FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997 Commission File No. 0-15423
__________________
SOUTH ALABAMA BANCORPORATION, INC.
(Exact name of registrant as specified in its charter)
Alabama 63-0909434
(State of Incorporation) (IRS Employer Identification No.)
100 Saint Joseph Street
P. O. Box 3067
Mobile, Alabama 36652 334-431-7800
(Address of principal executive office) (Telephone Number)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK $.01 PAR
(Title of Class)
____________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this form 10-K. [ ]
Aggregate market value of the Common Stock ($.01 Par) held by nonaffiliates
of the registrant as of March 20, 1998 (assuming that all officers, directors
and 5% shareholders are affiliates): $77,697,778.00
Shares of Common Stock ($.01 Par) outstanding at March 20, 1998: 4,247,586
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended December 31,
1997 are incorporated by reference into Parts I and II and portions of the
Proxy Statement for the 1998 annual meeting are incorporated by reference
into Part III.
_____________________________________________________________________________
Part I
Item 1. Business
General
South Alabama Bancorporation, Inc. ("South Alabama") is the parent
company and owner of 100% of the stock of South Alabama Bank, formerly The Bank
of Mobile (the "Mobile Bank") headquartered in Mobile, Alabama, First National
Bank, Brewton (the "Brewton Bank"), headquartered in Brewton, Alabama, and
The Monroe County Bank (the "Monroeville Bank"), headquartered in Monroeville,
Alabama and of South Alabama Trust Company, Inc. (the "Trust Company"),
headquartered in Mobile, Alabama. South Alabama is a registered bank holding
company originally incorporated under Delaware law in 1985 under the name
Mobile National Corporation. In 1993, the former parent company of the
Brewton Bank was merged with and into Mobile National Corporation, at which
time its name was changed to South Alabama Bancorporation, Inc. Effective
December 31, 1996, South Alabama changed its state of domicile from Delaware
to Alabama through a merger with a wholly owned Alabama subsidiary corporation
formed for that purpose.
All of the stock of the Mobile Bank was acquired in 1986. By merger with
the respective holding companies, the stock of the Brewton Bank and the
Monroeville Bank was acquired in 1993 and 1996, respectively. The Mobile Bank,
the Brewton Bank and the Monroeville Bank are sometimes referred to as the
"Banks." The Trust Company was formed on January 20, 1998 as a trust
corporation under Alabama law and operates through the office of the Banks.
South Alabama's corporate headquarters are located at 100 Saint Joseph
Street, Mobile, Alabama 36602. The following table reflects certain basic
information concerning South Alabama and its subsidiary banks as of
December 31, 1997.
<TABLE>
<CAPTION>
Monroeville Bank Brewton Bank Mobile Bank South Alabama
Consolidated 1
<S> <C> <C> <C> <C>
Banking Offices 2 3 7 12
Employees 36 67 89 192
Percent of Ownership 100% 100% 100% -
Loans (Net) $28,311,000 $ 57,147,000 $108,374,000 $193,832,000
Investments $49,271,000 $ 39,383,000 $ 29,946,000 $118,600,000
Total Assets $94,826,000 $108,184,000 $165,800,000 $369,595,000
Deposits $79,588,000 $ 92,025,000 $143,924,000 $315,177,000
Equity Capital $14,930,000 $ 14,301,000 $ 15,066,000 $ 45,462,000
1 Amounts included the accounts of South Alabama and its subsidiaries. All
material intercompany balances have been eliminated in consolidation.
</TABLE>
South Alabama reviews policy for the Banks and the Trust Company and
coordinates certain of their common internal functions, such as loan review,
marketing and business development, accounting, auditing, compliance and
computer operations. South Alabama utilizes the services and capabilities of
the staffs of the Banks and the Trust Company in conducting its business.
South Alabama has under consideration the acquisition of additional banks
and/or the organization of additional subsidiaries to engage in bank related
activities, and to that end officers of South Alabama are engaged in general
discussions with the principals of other banking organizations from time to
time.
On June 4, 1997 and June 6, 1997, respectively, South Alabama and
Peterman State Bank headquartered in Peterman, Alabama signed a letter of
intent relating to the merger of Peterman State Bank with and into the
Monroeville Bank. On October 14, 1997, South Alabama, the Monroeville Bank
and Peterman State Bank entered into an Agreement and Plan of Merger with
respect thereto. Regulatory approval has been obtained for this merger, and
it is expected to be consummated in the second quarter of 1998.
On November 4, 1997, South Alabama approved the formation of a trust
company subsidiary and the consolidation of the trust departments of the
Mobile Bank and the Brewton Bank into that trust company. On October 20, 1997,
the Brewton Bank approved this plan, and on September 9, 1997, the Mobile
Bank approved this plan. Application for the formation of a trust company
was made with the State Banking Department on November 21, 1997, and notice
was given to the Board of Governors of the Federal Reserve System on December
15, 1997. As noted above, the Trust Company was formed on January 20, 1998 and
is currently providing services in the market areas served by the Mobile Bank
and the Brewton Bank.
Information Incorporated by Reference
Additional information concerning the business of South Alabama is set
forth in the Annual Report to Shareholders for the year ended December 31,
1997 at pages 8-22 and is incorporated herein by reference.
Operations of Subsidiary Banks
Deposits of the Banks are insured to the maximum limits allowed by the
Bank Insurance Fund of the Federal Deposit Insurance Corporation ("FDIC").
The Banks offer similar banking services including business and personal
checking accounts, money market accounts, savings accounts, certificates of
deposit, overdraft protection, the extension of business and personal loans,
mortgages on commercial and residential real estate, corporate and personal
trust services, access to automated teller machines through the Cirrus System,
Inc. and Honor Technologies, Inc., retail repurchase agreements, safe deposit
box facilities, credit card privileges, travelers' checks, money orders, letters
of credit, foreign transfers and remittances and wire transfers. Mutual funds,
annuities and certain insurance products are offered through South Alabama
Financial Services, Inc., a subsidiary of the Mobile Bank. Securities,
mutual funds and annuities are offered through First National Securities, Inc.,
a subsidiary of the Brewton Bank. The Banks also offer general banking advice
and consultation to the public as well as other customer convenience and
community oriented services. Additionally, the Banks have relationships with
correspondent banks to offer additional services which may be requested by
their customers. None of the Banks currently offer international banking
services.
The Brewton Bank currently operates three offices located in and around
Brewton. The Mobile Bank has seven banking offices, three of which are
located inside supermarkets within the corporate limits of the City of Mobile.
The Monroeville Bank currently operates 2 offices in Monroeville, and it will
gain 2 additional offices if the merger with Peterman State Bank is
consummated. The Mobile Bank has purchased three parcels of land in Baldwin
County for future branch expansion. A branch is currently being constructed
on one parcel in Foley. The other two Baldwin County parcels, one of which
is in Daphne and one of which is in Fairhope, remain undeveloped.
Markets Served
The Brewton Bank
The primary service area of the Brewton Bank is a 15 mile radius of
Brewton. Manufacturing employs the greatest number of workers in the county.
Government and the wholesale and retail trade also employ a significant number
of workers. The largest employer in the trade area is Container Corporation
of America, employing approximately 600 workers. T. R. Miller Mill Co., a
lumber manufacturer is the second largest employer with approximately 400
workers. The area has a 160 acre industrial park which includes all
necessary utilities. Brewton Municipal Airport serves commuter air travel and
commercial air service is available in nearby Pensacola, Florida. CSX
Transportation provides railroad carrier services, and the City of Brewton is
served by two bus lines. During 1997 announced capital investment in new
and expanded industry in Escambia County totaled approximately $8,200,000,
resulting in an announced 172 new jobs according to the Escambia County
Industrial Development Authority.
The Mobile Bank
The Mobile Bank's principal office is located in downtown Mobile,
Alabama, which is situated on the western shore of Mobile Bay, bordering the
Gulf of Mexico. The Bank's primary geographic market is comprised of Mobile
County and Baldwin County. The population of the Mobile County/Baldwin
County market is approximately 530,891 persons according to the Mobile and
Baldwin County Chambers of Commerce.
The economy of Mobile County is primarily industrial in nature. The
largest employers are engaged in manufacture of paper products, providing
health care services, production of chemicals, production of nylon and rayon,
processing retail catalogue orders and manufacture of piston aircraft engines.
Southwest Alabama, including Mobile County, has been the major oil and gas
producing region in Alabama for many years. The seafood industry and ship
building and repair industry also make significant contributions to the
economy of the area. The Port of Mobile, Alabama's only port, is one of the
nation's busiest in tons of cargo handled, and through it the City is served
by more than 135 steamship lines. During 1997 announced capital investment
in new and expanded industry in Mobile County totaled approximately
$537,121,000, resulting in an announced 11,780 additional jobs, according to
the Mobile Chamber of Commerce.
The economy of Baldwin County (including the communities of Spanish Fort,
Daphne, Montrose, Fairhope, Point Clear and Foley) is based mostly on growth
as a residential area, although it is also supported by light manufacturing
and tourism.
The Monroeville Bank
The Monroeville Bank's main office and one branch are located in
Monroeville, with its primary service area extending in a ten mile radius of
Monroeville. Monroe County's population is approximately 25,000, of whom
7,500 reside in Monroeville. If the merger with Peterman State Bank is
consummated, the Monroeville Bank will gain 2 branches, one in Monroeville and
one in Peterman. Peterman has a population of approximately 500.
The county economy is a blend of textile and timber-related business.
Vanity Fair Mills, employing about 1,300, is the largest single employer.
Timber-related industry, including Alabama River Pulp and other Parsons and
Whittemore affiliates, Temple-Inland, Georgia Pacific, Scotch Plywood and
Harrigan Lumber Company, directly employs 1,775.
Monroeville is developing a 92 acre industrial park. Two trucking
companies, access to the Alabama River and railroads, and a 6,000 foot runway
airport accommodating corporate jets contribute to the marketability of the
area. The area offers parks, lakes, campgrounds, athletic fields, playground
and an 18 hole golf course. The community college and local public and
private schools are accredited. Major 1996 capital investment added nursing
home and assisted living/retirement residence facilities and supply services
and upgraded the Temple-Inland plant.
Competition
Competition in the banking industry is primarily based on products and
services offered, delivery of services, product pricing and interest rate
levels. South Alabama competes with statewide bank holding companies, each of
which has substantially greater total resources than South Alabama and
numerous branch offices located throughout the state. Also providing
competition are local and regional banks, credit unions, finance companies,
insurance companies, mortgage companies, securities brokerage firms, money
market mutual funds, loan production offices operated by out-of-state banks,
and other providers of financial services in the areas served by South
Alabama's subsidiary banks.
The Brewton Bank
There are five banks based in the Brewton Bank's market area. A total of
eight financial institutions are located in Escambia County. The Brewton Bank
is the largest bank in terms of deposits in Escambia County with a market
share of deposits of approximately 22.03 percent. The second and third largest
banks in the county have market shares of approximately 19.44 percent and 18.02
percent.
The Mobile Bank
The Mobile Bank faces intense competition in its market area. It has a
market share of deposits of approximately 3.26 percent. There are currently
16 commercial banks and two savings banks doing business in the Mobile/Baldwin
County market. The primary competitors are the six commercial banks affiliated
with statewide bank holding companies, each of which has a substantial market
share. These competitors have numerous branch offices located throughout the
market area.
The Monroeville Bank
The Monroeville Bank is the oldest and largest bank in Monroe County. It
has a market share of deposits of approximately 35.0 percent. Currently
there are 6 commercial banks, including one bank owned by a statewide holding
company, in Monroe County. After the merger of Peterman State Bank into the
Monroeville Bank, it is expected to have a market share of deposits of
approximately 43.0 percent.
Supervision and Regulation
South Alabama is a bank holding company within the meaning of the Bank
Holding Company Act of 1956, as amended (the "Act"), and is registered as such
with the Board of Governors of the Federal Reserve System (the "Board of
Governors'). The Act prohibits, subject to certain exceptions, a bank holding
company from engaging in or acquiring direct or indirect control of more than
5% of the voting stock of any company engaged in non-banking activities.
Activities expressly found by the Board of Governors, by order or regulation,
to be so closely related to banking or managing or controlling banks as to be
a proper incident thereto, such as acting as fiduciary or investment or
financial advisor, selling or underwriting insurance coverage directly
related to extensions of credit, and the leasing of real and personal property,
are excepted from this prohibition.
The Act requires every bank holding company to obtain the prior approval
of the Board of Governors before it may acquire substantially all of the assets
of any bank or control of any voting shares of any bank, if, after such
acquisition, it would own or control, directly or indirectly, more than 5% of
the voting shares of such bank. In no case, however, may the Board approve
an acquisition by South Alabama of the voting shares of, or substantially all
the assets of, any bank located outside Alabama unless such acquisition is
specifically authorized by the laws of the state in which the bank to be
acquired is located. Effective June 1, 1997 banks may merge with banks in
other states as long as neither state has opted out of interstate branching by
May 31, 1997. The State of Alabama has opted in with respect to interstate
branching.
As a registered bank holding company, South Alabama is required to file
with the Board of Governors an annual report and such additional information
as the Board of Governors may require pursuant to the Act. The Board may
also conduct examinations of South Alabama and each of its subsidiaries.
Subsidiary banks of a bank holding company are subject to certain
restrictions on extensions of credit to the bank holding company or any of
its subsidiaries, on investments in the stock or other securities thereof and
on the acceptance of such stocks or securities as collateral for loans to any
borrower. Also, such subsidiaries are generally prohibited from conditioning
the extension of credit or other services, or conditioning the lease or sale
of property, on the customer's agreement to obtain or furnish some additional
credit, property or service from or to such subsidiary or an affiliate.
As subsidiary banks, the Banks are subject to supervision and regulation
by the Board of Governors of the Federal Reserve System. As a national banking
institution, the Brewton Bank is subject to federal banking laws and is
subject to supervision and regular examination by the Office of the
Comptroller of the Currency. The Mobile Bank and the Monroeville Bank are
state banks, subject to state banking laws and regulation, supervision and
regular examination by the Alabama State Department of Banking, the FDIC, and
the Federal Reserve.
Areas subject to regulation include dividend payments, reserves,
investments, loans, mergers, issuance of securities, establishment of branches
and other aspects of operation, including compliance with truth-in-lending
and usury laws.
Because South Alabama is subject to the provisions of the Bank Holding
Company Act of 1956, South Alabama and its subsidiaries are affected by the
credit policies of the Board of Governors of the Federal Reserve System. A
function of the Federal Reserve System is to regulate the national supply of
bank credit in order to combat recessions and curb inflationary pressures.
Among the instruments of monetary policy used to implement these objectives
are open-market operations in United States Government securities, changes in
the discount rate on member bank borrowings, changes in reserve requirements
against member bank deposits, and limitations on the payment of interest for
certain deposit accounts. The effect of such policies upon the future
business and earnings of South Alabama and its subsidiaries cannot be
predicted with certainty.
Item 2. Properties
South Alabama and the Mobile Bank occupy leased premises located in
downtown Mobile, Alabama consisting of a building complex of approximately
30,000 square feet. The primary term of the lease of the building complex
expires December 31, 2005. The Bank has an option to extend the term of this
lease for three additional terms of five years each.
In addition to the downtown office, the Mobile Bank operates six full
service branch offices at various locations in Mobile County. The banking
premises of one branch are owned in fee, while five branches, three of which
are located inside supermarkets, are leased for varying periods through 1999.
The Brewton Bank's main office, containing approximately 6,832 square
feet, is located in downtown Brewton, Alabama. This main office is owned in
fee. In addition, the Brewton Bank operates two branches, one in the City of
Brewton and one in the City of East Brewton. Both of these branches are owned
in fee.
The Monroeville Bank's main office, containing approximately 20,402
square feet, is located in Monroeville, Alabama. In addition, the Monroeville
Bank operates one other branch in the city of Monroeville. Both the main
office and the branch are owned in fee by the Monroeville Bank.
Item 3. Legal Proceedings
As of the date of this report there were no material pending legal
proceedings to which South Alabama or any of the Banks was a party.
Optional Item. Executive Officers of the Registrant
The following table reflects certain information concerning the
executive officers of South Alabama. Each such officer holds his office(s)
until the first meeting of the Board of Directors following the annual meeting
of stockholders each year, or until a successor is chosen, subject to removal
at any time by the Board of Directors. Except as otherwise indicated, no
family relationships exist among the executive officers and directors of
South Alabama, and no such officer holds his office(s) by virtue of any
arrangement or understanding between him and any other person except the
Board of Directors.
Name, Age and Office(s) with Other Positions with
South Alabama South Alabama
J. Stephen Nelson--age 60(1) Director (since 1993)
Chairman (since 1993)
W. Bibb Lamar, Jr.--age 54(2) Director (since 1989)
President and CEO (since 1989)
John B. Barnett, III--age 45(3)
Executive Vice President (since 1996) Director (since 1996)
W. Gaillard Bixler--age 52(4) None
Executive Vice President & Chief Operating
Officer (since 1993)
F. Michael Johnson--age 52(5) None
Chief Financial Officer &
Secretary (since 1993)
Haniel F. Croft--age 57(6)
President (since 1979) and CEO (since 1988) Director (since 1996)
Monroe County Bank
(1) Chairman, since 1993, Chief Executive Officer, since 1984, and
Director, since 1979, the Brewton Bank. From 1986 until its merger with
South Alabama, Mr. Nelson was also President and a director of the Brewton
Bank's holding company.
(2) President and Chief Executive Officer, since 1989, the Mobile Bank.
(3) Chairman, since 1994, and Director, since 1983, the Monroeville Bank.
Previously: Vice Chairman (1989-1994) the Monroeville Bank. From 1983 until
the merger with South Alabama in 1996, Mr. Barnett was Vice President and a
director of the Monroeville Bank's holding company.
(4) President and Chief Operating Officer, since 1993, and Director,
since 1991, the Brewton Bank. Previously: Senior Vice President and Senior
Loan Officer (1989-1993), the Brewton Bank. From 1991 until its merger with
South Alabama, Mr. Bixler was also a director of the Brewton Bank's holding
company.
(5) Executive Vice President and Cashier, since 1986, the Mobile Bank.
Previously: Executive Vice President (1984-1993) Mobile National Corporation.
(6) Director, since 1972, the Monroeville Bank. From 1982 until the
merger with South Alabama in 1996, Mr. Croft served as Vice President and a
director of the Monroeville Bank's holding company.
Part II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters
The information called for by Item 5 is set forth in South Alabama's
Annual Report to Shareholders for the year ended December 31, 1997 at page 25
under the heading "Market Prices and Cash Dividends Per Share" and is
incorporated herein by reference.
Item 6. Selected Financial Data
The information called for by Item 6 is set forth in South Alabama's
Annual Report to Shareholders for the year ended December 31, 1997 at page 24
under the heading "Selected Financial Data" and is incorporated herein by
reference.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation
The information called for by Item 7 is set forth in South Alabama's
Annual Report to Shareholders for the year ended December 31, 1997 at pages
8-22 under the heading "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The information called for by Item 8, is set forth in South Alabama's
Annual Report to Shareholders for the year ended December 31, 1997 at page 23
and at pages 26-46 and is incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
A portion of the information called for by Item 10 is set forth above in
an Optional Item in Part I. The balance of the information called for by Item
10 is set forth in South Alabama's Proxy Statement for the 1998 annual
meeting under the captions "VOTING SECURITIES--Section 16(a) Beneficial
Ownership Reporting Compliance" and "ELECTION OF DIRECTORS" and is
incorporated herein by reference.
Item 11. Executive Compensation
The information called for by Item 11 is set forth in South Alabama's
Proxy Statement for the 1998 annual meeting under the caption "EXECUTIVE
COMPENSATION" and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners
and Management
The information called for by Item 12 is set forth in South Alabama's
Proxy Statement for the 1998 annual meeting under the caption "VOTING
SECURITIES--Security Ownership of Directors, Nominees, 5% Stockholders and
Officers" and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information called for by Item 13 is set forth in South Alabama's
Proxy Statement for the 1998 annual meeting under the caption "CERTAIN
TRANSACTIONS AND MATTERS" and is incorporated herein by reference.
Part IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
(a) 1. Financial Statements:
The following consolidated financial statements of the registrant and its
subsidiaries, and Report of Independent Auditors, included in the
registrant's Annual Report to Shareholders for the year ended
December 31, 1997, a copy of which is included as an exhibit to this
report, are incorporated herein by reference:
Independent Auditors' Report.
Consolidated Statements of Condition as of December 31,
1997 and 1996.
Consolidated Statements of Income for the years ended December 31,
1997, 1996 and 1995.
Consolidated Statements of Changes in Shareholders' Equity for the
years ended December 31, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows for the years ended December
31, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements.
(a) 2. Financial Statement Schedules
None.
(a) 3. Exhibits:
(2) Plan of acquisition, reorganization, arrangement, liquidation or
succession.
.1 Agreement and Plan of Merger, dated as of October 14, 1997, by
and between South Alabama, the Monroeville Bank and Peterman
State Bank.
.2 Mutual Waiver and Agreement, dated as of March 25, 1998,
between South Alabama, the Monroeville Bank and Peterman State
Bank.
(3) Articles of Incorporation and By-Laws.
.1 Articles of Incorporation of SAB Newco, Inc., dated November 8,
1996, filed as Exhibit B to the registrant's Definitive Proxy
Statement filed on Schedule 14A on November 15, 1996, is
incorporated herein by reference.
.2 Certificate of Ownership and Merger, dated December 20, 1996,
filed as Exhibit (3).2 to the registrant's annual report on
10-K for the year ended 1996 (No. 0-15423).
.3 Articles of Merger, dated December 20, 1996, filed as Exhibit
(3).1 to registrant's Form 10-Q (No. 0-15423), for the Quarter
ended March 31, 1997, is incorporated herein by reference.
.4 Bylaws of SAB Newco, Inc., filed as Exhibit (3).3 to the
registrant's annual report on 10-K for the year ended 1996
(No. 0-15423), is incorporated herein by reference.
(4) Instruments defining the rights of security holders, including
indentures.
.1 Articles of Incorporation of SAB Newco, Inc., dated November 8,
1996, filed as Exhibit B to the Registrant's Definitive Proxy
Statement filed on Schedule 14A on November 15, 1996, is
incorporated herein by reference.
.2 Certificate of Ownership and Merger, dated December 20, 1996,
filed as Exhibit (3).2 to the registrant's annual report on
10-K for the year ended 1996 (No. 0-15423), is incorporated
herein by reference.
.3 Articles of Merger, dated December 20, 1996, filed as Exhibit
(3).1 to registrant's Form 10-Q (No. 0-15423), for the Quarter
ended March 31, 1997, is incorporated herein by reference.
.4 Bylaws of SAB Newco, Inc. filed as Exhibit (3).3 to the
registrant's annual report on 10-K for the year ended 1996
(No. 0-15423), is incorporated herein by reference.
.5 Specimen of Common Stock Certificate of South Alabama
Bancorporation, Inc., filed as Exhibit (4).4 to the registrant's
annual report on 10-K for the year ended 1996 (No. 0-15423),
is incorporated herein by reference.
(10) Material Contracts.
.1 Lease, entered into March 11, 1986 between Dauphin 65 Partners,
Ltd. and The Bank of Mobile, N.A, filed as Exhibit (10).3 to
the registrant's annual report on Form 10-K for the year 1986
(No. 0-15423), is incorporated herein by reference.
.2 Lease Renewal and Extension Agreement, dated March 18, 1992,
between Dauphin 65 Partners, Ltd. and The Bank of Mobile,
filed as Exhibit (10).2 to the registrant's annual report on
Form 10-K for the year 1991 (No. 0-15423), is incorporated
herein by reference.
.3 Lease, entered into June 21, 1994 between Staples-Pake Realty,
Inc. and The Bank of Mobile, filed as Exhibit (10).3 to the
registrant's annual report on Form 10-K for the year 1994
(No. 0-15423), is incorporated herein by reference.
.4 Sublicense Agreement dated July 18, 1990, between National
Commerce Bancorporation and The Bank of Mobile, N.A, filed as
Exhibit (10).5 to the registrant's annual report on Form 10-K
for the year 1991 (No. 0-15423), is incorporated herein by
reference.
.5 Member Institution Agreement entered into July 25, 1986
between The Bank of Mobile, N.A and Alabama Network, Inc.,
filed as Exhibit (10).4 to the registrant's annual report on
Form 10-K for the year 1986 (No. 0-15423), is incorporated
herein by reference.
.6 *Stock Option Plan of Mobile National Corporation, filed as
Exhibit (10).3 to the registrant's annual report on Form 10-K
for the year 1985 (No. 0-15423), is incorporated herein by
reference.
.7 *The Bank of Mobile Retirement Plan (Restated), dated
September 12, 1990, filed as Exhibit (10).8 to the registrant's
annual report on Form 10-K for the year 1991 (No. 0-15423), is
incorporated herein by reference.
.8 *Contracts pursuant to Supplemental Retirement Plan of The Bank
of Mobile, N.A, effective January 1, 1988, filed as Exhibit
(10).7 to the registrant's annual report on Form 10-K for the
year 1990 (No. 0-15423),are incorporated herein by reference.
.9 *Restated Contracts pursuant to Supplement Retirement Plan of
The Bank of Mobile, dated April 1, 1992, filed as Exhibit
(10).10 to registrant's Form 10-K for the year 1992
(No. 0-15423), is incorporated herein by reference.
.10 *First National Bank Employees' Profit Sharing Plan, as amended
and restated effective January 1, 1989, filed as Exhibit
(10).12 to registrant's annual report on Form 10-K for the
year 1993 (No. 0-15423), is incorporated by reference.
.11 *First National Bank Employees' Pension Plan, as amended and
restated effective January 1, 1989, filed as Exhibit (10).13
to registrant's Form 10-K for the year 1993 (No. 0-15423), is
incorporated herein by reference.
.12 Member Institution Agreement entered into February 16, 1988
between First National Bank and Alabama Network, Inc., filed
as Exhibit (10).14 to registrant's annual report on Form 10-K
for the year 1993 (No. 0-15423), is incorporated herein by
reference.
.13 *Split Dollar Insurance Agreements of First National Bank,
filed as Exhibit (10).15 to registrant's annual report on Form
10-K for the year 1993 (No. 0-15423), is incorporated herein
by reference.
.14 *Deferred Compensation Agreements of First National Bank,
filed as Exhibit (10).16 to registrant's annual report on
Form 10-K for the year 1993 (No. 0-15423), is incorporated
herein by reference.
.15 *South Alabama Bancorporation 1993 Incentive Compensation Plan
dated October 19, 1993 as adopted by shareholders May 3, 1994
filed as Exhibit (10).18 to registrant's form 10-K for the year
1994 (No. 0-15423), is incorporated herein by reference.
.16 Lease, entered into April 17, 1995 between Augustine Meaher,
Jr., Robert H. Meaher individually and Executor of the Estate
of R. Lloyd Hill, Joseph L. Meaher and Augustine Meaher, III,
and The Bank of Mobile, filed as Exhibit (10).1 to registrant's
Form 10-Q for the Quarter ended June 30, 1995 (No. 0-15423),
is incorporated herein by reference.
.17 Lease, entered into April 17, 1995 between Augustine Meaher,
Jr. and Margaret L. Meaher, and The Bank of Mobile, filed as
Exhibit (10).2 to registrant's Form 10-Q for the Quarter ended
June 30, 1995 (No. 0-15423), is incorporated herein by
reference.
.18 Lease, entered into April 17, 1995 between Hermione McMahon
Sellers (f/k/a Hermione McMahon Dempsey) a widow, William
Michael Sellers, married, and Mary S. Burnett, married, and
The Bank of Mobile, filed as Exhibit (10).3 to registrant's
Form 10-Q for the Quarter ended June 30, 1995 (No. 0-15423),
is incorporated herein by reference.
.19 Lease, entered into May 1, 1995 between Augustine Meaher, Jr.,
Robert H. Meaher individually and Executor of the Estate of R.
Lloyd Hill, Joseph L. Meaher and Augustine Meaher, III, and
The Bank of Mobile, filed as Exhibit (10).4 to registrant's
Form 10-Q for the Quarter ended June 30, 1995 (No. 0-15423),
is incorporated herein by reference.
.20 *Change in Control Compensation Agreement, dated as of
November 14, 1995, between The Bank of Mobile and W. Bibb
Lamar, Jr., filed as Exhibit (10).24 to the registrant's
annual report on Form 10-K for the year 1995 (No. 0-15423) is
incorporated herein by reference.
.21 *Change in control Compensation Agreement, dated as of
November 20, 1995, between First National Bank, Brewton and J.
Stephen Nelson, filed as Exhibit (10).25 to the registrant's
annual report on Form 10-K for the year 1995 (No. 0-15423), is
incorporated herein by reference.
.22 *Change in Control Compensation Agreements, between The Bank of
Mobile or First National Bank, Brewton and certain officers
filed as Exhibit (10).25 to the registrant's annual report on
Form 10-K for the year 1995 (No. 0-15423) is incorporated
herein by reference.
.23 *Monroe County Bank Profit Sharing Plan, Amended and Restated
January 1, 1989, filed as Exhibit (10).23 to the registrant's
annual report on Form 10-K for the year 1996 (No. 0-15423), is
incorporated herein by reference.
.24 *Monroe County Bank Pension Plan as Amended and Restated
January 1, 1989, filed as Exhibit (10).24 to the registrant's
annual report on Form 10-K for the year 1996 (No. 0-15423), is
incorporated herein by reference.
.25 Agreement and Plan of Merger, dated as of May 31, 1996, as
amended and restated as of August 21, 1996, filed as Exhibit
(2).2 to the registrant's Registration Statement on Form S-4
filed on September 3, 1996 (No. 333-11305), is incorporated
herein by reference.
.26 Agreement and Plan of Merger, dated as of October 14, 1997, by
and between South Alabama, the Monroeville Bank and Peterman
State Bank, filed as Exhibit (2).1 hereto.
.27 Option Contract between registrant and Morphy's Move, L.L.C.,
dated November 17, 1997.
.28 *Amendment Number One to South Alabama Bancorporation 1993
Incentive Compensation Plan, dated May 9, 1997.
.29 *Change in Control Compensation Agreement dated as of March 31,
1997, by and between South Alabama and John B. Barnett, III.
.30 *Change in Control Compensation Agreement dated as of March 31,
1997, by and between South Alabama and Haniel F. Croft.
.31 Mutual Waiver and Agreement, dated as of March 25, 1998,
between South Alabama, the Monroeville Bank and Peterman State
Bank, filed as Exhibit (2).2 hereto.
(13) Annual report to security holders.
.1 1997 Annual Report of South Alabama Bancorporation, Inc. (Such
annual report, except for those portions expressly incorporated
by reference, is furnished solely for the information of the
Commission and is not deemed to be "filed" as part of this
report.)
(21) Subsidiaries of the registrant.
.1 Subsidiaries of South Alabama Bancorporation, Inc.
(b) Reports on Form 8-K
None.
*Indicates compensatory plan identified pursuant to Item 14(a)(3) of Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SOUTH ALABAMA BANCORPORATION, INC.
By: /s/ F. Michael Johnson
F. Michael Johnson
Chief Financial Officer
and Secretary
Dated: March 30, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934 this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name Title Date
/s/W. Bibb Lamar, Jr. Director, President and 03/27/1998
W. Bibb Lamar, Jr. CEO (Principal
executive officer)
/s/F. Michael Johnson Chief Financial Officer 03/30/1998
F. Michael Johnson and Secretary
(Principal financial and
accounting officer)
/s/John B. Barnett, III Director, Executive 03/27/1998
John B. Barnett, III Vice President
/s/ Stephen G. Crawford Director 03/27/1998
Stephen G. Crawford
/s/Haniel F. Croft Director 03/27/1998
Haniel F. Croft
/s/ David C. De Laney Director 03/27/1998
David C. De Laney
/s/Lowell J. Friedman Director 03/27/1998
Lowell J. Friedman
/s/Broox G. Garrett, Jr. Director 03/27/1998
Broox G. Garrett, Jr.
/s/W. Dwight Harrigan Director 03/27/1998
W. Dwight Harrigan
/s/James P. Hayes, Jr. Director 03/27/1998
James P. Hayes, Jr.
/s/Clifton C. Inge Director 03/27/1998
Clifton C. Inge
/s/Kenneth R. McCartha Director 03/27/1998
Kenneth R. McCartha
/s/Thomas E. McMillan, Jr. Director 03/27/1998
Thomas E. McMillan, Jr.
Director
J. Richard Miller, III
/s/Harris V. Morrissette Director 03/27/1998
Harris V. Morrissette
/s/J. Stephen Nelson Director and Chairman 03/27/1998
J. Stephen Nelson
/s/Paul D. Owen, Jr. Director 03/27/1998
Paul D. Owens, Jr.
/s/Earl H. Weaver Director 03/27/1998
Earl H. Weaver
ANNUAL REPORT ON FORM 10-K
ITEM 14(a)(1) AND (2)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
CERTAIN EXHIBITS
YEAR ENDED DECEMBER 31, 1997
SOUTH ALABAMA BANCORPORATION, INC.
MOBILE, ALABAMA
FORM 10-K - ITEM 14(a)(1) AND (2)
SOUTH ALABAMA BANCORPORATION, INC. AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of the registrant and
its subsidiaries, and Report of Independent Auditors, included in
the registrant's Annual Report to Shareholders for the year ended December 31,
1997, a copy of which is included as an exhibit to this report, are
incorporated herein by reference:
Independent Auditors' Report.
Consolidated Statements of Condition as of December 31, 1997 and
1996.
Consolidated Statements of Income for the years ended December 31,
1997, 1996 and 1995.
Consolidated Statements of Changes in Shareholders' Equity for the
years ended December 31, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements.
Schedules to the Consolidated Financial Statements required by Article 9
of Regulation S-X are not required under the related instructions or are
inapplicable, and therefore have been omitted.
ANNUAL REPORT ON FORM 10-K
ITEM 14(c)
EXHIBITS
EXHIBIT INDEX
SEC Assigned
Exhibit Number Description of Exhibit
(2).1 Agreement and Plan of Merger by and Between South
Alabama Bancorporation, Inc., the Monroe County Bank
and Peterman State Bank dated as of October 14, 1997
(2).2 Mutual Waiver and Agreement
(10).27 Option between Morphy s Move, L.L.C. and South
Alabama Bancorporation, Inc.
(10).28 Amendment Number One to South Alabama Bancorporation,
Inc. 1993 Incentive Compensation Plan
(10).29 Monroe County Bank Change in Control Compensation
Agreement
(10).30 Monroe County Bank Change in Control Compensation
Agreement
(21).1 Subsidiaries of South Alabama Bancorporation, Inc.
Exhibit (2).1
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
SOUTH ALABAMA BANCORPORATION, INC.
