<PAGE> 1
As filed with the Securities and Exchange Commission on June 24, 1996
Registration No. 333-3116
PRELIMINARY COPIES
CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM S-4 AMENDMENT NO. 3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
WESTSIDE FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
GEORGIA 6025 58-2104977
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification
incorporation or Classification No.)
organization Code Number)
1200 BARRETT PARKWAY
KENNESAW, GEORGIA 30144
(770) 499-2265
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
-----------------------------------------
T. KENNERLY CARROLL, JR., ESQ.
GLASS, MCCULLOUGH, SHERRILL & HARROLD
1409 PEACHTREE STREET, N.E.
ATLANTA, GEORGIA 30309
(404) 885-1500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
With copy to:
ROBERT F. COOK, ESQ.
PARKER, JOHNSON, COOK & DUNLEVIE
1275 PEACHTREE STREET, N.E.
SUITE 700
ATLANTA, GEORGIA 30309-3574
(404) 872-7000
----------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: As soon as practicable after the effective date of this
Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==================================================================================================================
Proposed maximum Proposed maximum Amount of
Title of each class of Amount to be offering price aggregate offering registration
securities to be registered registered per unit price** fee
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock 600,000 * $7,800,000 $2,690
=================================================================================================================
</TABLE>
* Not Applicable
** Based on reported sales of Eastside Holding Corporation stock on March
27, 1996 in accordance with Rule 457(f)(2) under the Securities Act of
1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE> 2
WESTSIDE FINANCIAL CORPORATION
CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
<TABLE>
<CAPTION>
Item
Number Caption in Form S-4 Caption in Prospectus
- ------ ------------------- ---------------------
<S> <C> <C>
1 Forepart of Registration Statement and Outside Facing Page of Registration
Front Cover Page of Prospectus Statement; Cross Reference Sheet;
Proxy Statement/Prospectus Cover Page
2 Inside Front and Outside Bank Cover Pages of Table of Contents; Miscellaneous -
Prospectus Available Information
3 Risk Factors, Ratio of Earnings to Fixed Proxy Statement/Prospectus Cover
Charges and Other Information Page; Summary-Risk Factors
4 Terms of the Transaction The Merger; Tax Consequences; Rights
of Shareholders of WFC Stock
5 Pro Forma Financial Information Pro Forma Financial Information
6 Material Contacts with the Company Being The Merger; Management; Executive
Acquired Compensation; Certain Other
Transactions; Interest of Management
in the Transaction
7 Additional Information Required for Reoffering Not Applicable
by Persons and Parties Deemed to be
Underwriters
8 Interests of Named Experts and Counsel The Merger - Opinion of Financial
Advisor; Legal Matters; Accounting
Matters
9 Disclosure of Commission Position on Rights of Shareholders of WFC Stock -
Indemnification for Securities Act Liabilities Indemnification
10 Information with Respect to S-3 Registrants Not Applicable
11 Incorporation of Certain Information by Not Applicable
Reference
12 Information with Respect to S-2 or S-3 Not Applicable
Registrants
13 Incorporation of Certain Information by Not Applicable
Reference
14 Information with Respect to Registrants Other Summary - Businesses, Dividends,
Than S-2 or S-3 Registrants Market for Capital Stock, Comparative
Per Share Information; Ownership of
Stock; Business - WFC, Westside Bank
15 Information with Respect to S-3 Companies Not Applicable
16 Information with Respect to S-2 or S-3 Not Applicable
Companies
17 Information with Respect to Companies Other Summary - Businesses, Dividends,
Than S-2 or S-3 Companies Market for Capital Stock, Comparative
Per Share Information; Ownership of
Stock; Business - EHC, Eastside Bank
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Item
Number Caption in Form S-4 Caption in Prospectus
- ------ ------------------- ---------------------
<S> <C> <C>
18 Information if Proxies, Consents or Cover Page; Summary; Statutory
Authorizations Are to be Solicited Provisions for Dissenting
Shareholders; Management; Executive
Compensation; Certain Other
Transactions; Interest of Management
in the Transaction; Ownership of
Stock
19 Information if Proxies, Consents or Not Applicable
Authorizations Are Not to be Solicited in an
Exchange Offer
</TABLE>
<PAGE> 4
EASTSIDE HOLDING CORPORATION
P. O. BOX 549
SNELLVILLE, GEORGIA 30278
_________________________________________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
_________________________________________
Notice is hereby given that a Special Meeting of shareholders of
Eastside Holding Corporation, a Georgia corporation and registered bank holding
company ("EHC"), will be held on July 16, 1996, at 8:00 a.m., local time, at
The Eastside Bank & Trust Company, 2019 Scenic Highway, Snellville, Georgia
30278, for the following purposes (the "Special Meeting"):
1. To consider and vote upon the Merger Agreement, dated as of
December 21, 1995 (the "Merger Agreement"), a copy of which is annexed
as Appendix A to the accompanying Proxy Statement/Prospectus, between
EHC and Westside Financial Corporation, a Georgia corporation ("WFC"),
whereby EHC will be merged with and into WFC and each share of common
stock of EHC outstanding immediately prior to the effective time of
the Merger, subject to rights of dissent, shall be converted into the
right to receive one (1) share of common stock of WFC, pursuant to and
in accordance with the terms and conditions of the Merger Agreement,
all as more fully described in the accompanying Proxy
Statement/Prospectus; and
2. To consider and act upon such other matters, including, in
particular, adjournment of the Special Meeting to allow further
solicitation of proxies if necessary, as may properly come before the
Special Meeting or any adjournment or adjournments thereof.
Only those persons who were holders of record of the common stock of
EHC at the close of business on May 31, 1996, are entitled to notice of and to
vote at the Special Meeting and any adjournments thereof.
Pursuant to Sections 14-2-1301 et seq. of the Georgia Business
Corporation Code, shareholders of EHC are entitled to dissent from the
transactions contemplated by the Merger Agreement. A copy of the provisions of
the Georgia Business Corporation Code regarding such rights of dissent is
annexed as Appendix C to the accompanying Proxy Statement/Prospectus.
The Special Meeting may be adjourned from time to time without notice
other than announcement at the Special Meeting, or at any adjournment thereof,
and any business for which notice is hereby given may be transacted at any such
adjournment.
A Proxy Statement/Prospectus relating to and a proxy for use in
connection with the Special Meeting are enclosed.
By Order of the Board of Directors
REGGIE D. COX
President and Chief Executive Officer
Snellville, Georgia
June 25, 1996
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE SIGN AND
RETURN THE ENCLOSED PROXY SO THAT EHC MAY BE ASSURED OF THE PRESENCE OF A
QUORUM AT THE SPECIAL MEETING. A SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR
CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
<PAGE> 5
PROXY STATEMENT/PROSPECTUS
PROXY STATEMENT OF
EASTSIDE HOLDING CORPORATION
FOR A SPECIAL MEETING OF ITS SHAREHOLDERS
TO BE HELD JULY 16, 1996
THIS PROXY STATEMENT INCLUDES THE PROSPECTUS OF
WESTSIDE FINANCIAL CORPORATION
RELATING TO 600,000 SHARES OF COMMON STOCK
TO BE ISSUED IN CONNECTION WITH A PROPOSED MERGER OF
EASTSIDE HOLDING CORPORATION INTO WESTSIDE FINANCIAL CORPORATION
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN CONNECTION
WITH THE OFFER MADE HEREBY. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY WESTSIDE
FINANCIAL CORPORATION OR EASTSIDE HOLDING CORPORATION. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN
THE SHARES TO WHICH IT RELATES OR AN OFFER OF ANY KIND TO ANY PERSON IN ANY
JURISDICTION WHERE SUCH AN OFFER WOULD BE UNLAWFUL. NEITHER DELIVERY OF THIS
PROXY STATEMENT/PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE AN IMPLICATION THAT INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. ALL INFORMATION
CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS RELATING TO WESTSIDE FINANCIAL
CORPORATION AND ITS SUBSIDIARIES HAS BEEN SUPPLIED BY WESTSIDE FINANCIAL
CORPORATION AND ALL INFORMATION RELATING TO EASTSIDE HOLDING CORPORATION HAS
BEEN SUPPLIED BY EASTSIDE HOLDING CORPORATION.
THIS PROXY STATEMENT/PROSPECTUS IS FURNISHED IN CONNECTION WITH THE
SOLICITATION OF PROXIES BY THE BOARD OF DIRECTORS OF EASTSIDE HOLDING
CORPORATION FOR USE AT THE SPECIAL MEETING OF SHAREHOLDERS OF EASTSIDE HOLDING
CORPORATION ("SPECIAL MEETING") TO BE HELD ON JULY 16, 1996, AT THE TIMES AND
PLACES SET FORTH IN THE ACCOMPANYING NOTICE OF SPECIAL MEETING, AND AT ANY
ADJOURNMENTS THEREOF. THE PURPOSE OF THE SPECIAL MEETING IS TO CONSIDER AND
VOTE UPON THE PROPOSED MERGER OF EASTSIDE HOLDING CORPORATION INTO WESTSIDE
FINANCIAL CORPORATION IN ACCORDANCE WITH THE MERGER AGREEMENT BETWEEN EASTSIDE
HOLDING CORPORATION AND WESTSIDE FINANCIAL CORPORATION DATED AS OF DECEMBER 21,
1995, A COPY OF WHICH IS ATTACHED TO THIS PROXY STATEMENT/PROSPECTUS AS
APPENDIX A. AS A RESULT OF THE MERGER, EACH OUTSTANDING SHARE OF COMMON STOCK
OF EASTSIDE HOLDING CORPORATION WILL BE CONVERTED INTO AND BECOME ONE SHARE OF
COMMON STOCK OF WESTSIDE FINANCIAL CORPORATION. THE PROXY STATEMENT/PROSPECTUS
IS DATED JUNE 25, 1996, AND IS BEING MAILED TO THE SHAREHOLDERS OF EASTSIDE
HOLDING CORPORATION ON OR ABOUT JUNE 25, 1996. THIS DOCUMENT ALSO SERVES AS A
PROSPECTUS OF WESTSIDE FINANCIAL CORPORATION RELATING TO 600,000 SHARES OF ITS
COMMON STOCK TO BE ISSUED BY WESTSIDE FINANCIAL CORPORATION IN CONNECTION WITH
THE MERGER.
THIS PROXY STATEMENT/PROSPECTUS AND THE ACCOMPANYING FORM OF PROXY ARE
FIRST BEING MAILED TO SHAREHOLDERS OF EASTSIDE HOLDING CORPORATION ON OR ABOUT
June 25, 1996.
THE SECURITIES OF WESTSIDE FINANCIAL CORPORATION OFFERED IN CONNECTION WITH THE
MERGER DESCRIBED IN THIS PROXY STATEMENT/PROSPECTUS HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE> 6
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER
OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS JUNE 25, 1996.
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY 1
Proxy Statement/Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
WFC Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Concentrations of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Inactive Market for WFC Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Proxy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Record Date and Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Votes Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Summary of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Reasons for the Merger; Board Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
EHC Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Opinion of Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Regulatory and Shareholder Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Dissenters' Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Comparative Rights of Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Market for Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Comparative Per Share Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
THE MERGER 12
Parties to the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Terms of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Consideration to EHC Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
WFC Stock Split Effected in the Form of a Stock Dividend . . . . . . . . . . . . . . . . . . . . . . 13
Adjusted Values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
No Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Effect of Merger on EHC Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Reasons For The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
WFC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
EHC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Opinion of Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Surrender of Stock Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Termination, Amendment and Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Resale of WFC Stock Received in the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
i
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<TABLE>
<S> <C>
TAX CONSEQUENCES 23
RIGHTS OF SHAREHOLDERS OF WFC STOCK 24
Comparison of WFC Stock and EHC Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Issuance of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Liquidation Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Antitakeover Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Classification of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Change in Number of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Removal of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Advantages and Disadvantages of Articles 7, 8 and 9 . . . . . . . . . . . . . . . . . . . . . 27
Supermajority Voting on Certain Transactions . . . . . . . . . . . . . . . . . . . . . . . . . 28
Evaluation of an Acquisition Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Amendment of Antitakeover Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
STATUTORY PROVISIONS FOR DISSENTING SHAREHOLDERS 32
MANAGEMENT 33
Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
EXECUTIVE COMPENSATION 36
Cash Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Agreements With Executives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
WFC and Westside Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Eastside Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Director Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
WFC and Westside Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Eastside Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
CERTAIN OTHER TRANSACTIONS 41
INTERESTS OF MANAGEMENT IN THE TRANSACTION 42
OWNERSHIP OF STOCK 42
Principal Holders of WFC Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
WFC Stock Owned by Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Principal Holders of EHC Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
EHC Stock owned by Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
BUSINESS 47
WFC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Westside Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Lending Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
</TABLE>
ii
<PAGE> 9
<TABLE>
<S> <C>
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Real Estate Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Consumer Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Commercial Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Investment Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Asset/Liability Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
EHC 51
Eastside Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Lending Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Real Estate Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Consumer Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Commercial Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Investment Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Asset/Liability Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SUPERVISION AND REGULATION 55
Bank Holding Company Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Capital Guidelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Recent Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
The Riegle-Neal Interstate Banking and Branching Efficiency Act . . . . . . . . . . . . . . . . . . . 58
New Georgia Branch Banking Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Proposed Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
MISCELLANEOUS 61
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Accounting Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
<WESTSIDE FINANCIAL CORPORATION SELECTED FINANCIAL DATA F-1>
WESTSIDE FINANCIAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
WFC Results of First Quarter 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-14
EASTSIDE HOLDING CORPORATION SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-17
EASTSIDE HOLDING CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-18
EHC Results of First Quarter 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-30
PRO FORMA FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-33
</TABLE>
iii
<PAGE> 10
<TABLE>
<S> <C>
WESTSIDE FINANCIAL CORPORATION AND SUBSIDIARY CONSOLIDATED
FINANCIAL REPORT MARCH 31, 1996 (UNAUDITED) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-40
WESTSIDE FINANCIAL CORPORATION CONSOLIDATED FINANCIAL REPORT DECEMBER 31, 1995 . . . . . . . . . . . . . . . . . F-45
WESTSIDE FINANCIAL CORPORATION AUDITOR'S REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-46
EASTSIDE HOLDING CORPORATION AND SUBSIDIARY CONSOLIDATED FINANCIAL REPORT
MARCH 31, 1996 (UNAUDITED) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-75
EASTSIDE HOLDING CORPORATION CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-81
EASTSIDE HOLDING CORPORATION AUDITOR'S REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-82
APPENDIX A - MERGER AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
APPENDIX B - OPINION OF MERCER CAPITAL MANAGEMENT, INC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
APPENDIX C - DISSENTERS' PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1
</TABLE>
iv
<PAGE> 11
AVAILABLE INFORMATION
The Company has filed a Registration Statement under the 1933 Act with
the SEC. This Proxy Statement/Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits thereto.
For further information with respect to the Companies and the Banks and the WFC
Stock offered hereby, reference is made to the Registration Statement including
the exhibits thereto. The Registration Statement can be inspected and copied
at the public reference facilities of the SEC, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549, and at the following regional offices of the
SEC, Seven World Trade Center, Suite 1300, New York, New York 10048; 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and 5757
Wilshire Boulevard, Suite 500 East, Los Angeles, California 90036-3648; and
copies of such materials can be obtained from the public reference section of
the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
v
<PAGE> 12
SUMMARY
The following is a summary of certain important aspects of the merger
(the "Merger") of Eastside Holding Corporation ("EHC") into Westside Financial
Corporation ("WFC") (WFC and EHC are sometimes referred to as "Company" or
"Companies"). The summary is qualified in its entirety by reference to the
more detailed information appearing elsewhere in this Proxy
Statement/Prospectus, including the financial information and the appendices.
Shareholders are urged to review the entire Proxy Statement/Prospectus
carefully.
PROXY STATEMENT/PROSPECTUS
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies by the Board of Directors of EHC for use at the Special
Meeting of Shareholders of EHC ("Special Meeting") to be held on July 16, 1996,
at the times and places set forth in the accompanying Notice of Special
Meeting, and at any adjournments thereof.
The purpose of the Special Meeting is to consider and vote upon the
proposed Merger of EHC into WFC in accordance with the Merger Agreement between
EHC and WFC dated as of December 21, 1995, a copy of which is attached to this
Proxy Statement/Prospectus as Appendix A.
As a result of the Merger, each outstanding share of common stock of
EHC will be converted into and become one share of common stock of WFC.
The Proxy Statement/Prospectus is dated June 25, 1996, and is being
mailed to the shareholders of EHC on or about June 25, 1996.
This document also serves as a Prospectus of WFC relating to 600,000
shares of its common stock (the "WFC Stock"), to be issued by WFC in connection
with the Merger.
BUSINESSES
WFC is a one bank holding company located in Cobb County, Georgia,
which owns all of the outstanding stock of The Westside Bank & Trust Company
("Westside Bank"). EHC is a one bank holding company located in Gwinnett
County, Georgia, which owns all of the outstanding stock of The Eastside Bank &
Trust Company ("Eastside Bank") (Westside Bank and Eastside Bank are sometimes
referred to as "Bank" or "Banks").
Westside Bank and Eastside Bank are commercial banks chartered under
the laws of the State of Georgia. Eastside Bank operates a full-service
commercial banking business in Gwinnett County, and Westside Bank operates a
full- service commercial banking business in Cobb County. At December 31,
1995, the total assets, deposits and shareholders' equity of Westside Bank and
Eastside Bank were as follows (in thousands);
<PAGE> 13
<TABLE>
<CAPTION>
Westside Bank Eastside Bank
<S> <C> <C>
Assets 65,543 55,415
Deposits 57,760 48,744
Equity 7,241 6,210
</TABLE>
WFC SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MOS. ENDED
MARCH 31 For the Year Ended December 31,
-------------- ---------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD:
Total interest income $1,309 $1,104 $5,236 $3,775 $3,085 $2,787 $2,470
Total interest expense 544 431 2,099 1,422 1,308 1,346 1,383
Net interest income 765 673 3,137 2,353 1,777 1,441 1,087
Provision for loan losses 24 18 101 72 84 101 141
Net interest income after 741 655 3,036 2,281 1,693 1,340 946
provision for loan losses
Other operating income 54 67 248 235 244 153 102
Net income (loss) 229 187 971 622 543 303 (95)
Net income (loss) per share 0.39 0.31 1.60 1.02 0.90 0.51 (0.16)
Dividends per share .06(1) 0.15(1) 0.15 0.10 -- -- --
AVERAGE BALANCES:
Loans $40,038 $32,785 $34,613 $29,991 $23,508 $20,145 $15,174
Earning assets 57,453 48,288 59,512 45,005 40,566 32,872 25,506
Total assets 62,392 52,618 64,311 49,926 45,605 37,250 29,143
Non-interest bearing 7,339 5,913 6,977 5,261 4,254 2,871 2,139
deposits
Interest bearing deposits 47,159 39,694 50,026 37,880 35,401 28,827 21,574
Stockholders' equity 7,378 6,737 6,972 6,437 5,798 5,354 5,242
KEY PERFORMANCE RATIOS:
Return on average assets
Return on average equity 1.48% 1.46% 1.51% 1.25% 1.19% 0.81% (0.33)%
Dividend payout ratio 12.52 11.37 13.93 9.66 9.36 5.67 (1.81)
Average equity to 15.3(1) 48.4(1) 9.38 9.80 -- -- --
average assets 11.83 12.80 10.84 12.89 12.71 14.37 17.99
</TABLE>
2
<PAGE> 14
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
AT PERIOD END:
Loans $41,163 $33,287 $38,445 $31,539 $25,606 $22,505 $17,198
Earning assets 56,092 49,117 60,801 45,730 43,847 32,276 28,078
Total assets 60,881 53,677 65,603 51,269 47,726 38,388 32,520
Non-interest bearing 7,838 5,821 8,090 6,752 4,821 3,801 2,390
deposits 24,745
Interest-bearing deposits 45,248 40,741 49,640 37,512 36,537 28,928 5,252
Shareholders' equity 7,444 6,853 7,296 6,687 6,207 5,556
</TABLE>
NOTES TO TABLE
(1) The $0.15 dividend per share paid in the first quarter of 1995 was the
total dividend for 1995. The $0.06 dividend in the first quarter of
1996 is a quarterly dividend.
RISK FACTORS
In addition to the other information contained in this Proxy
Statement/Prospectus the following risk factors should be carefully considered
in evaluating the proposed Merger.
CONCENTRATIONS OF CREDIT
Westside Bank makes commercial, residential and consumer loans to
customers primarily in Cobb County. A substantial portion of Westside Bank's
customers' abilities to honor their contracts is dependent on the business
economy in Cobb County and surrounding areas. A substantial portion of the
Westside Bank's loans are secured by real estate in Cobb County. Accordingly,
the ultimate collectibility of a substantial portion of Westside Bank's loan
portfolio is susceptible to changes in market conditions in Cobb County.
INACTIVE MARKET FOR WFC STOCK
Although J.C. Bradford & Co. and Sterne, Agee & Leach make a market in
WFC Stock and the WFC Stock is regularly quoted in the National Association of
Securities Dealers Automated Quotation ("NASDAQ") system known as the "Bulletin
Board Market," an active market does not exist in WFC Stock. J.C. Bradford &
Co. and Stern, Agree & Leach may discontinue making a market in the WFC Stock at
any time for any reason. No assurance can be given that an active trading
market for WFC Stock will develop, or if it develops, that the trading market
will continue for any period of time thereafter.
PROXY
The accompanying form of proxy is for use at EHC's Special Meeting of
shareholders. A shareholder may use this proxy if he or she is unable to
attend the meeting in person or wishes to have his or her shares voted by proxy
even if the shareholder does attend the meeting. Shareholders who sign proxies
have the right to revoke them at any time
3
<PAGE> 15
before they are voted either by written notice of revocation which is received
at EHC's main office before the meeting or by the Corporate Secretary at the
meeting or by attending the meeting and voting in person. All shares
represented by valid proxies received pursuant to this solicitation and not
revoked before they are exercised will be voted as directed, and where no
direction is given, the shares represented by such proxies will be voted FOR
the Merger. Any shares represented by proxies which are directed to vote
against the Merger shall not be used to vote to postpone the Special Meeting
for the purpose of soliciting more votes. Any shares represented by proxies
which are directed to abstain any proxies indicating a non-vote from brokerage
houses shall be counted for purposes of establishing a quorum for the Special
Meeting, but shall not be voted for or against the Merger. EHC's Board of
Directors is not aware of any other matters which may be presented for action
at the meeting, but if other matters do properly come before the meeting, it is
intended that shares represented by proxies will be voted by the persons named
in the proxies in accordance with their best judgment.
Solicitation of proxies may be made in person or by mail, telephone or
telegraph by directors, officers and regular employees of EHC, who will not be
specially compensated for such solicitations. Brokerage houses, nominees,
fiduciaries and other custodians will be requested to forward solicitation
materials to beneficial owners and to secure their voting instructions, if
necessary, and will be reimbursed for their expenses incurred in sending proxy
materials to beneficial owners. EHC and WFC shall equally bear the cost
associated with solicitation of proxies and other expenses associated with the
Special Meeting.
RECORD DATE AND VOTING RIGHTS
The shareholders of record of EHC at the close of business on May 31,
1996 (the "Record Date") are entitled to notice of and to vote at the meetings
or any adjournments thereof. As of the close of business on the Record Date,
EHC had 10,000,000 shares of common stock ("EHC Stock"), authorized, of which
600,000 shares were issued and outstanding and held of record by 619
shareholders. Each issued and outstanding share of EHC Stock is entitled to
one vote on the matters to be presented at the Special Meeting.
VOTES REQUIRED
The affirmative vote of the holders of a majority of the outstanding
shares of EHC Stock is required to approve the proposed Merger. The presence,
in person or by proxy, of a majority of the outstanding shares of EHC Stock is
necessary to constitute a quorum at the Special Meeting.
4
<PAGE> 16
SUMMARY OF THE MERGER
The following is a summary of certain important aspects of the Merger.
TERMS
The terms of the Merger Agreement provide that each share of EHC Stock
owned by an EHC shareholder will be converted into the right to receive one
share of WFC Stock. EHC shall be merged into WFC. WFC shall be the survivor
continuing under the WFC Articles of Incorporation and Bylaws. The WFC name
shall be changed after the Merger to First Sterling Banks, Inc. As a result of
the Merger, Westside Bank and Eastside Bank shall be wholly-owned subsidiaries
of WFC.
Immediately prior to the time that the Merger is consummated, WFC will
declare a stock split effected in the form of a stock dividend to the WFC
shareholders (the "WFC Stock distribution) so that each WFC shareholder at such
time shall receive for each share of WFC Stock a distribution of the number of
shares of WFC Stock determined by subtracting one from the quotient determined
by dividing the per share WFC Adjusted Value by the per share EHC Adjusted
Value. The reason for the WFC stock split effected in the form of a stock
dividend is to provide that the ratio of stock ownership between the WFC
shareholders and the EHC shareholders after the Merger is consummated shall be
in proportion to the ratio between the WFC Adjusted Value and the EHC Adjusted
Value since the EHC shareholders shall have the right to receive one share of
WFC Stock for each share of EHC Stock. At December 31, 1995, WFC's and EHC's
per share Adjusted Values were $12.40 and $10.28 respectively, yielding a WFC
stock split effected in the form of a stock divident of 0.21 to 1. This means
that 0.21 shares of WFC Stock, subject to further adjustment, would be issued
by WFC as a stock dividend on each of its then outstanding shares. Until the
month-end prior to the effective date of the Merger, each Company's Adjusted
Value can increase or decrease based on its respective earnings or losses (as
defined) and shall decrease by the amount of any cash dividends paid per share
by each respective institution. One of the conditions to the Merger is that
WFC's and EHC's per share Adjusted Values be at least $10.00 and $8.00
respectively. Assuming the per share Adjusted Values are finally determined as
of June 30, 1996 (and the Merger is consummated during July 1996), WFC believes
that its per share Adjusted Value could be approximately $13.10 and EHC
believes that its per share Adjusted Value could be approximately $10.71,
yielding a WFC stock split effected in the form of a stock dividend of 0.22 to
1. In estimating its per share Adjusted Value as of June 30, 1996, EFC added
to its Adjusted Value for December 31, 1995 ($10.28 per share), its earnings
for the months of January through April 1996 of $165,496 ($0.275 per share),
deducted the dividend of $0.06 per share paid on March 15, 1996, and added its
estimated earnings for the months of May and June of $124,000 ($0.21 per
share). In estimating its per share Adjusted Value as of June 30, 1996, WFC
added to its Adjusted Value for December 31, 1995 ($12.40 per share), its
earnings for the months of January through April 1996 of $297,760 ($0.50 3/4
per share), deducted the dividend of $0.06 per share paid on March 15, 1996,
and added its estimated earnings for the months of May and June of $149,398
($0.25 per share). There is no assurance, however, that such Adjusted Values
will in fact be realized. The formula for determining each Company's per share
Adjusted Value was determined by arms'-length negotiations between WFC and EHC.
The estimated adjusted values as of June 30, 1996 include the earnings of EHC
and WFC through the month of April 1996. The earnings of EHC and WFC for the
months of May and June have been estimated in good faith. It is not expected
that the earnings differential between these two companies during these months
shall have a material impact upon the estimated Adjusted Values as shown. If
there is a significant change in the Adjusted Values as estimated thereby
causing a change in the estimated WFC stock split effected in the form of a
stock dividend of .22 to 1, then the shareholders will be informed of such
change prior to their voting on the Merger. In such an event, an additional
mailing would be made to each shareholder informing the shareholder of the
change and allowing the shareholder the opportunity to change his vote on the
Merger if he or she has already voted. See "The Merger -- Terms of the Merger
- -- Adjusted Values."
5
<PAGE> 17
If the Adjusted Values had been finally determined as of December 31,
1995, yielding a WFC stock split effected in the form of a stock dividend of
0.21 to 1, after the proposed Merger the former shareholders of WFC and EHC
would own approximately 709,423 and 600,000, respectively, of the outstanding
WFC Stock.
MANAGEMENT
Upon consummation of the Merger, the Board of Directors of WFC shall
consist of five (5) members as follows: Edward C. Milligan, the President and
Chief Executive Officer and a member of the Board of Westside Bank and member
of the Board of WFC, shall serve as Chairperson of the WFC Board; two directors
from the WFC Board prior to the Merger, P. Harris Hines (chairperson of the
WFC Board prior to the Merger) and Benjamin H. Wofford, shall continue to serve
on the WFC Board; and two directors from the EHC Board prior to the Merger,
Harry L. Hudson, Jr. (chairperson of the EHC Board prior to the Merger) and
John S. Thibadeau, Jr. Mr. Milligan shall also serve as the President and
Chief Executive Officer of WFC after the Merger. Barbara J. Bond, the
Secretary and Treasurer of WFC and Senior Vice President and Secretary of
Westside Bank, shall continue to serve as Secretary and Treasurer of WFC after
the Merger. The Board of Directors and management of each Bank shall initially
continue in such offices following the consummation of the Merger.
REASONS FOR THE MERGER; BOARD RECOMMENDATION
The Boards of Directors of WFC and EHC believe that the combination of
the two Companies as a result of the Merger should reduce duplicative
administration expenses, increase profitability, strengthen management, enhance
the competitive position of the Banks and increase liquidity of WFC Stock and
enhance shareholder value. The earnings of the Companies and the Banks are
adversely impacted by considerable overhead costs, including the costs of
complying with regulatory rules and directives which impact the financial
services industry generally.
The Board of Directors of EHC has unanimously approved the Merger and
unanimously recommends that EHC shareholders vote FOR the Merger.
EHC STOCK OPTIONS
The Merger Agreement contemplates that as of the time of the
consummation of the Merger, all rights with respect to shares of EHC Stock
issuable pursuant to the exercise of stock options ("EHC Options") granted by
EHC under stock option plans of EHC (the "EHC Stock Option Plans"), which are
outstanding at the time of the Merger, whether or not such EHC Options are then
exercisable, will be assumed by WFC in accordance with the terms of the
particular EHC Stock Option Plan under which such EHC Options are evidenced.
From and after the time of the Merger, (i) each EHC Option assumed by WFC
hereunder may be exercised solely for shares of WFC Stock, (ii) the number of
shares of WFC Stock subject to such EHC Option will be equal to the number of
shares of EHC Stock subject to such EHC Option immediately prior to the Merger,
and (iii) the per share exercise price for each such
6
<PAGE> 18
EHC Option shall be the same as the per share exercise price prior to the
Merger. See "The Merger -- Terms of the Merger -- Effect of Merger on EHC
Stock Options."
OPINION OF FINANCIAL ADVISOR
The Board of Directors of EHC engaged Mercer Capital Management, Inc.
("Mercer Capital") to consider the fairness of the Merger, from a financial
point of view, to the shareholders of EHC. Mercer Capital has delivered its
opinion letter dated March 19, 1996 to the Board of Directors of EHC, a copy of
which is attached hereto as Appendix B, stating that, based upon the
information and procedures specified therein, in its opinion the Merger is
fair, from a financial point of view, to the shareholders of EHC. Mercer
Capital was engaged to render the fairness opinion and EHC has paid Mercer
Capital a fee of $8,000 for preparing the fairness opinion regardless of
whether the Merger is consummated. EHC has further agreed to indemnify Mercer
Capital against certain liabilities which may arise in connection with its
engagement.
REGULATORY AND SHAREHOLDER APPROVALS
Consummation of the Merger is subject to approval by the Board of
Governors of the Federal Reserve System ("Federal Reserve") and the Georgia
Department of Banking and Finance ("Georgia Department"). As of the date
hereof, applications for such approvals have been filed and are pending. WFC
and EHC do not anticipate any difficulty in securing the necessary regulatory
approvals. The Merger must also be approved by the affirmative vote of the
holders of a majority of the outstanding shares of EHC Stock. The directors
and executive officers of EHC and their affiliates own 65,483 shares (10.91%)
of the outstanding EHC Stock, and they intend to vote FOR the Merger.
DISSENTERS' PROVISIONS
A shareholder of EHC who opposes the Merger may exercise certain
statutory rights under the Dissenters' Provisions if he or she files a written
objection to the Merger with EHC before EHC's Special Meeting, or at the
meeting, but before the vote on the Merger is taken. Failure to comply with
this and all of the other statutory requirements of the Dissenters' Provisions
will constitute a waiver of the right to dissent. See "Statutory Provisions
for Dissenting Shareholders" and Appendix C.
DIVIDENDS
Westside Bank before its reorganization as a wholly-owned subsidiary
of WFC paid a cash dividend of $0.10 per share to its shareholders in March,
1994. WFC paid a cash dividend of $0.15 per share to its shareholders in
April, 1995. WFC has announced its intention to pay a quarterly dividend and
the Board of Directors of WFC has approved the
7
<PAGE> 19
first quarterly cash dividend of $0.06 per share payable on March 15, 1996, to
shareholders of record on March 1, 1996.
Neither Eastside Bank before its reorganization as a wholly-owned
subsidiary of EHC nor EHC has ever paid a dividend to its shareholders. The
Board of Directors of EHC has approved the payment of its first quarterly cash
dividend of $0.06 per share payable on March 15, 1996 to shareholders of record
on March 1, 1996. Upon consummation of the Merger, the future dividend
policies of WFC will depend upon its earnings, financial condition, applicable
legal restrictions and other factors relevant at the time the Board of
Directors considers dividends. However, it is anticipated that WFC shall
continue paying cash dividends on a quarterly basis after the Merger in such
amounts as determined by the WFC Board of Directors.
TAX CONSEQUENCES
WFC and EHC have received a written opinion from Glass, McCullough,
Sherrill & Harrold stating, among other things, that the federal income tax
consequences to the EHC shareholders, EHC and WFC if the Merger is consummated
will be as follows: (a) no gain or loss will be recognized by an EHC
shareholder on the exchange of his or her EHC Stock for WFC Stock; (b) an EHC
shareholder receiving such cash in exchange for his or her EHC Stock will be
treated as receiving such cash in redemption of his or her EHC Stock; (c) no
gain or loss will be recognized by EHC on the transfer of its assets to WFC and
the assumption by WFC of its liabilities pursuant to the Merger; and (d) no
gain or loss will be recognized by WFC on its receipt of EHC's assets and its
assumption of EHC's liabilities pursuant to the Merger. See "Tax
Consequences."
COMPARATIVE RIGHTS OF SHAREHOLDERS
Both WFC and EHC are incorporated under the laws of the State of
Georgia and are subject to the Georgia Business Corporation Code. Upon
consummation of the Merger, the shareholders of EHC will become shareholders of
WFC and their rights will be governed by the Articles of Incorporation and
Bylaws of WFC. The Articles of Incorporation and Bylaws of both Companies are
substantially identical and there are no material differences between them.
MARKET FOR CAPITAL STOCK
As of March 1, 1996, there were 547 holders of record of WFC Stock.
On August 18, 1995, J. C. Bradford & Co. and Sterne Agee & Leach commenced
making a market in WFC Stock and the WFC Stock was regularly quoted in the
NASDAQ system known as the "Bulletin Board Market."
8
<PAGE> 20
Since January 1, 1996, the management of WFC is aware of
twelve (12) trades for value in WFC Stock aggregating 9,400 shares as follows:
<TABLE>
<CAPTION>
MONTH VOLUME (SHARES) TRADE PRICE ($)
------ --------------- ---------------
High Low
---- ---
<S> <C> <C> <C>
January 1996 1,800 17.00 16.00
February 1996 2,300 17.25 17.25
March 1996 1,400 17.50 17.00
April 1996 2,000 17.50 16.00
May 1996 1,900 18.00 17.00
</TABLE>
During the month immediately prior to the public announcement of the proposed
transaction on November 15, 1995, WFC management is aware of four (4) trades in
WFC Stock aggregating 11,100 shares as follows:
<TABLE>
<CAPTION>
DATE VOLUME (SHARES) TRADE PRICE ($)
---- --------------- ---------------
<S> <C> <C>
November 9, 1995 2,000 17.00
October 19, 1995 500 17.50
October 17, 1995 6,600 17.00
October 16, 1995 2,000 16.00
</TABLE>
As of March 1, 1996, there were 619 holders of record of EHC Stock.
On December 15, 1995, J. C. Bradford & Co. commenced making a market in EHC
Stock and the EHC Stock is regularly quoted in the Bulletin Board Market.
Since January 1, 1996, EHC management is aware of 40 trades of EHC Stock
aggregating 39,600 shares as follows:
<TABLE>
<CAPTION>
MONTH VOLUME (SHARES) TRADE PRICE ($)
----- --------------- ---------------
High Low
---- ---
<S> <C> <C> <C>
January 1996 14,950 13.00 12.00
February 1996 10,060 13.50 12.00
March 1996 14,100 14.50 12.75
April 1996 500 14.50 14.50
</TABLE>
9
<PAGE> 21
During the three months immediately prior to the public announcement
of the proposed Merger on November 15, 1995, EHC management is aware of two (2)
trades in EHC Stock aggregating 6,500 shares as follows:
<TABLE>
<CAPTION>
DATE VOLUME (SHARES) TRADE PRICE ($)
---- --------------- ---------------
<S> <C> <C>
August 9, 1995 500 8.75
August 22, 1995 6,000 9.25
</TABLE>
The following table sets forth the last sales price prior to the
public announcement of the proposed Merger on November 15, 1995, and the EHC
pro forma equivalent of such price assuming a WFC stock split effected in the
form of a stock dividend of 0.21 to 1 immediately prior to the Merger:
<TABLE>
<CAPTION>
WFC STOCK
LAST SALES PRICE
PRIOR TO NOVEMBER EHC STOCK
15, 1995 EQUIVALENT(1)
----------------- ----------
<S> <C>
$17.00 $14.38
</TABLE>
NOTE TO TABLE
(1) Calculated by multiplying WFC Stock's last sales price by 0.846 which
is the effective EHC Stock conversion ratio after giving effect to a
WFC stock split effected in the form of a stock dividend of 0.21 to 1.
The following table sets forth the high and low bid information from
J.C. Bradford & Co. for WFC Stock and EHC Stock for the last fiscal quarter in
1995, and the first fiscal quarter in 1996:
<TABLE>
<CAPTION>
WFC STOCK EHC STOCK
--------- ---------
BID ($) BID ($)
------- -------
HIGH LOW HIGH LOW
---- --- ---- ----
<S> <C> <C> <C> <C>
Quarter ended 12/31/95 16 16 12.50 12.50
Quarter ended 03/31/96 16 16 14.00 12.50
</TABLE>
The above are over-the-counter market quotations which reflect interdealer
prices without retail mark-up, mark-down or commissions and may not represent
actual transactions.
If the Merger is consummated, WFC believes that a somewhat more active
market may develop for WFC Stock than currently exists for either WFC Stock or
EHC Stock.
10
<PAGE> 22
COMPARATIVE PER SHARE INFORMATION
The following table presents certain historical and pro forma per share
data of WFC and certain historical and equivalent share data of EHC. The WFC
pro forma data assumes that the Merger was consummated at the beginning of the
period presented and for the years ended December 31, 1995, 1994 and 1993,
reflects a proposed WFC stock split effected in the form of a stock dividend of
123,123 shares based on the Adjusted Values at December 31, 1995, $12.40 for
WFC and $10.28 for EHC. For the three months ended March 31, 1996, the pro
forma data reflects a proposed WFC stock split effected in the form of a stock
dividend of 128,986 shares (0.22 to 1) based on the Adjusted Values at March
31, 1996 of $12.73 for WFC and $10.45 for EHC. EHC equivalent share data
reflects the amount an EHCshareholder would have received had the shareholder
been a shareholder of WFC. EHC equivalent share data was determined by
multiplying the pro forma data for WFC by the ratio of 1.0, which represents
EHC Stock exchange ratio. See "Pro Forma Financial Information."
<TABLE>
<CAPTION>
FOR THE 3 MONTHS
ENDED MARCH 31, FOR THE YEAR ENDED DECEMBER 31
1996 1995 1994 1993
<S> <C> <C> <C> <C>
Net income (loss) per common share:
WFC, historical $ 0.39 $ 1.60 $ 1.02 $ 0.90
WFC, pro forma after the Merger $ 0.28 1.23 0.92 0.65
EHC, historical $ 0.23 1.06 0.97 0.52
EHC, equivalent share $ 0.28 1.23 0.92 0.65
Dividends declared per common share:
WFC, historical $ 0.06 0.15 0.10 0.00
WFC, pro forma after Merger $ 0.05 0.07 0.05 0.00
EHC, historical $ 0.06 0.00 0 .00 0.00
EHC, equivalent share $ 0.05 0.07 0.05 0.00
Book value per common share (end of period):
WFC, historical $12.70 $12.44 -- --
WFC, pro forma after Merger $10.51 10.38 -- --
EHC, historical $10.63 10.49 -- --
EHC, equivalent share $10.51 10.38 -- --
</TABLE>
If the WFC Adjusted Value increases more than the increase in the EHC
Adjusted Value from the values at December 31, 1995, then the WFC stock split
effected in the form of a stock dividend shall be larger and the WFC pro forma
data and the EHC equivalent share data after the Merger shall be smaller. If
the WFC Adjusted Value does not increase more than the increase in the EHC
Adjusted Value at December 31, 1995, then the WFC stock split effected in the
form of a stock dividend shall be smaller and the WFC pro forma data and the
EHC equivalent share data after the Merger shall be larger. If the Adjusted
Values as finally determined on June 30, 1996 are $13.10 for WFC and $10.71 for
EHC (as each Company believes could be its Adjusted Value), then the WFC stock
split effected in the form of a stock dividend
11
<PAGE> 23
would be 0.22 to 1 resulting in an increase in the WFC stock split effected in
the form of a stock dividend of 5,863 shares and a decrease in the WFC pro
forma and the EHC equivalent share information in regard to net income and book
value in the above table for the years ended 1995, 1994 and 1993, of $0.05. In
such case, the December 31, 1995 net income per share for WFC pro forma, after
the Merger and the EHC equivalent share would be $1.14 and the book value per
share for the WFC pro forma after the Merger and the EHC equivalent share would
be $10.33. There would be no change in the dividends per share for the year
ended December 31, 1995, in the WFC pro forma and the EHC equivalent share from
that shown in the table.
THE MERGER
Reference is made to the copy of the Merger Agreement set forth in
full as Appendix A to this Proxy Statement/Prospectus for a complete statement
of the terms of the Merger. The statements contained herein with respect to
the Merger Agreement are qualified in their entirety by the foregoing
reference.
