." No Baxley Pension Plan
is or has been a "multi-employer plan" within the meaning of Section 3(37) of
ERISA. Except as Previously Disclosed, Baxley does not, and shall not,
participate in either a multi-employer plan or a multiple employer plan.
(b) Baxley has delivered or made available to PAB prior to the execution
of this Agreement correct and complete copies of the following documents: (i)
all trust agreements or other funding arrangements for the Baxley Benefit Plans
(including insurance contracts), all amendments thereof, (ii) with respect to
the Baxley Benefit Plans or amendments, all determination letters, Material
rulings, Material opinion letters, private letter rulings or ruling requests,
Material information letters or Material advisory opinions issued by the IRS,
the United States Department of Labor or the Pension Benefit Guaranty
Corporation after December 31, 1994, (iii) annual reports or returns on Form
5500, audited or unaudited financial statements,
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actuarial valuations and reports and summary annual reports prepared for the
Baxley Benefit Plans with respect to the most recent plan year, and (iv) the
most recent summary plan descriptions and any Material modifications thereto.
(c) All Baxley 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 Baxley. Except as Previously Disclosed,
each Baxley 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 Baxley is not aware of any circumstances which will or could reasonably
result in revocation of any such favorable determination letter or failure of a
Baxley ERISA Plan intended to satisfy Internal Revenue Code Section 401 to
satisfy the Tax qualification provisions of the Internal Revenue Code applicable
thereto. Baxley has not engaged in a transaction with respect to any Baxley
Benefit Plan that would subject Baxley to a Material Tax or penalty imposed by
either Section 4975 of the Internal Revenue Code or Section 502(i) of ERISA in
an amount which is reasonably likely to have, individually or in the aggregate,
a Material Adverse Effect on Baxley. No excise taxes are payable and no legal
claims are pending or threatened with respect to any Baxley Benefit Plan.
(d) No Baxley 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 or
funded status of any Baxley Pension Plan, (ii) no change in the actuarial
assumptions with respect to any Baxley Pension Plan, and (iii) no increase in
benefits under any Baxley Pension Plan as a result of plan amendments or changes
in applicable Law, any of which is reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on Baxley or materially affect the
funding status of any such plan. Neither any Baxley Pension Plan nor any
"single-employer plan," within the meaning of Section 4001(a)(15) of ERISA,
currently or formerly maintained by Baxley, or the single-employer plan of any
entity which is considered one employer with Baxley 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. Baxley has not provided, and is not required to provide, security to a
Baxley Pension Plan or to any single-employer plan of an ERISA Affiliate
pursuant to Section 401(a)(29) of the Internal Revenue Code. All premiums
required to be paid under ERISA Section 4006 have been timely paid by Baxley,
except to the extent any failure to do so would not have a Material Adverse
Effect on Baxley.
(e) 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 Baxley 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
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Baxley. Except as Previously Disclosed, Baxley 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
Baxley. 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 Baxley Pension Plan or by any ERISA Affiliate
within the 12-month period ending on the date hereof.
(f) Except as required under Title I, Part 6 of ERISA and Internal
Revenue Code Section 4980B, Baxley has no obligations to provide health and life
benefits under any of the Baxley Benefit Plans to former employees, and there
are no restrictions on the rights of Baxley to amend or terminate any such plan
without incurring any Liability thereunder, which Liability is reasonably likely
to have a Material Adverse Effect on Baxley.
(g) Except as Previously Disclosed, neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated hereby will
(i) result in any payment (including, without limitation, severance,
unemployment compensation, golden parachute or otherwise) becoming due to any
officer, director or any employee of Baxley from Baxley under any Baxley Benefit
Plan or otherwise, (ii) increase any benefits otherwise payable under any Baxley
Benefit Plan, or (iii) result in any acceleration of the time of payment or
vesting of any such benefit.
(h) 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 Baxley 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 in the Baxley 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 Baxley Financial Statements, Baxley is not a party to, or is
not bound by, or is not affected by, or is not subject to, (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, (ii)
any Contract relating to the borrowing of money by Baxley or the guarantee by
Baxley of any such obligation (other than Contracts evidencing deposit
liabilities, purchases of federal funds, fully-secured repurchase agreements,
Federal Home Loan Bank advances, trade payables and Contracts relating to
borrowings or guarantees made in the ordinary course of business), and (iii) any
other Material Contract or amendment thereto as of the date of this Agreement
not made in the ordinary course of business to which Baxley is a party or by
which it is bound (together with all Contracts referred to in Sections 5.10 and
5.14(a) of this Agreement, the "Baxley Contracts"). With respect to each Baxley
Contract, (i) the Contract is in full force and effect, (ii) Baxley is not in
Default thereunder, other than Defaults which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Baxley, (iii)
Baxley has not repudiated or waived any Material provision of any such Baxley
Contract, and (iv) no other party to any such Baxley Contract is in Default in
any respect, other than Defaults which are not reasonably likely
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to have, individually or in the aggregate, a Material Adverse Effect on Baxley,
or has repudiated or waived any Material provision thereunder. Except for
Federal Home Loan Bank advances, all of the indebtedness of Baxley for money
borrowed is prepayable at any time by Baxley without penalty or premium.
5.16 Legal Proceedings. There is no Litigation pending, or, to the
Knowledge of Baxley, threatened against Baxley, or against any of its Assets,
employee benefit plans, interests or rights that is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Baxley, nor are
there any Orders of any Regulatory Authorities, other governmental authorities
or arbitrators outstanding against Baxley, that are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Baxley.
5.17 Reports. Baxley has 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 Baxley. As of their respective dates, each of such reports and
documents, including the financial statements, exhibits and schedules thereto,
complied as to form in all Material respects with all applicable Laws. As of
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 Baxley 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 Baxley 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 Baxley or any Affiliate thereof for
inclusion in the Proxy Statement/Prospectus to be mailed to Baxley's
shareholders in connection with the Baxley Meeting, and any other documents to
be filed by Baxley or any Affiliate thereof with the SEC or any other Regulatory
Authority in connection with the transactions contemplated hereby, will, at the
respective time such documents are filed, and with respect to the Proxy
Statement/Prospectus, when first mailed to the shareholders of Baxley, be false
or misleading with respect to any Material fact, or omit to state any Material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, or, in the case of the Proxy
Statement/Prospectus or any amendment thereof or supplement thereto, at the time
of the Baxley Meeting be false or misleading with respect to any Material fact,
or omit to state any Material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of any proxy for the
Baxley Meeting. All documents that Baxley 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
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Material respects with the provisions of applicable Law.
5.19 Accounting, Tax and Regulatory Matters. Neither Baxley, 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 Baxley, there exists no fact, circumstance or reason why the
requisite Consents referred to in Section 9.1(b) of this Agreement cannot be
received in a timely manner without the imposition of any condition or
restriction of the type described in the second sentence of such Section 9.1(b).
5.20 Federal Stock Charter Provisions. Baxley has taken all actions so
that the entering into of this Agreement and the consummation of the Merger
contemplated hereby do not and will not result in the grant of any rights to any
Person under the Federal Stock Charter, Bylaws or other governing instruments of
Baxley (other than voting, dissenters' rights of appraisal or other similar
rights) or restrict or impair the ability of PAB or any of its Subsidiaries to
vote, or otherwise to exercise the rights of a shareholder with respect to,
shares of Baxley Common Stock that may be acquired or controlled by it.
5.21 Derivatives. All interest rate swaps, caps, floors, option
agreements, futures and forward contracts and other similar risk management
arrangements, whether entered into for Baxley's own account, or for the account
of its customers, were entered into (i) in accordance with prudent business
practices and all applicable Laws, and (ii) with counterparties believed to be
financially responsible.
5.22 Year 2000. To the Knowledge of Baxley, all computer software and
hardware necessary for the conduct of business by Baxley (the "Software") is
designed to be used before, on, and after January 1, 2000 and the Software will
operate during each such time period without error relating to the year 2000,
specifically including any error relating to, or the product of, any date data
representing or referring to any particular date. As used in this Section 5.22,
"operate" further includes, but is not limited to, accepting input of dates
without ambiguity, outputting all dates without ambiguity, and performing
calculations, comparisons, extractions, sorting and any other processing or
taking actions or making decisions using dates or time periods without suffering
any abends, aborts, invalid or incorrect results or other interruptions, whether
before, on, or after January 1, 2000. Baxley has received all year 2000
examinations and certifications as required by applicable Law and will, within
ten business days of this Agreement, make available for PAB's review all (i)
such examinations and certifications, (ii) contingency plans in the event the
Software fails to operate and (iii) costs associated with or related to the
Software.
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ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF PAB AND INTERIM
PAB hereby represents and warrants to Baxley, and Interim, when formed,
will represent and warrant to Baxley as follows:
6.1 Organization, Standing and Power.
(a) 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.
(b) Interim will be a federally charted stock savings bank and a wholly-
owned subsidiary of PAB, after the execution of this Agreement and prior to the
Effective Time and shall have the corporate power and authority to carry on the
business of banking. Interim shall become duly qualified or licensed to
transact business as a foreign corporation, and shall maintain its corporate
status 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 the
business, to be purchased, received or operated by Interim, shall require it to
be so qualified or licensed, except for such jurisdiction 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 Interim.
