<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 29, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MAIN STREET BANKS INCORPORATED
(Name of Small Business Issuer in its charter)
<TABLE>
<S> <C> <C>
GEORGIA 6711 58-1806330
- -------------------------------- -------------------------------- --------------------------------
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) No.)
</TABLE>
1134 CLARK STREET
COVINGTON, GEORGIA 30014
(770) 786-3441
(Address, and telephone number
of principal executive offices)
COPIES TO:
<TABLE>
<S> <C>
ROBERT R. FOWLER, III KATHERINE M. KOOPS, ESQ.
MAIN STREET BANKS INCORPORATED POWELL GOLDSTEIN FRAZER & MURPHY LLP
1134 CLARK STREET 191 PEACHTREE STREET, N.E., 16(TH) FLOOR
COVINGTON, GEORGIA ATLANTA, GEORGIA 30303
(770) 786-3441 (404) 572-6600
(Name, address, and telephone number, of agent
for service)
</TABLE>
------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the date of this Registration Statement. If any of the securities being
registered on this form are to be offered on a delayed or continuous basis
pursuant to Rule 415 under the Securities Act of 1933, check the following
box. / /
If this Form is filed to register additional securities for an offering pursuant
to rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this form is a post-effective amendment filed pursuant to 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. / /
If the delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE:
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED UNIT PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $1.00 par value.............. 90,000 $14.00 $1,260,000 $351.00
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PRELIMINARY PROSPECTUS DATED , 1999; SUBJECT TO COMPLETION
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
90,000 SHARES
MAIN STREET BANKS INCORPORATED
COMMON STOCK
This is an offering of 90,000 shares of Main Street Banks Incorporated's
common stock. Of these shares, Main Street Banks Incorporated is offering 60,000
shares and Robert R. Fowler, III, the selling shareholder, is offering 30,000
shares. Our officers and directors will offer and sell the common stock on a
best-efforts basis without compensation. Prior to this offering, there has been
no public trading market for the common stock. We have applied to list the
common stock on the Nasdaq National Market under the symbol "MSBI."
INVESTING IN THE COMMON STOCK INVOLVES RISKS, WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 10 OF THIS PROSPECTUS.
The shares of common stock offered are not deposits, savings accounts, or
other obligations of a bank or savings association and are not insured by the
FDIC or any other governmental agency.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE
SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
PER SHARE TOTAL
<S> <C> <C>
Public price........................................ $14.00 $1,260,000
Proceeds to us, before expenses..................... $14.00 $840,000
Proceeds to the selling shareholder................. $14.00 $420,000
</TABLE>
We will deposit the subscription proceeds in a noninterest-bearing deposit
account with Main Street Bank until the close of the offering. We plan to close
the offering on , 1999, but may choose to end the offering sooner or
to extend the offering.
You must subscribe for at least 100 shares of common stock. You may not
revoke or change your subscription after you have submitted your signed
subscription agreement. We may choose to reject your subscription entirely or
accept it for only a portion of the shares for which you subscribe. See "The
Offering" beginning on page 10 of this prospectus.
The date of this prospectus is , 1999.
<PAGE>
[INSIDE FRONT COVER]
[A MAP DEPICTING MAIN STREET'S MARKET AREA AND BANKING LOCATIONS APPEARS HERE.]
2
<PAGE>
SUMMARY
THIS SUMMARY DOES NOT CONTAIN ALL THE INFORMATION YOU SHOULD CONSIDER BEFORE
INVESTING IN THE COMMON STOCK. YOU SHOULD READ CAREFULLY THE ENTIRE PROSPECTUS.
SHARE INFORMATION INCLUDED IN THIS PROSPECTUS HAS BEEN RESTATED TO REFLECT A
SIX-FOR-ONE STOCK SPLIT WHICH BECAME EFFECTIVE ON APRIL 30, 1996 AND A
FOUR-FOR-ONE STOCK SPLIT WHICH BECAME EFFECTIVE ON SEPTEMBER 1, 1998. IN
ADDITION, UNLESS OTHERWISE INDICATED, ALL REFERENCES TO "WE", "US", "OUR", AND
"MAIN STREET" IN THIS PROSPECTUS REFER TO MAIN STREET BANKS INCORPORATED AND ITS
SUBSIDIARY, MAIN STREET BANK, ON A CONSOLIDATED BASIS.
MAIN STREET BANKS INCORPORATED
1134 CLARK STREET
COVINGTON, GEORGIA 30014
(770) 786-3441
Main Street is a one-bank holding company headquartered in Covington,
Georgia. As of March 31, 1999, we had total consolidated assets of approximately
$445.5 million, total deposits of $381.0 million, and shareholders' equity of
approximately $43.7 million. We are conducting this offering to provide greater
liquidity and marketability for our common stock, to increase community
awareness and involvement in Main Street and to broaden our shareholder base.
Through our wholly owned subsidiary, Main Street Bank, we offer a broad line
of banking and financial products and services using a strategy of combining
large-bank products and services with small-bank service and responsiveness. We
rank fourteenth in asset size out of 61 bank holding companies headquartered in
Georgia based on December 31, 1998 call report data. Much of our growth has
occurred in the last eight years through acquisitions and expansion of our
market areas.
We operate 13 full-service banking locations and 17 automated teller
machines that are located in six contiguous counties in Northeast Georgia.
Our main office is located in the city of Covington, Newton County, Georgia.
We also have branch offices in the following locations:
<TABLE>
<CAPTION>
CITY COUNTY NUMBER OF BRANCHES
- -------------------------------------------------------------------------------- ----------- -------------------------
<S> <C> <C>
Covington....................................................................... Newton 3
Conyers......................................................................... Rockdale 3
Winder.......................................................................... Barrow 1
Loganville...................................................................... Walton 1
Lawrenceville................................................................... Gwinnett 1
Athens.......................................................................... Clarke 3
</TABLE>
As of June 30, 1998, our deposit market share was 36.5% in Newton County,
where Covington is the county seat. We provide mortgage, brokerage, and
insurance products through three divisions of Main Street Bank: Main Street
Mortgage, Main Street Investments, and Main Street Insurance.
BUSINESS STRATEGY
Our mission statement is "We want to be THE bank for consumers and small
businesses." To achieve our mission statement, our operating strategies are to:
- Provide leading technology combined with small-town service at all
locations;
- Staff offices with local and responsive management teams that emphasize a
high level of personalized customer service;
3
<PAGE>
- Target individuals, professionals and small- to medium-sized business
customers that require the attention and service a community bank is
well-suited to provide; and
- Provide a broad array of traditional banking products and services, along
with a complement of fee-based services, which offer customers a complete
line of financial products.
LINES OF BUSINESS
We provide traditional banking products and services through high-quality
and personalized delivery systems. We offer a wide variety of checking, savings,
certificates of deposit and loan accounts. Additionally, we offer credit and
debit cards, lines of credit, PC banking and voice response banking. We
recognize the need to adapt as our customers and the financial industry become
more technologically driven. As a result, we recently began offering Internet
banking to our customers. To complement our traditional banking products and
services, we also offer mortgages, brokerage services and insurance products.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by Main Street Banks
Incorporated............................... 60,000 shares
Common stock offered by selling
shareholder................................ 30,000 shares
Common stock to be outstanding after the
offering................................... 8,889,000 shares
Use of proceeds.............................. We intend to use the net proceeds as capital
to support asset growth and for other general
corporate purposes. See "The Offering" (page
16) and "Use of Proceeds" (page 18).
Proposed trading symbol...................... "MSBI"
</TABLE>
The number of shares of common stock to be outstanding after the offering
includes 720,000 shares of restricted stock issued under Main Street's
Restricted Stock Award Plan and 45,960 shares of restricted stock issued under
Main Street's Long-term Incentive Plan. See "Restricted Stock Award Plan" and
"Long-term Incentive Plan" (page 63).
RISK FACTORS
In deciding whether to purchase the common stock, you should consider the
various risks associated with an investment in Main Street's common stock, such
as:
1. Unpredictable economic conditions may have an adverse effect on the
quality of our loan portfolio and our financial performance;
2. We could suffer loan losses from a decline in credit quality;
3. Changes in interest rates may decrease our net interest income;
4. Changes in monetary policies may have an adverse effect on our business;
5. Industry competition may have an adverse effect on our profitability;
6. Departures of our key personnel may impair our operations;
7. Our ability to pay dividends is restricted by federal and state policies
and regulations;
4
<PAGE>
8. Our executive officers and directors own a majority of our outstanding
common stock and will be able to control the outcome of corporate actions
that require shareholder approval;
9. The arbitrarily determined public offering price may be higher or lower
than the market price of the common stock after the offering;
10. If an active trading market for the common stock does not develop, it
may be difficult for you to sell your shares of common stock;
11. The market price of the common stock will fluctuate and could fluctuate
significantly;
12. Government regulation may have an adverse effect on our profitability
and growth;
13. If we raise additional capital by issuing more shares of common stock,
your ownership interest in Main Street may be diluted;
14. Our computer systems and those of others on whom we rely may not operate
properly on year 2000-sensitive dates;
15. The market price of our common stock could drop significantly if large
blocks of our common stock are sold in the public market;
16. We may not allocate all of the net proceeds of this offering in the most
profitable manner; and
17. If our Bylaws deter a change in control, you may be deprived of an
opportunity to sell your shares at a premium over market prices.
See "Risk Factors" beginning on page 10 for a discussion of these risks.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary consolidated unaudited financial data should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and related notes
included elsewhere in this prospectus. This information has been derived from
audited financial statements for 1994 through 1998 and from unaudited financial
statements for the three months ended March 31, 1999 and 1998. You should not
rely on the three-month information as being indicative of results expected for
the entire year.
<TABLE>
<CAPTION>
AT AND
FOR THE THREE
MONTHS ENDED AT AND
MARCH 31 FOR THE YEARS ENDED DECEMBER 31
-------------------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1999 1998 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Total assets......................... $ 445,518 $ 415,356 $ 431,250 $ 400,201 $ 364,469 $ 346,665 $ 320,522
Mortgage loans held for sale......... 3,084 1,302 4,283 -- -- -- --
Loans, net........................... 333,385 301,418 324,617 298,091 258,831 237,732 221,658
Total deposits....................... 381,001 369,627 365,896 355,947 327,257 312,027 281,372
Investment securities available for
sale............................... 48,593 50,044 49,618 56,198 47,228 53,897 11,848
Investment securities held to
maturity........................... 12,555 13,421 12,497 12,068 13,352 16,710 58,145
Shareholders' equity................. 43,732 39,528 42,946 38,109 34,521 31,543 28,932
AVERAGE BALANCES:
Assets............................... $ 436,248 $ 409,269 $ 417,548 $ 397,289 $ 358,947 $ 338,268 $ 315,529
Earning assets....................... 395,780 373,311 380,012 364,697 327,123 313,146 288,942
Loans, net of unearned income........ 332,735 301,408 312,014 281,572 249,065 231,024 208,718
Shareholders' equity................. 43,676 38,992 40,397 36,227 33,019 30,584 28,463
SELECTED INCOME STATEMENT DATA:
Interest income...................... $ 8,892 $ 8,732 $ 35,788 $ 33,647 $ 29,768 $ 27,757 $ 23,861
Interest expense..................... 3,272 3,266 13,266 13,043 12,399 12,790 10,269
Net interest income.................. 5,620 5,466 22,522 20,604 17,369 14,967 13,592
Provision for loan losses............ 225 450 865 1,405 935 1,160 704
Noninterest income................... 1,762 1,237 5,795 4,348 3,685 2,815 2,160
Noninterest expense.................. 4,723 4,241 17,847 15,560 14,016 12,280 11,771
Income tax expense................... 796 596 3,090 2,498 1,811 1,142 769
Net income........................... 1,638 1,416 6,515 5,490 4,291 3,201 2,508
PER SHARE DATA:(1)
Net income per share basic and
diluted............................ $ .19 $ .16 $ .75 $ .63 $ .50 $ .38 $ .30
Dividends paid per share............. .080 .063 .250 .208 .167 .125 .083
Book value........................... 4.95 4.54 4.87 4.38 3.99 3.70 3.42
Average common shares outstanding.... 8,710,970 8,693,956 8,710,970 8,657,180 8,548,456 8,469,719 8,454,026
ASSET QUALITY RATIOS:
Net charge-offs to average loans
outstanding........................ 0.11% 0.06% 0.03% 0.29% 0.27% 0.12% 0.21%
Allowance to period end loans........ 1.79% 1.82% 1.80% 1.71% 1.77% 1.81% 1.53%
Allowance to non-performing loans.... 372.22% 1090.87% 405.69% 675.33% 453.98% 245.31% 735.24%
Allowance to non-performing assets... 223.71% 276.14% 233.16% 321.06% 270.43% 233.92% 251.92%
SELECTED FINANCIAL RATIOS:
Taxable-equivalent yield on average
interest-earning assets............ 9.07% 9.46% 9.51% 9.31% 9.25% 9.07% 8.48%
Cost of average interest-bearing
liabilities........................ 4.22% 4.34% 3.79% 4.38% 4.60% 4.71% 3.90%
Net interest margin.................. 5.76% 5.96% 6.02% 5.76% 5.46% 4.99% 4.93%
Net income to average total assets... 1.50% 1.38% 1.56% 1.38% 1.20% 0.95% 0.79%
Net income to average shareholders'
equity............................. 15.00% 14.53% 16.13% 15.15% 13.00% 10.47% 8.81%
Efficiency ratio(2).................. 63.98% 63.38% 63.06% 62.40% 66.08% 68.81% 75.23%
Average shareholders' equity to
average total assets............... 10.01% 9.53% 9.67% 9.12% 9.20% 9.06% 8.91%
</TABLE>
- ------------------------------
(1) All per share amounts have been adjusted for common stock splits, effected
in the form of dividends, to shareholders of record on September 1, 1998 and
April 30, 1996.
(2) Calculated by dividing total noninterest expense, excluding securities gains
and losses, by net interest income plus noninterest income.
6
<PAGE>
RECENT DEVELOPMENTS
Net income for the three months ended June 30, 1999 was $1.51 million
compared to $1.46 million for the three months ended June 30, 1998, an increase
of 3.5%. Net income for the six months ended June 30, 1999 was $3.2 million
compared to $2.9 million in the first six months of 1998, an increase of 9.5%.
The increase in both periods was the result of an increase in net interest
income resulting from loan growth and growth in fee income from new business
lines, partially offset by increased expenses from new staff positions and new
facilities. In addition, a $304,000 pre-tax gain on the sale of a branch
facility increased net income for the three and six months ended March 31, 1999
and June 30, 1999.
The following table presents for the periods indicated summary consolidated
financial data reflecting Main Street's results of operations and financial
condition.
<TABLE>
<CAPTION>
AT AND
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
---------------------- ----------------------
<S> <C> <C> <C> <C>
1999 1998 1999 1998
---------- ---------- ---------- ----------
<CAPTION>
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............................................... $ 467,616 $ 420,655
Mortgage loans held for sale............................... 3,657 2,720
Loans, net................................................. 349,007 302,040
Total deposits............................................. 377,051 359,305
Investment securities available for sale................... 42,870 48,571
Investment securities held to maturity..................... 15,793 12,525
Other investments.......................................... 1,640 1,372
Shareholders' equity....................................... 44,836 40,407
INCOME STATEMENT DATA:
Net income................................................. $ 1,514 $ 1,462 $ 3,152 $ 2,878
Earnings per share- basic and diluted...................... 0.17 0.17 0.36 0.33
Weighted average shares outstanding........................ 8,827,270 8,697,600 8,827,434 8,695,788
ASSET QUALITY RATIOS:
Allowance to period end loans.............................. 1.75% 1.86%
Allowance to non-performing loans.......................... 375.44% 1,174.92%
Allowance to non-performing assets......................... 218.39% 300.99%
FINANCIAL RATIOS:
Taxable-equivalent yield on average interest-earning
assets................................................... 9.04% 9.55% 9.10% 9.56%
Cost of average interest-bearing liabilities............... 4.15% 4.41% 4.19% 4.40%
Net income to average total assets......................... 1.35% 1.43% 1.43% 1.41%
Net income to average shareholders' equity................. 13.6% 14.9% 14.4% 14.8%
Efficiency ratio........................................... 66.4% 65.9% 65.2% 64.6%
</TABLE>
7
<PAGE>
CAUTIONARY STATEMENT ABOUT
FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS "FORWARD-LOOKING STATEMENTS," WHICH INCLUDE
INFORMATION ABOUT POSSIBLE OR ASSUMED FUTURE RESULTS OF OUR OPERATIONS OR OUR
FINANCIAL PERFORMANCE. FORWARD-LOOKING STATEMENTS MAY ALSO INCLUDE INFORMATION
REGARDING OUR FUTURE PLANS AND OBJECTIVES. FORWARD-LOOKING STATEMENTS ARE BASED
ON THE BELIEF OF OUR MANAGEMENT, AS WELL AS ASSUMPTIONS THEY HAVE MADE AND
INFORMATION CURRENTLY AVAILABLE TO THEM. WORDS SUCH AS "EXPECT," "ESTIMATE,"
"ANTICIPATE," "BELIEVE" AND OTHER SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS.
THE CAUTIONARY STATEMENTS IN THE "RISK FACTORS" SECTION AND ELSEWHERE IN
THIS PROSPECTUS IDENTIFY IMPORTANT FACTORS AND POSSIBLE EVENTS, WHICH INVOLVE
RISKS AND UNCERTAINTIES, THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE CONTAINED IN THE FORWARD-LOOKING STATEMENTS. IF YOU ARE INTERESTED IN
PURCHASING SHARES OF THE COMMON STOCK, YOU SHOULD CAREFULLY CONSIDER THESE RISK
FACTORS, AS WELL AS FACTORS DISCUSSED ELSEWHERE IN THIS PROSPECTUS, BEFORE
MAKING A DECISION TO INVEST IN THE COMMON STOCK.
8
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK INVOLVES A SIGNIFICANT DEGREE OF RISK. YOU
SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND OTHER INFORMATION IN
THIS PROSPECTUS BEFORE DECIDING TO INVEST IN THE COMMON STOCK.
THE FOLLOWING PARAGRAPHS DESCRIBE THE RISKS THAT WE BELIEVE ARE MATERIAL TO
YOUR DECISION TO INVEST IN OUR COMMON STOCK. YOU SHOULD ALSO READ CAREFULLY THE
CAUTIONARY STATEMENT PRECEDING THE RISK FACTORS REGARDING THE USE OF
FORWARD-LOOKING STATEMENTS.
THE SHARES OF COMMON STOCK OFFERED THROUGH THIS PROSPECTUS ARE NOT SAVINGS
ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE
NOT INSURED BY THE FDIC OR ANY OTHER GOVERNMENTAL AGENCY.
UNPREDICTABLE ECONOMIC CONDITIONS MAY HAVE AN ADVERSE EFFECT ON THE QUALITY OF
OUR LOAN PORTFOLIO AND OUR FINANCIAL PERFORMANCE
Economic recession over a prolonged period or other economic problems in our
market areas could have a material adverse impact on the quality of our loan
portfolio and the demand for our products and services. For example, a downturn
in the local economy could make it more difficult for borrowers to repay their
loans, which could lead to loan losses for Main Street Bank. This could in turn
adversely affect our financial condition, results of operations or cash flows.
Our success depends to a significant extent upon economic conditions in Georgia
and particularly in the counties in which we have branches. The banking industry
in Georgia is affected by general economic conditions such as inflation,
recession, unemployment and other factors beyond our control. See "Business of
Main Street" (page 22).
WE COULD SUFFER LOAN LOSSES FROM A DECLINE IN CREDIT QUALITY
We could sustain losses if borrowers, guarantors and related parties fail to
perform in accordance with the terms of their loans. Because we derive a
significant portion of our net income from our loan portfolio, our financial
condition, results of operations and cash flows could be materially adversely
affected if our borrowers are unable to repay their loans as scheduled. See
"Business of Main Street" (page 22).
CHANGES IN INTEREST RATES MAY DECREASE OUR NET INTEREST INCOME
If we are unsuccessful in managing interest rate fluctuations, our net
interest income could decrease materially. Our operations depend substantially
on our net interest income, which is the difference between the interest income
earned on our interest-earning assets and the interest expense paid on our
interest-bearing liabilities. Like most depository institutions, our earnings
and net interest income are affected by changes in market interest rates and
other economic factors beyond our control. While we take measures to guard
against interest rate risk, these measures may not be effective in minimizing
our exposure to interest rate risk. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Interest Rate Sensitivity and
Liquidity" (page 41).
INDUSTRY COMPETITION MAY HAVE AN ADVERSE EFFECT ON OUR PROFITABILITY
The banking business is highly competitive, and our profitability depends
upon our ability to compete in our market areas. We compete with other
commercial banks, savings banks, savings and loan associations, credit unions,
mortgage companies, finance companies, mutual funds, insurance companies,
brokerage and investment banking firms, asset-based non-bank lenders, retail
stores and other non-financial entities that maintain their own credit programs,
and governmental organizations. These competitors may attract customers by
offering more favorable interest rate or financing terms
9
<PAGE>
than we do. Many of these competitors have greater financial and other resources
than we have and compete aggressively with us for market share. In addition,
recent legislation has led to increased competition among financial
institutions. The United States Congress or the Georgia legislature may enact
legislation that may further increase competitive pressures on us. See "Business
of Main Street-- Competition" (page 25).
DEPARTURES OF OUR KEY PERSONNEL MAY IMPAIR OUR OPERATIONS
Each member of our management team is important to our success and the
unexpected loss of any of these persons could impair our day-to-day operations
as well as our strategic direction. Our management team includes Robert R.
Fowler, III, Chairman, President and Chief Executive Officer; Samuel B. Hay,
III, Executive Vice President and Chief Financial Officer; Frank B. Turner, Vice
Chairman; and Joseph K. Strickland, Jr., Executive Vice President and Chief
Credit Officer. Although we have key man life insurance on Mr. Fowler, we have
not entered into employment agreements with any employees. See "Management"
(page 59).
OUR ABILITY TO PAY DIVIDENDS IS RESTRICTED BY FEDERAL AND STATE POLICIES AND
REGULATIONS
Federal Reserve Board policy and Georgia Department of Banking and Finance
regulations restrict our ability to pay dividends, and we cannot assure that we
will pay dividends on our common stock in the future. Federal Reserve Board
policy states that bank holding companies should pay cash dividends on common
stock only out of net income available over the past year and only if
prospective earnings retention is consistent with the organization's expected
future needs and financial condition. The policy provides that bank holding
companies should not maintain a level of cash dividends that undermines its
ability to serve as a source of strength to its banking subsidiaries. Our
ability to declare and pay dividends on the common stock depends upon our
earnings and financial condition, our liquidity and capital requirements, the
general economic and regulatory climate and other factors our Board of Directors
deems relevant.
Our principal source of funds to pay dividends is cash dividends that we
receive from our subsidiary, Main Street Bank. The Georgia Department of Banking
and Finance regulates Main Street Bank's dividend payments and must approve
dividend payments that would exceed 50% of Main Street Bank's net income for the
preceding year. Additionally, FDIC policies and regulations restrict Main Street
Bank's ability to pay dividends. See "Supervision and Regulation--Payment of
Dividends" (page 70).
OUR EXECUTIVE OFFICERS AND DIRECTORS OWN A MAJORITY OF OUR OUTSTANDING COMMON
STOCK AND WILL BE ABLE TO CONTROL THE OUTCOME OF CORPORATE ACTIONS THAT
REQUIRE SHAREHOLDER APPROVAL
After the completion of the offering, our executive officers and directors,
collectively, will have the power to block business combinations and to control
the outcome of all matters required to be submitted to our shareholders for
approval. The matters include decisions relating to the election of directors,
the determination of day-to-day corporate and management policies and other
significant corporate transactions. Our executive officers and directors
collectively will beneficially own approximately 5,126,114, or 57.67%, of the
outstanding shares of common stock after completion of the offering. Of these
shares 2,563,368 shares, which will represent 28.84% of the total outstanding
shares of common stock after the offering, are held in various trusts. Each of
the trusts prohibits the sale or other disposition of the shares held in the
trust and precludes the trustee from voting the shares for a sale or liquidation
of Main Street. See "Principal Shareholders and Stock Ownership of Management"
(page 58), "Management" (page 59) and "Description of Capital Stock" (page 65).
10
<PAGE>
THE ARBITRARILY DETERMINED PUBLIC OFFERING PRICE MAY BE HIGHER OR LOWER THAN THE
MARKET PRICE OF THE COMMON STOCK AFTER THE OFFERING
The public offering price may not indicate the market price for the common
stock after the offering. Because an active trading market does not exist for
the common stock, we were unable to set an offering price that would reflect the
effect of an efficient market for the stock. Instead, we determined the public
offering price based on a variety of factors, including the prices at which the
common stock has most recently been sold, the history of, and prospects for, the
banking industry in our market areas, the price to earnings and price to book
value multiples represented by the offering price and by the prices of publicity
traded common stock of comparable companies, our historical and prospective cash
flow and earnings and that of comparable companies in recent periods. See "The
Offering--Determination of Offering Price" (page 17).
IF AN ACTIVE TRADING MARKET FOR THE COMMON STOCK DOES NOT DEVELOP, IT MAY BE
DIFFICULT FOR YOU TO SELL YOUR SHARES OF COMMON STOCK
Prior to the offering, there has been no public market for the shares of
common stock and an active trading market may not develop. If an active trading
market does not develop or continue after this offering, you may not be able to
resell your shares at or above the price at which these shares are being offered
to the public. Although we have filed an application to have the common stock
approved for quotation on the Nasdaq National Market under the symbol MSBI, an
active public market may not develop or be sustained after the offering. A
public trading market, which has the desired characteristics of depth, liquidity
and orderliness, depends upon the presence in the marketplace of willing buyers
and sellers of the common stock at any given time. The presence of willing
buyers and sellers depends upon individual decisions of investors, over which
neither we nor any market maker has any control.
THE MARKET PRICE OF THE COMMON STOCK WILL FLUCTUATE AND COULD FLUCTUATE
SIGNIFICANTLY
If a market develops for the common stock after the offering, we may
experience significant volatility in the market price of our common stock.
Factors that may affect the price of our common stock include the depth and
liquidity of the market for the common stock, investor perception of our
financial strength, conditions in the banking industry such as credit quality
and monetary policies, and general economic and market conditions. Our quarterly
operating results, changes in analysts' earnings estimates, changes in general
conditions in the economy or financial markets or other developments affecting
us could cause the market price of the common stock to fluctuate substantially.
In addition, from time to time the stock market experiences extreme price and
volume fluctuations. This volatility may significantly affect the market price
of the common stock for reasons unrelated to our operating performance.
GOVERNMENT REGULATION MAY HAVE AN ADVERSE EFFECT ON OUR PROFITABILITY AND GROWTH
Bank holding companies and banks are subject to extensive state and federal
government supervision and regulation. Changes in state and federal banking laws
and regulations or in federal monetary policies could adversely affect our
ability to maintain profitability and continue to grow. For example, new
legislation or regulation could limit the manner in which we may conduct our
business, including our ability to obtain financing, attract deposits, make
loans and achieve satisfactory interest spreads. Many of these regulations are
intended to protect depositors, the public and the FDIC, not shareholders. In
addition, the burden imposed by federal and state regulations may place us at a
competitive disadvantage compared to competitors who are less regulated. The
laws, regulations, interpretations and enforcement policies that apply to us
have been subject to significant, and sometimes retroactively applied, changes
in recent years, and may change significantly in the future.
11
<PAGE>
Future legislation or government policy may also adversely affect the banking
industry or our operations. See "Supervision and Regulation" (page 68).
IF WE RAISE ADDITIONAL CAPITAL BY ISSUING MORE SHARES OF COMMON STOCK, YOUR
OWNERSHIP INTEREST IN MAIN STREET MAY BE DILUTED
The issuance of additional shares of common stock could dilute your
ownership interest in Main Street. Our Board of Directors may elect to obtain
additional capital by issuing additional shares of common stock or other
securities. We may issue additional securities at prices or on terms less
favorable than or equal to the public offering price and terms of this offering.
OUR COMPUTER SYSTEMS AND THOSE OF OTHERS ON WHOM WE RELY MAY NOT OPERATE
PROPERLY ON YEAR 2000-SENSITIVE DATES
The year 2000 issue common to most corporations concerns the inability of
some types of software and databases to recognize the year 2000 and other year
2000-sensitive dates. If we or any of our service providers, correspondents,
vendors or customers experience a disruption of business resulting from a year
2000 problem, our financial condition, results of operations and liquidity could
be materially adversely affected. We, like most banks, depend heavily on complex
computer systems for most phases of our operations. If not corrected, a year
2000 problem could disrupt our operations as well as those of other financial
institutions, which are particularly sensitive to these disruptions. These
disruptions could include events ranging from electrical or water failure to
computer systems failure, with any of these events potentially resulting in a
cessation of our operations until the problem is resolved.
We rely primarily on software and hardware developed by independent third
parties to provide the information systems used by us. As a result, we will
depend on the efforts of those vendors to ensure that their data processing
systems accommodate year 2000 information. Although we require certification
regarding year 2000 readiness from the vendors of our most critical systems and
services, we cannot verify independently that any equipment supplied by third
party vendors will in fact be year 2000 compliant. Additionally, we could be
adversely affected by year 2000 problems experienced by others, including our
customers, service providers, vendors, customers' vendors, correspondent banks,
government agencies, and the financial services industry in general, over which
we have no control. If, for example, one of our major borrowers is unable to
conduct its operations as a result of a year 2000 problem, that borrower could
be unable to maintain its cash flow and could therefore default on its loan,
which would lead to loan losses for us. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Year 2000 Compliance"
(page 45) for a description of our plan to address the year 2000 issue.
THE MARKET PRICE OF OUR COMMON STOCK COULD DROP SIGNIFICANTLY IF LARGE BLOCKS OF
OUR COMMON STOCK ARE SOLD IN THE PUBLIC MARKET
The market price of our common stock could drop significantly if the holders
of shares of common stock, which are available for resale in the public market,
sell or are perceived by the market as intending to sell large blocks of shares.
After this offering, we will have up to 8,889,000 outstanding shares of common
stock. Of these shares, approximately 3,575,496 will be immediately available
for resale in the public market without restriction. The remaining 5,313,504
outstanding shares will represent shares held by affiliates, restricted shares
issued under our Restricted Stock Award Plan and Long-term Incentive Plan, and
shares that are restricted under the federal securities laws. These shares will
become available for resale in the public market as indicated below:
- 5,126,114 shares, which are held by our affiliates, will become available
for resale beginning 90 days after the close of this offering, subject to
the volume and other limitations under federal
12
<PAGE>
securities laws. This amount includes 117,600 shares, which were issued
under our Restricted Stock Award Plan or Long-term Incentive Plan, that
must also meet the vesting requirements under these plans before they may
be resold.
- 93,440 shares, which were issued to nonaffilitates under our Restricted
Stock Award Plan or Long-term Incentive Plan, will become available for
resale between the closing date of this offering and November 22, 1999
without restriction under federal securities laws, but subject to the
vesting requirements under these plans.
- 93,950 shares, which are held by nonaffiliates, will become available for
resale between 90 days after the close of this offering and May 2000,
subject to volume and other limitations under federal securities laws.
This amount includes 73,000 shares, which were issued under our Restricted
Stock Award Plan or Long-term Incentive Plan, that must also meet the
vesting requirements under these plans before they may be resold.
See "Shares Eligible for Future Sale" (page 67), for a discussion of the
resale limitations under federal securities laws and see "Management--Restricted
Stock Award Plan and--Long-term Incentive Plan" (page 63).
WE MAY NOT ALLOCATE ALL OF THE NET PROCEEDS OF THIS OFFERING IN THE MOST
PROFITABLE MANNER
Our management will have broad discretion in allocating the net proceeds of
the offering, which are estimated to be $690,000. We intend to use the net
proceeds as capital to support asset growth and for other general corporate
purposes. Our management will have discretion as to the timing and specific
application of the net proceeds, and investors will not have the opportunity to
evaluate the economic, financial and other relevant information that we will use
in applying the proceeds. Although we intend to use the net proceeds to serve
Main Street's best interest, our allocation may not ultimately reflect the most
profitable application of these proceeds. See "Use of Proceeds" (page 18).
IF OUR BYLAWS DETER A CHANGE IN CONTROL, YOU MAY BE DEPRIVED OF AN OPPORTUNITY
TO SELL YOUR SHARES AT A PREMIUM OVER MARKET PRICES
Our Bylaws contain a provision relating to the removal of directors from our
Board that may make it more difficult and time consuming for a potential
acquiror to obtain control of Main Street by replacing the Board of Directors or
management. If this provision deters an attempt to change or gain control of
Main Street, you may be deprived of opportunities to sell some or all of your
shares at prices that represent a premium over market prices. See "Provisions of
Our Articles of Incorporation and Bylaws" (page 65).
13
<PAGE>
THE OFFERING
GENERAL
Main Street is offering 60,000 shares and the selling shareholder, Robert R.
Fowler, III, is offering 30,000 shares of Main Street common stock at a price of
$14.00 per share. The minimum purchase for any one investor is 100 shares,
unless Main Street, in its sole discretion, accepts a subscription for a lesser
number of shares. The shares are being offered through the best efforts of our
officers and directors until , unless we decide to end the offering
sooner or extend the offering as described under "Expiration Date" below. Our
officers and directors will not receive any commissions or other compensation
for soliciting sales of the common stock, but they will be reimbursed for
reasonable expenses they incur in the offering. THE OFFERING IS NOT
UNDERWRITTEN.
We are conducting this offering to provide greater liquidity and
marketability for our common stock, to increase community awareness of and
involvement in Main Street and to broaden our shareholder base.
ELIGIBILITY TO SUBSCRIBE FOR SHARES
Because the purpose of this offering is to diversify and broaden our
shareholder base, current executive officers and directors of Main Street Banks
Incorporated or any of its divisions or subsidiaries are not eligible to
purchase shares of common stock in this offering.
HOW TO PURCHASE SHARES IN THE OFFERING
You can purchase shares of the common stock by delivering to Main Street
Banks Incorporated, 1134 Clark Street, Covington, Georgia 30014, Attn: Samuel B.
Hay, III the following items:
- Your completed and signed subscription agreement for at least 100 shares
of common stock; and
- A check or a money order payable to "Main Street Banks Incorporated" in
the amount of the total purchase price for the shares you wish to
purchase, calculated based on a price of $14.00 per share.
A blank Subscription Agreement accompanies this prospectus. Additional forms
are available upon request from Angela King at the address listed above. You may
not revoke or change your subscription after you have submitted your signed
Subscription Agreement unless you receive our express permission to do so. You
must subscribe for at least 100 shares of common stock. Additionally, we may
reject any subscription or limit the number of shares sold to any subscriber.
EXPIRATION DATE
This offering will expire at 5:00 p.m., Eastern Standard Time, on
unless we choose to end the offering sooner or extend the offering
period. Our decision to end or extend the offering will be based on demand for
the shares. We will not extend the offering beyond . We will promptly
publish a notice in various local newspapers including THE COVINGTON NEWS or
otherwise notify you if we change the expiration date of the offering.
ALLOCATION OF SUBSCRIPTIONS IF THE OFFERING IS UNDERSUBSCRIBED
If we receive subscriptions for less than 90,000 shares of common stock, all
subscriptions received for up to 30,000 shares will first be allocated to the
selling shareholder. Subscriptions received in excess of 30,000 shares and up to
a total of 90,000 shares will be allocated to Main Street. We will not accept
subscriptions for more than 90,000 shares of common stock. See "--Discretion to
Accept Subscriptions" below.
14
<PAGE>
DISCRETION TO ACCEPT SUBSCRIPTIONS
We have the right, in our sole discretion, to accept or reject any
subscription in whole or in part. In order to broaden our shareholder base to
the greatest extent possible, if we receive subscriptions for a total of more
than 90,000 shares, we will generally give preference to subscriptions for
smaller numbers of shares and may limit the number of shares sold to any
subscriber. As a result, you may not receive any or all of the shares for which
you subscribe.
We will notify subscribers promptly after the expiration date as to whether
and to what extent their subscriptions have been accepted. If we do not accept
all or a portion of a subscription, we will return to the subscriber the
unaccepted portion of the subscription funds, without interest.
ISSUANCE OF STOCK CERTIFICATES
Promptly after the expiration date described above, Main Street Bank, as
transfer agent, will issue stock certificates representing the shares purchased
by investors in this offering. Main Street Bank will follow the instructions
contained in the accepted Subscription Agreements when it issues the stock
certificates.
SUBSCRIPTION PROCEEDS
We will deposit all subscription proceeds as we receive them in a
noninterest-bearing deposit account with Main Street Bank. Promptly following
the expiration date of the offering, we will refund any amounts due to
subscribers whose subscriptions we did not accept as described under
"--Discretion to Accept Subscriptions" above and distribute to the selling
shareholder the portion of the subscription proceeds without interest due to
him. The remaining subscription proceeds due to us will become immediately
available for our use.
DETERMINATION OF OFFERING PRICE
Our Board of Directors established the offering price of $14.00 per share,
which is equal to 2.8 times our consolidated book value per share of $4.95 at
March 31, 1999, and 18.7 times our net income per share of $0.75 for the year
ended December 31, 1998. The Board considered a number of factors in setting the
price, including:
- the prices at which the common stock has most recently been sold,
- the history of, and prospects for, the banking industry
- the price to earnings and price to book value multiples represented by the
offering price and by the prices of publicly traded common stock of
comparable companies, and
- our historical and prospective cash flow and earnings and that of
comparable companies in recent periods.
See "Selected Consolidated Financial Information" (page 21) and "Market
Price of and Dividends on Common Stock" (page 18).
USE OF PROCEEDS
We estimate that the net proceeds from the sale of 60,000 shares of common
stock that we plan to sell in this offering, after we pay estimated expenses of
the offering, will be $690,000. We intend to use the net proceeds as capital to
support asset growth and for other general corporate purposes.
15
<PAGE>
MARKET PRICE OF AND DIVIDENDS ON COMMON STOCK
We had 190 shareholders of record on March 31, 1999. Prior to this offering,
our common stock has not been traded on an established public trading market and
quotations for the common stock were not reported on any market. As a result,
there has been no regular market for the common stock, and the sales prices
known to us do not necessarily reflect the price that would be paid for the
common stock in an active market. Our common stock was traded at a price of
$5.00 per share during 1997, between $10.00 and $12.00 during 1998 and between
$12.50 and $14.00 during 1999. In an effort to improve the trading market for
our common stock, we intend to list the common stock on the Nasdaq National
Market when the offering is completed. See "Risk Factors--If an active trading
market for the common stock does not develop, it may be difficult for you to
sell your shares of common stock" (page 12).
The following table sets forth the amount of the quarterly dividends paid on
the common stock during the periods indicated. All per share dividend amounts
have been adjusted to reflect the six-for-one stock split that was effective on
April 30, 1996 and the four-for-one stock split that was effective on September
1, 1998.
<TABLE>
<CAPTION>
CASH
DIVIDEND
PAID PER
FISCAL YEAR DATE PAID SHARE
- --------------------------------------------------------------------------------- ------------------- ---------
<S> <C> <C>
1997
First Quarter.................................................................... January 16, 1997 $.05
Second Quarter................................................................... April 10, 1997 .05
Third Quarter.................................................................... July 8, 1997 .055
Fourth Quarter................................................................... October 15, 1997 .055
1998
First Quarter.................................................................... January 15, 1998 $.0625
Second Quarter................................................................... April 10, 1998 .0625
Third Quarter.................................................................... July 15, 1998 .0625
Fourth Quarter................................................................... October 15, 1998 .0625
1999
First Quarter.................................................................... January 15, 1999 $.0800
Second Quarter................................................................... April 15, 1999 .0800
</TABLE>
We currently pay cash dividends on a quarterly basis and have paid dividends
every year since our inception in 1988. Main Street Banks Incorporated is a
legal entity separate and distinct from Main Street Bank, and its revenues
depend primarily on the payment of dividends it receives from Main Street Bank.
Banking regulations limit the amount of dividends that may be paid by Main
Street Bank without prior approval of the Georgia Department of Banking and
Finance. At March 31, 1999, $2,558,475 was available for the payment of
dividends to Main Street Banks Incorporated without prior regulatory approval.
Supervision and Regulation--Payment of Dividends" (page 70).
16
<PAGE>
DILUTION
As of March 31, 1999, our net tangible book value was $4.76 per share. "Net
tangible book value per share" is tangible net worth, or total tangible assets
less total liabilities, divided by the number of shares of common stock
outstanding. After giving effect to the sale of the shares of common stock
offered by this prospectus and after deducting estimated offering expenses to be
paid by us, the pro forma net tangible book value at March 31, 1999 would have
been $4.81 per share. This represents an immediate increase in the net tangible
book value of $0.05 per share to existing shareholders and an immediate dilution
of $9.19 per share to the new investors purchasing the shares in this offering.
The following table illustrates this per share dilution to new investors:
<TABLE>
<S> <C>
Assumed initial public offering price per share..................................... $ 14.00
Net tangible book value per share at March 31, 1999............................... $ 4.76
Increase in net tangible book value per share attributable to new investors....... 0.05
Pro forma net tangible book value per share after offering.......................... 4.81
Dilution in net tangible book value per share to new investors...................... $ 9.19
---------
---------
</TABLE>
17
<PAGE>
CAPITALIZATION
The following table shows our capitalization as of March 31, 1999, and as
adjusted to give effect to the receipt of the net proceeds from the sale of
60,000 shares of common stock in the offering. The as adjusted capitalization
assumes that we sell 60,000 shares of common stock at $14.00 per share and that
the net proceeds from the offering, after deducting the estimated offering
expenses payable by us, are approximately $690,000.
<TABLE>
<CAPTION>
MARCH 31, 1999
----------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
------------- -------------
Shareholders' Equity:
Common stock; $1.00 par value; 30,000,000 shares authorized;
8,827,600 shares issued and outstanding and 8,887,600
shares issued and outstanding, as adjusted................. $ 8,827,600 $ 8,887,600
Additional paid-in capital................................... 783,488 1,413,488
Accumulated other comprehensive loss......................... (85,709) (85,709)
Retained earnings............................................ 34,206,277 34,206,277
------------- -------------
Total Shareholders' Equity..................................... $ 43,731,656 $ 44,421,656
------------- -------------
------------- -------------
</TABLE>
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated unaudited financial data should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and related notes
included elsewhere in this prospectus. This information has been derived from
audited financial statements for 1994 through 1998 and from unaudited financial
statements for the three months ended March 31, 1999 and 1998. You should not
rely on the three-month information as being indicative of results expected for
the entire year.
<TABLE>
<CAPTION>
AT AND FOR THE
THREE MONTHS AT AND
ENDED MARCH 31 FOR THE YEARS ENDED DECEMBER 31
-------------------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1999 1998 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Total assets............................. $ 445,518 $ 415,356 $ 431,250 $ 400,201 $ 364,469 $ 346,665 $ 320,522
Mortgage loans held for sale............. 3,084 1,302 4,283 -- -- -- --
Loans, net............................... 333,385 301,418 324,617 298,091 258,831 237,732 221,658
Total deposits........................... 381,001 369,627 365,896 355,947 327,257 312,027 281,372
Investment securities available for
sale................................... 48,593 50,044 49,618 56,198 47,228 53,897 11,848
Investment securities held to maturity... 12,555 13,421 12,497 12,068 13,352 16,710 58,145
Shareholders' equity..................... 43,732 39,528 42,946 38,109 34,521 31,543 28,932
AVERAGE BALANCES:
Assets................................... $ 436,248 $ 409,269 $ 417,548 $ 397,289 $ 358,947 $ 338,268 $ 315,529
Earning assets........................... 395,780 373,311 380,012 364,697 327,123 313,146 288,942
Loans, net of unearned income............ 332,735 301,408 312,014 281,572 249,065 231,024 208,718
Shareholders' equity..................... 43,676 38,992 40,397 36,227 33,019 30,584 28,463
SELECTED INCOME STATEMENT DATA:
Interest income.......................... $ 8,892 $ 8,732 $ 35,788 $ 33,647 $ 29,768 $ 27,757 $ 23,861
Interest expense......................... 3,272 3,266 13,266 13,043 12,399 12,790 10,269
Net interest income...................... 5,620 5,466 22,522 20,604 17,369 14,967 13,592
Provision for loan losses................ 225 450 865 1,405 935 1,160 704
Noninterest income....................... 1,762 1,237 5,795 4,348 3,685 2,815 2,160
Noninterest expense...................... 4,723 4,241 17,847 15,560 14,016 12,280 11,771
Income tax expense....................... 796 596 3,090 2,498 1,811 1,142 769
Net income............................... 1,638 1,416 6,515 5,490 4,291 3,201 2,508
PER SHARE DATA:(1)
Net income per share basic and diluted... $ .19 $ .16 $ .75 $ .63 $ .50 $ .38 $ .30
Dividends paid per share................. .080 .063 .250 .208 .167 .125 .083
Book value............................... 4.95 4.54 4.87 4.38 3.99 3.70 3.42
Average common shares outstanding........ 8,710,970 8,693,956 8,710,970 8,657,180 8,548,456 8,469,719 8,454,026
ASSET QUALITY RATIOS:
Net charge-offs to average loans
outstanding............................ 0.11% 0.06% 0.03% 0.29% 0.27% 0.12% 0.21%
Allowance to period end loans............ 1.79% 1.82% 1.80% 1.71% 1.77% 1.81% 1.53%
Allowance to non-performing loans........ 372.22% 1090.87% 405.69% 675.33% 453.98% 245.31% 735.24%
Allowance to non-performing assets....... 223.71% 276.14% 233.16% 321.06% 270.43% 233.92% 251.92%
SELECTED FINANCIAL RATIOS:
Taxable-equivalent yield on average
interest-earning assets................ 9.07% 9.46% 9.51% 9.31% 9.25% 9.07% 8.48%
Cost of average interest-bearing
liabilities............................ 4.22% 4.34% 3.79% 4.38% 4.60% 4.71% 3.90%
Net interest margin...................... 5.76% 5.96% 6.02% 5.76% 5.46% 4.99% 4.93%
Net income to average total assets....... 1.50% 1.38% 1.56% 1.38% 1.20% 0.95% 0.79%
Net income to average shareholders'
equity................................. 15.00% 14.53% 16.13% 15.15% 13.00% 10.47% 8.81%
Efficiency ratio(2)...................... 63.98% 63.38% 63.06% 62.40% 66.08% 68.81% 75.23%
Average shareholders' equity to average
total assets........................... 10.01% 9.53% 9.67% 9.12% 9.20% 9.06% 8.91%
</TABLE>
- ------------------------------
(1) All per share amounts have been adjusted for common stock splits, effected
in the form of dividends, to shareholders of record on September 1, 1998 and
April 30, 1996.
(2) Calculated by dividing total noninterest expense, excluding securities gains
and losses, by net interest income plus noninterest income.
19
<PAGE>
BUSINESS OF MAIN STREET
BACKGROUND
Main Street Bank was founded in 1901 as "The Bank of Covington" and operated
as a state chartered commercial bank under that name until 1996, when it was
renamed "Main Street Bank." This name change was the culmination of a long-term
strategy of expansion from our headquarters in Covington to communities in
surrounding Georgia counties. In May 1988, Main Street Banks Incorporated was
formed to serve as a holding company for The Bank of Covington. Upon formation,
The Bank of Covington, which had four locations in Covington, Newton County, was
our sole subsidiary.
We began implementing our expansion strategy shortly after formation of the
holding company. In August 1990, we purchased Southern Heritage Savings Bank
located in Winterville, Clarke County, Georgia. In December 1990, we purchased
two branches of Prime Bank, formerly Dekalb Federal Savings Bank, in Conyers,
Rockdale County, Georgia. At the same time, we formed our third subsidiary, Main
Street Savings Bank, FSB.
In 1993, Main Street Savings Bank purchased three branches of the former
First Federal Savings Bank of Georgia in Winder, Barrow County; Loganville,
Walton County; and Athens, Clarke County from the Resolution Trust Corporation.
At the beginning of 1996, we were a three-subsidiary holding company operating
seventeen branches in six counties. In late 1996 we consolidated our
subsidiaries into one subsidiary, Main Street Bank, and as a result realized our
vision of operating a streamlined, multi-county bank.
Since then, we have continued to provide leading technology combined with
small-town customer service in all of our locations. Main Street Bank continues
to be a traditional community bank in all its communities. We currently own and
operate 13 banking offices in six counties, and had approximately $445.5 million
in assets as of March 31, 1999.
LINES OF BUSINESS
Through Main Street Bank, we provide basic banking services to our customers
in the form of receiving deposits and making loans. The brick and mortar
facility with people-to-people banking has been our mainstay since 1901. As the
financial industry becomes more technology-driven, we recognize the need to
adapt and have developed new products and business lines to meet the changing
needs and desires of our customers. In addition to a wide variety of checking,
savings, certificates of deposit and loan accounts, we also offer credit and
debit cards, Ready Reserve lines of credit, check imaging, corporate PC banking,
consumer Internet banking, and voice response touch-tone banking. Main Street
Bank recently began offering Internet banking. In addition, we offer mortgages,
brokerage services, insurance products, and accounts receivable financing
through four business lines known as Main Street Mortgage, Main Street
Investments, Main Street Insurance, and Business Manager.
Our services are:
- REAL ESTATE LENDING. Our real estate loans consist of residential first
and second mortgage loans, residential construction loans and home equity
lines of credit, and term loans secured by first and second mortgages on
the residences of borrowers for home improvements, education and other
personal expenditures. We make mortgage loans with a variety of terms,
including fixed and floating rates. Generally, we retain real estate loans
with maturities under 10 years and sell mortgage loans with longer
maturities. Almost all of our loans for acquisition, development and
construction purposes are secured by single-family residences or
residential development property. We also offer Small Business
Administration loans.
