<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 5, 1996
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
EAGLE BANCSHARES, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
GEORGIA 58-1640222
(State of incorporation) (I.R.S. Employer Identification No.)
</TABLE>
4305 LYNBURN DRIVE, TUCKER, GEORGIA 30084-4441
(770) 908-6690
(Address and telephone number of Registrant's principal executive offices)
CONRAD J. SECHLER, SR., CHAIRMAN
EAGLE BANCSHARES, INC.
4305 LYNBURN DRIVE
TUCKER, GEORGIA 30084-4441
(770) 908-6690
(Name, address and telephone number of agent for service)
---------------------
COPIES TO:
<TABLE>
<S> <C>
WILLIAM L. FLOYD CHARLES D. GANZ
DAVID M. CALHOUN V. RICHARD HOYT
LONG, ALDRIDGE & NORMAN HOLLAND & KNIGHT
5300 SUNTRUST PLAZA 15TH FLOOR
303 PEACHTREE STREET 1360 PEACHTREE STREET, N.E.
ATLANTA, GEORGIA 30308 ATLANTA, GEORGIA 30309
(404) 527-4000 (404) 898-8000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If the Registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, 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, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
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PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH AMOUNT MAXIMUM AGGREGATE AMOUNT OF
CLASS OF SECURITIES TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE PRICE(1) FEE(1)
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<S> <C> <C> <C> <C>
Common Stock, $1.00 par value......... 1,495,000 Shares(2) $18.125 $27,096,875 $5,420
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</TABLE>
(1) Pursuant to Rule 457(c), the proposed offering price and registration fee
are based upon the average of the high and low prices of the Registrant's
Common Stock on January 2, 1996, as reported on the Nasdaq National Market.
(2) Includes 195,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
EAGLE BANCSHARES, INC.
---------------------
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM S-2 ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
- ------------------------------------------------- -------------------------------------------
<S> <C> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus..... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus.............................. Available Information; Outside Back Cover
Page
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............... Prospectus Summary; The Company; Risk
Factors; Selected Financial Data
4. Use of Proceeds............................ Use of Proceeds
5. Determination of Offering Price............ Not Applicable
6. Dilution................................... Not Applicable
7. Selling Security Holders................... Not Applicable
8. Plan of Distribution....................... Underwriting
9. Description of Securities to be
Registered................................. Outside Front Cover Page; Description of
Capital Stock
10. Interests of Named Experts and Counsel..... Not Applicable
11. Information with Respect to the
Registrant................................. Prospectus Summary; The Company; Risk
Factors; Price Range of Common Stock and
Dividend History; Selected Financial Data;
Management's Discussion and Analysis of
Results of Operations and Financial
Condition; Business; Supervision and
Regulation; Description of Capital Stock;
Consolidated Financial Statements
12. Incorporation of Certain Information by
Reference.................................. Incorporation of Documents by Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ Not Applicable
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JANUARY 5, 1996
1,300,000 SHARES
EAGLE BANCSHARES, INC.
COMMON STOCK
All of the 1,300,000 shares of Common Stock offered hereby are being sold
by Eagle Bancshares, Inc. (the "Company"). The Company's Common Stock is listed
for trading on the Nasdaq National Market under the symbol "EBSI." On January 3,
1996, the last sale price of the Common Stock as reported on the Nasdaq National
Market was $18.50 per share. On that date, the closing bid and ask prices for
the Common Stock were $17.75 and $19.00, respectively.
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS OR DEPOSIT ACCOUNTS OR OTHER
OBLIGATIONS OF A BANK AND ARE NOT INSURED BY THE SAVINGS ASSOCIATION
INSURANCE FUND OR THE BANK INSURANCE FUND OF THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
<TABLE>
<CAPTION>
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(1)(2)
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<S> <C> <C> <C>
Per Share......................... $ $ $
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Total(3).......................... $ $ $
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</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. The Company may direct the sale of up to 130,000 shares (the
"Directed Shares") of Common Stock without payment of the commission of
$ per share. It is anticipated that the Tucker Federal Savings & Loan
Association 401(k) Savings and Employee Stock Ownership Plan will purchase
all of the Directed Shares. See "Management -- Stock Ownership of Directors
and Executive Officers" and "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted the Underwriters a 30-day option to purchase up to
195,000 additional shares of Common Stock at the Price to Public solely to
cover over-allotments, if any. If the option is exercised in full, the total
Price to Public, Underwriting Discount and Proceeds to Company would be
$ , $ and $ , respectively. See "Underwriting."
------------------------------
The Common Stock is offered severally by the Underwriters subject to prior
sale, when, as and if received and accepted by them, subject to their right to
reject orders, in whole or in part, and to certain other conditions. It is
expected that delivery of certificates representing the Common Stock will be
made against payment therefor on or about , 1996.
INTERSTATE/JOHNSON LANE MORGAN KEEGAN & COMPANY, INC.
CORPORATION
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE> 4
[A MAP OF METROPOLITAN ATLANTA SHOWING THE COMPANY'S 10 BRANCH OFFICE
LOCATIONS AND A MAP OF THE SOUTHEASTERN U.S. SHOWING THE COMPANY'S 14 LOAN
PRODUCTION OFFICES.]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and related notes appearing elsewhere or
incorporated by reference in this Prospectus. Unless indicated otherwise, the
information in this Prospectus gives effect to a two-for-one split of the Common
Stock effected in the form of a stock dividend paid on December 21, 1995 and
assumes that the Underwriters' over-allotment option is not exercised.
THE COMPANY
Eagle Bancshares, Inc. (the "Company") is a metropolitan Atlanta, Georgia
based savings and loan holding company, primarily engaged through its
subsidiaries in retail and mortgage banking with 24 locations in the Southeast.
The Company's principal subsidiary is Tucker Federal Savings and Loan
Association (the "Bank"). Based on total assets at September 30, 1995, the Bank
is the largest thrift institution headquartered in metropolitan Atlanta and
operates ten full service branch offices located in Cherokee, DeKalb, Fulton and
Gwinnett counties, Georgia. Through its subsidiary Prime Eagle Mortgage
Corporation ("PrimeEagle"), the Company operates 14 loan production offices
located in Georgia, Florida, North Carolina, South Carolina and Tennessee. The
Company also engages in real estate brokerage and development in metropolitan
Atlanta.
As a result of the recent acquisitions of banks and thrifts in Atlanta by
large out-of-state bank holding companies, the Company is now the third largest
independent financial institution headquartered in the metropolitan Atlanta area
based on total assets at September 30, 1995. Because the Company is
headquartered in its primary market area, the Company believes it is able to
provide personalized service and local decision making that is typically not
available from financial institutions headquartered out-of-state. As a result,
the Company believes it is well positioned to serve the banking needs of small
businesses and individuals that consider personalized service and local decision
making to be important aspects of a banking relationship.
The Company's near-term strategy is to continue to capitalize on certain
opportunities which have been presented by recent consolidations. First, staff
reductions and branch closings at other institutions have enabled the Company to
hire experienced banking executives. Second, the Company has acquired a multi-
office mortgage banking company, acquired additional retail deposits and
attracted new customers. Third, the Company is now in a position to acquire
smaller financial institutions in the metropolitan Atlanta area, which will
enable the Company to further expand its franchise. Fourth, operating under a
federal thrift charter, the Bank can open or acquire new branches throughout the
State of Georgia and across state lines, including markets in which the Company
currently operates loan production offices. The Company's long-term strategy is
to increase stockholder value by building franchise value, creating competitive
advantages in targeted business niches, developing additional long-term,
customer driven relationships, and compensating employees based upon bottom line
performance.
Since the current management team assumed the leadership of the Bank in
October 1990, total assets of the Company have increased from $287.5 million at
September 30, 1990, to $528.2 million at September 30, 1995. Permanent single
family mortgage loans originated and sold increased from $56.5 million for the
twelve months ended September 30, 1990, to $346.6 million for the twelve months
ended September 30, 1995. During the same period, non-performing assets
decreased from $9.8 million to $1.2 million and earnings improved from a loss of
$229,000 to net income of $4.4 million. At December 31, 1995, officers,
directors and key employees of the Company and the Bank's 401(k) Savings and
Employee Stock Ownership Plan (the "ESOP") owned 24.7% of the outstanding shares
of the Company's Common Stock.
THE OFFERING
Common Stock offered by the
Company.................. 1,300,000 shares
Common Stock outstanding
after the offering......... 4,714,000 shares(1)
Use of Proceeds............ To provide additional capital to the Bank to fund
loan and deposit growth, to finance possible future
acquisitions and for working capital.
Nasdaq National Market
Symbol................... EBSI
- ---------------
(1) Excludes 66,616 shares of Common Stock issuable upon exercise of outstanding
employee and director stock options.
3
<PAGE> 6
SUMMARY FINANCIAL AND OTHER INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEARS ENDED MARCH 31, SEPTEMBER 30,
---------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1994 1995
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE, RATIO AND OTHER DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net interest income................ $ 5,819 $ 7,793 $ 12,200 $ 14,997 $ 16,711 $ 8,110 $ 8,894
Provision for loan losses.......... 446 398 630 1,000 643 371 54
Non-interest income, excluding
gains (losses) on asset sales.... 1,298 1,817 4,681 8,103 5,442 2,996 3,656
Gains on sale of assets............ 616 49 1,113 1,147 905 620 426
Non-interest expense............... 6,214 6,833 11,026 14,740 16,035 8,000 9,364
Income before income taxes,
accounting change and
extraordinary item............... 1,073 2,428 6,338 8,507 6,380 3,355 3,558
Net income(1)...................... 778 1,638 4,069 5,211 4,101 2,078 2,327
SHARE DATA:
Net income per share(1)(2)......... $ .25 $ .54 $ 1.38 $ 1.70 1.34 $ .67 .75
Book value per share(1)............ 6.94 7.56 8.76 10.20 10.90 10.48 11.47
Dividends per share................ -- .05 .20 .31 .47 .23 .25
Average shares outstanding(2)...... 3,112 3,058 2,948 3,063 3,059 3,044 3,100
BALANCE SHEET DATA:
Total assets....................... $279,860 $302,173 $321,597 $320,385 $457,317 $377,786 $528,193
Loans(3)........................... 152,438 158,741 190,115 219,726 303,906 263,475 335,348
Non-performing assets.............. 5,087 4,834 4,194 1,458 1,218 1,222 1,234
Loans and securities available for
sale(4).......................... 5,306 13,708 37,646 44,524 62,159 36,868 85,339
Investment securities held to
maturity......................... 89,537 106,718 73,759 34,683 57,599 54,126 56,022
Deposits........................... 206,132 219,825 228,633 244,297 286,315 265,228 327,660
Stockholders' equity............... 21,604 22,376 25,823 30,832 33,636 32,113 35,697
PERFORMANCE RATIOS:
Return on average assets........... .27% .57% 1.32% 1.62% 1.08% 1.19% .96%
Return on average equity........... 3.68 7.46 16.68 18.76 12.71 13.52 13.35
Interest rate spread(5)............ 1.73 2.40 3.74 4.43 4.46 4.53 3.68
Net interest margin(6)............. 2.12 2.80 4.12 4.80 4.79 4.89 3.92
Efficiency(7)...................... 86.16 70.45 62.42 63.22 72.14 71.94 69.87
</TABLE>
4
<PAGE> 7
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEARS ENDED MARCH 31, SEPTEMBER 30,
---------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1994 1995
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE, RATIO AND OTHER DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSET QUALITY RATIOS:
Allowance for loan losses to net
loans plus reserves(3)........... .48% .51% 1.13% 1.36% .96% 1.24% 1.02%
Allowance for loan losses to period
end non-performing loans......... 15.00 18.45 57.70 229.70 276.03 271.11 279.98
Non-performing assets to period end
loans and foreclosed
properties(3).................... 3.26 2.98 2.18 .66 .40 .46 .37
Non-performing assets to period end
total assets..................... 1.82 1.60 1.30 .46 .27 .32 .23
Net charge-offs (recoveries) to
average loans.................... .29 .16 .33 .03 .23 .16 (.01)
CAPITAL AND LIQUIDITY:
Tangible capital to adjusted total
assets........................... 7.74% 7.37% 7.95% 9.30% 6.56% 8.02% 6.08%
Core capital to adjusted total
assets........................... 7.74 7.37 7.95 9.30 6.56 8.02 6.08
Core capital to risk-weighted
assets........................... 15.41 13.44 13.13 11.65 9.44 10.66 8.25
Risk-based capital to risk-weighted
assets........................... 15.95 13.98 14.37 12.74 10.51 11.76 9.14
Loans to deposits(3)............... 73.95 72.21 83.15 89.94 106.14 99.34 102.35
OTHER DATA:
Bank branches...................... 9 9 9 9 9 9 10
Loan production offices............ 1 1 4 8 12 11 14
-------- -------- -------- -------- -------- -------- --------
Total locations........... 10 10 13 17 21 20 24
========= ========= ========= ========= ========= ========= =========
</TABLE>
- ---------------
(1) Includes the effect of a third quarter extraordinary loss of $427,000, net
of income tax benefit of $261,000, relating to the early extinguishment of
certain Federal Home Loan Bank ("FHLB") advances ($.14 per share) and the
first quarter cumulative income effect of the change in accounting for
income taxes of $320,000 ($.11 per share) during the fiscal year ended
March 31, 1994.
(2) Fully diluted.
(3) Excludes loans held for sale.
(4) Includes loans, investment and mortgage-backed securities held or available
for sale.
(5) Yield on interest earning assets minus cost of interest-bearing liabilities.
(6) Net interest income divided by average earning assets.
(7) Computed by dividing non-interest expense minus provision for real estate
losses by the sum of net interest income and non-interest income, net of
gains and losses on sales of assets.
RECENT DEVELOPMENTS
As part of the Budget Reconciliation Act of 1995, Congress has proposed a
one-time assessment on the deposits of institutions which are insured by the
Savings Association Insurance Fund ("SAIF"). It is anticipated that the Bank's
one-time assessment will be between approximately $1.4 million and $1.5 million
net of tax and will be levied during the quarter ending March 31, 1996. However,
it is estimated that thereafter the level of ongoing premiums paid to the SAIF
will be reduced from the Company's current rate of premiums. Assuming the
Company is subject to the premiums at the rate of $.04 per $100 of deposits
subsequent to the one-time assessment, the annualized premium reduction would be
$386,000 net of tax based upon September 30, 1995 deposits. See "Risk
Factors -- Legislation and Regulation" and "Supervision and Regulation -- Recent
Legislation."
5
<PAGE> 8
THE COMPANY
The Company is a unitary savings and loan holding company that owns and
operates the Bank, Eagle Real Estate Advisors, Inc. ("EREA") and the
subsidiaries of the Bank, Eagle Service Corp. ("Eagle Service") and PrimeEagle.
The Company is based in metropolitan Atlanta with 24 locations in the Southeast.
The Company's principal subsidiary, the Bank, is involved in two core
businesses: retail banking and loan production, which includes construction and
permanent mortgage lending. Based on total assets at September 30, 1995, the
Bank is the largest thrift institution headquartered in metropolitan Atlanta
with ten full service branch offices, located in Cherokee, DeKalb, Fulton and
Gwinnett counties, Georgia. Through PrimeEagle, the Company operates 14 loan
production offices located in Georgia, Florida, North Carolina, South Carolina
and Tennessee. The Company and EREA also engage in real estate brokerage and
development in metropolitan Atlanta.
In November 1992, the Bank acquired Prime Lending, the loan production
operations of Southern Federal Savings & Loan Association, which substantially
increased the Company's asset generating capabilities and diversified its loan
production throughout the State of Georgia. The Company has benefited from the
takeovers of several Georgia based banks and thrifts by large out-of-state bank
holding companies. In February 1993, the Company hired an experienced team of
construction lenders who successfully brought to the Company relationships with
established homebuilders. In April 1994, the Company acquired $22 million of
deposits from the Resolution Trust Corporation (the "RTC"), which the Company
services from an existing branch facility. In September 1994, the Company hired
an experienced small business banker and achieved Certified Lender status with
the Small Business Administration (the "SBA"). In fiscal 1995, the Company
acquired mortgage banking offices in Jacksonville and St. Augustine, Florida,
and Columbia and Aiken, South Carolina. During the current fiscal year, the
Company acquired a loan production office in Charlotte, North Carolina, and
opened two loan production offices in the southern portion of metropolitan
Atlanta in Peachtree City and Stockbridge, Georgia.
As a result of the recent acquisitions of banks and thrifts in Atlanta by
large out-of-state bank holding companies, the Company is now the third largest
independent financial institution headquartered in the metropolitan Atlanta area
based on total assets at September 30, 1995. Because the Company is
headquartered in its primary market area, the Company believes it is able to
provide personalized service and local decision making that is typically not
available from financial institutions headquartered out-of-state. As a result,
the Company believes it is well positioned to serve the banking needs of small
businesses and individuals that consider personalized service and local decision
making to be important aspects of a banking relationship.
The Company's near-term strategy is to continue to capitalize on certain
opportunities which have been presented by recent consolidations. First, staff
reductions and branch closings at other institutions have enabled the Company to
hire experienced banking executives. Second, the Company has acquired a multi-
office mortgage banking company, acquired additional retail deposits and
attracted new customers. Third, the Company is now in a position to acquire
smaller financial institutions in the metropolitan Atlanta area, which will
enable the Company to further expand its franchise. Fourth, operating under a
federal thrift charter, the Bank can open or acquire new branches throughout the
State of Georgia and across state lines, including markets in which the Company
currently operates loan production offices. The Company's long-term strategy is
to increase stockholder value by building franchise value, creating competitive
advantages in targeted business niches, developing additional long-term,
customer driven relationships, and compensating employees based upon bottom line
performance.
Since the current management team assumed the leadership of the Bank in
October 1990, total assets of the Company have increased from $287.5 million at
September 30, 1990, to $528.2 million at September 30, 1995. Permanent single
family mortgage loans originated and sold increased from $56.5 million for the
twelve months ended September 30, 1990, to $346.6 million for the twelve months
ended September 30, 1995. During the same period non-performing assets decreased
from $9.8 million to $1.2 million and earnings improved from a loss of $229,000
to net income of $4.4 million. At December 31, 1995, officers, directors and key
employees of the Company and the ESOP beneficially owned 24.7% of the
outstanding shares of the Company's Common Stock.
The Company's executive offices are located at 4305 Lynburn Drive, Tucker,
Georgia 30084-4441, and its telephone number at this address is (770) 908-6690.
6
<PAGE> 9
RISK FACTORS
Prospective investors should consider carefully the following risk factors,
as well as the other information contained in the Prospectus, before purchasing
the Common Stock.
CREDIT RISK, CONSTRUCTION LENDING AND LOAN CONCENTRATION
Over the past several years, the Company has experienced significant growth
in its construction loan portfolio. As a result, the second largest component of
the Company's loan portfolio is construction loans, which as of September 30,
1995, constituted 27.4% of the Company's loan portfolio and totaled $110.8
million. Construction loans frequently involve greater risk than residential
mortgage loans principally due to (i) the creditworthiness of construction
borrowers in general, (ii) the potential risks associated with securing
permanent financing, and (iii) general market conditions in the housing
industry. Management believes that the Bank's credit review and loan monitoring
processes are adequate to evaluate and monitor these risks and the Bank's
allowance for possible loan losses is presently adequate in relation to the
composition of its loan portfolio. Further, although the Company's
non-performing loans as a percentage of total loans is low, there is a risk that
the quality of the Company's loan portfolio could decline, particularly in
connection with the rapid growth in loans and as a result of the concentration
of construction loans. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Provision for Loan Losses and Risk
Elements," "Business -- Lending Activities -- Residential Construction Loans,"
"Business -- Lending Activities -- Credit Risk Management" and
"Business -- Lending Activities -- Allowance for Loan Losses."
RELIANCE ON RESIDENTIAL MORTGAGE ORIGINATIONS
The Company's portfolio of permanent single family residential mortgage
loans was $218.9 million as of September 30, 1995, constituting 41.4% of total
assets as of that date, substantially all of which were originated by the
Company. The market for residential mortgages is highly volatile and an increase
in interest rates could have a material adverse effect on both non-interest
income and interest income and in the growth of the Company's residential
mortgage portfolio. In addition, a substantial portion of the Company's non-
interest income has been derived from gains on the sale of mortgage loans and
mortgage production fees consisting of proceeds from the sale of mortgage
servicing rights, loan origination fees and discount points. Due to the cyclical
nature of residential mortgage originations, there can be no assurance that the
Company will be able to sustain recent levels of gains on the sale of mortgage
loans and mortgage production fees.
INTEREST RATE SENSITIVITY
The profitability of the Company depends to a large extent upon its net
interest income, which is the difference between interest income and interest
expense. The net interest income of the Company could be adversely affected if,
for example, changes in market interest rates resulted in the cost of
interest-bearing liabilities increasing faster than the increase in the yield on
the interest-earning assets of the Company. Additionally, increasing interest
rates could have an adverse impact on house sales which could negatively impact
construction lending and permanent mortgage originations. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Interest Rate Sensitivity."
REAL ESTATE DEVELOPMENT ACTIVITIES
Approximately $8.4 million or 1.6% of the Company's total assets as of
September 30, 1995, was invested in three real estate development projects in
metropolitan Atlanta. Additionally, in December 1995, the Company invested
$600,000 in a fourth real estate development project in metropolitan Atlanta.
Two of these projects are currently under development. Although the Company
intends to acquire and develop real estate on a limited basis, the Company is
subject to the associated risks related to delays in construction and
development, lot absorption, occupancy, financing availability, and failure of
properties to perform as expected. See "Business -- Real Estate Development
Activity."
7
<PAGE> 10
DEPENDENCE ON PRIMARY GEOGRAPHIC MARKET
The financial condition of the Company is primarily dependent on economic
conditions in the Atlanta metropolitan area. Of the 24 locations where the
Company operates, 13 are located in the Atlanta metropolitan area, and the
majority of deposits gathered originate from Atlanta-based offices. In addition,
$145.3 million or approximately 41.2% of loan originations for the six months
ended September 30, 1995, came from this area. While management believes that
the economy in metropolitan Atlanta is generally healthy and has experienced
above average growth, adverse changes in economic conditions in such area could
adversely impact the Company's growth and financial performance. See
"Business -- Growth in the Metropolitan Atlanta, Georgia Market."
LEGISLATION AND REGULATION
There is currently proposed as part of the Budget Reconciliation Act of
1995 a one-time assessment on the deposits of institutions which are insured by
the SAIF in order to recapitalize SAIF during the first quarter of calendar
1996. It is anticipated that such assessment will be in the amount of from $.80
to $.90 per $100 of SAIF insured deposits at March 31, 1995. If the assessment
were levied at $.85 per $100 in SAIF insured deposits, the Bank's earnings would
decrease approximately $1.5 million net of tax. Thereafter it is estimated that
the level of ongoing premiums paid to the SAIF would be reduced from the
Company's current rate of $.23 per $100 of SAIF insured deposits to between $0
and $.04 per $100 of SAIF insured deposits, thereby reducing in future periods
the premium payments currently paid by the Bank. Assuming the Company is subject
to premiums at the rate of $.04 per $100 of deposits subsequent to the one-time
assessment, the annualized premium reduction would be $386,000 net of tax based
upon September 30, 1995 deposits.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby are estimated to be approximately $ ($ if the
Underwriters' over-allotment option is exercised in full), after deduction of
the offering expenses payable by the Company. The Company currently intends to
contribute the net proceeds to the Bank to increase the Bank's capital ratios
for the purpose of supporting loan and deposit growth, to finance possible
future acquisitions and for working capital. The additional Bank capital will be
leveraged with deposits and advances from the FHLB to support growth in its loan
portfolio.
Pending the use of proceeds as noted above, the net proceeds will be
invested by the Bank in a variety of short and long-term interest-bearing assets
such as obligations of the United States government, including U.S. government
agency obligations, mortgage-backed securities, investment grade corporate debt
securities and other permitted investments.
8
<PAGE> 11
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of September 30, 1995, and as adjusted at that date to give effect to
the sale by the Company of the 1,300,000 shares of Common Stock offered hereby
and the application of the estimated net proceeds therefrom as described in "Use
of Proceeds."
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1995
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Debt:
Advances from the Federal Home Loan Bank of Atlanta................... $137,014 $ 137,014
Stockholders' Equity:
Common stock, $1.00 par value; 10,000,000 shares authorized, 3,414,000
shares issued; 4,714,000 shares issued, as adjusted................ 3,414 4,714
Additional paid-in capital............................................ 8,216
Retained earnings (substantially restricted).......................... 25,000 25,000
Treasury stock at cost (301,800 shares)............................ (1,076) (1,076)
Unamortized restricted stock....................................... (214) (214)
Net unrealized gain on investment securities available for sale.... 357 357
-------- -----------
Total stockholders' equity.................................... 35,697
-------- -----------
Total capitalization.......................................... $172,711 $
======== =========
</TABLE>
The following table sets forth certain regulatory capital ratios required
to be maintained by the Company, certain of the Company's capital ratios as of
September 30, 1995, and such capital ratios as adjusted at that date to give
effect to the sale by the Company of the 1,300,000 shares of Common Stock
offered hereby, and the application of the estimated net proceeds therefrom as
described in "Use of Proceeds."
<TABLE>
<CAPTION>
CURRENT SEPTEMBER 30, 1995
REGULATORY -----------------------
MINIMUM ACTUAL AS ADJUSTED(1)
---------- ------ --------------
<S> <C> <C> <C>
Tangible capital to adjusted total assets...................... 1.50% 6.08% %
Core capital to adjusted total assets.......................... 3.00 6.08
Risk-based capital to risk-weighted assets..................... 8.00 9.14
</TABLE>
- ---------------
(1) Assumes that the net proceeds of this offering were invested in the Bank's
capital and that such amounts were invested in assets that have a
risk-weight equal to the average risk-weight of the Bank's assets at
September 30, 1995.
9
<PAGE> 12
PRICE RANGE OF COMMON STOCK AND DIVIDEND HISTORY
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "EBSI." The following table sets forth for the periods indicated the
high and low last sale prices of the Common Stock as reported on the Nasdaq
National Market and dividends paid per share, which data reflects the
two-for-one split of the Common Stock effected in the form of a stock dividend
paid on December 21, 1995.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MARCH 31, HIGH LOW DIVIDENDS PAID
- ---------------------------------------------------------- ------- ------- --------------
<S> <C> <C> <C>
1994
First Quarter............................................. $ 9.250 $ 7.875 $ .055
Second Quarter............................................ 10.250 8.000 .070
Third Quarter............................................. 10.875 9.750 .085
Fourth Quarter............................................ 12.375 10.500 .100
1995
First Quarter............................................. 12.000 11.125 .110
Second Quarter............................................ 13.250 11.500 .115
Third Quarter............................................. 12.750 9.750 .120
Fourth Quarter............................................ 12.000 10.125 .125
1996
First Quarter............................................. 14.375 11.875 .125
Second Quarter............................................ 17.000 14.000 .125
Third Quarter............................................. 19.000 16.625 .130
Fourth Quarter (through January 3, 1996).................. 19.000 17.750 --
</TABLE>
On January 3, 1996, the last sale price of the Common Stock, as reported on
the Nasdaq National Market, was $18.50. On January 3, 1996, there were 3,117,200
shares of Common Stock outstanding and approximately 619 record holders of the
Common Stock.
The Company began the payment of cash dividends on its Common Stock during
fiscal 1992 and paid $.05 per share for the fourth quarter of that year. During
fiscal 1993, the Company paid four quarterly dividends totaling $.20 per share.
During fiscal 1994, the Company paid four quarterly dividends totaling $.31 per
share. During fiscal 1995, the Company paid four quarterly dividends totaling
$.47 per share. The current indicated dividend rate, on an annualized basis, is
$.52 per share.
The ability of the Company to pay cash dividends to its stockholders is
directly dependent upon the Bank's ability to pay cash dividends to the Company.
The Bank is subject to certain restrictions on the amount of dividends it is
permitted to pay. See "Supervision and Regulation -- Capital Distributions." The
amount of cash dividends, if any, paid on Common Stock will be determined by the
Company's Board of Directors in light of conditions existing from time to time,
including the Company's growth prospects, profitability, financial condition,
investment opportunities, liquidity requirements, results of operations,
regulatory restrictions and other factors deemed relevant by the Board of
Directors.
10
<PAGE> 13
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data
concerning the Company and is qualified in its entirety by the detailed
information and consolidated financial statements, including notes thereto,
included elsewhere or incorporated by reference herein. The selected data
presented below for and as of the end of each of the years in the five year
period ended March 31, 1995, are derived from the consolidated financial
statements of the Company. The consolidated financial statements as of and for
the year ended March 31, 1995 have been audited by Arthur Andersen LLP,
independent public accountants. The consolidated financial statements as of and
for each of the years in the four-year period ended March 31, 1994 have been
audited by KPMG Peat Marwick LLP, independent public accountants. The financial
statements as of March 31, 1994 and March 31, 1995, and for each of the three
years in the period ended March 31, 1995, are included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEARS ENDED MARCH 31, SEPTEMBER 30,
---------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1994 1995
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE, RATIO AND OTHER DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net interest income................ $ 5,819 $ 7,793 $ 12,200 $ 14,997 $ 16,711 $ 8,110 $ 8,894
Provision for loan losses.......... 446 398 630 1,000 643 371 54
Non-interest income, excluding
gains (losses) on asset sales.... 1,298 1,817 4,681 8,103 5,442 2,996 3,656
Gains on sale of assets............ 616 49 1,113 1,147 905 620 426
Non-interest expense............... 6,214 6,833 11,026 14,740 16,035 8,000 9,364
Income before income taxes,
accounting change and
extraordinary item............... 1,073 2,428 6,338 8,507 6,380 3,355 3,558
Net income(1)...................... 778 1,638 4,069 5,211 4,101 2,078 2,327
SHARE DATA:
Net income per share(1)(2)......... $ .25 $ .54 $ 1.38 $ 1.70 $ 1.34 $ .67 $ .75
Book value per share(1)............ 6.94 7.56 8.76 10.20 10.90 10.48 11.47
Dividends per share................ -- .05 .20 .31 .47 .23 .25
Average shares outstanding(2)...... 3,112 3,058 2,948 3,063 3,059 3,044 3,100
BALANCE SHEET DATA:
Total assets....................... $279,860 $302,173 $321,597 $320,385 $457,317 $377,786 $528,193
Loans(3)........................... 152,438 158,741 190,115 219,726 303,906 263,475 335,348
Non-performing assets.............. 5,087 4,834 4,194 1,458 1,218 1,222 1,234
Loans and securities available for
sale(4).......................... 5,306 13,708 37,646 44,524 62,159 36,868 85,339
Investment securities held to
maturity......................... 89,537 106,718 73,759 34,683 57,599 54,126 56,022
Deposits........................... 206,132 219,825 228,633 244,297 286,315 265,228 327,660
Stockholders' equity............... 21,604 22,376 25,823 30,832 33,636 32,113 35,697
PERFORMANCE RATIOS:
Return on average assets........... .27% .57% 1.32% 1.62% 1.08% 1.19% .96%
Return on average equity........... 3.68 7.46 16.68 18.76 12.71 13.52 13.35
Interest rate spread(5)............ 1.73 2.40 3.74 4.43 4.46 4.53 3.68
Net interest margin(6)............. 2.12 2.80 4.12 4.80 4.79 4.89 3.92
Efficiency(7)...................... 86.16 70.45 62.42 63.22 72.14 71.94 69.87
</TABLE>
11
<PAGE> 14
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEARS ENDED MARCH 31, SEPTEMBER 30,
---------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1994 1995
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE, RATIO AND OTHER DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSET QUALITY RATIOS:
Allowance for loan losses to net
loans plus reserves(3)........... .48% .51% 1.13% 1.36% .96% 1.24% 1.02%
Allowance for loan losses to period
end non-performing loans......... 15.00 18.45 57.70 229.70 276.03 271.11 279.98
Non-performing assets to period end
loans and foreclosed
properties(3).................... 3.26 2.98 2.18 .66 .40 .46 .37
Non-performing assets to period end
total assets..................... 1.82 1.60 1.30 .46 .27 .32 .23
Net charge-offs (recoveries) to
average loans.................... .29 .16 .33 .03 .23 .16 (.01)
CAPITAL AND LIQUIDITY:
Tangible capital to adjusted total
assets........................... 7.74% 7.37% 7.95% 9.30% 6.56% 8.02% 6.08%
Core capital to adjusted total
assets........................... 7.74 7.37 7.95 9.30 6.56 8.02 6.08
Core capital to risk-weighted
assets........................... 15.41 13.44 13.13 11.65 9.44 10.66 8.25
Risk-based capital to risk-weighted
assets........................... 15.95 13.98 14.37 12.74 10.51 11.76 9.14
Loans to deposits(3)............... 73.95 72.21 83.15 89.94 106.14 99.34 102.35
OTHER DATA:
Bank branches...................... 9 9 9 9 9 9 10
Loan production offices............ 1 1 4 8 12 11 14
-------- -------- -------- -------- -------- -------- --------
Total locations........... 10 10 13 17 21 20 24
========= ========= ========= ========= ========= ========= =========
</TABLE>
- ---------------
(1) Includes the effect of a third quarter extraordinary loss of $427,000, net
of income tax benefit of $261,000, relating to the early extinguishment of
certain FHLB advances ($.14 per share) and the first quarter cumulative
income effect of the change in accounting for income taxes of $320,000 ($.11
per share) during the fiscal year ended March 31, 1994.
(2) Fully diluted.
(3) Excludes loans held for sale.
(4) Includes loans, investment and mortgage-backed securities held or available
for sale.
(5) Yield on interest earning assets minus cost of interest-bearing liabilities.
(6) Net interest income divided by average earning assets.
(7) Computed by dividing non-interest expense minus provision for real estate
losses by the sum of net interest income and non-interest income, net of
gains and losses on sales of assets.
12
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
OVERVIEW
The Company's financial condition and the results of operations from fiscal
1991 through 1995, and for the six month period ended September 30, 1995,
reflect the Company's growth and expansion. During that period, total assets
increased by $248.3 million or 88.7% to $528.2 million at September 30, 1995,
from $279.9 million at March 31, 1991, representing a compound annual growth
rate of 15.1%. Net income increased by $3.3 million or 424.2% to $4.1 million
for the fiscal year ended March 31, 1995, from $778,000 for the fiscal year
ended March 31, 1991. The Company accomplished this growth by increasing its
loan portfolio by $243.2 million to $400.9 million at September 30, 1995, from
$157.7 million at March 31, 1991, and decreasing non-performing assets by $3.9
million to $1.2 million at September 30, 1995 from $5.1 million at March 31,
1991.
The Company currently operates through ten full service branch locations
providing quality banking and financial services in the northeast sector of the
metropolitan Atlanta area. Since 1991, the Company has substantially increased
its loan production operations and now has 14 loan production offices in
Georgia, Florida, North Carolina, South Carolina and Tennessee. In addition to
permanent mortgages, the Company also provides construction financing in each of
its markets and has obtained significant benefits by offering permanent mortgage
financing to its construction lending customers.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1994 AND SEPTEMBER
30, 1995
Net income for the six months ended September 30, 1995 increased by
$249,000 or 12.0% to $2.3 million from $2.1 for the same period ended September
30, 1994. Total interest income increased by $5.9 million or 40.3% to $20.6
million for the six months ended September 30, 1995, from $14.7 million for the
six months ended September 30, 1994. This increase was primarily attributable to
a $5.8 million increase in interest income on loans as a result of a 44.0%
increase in the Company's loan portfolio. Total interest expense increased $5.1
million or 77.9% to $11.7 million for the six months ended September 30, 1995,
from $6.6 million for the six months ended September 30, 1994. This increase is
primarily attributable to a 23.5% increase in deposits to $327.7 million at
September 30, 1995, from $265.2 million at September 30, 1994. Additionally, the
Company's borrowings from the FHLB increased 121.0% to $137.0 million at
September 30, 1995, from $62.1 million at September 30, 1994. Net interest
income for the six months ended September 30, 1995, was $8.9 million as compared
to $8.1 million for the six months ended September 30, 1994. As a result, the
Company's net interest spread decreased 85 basis points to 3.68% for the six
months ended September 30, 1995 from 4.53% for the six months ended September
30, 1994.
The Company's provision for loan losses was $54,000 during the six months
ended September 30, 1995, versus $371,000 for the six months ended September 30,
1994. The lower provision was a result of low delinquencies and management's
analysis of the various risks associated with its loan portfolio compared to its
existing loan loss reserves. Asset quality at September 30, 1995, continued to
improve, with non-performing assets to total assets at .23% compared to .27% at
March 31, 1995. Loan loss reserves totaled $3.5 million at September 30, 1995,
and $3.4 million at March 31, 1995. The Company believes that at September 30,
1995 the reserves for losses on loans are adequate based upon the Company's
continuing evaluation of the various risks associated with the Company's loan
portfolio.
Other income for the six months ended September 30, 1995, was $4.1 million
or 12.9% higher than other income for the six months ended September 30, 1994,
of $3.6 million. The increase was primarily attributable to higher mortgage
production fees for the six months ended September 30, 1995. For the six months
ended September 30, 1995, PrimeEagle mortgage increased its permanent mortgage
loan originations 29.1% to $211.0 million compared to $163.4 million for the six
months ended September 30, 1994. Additionally, the ratio of mortgage production
fees to loans sold in the secondary market increased to 137 basis points for the
six months ended September 30, 1995 versus 111 basis points for the six months
ended September 30, 1994. For the six months ended September 30, 1995, the
Company recorded gains on sale of assets of $426,000 as
13
<PAGE> 16
compared to gains on sale of assets of $620,000 for the six months ended
September 30, 1994. Other expenses increased $1.4 million to $9.4 million for
the six months ended September 30, 1995, from $8.0 million for the six months
ended September 30, 1994. This increase is principally attributable to increases
in salaries, employee benefits and net occupancy expenses. These additional
expenses were incurred in connection with opening additional branch banking and
loan production offices and a higher volume of lending activity.
RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED MARCH 31, 1994 AND MARCH 31,
1995
Net Income
The Company's net income decreased by $1.1 million or 21.3% to $4.1 million
in the fiscal year ended March 31, 1995 from $5.2 million in the fiscal year
ended March 31, 1994. Management consciously increased asset size and grew the
loan portfolio during fiscal 1995 to increase net interest income in order to
compensate for the decline in loan production revenues. Loan production revenues
decreased in fiscal 1995 as a result of the rise in interest rates and reduction
in mortgage refinancing activities.
Net Interest Income
Net interest income increased by $1.7 million or 11.4% to $16.7 million in
fiscal 1995 from $15.0 million in fiscal 1994. The general upward trend in
market interest rates during those periods contributed to the increase in the
yield on interest earning assets in fiscal 1995 from fiscal 1994 and the
increase in the cost of interest bearing liabilities. The increase in interest
received on loans was primarily attributable to the Company's ability to expand
its loan portfolio through originations of residential construction loans,
short-term leases and adjustable rate permanent mortgage loans and consumer
loans. As a result, the Company improved its spread while limiting exposure to
rising interest rates due to the variable rates and short-term commitments these
loans represent. Interest on mortgage-backed securities decreased as a result of
the trend of prepayment of higher coupon securities and the Company's sale of
selected mortgage-backed securities during fiscal 1994 and 1995. The Company's
decision to sell mortgage-backed securities in fiscal 1994 was based primarily
on the trend of rapid prepayments as a result of record mortgage refinancings.
Interest expense increased by $3.1 million or 24.7% to $15.6 million in
fiscal 1995 from $12.5 million in fiscal 1994. This was primarily the result of
an increase in deposits and FHLB advances. During fiscal 1994, the Company
repaid $7.5 million of 8.45% FHLB advances. This transaction is reflected in the
financial statements as an extraordinary item. The prepayment penalty, net of
state and federal income taxes, was $427,000.
Provision for Loan Losses
The Company decreased its provision for loan losses by $357,000 or 35.7% to
$643,000 in fiscal 1995 from $1.0 million in fiscal 1994. The decrease in the
provision was a result of management's continuing evaluation of the inherent
risks in the Company's existing loan portfolio and the level of existing
reserves. Since the Company's historical charge-offs have been low, the
allocation of reserves to specific loan categories is based upon management's
analysis of the current inherent risk of each loan category, not historical
patterns.
Non-Interest Income
Non-interest income decreased by $2.9 million or 31.4% to $6.3 million in
fiscal 1995 from $9.2 million in fiscal 1994. The largest component of
non-interest income is generated by loan production activities and mortgage
production fees. Mortgage production fees represented 56.0% of total
non-interest income in fiscal 1995 compared to 65.9% in fiscal 1994. These fees
are directly related to the volume of loans originated and sold. Loans sold in
the secondary market decreased by $222.7 million or 44.2% to $281.4 million in
fiscal 1995 from $504.1 million during fiscal 1994. The reduced rate of loans
originated and sold results from rising interest rates which caused a decrease
in mortgage refinancing during fiscal 1995 and, therefore, lower permanent
mortgage originations.
14
<PAGE> 17
Gain on sale of loans increased by $703,000 or 373.9% to $891,000 in fiscal
1995 from $188,000 in fiscal 1994. This was primarily attributable to the sale
of the guaranteed portions of SBA loans and the sale of multi-family loans
acquired from the RTC. Service charges increased by $137,000 or 29.8% to
$597,000 in fiscal 1995 from $460,000 in fiscal 1994. This was primarily the
result of the increase in the number of checking accounts and the fees generated
by the Company's retail banking group. In fiscal 1995, the Company recognized
$14,000 of gains on the sale of mortgage-backed securities, compared to $959,000
in fiscal 1994. The Company does not rely on gains of the sale of
mortgage-backed securities as a continuing source of income.
The following table sets forth, for the periods indicated, the principal
components of non-interest income:
<TABLE>
<CAPTION>
FISCAL YEARS
ENDED MARCH 31,
-----------------
1994 1995
------ ------
(IN THOUSANDS)
<S> <C> <C>
Mortgage production fees........................................... $6,100 $3,236
Service charges.................................................... 460 597
Gain on sale of loans.............................................. 188 891
Gain on sale of mortgage-backed securities......................... 959 14
Miscellaneous...................................................... 1,543 1,609
------ ------
Total non-interest income................................ $9,250 $6,347
====== ======
</TABLE>
Non-Interest Expenses
In fiscal 1995, approximately 60.0% of the Company's non-interest expenses
consisted of salaries and employee benefits compared to 60.8% in fiscal 1994. In
fiscal 1995, salaries and employee benefits increased 7.4% to $9.6 million from
$9.0 million in fiscal 1994. This increase was primarily due to the additional
processing personnel required to service the growth in loans and customers.
In fiscal 1995, the Company added loan production offices in Columbia and
Sumter, South Carolina and purchased property for additional branch sites and
began construction of another metropolitan Atlanta branch located in Cherokee
County, Georgia. The Company's net occupancy expense increased by $395,000 or
26.4% to $1.9 million in fiscal 1995 from $1.5 million in fiscal 1994, as a
result of rent escalation and increased property taxes. The Company's data
processing expense increased as a result of the growth in the number of checking
accounts and the loan servicing portfolio. Increased deposits caused Federal
Deposit Insurance Corporation ("FDIC") insurance premiums to increase to
$607,000 in fiscal 1995 from $532,000 in fiscal 1994. Proposed legislation would
substantially reduce these premiums after a significant one-time assessment to
restore the SAIF fund. See "Risk Factors -- Legislation and Regulation."
Income Tax Expense
The effective income tax rate for fiscal 1995 was 35.7% compared to 37.5%
for fiscal 1994. The major factor contributing to this decrease was the tax
benefit received from certain investment securities.
RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED MARCH 31, 1993 AND MARCH 31,
1994
Net Income
The Company's net income before extraordinary item and cumulative effect of
change in accounting principle increased by $1.2 million or 30.7% to $5.3
million in the fiscal year ended March 31, 1994 from $4.1 million in the fiscal
year ended March 31, 1993. Record net income in fiscal 1994 can be attributed to
a 22.9% increase in net interest income and a 59.6% increase in other income.
The increase in net interest income was a result of an improved net interest
margin. The increase in other income was primarily attributable to an 80.7%
increase in mortgage production fees generated by record origination volume at
the Company's mortgage banking segment. Other expenses increased 33.7% during
fiscal 1994 and the provision for loan losses increased 58.7% over fiscal 1993.
15
<PAGE> 18
The Company adopted the provision of Statement of Financial Accounting
Standard No. 109, "Accounting for Income Taxes," and has reported the cumulative
effect of that change in method of accounting for income taxes of $320,000 in
the consolidated statements of income for fiscal 1994. During the third quarter
of fiscal 1994, the Bank repaid $7.5 million of 8.45% Federal Home Loan Bank
advances. This transaction is reflected in the fiscal 1994 financial statements
as an extraordinary item. The prepayment penalty, net of state and federal
income taxes, was $427,000. Net income (after extraordinary item and cumulative
effect of the change in accounting principle) increased by $1.1 million or 28.1%
to $5.2 million in fiscal 1994 from $4.1 million in fiscal 1993.
Net Interest Income
Net interest income increased by $2.6 million or 22.9% to $15.0 million in
fiscal 1994 from $12.2 million in fiscal 1993. The general decline in market
interest rates during those periods contributed to the decrease in the yield on
interest earning assets in fiscal 1994 from fiscal 1993 and the decrease in the
cost of interest bearing liabilities. The increase in interest received on loans
was primarily attributable to the Company's ability to expand its loan portfolio
through originations of residential construction, short-term leases and, to a
lesser extent, adjustable rate permanent mortgage loans. As a result, the
Company improved its spread while reducing its exposure to rising interest rates
due to the short-term rate commitments these loans represent. Interest on
mortgage-backed securities decreased as a result of the sale of selected
mortgage-backed securities in fiscal 1994. The Company's decision to sell
mortgage-backed securities was based primarily on the trend of rapid prepayments
as a result of record mortgage refinancings.
Interest expense decreased by $2.7 million or 17.8% to $12.5 million in
fiscal 1994 from $15.2 million in fiscal 1993. This decrease was primarily
attributable to a trend of declining interest rates and the repricing of the
Bank's deposits at lower rates and the repayment of other borrowings at higher
rates.
Provision for Loan Losses
The Company increased its provision for loan losses by $370,000 or 58.7% to
$1.0 million in fiscal 1994 from $630,000 in fiscal 1993. The increase in the
provision was a result of management's continuing evaluation of the change in
the Company's loan mix. Charge-offs decreased to $104,000 in fiscal 1994 from
$635,000 in fiscal 1993. As a result of the increase in the provision and
decrease in charge-offs, the reserve for loan losses increased $929,000 from
$2.42 million at March 31, 1993, to $3.35 million at March 31, 1994.
Non-Interest Income
Non-interest income increased by $3.5 million or 59.6% to $9.3 million in
fiscal 1994 from $5.8 million in fiscal 1993. Mortgage production fees
represented 65.9% of total non-interest income in fiscal 1994 compared to 58.2%
in fiscal 1993. Loans sold in the secondary market increased by $227.0 million
or 81.9% to $504.1 million in fiscal 1994 from $277.0 million in fiscal 1993.
The increased rate of loans originated resulted from record mortgage
refinancings.
The following table sets forth, for the periods indicated, the principal
components of non-interest income:
<TABLE>
<CAPTION>
FISCAL YEARS
ENDED MARCH 31,
-----------------
1993 1994
------ ------
(IN THOUSANDS)
<S> <C> <C>
Mortgage production fees........................................... $3,375 $6,100
Service charges.................................................... 349 460
Gain on sale of loans.............................................. 221 188
Gain on sale of mortgage-backed securities......................... 892 959
Miscellaneous...................................................... 957 1,543
------ ------
Total non-interest income................................ $5,794 $9,250
====== ======
</TABLE>
16
<PAGE> 19
Gain on sale of loans decreased by $33,000 or 14.9% to $188,000 in fiscal
1994 from $221,000 in fiscal 1993. Service charges increased by $111,000 or
31.8% to $460,000 in fiscal 1994 from $349,000 in fiscal 1993.
In fiscal 1994, the Company recognized $959,000 of gains on the sale of
mortgage-backed securities, compared to $892,000 in fiscal 1993.
Non-Interest Expenses
In fiscal 1994, approximately 60.8% of the Company's non-interest expenses
consisted of salaries and employee benefits compared to 57.0% in fiscal 1993. In
fiscal 1994, salaries and employee benefits increased 42.6% to $8.9 million from
$6.3 million in fiscal 1993. This increase was primarily due to the additional
processing personnel required to service the growth in loans and customers.
The Company's net occupancy expense increased by $458,000 or 44.2% to $1.5
million in fiscal 1994 from $1.0 million in fiscal 1993, as a result of
increased loan production offices and personnel. The Company's data processing
expense increased as a result of the growth in the number of checking accounts
and the loan servicing portfolio. Increased deposits caused FDIC insurance
premiums to increase to $532,000 in fiscal 1994 from $479,000 in fiscal 1993.
Income Tax Expense
The effective income tax rate for fiscal 1994 was 37.5% compared to 35.8%
for fiscal 1993. The major factor contributing to this increase was the payment
of state income taxes during the year at a rate of 6%, since all state net
operating loss carry forwards were fully-utilized in fiscal 1993.