6.2 Authority; No Breach By Agreement.
(a) PAB has, and upon its formation Interim shall have, the corporate
power and authority necessary to execute, deliver and perform its obligations
under this Agreement and to consummate the transactions contemplated hereby. The
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated herein, including the Merger, have been duly and
validly authorized by all necessary corporate action in respect thereof on the
part of PAB, and shall be duly and validly authorized by all necessary corporate
action in respect thereof by Interim upon its formation. Subject to the Consents
of Regulatory Authorities, this Agreement represents a legal, valid, and binding
obligation of PAB, and shall become such an obligation of Interim upon its
formation, enforceable against PAB and to become enforceable against Interim
upon its formation, in accordance with its terms (except in all cases as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar Laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought).
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(b) Neither the execution and delivery of this Agreement by PAB, or upon
its formation, Interim, nor the consummation by PAB, or upon its formation,
Interim of the transactions contemplated hereby, nor compliance by PAB or, upon
its formation, Interim 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 upon its formation, the Federal Stock Charter or Bylaws of Interim,
(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, or upon its formation,
Interim, 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, upon its formation, Interim, or (iii) subject to receipt of
the requisite Consents referred to in Section 9.1(b) of this Agreement, violate
any Law or Order applicable to any PAB Company or any of their respective
Assets.
(c) No notice to, filing with or Consent of any public body or authority
is necessary for the consummation by PAB and Interim 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 and rules of the NASD, (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 and, upon its formation, Interim.
6.3 Capital Stock.
(a) The authorized capital stock of PAB consists of 98,500,000 shares of
PAB Common Stock and 1,500,000 shares of PAB Preferred Stock. As of June 2,
1999, there were 8,290,197 shares of PAB Common Stock issued and outstanding.
As of the date of this Agreement, no shares of PAB Preferred Stock have been
issued. As of June 2, 1999, 399,550 shares of PAB Common Stock were reserved
for issuance upon the exercise of issued and outstanding stock options under the
PAB 1994 Employee Stock Option Plan (the "PAB 1994 Option Plan"), 377,310 shares
of PAB Common Stock were reserved under the PAB Dividend Reinvestment and Common
Stock Purchase Plan (the "PAB DRP Plan") and no shares of PAB Common Stock were
reserved for issuance upon the exercise of issued and outstanding stock options
under the PAB 1999 Stock Option Plan (the "PAB 1999 Option 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 Baxley 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 Baxley Common Stock upon consummation of the Merger will
be, issued in violation of any preemptive rights of the current or past
shareholders of PAB.
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(b) Except as set forth in Section 6.3(a) of this Agreement, or as
provided pursuant to the PAB 1994 Option Plan, the PAB DRP Plan, the PAB 1999
Option 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 SEC Filings; Financial Statements.
(a) PAB has filed and made available to Baxley all forms, reports and
documents required to be filed by PAB with the SEC since December 31, 1993
(collectively, the "PAB SEC Reports"). The PAB SEC Reports (i) at the time
filed, complied in all Material respects with the applicable requirements of the
1933 Act and the 1934 Act, as the case may be, and (ii) did not at the time they
were filed (or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of a
Material fact or omit to state a Material fact required to be stated in such PAB
SEC Reports or necessary in order to make the statements in such PAB SEC
Reports, in light of the circumstances under which they were made, not
misleading. Except for PAB Subsidiaries that are registered as a broker, dealer
or investment advisor or filings due to fiduciary holdings of the PAB
Subsidiaries, none of the PAB Subsidiaries is required to file any forms,
reports or other documents with the SEC;
(b) PAB has Previously Disclosed and delivered to Baxley 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 Baxley 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, 1998 and March 31, 1999 included in the PAB Financial Statements or
reflected in the notes thereto. No PAB Companies have incurred or paid any
Liability since March 31, 1999, 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.
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6.6 Absence of Certain Changes or Events. Since March 31, 1999,
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 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 likely 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 PAB Company is not in compliance with any of the Laws or Orders which such
governmental authority or Regulatory Authority enforces, where such
noncompliance is reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on 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 Company
to enter into or consent to the issuance of a cease and desist order, formal
agreement, directive, commitment or memorandum of understanding, or to adopt any
Board resolution or similar undertaking, which restricts materially the conduct
of its business, or in any manner relates to its capital adequacy, its credit or
reserve policies, its management or the payment of dividends.
6.8 Legal Proceedings. There is no Litigation instituted or pending, or,
to the Knowledge of PAB, threatened against any PAB Company, or against any
Asset, interest or right of any of them, that is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on PAB, nor are
there any Orders of any Regulatory Authorities, other governmental authorities
or arbitrators outstanding against any PAB Company, that are reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect on PAB.
6.9 Statements True and Correct. No statement, certificate, instrument or
other writing furnished or to be furnished by any PAB Company or any Affiliate
thereof to Baxley 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
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made, not misleading. None of the information supplied or to be supplied by any
PAB Company 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 Proxy Statement/Prospectus to be mailed
to Baxley shareholders in connection with the Baxley Meeting, and any other
documents to be filed by any PAB Company or any Affiliate thereof with the SEC
or any other Regulatory Authority in connection with the transactions
contemplated hereby, will, at the respective time such documents are filed, and
with respect to the Proxy Statement/Prospectus, when first mailed to the
shareholders of Baxley, be false or misleading with respect to any Material
fact, or omit to state any Material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, or, in the case of the Proxy Statement/Prospectus or any amendment
thereof or supplement thereto, at the time of the Baxley Meeting, be false or
misleading with respect to any Material fact, or omit to state any Material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of any proxy for the Baxley Meeting. All documents that any PAB
Company or any Affiliate thereof is responsible for filing with any Regulatory
Authority in connection with the transactions contemplated hereby will comply as
to form in all Material respects with the provisions of applicable Law.
6.10 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 transactions
contemplated hereby, including 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).
6.11 Year 2000. To the Knowledge of PAB, all computer software and
hardware necessary for the conduct of business by PAB (the "Software") is
designed to be used before, on, and after January 1, 2000 and the Software will
operate during each such time period without error relating to the year 2000,
specifically including any error relating to, or the product of, any date data
representing or referring to any particular date. As used in this Section 6.11,
"operate" further includes, but is not limited to, accepting input of dates
without ambiguity, outputting all dates without ambiguity, and performing
calculations, comparisons, extractions, sorting and any other processing or
taking actions or making decisions using dates or time periods without suffering
any abends, aborts, invalid or incorrect results or other interruptions, whether
before, on, or after January 1, 2000. PAB has received all year 2000
examinations and certifications as required by applicable Law and will, within
ten business days of this Agreement, make available for Baxley's review all (i)
such examinations and certifications, (ii) contingency plans in the event the
Software fails to operate and (iii) costs associated with or related to the
Software.
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6.12 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 PAB's subsidiary banks
and other extensions of credit (including letters of credit and commitments to
make loans or extend credit) by PAB's subsidiary banks 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.
6.13 Environmental Matters.
(a) To the Knowledge of PAB, PAB and its subsidiary banks, their
respective Participation Facilities and Loan Properties are, and have been, in
full 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, pending
or threatened before any court, governmental agency, board, authority or other
forum in which either PAB or its subsidiary banks or any of their respective
Participation Facilities and 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, whether or not occurring at, on, under or involving a site
owned, leased or operated by either PAB or its subsidiary banks or any of their
respective Participation Facilities and Loan Properties, except for such
Litigation pending or threatened which is not likely to have, individually or in
the aggregate, a Material Adverse Effect on PAB.
(c) To the Knowledge of PAB, there is no reasonable basis for any
Litigation of a type described in subsection (b), except such as is not likely
to have, individually or in the aggregate, a Material Adverse Effect on PAB.
(d) To the Knowledge of PAB, there have been no releases, spills or
discharges of Hazardous Material or other conditions involving Hazardous
Materials in, on, under or affecting any Participation Facility or Loan
Property, except such as are not likely to have, individually or in the
aggregate, a Material Adverse Effect on PAB.
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ARTICLE 7
CONDUCT OF BUSINESS PENDING CONSUMMATION
7.1 Affirmative Covenants of Baxley. 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, Baxley agrees: (i) to operate its business only
in the usual, regular and ordinary course; (ii) to preserve intact its business
organizations and Assets and maintain its rights and franchises; (iii) to use
its reasonable efforts to cause its representations and warranties to be correct
at all times; and (iv) to take no action which would (a) 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 (b)
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 Baxley. From the date of this Agreement until
the earlier of the Effective Time or the termination of this Agreement, Baxley
covenants and agrees that it will not 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 Federal Stock Charter, Bylaws or other governing instruments
of Baxley; 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 Baxley consistent with past practices (which shall include creation
of deposit liabilities, purchases of federal funds, advances from the Federal
Home Loan Bank, and entry into repurchase agreements fully secured by U.S.