THE MONROE COUNTY BANK
AND
PETERMAN STATE BANK
Dated as of
October 14, 1997
<PAGE>
TABLE OF CONTENTS
Page
AGREEMENT AND PLAN OF MERGER . . . . . . . . . . . . . . . . . . . . . . .1
Preamble . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE ONE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
TRANSACTIONS AND TERMS OF MERGER. . . . . . . . . . . . . . . . . . .8
1.1 Merger. . . . . . . . . . . . . . . . . . . . . . . . . . .8
1.2 Time and Place of Closing . . . . . . . . . . . . . . . . .9
1.3 Effective Time. . . . . . . . . . . . . . . . . . . . . . .9
ARTICLE TWO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
TERMS OF MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . .9
2.1 Articles of Incorporation . . . . . . . . . . . . . . . . .9
2.2 Bylaws. . . . . . . . . . . . . . . . . . . . . . . . . . .9
2.3 Directors and Officers. . . . . . . . . . . . . . . . . . .9
ARTICLE THREE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
MANNER OF CONVERTING SHARES . . . . . . . . . . . . . . . . . . . . 10
3.1 Conversion of Shares. . . . . . . . . . . . . . . . . . . 10
3.2 Shares Held by PSB, MCB or SAB. . . . . . . . . . . . . . 10
3.3 Dissenting Stockholders . . . . . . . . . . . . . . . . . 10
3.4 Fractional Shares.. . . . . . . . . . . . . . . . . . . . 11
ARTICLE FOUR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
EXCHANGE OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . 11
4.1 Exchange Procedures . . . . . . . . . . . . . . . . . . . 11
4.2 Rights of Former PSB Stockholders . . . . . . . . . . . . 11
ARTICLE FIVE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
REPRESENTATIONS AND WARRANTIES OF PSB . . . . . . . . . . . . . . . 12
5.1 Organization, Standing, and Power . . . . . . . . . . . . 12
5.2 Authority; No Breach By Agreement . . . . . . . . . . . . 12
5.3 Capital Stock . . . . . . . . . . . . . . . . . . . . . . 13
5.4 PSB Subsidiaries. . . . . . . . . . . . . . . . . . . . . 14
5.5 Financial Statements. . . . . . . . . . . . . . . . . . . 14
5.6 Absence of Undisclosed Liabilities. . . . . . . . . . . . 14
5.7 Absence of Certain Changes or Events. . . . . . . . . . . 14
5.8 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . 14
5.9 Allowance for Possible Loan Losses. . . . . . . . . . . . 15
5.10 Assets. . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.11 Environmental Matters . . . . . . . . . . . . . . . . . . 15
5.12 Compliance with Laws. . . . . . . . . . . . . . . . . . . 16
5.13 Labor Relations . . . . . . . . . . . . . . . . . . . . . 17
5.14 Employee Benefit Plans. . . . . . . . . . . . . . . . . . 17
5.15 Material Contracts. . . . . . . . . . . . . . . . . . . . 18
5.16 Legal Proceedings . . . . . . . . . . . . . . . . . . . . 19
5.17 Reports . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.18 Statements True and Correct . . . . . . . . . . . . . . . 19
5.19 Accounting, Tax and Regulatory Matters. . . . . . . . . . 20
5.20 Charter Provisions. . . . . . . . . . . . . . . . . . . . 20
ARTICLE SIX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
REPRESENTATIONS AND WARRANTIES OF SAB AND MCB . . . . . . . . . . . 20
6.1 Organization, Standing, and Power . . . . . . . . . . . . 20
6.2 Authority; No Breach By Agreement . . . . . . . . . . . . 20
6.3 Reports . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE SEVEN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
CONDUCT OF BUSINESS PENDING CONSUMMATION. . . . . . . . . . . . . . 21
7.1 Covenants of PSB and SAB. . . . . . . . . . . . . . . . . 21
7.2 Negative Covenants of PSB . . . . . . . . . . . . . . . . 22
7.3 Affirmative Covenants of SAB. . . . . . . . . . . . . . . 23
7.4 Affirmative Covenants of PSB. . . . . . . . . . . . . . . 24
ARTICLE EIGHT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . 24
8.1 Registration Statement; Proxy Statement; Stockholder Approval
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
8.2 Applications. . . . . . . . . . . . . . . . . . . . . . . 24
8.3 Filings with State Offices. . . . . . . . . . . . . . . . 25
8.4 Agreement as to Efforts to Consummate . . . . . . . . . . 25
8.5 Investigation and Confidentiality . . . . . . . . . . . . 25
8.6 Press Releases. . . . . . . . . . . . . . . . . . . . . . 26
8.7 Certain Actions . . . . . . . . . . . . . . . . . . . . . 26
8.8 Charter Provisions. . . . . . . . . . . . . . . . . . . . 26
8.9 Agreement of Affiliates . . . . . . . . . . . . . . . . . 27
8.10 Compensation and Employee Benefits. . . . . . . . . . . . 27
8.11 D & O Coverage. . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE NINE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE . . . . . . . . . 28
9.1 Conditions to Obligations of Each Party . . . . . . . . . 28
9.2 Conditions to Obligations of SAB and MCB. . . . . . . . . 29
9.3 Conditions to Obligations of PSB. . . . . . . . . . . . . 30
ARTICLE TEN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.1 Termination . . . . . . . . . . . . . . . . . . . . . . . 30
10.2 Effect of Termination. . . . . . . . . . . . . . . . 32
10.3 Survival of Representations and Covenants. . . . . . 32
ARTICLE ELEVEN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
11.1 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . 32
11.2 Brokers and Finders. . . . . . . . . . . . . . . . . 32
11.3 Entire Agreement . . . . . . . . . . . . . . . . . . 32
11.4 Amendments . . . . . . . . . . . . . . . . . . . . . 33
11.5 Waivers. . . . . . . . . . . . . . . . . . . . . . . 33
11.6 Assignment . . . . . . . . . . . . . . . . . . . . . 33
11.7 Notices. . . . . . . . . . . . . . . . . . . . . . . 33
11.8 Governing Law. . . . . . . . . . . . . . . . . . . . 34
11.9 Counterparts.. . . . . . . . . . . . . . . . . . . . 35
11.10 Captions . . . . . . . . . . . . . . . . . . . . . . 35
11.11 Enforcement of Agreement . . . . . . . . . . . . . . 35
11.12 Severability . . . . . . . . . . . . . . . . . . . . 35
LIST OF EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made
and entered into as of October 14, 1997, by and between SOUTH ALABAMA
BANCORPORATION, INC. ("SAB"), an Alabama corporation with its principal
office located in Mobile, Alabama, THE MONROE COUNTY BANK ("MCB"), an Alabama
banking corporation and wholly owned subsidiary of SAB with its principal
office located in Monroeville, Alabama, and PETERMAN STATE BANK ("PSB" ), an
Alabama banking corporation with its principal office located in Peterman,
Alabama.
Preamble
The Boards of Directors of SAB, MCB and PSB are of the opinion that
the transactions described herein are in the best interests of the Parties
and their respective stockholders. This Agreement provides for the merger
of PSB with and into MCB. At the effective time of such merger, the
outstanding shares of the capital stock of PSB shall be converted into the
right to receive shares of the common stock of SAB (except as provided herein).
As a result, stockholders of PSB shall become stockholders of SAB, and MCB
shall continue to conduct the business and operations of PSB. The
transactions described in this Agreement are subject to the approvals of the
stockholders of PSB and MCB, the Superintendent of Banks and the Federal
Deposit Insurance Corporation, and the satisfaction of certain other
conditions described in this Agreement. It is the intention of the parties
to this Agreement that the Merger for federal income tax purposes shall
qualify as a "reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code.
NOW, THEREFORE, in consideration of the above and the mutual
warranties, representations, covenants and agreements set forth herein, the
Parties agree as follows:
Definitions
Except as otherwise provided herein, the capitalized terms set forth
below (in their singular and plural forms as applicable) shall have the
following meanings:
"ABCA" shall mean the Alabama Business Corporation Act.
"Acquisition Proposal" with respect to a Party shall mean any
tender offer or exchange offer or any proposal for a merger, acquisition
of all of the stock or assets of, or other business combination
involving such Party or any of its Subsidiaries or the acquisition of a
substantial equity interest in, or a substantial portion of the assets
of, such Party or any of its Subsidiaries.
"Affiliate" of a Person shall mean: (i) any other Person
directly, or indirectly through one or more intermediaries, controlling,
controlled by or under common control with such Person; (ii) any
officer, director, partner, employer, or direct or indirect beneficial
owner of any 10% or greater equity or voting interest of such Person;
or (iii) any other Person for which a Person described in clause (ii)
acts in any such capacity.
"Agreement" shall mean this Agreement and Plan of Merger,
including the Exhibits delivered pursuant hereto and incorporated herein
by reference. References to "the date of this Agreement," "the date
hereof" and words of similar import shall refer to the date this
Agreement was first executed, October 14, 1997.
"Allowance" shall have the meaning provided in Section 5.9 of
this Agreement.
Articles of Incorporation shall mean the articles of
incorporation, certificate of incorporation or charter document of like
effect of a corporation.
"Articles of Merger" shall mean the Articles of Merger to be
executed by MCB and filed with the Secretary of State of the State of
Alabama relating to the Merger as contemplated by Section 1.1 of this
Agreement.
"Assets" of a Person shall mean all of the assets, properties,
businesses and rights of such Person of every kind, nature, character
and description, whether real, personal or mixed, tangible or intangible,
accrued or contingent, or otherwise relating to or utilized in such
Person's business, directly or indirectly, in whole or in part, whether
or not carried on the books and records of such Person, and whether or
not owned in the name of such Person or any Affiliate of such Person and
wherever located.
"BHC Act" shall mean the federal Bank Holding Company Act of
1956, as amended.
"Book Value" shall mean the book value according to GAAP,
either per share or in the aggregate, as applicable, of the shares of
PSB Common Stock.
"Broker Fees" shall have the meaning provided in Section 11.2
of this Agreement.
"Closing" shall mean the closing of the transactions
contemplated hereby, as described in Section 1.2 of this Agreement.
"Consent" shall mean any consent, approval, authorization,
clearance, exemption, waiver, or similar affirmation by any Person
pursuant to any Contract, Law, Order, or Permit.
"Contract" shall mean any written or oral agreement,
arrangement, authorization, commitment, contract, indenture, instrument,
lease, obligation, plan, practice, restriction, understanding or
undertaking of any kind or character, or other document to which any
Person is a party or that is binding on any Person or its capital
stock, Assets or business.
"Creditor's Laws" shall have the meaning provided in Section
5.2 of this Agreement.
"Deemed Book Value" shall be determined as follows: SAB shall
give PSB notice within fifteen (15) days after the approval of the
Merger by the Federal Deposit Insurance Corporation of any adjustments
it deems should be made to the most recent available Book Value. If PSB
agrees to such adjustments or fails to object thereto within ten (10)
days after delivery of such notice, Book Value shall be so adjusted and,
as so adjusted, shall be the Deemed Book Value. If PSB objects to such
adjustment within such ten (10) day period and PSB and SAB are unable to
agree on the Deemed Book Value within fifteen (15) days after delivery
of such notice by SAB, then this Agreement shall terminate with the
effect provided in Section 10.2 hereof.
"Default" shall mean (i) any breach or violation of or
default under any Contract, Order or Permit, (ii) any occurrence of any
event that with the passage of time or the giving of notice or both
would constitute a breach or violation of or default under any Contract,
Order or Permit, or (iii) any occurrence of any event that with or
without the passage of time or the giving of notice would give rise to a
right to terminate or revoke, change the current terms of, or
renegotiate, or to accelerate, increase, or impose any Liability under,
any Contract, Order or Permit, where, in any such event, such Default
is reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on a Party.
"Effective Time" shall mean the date and time at which the
Merger becomes effective as defined in Section 1.3 of this Agreement.
"Environmental Laws" shall mean all Laws which are
administered, interpreted or enforced by the United States Environmental
Protection Agency and state and local agencies with jurisdiction over
pollution or protection of the environment.
"Equitable Discretion" shall have the meaning provided in
Section 5.2 of this Agreement.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
"ERISA Affiliate" shall have the meaning provided in Section
5.14 of this Agreement.
"ERISA Plan" shall have the meaning provided in Section 5.14 of
this Agreement.
"Exchange Agent" shall have the meaning provided in Section
4.1 of this Agreement.
"Exchange Ratio" shall have the meaning given such term in
Section 3.1 hereof.
"Exhibits" 1 through 5, inclusive, shall mean the Exhibits so
marked, copies of which are attached to this Agreement. Such Exhibits
are hereby incorporated by reference herein and made a part hereof, and
may be referred to in this Agreement and any other related instrument or
document without being attached hereto.
"GAAP" shall mean generally accepted accounting principles,
consistently applied during the periods involved.
"Hazardous Material" shall mean any pollutant, contaminant, or
hazardous substance within the meaning of the Comprehensive Environment
Response, Compensation, and Liability Act, 42 U.S.C. Section 9601 et
seq., or any similar federal, state or local Law.
"Internal Revenue Code" shall mean the Internal Revenue Code
of 1986, as amended, and the rules and regulations promulgated thereunder.
"Knowledge" as used with respect to a Person shall mean the
knowledge after due inquiry of the Chairman, President, Chief Financial
Officer, Chief Accounting Officer, Chief Credit Officer, General Counsel,
any Assistant or Deputy General Counsel, or any Senior or Executive Vice
President of such Person; provided, however, that for purposes of
Section 5.11 captioned Environmental Matters, Knowledge shall mean actual
knowledge of such Person, without inquiry other than such inquiry at the
time a loan was made as was then reasonable in the course of making a
loan secured by real property.
"Law" shall mean any code, law, ordinance, regulation,
reporting or licensing requirement, rule, or statute applicable to a
Person or its Assets, Liabilities or business, including, without
limitation, those promulgated, interpreted or enforced by any of the
Regulatory Authorities.
"Liability" shall mean any direct or indirect, primary or
secondary, liability, indebtedness, obligation, penalty, cost or expense
(including, without limitation, costs of investigation, collection and
defense), claim, deficiency, guaranty or endorsement of or by any Person
(other than endorsements of notes, bills, checks, and drafts presented
for collection or deposit in the ordinary course of business) of any
type, whether accrued, absolute or contingent, liquidated or
unliquidated, matured or unmatured, or otherwise.
"Lien" shall mean any conditional sale agreement, default of
title, easement, encroachment, encumbrance, hypothecation, infringement,
lien, mortgage, pledge, reservation, restriction, security interest,
title retention or other security arrangement, or any adverse right or
interest, charge, or claim of any nature whatsoever of, on, or with
respect to any property or property interest, other than (i) Liens for
current property Taxes not yet due and payable, (ii) for a depository
institution, pledges to secure deposits and other Liens incurred in the
ordinary course of the banking business, and (iii) Liens which are not
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on a Party.
"Litigation" shall mean any action, arbitration, cause of
action, claim, complaint, criminal prosecution, demand letter,
governmental or other examination or investigation, hearing, inquiry,
administrative or other proceeding, or notice (written or oral) by any
Person alleging potential Liability or requesting information relating
to or affecting a Party, its business, its Assets (including, without
limitation, Contracts related to it), or the transactions contemplated
by this Agreement, but shall not include regular, periodic examinations
of depository institutions and their Affiliates by Regulatory
Authorities.
"Loan Property" shall mean any property owned by the Party in
question or by any of its Subsidiaries or in which such Party or
Subsidiary holds a security interest, and, where required by the
context, includes the owner or operator of such property, but only with
respect to such property.
"Market Value," when used with reference to SAB Common Stock,
shall mean the average of the closing bid and closing ask price as
reported by NASDAQ, adjusted for the effect of any stock split, stock
dividend or other similar recapitalization between the date hereof and
the Effective Time.
"Material" for purposes of this Agreement shall be determined
in light of the facts and circumstances of the matter in question;
provided that any specific monetary amount stated in this Agreement
shall determine materiality in that instance.
"Material Adverse Effect" on a Party shall mean an event,
change or occurrence which has a material adverse impact on (i) the
financial position or business of such Party and its Subsidiaries, taken
as a whole, or (ii) the ability of such Party to perform its obligations
under this Agreement or to consummate the Merger or the other
transactions contemplated by this Agreement, provided that "material
adverse impact" shall not be deemed to include the impact of (x) changes
in banking and similar Laws of general applicability or interpretations
thereof by courts or governmental authorities, (y) changes in generally
accepted accounting principles or regulatory accounting principles
generally applicable to banks and their holding companies, and (z) the
Merger on the operating performance of the Parties.
"Merger" shall mean the merger of PSB with and into MCB
referred to in Section 1.1 of this Agreement.
"NASD" shall mean the National Association of Securities
Dealers, Inc.
"NASDAQ" shall mean the National Association of Securities
Dealers Automated Quotations System.
"1933 Act" shall mean the Securities Act of 1933, as amended.
"1934 Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Order" shall mean any administrative decision or award,
decree, injunction, judgment, order, quasi-judicial decision or award,
ruling, or writ of any federal, state, local or foreign or other court,
arbitrator, mediator, tribunal, administrative agency or Regulatory
Authority.
"Participation Facility" shall means any facility in which the
Party in question or any of its Subsidiaries participates in the
management and, where required by the context, includes the owner or
operator or such property, but only with respect to such property.
"Party" shall mean PSB on the one hand and SAB and MCB on the
other, and "Parties" shall mean PSB, SAB and MCB.
"Permit" shall mean any federal, state, local, and foreign
governmental approval, authorization, certificate, easement, filing,
franchise, license, notice, permit, or right to which any Person is a
party or that is or may be binding upon or inure to the benefit of any
Person or its securities, Assets or business.
"Person" shall mean a natural person or any legal, commercial
or governmental entity, such as, but not limited to, a corporation,
general partnership, joint venture, limited partnership, limited
liability company, trust, business association, group acting in concert,
or any person acting in a representative capacity.
"Previously Disclosed" shall mean information delivered in
writing prior to the date of this Agreement in the manner and to the
Party and counsel described in Section 11.7 of this Agreement and
describing in reasonable detail the matters contained therein.
"Proxy Statement" shall mean the proxy statement/prospectus
used by PSB to solicit the approval of its stockholders of the
transactions contemplated by this Agreement.
"PSB Benefit Plans" shall have the meaning set forth in
Section 5.14 of this Agreement.
"PSB Common Stock" shall mean the $100 par value common stock
of PSB.
"PSB Financial Statements" shall mean (i) the balance sheets
(including related notes and schedules, if any) of PSB as of June 30,
1997, December 31, 1996 and December 31, 1995, and the related
statements of income, changes in stockholders' equity, and cash flows
(including related notes and schedules, if any) for the period ended
June 30, 1997 and each of the two fiscal years ended December 31, 1996,
and 1995, as delivered by PSB to SAB, and (ii) the consolidated balance
sheets of PSB (including related notes and schedules, if any) and
related statements of income, changes in stockholders' equity, and cash
flows (including related notes and schedules, if any) delivered by PSB
to SAB with respect to periods ended subsequent to June 30, 1997.
"Registration Statement" shall mean the Registration Statement
on Form S-4, or other appropriate form, filed with the SEC by SAB under
the 1933 Act in connection with the transactions contemplated by this
Agreement.
"Regulatory Authorities" shall mean, collectively, the Federal
Trade Commission, the United States Department of Justice, the Board of
Governors of the Federal Reserve System, the Office of the Comptroller
of the Currency, the Federal Deposit Insurance Corporation, all state
regulatory agencies having jurisdiction over the Parties and their
respective Subsidiaries, the NASD, and the SEC.
"SAB Common Stock" shall mean the $.01 par value common stock
of SAB.
"SAB Companies" shall mean, collectively, SAB and all SAB
Subsidiaries.
"SAB Subsidiaries" shall mean the current Subsidiaries of SAB
and any corporation, bank, savings association, or other organization
acquired as a Subsidiary of SAB in the future and owned by SAB at the
Effective Time.
"SEC Documents" shall mean all reports and registration
statements filed, or required to be filed, by a Party or any of its
Subsidiaries with any Regulatory Authority pursuant to the Securities
Laws.
"Securities Laws" shall mean the 1933 Act, the 1934 Act, the
Investment Company Act of 1940, as amended, the Investment Advisors Act
of 1940, as amended, the Trust Indenture Act of 1939, as amended, and
the rules and regulations of any Regulatory Authority promulgated
thereunder.
"Stockholders' Meeting" shall mean the Meeting of the
stockholders of PSB to be held pursuant to Section 8.1 of this
Agreement, including any adjournment or adjournments thereof.
"Subsidiaries" shall mean all those corporations, banks,
associations, or other entities of which the entity in question owns or
controls 50% or more of the outstanding equity securities either
directly or through an unbroken chain of entities as to each of which
50% or more of the outstanding equity securities is owned directly or
indirectly by its parent; provided, however, there shall not be included
any such entity acquired through foreclosure or any such entity the
equity securities of which are owned or controlled in a fiduciary
capacity.
"Surviving Corporation" shall mean MCB as the surviving
corporation resulting from the Merger.
"Taxes" shall mean any federal, state, county, local, foreign
and other taxes, assessments, charges, fares, and impositions, including
interest and penalties thereon or with respect thereto.
"Trading Day" shall mean a day on which NASDAQ is open for
trading activities.
"Valuation Period" shall mean the period of twenty (20)
consecutive Trading Days ending on the Trading Day preceding by two
Trading Days the Effective Time.
ARTICLE ONE
TRANSACTIONS AND TERMS OF MERGER
1.1 Merger. Subject to the terms and conditions of this Agreement,
at the Effective Time, PSB shall be merged with and into MCB in accordance
with the provisions of Article 11 of the ABCA and Article 7A of the Alabama
Banking Code and with the effect provided in Section 11.06 of the ABCA (the
"Merger"). MCB shall be the Surviving Corporation resulting from the Merger
and shall continue to be governed by the Laws of the State of Alabama. The
Merger shall be consummated pursuant to the terms of this Agreement, which
has been approved and adopted by the respective Boards of Directors of SAB,
MCB and PSB.
1.2 Time and Place of Closing. The Closing will take place at
9:00 A.M. on the date that the Effective Time occurs (or the immediately
preceding day if the Effective Time is earlier than 9:00 A.M.), or at such
other time as the Parties, acting through their chief executive officers or
chief financial officers, may mutually agree. The place of Closing shall
be at the offices of Hand Arendall, L.L.C., Mobile, Alabama, or such other
place as may be mutually agreed upon by the Parties.
1.3 Effective Time. The Merger and other transactions
contemplated by this Agreement shall become effective on the date and at the
time the Certificate of Merger reflecting the Merger shall become effective
with the Secretary of State of the State of Alabama (the "Effective Time").
Subject to the terms and conditions hereof, unless otherwise mutually agreed
upon in writing by the chief executive officers or chief financial officers
of each Party, the Parties shall use their reasonable efforts to cause the
Effective Time to occur as soon as practicable after the last to occur of (i)
the effective date (including expiration of any applicable waiting period) of
the last required Consent of any Regulatory Authority having authority over
and approving or exempting the Merger, and (ii) the date on which the
stockholders of MCB and PSB approve this Agreement to the extent such
approval is required by applicable Law, but in no event later than five (5)
business days after such occurrence.
ARTICLE TWO
TERMS OF MERGER
2.1 Articles of Incorporation. The Articles of Incorporation of
MCB in effect immediately prior to the Effective Time shall be the Articles
of Incorporation of the Surviving Corporation immediately following the
Effective Time, with the amendments set forth in Exhibit 1 hereto.
2.2 Bylaws. The Bylaws of MCB in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation immediately
following the Effective Time, with the amendments set forth in Exhibit 2
hereto, until otherwise amended or repealed.
2.3 Directors and Officers.
(a) The directors of the Surviving Corporation from and after
the Effective Time shall consist of the incumbent directors of MCB, who shall
serve as directors of the Surviving Corporation from and after the Effective
Time in accordance with the Bylaws of the Surviving Corporation.
(b) The principal officers of the Surviving Corporation upon
the Effective Time shall be the incumbent principal officers of MCB, who
shall serve as officers of the Surviving Corporation from and after the
Effective Time in accordance with the Bylaws of the Surviving Corporation.
ARTICLE THREE
MANNER OF CONVERTING SHARES
3.1 Conversion of Shares. Subject to the provisions of this
Article Three, at the Effective Time, by virtue of the Merger and without any
action on the part of the holders thereof, the shares of the constituent
corporations shall be converted as follows:
(a) Each share of MCB and SAB Common Stock issued and outstanding
immediately prior to the Effective Time shall remain issued and
outstanding from and after the Effective Time.
(b) Each share of PSB Common Stock (other than shares to be
canceled pursuant to Section 3.2 of this Agreement and shares held by
stockholders who perfect their dissenters' rights of appraisal as
provided in Section 3.3 of this Agreement) issued and outstanding at
the Effective Time shall cease to be outstanding and shall be converted
into and exchanged for the right to receive the number of shares of SAB
Common Stock having an average Market Value during the Valuation Period
of 1.3 times the Deemed Book Value of such share of PSB Common Stock,
rounded to the nearest one-hundreth of a share (the "Exchange Ratio").
3.2 Shares Held by PSB, MCB or SAB. Each of the shares of PSB
Common Stock held by PSB or by any SAB Company, in each case other than in a
fiduciary capacity or as a result of debts previously contracted, shall be
canceled and retired at the Effective Time, and no consideration shall be
issued in exchange therefor.
3.3 Dissenting Stockholders. Any holder of shares of PSB Common
Stock who perfects his dissenters' rights of appraisal in accordance with and
as contemplated by Article 13 of the ABCA, shall be entitled to receive the
value of such shares in cash as determined pursuant to such provision of Law;
provided, however, that no such payment shall be made to any dissenting
stockholder unless and until such dissenting stockholder has complied with the
applicable provisions of the ABCA and surrendered to the Exchange Agent the
certificate or certificates representing the shares for which payment is
being made. In the event that after the Effective Time a dissenting
stockholder of PSB fails to perfect, or effectively withdraws or loses, his
right to appraisal and of payment for his shares, the Exchange Agent shall
issue and deliver the consideration to which such holder of shares of PSB
Common Stock is entitled under this Article Three (without interest) upon
surrender by such holder of the certificate or certificates representing
shares of PSB Common Stock held by him.
3.4 Fractional Shares. Notwithstanding any other provision of
this Agreement, each holder of shares of PSB Common Stock exchanged pursuant
to the Merger, who would otherwise have been entitled to receive a fraction
of a share of SAB Common Stock (after taking into account all certificates
delivered by such holder) shall receive, in lieu thereof, cash (without
interest) in an amount equal to such fractional part of a share of SAB Common
Stock multiplied by the Market Value of one share of SAB Common Stock on the
Trading Day preceding by two Trading Days the Effective Time. No such holder
will be entitled to dividends, voting rights, or any other rights as a
stockholder in respect of any fractional shares.
ARTICLE FOUR
EXCHANGE OF SHARES
4.1 Exchange Procedures. Promptly after the Effective Time, SAB
and MCB shall cause the exchange agent selected by them (the "Exchange Agent")
to mail to the former stockholders of PSB appropriate transmittal materials
(which shall specify that delivery shall be effected, and risk of loss and
title to the certificates theretofore representing shares of PSB Common Stock
shall pass, only upon proper delivery of such certificates to the Exchange
Agent). After the Effective Time, each holder of shares of PSB Common Stock
(other than shares to be canceled pursuant to Section 3.2 of this Agreement
or as to which dissenters' rights of appraisal have been perfected as
provided in Section 3.3 of this Agreement) issued and outstanding at the
Effective Time shall surrender the certificate or certificates representing
such shares to the Exchange Agent and shall promptly upon surrender thereof
receive in exchange therefor the consideration provided in Section 3.1 of
this Agreement, together with all undelivered dividends or distributions in
respect of such shares (without interest thereon) pursuant to Section 4.2 of
this Agreement. To the extent required by Section 3.4 of this Agreement,
each holder of shares of PSB Common Stock issued and outstanding at the
Effective Time also shall receive, upon surrender of the certificate or
certificates representing such shares, cash in lieu of any fractional share
of SAB Common Stock to which such holder may be otherwise entitled (without
interest). SAB shall not be obligated to deliver the consideration to which
any former holder of PSB Common Stock is entitled as a result of the Merger
until such holder surrenders his certificate or certificates representing
the shares of PSB Common Stock for exchange as provided in this Section 4.1.
The certificate or certificates of PSB Common Stock so surrendered shall be
duly endorsed as the Exchange Agent may require. Any other provision of this
Agreement notwithstanding, neither SAB, the Surviving Corporation nor the
Exchange Agent shall be liable to a holder of PSB Common Stock for any
amounts paid or property delivered in good faith to a public official
pursuant to any applicable abandoned property Law.
4.2 Rights of Former PSB Stockholders. At the Effective Time,
the stock transfer books of PSB shall be closed as to holders of PSB Common
Stock immediately prior to the Effective Time, and no transfer of PSB Common
Stock by any such holder shall thereafter be made or recognized. Until
surrendered for exchange in accordance with the provisions of Section 4.1 of
this Agreement, each certificate theretofore representing shares of PSB Common
Stock ("PSB Certificate"), other than shares to be canceled pursuant to
Sections 3.2 and 3.3 of this Agreement, shall from and after the Effective
Time represent for all purposes only the right to receive the consideration
provided in Sections 3.1 and 3.4 of this Agreement in exchange therefor. To
the extent permitted by Law, former stockholders of record of PSB shall be
entitled to vote after the Effective Time at any meeting of SAB stockholders
the number of whole shares of SAB Common Stock into which their respective
shares of PSB Common Stock are converted, regardless of whether such holders
have exchanged their PSB Certificates for certificates representing SAB
Common Stock in accordance with the provisions of this Agreement. Whenever a
dividend or other distribution is declared by SAB on the SAB Common Stock,
the record date for which is at or after the Effective Time, the declaration
shall include dividends or other distributions on all shares issuable
pursuant to this Agreement. Notwithstanding the preceding sentence, any
person holding any PSB Certificate at or after six (6) months after the
Effective Time (the Cutoff ) shall not be entitled to receive any dividend
or other distribution payable after the Cutoff to holders of SAB Common Stock,
which dividend or other distribution is attributable to such person's SAB
Common Stock represented by said PSB Certificate held after the Cutoff, until
such person surrenders said PSB Certificate for exchange as provided in
Section 4.1 of this Agreement. However, upon surrender of such PSB
Certificate, both the SAB Common Stock certificate (together with all such
undelivered dividends or other distributions, without interest) and any
undelivered cash payments to be paid for fractional share interests (without
interest) shall be delivered and paid with respect to each share represented
by such PSB Certificate.
ARTICLE FIVE
REPRESENTATIONS AND WARRANTIES OF PSB
PSB hereby represents and warrants to SAB and MCB as follows:
5.1 Organization, Standing, and Power. PSB is a corporation duly
organized, validly existing and in good standing under the Laws of the State
of Alabama, and has the corporate power and authority to carry on its
business as now conducted and to own, lease and operate its Assets. PSB is
duly qualified or licensed to transact business as a foreign corporation in
good standing in the States of the United States and foreign jurisdictions
where the character of its Assets or the nature or conduct of its business
requires it to be so qualified or licensed. PSB has delivered to SAB and MCB
complete and correct copies of its Articles of Incorporation and Bylaws.
5.2 Authority; No Breach By Agreement.
(a) PSB has all corporate power and authority necessary to
execute, deliver and, subject to Article Nine hereof, perform its obligations
under this Agreement and to consummate the transactions contemplated hereby.
The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated herein, including the Merger,
have been duly and validly authorized by all necessary corporate action in
respect thereof on the part of PSB, subject to the approval of this Agreement
by the holders of PSB Common Stock in accordance with the ABCA and Section
5-7A-2, Code of Alabama (1975). Subject to such requisite stockholder
approval, this Agreement represents a legal, valid, and binding obligation of
PSB, enforceable against PSB in accordance with its terms (except in all
cases as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or similar Laws affecting the
enforcement of creditors' rights generally ("Creditor's Laws") and except
that the availability of the equitable remedy of specific performance or
injunctive relief is subject to the discretion of the court before which
any proceeding may be brought ("Equitable Discretion")).
(b) Neither the execution and delivery of this Agreement by
PSB, nor the consummation by PSB of the transactions contemplated hereby,
nor compliance by PSB with any of the provisions hereof, will (i) conflict
with or result in a breach of any provision of PSB's Articles of
Incorporation or Bylaws, or (ii) constitute or result in a Default under, or
require any Consent pursuant to, or result in the creation of any Lien on any
Asset of PSB under, any Contract or Permit of PSB or, (iii) subject to receipt
of the requisite approvals referred to in Section 9.1(b) of this Agreement,
violate any Law or Order applicable to PSB or its Assets.
(c) Other than in connection or compliance with the
provisions of the Securities Laws, applicable state corporate and securities
Laws, and other than Consents required from Regulatory Authorities, and other
than notices to or filings with the Internal Revenue Service or the Pension
Benefit Guaranty Corporation with respect to any employee benefit plans, no
notice to, filing with, or Consent of, any public body or authority is
necessary for the consummation by PSB of the Merger and the other
transactions contemplated in this Agreement.
5.3 Capital Stock.
(a) The authorized capital stock of PSB consists only of 750
shares of PSB Common Stock, of which 750 shares are issued and outstanding.
All of the issued and outstanding shares of capital stock of PSB are duly and
validly issued and outstanding and are fully paid and nonassessable under the
ABCA. None of the outstanding shares of capital stock of PSB has been issued
in violation of any preemptive rights of the current or past stockholders
of PSB.
(b) There are no shares of capital stock or other equity
securities of PSB outstanding and no outstanding options, warrants, scrip,
rights to subscribe to, calls, or commitments of any character whatsoever
relating to, or securities or rights convertible into or exchangeable for,
shares of the capital stock of PSB or contracts, commitments, understandings,
or arrangements by which PSB is or may be bound to issue additional shares of
its capital stock or options, warrants, or rights to purchase or acquire any
additional shares of its capital stock.
5.4 PSB Subsidiaries. PSB has no Subsidiaries.
5.5 Financial Statements. PSB has delivered to SAB prior to the
execution of this Agreement copies of all PSB Financial Statements for
periods ended prior to the date hereof and will deliver to SAB copies of all
PSB Financial Statements prepared subsequent to the date hereof. The PSB
Financial Statements (as of the dates thereof and for the periods covered
thereby) (i) are or, if dated after the date of this Agreement, will be in
accordance with the books and records of PSB, which are or will be, as the
case may be, complete and correct and which have been or will have been, as
the case may be, maintained in accordance with good business practices, and
(ii) present or will present, as the case may be, fairly the financial
position of PSB as of the dates indicated and the results of operations,
changes in stockholders' equity, and cash flows of PSB for the periods
indicated, in accordance with GAAP.
5.6 Absence of Undisclosed Liabilities. PSB has no Liabilities
that are reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on PSB, except Liabilities which are accrued or
reserved against in the balance sheets of PSB as of June 30, 1997, included
in the PSB Financial Statements or reflected in the notes thereto. PSB has
not incurred or paid any Liability since June 30, 1997, except for such
Liabilities incurred or paid in the ordinary course of business consistent
with past business practice and which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on PSB.
5.7 Absence of Certain Changes or Events. Since June 30, 1997,
except as disclosed in the PSB Financial Statements or as Previously
Disclosed, (i) there have been no events, changes or occurrences which have
had, or are reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on PSB, and (ii) PSB has not taken any action, or
failed to take any action, prior to the date of this Agreement, which action
or failure, if taken after the date of this Agreement, would represent or
result in a breach or violation of any of the covenants and agreements of PSB
provided in Article Seven of this Agreement.
5.8 Tax Matters.
(a) All Tax returns required to be filed by or on behalf of
PSB have been timely filed, or requests for extensions have been timely
filed, granted, and have not expired for periods ended on or before June 30,
1997, and on or before the date of the most recent fiscal year end
immediately preceding the Effective Time, and all returns filed are complete
and accurate. All Taxes shown on filed returns have been paid. There is no
audit examination, deficiency, or refund Litigation with respect to any Taxes
that is reasonably likely to result in a determination that would have,
individually or in the aggregate, a Material Adverse Effect on PSB, except as
reserved against in the PSB Financial Statements delivered prior to the
date of this Agreement or as Previously Disclosed. All Taxes and other
Liabilities due with respect to completed and settled examinations or
concluded Litigation have been paid.
(b) PSB has not executed an extension or waiver of any statute
of limitations on the assessment or collection of any Tax due (excluding such
statutes that relate to years currently under examination by the Internal
Revenue Service or other applicable taxing authorities) that is currently in
effect.
(c) Adequate provision for any Taxes due or to become due for
PSB for the period or periods through and including the date of the
respective PSB Financial Statements has been made and is reflected on such
PSB Financial Statements.
(d) Deferred Taxes of PSB have been provided for in
accordance with GAAP.