PARTIES TO THE MERGER
The parties to the Merger are WFC and EHC. WFC is a Georgia
corporation which is a one bank holding company owning all of the issued and
outstanding shares of stock of Westside Bank, a Georgia bank, located in
Kennesaw, Georgia. As of the close of business on the Record Date, WFC had
10,000,000 shares of common stock, authorized, of which 586,300 shares were
issued and outstanding. EHC is a Georgia corporation which is a one bank
holding company owning all of the issued and outstanding shares of stock of
Eastside Bank, a Georgia bank, located in Snellville, Georgia. At the close of
business on the Record Date, EHC had 10,000,000 shares of common stock of which
600,000 shares were issued and outstanding.
TERMS OF THE MERGER
GENERAL
EHC is proposed to be merged with and into WFC pursuant to the terms
of the Merger Agreement. WFC will be the survivor of the Merger, and EHC will
cease to exist. The WFC name shall be changed after the Merger to First
Sterling Banks, Inc. As a result of the Merger, Westside Bank and Eastside
Bank shall be wholly-owned subsidiaries of WFC.
Upon consummation of the Merger, the Board of Directors of WFC shall
consist of five (5) members as follows: Edward C. Milligan, the President and
Chief Executive Officer and a member of the Board of Westside Bank and member
of the Board of WFC, shall serve as Chairperson of the WFC Board; two directors
from the WFC Board prior to the Merger, P. Harris Hines (Chairperson of the
WFC board prior to the Merger) and Benjamin H. Wofford, shall continue to serve
on the WFC board; and two directors from the EHC board, Harry L. Hudson, Jr.
(chairperson of the EHC board prior to the Merger) and John S. Thibadeau, Jr.
Mr. Milligan shall also serve as the President and Chief Executive Officer of
WFC after the Merger. Barbara J. Bond, the Secretary and Treasurer of WFC and
Senior Vice President and Secretary of Westside Bank, shall continue to serve
as Secretary and Treasurer of WFC after the Merger. The Board of Directors and
management of each Bank shall initially continue in such offices following the
consummation of the Merger.
12
<PAGE> 24
EFFECTIVE DATE
If the shareholders of EHC approve the Merger Agreement by the
necessary vote, and all other conditions set forth in the Merger Agreement are
satisfied, the Merger will be effective as of the date specified in the
certificate of merger which will be issued by the Georgia Secretary of State in
accordance with the provisions of Section 7-1-535 of the Georgia Financial
Institutions Code.
CONSIDERATION TO EHC SHAREHOLDERS
Each share of EHC Stock owned by an EHC shareholder, shall, on the
effective date of the Merger, by virtue of the Merger and without any action on
the part of such shareholder, be converted into the right to receive one share
of WFC Stock.
WFC STOCK SPLIT EFFECTED IN THE FORM OF A STOCK DIVIDEND
Immediately prior to the time that the Merger is consummated, WFC will
declare a stock split effected in the form of a stock dividend to the WFC
shareholders so that each WFC shareholder at such time shall receive for each
share of WFC stock a distribution of the number of shares of WFC Stock
determined by subtracting one from the quotient determined by dividing the per
share WFC Adjusted Value by the per share EHC Adjusted Value.
ADJUSTED VALUES
The Merger Agreement provides that at October 31, 1995, the per share
Adjusted Values of WFC Stock and EHC Stock were $11.99 and $10.13,
respectively, subject to further adjustment. Until the month end prior to the
effective date of the Merger, each Company's Adjusted Values can increase or
decrease based on its respective earnings or losses, provided, however, that:
(i) Merger Expenses will not be considered when calculating such earnings and
losses; (ii) any dividends paid by either Company shall be deducted in
calculating such Company's Adjusted Value; and (iii) the loan loss reserve for
each Bank expressed as a percentage of its total loans at the end of the month
immediately preceding the effective date of the Merger shall not be less than
such percentage for such Bank on October 31, 1995. Merger Expenses are defined
as authorized and reasonable legal, accounting and consulting fees, filing fees
and printing costs paid to third parties in connection with the Merger. If
Adjusted Values were finally determined as of December 31, 1995, WFC's and
EHC's per share Adjusted Values would be $12.40 and $10.28, respectively,
yielding a WFC stock split effected in the form of a stock dividend of 0.21 to
1. This means that 0.21 shares of WFC Stock, subject to further adjustment,
would be issued by WFC for each share of WFC Stock then issued and outstanding.
One of the conditions to the Merger is that WFC's and EHC's per share Adjusted
Values be at least $10.00 and $8.00, respectively. Assuming the per share
Adjusted Values are finally determined as of June 30, 1996 (and the Merger is
consummated during July 1996), WFC believes that its per share Adjusted Value
could be approximately $13.10, and EHC believes its per share Adjusted Value
could be approximately $10.71, yielding a WFC stock split effected in the form
of a stock dividend of 0.22 to 1. In estimating its per share Adjusted
Value as of June 30, 1996, EHC added to its Adjusted Value for December 31,
1995 ($10.28 per share), its earnings for the months of
13
<PAGE> 25
January through April 1996 of $165,496 ($0.275 per share), deducted the
dividend of $0.06 per share paid on March 15, 1996, and added its estimated
earnings for the months of May and June of $124,000 ($0.21 per share). In
estimating its per share Adjusted Value as of June 30, 1996, WFC added to its
Adjusted Value for December 31, 1995 ($12.40 per share), its earnings for the
months of January through April 1996 of $297,760 ($0.50 3/4 per share),
deducted the dividend of $0.06 per share paid on March 15, 1996, and added its
estimated earnings for the months of May and June of $149,398 ($0.25 per share)
The estimated adjusted values as of June 30, 1996 include the earnings of EHC
and WFC through the month of April 1996. The earnings of EHC and WFC for the
months of May and June have been estimated in good faith. It is not expected
that the earnings differential between these two companies during this month
shall have a material impact upon the estimated Adjusted Values as shown. If
there is a significant change in the Adjusted Values as estimated thereby
causing a change in the estimated WFC Stock split effected in the form of a
stock dividend of .22 to 1, then the shareholders will be informed of such
change prior to their voting on the Merger. In such an event, an additional
mailing would be made to each shareholder informing the shareholder of the
change and allowing the shareholder the opportunity to change his vote on the
Merger if he or she has already voted. The formula for determining each
Company's per share Adjusted Value was determined by arms' length negotiations
between WFC and EHC.
NO FRACTIONAL SHARES
Instead of issuing fractional shares, WFC will pay its shareholders
who become entitled to a fraction of a share of WFC Stock as a result of the
WFC Stock split effect in the form of a stock dividend the equivalent cash
value of such fractional share based on WFC's per share Adjusted Value.
EFFECT OF MERGER ON EHC STOCK OPTIONS
Upon the consummation of the Merger, all rights with respect to the
EHC Options granted by EHC under the EHC Stock option Plans, which are
outstanding at the time of the Merger, whether or not such EHC Options are then
exercisable will be assumed by WFC in accordance with the terms of the
particular EHC Stock Option Plan under which such EHC Options were issued and
the stock option agreement by which such EHC Options are evidenced. From and
after the time of the Merger, (i) each EHC Option assumed by WFC may be
exercised solely for shares of WFC Stock, (ii) the number of shares of WFC
Stock subject to such EHC Option shall be equal to the number of EHC Shares
subject to such EHC Option immediately prior to the time of the Merger, and
(iii) the per share exercise price under each such EHC Option shall be equal to
the per share exercise price under such option prior to the Merger.
REASONS FOR THE MERGER
WFC
During November 1995, the Boards of Directors of WFC and EHC explored
the possibility of merging the two bank holding companies. Westside Bank and
Eastside Bank had both been a part of the group of banks affiliated with
Southern Bank Group, Inc. ("SBG"), a one-bank holding company owning The
Northside Bank & Trust Company located in Roswell Georgia. Although the
affiliation by both Banks with SBG was terminated in 1992 and SBG was acquired
by SouthTrust of Georgia, Inc. in 1995, the Boards of the two Banks and
Companies were familiar with the other Company and Bank and many of its
directors and officers. Also some of the directors in both Companies continued
to believe in the long-range goal underlying the SBG affiliation which was to
create a larger financial services company by eventually placing all of the SBG
affiliated banks under one holding company.
14
<PAGE> 26
Following the discussions, a letter of intent was executed on November
15, 1995, and after a due diligence review was performed on each Company and
its Bank subsidiary the Merger Agreement was executed on December 21, 1995.
The board of directors of WFC believes that the Merger of the two
Companies will enhance shareholder value by creating a larger institution with
banks in two of the fastest growing counties in the United States. The board
also believes that having the combined institution under the overall leadership
of the present chief executive officer of WFC and Westside Bank shall be
beneficial since the board believes that the Westside Bank management has been
responsible for the success of Westside Bank. The board of WFC also believes
that the WFC management can work well with the board of Eastside Bank and its
management. The Merger should reduce duplicative administrative expenses and
increase profitability. Eastside Bank's subsidiary, Eastside Financial
Services, Inc. ("EFS"), which is a company providing consulting and loan
servicing services for loans guaranteed by the Small Business Administration
("SBA"), should grow because of the more direct access to the Westside Bank
customers and market. In addition, prior to their approval of the Merger, the
WFC directors had a due diligence review of the business and records of EHC and
Eastside Bank performed and consulted with the directors and officers of EHC
and Eastside Bank in order to familiarize themselves with EHC and Eastside
Bank's business operations and prospects. The WFC board did not assign any
specific or relative weight to the various factors it considered when
determining whether to approve the Merger.
EHC
The board of directors of EHC and Eastside Bank has observed the
success which Westside Bank has achieved under the leadership of the Westside
Bank management. Westside Bank was formed approximately one year after the
formation of Eastside Bank, but it did not experience losses as large as
Eastside Bank in the first years of operations. Consequently, Westside Bank
became cumulatively profitable in 1993 and started paying a cash dividend to
its shareholders in 1994. Eastside Bank did not become cumulatively profitable
until 1995, and paid its first cash dividend in 1996. The EHC board believes
that it will be beneficial to have Eastside Bank in a holding company under the
leadership of WFC senior management. The board of EHC also believes that the
WFC management can work well with the board of Eastside Bank and its
management. The Merger should reduce duplicative administrative expenses and
increase profitability. EFS should grow because of the more direct access to
the Westside Bank customers and market. The board of directors of EHC believes
that the merger of the two Companies will enhance shareholder value by creating
a larger institution with banks in two of the fastest growing counties in the
United States. In addition, prior to their approval of the Merger Agreement,
the EHC directors had a due diligence review of the business and records of WFC
and Westside Bank performed and also consulted with the directors and officers
of WFC and Westside Bank in order to familiarize themselves with WFC's and
Westside Bank's business operations and prospects. The EHC board did not
assign any specific or relative weight to the various factors it considered
when determining whether to approve the Merger.
15
<PAGE> 27
ALL OF THE DIRECTORS AND EXECUTIVE OFFICERS OF EHC, WHO BENEFICIALLY
OWN AN AGGREGATE OF 65,483 SHARES, 10.9% OF EHC STOCK, HAVE INDICATED THAT THEY
INTEND TO VOTE THEIR SHARES OF EHC STOCK FOR THE MERGER AND UNANIMOUSLY
RECOMMEND THAT ALL EHC SHAREHOLDERS VOTE FOR THE MERGER.
OPINION OF FINANCIAL ADVISOR
In January 1996, EHC retained Mercer Capital, a national valuation
advisory firm based in Memphis, Tennessee, on the basis of its experience, to
render a written fairness opinion (the "Opinion") to the board of directors and
shareholders of EHC. Mercer Capital has been in the business of providing
valuation and related financial advisory services to financial institutions for
fourteen (14) years, including the appraisal and valuation of banking
institutions and their securities in connection with mergers and acquisitions.
Mercer Capital has a long history of familiarity and involvement with the
banking industry nationwide. It is familiar with the Georgia market and recent
transactions in this market. Mercer Capital did not participate in the
negotiations or structuring of the transaction. Mercer Capital did review the
negotiated terms of the Merger including the exchange ratio and corporate
governance matters. Except as described herein, Mercer Capital is not
affiliated in any way with EHC, WFC or their respective affiliates.
On March 19, 1996, in connection with its consideration of the Merger
Agreement, Mercer Capital issued its Opinion to the Board of Directors of EHC
that, in its opinion, the consideration to be received by the EHC shareholders
as provided in the Merger Agreement is fair, from a financial point of view, to
EHC shareholders, as of March 19, 1996. A copy of the Opinion is attached to
this Proxy Statement/Prospectus as Appendix B and should be read in its
entirety by EHC shareholders. Mercer Capital's written opinion does not
constitute an endorsement of the Merger or a recommendation to any shareholder
as to how such shareholder should vote at the Special Meeting.
In arriving at its Opinion regarding the fairness of the transaction,
Mercer Capital reviewed and analyzed certain publicly available and other
information concerning EHC and WFC, including the following: (1) the Merger
Agreement; (2) audited financial statements for EHC and WFC or their subsidiary
Banks for the fiscal years ended December 31, 1990 through 1995; (3) Form F-2
for Eastside Bank for the fiscal year ended December 31, 1994; (4) Form 10- KSB
for WFC for the fiscal year ended December 31, 1994; (5) Form F-4 for Eastside
Bank for the quarters ended March 31 and June 30, 1995 and Form 10-QSB for EHC
for the quarter ended September 30, 1995; (6) Form 10-QSB for WFC for the
quarters ended March 31, June 30 and September 30, 1995; (7) EHC's original
Offering Memorandum, dated January 9, 1989; (9) the proxy statements for EHC
and WFC or their subsidiary Banks for the years 1992 through 1995; (10) Forms
8-K filed by EHC and WFC as of December 21, 1995; (11) information with respect
to the pricing of transactions which Mercer Capital believes to be comparable
to the Merger; (12) information with respect to the pricing of bank holding
companies which Mercer Capital believes to be comparable to WFC; and (13)
market conditions and current trading levels of outstanding equity securities
of EHC and WFC. Mercer Capital conducted an on-site review of each
organization's historical performance and current financial condition.
16
<PAGE> 28
As part of its due diligence process, a representative of Mercer
Capital met with officers of both WFC and EHC and discussed the market for each
institution's shares, historical financial performance and prospective
performance, asset quality, operating strategies and other matters Mercer
Capital believed relevant to the inquiry.
Consideration was given to the following factors, among others: (1)
terms of the Merger Agreement; (2) an analysis of the Merger's pricing in
relation to indications of fair market value for EHC derived through
considering comparable transactions and discounted cash flow analyses; (3) an
analysis of the relative contributions each institution will provide to the
post-Merger organization in terms of earnings and stockholders equity; (4) an
analysis of the estimated pro-forma changes in book value per share, earnings
per share, dividends per share and overall ownership from the perspective of
EHC's shareholders; and (5) a review of WFC's historical financial performance,
historical stock pricing, the liquidity of its shares and current pricing in
relation to other publicly traded bank holding companies based in the
Southeast.
Mercer Capital considers the Merger as a "merger of equals" ("MOE")
type of transaction, since the EHC shareholders will own approximately 46% of
the WFC outstanding shares after the Merger is consummated. Mercer Capital
analyzed the transactions involving MOEs and high equity banks acquired for
less than $10 million since the WFC-EHC transaction is similar to a MOE and
EHC's equity is greater than 10% of its year-end assets. Mercer Capital
concluded that the consideration to be received by the EHC shareholders
compares favorably with such transactions.
In its contribution analysis, Mercer Capital reviewed the Merger based
upon the relative value each party provides to the pro forma organization after
the Merger in relation to each party's pro forma ownership. It noted that
under the terms of the Merger Agreement, EHC stockholders will collectively own
about 46% of the outstanding WFC Stock after the Merger is consummated. It
concluded that the relative ownership percentages are very similar in terms of
relative asset and equity contributions. In terms of net income contribution,
however, the exchange ratio is favorable for EHC shareholders since WFC's
earnings are greater than EHC's. The relative contribution amounts of reported
1995 net income are 40% for EHC and 60% for WFC; however, if EHC's earnings are
adjusted as if it were fully taxable for the entire year, then EHC's earnings
contribution falls to 33% of the pro forma amount. Based upon the above, the
contribution analysis implies that the relative ownership structure following
consummation of the Merger is favorable to EHC shareholders.
In the comparable transaction analysis Mercer Capital reviewed prices
paid for acquired banks in relation to EHC's book value and earnings as
compiled by SNL Securities for the calendar years 1990-1995 and through the
first two months in 1996. It decided that transactions involving MOEs and high
equity banks acquired for less than $10,000,000 are the most comparable to the
proposed Merger between WFC and EHC. It concluded that the range of implied
value based upon the MOE and small deal/high equity transactions is $8.48 per
share to $15.73 per share with an overall midpoint of $12.11 per share. It
concluded that the implied price for EHC based on WFC's recent closing price
compares favorably with
17
<PAGE> 29
the acquisitions of small deals involving high equity capital banks in an MOE
type of transaction.
The discounted cash flow analysis developed an estimate of the value
EHC stockholders might realize based upon a hypothetical model in which a
sale of EHC is delayed for five (5) years. The value is equal to the present
value of any interim cash flows such as dividends and the present value of a
projected terminal value (i.e., the estimated value of EHC at the end of the
projection period). Mercer Capital, for purposes of this analysis, assumed that
ten percent (10%) of the earnings are distributed in 1996 dividends, 20% in
1997, and 25% thereafter. The terminal value is based upon a multiple of
earnings in the year 2000 and for purposes of this analysis it decided that a
reasonable range of multiples would be between 14 and 15 based upon current
acquisition pricing of commercial banks. The projections concerning earnings
were geared so that future performance would trend up to a return or average
assets of about 1.2% on a fully taxable basis and a return on average equity in
the vicinity of 11% while asset growth was assumed at about 10% per year. A
discount rate in the vicinity of 15% was deemed reasonable by Mercer Capital
giving the current yield on long-term U.S. Treasury bonds and an appropriate
premium above the risk-free rate. Based upon this discounted cash flow
analysis, the indicated range value for EHC was from $7,766,000 ($12.94 per
share) to $8,639,000 ($14.40 per share). Mercer Capital concluded that this
compared favorably with the implied price of EHC of $14.36 per share based on a
WFC price of $17.00 per share.
In its pro forma analysis of per share data, Mercer Capital noted that
the book value per share for the EHC shareholders shall remain essentially
unchanged after the Merger. It noted that WFC paid dividends in 1994 and 1995,
and that prior to 1996, EHC had never paid a dividend. It noted that both
EHC's and WFC's Boards had declared a dividend for the first quarter of 1996.
Its analysis shows that the pro forma earnings per share are estimated to total
$1.23. These earnings per share exceed EHC's earnings per share for the year
ended December 31, 1995 of $1.06 by .17 per share or an increase of 16%.
Mercer Capital concluded that the increase in earnings per share on a pro forma
basis would be favorable to EHC shareholders.
Mercer Capital reviewed WFC's financial data. It noted that its
earnings for the year ended December 31, 1995, was $971,000 or $1.60 per share
which was a 57% increase from the previous year. It noted that the return on
assets rose to 1.52% from 1.25% while return on equity expanded to 14% from
9.7%. It commented that Westside Bank reported no non-performing assets as of
the end of 1995, and that the $573,000 loan loss reserve represented 1.4% of
loans at the end of 1995. It noted that its capital structure consists solely
of $7,300,000 of common equity at the end of 1995. This represents 11.1% of
total assets which it noted was well in excess of its peer group ratio of less
than 10%. It reviewed the market for the WFC shares and it noted the lack of
an active market. It noted that WFC has approximately 600 shareholders none of
whom own more than five percent (5%) of the shares and that the Board of
Directors collectively own about 22%. It noted that WFC Stock was trading in
the $17.00 per share range at the date of its opinion and that at year end
1994, the WFC shares were trading at approximately $10.50 per share or
approximately book value. It concluded that the price at $17.00 per share
implies a price/earnings multiple of 10.6 on reported 1995 earnings of $1.60
per share and a price/book ratio of 137% in
18
<PAGE> 30
relation to the year-end book value of $12.44 per share. Its data indicated
that southeastern based bank holding companies were trading at 13.50 times
earnings and 179% of book value and concluded that the EHC shareholders could
receive WFC shares which are priced at a discount to the industry.
Mercer Capital concluded from its analyses that the proposed pricing
of the Merger is reasonable and that the transaction is fair from a financial
point of view to EHC shareholders.
Neither EHC nor WFC imposed any limitations upon the scope of the
investigation to be performed by Mercer Capital in formulating its Opinion. In
rendering its Opinion, Mercer Capital did not independently verify the asset
quality and financial condition of EHC, WFC or their subsidiary banks, but
instead relied upon the data provided by or on behalf of EHC, WFC and their
subsidiary banks to be true and accurate in all material respects. Mercer
Capital did not conduct a physical inspection of the properties of EHC or WFC
nor did its personnel obtain any independent appraisals of any properties.
For its services in the rendering of its Opinion referred to above,
EHC has paid Mercer Capital aggregate fees of $8,000. Prior to being retained
for this assignment, Mercer Capital has not provided professional services or
products to EHC or WFC during the previous five years prior to the date of this
Proxy Statement/Prospectus.
SURRENDER OF STOCK CERTIFICATES
As soon as practicable after the effective date of the Merger, a
Letter of Transmittal furnishing instructions for surrendering certificates
representing EHC Stock (and for replacing any lost, stolen or destroyed
certificates) will be mailed to each EHC shareholder of record as of the close
of business on the date prior to the effective date of the Merger. Each EHC
shareholder will be urged to return this Letter of Transmittal, as soon as
possible, together with his or her stock certificates to SunTrust Bank, acting
as exchange agent (the "Exchange Agent") for WFC. As soon as practicable after
receipt by the Exchange Agent of a shareholder's stock certificate or
certificates, such shareholder will be mailed the WFC Stock to which he or she
is entitled pursuant to the Merger Agreement.
As of the effective date of the Merger, each certificate which prior
to that time represented one or more outstanding shares of EHC Stock will be
deemed for all corporate purposes only to evidence the right to receive
certificates representing shares of WFC Stock pursuant to the Merger Agreement.
Until any such stock certificate is surrendered (or suitable arrangements are
made for any lost, stolen or destroyed certificate according to the usual
procedures of EHC), the holder of the stock certificate: (a) will not be
issued a certificate representing the shares of WFC Stock which such stock
certificate may entitle the shareholder to receive; (b) will not have any
voting rights in respect of the shares of WFC Stock which such stock
certificate may entitle the shareholder to receive; and (c) will not be paid
dividends or other distributions in respect of the shares of WFC Stock which
such stock certificate may entitle the shareholder to receive. Any dividends
or distributions or other
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cash payable to shareholders will be retained, without interest, for the
shareholder's account until surrender of his or her stock certificate.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and warranties
by EHC and WFC. Such representations and warranties relate to, among other
things: the corporate existence and capital structure of each party; the
accuracy and completeness of each party's financial statements delivered
pursuant to the Merger Agreement; the absence of certain changes and events in
the affairs of each party since September 30, 1995; the adequacy of loan loss
reserves maintained by each party; the absence of any delinquencies in the
payment of taxes; the compliance by each party with applicable environmental
and other governmental laws and regulations; the ownership by each party of
valid title to properties and assets reflected in its financial statements and
to properties and assets acquired after the date of its financial statements;
the absence of any litigation or proceedings that are reasonably expected to
have a material adverse effect on the financial condition or results of
operations of each party and the authority of each party to enter into the
Merger Agreement.
COVENANTS
The Merger Agreement also contains customary covenants and agreements
of WFC and EHC with respect to the conduct of the business of each Company and
its Bank subsidiary prior to the effective date of the Merger or the
termination of the Merger Agreement. Such covenants include the obligation of
each party: to operate its business only in the ordinary course; to maintain
satisfactory relationships with its customers and suppliers and keep available
the services of its employees; not to dispose of any property or incur any
indebtedness except in the ordinary course of business; not to make any capital
expenditure except in the ordinary course of business; not to increase
salaries, directors' fees, bonuses or employee benefits except to the extent
consistent with past practices; and not to make any commitments or enter into
any contracts (other than those in the ordinary course and other than those for
the acceptance of deposits and the making and selling of loans in the ordinary
course) which, individually or in the aggregate, call for the payment of
$50,000 or more.
Under the Merger Agreement, neither WFC nor EHC is permitted, without
the prior written approval of the other party to the Merger Agreement, to:
issue any shares of its capital stock or any rights or options with respect to
its capital stock; declare, set aside or pay any dividends (except in the case
of WFC in accordance with past practices) or make any other distributions with
respect to its capital stock; redeem, purchase or otherwise acquire any of its
capital stock; effect a stock split or reclassification of its stock; or amend
its Articles of Incorporation or Bylaws (other than as contemplated by the
Merger Agreement). EHC is further obligated to cause a meeting of its
shareholders to be held for the purpose of considering the approval of the
Merger Agreement so that the Merger can be consummated. Neither WFC nor EHC is
permitted to make, solicit, initiate or encourage proposals or offers from any
person who is not a party to the Merger Agreement, relating to
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any recapitalization, merger, consolidation, acquisition or purchase of all or
substantially all of the assets of, or any equity interest in either Company or
either Bank, unless the effect of such proposed transaction would not delay or
impair their ability to consummate the Merger. Notwithstanding this provision,
the directors of each Company and its subsidiary Bank are not obligated under
the Merger Agreement to take (or not to take) any action that they are advised
in writing by counsel that their fiduciary duties, as directors, under
applicable law require them to take (or not to take).
Each Company shall share equally in the cost, expenses and fees which
have been reasonably incurred by both Companies in connection with the Merger.
CONDITIONS
The obligations of each Company to effect the Merger are subject to
the fulfillment or waiver at or prior to the effective time of the Merger of,
among others, the following conditions: (a) the receipt of all approvals and
authorizations of, and the making of all filings and registrations with, all
federal and state authorities required for consummation of the Merger; (b) the
approval by the EHC shareholders of the Merger; (c) the accuracy and
completeness in all material respects of the representations and warranties of
each Company and the performance or compliance by each of them of all of its
covenants and agreements under the Merger Agreement; (d) the absence of any
action, suit, proceeding or claim with respect to the Merger; (e) the receipt
by each Company of satisfactory opinions of counsel to the other party with
respect to legal matters involved in the Merger; (f) the per share Adjusted
Values of WFC Stock and EHC Stock being not less than $10.00 and $8.00,
respectively; (g) each party shall have received from its independent auditor
that the Merger will qualify for pooling-of-interests accounting treatment; (h)
each party shall have received an opinion from tax counsel that the Merger will
constitute a tax-free reorganization under Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"); and (i) the number of shares of
EHC Stock dissenting to the Merger shall not exceed 60,000 shares and shall not
create, in the reasonable judgment of the Board of Directors of the WFC,
ultimate liability of EHC to dissenting shareholders that is likely to exceed
$1,020,000 in the aggregate unless the parties agree to a larger amount.
TERMINATION, AMENDMENT AND WAIVER
The Merger Agreement may be terminated at any time prior to the
effective date, whether before or after approval of the Merger, by the EHC
shareholders: (a) by mutual consent of the parties to the Merger Agreement;
(b) by a party to the Merger Agreement if, without the fault of such
terminating party, the effective date of the Merger shall not have occurred on
or before July 31, 1996 (unless the parties have agreed to extend to a later
date); (c) by a party to the Merger Agreement if any regulatory application is
deemed withdrawn or affirmatively denied by the applicable regulatory agency;
or (d) by a party to the Merger Agreement if the other party to the agreement
breaches its representations, warranties or covenants thereunder in any
material respect and such breach remains uncured
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for a period of ten days after notice of such breach is given to the breaching
party, or if the other party does not meet the closing conditions set forth in
the Merger Agreement.
At any time before or after approval of the Merger Agreement by the
shareholders of EHC, the Merger Agreement may be amended by an agreement
between the parties; after such approval, however, no amendment changing the
determination of each Company's per share Adjusted Value, the form of the
consideration to be received by EHC shareholders or the formula for determining
the WFC stock split effected in the form of a stock dividend will be valid
without being approved by the shareholders of EHC.
RESALE OF WFC STOCK RECEIVED IN THE MERGER
The shares of WFC Stock to be issued pursuant to the Merger Agreement
have been registered under the Securities Act of 1933 (the "1933 Act"), thereby
allowing such shares to be sold without restriction by shareholders of EHC who
are not deemed to be "affiliates" (as that term is defined in the rules under
the 1933 Act) of EHC and who do not become affiliates of WFC. The shares of
WFC Stock to be issued to affiliates of EHC may be resold only pursuant to an
effective registration statement, pursuant to Rule 145 under the 1933 Act
(which, among other things, permits the resale of securities subject to certain
volume limitations) or in transactions otherwise exempt from the registration
under the 1933 Act. WFC will not be obligated and does not intend to register
its shares under the 1933 Act for resale by shareholders who are affiliates.
Under the volume limitations of Rule 145, and based upon the outstanding shares
of WFC Stock as of March 31, 1996, an affiliate of EHC who otherwise complies
with Rules 145, and subject to the undertaking described below, will be free to
resell, during any given three-month period, up to the greater of 1% of the
outstanding shares of WFC Stock as shown by the most recent report or statement
published by WFC, or the average weekly reported volume of trading in such
securities as reported through the automated quotation system of a registered
securities association during the four calendar weeks preceding receipt of the
order to execute the transaction or the average weekly volume of trading in
such securities as reported through the consolidated transaction reporting
system during such four calendar weeks.
In addition, each person deemed an affiliate of EHC has delivered to
WFC a letter agreement pertaining to the limitations on the transferability of
such affiliate's shares of WFC Stock acquired in the Merger, and whereby such
affiliate shall represent and warrant, among other things, that he or she shall
not sell, pledge, transfer, or otherwise dispose of such shares of WFC Stock
(i) in violation of the 1933 Act or the rules and regulations thereunder, and
(ii) until such time as financial results covering at least 30 days of combined
operations of EHC and WFC have been published within the meaning of Section
201.01 of the SEC's Codification of Financial Reporting Policies.
ACCOUNTING TREATMENT
The Merger, if completed as proposed, will be treated as a "pooling of
interests" for accounting purposes. Accordingly, under generally accepted
accounting principles, the assets
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and liabilities of EHC will be recorded on the books of WFC at their respective
book values at the effective date of the Merger.
TAX CONSEQUENCES
The following discussion is a summary of all material anticipated
federal income tax consequences of the Merger to holders of EHC Stock, EHC and
WFC. It does not discuss all the tax consequences that may be relevant to
holders of EHC Stock entitled to special treatment under the Internal Revenue
Code of 1986, as amended (the "Code") (such as insurance companies, dealers in
securities, tax-exempt organizations or foreign persons) or to holders of EHC
Stock who acquired their EHC Stock as compensation. The summary set forth
below does not purport to be a complete analysis of all potential tax effects
of the transactions contemplated by the Merger Agreement or the Merger itself.
EACH HOLDER OF EHC STOCK IS URGED TO CONSULT HIS OR HER OWN TAX AND
FINANCIAL ADVISOR AS TO THE EFFECT OF SUCH FEDERAL INCOME TAX CONSEQUENCES ON
HIS OR HER OWN PARTICULAR FACTS AND CIRCUMSTANCES, AND ALSO AS TO ANY STATE,
LOCAL, FOREIGN OR OTHER TAX CONSEQUENCES ARISING OUT OF THE MERGER.
EHC and WFC have not requested and will not receive an advance ruling
from the Internal Revenue Service ("IRS") as to any of the federal income tax
effects to holders of EHC Stock of the Merger or of any of the federal income
tax effects to WFC or EHC of the Merger. Instead, EHC and WFC will rely upon
an opinion of Glass, McCullough, Sherrill & Harrold as to the federal income
tax consequences of the Merger to the holders of EHC Stock, EHC and WFC. The
opinion of Glass, McCullough, Sherrill & Harrold is based entirely upon the
Code, regulations now in effect thereunder, current administrative rulings and
practice, and judicial authority, all of which are subject to change. The
opinion of Glass, McCullough, Sherrill & Harrold is based upon certain factual
assumptions. Unlike a ruling from the IRS, an opinion is not binding on the
IRS and there can be no assurance, and none is hereby given, that the IRS will
not take a position contrary to one or more positions reflected herein or that
the opinion will be upheld by the courts if challenged by the IRS.
In the opinion of Glass, McCullough, Sherrill & Harrold, which opinion
is based upon various representations and subject to various assumptions and
qualifications, the following federal income tax consequences should result
from the Merger:
(i) The Merger will qualify as a reorganization within the meaning
of Section 368(a)(1)(A) of the Code.
(ii) No gain or loss will be recognized by the shareholders of EHC
upon the receipt of WFC Stock solely in exchange for their
shares of EHC Stock.
(iii) The basis of the WFC Stock to be received by the EHC
shareholders will be the same as the aggregate basis of
the EHC Stock surrendered in the exchange.
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(iv) The holding period of the shares of WFC Stock received by the
shareholders of EHC will include the period during which the
EHC Stock surrendered in exchange therefor was held, provided
that the shares of EHC Stock were held as capital assets
within the meaning of Section 1221 of the Code as of the time
of the consummation of the Merger.
(v) EHC shareholders who exercise dissenters' rights, and as a
result of which receive only cash, will be treated as having
received such cash as a distribution in redemption of their EHC
Stock, subject to the provisions and limitations of Section 302
of the Code. Accordingly, each such shareholder will generally
have capital gain or loss equal to the difference between the
amount of cash received by such shareholder and such
shareholder's basis in his or her stock.
(vi) No gain or loss will be recognized by EHC on the transfer of
its assets to WFC and the assumption by WFC of its liabilities
pursuant to the Merger.
(vii) No gain or loss will be recognized by WFC on its receipt of
EHC's assets and its assumption of EHC's liabilities pursuant
to the Merger.
(viii) The basis of the EHC assets in the hands of WFC will be the
same as the basis of such assets in the hands of EHC
immediately prior to the Merger.
(ix) The holding period of the EHC assets received by WFC in the
Merger will include the holding period during which such
assets were held by EHC.
The opinion of Glass, McCullough, Sherrill & Harrold is rendered
solely with respect to certain federal income tax consequences of the Merger
under the Code, and does not extend to the income or other tax consequences of
the Merger under the laws of any state or any political subdivision of any
state; nor does it extend to any tax effects or consequences of the Merger to
the EHC shareholders, EHC or WFC other than those expressly stated in the
opinion. Furthermore, no opinion is expressed as to the federal or state tax
treatments of the transaction under any other provisions of the Code and
regulations, or about the tax treatment of any conditions existing at the time
of, or effects resulting from, the transactions that are not specifically
covered by the opinion.
RIGHTS OF SHAREHOLDERS OF WFC STOCK
COMPARISON OF WFC STOCK AND EHC STOCK
WFC and EHC are both Georgia corporations which have substantially
identical Articles of Incorporation and Bylaws. WFC has 10,000,000 shares of
common stock authorized of which 586,300 are issued and outstanding. EHC has
10,000,000 shares of common stock authorized of which 600,000 are issued and
outstanding. After the Merger, the surviving entity, WFC, shall continue to
have 10,000,000 shares of common stock authorized with 1,309,423 shares
outstanding based on the Adjusted Values of the Companies
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at December 31, 1995. There are no material differences between the rights of
shareholders owning EHC Stock and the rights of shareholders owning WFC Stock.
ISSUANCE OF SHARES
The issuance of stock by WFC generally will not be subject to
regulatory or shareholder approval and such stock may be issued for cash or
other property.
DIVIDENDS
The holders of shares of WFC Stock are entitled to dividends and other
distributions as and when declared by the Board of Directors of WFC out of
assets legally available therefor. Dividends may be paid in cash, property or
shares of WFC Stock, unless WFC is insolvent or the dividend payment would
render it insolvent. Dividends may also be restricted by the Federal Reserve
if WFC becomes undercapitalized as defined in regulations promulgated by the
Federal Reserve.
WFC after the proposed Merger shall own all of the outstanding stock
of Westside Bank and Eastside Bank, both of which are Georgia banks, and
dividends from the Banks shall be a primary source of its income from which it
may pay dividends. The holders of stock in each of the Banks are entitled to
dividends and other distributions as and when declared by the Bank's Board of
Directors out of the assets legally available therefor. Each Bank may pay
dividends in cash, property or shares of its stock provided that the payment is
not prohibited by the Bank's Articles of Incorporation and will not render the
Bank insolvent. In addition, the Georgia Financial Institutions Code and the
regulations promulgated thereunder by the Georgia Department further provide
(a) that dividends of cash or property may be paid only out of the Bank's
retained earnings, (b) that dividends may not be paid if the Bank's paid-in
capital and retained earnings which are set aside for dividend payment and
other distributions do not, in combination, equal at least 20% of the Bank's
capital stock, and (c) that dividends may not be paid without prior approval of
the Georgia Department if (i) the Bank's total classified assets at its most
recent examination exceed 80% of its equity capital, (ii) the aggregate amount
of dividends to be declared exceeds 50% of the Bank's net profits after taxes
but before dividends for the previous calendar year or (iii) the ratio of
equity capital to total adjusted assets is less than 6%. The FDIC may also
restrict the Bank's ability to pay dividends in certain situations such as the
Bank becoming undercapitalized as defined in FDIC regulations, or defaulting in
the payment of any assessment to the FDIC.
The foregoing restrictions on the payment of dividends by each Bank
will apply to dividends paid by each Bank to WFC.
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VOTING RIGHTS
The holders of WFC Stock are entitled to one vote per share on all
matters presented for action by shareholders, including elections of directors.
There is no cumulative voting provision for WFC Stock. For additional
information concerning supermajority vote requirements, see "Rights of
Shareholders of WFC Stock -- Antitakeover Provisions."
PREEMPTIVE RIGHTS
Shareholders of WFC do not have preemptive rights. This will permit
the Board of Directors of WFC to utilize the authorized and unissued shares of
WFC Stock as it determines to be in the best interests of WFC and its
shareholders. The unissued shares could be used by WFC as an antitakeover
device. Since the Board could issue shares of WFC Stock to raise additional
equity capital and for other proper corporate purposes, this could result in
dilution of a shareholder's interest in WFC. Any issuance of shares, however,
would have to be approved by the Board of Directors of WFC. Apart from the
transactions discussed in this Proxy Statement/Prospectus, management of WFC
does not have any plans to issue additional shares of WFC Stock at the present
time.
LIQUIDATION RIGHTS
Upon the voluntary or involuntary dissolution, liquidation or winding
up of the affairs of WFC, after the payment in full of debts and other
liabilities, the remaining assets, if any, are to be distributed ratably among
the shareholders.
OTHER
WFC Stock is not subject to liability for further calls or to
assessments by WFC, and it is not subject to redemption, sinking fund or
conversion provisions.
ANTITAKEOVER PROVISIONS
The following is a description of the antitakeover provisions included
in the WFC Articles of Incorporation and Bylaws. The EHC Articles of
Incorporation and Bylaws contain similar provisions.
CLASSIFICATION OF THE BOARD OF DIRECTORS
Article 7 of WFC's Articles of Incorporation divides the Board of
Directors of the Company into three classes, Class I, Class II and Class III,
each of which is as nearly equal in number as possible. The directors in each
class will hold office for staggered terms of three years each, after initial
terms of one year, two years and three years, respectively. Each director also
serves until his or her successor is elected and qualified or until his or her
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earlier death, resignation or removal. If the number of directors is modified,
any increase or decrease in directorships would be apportioned among the
classes so as to make all classes as nearly equal in number as possible.
CHANGE IN NUMBER OF DIRECTORS
Article 3.2 of WFC's Bylaws provides that a change in the number of
directors of WFC would have to be made by the affirmative vote of two-thirds of
the entire Board of Directors or by the affirmative vote of the holders of at
least two-thirds of the outstanding shares of WFC Stock, and Article 8 of the
Articles of Incorporation of WFC provides that any amendment to this Bylaw will
require the affirmative vote of at least two-thirds of the outstanding shares
of WFC Stock. The total number of Directors for WFC is set at twelve and after
the consummation of the Merger it shall be set at five.
The applicable provisions of the Georgia Business Corporation Code
provide that, in the absence of a provision such as Article 8, the number of
directors may be increased or decreased from time to time as provided in the
Bylaws unless the number of directors is otherwise fixed by the shareholders.
REMOVAL OF DIRECTORS
Article 9 of the Articles of Incorporation of WFC provides that
directors of WFC may be removed during their terms for "cause" by the
affirmative vote of the holders of a majority of the outstanding shares of WFC
Stock or by the affirmative vote of a majority of the directors then in office;
or without cause only by the affirmative vote of the holders of at least
two-thirds of the outstanding shares. "Cause" for this purpose is defined as
final conviction of a felony, request or demand for removal by any bank
regulatory authority having jurisdiction over WFC, adjudication as an
incompetent by a court, determination by at least two-thirds of the incumbent
directors of WFC that the conduct of the director to be removed has been
inimical to the best interests of WFC, or the director was an employee or
officer of WFC or any of its subsidiaries and was discharged or resigned at the
request of the Board of Directors of WFC or any subsidiary of WFC for reasons
relating to the performance of his or her duties.
In the absence of a provision dealing with the removal of directors,
such as Article 9, the Georgia Business Corporation Code provides that if the
directors have staggered terms, then the shareholders may remove directors only
for cause, unless the articles of incorporation or a bylaw adopted by the
shareholders provides otherwise.
ADVANTAGES AND DISADVANTAGES OF ARTICLES 7, 8 AND 9
Articles 7, 8 and 9 of WFC's Articles of Incorporation would make it
more difficult for shareholders of WFC, including those holding a majority of
the outstanding shares of WFC Stock, to force an immediate change in the
composition of a majority of the Board of Directors, even if the reason for the
change were the performance of the present directors. Under Article 7, the
terms of only one-third of the incumbent directors will expire each year,
provided no new directorships are created and no directors resign or are
removed from
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office. Under Article 8 and Article 3.2 of WFC's Bylaws, it will be more
difficult to create new directorships, and under Article 9, it will be more
difficult to remove directors without cause. Accordingly, generally two annual
shareholders' meetings will be required to change a majority of the directors
of WFC instead of one such meeting.
Although WFC has not encountered difficulties in the past due to lack
of continuity of management, the Board believes that Articles 7, 8 and 9 will
help to assure continuity and stability in the leadership and policies of WFC.
Management also believes that such Articles will enable WFC to protect the
interests of its shareholders in the event that another party, through a
takeover bid or otherwise, obtains a substantial number of shares of WFC Stock.