government or agency securities), or impose, or suffer the imposition, on any
Asset of Baxley 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 Baxley, or declare or pay any dividend or make any other
distribution in respect of Baxley capital stock; provided, however, that Baxley
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may, in its sole discretion (to the extent legally and contractually permitted
to do so), but shall not be obligated to, declare and pay a regular cash
dividend in accordance with Section 8.10 of this Agreement; or
(d) except for this Agreement, or as Previously Disclosed, 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 Baxley Common Stock, or any stock
appreciation rights, or any option, warrant, conversion or other right to
acquire any such stock; or
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(e) adjust, split, combine or reclassify any capital stock of Baxley or
issue or authorize the issuance of any other securities in respect of or in
substitution for shares of Baxley Common Stock or sell, lease, mortgage or
otherwise dispose of or otherwise encumber any Asset 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 Baxley in its fiduciary capacity; or
(g) except for purchases of U.S. Treasury securities or U.S. Government
agency securities, which in either case have maturities of three years or less,
purchase of investment grade bonds issued by municipalities located within the
State of Georgia with a maturity of five years or less, purchase any securities
or make any Material investment, either by purchase of stock or securities,
contributions to capital, Asset transfers or purchase of any Assets, in any
Person, or otherwise acquire direct or indirect control over any Person, other
than in connection with (i) foreclosures in the ordinary course of business,
(ii) acquisitions of control by a depository institution Subsidiary in its
fiduciary capacity, or (iii) the creation of new, wholly-owned Subsidiaries
organized to conduct or continue activities otherwise permitted by this
Agreement; or
(h) grant any increase in compensation or benefits to the employees or
officers of Baxley (including such discretionary increases as may be
contemplated by existing employment contracts Previously Disclosed) exceeding 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 Baxley's Board of Directors prior to the
date of this Agreement, enter into or amend any severance agreements with
officers of Baxley, grant any increase in fees or other increases in
compensation or other benefits to directors of Baxley except in accordance with
past practice Previously Disclosed; or
(i) enter into or amend any employment Contract between Baxley and any
Person (unless such amendment is required by Law) that Baxley 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
(j) adopt any new employee benefit plan of Baxley or, except as set forth in
Section 8.13 of this Agreement, make any Material change in or to any Baxley
Benefit Plan other than any such change that is required by Law or that, in the
opinion of counsel, does not increase funding costs or is necessary or advisable
to maintain the tax qualified status of any such plan; or
(k) make any significant change in any Tax or accounting methods or systems
of internal accounting controls, except as may be appropriate to conform to
changes in regulatory accounting requirements or GAAP; or
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(l) commence any Litigation other than in accordance with past practice,
settle any Litigation involving any Liability of Baxley for money damages in
excess of $25,000 or Material restrictions upon the operations of Baxley; or
(m) 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 Baxley 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 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.
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ARTICLE 8
ADDITIONAL AGREEMENTS
8.1 Shareholder Approval. Baxley shall take, in accordance with
applicable Law and its Federal Stock Charter and Bylaws, all action necessary to
convene the Baxley Meeting to consider and vote upon the approval of this
Agreement and any other matters required to be approved by Baxley shareholders
for consummation of the Merger (including any adjournment or postponement
thereof), as promptly as practicable after the Registration Statement is
declared effective; provided, however, Baxley shall not be obligated to mail the
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Proxy Statement/Prospectus unless Baxley has received a fairness opinion
pursuant to Section 9.3(f) of this Agreement. The Board of Directors of Baxley
shall (subject to compliance with its fiduciary duties as advised by counsel)
recommend such approval, and Baxley (subject to the direction of the Board of
Directors of Baxley acting in compliance with its fiduciary duties as advised by
counsel) shall take all reasonable lawful action to solicit such approval by its
shareholders.
8.2 Registration Statement.
(a) Each of PAB and Baxley 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 Proxy
Statement/Prospectus and all related documents). Provided Baxley 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 Baxley 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 comply with all necessary state securities Laws or
obtain "Blue Sky" permits and approvals required to carry out the transactions
contemplated by this Agreement. Baxley agrees to furnish PAB all information
concerning Baxley, and its officers, directors and shareholders as may be
reasonably requested in connection with the foregoing.
(b) Each of Baxley 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 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 Proxy
Statement/Prospectus and any amendment or supplement thereto will, at the date
of mailing to Baxley shareholders and at the time of the Baxley 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
Proxy Statement/Prospectus or any amendment or supplement thereto. Each of
Baxley 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
Proxy Statement/Prospectus to be false or misleading with respect to any
Material fact, or to omit to
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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 Proxy Statement/Prospectus.
(c) In the case of PAB, PAB will advise Baxley, 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.
(d) Nothing in this Section 8.2 or elsewhere in this Agreement shall
prohibit accurate disclosure by Baxley of information that is required to be
disclosed in the Registration Statement, the Proxy Statement/Prospectus or in
any other document required to be filed with the SEC or the OTS (including,
without limitation, a Solicitation/Recommendation Statement on Schedule 14D-9)
or otherwise required to be publicly disclosed by applicable Law or the
regulations and rules of the NASD.
8.3 Applications. PAB shall promptly prepare and file, and Baxley 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
Baxley to review (and approve with respect to information relating to Baxley)
such applications prior to filing same and shall provide copies of such
applications to Baxley and counsel to Baxley.
8.4 Filings with the OTS. Upon the terms and subject to the conditions of
this Agreement, PAB shall execute and file the Articles of Combination with the
Corporate Secretary of the OTS 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 the Proxy Statement/Prospectus 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; provided, that nothing
herein shall preclude either Party from exercising its rights under this
Agreement. Each Party shall use, and shall cause each of its Subsidiaries to
use, its reasonable efforts to obtain all Consents necessary or desirable for
the consummation of the transactions contemplated by this Agreement.
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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 transactions 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 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.
(d) Neither Party nor any of their respective Subsidiaries shall be
required to provide access to or to disclose information where such access or
disclosure would violate or prejudice the rights of its customers, jeopardize
the attorney-client or similar privilege with respect to such information or
contravene any Law, rule, regulation, Order, judgment, decree, fiduciary duty or
agreement entered into prior to the date of this Agreement. The Parties will
use their reasonable efforts to make appropriate substitute disclosure
arrangements, to the extent practicable, in circumstances in which the
restrictions of the preceding sentence apply.
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8.7 Press Releases. Prior to the Effective Time, Baxley 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, after the date of this Agreement, neither
Baxley nor any Affiliate thereof nor any investment banker, attorney, accountant
or other representative (collectively, the "Representatives") retained by Baxley
shall directly or indirectly solicit any Acquisition Proposal by any Person.
Except to the extent necessary to comply with the fiduciary duties of the Board
of Directors of Baxley, as determined by the Board of Directors of Baxley, after
consulting with and considering the advice of counsel, neither Baxley 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 Baxley 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; provided, however, that Baxley shall
-------- -------
promptly advise PAB verbally and in writing following the receipt of any
Acquisition Proposal and the Material details thereof. Baxley 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) subject to its fiduciary duties, direct and use
its reasonable efforts to cause all of its Representatives to comply with 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 Dividend Payment. Prior to the Effective Time, Baxley may have
declared and paid to holders of Baxley Common Stock the pro rata amount of its
regular annual dividend of $0.82 per share.
8.11 Federal Stock Charter. Baxley 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 Federal Stock Charter, Bylaws or other governing instruments of Baxley
(other than voting, dissenters' rights of appraisal or other similar rights) or
restrict or impair the ability of PAB or any of its Subsidiaries to vote, or
otherwise to exercise the rights of a shareholder with respect to, shares of
Baxley that may be acquired or controlled by it.
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8.12 Agreement of Affiliates. Baxley has Previously Disclosed all Persons
whom it reasonably believes is an "affiliate" of Baxley for purposes of Rule 145
under the 1933 Act. Baxley 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 B attached
---------
hereto, providing that such Person will not sell, pledge, transfer or otherwise
dispose of the shares of Baxley 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 Baxley 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 Baxley in exchange for
shares of Baxley Common Stock and (ii) shares of PAB Common Stock held 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 Baxley pursuant to this Agreement to enforce the provisions of
this Section 8.12); provided, further that no affiliate either of PAB or Baxley
may dispose of or reduce the risks of ownership in their respective shares of
PAB Common Stock or Baxley 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 Employees and Employee Benefits. Following the Effective time, PAB
intends to retain as employees of the Surviving Bank those certain persons who
were employees of Baxley immediately prior to the Effective Time. Following the
Effective Time and until December 31, 1999, PAB shall provide generally to
employees of Baxley, in accordance with the normal benefit package provided to
such employees, who at or after the Effective Time become employees of the
Surviving Bank, health insurance, long-term disability insurance and a Christmas
bonus not to exceed one month's pay. Following December 31, 1999, PAB shall
provide generally to employees of the Surviving Bank employee benefits under
employee benefit plans (other than stock option or other plans involving the
potential issuance of PAB Common Stock except as set forth in this Section 8.13)
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. PAB shall waive any pre-existing condition exclusion
under any employee health plan for which any employees and/or officers and
dependents covered by the Baxley 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 Baxley Benefit Plans and (ii) the
individual affected by the pre-existing condition was covered by Baxley's
corresponding plan on the date which immediately precedes the Effective Time.
For purposes of participation, vesting and benefit accrual under all qualified
benefit plans, the service of the employees of Baxley prior to the Effective
Time shall be treated as service with any PAB Company participating in all
qualified benefit plans. Prior to the Effective Time, Baxley shall cancel and
terminate the Baxley Benefit Plans and, to the extent permitted by the terms of
such
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Plans and applicable Law, equitably distribute to the participants of such Plans
any proceeds resulting from termination. Baxley shall take all action and shall
distribute all notices as may be required under the terms of applicable Law to
provide for the termination, as of the Closing, of its defined benefit plan.
Baxley may amend its defined benefit plan to amend the benefit accruals or other
provisions of the defined benefit plan; provided, however, that no amendments
-------- -------
made to Baxley's defined benefit plan shall (i) operate to adversely affect such
plan's tax-favored status, (ii) result in any funding deficiencies as of the
date of termination, or (iii) require an additional contribution from Baxley,
PAB or Interim.
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 Baxley
Common Stock pursuant to the Merger.
8.15 D&O Coverage. At the Effective Time, PAB will provide directors' and
officers' insurance coverage for the Surviving Bank's directors and officers
either, at PAB's election, (i) by purchasing continuation coverage under
Baxley's current insurance policy for directors and officers for a period not
less than three years after the Effective Time, or (ii) by obtaining coverage
under PAB's current directors' and officers' insurance policy to provide
coverage for Baxley's directors and officers on a prior acts basis for a period
not less than three years prior to the Effective Time.
