1ST FLOYD BANKSHARES, INC.
MERGER PROPOSED
Dear Shareholder:
The Boards of Directors of United Community Banks, Inc. and 1st
Floyd Bankshares, Inc. have agreed on a merger transaction which will
result in the combination of Floyd and United.
If Floyd shareholders approve the merger, Floyd will be merged
into United, and Floyd shareholders will receive .8477 shares of
United common stock for each share of Floyd common stock they own.
Based upon 745,400 shares of Floyd currently outstanding, United
expects to issue 631,875 shares of its common stock in connection with
the merger.
AFTER CAREFUL CONSIDERATION, THE BOARD OF DIRECTORS OF FLOYD HAS
DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF FLOYD'S
SHAREHOLDERS, AND UNANIMOUSLY RECOMMENDS VOTING FOR APPROVAL OF THE
MERGER AGREEMENT AND THE TRANSACTIONS PROVIDED FOR IN THE MERGER
AGREEMENT.
The Floyd Board of Directors has scheduled a special meeting for
Floyd shareholders to vote on the merger agreement. Whether or not
you plan to attend the shareholder meeting, please take the time to
vote by completing and mailing the enclosed proxy card to us. If you
sign, date and mail your proxy card without indicating how you want to
vote, your proxy will be counted as a vote in favor of the
transaction. If you do not return your card, the effect will be a
vote against the merger. If your shares are held by a broker in
"street name," you must instruct your broker in order to vote.
The date, time and place of the special meeting are as follows:
Thursday, August 26, 1999
6:00 p.m.
The Forum
2 Government Plaza
Rome, Georgia
The document accompanying this letter contains additional
information regarding the merger agreement, the proposed merger and
the two companies. WE ENCOURAGE YOU TO READ THIS ENTIRE DOCUMENT
CAREFULLY, INCLUDING A DISCUSSION OF THE "RISK FACTORS" BEGINNING ON
PAGE 6.
The Floyd Board of Directors strongly supports this strategic
combination between United and Floyd, and appreciates your prompt
attention to this very important matter.
Sincerely,
________________________________
Ronald J. Wallace
President and Chief Executive Officer
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR
PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. SHARES OF THE COMMON STOCK OF UNITED COMMUNITY
BANKS, INC. ARE EQUITY SECURITIES AND ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS. INVESTMENT IN SHARES OF UNITED COMMON STOCK IS NOT INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY.
The date of this proxy statement/prospectus is July 29, 1999,
and it is expected to be first mailed to Floyd shareholders on or
about August 3, 1999.
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1ST FLOYD BANKSHARES, INC.
307 East 2nd Avenue
Rome, Georgia 30162-6005
_____________________________________________________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD August 26, 1999
_____________________________________________________
A special meeting of shareholders of 1st Floyd Bankshares, Inc.
will be held on Thursday, August 26, 1999, at 6:00 p.m., at
the Forum, 2 Government Plaza, Rome, Georgia, for the following purposes:
(1) To vote on an Agreement and Plan of Merger and related
matters, pursuant to which 1st Floyd Bankshares, Inc., a
Georgia corporation, will merge with and into United
Community Banks, Inc., a Georgia corporation, as more
particularly described in the enclosed proxy statement;
and
(2) To transact other business as may properly come before the
special meeting or any adjournments of the meeting.
In connection with the merger, each shareholder of Floyd will
be entitled to receive .8477 shares of common stock of United for each
share of Floyd common stock outstanding on the effective date of the
merger, and will receive a cash payment for any fractional shares in
an amount equal to the fraction multiplied by $37.75.
If the merger is completed, Floyd shareholders who dissent will
be entitled to be paid the "fair value" of their shares in cash, if
they follow certain statutory provisions regarding the rights of
dissenting shareholders, all as more fully explained under "The
Proposed Merger - Rights of Dissenting Shareholders" and in Appendix B
to the attached proxy statement.
Only shareholders of record of Floyd common stock at the close
of business on July 26, 1999 will be entitled to notice of and to
vote at the special meeting or any adjournments thereof.
A form of proxy and a proxy statement are enclosed. The approval
of the merger requires the approval of the holders of at least a
majority of the Floyd stock entitled to vote at the special meeting.
To assure representation at the special meeting, you are requested to
sign, date and return the proxy promptly in the enclosed, stamped
envelope. If you attend the special meeting, you may revoke your
proxy at that time simply by requesting the right to vote in person.
You may withdraw a previously submitted proxy by notifying Kenneth
Guice, Secretary, in writing or by submitting an executed, later-dated
proxy to Floyd: 307 East 2nd Avenue, Rome, Georgia 30162-6005,
Attention: Kenneth Guice, Secretary, prior to the special meeting or
by appearing at the special meeting and requesting the right to vote
in person. If you properly sign and return the proxy and do not
revoke it, it will be voted at the special meeting in the manner that
you specify in the proxy.
By Order of the Board of Directors,
___________________________________
Kenneth Guice
Secretary
August 3, 1999
Rome, Georgia
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TABLE OF CONTENTS
Page
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WHERE YOU CAN FIND MORE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . iii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE . . . . . . . . . . . . . . . . . . . iii
A WARNING ABOUT FORWARD LOOKING STATEMENTS . . . . . . . . . . . . . . . . . . . . . iv
QUESTIONS AND ANSWERS ABOUT THE MERGER . . . . . . . . . . . . . . . . . . . . . . . v
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Who are the Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
What are the Main Terms of the Merger . . . . . . . . . . . . . . . . . . . . 2
The Special Meeting of Shareholders . . . . . . . . . . . . . . . . . . . . . 2
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Conditions, Termination and Effective Date . . . . . . . . . . . . . . . . . . 3
Rights of Dissenting Shareholders . . . . . . . . . . . . . . . . . . . . . . 3
Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . 3
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Markets for Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
There are Some Differences in Shareholders' Rights Between Floyd and United . 5
Interests of Directors and Officers of Floyd in the Merger . . . . . . . . . . 5
Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
COMPARATIVE SHARE DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SUMMARY CONSOLIDATED FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . 9
SELECTED PRO FORMA FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . 12
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . 13
THE PROPOSED MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Background of and Reasons for the Merger . . . . . . . . . . . . . . . . . . . 20
The Agreement and Plan of Reorganization and the Agreement and Plan of Merger 23
Required Shareholder Approval . . . . . . . . . . . . . . . . . . . . . . . . 25
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
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Conduct of Business of Floyd Pending Closing . . . . . . . . . . . . . . . . . 30
Interest of Management in the Transaction; Conduct of Business
After the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Effect of the Merger on Floyd Shareholders and Comparison of the
Securities of Floyd and United . . . . . . . . . . . . . . . . . . . . . 32
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Resales of United Stock by Directors and Officers of Floyd . . . . . . . . . . 34
Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Rights of Dissenting Shareholders . . . . . . . . . . . . . . . . . . . . . . 34
Material Federal Income Tax Consequences of the Merger
and Opinion of Tax Counsel . . . . . . . . . . . . . . . . . . . . . . . 36
INFORMATION ABOUT 1ST FLOYD BANKSHARES, INC. . . . . . . . . . . . . . . . . . . . . 38
Description of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Voting Securities and Principal Shareholders . . . . . . . . . . . . . . . . . 38
Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . 39
INFORMATION ABOUT UNITED COMMUNITY BANKS, INC. . . . . . . . . . . . . . . . . . . . 57
Description of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Description of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 58
LEGAL OPINIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
INDEX TO FLOYD FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
APPENDICES
Agreement and Plan of Merger . . . . . . . . . . . . . . . . . . . . . . . . . Appendix A
Georgia Dissenters' Rights Statutes (O.C.G.A. Section 14-2-1301 et seq.) . . . .Appendix B
Opinion of First Capital Group, L.L.C. . . . . . . . . . . . . . . . . . . . . Appendix C
</TABLE>
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WHERE YOU CAN FIND MORE INFORMATION
United is subject to the information requirements of the
Securities Exchange Act of 1934, which means that United is required
to file reports, proxy statements and other information at the Public
Reference Section of the Securities and Exchange Commission at Room
1024, 450 Fifth Street, NW, Washington, D.C. 20549. You may also
obtain copies of the reports, proxy statements and other information
from the Public Reference Section of the Commission, Washington, D.C.
20549, at prescribed rates, by calling 1-800-SEC-0330. The Commission
maintains a World Wide Web site on the Internet at http://www.sec.gov
that contains reports, proxy and information statements, registration
statements and other information regarding registrants that file
electronically with the Commission through the EDGAR system.
United filed a registration statement on Form S-4 to
register with the Commission the United common stock to be issued to
you and the other Floyd shareholders in the merger. This proxy
statement/prospectus is a part of that registration statement and
constitutes a prospectus of United in addition to being a proxy
statement of Floyd for a special meeting of Floyd stockholders to be
held on August 26, 1999, as described herein. As allowed by the
Commission's rules, this proxy statement/prospectus does not contain
all of the information you can find in the registration statement or
the exhibits to the registration statement. This proxy statement/
prospectus summarizes some of the documents that are exhibits to the
registration statement, and you should refer to the exhibits for a
more complete description of the matters covered by those documents.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This document incorporates important business and financial
information about United which is not included in or delivered with
this proxy statement/prospectus. The following documents previously
filed by United under the Securities Exchange Act of 1934 are
incorporated by reference into this proxy statement/prospectus:
(a) United's annual report on Form 10-K for the fiscal year
ended December 31, 1998;
(b) All other reports filed by United pursuant to sections
13(a) or 15(d) of the Exchange Act since December 31, 1998, prior to
the date the merger is completed.
This proxy statement/prospectus also incorporates by
reference the Agreement and Plan of Reorganization, dated as of June
3, 1999, between United and Floyd, and the Agreement and Plan of
Merger, dated as of June 3, 1999, between Floyd and United, both of
which were filed with the Securities and Exchange Commission on
July 14, 1999 as exhibits to United's registration statement on Form
S-4, Commission File no. 333-83113. Although the Agreement and Plan
of Reorganization is not included in this proxy statement/prospectus,
you can obtain without charge a copy of that agreement, other than
attached exhibits, by writing Chris Bledsoe, Chief Financial Officer,
United Community Banks, Inc., P.O. Box 398, 59 Highway 515,
Blairsville, Georgia 30512. You may also request a copy by telephone
at (706) 745-2151. IN ORDER TO ASSURE TIMELY DELIVERY, YOU MUST MAKE
A REQUEST BY AUGUST 19, 1999.
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A WARNING ABOUT FORWARD LOOKING STATEMENTS
We have made forward-looking statements in this document
(and in other documents that we refer to in this document) that are
subject to risks and uncertainties. These statements are based on the
beliefs and assumptions of United's and Floyd's management, and on
information currently available to those members of management.
Forward-looking statements include the information concerning possible
or assumed future results of operations of United after the proposed
merger. Factors that could cause actual results to differ from
results discussed in forward-looking statements include:
1. economic conditions (both generally and in the markets where
United operates);
2. competition from other companies which provide financial
services similar to those offered by United;
3. government regulation and legislation;
4. changes in interest rates;
5. unexpected changes in the financial stability and liquidity
of United's credit customers; and
6. unexpected complications related to the Year 2000 issues for
United and its suppliers, customers and governmental agencies.
We believe these forward-looking statements are reasonable;
however, you should not place undue reliance on these forward-looking
statements, which are based on current expectations. Forward-looking
statements are not guarantees of performance. They involve risks,
uncertainties and assumptions. The future results and shareholder
values of United following completion of the merger may differ
materially from those expressed in these forward-looking statements.
Many of the factors that will determine these results and values are
beyond United's ability to control or predict. For those statements,
United claims the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act
of 1995.
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QUESTIONS AND ANSWERS ABOUT THE MERGER
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Q: What will I receive in the merger? Q: What should I do now?
A: Floyd shareholders will receive .8477 A: Just indicate on your proxy card
shares of United common stock in exchange for each how you want to vote, and sign and mail it
share of Floyd common stock they hold. in the enclosed envelope as soon as
possible, so that your shares will be
United will not issue fractional shares in represented at your meeting.
the merger. Instead, Floyd shareholders will
receive a cash payment, without interest, for the If you sign and send in your proxy
value of any fraction of a share of United Common and do not indicate how you want to vote,
Stock that they would otherwise be entitled to your proxy will be voted in favor of the
receive based upon $37.75 a share of United common proposal to approve and adopt the merger
stock. agreement.
For example: The special meeting will take place
at 6:00 p.m. on Thursday, August 26, 1999,
If you own 100 shares of Floyd common at the Forum, 2 Government Plaza, Rome,
the meeting and vote your shares in person, Georgia. You may attend rather than
stock, then after the merger you will receive 84 voting by proxy. In addition, you may
shares of United Common Stock and a check for .77 withdraw your proxy up to and including
x $37.75, or $29.07. the day of your shareholders meeting by
notifying Kenneth Guice, Secretary
Q: What am I being asked to vote upon? of Floyd in writing, or by submitting an executed
later-dated proxy to Floyd at 307 East 2nd Avenue,
A: You are being asked to approve the merger Rome, Georgia 30162-6005, Attention Kenneth Guice,
agreement which provides for the merger of Floyd Secretary, prior to the special meeting. You
into United. Approval of the proposal requires may also attend your shareholders' meeting and
the affirmative vote of more than 50% of the vote in person.
outstanding shares of Floyd common stock.
Q: What risks should I consider?
The Floyd Board of Directors has
unanimously approved and adopted the merger A: You should review the "Risk
agreement and recomments voting FOR approval of Factors" beginning on page 6.
the merger agreement.
You should also review the factors
considered by each company's Board of
Directors. See "The Proposed Merger -
Background of and Reasons for the
Merger" (page 20).
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Q: When is the merger expected to be Q: If my shares are held in "street
completed? name" by my broker, will my broker
vote my shares for me?
A: We are working to complete the
merger during the third quarter of 1999. A: Your broker will vote your shares
of Floyd common stock only if yoy provide
Q: What are the tax consequences of insructions on how to vote. You should
the merger to me? instruct your broker how to vote your
shares, following the directions your broker
A: We expect that the exchange of provides. If you do not provide insructions
shares by Floyd shareholders generally will to your broker, your shares will not be voted,
and this be tax-free to Floyd shareholders for U.S. and this will have the effect of voting against
federal income tax purposes. Floyd the merger.
shareholders will, however, have to pay
taxes on cash received for fractional shares. Q: Should I send in my stock certificates now?
To review the tax consequences to Floyd
shareholders in greater detail, see page 36. A: No. After the merger is completed, we
will send you written instructions for exchanging
Your tax consequences will depend your Floyd common stock certificates for United
on your personal situation. You should common stock certificates.
consult your tax adviser for a full
understanding of the tax consequences of
the merger to you.
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SUMMARY
This summary highlights information from this document, and may not
contain all of the information that is important to you as you
consider the proposed merger and related matters. For a more complete
description of the terms of the proposed merger, you should carefully
read the entire document and the documents to which we have referred
you. The Agreement and Plan of Merger, which is the legal document
that governs the proposed merger, is attached as Appendix A to this
document and is incorporated into this document.
Who are the Companies?
1st Floyd Bankshares, Inc.
307 East 2nd Avenue
Rome, Georgia 30162-6005
(706) 234-5800
Floyd is a one-bank holding company based in Rome, Georgia.
Floyd's subsidiary, 1st Floyd Bank ("Floyd Bank"), is a full-service
commercial bank with its main office located in Rome, Georgia, and two
branches located in Rome and Cave Spring, Georgia. Floyd Bank
provides customary types of banking services such as checking
accounts, savings accounts and time deposits. It also engages in
commercial and consumer lending, makes secured and unsecured loans and
provides other financial services. At March 31, 1999, Floyd had total
consolidated assets of approximately $93.3 million, total consolidated
deposits of approximately $73.6 million and total consolidated
shareholders' equity of approximately $7.2 million.
United Community Banks, Inc.
59 Highway 515
Blairsville, Georgia 30512
(706) 745-2151.
United is a registered bank holding company based in
Blairsville, Georgia. All of United's activities are conducted
through its wholly-owned subsidiaries, which are listed below:
_ United Community Bank, Blairsville, Georgia
_ Carolina Community Bank, Murphy, North Carolina, which
United acquired in 1990
_ Towns County Bank, Hiawassee, Georgia, which United acquired in 1992
_ Peoples Bank, Blue Ridge, Georgia, which United acquired in 1992
_ White County Bank, Cleveland, Georgia, which United acquired in 1995
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_ First Clayton Bank & Trust, Clayton, Georgia, which United acquired
in 1997
_ Bank of Adairsville, Adairsville, Georgia, which United acquired in
March 1999
United also operates two finance companies, United Family
Finance Co., with offices in Blue Ridge and Hiawassee, Georgia, and
United Family Finance Co. of North Carolina, with offices in Franklin
and Murphy, North Carolina.
At March 31, 1999, United had total consolidated assets of
approximately $1.68 billion, total loans of approximately $1.08
billion, total deposits of approximately $1.24 billion and
shareholders' equity of approximately $89.8 million.
WHAT ARE THE MAIN TERMS OF THE MERGER? (PAGE 23)
If the merger is approved, Floyd will be merged with and
into United, and United will remain as the surviving company and Floyd
will become a subsidiary of United. As a result of the merger, you will
receive 0.8477 shares of United's common stock for each share of Floyd
stock which you own on the effective date of the merger. You will also
receive a cash payment for any fractional shares in an amount equal
to the fraction multiplied by $37.75.
THE SPECIAL MEETING OF SHAREHOLDERS (PAGE 25)
The special meeting of Floyd will be held on Thursday, August
26, 1999, at 6:00 p.m., at the Forum, 2 Government Plaza, Rome, Georgia
for the purpose of voting on the merger. At the meeting, you and the
other Floyd shareholders will be asked to consider and vote on a
proposal to approve and adopt the merger agreement. Shareholders of
United are not required to approve the merger.
RECORD DATE (PAGE 25)
You are entitled to vote at the Floyd meeting if you owned shares
of Floyd common stock on July 26, 1999.
VOTE REQUIRED (PAGE 25)
Approval by holders of a majority of the Floyd common stock
outstanding on July 26, 1999 is required for the merger to be completed.
Directors and executive officers of Floyd who have agreed to vote
their shares of Floyd common stock in favor of the merger own or control
303,825 shares, or approximately 40.8%, of the outstanding shares of Floyd
common stock (based on 745,400 shares outstanding).
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FAIRNESS OPINION (PAGE 26)
First Capital Group, L.L.C. has rendered an opinion to Floyd that,
based upon and subject to the procedures, matters and limitations described
in its opinion and other matters as it considered relevant, as of the date
of its opinion, the terms of the merger are fair from a financial point of
view to the shareholders of Floyd. First Capital Group L.L.C.'s opinion is
attached as Appendix C to this Proxy Statement/Prospectus. Shareholders are
encouraged to read the opinion.
CONDITIONS, TERMINATION AND EFFECTIVE DATE (PAGE 23)
The merger will not occur unless certain conditions are met, and
United or Floyd can terminate the merger if specified events occur or fail
to occur. The merger must be approved by Floyd shareholders, and by the
Board of Governors of the Federal Reserve System and the Department of
Banking and Finance of the State of Georgia.
The closing of the merger (the "Effective Date") will occur after
the merger agreement is approved by Floyd's shareholders and after a
certificate of merger is filed as required under Georgia law.
RIGHTS OF DISSENTING SHAREHOLDERS (PAGE 34)
If the merger is completed, Floyd shareholders who dissent will be
entitled to be paid the "fair value" of their shares in cash, if they follow
certain statutory provisions regarding the rights of dissenting
shareholders. Under the merger agreement, United may terminate the merger if
the holders of ten percent, or more than 74,540 shares, of the outstanding
shares of Floyd common stock choose to exercise their dissenter's rights.
FEDERAL INCOME TAX CONSEQUENCES (PAGE 36)
Floyd has received an opinion from Kilpatrick Stockton LLP stating
that, assuming that the merger is completed as currently anticipated,
neither Floyd nor the shareholders of Floyd who receive United stock in
connection with the merger will recognize any gain or loss for federal
income tax purposes. We have not requested a ruling to that effect from the
Internal Revenue Service. Any cash which you receive as payment for any
fractional interests or as payment after exercising your right to dissent
will be treated as amounts distributed in redemption of your Floyd common
stock, and will be taxable under the Internal Revenue Code as either
ordinary income or capital gain or loss, depending upon your particular
circumstances.
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ACCOUNTING TREATMENT (PAGE 33)
We expect the merger to be accounted for as a pooling of
interests, which means that we will treat Floyd and United as if they had
always been combined for accounting and financial reporting purposes.
MARKETS FOR CAPITAL STOCK
United's common stock is not currently traded on an established
public market. From January 1, 1999 through May 31, 1999, management of
United is aware of approximately 132 trades totaling 58,302 shares of United
common stock, ranging from one share to a block of 4,136 shares, at prices
ranging from $35.00 to $55.00 per share. Management of United is aware of
approximately 435 trades of United common stock during 1998, ranging from
one share to a block of 4,000 shares, at prices ranging from $25.00 to
$50.00, and approximately 201 trades of United common stock during 1997,
ranging from five shares to a block of 17,305 shares, at prices ranging from
$20.00 to $32.00. In May 1997, United completed a sale of 300,000 shares of
United common stock at a price of $22.00 per share. The last sales prices of
United common stock known to United's management prior to announcement of
the merger on June 4, 1999 was $40.00 per share, on May 24, 1999.
Floyd's common stock is not traded on an established public
trading market. From January 1, 1999 through May 31, 1999, management of
Floyd is aware of eight trades totaling 4,411 shares of Floyd common stock,
ranging from a block of 25 shares to a block of 1,000 shares, at prices
ranging from $13.00 per share to $14.00 per share. Management of Floyd is
aware of 12 trades of Floyd common stock during 1998, ranging from a block
of 50 shares to a block of 650 shares with prices ranging from $12.00 to
$13.00 per share, and 31 trades of Floyd common stock during 1997, ranging
from a block of 100 shares to a block of 9,569 shares with prices ranging
from $10.00 to $12.05 per share. In April 1998, Floyd completed a sale of
120,000 shares of Floyd common stock at a price of $13.00 per share.
Substantially all offered shares were purchased by existing shareholders of
Floyd. The last known sale of Floyd common stock known to management prior
to the announcement of the merger on June 4, 1999 was $15.00 per share, on
April 2, 1999. As of June 30, 1999, there were 411 holders of Floyd common
stock.
DIVIDENDS
United declared a cash dividend of $.05 per share in both the
first and second quarters of 1999. United paid aggregate cash dividends of
$.15 per share in 1998 and $.10 per share in 1997. For information with
respect to cash dividends paid in each of the last five years, see "Summary
Consolidated Financial Information." Although United intends to continue
paying cash dividends, the amount and frequency of cash dividends will be
determined by United's Board of Directors after consideration of earnings,
capital requirements and the financial condition of United. Cash dividends
may not be declared in the future. Additionally, United's ability to pay
cash dividends will depend on cash dividends paid to it by its subsidiary
banks. The ability of those subsidiaries to pay dividends to United is
restricted by certain regulatory requirements.
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<PAGE>
Floyd paid a per share cash dividend of $0.10 in each of
1998 and 1997, and a per share cash dividend of $0.05 in 1996. Floyd
has not paid a dividend in 1999, and is prohibited under the merger
agreement from paying dividends prior to the closing of the
transaction.
Whether the Floyd shareholders approve the merger agreement
and regardless of whether the merger is completed, the future dividend
policy of United and Floyd will depend upon each company's respective
earnings, financial condition, appropriate legal restrictions and
other factors relevant at the time the respective Boards of Directors
considers whether to declare dividends.
THERE ARE SOME DIFFERENCES IN SHAREHOLDERS' RIGHTS BETWEEN FLOYD AND
UNITED (PAGE 32)
If the merger occurs, Floyd shareholders, whose rights are
governed by Floyd's Articles of Incorporation and Bylaws, will
automatically become United shareholders, and their rights as United
shareholders will be governed by United's Articles of Incorporation
and Bylaws. The rights of Floyd shareholders and United shareholders
are different in certain ways.
INTERESTS OF DIRECTORS AND OFFICERS OF FLOYD IN THE MERGER (PAGE 31)
One director and two executive officers of Floyd have
interests in the merger as employees and/or directors that are
different from, or in addition to, yours as a Floyd shareholder. The
Floyd Board of Directors recognized these interests and determined
that they did not adversely affect the benefits of the merger to the
Floyd shareholders.
If the merger takes place, we anticipate that one director
of Floyd will be elected to serve on United's Board of Directors. In
addition, upon completion of the merger, United will enter into
employment agreements with Ronald Wallace, currently the President of
Floyd, and with Bryan Kelley, currently the Vice President and Chief
Financial Officer of Floyd. In addition, options held by existing
officers and directors of Floyd will vest if Floyd shareholders
approve the merger.