5.9 Allowance for Possible Loan Losses. The allowance for possible
loan or credit losses (the "Allowance") shown on the balance sheet of PSB
included in the most recent PSB Financial Statements dated prior to the date
of this Agreement was, and the Allowance shown on the balance sheet of PSB
included in the PSB Financial Statements as of dates subsequent to the
execution of this Agreement will be, as of the dates thereof, adequate
(within the meaning of GAAP and applicable regulatory requirements or
guidelines) to provide for losses relating to or inherent in the loan and
lease portfolios (including accrued interest receivables) of PSB and other
extensions of credit (including letters of credit and commitments to make loans
or extend credit) by PSB as of the dates thereof.
5.10 Assets. Except as Previously Disclosed or as disclosed or
reserved against in the PSB Financial Statements, PSB has good and marketable
title, free and clear of all Liens, to all of its Assets. All tangible
properties used in the business of PSB are in good condition, reasonable wear
and tear excepted, and are usable in the ordinary course of business
consistent with PSB's past practices. All Assets which are material to PSB's
business held under leases or subleases by PSB, are held under valid
Contracts enforceable in accordance with their respective terms (except as
enforceability may be limited by Creditor s Laws and Equitable Discretion), and
each such Contract is in full force and effect. The policies of fire, theft,
liability, and other insurance maintained with respect to the Assets or
businesses of PSB provide adequate coverage under current industry practices
against loss or Liability, and the fidelity and blanket bonds in effect as to
which PSB is a named insured are reasonably sufficient. The Assets of PSB
include all assets required to operate the business of PSB as presently
conducted.
5.11 Environmental Matters.
(a) PSB, and to its knowledge its Participation Facilities
and its Loan Properties, are, and have been, in compliance with all
Environmental Laws.
(b) There is no Litigation pending or threatened before any
court, governmental agency or authority or other forum in which PSB or, to
its knowledge, any of its Participation Facilities have been or, with respect
to threatened Litigation, may be named as a defendant (i) for alleged
noncompliance (including by any predecessor) with any Environmental Law or
(ii) relating to the release into the environment of any Hazardous Material (as
defined below) or oil, whether or not occurring at, on, under or involving a
site owned, leased or operated by PSB or any of its Participation Facilities.
(c) There is no Litigation pending or, to PSB s knowledge,
threatened before any court, governmental agency or board or other forum in
which any of its Loan Properties (or PSB in respect of such Loan Property)
have been or, with respect to threatened Litigation, may, to PSB's knowledge,
be named as a defendant or potentially responsible party (i) for alleged
noncompliance (including by any predecessor) with any Environmental Law or
(ii) relating to the release into the environment of any Hazardous Material
or oil, whether or not occurring at, on, under or involving a Loan Property.
(d) To PSB s knowledge, there is no reasonable basis for any
Litigation of a type described in subsections (b) or (c).
(e) During the period of (i) PSB's ownership or operation of
any of its current properties, (ii) PSB's participation in the management of
any Participation Facility, or (iii) PSB's holding of a security interest in
a Loan Property, there have been, to PSB's knowledge with respect to (ii) and
(iii), no releases of Hazardous Material or oil in, on, under or affecting
such properties. Prior to the period of (i) PSB's ownership or operation of
any of their respective current properties, (ii) PSB's participation in the
management of any Participation Facility, or (iii) PSB's holding of a
security interest in a Loan Property, there were, to PSB's knowledge with
respect to (ii) and (iii), no releases of Hazardous Material or oil in, on,
under or affecting any such property, Participation Facility or Loan Property.
5.12 Compliance with Laws. PSB is duly registered as a banking
corporation under the Alabama Banking Code. PSB has in effect all Permits
necessary for it to own, lease or operate its Assets and to carry on its
business as now conducted, and there has occurred no Default under any such
Permit. PSB is not or has not, as applicable:
(a) In violation of any Laws, Orders or Permits applicable to
its business or employees conducting its business; and
(b) Received any notification or communication from any
agency or department of federal, state, or local government or any
Regulatory Authority or the staff thereof (i) asserting that PSB is not
in compliance with any of the Laws or Orders which such governmental
authority or Regulatory Authority enforces, (ii) threatening to revoke
any Permits, the revocation of which is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on PSB, or
(iii) requiring PSB to enter into or consent to the issuance of a cease
and desist order, formal agreement, directive, commitment or memorandum
of understanding, or to adopt any Board resolution or similar
undertaking, which restricts materially the conduct of its business, or
in any manner relates to its capital adequacy, its credit or reserve
policies, its management, or the payment of dividends.
5.13 Labor Relations. PSB is not the subject of any Litigation
asserting that it has committed an unfair labor practice (within the meaning
of the National Labor Relations Act or comparable state law) or seeking to
compel it to bargain with any labor organization as to wages or conditions of
employment, nor is there any strike or other labor dispute involving PSB,
pending or threatened, or to its Knowledge, is there any activity involving
any PSB's employees seeking to certify a collective bargaining unit or
engaging in any other organization activity.
5.14 Employee Benefit Plans.
(a) PSB has delivered or made available to MCB and SAB prior
to the execution of this Agreement copies of all pension, retirement,
profit-sharing, deferred compensation, stock option, employee stock
ownership, severance pay, vacation, bonus, or other incentive plan, all
other written employee programs, arrangements, or agreements, all medical,
vision, dental, or other health plans, all life insurance plans, and all
other employee benefit plans or fringe benefit plans, including, without
limitation, "employee benefit plans" as that term is defined in Section 3(3)
of ERISA, currently adopted, maintained by, sponsored in whole or in part by,
or contributed to by PSB or any Affiliate of PSB for the benefit of employees,
retirees, dependents, spouses, directors, independent contractors, or other
beneficiaries and under which employees, retirees, dependents, spouses,
directors, independent contractors, or other beneficiaries are eligible to
participate (collectively, the "PSB Benefit Plans"). Any of the PSB Benefit
Plans which is an "employee pension benefit plan," as that term is defined in
Section 3(2) of ERISA, is referred to herein as a "PSB ERISA Plan." Each
PSB ERISA Plan which is also a "defined benefit plan" (as defined in Section
414(j) of the Internal Revenue Code) is referred to herein as a "PSB Pension
Plan." No PSB Pension Plan is or has been a multiemployer plan within the
meaning of Section 3(37) of ERISA.
(b) All PSB Benefit Plans are in compliance with the
applicable terms of ERISA, the Internal Revenue Code, and any other
applicable Laws. Each PSB ERISA Plan which is intended to be qualified
under Section 401(a) of the Internal Revenue Code has received a favorable
determination letter from the Internal Revenue Service, and PSB is not aware
of any circumstances likely to result in revocation of any such favorable
determination letter. PSB has not engaged in a transaction with respect to
any PSB Benefit Plan that, assuming the taxable period of such transaction
expired as of the date hereof, would subject PSB to a tax or penalty imposed
by either Section 4975 of the Internal Revenue Code or Section 502(i) of ERISA.
(c) No PSB ERISA Plan which is a defined benefit pension plan
has any "unfunded current liability," as that term is defined in Section
302(d)(8)(A) of ERISA, and the fair market value of the assets of any such
plan exceeds the plan's "benefit liabilities," as that term is defined in
Section 4001(a)(16) of ERISA, when determined under actuarial factors that
would apply if the plan terminated in accordance with all applicable legal
requirements. Since the date of the most recent actuarial valuation, there
has been (i) no material change in the financial position of any PSB Pension
Plan, (ii) no change in the actuarial assumptions with respect to any PSB
Pension Plan, and (iii) no increase in benefits under any PSB Pension Plan
as a result of plan amendments or changes in applicable Law. Neither any PSB
Pension Plan nor any "single-employer plan," within the meaning of Section
4001(a)(15) of ERISA, currently or formerly maintained by PSB, or the
single-employer plan of any entity which is considered one employer with PSB
under Section 4001 of ERISA or Section 414 of the Internal Revenue Code or
Section 302 of ERISA (whether or not waived) (an "ERISA Affiliate") has an
"accumulated funding deficiency" within the meaning of Section 412 of the
Internal Revenue Code or Section 302 of ERISA. PSB has not provided, nor is
it required to provide, security to a PSB Pension Plan or to any
single-employer plan of an ERISA Affiliate pursuant to Section 401(a)(29) of
the Code.
(d) No Liability under Subtitle C or D of Title IV or ERISA
has been or is expected to be incurred by PSB with respect to any ongoing,
frozen or terminated single-employer plan or the single-employer plan of any
ERISA Affiliate. PSB has not incurred any withdrawal Liability with respect
to a multiemployer plan under Subtitle B of Title IV or ERISA (regardless of
whether based on contributions of an ERISA Affiliate). No notice of a
"reportable event," within the meaning of Section 4043 of ERISA for which the
30-day reporting requirement has not been waived, has been required to be
filed for any PSB Pension Plan or by any ERISA Affiliate within the 12-month
period ending on the date hereof.
(e) Except as Previously Disclosed, (i) PSB has no
obligations for retiree health and life benefits under any of the PSB Benefit
Plans and (ii) there are no restrictions on the rights of PSB to amend or
terminate any such Plan without incurring any Liability thereunder.
(f) Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will (i) result in
any payment (including, without limitation, severance, unemployment
compensation, golden parachute or otherwise) becoming due to any director or
any employee of PSB from PSB under any PSB Benefit Plan or otherwise, (ii)
increase any benefits otherwise payable under any PSB Benefit Plan, or
(iii) result in any acceleration of the time of payment or vesting of any
such benefit.
5.15 Material Contracts. Except as Previously Disclosed or
otherwise reflected in the PSB Financial Statements, neither PSB, nor any of
its Assets, business or operations, is a party to, or is bound or affected
by, or receives benefits under, (i) any employment, severance, termination,
consulting or retirement Contract with any Person, (ii) any Contract relating
to the borrowing of money by PSB or the guarantee by PSB of any such
obligation (other than Contracts evidencing deposit liabilities, purchases of
federal funds, fully-secured repurchase agreements, Federal Home Loan Bank
advances, trade payables, and Contracts relating to borrowings or guarantees
made in the ordinary course of business), and (iii) any other Contract or
amendment thereto that requires PSB to make payments aggregating $10,000 or
more in any 12-month period (together with all Contracts referred to in
Sections 5.10 and 5.14(a) of this Agreement, the "PSB Contracts"). PSB is
not in Default under any PSB Contract. All of the indebtedness of PSB for
money borrowed is prepayable at any time by PSB without penalty or premium.
5.16 Legal Proceedings. Except as Previously Disclosed, there is
no Litigation instituted or pending, or threatened (or unasserted but
considered probable of assertion and which if asserted would have at least a
reasonable probability of an unfavorable outcome) against PSB, or against any
Asset, interest, or right of PSB, nor are there any Orders of any Regulatory
Authorities, other governmental authorities, or arbitrators outstanding
against PSB.
5.17 Reports. Since January 1, 1994, PSB has timely filed all
reports and statements, together with any amendments required to be made
with respect thereto, that it was required to file with (i) the SEC, (ii)
other Regulatory Authorities, and (iii) any applicable state securities or
banking authorities. As of their respective dates, each of such reports and
documents, including the financial statements, exhibits, and schedules
thereto, complied in all material respects with all applicable Laws. As of
its respective date, each such report and document did not, in all material
respects, contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
made therein, in light of the circumstances under which they were made, not
misleading.
5.18 Statements True and Correct. No statement, certificate,
instrument or other writing furnished or to be furnished by PSB or any
Affiliate thereof to SAB pursuant to this Agreement or any other document,
agreement or instrument referred to herein contains or will contain any
untrue statement of material fact or will omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. None of the information supplied or to
be supplied by PSB or any Affiliate thereof for inclusion in the Registration
Statement to be filed by SAB with the SEC will, when the Registration
Statement becomes effective, be false or misleading with respect to any material
fact, or omit to state any material fact necessary to make the statements
therein not misleading. None of the information supplied or to be supplied
by PSB or any Affiliate thereof for inclusion in the Proxy Statement to be
mailed to PSB's stockholders in connection with the Stockholders' Meeting,
and any other documents to be filed by PSB or any Affiliate thereof with the
SEC or any other Regulatory Authority in connection with the transactions
contemplated hereby, will, at the respective time such documents are filed,
and with respect to the Proxy Statement, when first mailed to the
stockholders of PSB, be false or misleading with respect to any material fact,
or omit to state any material fact necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, or,
in the case of the Proxy Statement or any amendment thereof or supplement
thereto, at the time of the Stockholders' Meeting, be false or misleading
with respect to any material fact, or omit to state any material fact
necessary to correct any statement in any earlier communication with respect
to the solicitation of any proxy for the Stockholders' Meeting. All
documents that PSB or any Affiliate thereof is responsible for filing with
any Regulatory Authority in connection with the transactions contemplated
hereby will comply as to form in all material respects with the provisions of
applicable Law.
5.19 Accounting, Tax and Regulatory Matters. Neither PSB nor any
Affiliate thereof has taken any action or has any Knowledge of any fact or
circumstance that is reasonably likely to (i) prevent the transactions
contemplated hereby, including the Merger, from qualifying as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code, or (ii) materially impede or delay receipt of any Consents of
Regulatory Authorities referred to in Section 9.1(b) of this Agreement or
result in the imposition of a condition or restriction of the type referred
to in the last sentence of such Section.
5.20 Charter Provisions. PSB has taken all action so that the
entering into of this Agreement and the consummation of the Merger and the
other transactions contemplated by this Agreement do not and will not result
in the grant of any rights to any Person under the Articles of Incorporation,
Bylaws or other governing instruments of PSB.
ARTICLE SIX
REPRESENTATIONS AND WARRANTIES OF SAB AND MCB
SAB and MCB hereby jointly and severally represent and warrant to
PSB as follows:
6.1 Organization, Standing, and Power. SAB and MCB are
corporations duly organized, validly existing, and in good standing under the
Laws of the State of Alabama, and have the corporate power and authority to
carry on their businesses as now conducted and to own, lease and operate
their Assets.
6.2 Authority; No Breach By Agreement.
(a) SAB and MCB each have the corporate power and authority
necessary to execute, deliver and, subject to Article Nine hereof, perform
their respective obligations under this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated herein,
including the Merger, have been duly and validly authorized by all necessary
corporate action in respect thereof on the part of SAB and MCB. This
Agreement represents a legal, valid, and binding obligation of both SAB and
MCB, enforceable against SAB and MCB in accordance with its terms (except in
all cases as such enforceability may be limited by Creditors' Laws and
Equitable Discretion).
(b) Neither the execution and delivery of this Agreement by
SAB and MCB, nor the consummation by SAB and MCB of the transactions
contemplated hereby, nor compliance by SAB and MCB with any of the
provisions hereof, will (i) conflict with or result in a breach of any
provision of their respective Articles of Incorporation or Bylaws, or (ii)
constitute or result in a Default under, or require any Consent pursuant to,
or result in the creation of any Lien on any Asset of any SAB Company under,
any Contract or Permit of any SAB Company, where any failure to obtain such
Consent is reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on SAB, or, (iii) subject to receipt of the requisite
approvals referred to in Section 9.1(b) of this Agreement, violate any Law or
Order applicable to any SAB Company or any of their respective Assets.
(c) Other than in connection or compliance with the provisions
of the Securities Laws, applicable state corporate and securities Laws, and
rules of the NASD, and other than Consents required from Regulatory
Authorities, and other than notices to or filings with the Internal Revenue
Service or the Pension Benefit Guaranty Corporation with respect to any
employee benefit plans, or under the HSR Act, and other than Consents, filings
or notifications which, if not obtained or made, are not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on SAB or
MCB, no notice to, filing with, or Consent of, any public body or authority
is necessary for the consummation by SAB and MCB of the Merger and the other
transactions contemplated in this Agreement.
6.3 Reports. Since January 1, 1994, or the date of organization
if later, each SAB Company has timely filed all reports and statements,
together with any amendments required to be made with respect thereto, that
it was required to file with (i) the SEC, including, but not limited to,
Forms 10-K, Forms 10-Q, Forms 8-K, and proxy statements, (ii) other Regulatory
Authorities, and (iii) any applicable state securities or banking authorities
(except, in the case of state securities authorities, failures to file which
are not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on SAB). As of their respective dates, each of such
reports and documents, including the financial statements, exhibits, and
schedules thereto, complied in all material respects with all applicable
Laws. As of its respective date, each such report and document did not, in
all material respects, contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances under which
they were made, not misleading.
ARTICLE SEVEN
CONDUCT OF BUSINESS PENDING CONSUMMATION
7.1 Covenants of PSB and SAB. Unless the prior written consent of
PSB, in the case of SAB, and SAB, in the case of PSB, shall have been
obtained, and except as otherwise expressly contemplated herein, each of PSB
and SAB shall and shall cause itself and/or each of its Subsidiaries, as
applicable, to (a) preserve intact its business organizations, goodwill,
relationships with depositors, customers and employees, and Assets and
maintain its rights and franchises, and (b) take no action which would (i)
adversely affect the ability of any Party to obtain any Consents required
for the transactions contemplated hereby without imposition of a condition
or restriction of the type referred to in the last sentences of Section 9.1(b)
or 9.1(c) of this Agreement, or (ii) adversely affect the ability of any
Party to perform its covenants and agreements under this Agreement.
7.2 Negative Covenants of PSB. From the date of this Agreement
until the earlier of the Effective Time or the termination of this Agreement,
PSB covenants and agrees that PSB will not do or agree or commit to do, any
of the following without the prior written consent of the chief executive
officer, president or chief financial officer of SAB and of MCB, which
consent shall not be unreasonably withheld:
(a) amend its Articles of Incorporation, Bylaws or other
governing instruments; or
(b) incur any additional debt obligation or other obligation
for borrowed money except in the ordinary course of the business
consistent with past practices (which shall include creation of deposit
liabilities, purchases of federal funds, advances from the Federal
Reserve Bank or the Federal Home Loan Bank, and entry into repurchase
agreements fully secured by U.S. government or agency securities), or
impose, or suffer the imposition, on any share of stock held by PSB of
any Lien or permit any such Lien to exist; or
(c) repurchase, redeem, or otherwise acquire or exchange
(other than exchanges in the ordinary course under employee benefit
plans), directly or indirectly, any shares, or any securities
convertible into any shares, of the capital stock of PSB, or declare or
pay any dividend or make any other distribution in respect of PSB's
capital stock; or
(d) except for this Agreement, issue, sell, pledge, encumber,
enter into any Contract to issue, sell, pledge, or encumber, authorize
the issuance of, or otherwise permit to become outstanding, any
additional shares of PSB Common Stock or any other capital stock of PSB,
or any stock appreciation rights, or any option, warrant, conversion, or
other right to acquire any such stock, or any security convertible into
any such stock; or
(e) adjust, split, combine or reclassify any capital stock of
PSB or issue or authorize the issuance of any other securities in
respect of or in substitution for shares of its capital stock or sell,
lease, mortgage or otherwise dispose of or otherwise encumber any shares
of capital stock of PSB or any Asset other than in the ordinary course
of business for reasonable and adequate consideration; or
(f) acquire any direct or indirect equity interest in any
Person, other than in connection with (i) foreclosures in the ordinary
course of business, and (ii) acquisitions of control by a depository
institution Subsidiary in its fiduciary capacity; or
(g) grant any increase in compensation or benefits to the
employees or officers of PSB, except in accordance with past practice
Previously Disclosed or as required by Law; pay any bonus except in
accordance with past practice Previously Disclosed or the provisions of
any applicable program or plan adopted by its Board of Directors prior
to the date of this Agreement; enter into or amend any severance
agreements with officers of PSB; grant any material increase in fees or
other increases in compensation or other benefits to directors of PSB
except in accordance with past practice Previously Disclosed; or
(h) enter into or amend any employment Contract between PSB
and any Person (unless such amendment is required by Law) that PSB does
not have the unconditional right to terminate without Liability (other
than Liability for services already rendered), at any time on or after
the Effective Time;
(i) adopt any new employee benefit plan or make any material
change in or to any existing employee benefit plans of PSB other than
any such change that is required by Law or that, in the opinion of
counsel, is necessary or advisable to maintain the tax qualified status
of any such plan; or
(j) make any significant change in any accounting methods or
systems of internal accounting controls, except as may be appropriate
to conform to changes in regulatory accounting requirements or GAAP;
(k) commence any Litigation other than in accordance with
past practice, settle any Litigation involving any Liability of PSB for
material money damages or restrictions upon the operations of PSB, or,
except in the ordinary course of business, modify, amend or terminate
any material Contract or waive, release, compromise or assign any
material rights or claims;
(l) operate its business otherwise than in the ordinary
course of business; or
(m) fail to file timely any report required to be filed by it
with any Regulatory Authority.
7.3 Affirmative Covenants of SAB. SAB agrees and covenants that:
(a) it will cooperate fully in seeking all necessary approvals
of Regulatory Authorities of the Merger;
(b) it will take all necessary corporate action to effect the
issuance of shares of SAB Common Stock as provided in Articles 3 and 4
hereof;
(c) as a shareholder of MCB, it will vote in favor of the
Merger; and
(d) it will give written notice promptly to PSB upon becoming
aware of the occurrence or impending occurrence of any event or
circumstance relating to it which (i) is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on it or
(ii) would cause or constitute a material breach of any of its
representations, warranties, or covenants contained herein, and it will
use its reasonable efforts to prevent or promptly to remedy the same.
7.4 Affirmative Covenants of PSB.
(a) PSB agrees to give written notice promptly to SAB and MCB
upon becoming aware of the occurrence or impending occurrence of any
event or circumstance relating to it which (i) is reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on it
or (ii) would cause or constitute a material breach of any of its
representations, warranties, or covenants contained herein, and to use
its reasonable efforts to prevent or promptly to remedy the same.
(b) PSB shall deliver to SAB and MCB copies of all reports
filed with Regulatory Authorities promptly after the same are filed.
ARTICLE EIGHT
ADDITIONAL AGREEMENTS
8.1 Registration Statement; Proxy Statement; Stockholder Approval.
As soon as practicable after execution of this Agreement, SAB shall file the
Registration Statement with the SEC, and shall use its reasonable efforts to
cause the Registration Statement to become effective under the 1933 Act and
take any action required to be taken under the applicable state Blue Sky or
securities Laws in connection with the issuance of the shares of SAB Common
Stock upon consummation of the Merger. PSB shall furnish all information
concerning it and the holders of its capital stock as SAB may reasonably
request in connection with such action. PSB shall call a Stockholders'
Meeting, to be held as soon as reasonably practicable after the Registration
Statement is declared effective by the SEC, for the purpose of voting upon
adoption of this Agreement and such other related matters as it deems
appropriate. In connection with the Stockholders' Meeting, (i) PSB shall
prepare a Proxy Statement and mail it to its stockholders, (ii) SAB shall
furnish to PSB all information concerning it that PSB may reasonably request
in connection with such Proxy Statement, (iii) the Board of Directors of PSB
shall recommend (subject to compliance with its fiduciary duties as advised
by counsel) to its stockholders the approval of this Agreement, and (iv) the
Board of Directors and officers of PSB shall use their reasonable efforts to
obtain such stockholders' approval (subject to compliance with their
fiduciary duties as advised by counsel).
8.2 Applications. SAB or MCB shall promptly prepare and file, and
PSB shall cooperate in the preparation and, where appropriate, filing of,
applications with all Regulatory Authorities having jurisdiction over the
transactions contemplated by this Agreement seeking the requisite Consents
necessary to consummate the transactions contemplated by this Agreement.
8.3 Filings with State Offices. Upon the terms and subject to the
conditions of this Agreement, MCB shall execute and file the Articles of
Merger, with the certificate of approval of the Superintendent of Banks, with
the Secretary of State of the State of Alabama in connection with the Closing.
8.4 Agreement as to Efforts to Consummate. Subject to the terms
and conditions of this Agreement, each Party agrees to use, and to cause its
Subsidiaries to use, its reasonable efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, all things necessary, proper, or
advisable under applicable Laws to consummate and make effective, as soon as
practicable after the date of this Agreement, the transactions contemplated
by this Agreement, including, without limitation, using its reasonable
efforts to lift or rescind any Order adversely affecting its ability to
consummate the transactions contemplated herein and to cause to be satisfied
the conditions referred to in Article Nine of this Agreement. Each Party
shall use, and shall cause each of its Subsidiaries to use, its reasonable
efforts to obtain all Consents necessary or desirable for the consummation
of the transactions contemplated by this Agreement.
8.5 Investigation and Confidentiality.
(a) Prior to the Effective Time, PSB will keep SAB and MCB
advised of all material developments relevant to its business and to
consummation of the Merger and shall permit SAB and MCB to make or cause
to be made such investigation of the business and properties of PSB and
of its financial and legal condition as SAB and MCB reasonably request,
provided that such investigation shall be reasonably related to the
transactions contemplated hereby and shall not interfere unnecessarily
with normal operations. No investigation by SAB and MCB shall affect
the representations and warranties of PSB.
(b) Each Party shall, and shall cause its advisers and agents
to, maintain the confidentiality of all confidential information
furnished to it by the other Party concerning its and its Subsidiaries'
businesses, operations, and financial positions and shall not use such
information for any purpose except in furtherance of the transactions
contemplated by this Agreement. If this Agreement is terminated prior
to the Effective Time, each Party shall promptly return all documents
and copies thereof, and all work papers containing confidential
information received from the other Party.
(c) Each Party agrees to give the other Party notice as soon
as practicable after any determination by it of any fact or occurrence
relating to the other Party which it has discovered through the course
of its investigation and which represents, or is reasonably likely to
represent, either a material breach of any representation, warranty,
covenant or agreement of the other Party or which has had or is reasonably
likely to have a Material Adverse Effect on the other Party.
(d) In the event this Agreement is terminated without the
consummation of the Merger, neither Party shall use confidential
information about the other Party obtained pursuant hereto to solicit
customers of the other Party for a period of eighteen (18) months after
the date of such termination, or if the exact date of such termination
is unascertainable, then for a period of twenty-one (21) months after
the date hereof.
8.6 Press Releases. Prior to the Effective Time, PSB, SAB and MCB
shall consult with each other as to the form and substance of any press
release or other public disclosure materially related to this Agreement or
any other transaction contemplated hereby; provided, however, that nothing in
this Section 8.6 shall be deemed to prohibit SAB from making any disclosure
which its counsel deems necessary or advisable in order to satisfy such
Party's disclosure obligations imposed by Law.
8.7 Certain Actions.
(a) Except with respect to this Agreement and the
transactions contemplated hereby, neither PSB nor any Affiliate thereof
or any investment banker, attorney, accountant or other representative
retained by PSB (collectively, "PSB Representatives") shall directly or
indirectly solicit any Acquisition Proposal by any Person. Neither PSB
nor any Affiliate or Representative thereof shall furnish any non-public
information that it is not legally obligated to furnish, negotiate with
respect to, or enter into any Contract with respect to, any Acquisition
Proposal, but PSB may communicate information about such an Acquisition
Proposal to its stockholders if and to the extent that it is required to
do so in order to comply with its legal obligations. PSB shall promptly
notify SAB orally and in writing in the event that it receives any
inquiry or proposal relating to any such transaction. PSB shall (i)
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any Persons conducted heretofore with
respect to any of the foregoing, and (ii) direct and use its reasonable
efforts to cause all PSB Representatives not to engage in any of the
foregoing.
(b) SAB shall promptly notify PSB orally and in writing in
the event that it receives any inquiry or proposal relating to an
Acquisition Proposal; provided, that no such notice shall be required if
it would violate any confidentiality agreement or would require public
notice of such Acquisition Proposal before such notice would otherwise
be timely made.
8.8 Charter Provisions. PSB shall take all necessary action to
ensure that the entering into of this Agreement and the consummation of the
Merger and the other transactions contemplated hereby do not and will not
result in the grant of any rights to any Person under the Articles of
Incorporation, Bylaws or other governing instruments of PSB.
8.9 Agreement of Affiliates. PSB shall use its reasonable best
efforts to cause each Person who is an "affiliate" within the meaning of SEC
Rule 145 to deliver to SAB not later than thirty (30) days prior to the
Effective Time, a written agreement, substantially in the form of Exhibit 3,
providing that such Person will not sell, pledge, transfer, or otherwise
dispose of the shares of PSB Common Stock held by such Person except as
contemplated by such agreement or by this Agreement and will not sell,
pledge, transfer, or otherwise dispose of the shares of SAB Common Stock to
be received by such Person upon consummation of the Merger except in
compliance with applicable provisions of the 1933 Act and the rules and
regulations thereunder and until such time as financial results covering at
least thirty (30) days of combined operations of MCB and PSB have been
published within the meaning of Section 201.01 of the SEC's Codification of
Financial Reporting Policies. If the Merger will qualify for pooling-of-
interests accounting treatment, shares of SAB Common Stock issued to such
affiliates of PSB in exchange for shares of PSB Common Stock (and shares of
SAB Common Stock held by persons who are "affiliates" of SAB) shall not be
transferable until such time as financial results covering at least thirty
(30) days of combined operations of MCB and PSB have been published within
the meaning of Section 201.01 of the SEC's Codification of Financial
Reporting Policies, regardless of whether each such Affiliate has provided
the written agreement referred to in this Section 8.9 (and SAB shall be
entitled to place restrictive legends upon certificates for shares of SAB
Common Stock issued to Affiliates of PSB pursuant to this Agreement to
enforce the provisions of this Section 8.9). SAB shall not be required to
maintain the effectiveness of the Registration Statement under the 1933 Act
for the purposes of resale of SAB Common Stock by such Affiliates.
8.10 Compensation and Employee Benefits. The Parties contemplate
that at the Effective Time neither the compensation and employee benefit
plans of PSB nor the SAB Companies shall be affected by the Merger and that
such plans shall continue in effect as though the Merger had not occurred.
The Parties further contemplate, however, that it is desirable that SAB and
its Subsidiaries offer more uniform employee compensation and benefits and
that at some point after the Effective Time SAB and its Subsidiaries will
adopt uniform policies and plans, giving due regard to the benefits offered
to current employees.
8.11 D & O Coverage. SAB and/or MCB shall purchase what is
customarily known as "tail" insurance coverage for liability arising out of
the actions in their official capacities of the directors and officers of
PSB. Such coverage shall be for liability which arose prior to the Effective
Time and for which claims are made after the Effective Time, and it shall
extend for a period of not less than two (2) years from the Effective Time.
Such coverage shall be in an amount and with an insurance company deemed
reasonable by SAB and MCB. SAB and PSB shall have the right to require PSB
to pay for said coverage, provided such payment does not adversely affect
Deemed Book Value.
ARTICLE NINE
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
9.1 Conditions to Obligations of Each Party. The respective
obligations of each Party to perform this Agreement and consummate the Merger
and the other transactions contemplated hereby are subject to the
satisfaction of the following conditions, unless waived by both Parties
pursuant to Section 11.5 of this Agreement:
(a) Stockholder Approval. The stockholders of PSB and MCB
shall have adopted this Agreement, and the consummation of the
transactions contemplated hereby, including the Merger, as and to the
extent required by Law, by the provisions of any governing instruments,
or by the rules of the NASD.
(b) Regulatory Approvals. All Consents of, filings and
registrations with, and notifications to, all Regulatory Authorities
required for consummation of the Merger shall have been obtained or
made and shall be in full force and effect and all waiting periods
required by Law shall have expired. No Consent obtained from any
Regulatory Authority which is necessary to consummate the transactions
contemplated hereby shall be conditioned or restricted in a manner
(including, without limitation, requirements relating to the raising of
additional capital or the disposition of assets) which in the reasonable
judgment of the Board of Directors of either Party would so materially
adversely impact the economic or business benefits of the transactions
contemplated by this Agreement so as to render inadvisable the
consummation of the Merger.
(c) Consents and Approvals. Each Party shall have obtained
any and all Consents required for consummation of the Merger (other than
those referred to in Section 9.1(b) of this Agreement) or for the
preventing of any Default under any Contract or Permit of such Party
which, if not obtained or made, is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on such
Party. No Consent so obtained which is necessary to consummate the
transactions contemplated hereby shall be conditioned or restricted in a
manner which in the reasonable judgment of the Board of Directors of
either Party would so materially adversely impact the economic or
business benefits of the transactions contemplated by this Agreement so
as to render inadvisable the consummation of the Merger.
(d) Legal Proceedings. No court or governmental or
regulatory authority of competent jurisdiction shall have enacted,
issued, promulgated, enforced or entered any Law or Order (whether
temporary, preliminary or permanent) or taken any other action which
prohibits, restricts or makes illegal consummation of the transactions
contemplated by this Agreement.
(e) Registration Statement. The Registration Statement shall
be effective under the 1933 Act, no stop orders suspending the
effectiveness of the Registration Statement shall have been issued, no
action, suit, proceeding or investigation by the SEC to suspend the
effectiveness thereof shall have been initiated and be continuing, and
all necessary approvals under state securities Laws or the 1933 Act or
1934 Act relating to the issuance or trading of the shares of SAB
Common Stock issuable pursuant to the Merger shall have been received.
(f) Tax Matters. SAB and PSB shall have received a written
opinion of counsel from Capell, Howard, Knabe & Cobbs, P.A. and Hand
Arendall, L.L.C., respectively, in form reasonably satisfactory to them
(the "Tax Opinions"), to the effect that (i) the Merger will constitute
a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code, (ii) the exchange in the Merger of PSB Common Stock for
SAB Common Stock will not give rise to gain or loss to the stockholders
of PSB with respect to such exchange (except to the extent of any cash
received), and (iii) neither PSB, SAB nor MCB will recognize gain or
loss as a consequence of the Merger (except for income and deferred gain
recognized pursuant to Treasury regulations issued under Section 1502 of
the Internal Revenue Code). In rendering such Tax Opinion, counsel for
PSB and SAB shall be entitled to rely upon representations of officers
of PSB and SAB reasonably satisfactory in form and substance to such
counsel.
9.2 Conditions to Obligations of SAB and MCB. The obligations of
SAB and MCB to perform this Agreement and consummate the Merger and the other
transactions contemplated hereby are subject to the satisfaction of the
following conditions, unless waived by SAB pursuant to Section 11.5(a) of
this Agreement:
(a) Representations and Warranties. The representations and
warranties of PSB set forth or referred to in this Agreement shall be
true and correct as of the date of this Agreement and as of the
Effective Time with the same effect as though all such representations
and warranties had been made on and as of the Effective Time.
(b) Performance of Agreements and Covenants. Each and all of
the agreements and covenants of PSB to be performed and complied with
pursuant to this Agreement and the other agreements contemplated hereby
prior to the Effective Time shall have been duly performed and complied
with in all respects.
(c) Certificates. PSB shall have delivered to SAB (i) a
certificate, dated as of the Effective Time and signed on its behalf by
its chief executive officer and its chief financial officer, to the
effect that the conditions of its obligations set forth in Section
9.2(a) and 9.2(b) of this Agreement have been satisfied, and (ii)
certified copies of resolutions duly adopted by PSB's Board of Directors
and stockholders evidencing the taking of all corporate action necessary
to authorize the execution, delivery and performance of this Agreement,
and the consummation of the transactions contemplated hereby, all in
such reasonable detail as SAB and its counsel shall request.
(d) Opinion of Counsel. PSB shall have delivered to SAB an
opinion of Capell, Howard, Knabe & Cobbs, P.A., counsel to PSB, dated as
of the Closing, in substantially the form of Exhibit 4 hereto.
9.3 Conditions to Obligations of PSB. The obligations of PSB to
perform this Agreement and consummate the Merger and the other transactions
contemplated hereby are subject to the satisfaction of the following
conditions, unless waived by PSB pursuant to Section 11.5(b) of this
Agreement:
(a) Representations and Warranties. The representations and
warranties of SAB and MCB set forth or referred to in this Agreement
shall be true and correct as of the date of this Agreement and as of the
Effective Time with the same effect as though all such representations
and warranties had been made on and as of the Effective Time.
(b) Performance of Agreements and Covenants. Each and all of
the agreements and covenants of SAB and MCB to be performed and complied
with pursuant to this Agreement and the other agreements contemplated
hereby prior to the Effective Time shall have been duly performed and
complied with in all material respects.