17
<PAGE> 20
INTEREST RATE SENSITIVITY
The following table reflects the average balances, the actual interest
income or expense and the average yield and cost of funds of the Company's
interest earning assets and interest bearing liabilities during the fiscal years
ended March 31, 1993, 1994 and 1995:
SUMMARY OF AVERAGE ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MARCH 31,
------------------------------------------------------------------------------------------
1993 1994 1995
---------------------------- ---------------------------- ----------------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST BALANCE INTEREST COST
-------- -------- ------ -------- -------- ------ -------- -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Loans(1)...................... $191,178 $ 19,371 10.13% $233,976 $ 21,906 9.36% $279,367 $ 26,330 9.42%
Mortgage-backed securities.... 70,486 5,673 8.05 41,891 3,135 7.48 26,454 1,939 7.33
FHLB stock.................... 3,060 183 5.98 3,277 174 5.31 4,040 272 6.73
Taxable investments........... 24,954 1,906 7.64 29,524 2,204 7.47 34,002 2,663 7.83
Tax-exempt investment
securities.................. -- -- -- -- -- -- 15,958 1,650 10.34
Interest earning deposits and
Federal funds............... 6,730 308 4.58 3,838 110 2.87 1,645 74 4.50
-------- -------- ------ -------- -------- ------ -------- -------- ------
Total interest
earning assets..... 296,408 27,441 9.26 312,506 27,529 8.81 361,466 32,928 9.11
-------- -------- ------ -------- -------- ------ -------- -------- ------
Non-interest earning assets... 12,165 15,637 18,886
-------- -------- --------
Total assets......... $308,573 $328,143 $380,352
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Passbook accounts............. $ 47,660 1,707 3.58 $ 53,784 1,435 2.67 $ 52,850 1,425 2.70
NOW........................... 18,058 455 2.52 22,123 383 1.73 28,346 484 1.71
Money Market.................. 13,500 416 3.08 12,729 311 2.44 20,993 300 1.43
Certificates of Deposit....... 144,707 8,830 6.10 149,569 7,877 5.27 165,708 9,416 5.68
-------- -------- ------ -------- -------- ------ -------- -------- ------
Total Deposits.............. 223,925 11,408 5.09 238,205 10,006 4.20 267,897 11,625 4.34
Advances...................... 49,872 3,215 6.45 48,265 2,526 5.23 68,272 4,006 5.87
CMO........................... 2,392 618 25.84 -- -- -- -- -- --
-------- -------- ------ -------- -------- ------ -------- -------- ------
Total interest bearing
liabilities............... 276,189 15,241 5.52 286,470 12,532 4.38 336,169 15,631 4.65
-------- -------- ------ -------- -------- ------ -------- -------- ------
Non-interest bearing
liabilities................. 7,988 13,328 11,915
Stockholders' equity.......... 24,396 28,345 32,268
-------- -------- --------
Total liabilities and
stockholders'
equity............. $308,573 $328,143 $380,352
========= ========= =========
Net interest income........... $ 12,200 $ 14,997 $ 17,297
======== ======== ========
Net interest rate spread...... 3.74% 4.43% 4.46%
===== ===== =====
Taxable-equivalent
adjustment.................. -- -- (586)
======== ======== ========
Net interest income, actual... $ 12,200 $ 14,997 $ 16,711
Net interest earning assets... $ 20,219 $ 26,036 $ 25,297
========= ========= =========
Net interest margin........... 4.12% 4.80% 4.79%
===== ===== =====
Interest earning assets as a
percentage of interest
bearing liabilities......... 107.32% 109.09% 107.52%
========= ========= =========
</TABLE>
- ---------------
(1) Non-performing loans are included in average balances and income on such
loans, if recognized, is recorded on a cash basis.
The net interest margin remained stable during fiscal 1995 at 4.79%
compared to 4.80% for fiscal 1994. The net interest spread also remained
constant at 4.46% during fiscal 1995 compared to 4.43% during fiscal
18
<PAGE> 21
1994. The stability was the result of the 30 basis point increase in interest
earned on interest earning assets from 8.81% during fiscal 1994 to 9.11% during
fiscal 1995. For the same period, the cost of interest bearing liabilities
increased by 27 basis points from 4.38% during fiscal 1994 to 4.65% during
fiscal 1995.
The overall yield increased primarily as a result of the significant
investment in construction loans tied to the prime rate of interest. The prime
rate increased six times through the fiscal year ended March 31, 1995. In
addition, during fiscal 1995 the Company invested in securities which on a tax
equivalent basis yielded approximately 10.34%.
A significant portion of the asset growth during fiscal 1995 was funded
through advances from the FHLB. The cost of advances increased to 5.87% during
fiscal 1995 from 5.23% during fiscal 1994. The cost of deposits increased 14
basis points to 4.34% during fiscal 1995 from 4.20% during fiscal 1994. During
the fourth quarter of fiscal 1995, the Company began to experience pressure on
its net interest margin as the cost of interest bearing liabilities increased.
During the first two quarters of fiscal 1996, the Company has experienced
pressure on borrowing rates and net interest margin as a result of the
continuing decrease in the percentage of deposits and advances represented by
lower cost passbook and NOW accounts, an increase in the percentage of
certificates of deposits and advances from the FHLB, and higher borrowing costs
from the FHLB. The Company is increasing the size of its loan portfolio for the
purpose of increasing net interest income and mitigating the effect of the
decline in net interest margin.
The rate volume analysis below reflects the components of net interest
income for the periods indicated. For each category of interest earning assets
and interest bearing liabilities, information is provided on changes attributed
to (i) changes in rate (changes in rate multiplied by prior period volume), (ii)
changes in volume (changes in volume multiplied by prior period rate), and (iii)
changes in rate/volume (changes in rate multiplied by changes in volume). The
net change attributable to both volume and rate, which cannot be segregated, has
been allocated proportionately to change due to volume and change due to rate.
RATE/VOLUME ANALYSIS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MARCH 31,
--------------------------------------------------------
1994 COMPARED TO 1993 1995 COMPARED TO 1994
--------------------------- --------------------------
RATE VOLUME TOTAL RATE VOLUME TOTAL
------- ------- ------- ------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Changes due to:
Interest income on interest earning
assets:
Loans(1)............................. $(1,556) $ 4,091 $ 2,535 $ 141 $ 4,283 $ 4,424
Mortgage-backed securities........... (371) (2,167) (2,538) (66) (1,130) (1,196)
Taxable investment securities........ (43) 341 298 110 349 459
Tax-exempt investment
securities(2)...................... -- -- -- 1,649 -- 1,649
Interest earnings deposits and
federal funds...................... (91) (106) (197) 46 (81) (35)
FHLB stock........................... (22) 12 (10) 54 44 98
------- ------- ------- ------ ------- -------
Total interest income........... (2,083) 2,171 88 1,934 3,465 5,399
------- ------- ------- ------ ------- -------
Interest expense on interest bearing
liabilities:
Deposits............................. (2,087) 685 (1,402) 342 1,277 1,619
FHLB advances........................ (592) (97) (689) 338 1,142 1,480
Collateralized mortgage
obligations........................ -- (618) (618) -- -- --
------- ------- ------- ------ ------- -------
Total interest expense.......... (2,679) (30) (2,709) 680 2,419 3,099
------- ------- ------- ------ ------- -------
Net change in net interest
income........................ $ 596 $ 2,101 $ 2,797 $1,254 $ 1,046 $ 2,300
======= ======= ======= ====== ======= =======
</TABLE>
- ---------------
(1) Non-performing loans are included.
(2) Reflects taxable-equivalent adjustments using the statutory federal and
state income tax rate of 39% in adjusting interest on tax-exempt investment
securities to a taxable-equivalent basis.
19
<PAGE> 22
The Company manages the inherently different maturity and re-pricing
characteristics of its loans and deposits to achieve a desired interest rate
sensitivity position and to limit the Company's exposure to interest rate risk.
The Bank's Asset and Liability Committee ("ALCO") has primary responsibility for
managing the Company's exposure to interest rate risk. The ALCO is comprised of
three directors, two officers of the Bank and the manager of the Bank's
secondary marketing department. The ALCO meets two times a week to establish
interest rates on loans and deposits and review interest rate sensitivity and
liquidity positions. Funding positions are kept within predetermined limits
designed to ensure that the interest rate risk of the Company is properly
managed. The Company utilizes a simulation model to measure interest rate risk
and manage its exposure to interest rate risk. Mortgage-backed securities and
permanent real estate loans are evaluated based upon estimated prepayment timing
for these categories, rather than contractual maturity.
Interest rate sensitivity is a measure of exposure to changes in net
interest income due to changes in market interest rates. The excess of interest
earning assets over interest bearing liabilities repricing or maturing in a
given period of time is commonly referred to as "Gap." A positive Gap indicates
an excess of interest rate sensitive assets over interest rate sensitive
liabilities; a negative Gap indicates an excess of interest rate sensitive
liabilities over interest rate sensitive assets. The ALCO has continued to shift
the Company's Gap throughout fiscal 1995. The Company's Gap position is
evaluated continuously and reviewed by the ALCO in bi-weekly meetings. The
Company has a negative one year Gap of 23.59% as of March 31, 1995. Part of the
ALCO strategy for reducing interest rate risk revolves around increasing the
percentage of shorter term floating rate loans in the Company's portfolio. This
has been accomplished by originating residential construction and adjustable
rate permanent loans. The Company continues to originate consumer loans, second
mortgage loans and equipment lease financing loans. In general, these loans have
short maturities and floating interest rates.
The following table reflects the Company's interest rate sensitivity Gap
between interest earning assets and interest bearing liabilities at March 31,
1995 for the periods indicated. Assets and liabilities having no stated schedule
of repayments and no stated maturity are reported as due in less than three
months, except equity securities which are reported due after five years.
INTEREST RATE SENSITIVITY
<TABLE>
<CAPTION>
AT MARCH 31, 1995
----------------------------------------------------------------
AFTER AFTER AFTER
3 MONTHS 1 YEAR 3 YEARS
WITHIN WITHIN WITHIN WITHIN AFTER
3 MONTHS 1 YEAR 3 YEARS 5 YEARS 5 YEARS TOTAL
-------- --------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets re-pricing:
Loans receivable, net plus loan loss reserves.......... $103,573 $ 54,495 $ 37,766 $ 42,549 $ 68,885 $307,268
Investment securities held to maturity................. 7,609 2,400 13,932 16,458 17,200 57,599
Securities available for sale.......................... -- -- 345 155 20,439 20,939
Loans receivable held for sale(1)...................... 41,220 -- -- -- -- 41,220
FHLB stock............................................. -- -- -- -- 5,984 5,984
Interest bearing deposit............................... 144 -- -- -- -- 144
-------- --------- -------- -------- -------- --------
Total interest-earning assets.................... 152,546 56,895 52,043 59,162 112,508 433,154
-------- --------- -------- -------- -------- --------
Interest bearing liabilities re-pricing:
Deposits(2)............................................ 110,071 97,459 41,109 37,359 317 286,315
Borrowings............................................. 109,507 295 1,832 8,146 173 119,953
-------- --------- -------- -------- -------- --------
Total interest-bearing liabilities............... 219,578 97,754 42,941 45,505 490 406,268
-------- --------- -------- -------- -------- --------
Interest rate sensitivity Gap............................ $(67,032) $ (40,859) $ 9,102 $ 13,657 $112,018 $ 26,886
========= ========= ======== ======== ======== ========
Cumulative interest rate sensitivity Gap................. $(67,032) $(107,891) $(98,789) $(85,132) $ 26,886
========= ========= ======== ======== ========
Cumulative interest rate sensitivity Gap as a percentage
of total assets........................................ (14.66 )% (23.59)% (21.60)% (18.62)% 5.88%
</TABLE>
- ---------------
(1) Represents loans committed to sell in less than three months.
(2) Savings and NOW account balances are reported due within three months.
20
<PAGE> 23
The following table reflects at March 31, 1995, information regarding the
dollar amount of loans maturing in the Company's net loan portfolio based on
their contractual terms to maturity. Demand loans having no stated schedule of
repayment and no stated maturity, and overdrafts are reported as due in one
year. The information was compiled based upon contractual terms to maturity. The
actual maturities may differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or prepayment
penalties:
MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES
<TABLE>
<CAPTION>
AT MARCH 31, 1995
----------------------------------------------
ONE AFTER ONE AFTER
YEAR YEAR TO FIVE FIVE
OR LESS YEARS YEARS TOTAL
------- ------------ ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Real estate mortgage loans:
Fixed rates................................. $ 1,003 $ 7,713 $ 43,359 $ 52,075
Adjustable rates............................ 2,138 5,697 116,976 124,811
Real estate construction, net:
Adjustable rates............................ 84,913 12,819 -- 97,732
Investment in commercial leases:
Fixed rates................................. 1,783 30,224 575 32,582
Consumer -- fixed rates....................... 207 403 391 1,001
Loans on savings -- fixed rates............... 1,320 -- -- 1,320
------- ------------ ---------- --------
Total............................... $91,364 $ 56,856 $ 161,301 $309,521
======= ========= ======== ========
Less: Unearned income......................... 593
Deferred loan origination fees.......... 1,547
Reserve for loan losses................. 3,362
Unearned discount on loans purchased.... 113
--------
Total............................... $303,906
========
</TABLE>
21
<PAGE> 24
The following table reflects the dollar amount of all loans due after one
year from March 31, 1995, which have predetermined or fixed interest rates and
have floating or adjustable rates:
<TABLE>
<CAPTION>
PREDETERMINED FLOATING OR
RATES ADJUSTABLE RATES
------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
Real estate-mortgage.............................................. $51,072 $122,673
Real estate-construction, net..................................... -- 12,819
Commercial leases................................................. 30,799 --
Consumer.......................................................... 794 --
Loans on savings.................................................. -- --
------------- ----------------
Total................................................... $82,665 $135,492
========== ============
</TABLE>
PROVISION FOR LOAN LOSSES AND RISK ELEMENTS
The Bank has an Asset Classification Committee (the "ACC"), comprised of
representatives of management, which undertakes an ongoing asset classification
program to serve as an early warning system in identifying and determining the
magnitude of potential problem assets. The ACC reports at least quarterly to the
Board of Directors. Management and the ACC consider numerous factors in
identifying potential problem loans including, among other factors, the
estimated value of the underlying collateral, loan concentrations, specific loan
problems, economic conditions that may affect the borrower's ability to repay,
past payment experience, general market conditions and such other factors as
management or the ACC believes should be considered under existing
circumstances. In addition, various regulatory agencies, as an integral part of
the examination process, periodically review the reserve for loan losses. Such
agencies require the Bank to recognize additions to the reserve based on
judgments with regard to information available to them at the time of the
examination. Management is not aware of any loans classified for regulatory
purposes as loss, doubtful or substandard that (i) have not been disclosed and
(ii) either (a) represent or result from trends or uncertainties, which
management reasonably expects will materially impact future operating results,
liquidity, or capital resources, or (b) represent material credits with respect
to which management is aware of any information which causes management to have
serious doubts as to the ability of such borrower to comply with the loan
repayment terms.
Construction loans represent a larger percentage of the Bank's loan
portfolio than many of its peer group. However, the Company believes that its
strict underwriting criteria, construction monitoring process, and knowledge of
local market conditions tend to reduce the risk of delinquencies and problem
loans. Despite higher credit risks, construction loans offer the Company a short
term variable interest rate asset which assists in the ALCO's goals of
decreasing the impact of rising interest rates on net income and equity.
Construction loans can also be an effective tool to help secure permanent
mortgage financing from home purchases. The Company has developed a construction
inspection and appraisal network that closely monitors construction progress and
loan disbursements throughout the process. At March 31, 1995, the Company had
only three construction loans with a combined disbursed balance of $131,000 that
were more than 60 days delinquent. Management and the ACC, along with
regulators, closely monitor total exposure to each market area and price range
in determining the appropriate concentrations of construction loans. The Office
of Thrift Supervision (the "OTS") also monitors and comments on the adequacy of
the Bank's provision for loan losses in conducting its examinations of the Bank.
Additionally, the broadening of the Company's lending area has reduced its
dependence on the economic prospects of the Atlanta metropolitan area.
At March 31, 1995, the reserve for loan losses as a percentage of average
loans outstanding was 1.2%. Charge-offs in fiscal 1995 were $684,000 versus
$104,000 in fiscal 1994 and $635,000 in 1993. The reserve for loan losses
remained virtually unchanged from $3.35 million at March 31, 1994, to $3.36
million at March 31, 1995. In fiscal 1995, charge-offs represented .23% of
average loans receivable versus .03% for fiscal 1994 and .33% in 1993.
Total problem assets, which include non-accrual loans, loans classified as
problem assets by the ACC and real estate acquired through the settlement of
loans, increased by $714,000 or 49.0% to $2.2 million at
22
<PAGE> 25
March 31, 1995, from $1.5 million at March 31, 1994. At March 31, 1995, the
Company had non-accrual loans of $603,000 down from $787,000 at March 31, 1994.
Interest income not recognized on these loans amounted to $40,000 during 1995,
and $26,000 during 1994. Approximately 75% of all non-accrual loans were first
mortgage loans on single family residential real estate. In addition, at March
31, 1995, the ACC identified $954,000 of loans as potential problem loans. At
March 31, 1994, the Company had no loans classified as potential problems. Real
estate owned decreased by $56,000 or 8.3% to $615,000 at March 31, 1995, from
$671,000 at March 31, 1994. Total problem assets as a percent of total assets
have remained stable at .47% at March 31, 1995, when compared to .46% at March
31, 1994. The five-year trend of total problem assets to total assets exhibits
the progress the Company has made in reducing problem assets. This decrease has
been accomplished in a time of significant asset growth. The following table
sets forth an analysis of the Company's provision for loan losses for the
periods indicated.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MARCH 31,
--------------------------------------------------------
1991 1992 1993 1994 1995
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Reserve for loan losses, beginning of
year.................................. $ 757 $ 763 $ 892 $ 2,420 $ 3,349
Charge-offs:
Real estate-construction.............. 414 -- 184 -- 149
Real estate-mortgage.................. 12 305 432 101 521
Consumer and other.................... 15 2 19 3 14
Commercial leases..................... -- -- -- --
-------- -------- -------- -------- --------
Total charge-offs............. 441 307 635 104 684
Recoveries.............................. 1 38 5 33 54
-------- -------- -------- -------- --------
Net charge-offs......................... 440 269 630 71 630
Reserve on purchased loans.............. -- -- 1,528 -- --
Provision for loan losses............... 446 398 630 1,000 643
-------- -------- -------- -------- --------
Reserve for loan losses, end of year.... $ 763 $ 892 $ 2,420 $ 3,349 $ 3,362
======== ======== ======== ======== ========
Average loans outstanding for the
period................................ $150,377 $163,136 $191,178 $233,976 $279,367
Reserve for loan losses to period end
loans................................. .46% .48% .97% 1.11% .83%
Ratio of net charge-offs to average
loans .29% .16% .33% .03% .23%
</TABLE>
The allocation of the provision for loan losses for the year indicated is
as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MARCH 31,
-------------------------------------------------------------------------------------------------
1991 1992 1993 1994 1995
----------------- ----------------- ----------------- ----------------- -----------------
% % % % %
DOLLAR OF TOTAL DOLLAR OF TOTAL DOLLAR OF TOTAL DOLLAR OF TOTAL DOLLAR OF TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate:
First mortgage loans........ $266 85% $255 77% $ 345 55% $ 507 43% $ 639 51%
Second mortgage loans....... 77 8 120 7 129 5 350 4 148 2
Construction................ 54 6 109 15 460 31 934 42 1,008 38
Commercial leases............. -- -- -- -- 188 8 308 10 296 8
Consumer and other............ 21 1 19 1 10 1 10 1 10 1
Unallocated................... 345 -- 389 -- 1,288 -- 1,240 -- 1,261 --
------ --- ------ --- ------ --- ------ --- ------ ---
Total................ $763 100% $892 100% $2,420 100% $3,349 100% $3,362 100%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
NON-PERFORMING ASSETS
Non-performing assets are composed of non-accrual loans and real estate
acquired in the settlement of loans ("REO"). Loans that are 90 days past due are
classified as non-accrual. An allowance is provided for all loans past due more
than 90 days and such loans are classified as non-accrual if the financial
condition of the borrower raises significant concern with regard to the ability
of the borrower to service debt in accordance with current loan terms. The trend
relating to non-accrual loans and REO is that problem assets have remained less
23
<PAGE> 26
than 3% of total assets for the previous five years. In addition, total problem
assets as a percent of total assets have been less than 1% for the previous two
years. The ratio of the reserve for loan losses to problem assets exceeded 150%
at March 31, 1995 and 1994. At March 31, 1995, the Company had REO of $615,000
versus REO of $671,000 at March 31, 1994. The Company had non-accrual loans of
$603,000 at March 31, 1995, versus $787,000 at March 31, 1994. These loans are
composed primarily of first mortgage loans on single family residences.
The following table reflects non-performing loans, potential problem loans
and restructured loans as of the dates indicated. Non-performing loans consist
of non-accrual loans and foreclosed properties, as well as loans past due 90
days or more as to interest or principal and still accruing. Potential problem
loans are those with respect to which management has doubts regarding the
ability of the borrower to comply with current loan repayment terms and have
been classified as such by the ACC, regardless of payment status.
<TABLE>
<CAPTION>
AT MARCH 31,
------------------------------------------------
1991 1992 1993 1994 1995
------- ------- ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Non-accrual loans
Residential real estate........................ $ 377 $ 1,051 $2,057 $ 780 $ 603
Commercial real estate......................... 1,224 -- -- -- --
Installment.................................... -- 87 -- 7 --
------- ------- ------ ------ ------
Total non-accrual...................... 1,601 1,138 2,057 787 603
Potential problem loans.......................... 2,063 -- 2,165 -- 954
Loans contractually delinquent 90 days which
still accrue interest.......................... -- -- -- -- --
Troubled debt restructurings..................... -- -- -- -- --
------- ------- ------ ------ ------
Total non-accrual and problem loans.............. 3,664 1,138 4,222 787 1,557
Real estate owned, net........................... 3,486 3,696 2,137 671 615
------- ------- ------ ------ ------
Total problem assets................... $ 7,150 $ 4,834 $6,359 $1,458 $2,172
====== ====== ====== ====== ======
Total problem assets/total assets................ 2.55% 1.60% 1.98% .46% .47%
Total problem assets/net loans plus reserves..... 4.51% 2.79% 3.30% .65% .71%
Reserve for loan losses/problem assets........... 10.67% 18.45% 38.06% 229.70% 154.79%
</TABLE>
LOAN PORTFOLIO AND CONCENTRATIONS
Since 1991, the Company's loan portfolio has grown 119%. During fiscal
1995, the Company increased residential mortgage loans 69%. This was
accomplished primarily by electing to retain adjustable rate mortgages for the
portfolio. The Company's primary lending activity is conducted through the loan
production operation and includes the origination of construction loans and
conventional, Federal Housing Administration ("FHA") and Veterans Administration
("VA") permanent loans secured by first mortgages on residential properties,
principally one to four family owner occupied residences. The Bank's residential
loan originations are conducted through PrimeEagle. Substantially all permanent
loans originated by PrimeEagle are underwritten in accordance with standards and
requirements acceptable to Federal National Mortgage Association ("FNMA"),
Federal Home Loan Mortgage Corporation ("FHLMC"), FHA and VA. Substantially all
fixed rate loans are sold to third party investors while adjustable rate
mortgages are retained in the Bank's portfolio. In addition, the loan production
segment originates construction loans on residential real estate in an attempt
to capture the permanent mortgage when the builder sells the house. This
provides an advantage to the loan production segment and reduces dependence on
refinances.
In fiscal 1993, the Company began an equipment leasing operation designed
primarily to provide financing for investment grade (Baa/BBB or better) and
other companies with unrated debt that meet the Bank's underwriting criteria.
The residual value of the equipment is not considered as part of the Company's
return. The Company looks to rental payments to provide its return. Each lease
is approved by the Bank's Loan Committee based upon the credit quality of the
lessee. Collateral value of equipment is not considered a material portion of
the credit analysis of the lease; rather the lessee's cash flow and ability to
make rental
24
<PAGE> 27
payments is most important. At March 31, 1995, the average duration of these
leases was 24 months and lease financing loans represented 8.0% of the total
loan portfolio.
The following table reflects the composition of the Bank's loan portfolio
at the indicated dates:
<TABLE>
<CAPTION>
AT MARCH 31,
-----------------------------------------------------------------------------------------------------
1991 1992 1993 1994 1995
----------------- ----------------- ----------------- ----------------- -----------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real
Estate -- construction
loans
Construction............ $ 9,003 5.40% $ 23,156 12.36% $ 65,870 26.26% $102,983 34.18% $123,995 30.43%
Acquisition &
Development........... 545 0.33 4,500 2.40 13,059 5.20 23,771 7.89 30,517 7.49
Real Estate -- mortgage
loans
Non-residential......... 9,107 5.46 11,429 6.10 24,355 9.71 19,578 6.50 15,852 3.89
Residential............. 126,547 75.90 118,617 63.30 90,349 36.02 88,941 29.52 150,784 37.00
Home equity and second
mortgages............. 13,940 8.36 13,435 7.17 12,899 5.14 10,701 3.55 10,250 2.52
Loans held for sale..... 5,306 3.18 13,708 7.32 23,462 9.35 23,641 7.85 41,220 10.11
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total real estate
loans........... 164,448 98.63 184,845 98.65 229,994 91.68 269,615 89.49 372,618 91.44
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Other loans:
Leases.................. -- -- -- -- 18,808 7.50 29,364 9.75 32,582 8.00
Consumer and other...... 2,287 1.37 2,539 1.35 2,054 0.82 2,305 0.76 2,321 0.56
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total other
loans........... 2,287 1.37 2,539 1.35 20,862 8.32 31,669 10.51 34,903 8.56
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total gross loans
receivable...... 166,735 100.00% 187,384 100.00% 250,856 100.00% 301,284 100.00% 407,521 100.00%
-------- ====== -------- ====== -------- ====== -------- ====== -------- ======
Less:
Undisbursed portion of
loans in process...... (3,749) (9,870) (31,460) (52,054) (56,780)
Deferred loan
origination fees...... (1,112) (1,221) (1,037) (1,176) (1,547)
Unearned income......... (3,266) (2,572) (1,782) (1,190) (593)
Reserve for loan
losses................ (763) (892) (2,420) (3,349) (3,362)
Unearned discount on
loans purchased....... (101) (380) (580) (148) (113)
-------- -------- -------- -------- --------
Loans receivable,
net(1).................. $157,744 $172,449 $213,577 $243,367 $345,126
======== ======== ======== ======== ========
</TABLE>
- ---------------
(1) Includes loans receivable held for sale.
At March 31, 1995, approximately 77.5% of the Company's loans receivable
are first mortgage loans secured by residential real estate consisting of one to
four family homes. One to four family home mortgages are generally believed to
be a conservative investment. The Company's high concentration of residential
first mortgages tends to reduce its level of delinquencies and problem loans.
The acquisition of the Prime Lending division during fiscal 1993 broadened
the Company's mortgage lending area from metropolitan Atlanta to emerging cities
in the Southeastern United States. Although Prime Lending's markets have not
grown as rapidly as metropolitan Atlanta, they have experienced over time more
consistent growth. Many of Prime Lending's markets are impacted by military
bases and their resulting housing requirements. During fiscal 1993, 1994 and
1995, the base populations in these markets increased. Total exposure to each
market area is monitored monthly. The factors considered in evaluating loan
concentrations and in approving loans include, among other things, housing
inventory, economic prospects of major employers, likelihood of job growth or
contraction and general economic conditions. The broadening of the Company's
lending area reduces its concentration of metropolitan Atlanta loans and
dependence on the economic prospects of Atlanta.
In accordance with the Company's business plan, the volume of construction
lending increased in each of the previous three years. The Company understands
the risks inherent in interim construction financing and has designed an
efficient organization to properly mitigate those risks through strict
underwriting and closely monitoring the process. The Company's underwriting
criteria consider, among other things, the equity investment of the borrower,
the track record and financial condition of the builder, the demand for the type
of
25
<PAGE> 28
house to be constructed including a marketing survey of inventory levels by
price range and location, the feasibility of house plans and costs, growth
prospects for the economy and the impact of changes in interest rates. The
Company has a multistate construction inspection and appraisal network. Its
staff closely monitors construction progress and draws throughout the process.
Approximately 30.0% of the Company's construction loan portfolio is comprised of
loans on pre-sold single family residences. In addition, no single customer
accounted for more than 2.0% of the Company's loans in fiscal 1995, 1994 or
1993.
INVESTMENT SECURITIES
Federally chartered thrift institutions have the authority to invest in
various types of liquid assets. These assets include United States Treasury and
Federal Agency obligations, certain certificates of deposit, bankers'
acceptances, and Federal Funds. Subject to various restrictions, investments may
also be made in mortgage-backed securities, commercial paper and corporate debt
and equity securities. During 1995, investment securities increased 41.3% over
the prior year. At March 31, 1995, the Company had total investments in
securities of $78.5 million versus $55.6 million at March 31, 1994. At March 31,
1994, the Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities". Under SFAS No. 115, the Company classifies its securities in one of
three categories: trading, available for sale, or held to maturity. With the
adoption of SFAS No. 115, the Company has reported the effect of the change in
the method of accounting for investments in debt securities as a separate
component of equity, net of income taxes.
The investment securities portfolio at March 31, 1995, was comprised of
$57.6 million of investment securities held to maturity at amortized cost. The
Company has the ability and it is management's intent to hold these securities
to maturity for investment purposes. In addition, the Company had an estimated
market value of $20.9 million of investment securities available for sale at
March 31, 1995. Investment securities available for sale had a net unrealized
gain as shown in the Company's stockholders' equity section of $46,000 at March
31, 1995, versus $387,000 at March 31, 1994. Investment securities available for
sale are primarily comprised of mortgage-backed securities and investments in
equity securities, principally preferred stock. See Note 2 to the Consolidated
Financial Statements for further information on investment securities.
During 1995, the Company's weighted average yield (calculated on a taxable
equivalent basis) for the aggregate investment portfolio was 8.0% versus 7.2%
for 1994. The increase in yield is primarily due to the purchase of
approximately $15.0 million of investments comprised primarily of preferred
stock for which the Company has a tax exclusion for dividends received.
Included in other securities at March 31, 1995 and 1994, are $5.0 million
and $5.7 million, respectively, of investment grade residential mortgage pass
through certificates issued by the RTC. These securities are rated Aa2 by
Moody's and AA by Standard & Poor's. The Company holds no investment securities
by any single issuer, other than mortgage-backed securities issued by an agency
of the United States government, which equalled or exceeded 10% of stockholders'
equity at March 31, 1993, 1994 or 1995.
26
<PAGE> 29
The following table reflects securities held in the Bank's securities
portfolio for the periods indicated:
<TABLE>
<CAPTION>
AT MARCH 31,
---------------------------
1993 1994 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Investment Securities Held to Maturity:
US Treasury and US Government Agencies.................. $22,794 $17,860 $24,799
Mortgage-backed securities.............................. 35,085 11,388 10,009
Corporate bonds......................................... 7,742 2,463 10,376
Other debt securities................................... 7,174 2,972 12,415
Equity securities....................................... 964 -- --
------- ------- -------
Total........................................... 73,759 34,683 57,599
------- ------- -------
Securities Available for Sale:
Mortgage-backed securities.............................. 14,184 17,911 14,093
Equity securities-preferred stock....................... -- 2,972 6,846
------- ------- -------
Total........................................... 14,184 20,883 20,939
------- ------- -------
Total Investment Securities:
US Treasury and US Government agencies.................. 22,794 17,860 24,799
Mortgage-backed securities.............................. 49,269 29,299 24,102
Corporate bonds......................................... 7,742 2,463 10,376
Other debt securities................................... 7,174 2,972 12,415
Equity securities....................................... 964 2,972 6,846
------- ------- -------
Total........................................... $87,943 $55,566 $78,538
======= ======= =======
</TABLE>
27
<PAGE> 30
The following table reflects the stated contractual maturities, amortized
cost or estimated value and weighted average yield of securities held in the
Bank's portfolio, for the periods indicated:
<TABLE>
<CAPTION>
AT MARCH 31, 1995
---------------------------------------------------------------
INVESTMENT SECURITIES HELD
TO MATURITY SECURITIES AVAILABLE FOR SALE
----------------------------- -------------------------------
AMORTIZED WEIGHTED ESTIMATED WEIGHTED
COST AVERAGE YIELD(1) FAIR VALUE AVERAGE YIELD(1)
--------- ----------------- ----------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
US Treasury and US Government Agencies:
Within 1 year........................... -- -- -- --
1-5 years............................... $24,799 7.03% -- --
5-10 years.............................. -- -- -- --
More than 10 years...................... -- -- -- --
--------- --- ----------- ---
Total............................ 24,799 7.03 -- --
--------- --- ----------- ---
Mortgage-backed securities:
Government National Mortgage Association
Within 1 year........................... -- -- -- --
1 to 5 years............................ -- -- -- --
5 to 10 years........................... -- -- -- --
More than 10 years...................... 4,168 5.61 $ 296 8.00%
--------- --- ----------- ---
Total............................ 4,168 5.61 296 8.00
--------- --- ----------- ---
Federal National Mortgage Association
Within 1 year........................... -- -- -- --
1 to 5 years............................ -- -- 155 8.25
5 to 10 years........................... -- -- -- --
More than 10 years...................... 881 5.73 8,878 8.60
--------- --- ----------- ---
Total............................ 881 5.73 9,033 8.59
--------- --- ----------- ---
Federal Home Loan Mortgage Corporation
Within 1 year........................... -- -- -- --
1 to 5 years............................ -- -- 345 7.03
5 to 10 years........................... -- -- 526 8.50
More than 10 years...................... -- -- 3,893 8.50
--------- --- ----------- ---
Total............................ -- -- 4,764 8.39
--------- --- ----------- ---
Other:
Within 1 year........................... -- -- -- --
1 to 5 years............................ -- -- -- --
5 to 10 years........................... -- -- -- --
More than 10 years...................... 17,375 7.42 -- --
--------- --- ----------- ---
Total............................ 17,375 7.42 -- --
--------- --- ----------- ---
Corporate Debt:
Within 1 year........................... -- -- -- --
1 to 5 years............................ 5,591 7.64 -- --
5 to 10 years........................... 2,861 8.40 -- --
More than 10 years...................... 1,924 7.69 -- --
--------- --- ----------- ---
Total............................ 10,376 7.86 -- --
--------- --- ----------- ---
Preferred Stock:
Within 1 year........................... -- -- -- --
1 to 5 years............................ -- -- -- --
5 to 10 years........................... -- -- -- --
More than 10 years...................... -- 6,846 8.05
--------- --- ----------- ---
Total............................ -- -- 6,846 8.05
--------- --- ----------- ---
Total Securities:
Within 1 year........................... -- -- -- --
1 to 5 years............................ 30,390 7.14 500 7.41
5 to 10 years........................... 2,861 8.40 526 8.50
More than 10 years...................... 24,348 7.07 19,913 8.38
--------- --- ----------- ---
Total............................ $57,599 7.17% $20,939 8.36%
========= ================ ========== ================
</TABLE>
- ---------------
(1) The weighted average yield has been calculated based on the amortized cost
of the respective securities.
28
<PAGE> 31
DEPOSITS
Deposits are the Company's primary funding source. Total deposits grew by
$42.0 million or 17.2% to $286.3 million at March 31, 1995, from $244.3 million
at March 31, 1994. During the twelve months ended September 30, 1995, deposits
grew by $62.5 million or 23.7% to $327.7 million at September 30, 1995, from
$265.2 million at September 30, 1994. The Bank uses traditional marketing
methods to attract new customers. Its deposit network is serviced from its ten
branches. During the fiscal year ending March 31, 1995, the number of savings
accounts grew 18.0% to 40,698 accounts at March 31, 1995, from 34,492 at March
31, 1994. Management believes that the majority of those additional accounts are
a result of the continued trend in consolidation of financial institutions in
the metropolitan Atlanta market and the desire of customers to deal with an
independent, local financial institution. In addition, in April 1994, the Bank
purchased insured deposits of approximately $22.1 million of a branch of
Southern Federal Savings Association of Georgia from the Resolution Trust
Corporation.
The growth in deposits was primarily in certificates of deposit with
maturities one year or less which grew 53.6% to $124.7 million at March 31,
1995, from $81.2 million at March 31, 1994. Certificates of deposit $100,000 and
greater were 8.6% of total deposits at March 31, 1994, and 9.7% at March 31,
1995. In addition, at March 31, 1995, 36.5% of certificates of deposit with
balances $100,000 and more have maturities of over 12 months. The Bank does not
actively solicit deposits outside of its local market area. At the same time,
the weighted average interest rate on deposits at March 31, 1995 increased 81
basis points to 4.87% from 4.06%. Demand deposits including NOW accounts,
passbook accounts and money market accounts were 29.0% of the Company's deposits
at March 31, 1995.
The following table sets forth information on the maturity distribution of
certificates of deposit of $100,000 or more.
<TABLE>
<CAPTION>
AT MARCH 31,
1995
---------------
(IN THOUSANDS)
<S> <C>
Certificates of Deposit:
3 months or less............................................................. $ 2,810
Over 3 months through 6 months............................................... 4,425
Over 6 months through 12 months.............................................. 10,403
Over 12 months............................................................... 10,156
---------------
Total outstanding.................................................... $27,794
===========
</TABLE>
The following table reflects the composition of deposits by type of account
and interest rate category for the years indicated:
<TABLE>
<CAPTION>
AT MARCH 31,
-----------------------------------------------
1994 1995
--------------------- ---------------------
AMOUNT % OF TOTAL AMOUNT % OF TOTAL
-------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
2.25% NOW accounts.......................... $ 24,609 10.1% $ 28,244 9.9%
2.50% Passbook accounts..................... 52,655 21.6 43,761 15.3
2.50% Money Markets......................... 12,487 5.1 10,836 3.8
Certificate accounts less than $100,000:
2.75% to 5.99%............................ 99,644 40.8 87,352 30.5
6.00% to 7.99%............................ 17,378 7.1 74,873 26.2
8.00% to 9.99%............................ 15,997 6.5 13,318 4.6
10.00% to 12.00%.......................... 559 0.2 137 0.0
Certificate accounts $100,000 and greater
ranging between 3.7% to 9.5%.............. 20,968 8.6 27,794 9.7
-------- ---------- -------- ----------
Total............................. $244,297 100.0% $286,315 100.0%
======== ======== ======== ========
</TABLE>
29
<PAGE> 32
The following table reflects the amount of deposits and weighted average
rate by the categories and for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MARCH 31,
------------------------------------------------------------------
1993 1994 1995
-------------------- -------------------- --------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
RATE AMOUNT RATE AMOUNT RATE AMOUNT
------- -------- ------- -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Demand deposits:
Passbook accounts.......... 3.58% $ 47,660 2.67% $ 53,784 2.70% $ 52,850
NOW checking accounts...... 2.52 18,058 1.73 22,123 1.71 28,346
Money market accounts...... 3.08 13,500 2.44 12,729 1.43 20,993
Certificates of deposit.... 6.10 144,707 5.27 149,569 5.68 165,708
------- -------- ------- -------- ------- --------
Total.............. 5.09% $223,925 4.20% $238,205 4.34% $267,897
====== ======== ====== ======== ====== ========
</TABLE>
BORROWINGS
The FHLB system functions as a reserve credit facility for thrift
institutions and certain other member home financing institutions. The Bank
utilizes advances from the FHLB to fund a portion of its assets. At March 31,
1995, advances were $117.1 million up from $30.8 million at March 31, 1994. The
weighted average interest rate on these borrowings was 6.77% and 5.76% at March
31, 1995 and 1994, respectively. Increased borrowings during fiscal 1995 were
used primarily to fund the origination and retention of adjustable rate
mortgages for the portfolio. During the third quarter of fiscal 1994, the
Company recorded an extraordinary charge of $427,000 (net of income tax benefit
of $261,000) due to the early extinguishment of $7.5 million of certain FHLB
advances. This enabled the Company to reduce its cost of funds.
The following table reflects the amount outstanding, maximum month end and
average balances of short-term borrowings outstanding as well as the weighted
average rate at the end of the year:
<TABLE>
<CAPTION>
AT MARCH 31, MAXIMUM AVERAGE
------------ -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
1995:
Balances outstanding.............................. $108,643 $111,170 $49,355
Weighted average rate............................. 6.78% 6.54% 5.79%
1994:
Balances outstanding.............................. $ 3,750 $ 14,284 $ 7,435
Weighted average rate............................. 4.00% 4.00% 3.35%
1993:
Balances outstanding.............................. $ 500 $ 19,500 $ 7,913
Weighted average rate............................. 3.65% 3.60% 3.63%
</TABLE>
During fiscal 1995, the Company borrowed approximately $250.3 million from
the FHLB and repaid approximately $161.1 million of FHLB advances. At March 31,
1995, the Company had approximately $109.1 million of other borrowings due
within one year. For further information on the Company's borrowings, see Note 7
to Notes to Consolidated Financial Statements included elsewhere herein.
LIQUIDITY AND CAPITAL RESOURCES
The ALCO manages the Company's liquidity needs to ensure there is
sufficient cash flow to satisfy demand for credit, deposit withdrawals and other
Company needs. Traditional sources of funds include deposits, FHLB advances,
loan sales and payments on loans. The Company's assets were $528.2 million at
September 30, 1995, as compared to $377.8 million at September 30, 1994,
representing a 39.8% increase. At March 31, 1995, total assets were $457.3
million, a 42.7% increase from $320.4 million at March 31, 1994. The majority of
the increase in assets was in loans receivable, investment securities and real
estate held for development and sale. Substantially all of this growth was
funded with growth in deposits and FHLB
30
<PAGE> 33
advances. Under current regulations, the Bank is required to maintain liquid
assets at 5% or more of its net withdrawal deposits for short term borrowings.
For the month of September, 1995, the Bank maintained an average liquidity level
of 5.1% versus 5.3% for the month of March 1995 versus 8.5% for the month of
March 1994. At March 31, 1995, the Company had commitments to originate fixed
rate mortgage loans of approximately $3.3 million and commitments to originate
variable rate mortgage loans of approximately $2.4 million with terms of up to
thirty years and interest rates ranging from 6.5% to 11.0%. The Company had
commitments to sell mortgage loans of approximately $41.2 million at March 31,
1995. In addition, the Company is committed to loan funds on unused variable
rate lines of credit approximately $7.1 million at March 31, 1995. The Company's
funding sources for these commitments include deposits and FHLB advances.
Beginning April 1, 1995, the Bank formed an operating subsidiary,
PrimeEagle, and consolidated all real estate lending activities into this
business unit. This business unit generates revenues by originating construction
loans, permanent mortgage loans and SBA loans. Substantially all fixed rate
permanent mortgage and SBA loans are sold to investors. Permanent mortgage loan
originations increased 29.1% to $211.0 million for the six months ended
September 30, 1995, compared to $163.4 million for the six month period ended
September 30, 1995. The Company manages the funding requirements of these loans
primarily with short term advances from the FHLB. In addition, outstanding
commitments to originate loans, exclusive of the undisbursed portion of loans in
process, increased to approximately $22.3 million at September 30, 1995, from
$5.7 million at March 31, 1995.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") established five capital categories for financial institutions. The
OTS places each federally chartered thrift institution into one of five
categories: well capitalized, adequately capitalized, under capitalized,
significantly under capitalized, and critically under capitalized. These
classifications are based on the Bank's level of risk based capital, leverage
ratios and its supervisory ratings. FDICIA defines "well capitalized" banks as
entities having a total risk based capital ratio of 10% or higher, a tier one
risk based capital ratio of 6% or higher and a leveraged ratio of 5% or higher.
At March 31, 1995, the Bank was classified as "well capitalized" under the OTS
regulations that implement the FDICIA provisions described above.
The following table reflects the Bank's minimum regulatory capital
requirements, actual capital and the level of excess capital by category. The
Bank has historically maintained capital substantially in excess of the minimum
requirement. However, as can be seen from the chart, the Bank utilized excess
capital through asset growth and also paid $3.3 million of dividends to the
Company over the course of the year. A major portion of those dividends were
invested in real estate held for development and sale. Additionally, $1.4
million of these funds were paid to the Company's stockholders in the form of
cash dividend payments.
<TABLE>
<CAPTION>
AT MARCH 31, 1995
---------------------------------------------------------------------
OTS REQUIREMENT THE BANK'S CAPITAL EXCESS CAPITAL
--------------------- --------------------- ---------------------
DOLLARS % OF ASSETS DOLLARS % OF ASSETS DOLLARS % OF ASSETS
------- ----------- ------- ----------- ------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Tangible capital.................... $ 6,768 1.50% $29,616 6.56% $22,848 5.06%
Core capital........................ 13,600 3.00 29,616 6.56 16,016 3.56
Risk-based capital.................. 25,093 8.00 32,977 10.51 7,884 2.51
</TABLE>
31
<PAGE> 34
BUSINESS
OVERVIEW
The Company is a unitary savings and loan holding company headquartered in
Tucker, Georgia which owns and operates the Bank, EREA and the Bank's
wholly-owned subsidiaries, PrimeEagle and Eagle Service. At September 30, 1995,
the Company had total assets of approximately $528 million, total deposits of
approximately $328 million and stockholders' equity of approximately $36
million. The Bank is a federally chartered stock savings and loan association
organized in 1956 and based in Tucker, Georgia. The Bank serves the northeast
metropolitan Atlanta area through its home office and ten full service branch
offices in Cherokee, DeKalb, Fulton and Gwinnett Counties, Georgia. The Bank's
deposits are federally insured by the SAIF of the FDIC. Based on total assets at
September 30, 1995, the Bank is the third largest financial institution
headquartered in the metropolitan Atlanta area.
Prior to 1989, the Bank was engaged primarily in the traditional business
associated with thrift institutions, including the taking of deposits from the
general public and making loans secured by first mortgage liens on residential
and other real estate. Beginning in 1989, the Bank expanded the focus of its
operations beyond the traditional business of thrift institutions to include the
development of a loan production business. In connection with the expansion of
its operations, in 1989 the Bank organized Atlanta Mortgage Services as a
division of Eagle Service for the purpose of originating and selling
single-family first mortgage loans in the north metropolitan Atlanta area. In
November 1992, the Bank acquired the loan production operations of Prime
Lending.
The Bank is primarily engaged in the business of attracting deposits from
the general public, and, with these and other funds, making construction and
permanent first mortgage loans on residential and commercial real estate, making
various types of consumer and other loans, and investing in mortgage-backed
securities and money market securities. In addition to deposits, sources of
funds for the Bank's loans and other investments include origination and other
fees charged on certain types of loans, amortization and prepayment of loans,
sales of loans or participations in loans, and in sales of investment
securities. The principal sources of income for the Bank are interest and fees
collected on loans and, to a lesser extent, interest and dividends collected on
other investments and service charges on deposit accounts. The principal
expenses of the Bank are interest paid on deposits, employee compensation,
office expenses and other overhead expenses.
Effective April 1, 1995, the Bank consolidated its real estate lending
activities into its operating subsidiary, PrimeEagle. PrimeEagle generates
revenues by originating construction loans, permanent mortgage loans and SBA
loans and selling substantially all of the fixed rate permanent mortgage and SBA
loans to investors. PrimeEagle originates single family mortgage loans from its
loan production offices in Atlanta, Augusta, Hinesville, Peachtree City,
Savannah, Stockbridge and Warner Robins, Georgia; Akin, Columbia and Sumter,
South Carolina; Chattanooga, Tennessee; Jacksonville and St. Augustine, Florida;
and Charlotte, North Carolina. The Company intends to focus the geographic
expansion of its loan production business on emerging markets in the Southeast
and in which it is able to locate experienced managers and highly trained staff
who are capable of providing local market knowledge and superior customer
service.
PrimeEagle also generates revenues through fees for various services
including loan application and origination as well as through the gain or loss
on the sale of loans to third parties and from the sale of mortgage servicing
rights. Proceeds from sales of mortgage servicing rights are the largest
component of mortgage production fees. Fluctuations in the value of servicing
rights and management's analysis of the timing of mortgage prepayments impact
the Company's decision to retain or sell servicing. During fiscal 1995, the
Company sold substantially all of its permanent loans on a servicing released
basis.
The Company provides construction financing in each of its markets and
obtains significant benefits by coordinating the efforts of its construction
lending and permanent lending operations. The Company's permanent mortgage
products are primarily used for purchasing and refinancing single family homes
and producing fee income. Non-interest revenues are also earned as a result of
the Company's construction lending activities.
32
<PAGE> 35
The Bank competes for deposits with many financial institutions that are
larger and have greater financial resources. In order to remain competitive, the
Bank attempts to identify the specific needs of its target markets and to design
financial products and services to fill those needs. Currently, the Bank offers
a wide variety of insured savings programs and noninsured investment products.
Additionally, many new customers of the Bank express a desire to bank with a
local financial institution. The Bank believes that it provides a level of
personal service to each customer that may not be available from larger national
financial institutions. The Bank also believes the service it provides to its
customers can provide a platform for the sale of a variety of services.
BUSINESS AND OPERATING STRATEGY
The Company's strategic focus is based on four basic principles:
- Build long-term shareholder value
- Create competitive advantages in targeted business niches
- Develop long-term, customer driven relationships
- Create an entrepreneurial company where managers have an ownership
interest and operate like owners
In keeping with these principles, the Company's top priority is to increase
shareholder value by improving operating profitability, developing new sources
of income, prudently investing in the future and attracting highly qualified
employees.
Enhance Operating Profitability. The Company will continue its efforts to
increase the level of higher yielding assets in its loan portfolio. It intends
to expand its portfolio of non-conforming credit mortgages and increase its
level of consumer lending. The Company intends to continue its efforts to
improve operating efficiencies in its loan production operations by increasing
permanent originations in its targeted emerging Southeastern cities.
Develop New Sources of Income. The Company believes there is an
opportunity to develop a strong small business banking niche in its market
areas. Currently, the Bank is an active SBA lender in the metropolitan Atlanta
market. The Company believes that the financial services required by small
businesses are not adequately provided by the large banks operating in the
Atlanta area that are headquartered outside the State of Georgia. The real
estate activities of EREA also provide contributions to the Company's income.
The Company also intends to expand its consumer sales finance department.
Invest in the Future. Over the last 24 months the Company has invested
over $1.2 million in technology and plans to invest another $800,000 during the
next six months to improve efficiencies and enhance customer service. The
Company has opened seven loan production offices over the last 24 months.
Additionally, the Company opened a new branch banking facility in the Fall of
1995 and will open an additional branch in the Spring of 1996. These investments
are intended to enhance the Company's infrastructure and delivery system to
support future growth of the Company.
Recruit Experienced Banking Professionals. The consolidation of bank and
thrift institutions in the Atlanta marketplace has created opportunities for the
Company to recruit banking professionals who bring experience and customer
relationships. The Company believes that its entrepreneurial focus enhances the
attractiveness of a position with the Bank or the Company by allowing employees
to directly share in earnings and equity ownership. All employees are eligible
to receive bonus compensation based on net income and are afforded the
opportunity to participate in the equity ownership of the Company, thereby
enhancing the Company's ability to recruit and retain employees at all levels of
the organization.