RECENT DEVELOPMENTS OF UNITED (PAGE 57)
On March 15, 1999, United acquired Bank of Adairsville for
$7.05 million in cash. In July 1998, a Delaware statutory business
trust created by United issued $21 million of capital securities to
institutional investors.
You may review additional information on United in the
booklet attached to this proxy statement/prospectus, which contains
United's 1999 Proxy Statement/Annual Report and March 31, 1999 10-Q
Quarterly Report.
-5-
<PAGE>
<PAGE>
RISK FACTORS
You should carefully consider the risks described below
before voting on the merger agreement. The risks set forth below are
in addition to risks that apply to most businesses, which could also
seriously harm the businesses of Floyd and United before or after the
merger and are therefore not the only risks that may affect Floyd or
United.
THERE IS A LIMITED MARKET FOR SHARES OF UNITED COMMON STOCK
Historically, there has been only limited trading activity
in United common stock. United is aware of 435 trades of United
common stock in the year ended December 31, 1998. United does not
anticipate that the merger will cause any significant change in the
trading of United common stock. This means that you may not be able
to sell the shares of United common stock which you receive in the
merger at all, or at a price which you might otherwise be able to sell
that stock if a more liquid market existed.
THE FINANCIAL INSTITUTION INDUSTRY IS VERY COMPETITIVE
United competes directly with financial institutions that
are well established. Many of United's competitors have significantly
greater resources and lending limits than United. As a result of
those greater resources, the larger financial institutions that United
competes with may be able to provide a broader range of services to
their customers than United. The long-term success of United will
depend on the ability of United to compete successfully with other
financial institutions in its service areas.
RISKS ASSOCIATED WITH UNITED'S YEAR 2000 ISSUES
United uses computer systems and software that are affected
by the Year 2000 issue. Many computer programs were originally
designed to use two digits instead of four to identify a particular
year. As a result, a computer program might recognize a date using
"00" as the year 1900 rather than 2000, which could cause system
failures or miscalculations. United's operations could be adversely
affected by Year 2000 issues, including the following potential effects:
CREDIT RISK. United typically extends credit to borrowers
based upon an evaluation of the borrower's ability to generate cash
flows from operations sufficient to repay principal and interest, in
addition to meeting the operating needs of the business. If one of
United's business borrowers does not adequately prepare for the effect
of technology issues related to the Year 2000, a Year 2000 failure
could negatively affect its ability to repay its loan. For example,
if a building supply store to which United grants a loan has computer
accounting systems that fail to recognize the Year 2000 and are
therefore unable to calculate and bill accounts receivable in January
2000, that failure would likely have a negative effect on the
customer's cash flow and the customer's ability to repay its loan.
-6-
<PAGE>
<PAGE>
LIQUIDITY RISK. United's primary business is banking, which
involves taking deposits that are generally due on demand. Since
United uses these deposits to fund loans and to purchase investment
securities, a dramatic increase in deposit withdrawals because of Year
2000 problems could force United to sell its investments (possibly at a
loss) in order to fund this higher level of withdrawals.
TRANSACTION RISK. United's operations are subject to the
risk that United will be unable to deliver its products or services in
an acceptable manner due to Year 2000 problems. For example, United's
computer system may be unable to properly bill customers for loan
payments due and account for the payments when received, or United's
customers may be unable to make deposits or withdrawals at an
automated teller machine.
-7-
<PAGE>
<PAGE>
COMPARATIVE SHARE DATA
The following table shows selected comparative unaudited per
share data for United on a historical basis, for Floyd on a historical
basis, for United and Floyd on a pro forma basis assuming the merger
had been effective for the periods indicated, and for Floyd on a pro
forma equivalent basis. The merger will be accounted for as a
"pooling of interests" transaction in accordance with generally
accepted accounting principles.
Equivalent earnings per share amounts for Floyd have been
calculated by multiplying the pro forma combined earnings per share by
the exchange ratio (.8477 shares of the United common stock for each
share of Floyd common stock). The Floyd pro forma equivalent cash
dividends per common share represent historical dividends declared by
United multiplied by the applicable exchange ratio. The purpose of
the pro forma equivalent per-share amounts is for informational
purposes only to show the pro forma net earnings that would have been
earned for each share of Floyd had the merger been completed for the
periods indicated. This data should be read together with the
historical financial statements of Floyd and United, including the
respective notes thereto included elsewhere in this proxy
statement/prospectus.
<TABLE>
<CAPTION>
As of and For the
Three Months Ended As of the Year Ended
March 31, 1999 December 31,
--------------- ------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C> <C>
Net earnings per common share
United Historical 0.42 1.64 1.47 1.29
Floyd Historical 0.28 0.91 0.53 0.23
United and Floyd Pro Forma Combined (a) 0.41 1.60 1.42 1.22
Floyd Pro Forma Equivalent (b) 0.35 1.36 1.20 1.03
Cash Dividends Per Common Share
United Historical 0.05 0.15 0.10 0.10
Floyd Historical - 0.10 0.10 0.05
United and Floyd Pro Forma Combined (a) (c) 0.05 0.15 0.10 0.10
Floyd Pro Forma Equivalent (d) 0.04 0.13 0.08 0.08
Book Value Per Common Share (Period End)
United Historical 12.14 11.73 10.17 8.14
Floyd Historical 10.03 9.84 8.29 7.80
United and Floyd Pro Forma Combined (a) 12.12 11.72 10.15 8.22
Floyd Pro Forma Equivalent (b) 10.27 9.94 8.60 6.97
(a) Computed giving effect to the merger.
(b) Computed based on the Floyd per share exchange ratio of .8477
(c) Represents historical dividends paid by United, as it is
(d) Represents historical dividends paid per share by United
</TABLE>
-8-
<PAGE>
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following tables present certain selected historical financial
information for United and Floyd. The data should be read in conjunction with
the historical financial statements, including the notes thereto, and other
financial information concerning United and Floyd incorporated by reference in
or accompanying this proxy statement/prospectus. Interim unaudited data for
the three months ended March 31, 1999 and 1998, of United and Floyd reflect,
in the opinion of the respective management of United and Floyd, all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of that data. Results for the three months ended March 31,
1999, are not necessarily indicative of results which may be expected for any
other interim period or for the year as a whole.
-9-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(Dollars in thousands, except per share amounts)
Three Months
Ended March 31, As of and For the Year Ended December 31,
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Income Statement
Net interest income $ 14,366 11,886 52,499 43,232 33,815 25,015 20,067
Provision for loan losses 890 498 2,372 2,634 1,597 1,116 998
Noninterest income expense 2,327 1,854 8,711 6,980 5,666 4,523 3,962
Noninterest expense 11,196 9,212 41,098 32,077 24,843 19,204 15,125
Income taxes 1,514 1,371 5,588 4,766 4,114 2,549 2,205
Net income $ 3,093 2,659 12,152 10,735 8,927 6,669 5,701
Per Common Share
Net income - basic $ 0.42 0.36 1.64 1.47 1.29 1.03 0.91
Net income - diluted 0.41 0.36 1.62 1.46 1.26 1.01 0.89
Cash dividends declared 0.05 0.0375 0.15 0.10 0.10 0.08 0.09
Book value $ 12.14 10.84 11.73 10.17 8.14 7.09 5.56
Basic average shares outstanding 7,394 7,385 7,392 7,301 6,919 6,499 6,275
Diluted average shares outstanding 7,644 7,596 7,618 7,488 7,110 6,685 6,454
Period End
Loans $1,075,811 847,826 999,871 823,324 634,574 474,857 354,521
Earning assets 1,543,770 956,109 1,386,977 1,049,159 824,476 659,548 458,446
Assets 1,678,369 1,191,655 1,498,599 1,153,367 886,103 712,298 496,527
Deposits 1,244,918 1,034,818 1,163,124 977,079 773,300 637,832 427,998
Stockholders' equity $ 89,787 77,815 86,750 75,113 57,675 49,207 34,871
Common shares outstanding 7,394 7,385 7,394 7,385 7,085 6,945 6,275
Average Balances
Loans $1,029,565 835,718 899,957 733,551 545,449 423,953 332,793
Earning assets 1,453,345 1,083,587 1,181,635 960,346 723,994 565,523 429,152
Assets 1,560,649 1,170,930 1,272,994 1,024,730 783,509 607,877 464,767
Deposits 1,193,178 1,020,474 1,077,605 894,200 695,391 538,518 408,645
Performance Ratios
Return on average assets 0.80% 0.93% 0.95% 1.05% 1.14% 1.10% 1.23%
Return on average stockholders' 14.2% 14.2% 15.16% 16.18% 16.69% 15.84% 17.56%
Average equity to average assets 5.67% 6.52% 6.30% 6.47% 6.82% 6.93% 6.98%
Average loans to average deposits 86.29% 81.90% 83.51% 82.03% 78.44% 78.73% 81.44%
1ST FLOYD BANKSHARES, INC. AND SUBSIDIARY
Income Statement
Net interest income $ 1,068 782 3,711 2,486 1,646 1,061 682
Provision for loan losses 90 60 240 180 154 12 5
Noninterest income 152 78 418 220 200 175 131
Noninterest expense 804 625 2,866 1,986 1,498 961 726
Income taxes 126 67 402 221 66 85 11
Net income 200 108 621 319 128 178 71
Per Common Share
Basic earnings $ 0.28 0.18 0.91 0.53 0.23 0.36 0.18
Diluted earnings 0.27 0.18 0.88 0.52 0.23 0.36 0.18
Cash dividends declared - - 0.10 0.10 0.05 0.10 0.10
Book value $ 10.03 8.41 9.84 8.29 7.80 7.38 6.14
Basic average shares outstanding 720 600 686 600 566 495 392
Diluted average shares outstanding 737 609 703 609 566 495 392
At Period End
Loans $ 66,291 52,901 61,294 49,175 27,671 14,403 7,054
Earning assets 86,459 70,647 87,420 59,203 36,884 24,234 18,713
Assets 93,276 74,200 92,800 63,326 40,741 26,353 20,387
Deposits 73,626 63,758 75,199 56,677 35,849 22,314 17,496
Stockholders' equity $ 7,218 5,047 7,086 4,973 4,682 3,919 2,817
Common shares outstanding 720 600 720 600 600 531 459
-10-
<PAGE>
Average Balances
Loans $ 62,069 51,470 56,495 39,694 22,007 10,729 6,047
Earning assets 84,682 64,571 75,923 49,424 31,207 21,474 16,701
Assets 91,963 68,930 82,309 53,248 34,173 23,370 18,555
Deposits 74,413 60,218 67,820 45,442 29,454 19,905 15,921
Stockholders' equity $ 7,152 5,010 5,902 4,788 4,414 3,368 1,849
Performance Ratios
Return on average assets 0.87% 0.63% 0.75% 0.60% 0.37% 0.76% 0.38%
Return on average stockholders' 11.19% 8.62% 10.52% 6.66% 2.90% 5.29% 3.84%
Average equity to average assets 7.78% 7.27% 7.17% 8.99% 12.92% 14.41% 9.96%
Average loans to average deposits 83.41% 85.47% 83.30% 87.35% 72.72% 53.90% 37.98%
</TABLE>
-11-
<PAGE>
<PAGE>
SELECTED PRO FORMA FINANCIAL DATA
The following unaudited pro forma financial data gives effect to
the acquisition of Floyd as of the date or at the beginning of the
period indicated, assuming the acquisition is accounted for as a
pooling of interests. The pro forma balance sheet information has
been prepared as if the acquisition had been completed on March 31,
1999. The pro forma operating data has been prepared as if the
acquisition had been completed on January 1, 1996. The unaudited pro
forma financial data is presented for informational purposes only and
is not necessarily indicative of the combined financial position or
results of operation which actually would have occurred if the
transaction had been completed at the date and for the periods
indicated or which may be obtained in the future.
<TABLE>
<CAPTION>
SELECTED PRO FORMA FINANCIAL DATA
(Dollars in thousands, except per share amounts)
As of and For the For The Year Ended
Three Months Ended March 31, December 31,
---------------------------- -------------------------------------
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data
Total assets $ 1,771,645 - - - -
Federal funds sold 8,455 - - - -
Investment securities 473,699 - - - -
Loans held for sale 5,480 - - - -
Loans, net of allowance for 1,126,705 - - - -
loan losses
Deposits 1,318,544 - - - -
Other borrowings 230,573 - - - -
Trust preferred securities 21,000
Long-term debt 15,737 - - - -
Stockholders' equity $ 97,005 - - - -
-
Earnings Data
Interest income $ 32,829 26,516 116,214 94,188 70,695
Interest expense 17,395 13,848 60,004 48,470 35,234
Net interest income 15,434 12,668 56,210 45,718 35,461
Provision for loan losses 980 558 2,612 2,814 1,751
Non-interest income 2,479 1,932 9,129 7,200 5,866
Non-interest expense 12,000 9,837 43,964 34,063 26,341
Income taxes 1,640 1,438 5,990 4,987 4,180
Net income 3,293 2,767 12,773 11,054 9,055
Basic earnings per share 0.41 0.35 1.60 1.42 1.22
Diluted earnings per share 0.40 0.35 1.58 1.40 1.20
Cash dividends per share $ 0.0462 0.0351 0.1477 0.1012 0.0973
</TABLE>
-12-
<PAGE>
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated balance sheet as
of March 31, 1999, and the unaudited pro forma consolidated statements
of income for the three months ended March 31, 1999 and 1998, and for
each of the three years in the period ended December 31, 1998, combine
the historical financial statements of United with Floyd after giving
effect to the merger using the pooling of interests method of
accounting. Pro forma adjustments to the balance sheet are computed
as if the transaction occurred at March 31, 1999, while the pro forma
adjustments to the statements of earnings are computed as if the
transaction occurred on January 1, 1996, the earliest period
presented. In addition, the following financial statements do not
reflect any anticipated cost savings, which may be realized by United
after completion of the merger.
The pro forma information is not intended to represent what
United's and Floyd's combined results of operations actually would
have been if the merger had occurred on January 1, 1996.
The information has been prepared assuming that the merger will
be accounted for under the pooling of interests accounting method and
is based on the historical consolidated financial statements of United
and Floyd.
On March 15, 1999, United completed the acquisition of
Adairsville Bancshares, Inc. This acquisition was accounted for as a
purchase and, accordingly, the financial results of Adairsville are
not reflected in the historical income statements of United. As of
March 31, 1999, Adairsville had approximately $35.6 million of total
assets and $3.9 million of total equity, which are reflected in the
United balance sheet as of March 31, 1999. United recorded a goodwill
asset in conjunction with this acquisition of approximately $3.2
million that will be recognized through charges to expense over a term
of 15 years.
In the merger, United will exchange 0.8477 of a share of United
common stock for each share of Floyd common stock. Floyd had 720,000
shares of common stock outstanding at March 31, 1999, which will be
exchanged for approximately 610,344 shares of United common stock.
In connection with the merger, United and Floyd expect to incur
pre-tax merger related charges of approximately $1.5 million. These
charges are expected to include approximately $625,000 of severance
and change in control related payments, $375,000 of occupancy related
charges (equipment write-offs and contract terminations) and $275,000
of merger-related professional fees (investment banking, accounting
and legal), and $225,000 in other merger costs.
These amounts and the related tax effects have not been reflected
in the unaudited pro forma consolidated financial information because
they will not have a material impact on the shareholders' equity of
the combined company and are not expected to have a continuing impact
on the operations of the combined company.
-13-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Unaudited Pro Forma Consolidated Balance Sheet
March 31, 1999
(in thousands)
Historical Historical Pro Forma
United Floyd Adjustments Consolidated
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 65,416 3,447 68,863
Federal funds sold 8,455 - 8,455
Cash and cash equivalents 73,871 3,447 - 77,318
------------ -------- --------- ----------
Securities available for sale 454,024 19,675 473,699
Mortgage loans held for sale 5,480 - 5,480
Loans, net of unearned income 1,075,811 66,291 1,142,102
Less: Allowance for loan (14,588) (809) (15,397)
------------ -------- --------- ----------
Loans, net $ 1,061,223 65,482 - 1,126,705
Premises and equipment, net 42,219 2,749 44,968
Accrued interest receivable 14,108 641 14,749
Other assets 27,444 1,282 28,726
------------ -------- --------- ----------
Total assets $ 1,678,369 93,276 - 1,771,645
============ ======== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 159,103 9,831 168,934
Interest bearing demand 302,231 26,373 310,166
Savings 66,728 1,952 87,118
Time 716,856 35,470 752,326
------------ -------- --------- ----------
Total deposits 1,244,918 73,626 - 1,318,544
Accrued expenses and other liabilities 10,495 482 10,977
Federal funds purchased and repurchase agreements 77,809 950 78,759
Federal Home Loan Bank advances 218,623 11,000 229,623
Long-term debt and other borrowings 12,237 12,237
Convertible subordinated debentures 3,500 - 3,500
Guaranteed preferred beneficial interests in
company's junior subordinated debentures
(Trust Preferred Securities) 21,000 - 21,000
------------ -------- --------- ----------
Total liabilities 1,588,582 86,058 - 1,674,640
------------ -------- --------- ----------
Stockholders' equity:
Preferred stock - - -
Common stock 7,394 720 (720) 8,004
610
Capital surplus 24,808 24,808
Retained earnings 55,964 6,543 (6,543) 62,617
6,653
Accumulated other comprehensive income 1,621 (45) 1,576
------------ -------- --------- ----------
Total stockholders' equity 89,787 7,218 0 97,005
------------ -------- --------- ----------
Total liabilities and stockholders' equity $ 1,678,369 93,276 0 1,771,645
============ ======== ========= ==========
Outstanding common shares 7,393,605 720,000 8,003,949
Book value per common share $ 12.14 10.03 12.12
</TABLE>
-14-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Unaudited Pro Forma Consolidated Statements of Income
For the Three Months Ended March 31, 1999
In thousands, except per share data
Historical Historical Pro Forma
United Floyd Adjustments Consolidated
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Interest income $ 30,912 1,917 32,829
Interest expense 16,546 849 17,395
------------ -------- --------- ----------
Net interest income 14,366 1,068 - 15,434
Provision for loan losses 890 90 980
------------ -------- --------- ----------
Net interest income after provision for loan losses 13,476 978 - 14,454
Non-interest income 2,327 152 2,479
Non-interest expense 11,196 804 12,000
------------ -------- --------- ----------
Income before income taxes 4,607 326 - 4,933
Income taxes 1,514 126 - 1,640
------------ -------- --------- ----------
Net income $ 3,093 200 - 3,293
============ ======== ========= ==========
Basic earnings per share $ 0.42 0.28 0.41
Diluted earnings per share $ 0.41 0.27 0.40
Basic average shares outstanding 7,394 720 8,004
Diluted average shares outstanding 7,644 737 8,269
</TABLE>
-15-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Unaudited Pro Forma Consolidated Statements of Income
For the Three Months Ended March 31, 1998
In thousands, except per share data
Historical Historical Pro Forma
United Floyd Adjustments Consolidated
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Interest income $ 25,014 1,502 - 26,516
Interest expense 13,128 720 - 13,848
------------ ------ --------- ----------
Net interest income 11,886 782 - 12,668
------------ ------ --------- ----------
Provision for loan losses 498 60 - 558
Net interest income after provision for loan losses 11,388 722 - 12,110
Non-interest income 1,854 78 - 1,932
Non-interest expense 9,212 625 - 9,837
------------ ------ --------- ----------
Income before income taxes 4,030 175 - 4,205
Income taxes 1,371 67 0 1,438
------------ ------ --------- ----------
Net income $ 2,659 108 0 2,767
============ ====== ========= ==========
Basic earnings per share $ 0.36 0.18 0.35
Diluted earnings per share $ 0.36 0.18 0.35
Basic average shares outstanding 7,385 600 7,894
Diluted average shares outstanding 7,596 609 8,112
</TABLE>
-16-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Unaudited Pro Forma Consolidated Statements of Income
For the Year Ended December 31, 1998
In thousands, except per share data
Historical Historical Pro Forma
United Floyd Adjustments Consolidated
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Interest income $ 109,139 7,075 - 116,214
Interest expense 56,640 3,364 - 60,004
------------ ------ --------- ----------
Net interest income 52,499 3,711 - 56,210
------------ ------ --------- ----------
Provision for loan losses 2,372 240 - 2,612
------------ ------ --------- ----------
Net interest income after provision for loan losses 50,127 3,471 - 53,598
------------ ------ --------- ----------
Non-interest income 8,711 418 - 9,129
Non-interest expense 41,098 2,866 - 43,964
------------ ------ --------- ----------
Income before income taxes 17,740 1,023 - 18,763
Income taxes 5,588 402 - 5,990
------------ ------ --------- ----------
Net income $ 12,152 621 - 12,773
============ ====== ========= ==========
Basic earnings per share $ 1.64 0.91 1.60
Diluted earnings per share $ 1.62 0.88 1.58
Basic average shares outstanding 7,392 686 7,973
Diluted average shares outstanding 7,618 703 8,214
</TABLE>
-17-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Unaudited Pro Forma Consolidated Statements of Income
For the Year Ended December 31, 1997
In thousands, except per share data
Historical Historical Pro Forma
United Floyd Adjustments Consolidated
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Interest income $ 89,780 4,408 94,188
Interest expense 46,548 1,922 48,470
------------ ------ --------- ----------
Net interest income 43,232 2,486 - 45,718
------------ ------ --------- ----------
Provision for loan losses 2,634 180 2,814
------------ ------ --------- ----------
Net interest income after provision for loan losses 40,598 2,306 - 42,904
------------ ------ --------- ----------
Non-interest income 6,980 220 7,200
Non-interest expense 32,077 1,986 34,063
------------ ------ --------- ----------
Income before income taxes 15,501 540 - 16,041
Income taxes 4,766 221 4,987
------------ ------ --------- ----------
Net income $ 10,735 319 - 11,054
============ ====== ========= ==========
Basic earnings per share $ 1.47 0.53 1.42
Diluted earnings per share $ 1.46 0.52 1.40
Basic average shares outstanding 7,301 600 7,810
Diluted average shares outstanding 7,488 609 8,004
</TABLE>
-18-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Unaudited Pro Forma Consolidated Statements of Income
For the Year Ended December 31, 1996
In thousands, except per share data
Historical Historical Pro Forma
United Floyd Adjustments Consolidated
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Interest income $ 67,906 2,789 70,695
Interest expense 34,091 1,143 35,234
------------ ------ --------- ----------
Net interest income 33,815 1,646 - 35,461
Provision for loan losses 1,597 154 1,751
------------ ------ --------- ----------
Net interest income after provision for loan losses 32,218 1,492 - 33,710
------------ ------ --------- ----------
Non-interest income 5,666 200 5,866
Non-interest expense 24,843 1,498 26,341
------------ ------ --------- ----------
Income before income taxes 13,041 194 - 13,235
Income taxes 4,114 66 4,180
------------ ------ --------- ----------
Net income $ 8,927 128 - 9,055
============ ====== ========= ==========
Basic earnings per share $ 1.29 0.23 1.22
Diluted earnings per share $ 1.26 0.23 1.20
Basic average shares outstanding 6,919 566 7,399
Diluted average shares outstanding 7,110 566 7,590
</TABLE>
-19-
<PAGE>
<PAGE>
THE PROPOSED MERGER
BACKGROUND OF AND REASONS FOR THE MERGER
From time to time, Floyd received inquiries from other financial
institutions about the possibility of being acquired. Floyd was in
the process of assessing its strategic alternatives and was contacting
a number of potential merger partners when, in April 1999, Jimmy
Tallent, President and Chief Executive Officer of United, contacted
Ronald Wallace, President and Chief Executive Officer of Floyd, to
explore the possibility of combining Floyd and United. Later in
April, Mr. Wallace extended an invitation to Mr. Tallent to meet with
him and members of the Floyd Board of Directors to discuss the proposal
in greater detail.
Prior to that meeting, during the last week of April and the
first week of May, Mr. Tallent and other members of United's senior
management team presented a financial analysis of the proposed
transaction to members of United's Board of Directors. This analysis
included the pro forma financial impact of the merger at a range of
prices. The Board of Directors authorized Mr. Tallent to proceed with
negotiations.
On May 5, 1999, Mr. Tallent met with Mr. Wallace and members of the
Floyd Board of Directors and presented a general overview of the proposed
transaction. On May 17, 1999, the Floyd Board of Directors met with
their financial advisor to discuss the merger proposal. After
consideration of other alternatives and discussions with other potential
merger partners, the Floyd Board of Directors met again on May 19, 1999
with their financial advisor to review the specifics of the proposal,
including the legal terms and the share exchange ratio offered by
United.