(c) Certificates. SAB shall have delivered to PSB (i) a
certificate, dated as of the Effective Time and signed on its behalf by
its chief executive officer and its chief financial officer, to the
effect that the conditions of its obligations set forth in Section
9.3(a) and 9.3(b) of this Agreement have been satisfied, and (ii)
certified copies of resolutions duly adopted by SAB's Board of Directors
and MCB's Board of Directors and stockholder evidencing the taking of
all corporate action necessary to authorize the execution, delivery and
performance of this Agreement, and the consummation of the transactions
contemplated hereby, all in such reasonable detail as PSB and its counsel
shall request.
(d) Opinion of Counsel. SAB and MCB shall have delivered to
PSB an opinion of Hand Arendall, L.L.C., counsel to SAB and MCB, dated
as of the Effective Time, in substantially the form of Exhibit 5 hereto.
ARTICLE TEN
TERMINATION
10.1 Termination. Notwithstanding any other provision of this
Agreement, and notwithstanding the approval of this Agreement by the
stockholders of PSB and MCB or both, this Agreement may be terminated and
the Merger abandoned at any time prior to the Effective Time:
(a) By mutual consent of the Board of Directors of SAB and
MCB and the Board of Directors of PSB; or
(b) By the Board of Directors of either Party in the event of
a breach by the other Party of any representation or warranty contained
in this Agreement which cannot be or has not been cured within thirty
(30) days after the giving of written notice to the breaching Party of
such breach and which breach is reasonably likely, in the opinion of the
non-breaching Party, to have, individually or in the aggregate, a
Material Adverse Effect on the breaching Party; or
(c) By the Board of Directors of either Party in the event of
a material breach by the other Party of any covenant or agreement
contained in this Agreement which cannot be or has not been cured within
thirty (30) days after the giving of written notice to the breaching
Party of such breach; or
(d) By the Board of Directors of either Party (provided that
the terminating Party is not then in material breach of any
representation, warranty, covenant, or other agreement contained in this
Agreement) in the event (i) any Consent of any Regulatory Authority
required for consummation of the Merger and the other transactions
contemplated hereby shall have been denied by final nonappealable action
of such authority or if any action taken by such authority is not
appealed within the time limit for appeal, or (ii) if the stockholders
of PSB fail to vote their approval of this Agreement and the
transactions contemplated hereby as required by the ABCA and the Alabama
Banking Code at the Stockholders' Meeting where the transactions were
presented to such stockholders for approval and voted upon; or
(e) By the Board of Directors of PSB in the event the average
Market Value of SAB Common Stock for the Valuation Period is less than
$13.00 or more than $26.00 per share; or
(f) By the Board of Directors of SAB in the event the average
Market Value of SAB Common Stock for the Valuation Period is less than
$13.00 per share; or
(g) By the Board of Directors of SAB in the event that Deemed
Book Value is less than $1,900,000.
(h) By the Board of Directors of either Party in the event
that the Merger shall not have been consummated by March 31, 1998, if
the failure to consummate the transactions contemplated hereby on or
before such date is not caused by any breach of this Agreement by the
Party electing to terminate pursuant to this Section 10.1(h); or
(i) By the Board of Directors of either Party in the event
that any of the conditions precedent to the obligations of such Party to
consummate the Merger cannot be satisfied or fulfilled by the date
specified in Section 10.1(h) of this Agreement.
10.2 Effect of Termination. In the event of the termination
and abandonment of this Agreement pursuant to Section 10.1 of this Agreement,
this Agreement shall become void and have no effect, except that (i) the
provisions of this Section 10.2 and Article Eleven and Section 8.5(b) of this
Agreement shall survive any such termination and abandonment, and (ii) a
termination pursuant to Sections 10.1(b), 10.1(c) or 10.1(h) of this
Agreement shall not relieve the breaching Party from Liability for an
uncured willful breach of a representation, warranty, covenant, or
agreement giving rise to such termination.
10.3 Survival of Representations and Covenants. The
respective representations, warranties, obligations, covenants, and
agreements of the Parties shall survive the Effective Time.
ARTICLE ELEVEN
MISCELLANEOUS
11.1 Expenses. Each of the parties shall bear and pay all costs
and expenses incurred by it or on its behalf in connection with the
transactions contemplated hereunder. It is agreed and understood that work
done by SAB and MCB and/or their respective attorneys and advisors to prepare
and file the Registration Statement shall not be deemed to be done on behalf
of PSB, and the costs and expenses therefor shall not be the responsibility
of PSB.
11.2 Brokers and Finders. Each of the Parties represents and
warrants that neither it nor any of its officers, directors, employees, or
Affiliates has employed any broker or finder or incurred any Liability for
any financial advisory fees, investment bankers' fees, brokerage fees,
commissions, or finders' fees in connection with this Agreement or the
transactions contemplated hereby ("Broker Fees"). In the event of a claim by
any broker or finder based upon his or its representing or being retained by
or allegedly representing or being retained by PSB or SAB, each of PSB and
SAB, as the case may be, agrees to indemnify and hold the other Party
harmless of and from any Liability in respect of any such claim.
11.3 Entire Agreement. Except as otherwise expressly provided
herein, this Agreement (including the documents and instruments referred to
herein) constitutes the entire agreement between the Parties with respect to
the transactions contemplated hereunder and supersedes all prior arrangements
or understandings with respect thereto, written or oral. Nothing in this
Agreement expressed or implied is intended to confer upon any Person, other
than the Parties or their respective successors, any rights, remedies,
obligations, or liabilities under or by reason of this Agreement.
11.4 Amendments. To the extent permitted by Law, this
Agreement may be amended by a subsequent writing signed by each of the
Parties upon the approval of the Boards of Directors of each of the Parties;
provided, however, that after approval of this Agreement by the holders of
PSB Common Stock or MCB Common Stock, there shall be made no amendment that
pursuant to the ABCA requires further approval by the PSB, SAB or MCB
stockholders without the further approval of such stockholders.
11.5 Waivers.
(a) Prior to or at the Effective Time, SAB, acting through
its Board of Directors, chief executive officer or other authorized officer,
shall have the right to waive any Default in the performance of any term of
this Agreement by PSB, to waive or extend the time for the compliance or
fulfillment by PSB of any and all of its obligations under this Agreement,
and to waive any or all of the conditions precedent to the obligations of SAB
under this Agreement, except any condition which, if not satisfied, would
result in the violation of any Law. No such waiver shall be effective unless
in writing signed by a duly authorized officer of SAB.
(b) Prior to or at the Effective Time, PSB, acting through
its Board of Directors, chief executive officer or other authorized officer,
shall have the right to waive any Default in the performance of any term of
this Agreement by SAB or MCB, to waive or extend the time for the compliance
or fulfillment by SAB or MCB of any and all of their respective obligations
under this Agreement, and to waive any or all of the conditions precedent to
the obligations of PSB under this Agreement, except any condition which, if
not satisfied, would result in the violation of any Law. No such waiver
shall be effective unless in writing signed by a duly authorized officer of
PSB.
11.6 Assignment. Except as expressly contemplated hereby,
neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any Party hereto (whether by operation of Law
or otherwise) without the prior written consent of the other Party. Subject
to the preceding sentence, this Agreement will be binding upon, inure to the
benefit of and be enforceable by the Parties and their respective successors
and assigns.
11.7 Notices. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if
delivered by hand, by facsimile transmission, by registered or certified mail,
postage pre-paid, or by courier or overnight carrier, to the persons at the
addresses set forth below (or at such other address as may be provided
hereunder), and shall be deemed to have been delivered as of the date so
delivered:
PSB: Peterman State Bank
925 Old Peterman Highway
Peterman, Alabama 36471
Telecopy Number: (334) 564-2122
Attention: J. Robison Harper, President
Copy to Counsel: Capell, Howard, Knabe & Cobbs, P.A.
57 Adams Avenue
Montgomery, Alabama 36102-2069
Telecopy Number: (334) 265-7454
Attention: James M. Scott
SAB: South Alabama Bancorporation, Inc.
P. O. Box 3067 (36652)
100 St. Joseph Street
Mobile, Alabama 36602
Telecopy Number: (334) 431-7851
Attention: W. Bibb Lamar, Jr., President
MCB: The Monroe County Bank
P. O. Box 806 (36461-0806)
129 Hines Street
Monroeville, Alabama 36469
Telecopy Number: (334) 575-3135
Attention: Haniel F. Croft, President
Copy to Counsel
for SAB and MCB: Hand Arendall, L.L.C.
3000 First National Bank Building
P. O. Box 123 (36601)
Mobile, Alabama 36602
Telecopy Number: (334) 694-6375
Attention: Stephen G. Crawford
11.8 Governing Law. This Agreement shall be governed by and construed
in accordance with the Laws of the State of Alabama, without regard to any
applicable conflicts of Laws.
11.9 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
11.10 Captions. The captions contained in this Agreement are for
reference purposes only and are not part of this Agreement.
11.11 Enforcement of Agreement. The Parties hereto agree that
irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with its specific terms or
was otherwise breached. It is accordingly agreed that the Parties shall be
entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof in any
court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which they are entitled at law or in equity.
11.12 Severability. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining
terms and provisions of this Agreement or affecting the validity or
enforceability of any of the terms or provisions of this Agreement in any
other jurisdiction. If any provision of this Agreement is so broad as to be
unenforceable, the provision shall be interpreted to be only so broad as is
enforceable.
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to
be executed on its behalf and its corporate seal to be hereunto affixed and
attested by its respective duly authorized officers as of the day and year
first above written.
ATTEST: SOUTH ALABAMA BANCORPORATION,
INC.
/s/ F. Michael Johnson BY:/s/ W. Bibb Lamar, Jr.
Secretary W. Bibb Lamar, Jr., President
[CORPORATE SEAL]
ATTEST: THE MONROE COUNTY BANK
/s/ Paul P. Redmond, Jr. BY:/s/ Haniel F. Croft
Cashier Haniel F. Croft, President
[CORPORATE SEAL]
ATTEST: PETERMAN STATE BANK
/s/ Albert A. Nettles, Jr. BY:/s/ J. Robison Harper
Vice President J. Robison Harper, President
[CORPORATE SEAL]
LIST OF EXHIBITS
Exhibit Number Description
1. Amendment to the Articles of Incorporation of The Monroe County
Bank (Section 2.1).
2. Amendment to the Bylaws of The Monroe County Bank (Section 2.2)
3. Form of agreement of Affiliates of PSB. (Section 8.9).
4. Form of opinion of counsel for PSB. (Section 9.2(d)).
5. Form of opinion of counsel for SAB. (Section 9.3(d)).
Exhibit 1
AMENDMENTS TO ARTICLES OF INCORPORATION
None.
Exhibit 2
AMENDMENTS TO BYLAWS
None.
Exhibit 3
AFFILIATE AGREEMENT
South Alabama Bancorporation, Inc.
Mobile, Alabama
Attention: W. Bibb Lamar, Jr., President
Gentlemen:
The undersigned is a stockholder of Peterman State Bank ( PSB ), a
corporation organized and existing under the laws of the State of Alabama and
located in Peterman, Alabama, and will become a stockholder of the South
Alabama Bancorporation, Inc. ("SAB") pursuant to the transactions described
in the Agreement and Plan of Merger, dated as of ________, 1997 (the
"Agreement"), by and between SAB, The Monroe County Bank, an Alabama banking
corporation and wholly owned subsidiary of SAB ("MCB"), and PSB. Under
the terms of the Agreement, PSB will be merged into and with MCB (the "Merger"),
and the shares of the common stock of PSB ("PSB Common Stock") will be
converted into and exchanged for shares of the common stock of SAB ("SAB
Common Stock"). This Affiliate Agreement represents an agreement between the
undersigned and SAB regarding certain rights and obligations of the
undersigned in connection with the shares of SAB to be received by the
undersigned as a result of the Merger.
In consideration of the Merger and the mutual covenants contained
herein, the undersigned and SAB hereby agree as follows:
1. Affiliate Status. The undersigned understands and agrees that as to PSB
he is an affiliate under Rule 145(c) as defined in Rule 405 of the
Rules and Regulations of the Securities and Exchange Commission ("SEC")
under the Securities Act of 1933, as amended ("1933 Act"), and the
undersigned anticipates that he will be such an affiliate at the time of
the Merger.
2. Covenants and Warranties of Undersigned. The undersigned represents,
warrants and agrees that:
(a) The SAB Common Stock received by the undersigned as a result of
the Merger will be taken for his own account and not for others,
directly or indirectly, in whole or in part.
(b) SAB has informed the undersigned that any distribution by the
undersigned of SAB Common Stock has not been registered under the 1933
act and that shares of SAB Common Stock received pursuant to the Merger
can only be sold by the undersigned (1)following registration under the
1933 Act, or (2) in conformity with the volume and other requirements of
Rule 145(d) promulgated by the SEC as the same now exist or may
hereafter be amended, or (3) to the extent some other exemption from
registration under the 1933 Act might be available. The undersigned
understands that SAB is under no obligation to file a registration
statement with the SEC covering the disposition of the undersigned's
shares of SAB Common Stock.
(c) The undersigned is aware that SAB intends to treat the Merger
as a tax-free reorganization under Section 368 of the Internal Revenue
Code ("Code") for federal income tax purposes. The undersigned agrees
to treat the transaction in the same manner as SAB for federal income
tax purposes. The undersigned acknowledges that Section 1.368-1(b) of
the Income Tax Regulations requires "continuity of interest" in order
for the Merger to be treated as tax-free under Section 368 of the Code.
This requirement is satisfied if, taking into account those PSB
stockholders who receive cash in exchange for their stock, who receive
cash in lieu of fractional shares, or who dissent from the Merger, there
is no plan or intention on the part of the PSB stockholders to sell
or otherwise dispose of the SAB Common Stock to be received in the
Merger that will reduce such stockholders' ownership to a number of
shares having, in the aggregate, a value at the time of the merger of
less than 50% of the total fair market value of the PSB Common Stock
outstanding immediately prior to the Merger. The undersigned has no
prearrangement, plan or intention to sell or otherwise dispose of an
amount of his SAB Common Stock to be received in the Merger which would
cause the foregoing requirement not to be satisfied.
3. Restrictions on Transfer. The undersigned understands and agrees that
stop transfer instructions with respect to the shares of SAB Common
Stock received by the undersigned pursuant to the Merger will be given
to SAB's Transfer Agent and that there will be placed on the
certificates of such shares, or shares issued in substitution thereof,
a legend stating in substance:
The shares represented by this certificate may not be sold, transferred
or otherwise disposed of except or unless (1) covered by an effective
registration statement under the Securities Act of 1933, as amended, (2)
in accordance with (i) Rule 145(d) (in the case of shares issued to an
individual who is not an affiliate or the Corporation) or (ii) Rule 144
(in the case of shares issued to an individual who is an affiliate of
the Corporation) of the Rules and Regulations of such Act, or (3) in
accordance with a legal opinion satisfactory to counsel for the
Corporation that such sale or transfer is otherwise exempt from the
registration requirements of such Act.
Such legend will also be placed on any certificate representing SAB securities
issued subsequent to the original issuance of the SAB Common Stock pursuant
to the Merger as a result of any stock dividend, stock split, or other
recapitalization as long as the SAB Common Stock issued to the undersigned
pursuant to the Merger has not been transferred in such manner to justify the
removal of the legend therefrom. If the provisions of Rules 144 and 145 are
amended to eliminate restrictions applicable of the SAB Common Stock received
by the undersigned pursuant to the Merger, or at the expiration of the
restrictive period set forth in Rule 145(d), SAB, upon the request of the
undersigned, will cause the certificates representing the share of SAB Common
Stock issued to the undersigned in connection with the Merger to be reissued
free of any legend relating to the restrictions set forth in Rules 144 and
145(d) upon receipt by SAB of an opinion of its counsel to the effect that
such legend may be removed.
4. Understanding of Restrictions on Dispositions. The undersigned has
carefully read the Agreement and this Affiliate Agreement and discussed
their requirements and impact upon his ability to sell, transfer, or
otherwise dispose of the shares of SAB Common Stock received by the
undersigned, to the extent he believes necessary, with his counsel
or counsel for PSB.
5. Filing of Reports by SAB. SAB agrees, for a period of three years after
the effective date of the Merger, to file on a timely basis all reports
required to be filed by it pursuant to Section 13 of the Securities
Exchange Act of 1934, as amended, so that the public information
provisions of Rule 145(d) promulgated by the SEC as the same are
presently in effect will be available to the undersigned in the event
the undersigned desires to transfer any shares of SAB Common Stock
issued to the undersigned pursuant to the Merger.
6. Transfer Under Rule 145(d). If the undersigned desires to sell or
otherwise transfer the shares of SAB Common Stock received by him in
connection with the Merger at any time during the restrictive period set
forth in Rule 145(d), the undersigned will provide the necessary
representation letter to the transfer agent for SAB Common Stock together
with such additional information as the transfer agent may reasonably
request. If SAB's counsel concludes that such proposed sale or transfer
complies with the requirements of Rule 145(d), SAB shall cause such
counsel to provide such opinions as may be necessary to SAB's Transfer
Agent so that the undersigned may complete the proposed sale or transfer.
7. Acknowledgments. The undersigned recognizes and agrees that the
foregoing provisions also apply to (i) the undersigned's spouse, (ii)
any relative of the undersigned or of the undersigned's spouse who has
the same home as the undersigned, (iii) any trust or estate in which the
undersigned, the undersigned's spouse, and any such relative
collectively own at least a 10% beneficial interest or of which any of
the foregoing serves as trustee, executor, or in any similar capacity,
and (iv) any corporation or other organization in which the undersigned,
the undersigned's spouse and any such relative collectively own at least
10% of any class of equity securities or of the equity interest. The
undersigned further recognizes that, in the event that the undersigned
is a director or officer of SAB or becomes a director or officer of SAB
upon consummation of the Merger, among other things, any sale of SAB
common Stock by the undersigned within a period of less than six months
following the effective time of the Mergers may subject the undersigned
to liability pursuant to Section 16(b) of the Securities Exchange Act of
1934, as amended.
8. Miscellaneous. This Affiliate Agreement is the complete agreement
between SAB and the undersigned concerning the subject matter hereof.
Any notice required to be sent to any party hereunder shall be sent by
registered or certified mail, return receipt requested, using the
addresses set forth herein or such other address as shall be furnished
in writing by the parties. This Affiliate Agreement shall be governed
by the laws of the State of Delaware.
This Affiliate Agreement is executed as of the day of , 1997.
Very truly yours,
Signature
Print Name
Address
AGREED TO AND ACCEPTED as of
, 1997
SOUTH ALABAMA BANCORPORATION, INC.
By:
Exhibit 4
LETTERHEAD OF CAPELL, HOWARD, KNABE & COBBS, P.A.
, 1997
South Alabama Bancorporation, Inc.
Mobile, Alabama
The Monroe County Bank
Monroeville, Alabama
Re: Merger of Peterman State Bank with and into The Monroe County Bank
Gentlemen:
We are counsel to Peterman State Bank ('PSB'), a banking corporation
organized and existing under the laws of the State of Alabama, and have
represented PSB in connection with the execution and delivery of the
Agreement and Plan of Merger, dated as of __________, 1997 (the "Agreement"),
by and between South Alabama Bancorporation, Inc. ("SAB"), The Monroe County
Bank ("MCB") and PSB.
This opinion is delivered pursuant to Section 9.2(d) of the Agreement.
Capitalized terms used in this opinion shall have the meaning set forth in the
Agreement.
In rendering this opinion, we have examined the corporate books and
records of PSB, and made such other investigations as we have deemed
necessary. We have relied upon certificates of public officials and
officers of PSB as to certain questions of fact.
Based upon and subject to the foregoing, we are of the opinion that:
9. PSB is a corporation duly organized, validly existing and in good
standing under the laws of the State of Alabama with full corporate
power and authority to carry on the business in which it is engaged and
to own the properties owned by it.
10. The execution and delivery of the Agreement and compliance with its
terms do not and will not violate or contravene any provision of the
Articles of Incorporation or Bylaws of PSB or, to the best of our
knowledge, result in any conflict with, breach or, or default or
acceleration under any mortgage, agreement, lease, indenture, or other
instrument, order, judgment or decree to which PSB is a party or by
which PSB is bound.
11. In accordance with the Bylaws of PSB and pursuant to resolutions duly
adopted by its Board of Directors and stockholders, the Agreement has
been duly adopted and approved by the Board of Directors of PSB and by
the stockholders of PSB at the Stockholders' Meeting.
12. The Agreement has been duly and validly executed and delivered by PSB
and, assuming valid authorization, execution and delivery by SAB and MCB,
constitutes a valid and binding agreement of PSB enforceable in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, or similar laws affecting
creditors' rights generally, provided, however, that we express no
opinion as to the availability of the equitable remedy of specific
performance.
13. The authorized capital stock of PSB consists of _____________ shares of
PSB Common Stock, of which shares were issued and
outstanding as of , 1997. The shares of PSB Common Stock that
are issued and outstanding were not issued in violation of any statutory
preemptive rights of shareholders, were duly issued and are fully paid
and nonassessable under the Alabama Business Corporation Act. To our
knowledge, there are no options, subscriptions, warrants, calls, rights
or commitments obligating PSB to issue any equity securities or acquire
any of its equity securities.
This opinion is delivered solely for reliance by SAB and MCB.
Sincerely,
CAPELL, HOWARD, KNABE & COBBS, P.A.
Exhibit 5
LETTERHEAD OF HAND ARENDALL, L.L.C.
March 26, 1998
Peterman State Bank
Peterman, Alabama
Re: Merger of Peterman State Bank with and into The Monroe County Bank
Gentlemen:
We are counsel to South Alabama Bancorporation, Inc. ("SAB"), a
corporation organized and existing under the laws of the State of Alabama,
and The Monroe County Bank ("MCB"), a banking corporation organized and
existing under the laws of the State of Alabama, and have represented SAB and
MCB in connection with the execution and delivery of the Agreement and
Plan of Merger, dated as of _____________, 1997, (the Agreement ), by and
between Peterman State Bank ("PSB"), MCB and SAB.
This opinion is delivered pursuant to Section 9.3(d) of the Agreement.
Capitalized terms used in this opinion shall have the meaning set forth in
the Agreement.
In rendering this opinion, we have examined the corporate books and
records of SAB and MCB, and made such other investigations as we have deemed
necessary. We have relied upon certificates of public officials and
officers of SAB and MCB as to certain questions of fact.
Based upon and subject to the foregoing, we are of the opinion that:
14. SAB is a corporation duly organized, validly existing and in good
standing under the laws of the State of Alabama with full corporate
power and authority to carry on the business in which it is engaged and
to own the properties owned by it.
15. MCB is a corporation duly organized, validly existing and in good
standing under the laws of the State of Alabama with full corporate
power and authority to carry on the business in which it is engaged and
to own the properties owned by it.
16. The execution and delivery of the Agreement and compliance with its
terms do not and will not violate or contravene any provision of the
Articles of Incorporation or Bylaws of SAB or, to the best of our
knowledge but without any independent investigation, result in any
conflict with, breach of, or default or acceleration under any mortgage,
agreement, lease, indenture, or other instrument, order, arbitration
award, judgment or decree to which SAB is a party or by which SAB is
bound.
17. The execution and delivery of the Agreement and compliance with its
terms do not and will not violate or contravene any provision of the
Articles of Incorporation or Bylaws of MCB or, to the best of our
knowledge but without any independent investigation, result in any
conflict with, breach of, or default or acceleration under any mortgage,
agreement, lease, indenture, or other instrument, order, arbitration
award, judgment or decree to which MCB is a party or by which MCB is
bound.
18. In accordance with the Bylaws of SAB and pursuant to resolutions duly
adopted by its Board of Directors and stockholders, the Agreement has
been duly adopted and approved by the Board of Directors of SAB.
19. In accordance with the Bylaws of MCB and pursuant to resolutions duly
adopted by its Board of Directors and stockholders, the Agreement has
been duly adopted and approved by the Board of Directors and
stockholders of MCB.
20. The Agreement has been duly and validly executed and delivered by SAB
and MCB and, assuming valid authorization, execution and delivery by
PSB, constitutes a valid and binding agreement of SAB and MCB
enforceable in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency, reorganization, or similar laws
affecting creditors' rights generally, provided, however, that we
express no opinion as to the availability of the equitable remedy of
specific performance.
21. The authorized capital stock of SAB consists of _________ shares of SAB
Common Stock, of which ________ shares were issued and outstanding as of
____________, 1997, and __________ shares of preferred stock, no par
value, none of which is issued and outstanding. The shares of SAB
Common Stock that are issued and outstanding were not issued in
violation of any statutory preemptive rights of shareholders, were duly
issued and are fully paid and nonassessable under the Alabama Business
Corporation Act. The shares of SAB Common Stock to be issued to the
stockholders of PSB as contemplated by the Agreement are duly
authorized, have been registered under the Securities Act of 1933, as
amended, and when properly issued and delivered following consummation
of the Merger will be validly issued, fully paid and non-assessable.
This opinion is delivered solely for reliance by PSB.
Yours very truly,
HAND ARENDALL, L.L.C.
By:___________________________________________
Exhibit (2).2
MUTUAL WAIVER AND AGREEMENT
THIS MUTUAL WAIVER AND AGREEMENT is made by and between South Alabama
Bancorporation, Inc., an Alabama bank holding corporation ("South Alabama"),
The Monroe County Bank, an Alabama banking corporation ("MCB"), and Peterman
State Bank, an Alabama banking corporation ("PSB"), who have entered into
that certain Agreement and Plan of Merger dated as of October 14, 1997 (the
"Merger Agreement"). Capitalized terms not defined herein shall have the meaning
ascribed to them in the Merger Agreement.
BACKGROUND
A. The Merger Agreement provides that PSB's Board of Directors may
terminate the Merger Agreement in the event that the average Market Value of
South Alabama's common stock during the Valuation Period is greater than
$26.00 per share ("Price Cap Termination").
B. The Merger Agreement also provides that either South Alabama and
MCB or PSB may terminate the Merger Agreement in the event that the Merger is
not consummated by March 31, 1998, or in the event that all of the conditions
precedent to the Merger cannot be satisfied or fulfilled prior to such date
("Delay Termination").
C. South Alabama's common stock has from time to time within the last
several months traded in excess of $26.00 per share, and it is possible that,
depending on when the Closing occurs, PSB may have the right to invoke Price
Cap Termination.
D. Obtaining regulatory approval of the Merger has taken substantially
longer than either South Alabama, MCB or PSB expected, and it is certain that
the Merger will not be effective before March 31, 1998.
E. Notwithstanding the foregoing, the Parties desire to provide
assurances to each other than they still intend to consummate the Merger.
F. PSB has certain non-performing loans that it has written off its
books and which are described on the attached Exhibit A (the "Loans") which is
incorporated herein by reference.
G. PSB proposes to sell the Loans to an entity owned by certain of its
shareholders for $40,000 (the "Loan Sale").
H. In accordance with the Merger Agreement the parties have agreed upon
the Deemed Book Value for PSB's common stock for purposes of calculating the
Exchange Ratio.
NOW THEREFORE, in consideration of the foregoing and the mutual benefits to
be received by each of the parties hereto upon the consummation of the Merger,
the parties do hereby, state, agree to and confirm the following:
1. PSB hereby waives its right to invoke Price Cap Termination;
provided, however, that in the event the average Market Value for South Alabama
Common Stock during the Valuation Period exceeds $28.00 per share, then the
average Market Value for South Alabama Common Stock shall be set at $28.00 per
share for purposes of determining the Exchange Ratio.
2. South Alabama, MCB and PSB hereby waive their respective rights to
invoke Delay Termination until June 30, 1998.
3. The Deemed Book Value of PSB s common stock is hereby determined to be
$1,912,000.00; provided that in the event the Loan Sale is consummated prior to
Closing, the Deemed Book Value of PSB's common stock shall be increased by
$40,000 to $1,952,000.
4. The undersigned each represents and warrants that it has all
requisite corporate power and authority necessary to execute, deliver and
perform this Mutual Waiver and Agreement and to bind itself hereto.
IN WITNESS WHEREOF, the undersigned have caused this Mutual Waiver and
Agreement to be executed in multiple originals as of the 25th day of
March, 1998.
SOUTH ALABAMA BANCORPORATION, INC.
BY: /s/ W. Bibb Lamar, Jr.
W. Bibb Lamar, Jr.
As its President
THE MONROE COUNTY BANK
BY: /s/ Haniel S. Croft
Haniel F. Croft
As its President
PETERMAN STATE BANK
BY: /s/ J. Robison Harper
J. Robison Harper
As its President
Exhibit (10).27
Fairhope, Alabama
O P T I O N
KNOW ALL MEN BY THESE PRESENTS, that MORPHY'S MOVE, L.L.C., an Alabama
limited liability company (herein called "Optionor"), for and in consideration
of the sum of TWENTY THOUSAND AND NO/100 DOLLARS ($20,000.00) cash to be
paid to ATI Title Company ( Escrow Agent or Title Company ) for the account of
Optionor upon the execution and delivery of this Option to SOUTH ALABAMA
BANCORPORATION, INC., an Alabama corporation ("South Alabama"), does by these
presents grant, bargain, sell and convey unto South Alabama, its successors and
assigns, for a period commencing on the date of the execution of this Option
by Optionor as provided hereinafter ( the date hereof ), and expiring at
midnight on the date which is two (2) calendar months from the same date
hereof (unless extended as provided herein), the exclusive right and option
to purchase from Optionor all of Optionor's right, title and interest in and
to that certain parcel of real property situated in Baldwin County, Alabama
described as Lot 5 of Morphy's Move, L.L.C., a Commercial Park Subdivision
(the "Subdivision"), according to plat thereof recorded at Slide File 1723B
in the records in the office of the Judge of Probate of Baldwin County,
Alabama, containing approximately .62 acres, which parcel is outlined in red
and shown on plat marked Exhibit A attached hereto, initialed by the parties
for identification and by reference made a part hereof ("Lot 5"), together
with the Appurtenant Rights, which are defined in paragraph 4 hereinbelow
(said parcel and the Appurtenant Rights being herein referred to as the
"Property");
SUBJECT, HOWEVER, to the following terms and conditions:
1. Option Extensions. South Alabama shall have the right to extend
the term of this Option on the same terms and conditions as herein provided,
for a period of one (1) month, such period to commence from and after the
expiration of the original option period. Such extension shall be deemed to
occur by South Alabama giving written notice to Optionor and Escrow Agent of
its desire for such extension, at any time prior to the expiration of the
original option period, in the same manner as is set forth below for notice
of the exercise of this Option, such notice of extension to be accompanied by
an additional payment to Escrow Agent of FIVE THOUSAND AND NO/100 DOLLARS
($5,000.00).
2. Notice of Exercise. This Option shall be deemed exercised upon
South Alabama furnishing written notice to Optionor of its election to
exercise same. Notice of the exercise and of the desire for such extension
of this Option shall be in writing and shall be deemed given by personal
delivery to the Optionor at the following address, or upon deposit thereof in
the United States mail, registered or certified, return receipt requested,
first class postage prepaid and addressed to Optionor at Morphy's Move,
L.L.C., c/o William Youngblood, 2033-C Airport Boulevard, Mobile, Alabama
36606. South Alabama shall also provide notice of exercise of this option to
Escrow Agent.
3. Purchase Price. The purchase price of the Property shall be the
sum of THREE HUNDRED NINETY THOUSAND AND NO/100 DOLLARS ($390,000.00), payable
by cashier's, certified or other form of check acceptable to Optionor; or at
South Alabama's election, by wire transfer of federal funds. The
consideration for the initial option period of this Option shall be credited
against the purchase price, but the consideration for the extension period
shall not be credited.
4. Appurtenant Rights. The term "Appurtenant Rights" shall mean the
following rights and, to the extent said rights as now established, do not
now run with the land for the benefit of Lot 5, such rights shall be
established for the benefit of Lot 5 if this Option is exercised, at closing:
(a) The non-exclusive perpetual right to use for purposes of
ingress and egress "Easement C" as described in that certain
Declaration of Easements made by Optionor, Violet Mints, L.L.C. and
the Fairhope Single Tax Corporation ("FSTC") as of the 22nd day of
May, 1997 and recorded at Real Property Book 758 Page 0273 in the
office of the Judge of Probate of Baldwin County, Alabama
(the "Declaration");
(b) the non-exclusive perpetual right to use for purposes of
ingress and egress "Easement A" as described in the Declaration;
(c) the non-exclusive perpetual right to use for purposes of
ingress and egress that certain "35 Foot Wide Ingress and Egress
Easement" shown on the plat of the Subdivision, which strip of
property is also designated as "Roadway-Joint Use" on Exhibit A
(it being understood that Optionor shall reserve the right to also
grant to others nonexclusive rights of ingress and egress over
said strip);
(d) the non-exclusive perpetual right to improve and use for
purposes of ingress and egress that certain L-shaped area of
property designated as "No Build Area" and having the dimensions as
shown on Exhibit A; and
(e) a twenty-five (25) year exclusive easement for employee
parking covering five (5) parking spaces located, as determined by
Optionor, in close proximity to each other on Lot 4 as shown on
Exhibit A, which parking area shall be paved at Optionor's expense
not later than sixty (60) days after closing. Optionor shall have
the right to relocate said parking spaces from time to time but
shall maintain their proximity to one another.
Any of the Appurtenant Rights which do not automatically accrue to South
Alabama's benefit at closing as rights which run with Lot 5 shall be granted
to South Alabama by an appropriate instrument conveying such rights as are
specified above and containing such other appropriate terms as are acceptable
to South Alabama. Such instruments shall be signed in observance of all
requisite formalities by all parties necessary to properly and validly
establish such interest, and Optionor s delivery of all of the Appurtenant
Rights shall be a condition precedent to closing, should South Alabama
exercise this Option. It is agreed that any warranties provided by Optionor
in connection with the delivery of such instruments shall be statutory
warranty only.
5. Title.
(a) Optionor shall at its cost and expense procure and deliver to
South Alabama within five (5) days from the date hereof, a title binder
or commitment (together with copies of any documents referenced therein
as exceptions to title) issued by the Title Company, reflecting such
terms and conditions upon which Title Company will agree to insure to
South Alabama, based upon the most current ALTA-Form B policy, the
following interests: leasehold title in Lot 5; fee simple title to any
improvements thereon; and the Appurtenant Rights (exclusive or
non-exclusive, for such duration, and for such purpose as specified in
paragraph 4 hereof). Copies of the preliminary title binder (together
with copies of the title exception documents) shall be delivered to
Optionor, South Alabama and the surveyor, who shall then prepare the
as-built survey as provided in paragraph 6. Upon receipt of the
as-built survey, Optionor shall cause the Title Company to issue a
revised title binder reflecting any changes or additions as may be
appropriate, based on the as-built survey.
(b) In the event that the title binder (or the as-built survey)
reflects any liens, easements, encroachments, servitudes, encumbrances
or defects in title which in South Alabama's judgment materially
restrict or prohibit or limit the use of Lot 5 or the full, nonexclusive
or exclusive as applicable, enjoyment of the Appurtenant Rights for the
purposes contemplated in paragraph 7, South Alabama shall notify
Optionor prior to the expiration of the initial term of this Option, and
Optionor shall prior to the exercise of this Option clear title or cure
any such defects, or shall give South Alabama satisfactory assurances
that title will be cleared of defects or such other matters prior to the
closing of the purchase of the Property. In the event Optionor cannot
satisfy such title objections prior to the closing date, then South
Alabama shall at its option be entitled to terminate this agreement and
to recover all monies paid by South Alabama to Optionor hereunder.
South Alabama reserves the right to waive any objection to title, as
well as the right to pay and discharge any lien of a liquidated amount,
if Optionor shall have failed to do so after exercise of this Option,
in which event South Alabama shall be entitled to deduct the cost
thereof from the purchase price.