It would be impossible, assuming that no new directorships were
created, no directors resigned and no directors were removed from office, for
shareholders to change a majority of the directors at any one annual meeting
should they consider such a change desirable unless the shareholders controlled
sufficient votes to amend Articles 7, 8 or 9 (two-thirds of the outstanding
shares). Although Articles 7, 8 and 9 will make it more difficult to acquire
operating control of WFC in an unfriendly manner, directors who oppose or who
are discouraged by new controlling shareholders might resign, thereby allowing
directors elected by the new controlling shareholders to fill the vacancies
created by such resignations.
SUPERMAJORITY VOTING ON CERTAIN TRANSACTIONS
Article 13 of the Articles of Incorporation of WFC provides, with
certain exceptions, that any merger or share exchange involving WFC or any sale
or other disposition of all or substantially all of its assets will require the
affirmative vote of the holders of at least two-thirds of the outstanding
shares of WFC Stock. However, an exception to this rule exists where the Board
of Directors of the WFC has approved the particular transaction by the
affirmative vote of two-thirds of the entire Board. In cases where this
exception applies, the applicable provisions of the Georgia Business
Corporation Code govern, and shareholder approval of the transaction would
require a favorable vote by a majority of all votes entitled to be cast.
The primary purpose of this Article is to discourage any party from
attempting to acquire control of WFC without negotiation with the Board of
Directors. Such a merger or sale might not be in the best interests of WFC or
its shareholders. This provision may also serve to reduce the risk of a
potential conflict of interest between a substantial shareholder on the one
hand and WFC and its other shareholders on the other.
It should be recognized that the foregoing provision could enable the
holders of a minority of the shares of WFC Stock to prevent a transaction
favored by the holders of a majority of such shares. Also, in some
circumstances, the Board of Directors could, by withholding its consent to such
a transaction, cause a two-thirds vote to be required to approve the
transaction, thereby enhancing the ability of management to retain control over
the affairs of WFC and their positions with WFC. However, of the five persons
who will be directors of WFC at the effective date of the Merger, only one will
be affiliated with WFC in a full-time management position.
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EVALUATION OF AN ACQUISITION PROPOSAL
Article 14 of WFC's Articles of Incorporation provides that the
response of WFC to any acquisition proposal made by another party will be based
on the Board's evaluation of the best interests of WFC and its shareholders.
As used herein, the term "acquisition proposal" refers to any offer of another
party (a) to make a tender offer or exchange offer for any equity security of
WFC, (b) to merge or consolidate WFC with another corporation or (c) to
purchase or otherwise acquire all or substantially all of the properties and
assets owned by WFC.
Article 14 charges the Board, in evaluating an acquisition proposal,
to consider all relevant factors, including (a) the expected social and
economic effects of the transaction on the employees, customers and other
constituents (e.g., suppliers of goods and services) of WFC; (b) the expected
social and economic effects on the communities within which WFC operates; and
(c) the consideration being offered by the other corporation in relation (i) to
the then current value of WFC as determined by a freely negotiated transaction
and (ii) to the Board of Directors' then estimate of WFC's future value as an
independent entity. The enumerated factors are not exclusive, and the Board
may consider other relevant factors.
This Article has been included in the WFC's Articles of Incorporation
because banks are charged with providing support to and being involved with the
communities they serve, and the Board believes its obligations in evaluating an
acquisition proposal extend beyond evaluating merely the consideration being
offered in relation to the then market or book value of WFC Stock. Neither the
Georgia Business Corporation Code nor the Georgia Financial Institutions Code
specifically enumerates the factors the board of directors of a corporation or
a bank, respectively, should consider in the event the corporation or the bank
is presented with an acquisition proposal.
While the value of the consideration offered to shareholders is the
main factor when weighing the benefits of an acquisition proposal, the Board
believes it appropriate also to consider all other relevant factors. For
example, this Article directs the Board to evaluate the consideration being
offered in relation to the then current value of WFC determined in a freely
negotiated transaction and in relation to the Board's then estimate of the
future value of WFC as an independent concern. A takeover bid often places the
target corporation virtually in the position of making a forced sale, sometimes
when the market price of its stock may be depressed. The Board believes that
frequently the consideration offered in such a situation, even though it may be
in excess of the then market value (i.e., the value at which shares are then
currently trading), is less than that which could be obtained in a freely
negotiated transaction. In a freely negotiated transaction, management would
have the opportunity to seek a suitable partner at a time of its choosing and
to negotiate for the most favorable price and terms which reflect not only the
current value, but also the future value of WFC.
One effect of this Article may be to discourage a tender offer in
advance. Often an offeror consults the board of a target corporation prior to
or after commencing a tender offer in an attempt to avoid a contest from
developing. In the opinion of the Board, this provision will strengthen its
position in dealing with any potential offeror which might attempt to
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acquire WFC through a hostile tender offer. Another effect of this Article may
be to dissuade shareholders who might be displeased with the Board's response
to an acquisition proposal from engaging WFC in costly litigation. This
provision, however, does not affect the right of a shareholder displeased with
the Board's response to an acquisition proposal to institute litigation against
WFC and to allege that the Board breached an obligation to shareholders by not
limiting its evaluation of an acquisition proposal to the value of the
consideration being offered in relation to the then market or book value of WFC
Stock.
Article 14 would not make an acquisition proposal regarded by the
Board as being in the best interests of WFC more difficult to accomplish. It
would, however, permit the Board to determine that an acquisition proposal was
not in the best interests of WFC (and thus to oppose it) on the basis of the
various factors deemed relevant. In some cases, such opposition by the Board
might have the effect of maintaining the positions of incumbent management.
AMENDMENT OF ANTITAKEOVER PROVISIONS
Any amendment of Articles 7, 8, 9, 13 and 14 of WFC's Articles of
Incorporation requires the affirmative vote of the holders of at least
two-thirds of the outstanding shares of WFC Stock, unless two-thirds of the
entire Board of Directors approves the amendment. If two-thirds of the Board
approves the amendment, the applicable provisions of the Georgia Business
Corporation Code would govern, and the amendment would be approved by a
majority of the shares entitled to be cast on the amendment.
LIMITATION OF LIABILITY
Article 11 of WFC's Articles of Incorporation, subject to certain
exceptions, eliminates the potential personal liability of a director for
monetary damages to WFC or its shareholders for breach of a duty as a director.
There is no elimination of liability for: (a) a breach of duty involving
appropriation of a business opportunity of WFC; (b) an act or omission not in
good faith or involving intentional misconduct or a knowing violation of law;
(c) a transaction from which the director derives an improper material tangible
personal benefit; or (d) as to the types of liability set forth in Section
14-2-832 of the Georgia Business Corporation Code dealing with unlawful
distribution of corporate assets to shareholders. Article 11 does not
eliminate or limit the right of WFC or its shareholders to seek injunctive or
other equitable relief not involving monetary damages. Also, this Article may
not be effective to limit a director's personal liability for monetary damages
under certain federal banking and securities laws.
Article 11 was adopted by WFC pursuant to certain amendments to the
Georgia Business Corporation Code adopted in March 1987 which allow Georgia
corporations, with the approval of their shareholders, to include in their
Articles of Incorporation a provision eliminating or limiting the liability of
directors, except in the circumstances described above. Article 11 was
included in WFC's Articles of Incorporation to encourage qualified individuals
to serve and remain as directors of WFC. While WFC has not experienced any
problems in locating and retaining directors to date, it could experience
difficulty in the
30
<PAGE> 42
future if WFC's business activities increase and diversify. Article 11 was
included also to enhance WFC's ability to secure liability insurance for its
directors at a reasonable cost. The Board of Directors believes that Article
11 will enable WFC to secure such insurance on terms more favorable than if
such a provision were not included in the Articles of Incorporation.
The Articles of Incorporation of EHC include comparable provisions
limiting the liability of directors.
INDEMNIFICATION
The Bylaws of WFC contain certain provisions which provide
indemnification to directors and officers of WFC similar to that expressly
mandated in Sections 14-2-850, et seq. of the Georgia Business Corporation
Code.
The indemnification provisions in WFC's Bylaws require WFC to
indemnify under certain circumstances persons who are parties to any civil,
criminal, administrative or investigative action, suit or proceeding, by reason
of the fact that such person was or is a director, officer, employee or agent
of WFC. Except as noted below, these persons would be indemnified against
expenses (including, but not limited to, attorney's fees and court costs) and
against any judgments, fines and amounts paid in settlement, actually and
reasonably incurred by them. These persons may also be entitled to have WFC
advance any such expenses prior to the final disposition of the proceeding,
upon an undertaking to repay WFC if it is ultimately determined that they are
not entitled to indemnification. In general, WFC will indemnify a director,
officer, employee or agent if the Board of Directors determines the individual
acted in a manner he or she believed in good faith to be in or not opposed to
the best interests of WFC and, in the case of a criminal proceeding, if he or
she had no reasonable cause to believe his or her conduct was unlawful. WFC's
Bylaws also provide that if the Georgia Business Corporation Code is amended to
authorize broader indemnification of directors, officers, employees and agents,
then the indemnification of such persons shall be expanded to the fullest
extent permitted by the amended code.
The Companies and the Banks are not aware of any material pending or
threatened action, suit or proceeding involving any of their directors,
officers, employees or agents for which indemnification may be sought.
The Bylaws of EHC include comparable indemnification provisions.
Insofar as indemnification for the liabilities (primarily relating to
public distribution of securities) arising under the Securities Act of 1933, as
amended (the "1933 Act"), may be permitted to directors, officers and
controlling persons of WFC, or to an affiliate of WFC pursuant to WFC's Bylaws
or otherwise, the Board of Directors has been advised that, in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in the 1933 Act and is therefore unenforceable.
Accordingly, it is possible that the indemnification provisions of the Bylaws
may not apply to liabilities arising
31
<PAGE> 43
under the 1933 Act unless the person to be indemnified is successful on the
merits of the proceeding.
STATUTORY PROVISIONS FOR DISSENTING SHAREHOLDERS
Any holder of record of EHC Stock who objects to the Merger, and who
fully complies with all of the provisions of Article 13 of the Georgia Business
Corporation Code (but not otherwise) shall be entitled to demand and receive
payment for all (but not less than all) of his or her shares of EHC Stock if
the proposed Merger is consummated.
A shareholder of EHC who objects to the Merger and desires to receive
payment of the "fair value" of his or her EHC Stock:
(a) Must file a written objection to the Merger with EHC either
prior to the meeting or at the Special Meeting but before the vote is taken,
and the written objection must contain a statement that the shareholder intends
to demand payment for his or her shares if the Merger is approved; AND
(b) Must either abstain from voting or vote against approval of
the Merger; AND
(c) Must demand payment and deposit his or her certificate(s) in
accordance with the terms of the dissenters' notice sent to the dissenting
shareholder by EHC following approval of the Merger.
A vote against the Merger alone will not constitute the separate
written notice and demand for payment referred to in (a) and (c) above;
dissenting shareholders must separately comply with all three conditions. Any
notice required to be given to EHC must be forwarded to Eastside Holding
Corporation, 2019 Scenic Highway, Snellville, Georgia 30278, Attention:
Corporate Secretary.
If the Merger is approved, EHC will mail no later than ten (10) days
after the approval by certified mail to each shareholder who has complied with
conditions (a) and (b) above, written notice of such approval, addressed to the
shareholder at such address as the shareholder has furnished EHC in writing,
or, if none, at the shareholder's address as it appears on the records of EHC.
EHC will set a date by which it must receive the payment demand, which date may
not be fewer than thirty (30) nor more than sixty (60) days after the date the
dissenters' notice is delivered. The shareholder must make the written
election to dissent and demand for payment described in condition (c) above by
the payment demand date as set by EHC.
If all conditions in (a), (b) and (c) above are satisfied in full, EHC
is required to make a written offer within ten (10) days of receiving the
payment demand, or within ten days after the consummation of the Merger,
whichever is later, to each dissenting shareholder to purchase all of such
shareholder's shares of EHC Stock at a specific price. If EHC and any
dissenting shareholder are unable to agree on the fair value of the shares
within sixty days, EHC will commence a proceeding in the Superior Court of the
county
32
<PAGE> 44
where its main office is located, to determine the rights of the dissenting
shareholder and the fair value of his or her shares. If EHC does not commence
the proceeding within the sixty-day period, it shall pay each dissenter whose
demand remains unsettled the amount demanded. In the event of a court
proceeding, the court 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 these costs against EHC, except that the court
may assess these costs against all or some of the dissenters, in amounts the
court finds equitable to the extent the court finds the dissenters acted
arbitrarily or not in good faith in demanding payment under the dissenters'
provisions. 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 EHC and in favor of any or all dissenters if the court finds EHC did
not substantially comply with the dissenters' provisions; or (2) against EHC or
a dissenter in favor of any other party if the court finds that the party
against whom fees and expenses are assessed acted arbitrarily or not in good
faith with respect to the rights provided by the dissenters' provisions. 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 EHC, the court may award
these attorneys reasonable fees to be paid out of the amounts awarded the
dissenters who were benefitted.
One of the conditions to the Merger is that the aggregate number of
shares of EHC Stock dissenting to the Merger shall not exceed 60,000 shares and
shall not create in the reasonable judgment of the Board of Directors of WFC
ultimate liability to dissenting shareholders that is likely to exceed
$1,020,000. If this condition is not satisfied, the parties to the Merger
Agreement will not be required to consummate the Merger, in which event the
dissenters' rights described in this section would also terminate. However,
the parties may elect to consummate the Merger even though more than 60,000
shares of EHC Stock dissent to the Merger or it is determined that the
liability to dissenting shareholders is likely to exceed $1,020,000.
Upon compliance with the statutory procedures, dissenting shareholders
will not have any rights as shareholders of EHC or of WFC, including, among
other things, the right to receive dividends and the right to vote on matters
submitted for shareholder consideration.
The foregoing does not purport to be a complete statement of the
provisions of Article 13 of the Georgia Business Corporation Code, and it is
qualified in its entirety by reference to said sections, which are reproduced
in full as Appendix C to this Proxy Statement/Prospectus. Each EHC shareholder
is urged to seek competent legal advice regarding such dissenters' rights.
MANAGEMENT
DIRECTORS
Upon consummation of the Merger, the Boards of Directors of WFC shall
consist of five (5) persons - three (3) directors from WFC (Edward C. Milligan,
Benjamin H. Wofford
33
<PAGE> 45
and P. Harris Hines) and two (2) directors from EHC (Harry L. Hudson, Jr. and
John S. Thibadeau, Jr.).
Pursuant to WFC's Articles of Incorporation, its directors are divided
into three (3) classes, Class I, Class II and Class III. The initial term of
the Class I directors expires in 1995, that of the Class II directors in 1996
and that of the Class III directors expires in 1997. At each annual meeting of
shareholders, the directors elected to succeed those in the class whose terms
then expire will be elected for three-year terms, so that the term of one class
of directors will expire each year.
The Boards of Directors of Westside Bank and Eastside Bank shall
remain unchanged after the Merger. Prior to the Merger, the Board of Directors
of EHC and Eastside Bank were the same and have been since EHC was formed as
the holding company for Eastside Bank in 1995, and the Board of Directors of
WFC and Westside Bank were the same and have been since WFC was formed as the
holding company for Westside Bank in 1994.
The table below sets forth for each such person: (a) the person's
name and his Class designation; (b) his age at March 1, 1996; (c) the year he
was first elected as a director of EHC or WFC, as applicable; and (d) his
positions with Westside Bank or Eastside Bank and his other business experience
for the past five (5) years.
<TABLE>
<CAPTION>
===============================================================================================================
NAME, YEAR FIRST
ELECTED TO BOARD OF
WFC OR EHC POSITION WITH WFC OR EHC AND PRINCIPAL
AND CLASS AGE OCCUPATION DURING THE PAST FIVE YEARS
---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Edward C. Milligan 51 Mr. Milligan is President of WFC and has served as President,
(1994) Chief Executive Officer and a Board member of Westside Bank
since its organization in 1990.
Class I
---------------------------------------------------------------------------------------------------------------
Benjamin H. Wofford, M.D. 58 Dr. Wofford served as Chairman of the Board of Directors of
(1994) Westside Bank from its organization until April 1991. Since
1970, Dr. Wofford has been a physician specializing in plastic
Class II and cosmetic surgery in Marietta, Georgia.
---------------------------------------------------------------------------------------------------------------
The Honorable P. Harris Hines 52 Judge Hines has served as Chairman of the Board of Directors of
(1994) WFC since its organization and has served as Chairman of the
Board of Directors of Westside Bank since April 1992. From
Class III January 1, 1983 until July 26, 1995, Judge Hines served as a
Judge of the Superior Court of Cobb County. Since July 26,
1995, Judge Hines has served as a Justice of the Supreme Court
of the State of Georgia.
---------------------------------------------------------------------------------------------------------------
Harry L. Hudson, Jr. 52 Mr. Hudson is an agent for the State Farm Insurance Company.
(1995) Mr. Hudson has been associated with Sate Farm since January 1,
1970. Mr. Hudson currently serves as Chairman of the Board of
Class I Directors of EHC and Eastside Bank. He has been a member of
the Board of Eastside Bank since its organization in 1990.
---------------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE> 46
[CAPTION]
<TABLE>
===============================================================================================================
NAME, YEAR FIRST
ELECTED TO BOARD OF
WFC OR EHC POSITION WITH WFC OR EHC AND PRINCIPAL
AND CLASS AGE OCCUPATION DURING THE PAST FIVE YEARS
---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
John S. Thibadeau, Jr. 48 Since 1973, Mr. Thibadeau has been President of Deauton
(1995) Corporation, a real estate construction and development firm.
As a licensed real estate broker, Mr. Thibadeau is an officer
Class III and principal in Thibadeau-Burton Realty and serves as Vice
President of University Inn Operating Co., a hotel/motel
management firm. He served as Chairman of the Board of
Directors of Eastside from its organization until February 1,
1991, and has been a member of the Board of Eastside Bank since
its organization in 1990.
---------------------------------------------------------------------------------------------------------------
</TABLE>
OFFICERS
The officers of WFC before and after the proposed Merger are as follows:
<TABLE>
<CAPTION>
================================================================================================
NAME WFC
<S> <C>
- ------------------------------------------------------------------------------------------------
Edward C. Milligan President/Chief Executive Officer
- ------------------------------------------------------------------------------------------------
Barbara J. Bond Secretary/Treasurer
================================================================================================
</TABLE>
The executive officers of Westside Bank are as follows:
<TABLE>
<CAPTION>
================================================================================================
NAME WESTSIDE BANK
<S> <C>
- ------------------------------------------------------------------------------------------------
Edward C. Milligan President/Chief Executive Officer
- ------------------------------------------------------------------------------------------------
Barbara J. Bond Senior Vice President and Secretary
- ------------------------------------------------------------------------------------------------
Michael J. Henderson Senior Vice President
================================================================================================
</TABLE>
The executive officers of Eastside Bank are as follows:
<TABLE>
<CAPTION>
================================================================================================
NAME EASTSIDE BANK
<S> <C>
- ------------------------------------------------------------------------------------------------
Reggie D. Cox President/Chief Executive Officer
- ------------------------------------------------------------------------------------------------
Fredrick D. Jones Senior Vice President and Secretary
================================================================================================
</TABLE>
The table set forth below shows for each officer of WFC (a) the
person's name, (b) his or her age at March 1, 1996, (c) the year he or she was
first elected as an officer of
35
<PAGE> 47
WFC, and (d) his or her present positions with WFC and his or her other
business experience for the past five years.
<TABLE>
<CAPTION>
============================================================================================================
FIRST
YEAR
NAME AGE ELECTED BUSINESS EXPERIENCE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Edward C. Milligan 51 1994 Mr. Milligan serves as Chairman of the Board, President and
Chief Executive Officer of WFC and as President and Chief
Executive Officer of Westside Bank since its organization in
1990.
- -----------------------------------------------------------------------------------------------------------
Barbara J. Bond 47 1994 Ms. Bond serves as Secretary/Treasurer of WFC. She serves as
Senior Vice President and Senior Operations Officer of Westside
Bank and has served in such capacities since the organization of
Westside Bank in 1990.
============================================================================================================
</TABLE>
EXECUTIVE COMPENSATION
CASH COMPENSATION TABLE
No compensation was paid or provided by WFC or EHC to its officers in
1995. Edward C. Milligan, the president and chief executive officer of
Westside Bank, is the only officer of either Bank whose compensation exceeded
$100,000. The cash compensation which has been paid, accrued or awarded by
Westside Bank for services rendered in all capacities during the fiscal year
ended December 31, 1995, 1994 and 1993 to the chief executive officer is as
follows:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
=============================================================================================================
ANNUAL LONG-TERM
NAME AND COMPENSATION COMPENSATION
PRINCIPAL YEAR STOCK
POSITION SALARY BONUS OPTIONS (SHARES) COMPENSATION
=============================================================================================================
<S> <C> <C> <C> <C> <C>
Edward C. Milligan 1995 $117,425.00 $34,800 6,000 $5,348.00(1)
President, WFC; 1994 $110,005.00 $22,000 $4,450.00(1)
President/CEO,
Westside Bank 1993 $106,260.68 $10,000 $3,125.22(1)
=============================================================================================================
</TABLE>
NOTE TO TABLE
(1) Amounts contributed by Westside Bank during 1993, 1994 and 1995 to Mr.
Milligan's account in the Bank's 401(k) Plan were $2,125.22, $2,245.00
and $2,348.46 respectively. Mr. Milligan was paid $1,000 in 1993,
$2,200 in 1994 and $3,000 in 1995 for his services as a member of
Westside Bank's Board of Directors.
36
<PAGE> 48
STOCK OPTIONS
The following tables set forth information in regard to incentive
stock options granted to the chief executive officer of Westside Bank who was
the only executive officer whose compensation exceeded $100,000:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
================================================================================================================
INDIVIDUAL GRANTS
- ----------------------------------------------------------------------------------------------------------------
PERCENT OF TOTAL GRANT DATE
OPTIONS GRANTED EXERCISE OR PRESENT
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION VALUE(1)
NAME GRANTED FISCAL YEAR ($/SH) DATE $
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EDWARD C. MILLIGAN 6,000 28.57% 13.00 8/15/2005 0
===============================================================================================================
</TABLE>
NOTE TO TABLE
(1) The fair market value of a share of common stock of WFC at the date of
grant, August 15, 1995, was determined to be equal to or less than the
exercise price of 13.00 per share based on the reported trades through
an independent broker prior to the date of grant.
AGGREGATE STOCK OPTION EXERCISES IN FISCAL YEAR ENDED
DECEMBER 31, 1995 AND FISCAL YEAR-END STOCK OPTION VALUES
<TABLE>
<CAPTION>
=================================================================================================================
VALUE OF
NUMBER OF UNEXERCISED
VALUE REALIZED UNEXERCISED STOCK IN-THE MONEY STOCK
NUMBER OF ($) (MARKET OPTIONS AT FY-END OPTIONS AT FY-END(1)
SHARES PRICE AT TIME
ACQUIRED ON OF EXERCISE LESS NOT NOT
NAME EXERCISE EXERCISE PRICE) VESTED VESTED VESTED VESTED
=================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Edward C. Milligan -- -- 16,000 -- $78,000 --
=================================================================================================================
</TABLE>
NOTE TO TABLE
(1) The fair market value of a share of common stock of WFC at fiscal year
end, December 31, 1995, was determined to be $16.00 per share based on
the reported trades through an independent broker prior to January 1,
1996.
37
<PAGE> 49
AGREEMENTS WITH EXECUTIVES
WFC AND WESTSIDE BANK
WFC and Westside Bank have jointly entered into an employment
agreement with Edward C. Milligan dated August 16, 1995 whereby Mr. Milligan is
employed as the president and chief executive officer of both WFC and Westside
Bank. The term of the Agreement is a continuing term of two years which is
automatically extended each day for an additional day so that the remaining
term shall continue to be two years; but either party may by written notice to
the other party fix the term to a finite term of two years without further
automatic extension commencing with the date of such notice.
Mr. Milligan's initial base salary is $116,000 per annum. The base
salary may be increased from time to time by the boards of directors of WFC and
Westside Bank. Mr. Milligan is also entitled to such customary fringe
benefits, vacation and sick leave as are consistent with the normal practices
and established policies of WFC and Westside Bank and to incentives and
discretionary bonuses as may be authorized, declared and paid by the board of
directors to key management employees. Mr. Milligan shall be entitled to
participate in any plan relating to incentive and deferred compensation, stock
options, stock purchase, pension, thrift, profit sharing, group life insurance,
medical coverage, disability coverage, education, or other retirement or
employee benefits that WFC or Westside Bank adopts for the benefit of its
executive employees and for employees generally, subject to the eligibility
rules of such plans. Mr. Milligan shall continue to be provided an automobile
of a make and model appropriate to his status and he shall be reimbursed
reasonable expenses for dues and capital assessments for country and dining
club memberships.
In the event that Mr. Milligan's employment is involuntarily
terminated prior to a "Change in Control," as defined in the employment
agreement and discussed generally below, Mr. Milligan shall be paid his base
salary and fringe benefits up through the date of termination. In addition, in
full settlement of all claims which he may have against WFC and Westside Bank
for contractual damages for breach of the employment agreement, he shall be
paid at least the following amounts: a lump sum amount equal to one (1) times
the annual base salary paid to him over the previous twelve (12) month period,
plus a lump sum amount equal to one (1) times the annual incentive cash bonus
paid to him over the previous twelve (12) month period.
After a Change in Control has occurred, in the event that Mr. Milligan
is terminated without "cause," he shall be paid his base salary and fringe
benefits up through the date of termination. In addition, in full settlement
of all claims which Mr. Milligan shall have against WFC and Westside Bank for
contractual damages for breach of the employment agreement, he shall be paid
the following amounts: a lump sum equal to two (2) times the annual base
salary paid to him over the previous twelve (12) month period, plus a lump sum
amount equal to two (2) times the annual incentive cash bonus paid to him over
the twelve (12) month period.
In addition, in both cases he shall be entitled to participate for the
shorter of a period of twelve (12) months or twenty-four (24) months
respectively, from the date of such
38
<PAGE> 50
termination or until such time as the officer is employed by another employer
in all welfare benefit plans practices, policies and programs at least as
favorable as the most favorable of such plan, practices, policies and programs
in effect at any time during the ninety (90) day period preceding his
termination; provided, that in the event the officer is employed by another
employer before the end of such time period and the new employer does not
provide the same level of welfare benefits that the officer is entitled to
under the employment agreement, then WFC and Westside Bank shall provide such
supplemental benefits as necessary to ensure that the officer has the same
level of welfare benefit coverage.
After a Change in Control, if Mr. Milligan voluntarily terminates his
employment for good reason (as defined in the employment agreement which
includes among other things an adverse change in his status, title, position or
responsibilities) he shall be entitled to receive his base compensation,
incentive bonus and fringe benefits and participate in all welfare benefit
plans up through the date of termination. In addition, he shall receive the
following amounts: a lump sum amount equal to two (2) times the annual base
salary paid to the officer over the previous twelve (12) month period, plus a
lump sum amount equal to two (2) times the annual incentive cash bonus paid to
the officer over the previous twelve (12) month period.
A "Change in Control" includes: the acquisition by certain persons of
beneficial ownership within the meaning of Rule 13d-2 promulgated under the
Securities Exchange Act of 1934 (the "1934 Act") of 20% or more of the voting
power of WFC's outstanding voting stock; a change in one-third (1/3) of WFC's
board membership unless approved by two-thirds (2/3) of the WFC board; or a
merger, consolidation, reorganization, complete liquidation or dissolution
involving WFC or an agreement for the sale or other disposition of all or
substantially all of the assets of WFC to any person (other than a transfer to
a subsidiary).
EASTSIDE BANK
There are no employment agreements, contracts, or other arrangements
between EHC and Eastside Bank and any of the principal officers or directors
except for an Executive Salary Continuation Agreement ("Salary Continuation
Agreement") between Eastside Bank and Reggie D. Cox, the Bank's president and
chief executive officer. The Bank and Mr. Cox entered into the Salary
Continuation Agreement effective February 15, 1995 and continuing through
February 14, 1997 (the "Term"). If a "Change in Control" as defined below
occurs during the Term and as a result thereof either (i) Mr. Cox is
terminated, except "for cause" as defined below, at any time following the
Change in Control and before he reaches age 65, or (ii) Mr. Cox has a "Change
in Duties or Salary" (as defined below) and resigns as a result of such
changes, then he shall be paid immediately following such resignation or
termination an amount equal to one (1) times his average annual taxable
compensation from Eastside Bank and its affiliates for the most recent three
taxable years ending before the Change in Control. A "Change in Control" shall
mean a change in control, or the execution of a definitive agreement or that
acceptance of an offer by the Bank contemplating a change in control, of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the 1934 Act; provided that,
without limitation, such a change in control shall be deemed to have occurred
39
<PAGE> 51
if (a) any "person" (as such term is used in Rule 13d-3 under the 1934 Act), is
or becomes the "beneficial owner" (as defined in Rule 13d-3 under the 1934 Act)
directly or indirectly, of securities of the Bank representing 25% or more of
the combined voting power of the Bank's then outstanding voting securities; or
(b) during any period of two consecutive years, individuals who at the
beginning of such period constitute the board of directors of the Bank,
respectively cease, for any reason, to constitute a majority thereof unless the
election or the nomination for election by the Bank's shareholders, of each new
director was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of such period.
"Change in Duties or Salary" of Mr. Cox shall mean any of: (a) a
change in duties and responsibilities from his duties and responsibilities for
the Bank in effect at the time a Change in Control occurs, which change results
in the assignment of duties and responsibilities inferior to his duties and
responsibilities at the time such Change in Control occurs; (b) a reduction in
rate of annual salary from such rate in effect at the time of the Change in
Control; or (c) a change in his place of assignment from Snellville, Georgia,
to any other city or geographical location that is located further than 25
miles from the principal office of the Bank in Snellville, Georgia.
The Bank shall have "Cause" to terminate Mr. Cox's employment under
the Salary Continuation Agreement only if termination shall have been approved
by at least two-thirds (2/3) of the board of directors as the result of an act
or acts of personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule, or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order, or material
breach of any provision of the Salary Continuation Agreement. Mr. Cox will not
be entitled to any salary continuation payment on or after any of the following
events: the insolvency of the Bank; the appointment of any conservator or
receiver for the Bank; a determination by the FDIC or the Georgia Department
that the Bank is in a "troubled" condition, as defined in the applicable
regulations; the Bank is assigned a composite rating of 4 or 5 by the FDIC
under the Uniform Financial Institutions Rating Systems of the Federal
Financial Institutions Examination Council; or, the FDIC initiates a proceeding
against the Bank to terminate or suspend deposit insurance for the Bank.
DIRECTOR COMPENSATION
WFC AND WESTSIDE BANK
During 1995, the Directors of Westside Bank were paid $250 for each
Board Meeting attended and, other than Mr. Milligan, were paid $75 for each
committee meeting attended. During 1995, the Directors of Westside Bank were
paid a total of $62,000 for such services. During 1996, the Directors of
Westside Bank shall be paid $500 for each Board Meeting attended and, other
than Mr. Milligan, $100 for each committee meeting attended. The Directors of
WFC receive no cash payment for Board or committee meeting attendance.
40
<PAGE> 52
The WFC 1995 Directors Stock Option Plan ("Plan") was adopted by the
Board of Directors of WFC on April 19, 1995 and approved by WFC's shareholders
on May 17, 1995. It was amended by the Board of Directors of WFC on November
15, 1995 and February 21, 1996. Options to purchase WFC Stock may be granted
under the Plan to members of the Board of Directors of WFC or Westside Bank and
to an Emeritus Director who was a voting member of the Board of Directors
within the twelve months preceding the date of any grant of options to such
Emeritus Director. Sixty Thousand (60,000) shares of WFC Stock are authorized
for issuance under the Plan. No stock options may be granted under the Plan
after April 18, 2005.
On April 19, 1995, WFC granted 36,000 options to the members of the
Board of Directors at that time who were not employees of WFC or Westside Bank.
These options have an option exercise price of $11.22 per share and expire on
April 18, 2005, which is ten (10) years from the date the options were granted
by WFC. The Board determined this price to be equal to or greater than the
fair market value of the WFC Stock on April 19, 1995, by reviewing trades of
WFC Stock through an independent broker prior to the date of the grant. On
September 20, 1995, WFC granted options to purchase 22,000 shares to the
members of the Board of Directors at that time who were not employees of WFC or
Westside Bank. These options have an option exercise price of $15.25 per share
and expire on September 19, 2005, ten (10) years after the date of grant. The
Board determined this price to be equal to or greater than the fair market
value of the WFC Stock at the time of the grant. In reaching this
determination it reviewed the record of trades in WFC Stock through an
independent broker immediately preceding September 20, 1995. On November 15,
1995, WFC granted options to purchase 2,000 shares to an Emeritus Director at
an option price of $17.00 per share, which options expire on November 14, 2005.
In reaching the determination that this exercise price was equal to or greater
than the fair market value of WFC Stock on November 15, 1995, the Board
reviewed the record of trades of WFC Stock through an independent broker
immediately prior to November 15, 1995.
EASTSIDE BANK
During 1995, the directors of Eastside Bank were paid $200 per month
and, other than Mr. Cox and Mr. Horn, were paid $50 for each committee meeting
attended. During 1995, the directors of Eastside Bank were paid a total of
$19,200 for such services. During 1996, the chairman of the board shall be
paid $500 per month and the other directors of Eastside Bank shall be paid $350
per month and, other than Mr. Cox and Mr. Horn, $75 for each committee meeting
attended.
CERTAIN OTHER TRANSACTIONS
Each Bank's directors and executive officers, their immediate family
members and certain companies and other entities associated with them, have
been customers of and have had banking transactions with their respective Banks
and are expected to continue such relationships with the Bank in the future.
In the opinion of each Bank's management, the extensions of credit made by the
applicable Bank to such individuals, companies and entities
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<PAGE> 53
(a) were made in the ordinary course of business, (b) were made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons and (c)
did not involve more than a normal risk of collectibility or present other
unfavorable features.
INTERESTS OF MANAGEMENT IN THE TRANSACTION
No directors or officers of WFC or EHC, nor any of their associates,
has any direct or indirect material interest in the Merger other than an
interest resulting solely from ownership of WFC Stock or EHC Stock or from his
or her proposed position as a director or executive officer of WFC or one of
the Banks. Also see "Executive Compensation."
OWNERSHIP OF STOCK
PRINCIPAL HOLDERS OF WFC STOCK
The following table sets forth the entity who beneficially owned at
March 1, 1996, more than five percent (5%) of the outstanding shares of WFC
Stock to the best information and knowledge of WFC. The following table sets
forth the number and percentage ownership of shares of WFC Stock after the
Merger which would be beneficially owned by the person named in the table on a
pro forma basis assuming a WFC stock split effected in the form of a dividend
of 0.21 to 1 (which would have been the WFC stock split effected in the form of
a stock dividend based on the Adjusted Values as of December 31, 1995) and that
no shares of EHC Stock are converted into cash because they are held by a
shareholder who dissents to the Merger. Unless otherwise indicated, such
entity is the record owner of and has sole voting and investment powers over
its shares.
<TABLE>
<CAPTION>
WFC STOCK WFC STOCK
NAME AND ADDRESS OF BENEFICIAL OWNERSHIP(1)(%) BENEFICIAL OWNERSHIP (%)
BENEFICIAL OWNER BEFORE MERGER AFTER MERGER
---------------------- --------------------------- --------------------------
<S> <C> <C>
SouthTrust of Georgia, Inc. 29,999 66,297(3)
c/o SouthTrust Corporation 5.12% 5.06%
420 North 20th Street
Birmingham, Alabama 35203
Edward C. Milligan 31,106(2) 37,638
Westside Financial Corporation 5.16% 2.83%
1200 Barrett Parkway
Kennesaw, Georgia 30144
</TABLE>
NOTES TO TABLE
(1) The information shown above is based upon information available to WFC
in its stock ownership records or forwarded to WFC by the named
person. For purposes of this table, the term "beneficial ownership"
is used as defined in Rule 13d-3 under the 1934 Act. Under applicable
SEC rules, the
42
<PAGE> 54
number of outstanding shares of common stock used in the computation
of the "Percent of Class" includes currently exercisable stock options
owned by the shareholder.
(2) See Note 6 to following table.
(3) Includes 29,999 shares of EHC Stock that will be exchanged for WFC
Stock in the Merger.
WFC STOCK OWNED BY MANAGEMENT
The following table sets forth the number and percentage ownership of
shares of WFC Stock beneficially owned by each director of WFC and by all
directors and executive officers as a group, at March 1, 1996. The following
table also sets forth the number and percentage ownership of shares of WFC
Stock which would be beneficially owned by the persons named in the table on a
pro forma basis assuming a WFC stock split effected in the form of a stock
dividend of 0.21 to 1 which would have been the WFC stock split effected in the
form of a stock dividend based on the Adjusted Values as of December 31, 1995.
Unless otherwise indicated, each person is the record owner of and has sole
voting and investment powers over his or her shares.
43
<PAGE> 55
<TABLE>
<CAPTION>
WFC STOCK WFC STOCK
NAME OF BENEFICIAL OWNERSHIP(1)(%) BENEFICIAL OWNERSHIP (%)
BENEFICIAL OWNER BEFORE MERGER AFTER MERGER
---------------- --------------------------- ---------------------------
<S> <C> <C>
Robert E. Bowden 8,453(2)(3) 10,228
1.43% 0.78%
L. Myron Cantrell 9,750(3) 11,797
1.65% 0.90%
Jane M. Carithers 6,620(3) 8,010
1.12% 0.61%
Lillian B. Darden 5,515(3) 6,673
0.93% 0.51%
David N. Hauseman 26,400(3)(4) 35,444(10)
4.46% 2.69%
Jeff A. Hedden, Jr. 16,253(3) 19,666
2.75% 1.49%
P. Harris Hines 7,275(3) 8,802
1.23% 0.67%
J. Richard Mahaffey 10,182(3)(5) 12,320
1.72% 0.94%
Edward C. Milligan 31,106(6) 37,638
5.16% 2.83%
James J. Tidwell, Sr. 19,000(3)(7) 22,990
3.21% 1.75%
Fred Williams, Jr. 7,126(3)(8) 8,622
1.21% 0.66%
Benjamin H. Wofford 26,853(3)(9) 32,492
4.54% 2.47%
All Directors and Executive 188,033(11) 231,020(10)(12)
Officers as a Group 28.09% 16.37%
(13 persons)
</TABLE>
NOTES TO TABLE
(1) The information shown above is based upon information forwarded to WFC
by the named persons. For purposes of this table, the term
"beneficial ownership" is used as defined in Rule 13d-3 under the 1934
Act. Under applicable SEC rules the number of outstanding shares of
common stock used in the computation of the "Percent of Class"
includes currently exercisable stock options owned by the shareholder.
(2) Includes 3,253 shares of WFC Stock held by Bowden & Cole Associates, a
general partnership.
(3) Includes 5,000 shares of WFC Stock obtainable upon the exercise of
options.
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<PAGE> 56
(4) Includes 500 shares held in an IRA, 500 shares held by spouse and 300
shares owned by Mr. Hauseman's minor children.
(5) Includes 175 shares held by minor children.
(6) Includes 16,000 shares of WFC Stock obtainable upon the exercise of
options and 500 shares held by Mr. Milligan's minor children.
(7) Includes 250 shares held by spouse, 500 shares held by minor children,
and 250 shares held by Mr. Tidwell's daughter.
(8) Includes 1,000 held as joint tenant with spouse.
(9) Includes 5,000 shares held as joint tenant with spouse.
(10) Includes 3,500 shares of EHC stock owned by Mr. Hauseman which will be
converted to WFC Stock in the Merger.
(11) Includes 83,000 shares of WFC Stock obtainable upon the exercise of
options.
(12) Includes 100,430 shares of WFC Stock obtainable upon the exercise of
options.
PRINCIPAL HOLDERS OF EHC STOCK
The following table sets forth the persons who beneficially owned, at
March 1, 1996, more than five percent (5%) of the outstanding shares of EHC
Stock to the best information and knowledge of EHC. The following table also
sets forth the number and percentage ownership of shares of WFC Stock which
would be beneficially owned by the persons named in the table on a pro forma
basis assuming the Merger is consummated and a WFC stock split effected in the
form of a stock dividend of 0.21 to 1 (which would have been the WFC stock
split effected in the form of a stock dividend based on the Adjusted Values as
of December 31, 1995) and that no shares of EHC Stock are converted into cash
because they are held by a shareholder who dissents to the Merger. Unless
otherwise indicated, each person is the record owner of and has sole voting and
investment powers over his or her shares.
<TABLE>
<CAPTION>
EHC STOCK WFC STOCK
NAME AND ADDRESS OF BENEFICIAL OWNERSHIP(1)(%) BENEFICIAL OWNERSHIP (%)
BENEFICIAL OWNER BEFORE MERGER AFTER MERGER
-------------------- ------------------------- --------------------------
<S> <C> <C>
Life of the South Insurance Company 31,235 32,445(2)
205 Dogwood Drive 5.21% 2.48%
Nashville, Georgia 31639-1436
</TABLE>
NOTES TO TABLE
(1) The information shown above is based upon information available to
EHC.
(2) Includes 1,000 shares of WFC Stock owned prior to the Merger and a WFC
stock split effected in the form of a stock dividend of 210 shares.
45
<PAGE> 57
EHC STOCK OWNED BY MANAGEMENT
The following table sets forth the number and percentage ownership of
shares of EHC Stock beneficially owned by each director of EHC and by all
directors and executive officers as a group, at March 1, 1996. The following
table also sets forth the number and percentage ownership of shares of WFC
Stock which would be beneficially owned by the persons named in the table on a
pro forma basis assuming the Merger is consummated and a WFC stock split
effected in the form of a stock dividend of 0.21 to 1 (which would have been
the WFC stock split effected in the form of a stock dividend based on the
Adjusted Values as of December 31, 1995) and that no shares of EHC Stock are
converted into cash because they are held by a shareholder who dissents to the
Merger. Unless otherwise indicated, each person is the record owner of and has
sole voting and investment powers over his or her shares.