GROWTH IN THE METROPOLITAN ATLANTA, GEORGIA MARKET
The Company is based in the metropolitan Atlanta, Georgia area and derives
a significant portion of its loans and deposits in that area. In recent years,
the metropolitan Atlanta area has enjoyed strong economic growth, including
growth in employment and population. The Company has benefitted from this growth
in the
33
<PAGE> 36
past and expects that its continued growth and profitability will depend in part
on the continued growth and the economic conditions in the Atlanta area. The
following tables indicates the historical and projected economic growth in
Atlanta:
<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL HISTORICAL HOUSEHOLD
EMPLOYMENT POPULATION FORMATION
GROWTH GROWTH GROWTH
MARKETS (1990-1994) (1990-1994) (1990-1994)
- ------------------------------------------------------------ ----------- ----------- -----------
<S> <C> <C> <C>
Atlanta..................................................... 13.3% 11.5% 12.5%
Top 50 Metropolitan Statistical Areas....................... 5.0 8.5 8.8
</TABLE>
<TABLE>
<CAPTION>
PROJECTED
PROJECTED PROJECTED HOUSEHOLD
EMPLOYMENT POPULATION FORMATION
GROWTH GROWTH GROWTH
MARKETS (1995-2005) (1995-2005) (1995-2005)
- ------------------------------------------------------------ ----------- ----------- -----------
<S> <C> <C> <C>
Atlanta..................................................... 32.0% 25.8% 28.9%
Top 50 Metropolitan Statistical Areas....................... 13.1 9.4 10.7
</TABLE>
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Source: For the historical data -- the U.S. Census Bureau and the U.S. Bureau of
Labor Statistics. For the forecasted data regarding top 50 Metropolitan
Statistical Areas -- Robert L. Siegel & Associates, Inc., for the
forecasted data regarding Atlanta -- Dr. Donald Ratajczak, Director of
Economic Forecasting Center, Georgia State University.
In addition, metropolitan Atlanta was ranked number one in DRI/McGraw
Hill's list of the top job-generating metropolitan areas for the period 1990 to
1995 and DRI/McGraw Hill projects that metropolitan Atlanta will retain its
first place status among the top metropolitan areas for job creation during the
period from 1995 to 2000. No assurances can be given that the metropolitan
Atlanta area will continue to have a strong economy or that, if the economy
continues to be strong, the Company will benefit from that economy.
LENDING ACTIVITIES
General
The Bank offers permanent mortgage, construction and SBA loans through 14
PrimeEagle offices located in Atlanta, Stockbridge, Peachtree City, Augusta,
Hinesville, Savannah, and Warner Robins, Georgia; Aiken, Columbia, and Sumter,
South Carolina; Chattanooga, Tennessee; Jacksonville and St. Augustine, Florida;
and Charlotte, North Carolina. The Company's goal is to continue geographic
expansion of its mortgage lending operations by focusing on the emerging markets
of the Southeast and to become the leading mortgage loan originator in the
markets it serves. The Bank also generally makes construction loans in each of
the markets where it operates mortgage origination offices in order to take
advantage of the cross selling opportunities between construction lending and
mortgage loan originations. In each market, the Bank follows the same stringent
underwriting and construction monitoring procedures.
In addition, the Bank's ten retail banking branches originate mortgage
loans and offer a range of consumer loans and equity lines of credit. The Bank
also has an equipment leasing operation which provides lease financing for
investment grade and middle market credits. The Company's goal is to increase
its line of products to attract the small business customer. The Company
believes that this market is currently underserved in the Atlanta metropolitan
area.
The acquisition of the Prime Lending operations in November 1992 broadened
the Company's mortgage lending area outside of the metropolitan Atlanta market.
The Company's has experienced consistent growth in loan originations in these
markets. Additionally, the Company generally faces less direct competition for
loans in these markets as compared to the metropolitan Atlanta area. Further,
many of the markets outside the metropolitan Atlanta area, including Augusta,
Savannah and Warner Robins, Georgia, are impacted by military bases and their
resulting housing requirements. During fiscal 1993, 1994 and 1995, the overall
base populations of the Company's markets increased. However, military base
closures in these markets could adversely effect the Company's business in these
markets.
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Federal laws and regulations prescribe the types and amounts of loans which
may be made by federal thrifts and generally permit such institutions to make
residential real estate loans, commercial real estate loans, business loans,
agricultural loans and consumer loans.
Permanent Residential Real Estate Loans
The Bank's principal lending operation traditionally has been the
origination of permanent single family residential mortgage loans, and these
loans continue to represent a significant part of the Bank's lending activities.
At September 30, 1995, permanent single family residential mortgage loans were
$218.9 million, constituting approximately 53.8% of the loan portfolio. Both
fixed rate and adjustable rate permanent loans on residential properties
currently are originated either for sale in the secondary market or for
retention in the Bank's loan portfolio. Generally, the Bank retains the
adjustable rate mortgage loans that it originates and sells the fixed rate loans
that it originates. See "-- Lending Activities -- Loan Sales and Purchases."
In the case of owner-occupied single family residences, the Bank may make
permanent residential mortgage loans for up to 95% of the appraised value of the
property. Loans on non-owner occupied real estate of not more than four family
units, generally are made for up to 75% of the appraised value. All conventional
loans with loan-to-value ratios in excess of 80% generally have private mortgage
insurance covering that portion of the loan in excess of 75% of the appraised
value. The borrower pays the cost of this insurance either through a single
premium paid at the time of loan origination or through a monthly payment during
the term of the loan. The borrower also generally makes monthly payments into an
escrow account equal to 1/12 of the annual hazard insurance premiums and
property taxes on the property which secures the loan. Interest rates and loan
fees charged on loans originated are competitive with other financial
institutions in the Bank's market areas.
The Bank has offered, in addition to fixed rate residential loans, a
variety of loans on which the interest rate, payment, loan balance or term to
maturity may be adjusted, provided that the adjustments are tied to specified
indices. These adjustable rate mortgage loans ("ARMs") permit greater
flexibility in adjusting loan yields to changes in the cost of funds. ARMs
generally have loan terms up to 30 years with rate adjustments ranging from one
to ten years during the term of the loan. Most ARMs have one of several
different caps on the maximum amount of change in the interest rate at any
adjustment period and over the life of the loan.
Residential Construction Loans
The Bank provides interim construction financing for single-family
residences and makes land acquisition and development loans on properties
intended for residential use. The Bank's general policy is to grant single
family construction loans and land acquisition and development loans up to 80%
of the lower of cost or appraised value of the property. Residential
construction loans are made for periods of one year or less, and land
acquisition and development loans are made for periods of up to five years.
These periods may be extended subject to negotiation and, typically, the payment
of an extension fee. Interest rates on construction and acquisition and
development loans are indexed to the Bank's base rate and are adjustable daily
during the term of the loan.
In accordance with the Company's business plan, the volume of construction
lending has increased in each of the previous three fiscal years. The Company
does not expect its percentage of construction loans to total loans to increase
significantly above the September 30, 1995 level of $110.8 million or 27.4% of
total loans. The Company recognizes the risks inherent in construction financing
and has designed an organization and system of controls to properly mitigate
those risks through strict underwriting and close monitoring of the lending and
construction process. Underwriting criteria include, among other things, the
track record and financial condition of the builder, applicable loan to
appraised value ratios, the demand for the type of house to be constructed,
including a marketing survey of inventory levels by price range and location,
the feasibility of house plans and costs and growth prospects for the economy.
The Company has a statewide construction inspection and appraisal network. The
Company's staff closely monitors construction progress and loan draws throughout
the process. Approximately 50% of the Company's construction loan portfolio is
secured by houses that are pre-sold. In addition, no single customer accounts
for more than 2% of the Bank's loans.
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Consumer Loans
Federal thrifts are authorized to make both secured and unsecured consumer
loans for personal or household purposes in amounts up to 30% of their total
assets. In addition, federal thrifts have lending authority above the 30% limit
for certain consumer loans, such as home equity loans (loans secured by the
equity in the borrower's residence but not necessarily used for the purpose of
home improvement), property improvement loans, mobile home loans, deposit
account secured loans, education loans and indirect automobile loans. At
September 30, 1995, total consumer loans constituted $4.5 million or 1.1% of the
Company's total loan portfolio. The Company intends to continue prudent
expansion of its consumer lending activities, subject to market conditions, as
part of its plan to become a full service financial institution providing a wide
range of personal financial services.
Commercial Leases/Business Loans
The Company is authorized by federal law to make secured and unsecured
loans for business or agricultural purposes in amounts aggregating up to 10% of
its total assets. Pursuant to this authority, the Company makes various types of
commercial loans and leases to creditworthy borrowers for the purposes of
financing equipment, capital projects and other legitimate business needs. The
Company also purchases lease payment streams from approved third party lessors.
In approving lessors, the Company evaluates their financial strength,
reputation, credit worthiness and documentation capabilities.
The Company evaluates creditworthiness of commercial and business loans
primarily on the basis of the borrowers' financial strength including analysis
of cash flow and balance sheet trends. In some instances, liquidation value or
lessor recourse is considered as a secondary method of payment. The Company
assigns a credit rating to each borrower based, among other things, on the
borrowers' historical cash flow, financial strength, paying habits, business
prospects, debt structure and capitalization, and reputation and character of
its principals.
These loans normally carry interest rates indexed to the Company's base
rate, nationally quoted prime rate and U.S. Government Treasury securities.
Commercial/business loans as of September 30, 1995 constituted approximately
$38.0 million or 11.3% of the total loan portfolio and 7.2% of total assets.
Commercial Real Estate Loans
Interim construction and permanent commercial real estate loans typically
are secured by apartment projects, office buildings, business properties,
shopping centers, nursing homes and motels located in the Company's primary
lending areas. Construction and permanent commercial real estate loans are made
generally to 75% of the appraised value of the property, with the loan amount
being determined through an evaluation of the net operating income and cash
flows of each project. Interest rates are generally determined by market
conditions. Commercial construction loans generally are made for periods of 12
to 24 months on an interest only basis at interest rates indexed to the prime
rate. Permanent commercial real estate loans are typically made with up to 25
year amortization and up to a 10 year maturity. Interest rates on permanent
loans are generally tied to the Bank's base rate or other interest rate indexes.
As of September 30, 1995, the Company had outstanding $16.1 million in loans
secured by commercial real estate. This constituted 4.0% of the Bank's loan
portfolio.
Loan Origination and Processing
PrimeEagle actively solicits mortgage loan applications from existing
customers, local real estate agents, builders, real estate developers and others
for sale in the secondary market. The Company has received delegated
underwriting from each of its primary investors in loan pools. A majority of
these loans are underwritten to meet FNMA and FHLMC standards. The Company's
loans are approved by qualified underwriters in the markets they serve. These
underwriters ensure that the loans are closed in accordance with the guidelines
set forth by FNMA and FHLMC and in the Company's lending policy and with
investors. Substantially all of the permanent mortgage loans originated by
PrimeEagle are sold to private investors on a servicing released basis.
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In addition, the Company has a structured loan approval process in which
lending authority for various types and amounts of loans is delegated by the
Board of Directors to loan officers on a basis commensurate with seniority and
lending experience. The Bank has a Loan Committee that approves loan requests
made by loan officers and must approve loans in amounts above $20,000.
Additionally, the Bank's Board of Directors must approve loans of $1 million or
more.
Loan Sales and Purchases
Permanent first mortgage loans on residential real estate are originated
for sale in the secondary market by PrimeEagle through its 14 offices in the
Southeast. These loans are pooled and sold through an assignment of trade to
private investors. Fluctuations in the value of servicing rights and
management's analysis of loan prepayments impact the Company's decision to
retain or sell servicing. Because of the high cost to service loans as compared
to the service release premiums paid by investors, the Company sells
substantially all of its permanent loans on a servicing released basis.
Credit Risk Management and Allowance for Loan Losses
The Bank has a multi-faceted program designed to control and monitor the
credit risks inherent in its loan portfolio. The Bank utilizes an asset
classification system which is consistent with the "Interagency Policy Statement
on the Allowance for Loan and Lease Losses" issued by the OTS to develop common
guidance on allowances. The statement asserts that an institution must maintain
an allowance for loan and lease losses ("ALLL") at an adequate level to absorb
estimated credit losses associated with its loan and lease portfolio. Also, the
ALLL should be sufficient to absorb estimated credit losses associated with
off-balance sheet credit instruments, to the extent they are not provided for in
a separate liability account.
The basic objectives of the Bank's ALLL policy are: (i) to provide
essential information regarding the overall quality of the Bank's assets; (ii)
to provide for early identification of potential problem assets so as to
minimize losses to the Bank; (iii) to project relevant trends that affect the
collectibility of the Bank's loan and lease portfolio and to isolate potential
problem areas; (iv) to provide adequate valuation allowances in accordance with
generally accepted accounting principles and OTS policies; (v) to provide
accurate and timely information relating to credit quality that can be used for
financial and regulatory reporting purposes; (vi) to assess the adequacy of
internal controls and adherence to internal credit policies and loan
administration procedures; (vii) to monitor compliance with relevant laws and
regulations through a loan review system; and (viii) to evaluate the activities
of lending personnel through a loan review system.
The Bank utilizes its Asset Classification Committee (the "ACC") to provide
a quarterly evaluation of the Bank's assets, to establish the adequacy of the
valuation allowances and to evaluate the loan review system. The ACC is
responsible for ensuring that the Bank has an effective credit approval and loan
review system and controls, including a credit grading system, that identifies,
monitors and addresses asset quality problems in an accurate and timely manner.
After a loan has been made, responsibility is placed with loan officers to
analyze continuously the loan portfolio and to identify promptly and report
problem loans. Loans are also reviewed by the loan committee, the ACC and,
periodically and on a spot-check basis, by an outside accounting firm that
conducts an independent credit review function for the Bank. The loan officer
responsible for a loan submits the loan to the loan committee for approval in
accordance with the guidelines of the Bank's lending authority. Each commercial
real estate, construction, and lease loan is given a rating which the loan
committee has the ability to approve or disapprove.
In addition, the frequency of ongoing review is determined by the loan
officer and approved by the Loan Committee. The ACC may determine that a loan or
borrower's credit grading or review frequency should be changed in accordance
with the framework provided by the Bank's grading system.
The Bank also periodically performs an analysis of the various components
of its portfolio, including all significant credits on an individual basis. In
order to analyze the adequacy of the ALLL, the Bank will segment the loan and
lease portfolios into components which have similar characteristics.
Characteristics that
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are considered include, but are not limited to, geographical location, risk
classification, past due status, type of loan, loan grade, and industry or
collateral. Estimates of credit losses reflect consideration of all significant
factors that affect the collectibility of the portfolio as of the evaluation
date.
The ACC considers historical losses or recent trends, changes in national
and local economic and business conditions and developments, the level and
structure of interest rates, job growth, consumer confidence and expected
movement in market value of collateral. The ACC considers (i) the affect of
external factors, such as competition and legal and regulatory requirements on
the level of estimated losses in the Bank's current portfolio; (ii) changes in
the duration, type and level of assets; (iii) the existence and affect of any
concentration of assets and changes in the level of such concentrations; (iv)
changes in the experience, ability and depth of the lending management and loan
administration staff of the Bank; (v) changes in lending policies and
procedures, including underwriting standards and collection, charge-off and
recovery practices; (vi) changes in the trend of the volume and severity of past
due and classified loans; (vii) trends in the volume of nonaccrual loans,
troubled debt restructurings and other loan modifications; and (viii) changes in
the quality of the Bank's loan review system and the degree of oversight by the
Bank's Board of Directors.
In addition, ratio analysis is used as a supplemental tool for evaluating
loans, portfolio concentration and the overall reasonableness of the ALLL.
Ratios are used to compare the Bank to its peer group and its historical
practices in identifying divergent trends in the relationship of classified and
nonclassified assets, past due and nonaccrual loans and leases, total loans and
binding commitments and historical gross and net charge-offs.
Based upon the amount and type of classifications, the ACC establishes the
appropriate and requisite general and specific valuation allowances and makes
any necessary adjustments to the allowances. The methodology for determining the
amount of general valuation allowances will take the amount of assets classified
substandard, doubtful, loss and special mention into consideration. Certain
percentages derived to properly reflect the risk associated with the Bank's loan
mix will be applied to the balance of all loans including those classified
substandard, doubtful, loss and special mention. These percentage range from .1%
to 100% and are derived primarily through industry standards and the Bank's
historical data. These percentages are reviewed as conditions require. The Bank
has a conservative philosophy and automatically considers any loan that is
delinquent 90 days or more and real estate acquired in the settlement of loans
as substandard.
The Bank will combine its estimates of the reserves needed for each
component of the portfolio. The ALLL will be divided into two distinct portions:
(i) an amount for specific allocations on significant individual credits and
(ii) a general reserve amount. Within the general reserve section, the loan
portfolio will be broken into as many segments as practical for the purpose of
making allocation to the ALLL.
See "Management's Discussion and Analysis of Results of Operations and
Financial Condition -- Provision for Loan Losses and Risk Elements."
ASSET LIABILITY MANAGEMENT
Interest Rate Risk
The Bank operates under an interest rate risk policy through the ALCO. The
policy outlines limits on interest rate risk in terms of changes in net interest
income and changes in the net market values of assets and liabilities over
certain changes in interest rate environments. These measurements are made
through a simulation model which projects the impact of changes in interest
rates on the Bank's assets and liabilities. Additionally, the committee may set
additional interest rate risk objectives. The policy also outlines
responsibility for monitoring interest rate risk, and the process for the
approval, implementation and monitoring of interest rate risk strategies to
achieve the Bank's interest rate risk objectives.
The Company's ALCO is comprised of senior management of the Bank. The ALCO
makes all tactical and strategic decisions with respect to the sources and uses
of funds that may affect net interest income, including net interest spread and
net interest margin. The ALCO's decisions are based upon policies established by
the Bank's Board of Directors which are designed to meet three goals -- improve
interest rate spread, maintain adequate liquidity and manage interest rate risk.
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The ALCO has developed a program of action which includes, among other
things, the following: (i) selling substantially all conforming, long-term,
fixed rate mortgage originations; (ii) originating and retaining for the
portfolio, shorter term, higher yielding loan products which meet the Company's
underwriting criteria; (iii) repaying high cost funding sources, where possible,
and (iv) actively managing the Company's Gap and interest rate risk exposure.
During fiscal 1995, the Company also introduced strategies to increase core
earnings which included increasing assets by retaining permanent adjustable rate
mortgages and maintaining steady construction and lease originations. The
Company's ability to expand its loan portfolio through originations or
residential construction, short term leases and adjustable rate permanent
mortgage loans has contributed to the Company's ability to improve its spread
while limiting exposure to rising interest rates due to the variable rates and
short term commitments these loans represent.
The excess of interest earning assets versus interest bearing liabilities
repricing or maturing in a given period of time is commonly referred to as
"Gap". The Bank's ALCO has continued to shift the Bank's Gap throughout the
year. The Bank's Gap position is evaluated continuously and discussed by the
ALCO in bi-weekly meetings. A positive Gap indicates an excess of rate sensitive
assets over rate sensitive liabilities, while a negative Gap indicates an excess
of rate sensitive liabilities over rate sensitive assets. The Bank had a
negative one year Gap of 23.59% as of March 31, 1995. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Interest Rate Sensitivity." Part of the ALCO strategy for reducing
interest rate risk revolves around increasing the percentage of shorter term
floating rate loans in the Company's portfolio. This has been accomplished by
originating residential construction and adjustable rate permanent loans. The
Bank continues to originate consumer loans, second mortgage loans and equipment
lease financing loans. In general, these loans have short maturities and
floating interest rates.
The Bank also operates under a secondary marketing policy. The secondary
marketing policy applies to the use of forward commitments ("coverage") by
PrimeEagle to hedge market exposure in the pipeline of loans originated for
sale. The ALCO is responsible for the implementation of the policy. The policy
outlines acceptable hedging instruments, sets limits on the maximum exposure to
risk and outlines authority and responsibility for the implementation of the
policy. Pursuant to the policy, PrimeEagle holds coverage equal to at least 100%
of estimated interest rate risk exposure.
INVESTMENT ACTIVITIES
Income from investments in securities provides the Bank's second largest
source of interest income after interest on loans. Federally chartered thrift
institutions are required to maintain a minimum amount of liquid assets that may
be invested in specified short-term securities. These assets include, among
others, United States Treasury and Federal Agency obligations, certain
certificates of deposit, bankers' acceptances and Federal Funds. Subject to
various restrictions, investments may also be made in mortgage-backed
securities, commercial paper and corporate debt and equity securities.
Investment decisions are made by authorized officers under the supervision
of the Bank's Board of Directors pursuant to the Bank's investment policy.
Brokers approved by the Board of Directors are used to effect securities
transactions. The Company holds no investment securities issued by a single
issuer, other than mortgage-backed securities issued by an agency of the United
States government, which equaled or exceeded 10% of stockholders' equity at
September 30, 1995.
Under the investment policy, the ALCO, with the approval of the Board of
Directors of the Bank, designates all investments at the time of purchase as
either trading assets, assets available for sale or assets held to maturity. At
September 30, 1995, fixed rate mortgage-backed securities have been classified
as assets available for sale based on management's determination that such
assets may be liquidated prior to maturity. PrimeEagle classifies all permanent
fixed rate loans originated as assets held for sale unless originated pursuant
to a portfolio commitment to the Bank. All other loans, investments and
mortgage-backed securities are considered assets held to maturity unless
specifically classified otherwise. As of September 30, 1995, $85.3 million or
16.2%, of the Company's assets were classified as held for sale.
At September 30, 1995, the Bank's investment portfolio, consisted of United
States Agency obligations, investment grade corporate debt securities, equity
securities and FHLB stock. Additionally, the Bank holds
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investments in mortgage-backed securities. At September 30, 1995, the Bank did
not own any repurchase agreements as investments.
REAL ESTATE DEVELOPMENT ACTIVITY
EREA was formed in October 1991 as a wholly-owned real estate services
subsidiary of the Company to perform third party real estate brokerage and
development activities, assist the Bank in identifying and acquiring branch
sites and assist in disposing of real estate acquired through foreclosure. In
connection with its development activities, the Company and EREA select only
local projects that management believes are well located and where zoning,
utility and economic risks can be minimized before the Company commits to engage
in development activities.
At September 30, 1995, the Company had invested in three real estate
development projects totaling $8.4 million and representing 1.6% of total
assets. In December 1995, the Company invested $600,000 in a fourth real estate
development project. Set forth below is information regarding each of the
projects.
- Union Hill LLC. In October 1994, the Company and two unaffiliated third
parties formed a limited liability corporation, Union Hill LLC, which purchased
149.7 acres of land located in Forsyth County, Georgia for the purpose of
developing a 323-lot single family residential community named Chadbourne. The
Company's investment in land and development costs at September 30, 1995, was
$4.1 million. Through December 31, 1995, Union Hill LLC had contracted to sell
217 lots at an average sales price of $30,878 per lot to one of Atlanta's
largest single family homebuilders with a specific takedown schedule. The
average development cost per lot is $22,599. The Company benefits from the
project by receiving a preferred return on its investment and 50% of any
remaining profits.
- Hampton Oaks L.P. In order to meet its goal of providing affordable
housing, the Company has invested $3.2 million in a limited partnership, Hampton
Oaks, L.P., that was organized to construct and lease a 50 unit affordable
housing cooperative in Fulton County, Georgia. The general partner of Hampton
Oaks, L.P. is a not-for-profit corporation. The Company owns a 99% limited
partnership interest. The property is supported by 50 Section 8 housing permits
and $2.6 million of Low Income Housing Tax Credits. As of December 31, 1995, the
units are 100% occupied and the Company, as a result of its equity investment,
will recognize Investment Tax Credits of $260,000 per year over the next 10
years.
- Cobb Woodlawn Development LLC. In January 1995, the Company formed a
wholly-owned limited liability corporation subsidiary, Cobb Woodlawn Development
LLC, for the purpose of purchasing 15.8 acres of land and developing a 48-lot
single-family residential community in Cobb County, Georgia named Woodlawn Park.
The Company's net investment as of September 30, 1995 was $1.1 million. At
December 30, 1995, Cobb Woodlawn Development LLC had contracted to sell all 48
lots at an average sales price per lot of $61,250. The average development cost
per lot is $47,950. Development is complete and the sales contract requires all
lot sales to be completed by August 1996.
- BN Development Company LLC. In December 1995, the Company and an
unaffiliated third party formed BN Development Company LLC for the purpose of
acquiring a commercial lot near Cumberland Mall in Cobb County, Georgia and
developing and leasing a 30,000 square foot Barnes & Noble, Inc. superstore. The
Company's total investment at December 31, 1995 was $600,000. BN Development
Company LLC's obligation is to provide a pad ready site for further development
and construction of the superstore by Barnes & Noble, Inc. Upon completion of
construction of the superstore, BN Development Company LLC will purchase the
facility and lease it to Barnes & Noble, Inc. under a 20 year triple net lease.
The Company benefits from the project by receiving a preferred return on its
investment and 50% of any remaining profits.
SOURCES OF FUNDS
General
Deposits are the Bank's largest source of funds for lending and other
investment purposes. In addition to deposits, the Bank obtains funds from
repurchase agreements, loan principal repayments, proceeds from sales of loans
and loan participations and advances from the FHLB. Loan repayments are a
relatively stable source
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of funds while deposit inflows and outflows and sales of loans and investment
securities are significantly influenced by prevailing interest rates and
economic conditions. Borrowings may be used to compensate for reductions in
normal sources of funds or to support expanded lending activities.
Deposits
The Bank offers a variety of savings and other deposit programs and related
services. Deposits are obtained primarily from the communities in which its
banking offices are located. The Bank uses traditional marketing methods to
attract new customers. The Bank does not advertise for deposits outside of its
local market area. For further details as to the composition of the Bank's
savings portfolio, see Note 6 of Notes to Consolidated Financial Statements. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Deposits."
Borrowings
Savings deposits are the primary source of funds for the Bank's lending and
investment activities and for its general business purposes. However, the Bank
periodically obtains additional funds by borrowing from the FHLB and through
repurchase agreements entered into with various brokerage organizations whose
credit worthiness has been approved by the Bank's Board of Directors. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition -- Borrowings" and Note 7 of Notes to Consolidated Financial
Statements.
COMPETITION
The Bank faces strong competition in attracting deposits and making loans
throughout its market areas. The most significant factors in competing for
deposits are interest rates, the quality and range of financial services
offered, convenience of office locations and office hours. The Bank competes
directly for deposits with commercial banks, money market funds and retail
securities brokerage houses with offices in the Bank's market areas. The Bank
also faces competition for deposits from (i) more distant depository
institutions that advertise locally or through national media, (ii) short-term
money funds, (iii) corporate and government borrowers (including, among others,
insurance companies) and (iv) credit unions.
The Bank competes for deposits principally by attempting to identify the
specific needs of its target market and by offering a high level of customer
service. Analysis of product needs is generated through dialogue with customers
and staff. The Bank offers a wide variety of savings programs including
passbooks, NOW checking accounts, certificates of deposit ranging from three
months to five years in maturity, tax deferred retirement programs, tax deferred
certificates of deposit and small savers plans.
Employee commitment to service is another important factor in attracting
deposits. The goal of the Bank is to render superior personal service through
convenient branch and main office locations and hours of operation. All of the
Bank's branches are open on Saturdays for customer convenience. The Bank does
not rely on any individual, group or entity for a material portion of its
deposits.
The Bank's competition for loans comes from mortgage companies, other
thrift institutions and commercial banks, credit unions, consumer finance
companies, insurance companies and investment banking firms. The primary factors
in competing for loans are interest rates, discount points, loan fees and the
quality and range of lending services offered. Competition for origination of
mortgage loans comes primarily from other thrift institutions and loan
production firms, commercial banks and insurance companies. The Bank competes
for loan originations through the quality of services it provides borrowers,
real estate brokers and builders, as well as the interest rate and terms of its
loans. The competition for loans varies from time to time depending on the
general availability of lendable funds and credit, general and local economic
conditions, interest rate levels, conditions in the local real estate market and
other factors that are not readily predictable. The Bank attempts to charge
interest rates and loan fees commensurate with the level of risk it accepts. The
Bank believes that providing superior service can allow improved loan pricing.
The expansion of PrimeEagle's mortgage origination offices has been targeted
toward markets with solid growth prospects which are under
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served by PrimeEagle's competitors. No market is entered, however, without an
experienced manager and highly trained staff.
Various states in the Southeastern region, including Georgia, have enacted
regional interstate banking laws which permit financial institutions and, in
some states such as Georgia, thrift institutions, to acquire financial
institutions in other states within the region. As a result of such laws there
have been major interstate acquisitions involving Georgia financial institutions
which have offices in the Bank's service area but are headquartered in other
Southeastern states. The effect of such acquisitions (and of the possible
increase in the size of the financial institutions in the Bank's market area)
may be to further increase the competition faced by the Bank.
Competition may be further increased as a result of the enactment of the
Riegle-Neal Interstate Banking and Branch Efficiency Act of 1994 (the
"Interstate Banking Act") on September 29, 1994. Beginning in September 1995,
bank holding companies, upon meeting certain criteria, were authorized to
acquire existing banks on a nationwide basis without regard to state statutes to
the contrary. Effective June 1, 1997, the Interstate Banking Act will permit
mergers of banks on an interstate basis, unless states in which such banks are
located pass legislation specifically prohibiting out-of-state banks from
operating interstate branches within their boundaries. In addition, the
Interstate Banking Act provides for de novo interstate branching where states
enact legislation specifically authorizing interstate branching within the host
state. See "Supervision and Regulation -- Recent Legislation."
EMPLOYEES
At December 28, 1995, the Company had 338 full-time employees and 52
part-time employees. All officers and other personnel serving the Company are
employed and compensated by the Bank. No employees are covered by a collective
bargaining agreement. Management considers its relations with its employees to
be good.
PROPERTIES
The principal executive offices of the Company are located at 4305 Lynburn
Drive, Tucker, Georgia and are located in a 4,320 square foot building owned by
the Bank. The main office of the Bank is located at 2355 Main Street, Tucker,
Georgia. The Company's ten branch offices are located in the Doraville,
Dunwoody, Lilburn, Norcross, Northlake, Roswell, Stone Mountain, Towne Lake,
Tucker and Wesley Chapel areas of metropolitan Atlanta, Georgia. Two of the
Bank's ten branch locations are leased under operating leases and the remaining
branch properties, including the main office are owned by the Bank. The Roswell,
Georgia branch office is leased on a month-to-month basis. The lease on the
Bank's Northlake office expires in 2002.
PrimeEagle operates 14 loan production offices located in Aiken, Columbia
and Sumter, South Carolina; Jacksonville and St. Augustine, Florida; Atlanta,
Augusta, Hinesville, Peachtree City, Savannah, Stockbridge and Warner Robins,
Georgia; Chattanooga, Tennessee; and Charlotte, North Carolina. Each of these
offices is leased pursuant to an operating lease. The Augusta office is leased
on a month-to-month basis. The Savannah office has a three-year lease that
expires in 1997. The Hinesville office has a five-year lease that expires in
1998. The Warner Robins office lease expires in 1999. The Chattanooga office
lease expires in 1998. The Jacksonville, Florida and Columbia, South Carolina
leases expire in 2000. The PrimeEagle office in Atlanta is leased pursuant to an
operating lease that expires in 1998 and includes an option to renew for a
three-year term. The Aiken and Sumter, South Carolina and the Stockbridge and
Peachtree City, Georgia leases expire in 1996. Management believes that it will
be able to renew such leases on satisfactory terms.
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<PAGE> 45
MANAGEMENT
Set forth below is information regarding the directors and key employees of
the Company and the Bank, including their principal occupations (which have
continued for at least the past five years, unless otherwise noted) as of
December 19, 1995:
DIRECTORS
Walter C. Alford, 46, has been an attorney practicing in Tucker, Georgia
since 1974, and has served as General Counsel to the Bank since 1995. Mr. Alford
has been a director of the Company and the Bank since 1995.
Richard J. Burrel, 67, retired in 1994 after 40 years of service with
Household International, Inc., a financial services company. During his
employment with Household International, Mr. Burrell served as Governmental
Relations Director from 1962 until 1994. He previously has served as President
of the Alabama and Florida Financial Services Associates and Georgia Equity
Lenders Association. He is a director of the Consumer Credit Counseling Service
of Atlanta. Mr. Burrell has been a director of the Company and the Bank since
1994.
Richard B. Inman, Jr., 44, has served as President and Chief Executive
Officer of the Bank since October 1990. He has also been Treasurer of the
Company since May 1993. From 1982 until 1985, Mr. Inman served as President of
Holly Ridge Foods. From 1985 until October 1990, he was President of Inman Cream
Company. Prior to 1982, Mr. Inman worked as an investment banker. He has been a
director of the Company since 1992 and a director of the Bank since 1988.
Weldon A. Nash, Jr., 49, has served as President and Chief Executive
Officer of Weldon, Inc., a company based in Stone Mountain, Georgia, which
designs, builds and develops residential and commercial properties, since 1975.
Mr. Nash has been a director of the Company since 1991 and a director of the
Bank since 1991.
Conrad J. (Jere) Sechler, Jr., 49, has served as President of Eagle
Service, a wholly-owned subsidiary of the Bank, since 1991, and served as
Executive Vice President of Eagle Service from 1989 to 1991. He has been a
director of the Company since April 1995 and a director of the Bank since 1985.
Prior to joining the Bank, Mr. Sechler was a self-employed real estate broker,
specializing in commercial real estate activities in and around metropolitan
Atlanta. He is the son of Conrad J. Sechler, Sr., the Chairman of the Board and
President of the Company.
Conrad J. Sechler, Sr., 82, was an organizer of the Bank and has served as
Chairman of the Board of the Bank since its organization in 1956, and has served
as Chairman of the Board and President of the Company since its incorporation in
September 1985. Mr. Sechler was the Managing Officer of the Bank from January
through September 1990. He also served as President and Chief Operating Officer
of Eagle Service from 1971 to 1991. He has been a director of the Company since
1985 and a director of the Bank since 1956. He is the father of Conrad J. (Jere)
Sechler, Jr.
George G. Thompson, 49, was the Superintendent of Gwinnett County Public
Schools from 1990 until December 1994. Prior to that time, he was the
Administrative Assistant to the Superintendent of the Gwinnett County Public
Schools from 1982 until 1989. Mr. Thompson is currently employed by The Center
for Leadership in School Reform as a Senior Associate. He has been a director of
the Company since 1993 and a director of the Bank since 1993.
KEY EMPLOYEES
LuAnn Durden, 36, has been Senior Vice President and Chief Financial
Officer of the Bank since 1994. Since joining the Bank in 1987, Ms. Durden has
served as Internal Auditor and Vice President of Finance. Prior to joining the
Bank, Ms. Durden was a Senior Auditor with Peat Marwick Mitchell & Co. She is a
Certified Public Accountant.
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<PAGE> 46
Glenn A. Farley, Sr., 42, is a Senior Vice President of the Bank and has
served as Chief Lending Officer since 1993. Prior to joining the Bank, Mr.
Farley was Vice President of Construction Lending at Decatur Federal Savings and
Loan Association from 1987 through 1993.
Zelma B. Martin, 48, has been a Senior Vice President since 1987. She
joined the Bank in 1967.
Betty Petrides, 42, has been Executive Vice President of the Bank since
1988. She has been Secretary of the Bank since 1989. Prior to joining the Bank,
Ms. Petrides was a consultant in governmental affairs with special emphasis on
banking and state and local issues. She has been a director of the Bank since
April 1995.
STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock as of December 22, 1995, by each
director of the Company, each executive officer of the Company and all directors
and executive officers of the Company as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING(1) AFTER OFFERING(1)
-------------------------- --------------------------
NUMBER PERCENT NUMBER PERCENT
NAME AND POSITION WITH COMPANY OF SHARES OF CLASS OF SHARES OF CLASS
- ----------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Walter C. Alford................................................. 26,928 (9 ) 26,928 (9 )
Director
Richard J. Burrell............................................... 26,500 (2) (9 ) 26,500 (2) (9 )
Director
Richard B. Inman, Jr............................................. 124,600 (3) 4.00 % 124,600 (3) 2.82 %
Director, Treasurer and Secretary of the Company; President and
Chief Executive Officer of the Bank
Weldon A. Nash, Jr............................................... 24,624 (4) (9 ) 24,624 (4) (9 )
Director
Conrad J. (Jere) Sechler, Jr..................................... 72,699 (5) 2.33 72,699 (5) 1.65
Director; President of Eagle Service
Conrad J. Sechler, Sr............................................ 141,720 (6) 4.55 141,720 (6) 3.21
Chairman of the Board and President
George G. Thompson............................................... 3,600 (7) (9 ) 3,600 (7) (9 )
Director
Betty Petrides................................................... 84,406 (8) 2.70 84,406 (8) 1.91
Executive Vice President and Secretary of Bank
All directors and executive officers as a group (8 persons)...... 505,077 16.2 % 505,077 11.4 %
======= ====== ======= ======
</TABLE>
- ---------------
(1) The stock ownership information shown above has been furnished to the
Company by the named persons or obtained from information filed with the
Commission. Beneficial ownership as reported in this table has been
determined in accordance with regulations of the Commission and includes
shares of Common Stock which may be acquired within 60 days. Except as
otherwise indicated, the named persons have sole voting and investment
power with regard to the shares shown as owned by them.
(2) With regard to Mr. Burrell, the shares shown include 2,500 shares which he
may acquire upon the exercise of stock options.
(3) With regard to Mr. Inman, the shares shown include (i) 23,000 shares which
he may acquire upon the exercise of stock options, (ii) 30,000 shares of
restricted stock with respect to which Mr. Inman has voting power; however,
in accordance with the vesting provisions of the award, 7,500 of such
shares are subject to forfeiture; (iii) a total of 3,950 shares held for
the account of Mr. Inman and as a participant in the ESOP; and (iv) 2,000
shares which are held of record by the spouse of Mr. Inman and as to which
he disclaims beneficial ownership.
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<PAGE> 47
(4) With regard to Mr. Nash, the shares shown include (i) 13,332 shares which
are held of record as joint tenants by his spouse and mother-in-law and as
to which he disclaims beneficial ownership and (ii) 3,000 shares which he
may acquire upon the exercise of stock options.
(5) With regard to Mr. Sechler, Jr., the shares shown include (i) 9,666 shares
which he may acquire upon exercise of stock options; (ii) 15,000 shares of
restricted stock with respect to which he has voting power; however, in
accordance with the vesting provisions of the award, 7,500 of such shares
are subject to forfeiture; and (iii) 6,076 shares held for his account as a
participant in the ESOP.
(6) With regard to Mr. Sechler, Sr., the shares shown include (i) 3,000 shares
which he may acquire upon the exercise of stock options; (ii) 1,220 shares
held for his account as a participant in the ESOP; and (iii) 117,500 shares
owned by corporations which he votes as majority owner of such
corporations.
(7) With regard to Mr. Thompson, the shares shown include 3,000 shares which he
may acquire upon the exercise of stock options.
(8) With regard to Mrs. Petrides, the shares shown include (i) 62,166 shares
which she may acquire upon exercise of stock options; (ii) 15,000 shares of
restricted stock for which she has voting power; however, in accordance
with the vesting provisions of the award, 7,500 of such shares are subject
to forfeiture; and (iii) 7,240 shares held for her account as a participant
in the ESOP.
(9) Less than 1%.
Additionally, as of December 31, 1995, (i) LuAnn Durden, Senior Vice
President and Chief Financial Officer of the Bank, beneficially owned 8,420
shares of Common Stock, including 4,000 shares issuable upon exercise of
outstanding stock options and 4,420 shares allocated to her account in the ESOP,
(ii) Glenn A. Farley, Sr., Senior Vice President of the Bank, beneficially owned
5,065 shares of Common Stock, including 3,000 shares issuable upon exercise of
outstanding stock options and 565 shares allocated to his account in the ESOP,
and (iii) Zelma B. Martin, Senior Vice President of the Bank, beneficially owned
6,659 shares of Common Stock, including 2,800 shares issuable upon exercise of
outstanding options and 3,859 shares allocated to her account in the ESOP.
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<PAGE> 48
SUPERVISION AND REGULATION
GENERAL
The Company is a savings and loan holding company and, as such, is subject
to regulation, examination, supervision and reporting requirements of the OTS
and the Georgia Department of Banking and Finance ("DBF"). The Bank is a
federally chartered savings institution and is a member of the FHLB system,
subject to examination and supervision by the OTS and the FDIC, and subject to
regulations of the Federal Reserve Board governing reserve requirements. To the
extent that the following information describes statutory and regulatory
provisions, it is qualified in its entirety by reference to particular statutory
and regulatory provisions. Any change in applicable laws or regulations may have
a material effect on the business and prospects of the Company.
FEDERAL SAVINGS AND LOAN HOLDING COMPANY REGULATIONS
As the owner of all of the stock of the Bank, the Company is a savings and
loan holding company subject to regulation by the OTS under the Home Owners'
Loan Act (the "HOLA"). As a unitary savings and loan holding company owning only
one savings institution, the Company generally is allowed to engage and invest
in a broad range of business activities not permitted to commercial bank holding
companies or multiple savings and loans holding companies, provided that the
Bank continues to qualify as a "qualified thrift lender." See "-- Regulation of
the Bank -- Qualified Thrift Lender Test" herein. In the event of any
acquisition by the Company of another savings association subsidiary, except for
a supervisory acquisition, the Company would become a multiple savings and loan
holding company and would be subject to limitations on the types of business
activities in which it could engage.
The Company is prohibited from directly or indirectly acquiring control of
any savings institution or savings and loan holding company without prior
approval from the OTS or from acquiring more than 5% of the voting stock of any
savings institution or savings and loan holding company which is not a
subsidiary. Control of a savings institution or a savings and loan holding
company is conclusively presumed to exist if, among other things, a person or
group of persons acting in concert, directly or indirectly, acquires more than
25% of any class of voting stock of the institution or holding company or
controls in any manner the election of a majority of the directors of the
insured institution or the holding company. Control is rebuttably presumed to
exist if, among other things, a person acquires 10% or more of any class of
voting stock (or 25% of any class of stock) and is subject to any of certain
specified "control factors."
RECENT LEGISLATION
The Budget Reconciliation Act of 1995 which is currently before Congress
contains a provision which seeks to recapitalize the SAIF by means of a one-time
assessment on the deposits of all depository institutions insured by the SAIF.
See "-- Regulation of the Bank -- Insurance of Accounts." As proposed, the
legislation establishes an assessment of from $.80 to $.90 per $100 of SAIF
insured deposits, with such assessment to be paid to the FDIC during the first
quarter of 1996 or such other date as may be prescribed by the FDIC during the
first quarter. As a SAIF insured institution, the Bank would be subject to the
one-time assessment should the proposed legislation be enacted. See "Risk
Factors -- Legislation and Regulation."
On November 17, 1995, legislation was introduced in the Senate which
provides for the elimination of all federal savings association charters by
January 1, 1998. By that date, a federally chartered thrift would be required to
(i) convert to a national bank charter, (ii) convert to a state depository
institution charter, or (iii) surrender its charter and liquidate. Any federal
savings association which has not taken one of the above actions by January 1,
1998 would become a national bank by operation of law as of January 1, 1998. The
proposed Act also amends the Bank Holding Company Act of 1956 to provide that
upon becoming a bank holding company, a former unitary thrift holding company
which was a unitary thrift holding company on September 15, 1995 could maintain
or enter into any nonbanking affiliation which the holding company was
authorized to maintain or enter into as of September 22, 1995. The holding
company also would be permitted to engage, directly or through affiliates, in
any activity in which such company or any affiliate was authorized
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<PAGE> 49
to engage as of September 22, 1995, provided that the insured institution
controlled by the holding company continued to comply with limitations or
restrictions on the type or amounts of loans or investments of the institution
so as to continue to meet the "qualified thrift lender test." See "-- Regulation
of the Bank -- Qualified Thrift Lender Test." The grandfathered activities and
affiliations would cease to the extent that the former thrift holding company or
any subsidiary of the company acquired more than five percent (5%) of the shares
or assets of any bank or any savings association after September 13, 1995, or,
if after September 13, 1995 control of the former thrift holding company or its
subsidiaries should change. In addition, federally chartered savings
institutions that convert to banks and that engage in activities which are not
permitted under a bank charter must cease such activities two years following
the conversion, subject to two one-year extensions.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Interstate Banking Act") allows bank holding companies to acquire existing
banks across state lines, regardless of state statutes. Further, under the
Interstate Banking Act, effective June 1, 1997, a bank holding company may
consolidate interstate bank subsidiaries into branches and a bank may merge with
an unaffiliated bank across state lines to the extent that the applicable states
have not "opted out" of interstate branching prior to such effective date.
States may elect to permit interstate mergers prior to June 1, 1997. The
Interstate Banking Act also permits de novo branching to the extent that a
particular state "opts into" the de novo branching provisions. The Interstate
Banking Act generally prohibits an interstate acquisition (other than an initial
entry into a state by a bank holding company), which would result in either the
control of more than (i) 10% of the total amount of insured deposits in the
United States, or (ii) 30% of the total insured deposits in the home state of
the target bank, unless such 30% limitation is waived by the home state on a
basis which does not discriminate against out-of-state institutions.
The Riegle Community Development and Regulatory Improvement Act of 1994
provides for the creation of a community development financial institution's
fund to promote economic revitalization in community development. Banks and
thrift institutions are allowed to participate in such community development
banks. Said Act also contains (i) provisions designed to enhance small business
capital formation and to enhance disclosure with regard to high cost mortgages
for the protection of consumers, and (ii) more than 50 regulatory relief
provisions that apply to banks and thrift institutions, including the
coordination of examinations by various federal agencies, coordination of
frequency and types of reports financial institutions are required to file and
reduction of examinations for well capitalized institutions.
REGULATION OF THE BANK
Federal Home Loan Bank System
General. The Bank is a member of the FHLB, which consists of 12 regional
FHLBs subject to supervision and regulation by the Federal Housing Finance Board
("FHFB"). The FHLBs maintain central credit facilities primarily for member
institutions.
The Bank, as a member of the FHLB of Atlanta, is required to acquire and
hold shares of capital stock in the FHLB of Atlanta in an amount at least equal
to 1% of the greater of: (i) the aggregate outstanding principal amount of its
unpaid residential mortgage loans, home purchase contracts and similar
obligations as of the beginning of each year, (ii) 5% of its advances
(borrowings) from the FHLB of Atlanta, or (iii) $500. The Bank is in compliance
with this requirement with an investment in stock of the FHLB of Atlanta at
September 30, 1995 of $6.8 million.
Advances from Federal Home Loan Bank. Each FHLB serves as a reserve or
central bank for its member institutions within its assigned regions. It is
funded primarily from proceeds derived from the sale of obligations of the FHLB
System. A FHLB makes advances (i.e., loans) to members in accordance with
policies and procedures established by its Board of Directors. The Bank is
authorized to borrow funds from the FHLB of Atlanta to meet demands for
withdrawals of savings deposits, to meet seasonal requirements and for the
expansion of its loan portfolio. Advances may be made on a secured or unsecured
basis depending upon a number of factors, including the purpose for which the
funds are being borrowed and existing advances.
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<PAGE> 50
Interest rates charged for advances vary depending upon maturity, the cost of
funds to the regional FHLB and the purpose of the borrowing.
Liquidity Requirements. Federal regulations require a member savings
institution to maintain an average daily balance of liquid assets (which
includes cash, certain time deposits, certain bankers' acceptances, certain
corporate debt securities and highly-rated commercial paper, securities of
certain mutual funds, balances maintained in a Federal Reserve Bank and
specified United States Government, state or federal agency obligations) equal
to a monthly average of not less than a specified percentage, currently 5%, of
its net withdrawable savings deposits plus short-term borrowings. These
regulations also require each member institution to maintain an average daily
balance of short-term liquid assets at a specified minimum percentage, currently
1%, of the total of its net withdrawable accounts and borrowings payable in one
year or less. The Bank complied with its requirements at September 30, 1995.
Insurance of Accounts
General. Deposits at the Bank are insured to a maximum of $100,000 for
each insured depositor by the FDIC through the SAIF. As an insurer, the FDIC
issues regulations, conducts examinations and generally supervises the
operations of its insured institutions (institutions insured by the FDIC
hereinafter are referred to as "insured institutions"). Any insured institution
which does not operate in accordance with or conform to FDIC regulations,
policies and directives may be sanctioned for non-compliance. The FDIC has the
authority to suspend or terminate insurance of deposits upon the finding that
the institution has engaged in unsafe or unsound practices, is operating in an
unsafe or unsound condition, or has violated any applicable law, regulation,
rule, order or condition imposed by the FDIC. The FDIC requires an annual audit
by independent accountants and also periodically makes its own examinations of
insured institutions.
Insured institutions are members of either the SAIF or the Bank Insurance
Fund. Pursuant to the Financial Institutions Reform, Recovery and Enforcement
Act of 1989 ("FIRREA"), an insured institution may not convert from one
insurance fund to the other without the advance approval of the FDIC; provided,
however, that conversions are not permitted until the date on which the SAIF
first meets or exceeds the designated reserve ratio (reserves to estimated SAIF
insured deposits) for such fund, subject to certain exceptions. To date, the
SAIF has not met the designated reserve ratio for the fund. FIRREA also
provides, generally, that the moratorium on insurance fund conversions shall not
be construed to prohibit a SAIF member from converting to a bank charter during
the moratorium, as long as the resulting bank remains a SAIF member during that
period. When a conversion is permitted, each insured institution participating
in the conversion must pay an "exit fee" to the insurance fund it is leaving and
an "entrance fee" to the insurance fund it is entering.