6. Survey. Within fifteen (15) days from the issuance of the
preliminary title binder and title exceptions documents as provided in
paragraph 5(a), Optionor shall at Optionor's expense cause a current as-built
survey of the Property (which includes the Appurtenant Rights) to be prepared
by an Alabama registered surveyor, and copies thereof shall be delivered to
the parties hereto and to the Title Company. The as-built survey shall:
(i) contain a certification in favor of South Alabama and the Title Company;
(ii) locate any and all recorded or apparent easements, rights of way and
drainage areas; (iii) show all buildings, improvements and utilities
facilities located on the Property; and (iv) show any encroachments on or
from the Property.
7. Zoning, Utilities, FSTC Approval, Etc.
(a) It is understood that South Alabama contemplates developing
the Property initially for use as a banking facility, and the parties
acknowledge that it will be necessary to (i) obtain the approval and
participation of FSTC in this transaction; (ii) arrange for, or obtain
satisfactory assurances of the existence of, utility services and sewer
and storm drainage facilities adequate to support the contemplated use
of the Property; (iii) obtain and/or determine the existence of
appropriate zoning, building, highway and street access and all other
permits and approvals necessary for the contemplated construction on and
the development and use of the Property; (iv)determine that the Property
contains no environmental contaminants; and (v)determine that the
Property will support, and is suitable for, the construction of the
structures and improvements contemplated by South Alablama to be built
thereon. Optionor acknowledges that some of the actions required to
accomplish the foregoing conditions must in many instances be taken in
the name of Optionor as owner of the Property, and Optionor agrees to
cooperate with and to assist South Alabama, at no expense to Optionor,
in accomplishing said conditions in Optionor's capacity as owner of the
Property. Notwithstanding anything herein to the contrary, in the event
(1) the title binder and/or survey is not delivered in a timely fashion
so that South Alabama shall have adequate time to examine and analyze
the rights and burdens on Lot 5 afforded by the Appurtenant Rights; or
(2) the foregoing conditions (i) through (v) above have not been
finally satisfied to South Alabama's satisfaction at the time of the
expiration of the initial term of this Option, or (3) Optionor is unable
or unwilling to fulfill its covenants and obligations hereunder prior to
closing, South Alabama shall have the right, at its option, (A) to waive
the accomplishment of any unsatisfied condition, covenant or obligation
and proceed with the closing of the acquisition of the Property, or (B)
to require the repayment to South Alabama of all monies paid to Optionor
under this Option, whether or not the Option has been exercised, and
this agreement shall thereupon terminate.
(b) In the event the term of this Option is extended as provided
in paragraph 1 hereof, all option monies paid hereunder shall be deemed
non-refundable except by reason of (i) Optionor's default hereunder
(including anticipatory breach); or (ii) Optionor's failure to deliver
title as shall have been agreed between Optionor and South Alabama
during the initial term; or (iii) the failure or refusal of FSTC to join
in the establishment of the Appurtenant Rights to the extent that FSTC
shall not have previously done so.
8. Access. From the date hereof until the transaction contemplated
hereby is closed or otherwise terminated, South Alabama shall have free
access to the Property for the purpose of making preliminary engineering
studies, including without limitation, soil test borings, surveys, drainage
tests and other studies necessary or desirable respecting the construction
and operation of the contemplated developments. South Alabama shall also
have the right to erect and maintain temporary signs on Lot 5 announcing the
proposed project. In the event this Option is not exercised or, having been
exercised, is terminated for any reason provided herein, South Alabama agrees
to restore the surface of the Property to the conditions existing as of the
date hereof, and to deliver at no cost to Optionor copies of any and all such
tests, studies, reports and surveys.
9. Warranty as to Right to Grant Option. Optionor warrants and
covenants that the party signing this Option as Optionor has sole valid
leasehold title to Lot 5, subject to "Easement A" as described in the
Declaration, and that such party as Optionor has the sole right and authority
to grant the option made hereby, and that no other person or parties are
required to execute this Option or, subject to FSTC approval, the assignment
of lease or other instruments of conveyance provided for herein, except that
other parties may be required to execute instruments conveying the
Appurtenant Rights.
10. Successors and Assigns. The rights and obligations of the parties
hereto shall extend to and be binding upon their respective successors and
assigns.
11. Brokers. Optionor and South Alabama each represent to each other
that neither party has employed or dealt with any real estate agent or broker
in connection with this transaction, except Youngblood Real Estate (the
listing broker) who represents Optionor, and Watson Realty Co., Inc.
(the Selling broker) who represents South Alabama, and it is agreed that
Optionor will be responsible for the payment of all fees due said brokers
pursuant to a separate agreement between said parties. Each party will
indemnify and hold the other party harmless from and against any claim which
might be made by any other broker claiming to represent the indemnifying
party with respect to this transaction.
12. Form of Conveyance.
(a) In the event of the exercise of this Option, conveyance of any
improvements on the Property shall be by deed or bill of sale (as
appropriate), and, if necessary, conveyance of Optionor's leasehold
estate in Lot 5 shall be by an appropriate assignment of Optionor's
lease thereon, approved by the FSTC as lessor. Conveyance of the
Appurtenant Rights shall be as set forth in paragraph 4. Such
conveyances shall be satisfactory in form and content to South Alabama
and to Title Company, which shall convey and warrant to the purchaser
good and marketable leasehold title to Lot 5 for 99 years, fee simple
title to any improvements thereon, and good and marketable title to the
Appurtenant Rights, all free and clear of all liens (except for the lien
for ad valorem taxes for the current tax year not then due and payable),
encumbrances, servitudes, easements and other matters not previously
approved by South Alabama as provided herein.
(b) Optionor and South Alabama agree that only one story buildings
shall be constructed on Lot 5, and that this restriction shall be placed
of record at closing by appropriate instrument.
13. Possession and Closing. Exclusive possession of Lot 5 and
nonexclusive possession of the Appurtenant Rights shall be delivered to South
Alabama at the time of closing, free of all leases, tenancies and occupancies.
All ad valorem taxes for the current tax year shall be prorated between
Optionor and South Alabama as of the date of closing, and Optionor represents
that the Property will not be subject to any "roll-back" or similar assessment
or tax as a result of Optionor's current assessment of the Property. Any
assessments or charges for public improvements made prior to execution and
delivery of this Option shall be paid by Optionor. The closing of this
transaction shall take place no later than thirty (30) days after the date of
the notice of the exercise of this Option (or if said thirtieth day falls on
a holiday or other non-business day, then on the next business day), at the
local office of the Title Company, or at such other place as the parties may
mutually agree. Notwithstanding the foregoing sentence, in the event of the
exercise of this Option, the closing shall not take place prior to the third
(3rd) business day in calendar year 1998. At the closing, the aforesaid
conveyance instruments shall be delivered by Optionor to South Alabama upon
receipt of the purchase price as provided in paragraph 3 hereof. Optionor at
its expense shall also pay for all transfer fees, rents and other charges
customarily charged to existing lessees by FSTC in connection with transfers
of leasehold interests, and shall cause to be delivered to South Alabama an
owner's title policy in the amount of the purchase price, based upon the
approved title binder. South Alabama shall pay for the recording costs of the
instruments of conveyance, the Title Company's closing fee, and any fees
customarily charged by FSTC to its new lessees. In the event FSTC requires
that its attorney's fees be paid, such fees shall be shared equally by
Optionor and South Alabama.
14. Remedies. In the event of default by either of the parties hereto,
all rights and remedies under applicable state law are reserved to the
parties, including the right of specific performance.
15. Recordation. The parties agree, if requested by either, to execute
a memorandum of this Option for recording purposes, reflecting only the
parties, the description of the Property and the duration of this Option,
for the purpose of providing constructive notice of the rights granted South
Alabama under this Option.
IN WITNESS WHEREOF, Optionor has executed this Option on this 17 day of
March, 1997.
WITNESSES: MORPHY S MOVE, L.L.C., an Alabama
limited liability company
By: /s/ W. T. Youngblood
As its: Authorized Member
Helen Marshall By: /s/ The Carl Adams Trust
As its: Authorized Member
By: /s/ Julien E. Marx
As its: Partner
This Option has been executed in duplicate original by South Alabama this
7th day of November , 1997, and delivered to Optionor as an offer to obtain
from Optionor an option to acquire the Property on the terms set forth
hereinabove. Unless a fully executed counterpart of this Option is returned
to South Alabama on or before 5:00 p.m. on November 14th, 1997, this offer
shall be deemed withdrawn. If this offer is timely accepted, South Alabama
shall within three (3) business days thereafter deposit the Option
consideration with Escrow Agent as provided hereinabove.
SOUTH ALABAMA BANCORPORATION,
INC., an Alabama corporation
By: /s/ F. Michael Johnson
As its: CFO
Exhibit (10).28
AMENDMENT NUMBER ONE
TO SOUTH ALABAMA BANCORPORATION
1993 INCENTIVE COMPENSATION PLAN
The South Alabama Bancorporation 1993 Incentive Compensation Plan
(the "Plan") is hereby amended and modified as follows:
1. Section 1.3(a) is deleted in its entirety, and the following is
substituted in lieu thereof:
The aggregate number of shares of Common Stock with respect to which
Options, Stock Appreciation Rights, and Restricted Stock Awards may be
granted shall not exceed 200,000 shares of Common Stock, subject to
adjustment in accordance with Section 5.1.
Except to the extent modified by the foregoing, the Plan shall remain
in full force and effect as originally adopted.
IN WITNESS WHEREOF, the undersigned has caused this Amendment to be
executed by its duly authorized officer as of the 9th day of May , 1997.
South Alabama Bancorporation, Inc.
/s/ W. Bibb Lamar, Jr.
By: W. Bibb Lamar, Jr.
President and Chief Executive Officer
Exhibit (10).29
MONROE COUNTY BANK
CHANGE IN CONTROL COMPENSATION AGREEMENT
This Agreement dated as of the 31st day of March, 1997, by and between
Monroe County Bank (the "Bank"), an Alabama state banking corporation having
its principal place of business in Monroeville, Alabama and John B. Barnett,
III (the "Executive").
RECITALS:
A. The Compensation Committee of the Board of Directors of the Bank
has recommended, and the Board of Directors has approved, that the Bank enter
into agreements with key executives of the Bank designated from time to time
by the Compensation Committee which provide for compensation under certain
circumstances after a change in control.
B. Executive is a key executive of the Bank and has been selected by
the Compensation Committee to enter into this Agreement.
C. If the Bank should become subject to any proposed or threatened
Change in Control (as hereinafter defined), the Board of Directors of the
Bank believes it imperative that the Bank and the Board of Directors be able
to rely upon Executive to continue in his position and that the Bank be able
to receive and rely upon his advice, if requested, as to the best interests
of the Bank and its stockholders, without concern that he might be distracted
by the personal uncertainties and risks created by such a proposal or threat.
D. If the Bank should receive any such proposal, Executive may be
called upon to assist in the assessment thereof, advise management and the
Board of Directors as to whether such proposal would be in the best interests
of the Bank and its stockholders, and take such other actions above and
beyond his regular duties as the Board might determine to be appropriate.
NOW, THEREFORE, as assurance to the Bank that it will have the continued
dedication of Executive and the availability of his advice and counsel
notwithstanding the possibility, threat or occurrence of an effort to take
over control of the Bank, and as an inducement to Executive to remain in the
employ of the Bank, and for other good and valuable consideration, the Bank
and Executive agree as follows:
1. Services During Certain Events. In the event any person, firm or
corporation unaffiliated with the Bank begins a tender or exchange offer,
circulates a proxy to stockholders, or takes other steps to effect a Change
in Control (as hereinafter defined), Executive agrees that he will not
voluntarily leave the employ of the Bank on less than 4 months written notice
to the Chairman of the Board or Chairman of the Executive Committee of the
Bank, will render the services expected of his position and will act in all
things related to the possible Change in Control in the manner he believes in
good faith to be in the best interests of the shareholders of the Bank until
such person, firm or corporation has abandoned or terminated his or its
efforts to effect a Change in Control or until a Change in Control has
occurred.
2. Termination Following Change in Control. Except as provided in
Section 4, the Bank will provide or cause to be provided to Executive the
rights and benefits described in Section 3 in the event that Executive's
employment is terminated at any time within two years following a Change in
Control (as such term is defined in this Section 2) under the circumstances
stated in (a) or (b) below:
(a) by the Bank for reasons other than for "cause" (as such term
is defined in Section 4) or other than as a consequence of Executive's death,
permanent disability or attainment of the normal retirement date as provided
under the Bank's pension plan (the "Retirement Plan") as in effect
immediately preceding such date ("Normal Retirement Date"); or
(b) by Executive following the occurrence of any of the following
events:
(i) the assignment of Executive to any duties or
responsibilities that are inconsistent with his position, duties,
responsibilities or status immediately preceding such Change in
Control or a change in his reporting responsibilities or titles in
effect at such time, in either case resulting in reduction of his
responsibilities or position;
(ii) the reduction of Executive's annual compensation, meaning
thereby the fair market value of all remuneration paid to the
Executive by the Bank during the immediately preceding calendar
year, including, without limitation, deferred compensation and
other forms of incentive compensation awards, coverage under any
employee benefit plan (such as a pension, thrift, medical, dental,
life insurance or long-term disability plan) and other perquisites;
(iii) the transfer of Executive to a location requiring a
change in his residence or a material increase in the amount of
travel normally required of Executive in connection with his
employment.
For purposes of this Agreement, a "Change in Control" is hereby defined
to be: (1) a merger, consolidation or other corporate reorganization of the
Bank or its parent company in which either the Bank or its parent company
fails to survive; (2) disposition by the Bank's parent company of the Bank;
(3) the beneficial ownership by one person or a closely related group of
persons of as much as 40% of the outstanding voting stock of the Bank's
parent company, unless the acquisition of stock resulting in such ownership
by such person or related group had been approved in advance by the Board of
Directors of the Bank or the parent company; or (4) as may otherwise be
defined by the Board of Directors from time to time.
3. Rights and Benefits Upon Termination. In the event of the
termination of Executive's employment under any of the circumstances set
forth in Section 2 hereof ("Termination"), the Bank agrees to provide or
cause to be provided to Executive the following rights and benefits:
(a) Salary and Other Payments at Termination. Executive shall be
entitled to receive payment in cash in the amount of Executive's Average
Annual Earnings, as such term is defined in this Section 3(a), during the
most recent three year fiscal periods (or the period during which the
Executive has been employed by the Bank if less than three years.) However,
if such amount exceeds limits provided in the then existing provisions of the
Internal Revenue Code for the imposition of tax penalties on such payments,
the amount shall be reduced to the highest amount allowed to avoid such
penalties. At the election of Employee, payment shall be made in equal
monthly payments over an eighteen (18) month period beginning with the month
following Termination, or payment shall be made in a lump sum. Any lump sum
payment request must be made in writing at least six months prior to
Termination if known by then and in any event within thirty (30) days prior
to termination.
If Executive shall die prior to the time all payments which may
otherwise have been due to Executive, under this Section 3(a) or otherwise in
this agreement, have been made, then, as soon as practicable after his death
and in no event later than 3 months after the appointment of Executive's
personal representative, the Bank shall pay in a lump sum in cash all sums
not distributed to Executive prior to his death. Payment shall be made to the
beneficiary designated by the Executive in a writing delivered to the Bank.
If no such beneficiary is named, such sums shall be paid to Executive's
personal representative. No reduction to present value of any such sums
shall be made.
For purposes of this Agreement, "Annual Earnings" shall mean the amounts
earned by Executive for personal service rendered to the Bank and its
affiliates as reportable on Treasury Department Form W-2 or 1099, including
bonuses, and excluding the following: (1) moving and educational expenses,
(2) income included under Section 79 of the Internal Revenue Code of 1986, as
amended and (3) income imputed to Executive from personal use of employer
owned automobiles and employer paid club dues. Earnings shall not include
any income attributable to grants of and dividends on shares awarded under
any stock option plan.
(b) Insurance and Other Special Benefits. During the eighteen
month severance pay period, and if the Bank may do so under the terms of its
benefit plans existing at the time of Termination, Executive shall continue
to be covered by the life insurance, medical insurance, and accident and
disability insurance plans of the Bank and its affiliates or any successor
plan or program in effect at or after Termination for employees in the same
class or category as was Executive prior to his Termination, subject to the
terms of such plans and to Executive's making any payments therefor required
of employees in the same class or category as was Executive prior to his
Termination. In the event Executive is ineligible to continue to be so
covered under the terms of any such benefit plan or program, Bank shall have
no further obligation. Anything herein to the contrary notwithstanding, if
during such period Executive should enter into the employ of another company
or firm which provides substantially similar benefit coverage, Executive's
participation in the comparable benefits provided by the Bank either directly
or through such other sources shall cease. Nothing contained in this
paragraph shall be deemed to require or permit termination or restriction of
any of Executive's coverage under any plan or program of the Bank or any of
its affiliates, or any successor plan or program, to which Executive is
entitled under the terms of such plan or program.
(c) Other Benefit Plans. The specific arrangements referred to in
this Section 3 are not intended to exclude Executive's participation in other
benefit plans in which Executive currently participates or which are or may
become available to executive personnel generally in the class or category of
Executive or to preclude other compensation or benefits as may be authorized
by the Board of Directors from time to time.
(d) No Duty to Mitigate. Executive's entitlement to benefits
hereunder shall not be governed by any duty to mitigate his damages by
seeking further employment nor, except as specifically provided above in
paragraph 3(b), be offset by any compensation or benefit which he may receive
from future employment.
4. Conditions to the Obligations of the Bank. The Bank shall have no
obligation to provide or cause to be provided to Executive the rights and
benefits described in Section 3 hereof if either of the following events
shall occur:
(a) Termination for Cause. The Bank shall terminate Executive's
employment for "cause". For purposes of this Agreement, termination of
employment for "cause" shall mean termination because of fraud,
misappropriation of or intentional damage to the property of the Bank or the
commission of a felony by the Executive;
(b) Resignation as Director or Officer. Executive shall fail,
promptly after Termination and upon receiving a written request to do so, to
resign as a director and/or officer of the Bank and each affiliate of the
Bank of which he is then serving as a director and/or officer.
5. Confidentiality; Non-Solicitation; Cooperation; Consultancy.
(a) Confidentiality. Executive agrees that following Termination
he will not without the prior written consent of the Bank disclose to any
person, firm or corporation any confidential information of the Bank or its
affiliates which is now known to him or which hereafter (whether before or
after his Termination) may become known to him as a result of his employment
or association with the Bank and which could be helpful to a competitor;
provided, however, that the foregoing shall not apply to confidential
information which becomes publicly disseminated by means other than a breach
of this Agreement.
(b) Cooperation. Executive agrees that following Termination he
will furnish such information and render such assistance and cooperation as
may reasonably be requested in connection with any litigation or legal
proceedings concerning the Bank or any of its affiliates (other than any
legal proceedings concerning Executive's employment). In connection with
such cooperation, the Bank will pay or reimburse Executive for all reasonable
expenses incurred in cooperating with such requests.
(c) Remedies for Breach. It is recognized that damages in the
event of breach of this Section 5 by Executive would be difficult, if not
impossible, to ascertain, and it is therefore agreed that the Bank, in
addition to and without limiting any other remedy or right it may have, shall
have the right to an injunction or other equitable relief in any court
of competent jurisdiction enjoining any such breach, and Executive hereby
waives any and all defenses he may have on the ground of lack of jurisdiction
or competence of the court to grant such an injunction or other equitable
relief. The existence of this right shall not preclude the Bank from
pursuing any other rights and remedies at law or in equity which the Bank may
have.
6. Term of Agreement. This Agreement shall terminate on December 31,
1997; provided, however, that this Agreement shall automatically renew for
successive one-year terms unless the Bank notifies Executive in writing at
least 90 days prior to a December 31 expiration date that it does not desire
to renew the Agreement for an additional term; and provided further, however,
that such notice shall not be given and if given shall have no effect (i)
within two years after a Change in Control or (ii) during any period of time
when the Bank has reason to believe that any third person has begun a tender
or exchange offer, circulated a proxy to stockholders, or taken other steps
or formulated plans to effect a Change in Control, such period of time to
end when, in the opinion of the Compensation Committee, the third person has
abandoned or terminated his efforts or plans to effect a Change in Control.
7. Expenses. The Bank shall pay or reimburse Executive for all costs
and expenses, including, without limitation, court costs and attorney's fees,
incurred by Executive as a result of any claim, action or proceeding by
Executive against the Bank arising out of, or challenging the validity or
enforceability of, this Agreement or any provision hereof.
8. Miscellaneous.
(a) Assignment. No right, benefit or interest hereunder shall be
subject to assignment, anticipation, alienation, sale, encumbrance, charge,
pledge, hypothecation or set-off in respect of any claim, debt or obligation,
or to execution, attachment, levy or similar process; provided, however, that
Executive may assign any right, benefit or interest hereunder if such
assignment is permitted under the terms of any plan or policy of insurance or
annuity contract governing such right, benefit or interest.
(b) Construction of Agreement. Nothing in this Agreement shall be
construed to amend any provision of any plan or policy of the Bank other than
as specifically stated herein. This Agreement is not, and nothing herein
shall be deemed to create an employment contract between Executive and the
Bank or any of its subsidiaries.
(c) Inurement. This Agreement shall be binding upon and inure to
the benefit of the Bank and the Executive and their respective heirs,
executors, administrators, successors and assigns.
(d) Nature of Obligation. The Bank intends that its obligations
hereunder be construed in the nature of severance pay. The Bank's
obligations under Section 3 are absolute and unconditional and shall not be
affected by any circumstance, including, without limitation, any right of
offset, counterclaim, recoupment, defense, or other right which the Bank may
have against the Executive or others. All amounts payable by the Bank
hereunder shall be paid without notice or demand.
(e) Choice of Law. The Agreement shall be governed and construed
in accordance with the laws of the State of Alabama.
(f) Invalidity. In the event that any one or more provisions of
this Agreement shall, for any reason, be held invalid, illegal or
unenforceable in any manner, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement.
In Witness Whereof, Executive has hereunto set his hand and seal and the
Bank has caused this Agreement to be executed by its officers thereunto duly
authorized as of the 31st day of March, 1997.
/s/ John B. Barnett, III
(SEAL) JOHN B. BARNETT, III
ATTEST: MONROE COUNTY BANK
/s/ Paul P. Redmond, Jr. BY: /s/Haniel F. Croft
Its: Sr. VP and Cashier Its: President and CEO
Exhibit (10).30
MONROE COUNTY BANK
CHANGE IN CONTROL COMPENSATION AGREEMENT
This Agreement dated as of the 31st day of March, 1997 by and between
Monroe County Bank (the "Bank"), an Alabama state banking corporation having
its principal place of business in Monroeville, Alabama and Haniel F. Croft
(the "Executive").
RECITALS:
A. The Compensation Committee of the Board of Directors of the Bank
has recommended, and the Board of Directors has approved, that the Bank enter
into agreements with key executives of the Bank designated from time to time
by the Compensation Committee which provide for compensation under certain
circumstances after a change in control.
B. Executive is a key executive of the Bank and has been selected by
the Compensation Committee to enter into this Agreement.
C. If the Bank should become subject to any proposed or threatened
Change in Control (as hereinafter defined), the Board of Directors of the
Bank believes it imperative that the Bank and the Board of Directors be able
to rely upon Executive to continue in his position and that the Bank be able
to receive and rely upon his advice, if requested, as to the best interests
of the Bank and its stockholders, without concern that he might be distracted
by the personal uncertainties and risks created by such a proposal or threat.
D. If the Bank should receive any such proposal, Executive may be
called upon to assist in the assessment thereof, advise management and the
Board of Directors as to whether such proposal would be in the best interests
of the Bank and its stockholders, and take such other actions above and
beyond his regular duties as the Board might determine to be appropriate.
NOW, THEREFORE, as assurance to the Bank that it will have the continued
dedication of Executive and the availability of his advice and counsel
notwithstanding the possibility, threat or occurrence of an effort to take
over control of the Bank, and as an inducement to Executive to remain in the
employ of the Bank, and for other good and valuable consideration, the Bank
and Executive agree as follows:
1. Services During Certain Events. In the event any person, firm or
corporation unaffiliated with the Bank begins a tender or exchange offer,
circulates a proxy to stockholders, or takes other steps to effect a Change
in Control (as hereinafter defined), Executive agrees that he will not
voluntarily leave the employ of the Bank on less than 4 months written notice
to the Chairman of the Board or Chairman of the Executive Committee of the
Bank, will render the services expected of his position and will act in all
things related to the possible Change in Control in the manner he believes in
good faith to be in the best interests of the shareholders of the Bank until
such person, firm or corporation has abandoned or terminated his or its
efforts to effect a Change in Control or until a Change in Control has
occurred.
2. Termination Following Change in Control. Except as provided in
Section 4, the Bank will provide or cause to be provided to Executive the
rights and benefits described in Section 3 in the event that Executive's
employment is terminated at any time within two years following a Change in
Control (as such term is defined in this Section 2) under the circumstances
stated in (a) or (b) below:
(a) by the Bank for reasons other than for "cause" (as such term
is defined in Section 4) or other than as a consequence of Executive's death,
permanent disability or attainment of the normal retirement date as provided
under the Bank's pension plan (the "Retirement Plan") as in effect
immediately preceding such date ("Normal Retirement Date"); or
(b) by Executive following the occurrence of any of the following
events:
(i) the assignment of Executive to any duties or
responsibilities that are inconsistent with his position, duties,
responsibilities or status immediately preceding such Change in
Control or a change in his reporting responsibilities or titles in
effect at such time, in either case resulting in reduction of his
responsibilities or position;
(ii) the reduction of Executive's annual compensation, meaning
thereby the fair market value of all remuneration paid to the
Executive by the Bank during the immediately preceding calendar
year, including, without limitation, deferred compensation and other
forms of incentive compensation awards, coverage under any employee
benefit plan (such as a pension, thrift, medical, dental, life
insurance or long-term disability plan) and other perquisites;
(iii) the transfer of Executive to a location requiring a
change in his residence or a material increase in the amount of
travel normally required of Executive in connection with his
employment.
For purposes of this Agreement, a "Change in Control" is hereby defined
to be: (1) a merger, consolidation or other corporate reorganization of the
Bank or its parent company in which either the Bank or its parent company
fails to survive; (2) disposition by the Bank's parent company of the Bank;
(3) the beneficial ownership by one person or a closely related group of
persons of as much as 40% of the outstanding voting stock of the Bank's parent
company, unless the acquisition of stock resulting in such ownership by such
person or related group had been approved in advance by the Board of
Directors of the Bank or the parent company; or (4) as may otherwise be
defined by the Board of Directors from time to time.
3. Rights and Benefits Upon Termination. In the event of the
termination of Executive's employment under any of the circumstances set
forth in Section 2 hereof ("Termination"), the Bank agrees to provide or
cause to be provided to Executive the following rights and benefits:
(a) Salary and Other Payments at Termination. Executive shall be
entitled to receive payment in cash in the amount of two times Executive's
Average Annual Earnings, as such term is defined in this Section 3(a), during
the most recent three year fiscal periods (or the period during which the
Executive has been employed by the Bank if less than three years.) However,
if such amount exceeds limits provided in the then existing provisions of the
Internal Revenue Code for the imposition of tax penalties on such payments,
the amount shall be reduced to the highest amount allowed to avoid such
penalties. At the election of Employee, payment shall be made in equal
monthly payments over an eighteen (18) month period beginning with the month
following Termination, or payment shall be made in a lump sum. Any lump sum
payment request must be made in writing at least six months prior to
Termination if known by then and in any event within thirty (30) days prior
to termination.
If Executive shall die prior to the time all payments which may otherwise
have been due to Executive, under this Section 3(a) or otherwise in this
agreement, have been made, then, as soon as practicable after his death and
in no event later than 3 months after the appointment of Executive's personal
representative, the Bank shall pay in a lump sum in cash all sums not
distributed to Executive prior to his death. Payment shall be made to the
beneficiary designated by the Executive in a writing delivered to the Bank.
If no such beneficiary is named, such sums shall be paid to Executive's
personal representative. No reduction to present value of any such sums
shall be made.
For purposes of this Agreement, "Annual Earnings" shall mean the amounts
earned by Executive for personal service rendered to the Bank and its
affiliates as reportable on Treasury Department Form W-2 or 1099, including
bonuses, and excluding the following: (1) moving and educational expenses,
(2) income included under Section 79 of the Internal Revenue Code of 1986, as
amended and (3) income imputed to Executive from personal use of employer
owned automobiles and employer paid club dues. Earnings shall not include
any income attributable to grants of and dividends on shares awarded under
any stock option plan.
(b) Insurance and Other Special Benefits. During the eighteen
month severance pay period, and if the Bank may do so under the terms of its
benefit plans existing at the time of Termination, Executive shall continue
to be covered by the life insurance, medical insurance, and accident and
disability insurance plans of the Bank and its affiliates or any successor
plan or program in effect at or after Termination for employees in the same
class or category as was Executive prior to his Termination, subject to the
terms of such plans and to Executive's making any payments therefor required
of employees in the same class or category as was Executive prior to his
Termination. In the event Executive is ineligible to continue to be so
covered under the terms of any such benefit plan or program, Bank shall have
no further obligation. Anything herein to the contrary notwithstanding, if
during such period Executive should enter into the employ of another company
or firm which provides substantially similar benefit coverage, Executive's
participation in the comparable benefits provided by the Bank either directly
or through such other sources shall cease. Nothing contained in this
paragraph shall be deemed to require or permit termination or restriction of
any of Executive's coverage under any plan or program of the Bank or any of
its affiliates, or any successor plan or program, to which Executive is
entitled under the terms of such plan or program.
(c) Other Benefit Plans. The specific arrangements referred to in
this Section 3 are not intended to exclude Executive's participation in other
benefit plans in which Executive currently participates or which are or may
become available to executive personnel generally in the class or category of
Executive or to preclude other compensation or benefits as may be authorized
by the Board of Directors from time to time.
(d) No Duty to Mitigate. Executive's entitlement to benefits
hereunder shall not be governed by any duty to mitigate his damages by
seeking further employment nor, except as specifically provided above in
paragraph 3(b), be offset by any compensation or benefit which he may
receive from future employment.
4. Conditions to the Obligations of the Bank. The Bank shall have no
obligation to provide or cause to be provided to Executive the rights and
benefits described in Section 3 hereof if either of the following events
shall occur:
(a) Termination for Cause. The Bank shall terminate Executive's
employment for "cause". For purposes of this Agreement, termination of
employment for "cause" shall mean termination because of fraud,
misappropriation of or intentional damage to the property of the Bank or the
commission of a felony by the Executive;
(b) Resignation as Director or Officer. Executive shall fail,
promptly after Termination and upon receiving a written request to do so, to
resign as a director and/or officer of the Bank and each affiliate of the
Bank of which he is then serving as a director and/or officer.
5. Confidentiality; Non-Solicitation; Cooperation; Consultancy.
(a) Confidentiality. Executive agrees that following Termination
he will not without the prior written consent of the Bank disclose to any
person, firm or corporation any confidential information of the Bank or its
affiliates which is now known to him or which hereafter (whether before or
after his Termination) may become known to him as a result of his employment
or association with the Bank and which could be helpful to a competitor;
provided, however, that the foregoing shall not apply to confidential
information which becomes publicly disseminated by means other than a breach
of this Agreement.
(b) Cooperation. Executive agrees that following Termination he
will furnish such information and render such assistance and cooperation as
may reasonably be requested in connection with any litigation or legal
proceedings concerning the Bank or any of its affiliates (other than any
legal proceedings concerning Executive's employment). In connection with
such cooperation, the Bank will pay or reimburse Executive for all reasonable
expenses incurred in cooperating with such requests.
(c) Remedies for Breach. It is recognized that damages in the
event of breach of this Section 5 by Executive would be difficult, if not
impossible, to ascertain, and it is therefore agreed that the Bank, in
addition to and without limiting any other remedy or right it may have, shall
have the right to an injunction or other equitable relief in any court of
competent jurisdiction enjoining any such breach, and Executive hereby waives
any and all defenses he may have on the ground of lack of jurisdiction or
competence of the court to grant such an injunction or other equitable
relief. The existence of this right shall not preclude the Bank from
pursuing any other rights and remedies at law or in equity which the Bank may
have.
6. Term of Agreement. This Agreement shall terminate on December 31,
1997; provided, however, that this Agreement shall automatically renew for
successive one-year terms unless the Bank notifies Executive in writing at
least 90 days prior to a December 31 expiration date that it does not desire
to renew the Agreement for an additional term; and provided further, however,
that such notice shall not be given and if given shall have no effect (i)
within two years after a Change in Control or (ii) during any period of time
when the Bank has reason to believe that any third person has begun a tender
or exchange offer, circulated a proxy to stockholders, or taken other steps
or formulated plans to effect a Change in Control, such period of time to end
when, in the opinion of the Compensation Committee, the third person has
abandoned or terminated his efforts or plans to effect a Change in Control.
7. Expenses. The Bank shall pay or reimburse Executive for all costs
and expenses, including, without limitation, court costs and attorney's fees,
incurred by Executive as a result of any claim, action or proceeding by
Executive against the Bank arising out of, or challenging the validity or
enforceability of, this Agreement or any provision hereof.
8. Miscellaneous.
(a) Assignment. No right, benefit or interest hereunder shall be
subject to assignment, anticipation, alienation, sale, encumbrance, charge,
pledge, hypothecation or set-off in respect of any claim, debt or obligation,
or to execution, attachment, levy or similar process; provided, however,
that Executive may assign any right, benefit or interest hereunder if such
assignment is permitted under the terms of any plan or policy of insurance
or annuity contract governing such right, benefit or interest.
(b) Construction of Agreement. Nothing in this Agreement shall be
construed to amend any provision of any plan or policy of the Bank other than
as specifically stated herein. This Agreement is not, and nothing herein
shall be deemed to create an employment contract between Executive and the
Bank or any of its subsidiaries.
(c) Inurement. This Agreement shall be binding upon and inure to
the benefit of the Bank and the Executive and their respective heirs,
executors, administrators, successors and assigns.
(d) Nature of Obligation. The Bank intends that its obligations
hereunder be construed in the nature of severance pay. The Bank's
obligations under Section 3 are absolute and unconditional and shall not be
affected by any circumstance, including, without limitation, any right of
offset, counterclaim, recoupment, defense, or other right which the Bank may
have against the Executive or others. All amounts payable by the Bank
hereunder shall be paid without notice or demand.
(e) Choice of Law. The Agreement shall be governed and construed
in accordance with the laws of the State of Alabama.
(f) Invalidity. In the event that any one or more provisions of
this Agreement shall, for any reason, be held invalid, illegal or
unenforceable in any manner, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement.
In Witness Whereof, Executive has hereunto set his hand and seal and the
Bank has caused this Agreement to be executed by its officers thereunto duly
authorized as of the 31st day of March, 1997.
/s/ Haniel F. Croft
(SEAL)
HANIEL F. CROFT
ATTEST: MONROE COUNTY BANK
/s/ Paul P. Redmond, Jr. BY: /s/ John B. Barnett, III
Its: Sr. VP & Cashier Its: Chairman
COVER
1997 Annual Report
South Alabama Bancorporation
4 Consolidated Financial Highlights
5 Letter to Shareholders
6 Directors and Officers
8 Management's Discussion and
Analysis of Financial Condition
and Results of Operations
23 Selected Quarterly Financial Data
24 Selected Financial Data
26 Management's Report on
Financial Statements and
Independent Auditors' Report
27 Consolidated Statements of Condition
28 Consolidated Statements of Income
29 Consolidated Statements of
Changes in Shareholders' Equity
30 Consolidated Statements of
Cash Flow
31 Notes to Consolidated Financial
Statements
South Alabama Bancorporation, Inc. operates as a bank holding
company headquartered in Mobile, Alabama. Its subsidiaries are
South Alabama Bank, formerly The Bank of Mobile, First National
Bank, Brewton, Monroe County Bank, and South Alabama Trust
Company.