<TABLE>
<CAPTION>
EHC STOCK WFC STOCK
NAME OF BENEFICIAL OWNERSHIP(1)(%) BENEFICIAL OWNERSHIP (%)
BENEFICIAL OWNER BEFORE MERGER AFTER MERGER
---------------- ------------------------- --------------------------
<S> <C> <C>
Robert H. Burkett 6,743(2) 6,743
1.12% 0.51%
DiAnn B. Cox 6,500 6,500
1.08% 0.50%
Reggie D. Cox 16,086(4) 16,086
2.61% 1.23%
Frank M. Darby 5,000 5,000
0.83% 0.38%
William E. Eckard 1,150(5) 1,150
0.19% 0.08%
Thomas R. Gaines 5,000(6) 5,000
0.86% 0.39%
Ernest L. Horn, Jr. 14,886(7) 14,886
2.43% 1.14%
Harry L. Hudson, Jr. 10,000(8) 16,050(9)
1.67% 1.23%
C. Dean Robinson 1,000 1,000
0.17% 0.08%
William E. Smith 22,750 22,750
3.79% 1.74%
John S. Thibadeau, Jr. 5,000 5,000
0.83% 0.38%
All Directors and Executive 102,481(10) 108,531(9)(11)
Officers as a Group 16.09% 8.29%
(12 persons)
</TABLE>
NOTES TO TABLE
(1) The information shown above is based upon information forwarded to EHC
by the named persons. For purposes of this table, the term
"beneficial ownership" is used as defined in Rule 13d-3 under the 1934
Act. Under applicable SEC rules the number of outstanding shares of
common stock used in the computation of the "Percent of Class"
includes currently exercisable stock options owned by the shareholder.
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<PAGE> 58
(2) Includes 6,743 shares held as joint tenant with spouse.
(3) Includes 5,500 shares held as joint tenant with spouse and 1,000 share
held in an IRA for spouse.
(4) Includes 15,666 shares of EHC Stock obtainable upon the exercise of
options.
(5) Includes 1,000 shares of EHC Stock held by a corporation controlled by
Mr. Eckard and 50 shares owned by his son.
(6) Includes 5,000 shares held as joint tenant with spouse.
(7) Includes 13,166 shares of EHC Stock obtainable upon the exercise of
options; 1,500 shares held as joint tenant with spouse; 120 shares
held as custodian for daughter; and 100 shares held jointly with
brother and father.
(8) Includes 10,000 shares held as joint tenant with spouse.
(9) Includes 5,000 shares of WFC Stock owned by Mr. Hudson and 1,050
shares of WFC stock split effected in the form of a stock dividend.
(10) Includes 36,998 shares of EHC Stock obtainable upon the exercise of
options.
(11) Includes 36,998 shares of WFC Stock obtainable upon the exercise of
options.
BUSINESS
WFC
WFC was incorporated as a Georgia corporation in 1994, for the initial
purpose of acquiring all of the issued and outstanding shares of Westside Bank
stock. As a bank holding company, WFC has power to acquire banks located
throughout Georgia, and WFC's Board of Directors may consider additional
acquisitions in the future. Any acquisitions of additional banks would be
subject to prior regulatory approval.
WFC may also engage in permissible nonbanking activities, but WFC's
management has no plans with respect to nonbanking activities at this time.
WFC's future nonbanking activities may include financial and other activities
permitted by law, and such activities could be conducted by subsidiary
corporations that have not yet been organized. Commencement of nonbanking
operations by subsidiaries, if they are organized, will be contingent upon
approval by the Board of Directors of WFC and by appropriate regulatory
authorities.
Except for two officers of Westside Bank who presently serve as
officers of WFC, WFC does not have any employees.
WFC's main office is located at Westside Bank's main office, 1200
Barrett Parkway, Kennesaw, Georgia 30144. At the present time, WFC does not
have any plans to establish additional offices.
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<PAGE> 59
WESTSIDE BANK
GENERAL
Westside Bank was incorporated in 1989 under the laws of the State of
Georgia and commenced business on May 14, 1990. It operates a full-service
commercial banking business based in Cobb County, Georgia, providing such
customary banking services as checking and savings accounts, various types of
time deposits, money transfers, safe deposit facilities and individual
retirement accounts. It also finances commercial transactions, makes secured
and unsecured loans, and provides other financial services to its customers.
As of March 1, 1996, the Westside Bank had 22 full-time and part-time
employees. Westside Bank is not a party to any collective bargaining
agreement, and, in the opinion of management, it enjoys excellent relations
with its employees.
Westside Bank's main office is located at 1200 Barrett Parkway,
Kennesaw, Georgia 30144. Its telephone number at its main office is (770)
499-2265. Westside Bank owns its office property without encumbrance.
The Kennesaw location represents a central location for North Cobb
County and a northwest location for the Metropolitan Atlanta area. Westside
Bank serves the northern quadrant of Cobb County which includes a large number
of residential communities. The area surrounding Westside Bank has a
substantial level of commercial and retail businesses and includes Town Center
at Cobb Mall, one of the largest shopping districts in Georgia, which is
located less than two miles from Westside Bank's main office. Cobb County and
North Cobb have experienced strong growth during the last decade, and
demographic trends indicate that significant increases in population and
household incomes will continue. The population is expected to increase 48.8%
from 447,745 in 1990 to 660,467 in 2000. (Source: Atlanta Regional
Commission)
Westside Bank expects to open a branch at 751 Whitlock Avenue,
Marietta, Georgia on or before July 1, 1996. This branch shall be located 1.2
miles west of the Marietta Square area which is the central business and
government district of the City of Marietta and Cobb County. Westside Bank
owns this property without encumbrance. The Marietta Square area represents
the largest concentration of bank deposits within Cobb County and it is
presently served by only one community bank.
LENDING ACTIVITIES
GENERAL. Westside Bank makes commercial loans, real estate loans and
consumer loans. At December 31, 1995, such loans constituted 11.6%, 79.6% and
8.8%, respectively, of total loans.
REAL ESTATE LOANS. While there are no specific real estate values to
cite, it is widely recognized that values within Westside Bank's primary market
area have steadily risen since 1992. Construction starts within Cobb County
rose 13% in 1993, 6% in 1994, and rose 8% in 1995 to 4,446.
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<PAGE> 60
Westside Bank's real estate portfolio is broadly divided into
construction loans and mortgage loans. The bank is not a residential first
mortgage lender although it does engage in commercial mortgages and consumer
second mortgage transactions such as home equity lines of credit. The vast
majority of the bank's real estate lending is within the bank's primary market
area with comparatively little in the secondary market area.
Westside Bank makes residential construction loans for single family
structures. It requires a first lien position on the land associated with the
construction project. Westside Bank offers these loans only to bona fide
residential building contractors. Loan disbursements require on-site
inspections to assure the project is on budget and the loan proceeds are being
used for the construction project and not being diverted to another project. The
loan to value ratio for such loans is predominantly 75% of the as-built
appraised value. Loans for construction can present a high degree of risk to
the lender, depending upon, among other things, whether the builder can sell the
inventory, whether the transaction produces income and the nature of changing
economic conditions. In 1995, construction loan balances averaged $10,602,000.
Westside Bank also makes acquisition and development loans to Westside
Bank approved developers for the purpose of developing acreage into single
family lots on which houses will be built. Loan disbursements require on-site
inspections to assure the project is on budget and that the loan proceeds are
being used for the development project and not being diverted to another
project. The loan to value ratio for such loans does not exceed 75% of the
discounted value, as defined in the appraisal report, of the land to be
developed and the proposed project improvements or 75% of the appraised value of
undeveloped land being held for future development. Loans for acquisition and
development can present a high degree of risk to the lender, depending upon,
among other things, whether the developer can find builders to buy the lots,
whether the developer can build out the subdivision himself, whether the
transaction produces income in the interim and the nature of changing economic
conditions. Acquisition and development loan balances are included in the
construction loan figure referenced above and annual averages outstanding are
not available. On December 31, 1995, the outstanding balance on acquisition and
development loans was $566,513.
Mortgage loans include primarily owner occupied commercial properties
financed with balloon payment notes with an 80% loan to value as evidenced by
conforming appraisals. Underwriting includes cash flow analysis of the
borrower's ability to service the debt. The bank has not sought non-owner
occupied properties although occasionally they may be financed on a 75% loan to
value as evidenced by conforming appraisals and with proper analysis of the
project's cash flow and the borrower's ability to service the debt. In 1995,
the average balance of mortgage loans was $14,852,000.
Home equity lines of credit are generally approved through the bank's
standard underwriting process with an 80% loan to value (combined first and
second mortgages) on owner occupied residential properties. In 1995, home
equity lines of credit averaged $1,870,000.
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<PAGE> 61
CONSUMER LOANS. Westside Bank's consumer loans consist primarily of
installment loans to individuals for personal, family and household purposes,
including loans for automobiles, home improvements and investments. Risks
associated with these loans include, but are not limited to, fraud,
deteriorated or non-existing collateral, general economic downturn and customer
financial problems. The bank offers secured and unsecured credit to consumers
via single payment and installment loans, personal lines of credit and home
equity lines of credit. Each loan is supported by a credit application or
personal financial statement submitted by the borrowers, credit bureau report,
and an analysis of the income and expenses of the borrower for compliance with
the bank's loan policy. For collateralized loans, the collateral is evaluated
and margined according to the bank's loan policy; margins vary depending upon
the type of collateral. In 1995, the consumer loans, including home equity
lines of credit, averaged $3,192,000.
COMMERCIAL LOANS. Commercial lending is directed principally toward
businesses whose demand for funds falls within Westside Bank's legal lending
limits and who are existing or prospective deposit customers of Westside Bank.
This category of loans includes loans made to individual, partnership or
corporate borrowers, and obtained for a variety of business purposes. Risks
associated with these loans can be significant. Risks include, but are not
limited to, fraud, bankruptcy, economic downturn, deteriorated or non-existing
collateral and changes in interest rates. Commercial loans are extended on both
an unsecured and secured basis depending upon the borrower's financial strength
and credit history. All commercial loans are supported by current financial
information, including balance sheets and income statements. Statements are
analyzed by the loan officer to determine that working capital is sufficient to
repay short-term loans and cash flow is sufficient to provide debt service
coverage on long-term loans. Security on commercial loans consists of eligible
accounts receivable and inventory, marketable securities, equipment,
certificates of deposit, cash surrender value of life insurance and personal
guarantees of the principals and/or related interests. In 1995 commercial loans
averaged $5,913,000.
Westside Bank also makes commercial loans to small businesses with
respect to which the SBA guarantees repayment of 75% to 90% of the loan amount,
subject to other limitations. At its election, Westside Bank may sell the
guaranteed portion of these loans to institutional investors in the secondary
markets. Risks associated with these loans include, but are not limited to,
credit risk, e.g., fraud, bankruptcy, economic downturn, deteriorated or non-
existing collateral and changes in interest rates, and operational risk, e.g.,
failure of Westside Bank to adhere to SBA funding and servicing requirements in
order to secure and maintain the SBA guarantees and servicing rights.
INVESTMENT ACTIVITIES
After establishing necessary cash reserves and funding loans, Westside
Bank invests its remaining liquid assets in investments allowed under banking
laws and regulations. It invests primarily in obligations of the United States
or obligations guaranteed as to principal and interest by the United States, in
other taxable securities and in certain obligations of
50
<PAGE> 62
states and municipalities. It also engages in Federal Funds transactions with
its principal correspondent banks and primarily acts as a net seller of such
funds. The sale of Federal Funds amounts to a short-term loan from Westside
Bank to another bank. Risks associated with these investments include, but are
not limited to, mismanagement in terms of interest rate, maturity and
concentration. Traditionally, losses associated with the investment portfolio
have been minimal.
ASSET/LIABILITY MANAGEMENT
It is the objective of Westside Bank to manage its assets and
liabilities to provide a satisfactory, consistent level of profitability within
the framework of established cash, loan, investment, borrowing and capital
policies. Certain officers of Westside Bank are charged with the
responsibility for developing and monitoring policies and procedures that are
designed to ensure acceptable composition of the asset/liability mix. It is
the overall philosophy of management to support asset growth primarily through
growth of core deposits, which include deposits of all categories made by
individuals, partnerships and corporations. Management of Westside Bank seeks
to invest the largest portion of the bank's assets in consumer/installment,
commercial and real estate-related loans. Westside Bank's asset/liability mix
is monitored on a timely basis with a report reflecting the interest-sensitive
assets and interest-sensitive liabilities being prepared and presented to its
Board of Directors on a monthly basis. The objective of this policy is to
control interest-sensitive assets and liabilities so as to minimize the impact
of substantial movements in interest rates on Westside Bank's earnings.
COMPETITION
Westside Bank competes for both deposit and loan customers with other
financial institutions with equal or greater resources than are available to
Westside Bank. Currently there are approximately nine (9) different commercial
banks located in the northern Cobb County banking market and seven (7)
different commercial banks located in the Marietta Square area, making the
banking business in both of these markets highly competitive.
LEGAL PROCEEDINGS
To the knowledge of WFC or Westside Bank, there are no material legal
proceedings, pending or contemplated, to which WFC or Westside Bank is a party
or of which any of their properties are subject; nor are there material
proceedings known to WFC or Westside Bank to be contemplated by any
governmental authority; nor are there material proceedings known to WFC or
Westside Bank, pending or contemplated, in which any director, officer or
affiliate or any principal security holder of WFC or Westside Bank, or any
associate of any of the foregoing, is a party or has an adverse interest.
EHC
EHC was incorporated as a Georgia corporation in 1995, for the initial
purpose of acquiring all of the issued and outstanding shares of Eastside Bank
stock. As a bank holding
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<PAGE> 63
company, EHC has the power to acquire banks located throughout Georgia and in
other states as well. Except for two officers of Eastside Bank who presently
serve as officers of EHC, EHC does not have any employees. EHC's main office
is located at Eastside Bank's main office, 2019 Scenic Highway, Snellville,
Georgia 30278.
EASTSIDE BANK
GENERAL
Eastside Bank was incorporated on July 14, 1989 under the laws of the
State of Georgia and commenced business on January 22, 1990. It operates a
full-service commercial banking business based in Gwinnett County, Georgia,
providing such customary banking services as checking and savings accounts,
various types of time deposits, money transfers, safe deposit facilities and
individual retirement accounts. It also finances commercial transactions,
makes secured and unsecured loans, and provides other financial services to its
customers.
As of March 1, 1996, Eastside Bank had 26 full-time and part-time
employees. The Eastside Bank is not a party to any collective bargaining
agreement, and, in the opinion of management, Eastside Bank enjoys excellent
relations with its employees.
Eastside Bank's main office is located at 2019 Scenic Highway,
Snellville, Georgia 30278. Its telephone number at its main office is (770)
979-2265. Eastside Bank owns its office property without encumbrance.
The Snellville location represents a central location for southern
Gwinnett County and an eastern location for the Metropolitan Atlanta area.
Eastside Bank serves the southern quadrant of Gwinnett County which includes a
large number of residential communities. The area surrounding Eastside Bank
has a substantial number of commercial and retail businesses and includes
Presidential Market Shopping Center, which is located less than one mile from
Eastside Bank's main office. Gwinnett County has experienced strong growth
during the last decade, and demographic trends indicate that significant
increases in population and household incomes will continue.
LENDING ACTIVITIES
GENERAL. Eastside Bank makes commercial loans, real estate loans and
consumer loans. At December 31, 1995, such loans constituted 28.39%, 55.45%
and 16.16%, respectively, of total loans.
REAL ESTATE LOANS. Eastside Bank makes residential construction loans
for one to four unit family structures. It requires a first lien position on
the land associated with the construction project. Eastside Bank offers these
loans only to bona fide residential building contractors. Loan disbursements
require on-site inspections to assure the project is on budget and the loan
proceeds are being used for the construction project and not being diverted to
another project. The loan to value ratio for such loans is predominantly 75%
of the as-built
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<PAGE> 64
appraised value, and is a maximum of 90% if the loan is amortized. Loans for
construction can present a high degree of risk to the lender, depending upon,
among other things, whether the builder can sell the home to a buyer, whether
the buyer can obtain permanent financing, whether the transaction produces
income in the interim and the nature of changing economic conditions.
Over the two year period of 1994 and 1995, construction starts in
Gwinnett County have accounted for approximately 34% of all starts in the six
county north metropolitan Atlanta area. Starts within the Eastside Bank's
market area accounted for approximately 19% of all starts within Gwinnett
County and approximately 6% of starts in the 6 county area. When viewed on an
annual and half-year basis, numbers of starts have remained relatively stable.
Total 1994 and 1995 starts for Eastside Bank's market area were 1,208 and 1,192
respectively. Trends for half-year periods beginning with the first half of
1994 were 604, 604, 494 and 698. As can be seen, the first half of 1995 saw a
significant decline in starts compared to the prior period. However, this was
largely made up for by an increase in second half starts. Real estate values
over the recent past have remained fairly stable with mild appreciation.
Eastside Bank also makes acquisition and development loans to its
approved developers for the purpose of developing acreage into single family
lots on which houses will be built. These loans are secured by a first lien
position on the property. Loan disbursements require on-site inspections to
assure the project is on budget and that the loan proceeds are being used for
the development project and not being diverted to another project. The loan to
value ratio for such loans does not exceed 75% of the discounted value, as
defined in the appraisal report, of the land to be developed or 75% of the
appraised value of undeveloped land being held for future development. Loans
for acquisition and development can present a high degree of risk to the
lender, depending upon, among other things, whether the developer can find
builders to buy the lots, whether the builder can obtain financing, whether the
transaction produces income in the interim and the nature of changing economic
conditions.
Eastside Bank also makes real estate mortgage loans for the
acquisition or improvement of one to four family residential and commercial
property. Such loans may be secured by a first or junior lien on the property.
The bank's underwriting standards permit loans up to 80% of the appraised value
of the property, less the amount of any senior liens. Loans are made with
primary weight on the borrowers debt repayment history and cash flow.
CONSUMER LOANS. Eastside Bank's consumer loans consist primarily of
installment loans to individuals for personal, family and household purposes,
including loans for automobiles, home improvements and investments. Risks
associated with these loans include, but are not limited to, fraud,
deteriorated or non-existing collateral, general economic downturn and customer
financial problems.
COMMERCIAL LOANS. Commercial lending is directed principally toward
businesses whose demand for funds falls within Eastside Bank's legal lending
limits and who are existing or prospective deposit customers of the Bank. This
category of loans includes loans made to individual, partnership or corporate
borrowers, and obtained for a variety of
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business purposes. Risks associated with these loans can be significant.
Risks include, but are not limited to, fraud, bankruptcy, economic downturn,
deteriorated or non-existing collateral and changes in interest rates.
Depending upon the type of business, economic downturns could have significant
adverse effects on these loans. Typically, commercial loans will be
collateralized by real estate or equipment. Loans secured by real estate may
be made in amounts up to 75% of the appraised value less any senior liens on
the property. Loans secured by equipment may be for up to 80% of the
collateral's value. Other assets of the company, such as inventory and
accounts receivable, may be taken as collateral to strengthen the bank's
position. Loans to closely held corporations and limited liability companies
require the personal guarantee of the owner(s). Regardless of collateral
taken, lending decisions are based primarily on the business's (and owner's if
appropriate) credit history and ability to repay through the operating cash
flows of the business.
Eastside Bank also makes commercial loans to small businesses with
respect to which the SBA guarantees repayment of 65% to 90% of the loan amount,
subject to other limitations. Loans made under the SBA program must meet the
same underwriting standards of the bank's other commercial loans. At its
election, Eastside Bank may sell the guaranteed portion of these loans to
institutional investors in the secondary markets. Risks associated with these
loans include, but are not limited to, credit risk, e.g., fraud, bankruptcy,
economic downturn, deteriorated or non-existing collateral and changes in
interest rates, and operational risk, e.g., failure of Eastside Bank to adhere
to SBA funding and servicing requirements in order to secure and maintain the
SBA guarantees and servicing rights.
The 1995 average loan balances for the following categories are as follows
(X1000):
<TABLE>
<S> <C>
Commercial $ 9,560
Real estate-construction 8,486
Real estate-mortgage 9,343
Installment loans to individuals & other 5,872
Total $33,261
</TABLE>
INVESTMENT ACTIVITIES
After establishing necessary cash reserves and funding loans, Eastside
Bank invests its remaining liquid assets in investments allowed under banking
laws and regulations. It invests primarily in obligations of the United States
or obligations guaranteed as to principal and interest by the United States, in
other taxable securities and in certain obligations of states and
municipalities. It also engages in Federal Funds transactions with its
principal correspondent banks and primarily acts as a net seller of such funds.
The sale of Federal Funds amounts to a short-term loan from Eastside Bank to
another bank. Risks associated with these investments include, but are not
limited to, mismanagement in terms of interest rate, maturity and
concentration. Traditionally, losses associated with the investment portfolio
have been minimal.
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<PAGE> 66
ASSET/LIABILITY MANAGEMENT
It is the objective of Eastside Bank to manage its assets and
liabilities to provide a satisfactory, consistent level of profitability within
the framework of established cash, loan, investment, borrowing and capital
policies. Certain officers of Eastside Bank are charged with the
responsibility for developing and monitoring policies and procedures that are
designed to ensure acceptable composition of the asset/liability mix. It is
the overall philosophy of management to support asset growth primarily through
growth of core deposits, which include deposits of all categories made by
individuals, partnerships and corporations. Management of Eastside Bank seeks
to invest the largest portion of its assets in consumer/installment, commercial
and real estate-related loans. Eastside Bank's asset/liability mix is
monitored on a timely basis with a report reflecting the interest-sensitive
assets and interest-sensitive liabilities being prepared and presented to
Eastside Bank's Board of Directors on a monthly basis. The objective of this
policy is to control interest-sensitive assets and liabilities so as to
minimize the impact of substantial movements in interest rates on its earnings.
COMPETITION
Eastside Bank competes for both deposits and loan customers with other
financial institutions with equal or greater resources than are available to
Eastside Bank. Currently there are approximately seven (7) different
commercial banks located in the southern Gwinnett County banking market, making
the banking business in this market highly competitive.
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which EHC or
Eastside Bank is a party or of which any of their properties are subject; nor
are there material proceedings known to EHC or Eastside Bank to be contemplated
by any governmental authority; nor are there material proceedings known to EHC
or Eastside Bank, pending or contemplated, in which any director, officer or
affiliate or any principal security holder of EHC or Eastside Bank, or any
associate of any of the foregoing, is a party or has an adverse interest.
SUPERVISION AND REGULATION
BANK HOLDING COMPANY REGULATION
Both WFC and EHC are bank holding companies within the meaning of the
Bank Holding Company Act of 1956, as amended (the "Holding Company Act"), and
are registered with the Federal Reserve. Their banking subsidiaries are
subject to restrictions under federal law which limit the transfer of funds by
the subsidiary banks to their respective holding companies and nonbanking
subsidiaries, whether in the form of loans, extensions of credit, investments
or asset purchases. Such transfers by any subsidiary bank to its holding
company or any nonbanking subsidiary are limited in amount to 10% of the
subsidiary bank's capital and surplus. Furthermore, such loans and extensions
of credit are required to be secured in specified amounts. The Holding Company
Act also prohibits, subject to certain exceptions, a bank holding company from
engaging in or acquiring direct or indirect control
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<PAGE> 67
of more than 5 % of the voting stock of any company engaged in non-banking
activities. An exception to this prohibition is for activities expressly found
by the Federal Reserve to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto.
As bank holding companies, WFC and EHC are required to file with the
Federal Reserve reports and such additional information as the Federal Reserve
may require. The Federal Reserve may also make examinations of WFC and EHC and
each of their subsidiaries.
According to Federal Reserve policy, bank holding companies are
expected to act as a source of financial strength to each subsidiary bank and
to commit resources to support each such subsidiary. This support may be
required at times when a bank holding company may not be able to provide such
support. Furthermore, in the event of a loss suffered or anticipated by the
FDIC -- either as a result of default of a banking or thrift subsidiary of WFC
or EHC or related to FDIC assistance provided to a subsidiary in danger of
default --the other banking subsidiaries of WFC or EHC may be assessed for the
FDIC's loss, subject to certain exceptions.
Various federal and state statutory provisions limit the amount of
dividends the subsidiary banks can pay to their holding companies without
regulatory approval. The Georgia Financial Institutions Code and the
regulations promulgated thereunder by the Georgia Department provide (a) that
dividends of cash or property may be paid only out of the bank's retained
earnings, (b) that dividends may not be paid if the bank's paid-in capital and
retained earnings which are set aside for dividend payment and other
distributions do not, in combination, equal at least 20% of the bank's capital
stock, and (c) that dividends may not be paid without prior approval of the
Georgia Department if (i) the bank's total classified assets at its most recent
examination exceed 80% of its equity capital, (ii) the aggregate amount of
dividends to be declared exceeds 50% of the bank's net profits after taxes but
before dividends for the previous calendar year or (iii) the ratio of equity
capital to total adjusted assets is less than 6%. Under the foregoing laws and
regulations and without prior approval of the Georgia Department, at December
31, 1995, $485,000 was available for payment of dividends to WFC by Westside
Bank, and approximately $271,000 was available for payment of dividends to EHC
by Eastside Bank. The payment of dividends by any bank also may be affected by
other factors, such as the maintenance of adequate capital for such subsidiary
bank. In addition to the foregoing restrictions, the Federal Reserve has the
power to prohibit dividends by bank holding companies if their actions
constitute unsafe or unsound practices. The Federal Reserve has issued a
policy statement on the payment of cash dividends by bank holding companies,
which expresses the Federal Reserve's view that a bank holding company
experiencing earnings weaknesses should not pay cash dividends that exceed its
net income or that could only be funded in ways that weaken the bank holding
company's financial health, such as by borrowing.
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<PAGE> 68
CAPITAL GUIDELINES
The Federal Reserve has issued final risk-based capital guidelines for
bank holding companies and member banks. The guidelines, which became
effective in March 1989, were phased in over four years and, as of January I,
1993, were final. Under the guidelines, the minimum ratio of capital to
risk-weighted assets (including certain off-balance sheet items, such as
standby letters of credit) is 8%. To be considered a "well capitalized" bank
or bank holding company under the guidelines, a bank or bank holding company
must have a total risk-based capital ratio in excess of 10%. At December 31,
1995, WFC and Westside Bank and EHC and Eastside Bank were sufficiently
capitalized to be considered "well capitalized." At least half of the total
capital is to be comprised of common equity, retained earnings and a limited
amount of perpetual preferred stock, after subtracting goodwill and certain
other adjustments ("Tier I capital"). The remainder may consist of perpetual
debt, mandatory convertible debt securities, a limited amount of subordinated
debt, other preferred stock not qualifying for Tier I capital and a limited
amount of loan loss reserves ("Tier 2 capital"). Westside Bank and Eastside
Bank are subject to similar capital requirements adopted by the FDIC. In
addition, the Federal Reserve and the FDIC have adopted a minimum leverage
ratio (Tier I capital to total assets) of 3%. Generally, banking organizations
are expected to operate well above the minimum required capital level of 3%
unless they meet certain specified criteria, including that they have the
highest regulatory ratings. Most banking organizations are required to
maintain a leverage ratio of 3% plus an additional cushion of at least 1% to
2%. The guidelines also provide that banking organizations experiencing
internal growth or making acquisitions will be expected to maintain strong
capital positions substantially above the minimum supervisory levels without
significant reliance upon intangible assets.
The following table sets forth the various regulatory capital ratios
of each of WFC and EHC as of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
WFC DECEMBER 31,
--- -------------------
1995 1994
<S> <C> <C>
REGULATORY CAPITAL RATIOS:
Tier 1 risk-based capital* ................... 15.48% 18.50%
Total risk-based capital* .................... 16.69% 19.75%
Leverage ratio* .............................. 7.55% 11.56%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
EHC DECEMBER 31,
--- -------------------
1995 1994
<S> <C> <C>
REGULATORY CAPITAL RATIOS:
Tier 1 risk-based capital* ................... 15.14% 14.55%
Total risk-based capital* .................... 16.25% 15.66%
Leverage ratio* .............................. 11.08% 11.45%
</TABLE>
______________________
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<PAGE> 69
* Under the risk-based and leverage capital guidelines, regulatory
required minimums are 4% and 8% for Tier 1 and Total Capital ratios,
respectively. The leverage ratio must be maintained at a level
generally considered to be in excess of 3%.
Under the Financial Institutions Reform, Recovery and Enforcement Act
of 1989 ("FIRREA"), failure to meet the capital guidelines could subject a
banking institution to a variety of enforcement remedies available to federal
regulatory authorities, including the termination of deposit insurance by the
FDIC.
RECENT LEGISLATION
In December 1991, the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA") became law. FDICIA substantially revised
the depository institution regulatory and funding provisions of the Federal
Deposit Insurance Act and made revisions to several other federal banking
statutes.
Among other things, FDICIA requires the federal banking regulators to
take prompt corrective action in respect of depository institutions that do not
meet minimum capital requirements. FDICIA establishes five capital tiers:
"well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized" and "critically undercapitalized." A
depository institution is well capitalized if it significantly exceeds the
minimum level required by regulation for each relevant capital measure,
adequately capitalized if it meets each such measure, undercapitalized if it
fails to meet any such measure, significantly undercapitalized if it is
significantly below such measure and critically undercapitalized if it fails to
meet any critical capital level set forth in regulations. The critically
undercapitalized level occurs where tangible equity is less than 2% of total
tangible assets or less than 65% of the minimum leverage ratio to be prescribed
by regulation (except to the extent that 2% would be higher than such 65%
level). A depository institution may be deemed to be in a capitalization
category that is lower than is indicated by its actual capital position if it
receives an unsatisfactory examination rating.
FDICIA generally prohibits a depository institution from making any
capital distribution (including payment of a dividend) or paying any management
fee to its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions also became subject
to restrictions on borrowing from the Federal Reserve System, effective
December 19, 1993. In addition, undercapitalized depository institutions are
subject to growth limitations and are required to submit capital restoration
plans. A depository institution's holding company must guarantee the capital
plan, up to an amount equal to the lesser of 5% of the depository institution's
assets at the time it becomes undercapitalized or the amount of the capital
deficiency when the institution fails to comply with the plan. The federal
banking agencies may not accept a capital plan without determining, among other
things, that the plan is based on realistic assumptions and is likely to
succeed in restoring the depository institution's capital. If a depository
institution fails to submit an acceptable plan, it is treated as if it is
significantly undercapitalized.
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<PAGE> 70
Significantly undercapitalized depository institutions may be subject
to a number of requirements and restrictions, including orders to sell
sufficient voting stock to become adequately capitalized, requirements to
reduce total assets and cessation of receipt of deposits from correspondent
banks. Critically undercapitalized depository institutions are subject to
appointment of a receiver or conservator.
FDICIA provides authority for special assessments against insured
deposits and for the development of a general risk-based deposit insurance
assessment system. The risk-based insurance assessment system would be used to
calculate a depository institution's semiannual deposit insurance assessment
based on the probability (as defined in the statute) that the deposit insurance
fund will incur a loss with respect to the institution. In accordance with
FDICIA, on September 15, 1992, the FDIC approved a transitional risk-based
insurance premium system and an increase in the deposit insurance premium for
commercial banks and thrifts. Prior to June 1, 1995, the assessment scale
ranged from $.23 per $100 of deposits for the healthiest banks (those with the
highest capital to assets ratios, best management and best overall condition)
to as much as $.31 per $100 of deposits for the less healthy institutions.
However, effective June 1, 1995, the bank insurance fund ("BIF") reached the
designated reserve ratio of 1.25% of total estimated insured deposits and the
FDIC lowered the assessment rate schedule for BIF members. Westside Bank and
Eastside Bank are paying the minimum BIF assessment of $500 per quarter.
Effective with fiscal years beginning after December 31, 1992, each
insured institution having over $500 million in total assets is required to
submit to the FDIC and make available to the public an annual report on the
institution's financial condition and management's responsibility and
assessment of the internal controls over financial reporting. The
institution's independent public accountant is required to audit and attest to
certain of the statements made in that annual report.
FDICIA amended prior law with respect to the acceptance of brokered
deposits by insured depository institutions to permit only a "well capitalized"
(as defined in the statute as significantly exceeding each relevant minimum
capital level) depository institution to accept brokered deposits without prior
regulatory approval. A depository institution which has a capital level
category of "adequately capitalized" may not accept brokered deposits without
prior regulatory approval. FDICIA also established new uniform disclosure
requirements for the interest rates and terms of deposits accounts.
FDICIA also contains various provisions related to an institution's
interest rate risk. Under certain circumstances, an institution may be
required to provide additional capital or maintain higher capital levels to
address interest rate risks.
The foregoing necessarily is a general description of certain
provisions of FDICIA and does not purport to be complete. Several of the
provisions of FDICIA are being implemented through the adoption of regulations
by various federal banking agencies. FDICIA is not expected to have a material
effect on the results of operations of WFC or EHC.
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<PAGE> 71
THE RIEGLE-NEAL INTERSTATE BANKING AND BRANCHING EFFICIENCY ACT
In September 1994, the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Banking Act") became law. The
Interstate Banking Act has two major provisions regarding the merger,
acquisition and operation of banks across state lines. First it provides that
effective September 29, 1995, adequately capitalized and managed bank holding
companies will be permitted to acquire banks in any state. State laws
prohibiting interstate banking or discriminating against out-of-state banks
will be preempted as of the effective date. States cannot enact laws opting
out of this provision; however, states may adopt a minimum restriction
requiring that target banks located within the state be in existence for a
period of years, up to a maximum of five years, before such bank may be subject
to the Interstate Banking Act. The Interstate Banking Act establishes deposit
caps which prohibit acquisitions that would result in the acquirer controlling
30% or more of the deposits of insured banks and thrifts held in the state in
which the acquisition or merger is occurring or in any state in which the
target maintains a branch or 10% or more of the deposits nationwide.
State-level deposit caps are not preempted as long as they do not discriminate
against out-of-state acquirers, and the federal deposit caps apply only to
initial entry acquisitions.
In addition to the foregoing, the Interstate Banking Act provides that
as of June 1, 1997, adequately capitalized and managed banks will be able to
engage in interstate branching by merging banks in different states. However,
unlike the interstate banking provision, states may opt out of the application
of this provision by enacting specific legislation before June 1, 1997. If a
state does not opt-out, banks will be required to comply with the state's
provisions with respect to branching across state lines.
The State of Georgia has enacted legislation in connection with the
Interstate Banking Act which requires that a bank located within the State must
be in existence for a period of five (5) years before it may be acquired by an
out- of-State institution. This State legislation also requires out-of-State
institutions to purchase an existing bank or branch in the State rather than
starting a de novo bank. Many states, including Georgia, have enacted
legislation which permits banks with different home states to merge if the
states involved have enacted legislation permitting interstate bank mergers
prior to June 1, 1997.
NEW GEORGIA BRANCH BANKING ACT
Under prior Georgia law, the establishment of new or additional branch
banks in a county other than the county in which the parent bank was located
was prohibited except in very narrow situations. Pursuant to legislation
recently enacted, with the prior approval of the Georgia Department, after July
1, 1996, a bank may establish three (3) new or additional branch banks de novo
in the same manner as currently provided for the establishment of bank offices
under the Georgia Financial Institutions Code. These branches may be located
anywhere in Georgia. If a bank is part of a bank holding company, all
affiliates would be treated as one bank and the holding company would be
limited to branching to only three counties. Otherwise, the same restrictions
on Georgia banks' ability to form or acquire branch Banks that exist prior to
July 1, 1996, continue to apply until July 1, 1998. As of July 1, 1998, new or
additional branch banks may be established anywhere in the state with the prior
approval of the Georgia Department.
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<PAGE> 72
PROPOSED LEGISLATION
Bills are regularly introduced in the United States Congress that
contain wide-ranging proposals for altering the structures, regulations and
competitive relationships of the nation's financial institutions. It cannot be
predicted whether or what form any proposed legislation will be adopted or the
extent to which the business of the Companies and the Banks may be affected
thereby.
MISCELLANEOUS
AVAILABLE INFORMATION
The Company has filed a Registration Statement under the 1933 Act with
the SEC. This Proxy Statement/Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits thereto.
For further information with respect to the Companies and the Banks and the WFC
Stock offered hereby, reference is made to the Registration Statement including
the exhibits thereto. The Registration Statement can be inspected and copied
at the public reference facilities of the SEC, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549, and at the following regional offices of the
SEC, 75 Park Place, 14th Floor, New York, New York 10007; 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511; and 5757 Wilshire Boulevard,
Suite 500 East, Los Angeles, California 90036-3648; and copies of such
materials can be obtained from the public reference section of the SEC, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
LEGAL MATTERS
Certain federal income tax consequences of the Merger and the legality
of the authorization and issuance under Georgia law of the WFC Stock to be
issued in the Merger will be passed upon by counsel to WFC, Glass, McCullough,
Sherrill & Harrold, 1409 Peachtree Street, N.E., Atlanta, Georgia 30309.
Parker, Johnson, Cook & Dunlevie, 1275 Peachtree Street, N.E., Suite
700, Atlanta, Georgia 30309-3574, has acted as counsel to EHC in connection
with certain legal matters relating to the Merger. A representative of Parker,
Johnson, Cook & Dunlevie is expected to be present at the EHC Special Meeting
to respond to appropriate questions and to make a statement if the
representative desires to do so.
ACCOUNTING MATTERS
The financial statements of WFC as of December 31, 1995, and 1994,
included in this Proxy Statement/Prospectus and elsewhere in the Registration
Statement, have been included herein and elsewhere in the Registration
Statement in reliance upon the report of Mauldin & Jenkins, independent
certified public accountants.
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<PAGE> 73
The financial statements of EHC as of December 31, 1995 and 1994,
included in this Proxy Statement/Prospectus and elsewhere in the Registration
Statement, have been included herein and elsewhere in the Registration
Statement in reliance upon the report of Mauldin & Jenkins, independent
certified public accountants.
OTHER MATTERS
The Board of Directors of EHC does not know of any other matters to be
presented at the Special Meeting for action by shareholders. However, if any
other matter requiring a vote of the shareholders is properly presented at the
Special Meeting or any adjournment thereof, it is intended that votes will be
cast pursuant to proxies with respect to such matters in accordance with the
best judgment of the persons acting under the proxies.
EXPENSES
WFC and EHC will share equally in the expenses of both parties in
connection with the Merger, including the costs of soliciting proxies from the
EHC shareholders, whether or not the Merger is consummated.
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<PAGE> 74
WESTSIDE FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion sets forth the major factors that have
affected WFC's financial condition and results of operations. These comments
should be read in conjunction with the financial statements presented elsewhere
in this Proxy Statement/Prospectus.
PROPOSED MERGER
THE PROPOSED MERGER WILL VIRTUALLY DOUBLE WFC'S TOTAL ASSETS AND
ENHANCE MARKET SHARE IN THE ATLANTA MARKET AS IT WILL EXPAND THE COMPANY'S
FRANCHISE TO INCLUDE THE RAPIDLY GROWING GWINNETT COUNTY MARKET. ALTHOUGH EHC
HAS GENERALLY EXPERIENCED HIGHER COSTS ON ITS INTEREST BEARING LIABILITIES,
INCREASED LOAN LOSS PROVISIONS AND INCREASED OTHER EXPENSES RELATIVE TO WFC IT
HAS EXPERIENCED AN IMPROVED PROFITABILITY TREND. THE PROPOSED MERGER WILL HAVE
A SHORT TERM NEGATIVE IMPACT ON WFC'S RETURN ON ASSETS AND EARNINGS PER SHARE
AND LIQUIDITY SHOULD IMPROVE AS A RESULT OF EHC'S STRONGER LIQUIDITY POSITION.
THE PROPOSED MERGER WILL HAVE LITTLE IMPACT ON WFC'S CAPITAL RATIOS AS BOTH
COMPANY'S CORE CAPITAL RATIOS AND TOTAL CAPITAL RATIOS ARE VERY SIMILAR. EHC
HAD A STRONGER LEVERAGE RATIO AT DECEMBER 31, 1995 THAN WFC AS A RESULT OF
WESTSIDE BANK'S SEASONAL DEPOSITS IN THE FOURTH QUARTER.
RESULTS OF OPERATIONS
WFC's results of operations are determined by its ability to
effectively manage interest income and expense, to minimize loan and securities
losses, to generate non-interest income and to control non-interest expense.
Interest rates are determined by general economic conditions and competition.
Net interest income is determined by Westside Bank's ability to obtain an
adequate spread between the rate earned on earning assets and the rate paid on
interest-bearing liabilities.
The major component of consolidated earnings is net interest income,
or the difference between interest income on earning assets and interest paid
on interest bearing liabilities. The key performance measure for net interest
income is the net interest margin. Net interest margin is net interest income
expressed as a percentage of average earning assets.
Net interest income for the year ended December 31, 1995 was
$3,137,517, an increase of $784,454 or 33% compared to December 31, 1994. The
increase in net interest income is largely attributable to a $14,512,846 or 32%
increase in average earning assets and a slightly improved net interest margin.
AVERAGE INVESTMENTS IN SECURITIES INCREASED APPROXIMATELY 18% WITH THE
CORRESPONDING INCOME INCREASING 27.6%. AVERAGE FEDERAL FUNDS SOLD AND
SECURITIES PURCHASED UNDER AGREEMENT TO RESELL INCREASED $8,104,712 OR 157%.
WEAK LOAN DEMAND IN THE FIRST HALF OF THE YEAR AND SEASONAL DEPOSITS DURING THE
LAST QUARTER ACCOUNT FOR THE HIGHER LEVEL OF OVERNIGHT INVESTMENTS. AVERAGE
LOANS INCREASED $4,621,605 OR 15.4%, LOAN INCOME INCREASED $772,880 OR 26.1%.
WESTSIDE
F-1
<PAGE> 75
BANK'S OVERALL LEVEL OF EARNING ASSETS INCREASED FROM 90.12% TO 92.55%. The
average yield on earning assets was 8.80% compared to 8.39% in 1994.
AVERAGE INTEREST BEARING DEMAND AND SAVINGS DEPOSITS INCREASED
$7,929,648 OR 42.7%, RELATED INTEREST EXPENSE INCREASED $253,594 OR 53.9%.
AVERAGE TIME DEPOSITS INCREASED $4,216,090 OR 21.8%, RELATED INTEREST EXPENSE
INCREASED $427,180 OR 45.1%. THE INCREASE IN INTEREST EXPENSE WAS EXPECTED AS
LONG TERM (ONE YEAR OF GREATER) CERTIFICATES MATURED AND RENEWED AT HIGHER
RATES. LATE IN 1994 WESTSIDE BANK HIRED A LOCAL COMMUNITY BANKER WITH OVER
TWENTY YEARS EXPERIENCE IN ITS IMMEDIATE MARKET. THIS ALONG WITH THE FACT THAT
THE BANK IS LOCATED IN ONE OF THE FASTEST GROWING COUNTIES IN THE SOUTHEAST
WERE MAJOR FACTORS IN WESTSIDE BANK'S DEPOSIT GROWTH.