On May 20, 1999 the Board of Directors of United considered the
business and operations and asset quality of Floyd as well as the
attractiveness of the Floyd franchise and its management team and the
compatibility of that franchise with the operations of United. After
that consideration, United's Board of Directors approved the execution
of the Agreement and Plan of Reorganization, subject to satisfactory
completion of a due diligence investigation of Floyd. On May 21,
1999, on site due diligence was conducted by representatives of
United. Subsequently, both companies undertook additional due diligence
and discussions with legal counsel and financial advisors.
At a Board of Directors meeting held on June 2, 1999, the Board
of Floyd considered a number of factors in evaluating the merger, including
a review of the terms of the merger with Floyd's financial advisor. Without
assigning any relative or specific weights to the factors, in approving the
merger on June 2, the Board of Directors of Floyd considered the
following material factors:
(a) The alternatives to the merger, including remaining an
independent institution in light of the current
economic condition of the market and the competitive
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disadvantages as compared to the larger financial
institutions operating in the market;
(b) The value of the consideration to be received by Floyd
shareholders relative to the book value and earnings
per share of Floyd's common stock;
(c) Certain information concerning the financial condition,
results of operations and business prospects of United;
(d) The financial terms of recent business combinations in
the financial services industry and a comparison of the
multiples of selected combinations with the terms of
the proposed transaction with United;
(e) The marketability of Floyd's common stock and the
potential for greater liquidity of United's common
stock;
(f) The competitive and regulatory environment for
financial institutions generally;
(g) The fact that the merger would enable Floyd
shareholders to exchange their shares of Floyd's common
stock, in a tax-free transaction, for shares of common
stock of a regional company;
(h) United's ability to provide comprehensive financial
services through Floyd Bank to the Floyd County market;
(i) The local autonomy that United provides its subsidiary
banking operations;
(j) The likelihood of the merger being approved by
applicable regulatory authorities without undue
conditions or delay; and
(k) The potential effect of the future elimination of the
pooling of interests method of accounting might have
upon the market price of Floyd's common stock.
The Board of Directors of Floyd believes the merger is in the
best interest of its shareholders because the merger will permit them
to exchange their ownership interest in Floyd for an equity interest
in United, which has greater financial resources than Floyd. The
Board of Directors of Floyd also believes that the terms of the
merger, including the basis of exchange, .8477 shares of United's
common stock for each share of Floyd's common stock, which was
determined through arms-length negotiations between United and the
Board of Directors of Floyd, are fair and equitable and take into
account the relative earning power of United and Floyd, historic and
anticipated operations, the economies of scale to be achieved through
the merger, the trading prices of the stocks of the respective
companies and other pertinent factors. The exchange ratio of .8477
shares of United's common stock for each share of Floyd's common stock
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represents a multiple of 3.19 times Floyd's book value as of March 31,
1999 and 32.3 times trailing twelve months earnings per share if
United's common stock is valued at $37.75 a share.
The Board of Directors of Floyd believes that the size of the
combined organization, approximately $1.9 billion in assets as of June
30, 1999, is sufficiently large to take advantage over time of
significant economies of scale, but is still small enough to maintain
the competitive advantages management believes are afforded community-
oriented banks over the larger regional and super-regional banks. It
has become increasingly apparent to the management of Floyd that in
the current regulatory and competitive environment, larger
organizations with greater economies of scale, including the ability
to spread largely fixed regulatory compliance costs over a larger
gross income base and the ability to attract management talent able to
compete in a more sophisticated financial-services environment, will
be more successful than smaller organizations such as Floyd
separately. Management of United and Floyd believe that there is a
future for community banks in the banking industry, but that community
banks will be required to achieve a critical size to maintain above-
average economic performance.
On June 3, 1999, the Agreement and Plan of Reorganization was
executed by both parties, and on June 4, 1999 United and Floyd issued
a joint press release describing the transaction.
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THE AGREEMENT AND PLAN OF REORGANIZATION AND THE AGREEMENT AND PLAN OF MERGER
The material features of the Agreement and Plan of
Reorganization (the "Acquisition Agreement") and the merger agreement
are summarized below.
EFFECTIVE DATE. The merger agreement provides that the
merger will be effective upon the approval of the merger agreement by
the Floyd shareholders and the filing of a certificate of merger with
the Georgia Secretary of State (the "Effective Date"). The merger
also is subject to approval by the Board of Governors of the Federal
Reserve System and the Department of Banking and Finance of the State
of Georgia. Management of United and Floyd anticipate that the merger
will become effective prior to September 30, 1999.
TERMS OF THE MERGER. On the Effective Date, each
outstanding share of Floyd common stock will be converted into and
exchanged for .8477 shares of United common stock. If, prior to the
Effective Date, the outstanding shares of United common stock are
increased through a stock dividend, stock split, subdivision,
recapitalization or reclassification of shares, or are combined into a
lesser number of shares by reclassification, recapitalization or
reduction of capital, the number of shares of United common stock to
be delivered pursuant to the merger in exchange for a share of Floyd
common stock will be proportionately adjusted.
United will not issue a fractional share certificate of
United common stock in connection with the merger, and an outstanding
fractional share interest will not entitle the owner thereof to vote,
to receive dividends or to any rights of a shareholder of United with
respect to that fractional interest. Instead of issuing any
fractional shares of United common stock, United will pay in cash an
amount (computed to the nearest cent) equal to that fraction
multiplied by $37.75 per share.
If the merger is completed, shareholders of Floyd will
become shareholders of United, and Floyd will be merged with and into
United. Following the merger, the Articles of Incorporation, Bylaws,
corporate identity and existence of United will not be changed, and
Floyd will cease to exist as a separate entity.
TERMINATION AND CONDITIONS OF CLOSING. The merger agreement
and the Acquisition Agreement may be terminated and the merger
abandoned at any time either before or after approval of the merger
agreement by the shareholders of Floyd, but not later than the
Effective Date:
* by either party, if the other party has a material
adverse change in its financial condition or business;
* by either party, if the other party materially breaches
any of the representations or warranties or any covenant or
agreement it made under the Acquisition Agreement;
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* by either party, if it learns of information not
disclosed in the Acquisition Agreement or related documents which
the other party was required to disclose pursuant to the
Acquisition Agreement, which materially and adversely affects the
business, properties, assets or earnings of the other party;
* by either party, if a lawsuit is filed or threatened
which could prohibit or otherwise materially affect the merger
agreement or the completion of the merger and which either party
believes, in good faith, would make completion of the merger
inadvisable;
* by either party, if the merger is not completed by
March 31, 2000;
* by United, if the holders of ten percent or more of the
outstanding shares of Floyd common stock choose to dissent from
the merger and demand payment in cash;
* by either party, if the Floyd shareholders do not
approve the merger agreement; or
* by either party, if it learns of any potential
liability of the other party which results from the other party's
non-compliance with any environmental law or from the
environmental condition of the properties or assets of the other
party.
The following are some of the required conditions of
closing:
* the accuracy of the representations and warranties of
all parties contained in the Acquisition Agreement and related
documents as of the date when made and the Effective Date;
* the performance of all agreements and conditions
required by the Acquisition Agreement;
* the delivery of officers certificates, resolutions and
legal opinions to Floyd and United;
* approval of the merger by the Floyd shareholders;
* receipt of all necessary authorizations of governmental
authorities, and the expiration of any regulatory waiting
periods;
* effectiveness of the registration statement of United
relating to the shares of United common stock to be issued to
Floyd shareholders in the merger, of which this document forms a
part;
* the receipt by Floyd of the opinion of Kilpatrick
Stockton LLP as to the tax consequences to Floyd shareholders;
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* the receipt by United of an opinion of Porter Keadle
Moore LLP that the merger will be accounted for as a 'pooling of
interests,'
* the issuance of a certificate of merger by the
Secretary of State of Georgia; and
* the receipt by Floyd of a fairness opinion from Floyd's
financial advisor which remains in effect as of the date of
closing.
SURRENDER OF CERTIFICATES. Shortly after the Effective
Date, each holder of Floyd common stock (as of the Effective Date)
will be required to deliver his or her shares of Floyd common stock to
United's transfer agent, SunTrust Bank, Atlanta. After delivering
those shares, the holder will receive a stock certificate for the
number shares of United common stock that the holder is entitled to
receive under the merger agreement, and a cash payment for any
fractional interest in United common stock. Until a holder delivers
his or her shares of Floyd common stock to SunTrust, he or she will
not receive payment of any dividends or other distributions on shares
of United common stock into which his shares of Floyd common stock
have been converted, and will not receive any notices sent by United
to its shareholders with respect to, or to vote, those shares. After
delivering the shares to SunTrust, the holder will then be entitled to
receive any dividends or other distributions (without interest) which
became payable after the merger but prior to the holder's delivery of
the certificates to SunTrust.
REQUIRED SHAREHOLDER APPROVAL
The holders of a majority of the outstanding shares of Floyd
common stock entitled to vote at the special meeting must approve the
merger agreement in order for the merger to be completed. Abstentions
from voting and broker non-votes will be included in determining
whether a quorum is present and will have the effect of a vote against
the merger agreement.
On July 26, 1999, the record date for determining the
shareholders entitled to notice of, and to vote at, the special
meeting, the outstanding voting securities of Floyd consisted of
745,400 shares of Floyd common stock, with registered holders thereof
being entitled to one vote per share. Certain executive officers and
members of Floyd's Board of Directors, who have entered into
agreements with United to vote their shares of Floyd common stock in
favor of the merger, own or control 303,825 shares, or approximately
40.8% of the outstanding shares of Floyd common stock.
EXPENSES
United will pay all of its expenses incurred in connection
with the authorization, preparation, execution and performance of the
Acquisition Agreement and the merger agreement, including all fees and
expenses of its agents, representatives, counsel and accountants and
the fees and expenses related to filing regulatory applications with
state and federal authorities in connection with the transactions
contemplated thereby. Floyd will pay all of its expenses incurred in
connection with the authorization, preparation, execution and
performance of the Acquisition Agreement and the merger agreement,
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including all fees and expenses of agents, representatives, counsel
and accountants for Floyd and the cost of reproducing and mailing this
proxy statement/prospectus.
FAIRNESS OPINION
Opinion of Financial Adviser. Floyd retained First Capital
----------------------------
Group, L.L.C. to act as its financial adviser in connection with the merger
and related matters based upon its qualifications, expertise and reputation
and to provide the Board of Directors of Floyd with a written opinion
regarding the fairness of the merger from a financial point of view, and will
receive a fee of $125,000 for such services. On July 6, 1999, First Capital
delivered its written opinion (the "Opinion") to the Board which states that
the consideration to be received pursuant to the Agreement is fair from a
financial point of view to the holders of Floyd common stock. The full text
of the Opinion, which sets forth, among other things, assumptions made,
procedures followed, matters considered and limitations on the review
undertaken, is attached as Appendix C to this proxy statement-prospectus.
Floyd's shareholders are urged to read the Opinion carefully and in its
entirety. The Opinion does not constitute a recommendation to any
shareholder of Floyd as to how that shareholder should vote at the special
meeting. In connection with rendering the Opinion, First Capital, among
other things:
* analyzed internal financial statements and other
financial and operating data concerning Floyd prepared by the
management of Floyd;
* analyzed publicly available financial statements,
both audited and unaudited, and other information of Floyd
and United, including those included in Floyd's financial
statements for the period ended December 31, 1998, United's
Annual Reports for the three years ended December 31, 1998,
United's Quarterly Reports for the periods ended March 31, 1999,
September 30, 1998 and June 30, 1998, and Floyd's financial
statements for the quarters ended March 31, 1999, September 30,
1998 and June 30, 1998;
* analyzed financial projections of Floyd prepared
by the management of Floyd;
* discussed the past and current operations and financial
condition of Floyd with senior executives of Floyd;
* reviewed the known stock prices and trading activity
for United common stock;
* compared the financial performance of United common
stock and trading activity with that of other comparable
publicly-traded companies and their securities;
* reviewed the financial terms, to the extent publicly
available, of comparable transactions;
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* reviewed the Acquisition Agreement; and
* performed such other analyses as it deemed appropriate.
In connection with its review, First Capital relied upon and
assumed the accuracy and completeness of all of the foregoing
information provided to it or made publicly available, and First
Capital has not assumed any responsibility for independent
verification of that information. First Capital assumed that the
financial projections have been reasonably prepared on the basis
reflecting the best currently available estimates and judgments of
the future financial performance of Floyd. First Capital has not
made any independent valuation or appraisal of the assets or liabilities
of Floyd, nor has First Capital been furnished with any of those appraisals,
and First Capital has not examined any individual loan files of Floyd. With
respect to United, First Capital relied primarily upon publicly available data
and did not conduct discussions with the management of United regarding
United's financial condition, performance and prospects. First
Capital did not conduct any independent evaluation or appraisal of the
assets, liabilities or business prospects of United, was not furnished
with any evaluations or appraisals, and did not review any individual
credit files. First Capital is not an expert in the evaluation of
loan portfolios for the purposes of assessing the adequacy of the
allowance for losses with respect to those portfolios, and has assumed
that the allowances for each of the companies are, in the aggregate,
adequate to cover those losses. First Capital's opinion is
necessarily based on economic, market and other conditions as in
effect on, and the information made available to First Capital as of,
the date of the Opinion.
In connection with rendering its Opinion, First Capital
performed a variety of financial analyses. The preparation of a
fairness opinion involves various determinations as to the most
appropriate and relevant methods of financial analysis and the
application of those methods to the particular circumstances and,
therefore, a fairness opinion should not be read only in part.
Moreover, the evaluation of the fairness, from a financial
point of view, of the exchange rate to the holders of Floyd Common
Stock was to some extent subjective based on the experience and
judgment of First Capital and not merely the result of mathematical
analysis of financial data. Accordingly, First Capital believes that
its analyses must be considered as a whole and that electing portions
of its analyses and of the factors considered by it, without
considering all analyses and factors, could create an incomplete view
of the evaluation process underlying its opinion. The ranges of
valuations resulting from any particular analysis described below
should not be taken to be First Capital's view of the actual value of
Floyd.
In performing its analyses, First Capital made numerous
assumptions with respect to industry performance, business and
economic conditions and other matters, many of which are beyond the
control of Floyd. The analyses performed by First Capital are not
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necessarily indicative of actual values or future results, which may
be significantly more or less favorable than suggested by such
analyses. The analyses are not appraisals and do not reflect the
prices at which a company might actually be sold. In addition, First
Capital's analyses should not be viewed as the opinion of the Floyd
Board of Directors or Floyd's management with respect to the value of
Floyd.
The following is a summary of the analyses performed by
First Capital in connection with its Opinion:
Analysis of Selected Transactions. First Capital performed
---------------------------------
an analysis of premiums paid in selected pending or recently completed
acquisitions of banking organizations in Alabama, Georgia, North
Carolina, South Carolina and Tennessee (the "Regional Market") with
comparable characteristics to the merger of Floyd and United. The
comparable transactions reflect transactions where the seller
possessed similar asset size, regional location and form of
consideration. The comparable transactions specifically consisted of
29 mergers and acquisitions of banking organizations in the Regional
Market from January 1, 1998 to June 28, 1999, with the seller's total
assets ranging from $80 million to $200 million. Based on the trading
price of United common stock of $40 on May 24, 1999, which was the
last known trade prior to announcement of the merger on June 4,
1999, and Floyd's financial data as of May 31, 1999, the analysis
yielded ratios of the transactions' purchase price as a multiple of:
* equity ranging from 1.88 times to 3.99 times with an
average of 3.02 times and a median of 3.06 times (compared with
Floyd's proposed transaction with United of 3.80 times May 31,
1999 book value);
* tangible equity ranging from 1.88 times to 4.45 times
with an average of 3.07 times and a median of 3.06 times
(compared with Floyd's proposed transaction with United of 3.80
times May 31, 1999 tangible book value);
* trailing last 12 months earnings ranging from 14.65
times to 37.43 times with an average of 22.63 times and a median
of 20.95 times (compared with Floyd's proposed transaction with
United of 34.92 times annualized five months ended May 31, 1999);
and
* sellers' average and median equity to asset ratio of
9.93% and 9.94%, respectively, compared to 7.39% for Floyd.
Discounted Cash Flow Analysis. Using discounted cash flow
-----------------------------
analysis, First Capital estimated the present value of the future
stream of after-tax cash flow that Floyd could produce through the
year 2003, under various circumstances, assuming that Floyd performed
in accordance with the earnings/return projections of management.
First Capital utilized two separate values for Floyd at the end of the
period by applying multiples of earnings ranging from 20 times to 22
times and multiples of book ranging from 2.0 times to 3.0 times. First
Capital then discounted the cash flow streams, dividends paid to the
shareholders (assuming all earnings in excess of that required to
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maintain the current tangible equity to tangible asset ratio are paid
out in dividends) and terminal values using discount rates ranging
from 12.0% to 16.0% chosen to reflect different assumptions regarding
the required rates of return for Floyd and the inherent risk
surrounding the underlying projections. This discounted cash flow
analysis indicated a range of $23.13 per share to $32.32 per share
utilizing multiples of earnings as residual values and $16.27 per
share to $26.94 per share utilizing multiples of book value. This
compares favorably to the consideration to be paid to Floyd
shareholders of: (i) $33.91 per share of Floyd common stock, based on
the last known trade of United common stock prior to announcement on
June 4, 1999, of $40.00 per share of United common stock on May 24,
1999; and (ii) $46.62 per share of Floyd common stock, based on the
last known trade of $55.00 per share of United common stock on June 22,
1999.
Comparable Company Analysis. First Capital compared
---------------------------
selected balance sheet data, asset quality, capitalization and
profitability ratios and market statistics using financial data at or
for the twelve months ended March 31, 1999, and market data as of June
23, 1999, for United to a group of selected bank holding companies
which First Capital deemed to be relevant, including Alabama National
Bancorporation, Anchor Financial Corporation, Capital City Bank Group,
Inc., Carolina First Corporation, Century South Banks, Inc., First
Citizens Bancorporation of South Carolina Inc., Hancock Holding
Company, The Peoples Holding Company, Premier Bancshares, Inc., and
Triangle Bancorp, Inc., all of which are bank holding companies in the
Southeastern United States with assets between $1 billion and $5
billion (collectively, the "Comparable Bank Holding Companies"). This
comparison, among other things, showed that:
* United's equity to asset ratio was 5.35%, compared to
an average of 9.15% and a median of 8.84% for the Comparable Bank
Holding Companies;
* for the three-month period ended March 31, 1999,
United's return on average assets was 0.80%, compared to an
average of 1.14% and a median of 1.18% for the Comparable Bank
Holding Companies;
* for the three-month period ended March 31, 1999,
United's return on average equity was 14.18%, compared to an
average of 12.94% and a median of 12.11% for the Comparable Bank
Holding Companies;
* at March 31,1999, United's non performing loans to
gross loans ratio was 0.16%, compared to an average of 0.53% and
a median of 0.47% for the Comparable Bank Holding Companies;
* at May 24, 1999, United's price per share to book value
per share at March 31, 1999, was 3.29 times, compared to an
average of 2.30 times and median of 2.02 times for the Comparable
Bank Holding Companies;
* at May 24, 1999, United's price per share to earnings
per share at March 31, 1999, was 23.81 times, compared to an
average of 17.56 times and median of 16.82 times for the
Comparable Bank Holding Companies; and
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* at June 4, 1999, United's dividend yield was 0.50%,
compared to an average of 2.21% and a median of 2.25% for the
Comparable Bank Holding Companies.
First Capital also compared selected known trades of
United's common stock to the publicly available corresponding stock
market results and data of other composites which First Capital deemed
to be relevant, including Philadelphia KBW Bank Index, Nasdaq Bank
Index of publicly traded banks and the S&P 500. Results from indexing
the S&P 500, Philadelphia KBW Bank Index, the Nasdaq Bank Index of
publicly traded banks and United's common stock from January 1, 1999,
to June 30, 1999, revealed generally similar trends in pricing
movements. United's common stock is not traded on a public exchange
or market, and is therefore relatively illiquid. The historical known
private trades of United's common stock exhibit wide ranges from one
trade to another, even on the same trade date, and therefore may be
less reflective of a precise market value of such shares than if those
shares were publicly traded. For this reason First Capital analyzed
volume/price variance for the period of January 1, 1999 through June
30, 1999. The analysis concluded that United's common stock has
traded predominantly in the $41.00 to $43.00 per share range in terms
of number of shares traded, as well as number of trades; however, most
recently United's common stock has traded with significantly less
volume in the $50.00-$55.00 range. The low and high stock prices for
this six month period were $35.00 and $55.00 per share, respectively.
No company or transaction used in the comparable company and
comparable transaction analyses is identical to Floyd or the proposed
merger. Accordingly, an analysis of the results of the foregoing
necessarily involves complex considerations and judgments concerning
differences in financial and operating characteristics of Floyd and
other factors that could affect the public trading value of the
companies to which they are being compared. Mathematical analysis
(such as determining the average or median) is not in itself a
meaningful method of using comparable transaction data or comparable
company data.
CONDUCT OF BUSINESS OF FLOYD PENDING CLOSING
The Acquisition Agreement provides that, pending
consummation of the merger, Floyd will, except with the written
consent of United:
* conduct its business only in the ordinary course,
without creating any indebtedness for borrowed money (other than
deposit and similar accounts and customary credit arrangements
between banks in the ordinary course of business);
* maintain its properties and assets in good operating
condition, ordinary wear and tear excepted;
* maintain and keep in effect all of its current
insurance policies;
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* other than pursuant to existing stock option grants,
not make any change in the authorized or issued capital stock or
other securities of Floyd, and will not issue or grant any right
or option to purchase or otherwise acquire any of the capital
stock or other securities of Floyd;
* not declare or make any dividend, distribution or
payment on the capital stock of Floyd, or, directly or
indirectly, redeem, purchase or otherwise acquire any of its
capital stock;
* not amend its Articles of Incorporation or Bylaws, and
maintain its corporate existence and powers;
* not acquire any other entity or otherwise acquire or
agree to acquire any assets which are material, individually or
in the aggregate, to it;
* not acquire or dispose of any real property or interest
on any real property (except for sales in the ordinary course of
business) or, except in the ordinary course of business, sell or
otherwise transfer or encumber any other tangible or intangible
asset;
* not change any of its banking arrangements;
* not enter into any new material contracts;
* maintain its books and records in the ordinary course; and
* advise United of any material adverse change in Floyd's business.
INTEREST OF MANAGEMENT IN THE TRANSACTION; CONDUCT OF BUSINESS AFTER THE MERGER
Except as set forth below, no director or officer of Floyd,
or any of their associates has any direct or indirect material
interest in the merger, except that those persons may own shares of
Floyd common stock which will be converted in the merger into United
common stock. The directors of United currently anticipate that after
the merger, one director of Floyd will be elected to serve on United's
Board of Directors. Other than as described below, United and Floyd
do not anticipate that the merger will result in any material change
in compensation to employees of Floyd.
Effective upon completion of the merger, United will enter
into an employment agreement with Ronald Wallace, employing Mr.
Wallace as President and Chief Executive Officer of 1st Floyd Bank, a
subsidiary of United, for a term of two years, which term may be
renewed annually. Mr. Wallace will receive a salary of $97,000 per
year, will be entitled to receive options for 10,000 shares of
United's common stock and will, upon execution of the employment
agreement, receive a one-time cash bonus of $182,000. United will be
able to terminate Mr. Wallace's employment agreement for cause (as
defined in the agreement) or upon Mr. Wallace's death, disability or
inability to effectively carry out his duties. Mr. Wallace will be
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able to terminate the agreement upon specified actions or inactions of
United. If Mr. Wallace is terminated due to a change of control of
United (as defined in the agreement), he will receive a payment equal
to his then-current annual salary for a period of two years from his
date of termination. Mr. Wallace's employment agreement also
provides, unless he is terminated under specified circumstances, that
Mr. Wallace will not compete with United in Floyd County, Georgia for
a period of two years after his employment with United is terminated.
In addition, effective upon completion of the merger, United
will enter into an employment agreement with Bryan Kelley, employing
Mr. Kelley as Executive Vice President of 1st Floyd Bank for a term of
two years, on terms comparable to those in Mr. Wallace's employment
agreement, except that Mr. Kelley will receive a salary of $75,000 per
year, will be entitled to receive options for 5,000 shares of United's
common stock and will, upon execution of the employment agreement,
receive a one-time cash bonus of $138,000.
Further, options to acquire 22,000 shares of Floyd common
stock held by Mr. Wallace, and options to acquire 11,000 shares of
Floyd common stock held by Mr. Kelley, will vest and become
immediately exercisable within a 30 day period from the date the Floyd
shareholders approve the merger.
United has agreed in the Acquisition Agreement to continue
employee benefits for Floyd employees that are substantially similar
to those United currently provides to its employees, and to indemnify
each person entitled to indemnification by Floyd or Floyd Bank for
liabilities arising from acts or omissions arising prior to the
Effective Date.