Insurance Premiums and Regulatory Assessments. As an insurer, the FDIC
issues regulations, conducts examinations and generally supervises the
operations of its insured members. FDICIA directed the FDIC to establish a
risk-based premium system under which each premium assessed against the Bank
would generally depend upon the amount of the Bank's deposits and the risk that
it poses to the SAIF. The FDIC was further directed to set semiannual
assessments for insured depository institutions to maintain the reserve ratio of
the SAIF at 1.25% of estimated insured deposits. The FDIC may designate a higher
reserve ratio if it determines there is a significant risk of substantial future
loss to the particular fund. Under the FDIC's risk-related insurance
regulations, an institution is classified according to capital and supervisory
factors. Institutions are assigned to one of three capital groups: "well
capitalized," "adequately capitalized" or "undercapitalized." Within each
capital group, institutions are assigned to one of three supervisory subgroups.
There are nine combinations of groups and subgroups (or assessment risk
classifications) to which varying assessment rates are applicable. These rates
range from $.23 per $100 of domestic deposits to $.31 per $100 of domestic
deposits. See "-- Recent Legislation."
In addition to deposit insurance premiums, savings institutions also must
bear a portion of the administrative costs of the OTS through an assessment
based on the level of total assets of each insured institution and which
differentiates between troubled and nontroubled savings institutions. During
fiscal 1995,
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<PAGE> 51
the Bank paid $84,000 to the OTS for such assessments. Additionally, the OTS
assesses fees for the processing of various applications.
Qualified Thrift Lender Test
Historically, the amount of advances which may be obtained by a member
institution from the FHLB has been subject to the institution's compliance with
a qualified thrift lender ("QTL") test. In order to comply with the QTL test,
the Bank must maintain 65% of its total "Portfolio Assets" in "Qualified Thrift
Investments." This level must be maintained on a monthly average basis in nine
out of every twelve months. A savings institution that does not meet the
Qualified Thrift Lender test must either convert to a bank charter or comply
with the restrictions imposed for noncompliance. For purposes of the QTL test,
"Portfolio Assets" equal total assets minus (i) goodwill and other intangible
assets, (ii) the value of property used by an institution in the conduct of its
business and (iii) assets of the type used to meet liquidity requirements in an
amount not exceeding 20% of the savings institution's total assets. "Qualified
Thrift Investments" generally include (i) loans made to purchase, refinance,
construct, improve or repair domestic residential or manufactured housing, (ii)
home equity loans, (iii) securities backed by or representing an interest in
mortgages on domestic residential or manufactured housing, (iv) obligations
issued by the federal deposit insurance agencies and (v) shares of FHLB stock
owned by the savings institution. Qualified Thrift Investments also include
certain other specified investments, subject to a percentage of Portfolio Assets
limitation. The Bank's Qualified Thrift Investments as of September 30, 1995
were $415.5 million, or 79.5% of its Portfolio Assets at that date. The Bank
expects to remain in compliance with the QTL test.
Capital Requirements
General. Effective December 7, 1989, OTS capital regulations established
capital standards applicable to all savings institutions, including a core
capital requirement, a tangible capital requirement and a risk-based capital
requirement. The OTS also has established pursuant to FDICIA five
classifications for institutions based upon the capital requirements: well
capitalized, adequately capitalized, under capitalized, significantly under
capitalized and critically under capitalized. At March 31, 1995, the Bank was
"well capitalized." Failure to maintain that status could result in greater
regulatory oversight or restrictions on the Bank's activities.
Core Capital and Tangible Capital. The OTS requires a savings institution
to maintain "core capital" in an amount not less than 3% of the savings
institution's total assets. "Core capital" includes, generally, common
stockholders' equity, noncumulative perpetual preferred stock and related
surplus, nonwithdrawable accounts and pledged deposits of mutual savings
associations, and minority interests in fully-consolidated subsidiaries, less
(i) investments in certain "non-includable" subsidiaries (as determined by
regulation) and (ii) certain intangible assets (except for purchased mortgage
servicing rights and purchased credit card relationships).
The "tangible capital" requirement requires a savings institution to
maintain tangible capital in an amount not less than 1.5% of its adjusted total
assets. "Tangible capital" means core capital less any intangible assets (except
for purchased mortgage servicing rights included in core capital).
Most national banks will be required to maintain a level of core capital of
at least 100 to 200 basis points above the 3% minimum level. Because OTS capital
standards for savings institutions may not be less stringent than capital
standards established for national banks, savings institutions will be required
to maintain core capital levels at least as high as national banks. At September
30, 1995, the Bank's core capital and tangible capital were both $31.7 million
or 6.1% of adjusted total assets.
Risk-Based Capital. The OTS capital regulations require savings
institutions to maintain a ratio of total capital to total risk-weighted assets
of 8.0%. Total capital, for purposes of the risk-based capital requirement,
equals the sum of core capital plus supplementary capital, which includes
cumulative preferred stock, mandatory convertible securities, subordinated debt,
and allowance for loan and lease losses of up to 1.25% of total risk-weighted
assets. In determining total risk-weighted assets for purposes of the risk-based
capital requirements, (i) each off-balance sheet item must be converted to an
on-balance sheet credit equivalent amount by multiplying the face amount of each
such item by a credit conversion factor ranging from 0% to
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<PAGE> 52
100% (depending upon the nature of the item); (ii) the credit equivalent amount
of each off-balance sheet item and each on-balance sheet asset must be
multiplied by a risk factor ranging from 0% to 100% (again depending on the
nature of the item); and (iii) the resulting amounts are added together and
constitute total risk-weighted assets. As of September 30, 1995, the Bank's
ratio of total capital to total risk-weighted assets was 9.1%.
In addition, the OTS requires institutions with an "above-normal" degree of
interest rate risk to maintain an additional amount of capital. The test of
"above-normal" is determined by postulating a 200 basis point shift (increase or
decrease) in interest rates and determining the effect on the market value of an
institution's portfolio equity. If the decline is less than 2%, no addition to
risk-based capital is required (i.e., an institution has only a normal degree of
interest rate risk). If the decline is greater than 2%, the institution must add
additional capital equal to one-half the difference between its measured
interest rate risk and 2% multiplied by the market value of its assets.
Management believes that the Bank's interest rate risk is within the normal
range.
Capital Distributions
"Capital distributions" by OTS-regulated savings institutions also are
regulated by the OTS. Capital distributions are defined to include, in part,
dividends, stock repurchases and cash-out mergers. An association is categorized
as either a "Tier 1," "Tier 2," or "Tier 3" association. A Tier 1 association is
defined as an association that has, on a pro forma basis after the proposed
distribution, capital equal to or greater than the OTS fully phased-in capital
requirements. A Tier 2 association is an association that has, on a pro forma
basis after the proposed distribution, capital equal to or in excess of its
minimum capital requirement but does not meet the fully phased-in capital
requirement. A Tier 3 association is defined as an association that has current
capital less than its minimum capital requirement.
The Bank currently is in compliance with the regulatory capital
requirements and therefore is a Tier 1 association. A "Tier 1" association is
permitted to make capital distributions during a calendar year up to the higher
of (i) 100% of its net income to date plus the amount that would reduce by
one-half its surplus capital ratio at the beginning of the calendar year, or
(ii) 75% of its net income over the most recent four-quarter period. Any
distributions in excess of that amount require prior OTS notice, with the
opportunity for the OTS to object to the distribution. In addition, a savings
association must provide the OTS with a 30-day advance written notice of all
proposed capital distributions, whether or not advance approval is required by
OTS regulations. Currently, the Bank periodically notifies the OTS of the gross
amount of dividends it intends to pay to the Company as the sole stockholder of
the Bank. On February 3, 1995, the OTS approved the payment by the Bank of $5
million in dividends of which the Bank had paid $800,000 through December 31,
1995. The Bank's ability to pay dividends to the Company is subject to the
financial performance of the Bank which is dependent upon, among other things,
the local economy, the success of the Bank's lending activities, compliance by
the Bank with applicable regulations, investment performance and the ability to
generate fee income.
Federal Reserve System Requirements
The Federal Reserve requires depository institutions to maintain
noninterest-bearing reserves against their deposit transaction accounts,
non-personal time deposits (transferrable or held by a person other than a
natural person) with an original maturity of less than one and one-half years
and certain money market deposit accounts. Federal Reserve regulations currently
require financial institutions to maintain average daily reserves equal to 3% on
the first $51.9 million of net transaction account, plus 10% on the remainder.
The balances maintained to meet the reserve requirements imposed by the Federal
Reserve may be used to satisfy liquidity requirements imposed by the OTS.
Members of the FHLB System also are authorized to borrow from the Federal
Reserve "discount window" subject to restrictions imposed by Federal Reserve
regulations. However, Federal Reserve policy generally requires that a savings
institution exhaust its FHLB resources before borrowing from the Federal
Reserve.
50
<PAGE> 53
Consumer Protection and Other Laws and Regulations
The Bank and PrimeEagle also are subject to various laws and regulations
dealing generally with consumer protection matters including without limitation,
the Equal Credit Opportunity Act and Regulation B, the Electronic Funds Transfer
Act and Regulation E, the Truth in Lending Act and Regulation Z, the Truth in
Savings Act and Regulation DD, the Expedited Funds Availability Act and
Regulation CC, the Bank Secrecy Act and fair housing laws. The Bank and
PrimeEagle may be subject to potential liability under these laws and
regulations for material violations.
State Regulation
As a federally chartered savings institution, the Bank generally is not
subject to those provisions of Georgia law governing state chartered financial
institutions or to the jurisdiction of the DBF. However, the DBF interprets the
Georgia Bank Holding Company Act to require the prior approval of the DBF for
any acquisition of control of any savings institution (whether chartered by
state or federal authority) located in Georgia.
The DBF also interprets the Georgia Bank Holding Company Act to include
savings and loan holding companies as "bank holding companies," thus giving the
DBF the authority to make examinations of the Company and any subsidiaries and
to require periodic and other reports. Existing DBF regulations do not restrict
the business activities or investments of the Company or the Bank.
State usury laws are applicable to federally insured institutions with
regard to loans made within Georgia. Generally speaking, Georgia law does not
establish ceilings on interest rates although certain specialized types of
lending in which the Bank engages, such as making loans of $3,000 or less, are
subject to interest rate limitations.
DESCRIPTION OF CAPITAL STOCK
GENERAL
Set forth below is a description of the material terms and provisions of
the equity securities of the Company. The following description does not purport
to be complete and is subject to and qualified in its entirety by reference to
the Restated Articles of Incorporation of the Company, as amended (the "Articles
of Incorporation"), the Bylaws of the Company, as amended (the "Bylaws"), and
the Shareholder Rights Plan of the Company dated as of January 26, 1993 (the
"Shareholder Rights Plan"). The Articles of Incorporation, the Bylaws and the
Shareholder Rights Plan are filed or incorporated by reference as exhibits to
the Registration Statement of which this Prospectus forms a part.
The Company is authorized to issue (i) 10,000,000 shares of Common Stock,
par value $1.00 per share, and (ii) 5,000,000 shares of serial preferred stock,
par value $1.00 per share, which may be issued in one or more series with such
voting powers, designations, preferences, rights, qualifications, limitations
and restrictions as shall be specified by the Board of Directors. On January 3,
1996, the Company had outstanding 3,117,200 shares of Common Stock held by
approximately 619 stockholders of record. As of the date of this Prospectus, the
Company does not have any series of preferred stock outstanding. See
"Capitalization."
COMMON STOCK
Dividends
Subject to the rights of the holders of any preferred stock then
outstanding, the holders of the Common Stock are entitled to dividends from
funds legally available therefor when and if the Board of Directors declares
such dividends payable. For a description of certain regulatory provisions that
affect the payment of cash dividends, see "Supervision and
Regulation -- Regulation of the Bank -- Capital Distributions."
51
<PAGE> 54
Voting Rights
Holders of the Common Stock are entitled to one vote per share on all
matters requiring stockholder action. The Company's stockholders are not
permitted to cumulate votes for the election of directors. Accordingly, holders
of more than 50% of the shares voting in the election of directors can elect
100% of the directors if they choose to do so, and in such event, the holders of
the remaining shares voting are not able to elect any directors.
Other Rights
No holder of Common Stock has any redemption or sinking fund privileges,
any preemptive or other rights to subscribe for any other shares or securities,
or any conversion rights. In the event of liquidation, the holders of Common
Stock are entitled to receive pro rata any assets distributable to stockholders
with regard to shares held by them, subject to the rights of any holders of
preferred stock.
Classified Board of Directors
The Articles of Incorporation provide for the division of the Company's
Board of Directors into three classes of directors, with one class being elected
each year by the stockholders and the members of each class serving three year
terms. Such a classified Board of Directors discourages and makes more difficult
a change in control of the Company or the removal of incumbent management, even
if favorable to the stockholders, since two successive annual meetings of the
stockholders generally would be required to elect a majority of the Board of
Directors. Additionally, the Articles of Incorporation provide that a director
may be removed with or without cause, but only upon the affirmative vote of the
holders of at least 80% of the outstanding shares of capital stock of the
Company entitled to vote for the election of directors.
Provisions Relating to Business Combinations
Certain of the provisions of the Company's Articles of Incorporation and
Bylaws summarized in the succeeding paragraphs may be deemed to have an
anti-takeover effect and may delay a tender offer or takeover attempt which a
stockholder might consider to be in such stockholder's best interest, including
attempts which might result in the payment to stockholders of a premium over the
market price for the Company's shares.
Article XIII of the Articles of Incorporation requires the approval of the
holders of not less than 75% of the Corporation's Voting Stock in order to
approve or authorize any Business Combination with a Principal Stockholder. The
purpose of this provision is to encourage potential acquirors to engage in arm's
length negotiations with the Company before attempting a takeover, in order to
provide protection for the Company and its stockholders. A Business Combination
includes (i) any merger, reorganization or consolidation of the Company or any
of its affiliates with or into any Principal Stockholder, (ii) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition of all, or more than
25% of the fair market value, of the assets of the Company or any of its
affiliates to any Principal Stockholder, (iii) any sale, lease, exchange or
other transfer by any Principal Stockholder to the Company or any of the
Company's affiliates of any assets, cash or securities in exchange for shares of
Voting Stock (or for shares of stock of any of the Company's affiliates entitled
to vote in the election of directors of such affiliates or securities
convertible into or exchangeable for shares of Voting Stock or such stock of an
affiliate, or options, warrants or rights to purchase shares of Voting Stock or
such stock of an affiliate), (iv) the adoption, at any time when there exists
any Principal Stockholder, of any plan or proposal for the liquidation or
dissolution of the Company, and (v) any reclassification of securities
(including any reverse stock split), recapitalization or other transaction at
any time when there exists a Principal Stockholder, if the result would be a
decrease in the number of holders of the outstanding shares of Voting Stock. The
term "Principal Stockholder" is defined as any individual or entity which,
together with affiliates and associates, beneficially owns 10% or more of the
outstanding shares of Voting Stock. Such term also includes any affiliate or
associate of any such individual or entity. The term "Voting Stock" means the
stock of the company entitled to vote in the election of Directors.
Article XIV of the Articles of Incorporation provides that no Business
Combination shall take place unless certain price criteria and procedural
requirements are met. Generally, a Principal Stockholder must pay
52
<PAGE> 55
at least the same price per share to acquire more stock in the Company as the
highest price per share he ever paid to acquire ownership of any of the
Company's stock. The Principal Stockholder must also offer the same form and
kind of consideration to acquire more stock that he previously offered in order
to acquire a majority of the Company's stock which he acquired.
The provisions of Articles XIII and XIV, described above, will not apply to
a Business Combination if it is approved by two-thirds of those members of the
Board of Directors who were directors prior to the time any Principal
Stockholder became a Principal Stockholder. Articles XIII and XIV also will not
apply to a Business Combination which (a) does not change any stockholders'
percentage ownership in the shares of stock entitled to vote in the election of
directors of any successor of the Company from the percentage of shares of
Voting Stock owned by the stockholder, (b) provides for the provisions of
Article XIII or XIV without any amendment, change, alteration or deletion, to
apply to any successor to the Company; and (c) does not transfer all, or more
than 25% of the fair market value of, the Company's assets, other than to a
wholly-owned subsidiary of the Company. Nothing contained in Article XIV permits
the Company to issue any shares of Voting Stock or to transfer any of its assets
to a wholly-owned subsidiary of the Company, if the issuance of shares of Voting
Stock or transfer of assets is part of a plan to transfer such shares of Voting
Stock or assets to a Principal Stockholder.
Article XVI of the Articles of Incorporation specifically provides that the
Board of Directors may amend the Bylaws, but that the stockholders may not amend
the Bylaws except by the vote of holders of not less than 75% of the outstanding
shares of capital stock of the Company entitled to vote generally in the
election of directors, cast at a meeting of stockholders called for that
purpose. Article XVII of the Articles of Incorporation also requires the same
75% vote of stockholders to change certain provisions of the Articles of
Incorporation, including Articles XIII and XIV described above.
As noted above, the Company's preferred stock may be issued from time to
time in one or more series without stockholder approval. Thus, the Board of
Directors, without stockholder approval, could authorize the issuance of
preferred stock with conversion and other rights that could make it difficult
for another company to effect certain business combinations with the Company or
that could otherwise adversely affect the rights of the holders of Common Stock.
Shareholder Rights Plan
On January 26, 1993, the Board of Directors of the Company declared a
dividend, payable February 9, 1993, of one right (a "Right") for each
outstanding share of Common Stock of the Company held of record at the close of
business on February 9, 1993 (the "Record Time"), or issued thereafter and prior
to the Separation Time (as hereinafter defined). The Rights were issued pursuant
to a Shareholder Protection Rights Agreement. Each Right entitles its registered
holder to purchase from the Company, after the Separation Time, one share of
Common Stock for $17.50 (the "Exercise Price"), subject to adjustment.
The Rights are evidenced by the Common Stock certificates until the
Separation Time. The "Separation Time" is the close of business on the earlier
of either (i) the tenth day (or such later date as the Board of Directors of the
Company may from time to time fix by resolution adopted prior to the Separation
Time that otherwise would have occurred) after the date on which any person or
entity commences a tender or exchange offer, which, if consummated, would result
in such person or entity becoming the beneficial owner of 15% or more of the
outstanding shares of Common Stock (any person or entity having such beneficial
ownership being referred to as an "Acquiring Person") and (ii) the Flip-in Date;
provided that if a tender or exchange offer is cancelled, terminated, or
otherwise withdrawn prior to the Separation Time, such offer shall be deemed
never to have been made. The Flip-in Date is the tenth business day after the
first date of public announcement by the Company or an Acquiring Person that an
Acquiring Person has become such (the "Stock Acquisition Date"), other than as a
result of a Flip-over Event (as defined below).
Until the Separation Time, the Rights will be transferred only with the
Common Stock. Promptly following the Separation Time, separate certificates
evidencing the Rights ("Rights Certificates") will be mailed to holders of
record of Common Stock at the Separation Time. The Rights will not be
exercisable until the business day following the Separation Time.
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<PAGE> 56
If a Flip-in Date occurs, the Company shall take action to ensure that each
Right (other than Rights beneficially owned by the Acquiring Person or any of
its affiliates) constitutes the right to purchase from the Company that number
of shares of Common Stock of the Company having an aggregate "Market Price" (as
defined in the Rights Agreement), on the Stock Acquisition Date that gave rise
to the Flip-in Date, equal to twice the Exercise Price, for an amount in cash
equal to the then current Exercise Price.
In addition, the Board of Directors of the Company may, at its option, at
any time after a Flip-in Date and prior to the time that an Acquiring Person
becomes the beneficial owner of more than 50% of the outstanding shares of
Common Stock, elect to exchange all (but not less than all) of the then
outstanding Rights (other than Rights beneficially owned by the Acquiring Person
or any of its affiliates thereof, which Rights become void) for shares of Common
Stock at an exchange ratio of one share of Common Stock per Right, appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date of the Separation Time (the "Exchange Ratio").
Immediately upon such action by the Board of Directors (the "Exchange Time"),
the right to exercise the Rights will terminate and each Right will thereafter
represent only the right to receive a number of shares of Common Stock equal to
the Exchange Ratio.
If the Company enters into a transaction, or series of transactions, on or
after the Stock Acquisition Date, in which directly or indirectly, (A) the
Company shall consolidate or merge with any other person or entity, or (B) the
Company shall sell or otherwise transfer (or one or more of its subsidiaries
shall sell or otherwise transfer) assets (i) aggregating more than 50% of the
assets (measured by either book value or fair market value), or (ii) generating
more than 50% of the consolidated operating income or cash flow of the Company,
to any other person or entity (other than the Company or one or more of its
wholly owned subsidiaries) or to two or more such persons or entities which are
affiliated or otherwise acting in concert (a "Flip-over Event"), the Company
shall not permit to occur such Flip-over Event until it shall have entered into
a supplemental agreement with the person or entity engaging in such Flip-over
Event (the "Flip-over Entity").
This supplemental agreement shall be for the benefit of the holders of the
Rights, and shall provide that, upon consummation or occurrence of the Flip-over
Event (i) each Right shall thereafter constitute the right to purchase from the
Flip-over Entity, upon exercise thereof in accordance with the terms of the
Rights Agreement, that number of shares of common stock of the Flip-over Entity
having an aggregate Market Price on the date of consummation or occurrence of
such Flip-over Event equal to twice the Exercise Price for an amount in cash
equal to the then current Exercise Price, and (ii) the Flip-over Entity shall
thereafter be liable for, and shall assume, by virtue of such Flip-over Event
and such supplemental agreement, all the obligations and duties of the Company
pursuant to the Rights Agreement.
The Rights will expire on the earliest of (i) the Exchange Time, (ii) the
close of business on January 26, 2003, and (iii) the date on which the Rights
are redeemed as described below (in any such case, the "Expiration Time").
The Board of Directors of the Company may, at its option, at any time prior
to the Flip-in Date, redeem all (but not less than all) of the then outstanding
Rights, at $.01 per Right (the "Redemption Price"). Immediately upon the action
of the Board of Directors electing to redeem the Rights, without any further
action and without any notice, the right to exercise the Rights will terminate
and each Right will thereafter represent only the right to receive the
Redemption Price in cash for each Right so held.
The Rights will not prevent a takeover of the Company. The Rights, however,
may have certain anti-takeover effects. The Rights may cause substantial
dilution to a person or group that acquires 15% or more of the Common Stock,
unless the Rights are first redeemed by the Board of Directors. Nevertheless,
the Rights should not interfere with a transaction that is in the best interests
of the Company and its stockholders on or prior to the Flip-in Date, because the
Rights can be redeemed before the consummation of such transaction.
Other Aspects
The transfer agent and registrar for the Common Stock is SunTrust Bank,
Atlanta, Georgia.
54
<PAGE> 57
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement by and
among the Company and the Underwriters named below, the Underwriters, through
their representatives Interstate/Johnson Lane Corporation and Morgan Keegan &
Co., have severally agreed to purchase from the Company, and the Company has
agreed to sell to the Underwriters, the respective number of shares of Common
Stock set forth opposite each Underwriter's name below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
---------------------------------------------------------- ---------
<S> <C>
Interstate/Johnson Lane Corporation.......................
Morgan Keegan & Company, Inc..............................
---------
Total........................................... 1,300,000
========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters thereunder are subject to the approval of certain legal matters by
counsel and to various other conditions customary in a firm commitment
underwritten public offering, including the absence of any material change in
the Company's business and the receipt of certain certificates, opinions and
letters from the Company and its counsel and independent public accountants. The
nature of the Underwriters' obligation is such that they are committed to
purchase and pay for all shares of Common Stock offered hereby if any are
purchased.
The Underwriters propose to offer the shares of Common Stock being
purchased by them directly to the public at the public offering price set forth
on the cover page of this Prospectus and to certain securities dealers at such
price less a concession not in excess of $ per share of Common
Stock. The Underwriters may allow, and such selected dealers may reallow, a
concession not in excess of $ per share to certain other brokers
and dealers. After the initial offering to the public, the offering price and
other selling terms may be changed by the representatives.
Pursuant to the Underwriting Agreement, the Underwriters have agreed to
solicit offers to purchase up to an aggregate of 130,000 shares of Common Stock
from certain purchasers specified by the Company, including the ESOP, Company
directors and officers and persons associated with them (the "directed sales").
It is anticipated that the ESOP will purchase all of the 130,000 shares offered
in the directed sales. No selling commission will be paid by the Company with
respect to the directed sales. Because no such offers have yet been solicited by
the Underwriters and no contracts for the purchase and sale of such shares of
Common Stock have been executed, the number of shares of Common Stock sold that
will be in directed sales cannot presently be determined.
The Company has granted a 30-day option to the Underwriters to purchase up
to a maximum of 195,000 additional shares of Common Stock to cover
over-allotments, if any, at the public offering price set forth on the cover
page of this Prospectus. To the extent that the Underwriters exercise the
option, the Underwriters have agreed, subject to certain conditions, to purchase
such additional shares in approximately the same proportion as set forth in the
above table. The Underwriters may purchase such shares only to cover over-
allotments made in connection with this offering.
The Underwriters do not intend to sell shares of Common Stock to any
account over which they exercise discretionary authority.
The Company and certain of its affiliates have agreed that they will not
sell, contract to sell or otherwise dispose of any shares of Common Stock or any
securities convertible into or exchangeable for any shares of Common Stock for a
period of 90 days after the date of the commencement of the offering without the
prior written consent of the Underwriters. The Underwriters may from time to
time be customers of, engage in transactions with and perform services for the
Company or its subsidiaries in the ordinary course of business.
The Company has agreed to indemnify the Underwriters against, and to
contribute to certain losses arising out of, certain liabilities, including
liabilities under the Securities Act of 1933, as amended.
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<PAGE> 58
In general, the rules of the Commission prohibit the Underwriters from
making a market in the Common Stock during the "cooling-off" period immediately
preceding the commencement of sales in this offering. The Commission has,
however, adopted exemptions from these rules that permit passive market making
under certain conditions. These rules permit an Underwriter to continue to make
a market subject to the conditions, among others, that its bid not exceed the
highest bid by a market maker not connected with this offering and that its net
purchases on any one trading day not exceed prescribed limits. Pursuant to these
exemptions, certain Underwriters, selling group members (if any) or their
respective affiliates intend to engage in passive market making in the Common
Stock during the "cooling-off" period.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C. (the "Commission"), a Registration Statement on Form S-2 under
the Securities Act of 1933, as amended (the "Securities Act"), relating to the
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which have
been omitted pursuant to the rules of the Commission. Statements contained in
this Prospectus as to the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to or incorporated by
reference in the Registration Statement, each statement being qualified in all
respects by such reference. Such information is available for inspection without
charge at, and copies can be obtained at prescribed rates from, the public
reference facilities and regional offices of the Commission referred to below.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information may be
inspected and copied at the public reference facilities of the Commission at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the Commission's
regional offices at Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60621, and World Trade Center, 13th Floor, New York, New
York 10048. Copies of such material can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates.
INCORPORATION OF DOCUMENTS BY REFERENCE
THIS PROSPECTUS INCORPORATES BY REFERENCE CERTAIN DOCUMENTS THAT ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS ARE AVAILABLE WITHOUT
CHARGE UPON REQUEST FROM: EAGLE BANCSHARES, INC., 4305 LYNBURN DRIVE, TUCKER,
GEORGIA 30084-4441, ATTENTION: INVESTOR RELATIONS; (770) 908-6690.
The following documents filed by the Company with the Securities and
Exchange Commission (the "Commission") (Commission File No. 0-14379) under
Section 13(a) or 15(d) of the Exchange Act are hereby incorporated by reference
in this Prospectus: (i) the Company's Annual Report on Form 10-K for the year
ended March 31, 1995; (ii) the Company's Quarterly Report on Form 10-Q for the
three months ended June 30, 1995; and (iii) the Company's Quarterly Report on
Form 10-Q for the six months ended September 30, 1995. Any statement contained
in any such document shall be deemed to be modified or superseded for purposes
of this Prospectus to the extent that a statement contained herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
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<PAGE> 59
LEGAL MATTERS
The validity of the Common Stock offered hereby and certain other legal
matters will be passed upon for the Company by Long, Aldridge & Norman, Atlanta,
Georgia, and for the Underwriters by Holland & Knight, Atlanta, Georgia.
EXPERTS
The consolidated financial statements of the Company as of March 31, 1995,
and for the year then ended, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included or incorporated herein and in the Registration
Statement upon the authority of said firm as experts in accounting and auditing
in giving said report.
The consolidated financial statements of the Company as of March 31, 1994,
and for each of the years in the two-year period ended March 31, 1994, have been
included herein and in the Registration Statement in reliance upon the report of
KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing. The report of KPMG Peat Marwick LLP covering the fiscal year 1994
and 1993 consolidated financial statements refers to changes in the method of
accounting for income taxes and investments.
57
<PAGE> 60
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED FINANCIAL STATEMENTS
Report of Independent Public Accountants (Arthur Andersen LLP)........................ F-2
Independent Auditors' Report (KPMG Peat Marwick LLP).................................. F-3
Consolidated Statements of Financial Condition as of March 31, 1994 and 1995.......... F-4
Consolidated Statements of Income for the years ended March 31, 1993, 1994, and
1995................................................................................ F-5
Consolidated Statements of Stockholders' Equity for the years ended March 31, 1993,
1994, and 1995...................................................................... F-6
Consolidated Statements of Cash Flows for the years ended March 31, 1993, 1994, and
1995................................................................................ F-7
Notes to Consolidated Financial Statements............................................ F-9
UNAUDITED INTERIM FINANCIAL STATEMENTS
Consolidated Statements of Financial Condition as of March 31, 1995 and September 30,
1995................................................................................ F-28
Consolidated Statements of Income for the three and six month periods ended September
30, 1994 and 1995................................................................... F-29
Consolidated Statements of Cash Flows for the six months ended September 30, 1994 and
1995................................................................................ F-30
Notes to Interim Consolidated Financial Statements.................................... F-31
</TABLE>
F-1
<PAGE> 61
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Eagle Bancshares, Inc.:
We have audited the accompanying consolidated statements of financial
condition of EAGLE BANCSHARES, INC. (A GEORGIA CORPORATION) AND SUBSIDIARIES as
of March 31, 1995 and the related consolidated statements of income,
stockholders' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The consolidated financial statements of Eagle Bancshares, Inc. and
subsidiaries as of March 31, 1994 and for each of the two years ended March 31,
1994 were audited by other auditors whose report dated April 29, 1994 expressed
an unqualified opinion on those statements.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Eagle
Bancshares, Inc. and subsidiaries as of March 31, 1995 and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
As discussed in Note 1, effective April 1, 1993, the Company changed its
method of accounting for income taxes and effective March 31, 1994, the Company
changed its method of accounting for investment securities.
Arthur Andersen LLP
Atlanta, Georgia
May 12, 1995
(except with respect to the
matters discussed in Note 16, as to
which the date is December 21, 1995)
F-2
<PAGE> 62
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Eagle Bancshares, Inc.:
We have audited the accompanying consolidated statement of financial
condition of Eagle Bancshares, Inc. and subsidiaries as of March 31, 1994 and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the years in the two-year period ended March 31, 1994. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Eagle
Bancshares, Inc. and subsidiaries as of March 31, 1994 and the results of their
operations and their cash flows for each of the years in the two-year period
ended March 31, 1994, in conformity with generally accepted accounting
principles.
As discussed in notes 1 and 8 to the consolidated financial statements, the
Company changed its method of accounting for income taxes to adopt the
provisions of Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes" on April 1, 1993. As discussed in notes 1 and 2 to
the consolidated financial statements, the Company changed its method of
accounting for investments to adopt the provisions of SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" at March 31, 1994.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
April 29, 1994, except with respect
to the matter discussed in the
first paragraph of Note 16, as to
which the date is December 21, 1995
F-3
<PAGE> 63
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, 1994 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
ASSETS
Cash and amounts due from banks.......................................... $ 6,194 $ 6,214
Interest-bearing deposits................................................ 1,664 144
Securities available for sale (Note 2)................................... 20,883 20,939
Investment securities held to maturity, approximate market value of
$35,561 and $56,701 in 1994 and 1995, respectively (Notes 2 and 7)..... 34,683 57,599
Loans receivable held for sale, approximate market value of $23,946 and
$41,526 in 1994 and 1995, respectively (Note 3)........................ 23,641 41,220
Loans receivable, net (Notes 3 and 7).................................... 219,726 303,906
Stock in Federal Home Loan Bank, at cost (Note 7)........................ 3,341 5,984
Premises and equipment, net (Note 4)..................................... 6,417 8,299
Real estate held for development and sale................................ 0 6,620
Real estate acquired in settlement of loans, net......................... 671 615
Accrued interest receivable.............................................. 1,721 2,996
Other assets............................................................. 1,444 2,781
-------- --------
Total assets................................................... $320,385 $457,317
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits (Note 6)...................................................... $244,297 $286,315
Advance payments by borrowers for property taxes and insurance......... 954 2,187
Federal Home Loan Bank advances and other borrowings (Note 7).......... 30,750 119,953
Deferred income taxes (Note 8)......................................... 420 441
Drafts outstanding..................................................... 9,158 10,778
Accrued expenses and other liabilities................................. 3,974 4,007
-------- --------
Total liabilities.............................................. 289,553 423,681
-------- --------
Commitments (Note 3)
Stockholders' equity (Notes 9, 10, and 13):
Common stock, $1 par value; 10,000,000 shares authorized, 3,324,000 and
3,389,000 shares issued in 1994 and 1995, respectively.............. 3,324 3,389
Additional paid-in capital............................................. 7,726 8,131
Retained earnings...................................................... 20,795 23,450
Net unrealized gain on securities available for sale................... 387 46
Employee Stock Ownership Plan debt (Note 9)............................ (141) (11)
Unamortized restricted stock........................................... (183) (293)
Treasury stock, at cost; 301,800 shares in 1994 and 1995............... (1,076) (1,076)
-------- --------
Total stockholders' equity..................................... 30,832 33,636
-------- --------
Total liabilities and stockholders' equity..................... $320,385 $457,317
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE> 64
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED MARCH 31, 1993, 1994, AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Interest income:
Interest on loans............................................... $19,371 $21,906 $26,330
Interest on mortgage-backed securities.......................... 5,673 3,135 1,939
Interest on securities and other interest-earning assets........ 2,397 2,488 4,073
------- ------- -------
Total interest income................................... 27,441 27,529 32,342
------- ------- -------
Interest expense:
Interest on deposits (Note 6)................................... 11,408 10,006 11,625
Interest on FHLB advances and other borrowings.................. 3,833 2,526 4,006
------- ------- -------
Total interest expense.................................. 15,241 12,532 15,631
------- ------- -------
Net interest income..................................... 12,200 14,997 16,711
Provision for loan losses (Note 3)................................ 630 1,000 643
------- ------- -------
Net interest income after provision for loan losses..... 11,570 13,997 16,068
------- ------- -------
Other income:
Mortgage production fees........................................ 3,375 6,100 3,236
Gain on sale of loans........................................... 221 188 891
Service charges................................................. 349 460 597
Gain on sale of mortgage-backed securities (Note 2)............. 892 959 14
Miscellaneous................................................... 957 1,543 1,609
------- ------- -------
Total other income...................................... 5,794 9,250 6,347
------- ------- -------
Other expenses:
Salaries and employee benefits (Note 9)......................... 6,287 8,966 9,629
Net occupancy expense........................................... 1,036 1,494 1,889
Data processing expense......................................... 484 673 817
Federal insurance premiums...................................... 479 532 607
Marketing expense............................................... 272 283 387
Provision for losses on real estate acquired in settlement of
loans........................................................ 489 136 10
Miscellaneous................................................... 1,979 2,656 2,696
------- ------- -------
Total other expenses.................................... 11,026 14,740 16,035
------- ------- -------
Income before income taxes, extraordinary item, and
cumulative effect of change in accounting principle... 6,338 8,507 6,380
Income tax expense (Note 8)....................................... 2,269 3,189 2,279
------- ------- -------
Income before extraordinary item and cumulative effect
of change in accounting principle..................... 4,069 5,318 4,101
Extraordinary item -- loss related to early extinguishment of
debt, net of income tax benefit of $261 (Note 7)................ 0 (427) 0
Cumulative effect of change in accounting for income taxes (Note
8).............................................................. 0 320 0
------- ------- -------
Net income.............................................. $ 4,069 $ 5,211 $ 4,101
======= ======= =======
Primary earnings per share of common stock (Note 14):
Income before extraordinary item and cumulative effect of change
in accounting principle...................................... $ 1.38 $ 1.74 $ 1.34
Extraordinary item, net......................................... (0.14)
Cumulative effect of change in accounting principle............. 0.11
------- ------- -------
Net income.............................................. $ 1.38 $ 1.71 $ 1.34
======= ======= =======
Fully diluted earnings per share of common stock (Note 14):
Income before extraordinary item and cumulative effect of change
in accounting principle...................................... $ 1.38 $ 1.73 $ 1.34
Extraordinary item, net......................................... (0.14)
Cumulative effect of change in accounting principle............. 0.11
------- ------- -------
Net income.............................................. $ 1.38 $ 1.70 $ 1.34
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE> 65
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1993, 1994, AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
NET
UNREALIZED
GAIN IN
COMMON STOCK ADDITIONAL SECURITIES UNAMORTIZED TOTAL
--------------- PAID-IN RETAINED AVAILABLE RESTRICTED ESOP TREASURY STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS FOR SALE STOCK DEBT STOCK EQUITY
------ ------ ---------- -------- ---------- ----------- ----- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1992, as
previously reported......... 1,625 $1,625 $7,367 $ 14,655 $ 0 $ 0 $(252) $ (1,019) $22,376
Effect of two-for-one split
(Note 16)................... 1,625 1,625 -- (1,625) 0 0 0 0 0
------ ------ ---------- -------- ---------- ----------- ----- -------- -------------
BALANCE AT MARCH 31, 1992, as
adjusted...................... 3,250 3,250 7,367 13,030 0 0 (252) (1,019) 22,376
Purchase of treasury stock
(13,800 shares)............. (57) (57)
Cash dividends declared ($.20
per share).................. (590) (590)
Principal reduction of ESOP
debt........................ 25 25
Net income.................... 4,069 4,069
------ ------ ---------- -------- ---------- ----------- ----- -------- -------------
BALANCE AT MARCH 31, 1993....... 3,250 3,250 7,367 16,509 0 0 (227) (1,076) 25,823
Cash dividends declared ($.31
per share).................. (925) (925)
Principal reduction of ESOP
debt........................ 86 86
Issuance of restricted stock
(30,000 shares) (Note 9).... 30 30 263 (293) 0
Amortization of restricted
stock (Note 9).............. 110 110
Stock options exercised
(44,000 shares)............. 44 44 96 140
Net unrealized gain on
securities available for
sale........................ 387 387
Net income.................... 5,211 5,211
------ ------ ---------- -------- ---------- ----------- ----- -------- -------------
BALANCE AT MARCH 31, 1994....... 3,324 3,324 7,726 20,795 387 (183) (141) (1,076) 30,832
Cash dividends declared ($.47
per share).................. (1,446) (1,446)
Principal reduction of ESOP
debt........................ 130 130
Issuance of restricted stock
(30,000 shares) (Note 9).... 30 30 308 (338) 0
Amortization of restricted
stock (Note 9).............. 228 228
Stock options exercised
(35,000 shares)............. 35 35 97 132
Change in net unrealized gain
on securities available for
sale, net of taxes.......... (341) (341)
Net income.................... 4,101 4,101
------ ------ ---------- -------- ---------- ----------- ----- -------- -------------
BALANCE AT MARCH 31, 1995....... 3,389 $3,389 $8,131 $ 23,450 $ 46 $(293) $ (11) $ (1,076) $33,636
===== ====== ======== ======= ======== ========== ====== ======= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE> 66
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1993, 1994, AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................... $ 4,069 $ 5,211 $ 4,101
-------- -------- --------
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation, amortization, and accretion................. 588 505 825
Provision for loan losses................................. 630 1,000 643
Provision for losses on real estate acquired in settlement
of loans................................................ 489 136 10
Cumulative effect of change in accounting principle....... 0 (320) 0
Amortization of restricted stock award.................... 0 110 228
Loss on sale of real estate acquired in settlement of
loans................................................... 57 67 5
Gain on sale of mortgage-backed securities................ (892) (959) (14)
Gain on sale of loans..................................... (221) (188) (891)
Deferred income tax (benefit) expense..................... 49 (18) 241
FHLB stock dividends...................................... (273) (179) 0
Amortization of deferred loan fees........................ (1,164) (2,325) (1,883)
Proceeds from sale of loans receivable held for sale...... 277,048 504,079 281,421
Origination of loans held for sale........................ (286,802) (504,070) (299,000)
Changes in assets and liabilities:
(Increase) decrease in accrued interest receivable...... 149 334 (1,275)
(Increase) decrease in other assets..................... 37 (669) (1,739)
Increase (decrease) in drafts outstanding............... 14,087 (4,929) 1,620
(Decrease) increase in accrued expenses and other
liabilities.......................................... 1,580 (94) (187)
-------- -------- --------
Total adjustments.................................... 5,362 (7,520) (19,996)
-------- -------- --------
Net cash (used in) provided by operating
activities......................................... 9,431 (2,309) (15,895)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities available for sale................... 0 0 (9,112)
Proceeds from sale of securities available for sale.......... 14,926 14,554 5,123
Purchases of investment securities held to maturity.......... (12,489) (2,009) (30,146)
Principal payments received on securities available for
sale...................................................... 16,306 7,379 3,396
Principal payments received on investment securities held to
maturity.................................................. 0 6,745 1,369
Proceeds from maturities of investment securities held to
maturity.................................................. 1,000 7,324 6,000
Loan originations, net of repayments......................... (6,012) (30,140) (94,650)
Purchases of loans receivable................................ (28,684) (749) (2,268)
Proceeds from sale of loans receivable held for sale......... 4,810 1,878 14,988
Purchases of FHLB stock...................................... 0 0 (3,244)
Redemption of FHLB stock..................................... 0 0 601
Proceeds from sale of real estate acquired in settlement of
loans..................................................... 280 1,988 130
Purchases of premises and equipment, net..................... (1,664) (2,315) (2,526)
Additions to real estate held for development and sale....... 0 0 (6,620)
-------- -------- --------
Net cash (used in) provided by investing
activities......................................... (11,527) 4,655 (116,959)
-------- -------- --------
</TABLE>
F-7
<PAGE> 67
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in time deposits..................... $ (3,449) $ 11,386 $ 48,928
Net (decrease) increase in demand deposits................... 12,257 4,278 (6,910)
Increase (decrease) in advance payments from borrowers for
property taxes and insurance.............................. (55) 96 1,233
Proceeds from FHLB advances and other borrowings............. 55,600 118,627 250,325
Repayment of FHLB advances and other borrowings.............. (64,423) (135,638) (161,122)
Principal reduction of ESOP debt............................. 25 86 130
Stock options exercised...................................... 0 140 132
Purchase of treasury stock................................... (57) 0 0
Cash dividends paid.......................................... (590) (771) (1,362)
-------- -------- --------
Net cash provided by (used in) financing
activities......................................... (692) (1,796) 131,354
-------- -------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........... (2,788) 550 (1,500)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR................. 10,096 7,308 7,858
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR....................... $ 7,308 $ 7,858 $ 6,358
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH PAID DURING YEAR FOR:
Interest..................................................... $ 15,594 $ 12,628 $ 15,155
======== ======== ========
Income taxes................................................. $ 2,172 $ 2,975 $ 2,763
======== ======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Acquisition of real estate in settlement of loans............ $ 3,261 $ 4,117 $ 486
======== ======== ========
Loans made to finance sale of real estate.................... $ 2,415 $ 3,392 $ 575
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-8
<PAGE> 68
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1993, 1994, AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Eagle Bancshares, Inc. (the "Company") is a unitary savings and loan
holding company and owns 100% of Tucker Federal Savings and Loan Association's
(the "Association") common stock.
The Association provides a full range of banking services to individual and
corporate customers through its subsidiaries and branches located in DeKalb,
Fulton, and Gwinnett Counties of metropolitan Atlanta, Georgia. Additionally,
through its Prime Lending Division (now known as Prime Eagle Mortgage
Corporation), the Association originates construction loans and residential
mortgages in the Augusta and Savannah, Georgia, and Jacksonville, Florida
metropolitan areas. The Association is subject to competition from other
financial institutions in the markets in which it operates. The Association is
federally regulated by the Office of Thrift Supervision ("OTS") and certain
other federal agencies. Through Union Hill, LLC, Cobb Woodlawn, LLC, and Hampton
Oaks, LP, the Company is also engaged in real estate development activities in
the Atlanta metropolitan area.
The accounting and reporting policies of the Company 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 policies
which the Company follows in preparing and presenting its consolidated financial
statements.
PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of Eagle Bancshares, Inc. and
its wholly owned subsidiaries -- Tucker Federal Savings and Loan Association,
Eagle Real Estate Advisors, Inc., Union Hill, LLC, Cobb Woodlawn, LLC, and the
Association's wholly owned subsidiaries, Eagle Service Corporation and Eagle
Asset Recovery Management Services, Inc. All significant intercompany accounts
and transactions have been eliminated.
SECURITIES
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," at March 31, 1994. Under SFAS No. 115, the Company
classifies its securities in one of three categories: trading, available for
sale, or held to maturity. Trading securities are bought and held principally
for the purpose of selling them in the near term; the Company has no investment
securities applicable to this classification at March 31, 1994 or 1995.
Held-to-maturity securities are those securities for which the Company has the
ability and intent to hold the security until maturity. All other securities not
included in trading or held to maturity are classified as available for sale.
With the adoption of SFAS No. 115, the Company has reported the effect of
the change in the method of accounting for investments in debt and equity
securities as a separate component of equity, net of income taxes. The
unrealized holding gains on securities available for sale, net of income taxes,
amounted to $387,000 and $46,000 at March 31, 1994 and 1995, respectively.
Trading and available-for-sale securities are recorded at fair value.
Held-to-maturity securities are recorded at amortized cost, adjusted for the
amortization or accretion of premiums or discounts. Unrealized holding gains and
losses on trading securities and transfers into trading securities are included
in earnings. Realized gains and losses for securities classified as available
for sale and held to maturity are included in earnings and are derived using the
specific identification method for determining the cost of securities sold.
Unrealized holding gains and losses, net of the related tax effect, on
securities available for sale are excluded from earnings and are reported as a
separate component of stockholders' equity until realized. Transfers of
securities between categories are recorded at fair value at the date of
transfer.
F-9
<PAGE> 69
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A decline in the market value of any available-for-sale or held-to-maturity
security below cost that is deemed other than temporary results in a charge to
earnings, resulting in the establishment of a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to the yield using the effective interest
method and prepayment assumptions. Dividend and interest income is recognized
when earned.
Gains and losses on sales of investment securities are recognized on the
settlement date, based on the adjusted cost of the specific security. The
financial statement impact of settlement date accounting versus trade date
accounting was immaterial.
LOANS RECEIVABLE
Loans receivable held for investment are stated at their unpaid principal
balances less undisbursed portion of loans in process, unearned interest,
unamortized discounts and premiums, deferred loan fees, and the reserve for loan
losses. Loans held for sale are carried at the lower of cost or estimated market
value, as determined by outstanding commitments from investors or current
investor yield requirements calculated on an aggregate basis.
RESERVE FOR LOAN LOSSES
A provision for loan losses is charged to operations based on management's
evaluation of the potential losses in its portfolio. This evaluation considers
the estimated value of the underlying collateral, the nature and volume of the
portfolio, loan concentrations, specific problem loans, and economic conditions
that may affect the borrower's ability to repay and such other factors as, in
management's judgment, deserve recognition under existing economic conditions.
Loans are charged off to the allowance when, in the opinion of management, such
loans are deemed to be uncollectible. Subsequent recoveries are added to the
allowance.
Management believes that the reserve for loan losses is adequate and real
estate valuations are appropriate. While management uses available information
to recognize losses on loans and real estate owned, future additions to the
reserve may be necessary based on changes in economic conditions, particularly
in the Company's primary market areas. In addition, various regulatory agencies,
as an integral part of their examination processes, periodically review the
Company's reserve for loan losses and real estate valuations. Such agencies may
require the Company to recognize additions to the reserve or write down real
estate based on their judgments about information available to them at the time
of their examination.
LOAN ORIGINATION FEES
Loan origination fees, net of certain direct origination costs, are
deferred and amortized to income over the contractual life of the loan using a
level-yield method, adjusted for loan curtailment payments.
MORTGAGE PRODUCTION FEES
The Association and Eagle Service Corporation, the Association's wholly
owned subsidiary, originate conventional and FHA/VA loans, the majority of which
are presold to investors with servicing released. Fees received relating to the
origination and sale of these loans are included in mortgage production fees in
the statements of income when the loans are sold and consist of loan servicing
release premiums of approximately $1,800,000, $3,200,000, and $2,300,000 and
loan origination and discount points, net of commissions, of approximately
$1,575,000, $2,900,000, and $936,000 for the years ended March 31, 1993, 1994,
and 1995, respectively.
F-10
<PAGE> 70
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK IN FEDERAL HOME LOAN BANK ("FHLB") AND OTHER
Investment in stock of a FHLB is required of institutions utilizing their
services. The investment is carried at cost, since no ready market exists for
the stock and it has no quoted market value.
Eligible savings accounts are insured up to $100,000 by the Savings
Association Insurance Fund of the Federal Deposit Insurance Corporation.
REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS
Real estate acquired in settlement of loans is considered held for sale and
is carried at fair value adjusted for estimated costs to sell. Such
determination is made on an individual asset basis. Any excess of the loan
balance at the time of foreclosure over the fair value of the real estate held
as collateral is treated as a loan charge-off. A provision for estimated losses
on real estate is charged to earnings when a subsequent decline in value occurs.
The Association has recorded an allowance for estimated losses on real estate
acquired in settlement of loans of approximately $119,000 and $49,000 at March
31, 1994 and 1995, respectively. Costs relating to holding properties are
charged to operations.
REAL ESTATE HELD FOR DEVELOPMENT AND SALE
Real estate held for development and sale is carried at the lower of cost
or net realizable value. Certain carrying charges, including interest, related
to properties under development are capitalized as development costs during the
construction period.
PREMISES AND EQUIPMENT
Premises and equipment are carried at cost less accumulated depreciation.