20
<PAGE>
Risks associated with real estate lending include fluctuations in the
value of real estate, new job creation trends, and the borrower's
financial stability. Real estate loans are made consistent with our
appraisal policy and real estate lending policy, which prescribe maximum
loan-to-value ratios and maturities. We expect that these loan-to-value
ratios are sufficient to compensate for fluctuations in the real estate
market and to minimize the risk of loss.
- CONSUMER LENDING. We offer consumer installment loans to business owners
and other individuals for personal, family, and household purposes. We
also offer credit cards and home equity lines of credit to consumers.
Consumer lending presents certain unique risks. Consumer loan repayments
depend upon a borrower's financial stability and are more likely to be
adversely affected by job loss, divorce, illness and other personal
hardships. In addition, collateral such as automobiles and other personal
property securing consumer loans depreciates rapidly and sometimes is an
inadequate repayment source if a borrower defaults. In evaluating these
loans, we require our lending officers to review the borrower's level and
stability of income, past credit history, and the impact of these facts on
the borrower's ability to repay the loan in a timely manner. In addition,
we require that our banking officers maintain an appropriate margin
between the loan amount and collateral value.
- COMMERCIAL LENDING. Our commercial loan portfolio is dispersed among
various business lines such as a wide variety of small businesses,
commercial real estate (both owner-occupied and investment property), and
acquisition and development and construction lending. These loans are
primarily for the financing of property and plants used in the course of
business by these business operators, and to a lesser degree, for the
financing of equipment, inventory and accounts receivable. Of our
commercial real estate loans, approximately 66% are secured by properties
that house the businesses of the property's owners. The remainder is made
up of loans on properties that may be deemed investment property.
Commercial lending entails greater risks than traditional,
single-family residential lending. Commercial loans typically involve
larger loan balances concentrated among fewer borrowers. The analysis of
commercial loans, which requires expertise in evaluating a commercial
enterprise and its collateral, is generally more complex than the analysis
required for single family residential lending. Like consumer loans,
commercial loans are subject to adverse conditions in the economy, as well
as the market for the specific goods and services sold by the commercial
borrower. Loans secured by commercial real estate can also be affected by
trends in the local real estate market. In making all these loans, we
manage our credit risk by actively monitoring measures such as cash flow,
collateral value and other appropriate credit factors.
- DEPOSITS AND OTHER BORROWINGS. Deposits are a key component of our banking
business, serving as a source of funding for lending as well as for
increasing customer account relationships. We offer competitively priced
deposit products, including checking, savings and time deposit accounts,
as we seek to increase core deposits and market share. Borrowings,
principally from the Federal Home Loan Bank, and lines of credit with
other banks, provide sources of additional liquidity and funding.
- BROKERAGE SERVICES/INVESTMENTS. We provide brokerage services through Main
Street Investments, a comprehensive brokerage service. Main Street
Investments offers our customers a wide variety of investment options,
including stocks and bonds, mutual funds, annuities, 401(k) plans, life
insurance, Individual Retirement Accounts and Simplified Employee Pension
Accounts, estate planning and financial needs analysis.
- INSURANCE. We provide insurance services through Main Street Insurance, a
full-service insurance agency that enables us to offer customers both
consumer and commercial insurance products.
21
<PAGE>
- ACCOUNTS RECEIVABLE. We provide accounts receivable financing through the
Business Manager program. Business Manager is a process through which we
finance existing receivables on a discounted basis and take over the
responsibility for billing our customer's clients and collecting their
payments, and providing business owners with needed liquidity.
We developed brokerage, insurance, and accounts receivable services as a
strategy to retain existing customers, to attract additional customers from our
market areas, and to enhance our franchise by offering a broader scope of
financial services.
Our operating revenues are derived primarily from interest earned from our
loan and investment securities portfolios and fee income from loan and deposit
products. We are not dependent upon a single customer, or a few customers, the
loss of any one or more of which would have a material adverse effect on our
financial condition or results of operations.
MARKET AREAS
Main Street Bank is ranked twentieth in asset size out of 349 Georgia banks.
We operate principally in North Georgia, within the eastern side of metropolitan
Atlanta, extending into the Athens area. We have branches in Barrow, Clarke,
Gwinnett, Newton, Rockdale, and Walton counties and have a total of 13 banking
offices. Our primary market area is the six-county region in which we have
branches, and our secondary market includes counties contiguous to that region.
The following chart describes the communities in which we operate. Market
share data is based on deposit information available from the FDIC. Branch
deposit data is as of June 30, 1998. Population household and income figures are
available from DEMOGRAPHICS USA-COUNTY EDITION, MARKET STATISTICS, 1998 EDITION
and unemployment rates are August 1998 estimates by the Georgia Department of
Labor.
<TABLE>
<CAPTION>
AVERAGE
HOUSEHOLD
EFFECTIVE UNEMPLOYMENT DEPOSIT
COUNTY POPULATION HOUSEHOLDS BUYING INCOME RATE MARKET SHARE
- ------------------------------------------ ----------- ----------- -------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
Barrow.................................... 39,000 13,900 $ 34,947 4.0% 12.39%
Clarke.................................... 93,000 35,700 33,879 3.3 5.06
Gwinnett.................................. 508,700 184,400 52,152 2.5 0.19
Newton.................................... 55,300 19,500 35,225 3.6 36.50
Rockdale.................................. 67,600 23,100 48,728 2.7 12.24
Walton.................................... 52,300 18,400 35,730 3.5 3.01
</TABLE>
COMPETITION
We compete with several local and regional commercial banks, thrifts, credit
unions and mortgage companies for deposits, loans, and other banking-related
financial services. There is intense competition in our market areas from other
financial institutions as well as other "non-bank" companies that engage in
similar activities. Some of our competitors are not subject to the degree of
regulatory review and restrictions that apply to us. In addition, we must
compete with much larger financial institutions that have greater financial
resources than we do and that compete aggressively for market share. These
competitors attempt to gain market share through their financial product mix,
pricing strategies and banking center locations. Legislative developments
related to interstate branching and banking in general are creating more
competitive pressure on smaller financial institutions by providing large
banking institutions easier access to a broader marketplace. We also compete
with insurance companies, savings banks, consumer finance companies, investment
banking firms, brokerage houses, mutual fund managers, investment advisors, and
credit unions. Retail establishments compete for loans by offering credit cards
and retail installment contracts for the purchase of goods and merchandise.
22
<PAGE>
We anticipate that competition from both bank and non-bank entities will
continue to grow. We have been able to compete effectively with other financial
institutions by emphasizing customer service and local office decision-making,
by establishing long-term customer relationships and building customer loyalty,
and by providing products and services designed to address the specific needs of
our customers.
EMPLOYEE RELATIONS
As of March 31, 1999, we had 311 employees, of whom 258 were full-time and
53 part-time. In addition to a bonus program, we currently maintain an employee
benefit program providing, among other benefits, a medical insurance plan, a
profit sharing and 401(k) retirement plan, and life and disability insurance. We
also grant shares of stock in Main Street to some of our officers under our
Restricted Stock Plan and have also adopted a long-term incentive plan under
which we may grant other forms of stock-based compensation to selected
employees. We consider these employee benefits, as a whole, to be generally
competitive with employee benefits provided by other employers in Georgia. We
believe our future success depends, in part, on our ability to continue to
attract and retain skilled retail, technical, and managerial personnel in order
to maintain our quality delivery of financial and banking services. None of our
employees is subject to a collective bargaining agreement, and we have never
experienced a work stoppage.
FACILITIES
Our executive offices are located at 1121 Floyd Street and our main banking
office is located at 1134 Clark Street, Covington, Georgia 30014. Our principal
support and operational functions are located at 2118 Usher Street, Covington,
Georgia 30014. All of our branch offices are located in Georgia. The following
chart indicates whether each office is leased or owned and lists the loan and
deposit balances for each office, as of March 31, 1999.
<TABLE>
<CAPTION>
BANKING OWNED (O) LOANS AS OF DEPOSITS AS OF
OFFICES LEASED (L) MARCH 31, 1999 MARCH 31, 1999
- -------------------------------------------------------------------- --------------- -------------- --------------
<S> <C> <C> <C>
(IN THOUSANDS)
COVINGTON
Main Office......................................................... O $ 105,799 $ 131,912
1134 Clark Street
Covington, GA 30014
North Office........................................................ O 11,590 35,771
3110 Hwy. 278
Covington, GA 30014
Eastside Office..................................................... O 732 4,172
9130 Hwy. 278
Covington, GA 30014
Kroger Office (supermarket)......................................... L 247 3,548
3139 Hwy. 278
Covington, GA 30014
CONYERS
2405 Salem Road..................................................... O 4,830 13,949
Conyers, GA 30013
1887 Hwy. 20, SE.................................................... O 38,085 30,699
Conyers, GA 30013
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
BANKING OWNED (O) LOANS AS OF DEPOSITS AS OF
OFFICES LEASED (L) MARCH 31, 1999 MARCH 31, 1999
- -------------------------------------------------------------------- --------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
940 Main Street NE.................................................. O 4,311 33,781
Conyers, GA 30012
LOGANVILLE
4644 Hwy. 78........................................................ O 16,015 12,107
Loganville, GA 30052
WINDER
45 East Athens Street............................................... O 64,601 49,688
Winder, Georgia 30680
LAWRENCEVILLE
867 Buford Drive.................................................... O 17,120 9,905
Lawrenceville, GA 30043
ATHENS
2065 Timothy Road................................................... O 53,798 24,173
Athens, GA 30606
475 East Broad Street............................................... O 8,539 14,113
Athens, GA 30601
190 Gaines School Road.............................................. O 1,424 18,856
Athens, GA 30605
Main Street Insurance............................................... O NA NA
4644 Hwy. 78
Loganville, GA 30052
Main Street Investments............................................. O NA NA
1134 Clark Street
Covington, GA 30014
Main Street Mortgage................................................ O NA NA
475 East Broad Street
Athens, GA 30601
</TABLE>
<TABLE>
<CAPTION>
NONBANKING OWNED (O)
OFFICES LEASED (L)
- -------------------------------------------------------------------- ---------------
<S> <C> <C> <C>
COVINGTON
Corporate Offices and Marketing..................................... L
1121 Floyd Street
Covington, GA 30014
Operations Center................................................... L
2118 Usher Street
Covington, GA 30014
Human Resources..................................................... O
1122 Pace Street
Covington, GA 30014
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
NONBANKING OWNED (O)
OFFICES LEASED (L)
- -------------------------------------------------------------------- ---------------
<S> <C> <C> <C>
Accounting and Card Services........................................ L
1114 Pace Street
Covington, GA 30014
</TABLE>
See "Certain Transactions" (page 63) for a description of the terms of the
leases for our corporate and marketing offices, operations center and accounting
and card services offices, which Mr. Fowler leases to Main Street Bank.
LEGAL PROCEEDINGS
In the ordinary course of operations, we are a party to various legal
proceedings. In the opinion of our management, there is no proceeding pending,
or to our knowledge, threatened in which an adverse decision would have a
material adverse effect on our financial condition or results of operations.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations analyzes the major elements of our Consolidated Statements of
Financial Condition and Consolidated Statements of Income. This section should
be read in conjunction with our financial statements and accompanying notes and
other detailed information appearing elsewhere in this Prospectus.
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
OVERVIEW
The three month period ended March 31, 1999 was marked by continued strong
loan demand. Total loans increased $31.9 million or 10.6%, compared to March 31,
1998, as a result of the internal growth of our real estate construction and
mortgage loan portfolios. We experienced positive earnings growth during the
quarter ended March 31, 1999 due to the increase in the overall loan portfolio
as well as the increased loan volume in the Mortgage Division as interest rates
remained at relatively low levels.
Net income for the three months ended March 31, 1999 was $1.6 million, which
was $222,000 or 15.7% more than net income for the three months ended March 31,
1998. Basic and diluted earnings per common share were $0.19 for the three
months ended March 31, 1999 and $0.16 for the three months ended March 31, 1998.
The increase in net income reflected a one time gain on the sale of our West
Broad Street, Athens Branch of $304,000 before taxes and the fact that net
interest income increased $154,000 during the period. Annualized return on
average assets and return on average common equity were 1.5% and 15.0%,
respectively, for the three months ended March 31, 1999 compared to 1.4% and
14.5%, respectively, for the same period in 1998. Main Street's annualized
efficiency ratio, calculated by dividing total noninterest expense (excluding
securities gains and losses) by net interest income plus noninterest income, was
64.0% for the three months ended March 31, 1999 and 63.4% for the three months
ended March 31, 1998. The increase in the efficiency ratio was primarily due to
increased compensation expense related to our new lines of business including
insurance, investments and card services that required a significant initial
investment. These lines are crucial to us to meet our customers' needs and to
diversify our revenue sources. Management believes these new lines of business
will increase our return on equity and shareholder value in the future.
Total assets at March 31, 1999 increased to $445.5 million from $415.4
million at March 31, 1998, an increase of $30.1 million or 7.3%. Deposits rose
to $381.0 million at March 31, 1999 from $369.6 million at March 31, 1998, an
increase of $11.4 million or 3.1%. Total shareholders' equity was $43.7 million
at March 31, 1999, representing an increase of $4.2 million or 10.6% over total
shareholders' equity of $39.5 million at March 31, 1998.
RESULTS OF OPERATIONS
NET INTEREST INCOME. Net interest income represents the amount by which
interest income on interest-earning assets, including securities and loans,
exceeds interest expense incurred on interest-bearing liabilities, including
deposits and other borrowed funds. Net interest income is the principal source
of our earnings. Interest rate fluctuations, as well as changes in the amount
and type of earning assets and liabilities, combine to affect net interest
income.
Net interest income for the three months ended March 31, 1999 was $5.6
million compared to $5.5 million for the three months ended March 31, 1998, an
increase of $154,000 or 2.8%. Net interest income increased as a result of
significant loan growth. Loans, net of unearned income, increased to $333.4
million at March 31, 1999 from $301.4 million at March 31, 1998, an increase of
$32.0 million or
26
<PAGE>
10.6%; however, the decline in interest rates attributable to the Federal
Reserve Bank's 75 basis point decrease in rates during the fourth quarter of
1998 reduced our net interest rate spread considerably. The yield on average
interest-earning assets decreased to 9.07% for the three months ended March 31,
1999 from 9.46% for the three months ended March 31, 1998. The cost of
interest-bearing liabilities decreased to 4.22% for the three months ended March
31, 1999 from 4.34% for the three months ended March 31, 1998. Our net interest
margin on a tax-equivalent basis was 5.76% and 5.96% and net interest spread was
4.85% and 5.12% for the periods ended March 31, 1999 and March 31, 1998,
respectively. We were unable to offset completely the yield decline on earning
assets through rate reductions on interest bearing liabilities.
The following table presents the total dollar amount of average balances,
interest income from average interest-earning assets and the resultant yields,
as well as the interest expense on average interest-bearing liabilities,
expressed both in dollars and rates. Nonaccrual loans were $1.6 million and
$504,000 at March 31, 1999 or March 31, 1998, respectively, and are included in
the average loan balances in the table below.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999 1998
----------------------------------- ----------------------
<CAPTION>
BALANCE INTEREST YIELD/ RATE BALANCE INTEREST
--------- ----------- ----- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
AVERAGE ASSETS
INTEREST-EARNING ASSETS:
Loans, net of unearned income(1)................................. $ 332,735 $ 7,979 9.59% $ 301,408 $ 7,579
Investment securities:
Taxable...................................................... 48,555 738 6.08 54,212 888
Non-taxable(2)............................................... 12,517 237 7.57 12,832 289
Interest-bearing deposits........................................ 296 2 2.70 123 2
Federal funds sold............................................... 1,677 17 4.05 4,736 72
--------- ----------- --------- -----------
Total interest-earning assets...................................... 395,780 8,973 9.07% 373,311 8,830
NONINTEREST-EARNING ASSETS:
Cash and due from banks.......................................... 20,798 18,641
Allowance for loan losses........................................ (5,916) (5,234)
Premises and equipment........................................... 15,252 13,016
Other real estate owned.......................................... 1,067 1,487
Other assets..................................................... 9,267 8,048
--------- ---------
Total assets................................................. $ 436,248 $ 409,269
--------- ---------
--------- ---------
AVERAGE LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES:
Demand and money market deposits................................. $ 83,318 $ 491 2.36% $ 81,567 $ 487
Savings deposits................................................. 25,523 126 1.97 24,481 121
Time deposits.................................................... 183,482 2,401 5.23 191,605 2,606
FHLB advances.................................................... 15,733 222 5.64 2,800 41
Federal funds purchased and other borrowings..................... 2,145 32 5.97 783 11
--------- ----------- --------- -----------
Total interest-bearing liabilities................................. 310,201 3,272 4.22% 301,236 3,266
NONINTEREST-BEARING:
Demand deposits.............................................. 77,325 65,599
Other liabilities............................................ 5,046 3,442
--------- ---------
Total liabilities............................................ 392,572 370,277
Shareholders' equity............................................... 43,676 38,992
--------- ---------
Total liabilities and shareholders' equity................... $ 436,248 $ 409,269
--------- ---------
--------- ---------
Net interest rate spread......................................... 4.85%
Net interest income and margin(3)................................ $ 5,701 5.76% $ 5,565
<CAPTION>
<S> <C>
YIELD/ RATE
-----
<S> <C>
AVERAGE ASSETS
INTEREST-EARNING ASSETS:
Loans, net of unearned income(1)................................. 10.06%
Investment securities:
Taxable...................................................... 6.55
Non-taxable(2)............................................... 9.01
Interest-bearing deposits........................................ 6.50
Federal funds sold............................................... 6.08
Total interest-earning assets...................................... 9.46%
NONINTEREST-EARNING ASSETS:
Cash and due from banks..........................................
Allowance for loan losses........................................
Premises and equipment...........................................
Other real estate owned..........................................
Other assets.....................................................
Total assets.................................................
AVERAGE LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES:
Demand and money market deposits................................. 2.39%
Savings deposits................................................. 1.98
Time deposits.................................................... 5.44
FHLB advances.................................................... 5.86
Federal funds purchased and other borrowings..................... 5.62
Total interest-bearing liabilities................................. 4.34%
NONINTEREST-BEARING:
Demand deposits..............................................
Other liabilities............................................
Total liabilities............................................
Shareholders' equity...............................................
Total liabilities and shareholders' equity...................
Net interest rate spread......................................... 5.12%
Net interest income and margin(3)................................ 5.96%
</TABLE>
- ------------------------
(1) Fee income related to loans of $600,000 and $544,000 for the three months
ended March 31, 1999 and 1998 is included in interest income.
(2) In order to make pre-tax income and resultant yields on tax-exempt
investments comparable to those on taxable investments, a tax-equivalent
adjustment has been computed using a federal income tax rate of 34%.
(3) The net interest margin is equal to net interest income divided by average
interest-earning assets.
27
<PAGE>
The following schedule presents the dollar amount of changes in interest
income and interest expense for the major components of interest-earning assets
and interest-bearing liabilities and distinguishes between the increase related
to changes in outstanding balances and the changes in interest rates. For
purposes of this table, changes attributable to both rate and volume which
cannot be segregated have been allocated to rate.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 VS. 1998
INCREASE (DECREASE) DUE TO
---------------------------------
<S> <C> <C> <C>
VOLUME RATE TOTAL
----------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans.................................................................................. $ 791 $ (391) $ 400
Investment securities:
Taxable............................................................................ (93) (57) (150)
Non-taxable........................................................................ (7) (45) (52)
Interest-bearing deposits.............................................................. 3 (3) --
Federal funds sold..................................................................... (46) (9) (55)
----- --------- ---------
Total increase (decrease) in interest income........................................... 648 (505) 143
----- --------- ---------
INTEREST-BEARING LIABILITIES:
Demand and money market deposits....................................................... 10 (6) 4
Savings deposits....................................................................... 6 (1) 5
Time deposits.......................................................................... (108) (96) (204)
FHLB advances.......................................................................... 190 (9) 181
Federal funds purchased and other borrowings........................................... 19 2 21
----- --------- ---------
Total increase (decrease) in interest expense.......................................... 117 (110) 7
----- --------- ---------
Increase (decrease) in net interest income............................................. $ 531 $ (395) $ 136
----- --------- ---------
----- --------- ---------
</TABLE>
PROVISION FOR LOAN LOSSES. Provisions for loan losses are charged to income
to bring our allowance for loan losses to a level deemed appropriate by
management based on the factors discussed under "--Financial
Condition--Allowance for Loan Losses." The provision for loan losses was
$225,000 for the three months ended March 31, 1999 and $450,000 for the same
time period in 1998, a decrease of $225,000 or 50.0%.
NONINTEREST INCOME. Noninterest income is an important source of revenue
for financial institutions. Service charges on deposit accounts are the largest
component of noninterest income and a significant source of revenue for us.
Noninterest income for the three months ended March 31, 1999 was $1.8 million,
an increase of $525,000 from $1.2 million for the same period in 1998. 1999
results included a $304,000 gain before taxes on the sale of our West Broad
Street Branch property. Excluding the gain on sale of the West Broad Street
Branch property, noninterest income rose $221,000 or 17.9% over the same period
in 1998.
28
<PAGE>
The following table presents the major categories of noninterest income:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
<S> <C> <C>
1999 1998
--------- ---------
<CAPTION>
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Service charges on deposit accounts........................................ $ 740 $ 738
Mortgage division income................................................... 216 194
Investment division income................................................. 26 33
Insurance division income.................................................. 21 --
Card services income....................................................... 204 135
Nonoperating income........................................................ 390 20
Other noninterest income................................................... 165 117
--------- ---------
Total noninterest income............................................... $ 1,762 $ 1,237
--------- ---------
--------- ---------
</TABLE>
NONINTEREST EXPENSE. In the three month period ended March 31, 1999,
noninterest expense increased $482,000 or 11.4% to $4.7 million from $4.2
million for the period ended March 31, 1998. The increase reflected a 9.3%
increase in salaries and employee benefits due to several new positions added
for the new business lines. Premises and equipment expense increased reflecting
an increased investment in branch facilities, a new Operations Center and check
imaging equipment.
The following table presents the major categories of noninterest expense:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
<S> <C> <C>
1999 1998
--------- ---------
<CAPTION>
DOLLARS IN
THOUSANDS)
<S> <C> <C>
Salaries and employee benefits............................................. $ 2,676 $ 2,448
Bank premises.............................................................. 324 304
Equipment rentals, depreciation and maintenance............................ 364 309
Professional fees.......................................................... 147 79
Regulatory assessments..................................................... 39 41
Intangible amortization.................................................... 110 110
Other...................................................................... 1,063 950
--------- ---------
Total noninterest expense.............................................. $ 4,723 $ 4,241
--------- ---------
--------- ---------
</TABLE>
INCOME TAXES. Income tax expense includes both federal income tax and
Georgia state income tax. The amount of federal income tax expense is influenced
by the amount of taxable income, the amount of tax-exempt income, the amount of
non-deductible interest expense and the amount of other non-deductible expenses.
During the three months ended March 31, 1999, income tax expense was $796,000
compared to $596,000 for the three months ended March 31, 1998. The effective
tax rate for the three months ended March 31, 1999 was 32.7% compared to 29.6%
for the same period of 1998.
IMPACT OF INFLATION. The effects of inflation on the local economy and on
our operating results have been relatively modest for the past several years.
Since substantially all of our assets and liabilities are monetary in nature,
such as cash, securities, loans and deposits, their values are less sensitive to
the effects of inflation than to changing interest rates, which do not
necessarily change in accordance with inflation rates. We try to control the
impact of interest rate fluctuations by managing the relationship between its
interest rate sensitive assets and liabilities. See "--Financial
Condition--Interest Rate Sensitivity and Liquidity" (page 41).
29
<PAGE>
FINANCIAL CONDITION
LOAN PORTFOLIO. Loans, net of unearned income, were $333.4 million at March
31, 1999, an increase of $32.0 million or 10.6% from $301.4 million at March 31,
1998. Real estate construction loans increased by $9.1 million to $47.6 million
at March 31, 1999 from $38.5 million at March 31, 1998, a 22.3% increase. Real
estate mortgage loans increased to $225.0 at March 31, 1999 from $209.6 from
March 31, 1998, a $15.4 million or 7.3% increase. Due to the sensitivity of
repayment of construction loans to fluctuations in the economy, we maintain a
policy of keeping construction loans below 18% of total loans, an amount
management believes will provide protection in the event of an economic
downturn.
The following table summarizes the loan portfolio by type of loan:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------------------------
<S> <C> <C> <C> <C>
1999 1998
--------------------- ---------------------
<CAPTION>
AMOUNT PERCENT AMOUNT PERCENT
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Commercial and industrial........................................... $ 16,874 5.06% $ 14,362 4.77%
Real estate construction............................................ 47,621 14.28 38,506 12.77
Real estate mortgage................................................ 225,034 67.50 209,590 69.53
Consumer and other.................................................. 43,856 13.16 38,960 12.93
---------- ----------
Total Loans....................................................... $ 333,385 100.00 $ 301,418 100.00
---------- ----------
---------- ----------
Mortgage loans held for sale........................................ $ 3,084 $ 1,302
---------- ----------
---------- ----------
</TABLE>
To accomplish our lending objectives, management seeks to achieve consistent
loan growth within our primary market areas while maximizing loan yields and
maintaining a high quality loan portfolio. We monitor our lending objectives
primarily through our Senior Loan Committee. Our lending objectives are clearly
defined in our Lending Policy, which is reviewed annually and approved by the
Board of Directors. The Senior Loan Committee is chaired by our Chief Credit
Officer. Other members of the committee include our five division executives,
our risk management officer and various lending officers.
Generally, all loans with total related debt of $250,000 or more are
reviewed for approval by the Senior Loan Committee. However, for certain loans
that the Board of Directors has identified as low risk loans, i.e., residential
mortgage loans and consumer loans, the division executives have approval
authority up to $500,000. The next level of approval authority rests with the
Board of Directors. The Board of Directors is generally responsible for
ratifying the actions of the Senior Loan Committee and serving as the ultimate
approval authority for single advances of $1 million or more. Additionally, the
Board of Directors is responsible for approving all new loan requests for which
a borrower's total debt exceeds $2.5 million.
To achieve consistent growth, a high yielding loan portfolio and sound loan
quality, we primarily focus on the following loan categories: (1) commercial,
(2) real estate construction, (3) real estate mortgage and (4) consumer loans.
Management has strategically located its branches in high growth markets and has
taken advantage of a surge in residential and industrial growth in northeastern
Georgia.
Real estate mortgage lending has significantly contributed to our loan
growth during the past several years. Generally, these loans are owner-occupied
and are amortized over a 15 year to 20 year period with a three to five year
maturity. The underwriting criteria for these loans is very similar to the
underwriting criteria used in the mortgage industry. Typically, a borrower's
debt to income ratio can not exceed 36% and the loan to appraised value ratio
cannot exceed 89.9%. However, our knowledge of our customers and our market
allows us to be more flexible in meeting our customers' needs. We also
underwrite commercial mortgage loans. Loans included in this category are
primarily for the acquisition
30
<PAGE>
or refinance of owner occupied commercial buildings. These loans are
underwritten on the borrower's ability to meet certain minimum debt service
requirements and the value of the underlying collateral to meet certain loan to
value guidelines. We will also perfect our interest on equipment or other
business assets of the borrower and obtain personal guaranties.
We also underwrite loans to finance the construction of residential and
non-residential properties which include speculative and pre-sale loans.
Speculative construction loans involve a higher degree of risk, as these are
made on the basis that a borrower will be able to sell the project to a
potential buyer after a project is completed. Pre-sale construction loans
usually have a pre-qualified buyer under contract before construction is to
begin. The major risk for pre-sale loans is getting the project completed in a
timely manner and according to plan specifications. Non-residential construction
loans include construction loans for churches, commercial buildings, strip
shopping centers, and acquisition and development loans. These loans also carry
a higher degree of risk and require strict underwriting guidelines. All
construction loans are secured by first liens on real estate and generally have
floating interest rates. We conduct periodic inspections either directly or
through an agent prior to approval of periodic draws on these loans. As an
underwriting guideline, management focuses on the borrower's past experience in
completing projects in a timely manner and the borrower's financial condition
with special emphasis placed on liquidity ratios. Although the construction
loans are deemed to be of higher risk, we believe that we can monitor and manage
this risk properly.
We also underwrite commercial and industrial loans. Generally, these loans
are for working capital purposes and are secured by inventory, accounts
receivable or equipment. We maintain strict underwriting standards for this type
of lending. Potential borrowers must meet certain working capital and debt
ratios as well as generate positive cash flow from operations. Borrowers in this
category will generally have a debt service coverage ratio of 1.3 to 1. We will
also perfect our interest on equipment or other business assets of the borrower
and obtain personal guaranties. This loan category represents our smallest loan
category.
Consumer loans we make include automobile loans, recreational vehicle loans,
boat loans, home improvement loans, home equity loans, personal loans
(collateralized and uncollateralized) and deposit account collateralized loans.
The terms of these loans typically range from 12 to 120 months and vary based
upon the nature of collateral and size of the loan. Consumer loans involve
greater risk than residential mortgage loans. This is due to the fact that these
loans may be unsecured or secured by rapidly depreciating assets such as
automobiles. Repossessed collateral for a defaulted consumer loan may not
provide an adequate source of repayment for the outstanding loan balance. The
remaining deficiency often does not warrant further substantial collection
efforts against the borrower beyond obtaining a deficiency judgment. In
addition, consumer loan collections are dependent on the borrower's continuing
financial stability, and thus are more likely to be adversely affected by job
loss, divorce, illness or personal bankruptcy. Furthermore, the application of
various federal and state laws may limit the amount which can be recovered on
such loans.
31
<PAGE>
The contractual maturity ranges of the commercial and industrial and real
estate-construction portfolios and the amount of such loans with predetermined
interest rates and floating interest rates in each maturity range as of March
31, 1999 are summarized in the following table:
<TABLE>
<CAPTION>
MARCH 31, 1999
-------------------------------------------------------
<S> <C> <C> <C> <C>
AFTER ONE
THROUGH FIVE AFTER FIVE
ONE YEAR OR LESS YEARS YEARS TOTAL
---------------- ------------- ----------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial and industrial.................................. $ 5,589 $ 4,769 $ 6,516 $ 16,874
Real estate-construction................................... 46,423 1,157 41 47,621
------- ------ ----------- ---------
Total.................................................... $ 52,012 $ 5,926 $ 6,557 $ 64,495
------- ------ ----------- ---------
------- ------ ----------- ---------
Loans with a predetermined interest rate................... $ 21,501 $ 5,926 $ 6,557 $ 33,984
Loans with a floating interest rate........................ 30,511 0 0 30,511
------- ------ ----------- ---------
Total.................................................... $ 52,012 $ 5,926 $ 6,557 $ 64,495
------- ------ ----------- ---------
------- ------ ----------- ---------
</TABLE>
NONPERFORMING ASSETS. We have several procedures in place to assist in
maintaining the overall quality of our loan portfolio. We have established
written guidelines contained in our Lending Policy for the collection of past
due loan accounts. These written guidelines explain in detail our policy on the
collection of loans over 30, 60, and 90 days delinquent. Generally, loans over
90 days delinquent are placed in a nonaccrual status. However, if the loan is
deemed to be in process of collection, it may be maintained on an accrual basis.
Management makes loan officers aware of our Lending Policy and the collection
policy contained therein on a continuous basis. Management has also staffed our
collection department with properly trained staff to assist lenders with
collection efforts and to maintain records and develop reports on delinquent
borrowers.
We have historically had strong asset quality. There were $2.7 million or
0.80% of total loans and other real estate in nonperforming assets at March 31,
1999 compared to $2.0 million or 0.66% of total loans and other real estate at
March 31, 1998. Despite the increase during the period, nonperforming assets
remain less than 1% of total loans and other real estate. For the periods ended
March 31, 1999 and 1998, approximately $7,000 and $6,000 of interest income
would have been recorded on nonperforming loans, if all such loans had been
accruing interest at the original contract rate. We record real estate acquired
through foreclosure at the lesser of the outstanding loan balance or the fair
value at the time of foreclosure, less estimated cost to sell. We usually
dispose of real estate acquired through foreclosure within one year; however, if
we are unable to dispose of the foreclosed property, the property's value is
assessed annually and written down to its fair value less cost to sell.
32
<PAGE>
The following table presents information regarding nonperforming assets at
March 31, 1999 and March 31, 1998:
<TABLE>
<CAPTION>
MARCH 31,
--------------------
<S> <C> <C>
1999 1998
--------- ---------
<CAPTION>
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Nonperforming Assets
Nonaccrual loans.......................................................................... $ 1,607 $ 504
Restructured loans........................................................................ -- --
Other real estate and repossessions....................................................... 1,067 1,487
--------- ---------
Total nonperforming assets................................................................ $ 2,674 $ 1,991
--------- ---------
--------- ---------
Loans past due 90 days or more and still accruing........................................... $ 628 $ 661
--------- ---------
--------- ---------
Ratio of past due loans to loans, net of unearned income(1)................................. 0.19% 0.22%
Ratio of nonperforming assets to loans, net of unearned income,
and other real estate(1).................................................................. 0.80% 0.66%
</TABLE>
- ------------------------
(1) Excludes mortgage loans held for sale
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is a reserve
established through charges to earnings in the form of a provision for loan
losses. Management has established an allowance for loan losses which it
believes is adequate for inherent losses in our loan portfolio. Based on a
continuous credit evaluation of the loan portfolio, management presents a
quarterly review of the allowance for loan losses to the Board of Directors. The
review that management has developed primarily focuses on risk by evaluating the
level of loans in certain risk categories. These categories have also been
established by management and take the form of loan grades. These loan grades
closely mirror regulatory classification guidelines and include pass loan
categories 1 through 4 and Special Mention, Substandard, Doubtful, and Loss
categories of 5 through 8, respectively. By grading the loan portfolio in this
manner, management is able to effectively grade the portfolio by risk, which
management believes is the most effective way to analyze the loan portfolio and
thus analyze the adequacy of the reserve for loan losses. Also, management
reviews activity in the allowance for loan losses, such as charge-offs and
recoveries, during a quarter to identify trends.
We follow a loan review program to evaluate the credit risk in the loan
portfolio. Through the loan review process, we maintain an internally classified
loan list which, along with the delinquency list of loans, helps management
assess the overall quality of the loan portfolio and the adequacy of the
allowance for loan losses. Loans classified as "substandard" are those loans
with clear and defined weaknesses such as a highly-leveraged position,
unfavorable financial ratios, uncertain financial ratios, uncertain repayment
sources, or poor financial condition which may jeopardize recoverability of the
debt. Loans classified as "doubtful" are those loans that have characteristics
similar to substandard loans but have an increased risk of loss, or at least a
portion of the loan may require to be charged-off if liquidated. Loans
classified as "loss" are those loans that are in the process of being
charged-off.
For the three months ended March 31, 1999, net charge-offs totaled $93,000
or 0.11% (annualized) of average loans outstanding for the period compared to
$44,000 in net charge-offs or 0.06% (annualized) of average loans outstanding at
March 31, 1998. For the three months ended March 31, 1999, we recorded a
provision for loan losses of $225,000 compared to $450,000 for the period ended
March 31, 1998. At March 31, 1999 the allowance totaled $5.9 million and
represented 1.79% of gross loans.
33
<PAGE>
The following table presents an analysis of the allowance for loan losses
and other related data:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
<S> <C> <C>
1999 1998
---------- ----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Average loans outstanding............................................................. $ 332,735 $ 301,408
Total loans, net of unearned income, outstanding at end of period..................... $ 333,385 $ 301,417
Allowance for loan losses at beginning of period...................................... $ 5,850 $ 5,092
Provision for loan losses............................................................. 225 450
Charge-offs:
Commercial and industrial........................................................... (7) (22)
Real estate......................................................................... (59) (33)
Consumer............................................................................ (95) (51)
Recoveries:
Commercial and industrial........................................................... 11 13
Real estate......................................................................... 1 1
Consumer............................................................................ 56 48
---------- ----------
Net charge-offs....................................................................... $ (93) $ (44)
---------- ----------
Allowance for loan losses at end of period............................................ $ 5,982 $ 5,498
---------- ----------
---------- ----------
Ratio of allowance to end of period loans, net of unearned income..................... 1.79% 1.82%
Ratio of net charge-offs to average loans............................................. 0.11% 0.06%
Ratio of allowance to end of period nonperforming loans............................... 372.22% 1,090.87%
</TABLE>
The following table describes the allocation of the allowance for loan
losses among various
categories of loans and certain other information for the dates indicated. The
allocation is made for analytical purposes and is not necessarily indicative of
the categories in which losses may occur. The total allowance is available to
absorb losses from any segment of loans.
<TABLE>
<CAPTION>
MARCH 31,
----------------------------------------------
<S> <C> <C> <C> <C>
1999 1998
---------------------- ----------------------
<CAPTION>
PERCENT OF
PERCENT OF LOANS TO
LOANS TO TOTAL
AMOUNT TOTAL LOANS AMOUNT LOANS
--------- ----------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance of allowance for loan losses applicable to:
Commercial and industrial......................................... $ 301 5.03% $ 261 4.75%
Real estate....................................................... 4,889 81.73% 4,519 82.19%
Consumer and other................................................ 792 13.24% 718 13.06%
Unallocated....................................................... -- -- -- --
--------- ----------- --------- -----------
Total allowance for loan losses................................. $ 5,982 100.00% $ 5,498 100.00%
--------- ----------- --------- -----------
--------- ----------- --------- -----------
</TABLE>
We believe that the allocation of our allowance for loan losses is
reasonable. Where management is able to identify specific loans or categories of
loans where specific amounts of reserve are required, allocations are assigned
to those categories. Federal and state bank regulators also require that a bank
maintain a reserve that is sufficient to absorb an estimated amount of
unidentified potential losses based on management's perception of economic
conditions, loan portfolio growth, historical charge-off experience and exposure
concentrations.
34
<PAGE>
We believe that the allowance for loan losses at March 31, 1999 is adequate
to cover losses inherent in the portfolio as of such date. There can be no
assurance that we will not sustain losses in future periods, which could be
substantial in relation to the size of the allowance at March 31, 1999.
INVESTMENT SECURITIES. We use our securities portfolio both as a source of
income and as a source of liquidity. At March 31, 1999, investment securities
totaled $59.7 million, a decrease of $3.8 million from $63.5 million at March
31, 1998. At March 31, 1999, investment securities represented 13.4% of total
assets, compared to 15.3% of total assets at March 31, 1998. The average yield
on a fully taxable equivalent basis on the investment portfolio for the three
months ended March 31, 1999 was 6.39% compared to a yield of 7.02% for the three
months ended March 31, 1998.
The following table presents the amortized cost and fair value of securities
classified as available-for-sale and held-to-maturity at March 31, 1999:
<TABLE>
<CAPTION>
MARCH 31, 1999
----------------------
<S> <C> <C>
AMORTIZED FAIR
COST VALUE
----------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Held to maturity securities
States and political subdivisions...................................... $ 12,555 $ 12,947
----------- ---------
----------- ---------
Available for sale securities
U.S. Treasury securities............................................... $ 3,986 $ 4,015
U.S. Government agencies and corporations.............................. 15,989 15,979
Mortgage-backed securities............................................. 27,256 27,159
----------- ---------
$ 47,231 $ 47,153
----------- ---------
----------- ---------
</TABLE>
Mortgage-backed securities are securities which have been developed by
pooling real estate mortgages and are principally issued by federal agencies
such as the Federal National Mortgage Association and the Federal Home Loan
Mortgage Corporation. These securities are deemed to have high credit ratings,
and minimum regular monthly cash flows of principal and interest are guaranteed
by the issuing agencies.
At March 31, 1999, 63.4% of the mortgage-backed securities we held had
contractual final maturities of more than ten years. However, unlike U.S.
Treasury and U.S. government agency securities, which have a lump sum payment at
maturity, mortgage-backed securities provide cash flows from regular principal
and interest payments and principal prepayments throughout the lives of the
securities. Mortgage-backed securities which are purchased at a premium will
generally suffer decreasing net yields as interest rates drop because home
owners tend to refinance their mortgages. Thus, the premium paid must be
amortized over a shorter period. Therefore, these securities purchased at a
discount will obtain higher net yields in a decreasing interest rate
environment. As interest rates rise, the opposite will generally be true. During
a period of increasing interest rates, fixed rate mortgage-backed securities do
not tend to experience heavy prepayments of principal and consequently, the
average life of this security will not be unduly shortened. If interest rates
begin to fall, prepayments will increase.
35
<PAGE>
The following table summarizes the contractual maturity of investment
securities and their weighted average yields:
<TABLE>
<CAPTION>
MARCH 31, 1999
-----------------------------------------------------------------------------------------
AFTER FIVE YEARS BUT
AFTER ONE YEAR BUT
WITHIN ONE YEAR AFTER TEN
WITHIN FIVE YEARS WITHIN TEN YEARS YEARS
------------------------ ------------------------ ------------------------ -----------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT
----------- ----- ----------- ----- ----------- ----- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
U.S. Treasury securities................ $ 3,024 6.46% $ 991 4.94% -- -- --
U.S. government agencies................ -- -- 14,983 6.01 $ 996 6.15% --
Mortgage-backed securities.............. 227 5.11 3,618 5.69 6,103 6.05 $ 17,211
States and political subdivisions....... 1,647 7.45 3,825 7.96 6,533 6.96 550
----------- ----------- ----------- -----------
Total............................... $ 4,898 6.73% $ 23,417 6.23% $ 13,632 6.49% $ 17,761
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
<CAPTION>
YIELD TOTAL
----- ---------
<S> <C> <C>
U.S. Treasury securities................ -- $ 4,015
U.S. government agencies................ -- 15,979
Mortgage-backed securities.............. 5.66% 27,159
States and political subdivisions....... 9.37% 12,555
---------
Total............................... 5.77% $ 59,708
---------
---------
</TABLE>
We have adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("Statement
115"). At the date of purchase, we are required to classify debt and equity
securities into one of three categories: held-to-maturity, trading or
available-for-sale. At each reporting date, the appropriateness of the
classification is reassessed. Investments in debt securities are classified as
held-to-maturity and measured at amortized cost in the financial statements only
if management has the positive intent and ability to hold those securities to
maturity. Securities that are bought and held principally for the purpose of
selling them in the near term are classified as trading and measured at fair
value in the financial statements with unrealized gains and losses included in
earnings. We do not have any securities classified as trading securities.
Investments not classified as either held-to-maturity or trading are classified
as available-for-sale and measured at fair value in the financial statements
with unrealized gains and losses reported, net of tax, in accumulated other
comprehensive income, a separate component of shareholders' equity, until
realized.
DEPOSITS. Main Street offers a variety of deposit accounts having a wide
range of interest rates and terms. Our deposits consist of demand, savings,
money market and time accounts. We rely primarily on competitive pricing
policies and customer service to attract and retain these deposits. We do not
have any brokered deposits.
Our average total deposits for the three months ended March 31, 1999 were
$369.6 million or 1.8% over average total deposits during the same period in
1998. Our total deposits at March 31, 1999, were $381.0 million, up $11.4
million or 3.1% over total deposits at March 31, 1998. The increase in deposits
is attributable to internal growth.
Main Street's lending and investing activities are funded principally by
deposits, approximately 51.8% of which are demand, money market and savings
deposits. Average noninterest-bearing deposits at March 31, 1999 increased to
$77.3 million compared to $65.6 million for the first three months of 1998, an
increase of $11.7 million or 17.9% over 1998. Approximately 20.9% of the average
deposits were noninterest-bearing at March 31, 1999. As a result, we had a total
cost of deposits of 4.12% for such period. Money Market deposits grew $5.0
million or 15.9% at March 31, 1999 compared to March 31, 1998.
36
<PAGE>
The daily average balances and weighted average rates paid on
interest-bearing deposits for the period ended March 31, 1999 are presented
below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1999
---------------------
<S> <C> <C>
AMOUNT RATE
---------- ---------
<CAPTION>
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Demand and money market deposits..................................... $ 83,318 2.36%
Savings deposits..................................................... 25,523 1.97
Time deposits........................................................ 183,482 5.23
----------
Total interest-bearing deposits.................................. $ 292,323 4.12%
----------
----------
</TABLE>
The following table sets forth the amount of our certificates of deposit
that are $100,000 or greater by time remaining until maturity:
<TABLE>
<CAPTION>
MARCH 31, 1999
--------------
<S> <C>
(DOLLARS IN
THOUSANDS)
Three months or less.......................................................... $ 13,684
Over three through six months................................................. 16,413
Over six through 12 months.................................................... 10,935
Over 12 months................................................................ 4,027
-------
Total..................................................................... $ 45,059
-------
-------
</TABLE>
We expect that the majority of the certificates of deposit maturing within
one year will renew. Should this not occur, management believes that there will
be sufficient cash to fund payments.
OTHER BORROWINGS. Deposits are the primary source of funds for our lending
and investment activities. Occasionally, we obtain additional funds from the
Federal Home Loan Bank and correspondent banks. At March 31, 1999, we had $15.0
million in Federal Home Loan Bank advances compared to $2.0 million at the same
time in 1998. Main Street also has borrowing ability set up with the Federal
Reserve Discount Window, backed by a portion of our commercial loan portfolio.
Main Street's weighted average interest rate for the period ended March 31, 1999
was 5.71%. For a more detailed discussion of the borrowings of Main Street, see
note 7 to the Consolidated Financial Statements included herein.
INTEREST RATE SENSITIVITY AND LIQUIDITY. Main Street's Asset Liability and
Funds Management Policy provides management with the necessary guidelines for
effective funds management, and we have established a measurement system for
monitoring its net interest rate sensitivity position. We manage our sensitivity
position within established guidelines.
Interest rate risk is managed by the Asset Liability Committee which is
composed of senior officers of Main Street, in accordance with policies approved
by our Board of Directors. The Asset Liability Committee formulates strategies
based on appropriate levels of interest rate risk. In determining the
appropriate level of interest rate risk, the Asset Liability Committee considers
the impact on earnings and capital of the current outlook on interest rates,
potential changes in interest rates, regional economies, liquidity, business
strategies and other factors. The Asset Liability Committee meets regularly to
review, among other things, the sensitivity of assets and liabilities to
interest rate changes, the book and market values of assets and liabilities,
unrealized gains and losses, purchase and sale activities, commitments to
originate loans and the maturities of investments and borrowings. Additionally,
the Asset Liability Committee reviews liquidity, cash flow flexibility,
maturities of deposits and consumer and commercial deposit activity. Management
uses two methodologies to manage interest rate risk: (i) an analysis of
relationships between interest-earning assets and interest-bearing
37
<PAGE>
liabilities; and (ii) an interest rate shock simulation model. We have
traditionally managed our business to reduce our overall exposure to changes in
interest rates.
Main Street manages its exposure to interest rates by structuring its
balance sheet in the ordinary course of business. We have also purchased a $10.0
million interest rate cap for the purpose of reducing interest rate risk. We do
not utilize interest rate swaps, financial options, or financial future
contracts in order to reduce interest rate risk.
An interest rate sensitive asset or liability is one that, within a defined
time period, either matures or experiences an interest rate change in line with
general market interest rates. The management of interest rate risk is performed
by analyzing the maturity and repricing relationships between interest-earning
assets and interest-bearing liabilities at specific points in time ("GAP") and
by analyzing the effects of interest rate changes on net interest income over
specific periods of time by projecting the performance of the mix of assets and
liabilities in varied interest rate environments. Interest rate sensitivity
reflects the potential effect on net interest income of a movement in interest
rates. A company is considered to be asset sensitive, or having a positive GAP,
when the amount of its interest-earning assets maturing or repricing within a
given period exceeds the amount of its interest-bearing liabilities also
maturing or repricing within that time period. Conversely, a company is
considered to be liability sensitive, or having a negative GAP, when the amount
of its interest-bearing liabilities maturing or repricing within a given period
exceeds the amount of its interest-earning assets also maturing or repricing
within that time period. During a period of rising interest rates, a negative
GAP would tend to affect net interest income adversely, while a positive GAP
would tend to result in an increase in net interest income. During a period of
falling interest rates, a negative GAP would tend to result in an increase in
net interest income, while a positive GAP would tend to affect net interest
income adversely.
The following table sets forth an interest rate sensitivity analysis for
Main Street at March 31, 1999:
<TABLE>
<CAPTION>
VOLUMES SUBJECT TO PREPRICING WITHIN
<S> <C> <C> <C> <C> <C>
0-30 DAYS 31-180 DAYS 181-365 DAYS AFTER ONE YEAR TOTAL
---------- ----------- ------------ -------------- ----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Investment securities...................... $ 1,306 $ 5,121 $ 12,116 $ 42,605 $ 61,148
Loans...................................... 97,762 67,618 47,019 122,237 334,636
Federal funds sold and other short term
investments.............................. 5,138 -- -- -- 5,138
---------- ----------- ------------ -------------- ----------
Total interest-earning assets.......... 104,206 72,739 59,135 164,842 400,922
---------- ----------- ------------ -------------- ----------
Interest-bearing liabilities:
Demand, money market and savings
Deposits................................... 1,618 8,090 9,709 95,717 115,134
Time deposits.............................. 12,604 108,332 43,067 19,523 183,526
Other borrowings........................... -- -- -- 15,000 15,000
---------- ----------- ------------ -------------- ----------
Total interest-bearing liabilities..... 14,222 116,422 52,776 130,240 313,660
---------- ----------- ------------ -------------- ----------
Period GAP................................... $ 89,984 $ (43,683) $ 6,359 $ 34,602 $ 87,262
---------- ----------- ------------ -------------- ----------
---------- ----------- ------------ -------------- ----------
Cumulative GAP............................... $ 89,984 $ 46,301 $ 52,660 $ 87,262
---------- ----------- ------------ --------------
---------- ----------- ------------ --------------
Period GAP to total assets................... 20.20% (9.80)% 1.43% 7.77%
Cumulative GAP to total assets............... 20.20% 10.39 % 11.82% 19.59%
</TABLE>
Shortcomings are inherent in any GAP analysis since certain assets and
liabilities may not move proportionally as interest rates change. In addition to
GAP analysis, we use an interest rate risk
38
<PAGE>
simulation model and shock analysis to test the interest rate sensitivity of net
interest income and the balance sheet, respectively. Contractual maturities and
repricing opportunities of loans are incorporated in the model as are prepayment
assumptions, maturity data and call options within the investment portfolio.