EFFECT OF THE MERGER ON FLOYD SHAREHOLDERS AND COMPARISON OF THE
SECURITIES OF FLOYD AND UNITED
Upon completion of the merger, holders of Floyd common stock
(other than dissenting shareholders) will become shareholders of
United. The following is a summary of material differences between
the rights of holders of United common stock and holders of Floyd
common stock. Since United and Floyd are both organized under the
laws of Georgia, any differences arise from differing provisions of
the corporations' respective articles of incorporation and bylaws.
DIRECTORS
UNITED. The United Bylaws provide for a board of directors
consisting of from eight to 14 members. Under the United Bylaws,
United directors may be removed with or without cause by the vote of a
majority of the outstanding shares of the corporation.
FLOYD. The Floyd Bylaws provide for a board of directors
consisting of from five to 25 directors.
NOTICE OF SHAREHOLDER NOMINATIONS
UNITED. Neither the United Articles nor the United Bylaws
provide any limitations or procedures relating to shareholders
nominations for directors.
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FLOYD. The Floyd bylaws provide that nominations by
shareholders for a director shall be delivered to the Chairman of the
Board not less than 21 nor more than 30 days prior to any meeting of
shareholders called for the election of directors.
PREFERRED STOCK
UNITED. The United Articles permit United's Board of
Directors to designate one or more series of preferred stock, with
specific rights, preferences, restrictions and limitations as
determined by United's Board of Directors, without approval of
United's shareholders. The issuance of any preferred stock having
conversion rights might have the effect of diluting the interests of
United's other shareholders. In addition, shares of preferred stock
could be issued with certain rights, privileges and preferences which
would deter a tender or exchange offer or discourage the acquisition
of control of United.
FLOYD. The Floyd Articles do not provide for the issuance
of preferred stock without shareholder approval.
MATTERS CONSIDERED AT ANNUAL MEETINGS
UNITED. The United Bylaws provide that the only business that
may be conducted at an annual meeting of shareholders is business brought
before the meeting by or at the direction of the Board of Directors prior
to the meeting, by or at the direction of the Chairman of the Board, Chief
Executive Officer, President or Chief Executive Officer of United, or by
a United Shareholder who delivers notice of the business in writing to the
Secretary of United by the later of (a) 14 days prior to the meeting or
(b) five days after notice of the meeting is provided to United shareholders.
The chairman of an annual meeting has the right to declare that any proposed
business which does not comply with these provisions is out of order and will
not be considered at the meeting.
FLOYD. The Floyd Bylaws do not restrict matters which may be
considered at an annual meeting of shareholders.
ACCOUNTING TREATMENT
United will account for the merger as a "pooling of
interests" transaction in accordance with generally accepted
accounting principles. Under this accounting method, holders of Floyd
common stock will be deemed to have combined their existing voting
common stock interests with the holders of United common stock by
exchanging their shares for shares of United common stock, and as a
result, the assets and liabilities of Floyd will be added to those of
United at their recorded book value, and the shareholders' equity
accounts of Floyd and United would be combined on United's
consolidated balance sheet. The unaudited pro forma financial
information contained in this proxy statement/prospectus has been
prepared using the pooling of interests accounting method to account
for the merger.
-33-
<PAGE>
<PAGE>
RESALES OF UNITED STOCK BY DIRECTORS AND OFFICERS OF FLOYD
Although United has registered the United common stock to be
issued upon completion of the merger under the Securities Act of 1933,
the directors, officers and shareholders of Floyd who are deemed to be
affiliates of Floyd may not resell the United common stock received by
them unless those sales are made pursuant to an effective registration
statement under the Securities Act or pursuant to Rule 144 under the
Securities Act or another exemption from registration under the
Securities Act. Rule 144 limits the amount of United common stock or
other equity securities of United that those persons may sell during
any three month period, and requires that certain current public
information with respect to United is available and that the United
common stock be sold in a broker's transaction or directly to a market
maker in the United common stock. Because the United common stock is
not publicly traded and is not listed on a stock exchange or quoted in
the over-the-counter market, affiliates will not be able to sell their
United common stock pursuant to Rule 144.
REGULATORY APPROVALS
The Board of Governors of the Federal Reserve System has approved
the merger. In determining whether to grant that approval, the Federal
Reserve considered the effect of the merger on the financial and managerial
resources and future prospects of the companies and banks concerned and the
convenience and needs of the communities served.
The Department of Banking and Finance of the State of Georgia also
has approved the merger. The Department's review of the application did not
include an evaluation of the proposed transaction from the financial
perspective of the individual shareholders of Floyd. Further, no
shareholder should construe an approval of the application by the Department
to be a recommendation that the shareholders vote to approve the proposal.
Each shareholder entitled to vote should evaluate the proposal to determine
the personal financial impact of the completion of the proposed transaction.
Shareholders not fully knowledgeable in such matters are advised to obtain
the assistance of competent professionals in evaluating all aspects of the
proposal including any determination that the completion of the proposed
transaction is in the best financial interest of the shareholder.
RIGHTS OF DISSENTING SHAREHOLDERS
Any shareholder of record of Floyd common stock who objects
to the merger and who complies with Section 14-2-1301 et seq. of the
Georgia Business Corporation Code will be entitled to demand and
receive payment in cash of an amount equal to the fair value of all,
but not less than all, of his or her shares of Floyd common stock if
the merger is completed. A shareholder of record may assert
dissenters' rights as to fewer than the shares registered in that
shareholder's name only if he or she dissents with respect to all
shares beneficially owned by any one beneficial owner and notifies
Floyd in writing of the name and address of each person on whose
behalf he asserts dissenters' rights. For the purpose of determining
the amount to be received in connection with the exercise of statutory
dissenters' rights under the Georgia Business Corporation Code, the
fair value of a dissenting shareholder's Floyd common stock equals the
value of the shares immediately before the Effective Date of the
merger, excluding any appreciation or depreciation in anticipation of
the merger.
-34-
<PAGE>
<PAGE>
Any Floyd shareholder desiring to receive payment of the
fair value of his or her shares of Floyd common stock in accordance
with the requirements of the Georgia Business Corporation Code:
(a) must deliver to Floyd, prior to the time the
shareholder vote on the merger agreement is taken, a written notice of
his or her intent to demand payment for his or her shares if the
merger is completed;
(b) must not vote his or her shares in favor of the
merger agreement; and
(c) must demand payment and deposit stock certificates
representing his or her Floyd common stock in accordance with the
terms of a notice which will be sent to the shareholder by Floyd no
later than ten days after the merger is completed.
A filing of the written notice of intent to dissent with
respect to the merger agreement should be sent to: Kenneth Guice,
Secretary, 1st Floyd Bankshares, Inc., 307 East 2nd Avenue, Rome,
Georgia 30162-6005. A VOTE AGAINST THE MERGER AGREEMENT ALONE WILL
NOT SATISFY THE REQUIREMENTS FOR THE SEPARATE WRITTEN NOTICE OF INTENT
TO DISSENT TO THE MERGER, THE SEPARATE WRITTEN DEMAND FOR PAYMENT OF
THE FAIR VALUE OF SHARES OF FLOYD COMMON STOCK AND THE DEPOSIT OF THE
STOCK CERTIFICATES, WHICH ARE REFERRED TO IN CONDITIONS (A) AND (C)
ABOVE. RATHER, A DISSENTING SHAREHOLDER MUST SEPARATELY COMPLY WITH
ALL OF THOSE CONDITIONS.
Within ten days of the later of the Effective Date or
receipt of a payment demand by a shareholder who deposits his or her
stock certificates in accordance with Floyd's dissenters' notice sent
to those shareholders who notified Floyd of their intent to dissent,
described in (c) above, Floyd must offer to pay to each dissenting
shareholder the amount Floyd estimates to be the fair value of the
dissenting shareholder's shares, plus accrued interest. That notice
and offer must be accompanied by:
(a) Floyd's balance sheet as of the end of a fiscal year
ending not more than 16 months before the date of making an offer, an
income statement for that year, a statement of changes in
shareholders' equity for that year, and the latest available interim
financial statements, if any;
(b) an explanation of how the interest was calculated;
(c) a statement of the dissenting shareholder's right to
demand payment of a different amount under Section 14-2-1327 of the
Georgia Business Corporation Code; and
(d) a copy of the dissenters' rights provisions of the
Georgia Business Corporation Code.
-35-
<PAGE>
<PAGE>
If the dissenting shareholder accepts Floyd's offer by
written notice to Floyd within 30 days after Floyd's offer, or is
deemed to have accepted the offer by not responding to that offer
within that 30-day period, Floyd must make payment for his or her
shares within 60 days after the making of the offer or the Effective
Date, whichever is later. Upon payment of the agreed value, the
dissenting shareholder will cease to have any interest in his or her
shares of Floyd common stock.
If within 30 days after Floyd offers payment for the shares
of a dissenting shareholder, the dissenting shareholder does not
accept the estimate of fair value of his or her shares and interest
due thereon and demands payment of his or her own estimate of the fair
value of the shares and interest due thereon, then Floyd, within 60
days after receiving the payment demand of a different amount from a
dissenting shareholder, must file an action in the superior court in
Floyd County, Georgia, requesting that the fair value of those shares
be determined. Floyd must make all dissenting shareholders whose
demands remain unsettled parties to the proceeding. If Floyd does not
commence the proceeding within that 60-day period, it will be required
to pay each dissenting shareholder whose demand remains unsettled the
amount demanded by the dissenting shareholder.
Floyd urges its shareholders to read all of the dissenters'
rights provisions of the Georgia Business Corporation Code, which are
reproduced in full in Appendix B to this proxy statement/prospectus
and which are incorporated by reference into this proxy
statement/prospectus.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER AND OPINION OF
TAX COUNSEL
Floyd has received an opinion from Kilpatrick Stockton LLP,
to the effect that, assuming the merger is completed in accordance
with the terms of the Acquisition Agreement and the merger agreement:
(a) The merger of Floyd into United and the issuance
of shares of United common stock, as described herein and in
the merger agreement, will constitute a tax-free
reorganization under Section 368(a)(1)(A) of the Internal
Revenue Code of 1986, as amended.
(b) Holders of Floyd common stock will not recognize
any gain or loss upon the exchange of that stock for United
common stock as a result of the merger.
(c) Holders of Floyd common stock will recognize gain
or loss pursuant to Section 302 of the Internal Revenue Code
upon their receipt of cash instead of fractional shares of
United common stock and upon their receipt of cash pursuant
to their exercise of dissenter's rights.
(d) Floyd will not recognize any gain or loss as a
result of the merger.
-36-
<PAGE>
<PAGE>
(e) The aggregate tax basis of the United common stock
received by shareholders of Floyd pursuant to the merger
will be the same as the tax basis of the shares of Floyd
common stock exchanged therefor, decreased by any portion of
that tax basis allocated to fractional shares of United
common stock that are treated as redeemed by United.
(f) The holding period of the shares of United common
stock received by the shareholders of Floyd will include the
holding period of the shares of Floyd common stock exchanged
therefor, provided that the Floyd common stock is held as a
capital asset on the date of completion of the merger.
No ruling will be requested from the Internal Revenue
Service with respect to any Federal income tax consequences of the
merger.
THE FOREGOING TAX OPINION AND THE PRECEDING DISCUSSION
RELATE TO THE MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
TO FLOYD SHAREHOLDERS. FLOYD SHAREHOLDERS ARE ADVISED TO CONSULT THEIR
OWN TAX ADVISORS AS TO ANY STATE, LOCAL OR OTHER TAX CONSEQUENCES OF
THE MERGER.
-37-
<PAGE>
<PAGE>
INFORMATION ABOUT 1ST FLOYD BANKSHARES, INC.
DESCRIPTION OF BUSINESS
Floyd is a one-bank holding company which, through its
subsidiary, Floyd Bank, provides banking services through its three
full-service banking offices in Rome, Georgia and Cave Spring, Georgia.
The Company's executive office is located at 307 East 2nd Avenue, Rome,
Georgia 30162-6005, and its telephone number is (706) 234-5800. Through
its banking subsidiary, Floyd offers a broad range of customary banking
services including commercial, mortgage and consumer loans; checking,
savings and time deposit accounts; wire transfers; and rental of safety
deposit boxes.
As of March 31, 1999, Floyd had total consolidated assets of
approximately $93.3 million, total consolidated deposits of
approximately $73.6 million and total consolidated shareholders'
equity of approximately $7.2 million. At December 31, 1999, Floyd and
Floyd Bank had an aggregate of 49 full-time equivalent employees.
Floyd was incorporated on August 14, 1996 as a Georgia
business corporation. On September 26, 1996, Floyd acquired all of
the shares of common stock of Floyd Bank, which was organized as a
Georgia banking corporation in 1967.
COMPETITION
Floyd Bank competes in the Floyd County, Georgia market with
six commercial banks, one savings bank and one credit union. In
addition, Floyd Bank competes with insurance companies and brokerage
firms. As of June 30, 1998, in terms of deposits, Floyd ranked sixth
out of nine depository institutions in Floyd County, with 6.5% of total
county deposits.
VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS
The following lists each shareholder of record that directly
or indirectly owned, controlled or held with power to vote 5% or more
of the 745,400 outstanding shares of Floyd common stock as of June 30,
1999, and the amount of Floyd common stock held by each executive
officer and director of Floyd. Unless otherwise indicated, each
person has sole voting and investment powers over the indicated
shares. Information relating to beneficial ownership of the Floyd
common stock is based upon "beneficial ownership" concepts set forth
in rules issued under the Exchange Act. Under those 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 to
direct the voting of that security, or "investment power," which
includes the power to dispose or to direct the disposition of that
security. Under the rules, more than one person may be deemed to be a
beneficial owner of the same securities.
-38-
<PAGE>
<PAGE>
Number of Shares
Name and Address <F1> Beneficially Owned Percent of Class (%)
--------------------- ------------------ ---------------------
Robert Lamar Angel 7,200 *
A. Parke Avery 48,324 6.0%
F. Lynn Dempsey 2,775 *
W. Danny Harbin 15,372 1.9%
Phylis R. Hill 5,200 <F2> *
Bryan W. Kelley 18,000 <F3> 2.2%
Frank Durham Stegall, Jr. 27,800 3.4%
Ronald J. Wallace 35,000 <F4> 4.3%
Tim Wallis 63,501 7.9%
Charles S. Williams, Jr. 9,035 1.1%
Charles S. Williams, Sr. 76,781 9.5%
Delos Harley Yancey III 29,635 3.7%
All Executive Officers 338,625<F2><F3><F4> 41.9%
and Directors as a Group
(*) Less than one percent.
[FN]
<F1> Unless otherwise indicted, the address of the persons named above is
care of 1st Floyd Bankshares, Inc., 307 East 2nd Avenue, Rome, Georgia
30162-6005.
<F2> Includes options to acquire 1,800 shares.
<F3> Includes options to acquire 11,000 shares.
<F4> Includes options to acquire 22,000 shares.
</FN>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
FORWARD-LOOKING STATEMENTS
This discussion contains forward-looking statements under the
Private Securities Litigation Reform Act of 1995 that involve risks and
uncertainties. Although Floyd believes that the assumptions underlying the
forward-looking statements contained in the discussion are reasonable, any
of the assumptions could be inaccurate, and therefore, no assurance can be
made that any of the forward-looking statements included in this discussion
will be accurate. Factors that could cause actual results to differ from
-39-
<PAGE>
<PAGE>
results discussed in forward-looking statements include, but are not limited
to: economic conditions (both generally and in the markets where Floyd
operates); competition from other providers of financial services offered by
Floyd; government regulation and legislation; changes in interest rates;
material unforeseen changes in the financial stability and liquidity of
Floyd's credit customers; material unforeseen complications related to the
Year 2000 issues for Floyd, its suppliers, customers and governmental
agencies; and other risks, all of which are difficult to predict and which
may be beyond the control of Floyd.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
INCOME STATEMENT REVIEW
Net income was $621,000 in 1998, and increase of 95% from the
$319,000 earned in 1997. Diluted earnings per share were $.88 for 1998,
compared with $.52 reported for 1997, an increase of 69%. Return on
average assets and return on average equity for 1998 were 0.75% and 10.52%,
respectively, compared with 0.60% and 6.66%, respectively, for 1997.
NET INTEREST INCOME
Net interest income, which represents the difference between
interest earned on assets and interest paid on deposits and other
borrowings, is the single largest component of Floyd's operating income.
Net interest income totaled $3.7 million in 1998, compared with $2.5 million
in 1997 and $1.6 million in 1996. The increase in net interest income during
the past two years is primarily attributed to the increase in average
interest earning assets, funded with both new deposits and wholesale
borrowings from the Federal Home Loan Bank (FHLB). The net interest margin,
on a tax-equivalent basis, was 4.93% in 1998, compared with 5.03% in 1997
and 5.27% in 1996. this decline is primarily due to higher borrowing
costs associated with borrowings from the FHLB.
The following table shows, for the past three years, the
relationship between interest income and interest expense and the average
balances of interest earning assets and interest bearing liabilities.
-40-
<PAGE>
<PAGE>
<TABLE>
1st Floyd Bankshares, Inc.
Average Consolidated Balance Sheets and Net Interest Analysis
For the Years Ended December 31
(in thousands)
<CAPTION>
1998 1997 1996
-----------------------------------------------------------------------------------------
Average Interest Avg. Average Interest Avg. Average Interest Avg.
Balance <F1> Rate Balance <F1> Rate Balance <F1> Rate
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Loans, net of unearned income <F2> $56,495 5,924 10.49% 39,694 3,815 9.61% 22,007 2,251 10.23%
Taxable investments 16,152 981 6.07% 8,394 512 6.10% 7,245 433 5.98%
Tax-exempt investments 1,137 71 6.20% - - - -
Federal funds sold and other
interest income 2,140 126 5.89% 1,336 81 6.06% 1,955 105 5.37%
----------------- ----------------- ---------------
Total interest-earning assets/
interest income 75,923 7,102 9.35% 49,424 4,408 8.92% 31,207 2,789 8.94%
----------------- ------------------ ---------------
Non-interest-earning assets:
Allowance for loan losses (710) (550) (310)
Cash and due from banks 3,471 2,120 1,222
Premises and equipment 2,233 1,638 1,823
Other assets 1,392 616 231
------- ------ ------
Total assets $82,309 53,248 34,173
======= ====== ======
Liabilities and Stockholders'
Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Transaction accounts $ 6,475 126 1.95% 4,662 103 2.21% 4,029 98 2.43%
Savings and money market deposits 13,842 535 3.87% 10,058 337 3.35% 7,258 230 3.17%
Certificates of deposit 39,828 2,306 5.79% 25,591 1,469 5.74% 15,085 815 5.40%
----------------- ------------------ ---------------
Total interest-bearing deposits 60,145 2,967 4.93% 40,311 1,909 4.74% 26,372 1,143 4.33%
----------------- ------------------ ---------------
Long-term debt and other borrowings 7,207 395 5.48% 165 13 7.88% - -
----------------- ------------------ ---------------
Total borrowed funds 7,207 395 5.48% 165 13 7.88% - -
----------------- ----------------- ---------------
Total interest-bearing liabilities/
interest expense 67,352 3,362 4.99% 40,476 1,922 4.75% 26,372 1,143 4.33%
Non-interest-bearing liabilities:
Non-interest-bearing deposits 7,675 5,131 3,082
Other liabilities 1,380 2,853 305
------ ------ ------
Total liabilities 76,407 48,460 29,759
------ ------ ------
Stockholders' equity 5,902 4,788 4,414
------ ------ ------
-41-
<PAGE>
<PAGE>
1998 1997 1996
-----------------------------------------------------------------------------------------
Average Interest Avg. Average Interest Avg. Average Interest Avg.
Balance <F1> Rate Balance <F1> Rate Balance <F1> Rate
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total liabilities and
stockholders' equity $82,309 53,248 34,173
======= ====== ======
Net interest-rate spread 4.36% 4.17% 4.61%
Impact of non-interest bearing
sources and other changes in balance
sheet composition 0.57% 0.86% 0.66%
Net interest income/margin on ----- ----- ----
interest-earning assets <F3> 3,740 4.93% 2,486 5.03% 1,646 5.27%
================ ============== ===============
<FN>
<F1> Interest income on tax-exempt securities and loans has been increased by 50% to reflect comparable interest
on taxable securities.
<F2> For computational purposes, includes non-accrual loans.
<F3> Tax equivalent net interest income as a percentage of average earning assets.
</FN>
</TABLE>
-42-
<PAGE>
The following table shows the relative impact on net
interest income of changes in the average outstanding balances
(volume) of interest earning assets and interest bearing liabilities
and the rates earned and paid by Floyd on such assets and liabilities
from 1996 to 1997 and 1997 to 1998. Variances resulting from a
combination of changes in rate and volume are allocated in proportion
to the absolute dollar amounts of the change in each category.
CHANGE IN INTEREST INCOME AND EXPENSE ON A TAX EQUIVALENT BASIS
(in thousands)
<TABLE>
<CAPTION>
1998 Compared to 1997 Increase 1997 Compared to 1996 Increase
(decrease) in interest income and (decrease) in interest income and
expense due to changes in: expense due to changes in:
Volume Rate Total Volume Rate Total
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets
Loans $1,736 373 2,109 1,809 (245) 1,564
Taxable Investments 471 (2) 469 69 10 79
Tax-exempt investments 71 - 71 - - -
Federal funds sold and other
interest income 47 (2) 45 (33) 9 (24)
----------------------------------------------------------------------
Total interest-earning assets 2,325 369 2,694 1,845 (226) 1,619
Interest-bearing liabilities:
Transaction accounts 36 (13) 23 15 (10) 5
Savings deposits 141 57 198 89 18 107
Certificates of deposit 824 13 837 568 86 654
----------------------------------------------------------------------
Total interest-bearing deposits 1,001 57 1,058 672 94 766
Long-term debt and other borrowings 387 (5) 382 13 - 13
----------------------------------------------------------------------
Total borrowed funds 387 (5) 382 13 - 13
----------------------------------------------------------------------
Total interest-bearing liabilities 1,388 52 1,440 685 94 779
----------------------------------------------------------------------
Increase (decrease) in net interest
income $937 317 1,254 1,160 (320) 840
======================================================================
</TABLE>
PROVISION FOR LOAN LOSS
The provision for loan losses in 1998 was $240,000, compared
with $180,000 in 1997 and $154,000 in 1996. As a percentage of
average outstanding loans, the provisions recorded in 1998, 1997 and
1996 were 0.42%, 0.45% and 0.70%, respectively. Net loan charge-offs
as a percentage of average outstanding loans for 1998 were 0.22%,
compared with (0.12)% in 1997 and (0.05)% in 1996.
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<PAGE>
<PAGE>
The provision for loan losses is based on management's
evaluation of inherent risks in the loan portfolio as of the balance
sheet date and is determined in conjunction with an analysis of the adequacy
of the allowance for loan losses. This evaluation includes risks associated
with Year 2000 that are discussed in greater detail below. Management
believes that the allowance for loan losses is adequate as of the
balance sheet date.
NON-INTEREST INCOME
Total non-interest income for 1998 was $418,000, compared
with $220,000 in 1997 and $200,000 in 1996. The primary source of
non-interest income for Floyd is service charges and fees on deposit
accounts. Total service charges on deposit accounts for 1998 were
$274,000, compared with $185,000 in 1997 and $166,000 in 1996. This
revenue growth is attributed to the increased number of deposit
accounts. Other non-interest income for 1998 was $144,000, compared
with $35,000 in 1997 and $34,000 in 1996. The most significant reason
for the increase in other non-interest income during 1998 was the addition
of brokerage services. Non-FDIC insured investment products are sold to
customers by a registered representative employed by the bank through
an affiliation with a third party broker-dealer. Total brokerage
revenue for 1998 was $49,000 on total gross investment product sales
of approximately $1.7 million. Another reason for the increase in
other non-interest income was an increase of $24,000 in the gain on
foreclosed real estate.
NON-INTEREST EXPENSE
Total non-interest expense for 1998 was $2.9 million,
compared with $2.0 million in 1997 and $1.5 million in 1996. The
single largest component of non-interest expense is employee salaries
and benefits, which totaled $1.7 million in 1998, compared with $1.2
million in 1997 and $873,000 in 1996. These increases are attributed
to staff additions made in response to growth, including a new full-
service branch bank opened in July 1998. Occupancy and equipment
expense for 1998 was $381,000, compared with $254,000 in 1997 and
$244,000 in 1996. The increase in 1998 is primarily attributed to
depreciation expense for new furniture and equipment.
The efficiency ratio, which measures a bank's total
operating expenses as a percentage of net interest income (before
provision for loan losses) plus non-interest income, was 69.4% for
1998, compared with 73.4% and 81.1% for 1997 and 1996, respectively.