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 to 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 shareholders of Baxley shall have approved
this Agreement and the consummation of the Merger as and to the extent required
by Law.
(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 or deposits) which in the
reasonable judgment of the Board of Directors of PAB or Baxley 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
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which, if not obtained or made, is reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on such Party. No Consent obtained
which is necessary to consummate the transactions contemplated hereby shall be
conditioned or restricted in a manner which in the reasonable judgment of the
Board of Directors of PAB or Baxley 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.
(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. Baxley 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"), substantially to the effect that for federal income
tax purposes (i) the Merger will constitute a reorganization within the meaning
of Section 368(a) of the Internal Revenue Code, (ii) the exchange in the Merger
of Baxley Common Stock for PAB Common Stock will not give rise to gain or loss
to the shareholders of Baxley with respect to such exchange (except to the
extent of any cash received in lieu of a fractional share interest in PAB Common
Stock), and (iii) neither Baxley nor 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 Baxley 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 to 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
Baxley 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
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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 Baxley.
(b) Performance of Agreements and Covenants. Each and all of the
agreements and covenants of Baxley 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. Baxley shall have delivered to PAB (i) a certificate,
dated as of the Effective Time and signed on its behalf by its Chief Executive
Officer and Chief Financial Officer, 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 the Baxley
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 a written opinion from
Malizia, Spidi & Fisch, P.C., counsel to Baxley, dated as of the Closing, in
form reasonably satisfactory to PAB, as to the matters set forth in Exhibit E
---------
attached hereto.
(e) Accountant's Letters. PAB shall have received from Stewart, Fowler &
Stalvey, P.C. letters dated not more than five days prior to (i) the date of the
Proxy Statement/Prospectus and (ii) the Effective Time, with respect to certain
financial information regarding Baxley, 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 day time limits above, this condition shall be waived by PAB.
(f) Affiliate Agreements. PAB shall have received from each affiliate
of Baxley the affiliate agreement referred to in Section 8.12 of this Agreement,
in substantially the form attached hereto as Exhibit B, 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.
(g) Employment Agreement. Baxley shall have delivered to PAB
documentation, in a form satisfactory to PAB in its sole discretion, evidencing
the pre-Closing termination of that certain employment agreement, dated as of
June 18, 1991, by and between Baxley and Alvin R. Tuten, Jr. and Mr. Tuten shall
have executed and delivered to PAB an employment agreement with PAB in
substantially the form attached hereto as Exhibit C.
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(h) Support and Non-Competition Agreements. Each of the directors of
Baxley listed in Exhibit D attached hereto shall have executed and delivered to
---------
PAB a Support and Non-Competition Agreement in substantially the form attached
hereto as Exhibit A.
---------
9.3 Conditions to Obligations of Baxley. The obligations of Baxley 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 Baxley 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.
(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 Baxley (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 Baxley and its counsel shall request.
(d) Opinion of Counsel. Baxley shall have received an opinion of Troutman
Sanders LLP, counsel to PAB, dated as of the Closing, in form reasonably
satisfactory to Baxley, as to matters set forth in Exhibit F attached hereto.
---------
(e) Share Listing. The shares of PAB Common Stock issuable pursuant to the
Merger shall have been approved for listing on the Amex.
(f) Fairness Opinion. Baxley shall have received from Trident
Financial Corporation (or other reputable investment banking firm) a letter,
dated within five days of the Proxy Statement/Prospectus to the effect that, in
the opinion of such firm, the consideration to be paid in the Merger is fair,
from a financial point of view, to the holders of Baxley Common Stock.
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ARTICLE 10
TERMINATION
10.1 Termination. Notwithstanding any other provision of this Agreement,
and notwithstanding the approval of this Agreement by the shareholders of
Baxley, 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 and
Baxley; or
(b) By the Board of Directors of either Party (provided that the
terminating Party is not then in Material breach of any representation,
warranty, covenant or other agreement contained in this Agreement) in the event
of a 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 Baxley; or
(c) By the Board of Directors of either Party (provided that the
terminating Party is not then in Material breach of any representation,
warranty, covenant or other agreement contained in this Agreement) in the event
(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 Baxley fail to vote their approval of this
Agreement and the transaction contemplated hereby at the Baxley Meeting where
the transaction was presented to such shareholders for approval and voted upon;
or
(d) By the Board of Directors of either Party in the event that the
Merger shall not have been consummated by November 30, 1999, 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
(e) By the Board of Directors of either Party (provided that the
terminating Party is not then in Material breach of any representation,
warranty, covenant or other agreement contained in this Agreement) in the event
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 the Board of Directors of Baxley in the event that the Deemed
Market Value of the PAB Common Stock is less than $13.00 per share upon delivery
of written notice at least three days prior to the Closing to the other Party;
or
(g) By PAB in the event that the Board of Directors of Baxley shall have
failed to reaffirm, following a written request by PAB for such reaffirmation
after Baxley 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
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reaffirm the Merger.
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 Sections 8.6(b), 10.1(b), 10.1(e), 10.1(g), this Section 10.2 and Article 11
of this Agreement shall survive any such termination and abandonment and (ii) a
termination pursuant to (y) Sections 10.1(b) or 10.1(e) of this Agreement shall
not relieve the breaching Party from Liability pursuant to Section 11.2(b) of
this Agreement for an uncured willful breach of a representation, warranty,
covenant or other agreement giving rise to such termination or (z) Section
10.1(g) of this Agreement shall not relieve Baxley from Liability pursuant to
Section 11.2(c) of this Agreement for the failure to reaffirm its approval of
the Merger giving rise to such termination.
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.
(a) Except as otherwise provided herein, the capitalized terms set
forth below shall have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended.
"1934 Act" shall mean the Securities Exchange Act of 1934, as amended.
"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 any proposal or offer to acquire in any manner a substantial
portion of the Assets of, such Party or any of its Subsidiaries (other than the
transactions contemplated or permitted by this Agreement).
"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, (ii) any officer, director, partner,
employer or direct or indirect beneficial owner of any 10% or greater equity or
voting interest of such Person or (iii) any other Person for which a Person
described in clause (ii) acts in any such capacity.
"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 loan or credit losses for the
periods set forth in Section 5.9 of this Agreement.
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"Amex" shall mean the American Stock Exchange.
"Articles of Combination" shall mean the Articles of Combination to be
executed by PAB and Baxley and filed with the Corporate Secretary of the OTS
relating to the Merger as contemplated by Section 1.1 of this Agreement.
"Assets" of a Person shall mean all of the assets, properties, businesses
and rights of such Person of every kind, nature, character and description,
whether real, personal or mixed, tangible or intangible, accrued or contingent,
or otherwise relating to or utilized in such Person's business, directly or
indirectly, in whole or in part, whether or not carried on the books and records
of such Person, and whether or not owned in the name of such Person or any
Affiliate of such Person and wherever located.
"Baxley" shall have the meaning set forth in the first paragraph of this
Agreement.
"Baxley Benefit Plans" shall have the meaning set forth in Section 5.14 of
this Agreement.
"Baxley Common Stock" shall mean the $.01 par value per share common stock
of Baxley.
"Baxley Contracts" shall have the meaning set forth in Section 5.15 of this
Agreement.
"Baxley Financial Statements" shall mean (i) the balance sheets (including
related notes and schedules, if any) of Baxley as of March 31, 1999, and as of
December 31, 1998, 1997 and 1996, and the related statements of income, changes
in shareholders' equity and cash flows (including related notes and schedules,
if any) for the three months ended March 31, 1999, and for each of the three
years ended December 31, 1998, 1997 and 1996 as filed by Baxley with the OTS,
and (ii) the balance sheets of Baxley (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 Baxley's TFR
Reports filed and published in accordance with application federal regulation
with respect to periods ended subsequent to March 31, 1999.
"Baxley Meeting" shall mean the special meeting of the shareholders of
Baxley or any adjournment thereof to vote on the matters set forth in the Proxy
Statement.
"Baxley Preferred Stock" shall mean the $.01 par value per share preferred
stock of Baxley.
"BHC Act" shall mean the federal Bank Holding Company Act of 1956, as
amended.
"Change in Control" shall have the meaning set forth in Section 3.1(b) of
this Agreement.
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"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.
"Deemed Market Value" shall mean the arithmetic average of the closing
price for one share of PAB Common Stock as reported on the Amex for the 20
consecutive trading days immediately preceding the date which is five calendar
days prior to the Effective Time.
"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 notice 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
Combination reflecting the Merger shall become effective with the Corporate
Secretary of the OTS.
"Environmental Laws" shall mean all federal, state, municipal and local
laws, statutes, orders, regulations, decrees, resolutions, proclamations,
permits, licenses, approvals, authorizations, consents, judgments, judicial
decisions and other governmental requirements, limitations and standards
relating to the environment, health and safety issues (including, without
limitation, the manufacture, generation, use, processing, treatment, recycling,
storage, handling, Release (as hereinafter defined), investigation, removal,
remediation and cleanup of or other corrective action for Hazardous Materials
(as hereinafter defined), exposure to Hazardous Materials and personal injury,
natural resource damage, property damage and interference with the use of
property caused by or resulting from Hazardous Materials).
"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.
"Exchange Ratio" shall mean equal the quotient obtained by dividing the
number of shares of PAB Common Stock each Baxley shareholder will receive
pursuant to Article 3 of this Agreement by one.
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"Exhibits" A through G 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.