Assumptions based on past experience are incorporated into the model for
nonmaturity deposit accounts. Based on our March 31, 1999 simulation analysis,
we estimate that a 200 basis point rise or decline in rates over the next 12
month period would have an impact of no more than 7% on our net interest income
for the period. The change is relatively small, despite our asset sensitive GAP
position.
As a financial institution, our primary component of market risk is interest
rate volatility. Fluctuations in interest rates will ultimately impact both the
level of income and expense recorded on most of our assets and liabilities, and
the market value of all interest-earning assets and interest-bearing
liabilities, other than those which have a short term to maturity. Based upon
the nature of our operations, we are not subject to foreign exchange or
commodity price risk. We do not own investment securities held as trading
assets.
Main Street's exposure to market risk is reviewed on a regular basis.
Interest rate risk is the potential of economic losses due to future interest
rate changes. These economic losses can be reflected as a loss of future net
interest income and/or a loss of current fair market values. The objective is to
measure the effect on net interest income and to adjust the balance sheet to
minimize the inherent risk while at the same time maximizing income. Management
realizes certain risks are inherent, and that the goal is to identify and accept
the risks.
Liquidity involves our ability to raise funds to support asset growth or
reduce assets to meet deposit withdrawals and other payment obligations, to
maintain reserve requirements and otherwise to operate on an ongoing basis.
During the past three years, our liquidity needs have primarily been met by
growth in core deposits, as previously discussed, with limited use of advances
from the Federal Home Loan Bank. Although access to purchased funds from
correspondent banks is available and has been utilized on occasion to take
advantage of investment opportunities, we do not generally rely on these
external funding sources. The cash and federal funds sold position, supplemented
by amortizing investment and loan portfolios, have generally created an adequate
liquidity position.
CAPITAL RESOURCES. Capital management consists of providing equity to
support both current and future operations. We are subject to capital adequacy
requirements imposed by the Federal Reserve Board and Main Street Bank is
subject to capital adequacy requirements imposed by the FDIC and the Georgia
State Department of Banking and Finance. Both the Federal Reserve Board and the
FDIC have adopted risk-based capital requirements for assessing bank holding
company and bank capital adequacy. These standards define capital and establish
minimum capital requirements in relation to assets and off-balance sheet
exposure, adjusted for credit risk. The risk-based capital standards currently
in effect are designed to make regulatory capital requirements more sensitive to
differences in risk profiles among bank holding companies and banks, to account
for off-balance sheet exposure and to minimize disincentives for holding liquid
assets. Assets and off-balance sheet items are assigned to broad risk
categories, each with appropriate relative risk weights. The resulting capital
ratios represent capital as a percentage of total risk-weighted assets and
off-balance sheet items.
The risk-based capital standards issued by the Federal Reserve Board require
all bank holding companies to have "Tier 1 capital" of at least 4.0% and "total
risk-based" capital (Tier 1 and Tier 2) of at least 8.0% of total risk-adjusted
assets. "Tier 1 capital" generally includes common shareholders' equity and
qualifying perpetual preferred stock together with related surpluses and
retained earnings, less deductions for goodwill and various other intangibles.
"Tier 2 capital" may consist of a limited amount of intermediate-term preferred
stock, a limited amount of term subordinated debt, certain hybrid capital
instruments and other debt securities, perpetual preferred stock not qualifying
as Tier 1
39
<PAGE>
capital, and a limited amount of the general valuation allowance for loan
losses. The sum of Tier 1 capital and Tier 2 capital is "total risk-based
capital."
The Federal Reserve Board has also adopted guidelines which supplement the
risk-based capital guidelines with a minimum ratio of Tier 1 capital to average
total consolidated assets ("leverage ratio") of 3.0% for institutions with well
diversified risk, including no undue interest rate exposure; excellent asset
quality; high liquidity; good earnings; and that are generally considered to be
strong banking organizations, rated composite 1 under applicable federal
guidelines, and that are not experiencing or anticipating significant growth.
Other banking organizations are required to maintain a leverage ratio of at
least 4.0% to 5.0%. These rules further provide that banking organizations
experiencing internal growth or making acquisitions will be expected to maintain
capital positions substantially above the minimum supervisory levels and
comparable to peer group averages, without significant reliance on intangible
assets.
Pursuant to the Federal Deposit Insurance Corporation Improvement Act of
1991, each federal banking agency revised its risk-based capital standards to
ensure that those standards take adequate account of interest rate risk,
concentration of credit risk and the risks of nontraditional activities, as well
as reflect the actual performance and expected risk of loss on multifamily
mortgages. Main Street Bank is subject to capital adequacy guidelines of the
FDIC that are substantially similar to the Federal Reserve Board's guidelines.
Also pursuant to the Federal Deposit Insurance Corporation Improvement Act, the
FDIC has promulgated regulations setting the levels at which an insured
institution such as Main Street Bank would be considered "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized"
and "critically undercapitalized." Under the FDIC's regulations, Main Street
Bank is classified "well capitalized" for purposes of prompt corrective action.
See "Supervision and Regulation" (page 68).
Shareholders' equity increased from $39.5 million at March 31, 1998 to $43.7
million at March 31, 1999, an increase of $4.2 million or 10.6%. This increase
was primarily the result of net income of $6.7 million, less dividends paid on
common stock of approximately $2.3 million.
The following table provides a comparison of Main Street's and its banking
subsidiary's leverage and risk-weighted capital ratios as of March 31, 1999 to
the minimum and well capitalized regulatory standards:
<TABLE>
<CAPTION>
TO BE WELL CAPITALIZED
MINIMUM REQUIRED FOR UNDER PROMPT
CAPITAL ADEQUACY CORRECTIVE ACTION ACTUAL RATIO AT
PURPOSES PROVISIONS MARCH 31, 1999
------------------------- ----------------------- ---------------
<S> <C> <C> <C>
Main Street
Leverage ratio...................................... 3.00%(1) 5.00% 9.78%
Tier 1 risk-based capital ratio..................... 4.00 6.00 12.94
Risk-based capital ratio............................ 8.00 10.00 14.19
Banking subsidiary
Leverage ratio...................................... 3.00%(2) 5.00% 9.25%
Tier 1 risk-based capital ratio..................... 4.00 6.00 11.94
Risk-based capital ratio............................ 8.00 10.00 13.20
</TABLE>
- ------------------------
(1) The Federal Reserve Board may require us to maintain a leverage ratio of up
to 200 basis points above the required minimum.
(2) The FDIC may require Main Street Bank to maintain a leverage ratio of up to
200 basis points above the required minimum.
40
<PAGE>
YEAR 2000 COMPLIANCE
THE YEAR 2000 PROBLEM. The year 2000 issue confronting us and our
suppliers, customers, customers' suppliers and competitors centers on the
inability of computer systems to recognize the year 2000 and other year
2000-sensitive dates, including September 9, 1999, December 31, 1999 and
February 29, 2000. Many existing computer programs and systems originally were
programmed with six-digit dates that provided only two digits to identify the
calendar year in the date field. With the impending new millennium, these
programs and computers will recognize "00" as the year 1900 rather than the year
2000. Like most financial service providers, our operations may be affected
significantly by the year 2000 issue because we depend on computer-generated
financial information. Software, hardware and equipment both within and outside
of our direct control, and third parties with which we electronically or
operationally interface are likely to be affected. These third parties include
customers and third party vendors providing data processing, information systems
management, computer system maintenance, and credit bureau information. If
computer systems are not able to identify the year 2000, many computer
applications could fail or create incorrect results. Consequently, many
calculations that rely on date-related information, such as interest, payment or
due dates and other operating functions, could generate significantly misstated
results, and we could lose our ability to process transactions, prepare
statements or engage in similar normal business activities. In addition, under
certain circumstances, failure to address adequately the year 2000 issue could
adversely affect the viability of our suppliers and creditors and the
creditworthiness of our borrowers. If not adequately addressed, the year 2000
issue could ultimately have a significant adverse impact on our products,
services and competitive condition and, in turn, our financial condition and
results of operations.
REGULATORY OVERSIGHT. The FDIC has issued guidelines for insured financial
institutions with respect to year 2000 compliance. We developed a year 2000
Readiness plan based in part on the guidelines and timetables issued by the
FDIC. Our readiness plan focuses on four primary areas: (1) service providers;
(2) in-house computers and systems located at our banking offices; (3) third
party and customer relationships; and (4) contingency planning. A company-wide
task force, staffed by employees, subcontractors, and outside consultants, was
established in 1997 to evaluate and manage the risks, solutions and cost
associated with addressing this issue. Under the direction of this group, with
direct supervision by executive management, we had identified all known risks
and completed most testing of critical systems as of December 31, 1998.
OUR STATE OF READINESS. Ultimately, the potential impact of the year 2000
issue will depend not only on the corrective measures we undertake, but also on
the way in which the year 2000 issue is addressed by governmental agencies,
businesses and other entities that provide data to, or receive data from, us, or
whose financial condition or operational capability is important to us as
borrowers, suppliers or customers. We are evaluating and taking action to
mitigate these outside risks.
Management has completed its review of external relationships and evaluated
certain relationships based upon the potential business impact, available
alternatives and cost of substitution. In the case of critical suppliers such as
third party providers of telecommunications services and other utilities and
major vendors, we are receiving a year 2000 readiness confirmation. In-house
computer equipment was tested in 1998, and faulty equipment was identified and
corrected at that time. In regards to our customer relationships, both consumer
and commercial customers have been informed about the year 2000 through meetings
and various printed materials.
CONTINGENCY PLANS. As part of our normal business practice, we maintain
contingency plans to follow in the event of emergency situations, some of which
could arise from year 2000-related problems. We are formulating a detailed year
2000 contingency plan which will assess several possible scenarios to which we
may be required to react. Our formal year 2000 contingency plan was completed in
June of 1999.
41
<PAGE>
FINANCIAL IMPLICATIONS. The costs incurred in addressing the year 2000
problem are being expensed as incurred in compliance with generally accepted
accounting principles except for equipment replaced in the normal course of
business, which was capitalized. None of these costs is expected to impact
materially the results of operations in any one period. Management estimates the
total cost of achieving Year 2000 compliance to be approximately $472,000, of
which $185,000 was incurred by March 31, 1999. We believe our plans for dealing
with the Year 2000 issue will result in timely and adequate modifications of our
systems and technology.
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
OVERVIEW
Net income was $6.5 million, $5.5 million and $4.3 million for the years
ended December 31, 1998, 1997 and 1996, respectively, and basic and diluted
earnings per share were $0.75, $0.63 and $0.50 for these same periods. Earnings
growth from 1996 to 1997 and from 1997 to 1998 resulted principally from an
increase in net interest income which primarily was driven by strong loan demand
and an increase in noninterest income as a result of the addition and the
continued growth of several fee-based lines of business. We posted returns on
average assets of 1.56%, 1.38% and 1.20% and returns on average equity of
16.13%, 15.15% and 13.00% for the years ended December 31, 1998, 1997 and 1996,
respectively. Our efficiency ratio was 63.03% in 1998, 62.40% in 1997 and 66.08%
in 1996.
Total assets at December 31, 1998, 1997 and 1996 were $431.3 million, $400.2
million and $364.5 million, respectively. Total deposits at December 31, 1998,
1997 and 1996 were $365.9 million, $355.9 million and $327.3 million,
respectively. Loans, net of unearned income, were $324.6 million at December 31,
1998, an increase of $26.5 million or 8.9% from $298.1 million at the end of
1997. Loans, net of unearned income, were $258.8 million at year end 1996.
Shareholders' equity was $42.9 million, $38.1 million and $34.5 million at
December 31, 1998, 1997 and 1996, respectively.
RESULTS OF OPERATIONS
NET INTEREST INCOME. Net interest income for 1998 was $22.5 million,
compared to $20.6 million for 1997, an increase of $1.9 million or 9.2%. The
improvement in net interest income for 1998 was primarily due to the increase in
total interest earning assets, primarily in the loan portfolio. During 1998, the
yield on interest earning assets increased 20 basis points from 9.31% in 1997 to
9.51% in 1998 due to the increase in volume of higher yielding loans. The cost
of funds decreased 59 basis points from 4.38% in 1997 to 3.79% in 1998 primarily
due to the increase in lower yielding demand and money market deposits.
Our net interest income in 1997 was $20.6 million, an increase of 18.4% over
the 1996 level of $17.4 million, due to loan growth and a stable net interest
margin. The improvement in net interest income for 1997 was primarily due to the
increase in total interest earning assets, primarily in the loan portfolio.
During 1997, the yield on interest earning assets increased 6 basis points from
9.25% in 1996 to 9.31% in 1997 due to the increase in volume of higher yielding
loans. The cost of funds decreased 22 basis points from 4.60% in 1996 to 4.38%
in 1997 primarily due to the increase in lower cost transaction accounts and a
reduction in market rates overall.
The following table presents the total dollar amount of average balances,
interest income from average interest-earning assets and the resultant yields,
as well as the interest expense on average interest-bearing liabilities,
expressed both in dollars and rates. Nonaccrual loans were $1.1 million,
42
<PAGE>
$832,000 and $674,000 at December 31, 1998, 1997, and 1996, respectively. These
amounts are included in the average loan balances in the table below.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998 1997 1996
----------------------------------- ----------------------------------- ----------------------
<CAPTION>
YIELD
BALANCE INTEREST YIELD/ RATE BALANCE INTEREST YIELD/ RATE BALANCE INTEREST
--------- ----------- ----- --------- ----------- ----- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AVERAGE ASSETS
INTEREST-EARNING ASSETS:
Loans, net of unearned
income(1)..................... $ 312,014 $ 31,599 10.13% $ 281,572 $ 28,414 10.09% $ 249,065 $ 24,857
Investment securities:
Taxable....................... 50,044 3,178 6.35 57,916 3,731 6.44 54,094 3,470
Non-taxable(2)................ 12,466 1,042 8.36 12,435 1,189 9.56 14,631 1,409
Interest-bearing deposits....... 123 9 7.32 109 10 9.17 87 4
Federal funds sold.............. 5,365 314 5.85 12,665 707 5.58 9,246 508
--------- ----------- --------- ----------- --------- -----------
Total interest-earning assets..... 380,012 36,142 9.51% 364,697 34,051 9.31% 327,123 30,248
Noninterest-earning assets
Cash and due from bank.......... 19,250 15,787 13,583
Allowance for loan losses....... (5,471) (4,800) (2,723)
Premises and equipment.......... 13,959 13,174 9,188
Other real estate owned......... 832 628 674
Other assets.................... 8,966 7,803 11,102
--------- --------- ---------
Total assets.................. $ 417,548 $ 397,289 $ 358,947
--------- --------- ---------
--------- --------- ---------
AVERAGE LIABILITIES AND
SHAREHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES:
Demand and money market deposits.. $ 80,373 $ 1,993 2.48% $ 79,625 $ 1,834 2.30% $ 64,092 $ 1,434
Savings deposits.................. 23,917 479 2.00 23,226 466 2.01 23,479 477
Time deposits..................... 185,237 10,127 5.48 193,050 10,617 5.50 180,380 10,393
FHLB advances..................... 10,252 586 5.72 1,764 106 6.01 462 24
Federal funds purchased and other
borrowings...................... 1,382 81 5.86 310 20 6.45 1,252 71
--------- ----------- --------- ----------- --------- -----------
--------- ----------- --------- ----------- --------- -----------
Total interest-bearing
Liabilities..................... 301,161 13,266 3.79% 297,975 13,043 4.38% 269,665 12,399
NON-INTEREST-BEARING:
Demand deposits................... 71,694 59,118 52,771
Other liabilities................. 4,296 3,969 3,492
--------- --------- ---------
--------- --------- ---------
Total liabilities................. 377,151 361,062 325,928
Shareholders' equity.............. 40,397 36,227 33,019
--------- --------- ---------
--------- --------- ---------
Total liabilities and
shareholders' equity............ $ 417,548 $ 397,289 $ 358,947
--------- --------- ---------
--------- --------- ---------
Net interest rate spread.......... 5.13% 4.93%
Net interest income and
margin(3)....................... $ 22,876 6.02% $ 21,008 5.76% $ 17,849
<CAPTION>
<S> <C>
YIELD/ RATE
-----
<S> <C>
AVERAGE ASSETS
INTEREST-EARNING ASSETS:
Loans, net of unearned
income(1)..................... 9.98%
Investment securities:
Taxable....................... 6.41
Non-taxable(2)................ 9.63
Interest-bearing deposits....... 4.60
Federal funds sold.............. 5.49
Total interest-earning assets..... 9.25%
Noninterest-earning assets
Cash and due from bank..........
Allowance for loan losses.......
Premises and equipment..........
Other real estate owned.........
Other assets....................
Total assets..................
AVERAGE LIABILITIES AND
SHAREHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES:
Demand and money market deposits.. 2.24%
Savings deposits.................. 2.03
Time deposits..................... 5.76
FHLB advances..................... 5.19
Federal funds purchased and other
borrowings...................... 5.67
Total interest-bearing
Liabilities..................... 4.60%
NON-INTEREST-BEARING:
Demand deposits...................
Other liabilities.................
Total liabilities.................
Shareholders' equity..............
Total liabilities and
shareholders' equity............
Net interest rate spread.......... 4.65%
Net interest income and
margin(3)....................... 5.46%
</TABLE>
- ------------------------
(1) Fee income related to loans of $2,407,000, $1,942,000, and $1,485,000 for
the years December 31, 1998, 1997, and 1996, respectively, is included in
interest income.
(2) In order to make pre-tax income and resultant yields on tax-exempt
investments comparable to those on taxable investments, a tax-equivalent
adjustment has been computed using a federal income tax rate of 34%.
(3) The net interest margin is equal to net interest income divided by average
interest-earning assets.
The following schedule presents the dollar amount of changes in interest
income and interest expense for the major components of interest-earning assets
and interest-bearing liabilities and distinguishes between the increase related
to higher outstanding balances and the change in interest
43
<PAGE>
rates. For purposes of this table, changes attributable to both rate and volume
which cannot be segregated have been allocated to rate.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, YEARS ENDED DECEMBER 31,
------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
1998 VS. 1997 1997 VS. 1996
<CAPTION>
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
------------------------------- -------------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
--------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans....................................................... $ 3,060 $ 125 $ 3,185 $ 3,247 $ 310 $ 3,557
Investment securities:
Taxable..................................................... (508) (45) (553) 244 17 261
Non-taxable................................................. 3 (150) (147) (211) (9) (220)
Interest-bearing deposits................................... 1 (2) (1) 1 5 6
Federal funds sold.......................................... (407) 14 (393) 188 11 199
--------- --------- --------- --------- --------- ---------
Total increase (decrease) in interest income................ 2,149 (58) 2,091 3,469 334 3,803
--------- --------- --------- --------- --------- ---------
Interest-bearing liabilities:
Demand and money market deposits............................ 14 145 159 352 48 400
Savings deposits............................................ 15 (2) 13 (6) (5) (11)
Time deposits............................................... (453) (37) (490) 726 (502) 224
FHLB advances............................................... 510 (30) 480 68 14 82
Federal funds purchased and other borrowings................ 69 (8) 61 (53) 2 (51)
--------- --------- --------- --------- --------- ---------
Total increase (decrease) in interest expense............... 155 68 223 1,087 (443) 644
--------- --------- --------- --------- --------- ---------
Increase (decrease) in net interest income.................. $ 1,994 $ (126) $ 1,868 $ 2,382 $ 777 $ 3,159
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
PROVISION FOR LOAN LOSSES. The allowance for loan losses at December 31,
1998 was $5.8 million, representing 1.80% of outstanding loans. One year
earlier, this ratio was 1.71% of outstanding loans. The provision for loan
losses charged against earnings was $865,000 in 1998 compared to $1.4 million in
1997. Net loans charged off in 1998 were $107,000 compared to $821,000 in 1997.
During 1997, Main Street made provisions totaling $1.4 million to the
allowance for loan losses, an increase of $470,000 compared to 1996. Net loans
charged off in 1997 were $821,000 compared to $661,000 in loan charge-offs for
1996.
NONINTEREST INCOME. For 1998, noninterest income totaled $5.8 million, an
increase of $1.5 million or 34.9% versus $4.3 million in 1997. The increase was
partly due to an increase of $416,000 in mortgage origination fees related to
mortgage loan sales. We began our Mortgage Division in 1996. Also, revenues from
our investment and insurance divisions and card services increased as business
grew from these lines. A one-time gain on the sale of the Winterville Office of
$136,000 before taxes was recognized during fourth quarter of 1998. Noninterest
income for 1997 was $4.3 million, a $664,000 or 16.2% increase from 1996
primarily due to an increase in service charges and mortgage division and card
services income. Nonoperating income for 1996 included a $425,000 pretax gain on
the sale of a bank charter.
44
<PAGE>
The following table presents the major categories of noninterest income:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service charges on deposit accounts.................................................. $ 3,099 $ 2,898 $ 2,300
Mortgage division income............................................................. 1,035 620 146
Investment division income........................................................... 123 31 --
Insurance division income............................................................ 76 -- --
Card services income................................................................. 679 445 186
Nonoperating income.................................................................. 192 (16) 700
Other noninterest income............................................................. 591 370 353
--------- --------- ---------
Total noninterest income......................................................... $ 5,795 $ 4,348 $ 3,685
--------- --------- ---------
--------- --------- ---------
</TABLE>
NONINTEREST EXPENSE. For the years ended 1998, 1997 and 1996, noninterest
expense totaled $17.8 million, $15.6 million and $14.0 million, respectively.
The following table presents the major categories of noninterest expense:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Salaries and employee benefits................................................... $ 9,934 $ 8,649 $ 6,929
Bank premises expense............................................................ 1,337 1,210 1,019
Equipment rentals, depreciation and maintenance.................................. 1,379 1,115 918
Professional fees................................................................ 315 309 378
Regulatory assessments........................................................... 161 108 975
Intangible amortization.......................................................... 439 439 656
Other............................................................................ 4,281 3,730 3,141
--------- --------- ---------
Total noninterest expense.................................................... $ 17,846 $ 15,560 $ 14,016
--------- --------- ---------
--------- --------- ---------
</TABLE>
For 1998, noninterest expense totaled $17.8 million, an increase of $2.2
million or 14.1% over $15.6 million in 1997. Salaries and employee benefits for
1998 totaled $9.9 million, an increase of $1.3 million or 15.1% over $8.6
million for 1997. This was due to several new positions added. Other expenses
increased principally due to increased occupancy, equipment and other expenses
related to the opening of the Eastside Office and the new Operations Center.
Total noninterest expenses in 1997 were $15.6 million, a 11.4% increase over the
prior year's level of $14.0 million. Salaries and employee benefits in 1997
increased by 24.6% from $6.9 million to $8.6 million, largely due to staffing
the Mortgage Division which began operations in the fall of 1996, and the
increased staffing of several new and replacement branches that opened in the
third quarter of 1996. These new branches were also responsible for higher
occupancy, equipment and other expenses in 1997 over 1996.
INCOME TAXES. In 1998 income tax expense was $3.1 million compared to $2.5
million in 1997. The 1996 amount was $1.8 million. The effective tax rates in
1998, 1997 and 1996, respectively, were 32.2%, 31.3% and 29.7%.
45
<PAGE>
FINANCIAL CONDITION
LOAN PORTFOLIO. At December 31, 1998, loans, net of unearned income, were
$324.6 million, an increase of $26.5 million or 8.9% over net loans at December
31, 1997 of $298.1 million. The growth in the loan portfolio was attributable to
our consistent focus on growth and a strong lending market. At December 31, 1998
real estate-construction loans increased $8.4 million or 21.2% and real estate
mortgage loans increased $13.9 million or 6.7% from December 31, 1997. At
December 31, 1998, loans, net of unearned income, were 88.7% of deposits and
75.3% of total assets.
Loans, net of unearned income, increased 15.2% during 1997 from $258.8
million at December 31, 1996 to $298.1 million at December 31, 1997. The loan
growth during 1997 was also due to growth of our real estate-construction and
mortgage portfolios. At December 31, 1997 real estate-construction loans
increased $13.5 million or 52.2% and real estate-mortgage loans increased $23.4
million or 12.8% from December 31, 1996. At December 31, 1997, loans, net of
unearned income, were 83.7% of deposits and 74.5% of total assets.
The following table summarizes the loan portfolio of Main Street by type of
loan:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Commercial and industrial............................ $ 15,188 $ 13,917 $ 11,392 $ 10,190 $ 7,843
Real estate-construction............................. 47,831 39,449 25,917 19,962 18,327
Real estate-mortgage................................. 220,743 206,803 183,400 169,686 166,293
Consumer and other................................... 40,855 37,922 38,122 37,894 29,195
---------- ---------- ---------- ---------- ----------
$ 324,617 $ 298,091 $ 258,831 $ 237,732 $ 221,658
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Mortgage loans held for sale......................... $ 4,283 -- -- -- --
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Percent of loans by category to total loans
(Excluding loans held for sale):
Commercial and industrial............................ 4.68% 4.67% 4.40% 4.29% 3.54%
Real estate-construction............................. 14.73% 13.23% 10.01% 8.40% 8.27%
Real estate-mortgage................................. 68.00% 69.38% 70.86% 71.38% 75.02%
Consumer and other................................... 12.59% 12.72% 14.73% 15.93% 13.17%
---------- ---------- ---------- ---------- ----------
100.00% 100.00% 100.00% 100.00% 100.00%
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
The contractual maturity ranges of the commercial and industrial and real
estate-construction portfolios and the amount of such loans with predetermined
interest rates and floating rates in each maturity range as of December 31, 1998
are summarized as follows:
<TABLE>
<CAPTION>
AFTER ONE
ONE YEAR OR YEAR THROUGH AFTER FIVE
LESS FIVE YEARS YEARS TOTAL
----------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Commercial and industrial...................................... $ 6,240 $ 4,473 $ 4,475 $ 15,188
Real estate-construction....................................... 45,254 1,103 1,474 47,831
----------- ------ ----------- ---------
Total...................................................... $ 51,494 $ 5,576 $ 5,949 $ 63,019
----------- ------ ----------- ---------
----------- ------ ----------- ---------
Loans with a predetermined interest rate....................... $ 20,186 $ 5,576 $ 5,653 $ 31,415
Loans with a floating interest rate............................ 31,308 -- 296 31,604
----------- ------ ----------- ---------
Total...................................................... $ 51,494 $ 5,576 $ 5,949 $ 63,019
----------- ------ ----------- ---------
----------- ------ ----------- ---------
</TABLE>
46
<PAGE>
NONPERFORMING ASSETS. Our lending approach, as well as a healthy local
economy, has resulted in strong asset quality. We had nonperforming assets of $
2.5 million, $1.6 million, and $1.7 million as of December 31, 1998, 1997 or
1996, respectively. For 1998, the gross amount of interest income that would
have been recorded on nonperforming loans, if all such loans had been accruing
interest at the original contract rate, was approximately $33,000.
The following table presents information regarding nonperforming assets at
the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Nonperforming Assets
Nonaccrual loans................................................. $ 1,442 $ 754 $ 993 $ 1,726 $ 454
Other real estate and repossessions.............................. 1,067 832 674 84 871
--------- --------- --------- --------- ---------
Total nonperforming assets....................................... $ 2,509 $ 1,586 $ 1,667 $ 1,810 $ 1,325
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Loans past due 90 days or more and still accruing................ $ 359 $ 850 $ 156 $ 289 $ 536
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Ratio of past due loans to loans, net of unearned income(1)...... 0.11% 0.29% 0.06% 0.12% 0.24%
Ratio of nonperforming assets to loans, net of unearned income,
and other real estate(1)....................................... 0.77% 0.53% 0.64% 0.76% 0.60%
</TABLE>
- ------------------------
(1) Excludes mortgage loans held for sale.
ALLOWANCE FOR LOAN LOSSES. For the year ended 1998, net charge-offs totaled
$107,000 or 0.03% of average loans outstanding for the period, compared to
$821,000 or 0.29% in net charge-offs during 1997. Our net charge-offs totaled
$661,000 or 0.27% of average loans outstanding in 1996. During 1998, Main Street
recorded a provision for loan losses of $865,000 compared with $1.4 million for
1997. At December 31, 1998, the allowance for loan losses totaled $5.8 million,
or 1.80% of total loans, net of unearned income. We made a provision for loan
losses of $1.4 million during 1997 compared with a provision of $935,000 for
1996. At December 31, 1997, the allowance for loan losses was $5.1 million, or
1.71% of total loans, net of unearned income. At December 31, 1996, the
allowance was $4.5 million, or 1.77% of total loans, net of unearned income.
47
<PAGE>
The following table presents an analysis of the allowance for loan losses
and other related data:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Average loans outstanding............................ $ 312,014 $ 281,572 $ 249,065 $ 225,910 $ 206,744
Total loans, net of unearned income, at end of
period............................................. $ 324,617 $ 298,091 $ 258,831 $ 237,732 $ 221,658
Allowance for loan losses at beginning of period..... 5,092 4,508 4,234 3,338 3,082
Provision for loans losses........................... 865 1,405 935 1,160 704
Charge-offs:
Commercial and industrial.......................... (132) (93) (141) (24) (9)
Real estate........................................ (54) (221) (265) (62) (445)
Consumer........................................... (322) (762) (484) (269) (298)
Recoveries:
Commercial and industrial.......................... 62 38 37 1 8
Real estate........................................ 118 28 45 9 175
Consumer........................................... 221 189 147 81 121
---------- ---------- ---------- ---------- ----------
Net charge-offs...................................... $ (107) $ (821) $ (661) $ (264) $ (448)
---------- ---------- ---------- ---------- ----------
Allowance for loan losses at end of period........... $ 5,850 $ 5,092 $ 4,508 $ 4,234 $ 3,338
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Ratio of allowance to end of period loans............ 1.80% 1.71% 1.77% 1.81% 1.53%
Ratio of net charge-offs to average loans............ 0.03% 0.29% 0.27% 0.12% 0.21%
Ratio of allowance to end of period nonperforming
Loans.............................................. 409.69% 675.33% 453.98% 245.31% 735.24%
</TABLE>
The following tables describe the allocation of the allowance for loan
losses among various categories of loans and certain other information. The
allocation is made for analytical purposes and is
48
<PAGE>
not necessarily indicative of the categories in which future losses may occur.
The total allowance is available to absorb losses from any segment of loans.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------
1998 1997
------------------------ ------------------------
PERCENT OF PERCENT OF
LOANS TO LOANS TO
TOTAL TOTAL
AMOUNT LOANS AMOUNT LOANS
--------- ------------- --------- -------------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Balance of allowance for loan losses applicable to:
Commercial and industrial.................................... $ 274 4.68% $ 238 4.67%
Real estate.................................................. 4,840 82.73 4,207 82.61
Consumer and other........................................... 736 12.59 647 12.72
Unallocated.................................................. -- -- -- --
--------- ------ --------- ------
Total allowance for loan losses............................ $ 5,850 100.00% $ 5,092 100.00%
--------- ------ --------- ------
--------- ------ --------- ------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------------------------------------------
1996 1995 1994
---------------------- ---------------------- ----------------------
PERCENT OF PERCENT OF PERCENT OF
LOANS TO LOANS TO LOANS TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
--------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Balance of allowance for loan losses applicable to:
Commercial and industrial........................... $ 198 4.40% $ 182 4.29% $ 118 3.54%
Real estate......................................... 3,646 80.87 3,378 79.78 2,780 83.29
Consumer and other.................................. 664 14.73 674 15.93 440 13.17
Unallocated......................................... -- -- -- -- -- --
--------- ----------- --------- ----------- --------- -----------
Total allowance for loan losses................... $ 4,508 100.00% $ 4,234 100.00% $ 3,338 100.00%
--------- ----------- --------- ----------- --------- -----------
--------- ----------- --------- ----------- --------- -----------
</TABLE>
INVESTMENT SECURITIES. The following table summarizes the contractual
maturity of investment securities and their weighted average yields.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------------------------------------------------------------------------------------
AFTER ONE YEAR AFTER FIVE YEARS
WITHIN ONE BUT WITHIN FIVE BUT WITHIN TEN AFTER TEN
YEAR YEARS YEARS YEARS
-------------------- ---------------------- ---------------------- ---------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD TOTAL
--------- --------- --------- ----- --------- ----- --------- ----- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities... $ 3,028 6.37% $ 1,013 6.30% -- -- -- -- $ 4,041
U.S. government agencies
and corporations......... 1,501 6.06 11,078 6.41 $ 2,025 6.19% -- -- 14,604
Mortgage-backed
securities............... 59 4.97 2,338 5.72 5,649 5.89 $ 21,552 5.99% 29,598
States and political
subdivisions............. 779 10.63 4,447 7.74 6,721 7.09 550 9.37 12,497
--------- --------- --------- --- --------- --- --------- --- ---------
Total.................. $ 5,367 6.89% $ 18,876 6.63% $ 14,395 6.48% $ 22,102 6.07% $ 60,740
--------- --------- --------- --- --------- --- --------- --- ---------
--------- --------- --------- --- --------- --- --------- --- ---------
</TABLE>
49
<PAGE>
The following table presents the amortized costs and fair value of
securities classified as available for sale and held-to-maturity at December 31,
1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------- ---------------------- ----------------------
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE
----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
HELD TO MATURITY SECURITIES
States and political subdivisions..................... $ 12,497 $ 13,044 $ 12,068 $ 12,526 $ 13,352 $ 13,946
----------- --------- ----------- --------- ----------- ---------
----------- --------- ----------- --------- ----------- ---------
AVAILABLE FOR SALE SECURITIES
U.S.Treasury securities............................... $ 3,991 $ 4,041 $ 6,477 $ 6,529 $ 2,993 $ 2,990
U.S. Government agencies and corporations............. 14,495 14,604 24,526 24,633 18,163 18,090
Mortgage-backed securities............................ 29,663 29,598 23,705 23,672 26,411 26,137
----------- --------- ----------- --------- ----------- ---------
$ 48,149 $ 48,243 $ 54,708 $ 54,834 $ 47,567 $ 47,217
----------- --------- ----------- --------- ----------- ---------
----------- --------- ----------- --------- ----------- ---------
</TABLE>
At December 31, 1998, investment securities were $60.7 million, a decrease
of $6.2 million from $66.9 million at December 31, 1997. This was due to several
maturities and calls for which we did not reinvest in investment securities. At
December 31, 1998, investment securities represented 16.6% of total deposits and
14.1% of total assets. Approximately $25.3 million or 41.7% of our investment
securities reprice within one year. The average yield on a fully taxable
equivalent basis on the investment portfolio was 6.75% for 1998, compared to
6.99% for 1997.
Investment securities increased from $60.6 million at December 31, 1996 to
$66.9 million at December 31, 1997. The average yield on a fully taxable
equivalent basis on the investment portfolio was 6.99% for 1997, compared to
7.10% for 1996.
DEPOSITS. Deposits at December 31, 1998 were $365.9 million, an increase of
$9.9 million, or 2.8% from $356.0 million at December 31, 1997.
Noninterest-bearing deposits were $76.8 million at December 31, 1998, an
increase of $17.2 million, or 28.9% from $59.5 million at December 31, 1997.
Noninterest-bearing deposits as of December 31, 1997 were $59.5 million compared
to $52.7 million at December 31, 1996. We do not accept brokered deposits. Total
deposits at December 31, 1996 were $327.3 million.
The daily average balances and weighted average rates paid on deposits for
each of the years ended December 31, 1998, 1997 and 1996 are presented below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
1998 1997 1996
-------------------- -------------------- --------------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Demand and money market deposits................................. $ 80,373 2.48% $ 79,625 2.30% $ 64,092 2.24%
Savings deposits................................................. 23,917 2.00 23,226 2.01 23,479 2.03
Time deposits.................................................... 185,237 5.48 193,050 5.50 180,380 5.76
--------- --- --------- --- --------- ---
Total interest-bearing deposits.............................. 289,527 4.35% 295,901 4.37% 267,951 4.59%
--------- --- --------- --- --------- ---
--------- --- --------- --- --------- ---
</TABLE>
50
<PAGE>
The following table sets forth the amount of Main Street's certificates of
deposit that are $100,000 or greater by time remaining until maturity:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
(DOLLARS IN
THOUSANDS)
--------------------
<S> <C>
Three months or less.................................................... $ 9,748
Over three through six months........................................... 10,011
Over six through 12 months.............................................. 17,708
Over 12 months.......................................................... 5,906
-------
Total............................................................... $ 43,373
-------
-------
</TABLE>
OTHER BORROWINGS. Deposits are the primary source of funds for our lending
and investment activities. Occasionally, we obtain additional funds from the
FHLB and correspondent banks. At December 31, 1998, we had borrowings of $17.0
million in FHLB advances and $2.8 million in Federal Funds Purchased compared to
$2.0 million and $1.5 million, respectively, at December 31, 1997. Main Street's
weighted average interest rate for the period ended December 31, 1998 was 5.72%.
For a more detailed discussion of the borrowings of Main Street, see note 7 to
the Consolidated Financial Statements included herein.
INTEREST RATE SENSITIVITY AND LIQUIDITY. The following table sets forth an
interest rate sensitivity analysis for Main Street at December 31, 1998:
<TABLE>
<CAPTION>
VOLUMES SUBJECT TO PREPRICING WITHIN
------------------------------------------------------------
AFTER
0-30 DAYS 31-180 DAYS 181-365 DAYS ONE YEAR TOTAL
----------- ----------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Interest-earning assets:
Investment Securities............................. $ 1,099 $ 8,197 $ 10,940 $ 41,879 $ 62,115
Loans............................................. 89,404 71,016 50,964 114,548 325,932
Federal funds sold and short term investments..... 143 -- -- -- 143
----------- ----------- ------------ --------- ---------
Total interest-earning assets................... 90,646 79,213 61,904 156,427 388,190
----------- ----------- ------------ --------- ---------
Interest-bearing liabilities:
Demand, money market and savings Deposits......... 1,479 7,393 8,871 89,936 107,679
Time deposits..................................... 10,520 70,025 77,464 23,446 181,455
Borrowings........................................ 2,800 2,000 -- 15,000 19,800
----------- ----------- ------------ --------- ---------
Total interest-bearing liabilities.............. 14,799 79,418 86,335 128,382 308,934
----------- ----------- ------------ --------- ---------
Period GAP.......................................... $ 75,847 $ (205) $ (24,431) $ 28,045 $ 79,256
----------- ----------- ------------ --------- ---------
----------- ----------- ------------ --------- ---------
Cumulative GAP...................................... $ 75,847 $ 75,642 $ 51,211 $ 79,256
----------- ----------- ------------ ---------
----------- ----------- ------------ ---------
Period GAP to total assets.......................... 17.59% (0.05)% 5.67% 6.50%
Cumulative GAP to total assets...................... 17.59% 17.54% 11.88% 18.38%
</TABLE>
CAPITAL RESOURCES. Shareholders' equity increased to $42.9 million at
December 31, 1998 from $38.1 million at December 31, 1997, an increase of $4.8
million or 12.6%. This increase was primarily the result of net income of $6.5
million, less dividends declared on common stock of $2.3 million. During 1997,
shareholders' equity increased by $3.6 million or 10.4% from $34.5 million at
December 31, 1996.
51
<PAGE>
The following table provides a comparison of Main Street's and its banking
subsidiary's leverage and risk-weighted capital ratios as of December 31, 1998
to the minimum and well capitalized regulatory standards:
<TABLE>
<CAPTION>
MINIMUM REQUIRED TO BE WELL CAPITALIZED
FOR CAPITAL UNDER PROMPT CORRECTIVE ACTUAL RATIO AT
ADEQUACY PURPOSES ACTION PROVISIONS DECEMBER 31, 1998
------------------- ------------------------- -------------------
<S> <C> <C> <C>
Main Street:
Leverage ratio.................................. 3.00%(1) 5.00% 9.67%
Tier 1 risk-based capital ratio................. 4.00 6.00 12.74
Risk-based capital ratio........................ 8.00 10.00 14.00
Banking Subsidiary:
Leverage ratio.................................. 3.00%(2) 5.00% 9.08%
Tier 1 risk-based capital ratio................. 4.00 6.00 11.92
Risk-based capital ratio........................ 8.00 10.00 13.17
</TABLE>
- ------------------------
(1) The Federal Reserve Board may require us to maintain a leverage ratio of up
to 200 basis points above the required minimum.
(2) The FDIC may require Main Street Bank to maintain a leverage ratio of up to
200 basis points above the required minimum.
QUARTERLY RESULTS
The following table sets forth certain consolidated quarterly financial
information of Main Street. This information is derived from unaudited
Consolidated Financial Statements which include, in the opinion of management,
all normal recurring adjustments which management considers necessary for a fair
presentation of the results for such periods. The results for any quarter are
not necessarily indicative of results for any future period. This information
should be read in conjunction with Main Street's Consolidated Financial
Statements and the Notes thereto included elsewhere in this report.
<TABLE>
<CAPTION>
1998 QUARTER ENDED
----------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------- --------- ------------- -------------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Interest income................................................. $ 8,732 $ 8,839 $ 9,042 $ 9,175
Interest expense................................................ 3,266 3,272 3,374 3,354
Net interest income............................................. 5,466 5,567 5,668 5,821
Provision for loan losses....................................... 450 220 50 145
Securities gains................................................ 11 2 4 1
Earnings before income taxes.................................... 2,012 2,151 2,603 2,839
Net income...................................................... 1,416 1,462 1,726 1,911
Net income per share, basic and diluted......................... .16 .17 .20 .22
<CAPTION>
1997 QUARTER ENDED
----------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------- --------- ------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest income................................................. $ 7,639 $ 8,397 $ 8,809 $ 8,802
Interest expense................................................ 3,014 3,348 3,365 3,316
Net interest income............................................. 4,625 5,049 5,444 5,486
Provision for loan losses....................................... 300 315 345 445
Securities gains................................................ 6 11 1 3
Earnings before income taxes.................................... 1,631 1,755 2,453 2,149
Net income...................................................... 1,152 1,198 1,668 1,472
Net income per share, basic and diluted......................... .13 .14 .19 .17
</TABLE>
52
<PAGE>
PRINCIPAL SHAREHOLDERS AND
STOCK OWNERSHIP OF MANAGEMENT
The following table lists, as of June 30, 1999, the number of shares of
common stock beneficially owned by (a) each current director, (b) our Chairman,
President, and Chief Executive Officer, (c) each person or entity known to us to
be the beneficial owner of more than five percent of our outstanding common
stock, (d) each person named in the Summary Compensation Table under
"Management-Executive Compensation" and (e) all current executive officers and
directors as a group.
Information relating to beneficial ownership of common stock by our
principal shareholders and management is based upon information furnished by
each person using "beneficial ownership" concepts under the rules of the
Securities and Exchange Commission. Under these rules, a person is deemed to be
a beneficial owner of a security if that person has or shares voting power,
which includes the power to vote or direct the voting of the security, or
investment power, which includes the power to vote or direct the voting of the
security. The person is also deemed to be a beneficial owner of any security of
which that person has a right to acquire beneficial ownership within 60 days.
Under the Securities and Exchange Commission rules, more than one person may be
deemed to be a beneficial owner of the same securities, and a person may be
deemed to be a beneficial owner of securities as to which he or she may disclaim
any beneficial ownership. Accordingly, the listed individuals are named as
beneficial owners of shares as to which they may disclaim any beneficial
interest.
The percentages prior to the offering are calculated based on 8,829,000
shares issued and outstanding on June 30, 1999. Percentages after the closing of
the offering are based on 8,889,000 shares to be issued and outstanding upon
consummation of the offering.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OWNED AFTER THE
OFFERING SHARES BEING OFFERING
----------------------- SOLD IN -----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENTAGE THE OFFERING NUMBER PERCENTAGE
- ------------------------------------------------- ---------- ----------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Executive Officers and Directors
Robert R. Fowler, III............................ 4,458,638(1) 50.50 30,000 4,428,638(1) 49.82%
Frank B. Turner.................................. 193,440 2.19 0 193,440 2.18
Samuel B. Hay III................................ 270,000(2) 3.06 0 270,000(2) 3.04
Joseph K. Strickland, Jr......................... 134,500(3) 1.52 0 134,500(3) 1.51
C. Candler Hunt.................................. 99,536 1.13 0 99,536 1.12
0
All Executive Officers and Directors as Group (5
persons)....................................... 5,156,114(4) 58.40 30,000 5,126,114(4) 57.67
Other 5% Shareholders
Fowler Children's Trust.......................... 1,922,568 21.78 0 1,922,568 21.63
</TABLE>
- ------------------------
(1) Includes the following:
<TABLE>
<CAPTION>
NUMBER MANNER
OF SHARES HELD
- ---------- -----------------------------------------------------------------------------------------------------
<C> <S>
162,000 Issued under Main Street's Restricted Stock Award Plan
1,922,568 Held by the Fowler Children's Trust
207,000 Held by the Estate of Louly T. Fowler
640,800 Held by three Fowler Family Grandchildren's Trusts
560,000 Held by three Fowler Family Generation Skipping Tax Exempt Grandchildren's Trusts
405,520 Held by a family limited partnership formed by Mr. Fowler and his daughter
195,200 Held by Mr. Fowler's spouse, Mary H. Fowler
</TABLE>
53
<PAGE>
Mr. Fowler is the executor of the Estate of Louly T. Fowler, trustee of the
Children's trust and two of the Grandchildren's Trusts and Co-Trustee of the
other four Grandchildren's Trusts described above and general partner of the
family limited partnership described above.
(2) Includes 102,000 shares of stock issued to Mr. Hay pursuant to Main Street's
Restricted Stock Award Plan.
(3) Includes 93,000 shares of stock issued to Mr. Strickland pursuant to Main
Street's Restricted Stock Award Plan and 48,000 shares held by Sterne Agee &
Leach as IRA custodian for Mr. Strickland.
(4) Includes the shares described in notes (1) through (3) above.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning each of our directors
and executive officers. All of the directors of Main Street Banks Incorporated
are also directors of Main Street Bank.
<TABLE>
<CAPTION>
NAME AGE POSITION AND OFFICES HELD
- --------------------------------------------- --- ------------------------------------------------------------
<S> <C> <C>
Robert R. Fowler, III........................ 60 Chairman of the Board, President, and Chief Executive
Officer
Frank B. Turner.............................. 60 Vice Chairman of the Board
Samuel B. Hay, III........................... 36 Director, Executive Vice President, and Chief Financial
Officer
Joseph K. Strickland, Jr..................... 54 Director, Executive Vice President and Chief Credit Officer
C. Candler Hunt.............................. 54 Director
</TABLE>
ROBERT R. FOWLER, III has been Chairman and Chief Executive Officer of Main
Street Banks Incorporated since its organization in 1988. He served as Chairman
of the Board of Main Street Bank from 1985 to 1996, and was elected Vice
Chairman in 1996. He has been employed by Main Street Bank since 1967. Mr.
Fowler also has served on the Board of Directors of The Bankers Bank since 1996.
FRANK B. TURNER has served as Vice Chairman of Main Street Banks
Incorporated since 1990. He has been City Manager of Covington, Georgia since
1970. Mr. Turner is a director of Main Street Bank.
SAMUEL B. HAY, III has served on the Board of Main Street Banks Incorporated
since 1992, and was elected Executive Vice President and Chief Financial Officer
in 1994. Mr. Hay was elected Chairman and Chief Executive Officer of Main Street
Bank in December 1996. He has been employed by Main Street Bank since 1990.
JOSEPH K. STRICKLAND, JR. became Executive Vice President and Chief Credit
Officer of Main Street Banks Incorporated in 1993 and was elected to the Board
in 1995. Mr. Strickland is the President and Chief Operating Officer and a
director of Main Street Bank.
C. CANDLER HUNT has been an executive of Godfrey's Warehouse, a manufacturer
of livestock feed located in Madison, Georgia, since 1971. He was elected as a
director of Main Street Banks Incorporated in 1989 and is a director of Main
Street Bank.
Messrs. Fowler and Turner are first cousins. Mr. Hay is Mr. Fowler's nephew.
Except for Mr. Fowler, none of our directors holds any directorships in
companies with a class of securities registered pursuant to Section 12 of the
Securities Exchange Act or subject to the
54
<PAGE>
requirements of Section 15(d) of such Act or any company registered as an
investment company under the Investment Company Act of 1940, as amended.
The directors were elected at the most recent annual meeting of shareholders
held on April 20, 1999 to a one-year term. The Board of Directors selects the
executive officers.
COMMITTEES
Our Board of Directors has established the following committees:
EXECUTIVE/MANAGEMENT COMMITTEE. The Executive Committee meets as needed,
and with certain exceptions, has the same power and authority as the Board of
Directors in the management of the business affairs of Main Street between
meetings of the Board. In addition, the committee reviews financial reports,
personnel and staffing, asset/liability management, investments, and audit
reports of Main Street. The Committee is composed of Robert R. Fowler, III,
Chairman, Joseph K. Strickland, Samuel B. Hay, III, and advisory member Frank B.
Turner.
POLICY COMMITTEE. The Policy Committee meets as needed, to review and
approve proposed compensation increases to senior officers and directors of Main
Street Bank. This committee also periodically reviews and approves general
policies and procedures relating to compensation and benefits for officers and
directors, reviews employee compensation plans and benefits, and periodically
reports to the Board of Directors. The committee also reviews policies
concerning officer and employee retirement, termination and resignation. Members
of this committee are Robert R. Fowler, III, Chairman, Frank B. Turner, Vice
Chairman, C. Candler Hunt, and Joseph E. Patrick, Jr.