This improvement in operating efficiency is attributed to the Banks
asset and revenue growth over the past two years exceeding the need to
proportionally increase operating expenses.
INCOME TAXES
Floyd had income tax expense of $402,000 in 1998, compared
with $221,000 in 1997 and $66,000 in 1996. Floyd's effective tax rate
(as a percentage of pre-tax income) for 1998, 1997 and 1996 were
39.3%, 40.9% and 34.0%, respectively.
-44-
<PAGE>
<PAGE>
BALANCE SHEET OVERVIEW
Total assets at December 31, 1998 were $92.8 million,
compared with $63.3 million and $40.7 million at year-end 1997 and
1996, respectively. Average assets for 1998, 1997 and 1996 were $82.3
million, $53.2 million and $34.2 million, respectively. The
significant asset growth experienced by Floyd during the past three
years is attributed to the strong local economy in Floyd County,
Georgia, and the addition of three key executives during the past
two years.
LOANS
Total loans at December 31, 1998 were $61.3 million,
compared with $49.2 million at December 31, 1997 and $27.7 million at
December 31, 1996. Average loans for 1998, 1997 and 1996 were $56.5
million, $39.7 million and $22.0 million, respectively. Loan growth
has been particularly strong in the categories of consumer loans and
non-real estate commercial loans during the past two years.
The following table presents a summary of the loan portfolio
by loan type as of December 31 for 1994 through 1998.
<TABLE>
1st Floyd Bankshares, Inc.
Loan Portfolio
(in thousands)
<CAPTION>
December 31,
1998 1997 1996 1995 1994
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial $19,868 13,800 9,864 3,700 867
Real estate - construction 5,419 4,829 3,620 1,598 152
Real estate - mortgage 20,930 21,927 9,613 5,942 3,730
Consumer 15,077 8,619 4,574 3,163 2,305
--------------------------------------------------------------------------
Total loans $61,294 49,175 27,671 14,403 7,054
==========================================================================
As a percentage of total loans:
Commercial $ 32.5% 28.1% 35.7% 25.6% 12.2%
Real estate - construction 8.8% 9.8% 13.1% 11.1% 2.2%
Real estate - mortgage 34.1% 44.6% 34.7% 41.3% 52.9%
Consumer 24.6% 17.5% 16.5% 22.0% 32.7%
--------------------------------------------------------------------------
Total loans 100.0% 100.0% 100.0% 100.0% 100.0%
==========================================================================
</TABLE>
Substantially all of Floyd's loans are to customers located
in its immediate market area of Floyd County, Georgia. All loans are
underwritten in a prudent manner and structured to minimize Floyd's
exposure to loss. A significant decline in the value of real estate
in Floyd's primary market or a down-turn in the local economy could,
however, result in an increase in the provision for loan losses and
charge-offs.
-45-
<PAGE>
<PAGE>
The following table sets forth the maturity distribution of
real estate construction and commercial loans, including the interest
sensitivity for loans maturing in more than one year, as of December 31,
1998.
<TABLE>
<CAPTION>
1st Floyd Bankshares, Inc.
Loan Portfolio Maturity
(in thousands)
Rate Structure for
Loans Maturing Over One
Maturity Year
------------------------------------------------------------------------------------
One Year One through Over Five Fixed Floating
or less Five Years Years Total Rate Rate
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial $ 6,370 10,756 2,742 19,868 11,341 2,157
Real estate - construction 5,419 - 5,419
----------------------------------------------------------------------------
Total $11,789 10,756 2,742 25,287 11,341 2,157
============================================================================
</TABLE>
ASSET QUALITY
Non-performing loans, which include non-accrual loans and
loans past due over 90 days and still on accrual status, totaled
$98,000 at December 31, 1998, compared with $89,000 at December 31,
1997 and $149,000 at December 31, 1996. At December 31, 1998, the
ratio of non-performing loans to total loans was 0.16%, compared with
0.18% and 0.54% at year-end 1997 and 1996, respectively.
Non-performing assets, which included non-performing loans
and foreclosed real estate, totaled $146,000 at December 31, 1998,
compared with $89,000 and December 31, 1997 and $149,000 at December
31, 1996.
It is Floyd's general policy to place a loan on non-accrual
status when, in the opinion of management, the principal and interest
on a loan is not likely to be repaid in accordance with the loan
terms. When a loan is placed on non-accrual, all accrued but unpaid
interest is reversed against current interest income. Depending on
management's evaluation of the borrowers financial condition and the
loan collateral, interest on a non-accrual loan may be recognized on a
cash basis as payments are received.
-46-
<PAGE>
<PAGE>
The table below presents Floyd's non-performing loans and
assets at December 31 for each of the past five years.
<TABLE>
1st Floyd Bankshares, Inc.
Non-Performing Assets
(in thousands)
<CAPTION>
December 31,
1998 1997 1996 1995 1994
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual loans $ 94 86 8 1 10
Loans past due 90 days or more and still
accruing 4 3 141 111 28
-------------------------------------------------------------------
Total non-performing loans 98 89 149 112 38
Other real estate owned 48 - - - -
-------------------------------------------------------------------
Total non-performing assets $ 146 89 149 112 38
===================================================================
Total non-performing loans as a
percentage of total loans 0.16% 0.18% 0.54% 0.78% 0.54%
Total non-performing assets as a
percentage of total assets 0.16% 0.14% 0.37% 0.42% 0.19%
</TABLE>
At December 31, 1998, there were loans within Floyd's
portfolio that were not classified as non-performing but for which
known information about the borrower's financial condition caused
management to have concerns about the ability of the borrowers to
comply with the repayment terms of the loans. These loans are
identified and monitored through a routine loan review process and are
considered in the determination of the allowance for loan losses.
Based on management's evaluation of current market conditions, loan
collateral and secondary sources of repayment, no significant losses
are anticipated in connection with these loans.
-47-
<PAGE>
<PAGE>
The table below summarizes changes in the allowance for loan
losses for each of the past five years.
<TABLE>
1st Floyd Bankshares, Inc.
Allowance for Loan Losses
(in thousands)
<CAPTION>
Years Ended December 31,
1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance beginning of period $637 411 245 184 197
Provision for loan losses 240 180 154 12 5
Amounts charged-off:
Commercial 22 - - - 30
Real estate - construction - - - - -
Real estate - mortgage 58 - - - -
Consumer 95 33 8 13 21
-------------------------------------------------------------------------
Total loans charged-off 175 33 8 13 51
Recoveries of charged-off loans:
Commercial 16 - - 30 5
Real estate - construction - - - - -
Real estate - mortgage - 72 10 - 12
Consumer 33 7 10 32 16
-------------------------------------------------------------------------
Total recoveries 49 79 20 62 33
-------------------------------------------------------------------------
Net charge-offs 126 (46) (12) (49) 18
-------------------------------------------------------------------------
Balance end of period $ 751 637 411 245 184
=========================================================================
Total loans:
At year-end $ 61,294 49,175 27,671 14,403 7,054
Average 56,495 39,694 22,007 10,729 6,047
As a percentage of average loans:
Net charge-offs 0.22% (0.12)% (0.05)% (0.46)% 0.30%
Provision for loan losses 0.42% 0.45% 0.70% 0.11% 0.08%
Allowance as a percentage of year-end loans 1.23% 1.30% 1.49% 1.70% 2.61%
</TABLE>
SECURITIES
Total securities at December 31, 1998 were $20.3 million,
compared with $10.0 million and $7.3 million at year-end 1997 and
1996, respectively. Average securities for 1998, 1997 and 1996 were
$17.2 million, $8.4 million and $7.2 million, respectively. The
composition and growth in the securities portfolio is reflective of
management's desire to provide balance sheet liquidity while providing
a stable source of interest income that has limited credit risk.
The securities portfolio at year-end 1998 consists of U.S. Government
agency, mortgage-backed and municipal securities.
-48-
<PAGE>
<PAGE>
The following table shows the carrying value of securities,
by security type, as of December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
1ST FLOYD BANKSHARES, INC.
SECURITIES PORTFOLIO
(IN THOUSANDS)
CARRYING VALUE OF SECURITIES
December 31,
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury $ - 497 2,096
U.S. Government agencies 5,874 6,210 4,416
State and political subdivisions 2,099 383 -
Mortgage-backed securities 11,420 2,792 811
Other securities 913 146 -
---------------------------------------------------------------
Total $20,306 10,028 7,323
===============================================================
</TABLE>
The following table shows the expected maturity of the
securities portfolio by maturity date and the average yield based on
amortized cost as of December 31, 1998.
MATURITIES AND YIELDS OF SECURITIES AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
Over One Over Five
Year Years
One Year Through Through Over
or Less Five years Ten Years Ten Years Total
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury $ - - - - -
U.S. Government agencies 3,761 2,113 - - 5,874
State and political subdivisions - 1,015 1,031 53 2,099
Mortgage-backed securities 2,838 6,706 1,849 27 11,420
Other securities 913 - - - 913
--------------------------------------------------------------------------
Total $7,512 9,834 2,880 80 20,306
==========================================================================
Weighted average yield 6.27% 6.14% 6.25% 6.48% 6.21%
Percent of total 37.0% 48.4% 14.2% 0.4% 100.0%
</TABLE>
INTEREST RATE SENSITIVITY MANAGEMENT
Floyd actively manages interest rate sensitivity through its
Asset/Liability Management Committee (ALCO). The primary objectives
of asset/liability management are to ensure that Floyd can meet the
investment return expectations of its shareholders if interest rates
change and to provide adequate liquidity to meet the needs of
customers. Effective interest rate risk management seeks to ensure
that both interest sensitive assets and liabilities respond to changes
in market rates in a manner that provides for a minimal fluctuation of
net interest income, which is the primary source of operating revenue.
-49-
<PAGE>
<PAGE>
Floyd's ALCO utilizes a gap analysis to determine the
overall sensitivity of the balance sheet to changes in market interest
rates. A negative gap (more liabilities than assets repricing within
one year) indicates that the bank's net interest income will fall in a
rising rate environment. A positive gap (more assets repricing than
liabilities within one year) indicates the bank's net interest income
will decline in a falling rate environment.
The following table summarizes the amounts of interest-
earning assets and interest-bearing liabilities outstanding at
December 31, 1998 and the amounts that are expected to mature or
reprice in each of the five time periods shown. The amounts of assets
and liabilities shown are based on contractual terms and maturities.
<PAGE>
<TABLE>
INTEREST RATE GAP SENSITIVITY
(IN THOUSANDS)
<CAPTION>
One Four One Over Five
Through Through Through Years and
Three Twelve Five Non-rate
Immediate Months Months Years Sensitive Total
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest earning assets:
Federal funds sold $ 5,820 - - - - 5,820
Securities - 4,658 1,940 9,820 3,888 20,306
Loans - 13,820 10,060 35,101 2,313 61,294
----------------------------------------------------------------------------
Total interest earning assets $ 5,820 18,478 12,000 44,921 6,201 87.420
Interest bearing liabilities:
Demand deposits - 25,017 - - - 25,017
Savings deposits - - 5,983 - - 5,983
Time deposits 5,720 3,773 22,721 2,936 - 35,150
FHLB advances - - 5,000 5,000 - 10,000
----------------------------------------------------------------------------
Total interest bearing liabilities 5,720 28,790 33,704 7,936 - 76,150
----------------------------------------------------------------------------
Non-interest bearing sources of funds - - - - 9,049 9,049
----------------------------------------------------------------------------
Interest sensitivity gap 100 (10,312) (21,704) 36,985 (2,848) 2,221
----------------------------------------------------------------------------
Cumulative sensitivity gap $100 (10,212) (31,916) 5,069 2,221 -
============================================================================
Percentage of assets repricing 6.66% 21.14% 13.73% 51.38% 7.09% 100.00%
</TABLE>
At December 31, 1998, the one-year gap was a negative
$31.9 million. This indicates that Floyd's net interest income will
decrease in a rising rate environment and increase in a declining rate
environment. This is commonly referred to as being "liability sensitive."
There are significant limitations of gap analysis for determining the
impact of rate changes on a bank's net interest income. For example,
-49-
<PAGE>
<PAGE>
although certain assets and liabilities may have similar maturity or
repricing characteristics, they may react differently to changes in
market rates. In addition, some assets that have adjustable rates may
have contractual terms that limit the frequency and amount of rate
increases.
DEPOSITS AND OTHER BORROWINGS
Total deposits at December 31, 1998 were $75.2 million,
compared with $56.7 million and $35.9 million at year-end 1997 and
1996, respectively. Average deposits for 1998, 1997 and 1996 were
$67.8 million, $45.4 million and $30.3 million, respectively. As a
community-oriented bank, Floyd views core deposits as a primary
source of funding growth in interest earning assets.
The following table sets forth the maturities of time
deposits of $100,000 and greater as of December 31, 1998.
1ST FLOYD BANKSHARES, INC.
MATURITIES OF TIME DEPOSITS OF $100,000 AND GREATER
(IN THOUSANDS)
Three months or less $3,739
Over three months through six months 2,297
Over six months through twelve months 4,665
Over one year 1,147
-------
Total $11,848
=======
Time deposits of $100,000 or more totaled $11.8 million at
December 31, 1998, compared with $8.9 million and $13.4 million at
year-end 1997 and 1996, respectively. Floyd had no brokered deposits
at year-end 1998, 1997 or 1996.
REGULATORY CAPITAL, LIQUIDITY AND DIVIDENDS
Total stockholders' equity at December 31, 1998 was $7.1
million, compared with $5.0 million and $4.7 million at year-end 1997
and 1996, respectively. Total cash dividends of $.10 per share were
paid in 1998, compared with $.10 and $.05 in 1997 and 1996,
respectively. These dividend payout ratios for 1998, 1997 and 1996
were 11%, 19% and 22% of net income, respectively.
During the second quarter of 1998, Floyd completed a
stock offering of 120,000 shares that was offered to all of the
shareholders of Floyd and was substantially sold to existing
shareholders at a price of $13.00 per share. These shares were exempt
from registrtion under the Securities Act of 1933. The net proceeds from
the stock sale were contributed as capital to the Bank in order to
allow for additional asset growth.
Floyd is subject to various regulatory capital requirements
administered by banking regulatory agencies. The minimum ratios to be
considered "well capitalized" as defined by banking regulations are 5%
-51-
<PAGE>
<PAGE>
for leverage ratio, 6% for Tier I capital ratio and 10% for total
risk-based capital ratio. The table below shows Floyd's capital
ratios as of December 31, 1998 and 1997 and the amounts required for
capital adequacy purposes.
<TABLE>
1ST FLOYD BANKSHARES, INC.
REGULATORY CAPITAL
(IN THOUSANDS)
Following are actual regulatory capital amounts and respective ratios
for 1st Floyd as of December 31, 1998 and 1997 <F1>:
<CAPTION>
Leverage Tier I Risk-Based Total Risk-Based
----------------------------------------------------------------------------------
1998 Actual Actual Actual
Amount Ratio Amount Ratio Amount Ratio
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Actual $ 7,060 7.88% 7,060 10.50% 7,831 11.64%
Regulatory minimum 3,585 4.00% 2,690 4.00% 5,381 8.00%
---------------------------------------------------------------------------------
Excess $ 3,475 3.88% 4,370 6.50% 2,450 3.64%
1997
Actual $ 4,937 8.25% 4,937 9.74% 5,530 10.91%
Regulatory minimum 2,393 4.00% 2,027 4.00% 4,054 8.00%
---------------------------------------------------------------------------------
Excess $ 2,544 4.25% 2,910 5.74% 1,476 2.91%
<FN>
<F1> As of December 31, 1998 and 1997, the most recent notification
from the Federal Deposit Insurance Corporation categorized 1st
Floyd Bank as "well capitalized" under the current regulatory
framework for prompt corrective action.
</FN>
</TABLE>
Floyd's liquidity management policy is designed to ensure
that the daily cash flow needs of the Floyd Bank and its customers
(both depositors and borrowers) are met in a cost-effective manner.
Liquidity represents the ability of a bank to convert assets into cash
or to obtain additional funds through borrowings. In the opinion of
Floyd's management, Floyd's liquidity position at December 31, 1998 is
sufficient to meet expected cash flow requirements
Reference should be made to the statements of cash flows
appearing in the consolidated financial statements for a two-year
analysis of the changes in cash (and equivalents) attributed to
operating, investing and financing activities.
IMPACT OF INFLATION AND PRICE CHANGES
Floyd's asset and liabilities, like most financial services
companies, are mostly financial in nature. Unlike industrial firms,
relatively little investment is held in fixed assets or inventory.
Inflation can have a significant impact on asset growth and the
resulting need to increase equity capital at higher than expected
rates in order to maintain required capital ratios.
Management believes the potential impact of inflation on the
Floyd's financial performance is dependent upon how well Floyd reacts
-52-
<PAGE>
<PAGE>
to inflationary pressures. Floyd's asset/liability management policy
and the periodic review of the pricing of Floyd's banking products and
services are both designed to manage the risk of inflation.
YEAR 2000
The use of computer software and imbedded microchips that
rely on a two digit number the define the year may result in
processing problems at January 1, 2000. Similar malfunctions could
occur on several other dates as well, such as September 9, 1999, even
if the date field contains four digits, since the date "9999" may be
misinterpreted by computer programs. In consideration of the
potential impact of Year 2000 problems on Floyd and its customers,
careful planning has been initiated to ensure minimal disruption of
bank operations. Failure to identify and correct potential Year 2000
problems could result in system processing errors and a material
disruption of Floyd's normal banking operations.
Floyd performs most of it data processing in-house using
computer hardware and software purchased from third-party providers.
The software is used to process all main banking applications,
including teller processing, loans, deposits, check processing and
financial accounting. In addition, various ancillary systems and
third-party service providers are used for services such as payroll,
ATM processing, accounts payable, document preparation and mortgage
loan processing. Floyd is also dependent upon non-information
technology equipment that contains imbedded microchips that could
malfunction as a result of Year 2000, including vault doors, telephone
equipment, security equipment and HVAC systems. Failure of utility
services, such as electricity providers, could have a significant
impact on Floyd's operations and, potentially, the overall economy in
Floyd's primary market area.
Other risks associated with Year 2000 include liquidity risk
and credit risk. Liquidity risk is the potential adverse impact to
Floyd's earnings and capital resulting from an inability to raise
sufficient cash to meet obligations as they come due. As a banking
company, these obligations are primarily deposit accounts.
Significant withdrawal activity that could result in a panic situation
could force Floyd to liquidate investments in adverse market
conditions in order to fund deposit withdrawals. Credit risk related
to Year 2000 is generally related to commercial loan customers that
could potentially experience a cash flow shortfall as a result of their
failure to test and remediate their systems for Year 2000.
These loan customers could also experience cash flow difficulty caused
indirectly by one more of their customers or suppliers having a
business interruption related to Year 2000. As of March 31, 1999,
approximately 35% of Floyd's loans were to commercial/industrial
companies. Management believes that the allowance for loan losses at
March 31, 1999 is sufficient to absorb losses inherent in the
portfolio, including losses resulting from the failure of borrowers to
adequately prepare for Year 2000.
All of Floyd's mission-critical systems have been tested and
remediated as necessary in accordance with the timetable established
by the Federal Financial Institutions Examination Council ("FFEIC")
statement entitled "Year 2000 Project Management Awareness" that was
issued in May, 1997. Management has defined "mission critical"
-53-
<PAGE>
<PAGE>
systems as any technology element that, if not able to function
properly, could result in financial liability, loss of revenue and
customer service problems. The FFEIC has, under its bank supervisory
authority, developed a multi-phase examination process to determine if
banks are complying with the provisions of the awareness statement
described above. Floyd intends to comply with all regulatory
requirements established by banking regulatory authorities regarding
Year 2000.
As of December 31, 1998, Floyd has spent approximately
$150,000 on Year 2000 assessment and remediation of systems.
Management expects to spend an additional $20,000 during 1999.
Substantially all of the Year 2000 expenditures were to related to the
purchase and installation of new desktop computers, file servers and
peripheral equipment. This cost of this equipment will be depreciated
over an expected average life of five years.
In accordance with recently issued accounting guidelines on
how Year 2000 cost should be recognized for financial statement
purposes, Floyd intends to recognized as current period expense any
costs associated with the planning and testing for Year 2000. Floyd
expects to fund the costs associated with Year 2000 preparedness out
of its normal operating cash flows. No major technology initiatives
have been postponed as a result of Year 2000 preparation that would
have a material impact on Floyd's financial condition or results of
operations.
A Business Disruption Contingency Plan that will be
implemented in the even of any internal or external system failure
related to Year 2000 has been prepared by Floyd's management. This
plan provides for implementation of alternative processes in the event
that computerized systems cannot function properly. Management is
reviewing and refining the contingency plan on an on-going basis.
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
NET INCOME
Net income for the three months ended March 31, 1999 was
$200,000, compared with $108,000 for the same period in 1998. Diluted
earnings per share for the first quarter of 1999 were $.27, an increase
of $.09, or 50%, compared with the same period in 1998. The return on
average stockholders' equity for the first quarter of 1999 was 11.2%,
compared with 8.6% for the same period in 1998. The return on average
assets for the first three months of 1999 was .87%, compared with .63%
for the first quarter of 1998.
NET INTEREST INCOME
Net interest income for the three months ended March 31,
1999 totaled $1.07 million, an increase of $286,000, or 37%, over the
same period in 1998. This increase was primarily due to the increase
in average interest bearing assets of $20.1 million, or 31%, compared
with the first quarter of 1998. The increase in average interest
bearing assets was funded primarily by growth in average deposits of
$14.2 million and net additional borrowings from the Federal Home Loan
Bank (FHLB) of $5.0 million.
The net interest margin for the first three months of 1999
was 5.04%, an increase of 20 basis points over the same period in
1998. The increase is primarily attributed to improved yields on the
-54-
<PAGE>
<PAGE>
securities portfolio resulting from the purchase of mortgage-backed
securities and decreased funding costs achieved through growth in
money market deposit accounts.
PROVISION FOR LOAN LOSSES
The provision for loan losses for the three months ended
March 31, 1999 was $90,000, an increase of $30,000 over the
comparable 1998 period. This increase is primarily due to growth
in outstanding loans, which increased $4.9 million during the first
quarter, and the result of an increase in net charge-offs of
approximately $47,000. The ratio of allowance for loan losses to
outstanding loans at March 31, 1999 was 1.22%, compared with 1.31% at
March 31, 1998.
NON-INTEREST INCOME
Non-interest income for the first three months of 1999
was $152,000, an increase of $74,000, or 95%, from the same period
in 1998. Service charges on deposit accounts totaled $90,000 for the
first quarter of 1999, an increase of $34,000 over the comparable 1998
period. This increase was primarily attributed to an increase in the
volume and number of deposit accounts during the past year and the
addition of one large corporate account. Other non-interest income
was positively impacted by the addition of brokerage services through
a third-party marketer, which are sold by a registered representative
employed by Floyd. This service was introduced during the first
quarter of 1998 but did not produce any revenue until the second
quarter of 1998. Brokerage revenue for the first quarter of 1999 was
approximately $28,000 on total investment sales of approximately
$842,000.
NON-INTEREST EXPENSE
Total non-interest expense for the three months ended March 31,
1999 was $804,000, an increase of $179,000, or 29%. Employee
salary and benefit expense increased by $96,000 due to the addition of
new staff to handle the growth in loans and deposits experienced
during 1998, staff additions for a new branch bank office opened in
July, 1998, and commission payments related to the brokerage operation
discussed above. Occupancy expense increased by $43,000 compared to
the first quarter of 1998 primarily because of expenses related to the
opening of a new branch banking office and depreciation expense of
computer network and check imaging equipment that was acquired in late
1998.
INCOME TAXES
Income taxes for the first three months of 1999 were
$126,000, compared with $67,000 for the same period in 1998. The
effective tax rate (as a percentage of pre-tax income) for the first
three months of 1999 was 38.7%, compared with 38.3% for the same
period in 1998.
BALANCE SHEET OVERVIEW
Total assets at March 31, 1999 were $93.3 million, an
increase of $476,000 from year-end 1998. Average assets for the first
quarter of 1999 were $92.0 million, compared with $68.9 million for
the same period in 1998.
-55-
<PAGE>
<PAGE>
Total loans at March 31, 1999 were $66.3 million, an
increase of $5.0 million from year-end 1998. The growth in the loan
portfolio is primarily due to the strong local economy, with the
greatest growth coming in the commercial and consumer categories.
Total deposits at March 31, 1999 were $73.6 million,
compared with $75.2 million at December 31, 1998. The decline in
deposits is a result of management's plan to de-emphasize the use of
interest bearing deposits to fund asset growth and to instead utilize
wholesale funding sources, such as FHLB advances.