"GAAP" shall mean generally accepted accounting principles in the United
States, consistently applied during the periods involved applicable to banks,
federal savings associations, or bank holding companies, as the case may be.
"GBCC" shall mean the Georgia Business Corporation Code, as amended.
"Hazardous Materials" shall mean all hazardous, toxic, explosive,
corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic and
volatile substances, materials, compounds, chemicals and waste, and all other
industrial waste, sanitary waste, pollutants and contaminants, and all
constituents thereof, including, without limitation, petroleum hydrocarbons,
asbestos-containing materials, lead-based paints and all substances, materials,
wastes, chemicals, compounds, contaminants and pollutants regulated or addressed
by Environmental Laws.
"IRS" shall mean the Internal Revenue Service.
"Interim" shall have the meaning set forth in the first paragraph of this
Agreement.
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder.
"Knowledge" as used with respect to a Person (including references to such
Person being aware of a particular matter) shall mean the knowledge, after all
appropriate 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 or Manager
of such Person.
"Law" shall mean any code, law, ordinance, regulation, reporting or
licensing requirement, rule or statute and all Environmental Laws 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.
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"Lien" shall mean any conditional sale agreement, default of title,
easement, encroachment, encumbrance, hypothecation, infringement, lien,
mortgage, pledge, reservation, restriction, security interest, title retention
or other security arrangement, or any adverse right or interest, charge or claim
of any nature whatsoever of, on or with respect to any property or property
interest, other than (i) Liens for current property Taxes not yet due and
payable, (ii) for depository institution Subsidiaries of a Party, pledges to
secure deposits and other Liens incurred in the ordinary course of the banking
business, (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, request for information, 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, leased or operated by the
Party in question or by any of its Subsidiaries or in which such Party or
Subsidiary holds a security or other interest (including an interest in a
fiduciary capacity), 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, however, 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, condition
or occurrence which, individually or together with any other event, change,
condition or occurrence, 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, however, that "Material Adverse
-------- -------
Effect" 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 have the meaning set forth in the Preamble of this
Agreement.
"Merger Consideration" shall have the meaning set forth in Section 3.1(b)
of this Agreement.
"NASD" shall mean the National Association of Securities Dealers, Inc.
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"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.
"OTS" shall mean the Office of Thrift Supervision.
"PAB" shall have the meaning set forth in the first paragraph of this
Agreement.
"PAB Common Stock" shall mean the no par value per share 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 March 31,
1999, and as of December 31, 1998, 1997 and 1996, and the related statements of
income, changes in shareholders' equity, and cash flows (including related notes
and schedules, if any) for the three months ended March 31, 1999, and for each
of the three years ended December 31, 1998, 1997 and 1996, 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 March 31, 1999.
"PAB Preferred Stock" shall mean the no par value per share preferred stock
of PAB.
"PAB Subsidiaries" shall mean the subsidiaries of PAB, which shall include
any corporation, bank, savings association, or other organization acquired as a
Subsidiary of PAB in the future and owned by PAB at the Effective Time.
"Participation Facility" shall mean any facility or property in which the
Party in question or any of its Subsidiaries participates in the management
(including, but not limited to, 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 Baxley, PAB or Interim and "Parties" shall mean
Baxley, PAB and Interim.
"Permit" shall mean any federal, state, local and foreign governmental
approval, authorization, certificate, easement, filing, franchise, license,
notice, permit or right to which any Person is a party or that is or may be
binding upon or inure to the benefit of any Person or its capital stock, Assets,
Liabilities or business.
"Person" shall mean a natural person or any legal, commercial or
governmental entity, such as, but not limited to, a corporation, general
partnership, joint venture, limited partnership, limited liability company,
trust, business association, group acting in concert or any person acting in a
representative capacity.
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"Previously Disclosed" shall mean information delivered in writing at least
three days prior to the Closing 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, however, 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.
"Proxy Statement/Prospectus" shall mean the proxy statement used by Baxley
to solicit the approval of its shareholders of the transactions contemplated by
this Agreement and the prospectus of PAB relating to shares of PAB Common Stock
to be issued to the shareholders of Baxley and other proxy solicitation
materials of Baxley constituting a part thereof.
"Registration Statement" shall mean the Registration Statement on Form S-4,
or other appropriate form, including any pre-effective or post-effective
amendments or supplements thereto, 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 OTS, the Board of
Governors of the Federal Reserve System, the Federal Deposit Insurance
Corporation, the Georgia Department of Banking and Finance, the Amex, the NASD,
the SEC, all other federal and state and regulatory agencies having jurisdiction
over the Parties and their respective Subsidiaries.
"Release" shall mean any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, abandonment or
disposing into or migration within the environment.
"Representatives" shall have the meaning set forth in Section 8.8 of this
Agreement.
"SEC" shall mean the Securities and Exchange Commission.
"SEC Documents" shall mean all forms, proxy statements, reports,
registration statements, schedules and other documents filed, or required to be
filed, by a Party or any of its Subsidiaries with any Regulatory Authority
pursuant to the Securities Laws.
"Securities Laws" shall mean the 1933 Act, the 1934 Act, the Investment
Company Act of 1940, as amended, the Investment Advisors Act of 1940, as
amended, the Trust Indenture Act of 1939, as amended, and the rules and
regulations of any Regulatory Authority promulgated thereunder.
"Subsidiaries" shall mean all those corporations, banks, association, 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, that there
-------- -------
shall not be included any such entity acquired through foreclosure or any such
entity the
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equity securities of which are owned or controlled in a fiduciary capacity.
"Surviving Bank" shall mean Baxley as the surviving federal stock savings
bank resulting from the Merger.
"Tax" or "Taxes" shall mean all federal, state, county, local and foreign
taxes, charges, fees, levies, imposts, duties or other assessments, including
income, gross receipts, excise, employment, sales, use, transfer, license,
payroll, franchise, severance, stamp, occupation, windfall profits,
environmental, federal highway use, commercial rent, customs duties, capital
stock, paid-up capital, profits, withholding, Social Security, single business
and unemployment, disability, real property, personal property, registration, ad
valorem, value added, alternative or add-on minimum, estimated or other tax or
governmental fee of any kind whatsoever, imposed or required to be withheld by
the United States or any state, local, or foreign government or subdivision or
agency thereof, including interest and penalties thereon or additions with
respect thereto.
"Tax Opinion" shall have the meaning set forth in Section 9.1(g) of this
Agreement.
"Taxable Period" shall mean any period prescribed by any governmental
authority, including the United States or any state, local or foreign government
or subdivision or agency thereof for which a Tax Return required to be filed or
Tax is required to be paid.
"Tax Return" shall mean any report, return or other information required to
be supplied to a taxing authority in connection with Taxes, including any return
of an affiliated or combined or unitary group that includes a Party or its
Subsidiaries.
(b) Any singular term in this Agreement shall be deemed to include the
plural, and any plural term the singular. Whenever the words "include," or
"including" are used in this Agreement, they are deemed followed by the words
"without limitation."
11.2 Expenses.
(a) General. Except as otherwise provided in Section 3.1 of this
Agreement or 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 filing, registration and
application fees, printing fees and fees and expenses of its own financial or
other consultants, investment bankers, accountants, and counsel except that PAB
shall bear and pay the filing fees payable in connection with the Registration
Statement, all necessary state securities Laws or "Blue Sky" permits and
approvals required to carry out the transactions contemplated by this Agreement
and the Proxy Statement/Prospectus and one-half (1/2) of the printing costs
incurred in connection with the printing of the Registration Statement and the
Proxy Statement/Prospectus.
(b) Termination Due to 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 a breach of any of the other Party's
representations, warranties or agreements set forth in this Agreement, the
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breaching Party shall pay to the non-breaching Party, within one month of the
date of termination, which shall constitute the non-breaching Party's sole and
exclusive remedy resulting from its termination, an amount in cash equal to the
sum of:
(i) the reasonable and documented 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 transactions contemplated by this Agreement not being consummated.
(c) Termination Due to Failure to Reaffirm. Notwithstanding anything to
the contrary in this Agreement, if prior to the Effective Time, this Agreement
is terminated by PAB pursuant to Section 10.1(g) of this Agreement, Baxley shall
pay to PAB, within 12 months of the date of such termination, an amount in cash
equal to $750,000.
11.3 Brokers and Finders. Except for Trident Financial Corporation, as to
Baxley, each of the Parties represents and warrants that neither it nor any of
its officers, directors, employees or Affiliates has employed any broker or
finder or incurred any Liability for any financial advisory fees, investment
bankers' fees, brokerage fees, commissions or finders' fees in connection with
this Agreement or the transactions contemplated hereby. In the event of a claim
by any broker or finder based upon his or its representing or being retained by
or allegedly representing or being retained by Baxley or PAB, each of Baxley and
PAB, as the case may be, agrees to indemnify and hold the other Party harmless
of and from any Liability in respect of any such claim.
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.
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; whether before or
after shareholder approval of the Merger has been obtained; provided, however,
-------- -------
that after any such approval by the holders of Baxley Common Stock, there shall
be made no amendment decreasing the consideration to be received by Baxley
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
Baxley, to waive or extend the time for the compliance or fulfillment by Baxley
of any and all of its obligations under this Agreement and to
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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, Baxley, 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
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 Baxley 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 Baxley.
(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 and Interim: PAB Bankshares, Inc.