EXECUTIVE OFFICER COMPENSATION COMMITTEE. A sub-committee of the Policy
Committee is the Executive Officer Compensation Committee. This committee
determines and sets executive officer salaries annually. It also reviews and
recommends to the Policy Committee the points at which various percentage awards
will be made under the Cash Incentive Bonus Plan for executive officers. Members
of the Executive Officer Compensation Committee are C. Candler Hunt, Joseph E.
Patrick, Jr., and Frank B. Turner.
AUDIT COMMITTEE. The Audit Committee meets with our internal audit staff on
a quarterly basis to review and discuss specifics of the audit function and to
review any problems known to the Audit Department. Members of this committee are
C. Candler Hunt, Chairman, Frank B. Turner, Vice Chairman, and Louly F. Hay.
ASSET LIABILITY MANAGEMENT & INVESTMENT COMMITTEE. This committee, which
generally meets on a monthly basis, or as needed, manages our assets and
liabilities, reviews procedures and practices relating to the investment
activities of all subsidiaries, reviews examinations and audits of the loan
portfolios, examines delinquencies, reviews financial transactions with
management, and periodically reports to the Board of Directors. Members of this
committee are Samuel B. Hay, III, Chairman, Robert R. Fowler, III, Joseph K.
Strickland, Jr., James R. Turner and Ronald H. Cook, Jr.
SENIOR LOAN COMMITTEE. The Senior Loan Committee meets weekly and reviews
applications for loans of $250,000 or more and all loans of customers with a
total debt of $250,000 or more. The committee also performs credit reviews on
loan customers with total debts of $250,000 or more. Further, the committee
reviews procedures and practices related to lending activities, analyzes
examinations and audits of loan portfolios, and examines delinquencies. The
voting members of the Senior Loan Committee are Joseph K. Strickland, Jr.,
Chairman, Hal W. Dally, Vice Chairman, Robert R. Fowler, III, John R. Chesnut,
Jr., Ronald E. Carter, James A. Fletcher, Samuel B. Hay, III, Guy M. Dabbs, III,
William F. Parker, Jr., M. Jay Staines, Rob M. Watts, Charles O. Summerour,
Kerry W. Lipscomb, Lee A. Northcutt, Webster G. Samples, and advisory member
Frank B. Turner.
55
<PAGE>
Main Street Bank's Board of Directors maintains several committees to assist
in the supervision and management of Main Street Bank. The committees perform
functions typically associated with committees of financial institutions.
DIRECTOR COMPENSATION
Directors of Main Street Banks Incorporated who are not also officers or
employees receive a fee of $300 per board meeting attended, and the Vice
Chairman of the Board receives an additional $300 per month for his services as
Vice Chairman.
All directors of Main Street Bank receive a fee of $300 per board meeting
attended. Those who are not also officers receive a fee of $300 per committee
meeting attended.
EXECUTIVE COMPENSATION
The table below shows information concerning the compensation paid to the
Chief Executive Officer and our two other most highly compensated executive
officers for services to us in all capacities for the years ended 1998, 1997 and
1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME AND PRINCIPAL
POSITION NUMBER OF ALL OTHER
WITH COMPANY YEAR SALARY ($) BONUS ($) VALUE ($) SHARES COMPENSATION ($)(2)
- -------------------------------------------------- --------- ----------- ----------- --------- ----------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Robert R. Fowler, III ............................ 1998 153,740 38,435 180,000 18,000 31,468(3)
Chairman, President and 1997 142,753 45,683 0 0 35,070(3)
Chief Executive Officer 1996 139,763 55,933 120,000 24,000 9,721(3)
Samuel B. Hay, III ............................... 1998 120,339 30,085 180,000 18,000 6,424
Executive Vice President 1997 104,641 33,485 0 0 9,148
and Chief Financial Officer 1996 90,988 35,971 60,000 12,000 8,779
Joseph K. Strickland ............................. 1998 129,662 32,415 240,000 24,000 6,779
Executive Vice President 1997 119,076 38,104 0 0 9,279
and Chief Credit Officer 1996 112,259 50,064 60,000 12,000 7,405
</TABLE>
- ------------------------
(1) Prior to this offering, there has been no public trading market for the
shares of Main Street common stock. As a result, we determined the value of
the restricted stock awards listed above based on the per share sales price
of Main Street common stock in the transaction known to management to have
occurred nearest to the grant date. All awards granted in 1996 were granted
on November 22, 1996 and all awards granted in 1998 were granted on November
22, 1998. The nearest known transaction to November 22, 1996 occurred on
September 26, 1996 and the per share sales price was $5.00, as adjusted for
our September 1, 1998 four-for-one stock split. The nearest known
transaction to November 22, 1998 occurred on December 7, 1998 and the per
share sales price was $10.00. All of the restricted stock awards vest at a
rate of 20% per year beginning on the first anniversary of the grant date.
The number and aggregate value of the restricted stock holdings as of
December 31, 1998 are as listed below. The aggregate value is based on the
per share sales price of the transaction known to
56
<PAGE>
management to have occurred nearest to December 31, 1998. This transaction
occurred on December 14, 1998 and the per share sales price was $12.00.
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF SHARES VALUE
----------------- --------------
<S> <C> <C>
Mr. Fowler................................................ 162,000 $ 1,944,000
Mr. Hay................................................... 102,000 1,244,000
Mr. Strickland............................................ 96,000 1,152,000
</TABLE>
- ------------------------
(2) In all cases except for Mr. Fowler, the amounts shown represent matching and
other contributions that we have paid to the indicated person's Savings Plan
account. In Mr. Fowler's case, the amounts also include the payments
described in note (3) below.
(3) The amounts shown include matching and other contributions to Mr. Fowler's
Savings Plan account and the value of life insurance premiums paid on Mr.
Fowler's behalf under a split-dollar life insurance policy as follows:
<TABLE>
<CAPTION>
PREMIUMS ON
CONTRIBUTIONS TO SAVINGS SPLIT-DOLLAR
PLAN ACCOUNT LIFE INSURANCE
------------------------- -----------------------
<S> <C> <C>
1998..... 4,794 26,674
1997..... 9,480 25,590
1996..... 9,721 0
</TABLE>
RESTRICTED STOCK AWARD PLAN
The Main Street Banks Incorporated Restricted Stock Award Plan provides for
the grant of restricted stock awards as an incentive to key employees. We
reserved a total of 720,000 shares to be issued under the Restricted Stock Award
Plan. All of these shares of restricted stock are currently issued and
outstanding. These shares of restricted stock vest at a rate of 20% per year
beginning on the first anniversary of the grant date. See "Long-term Incentive
Plan" below for the amount of vested and unvested shares as of June 30, 1999.
LONG-TERM INCENTIVE PLAN
We have reserved 240,000 shares of common stock under our Long-term
Incentive Plan, which was adopted in April 1997. Under this plan, the Board of
Directors may grant options, restricted stock, or other stock-based compensation
to employees equal to the fair market value of the stock on the date of the
grant. As of June 30, 1999, 45,960 shares of restricted stock had been issued
under this plan. These shares of restricted stock vest at a rate of 20% per year
beginning on the first anniversary of the grant date. As of June 30, 1999, of
the 765,960 shares issued under the Restricted Stock Award Plan and the
Long-term Incentive Plan, 491,280 shares were vested and 274,680 were unvested.
SAVINGS PLAN
Effective January 1, 1988, Main Street Bank's qualified profit sharing plan
was converted to a Section 401(k) employee savings plan. The Savings Plan covers
all of our employees who have one year's credited service and includes a vesting
schedule for employer's matching contributions of 20% vesting after three years
and 20% vesting after each additional year's crediting service thereafter.
Matching contributions become fully vested after seven years.
CASH INCENTIVE BONUS PLAN
The Board of Directors established the Cash Incentive Bonus Plan was
established by the Board of Directors as a means of compensating our officers
through a cash bonus program tied to specific
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performance standards achieved by Main Street Banks Incorporated, as a whole, as
well as by each individual officer.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following persons serve as members of the Executive Officer Compensation
Committee, which is a sub-committee of the Policy Committee: C. Candler Hunt,
Joseph E. Patrick, Jr. and Frank B. Turner. Mr. Turner is not an employee of
Main Street Banks Incorporated, but serves as Vice Chairman of the board of
directors.
CERTAIN TRANSACTIONS
Our Directors and certain business organizations and individuals associated
with them are customers of and have banking transactions with Main Street Bank
and our other former banking subsidiaries in the ordinary course of business.
Such transactions include loans, commitments, lines of credit and letters of
credit. All of those transactions were made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons, and did not and do not involve more
than normal risk of collectibility or present any other unfavorable features.
Additional transactions with these persons and businesses are anticipated in the
future.
Robert R. Fowler, III, President, Chief Executive Officer and Chairman of
the Board, has entered into three lease agreements with us, through which he
leases to us buildings that we use for our operations center, corporate and
marketing offices, and accounting and card services office. These leases are
described below:
- OPERATIONS CENTER. We entered into the lease agreement for our operations
center on April 1, 1998. The operations center building is 22,300 square
feet and is located at 2118 Usher Street, Covington, Georgia 30014. Under
this lease agreement, we paid to Mr. Fowler rent at a rate of $2.36 per
square foot or an aggregate of $52,630 for the period from April 1, 1998
until April 1, 1999. The lease agreement provides a rental schedule by
which the rental rate is adjusted each year on the anniversary date of the
lease agreement. We expect to pay rent in the amount of $65,526 for the
period from April 1, 1999 until April 1, 2000. The lease agreement expires
March 31, 2007. We have the option to renew the lease agreement for two
successive five-year extension periods. Additionally, we may terminate the
lease agreement after the completion of five years of the term with a
termination payment equal to six months rent. The termination payments
decrease by the amount of one month's rental payment for each succeeding
lease year.
- CORPORATE AND MARKETING OFFICES. We entered into the lease agreement for
our corporate and marketing offices located at 1121 Floyd Street,
Covington, Georgia 30014 in May 1999. This building contains approximately
4,980 square feet. The rental rate from June 1, 1999 through December 1,
1999 is $2,747 per month and will increase to $3,245 per month on January
1, 2000. Thereafter, the lease agreement provides for 3% increases to the
rental rate on each January 1 until the expiration date, December 31,
2009. We have the option to renew the lease agreement for two successive
five-year extension periods.
- ACCOUNTING AND CARD SERVICES OFFICES. We entered into the lease agreement
for our accounting and card services offices, located at 1114 Pace Street,
Covington, Georgia 30014, on March 25, 1994. This building is
approximately 4,300 square feet. Since July 1999 the rental rate under
this lease agreement has been $1,850 per month. The rental rate will
increase to $2,220 per month in July 2003 and to $2,664 in July 2007. This
lease agreement expires on June 30, 2013.
We believe that the terms of the lease agreements are at least as favorable
to us as terms available from unrelated third parties.
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DESCRIPTION OF CAPITAL STOCK
Our Articles of Incorporation authorize us to issue up to 30,000,000 shares
of common stock, par value $1.00 per share, of which 60,000 shares will be
issued pursuant to this offering. As of March 31, 1999, 8,827,600 shares of
common stock were issued and outstanding.
All shares of common stock are entitled to share equally in dividends from
legally available funds, when, as and if declared by the Board of Directors.
Upon liquidation or dissolution of Main Street Banks Incorporated, whether
voluntary or involuntary, all shares of common stock are entitled to share
equally in all assets available for distribution to the shareholders. Each
holder of common stock is entitled to one vote for each share on all matters
submitted to the shareholders. Holders of common stock do not have any
preemptive right to acquire authorized but unissued capital stock. There is no
cumulative voting, redemption right, sinking fund provision or right of
conversion in existence with respect to the common stock. All shares of the
common stock issued in accordance with the terms of the offering as described in
this prospectus will be fully paid and non-assessable. See "Market Price of and
Dividends on Common Stock" (page 18) and "Supervision and Regulation Dividends"
(page70).
PROVISIONS OF OUR ARTICLES OF INCORPORATION AND BYLAWS
GENERAL
The Georgia Business Corporation Code and our Articles of Incorporation and
Bylaws govern shareholders' rights and related matters. Our Bylaws contain a
provision relating to the removal of our directors which could have the effect
of impeding an attempt to change or remove management or gain control of Main
Street in a transaction not supported by our Board of Directors. In addition,
our Articles of Incorporation also contain a provision which eliminates the
potential personal liability of directors for monetary damages and our Bylaws
contain provisions which provide indemnification for our directors. The
provision relating to removal of directors and the provisions relating to
elimination of liability and indemnification of directors are discussed more
fully below.
REMOVAL OF DIRECTORS. Under Georgia law, one or more directors of a
corporation may be removed with or without cause by the affirmative vote of a
majority of the shares present at a meeting at which a quorum is represented and
entitled to vote thereon, unless the articles of incorporation or a bylaw
adopted by the shareholders provides otherwise. However, Section 3.3 of our
Bylaws provides that our directors may be removed during their terms with or
without cause only by the affirmative vote of the holders of two-thirds of the
issued and outstanding shares of common stock entitled to vote in an election of
directors.
This provision may make it more difficult and time consuming for a potential
acquiror to obtain control of Main Street by replacing the Board of Directors
and management. Furthermore, the provision may also make it more difficult for
our shareholders to replace the Board of Directors or management, even if a
majority of the shareholders believes that replacing them would be in our best
interests. As a result, this provision may tend to perpetuate the incumbent
Board of Directors and management.
Although our management believes this provision is beneficial to our
shareholders, it also may tend to discourage some takeover bids that are not
supported by our Board. As a result, our shareholders may be deprived of
opportunities to sell some or all of their shares at prices that represent a
premium over prevailing market prices. On the other hand, defeating undesirable
acquisition offers can be a very expensive and time-consuming process. To the
extent that this provision discourages undesirable proposals, we may be able to
avoid those expenditures of time and money.
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INDEMNIFICATION
Our Bylaws contain certain indemnification provisions which provide that
directors, officers, employees or agents of Main Street, the insiders, will be
indemnified against expenses actually and reasonably incurred by them if they
are successful on the merits of a claim or proceeding.
When a case or dispute is not ultimately determined on its merits (i.e., it
is settled), the indemnification provisions provide that we will indemnify
insiders when they meet the applicable standard of conduct. The applicable
standard of conduct is met if the insider acted in a manner he or she in good
faith believed to be in or not opposed to the best interests of Main Street, and
with respect to any criminal action or proceeding, if the insider had no
reasonable cause to believe his or her conduct was unlawful. Whether the
applicable standard of conduct has been met is determined by the Board of
Directors, the shareholders or independent legal counsel in each specific case.
Our Bylaws also provide that the indemnification rights set forth in the
Bylaws are not exclusive of other indemnification rights to which an insider may
be entitled under any bylaw, resolution or agreement, either specifically or in
general terms approved by the affirmative vote of the holders of a majority of
the shares entitled to vote. We can also provide for greater indemnification
than that set forth in the Bylaws if we choose to do so, subject to approval by
our shareholders. We may not, however, indemnify an insider for liability
arising out of circumstances that constitute exceptions to limitation of an
insider's liability for monetary damages. See "Provisions of our Articles of
Incorporation and Bylaws--Limitation of Liability" (page 67)
The indemnification provisions of the Bylaws specifically provide that we
may purchase and maintain insurance on behalf of any director against any
liability asserted against such person and incurred by him or her in any such
capacity, whether or not we would have had the power to indemnify against such
liability.
We are not aware of any pending or threatened action, suit or proceeding
involving any insiders for which indemnification from us may be sought.
To the extent indemnification for liabilities arising under the Securities
Act of 1933 is permitted to our directors, officers and controlling persons
under the above provisions, or otherwise, we have been advised that in the
opinion of the Securities and Exchange Commission indemnification is against
public policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against the
liabilities other than the payment by us of expenses incurred or paid by a
director, officer or controlling person of Main Street in the successful defense
of any action, suit or proceeding is asserted by a director, officer or
controlling person in connection with the securities being registered, we will,
unless in the opinion of our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
the indemnification by us is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of the
issue.
LIMITATION OF LIABILITY
Article Eight of our Articles of Incorporation, subject to the exceptions
listed below, eliminates the potential personal liability of a director for
monetary damages to us and our shareholders for breach of a duty as a director.
There is no elimination of liability for:
(1) a breach of duty involving appropriation of a business opportunity of
the Company,
(2) an act or omission not in good faith or involving intentional misconduct
or a knowing violation of law,
(3) a transaction from which the director derives an improper material
tangible personal benefit, or
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(4) as to any payment of a dividend or approval of a stock repurchase that
is illegal under the Georgia Business Corporation Code.
Article Eight does not eliminate or limit our right or that of our
shareholders to seek injunctive or other equitable relief not involving monetary
damages.
We adopted Article Eight pursuant to the Georgia Business Corporation Code
which allows Georgia corporations, with the approval of their shareholders, to
include in their Articles of Incorporation a provision eliminating or limiting
the liability of directors, except in the circumstances described above. We
included Article Eight in our Articles of Incorporation to encourage qualified
individuals to serve and remain as our directors. While we have not experienced
any problems in locating directors, we could experience difficulty in the future
as our business activities increase and diversify. Article Eight was also
included to enhance our ability to secure liability insurance for our directors
at a reasonable cost. We intend to obtain liability insurance covering actions
taken by our directors in their capacities as directors. The Board of Directors
believes that Article Eight will enable us to secure such insurance on terms
more favorable than if such a provision were not included in the Articles of
Incorporation.
AMENDMENTS
Any amendment of Articles Eight and Nine of the Articles of Incorporation
requires the affirmative vote of the holders of at least two-thirds of the
outstanding shares of common stock.
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SHARES ELIGIBLE FOR FUTURE SALE
After the close of this offering, we will have up to 8,889,000 shares of
common stock outstanding. This includes approximately 3,575,496 shares that may
be immediately resold after the offering in the public market without
restriction. The remaining 5,313,504 shares of our outstanding common stock will
become available for resale in the public market at future dates after the close
of this offering subject to the resale limitations under the federal securities
laws and subject to vesting requirements, in the case of shares issued under our
Restricted Stock Award Plan or Long-term Incentive Plan. See "Risk Factors--The
market price of our common stock could drop significantly if large blocks of our
common stock are sold in the public market," (page 14) for a discussion of the
number of shares that will be eligible for sale after the close of this
offering. In addition see "Management--Restricted Stock Award Plan" and
"--Long-term Incentive Plan" (page 63) for a description of the vesting
requirements that apply to shares issued under those plans.
Rule 144 under the Securities Act of 1933 places volume and other
limitations on the resale of restricted shares and shares held by affiliates of
Main Street. Restricted shares, for Rule 144 purposes are shares that have been
acquired within the last two years under an exemption from registration under
federal securities law. An affiliate is a person who directly, or indirectly
controls, is controlled by, or is under common control with, the Main Street.
Affiliates of a company generally include its directors, executives officers and
principal shareholders.
In general, under Rule 144 holders of restricted shares who have held their
shares for at least one year are entitled to sell within any three-month period
a number of shares that does not exceed the greater of one of the following
amounts:
(1) 1% of the outstanding shares of common stock; or
(2) the average weekly trading volume during the four calendar weeks
preceding his or her sale.
Sales under Rule 144 are also subject to provisions regarding the manner of
sale, notice requirements and the availability of current public information
about Main Street. Affiliates will no longer be subject to the volume
restrictions and other limitations under Rule 144 beginning 90 days after their
status as an affiliate terminates, if they have held their shares for two years.
A nonaffiliate who has held restricted shares for two years is not subject to
the volume and other limitations under Rule 144.
Prior to the offering, there has been no public market for the common stock,
and we cannot predict the effect, if any, that the sale of shares or the
availability of shares for sale will have on the market price prevailing from
time to time. Nevertheless, sales of substantial amounts of common stock in the
public market could adversely affect prevailing market prices and our ability to
raise equity capital in the future.
SUPERVISION AND REGULATION
The following discussion describes the material elements of the regulatory
framework that applies to banks and bank holding companies and provides certain
specific information related to us.
GENERAL
Main Street Banks Incorporated is a bank holding company registered with the
Board of Governors of the Federal Reserve System under the Bank Holding Company
Act of 1956, as currently in effect. As a result we and any future non-bank
subsidiaries we establish are and will be subject to the supervision,
examination, and reporting requirements of the Bank Holding Company Act and the
regulations of the Federal Reserve.
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The Bank Holding Company Act requires every bank holding company to obtain
the Federal Reserve's prior approval before: (1) it may acquire direct or
indirect ownership or control of any voting shares of any bank if, after the
acquisition, the bank holding company will directly or indirectly own or control
more than 5% of the bank's voting shares; (2) it or any of its non-bank
subsidiaries may acquire all or substantially all of the assets of any bank; or
(3) it may merge or consolidate with any other bank holding company.
The Bank Holding Company Act also provides that the Federal Reserve may not
approve any transaction that would result in or tend to create a monopoly,
substantially lessen competition or otherwise function as a restraint of trade,
unless the anticompetitive effects of the proposed transaction are clearly
outweighed by the public interest in meeting the convenience and needs of the
community to be served. The Federal Reserve is also required to consider the
financial and managerial resources and future prospects of the bank holding
companies and banks concerned and the convenience and needs of the community to
be served. The Federal Reserve's consideration of financial resources generally
focuses on capital adequacy, which is discussed below.
We, and any other bank holding company located in Georgia, may acquire a
bank located in any other state, and any bank holding company located outside of
Georgia may acquire any Georgia-based bank, regardless of state law to the
contrary. In either case, certain deposit-percentage, aging requirements, and
other restrictions apply. National and state-chartered banks may branch across
state lines by acquiring banks in other states. By adopting legislation prior to
June 1, 1997, a state could elect either to "opt in", accelerating the date
after which interstate branching would be permissible, or "opt out", prohibiting
interstate branching altogether. The Georgia Interstate Banking Act provides
that interstate acquisitions by or of institutions located in Georgia are
permitted in states that also allow national interstate acquisitions. The
Georgia Interstate Branching Act permits Georgia-based banks and bank holding
companies owning or acquiring banks outside of Georgia and all non-Georgia banks
and bank holding companies owning or acquiring banks in Georgia to merge any
lawfully acquired bank into an interstate branch network. The Georgia Interstate
Branching Act also allows banks to establish new branches throughout Georgia.
The Bank Holding Company Act generally prohibits us from engaging in
activities other than banking or managing or controlling banks or other
permissible subsidiaries. The Bank Holding Company Act also prohibits us from
acquiring or keeping direct or indirect control of any company engaged in any
activities other than those activities that the Federal Reserve determines to be
closely related to banking or managing or controlling banks. In determining
whether a particular activity is permissible, the Federal Reserve must consider
whether the activity reasonably can be expected to produce benefits to the
public, such as greater convenience, increased competition, or gains in
efficiency, that outweigh possible adverse effects, such as undue concentration
of resources, decreased or unfair competition, conflicts of interest, or unsound
banking practices. For example, the Federal Reserve has determined that
factoring accounts receivable, acquiring or servicing loans, leasing personal
property, conducting discount securities brokerage activities, performing
certain data processing services, acting as agent or broker in selling credit
life insurance and certain other types of insurance in connection with credit
transactions, and performing certain insurance underwriting activities are
permissible activities of bank holding companies. The Bank Holding Company Act
does not place territorial limitations on permissible non-banking activities of
bank holding companies. Despite prior approval, the Federal Reserve may order a
holding company or its subsidiaries to terminate any activity or ownership or
control of any subsidiary when it has reasonable cause to believe that the
holding company's continued activity, ownership or control constitutes a serious
risk to the financial safety, soundness, or stability of any bank subsidiaries.
Our deposits are insured by the FDIC to the maximum extent provided by law.
Main Street Bank is also subject to numerous state and federal statutes and
regulations that affect its business, activities
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and operations, and it is supervised and examined by one or more state or
federal bank regulatory agencies.
The FDIC and the Georgia Department of Banking and Finance regularly examine
the operations of Main Street Bank and have the authority to approve or
disapprove mergers, the establishment of branches, and similar corporate
actions. Both regulatory agencies also have the power to prevent the continuance
or development of unsafe or unsound banking practices or other violations of
law.
PAYMENT OF DIVIDENDS
Main Street Banks Incorporated is a legal entity separate and distinct from
Main Street Bank. The principal source of Main Street Banks Incorporated cash
flow, including cash flow to pay dividends to its shareholders, is dividends
that Main Street Bank pays to it. Statutory and regulatory limitations apply to
Main Street Bank's payment of dividends to Main Street Banks Incorporated as
well as to Main Street Banks Incorporated payment of dividends to its
shareholders.
If, in the opinion of the federal banking regulator, Main Street Bank were
engaged in or about to engage in an unsafe or unsound practice, the federal
banking regulator could require, after notice and a hearing, that it cease and
desist from its practice. The federal banking agencies have indicated that
paying dividends that deplete a depository institution's capital base to an
inadequate level would be an unsafe and unsound banking practice. Under the
Federal Deposit Insurance Corporation Improvement Act of 1991, a depository
institution may not pay any dividend if payment would cause it to become
undercapitalized or if it already is undercapitalized. Moreover, the federal
agencies have issued policy statements that provide that bank holding companies
and insured banks should generally only pay dividends out of current operating
earnings. See "--Prompt Corrective Action" below.
The Georgia Department of Banking and Finance also regulates Main Street
Bank's dividend payments and must approve dividend payments that would exceed
50% of Main Street Bank's net income for the prior year. Our payment of
dividends may also be affected or limited by other factors, such as the
requirement to maintain adequate capital above regulatory guidelines.
At March 31, 1999, Main Street Bank was able to pay $2,558,475 in dividends
to Main Street Banks Incorporated without prior regulatory approval.
CAPITAL ADEQUACY
We are required to comply with the capital adequacy standards established by
the Federal Reserve in the case of Main Street Bank Incorporated and the
appropriate federal banking regulator in the case of Main Street Bank. The
Federal Reserve has established two basic measures of capital adequacy for bank
holding companies--a risk-based measure and a leverage measure. A bank holding
company must satisfy all applicable capital standards to be considered in
compliance.
The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profiles among banks and bank
holding companies, to account for off-balance-sheet exposure, and to minimize
disincentives for holding liquid assets. Assets and off-balance-sheet items are
assigned to broad risk categories, each with appropriate weights. The resulting
capital ratios represent capital as a percentage of total risk-weighted assets
and off-balance-sheet items.
The minimum guideline for the ratio of total capital to risk-weighted assets
is 8%. At least one-half of total capital must comprise common stock, minority
interests in the equity accounts of consolidated subsidiaries, noncumulative
perpetual preferred stock, and a limited amount of cumulative perpetual
preferred stock, less goodwill and certain other intangible assets. This portion
of total capital is referred to as Tier 1 Capital. The remainder may consist of
subordinated debt, other preferred stock, and a limited amount of loan loss
reserves and is referred to as Tier 2 Capital. At March 31, 1999, our
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consolidated ratio of total capital to risk-weighted assets was 13.3% and our
consolidated ratio of Tier 1 Capital to risk-weighted assets was 12.9%.
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio of Tier 1 Capital to average assets, less goodwill and certain other
intangible assets, of 3% for bank holding companies that meet the specified
criteria including having the highest regulatory rating. All other bank holding
companies generally are required to maintain a leverage ratio of at least 3%,
plus an additional cushion of 100 to 200 basis points. Our leverage ratio at
March 31, 1999 was 9.8%. The guidelines also provide that bank holding companies
experiencing internal growth, or making acquisitions will be expected to
maintain strong capital positions substantially above the minimum supervisory
levels without significant reliance on intangible assets. Furthermore, the
Federal Reserve has indicated that it will consider a bank holding company's
Tier 1 Capital leverage ratio, after deducting all intangibles, and other
indicators of capital strength in evaluating proposals for expansion or new
activities.
Main Street Bank is subject to risk-based and leverage capital requirements
adopted by the FDIC, which are substantially similar to those adopted by the
Federal Reserve for bank holding companies.
Failure to meet capital guidelines could subject a bank to a variety of
enforcement remedies, including the issuance of a capital directive, the
termination of deposit insurance by the FDIC, a prohibition on the taking of
brokered deposits, and certain other restrictions on its business. As described
below, substantial additional restrictions can be imposed on FDIC-insured
depository institutions that fail to meet applicable capital requirements. See
"--Prompt Corrective Action" below.
SUPPORT OF SUBSIDIARY INSTITUTIONS
Under Federal Reserve policy, Main Street Banks Incorporated is expected to
act as a source of financial strength for, and to commit resources to support,
Main Street Bank. This support may be required at times when, without this
Federal Reserve policy, Main Street Banks Incorporated might not be inclined to
provide it. In addition, any capital loans by a bank holding company to its
subsidiary bank will be repaid only after its deposits and certain other
indebtedness are repaid in full. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a banking subsidiary will be
assumed by the bankruptcy trustee and entitled to a priority of payment.
PROMPT CORRECTIVE ACTION
The Federal Deposit Insurance Corporation Improvement Act of 1991
established a system of prompt corrective action to resolve the problems of
undercapitalized institutions. Under this system, the federal banking regulators
have established five capital categories (well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized and critically
undercapitalized), and are required to take certain mandatory supervisory
actions, and are authorized to take other discretionary actions, relating to
institutions in the three undercapitalized categories. The severity of the
action depends upon the capital category in which the institution is placed.
Generally, subject to a narrow exception, the banking regulator must appoint a
receiver or conservator for an institution that is critically undercapitalized.
The federal banking agencies have specified by regulation the relevant capital
level for each category.
An institution that is categorized as undercapitalized, significantly
undercapitalized, or critically undercapitalized is required to submit an
acceptable capital restoration plan to its appropriate federal banking agency. A
bank holding company must guarantee that a subsidiary depository institution
meets its capital restoration plan, subject to certain limitations. The
controlling holding company's obligation to fund a capital restoration plan is
limited to the lesser of 5% of an undercapitalized subsidiary's assets or the
amount required to meet regulatory capital requirements. An undercapitalized
institution
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is also generally prohibited from increasing its average total assets, making
acquisitions, establishing any branches, or engaging in any new line of
business, except under an accepted capital restoration plan or with FDIC
approval. In addition, the appropriate federal banking agency may treat an
undercapitalized institution in the same manner as it treats a significantly
undercapitalized institution, if it determines that those actions are necessary.
At March 31, 1999, Main Street Bank's capital level placed it in the
well-capitalized category.
FDIC INSURANCE ASSESSMENTS
The FDIC has adopted a risk-based assessment system for insured depository
institutions that takes into account the risks attributable to different
categories and concentrations of assets and liabilities. The system assigns an
institution to one of three capital categories: (1) well capitalized; (2)
adequately capitalized; and (3) undercapitalized. These three categories are
substantially similar to the prompt corrective action categories described
above, with the "undercapitalized" category including institutions that are
undercapitalized, significantly undercapitalized, and critically
undercapitalized for prompt corrective action purposes. The FDIC also assigns an
institution to one of three supervisory subgroups within each capital group. The
supervisory subgroup to which an institution is assigned is based on a
supervisory evaluation that the institution's primary federal regulator provides
to the FDIC and information that the FDIC determines to be relevant to the
institution's financial condition and the risk posed to the deposit insurance
funds. The FDIC determines an institution's insurance assessment rate based on
the institution's capital category and supervisory category. Under the
risk-based assessment system, there are nine combinations of capital groups and
supervisory subgroups to which different assessment rates are applied.
Assessments range from 0 to 27 cents per $100 of deposits, depending on the
institution's capital group and supervisory subgroup.
Effective January 1, 1997, the FDIC imposed assessments to help repay the
$780 million in annual interest payments on the $8 billion of Financing
Corporation bonds issued in the late 1980s as part of the government rescue of
the thrift industry. The FDIC will assess banks at a rate of 1.3 cents per $100
of deposits until December 31, 1999. Thereafter, it will add approximately 2.4
cents per $100 of deposits to each assessment.
The FDIC may terminate an institution's deposit insurance if it finds that
the institution has engaged in unsafe and unsound practices, is in an unsafe or
unsound condition to continue operations, or has violated any applicable law,
regulation, rule, order or condition imposed by the FDIC.
PROPOSED LEGISLATION AND REGULATORY ACTION
New regulations and statutes are regularly proposed that contain
wide-ranging proposals for altering the structures, regulations and competitive
relationships of the nation's financial institutions. We cannot predict whether
or in what form any proposed regulation or statute will be adopted or the extent
to which our business may be affected by any new regulation or statute.
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LEGAL MATTERS
Powell, Goldstein, Frazer and Murphy LLP, Atlanta, Georgia, will pass upon
the validity of the shares of common stock offered by this prospectus for Main
Street.
EXPERTS
Ernst & Young LLP, independent auditors, have audited Main Street's
consolidated financial statements for the three years ended December 31, 1998
included in this prospectus. Main Street's financial statements are included in
reliance on Ernst & Young LLP's report, given on their authority as experts in
accounting and auditing.
REPORTS TO SHAREHOLDERS
Upon the effective date of the Registration Statement on Form S-1 that
registers the shares of common stock offered by this prospectus with the
Securities and Exchange Commission, we will be subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended, which include
requirements to file annual reports on Form 10-K and quarterly reports on Form
10-Q with the Securities and Exchange Commission. This reporting obligation will
exist for at least one year and will continue for fiscal years thereafter,
except that such reporting obligations may be suspended for any subsequent
fiscal year if at the beginning of such year the common stock of Main Street is
held of record by less than 300 persons.
At any time that we are not a reporting company, we will furnish our
shareholders with annual reports containing audited financial information for
each fiscal year on or before the date of the annual meeting of shareholders as
required by Rule 80-6-1-.05 of the Georgia Department of Banking and Finance.
Our fiscal year ends on December 31. Additionally, we will also furnish such
other reports as it may determine to be appropriate or as otherwise may be
required by law.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission the Registration
Statement under the Securities Act, with respect to the shares of common stock
offered by this prospectus. This prospectus does not contain all of the
information set forth in the Registration Statement. For further information
with respect to Main Street and the common stock, reference is made to the
Registration Statement and the exhibits to it. Copies of the Registration
Statement may be obtained at prescribed rates from the Public Reference Section
of the Securities and Exchange Commission, Room 1024, 450 Fifth Street, NW,
Judiciary Plaza, Washington, DC 20549 or by calling the Securities and Exchange
Commission at 1-800-SEC-0330. The Securities and Exchange Commission also
maintains a Web site (http://www.sec.gov) that contains registration statements,
reports, proxy and information statements and other information regarding
registrants, such as Main Street, that file electronically with the Securities
and Exchange Commission.
67
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
MAIN STREET BANKS INCORPORATED
<TABLE>
<S> <C>
Report of Independent Auditors....................................................... F-2
Consolidated Statements of Financial Condition as of March 31, 1999 (unaudited) and F-3
December 31, 1998 and 1997.........................................................
Consolidated Statements of Income for the three months ended March 31, 1999 and March F-5
31, 1998 (unaudited) and for the years ended December 31, 1998, 1997 and 1996......
Consolidated Statements of Changes in Shareholders' Equity for the years ended F-7
December 31, 1998, 1997 and 1996 and for the three months ended March 31, 1999
(unaudited)........................................................................
Consolidated Statements of Cash Flows for the three months ended March 31, 1999 and F-11
1998 (unaudited) and for the years ended December 31, 1998, 1997 and 1996..........
Notes to Consolidated Financial Statements........................................... F-13
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Main Street Banks Incorporated
We have audited the accompanying consolidated statements of financial
condition of Main Street Banks Incorporated and subsidiary as of December 31,
1998 and 1997, and the related statements of income, changes in shareholders'
equity, and cash flows for the three years ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Main Street Banks Incorporated and subsidiary as of December 31, 1998 and 1997,
and the consolidated results of their operations and their cash flows for the
three years ended December 31, 1998 in conformity with generally accepted
accounting principles.
Atlanta, Georgia
February 19, 1999
F-2
<PAGE>
MAIN STREET BANKS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31
MARCH 31 ------------------------------
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Cash and due from banks......................................... $ 22,508,423 $ 21,231,287 $ 16,829,585
Interest-bearing deposits in banks.............................. 508,144 143,111 103,170
Federal funds sold.............................................. 4,630,000 -- --
Investment securities held to maturity (fair value of
$12,946,915, $13,044,485 and $12,526,411 at March 31, 1999
(unaudited), December 31, 1998 and 1997, respectively)........ 12,554,932 12,497,146 12,068,110
Investment securities available for sale........................ 47,152,876 48,242,546 54,833,630
Other investments............................................... 1,440,130 1,375,579 1,364,798
Mortgage loans held for sale.................................... 3,084,357 4,282,914 --
Loans, net of unearned income................................... 333,385,384 324,616,860 298,091,318
Allowance for loan losses....................................... (5,982,383) (5,849,997) (5,091,653)
-------------- -------------- --------------
Loans, net...................................................... 327,403,001 318,766,863 292,999,665
Premises and equipment, net..................................... 15,631,167 16,328,067 13,717,197
Other real estate............................................... 1,066,613 832,023 627,820
Accrued interest receivable..................................... 2,776,775 2,739,057 2,984,236
Goodwill and other intangibles, net............................. 1,713,375 1,823,067 2,261,834
Other assets.................................................... 5,048,047 2,988,761 2,411,327
-------------- -------------- --------------
Total assets.................................................... $ 445,517,840 $ 431,250,421 $ 400,201,372
-------------- -------------- --------------
-------------- -------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing demand.................................... $ 82,341,250 $ 76,762,889 $ 59,529,993
Interest-bearing demand and money market...................... 89,559,446 83,520,903 82,258,989
Savings....................................................... 25,574,161 24,157,812 24,099,277
Time deposits of $100,000 or more............................. 45,058,525 43,373,125 41,931,273
Other time deposits........................................... 138,467,497 138,081,728 148,127,240
-------------- -------------- --------------
Total deposits.................................................. 381,000,879 365,896,457 355,946,772
Accrued interest payable........................................ 1,429,782 1,372,846 1,368,944
Federal Home Loan Bank advances................................. 15,000,000 17,000,000 2,000,000
Federal funds purchased......................................... -- 2,800,000 1,500,000
Other liabilities............................................... 4,355,523 1,234,796 1,276,437
-------------- -------------- --------------
Total liabilities............................................... 401,786,184 388,304,099 362,092,153
SHAREHOLDERS' EQUITY
Common stock--$1 par value; 30,000,000 authorized; 8,827,600
issued and outstanding at March 31, 1999 (unaudited) and
December 31, 1998; 2,172,400 issued and outstanding at
December 31, 1997............................................. 8,827,600 8,827,600 2,172,400
Additional paid-in-capital...................................... 783,488 783,488 6,758,688
Retained earnings............................................... 34,206,277 33,274,134 29,095,766
Accumulated other comprehensive income.......................... (85,709) 61,100 82,365
-------------- -------------- --------------
Total shareholders' equity...................................... 43,731,656 42,946,322 38,109,219
-------------- -------------- --------------
Total liabilities and shareholders' equity...................... $ 445,517,840 $ 431,250,421 $ 400,201,372
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See accompanying notes.
F-3
<PAGE>
MAIN STREET BANKS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED DECEMBER 31
-------------------- ----------------------------------
<S> <C> <C> <C> <C> <C>
1999 1998 1998 1997 1996
--------- --------- ---------- ---------- ----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest income:
Loans, including fees............................ $7,978,973 $7,579,292 $31,598,633 $28,414,337 $24,857,007
Interest on investment securities:
Taxable.......................................... 738,301 887,676 3,178,151 3,731,234 3,469,851
Non-taxable...................................... 156,402 191,299 688,448 784,261 929,571
Federal funds sold............................... 16,593 71,676 314,158 707,009 507,646
Interest-bearing deposits in banks............... 1,951 2,094 8,912 9,797 3,515
--------- --------- ---------- ---------- ----------
Total interest income.............................. 8,892,220 8,732,037 35,788,302 33,646,638 29,767,590
Interest expense:
Interest-bearing demand and money market......... 491,074 487,147 1,992,775 1,833,960 1,434,074
Savings.......................................... 126,151 120,997 479,459 465,560 477,668
Time deposits of $100,000 or more................ 616,143 604,469 2,435,359 2,261,132 2,033,583
Other time deposits.............................. 1,784,605 2,000,866 7,691,218 8,355,983 8,359,421
Federal Funds purchased.......................... 25,694 7,316 62,871 4,314 53,800
Federal Home Loan Bank advances.................. 221,642 40,783 586,113 105,661 24,204
Other............................................ 6,538 3,984 18,494 16,044 16,134
--------- --------- ---------- ---------- ----------
Total interest expense............................. 3,271,847 3,265,562 13,266,289 13,042,654 12,398,884
Net interest income................................ 5,620,373 5,466,475 22,522,013 20,603,984 17,368,706
Provision for loan losses.......................... 225,000 450,000 865,000 1,405,000 934,737
--------- --------- ---------- ---------- ----------
Net interest income after provision for loan
losses........................................... 5,395,373 5,016,475 21,657,013 19,198,984 16,433,969
Noninterest income:
Service charges on deposit accounts.............. 740,341 737,668 3,098,573 2,897,612 2,299,505
Investment securities gains...................... -- 11,176 17,533 20,958 76,200
Gain (loss) on sales of premises and equipment... 348,273 3,754 55,284 (150,059) 444,852
Gains on sales of mortgage loans................. 56,691 4,960 296,845 -- --
Gains on sales of other loans.................... -- -- 40,587 99,266 108,545
Other income..................................... 616,828 479,574 2,286,219 1,480,375 755,402
--------- --------- ---------- ---------- ----------
Total noninterest income........................... 1,762,133 1,237,132 5,795,041 4,348,152 3,684,504
Noninterest expense:
Salaries and other compensation.................. $2,301,475 $2,125,955 $8,594,292 $7,291,916 $5,847,737
Employee benefits................................ 374,121 321,861 1,339,640 1,357,062 1,081,103
Net occupancy and equipment expense.............. 687,857 613,462 2,729,816 2,338,049 1,949,872
Professional services............................ 146,763 79,062 315,015 308,854 378,157
Regulatory agency assessments.................... 39,084 41,466 161,351 107,622 975,369
Amortization of intangible assets................ 109,692 109,692 438,767 438,767 656,371
Other expense.................................... 1,063,977 949,856 4,268,097 3,717,315 3,127,494
--------- --------- ---------- ---------- ----------
Total noninterest expense.......................... 4,722,969 4,241,354 17,846,978 15,559,585 14,016,103
Income before income taxes......................... 2,434,537 2,012,253 9,605,076 7,987,551 6,102,370
Income tax expense................................. 796,186 596,266 3,089,701 2,497,768 1,811,212
--------- --------- ---------- ---------- ----------
Net income......................................... $1,638,351 $1,415,987 $6,515,375 $5,489,783 $4,291,158
--------- --------- ---------- ---------- ----------
--------- --------- ---------- ---------- ----------
Earnings per share-basic and diluted............... $ .19 $ .16 $ .75 $ .63 $ .50
--------- --------- ---------- ---------- ----------
--------- --------- ---------- ---------- ----------
Weighted average common shares outstanding......... 8,710,970 8,693,956 8,710,970 8,657,180 8,548,456
--------- --------- ---------- ---------- ----------
--------- --------- ---------- ---------- ----------
</TABLE>
See accompanying notes.
F-4
<PAGE>
MAIN STREET BANKS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TOTAL
-------------------- PAID-IN RETAINED COMPREHENSIVE SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS INCOME EQUITY
--------- --------- ----------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996......... 355,650 $ 355,650 $8,051,463 $23,097,475 $ 38,839 $31,543,427
Comprehensive income, net of tax:
Net income..................... -- -- -- 4,291,158 -- 4,291,158
Other comprehensive income:
Net unrealized loss on
investment securities held
for sale arising in the
current year............... (233,033) (233,033)
Less reclassification
adjustment for net gains
included in net income..... (50,292) (50,292)
-------------
Comprehensive income............. 4,007,833
Cash dividends declared per share
($.17 per share)............... -- -- -- (1,422,360) -- (1,422,360)
Stock issued under restricted
stock award plan............... 30,200 30,200 362,400 -- -- 392,600
Stock forfeited under restricted
stock award plan............... (60) (60) -- -- -- (60)
Common stock split (6 for 1),
effected in the form of a
dividend......................... 1,777,950 1,777,950 (1,777,950) -- -- --
--------- --------- ----------- ---------- -------------- -------------
Balance at December 31, 1996....... 2,163,740 $2,163,740 $6,635,913 $25,966,273 $ (244,486) $34,521,440
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TOTAL
-------------------- PAID-IN RETAINED COMPREHENSIVE SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS INCOME EQUITY
--------- --------- ----------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996....... 2,163,740 $2,163,740 $6,635,913 $25,966,273 $ (244,486) $34,521,440
Comprehensive income, net of tax:
Net income..................... -- -- -- 5,489,783 -- 5,489,783
Other comprehensive income:
Net unrealized gains on
investment securities held
for sale arising in the
current year............... -- -- -- -- 340,683 340,683
Less reclassification
adjustment for net gains
included in net income..... -- -- -- -- (13,832) (13,832)
-------------
Comprehensive income............. 5,816,634
Cash dividends declared per share
($.27 per share)............... -- -- -- (2,360,290) -- (2,360,290)
Stock issued under restricted
stock award plan............... 9,700 9,700 135,800 -- -- 145,500
Stock forfeited under restricted
stock award plan............... (1,040) (1,040) (13,025) -- -- (14,065)
--------- --------- ----------- ---------- -------------- -------------
Balance at December 31, 1997....... 2,172,400 $2,172,400 $6,758,688 $29,095,766 $ 82,365 $38,109,219
</TABLE>
F-5
<PAGE>
MAIN STREET BANKS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TOTAL
-------------------- PAID-IN RETAINED COMPREHENSIVE SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS INCOME EQUITY
--------- --------- ----------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997....... 2,172,400 $2,172,400 $6,758,688 $29,095,766 $ 82,365 $38,109,219
Comprehensive income, net of tax:
Net income..................... 6,515,375 6,515,375
Other comprehensive income:
Net unrealized losses on
investment securities held
for sale arising in the
current year............... -- -- -- -- (32,837) (32,837)
Less reclassification
adjustment for net gains
included in net income..... -- -- -- -- 11,572 11,572
-------------
Comprehensive income............. 6,494,110
Cash dividends declared per share
($.27 per share)............... -- -- -- (2,337,007) -- (2,337,007)
Stock issued under restricted
stock award plan............... 132,000 132,000 548,000 -- -- 680,000
Common stock split (4 for 1),
effected in the form of a
dividend....................... 6,523,200 6,523,200 (6,523,200) -- -- --
--------- --------- ----------- ---------- -------------- -------------
Balance at December 31, 1998....... 8,827,600 $8,827,600 $ 783,488 $33,274,134 $ 61,100 $42,946,322
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TOTAL
-------------------- PAID-IN RETAINED COMPREHENSIVE SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS INCOME EQUITY
--------- --------- ----------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998....... 8,827,600 $8,827,600 $ 738,488 $33,274,134 $ 61,100 $42,946,322
Comprehensive income, net of tax:
Net income (unaudited)......... 1,638,351 1,638,351
Other comprehensive income:
Net unrealized losses on
investment securities held
for sale arising in the
current year (unaudited)... (146,809) (146,809)
Less reclassification
adjustment for net gains
included in net income
(unaudited)................ -- --
-------------
Comprehensive income
(unaudited).................... 1,491,542
Cash dividends declared per share
($.08 per share) (unaudited)... (706,208) (706,208)
--------- --------- ----------- ---------- -------------- -------------
Balance at March 31, 1999
(unaudited)...................... 8,827,600 $8,827,600 $ 783,488 $34,206,277 ($ 85,709) $43,731,656
--------- --------- ----------- ---------- -------------- -------------
--------- --------- ----------- ---------- -------------- -------------
</TABLE>
See accompanying notes.