ASSET QUALITY
Non-performing assets, which include non-accrual loans,
loans past-due 90 days or more and still accruing interest and other
real estate owned, totaled $58,000 at March 31, 1999, compared with
$146,000 and December 31, 1998. Total other real estate owned at
March 31, 1999 was $28,000 and consisted of one multi-family property,
compared with $48,000 at year-end 1999. The decrease in non-performing
loans was principally the result of charge-offs, which on a net basis
totaled $53,000 for the first quarter of 1999.
The allowance for loan losses ("ALL") at March 31, 1999
totaled $809,000 compared with $751,000 at December 31, 1998. The
ratio of allowance for loan losses to outstanding loans at March 31,
1999 was 1.22%, unchanged from year-end 1998. Net charge-offs for the
three months ended March 31, 1999 were $53,000.
Management believes the ALL at March 31, 1999 is sufficient
to absorb credit losses inherent in the loan portfolio. This judgment
is based on the best available information and involves a significant
degree of uncertainty.
REGULATORY CAPITAL AND DIVIDENDS
The leverage, Tier I risk-based and Total risk-based capital
ratios were 7.90%, 9.95% and 11.06%, respectively, as of March 31,
1999. These three capital ratios are all in excess of the regulatory
requirement for "well capitalized" status at March 31, 1999 and
December 31, 1998.
No cash dividends were declared or paid during the first
quarter of 1999.
-56-
<PAGE>
<PAGE>
INFORMATION ABOUT UNITED COMMUNITY BANKS, INC.
DESCRIPTION OF BUSINESS
United was incorporated under the laws of the state of
Georgia in 1987. All of United's activities are currently conducted
through its wholly-owned subsidiaries: United Community Bank, which
was organized as a Georgia banking corporation in 1950; Carolina
Community Bank, which United acquired in 1990; Peoples Bank, which
United acquired in 1992; Towns County Bank, which United also acquired
in 1992; White County Bank, which United acquired in 1995; First
Clayton Bank & Trust, which United acquired in 1997; and the Bank of
Adairsville, which United acquired in March 1999. In addition, United
owns two consumer finance companies: United Family Finance Co. and
United Family Finance Co. of North Carolina.
At March 31, 1999, United had total consolidated assets of
approximately $1.68 billion, total loans of approximately $1.08
billion, total deposits of approximately $1.24 billion and
shareholders' equity of $89.8 million.
RECENT DEVELOPMENTS
ACQUISITION OF BANK OF ADAIRSVILLE. On March 15, 1999,
United acquired Bank of Adairsville for $7.05 million in cash in a
transaction which was accounted for as a purchase. As of March 31,
1999, Adairsville had $35.6 million of total assets, $31.7 million of
total liabilities and $3.9 million of total equity. The assets
included $13.4 million of securities available for sale and $14.1
million of loans, net of allowance for loan losses. Total liabilities
included $31.6 million of deposits, of which $4.5 million were non-
interest bearing demand deposits and $27.1 million were interest
bearing deposits.
ISSUANCE OF TRUST PREFERRED SECURITIES. In July 1998,
United created a Delaware statutory business trust, which issued $21
million of guaranteed preferred beneficial interests ("Capital
Securities") to institutional investors. The Capital Securities
represent guaranteed preferred beneficial interests in $21.7 million
principal amount of junior subordinated deferrable interest debentures
("Subordinated Debentures") issued by United to the business trust.
Holders of Capital Securities are entitled to receive preferential
cumulative cash distributions accumulating from the date of their
original issuance and payable semi-annually. The distribution rate,
distribution payment dates and other payment dates for the Capital
Securities correspond to the interest rate, interest payment dates and
other payment dates for the Subordinated Debentures. For regulatory
purposes, the Capital Securities are treated as Tier I capital of
United. The Subordinated Debentures are the sole assets of the
business trust, and bear interest at 8.125% with a maturity date of
July 15, 2028. United may redeem the Subordinated Debentures, and the
business trust may redeem the Capital Securities, in whole or in part,
on or after July 15, 2008. If the Subordinated Debentures and the
Capital Securities are redeemed in part or in whole prior to January 1,
2008, the redemption price will include a premium ranging from
4.06% in 2008 to .41% in 2017.
-57-
<PAGE>
<PAGE>
PUBLIC STOCK OFFERINGS. In May 1997, United completed a
public offering of 300,000 shares of United common stock, pursuant to
which United raised $6,476,000 in additional capital. United invested
the additional capital in United Community Bank and Carolina Community
Bank.
SALE OF $3,500,000 CONVERTIBLE SUBORDINATED PAYABLE-IN-KIND
DEBENTURES DUE DECEMBER 31, 2006. On December 31, 1996, United
completed a sale of convertible subordinated payable-in-kind
debentures due December 31, 2006 (the "2006 Debentures"). The 2006
Debentures bear interest at the rate of one quarter of one percentage
point over the prime rate per annum as quoted in The Wall Street
Journal, payable on April 1, July 1, October 1, and January 1 of each
year beginning on April 1, 1997, to holders of record at the close of
business on the 15th day of the month immediately preceding the
interest payment date. For additional information on the 2006
Debentures, see "Description of Securities of United."
DESCRIPTION OF SECURITIES
The following is a summary of material provisions of
United's common stock, preferred stock, the 2006 Debentures and the
Trust Preferred Securities:
GENERAL. The authorized capital stock of United consists of
10,000,000 shares of common stock, $1.00 par value per share, and
10,000,000 shares of preferred stock, $1.00 par value per share. As
of March 31, 1999, 7,688,309 shares, including 140,000 shares deemed
outstanding pursuant to the 2006 Debentures and presently exercisable
options to acquire 154,704 shares of United's common stock, were
issued and outstanding, and no shares of preferred stock were issued
and outstanding. At the same date, 2006 Debentures in the principal
amount of $3,500,000 were outstanding.
COMMON STOCK. All voting rights are vested in the holders
of the common stock. Each holder of common stock is entitled to one
vote per share on any issue requiring a vote at any meeting. The
shares do not have cumulative voting rights. All shares of United
common stock are entitled to share equally in any dividends that United's
Board of Directors may declare on United's common stock from sources
legally available for distribution. The determination and declaration
of dividends is within the discretion of United's Board of Directors.
Upon liquidation, holders of United's common stock will be entitled to
receive on a pro rata basis, after payment or provision for payment of all
debts and liabilities of United, all assets of United available for
distribution, in cash or in kind.
The outstanding shares of United common stock are, and the
shares of United common stock to be issued by United in connection
with the merger will be, duly authorized, validly issued, fully paid
and nonassessable.
PREFERRED STOCK. United is authorized to issue 10,000,000
shares of preferred stock, issuable in specified series and having
specified voting, dividend, conversion, liquidation and other rights
and preferences as United's Board of Directors may determine. The
preferred stock could be issued for any lawful corporate purpose
without further action by United shareholders. The issuance of any
-58-
<PAGE>
<PAGE>
preferred stock having conversion rights might have the effect of
diluting the interests of United's other shareholders. In addition,
shares of preferred stock could be issued with certain rights,
privileges and preferences which would deter a tender or exchange
offer or discourage the acquisition of control of United. The Board
of Directors presently has no plans to issue any preferred stock.
DEBENTURES. Debentures in the principal amount of
$3,500,000 which are due on December 31, 2006 are outstanding as of
the date hereof (the "2006 Debentures"). The 2006 Debentures bear
interest at the rate of one quarter of one percentage point over the
prime rate per annum as quoted in THE WALL STREET JOURNAL, payable on
April 1, July 1, October 1, and January 1 of each year commencing on
April 1, 1997, to holders of record at the close of business on the
15th day of the month immediately preceding the interest payment date.
Interest is computed on the basis of the actual number of days elapsed
in a year of 365 or 366 days, as applicable. Interest on the 2006
Debentures is payable, at the option of the Board of Directors of
United, in cash or in an additional debenture with the same terms as
the 2006 Debentures.
The 2006 Debentures may be redeemed, in whole or in part
from time to time on or after January 1, 1998, at the option of United
upon at least 20 days and not more than 60 days notice, at a
redemption price equal to 100% of the principal amount of the
Debentures to be redeemed plus interest accrued and unpaid as of the
date of redemption.
The holder of any 2006 Debentures not called for redemption
will have the right, exercisable at any time up to December 31, 2006,
to convert those Debentures at the principal amount thereof into
shares of United common stock at the conversion price of $25 per
share, subject to adjustment for stock splits and stock dividends.
The 2006 Debentures are unsecured obligations of United and
are subordinate in right of payment to all obligations of United to
its other creditors, except obligations ranking on a parity with or
junior to the 2006 Debentures. The 2006 Debentures were not issued
pursuant to an indenture, and no trustee acts on behalf of
debentureholders.
TRANSFER AGENT AND REGISTRAR. The Transfer Agent and
Registrar for United's common stock and the 2006 Debentures is
SunTrust Bank, Atlanta, 58 Edgewood Avenue, Room 2000, Atlanta,
Georgia 30303.
-59-
<PAGE>
<PAGE>
LEGAL OPINIONS
Kilpatrick Stockton LLP, Suite 2800, 1100 Peachtree Street,
Atlanta, Georgia 30309-4530, counsel to United, will provide an
opinion as to the (a) legality of the United common stock to be issued
in connection with the merger and (b) the income tax consequences of
the merger. As of the date of this proxy statement/prospectus,
members of Kilpatrick Stockton LLP own an aggregate of 2,000 shares of
United common stock.
EXPERTS
The audited consolidated financial statements of United and
its subsidiaries included or incorporated by reference in this proxy
statement/prospectus and elsewhere in the registration statement have
been audited by Porter Keadle Moore LLP, independent certified public
accountants, as indicated in their related audit reports, and are
included on the authority of that firm as experts in giving those
reports.
The audited consolidated financial statements of Floyd
included in this proxy statement/prospectus and elsewhere in the
registration statement have been audited by Read Martin & Slickman,
independent certified public accountants, as indicated in their
related audit reports, and are included on the authority of that firm
as experts in giving those reports.
OTHER MATTERS
Management of Floyd knows of no other matters which may be
brought before the special shareholders' meeting. If any matter other
than the proposed merger or related matters should properly come
before the special meeting, however, the persons named in the enclosed
proxies will vote proxies in accordance with their judgment on those
matters.
Rome, Georgia By Order of the Board of Directors,
August 3, 1999 Kenneth Guice
Secretary
-60-
<PAGE>
<PAGE>
INDEX TO FLOYD FINANCIAL DATA
<TABLE>
<CAPTION>
Page
<S> <C>
Consolidated Balance Sheets as of March 31, 1999 December 31, 1998 (Unaudited) . . . . . . . . . . . . F-2
Consolidated Statements of Income for the Three Months
Ended March 31, 1999 and 1998 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1999 and 1998 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Comprehensive Income for the Three Months
Ended March 31m, 1999 and 1998 (Unaudited). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Earnings Per Share for the Three Months
Ended March 31, 1999 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . F-7
Consolidated Financial Statements for the Years Ended
December 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-8
F-1
<PAGE>
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
1ST FLOYD BANKSHARES, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED BALANCE SHEET
(in thousands, except per share data) March 31, December 31,
1999 1998
---------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 3,447 2,592
Federal funds sold - 5,820
---------- ---------
Cash and cash equilvalents 3,447 8,412
---------- ---------
Securities available for sale 19,675 20,306
Loans, net of unearned income 66,291 61,294
Less: Allowance for loan losses (809) (751)
---------- ---------
Loans, net 65,482 60,543
---------- ---------
Premises and equipment, net 2,749 2,709
Accrued interest receivable 641 687
Other assets 1,282 143
---------- ---------
Total assets $ 93,276 92,800
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 9,831 9,049
Interest bearing demand 7,935 7,906
Savings 20,390 18,851
Time 35,470 39,393
---------- ---------
Total deposits 73,626 75,199
---------- ---------
Accrued expenses and other liabilities 482 515
Federal funds purchased and repurchase agreements 950 -
Federal Home Loan Bank advances 11,000 10,000
---------- ---------
Total liabilities 86,058 85,714
---------- ---------
Stockholders' equity:
Common Stock 720 720
Treasury Stock - (1)
Retained earnings 6,543 6,343
Accumulated other comprehensive income (45) 24
---------- ---------
Total stockholders' equity 7,218 7,086
---------- ---------
Total liabilities and stockholders' equity $ 93,276 92,800
========== =========
Outstanding common shares 720,000 720,000
Book value per common share $ 10.03 9.84
</TABLE>
See notes to consolidated financial statements
F-2
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
1ST FLOYD BANKSHARES, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
For the Three Months
Ended March 31,
(in thousands, except per share data) 1999 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 1,621 1,294
Interest on federal funds sold 31 13
Interest on investment securities:
Tax exempt 28 5
Taxable 237 190
-------- -------
Total interest income 1,917 1,502
-------- -------
INTEREST EXPENSE:
Interest on deposits:
Demand 33 28
Savings 195 108
Time 487 549
Federal funds purchased and FHLB advances 134 35
-------- -------
Total interest expense 849 720
-------- -------
Net interest income 1,068 782
Provision for loan losses 90 60
-------- -------
Net interest income after provision for loan losses 978 722
-------- -------
NONINTEREST INCOME:
Service charges and fees 90 56
Securities gains, net 3 4
Other non-interest income 59 18
-------- -------
Total noninterest income 152 78
-------- -------
NONINTEREST EXPENSE:
Salaries and employee benefits 473 377
Occupancy 133 90
Other noninterest expense 198 158
-------- -------
Total noninterest expense 804 625
-------- -------
Income before income taxes 326 175
Income taxes 126 67
-------- -------
NET INCOME $ 200 108
-------- -------
Basic earnings per share $ 0.28 0.18
Diluted earnings per share $ 0.27 0.18
Average shares outstanding 720 600
Diluted average shares outstanding 737 609
See notes to consolidated financial statements.
F-3
<PAGE>
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
1ST FLOYD BANCSHARES, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months
Ended March 31,
(IN THOUSANDS) 1999 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 200 108
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation, amortization and accretion 89 45
Provision for loan losses 90 60
Gain on sale of investment securities (3) (4)
------- -------
Change in assets and liabilities:
Interest receivable and other assets (1,093) (98)
Accrued expenses and other liabilities 3 152
Net cash (used in) provided by operating activities (714) 263
Cash flows from investing activities:
Proceeds from maturities and calls of securities available for 2,745 800
sale
Purchases of securities available for sale (2,242) (6,442)
Net increase in loans (5,029) (3,742)
Purchase of bank premises and equipment (103) (377)
------- -------
Net cash used in investing (4,629) (9,761)
Cash flows from financing activities:
Net increase in demand and savings deposits 2,350 2,895
Net (decrease) increase in time deposits (3,923) 4,187
Net change in federal funds purchased 950 (410)
Net increase in FHLB advances 1,000 4,000
Proceeds from sale of treasury stock 1 -
------- -------
Net cash provided by financing activities 378 10,672
Net change in cash and cash equivalents (4,965) 1,174
Cash and cash equivalents at beginning of period 8,412 2,554
------- -------
Cash and cash equivalents at end of period $ 3,447 3,728
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 859 748
Income taxes $ 93 68
</TABLE>
F-4
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
1ST FLOYD BANCSHARES, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three Months
Ended March 31,
(in thousands) 1999 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Income $ 200 108
Other comprehensive income, before tax:
Unrealized holding gains (losses) on investment
securities (105) (29)
Less reclassification adjustment for gains (losses)
on securities available for sale 5 6
------- --------
Total other comprehensive income, before tax (100) (23)
------- --------
Income tax expense (benefit) related to other
comprehensive income
Unrealized holding gains (losses) on investment
securities (36) (10)
Less reclassification adjustment for gains (losses)
on securities available for sale 2 2
------- --------
Total income tax expense (benefit) related to other
comprehensive income (34) (8)
------- --------
Total other comprehensive income, net of tax (66) (15)
------- --------
Total comprehensive income $ 134 93
------- --------
F-5
<PAGE>
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
1ST FLOYD BANKSHARES, INC. AND SUBSIDIARY
UNAUDITED STATEMENT OF EARNINGS PER SHARE
For the Three Months Ended
(In thousands, except per share data) 1999 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Basic earnings per share:
Weighted average shares outstanding $ 720 600
Net income 200 108
Basic earnings per share 0.28 0.18
Diluted earnings per share:
Net effect of the assumed exercise of
stock options based on the treasury
stock method using average market 17 9
price for the period
Total weighted average shares and
common stock equivalents outstanding 737 609
Net income, as reported 200 108
Diluted earnings per share $ 0.27 0.18
F-6
<PAGE>
<PAGE>
1st Floyd Bankshares, Inc.
Notes to Consolidated Financial Statements
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The accounting and financial reporting policies of 1st Floyd Bankshares
("Floyd") and its subsidiary conform to generally accepted accounting
principles and general banking industry practices. Floyd's consolidated
financial statements have not been audited and all material intercompany
balances and transactions have been eliminated. A more detailed description
of Floyd's accounting policies is included in the 1998 unaudited consolidated
financial statements.
In management's opinion, all accounting adjustments necessary to accurately
reflect the financial position and results of operations on the accompanying
financial statements have been made. These adjustments are considered normal
and recurring accruals considered necessary for a fair and accurate
presentation. The results for interim periods are not necessarily indicative
of results for the full year or any other interim periods.
F-7
<PAGE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
1st Floyd Bankshares, Inc.
and Subsidiary
Rome, Georgia
We have audited the accompanying consolidated balance sheets
of 1st Floyd Bankshares, Inc. and Subsidiary as of December 31, 1998
and 1997, and the related consolidated statements of income and
comprehensive income, changes in stockholders' equity, and cash flows
for the years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements based
on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the consolidated financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of 1st Floyd Bankshares, Inc. and Subsidiary as of
December 31, 1998 and 1997, and the results of its operations and its
cash flows for the years then ended in conformity with generally
accepted accounting principles.
/s/ Read Martin & Slickman, C.P.A.'s
Rome, Georgia
March 19, 1999
F-8
<PAGE>
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
1st FLOYD BANKSHARES, INC. AND SUBSIDIARY
ROME, GEORGIA
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
ASSETS 1998 1997
<S> <C> <C>
Cash and due from banks $ 2,592,427 $ 2,553,848
Federal funds sold 5,820,000 - -
Securities available-for-sale (Note 2) 19,393,445 9,881,919
Securities held-to-maturity (Note 2) 912,700 146,400
Loans, less allowance for loan losses
Of $750,738 and $636,639, respectively (Note 3) 60,543,715 48,527,713
Premises and equipment, net (Note 4) 2,709,293 1,562,134
Other assets 828,450 653,809
------------ ------------
Total assets $ 92,800,030 $ 63,325,823
============ ============
F-9
<PAGE>
1998 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits: $ 9,049,248 $ 6,616,219
Noninterest-bearing demand 25,017,077 14,931,202
Interest-bearing demand 5,983,176 4,871,502
Savings 11,848,109 8,894,636
Time, $100,000 and over 23,301,638 21,362,572
Other time -- 410,000
Federal funds purchased 10,000,000 1,000,000
Other borrowed funds (Note 5) 514,480 266,309
Accrued interest and other liabilities ------------ -----------
Total liabilities 85,713,728 58,352,440
------------ -----------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY
Common stock, $1 par value; 10,000,000
shares authorized; 720,000 shares issued
and outstanding in 1998 and 1997, respectively 720,000 600,000
Treasury stock (1,300) --
Retained earnings 6,342,641 4,353,619
Net unrealized gain (loss) on available-for-sale
securities, net of tax expense of $12,858
in 1998 and net of tax benefit of $10,181 24,961 19,764
------------ -----------
Total Stockholders' equity 7,086,302 4,973,383
------------ -----------
Total liabilities and stockholders' equity $ 92,800,030 $63,325,823
============ ===========
The Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
F-10
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
1st FLOYD BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Years Ended December 31, 1998 and 1997
1998 1997
<S> <C> <C>
Investment income:
Interest and fees on loans $ 5,924,361 $ 3,814,757
Interest on securities available-for-sale 974,900 507,844
Dividends on securities held-to-maturity 48,726 4,456
Interest on federal funds sold 126,643 80,828
------------ ------------
7,074,630 4,407,885
------------ ------------
Interest expense:
Interest-bearing demand 620,296 390,766
Interest on savings 268,678 175,332
Interest on time deposits - $100,000 or more 683,688 266,890
Interest on other time deposits 1,396,272 1,075,559
Interest on federal funds purchased 5,599 13,166
Interest - other 388,910 192
------------ ------------
3,363,443 1,921,905
------------ ------------
Net interest income 3,711,187 2,485,980
Provision for loan losses 240,000 180,000
------------ ------------
Net interest income after provision for loan losses 3,471,187 2,305,980
------------ ------------
Other income:
Service charges 368,851 211,916
Other operating income 48,862 8,165
------------ ------------
417,713 220,081
------------ ------------
Other expense:
Salaries and employee benefits 1,672,910 1,218,574
Occupancy and equipment expense 381,194 254,147
Other operating expenses 811,679 513,443
------------ ------------
2,865,783 1,986,164
------------ ------------
Income before provision for income taxes 1,023,117 539,897
Provision for income taxes (Note 11) 402,095 220,500
------------ ------------
Net income 621,022 319,397
Other comprehensive income, net of tax
Unrealized gains on available-for-sale securities 5,197 31,579
------------- -------------
Comprehensive income $ 626,219 $ 350,976
============= =============
</TABLE>
The Notes to Consolidated Financial Statements are an integral
part of these statements.
F-11
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
1st FLOYD BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1998 and 1997
Net Unrealized Gain
Treasury Retained (Loss) on Available-
Shares Par Value Stock Earnings For-Sale Securities Total
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 600,000 $ 600,000 $ - - $4,094,222 $ (11,815) $4,682,407
Dividends paid - - - - - - (60,000) - - (60,000)
Net income - - - - - - 319,397 - - 319,397
Net change in unrealized
loss on available-for-sale
securities - - - - - - - - 31,579 31,579
------- --------- ------------ ---------- ----------- ----------
Balance, December 31, 1997 600,000 600,000 - - 4,353,619 19,764 4,973,383
Sale of stock 120,000 120,000 - - 1,440,000 - - 1,560,000
Purchase of treasury stock - - - - (1,300) - - - - (1,300)
Dividends paid - - - - - - (72,000) - - (72,000)
Net income - - - - - - 621,022 - - 621,022
Net change in unrealized
gain on available-for-sale
securities - - - - - - - - 5,197 5,197
------- --------- ------------ ---------- ----------- ----------
Balance, December 31, 1998 720,000 $ 720,000 $ (1,300) $6,342,641 $ 24,961 $7,086,302
</TABLE>
The Notes to Consolidated Financial Statements are an
integral part of these statements.
F-12
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
1st FLOYD BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1998 and 1997
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 621,022 $ 319,397
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 181,427 93,740
Donation of property 21,830 --
Realized (gain) loss on sale of securities (9,848) 4,902
(Gain) loss on sale of property (39,003) (927)
Increase (decrease) in allowance for loan losses 114,099 225,994
(Increase) decrease in other assets (178,936) (177,678)
Increase (decrease) in accrued interest and other
liabilities 245,493 44,142
-------------- -------------
Net cash provided by operating activities 956,084 509,570
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from available-for-sale securities 11,190,861 3,979,496
Purchase of available-for-sale securities (20,864,665) (6,495,319)
Purchase of securities held-to-maturity (766,300) (146,400)
(Increase) decrease in loans (12,130,101) (21,549,054)
Purchase of property and equipment (1,457,117) (173,374)
Proceeds from sale of property and equipment 150,000 395,695
-------------- -------------
Net cash used in investing activities (23,697,322) (23,988,956)
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand deposits, savings accounts,
and certificates of deposits 18,523,117 20,826,750
Increase (decrease) in capital lease obligation -- (3,221)
Increase (decrease) in other borrowed funds 9,000,000 1,000,000
Increase (decrease) in federal funds purchased (410,000) 410,000
Cash dividends paid (72,000) (60,000)
Sale of common stock 1,560,000 --
Purchase of treasury stock (1,300) --
-------------- -------------
Net cash provided by financing activities 28,599,817 22,173,529
-------------- -------------
NET INCREASE (DECREASE) IN CASH, DUE
FROM BANKS AND FEDERAL FUNDS SOLD $ 5,858,579 $ (1,305,857)
CASH, DUE FROM BANKS AND FEDERAL
FUNDS SOLD AT BEGINNING OF YEAR 2,553,848 3,859,705
------------ -----------
CASH, DUE FROM BANKS AND FEDERAL
FUNDS SOLD AT END OF YEAR $ 8,412,427 $ 2,553,848
============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $ 3,322,520 $ 1,832,748
Income taxes $ 208,200 $ 252,557
</TABLE>
The Notes to Consolidated Financial Statements are an integral
part of these statements.