Picture of Kay McKee and Raymond Lynn
Picture of Lyn Peterson, Cathy Rayford and Sandra Wilson
Picture of Susan Reeves, Cindy Madden and Debbie Hardee
Picture of Susan O'Brien and Gloria Klinger
Few images signify "customer service" as effectively as the small silver bell
that used to sit atop business counters throughout the U.S. One "ding" of the
button would bring instant, courteous, attentive service.
It is appropriate that we have selected such a bell as the central image of our
1997 Annual Report. Because at South Alabama Bancorporation, customer service
is more than just a slogan or words on a lapel button. Providing quality
customer service is a fundamental component of our corporate philosophy.
Treating our patrons in a pleasant, efficient, capable manner is, quite simply,
the right way to do business.
Equally important, however, is the fact that providing quality customer service
is the smart way to do business. By maintaining an exceptional level of
service, we enhance the quality of each customer's banking experience--building
long-term customer loyalty, and strengthening and increasing out client base.
In the highly competitive, highly regulated banking industry, the key to
differentiation is customer service. It is the benchmark by which our
performance as a corporation is judged. As we build on our record of healthy
expansion and sustained fiscal growth, we will continue to forge an
infrastructure of customer service-in the variety of customized products,
combined with user-friendly hours and locations.
From the highest levels of management to our tellers on the front lines,
South Alabama Bancorporation is committed to achieving corporate excellence
through exceptional customer service. So the next time you walk into South
Alabama Bank or Monroe County Bank or First National Bank, Brewton, don't be
surprised when one of our associates looks up, smiles, call you by name,
and asks. "How may I help you today?" that's just our way of doing business.
The annual meeting of shareholders will be held May 7, 1998, at
10:00 a.m. C.D.T., at South Alabama Bank, 100 St. Joseph Street,
Mobile, Alabama 36602.
The Annual Report to the Securities and Exchange Commission (Form
10-K) is available upon request to: South Alabama Bancorporation,
100 St. Joseph Street, Mobile, Alabama 36602, (334) 431-7800.
South Alabama's common stock is traded on The Nasdaq Stock
Marketsm under the symbol SABC. NASDAQ market makers are: The
Robinson-Humphrey Co., Inc., Sterne Agee & Leach, Inc. and A.G.
Edwards and Sons, Inc.
Transfer Agent: South Alabama Trust Company, Inc., Post Office
Box 3067, Mobile, Alabama 36652, (334) 431-7835.
This Annual Report reflects the consolidated financial position
and results of operations of the company, with all significant
intercompany transactions eliminated.
<TABLE>
GRAPH SHOWING RETURN ON AVERAGE ASSETS
<CAPTION>
Return on Average Assets
<S> <C>
1993 1.15%
1994 1.28%
1995 1.32%
1996 1.29%
1997 1.36%
</TABLE>
<TABLE>
Consolidated Financial Highlights
(Dollars in Thousands Except Per Share Amounts)
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997 1996 Change
<S> <C> <C> <C>
Net income $4,728 $3,354 + 41.0%
Per common share - basic 1.12 1.05 + 6.7%
- diluted 1.11 1.04 + 6.7%
Cash dividends declared per share - regular .42 .40 + 5.0%
Cash dividends declared per share - special 1.25
AT DECEMBER 31, 1997 1996 Change
Total assets $369,595 $350,077 + 5.6%
Total deposits 315,177 295,287 + 6.7%
Total loans 196,644 189,160 + 4.0%
Total investment securities 118,600 117,773 + 0.7%
Shareholders' equity 45,462 47,088 - 3.5%
Per common share 10.71 11.14 - 3.9%
Common shares outstanding (000's) 4,246 4,227
</TABLE>
Letter To Shareholders
Dear Shareholder:
Nineteen hundred and ninety seven was an excellent year for our company. We
recorded earnings of $4,728,000 -- our highest ever. Our stock price closed
the year at $22.25, an increase of 87 percent over year-end 1996. At midyear
1997, we increased our quarterly dividend from $.10 per share to $.11 per
share. We also provided you with a special dividend of $1.25 per share in
May of 1997.
The quality of our company remained strong throughout 1997. For the year, net
charge-offs to average loans declined to .10 percent, while non-performing
assets as a percentage of loans and other real estate owned also decreased to
.36 percent. At year-end, non-performing assets totaled only $708,000, and
the company was carrying no other real estate owned (foreclosed property) on
its books. The loan loss reserve closed the year at 1.37 percent of ending
loans, the same level as year-end 1996.
You were recently informed of the formation of South Alabama Trust Company,
which resulted from the combination of the trust department of The Bank of
Mobile with its counterpart at First National Bank, Brewton. We are excited
about the growth opportunities this new subsidiary will afford us in the
southern part of Alabama.
On March 9, The Bank of Mobile's name was changed to South Alabama Bank. This
change was desirable because of the growth of our bank in southwest Alabama
and our entry into Baldwin County. South Alabama Bank-Foley opened for
business on March 23. As previously communicated, we have also acquired
property in Daphne and Fairhope which will provide future growth opportunities
in Baldwin County.
We anticipate that the acquisition of Peterman State Bank will occur in the
early part of the second quarter. We are excited about the addition of this
fine institution, which is approximately $20 million in size, to our South
Alabama family.
Our three sister banks, comprised of South Alabama Bank, First National Bank,
Brewton and Monroe County Bank, have successfully complemented one another to
provide our company with another outstanding year.
We welcome your comments and invite you to bank with us if you are not
already doing so.
Sincerely,
J. Stephen Nelson W. Bibb Lamar, Jr.
Chairman of the Board President and Chief Executive Officer
South Alabama Bancorporation
DIRECTORS
John B. Barnett, III
Executive Vice President, South Alabama Bancorporation, Inc.,
Chairman, Monroe County Bank and Partner, Barnett, Bugg & Lee, Attorneys
Stephen G. Crawford
Member, Hand Arendall, L.L.C., Attorneys
Haniel F. Croft
President and CEO, Monroe County Bank
David C. De Laney
President, First Small Business Investment Company of Alabama
Lowell J. Friedman
President, Creola Investment Corporation
Broox G. Garrett, Jr.
Partner, Thompson, Garrett & Hines, L.L.P., Attorneys
W. Dwight Harrigan
President, Scotch Lumber Company
James P. Hayes, Jr.
President, J.P. Hayes & Co., Inc.
Clifton C. Inge
Chairman, Willis Corroon Corporation of Mobile
W. Bibb Lamar, Jr.
President and CEO, South Alabama Bancorporation, Inc. and
President and CEO, South Alabama Bank
Kenneth R. McCartha
Retired, Alabama Superintendent of Banks
Thomas E. McMillan, Jr.
President of General Partner, Smackco, Ltd.
J. Richard Miller, III
Managing Partner, Miller Investments
Harris V. Morrissette
President, Marshall Biscuit Company
J. Stephen Nelson
Chairman, South Alabama Bancorporation, Inc. and Chairman and
CEO, First National Bank, Brewton
Paul D. Owens, Jr.
Attorney
Earl H. Weaver
Earl H. Weaver Management Services
Director Emeritus
John B. Barnett, Jr.
OFFICERS
J. Stephen Nelson
Chairman of the Board
W. Bibb Lamar, Jr.
President and Chief Executive Officer
John B. Barnett, III
Executive Vice President
W. Gaillard Bixler
Executive Vice President and Chief Operating Officer
F. Michael Johnson
Chief Financial Officer and Secretary
Mark E. McVay
Auditor
South Alabama Bank
DIRECTORS
Stephen G. Crawford
David C. De Laney
Ann W. Delchamps
Lowell J. Friedman
Barry E. Gritter
W. Dwight Harrigan
James M. Harrison, Jr.
Walter L. Hovell
Clifton C. Inge
Kenneth S. Johnson
W. Bibb Lamar, Jr.
Thomas W. Leavell
John H. Lewis, Jr.
J. Richard Miller, III
Ray H. Miller, III
Harris V. Morrissette
Paul D. Owens, Jr.
Charles L. Rutherford, Jr.
Directors Emeritus
T. Massey Bedsole
J. Robert Boykin, Sr.
William J. Hearin, Jr.
Joseph N. Langan
Dwain G. Luce
John R. Miller, Jr.
James L. Murray
Robert H. Radcliff, Jr.
OFFICERS
W. Bibb Lamar, Jr.
President and Chief Executive Officer
Percy C. Fountain, Jr.
Executive Vice President
F. Michael Johnson
Executive Vice President
Bruce C. Finley, Jr.
Senior Vice President and Senior Loan Officer
Melvin R. Coxwell
Senior Vice President
Randall S. Adams
Vice President
L. Russell Brandau, Jr.
Vice President
Harry D. Henson
Vice President
Joy W. Lyons
Vice President and Credit Administration Officer
Robert S. Murray, Jr.
Vice President
Karen P. Sullivan
Vice President
Pamela S. Watson
Vice President
Paul J. England
Assistant Vice President and Branch Manager
Lisa H. Owen
Assistant Vice President
Maria K. Papastefan
Assistant Vice President and Branch Manager
Carolyn T. Peterson
Assistant Vice President
Cathy S. Rayford
Assistant Vice President and Branch Manager
James M. Alexander
Assistant Cashier
Alexia G. Beegle
Real Estate Officer
Donna L. Gatlin
Operations Officer
Helen W. Inge
Assistant Cashier
Deirdre M. Pearman
Branch Officer
Marianne S. Taul
Auditor
Mark E. Thompson
Accounting Officer
Sandra J. Wilson
Branch Officer and Branch Manager
Baldwin County Officers
David R. Pruet, Jr.
Baldwin County President
Agnes H. Easley
Assistant Vice President and Branch Manager
First National Bank, Brewton
DIRECTORS
W. Gaillard Bixler
Dan Britton
John David Finlay, Jr.
Broox G. Garrett, Jr.
Billy Joe Griffin
James P. Hayes, Jr.
Jack W. Hines, Jr.
Thomas E. McMillan, Jr.
J. Richard Miller, III
J. Stephen Nelson
Earl H. Weaver
Directors Emeritus
Bryars Byrd
John R. Miller, Jr.
Lee M. Otts
Clarence L. Turnipseed
OFFICERS
J. Stephen Nelson
Chairman and Chief Executive Officer
W. Gaillard Bixler
President and Chief Operating Officer
James L. Stark
Senior Vice President
Mary M. Thompson
Senior Vice President and Secretary to the Board
R. Jerry Jackson
Vice President
Cindy W. Madden
Vice President
Daniel C. Thomas
Vice President
Hilda Baggett
Assistant Vice President
Phillip Jennings
Assistant Vice President
Doris B. Morris
Assistant Vice President
Janis B. Norman
Assistant Vice President
James William Luker, Jr.
Auditor
D. Wade Anthony
Loan Officer
Charlene B. Godwin
Compliance Officer
Carrie L. King
Operations Officer
Sandra B. Neeley
Mature Market Officer
Debbie C. Hardee
Branch Manager
Deborah W. Roberson
Accounting Officer
Ann H. Coale
Credit Administration Officer
Susan P. Reeves
Branch Manager
Monroe County Bank
DIRECTORS
John B. Barnett, Jr.
John B. Barnett, III
Haniel F. Croft
Sloan R. Fountain, Jr.
Karl M. Lazenby
Alice F. Lee
Edwin C. Lee, Jr.
John T. Lee, III
Lloyd T. McCall, Jr.
J. C. Niehuss
R. A. Smith, Jr.
Joe R. Whatley
OFFICERS
John B. Barnett, III
Chairman
John B. Barnett, Jr.
Vice Chairman
Haniel F. Croft
President and Chief Executive Officer
Paul P. Redmond, Jr.
Senior Vice President and Cashier
Harold W. Grimes, III
Senior Vice President
Samuel C. Jackson
Vice President
Elaine P. Brooks
Vice President
Dereck P. Dillow
Vice President
Susan D. O'Brien
Administrative Officer
South alabama Trust Company
DIRECTORS
Dan Britton
John B. Barnett, III
Stephen G. Crawford
Broox G. Garrett, Jr.
Clifton C. Inge
W. Bibb Lamar, Jr.
J. Stephen Nelson
Earl H. Weaver
OFFICERS
Dan Britton
President and Chief Executive Officer
Raymond F. Lynn, Jr.
Senior Vice President and Secretary
Kay I. McKee
Senior Vice President and Treasurer
James G. Beck
Vice President
Elaine Catoe
Vice President
Joyce Baker
Assistant Vice President
Alexis Maloy
Assistant Vice President and Employee Benefit Manager
Carolyn Bollenbacher
Trust Operations Manager
Grace D. Phelps
Trust Officer
Oliver G. Rester
Employee Benefits Officer
Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis focuses on information
about South Alabama Bancorporation, Inc. (the "Company" or "South Alabama")
and its subsidiaries, South Alabama Bank, formerly The Bank of Mobile
(the "Mobile Bank"), First National Bank, Brewton (the "Brewton Bank"),
Monroe County Bank of Monroeville (the "Monroeville Bank") and South Alabama
Trust Company, that is not otherwise apparent from the consolidated financial
statements and related footnotes appearing later in this annual report.
Reference should be made to those statements and the financial data presented
elsewhere in this report for a complete understanding of the following
discussion and analysis.
On September 30, 1993, South Alabama Bancorporation, Inc., a Brewton, Alabama,
bank holding company, was merged into Mobile National Corporation, with the
resulting company changing its name to South Alabama Bancorporation, Inc. The
merger between South Alabama Bancorporation, Inc., and Mobile National
Corporation has been accounted for as a pooling-of-interests; accordingly,
the pre-merger accounts of the former South Alabama Bancorporation, Inc.,
have been combined with those of Mobile National Corporation for 1993.
On October 31, 1996, First Monco Bancshares, Inc., a Monroeville, Alabama,
bank holding company, was merged into South Alabama.The merger between First
Monco Bancshares, Inc. and South Alabama has been accounted for as a purchase
(the "Monroeville purchase") and accordingly the results of operations of the
Monroeville Bank have been included in the consolidated results from that day
forward.
Summary
The Company recorded net income of $4.7 million in 1997, an increase of 41.0
percent from $3.4 million in 1996. Of the increase, $1.2 million resulted from
the Monroeville purchase. Non-interest revenue and non-interest expense each
increased 23.7 percent, caused primarily by the Monroeville purchase.
Financial Condition
Average Assets and Liabilities
Average assets in 1997 were $346.4 million, compared to $260.6 million in 1996
, an increase of 32.9 percent, with most of the growth being attributable to
the Monroeville purchase. Average net loan volume increased 23.5 percent for
1997 compared to 1996.
Average total deposits in 1997 were 32.6 percent higher than in 1996. Average
non-interest bearing demand deposits and interest bearing demand deposits
increased 29.5 percent and 27.6 percent respectively. Larger increases of
50.0 percent in savings deposits and 35.5 percent in time deposits were
experienced.
Short-term borrowings consist of federal funds purchased, overnight repurchase
agreements and deposits into the treasury tax and loan account. Management has
sought to reduce the volume of these funds relative to total assets. In 1997
average short-term borrowings were reduced to 1.5 percent of total average
assets compared to 1.6 percent in 1996.
The Company's average equity as a percent of average total assets in 1997 was
13.0 percent, compared to 12.4 percent in 1996. Average equity in 1997
included approximately $4.0 million recorded as goodwill related to the
Monroeville purchase.
<TABLE>
Distribution of Average Assets, Liabilities and Shareholders' Equity
<CAPTION>
(In Millions) 1997 1996 1995 1994 1993
Average Assets
<S> <C> <C> <C> <C> <C>
Cash and non-interest
bearing deposits $ 14.1 $ 12.0 $ 11.4 $ 11.6 $ 11.5
Interest bearing deposits .1 .3 .7 1.0 1.1
Federal funds sold 12.4 8.2 8.6 6.6 8.5
Investment securities 114.0 75.1 62.2 68.9 72.4
Loans, net 190.8 154.5 138.2 121.6 106.5
Premises and equipment, net 6.9 5.7 3.7 3.5 3.6
Other real estate owned, net .1 .3 .4 .6
Deferred tax asset .1 .8 .7 .7 .9
Intangible assets 4.0 .7
Other assets 4.0 3.2 2.6 2.5 2.3
Average Total Assets $346.4 $260.6 $228.4 $216.8 $207.4
Average Liabilities and Shareholders' Equity
Non-interest bearing
demand deposits $ 51.3 $ 39.6 $ 34.9 $ 31.6 $ 29.2
Interest bearing
demand deposits 100.4 78.7 68.8 79.6 79.5
Savings deposits 23.4 15.6 13.6 13.9 12.3
Time deposits 118.3 87.3 76.7 59.5 58.0
Total deposits 293.4 221.2 194.0 184.6 179.0
Short-term borrowings 5.3 4.2 4.6 4.7 3.6
Other liabilities 2.6 2.8 2.6 1.9 1.7
Shareholders' Equity 45.1 32.4 27.2 25.6 23.1
Average Total Liabilities
and Shareholders' Equity $346.4 $260.6 $228.4 $216.8 $207.4
</TABLE>
Loans
The largest and highest yielding category of interest earning assets at South
Alabama is the loan portfolio. One of Management's primary objectives for
several years has been to increase loans. As a result, average net loans have
increased by $84.3 million since 1993 and totaled $196.6 million at year-end
1997. Growth has occurred in all categories of loans. The distribution of the
various loan categories compared to total loans at year-end 1997 remained
relatively unchanged from year-end 1996 except that the percentage of real
estate-mortgage loans increased slightly and real estate-construction loans
decreased slightly.
It is Management's goal to continue to make loans with relatively short
maturities or, in the case of loans with longer maturities, with floating
rate arrangements when possible. Of the outstanding loans in the categories of
commercial, financial and agricultural, real estate-construction and real
estate-mortgage at December 31, 1997, $78.9 million or 46.9 percent mature
within one year and are therefore available for interest rate changes, if
needed, to adjust for asset/liability management purposes. Of the remaining
loans in these categories maturing after one year, 30.4 percent are on a
floating rate basis. Of the total loan portfolio outstanding at December 31,
1997, 64.5 percent is available for repricing within one year, either because
the loans mature within one year or are based on a variable rate arrangement.
<TABLE>
GRAPH SHOWING DIRTIBUTION OF LOANS BY CATEGORY AT DECEMBER 31, 1998
<CAPTION>
December 31, 1998
<S> <C>
Commercial, financial, and agricultural 32.8%
Real estate - construction 3.8%
Real estate - mortgage 49.0%
Installment 14.4%
</TABLE>
The Company makes available to its customers fixed rate, longer term loans,
especially in the residential real estate-mortgage area. South Alabama is able
to offer through third party arrangements certain loan products which do not
require that the longer term loans be carried on the books of the Company but
which allow the Company to gain the benefit of a larger variety of product
offerings and generate fee income.
The table below shows the classifications of loans by major category at
December 31, 1997, and at each of the previous four year-ends. The second
table depicts maturities of selected loan categories and the interest rate
structure for such loans maturing after one year.
<TABLE>
Distribution of Loans by Category
(In Millions)
<CAPTION>
December 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Commercial, financial,
and agricultural $ 64.4 $ 62.2 $ 47.2 $ 53.3 $ 44.3
Real estate - construction 7.6 11.2 8.6 6.7 6.0
Real estate - mortgage 96.3 88.1 65.9 53.1 50.0
Installment 28.3 27.7 22.4 20.7 18.2
Total loans $196.6 $189.2 $144.1 $133.8 $118.5
</TABLE>
<TABLE>
Selected Loans by Type and Maturity
(In Millions)
<CAPTION>
December 31, 1997
Maturing
Within After One But After
One Year Within Five Years Five Years Total
<S> <C> <C> <C> <C>
Commercial, financial,
and agricultural $39.0 $20.0 $ 5.4 $ 64.4
Real estate - construction 7.0 .4 .2 7.6
Real estate - mortgage 32.9 55.5 7.9 96.3
$78.9 $75.9 $13.5 $168.3
Loans maturing after one year with:
Fixed interest rates $55.4 $6.8
Floating interest rates 20.5 6.7
$75.9 $13.5
</TABLE>
The Company's rollover policy consists of an evaluation of maturing loans to
determine whether such loans will be renewed (or rolled over) and, if so, at
what amount, rate and maturity.
Investment Securities
Loan demand has been strong for several years and as a result the amount of
funds allocated to the investment portfolio declined from 1993 through 1995.
The loan to deposit ratio of the Monroeville Bank at the time of the
Monroeville purchase was 28.1 percent, compared to 76.9 percent at the
Company. Consequently, the Monroeville purchase significantly increased the
size of the investment portfolio from 25.3 percent of total assets at year
end 1995 to 32.1 percent at year end 1997. This increase will allow the
Company to continue to fund loan growth.
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 115, Accounting for Certain Investments in Debt and Equity Securities, as
of January 1, 1994. SFAS No. 115 requires that securities be classified into
one of three categories: held to maturity, available for sale, or trading.
Securities classified as held to maturity will be stated at amortized cost.
This classification means that Management has the positive intent and the
Company has the ability to hold the securities until they mature. Securities
classified as available for sale will be stated at fair value. Securities in
this category are held for indefinite periods of time, and include securities
that Management intends to use as part of its asset/liability strategy, or
that may be sold in response to changes in interest rates, changes in
prepayment risks, the need to increase regulatory capital or other similar
factors. The Company holds no trading securities.
The maturities and weighted average yields of securities held to maturity and
securities available for sale at December 31, 1997, are presented in the
following table using the average stated contractual maturities. The average
stated contractual maturities may differ from the average expected life
because borrowers may have the right to call or prepay obligations. Tax
equivalent adjustments, using a 34 percent tax rate, have been made when
calculating yields on tax-exempt obligations. For purposes of this table,
securities available for sale are shown at amortized cost.
<TABLE>
Maturity Distribution of Investment Securities
December 31, 1997
(Dollars in Thousands)
<CAPTION>
After one but After five but
Within one year within five years within ten years After ten years Total
--------------- ----------------- ---------------- --------------- --------------
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
Securities held to maturity
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
US Treasury securities $ 3,016 6.45% $ 976 7.43% $ 3,992 6.69%
US Government agencies 889 5.93 $ 176 6.00% $ 449 7.45% 1,514 6.39
State and political
subdivisions 45 9.53 418 8.82 1,484 9.63 644 8.77 2,591 9.28
Other investments 248 6.65 248 6.65
Total securities
held to maturity 3,061 6.50 2,283 7.10 1,908 8.91 1,093 8.23 8,345 7.44
Securities available for sale
US Treasury securities 1,003 5.69 6,543 6.55 7,546 6.43
US Government agencies 6,963 5.73 12,474 6.28 16,837 6.45 6,371 6.43 42,645 6.28
State and political
subdivisions 2,425 5.24 9,249 6.36 12,574 7.48 12,102 8.20 36,350 7.28
Other investments 4,410 5.62 10,991 6.18 1,980 6.64 5,028 6.15 22,409 6.10
Total securities
available for sale 14,801 5.61 39,257 6.32 31,391 6.88 23,501 7.28 108,950 6.59
Total investments $17,862 5.76% $41,540 6.36% $33,299 6.99% $24,594 7.32% $117,295 6.65%
</TABLE>
Deposits and Short-Term Borrowings
During 1995, as a result of promotions aimed at attracting longer term, small
denomination time deposits, average time deposits increased to $76.7 million
compared to $59.5 million in 1994. A partial effect of the promotions was
that a certain amount of funds flowed from interest bearing demand accounts
and into time deposits. Between 1996 and 1997, the company experienced
internal deposit growth of approximately 7 percent; the remaining growth
resulted from the Monroeville purchase.
<TABLE>
GRAPH OF DISTRIBUTION OF DEPOSITS AT DECEMBER 31, 1998
<CAPTION>
12/31/97
<S> <C>
Non-interest bearing demand deposits 18.7%
Interest bearing demand deposits 35.0%
Savings deposits 7.2%
Time deposits 39.1%
</TABLE>
<TABLE>
Average Deposits
(Dollars in Millions)
<CAPTION>
Average for the year
----------------------------------------------------------------------
1997 1996 1995
--------------------- --------------------- ----------------------
Average Average Average Average Average Average
Amount Rate Amount Rate Amount Rate
Outstanding Paid Outstanding Paid Outstanding Paid
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing
demand deposits $ 51.3 N/A $ 39.6 N/A $ 34.9 N/A
Interest bearing
demand deposits 100.4 3.54% 78.7 3.40% 68.8 3.72%
Savings deposits 23.4 3.03 15.6 3.04 13.6 3.14
Time deposits 118.3 5.39 87.3 5.47 76.7 5.47
Total average deposits $293.4 $221.2 $194.0
</TABLE>
The following table reflects maturities of time deposits of $100 thousand or
more at December 31, 1997. Deposits of $44.5 million in this category
represented 14.1 percent of total deposits at year-end 1997, compared to 11.8
percent at year-end 1996 and 14.4 percent at year-end 1995. Management views
these deposits as the most volatile of all deposit categories and does not
pursue these deposits as aggressively as smaller denomination consumer
deposits.
<TABLE>
Maturities of Time Deposits of $100,000 or More
(In Millions)
<CAPTION>
At December 31, 1997
-----------------------------------
Under Over
3 3-12 12
Months Months Months Total
<C> <C> <C> <C>
$19.5 $18.2 $ 6.8 $44.5
</TABLE>
Short-term borrowings include three items: 1) federal funds purchased, 2)
securities sold under agreements to repurchase, which are overnight
transactions with large corporate customers, commonly referred to as repos,
and 3) other, representing borrowings from the Federal Home Loan Bank, from
the Federal Reserve through its discount operations and U.S. Treasury tax and
loan funds on deposit subject to a note payable to the U.S. Treasury
Department. The Company purchased a small amount of federal funds during 1997.
Average short term borrowings in 1997 increased to $5.3 million compared to
$4.2 million in 1996. Management has sought to control the volume of funds in
this category within certain acceptable limits.
One of Management's asset/liability management goals is to maintain a net
sold position (whereby federal funds sold exceeds short term borrowings). The
Company has maintained this position, on average, for all years shown.
<TABLE>
Short-Term Borrowings
(Dollars in Thousands)
<CAPTION>
1997 1996 1995
------------------------------ ------------------------------ ------------------------------
Average Weighted Average Weighted Average Weighted
Maximum Balance Average Maximum Balance Average Maximum Balance Average
Month-end During Interest Month-end During Interest Month-end During Interest
Balance Year Rate Balance Year Rate Balance Year Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal funds purchased $1,250 $ 220 5.45% $2,000 $ 142 4.86% $4,600 $ 766 3.06%
Securities sold under
agreement to repurchase 6,021 4,733 4.86 5,858 3,422 4.44 3,599 2,682 4.24
Other 1,881 357 5.88 1,836 664 6.67 2,980 1,185 6.47
Total short-term
borrowings $5,310 4.95% $4,228 4.80% $4,633 4.62%
</TABLE>
Asset/Liability Management
The purpose of asset/liability management is to maximize return while
minimizing risk. Maximizing return means achieving the Company's
profitability and growth goals. Minimizing risk means considering four key
risk factors: 1) liquidity, 2) interest-rate sensitivity, 3) capital adequacy,
and 4) asset quality. Asset/liability management at the Company involves a
comprehensive approach to balance sheet management which meets the risk and
return criteria established by Management and the Board of Directors.
The Securities and Exchange Commission issued final rules in January 1997
governing disclosure requirements for financial instruments, including
derivatives. The final rules require detailed description of the accounting
policies used for derivatives as well as qualitative and quantitative
disclosures regarding market risk exposures.
The Company's primary market risk is its exposure to interest rate changes.
Interest rate risk management strategies are designed to optimize net interest
income while minimizing fluctuations caused by changes in the interest rate
environment. It is through these strategies that the Company seeks to manage
the maturity and repricing characteristics of its balance sheet.
The modeling techniques used by the Company simulate net interest income and
impact on fair values under various rate scenarios. Important elements of
these techniques include the mix of floating versus fixed rate assets and
liabilities, and the scheduled, as well as expected, repricing and maturing
volumes and rates of the existing balance sheet. Under a scenario simulating
a hypothetical 100 basis point rate increase applied to all interest earning
assets and interest-bearing liabilities, the Company would expect a net loss
in fair value of the under-lying instruments of $7.3 million. This
hypothetical loss is not a precise indicator of future events. Instead, it is
a reasonable estimate of the results anticipated if the assumptions used in
the modeling techniques were to occur.
Liquidity
Liquidity represents the ability of a bank to meet loan commitments as well
as deposit withdrawals. Liquidity is derived from both the asset side and the
liability side of the balance sheet. On the asset side, liquidity is provided
by marketable investment securities, maturing loans, federal funds sold and
cash and cash equivalents. On the liability side, liquidity is provided by a
stable base of core deposits. Additionally, the Company has available, if
needed, federal funds lines of credit, Federal Home Loan Bank lines of credit
and Federal Reserve discount window operations and an operating line of credit
from a correspondent bank.
Interest Rate Sensitivity
By monitoring the Company's interest rate sensitivity Management attempts to
maintain a desired balance between the growth of net interest revenue and the
risks that might result from significant changes in interest rates in the
market. One tool for measurement of this risk is gap analysis, whereby the
repricing of assets and liabilities is compared within certain time categories.
By identifying mismatches in repricing opportunities within a time category,
interest rate risk can be identified. The interest sensitivity analysis
presented in the table below is based on this type of gap analysis, which
assumes that rates earned on interest earning assets and rates paid on interest
bearing liabilities will move simultaneously in the same direction and to the
same extent. However, the rates associated with these assets and liabilities
actually change at different times and in varying amounts.
Changes in the composition of earning assets and interest bearing liabilities
can increase or decrease net interest revenue without affecting interest
sensitivity. The interest rate spread between assets and their corresponding
liability can be significantly changed while the repricing interval for both
remain unchanged, thus impacting net interest revenue. Over a period of time,
net interest revenue can increase
or decrease if one side of the balance sheet reprices before the other side.
An interest sensitivity ratio of 1.0 (earning assets divided by interest bearing
liabilities), which represents a matched interest sensitive position, does
not guarantee maximum net interest revenue. Management must evaluate several
factors, including the general direction of interest rates, before investing
in order to determine the type of investment and the maturity needed.
Management may, from time to time, accept calculated risks associated with
interest sensitivity in order to maximize net interest revenue. The Company
does not currently use derivative financial instruments to manage interest
rate sensitivity.
At December 31, 1997, the Company's three-month interest sensitivity gap
position was .96 percent, and at twelve months the gap position, on a
cumulative basis, was .93 percent, well within the range established by
Management as acceptable. This position was relatively unchanged from December
31, 1996. The Company's three month gap position indicates that, in a period of
rising interest rates, each $1.00 of assets which reprice upward could be
followed with slightly more than $1.00 in liabilities which could reprice
upward within three months. Thus, under this scenario, net interest revenue
might decrease slightly during the three-month period of rising rates. In a
period of falling rates, the opposite effect might occur. While certain
categories, such as some loans and certain certificates of deposit, are
contractually tied to interest rate movements, most are subject only to
competitive pressures. Management has a certain amount of flexibility when
adjusting rates on these funds. Management is confident of and has demonstrated
over the years its ability to adjust to interest rate changes in a manner
that minimizes any significant adverse effect on the net interest margin.
<TABLE>
Interest Sensitivity Analysis
(Dollars in Thousands)
<CAPTION>
December 31, 1997 Non-Interest
-------------------------------------- Sensitive
Interest Sensitive Within (Cumulative) Within
3 Months 3-12 Months 1-5 Years 5 Years Total
EARNING ASSETS
<S> <C> <C> <C> <C> <C>
Loans (1) $ 96,083 $126,919 $189,136 $ 7,508 $196,644
Unearned income (127) (127)
Less allowance for loan losses (2,685) (2,685)
Net loans 96,083 126,919 189,136 4,696 193,832
Investment securities 8,855 18,532 60,505 58,095 118,600
Federal funds sold and
resale agreements 25,293 25,293 25,293 25,293
Interest bearing deposits in
other financial institutions 100 100 100 100
Total earning assets $130,331 $170,844 $275,034 $ 62,791 $337,825
INTEREST BEARING LIABILITIES
Non-interest bearing deposits $ 58,904 $ 58,904
Interest bearing
demand deposits(2) $ 72,375 $ 72,375 $ 72,375 37,824 110,199
Savings deposits (2) 22,849 22,849
Large denomination
time deposits 19,411 37,655 42,017 2,477 44,494
Other time deposits 37,110 67,503 78,518 213 78,731
Short-term borrowings 6,468 6,468 6,468 6,468
Total interest
bearing liabilities $135,364 $184,001 $199,378 $122,267 $321,645
Interest sensitivity gap $ (5,033) $(13,157) $ 75,656
Earning assets/interest
bearing liabilities .96 .93 1.38
Interest sensitivity gap/
earning assets (.04) (.08) .28
(1) Non-accrual loans are included in the "Non-Interest Sensitive Within 5
Years" category.
(2) Certain types of savings and NOW accounts (included in interest bearing
demand deposits) are included in the "Non-Interest Sensitive Within 5
Years" category. In Management's opinion these liabilities do not
reprice in the same proportions as rate-sensitive assets, as they are
not responsive to general interest rate changes in the economy.
</TABLE>
Capital Resources
The merger between South Alabama Bancorporation and First Monco Bancshares in
1996 was accounted for as a purchase and the transaction resulted in the
addition of $16.6 million in capital, of which $4.2 million was attributable
to goodwill. The goodwill is being amortized over 25 years at approximately
$167 thousand per year.
Tangible shareholders' equity (shareholders' equity less goodwill and
unrealized gains and losses of available for sale securities) was $40.7
million at December 31, 1997, compared to $42.7 million at December 31, 1996,
a decrease of 4.7 percent. In May 1997 the Company paid a special dividend of
$1.25 per share. Like many banking institutions, the Company has capital in
excess of industry norms, and the special dividend is one aspect of the
Company's strategic plan to enhance shareholder value. As a result of the
special dividend, Tier I capital at year end 1997 was below year end 1996.
The Company's leverage ratio, defined as shareholders' equity divided by
quarterly average assets, was 11.48 percent, well above peer group averages.
The Federal Reserve and the FDIC require that bank holding companies and banks
maintain certain minimum levels of capital as defined by risk-based capital
guidelines. These guidelines consider risk factors associated with various
components of assets, both on and off the statement of condition. Under these
guidelines capital is measured in two tiers and these capital tiers are used
in conjunction with "risk based" assets in determining "risk-based" capital
ratios. Total capital, which is Tier I plus the allowable portion of the
allowance for loan losses, was $43.3 million at December 31, 1997. The ratios
expressed as a percent of total risk-adjusted assets for Tier I and total
capital were 17.24 percent and 18.38 percent, respectively, at December 31,
1997. The Company exceeded the minimum risk-based capital guidelines at
December 31, 1997, 1996, and 1995 (see Footnote 14 of Notes to Consolidated
Financial Statements.)
<TABLE>
Risk-Based Capital
(Dollars in Thousands)
<CAPTION>
December 31,
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Tier I capital -
Tangible common shareholders' equity $ 40,654 $ 42,675 $ 28,239
Tier II capital -
Allowable portion of the allowance
for loan losses 2,685 2,600 2,222
Total capital (Tier I and Tier II) $ 43,339 $ 45,275 $ 30,461
Risk-adjusted assets $235,802 $221,035 $247,956
Quarterly average assets 354,042 307,602 239,467
Risk-based capital ratios:
Tier I capital 17.24% 19.31% 11.39%
Total capital (Tier I and Tier II) 18.38% 20.48% 12.28%
Minimum risk-based capital guidelines:
Tier I capital 4.00% 4.00% 4.00%
Total capital (Tier I and Tier II) 8.00% 8.00% 8.00%
Tier I leverage ratio 11.48% 13.87% 11.79%
</TABLE>
Results of Operations
Net interest revenue, the difference between amounts earned on assets and the
amounts paid on liabilities, is the most significant component of earnings
for a financial institution. Changes in interest rates, changes in the volume
of assets and liabilities, and changes in the asset/liability mix are the
major factors that influence net interest revenue. Presented below is an
analysis of net interest revenue, weighted average yields on earning assets
and weighted average rates paid on interest bearing liabilities for the past
three years.