F-6
<PAGE>
MAIN STREET BANKS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
<S> <C> <C> <C> <C> <C>
MARCH 31 YEAR ENDED DECEMBER 31
-------------------------- -------------------------------------------
<CAPTION>
1999 1998 1998 1997 1996
------------ ------------ ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income...................................... $ 1,638,351 $ 1,415,987 $ 6,515,375 $ 5,489,783 $ 4,291,158
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses..................... 225,000 450,000 865,000 1,405,000 934,737
Depreciation and amortization................. 328,651 239,192 1,090,001 913,918 691,690
Amortization of intangible assets............. 113,053 113,053 452,213 451,642 656,371
Net (gain) loss on sales of OREO.............. -- (303) (79,018) 10,677 (69,913)
Gain on sale of charter....................... -- -- -- -- (425,000)
Investment securities gains................... -- (11,176) (17,553) (20,958) (76,200)
Net amortization of investment securities..... (15,046) (249) (33,502) (10,022) 41,520
Net accretion on loans purchased.............. (18,007) (20,807) (69,695) (126,214) (223,353)
(Gain) loss on sales of premises and
equipment................................... (348,273) -- (55,284) 150,059 (19,852)
Net decrease (increase) in mortgage loans held
for sale.................................... 1,198,557 -- (4,282,914) -- --
Gains on sales of mortgage loans.............. (56,691) (53,563) (296,845) -- --
Gain on sales of other loans.................. -- (4,960) (40,587) (99,266) --
Deferred income tax (benefit) expense......... (75,629) -- 95,955 (216,840) (160,206)
Deferred net loan fees........................ 25,068 25,068 100,120 50,135 63,922
Vesting in restricted stock award plan........ 120,720 106,935 493,000 335,700 216,840
Changes in operating assets and liabilities:
(Increase) decrease in accrued interest
receivable................................ (37,718) 99,695 245,179 (468,856) 177,034
Increase (decrease) in accrued interest
payable................................... 57,296 (38,059) 3,902 165,487 (69,354)
Other....................................... 1,085,884 (245,843) (975,329) 201,087 (863,041)
------------ ------------ ------------- ------------- -------------
Net cash provided by operating activities....... 4,241,216 2,074,970 4,010,018 8,231,332 5,166,353
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investment securities held to
maturity...................................... (364,934) (1,951,673) (3,764,460) (1,015,000) --
Purchases of investment securities available for
sale.......................................... (6,539,450) (5,801,223) (25,389,492) (41,813,157) (9,268,893)
Purchases of other investments.................. (65,100) (14,000) (14,000) (54,300) (591,500)
Maturities of investment securities held to
maturity...................................... 307,319 600,000 3,368,790 2,363,022 3,389,086
Maturities and calls of investment securities
available for sale............................ 7,264,015 8,777,000 31,951,576 31,541,825 15,433,453
Proceeds from sales of investment securities
available for sale............................ -- -- -- 3,106,435 --
Net proceeds from sale of charter............... -- -- -- -- 425,000
Net increase in loans........................... (9,226,791) (3,669,727) (27,319,593) (40,668,075) (23,532,349)
Purchases of premises and equipment............. (129,674) -- (3,764,652) (1,367,513) (6,535,672)
Proceeds from sales of premises and equipment... 1,187,354 -- 491,506 572,198 89,765
Proceeds from sales of OREO..................... -- 98,462 796,165 889,343 1,555,439
------------ ------------ ------------- ------------- -------------
Net cash used by investing activities........... (7,567,261) (1,961,161) (23,644,160) (46,445,222) (19,035,671)
</TABLE>
F-7
<PAGE>
MAIN STREET BANKS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 YEAR ENDED DECEMBER 31
-------------------------- -------------------------------------------
1999 1998 1998 1997 1996
------------ ------------ ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand and savings accounts..... 13,033,253 13,389,441 18,553,345 14,767,417 19,657,158
Increase (decrease) in time deposits............ 2,071,169 290,308 (8,603,660) 13,922,667 (4,427,692)
(Decrease) increase in federal funds purchased.. (2,800,000) (1,500,000) 1,300,000 1,500,000 --
(Decrease) increase in Federal Home Loan Bank
advances...................................... (2,000,000) -- 15,000,000 2,000,000 --
Dividends paid.................................. (706,208) (543,100) (2,173,900) (1,817,190) (1,422,360)
------------ ------------ ------------- ------------- -------------
Net cash provided by financing activities....... 9,598,214 11,636,649 24,075,785 30,372,894 13,807,106
------------ ------------ ------------- ------------- -------------
Net increase (decrease) in cash and cash
equivalents................................... 6,272,169 11,750,458 4,441,643 (7,840,996) (62,212)
Cash and cash equivalents at beginning of
period........................................ 21,374,398 16,932,755 16,932,755 24,773,751 24,835,963
------------ ------------ ------------- ------------- -------------
Cash and cash equivalents at end of period...... $ 27,646,567 $ 28,683,213 $ 21,374,398 $ 16,932,755 $ 24,773,751
------------ ------------ ------------- ------------- -------------
------------ ------------ ------------- ------------- -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for:
Interest...................................... $ 3,271,847 $ 3,265,561 $ 13,262,387 $ 12,877,167 $ 12,468,235
------------ ------------ ------------- ------------- -------------
------------ ------------ ------------- ------------- -------------
Income taxes, net............................. $ 216,000 $ -- $ 2,764,270 $ 2,725,000 $ 2,450,000
------------ ------------ ------------- ------------- -------------
------------ ------------ ------------- ------------- -------------
SUPPLEMENTAL DISCLOSURES OF NONCASH TRANSACTIONS
Loans transferred to real estate acquired
through foreclosure........................... $ 365,653 $ 299,780 $ 550,168 $ 496,750 $ 2,075,511
------------ ------------ ------------- ------------- -------------
------------ ------------ ------------- ------------- -------------
Bank owned premises transferred to other real
estate........................................ $ -- $ -- $ 685,000 $ -- $ --
------------ ------------ ------------- ------------- -------------
------------ ------------ ------------- ------------- -------------
</TABLE>
See accompanying notes.
F-8
<PAGE>
MAIN STREET BANKS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Main Street Banks Incorporated is a one-bank holding company which conducts
business primarily in Barrow, Clarke, Gwinnett, Newton, Rockdale and Walton
counties through its wholly owned subsidiary, Main Street Bank. Main Street Bank
provides a full range of traditional banking, mortgage banking, and investment
and insurance services to individual and corporate customers through its
thirteen locations.
The consolidated financial statements of Main Street Banks Incorporated and
subsidiary (collectively the "Company") are prepared in accordance with
generally accepted accounting principles and practices within the financial
services industry, which requires management to make estimates and assumptions
that affect the amounts reported in the consolidated financial statements and
accompanying notes. 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 other real estate acquired in connection with
foreclosures or in satisfaction of loans. Management believes that the allowance
for loan losses is adequate and the valuation of other real estate is
appropriate. While management uses available information to recognize losses on
loans, future additions to the allowance may be necessary based on changes in
economic conditions.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Main Street
Banks Incorporated ("Parent") and its wholly owned subsidiary, Main Street Bank.
All significant intercompany transactions and balances have been eliminated in
consolidation.
INVESTMENT SECURITIES
Management determines the appropriate classification of investment
securities at the time of purchase and reevaluates such designation as of each
balance sheet date. Investment securities are classified as held-to-maturity
when the Company has the positive intent and the ability to hold the securities
to maturity. Held to maturity securities are stated at amortized cost.
Investment securities not classified as held-to-maturity are classified as
available for sale. Available for sale securities are stated at fair value with
the unrealized gains and losses, net of tax, reported as a separate component of
shareholders' equity. Other investments are stated at amortized cost.
Realized gains and losses, and declines in value determined to be other than
temporary are included in net securities gains (losses). The cost of securities
sold is based on the specific identification method.
The amortized cost of investment securities classified as held-to-maturity
or available for sale is adjusted for amortization of premiums and accretion of
discounts to expected maturity, or in the case of mortgage-backed securities,
over the estimated life of the security. Such amortization is included in
interest income from investments.
F-9
<PAGE>
MAIN STREET BANKS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOANS
Loans are reported at the gross amount outstanding reduced by purchase
discount, deferred net loan fees and unearned income. Interest income on loans
is generally recognized over the terms of the loans based on the unpaid daily
principal amount outstanding. If the collectibility of interest appears
doubtful, the accrual thereof is discontinued. When accrual of interest is
discontinued, all unpaid interest is reversed. Interest income on such loans is
subsequently recognized only to the extent cash payments are received, the full
recovery of principal is anticipated, or after full principal has been recovered
when collection of principal is in question. Gains on sales of loans are
recognized at the time of sale, as determined by the difference between the net
sales proceeds and the book value of the loans sold. Loan origination fees, net
of direct loan origination costs, are deferred and recognized as income over the
life of the related loan on a level-yield basis.
MORTGAGE LOANS HELD FOR SALE
Mortgage loans held-for-sale are recorded at the lower of cost or market on
an individual loan basis, determined by outstanding commitments from investors
and prevailing market conditions. The Company did not have any mortgage loans
held-for-sale at December 31, 1997. Gains and losses on sales of loans are
recognized at settlement date. Gains and losses are determined as the difference
between the net sales proceeds and carrying value of the loans sold.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision for loan
losses charged to expense. The allowance represents an amount which, in
management's judgment, will be adequate to absorb probable losses on existing
loans that may become uncollectible. Management's judgment in determining the
adequacy of the allowance is based on evaluations of the collectibility of loans
and takes into consideration such factors as changes in the nature and volume of
the loan portfolio, current economic conditions that may affect the borrower's
ability to pay, overall portfolio quality and review of specific problem loans.
Periodic revisions are made to the allowance when circumstances which
necessitate such revisions become known. Recognized losses are charged to the
allowance for loan losses, while subsequent recoveries are added to the
allowance.
PREMISES AND EQUIPMENT
Premises and equipment are reported at cost less accumulated depreciation
and amortization. Depreciation and amortization are computed using primarily
accelerated methods over the estimated useful lives of the assets. Leasehold
improvements are amortized over the shorter of the estimated useful lives of the
improvements or the term of the related lease.
OTHER REAL ESTATE
Other real estate represents property acquired through foreclosure or in
settlement of loans and is recorded at the lower of cost or fair value less
estimated selling expenses. Losses incurred in the acquisition of foreclosed
properties are charged against the allowance for loan losses at the time of
foreclosure. Subsequent writedowns of other real estate are charged to current
operations.
F-10
<PAGE>
MAIN STREET BANKS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL AND OTHER INTANGIBLE ASSETS
Substantially all costs in excess of net assets of entities acquired are
being amortized using the straight-line method over periods ranging from 10 to
15 years. Other intangibles related to entities acquired are being amortized
over periods ranging from 5 to 10 years using the straight-line method.
Intangible assets related to capital lease rights are being amortized over the
term of the related lease using the straight-line method. Accumulated
amortization was $3,017,774, $2,904,720 and $2,452,507 at March 31, 1999
(unaudited), December 31, 1998 and 1997, respectively. Amortization expense
totaled $113,503 for the periods ended March 31, 1999 and 1998 (unaudited) and
$452,213, $451,642 and $669,817 for the periods ended December 31, 1998, 1997
and 1996, respectively.
INCOME TAXES
The Company accounts for income taxes using the liability method. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates that will be in effect when the differences
are expected to reverse. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized.
EARNINGS PER SHARE AND COMMON STOCK SPLIT
The Company has adopted the provisions of Financial Accounting Standards
Board No. 128, "Earnings Per Share" ("Statement 128"). All earnings per share
amounts for all periods presented have been restated to conform to the
requirements of Statement 128. All per share amounts have been adjusted for the
common stock splits, effected in the form of dividends, to shareholders of
record on September 1, 1998 and April 30, 1996.
FINANCIAL INSTRUMENTS
In the ordinary course of business, the Company enters into
off-balance-sheet financial instruments consisting of commitments to extend
credit and standby letters of credit. Such financial instruments are recorded in
the financial statements when they are funded or when related fees are incurred
or received.
CASH AND CASH EQUIVALENTS
For purposes of presentation in the statement of cash flows, cash and cash
equivalents include cash on hand, amounts due from banks, interest-bearing
deposits in banks and federal funds sold. Generally, federal funds are purchased
and sold for one-day periods.
RECLASSIFICATION
Certain previously reported amounts have been reclassified to conform to
current presentation.
F-11
<PAGE>
MAIN STREET BANKS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income" ("Statement 130"), which establishes
standards for reporting and display of comprehensive income and its components
in a full set of general-purpose financial statements. Statement 130 requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. The Company
adopted this statement in 1998, which is a more inclusive reporting methodology
that includes disclosure of certain financial information that previously has
not been recognized in the calculation and reporting of net income. The
Company's only comprehensive income items are related to unrealized gains and on
investment securities classified as available for sale and reclassification
adjustment for gains and losses on securities sales and calls included in net
income. All comprehensive income items are tax effected at 34%.
In June 1997, the Financial Accounting Standards Board issued Statement No.
131, "Disclosure About Segments of an Enterprise and Related Information"
("Statement 131"), which establishes standards for the way that public business
enterprises report information about operating segments in annual and interim
financial statements. It also establishes standards for related disclosures
about products and services, geographical areas and major customers. The
adoption of this standard did not have a significant impact on the Company, as
the Company principally operates in one business segment.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-1,
"Accounting for Costs of Computer Software Developed or Obtained for Internal
Use" ("SOP 98-1"). SOP 98-1 provides guidance as to when it is appropriate to
capitalize the costs of software developed or obtained for internal use. The
effect of the adoption of SOP 98-1 was not material to the Company's financial
position or results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("Statement 133"). Statement 133 establishes new
accounting and reporting standards for derivatives. This statement requires all
derivatives to be measured at fair value and recognized as either assets or
liabilities in the statement of financial condition. Accounting for the changes
in fair value of a derivative depends on the intended use of the derivative and
the resulting designation. In May of 1999, the Financial Accounting Standards
Board elected to defer the effective date of this statement for one year.
Adoption of this statement is required for the Company's financial statements
for the year ending December 31, 2001. Adoption is not expected to result in a
material financial impact based on the Company's limited use of derivatives.
2. CASH AND DUE FROM BANKS
The Company is required to maintain average reserve balances with the
Federal Reserve Bank, on deposit with national banks, or in cash. The average
reserve requirements at March 31, 1999 (unaudited), December 31, 1998 and 1997
were approximately $8,358,000, $8,588,000 and $6,665,000, respectively. The
Company maintained cash balances and reserves which were adequate to meet these
requirements.
F-12
<PAGE>
MAIN STREET BANKS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
3. INVESTMENT SECURITIES
The amortized cost and estimated fair value of investment securities are as
follows:
<TABLE>
<CAPTION>
MARCH 31, 1999
(UNAUDITED)
------------------------------------------------------
<S> <C> <C> <C> <C>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
------------- ----------- ----------- -------------
HELD TO MATURITY SECURITIES
States and political subdivisions......................... $ 12,554,932 $ 418,562 $ (26,579) $ 12,946,915
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
AVAILABLE FOR SALE SECURITIES
U.S. Treasury securities.................................. $ 3,985,780 $ 30,833 $ (1,303) $ 4,015,310
U.S. Government agencies and corporations................. 15,988,611 25,382 (34,660) 15,979,333
Mortgage-backed securities................................ 27,256,847 94,188 (192,802) 27,158,233
------------- ----------- ----------- -------------
$ 47,231,238 $ 150,403 $ (228,765) $ 47,152,876
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------------------------------------
<S> <C> <C> <C> <C>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
------------- ----------- ----------- -------------
HELD TO MATURITY SECURITIES
States and political subdivisions......................... $ 12,497,146 $ 547,339 $ -- $ 13,044,485
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
AVAILABLE FOR SALE SECURITIES
U.S. Treasury securities.................................. $ 3,991,421 $ 49,529 $ -- $ 4,040,950
U.S. Government agencies and corporations................. 14,495,177 108,438 -- 14,603,615
Mortgage-backed securities................................ 29,663,372 59,314 (124,705) 29,597,981
------------- ----------- ----------- -------------
$ 48,149,970 $ 217,281 $ (124,705) $ 48,242,546
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------------------------
<S> <C> <C> <C> <C>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
------------- ----------- ----------- -------------
HELD TO MATURITY SECURITIES
States and political subdivisions.......................... $ 12,068,110 $ 474,704 $ (16,403) $ 12,526,411
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
AVAILABLE FOR SALE SECURITIES
U.S. Treasury securities................................... $ 6,477,292 $ 52,078 $ -- $ 6,529,370
U.S. Government agencies and corporations.................. 24,525,744 108,351 (1,375) 24,632,720
Mortgage-backed securities................................. 23,705,261 51,176 (84,897) 23,671,540
------------- ----------- ----------- -------------
$ 54,708,297 $ 211,605 $ (86,272) $ 54,833,630
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
</TABLE>
The amortized cost and estimated fair value of investment securities held to
maturity and available for sale at December 31, 1998, by contractual maturity,
are shown below. Expected maturities will differ from contractual maturities
because issuers may have the right to call or repay obligations without call
F-13
<PAGE>
MAIN STREET BANKS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
3. INVESTMENT SECURITIES (CONTINUED)
or prepayment penalties. Mortgage-backed securities have been allocated based on
expected maturity dates after considering assumed prepayment patterns.
<TABLE>
<CAPTION>
INVESTMENT SECURITIES INVESTMENT SECURITIES
HELD TO MATURITY AVAILABLE FOR SALE
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
------------- ------------- ------------- -------------
Due in one year or less............................. $ 778,704 $ 790,945 $ 4,555,526 $ 4,587,098
Due after one year through five years............... 4,447,348 4,589,487 14,352,309 14,429,299
Due after five years through ten years.............. 6,721,094 7,016,308 7,605,835 7,674,604
Due after ten years................................. 550,000 647,745 21,542,498 21,551,475
------------- ------------- ------------- -------------
$ 12,497,146 $ 13,044,485 $ 48,056,168 $ 48,242,476
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
Gains and losses on sales of securities consist of the following:
AVAILABLE FOR SALE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 YEAR ENDED DECEMBER 31
-------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
1999 1998 1998 1997 1996
--------- --------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Gross gains................................................ -- $ 11,176 $ 17,533 $ 49,620 76,200
Gross losses............................................... -- -- -- (28,662) --
--------- --------- --------- --------- ---------
Net realized gains......................................... -- $ 11,176 $ 17,533 $ 20,958 $ 76,200
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The related income tax expense on sale of securities for the periods ended
March 31, 1999 and March 31, 1998 (unaudited), was $0, and $3,655, and $5,640,
$6,554 and $22,616 for periods ended December 31, 1998, 1997, and 1996,
respectively.
Securities with a carrying value of approximately $49,261,783, $51,551,503
and $56,060,292 at March 31, 1999 (unaudited), December 31, 1998 and 1997,
respectively, were pledged to secure public deposits and for other purposes.
F-14
<PAGE>
MAIN STREET BANKS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
4. LOANS
Loans are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
MARCH 31 ------------------------------
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
(UNAUDITED)
Commercial and industrial....................................... $ 16,874,687 $ 15,187,523 $ 13,916,875
Real estate construction........................................ 48,096,503 48,330,628 39,812,549
Real estate mortgage............................................ 225,415,035 221,142,074 207,272,423
Consumer and other.............................................. 44,249,349 41,271,359 38,542,292
-------------- -------------- --------------
Total loans..................................................... 334,635,574 325,931,584 299,544,139
Less:
Purchase discount............................................. (381,415) (399,422) (469,117)
Deferred net loan fees........................................ (475,856) (499,785) (364,203)
Unearned income............................................... (392,919) (415,517) (619,501)
Allowance for loan losses..................................... (5,982,383) (5,849,997) (5,091,653)
-------------- -------------- --------------
Loans net....................................................... $ 327,403,001 $ 318,766,863 $ 292,999,665
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
Loans in nonaccrual status amounted to $1,607,024, $1,442,259 and $754,290
at March 31, 1999 (unaudited), December 31, 1998 and 1997, respectively. The
allowance for loan losses related to these impaired loans was $80,351, $40,055
and $65,510 at March 31, 1999 (unaudited), December 31, 1998 and 1997,
respectively. The average recorded investment in impaired loans was $1,524,642,
$826,254 and $783,226 at March 31, 1999 (unaudited), December 31, 1998 and 1997,
respectively. If such loans had been on an accrual basis, interest income would
have been approximately $7,035 and $5,607 higher for the periods ended March 31,
1999 and 1998 (unaudited) and $33,230, $27,933 and $25,537 higher for the
periods ended December 31, 1998, 1997 and 1996, respectively.
An analysis of activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 YEAR ENDED DECEMBER 31
-------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C>
1999 1998 1998 1997 1996
------------ ------------ ------------ ------------ ------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year............... $ 5,849,997 $ 5,091,653 $ 5,091,653 $ 4,508,378 $ 4,233,786
Provision charged to expense............... 225,000 450,000 865,000 1,405,000 934,737
Loans charged off.......................... (160,959) (106,847) (507,555) (1,076,946) (891,253)
Recoveries of loans previously charged
off...................................... 68,345 62,351 400,899 255,221 231,108
------------ ------------ ------------ ------------ ------------
Balance at end of period................... $ 5,982,383 $ 5,497,157 $ 5,849,997 $ 5,091,653 $ 4,508,378
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
A substantial portion of the Company's loans are secured by real estate in
northeast Georgia communities, primarily in Barrow, Clarke, Gwinnett, Newton,
Rockdale, and Walton counties. In addition, a substantial portion of real estate
acquired through foreclosure consists of single-family residential properties
and land located in these same markets. The ultimate collectibility of a
substantial portion of our loan portfolio and the recovery of a substantial
portion of the carrying amount of real estate are susceptible to changes in
market conditions in northeast Georgia.
F-15
<PAGE>
MAIN STREET BANKS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
5. PREMISES AND EQUIPMENT
Premises and equipment are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31
MARCH 31 ----------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
(UNAUDITED)
Land................................................................ $ 3,444,275 $ 3,462,623 $ 3,647,308
Buildings and leasehold improvements................................ 8,661,881 9,421,350 8,184,846
Furniture, fixtures and equipment................................... 7,556,326 7,553,580 6,856,975
Construction in process............................................. 1,246,450 917,897 321,289
------------- ------------- -------------
20,908,932 21,355,450 19,010,418
Less accumulated depreciation and amortization...................... (5,277,765) (5,027,383) (5,293,221)
------------- ------------- -------------
$ 15,631,167 $ 16,328,067 $ 13,717,197
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
Depreciation and amortization expense totaled $328,651 and $239,192 for the
periods ended March 31, 1999 and 1998 (unaudited) and $1,090,001, $913,918, and
$691,690 for the periods ended December 31, 1998, 1997 and 1996, respectively.
The Company leases certain buildings and various equipment under operating
leases. Minimum payments, by year and in the aggregate, under noncancelable
operating leases with initial or remaining terms in excess of one year as of
December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999............................................................ $ 197,265
2000............................................................ 188,816
2001............................................................ 144,739
2002............................................................ 147,906
2003............................................................ 115,405
Thereafter...................................................... 585,510
---------
Total minimum lease payments.................................... $1,379,641
---------
---------
</TABLE>
Rental expense for all operating leases was $37,623 and $48,418 for the
periods ended March 31, 1999 and 1998 (unaudited) and $200,933, $154,915, and
$173,672 for the periods ended December 31, 1998, 1997 and 1996, respectively.
Rental income of $1,300 and $10,950 for the periods ended March 31, 1999 and
1998 (unaudited) and $29,582, $20,880 and $15,819 for the periods December 31,
1998, 1997 and 1996, respectively, is included as a reduction of net occupancy
and equipment expense in the consolidated statements of income.
F-16
<PAGE>
MAIN STREET BANKS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. INTEREST BEARING DEPOSITS
A summary of time deposits by year of maturity at March 31, 1999 is as
follows (unaudited):
<TABLE>
<S> <C>
1999.......................................................... $143,725,833
2000.......................................................... 32,718,676
2001.......................................................... 2,984,622
2002.......................................................... 1,756,985
2003 and after................................................ 2,339,906
-----------
Total time deposits........................................... $183,526,022
-----------
-----------
</TABLE>
The Company had $45,058,525, $43,373,125 and $41,931,273 in time deposits
over $100,000 at March 31, 1999 (unaudited), December 31, 1998 and 1997,
respectively.
Interest expense on these deposits was $616,143 and $604,469 for the periods
ended March 31, 1999 and 1998 (unaudited) and $2,435,359, $2,261,132 and
$2,033,583 for the periods ended December 31, 1998, 1997, and 1996,
respectively.
7. BORROWINGS
At March 31, 1999 (unaudited), December 31, 1998 and 1997 the Company had
advances borrowed from the Federal Home Loan Bank totaling $15,000,000,
$17,000,000 and $2,000,000, respectively. Interest payments and principal
payments are due at various maturity dates through 2008 with rates ranging from
5.40% to 6.07%. The Company has pledged all of its eligible residential mortgage
loans secured by first mortgages on one-to-four family dwellings as collateral.
The Company is allowed to borrow up to 75% of the balance of the eligible loans
pledged as collateral. At March 31, 1999 (unaudited) and December 31, 1998 the
available balance under the Company's line with the Federal Home Loan Bank was
approximately $58,700,000 and $56,700,000, respectively. The Company's weighted
average interest rate on borrowings for the periods ended March 31, 1999
(unaudited), December 31, 1998 and 1997 was 5.71%, 5.72% and 5.99%,
respectively. Of the $15,000,000 balance outstanding at March 31, 1999
(unaudited), $5,000,000 matures in 2000 and $10,000,000 matures in 2008.
8. INCOME TAXES
Income tax expense is summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 YEAR ENDED DECEMBER 31
---------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C>
1999 1998 1998 1997 1996
---------- ---------- ------------ ------------ ------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current income tax provision................... $ 871,815 $ 596,266 $ 2,993,746 $ 2,714,248 $ 1,971,418
Deferred income tax expense (benefit).......... (75,629) -- 95,955 (216,480) (160,206)
---------- ---------- ------------ ------------ ------------
$ 796,186 $ 596,266 $ 3,089,701 $ 2,497,768 $ 1,811,212
---------- ---------- ------------ ------------ ------------
---------- ---------- ------------ ------------ ------------
</TABLE>
F-17
<PAGE>
MAIN STREET BANKS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
8. INCOME TAXES (CONTINUED)
A reconciliation of income tax computed at statutory rates to total income
tax expense is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 YEAR ENDED DECEMBER 31
-------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C>
1999 1998 1998 1997 1996
------------ ------------ ------------ ------------ ------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Pretax income.............................. $ 2,434,537 $ 2,012,253 $ 9,605,076 $ 7,987,551 $ 6,102,370
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Income tax computed at
statutory rate........................... $ 827,743 $ 684,166 $ 3,265,726 $ 2,715,768 $ 2,074,806
Increase (decrease) resulting from:
Tax-exempt interest...................... (75,485) (65,041) (299,866) (325,452) (316,090)
Nondeductible interest on tax-exempt
investments............................ 6,800 4,294 27,505 34,064 39,624
Amortization of goodwill................. 8,948 8,948 35,790 35,790 30,351
Other, net............................... 28,180 (36,100) 60,546 37,598 (17,479)
------------ ------------ ------------ ------------ ------------
$ 796,186 $ 596,266 $ 3,089,701 $ 2,497,768 $ 1,811,212
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
The following summarizes the significant components of the Company's
deferred tax assets and (liabilities):
<TABLE>
<CAPTION>
DECEMBER 31
MARCH 31, --------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
(UNAUDITED)
Reserve for loan losses................................................. $ 1,691,102 $ 1,691,102 $ 1,470,169
Accumulated depreciation................................................ (274,128) (274,128) (197,352)
Core deposit intangible................................................. (15,594) (15,594) (72,677)
Deferred net loan fees.................................................. 169,927 169,927 123,829
Net unrealized gains on investment securities available for sale........ (97,868) (31,476) (42,968)
Other, net.............................................................. (137,896) (279,917) 63,376
------------ ------------ ------------
Net deferred tax asset.................................................. $ 1,335,543 $ 1,259,914 $ 1,344,377
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
9. EMPLOYEE BENEFITS
The Company sponsors a 401(k) Employee Savings Plan that permits employees
to defer annual cash compensation as specified under the plan. The Board of
Directors determines the Company's annual contribution, which was $34,731 and
$28,016 for the periods ended March 31, 1999 and 1998 (unaudited) and $195,434,
$278,272 and $244,192 for the periods ended December 31, 1998, 1997 and 1996,
respectively.
The Company has a Management Incentive Bonus Plan for key executives that
provides annual cash awards, if approved, based on eligible compensation and
achieving earnings goals. The Company also has a General Bonus Plan that
provides for annual cash awards to eligible employees as established by the
Board of Directors. The total expense under these plans was $210,000 and
$219,000 for the periods ended March 31, 1999 and 1998 (unaudited) and $465,669,
$474,109 and $483,270 for the periods ended December 31, 1998, 1997 and 1996,
respectively.
F-18
<PAGE>
MAIN STREET BANKS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
10. RELATED PARTY TRANSACTIONS
Directors, executive officers, and their related interests were customers of
the Company and had other transactions with us in the ordinary course of
business. Loans outstanding to certain directors, executive officers, and their
related interests at March 31, 1999 (unaudited), December 31, 1998 and 1997 were
$2,385,947, $2,378,239 and $2,060,571, respectively. For the periods ended March
31, 1999 (unaudited) and December 31, 1998 $28,784 and $744,424, respectively of
such loans were made and loan repayments totaled $21,076 and $426,756 for the
respective period. It is the Company's policy that such transactions be made on
substantially the same terms as those prevailing at the time for comparable
loans to other persons. These individuals and their related interests also
maintain customary demand and time deposit accounts with the Company.
The Company has operating leases for bank premises that are owned by related
parties. These related parties consist of an individual who is a primary
shareholder, a member of our Board of Directors, and one of our Executive
Officers, and also members of this individual's family. Terms for these related
party leases are substantially the same as those that would be expected to
prevail in the market place. Lease expense totaled approximately $28,000 and
$23,000 for the periods ended March 31, 1999 and 1998 (unaudited) and $111,000,
$95,000 and $62,000 for the periods ended December 31, 1998, 1997 and 1996,
respectively.
11. SHAREHOLDERS' EQUITY
Banking regulations limit the amount of dividends that may be paid to the
Parent without prior approval of the applicable regulatory agency. At December
31, 1998, under current state banking laws, the approval of the Georgia
Department of Banking and Finance will be required if the total of all dividends
declared by the Bank in the calendar year exceeds 50 percent of the net profits
for the previous calendar year and the ratio of equity capital to adjusted total
assets is less than 6 percent.
The Parent has adopted a nonqualified Restricted Stock Award Plan and a
Long-term Incentive Plan, which grants restricted stock and other stock based
compensation to key executives and officers of the Bank. In the case of
restricted stock, Bank executives and officers designated as an "eligible
executive" will vest in the number of shares of common stock awarded under the
plan based on future service over the next five years. A total of 960,000 shares
are authorized to be issued under the plans, with 764,560 shares of restricted
stock issued as of March 31, 1999 (unaudited) and December 31, 1998 and 626,560
shares of restricted stock issued as of December 31, 1997. A total of 491,280
shares were vested with 273,280 shares issued and unvested as of March 31, 1999
(unaudited) and December 31, 1998. A total of 399,600 shares were vested with
226,960 shares issued and unvested as of December 31, 1997.
12. REGULATORY MATTERS
The Company and its banking subsidiary are subject to various regulatory
capital requirements administered by federal and state 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 our financial statements. The regulations
require the Company and its banking subsidiary to meet specific capital adequacy
guidelines that involve quantitative measures of the Company's and its banking
subsidiary's assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Company and its
F-19
<PAGE>
MAIN STREET BANKS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
12. REGULATORY MATTERS (CONTINUED)
banking subsidiary's capital classification is also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital adequacy
require us and our banking subsidiary to maintain minimum amounts and ratios
(set forth in the table below) of Tier 1 capital (as defined in the regulations)
to total average assets (as defined), and minimum ratios of Tier 1 and total
capital (as defined) to risk-weighted assets (as defined). To be considered
adequately capitalized (as defined) under the regulatory framework for prompt
corrective action, the Company and its banking subsidiary must maintain minimum
Tier 1 leverage, Tier 1 risk-based, and total risk-based ratios. As set forth in
the table, as of March 31, 1999 (unaudited), December 31, 1998 and 1997, the
Company and its banking subsidiary were considered well capitalized under
current regulatory guidelines. There are no conditions or events since that
notification that management believes have changed the institution's category.
The following is a summary of the Company's and its banking subsidiary's
capital ratios at March 31, 1999 (unaudited), December 31, 1998 and 1997:
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
UNDER
PROMPT
FOR CAPITAL CORRECTIVE
ACTUAL ADEQUACY ACTION
AMOUNT RATIO PURPOSES RATIO PROVISIONS
------------- --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Company only
As of March 31, 1999 (unaudited)
Total Capital (to Risk Weighted Assets).............. $ 46,475,000 14.19% $ 26,307,000 8.00% $ 32,884,000
Tier 1 Capital (to Risk Weighted Assets)............. 42,541,000 12.94% 13,154,000 4.00% 19,730,000
Tier 1 Capital (to Average Assets)................... 42,541,000 9.78% 17,395,000 4.00% 21,744,000
As of December 31, 1998
Total Capital (to Risk Weighted Assets).............. $ 45,713,000 14.00% $ 26,121,000 8.00% $ 32,651,000
Tier 1 Capital (to Risk Weighted Assets)............. 41,610,000 12.74% 13,061,000 4.00% 19,591,000
Tier 1 Capital (to Average Assets)................... 41,610,000 9.67% 17,213,000 4.00% 21,516,000
As of December 31, 1997
Total Capital (to Risk Weighted Assets).............. $ 40,642,000 13.66% $ 23,805,000 8.00% $ 29,756,000
Tier 1 Capital (to Risk Weighted Assets)............. 36,906,000 12.40% 11,903,000 4.00% 17,854,000
Tier 1 Capital (to Average Assets)................... 36,906,000 9.00% 16,403,000 4.00% 20,504,000
Tier 1 Capital (to Risk Weighted Assets)............. 38,969,000 11.92% 13,077,000 4.00% 19,615,000
Tier 1 Capital (to Average Assets)................... 38,969,000 9.08% 17,172,000 4.00% 21,465,000
As of December 31, 1997
Total Capital (to Risk Weighted Assets).............. $ 37,293,000 12.89% $ 23,142,560 8.00% $ 28,928,200
Tier 1 Capital (to Risk Weighted Assets)............. 33,659,000 11.64% 11,571,289 4.00% 17,356,920
Tier 1 Capital (to Average Assets)................... 33,659,000 8.26% 16,292,250 4.00% 20,365,650
<CAPTION>
RATIO
---------
<S> <C>
Company only
As of March 31, 1999 (unaudited)
Total Capital (to Risk Weighted Assets).............. 10.00%
Tier 1 Capital (to Risk Weighted Assets)............. 6.00%
Tier 1 Capital (to Average Assets)................... 5.00%
As of December 31, 1998
Total Capital (to Risk Weighted Assets).............. 10.00%
Tier 1 Capital (to Risk Weighted Assets)............. 6.00%
Tier 1 Capital (to Average Assets)................... 5.00%
As of December 31, 1997
Total Capital (to Risk Weighted Assets).............. 10.00%
Tier 1 Capital (to Risk Weighted Assets)............. 6.00%
Tier 1 Capital (to Average Assets)................... 5.00%
Tier 1 Capital (to Risk Weighted Assets)............. 6.00%
Tier 1 Capital (to Average Assets)................... 5.00%
As of December 31, 1997
Total Capital (to Risk Weighted Assets).............. 10.00%
Tier 1 Capital (to Risk Weighted Assets)............. 6.00%
Tier 1 Capital (to Average Assets)................... 5.00%
</TABLE>
13. OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying
F-20
<PAGE>
MAIN STREET BANKS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
13. OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS (CONTINUED)
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the consolidated statements of financial condition. The contract
amounts of those instruments reflect the extent of involvement the Company has
in particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
customer to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments. The Company uses the same credit policies in making commitments and
conditional obligations as are used for on-balance-sheet instruments.
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. Total commitments to extend credit at March
31, 1999 (unaudited), December 31, 1998 and 1997 include $20,348,000, $9,719,000
and $6,644,817, respectively, in undisbursed credit lines and $31,479,000,
$29,711,000 and $16,550,260, respectively, in unfunded construction and
development loans. The Company's experience has been that approximately 80
percent of loan commitments are ultimately drawn upon by customers.
The Company issues standby letters of credit, which are conditional
commitments issued to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and private borrowing
arrangements. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
The Company had $622,584, $668,000 and $820,942 in irrevocable standby letters
of credit outstanding at March 31, 1999 (unaudited), December 31, 1998 and 1997,
respectively. The Company was not required to perform under any standby letters
of credit during 1998.
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
borrower. Collateral held varies but may include accounts receivable, inventory,
property, plant and equipment, residential real estate, and income-producing
commercial properties on those commitments for which collateral is deemed
necessary.
14. FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company uses the following methods and assumptions in estimating fair
values of financial instruments:
Cash and cash equivalents - The carrying amount of cash and cash equivalents
approximates fair value.
Interest-bearing deposits - The carrying amount of interest-bearing deposits
approximates fair value.
Investment securities - The fair value of investment securities held to
maturity and available for sale is estimated based on published bid prices
or bid quotations received from securities dealers. The carrying amount of
other investments approximates fair value.
F-21
<PAGE>
MAIN STREET BANKS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
14. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
Loans - For variable rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on carrying values.
For all other loans, fair values are calculated by discounting the
contractual cash flows using estimated market rates which reflect the credit
and interest rate risk inherent in the loan, or by using the current rates
at which similar loans would be made to borrowers with similar credit
ratings and for the same remaining maturities.
Mortgage loans held for sale -- The carrying amount of mortgage loans held
for sale approximates fair value.
Deposits - The fair value of deposits with no stated maturity, such as
demand, NOW and MMDA, and savings accounts, is equal to the amount payable
on demand. The fair value of certificates of deposit is based on the
discounted value of contractual cash flows using the rates currently offered
for deposits of similar remaining maturities.
Accrued interest - The carrying amount of accrued interest receivable and
payable approximates fair value.
Off-balance-sheet instruments - Fair values for off-balance-sheet lending
commitments are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and
the borrowers' credit standing.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------------------------------
<S> <C> <C> <C> <C>
1998 1997
---------------------------- ----------------------------
<CAPTION>
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks........................... $ 21,231,287 $ 21,231,287 $ 16,829,585 $ 16,829,585
Interest-bearing deposits......................... 143,111 143,111 103,170 103,170
Investment securities held to maturity............ 12,497,146 13,044,485 12,068,110 12,526,411
Investment securities available for sale.......... 48,246,325 48,246,325 54,840,628 54,840,628
Other investments................................. 1,371,800 1,371,800 1,357,800 1,357,800
Loans............................................. 325,931,584 325,427,958 299,544,139 299,031,974
Mortgage loans held for sale...................... 4,282,914 4,282,914 -- --
Accrued interest receivable....................... 2,739,057 2,739,057 2,984,236 2,984,236
Financial liabilities:
Noncontractual deposits........................... 184,441,604 184,281,858 165,888,259 165,962,374
Contractual deposits.............................. 181,454,853 183,573,873 190,058,513 190,331,801
Accrued interest payable.......................... 1,372,846 1,372,846 1,368,944 1,368,944
Off-balance-sheet instruments:
Undisbursed credit lines.......................... -- 88,676 -- 60,628
Unfunded construction and development loans....... -- 271,087 -- 151,006
Standby letters of credit......................... -- 6,095 -- 7,490
</TABLE>
F-22
<PAGE>
MAIN STREET BANKS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
15. OTHER COMPREHENSIVE INCOME
Statement No. 130 requires that all components of comprehensive income and
total comprehensive income be reported on one of the following: (1) the
statement of income, (2) the statement of changes in shareholders equity, or (3)
a separate statement of comprehensive income. Comprehensive income is comprised
of net income and all changes to shareholders' equity, except those due to
investments by owners (changes in paid-in capital) and distributions to owners
(dividends). The Company adopted this statement effective January 1, 1998 and
has elected to report comprehensive income in the consolidated statements of
changes in shareholders' equity.
Other comprehensive income consists of unrealized gains and losses on
available for sale securities. For the three months ended March 31, 1999, the
change in net unrealized loss on available for sale securities is reported in
the consolidated statement of shareholders' equity.
16. PARENT COMPANY FINANCIAL INFORMATION
The following information presents the condensed statements of financial
condition of Main Street Banks Incorporated at March 31, 1999 (unaudited),
December 31, 1998 and 1997, and the statements of income and cash flows for the
periods ended March 31, 1999 (unaudited), March 31, 1998 (unaudited), December
31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF FINANCIAL CONDITION
-------------------------------------------
<S> <C> <C> <C>
MARCH 31,
1999 1998 1997
------------- ------------- -------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents........................................... $ 2,064,398 $ 2,064,537 $ 2,096,310
Investment in subsidiary............................................ 41,643,136 40,852,625 36,542,632
Securities available for sale....................................... -- -- --
Other assets........................................................ 653,794 658,831 --
------------- ------------- -------------
Total assets........................................................ $ 44,361,328 $ 43,575,993 $ 38,638,942
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Other liabilities................................................... $ 629,672 $ 629,671 $ 529,723
Shareholders' equity................................................ 43,731,656 42,946,322 38,109,219
------------- ------------- -------------
Total liabilities and shareholders' equity.......................... $ 44,361,328 $ 43,575,993 $ 38,638,942
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
F-23
<PAGE>
MAIN STREET BANKS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
16. PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS ENDED DECEMBER 31
-------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C>
1999 1998 1998 1997 1996
------------ ------------ ------------ ------------ ------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Income:
Dividends from subsidiary................ $ 706,784 $ 540,282 $ 2,878,106 $ 1,821,328 $ 1,422,972
Other income............................. -- -- -- -- 425,000
------------ ------------ ------------ ------------ ------------
706,784 540,282 2,878,106 1,821,328 1,847,972
------------ ------------ ------------ ------------ ------------
Expenses:
Salaries and employee benefits........... 2,700 2,700 10,500 10,500 10,800
Legal and professional................... -- -- -- -- 14,037
Other expenses........................... 6,015 6,015 10,695 10,867 5,015
------------ ------------ ------------ ------------ ------------
Total expenses............................. 8,715 8,715 21,195 21,367 29,852
------------ ------------ ------------ ------------ ------------
Income before income tax benefits (expense)
and equity in undistributed income of
subsidiaries............................. 698,069 531,567 2,856,911 1,799,961 1,818,120
Benefit (expense) for income taxes......... 2,963 2,962 7,206 7,265 (63,291)
------------ ------------ ------------ ------------ ------------
Income before equity in undistributed
income of subsidiary..................... 701,032 534,529 2,864,117 1,807,226 1,754,829
Equity in undistributed income of
subsidiary............................... 937,319 881,458 3,651,258 3,682,557 2,536,329
------------ ------------ ------------ ------------ ------------
Net income................................. $ 1,638,351 $ 1,415,987 $ 6,515,375 $ 5,489,783 $ 4,291,158
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
F-24
<PAGE>
MAIN STREET BANKS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
16. PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------
<S> <C> <C> <C> <C> <C>
1999 1998 1998 1997 1996
------------ ------------ ------------ ------------ ------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income................................. $ 1,638,351 $ 1,415,987 $ 6,515,375 $ 5,489,783 $ 4,291,158
Adjustments to reconcile net income to net
cash provided by operating activities:
Undistributed income of subsidiary......... (937,319) (881,458) (3,651,258) (3,682,557) (2,536,329)
Other...................................... 5,037 (2,962) (721,990) 4,536 1,111,551
------------ ------------ ------------ ------------ ------------
Net cash provided by operating
activities............................... 706,069 531,567 2,142,127 1,811,762 2,866,380
FINANCING ACTIVITIES
Dividends paid............................. (706,208) (543,100) (2,173,900) (1,817,190) (1,422,360)
------------ ------------ ------------ ------------ ------------
Net cash used in financing activities...... (706,208) (543,100) (2,173,900) (1,817,190) (1,422,360)
Net (decrease) increase in cash............ (139) (11,533) (31,773) (5,428) 1,444,020
Cash at beginning of period................ 2,064,537 2,096,310 2,096,310 2,101,738 657,718
------------ ------------ ------------ ------------ ------------
Cash at end of period...................... $ 2,064,398 $ 2,084,777 $ 2,064,537 $ 2,096,310 $ 2,101,738
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
17. YEAR 2000--UNAUDITED
The Company relies heavily on information technology ("IT") systems and
other systems to conduct its business. The Company also has business
relationships with third party service providers, financial institutions, public
utilities and other critical vendors as well as regulators and customers who are
themselves reliant on IT and embedded systems to conduct their business.
STATE OF READINESS
During 1997, the Company developed a plan designed to make our IT systems
and embedded systems Year 2000 ready. The Company has evaluated substantially
all of our embedded systems. The results of these processes indicate that the
embedded systems should not present a material Year 2000 risk to us. The Company
plans to complete the testing of these systems by mid-1999.
The Company believes that its Year 2000 project is on schedule.
EXTERNAL RELATIONSHIPS
The Company also faces the risk that one or more of its critical suppliers
or customers ("external relationships") will not be able to interact with the
Company due to the third party's inability to resolve its own Year 2000 issues,
including those associated with its own external relationships. The Company has
completed our inventory of external relationships and evaluated certain external
relationships based upon the potential business impact, available alternatives
and cost of substitution. The Company is
F-25
<PAGE>
MAIN STREET BANKS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
17. YEAR 2000--UNAUDITED (CONTINUED)
attempting to determine the overall Year 2000 readiness of its external
relationships. In the case of critical suppliers such as third party service
providers, telecommunications and other utilities and major vendors, the Company
is engaged in discussion with the third parties and are attempting to obtain
confirmation as to those parties' Year 2000 plans and state of readiness. The
Company, however, does not have sufficient information at the current time to
state whether its external relationships will be Year 2000 ready.
YEAR 2000 COSTS
Total Year 2000 project costs are currently estimated to be $472,000. The
Company estimates that approximately $260,000 of the total project costs will be
expensed over the life of the project as the costs are incurred. The remaining
$170,000 will be capitalized under the Company' s regular policy for
capitalizing premises and equipment. The Company funds these costs through cash
generated from operations. At March 31, 1999 and December 31, 1998,
approximately $89,000 and $62,000 of project costs has been expensed,
respectively, and approximately $114,000 has been capitalized.
RISKS AND CONTINGENCY/RECOVERY PLANNING
If the Company's Year 2000 issues were unresolved, potential consequences
would include, among other things, the inability to accurately and timely record
customer transactions, update customers' accounts, process financial
transactions or report accurate data to management, customers, regulators and
others. Other potential consequences would include business interruptions or
shutdowns, financial losses, reputational harm, increased scrutiny by
regulators, and litigation related to Year 2000 issues. The Company is
attempting to limit the potential impact of the Year 2000 by monitoring the
progress of its own Year 2000 plan and those of its critical external
relationships. The Company cannot guarantee that it will be able to resolve all
of its Year 2000 issues. Any critical unresolved Year 2000 issues at the Company
or its external relationships, however, could have a material adverse effect on
its results of operations, liquidity or financial condition.
F-26
<PAGE>
<TABLE>
<S> <C> <C>
TABLE OF CONTENTS
PAGE MAIN STREET BANKS INCORPORATED
---------
Summary................................ 3
Summary Consoldated Financial Data..... 7
Recent Developments.................... 8
Cautionary Statement About Forward-
Looking Statements................... 9
Risk Factors........................... 10 90,000
The Offering........................... 16 SHARES OF
Use of Proceeds........................ 18
Market Price of and Dividends on Common
Stock................................ 18
Dilution............................... 19 COMMON STOCK
Capitalization......................... 20
Selected Consolidated Financial Data... 21
Business of Main Street................ 22
Management Discussion and Analysis of
Financial Condition and Results of
Operations........................... 29 PROSPECTUS
Principal Shareholders and Stock
Ownership of Management.............. 58
Management............................. 59
Descripton of Capital Stock............ 65
Provisions of Our Articles of
Incorporation and Bylaws............. 65
Shares Eligible For Future Sale........ 67 , 1999
Supervision And Regulation............. 68
Legal Matters.......................... 73
Experts................................ 73
Reports To Shareholders................ 73
Additional Information................. 74
Index to Consolidated Financial
Statements........................... F-1
</TABLE>
Prospective investors may rely only on the information contained in this
prospectus. Main Street Banks Incorporated has not authorized anyone to provide
prospective investors with different or additional information. This prospectus
is not an offer to sell nor is it seeking an offer to buy these securities in
any jurisdiction where the offer or sale is not permitted. The information
contained in this prospectus is correct only as of the date of this prospectus,
regardless of the time of the delivery of this prospectus or any sale of these
securities.
No action is being taken in any jurisdiction outside the United States to
permit a public offering of the common stock or possession or distribution of
this prospectus in any such jurisdiction. Persons who come into possession of
this prospectus in jurisdictions outside the United States and Canada are
required to inform themselves about and to observe the restrictions of that
jurisdiction related to this offering and the distribution of this prospectus.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimated expenses, other than underwriting discounts and commissions, of
the sale of the Registrant's common stock, $1.00 par value, are as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee............... $ 351
Nasdaq Listing Fee................................................ 72,875
Legal Fees and Expenses........................................... 35,000
Accounting Fees and Expenses...................................... 25,000
Printing and Engraving Expenses................................... 12,000
Mail and Distribution............................................. 3,000
Miscellaneous..................................................... 1,774
---------
Total............................................................. $ 150,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Consistent with the applicable provisions of the laws of Georgia, the
Registrant's Bylaws provide that the Registrant shall have the power to
indemnify its directors and officers against expenses (including attorneys'
fees) and liabilities arising from actual or threatened actions, suits or
proceedings, whether or not settled, to which they become subject by reason of
having served in such role if such director or officer acted in good faith and
in a manner he or she reasonably believed to be in or not opposed to the best
interests of the Registrant and, with respect to a criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
Advances against expenses shall be made so long as the person seeking
indemnification agrees to refund the advances if it is ultimately determined
that he or she is not entitled to indemnification. A determination of whether
indemnification of a director or officer is proper because he met the applicable
standard of conduct shall be made (1) by the Board of Directors of the
Registrant, (2) in certain circumstances, by independent legal counsel in a
written opinion or (3) by the affirmative vote of a majority of the shares
entitled to vote.
In addition, Article 11 of the Registrant's Articles of Incorporation,
subject to certain exceptions, eliminates the potential personal liability of a
director for monetary damages to the Registrant and to the shareholders of the
Registrant for breach of a duty as a director. There is no elimination of
liability for (1) a breach of duty involving appropriation of a business
opportunity of the Registrant, (2) an act or omission involving intentional
misconduct or a knowing violation of law, (3) a transaction from which the
director derives an improper material tangible personal benefit or (4) as to any
payment of a dividend or approval of a stock repurchase that is illegal under
the Georgia Business Corporation Code. The Articles of Incorporation do not
eliminate or limit the right of the Registrant or its shareholders to seek
injunctive or other equitable relief not involving monetary damages.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
None.