F-13
<PAGE>
<PAGE>
1st FLOYD BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Organization:
1st Floyd Bankshares, Inc. is a one-bank holding company
whose business is presently conducted by its wholly owned
subsidiary, 1st Floyd Bank, Rome, Georgia.
The accounting and reporting policies of the Company and its
subsidiary conform to generally accepted accounting
principles and with general practices within the banking
industry.
Principles of consolidation:
The consolidated financial statements include the accounts of
the Company and its subsidiary. Significant intercompany
transactions and accounts are eliminated in consolidation.
Assets held by the Bank in a fiduciary or agency capacity are
not assets of the Company and are not included in the
consolidated financial statements.
Securities held-to-maturity:
Securities held-to-maturity are those securities which the
Bank has the intent and the ability to hold until maturity.
These securities are stated at cost, adjusted for
amortization of premiums and accretion of discounts. Gains
or losses on disposition are based on the net proceeds and
the adjusted carrying amount of the securities sold, using
the specific identification method.
Securities available-for-sale:
Available-for-sale securities consist of bonds, notes,
debentures, and certain equity securities not classified as
trading securities nor as held-to-maturity securities.
Unrealized holding gains and losses, net of tax, on
available-for-sale securities are reported as a net amount in
a separate component of shareholders' equity until realized.
F-14
<PAGE>
<PAGE>
1st FLOYD BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Securities available-for-sale: (Continued)
Gains and losses on the sale of available-for-sale securities
are determined using the specific identification method.
Declines in the fair value of individual held-to-maturity and
available-for-sale securities below their cost that are other
than temporary will result in write-downs of the individual
securities to their fair value. The related write-downs are
included in earnings as realized losses.
Premiums and discounts are recognized in interest income
using the interest method over the period to maturity.
Loans receivable:
Loans receivable that management has the intent and ability
to hold for the foreseeable future or until maturity or pay-
off are reported at their outstanding principal adjusted for
any charge-offs, the allowance for loan losses, and any
deferred fees or costs on originated loans and unamortized
premiums or discounts on purchased loans.
Discounts and premiums on purchased residential real estate
loans are amortized to income using the interest method over
the remaining period to contractual maturity, adjusted for
anticipated prepayments.
Loan origination fees and certain direct origination costs
are capitalized and recognized as an adjustment of the yield
of the related loan.
The accrual of interest on impaired loans is discontinued
when, in management's opinion, the borrower may be unable to
meet payments as they become due. When interest accrual is
discontinued, all unpaid accrued interest is reversed.
Interest income is subsequently recognized only to the extent
cash payments are received.
F-15
<PAGE>
<PAGE>
1st FLOYD BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Loans receivable: (Continued)
The allowance for loan losses is increased by charges to
income and decreased by charge-offs (net of recoveries).
Management's periodic evaluation of the adequacy of the
allowance is based on the Bank's past loan loss experience,
known and inherent risks in the portfolio, adverse situations
that may affect the borrower's ability to repay, the
estimated value of any underlying collateral, and current
economic conditions.
Premises and equipment:
Land is carried at cost. Building, leasehold improvements,
and furniture, fixtures, and equipment are carried at cost,
less accumulated depreciation and amortization. Buildings
and furniture, fixtures, and equipment are depreciated using
the straight-line and accelerated methods over the estimated
useful lives of the assets.
Foreclosed real estate:
Included in property and equipment is real estate properties
acquired through, or in lieu of, loan foreclosure which are
initially recorded at the lower of cost or fair market value
at the date of foreclosure. Costs relating to improvements
of property are capitalized, whereas costs relating to
holding property are expenses.
Valuations are periodically performed by management, and an
allowance for losses is established by a charge to operations
if the carrying value of a property exceeds its estimated net
realizable value.
Income taxes:
Deferred tax assets and liabilities are reflected at
currently enacted income tax rates applicable to the period
in which the deferred tax assets or liabilities are expected
to be realized or settled. As changes in tax laws or rates
are enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes.
F-16
<PAGE>
<PAGE>
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Cash flows:
For purposes of reporting cash flows, cash includes cash on
hand, amounts due from banks and federal funds sold with an
original maturity of three months or less.
Concentration of credit risk:
The Bank primarily grants installment, commercial and real
estate loans to customers in Floyd County. Although the Bank
has a diversified loan portfolio, a substantial portion of
its debtors' ability to honor their commitments is dependent
upon the Floyd County economy.
Fair values of financial instruments:
The following methods and assumptions were used by the Bank
in estimating fair values of financial instruments as
disclosed herein:
CASH AND SHORT-TERM INSTRUMENTS
The carrying amounts of cash and short term instruments
approximate their fair value.
TRADING SECURITIES
Fair values for trading account securities, which are the
amounts recognized in the consolidated balance sheet, are
based on quoted market prices, where available. If
quoted market prices are not available, fair values are
based on quoted market prices of comparable instruments,
except in the case of certain swaps, where pricing models
are used.
AVAILABLE-FOR-SALE AND HELD-TO-MATURITY SECURITIES
Fair values for securities, excluding restricted equity
securities, are based on quoted market prices. The
carrying values of restricted equity securities
approximate fair values.
F-17
<PAGE>
<PAGE>
1st FLOYD BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Fair values of financial instruments: (Continued)
LOANS RECEIVABLE
For variable-rate loans that reprice frequently and have
no significant change in credit risk, fair values are
based on carrying values. Fair values for certain
mortgage loans, credit-card loans, and other consumer
loans are based on quoted market prices of similar loans
sold in conjunction with securitization transactions,
adjusted for differences in loan characteristics. Fair
values for commercial real estate and commercial loans
are estimated using discounted cash flow analysis, using
interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality.
Fair values for impaired loans are estimated using
discounted cash flow analysis or underlying collateral
values, where applicable.
CUSTOMERS' LIABILITIES ON ACCEPTANCES AND
ACCEPTANCES OUTSTANDING
Customer liabilities on acceptances and acceptances
outstanding approximate their fair market value.
DEPOSIT LIABILITIES
The fair values disclosed for demand deposits are, by
definition, equal to the amount payable on demand at the
reporting date. The carrying amounts of variable-rate,
fixed-term money market accounts and certificates of
deposit approximate their fair values at the reporting
date. Fair values for fixed-rate certificates of deposit
are estimated using a discounted cash flow calculation
that applies interest rates currently being offered on
certificates to a schedule of aggregated expected monthly
maturities on time deposits.
F-18
<PAGE>
<PAGE>
1st FLOYD BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Fair values of financial instruments: (Continued)
SHORT-TERM BORROWINGS
The carrying amounts of federal funds purchased,
borrowings under repurchase agreements, and other short-
term borrowings maturing within 90 days approximate their
fair values. Fair values of other short-term borrowings
are estimated using discounted cash flow analysis based
on the Bank's current incremental borrowing rates for
similar types of borrowing arrangements.
ACCRUED INTEREST
The carrying amounts of accrued interest approximate
their fair values.
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 counterparties' credit standings.
Reclassifications:
Certain reclassifications of 1997 amounts have been made to
conform to those classifications adopted in 1998.
Comprehensive income:
Statement of Financial Accounting Standards No. 130,
REPORTING COMPREHENSIVE INCOME, (SFAS 130), requires that
total comprehensive income be reported in the financial
statements. Total comprehensive income is presented on the
Statement of Income and Comprehensive Income.
F-19
<PAGE>
<PAGE>
1st FLOYD BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 2. INVESTMENT SECURITIES
Debt and equity securities have been classified in the
consolidated statements of financial condition according to
management's intent. The carrying amount of securities and
their approximate fair values December 31 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
Available-for-sale:
December 31, 1998:
U.S. Agencies and Corporations $17,261,253 $ 33,736 $ - - $17,294,989
State and Municipal 2,094,373 4,083 - - 2,098,456
----------- ------------ ----------- -----------
$19,355,626 $ 37,819 $ - - $19,393,445
=========== ============ =========== ===========
December 31, 1997:
U.S. Treasury $ 498,855 $ - - $ 2,290 $ 496,565
U.S. Agencies and Corporations 8,969,751 32,198 - - 9,001,949
State and Municipal 383,368 37 - - 383,405
----------- ------------ ----------- -----------
$ 9,851,974 $ 32,235 $ 2,290 $ 9,881,919
=========== ============ =========== ===========
Held-to-maturity:
December 31, 1998:
FHLB Stock - restricted $ 912,700 $ - - $ - - $ 912,700
=========== ============ =========== ===========
December 31, 1997:
FHLB Stock - restricted $ 146,400 $ - - $ - - $ 146,400
============= ============ =========== ===========
</TABLE>
Gross realized gains and gross realized losses on sale of
available-for-sale securities were $9,848 and $0
respectively, in 1998 and $2,027 and $6,929, respectively in
1997.
F-20
<PAGE>
<PAGE>
1st FLOYD BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 2. INVESTMENT SECURITIES (Continued)
The scheduled maturities of securities available-for-sale at
December 31, 1998 were as follows:
Available-for-sale securities:
Amortized Fair
Cost Value
Due in one year or less $ 1,247,944 $ 1,256,840
Due from one to five years 3,115,522 3,123,409
Due from five to ten years 4,378,155 4,407,607
Due after ten years 10,614,005 10,605,589
------------ ------------
$ 19,355,626 $ 19,393,445
Investment securities with a carrying amount of $12,884,972
at December 31, 1998, and $4,107,322 at December 31, 1997, were
pledged to secure public deposits and for other purposes required or
permitted by law.
NOTE 3. LOANS RECEIVABLE
The components of loans in the consolidated statements of
financial condition as of December 31, are as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Commercial $ 6,266,887 $ 4,991,033
Mortgage 42,061,973 36,786,148
Installment 12,960,036 7,402,976
Other 26,332 22,141
----------- ------------
61,315,228 49,202,298
Net deferred loan fees,
premiums and discounts (20,775) (37,946)
Allowance for loan losses (750,738) (636,639)
------------ -------------
Loans, net $ 60,543,715 $ 48,527,713
============ =============
</TABLE>
F-21
<PAGE>
<PAGE>
1st FLOYD BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 3. LOANS RECEIVABLE (Continued)
Loans on which the accrual of interest has been discontinued
or reduced amounted to $23,760 and $80,075 at December 31,
1998 and 1997, respectively.
Changes in the allowance for loan losses for the years ended
December 31, are as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Balance, beginning of year $ 636,639 $ 410,645
Provision charged to operations 240,000 180,000
Loans charged off (161,483) (34,214)
Recoveries 35,582 80,208
----------- ----------
Balance, end of year $ 750,738 $ 636,639
=========== ==========
</TABLE>
Loans having carrying values of $84,916 were transferred
to foreclosed real estate in 1998.
NOTE 4. PREMISES AND EQUIPMENT
Major classifications of these assets as of December 31, are
summarized as follows:
1998 1997
Land and improvements $ 650,596 $ 416,190
Buildings 1,396,122 907,777
Other real estate 27,541 - -
Furniture, fixtures and equipment 1,046,832 543,604
Automobiles 25,035 25,035
---------- ----------
3,146,126 1,892,606
Accumulated depreciation 436,833 330,472
---------- ----------
$2,709,293 $1,562,134
========== ==========
Depreciation expense amounted to $177,132 in 1998 and $89,803 in
1997.
F-22
<PAGE>
<PAGE>
1st FLOYD BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 5. SHORT-TERM BORROWINGS
Federal funds purchased are generally purchased on a daily
basis. Other borrowed funds consist of term federal funds
purchased and Federal Home Loan Bank advances, secured by
customer loans, and generally mature within one to 180 days
from the transaction date.
NOTE 6. LOANS TO RELATED PARTIES
Loans to related parties include loans made to directors,
executive officers and their associates, as defined.
The aggregate dollar amount of these loans was $2,533,142 and
$2,321,298 at December 31, 1998 and 1997, respectively.
NOTE 7. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Bank makes various
commitments and incurs certain contingent liabilities that are
not presented in the accompanying financial statements. The
commitments and contingent liabilities include various
guarantees, commitments to extend credit, standby letters of
credit, and disparate matters of litigation, which management
believes a settlement, if any, will not have material effect on
the financial condition of the Bank.
NOTE 8. FINANCIAL INSTRUMENTS
The Bank 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 and to reduce its own exposure
to fluctuations in interest rates. These financial instruments
include commitments to extend credit, standby letters of credit
and financial guarantees. Those instruments involve, to
varying degrees, elements of credit and interest-rate risk in
excess of the amount recognized in the consolidated statements
of financial condition. The contract amount of those
instruments reflect the extent of the Bank's involvement in
particular classes of financial instruments.
F-23
<PAGE>
<PAGE>
1st FLOYD BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 8. FINANCIAL INSTRUMENTS (Continued)
The Bank's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument
for commitments to extend credit, standby letters of credit,
and financial guarantees written is represented by the
contractual amount of those instruments. The Bank uses the
same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments.
Unless noted otherwise, the Bank does not require collateral
or other security to support financial instruments with
credit risk.
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 a 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.
Standby letters of credit and financial guarantees written
are conditional commitments issued by the Bank to guarantee
the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private
borrowing arrangements, including commercial paper, bond
financing and similar transactions.
The estimated fair values of the Bank's financial instruments
at December 31, 1998 were as follows:
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
<S> <C> <C>
Financial assets:
Cash and due from banks, interest-bearing
deposits with banks, and federal funds sold $ 8,412,427 $ 8,412,427
Securities available-for-sale 19,393,445 19,393,445
Securities held-to-maturity 912,700 912,700
Loans receivable 61,294,453 61,294,453
Accrued interest receivable 687,112 687,112
Financial liabilities:
Deposit liabilities 75,199,248 75,199,248
Off-balance-sheet assets (liabilities):
Commitments to extend credit 7,170,000 7,170,000
Standby letters of credit 65,548 65,548
</TABLE>
F-24
<PAGE>
<PAGE>
1st FLOYD BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 9. FUNDS AVAILABLE FOR DIVIDENDS
The Subsidiary is restricted under applicable banking laws in
the payment of cash dividends. Such laws generally restrict
cash dividend payments if total paid-in capital and
appropriated retained earnings do not exceed twenty percent
of its capital stock. The Subsidiary met this requirement at
December 31, 1998 and 1997.
NOTE 10. INCOME TAXES
The Holding Company and subsidiary file consolidated income
tax returns on a calendar year basis.
The consolidated provision for income taxes for the years
ended December 31, 1998, and 1997 are as follows:
1998 1997
Current $ 402,095 $ 220,500
Deferred - - - -
----------- ----------
$ 402,095 $ 220,500
=========== ==========
The principal reasons for the difference in the effective tax
rate and the federal statutory rate at December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Expected income tax at federal tax rate $ 211,144 $ 108,595
Increase (decrease) resulting from:
Provision for loan losses not deductible
for income tax purposes 81,600 61,200
Federal income tax expense 136,712 74,970
Depreciation (11,890) (12,865)
Tax-exempt interest (15,909) (146)
Capital loss carryforward (1,502) 1,502
Contributions carryover (11,050) - -
Other, net 12,990 (12,756)
----------- ---------
Current income tax provision $ 402,095 $ 220,500
=========== =========
</TABLE>
F-25
<PAGE>
<PAGE>
1st FLOYD BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 10. INCOME TAXES (Continued)
The following summarizes the source and expected tax
consequences of future taxable deductions or future income,
which comprise the deferred tax asset or the deferred tax
liability. The asset is included in the line item "other
assets" on the balance sheet. The liability is included in
the line item "accrued interest and other liabilities" on the
balance sheet.
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Deferred tax asset (liability):
Difference in recognition of unrealized gain or
loss of investment securities $ (12,859) $ (10,181)
Difference between financial statement and
tax bad debt deduction 193,592 111,992
----------- ----------
180,733 101,811
Less: Reserve for difference between
financial statement and tax bad debt deduction (193,592) (111,992)
----------- ----------
Deferred tax asset (liability) $ (12,859) $ (10,181)
=========== ==========
</TABLE>
NOTE 11. EMPLOYEE BENEFIT PLAN
The Company has a profit sharing plan covering all employees
subject to certain minimum age and service requirements.
Contributions to the plan are at the discretion of the Board
of Directors.
The Company's contributions were $76,000 and $25,000 for
December 31, 1998 and 1997, respectively.
As of January 1, 1998, the Bank amended its profit sharing
plan to include a salary deferral 401(k) plan and allows
employees to defer up to 15% of their salary with partially
matching company contribution.
F-26
<PAGE>
<PAGE>
1st FLOYD BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 12. RETIREMENT AGREEMENT
In August 1997, the Bank entered into a deferred compensation
agreement with the former President and Chief Executive
Officer. Under the terms of the agreement, the Bank will pay
an annual salary of $65,000 through April 24, 1999, pay four
annual payments of $25,000 beginning on April 25, 1999, and
pay for certain insurance coverage until age 65. The
agreement contains a covenant not to compete, covering Floyd
County.
NOTE 13. STOCK OPTIONS
Effective January 1, 1997 and October 1, 1997, the
stockholders approved Inventive Stock Option Plans granting
to key employees options to purchase Bank common stock over a
five year period, at the fair market value at time of grant.
The aggregate number of common shares of the Bank which may
be granted under the plans are 60,000 shares and 35,000
shares, respectively.
Activity regarding stock options is summarized as follows:
Number of
Shares
1998
Options granted:
Beginning of year 79,000
Additional granted 10,000
-------
End of year 89,000
=======
Options exercised:
Beginning of year 0
Additional granted 0
Expired 0
-------
End of year 0
=======
Options outstanding at end of year 89,000
=======
Option prices range from $10 to $13 per share.
F-27
<PAGE>
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made
and entered into as of this 3rd day of June, 1999, by and between
UNITED COMMUNITY BANKS, INC. ("United") and 1ST FLOYD BANKSHARES, INC.
("Floyd"), both Georgia corporations (said corporations are
hereinafter collectively referred to as the "Constituent
Corporations").
R E C I T A L S:
- - - - - - - -
WHEREAS, the authorized capital stock of United consists of
10,000,000 shares of Common Stock, $1.00 par value per share (the
"United Stock"), of which 7,395,605 shares are issued and outstanding;
and
WHEREAS, the authorized capital stock of Floyd consists of
10,000,000 shares of Common Stock, $1.00 par value per share, of which
745,400 shares are issued and outstanding $1 par value per share, none
of which is issued and outstanding ("Floyd Stock"); and
WHEREAS, the respective Boards of Directors of the
Constituent Corporations deem it advisable and in the best interests
of each such corporation and its shareholders that Floyd merge with
United, with United being the surviving corporation; and
WHEREAS, the respective Boards of Directors of the
Constituent Corporations, by resolutions duly adopted, have
unanimously approved and adopted this Agreement, and the Board of
Directors of Floyd, by resolution duly adopted, has directed that this
Agreement be submitted to the shareholders of Floyd for their
approval; and
WHEREAS, United has agreed to issue shares of United Stock
which shareholders of Floyd will be entitled to receive, according to
the terms and conditions contained herein, on or after the Effective
Date (as defined herein) of the merger provided for herein.
NOW, THEREFORE, for and in consideration of the premises and
the mutual agreements herein contained, and other good and valuable
consideration, the receipt and adequacy of which as legally sufficient
consideration are hereby acknowledged, the parties hereto have agreed
and do hereby agree, as follows:
A-1
<PAGE>
<PAGE>
1. MERGER.
------
Pursuant to and with the effects provided in the applicable
provisions of Article 11 of the Georgia Business Corporation Code, as
amended (Chapter 2 of Title 14 of the Official Code of Georgia), Floyd
(hereinafter sometimes referred to as the "Merged Corporation") shall
be merged with and into United (the "Merger"). United shall be the
surviving corporation (the "Surviving Corporation") and shall continue
under the name "United Community Banks, Inc.". On the Effective Date
(as defined herein) of the Merger, the individual existence of the
Merged Corporation shall cease and terminate.
2. ACTIONS TO BE TAKEN.
--------------------
The acts and things required to be done by the Georgia
Business Corporation Code in order to make this Agreement effective,
including the submission of this Agreement to the shareholders of the
Merged Corporation and the filing of the Certificate of Merger
relating hereto in the manner provided in said Code, shall be attended
to and done by the proper officers of the Constituent Corporations
with the assistance of counsel as soon as practicable.
3. EFFECTIVE DATE.
--------------
The Merger shall be effective upon the approval of this
Agreement by the shareholders of the Merged Corporation and the filing
of the Certificate of Merger relating hereto in the manner provided in
the Georgia Business Corporation Code (the "Effective Date").
4. ARTICLES OF INCORPORATION AND BYLAWS OF THE SURVIVING CORPORATION.
------------------------------------------------------------------
(a) The Articles of Incorporation of United, as heretofore
amended, shall on the Effective Date be the Articles of Incorporation
of the Surviving Corporation.
(b) Until altered, amended or repealed, as therein
provided, the Bylaws of United as in effect on the Effective Date
shall be the Bylaws of the Surviving Corporation.
5. MANNER AND BASIS OF CONVERTING SHARES OF CAPITAL STOCK;
-------------------------------------------------------
CAPITAL STRUCTURE OF THE SURVIVING CORPORATION.
- -----------------------------------------------
The manner and basis of converting the shares of capital
stock of each of the Constituent Corporations into shares of the
Surviving Corporation shall be as follows:
(a) Upon the Effective Date each of the shares of Floyd
Stock outstanding on the Effective Date shall be converted into fully
paid and nonassessable shares of United Stock at the rate of 0.8477
shares of United Stock for each outstanding share of Floyd Stock. If
either party should change the number of its outstanding shares as a
result of a stock split, stock dividend, or similar recapitalization
with respect to such shares prior to the Effective Date then the
shares to be issued hereunder to holders of Floyd Stock shall be
proportionately adjusted.
A-2
(b) No scrip or fractional share certificates of United
Stock shall be issued in connection with the Merger and an outstanding
fractional share interest will not entitle the owner thereof to vote,
to receive dividends or to have any of the rights of a shareholder
with respect to such fractional interest. In lieu of any fractional
interest, there shall be paid in cash an amount (computed to the
nearest cent) equal to such fraction multiplied by $37.75.
(c) As soon as practicable after the Effective Date, each
holder as of the Effective Date of any of the shares of Floyd Stock,
upon presentation and surrender of the certificates representing such
shares to United, shall be entitled to receive in exchange therefor a
certificate representing the number of shares of United Stock to which
such shareholder shall be entitled according to the terms of this
Agreement. Until such surrender, each such outstanding certificate
which prior to the Effective Date represented Floyd Stock shall be
deemed for all corporate purposes to evidence ownership of the number
of shares of United Stock into which the same shall have been
converted and the right to receive payment for fractional shares.
(d) Upon the Effective Date, each share of United Stock
issued and outstanding immediately prior to the Effective Date shall
continue unchanged and shall continue to evidence a share of common
stock of the Surviving Corporation.
6. TERMINATION OF SEPARATE EXISTENCE.
---------------------------------
Upon the Effective Date, the separate existence of the
Merged Corporation shall cease and the Surviving Corporation shall
possess all of the rights, privileges, immunities, powers and
franchises, as well of a public nature as of a private nature, of each
of the Constituent Corporations; and all property, real, personal and
mixed, and all debts due on whatever account, and all other choses in
action, and all and every other interest of or belonging to or due to
each of the Constituent Corporations shall be taken and deemed to be
transferred to and vested in the Surviving Corporation without further
act or deed, and the title to any real estate or any interest therein,
vested in either of the Constituent Corporations shall not revert or
be in any way impaired by reason of the Merger. The Surviving
Corporation shall thenceforth be responsible and liable for all the
liabilities, obligations and penalties of each of the Constituent
Corporations; and any claim existing or action or proceeding, civil or
criminal, pending by or against either of said Constituent
Corporations may be prosecuted as if the Merger had not taken place,
or the Surviving Corporation may be substituted in its place, and any
judgment rendered against either of the Constituent Corporations may
thenceforth be enforced against the Surviving Corporation; and neither
the rights of creditors nor any liens upon the property of either of
the Constituent Corporations shall be impaired by the Merger.
A-3
<PAGE>
<PAGE>
7. FURTHER ASSIGNMENTS.
-------------------
If at any time the Surviving Corporation shall consider or
be advised that any further assignments or assurances in law or any
other things are necessary or desirable to vest in said corporation,
according to the terms hereof, the title to any property or rights of
the Merged Corporation, the proper officers and directors of the
Merged Corporation shall and will execute and make all such proper
assignments and assurances and do all things necessary and proper to
vest title in such property or rights in the Surviving Corporation,
and otherwise to carry out the purposes of this Agreement.