Depreciation is provided on a straight-line basis over the estimated useful
lives of the related assets. Estimated lives are 15 to 40 years for buildings
and improvements and 3 to 10 years for furniture, fixtures, and equipment.
INCOME TAXES
Effective April 1, 1993, the Company adopted the provisions of SFAS No.
109, "Accounting for Income Taxes," and has reported the cumulative effect of
that change in the method of accounting for income taxes in the statement of
income for the year ended March 31, 1994. Under the asset and liability method
of SFAS No. 109, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Under SFAS No. 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
In prior years, in accordance with the deferred method of Accounting
Principles Board Opinion No. 11, deferred income taxes resulted from the
recognition of certain income and expense items in different periods for
financial statement and tax reporting purposes using the tax rate applicable for
the year of calculation. Under the deferred method, deferred taxes were not
adjusted for subsequent changes in the tax rates.
The Company files consolidated income tax returns.
RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," and SFAS
No. 118, "Accounting by Creditors for Impairment of a Loan -- Income Recognition
and Disclosures," will be required to be adopted by the Company during its
fiscal year beginning April 1, 1995. SFAS Nos. 114 and 118 require
F-11
<PAGE> 71
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. The Company has not yet determined the actual impact of
SFAS Nos. 114 and 118 on its financial statements. However, based on the
Company's current accounting policies related to providing for losses on problem
loans, the Company's management does not believe that the impact of SFAS Nos.
114 and 118 will be significant to the financial statements.
In May 1995, the Financial Accounting Standards Board issued SFAS No. 122,
"Accounting for Mortgage Servicing Rights." SFAS No. 122 addresses the
accounting for purchased and originated mortgage serving rights and is effective
for fiscal years beginning after December 15, 1995. The Company's management is
currently evaluating the impact SFAS No. 122 will have on its financial
statements.
CASH EQUIVALENTS
Cash equivalents include amounts due from banks and interest-bearing
deposits with maturities of three months or less.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year balances in order to
conform with current year financial statement presentations.
2. SECURITIES
Securities available for sale at March 31, 1994 and 1995 are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
1994
-----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST LOSSES GAINS VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Mortgage-backed securities..................... $17,287 $ 0 $624 $17,911
Equity securities -- preferred stock........... 2,972 0 0 2,972
--------- ---------- ---------- ---------
$20,259 $ 0 $624 $20,883
======= ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
1995
-----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST LOSSES GAINS VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Mortgage-backed securities..................... $13,890 $ 0 $203 $14,093
Equity securities -- preferred stock........... 6,975 (226) 97 6,846
--------- ---------- ---------- ---------
$20,865 $ (226) $300 $20,939
======= ======== ======== =======
</TABLE>
The Company sold mortgage-backed securities with a carrying value of
approximately $13,595,000 and $5,109,000 during the years ended March 31, 1994
and 1995, respectively, resulting in gross realized gains of approximately
$959,000 and $14,000, respectively.
F-12
<PAGE> 72
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Investment securities held to maturity at March 31, 1994 and 1995 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1994
-----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST LOSSES GAINS VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Mortgage-backed securities..................... $11,388 $ (128) $ 471 $11,731
U.S. government and agency obligations......... 17,860 (116) 352 18,096
Corporate bonds................................ 2,463 0 301 2,764
Other debt securities.......................... 2,972 (2) 0 2,970
--------- ---------- ---------- ---------
Total................................ $34,683 $ (246) $1,124 $35,561
======= ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
1995
-----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST LOSSES GAINS VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Mortgage-backed securities..................... $10,009 $ (157) $ 39 $ 9,891
U.S. government and agency obligations......... 24,799 (539) 76 24,336
Corporate bonds................................ 10,376 (211) 209 10,374
Other debt securities.......................... 12,415 (315) 0 12,100
--------- ---------- ---------- ---------
Total................................ $57,599 $ (1,222) $324 $56,701
======= ======== ======== =======
</TABLE>
The amortized cost and estimated market value of securities other than
equities at March 31, 1995, by contractual maturity, are as follows (in
thousands):
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
COST VALUE
--------- ---------
<S> <C> <C>
Due in one year or less........................................... $ 0 $ 0
Due one to five years............................................. 30,889 30,393
Due five to ten years............................................. 3,384 3,481
Due after ten years............................................... 37,216 36,920
--------- ---------
$71,489 $70,794
======= =======
</TABLE>
Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
F-13
<PAGE> 73
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. LOANS RECEIVABLE
At March 31, 1994 and 1995, loans receivable are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Real estate mortgage loans:
Fixed rates.................................................... $ 43,100 $ 46,983
Adjustable rates............................................... 65,419 119,653
Real estate construction loans................................... 126,754 154,512
Home equity and second mortgage loans............................ 10,701 10,250
-------- --------
Total real estate loans................................ 245,974 331,398
-------- --------
Investment in commercial leases.................................. 29,364 32,582
Consumer loans................................................... 729 1,001
Loans secured by savings......................................... 1,576 1,320
-------- --------
Total loans............................................ 277,643 366,301
Less:
Undisbursed portion of loans in process........................ 52,054 56,780
Unearned income................................................ 1,190 593
Deferred loan origination fees................................. 1,176 1,547
Reserve for loan losses........................................ 3,349 3,362
Net discount on loans purchased................................ 148 113
-------- --------
Loans receivable, net............................................ $219,726 $303,906
======== ========
</TABLE>
At March 31, 1993, 1994, and 1995, an analysis of the reserve for loan
losses is as follows (in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Reserve for loan losses, beginning of year................... $ 892 $2,420 $3,349
Charge-offs.................................................. (635) (104) (684)
Recoveries................................................... 5 33 54
Provision for loan losses.................................... 630 1,000 643
Reserve on purchased loans................................... 1,528 0 0
------ ------ ------
Reserve for loan losses, end of year......................... $2,420 $3,349 $3,362
====== ====== ======
</TABLE>
Substantially all of the Company's loans held for investment are secured by
real estate in Georgia, primarily in the metropolitan Atlanta, Augusta, and
Savannah areas and Jacksonville, Florida. A substantial portion of the real
estate owned also consists of single-family residential properties and land
located in those same markets. Additionally, no single customer accounted for
more than 2% of the Company's loans in 1994 or 1995.
At March 31, 1993, 1994, and 1995, the Company had nonaccrual loans
aggregating approximately $2,057,000, $787,000, and $603,000, respectively. The
interest income not recognized on these loans amounted to $11,000, $26,000, and
$40,000 for the years ended March 31, 1993, 1994, and 1995, respectively.
The Company was servicing loans for others with aggregate principal
balances of approximately $11,863,000, $15,654,000, and $13,271,000 at March 31,
1993, 1994, and 1995, respectively.
At March 31, 1994 and 1995, the Company had sold approximately $73,734,000
and $40,419,000, respectively, of loans with recourse. The recourse period is
three to six months on a substantial majority of these loans. Investors can
exercise their recourse option in the event the borrower defaults on the loan
during that recourse period. In 1993, 1994, and 1995 the Company has incurred
nominal losses from the repurchase of recourse loans.
F-14
<PAGE> 74
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At March 31, 1995, the Company had commitments to originate fixed rate
mortgage loans of approximately $3,330,000 and commitments to originate variable
rate mortgage loans of approximately $2,394,000, with terms up to 30 years and
interest rates ranging from 6.5% to 11%. The Company had commitments to sell
mortgage loans of approximately $41,220,000 at March 31, 1995. In addition, the
Company is committed to loan funds on unused variable rate lines of credit of
approximately $7,093,000 at March 31, 1995. These off-balance sheet commitments
represent the unused portion of home equity lines of credit. The Company's
policy is to offer these lines where collateral requirements are residential
real estate with aggregate loan-to-value ratios of 80% or less.
4. PREMISES AND EQUIPMENT
At March 31, 1994 and 1995, premises and equipment are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
1994 1995
------ ------
<S> <C> <C>
Land................................................................. $1,274 $2,389
Office buildings and improvements.................................... 4,318 5,004
Furniture, fixtures, and equipment................................... 3,362 4,065
------ ------
8,954 11,458
Less accumulated depreciation........................................ 2,537 3,159
------ ------
$6,417 $8,299
====== ======
</TABLE>
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," and
SFAS No. 119, "Disclosure About Derivative Financial Instruments and Fair Value
of Financial Instruments," require that the Company disclose estimated fair
values for its financial instruments. Fair value estimates, methods, and
assumptions are set forth below for the Company's financial instruments.
CASH AND AMOUNTS DUE FROM BANKS AND INTEREST-BEARING DEPOSITS
The carrying amount approximates fair value because of the short maturity
of these instruments.
SECURITIES
The fair value of investment and mortgage-backed securities available for
sale and held to maturity is estimated based on bid quotations received from
securities dealers. As noted in Note 2 to these financial statements, the fair
value of securities available for sale and held to maturity is approximately
$20,939,000 and $56,701,000, respectively.
LOANS RECEIVABLE
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type. The fair value of performing
loans is calculated by discounting scheduled cash flows through the estimated
maturity using estimated market discount rates that reflect the credit and
interest rate risk inherent in the loan. The estimate of maturity is based on
the Association's historical experience with repayments for each loan
classification, modified, as required, by an estimate of the effect of the
current economic and lending conditions.
Fair value for significant nonperforming loans is based on recent external
appraisals. If appraisals are not available, estimated cash flows are discounted
using a rate commensurate with the risk associated with the
F-15
<PAGE> 75
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
estimated cash flows. Assumptions regarding credit risk, cash flows, and
discount rates are judgmentally determined using available market information
and specific borrower information.
The following table presents information for loans as of March 31, 1994 and
1995 (in thousands):
<TABLE>
<CAPTION>
1994 1995
------------------- -------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Real estate mortgage loans:
Fixed rates................................. $ 43,100 $ 44,099 $ 46,983 $ 47,159
Adjustable rates............................ 65,419 69,923 119,653 122,734
Real estate construction loans................ 126,754 126,754 154,512 154,512
Home equity and second mortgage loans......... 10,701 9,685 10,250 9,744
Investment in commercial leases............... 29,364 29,413 32,582 32,517
Other loans................................... 2,305 2,326 2,321 2,305
-------- -------- -------- --------
Total loans......................... 277,643 282,200 366,301 368,971
Less:
Undisbursed portion of loans in process..... 52,054 52,054 56,780 56,780
Unearned income............................. 1,190 797 593 410
Deferred loan origination fees.............. 1,176 1,029 1,547 1,385
Reserve for loan losses..................... 3,349 3,349 3,362 3,362
Net discount on loans purchased............. 148 122 113 72
-------- -------- -------- --------
Loans receivable, net......................... $219,726 $224,849 $303,906 $306,962
======== ======== ======== ========
</TABLE>
LOANS HELD FOR SALE
Loans held for sale are carried at the lower of cost or estimated market
value, as determined by outstanding commitments from investors or current
investor yield requirements calculated on an aggregate basis as of March 31,
1994 and 1995 (in thousands):
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Carrying amount.................................................... $23,641 $41,220
======= =======
Estimated fair value............................................... $23,946 $41,526
======= =======
</TABLE>
DEPOSITS
Under SFAS Nos. 107 and 119, the fair value of deposits with no stated
maturity, such as Negotiable Order of Withdrawal ("NOW") accounts, money market
accounts, and passbook accounts, is equal to the amount payable on demand as of
March 31, 1994 and 1995. The fair value of certificates of deposit is based on
F-16
<PAGE> 76
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the discounted value of contractual cash flows. The discount rate is estimated
using the rates currently offered for deposits of similar remaining maturities
as of March 31, 1994 and 1995 (in thousands):
<TABLE>
<CAPTION>
1994 1995
--------------------- ---------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
NOW accounts.................................. $ 24,609 $ 24,609 $ 28,244 $ 28,244
Money market accounts......................... 12,487 12,487 10,836 10,836
Passbook accounts............................. 52,655 52,655 43,761 43,761
Time deposits:
Maturity one year or less................... 81,222 81,900 124,689 127,210
Maturity greater than one year through two
years.................................... 23,325 23,707 23,830 24,642
Maturity greater than two years through
three years.............................. 15,147 15,472 17,279 17,718
Maturity greater than three years........... 34,852 34,777 37,676 38,278
-------- ---------- -------- ----------
$244,297 $ 245,607 $286,315 $ 290,689
======== ======== ======== ========
</TABLE>
FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS
The fair value of the Association's advances from the FHLB and other
borrowings is estimated based on the quoted market prices for the same or
similar issues or on the current rates for advances and borrowings of the same
remaining maturities as of March 31, 1994 and 1995 (in thousands):
<TABLE>
<CAPTION>
1994 1995
------- --------
<S> <C> <C>
Carrying amount................................................... $30,750 $119,953
======= ========
Estimated fair value.............................................. $30,899 $119,958
======= ========
</TABLE>
COMMITMENTS
The fair value of commitments to extend credit to fund real estate
construction and real estate mortgage loans is immaterial at March 31, 1994 and
1995 because their underlying interest rates approximate market.
LIMITATIONS
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time the Association's entire holdings of a particular
financial instrument. Because no market exists for a portion of the
Association's financial instruments, fair value estimates are based on judgments
regarding future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature, involve uncertainties and matters of
significant judgment, and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. Other significant assets and liabilities that are not
considered financial assets or liabilities include deferred tax liabilities and
premises and equipment. In addition, the tax ramifications related to the
realization of the unrealized gains and losses can have a significant effect on
fair value estimates and have not been considered in many of the estimates.
F-17
<PAGE> 77
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. DEPOSITS
At March 31, 1994 and 1995, deposits are summarized by type and remaining
term as follows (dollars in thousands):
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
INTEREST
RATE
-----------
1994 1995 1994 1995
-------- -------- ---- ----
<S> <C> <C> <C> <C>
Demand deposits:
NOW accounts....................................... $ 24,609 $ 28,244 1.82% 1.82%
Money market accounts.............................. 12,487 10,836 2.50 2.50
Passbook accounts.................................. 52,655 43,761 2.53 2.53
-------- --------
89,751 82,841 2.33 2.28
-------- --------
Time deposits:
Maturity one year or less.......................... 81,222 124,689
Maturity greater than one year through two years... 23,325 23,830
Maturity greater than two years through three
years........................................... 15,147 17,279
Maturity greater than three years.................. 34,852 37,676
-------- --------
154,546 203,474 5.06 5.93
-------- --------
Total deposits............................. $244,297 $286,315 4.06 4.87
======== ========
</TABLE>
Interest expense on deposits is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
NOW accounts.............................................. $ 455 $ 383 $ 484
Money market accounts..................................... 416 311 300
Passbook accounts......................................... 1,707 1,435 1,425
Time deposits............................................. 8,830 7,877 9,416
------- ------- -------
$11,408 $10,006 $11,625
======= ======= =======
</TABLE>
7. FHLB ADVANCES AND OTHER BORROWINGS
FHLB advances and other borrowings at March 31, 1994 and 1995 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995
------- --------
<S> <C> <C>
FHLB advances..................................................... $30,750 $117,143
Other borrowings.................................................. 0 2,810
------- --------
$30,750 $119,953
======= ========
</TABLE>
FHLB advances are collateralized by unencumbered mortgage loans of at least
150% of outstanding advances, approximately $28,902,000 of investment securities
and by stock in the FHLB at March 31, 1995. The advances mature at various dates
through July 20, 1999. The weighted average interest rate on FHLB advances was
5.76% and 6.77% at March 31, 1994 and 1995, respectively. Maximum short-term
borrowings during fiscal years 1995 were $111,170,000.
F-18
<PAGE> 78
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of March 31, 1995, repayments of FHLB advances and other borrowings for
subsequent fiscal years are estimated to be as follows (in thousands):
<TABLE>
<S> <C>
1996...................................................................... $109,088
1997...................................................................... 2,165
1998...................................................................... 381
1999...................................................................... 381
2000...................................................................... 7,765
Thereafter................................................................ 173
--------
$119,953
========
</TABLE>
The Company recorded an extraordinary loss of $427,000, net of income tax
benefit of $261,000, relating to the early extinguishment of certain FHLB
advances during the year ended March 31, 1994.
8. INCOME TAXES
As discussed in Note 1, the Company adopted SFAS No. 109 as of April 1,
1993. The cumulative effect of the change in accounting for income taxes was
$320,000 as of April 1, 1993 and was reported separately in the statement of
income for the year ended March 31, 1994. Prior years' financial statements have
not been restated to apply the provisions of SFAS No. 109.
Income tax expense is allocated as follows (in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Income tax expense from continuing operations:
Current expense:
Federal............................................. $2,167 $2,824 $1,843
State............................................... 53 345 195
------ ------ ------
2,220 3,169 2,038
------ ------ ------
Deferred expense:
Federal............................................. 45 17 205
State............................................... 4 3 36
------ ------ ------
49 20 241
------ ------ ------
2,269 3,189 2,279
Extraordinary item -- income tax benefit relating to
early extinguishment of debt........................... 0 (261) 0
------ ------ ------
$2,269 $2,928 $2,279
====== ====== ======
</TABLE>
The following is a summary of the differences between the income tax
expense as shown in the accompanying financial statements and the income tax
expense which would result from applying the federal
F-19
<PAGE> 79
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
statutory tax rate of 34% for fiscal years 1993, 1994, and 1995 to income before
income taxes, extraordinary item, and cumulative effect of change in accounting
principle (in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Expected income tax expense.............................. $2,155 $2,892 $2,169
Increase (decrease) in income taxes resulting from:
State income taxes, net of federal income tax
benefit............................................. 38 230 152
Statutory bad debt deduction........................... (381) 0 0
Provision for loan losses.............................. 377 0 0
Other, net............................................. 80 67 (42)
------ ------ ------
Actual income tax expense................................ $2,269 $3,189 $2,279
====== ====== ======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at March 31,
1994 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995
------ ------
<S> <C> <C>
Deferred tax assets:
Loans receivable, due to reserve for loan losses................... $ 710 $1,023
Other.............................................................. 0 64
------ ------
Total gross deferred tax assets............................ 710 1,087
------ ------
Deferred tax liabilities:
FHLB stock, due to dividends not recognized for tax purposes....... 480 400
Loans receivable, due to differences in deferred loan fees and
costs recognition for tax purposes.............................. 250 922
Premises and equipment, due to differences in depreciation methods
for tax purposes................................................ 120 178
Net unrealized gain on securities available for sale, not
recognized for tax purposes..................................... 237 28
Other.............................................................. 43 0
------ ------
Total gross deferred tax liabilities....................... 1,130 1,528
------ ------
Net deferred tax liability........................................... $ 420 $ 441
====== ======
</TABLE>
No valuation allowances for deferred tax assets have been recorded as of
March 31, 1994 and 1995, based on management's assessment that it is more likely
than not that these assets will be realized. This assessment is based primarily
on the level of historical taxable income and projections for future taxable
income over the periods in which the deferred tax assets are deductible.
Retained earnings at March 31, 1995 include approximately $3,900,000 for
which no provision for federal income tax has been made. This amount represents
allocations of income to bad debt reserves for tax computation purposes and is
subject to federal income tax in future years if used for purposes other than to
absorb bad debt losses.
9. EMPLOYEE BENEFIT PLANS
Effective April 1, 1989, the board instituted an employee stock ownership
plan ("ESOP"). During the year ended March 31, 1992, the Company's ESOP borrowed
approximately $269,000 from Eagle Bancshares, Inc. to acquire common stock of
the Company on the open market. The note will be repaid principally from the
Association's contributions to the ESOP and, accordingly, the note is reflected
in the equity section as a reduction from equity. The Association's contribution
expense in fiscal years 1993, 1994, and 1995 was approximately $310,000,
$584,000, and $569,000, respectively.
F-20
<PAGE> 80
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In connection with the Association's conversion to a federally chartered
stock association, the board of directors adopted the Eagle Bancshares, Inc.
Stock Option and Incentive Plan ("Option Plan"), pursuant to which options to
purchase 10% of the shares of the Company's common stock issued in the
conversion can be granted to officers and other full-time employees. The Option
Plan also provides for the granting of nonincentive stock options and stock
appreciation rights. Information relating to these stock options for the years
ended March 31, 1993, 1994, and 1995 is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
-------------- --------------- ----------------
<S> <C> <C> <C>
Options outstanding at beginning of
year................................. 152,000 152,000 156,000
Options granted........................ 0 48,000 156,500
Options exercised...................... 0 (44,000) (33,000)
-------------- --------------- ----------------
Options outstanding at end of year..... 152,000 156,000 279,500
============ ============= ==============
Options exercisable at end of year..... 108,000 114,666 100,998
Option prices per share:
Options granted during year............ $0.00 $9.75 to $12.13 $11.25 to $12.13
Options exercised during the year...... $0.00 $3.19 $3.19
Options outstanding at end of year..... $3.19 to $4.88 $3.19 to $12.13 $3.38 to $12.13
============ ============= ==============
</TABLE>
During the year ended March 31, 1994, the Company awarded 30,000
nontransferable restricted shares of the Company's common stock to an officer of
the Association. During the year ended March 31, 1995, the Company awarded two
officers of the Association 15,000 each, nontransferable restricted shares of
the Company's common stock. The market value of the shares at the date of award
of $293,000 and $338,000 for the year ended March 31, 1994 and 1995,
respectively, is being amortized by charges to compensation expense over the
three-year vesting period. Compensation expense related to these awards for the
year ended March 31, 1994 and 1995 was $110,000 and $228,000, respectively. The
unamortized balance of the awards are included as a deduction from stockholders'
equity in the statements of financial condition. Additionally, certain officers
of the Company are employed under various employment agreements, expiring over
the next three years.
Also, eligible employees participate in a 401(k) defined contribution plan.
The Association's contribution is determined annually by the board of directors
and is allocated to participants in the proportion of their compensation to
total compensation of participants. The Association's 401(k) contributions in
fiscal years 1993, 1994, and 1995 were approximately $30,000, $62,000, and
$154,000, respectively.
10. STOCKHOLDERS' EQUITY
At the time of conversion to a federally chartered stock association, the
Association was required by the Federal Savings and Loan Insurance Corporation
to establish a liquidation account in an amount equal to its retained earnings
determined at December 31, 1985. The purpose of the account is to grant a
limited priority claim on the assets of the Association to qualifying depositors
("Eligible Account Holders") as of April 19, 1985. In the event of a future
complete liquidation of the Association, each Eligible Account Holder would
receive from the liquidation account a liquidation distribution based on his/her
share of the then remaining qualifying deposits. This account is reduced
annually in proportion to the reduction of eligible savings account balances
measured on March 31 of each year.
The source of funds for payment of dividends by the Company will be
dividends paid to the Company by the Association. Without the approval of the
OTS, repurchases of capital stock may not be made, nor may cash dividends on
capital stock be declared or paid, if the effect thereof would be to cause the
Association's net worth to be reduced below (a) the amount required for the
liquidation account or (b) the regulatory capital requirements of the OTS. This
restriction amounted to approximately $22,500,000 of the Association's
F-21
<PAGE> 81
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
net worth as of March 31, 1995. The Association paid dividends to the Company of
approximately $901,000, $1,050,000, and $3,300,000 during the years ended March
31, 1993, 1994, and 1995, respectively.
11. INDUSTRY SEGMENTS
The Company operates principally in the thrift industry through its wholly
owned subsidiary, Tucker Federal Savings and Loan Association. The Company also
operates in the mortgage banking industry through the Association's wholly owned
subsidiary, Eagle Service Corporation, and its Prime Lending Division, which
originates and sells residential mortgages and construction loans. All
significant intersegment accounts and transactions are eliminated in
consolidation.
Industry segment information for the years ended March 31, 1993, 1994, and
1995 are presented below (in thousands):
<TABLE>
<CAPTION>
RETAIL MORTGAGE
BANKING BANKING ELIMINATIONS CONSOLIDATED
-------- -------- ------------ ------------
<S> <C> <C> <C> <C>
1993:
Revenues $ 27,031 $ 8,353 $ (2,149) $ 33,235
Net income 2,303 1,937 (171) 4,069
Identifiable assets 287,947 71,474 (37,824) 321,597
Capital expenditures, net 1,626 38 0 1,664
Depreciation on premises and equipment 303 31 0 334
1994:
Revenues $ 26,962 $ 14,465 $ (4,648) $ 36,779
Net income 2,726 2,889 (404) 5,211
Identifiable assets 287,242 99,188 (66,045) 320,385
Capital expenditures, net 2,252 63 0 2,315
Depreciation on premises and equipment 498 98 0 596
1995:
Revenues $ 29,488 $ 15,514 $ (6,313) $ 38,689
Net income 4,667 2,149 (2,715) 4,101
Identifiable assets 450,159 117,602 (110,444) 457,317
Capital expenditures, net 2,291 235 0 2,526
Depreciation on premises and equipment 536 108 0 644
</TABLE>
The Company includes construction lending activity and the origination and
sale of first mortgage loans in the mortgage banking segment.
F-22
<PAGE> 82
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. FINANCIAL INFORMATION OF EAGLE SERVICE CORPORATION
The following condensed statements of financial condition as of March 31,
1994 and 1995 and the related condensed statements of income for the years ended
March 31, 1993, 1994, and 1995 summarize the financial position and operating
results of the Association's wholly owned subsidiary, Eagle Service Corporation:
CONDENSED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
1994 1995
------ ------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash..................................................................... $ 77 $ 43
Loans held for sale...................................................... 7,543 3,512
Other assets............................................................. 646 902
------ ------
Total assets................................................... $8,266 $4,457
====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
Notes payable to parent.................................................. $4,502 $1,017
Drafts outstanding....................................................... 1,962 1,677
Accrued expenses and other liabilities................................... 480 434
------ ------
Total liabilities.............................................. 6,944 3,128
------ ------
Stockholder's equity:
Common stock........................................................... 500 500
Retained earnings...................................................... 822 829
------ ------
Total stockholder's equity..................................... 1,322 1,329
------ ------
Total liabilities and stockholder's equity..................... $8,266 $4,457
====== ======
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Mortgage production fees......................................... $1,474 $1,969 $1,003
Appraisal and other fees......................................... 196 326 190
Interest income.................................................. 551 651 329
Interest on note payable to parent............................... (394) (392) (145)
Other............................................................ (12) (16) 316
------ ------ ------
Operating income....................................... 1,815 2,538 1,693
General and administrative expenses.............................. 1,422 1,726 1,682
------ ------ ------
Income before income tax expense....................... 393 812 11
Federal income tax expense....................................... 148 308 4
------ ------ ------
Net income....................................................... $ 245 $ 504 $ 7
====== ====== ======
</TABLE>
13. REGULATORY CAPITAL
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989
requires institutions to maintain a minimum regulatory tangible capital equal to
1.5% of total assets, a minimum 3% core capital ratio, and an 8% risk-based
capital ratio. At March 31, 1995, the Company and the Association met all
minimum regulatory capital requirements.
F-23
<PAGE> 83
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") established five capital categories for financial institutions. The
thrift regulators adopted regulations defining these five capital categories
effective December 1992. Under the new regulations, each thrift will be
classified into one of the five categories (well-capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized, and critically
undercapitalized) based on its level of risk-based capital as measured by Tier 1
capital, total risk-based capital, Tier 1 leverage ratios, and its supervisory
ratings. FDICIA defines well-capitalized banks as entities having a total
risk-based capital ratio of 10% or higher, a Tier 1 risk-based capital ratio of
6% or higher, and a leverage ratio of 5% or higher. At March 31, 1995, the
Association is classified as a well-capitalized institution under the FDICIA
regulations.
14. EARNINGS PER SHARE
Weighted average common and common equivalent shares for the years ended
March 31, 1993, 1994, and 1995 are computed as follows :
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Primary:
Weighted average shares outstanding................. 2,948,000 2,968,824 3,059,324
Common shares assumed outstanding to reflect
dilutive effect of common stock options.......... 0 91,706 41,336
--------- --------- ---------
Weighted average shares and common equivalent shares
outstanding......................................... 2,948,000 3,060,530 3,100,660
======== ======== ========
Fully diluted:
Weighted average shares outstanding................. 2,948,000 2,968,824 3,059,324
Common shares assumed outstanding to reflect
dilutive effect of common stock options.......... 0 94,368 45,468
--------- --------- ---------
Weighted average shares outstanding................... 2,948,000 3,063,192 3,104,792
======== ======== ========
</TABLE>
The dilutive effect of common stock equivalents on earnings per share is
less than 3% for the year ending March 31, 1995; therefore, simple weighted
average shares outstanding are used in computing earnings per share.
See Note 16 where a two-for-one stock split effected as a stock dividend
paid on December 21, 1995 is discussed.
15. FINANCIAL INFORMATION OF EAGLE BANCSHARES, INC. (PARENT ONLY)
Eagle Bancshares, Inc.'s condensed statements of financial condition as of
March 31, 1994 and 1995 and related condensed statements of income and cash
flows for the years ended March 31, 1993, 1994, and 1995 are as follows:
CONDENSED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash............................................................... $ 1,042 $ 591
Investment in subsidiaries......................................... 30,247 31,508
Other assets....................................................... 39 2,161
------- -------
Total assets............................................. $31,328 $34,260
======= =======
</TABLE>
F-24
<PAGE> 84
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Due to subsidiaries................................................ $ 133 $ 182
Other liabilities.................................................. 363 442
------- -------
496 624
------- -------
Stockholders' equity:
Common stock..................................................... 3,324 3,389
Additional paid-in capital....................................... 7,726 8,131
Retained earnings................................................ 20,795 23,450
Net unrealized gain on securities available for sale............. 387 46
ESOP debt........................................................ (141) (11)
Unamortized restricted stock..................................... (183) (293)
Treasury stock................................................... (1,076) (1,076)
------- -------
Total stockholders' equity............................... 30,832 33,636
------- -------
Total liabilities and stockholders' equity............... $31,328 $34,260
======= =======
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest and other income.................................... $ 83 $ 31 $ 2
Management fee income........................................ 100 100 100
Equity in undistributed earnings of subsidiaries............. 3,132 4,327 869
Dividends from subsidiaries.................................. 901 1,050 3,300
------ ------ ------
Total income....................................... 4,216 5,508 4,271
General and administrative expenses.......................... 147 190 170
------ ------ ------
Income before extraordinary item and cumulative
effect of change in accounting principle......... 4,069 5,318 4,101
Extraordinary item........................................... 0 (427) 0
Cumulative effect of change in accounting for income taxes... 0 320 0
------ ------ ------
Net income................................................... $4,069 $5,211 $4,101
====== ====== ======
</TABLE>
F-25
<PAGE> 85
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income...................................................... $ 4,069 $ 5,211 $ 4,101
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in undistributed earnings of subsidiaries............. (3,132) (4,327) (869)
Cumulative effect of change in accounting principle.......... 0 (320) 0
Amortization of restricted stock award....................... 0 110 228
(Increase) decrease in other assets.......................... 35 (3) (122)
Increase in due to subsidiaries.............................. 62 88 49
Increase (decrease) in other liabilities..................... (45) 2 79
------- ------- -------
Total adjustments....................................... (3,080) (4,450) (635)
------- ------- -------
Net cash provided by operating activities............... 989 761 3,466
------- ------- -------
Cash flows from investing activities:
Loan to Cobb Woodlawn LLC....................................... 0 0 (2,000)
Capital contribution to Union Hill LLC.......................... 0 0 (817)
------- ------- -------
Net cash used in investing activities................... 0 0 (2,817)
------- ------- -------
Cash flows from financing activities:
Early extinguishment of debt penalties, net..................... 0 427 0
Purchase of treasury stock...................................... (57) 0 0
Cash dividends paid............................................. (590) (771) (1,362)
Stock options exercised......................................... 0 140 132
Principal reduction of ESOP debt................................ 25 86 130
------- ------- -------
Net cash used in financing activities................... (622) (118) (1,100)
------- ------- -------
Net (decrease) increase in cash................................... 367 643 (451)
Cash at beginning of year......................................... 32 399 1,042
------- ------- -------
Cash at end of year............................................... $ 399 $ 1,042 $ 591
======= ======= =======
Supplemental disclosure of noncash financing activities:
Dividends declared, not paid.................................... $ 148 $ 302 $ 386
======= ======= =======
Restricted stock award.......................................... $ 0 $ 293 $ 338
======= ======= =======
Net (decrease) increase in unrealized gain on securities
available for sale, net of taxes............................. $ 0 $ 387 $ (341)
======= ======= =======
</TABLE>
F-26
<PAGE> 86
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. SUBSEQUENT EVENTS
All share and per share data have been adjusted to reflect the effect of a
two-for-one split of the Common Stock effected in the form of a stock dividend
paid on December 21, 1995.
There is currently proposed as part of the Budget Reconciliation Act of
1995 a one-time assessment on the deposits of institutions which are insured by
the SAIF in order to recapitalize SAIF during the first quarter of calendar
1996. It is anticipated that such assessment will be in the amount of from $.80
to $.90 per $100 of SAIF insured deposits at March 31, 1995. If the assessment
were levied at $.85 per $100 in SAIF insured deposits, the Bank's earnings would
decrease approximately $1.5 million net of tax. Thereafter it is estimated that
the level of ongoing premiums paid to the SAIF would be reduced from the
Company's current rate of $.23 per $100 of SAIF insured deposits to between $0
and $.04 per $100 of SAIF insured deposits, thereby reducing in future periods
the premium payments currently paid by the Bank. Assuming the Company is subject
to premiums at the rate of $.04 per $100 of deposits subsequent to the one-time
assessment, the annualized premium reduction would be $386,000 net of tax based
upon September 30, 1995 deposits.
F-27
<PAGE> 87
EAGLE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, 1995 AND SEPTEMBER 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1995 1995
--------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and amounts due from banks....................................... $ 6,214 $ 9,586
Interest-bearing deposits............................................. 144 7,225
Loans receivable held for sale........................................ 41,220 65,572
Investment securities available for sale.............................. 20,939 19,767
Investment securities held to maturity................................ 57,599 56,022
Loans receivable, net................................................. 303,906 335,348
Stock in Federal Home Loan Bank, at cost.............................. 5,984 6,753
Premises and equipment................................................ 8,299 9,861
Real estate acquired in settlement of loans, net...................... 615 541
Real estate held for development and sale............................. 6,620 8,419
Accrued interest receivable........................................... 2,996 3,350
Other assets.......................................................... 2,781 5,749
--------- -------------
Total assets................................................ $ 457,317 $ 528,193
--------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits............................................................ $ 286,315 $ 327,660
Advance payments by borrowers for property taxes and insurance...... 2,187 1,786
Federal Home Loan Bank advances..................................... 119,953 137,014
Deferred income taxes............................................... 441 610
Drafts outstanding.................................................. 10,778 20,845
Accrued expenses and other liabilities.............................. 4,007 4,581
--------- -------------
Total liabilities........................................... 423,681 492,496
--------- -------------
Stockholders' Equity (Note D):
Common stock, $1.00 par value, 10,000,000 shares authorized, 3,389,000
and 3,414,000 issued in March and September, respectively........... 3,389 3,414
Additional paid-in capital............................................ 8,131 8,216
Retained earnings, substantially restricted........................... 23,450 25,000
Net unrealized gain on investment securities.......................... 46 357
Employee Stock Ownership Plan (ESOP) debt............................. (11) --
Unamortized restricted stock.......................................... (293) (214)
Treasury stock, 301,800 shares at cost................................ (1,076) (1,076)
--------- -------------
Total stockholders' equity.................................. 33,636 35,697
--------- -------------
Total liabilities and stockholders' equity.................. $ 457,317 $ 528,193
======== ==========
</TABLE>
F-28
<PAGE> 88
EAGLE BANCSHARES, INC.
CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE AND SIX MONTH PERIODS ENDED SEPTEMBER 30, 1994 AND 1995
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------- -----------------
1994 1995 1994 1995
------- ------ ------- -------
<S> <C> <C> <C> <C>
Interest income:
Interest on loans........................................ $ 6,085 $9,090 $11,693 $17,466
Interest on mortgage-backed securities................... 483 419 994 858
Interest on investment securities and other interest
earning assets........................................ 1,105 1,129 2,020 2,306
------- ------ ------- -------
Total interest income............................ 7,673 10,638 14,707 20,630
------- ------ ------- -------
Interest expense:
Interest on deposits..................................... 2,776 4,171 5,430 7,953
Interest on borrowings................................... 720 1,916 1,167 3,783
------- ------ ------- -------
Total interest expense........................... 3,496 6,087 6,597 11,736
------- ------ ------- -------
Net interest income...................................... 4,177 4,551 8,110 8,894
Provision for loan losses.................................. 189 54 371 54
------- ------ ------- -------
Net interest income after provision for loan
losses......................................... 3,988 4,497 7,739 8,840
------- ------ ------- -------
Other income:
Mortgage production fees................................. 851 1,486 1,920 2,551
Service charges.......................................... 153 195 292 352
Gain on sale of real estate held for development and
sale.................................................. -- 345 -- 345
Gain on sale of loans.................................... 535 81 606 81
Gain on sale of mortgage-backed securities............... -- -- 14 --
Miscellaneous............................................ 401 332 784 753
------- ------ ------- -------
Total other income............................... 1,940 2,439 3,616 4,082
------- ------ ------- -------
Other expenses:
Salaries and employee benefits........................... 2,403 3,047 4,909 5,751
Net occupancy expense.................................... 441 533 896 1,032
Marketing expense........................................ 89 127 175 229
Federal insurance premium................................ 152 169 296 329
Data processing.......................................... 202 339 392 605
Miscellaneous............................................ 735 820 1,332 1,418
------- ------ ------- -------
Total other expenses............................. 4,022 5,035 8,000 9,364
------- ------ ------- -------
Income before income taxes................................. 1,906 1,901 3,355 3,558
Income tax expense......................................... 727 641 1,277 1,231
------- ------ ------- -------
Net income....................................... $ 1,179 $1,260 $ 2,078 $ 2,327
======= ====== ======= =======
Net income per share............................. $ 0.38 $ 0.41 $ 0.67 $ 0.75
======= ====== ======= =======
</TABLE>
F-29
<PAGE> 89
EAGLE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED SEPTEMBER 30, 1994 AND 1995
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
---------------------
1994 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................................................. $ 2,078 $ 2,327
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation, amortization and accretion................................................... 416 599
Provision for loan losses.................................................................. 371 54
Provision for losses on real estate owned.................................................. 10 --
Loss (gain) on sale of real estate held for development and sale........................... -- (345)
Loss (gain) on sale of real estate acquired in settlement of loans......................... (7) (39)
Gain on sale of loans...................................................................... (606) (81)
Gain on sale of mortgage-backed securities................................................. (14) --
Amortization of restricted stock award..................................................... 149 79
Amortization of deferred loan fees......................................................... (917) (814)
Proceeds from sale of loans receivable held for sale....................................... 172,473 186,729
Originations of loans held for sale........................................................ (163,389) (211,000)
Changes in assets and liabilities:
(Increase) decrease in accrued interest receivable....................................... (679) (354)
Decrease (increase) in other assets...................................................... (3,517) (3,173)
Increase (decrease) in drafts outstanding................................................ 3,807 10,067
Increase (decrease) in accrued expense and other liabilities............................. (603) 743
--------- ---------
Net cash provided by (used in) operating activities.................................. $ 9,572 $ (15,208)
--------- ---------
Cash flows from investing activities:
Purchase of investment securities available for sale....................................... (9,112) --
Proceeds from sale of investment securities available for sale............................. 5,123 --
Purchases of investment securities held to maturity........................................ (22,192) --
Principle payments received on investments available for sale.............................. 2,594 1,183
Principle payments received on investments held to maturity................................ 812 1,659
Proceeds from maturities of investment securities held to maturity......................... 2,000 --
Proceeds from maturities of investment securities available for sale....................... -- 464
Loan originations, net of repayments....................................................... (43,386) (30,907)
Purchases of loans receivable.............................................................. (2,268) --
Proceeds from sale of loans receivable..................................................... 2,804 --
Proceeds from sale of real estate acquired in settlement of loans.......................... 516 173
Purchases of FHLB stock.................................................................... -- (1,048)
Redemption of FHLB stock................................................................... -- 279
Purchase of premises and equipment......................................................... (1,037) (2,039)
Additions to real estate held for development and sale..................................... -- (1,454)
--------- ---------
Net cash (used in) provided by investing activities.................................. $ (64,146) $ (31,690)
--------- ---------
Cash flows from financing activities:
Net change in time deposits................................................................ $ 15,999 $ 44,095
Net change in demand deposit accounts...................................................... 4,932 (2,750)
Repayment of FHLB advances and other borrowings............................................ (65,471) (136,545)
Proceeds from FHLB advances and other borrowings........................................... 96,835 153,606
Dividends paid............................................................................. (639) (775)
Principal reduction of ESOP debt........................................................... 79 11
Proceeds from exercise of stock options.................................................... 37 110
Increase (decrease) in advance payments from borrowers for property taxes and insurance.... 226 (401)
--------- ---------
Net cash (used in) provided by financing activities.................................. 51,998 57,351
--------- ---------
Net (decrease) increase in cash and cash equivalents................................. (2,576) 10,453
Cash and cash equivalents at beginning of year............................................... 7,858 6,358
--------- ---------
Cash and cash equivalents at end of period................................................... $ 5,282 $ 16,811
========= =========
Supplemental disclosure of cash paid during period for:
Interest................................................................................... $ 6,686 $ 11,763
========= =========
Income taxes............................................................................... $ 1,490 $ 932
========= =========
Supplemental schedule of noncash investing and financing activities:
Acquisition of real estate in settlement on loans.......................................... $ 203 $ 280
========= =========
Loans made to finance real estate.......................................................... $ 575 $ 340
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
F-30
<PAGE> 90
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
A. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions for preparation of the Securities
and Exchange Commission Form 10-Q. Accordingly, they do not include all of the
information and disclosures required for fair presentation in accordance with
generally accepted accounting principles. These financial statements should
therefore be read in conjunction with management's discussion and analysis of
results of operations and financial condition included in this report and the
complete annual report for the year ended March 31, 1995, which has been filed
with the Company's most recent Form 10-K. In the opinion of management, all
eliminations and normal recurring adjustments considered necessary for fair
presentation have been included. Operating results for the three and six month
periods ended September 30, 1995, are not necessarily indicative of the results
that may be expected during the fiscal year ending March 31, 1996.
B. RECLASSIFICATION OF PRIOR PERIOD AMOUNTS
Certain reclassifications have been made in the Company's financial statements
for the prior fiscal period to conform to the classifications used in the
financial statements for the current fiscal period.
C. RECENT ACCOUNTING PRONOUNCEMENTS
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for
Impairment of a Loan". For fiscal years beginning after December 15, 1994, SFAS
No. 114 requires impaired loans to be measured based on the present value of
expected cash flows discounted at the loan's effective interest rate, or at the
loan's observable market price or at the fair value of the collateral if the
loan is collateral dependent. A valuation allowance equivalent to the amount of
the impairment is required for all loans determined to be impaired. In October
1994, the Financial Accounting Standards Board issued Statement of Accounting
Standards No. 118, "Accounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosures," which amends certain requirements of SFAS No. 114
regarding interest income recognition on impaired loans and clarifies related
disclosure requirements. SFAS No. 118 is to be implemented concurrently with
SFAS No. 114. The Company adopted SFAS No. 114 and SFAS No. 118 on April 1,
1995, and there was no impact to the consolidated financial statements. For
further information see the Impaired Loan Schedule in Management's Discussion
and Analysis of Financial Condition and Results of Operation.
The company adopted SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" ("SFAS No. 115") as of March 1994. In conjunction
with the adoption of SFAS No. 115, the Company classified all investments in
equity securities and certain mortgage-backed securities as available for sale.
Pursuant to SFAS No. 115, the Company has presented such investments and
mortgage-backed securities at estimated fair value with the unrealized gain or
(losses) on such securities, net of income taxes, disclosed as a separate
component of shareholders equity. In October 1995, the Financial Accounting
Standards Board ("FASB") voted to allow reclassification of any portion of an
enterprises' held-to-maturity debt security portfolio without "tainting".
Without this FASB action, "tainting" could cause all held-to-maturity securities
to be reclassified as available-for-sale. The decision was made during the
FASB's process of issuing the FASB Special Reports, A Guide to Implementation of
Statement 115. The Guide clarifies certain aspects of Statement 115, and as a
result, the FASB deemed the one-time window as necessary. The reclassification
"window" opens concurrent with implementation of the Guide, but no later than
December 31, 1995, regardless of an enterprises year end. The Company's
management is currently evaluating the impact a one-time reclassification
associated with SFAS No. 115 will have on its financial statements.
F-31
<PAGE> 91
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
In May 1995, the Financial Accounting Standards Board issued SFAS No. 122,
"Accounting for Mortgage Servicing Rights," as an amendment to SFAS No. 65,
"Accounting for Certain Mortgage Banking Activities". SFAS No. 122 addresses the
accounting for purchased and originated mortgage servicing rights and is
effective for fiscal years beginning after December 15, 1995. SFAS No. 122
requires that a mortgage banking enterprise recognize as a separate asset rights
to service mortgage loans for others regardless of whether their servicing
rights are acquired through either the purchase or origination of mortgage
loans. The statement also requires that the mortgage banking enterprise assess
its capitalized mortgage servicing rights for impairment based upon the fair
value of those rights purchased before adoption of SFAS No. 122. Impairment
should be recognized through a valuation allowance. The Company's mortgage
banking segment, PrimeEagle Mortgage generates revenues through fees for various
services including application and origination as well as through the gain or
loss on sale of loans to third parties and from the sale of mortgage servicing
rights. Service release premiums are the largest component of mortgage
production fees. Fluctuations in the value of servicing rights impact
management's decision to retain or sell servicing. SFAS No. 122 does not have an
effect on the Company's financial statements as substantially all of its
permanent loans are sold on a servicing released basis.
D. SUBSEQUENT EVENTS
All share and per share data have been adjusted to reflect the effect of a
two-for-one split of the Common Stock effected in the form of a stock dividend
paid on December 21, 1995.
There is currently proposed as part of the Budget Reconciliation Act of
1995 a one-time assessment on the deposits of institutions which are insured by
the SAIF in order to recapitalize SAIF during the first quarter of calendar
1996. It is anticipated that such assessment will be in the amount of from $.80
to $.90 per $100 of SAIF insured deposits at March 31, 1995. If the assessment
were levied at $.85 per $100 in SAIF insured deposits, the Bank's earnings would
decrease approximately $1.5 million net of tax. Thereafter it is estimated that
the level of ongoing premiums paid to the SAIF would be reduced from the
Company's current rate of $.23 per $100 of SAIF insured deposits to between $0
and $.04 per $100 of SAIF insured deposits, thereby reducing in future periods
the premium payments currently paid by the Bank. Assuming the Company is subject
to premiums at the rate of $.04 per $100 of deposits subsequent to the one-time
assessment, the annualized premium reduction would be $386,000 net of tax based
upon September 30, 1995 deposits.
F-32
<PAGE> 92
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THIS OFFERING TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, IN ANY JURISDICTION TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
OR INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
The Company........................... 6
Risk Factors.......................... 7
Use of Proceeds....................... 8
Capitalization........................ 9
Price Range of Common Stock and
Dividend History.................... 10
Selected Consolidated Financial
Data................................ 11
Management's Discussion and Analysis
of Results of Operations and
Financial Condition................. 13
Business.............................. 32
Management............................ 43
Supervision and Regulation............ 46
Description of Capital Stock.......... 51
Underwriting.......................... 55
Available Information................. 56
Incorporation of Documents by
Reference........................... 56
Legal Matters......................... 57
Experts............................... 57
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
1,300,000 SHARES
EAGLE BANCSHARES, INC.
COMMON STOCK
------------------
PROSPECTUS
------------------
INTERSTATE/JOHNSON LANE
CORPORATION
MORGAN KEEGAN &
COMPANY, INC.
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 93
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses of this offering are estimated to be as set forth below. The
Company will pay all of such expenses.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............................... $ 5,420
National Association of Securities Dealers, Inc. renew and application fees....... *
Blue sky fees..................................................................... *
Printing fees..................................................................... *
Accounting fees and expenses...................................................... *
Legal fees and expenses........................................................... *
Transfer agent fees and expenses.................................................. *
Miscellaneous expenses............................................................ *
--------
Total................................................................... $ *
========
</TABLE>
- ---------------
* To be completed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 14-2-202(b)(4) of the Georgia Business Corporation Code provides
that a corporation's articles of incorporation may include a provision that
eliminates or limits the personal liability of directors for monetary damages to
a corporation or its shareholders for breach of their fiduciary duties as
directors. The Section does not, however, authorize a corporation to eliminate
or limit the liability of a director for appropriating, in violation of his or
her duties, any business opportunity of the corporation, engaging in intentional
misconduct or a knowing violation of law, obtaining an improper personal
benefit, or authorizing a dividend, stock repurchase or redemption, distribution
of assets or other distribution in violation of Section 14-2-640 of the Georgia
Business Corporation Code or the articles of incorporation of the corporation.
Section 14-2-202(b)(4) also does not eliminate or limit the right of a
corporation or any shareholder to seek an injunction, a rescission or any other
equitable (non-monetary) relief in the event of a breach of a director's
fiduciary duty. In addition, Section 14-2-202(b)(4) applies only to claims
against a director arising out of his or her role as a director and does not
relieve a director from liability arising from his or her role as an officer or
in any other capacity. Article XVIII of the Company's Articles of Incorporation
eliminates the personal monetary liability of directors of the Company to the
full extent allowed by Section 14-2-202(b)(4).
As permitted by the Georgia Business Corporation Code, the Company's
Articles of Incorporation provide that the Company shall indemnify its directors
and officers for liability incurred by them in connection with any civil,
criminal, administrative or investigative action, suit or proceeding (other than
actions brought as derivative actions by or in the right of a corporation) in
which they may become involved by reason of being a director, officer, employee
or agent of the Company. The Articles also provide such indemnity for directors
and officers who, at the request of the Company, act as directors, officers,
employees or agents of another corporation, partnership, joint venture, trust,
or other enterprise. The Articles permit indemnification if a director or
officer acted in a manner which he or she reasonably believed to be in or not
opposed to the best interest of the Company and, in addition, in criminal
actions, if he or she had no reasonable cause to believe his or her conduct to
be unlawful. If the required standard of conduct is met, indemnification may
include judgments, settlements, penalties, fines or reasonable expenses
(including attorney's fees) incurred with respect to a proceeding; provided,
however, that indemnification of a director or officer in connection with a
proceeding by or in the right of the Company is limited to reasonable expenses
incurred in connection with the derivative proceeding; and provided, further,
that if a director or officer is adjudged liable on the basis that a personal
benefit was improperly received, the director or officer will only be entitled
to such indemnification
II-1
<PAGE> 94
for reasonable expenses as a court finds to be proper in accordance with the
provisions of Section 14-2-854 of the Georgia Business Corporation Code.