Net yield on interest earning assets is net interest revenue, on a tax
equivalent basis, divided by total interest earning assets. This ratio is a
measure of the Company's effectiveness in pricing interest earning
assets and funding them with both interest bearing and non-interest bearing
liabilities. The Company's net yield, on a tax equivalent basis, decreased to
4.94 percent in 1997 from 5.09 percent and 5.24 percent in 1996 and 1995,
respectively. Interest rates in general began to fall in mid 1995 and
interest earning assets repriced downward faster than interest bearing
liabilities. However, loan volume increased substantially in 1995 and the
result was an increase in net interest income of 6.6 percent in 1995 over
1994. During 1996 the trend in interest rates continued slightly lower;
however, the cost of time deposits remained unchanged from 1995, a result of
intensified competition for deposits in the markets served by the Company.
The result was a 15 basis point decline in the net yield on interest earning
assets in 1996 compared to 1995. The net yield fell again in 1997 to 4.94
percent from 5.09 percent in 1996. Yields on loans in 1997 were relatively
unchanged from 1996, although a 23 basis point decrease in the yield on
taxable securities resulted in a 20 basis point decline in the yield on
interest earning assets and the 15 basis point decline in the net yield.
<TABLE>
Net Interest Revenue
(Dollars in Thousands)
<CAPTION>
1997 1996 1995
------------------------------- -------------------------------- --------------------------------
Average Interest Average Interest Average Interest
Amount Average Earned/ Amount Average Earned/ Amount Average Earned/
Outstanding Rate Paid Outstanding Rate Paid Outstanding Rate Paid
----------- ------- ------- ----------- ------- -------- ----------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Earning Assets
Taxable securities $ 84,633 6.41% $ 5,421 $ 57,664 6.64% $ 3,829 $ 50,676 6.53% $ 3,308
Non-taxable securities 29,392 5.27 1,548 17,444 5.25 916 11,486 6.01 690
Total securities 114,025 6.11 6,969 75,108 6.32 4,745 62,162 6.43 3,998
Loans(1) 193,381 9.38 18,139 156,606 9.34 14,632 140,431 9.67 13,579
Federal funds sold 12,389 5.47 678 8,155 5.33 435 8,615 5.54 477
Deposits 100 9.00 9 336 7.44 25 656 6.10 40
Total interest
earning assets 319,895 8.06 25,795 240,205 8.26 19,837 211,864 8.54 18,094
Non-interest earning assets
Cash and due from banks 14,084 11,997 11,388
Premises and equipment, net 6,963 5,690 3,758
Other real estate 16 147 252
Deferred tax asset 84 777 666
Other assets 3,935 3,143 2,628
Intangible assets 4,075 694
Allowance for loan losses (2,611) (2,103) (2,198)
Total $346,441 $260,550 $228,358
Interest Bearing Liabilities
Interest bearing demand
and savings deposits $123,754 3.44 4,260 $ 94,345 3.34 3,152 $ 82,391 3.63 2,987
Time deposits 118,265 5.39 6,377 87,253 5.47 4,777 76,777 5.47 4,196
Short-term borrowing 5,310 4.95 263 4,228 4.80 203 4,633 4.62 214
Total interest bearing
liabilities 247,329 4.41 10,900 185,826 4.38 8,132 163,801 4.52 7,397
Non-interest bearing
liabilities
Demand deposits 51,330 39,629 34,855
Other 2,695 2,732 2,538
54,025 42,361 37,393
Shareholders' equity 45,087 32,363 27,164
Total $346,441 $260,550 $228,358
Net Interest Revenue 3.65% $14,895 3.88% $11,705 4.02% $10,697
Net yield on interest
earning assets 4.66% 4.87% 5.05%
Tax equivalent adjustment 0.28% 0.22% 0.19%
Net yield on interest
earning assets (tax equivalent) 4.94% 5.09% 5.24%
(1) Loans classified as non-accruing are included in the average volume
classification. Loan fees for all years shown are included in the
interest amounts for loans.
</TABLE>
The following table reflects the changes in sources of taxable-equivalent
interest income and expense between 1997 and 1996 and between 1996 and 1995.
The variances resulting from changes in interest rates and the variances
resulting from changes in volume are shown.
<TABLE>
Analysis of Taxable-Equivalent Interest Increases (Decreases)
(Dollars in Thousands)
<CAPTION>
1997 Change From 1996 1996 Change From 1995
------------------------ ------------------------
Due to(1) Due to(1)
Amount Volume Rate Amount Volume Rate
<S> <C> <C> <C> <C> <C> <C>
Interest Revenue:
Taxable securities $1,592 $1,784 $(192) $ 521 $ 457 $ 64
Non-taxable securities 1,003 996 7 359 547 (188)
Total securities 2,595 2,780 (185) 880 1,004 (124)
Loans 3,507 3,436 71 1,053 1,551 (498)
Federal funds sold 243 226 17 (42) (25) (17)
Deposits (16) (18) 2 (15) (20) 5
Total 6,329 6,424 (95) 1,876 2,510 (634)
Interest Expense:
Interest bearing demand
and savings deposits 1,108 986 122 165 420 (255)
Other time deposits 1,600 1,696 (96) 581 573 8
Short-term borrowing 60 52 8 (11) (19) 8
Total 2,768 2,734 34 735 974 (239)
Net interest revenue $3,561 $3,690 $(129) $1,141 $1,536 $(395)
(1) The change in interest due to both rate and volume has been allocated to
volume and rate changes in proportion to the relationship of the
absolute dollar amount of the change in each.
</TABLE>
Tax-equivalent net interest revenue was $1.14 million higher in 1996 compared
to 1995. A decrease caused by lower levels of rates in the economy was offset
by increases in volume at the Company, primarily on loans and investments. In
1997 compared to 1996, the increase of $3.56 million in net interest revenue
was caused almost entirely by the Monroeville purchase. Rate variances were
small because interest rates in general were relatively stable.
<TABLE>
<CAPTION>
GRAPH SHOWING TAX EQUIVALENT NET INTEREST MARGIN
<S> <C>
1993 4.81%
1994 5.22%
1995 5.24%
1996 5.09%
1997 4.94%
</TABLE>
Provision for Loan Losses and Allowance for Loan Losses
The provision for loan losses is the cost of providing an allowance that is
adequate to absorb inherent losses on loans in the portfolio. Management
reviews the adequacy of the allowance for loan losses on a continuous basis
by assessing the quality of the loan portfolio and adjusting the allowance
when appropriate. Management's evaluation of each loan includes a review of
the financial condition and capacity of the borrower, the value of the
collateral, current economic trends, historical losses, workout and
collection arrangements and possible concentrations of credit.
Loan review procedures are in place to insure that potential problem loans
are identified and include a continuous review of the portfolios at the
affiliate banks by the Company's loan review department. Each quarter this
review is quantified in a report to Management which uses it to determine
whether an appropriate allowance is maintained. This report is then submitted
to the Company's Board of Directors and to the appropriate Board committee
quarterly. The amount of the allowance is affected by: (i) loan charge-offs,
which decrease the allowance; (ii) recoveries on loans previously charged-off,
which increase the allowance; and (iii) the provisions for loan losses
charged to income, which increase the allowance.
The table below sets forth certain information with respect to the Company's
average loans, allowance for loan losses, charge-offs and recoveries for the
five years ended December 31, 1997.
<TABLE>
Summary of Loan Loss Experience
(Dollars in Thousands)
Year Ended December 31,
<CAPTION>
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Allowance for loan losses -
Balance at beginning of year $ 2,600 $ 2,222 $ 2,212 $ 2,250 $ 2,230
Balance acquired 500
Charge-offs
Commercial, financial and agricultural 109 341 60 101 239
Real estate - construction
Real estate -mortgage 9 17
Installment 171 193 88 99 104
Total charge-offs 280 534 148 209 360
Recoveries
Commercial, financial and agricultural 18 28 31 59 66
Real estate - construction
Real estate -mortgage 9 7 15 33 8
Installment 65 79 34 27 58
Total recoveries 92 114 80 119 132
Net charge-offs 188 420 68 90 228
Addition to allowance charged to
operating expense 273 298 78 52 248
Allowance for loan losses-
Balance at end of year $ 2,685 $ 2,600 $ 2,222 $ 2,212 $ 2,250
Loans at end of year $196,644 $189,160 $144,147 $133,821 $118,454
Ratio of ending allowance
to ending loans 1.37% 1.37% 1.54% 1.65% 1.90%
Average loans, net of
unearned income $193,381 $156,606 $140,431 $123,839 $108,699
Non-performing loans $ 708 $ 1,288 $ 552 $ 564 $ 1,483
Ratio of net charge-offs
to average loans .10% .27% .05% .07% .21%
Ratio of ending allowance to total
non-performing loans 379.24% 201.86% 402.54% 392.20% 151.72%
</TABLE>
The addition to the allowance charged to operating expense was $273 thousand
in 1997 compared to $298 thousand in 1996. The allowance at year-end 1997 was
$2.7 million, compared to $2.6 million at year-end 1996.
The allowance for loan losses as a percent of loans was 1.37 percent at both
December 31, 1997, and December 31, 1996. The allowance for loan losses
represented 3.8 times non-performing loans at December 31, 1997, compared to
2.0 times non-performing loans at December 31, 1996. The improvement resulted
from significantly lower non-performing assets at year end 1997 compared to
year end 1996. Management reviews the adequacy of the allowance for loan
losses on a continuous basis by assessing the quality of the loan portfolio,
including non-performing loans, and adjusting the allowance when appropriate.
The allowance was considered adequate at December 31, 1997.
Total charge-offs decreased from $534 thousand in 1996 to $280 thousand in
1997, and net charge-offs decreased from $420 thousand to $188 thousand. All
of the charge-offs in 1997 occurred in the commercial, financial and
agricultural category and in the installment category. These loans were
previously identified and fully reserved for prior to charge-off. Commercial,
financial and agricultural loans represented 38.9 percent of total
charge-offs while installment loans represented 61.1 percent. Recoveries in
1997 were $92 thousand, a decrease from $114 thousand in 1996. Management will
continue to vigorously pursue efforts in 1998 to collect previously charged-off
loans.
Management currently anticipates that in 1998 total non-performing assets
will remain at approximately the same level as 1997. Management further
anticipates that net charge-offs for all loan categories as a percent of
average loans in these categories will be approximately the same as in 1997.
Non-Performing Assets
Non-performing assets include accruing loans 90 days or more past due, loans
on non-accrual, renegotiated loans and other real estate owned. Commercial,
business and installment loans are classified as non-accrual by Management
upon the earlier of: (i) a determination that collection of interest is
doubtful; or (ii) the time at which such loans become 90 days past due unless
collateral or other circumstances reasonably assure full collection of
principal and interest.
The table below sets forth certain information with respect to accruing loans
90 days or more past due, loans on non-accrual, renegotiated loans and other
real estate owned.
<TABLE>
Summary of Non-Performing Assets
(Dollars in Thousands)
<CAPTION>
December 31,
1997 1996 1995
<S> <C> <C> <C>
Accruing loans 90 days or more past due $ 43 $ 190 $ 62
Loans on non-accrual 665 1,098 490
Renegotiated loans
Total non-performing loans 708 1,288 552
Other real estate owned 15 308
Total non-performing assets $708 $1,303 $860
Loans 90 days or more past due
as a percent of loans 0.02% 0.10% 0.04%
Total non-performing loans
as a percent of loans 0.36% 0.68% 0.38%
Total non-performing assets as a percent
of loans and other real estate owned 0.36% 0.69% 0.60%
</TABLE>
Total non-performing assets as a percent of loans and other real estate owned
at year-end 1997 was 0.36 percent compared to 0.69 percent at year-end 1996.
Significant improvement occurred in all categories.
Any loans classified for regulatory purposes as loss, doubtful, substandard
or special mention, and not included above, do not (i) represent or result
from trends or uncertainties which Management reasonably expects will
materially impact future operating results, or (ii) represent material
credits about which Management is aware of any information which causes
Management to have serious doubts as to the ability of such borrower to comply
with the loan repayment terms.
Details of Non-Accrual Loans
<TABLE>
GRAPH SHOWING NET-CHARGEOFFS/AVERAGE LOANS AND NON-PERFORMING ASSETS/LOANS AND
OTHER REAL ESTATE OWNED
<CAPTION>
Net Charge-Offs Non-Performing Assets
/Average Loans /Loans and Other Real Estate Owned
<S> <C> <C>
1993 .21% 1.63%
1994 .07% .60%
1995 .05% .60%
1996 .27% .69%
1997 .10% .36%
</TABLE>
The table below shows the impact of non-accrual loans on interest income the
past three years. Not included in the table are loans totaling $1.7 million
at December 31, 1997, as to which Management has reservations about the
ability of the borrowers to comply with present repayment terms. These credits
were considered in determining the adequacy of the allowance for possible
loan losses and, while current, are regularly monitored for changes within a
particular industry or general economic trends which could cause the borrowers
severe financial difficulties.
<TABLE>
Details of Non-Accrual Loans
(Thousands)
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Principal balance at December 31, $665 $1,098 $490
Interest that would have been
recorded under original terms
for the years ended December 31, $ 65 $ 71 $ 40
Interest actually recorded
in the financial statements for
the years ended December 31, $ 19 $ 30 $ 5
</TABLE>
Non-Interest Revenue and Non-Interest Expense
<TABLE>
Non-Interest Revenue
(In Thousands)
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Non-Interest Revenue:
Trust Department revenue $1,289 $1,177 $1,042
Service charges on deposit accounts 1,369 944 853
Securities gains, net 55 108 56
Gain on sale of other real estate owned 18
Other income, charges and fees 490 342 293
Total $3,203 $2,589 $2,244
</TABLE>
In 1997 Trust Department revenue accounted for 40.2 percent of total
non-interest revenue at the Company. Increases of 13.0 percent from 1995 to
1996 and 9.5 percent from 1996 to 1997 make this an important component of
non-interest revenue. In January, 1998, the trust departments of the Mobile
and Brewton banks were merged to form South Alabama Trust Company, a wholly
owned subsidiary. This combination will allow the Company to realize certain
economies of scale from operational expenses. Other increases in non-interest
revenue in 1997 compared to 1996 resulted primarily from the Monroeville
purchase.
<TABLE>
Non-Interest Expense
(In Thousands)
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Non-Interest Expense:
Salaries $ 4,966 $4,043 $3,582
Pension and other employee benefits 1,150 997 927
Furniture and equipment expenses 950 825 826
Net occupancy expenses 816 684 596
Intangible amortization 168 28
Other operating expenses 3,277 2,579 2,515
Total $11,327 $9,156 $8,446
</TABLE>
Management has intensified efforts to improve the efficiency ratio, calculated
as non-interest expense divided by net interest revenue (tax adjusted) plus
non-interest revenue. The efficiency ratio in 1997 dropped below 60 percent
for the first time from a high of 65.18 percent in 1994. The increases in
non-interest expense in 1997 compared to 1996 are almost entirely a result of
the Monroeville purchase.
The Company is currently expanding its offices into Baldwin County, a rapidly
growing section of southwest Alabama. Expenditures related to construction and
personnel costs might initially cause non-interest expense to increase faster
than normal. However, Management expects the new locations to ultimately
contribute to the growth and profitability of the Company.
<TABLE>
GRAPH SHOWING EFFICIENCY RATIO
<CAPTION>
Efficiency Ratio
<S> <C>
1993 63.81%
1994 65.18%
1995 63.55%
1996 62.26%
1997 59.80%
</TABLE>
Income Taxes
Under SFAS No. 109 the Company recorded a deferred tax asset and a Cumulative
Effect of Change in Accounting for Income Taxes as of January 1, 1993.
Subsequent to implementation of SFAS No. 109 the Company is recognizing
income tax expense without any extraordinary item for utilization of the net
operating loss carryforward. The effect of applying the new accounting method
was an addition to net income in 1993 of approximately $1.0 million.
Income tax expense was $1.8 million in 1997, compared to $1.5 million and
$1.4 million in 1996 and 1995, respectively.
Inflation and Other Issues
Because the Company's assets and liabilities are essentially monetary in
nature, the effect of inflation on the Company's assets differs greatly from
that of most commercial and industrial companies. Inflation does have an
impact on the growth of total assets in the banking industry and the resulting
need to increase capital at higher than normal rates in order to maintain an
appropriate equity to assets ratio. Inflation also has a significant effect
on other expenses, which tend to rise during periods of general inflation.
Management believes, however, that the Company's financial results are
influenced more by its ability to react to changes in interest rates than by
inflation.
The Company is in the process of evaluating its operations and information
systems to identify and address risks associated with the Year 2000 problem. A
Year 2000 committee has been established to review all systems which might be
effected. The review includes communication with large corporate customers
to determine any credit risks which might be incurred. Based on present
information, Management does not believe that its related costs with Year 2000
compliance will be material. Management cannot predict the impact of the Year
2000 on the Company's customers or vendors.
Except as discussed in this Management's Discussion and Analysis, Management
is not aware of trends, events or uncertainties that will have or that are
reasonably likely to have a material effect on the liquidity, capital resources
or operations of the Company. Management is not aware of any current
recommendations by regulatory authorities which, if they were implemented,
would have such an effect.
Forward Looking Statements
This Annual Report contains certain forward looking information with respect
to the financial condition, results of operations and business of the Company,
including the Notes to Consolidated Financial Statements and statements
contained in the discussion above with respect to security maturities, loan
maturities, loan growth, expectations for and the impact of interest rate
changes, the adequacy of the loan loss reserve, expected loan losses, the
ability to improve the efficiency ratio, and the impact of inflation, unknown
trends or regulatory action. The Company cautions readers that forward looking
statements, including without limitation those noted above, are subject to
risks and uncertainties that could cause actual results to differ materially
from those indicated in the forward looking statements. Factors that may cause
actual results to differ materially from those contemplated include, among
others, the stability of interest rates, the rate of growth of the economy in
the Company's market area, the success of the Company's marketing efforts, the
ability to expand into new segments of the market area, competition, changes
in technology, the strength of the consumer and commercial credit sectors,
levels of consumer confidence, the impact of regulation applicable to the
Company and the performance of stock and bond markets.
<TABLE>
Selected Quarterly Financial Data (Unaudited)
(Dollars in Thousands Except Per Share Amounts)
<CAPTION>
1997
-------------------------------------------------
First Second Third Fourth Total
<S> <C> <C> <C> <C> <C>
Interest revenue $6,303 $6,421 $6,453 $6,618 $25,795
Interest expense 2,541 2,668 2,768 2,923 10,900
Net interest revenue 3,762 3,753 3,685 3,695 14,895
Provision for loan losses 61 45 38 129 273
Non-interest revenue 696 712 797 998 3,203
Non-interest expense 2,743 2,762 2,783 3,039 11,327
Income before income taxes 1,654 1,658 1,661 1,525 6,498
Income tax expense 483 466 450 371 1,770
Net income $1,171 $1,192 $1,211 $1,154 $ 4,728
Net income per share
Basic $ .28 $ .28 $ .29 $ .27 $ 1.12
Diluted $ .28 $ .28 $ .28 $ .27 $ 1.11
</TABLE>
<TABLE>
(Dollars in Thousands Except Per Share Amounts)
<CAPTION>
1996
-------------------------------------------------
First Second Third Fourth Total
<S> <C> <C> <C> <C> <C>
Interest revenue $4,630 $4,617 $4,791 $5,799 $19,837
Interest expense 1,947 1,863 1,953 2,369 8,132
Net interest revenue 2,683 2,754 2,838 3,430 11,705
Provision for loan losses 101 30 36 131 298
Non-interest revenue 670 604 583 732 2,589
Non-interest expense 2,155 2,188 2,209 2,604 9,156
Income before income taxes 1,097 1,140 1,176 1,427 4,840
Income tax expense 343 355 354 434 1,486
Net income $ 754 $ 785 $ 822 $ 993 $ 3,354
Net income per share
Basic $ .25 $ .26 $ .27 $ .27 $ 1.05
Diluted $ .25 $ .26 $ .27 $ .26 $ 1.04
</TABLE>
<TABLE>
Selected Financial Data
(Dollars in Thousands Except Per Share Amounts)
<CAPTION>
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Interest revenue $ 25,795 $ 19,837 $ 18,094 $ 15,270 $ 13,520
Interest expense 10,900 8,132 7,397 5,234 4,801
Net interest revenue 14,895 11,705 10,697 10,036 8,719
Provision for loan losses 273 298 78 52 248
Non-interest revenue 3,203 2,589 2,244 2,212 2,322
Non-interest expense 11,327 9,156 8,446 8,177 7,149
Income before income taxes,
and cumulative effect of change
in accounting for income taxes 6,498 4,840 4,417 4,019 3,644
Income taxes 1,770 1,486 1,410 1,237 1,263
Net income before cumulative effect
of change in accounting for
income taxes 4,728 3,354 3,007 2,782 2,381
Cumulative effect of change in
accounting for income taxes 1,010
Net income $ 4,728 $ 3,354 $ 3,007 $ 2,782 $ 3,391
Basic earnings per share:
Before cumulative effect of
change in accounting for
income taxes $ 1.12 $ 1.05 $ 1.00 $ .93 $ .79
Basic net income per share $ 1.12 $ 1.05 $ 1.00 $ .93 $ 1.13
Diluted earnings per share:
Before cumulative effect of
change accounting for
income taxes $ 1.11 $ 1.04 $ .99 $ .92 $ .79
Diluted net income per share $ 1.11 $ 1.04 $ .99 $ .92 $ 1.13
YEAR-END STATEMENT OF CONDITION:
Total assets $369,595 $350,077 $244,949 $218,506 $218,704
Loans 196,644 189,160 144,147 133,821 118,454
Deposits 315,177 295,287 210,092 185,842 187,392
Shareholders' equity 45,462 47,088 28,797 26,104 24,158
AVERAGE BALANCES:
Total assets $346,441 $260,550 $228,358 $216,773 $207,397
Average earning assets 319,895 240,205 211,864 200,333 190,716
Loans 193,381 156,606 140,431 123,839 108,699
Deposits 293,349 221,227 194,023 184,623 178,925
Shareholders' equity 45,087 32,363 27,164 25,602 23,101
PERFORMANCE RATIOS:
Net income to:
Average total assets 1.36% 1.29% 1.32% 1.28% 1.64%
Average shareholders' equity 10.49% 10.36% 11.07% 10.87% 14.68%
Average shareholders' equity to
average total assets 13.01% 12.42% 11.90% 11.81% 11.14%
Dividend payout ratio 149.11%(1) 38.10% 32.00% 27.96% 19.47%
(1) Includes special dividend of $1.25 per share
</TABLE>
Market Prices And Cash Dividends Per Share
The Company's common stock is traded in the over-the-counter market. Bid and
asked prices (symbol "SABC") are quoted in the NASDAQ inter-dealer system of
the National Association of Securities Dealers.
The high and low bid prices shown represent inter-dealer prices without
adjustment for retail markup, markdown or commission and do not represent
actual transactions. Trades have generally occurred in small lots, and the
prices quoted are not necessarily indicative of the market value of a
substantial block.
At December 31, 1997, the Company had approximately 1,600 shareholders, of
record or through registered clearing agents.
<TABLE>
<CAPTION>
Market Prices Regular Cash Special Cash
Per Share Dividends Declared Dividends Declared
Bid Per Share Per Share
---------------- ------------------ -----------------
High Low
<S> <C> <C> <C> <C>
1997
1st Quarter 15 1/2 12 1/2 $.10 $1.25
2nd Quarter 18 13 .10
3rd Quarter 21 1/2 16 1/4 .11
4th Quarter 24 1/4 19 3/4 .11
1996
1st Quarter 14 1/2 13 $.10
2nd Quarter 14 1/2 13 1/4 .10
3rd Quarter 14 1/2 13 .10
4th Quarter 14 1/4 12 1/2 .10
1995
1st Quarter 12 3/4 12 3/4 $.08
2nd Quarter 12 3/4 12 1/2 .08
3rd Quarter 14 1/4 12 1/2 .08
4th Quarter 14 1/4 12 1/2 .08
</TABLE>
<TABLE>
GRAPH SHOWING EPS AND DIVIDENDS
<CAPTION>
Dividends Declared EPS Special Dividends
<S> <C> <C> <C>
1993 0.22 0.79 0.00
1994 0.26 0.93 0.00
1995 0.32 1.00 0.00
1996 0.40 1.05 0.00
1997 0.42 1.12 1.25
</TABLE>
Management's Report on Financial Statements
The Management of South Alabama Bancorporation, Inc. is responsible for the
preparation, content, integrity, objectivity and reliability of the financial
statements and all other financial information included in this annual report.
These statements have been prepared in accordance with generally accepted
accounting principles appropriate within the banking industry to reflect, in
all material respects, the substance of events and transactions that should be
included. In preparing the consolidated financial statements, Management made
judgements and estimates based upon currently available facts, events and
transactions.
Management depends upon the Company's accounting system and the internal
control structure to meet its responsibility for the reliability of these
statements. These systems and controls are designed to provide reasonable
assurance that the assets are safeguarded from material loss and that the
transactions executed are in accordance with Management's authorizations and
are properly recorded in the financial records. The concept of reasonable
assurance recognizes that the cost of internal accounting controls should not
exceed the benefits derived and that there are inherent limitations of any
system of internal accounting controls.
The independent public accounting firm of Arthur Andersen LLP has been engaged
to audit the Company's financial statements and to express an opinion as to
whether the Company's statements present fairly, in all material respects, the
financial position, cash flows and the results of operations in accordance with
generally accepted accounting principles. Their audit is conducted in
conformity with generally accepted auditing standards and includes procedures
believed by them to be sufficient to provide reasonable assurance that the
financial statements are free of material misstatement.
The Audit Committee of the Board of Directors, composed of directors who are
not employees of the Company, oversees Management's responsibility in the
preparation of these statements. This committee has the responsibility to
periodically review the scope, findings and the opinions of the audits of the
independent and internal auditors. The external accountants and the internal
auditors have free access to the Audit Committee and also to the Board of
Directors to meet independent of Management to discuss the internal control
structure, accounting, auditing and other financial reporting concerns.
We believe these policies and procedures provide reasonable assurance that our
operations are conducted with a high standard of business conduct and that the
financial statements reflect fairly the financial position, results of
operations and the cash flows of the Company.
/s/J. Stephen Nelson /s/ W. Bibb Lamar, Jr.
Chairman President and CEO
/s/F. Michael Johnson
Chief Financial Officer
Independent Auditors'Report
To South Alabama Bancorporation, Inc. and Subsidiaries:
We have audited the accompanying consolidated statements of condition of South
Alabama Bancorporation, Inc. (an Alabama Corporation) and Subsidiaries as of
December 31, 1997 and 1996, and the related consolidated statements of income,
changes in shareholders' equity, and cash flows for each of the years in the
three year period ended December 31, 1997. These financial statements are the
responsibility of the Company"s management.Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of South
Alabama Bancorporation, Inc. and Subsidiaries as of December 31, 1997 and 1996
and the results of their operations and their cash flows for each of the years
in the three year period ended December 31, 1997 in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
Birmingham, Alabama
January 23, 1998
<TABLE>
Consolidated Statements of Condition
As of December 31, 1997 and 1996
South Alabama Bancorporation, Inc. and Subsidiaries
(Dollars and Shares in Thousands)
<CAPTION>
December 31,
---------------------
1997 1996
<S> <C> <C>
ASSETS:
Cash and due from banks $ 16,504 $ 20,230
Federal funds sold 25,293 9,683
Total cash and cash equivalents 41,797 29,913
Interest-bearing bank balances 100 100
Investment securities available for sale,
including net unrealized gains of $1,305
in 1997 and $406 in 1996 110,255 100,912
Investment securities held to maturity
(market value: 1997-$8,483, 1996-$17,015) 8,345 16,861
Loans 196,644 189,160
Less: Unearned income (127) (130)
Allowance for loan losses (2,685) (2,600)
Loans, net 193,832 186,430
Premises and equipment, net 7,064 7,151
Other real estate owned 15
Accrued income receivable 3,447 3,453
Deferred tax asset 70
Intangible assets 3,993 4,160
Other assets 762 1,012
Total $369,595 $350,077
LIABILITIES:
Deposits
Interest bearing $256,273 $237,091
Non-interest bearing 58,904 58,196
Total deposits 315,177 295,287
Short-term borrowings 6,468 5,162
Deferred tax liability 165
Other liabilities 2,323 2,540
Total liabilities 324,133 302,989
SHAREHOLDERS' EQUITY:
Preferred stock - no par value
Shares authorized - 500
Shares outstanding - none
Common stock - $.01 par value
Shares authorized - 5,500
Shares outstanding - 4,246 in 1997
and 4,227 in 1996 42 42
Capital surplus 33,244 33,092
Net unrealized gain on securities available for
sale, net of taxes of $490 in 1997 and
$154 in 1996 815 253
Retained earnings 11,361 13,701
Total shareholders' equity 45,462 47,088
Total $369,595 $350,077
See notes to consolidated financial statements.
</TABLE>
<TABLE>
Consolidated Statements of Income
For the Years Ended December 31, 1997, 1996 and 1995
South Alabama Bancorporation, Inc. and Subsidiaries
(In Thousands, Except Earnings Per Share)
<CAPTION>
Year Ended December 31,
-------------------------------
1997 1996 1995
<S> <C> <C> <C>
INTEREST REVENUE:
Loans $18,139 $14,632 $13,579
Investment securities - taxable 5,421 3,829 3,308
Investment securities - non-taxable 1,548 916 690
Federal funds sold 678 435 477
Interest-bearing bank balances 9 25 40
Total interest revenue 25,795 19,837 18,094
INTEREST EXPENSE:
Deposits 10,637 7,929 7,183
Short-term borrowings 263 203 214
Total interest expense 10,900 8,132 7,397
Net interest revenue 14,895 11,705 10,697
Provision for loan losses 273 298 78
Net interest revenue after
provision for loan losses 14,622 11,407 10,619
NON-INTEREST REVENUE:
Trust department income 1,289 1,177 1,042
Service charges on deposit accounts 1,369 944 853
Securities gains, net 55 108 56
Gain on sale of other real estate owned 18
Other income,charges and fees 490 342 293
Total non-interest revenue 3,203 2,589 2,244
NON-INTEREST EXPENSE:
Salaries 4,966 4,043 3,582
Pensions and other employee benefits 1,150 997 927
Furniture and equipment expense 950 825 826
Net occupancy expense 816 684 596
Intangible amortization 168 28
Other expense 3,277 2,579 2,515
Total non-interest expense 11,327 9,156 8,446
Income before income taxes 6,498 4,840 4,417
Income tax expense 1,770 1,486 1,410
NET INCOME $ 4,728 $ 3,354 $ 3,007
Basic earnings per share $ 1.12 $ 1.05 $ 1.00
Diluted earnings per share $ 1.11 $ 1.04 $ .99
See notes to consolidated financial statements.
</TABLE>
<TABLE>
Consolidated Statements of Changes in Shareholders' Equity
For the Years Ended December 31, 1997, 1996 and 1995
South Alabama Bancorporation, Inc. and Subsidiaries
(Dollars and Shares in Thousands)
<CAPTION>
Net
Unrealized
Common Stock Gain (Loss) On
------------------ Securities
Shares Capital Available Retained
Issued Amount Surplus For Sale Earnings Total
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 2,999 $ 30 $16,507 $ (57) $ 9,624 $26,104
Dividends paid($.32 per share) (960) (960)
Net change in unrealized gain (loss)
on securities, due to the
reclassification of securities from
held to maturity to available for sale,
net of taxes of $59 101 101
Net change in unrealized gain(loss)
on securities available
for sale, net of taxes of $362 514 514
Common stock issued 3 31 31
Net income 3,007 3,007
Balance, December 31, 1995 3,002 30 16,538 558 11,671 28,797
Dividends paid($.40 per share) (1,324) (1,324)
Net change in unrealized gain (loss)
on securities available for sale,
net of taxes of $185 (305) (305)
Common stock issued in business
combination 1,225 12 16,554 16,566
Net income 3,354 3,354
Balance, December 31, 1996 4,227 42 33,092 253 13,701 47,088
Dividends paid($1.67 per share) (7,068) (7,068)
Net change in unrealized gain (loss)
on securities available for sale,
net of taxes of $336 562 562
Common stock options exercised 19 152 152
Net income 4,728 4,728
Balance, December 31, 1997 4,246 $ 42 $33,244 $ 815 $11,361 $45,462
See notes to consolidated financial statements.
</TABLE>
<TABLE>
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1997, 1996 and 1995
South Alabama Bancorporation, Inc. and Subsidiaries
(Dollars in Thousands)
<CAPTION>
Year Ended December 31,
--------------------------------
1997 1996 1995
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 4,728 $ 3,354 $ 3,007
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 1,363 948 821
Provisions for losses on loans 273 298 78
Gain on sale of other real estate (18)
Gain on sale of premises and equipment (87)
Securities (gains) and losses, net (55) (108) (56)
Deferred income tax provision (benefit) (101) 11 (71)
(Increase) decrease in:
Accrued income receivable 6 (99) (138)
Other assets 250 (391) 86
(Decrease) increase in other liabilities (217) (273) 435
Net cash provided by operating activities 6,160 3,722 4,162
INVESTING ACTIVITIES:
Net decrease in interest-bearing bank balances 552 8
Net increase in loans (7,675) (23,379) (10,421)
(Purchase) sale of premises
and equipment, net (622) (1,383) (1,773)
Proceeds from sale of other real estate owned 15 311
Proceeds from maturities of securities
held to maturity 8,461 5,461 6,926
Proceeds from maturities of securities
available for sale 19,652 9,484 3,658
Proceeds from sales of securities
available for sale 4,801 9,713 1,943
Purchases of securities held to maturity (10) (995) (5,294)
Purchases of securities available for sale (33,178) (21,438) (5,490)
Net cash acquired from business combination 9,001
Net cash used in investing activities (8,556) (12,673) (10,443)
FINANCING ACTIVITIES:
Net increase in deposits 19,890 6,672 24,250
Net increase (decrease) in short-term
borrowings 1,306 1,112 (935)
Dividends paid (7,068) (1,324) (960)
Proceeds from issuance of stock 152 31
Net cash provided by financing activities 14,280 6,460 22,386
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 11,884 (2,491) 16,105
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 29,913 32,404 16,299
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 41,797 $ 29,913 $ 32,404
See notes to consolidated financial statements.
</TABLE>
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1997, 1996 and 1995
South Alabama Bancorporation, Inc. and Subsidiaries
(Dollars and Shares in Thousands)
Note 1. Summary of Significant Accounting Policies
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial
statements include the accounts of South Alabama Bancorporation, Inc.
(the "Company") and its wholly-owned subsidiaries, South Alabama Bank,
formerly The Bank of Mobile, (the "Mobile Bank"), First National Bank,
Brewton (the "Brewton Bank"), Monroe County Bank (the "Monroeville Bank")
(collectively the "Banks") and South Alabama Trust Company (the "Trust
Company"). All significant intercompany accounts and transactions are
eliminated. The Banks are engaged in the business of obtaining funds,
primarily in the form of deposits, and investing such funds in commercial and
real estate loans and investment securities in Mobile, Brewton, Monroeville
and the surrounding areas. The Banks also offer a range of other commercial
bank services including trust and investment products.
BASIS OF FINANCIAL STATEMENT PRESENTATION - The financial statements have been
prepared in conformity with generally accepted accounting principles and with
general practices within the banking industry. In preparing the financial
statements, Management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities as of the date of the
statement of financial condition and revenues and expenses for the period.
Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change in
the near-term relate to the determination of the allowance for loan losses and
the valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowance
for loan losses and real estate owned, Management obtains independent
appraisals for significant properties.
A substantial portion of the Company's loans are secured by real estate in
Mobile, Baldwin, Monroe and Escambia Counties of Alabama. In addition, the
real estate owned by the Company is located in this same area. Accordingly,
the ultimate collectibility of a substantial portion of the Company's loan
portfolio and the recovery of real estate owned are susceptible to changes in
market conditions in this area.