8. CONDITIONS PRECEDENT TO CONSUMMATION OF THE MERGER.
---------------------------------------------------
This Agreement is subject to, and consummation of the Merger
is conditioned upon, the fulfillment as of the Effective Date of each
of the following conditions:
(a) Approval of this Agreement by the affirmative vote of
the holders of a majority of the outstanding voting shares of Floyd
Stock; and
(b) All the terms, covenants, agreements, obligations and
conditions of the Agreement and Plan of Reorganization (the
"Acquisition Agreement") of even date herewith by and between Floyd
and United to be complied with, satisfied and performed on or prior to
the Closing Date (as defined therein), shall have been complied with,
satisfied and performed in all material respects unless accomplishment
of such covenants, agreements, obligations and conditions has been
waived by the party benefited thereby.
9. TERMINATION.
------------
This Agreement may be terminated and the Merger abandoned in
accordance with the terms of the Acquisition Agreement, at any time
before or after adoption of this Agreement by the directors of either
of the Constituent Corporations, notwithstanding favorable action on
the Merger by the shareholders of the Merged Corporation, but not
later than the issuance of the certificate of merger by the Secretary
of State of Georgia with respect to the Merger in accordance with the
provisions of the Georgia Business Corporation Code.
10. COUNTERPARTS; TITLE; HEADINGS.
------------------------------
This Agreement may be executed simultaneously in any number
of counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same instrument. The title of this
Agreement and the headings herein set out are for the convenience of
reference only and shall not be deemed a part of this Agreement.
11. AMENDMENTS; ADDITIONAL AGREEMENTS.
---------------------------------
At any time before or after approval and adoption by the
shareholders of Floyd, this Agreement may be modified, amended or
supplemented by additional agreements, articles or certificates as may
A-4
<PAGE>
<PAGE>
be determined in the judgment of the respective Boards of Directors of
the Constituent Corporations to be necessary, desirable or expedient
to further the purposes of this Agreement, to clarify the intention of
the parties, to add to or modify the covenants, terms or conditions
contained herein or to effectuate or facilitate any governmental
approval of the Merger or this Agreement, or otherwise to effectuate
or facilitate the consummation of the transactions contemplated
hereby; provided, however, that no such modification, amendment or
supplement shall reduce to any extent the consideration into which
shares of Floyd Stock shall be converted in the Merger pursuant to
Section 5 hereof.
IN WITNESS WHEREOF, the Constituent Corporations have each
caused this Agreement to be executed on their respective behalfs and
their respective corporate seals to be affixed hereto as of the day
and year first above written.
UNITED COMMUNITY BANKS, INC.
(CORPORATE SEAL)
By: /s/Jimmy Tallent
ATTEST: Jimmy Tallent
President
_______________________________
Secretary
1ST FLOYD BANKSHARES, INC.
(CORPORATE SEAL)
By: /s/Ronald J. Wallace
Ronald J. Wallace
ATTEST: President
______________________________
Secretary
A-5
<PAGE>
<PAGE>
APPENDIX B
Georgia Dissenters' Rights Statutes
14-2-1301. DEFINITIONS.
As used in this article, the term:
(1) "Beneficial shareholder" means the person who is a
beneficial owner of shares held in a voting trust or by a nominee as
the record shareholder.
(2) "Corporate action" means the transaction or other action by
the corporation that creates dissenters' rights under Code Section 14-
2-1302.
(3) "Corporation" means the issuer of shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation
by merger or share exchange of that issuer.
(4) "Dissenter" means a shareholder who is entitled to dissent
from corporate action under Code Section 14-2-1302 and who exercises
that right when and in the manner required by Code Sections 14-2-1320
through 14-2-1327.
(5) "Fair value," with respect to a dissenter's shares, means
the value of the shares immediately before the effectuation of the
corporate action to which the dissenter objects, excluding any
appreciation or depreciation in anticipation of the corporate action.
(6) "Interest" means interest from the effective date of the
corporate action until the date of payment, at a rate that is fair and
equitable under all the circumstances.
(7) "Record shareholder" means the person in whose name shares
are registered in the records of a corporation or the beneficial owner
of shares to the extent of the rights granted by a nominee certificate
on file with a corporation.
(8) "Shareholder" means the record shareholder or the beneficial
shareholder. (Code 1981, Section 14-2-1301, enacted by Ga. L. 1988, p.
1070, Section 1; Ga. L. 1993, p. 1231, Section 16.)
14-2-1302. RIGHT TO DISSENT.
(a) A record shareholder of the corporation is entitled to
dissent from, and obtain payment of the fair value of his shares in
the event of, any of the following corporate actions:
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(1) Consummation of a plan of merger to which the
corporation is a party:
(A) If approval of the shareholders of the corporation
is required for the merger by Code Section 14-2-1103 or 14-
2-1104 or the articles of incorporation and the shareholder
is entitled to vote on the merger; or
(B) If the corporation is a subsidiary that is merged
with its parent under Code Section 14-2-1104;
(2) Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be
acquired, if the shareholder is entitled to vote on the plan;
(3) Consummation of a sale or exchange of all or
substantially all of the property of the corporation if a
shareholder vote is required on the sale or exchange pursuant to
Code Section 14-2-1202, but not including a sale pursuant to
court order or a sale for cash pursuant to a plan by which all or
substantially all of the net proceeds of the sale will be
distributed to the shareholders within one year after the date of
sale;
(4) An amendment of the articles of incorporation that
materially and adversely affects rights in respect of a
dissenter's shares because it:
(A) Alters or abolishes a preferential right of the
shares;
(B) Creates, alters, or abolishes a right in respect
of redemption, including a provision respecting a sinking
fund for the redemption or repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the
holder of the shares to acquire shares or other securities;
(D) Excludes or limits the right of the shares to vote
on any matter, or to cumulate votes, other than a limitation
by dilution through issuance of shares or other securities
with similar voting rights;
(E) Reduces the number of shares owned by the
shareholder to a fraction of a share if the fractional share
so created is to be acquired for cash under Code Section 14-
2-604; or
(F) Cancels, redeems, or repurchases all or part of
the shares of the class; or
(5) Any corporate action taken pursuant to a shareholder
vote to the extent that Article 9 of this chapter, the articles
of incorporation, bylaws, or a resolution of the board of
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directors provides that voting or nonvoting shareholders are
entitled to dissent and obtain payment for their shares.
(b) A shareholder entitled to dissent and obtain payment for his
shares under this article may not challenge the corporate action
creating his entitlement unless the corporate action fails to comply
with procedural requirements of this chapter or the articles of
incorporation or bylaws of the corporation or the vote required to
obtain approval of the corporate action was obtained by fraudulent and
deceptive means, regardless of whether the shareholder has exercised
dissenter's rights.
(c) Notwithstanding any other provision of this article, there
shall be no right of dissent in favor of the holder of shares of any
class or series which, at the record date fixed to determine the
shareholders entitled to receive notice of and to vote at a meeting at
which a plan of merger or share exchange or a sale or exchange of
property or an amendment of the articles of incorporation is to be
acted on, were either listed on a national securities exchange or held
of record by more than 2,000 shareholders, unless:
(1) In the case of a plan of merger or share exchange, the
holders of shares of the class or series are required under the
plan of merger or share exchange to accept for their shares
anything except shares of the surviving corporation or another
publicly held corporation which at the effective date of the
merger or share exchange are either listed on a national
securities exchange or held of record by more than 2,000
shareholders, except for scrip or cash payments in lieu of
fractional shares; or
(2) The articles of incorporation or a resolution of the
board of directors approving the transaction provides otherwise.
(Code 1981, Section 14-2-1302, enacted by Ga. L. 1988, p. 1070, Section 1;
Ga. L. 1989, p. 946, Section 58.)
14-2-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
A record shareholder may assert dissenters' rights as to
fewer than all the shares registered in his name only if he dissents
with respect to all shares beneficially owned by any one beneficial
shareholder and notifies the corporation in writing of the name and
address of each person on whose behalf he asserts dissenters' rights.
The rights of a partial dissenter under this Code section are
determined as if the shares as to which he dissents and his other
shares were registered in the names of different shareholders. (Code
1981, Section 14-2-1303, enacted by Ga. L. 1988, p. 1070, Section 1.)
14-2-1320. Notice of dissenters' rights.
(a) If proposed corporate action creating dissenters' rights
under Code Section 14-2-1302 is submitted to a vote at a shareholders'
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meeting, the meeting notice must state that shareholders are or may be
entitled to assert dissenters' rights under this article and be
accompanied by a copy of this article.
(b) If corporate action creating dissenters' rights under Code
Section 14-2-1302 is taken without a vote of shareholders, the
corporation shall notify in writing all shareholders entitled to
assert dissenters' rights that the action was taken and send them the
dissenters' notice described in Code Section 14-2-1322 no later than
ten days after the corporate action was taken. (Code 1981, Section 14-2-
1320, enacted by Ga. L. 1988, p. 1070, Section 1; Ga. L. 1993, p. 1231,
Section 17.)
14-2-1321. NOTICE OF INTENT TO DEMAND PAYMENT.
(a) If proposed corporate action creating dissenters' rights
under Code Section 14-2-1302 is submitted to a vote at a shareholders'
meeting, a record shareholder who wishes to assert dissenters' rights:
(1) Must deliver to the corporation before the vote is
taken written notice of his intent to demand payment for his
shares if the proposed action is effectuated; and
(2) Must not vote his shares in favor of the proposed
action.
(b) A record shareholder who does not satisfy the requirements
of subsection (a) of this Code section is not entitled to payment for
his shares under this article. (Code 1981, Section 14-2-1321, enacted by
Ga. L. 1988, p. 1070, Section 1.)
14-2-1322. Dissenters' notice.
(a) If proposed corporate action creating dissenters' rights
under Code Section 14-2-1302 is authorized at a shareholders' meeting,
the corporation shall deliver a written dissenters' notice to all
shareholders who satisfied the requirements of Code Section 14-2-1321.
(b) The dissenters' notice must be sent no later than ten days
after the corporate action was taken and must:
(1) State where the payment demand must be sent and where
and when certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment
demand is received;
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(3) Set a date by which the corporation must receive the
payment demand, which date may not be fewer than 30 nor more than
60 days after the date the notice required in subsection (a) of
this Code section is delivered; and
(4) Be accompanied by a copy of this article. (Code 1981,
Section 14-2-1322, enacted by Ga. L. 1988, p. 1070, Section 1.)
14-2-1323. DUTY TO DEMAND PAYMENT.
(a) A record shareholder sent a dissenters' notice described in
Code Section 14-2-1322 must demand payment and deposit his
certificates in accordance with the terms of the notice.
(b) A record shareholder who demands payment and deposits his
shares under subsection (a) of this Code section retains all other
rights of a shareholder until these rights are canceled or modified by
the taking of the proposed corporate action.
(c) A record shareholder who does not demand payment or deposit
his share certificates where required, each by the date set in the
dissenters' notice, is not entitled to payment for his shares under
this article. (Code 1981, Section 14-2-1323, enacted by Ga. L. 1988, p.
1070, Section 1.)
14-2-1324. SHARE RESTRICTIONS.
(a) The corporation may restrict the transfer of uncertificated
shares from the date the demand for their payment is received until
the proposed corporate action is taken or the restrictions released
under Code Section 14-2-1326.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until
these rights are canceled or modified by the taking of the proposed
corporate action. (Code 1981, Section 14-2-1324, enacted by Ga. L. 1988,
p. 1070, Section 1.)
14-2-1325. OFFER OF PAYMENT.
(a) Except as provided in Code Section 14-2-1327, within ten
days of the later of the date the proposed corporate action is taken
or receipt of a payment demand, the corporation shall by notice to
each dissenter who complied with Code Section 14-2-1323 offer to pay
to such dissenter the amount the corporation estimates to be the fair
value of his or her shares, plus accrued interest.
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(b) The offer of payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a
fiscal year ending not more than 16 months before the date of
payment, an income statement for that year, a statement of
changes in shareholders' equity for that year, and the latest
available interim financial statements, if any;
(2) A statement of the corporation's estimate of the fair
value of the shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment
under Code Section 14-2-1327; and
(5) A copy of this article.
(c) If the shareholder accepts the corporation's offer by
written notice to the corporation within 30 days after the
corporation's offer or is deemed to have accepted such offer by
failure to respond within said 30 days, payment for his or her shares
shall be made within 60 days after the making of the offer or the
taking of the proposed corporate action, whichever is later. (Code
1981, Section 14-2-1325, enacted by Ga. L. 1988, p. 1070, Section 1;
Ga. L. 1989, p. 946, Section 59; Ga. L. 1993, p. 1231, Section 18.)
14-2-1326. FAILURE TO TAKE ACTION.
(a) If the corporation does not take the proposed action within
60 days after the date set for demanding payment and depositing share
certificates, the corporation shall return the deposited certificates
and release the transfer restrictions imposed on uncertificated
shares.
(b) If, after returning deposited certificates and releasing
transfer restrictions, the corporation takes the proposed action, it
must send a new dissenters' notice under Code Section 14-2-1322 and
repeat the payment demand procedure. (Code 1981, Section 14-2-1326, enacted
by Ga. L. 1988, p. 1070, Section 1; Ga. L. 1990, p. 257, Section 20.)
14-2-1327. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR
OFFER.
(a) A dissenter may notify the corporation in writing of his own
estimate of the fair value of his shares and amount of interest due,
and demand payment of his estimate of the fair value of his shares and
interest due, if:
(1) The dissenter believes that the amount offered under
Code Section 14-2-1325 is less than the fair value of his shares
or that the interest due is incorrectly calculated; or
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(2) The corporation, having failed to take the proposed
action, does not return the deposited certificates or release the
transfer restrictions imposed on uncertificated shares within 60
days after the date set for demanding payment.
(b) A dissenter waives his or her right to demand payment under
this Code section and is deemed to have accepted the corporation's
offer unless he or she notifies the corporation of his or her demand
in writing under subsection (a) of this Code section within 30 days
after the corporation offered payment for his or her shares, as
provided in Code Section 14-2-1325.
(c) If the corporation does not offer payment within the time
set forth in subsection (a) of Code Section 14-2-1325:
(1) The shareholder may demand the information required
under subsection (b) of Code Section 14-2-1325, and the
corporation shall provide the information to the shareholder
within ten days after receipt of a written demand for the
information; and
(2) The shareholder may at any time, subject to the
limitations period of Code Section 14-2-1332, notify the
corporation of his own estimate of the fair value of his shares
and the amount of interest due and demand payment of his estimate
of the fair value of his shares and interest due. (Code 1981,
Section 14-2-1327, enacted by Ga. L. 1988, p. 1070, Section 1; Ga. L.
1989, p. 946, Section 60; Ga. L. 1990, p. 257, Section 21; Ga. L. 1993,
p. 1231, Section 19.)
14-2-1330. COURT ACTION.
(a) If a demand for payment under Code Section 14-2-1327 remains
unsettled, the corporation shall commence a proceeding within 60 days
after receiving the payment demand and petition the court to determine
the fair value of the shares and accrued interest. If the corporation
does not commence the proceeding within the 60 day period, it shall
pay each dissenter whose demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding, which shall
be a nonjury equitable valuation proceeding, in the superior court of
the county where a corporation's registered office is located. If the
surviving corporation is a foreign corporation without a registered
office in this state, it shall commence the proceeding in the county
in this state where the registered office of the domestic corporation
merged with or whose shares were acquired by the foreign corporation
was located.
(c) The corporation shall make all dissenters, whether or not
residents of this state, whose demands remain unsettled parties to the
proceeding, which shall have the effect of an action quasi in rem
against their shares. The corporation shall serve a copy of the
petition in the proceeding upon each dissenting shareholder who is a
resident of this state in the manner provided by law for the service
of a summons and complaint, and upon each nonresident dissenting
shareholder either by registered or certified mail or by publication,
or in any other manner permitted by law.
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(d) The jurisdiction of the court in which the proceeding is
commenced under subsection (b) of this Code section is plenary and
exclusive. The court may appoint one or more persons as appraisers to
receive evidence and recommend decision on the question of fair value.
The appraisers have the powers described in the order appointing them
or in any amendment to it. Except as otherwise provided in this
chapter, Chapter 11 of Title 9, known as the "Georgia Civil Practice
Act," applies to any proceeding with respect to dissenters' rights
under this chapter.
(e) Each dissenter made a party to the proceeding is entitled to
judgment for the amount which the court finds to be the fair value of
his shares, plus interest to the date of judgment. (Code 1981, Section
14-2-1330, enacted by Ga. L. 1988, p. 1070, Section 1; Ga. L. 1989, p. 946,
Section 61; Ga. L. 1993, p. 1231, Section 20.)
14-2-1331. COURT COSTS AND COUNSEL FEES.
(a) The court in an appraisal proceeding commenced under Code
Section 14-2-1330 shall determine all costs of the proceeding,
including the reasonable compensation and expenses of appraisers
appointed by the court, but not including fees and expenses of
attorneys and experts for the respective parties. The court shall
assess the costs against the corporation, except that the court may
assess the costs against all or some of the dissenters, in amounts the
court finds equitable, to the extent the court finds the dissenters
acted arbitrarily, vexatiously, or not in good faith in demanding
payment under Code Section 14-2-1327.
(b) The court may also assess the fees and expenses of attorneys
and experts for the respective parties, in amounts the court finds
equitable;
(1) Against the corporation and in favor of any or all
dissenters if the court finds the corporation did not
substantially comply with the requirements of Code Sections 14-2-
1320 through 14-2-1327; or
(2) Against either the corporation or a dissenter, in favor
of any other party, if the court finds that the party against
whom the fees and expenses are assessed acted arbitrarily,
vexatiously, or not in good faith with respect to the rights
provided by this article.
(c) If the court finds that the services of attorneys for any
dissenter were of substantial benefit to other dissenters similarly
situated, and that the fees for those services should not be assessed
against the corporation, the court may award to these attorneys
reasonable fees to be paid out of the amounts awarded the dissenters
who were benefited. (Code 1981, Section 14-2-1331, enacted by Ga. L. 1988,
p. 1070, Section 1.)
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14-2-1332. LIMITATION OF ACTIONS.
No action by any dissenter to enforce dissenters' rights
shall be brought more than three years after the corporate action was
taken, regardless of whether notice of the corporate action and of the
right to dissent was given by the corporation in compliance with the
provisions of Code Section 14-2-1320 and Code Section 14-2-1322.
(Code 1981, Section 14-2-1332, enacted by Ga. L. 1988, p. 1070, Section 1.)
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APPENDIX C
Opinion of First Capital Group, L.L.C.
FIRST CAPITAL GROUP, L.L.C.
INVESTMENT BANKERS & FINANCIAL ADVISORS
July 6, 1999
Board of Directors
1st Floyd Bankshares, Inc.
307 East 2nd Street
Rome, Georgia 30162-6005
Members of the Board:
You have requested our opinion as to the fairness, from a financial
point of view, to the holders of the outstanding shares of common
stock of 1st Floyd Bankshares, Inc. ("1st Floyd"), of the
consideration (the "Merger Consideration") to be received by such
holders pursuant to the Agreement and Plan of Reorganization dated as
of June 3, 1999 (the "Reorganization Agreement") and the Agreement and
Plan of Merger dated as of June 3, 1999 (the "Plan of Merger"),
incorporated by reference therein, which provides for the merger
(the "Merger") of 1st Floyd with and into United Community Banks,
Inc. ("United Community"). Pursuant to Section 5(a) of the Plan
of Merger, subject to certain conditions, each shareholder of the
outstanding common stock of 1st Floyd (the "1st Floyd Common Stock")
has a right to receive .8477 shares of the common stock of United
Community (the "United Community Common Stock") for each share of 1st
Floyd Common Stock tendered. The terms and guidelines of the
transaction are more fully set forth in the Reorganization Agreement
and the Plan of Merger.
In connection with our opinion, we have: (i) analyzed certain internal
financial statements and other financial and operating data concerning
1st Floyd prepared by the management of 1st Floyd; (ii) analyzed
certain publicly available financial statements, both audited and
unaudited, and other information of 1st Floyd and United Community,
including those included in 1st Floyd's financial statements for the
period ended December 31, 1998, United Community's Annual Reports for
the three years ended December 31, 1998, United Community's Quarterly
Reports for the periods ended June 30, 1998, September 30, 1998, and
March 31, 1999, and 1st Floyd's financial statements for the quarters
ended June 30, 1998, September 30, 1998, and March 31, 1999; (iii)
analyzed certain financial projections of 1st Floyd prepared by the
management of 1st Floyd; (iv) discussed the past and current
operations and financial condition of 1st Floyd with senior executives
of 1st Floyd; (v) reviewed the reported stock prices and trading
activity for United Community Common Stock; (vi) compared the
financial performance of United Community Common Stock and trading
activity with that of certain other comparable publicly-traded
companies and their securities; (vii) reviewed the financial terms, to
the extent publicly available, of certain comparable precedent
transactions; (viii) reviewed the Reorganization Agreement and the
Plan of Merger; and (ix) performed such other analyses as deemed
appropriate.
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We have assumed and relied upon, without independent verification, the
accuracy and completeness of the information reviewed by us for the
purposes of this opinion. We have not made an independent evaluation
of the assets or liabilities of 1st Floyd, nor have we been furnished
with any such appraisals. With respect to financial forecasts, we
have assumed that they have been reasonably prepared and reflect the
best currently available estimates and judgments or management of 1st
Floyd as to the future financial performance of 1st Floyd. We have
assumed such forecasts and projections will be realized in the amounts
and at the times contemplated thereby. With respect to United
Community, we relied solely upon publicly available data and we did
not conduct discussions with the management of United Community
regarding United Community's financial condition, performance and
prospects. We did not conduct any independent evaluation or appraisal
of the assets, liabilities or business prospects of United Community,
we were not furnished with any evaluations or appraisals, and we did
not review any individual credit files of United Community. We are
not experts in the evaluation of loan portfolios for the purpose of
assessing the adequacy of the allowance for losses with respect
thereto and have assumed that such allowances for each of the
companies are in the aggregate, adequate to cover such losses.
Our opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to us
as of, the date hereof. Events occurring after the date hereof could
materially affect the assumptions used in preparing this opinion.
Our opinion is limited to the fairness, from a financial point of
view, to the holders of 1st Floyd Common Stock of the Merger
Consideration to be received by the holders of the 1st Floyd Common
Stock as stated in the Reorganization Agreement and Plan of Merger and
does not address 1st Floyd's underlying business decision to undertake
the Merger. Moreover, this letter, and the opinion expressed herein,
does not constitute a recommendation to any shareholder as to any
approval of the Merger or the Reorganization Agreement or the Plan of
Merger. It is understood that this letter is for the information of
the Board of Directors of 1st Floyd and may not be used for any other
purpose without our prior written consent, except that this opinion
may be included in its entirety in any filing made by 1st Floyd with
the Securities and Exchange Commission with respect to the Merger.
Based on the foregoing and such other matters we have deemed relevant,
we are of the opinion, as of the date hereof, that the Merger
Consideration is fair, from a financial point of view, to the holders
of 1st Floyd Common Stock.
Respectfully submitted,
/s/ First Capital Group, L.L.C.
FIRST CAPITAL GROUP, L.L.C.
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PROXY
1ST FLOYD BANKSHARES, INC.
Rome, Georgia
THIS PROXY IS SOLICITED BY FLOYD'S BOARD OF DIRECTORS
When this Proxy is properly executed and returned, and not
revoked, the shares of common stock it represents will be voted at the
meeting in accordance with the choice specified below, and if no
choice is specified, it will be voted for approval of the Agreement
and Plan of Merger between United Community Banks, Inc. and 1st Floyd
Bankshares, Inc., dated June 3, 1999.
The undersigned shareholder of 1st Floyd Bankshares, Inc. hereby
appoints Ronald J. Wallace or Tim Wallis, or either of
them, with full power of substitution to each, the proxies of the
undersigned to vote, as designated below, the shares of the
undersigned at the special meeting of shareholders of 1st Floyd
Bankshares, Inc. to be held on August 26, 1999, and at any
adjournments thereof;
(a) PROPOSAL TO APPROVE THE MERGER AGREEMENT, providing for the
merger of Floyd with and into United, pursuant to which each
outstanding share of common stock of Floyd will be converted,
subject to certain terms, conditions, and adjustments as described in
the merger agreement, into .8477 shares of common stock of United, and
instead of the issuance of fractional shares of United, United will
pay cash in an amount equal to the fraction multiplied by $37.75.
FOR / / AGAINST / / ABSTAIN / /
(b) IN ACCORDANCE WITH THEIR BEST JUDGMENT with respect to any
other matters which may properly come before the meeting and any
adjournment thereof.
Please date and sign this Proxy exactly as your name appears below:
Dated:_______________ , 1999
[LABEL] ___________________________
___________________________
NOTE: When signing as attorney, trustee, administrator, executor or
guardian, please give your full title as such. If a corporation,
please sign in full corporate name by President or other authorized
officer. In the case of joint tenants, each joint owner must sign.