Westside Bank's average cost of funds was 4.20% in 1995 as compared to
3.75% in 1994. Average interest bearing liabilities increased $12,145,738 or
32% over 1994. As in previous years, the increase in interest bearing
liabilities and average earning assets was significantly affected by seasonal
INTEREST BEARING DEMAND deposits in Westside Bank. THESE deposits have been
maintained at the Bank since its opening in 1990, and AVERAGED $4,707,857 IN
1994, AND $6,135,402 IN 1995. DUE TO THE VOLATILE NATURE OF THESE DEPOSITS,
EXCESS FUNDS ARE INVESTED IN SHORT-TERM OVERNIGHT INSTRUMENTS AT CURRENT MARKET
RATES PROVIDING A NARROW INTEREST SPREAD WHICH VARIES ACCORDING TO THE CURRENT
INTEREST RATE ENVIRONMENT. EXCESS FUNDS ARE NEVER EMPLOYED IN THE BANK'S
INVESTMENT OR LOAN PORTFOLIOS. IT would be impossible to project the future
balances of seasonal deposits as they have fluctuated significantly in the past
AT THE DISCRETION OF THE DEPOSITOR. Average non-interest bearing deposits
increased $1,716,216 or 33% over 1994.
The allowance for loan losses represents a reserve for potential
losses in the loan portfolio. The provision for loan losses is a charge to
earnings in the current period to replenish the allowance and maintain it at a
level management has determined to be adequate based upon the growth of the
loan portfolio and management's desire to provide adequately for inherent risk
in the loan portfolio. The provision for loan losses charged to earnings
amounted to $101,000 in 1995, $72,000 in 1994, $84,000 in 1993 and $100,600 in
1992. Westside Bank had net charge-offs of $10,024 in 1995 compared to net
recoveries of $8,764 in 1994. The allowance for loan losses as a percentage of
total loans outstanding at December 31, 1995, 1994 and 1993 amounted to 1.47%,
1.50% and 1.53% respectively.
Management has closely monitored the loan portfolio and the
underwriting of loans and considers the allowance for loan losses to be
conservative yet reasonable given the nature of Westside Bank's loan portfolio.
In 1993, an independent third party was retained to perform periodic reviews of
the loan portfolio, at least semi-annually. Management intends to continue
maintaining an adequate allowance for loan losses in relation to loans
outstanding in the future based on management's evaluation of the loan
portfolio under prevailing economic conditions, underlying collateral value
securing loans and such other factors as management deems appropriate.
Westside Bank has filed applications with, and received approval from,
the Georgia Department and the FDIC to establish a branch office. In January
1996, Westside Bank purchased a parcel of land and a bank branch building at
751 Whitlock Avenue, Marietta, Georgia. Management anticipates opening the
branch by July 1996. Preliminary projections
F-2
<PAGE> 76
indicate a negative impact on earnings of approximately ($84,000) in 1996. An
application filed in March 1995 to establish a branch at 44 Mill Street,
Marietta, Georgia was withdrawn due to problems with the site.
Following is a comparison of non-interest income for 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Service charges on deposit accounts $184,933 $180,481
Other service charges, commissions and fees 43,142 38,725
Gain on sale of loans 9,142 7,451
Other income 10,287 11,386
Security transactions, net -- (3,489)
-------- --------
$247,504 $234,554
======== ========
</TABLE>
Non-interest income consists primarily of service charges on deposit
accounts, customer service fees, gains (losses) on investment securities
transactions and miscellaneous other income.
Non-interest income for 1995 was $247,504 compared with $234,554 for
1994. Security gains/losses were $0 in 1995 as compared to ($3,489) in 1994.
Westside Bank periodically sells the guaranteed portion of SBA loans and is
allowed to realize immediately a portion of the gain as income. This amounted
to $9,142 in 1995 compared to $7,451 in 1994. The remainder of the gain will
be recognized over the life of the loans.
Following is an analysis of non-interest expense for 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Salaries and employee benefits $ 933,027 $ 793,410
Occupancy and equipment expense 194,400 190,332
Deposit insurance premiums 52,674 93,490
Data processing fees 87,115 80,076
Director fees 61,850 44,700
Other expense 419,595 350,697
---------- ----------
$1,748,661 $1,552,705
========== ==========
</TABLE>
Non-interest expense for 1995 increased $195,956 over 1994.
Non-interest expense consists primarily of salaries and other employee
benefits, occupancy expense, and other operating costs. Personnel expense for
1995 increased $139,617 over 1994. In the fourth quarter of 1994, Westside
Bank hired an additional lender/business development officer with many years of
experience in Kennesaw, Georgia and the surrounding area. At December 31,
F-3
<PAGE> 77
1995, Westside Bank employed 17 full-time employees and 5 part-time employees.
Bonus expense for 1995 increased $41,365, over 1994. Prior to 1993 and
Westside Bank becoming cumulatively profitable, the executive officers were not
paid any bonus. Directors fees for 1995 increased $17,150 over 1994. As with
management bonuses, directors fees were not paid prior to Westside Bank being
cumulatively profitable. Directors are paid for each board meeting attended,
and outside directors are paid for each committee meeting attended. It is the
intention of management and the board to continue to offer salaries and other
benefits competitive with other banks, and reward individuals based on the
performance of Westside Bank. FDIC insurance for 1995 decreased $40,816 from
1994. Net income after tax increased $349,498 or 56% over 1994. Net income
before taxes increased $572,448 or 59% over 1994. Tax expense in 1995 was
$564,190 as compared to $341,240 in 1994.
The following tables set forth the amount of WFC's average earning
assets and interest-bearing liabilities, together with related interest income
and expense and average rates for 1995 and 1994:
AVERAGE BALANCES AND NET INCOME ANALYSIS
The condensed average balance sheets for the period indicated are
presented below:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1995 1994
---------- ----------
ASSETS (dollars in hundreds)
<S> <C> <C>
Cash and due from banks $ 3,156,218 $ 3,152,862
Interest-bearing deposits in banks -- --
Taxable Securities 10,533,240 9,433,466
Nontaxable Securities 1,099,082 418,194
Federal funds sold 6,710,548 4,330,904
Securities purchased under agreement to sell 6,556,164 831,096
Loans(1) 34,613,074 29,991,469
Reserve for loan losses (512,433) (431,499)
Other assets 2,155,522 2,199,418
----------- -----------
Total Assets $64,311,415 $49,925,910
=========== ===========
Total earning assets $59,512,108 $45,005,129
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing demand $ 6,976,935 $ 5,260,719
Interest-bearing demand and savings 26,502,704 18,573,056
Time 23,523,292 19,307,202
----------- -----------
Total Deposits $57,002,931 $43,140,977
Federal funds purchased -- 90,753
Other liabilities 336,685 257,619
----------- -----------
Total Liabilities $57,339,616 $43,489,349
----------- -----------
</TABLE>
F-4
<PAGE> 78
<TABLE>
<S> <C> <C>
Stockholders' equity $ 6,971,799 $ 6,436,561
----------- -----------
Total Liabilities and Stockholders' Equity $64,311,415 $49,925,910
=========== ===========
Total interest-bearing liabilities $50,025,996 $37,971,011
=========== ===========
</TABLE>
NOTES TO TABLE
(1) Average loans included non-accrual loans
INTEREST INCOME AND INTEREST EXPENSE
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
1995 1994
-------------- --------------
Interest Average Rate Interest Average Rate
-------- ------------ -------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans(1) $3,734 10.79% $2,961 9.87%
Interest on investment securities:
Taxable Securities 696 6.60 571 6.06
Nontaxable Securities 52 4.73 15 3.59
Interest on federal funds sold 389 5.79 189 4.37
Interest on securities purchased under
agreement to resell 356 5.58 39 4.69
------ ----- ------ ----
Total interest income $5,236 8.80% $3,775 8.39%
------ ----- ------ ----
INTEREST EXPENSE:
Interest on savings and interest-bearing
demand deposits $ 724 2.73% $ 470 2.53%
Interest on time deposits 1,375 5.84 948 4.91
Interest on federal funds purchased -- 4 4.40
------ ----- ------ ----
Total interest expense $2,099 4.20% $1,422 3.74%
------ ----- ------ ----
NET INTEREST INCOME $3,137 $2,353
====== ======
Net interest spread 4.60% 4.65%
===== ======
Net yield on average interest-earning assets 5.27% 5.23%
===== ======
</TABLE>
NOTES TO TABLE
(1) In computing yields on earning assets, the average balances of
non-accruing loans are included in average balances, and loan fees
of $285,266 and $310,551 for the years ended December 31, 1995 and
1994, respectively, are included in interest income.
RATE AND VOLUME ANALYSIS
The following table reflects the changes in net interest income
resulting from changes in interest rates and from asset and liability volume.
The change in interest attributable to rate has been determined by applying the
change in rate between years to average balances outstanding in the later year.
The change in interest due to volume has been determined by applying the rate
from the earlier year to the change in average balances outstanding between
F-5
<PAGE> 79
years. Thus, changes that are not solely due to volume have been consistently
attributable to rate. Changes reflected herein may differ slightly from actual
changes due to rounding.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 VS. 1994
-------- ---------
INCREASE CHANGES DUE TO
(DECREASE) -----------------------------------
RATE VOLUME
(dollars in thousands)
<S> <C> <C> <C>
Increase (decrease) in:
Income from earning assets:
Interest and fees on loans $ 773 $318 $455
Interest on investment securities:
Taxable 125 57 68
Nontaxable 37 12 25
Interest on federal funds sold 200 95 105
Interest on securities under agreement to
resell 326 63 263
Interest on deposits in other banks -- -- --
------ ---- ----
Total interest income $1,461 $545 $916
------ ---- ----
Expense from interest-bearing liabilities
Interest on interest-bearing demand and
savings deposits $ 254 $ 53 $201
Interest on time deposits 427 220 207
Interest on federal funds purchased (4) -- (4)
------ ---- ----
Total interest expense $ 677 $273 $404
------ ---- ----
Net interest income $ 784 $272 $512
====== ==== ====
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 VS. 1993
-------- ---------
INCREASE CHANGES DUE TO
(DECREASE) -----------------------------------
RATE VOLUME
(dollars in thousands)
<S> <C> <C> <C>
Increase (decrease) in:
Income from earning assets:
Interest and fees on loans $ 710 $ 89 $621
Interest on investment securities:
Taxable (21) (43) 22
Nontaxable 7 (20) 27
Interest on federal funds sold 6 76 (70)
Interest on deposits in other banks (12) -- (12)
------- ---- ----
Total interest income $ 690 $102 $588
------ ---- ----
Expense from interest-bearing liabilities
Interest on interest-bearing demand and
savings deposits $ 42 $ 34 $ 8
Interest on time deposits 68 (40) 108
Interest on federal funds purchased 4 -- 4
------ ---- ----
Total interest expense $ 114 $ (6) $120
------ ---- ----
Net interest income $ 576 $108 $468
====== ==== ====
</TABLE>
F-6
<PAGE> 80
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the ability of WFC to meet the cash flow requirements of
customers and fund its commitments. WFC's primary sources of funds are
increases in deposits, loan repayments, sales and maturities of investments and
net income. WFC actively manages its liquidity position by matching maturities
and interest rate sensitivity in asset and liability portfolios. Further,
Westside Bank maintains relationships with correspondent banks which could
provide funds to it on short notice, if needed.
The liquidity and capital resources of WFC and Westside Bank are
monitored on a periodic basis by state and federal regulatory authorities. As
determined under guidelines established by those regulatory authorities,
Westside Bank's liquidity ratios at December 31, 1995 were considered
satisfactory. At December 31, 1995, investment securities with a book value of
$645,800 were scheduled to mature within one year. These investments, along
with federal funds of $9,000,000 as of December 31, 1995, will provide a ready
source of funds. At December 31, 1995, WFC's and Westside Bank's capital asset
ratios were considered adequate based on guidelines established by the
regulatory authorities. During 1995, WFC increased its capital by retaining
net earnings of $879,550 after a dividend payment of $91,620. The adoption of
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" for the year ended 1995 increased capital $138,833, representing
net unrealized gains on securities available for sale. SFAS No. 115 requires
the recognition of unrealized gains and losses, net of tax, in the
stockholders' equity section of the balance sheet. At December 31, 1995, total
capital of WFC amounted to $7,295,517.
In November 1995, Westside Bank executed a contract to purchase a
branch office from First Union corporation. The land, building and
improvements are expected to total approximately $600,000. With this addition,
Westside Bank's total investment in fixed assets will be well below the fixed
asset limitation of 60% of Westside Bank's statutory capital base.
On September 20, 1995, the board of directors of WFC unanimously
approved a stock redemption plan to redeem up to 60,000 shares of its common
stock. A total of 25,000 shares were repurchased for $415,000 prior to the
termination of the repurchase plan which occurred before the execution of a
letter of intent in regard to the proposed Merger.
Management is not aware of any current recommendations by the
regulatory authorities which, if they were to be implemented, would have a
material effect on WFC's liquidity, capital resources or operations.
MATURITIES
The following table sets forth the maturity distribution by amortized
cost, of securities according to type of security and contractual maturity:
F-7
<PAGE> 81
MATURITY DISTRIBUTION AND YIELD OF SECURITIES
DECEMBER 31, 1995
<TABLE>
<CAPTION>
AFTER ONE BUT MATURING AFTER FIVE BUT
WITHIN ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS
--------------- ----------------- ----------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasuries $505,580 5.44% $ 99,750 5.82% $ -- --%
U.S. Govt. Agencies -- -- 2,484,776 6.98 1,500,000 7.05
Mtg. Backed Securities -- -- 2,160,189 7.01 1,452,007 5.10
Municipals 140,000 3.35 1,130,618 5.79 524,983 5.18
-------- ---- ---------- ---- ---------- ----
$645,580 4.99% $6,775,333 6.62% $3,476,990 5.95%
======== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
AFTER TEN YEARS TOTAL
------------------------- -------------------------
AMOUNT YIELD AMOUNT YIELD
------ ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasuries $ -- --% $ 1,505,330 5.70%
U.S. Govt. Agencies -- -- 3,984,776 7.01
Mtg. Backed Securities 2,178,762 6.34 5,790,958 6.51
Municipals 185,000 5.15 1,980,601 5.40
---------- ---- ----------- ----
$2,363,762 5.15% $13,261,665 6.40%
========== ===========
</TABLE>
WESTSIDE BANK DOES NOT OWN SECURITIES ISSUED BY A SINGLE STATE OR POLITICAL
SUBDIVISION WITH AN AGGREGATE BOOK VALUE EXCEEDING TEN PERCENT OF STOCKHOLDERS
EQUITY.
AT DECEMBER 31, 1995, WESTSIDE BANK OWNED MORTGAGE BACKED SECURITIES WITH A
BOOK VALUE OF $5,790,958. THESE SECURITIES REPRESENT APPROXIMATELY 44% OF THE
TOTAL PORTFOLIO AND PROVIDE A BOOK YIELD OF 6.51%. AS OF DECEMBER 31, 1995,
THE MORTGAGE BACKED SECURITIES HAD AN UNREALIZED GAIN OF APPROXIMATELY $18,000.
THE SPECIFIC ISSUES WITHIN THE MORTGAGE BACKED PORTFOLIO ARE BALLOONS
($1,954,315), SHORT CMO'S ($2,655,554) AND ADJUSTABLE RATE POOLS ($1,181,099).
THE MUNICIPAL SECURITIES PORTFOLIO TOTAL $1,980,601 OR 15% OF THE TOTAL
PORTFOLIO. ALL OF THESE SECURITIES HAVE INVESTMENT GRADE RATINGS FROM EITHER
MOODYS OR S & P WITH AN AVERAGE MATURITY OF 4.8 YEARS. THESE BONDS ARE
CATEGORIZED AS FOLLOWS: GENERAL OBLIGATIONS ($894,653), REVENUE BONDS
($669,983) AND TAXABLE ($415,965).>
LOAN PORTFOLIO
The following table represents the composition of Westside Bank's loan
portfolio according to the purpose of the loan and/or repayment terms:
F-8
<PAGE> 82
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- -----------------
<S> <C> <C>
Commercial, financial and agricultural $ 5,940,689 $ 5,642,818
Real estate - construction and land development 11,744,522 9,325,883
Real estate - mortgage 16,708,579 13,286,576
Installment and other consumer 4,174,306 3,391,436
----------- -----------
38,568,099 31,646,713
Net deferred loan fees (122,877) (107,900)
----------- -----------
38,445,222 31,538,813
----------- -----------
Less reserve for possible loan losses (564,296) (473,320)
----------- -----------
Net Loans $37,880,926 $31,065,493
=========== ===========
</TABLE>
THE LOAN CLASSIFICATIONS DEPICTED IN THE TABLE ABOVE ARE REPRESENTATIVE OF
WESTSIDE BANK'S GENERAL/LEDGER LOAN SYSTEM AND DIFFER FROM THE LOAN
CLASSIFICATIONS SET FORTH IN THE FINANCIAL STATEMENTS WHICH ARE REPRESENTATIVE
OF THE COLLATERAL SECURING THE LOANS OR THE PURPOSE OF THE LOAN AS REQUIRED IN
THE FDIC CALL REPORT. THE FOLLOWING IS A RECONCILEMENT OF THE DIFFERENCES:
<TABLE>
<S> <C>
COMMERCIAL AND INDUSTRIAL
PER GENERAL LEDGER $ 5,950,689
LOANS TO INDIVIDUALS FOR HOUSEHOLD, FAMILY
AND OTHER PERSON EXPENDITURES CARRIED ON
THE COMMERCIAL LOAN SYSTEM
(1,268,733)
OTHER LOANS ON COMMERCIAL SYSTEM
(239,844)
COMMERCIAL LOANS ON INSTALLMENT SYSTEM 9,116
-----------
PER FINANCIAL STATEMENTS $ 4,441,228
REAL ESTATE CONSTRUCTION
NO RECONCILEMENT NEEDED
REAL ESTATE - MORTGAGE
PER GENERAL LEDGER $16,708,579
LOANS CARRIED ON INSTALLMENT SYSTEM SECURED BY
FIRST OR SECOND LIENS ON REAL ESTATE
322,174
HOME EQUITY LOANS 1,952,103
-----------
PER FINANCIAL STATEMENTS $18,982,856
</TABLE>
F-9
<PAGE> 83
<TABLE>
<S> <C>
INSTALLMENT AND CONSUMER
PER GENERAL LEDGER $ 4,174,306
HOME EQUITY LOANS
(1,952,103)
LOANS SECURED BY FIRST OR SECOND LIENS ON
REAL ESTATE CARRIED ON THE INSTALLMENT SYSTEM
(322,174)
COMMERCIAL AND FINANCIAL LOANS CARRIED ON THE
INSTALLMENT SYSTEM
(9,116)
LOANS TO INDIVIDUALS FOR HOUSEHOLD, FAMILY
AND OTHER PERSON EXPENDITURES CARRIED ON
THE COMMERCIAL LOAN SYSTEM
1,268,733
OVERDRAFTS 2,534
-------------
PER FINANCIAL STATEMENTS $ 3,157,112
OTHER
PER GENERAL LEDGER $ ---
OTHER LOANS ON COMMERCIAL SYSTEM 239,844
OVERDRAFTS 2,534
-------------
PER FINANCIAL STATEMENTS $ 242,378
</TABLE>
SUPPLEMENTAL MATURITY SCHEDULE OF LOANS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
OVER ONE OVER
ONE YEAR THROUGH FIVE
OR LESS FIVE YEARS YEARS TOTAL
------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Commercial and industrial $ 4,556,382 $ 1,312,964 $ 71,343 $ 5,940,689
Real Estate - construction and 11,744,525 -- -- 11,744,525
land development
Real estate - mortgage 4,405,266 11,042,120 1,261,193 16,708,579
Installment and other consumer 839,297 1,198,796 2,136,213 4,174,306
</TABLE>
Of the total amount of loans due after one year, $10,382,444 are at
fixed interest rates and $6,640,185 are at floating or adjustable rates.
NON-PERFORMING LOANS
There were no non-accrual loans at December 31, 1995 and December 31,
1994. There were no loans contractually past due 90 days or more and still
accruing at December 31, 1995, OR AT DECEMBER 31, 1994. Accrual of interest
is discontinued when management believes after considering economic and
business conditions and collection efforts, that the ultimate collection of
interest is doubtful. THERE WERE NO LOANS AT DECEMBER 31, 1995, OTHER THAN
THOSE ASSETS CLASSIFIED AS SUCH, WHICH MANAGEMENT REGARDED AS POTENTIAL PROBLEM
LOANS.
F-10
<PAGE> 84
Effective January 1, 1995, WFC adopted Statement of Financial
Accounting Standards No. 114 and, as amended, No. 118, "Accounting by
Creditors for Impairment of a Loan." The statement prescribes that impaired
loans be measured on the present value of expected future cash flows discounted
at the loan's effective interest rate or, as a practical expedient, at the
loan's observable market price or the fair value of the collateral if the loan
is collateral dependent. The statement had no material effect on the financial
statements of WFC as of December 31, 1995.
DEPOSITS
The following table represents the composition of Westside Bank's
deposit accounts, for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994
------------------- ------------------
AVERAGE AMOUNT AVERAGE RATE AVERAGE AMOUNT AVERAGE RATE
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Noninterest-bearing deposits $ 6,977 --% $ 5,261 --%
Interest-bearing demand and
savings deposits 26,503 2.73 18,573 2.53
Time deposits 23,523 5.84 19,307 4.91
</TABLE>
MATURITY SCHEDULE OF TIME DEPOSITS OVER
$100,000
DECEMBER 31, 1995
<TABLE>
<S> <C>
Three months or less $2,665,665
Six months to twelve months 1,739,843
Over twelve months 2,041,825
----------
Total $8,024,191
==========
</TABLE>
SUMMARY OF LOAN LOSS EXPERIENCE
The provision for possible loan losses is based upon the growth of the
loan portfolio and management's desire to provide adequately for inherent risk
in the loan portfolio.
In 1994 Westside Bank adopted new guidelines for calculating the
required reserve based on the type of loan and the assigned risk code. A
reserve of 1% is to be maintained for all consumer installment and revolving
credit lines; 0.25% is to be maintained for unfunded commitments. All other
loans have been individually assigned a risk code and adequate reserves will be
maintained based on the outstanding balance of each risk category. These
percentages take into account current economic conditions within Westside
Bank's market. IT IS THIS GRADING SYSTEM, COVERING THE LARGEST PART OF THE
TOTAL PORTFOLIO, THAT IS INTEGRAL TO OVERALL ASSESSMENT OF THE QUALITY OF THE
BANK'S PORTFOLIO AND IN CALCULATING ITS LOAN LOSS RESERVE. PEER GROUP
COMPARISONS SHOW THE BANK IS FAVORABLY POSITIONED IN
F-11
<PAGE> 85
ITS LOSS EXPERIENCE AND RESERVES MAINTAINED. INDEPENDENT REVIEWS OF THE
ADEQUACY OF THE LOSS RESERVE BY THE BANK'S OUTSIDE LOAN REVIEW FIRM, OUTSIDE
AUDITORS AND REGULATORY AGENCIES HAVE CONSISTENTLY FOUND THE BANK'S LOSS
RESERVE TO BE ADEQUATE. THE BOARD OF DIRECTORS ALSO REVIEWS THE LOSS RESERVE
ON A MONTHLY BASIS.
The provision for loan losses charged to operations was $101,000
during the year ended December 31, 1995, compared to $72,000 in 1994. During
1995, Westside Bank had net charge-offs of $10,024. There were net recoveries
of $8,764 in 1994. PRIOR YEARS HAD COMBINED NET CHARGE-OFFS OF $59,050.
An analysis of the allowance for loan losses follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1994
-------------------------
<S> <C> <C>
Recoveries:
Commercial, financial and agricultural 10,296 9,237
Less chargeoffs:
Commercial, financial and agricultural 8,664 --
</TABLE>
AS DISCUSSED ABOVE, THE RISK ELEMENTS WITHIN THE LOAN PORTFOLIO ARE MEASURED
AND QUANTIFIED THROUGH THE LOAN GRADING SYSTEM. GRADES ARE ASSIGNED TO EACH
LOAN BY THE LENDING OFFICER, BASED UPON CRITERIA OUTLINED IN THE BANK'S LOAN
POLICY, REFLECTING THE RELATIVE RISK IN THE CREDIT. EACH LOAN GRADE CARRIES
WITH IT A RESERVE REQUIREMENT, ALSO AS SPECIFIED BY THE BANK'S LOAN POLICY, IN
ORDER TO CALCULATE THE REQUIRED RESERVE ON A MONTHLY BASIS. IN NO YEAR HAS THE
BANK'S NET CHARGE-OFFS EXCEEDED 0.25% OF TOTAL LOANS. CHARGE-OFFS FOR 1996
HAVE NOT BEEN PROJECTED. HOWEVER, YEAR-TO-DATE CHARGE-OFFS ARE $426 WITH NO
OTHER SPECIFIC LOSSES FORESEEN AT THIS TIME.
COMMITMENTS AND LINES OF CREDIT
In the ordinary course of business, Westside Bank has granted
commitments to extend credit to approved customers. Generally, these
commitments to extend credit have been granted on a temporary basis for
seasonal or inventory requirements and have been approved by Westside Bank's
board of directors. Westside Bank has also granted commitments to approved
customers for standby letters of credit. These commitments are recorded in the
F-12
<PAGE> 86
financial statements when funds are disbursed or the financial instruments
become payable. Westside Bank adheres to the same credit and collateral
policies for these off balance sheet commitments as they do for financial
instruments that are recorded in the financial statements. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitment amounts expire without
being drawn upon, the total commitment amounts do not necessarily represent
future cash requirements.
Westside Bank had outstanding unfunded commitments at December 31,
1995, as follows:
<TABLE>
<S> <C>
Commercial, financial and agricultural $ 3,625,597
Real estate - construction and land development 9,134,778
Real estate - mortgage 1,222,299
Installment and other consumer 225,184
Standby letters of credit 92,084
-----------
$14,299,942
===========
</TABLE>
ASSET/LIABILITY MANAGEMENT
The following table sets forth the distribution of the repricing of
Westside Bank's earning assets and interest-bearing liabilities as of December
31, 1995, the interest rate sensitivity gap (i.e., interest rate sensitive
assets less interest rate sensitive liabilities, the cumulative interest rate
sensitivity gap, the interest rate sensitivity gap ratio (i.e., interest rate
sensitive assets divided by interest rate sensitive liabilities) and the
cumulative sensitivity gap ratio. The table also sets forth the time periods
in which earning assets and liabilities will mature or may reprice in
accordance with their contractual terms. However, the table does not
necessarily indicate the impact of general interest rate movements on the net
interest margin since the repricing of various categories of assets and
liabilities is subject to competitive pressures and the needs of Westside
Bank's customers. In addition, various assets and liabilities indicated as
repricing within the same period may in fact reprice at different times within
such period and at different rates.
The objective of interest rate sensitivity management is to minimize
the effect of interest rate changes on net interest margins while maintaining
net interest income at acceptable levels. The major factors that are used to
manage interest rate risk include the mix of fixed and floating interest rates,
pricing and maturity patterns for all asset and liability accounts. THE BANK'S
CUMULATIVE RATE SENSITIVITY GAP WITHIN ONE YEAR OF ($6,711,000) REPRESENTS
(10.23%) OF TOTAL ASSETS. THIS GAP POSITION WOULD IMPACT NET INTEREST INCOME
FAVORABLY IN A FALLING RATE ENVIRONMENT AND UNFAVORABLY IN A RISING RATE
ENVIRONMENT.
F-13
<PAGE> 87
<TABLE>
<CAPTION>
After Three After One Year
Within Months But But Within After
Three Months Within One Year Five Years Five Years Total
------------ --------------- ---------- ---------- -----
<S> <C> <C> <C> <C> <C>
Earning assets
--------------
Interest-bearing $ -- $ -- $ -- $ -- $ --
deposits in banks
Federal funds sold 9,000 -- -- -- 9,000
Securities -- 1,831 6,859 4,666 13,356
Loans 21,848 4,521 11,282 794 38,445
------- ------- ------- ------- -------
Total rate sensitive $30,848 $ 6,352 $18,141 $ 5,460 $60,801
assets ------- ------- ------- ------- -------
Interest-bearing liabilities:
----------------------------
Interest-bearing $21,899 $ -- $ -- $ -- $21,899
demand deposits
Savings 1,805 -- -- -- 1,805
Time deposits, less 6,355 7,870 3,687 -- 17,912
than $100,000
Time deposits, 2,665 3,317 2,042 -- 8,024
$100,000 and over ------- ------- ------- ------- -------
Total rate sensitive $32,724 $11,187 $ 5,729 $ -- $49,640
liabilities ------- ------- ------- ------- -------
Interest rate $(1,876) $(4,835) $12,412 $ 5,460
sensitivity GAP ======= ======= ======= =======
Cumulative interest $(1,876) $(6,711) $ 5,701 $11,161
rate sensitivity GAP ======= ======= ======= =======
GAP as % of assets (2.86%) (7.37%) 18.92% 8.32%
Cumulative GAP as a (2.86%) (10.23%) 8.69% 17.01%
% of assets
Interest rate 94.27% 56.78% 316.65% --
sensitivity GAP
ratio
Cumulative interest 94.27% 84.72% 111.48% 122.48%
rate sensitivity GAP
ratio
</TABLE>
WFC RESULTS OF FIRST QUARTER 1996
FINANCIAL CONDITION
DURING THE FIRST QUARTER OF 1996, WFC'S BALANCE SHEET SHRUNK
$4,422,800 OR 6.77% FROM DECEMBER 31, 1995. THIS DECLINE WAS EXPECTED AND IS
TOTALLY ATTRIBUTABLE TO A SEASONAL DEPOSIT ACCOUNT IN WHICH THE BALANCE
DECLINED $6,623,535 FROM DECEMBER 31,
F-14
<PAGE> 88
1995. CORE DEPOSIT GROWTH WAS APPROXIMATELY 4% IN THE FIRST QUARTER. TOTAL
LOANS INCREASED $2,717,965 OR 6.60% IN THE FIRST QUARTER.
WESTSIDE BANK WILL OPEN ITS FIRST BRANCH IN THE SECOND QUARTER OF
1996. THE BRANCH IS LOCATED IN AN AREA SURROUNDED BY ESTABLISHED RESIDENTIAL
NEIGHBORHOODS, AS WELL AS NEW AND OLDER STRIP CENTERS TARGETING THE NEEDS OF
INDIVIDUALS LIVING NEARBY. THE BRANCH IS EXPECTED TO BE A DEPOSIT GENERATOR
WITH ONLY MODERATE LOAN DEMAND. THEREFORE, MANAGEMENT MADE THE DECISION IN THE
FIRST QUARTER TO CONCENTRATE ON LOAN GROWTH AT THE MAIN OFFICE IN AN EFFORT TO
HELP DEFRAY THE DRAIN ON EARNINGS A NEW BRANCH TYPICALLY CREATES AND
ANTICIPATING STRONG CORE DEPOSIT GROWTH WITH THE NEW BRANCH. THIS APPROACH
SHOULD HELP TO SUSTAIN A 75-80% LOAN TO DEPOSIT RATIO IN 1996. ALTHOUGH
MANAGEMENT HAS MADE THE DECISION TO CONCENTRATE ON LOAN GROWTH, PRIMARY
EMPHASIS CONTINUES TO BE ON CREDIT QUALITY AND CORE EARNINGS.
LIQUIDITY
WESTSIDE BANK'S LIQUIDITY RATIO AT MARCH 31, 1996 WAS 28.3%, WELL
WITHIN THE TARGET RATIO OF 25%. WESTSIDE BANK'S PRIMARY SOURCES OF FUNDS ARE
INCREASES IN DEPOSITS, LOAN REPAYMENTS, SALES AND MATURITIES OF INVESTMENT
SECURITIES AND NET INCOME. IN ADDITION, THE BANK JOINED THE FEDERAL HOME LOAN
BANK IN THE FIRST QUARTER PROVIDING AN ALTERNATIVE SOURCE OF FUNDING AND
MAINTAINS RELATIONSHIPS WITH CORRESPONDENT BANKS WHICH COULD PROVIDE SHORT-TERM
FUNDING, IF NEEDED.
CAPITAL
THE MINIMUM CAPITAL REQUIREMENTS FOR BANKS AND BANK HOLDING COMPANIES
REQUIRE A LEVERAGE CAPITAL TO TOTAL ASSETS RATIO OF AT LEAST 4%, CORE CAPITAL
TO RISK-WEIGHTED ASSETS RATIO OF AT LEAST 4% AND TOTAL CAPITAL TO RISK-
WEIGHTED ASSETS OF 8%. THE FOLLOWING TABLE REFLECTS THE COMPANY'S COMPLIANCE
WITH REGULATORY CAPITAL REQUIREMENTS AT MARCH 31, 1996:
<TABLE>
<S> <C>
LEVERAGE CAPITAL RATIO: 11.78%
RISK-BASED CAPITAL RATIOS:
CORE CAPITAL 15.20%
TOTAL CAPITAL 16.42%
</TABLE>
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND
1995
NET INTEREST INCOME INCREASED $92,047 OR 13.7% OVER THE SAME PERIOD IN
1995. AVERAGE INTEREST BEARING LIABILITIES INCREASED $7,465,921 OR 18.8%,
RELATED INTEREST EXPENSE INCREASED $112,905 OR 26.2% OVER THE SAME PERIOD IN
1995. TOTAL AVERAGE EARNING ASSETS INCREASED 19.0% RESULTING IN INCREASED
INTEREST INCOME OF $204,952 OR 18.7%. WESTSIDE BANK'S NET INTEREST MARGIN FOR
THE FIRST QUARTER DECLINED FROM 5.65% IN 1995 TO 5.34% IN 1996. THE PRIME RATE
REDUCTIONS IN LATE DECEMBER AND EARLY FEBRUARY HAD AN IMMEDIATE IMPACT ON
EARNING ASSETS WHILE DEPOSIT RATES HAVE BEEN
F-15
<PAGE> 89
SLOWER TO REACT AND SOME DEPOSIT PRODUCTS HAVE YET TO ADJUST THE FULL 50 BASIS
POINTS. THE BANK IS LOCATED IN METRO ATLANTA, A HIGHLY COMPETITIVE DEPOSIT AND
LOAN MARKET. MANAGEMENT REVIEWS COMPETITORS' RATES ON A WEEKLY BASIS AND SETS
RATES ACCORDING TO MARKET COMPETITION AS WELL AS THE BANK'S CURRENT NEEDS.
THE PROVISION FOR LOAN LOSSES INCREASED $6,000 OR 33% OVER THE SAME
PERIOD IN 1995. MANAGEMENT DID NOT IDENTIFY ANY SPECIFIC PROBLEM LOANS DURING
THE FIRST QUARTER NOR HAVE ANY LOANS BEEN CHARGED OFF IN 1996. HOWEVER, IN
CONNECTION WITH THE PROPOSED MERGER WITH EHC, IT IS NECESSARY THAT WESTSIDE
BANK MAINTAIN AT LEAST THE SAME LOAN LOSS RESERVE RATIO AS WAS PRESENT AT
OCTOBER 31, 1995, AND WITH THE GROWTH EXPERIENCED IN THE FIRST QUARTER IN THE
LOAN PORTFOLIO AN ADDITIONAL PROVISION WAS NECESSARY. AFTER THE MERGER, IT IS
LIKELY THAT WESTSIDE BANK WILL REDUCE THE PROVISION FOR THE REMAINDER OF 1996,
THAT IS ASSUMING MANAGEMENT DOES NOT SEE ANY DETERIORATION IN THE PORTFOLIO.
WESTSIDE BANK HAD NO NON-ACCRUAL LOANS AT MARCH 31, 1996 AND MARCH 31,
1995. THERE WERE NO LOANS CONTRACTUALLY PAST DUE 90 DAYS OR MORE AND STILL
ACCRUING AT MARCH 31, 1996 OR MARCH 31, 1995. ACCRUAL OF INTEREST IS
DISCONTINUED WHEN MANAGEMENT BELIEVES, AFTER CONSIDERING ECONOMIC AND BUSINESS
CONDITIONS AND COLLECTION EFFORTS, THAT THE ULTIMATE COLLECTION OF INTEREST IS
DOUBTFUL.
SERVICE CHARGE AND OTHER MISCELLANEOUS INCOME IS DOWN $13,472 OR 20%
FROM THE SAME PERIOD IN 1995. WHILE REGULAR SERVICE CHARGES ARE UP SLIGHTLY,
ANALYSIS CHARGES AND INSUFFICIENT CHECK CHARGES ARE DOWN SIGNIFICANTLY. OVER
SIXTY-FIVE PERCENT OF THE REDUCTION IN ANALYSIS CHARGES CAN BE TRACED TO ONE
CUSTOMER WHO HAS MAINTAINED HIGHER AVERAGE BALANCES IN 1996 AND THUS AVOIDED
PAYING ANALYSIS CHARGES. THE DECLINE IN INSUFFICIENT CHARGES IS NOT RELATED TO
ONE OR EVEN SEVERAL ACCOUNTS BUT MORE LIKELY REFLECTS AN OVERALL DECLINE IN
INSUFFICIENT CHECK WRITING. THE ANTICIPATED CONSUMER TRAFFIC FROM THE PROPOSED
BRANCH SHOULD HELP TO INCREASE THE BANK'S OTHER INCOME. HISTORICALLY, WESTSIDE
BANK HAS ATTRACTED MORE HIGH DOLLAR, LOW VOLUME ACCOUNTS CREATING LITTLE IN THE
WAY OF SERVICE CHARGE AND/OR OTHER INCOME.
SALARIES AND EMPLOYEE BENEFITS HAVE INCREASED APPROXIMATELY 13% OVER
THE SAME PERIOD IN 1995. THE MAJOR CONTRIBUTING FACTOR BEING A 117% INCREASE
IN THE BONUS ACCRUAL. THE ACCRUAL WAS INCREASED BASED ON THE 1995 TOTAL BONUS
EXPENSE. SALARY EXPENSE HAS INCREASED APPROXIMATELY 9% OVER THE SAME PERIOD IN
1995.
DIRECTORS' FEES HAVE INCREASED 65% OVER THE SAME PERIOD IN 1995. FEES
WERE INCREASED IN 1996 BASED ON A COMPETITIVE MARKET SURVEY OF OTHER COMMUNITY
BANKS IN THE AREA AND TAKING INTO ACCOUNT THE BANK'S PERFORMANCE AND THE
DIRECTORS' CONTRIBUTIONS TO THE SUCCESS OF THE INSTITUTION.
OTHER OPERATING EXPENSES HAVE INCREASED COMMENSURATE WITH THE BANK'S
GROWTH AND THE INCREASED COST OF SUPPLIES AND SERVICES.
PRE-TAX INCOME FOR THE PERIOD ENDING MARCH 31, 1996 INCREASED 16.8%
AND NET INCOME INCREASED 22.4% OVER THE SAME PERIOD IN 1995. THE INCREASE IN
EARNINGS IS ATTRIBUTABLE TO THE BANK'S CONTINUED GROWTH AND THE INCREASE IN
EARNING ASSETS. MANAGEMENT DOES EXPECT THE NET INTEREST MARGIN TO CONTINUE TO
NARROW SOMEWHAT AND ADDITIONAL EXPENSES RELATED TO A COMPUTER CONVERSION, THE
OPENING OF A NEW BRANCH, AND THE PROPOSED MERGER WILL HAVE AN IMPACT ON 1996
EARNINGS. THE LONG-TERM EFFECT OF THESE ACTIONS IS EXPECTED TO BENEFIT WFC'S
CUSTOMERS AND STAFF, THE COMMUNITY AND MOST IMPORTANTLY WFC'S SHAREHOLDERS.
F-16
<PAGE> 90
EASTSIDE HOLDING CORPORATION
SELECTED FINANCIAL DATA
The following table contains selected financial data of Eastside
Holding Corporation and its subsidiary Eastside Bank and should be read in
conjunction with Eastside Holding Corporation audited financial statements
included elsewhere in this Proxy Statement/Prospectus and other financial
information contained herein.
<TABLE>
<CAPTION>
3 MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31
MARCH 31, ----------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- ------- ------- -------- ------- ------- -------
(in thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD:
Total interest income $ 1,110 $ 1,067 $ 4,468 $ 3,716 $ 2,922 $ 3,122 $ 3,025
Total interest expense 499 429 1,988 1,494 1,370 1,624 1,838
Net interest income 611 638 2,480 2,222 1,552 1,498 1,187
Provision for loan losses 8 17 155 185 50 217 89
Net interest income after
provision for loan losses 603 621 2,325 2,037 1,502 1,281 1,098
Other operating income 68 111 324 278 294 296 240
Income taxes 79 0 130 0 0 0 0
Net income/(loss) 140 225 645 587 311 7 (167)
Net income/(loss) per share .23 .38 1.06 0.97 0.52 0.01 (0.28)
DIVIDENDS PER SHARE 0.06 -- -- -- -- -- --
AVERAGE BALANCES:
Loans, net of unearned
income $34,099 $32,595 $33,070 $30,524 $24,274 $25,503 $23,389
Earning assets 47,260 44,726 47,717 43,006 36,698 34,015 28,311
Total assets 53,774 49,483 53,063 47,297 40,796 38,085 32,590
Non-interest bearing deposits 7,198 6,143 7,227 5,659 4,035 2,793 2,066
Interest bearing deposits 38,782 37,453 39,462 36,381 31,720 30,309 25,353
Stockholders' equity 6,369 5,621 5,976 5,245 4,855 4,705 4,762
KEY PERFORMANCE RATIOS:
Return on average assets 1.05% 1.84% 1.22% 1.24% 0.76% 0.02% -0.51%
Return on average equity 8.89% 16.65% 10.88 11.20 6.41 0.16 -3.51
DIVIDEND PAYOUT RATIO 26.09% -- -- -- -- -- --
Average equity to average
assets 11.84% 11.36% 11.26 11.09 11.90 12.35 14.61
AT PERIOD END:
Loans, net of unearned
income 33,732 32,701 $34,702 $32,358 $26,727 $23,811 $21,188
</TABLE>
F-17
<PAGE> 91
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Earning assets 47,294 45,608 49,398 44,781 40,441 31,188 30,458
Total assets 53,739 52,707 55,569 49,591 45,211 35,352 34,841
Non-interest bearing deposits 7,959 7,788 8,819 6,694 5,414 3,183 2,148
Interest bearing deposits 39,082 38,819 39,916 37,214 34,638 28,328 27,697
Stockholders' equity 6,376 5,786 6,296 5,473 5,039 4,728 4,720
</TABLE>
EASTSIDE HOLDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EHC's primary source of funding is through dividends paid by Eastside
Bank. The following discussion sets forth the major factors that have affected
Eastside Bank and, therefore EHC's, financial condition and results of
operations as reflected in the accompanying financial statements. These
comments should be read in conjunction with the audited financial statements
presented elsewhere in this Proxy Statement/Prospectus.