II-1
<PAGE>
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ------------------------------------------------------------------------------------------------------
<C> <S>
3.1(a) Amended and Restated Articles of Incorporation
3.1(b) Amendment to Articles of Incorporation
3.2(a) Bylaws
3.2(b) Resolution to Amend Bylaws
4.1* Specimen Common Stock Certificate
4.2 See Exhibits 3.1 and 3.2 for provisions of the Articles of Incorporation and Bylaws defining rights of
holders of the common stock
5.1 Legal Opinion of Powell Goldstein Frazer & Murphy LLP
10.1 Main Street Banks Incorporated Restricted Stock Award Plan and Form of Restricted Stock Agreement
10.2 Amendment to Main Street Banks Incorporated Restricted Stock Award Plan, Adopted April 20, 1993
10.3 Amendment to Main Street Banks Incorporated Restricted Stock Award Plan, Adopted April 16, 1996
10.4 Main Street Banks Incorporated 1997 Long-term Incentive Plan
10.5 Lease Agreement by and between Robert R. Fowler, III and Main Street Bank, dated April 1, 1997
21.1 List of Subsidiaries
23.1 Consent of Ernst & Young LLP 23.2 Consent of Powell, Goldstein, Frazer & Murphy LLP (contained in
Exhibit 5.1)
24.1 Power of Attorney (Reference is made to page II-5)
27.1 Financial Data Schedule (for SEC use only)
</TABLE>
- ------------------------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to foregoing provisions, or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-2
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-1 and authorized this Registration
Statement to be signed on its behalf by the undersigned in the city of
Covington, State of Georgia, on July 29, 1999.
<TABLE>
<S> <C> <C>
MAIN STREET BANKS INCORPORATED
By: /s/ ROBERT R. FOWLER, III
-----------------------------------------
Robert R. Fowler, III
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE
OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints jointly and severally, Robert R. Fowler, III and
Samuel B. Hay, III, and each of them, their respective attorney-in-fact, each
with the power of substitution, for him or her in any and all capacities, to
sign any and all amendments to this Registration Statement (including
post-effective amendments) and any registration statement filed pursuant to Rule
462(b) under the Securities Act of 1933, and to file the same, with exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or their respective substitute or substitutes, may do or
cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
Chairman, President and
/s/ ROBERT R. FOWLER, III Chief Executive Officer
- ------------------------------ (principal executive July 29, 1999
Robert R. Fowler, III officer)
/s/ C. CANDLER HUNT Director
- ------------------------------ July 29, 1999
C. Candler Hunt
Executive Vice President,
/s/ SAMUEL B. HAY, III Chief Financial Officer,
- ------------------------------ Director (principal July 29, 1999
Samuel B. Hay, III financial and accounting
officer)
/s/ JOSEPH K. STRICKLAND, Executive Vice President,
JR. Chief Credit Officer,
- ------------------------------ Director July 29, 1999
Joseph K. Strickland, Jr.
/s/ FRANK B. TURNER Vice Chairman and Director
- ------------------------------ July 29, 1999
Frank B. Turner
II-3
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<C> <S>
3.1(a) Articles of Incorporation
3.1(b) Amendment to Articles of Incorporation
3.2(a) Bylaws
3.2(b) Resolution to Amend Bylaws
4.1* Specimen Common Stock Certificate
4.2 See Exhibits 3.1 and 3.2 for provisions of the Articles of Incorporation and
Bylaws defining rights of holders of the common stock
5.1 Legal Opinion of Powell Goldstein Frazer & Murphy LLP
10.1 Main Street Banks Incorporated Restricted Stock Award Plan and Form of Restricted
Stock Agreement
10.2 Amendment to Main Street Banks Incorporated Restricted Stock Award Plan, Adopted
April 20, 1993
10.3 Amendment to Main Street Banks Incorporated Restricted Stock Award Plan, Adopted
April 16, 1996
10.4 Main Street Banks Incorporated 1997 Long-term Incentive Plan
10.5 Lease Agreement by and between Robert R. Fowler, III and Main Street Banks
Incorporated, dated April 1, 1997
21.1 List of Subsidiaries of Main Street Banks Incorporated
23.1 Consent of Ernst & Young LLP
23.2 Consent of Powell, Goldstein, Frazer & Murphy LLP (contained in Exhibit 5.1)
24.1 Power of Attorney (Reference is made to page II-3)
27.1 Financial Data Schedule (for SEC use only)
</TABLE>
- ------------------------
* To be filed by amendment.
<PAGE>
Exhibit 3.1(a)
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
MAIN STREET BANKS INCORPORATED
Pursuant to Section 14-2-1007 of the Georgia Business Corporation Code,
the undersigned hereby amends and restates the Articles of Incorporation of Main
Street Banks Incorporated in their entirety (with all provisions of the
heretofore existing Articles of Incorporation being hereby amended) as follows:
ARTICLE ONE
NAME
The name of the corporation is Main Street Banks Incorporated.
ARTICLE TWO
GOVERNING LAW; POWERS
The corporation is organized pursuant to the provisions of the Georgia
Business Corporation Code and shall have all of the powers of a corporation so
organized.
ARTICLE THREE
PERIOD OF DURATION
The corporation shall have perpetual duration.
ARTICLE FOUR
PURPOSE
The corporation is organized as a corporation for profit for any
lawful purpose not specifically prohibited to corporations under the applicable
laws of the State of Georgia, and shall be authorized in connection therewith to
engage in any lawful business, act or activity.
ARTICLE FIVE
AUTHORIZED SHARES
The corporation shall have authority to be exercised by the
Board of Directors to issue not more than 7,500,000 shares of common voting
stock of One Dollar ($1.00) par value per share (such stock to be entitled the
"Common Stock").
- 1 -
<PAGE>
ARTICLE SIX
PREEMPTIVE RIGHTS
No shareholder shall have the preemptive right to acquire unissued
shares of the corporation.
ARTICLE SEVEN
PRINCIPAL OFFICE
The mailing address of the principal office of the corporation is 1134
Clark Street, Covington, Georgia 30209.
ARTICLE EIGHT
LIMITATION OF DIRECTOR LIABILITY
8.1 A director of the corporation shall not be liable to the
corporation or its shareholders for monetary damages for any action taken, or
any failure to take any action, as a director, except for liability (i) for any
appropriation, in violation of the director's duties, of any business
opportunity of the corporation, (ii) for acts or omissions that involve
intentional misconduct or a knowing violation of law, (iii) of the types set
forth in Section 14-2-832 of the Georgia Business Corporation Code, or (iv) for
any transaction from which the director derived an improper personal benefit.
8.2 Any repeal or modification of the provisions of this article
by the shareholders of the corporation shall be prospective only, and shall not
adversely affect any limitation on the liability of a director of the
corporation with respect to any act or omission occurring prior to the effective
date of such repeal or modification.
8.3 If the Georgia Business Corporation Code is hereafter
amended to authorize the further elimination or limitation of the liability of
directors, then the liability of a director of the corporation, in addition to
the limitation on liability provided herein, shall be limited to the fullest
extent permitted by the amended Georgia Business Corporation Code.
8.4 In the event that any of the provisions of this article
(including any provision within a single sentence) is held by a court of
competent jurisdiction to be invalid, void or otherwise unenforceable, the
remaining provisions are severable and shall remain enforceable to the fullest
extent permitted by law.
- 2 -
<PAGE>
ARTICLE NINE
AMENDMENTS
Amendments, alterations, changes or repeals of any provision of
these Articles of Incorporation other than Article Eight and this Article Nine
shall be effected only by the affirmative vote of the holders of a majority of
the shares entitled to vote thereon as prescribed in the Georgia Business
Corporation Code. Notwithstanding any other provisions of these Articles of
Incorporation or the Bylaws of the corporation or any provision of law which
might otherwise permit a lesser vote or no vote, the provisions set forth in
Article Eight and this Article Nine of these Articles of Incorporation may not
be amended, altered, changed or repealed in any respect unless such action is
approved by the affirmative vote of the holders of not less than two-thirds
(2/3) of the shares entitled to vote thereon as prescribed in the Georgia
Business Corporation Code.
ARTICLE TEN
SHAREHOLDER ACTION BY LESS THAN UNANIMOUS WRITTEN CONSENT
Any action that is required or permitted to be taken at a meeting of
the shareholders may be taken without a meeting if the action is taken by
persons who would be entitled to vote at a meeting shares having voting power to
cast not less than the minimum number (or numbers, in the case of voting by
groups) of votes that would be necessary to authorize or take such action at a
meeting at which all shareholders entitled to vote were present and voted. The
action must be evidenced by one or more written consents describing the action
taken, signed by shareholders entitled to take action without a meeting and
delivered to the corporation for inclusion in the minutes or filing with the
corporate records.
These Amended and Restated Articles of Incorporation contain amendments
requiring shareholder approval, and were duly adopted in accordance with the
applicable provisions of Section 14-2-1003 of the Georgia Business Corporation
Code by the directors and shareholders of the corporation effective as of April
15, 1997.
These Amended and Restated Articles of Incorporation supersede the
original Articles of Incorporation of the corporation as heretofore amended.
IN WITNESS WHEREOF, the undersigned executes these Amended and Restated
Articles of Incorporation this 15 day of April, 1997.
MAIN STREET BANKS INCORPORATED
By: /s/ Robert R. Fowler III
-------------------------------
Robert R. Fowler III
Chief Executive Officer
- 3 -
<PAGE>
Exhibit 3.1(b)
AMENDMENT TO ARTICLES OF INCORPORATION
OF
MAIN STREET BANKS INCORPORATED
Pursuant to Section 14-2-1006 of the Georgia Business Corporation Code,
the undersigned hereby amends Article Five of the Articles of Incorporation
of Main Street Banks Incorporated as follows:
ARTICLE FIVE
AUTHORIZED SHARES
The corporation shall have authority to be exercised by the Board of
Directors to issue not more than 30,000,000 shares of common voting stock of
One Dollar ($1.00) par value per shares (such stock to be entitled the
"Common Stock").
All other provisions of the heretofore existing Amended and Restated
Articles of Incorporation dated April 15, 1997 shall remain unchanged.
The foregoing Amendment to the Articles of Incorporation was duly
approved by the shareholders of Main Street Banks Incorporated on April 21,
1998, in accordance with Section 1003 of the Georgia Business Corporation
Code. This approval was ratified by the Board of Directors of the corporation
by a Consent Resolution dated December 10, 1998.
IN WITNESS WHEREOF, the undersigned executes this Amendment to the Articles
of Incorporation this 10th day of December, 1998.
MAIN STREET BANKS INCORPORATED
By: /s/Robert R. Fowler III
-----------------------
Robert R. Fowler III
Chairman, President and
Chief Executive Officer
<PAGE>
Exhibit 3.2(a)
MAIN STREET BANKS INCORPORATED
BYLAWS
<PAGE>
MAIN STREET BANKS INCORPORATED
BYLAWS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE ONE - OFFICES AND AGENT
Section 1.1 Registered Office and Agent ........................................................1
Section 1.2 Other Offices ......................................................................1
ARTICLE TWO - SHAREHOLDERS' MEETINGS
Section 2.1 Place of Meetings ..................................................................1
Section 2.2 Annual Meetings ....................................................................1
Section 2.3 Substitute Annual Meeting ..........................................................1
Section 2.4 Special Meetings ...................................................................I
Section 2.5 Notice of Meetings .................................................................1
Section 2.6 Quorum .............................................................................2
Section 2.7 Voting of Shares ...................................................................2
Section 2.8 Proxies ............................................................................2
Section 2.9 Presiding Officer ..................................................................2
Section 2.10 Adjournments .......................................................................2
ARTICLE THREE - THE BOARD OF DIRECTORS
Section 3.1 General Powers .....................................................................3
Section 3.2 Number, Election and Term of Office ................................................3
Section 3.3 Removal ............................................................................3
Section 3.4 Vacancies ..........................................................................3
Section 3.5 Compensation .......................................................................3
Section 3.6 Committees of the Board of Directors ...............................................3
ARTICLE FOUR - MEETINGS OF THE BOARD OF DIRECTORS
Section 4.1 Regular Meetings ...................................................................4
Section 4.2 Special Meetings ...................................................................4
Section 4.3 Place of Meetings ..................................................................4
Section 4.4 Notice of Meetings .................................................................4
Section 4.5 Quorum .............................................................................4
Section 4.6 Vote Required for Action ...........................................................4
Section 4.7 Participation by Conference Telephone ..............................................4
</TABLE>
- i -
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
PAGE
<S> <C>
Section 4.8 Action by Directors Without a Meeting ..............................................5
Section 4.9 Adjournments........................................................................5
ARTICLE FIVE - NOTICE AND WAIVER
Section 5.1 Procedure ..........................................................................5
Section 5.2 Waiver .............................................................................5
ARTICLE SIX - OFFICERS
Section 6.1 Number .............................................................................5
Section 6.2 Election and Term ..................................................................6
Section 6.3 Compensation .......................................................................6
Section 6.4 Removal ............................................................................6
Section 6.5 Chairman of the Board ..............................................................6
Section 6.6 President ..........................................................................6
Section 6.7 Vice Presidents ....................................................................6
Section 6.8 Secretary ..........................................................................6
Section 6.9 Treasurer ..........................................................................7
Section 6.10 Assistant Secretary and Assistant Treasurer ........................................7
Section 6.11 Bonds ..............................................................................7
Section 6.12 Reimbursement by Officers ..........................................................7
ARTICLE SEVEN - DIVIDENDS
Section 7.1 Time and Conditions of Declaration .................................................7
Section 7.2 Reserves ...........................................................................7
Section 7.3 Share Dividends-Treasury Shares ....................................................8
Section 7.4 Share Dividends-Unissued Shares ....................................................8
Section 7.5 Share Splits .......................................................................8
ARTICLE EIGHT - SHARES
Section 8.1 Authorization and Issuance of Shares ...............................................8
Section 8.2 Share Certificates .................................................................8
Section 8.3 Rights of Corporation with Respect to
Registered Owners ..................................................................9
Section 8.4 Transfers of Shares ................................................................9
Section 8.5 Duty of Corporation to Register Transfer ...........................................9
Section 8.6 Lost, Stolen or Destroyed Certificates .............................................9
</TABLE>
- ii -
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
PAGE
<S> <C>
Section 8.7 Fixing of Record Date .............................................................. 9
Section 8.8 Record Date if None Fixed ..........................................................10
ARTICLE NINE - INDEMNIFICATION
Section 9.1 Indemnification in Actions Other
Than by or in the Right of the Corporation .........................................10
Section 9.2 Indemnification in Actions By or
In the Right of the Corporation ....................................................10
Section 9.3 Mandatory Indemnification of Expenses
in Successful Defenses .............................................................11
Section 9.4 Authorization for Indemnification ..................................................11
Section 9.5 Advancement of Expenses ............................................................11
Section 9.6 Non-Exclusivity of Indemnification
and Advancement of Expenses ........................................................12
Section 9.7 Insurance ..........................................................................12
Section 9.8 Notification to Shareholders of
Amounts Paid in Indemnification ....................................................12
Section 9.9 Meaning of "Corporation" for
Purposes of Article Nine ...........................................................13
Section 9.10 Survival of Indemnification and
Advancement of Expenses ............................................................13
Section 9.11 Severability .......................................................................13
ARTICLE TEN - MISCELLANEOUS
Section 10.1 Inspection of Books and Records ....................................................13
Section 10.2 Fiscal Year ........................................................................13
Section 10.3 Seal ...............................................................................13
Section 10.4 Annual Statements .................................................................13
ARTICLE ELEVEN - AMENDMENTS
Section 11.1 Power to Amend Bylaws ..............................................................14
Section 11.2 Conditions .........................................................................14
</TABLE>
- iii -
<PAGE>
ARTICLE ONE
Offices and Agent
Section 1.1 REGISTERED OFFICE AND AGENT. The corporation shall
maintain a registered office and shall have a registered agent whose business
office is identical with such registered office.
Section 1.2 OTHER OFFICES. In addition to its registered office,
the corporation may have offices at such other place or places, within or
without the State of Georgia, as the Board of Directors may from time to time
appoint or as the business of the corporation may require or make desirable.
ARTICLE TWO
Shareholders' Meetings
Section 2.1 PLACE OF MEETINGS. Meetings of the shareholders may
be held at any place within or without the State of Georgia as set forth in the
notice thereof or in the event of a meeting held pursuant to waiver of notice,
as set forth in the waiver, or if no place is so specified, at the registered
office of the corporation.
Section 2.2 ANNUAL MEETINGS. The regular annual meeting of
shareholders of the corporation for the purpose of electing directors and
transacting any and all business that may properly come before the meeting shall
be held on the third Tuesday in April of each year, or. on such other day as the
Board of Directors may for any given year determine to be more appropriate.
Section 2.3 SUBSTITUTE ANNUAL MEETING. If the annual meeting of
shareholders is not held on the day designated in Section 2.2, any business,
including the election of directors, which might properly have been acted upon
at that meeting may be acted upon at any subsequent shareholders' meeting held
pursuant to these bylaws or held pursuant to a court order requiring a
substitute annual meeting.
Section 2.4 SPECIAL MEETINGS. Special meetings of the
shareholders or a special meeting in lieu of the annual meeting of the
shareholders may be called at any time by the Chairman of the Board of
Directors, the President or a majority of the members of the Board of Directors.
Special meetings of the shareholders or a special meeting in lieu of the annual
meeting of the shareholders shall be called by the corporation upon the written
request of the holders of forty percent (40%) or more of all the shares of
capital stock of the corporation entitled to vote in an election of directors.
Section 2.5 NOTICE OF MEETINGS. Unless waived as contemplated in
Section 5.2 or by attendance at the meeting, either in person or by proxy, for
any purpose other than to object to the transaction of business, a written or
printed notice of each shareholders' meeting stating the place, day and hour of
4 the meeting shall be delivered not less than ten (10) days nor more than fifty
(50) days before the date thereof, either personally or by mail, by or at the
direction of the Chairman of the Board of Directors, the President, the
<PAGE>
Secretary, or the officer or persons calling the meeting, to each shareholder of
record entitled to vote at such meeting. In the case of an annual or substitute
annual meeting, the notice of the meeting need not state the purpose or purposes
of the meeting unless the purpose or purposes constitute a matter which the
Georgia Business Corporation Code requires to be stated in the notice of the
meeting. In the case of a special meeting, the notice of meeting shall state the
purpose or purposes for which the meeting is called.
Section 2.6 QUORUM. At all meetings of the shareholders the
presence, in person or by proxy, of the holders of more than one-half of the
shares outstanding and entitled to vote shall constitute a quorum. If a quorum
is present, a majority of the shares outstanding and entitled to vote which are
represented at any meeting shall determine any matter coming before the meeting
unless a different vote is required by statute, by the articles of incorporation
or by these bylaws. The shareholders at a meeting at which a quorum is once
present may continue to transact business at the meeting or at any adjournment
thereof, notwithstanding the withdrawal of enough shareholders to leave less
than a quorum.
Section 2.7 VOTING OF SHARES. Voting on all matters shall be by
voice vote or by show of hands unless any qualified voter, prior to the voting
on any matter, demands vote by ballot, in which case each ballot shall state the
name of the shareholder voting and the number of shares voted by him, and if
such ballot be cast by proxy, it shall also state the name of such proxy.
Section 2.8 PROXIES. A shareholder entitled to vote pursuant to
the articles of incorporation may vote in person or by proxy executed in writing
by the shareholder or by his attorney in fact. A proxy shall not be valid after
eleven (11) months from the date of its execution, unless a longer period is
expressly stated therein. If the validity of any proxy is questioned it must be
submitted to the secretary of the shareholders' meeting for examination or to a
proxy officer or committee appointed by the person presiding at the meeting. The
secretary of the meeting or, if appointed, the proxy officer or committee, shall
determine the validity or invalidity of any proxy submitted and reference by the
secretary in the minutes of the meeting to the regularity of a proxy shall be
received as prima facie evidence of the facts stated for the purpose of
establishing the presence of a quorum at such meeting and for all other
purposes.
Section 2.9 PRESIDING OFFICER. The Chairman of the Board of
Directors, or in his absence, the President shall serve as the chairman of every
shareholders' meeting unless some other person is elected to serve as chairman
by a majority vote of the shares represented at the meeting. The chairman shall
appoint such persons as he deems required to assist with the meeting.
Section 2.10 ADJOURNMENTS. When a quorum is once present to
organize a meeting, any meeting of the shareholders may be adjourned by the
holders of a majority of the voting shares represented at the meeting to
reconvene at a specific time and place notwithstanding the withdrawal of enough
shareholders to leave less than a quorum. It shall not be necessary to give any
notice of the reconvened meeting or of the business
<PAGE>
to be transacted if the time and place of the reconvened meeting are announced
at the meeting which was adjourned. At any such reconvened meeting, any business
may be transacted which could have been transacted at the meeting which was
adjourned.
ARTICLE THREE
The Board of Directors
Section 3.1 GENERAL POWERS. The business and affairs of the
corporation shall be managed by the Board of Directors. In addition to the
powers and authority expressly conferred upon it by these bylaws, the Board of
Directors may exercise all such powers of the corporation and do all such lawful
acts and things as are not by law, by any legal agreement among shareholders, by
the articles of incorporation or by these bylaws directed or required to be
exercised or done by the shareholders.
Section 3.2 NUMBER OF DIRECTORS. The Board of Directors of the
corporation shall consist of four (4) persons. Except as provided in Section
3.4, the directors shall be elected by the affirmative vote of a majority of the
shares represented at the annual meeting of the shareholders. Each director,
except in case of death, resignation, retirement, disqualification, or removal,
shall serve until the next succeeding annual meeting and thereafter until his
successor shall have been elected and qualified.
Section 3.3 REMOVAL. The entire Board of Directors or any
individual director may be removed from office with or without cause by the
affirmative vote of the holders of two-thirds (2/3) of the shares entitled to
vote at an election of directors. Removal action may be taken at any
shareholders' meeting with respect to which notice of such purpose has been
given, and a removed director's successor may be elected at the same meeting to
serve the unexpired term.
Section 3.4 VACANCIES. A vacancy occurring in the Board of
Directors, except by reason of removal of a director, may be filled for the
unexpired term, and until the shareholders shall have elected a successor, by
the affirmative vote of two-thirds (2/3) of the directors remaining in office
though less than a quorum of the Board of Directors.
Section 3.5 COMPENSATION. Directors may receive such compensation
for their services as directors as may from time to time be fixed by vote of the
Board of Directors or the shareholders. A director may also serve the
corporation in a capacity other than that of director and receive compensation,
as determined by the Board of Directors, for services rendered in such other
capacity.
Section 3.6 COMMITTEES OF THE BOARD OF DIRECTORS. The Board of
Directors by resolution adopted by a majority of the full Board of Directors
may' designate from among its members an executive committee and one or more
other committees, each consisting of two or more directors. Except as prohibited
by law, each committee shall have the authority set forth in the resolution
establishing such committee.
<PAGE>
ARTICLE FOUR
Meetings of the Board of Directors
Section 4.1 REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held immediately after the annual meeting of shareholders or
any meeting held in lieu thereof. In addition, the Board of Directors may
schedule other meetings to occur at regular intervals throughout the year.
Section 4.2 SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by or at the request of the Chairman of the Board of
Directors, or in his absence, by the President, or by any two directors in
office at that time.
Section 4.3 PLACE OF MEETINGS. Directors may hold their meetings
at any place within or without the State of Georgia as the Board of Directors
may from time to time establish for regular meetings or as set forth in the
notice of special meetings or, in the event of a meeting held pursuant to waiver
of notice, as set forth in the waiver.
Section 4.4 NOTICE OF MEETINGS. No notice shall be required for
any regularly scheduled meeting of the directors of the corporation. Unless
waived as contemplated in Section 5.2, the Chairman of the Board of Directors or
the Secretary of the corporation or any director thereof shall give notice to
each director of each special meeting stating the time, place and purposes of
the meeting. Such notice shall be given by mailing a notice of the meeting at
least five (5) days before the date of the meeting, or by telephone, telegram,
cablegram or personal delivery at least two (2) hours before the time of the
meeting. Notice shall be deemed to have been given by telegram or cablegram at
the time notice is filed with the transmitting agency. Attendance by a director
at a meeting shall constitute waiver of notice of such meeting, except where a
director attends a meeting for the express purpose of objecting to the
transaction of business because the meeting is not lawfully called.
Section 4.5 QUORUM. At meetings of the Board of Directors, more
than one-half of the directors then in office shall be necessary to constitute a
quorum for the transaction of business. In no case shall less than two directors
constitute a quorum, except that when the Board of Directors consists of only
one director, then one director shall constitute a quorum.
Section 4.6 VOTE REQUIRED FOR ACTION. Except as otherwise
provided in articles of incorporation of the corporation, these bylaws or by
law, the act" of a majority of the directors present at a meeting at which a
quorum is present at the time shall be the act of the Board of Directors.
Section 4.7 PARTICIPATION BY CONFERENCE TELEPHONE. Members of the
Board of Directors, or members of any committee designated by the Board of
Directors, may participate in a meeting of the Board or of such committee by
means of conference telephone or similar communications equipment through which
all persons
<PAGE>
participating in the meeting can hear each other. Participation in a
meeting pursuant to this Section 4.7 shall constitute presence in person at such
meeting.
Section 4.8 ACTION BY DIRECTORS WITHOUT A MEETING. Any action
required or permitted to be taken at any meeting of the Board of Directors or
any action which may be taken at a meeting of a committee of directors may be
taken without a meeting if a written consent thereto shall be signed by all the
directors, or all the members of the committee, as the case may be, and if such
written consent is filed with the minutes of the proceedings of the Board or the
committee. Such consent shall have the same force and effect as a unanimous vote
of the Board of Directors or the committee.
Section 4.9 ADJOURNMENTS. A meeting of the Board of Directors,
whether or not a quorum is present, may be adjourned by a majority of the
directors present to reconvene at a specific time and place. It shall not be
necessary to give notice of the reconvened meeting or of the business to be
transacted, other than by announcement at the meeting which was adjourned. At
any such reconvened meeting at which a quorum is present, any business may be
transacted which could have been transacted at the meeting which was adjourned.
ARTICLE FIVE
Notice and Waiver
Section 5.1 PROCEDURE. Whenever these bylaws require notice to be
given to any shareholder or director, the notice shall be given as prescribed in
Sections 2.5 or 4.4 for any shareholder or director respectively. Whenever
notice is given to a shareholder or director by mail, the notice shall be sent
first class mail by depositing the same in a post office or letter box in a
postage prepaid sealed envelope addressed to the shareholder or director at his
address as it appears on the books of the corporation, and such notice shall be
deemed to have been given at the time the same is deposited in the United States
mail.
Section 5.2 WAIVER. Except as limited by the Georgia Business
Corporation ode, whenever any notice is required to be given to any shareholder
or director by law, by the articles of incorporation or by these bylaws, a
waiver thereof in writing signed by the director or shareholder entitled to such
notice or by the proxy of such shareholder, whether before or after the meeting
to which the waiver pertains, shall be deemed equivalent thereto.
ARTICLE SIX
Officers
Section 6.1 NUMBER. The executive officers of the corporation
shall consist of a Chairman of the Board of Directors, a President, one or more
Vice Presidents as determined or designated by the Board of Directors, a
Secretary and a Treasurer. The Board of Directors shall from time to time create
and establish the duties of such other officers and elect or provide for the
appointment of such other officers or assistant officers as it deems necessary
for the efficient management of the corporation, but the
<PAGE>
corporation shall not be required to have at any time any officers other than a
President, Secretary and Treasurer. Any two or more offices may be held by the
same person, except the offices of President and Secretary.
Section 6.2 ELECTION AND TERM. All officers shall be elected by
the Board of Directors and shall serve at the will of the Board of Directors and
until their successors have been elected and have qualified or until their
earlier death, resignation, removal, retirement or disqualification.
Section 6.3 COMPENSATION. The compensation of all executive
officers of the corporation shall be fixed by the Board of Directors.
Section 6.4 REMOVAL. Any officer or agent elected or appointed by
the Board of Directors may be removed by the Board of Directors whenever in its
judgment the best interests of the corporation will be served thereby.
Section 6.5 CHAIRMAN OF THE BOARD. The Chairman of the Board of
Directors shall call meetings of the shareholders, the Board of Directors and
the Executive Committee to order and shall act as chairman of such meetings. The
Chairman of the Board shall perform such other duties as the directors may
direct from time to time.
Section 6.6 PRESIDENT. The President shall be the chief executive
officer of the corporation and shall have general supervision of the business of
the corporation. He shall see that all orders and resolutions of the Board of
Directors are carried into effect. The President shall perform such other duties
as may from time to time be delegated to him by the Board of Directors.
Section 6.7 VICE PRESIDENTS. The Vice President shall, in the
absence or disability of the President, or at the direction of the President,
perform the duties and exercise the powers of the President. If the corporation
has more than one Vice President the one designated by the Board of Directors
shall act in lieu of the President. Vice Presidents shall perform whatever
duties and have whatever powers the Board of Directors may from time to time
assign.
Section 6.8 SECRETARY. The Secretary shall keep accurate records
of the acts and proceedings of all meetings of shareholders, directors and
committees of directors. He shall have authority to give all notices required by
law or these bylaws. He shall be responsible for the custody of the corporate
books, records, contracts and other documents. The Secretary may affix the
corporate seal to any lawfully executed documents requiring it and shall sign
such instruments as may require his signature. The Secretary shall perform
whatever additional duties and have whatever additional powers the Board of
Directors may from time to time assign him.
Section 6.9 TREASURER. The Treasurer shall be responsible for the
custody of all funds and securities belonging to the corporation and for the
receipt, deposit or disbursement of such funds and securities under the
direction of the Board of Directors.
<PAGE>
The Treasurer shall cause full and true accounts of all receipts and
disbursements to be maintained and shall make such reports of the same to the
Board of Directors and President upon request. The Treasurer shall perform all
duties as may be assigned to him from time to time by the Board of Directors.
Section 6.10 ASSISTANT SECRETARY AND ASSISTANT TREASURER. The
Assistant Secretary and Assistant Treasurer shall, in the absence or disability
of the Secretary or the Treasurer, respectively, perform the duties and exercise
the powers of those offices, and they shall, in general, perform such other
duties as shall be assigned to them by the Board of Directors. Specifically, the
Assistant Secretary may affix the corporate seal to all necessary documents and
attest the signature of any officer of the corporation.
Section 6.11 BONDS. The Board of Directors may by resolution
require any or all of the officers, agents or employees of the corporation to
give bonds to the corporation, with sufficient surety or sureties, conditioned
on the faithful performance of the duties of their respective offices or
positions, and to comply with such other conditions as may from time to time be
required by the Board of Directors.
Section 6.12 REIMBURSEMENT BY OFFICERS. Any payments made to an
officer of the corpora n such as salary, commission, bonus, interest or rent, or
entertainment expense incurred by him, which shall be disallowed in whole or in
part as a deductible expense by the Internal Revenue Service, shall be
reimbursed by such officer to the corporation to the full extent of such
disallowance. It shall be the duty of the Board of Directors to enforce payment
of each such amount dis- allowed. In lieu of payment by the officer, subject to
the determination of the Board of Directors, proportionate amounts may be
withheld from his future compensation payments until the amount owed to the
corporation has been recovered.
ARTICLE SEVEN
Dividends
Section 7.1 TIME AND CONDITIONS OF DECLARATION. Dividends upon
the outstanding shares of the corporation may be declared by the Board of
Directors at any regular or special meeting and paid in cash or property only
out of the unreserved and unrestricted earned surplus of the corporation, or out
of the unreserved and unrestricted net earnings of the current fiscal year,
computed to the date of declaration of the dividend, or the next preceding
fiscal year.
Section 7.2 RESERVES. Before the payment of any dividend or the
making of any distribution of profit, there shall be set aside out of the earned
surplus or current net earnings of the corporation such sums as the Board of
Directors from time to time in its absolute discretion deems proper as a reserve
fund to meet contingencies, to pay and discharge indebtedness, or to fulfill
other purposes which the Board of Directors shall deem to be in the best
interest of the corporation.
<PAGE>
Section 7.3 SHARE DIVIDENDS-TREASURY SHARES. Dividends may be
declared by the Board of Directors and paid in the shares of the corporation out
of any treasury shares that have been reacquired out of the surplus of the
corporation.
Section 7.4 SHARE DIVIDENDS-UNISSUED SHARES. Dividends may be
declared by the Board of Directors and paid in the authorized but unissued
shares of the corporation out of any unreserved and unrestricted surplus of the
corporation; provided that such shares shall be issued at not less than the par
value thereof, and there shall be transferred to stated capital at the time such
dividend is paid an amount of surplus at least equal to the aggregate par value
of the shares to be issued as a dividend.
Section 7.5 SHARE SPLITS. A split or division of the issued
shares of any class into a greater number of shares of the same class without
increasing the stated capital of the corporation shall not be construed to be a
share dividend within the meaning of this Article.
ARTICLE EIGHT
Shares
Section 8.1 AUTHORIZATION AND ISSUANCE OF SHARES. The par value
and the maximum number of shares of any class of the corporation which may be
issued and outstanding shall be set forth from time to time in the articles of
incorporation of the corporation. The Board of Directors may increase or
decrease the number of issued and outstanding shares of the corporation within
the maximum authorized by the articles of incorporation and the minimum
requirements of the articles of incorporation or Georgia law.
Section 8.2 SHARE CERTIFICATES. The interest of each shareholder
in the corporation shall be evidenced by a certificate or certificates
representing shares of the corporation which shall be in such form as the Board
of Directors may from time to time adopt in accordance with Georgia law. Share
certificates shall be consecutively numbered, shall be in registered form, and
shall indicate the date of issue and all such information shall be entered on
the corporation's books. Each certificate shall be signed by the President or a
Vice President and the Secretary or an Assistant Secretary and shall be sealed
with the seal of the corporation or a facsimile thereof; provided, however, that
where such certificate is signed by a transfer agent, or registered by a
registrar, the signatures of such officers may be facsimiles. In case any
officer or officers who shall have signed or whose facsimile signatures shall
have been placed upon a share certificate shall have ceased for any reason to be
such officer or officers of the corporation before such certificate is issued,
such certificate may be issued by the corporation with the same effect as if the
person or persons who signed such certificate or whose facsimile signatures
shall have been used thereon had not ceased to be such officer or officers.
Section 8.3 RIGHTS OF CORPORATION WITH RESPECT TO REGISTERED
OWNERS. Prior to due presentation for transfer of registration of its shares,
the corporation may treat the registered owner of the shares as the person
exclusively entitled to vote such shares, to
<PAGE>
receive any dividend or other distribution with respect to such shares, and for
all other purposes; and the corporation shall not be bound to recognize any
equitable or other claim to or interest in such shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by law.
Section 8.4 TRANSFERS OF SHARES. Transfers of shares shall be
made upon the transfer books of the corporation, kept at the office of the
transfer agent designated to transfer the shares, only upon direction of the
person named in the certificate, or by an attorney lawfully constituted in
writing; and before a new certificate is issued, the old certificate shall be
surrendered for cancellation or, in the case of a certificate alleged to have
been lost, stolen, or destroyed, the provisions of Section 8.6 of these bylaws
shall have been complied with.
Section 8.5 DUTY OF CORPORATION TO REGISTER TRANSFER.
Notwithstanding any of the provisions of Section 8.4 of these bylaws, the
corporation is under a duty to register the transfer of its shares only if:
(a) the share certificate is endorsed by the appropriate person or
persons; and
(b) reasonable assurance is given that the endorsements are genuine
and effective; and
(c) the corporation has no duty to inquire into adverse claims or has
discharged any such duty; and
(d) any applicable law relating to the collection of taxes has been
complied with; and
(e) the transfer is in fact rightful or is to a bona fide purchaser.
Section 8.6 LOST, STOLEN OR DESTROYED CERTIFICATES. Any person
claiming a share certificate to be lost, st-Len or destroyed shall make an
affidavit or affirmation of the fact in such manner as the Board of Directors
may require and shall, if the Board of Directors so requires, give the
corporation a bond of indemnity in form and amount, and with one or more
sureties satisfactory to the Board of Directors, as the Board of Directors may
require, whereupon an appropriate new certificate may be issued in lieu of the
one alleged to have been lost, stolen or destroyed.
Section 8.7 FIXING OF RECORD DATE. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or entitled to receive payment of any dividend, or in
order to make a determination of shareholders for any other proper purpose, the
Board of Directors may f ix in advance a date as the record date, such date to
be not more than fifty (50) days (and, in the case of a shareholders' meeting,
not less than ten [101 days) prior to the date on which the particular action,
requiring such determination of shareholders, is to be taken.
<PAGE>
Section 8.8 RECORD DATE IF NONE FIXED. If no record date is fixed, as
provided in Section 8.7 of these bylaws, then the record date for any
determination of shareholders which may be proper or required by law shall be
the date on which notice is mailed, in the case of a shareholders' meeting; the
date on which the Board of Directors adopts a resolution declaring a dividend,
in the case of a payment of a dividend; and the date on which any other action,
the consummation of which requires a determination of shareholders, is to be
taken.
ARTICLE NINE
Indemnification
Section 9.1 INDEMNIFICATION IN ACTIONS OTHER THAN THOSE BY OR IN
THE RIGHT OF THE CORPORATION. The corporation shall indemnify any director of
the corporation or any officer elected by the board of directors (and may
indemnify any other officer or any employee or agent of the corporation) who was
or is a party or who is threatened to be made a party to any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (other than an action by or in the right of the
corporation), by reason of the fact that he is or was a director, officer,
employee or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership,, joint venture, trust, or other enterprise, against expenses
(including attorneys' fees), judgments, fines, and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit, or
proceeding, if he acted in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit, or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent shall not, of itself, create a presumption that the person did not
act in a manner which he reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 9.2 INDEMNIFICATION IN ACTIONS BY OR IN THE RIGHT OF THE
CORPORATION. The corporation shall indemnify any director of the corporation or
any officer elected by the board of directors (and may indemnify any other
officer or any employee or agent of the corporation) who was or is a party or
who is threatened to be made a party to any threatened, pending, or completed
action or suit by, or in the right of, the corporation to procure a judgment in
its favor, by reason of the fact he is or was a director, officer, employee or
agent of the corporation or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, or other enterprise, against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit, if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation; except that no indemnification shall be made in respect to any
claim, issue, or matter as to which such person shall have been adjudged to be
liable to the corporation, unless and only to the extent that the court in
<PAGE>
which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the court shall deem proper. r
Section 9.3 MANDATORY INDEMNIFICATION OF EXPENSES IN SUCCESSFUL
DEFENSES. To the extent that a director, officer employee, or agent of the
corporation has been successful, on the merits or otherwise, in defense of any
action, suit, or proceeding referred to in Section 9.1 or Section 9.2 of this
Article Nine or in defense of any claim, issue, or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
Section 9.4 AUTHORIZATION FOR INDEMNIFICATION. Any
indemnification under Section 9.1 or Section 9.2 of this Article Nine (unless
ordered by a court) shall be made by the corporation only upon a determination
in the specific case that indemnification of the director, officer, employee or
agent is proper in the circumstances because he has met the applicable standard
of conduct set forth in Section 9.1 or Section 9.2 above, as the case may be,
and if indemnification is determined to be proper then, in the case of proposed
indemnification of any person other than a director of the corporation or a
board-elected officer, only as authorized in the specific case. Such
determination shall be made:
(1) By the board of directors by a majority vote of a quorum
consisting of directors who were not parties to such action,
suit, or proceeding;
(2) If such a quorum is not obtainable or, even if obtainable, a
quorum of disinterested directors so directs, by independent
legal counsel in a written opinion; or
(3) By the affirmative vote of a majority of the shares entitled to
vote thereon.
Section 9.5. ADVANCEMENT OF EXPENSES. Expenses incurred by a
director or officer of the corporation in defending a civil or criminal action,
suit, or proceeding shall be paid by the corporation in advance of the final
disposition of such action, suit, or proceeding upon receipt of an undertaking
by or on behalf of the director or officer to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
corporation as authorized in this Article Nine. Such expenses incurred by other
employees and agents of the corporation may, at the discretion of the board of
directors, be so paid upon such terms and conditions, including receipt of the
undertaking to repay as described above, as the board of directors deems
appropriate.
Section 9.6 NON-EXCLUSIVITY OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES. The indemnification and advancement of expenses provided by or granted
pursuant to this Article Nine shall not be deemed exclusive of any other rights,
in respect to indemnification or otherwise, to which those seeking
indemnification or advancement of expenses may be entitled under any bylaw,
resolution or agreement, either specifically
<PAGE>
or in general terms approved by the affirmative vote of the holders of a
majority of the shares entitled to vote thereon, taken at a meeting, the notice
of which specified that such bylaw, resolution or agreement would be placed
before the shareholders, both as to action by a director, officer, employee or
agent in his official capacity and as to action in another capacity while
holding such office or position, except that no such other rights, in respect to
indemnification or otherwise, may be provided or granted to a director, officer,
employee or agent pursuant to this Section 9.6 by the corporation with respect
to the liabilities described in divisions (b)(3)(A)(i) through (b)(3)(A)(iv) of
Section 14-2-171 of the Georgia Business Corporation Code.
Section 9.7 INSURANCE. The corporation shall have the power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation or who is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, or other enterprise,
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under this Article
Nine.
Section 9.8 NOTIFICATION TO SHAREHOLDERS OF AMOUNTS PAID IN
INDEMNIFICATION. If any expenses or other amounts are paid by way of
indemnification, otherwise than by court order or action by the shareholders or
by an insurance carrier pursuant to insurance maintained by the corporation, the
corporation, not later than the next annual meeting of shareholders, unless such
meeting is held within three months from the date of such payment, and in any
event, within 15 months from the date of such payment, shall send in accordance
with the manner specified in Section 14-2-113 of the Georgia Business
Corporation Code to its shareholders of record at the time entitled to vote for
the election of directors a statement specifying the persons paid, the amounts
paid, and the nature and status at the time of such payment of the litigation or
threatened litigation.
Section 9.9 MEANING OF "CORPORATION" FOR PURPOSES OF ARTICLE
NINE. For purposes of this Article Nine, references to "the corporation" shall
include, in addition to the surviving or new corporation, any merging or
consolidating corporation (including any merging or consolidating corporation of
a merging or consolidating corporation) absorbed in a merger or consolidation,
so that any person who is or was a director, officer, employee or agent of such
merging or consolidating corporation, or who is or was serving at the request of
such merging or consolidating corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, or other
enterprise, shall stand in the same position under this Article Nine with
respect to the resulting or surviving corporation as he would if he had served
the resulting or surviving corporation in the' same capacity, provided that no
indemnification under Section 9.1 or Section 9.2 of this Article Nine permitted
by this Section 9.9 shall be mandatory under this Section 9.9 or any bylaw of
the surviving or new corporation without the approval of such indemnification by
the board of directors or shareholders of the surviving or new corporation, in
the manner provided in paragraphs (1) and (3) of Section 9.4 of this Article
Nine.
<PAGE>
Section 9.10 SURVIVAL OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES. The indemnification and advancement of expenses provided by or granted
pursuant to this Article Nine shall, unless otherwise provided when authorized
or ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors, and
administrators of such a person.
Section 9.11 SEVERABILITY. In the event that any of the provisions
of . this Article Nine (including any provision within a single section,
paragraph or sentence) is held by a court of competent jurisdiction to be
invalid, void or otherwise unenforceable, the remaining provisions are severable
and shall remain enforceable to the fullest extent permitted by law.
ARTICLE TEN
Miscellaneous
Section 10.1 INSPECTION OF BOOKS AND RECORDS. The Board of
Directors shall have power to determine which accounts, books and records of the
corporation shall be opened to the inspection of shareholders, except such as
may by law be specifically open to inspection, and shall have power to fix
reasonable rules and regulations not in conflict with the applicable law for the
inspection of accounts, books and records which by law or by determination of
the Board of Directors shall be open to inspection.
Section 10.2 FISCAL YEAR. The Board of Directors is authorized to
fix the fiscal year of the corporation and to change the same from time to time
as it deems appropriate.
Section 10.3 SEAL. The corporate seal shall be in such form as the
Board of Directors may from time to time determine.
Section 10.4 ANNUAL STATEMENTS. Not later than four (4) months
after the close of. each fiscal year, and in any case prior to the next annual
meeting of shareholders, the corporation shall prepare (a) a balance sheet
showing in reasonable detail the financial condition of the corporation as of
the close of its fiscal year, and (b) a profit and loss statement showing the
results of its operations during its fiscal year. Upon receipt of written
request, the corporation promptly shall mail to any shareholder of record a copy
of the most recent such balance sheet and profit and loss statement.
<PAGE>
ARTICLE ELEVEN
Amendments
Section 11.1 POWER TO AMEND BYLAWS. The Board of Directors shall
have power to alter, amend or repeal these bylaws or adopt new bylaws, but any
bylaws adopted by the Board of Directors may be altered, amended or repealed,
and new bylaws adopted, by the shareholders. The shareholders may prescribe that
any bylaw or bylaws adopted by them shall not be altered, amended or repealed by
the Board of Directors.
Section 11.2 CONDITIONS. Except with respect to Section 3.3 or
Article Nine of these bylaws, any action taken by the shareholders with respect
to bylaws shall be taken by an affirmative vote of a majority of all shares
entitled to elect directors, and action by the Board of Directors with respect
to bylaws shall be taken by an affirmative vote of a majority of all directors
then holding office; provided, however, that any modification to Section 3.3 or
Article Nine of these bylaws requires the affirmative vote of (i) two-thirds
(2/3) of all shares entitled to elect directors or (b) two-thirds (2/3) of all
directors then holding office.
<PAGE>
Exhibit 3.2(b)
RESOLUTION TO AMEND BYLAWS
RESOLUTION ADOPTED BY BOARD OF DIRECTORS OF
MAIN STREET BANKS INCORORATED
TUESDAY, MAY 12, 1992
WHEREAS, The Board of Directors of Main Street Banks Incorporated ("Main
Street") desires to amend the By-laws of Main Street to increase the number of
directors from four to five.
NOW THEREFORE BE IT RESOLVED, Section 3.2 of the By-laws of Main Street be
amended as follows:
"3.2" Number of Directors. The Board of Directors of the corporation shall
consist of five (5) persons. Except as provided in Section 3.4, the directors
shall be elected by the affirmative vote of a majority of the shares presented
at the annual meeting of the shareholders. Each director, except in case of
death, resignation, retirement, disqualification or removal, shall serve until
the next succeeding annual meeting and thereafter until his successor shall have
been elected and qualified."
BE IT FURTHER RESOLVED, that until further action by the Board of Directors of
Main Street, the number of directors is hereby increased from four to five, and
Fred W. Greer, Jr. is hereby elected a director of Main Street to fill the new
directorship created hereby, to serve until the next annual meeting, or until
his successor is elected and qualified.
FURTHER RESOLVED, that a copy of the foregoing change be provided to the Federal
Reserve Bank of Atlanta and the Georgia Department of Banking and Finance.
Done this 12th Day of May, 1992.
MAIN STREET BANKS INCORPORATED
By:/S/ ROBERT R. FOWLER III
------------------------
Robert R. Fowler III
Chairman, President and CEO
ATTEST:/S/ W. H. WHITE
---------------
Corporate Secretary
(Corporate Seal)
<PAGE>
Exhibit 5.1
POWELL, GOLDSTEIN, FRAZER & MURPHY LLP
191 PEACHTREE STREET, N.E.
SIXTEENTH FLOOR
ATLANTA, GEORGIA 30303
(404) 572-6600
July 29, 1999
RE: REGISTRATION OF 90,000 SHARES OF COMMON STOCK;
REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
We have acted as counsel to Main Street Banks Incorporated, a Georgia
corporation (the "Company"), in connection with the registration under the
Securities Act of 1933, as amended, pursuant to the Company's Registration
Statement on Form S-1 (the "Registration Statement"), of an aggregate of 90,000
shares of common stock, $1.00 par value ("Common Stock"), of the Company (the
"Shares"). Of the Shares being registered, 60,000 shares are being offered for
sale to the pubic by the Company and 30,000 shares are being offered for sale to
the public by a selling shareholder.
In this capacity, we have examined the Registration Statement in the
form filed by the Company with the Securities and Exchange Commission (the
"Commission") on the date hereof, and originals or copies, certified or
otherwise identified to our satisfaction, of such corporate records, agreements,
documents and other instruments of the Company relating to the authorization and
issuance of the Shares and such other matters as we have deemed relevant and
necessary as a basis for the opinion hereinafter set forth.
In conducting our examination, we have assumed the genuineness of all
signatures, the legal capacity of all natural persons, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such documents. As to questions of fact
material and relevant to our opinion, where such facts were not independently
verified by us, we have relied, to the extent we deemed such reliance proper,
upon certificates or representations of responsible officers or other
appropriate representatives of the Company.
Based upon the foregoing, and in reliance thereon, and subject to the
limitations and qualifications set forth herein, we are of the opinion that the
shares to be sold by the Company, when issued and delivered against payment
therefore, will be validly issued, fully paid and non-
<PAGE>
Main Street Banks Incorporated
1134 Clark Street
Covington, Georgia 30014
assessable, and that the shares to be sold by the selling shareholder are
validly issued, fully paid and non-assessable.
We hereby consent to the use of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to our firm under the heading "Legal
Matters" in the Prospectus which is a part of the Registration Statement.
Very truly yours,
/s/ POWELL, GOLDSTEIN, FRAZER & MURPHY LLP
<PAGE>
Exhibit 10.1
MAIN STREET BANKS INCORPORATED
RESTRICTED STOCK AWARD PLAN
ARTICLE I
PLAN OBJECTIVES
The Main Street Banks Incorporated Restricted Stock Award Plan (the
"Plan") is intended to advance the interests of Main Street Banks Incorporated
(the "Corporation") and its shareholders, by motivating key employees of the
Corporation and its Subsidiaries and by retaining such key employees through the
grant of Restricted Stock.
ARTICLE I
DEFINITIONS
As used herein, the following terms shall have the meanings indicated
unless the context clearly manifests a different intent:
2.1 "BOARD" means the Board of Directors of the Corporation.