Section 14-2-852 of the Georgia Business Corporation Code provides that
directors and officers who are successful with respect to any claim against them
are entitled to indemnification against reasonable expenses as of right. On the
other hand, if the charges made in any action are sustained, the determination
of whether the required standard of conduct has been met will be made, in
accordance with the provisions of Georgia Business Corporation Code Section
14-2-855, by either the Board of Directors or a committee thereof, acting by
disinterested members, by special legal counsel or by the shareholders, but
shares owned by or voted under the control of directors seeking indemnification
may not be voted.
Section 8(b) of the Underwriting Agreement also contains certain provisions
pursuant to which directors, officers and other controlling persons of the
Company may be entitled to be indemnified by the Underwriters. The proposed form
of Underwriting Agreement is filed as Exhibit 1 hereto.
ITEM 16. EXHIBITS.
The following exhibits are filed as part of or are incorporated by
reference in this Registration Statement. Where such filing is made by
incorporation by reference to a previously filed registration statement or
report, such registration statement or report is identified in parentheses.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------
<C> <S> <C>
1 -- Form of proposed Underwriting Agreement by and between the Company and
Interstate/Johnson Lane Corporation and Morgan Keegan & Co. as representatives of
the several Underwriters.
3.1(a) -- Restated Articles of Incorporation of the Company (Exhibit 3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended December 31, 1988).
3.1(b) -- Articles of Amendment to Restated Articles of Incorporation of the Company
(Exhibit 3(a) to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1991).
3.2 -- Bylaws of the Company, as amended (Exhibit 3(b) to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1991).
4 -- Shareholder Protection Rights Agreement dated as of January 26, 1993 (Exhibit 1
to the Company's Current Report on Form 8-K dated February 9, 1993).
5 -- Opinion of Long, Aldridge & Norman.**
10.1 -- Employment Agreement dated as of October 1, 1993 between Tucker Federal Savings
and Loan Association and Richard B. Inman, Jr. (Exhibit 10(c) to the Company's
Annual Report on Form 10-K for the year ended March 31, 1995).*
10.2 -- Employment Agreement dated as of June 1, 1994 between Tucker Federal Savings and
Loan Association and Betty Petrides (Exhibit 10(f) to the Company's Annual Report
on Form 10-K for the year ended March 31, 1995).*
10.3 -- Employment Agreement dated as of June 1, 1994 between Eagle Service Corporation
and Conrad J. Sechler, Jr. (Exhibit 10(g) to the Company's Annual Report on Form
10-K for the year ended March 31, 1995).*
10.4 -- Tucker Federal Savings and Loan Association Directors' Retirement Plan (Exhibit
10(h) to the Company's Annual Report on Form 10-K for the year ended March 31,
1995).*
10.5 -- Eagle Bancshares, Inc. 1994 Directors Stock Option Incentive Plan (Exhibit 10(i)
to the Company's Annual Report on Form 10-K for the year ended March 31, 1995).*
10.6 -- Agreement for Advances and Security Agreement with Blanket Floating Lien dated as
of March 5, 1990 between Tucker Federal Savings & Loan Association and the
Federal Home Loan Bank of Atlanta, as amended as of September 7, 1995.
11 -- Statement regarding computation of per share earnings.
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of KPMG Peat Marwick LLP.
</TABLE>
II-2
<PAGE> 95
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------
<C> <S> <C>
23.3 -- Consent of Long, Aldridge & Norman (included in Exhibit 5).**
24.1 -- Powers of Attorney.
24.2 -- Certified copy of resolutions of the Board of Directors of the Company
authorizing the execution and filing with the Commission of powers of attorney of
officers and directors of the Company authorizing the execution of this
Registration Statement on behalf of such officers and directors.
</TABLE>
- ---------------
* Constitutes a management contract or compensatory plan, contract, or
arrangement in which executive officers participate.
** To be filed by amendment.
II-3
<PAGE> 96
ITEM 17. UNDERTAKINGS.
A. FILINGS INCORPORATING SUBSEQUENT EXCHANGE ACT DOCUMENTS BY REFERENCE.
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 Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
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.
B. INDEMNIFICATION OF OFFICERS, DIRECTORS AND CONTROLLING PERSONS.
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 provisions described under Item 15 above, 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.
II-4
<PAGE> 97
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN TUCKER, GEORGIA, ON THIS 5TH DAY OF JANUARY, 1996.
EAGLE BANCSHARES, INC.
By: /s/ CONRAD J. SECHLER, SR.*
------------------------------------
Conrad J. Sechler, Sr.
Chairman of the Board, President and
Principal Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON JANUARY 5, 1996.
<TABLE>
<CAPTION>
SIGNATURES TITLE
- --------------------------------------------- --------------------------------------------
<C> <S>
/s/ CONRAD J. SECHLER, SR.* Chairman of the Board and President
- ---------------------------------------------
Conrad J. Sechler, Sr.
/s/ WALTER C. ALFORD* Director
- ---------------------------------------------
Walter C. Alford
/s/ RICHARD J. BURRELL* Director
- ---------------------------------------------
Richard J. Burrell
/s/ RICHARD B. INMAN, JR. Director, Secretary and Treasurer (Chief
- --------------------------------------------- Financial and Accounting Officer)
Richard B. Inman, Jr.
/s/ WELDON A. NASH, JR.* Director
- ---------------------------------------------
Weldon A. Nash, Jr.
/s/ CONRAD J. SECHLER, JR.* Director, Vice Chairman and Vice President
- ---------------------------------------------
Conrad J. Sechler, Jr.
/s/ GEORGE G. THOMPSON* Director
- ---------------------------------------------
George G. Thompson
* By: /s/ RICHARD B. INMAN, JR.
----------------------------------------
Richard B. Inman, Jr.
As Attorney-in-Fact
</TABLE>
II-5
<PAGE> 98
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- --------------------------------------------------------------------------- ----
<C> <S> <C> <C>
1 -- Form of proposed Underwriting Agreement by and between the Company and
Interstate/Johnson Lane Corporation and Morgan Keegan & Co. as
representatives of the several Underwriters. ..............................
3.1(a) -- Restated Articles of Incorporation of the Company (Exhibit 3 to the
Company's Quarterly Report on Form 10-Q for the quarter ended December 31,
1988). ....................................................................
3.1(b) -- Articles of Amendment to Restated Articles of Incorporation of the Company
(Exhibit 3(a) to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1991). ........................................
3.2 -- Bylaws of the Company, as amended (Exhibit 3(b) to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1991). ............
4 -- Shareholder Protection Rights Agreement dated as of January 26, 1993
(Exhibit 1 to the Company's Current Report on Form 8-K dated February 9,
1993). ....................................................................
5 -- Opinion of Long, Aldridge & Norman.**......................................
10.1 -- Employment Agreement dated as of October 1, 1993 between Tucker Federal
Savings and Loan Association and Richard B. Inman, Jr. (Exhibit 10(c) to
the Company's Annual Report on Form 10-K for the year ended March 31,
1995).*....................................................................
10.2 -- Employment Agreement dated as of June 1, 1994 between Tucker Federal
Savings and Loan Association and Betty Petrides (Exhibit 10(f) to the
Company's Annual Report on Form 10-K for the year ended March 31,
1995).*....................................................................
10.3 -- Employment Agreement dated as of June 1, 1994 between Eagle Service
Corporation and Conrad J. Sechler, Jr. (Exhibit 10(g) to the Company's
Annual Report on Form 10-K for the year ended March 31, 1995).*............
10.4 -- Tucker Federal Savings and Loan Association Directors' Retirement Plan
(Exhibit 10(h) to the Company's Annual Report on Form 10-K for the year
ended March 31, 1995).*....................................................
10.5 -- Eagle Bancshares, Inc. 1994 Directors Stock Option Incentive Plan (Exhibit
10(i) to the Company's Annual Report on Form 10-K for the year ended March
31, 1995).*................................................................
10.6 -- Agreement for Advances and Security Agreement with Blanket Floating Lien
dated as of March 5, 1990 between Tucker Federal Savings & Loan Association
and the Federal Home Loan Bank of Atlanta, as amended as of September 7,
1995. .....................................................................
11 -- Statement regarding computation of per share earnings. ....................
23.1 -- Consent of Arthur Andersen LLP. ...........................................
23.2 -- Consent of KPMG Peat Marwick LLP. .........................................
23.3 -- Consent of Long, Aldridge & Norman (included in Exhibit 5).**..............
24.1 -- Powers of Attorney.........................................................
24.2 -- Certified copy of resolutions of the Board of Directors of the Company
authorizing the execution and filing with the Commission of powers of
attorney of officers and directors of the Company authorizing the execution
of this Registration Statement on behalf of such officers and directors....
</TABLE>
- ---------------
* Constitutes a management contract or compensatory plan, contract, or
arrangement in which executive officers participate.
** To be filed by amendment.
<PAGE> 1
EXHIBIT 1
EAGLE BANCSHARES, INC.
COMMON STOCK
($1.00 PAR VALUE PER SHARE)
AGREEMENT AMONG UNDERWRITERS
INCLUDING
UNDERWRITING AGREEMENT
AND
SELECTED DEALER AGREEMENT
<PAGE> 2
Interstate/Johnson Lane Corporation
945 East Paces Ferry Road
Atlanta, Georgia 30326
Morgan Keegan & Company, Inc.
Morgan Keegan Tower
Fifty Front Street
Memphis, Tennessee 38103
EAGLE BANCSHARES, INC.
COMMON STOCK
($1.00 PAR VALUE PER SHARE)
AGREEMENT AMONG UNDERWRITERS
____________, 1996
To each of the Underwriters named in Schedule I
to the attached Underwriting Agreement
Ladies and Gentlemen:
This is to confirm that the Underwriters agree among themselves as
follows with reference to their proposed purchases severally of an aggregate of
1,300,000 shares (the "Firm Shares") and up to an aggregate of 195,000
additional shares (the "Optional Shares") of Common Stock, $1.00 par value per
share (the "Common Stock"), of Eagle Bancshares, Inc., a Georgia corporation
(the "Company"). The Firm Shares and any Optional Shares which the
Underwriters elect to purchase pursuant to the Underwriting Agreement (as
hereinafter defined) are collectively referred to herein as the "Shares."
1. Each Underwriter agrees that it will purchase, on the terms
and subject to the conditions of an underwriting agreement in substantially the
form attached hereto (the "Underwriting Agreement"), the number of Shares
provided therein to be purchased by it (such number of Shares, including any
Shares to be so purchased by such Underwriter pursuant to Section 9 of the
Underwriting Agreement, being herein referred to as the "underwriting
obligation" of such Underwriter). Each Underwriter authorizes us as its
representatives (collectively, the "Representatives" and individually, a
"Representative") to execute and deliver the Underwriting Agreement in
substantially the form attached hereto and to exercise in our discretion all of
the authority vested in us therein. We are also authorized to take all action
that
<PAGE> 3
we may believe desirable in carrying out the provisions of the Underwriting
Agreement, including authority to agree to changes in those who are to be
Underwriters and, subject to the following paragraph, in the number of Firm
Shares and Optional Shares to be set forth opposite the name of such
Underwriter in Schedule I to the Underwriting Agreement, and to agree to any
variation in the terms of performance of the Underwriting Agreement and this
Agreement which, in our judgment, will not have a material adverse effect upon
the interests of the Underwriters.
Notwithstanding the provisions of the preceding paragraph, the consent
of an Underwriter shall be required for any increase in the number of Shares to
be purchased by such Underwriter under the Underwriting Agreement, except in
the following cases: (a) an increase in the number of Shares to be purchased by
such Underwriter, which is caused by the failure of another Underwriter or
Underwriters to perform its or their obligations under the Underwriting
Agreement; or (b) an increase in the number of such Shares as a result of (i)
an increase in the aggregate number of Shares proposed to be purchased by the
Underwriters as a whole, (ii) a reallotment of Shares among the Underwriters,
or (iii) any other cause, which in any such case (i) through (iii) results in
an aggregate net change of 25% or less in the number of Shares to be purchased
by such Underwriter.
2. The Firm Shares shall be released for sale to the public at
the initial public offering price as soon after the execution and delivery of
the Underwriting Agreement as in our judgment is advisable, but (except with
the consent of such of the Underwriters whose underwriting obligations
aggregate fifty-one percent or more of the Firm Shares under the Underwriting
Agreement) not later than the seventh full business day after the execution and
delivery of the Underwriting Agreement.
Each Underwriter authorizes us, for its account, to exercise all or
such portion of any over-allotment option to purchase Optional Shares under the
Underwriting Agreement as we in our discretion shall determine.
3. Each Underwriter authorizes us, for its account, to reserve
for sale, and to sell and deliver to securities dealers selected by us, who may
include any of the Underwriters, such number as we may determine of the Shares
which such Underwriter agrees to purchase under the Underwriting Agreement.
Such sales shall be made for the respective accounts of the Underwriters in the
same proportions, as nearly as may be practicable and so long as Shares of the
respective Underwriters are available therefor, as the respective numbers of
Shares initially so reserved for such sales. Such sales shall be made at the
public offering price, less a concession initially of not in excess of $.____
per share with respect to the Shares so sold. Underwriters and such dealers
may allow a portion of such concession (the "reallowance") initially of not in
excess of $.___ per share of the Shares so sold to (i) any member of the
National Association of Securities Dealers, Inc. (the "NASD"), acting as
principal or as buyer's agent, provided such member agrees in writing that the
reallowance is to be retained and not reallowed in whole or in part and also
agrees in writing to comply with Section 24 of Article
3
<PAGE> 4
III of the Rules of Fair Practice of the NASD or (ii) foreign dealers or
institutions ineligible for membership in the NASD that agree in writing (x)
that the reallowance is to be retained and not reallowed in whole or in part,
(y) not to resell Shares (A) to purchasers in, or to persons who are nationals
of, the United States of America or (B) when there is a public demand for the
Shares, to persons specified as those to whom members of the NASD participating
in a distribution may not sell and in connection therewith, comply with the
Interpretation with respect to Free-Riding and Withholding of the NASD, and (z)
to comply, as though such foreign dealer or institution were a member of the
NASD, with Sections 8, 24, 25 to the extent applicable to foreign nonmember
brokers or dealers, and 36 of such Article.
Each Underwriter also authorizes us to reserve for sale, and
authorizes us or any Underwriter designated by us to sell and deliver for its
account to such retail purchasers as we may select, at the public offering
price, such number as we may determine of the Shares which such Underwriter
agrees to purchase under the Underwriting Agreement. Such reservations and
sales to retail purchasers shall be made for the respective accounts of the
Underwriters in the same proportions, as nearly as may be practicable and so
long as Shares of the respective Underwriters are available therefor, as the
respective underwriting obligations of the Underwriters.
Each Underwriter further authorizes us to reserve for sale, and
authorizes us or any Underwriter designated by us to sell and deliver for its
account to certain of the Company's directors, officers and employees to be
specified by the Company in accordance with Section 2 of the Underwriting
Agreement (the "Directed Share Purchasers") at the public offering price, less
the concession to dealers, such number as we may determine of the Directed
Shares (as defined in Section 2 of the Underwriting Agreement) which such
Underwriter agrees to purchase under the Underwriting Agreement. Such
reservations and sales to Directed Share Purchasers shall be made for the
respective accounts of the Underwriters in the same proportions, as nearly as
may be practicable and so long as Directed Shares of the respective
Underwriters are available therefor, as the respective underwriting obligations
of the Underwriters.
At or before the time the Firm Shares are released for sale to the
public, we will advise each Underwriter as to the number of Firm Shares
initially reserved for sale for its account pursuant to this Section. Each
Underwriter authorizes us from time to time to add to the reserved Shares any
Shares of such Underwriter then remaining unsold and to release to it any
reserved Shares of such Underwriter then remaining unsold.
Each Underwriter authorizes us, on its behalf and as its
Representatives, to take all such actions as we may deem advisable in respect
of all matters pertaining to sales of reserved Shares to dealers, to retail
purchasers and to Directed Share Purchasers, including the right to make
variations in the selling arrangements, and, after the Firm Shares are released
for sale for the public, to vary from time to time the offering price,
concessions and reallowances to dealers, and other terms of sale of the Shares
hereunder and under such selling arrangements.
4
<PAGE> 5
4. Sales of Shares by Underwriters, except as otherwise set forth
herein, shall be on the terms specified under the selling arrangements then in
effect. Each Underwriter represents that in connection with the offering it
has conformed, and agrees that it will conform, with the provisions of Rule
10b-6 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), with regard, among other things, to trading by underwriters.
5. We may, in our discretion, charge the account of any
Underwriter with an amount equal to the concession allowed to dealers in
respect of each Share purchased under the Underwriting Agreement by such
Underwriter and not sold by us for its account (and each Share which we believe
has been substituted therefor) which may be delivered against a purchase
contract made by us for the account of any Underwriter prior to the later of
(a) the termination of all of the provisions referred to in Section 10 hereof
or (b) the covering by the Representatives of any short position created by
them for the accounts of the Underwriters pursuant to Section 9 hereof, or in
lieu of such charge, require such Underwriter to repurchase on demand at the
total cost thereof (including commissions), plus transfer taxes, any such Share
so delivered.
6. Upon our request each Underwriter will deliver to
Interstate/Johnson Lane Corporation payment for the Shares to be purchased by
such Underwriter under the Underwriting Agreement in an amount equal to the
initial public offering price for such Shares less the concession to dealers.
Such payment shall be made in such form and at such times and places as may be
specified in such request, and each Underwriter authorizes Interstate/Johnson
Lane Corporation to make payment for such Shares against their delivery for its
account hereunder.
7. We shall remit to each Underwriter, as promptly as
practicable, the amounts received by us from retail purchasers and dealers and
Directed Share Purchasers as payment in respect of Shares sold by us for the
account of such Underwriter pursuant to the provisions of Section 3 hereof for
which payment has been received, less the concession to dealers (a) in the case
of amounts received from retail purchasers, (b) in the case of amounts received
from Directed Share Purchasers, and (c) in the case where amounts received from
dealers are equal to the public offering price. Shares purchased by each
Underwriter under the Underwriting Agreement and not reserved or sold by us for
its account pursuant to the provisions of Section 3 hereof shall be delivered
to such Underwriter as promptly as practicable after their receipt by us. Any
Shares so purchased by any Underwriter and so reserved which remain unsold at
any time prior to the settlement of accounts hereunder may, in our discretion,
and shall, upon the request of such Underwriter, be delivered to such
Underwriter, but, until the termination of all of the provisions referred to in
Section 10 hereof, for carrying purposes only.
Each Underwriter which is a member of The Depository Trust Company
authorizes us, in our discretion, to arrange for delivery of Shares to such
Underwriter and for payment therefor by and to such Underwriter through the
facilities of The Depository Trust Company.
5
<PAGE> 6
Each Underwriter, however, authorizes Interstate/Johnson Lane
Corporation, in its discretion, as agent for such Underwriter, to advance
funds, charge current interest rates, or arrange loans for such Underwriter's
account in connection with the purchase or carrying of its Shares held for its
account under this Agreement and for any other of the purposes of this
Agreement, to execute and deliver any notes or other instruments evidencing
such advances or loans, to hold or pledge as security therefor any or all of
its Shares and to give all instructions to the lenders with respect to any such
loans and the proceeds thereof, which instructions the lenders are hereby
authorized to accept. In the event of any such advance or loan, repayment
thereof shall, in the discretion of Interstate/Johnson Lane Corporation, be
effected prior to the making of any remittance or delivery pursuant to this
Section.
Each Underwriter agrees that, from time to time prior to the
settlement of accounts hereunder, it will furnish to us such information as we
may request in order to determine the number of Shares purchased by it under
the Underwriting Agreement which then remains unsold, and such Underwriter will
upon our request sell to us for the account of any Underwriter as many of such
unsold Shares as we may designate at the public offering price, less all or any
part of the concession to dealers as we may determine. The provisions of
Section 5 hereof shall not be applicable in respect of any such sale.
8. In the event of failure of any Underwriter to tender payment
for Shares as provided under the Underwriting Agreement, we shall have the
right under the provisions thereof to arrange for other persons, who may
include ourselves and any other Underwriters, to purchase the Shares which such
defaulting Underwriter agreed to purchase, and we shall also have the right,
subject to Section 1 hereof, to increase pro rata the original underwriting
obligations of the non-defaulting Underwriters to provide for the purchase of
the Shares which such defaulting Underwriter agreed to purchase, but in neither
case will such arrangements relieve such defaulting Underwriter from liability
for its default.
9. Each Underwriter authorizes Interstate/Johnson Lane
Corporation, in its discretion and for the account of such Underwriter, to
over-allot Firm Shares, and to purchase and sell shares of Common Stock, for
long or short account, in such amounts, at such prices, on such terms and in
such manner as Interstate/Johnson Lane Corporation may determine; provided,
however, that at no time (except as expressly set forth herein in the event of
default of any Underwriter in carrying out its commitment under this Section)
shall the net commitment of any Underwriter, for either long or short account,
resulting from such over-allotments or such purchases and sales pursuant to
this Section 9 exceed 15% of the number of Firm Shares which such Underwriter
agrees to purchase under the Underwriting Agreement (it being agreed for the
purposes of such calculation that the net commitment for short account of any
Underwriter shall be deemed to be reduced by the maximum number of Optional
Shares which such Underwriter is entitled to purchase under the Underwriting
Agreement). It is understood that the representatives may have made purchases
of securities of the Company for stabilizing purposes prior to the time this
Agreement became binding upon the Underwriters or any particular
6
<PAGE> 7
Underwriter with respect to the offering of the Shares, and each Underwriter
agrees that any securities so purchased shall be treated as having been
purchased for the respective accounts of the Underwriters pursuant to the
foregoing authorization. Each Underwriter authorizes Interstate/Johnson Lane
Corporation, in its discretion and for the account of such Underwriter, to
cover any short position, or sell any long position, created by
Interstate/Johnson Lane Corporation for the account of such Underwriter
pursuant to this Section, in such amounts, at such prices, on such terms and in
such manner as Interstate/Johnson Lane Corporation may determine. Such
purchases and sales, through over- allotments or otherwise, shall be for the
respective accounts of the Underwriters in the same proportions, as nearly as
may be practicable, as the respective underwriting obligations of the
Underwriters; provided, however, that, if any Underwriter defaults in carrying
out its commitment under this Section, the other Underwriters not so defaulting
shall assume its commitment in the same proportions as the respective
underwriting obligations by such other Underwriters, without, however,
relieving such defaulting Underwriter from its liability therefor. Each
Underwriter agrees that it will, upon the request of Interstate/Johnson Lane
Corporation, take up at cost (but, in the discretion of Interstate/Johnson Lane
Corporation, until the termination of all of the provisions referred to in
Section 10 hereof, for carrying purposes only) shares of Common Stock so
purchased by Interstate/Johnson Lane Corporation for the account of such
Underwriter, and deliver to Interstate/Johnson Lane Corporation shares of
Common Stock so sold for the account of such Underwriter, through
over-allotment or otherwise. Interstate/Johnson Lane Corporation shall have
full discretionary power to pay such commissions in connection with such
purchases and sales as it may deem proper and to charge such commissions on
purchases and sales effected by them.
In the event that the Representatives effect any stabilizing purchases
pursuant to this Section, they will notify each Underwriter promptly of the
date and time when the first purchase is effected and the date and time when
such stabilizing is terminated. Each Underwriter agrees that, without the
prior permission of Interstate/Johnson Lane Corporation, it will not effect any
stabilizing purchases. Each Underwriter agrees that, if stabilizing is
effected, it will provide Interstate/Johnson Lane Corporation with such
information and reports as are required in relation to such stabilization
pursuant to the rules and regulations of the Securities and Exchange Commission
(the "Commission") under the Exchange Act.
10. The provisions of the first sentence of Section 9 hereof will
terminate at the close of business on the 30th full business day after the Firm
Shares are released by us for sale to the public, unless any of such provisions
are terminated at such earlier time as we may determine by notice to that
effect sent to each Underwriter.
11. We may charge against the account of each Underwriter any and
all expenses and transfer taxes incurred by us on such Underwriter's behalf and
as its representatives in connection with the purchase and sale of the Shares
or preparations therefor. All expenses of a general nature incurred by us
shall be borne by the Underwriters in the same proportions as
7
<PAGE> 8
the respective underwriting obligations of the Underwriters. In the event of
the failure of any Underwriter to fulfill its obligations hereunder, the
expenses chargeable to such Underwriter pursuant to this Agreement and not
paid, as well as any additional expenses arising from such default, may be
charged against the other Underwriters not so defaulting in the same
proportions as the respective underwriting obligations of such other
Underwriters, without, however, relieving such defaulting Underwriter from its
liability therefor. Our ascertainment of all expenses and apportionment
thereof shall be conclusive.
We shall not be accountable for interest on funds of any of the
Underwriters at any time in our hands, and any such funds may be held by us
unsegregated from our general funds.
12. As compensation for our services to each of the Underwriters
in connection herewith, each Underwriter agrees to pay us an amount equal to
$.____ per Share, in respect of the underwriting obligation of such
Underwriter, and authorizes us, at our election, to charge its account
therefor.
13. Each of the Underwriters acknowledges that it has received
copies of the documents stated in Section l(a) of the Underwriting Agreement to
have been filed with the Commission prior to the date of the Underwriting
Agreement and delivered to us for it. The Registration Statement and
Prospectus (as defined in the Underwriting Agreement) may be further amended or
changed, but no such amendment or change (unless disapproved by us) shall
release any Underwriter hereunder or under the Underwriting Agreement.
14. Each Underwriter represents that it is a registered dealer or
broker under the Exchange Act, that it is a member in good standing of the
NASD, that it is actually engaged in the investment banking or securities
business and that in making sales of Shares it will comply with the Rules of
Fair Practice of the NASD, including, without limitation, Section 24 of Article
III thereof. We will file on behalf of the several Underwriters with the NASD
such required documents and information, if any, which have been furnished to
us for filing pursuant to applicable rules, statements and interpretations of
the NASD.
15. In taking all actions hereunder, except in the performance of
our own obligations hereunder and under the Underwriting Agreement, we shall
act only as representatives of each of the Underwriters. Our authority as
Representatives hereunder and under the Underwriting Agreement may be exercised
by us jointly or by Interstate/Johnson Lane Corporation on behalf of us as
Representatives. Nothing contained herein shall constitute the Underwriters
partners or render any of them liable to make payments otherwise than as herein
provided. If for Federal income tax purposes the Underwriters should be deemed
to constitute a partnership, then each Underwriter elects to be excluded from
the application of Subchapter K, Chapter 1, Subtitle A, of the Internal Revenue
Code, as amended. Each Underwriter authorizes Interstate/Johnson Lane
Corporation, in its discretion, on behalf of such Underwriter, to execute such
evidence of such election as may be required by the Internal Revenue Service.
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<PAGE> 9
16. We shall be under no liability (except for our own want of
good faith and for obligations expressly assumed by us hereunder) for or in
respect of: the validity or value of, or title to, any shares of Common Stock;
the form of, or the statements contained in, or the validity of, the
Registration Statement, any Preliminary Prospectus (as defined in the
Underwriting Agreement), the Prospectus, any amendment or supplement thereto,
any document which may be incorporated by reference therein, or any letters or
instruments executed by or on behalf of the Company or others; the form or
validity of the Underwriting Agreement or this Agreement; the delivery of the
Shares; the performance by the Company or others of any agreement on its or
their part; the qualification for sale of the Shares or the legality of the
Shares for investment under the laws of any jurisdiction; or any matter in
connection with any of the foregoing; provided, however, that nothing in this
Section shall be deemed to relieve us from any liability imposed by the
Securities Act of 1933, as amended (the "Act"),
17. (a) Each Underwriter agrees to indemnity, hold harmless
and reimburse each other Underwriter and each person, if any, who controls such
other Underwriter within the meaning of Section 15 of the Act, to the extent,
and upon the terms, that such Underwriter agrees to indemnity, hold harmless
and reimburse the Company and certain other persons pursuant to the provisions
of Section 8 of the Underwriting Agreement. This indemnity agreement shall
remain in full force and effect regardless of any investigation made by or on
behalf of such other Underwriter or controlling person or any statement made to
the Commission as to the results thereof.
(b) Each Underwriter agrees to pay upon our request, as
contribution, its proportionate share, based upon the respective underwriting
obligations of the Underwriters, of any losses, claims, damages or liabilities,
joint or several, under the Act or otherwise, paid or incurred by any
Underwriter (including us, individually or as representatives of the
Underwriters) to any person other than an Underwriter (including amounts paid
by an Underwriter as contribution), arising out of or based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus, any
amendment or supplement thereto, any document which may be incorporated by
reference therein, or any other selling or advertising material used with the
consent of Interstate/Johnson Lane Corporation by the Underwriters in
connection with the sale of the Shares, or arising out of or based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading and
(ii) any act or omission to act or any alleged act or omission to act by us,
individually or as Representatives of the Underwriters, or by the Underwriters,
as a group but not individually, in connection with any transaction
contemplated by this Agreement or undertaken in preparing for the purchase,
sale and delivery of the Shares; and each Underwriter will pay such
proportionate share of any legal or other expenses reasonably incurred by us or
with our consent, in connection with investigating or defending any such loss,
claim, damage or liability, or any action in respect thereof. In determining
the amount of any Underwriter's obligation under this paragraph, appropriate
adjustment may be made by us to reflect any
9
<PAGE> 10
amounts received by any one or more Underwriters, pursuant to Section 8 of the
Underwriting Agreement or otherwise, in respect of the claim upon which such
obligation is based. In respect of any claim there shall be credited against
the amount of any Underwriter's obligation under this paragraph any loss,
damage, liability or expense which is paid or incurred by such Underwriter as a
result of any such claim being asserted against it, and, if such loss, damage,
liability or expense is paid or incurred by such Underwriter subsequent to any
payment by it pursuant to this paragraph, appropriate provision shall be made
to effect such credit, by refund or otherwise. If any claim to which the
provisions of this paragraph would be applicable is asserted, we may take such
action in connection therewith as we deem necessary or desirable, including
retention of counsel for the Underwriters, and in our discretion separate
counsel for any particular Underwriter or group of Underwriters, and the fees
and disbursements of any counsels retained by us shall be included in the
amounts of the Underwriter's obligations under this paragraph. At our
discretion, we may consent to being named as the representatives of a defendant
class of Underwriters. Any Underwriter may elect to retain at its own expense
its own counsel and, on advice of such counsel and with our consent, may settle
or consent to the settlement of any such claim. We may settle or consent to
the settlement of any such claim, on advice of counsel retained by us, with the
approval of a majority-in-interest of the Underwriters. Whenever any
Underwriter receives notice of the assertion of any claim to which the
provisions of this paragraph would be applicable, such Underwriter will give
prompt notice thereof to us.
Whenever we receive notice of the assertion of any such claim, we will
give prompt notice thereof to each Underwriter. We also will furnish each
Underwriter with periodic reports, at such times as we deem appropriate, as to
the status of any such claim and the action taken by us in connection
therewith. In the event of the failure of any Underwriter to fulfill its
obligations under this paragraph, such obligations may be charged against the
other Underwriters not so defaulting in the same proportions as the respective
underwriting obligations of such other Underwriters, without, however,
relieving such defaulting Underwriter from its liability therefor. In
determining amounts payable pursuant to this paragraph, any loss, claim,
damage, liability or expense paid or incurred, and any amount received, by any
person controlling any Underwriter within the meaning of Section 15 of the Act,
which has been paid or incurred or received by reason of such control
relationship, shall be deemed to have been paid or incurred or received by such
Underwriter. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
18. As promptly as may be practicable after termination of all of
the provisions referred to in Section 10 hereof and completion of transactions
under Section 9 hereof, any shares of Common Stock held by us for the account
of any Underwriter shall be delivered by us to such Underwriter, and the net
credit or debit balance of each Underwriter shall be paid to it or collected
from it by us, but we may establish such reserves as we may deem advisable
against any expenses or claims not then ascertained. If at such termination
the aggregate number of shares of Common Stock so held by us does not exceed
15% of the aggregate underwriting
10
<PAGE> 11
obligation of the Underwriters, we may in our discretion sell such securities
for the accounts of the several Underwriters at such prices, on such terms and
in such manner as we may determine. Any Shares which are held by us for the
account of any Underwriter by reason of a default by a dealer or other
purchaser in respect of the purchase thereof pursuant to a sale under Section 3
hereof shall, in our discretion, be purchased from time to time by the
Underwriters in the same proportions, as nearly as may be practicable, as the
respective numbers of Shares theretofore contracted for sale thereunder to
dealers or other purchasers, as the case may be, for the respective accounts of
the Underwriters, at the net price at which such Shares were contracted for
sale to such dealer or other purchaser, and we are authorized to make
appropriate charges and credits to the respective accounts of the Underwriters
for this purpose. Notwithstanding any distribution and settlement of accounts
hereunder, each Underwriter shall remain liable for its proper proportion of
any transfer tax or any other liability which may be asserted against us or any
one or more of the Underwriters in respect of this Agreement or the
Underwriting Agreement based upon the claim that the Underwriters constitute a
partnership, an association, an unincorporated business or other separate
entity.
19. Any notice to any Underwriter shall be deemed to have been
duly given if mailed, sent by telex or facsimile transmission or delivered in
person to such Underwriter at the address set forth in its Underwriters'
Questionnaire or telex constituting such Underwriters' Questionnaire. Any such
notice shall take effect upon receipt thereof.
20. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia.
21. This Agreement may be signed in any number of counterparts,
each of which shall be deemed an original, but all of which taken together
shall constitute one and the same instrument.
Please confirm that the foregoing is in accordance with your
understanding by signing a counterpart hereof as indicated below.
11
<PAGE> 12
Very truly yours,
Interstate/Johnson Lane Corporation
Morgan Keegan & Company, Inc.
By: Interstate/Johnson Lane Corporation
By: ______________________________
Richard G. Steingraber
Managing Director
Confirmed as of the date hereof:
______________________________
Attorney-in-fact for the
several Underwriters named in
Schedule I to the attached
Underwriting Agreement.
12
<PAGE> 13
EAGLE BANCSHARES, INC.
COMMON STOCK
($1.00 PAR VALUE PER SHARE)
UNDERWRITING AGREEMENT
__________________, 1996
Interstate/Johnson Lane Corporation
Morgan Keegan & Company, Inc.
As Representatives of the several
Underwriters named in Schedule I hereto
c/o Interstate/Johnson Lane Corporation
945 East Paces Ferry Road
Atlanta, Georgia 30326
Ladies and Gentlemen:
Eagle Bancshares, Inc., a Georgia corporation (the "Company"), proposes,
subject to the terms and conditions stated herein, to sell to the underwriters
named in Schedule I hereto (the "Underwriters") for whom you are acting as the
representatives (the "Representatives") an aggregate of 1,300,000 shares (the
"Firm Shares") of the Company's common stock, par value $1.00 per share (the
"Common Stock"). The Firm Shares are to be sold to the Underwriters, acting
severally and not jointly, in such amounts as are set forth in Schedule I
hereto opposite the name of such Underwriter. The Company also proposes to
grant to the Underwriters an option to purchase up to an aggregate of 195,000
additional shares of Common Stock as provided for in Section 2 of this
Agreement for the purpose of covering over-allotments (the "Optional Shares").
The Firm Shares and the Optional Shares are collectively referred to herein as
the "Shares."
1. Representations and Warranties of the Company.
(a) The Company represents and warrants to, and agrees with, each
of the Underwriters that:
<PAGE> 14
(i) The Company meets the requirements for use of Form S-2 under
the Securities Act of 1933, as amended (the "Act"), and has filed with the
Securities and Exchange Commission (the "Commission") a registration statement
with respect to the Shares on Form S-2 (File No. 33-____________) under the
Act; such registration statement (including all financial schedules and
exhibits thereto, all documents incorporated by reference therein pursuant to
Item 12 of Form S-2 under the Act and any information deemed to be a part
thereof pursuant to Rule 430A(b) of the rules and regulations of the Commission
under the Act) and any amendment thereto, each in the form heretofore delivered
to you, and delivered to you for each of the other Underwriters, has been
declared effective by the Commission in such form; and no stop order suspending
the effectiveness of such registration statement has been issued and no
proceeding for that purpose has been initiated, instituted or, to the knowledge
of the Company, threatened by the Commission (any preliminary prospectus
included in such registration statement, or filed with the Commission pursuant
to Rule 424(a) of the rules and regulations of the Commission under the Act,
being hereinafter called a "Preliminary Prospectus"; the various parts of such
registration statement, including all exhibits thereto and including the
information contained in the form of final prospectus filed with the Commission
pursuant to Rule 424(b) under the Act and deemed by virtue of Rule 430A under
the Act to be part of the registration statement at the time it was declared
effective, each as amended at the time such part of the registration statement
became effective, being hereinafter called the "Registration Statement"; and
such final prospectus, in the form first filed pursuant to Rule 424(b) under
the Act, being hereinafter called the "Prospectus");
(ii) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary Prospectus,
at the time of filing thereof, conformed in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder, and did not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided, however, that this representation and warranty shall
not apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by an
Underwriter through you expressly for use therein;
(iii) The Registration Statement on the date it shall become
effective (the "Effective Date") conformed, and the Prospectus and any further
amendments or supplements to the Registration Statement or the Prospectus
conformed, in all material respects, with the requirements of the Act and the
rules and regulations of the Commission thereunder and do not, as of the
Effective Date of the Registration Statement and any amendment thereto and as
of the applicable filing date of the Prospectus and any amendment or supplement
thereto, contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and no contract or document of a character required to be described
in the Registration Statement or the Prospectus or to be filed as an exhibit to
the Registration
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<PAGE> 15
Statement is not so described or filed as required by the Act; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter through you
expressly for use therein;
(iv) The Company (as hereinafter defined) has not sustained since
the date of the latest unaudited financial statements included in the
Prospectus any material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or
from any labor dispute or as a result of any other dispute or court or
governmental action, order or decree or otherwise, except as set forth or
contemplated in the Prospectus; and, since the respective dates as of which
information is given in the Registration Statement and the Prospectus, there
has not been, and prior to the Time of Delivery (as defined in Section 4
hereof) there will not be, any change in the capital stock, or long-term debt
or short-term debt of the Company, any material adverse change, or any
development involving a prospective material adverse change, in or affecting
the general affairs, management, prospects, financial position, shareholders'
equity or results of operations of the Company, otherwise than as set forth or
contemplated in the Prospectus. Except as disclosed in or contemplated by the
Prospectus, the Company has not incurred or undertaken, and prior to the Time
of Delivery (as defined in Section 4 below) will not incur or undertake, any
material liability or obligation, direct or contingent, not disclosed in the
Registration Statement or Prospectus which is material to the business or
financial condition of the Company; and except as disclosed or contemplated by
the Registration Statement or Prospectus, the Company has not declared or paid,
and prior to the Time of Delivery (as defined in Section 4 hereof) will not
declare or pay, any dividend on its capital stock;
(v) The Company and each of its direct and indirect subsidiaries
other than Tucker Federal Savings and Loan Association (the "Bank") has been
duly organized and is validly existing as a corporation in good standing under
the laws of the jurisdictions in which it is incorporated, with full power and
authority to own, lease or operate its properties and conduct its businesses as
now conducted and described in the Prospectus, and has been duly qualified as a
foreign corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases
properties, or conducts any business so as to require such qualification,
except where the failure to so qualify would not have a material adverse effect
on the condition, financial or otherwise, of the Company; the Bank is duly
organized and validly existing as a stock savings and loan association and is
in good standing under the laws of the United States with full power and
authority to own, lease or operate its properties and conduct its business as
now conducted and described in the Prospectus, and has been duly qualified as a
foreign corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases
properties, or conducts any business so as to require such qualification,
except where the failure to so qualify would not have a material adverse effect
on the condition, financial or otherwise, of the Bank; and the Bank is a member
in good standing of the Federal Home Loan Bank of Atlanta, and is
3
<PAGE> 16
in addition a member in good standing of the Savings Association Insurance Fund
("SAIF") of the Federal Deposit Insurance Corporation ("FDIC") with its deposit
accounts insured by the SAIF up to applicable limits;
(vi) The execution, delivery and performance of this Agreement by
the Company has been duly and validly authorized by all necessary corporate or
other action, and this Agreement, upon its due authorization, execution and
delivery by the Underwriters, constitutes a valid and binding obligation of the
Company, and is enforceable against the Company in accordance with its terms,
subject to bankruptcy laws, insolvency, reorganization and other laws relating
to or affecting creditors' rights and general equitable principles and except
as rights to indemnity and contribution hereunder may otherwise be limited by
federal or state law or public policy;
(vii) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued and outstanding shares of capital stock
of the Company have been duly and validly authorized and issued, are fully paid
and nonassessable, are not subject to any preemptive or similar rights and
conform to the description thereof contained in the Prospectus; none of the
outstanding shares of capital stock has been issued in violation of any
preemptive rights (contractual or other); all shares of Common Stock subject to
outstanding options or warrants, if any, have been duly authorized and when
issued in accordance with the terms of the applicable option or warrant, will
be validly issued, fully-paid and non-assessable and will not be issued in
violation of any preemptive rights (contractual or other); except as disclosed
in or contemplated by the Registration Statement or the Prospectus, there are
no outstanding options, warrants or other rights which require the issuance or
sale of, and there is no commitment, plan or arrangement to issue, any share of
capital stock of the Company or any security convertible into or exchangeable
for capital stock of the Company; the Company owns beneficially and of record
all authorized and issued capital stock of the Bank and of Eagle Real Estate
Advisers, Inc. ("EREA"), and the Bank owns beneficially and of record all
authorized and issued capital stock of Eagle Service Corp. ("Eagle Service"),
Prime Eagle Mortgage Corporation ("Prime Eagle") and Eagle A.R.M.S., Inc. (the
capital stock of the Bank, EREA, Eagle Service, Prime Eagle and Eagle A.R.M.S.,
Inc. is hereinafter collectively referred to as the "Subsidiary Stock"); all of
such issued and outstanding shares of Subsidiary Stock have been duly and
validly authorized and issued and are fully-paid and nonassessable, and except
as disclosed in or contemplated by the Registration Statement or the
Prospectus, there are no outstanding options, warrants or other rights which
require the issuance or sale of, and no commitment, plan or arrangement to
issue, any Subsidiary Stock, or any or any security convertible into or
exchangeable for any such stock;
(viii) The unissued Shares to be issued and sold by the Company to
the Underwriters hereunder have been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein, will be duly
and validly issued and fully-paid and nonassessable, will not be subject to any
preemptive or similar rights and will conform to the description of the Common
Stock contained in the Prospectus; and the Underwriters will receive good and
4
<PAGE> 17
marketable title to the Shares to be issued and delivered by the Company
hereunder, free and clear of all liens, encumbrances, claims, security
interests, restrictions, stockholders' agreements and voting trusts other than
those that may be or might have been created by the Underwriters;
(ix) The issue and sale of the Shares hereunder, and the compliance
by the Company with all of the provisions of this Agreement and the
consummation of the transactions herein contemplated have been duly authorized
by all required corporate or other action on the part of the Company, will not
conflict (with or without the giving of notice or the passage of time or both)
or result in a breach or violation of any of the terms or provisions of,
constitute a default under, or result in the creation or imposition of any
lien, charge or encumbrance upon, any property or assets of the Company
pursuant to the terms of (i) any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the Company is a party or
by which the Company is bound or to which any of the property or assets of the
Company is subject, or (ii) any of the provisions of the articles of
incorporation or bylaws or other constituent instrument of the Company or any
statute or any order, rule or regulation of any court or governmental agency or
body having jurisdiction over the Company or any of its properties; and no
consent, approval, authorization, order, registration or qualification of or
with any such court or governmental agency or body is or was required, the
issue and sale of the Shares or the consummation by the Company of the
transactions contemplated by this Agreement, except the registration under the
Act of the Shares and such consents, approvals, authorizations, registrations
or qualifications as may be required under state securities or Blue Sky laws in
connection with the purchase and distribution of the Shares by the
Underwriters;
(x) The Company is not, nor with the giving of notice or passage
of time or both would be, (i) in violation of any provision of its articles of
incorporation or bylaws or other constituent instrument, (ii) in default in the
performance of any material obligation, agreement or condition in any
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company is a party or by which the Company is bound or
to which any of the property or assets of the Company is subject, or (iii) in
violation of any judgment, ruling, decree, order, franchise, license or permit
or any statute, rule or regulation of any court or other governmental authority
applicable to the business or properties of the Company, the effect of which
violation would be materially adverse to the Company, including, without
limitation, any rule, regulation or order of, any agreement or understanding
with, or any commitment to, the OTS, the FDIC or any other supervisory or
regulatory authority that could result in any enforcement action against the
Company, any of its subsidiaries or their officers or directors which might
materially and adversely affect the Company's financial condition, results of
operations, business or assets; and the Company is in compliance in all
material respects with the statutes, rules and regulations of any state or
other jurisdiction in which the Company does business;
(xi) The financial statements of the Company, together with related
schedules and notes forming part of the Registration Statement and the
Prospectus, present fairly the financial
5
<PAGE> 18
condition, results of operations and cash flows of the Company on the bases
stated in the Registration Statement and the Prospectus at the respective dates
or for the respective periods specified; such statements and related schedules
and notes have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved, except as
disclosed therein; and the other financial and statistical information and data
set forth in the Registration Statement and the Prospectus, including without
limitation, all pro forma and financial information, are, in all material
respects, accurately presented and prepared on a basis consistent with such
financial statements and the books and records of the Company;
(xii) The Company has good and marketable title to all real and
personal property owned by it, in each case free and clear of all liens,
encumbrances and defects, except such as are set forth or described in the
Prospectus or such as do not materially affect the value of such property; and
any real property and buildings held under lease by the Company are held by the
Company under valid, subsisting and enforceable leases with such exceptions as
are not material and do not interfere with the use made and proposed to be made
of such property and buildings by the Company, and no default has occurred or
is continuing under such leases that might result in any material adverse
change in the financial condition, results of operations or cash flows of the
Company;
(xiii) Except as may otherwise be disclosed in the Registration
Statement and Prospectus, the Company is in material compliance with all
federal, state and local laws, rules and regulations relating to environmental
protection, and the Company is not otherwise aware of any material liabilities,
contingent or otherwise, to which it or any of its properties are subject
pursuant to such laws, rules and regulations, the noncompliance with which or
the existence of which would have a material adverse effect on the financial
condition, results of operations, cash flows or business of the Company; the
Preliminary Prospectus and the Prospectus contain or incorporate by reference,
if and to the extent required, appropriate disclosure of the material effects
that compliance with federal, state and local provisions which have been
enacted or adopted, regulating the discharge of materials into the environment
or otherwise relating to the protection of the environment, may have upon the
capital expenditures, earnings and competitive position of the Company and its
subsidiaries, in accordance with Regulation S-K, Item 101(c)(xii) and Item 103,
and consistent with published Commission interpretations thereof; no real
property currently or previously owned or operated by the Company or any direct
or indirect subsidiary of the Company (whether such property is or was used in
operations, held for investment, as real estate owned, in trust or otherwise):
(i) was or is being used for the handling, treatment, storage or disposal of
any Hazardous Substance (as defined below); (ii) has been or is subject to any
release, discharge, spillage or disposal of any Hazardous Substance or soil or
water contamination by any Hazardous Substance; (iii) has or contains any
underground storage tank; or (iv) has any building or other improvement
containing any asbestos or any asbestos-containing materials; which ownership
or operation reasonably may be expected to result in liability to the Company
or any of its subsidiaries that is material to the Company and its
subsidiaries, taken as a whole; "Hazardous Substance" shall refer to any
hazardous or toxic
6
<PAGE> 19
substance or waste as those terms are defined by any applicable federal or
state law or regulation, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601
et seq., and the Resource Conservation and Recovery Act, 42 U.S.C. Section
6901 et seq., and petroleum, petroleum products and oil;
(xiv) Other than as set forth in the Prospectus, there are no legal
or governmental proceedings pending to which the Company is a party or of which
any property of the Company is the subject which, if determined adversely to
the Company, would, individually or in the aggregate, have a material adverse
effect upon the financial position, results of operations or cash flows of the
Company; and, to the Company's knowledge, no such proceedings are threatened or
contemplated by any person, including governmental authorities or others;
(xv) Arthur Andersen LLP and KPMG Peat Marwick LLP, each of whom
have certified certain financial statements of the Company included in the
Registration Statement and the Prospectus, are, and were during the periods
covered in their respective reports included in the Registration Statement and
Prospectus, independent public accountants with respect to the Company as
required by the Act and the rules and regulations of the Commission thereunder,
and have no interest required to be disclosed in the Registration Statement or
the Prospectus pursuant to Item 10 of Form S-2;
(xvi) The Company's system of internal accounting controls taken as
a whole are, in the opinion of management, sufficient to meet the broad
objectives of internal accounting control insofar as those objectives pertain
to the prevention or detection of errors or irregularities in amounts that
would be material in relation to the Company's financial statements;
(xvii) No labor dispute is known to exist with the Company's
employees or is known to be imminent which could materially adversely affect
the Company;
(xviii) The Company is duly registered as a savings and loan holding
company and it and each of its direct and indirect subsidiaries has all
permits, licenses, franchises and authorizations of governmental or regulatory
authorities ("permits") as are necessary to own its properties and conduct its
businesses in the manner described in the Prospectus unless the failure to have
such permits would not have a material adverse effect on the financial
condition, results of operations or business of the Company; the Company and
each of its direct and indirect subsidiaries has fulfilled and performed in all
respects all of its material obligations with respect to such permits; and the
Company is not aware of any event which allows, or after notice, lapse of time
or both would allow, revocation or termination thereof or would result in any
other material impairment of the rights of the holder of any such permit,
except as set forth in the Prospectus;
(xix) The Company has filed all federal, state and local income and
franchise tax returns required to be filed through the date hereof (or has
obtained extensions for such filings as permitted by applicable law) and has
paid all taxes shown as owing thereon as and when due,
7
<PAGE> 20
or the Company is engaged in bona fide negotiations or discussions with
applicable government agencies with respect to the amount of taxes alleged to
be due which amounts, including interest and penalties, if any, would not have
a material adverse effect on the financial condition or results of operations
(when considered on an annualized basis) of the Company;
(xx) The Company has not (i) taken, and at the Time of Delivery (as
defined in Section 4 hereof) will not have taken, directly or indirectly, any
action to cause or result in, or which has constituted, or might reasonably be
expected to constitute, the stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of any of the Shares; or (ii)
since the filing of the Registration Statement, except for the marketing of the
Shares and the payment to the Underwriters of the compensation contemplated by
Section 2 of this Agreement, (A) sold, bid for, purchased or paid anyone any
compensation for soliciting purchases of the Shares or (B) paid or agreed to
pay to any person any compensation for soliciting another person to purchase
any securities of the Company;
(xxi) Neither the Company, nor, to the Company's knowledge, any
director, officer, agent, employee or other person acting on behalf of the
Company, has directly or indirectly: (i) used any corporate funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activity; (ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties
or campaigns from corporate funds; (iii) violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended; or (iv) made any bribe, rebate,
payoff, influence payment, kickback or other unlawful payment;
(xxii) The Shares have been duly authorized for quotation on the
National Association of Security Dealers, Inc. National Market System
("NASDAQ/NMS");
(xxiii) The Company is not, and will not be as a result of the
consummation of the transactions contemplated by this Agreement, an "investment
company" or a company "controlled" by an "investment company" within the
meaning of the Investment Company Act of 1940, as amended;
(xxiv) All offers and sales of the Company's capital stock prior to
the date hereof were at all relevant times duly registered or exempt from the
registration requirements of the Act, and were duly registered or the subject
of an available exemption from the registration requirements of the applicable
state securities or Blue Sky laws, or, to the extent not duly registered or the
subject of an available exemption under such federal and state securities laws,
the applicable statute of limitations relating to any violation thereof has
expired or any such violations have been effectively waived;
(xxv) The Company has all licenses or other rights to use, patents,
trade secrets, trademarks, service marks, trade names and copyrights
(collectively, "Intangibles") currently
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<PAGE> 21
used to conduct its business as described in the Prospectus, and the Company
has not granted any lien or encumbrance on, or any right or license with
respect to any such Intangibles, except as described in the Prospectus or
except as would not have a material adverse effect on the financial condition,
results of operations or business of the Company; there is no claim pending
against the Company with respect to any such Intangibles, and the Company has
not received notice that its use of such Intangibles infringes upon or
conflicts with the rights of any third party; and
(xxvi) Except as set forth or contemplated in the Prospectus, no
holder of any security of the Company has any right, not effectively satisfied
or waived, to require registration of shares of Common Stock or any other
security of the Company.