RESULTS OF OPERATIONS
Net income is the result of management's efforts to generate interest
and related income from earning assets, generate non-interest income from other
products and services, and control interest expense on deposits, necessary
provisions to the loan loss reserve, and non-interest overhead expenses. The
greatest contributor to net income is net interest income; that is, interest
income less interest expense.
TABLE 1
EARNING ASSETS & INTEREST BEARING LIABILITIES
AVERAGE BALANCE, INTEREST INCOME & YIELDS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
($ IN THOUSANDS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1995 1994
------------------------------------------ ----------------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE EARNED/ YIELD/ AVERAGE EARNED/ YIELD/
BALANCE PAID RATE BALANCE PAID RATE
<S> <C> <C> <C> <C> <C> <C>
Earning Assets
Loans $33,070 $3,614 10.93% $30,524 $3,088 10.12%
Investment
securities 9,292 544 5.85% 8,331 452 5.43%
Federal funds sold 5,355 310 5.79% 4,151 176 4.24%
Total earning assets $47,717 $4,468 9.36% $43,006 $3,716 8.64%
Interest Bearing
Liabilities
Time deposits $28,555 $1,652 5.79% $24,540 $1,165 4.75%
Interest bearing
demand & savings 10,907 336 3.08% 11,641 329 2.83%
Total interest
bearing liabilities $39,462 $1,988 5.04% $36,181 $1,494 4.13%
Net earning assets $ 8,255 $ 6,425
Net interest income $2,480 $2,222
Interest spread 4.32% 4.51%
Net interest margin 5.20% 5.17%
</TABLE>
NOTE: Loans reported in Table 1 include nonaccrual loans.
F-18
<PAGE> 92
TABLE 2
INTEREST INCOME/EXPENSE ANALYSIS
VARIANCE DUE TO CHANGES IN VOLUME AND RATE
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
($ IN THOUSANDS)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
CHANGE IN CHANGE IN NET
VOLUME RATE CHANGE
------------ ------------ --------------
<S> <C> <C> <C>
Interest Income
Loans $ 258 $ 268 $ 526
Investment securities 52 40 92
Federal funds sold 51 83 134
------------ ------------ -----------
Total interest income $ 361 $ 391 $ 752
============ ============ ===========
Interest Expense
Time deposits $ 191 $ 296 $ 487
Interest-bearing demand and
savings deposits (21) 28 7
------------ ------------ -----------
Total interest expense $ 170 $ 324 $ 494
============ ============ ===========
Change in net interest income $ 191 $ 67 $ 258
============ ============ ===========
</TABLE>
NOTE: CHANGES IN RATE/VOLUME ARE ALLOCATED TOTALLY TO CHANGE IN RATE.
NET INTEREST INCOME
Changes in interest income and expense are the result of changes in
total outstanding balances (dollar volume) and changes in overall yields on
earning assets and interest bearing liabilities. As can be seen in Table 2,
interest income in 1995 increased $752,000, or 20.2% compared to 1994. This
was primarily the result of changes in the average volumes and yields in
Eastside Bank's largest earning asset group, the loan portfolio, which
accounted for $526,000 of the increase. Average LOANS OUTSTANDING increased
from $30.5 million in 1994 to $33.1 million in 1995, an 8.3% increase. Even
though 1995 was a year of declining interest rates, Eastside Bank was able to
increase overall yields on the loan portfolio
F-19
<PAGE> 93
from 10.12% in 1994 to 10.93% in 1995. Table 2 shows the impact of these two
variances on interest income. As can be seen the changes in dollar volume of
outstanding loans and in the overall yields on those loans resulted in nearly
equal increases in interest income. In addition to the above, changes in
Eastside Bank's investment portfolio and federal funds sold provided additional
interest income of $226,000.
Interest expense also saw a substantial increase in 1995 compared to
1994. Total interest expense increased $494,000, or 33.1%. Eastside Bank's
primary deposit growth has been in interest bearing deposits. Time deposits,
the Bank's most expensive source of deposits has received the lion's share of
that growth. This growth in time deposits accounted for approximately $191,000
in additional interest expense. Another contributing factor has been the
timing of time deposit maturities. Eastside Bank opened for business in
January of 1990. At opening the Bank bid aggressively for and received a great
deal in time deposits. As a result the first quarter of each year a large
portion of the Bank's time deposits mature and reprice. Although interest
rates declined for the most part in 1995, the first quarter saw aggressive
competition for deposits. Therefore, Eastside Bank was forced to once again
bid aggressively in order to retain maturing time deposits. This accounted to
a significant degree for the increase in average yield on time deposits from
4.75% in 1994 to 5.79% in 1995. The result in dollar costs was an additional
$307,000 in interest expense. Eastside Bank's overall cost of funds grew from
4.13% in 1994 to 5.04% in 1995.
The net result of the above changes in interest income and interest
expense was growth in Eastside Bank's net interest income from $2.2 million in
1994 to $2.5 million in 1995. Net interest margin (net interest income divided
by average earning assets) grew from 5.17% in 1994 to 5.20% in 1995.
NON-INTEREST INCOME
Non-interest income is generated from fees on deposit accounts, fees
for miscellaneous services, and gains of the sale of SBA loans into the
secondary market. In 1995 non-interest income was $324,000 compared to
$278,000 in 1994. Eastside Bank is very active in the SBA loan arena. When
loans are closed, the guaranteed portion is sold into the secondary market
generating a premium to the Bank. A portion of these premiums are recognized
as income immediately, while the remainder is deferred and recognized over the
life of the loan. Eastside Bank recognized $132,000 in such premium income in
1995 compared to $44,000 in 1994. Management intends to continue in 1996 the
aggressive pursuit of SBA lending opportunities and to sell those eligible
portions of the loans into the secondary market.
NON-INTEREST EXPENSE
Management's goal is to maintain Eastside Bank's reserve for loan
losses at 1.30% of gross outstanding loans. This target has been reviewed by
both FDIC and the Georgia Department. Provisions are made to this reserve as
needed and recognized fully as an expense when made. Provisions in 1995
totaled $155,000 compared to $185,000 in 1994. There are no plans to change
this target in 1996.
Other non-interest expense increased $147,000 from $1.728 million in
1994 to $1.875 million in 1995. The largest contributor to this variance was
personnel expenses which
F-20
<PAGE> 94
increased $186,000 from $754 in 1994 to $939,000 in 1995. Included in this
variance were normal salary increases for Eastside Bank personnel and the
addition of new staff members due to growth in Eastside Bank (along with
related expenses), and an additional 10 months of expenses in Eastside Bank's
wholly-owned subsidiary company established in November of 1994. Management
adopted an aggressive approach to controlling personnel costs through control
of staffing levels and has continued this approach. Average assets per
employee in 1995 were $2.34 million compared to Eastside Bank's peer group
average of $2.15 million (from 9-30-95 call reports for all banks with $50-$100
million in assets and located in 8 metropolitan Atlanta counties). Further,
average personnel expenses per employee for 1995 were $37.7,000, compared to
$42.1,000 for the same peer group. Also included in these 1995 expenses were
extraordinary personnel expenses amounting to an estimated $18,000 related to
Eastside Bank's conversion to a new data processing vendor.
Equipment expenses increased $36,000 from $76,000 in 1994 to $112,000
in 1995. The largest single contributor to this variance is in depreciation of
equipment. As mentioned above, Eastside Bank converted to a new data processor
in March of 1995. This required the purchase of approximately $100,000 in new
equipment which began to depreciate in April. Depreciation periods for these
new assets range from 3 to 5 years. Other expenses related to the data
processing conversion amounted to approximately $17,000.
As a result of all of the above and other less significant factors,
pre-tax net income increased $187,000, or 31.9%, from $587,000 in 1994 to
$774,000 in 1995. However, Eastside Bank achieved cumulative profitability in
June of 1995; and as a result became taxable for income tax purposes for the
first time in its history. Applicable income taxes recognized in 1995 totaled
$130,000. After taxes net income in 1995 showed an increase of $57,000, or
9.7% over 1994.
ASSET/LIABILITY MANAGEMENT
The objective of asset/liability management is to minimize the effect
of interest rate changes on net interest margins while maintaining net interest
income at acceptable levels. Factors used to manage interest rate risk are the
mix of fixed and floating rate earning assets and interest bearing liabilities,
and the maturity patterns for all such assets and liabilities. Ideally a bank
will perfectly match the repricing of assets and liabilities. This, however,
is not possible. Instead a bank attempts to manage its assets and liabilities
to obtain a sensitivity mix within acceptable tolerances.
Table 3 details Eastside Bank's sensitivity position as of December
31, 1995 from both a segmented and a cumulative view. Shown are the levels of
variable rate assets and liabilities and the payment and maturity schedules of
fixed rate assets and liabilities. The difference between repricing assets and
liabilities is the net position, or GAP. Eastside Bank seeks to maintain a
cumulative rate sensitive asset to rate sensitive liability (RSA/RSL) ratio of
between 90% and 120% over any time frame. At year-end 1995 the BANK was asset
sensitive. This means that assets are repricing more quickly than are
liabilities. EASTSIDE BANK'S CUMULATIVE RATE SENSITIVITY GAP WITHIN ONE YEAR
OF $1,857,000 REPRESENTS 3.3% OF TOTAL ASSETS. THIS GAP POSITION WOULD IMPACT
NET INCOME UNFAVORABLY IN A FALLING RATE ENVIRONMENT AND FAVORABLY IN A RISING
RATE ENVIRONMENT.
F-21
<PAGE> 95
TABLE 3
INTEREST RATE SENSITIVITY
($ IN THOUSANDS)
<TABLE>
<CAPTION>
3 MONTHS 3-12 MONTHS 1 - 5 YEARS OVER 5 YEARS TOTAL
-------- ----------- ----------- ------------ -----
<S> <C> <C> <C> <C> <C>
Rate Sensitive Assets (RSA)
Variable rate loans $ 20,830 $ 0 $ 0 $ 0 $ 20,830
Fixed rate loans 1,493 5,316 6,615 403 13,872
Investment securities 500 1,491 7,181 1,024 10,196
Federal funds sold 4,500 0 0 0 4,500
-------- -------- -------- ------- --------
Total $ 27,323 $ 6,852 $ 13,796 $ 1,427 $ 49,398
======== ======== ======== ======= ========
Rate Sensitive Liabilities (RSL)
Time Deposits $ 9,108 $ 11,586 $ 7,598 $ 0 $ 28,292
Interest bearing demand 4,761 0 0 0 4,761
Money market accounts 4,625 0 0 0 4,625
Savings 2,238 0 0 0 2,238
Total $ 20,732 $ 11,586 $ 7,598 $ 0 $ 39,916
======== ======== ======== ======= ========
Net Positions (GAP)
RSA less RSL $ 6,591 $ (4,734) $ 6,198 $ 1,427 $ 9,482
======== ======== ======== ======= ========
RSA less RSL - Cumulative $ 6,591 $ 1,857 $ 8,055 $ 9,482 $ 9,482
======== ======== ======== ======= ========
RSA/RSL 131.8% 59.1% 181.6% N/A 123.8%
RSA/RSL - Cumulative 131.8% 105.6% 120.2% 123.8% 123.8%
Cum. GAP/Total Assets 11.9% 3.3% 14.5% 17.1% 17.1%
Cum. GAP/Earning Assets 13.3% 3.8% 16.3% 19.2% 19.2%
</TABLE>
LIQUIDITY & CAPITAL RESOURCES
Liquidity refers to the ability of Eastside Bank to meet its cash flow
requirements and fund its commitments. The method of measuring such is the
liquidity ratio which measures a bank's liquid assets against its deposits.
The minimum recommended ratio used by both Federal and State regulators is 30%.
At December 31, 1995, Eastside Bank's liquidity ratio was at 34.89%, compared
to 30.77% at December 31, 1994.
The volatile liability dependency ratio measures the Bank's dependence
on volatile liabilities as a funding source for loans and other earning assets.
Ideally this ratio is a negative. At year-end 1995 Eastside Bank's volatile
liability dependency ratio was a negative 6.76% compared to a negative 5.48% at
year-end 1994. Bank management is determined to seek growth through the
acquisition new core deposits. The bank does not accept brokered deposits, and
does not seek public funds.
Eastside Bank's LIQUIDITY POLICY requires that 5-10% of total assets
be maintained in federal funds sold. At December 31, 1995, federal funds sold
accounted for 8.1% of total assets. In addition, as can be seen in Table 4,
securities with AN AMORTIZED COST of $8,979,565 are scheduled to mature within
the next five years. Of this amount, $2,000,193 is scheduled to mature within
one year.
AT DECEMBER 31, 1995, EASTSIDE BANK HAD IN ITS INVESTMENT PORTFOLIO
$4,001,178 IN SECURITIES CLASSIFIED AS HELD TO MATURITY. SFAS 115 PROVIDES
LIMITED CIRCUMSTANCES UNDER WHICH SECURITIES CLASSIFIED AS HELD TO MATURITY MAY
BE SOLD PRIOR TO MATURITY WITHOUT TAINTING THE REMAINDER OF SECURITIES SO
CLASSIFIED. SALE OF THESE SECURITIES UNDER
F-22
<PAGE> 96
OTHER CIRCUMSTANCES COULD REQUIRE THAT THE ENTIRE HELD TO MATURITY INVESTMENT
PORTFOLIO BE RECLASSIFIED AS AVAILABLE FOR SALE. Eastside Bank has BOTH THE
INTENT AND the ability to hold these investment securities to maturity.
TABLE 4
INVESTMENT SECURITIES MATURITY SCHEDULE
<TABLE>
<CAPTION>
SECURITIES AVAILABLE FOR SALE SECURITIES HELD TO MATURITY
--------------------------------- --------------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Due in 1 year or less $1,500,135 $1,490,475 $ 500,058 $ 497,655
Due from 1 year to 5 years 3,478,252 3,499,172 3,501,120 3,462,047
Due from 5 to 10 years 1,002,650 1,023,518 0 0
Mortgage-backed securities 176,122 181,512 0 0
---------- ---------- ---------- ----------
$6,157,159 $6,194,677 $4,001,178 $3,959,702
========== ========== ========== ==========
</TABLE>
Management believes that Eastside Bank's present liquidity position is
adequate, and knows of no demands, commitments, or events that will result in,
or that are likely to result in, the Bank's liquidity becoming problematic.
Federal funds lines which are maintained with correspondent banks combined with
additional funds available through repurchase agreements and public funds would
provide for sufficient flexibility, should unforeseen needs arise.
Regulatory authorities have established minimum capital levels for
banks and bank holding companies. Table 5 shows the capital levels as a
percent of total assets at December 31, 1995.
TABLE 5
<TABLE>
<CAPTION>
Regulatory
Actual Requirement
---------- -------------
<S> <C> <C>
Leverage capital ratio 11.08% 4.00%
Risk based capital ratios
Core capital 15.14% 4.00%
Total capital 16.25% 8.00%
</TABLE>
EHC declared its first dividend to shareholders in February, 1996.
Dividends of $.06 per share, a total of $36,000 were paid on March 15, 1996.
The amount of dividends payable by Eastside Bank to EHC in 1996 without
regulatory approval are limited to approximately $271 thousand. Management
knows of no current recommendations by the regulatory authorities which, if
they were implemented, would have a materially detrimental effect on EHC's
liquidity or capital resources.
F-23
<PAGE> 97
COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, Eastside Bank has entered into off
balance sheet financial instruments which are not reflected in the financial
statements. These instruments include commitments to extend credit, standby
letters of credit, guarantees and liability for assets held in trust. Such
financial instruments are recorded in the financial statements when the funds
are disbursed or the instruments become payable. The Bank uses the same credit
and collateral policies for these off balance sheet financial instruments as it
does for instruments that are recorded in the financial statements.
Table 6 presents an analysis of significant off balance sheet
financial instruments at December 31, 1995 and 1994.
TABLE 6
<TABLE>
<CAPTION>
December 31,
-----------------------------
1995 1994
---------- -----------
(Dollars in Thousands)
<S> <C> <C>
Commitments to extend credit $ 11,147 $ 8,571
Standby letters of credit 175 107
---------- ---------
11,322 8,678
========== =========
</TABLE>
Commitments generally have expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitment amounts
expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The credit risk involved in
issuing these financial instruments is essentially the same as that involved in
extending other loans to customers.
Eastside Bank does not anticipate any material losses as a result of
the commitments and contingent liabilities.
F-24
<PAGE> 98
SELECTED STATISTICAL DATA
The following statistical information is provided for EHC for the
years ended December 31, 1995 and 1994. Average balances presented were
calculated using daily averages. This data should be read in conjunction with
the audited financial statements.
AVERAGE BALANCE SHEET
(Dollars in Thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1995 1994
------------------ ------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 2,039 $ 1,291
Investment securities 9,292 8,331
Federal funds sold 5,355 4,151
Gross loans, net of unearned income 33,070 30,524
Less allowance for loan losses 396 396
-------- --------
Net loans 32,674 30,128
Building, furniture, fixtures and equipment 3,035 2,992
Other assets 668 404
-------- --------
Total assets $ 55,063 $ 47,297
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing demand $ 7,227 $ 5,659
Interest bearing demand 8,751 8,424
Savings 2,156 3,017
Time deposits over $100,000 2,729 2,535
Time deposits less than $100,000 25,826 22,205
-------- --------
Total deposits 46,689 41,840
Short-term borrowings 2 0
Other liabilities 396 212
-------- --------
Total liabilities 47,087 42,052
Equity:
Common stock 6,000 6,000
Retained earnings (374) (961)
Unrealized gain/loss on securities available for sale (42) (47)
Current year earnings 392 253
-------- --------
Total equity 5,976 5,245
-------- --------
Total liabilities and stockholders' equity $ 53,063 $ 47,297
======== ========
</TABLE>
NOTE: LOANS IN NONACCRUAL ARE INCLUDED IN AVERAGE LOANS.
F-25
<PAGE> 99
INVESTMENT SECURITIES
AS OF DECEMBER 31, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
US Treasuries and government agencies $ 10,106 $ 8,346
Mortgage-backed 180 226
--------- ---------
Total Securities $ 10,196 $ 8,572
========= =========
</TABLE>
MATURITY ANALYSIS OF SECURITY PORTFOLIO
AS OF DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AVERAGE
AMORTIZED COST WEIGHTED YIELD
------------------ --------------
<S> <C> <C>
Due in one year or less $ 1,992 4.17%
Due from one year to five years 6,992 5.72%
Due from five to ten years 1,033 7.52%
Mortgage-backed securities 180 9.14%
-------
$10,196 5.65%
</TABLE>
MATURITIES ANALYSIS OF LOAN PORTFOLIO
AS OF DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Due After One
Due in One Year Through Due After
Year or Less Five Years Five Years
--------------- ----------------- ---------------
<S> <C> <C> <C>
Commercial, financial and agricultural $ 7,063 $ 2,845 $ 0
Real estate - construction 8,435 515 0
Real estate - mortgage 8,532 1,344 527
Consumer installment 1,497 3,356 249
Other 538 0 0
-------- -------- --------
$ 26,065 $ 8,060 $ 776
-------- -------- --------
</TABLE>
F-26
<PAGE> 100
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
AS OF DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Installment and terms loans contractually past due 90 days or more as to
interest or principal payments and still accruing $ 114 $ 3
Loans accounted for on a nonaccrual basis 87 138
Loans, the terms of which have been renegotiated to provide a reduction or 0 0
deferral of interest or principal because of deterioration in the
financial position of the borrower
</TABLE>
ACCORDING TO EASTSIDE BANK'S LOAN POLICY, CLASSIFICATION OF LOANS AS
NONACCRUAL IS REQUIRED WHEN INTEREST BECOMES 90 DAYS PAST DUE UNLESS AN
EXCEPTION IS MADE DUE TO THE LOAN BEING WELL SECURED AND IN THE PROCESS OF
COLLECTION. When it is determined by MANAGEMENT that repayment of loan
principal and interest is doubtful, the loan is classified as nonaccrual.
There was no significant reduction in interest income associated with
nonaccrual and renegotiated loans for the year ended December 31, 1995.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
AS OF DECEMBER 31, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994
--------------------------------- ---------------------------------
PERCENT OF LOANS IN PERCENT OF LOANS IN
EACH CATEGORY TO EACH CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------ ----------- ------ -----------
<S> <C> <C> <C> <C>
Commercial, financial and
agricultural $ 17 28.39% $ 50 22.64%
Real estate - construction 0 25.64% 0 26.66%
Real estate - mortgage 10 29.81% 0 29.79%
Installment loans to individuals 1 16.16% 4 20.91%
& OTHER
Unallocated 423 N/A 377 N/A
------ ------ ------ ------
Total Allowance $ 451 100% $ 431 100%
====== ====== ====== ======
</TABLE>
EASTSIDE BANK'S LOAN PORTFOLIO COMPARED TO ITS NATIONAL PEER GROUP IS
MORE HIGHLY CONCENTRATED IN LOANS SECURED BY REAL ESTATE. THE BANK RESIDES IN
GWINNETT COUNTY, A SUBURBAN COUNTY ON THE OUTSKIRTS OF THE CITY OF ATLANTA. AS
ONE OF THE MOST POPULAR BEDROOM COMMUNITIES IN METROPOLITAN ATLANTA, GWINNETT
COUNTY HAS HISTORICALLY POSTED GROWTH RECORDS WHICH PLACED IT AMONG THE FASTEST
GROWING COUNTIES IN THE COUNTRY, FROM TIME TO TIME IN THE PREMIER POSITION.
CONSEQUENTLY, THE PRIMARY INDUSTRY IN THE COUNTY IS RESIDENTIAL CONSTRUCTION.
EASTSIDE BANK PARTICIPATES SIGNIFICANTLY IN THE MARKET
F-27
<PAGE> 101
OF PROVIDING FINANCING FOR THIS INDUSTRY, AND A LARGE PORTION OF ITS LOAN
PORTFOLIO CONSISTS OF RESIDENTIAL CONSTRUCTION LOANS. MANAGEMENT AND THE BOARD
OF DIRECTORS RECOGNIZE THE RISKS ASSOCIATED WITH CONCENTRATIONS IN REAL ESTATE
BACKED ASSETS. UNDERWRITING STANDARDS ARE WRITTEN TO REFLECT THIS FACT. TO
AID IN THE UNDERWRITING PROCESS, THE BANK'S RESIDENTIAL CONSTRUCTION LENDER
CONSTANTLY MONITORS HOUSING INVENTORIES AND DEMAND, REPORTING THESE TO THE
EXECUTIVE/LOAN COMMITTEE PERIODICALLY. THE SUCCESS OF THESE STANDARDS CAN BE
SEEN IN THE BANK'S CONSTRUCTION LOAN FORECLOSURE HISTORY. IN THE SIX YEAR LIFE
OF THE BANK, FORECLOSURE HAS BEEN REQUIRED ONLY ONCE.
Management is continually MEASURING THE ADEQUACY of the Allowance for
Loan Losses ("ALL") THROUGH BOTH AN INTERNAL RISK RATING SYSTEM AND AN ANNUAL
EXTERNAL PORTFOLIO REVIEW. THROUGH THESE PROCESSES, LOANS ARE ASSIGNED A
RATING ACCORDING TO THE PERCEIVED LEVEL OF RISK. LOANS WHICH ARE CLASSIFIED
"SUB-STANDARD" OR LOWER, ARE ALLOCATED A PORTION OF THE ALL IN the amount of
exposure estimated. UNDER NORMAL ECONOMIC CONDITIONS, MANAGEMENT'S goal is to
maintain in the ALL THE GREATER OF 1.3% of gross loans, or 1.0% of gross loans
plus specific allocations RESULTING FROM THE ABOVE LOAN RATING SYSTEM.
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------
1995 1994
------------------------- --------------------------
<S> <C> <C>
Balance, beginning of year $ 431 $ 335
Charge-offs:
Commercial, financial and agricultural (76) (37)
Real estate - mortgage (65) (32)
Installment (6) (66)
Other (7) (9)
----- ------
(154) (144)
----- ------
Recoveries:
Commercial, financial and agricultural 1 23
Real estate - mortgage 13 1
Installment 4 30
Other 1 1
----- ------
19 55
----- ------
Net charge-offs (135) (89)
Additions charged to operations 155 185
----- ------
Balance, end of year $ 451 $ 431
===== ======
</TABLE>
F-28
<PAGE> 102
AVERAGE DEPOSIT CATEGORIES TOTALING 10% OR MORE OF TOTAL AVERAGE DEPOSITS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------------------------- -----------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE YIELD BALANCE YIELD
------- ------- ------- -------
<S> <C> <C> <C> <C>
Non-interest bearing demand $ 7,227 N/A $ 5,659 N/A
Interest bearing demand and savings $ 10,907 3.08% $ 11,441 2.83%
Time $ 28,555 5.79% $ 24,540 4.75%
</TABLE>
TIME DEPOSIT MATURITY ANALYSIS
AS OF DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MATURITY PERIODS
----------------------------------------------------------
LESS THAN 3 TO 6 6 TO 12 OVER 12
3 MONTHS MONTHS MONTHS MONTHS
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Time deposits $100,000 or greater $ 1,047 $ 1,120 $ 809 $ 625
Time deposits less than $100,000 8,001 5,012 4,722 6,956
-------- -------- -------- --------
$ 9,048 $ 6,132 $ 5,531 $ 7,581
======== ======== ======== ========
</TABLE>
RETURN ON EQUITY AND ASSETS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1995 1994
------------------- -----------------
<S> <C> <C>
Return on assets(1) 1.22% 1.24%
Return on equity(2) 10.78% 11.20%
Dividend payout ratio(3) N/A N/A
Equity to assets ratio(4) 11.26% 11.09%
</TABLE>
(1) Net income divided by average total assets.
(2) Net income divided by average equity.
(3) Dividends declared per share divided by net income per share.
(4) Average equity divided by average total assets.
F-29
<PAGE> 103
EHC RESULTS OF FIRST QUARTER 1996
FINANCIAL CONDITION
DURING THE FIRST THREE MONTHS OF 1996, EASTSIDE BANK SAW DEPOSITS
DECLINE APPROXIMATELY $1,694,000, OR 3.5%, FROM APPROXIMATELY $48,735,000 AT
DECEMBER 31, 1995 TO APPROXIMATELY $47,041,000 AT MARCH 31, 1996. THIS IS A
NORMAL FLUCTUATION SEEN DURING THE FIRST QUARTER OF EACH YEAR. AS WITH
DEPOSITS, EASTSIDE BANK'S OUTSTANDING LOANS DECLINED TO APPROXIMATELY
$33,732,000 AT MARCH 31, 1996 COMPARED TO APPROXIMATELY $34,702,000 AT DECEMBER
31, 1995, A DECLINE OF 2.8%. MANAGEMENT HAS IDENTIFIED 1.30% AS THE
APPROPRIATE RATIO OF RESERVE FOR LOAN LOSSES TO GROSS LOANS FOR THE BANK. AT
MARCH 31, 1996 THE LOAN LOSS RESERVE TO GROSS LOANS RATIO WAS 1.30%.
EASTSIDE BANK'S LIQUIDITY RATIO ON MARCH 31, 1996 WAS 33.6% COMPARED
TO 34.9% AT YEAR-END. THE BANK'S LOAN-TO-DEPOSIT RATIO WAS 71.7%, COMPARED TO
71.2% AT DECEMBER 31, 1995. IDEALLY, EASTSIDE BANK WOULD LIKE TO MAINTAIN A
RATIO OF 75% AT WHICH POINT THE LIQUIDITY RATIO WOULD BE APPROXIMATELY 30%, THE
BANK'S TARGET RATIO. AT MARCH 31, 1996, UNFUNDED LOAN COMMITMENTS AMOUNTED TO
$11.8 MILLION.
MANAGEMENT KNOWS OF NO REASON WHY EASTSIDE BANK WOULD BE UNABLE TO
MEET ITS LIQUIDITY NEEDS THROUGH NORMAL OPERATIONS. HOWEVER, SHOULD EXTREME
CIRCUMSTANCES OCCUR, EASTSIDE BANK HAD AT MARCH 31, 1996, $4.1 MILLION IN
FEDERAL FUNDS SOLD, $5.4 MILLION IN SECURITIES AVAILABLE FOR SALE, AND $4
MILLION IN FEDERAL FUNDS LINES OF CREDIT.
ASSET QUALITY
Eastside Bank's loan portfolio continues to be concentrated in real
estate loans. Of the total portfolio, 29.22% is in 1-4 family and commercial
construction loans. Gwinnett County continues to be a fast-growth area of
Metropolitan Atlanta. New home inventories and sales are continually reviewed
for market changes which might warrant changes in Eastside Bank's underwriting
criteria. As of March 31, 1996, there were no loans in the bank's construction
loan portfolio which were considered to be problem loans. While any
concentration of loans in a particular industry dictates added monitoring of
the industry, management does not consider Eastside Bank's concentration in
construction loans to be reason for concern.
In December of 1995, management began to place added emphasis on
Eastside Bank's past due loans by hiring a part-time loan collector. The effect
has been to reduce loans past due over 90 days from approximately $114,000 as
of December 31, 1995 to approximately $22,000 as of March 31, 1996.
According to Eastside Bank's loan policy, classification of loans as
nonaccrual is required when interest becomes 90 days past due unless an
exception is made due to the loan being secured and in the process of
collection. Regardless of the number of days past due, when it is determined by
management that repayment of loan principal and interest is doubtful, the loan
is classified as nonaccrual. Included in nonaccrual loans for 1996 is a loan
in the amount of $453,000 made under the Small Business Administration ("SBA")
program. At quarter end, the SBA had approved payment of the guaranteed
portion, but it had not yet been received. The SBA payment in process is in
the amount of $340,000.
There was no significant reduction in interest income associated with
nonaccrual loans for the quarter ended March 31, 1996.
As of March 31, 1996, Eastside Bank had no loans considered problem
loans which are not disclosed in the table Nonaccrual, Past Due and
Restructured Loans.
Management is continually measuring the adequacy of the Allowance for
Loan Losses (ALL) through both an internal risk rating system and an annual
external portfolio review. Through these processes, loans are assigned a
rating according to the perceived level of risk. Loans which are classified
"sub-standard" or lower are allocated a portion of the ALL in the amount of
exposure estimated. Under normal economic conditions, management's goal is to
maintain in the ALL the greater of 1.3% of gross loans, or 1.0% of gross loans
plus specific allocations resulting from the above loan rating system. At
March 31, 1996, the ALL as a percent of total loans was 1.31%.
<TABLE>
<CAPTION>
================================================================================
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
AS OF MARCH 31, 1996 AND MARCH 31, 1995
(dollars in thousands)
- --------------------------------------------------------------------------------
3/31/96 3/31/95
================================================================================
<S> <C> <C>
Installment and term loans contractually past due $ 22 $12
90 days or more as to interest or principal
payments and still accruing
- --------------------------------------------------------------------------------
Loans accounted for on a nonaccrual basis $519 $ 5
- --------------------------------------------------------------------------------
Loans the terms of which have been renegotiated to $ 0 $ 0
provide a reduction or deferral of interest or
principal because of deterioration in the financial
position of the borrower
================================================================================
</TABLE>
<TABLE>
<CAPTION>
================================================================================
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
AS OF MARCH 31, 1996
(dollars in thousands)
- --------------------------------------------------------------------------------
PERCENT OF LOANS IN EACH
CATEGORY TO TOTAL LOANS
================================================================================
<S> <C> <C>
Commercial, financial and $ 0 25.62%
agricultural
- -------------------------------------------------------------------------------
Real estate - construction $ 0 29.22%
- -------------------------------------------------------------------------------
Real estate - mortgage $ 10 31.48%
- -------------------------------------------------------------------------------
Installment loans to individuals $ 11 13.68%
- -------------------------------------------------------------------------------
Unallocated $420
- -------------------------------------------------------------------------------
Total allowance $441
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
================================================================================
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
(dollars in thousands)
- --------------------------------------------------------------------------------
MARCH 31,
------------------------
1996 1995
================================================================================
<S> <C> <C>
Balances as of 12/31/95 and 12/31/94 $452 $431
Charge-offs;
Commercial, financial and agricultural 0 (8)
Real estate - construction 0 0
Real estate - mortgage (6) 0
Installment (21) (2)
Other (2) 0
- --------------------------------------------------------------------------------
(29) (10)
- --------------------------------------------------------------------------------
Recoveries:
Commercial, financial and agricultural 0 0
Real estate - construction 0 0
Real estate - mortgage 5 0
Installment 5 2
Other 0 0
- --------------------------------------------------------------------------------
10 2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net charge-offs (19) (8)
Additions charged to operations 8 17
- --------------------------------------------------------------------------------
Balances as of 3/31/96 and 3/31/95 $441 $440
================================================================================
</TABLE>
RESULTS OF OPERATIONS
FIRST QUARTER 1996 NET INCOME FOR EHC WAS $140,000, PRODUCING A RETURN
ON ASSETS ("ROA") OF 1.03%, COMPARED TO $225,000 NET INCOME AND AN ROA OF 1.84%
DURING THE SAME PERIOD IN 1995 (EASTSIDE BANK ONLY). RETURN ON AVERAGE EQUITY
FOR THE FIRST QUARTER OF 1996 WAS 8.89% COMPARED TO 16.22% FOR THE SAME PERIOD
IN 1995.
A NUMBER OF FACTORS HAVE CONTRIBUTED TO THIS $85,000 DECREASE IN NET
EARNINGS IN 1996 COMPARED TO 1995. BY FAR, THE GREATEST CONTRIBUTOR HAS BEEN
THE ACCRUAL OF INCOME TAXES. EASTSIDE BANK DID NOT BECOME CUMULATIVELY
PROFITABLE UNTIL JUNE 1995, AND SO WAS NOT TAXABLE FOR INCOME TAX PURPOSES
DURING THE FIRST QUARTER OF 1995. INCOME TAX ACCRUALS DURING THE FIRST QUARTER
1996 AMOUNTED TO $79,000.
THE SECOND LARGEST CONTRIBUTING VARIANCE IS FOUND IN NON-INTEREST
INCOME, THE ABSENCE OF GAINS ON SALE OF SBA LOANS INTO THE SECONDARY MARKET.
EASTSIDE BANK IS AN ACTIVE PARTICIPANT IN THE SBA LOAN ARENA, HAVING EARNED THE
STATUS OF A "PREFERRED LENDER" FROM THE SBA. IN THE FIRST QUARTER OF 1995,
IMMEDIATELY RECOGNIZABLE PREMIUMS ON SBA LOANS CLOSED AND SOLD ON THE SECONDARY
MARKET AMOUNTED TO $56,000. THOUGH A NUMBER OF SBA LOANS HAVE BEEN IN PROCESS
DURING THE FIRST QUARTER OF 1996, NONE WAS CLOSED DURING THIS QUARTER.
NET INTEREST INCOME ALSO DECLINED DURING THE FIRST QUARTER OF 1996
COMPARED TO THE SAME PERIOD IN 1995. WHILE INTEREST INCOME ROSE $43,000, OR
4.0%, INTEREST EXPENSE AT THE SAME TIME ROSE $70,000, OR 16.3%. THE AVERAGE
LOAN-TO-DEPOSIT RATIO DURING THE FIRST QUARTER 1996 WAS 74.2% COMPARED TO
74.8% DURING THE SAME PERIOD IN 1995. THE OVERALL YIELD ON EARNING ASSETS WAS
DOWN FOR THE FIRST QUARTER IN 1996 COMPARED TO 1995, AT 9.54% AND 9.67%
RESPECTIVELY. AT THE SAME TIME THE OVERALL COST OF INTEREST-BEARING DEPOSITS
ROSE FROM 4.65% IN FIRST QUARTER 1995 TO 5.17% IN 1996. THE EFFECT ON EASTSIDE
BANK'S NET INTEREST MARGIN HAS BEEN TO PUSH IT DOWN
F-30
<PAGE> 104
FROM 5.78% IN FIRST QUARTER 1995 TO 5.25% IN 1996. THIS WAS IN LARGE PART THE
RESULT OF VERY AGGRESSIVE COMPETITION FOR TIME DEPOSITS INITIATED BY A SMALL
NUMBER OF LOCALLY OWNED BANKS IN THE EAST ATLANTA AREA DURING THE EARLY PART OF
1995, AND LASTING INTO THE SECOND QUARTER OF 1995. IN ORDER TO RETAIN DEPOSITS
TO FUND LOANS, EASTSIDE BANK WAS COMPELLED TO MATCH THESE PREMIUM RATES. THIS
CAN BE SEEN IN THE CHANGE OF THE OVERALL COST OF TIME DEPOSITS. DURING THE
FIRST QUARTER OF 1995, THE COST WAS 5.29%; COMPARED TO AN OVERALL COST OF 5.96%
DURING THE SAME PERIOD IN 1996. THE RESULT OF THIS COMPETITION ON THE PERIOD
ENDED MARCH 31, 1996, HAS BEEN TO REDUCE NET INTEREST INCOME $27,000 COMPARED
TO THE SAME PERIOD IN 1995.
PERSONNEL EXPENSES HAVE INCREASED FROM $222,000 DURING THE FIRST
QUARTER OF 1995 TO $235,000 DURING THE SAME PERIOD OF 1996, AN INCREASE OF
$14,000 OR 6%. THIS INCREASE REFLECTS NORMAL SALARY INCREASES AND STAFF
ADDITIONS DUE TO GROWTH IN EHC. EASTSIDE BANK'S LEVEL OF PERSONNEL EXPENSES
REFLECTS MANAGEMENT DETERMINATION TO HOLD THE COSTS DOWN THROUGH AUTOMATION AND
MAINTAINING STAFFING LEVELS AT LOWER THAN PEER GROUP AVERAGE. EASTSIDE BANK'S
ASSETS PER EMPLOYEE RATIO IS MAINTAINED AT APPROXIMATELY $2,300,000 COMPARED TO
A LOCAL PEER GROUP AVERAGE OF $2,150,000. AVERAGE EXPENSE PER EMPLOYEE WAS
$40,030 COMPARED TO A LOCAL PEER GROUP AVERAGE OF $42,120.
OCCUPANCY EXPENSES FOR THE FIRST QUARTER WERE DOWN $9,000 OVER THE
SAME PERIOD LAST YEAR, A 14% DECLINE. THE SINGLE LARGEST CONTRIBUTOR TO THIS
VARIANCE WAS THE FULL DEPRECIATION OF FURNITURE PURCHASED WHEN EASTSIDE BANK
WAS OPENED.
OTHER OPERATING EXPENSES IN THE FIRST QUARTER OF 1996 DECLINED
$60,000, OR 27% COMPARED TO THE SAME PERIOD LAST YEAR. THIS CAN BE ATTRIBUTED
PRIMARILY TO TWO LARGE VARIANCES. FIRST, DATA PROCESSING COSTS FOR THE PERIOD
DECLINED $31,000. THE FIRST QUARTER OF 1995 SAW SIGNIFICANT EXTRAORDINARY DATA
PROCESSING EXPENSES RELATED TO A DATA PROCESSING CONVERSION WHICH WAS SCHEDULED
FOR THE END OF THE QUARTER. SECOND, EASTSIDE BANK IS RANKED AS WELL
CAPITALIZED BY THE FDIC, AND SO HAS PAID THE LOWEST DEPOSIT INSURANCE PREMIUM.
THIS PRODUCED A SAVINGS OF $24,000. PEER GROUP COMPARISONS OF OTHER OPERATING
EXPENSES ALSO REFLECT FAVORABLY ON EASTSIDE BANK. OTHER OPERATING EXPENSES AS
A PERCENT OF AVERAGE ASSETS FOR THE QUARTER WERE 1.24% COMPARED TO A LOCAL PEER
GROUP AVERAGE OF 1.38%.
CONCLUSION
MANAGEMENT FEELS THAT THE EHC'S BALANCE SHEET IS IN SATISFACTORY
CONDITION. HOWEVER, MINOR IMPROVEMENTS IN THE LOAN TO DEPOSIT RATIO AND THE
OVERALL MAKEUP OF DEPOSITS HAVE BEEN TARGETED. THOUGH EHC CONTINUES TO BE
PROFITABLE, IMPROVEMENT IN THIS AREA IS NECESSARY. KEY TO THIS IMPROVEMENT IS
AN INCREASE IN EASTSIDE BANK'S NET INTEREST INCOME, AND AN INCREASE IN
NON-INTEREST INCOME THROUGH PREMIUMS FROM SALES OF SBA LOANS INTO THE SECONDARY
MARKET. MANAGEMENT IS EXPLORING ALTERNATIVE SOURCES OF LOAN FUNDING IN ORDER
TO RELIEVE THE PRESSURE TO MEET EXORBITANT INTEREST RATES ON TIME DEPOSITS.
FURTHER, MANAGEMENT INTENDS TO MAINTAIN ITS TIGHT CONTROL ON NON-INTEREST
EXPENSES.
MANAGEMENT IN 1994 ESTABLISHED EASTSIDE BANK'S WHOLLY OWNED SUBSIDIARY
EASTSIDE FINANCIAL SERVICES, INC. ("EFS") TO PROVIDE SBA LOAN ASSISTANCE TO
COMMUNITY BANKS IN OTHER MARKET AREAS. AT THE TIME IT WAS ANTICIPATED THAT THE
DEMAND FOR THIS SERVICE WOULD BE GREATER THAN HAS BEEN EXPERIENCED. WHILE EFS
HAS NOT BEEN A DRAIN ON EASTSIDE BANK'S PROFITS, IT HAS
F-31
<PAGE> 105
NOT PRODUCED THE INCOME ANTICIPATED. RECENTLY, AN ALLIANCE BETWEEN EFS AND
WACHOVIA BANK HAS BEEN EXPLORED. THIS ALLIANCE WOULD PROVIDE WACHOVIA, AS A
THIRD PARTY VENDOR, A PRODUCT TO MARKET TO THEIR OTHER CORRESPONDENT BANKS, AND
WOULD PROVIDE EFS THE SALES FORCE OF WACHOVIA'S CORRESPONDENT BANKING DIVISION.