2.2 "COMMON STOCK" means the common stock of the Corporation having a
par value of $1.00 per share.
2.3 "CORPORATION" means Main Street Banks Incorporated and its
corporate successors.
2.4 "DISABILITY" means a disability suffered by the Grantee which can
be expected to result in the Grantee's death or to be of long-continued and
indefinite duration. The Board shall, in its sole discretion, determine whether
a Grantee is disabled within the meaning of the Plan.
2.5 "ELIGIBLE EMPLOYEE" means any person in the regular employment of
the Corporation or its Subsidiaries, who is designated an Eligible Employee by
the Board and
- 1 -
<PAGE>
is or is expected to be primarily responsible for the management,
growth or supervision of some part or all of the business of the Corporation or
its Subsidiaries. The power to determine who is and who is not an Eligible
Employee is reserved solely for the Board.
2.6 "GRANTEE" means an Eligible Employee who has received a grant of
Restricted Stock.
2.7 "PLAN" means the Main Street Banks Incorporated Restricted Stock
Award Plan as contained in this document and all amendments thereof.
2.8 "RESTRICTED PERIOD" means the period during which all or part of
the Restricted Stock awarded by the Board to a Grantee under Article III will be
forfeited upon the Grantee's Termination of Employment pursuant to Section 3.4.
The Restricted Period shall end on the date the Grantee becomes 100% vested in
his Restricted Stock.
2.9 "RESTRICTED STOCK" means shares of Common Stock that have been
awarded to an Eligible Employee under Article III and that are subject to
complete or partial forfeiture if the Eligible Employee incurs a Termination of
Employment during the Restricted Period.
2.10 "RESTRICTED STOCK AGREEMENT" means a written agreement in such
form as the Board shall approve that evidences the terms and conditions of an
award of Restricted Stock hereunder.
2.11 "RETIREMENT" means Grantee's Termination of Employment on or after
such Grantee attains age 65.
2.12 "SUBSIDIARIES" means those corporations that qualify as a
subsidiary of the Corporation under the definition of subsidiary contained in
Section 425(f) of the Internal. Revenue Code of 1986.
- 2 -
<PAGE>
2 .13 "TERMINATION OF EMPLOYMENT" means the Grantee's discontinuance of
employment with the Corporation or its Subsidiaries for any reason. A transfer
between the Corporation and one of its Subsidiaries or between Subsidiaries
shall not be deemed a Termination of Employment for purposes of the Plan.
Whether military, government or other service or other leave of absence shall
constitute a Termination of Employment shall be determined in each case by the
Board in its discretion.
2.14 VESTED PORTION" shall be determined by multiplying the number of
shares of Common Stock awarded as Restricted Stock by the applicable vesting
percentage contained in the Grantee's Restricted Stock Agreement.
ARTICLE III
GRANT OF RESTRICTED STOCK
3.1 GRANT OF RESTRICTED STOCK. The Board shall meet from time to time
and award Restricted Stock to those Grantees as it may designate pursuant to a
Restricted Stock Agreement entered into between the Corporation and such
Grantees. Any action by the Board with respect to the grant of Restricted Stock
shall be taken in accordance with the Corporation's By-Laws. The Restricted
Stock shall be evidenced by a stock certificate issued to the Grantee for the
number of shares of Common Stock awarded as Restricted Stock. Such stock
certificates shall bear the legend contained in Section 3.3 and shall be subject
to the forfeiture provisions of Section 3.4.
3.2 RESTRICTED STOCK AGREEMENTS. Each Restricted Stock Agreement shall
state the total number of shares of Common Stock awarded as Restricted Stock,
the date on which the award of Restricted Stock was made by the Board, the
vesting schedule that applies during the Restricted Period and any other term or
condition, provided such other
- 3 -
<PAGE>
term or condition is consistent with the provisions of the Plan. The number of
shares awarded and the applicable vesting schedule may be different for
different awards of Restricted Stock and for different Grantees.
3.3 RESTRICTED STOCK LEGEND. Each stock certificate issued for
Restricted Stock under the Plan shall be registered in the Grantee's name and
shall bear a legend in substantially the following form:
This certificate and the shares of stock represented hereby
are subject to the terms and conditions (including forfeiture
and restrictions against transfer) contained in the Main
Street Banks Incorporated Restricted Stock Award Plan and a
Restricted Stock Agreement between the registered owner of the
shares represented hereby and Main Street Banks Incorporated.
Release from such terms and conditions shall be made only in
accordance with the provisions of such Plan and Agreement,
copies of which are on file in the office of Main Street Banks
Incorporated.
3.4 VESTING. The vesting schedule contained in the Grantee's Restricted
Stock Agreement shall provide a date or schedule of dates on which a stated
percentage of the Grantee's Restricted Stock will vest and will become subject
to release as provided in Section 3.6. Upon a Grantee's Termination of
Employment, shares of Restricted Stock which are not vested shall be forfeited
pursuant to Section 3.5.
3.5 FORFEITURE OF RESTRICTED STOCK. If a Grantee incurs a Termination
of Employment prior to becoming 100% vested in his Restricted Stock, the portion
of the Grantee's Restricted Stock which is not vested as of such Termination of
Employment shall be irrevocably forfeited. Notwithstanding the preceding
sentence, if a Grantee has a Termination of Employment on account of the
Grantee's Retirement, Disability or death, the Board may, in its sole
discretion, increase the Vested Portion of the Grantee's
- 4 -
<PAGE>
Restricted Stock. The Vested Portion of the Grantee's Restricted Stock shall be
delivered to the Grantee as provided in Section 3.6.
3.6 RELEASE OF RESTRICTED STOCK. As soon as practicable following the
Grantee's Termination of Employment or, if earlier, the end of the Restricted
Period, the Grantee will receive the Vested Portion of his Restricted Stock. The
Vested Portion will be distributed in the form of a stock certificate for the
number of shares of Common Stock equal to the Vested Portion of the Grantee's
Restricted Stock. Such stock certificate shall be issued without the legend
described in Section 3.3. In determining the Vested Portion, partial shares
shall be ignored and the Grantee shall not be entitled to any compensation for
the cancellation of such partial shares.
3.7 RETURN OF ORIGINAL STOCK CERTIFICATE. Notwithstanding Section 3.6,
the Grantee shall not be entitled to a stock certificate for the Vested Portion
of his Restricted Stock until the Grantee delivers to the Board the original
stock certificate issued as part of the Grantee's Restricted Stock award
pursuant to Section 3.1.
3.8 RESTRICTIONS ON TRANSFER OF SHARES. Shares of Restricted Stock
awarded under the Plan, and the right to vote such shares and to receive
dividends thereon, may not be sold, assigned, transferred, exchanged, pledged,
hypothecated or otherwise encumbered during the Restricted Period applicable to
such shares, and no such sale, assignment, transfer, exchange, pledge,
hypothecation or encumbrance, whether made or created by voluntary act of the
Grantee or of any agent of such Grantee or by operation of law, shall be
recognized by, or binding upon, or shall in any manner affect the rights of, the
Corporation during the applicable Restricted Period. Notwithstanding the
foregoing, Grantee may appoint a beneficiary (on a form supplied by the
Corporation) to receive the
- 5 -
<PAGE>
shares of Restricted Stock, if any, in the event of Grantee's death. The Grantee
may change the designated beneficiary at any time prior to the Grantee's death.
If the Grantee does not designate a beneficiary, the Grantee's beneficiary shall
be his estate. During a Grantee's lifetime, shares of Restricted Stock awarded
to the Grantee shall be released only to the Grantee.
3.9 RIGHTS OF GRANTEE DURING RESTRICTED PERIOD. Except as otherwise
provided in a Restricted Stock Agreement or in a shareholder agreement to which
such Restricted Stock is subject, the Grantee shall, during the applicable
Restricted Period, have all of the other rights of a shareholder with respect to
shares of Restricted Stock awarded to such Grantee including, without
limitation, the right to receive cash dividends, if any, as may be declared on
such shares from time to time, and the right to vote (in person or by proxy)
such shares at any meeting of shareholders of the Corporation. Any stock
dividends declared with respect to Restricted Stock shall be held as Restricted
Stock under the same terms and conditions as the Restricted Stock with respect
to which such stock dividends are issued.
3.10 ACCELERATION POWER. Notwithstanding any other provisions of the
Plan, the Board may accelerate the vesting of Restricted Stock and release of
Restricted Stock previously awarded upon such terms and conditions as the Board
may deem advisable. The Board's acceleration power may be exercised for any
reason determined by the Board including (but not limited to) a potential change
in control of stock ownership of the Corporation or other corporate event
leading to such change in control.
- 6 -
<PAGE>
3.11 OTHER TERMS AND CONDITIONS. Restricted Stock Agreements may
contain such other terms and conditions not inconsistent with the provisions of
the Plan as the Board may deem appropriate from time to time.
ARTICLE IV
ADMINISTRATION AND INTERPRETATION; AVAILABLE SHARES
4.1 ADMINISTRATION. The Board shall administer the Plan in accordance
with the by-laws of the Corporation. The Board may employ such other agents as
shall be reasonably required to administer the Plan.
4.2 INTERPRETATION. The Board, subject to the restrictions and
limitations set forth in this Plan, shall have the exclusive right to interpret
the Plan, to select the Eligible Employees who may receive Restricted Stock, and
to act in all matters pertaining to the grant of Restricted Stock.
4.3 RULES AND REGULATIONS. The Board may from time to time adopt rules
and regulations of general application for the administration of the Plan as it
deems appropriate.
4.4 COSTS AND EXPENSES. All costs and expenses, direct and indirect,
involved in administering the Plan shall be borne by the Corporation.
4.5 NUMBER AND SOURCE. The maximum aggregate number of shares of Common
Stock for which Restricted Stock may be granted under the Plan shall be ten
thousand (10,000). Shares shall be made available for use under the Plan, at the
discretion of the Board, either from authorized but unissued shares of Common
Stock or from shares of Common Stock reacquired by the Corporation, including
shares purchased on the open market. Shares of Common Stock that are granted as
Restricted Stock and are forfeited shall be available for future Restricted
Stock awards under the Plan without again being
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<PAGE>
charged against the limitation of 10,000 shares. Notwithstanding the foregoing,
the maximum limitation of shares available for Restricted Stock may be adjusted
as provided in Section 4.6.
4.6 SHARE ADJUSTMENTS. In the event that at any time or from time to
time a stock dividend, stock split, recapitalization, reorganization, merger,
consolidation or other change in capitalization, or a sale by the Corporation of
all or part of its assets, or any distribution to shareholders other than a cash
dividend, results in the outstanding shares of Common Stock, or any securities
exchanged therefor or received in lieu thereof, being exchanged for a different
number or class of shares of stock or other securities of the Corporation, or
for shares of stock or other securities of any other corporation or entity, then
(a) the limitations of 10,000 shares of Common Stock set forth in Section 4.5
above and (b) the number and class of shares subject to outstanding Restricted
Stock awards shall in each case be equitably adjusted in such manner as the
Board deems appropriate so that each Grantee's proportionate interest will be
maintained as before the occurrence of such event. Any adjustment determined by
the Board pursuant to this Section 4.6, and any determination by the Board that
an adjustment is not appropriate, shall be effective and binding for all
purposes of the Plan.
ARTICLE V
ADDITIONAL PROVISIONS
5.1 CONTINUED EMPLOYMENT NOT PRESUMED. The Plan and any document
describing the Plan and the grant of any Restricted Stock hereunder shall not
give any Grantee or Eligible Employee the right to continued employment by the
Corporation or
- 8 -
<PAGE>
affect the right of the Corporation to terminate the employment of any such
person with or without cause.
5.2 GRANTS ONLY BY BOARD. Nothing contained in the Plan or any
resolution adopted by or to be adopted by the Board or shareholders of the
Corporation shall constitute the grant of a Restricted Stock. Such grants shall
be made only when and as authorized by the Board.
5.3 NO RIGHTS AS SHAREHOLDER. No Grantee shall have any rights as a
shareholder with respect to shares of Restricted Stock held by the Grantee prior
to the date of issuance to such Grantee of a certificate or certificates for
such shares of Restricted Stock.
5.4 SHAREHOLDER APPROVAL. The Plan shall be submitted for the approval
of the shareholders of the Company at the first annual meeting of shareholders
held subsequent to the adoption of the Plan by the Board and in all events
within one year of its approval by the Board. If at such meeting the
shareholders of the Company do not approve the Plan, the Plan shall terminate
and all outstanding awards of Restricted Stock shall be void AB INITIO.
5.5 COMPLIANCE WITH OTHER LAWS AND REGULATIONS. The Plan, the grant of
Restricted Stock hereunder and the obligation of the Corporation to deliver
shares of Common Stock pursuant to the Plan shall be subject to all applicable
Federal and state laws, rules and regulations and to such approvals by any
governmental or regulatory agency as may be required. If the Corporation decides
to list, register or otherwise qualify its Common Stock under applicable Federal
or State law, the Corporation shall not be required to issue or deliver any
certificates for shares of Common Stock under the Plan prior to the completion
of such registration or qualification or listing on any stock
- 9 -
<PAGE>
exchange which the Corporation shall, in its sole discretion, determine to be
necessary or advisable.
5.6 WITHHOLDING OF TAXES. The Board may make such provisions and take
such steps as it may deem necessary or appropriate for the withholding of any
taxes that the Corporation or its Subsidiaries are required by any law or
regulation or any governmental authority, whether Federal, state or local,
domestic or foreign, to withhold in connection with Restricted Stock.
5.7 EFFECTIVE DATE AND TERM. The Plan shall be effective as of the date
indicated below and shall continue until terminated as provided by Section 5.8.
5.8 TERMINATION, AMENDMENT, SUSPENSION. The Board at any time or from
time to time may terminate, amend or suspend the Plan and, if the Plan is
suspended, may reinstate any or all of the provisions hereof, provided that no
amendment, without the approval of the shareholders of the Company, shall:
(a) Increase the maximum aggregate number of shares of
Common Stock that may be issued under the Plan;
(b) Alter the definition of Eligible Employee.
No amendment, suspension or termination of the Plan or of any provision of the
Plan shall in any manner alter or impair any outstanding Restricted Stock award
without the consent of the Grantees; provided, however, that the Board may amend
or modify the provisions of the Plan to the extent necessary, based on the
opinion of counsel to the Corporation satisfactory to the Board, to conform the
Plan to any applicable requirements of governmental or regulatory authorities.
- 10 -
<PAGE>
5.9 ADJUSTMENT OF RESTRICTED STOCK. If during the Restricted Period
there is a change in the Grantee's duties and responsibilities or a transfer of
Grantee to a different position, the Board shall be authorized to terminate the
Restricted Stock award or adjust the Restricted Stock award in such manner as
the Board deems appropriate provided that any such termination or adjustment
shall not reduce the Grantee's Vested Portion of his Restricted Stock as of the
date of such termination or adjustment.
5.10 SHAREHOLDER AGREEMENT. The Corporation shall not be required to
issue or deliver any certificates for shares of Common Stock under the Plan
prior to the Grantee's executing a shareholder agreement. The certificate of
such Common Stock will bear any legend required under such shareholder
agreement.
5.11 LAWS OF GEORGIA GOVERN. The Plan and all actions taken hereunder
shall be governed, as to construction and administration, by the laws of the
State of Georgia to the extent not superseded by the laws of the United States
of America. IN WITNESS WHEREOF, the Corporation has caused this Plan to be duly
executed and its seal affixed on the date indicated below but effective as of
August 3, 1989.
MAIN STREET BANKS INCORPORATED
/s/ Robert S. Fowler III
------------------------------
(CORPORATE SEAL) As its: Chairman
-----------------------
ATTEST: Date: 11/14/89
------------------------------
/s/ W. H. White
- ---------------------
- 11 -
<PAGE>
FORM OF
MAIN STREET BANKS INCORPORATED
RESTRICTED STOCK AWARD PLAN
RESTRICTED STOCK AGREEMENT
Grantee:
---------------------------
Number of Shares:
------------------
Date of Grant:
---------------------
1. AWARD OF RESTRICTED STOCK. Main Street Banks Incorporated,
("Corporation") hereby awards to __________________________________________
("Grantee"), under its Restricted Stock Award Plan ("Plan"), __________ shares
("Restricted Stock") of its Common Stock ("Common Stock") of the par value of
$1.00 each, to be held as Restricted Stock under the terms of the Plan and this
Restricted Stock Agreement ("Agreement"). The Plan is incorporated herein by
reference and made a part of this Agreement. Capitalized terms not defined
herein shall have the respective meanings set forth in the Plan.
2. FORFEITURE. If the Grantee incurs a Termination of Employment during
the Restricted Period for any reason, the Grantee shall forfeit all non-vested
Restricted Stock as of such Termination of Employment. The Grantee will become
vested in the Restricted Stock pursuant to the vesting schedule contained in
paragraph 3 below. Notwithstanding the preceding sentences, if the Grantee
incurs a Termination of Employment on account of the Grantee's Retirement (on or
after age 65), Disability or death, the Board may, but is not required to,
increase the Grantee's Vested Portion of Restricted Stock. The period of time
during which the Grantee would forfeit all or part of the Restricted Stock upon
the Grantee's Termination of Employment is referred to in the Plan and this
Agreement as the "Restricted Period."
3. VESTING SCHEDULE. The Grantee shall become vested in the Restricted
Stock pursuant to the following table:
<TABLE>
<CAPTION>
- ---------------------------- ----------------------------
Number of Full Years Percent of Vested
of Employment Restricted Stock
Following Date of Grant
- ---------------------------- ----------------------------
<S> <C>
- ---------------------------- ----------------------------
Less than 1 Year 0%
- ---------------------------- ----------------------------
1 Year 20%
- ---------------------------- ----------------------------
2 Years 40%
- ---------------------------- ----------------------------
3 Years 60%
- ---------------------------- ----------------------------
4 Years 80%
- ---------------------------- ----------------------------
5 or More Years 100%
- ---------------------------- ----------------------------
</TABLE>
- 1 -
<PAGE>
4. ISSUANCE OF SHARES. The Corporation shall issue a certificate for
the shares of Common Stock awarded to the Grantee as Restricted Stock pursuant
to this Agreement. Each certificate issued for shares awarded to the Grantee
under this Agreement shall be registered in the name of the Grantee and shall
bear a legend in substantially the following form:
This certificate and the shares of stock represented hereby are subject
to the terms and conditions (including forfeiture and restrictions against
transfer) contained in the Main Street Banks Incorporated Restricted Stock Award
Plan and a Restricted Stock Agreement between the registered owner of the shares
represented hereby and Main Street Banks Incorporated. Release from such terms
and conditions shall be made only in accordance with the provisions of such Plan
and Agreement, copies of which are on file in the office of Main Street Banks
Incorporated.
5. RELEASE OF SHARES. As soon as practicable following the Grantee's
Termination of Employment or, if earlier, the end of the Restricted Period, the
Grantee will receive a stock certificate without the legend described in
paragraph 4 representing the Vested Portion of the Grantee's Restricted Stock.
In determining the Vested Portion, partial shares shall be forfeited and the
Grantee shall not be entitled to any compensation for the cancellation of such
partial shares. The Vested Portion shall be computed by multiplying the
Grantee's number of shares of Common Stock awarded as Restricted Stock by the
applicable vesting percentage contained in paragraph 3 above. The Restricted
Period shall end on the date the Grantee becomes 100% vested in the Restricted
Stock.
6. RETURN OF ORIGINAL STOCK CERTIFICATE. Notwithstanding paragraph 5
above, the Grantee shall not be entitled to a stock certificate for the Vested
Portion of his Restricted Stock until the Grantee delivers to the Board the
original stock certificate issued as part of the Grantee's Restricted Stock
award pursuant to paragraph 4.
7. RESTRICTIONS ON TRANSFER OF SHARES. Shares awarded under the Plan,
and the right to vote such shares and to receive dividends thereon, may not,
except as provided in paragraph 9, be sold, assigned, transferred, exchanged,
pledged, hypothecated, or otherwise encumbered during the Restricted Period, and
no such sale, assignment, transfer, exchange, pledge, hypothecation, or
encumbrance, whether made or created by voluntary act of the Grantee or of any
agent of such Grantee or by operation of law, shall be recognized by, or be
binding upon, or shall in any manner affect the rights of, the Corporation
during the Restricted Period.
8. RIGHTS OF GRANTEE DURING RESTRICTED PERIOD. Except as otherwise
provided in this Agreement, the Plan, or in any applicable shareholder
agreement, the Grantee shall, during the Restricted Period, have all of the
other rights of a stockholder with respect to shares awarded to the Grantee
including, but not limited to, the right to receive such cash dividends, if any,
as may be declared on such shares from time to time, and the right to vote (in
person or by proxy) such shares at any meeting of stockholders of the
- 2 -
<PAGE>
Corporation. Any stock dividends declared with respect to Restricted Stock shall
be subject to the same terms and conditions as the Restricted Stock with respect
to which such stock dividends are issued.
9. TRANSFERABILITY OF SHARES. Shares of Restricted Stock awarded under
the Plan shall be non-assignable and non-transferable. A Grantee may, however,
appoint a beneficiary (on a form supplied by the Corporation) to receive the
shares of Restricted Stock, if any, in the event of Grantees death and a Grantee
may change the designated beneficiary at any time prior to the Grantee's death.
If the Grantee fails to designate a beneficiary, the Grantee's beneficiary shall
be his estate. During a Grantee's lifetime, shares of Restricted Stock awarded
to the Grantee shall be released only to the Grantee.
10. ACCELERATION POWER. Notwithstanding any other provisions of the
Plan or this Agreement, the Board shall be authorized in its discretion to
accelerate the vesting of Restricted Stock and to release Restricted Stock to
the Grantee upon such terms and conditions as the Board may deem advisable.
11. FEDERAL INCOME TAX MATTERS. The Grantee, upon award of the shares
of Restricted Stock hereunder, shall be authorized to make an election to be
taxed upon such award under Section 83(b) of the Code. To effect such election,
the Grantee may file an appropriate election with the Internal Revenue Service
within thirty (30) days after award of the Restricted Stock and otherwise in
accordance with applicable Treasury Regulations.
The Grantee recognizes that, pursuant to Section 5.6 of the Plan, the
Board may make such provisions and take such steps as it may deem necessary or
appropriate for the withholding of any taxes that the Corporation or its
Subsidiaries are required by any law or regulation or any governmental authority
whether Federal, state or local, domestic or foreign, to make in connection with
the release of Restricted Stock as provided in paragraph 5 of this Agreement.
12. CONTINUED EMPLOYMENT NOT PRESUMED. Neither the Plan, the award of
Restricted Stock under this Agreement nor this Agreement shall impose any
obligation on the Corporation to continue the employment of the Grantee.
13. GRANTEE'S COVENANT. The Grantee hereby agrees to use his or her
best efforts to provide services to the Corporation in a workmanlike manner and
to promote the Corporation's interests.
14. RESTRICTIONS ON ISSUANCE OF SHARES. If at any time the Board of
Directors shall determine, in its discretion, that listing, registration or
qualification of the shares of Restricted Stock subject to this Agreement upon
any securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a
condition to the award or the release of Restricted Stock hereunder, such award
or release may not be made in whole or in part unless and until
- 3 -
<PAGE>
such listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Board of
Directors.
15. PLAN CONTROLS. In the event of any actual or alleged conflict
between the provisions of the Plan and the provisions of this Agreement, the
provisions of the Plan shall be controlling and determinative.
16. SUCCESSORS. This Agreement shall be binding upon any successor of
the Corporation, in accordance with the terms of this Agreement and the Plan.
IN WITNESS WHEREOF, Main Street Banks Incorporated, acting by and
through its duly authorized officers, has caused this Restricted Stock Agreement
to be executed, and the Grantee has executed this Restricted Stock Agreement,
all as of the day and year first above written.
MAIN STREET BANKS INCORPORATED
By:
---------------------------------
Title:
------------------------------
ATTEST:
- ---------------------------------
Title:
---------------------------
[CORPORATE SEAL]
------------------------------------
GRANTEE
- 4 -
<PAGE>
BENEFICIARY DESIGNATION FORM
TO THE PLAN ADMINISTRATOR OF THE
MAIN STREET BANKS RESTRICTED STOCK AWARD PLAN
Participant:
------------------------------------------------------------------
Last First Middle
(a) I hereby confirm my participation in the Plan. I agree to be bound
by the terms and conditions of the Plan as in current effect and as they may be
amended from time to time.
(b) In accordance with the provisions of that Plan, I hereby designate
as my primary beneficiary to receive any benefits payable from the Plan by
reason of my death:
PRIMARY BENEFICIARY (check one)
[ ] my spouse
-----------------------------------------------------------
[ ] per stirpes to my descendants living at the time of (each) distribution
[ ] other (give name and relationship)
----------------------------------
If my primary beneficiary does not survive me (or if the above designation is
not effective for any other reason) I hereby designate as my secondary
beneficiary to receive any benefits payable from the Plan by reason of my death:
SECONDARY BENEFICIARY (check one)
[ ] per stirpes to my descendants living at the time of (each) distribution.
[ ] other (give name and relationship)
-----------------------------------
If a distributee is minor, payment of his distribution may be made to
the person having custody of the minor, to the minor without intervention of a
guardian, to a legal guardian of the minor, to a custodian for such minor under
a statute similar to the Uniform Gifts to Minors Act, or for the benefit of the
minor, as the Corporation shall determine in its sole discretion.
NOTE: YOUR ELECTION MAY HAVE ESTATE TAX CONSEQUENCES. YOU SHOULD CONSULT YOUR
PERSONAL TAX ADVISOR.
- 5 -
<PAGE>
I reserve the right as a Participant to change this beneficiary designation in
accordance with the provisions of the Plan. If my primary and secondary
beneficiaries do not survive me, I understand that any benefits payable under
the Plan will be made to my estate.
- ------------------------------ -----------------------------------
Date Name (Print)
- ------------------------------ -----------------------------------
Witness Signature
Participant Address:
---------------------------------------------------
Social Security Number:
------------------------------------------------
Sign and return this form to:
------------------------------------------
- 6 -
<PAGE>
Exhibit 10.2
FIRST AMENDMENT TO MAIN STREET BANKS INCORPORATED
RESTRICTED STOCK AWARD PLAN
ADOPTED BY THE SHAREHOLDERS AT THE ANNUAL
SHAREHOLDERS MEETING HELD ON
APRIL 20, 1993
PURPOSE OF AMENDMENT. This Amendment to the Main Street Banks Incorporated
Restricted Stock Award Plan (the "Plan") is for the purpose of increasing the
number of shares of Common Stock of Main Street Banks Incorporated available for
awards to eligible employees as Restricted Stock under the Plan. Except as
specifically provided herein, the Plan shall remain in full force and effect and
shall be unaffected by this Amendment. All terms used in this Amendment shall
have the meanings set forth in the Plan unless otherwise specified.
AMENDMENT. The Plan shall be amended as follows:
Article IV, Section 4.5 is amended by striking the words "ten thousand (10,000)"
in the first sentence thereof, and replacing the same with the words "twenty
thousand (20,000)", and by striking the numeral "10,000" in the third sentence
thereof and replacing the same with the numeral "20,000".
EFFECTIVE DATE. The effective date of this Amendment and the provisions
amending the Plan provided herein shall be the date this Amendment is
approved by the Board of Directors, and subject to shareholder approval on or
before June 30, 1993.
<PAGE>
Exhibit 10.3
MAIN STREET BANKS INCORPORATED
AMENDMENT TO RESTRICTED STOCK AWARD PLAN
ADOPTED BY THE SHAREHOLDERS AT THE ANNUAL
SHAREHOLDERS MEETING HELD ON
APRIL 16, 1996
RESOLVED that Article IV, Section 4.5 be amended by striking the words
"twenty thousand (20,000)" in the first sentence thereof, and replacing the same
with the words "thirty thousand (30,000), and by striking the numeral "20,000 "
in the third sentence thereof and replacing the same with the numeral "30,000".
<PAGE>
Exhibit 10.4
MAIN STREET BANKS INCORPORATED
1997 LONG-TERM INCENTIVE PLAN
ARTICLE I
PURPOSE
1.1 GENERAL. The purpose of the Main Street Banks Incorporated 1997
Long-Term Incentive Plan (the "Plan") is to promote the success, and enhance the
value, of Main Street Banks Incorporated (the "Corporation"), by linking the
personal interests of its employees, officers and directors to those of
Corporation shareholders and by providing such persons with an incentive for
outstanding performance. The Plan is further intended to provide flexibility to
the Corporation in its ability to motivate, attract, and retain the services of
employees, officers and directors upon whose judgment, interest, and special
effort the successful conduct of the Corporation's operation is largely
dependent. Accordingly, the Plan permits the grant of incentive awards from time
to time to selected employees, officers and directors; provided, however that
until such time, if any, as the Stock of the Company shall be traded on a
national securities exchange or on the Nasdaq National Market, non-employee
directors of the Company will not be eligible to receive Awards under the Plan.
ARTICLE 2
EFFECTIVE DATE
2.1 EFFECTIVE DATE. The Plan shall be effective as of the date upon
which it shall be approved by the shareholders of the Corporation. Any Awards
granted under the Plan prior to shareholder approval are effective when made
(unless the Committee specifies otherwise at the time of grant), but no Award
may be exercised or settled and no restrictions relating to any Award may lapse
before shareholder approval. If the shareholders fail to approve the Plan, any
Award previously made shall be automatically canceled without any further act.
ARTICLE 3
DEFINITIONS
3.1 DEFINITIONS. When a word or phrase appears in this Plan with the
initial letter capitalized, and the word or phrase does not commence a sentence,
the word or phrase shall generally be given the meaning ascribed to it in this
Section or in Section 1.1 unless a clearly different meaning is required by the
context. The following words and phrases shall have the following meanings:
(a) "Award" means any Option, Stock Appreciation Right,
Restricted Stock Award, Performance Share Award, Dividend Equivalent
Award, or Other Stock-Based Award, or any other right or interest
relating to Stock or cash, granted to a Participant under the Plan.
<PAGE>
(b) "Award Agreement" means any written agreement, contract,
or other instrument or document evidencing an Award.
(c) "Board" means the Board of Directors of the Corporation.
(d) "Change in Control" means and includes each of the
following:
(1) The acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of
the 1934 Act) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the 1934 Act) of 25%
or more of the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this
subsection (1), the following acquisitions shall not
constitute a Change of Control: (i) any acquisition by a
Person who is on the Effective Date the beneficial owner of
25% or more of the Outstanding Company Voting Securities, (ii)
any acquisition directly from the Company, (iii) any
acquisition by the Company, (iv) any acquisition by any
employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the
Company, or (v) any acquisition by any corporation pursuant to
a transaction which complies with clauses (i), (ii) and (iii)
of subsection (3) of this definition; or
(2) Individuals who, as of the Effective Date,
constitute the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board;
provided, however, that any individual becoming a director
subsequent to the Effective Date whose election, or nomination
for election by the Company's shareholders, was approved by a
vote of at least a majority of the directors then comprising
the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or
removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a
Person other than the Board; or
(3) Consummation of a reorganization, merger or
consolidation or sale or other disposition of all or
substantially all of the assets of the Company (a "Business
Combination"), in each case, unless, following such Business
Combination, (i) all or substantially all of the individuals
and entities who were the beneficial owners of the Outstanding
Company Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more
than 50% of the combined voting power of the then outstanding
voting securities entitled to vote
2
<PAGE>
generally in the election of directors of the corporation
resulting from such Business Combination (including,
without limitation, a corporation which as a result of such
transaction owns the Company or all or substantially all of
the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as
their ownership, immediately prior to such Business
Combination of the Outstanding Company Voting Securities,
and (ii) no Person (excluding any corporation resulting
from such Business Combination or any employee benefit plan
(or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially
owns, directly or indirectly, 25% or more of the combined
voting power of the then outstanding voting securities of
such corporation except to the extent that such ownership
existed prior to the Business Combination, and (iii) at
least a majority of the members of the board of directors
of the corporation resulting from such Business Combination
were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the
Board, providing for such Business Combination.
(e) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(f) "Committee" means the committee of the Board described in
Article 4.
(g) "Corporation" means Main Street Banks Incorporated, a
Georgia corporation.
(h) "Covered Employee" means a covered employee as defined in
Code Section 162(m)(3), provided that no employee shall be a Covered
Employee until the deduction limitation of Code Section 162(m) are
applicable to the Corporation and any reliance period under Code
Section 162(m) has expired, as described in Section 16.14 hereof.
(i) "Disability" shall mean any illness or other physical or
mental condition of a Participant that renders the Participant
incapable of performing his customary and usual duties for the
Corporation, or any medically determinable illness or other physical or
mental condition resulting from a bodily injury, disease or mental
disorder which, in the judgment of the Committee, is permanent and
continuous in nature. The Committee may require such medical or other
evidence as it deems necessary to judge the nature and permanency of
the Participant's condition.
(j) "Dividend Equivalent" means a right granted to a
Participant under Article 11.
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(k) "Effective Date" has the meaning assigned such term in
Section 2.1.
(l) "Fair Market Value" on any date, means (i) if the Stock is
listed on a securities exchange or is traded over the Nasdaq National
Market, the closing sales price on such exchange or over such system on
such date or, in the absence of reported sales on such date, the
closing sales price on the immediately preceding date on which sales
were reported, or (ii) if the Stock is not listed on a securities
exchange or traded over the Nasdaq National Market, Fair Market Value
will be determined by such other method as the Committee determines in
good faith to be reasonable.
(m) "Incentive Stock Option" means an Option that is intended
to meet the requirements of Section 422 of the Code or any successor
provision thereto.
(n) "Non-Qualified Stock Option" means an Option that is not
an Incentive Stock Option.
(o) "Option" means a right granted to a Participant under
Article 7 of the Plan to purchase Stock at a specified price during
specified time periods. An Option may be either an Incentive Stock
Option or a Non-Qualified Stock Option.
(p) "Other Stock-Based Award" means a right, granted to a
Participant under Article 12, that relates to or is valued by reference
to Stock or other Awards relating to Stock.
(q) "Participant" means a person who, as an officer, employee
or director of the Corporation or any Subsidiary, has been granted an
Award under the Plan.
(r) "Performance Share" means a right granted to a Participant
under Article 9, to receive cash, Stock, or other Awards, the payment
of which is contingent upon achieving certain performance goals
established by the Committee.
(s) "Plan" means the Main Street Banks Incorporated 1997
Long-Term Incentive Plan, as amended from time to time.
(t) "Restricted Stock Award" means Stock granted to a
Participant under Article 10 that is subject to certain restrictions
and to risk of forfeiture.
(u) "Retirement" means a Participant's termination of
employment with the Corporation after attaining any normal or early
retirement age specified in any pension, profit sharing or other
retirement program sponsored by the
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Corporation, or, in the event of the inapplicability thereof with
respect to the person in question, as determined by the Committee in
its reasonable judgment.
(v) "Stock" means the $1.00 par value Common Stock of the
Corporation and such other securities of the Corporation as may be
substituted for Stock pursuant to Article 14.
(w) "Stock Appreciation Right" or "SAR" means a right granted
to a Participant under Article 8 to receive a payment equal to the
difference between the Fair Market Value of a share of Stock as of the
date of exercise of the SAR over the grant price of the SAR, all as
determined pursuant to Article 8.
(x) "Subsidiary" means any corporation, limited liability
company, partnership or other entity of which a majority of the
outstanding voting stock or voting power is beneficially owned directly
or indirectly by the Corporation. For Incentive Stock Options, the term
shall have the meaning set forth in Code Section 424(f).
(y) "1933 Act" means the Securities Act of 1933, as amended
from time to time.
(z) "1934 Act" means the Securities Exchange Act of 1934, as
amended from time to time.
ARTICLE 4
ADMINISTRATION
4.1 COMMITTEE. The Plan shall be administered by the Compensation
Committee of the Board. The Committee shall consist of two or more members of
the Board who are both (i) "outside directors" as that term is used in Section
162(m) of the Code and the regulations promulgated thereunder, to the extent
that Section 162(m) is applicable to the Corporation as described in Section
16.14 hereof, and (ii) "non-employee directors" as that term is defined in Rule
16b-3 promulgated under the 1934 Act, if and when such rule applies with respect
to officers and directors of the Corporation.
4.2 ACTION BY THE COMMITTEE. For purposes of administering the Plan,
the following rules of procedure shall govern the Committee. A majority of the
Committee shall constitute a quorum. The acts of a majority of the members
present at any meeting at which a quorum is present and acts approved
unanimously in writing by the members of the Committee in lieu of a meeting
shall be deemed the acts of the Committee. Each member of the Committee is
entitled to, in good faith, rely or act upon any report or other information
furnished to that member by any officer or other employee of the Corporation or
any Subsidiary, the Corporation's independent certified public
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accountants, or any executive compensation consultant or other professional
retained by the Corporation to assist in the administration of the Plan.
4.3 AUTHORITY OF COMMITTEE. The Committee has the exclusive power,
authority and discretion to:
(a) Designate Participants;
(b) Determine the type or types of Awards to be granted to
each Participant;
(c) Determine the number of Awards to be granted and the
number of shares of Stock to which an Award will relate;
(d) Determine the terms and conditions of any Award granted
under the Plan, including but not limited to, the exercise price, grant
price, or purchase price, any restrictions or limitations on the Award,
any schedule for lapse of forfeiture restrictions or restrictions on
the exercisability of an Award, and accelerations or waivers thereof,
based in each case on such considerations as the Committee in its sole
discretion determines;
(e) Accelerate the vesting or lapse of restrictions of any
outstanding Award, based in each case on such considerations as the
Committee in its sole discretion determines;
(f) Determine whether, to what extent, and under what
circumstances an Award may be settled in, or the exercise price of an
Award may be paid in, cash, Stock, other Awards, or other property, or
an Award may be canceled, forfeited, or surrendered;
(g) Prescribe the form of each Award Agreement, which need not
be identical for each Participant;
(h) Decide all other matters that must be determined in
connection with an Award;
(i) Establish, adopt or revise any rules and regulations as it
may deem necessary or advisable to administer the Plan;
(j) Make all other decisions and determinations that may be
required under the Plan or as the Committee deems necessary or
advisable to administer the Plan; and
(k) Amend the Plan or any Award Agreement as provided herein.
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4.4. DECISIONS BINDING. The Committee's interpretation of the Plan, any
Awards granted under the Plan, any Award Agreement and all decisions and
determinations by the Committee with respect to the Plan are final, binding, and
conclusive on all parties.
ARTICLE 5
SHARES SUBJECT TO THE PLAN
5.1. NUMBER OF SHARES. Subject to adjustment as provided in Section
14.1, the aggregate number of shares of Stock reserved and available for Awards
or which may be used to provide a basis of measurement for or to determine the
value of an Award (such as with a Stock Appreciation Right or Performance Share
Award) shall be 60,000.
5.2. LAPSED AWARDS. To the extent that an Award is canceled,
terminates, expires or lapses for any reason, any shares of Stock subject to the
Award will again be available for the grant of an Award under the Plan and
shares subject to SARs or other Awards settled in cash will be available for the
grant of an Award under the Plan.
5.3. STOCK DISTRIBUTED. Any Stock distributed pursuant to an Award may
consist, in whole or in part, of authorized and unissued Stock, treasury Stock
or Stock purchased on the open market.
5.4. LIMITATION ON NUMBER OF SHARES SUBJECT TO AWARDS. Notwithstanding
any provision in the Plan to the contrary, the maximum number of shares of Stock
with respect to one or more Options and/or SARs that may be granted to any one
Participant in any calendar year shall be 30,000. The maximum fair market value
of any Awards (other than Options and SARs) that may be received by a
Participant (less any consideration paid by the Participant for such Award)
during any one calendar year under the Plan shall be $100,000.
ARTICLE 6
ELIGIBILITY
6.1. GENERAL. Awards may be granted to such officers and employees of
the Company or its Subsidiaries as determined by the Committee. From and after
the date, if any, upon which the Stock shall be traded on a national securities
exchange or on the Nasdaq National Market, non-employee directors of the Company
will also be eligible to receive Awards under the Plan.
ARTICLE 7
STOCK OPTIONS
7.1. GENERAL. The Committee is authorized to grant Options to
Participants on the following terms and conditions:
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(a) EXERCISE PRICE. The exercise price per share of Stock
under an Option shall be determined by the Committee.
(b) TIME AND CONDITIONS OF EXERCISE. The Committee shall
determine the time or times at which an Option may be exercised in
whole or in part. The Committee also shall determine the performance or
other conditions, if any, that must be satisfied before all or part of
an Option may be exercised. The Committee may waive any exercise
provisions at any time in whole or in part based upon factors as the
Committee may determine in its sole discretion so that the Option
becomes exerciseable at an earlier date.
(c) PAYMENT. The Committee shall determine the methods by
which the exercise price of an Option may be paid, the form of payment,
including, without limitation, cash, shares of Stock, or other property
(including "cashless exercise" arrangements), and the methods by which
shares of Stock shall be delivered or deemed to be delivered to
Participants; provided, however, that if shares of Stock are used to
pay the exercise price of an Option, such shares must have been held by
the Participant for at least six months. Without limiting the power and
discretion conferred on the Committee pursuant to the preceding
sentence, the Committee may, in the exercise of its discretion, but
need not, allow a Participant to pay the Option price by directing the
Corporation to withhold from the shares of Stock that would otherwise
be issued upon exercise of the Option that number of shares having a
Fair Market Value on the exercise date equal to the Option price, all
as determined pursuant to rules and procedures established by the
Committee.
(d) EVIDENCE OF GRANT. All Options shall be evidenced by a
written Award Agreement between the Corporation and the Participant.
The Award Agreement shall include such provisions as may be specified
by the Committee.
7.2. INCENTIVE STOCK OPTIONS. The terms of any Incentive Stock Options
granted under the Plan must comply with the following additional rules:
(a) EXERCISE PRICE. The exercise price per share of Stock
shall be set by the Committee, provided that the exercise price for any
Incentive Stock Option shall not be less than the Fair Market Value as
of the date of the grant.
(b) EXERCISE. In no event may any Incentive Stock Option be
exercisable for more than ten years from the date of its grant.
(c) LAPSE OF OPTION. An Incentive Stock Option shall lapse
under the earliest of the following circumstances; provided, however,
that the Committee may, prior to the lapse of the Incentive Stock
Option under the circumstances described in paragraphs (3), (4) and (5)
below, provide in writing
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that the Option will extend until a later date, but if Option is
exercised after the dates specified in paragraphs (3), (4) and (5)
above, it will automatically become a Non-Qualified Stock Option:
(1) The Incentive Stock Option shall lapse as of the
option expiration date set forth in the Award Agreement.
(2) The Incentive Stock Option shall lapse ten years
after it is granted, unless an earlier time is set in the
Award Agreement.
(3) If the Participant terminates employment for any
reason other than as provided in paragraph (4) or (5) below,
the Incentive Stock Option shall lapse, unless it is
previously exercised, three months after the Participant's
termination of employment; provided, however, that if the
Participant's employment is terminated by the Company for
cause or by the Participant without the consent of the
Company, the Incentive Stock Option shall (to the extent not
previously exercised) lapse immediately.
(4) If the Participant terminates employment by
reason of his Disability, the Incentive Stock Option shall
lapse, unless it is previously exercised, one year after the
Participant's termination of employment.
(5) If the Participant dies while employed, or during
the three-month period described in paragraph (3) or during
the one-year period described in paragraph (4) and before the
Option otherwise lapses, the Option shall lapse one year after
the Participant's death. Upon the Participant's death, any
exercisable Incentive Stock Options may be exercised by the
Participant's beneficiary.
Unless the exercisability of the Incentive Stock Option is
accelerated as provided in Article 13, if a Participant exercises an
Option after termination of employment, the Option may be exercised
only with respect to the shares that were otherwise vested on the
Participant's termination of employment.
:
(d) INDIVIDUAL DOLLAR LIMITATION. The aggregate Fair Market
Value (determined as of the time an Award is made) of all shares of
Stock with respect to which Incentive Stock Options are first
exercisable by a Participant in any calendar year may not exceed
$100,000.00.
(e) TEN PERCENT OWNERS. No Incentive Stock Option shall be
granted to any individual who, at the date of grant, owns stock
possessing more than ten percent of the total combined voting power of
all classes of stock of the Corporation or any Subsidiary unless the
exercise price per share of such Option
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is at least 110% of the Fair Market Value per share of Stock at the
date of grant and the Option expires no later than five years after the
date of grant.
(f) EXPIRATION OF INCENTIVE STOCK OPTIONS. No Award of an
Incentive Stock Option may be made pursuant to the Plan after the day
immediately prior to the tenth anniversary of the Effective Date.
(g) RIGHT TO EXERCISE. During a Participant's lifetime, an
Incentive Stock Option may be exercised only by the Participant or, in
the case of the Participant's Disability, by the Participant's guardian
or legal representative.
ARTICLE 8
STOCK APPRECIATION RIGHTS
8.1. GRANT OF SARS. The Committee is authorized to grant SARs to
Participants on the following terms and conditions:
(a) RIGHT TO PAYMENT. Upon the exercise of a Stock
Appreciation Right, the Participant to whom it is granted has the
right to receive the excess, if any, of:
(1) The Fair Market Value of one share of Stock on
the date of exercise; over
(2) The grant price of the Stock Appreciation Right as
determined by the Committee, which shall not be less than the
Fair Market Value of one share of Stock on the date of grant in
the case of any SAR related to an Incentive Stock Option.
(b) OTHER TERMS. All awards of Stock Appreciation Rights shall
be evidenced by an Award Agreement. The terms, methods of exercise,
methods of settlement, form of consideration payable in settlement, and
any other terms and conditions of any Stock Appreciation Right shall be
determined by the Committee at the time of the grant of the Award and
shall be reflected in the Award Agreement.
ARTICLE 9
PERFORMANCE SHARES
9.1. GRANT OF PERFORMANCE SHARES. The Committee is authorized to grant
Performance Shares to Participants on such terms and conditions as may be
selected by the Committee. The Committee shall have the complete discretion to
determine the number of Performance Shares granted to each Participant. All
Awards of Performance Shares shall be evidenced by an Award Agreement.
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9.2. RIGHT TO PAYMENT. A grant of Performance Shares gives the
Participant rights, valued as determined by the Committee, and payable to, or
exercisable by, the Participant to whom the Performance Shares are granted, in
whole or in part, as the Committee shall establish at grant or thereafter. The
Committee shall set performance goals and other terms or conditions to payment
of the Performance Shares in its discretion which, depending on the extent to
which they are met, will determine the number and value of Performance Shares
that will be paid to the Participant.
9.3. OTHER TERMS. Performance Shares may be payable in cash, Stock, or
other property, and have such other terms and conditions as determined by the
Committee and reflected in the Award Agreement.
ARTICLE 10
RESTRICTED STOCK AWARDS
10.1. GRANT OF RESTRICTED STOCK. The Committee is authorized to make
Awards of Restricted Stock to Participants in such amounts and subject to such
terms and conditions as may be selected by the Committee. All Awards of
Restricted Stock shall be evidenced by a Restricted Stock Award Agreement.
10.2. ISSUANCE AND RESTRICTIONS. Restricted Stock shall be subject to
such restrictions on transferability and other restrictions as the Committee may
impose (including, without limitation, limitations on the right to vote
Restricted Stock or the right to receive dividends on the Restricted Stock).
These restrictions may lapse separately or in combination at such times, under
such circumstances, in such installments, upon the satisfaction of performance
goals or otherwise, as the Committee determines at the time of the grant of the
Award or thereafter.
10.3. FORFEITURE. Except as otherwise determined by the Committee at
the time of the grant of the Award or thereafter, upon termination of employment
during the applicable restriction period or upon failure to perform a
performance goal during the applicable restriction period, Restricted Stock that
is at that time subject to restrictions shall be forfeited and reacquired by the
Corporation; provided, however, that the Committee may provide in any Award
Agreement that restrictions or forfeiture conditions relating to Restricted
Stock will be waived in whole or in part in the event of terminations resulting
from specified causes, and the Committee may in other cases waive in whole or in
part restrictions or forfeiture conditions relating to Restricted Stock.
10.4. CERTIFICATES FOR RESTRICTED STOCK. Restricted Stock granted under
the Plan may be evidenced in such manner as the Committee shall determine. If
certificates representing shares of Restricted Stock are registered in the name
of the Participant, certificates must bear an appropriate legend referring to
the terms, conditions, and restrictions applicable to such Restricted Stock.
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ARTICLE 11
DIVIDEND EQUIVALENTS
11.1 GRANT OF DIVIDEND EQUIVALENTS. The Committee is authorized to
grant Dividend Equivalents to Participants subject to such terms and conditions
as may be selected by the Committee. Dividend Equivalents shall entitle the
Participant to receive payments equal to dividends with respect to all or a
portion of the number of shares of Stock subject to an Option Award or SAR
Award, as determined by the Committee. The Committee may provide that Dividend
Equivalents be paid or distributed when accrued or be deemed to have been
reinvested in additional shares of Stock, or otherwise reinvested.
ARTICLE 12
OTHER STOCK-BASED AWARDS
12.1. GRANT OF OTHER STOCK-BASED AWARDS. The Committee is authorized,
subject to limitations under applicable law, to grant to Participants such other
Awards that are payable in, valued in whole or in part by reference to, or
otherwise based on or related to shares of Stock, as deemed by the Committee to
be consistent with the purposes of the Plan, including without limitation shares
of Stock awarded purely as a "bonus" and not subject to any restrictions or
conditions, convertible or exchangeable debt securities, other rights
convertible or exchangeable into shares of Stock, and Awards valued by reference
to book value of shares of Stock or the value of securities of or the
performance of specified Subsidiaries. The Committee shall determine the terms
and conditions of such Awards.