3102 North Oak Street Extension
Valdosta, Georgia 31602
912/241-2774 - FAX
Attn: R. Bradford Burnette, President
Copies to Counsel: Coleman, Talley, Newbern, Kurrie, Preston & Holland
910 N. Patterson Street
Valdosta, Georgia 31601
912/333-0885 - FAX
Attn: Thompson Kurrie, Jr., Esquire
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Troutman Sanders LLP
600 Peachtree Street, N.E., Suite 5200
Atlanta, Georgia 30308-2218
404/962-6658 - FAX
Attn: Thomas O. Powell, Esquire
Baxley: Baxley Federal Savings Bank
219 East Parker Street
Baxley, Georgia 31513-2001
912/367-0387 - FAX
Attn: Alvin R. Tuten, Jr., President
Copy to Counsel: Malizia, Spidi & Fisch, P.C.
1301 K Street, N.W., Suite 700 East
Washington, D.C. 20005
202/434-4661 - FAX
Attn: Gregory J. Rubis
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, except to the extent certain matters may be
governed by federal Law by reason of preemption.
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.
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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 all Parties and their respective
counsel, 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.
[The Rest of this Page is Intentionally Left Blank]
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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.
"BAXLEY"
ATTEST: BAXLEY FEDERAL SAVINGS BANK
/s/ Jo Anne Quarterman /s/ Alvin R. Tuten, Jr.
_________________________________ __________________________________
Jo Anne Quarterman, Secretary Alvin R. Tuten, Jr., President
(CORPORATE SEAL)
"PAB"
ATTEST: PAB BANKSHARES, INC.
/s/ Denise McKenzie /s/ R. Bradford Burnette
_________________________________ __________________________________
Denise McKenzie, Secretary R. Bradford Burnette, President and
Chief Executive Officer
(CORPORATE SEAL)
PAB Interim Association No. 1 hereby joins in the foregoing Agreement,
undertakes that it will be bound thereby and that it will duly perform all the
acts and things therein referred to or provided to be done by it.
IN WITNESS WHEREOF, PAB Interim Association No. 1 has caused this
undertaking to be made in counterparts by its fully authorized officers and its
corporate seal to be hereunto affixed as of this _____ day of ________________,
1999.
ATTEST: PAB INTERIM ASSOCIATION NO. 1
_________________________________ By:__________________________________
______________________, Secretary _____________________, President
(CORPORATE SEAL)
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APPENDIX B
----------
Text of Title 12, Section 552.14 of the Code of Federal Regulations
Dissenter and Appraisal Rights
(a) Right to demand payment of fair or appraised value. Except as
provided in paragraph (b) of this section, any stockholder of a Federal stock
association combining in accordance with (S) 552.13 of this part shall have the
right to demand payment of the fair or appraised value of this stock: Provided,
That such stockholder has not voted in favor of the combination and complies
with the provisions of paragraph (c) of this section.
(b) Exceptions. No stockholder required to accept only qualified
consideration for his or her stock shall have the right under this section to
demand payment of the stock's fair or appraised value, if such stock was listed
on a national securities exchange or quoted on the National Association of
Securities Dealers' Automated Quotation System ("NASDAQ") on the date of the
meeting at which the combination was acted upon or stockholder action is not
required for a combination made pursuant to (S) 552.13(h)(2) of this part.
"Qualified consideration" means cash, shares of stock of any association or
corporation which at the effective date of the combination will be listed on a
national securities exchange or quoted on NASDAQ, or any combination of such
shares of stock and cash.
(c) Procedure.
(1) Notice. Each constituent Federal stock association shall
notify all stockholders entitled to rights under this section, not less than
twenty days prior to the meeting at which the combination agreement is to be
submitted for stockholder approval, of the right to demand payment of appraised
value of shares, and shall include in such notice a copy of this section. Such
written notice shall be mailed to stockholders of record and may be part of
management's proxy solicitation for such meeting.
(2) Demand for appraisal and payment. Each stockholder
electing to make a demand under this section shall deliver to the Federal stock
association, before voting on the combination, a writing identifying himself or
herself and stating his or her intention thereby to demand appraisal of and
payment for his or her shares. Such demand must be in addition to and separate
from any proxy or vote against the combination by the stockholder.
(3) Notification of effective date and written offer. Within
ten days after the effective date of the combination, the resulting association
shall:
i. Give written notice by mail to stockholders of constituent
Federal stock associations who have complied with the
provisions of paragraph (c)(2) of this section and have not
voted in favor of the combination, of the effective date of
the combination;
ii. Make a written offer to each stockholder to pay for
dissenting shares at a specified price deemed by the
resulting association to be the fair value thereof; and
iii. Inform them that, within sixty days of such date, the
respective requirements of paragraphs (c)(5) and (6) of
this section (set out in the notice) must be satisfied.
The notice and offer shall be accompanied by a balance sheet and statement of
income of the association the shares of which the dissenting stockholder holds,
for a fiscal year ending not more than sixteen months before the date of notice
and offer, together with the latest available interim financial statements.
(4) Acceptance of offer. If within sixty days of the effective
date of the combination the fair value is agreed upon between the resulting
association and any stockholder who has complied with the provisions of
paragraph (c)(2) of this section, payment therefor shall be made within ninety
days of the effective date of the combination.
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(5) Petition to be filed if offer not accepted. If within sixty days
of the effective date of the combination the resulting association and any
stockholder who has complied with the provisions of paragraph (c)(2) of this
section do not agree as to the fair value, then any such stockholder may file a
petition with the Office [of Thrift Supervision (the "Office")], with a copy by
registered or certified mail to the resulting association, demanding a
determination of the fair market value of the stock of all such stockholders. A
stockholder entitled to file a petition under this section who fails to file
such petition within sixty days of the effective date of the combination shall
be deemed to have accepted the terms offered under the combination.
(6) Stock certificates to be noted. Within sixty days of the
effective date of the combination, each stockholder demanding appraisal and
payment under this section shall submit to the transfer agent his or her
certificates of stock for notation thereon that an appraisal and payment have
been demanded with respect to such stock and that appraisal proceedings are
pending. Any stockholder who fails to submit his or her stock certificates for
such notation shall no longer be entitled to appraisal rights under this section
and shall be deemed to have accepted the terms offered under the combination.
(7) Withdrawal of demand. Notwithstanding the foregoing, at any time
within sixty days after the effective date of the combination, any stockholder
shall have the right to withdraw his or her demand for appraisal and to accept
the terms offered upon the combination.
(8) Valuation and payment. The Director [of the Office of Thrift
Supervision (the "Director")] shall, as he or she may elect, either appoint one
or more independent persons or direct appropriate staff of the Office to
appraise the shares to determine their fair market value, as of the effective
date of the combination, exclusive of any element of value arising from the
accomplishment or expectation of the combination. Appropriate staff of the
Office shall review and provide an opinion on appraisals prepared by independent
persons as to the suitability of the appraisal methodology and adequacy of the
analysis and supportive data. The Director after consideration of the appraisal
report and the advice of the appropriate staff shall, if he or she concurs in
the valuation of the shares, direct payment by the resulting association of the
appraised fair market value of the shares, upon surrender of the certificates
representing such stock. Payment shall be made, together with interest from the
effective date of the combination, at a rate deemed equitable by the Director.
(9) Costs and expenses. The costs and expenses of any proceeding
under this section may be apportioned and assessed by the Director as he or she
may deem equitable against all or some of the parties. In making this
determination the Director shall consider whether any party has acted
arbitrarily, vexatiously, or not in good faith in respect to the rights provided
by this section.
(10) Voting and distribution. Any stockholder who has demanded
appraisal rights as provided in paragraph (c)(2) of this section shall
thereafter neither be entitled to vote such stock for any purpose nor be
entitled to the payment of dividends or other distributions on the stock (except
dividends or other distribution payable to, or a vote to be taken by
stockholders of record at a date which is on or prior to, the effective date of
the combination); Provided, That if any stockholder becomes unentitled to
appraisal and payment of appraised value with respect to such stock and accepts
or is deemed to have accepted the terms offered upon the combination, such
stockholder shall thereupon be entitled to vote and receive the distributions
described above.
(11) Status. Shares of the resulting association into which shares of
the stockholders demanding appraisal rights would have been converted or
exchanged, had they assented to the combination, shall have the status of
authorized and unissued shares of the resulting association.
B-2
<PAGE>
APPENDIX C
----------
[LETTERHEAD OF TRIDENT SECURITIES,
A DIVISION OF MCDONALD INVESTMENTS INC.]
________ ____, 1999
Board of Directors
Baxley Federal Savings Bank
219 East Parker Street
Baxley, Georgia 31513
Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of shares of common stock (the "Baxley Common Stock"),
of Baxley Federal Savings Bank ("Baxley") of the consideration to be received by
such holders in a merger (the "Merger") of Baxley with PAB Bankshares, Inc.
("PAB") pursuant to the Agreement and Plan of Merger (the "Agreement") dated
June 3, 1999. Unless otherwise noted, all terms used herein shall have the same
meaning as defined in the Agreement.
As more specifically set forth in the Agreement, and subject to a number of
conditions and procedures described in the Agreement, in the Merger each of the
issued and outstanding shares of Baxley Common Stock shall be exchanged for
2.400 shares of PAB Common Stock ("the Exchange Ratio") provided however that;
1. If the Deemed Market Value is less than $13.00 per share, then Baxley may
terminate or renegotiate the Agreement, or;
2. If the Deemed Market Value is greater than $21.00 per share, then the Merger
Consideration shall be reduced by an amount equal to the product of (A) the
Merger Consideration multiplied by (B) the quotient of the difference between
the Deemed Market Value less $21.00, divided by the Deemed Market Value.