THIS HAS BEEN A WEAKNESS IN EFS FROM THE OUTSET DUE TO THE SKELETON WORK FORCE
WHICH HAS BEEN MAINTAINED. EASTSIDE BANK MANAGEMENT AND REPRESENTATIVES OF
WACHOVIA BANK FEEL EFS OFFERS A PRODUCT WHICH WILL BE WELL RECEIVED WHEN
PRESENTED IN CONJUNCTION WITH A MAJOR REGIONAL BANK SUCH AS WACHOVIA. THIS
RELATIONSHIP HAS ALREADY PRODUCED ONE NEW CUSTOMER WITH THREE SBA LOANS IN
PROCESS. MANAGEMENT BELIEVES THAT EFS WILL BECOME A SIGNIFICANT CONTRIBUTOR TO
THE BOTTOM-LINE OF EHC.
F-32
<PAGE> 106
PRO FORMA FINANCIAL INFORMATION
F-33
<PAGE> 107
WESTSIDE FINANCIAL CORPORATION
PRO FORMA FINANCIAL INFORMATION
On the following three pages the pro forma consolidated balance sheet as of
March 31, 1996, and the pro forma consolidated statements of income for the
years ended December 31, 1995 and 1994, and the three months ended March 31,
1995, for Eastside Holding Corporation and Westside Financial Corporation are
presented. The pro forma adjustments are based on the assumption that Westside
Financial Corporation will exchange shares of their common stock for all of the
outstanding shares of common stock of Eastside Holding Corporation and
therefore the pooling-of-interest method of accounting would be utilized.
Pro forma net income per share of common and common equivalent shares is based
on the assumption that Westside Financial Corporation will declare a 21% stock
split effected in the form of a dividend to its shareholders before the closing
date of the transaction. (A) The 21% is based on an estimated exchange ratio
determined by using the December 31, 1995, financial information for both
companies. This calculation will be updated in accordance with the merger
agreement and the actual stock split effected in the form of a stock dividend
may be different from the 21%.
F-34
<PAGE> 108
WESTSIDE FINANCIAL CORPORATION
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
EASTSIDE WESTSIDE
HOLDING FINANCIAL
CORP CORP COMBINED
---- ---- --------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $3,614,422 $3,734,148 $7,348,570
Interest on investments in securities:
Taxable 544,169 696,007 1,240,176
Nontaxable - 51,943 51,943
Interest on Federal funds sold 309,572 388,672 698,244
Interest on repurchase agreements - 365,681 365,681
---------- ---------- ----------
4,468,163 5,236,451 9,704,614
---------- ---------- ----------
INTEREST EXPENSE
Interest on deposits 1,987,755 2,098,934 4,086,689
Interest on other 110 - 110
---------- ---------- ----------
1,987,865 2,098,934 4,086,799
---------- ---------- ----------
Net interest income 2,480,298 3,137,517 5,617,815
PROVISION FOR LOAN LOSSES 155,000 101,000 256,000
---------- ---------- ----------
Net interest income after provision for loan
losses 2,325,298 3,036,517 5,361,815
---------- ---------- ----------
OTHER INCOME
Service charges on deposit accounts 157,544 184,933 342,477
Gain on sale of loans 131,999 9,142 141,141
Other 34,312 53,429 87,741
---------- ---------- ----------
323,855 247,504 571,359
---------- ---------- ----------
OTHER EXPENSE
Salaries and employee benefits 938,537 933,027 1,871,564
Equipment expense 111,620 104,024 215,644
Occupancy expense 141,867 90,376 232,243
Advertising expense 69,855 - 69,855
Data processing 105,848 87,115 192,963
Deposit insurance 51,482 52,674 104,156
Director fees - 61,850 61,850
Legal and accounting 36,450 - 36,450
Other operating expenses 419,106 419,595 838,701
---------- ---------- ----------
1,874,765 1,748,661 3,623,426
---------- ---------- ----------
Income before income taxes 774,388 1,535,360 2,309,748
APPLICABLE INCOME TAXES 129,764 564,190 693,954
---------- ---------- ----------
Net income $ 644,624 $ 971,170 $1,615,794
---------- ---------- ----------
PER SHARE OF COMMON AND COMMON EQUIVALENT SHARE
Net income $ 1.06 $ 1.60
---------- ----------
<CAPTION>
WESTSIDE
FINANCIAL
CORP
PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
----------- --------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $7,348,570
Interest on investments in securities:
Taxable 1,240,176
Nontaxable 51,943
Interest on Federal funds sold 698,244
Interest on repurchase agreements 365,681
----------
9,704,614
----------
INTEREST EXPENSE
Interest on deposits 4,086,689
Interest on other 110
----------
4,086,799
----------
Net interest income 5,617,815
PROVISION FOR LOAN LOSSES 256,000
----------
Net interest income after provision for loan losses 5,361,815
----------
OTHER INCOME
Service charges on deposit accounts 342,477
Gain on sale of loans 141,141
Other 87,741
----------
571,359
----------
OTHER EXPENSE
Salaries and employee benefits 1,871,564
Equipment expense 215,644
Occupancy expense 232,243
Advertising expense 69,855
Data processing 192,963
Deposit insurance 104,156
Director fees 61,850
Legal and accounting 36,450
Other operating expenses 838,701
----------
3,623,426
----------
Income before income taxes 2,309,748
APPLICABLE INCOME TAXES 693,954
----------
Net income $1,615,794
----------
PER SHARE OF COMMON AND COMMON EQUIVALENT SHARE
Net income $ 1.19 (A)
----------
</TABLE>
(A) - The pro forma net income per common and common equivalent share was
calculated after giving effect to the stock split effected in the form of
a stock dividend that will be distributed to Westside Financial
Corporation shareholders in connection with the merger.
F-35
<PAGE> 109
WESTSIDE FINANCIAL CORPORATION
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
EASTSIDE WESTSIDE
HOLDING FINANCIAL
CORP CORP COMBINED
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $3,088,313 $2,961,268 $6,049,581
Interest on investments in securities
Taxable 451,525 570,837 1,022,362
Nontaxable - 15,420 15,420
Interest on federal funds sold 175,755 189,275 365,030
Interest on repurchase agreements - 38,372 38,372
3,715,593 3,775,172 7,490,765
INTEREST EXPENSE
Interest on deposits 1,493,697 1,422,109 2,915,806
Interest on other - - -
1,493,697 1,422,109 2,915,806
Net interest income 2,221,896 2,353,063 4,574,959
PROVISION FOR LOAN LOSSES 185,000 72,000 257,000
Net interest income after provision for loan losses 2,036,896 2,281,063 4,317,959
OTHER INCOME
Service charges on deposit accounts 198,022 180,481 378,503
Gain on sale of loans 44,055 7,451 51,506
Security transactions, net - (3,489) (3,489)
Other 36,236 50,111 86,347
278,313 234,554 512,867
OTHER EXPENSE
Salaries and employee benefits 753,616 793,410 1,547,026
Equipment expense 76,479 104,774 181,253
Occupancy expense 121,148 85,558 206,706
Data processing 92,580 80,076 172,656
Deposit insurance 96,627 93,490 190,117
Other operating expense 587,309 395,397 982,706
1,727,759 1,552,705 3,280,464
Income before income taxes 587,450 962,912 1,550,362
APPLICABLE INCOME TAXES - 341,240 341,240
Net income $ 587,450 $ 621,672 $1,209,122
PER SHARE OF COMMON AND COMMON EQUIVALENT SHARE
Net income $ 0.97 $ 1.02
<CAPTION>
WESTSIDE
FINANCIAL
CORP
PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $6,049,581
Interest on investments in securities
Taxable 1,022,362
Nontaxable 15,420
Interest on federal funds sold 365,030
Interest on repurchase agreements 38,372
7,490,765
INTEREST EXPENSE
Interest on deposits 2,915,806
Interest on other -
2,915,806
Net interest income 4,574,959
PROVISION FOR LOAN LOSSES 257,000
Net interest income after provision for loan losses 4,317,959
OTHER INCOME
Service charges on deposit accounts 378,503
Gain on sale of loans 51,506
Security transactions, net (3,489)
Other 86,347
512,867
OTHER EXPENSE
Salaries and employee benefits 1,547,026
Equipment expense 181,253
Occupancy expense 206,706
Data processing 172,656
Deposit insurance 190,117
Other operating expense 982,706
3,280,464
Income before income taxes 1,550,362
APPLICABLE INCOME TAXES 341,240
Net income $1,209,122
PER SHARE OF COMMON AND COMMON EQUIVALENT SHARE
Net income $ 0.90 (A)
</TABLE>
(A) - The pro forma net income per common and common equivalent share was
calculated after giving effect to the stock split effected in the form
of a stock dividend that will be distributed to Westside financial
Corporation shareholders in connection with the merger.
F-36
<PAGE> 110
WESTSIDE FINANCIAL CORPORATION
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
---------------------------1995--------------------------- ------------
WESTSIDE
FINANCIAL
EASTSIDE WESTSIDE CORP
HOLDING FINANCIAL PRO FORMA PRO FORMA
CORP CORP COMBINED ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C> <C>
INTEREST INCOME $ 891,000 $ 866,778 $1,757,778 $1,757,778
Interest and fees on loans 123,000 152,482 275,482 275,482
Interest on investments in securities 53,000 83,935 136,935 136,935
Interest on federal funds sold - 583 583 583
Interest on repurchase agreements
1,067,000 1,103,778 2,170,778 2,170,778
INTEREST EXPENSE
Interest on deposits 429,000 430,780 859,780 859,780
Interest on other - - - -
429,000 430,780 859,780 859,780
Net interest income 638,000 672,998 1,310,998 1,310,998
PROVISION FOR LOAN LOSSES 17,000 18,000 35,000 35,000
Net Interest income after
provision for loan losses 621,000 654,998 1,275,998 1,275,998
OTHER INCOME
Service charges on deposit accounts 43,000 53,655 96,655 96,655
Gain on sale of loans 56,000 - 56,000 56,000
Other 12,000 13,460 25,460 25,460
111,000 67,115 178,115 178,115
OTHER EXPENSE
Salaries and employee benefits 222,000 214,526 436,526 436,526
Occupancy and equipment expense 65,000 47,864 112,864 112,864
Other operating expense 220,000 162,789 382,789 382,789
507,000 425,179 932,179 932,179
Income before income taxes 225,000 296,934 521,934 521,934
APPLICABLE INCOME TAXES - 109,783 109,783 109,783
Net income $ 225,000 $ 187,151 $ 412,151 $ 412,151
PER SHARE OF COMMON AND COMMON EQUIVALENT SHARE
Net income $ 0.38 $ 0.31 $ 0.30
<CAPTION>
---------------------------- 1996-------------------------- ------------
WESTSIDE
FINANCIAL
EASTSIDE WESTSIDE CORP
FINANCIAL FINANCIAL PRO FORMA PRO FORMA
CORP CORP COMBINED ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C> <C>
INTEREST INCOME $ 929,000 $1,048,456 $1,977,456 $1,977,456
Interest and fees on loans 136,000 196,423 329,423 329,423
Interest on investments in securities 45,000 65,762 110,762 110,762
Interest on federal funds sold - 1,089 1,089 1,089
Interest on repurchase agreements
1,110,000 1,308,730 2,418,730 2,418,730
INTEREST EXPENSE
Interest on deposits 499,000 543,685 1,042,685 1,042,685
Interest on other - - - -
499,000 543,685 1,042,685 1,042,685
Net interest income 611,000 765,045 1,376,045 1,376,045
PROVISION FOR LOAN LOSSES 8,000 24,000 32,000 32,000
Net Interest income after
provision for loan losses 603,000 741,045 1,344,045 1,344,045
OTHER INCOME
Service charges on deposit accounts 49,000 39,669 88,669 88,669
Gain on sale of loans - - - -
Other 19,000 13,974 32,974 32,974
68,000 53,643 121,643 121,643
OTHER EXPENSE
Salaries and employee benefits 236,000 243,369 479,369 479,369
Occupancy and equipment expense 56,000 56,333 112,333 112,333
Other operating expense 160,000 148,118 308,118 308,118
452,000 447,820 899,820 899,820
Income before income taxes 219,000 346,868 565,868 565,868
APPLICABLE INCOME TAXES 79,000 117,856 196,856 196,856
Net income $ 140,000 $ 229,012 $ 369,012 $ 369,012
PER SHARE OF COMMON AND COMMON EQUIVALENT SHARE
Net income $ 0.23 $ 0.39 $ 0.27
(A) - The pro forma net income per common and common equivalent share was calculated after giving effect to the stock split
effected in the form of a stock dividend that will be distributed to Westside Financial Corporation shareholders in
connection with the merger.
</TABLE>
F-38
<PAGE> 111
WESTSIDE FINANCIAL CORPORATION
PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
<TABLE>
<CAPTION>
WESTSIDE
FINANCIAL
EASTSIDE WESTSIDE CORP
HOLDING FINANCIAL PRO FORMA PRO FORMA
ASSETS CORP CORP COMBINED ADJUSTMENTS COMBINED
- ------ ----------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Cash and due from banks $ 2,804,000 $ 2,766,755 $ 5,570,755 $ 5,570,755
Securities available for sale, at fair value 5,433,000 12,228,821 17,661,821 17,661,821
Securities held to maturity, cost 3,999,000 - 3,999,000 3,999,000
Federal funds sold 4,130,000 2,700,000 6,830,000 6,830,000
Loans 33,732,000 41,163,187 74,895,187 74,895,187
Less allowance for loan losses 441,000 588,505 1,029,505 1,029,505
----------- ----------- ------------ ------------
Loans, net 33,291,000 40,574,682 73,865,682 73,865,682
Premises and equipment, net 2,938,000 1,990,356 4,928,356 4,928,356
Other assets 1,144,000 619,927 1,763,927 1,763,927
----------- ----------- ------------ ------------
$53,739,000 $60,880,541 $114,619,541 $114,619,541
=========== =========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing demand $ 7,959,000 $ 7,838,448 $ 15,797,448 $ 15,797,448
Interest-bearing demand 9,521,000 14,961,352 24,482,352 24,482,352
Savings 1,945,000 1,645,546 3,590,546 3,590,546
Other time 27,616,000 28,641,006 56,257,006 56,257,006
----------- ----------- ------------ ------------
Total deposits 47,041,000 53,086,352 100,127,352 100,127,352
Other liabilities 322,000 349,921 671,921 671,921
----------- ----------- ------------ ------------
Total liabilities 47,363,000 53,436,273 100,799,273 100,799,273
----------- ----------- ------------ ------------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Common stock 6,000,000 6,113,610 12,113,610 (A) 1,638,12 13,751,732
Retained earnings 375,000 1,732,481 2,107,481 (A) (1,638,12) 469,359
Unrealized gains (losses) on securities
available for sale, net of taxes 1,000 13,177 14,177 14,177
----------- ----------- ------------ ------------
6,376,000 7,859,268 14,235,268 14,235,268
----------- ----------- ------------ ------------
Less cost of treasury stock 415,000 415,000 415,000
----------- ------------ ------------
Total stockholder's equity 6,376,000 7,444,268 13,820,268 13,820,268
----------- ----------- ------------ ------------
$53,739,000 $60,880,541 $114,619,541 $114,619,541
=========== =========== ============ ============
</TABLE>
(A) The pro forma adjustment reflects the stock split effected in the form of
a stock dividend to be distributed to Westside Financial Corporation
shareholders in connection with the merger. (The estimated shares to be
paid in dividends at March 31, 1996, are 128,986.)
F-39
<PAGE> 112
WESTSIDE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED FINANCIAL REPORT
MARCH 31, 1996
(UNAUDITED)
F-40
<PAGE> 113
WESTSIDE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
<TABLE>
<S> <C>
Assets
------
Cash and due from banks $ 2,766,755
Interest-bearing deposit in banks --
Investment securities:
Held to maturity --
Available for sale, at estimated market value 12,228,821
Federal funds sold 2,700,000
Loans 41,173,187
Less allowance for loan losses 588,505
Loans, net 40,574,682
Premises and equipment, net 1,990,356
Other assets 619,927
-----------
Total assets $60,880,541
===========
Liabilities and Stockholders' Equity
------------------------------------
Deposits:
Demand $ 7,838,448
Interest-bearing demand 14,961,352
Savings 1,645,546
Certificates of deposit 28,641,006
-----------
Total deposits $53,086,352
Accrued expenses 349,921
Total liabilities $53,436,273
-----------
Shareholders' equity
Common stock, 10,000,000 shares authorized;
586,300 shares issued and outstanding 3,056,500
Surplus 3,057,110
Retained earnings 1,732,481
Unrealized loss on investment securities, net of tax 13,177
Less cost of 25,000 shares of treasury stock (415,000)
-----------
Total stockholders' equity $ 7,444,268
-----------
Total liabilities and stockholders' equity $60,880,541
===========
</TABLE>
F-41
<PAGE> 114
WESTSIDE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended March 31,
1996 1995
---- ----
<S> <C> <C>
Interest income
Interest and fees on loans $ 1,048,456 $ 866,778
Interest on investment securities:
Taxable 172,581 142,660
Nontaxable 20,842 9,822
Interest on federal funds sold 65,762 83,935
Interest on securities purchased under agreement to resell 1,089 583
Interest on interest-bearing deposits -- --
------------ ------------
Total Interest Income $ 1,308,730 $ 1,103,778
Interest expense on deposits
Interest on deposits $ 543,685 $ 430,780
Interest on federal funds purchased -- --
Interest on securities sold under agreement to purchase -- --
------------ ------------
Total interest expense $ 543,685 $ 430,780
Net interest income $ 765,045 $ 672,998
Provision for loan losses 24,000 18,000
------------ ------------
Net interest income after provision for loan losses $ 741,045 $ 654,998
------------ ------------
Other operating income
Service charges on deposit accounts $ 39,669 $ 53,655
Other income 13,974 13,460
------------ ------------
$ 53,643 $ 67,115
------------ ------------
Other operating expenses
Dalaries and other employee benefits $ 243,369 $ 214,526
Occupancy and equipment expenses 56,333 47,864
Stationery and supplies 6,911 9,810
FDIC assessments 500 25,386
Audit and accounting 9,579 10,830
Directors' fees 24,925 15,125
Other operating expense 106,203 101,638
------------ ------------
Total operating expenses $ 447,820 $ 425,179
------------ ------------
Income before income taxes $ 346,868 $ 296,934
Applicable income taxes $ 117,856 $ 109,783
------------ ------------
Net income $ 229,012 $ 187,152
============ ============
Per share of common stock based on the average number of shares
outstanding during the period
Net Income $ 0.39 $ 0.31
============ ============
Average shares outstanding 586,300 610,800
============ ============
Cash dividends per share of common stock $ 0.06 $ 0.15
============ ============
</TABLE>
F-42
<PAGE> 115
WESTSIDE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1996 1995
---- ----
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 229,012 $ 187,153
----------- ------------
Adjustments to reconcile net income to net provided by
operating activities:
Depreciation and amortization 25,615 39,826
Provision for loan losses 24,000 18,000
(Increase) decrease in interest receivable 6,291 1,924
Increase (decrease) in interest payable 12,420 (21,290)
Other prepaids, deferrals and accruals, net (302,546) (115,230)
----------- ------------
Total adjustments $ (234,220) $ (76,770)
----------- ------------
Net cash provided by operating activities $ 5,208 $ 110,382
----------- ------------
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from sale of investment securities $ -- $ --
Proceeds from maturities of investment securities 2,997,296 65,691
Purchase of investment securities (1,862,481) (898,750)
Net (increase) decrease in federal funds sold 6,300,000 (700,000)
Net increase in loans (2,722,331) (1,714,086)
Acquisitions of other real estate -- --
Capital expenditures (333,713) 15,957
----------- ------------
Net cash used in investing activities $ 4,378,771 $ (3,231,188)
----------- ------------
CASH FLOW FROM FINANCING ACTIVITIES
Net increase in deposits $(4,644,005) $ 2,298,782
Dividend payments (35,178) (91,620)
Sale of common stock -- --
----------- ------------
Net cash provided by financing activities $(4,679,183) $ 2,207,162
----------- ------------
Net increase (decrease) in cash and due from banks $ (305,620) $ (913,644)
Cash and due from banks at beginning of year 3,072,375 3,843,832
----------- ------------
Cash and due from banks at end of period $ 2,766,755 $ 2,930,188
=========== ============
</TABLE>
F-43
<PAGE> 116
WESTSIDE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Basis of Presentation
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal
recurring adjustments) which are, in the opinion of management,
necessary for a fair statement of results for the interim periods.
The results of operations for the three-month period ended March 31,
1996 are not necessarily indicative of the results to be expected for
the full year.
Note 2. On January 1, 1995, the Company adopted Statement of Financial
Standard ("SFAS") No. 114, "Accounting by Creditors for Impairment of
a Loan" and No. 118, "Accounting by Creditors for Impairment of a Loan
- Income Recognition and Disclosures." The adoption of these
statements had no material effect on the consolidated financial
condition or earnings of WFC.
F-44
<PAGE> 117
---------------------------------
WESTSIDE FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1995
---------------------------------
F-45
<PAGE> 118
[MAULDIN & JENKINS LOGO] CERTIFIED PUBLIC ACCOUNTANTS
AND CONSULTANTS, LLC
P.O. Box 724888 - Atlanta, Georgia 31139-1888 - Telephone (770) 955-8600
Fax (770) 859-0816
INDEPENDENT AUDITOR'S REPORT
- -------------------------------------------------------------------------------
TO THE BOARD OF DIRECTORS
WESTSIDE FINANCIAL CORPORATION
KENNESAW, GEORGIA
We have audited the accompanying consolidated balance sheets of the
WESTSIDE FINANCIAL CORPORATION and subsidiary as of December 31, 1995 and 1994,
and the related consolidated statements of income, stockholders' equity and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of the
Westside Financial Corporation and subsidiary as of December 31, 1995 and 1994,
and the results of their operations and their cash flows for the years then
ended, in conformity with generally accepted accounting principles.
As discussed in note 2, the Company changed its method of accounting
for investments to adopt the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities", at January 1, 1994.
/s/ Mauldin & Jenkins, LLC
Atlanta, Georgia
January 5, 1996
F-46
<PAGE> 119
WESTSIDE FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1995 1994
---------- -----------
<S> <C> <C>
Cash and due from banks $ 3,072,375 $ 3,843,832
Securities available for sale,
at fair value 13,355,632 5,219,086
Securities held to maturity, at cost
(fair value $3,843,054) - 3,972,280
Federal funds sold 9,000,000 5,000,000
Loans 38,445,222 31,538,813
Less allowance for loan losses 564,296 473,320
----------- -----------
Loans, net 37,880,926 31,065,493
Premises and equipment, net 1,689,175 1,698,905
Other assets 605,233 469,262
----------- -----------
$65,603,341 $51,268,858
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing demand $ 8,089,952 $ 6,752,332
Interest-bearing demand 21,899,230 13,504,880
Savings 1,805,384 2,424,293
Time, $100,000 and over 8,024,191 6,481,334
Other time 17,911,600 15,100,783
----------- -----------
Total deposits 57,730,357 44,263,622
Other liabilities 577,467 318,712
----------- -----------
Total liabilities 58,307,824 44,582,334
----------- -----------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Common stock, no par value;
10,000,000 shares authorized,
611,300 and 610,800 shares
issued, at amount paid in 6,113,610 6,108,000
Retained earnings 1,538,647 659,097
Unrealized gains (losses) on
securities available for sale,
net of taxes 58,260 (80,573)
----------- -----------
7,710,517 6,686,524
Less cost of 25,000 shares of
treasury stock 415,000 -
----------- -----------
Total stockholders' equity 7,295,517 6,686,524
----------- -----------
$65,603,341 $51,268,858
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-47
<PAGE> 120
WESTSIDE FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995 AND 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
---------- -----------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $3,734,148 $2,961,268
Interest on investments in securities:
Taxable 696,007 570,837
Nontaxable 51,943 15,420
Interest on Federal funds sold 388,672 189,275
Interest on repurchase agreements 365,681 38,372
---------- ----------
5,236,451 3,775,172
---------- ----------
INTEREST EXPENSE ON DEPOSITS 2,098,934 1,422,109
---------- ----------
Net interest income 3,137,517 2,353,063
PROVISION FOR LOAN LOSSES 101,000 72,000
---------- ----------
Net interest income after
provision for loan losses 3,036,517 2,281,063
---------- ----------
OTHER INCOME
Service charges on deposit accounts 184,933 180,481
Gain on sale of loans 9,142 7,451
Security transactions, net - (3,489)
Other 53,429 50,111
---------- ----------
247,504 234,554
---------- ----------
OTHER EXPENSE
Salaries and employee benefits 933,027 793,410
Equipment expense 104,024 104,774
Occupancy expense 90,376 85,558
Data processing 87,115 80,076
Deposit insurance 52,674 93,490
Director fees 61,850 44,700
Other operating expenses 419,595 350,697
---------- ----------
1,748,661 1,552,705
---------- ----------
</TABLE>
F-48
<PAGE> 121
WESTSIDE FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995 AND 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
Income before income taxes $ 1,535,360 $ 962,912
APPLICABLE INCOME TAXES 564,190 341,240
----------- ---------
Net income $ 971,170 $ 621,672
=========== =========
PER COMMON AND COMMON EQUIVALENT SHARE
Net income $ 1.60 $ 1.02
=========== =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-49
<PAGE> 122
WESTSIDE FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNREALIZED
GAINS
(LOSSES) ON
SECURITIES
COMMON STOCK AVAILABLE
------------------------- FOR SALE,
AMOUNT RETAINED NET OF
SHARES PAID IN EARNINGS TAXES
-------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 610,800 $6,108,000 $ 98,505 $
Net income - - 621,672 -
Cash dividends declared
($.10 per share) - - (61,080) -
Net change in unrealized
losses on securities
available for sale,
net of taxes - - - (80,573)
------- ---------- ---------- --------
BALANCE, DECEMBER 31, 1994 610,800 6,108,000 659,097 (80,573)
Net income - - 971,170 -
Cash dividends declared ($.15 per
share) - - (91,620) -
Issuance of 500 shares of stock
for cash upon the exercise of options 500 5,610 - -
Purchase of 25,000 shares of
common stock for the treasury - - - -
Net change in unrealized gains
(losses) on securities available for sale,
net of taxes - - - 138,833
------- ---------- ---------- --------
BALANCE, DECEMBER 31, 1995 611,300 $6,113,610 $1,538,647 $ 58,260
======= ========== ========== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-50
<PAGE> 123
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TREASURY STOCK TOTAL
-------------------- STOCKHOLDERS'
SHARES COST EQUITY
---------- -------- ------------
<C> <C> <C>
$ - $ - 6,206,505
- - 621,672
- - (61,080)
- - (80,573)
- - 6,686,524
- - 971,170
- - (91,620)
- - 5,610
25,000 (415,000) (415,000)
- - 138,833
------ --------- ----------
25,000 $(415,000) $7,295,517
====== ========= ==========
</TABLE>
F-51
<PAGE> 124
WESTSIDE FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 971,170 $ 621,672
----------- ----------
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 120,815 133,683
Provision for loan losses 101,000 72,000
Net losses on securities available for sale - 3,489
Provision for deferred taxes (benefits) (25,678) 21,885
Gain on sale of loans (9,142) (7,451)
----------- ----------
Increase in taxes payable 110,801 47,784
Increase in interest receivable (131,392) (60,365)
Increase in interest payable 58,079 10,413
Other prepaids, deferrals and accruals, net 19,327 4,520
----------- ----------
Total adjustments 243,810 225,958
----------- ----------
Net cash provided by operating activities 1,214,980 847,630
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of securities held to maturity 210,893 3,377,927
Purchases of securities held to maturity (2,346,140) (1,469,867)
Proceeds from sales of securities available for sale - 2,754,557
Proceeds from maturities of securities available for sale 7,041,267 115,346
Purchases of securities available for sale (8,850,424) (2,587,262)
(Increase) decrease in Federal funds sold (4,000,000) 1,730,000
Proceeds from sale of loans 131,033 138,240
Increase in loans (7,038,324) (6,055,337)
Purchase of premises and equipment (100,465) (24,160)
----------- ----------
Net cash used in investing activities (14,952,160) (2,020,556)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in deposits 13,466,733 2,906,241
Dividends paid (91,620) (61,080)
Proceeds from exercise of options - 5,610
Purchase of treasury stock (415,000) -
----------- ----------
Net cash provided by financing activities 12,965,723 2,845,161
----------- ----------
</TABLE>
F-52
<PAGE> 125
WESTSIDE FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Net increase (decrease) in cash and due from banks $ (771,457) $1,672,235
Cash and due from banks at beginning of year 3,843,832 2,171,597
---------- ----------
Cash and due from banks at end of year $3,072,375 $3,843,832
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for:
Interest $2,040,855 $1,411,696
Income taxes $ 479,067 $ 271,571
NONCASH TRANSACTIONS
Unrealized gains (losses) on securities
available for sale $ 219,862 $(125,895)
Principal balances on loans transferred to
other real estate $ - $18,625
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-53
<PAGE> 126
WESTSIDE FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION
Westside Financial Corporation is a one-bank holding company whose
business is presently conducted by its wholly-owned subsidiary, The
Westside Bank & Trust Company. Westside Bank & Trust Company (the
Bank) is a commercial bank with operations in Cobb County, Georgia.
The Bank provides a full range of banking services to individual and
corporate customers in its primary market area. The Bank is subject
to the regulations of certain Federal and state agencies. The Bank
is periodically examined by certain regulatory authorities.
The accounting and reporting policies of the Company and its
subsidiary conform to generally accepted accounting principles and
general practices within the financial services industry. In
preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets
and liabilities as of the date of the balance sheet and revenues and
expenses for the period. Actual results could differ from those
estimates.
The consolidated financial statements include the accounts of the
Company and its subsidiary. Significant intercompany transactions
and accounts are eliminated in consolidation.
The principles which significantly affect the determination of
financial position, results of operations and cash flows are
summarized below.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and due from banks
includes cash on hand and amounts due from banks (including cash
items in process of clearing). Cash flows from loans originated by
the Bank, deposits, interest-bearing deposits and Federal funds
purchased and sold are reported net.
The Bank maintains amounts due from banks which, at times, may exceed
Federally insured limits. The Bank has not experienced any losses in
such accounts.
F-54
<PAGE> 127
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
SECURITIES AVAILABLE FOR SALE
Securities classified as available for sale are those debt securities
that the Bank intends to hold for an indefinite period of time, but
not necessarily to maturity. Any decision to sell a security
classified as available for sale would be based on various factors,
including significant movements in interest rates, changes in the
maturity mix of the Bank's assets and liabilities, liquidity needs,
regulatory capital considerations and other similar factors.
Securities available for sale are carried at fair value. Unrealized
gains or losses are reported as increases or decreases in
stockholders' equity, net of the related deferred tax effect. Realized
gains or losses, determined on the basis of the cost of specific
securities sold, are included in earnings.
Securities Held to Maturity
Securities classified as held to maturity are those debt securities
the Bank has both the intent and ability to hold to maturity
regardless of changes in market conditions, liquidity needs or changes
in general economic conditions. These securities are carried at cost
adjusted for amortization of premium and accretion of discount,
computed by the interest method over their contractual lives. The
sale of a security within three months of its maturity date or after
collection of at least 85 percent of the principal outstanding at the
time the security was acquired is considered a maturity for purposes
of classification and disclosure.
A decline in the fair value below cost of any available for sale or
held to maturity security that is deemed other than temporary is
charged to earnings resulting in the establishment of a new cost basis
for the security.
Realized gains and losses on the sale of securities available for sale
are determined using the specific identification method.
F-55
<PAGE> 128
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
LOANS AND INTEREST INCOME
Loans are stated at principal amounts outstanding less unearned income
and the allowance for loan losses. Interest income on loans is
credited to income based on the principal amount outstanding at the
respective rate of interest except for add on interest on certain
instalment loans for which interest is recognized on the
sum-of-the-months method.
Accrual of interest income is discontinued on loans when, in the
opinion of management, collection of such interest income becomes
doubtful. When a loan is placed on nonaccrual status, all interest
previously accrued but not collected is reversed against current
interest income. Accrual of interest on such loans is resumed when,
in management's judgment, the collection of interest and principal
becomes probable.
Nonrefundable loan fees and certain direct loan origination costs are
accounted for in accordance with Statement of Financial Accounting
Standards Number 91 (SFAS No. 91), "Accounting for Nonrefundable Fees
and Costs Associated with Originating or Acquiring Loans and Initial
Direct Costs of Leases". SFAS No. 91 requires these fees and costs to
be deferred and the net amount recognized into income over the life of
the loans as a yield adjustment.
The allowance for loan losses is established through a provision for
loan losses charged to expense. Loans are charged against the
allowance for loan losses when management believes that collectibility
of the principal is unlikely. The allowance is an amount that
management believes will be adequate to absorb estimated losses on
existing loans that may become uncollectible, based on evaluation of
the collectibility of loans and prior loss experience. This
evaluation also takes into consideration such factors as changes in
the nature and volume of the loan portfolio, overall portfolio
quality, review of specific problem loans and current economic
conditions that may affect the borrower's ability to pay. Certain
estimates are
F-56
<PAGE> 129
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
LOANS AND INTEREST INCOME (CONTINUED)
susceptible to change in the near term. Such estimates include the
creditworthiness of significant borrowers and the collateral value of
delinquent loans. While management uses the best information
available to make its evaluation, future adjustments to the allowance
may be necessary if there are significant changes in economic
conditions. In addition, regulatory agencies, as an integral part of
their examination process, periodically review the Bank's allowance
for loan losses, and may require the Bank to record additions to the
allowance based on their judgment about information available to them
at the time of their examinations.
Impaired loans are measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate or,
as a practical expedient, at the loan's observable market price or the
fair value of the collateral if the loan is collateral dependent. A
loan is impaired when it is probable the creditor will be unable to
collect all contractual principal and interest payments due in
accordance with the terms of the loan agreement. Accrual of interest
on an impaired loan is discontinued when management believes, after
considering collection efforts and other factors, that the borrower's
financial condition is such that collection of interest is doubtful.
Cash collections on impaired loans are credited to the loans
receivable balance, and no interest income is recognized on those
loans until the principal balance has been collected.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated
depreciation, computed principally on the straight-line method over
the following estimated useful lives:
<TABLE>
<CAPTION>
Years
-------
<S> <C>
Buildings and improvements 31.50
Furniture and equipment 3-7
</TABLE>
F-57
<PAGE> 130
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INCOME TAXES
The Company and its subsidiary file a consolidated income tax return.
The subsidiary provides for income taxes based on its contribution to
income taxes (benefits) of the consolidated group.
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and
operating loss and tax credit carryforwards and deferred tax
liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported amounts
of assets and liabilities and their tax bases. Deferred tax assets
are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effect of changes in tax laws on the
date of enactment.
SALE OF LOANS
The Bank originates and sells participations in certain loans. Gains
are recognized at the time the sale is consummated. The amount of
gain recognized on the sale of a specific loan is equal to the
percentage resulting from determining the fair value of the portion
sold as compared to the fair value of the entire loan. Any material
unrecognized gain is deferred and amortized into income over the term
of the portion of the loan not sold. Losses are recognized at the
time the loan is identified as available for sale and the loan's
carrying value exceeds its market value.
ORGANIZATIONAL COSTS AND PREOPENING EXPENSES
Certain legal and other costs incurred in connection with the
organization and chartering of the Company have been deferred and are
being amortized using the straight-line method over 60 months.
F-58
<PAGE> 131
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE
Earnings per share is calculated on the weighted average number of
shares of common stock and common stock equivalents outstanding during
the period. Stock options granted, as described in Note 10, are
considered to be common stock equivalents for purposes of calculated
net income per share. Common stock equivalents that are anti-dilutive
are excluded from weighted average outstanding shares.
NOTE 2. INVESTMENTS IN SECURITIES
Effective January 1, 1994, the Bank adopted SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities". Upon
adoption, the Bank transferred $5,631,111 from securities held to
maturity to securities available for sale. The securities available
for sale were marked to fair value resulting in a net unrealized gain
of $141,162 which was included in stockholders' equity at $90,344,
which was net of related taxes of $50,818.
Under special provisions adopted by the Financial Accounting Standards
Board in October 1995, the Bank transferred $6,107,527 from securities
being held to maturity to securities available for sale on December
31, 1995, resulting in a net unrealized gain of $71,391, which was
included in stockholders' equity at $47,118 net of related taxes of
$24,273.
F-59
<PAGE> 132
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 2. INVESTMENT IN SECURITIES (CONTINUED)
The carrying amounts of investments in securities as shown in the
consolidated balance sheets of the Company and their approximate fair
values at December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
DECEMBER 31, 1995:
U. S. TREASURY AND GOVERNMENT
AGENCY SECURITIES $ 5,490,106 $ 39,119 $ (935) $ 5,528,290
MORTGAGE-BACKED SECURITIES 5,790,958 35,099 (17,069) 5,808,988
STATE AND MUNICIPAL SECURITIES 1,980,601 48,039 (10,286) 2,018,354
----------- -------- ---------- ------------
$13,261,665 $122,257 $ (28,290) $ 13,355,632
=========== ======== ========== ============
DECEMBER 31, 1994:
U. S. TREASURY AND GOVERNMENT
AGENCY SECURITIES $ 3,204,481 $ - $ (68,783) $ 3,135,698
MORTGAGE-BACKED SECURITIES 2,140,500 7,370 (64,482) 2,083,388
----------- -------- ---------- ------------
$ 5,344,981 $ 7,370 $ (133,265) $ 5,219,086
=========== ======== ========== ============
SECURITIES HELD TO MATURITY:
DECEMBER 31, 1994:
U. S. TREASURY AND GOVERNMENT
AGENCY SECURITIES $ 974,715 $ - $ (18,935) $ 955,780
MORTGAGE-BACKED SECURITIES 2,363,005 - (89,610) 2,273,395
STATE AND MUNICIPAL SECURITIES 634,560 - (20,681) 613,879
----------- -------- ---------- ------------
$ 3,972,280 $ - $ (129,226) $ 3,843,054
=========== ======== ========== ============
</TABLE>
F-60
<PAGE> 133
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 2. INVESTMENTS IN SECURITIES (CONTINUED)
There were no sales of securities for the year ended December 31, 1995.
Gross realized gains and gross realized losses on sales of securities
available for sale for the year ended December 31, 1994 were as
follows:
<TABLE>
<S> <C>
Gross realized gains:
U. S. Treasury and government agency securities $ 15,866
Gross realized losses:
U. S. Treasury and government agency securities (19,355)
---------
Net realized losses $ (3,489)
=========
</TABLE>
The amortized cost and fair value of securities as of December 31, 1995
by contractual maturity are shown below. Maturities may differ from
contractual maturities in mortgage-backed securities because the
mortgages underlying the securities may be called or prepaid without
penalty. Therefore, these securities are not included in the maturity
categories in the following maturity summary.
<TABLE>
<CAPTION>
SECURITIES AVAILABLE FOR SALE
-----------------------------
AMORTIZED FAIR
COST VALUE
------------ --------------
<S> <C> <C>
Due in one year or less $ 645,580 $ 645,285
Due from one year to five years 4,615,144 4,679,701
Due from five to ten years 2,024,983 2,037,187
Due after ten years 185,000 184,471
Mortgage-backed securities 5,790,958 5,808,988
----------- -----------
$13,261,665 $13,355,632
=========== ===========
</TABLE>
Securities with a carrying value of $13,019,000 and $5,278,000 at
December 31, 1995 and 1994, respectively, were pledged to secure public
deposits and for other purposes.
F-61
<PAGE> 134
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of loans is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1994
------------- -----------
<S> <C> <C>
Commercial and financial $ 4,441,228 $ 4,014,832
Real estate - construction 11,744,525 9,325,883
Real estate - mortgage 18,982,856 15,114,719
Consumer instalment 3,157,112 2,686,070
Other 242,378 505,209
----------- -----------
38,568,099 31,646,713
Unearned interest and fees (122,877) (107,900)
Allowance for loan losses (564,296) (473,320)
----------- -----------
Loans, net $37,880,926 $31,065,493
=========== ===========
</TABLE>
Nonaccrual loans were immaterial at December 31, 1995 and 1994. The
Bank had no impaired loans at December 31, 1995.
At December 31, 1995, executive officers and directors, and companies
in which they have a 10 percent or more beneficial ownership, were
indebted to the Bank in the aggregate amount of $1,088,085. The
interest rates on these loans were substantially the same as rates
prevailing at the time of the transaction and repayment terms are
customary for the type of loan involved. Following is a summary of
transactions:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994
---------- -----------
<S> <C> <C>
BALANCE, BEGINNING $1,516,227 $1,672,372
Advances 350,890 134,712
Repayments (779,032) (290,857)
---------- ----------
BALANCE, ENDING $1,088,085 $1,516,227
========== ==========
</TABLE>
F-62
<PAGE> 135
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
BALANCE, BEGINNING OF YEAR $ 473,320 $392,556
Provision charged to operations 101,000 72,000
Loans charged off (21,613) (1,159)
Recoveries 11,589 9,923
--------- --------
BALANCE, END OF YEAR $ 564,296 $473,320
========= ========
</TABLE>
NOTE 4. PREMISES AND EQUIPMENT, NET
Major classifications of these assets are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
-------- ---------
<S> <C> <C>
Land $ 527,036 $ 527,036
Buildings 1,103,372 1,103,372
Equipment 673,338 572,874
---------- ----------
2,303,746 2,203,282
Accumulated depreciation (614,571) (504,377)
---------- ----------
$1,689,175 $1,698,905
========== ==========
</TABLE>
Depreciation expense for the years ended December 31, 1995 and
1994 was $110,195 and $113,423, respectively.
F-63
<PAGE> 136
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 5. EMPLOYEE BENEFIT PLAN
The Bank has a contributory 401(k) profit-sharing plan covering all
employees, subject to certain minimum age and service requirements.
The Bank contributed $16,364 and $10,970 to the plan for the years
ended December 31, 1995 and 1994, respectively.