(b) Any certificate signed by any officer of the Company and
delivered to the Underwriters or to counsel for the Underwriters shall be
deemed a representation and warranty by the Company to the Underwriters as to
the matters covered thereby. Whenever used in this Section 1, the term
"Company" shall refer to Eagle Bancshares, Inc. and each of its direct and
indirect subsidiaries, individually and collectively, unless the context
otherwise requires.
2. Purchase and Sale of the Shares. On the basis of the
representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions herein set forth, (a) the Company agrees to
sell to each of the Underwriters, and each of the Underwriters agrees,
severally and not jointly, to purchase from the Company at a purchase price per
share of $_________, the number of Firm Shares to be purchased by such
Underwriter as set forth opposite the name of such Underwriter in Schedule I
hereto, and (b) in the event and to the extent that the Underwriters shall
elect to purchase Optional Shares as provided below, the Company agrees to sell
to each of the Underwriters, and each of the Underwriters agrees, severally and
not jointly, to purchase from the Company, at the purchase price per share set
forth in clause (a) of this Section 2, that portion of the number of Optional
Shares as to which such election shall have been made (to be adjusted by you so
as to eliminate fractional shares) determined by multiplying such number of
Optional Shares by a fraction, the numerator of which is the maximum number of
Optional Shares which such Underwriter is entitled to purchase as set forth
opposite the name of such Underwriter in Schedule I hereto and the denominator
of which is the maximum number of the Optional Shares which all of the
Underwriters are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election all or less than all of the Optional Shares on a pro rata basis,
at the purchase price per share set forth in the paragraph above, for the sole
purpose of covering over-allotments in the sale of the Firm Shares. Any such
election to purchase Optional Shares may be exercised only once and by written
notice from you to the Company, given within a period of 30 calendar days after
the date of this Agreement and setting forth the aggregate number of Optional
Shares to be purchased and the date on which such Optional Shares are to be
delivered, as determined by you
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<PAGE> 22
but in no event earlier than the First Time of Delivery (as defined in Section
4 below) or, unless you and the Company otherwise agree in writing, earlier
than two or later than ten business days after the date of such notice.
Notwithstanding the foregoing, the Company shall have the right to
direct the Underwriters, subject to the Underwriters' receipt of approval from
the National Association of Securities Dealers, Inc. ("NASD"), to offer and
sell up to ten percent (10%) of the Firm Shares (the "Directed Shares") (to be
allocated among the Underwriters on a pro rata basis according to the number of
Firm Shares set forth opposite the name of each Underwriter in Schedule I
hereto) to specified Company directors, officers and employees at the per share
public offering price set forth on the cover page of the Prospectus, less the
concession to dealers set forth in Section 3 of the Agreement Among
Underwriters.
3. Offering by the Underwriters. Upon the authorization by you
of the release of the Firm Shares after the Registration Statement becomes
effective, the several Underwriters propose to offer the Firm Shares and the
Optional Shares, if any, for sale upon the terms and conditions set forth in
the Prospectus.
4. Delivery of the Shares. Certificates in definitive form for
the Shares to be purchased by each Underwriter hereunder, and in such
denominations and registered in such names as the Representatives may request
upon at least 48 hours prior written notice to the Company, shall be delivered
by or on behalf of the Company to you for the account of such Underwriters at
the offices of The Depository Trust Company, 55 Water Street, New York, New
York 10041 or at such other place as the parties may agree, against payment by
such Underwriters or on its behalf of the purchase price therefor by certified
or official bank check or checks in next day available funds to the Company,
all at the offices of Interstate/Johnson Lane Corporation, 945 East Paces Ferry
Road, Atlanta, Georgia 30326. The time and date of such delivery and payment
shall be, with respect to the Firm Shares, 9:00 am, Eastern Time, on the
[SIXTH] [THIRD] full business day after the Registration Statement becomes
effective, or such other time and date as you and the Company may agree upon in
writing, and, with respect to the Optional Shares, 9:00 am, Eastern Time, on
the date specified by you in the written notice given by you of the
Underwriters' election to purchase such Optional Shares, or such other time and
date as you may agree upon in writing. Such time and date for delivery of the
Firm Shares is herein called the "First Time of Delivery," such time and date
for delivery of the Optional Shares, if not the First Time of Delivery, is
herein called the "Second Time of Delivery," and each such time and date for
delivery is herein called a "Time of Delivery." Such certificates will be made
available for checking and packaging by you or on your behalf at least 24 hours
prior to each Time of Delivery at the offices of The Depository Trust Company,
55 Water Street, New York, New York 10041 or, upon at least one full business
day's prior notice to the Company, at any other specified location in New York,
New York, Atlanta, Georgia or at such other place as the parties may agree.
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<PAGE> 23
5. Agreements of the Company. The Company covenants and agrees
with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to
file such Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of business on the second business day following the date of
this Agreement, or, if applicable, such earlier time as may be required by Rule
430A(a)(3) under the Act; to make no further amendment or any supplement to the
Registration Statement or Prospectus prior to any Time of Delivery which shall
be disapproved by you promptly after reasonable notice thereof; to advise you,
promptly after it receives notice thereof, of the time when the Registration
Statement, or any amendment thereto, has been filed or becomes effective or any
supplement to the Prospectus or any amended Prospectus has been filed and to
furnish you copies thereof; to advise you, promptly after it receives notice
thereof, of the issuance by the Commission of any stop order or of any order
preventing or suspending the use of any Preliminary Prospectus or Prospectus,
of the suspension of the qualification of the Shares for offering or sale in
any jurisdiction, or the initiation or threatening of any proceeding for any
such purpose, or of any request by the Commission for the amending or
supplementing of the Registration Statement or Prospectus or for additional
information; and, in the event of the issuance of any stop order or of any
order preventing or suspending the use of any Preliminary Prospectus or
Prospectus or suspending any such qualification, to use promptly its best
efforts to obtain withdrawal of such order at the earliest possible time;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as you may request and to comply with
such laws so as to permit the continuance of sales and dealings therein in such
jurisdictions for such reasonable time as may be necessary to complete the
distribution of the Shares; provided, however, that in connection therewith the
Company shall not be required to qualify as a foreign corporation or to file a
general consent to service of process in any jurisdiction;
(c) To furnish the Underwriters with copies of the Prospectus in
such quantities as you may from time to time reasonably request, and, if the
delivery of a Prospectus is required at any time prior to the expiration of
nine months after the time of issue of the Prospectus in connection with the
offering or sale of the Shares and if at such time any events shall have
occurred as a result of which the Prospectus as then amended or supplemented
would include an untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made when such Prospectus is
delivered, not misleading, or, if for any other reason it shall be necessary
during such same period to amend or supplement the Prospectus in order to
comply with the Act, to notify you and upon your request to prepare and furnish
without charge to each Underwriter and to any dealer in securities as many
copies as you may from time to time reasonably request of an amended Prospectus
or a supplement to the Prospectus which will
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<PAGE> 24
correct such statement or omission or effect such compliance, and in case any
Underwriter is required to deliver a prospectus in connection with sales of any
of the Shares at any time nine months or more after the time of issue of the
Prospectus, upon your request but at the expense of such Underwriter, to
prepare and deliver to such Underwriter as many copies as you may request of an
amended or supplemented Prospectus complying with Section 10(a)(3) of the Act;
(d) To make generally available to its stockholders as soon as
practicable, but in any event not later than the 45th day after the end of the
fourth fiscal quarter that follows the fiscal quarter that includes the
effective date of the Registration Statement (as defined in Rule 158(c)), a
statement of the Company on a consolidated basis (which need not be audited)
complying with Section 11(a) of the Act and the rules and regulations of the
Commission thereunder (including, at the option of the Company, Rule 158);
(e) During the period beginning from the date hereof and
continuing to and including the date 90 days after the date of the Prospectus,
not to offer, sell, contract to sell or otherwise dispose of any capital stock
of the Company (other than issuances pursuant to employee and director stock
option plans existing on the date of this Agreement or options outstanding
thereunder) or any security convertible into or exchangeable for capital stock
of the Company, without the prior written consent of Interstate/Johnson Lane
Corporation;
(f) For so long as the Company is subject to the reporting
requirements of the Securities Exchange Act of 1934, to furnish to its
stockholders as soon as practicable after the end of each fiscal year an annual
report (including a balance sheet and statements of income, shareholders'
equity and cash flow of the Company and its Subsidiaries on a consolidated
basis, certified by independent public accountants) and, as soon as practicable
after the end of each of the first three quarters of each fiscal year
(beginning with the fiscal quarter ending after the effective date of the
Registration Statement), consolidated summary financial information of the
Company and its Subsidiaries on a consolidated basis for such quarter in
reasonable detail;
(g) During the period of five years from the Effective Date
(provided the Company's Common Stock continues to be publicly-traded), to
furnish and deliver to you as soon as they are available (i) copies of all
reports or other communications (financial or other) furnished to stockholders
and copies of any reports and financial statements furnished to or filed with
the Commission or NASDAQ/NMS or any national securities exchange on which any
class of securities of the Company is listed and (ii) such additional
information concerning the business and financial condition of the Company and
its Subsidiaries, if any, as you may, from time to time, reasonably request
(subject to the Underwriters' obligation to handle any material nonpublic
information provided to them by the Company in a confidential manner and in
accordance with their obligations under applicable federal securities laws);
(h) To use the net proceeds received by it from the sale of the
Shares pursuant to this Agreement in the manner specified in the Prospectus
under the caption "Use of Proceeds;" and
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<PAGE> 25
(i) To use its reasonable best efforts to maintain the inclusion
of the Common Stock on the NASDAQ/NMS (or on a national securities exchange)
for a period of five years after the Effective Date (provided the Company's
Common Stock continues to be publicly-traded).
6. Expenses. The Company covenants and agrees with the several
Underwriters that it will pay or cause to be paid the following: (i) the fees,
disbursements and expenses of the Company's and any Subsidiary's counsel and
accountants in connection with the registration of the Shares under the Act and
all other expenses in connection with the preparation, printing and filing of
the Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of preparing, printing
or producing any Agreement Among Underwriters, this Agreement, the Blue Sky
Memorandum and any other documents in connection with the offering, purchase,
sale and delivery of the Shares; (iii) all expenses in connection with the
qualification of the Shares for offering and sale under state securities laws
as provided in Section 5(b) hereof, including the reasonable fees and
disbursements of counsel for the Underwriters in connection with such
qualification and in connection with the preparation and distribution of Blue
Sky Memoranda, not to exceed $__________; (iv) the filing fees incident to
securing any required review by the NASD of the terms of the sale of the Shares
and other costs, fees and expenses incident to the listing of the Shares on the
NASDAQ/NMS; (v) the cost of preparing stock certificates; (vi) the cost and
charges of any transfer agent or registrar; (vii) all stock transfer taxes, if
any, incident to the sale and delivery of the Shares to the Underwriters;
(viii) the travel and lodging expenses of employees of the Company who
participate in the advertising and marketing of the Shares; and (ix) all other
costs and expenses incident to the performance of their obligations hereunder
which are not otherwise specifically provided for in this Section. It is
understood that except as provided in this Section, Section 8 and Section 11
hereof, the Underwriters will pay all of their own costs and expenses,
including the fees of their counsel, travel and out-of-pocket expenses, stock
transfer taxes on resale of any of the Shares by them, and any advertising
expenses connected with any offers they may make.
7. Conditions to the Underwriters Obligations. The obligations
of the Underwriters hereunder, as to the Shares to be delivered at each Time of
Delivery, shall be subject, in their discretion, to the condition that all
representations and warranties and other statements of the Company herein are,
at and as of each Time of Delivery, true and correct, the condition that the
Company shall have performed all of its obligations hereunder theretofore to be
performed, and the following additional conditions:
(a) The Registration Statement shall have been declared effective;
the Prospectus shall have been filed with the Commission pursuant to Rule
424(b) within the applicable time period prescribed for such filing by the
rules and regulations under the Act and in accordance with Section 5(a) hereof;
no stop order suspending the effectiveness of the Registration Statement or any
part thereof shall have been issued and no proceeding for that purpose shall
have been
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<PAGE> 26
initiated or threatened by the Commission; and all requests for additional
information on the part of the Commission shall have been complied with to your
reasonable satisfaction;
(b) Holland & Knight, counsel for the Underwriters, shall have
furnished to you such opinion or opinions, dated each Time of Delivery, with
respect to the incorporation of the Company, the validity of the Shares being
delivered at such Time of Delivery, the Registration Statement, the Prospectus,
and other related matters as you may reasonably request, and such counsel shall
have received such papers and information as they may reasonably request to
enable them to pass upon such matters;
(c) Long, Aldridge & Norman, counsel for the Company, shall have
furnished to you their written opinion, dated such Time of Delivery, in form
and substance satisfactory to you and your counsel, and substantially in the
form that is attached hereto as Exhibit A;
(d) On the date hereof and on the effective date of each filed
post-effective amendment to the Registration Statement and also at each Time of
Delivery, Arthur Andersen LLP and KPMG Peat Marwick LLP shall have furnished to
you a comfort letter or letters, dated the respective date of delivery thereof,
and otherwise in form and substance satisfactory to you and your counsel
stating that they are independent public accountants with respect to the
Company and its subsidiaries within the meaning of the Act and of the rules and
regulations of the Commission thereunder, that they have no interest required
to be disclosed in the Registration Statement or the Prospectus pursuant to
Item 10 of Form S-2, and to the effect that:
(i) They are, and were during the periods covered in
their report(s) included in the Registration Statement and the
Prospectus, independent certified public accountants with respect to
the Company and its direct and indirect subsidiaries within the
meaning of the Act and the rules and regulations of the Commission
thereunder;
(ii) In their opinion, the consolidated financial
statements audited by them and the related schedules included in the
Prospectus or the Registration Statement, comply as to form in all
material respects with the applicable accounting requirements of the
Act, the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations of the Commission thereunder;
(iii) On the basis of limited procedures, but not an audit
in accordance with generally accepted auditing standards, consisting
of a reading of the unaudited financial statements of the Company and
related notes included in the Registration Statement and Prospectus,
the latest available interim financial statements of the Company,
inspection of the minute books of the Company since the date of the
latest audited financial statements included in the Prospectus,
inquiries of officials of the Company responsible for financial and
accounting matters and such other inquiries and procedures as may be
specified in such letter, nothing came to their attention that caused
them to believe that:
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<PAGE> 27
(A) the unaudited financial data of the Company
and its subsidiaries included in the Prospectus or
Registration Statement do not comply as to form in all
material respects with the applicable accounting requirements
of the Act, the Exchange Act and the rules and regulations of
the Commission thereunder or are not presented on a basis
substantially consistent with that of the audited financial
statements included in the Prospectus or Registration
Statement;
(B) the unaudited amounts set forth under the
caption "Selected Financial Data" in the Prospectus were not
determined on a basis substantially consistent with that used
in determining the corresponding amounts in the audited
consolidated financial statements included in, or incorporated
by reference into, the Registration Statement and the
Prospectus;
(C) as of a specified date not more than five
days prior to the Time of Delivery, there have been any
changes in the capital stock or any increase in the long-term
debt of the Company, in each case as compared with amounts
shown in the latest balance sheet included in the Prospectus,
except in each case for changes, increases or decreases which
the Prospectus discloses have occurred or may occur or which
are described in such letter; or
(D) for the period from September 30, 1995 to the
specified date referred to in clause (C) above there were
decreases in the total or per share amounts of net income or
increases in the rates of charge offs or allowances for loan
losses, in each case as compared with the comparable period of
the preceding year, except in each case for decreases or
increases which the Prospectus discloses have occurred or may
occur or which are described in such letter;
(iv) In addition to the audit referred to in their
report(s) included in the Prospectus and on the basis of certain other
limited procedures, including an inspection of minute books of the
Company since the date of the latest audited financial statements
included in the Prospectus, inquiries of officials of the Company
responsible for financial and accounting matters and such other
inquiries and procedures as may be specified in such letter, they have
carried out certain specified procedures, not constituting an
examination in accordance with generally accepted auditing standards,
with respect to certain amounts, percentages and financial information
specified by the Underwriters, which are derived from the accounting
records of the Company or accounting records subject to its system of
internal accounting controls, which appear in the Prospectus, or in
exhibits and schedules to the Registration Statement, specified by the
Underwriters, and have compared certain of such amounts, percentages
and financial information with these accounting records of the Company
and have found them to be in agreement;
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<PAGE> 28
In the event that the letters to be delivered referred to above set forth any
such changes, decreases or increases, it shall be a further condition to the
obligations of the Underwriters that the Underwriters shall have reasonably
determined, after discussions with officers of the Company responsible for
financial and accounting matters and with Arthur Andersen LLP, that such
changes, decreases or increases as are set forth in such letters do not reflect
a material adverse change in the stockholders' equity or long-term debt of the
Company as compared with the amounts shown in the latest consolidated balance
sheets of the Company included in the Prospectus, or a material adverse change
in total revenues or net income, of the Company, in each case as compared with
the corresponding period of the prior year;
(e) No Underwriter shall have advised the Company that the
Registration Statement, Preliminary Prospectus or the Prospectus, or any
amendment or any supplement thereto, contains an untrue statement of fact
which, in your reasonable judgment, is material, or omits to state a fact
which, in your reasonable judgment, is material and is required to be stated
therein or necessary to make the statements therein not misleading and the
Company shall not have cured such untrue statement of fact or stated a
statement of fact required to be stated therein;
(f) On or after the date hereof there shall not have occurred any
of the following: (i) a general suspension or material limitation in trading in
securities on the New York Stock Exchange or the NASDAQ/NMS, or limitation on
prices for securities on any such exchange or NASDAQ/NMS other than imposition
of so called circuit breakers; (ii) a general moratorium on commercial banking
activities in New York or Georgia declared by either Federal or State
authorities; or (iii) the outbreak or escalation of hostilities involving the
United States or the declaration by the United States of a national emergency
or war, if the effect of any such event specified in this clause (f) in your
reasonable judgment makes it impracticable or inadvisable to proceed with the
public offering or the delivery of the Shares being delivered at such Time of
Delivery on the terms and in the manner contemplated by the Prospectus;
(g) The Shares to be sold by the Company at such Time of Delivery
shall have been duly authorized for quotation on the NASDAQ/NMS;
(h) The NASD, upon review of the terms of the public offering of
the Shares, shall not have objected to such offering, such terms or the
Underwriters' participation in such offering;
(i) The Company shall have furnished or caused to be furnished to
you at such Time of Delivery mutually agreed upon certificates of officers of
the Company satisfactory to you and your counsel as to the accuracy of the
representations and warranties of the Company herein at and as of such Time of
Delivery, as to the performance by the Company of all of its obligations
hereunder to be performed at or prior to such Time of Delivery, as to the
matters set forth in subsection (a) of this Section, and as to such other
matters as you may reasonably request;
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<PAGE> 29
(j) At each Time of Delivery, counsel for the Underwriters shall
have been furnished with such documents and opinions as they may have
reasonably requested prior to that Time of Delivery for the purpose of
reasonably enabling them to pass upon the issuance and sale of the Shares as
herein contemplated and related proceedings, or in order to evidence the
accuracy of any of the representations or warranties, or the fulfillment of any
of the conditions herein contained; and all proceedings taken by the Company in
connection with the issuance and sale of the Shares as herein contemplated
shall be reasonably satisfactory in form and substance to the Underwriters and
counsel for the Underwriters; and
(k) The Company shall have furnished or caused to be furnished to
you at or prior to the First Time of Delivery lock-up agreements in form and
scope satisfactory to the Underwriters and their counsel from all stockholders,
executive officers and directors of the Company as of the date hereof.
8. (a) The Company agrees to indemnify and hold harmless
each Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus, or any such amendment or supplement thereto, in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter through you expressly for use therein; and provided further, that
as to any Preliminary Prospectus this indemnity agreement shall not inure to
the benefit of any Underwriter on account of any loss, claim, damage, liability
or action arising from the sale of the Shares to any person by the Underwriter
if that Underwriter failed to send or give a copy of the Prospectus, as the
same may be amended or supplemented, to that person within the time required by
the Act, and the untrue statement or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact in such
Preliminary Prospectus was corrected in the Prospectus, unless such failure
resulted from noncompliance by the Company with Section 5(c).
(b) Each Underwriter will indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon an untrue statement or alleged untrue statement of a material fact
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<PAGE> 30
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission
was made in any Preliminary Prospectus, the Registration Statement or the
Prospectus or any such amendment or supplement in reliance upon and in
conformity with information furnished to the Company by such Underwriter
through you expressly for use therein, and will reimburse the Company for any
legal or other expenses reasonably incurred by the Company in connection with
investigating or defending any such action or claim as such expenses are
incurred.
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against an
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof, but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. No such action
shall be settled by the indemnified party without the consent of the
indemnifying party, which consent shall not be unreasonably withheld. In case
any such action shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it shall
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party (who
shall not, except with the consent of the indemnified party, be counsel to the
indemnifying party), and, after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under such
subsection for any legal expenses of other counsel or any other expenses, in
each case subsequently incurred by such indemnified party, in connection with
the defense thereof other than reasonable costs of investigation.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities
(or actions in respect thereof) in such proportion as is appropriate to reflect
the relative benefits received by each party from the offering of the Shares.
If, however, the allocation provided by the immediately preceding sentence is
not permitted by applicable law or if the indemnified party failed to give the
notice required under subsection (c) above, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but
also the relative fault of the party in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities (or
actions in respect thereof), as well as any other relevant equitable
considerations. The relative benefits
18
<PAGE> 31
received by the Company on the one hand and the Underwriters on the other shall
be deemed to be in the same proportion as the total net proceeds from the
offering of the Shares purchased under this Agreement (before deducting
expenses) received by the Company bear to the total underwriting' discounts and
commissions received by the Underwriters with respect to the Shares purchased
under this Agreement, in each case as set forth in the table on the cover page
of the Prospectus. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or
omission. The Company and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this subsection (d) were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this subsection (d). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to
above in this subsection (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Shares underwritten by it and distributed to the public exceeds the amount
of any damages which such Underwriter has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this subsection (d) to contribute are several in proportion to
their respective underwriting obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be
in addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who
controls any Underwriter within the meaning of the Act; and the obligations of
the Underwriters under this Section 8 shall be in addition to any liability
which the respective Underwriters may otherwise have and shall extend, upon the
same terms and conditions, to each officer and director of the Company, each
prospective director of the Company named in the Registration Statement, and to
each other person, if any, who controls the Company within the meaning of the
Act.
9. Default of Underwriter. (a) If any Underwriter shall default
in its obligation to purchase the Shares which it has agreed to purchase
hereunder at a Time of Delivery, you may in your discretion arrange for you or
another party or parties to purchase such Shares on the terms contained herein.
If within thirty-six hours after such default by any Underwriter you do not
arrange for the purchase of such Shares, then the Company shall be entitled to
a further period of thirty-six hours within which to procure another party or
other parties satisfactory to
19
<PAGE> 32
you to purchase such Shares on such terms. In the event that, within the
respective prescribed periods, you notify the Company that you have so arranged
for the purchase of such Shares, or the Company notifies you that it has so
arranged for the purchase of such Shares, you or the Company shall have the
right to postpone such Time of Delivery for a period of not more than seven
days, in order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees to file promptly any amendments to the
Registration Statement or the Prospectus which in your opinion may thereby be
made necessary. The term "Underwriter" as used in this Agreement shall include
any person substituted under this Section with the effect as if such person had
originally been a party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase
of the Shares of a defaulting Underwriter or Underwriters by you or the Company
as provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased does not exceed one-eleventh of the aggregate number of all
the Shares to be purchased at such Time of Delivery, then the Company shall
have the right to require each non-defaulting Underwriter to purchase the
number of Shares which such Underwriter agreed to purchase hereunder at such
Time of Delivery and, in addition, to require each non-defaulting Underwriter
to purchase its pro rata share (based on the number of Shares which such
Underwriter agreed to purchase hereunder) of the Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made;
provided, however, that nothing herein shall relieve a defaulting Underwriter
from liability for its default.
(c) If, after giving effect to any arrangements for the purchase
of the Shares of a defaulting Underwriter or Underwriters by you and the
Company as provided in subsection (a) above, the aggregate number of such
Shares which remains unpurchased exceeds one-eleventh of the aggregate number
of all the Shares to be purchased at such Time of Delivery, or if the Company
shall not exercise the right described in subsection (b) above to require
non-defaulting Underwriters to purchase Shares of a defaulting Underwriter or
Underwriters, then this Agreement (or, with respect to the Second Time of
Delivery, the obligations of the Underwriters to purchase and of the Company to
sell the Optional Shares) shall thereupon terminate, without liability on the
part of any non-defaulting Underwriter or the Company, except for the expenses
to be borne by the Company and the Underwriters as provided in Section 6 hereof
and the indemnity and contribution agreements in Section 8 hereof; provided,
however, that nothing herein shall relieve a defaulting Underwriter from
liability for its default.
10. Survival. The respective indemnities, agreements,
representations, warranties and other statements of the Company and the several
Underwriters, as set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement, shall remain in full force and
effect, regardless of any investigation (or any statement as to the results
thereof) made by or on behalf of any Underwriter or any controlling person of
any Underwriter, or the
20
<PAGE> 33
Company or any officer or director or controlling person of the Company, and
shall survive delivery of and payment for the Shares.
11. Effectiveness. If this Agreement shall be terminated pursuant
to Section 9 hereof, the Company shall not then be under any liability to any
Underwriter except as provided in Section 6 and Section 8 hereof, but, if the
Shares are not delivered by or on behalf of the Company as provided herein for
the reason that the Company and Arthur Andersen LLP do not comply with or
otherwise satisfy the conditions imposed upon them to perform pursuant to
Section 7 hereof and such nonperformance continues for over a period of twelve
(12) calendar months, the Company will, at the request of the Underwriters,
reimburse the Underwriters through you for all reasonable out-of-pocket
expenses approved in writing by you, including fees and disbursements of
counsel not to exceed $________________, reasonably incurred by the
Underwriters in making preparations for the purchase, sale and delivery of the
Shares not so delivered, but the Company shall then be under no further
liability to any Underwriting in respect of the Shares not so delivered except
as provided in Section 6 and Section 8 hereof.
12. Notices. (a) In all dealings hereunder, you shall act on
behalf of each of the Underwriters, and the parties hereto shall be entitled to
act and rely upon any statement, request, notice or agreement on behalf of any
Underwriter made or given by you jointly or by Interstate/Johnson Lane
Corporation on behalf of you as the Representatives.
(b) All statements, requests, notices and agreements hereunder
shall be in writing, and if to the Underwriters shall be delivered or sent by
mail, telex, or facsimile transmission to you as the representative in care of
Interstate/Johnson Lane Corporation, 945 East Paces Ferry Road, Atlanta,
Georgia 30326, Attention: Senior Vice President - Syndicate Department; and if
to the Company shall be delivered or sent by mail, telex or facsimile
transmission to the address of the Company set forth in the Registration
Statement, Attention: President; provided, however, that any notice to an
Underwriter pursuant to Section 8(c) hereof shall be delivered or sent by mail,
telex or facsimile transmission to such Underwriter at its address set forth in
its Underwriters' Questionnaire or telex constituting such Questionnaire, which
address will be supplied to the Company by you upon request. Any such
statements, requests, notices or agreements shall take effect upon receipt
thereof.
13. Miscellaneous. (a) This Agreement shall be binding upon, and
inure solely to the benefit of, the Underwriters and the Company and, to the
extent provided in Sections 8 and 10 hereof, the officers and directors of the
Company, and each person who controls the Company or any Underwriter, and their
respective heirs, executors, administrators, successors and assigns, and no
other person shall acquire or have any right under or by virtue of this
Agreement. No purchaser of any of the Shares from any Underwriter shall be
deemed a successor or assign merely by reason of such purchase.
21
<PAGE> 34
(b) Time shall be of the essence of this Agreement. As used
herein, the term "business day" shall mean any day when the Commission's office
in Washington, D.C. is open for business.
(c) This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia.
(d) This Agreement may be executed by any one or more of the
parties hereto in any number of counterparts, each of which shall be deemed to
be an original, but all such counterparts shall together constitute one and the
same instrument.
If the foregoing is in accordance with your understanding, please sign
and return to us five counterparts hereof, and upon the acceptance hereof by
you, on behalf of each of the Underwriters, this letter and such acceptance
hereof shall constitute a binding agreement between each of the Underwriters
and the Company. It is understood that your acceptance of this letter on
behalf of each of the Underwriters is pursuant to the authority set forth in a
form of Agreement Among Underwriters, the form of which shall be submitted to
the Company for examination, upon request, but without warranty on your part as
to the authority of the signers thereof.
Very truly yours,
Eagle Bancshares, Inc.
By:______________________________
Conrad J. Sechler, Sr.
Chairman of the Board of Directors
and Chief Executive Officer
Accepted as of the date hereof at
Atlanta, Georgia:
Interstate/Johnson Lane Corporation
Morgan Keegan & Company, Inc.
By: Interstate/Johnson Lane Corporation
By:______________________________
Richard G. Steingraber
Managing Director
On behalf of each of the Underwriters
22
<PAGE> 35
SCHEDULE I
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF FIRM NUMBER OF OPTIONAL
------------ -------------- ------------------
SHARES TO BE SHARES TO BE
------------ ------------
PURCHASED PURCHASED IF
------------
--------- MAXIMUM OPTION
--------------
EXERCISED
---------
<S> <C> <C>
Interstate/Johnson Lane
Corporation
Morgan Keegan &
Company, Inc.
TOTAL
</TABLE>
<PAGE> 36
EXHIBIT A
[FORM OF LONG, ALDRIDGE & NORMAN OPINION TO COME]
<PAGE> 37
1,300,000 SHARES(1)
EAGLE BANCSHARES, INC.
COMMON STOCK
($1.00 PAR VALUE PER SHARE)
SELECTED DEALER AGREEMENT
__________________, 1996
Ladies and Gentlemen:
The underwriters named in the enclosed prospectus, on whose behalf we are
acting as representatives, have severally agreed to purchase from Eagle
Bancshares, Inc., a Georgia corporation (the "Company"), an aggregate of
1,300,000 shares of the Common Stock (the "Shares") of the Company, as set
forth in the enclosed prospectus and subject to the terms of the underwriting
agreement referred to therein. The Shares are described in the prospectus,
additional copies of which will be supplied in reasonable quantities upon
request to us.
1. Offering to Dealers. One or more of the several underwriters
acting through us are severally offering a portion of the Shares to certain
dealers (the "Dealers") as principals, at the public offering price thereof set
forth on the cover of the Prospectus less a concession of $.___ per Share. The
offering of Shares to Dealers may be made on the basis of reservations or
allotments against subscription. We are advising you by telegram of the method
and terms of the offering. Acceptances of any reserved Shares received at the
office of Interstate/Johnson Lane Corporation, 945 East Paces Ferry Road,
Atlanta, Georgia 30326, after the time specified therefor in the telegram, and
any subscriptions for additional Shares, will be subject to rejection in whole
or in part. Subscription books may be closed by us at any time without notice,
and the right is reserved to reject any subscription in whole or in part.
2. Offering by Dealers. Upon receipt of the aforementioned
telegram, the Shares purchased by you may be reoffered to the public in
conformity with the terms of offering set forth in the Prospectus. You may, in
accordance with the rules of the National Association of Securities Dealers,
Inc. (the "NASD"), allow a discount from the public offering price of not more
than $.____ per Share with respect to Shares sold by you to (i) certain dealers
that are members of the NASD and that agree to comply with the provisions of
Section 24 of Article III of the Rules of Fair Practice of the NASD and (ii)
foreign dealers or institutions ineligible for
____________________
1 Plus an option to purchase up to 195,000 shares to cover
overallotments.
1
<PAGE> 38
membership in the NASD that agree (x) not to resell Shares (A) to purchasers
in, or to persons who are nationals of, the United States of America or (B)
when there is a public demand for the Shares, to persons specified as those to
whom members of the NASD participating in a distribution may not sell, and (y)
to comply, as though such foreign dealer or institution were a member of the
NASD, with Sections 8, 24, 25 to the extent applicable to foreign nonmember
brokers or dealers, and 36 of such Article.
Neither you nor any other person is, or has been, authorized by the
Company or us to give any information or make any representation in connection
with the sale of the Shares other than those obtained in the prospectus.
It is assumed that the Shares will be effectively placed for
investment. In the event that, during the term of this Agreement, we shall
purchase or contract to purchase any Shares purchased by you hereunder, we may,
at our election, either (a) require you to repurchase such Shares at a price
equal to the total cost of such purchase by us, including brokerage
commissions, if any, and transfer taxes on the recovery, or (b) charge you with
and collect from you an amount equal to the selling concession originally
allowed you with respect to the Shares so purchased by us.
3. Payment and Delivery. Payment for the Shares which you shall
have agreed to purchase hereunder shall be made by you at such time and place
as we shall direct by certified or bank cashier's check payable in next-day
available funds to our order, against delivery of such Shares. Additional
Shares confined to you shall be delivered on such date or dates as we shall
advise you.
4. Blue Sky Matters. We and the underwriters shall have no
obligation or responsibility with respect to the right of any dealer to sell
the Shares in any jurisdiction, notwithstanding any information which may be
furnished as to the jurisdictions under the securities laws of which it is
believed the Shares may be sold. In compliance with the General Business Law
of New York, it will be necessary for you to file a Further State Notice
respecting the Shares, in the form required by said Law, prior to offering any
of the Shares in such state.
5. Termination. This Agreement shall terminate thirty (30) days
after the initial public offering, but may be extended for a period or periods
not exceeding in the aggregate fifteen (15) days as we may determine. We may
terminate this Agreement at any time without prior notice. Notwithstanding
termination of this Agreement, you shall remain liable for your proportion of
any transfer tax or other liability which may be asserted or assessed against
us or any of the Dealers based upon the claim that the Dealers or any of them
constitute a partnership, an association, an unincorporated business or other
separate entity.
2
<PAGE> 39
6. Obligations and Position of Dealers. Your acceptance hereof
will constitute an obligation on your part to purchase, upon the terms and
conditions hereof, the aggregate amount of Shares reserved for and accepted by
you and to perform and observe all the terms and conditions hereof.
You are not authorized to act as our agent or as agent for any of the
underwriters in offering Shares to the public or otherwise. Nothing contained
herein shall constitute the Dealers an association, or partners with us, or any
of the underwriters, or with each other.
You agree that at any time or times prior to the termination of this
Agreement you will, upon our request, report to us the number of Shares
purchased by this Agreement which then remain unsold by you and will, upon our
request at such time or times, sell to us for our account such number of such
unsold shares as we may designate, at the public offering price less an amount
to be determined by us, not in excess of the concession allowed you.
We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the offering or arising
hereunder. We shall be under no liability to you, except for our own want of
good faith obligations assumed in this Agreement, and any liabilities arising
under the Securities Act of 1933, as amended. No obligation not expressly
assumed by us in this Agreement shall be implied hereby or inferred herefrom.
7. Notices. All communications from you should be addressed to
us at the office of Interstate/Johnson Lane Corporation, 945 East Paces Ferry
Road, Atlanta, Georgia 30326. Any notice from us to you shall be deemed to
have been duly given if mailed or telegraphed to you at the address to which
this letter is mailed.
Please confirm this Agreement by signing and returning at once the
duplicate copy of the letter enclosed herewith.
Very truly yours,
Interstate/Johnson Lane Corporation
Morgan Keegan & Company, Inc.
By: Interstate/Johnson Lane Corporation
By:______________________________
Richard G. Steingraber
Managing Director
3
<PAGE> 40
Interstate/Johnson Lane Corporation
Morgan Keegan & Company, Inc.
As Representatives of the several Underwriters
c/o Interstate/Johnson Lane Corporation
945 East Paces Ferry Road
Atlanta, Georgia 30326
Ladies and Gentleman:
The undersigned confirms its agreement to purchase shares of the
Common Stock of Eagle Bancshares, Inc., subject to the terms and conditions of
the foregoing agreement, and agrees to take up and pay for such shares at the
price and upon the terms and conditions stated in said agreement. The
undersigned hereby acknowledges receipt of the Prospectus relating to the
Shares and confirms that in agreeing to purchase the Shares it has relied on
said Prospectus and on no other statement whatsoever, written or oral. The
undersigned represents that it has complied and will comply with the
requirements of Rule 15c2-8 under the Securities Exchange Act of 1934, as
amended. The undersigned confirms that it is (i) a member of the National
Association of Securities Dealers, Inc. and agrees to comply with the
provisions of Section 24 of Article III of the Rules of Fair Practice of such
Association or (ii) a foreign dealer or institution ineligible for membership
in such Association that hereby agrees (x) not to resell shares (A) to
purchasers in, or to persons who are nationals of, the United States of America
or (B) when there is a public demand for the Shares, to persons specified as
those to whom members of such Association participating in a distribution may
not sell, and (y) to comply, as though it were a member of such Association,
with Sections 8, 24, 25 (to the extent applicable to foreign non-member brokers
or dealers) and 36 of such Article.
Dated: __________, 1996
______________________________
[Name of Firm]
By:___________________________
Title:________________________
<PAGE> 1
EXHIBIT 10.6
FEDERAL HOME LOAN BANK OF ATLANTA
AGREEMENT FOR ADVANCES AND SECURITY AGREEMENT
WITH BLANKET FLOATING LIEN
AGREEMENT, dated as of March 5, 1990 between Tucker Federal Savings & Loan
Association having its principal place of business at 2355 Main Street, Tucker,
GA 30085-0086 ("Member") and the Federal Home Loan Bank of Atlanta, 1475
Peachtree Street, N. E., Atlanta, Georgia 30309 ("Bank").
WHEREAS, the Member desires from time to time to participate in the Bank's
credit programs under the terms of this Agreement, and the Bank is authorized to
extend credit to the Member pursuant to the provisions of the Federal Home Loan
Bank Act, as now and hereafter amended (the "Act"), and the regulations and
guidelines of the Federal Housing Finance Board (the "Board") or any successor
entity now and hereafter in effect (collectively, the "Regulations"); and
WHEREAS, the Bank requires that advances by the Bank be secured pursuant to
this Agreement and the Member agrees to provide the security the Bank requests
in accordance with this Agreement.
NOW THEREFORE, the Member and the Bank agree as follows:
ARTICLE I: DEFINITIONS
Section 1.01 Definitions. As used herein, the following terms shall have the
following meanings:
(A) "Advance" or "Advances" means any and all loans or other extensions of
credit, including all Commitments, heretofore, now or hereafter granted by
the Bank to, on behalf of, or for the account of, the Member.
(B) "Application" means a writing, signed by the Member, and in such form
or forms as shall be specified by the Bank from time to time, by which the
Member requests, and which if executed by the Bank shall together with this
Agreement evidence the terms of, an Advance or a commitment for an Advance.
(C) "Capital Stock" means all of the capital stock of the Bank held by the
Member and all payments which have been or hereafter are made on account of
subscriptions to and all unpaid dividends on such capital stock.
(D) "Collateral" means all property, including the proceeds thereof,
heretofore assigned, transferred or pledged to the Bank by the Member as
collateral for Advances or other extensions of credit prior to the date
hereof, all Capital Stock, and First Mortgage Collateral, including the
proceeds thereof, which is now or hereafter pledged to the Bank pursuant to
Section 3.01 hereof.
(E) "Collateral Maintenance Level" means the aggregate dollar amount equal
to such percentage(s) as the Bank may specify from time to time of (1) the
outstanding amounts of all Advances; (2) with respect to each outstanding
Swap Transaction, the amount for which the Member is required to maintain
Collateral; and (3) any additional obligations and liabilities of the
Member to the Bank. The Bank may increase or decrease the Collateral
Maintenance Level at any time.
(F) "Commitment" or "Commitments" means any and all agreements under which
the Bank is contractually obligated to make a loan to, or to make a future
payment on behalf of or for the account of, the Member (but excluding any
obligations that the Bank may now or hereafter have to honor items or
transfer orders under a depository or similar agreement between the Bank
and the Member), regardless of whether such obligation is contingent in
whole or in part, including, without limitation, letters of credit issued
for the account of the Member.
<PAGE> 2
(G) "Confirmation of Advance" means a writing or machine readable
electronic transmission, in such form or forms as the Bank may generate
from time to time, by which the Bank agrees to and confirms the Member's
request for an Advance or a commitment for an Advance and which, together
with this Agreement, shall evidence the terms of such Advance or
commitment.
(H) "First Mortgage Collateral" means First Mortgage Documents (excluding
securitized loans and participation or other fractional interests therein)
and all ancillary security agreements, policies and certificates of
insurance or guarantees, evidences of recordation, applications,
underwriting materials, surveys, appraisals, approvals, permits, notices,
opinions of counsel and loan servicing data and all other electronically
stored and written records or materials relating to the loans evidenced or
secured by the First Mortgage Documents.
(I) "First Mortgage Documents" means mortgages and deeds of trust (herein
"mortgages") secured by a first lien on one-to-four unit single family
dwellings, and all notes, bonds or other instruments (herein "mortgage
notes") evidencing fully disbursed loans secured by such mortgages and any
endorsements or assignments thereof to the Member.
(J) "Indebtedness" means all indebtedness, now or hereafter outstanding, of
the Member to the Bank, including, without limitation, all Advances and all
other obligations to pay and liabilities of the Member to the Bank.
(K) "Lendable Collateral Value" means an amount equal to such percentage as
the Bank shall from time to time, in its sole discretion, ascribe to the
market value or unpaid principal balances of items of Qualifying
Collateral.
(L) "Qualifying Collateral" means First Mortgage Collateral which: (i) is
eligible as collateral that can be used to support the origination of
Advances under the terms and conditions of the Act and the Regulations, and
satisfies such other requirements as may be established by the Bank; (ii)
is owned by the Member free and clear of any liens, encumbrances or other
interests other than the assignment to the Bank hereunder, (iii) has not
been in default within the most recent 12-month period excepting only
payments which are not past due except as permitted by the Bank's Credit
Policy; (iv) relates to residential real property on which is located a
one-to-four unit single family dwelling that is covered by fire and hazard
insurance in an amount at least sufficient to discharge the mortgage loan
in full in case of loss and as to which all real estate taxes are current;
(v) has not been classified as substandard, doubtful, or loss by the
Member's regulatory authority or its management; and (vi) does not secure
an indebtedness on which any director, officer, employee, attorney or agent
of the Member or any Federal Home Loan Bank is personally liable unless the
acceptance of such Collateral by the Bank has been specifically approved by
formal resolution of the Board.
(M) "Swap Transaction" means an interest rate swap, interest rate cap,
floor or collar, currency exchange transaction or similar transaction
entered into between the Bank and the Member.
ARTICLE II: ADVANCES AGREEMENT
Section 2.01 Advance Documentation. The Member may apply for Advances and
commitments for Advances by completing and submitting an Application to the Bank
or by telephonic or other unsigned communication. The Bank may suspend the use
of telephonic applications at any time. The terms of each Advance or commitment
shall be conclusively established by this Agreement and by either (i) the
Member's Application when such Application is executed by the Bank without any
change, or (ii) in the case of an Application received, completed or modified by
the Bank pursuant to a telephonic or other unsigned communication from the
Member ("telephonic application"), by a Confirmation of Advance generated by the
Bank. The Member shall be estopped from asserting any claim or defense with
respect to the terms applicable to an Advance or a commitment for an Advance
entered into pursuant to a telephonic application unless, within two (2)
business days of receipt of the Bank's Confirmation of Advance, the Member
delivers to the Bank a written notice specifying the disputed term(s) or
<PAGE> 3
condition(s) of the Advance or commitment. Within three (3) business days of the
date of the Member's receipt of the Bank's Confirmation of Advance, the Member
shall prepare, sign and submit to the Bank a completed Application conforming to
such Confirmation of Advance. Upon the request of the Bank, the Member shall
sign and deliver to the Bank a promissory note or notes in such form as the Bank
may reasonably require evidencing any Advance. Unless otherwise agreed to by the
Bank in writing, each Advance shall be made by crediting the Member's demand
deposit account(s) with the Bank.
Section 2.02 Repayment of Advances. The Member agrees to repay each Advance in
accordance with this Agreement and the terms and conditions of the Application
or Confirmation of Advance evidencing such Advance. Interest shall be paid on
each Advance at the times specified by the Bank in writing and shall be charged
for each day that an Advance is outstanding at the rate applicable to the
Advance. The Member shall pay to the Bank, immediately and without demand,
interest on any past due principal of and interest on any Advance at an interest
rate which is the greater of (i) the rate applicable to such Advance plus one
percent (1%) or (ii) the rate in effect and being charged by the Bank from time
to time on overdrafts on demand deposit accounts of its Members, but in no event
more than any applicable limit set by the Regulations. The Member shall ensure
that, on any day on which any payment is due to the Bank with respect to
Advances or other Indebtedness, the Member's demand deposit account(s) with the
Bank has an available balance in an amount at least equal to the amounts then
due and payable to the Bank, and the Member hereby authorizes the Bank to debit
the Member's demand deposit account(s) with the Bank for all amounts due and
payable with respect to any Advance and for all other amounts due and payable
hereunder. In the event that the available balance in the Member's demand
deposit account(s) is insufficient to pay such due and payable amounts, the Bank
may, without notice to or request from the Member, apply any other deposits,
credits, or monies of the Member then in the possession of the Bank to the
payment of amounts due and payable. All payments with respect to Advances shall
be applied first to any fees or charges applicable thereto and to interest due
thereon, in such order as the Bank may determine, and then to any principal
amount thereof that is then due and payable.
Section 2.03 Right of Bank to Make Advances with Respect to Outstanding
Commitments. In the event that there are one or more outstanding Commitments at
the time of an Event of Default under Section 4.01 hereof, the Bank may at its
option, and without notice to or request from the Member, make an Advance by
crediting a special account of the Member with the Bank in an amount equal to
the outstanding Commitments. Amounts credited to such special account shall be
utilized by the Bank for the purpose of satisfying the Bank's obligations under
such Commitments. When all such obligations have expired or have been satisfied,
the Bank shall disburse the balance, if any, in such special account first to
the satisfaction of any amounts then due and owing by the Member to the Bank and
then to the Member or its successors in interest. Advances made pursuant to this
Section 2.03 shall be payable on demand and shall bear interest from the date
the same shall be made until paid at the rate in effect and being charged by the
Bank from time to time on overdrafts on demand deposit accounts of its members,
but in no event more than any applicable limit set by the Regulations.
Section 2.04 Amortization of Advances. In the event that the Bank determines
that the creditworthiness of the Member, as determined from time to time by the
Bank, does not meet the requirements of the Bank, the Bank may, without
limitation of the Bank's rights upon the occurrence of an Event of Default
hereunder, require amortization by means of monthly payments of principal on all
or part of the Member's Advances. The Member agrees to begin making such monthly
amortization payments, upon thirty (30) days written notice from the Bank, in
such monthly amounts as the Bank shall specify in writing. No monthly payment
shall exceed ten percent (10%) of the original principal balance of the Advance
being amortized. Unless otherwise specified by the Bank in writing to the
Member, such monthly amortizing payments shall not extend or modify the maturity
date or other scheduled payment dates applicable to the Advance being amortized.