ARTICLE 13
PROVISIONS APPLICABLE TO AWARDS
13.1. STAND-ALONE, TANDEM, AND SUBSTITUTE AWARDS. Awards granted under
the Plan may, in the discretion of the Committee, be granted either alone or in
addition to, in tandem with, or in substitution for, any other Award granted
under the Plan. If an Award is granted in substitution for another Award, the
Committee may require the surrender of such other Award in consideration of the
grant of the new Award. Awards granted in addition to or in tandem with other
Awards may be granted either at the same time as or at a different time from the
grant of such other Awards.
13.2. EXCHANGE PROVISIONS. The Committee may at any time offer to
exchange or buy out any previously granted Award for a payment in cash, Stock,
or another Award (subject to Section 14.1), based on the terms and conditions
the Committee determines and communicates to the Participant at the time the
offer is made.
13.3. TERM OF AWARD. The term of each Award shall be for the period as
determined by the Committee, provided that in no event shall the term of any
Incentive Stock Option or a Stock Appreciation Right granted in tandem with the
Incentive Stock
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Option exceed a period of ten years from the date of its grant
(or, if Section 7.2(e) applies, five years from the date of its grant).
13.4. FORM OF PAYMENT FOR AWARDS. Subject to the terms of the Plan and
any applicable law or Award Agreement, payments or transfers to be made by the
Corporation or a Subsidiary on the grant or exercise of an Award may be made in
such form as the Committee determines at or after the time of grant, including
without limitation, cash, Stock, other Awards, or other property, or any
combination, and may be made in a single payment or transfer, in installments,
or on a deferred basis, in each case determined in accordance with rules adopted
by, and at the discretion of, the Committee.
13.5. LIMITS ON TRANSFER. No right or interest of a Participant in any
unexercised or restricted Award may be pledged, encumbered, or hypothecated to
or in favor of any party other than the Corporation or a Subsidiary, or shall be
subject to any lien, obligation, or liability of such Participant to any other
party other than the Corporation or a Subsidiary. No unexercised or restricted
Award shall be assignable or transferable by a Participant other than by will or
the laws of descent and distribution or, except in the case of an Incentive
Stock Option, pursuant to a domestic relations order that would satisfy Section
414(p)(1)(A) of the Code if such Section applied to an Award under the Plan;
provided, however, that the Committee may (but need not) permit other transfers
where the Committee concludes that such transferability (i) does not result in
accelerated taxation, (ii) does not cause any Option intended to be an incentive
stock option to fail to be described in Code Section 422(b), and (iii) is
otherwise appropriate and desirable, taking into account any state or federal
tax or securities laws applicable to transferable Awards.
13.6 BENEFICIARIES. Notwithstanding Section 13.5, a Participant may, in
the manner determined by the Committee, designate a beneficiary to exercise the
rights of the Participant and to receive any distribution with respect to any
Award upon the Participant's death. A beneficiary, legal guardian, legal
representative, or other person claiming any rights under the Plan is subject to
all terms and conditions of the Plan and any Award Agreement applicable to the
Participant, except to the extent the Plan and Award Agreement otherwise
provide, and to any additional restrictions deemed necessary or appropriate by
the Committee. If no beneficiary has been designated or survives the
Participant, payment shall be made to the Participant's estate. Subject to the
foregoing, a beneficiary designation may be changed or revoked by a Participant
at any time provided the change or revocation is filed with the Committee.
13.7. STOCK CERTIFICATES. All Stock certificates delivered under the
Plan are subject to any stop-transfer orders and other restrictions as the
Committee deems necessary or advisable to comply with federal or state
securities laws, rules and regulations and the rules of any national securities
exchange or automated quotation system on which the Stock is listed, quoted, or
traded. The Committee may place legends on any Stock certificate to reference
restrictions applicable to the Stock.
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13.8 ACCELERATION UPON DEATH OR DISABILITY. Notwithstanding any other
provision in the Plan or any Participant's Award Agreement to the contrary, upon
the Participant's death or Disability, all outstanding Options, Stock
Appreciation Rights, and other Awards in the nature of rights that may be
exercised shall become fully exercisable and all restrictions on outstanding
Awards shall lapse. Any Option or Stock Appreciation Rights Awards shall then
lapse in accordance with the other provisions of the Plan and the Award
Agreement. To the extent that this provision causes Incentive Stock Options to
exceed the dollar limitation set forth in Section 7.2(d), the excess Options
shall be deemed to be Non-Qualified Stock Options.
13.9. ACCELERATION UPON A CHANGE IN CONTROL. Except as otherwise
provided in the Award Agreement, upon the occurrence of a Change in Control, all
outstanding Options, Stock Appreciation Rights, and other Awards in the nature
of rights that may be exercised shall become fully exercisable and all
restrictions on outstanding Awards shall lapse; provided, however that such
acceleration will not occur if, in the opinion of the Company's accountants,
such acceleration would preclude the use of "pooling of interest" accounting
treatment for a Change in Control transaction that (a) would otherwise qualify
for such accounting treatment, and (b) is contingent upon qualifying for such
accounting treatment. To the extent that this provision causes Incentive Stock
Options to exceed the dollar limitation set forth in Section 7.2(d), the excess
Options shall be deemed to be Non-Qualified Stock Options.
13.10. ACCELERATION UPON CERTAIN EVENTS NOT CONSTITUTING A CHANGE IN
CONTROL. In the event of the occurrence of any circumstance, transaction or
event not constituting a Change in Control (as defined in Section 3.1) but which
the Board of Directors deems to be, or to be reasonably likely to lead to, an
effective change in control of the Company of a nature that would be required to
be reported in response to Item 6(e) of Schedule 14A of the 1934 Act, whether or
not applicable, the Committee may in its sole discretion declare all outstanding
Options, Stock Appreciation Rights, and other Awards in the nature of rights
that may be exercised to be fully exercisable, and/or all restrictions on all
outstanding Awards to have lapsed, in each case as of such date as the Committee
may, in its sole discretion, declare, which may be on or before the consummation
of such transaction or event. To the extent that this provision causes Incentive
Stock Options to exceed the dollar limitation set forth in Section 7.2(d), the
excess Options shall be deemed to be Non-Qualified Stock Options.
13.11. ACCELERATION FOR ANY OTHER REASON. Regardless of whether an
event has occurred as described in Section 13.9 or 13.10 above, the Committee
may in its sole discretion at any time determine that all or a portion of a
Participant's Options, Stock Appreciation Rights, and other Awards in the nature
of rights that may be exercised shall become fully or partially exercisable,
and/or that all or a part of the restrictions on all or a portion of the
outstanding Awards shall lapse, in each case as of such date as the Committee
may, in its sole discretion, declare. The Committee may discriminate among
Participants and among Awards granted to a Participant in exercising its
discretion pursuant to this Section 13.11.
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13.12 EFFECT OF ACCELERATION. If an Award is accelerated under Section
13.9 or 13.10, the Committee may, in its sole discretion, provide (i) that the
Award will expire after a designated period of time after such acceleration to
the extent not then exercised, (ii) that the Award will be settled in cash
rather than Stock, (iii) that the Award will be assumed by another party to the
transaction giving rise to the acceleration or otherwise be equitably converted
in connection with such transaction, or (iv) any combination of the foregoing.
The Committee's determination need not be uniform and may be different for
different Participants whether or not such Participants are similarly situated.
13.13. PERFORMANCE GOALS. The Committee may determine that any Award
granted pursuant to this Plan to a Participant (including, but not limited to,
Participants who are Covered Employees) shall be determined solely on the basis
of (a) the achievement by the Corporation or a Subsidiary of a specified target
return, or target growth in return, on equity or assets, (b) the Corporation's
or Subsidiary's stock price, (c) the achievement by a business unit of the
Corporation or Subsidiary of a specified target, or target growth in, net income
or earnings per share, or (d) any combination of the goals set forth in (a)
through (c) above. Furthermore, the Committee reserves the right for any reason
to reduce (but not increase) any Award, notwithstanding the achievement of a
specified goal. If an Award is made on such basis, the Committee shall establish
goals prior to the beginning of the period for which such performance goal
relates (or such later date as may be permitted under Code Section 162(m) or the
regulations thereunder). Any payment of an Award granted with performance goals
shall be conditioned on the written certification of the Committee in each case
that the performance goals and any other material conditions were satisfied.
ARTICLE 14
CHANGES IN CAPITAL STRUCTURE
14.1. GENERAL. In the event a stock dividend is declared upon the
Stock, the shares of Stock then subject to each Award shall be increased
proportionately without any change in the aggregate purchase price therefor. In
the event the Stock shall be changed into or exchanged for a different number or
class of shares of stock or securities of the Corporation or of another
corporation, whether through reorganization, recapitalization, stock split-up,
combination of shares, merger or consolidation, there shall be substituted for
each such share of Stock then subject to each Award the number and class of
shares into which each outstanding share of Stock shall be so exchanged, all
without any change in the aggregate purchase price for the shares then subject
to each Award.
ARTICLE 15
AMENDMENT, MODIFICATION AND TERMINATION
15.1. AMENDMENT, MODIFICATION AND TERMINATION. The Board or the
Committee may, at any time and from time to time, amend, modify or terminate the
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Plan without stockholder approval; provided, however, that the Board or
Committee may condition any amendment or modification on the approval of
stockholders of the Company if such approval is necessary or deemed advisable
with respect to tax, securities or other applicable laws, policies or
regulations.
15.2 AWARDS PREVIOUSLY GRANTED. At any time and from time to time, the
Committee may amend, modify or terminate any outstanding Award without approval
of the Participant; provided, however, that such amendment, modification or
termination shall not, without the Participant's consent, reduce or diminish the
value of such Award determined as if the Award had been exercised, vested,
cashed in or otherwise settled on the date of such amendment or termination. No
termination, amendment, or modification of the Plan shall adversely affect any
Award previously granted under the Plan, without the written consent of the
Participant.
ARTICLE 16
GENERAL PROVISIONS
16.1. NO RIGHTS TO AWARDS. No Participant or any employee, officer or
director shall have any claim to be granted any Award under the Plan, and
neither the Corporation nor the Committee is obligated to treat Participants or
employees, officers or directors uniformly.
16.2. NO SHAREHOLDER RIGHTS. No Award gives the Participant any of the
rights of a shareholder of the Corporation unless and until shares of Stock are
in fact issued to such person in connection with such Award.
16.3. WITHHOLDING. The Corporation or any Subsidiary shall have the
authority and the right to deduct or withhold, or require a Participant to remit
to the Corporation, an amount sufficient to satisfy federal, state, and local
taxes (including the Participant's FICA obligation) required by law to be
withheld with respect to any taxable event arising as a result of the Plan. With
respect to withholding required upon any taxable event under the Plan, the
Committee may, at the time the Award is granted or thereafter, require that any
such withholding requirement be satisfied, in whole or in part, by withholding
shares of Stock having a Fair Market Value on the date of withholding equal to
the amount to be withheld for tax purposes, all in accordance with such
procedures as the Committee establishes.
16.4. NO IMPLIED RIGHTS. Nothing in the Plan or any Award Agreement
shall interfere with or limit in any way the right of the Corporation or any
Subsidiary to terminate any Participant's employment or status as a director or
officer at any time, nor confer upon any Participant any right to continue in
the employ or directorship of the Corporation or any Subsidiary.
l6.5. UNFUNDED STATUS OF AWARDS. The Plan is intended to be an
"unfunded" plan for incentive and deferred compensation. With respect to any
payments
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not yet made to a Participant pursuant to an Award, nothing contained
in the Plan or any Award Agreement shall give the Participant any rights that
are greater than those of a general creditor of the Corporation or any
Subsidiary.
16.6. INDEMNIFICATION. To the extent allowable under applicable law,
each member of the Committee shall be indemnified and held harmless by the
Corporation from any loss, cost, liability, or expense that may be imposed upon
or reasonably incurred by such member in connection with or resulting from any
claim, action, suit, or proceeding to which such member may be a party or in
which he may be involved by reason of any action or failure to act under the
Plan and against and from any and all amounts paid by such member in
satisfaction of judgment in such action, suit, or proceeding against him
provided he gives the Corporation an opportunity, at its own expense, to handle
and defend the same before he undertakes to handle and defend it on his own
behalf. The foregoing right of indemnification shall not be exclusive of any
other rights of indemnification to which such persons may be entitled under the
Corporation's Articles of Incorporation or Bylaws, as a matter of law, or
otherwise, or any power that the Corporation may have to indemnify them or hold
them harmless.
16.7. RELATIONSHIP TO OTHER BENEFITS. No payment under the Plan shall
be taken into account in determining any benefits under any pension, retirement,
savings, profit sharing, group insurance, welfare or benefit plan of the
Corporation or any Subsidiary.
16.8. EXPENSES. The expenses of administering the Plan shall be borne
by the Corporation and its Subsidiaries.
16.9. TITLES AND HEADINGS. The titles and headings of the Sections in
the Plan are for convenience of reference only, and in the event of any
conflict, the text of the Plan, rather than such titles or headings, shall
control.
16.10. GENDER AND NUMBER. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine; the
plural shall include the singular and the singular shall include the plural.
16.11. FRACTIONAL SHARES. No fractional shares of Stock shall be issued
and the Committee shall determine, in its discretion, whether cash shall be
given in lieu of fractional shares or whether such fractional shares shall be
eliminated by rounding up.
16.12. GOVERNMENT AND OTHER REGULATIONS. The obligation of the
Corporation to make payment of awards in Stock or otherwise shall be subject to
all applicable laws, rules, and regulations, and to such approvals by government
agencies as may be required. The Corporation shall be under no obligation to
register under the 1933 Act, any of the shares of Stock paid under the Plan. If
the shares paid under the Plan may in certain circumstances be exempt from
registration under the 1933 Act, the Corporation
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may restrict the transfer of such shares in such manner as it deems advisable
to ensure the availability of any such exemption.
16.13. GOVERNING LAW. To the extent not governed by federal law, the
Plan and all Award Agreements shall be construed in accordance with and governed
by the laws of the State of Georgia.
16.14 CODE SECTION 162(M). The deduction limits of Code Section 162(m)
and the regulation thereunder do not apply to the Corporation until such time,
if any, as any class of the Corporation's common equity securities is registered
under Section 12 of the 1934 Act or the Corporation otherwise meets the
definition of a "publicly held corporation" under Treasury Regulation
1.162-27(c) or any successor provision. Upon becoming a publicly held
corporation, the deduction limits of Code Section 162(m) and the regulations
thereunder shall not apply to compensation payable under this Plan until the
expiration of the reliance period described in Treasury Regulation 1.162-27(f)
or any successor regulation.
The foregoing is hereby acknowledged as being the Main Street Banks
Incorporated 1997 Long-Term Incentive Plan as adopted by the Board of Directors
of the Company on MARCH 11, 1997.
MAIN STREET BANKS INCORPORATED
By: /S/ ROBERT R. FOWLER, III
--------------------------
Its: CHAIRMAN, PRESIDENT, AND CHIEF
EXECUTIVE OFFICER
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STATE OF GEORGIA )
) LEASE AGREEMENT
COUNTY OF NEWTON )
THIS AGREEMENT, made this 1ST day of APRIL , 1997, by and between
ROBERT R. FOWLER, III, of Newton County, Georgia, with a mailing address of 1134
Clark Street, P. O. Box 1098, Covington, Georgia, 30210, (hereinafter called as
"Landlord") and MAIN STREET BANK, whose address is 1134 Clark Street, P. O. Box
1098, Covington, Georgia, 30210 (hereinafter called "Tenant");
W I T N E S S E T H:
1. Landlord, for in consideration of the covenants and conditions
contained herein, does hereby lease to Tenant and Tenant does hereby take from
Landlord upon and subject to the covenants and conditions contained herein, the
following described property, to-wit:
The approximate 22,300 square foot building located at the northeastern
corner of the intersection of Emory Street and Usher Street in Covington, Newton
County, Georgia, formerly occupied by A&P Grocery as to the eastern portion and
a restaurant and previously Bray Drugs as to the western portion, together with
the adjoining real estate consisting of a city block owned by Landlord which is
bounded on the West by Emory Street, South by Usher Street, East by Lee Street
and North by Stallings Street; SUBJECT HOWEVER, to the provisions contained on
Exhibit "A" attached hereto and made a part hereof by reference as to the
Landlord's reservation of rights in and to a portion of the said property;
(hereinafter called "Premises") for a term beginning on the earlier of the
Commencement Date as defined at Section 21 hereinafter or April 1, 1997, and
terminating on March 31, 2007, at 11:59, p.m.
2. Tenant shall pay to Landlord promptly on the 1st day of each month
in advance during the term of this Lease the rentals specified herein. All
rental checks shall be payable to Landlord and hand delivered or mailed to
Landlord's address hereinbefore given. The rental rates will be annual rentals
payable one-twelfth (1//12) of the annual amount in monthly payments on the
first (1st) day of each month of each lease year. Attached hereto and made a
part hereof as Exhibit "B" is a schedule of the annual rentals and the rental
rate per square foot based on the estimated gross area of the building on the
Premises of 22,300 square feet.
3. The Premises shall be used only for the Tenant's non-retail banking
operations, support services and professional offices. The Premises shall not be
used for any illegal purposes nor in violation of any valid regulation of any
governmental body nor in any manner to create any nuisance or trespass.
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4. (A) The Tenant accepts the Premises in their present condition and
as suited for the use intended by the Tenant. Except as hereinafter provided,
Landlord shall not be required to make any repairs, improvements or alterations
to the Premises. The Tenant contemplates making major improvements to the
Premises including the renovation of the building located thereon, all as more
particularly described in Section 20 of this Lease.
(B) The Landlord shall maintain the structural integrity of the
exterior walls, roof and floors of the building (except the floor coverings and
plate glass which are the responsibility of the Tenant) and shall maintain the
roof watertight. Tenant shall at once report in writing to Landlord any
defective condition known to Tenant which Landlord is required to repair and the
failure to so report shall make the Tenant responsible for damages resulting
from such defective conditions, but only to the extent that the failure to
report the defective condition was negligent. The Landlord may enter the
Premises at reasonable hours to make repairs required of Landlord under the
terms hereof or to inspect the Premises to see that Tenant is complying with all
of the Tenant's obligations hereunder and to exhibit the Premises to prospective
purchasers or other tenants. The Tenant shall maintain in a good state of repair
the parking lot and drives constituting a portion of the Premises and except for
those items required to be maintained by the Landlord in accordance with the
earlier provisions of this section, the Tenant shall maintain the Premises and
keep in good order and repair the Premises and all mechanical systems thereof
including water, sewer, electrical, heating, air conditioning and plumbing.
Tenant shall protect from freezing or damage and shall be liable for and hold
Landlord harmless in respect to any damage or injury to Tenant, the Premises,
the property of the Landlord or anyone else if due to act or neglect of Tenant
or anyone in Tenant's control or employ. All repairs, replacements and renewals
shall be at least equal in quality of materials and workmanship to the existing
as of the "Completion Date" as defined at Section 20 of this Lease. Except for
the improvements provided for herein in Paragraph 20, Tenant shall not make any
improvements or alterations which require the relocation or movement of any
load-bearing wall or structural wall.
(C) At the expiration or earlier termination of this Lease,
Tenant shall return the Premises to the Landlord in as good a condition as the
same are in as of the Completion Date as defined in Section 20 of this Lease,
normal wear and tear excepted, and subject to any improvements made by the
Tenant with the prior written consent of the Landlord as hereinbefore permitted.
(D) The Tenant covenants to keep the Premises free of all
liens of any sort arising out of any work performed by it on the Premises. In
the event any such liens should be filed against the Premises, the Tenant
covenants to cause such liens to be
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removed by any legal means within thirty (30) days after written notice of such
lien is given and the failure of the Tenant to do so shall constitute a default
under the Lease.
5. The Tenant shall pay all bills for water, gas and electricity used
on the Premises or used by Tenant in connection therewith, together with any
other utility bills or services in connection with the Tenant's use of the
Premises. The Tenant shall promptly pay when due all state, county and city ad
valorem taxes assessed against the Premises during the term of the Lease
includ-ing taxes on all improvements made thereon by the Tenant. The Tenant
agrees to make an ad valorem tax return for the Premises beginning for calendar
year 1998 so that the tax bill will come directly to the Tenant and upon request
from the Landlord, provide Landlord with proof of prompt payment of all ad
valorem taxes due thereon by the due date thereof. The Landlord and Tenant agree
to prorate the ad valorem taxes applicable to the Premises for calendar year
1997 based on available information.
6. (A) During the term of this Lease, the Landlord shall not be liable
for any damage to property of the Tenant or of others, nor for the loss or
damage to any property of the Tenant by theft or otherwise. Landlord shall not
be liable for any injury or damage to persons or property resulting from fire,
explosion, falling plaster, steam, gas, electricity, rain, snow, leaks from any
part of the improvements on the Premises, or for any reason arising out of the
Tenant's occupancy and use of the Premises.
(B) During the term hereof, Tenant shall indemnify and save
harmless the Landlord from and against all liabilities, penalties, damages,
expenses and judgments by reason of any injury or claim of injury to person or
property, of any nature and howsoever caused, arising out of the use,
occupation and control of the Premises by Tenant at any time during the term
hereof, or any extension, including those resulting from any work in connection
with any alterations, changes or repairs by Tenant. The Tenant shall be liable
for and shall hold Landlord harmless in respect of damage or injury to Landlord,
the Premises and property or persons of the Landlord's other tenants or anyone
else, if due to act or neglect of the Tenant or anyone in the Tenant's control
or employ. Landlord shall promptly notify Tenant of any claim against Landlord
on account of any such injury or claimed injury to persons or property and shall
promptly deliver the Tenant the original or a true copy of the summons or any
other process, pleading or notice issued in any suit or other proceeding to
assert or enforce any such claim. Tenant shall defend at its own expense any
suit, with attorneys of its own selection, but Landlord shall have the right, if
it sees fit, to participate in such defense at its own expense During the term
of this Lease including any extensions of the term, the Tenant shall maintain in
full force and effect a policy of public liability and property damage insurance
on the Premises in which the limits of public liability coverage shall be not
less than $1,000,000.00 combined
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single-limit for personal injury and in which the limit of property damage
coverage shall be not less than $50,000.00. Such policy shall name the Landlord
and any person, firm or corporation designated by the Landlord as insured and
shall contain a clause specifying that the insurer will not cancel or change the
insurance without first giving Landlord ten (10) days prior written notice. Upon
request by Landlord, Tenant shall provide Landlord with proof of such insurance
at all times. The stating of the limits of the foregoing insurance shall not be
deemed to be a limitation of the Tenant's liability under the provisions of this
Section.
(C) Nothing contained in Sub-items (A) and (B) above shall require
the indemnification of the Landlord for loss or damage arising due to the
Landlord's misconduct or negligence.
7. The Tenant shall bear all risk of loss for damage or destruction to
the improvements now or hereafter constructed on the Premises and existing
thereon during the term of this Lease and (except as hereinafter provided in the
event the Tenant elects to terminate this Lease due to total destruction) the
Tenant shall promptly repair or replace all damage to or destruction of the
Premises. The Tenant shall have the benefit of the proceeds of the Property
Insurance (as hereinafter defined) in fulfilling its obligations hereunder. The
Landlord shall carry during the term of this Lease all-risk property insurance
(the "Property Insurance") covering fire and extended coverage, vandalism and
malicious mischief and all other perils of direct physical loss or damage
insuring the Premises and the improvements being erected by the Tenant for the
full replacement value thereof and also providing standard landlord's liability
insurance and loss of rental coverage for the benefit of the Landlord. The
Tenant shall pay upon demand the costs of such insurance during the term of this
Lease and upon the Tenant's request, the Landlord shall furnish the Tenant with
a certificate of Property Insurance. Upon the request of Tenant, Landlord shall
increase the amount of insurance carried on the Premises. The Landlord's
procuring of insurance shall not reduce the Tenant's responsibility for repair
or replacement for all damage or destruction of such improvements. If, during
the term of this Lease, the improvements to the Premises are totally destroyed,
as determined by any insurance carrier carrying insurance on the Premises or by
an architect, engineer, or adjuster of Tenant's choice, if the risk is not
insured, or the Premises are destroyed or are so damaged so as to substantially
impair Tenant's ability to use the Premises for their intended purpose and
cannot reasonably be repaired within 180 days following the casualty, then the
Tenant may terminate this Lease by written notice to Landlord within 120 days
following the casualty. If the Tenant elects to terminate this Lease, the Tenant
shall pay to the Landlord the replacement costs of the improvements less an
amount equal to the unamortized costs of Tenant's Additional Improvements. The
Tenant shall be entitled to proceeds of the Property Insurance to which the
Landlord is not entitled under the previous sentence as reimbursement for its
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Additional Improvements. Tenant's Additional Improvements ("TAI") shall mean all
improvements made by the Tenant to or upon the Premises so as to become a part
of the building other than the improvements required by paragraph 20 of this
Lease. The Tenant shall describe the TAI and certify their cost to the Landlord
in writing within 60 days after the installation, as they are installed from
time to time during the term of this Lease. The TAI shall be amortized over the
initial term of this Lease on a straight line basis calculated on the remaining
number of months in the initial Lease term. By way of illustration only, if TAI
are installed in the first year of the Lease, they would be amortized over 120
months; but, any TAI installed in the fifth year of this Lease would be
amortized over 60 months.
Upon the total destruction of the improvements, rent shall abate as of
the date of the destruction and shall resume once the improvements are replaced,
a certificate of occupancy received, if required, and the Tenant has occupied
the Premises. The term of this Lease shall be extended for a period equal to the
period of rent abatement. If the Premises are partially destroyed, but Tenant
can continue to use the Premises, then the Rent shall abate from the date of the
casualty or destruction in proportion to the number of square feet in the
Premises rendered unusable because of the destruction or damage. Such abatement
shall continue until the Premises are restored to their condition as of the
Completion Date and provided further, that the term of the Lease then in effect
shall be extended for a period equal to the period of rent abatement. Tenant
shall pay all taxes on the Premises during the period of replacement or
restoration. Any rent abatement provided for herein is contingent upon the
Landlord's receiving proceeds of "loss rents" coverage from the Property
Insurance on the Premises in an amount equal to the abated rent and therefore
there shall be no rent abated in excess of the proceeds received by Landlord.
8. If a part or the whole of the Premises be taken for any public or
quasi-public use, under any statute or by right of eminent domain, or private
purchase in lieu thereof, such as to render the Premises unsuitable for the
business of Tenant, then Landlord shall be entitled to receive the proceeds of
the condemnation or purchase insofar as the same relates to Landlord's interest
in the Premises, and this Lease shall terminate and Tenant shall be liable for
rent only up to the time of the taking. In the event of a partial taking which
is not extensive enough to render the Premises unsuitable for the intended uses
of Tenant, Landlord shall be entitled to receive the proceeds of the
condemnation or purchase insofar as the same relates to Landlord's interest in
the Premises, and Landlord shall make such repairs as may be reasonably
necessary to restore the Premises to a condition comparable to its condition at
the time of said condemnation, and the Lease shall continue in full force and
effect, but all rental shall abate during the restoration period, and
thereafter, the rent on the Premises shall abate in direct proportion to the
percentage of the Premises taken. The parties agree that if a portion of the
building which is shown as the hashed area on
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Exhibit "C-2, page 3" is taken by eminent domain that it shall constitute a
partial taking of the Premises, but that if the exercise of the power of eminent
domain takes any part of the building in excess of the hashed area shown on
Exhibit "C-2, page 3", then such taking shall constitute a complete taking of
the Premises.
Nothing contained herein shall be deemed or construed to prevent
Landlord or Tenant from enforcing and prosecuting in any condemnation
proceedings a claim for the value of Landlord's or Tenant's respective
interests.
9. If Tenant defaults in the Payment of rent when due, as provided for
herein, or in the performance of any of its other obligations under this Lease,
and fails to cure any such default within ten (10) days after notice from
Landlord of such default by certified mail to Tenant, or if Tenant shall file a
petition in bankruptcy or be declared insolvent according to law, or shall make
an assignment for the benefit of its creditors, then and in such case, Landlord
lawfully may immediately, or at any time thereafter, and without notice or
demand, enter into and upon the Premises, or any part thereof, and repossess the
same and expel Tenant and those claiming under Tenant and remove their effects,
forcibly if necessary, without being deemed to be guilty of any manner of
trespass, and thereupon, this Lease shall absolutely terminate, but without
prejudice to remedies which might otherwise be used by Landlord for arrears of
rent or any breach of covenants herein contained.
10. The Tenant shall have the option to renew this Lease for two (2)
successive five (5) year extension periods upon written notice to the Landlord
of Tenant's election to exercise its option to renew given at least sixty (60)
days preceding the expiration date of the then current term hereof. The Tenant
shall have the right to terminate this Lease after the first five (5) years of
the term upon ninety (90) days prior notice to the Landlord and the payment of a
termination payment equal to six (6) months rental at the then current rental
rate if the termination is in the sixth (6th) lease year. The termination
payments decrease by the amount of one month's rent for each succeeding lease
year with the termination payment being only one month's rental during the 10th
lease year. Further, during the option years, the Tenant may terminate the Lease
effective after six (6) months notice to the Landlord of the Tenant's desire to
terminate the Lease and the effective date thereof (without paying a termination
payment).
11. If Tenant remains in possession after the expiration of the term
hereof with Landlord's acquiescence and without any distinct agreement of the
parties, Tenant shall be a tenant at sufferance and there shall be no renewal of
this Lease by operation of law.
12. Any furniture or other equipment of Tenant which may be placed in
or upon, but not permanently attached to the Premises by
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Tenant is to remain its property and it is to have the right to remove the same
at any time prior to or upon vacating the Premises, provided that at the time of
removal, Tenant is not in default under the terms of this Lease, and further
provided that Tenant shall restore the condition of the Premises to as good a
state and condition as on the Completion Date, subject only to the exceptions
set forth in paragraph 11 hereinbefore. Notwithstanding anything to the contrary
contained in this Lease, the Tenant retains all of its interest and title in and
to its trade fixtures as provided at O.C.G.A. '44-7-12.
13. Only upon first obtaining the written consent of Land-lord, which
consent will not be delayed nor unreasonably withheld or conditioned, Tenant has
the right to assign this Lease for any unexpired term or any interest
thereunder, or to sublet the Premises or any part thereof, or to permit the use
of the Premises by any party other than Tenant and this Lease shall continue in
effect. Tenant shall be responsible for performance of the covenants of this
Lease notwithstanding any assignment or subletting.
14. Landlord covenants and warrants that if Tenant shall discharge the
obligations herein set forth, Tenant shall have and enjoy, during the term
hereof, quiet and undisturbed possession of the Premises. This Lease shall be
subject and subordinate, however to any existing or any renewal, modification,
consolidation, replacement and extension of any deed to secure debt now
conveying title to any portion or portions of the Premises, and deed to secure
debt hereafter executed that may convey all or any portion of the Premises, and
any subsequent renewal, modification, consol-idation, replacement and extension
of any such deed to secure debt. Although no instrument or act on the part of
Tenant shall be necessary to effectuate such subordination, the Tenant will,
nevertheless, execute and deliver such further instruments subordinating this
Lease to the security title of any such security deed or security deeds as may
be desired by the grantees thereof; provided however, Tenant shall not be
required to sign any such agreements that alter the terms of this Lease. The
Landlord shall require any Mortgagee or Grantee under a Deed to Secure Debt to
execute a Non-Disturbance Agreement in favor of Tenant and in form reasonably
satisfactory to Tenant. Landlord agrees that in the event of any foreclosure of
the mortgage or deed to secure debt, Tenant shall have the right to withold the
payment of any rentals due hereunder and to pay the same directly to the
Mortgagee or Trustee in satisfaction of said indebtedness.
15. The Tenant covenants that it will at all times during the term of
this Lease (after the Completion Date) keep the Premises occupied for the
purposes herein stated and the failure of the Tenant to comply with the
aforesaid covenant for a period of one hundred, twenty (120) days after written
notice of same shall be a default under this Lease, giving the Landlord the
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option to terminate same in accordance with the provisions hereof.
16. If Landlord or Tenant enforces this Lease by or through an attorney
at law, each agrees to reimburse the prevailing party for its reasonable actual
attorney's fees, court costs and litigation expenses.
17. INTENTIONALLY OMITTED.
18. As a condition of this Lease and the Tenant's obligations to pay
rents hereunder, by May 1, 1997, the Landlord must procure for the Tenant's
benefit the right and option to terminate the following leases effective as of a
date not later than thirty (30) days following the Tenant's commencement of
occupancy of the Premises (other than for improvement purposes):
(A) Lease Agreement with Mary Fowler and Robert R. Fowler,
III, as Trustee of the Hay/Peacock Trust for premises on Floyd Street per Lease
Agreement dated October 27, 1994, and amended June 8, 1995.
(B) Lease Agreement with Mary H. Fowler and Steve W. Jordan as
Trustee for Robin H. Fowler incidental to premises on Williams Street per Lease
Agreement dated FEBRUARY 24, 1995 .
19. Tenant acknowledges that the floor covering on portions of the
Premises may contain asbestos. The Tenant may cover exist-ing floor covering;
however, in the event the Tenant elects to remove same, same must be removed in
compliance with all applicable governmental regulations concerning asbestos
materials.
20. (A) As mentioned at Section 4 of the Lease, the Tenant contemplates
development of plans for the major renovation of existing improvements on the
Premises. Within twelve (12) months of the date of this Lease, the Tenant shall
make improvements to the Premises as specified on Exhibit "C" attached hereto
and made a part hereof by reference or such other improvements shown on the
plans and specifications submitted by the Tenant to the Landlord for approval.
The Landlord shall not unreasonably withhold his approval of the Tenant's plans
for the improvements.
(B) The Tenant shall proceed in due course to make the required
and/or Landlord approved improvements at Tenant's expense, all of which shall be
conducted in a good and workmanshiplike manner and otherwise in accordance with
the terms and conditions of this Lease as to lien rights. Tenant agrees to
complete the improvements within twelve (12) months from the date of this Lease.
The completion of the improvements shall be evidenced by a certificate of
occupancy issued by the appropriate governmental agency, which date of issuance
of the certificate of occupancy shall be hereinafter called the "Completion
Date". The 12-month period to complete the improvements shall be extended on a
day-for-day basis for any delays which are not the fault or cause of the Tenant
including, but not limited to weather delays,
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permitting delays, the unavailability of materials or trained tradespeople,
delays in acquiring permits and inspections not the fault of the Tenant, delays
caused by any governmental or quasi-governmental entity. After accounting for
delay days, if the improvements are not substantially complete within 12 months
from the date of this Lease, then the Landlord shall be entitled to collect from
Tenant liquidated damages in the amount of $20.00 for every day that the
improvements remain incomplete. The Landlord shall not recover liquidated
damages for delay days.
21. CONTINGENCIES AND CONDITIONS OF TENANT'S OBLIGATIONS:
Landlord acknowledges that this Lease is contingent upon Tenant's
obtaining all regulatory approval that may be needed to enter into this Lease
and operate the business of the Tenant at the Premises, all necessary permits,
licenses, variances and approvals pertaining to the building, occupancy, signs,
curb cuts, driveways (including ingress and egress to public thoroughfares),
zoning, environmental controls, and any other governmental permits (collectively
the "Permits") which, in the sole judgment of the Tenant, are necessary to
permit it to make the contemplated improvements and operate its intended
business at the Premises. The obligations of Tenant hereunder shall be
conditioned upon all said Permits being validly and irrevocably granted on terms
and conditions and at a cost satisfactory to Tenant without qualification,
except such qualification as shall be acceptable to Tenant, and no longer
subject to appeal. Tenant agrees to promptly apply for and pursue the securing
of the requisite Permits. Landlord agrees to execute any applications or other
documents requested by Tenant in order to obtain any Permits. In the event any
of the aforesaid Permits have not been obtained within 45 days following the
date of this Lease or May 15, 1997, whichever occurs sooner (said period is
hereinafter referred to as the "Contingency Period), then by written notice to
the Landlord given before the expiration of the Contingency Period, Tenant may
terminate this Lease and both parties shall be relieved from any obligations
and/or liabilities hereunder. If no notice is given, then the foregoing
contingencies shall be satisfied. During the Contingency Period, the Tenant
shall pay rent, ad valorem taxes and insurance, and all payments made hereunder
by Tenant shall be retained by Landlord if this Lease is terminated by Tenant in
accordance with this provision. Landlord further agrees and acknowledges that
this Lease is contingent upon Tenant's inspection(s) of the Premises for
environmental conditions and hazards including, but not limited to Hazardous
Substances. If such inspection(s) indicates the existence, potential or
likelihood of any environmental condition, hazard or risk not acceptable to the
Tenant in the exercise of its sole and unfettered discretion, then the Tenant
may terminate this Lease during Contingency Period set forth above.
22. In the event the Commencement Date is earlier than on April 1,
1997, notwithstanding the earlier beginning date of this lease, the Tenant's
obligations to pay rents, ad valorem taxes and insurance shall not commence
until April 1, 1997.
9
<PAGE>
23. The Landlord shall have no liability or responsibility for changing
or altering the Premises to bring same into compliance with the Americans with
Disabilities Act and the regulations promulgated thereunder (hereinafter called
the "ADA"). Tenant assumes full responsibility for making changes in the
Premises to comply with ADA.
24. As used in this Section, "Hazardous Substance" shall mean any
substance that is toxic, ignitable, reactive or corrosive and is regulated by
any local government, the State of Georgia, or the United States of America.
"Hazardous Substance" includes any and all materials or substances that are
defined as a "hazardous substance" or requires special handling or disposal
pursuant to state, federal or local governmental law or regulation. "Hazardous
Substance" includes, but is not restricted to, asbestos, polychlorobiphenyls
("PCB's") and petroleum products.
Tenant covenants that during the period of its possession of the
Premises, Tenant, its agents, employees, contractors and invitees shall comply
with all federal, state and local Hazardous Substance laws, regulations and
ordinances that are applicable to Tenant's use of the Premises. Tenant agrees to
indemnify and hold Landlord harmless from any and all claims, damages, fines,
judgments, penalties, costs, liabilities or losses (including, without
limitation, any and all sums paid for settlement of claims, attorney's fees,
consultant and expert fees) arising during or after the lease term and as a
result of the failure or alleged failure of Tenant, its agents, employees,
contractors or invitees to comply with any federal, state or local hazardous
substances laws, regulations or ordinances. Without limitation of the foregoing,
this indemnification shall include any and all costs incurred due to any
investigation of the Premises or any cleanup, removal or restoration mandated by
a federal, state or local agency or political subdivision due to the failure or
alleged failure of Tenant, its agents, employees, contractors or invitees to
comply with any federal, state or local hazardous substances laws, regula-tions
or ordinances. With respect to any claim for environmental remediation or
liability for any environmental condition at, under, near, or about the
Premises, if any person, other than Tenant, has provided services, labor or
materials to the Premises or has been a tenant at the Premises or occupied the
Premises with the consent of the Landlord, and such person is a potentially
responsible person ("PRP"), then the Tenant's duty to indemnify the Landlord
hereunder shall extend only to the environmental condition caused by the Tenant,
its agents, employees, contractors or invitees. Tenant shall not indemnify
Landlord for costs, expenses or losses of any kind which are subject to
reimbursement from any insurance proceeds, governmental grant, or trust fund
such as the Georgia Underground Storage Tank Trust Fund.
25. Notwithstanding any other provision contained in this Lease, the
following provisions shall control:
10
<PAGE>
(A) In the event the Tenant or its successors or assigns shall
become insolvent, bankruptcy or make any assignment for the benefit of its
creditors or if it or its interests hereunder shall be levied upon or sold under
execution or other legal process, or in the event the banking facilities to be
operated on the Premises is closed or are taken over by the Georgia Commissioner
of Banking & Finance or other bank supervisory authority, the Landlord may
terminate this Lease, only with the concurrence of said state authority or other
supervisory authority and any such authority shall, in any event, have the
election to either continue or terminate this Lease, provided that in the event
this Lease is terminated, the maximum claim of Landlord for damages or indemnity
for injury resulting from the rejection or abandonment of the unexpired Lease
shall in no event be an amount exceeding the rent reserved by the Lease without
acceleration for the year next succeeding the date of surrender of the Premises
to the Landlord or the date of re-entry by the Landlord, whichever first occurs,
whether before or after the closing of the banking facilities plus an amount
equal to unpaid rent accrued without acceleration up to such date.
(B) Upon the Tenant's failure to pay an installment of rent
when due or if the Tenant shall fail to observe and perform any of the other
conditions, agreements or provisions of this Lease, it shall be lawful
thereupon, after Landlord shall have notified the Tenant, the Georgia
Commissioner of Banking and Finance, the Director of FDIC Division of Bank
Supervision, or the respective successor of either, and no one shall have
rectified such failure within one hundred twenty (120) days after giving of such
notice to it, for Landlord to re-enter and repossess the Premises, remove all
persons therefrom, and to take exclusive possession and remove all property
therefrom, and all rights of Tenant as a tenant shall immediately cease and
terminate. The failure on the part of the Landlord to re-enter or repossess the
Premises or to exercise any of its rights hereunder upon such default shall not
be deemed a waiver of any of the terms and conditions of this Lease and shall
not preclude the Landlord from the exercise of any other rights upon any
subsequent occurring default or defaults.
26. Whenever in this Lease it shall be required or permitted that
notice be given by either party to this Lease to the other, such notices shall
be given in writing in person or by United States certified mail, return receipt
requested, addressed to the addresses of the Landlord and Tenant, respectively,
as given in the preamble hereof. Addresses for notices may be changed from time
to time by either party by giving notice as above provided. Notices given
personally shall be effective upon delivery and notices given by mail in
accordance with the foregoing shall be effective as of the date of receipt by
the addressee as shown on the official postal receipt.
27. This Lease contains the entire agreement of the parties
11
<PAGE>
and no representations, inducements, promises or agreements, oral or otherwise,
between the parties not embodied herein, shall be of any force of effect. Time
is of the essence of this Agreement. No failure of Landlord to exercise any
power given Landlord hereunder or to insist upon strict compliance by Tenant
with Tenant's obligations hereunder, and no custom or practice of the parties
at variance with the terms thereof shall constitute a waiver of Landlord's
right to demand exact compliance with the terms hereof. The provisions of this
Lease shall be construed in accordance with the laws of the State of Georgia.
END OF PAGE-CONTINUED ON NEXT PAGE
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto duly executed this
Lease in duplicate, as of the day and year first above written.
TENANT: LANDLORD:
MAIN STREET BANK
By /S/ HAL W. DALLY /S/ ROBERT R. FOWLER III (SEAL)
---------------------- ------------------------------
Title: Exec.Vice Pres. ROBERT R. FOWLER, III
Attest: /S/ JOYCE H. MCCLURE
--------------------
Title: Assist. Vice Pres.
(Bank Seal)
13
<PAGE>
EXHIBIT "A"
ATTACHMENT TO LEASE AGREEMENT BY AND BETWEEN
ROBERT R. FOWLER, III ("LANDLORD") AND MAIN STREET BANK ("TENANT")
- --------------------------------------------------------------------------------
Anything contained in the Lease Agreement between Landlord and Tenant
to which this Exhibit is attached to the contrary notwith-standing, the Landlord
does hereby reserve the right (but shall not be obligated) to develop a portion
of the parking lot that is a portion of the Premises that will have an area that
is 50 feet wide East to West and 100 feet wide North to South along the
easternmost boundary of the Premises (with the eastern boundary of the reserved
area being the eastern boundary of the Premises) at a location (northern and
southern boundaries) that is mutually agreeable to the Landlord and Tenant so as
not to unduly obstruct access to the Premises or block the view of the building
on the Premises from Usher Street. The reserved area for the Landlord is
hereinafter called the "Landlord's Reserved Area". The Landlord shall have the
right to build a building on the Landlord's Reserved Area not to exceed 5,000
square feet of gross building area for uses compatible with the Tenant's
occupancy of the building on the Premises and the right for the employees and
invitees of the occupants of any building constructed on the Landlord's Reserved
Area to use the parking lot on the Premises in common with the Tenant. The
Landlord shall not be entitled to build any improvements on the Landlord's
Reserved Area unless such improvements meet all building and code regulations
including compliance with parking ratios. The Tenant shall be assigned so many
of the existing parking spaces on the Premises as are required to meet the
minimum parking ratios for the Tenant's use of the building on the Premises at
the time Landlord begins construction of a building on the Landlord's Reserved
Area. The Tenant may use Landlord's Reserved Area for parking until Landlord
elects to improve same.
<PAGE>
EXHIBIT "B"
ATTACHMENT TO LEASE AGREEMENT BY AND BETWEEN
ROBERT R. FOWLER, III ("LANDLORD") AND MAIN STREET BANK ("TENANT")
- --------------------------------------------------------------------------------
The rental rates applicable under the Lease to which this Exhibit is
attached are as follow:
<TABLE>
<CAPTION>
Approximate Rental
per Square Foot
Year Total Rent Per Year (based on 22,300 sq.ft.)
---- ------------------- ------------------------
<S> <C> <C>
1 $39,800.00 $1.78
2 $52,629.50 $2.36
3 $65,525.62 $2.9384
4 $77,445.11 $3.47
5 $81,317.37 $3.6465
6 $85,383.24 $3.8288
7 $89,652.40 $4.0203
8 $94,135.02 $4.2213
9 $98,841.77 $4.4324
10 $103,783.86 $4.6540
</TABLE>
In the event options are exercised, the rental rate for the eleventh
(11th) through the fifteenth (15th) years and sixteenth (16th) through the
twentieth (20th) years will begin at the rate hereinafter specified and
thereafter escalate at the rate of 8.5% per year over the previous year. This
will result in rental rates for respective years indicated as hereinafter
provided with the interim unstated years being calculated by applying an 8.5%
increase to the previous year's rent:
<TABLE>
<CAPTION>
<S> <C> <C>
11 $112,604.16 $5.0495
15 $156,044.25 $6.9975
20 $234,618.30 $10.5210
</TABLE>
<PAGE>
EXHIBIT "C"
ATTACHMENT TO LEASE AGREEMENT BY AND BETWEEN
ROBERT R. FOWLER, III ("LANDLORD") AND MAIN STREET BANK ("TENANT")
- -------------------------------------------------------------------------------
While the Tenant may make any improvements, repairs or alterations to
the building on the Premises that the Tenant may desire with the prior approval
of the Landlord, the Tenant shall be required to make, within twelve (12) months
of the commencement date of the Lease, the following repairs or improvements to
the building and Premises:
1. Extend the existing loading dock to the northern end (rear) of the
building to a maximum width of 24 feet and install a chain-link fence along the
rear property line (with a miter out at the northeastern corner of the property)
to the point that is just beyond the existing western side of the loading dock,
generally as outlined in the September 10, 1996, letter from Bouchillon &
Allgood, attorneys, to Ray Geiger of the City of Covington, copy of which is
attached hereto as Exhibit "C-1" attached hereto and made a part hereof by
reference.
2. Make the repairs, improvements and renovations to the building as
outlined in Jim Mauldin's 11/21/96 memo to Landlord, copy of which is attached
hereto as Exhibit "C-2" and made a part hereof by reference. Tenant may change
the actual area improved as outlined in the foregoing memorandum as along as the
extent of the improvements made and the total area improved by the Tenant in the
first twelve (12) months is as extensive as outlined on Exhibit "C-2".
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF MAIN STREET BANK INCORPORATED
Main Street Bank Incorporated is the sole shareholder of Main Street
Bank, a state bank incorporated under the laws of the State of Georgia.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
to the use of our report dated February 19, 1999, in the Registration Statement
(Form S-1 No. 333-00000) and related Prospectus of Main Street Banks
Incorporated for the registration of 90,000 shares of its common stock.
/s/Ernst & Young LLP
Atlanta, Georgia
July 27, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> MAR-31-1999 DEC-31-1998
<CASH> 22,508,423 21,231,287
<INT-BEARING-DEPOSITS> 508,144 143,111
<FED-FUNDS-SOLD> 4,630,000 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 47,152,876 48,242,546
<INVESTMENTS-CARRYING> 12,554,932 12,497,146
<INVESTMENTS-MARKET> 12,946,915 13,044,485
<LOANS> 333,385,384 324,616,860
<ALLOWANCE> 5,982,383 5,849,997
<TOTAL-ASSETS> 445,517,840 431,250,421
<DEPOSITS> 381,000,879 365,896,457
<SHORT-TERM> 0 2,800,000
<LIABILITIES-OTHER> 5,785,305 2,607,642
<LONG-TERM> 15,000,000 17,000,000
0 0
0 0
<COMMON> 8,827,600 8,827,600
<OTHER-SE> 34,904,056 34,118,722
<TOTAL-LIABILITIES-AND-EQUITY> 445,517,840 431,250,421
<INTEREST-LOAN> 7,978,973 31,598,633
<INTEREST-INVEST> 894,703 3,866,599
<INTEREST-OTHER> 18,544 323,070
<INTEREST-TOTAL> 8,892,220 35,788,302
<INTEREST-DEPOSIT> 3,017,973 12,598,811
<INTEREST-EXPENSE> 3,271,847 13,266,289
<INTEREST-INCOME-NET> 5,620,373 22,522,013
<LOAN-LOSSES> 225,000 865,000
<SECURITIES-GAINS> 0 17,533
<EXPENSE-OTHER> 4,722,969 17,846,978
<INCOME-PRETAX> 2,434,537 9,605,076
<INCOME-PRE-EXTRAORDINARY> 1,638,351 6,515,375
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,638,351 6,515,375
<EPS-BASIC> .19 .75
<EPS-DILUTED> .19 .75
<YIELD-ACTUAL> 5.76 6.02
<LOANS-NON> 1,607,024 1,442,289
<LOANS-PAST> 628,000 359,000
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 5,849,997 5,091,653
<CHARGE-OFFS> 160,959 507,555
<RECOVERIES> 68,345 400,899
<ALLOWANCE-CLOSE> 5,982,383 5,849,997
<ALLOWANCE-DOMESTIC> 5,982,383 5,849,997
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