Management believes that the allowances for losses on loans and real estate
owned are adequate. While Management uses available information to recognize
losses on loans and real estate owned, future additions to the allowance may
be necessary based on changes in economic conditions. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Company's allowance for losses on loans and real
estate owned. Such agencies may require the Company to recognize additions to
the allowances based on their judgment about information available to them at
the time of their examination.
CASH AND CASH EQUIVALENTS - For purposes of reporting cash flows, cash and
cash equivalents include cash on hand, amounts due from banks and federal funds
sold. Federal funds are generally purchased and sold for one day periods.
Supplemental disclosures of cash flow information and non-cash transactions
related to cash flows for the years ended December 31, 1997, 1996 and 1995
are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Cash Paid For:
Interest $10,859 $ 8,191 $ 6,946
Income taxes 1,935 1,819 1,475
Non-cash transactions
Reclassification of securities from held to
maturity to available for sale 20,263
Details of acquisition:
Fair value of tangible assets acquired 96,593
Liabilities assumed (80,027)
Stock issued (16,566)
Cash paid 0
Less cash acquired (9,001)
Net cash acquired $ (9,001)
</TABLE>
INVESTMENT SECURITIES - Investment securities available for sale are carried
at fair value. Unrealized gains and losses are excluded from earnings and
reported net of tax, as a separate component of shareholders' equity until
realized. Securities within the available for sale portfolio may be used as
part of the Company's asset/liability strategy and may be sold in response to
changes in interest rate risk, prepayment risk or other similar economic
factors. The specific identification method is used to compute gains or
losses on the sale of these assets.
Investment securities not classified as available for sale or trading are
carried at cost, adjusted for the amortization of premiums and the accretion
of discounts. Premiums and discounts are amortized and accreted to operations
using the level yield method, adjusted for prepayments as applicable.
Management has the intent and the Company has the ability to hold these assets
as long-term investments until their maturities. Under certain circumstances
(including the significant deterioration of the issuer's credit worthiness or
a significant change in tax-exempt status or statutory or regulatory
requirements), securities classified as held to maturity may be sold or
transferred to another portfolio.
ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses is maintained at a
level considered by Management to be sufficient to absorb losses inherent in
the loan portfolio. Management's determination of the adequacy of the
allowance and the amount of the provision charged to expense is based on
periodic reviews of the portfolio, past loan loss experience, current and
expected economic conditions and such other factors which, in Management's
judgement, deserve current recognition in estimating loan losses. This
determination also considers the balance of impaired loans (which are
generally considered to be nonperforming loans, excluding residential mortgages
and other homogeneous loans). Specific allowances for impaired loans are based
on comparisons of the recorded carrying values of the loans to the present
value of these loans' estimated cash flows at each loan's effective interest
rate, the fair value of the collateral, or the loans' observable market price.
Recovery of the carrying value of loans is dependent to a great extent on
economic, operating and other conditions that may be beyond the Company's
control.
PREMISES AND EQUIPMENT - Premises and equipment are stated at cost less
accumulated depreciation and amortization. The provision for depreciation and
amortization is computed using the straight-line method over the estimated
useful lives of the assets or terms of the leases as applicable.
OTHER REAL ESTATE OWNED - Other real estate owned is carried at the lower of
the recorded investment in the loan or fair value, less costs to dispose. Any
excess of the recorded investment over fair value, less costs to dispose, is
charged to the allowance for loan losses at the time of foreclosure. A
provision is charged to earnings and a related valuation account for subsequent
losses on other real estate owned is established when, in the opinion of
Management, such losses have occurred. The ability of the Company to recover
the carrying value of real estate is based upon future sales of the real
estate. The ability to effect such sales is subject to market conditions and
other factors, all of which are beyond the Company's control. The recognition
of sales and sales gains is dependent upon whether the nature and term of the
sales and upon the future involvement of the Company, if any, meet certain
defined requirements. If not met, sale and gain recognition would be deferred.
INTEREST INCOME - Interest on loans is recorded generally over the term of the
loan based on the unpaid principal balance. Accrual of interest is discontinued
when, in Management's opinion, collectibility of interest and principal
becomes doubtful. Upon such discontinuance, all unpaid accrued interest
is reversed.
INCOME TAXES - The Company files a consolidated federal income tax return.
Under the asset and liability method, 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 enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. 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.
INTANGIBLE ASSETS - Intangible assets, primarily goodwill, are amortized on
the straight-line basis over 25 years. The Company continually evaluates
whether events and circumstances have occurred that indicate that such assets
have been impaired. Measurement of any impairment of such assets is based on
those assets' fair value, with the resulting charge recorded as a loss. There
were no significant impairment losses recorded in 1997.
TRUST DEPARTMENT ASSETS AND INCOME - Assets held by the Trust Company in a
fiduciary capacity for customers are not included in the consolidated
financial statements. Fiduciary fees on trust accounts are generally
recognized on the cash basis. The income recognized on the cash basis is not
materially different from that which would be reported on the accrual basis.
MARKET RISK MANAGEMENT - Market risk is a risk of loss arising from adverse
changes in market prices and rates. The Company's market risk is comprised
primarily of interest rate risk created by its lending and deposit taking
activities. Management addresses this risk through an active Asset/Liability
Management process and through management of loan and investment portfolio
maturities and repricing.
OTHER - In June 1996, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.
SFAS No. 125 provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities based on
consistent application of a financial-components approach that focuses on
control. The Company adopted the provisions of the Standard on January 1, 1997.
Based on the Company's current operating activities, the adoption of this
statement did not have a material impact on the Company's financial condition
or results of operations.
In June 1997, FASB issued SFAS No. 130, Reporting of Comprehensive Income.
This Statement established standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and
losses) in a full set of financial statements. This Statement also requires
that all items that are required to be recognized under accounting standards
as components of comprehensive income, be reported in financial statements
and are displayed with the same prominence as other financial statements. This
Statement is effective for fiscal years beginning after December 15, 1997.
Earlier application is permitted. Reclassification of financial statements for
earlier periods provided for comparative purposes is required.
In June 1997, FASB issued SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information. This Statement establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to stockholders. This Statement also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. This Statement requires the reporting of financial and descriptive
information about an enterprise's reportable operating segments. This
Statement is effective for financial statements for periods beginning after
December 15, 1997. In the initial year of application comparative information
for earlier years is to be restated.
Management believes there will be no material effect on the consolidated
financial statements from the adoption of these pronouncements.
Certain reclassifications of 1996 and 1995 balances have been made to conform
with classifications used in 1997.
Note 2. Merger
On October 31, 1996, the Company acquired First Monco Bancshares, Inc. ("FMB")
and its wholly-owned subsidiary, the Monroeville Bank. This transaction was
accounted for under the purchase method of accounting and, accordingly, the
1996 consolidated statement of income includes the Monroeville Bank's results
of operations subsequent to that date.
The Company issued approximately 1.2 million shares of its common stock for
all the outstanding common shares of FMB. The purchase price of the
outstanding common shares of FMB totaled approximately $16.6 million, which
exceeded the fair value of the net tangible assets acquired by approximately
$4.2 million.
Assuming the acquisition of FMB had been consummated at January 1, 1995, the
consolidated results of operations on a pro forma basis for the years ended
December 31, 1996 and 1995, would have been as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Net Interest Income $14,527 $13,931
Net Income 4,296 4,215
Earnings Per Share:
Basic $ 1.02 $ 1.00
Diluted 1.01 .99
</TABLE>
Note 3. Restrictions on Cash and Due From Bank Accounts
The Banks are required to maintain average reserve balances with the Federal
Reserve Bank. The average of those reserve balances for the years ended
December 31, 1997 and 1996 was approximately $1,985 and $2,229, respectively.
Note 4. Investment Securities
The following summary sets forth the amortized cost amounts and the
corresponding market values of investment securities available for sale at
December 31, 1997 and 1996:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
1997:
U.S. Treasury securities $ 7,546 $ 135 $ 7,681
Obligations of U.S.
Government agencies 42,645 105 $102 42,648
Obligations of states and
political subdivisions 36,350 1,110 25 37,435
Other investments 22,409 90 8 22,491
Total $108,950 $1,440 $135 $110,255
1996:
U.S. Treasury securities $ 8,092 79 $ 8,171
Obligations of U.S.
Government agencies 41,701 67 $324 41,444
Obligations of states and
political subdivisions 28,201 648 103 28,746
Other investments 22,512 40 1 22,551
Total $100,506 $ 834 $428 $100,912
</TABLE>
The following summary sets forth the amortized cost amounts and the
corresponding market values of investment securities held to maturity at
December 31, 1997 and 1996:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
1997:
U.S. Treasury securities $ 3,992 $ 44 $ 4,036
Obligations of U.S.
Government agencies 1,514 6 $ 6 1,514
Obligations of states and
political subdivisions 2,591 94 2,685
Other investments 248 248
Total $ 8,345 $ 144 $ 6 $ 8,483
1996:
U.S. Treasury securities $ 9,058 $ 94 $ 9,152
Obligations of U.S.
Government agencies 4,175 3 $ 24 4,154
Obligations of states and
political subdivisions 3,380 84 3 3,461
Other investments 248 248
Total $ 16,861 $ 181 $ 27 $ 17,015
</TABLE>
Securities with a carrying value of approximately $58,330 and $53,684 at
December 31, 1997 and 1996, respectively, were pledged to secure deposits of
public funds and trust deposits. Additionally, investment securities with a
carrying value of approximately $2,138 and $4,460 at December 31, 1997 and
1996, respectively, were pledged to secure repurchase agreements.
Proceeds from the sales of securities available for sale were $4,801 in 1997
and $9,713 in 1996. Gross realized gains on sale of these securities were $79
in 1997 and $165 in 1996, and gross realized losses were $24 in 1997 and $57
in 1996.
Maturities of investment securities as of December 31, 1997, are
as follows:
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
-------------------- ------------------
Amortized Market Amortized Market
Cost Value Cost Value
-------------------- ------------------
<S> <C> <C> <C> <C>
Due in 1 year or less $ 14,801 $ 14,818 $3,061 $3,078
Due in 1 to 5 years 39,257 39,694 2,283 2,316
Due from 5 to 10 years 31,391 31,794 1,908 1,975
Due in over 10 years 23,501 23,949 1,093 1,114
Total $108,950 $110,255 $8,345 $8,483
</TABLE>
On December 1, 1995, the Company reassessed the appropriateness of the
classification of securities held at that time and determined that certain
securities classified as held to maturity should be reclassified as available
for sale in accordance with the one time reassessment prescribed by the FASB
Special Report "A Guide to Implementation of Statement 115 on Accounting for
Certain Investments in Debt and Equity Securities." On the date of transfer,
December 1, 1995, the Company reclassified those securities identified from
held to maturity to available for sale at an estimated market value of
$20,423 and unrealized gains and losses of $296 and $136, respectively.
Note 5. Loans
A summary of loans follows:
<TABLE>
<CAPTION>
December 31,
1997 1996
<S> <C> <C>
Commercial, financial and agricultural $ 64,425 $ 62,152
Real estate - construction 7,559 11,196
Real estate - mortgage 96,331 88,107
Consumer, installment and single pay 28,329 27,705
Total $196,644 $189,160
</TABLE>
In the normal course of business, the Banks make loans to directors, executive
officers, significant shareholders and their affiliates (related parties).
Related party loans are made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with other customers, and in Management's opinion, do not
involve more than the normal risk of collectibility. The aggregate dollar
amount of these loans was $10,550 at December 31, 1997, and $10,700 at
December 31, 1996. During 1997, $10,847 of new loans and advances were made,
and principal repayments totaled $10,997. Outstanding commitments to extend
credit to related parties totaled $15,021 at December 31, 1997.
At December 31, 1997 and 1996, non-accrual loans totaled $665 and $1,098,
respectively. The amount of interest income that would have been recorded
during 1997 and 1996, if these non-accrual loans had been current in
accordance with their original terms, was $65 and $71, respectively. The
amount of interest income actually recognized on these loans during 1997 and
1996 was $19 and $30, respectively.
At December 31, 1997 and 1996, the recorded investments in loans that were
considered to be impaired under SFAS 114 were $665 and $1,098, respectively
(all of which were carried on a non-accrual basis). Included in this amount is
$615 in 1997 and $1,070 in 1996 of impaired loans for which the related
allowance for loan losses is $269 in 1997 and $415 in 1996. The amounts of
impaired loans that did not have allowances for loan losses were $50 in 1997
and $28 in 1996. The average recorded investment amounts in impaired loans
during the years ended December 31, 1997 and 1996, were approximately $561
and $859, respectively. For the years ended December 31, 1997 and 1996, the
amount of interest income recognized on impaired loans was immaterial.
Note 6. Allowance for Loan Losses
The allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Balance at the beginning of year $ 2,600 $ 2,222 $ 2,212
Balance acquired 500
Provision charged to operating expense 273 298 78
Losses charged off (280) (534) (148)
Recoveries 92 114 80
Balance at the end of the year $ 2,685 $ 2,600 $ 2,222
</TABLE>
Activity in the allowance for losses on other real estate owned was not
significant in 1997, 1996 and 1995.
Note 7. Premises and Equipment
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31,
1997 1996
<S> <C> <C>
Land and land improvements $ 1,696 $ 1,659
Bank buildings and improvements 3,738 3,848
Furniture, fixtures and equipment 6,002 5,403
Leasehold improvements 2,163 2,133
Total 13,599 13,043
Less accumulated depreciation and amortization 6,535 5,892
Premises and equipment - net $ 7,064 $ 7,151
</TABLE>
The provision for depreciation and amortization charged to operating expense
in 1997, 1996 and 1995 amounted to $796, $704 and $700, respectively.
Note 8. Deposits
The following summary presents the detail of interest bearing
deposits:
<TABLE>
<CAPTION>
December 31,
1997 1996
<S> <C> <C>
Interest bearing checking accounts $ 56,682 $ 54,315
Savings accounts 22,849 22,823
Money market savings accounts 53,517 48,070
Time deposits ($100 thousand or more) 44,494 34,980
Other time deposits 78,731 76,903
Total $256,273 $237,091
</TABLE>
The following summary details interest expense on deposits:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Interest bearing checking accounts $ 1,429 $ 892 $ 897
Savings accounts 708 475 427
Money market savings accounts 2,123 1,785 1,663
Time deposits ($100 thousand or more) 2,023 1,448 1,476
Other time deposits 4,354 3,329 2,720
Total $10,637 $7,929 $7,183
</TABLE>
The following table reflects maturities of time deposits of $100 or more at
December 31, 1997:
<TABLE>
<CAPTION>
Less than 1 year 1 to 5 years 5 to 10 years Total
<C> <C> <C> <C>
$37,655 $4,362 $2,477 $44,494
</TABLE>
Note 9. Short-Term Borrowings
Following is a summary of short-term borrowings:
<TABLE>
<CAPTION>
December 31,
1997 1996
<S> <C> <C>
Securities sold under agreement to repurchase $5,685 $4,460
Other short-term borrowings 783 702
Total $6,468 $5,162
Weighted average interest rate at year-end 4.85% 4.59%
Weighted average interest rate on
amounts outstanding during the year
(based on average of daily balances) 4.95% 4.80%
</TABLE>
Information concerning securities sold under agreement
to repurchase summarized as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Average balance during the year $4,733 $3,422
Average interest rate during the year 4.86% 4.44%
Maximum month-end balances during the year $6,021 $5,858
</TABLE>
Federal funds purchased and securities sold under agreements to repurchase
generally represented overnight borrowing transactions. Other short-term
borrowings consist of demand notes owed to the U.S. Treasury.
At December 31, 1997 and 1996, securities sold under agreements to repurchase
had average interest rates of 4.80% and 4.50%, respectively. Included in the
balances of securities sold under agreements to repurchase at December 31,
1997 and 1996, were repurchase agreements to related parties of $3,710 and
$3,300, respectively.
Note 10. Accounting for Income Taxes
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Current income tax expense:
Federal $1,620 $1,466 $1,321
State 251 9 160
Total 1,871 1,475 1,481
Deferred income tax expense (benefit):
Federal (90) 10 (59)
State (11) 1 (12)
Total (101) 11 (71)
Total $1,770 $1,486 $1,410
</TABLE>
Total income tax expense differed from the amount computed using the
applicable statutory Federal income tax rate of 34 percent applied to pretax
earnings for the following reasons:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Income tax expense at statutory rate $2,209 $1,646 $1,502
Increase (decrease) resulting from:
Tax exempt interest (534) (312) (235)
Reduced interest deduction on debt
used to carry tax-exempt securities 48 43 25
State income tax, net of federal benefit 158 7 98
Other, net (111) 102 20
Total $1,770 $1,486 $1,410
Effective tax rate 27.3% 30.7 31.7%
</TABLE>
The tax effects of temporary differences that give rise to deferred tax assets
and liabilities at December 31, 1997 and 1996 are presented below:
<TABLE>
<CAPTION>
December 31,
1997 1996
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses and other
real estate not currently deductible $ 684 $ 779
Accrued pension cost not currently deductible 65 99
Accrued expenses 156 113
Other 118 27
Total deferred tax assets 1,023 1,018
Deferred tax liabilities:
Unrealized gain on securities available for sale (490) (154)
Differences between book and tax basis of property (528) (498)
Other (170) (296)
Total deferred tax liabilities (1,188) (948)
Net deferred tax asset (liability) $ (165) $ 70
</TABLE>
There was no valuation allowance during either 1997 or 1996.
Note 11. Retirement Plans
The Company sponsors a defined benefit retirement plan which covers all
full-time employees who have met certain age and length-of-service
requirements. It is the Company's policy to fund the retirement plans in
amounts deductible for federal income tax purposes. Plan assets consist of
corporate debt securities, common stock and U.S. Government securities.
Charges to operating expenses with respect to the retirement plans were
comprised of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Service cost $ 306 $ 248 $ 214
Interest on projected benefit obligation 340 196 141
Return on plan assets (448) (204) (132)
Net amortization and deferral (11) 4 4
Total expense $ 187 $ 244 $ 227
</TABLE>
The weighted-average discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the projected
benefit obligation, were 7% and 5%, respectively, for 1997, 7.5% and 5%,
respectively, for 1996, and 7% and 5%, respectively, for 1995. The expected
long-term rate of return on plan assets was 8% for all three years.
The funding status of the plans is as follows:
<TABLE>
<CAPTION>
December 31,
1997 1996
<S> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefit $3,654 $3,354
Non-vested benefits 181 118
Accumulated benefit obligation 3,835 3,472
Effect of future compensation 1,395 1,160
Projected benefit obligation 5,230 4,632
Plan assets at fair value 6,221 5,697
Projected benefit obligation
in excess of plan assets (991) (1,065)
Unrecognized prior service cost 92 (37)
Unrecognized net gain (loss) from past
experience different from that assumed
and effects of change in assumptions 19 374
Unrecognized net obligation
being recognized over 28 years 30 (30)
Prepaid pension costs $ (850) $ (758)
</TABLE>
Note 12. Earnings Per Share
In 1997, the Company adopted SFAS No. 128, "Earnings Per Share," effective
December 15, 1997. Basic earnings per share were computed by dividing net
income by the weighted average number of shares of common stock outstanding
during the years ended December 31, 1997, 1996 and 1995. Diluted earnings per
share for the years ended December 31, 1997, 1996 and 1995, were computed
by dividing net income by the weighted average number of shares of common
stock outstanding and the dilutive effects of the shares awarded under the
Stock Option plans, based on the treasury stock method using an average fair
market value of the stock during the respective periods. As a result, the
Company's reported earnings per share for 1996 and 1995 were restated. The
following table represents the earnings per share calculations for the years
ended December 31, 1997, 1996 and 1995 accompanied by the effect of this
accounting change on previously reported earnings per share:
<TABLE>
<CAPTION>
Per Share
December 31, 1997 Income Shares Amount
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income: $4,728
Basic earnings per share:
Income available to common shareholders 4,728 4,234 $ 1.12
Dilutive securities:
Stock option plan shares 41
Dilutive earnings per share:
Income available to common shareholders
plus assumed conversions $4,728 4,275 $ 1.11
Per Share
December 31, 1996 Income Shares Amount
- -------------------------------------------------------------------------------
Net Income: $3,354
Basic earnings per share:
Income available to common shareholders 3,354 3,203 $ 1.05
Dilutive securities:
Stock option plan shares 19
Dilutive earnings per share:
Income available to common shareholders
plus assumed
conversions $3,354 3,222 $ 1.04
Per Share
December 31, 1995 Income Shares Amount
- --------------------------------------------------------------------------------
Net Income: $3,007
Basic earnings per share:
Income available to common shareholders 3,007 2,999 $ 1.00
Dilutive securities:
Stock option plan shares 49
Dilutive earnings per share:
Income available to common shareholders
plus assumed conversions $3,007 3,048 $ .99
</TABLE>
<TABLE>
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
Changes in previously reported EPS:
Earnings (loss) per share, as reported $1.05 $1.00
Earnings (loss) per share, as amended:
Basic $1.05 $1.00
Diluted $1.04 $ .99
</TABLE>
Note 13. Stock Options
The Company utilizes the intrinsic value method of accounting for stock option
grants. As the option exercise price is considered to be equal to the fair
value of the stock at the date of grant, no compensation cost is recognized.
The Company has two incentive stock option plans, the South Alabama Incentive
Stock Option Plan (the "SAB Plan" and the Mobile National Stock Option Plan
(the "MBNC Plan").
The MBNC Plan was terminated in 1993 upon the creation of South Alabama
Bancorporation. The remaining granted and outstanding options are convertible
into common shares of the Company. At December 31, 1997, options for 23
shares were granted and outstanding under the MBNC Plan.
The Company may grant options for up to 200 shares under the SAB Plan and has
granted options outstanding of 132 shares through December 31, 1997. Under
both the SAB and MBNC Plans, the option exercise price equals the stock's
market price at the date of grant. The options vest upon issuance and expire
after ten years.
Had compensation costs for these plans been determined consistent with FASB
Statement No. 123, the Company's net income and earnings per share would have
been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Net Income: As reported $4,728 $3,354 $3,007
Pro forma 4,654 3,242 2,831
Earnings per share: As reported or restated
Basic $ 1.12 $ 1.05 $ 1.00
Diluted 1.11 1.04 .99
Pro forma
Basic $ 1.10 $ 1.01 $ .94
Diluted 1.09 1.01 .93
</TABLE>
Because the Statement 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation costs
may not be representative of that to be expected in future years for future
grants of stock options.
A summary of the status of the Company's two stock option plans at December 31,
1997, 1996, and 1995 and the changes during the years then ended is as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- ------------------------ -----------------------
Weighted Avg. Weighted Avg. Weighted Avg.
Shares Exercise Price Shares Exercise Price Shares Exercise Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 150 $12.02 124 $11.71 89 $11.09
Granted 28 14.02 26 13.50 38 13.00
Exercised 19 8.26 3 10.00
Forfeited 4 13.18
Outstanding at end of year 155 $12.79 150 $12.02 124 $11.71
Exercisable at end of year 128 $12.52 124 $11.71 86 $11.13
Weighted average fair value of
the options granted $3.24 $4.27 $4.56
</TABLE>
At December 31, 1997, 128 of the 155 options outstanding have exercise prices
between $6 and $13 with a weighted average exercise price of $12.52 and an
average remaining contractual life of 6.7 years. All of these options are
exercisable. The remaining 27 options outstanding at December 31, 1997
consist of options granted during fiscal 1997 and have exercise prices between
$14 and $21, with a weighted average exercise price of $14 and an average
remaining contractual life of 9.1 years.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1997, 1996 and 1995, respectively; risk-free
interest rates of 6.33%, 5.73% and 7.03%; expected dividend yields of 3.6%,
2.4% and 2.5%; expected lives of 10 years; and expected volatility of .25,
.22 and .22, respectively.
Note 14. Regulatory Matters
The Company's principal source of funds for dividend payments is dividends
from the Banks. Dividends payable by a bank in any year, without prior
approval of the appropriate regulatory body, are limited to the bank's net
profits (as defined) for that year combined with its net profits for the two
preceding years. The dividends, as of January 1, 1998, that the Banks could
declare, without the approval of regulators, amounted to $1,667.
The Banks are subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory and possibly additional discretionary actions
by regulators that, if undertaken, could have a direct material effect on the
Banks' financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Banks must meet
specific capital guidelines that involve quantitative measures of the Banks'
assets, liabilities, and certain off-balance sheet items as calculated under
regulatory accounting practices. The Banks' capital amounts and classifications
are also subject to qualitative judgements by the regulators about components,
risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Banks to maintain minimum amounts and ratios (set forth in the
tables below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). Management believes, as of December 31, 1997 and
1996, that the Banks meet all capital adequacy requirements to which they are
subject.
As of December 31, 1997 and 1996, the most recent notification from the
regulatory authorities categorized the Banks as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Banks must maintain minimum total risk-based, Tier I
risk-based, Tier I leverage ratios as set forth in the tables below.
Actual capital amounts and ratios are presented in the table below for the
Banks and the consolidated company.
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
--------------- ----------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
December 31, 1997
Total Capital (to
Risk Weighted Assets)
Consolidated $43,339 18.4% $18,864 8.0%
South Alabama Bank 16,432 14.0 9,379 8.0 $11,724 10.0%
First National Bank 14,595 20.5 5,702 8.0 7,127 10.0
Monroe County Bank 11,146 22.8 3,906 8.0 4,882 10.0
Tier I Capital (to
Risk Weighted Assets)
Consolidated $40,654 17.2% $ 9,432 4.0%
South Alabama Bank 15,011 12.8 4,690 4.0 $ 7,035 6.0%
First National Bank 13,795 19.4 2,851 4.0 4,276 6.0
Monroe County Bank 10,683 21.9 1,953 4.0 2,929 6.0
Tier I Capital (to
Average Assets)
Consolidated $40,654 11.5% $14,162 4.0%
South Alabama Bank 15,011 9.6 6,274 4.0 $ 9,410 6.0%
First National Bank 13,795 12.9 4,267 4.0 6,401 6.0
Monroe County Bank 10,683 11.9 3,593 4.0 5,390 6.0
</TABLE>
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
--------------- ----------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
December 31, 1996
Total Capital (to
Risk Weighted Assets)
Consolidated $45,275 20.5% $17,668 8.0%
South Alabama Bank 15,591 14.1 8,855 8.0 $11,069 10.0%
First National Bank 15,739 22.9 5,488 8.0 6,861 10.0
Monroe County Bank 13,054 27.5 3,798 8.0 4,747 10.0
Tier I Capital (to
Risk Weighted Assets)
Consolidated $42,675 19.3% $ 8,834 4.0%
South Alabama Bank 14,206 12.8 4,427 4.0 6,641 6.0%
First National Bank 15,014 21.9 2,744 4.0 4,116 6.0
Monroe County Bank 12,564 26.5 1,899 4.0 2,848 6.0
Tier I Capital (to
Average Assets)
Consolidated $42,675 13.9% $12,304 4.0%
South Alabama Bank 14,206 9.9 5,740 4.0 8,610 6.0%
First National Bank 15,014 14.2 4,242 4.0 6,364 6.0
Monroe County Bank 12,564 21.7 2,348 4.0 3,523 6.0
</TABLE>
Note 15. Fair Value of Financial Instruments
SFAS No. 107, Disclosures about Fair Value of Financial Instruments, requires
disclosure of fair value information about financial instruments, whether or
not recognized in the statement of condition, for which it is practicable to
estimate that value. In cases where quoted market prices are not available,
fair values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows. In that
regard, the derived fair value estimates cannot be substantiated by comparison
to independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair
value amounts. Also, the fair value estimates presented herein are based on
pertinent information available to Management as of December 31,1997. Such
amounts have not been comprehensively revalued for purposes of these financial
statements since those dates and, therefore, current estimates of fair value
may differ significantly from the amounts presented herein.
The following methods and assumptions were used by the Company in estimating
its fair values disclosures for financial instruments:
Investment Securities - Fair values for investment securities are primarily
based on quoted market prices. If a quoted market price is not available, fair
value is estimated using market prices for similar securities.
Loans - For equity lines and other loans with short-term or variable rate
characteristics, the carrying value reduced by an estimate for credit losses
inherent in the portfolio is a reasonable estimate of fair value. The fair
value of all other loans is estimated by discounting their future cash flows
using interest rates currently being offered for loans with similar terms,
reduced by an estimate of credit losses inherent in the portfolio. The
discount rates used are commensurate with the interest rate and prepayment
risks involved for the various types of loans.
Deposits - The fair value disclosed for demand deposits (i.e., interest and
non-interest bearing demand, savings and money market savings) is, as
required by SFAS No. 107, equal to the amounts payable on demand at the
reporting date (i.e., their carrying amounts). Fair values for certificates
of deposits are estimated using a discounted cash flow calculation that
applies interest rates currently being offered on certificates to a schedule
of aggregated monthly maturities.
Commitments to extend credit and standby letters of credit - The value of
these unrecognized financial instruments is estimated based on the fee income
associated with the commitments which, in the absence of credit exposure, is
considered to approximate their settlement value. As no significant credit
exposure exists and because such fee income is not material to the Company's
financial statements at December 31, 1997, the fair value of these commitments
is not presented.
Many of the Company's assets and liabilities are short-term financial
instruments whose carrying amounts reported in the statement of condition
approximate fair value. These items include cash and due from banks,
interest-bearing bank balances, federal funds sold, other short-term
borrowings and accrued interest receivable and payable balances. The
estimated fair values of the Company's remaining on-balance sheet financial
instruments as of December 31, 1997 and 1996, are summarized below.
<TABLE>
<CAPTION>
1997 1996
--------------------- ---------------------
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
<S> <C> <C> <C> <C>
Financial assets:
Investment securities available for sale $110,255 $110,255 $100,912 $100,912
Investment securities held to maturity 8,345 8,483 16,861 17,015
Loans, net of allowance for loan losses 193,832 191,876 186,430 185,624
Financial liabilities:
Deposits $315,177 $315,121 $295,287 $295,379
</TABLE>
SFAS No. 107 excludes certain financial instruments and all non-financial
instruments from its disclosure requirements. The disclosures also do not
include certain intangible assets, such as customer relationships, deposit
base intangibles and goodwill. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.
Note 16. Commitments and Contingencies
In the normal course of business there are outstanding commitments and
contingent liabilities, such as commitments to extend credit, letters of
credit and others, which are not included in the consolidated financial
statements. The financial instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of amounts recognized in the
financial statements. A summary of these commitments and contingent liabilities
is presented below.
<TABLE>
<CAPTION>
December 31,
1997 1996
<S> <C> <C>
Standby letters of credit $ 3,528 $ 1,412
Commitments to extend credit 60,982 48,060
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained,
if deemed necessary by the Company upon extension of credit, is based on
Management's credit evaluation of the counter-party. Collateral held varies
but may include accounts receivable, inventory, property, plant, and equipment,
and income-producing commercial properties.
At December 31, 1997, the Company was under contract to lease certain bank
premises and equipment. The terms of these contracts vary and are subject to
certain changes at renewal. Future minimum rental payments required under
operating leases having initial or remaining noncancelable terms in excess of
one year as of December 31, 1997 were not significant.
Rental expense under all operating leases amounted to $173, $195, and $276 in
1997, 1996, and 1995, respectively.
The Company and its Banks are the subject of claims and disputes arising in
the normal course of business. Management, through consultation with their
legal counsel, is of the opinion that these matters will not have a material
impact on results of operations.
Note 17. Non-Interest Expense
Components of other non-interest expense are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Advertising $ 168 $ 130 $ 222
FDIC assessment 34 7 215
Professional services 298 290 236
Stationery and supplies 264 286 231
Other 2,513 1,866 1,611
Total $3,277 $2,579 $2,515
</TABLE>
Note 18. Condensed Parent Company Financial Statements
<TABLE>
Condensed Statements of Condition
<CAPTION>
December 31,
1997 1996
ASSETS
<S> <C> <C>
Cash and short-term investments $ 328 $ 26
Investment in subsidiaries - eliminated
upon consolidation 44,297 46,196
Land 691 691
Other assets 146 179
Total $45,462 $47,092
LIABILITIES
Other liabilities $ 4
SHAREHOLDERS' EQUITY
Preferred stock - no par value
Shares authorized - 500
Share outstanding - none
Common stock - $.01 par value
Shares authorized - 5,500
Shares outstanding - 4,246 in 1997
and 4,227 in 1996 $ 42 42
Capital surplus 33,244 33,092
Net unrealized gain on securities
available for sale 815 253
Retained earnings 11,361 13,701
Total shareholders' equity 45,462 47,088
Total $45,462 $47,092
</TABLE>
<TABLE>
Condensed Statements of Operations
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Cash dividends from
subsidiaries $7,403 $1,442 $1,460
Securities gain 46
Other income 1 1
Total income 7,404 1,442 1,507
Expenses - other 215 207 100
Income before
undistributed
income of
subsidiaries 7,189 1,235 1,407
Distributions (in
excess of) under
equity basis
earnings of
subsidiaries (2,461) 2,119 1,600
Net Income $4,728 $3,354 $3,007
</TABLE>
<TABLE>
Condensed Statements of Cash Flows
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,728 $3,354 $3,007
Adjustments to reconcile net income to
net cash provided by operating activities:
Distributions (in excess of) under equity basis
earnings of subsidiaries 2,461 (2,119) (1,600)
Gain on sale of securities (46)
Other 29 (85) (58)
Net cash provided by operating activities 7,218 1,150 1,303
INVESTING ACTIVITIES
Sale of investment securities available for sale 50
Purchase of land (691)
Net cash used in investing activities (641)
FINANCING ACTIVITIES
Cash dividends (7,068) (1,324) (960)
Proceeds from issuance of stock 152 31
Net cash used in financing activities (6,916) (1,324) (929)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 302 (174) (267)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 26 200 467
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 328 $ 26 $ 200
</TABLE>
Exhibit (21).1
SUBSIDIARIES OF SOUTH ALABAMA BANCORPORATION, INC.
(1) South Alabama Bank, organized under the laws of the State of Alabama.
(2) First National Bank, organized under the laws of the United States of
America.
(3) The Monroe County Bank, organized under the laws of the State of Alabama.
(4) South Alabama Trust Company, Inc., organized under the laws of the State
of Alabama.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from SEC Form
10-K and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 16,504
<INT-BEARING-DEPOSITS> 100
<FED-FUNDS-SOLD> 25,293
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 110,255
<INVESTMENTS-CARRYING> 8,345
<INVESTMENTS-MARKET> 8,483
<LOANS> 196,517
<ALLOWANCE> (2,685)
<TOTAL-ASSETS> 369,595
<DEPOSITS> 315,177
<SHORT-TERM> 6,468
<LIABILITIES-OTHER> 2,488
<LONG-TERM> 0
0
0
<COMMON> 44,647
<OTHER-SE> 815
<TOTAL-LIABILITIES-AND-EQUITY> 369,595
<INTEREST-LOAN> 18,139
<INTEREST-INVEST> 6,969
<INTEREST-OTHER> 687
<INTEREST-TOTAL> 25,795
<INTEREST-DEPOSIT> 10,637
<INTEREST-EXPENSE> 10,900
<INTEREST-INCOME-NET> 14,895
<LOAN-LOSSES> 273
<SECURITIES-GAINS> 55
<EXPENSE-OTHER> 11,327
<INCOME-PRETAX> 6,498
<INCOME-PRE-EXTRAORDINARY> 4,728
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,728
<EPS-PRIMARY> 1.12
<EPS-DILUTED> 1.11
<YIELD-ACTUAL> 4.66
<LOANS-NON> 655
<LOANS-PAST> 43
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,708
<ALLOWANCE-OPEN> 2,600
<CHARGE-OFFS> 280
<RECOVERIES> 92
<ALLOWANCE-CLOSE> 2,685
<ALLOWANCE-DOMESTIC> 2,229
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 456
</TABLE>