3. If the costs and expenses incurred by Baxley in connection with the Merger
(including filing, registration and application fees, printing fees and fees
and expenses paid to its own consultants, accountants and counsel, except for
costs and expenses paid to Trident and those cost and expenses listed in
Section 11.2 of the Agreement) exceed $100,000, the Merger Consideration
shall be reduced by that Excess Amount.
Trident Securities, a division of McDonald Investments Inc. ("Trident"),
is a financial consulting and investment banking firm experienced in the
valuation of business enterprises with considerable experience in the valuation
of thrift institutions. In the ordinary course of our business we may actively
trade the securities of Baxley and PAB for our own account and for the accounts
of our customers and, accordingly, may at any one time hold a long or short
position in such securities. Trident is not affiliated with Baxley or PAB.
In connection with rendering our opinion, we have reviewed and analyzed,
among other things, the following (i) the Agreement; (ii) certain publicly
available information concerning Baxley, including the audited financial
statements for each of the years in the three year period ended December 31,
1998 and unaudited financial statements for the three months ended March 31,
1999; (iii) certain publicly available information concerning PAB, including the
audited financial statements for each of the years in the three year period
ended December 31, 1998 and unaudited financial statements for the three months
ended March 31, 1999; (iv) certain other internal information, primarily
financial in nature, concerning the business and operations of Baxley and PAB
furnished to us by Baxley and PAB for purposes of our analysis; (v) certain
publicly available information with respect to other companies that we believe
to be comparable to Baxley and PAB; and (vi) certain publicly available
information concerning the nature and terms of
C-1
<PAGE>
other transactions that we consider relevant. We have also spoken with certain
officers and employees of Baxley and PAB, to discuss the foregoing as well as
other matters we believe relevant to our inquiry.
In our review and analysis and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of all of the financial and other
information provided to us or publicly available and have not attempted
independently to verify any such information. We did not perform a review of the
loan portfolio, and we did not assess the adequacy of Baxley's loan loss
reserves. We have not conducted a physical inspection of the properties or
facilities of Baxley, nor have we made or obtained any independent evaluations
or appraisals of any of such properties or facilities.
In conducting our analysis and arriving at our opinion as expressed herein,
we have considered such financial and other factors as we have deemed
appropriate under the circumstances including, among others, the following: (i)
the historical and current financial condition and results of operations of
Baxley and PAB, including interest income, interest expense, net interest
income, net interest margin, interest sensitivity, non-interest income and
expense, earnings, dividends, book value, return on assets, return on equity,
capitalization, the amount and type of non-performing assets and the reserve for
loan losses; (ii) the business prospects of Baxley and PAB; (iii) the economy of
Baxley's and PAB's market areas, and (iv) the nature and terms of certain other
merger transactions that we believe to be relevant. We have also taken into
account our assessment of general economic, market, financial and regulatory
conditions and trends, as well as our knowledge of the financial services
industry, our experience in connection with similar transactions, and our
knowledge of securities valuation generally. Our opinion necessarily is based
upon conditions as they exist and can be evaluated on the date hereof. Our
opinion is, in any event, limited to the fairness, from a financial point of
view, of the consideration to be received by Baxley in the Merger and does not
address Baxley's underlying business decision to effect the Merger.
Based upon and subject to the foregoing, we are of the opinion that the
consideration to be received by Baxley in the Merger is fair, as of the date
hereof, from a financial point of view, to the shareholders of Baxley.
This opinion is being delivered to the Board of Directors of Baxley for its
use and is not to be reproduced, disseminated or delivered to any third party
without the express written consent of Trident, except as required by law.
Very truly yours,
TRIDENT SECURITIES
A Division of McDonald Investments Inc.
C-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
The provisions of the Georgia Business Corporation Code and the
Registrant's Bylaws set forth the extent to which the Registrant's directors and
officers may be indemnified against liabilities they may incur while serving in
such capacities. Under these indemnification provisions, the Registrant is
required to indemnify any of its directors or officers against any reasonable
expenses (including attorneys' fees) incurred by such director or officer in
defense of any action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, and whether formal or informal, to which such
director or officer was made a party, or in defense of any claim, issue or
matter therein, by reason of the fact that such director or officer is or was a
director or officer of the Registrant or who, while a director of the
Registrant, is or was serving at the Registrant's request as a director,
officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan, or other enterprise,
to the extent that such director or officer has been successful, on the merits
or otherwise, in such defense. The Registrant also must indemnify any of its
directors, and may indemnify any of its officers, against any liability incurred
in connection with any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative, and
whether formal or informal, by reason of the fact that such director or officer
is or was a director or officer of the Registrant or who, while a director or
officer of the Registrant, is or was serving at the Registrant's request as a
director, officer, partner, trustee, employee, or agent of another corporation,
partnership, joint venture, trust, employee benefit plan, or other enterprise,
if such director or officer acted in a manner such director or officer believed
in good faith to be in, or not opposed to, the best interests of the Registrant,
or, with respect to any criminal proceeding, had no reasonable cause to believe
such director's or officer's conduct was unlawful, if a determination has been
made that the director or officer has met these standards of conduct. Such
indemnification in connection with a proceeding by or in the right of the
Registrant, however, is limited to reasonable expenses, including attorneys'
fees, incurred in connection with the proceeding. The Registrant may also
provide advancement of expenses incurred by a director or officer in defending
any such action, suit, or proceeding upon receipt of a written affirmation of
such officer or director that such director or officer has met certain standards
of conduct and an undertaking by or on behalf of such director or officer to
repay such advances unless it is ultimately determined that such director or
officer is entitled to indemnification by the Registrant.
The Registrant may not indemnify a director or officer in connection with a
proceeding by or in the right of the Registrant in which the director or officer
was adjudged liable to the Registrant, or in connection with a proceeding in
which he was adjudged liable on the basis that he improperly received a personal
benefit.
The Registrant's Articles of Incorporation contain a provision which
provides that, to the fullest extent permitted by the Business Corporation Code
of Georgia, directors of the Registrant shall not be personally liable to the
Registrant or its shareholders for monetary damages for breach of his duty of
care or any other duty as a director.
The Registrant maintains an insurance policy insuring the Registrant and
directors and officers of the Registrant against certain liabilities, including
liabilities under the Securities Act of 1933.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits (See exhibit index immediately preceding the exhibits
for the page number where each exhibit can be found)
II-1
<PAGE>
Exhibit
Number Description of Exhibits
- --------------------------------------------------------------------------------
2(a) Agreement and Plan of Merger, dated as of June 3, and amended as
of _______, 1999, by and between Baxley Federal Savings Bank, PAB
Bankshares, Inc., to be joined in by PAB Interim Association No. 1
(included as Appendix A to the Proxy Statement/Prospectus and
incorporated by reference herein)
3(a) Articles of Incorporation, as amended (included as Exhibits 3.2
and 3.3 to the Registrant's Registration Statement No. 33-27356-A
on Form S-18 previously filed with the Commission on March 8, 1989
and incorporated by reference herein)
3(b) Bylaws, as amended (included as Exhibit 3.4 to the Registrant's
Registration Statement No. 33-27456-A on Form S-18, previously
filed with the Commission on March 8, 1989 and incorporated by
reference herein)
4(a) See Exhibits 3(a) and 3(b) for provisions of the Articles of
Incorporation and Bylaws of the Registrant defining rights of
holders of Common Stock of the Registrant
5 Securities Opinion of Troutman Sanders LLP
8* Tax Opinion of Troutman Sanders LLP
11 Statement regarding computation of per share earnings (included in
the pro forma financial Information contained in the Proxy
Statement/Prospectus and incorporated by reference herein)
23(a) Consent of Troutman Sanders LLP (included in Exhibit 5)
23(b) Consent of Stewart, Fowler & Stalvey, P.C.
23(c) Consent of H.H. Burnet & Company, P.C.
23(d) Consent of Trident Securities, a division of McDonald Investments
Inc.
24 Power of Attorney (included in the signature page of this
Registration Statement)
99.1 Form of Baxley Proxy Card
____________________
*To be filed by amendment.
(b) Financial Statement Schedules
Schedules are omitted because they are not required or are not applicable,
or the required information is shown in the financial statements or notes
thereto.
Item 22. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
II-2
<PAGE>
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement; provided,
however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to section 13 or section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the Registrant's Articles of Incorporation
or Bylaws, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
(d) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11, or 13 of this Form S-4, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Valdosta,
State of Georgia, on July 19, 1999.
PAB BANKSHARES, INC.
By: /s/ R. Bradford Burnette
--------------------------------
R. Bradford Burnette, President and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints jointly and severally, R. Bradford
Burnette and C. Larry Wilkinson, and each of them acting individually, their
respective attorney-in-fact, each with the power of substitution, for him in any
and all capacities, to sign any and all amendments to this Registration
Statement (including post-effective amendments), and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or their respective substitute or substitutes,
may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ James L. Dewar, Sr. Chairman of the Board of Directors and July 19, 1999
- -------------------------------
James L. Dewar, Sr. Director
/s/ R. Bradford Burnette President/Chief Executive Officer and July 19, 1999
- -------------------------------
R. Bradford Burnette Director (Principal Executive Officer)
/s/ Walter W. Carroll, II Director July 19, 1999
- -------------------------------
Walter W. Carroll, II
/s/ William S. Cowart Director July 19, 1999
- -------------------------------
William S. Cowart
/s/ James L. Dewar, Jr. Director July 19, 1999
- -------------------------------
James L. Dewar, Jr.
/s/ Tracy A. Dixon Director July 19, 1999
- -------------------------------
Tracy A. Dixon
/s/ Bill J. Jones Director July 19, 1999
- -------------------------------
Bill J. Jones
/s/ Thompson Kurrie, Jr. Director July 19, 1999
- -------------------------------
Thompson Kurrie, Jr.