<PAGE> 4
ARTICLE III: SECURITY AGREEMENT
Section 3.01 Creation of Security Interest. As security for all Indebtedness,
the Member hereby assigns, transfers, and pledges to the Bank, and grants to the
Bank a security interest in all of the Capital Stock and First Mortgage
Collateral now or hereafter owned by the Member, and all proceeds thereof,
provided, however, that First Mortgage Collateral that is encumbered or disposed
of by the Member in conformity with the requirements of Section 3.04(A) hereof
shall not be subject to the security interest created hereunder. Without
limitation of the foregoing, all property heretofore assigned, transferred or
pledged by the Member to the Bank as collateral securing Indebtedness and other
obligations of the Member prior to the date hereof is hereby assigned,
transferred and pledged to the Bank as Collateral hereunder.
Section 3.02 Additional Collateral and Documentation; Required Substitution of
"Advances, Specific Collateral Pledge And Security Agreement". The Member agrees
to assign, transfer and pledge Collateral in conformity with the Bank's
"Advances, Specific Collateral Pledge and Security Agreement" (i) at any time
the Member shall not have assigned, transferred, or pledged to the Bank under
this Agreement First Mortgage Collateral which is Qualifying Collateral and
which has a Lendable Collateral Value at least equal to the Collateral
Maintenance Level or (ii) at any time the Member does not qualify under the
Bank's criteria for member eligibility to secure Advances under this Agreement
or (iii) if the Bank determines in good faith that the value of the Member's
Qualifying Collateral may not be adequately ascertained, or (iv) at any time the
Bank deems itself insecure. In addition, the Member agrees to maintain such
additional amounts of Collateral (which may be Collateral that is not Qualifying
Collateral) as may be required by the Bank in order to protect its security
position with respect to outstanding indebtedness. If the Bank requires the
Member to substitute for this Agreement the Bank's "Advances, Specific
Collateral Pledge and Security Agreement," the Member must execute that
agreement and comply with the requirements of that agreement in all respects. To
assure that the Member provides to the Bank Qualifying Collateral with a
Lendable Collateral Value at least equal to the Collateral Maintenance Level at
all times, the Bank may require, in connection with the substitution of
agreements, that the Member make, execute, record, and deliver to the Bank
additional agreements, financing statements, notices, assignments, listings,
powers, and other documents with respect to such Collateral and the Bank's
security interest therein.
Section 3.03 Member's Representation and Warranties Concerning Collateral. The
Member represents and warrants to the Bank, as of the date hereof and the date
of each Advance hereunder, as follows:
(A) The Member owns and has marketable title to the Collateral and has the
right and authority to grant a security interest in the Collateral and to
subject all of the Collateral to this Agreement;
(B) The information given from time to time by the Member as to each item
of Collateral is true, accurate and complete in all material respects;
(C) All the Collateral meets the standards and requirements with respect
thereto from time to time established by the Act, the Regulations and the
Bank;
(D) The lien of each mortgage pledged as Collateral hereunder is a first,
prior, and perfected lien under applicable law;
(E) The Member has not conveyed or otherwise created, and there does not
otherwise exist, any participation interest or other direct, indirect,
legal, or beneficial interest in any Collateral on the part of anyone other
than the Bank and the Member;
(F) Except as may be approved in writing by the Bank, no account debtor or
other obligor owing any obligation to the Member with respect to any item
of First Mortgage Collateral has or will have any defenses, offsetting
claims, or other rights affecting the right of the Member or the Bank to
enforce such mortgage, mortgage note or promissory obligation, and no
defaults (or conditions that, with the passage of time or the giving of
notice or both, would constitute a default) exist under any such writings;
and
<PAGE> 5
(G) No part of any real property or interest in real property that is the
subject of First Mortgage Collateral which is Qualifying Collateral
contains or is subject to the effects of toxic or hazardous materials or
other hazardous substances (including those defined in the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended,
42 U.S.C. Section 9601, et seq.; the Hazardous Materials Transportation
Act, 49 U.S.C. Section 1801 et seq.; the Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901 et seq.; and in the regulations
adopted and publications promulgated pursuant to said laws) the presence of
which could subject the bank to any liability under applicable state or
Federal law or local ordinance either at any time that such property is
pledged to the Bank or upon the enforcement by the Bank of its security
interest herein. The Member hereby agrees to indemnify and hold the Bank
harmless against all costs, claims, expenses, damages, and liabilities
resulting in any way from the presence or effects of any such toxic or
hazardous substances or materials in, on, or under any real property or
interest in real property that is subject to or included in the Collateral.
Section 3.04 Collateral Maintenance Requirement.
(A) The Member shall at all times maintain as Collateral an amount of
Qualifying Collateral which has a Lendable Collateral Value that is at
least equal to the then current required Collateral Maintenance Level. The
Member shall not assign, pledge, transfer, create any security interest in,
sell, or otherwise dispose of any Collateral if: (i) such Collateral has
been specified or identified pursuant to Section 3.05 hereof or is held by
or on behalf of the Bank pursuant to Section 3.06 hereof, or the Bank has
otherwise perfected its security interest in such Collateral; or (ii) at
the time of or immediately after such action, the Member is not or would
not be in compliance with the collateral maintenance requirements of the
first sentence of this Section 3.04 (A) or is otherwise in default under
this Agreement.
(B) Except for Collateral delivered pursuant to Section 3.06 hereof,
Collateral shall be held by the Member in trust for the benefit of, and
subject to the direction and control of, the Bank and will be physically
safeguarded by the Member with at least the same degree of care as the
Member uses in physically safeguarding its other property. Without
limitation of the foregoing, the Member shall take all action necessary or
desirable to protect and preserve the Collateral and the Bank's interest
therein, including without limitation the maintaining of insurance on
property securing First Mortgage Collateral (such policies and certificates
of insurance or guaranty relating to such mortgages are herein called
"insurance"), the collection of payments under all mortgages and under all
insurances, and otherwise assuring that all mortgages are serviced in
accordance with the standards of a reasonable and prudent mortgagee.
(C) If any Collateral that was Qualifying Collateral ceases to be
Qualifying Collateral and, after such event, the Member is not or would not
be in compliance with the collateral maintenance requirements of the first
sentence of this Section 3.04(A), the Member shall promptly notify the Bank
in writing of that fact and, if so requested by the Bank, of the reason
that the Collateral has ceased to be Qualifying Collateral. If such
Collateral was specified or identified pursuant to Section 3.05 hereof, or
delivered to the Bank pursuant to Section 3.06 hereof, the Member shall
promptly specify, identify, or deliver, as the case may be, other
Qualifying Collateral having at least the same Lendable Collateral Value as
the Collateral so requested to be withdrawn.
(D) The Bank may review the form and sufficiency of all documents
pertaining to the Collateral. Such documents must be satisfactory to the
Bank and, if not, such Collateral may not be acceptable as Qualifying
Collateral or may have a Lendable Collateral Value applied thereto that is
less than the Lendable Collateral Value otherwise applicable under the
Bank's Credit Policy, as the Bank may specify. The Bank may require that
the Member make any or all documents pertaining to the Collateral
available to the Bank for its inspection and approval.
<PAGE> 6
Section 3.05 Specification and Identification of Collateral.
(A) Upon the Bank's written or oral request, or at such times as shall be
necessary to satisfy the requirements of the Bank, or promptly, at any time
that the Member becomes subject to any mandatory collateral specification
requirements that may be established in writing by the Bank and in any case
from time to time thereafter until such time as may be agreed upon by the
Bank in writing, the Member shall deliver to the Bank a status report and
accompanying schedules, all in the form(s) prescribed by the Bank,
specifying and describing the First Mortgage Collateral that is certified
by the Member to be Qualifying Collateral.
(B) The Member shall hold each set of First Mortgage Documents which is a
part of such specified Collateral in a separate file folder with each file
folder clearly labeled with the loan identification number and the name of
the borrower(s). Each such file folder shall be clearly marked or stamped
with the statement: "The Deed of Trust/Mortgage and Note Relating to This
Loan Have Been Assigned to the Federal Home Loan Bank of Atlanta." If so
requested by the Bank, the Member shall physically segregate any First
Mortgage Collateral specified in each status report delivered pursuant to
subsection (A) of this Section 3.05 from all other property of the Member
in a manner satisfactory to the Bank.
Section 3.06 Delivery of Collateral.
(A) Upon the Bank's written or oral request, or promptly at any time that
the Member becomes subject to any mandatory collateral delivery
requirements that may be established in writing by the Bank, and until such
time as may be agreed upon by the Bank in writing, the Member shall deliver
to the Bank, or to a custodian designated by the Bank, such First Mortgage
Collateral as may be necessary so that the Lendable Collateral Value of
Qualifying Collateral held by the Bank, or such custodian, meets or exceeds
the Collateral Maintenance Level at all times. Collateral delivered to the
Bank shall be endorsed or assigned, as appropriate, in recordable form by
the Member to the Bank, as specified by the Bank. Unless otherwise
indicated by the Bank, such endorsements or assignments may be in blanket
form provided that there shall be separate endorsements and assignments for
each county or recording district in which the real property covered by an
item of First Mortgage Collateral is located. The Member need only deliver
the First Mortgage Documents relating to the First Mortgage Collateral
delivered hereunder together with recordable assignments of the mortgages,
unless otherwise directed by the Bank. Concurrently with the initial
delivery of Collateral, the Member shall deliver to the Bank a status
report and accompanying schedules, all in the form(s) prescribed by the
Bank, specifying and describing the Collateral held by the Bank or its
custodian and certifying that such Collateral is Qualifying Collateral.
(B) The Member agrees to pay to the Bank such reasonable fees and charges
as may be assessed by the Bank to cover the Bank's overhead and other costs
relating to the receipt, holding, redelivery and reassignment of Collateral
and to reimburse the Bank upon request for all recording fees and other
reasonable expenses, disbursements and advances incurred or made by the
Bank in connection therewith (including the reasonable compensation and the
expenses and disbursements of any custodian, consultant or appraiser that
may be appointed by the Bank hereunder, and the agents and legal counsel of
the Bank and of such custodian).
(C) The Member shall, upon request of the Bank, immediately take such other
actions as the Bank shall deem necessary or appropriate to perfect the
Bank's security interest in the Collateral or otherwise to obtain,
preserve, protect, enforce or collect the Collateral or the proceeds
thereof.
<PAGE> 7
Section 3.07 Withdrawal of Collateral. Upon receipt by the Bank of writings in
the form specified by the Bank constituting (i) a request from the Member for
the withdrawal of Collateral which has been specified or identified pursuant to
Section 3.05 hereof or has been delivered pursuant to Section 3.06 hereof, or as
to which the Bank has otherwise perfected its security interest, (ii) a detailed
listing of the Collateral to be withdrawn, and (iii) a certificate of a
responsible officer of the Member certifying as to the Qualifying Collateral
that is specified and identified by the Member or held by the Bank, as
appropriate, after such withdrawal, and upon the Bank's determination that the
Lendable Collateral Value of the remaining Qualifying Collateral is not less
than the current required Collateral Maintenance Level, the Bank shall promptly
redeliver, release or reassign to the Member the Collateral specified in the
Member's listing of the Collateral to be withdrawn, provided that the Collateral
requested to be withdrawn is not required by the Bank to be maintained as
additional Collateral. Notwithstanding anything to the contrary herein
contained, while an Event of Default hereunder shall have occurred and be
continuing, or at any time that the Bank reasonably and in good faith deems
itself insecure, the Member may not obtain any such withdrawal.
Section 3.08 Reports; Collateral Audits; Access.
(A) The Member shall furnish to the Bank annually, and at such other times
as the Bank may request, an audit report with respect to the Member's
Collateral and Qualifying Collateral, prepared by the Member's external
auditor and in form and substance acceptable to the Bank, and such
financial reports and other information relating to the Member's financial
condition as the Bank may reasonably request.
(B) The Member shall furnish to the Bank at such times as the Bank may
request, or as necessary to satisfy the requirements of the Bank, a status
report with respect to the Member's Collateral prepared by the Member in
form and substance acceptable to the Bank, and as of a date within two
weeks of the report due date. The status report shall be a written report
covering such matters regarding the Collateral as the Bank may require,
including listings of mortgages and unpaid principal balances thereof and
certifications concerning the status of payments on mortgages and of taxes
and insurance on property securing mortgages.
(C) If so requested by the Bank, the Member shall promptly report to the
Bank any event which reduces the principal balance of any mortgage or other
item of Collateral by five percent (5%) or more, whether by prepayment,
foreclosure sale, insurance or guaranty payment or otherwise.
(D) The Member shall give the Bank access at all reasonable times to
Collateral in the Member's possession and to the Member's books and records
of account relating to such Collateral, for the purpose of the Bank's
examining, verifying or reconciling the Collateral and the Member's reports
to the Bank thereon.
(E) If the Member becomes aware or has reason to believe that the Lendable
Collateral Value of the Member's Qualifying Collateral has fallen below the
Collateral Maintenance Level, or that a contingency exists which with the
lapse of time could result in the Member failing to meet the Collateral
Maintenance Level, the Member shall immediately notify the Bank.
(F) All Collateral and any matters relating thereto shall be subject to
audit and verification by or on behalf of the Bank. Such audits and
verifications may occur without notice during the Member's normal business
hours or upon reasonable notice at such other times as the Bank may
reasonably request. The Member shall provide access to, and shall make
adequate working facilities available to, the representatives or agents of
the Bank for purposes of such audits. Reasonable fees and charges may be
assessed to the Member by the Bank to cover overhead and other costs
related to such audit and verification.
<PAGE> 8
(G) Notwithstanding anything to the contrary, the Member shall be solely
responsible for the accuracy and adequacy of all information and data in
each audit or status report (or other writing specifying and describing any
Collateral) submitted to the Bank, regardless of the form in which
submitted. The Bank shall have no duty to make any independent examination
of or calculation with respect to the information submitted in an audit or
status report (or in any written schedule that may be submitted by the
Member) and, without limiting the generality of the foregoing, the Bank
makes no representation or warranty as to the validity, accuracy, or
completeness of any information contained in any written records of the
Bank concerning, or of any response to, such audit or status report.
Section 3.09 Additional Documentation. The Member shall make, execute, record
and deliver to the Bank such financing statements, notices, assignments,
listings, powers, and other documents with respect to the Collateral and the
Bank's security interest therein and in such form as the Bank may reasonably
require.
Section 3.10 Bank's Responsibilities as to Collateral. The Bank's duty as to
the Collateral shall be solely to use reasonable care in the custody and
preservation of the Collateral in its possession, which shall not include any
steps necessary to preserve rights against prior parties nor the duty to send
notices, perform services, or take any action in connection with the management
of the Collateral. The Bank shall not have any responsibility or liability for
the form, sufficiency, correctness, genuineness or legal effect of any
instrument or document constituting a part of the Collateral, or any signature
thereon or the description or misdescription, or value of property represented,
or purported to be represented, by any such document or instrument. The Member
agrees that any and all Collateral may be removed by the Bank from the state or
location where situated, and may be subsequently dealt with by the Bank as
provided in this Agreement.
Section 3.11 Bank's Rights as to Collateral; Power of Attorney. At any time or
times, at the expense of the Member, the Bank may in its discretion, before or
after the occurrence of an Event of Default as defined in Section 4.01 hereof,
in its own name or in the name of its nominee or of the Member, do any or all
things and take any and all actions that are pertinent to the protection of the
Bank's interest hereunder and are lawful under the laws of the State of Georgia,
including, but not limited to, the following:
(A) Terminate any consent given hereunder;
(B) Notify obligors on any Collateral to make payments thereon directly to
the Bank;
(C) Endorse any Collateral in the Member's name;
(D) Enter into any extension, compromise, settlement, or other agreement
relating to or affecting any Collateral;
(E) Take any action the Member is required to take or which is otherwise
reasonably necessary to (1) sign and record a financing statement or
otherwise perfect a security interest in any or all of the Collateral or
(2) to obtain, preserve, protect, enforce or collect the Collateral;
(F) Take control of any funds or other proceeds generated by the Collateral
and use the same to reduce indebtedness as it becomes due; and
(G) Cause the Collateral to be transferred to its name or the name of its
nominee.
<PAGE> 9
The Member hereby appoints the Bank as its true and lawful attorney, for and on
behalf of the Member and in its name, place and stead, to prepare, execute and
record endorsements and assignments to the Bank of all or any item of
Collateral, giving or granting to the Bank, as such attorney, full power and
authority to do or perform every lawful act necessary or proper in connection
therewith as fully as the Member might or could do. The Member hereby ratifies
and confirms all that the Bank shall lawfully do or cause to be done by virtue
of this special power of attorney. This special power of attorney is granted for
a period commencing on the date hereof and continuing until the discharge of all
indebtedness and all obligations of the Member hereunder regardless of any
default by the Member, is coupled with an interest, and is irrevocable for the
period granted.
Section 3.12 Subordination of Other Loans to First Mortgage Collateral. The
Member hereby agrees that all mortgage notes which are part of the First
Mortgage Collateral ("pledged notes") shall have priority in right and remedy
over any other loans, whenever made, and, however evidenced, which are also
secured by the mortgages or security agreements securing the pledged notes. The
pledged notes shall be satisfied out of the property (or proceeds thereof)
covered by such mortgages or security agreements before any payment is made on
the loans which are not part of the Collateral. To this end, the Member hereby
subordinates the lien of such mortgages and security agreements with respect to
such other loans to the lien of such mortgages and security agreements with
respect to the pledged notes. The Member further agrees to retain possession of
all notes or other instruments evidencing such other loans and not to pledge,
assign, or transfer the same, except insofar as such other loans may be pledged
to the Bank as part of the Collateral.
Section 3.13 Proceeds of Collateral. The Member, as the Bank's agent, shall
collect all payments when due on all Collateral. If the Bank so requires, the
Member shall hold such collections separate from its other monies in one or more
designated cash collateral accounts maintained at the Bank and apply them to the
reduction of indebtedness as it becomes due; otherwise, the Bank consents to the
Member's use and disposition of all such collections.
ARTICLE IV: DEFAULT; REMEDIES
Section 4.01 Events of Default; Acceleration. Upon the occurrence of any of the
following events or conditions of default ("Event of Default"), the Bank may at
its option, by a notice to the Member, declare all or any part(s) of the
Indebtedness and accrued interest thereon, including any prepayment fees or
charges which are applicable to any Advance, to be immediately due and payable
without presentment, demand, protest, or any further notice:
(A) Failure of the Member to pay when due any interest on or principal of
any Advance; or
(B) Failure of the Member to perform any promise or obligation or to
satisfy any condition or liability contained herein, in any Application, in
any Confirmation of Advance or in any other agreement to which the Member
and the Bank are parties; or
(C) Evidence coming to the attention of the Bank that any representations,
statements, or warranties made or furnished in any manner to the Bank by or
on behalf of the Member in connection with any Advance or Swap Transaction,
any specification or description of Qualifying Collateral or any report or
certification concerning the status, value, or principal balance of any
item of Collateral was false in any material respect when made or
furnished; or
(D) Failure of the Member to maintain adequate Qualifying Collateral free
of any encumbrances or claims as required herein; or
<PAGE> 10
(E) The issuance of any tax, levy, seizure, attachment, garnishment, levy
of execution, or other process with respect to the Collateral; or
(F) Any suspension of payment by the Member to any creditor of sums due or
the occurrence of any event which results in another creditor having the
right to accelerate the maturity of any indebtedness of the Member under
any security agreement, indenture, loan agreement, or comparable
undertaking; or
(G) Appointment of a conservator, receiver, or similar official for the
Member or any subsidiary of the Member, of the Member's property, entry of
a judgment or decree adjudicating the Member or any subsidiary of the
Member insolvent or bankrupt or an assignment by the Member or any
subsidiary of the Member for benefit of creditors; or
(H) Sale by the Member of all or a material part of the Member's assets or
the taking of any other action by the Member to liquidate or dissolve; or
(I) Termination for any reason of the Member's membership in the Bank, or
the Member's ceasing to be a type of entity that is eligible under the Act
to become a member of the Bank; or
(J) Merger, consolidation or other combination of the Member with an entity
which is not a member of the Bank if the nonmember entity is the surviving
entity; or
(K) With respect to Advances made pursuant to Section 11(g)(4) of the Act,
if the creditor liabilities of the Member, excepting liabilities to the
Bank, are increased in any manner to an amount exceeding five percent (5%)
of the Member's net assets; or
(L) The Bank reasonably and in good faith determines that a material
adverse change has occurred in the financial condition of the Member from
that disclosed at the time of the making of any Advance or from the
condition of the Member as theretofore most recently disclosed to the Bank.
Section 4.02 Remedies. Upon the occurrence of any Event of Default, the Bank
shall have all of the rights and remedies provided by applicable law which shall
include, but not be limited to, all of the remedies of a secured party under the
Uniform Commercial Code as in effect in the State of Georgia. In addition, the
Bank may take immediate possession of any of the Collateral or any part thereof
wherever the same may be found. The Bank may sell, assign and deliver the
Collateral or any part thereof at public or private sale for such price as the
Bank deems appropriate without any liability for any loss due to decrease in the
market value of the Collateral during the period held. The Bank shall have the
right to purchase all or part of the Collateral at such sale. If the Collateral
includes insurance or securities which will be redeemed by the issuer upon
surrender, or any accounts or deposits in the possession of the Bank, the Bank
may realize upon such Collateral without notice to the Member. If any
notification of intended disposition of any of the Collateral is required by
applicable law, such notification shall be deemed reasonable and properly given
if given as provided by applicable law or in accordance with Section 5.06 hereof
at least 5 days before any such disposition. The proceeds of any sale shall be
applied in the order that the Bank, in its sole discretion, may choose. The
Member agrees to pay all the costs and expenses of the Bank in the collection of
the Indebtedness and enforcement of the Bank's rights and remedies in case of
default, including, without limitation, reasonable attorneys' fees. The Bank
shall, to the extent required by law, apply any surplus, after (i) payment of
the Indebtedness, (ii) provision for repayment to the Bank of any amounts to be
paid or advanced under Outstanding Commitments, and (iii) payment of all costs
of collection and enforcement, to the claims of person(s) legally entitled
thereto, with any remaining surplus paid to the Member. The Member shall be
liable to the Bank for any deficiency remaining.
<PAGE> 11
Section 4.03 Payment of Prepayment Charges. Any prepayment fees or charges
applicable to an Advance shall be payable at the time of any voluntary or
involuntary payment of all or part of the principal of such Advance prior to the
originally scheduled maturity thereof, including without limitation payments
that are made as a part of a liquidation of the Member or that become due by
operation of law or as a result of an acceleration pursuant to Section 4.01
hereof, whether such payment is made by the Member, by a conservator, receiver,
liquidator or trustee of or for the Member, or by any successor to or any
assignee of the Member.
ARTICLE V: MISCELLANEOUS
Section 5.01 General Representations and Warranties by the Member. The Member
hereby represents and warrants that, as of the date hereof and the date of each
Advance hereunder:
(A) The Member is not, and neither the execution of nor the performance of
any of the transactions or obligations of the Member under this Agreement
shall, with the passage of time, the giving of notice or otherwise, cause
the Member to be: (i) in violation of its charter or articles of
incorporation, by-laws, the Act or the Regulations, any other law or
administrative regulation, or any court decree; or (ii) in default under or
in breach of any material indenture, contract or other instrument or
agreement to which the Member is a party or by which it or any of its
property is bound.
(B) The Member has full corporate power and authority and has received all
corporate and governmental authorizations and approvals (including without
limitation those required under the Act and the Regulations) as may be
required to enter into and perform its obligations under this Agreement, to
borrow each Advance and to obtain each commitment for Advance.
(C) The information given by the Member in any document provided, or in any
oral statement made, in connection with an application or request for an
Advance or commitment for Advance, is true, accurate and complete in all
material respects.
Section 5.02 Assignment. The Bank may assign or negotiate to any other Federal
Home Loan Bank or to any other person or entity, with or without recourse, any
indebtedness of the Member or participations therein, and the Bank may assign or
transfer all or any part of the Bank's right, title, and interest in and to this
Agreement and may assign and deliver the whole or any part of the Collateral to
the transferee, which shall succeed to all the powers and rights of the Bank in
respect thereof, and the Bank shall thereafter be forever relieved and fully
discharged from any liability or responsibility with respect to the transferred
Collateral. The Member may not assign or transfer any of its rights or
obligations hereunder without the express prior written consent of the Bank.
Section 5.03 Discretion of the Bank to Grant or Deny Advances. Nothing contained
herein or in any documents describing or setting forth the Bank's credit program
and credit policies shall be construed as an agreement or commitment on the part
of the Bank to grant Advances or extend commitments for Advances hereunder, the
right and power of the Bank in its discretion to either grant or deny any
Advance or commitment for an Advance requested hereunder being expressly
reserved. The determination by the Bank of Lendable Collateral Value shall not
constitute a determination by the Bank that the Member may obtain Advances or
commitments for Advances in amounts up to such Lendable Collateral Value.
Section 5.04 Amendment; Waivers. No modification, amendment or waiver of any
provision of this Agreement or consent to any departure therefrom shall be
effective unless in a writing executed by a responsible officer of the party
against whom such change is asserted and shall be effective only in the specific
instance and for the purpose of which given. No notice to or demand on the
Member in any case shall entitle the Member to any other or further notice or
demand in the same, or similar or other
<PAGE> 12
circumstances. Any forbearance, failure or delay by the Bank in exercising any
right, power or remedy hereunder shall not be deemed to be a waiver thereof, and
any single or partial exercise by the Bank of any right, power or remedy
hereunder shall not preclude the further exercise thereof. Every right, power
and remedy of the Bank shall continue in full force and effect until
specifically waived by the Bank in writing.
Section 5.05 Jurisdiction; Legal Fees. In any action or proceeding brought by
the Bank or the Member in order to enforce any right or remedy under this
Agreement, the parties hereby consent to, and agree that they will submit to,
the jurisdiction of the United States District Court for the Northern District
of Georgia or, if such action or proceeding may not be brought in Federal court,
the jurisdiction of the courts of the State of Georgia located in the City of
Atlanta. The Member agrees that if any action or proceeding is brought by the
Member seeking to obtain any legal or equitable relief against the Bank under or
arising out of this Agreement or any transaction contemplated hereby and such
relief is not granted by the final decision, after any and all appeals, of a
court of competent jurisdiction, the Member will pay all attorneys' fees and
other costs incurred by the Bank in connection therewith.
Section 5.06 Notices. Except as provided in the last sentence of this Section,
any written notice, advice, request, consent or direction given, made or
withdrawn pursuant to this Agreement shall be either in writing or transmitted
electronically and reproduced mechanically by the addressee, and shall be given
by first class mail, postage prepaid, by telecopy or other facsimile
transmission, or by private courier or delivery service. All non-oral notices
shall be deemed given when actually received at the principal office of the Bank
or the Member, as appropriate. All notices shall be designated to the attention
of an office or section of the Bank or of the Member if the Bank or the Member
has made a request for the notice to be so addressed. Any notice by the Bank to
the Member pursuant to Sections 3.05 or 3.06 hereof may be oral and shall be
deemed to have been duly given to and received by the Member at the time of the
oral communication.
Section 5.07 Signatures of Member. For purposes of this Agreement, documents
shall be deemed signed by the Member when a signature of an authorized
signatory or an authorized facsimile thereof appears on the document. The Bank
may rely on any signature or facsimile thereof which reasonably appears to the
Bank to be the signature of an authorized person, including signatures appearing
on documents transmitted electronically to and reproduced mechanically at the
Bank. The Secretary or an Assistant Secretary of the Member shall from time to
time certify to the Bank on forms provided by the Bank the names and specimen
signatures of the persons authorized to apply on behalf of the Member to the
Bank for Advances and commitments for Advances and otherwise act for and on
behalf of the Member in accordance with this Agreement. Such certifications are
incorporated herein and made a part of this Agreement and shall continue in
effect until expressly revoked in writing by the Member notwithstanding that
subsequent certifications may authorize additional persons to act for and on
behalf of the Member.
Section 5.08 Applicable Law; Severability. In addition to the terms and
conditions set forth herein and in any application or confirmation of Advance
between the Bank and the Member, this Agreement and all Advances and all
commitments for Advances shall be governed by the statutory and common law of
the United States and, to the extent Federal law incorporates or defers to state
law, the laws (exclusive of the choice of law provisions) of the State of
Georgia. Notwithstanding the foregoing, the Uniform Commercial Code as in
effect in the State of Georgia shall be deemed applicable to this Agreement and
to any Advance hereunder and shall govern the attachment and perfection of any
security interest granted hereunder. In the event that any portion of this
Agreement conflicts with applicable law, such conflict shall not affect other
provisions of this Agreement which can be given effect without the conflicting
provision, and to this end the provisions of this Agreement are declared to be
severable.
<PAGE> 13
Section 5.09 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the successors and permitted assigns of the
Member and the Bank.
Section 5.10 Entire Agreement. This Agreement embodies the entire
agreement and understanding between the parties hereto relating to the subject
matter hereof and supersedes all prior agreements between such parties which
relate to such subject matter. Notwithstanding the above, rates of interest,
repayment schedules, and fees and other charges applicable to Advances and
commitments for Advances made by the Bank to the Member prior to the execution
of this Agreement shall continue to be governed exclusively by the terms of the
prior agreements pursuant to which such Advances and commitments for Advances
were made, provided, however, that Section 4.03 hereof shall apply to all
Advances.
WITNESS WHEREOF, Member and Bank have caused this Agreement to be
signed in their names by their duly authorized officers as of the date first
above mentioned.
Tucker Federal Savings and Loan Association
- --------------------------------------------------------------------------------
(Full Corporate Name of Member)
<TABLE>
<S> <C> <C>
By: /s/ Zelma B. Martin Zelma B. Martin, Sr. V.P., Treasurer
---------------------- ------------------------------------
(Authorized Signature) (Typed Name and Title of Signer)
By: /s/ Betty Tudor Betty Tudor, Exec. V.P., Secretary
---------------------- ------------------------------------
(Authorized Signature) (Typed Name and Title of Signer)
</TABLE>
(SEAL)
FEDERAL HOME LOAN BANK OF ATLANTA
<TABLE>
<S> <C> <C>
By: /s/ Carol Jackson Vice President
-------------------- ------------------------
(Authorized Officer) (Title)
By: /s/ William C. Buss Assistant Vice President
-------------------- ------------------------
(Authorized Officer) (Title)
</TABLE>
<PAGE> 14
FEDERAL HOME LOAN BANK OF ATLANTA
MEMBER ACKNOWLEDGEMENT
AND NOTARIZATION
STATE OF Georgia
------------------------
ss:
County of DeKalb
------------------------
On this 20th day of March, 1990, before me personally came Zelma B.
Martin and Betty Tudor, to me known, who, being by me duly sworn, did depose
and state that they are the Sr. V.P., Treasurer and Executive V.P., Secretary
of said Member; the Member described in and which executed the above
instrument; that they know the seal of said Member; that the seal affixed to
said instrument is such corporate seal; that it was so affixed by order of the
Board of Directors or other governing body of said Member; and that they signed
their names thereto by order of the Board of Directors or other governing body
of said Member and that said Zelma B. Martin and Betty Tudor acknowledged the
execution of said instrument to be the voluntary act and deed of said Member.
<TABLE>
<S> <C>
/s/ Colleen S. Capozza (SEAL)
- ---------------------------------------
Notary Public Signature
Notary Public, Gwinnett County, Georgia
My Commission Expires Sept. 5, 1993
Notary Public in and
for the State of Georgia
My commission expires: September 5, 1993
</TABLE>
<PAGE> 15
FEDERAL HOME LOAN BANK OF ATLANTA
ADDENDUM TO "AGREEMENT FOR ADVANCES AND SECURITY AGREEMENT WITH
BLANKET FLOATING LIEN"
MEMBER and BANK, as those terms are defined in the Agreement for
Advances and Security Agreement with Blanket Floating Lien ("Agreement") dated
as of September 7th, 1995, between the Member and the Bank, desire to modify
the Agreement to supplement the means by which the Member may provide security
to the Bank. Accordingly, the Member and the Bank have executed this Addendum
as of September 7th, 1995 and agree that it shall be a part of and modify the
Agreement, as Addendum No. 1 thereto, as follows:
A. Section 1.01 is amended to add the following terms as paragraphs
(N) through (Q):
(N) "Government and Agency Securities Collateral" means
mortgage-backed securities (including participation
certificates) issued by the Federal Home Loan Mortgage
Corporation or the Federal National Mortgage Association,
obligations guaranteed by the Government National Mortgage
Association, and obligations issued or guaranteed by the
United States or an agency thereof.
(O) "Other Mortgage Collateral" means Other Mortgage
Documents (including participation or other fractional
interests therein but not securitized loans) and all ancillary
security agreements, policies and certificates of insurance or
guarantees, evidences of recordation, applications,
underwriting materials, surveys, appraisals, approvals,
permits, notices, opinions of counsel and loan servicing data
and all other electronically stored and written records or
materials relating to the loans evidenced or secured by Other
Mortgage Documents.
(P) "Other Mortgage Documents" means mortgages secured by a
junior lien on one-to-four unit single family dwellings or by
a first lien on property improved by one or more multifamily
or commercial buildings and all mortgage notes evidencing
fully disbursed loans secured by such mortgages and any
endorsements or assignments thereof to the Member.
(Q) "Other Securities Collateral" means securities (other
than Government and Agency Securities Collateral) representing
unsubordinated interests in, or collaterlized by first lien
security interests in, both the interest and principal
payments on first lien residential mortgages.
Section 1.01 (D) is amended to substituted the following as its
text:
(D) "Collateral" means all property, including the proceeds
thereof, heretofore assigned, transferred or pledged to the
Bank by the Member as collateral for Advanced or other
extensions of credit prior to the date hereof, all Capital
Stock, and First Mortgage Collateral, Government and Agency
Securities Collateral, Other Mortgage Collateral, and Other
Securities Collateral, including the proceeds thereof, which
is now or hereafter pledged to the Bank prusuant to Section
3.01 hereof.
Section 1.01 (L) is amended to substitute the following as its
text:
(L) "Qualifying Collateral" means Collateral other than
Capital Stock which: (i) is eligible as collateral that can be
used to support the origination of Advances under the terms
and conditions of the Act and the Regulations, and satisfies
such other requirements as may be established by the Bank;
(ii) is owned by the Member free and clear of any liens,
encumbrances or other interests other than the assignment to
the Bank hereunder; (iii) has not been in default within the
most recent 12-month period, excepting only in the case of
First Mortgage Collateral and Other Mortgage Collateral
payments which are not past due except as permitted by the
Bank's Credit Policy: (iv) in the case of First Mortgage
Collateral and Other Mortgage Collateral, relates to improved
real property that is covered by fire and hazard insurance in
an amount at least sufficient to discharge the mortgage loan
in full in case of loss and as to which any real estate taxes
and any other charges which are or may become a lien superior
to the lien of the mortgage are current; (v) has not been
classified as substandard, doubtful, or loss by the Member's
regulatory authority or its management; (vi) in the case of
First Mortgage Collateral and Other Mortgage Collarteral does
not secure an indebtedness on which any director, officer,
employee, attorney or agent of the Member or any Federal Home
Loan Bank is personally liable unless the acceptance of such
Collateral by the Bank has been specifically approved by
formal resolution of the Board; and (vii) in the case of
Government and Agency Securities Collateral, Other Mortgage
Collateral, and Other Securities Collateral has been offered
by the Member to the Bank and specifically accepted by the
Bank as Qualifying Collateral.
1
<PAGE> 16
B. Section 3.01 is amended to add the following text at the end
of the Section: In addition, as security for all indebtedness,
the Member hereby assigns, transfers, and pledges to the Bank,
and grants to the Bank a security interest in: all of the
Government and Agency Securities Collateral, Other Mortgage
Collateral, and Other Securities Collateral now or hereafter
owned by the Member, and all proceeds thereof, which is
specified pursuant to Section 3.05 or delivered pursuant to
Section 3.06.
C. A new paragraph (A) is added to Section 3.02 as follows:
(A) The Bank may require the Member to provide
representations, warranties, and undertakings, in
addition to those contained herein, with respect to
the pledge hereunder of Collateral which is not First
Mortgage Collateral.
The original text of Section 3.02 is designated as paragraph
(B) and is amended in clause (i) of the first sentence so that
clause (i) reads:
... (i) at any time the Member shall not have assigned,
transferred, or pledged to the Bank under this Agreement
Qualifying Collateral which has a Lendable Collateral Value at
least equal to the Collateral Maintenance Level or (ii)...
D. Section 3.03 (D) is amended to read:
The lien of the First Mortgage and the Other Mortgage
Collateral on the real property securing the same is a first,
prior and perfected lien under applicable law, other than the
lien of those residential mortgages included in Other Mortgage
Collateral which are specifically offered to and accepted by
the Bank as mortgages secured by junior liens.
Sections 3.03 (F) and (G) are amended to insert the words "or
Other Mortgage Collateral" after the words "First Mortgage
Collateral" in those paragraphs.
E. Section 3.04 (A) is amended to insert the following after the
first sentence of the paragraph:
(A) The Member shall normally discharge this obligation
by maintaining First Mortgage Collateral. The Member
may discharge this obligation with Qualifying
Collateral that is not First Mortgage Collateral to
the extent that such Collateral is first offered to
and specifically accepted by the Bank. At any time
the Member does not own and maintain, in accordance
with this Agreement, First Mortgage Collateral that
is Qualifying Collateral with a Lendable Collateral
Value that is at least equal to the then required
Collateral Maintenance Level (or the Collateral
Maintenance Level to be required if any pending
member advance application is approved), the Member
shall deliver to the Bank a status report and
accompanying schedules, all in the form(s) prescribed
by the Bank, specifying and describing Government and
Agencies Security Collateral and/or Other Mortgage
Collateral and/or Other Securities Collateral in an
amount which, together with the First Mortgage
Collateral that is Qualifying Collateral, is
sufficient to satisfy the requirements of this
Section.
Section 3.04 (B) is amended to insert the words "and Other
Mortgage Collateral" after the words "First Mortgage
Collateral" in that paragraph.
F. Section 3.05 (A) is amended to delete the words "First
Mortgage" ahead of the word "collateral" in that paragraph.
Section 3.05 (B) is amended to insert the words "and Other
Mortgage Documents" and "and Other Mortgage Collateral" after
the words "First Mortgage Documents" and "First Mortgage
Collateral," respectively, in that paragraph.
G. The first sentence of Section 3.06 (A) of the Agreement is
amended by substituting the words "Qualifying Collateral" for
the words "First Mortgage Collateral."
Section 3.06 (A) is amended to insert the words "and Other
Mortgage Collateral" after the words "First Mortgage
Collateral" and by inserting the words "and Other Mortgage
Documents" after the words "First Mortgage Documents" in the
sentences of that paragraph which follow the first sentence.
Section 3.06 (C) is amended to read:
(C) With respect to any uncertified securities pledged to
the Bank as Collateral hereunder, the delivery
requirements contained in this Agreement shall be
satisfied by the transfer of a security interest in
such securities to the Bank, such transfer to be
effected in such manner and to be evidenced by such
documents as shall be reasonably specified by the
Bank.
Original paragraph (C) of Section 3.06 is designated paragraph
(D).
2
<PAGE> 17
H. Section 3.12 is amended to insert the words "and Other
Mortgage Collateral" after the words "First Mortgage
Collateral."
I. The first sentence of Section 5.10 of the Agreement is amended
to read:
This Agreement, together with any Addenda thereto executed by
the Bank and the Member, embody the entire agreement and
understanding between the parties hereto relating to the
subject matter hereof and supersedes all prior agreements
between such parties which relate to such subject matter.
IN WITNESS WHEREOF, Member and Bank have caused this Addendum to be
signed in their name by their duly authorized officers.
Tucker Federal Savings and Loan Association
- --------------------------------------------------------------------------------
(Full Corporate Name of Member)
By: LuAnn Durden LuAnn Durden Chief Financial Officer
---------------------- ----------------------------------------
(Authorized Signature) (Typed Name and Title of Signer)
By: Zelma B. Martin Zelma B. Martin Senior Vice Pres.
---------------------- ----------------------------------------
(Authorized Signature) (Typed Name and Title of Signer)
(MEMBER'S CORPORATE SEAL)
FEDERAL HOME LOAN BANK OF ATLANTA
By:
------------------------------- -----------------------------------
(Authorized Officer) (Title)
By:
-------------------------------- -----------------------------------
(Authorized Officer) (Title)
3
<PAGE> 18
FEDERAL HOME LOAN BANK OF ATLANTA
MEMBER ACKNOWLEDGMENT
AND NOTARIZATION
STATE OF
------------------------------
ss:
County of
------------------------------
On this _________________ day of ___________________,19__, before me
personally came _________________________ and _________________________, to me
known, who, being by me duly sworn, did depose and state that they are the
______________________ and ________________________ of said Member; the Member
described in and which executed the above instrument; that they know the seal
of said Member, that the seal affixed to said instrument is such corporate
seal; that it was so affixed by order of the Board of Directors or other
governing body of said Member; and that they signed their names thereto by
order of the Board of Directors or other governing body of said Member and that
said ______________________ and _____________________ acknowledged the
execution of said instrument to be the voluntary act and deed of said Member.
- -----------------------------------------
Notary Public Signature (SEAL)
Notary Public in and for the State of
-----------------------
My commission expires:
---------------------------------------
4
<PAGE> 19
FEDERAL HOME LOAN BANK OF ATLANTA
MEMBER ACKNOWLEDGMENT
AND NOTARIZATION
STATE OF Georgia
------------------------------
ss:
County of Dekalb
------------------------------
On this 20th day of September, 1995, before me personally came LuAnn
Durden and Zelma B. Martin, to me known, who, being by me duly sworn, did
depose and state that they are the Chief Financial Officer and Senior Vice
Pres. of said Member; the Member described in and which executed the above
instrument; that they know the seal of said Member; that the seal affixed to
said instrument is such corporate seal; that it was so affixed by order of the
Board of Directors or other governing body of said Member; and that they signed
their names thereto by order of the Board of Directors or other governing body
of said Member and that said LuAnn Durden and Zelma B. Martin acknowledged the
execution of said instrument to be the voluntary act and deed of said Member.
Elizabeth N. Cheek
- ------------------
Notary Public Signature (SEAL)
Notary Public in and for the State of Georgia
-------------------
My commission expires: April 12, 1998
----------------------------------
4
<PAGE> 20
FEDERAL HOME LOAN BANK OF ATLANTA
1475 Peachtree Street, N.E.
Atlanta, Georgia 30309
P.O. Box 105565
Atlanta, Georgia 30348
(404) 688-8000
May 16, 1995
Ms. Zelma B. Martin, CFO
Tucker Federal Savings & Loan Association
PO Box 86
Tucker, Georgia 30085-0086
Dear Ms. Martin:
I am pleased to confirm that the Bank has increased the Credit Availability for
Tucker Federal Savings & Loan Association. The increased Credit Availability
for Tucker Federal is $130 million.
The Credit Availability is established to let you know, up front, what your
borrowing capacity is. You may request additional funding or an increase to
your Credit Availability by calling your credit analyst and the Bank's Credit
Committee will review and act upon your request.
The Credit Availability is based on Tucker Federal's present financial and
operating conditions and may be revised if the Bank determines there is a
change in these conditions. The ability to draw funds will be subject to
Tucker Federal's continued creditworthiness, compliance with the terms and
conditions of the application/draw request form, and the pledging of sufficient
eligible collateral to secure advances. Additionally, you are asked to consult
with your credit analyst prior to requesting any significant advance draw
(i.e., an advance in excess of 5% of the institution's total assets).
If you have any questions about this new Credit Availability or about our
products and services, please do not hesitate to call me at 1-800-780-0161. We
look forward to assisting you with your funding needs.
Sincerely,
Randy B. Gonzalez
Randy B. Gonzalez
Vice President and
Director of Credit Administration
RBG/rf
<PAGE> 1
EXHIBIT 11
EAGLE BANCSHARES, INC.
Statement re: Computation of per share earnings
The following computations set forth the calculation of primary earnings per
share and fully diluted earnings per share for the three months ended
September 30, 1995.
<TABLE>
<CAPTION>
Three months ended September 30, 1995
-----------------------------------------------
Primary Fully Diluted
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Net income per share: $ 0.41 $ 0.41
- -----------------------------------------------------------------------------------------------
Weighted average number of common
shares outstanding 3,112,200 3,112,200
Increase due to assumed exercise of
dilutive stock options 67,112 86,564
- -----------------------------------------------------------------------------------------------
Adjusted weighted average number of
common and common equivalent
shares outstanding 3,179,312 3,198,764
- -----------------------------------------------------------------------------------------------
</TABLE>
The following computations set forth the calculation of primary earnings per
share and fully diluted earnings per share for the six months ended September
30, 1995.
<TABLE>
<CAPTION>
Six months ended September 30, 1995
-----------------------------------------------
Primary Fully Diluted
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Net income per share: $ 0.75 $ 0.75
- -----------------------------------------------------------------------------------------------
Weighted average number of common
shares outstanding 3,099,888 3,099,888
Increase due to assumed exercise of
dilutive stock options 55,726 74,658
- -----------------------------------------------------------------------------------------------
Adjusted weighted average number of
common and common equivalent
shares outstanding 3,155,614 3,174,556
- -----------------------------------------------------------------------------------------------
</TABLE>
The dilutive effect of common stock equivalents on earnings per share is less
than 3% for the three months and six months ended September 30, 1995;
therefore, simple weighted average shares outstanding are used in computing
earnings per share.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made a part of this
registration statement.
Arthur Andersen LLP
Atlanta, Georgia
January 4, 1996
<PAGE> 1
EXHIBIT 23.2
The Board of Directors
Eagle Bancshares, Inc.:
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
January 5, 1996
<PAGE> 1
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Richard B. Inman, Jr. and Conrad J. Sechler, Jr., and each of them, his
true and lawful attorneys-in-fact and agents, with full power of substitution,
for him and in his name, place and stead, in any and all capacities, to sign a
Registration Statement on Form S-2 under the provisions of the Securities Act of
1933, as amended, for the registration of shares of Common Stock of Eagle
Bancshares, Inc., and to sign any and all amendments thereto, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
This 5th day of January, 1996.
/s/ Conrad J. Sechler, Jr.
--------------------------------------
Conrad J. Sechler, Jr.
<PAGE> 2
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Richard B. Inman, Jr. and Conrad J. Sechler, Jr., and each of them, his
true and lawful attorneys-in-fact and agents, with full power of substitution,
for him and in his name, place and stead, in any and all capacities, to sign a
Registration Statement on Form S-2 under the provisions of the Securities Act of
1933, as amended, for the registration of shares of Common Stock of Eagle
Bancshares, Inc., and to sign any and all amendments thereto, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
This 5th day of January, 1996.
/s/ Walter C. Alford
--------------------------------------
Walter C. Alford
<PAGE> 3
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Richard B. Inman, Jr. and Conrad J. Sechler, Jr., and each of them, his
true and lawful attorneys-in-fact and agents, with full power of substitution,
for him and in his name, place and stead, in any and all capacities, to sign a
Registration Statement on Form S-2 under the provisions of the Securities Act of
1933, as amended, for the registration of shares of Common Stock of Eagle
Bancshares, Inc., and to sign any and all amendments thereto, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
This 5th day of January, 1996.
/s/ Richard J. Burrell
--------------------------------------
Richard J. Burrell
<PAGE> 4
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Richard B. Inman, Jr. and Conrad J. Sechler, Jr., and each of them, his
true and lawful attorneys-in-fact and agents, with full power of substitution,
for him and in his name, place and stead, in any and all capacities, to sign a
Registration Statement on Form S-2 under the provisions of the Securities Act of
1933, as amended, for the registration of shares of Common Stock of Eagle
Bancshares, Inc., and to sign any and all amendments thereto, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
This 5th day of January, 1996.
/s/ Weldon A. Nash, Jr.
--------------------------------------
Weldon A. Nash, Jr.
<PAGE> 5
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Richard B. Inman, Jr. and Conrad J. Sechler, Jr., and each of them, his
true and lawful attorneys-in-fact and agents, with full power of substitution,
for him and in his name, place and stead, in any and all capacities, to sign a
Registration Statement on Form S-2 under the provisions of the Securities Act of
1933, as amended, for the registration of shares of Common Stock of Eagle
Bancshares, Inc., and to sign any and all amendments thereto, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
This 5th day of January, 1996.
/s/ George G. Thompson
--------------------------------------
George G. Thompson
<PAGE> 6
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Richard B. Inman, Jr. and Conrad J. Sechler, Jr., and each of them, his
true and lawful attorneys-in-fact and agents, with full power of substitution,
for him and in his name, place and stead, in any and all capacities, to sign a
Registration Statement on Form S-2 under the provisions of the Securities Act of
1933, as amended, for the registration of shares of Common Stock of Eagle
Bancshares, Inc., and to sign any and all amendments thereto, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
This 5th day of January, 1996.
/s/ Conrad J. Sechler, Sr.
--------------------------------------
Conrad J. Sechler, Sr.
<PAGE> 1
EXHIBIT 24.2
CERTIFICATE OF SECRETARY
OF
EAGLE BANCSHARES, INC.
I, Richard B. Inman, Jr., do hereby certify that I am the duly
elected, qualified and acting Secretary of Eagle Bancshares, Inc. (the
"Company"), and do hereby certify further that the Board of Dirctors of the
Company duly adopted the following resolution at a meeting duly called and held
and that such resolution remains in full force and effect on the date hereof:
FURTHER RESOLVED, that each Director, Authorized Officer and
other officer authorized by the foregoing resolution to sign the
Registration Statement hereby is authorized to execute a Power of
Attorney appointing Mr. Burrell, Mr. Sechler, Jr. and Mr. Inman, or
any of them, his or her true and lawful attorneys-in-fact and agents
to execute in his or her name, place and stead said Registration
Statement and any and all amendments thereto (including post-effective
amendments) and all instruments necessary in conjunction therewith.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of the
5th day of January, 1996.
/s/ Richard B. Inman, Jr.
----------------------------------
Richard B. Inman, Jr.
Secretary