/s/ James B. Lanier, Jr. Director July 19, 1999
- -------------------------------
James B. Lanier, Jr.
/s/ Paul E. Parker Director July 19, 1999
- -------------------------------
Paul E. Parker
/s/ F. Ferrell Scruggs, Sr. Director July 19, 1999
- -------------------------------
F. Ferrell Scruggs, Sr.
/s/ D. Ramsay Simmons, Jr. Director July 19, 1999
- -------------------------------
D. Ramsay Simmons, Jr.
/s/ John M. Simmons Director July 19, 1999
- -------------------------------
John M. Simmons
/s/ Joe P. Singletary, Jr. Director
- -------------------------------
Joe P. Singletary, Jr.
/s/ C. Larry Wilkinson Executive Vice President and Director July 19, 1999
- -------------------------------
C. Larry Wilkinson (Principal Financial Officer)
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibits
- --------------------------------------------------------------------------------
5 Securities Opinion of Troutman Sanders LLP
23(a) Consent of Troutman Sanders LLP (included in Exhibit 5)
23(b) Consent of Stewart, Fowler & Stalvey, P.C.
23(c) Consent of H.H. Burnet & Company, P.C.
23(d) Consent of Trident Securities, a division of McDonald Investments
Inc.
99.1 Form of Baxley Proxy Card
<PAGE>
EXHIBIT 5
TROUTMAN SANDERS LLP
ATTORNEYS AT LAW
A LIMITED LIABILITY PARTNERSHIP
NATIONSBANK PLAZA
600 PEACHTREE STREET, N.E. - SUITE 5200
ATLANTA, GEORGIA 30308-2216
TELEPHONE: 404-885-3000
FACSIMILE: 404-885-3995
July 28, 1999
PAB Bankshares, Inc.
3102 North Oak Street Extension
Valdosta, Georgia 31602
Attention: Board of Directors
Re: Acquisition of Baxley Federal Savings Bank by PAB Bankshares, Inc.
Gentlemen:
We have served as counsel to PAB Bankshares, Inc. ("PAB"), a Georgia
corporation, in connection with the execution and delivery of that certain
Agreement and Plan of Merger, dated as of June 3, 1999 (the "Agreement"), by and
between Baxley Federal Savings Bank ("Baxley"), a federally chartered stock
savings bank, and PAB, to be joined in by PAB Interim Association No. 1
("Interim"), a stock savings bank to be chartered under the laws of the United
States and to become a wholly-owned subsidiary of PAB, whereby Interim shall
merge with and into Baxley (the "Merger").
In rendering this opinion, we have examined (i) the Registration Statement
on Form S-4 filed by PAB with the Securities and Exchange Commission (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), on July 29, 1999, in connection with the registration of
1,323,554 shares of common stock, no par value per share of PAB (the "Shares"),
(ii) the Agreement and (iii) such corporate books and records of PAB as we have
deemed relevant to this opinion and have made such other investigations as we
have deemed necessary. In such examinations, we have assumed the genuineness of
all signatures on all original documents, the conformity to the original
documents of all copies submitted to us and (except where our opinion expressly
addresses execution and delivery) the due execution and delivery of all
documents where due execution and delivery are prerequisite to the effectiveness
thereof.
As to questions of fact material to this opinion, we have relied solely
upon the representations and warranties as to factual matters contained in
certificates and statements of officers of PAB and certain public officials and
upon the accuracy and completeness of the representations and warranties of the
parties to the Agreement. We have made no independent investigations with
regard thereto, and, accordingly, we do not express any view or belief as to
matters that might have been disclosed by independent verification.
Based upon and subject to the foregoing, we are of the opinion that,
assuming (i) the Merger shall have been consummated in accordance with the
Agreement and the applicable provisions of the Georgia Business Corporation
Code, (ii) the pertinent provisions of the Securities Act and the Securities
Exchange Act of 1934, as amended, shall have been complied with, and (iii) the
applicable provisions of securities or "blue sky" laws of various states shall
have been complied with, when certificates evidencing the Shares have been duly
executed, countersigned, registered, issued and delivered by the proper officers
of PAB in compliance with the Agreement, the Shares will be duly and validly
issued and outstanding, fully paid and non-assessable shares of common stock of
PAB.
<PAGE>
Board of Directors
PAB Bankshares, Inc.
Page Two
We are admitted to practice law in the State of Georgia only and do not
hold ourselves out as being experts on the law of any other jurisdiction.
This opinion is limited by, and shall be interpreted in accordance with,
the January 1, 1992 edition of the Interpretive Standards Applicable to Certain
--------------------------------------------
Legal Opinions to Third Parties in Corporate Transactions (the "Interpretive
- ---------------------------------------------------------
Standards"), adopted by the Legal Opinion Committee of the Corporate and Banking
Law Section of the State Bar of Georgia, which Interpretive Standards are
incorporated in this opinion by this reference. As a consequence, this opinion
is subject to a number of qualifications, exceptions, definitions, limitations
on coverage, and other limitations, all as more particularly described in the
Interpretive Standards, and this opinion should be read in conjunction
therewith.
This opinion is limited to the matters expressly opined on herein, and no
opinion may be implied or inferred beyond those expressly stated. This opinion
is rendered as of the date hereof, and we make no undertaking and expressly
disclaim any duty to supplement or update such opinion, if, after the date
hereof, facts or circumstances come to our attention or changes in the law occur
which could affect such opinion.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in its related Proxy Statement/Prospectus. In giving this
consent, we do not thereby admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act, or the rules
and regulations of the Securities and Exchange Commission thereunder.
Sincerely,
/s/ TROUTMAN SANDERS LLP
TROUTMAN SANDERS LLP
<PAGE>
EXHIBIT 23(b)
CONSENT OF STEWART, FOWLER & STALVEY, P.C.
The Board of Directors
PAB Bankshares, Inc.
We hereby consent to the incorporation by reference of our report, dated January
13, 1999, included in the Proxy Statement/Prospectus (the "Proxy
Statement/Prospectus") forming a part of this Registration Statement on Form S-4
of PAB Bankshares, Inc. and to the reference to our firm under the heading
"Experts" in the Proxy Statement/Prospectus.
/s/ STEWART, FOWLER & STALVEY, P.C.
Valdosta, Georgia
July 28, 1999
<PAGE>
EXHIBIT 23(c)
CONSENT OF H.H. BURNET & COMPANY, P.C.
The Board of Directors
Baxley Federal Savings Bank
We hereby consent to the use of our report included in the Proxy
Statement/Prospectus (the "Proxy Statement/Prospectus") forming a part of this
Registration Statement on Form S-4 of PAB Bankshares, Inc. and to the reference
to our firm under the heading "Experts" in the Proxy Statement/Prospectus.
/s/ H.H. BURNET & COMPANY, P.C.
Waycross, Georgia
July 28, 1999
<PAGE>
EXHIBIT 23(d)
CONSENT OF TRIDENT SECURITIES, A DIVISION OF MCDONALD INVESTMENTS INC.
July 28, 1999
We hereby consent to the use of our name and to the description of our opinion
letter, to be signed and dated the date of the Proxy Statement/Prospectus (the
"Proxy Statement/Prospectus") forming a part of this Registration Statement on
Form S-4 of PAB Bankshares, Inc., under the caption "Opinion of Trident," and to
the inclusion of such opinion letter as Appendix C to the Proxy
Statement/Prospectus. In giving such consent we do not hereby admit that we come
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended or the rules and regulations of the
Securities and Exchange Commission thereunder.
/s/ TRIDENT SECURITIES,
A DIVISION OF MCDONALD INVESTMENTS INC.
<PAGE>
EXHIBIT 99.1
REVOCABLE PROXY
BAXLEY FEDERAL SAVINGS BANK
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints _________________ and _______________ as
Proxies, each with the power to appoint his substitute, and hereby authorizes
either one or both of them to represent and to vote, as designated below, all of
the shares of common stock of Baxley Federal Savings Bank ("Baxley"), par value
$.01 per share ("Baxley Common Stock"), held of record by the undersigned on
________ __, 1999, at the Special Meeting of Baxley shareholders (the "Special
Meeting") to be held at ___ p.m., local time, on ________ __, 1999, at the main
office of Baxley located at 219 East Parker Street, Baxley, Georgia.
1. PROPOSAL TO: approve the Agreement and Plan of Merger, dated as of
June 3, 1999 (the "Merger Agreement"), by and between Baxley and PAB Bankshares,
Inc. ("PAB"), to be joined in by PAB Interim Association No. 1 ("Interim")
pursuant to which, among other matters, (a) Interim will merge with and into
Baxley and (b) shares of Baxley Common Stock will be converted into the right to
receive shares of PAB common stock, as described in the Proxy
Statement/Prospectus dated _______ __, 1999.
FOR [_] AGAINST [_] ABSTAIN [_]
2. In their discretion, to vote upon such other business as may properly
come before the Special Meeting including, among other things, a motion to
adjourn or postpone the Special Meeting to another time for the purpose of
soliciting additional proxies or otherwise. However, no proxy with instructions
to vote against the merger will be voted in favor of any adjournment or
postponement of the Special Meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSAL 1 ABOVE.
Please sign exactly as the name appears below. When shares are held by joint
tenants, all joint tenants should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such.
If shares are held by a corporation, an authorized corporate officer should sign
in full corporate name. If shares are held by a partnership, an authorized
person should sign in partnership name.
DATED:______________________________, 1999
___________________________________________
Signature
__________________________________________
Signature if held jointly