NOTE 6. INCOME TAXES
The total income taxes in the consolidated statements of income are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
-------- --------
<S> <C> <C>
Current tax expense $ 589,868 $ 319,355
Deferred tax (benefit) (25,678) 21,885
--------- ---------
$ 564,190 $ 341,240
========= =========
</TABLE>
The Company's provision for income taxes differs from the amounts
computed by applying the Federal income tax statutory rates to income
before income taxes. A reconciliation of the differences is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
1995 1994
------------------- ---------------------
AMOUNT PERCENT Amount Percent
------------------- --------- ----------
<S> <C> <C> <C> <C>
Tax provision at statutory rate $ 522,022 34% $327,390 34%
Increase (decrease) resulting from:
Tax exempt income (17,661) (1) - -
State income tax 41,301 3 9,155 1
Other items, net 18,528 1 4,695 -
--------- ---- -------- ----
Provision for income taxes $ 564,190 37% $341,240 35%
========= ==== ======== ====
</TABLE>
F-64
<PAGE> 137
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 6. INCOME TAXES (CONTINUED)
Net deferred income tax assets of $82,611 and $137,962 at December 31,
1995 and 1994, respectively, are included in other assets. The
components of deferred income taxes at December 31, 1995 and 1994, are
as follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
DEFERRED TAX ASSETS:
Loan loss reserves $ 149,772 $ 111,671
Amortization of preopening expenses - 9,651
Deferred loan fees 45,751 39,839
Securities available for sale - 45,322
--------- ---------
195,523 206,483
--------- ---------
DEFERRED TAX LIABILITIES:
Depreciation and amortization 43,932 46,174
Other 33,273 22,347
Securities available for sale 35,707 -
--------- ---------
112,912 68,521
--------- ---------
NET DEFERRED TAX ASSETS $ 82,611 $ 137,962
========= =========
</TABLE>
NOTE 7. COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, the Bank has entered into
off-balance-sheet financial instruments which are not reflected in the
financial statements. These financial instruments include commitments
to extend credit and standby letters of credit. Such financial
instruments are included in the financial statements when funds are
disbursed or the instruments become payable. These instruments
involve, to varying degrees, elements of credit risk in excess of the
amount recognized in the balance sheet.
F-65
<PAGE> 138
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 7. COMMITMENTS AND CONTINGENT LIABILITIES (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 and standby letters of credit is represented by the contractual
amount of those instruments. The Bank uses the same credit and
collateral policies for these off-balance-sheet financial instruments
as it does for on-balance-sheet financial instruments. A summary of
the Bank's commitments is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1994
------------ ------------
<S> <C> <C>
Commitments to extend credit $ 14,207,858 $ 8,304,030
Standby letters of credit 92,084 42,000
------------ -----------
$ 14,299,942 $ 8,346,030
============ ===========
</TABLE>
Commitments to extend credit generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Since
many of the commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent future
cash requirements. The credit risk involved in issuing these
financial instruments is essentially the same as that involved in
extending loans to customers. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Bank upon extension of credit, is
based on management's credit evaluation of the customer. Collateral
held varies but may include real estate and improvements, marketable
securities, accounts receivable, inventory, equipment and personal
property.
Standby letters of credit 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. The credit risk involved in issuing letters
of credit is essentially the same as that involved in extending loan
facilities to customers. Collateral held varies as specified above
and is required in instances which the Bank deems necessary.
The Bank does not anticipate any material losses as a result of the
commitments and contingent liabilities.
F-66
<PAGE> 139
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 7. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
In the normal course of business, the Bank is involved in various
legal proceedings. In the opinion of management and counsel for the
Company and the Bank, any liability resulting from such proceedings
would not have a material effect on the financial statements.
EMPLOYMENT CONTRACTS
At December 31, 1995, the Company was obligated under an employment
agreement with one of its key officers. The employment agreement
includes provisions for severance pay that would be paid if certain
events occur, including but not limited to, the termination of the
employee due to a change in control of the Company. The maximum
amount the Company would be obligated to pay under this plan is equal
to two times the officer's annual salary and bonus.
NOTE 8. CONCENTRATIONS OF CREDIT
The Bank makes commercial, residential and consumer loans to customers
primarily in Cobb County.
A substantial portion of the Bank's customers' abilities to honor
their contracts is dependent on the business economy in Cobb County
and surrounding areas.
The Bank, as a matter of policy, does not generally extend credit to
any single borrower or group of related borrowers in excess of 25% of
the Bank's combined capital stock and capital surplus accounts
($6,108,000) which amounted to $1,527,000 at December 31, 1995.
A substantial portion of the Bank's loans are secured by real estate
in the Bank's primary market area. In addition, a substantial portion
of the real estate owned is located in those same markets.
Accordingly, the ultimate collectibility of a substantial portion of
the Bank's loan portfolio and the recovery of a substantial portion of
the carrying amount of real estate owned are susceptible to changes in
market conditions in the Bank's primary market area.
The concentrations of credit by type of loan are set forth in Note 3.
F-67
<PAGE> 140
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 9. STOCKHOLDERS' EQUITY
The primary source of funds available to the Parent Company is the
payment of dividends by the subsidiary. Banking regulations limit the
amount of dividends that may be paid without prior approval of the
Bank's regulatory agency. Approximately $487,000 are available to be
paid as dividends by the bank subsidiary at December 31, 1995.
Banking regulations also require the Bank to maintain minimum capital
levels in relation to Bank assets. At December 31, 1995, the Bank's
capital ratios were considered adequate based on regulatory minimum
capital requirements. The minimum capital requirements and the actual
capital ratios for the Bank at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
REGULATORY
ACTUAL REQUIREMENT
-------- -----------
<S> <C> <C>
Leverage capital ratio 7.55% 4.00%
Risk based capital ratios:
Core capital 15.48% 4.00%
Total capital 16.69% 8.00%
</TABLE>
NOTE 10. STOCK OPTIONS
The Company has an incentive stock option plan under which employees
may be granted options to purchase shares of the Company's common
stock. These options may be granted at the greater of $10 per share
or the fair value of the Company's stock at the date of grant. The
aggregate amount of stock which may be purchased under the plan is
50,000 shares. Under this plan, options have been granted to purchase
46,000 shares of common stock at prices ranging from $10.00 per share
to $13.00 per share.
F-68
<PAGE> 141
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 10. STOCK OPTIONS (CONTINUED)
During 1995, the Company granted options to the directors to
purchase 60,000 shares of common stock. The options are
exercisable, within ten years from the date the options are
granted, at prices equal to the fair market value of the stock
at the date of grant. Under this plan, options have been
granted at prices ranging from $11.22 per share to $17.00 per
share. Other pertinent information related to the plans is as
follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
------------------
1995 1994
------ -------
<S> <C> <C>
Under option, beginning of year 25,000 25,000
Granted 81,000 -
Terminated and/or cancelled - -
Exercised (500) -
------- ------
Under option, end of year 105,500 25,000
======= ======
Options exercisable, end of year 105,500 25,000
======= ======
Available for grant, end of year 4,000 25,000
======= ======
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED AVERAGE PRICES
-----------------------
1995 1994
--------- ----------
<S> <C> <C>
Granted during the year $ 12.24 $ -
Exercised during the year 11.22 -
Under option, end of year 12.92 10.00
</TABLE>
F-69
<PAGE> 142
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Accounting Standards Board Statement No. 107, "Disclosures
About Fair Value of Financial Instruments," requires disclosure of
fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to
estimate that value. In cases where quoted market prices are not
available, fair values are based on estimates using present value or
other valuation techniques. Those techniques are significantly
affected by the assumptions used, including the discount rate and
estimates of future cash flows. In that regard, the derived fair
value estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate
settlement of the instrument. Statement No. 107 excludes certain
financial instruments from its disclosure requirements. Accordingly,
the aggregate fair value amounts presented do not represent the
underlying value of the Bank.
The following methods and assumptions were used by the Bank in
estimating the fair value of its financial instruments:
Carrying amounts approximate fair values for the following
instruments:
Cash and due from banks, including interest-bearing deposits
Federal funds sold
Securities available for sale
Variable rate loans that reprice frequently
Equity line loans
Variable rate money market accounts
Variable rate certificates of deposit
Accrued interest receivable
Accrued interest payable
Quoted market prices, where available, or if not available, based on
quoted market prices of comparable instruments for securities held to
maturity.
F-70
<PAGE> 143
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Discounted cash flows using interest rates currently being offered on
instruments with similar terms and with similar credit quality:
All loans except variable rate loans described above
Fixed rate certificates of deposit
Commitments to extend credit and standby letters of credit are not
recorded until such commitments are funded. The value of these
commitments are the fees charged to enter into such agreements. These
commitments do not represent a significant value to the Company until
such commitments are funded. The Bank has determined that such
instruments do not have a distinguishable fair value and no fair value
has been assigned to these instruments.
The carrying value and estimated fair values of the Company's
financial instruments at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
ESTIMATED
CARRYING FAIR
VALUE VALUE
------------ ------------
<S> <C> <C>
FINANCIAL ASSETS:
Cash and short-term investments $ 12,072,375 $ 12,072,375
Investment securities 13,355,632 13,355,632
Loans 38,445,222 38,310,000
Less allowance for loan losses (564,296) -
------------ ------------
Loans, net $ 63,308,933 $ 63,738,007
============ ============
FINANCIAL LIABILITIES:
Noninterest-bearing demand $ 8,089,952 $ 8,089,952
Interest-bearing demand 21,899,230 21,899,230
Savings 1,805,384 1,805,384
Time deposits 25,935,791 26,071,000
------------ ------------
Total deposits $ 57,730,357 $ 57,865,566
============ ============
</TABLE>
F-71
<PAGE> 144
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 12. BUSINESS COMBINATIONS
On August 31, 1994, Westside Financial Corporation acquired all of the
outstanding stock of The Westside Bank & Trust Company in exchange for
610,800 shares of $5 par value common stock.
The acquisition has been accounted for as a pooling of interests and,
accordingly, all prior financial statements have been restated to
reflect the combination.
Income of the subsidiary prior to acquisition on August 31, 1994 was
$353,291, which is included in the consolidated statement of income.
Also, on November 15, 1995, the Board of Directors signed a letter of
intent to acquire all of the outstanding shares of common stock of
Eastside Holding Corporation, Snellville, Georgia pending approval by
the shareholders of Eastside Holding Corporation and the applicable
regulatory authorities. The Company will issue additional shares of
its common stock in exchange for the outstanding shares of Eastside
Holding Corporation. The exchange rate will be based on adjusted book
values of the outstanding shares of each entity at a date prior to
closing. The transaction will be accounted for as a pooling of
interests.
F-72
<PAGE> 145
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 13. CONDENSED FINANCIAL INFORMATION ON WESTSIDE FINANCIAL
CORPORATION (PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
ASSETS
Cash $ 29,306 $ 3,251
Investment in subsidiary 7,241,142 6,662,974
Other assets 25,069 20,299
---------- ----------
Total assets $7,295,517 $6,686,524
========== ==========
STOCKHOLDERS' EQUITY $7,295,517 $6,686,524
========== ==========
</TABLE>
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
INCOME, dividends from subsidiary $ 536,620 $ 25,000
EXPENSE:
Amortization 4,350 1,450
Other 983 -
--------- ---------
Total expense 5,333 1,450
--------- ---------
Income before income tax (benefits)
and equity in undistributed earnings
of subsidiary 531,287 23,550
INCOME TAX (BENEFITS) (547) -
--------- ---------
Income before equity in undistributed
earnings of subsidiary 531,834 23,550
EQUITY IN UNDISTRIBUTED EARNINGS OF
SUBSIDIARY 439,336 244,831
--------- ---------
Net income $ 971,170 $ 268,381
========= =========
</TABLE>
F-73
<PAGE> 146
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 13. CONDENSED FINANCIAL INFORMATION ON WESTSIDE FINANCIAL
CORPORATION (PARENT COMPANY ONLY) (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
--------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 971,170 $ 268,381
--------- ---------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Amortization 4,350 1,450
Undistributed earnings of subsidiary (439,336) (244,831)
Other assets and liabilities, net (9,119) (21,749)
--------- ---------
Total adjustments (444,105) (265,130)
--------- ---------
Net cash provided operating activities 527,065 3,251
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the exercise of options 5,610 -
Dividends paid (91,620) -
Purchase of treasury stock (415,000) -
--------- ---------
Net cash used in financing activities (501,010) -
--------- ---------
Net increase in cash 26,055 3,251
Cash at beginning of year 3,251 -
--------- ---------
Cash at end of year $ 29,306 $ 3,251
========= =========
</TABLE>
F-74
<PAGE> 147
EASTSIDE HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED FINANCIAL REPORT
MARCH 31, 1996
(UNAUDITED)
F-75
<PAGE> 148
EASTSIDE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)>
<TABLE>
<CAPTION>
<(Dollars in thousands)
<S> <C>
ASSETS
------
Cash and due from banks $ 2,804
Federal funds sold 4,130
Securities held to maturity, at cost (fair value $3,947) 3,999
Securities available for sale at fair value 5,433
Loans, net of unearned income 33,291
Premises and equipment, net 2,938
Other real estate 267
Accrued interest receivable and other assets 877
---------
Total Assets $ 53,739
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Deposits
Demand $ 7,959
NOW 5,127
Money market accounts 4,394
Savings 1,945
Time, $100,000 and over 2,860
Other time 24,756
---------
Total deposits 47,041
Accrued interest payable and other liabilities 322
---------
Total liabilities 47,363
Stockholders' equity
Common stock;
5,000,000 shares authorized;
600,000 shares issued and outstanding
at amount paid in 6,000
Retained earnings 375
Unrealized gains/(losses) on securities available for sale 1
---------
Total Stockholders' Equity 6,376
---------
Total Liabilities and Stockholders' Equity $ 53,739
=========
</TABLE>
F-76
<PAGE> 149
EASTSIDE HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
THREE-MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
(Dollars in thousands) 3 Months ended
March 31
---------------------------
1996 1995
---- ----
<S> <C> <C>
Interest income:
Interest and fees on loans $ 929 $ 891
Interest on federal funds sold 45 53
Interest on deposits with other
financial institutions 0 0
Interest on investment securities 136 123
------ -------
Total interest income 1,110 1,067
Interest expense 499 429
------ -------
Net interest income 611 638
Provision for loan losses 8 17
------ -------
Net interest income after provision 603 621
Noninterest income:
Service charges 49 43
Gain on sale of SBA loans 0 56
Other income 19 12
------ -------
Total noninterest income 68 111
Noninterest expense:
Salaries and other personnel expense 236 222
Occupancy expense 56 65
Other operating expense 160 220
------ -------
Total noninterest expense 452 507
------ -------
Income/(loss) before income taxes 219 225
Provision for income taxes 79 0
------ -------
Net income/(loss) $ 140 $ 225
====== =======
Net income/(loss) per share $ 0.23 $ 0.38
====== =======
</TABLE>
F-77
<PAGE> 150
EASTSIDE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------------------
(Dollars in thousands) 1996 1995
------ ------
<S> <C> <C>
Cash flows from operating activities
Net income/(loss) $ 140 $ 225
Adjustments to reconcile net income/(loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization 47 41
Provision for deferred taxes (127) (2)
Provision for loan losses 8 17
Gain on sale of loans 0 (56)
Proceeds from sale of loans 263 653
Loans originated for sale (263) (597)
Increase in taxes payable (46) 0
(Increase)/decrease in interest receivable 7 (14)
Increase/(decrease) in interest payable (62) 106
Other prepaids, deferrals and accruals, net (80) (66)
--------- ---------
Total adjustments 10 679
--------- ---------
Net cash provided by/(used in) operating activities $ 150 $ 904
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities available for sale $ 0 $ (1,005)
Proceeds from maturities of securities available for sale 734 1,030
Purchase of investment securities 0 0
Proceeds from maturities of investment securities 0 0
(Increase)/decrease in federal funds sold net 370 (425)
Increase in loans, net 947 (398)
Decrease in interest-bearing deposits in banks, net 0 0
Purchase of premises and equipment (74) (43)
--------- ---------
Net cash provided by/(used in) investing activities $ 1,977 $ (841)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits $ (1,704) $ 2,700
Sale of common stock 0 0
--------- ---------
Net cash provided by financing activities $ (1,704) $ 2,700
--------- ---------
Net increase in cash and due from banks $ 160 $ 2,166
Cash and due from banks at beginning of period 2,644 1,737
--------- ---------
Cash and due from banks at end of period $ 2,804 $ 3,903
========= =========
</TABLE>
F-78
<PAGE> 151
EASTSIDE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Unrealized
Gain/(Loss)
Common Stock On Securities
----------------- Retained Available
Amount Earnings/ For Sale,
(In thousands) Shares Paid In (Deficit) Net of Taxes Total
------ --------- ---------- --------------- --------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 600 $ 6,000 $ (374) $ (154) $ 5,472
Unrealized gain on securities 59 59
available for sale
Net income 225 225
---- -------- ------ --------- --------
Balance, March 31, 1995 600 $ 6,000 $ (149) $ (95) $ 5,756
==== ======== ====== ========= ========
Balance, December 31, 1995 600 $ 6,000 $ 271 $ 25 $ 6,296
Unrealized gain on securities (24) (24)
available for sale
Dividends paid (36) (36)
Net income 140 140
---- -------- ------ --------- --------
Balance, March 31, 1996 600 $ 6,000 $ 375 $ 1 $ 6,376
==== ======== ====== ========= ========
</TABLE>
F-79
<PAGE> 152
EASTSIDE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The financial information included herein is unaudited;
however, such information reflects all adjustments (consisting solely
of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair statement of results for the interim
periods.
The results of operations for the three-month period ended
March 31, 1996 are not necessarily indicative of the results to be
expected for the full year.
Note 2. On January 1, 1995, the Company adopted Statement of Financial
Standard ("SFAS") No. 114, "Accounting by Creditors for
Impairment of a Loan" and No. 118, "Accounting by Creditors for
Impairment of a Loan-Income Recognition and Disclosures." The adoption
of these statements had no material effect on the consolidated
financial condition or earnings of EHC.
F-80
<PAGE> 153
-----------------------------
EASTSIDE HOLDING CORPORATION
AND SUBSIDIARY
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1995
-----------------------------
F-81
<PAGE> 154
[MAULDIN & JENKINS LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
- --------------------------------------------------------------------------------
TO THE BOARD OF DIRECTORS
EASTSIDE HOLDING CORPORATION
AND SUBSIDIARY
SNELLVILLE, GEORGIA
We have audited the accompanying consolidated balance sheets of EASTSIDE
HOLDING CORPORATION and Subsidiary as of December 31, 1995 and 1994, and the
related consolidated statements of income, stockholders' equity and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Eastside Holding
Corporation and subsidiary as of December 31, 1995 and 1994, and the results
of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
As discussed in note 2, the Company changed its method of accounting for
investments to adopt the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities", at January 1, 1994.
/s/ Mauldin & Jenkins, LLC
Atlanta, Georgia
February 9, 1996
F-82
<PAGE> 155
EASTSIDE HOLDING CORPORATION
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets 1995 1994
----------- -----------
<S> <C> <C>
Cash and due from banks $ 2,643,528 $ 1,736,623
Federal funds sold 4,500,000 3,850,000
Securities held to maturity, at cost (fair value $3,959,702
and $3,504,080, respectively) 4,001,178 3,745,226
Securities available for sale, at fair value 6,194,677 4,827,015
Loans 34,702,411 32,358,414
Less allowance for loan losses 450,763 430,881
----------- -----------
Loans, net 34,251,648 31,927,533
Premises and equipment, net 2,965,798 2,926,067
Other assets 1,011,712 578,340
----------- -----------
$55,568,541 $49,590,804
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing demand $ 8,818,622 $ 6,694,017
Interest-bearing demand 9,385,952 8,525,483
Savings 2,237,939 2,620,348
Time, $100,000 and over 3,601,289 2,650,150
Other time 24,691,340 23,417,888
----------- -----------
Total deposits 48,735,142 43,907,886
Other liabilities 537,625 210,319
----------- -----------
Total liabilities 49,272,767 44,118,205
----------- -----------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Common stock, no par value; 5,000,000 shares
authorized; 600,000 shares issued and outstanding,
at amount paid in 6,000,000 6,000,000
Retained earnings (deficit) 271,012 (373,612)
Unrealized gains (losses) on securities available for sale,
net of taxes 24,762 (153,789)
----------- -----------
Total stockholders' equity 6,295,774 5,472,599
----------- -----------
$55,568,541 $49,590,804
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-83
<PAGE> 156
EASTSIDE HOLDING CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995 AND 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 3,614,422 $ 3,088,313
Interest on taxable securities 544,169 451,525
Interest on Federal funds sold 309,572 175,755
----------- -----------
4,468,163 3,715,593
----------- -----------
INTEREST EXPENSE
Interest on deposs 1,987,755 1,493,697
Interest on other 110 -
----------- -----------
1,987,865 1,493,697
----------- -----------
Net interest income 2,480,298 2,221,896
PROVISION FOR LOAN LOSSES 155,000 185,000
----------- -----------
Net interest income after provision for loan losses 2,325,298 2,036,896
----------- -----------
OTHER INCOME
Service charges on deposit accounts 157,544 198,022
Other 34,312 36,236
Gain on sale of loans 131,999 44,055
----------- -----------
323,855 278,313
----------- -----------
OTHER EXPENSE
Salaries and employee benefits 938,537 753,616
Equipment expense 111,620 76,479
Occupancy expense 141,867 121,148
Advertising and marketing 69,855 64,321
Data processing 105,848 92,580
Deposit insurance 51,482 96,627
Legal and accounting 36,450 55,160
Other operating expenses 419,106 467,828
----------- -----------
1,874,765 1,727,759
----------- -----------
Income before income taxes 774,388 587,450
APPLICABLE INCOME TAXES 129,764 -
----------- -----------
Net income $ 644,624 $ 587,450
=========== ===========
PER SHARE OF COMMON AND COMMON EQUIVALENT SHARE
Net income $ 1.06 $ 0.97
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-84
<PAGE> 157
EASTSIDE HOLDING CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNREALIZED
GAINS (LOSSES)
COMMON STOCK ON SECURITIES
------------------- RETAINED AVAILABLE TOTAL
AMOUNT EARNINGS FOR SALE, STOCKHOLDERS'
SHARES PAID IN (DEFICIT) NET OF TAXES EQUITY
------- ---------- ------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE (DEFICIT), DECEMBER 31, 1993 600,000 $6,000,000 $ (961,062) $ - $ 5,038,938
Net income - - 587,450 - 587,450
Cumulative effect of a change in method
of accounting for investments in debt
and equity securities - - - 58,643 58,643
---------- -------------
Net change in unrealized gains
(losses) on securities
available for sale - - - (212,432) (212,432)
------- ---------- ---------- ---------- -------------
BALANCE (DEFICIT), DECEMBER 31, 1994 600,000 6,000,000 (373,612) (153,789) 5,472,599
Net income 644,624 644,624
Net change in unrealized gains
(losses) on securities
available for sale 178,551 178,551
------- ---------- ---------- ---------- -------------
BALANCE, DECEMBER 31, 1995 600,000 $6,000,000 $ 271,012 $ 24,762 $ 6,295,774
======= ========== ========== ========== =============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-85
<PAGE> 158
EASTSIDE HOLDING CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 644,624 $ 587,450
-------------- ------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 152,681 154,125
Provision for deferred taxes (131,502) (4,000)
Provision for loan losses 155,000 185,000
Gain on sale of loans (131,999) (44,055)
Proceeds from the sale of loans 1,297,531 1,201,652
Loans originated for sale (1,165,532) (1,157,597)
-------------- ------------
Increase in taxes payable 252,781
(Increase) in interest receivable (144,244) (45,337)
Increase in interest payable 107,347 42,887
Other prepaids, deferrals and accruals, net (219,416) (171,986)
-------------- ------------
Total adjustments 172,647 160,689
-------------- ------------
Net cash provided by operating activities 817,271 748,139
-------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities available for sale (4,008,672) (1,000,000)
Proceeds from maturities of securities available for sale 2,832,317 909,937
Purchase of securities held to maturity (753,125) (495,000)
Proceeds from maturities of securities held to maturity 497,172 1,022,147
(Increase) decrease in Federal funds sold, net (650,000) 700,000
Increase in loans, net (2,479,115) (5,719,833)
-------------- ------------
Purchase of premises and equipment (176,198) (46,209)
-------------- ------------
Net cash used in investing activities (4,737,621) (4,628,958)
-------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in deposits, net 4,827,255 3,855,822
-------------- ------------
Net cash provided by financing activities 4,827,255 3,855,822
-------------- ------------
Net increase (decrease) in cash and due from banks 906,905 (24,997)
Cash and due from banks at beginning of year 1,736,623 1,761,620
-------------- ------------
Cash and due from banks at end of year $ 2,643,528 $ 1,736,623
============== ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-86
<PAGE> 159
EASTSIDE HOLDING CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1995
----------- -----------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for:
Interest $ 1,880,518 $ 1,450,810
Taxes $ 8,485 $ -
NONCASH TRANSACTIONS
Unrealized gains (losses) on securities available for sale $ 191,306 $ (153,789)
Principal balance on loans transferred to other real estate $ $ 58,189
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-87
<PAGE> 160
EASTSIDE HOLDING CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION
Eastside Holding Corporation is a one-bank holding company whose
business is presently conducted by its wholly-owned subsidiary,
Eastside Bank & Trust Company. Eastside Bank & Trust Company (the
Bank) is a commercial bank with operations in Gwinnett County,
Georgia. The Bank provides a full range of banking services to
individual and corporate customers in its primary market area. The
Bank is subject to the regulations of certain Federal and state
agencies. The Bank is periodically examined by certain regulatory
authorities. Eastside Financial Services, Inc. is a wholly-owned
subsidiary of the Bank. Eastside Financial Services, Inc.
originates and services loans made under the Small Business
Administration program.
The accounting and reporting policies of the Company and its
subsidiary conform to generally accepted accounting principles and
general practices within the financial services industry. In
preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of the balance sheet and
revenues and expenses for the period. Actual results could differ
from those estimates.
The consolidated financial statements include the accounts of the
Company and its subsidiary. Significant intercompany transactions
and accounts are eliminated in consolidation.
The principles which significantly affect the determination of
financial position, results of operations and cash flows are
summarized below.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and due from banks
includes cash on hand and amounts due from banks (including cash
items in process of clearing). Cash flows from loans originated by
the Bank, deposits, interest-bearing deposits and Federal funds
purchased and sold are reported net.
The Bank maintains amounts due from banks which, at times, may
exceed Federally insured limits. The Bank has not experienced any
losses in such accounts.
F-88
<PAGE> 161
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SECURITIES AVAILABLE FOR SALE
Securities classified as available for sale are those debt
securities that the Bank intends to hold for an indefinite period
of time, but not necessarily to maturity. Any decision to sell a
security classified as available for sale would be based on various
factors, including significant movements in interest rates, changes
in the maturity mix of the Bank's assets and liabilities, liquidity
needs, regulatory capital considerations and other similar factors.
Securities available for sale are carried at fair value.
Unrealized gains or losses are reported as increases or decreases
in stockholders' equity, net of the related deferred tax effect.
Realized gains or losses, determined on the basis of the cost of
specific securities sold, are included in earnings.
SECURITIES HELD TO MATURITY
Securities classified as held to maturity are those debt securities
the Bank has both the intent and ability to hold to maturity
regardless of changes in market conditions, liquidity needs or
changes in general economic conditions. These securities are
carried at cost adjusted for amortization of premium and accretion
of discount, computed by the interest method over their contractual
lives. The sale of a security within three months or its maturity
date or after collection of at least 85 percent of the principal
outstanding at the time the security was acquired is considered a
maturity for purposes of classification and disclosure.
A decline in the fair value below cost of any available for sale or
held to maturity security that is deemed other than temporary is
charged to earnings resulting in the establishment of a new cost
basis for the security.
Realized gains and losses on the sale of securities available for
sale are determined using the specific identification method.
F-89
<PAGE> 162
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOANS AND INTEREST INCOME
Loans are stated at principal amounts outstanding less unearned
income and allowance for loan losses. Interest on most loans is
credited to income on a daily basis based upon the principal
amount outstanding at the respective rate of interest. Interest on
some instalment loans is credited to income based on the
sum-of-the-months-digits method, the results of which are not
materially different from generally accepted accounting principles.
Accrual of interest income is discontinued on loans when, in the
opinion of management, collection of such interest income becomes
doubtful. When a loan is placed on nonaccrual status, all
interest previously accrued but not collected is reversed against
current interest income. Accrual of interest on such loans is
resumed when, in management's judgment, the collection of interest
and principal becomes probable.
Nonrefundable loan fees and certain direct loan origination costs
are accounted for in accordance with Statement of Financial
Accounting Standards Number 91 (SFAS No. 91), "Accounting for
Nonrefundable Fees and Costs Associated with Originating or
Acquiring Loans and Initial Direct Costs of Leases". SFAS No. 91
requires these fees and costs to be deferred and the net amount
recognized into income over the life of the loans as a yield
adjustment.
F-90
<PAGE> 163
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOANS AND INTEREST INCOME (CONTINUED)
The allowance for loan losses is established through a provision
for loan losses charged to expense. Loans are charged against the
allowance for loan losses when management believes that
collectibility of the principal is unlikely. The allowance is an
amount that management believes will be adequate to absorb
estimated losses on existing loans that may become uncollectible,
based on evaluation of the collectibility of loans and prior loss
experience. This evaluation also takes into consideration such
factors as changes in the nature and volume of the loan portfolio,
overall portfolio quality, review of specific problem loans and
current economic conditions that may affect the borrower's ability
to pay. Certain estimates are susceptible to change in the near
term. Such estimates include the creditworthiness of significant
borrowers and the collateral value of delinquent loans. While
management uses the best information available to make its
evaluation, future adjustments to the allowance may be necessary if
there are significant changes in economic conditions. In addition,
regulatory agencies, as an integral part of their examination
process, periodically review the Bank's allowance for loan losses,
and may require the Bank to record additions to the allowance based
on their judgment about information available to them at the time
of their examinations.
Impaired loans are measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate
or, as a practical expedient, at the loan's observable market price
or the fair value of the collateral if the loan is collateral
dependent. A loan is impaired when it is probable the creditor
will be unable to collect all contractual principal and interest
payments due in accordance with the terms of the loan agreement.
Accrual of interest on an impaired loan is discontinued when
management believes, after considering collection efforts and other
factors, that the borrower's financial condition is such that
collection of interest is doubtful. Generally, cash collections on
impaired loans are credited to the loans receivable balance, and no
interest income is recognized on those loans until the principal
balance has been collected.
F-91
<PAGE> 164
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed principally by the
straight-line method over the following estimated useful lives:
<TABLE>
Years
-------
<S> <C>
Buildings and improvements 40
Furniture and equipment 3-10
</TABLE>
OTHER REAL ESTATE OWNED
Other real estate owned (OREO) represents properties acquired
through foreclosure or other proceedings. OREO is held for sale
and is recorded at the lower of the recorded amount of the loan or
fair value of the properties less estimated costs of disposal. Any
write-down to fair value at the time of transfer to OREO is charged
to the allowance for loan losses. Property is evaluated regularly
to ensure the recorded amount is supported by its current fair
value and valuation allowances to reduce the carrying amount to
fair value less estimated costs to dispose are recorded as
necessary. Subsequent decreases in fair value and increases in
fair value, up to the value established at foreclosure, are
recognized as charges or credits to noninterest expense. OREO is
reported net of any allowance for losses in the Bank's financial
statements.
INCOME TAXES
The Company and its subsidiary file a consolidated income tax
return. The subsidiary provides for income taxes based on its
contribution to income taxes (benefits) of the consolidated group.
F-92
<PAGE> 165
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES (CONTINUED)
Provisions for income taxes are based on amounts reported in the
consolidated statements of income after exclusion of nontaxable
income such as interest on state and municipal securities and
include deferred taxes on temporary differences in the recognition
of income and expense for tax and financial statement purposes.
Deferred taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences and
operating loss and tax credit carryforwards and deferred tax
liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax bases. Deferred
tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion
or all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effect of changes
in tax laws on the date of enactment.
SALE OF LOANS
The Bank originates and sells participations in certain loans.
Gains are recognized at the time the sale is consummated. The
amount of gain recognized on the sale of a specific loan is equal
to the percentage resulting from determining the fair value of the
portion of the loan sold relative to the fair value of the entire
loan. Any material unrecognized gain is deferred and amortized
into income over the term of the portion of the loan not sold.
Losses are recognized at the time the loan is identified as held
for sale and the loan's carrying value exceeds its market share.
F-93
<PAGE> 166
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ORGANIZATIONAL COSTS AND PREOPENING EXPENSES
Certain legal and other costs incurred in connection with the
organization and chartering of the Company and Eastside Financial
Services, Inc., have been deferred and are being amortized using
the straight-line method over 60 months.
EARNINGS PER SHARE
Earnings per share is calculated on the weighted average number of
shares of common stock and common stock equivalents outstanding
during the period. Stock options granted, as described in Note 10,
are considered to be common stock equivalents for purposes of
calculated net income per share. Common stock equivalents that are
anti-dilutive are excluded from weighted average outstanding
shares.
RECLASSIFICATION OF CERTAIN BALANCES
Certain balances on the consolidated statements of income for the
year ended December 31, 1994 have been reclassified, with no effect
on net income, to be consistent with the classifications adopted
for the year ended December 31, 1995.
F-94
<PAGE> 167
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 2. INVESTMENT SECURITIES
The amortized costs and fair values of securities as shown in the
consolidated balance sheets of the Bank at December 31, 1995 and
1994 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Securities Available for Sale
December 31, 1995:
U.S. Government and agency
securities $ 5,981,037 $ 46,085 $ (13,957) $ 6,013,165
Mortgage-backed securities 176,122 5,390 181,512
----------- -------- ----------- -----------
$ 6,157,159 $ 51,475 $ (13,957) $ 6,194,677
=========== ======== =========== ===========
Securities Held to Maturity
December 31, 1995:
U.S. Government and agency
securities $ 4,001,178 $ 2,899 $ (44,375) $ 3,959,702
=========== ======== =========== ===========
Securities Available for Sale
December 31, 1994:
U.S. Government and agency
securities $ 4,758,364 $ - $ (157,731) $ 4,600,633
Mortgage-backed securities 222,439 3,943 - 226,382
----------- -------- ----------- -----------
$ 4,980,803 $ 3,943 $ (157,731) $ 4,827,015
=========== ======== =========== ===========
Securities Held to Maturity
December 31, 1994:
U.S. Government and agency
securities $ 3,745,226 $ - $ (241,146) $ 3,504,080
=========== ======== =========== ===========
</TABLE>
There were no sales of securities during 1995 or 1994.
F-95
<PAGE> 168
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 2. INVESTMENT SECURITIES (CONTINUED)
The amortized cost and fair value of securities as of December
31,1995 by contractual maturity are shown below. Maturities may
differ from contractual maturities in mortgage-backed securities
because the mortgages underlying the securities may be called or
prepaid without penalty. Therefore, these securities are not
included in the maturity categories in the following maturity
summary.
<TABLE>
<CAPTION>
SECURITIES AVAILABLE FOR SALE SECURITIES HELD TO MATURITY
----------------------------- ---------------------------
AMORITIZED FAIR AMORITIZED FAIR
COST VALUE COST VALUE
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Due in one year or less $ 1,500,135 $ 1,490,475 $ 500,058 $ 497,655
Due from one year to five years 3,478,252 3,499,172 3,501,120 3,462,047
Due from five to ten years 1,002,650 1,023,518 - -
Mortgage-backed securities 176,122 181,512 - -
----------- ----------- ----------- -----------
$ 6,157,159 $ 6,194,677 $ 4,001,178 $ 3,959,702
=========== =========== =========== ===========
</TABLE>
Securities with a carrying value of $450,052 and $450,193 at
December 31, 1995 and 1994, respectively, were pledged to secure
public deposits and for other purposes.
Effective January 1, 1994, the Bank adopted SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities".
Upon adoption, the Bank transferred $4,890,741 from securities held
for investment to securities available for sale. The securities
available for sale were marked to market value resulting in a net
unrealized gain of $58,643 which was included in stockholders'
equity.
F-96
<PAGE> 169
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of loans is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1995 1994
------------- ------------
<S> <C> <C>
Commercial, financial and agricultural $ 9,908,000 $ 7,359,000
Real estate - construction 8,950,000 8,663,000
Real estate - mortgage 10,403,000 9,680,000
Consumer instalment 5,102,000 5,027,000
Other 537,949 1,770,420
------------- ------------
34,900,949 32,499,420
Deferred loan fees and costs (198,538) (141,006)
Allowance for loan losses (450,763) (430,881)
------------- ------------
Loans, net $ 34,251,648 $ 31,927,533
============= ============
</TABLE>
Information with respect to impaired loans as of and for the year ended
December 31, 1995 is as follows:
<TABLE>
<S> <S>
Loans receivable for which there is a related
allowance for credit losses $ 74,036
Loans receivable for which there is no related
allowance for credit losses 12,745
----------
Total impaired loans $ 86,781
==========
Allowance for loan losses related to impaired loans $ 34,000
==========
Average balance (based on month-end balances) $ 53,225
==========
Interest income recognized on the cash basis $ 4,958
==========
</TABLE>
Loans on which the accrual of interest had been discontinued or reduced amounted
to $80,926 at December 31, 1994. There was no significant reduction in interest
income associated with nonaccrual and renegotiated loans.
F-97
<PAGE> 170
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
At December 31, 1995, executive officers and directors, and
companies in which they have a 10 percent or more beneficial
ownership, were indebted to the Bank in the aggregate amount of
$2,449,667. The interest rates on these loans were substantially
the same as rates prevailing at the time of the transactions and
repayment terms are customary for the type of loan involved.
Following is a summary of transactions:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1995 1994
----------- ------------
<S> <C> <C>
BALANCE, BEGINNING OF YEAR $ 2,704,056 $ 1,871,724
Advances 119,487 1,366,378
Repayments (373,876) (534,046)
----------- -----------
BALANCE, END OF YEAR $ 2,449,667 $ 2,704,056
=========== ===========
Changes in the allowance for loan losses are as follows:
DECEMBER 31,
-------------------------------
1995 1994
------------ -----------
<S> <C> <C>
BALANCE, BEGINNING OF YEAR $ 430,881 $ 334,704
----------- -----------
Charge-offs:
Commercial, financial and agricultural (75,768) (37,243)
Real estate-mortgage and construction (65,301) (32,219)
Instalment (5,820) (66,115)
Other (7,222) (8,436)
----------- -----------
(154,111) (144,013)
----------- -----------
Recoveries:
Commercial, financial and agricultural 437 23,111
Real estate - mortgage and construction 13,536 902
Instalment 3,626 29,897
Other 1,394 1,280
----------- -----------
18,993 55,190
----------- -----------
Net charge-offs (135,118) (88,823)
----------- -----------
Additions charged to operations 155,000 185,000
----------- -----------
BALANCE, END OF YEAR $ 450,763 $ 430,881
=========== ===========
</TABLE>
F-98
<PAGE> 171
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 4. PREMISES AND EQUIPMENT, NET
Major classifications of these assets are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1994
------------ -----------
<S> <C> <C>
Land $ 793,753 $ 793,753
Buildings 2,280,447 2,241,952
Equipment 409,634 271,931
----------- -----------
3,483,834 3,307,636
Accumulated depreciation (518,036) (381,569)
----------- -----------
$ 2,965,798 $ 2,926,067
=========== ===========
</TABLE>
Depreciation expense for the years ended December 31, 1995 and 1994
was $136,467 and $107,976, respectively.
NOTE 5. EMPLOYEE BENEFIT PLAN
The Bank has a simplified employee pension plan in which
substantially all employees participate. The amount of the
contribution to the plan is at the discretion of the Bank's Board of
Directors. Since its inception, the Bank has made no contributions
to the plan.
NOTE 6. INCOME TAXES
The total income taxes in the consolidated statements of income are
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1994
------------ ------------
<S> <S> <S>
Current $ 261,266 $ 4,000
Deferred (22,751) 197,107
Change in valuation allowance (108,751) (201,107)
=========== ===========
$ 129,764 $ -
=========== ===========
</TABLE>
F-99
<PAGE> 172
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 6. INCOME TAXES (CONTINUED)
The Company's provision for income taxes differs from the amounts
computed by applying the Federal income tax statutory rates to
income before income taxes. A reconciliation of the differences is
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
1995 1994
---------------------- ------------------------
AMOUNT PERCENT AMOUNT PERCENT
----------- --------- ------------ ----------
<S> <C> <C> <C> <C>
Tax provision at statutory rate $ 263,292 34 % $ 199,733 34 %
Increase (decrease) resulting from:
Change in valuation allowance (108,751) (14) (201,107) (34)
Other (24,777) (4) 1,374 -
---------- ------ ----------- ------
$ 129,764 16 % $ - - %
========== ====== =========== ======
</TABLE>
Net deferred income tax assets of $126,069 and $4,000 at December
31, 1995 and 1994, respectively, are included in other assets. The
components of deferred income taxes at December 31, 1995 and 1994
are as follows:
<TABLE>
DECEMBER 31,
------------------------
1995 1994
---------- -----------
<S> <C> <C>
DEFERRED TAX ASSETS:
Loan loss reserves $ 88,648 $ 81,888
Deferred loan fees 67,503 47,942
AMT credit - 4,000
Other 18,063 -
Net operating loss carryforward - 4,404
Valuation reserve - (108,751)
--------- ----------
174,214 29,483
--------- ----------
DEFERRED TAX LIABILITIES:
Depreciation 32,065 24,831
Organization costs - EFS 3,324 652
Securities available for sale 12,756 -
--------- ----------
48,145 25,483
--------- ----------
NET DEFERRED TAX ASSETS $ 126,069 $ 4,000
========= ==========
</TABLE>
F-100
<PAGE> 173
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 7. COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, the Bank has entered into off
balance sheet financial instruments which are not reflected in the
consolidated financial statements. These instruments include
commitments to extend credit and standby letters of credit. Such
financial instruments are recorded in the consolidated financial
statements when funds are disbursed or the instruments become
payable. These instruments involve, to varying degrees, elements of
credit risk in excess of the amount recognized in the balance sheet.
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 and standby letters of credit is represented by the
contractual amount of those instruments. The Bank uses the same
credit and collateral policies for these off-balance-sheet financial
instruments as it does for on-balance-sheet financial instruments.
Following is an analysis of significant off-balance-sheet financial
instruments.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
---------- ---------
DOLLARS IN THOUSANDS
--------------------
<S> <C> <C>
Commitments to extend credit $ 11,147 $ 8,571
Standby letters of credit 175 107
--------- ---------
$ 11,322 $ 8,678
========= =========
</TABLE>
Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of
the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements. The credit risk involved in issuing these financial
instruments is essentially the same as that involved in extending
loans to customers. The Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral
obtained, if it is deemed necessary by the Bank upon extension of
credit, is based on management's credit evaluation of the customer.
Collateral held varies but may include real estate and improvements,
marketable securities, accounts receivable, inventory, equipment and
personal property.
F-101
<PAGE> 174
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 7. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
Standby letters of credit 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. The credit risk involved in issuing letters
of credit is essentially the same as that involved in extending loan
facilities to customers. Collateral held varies as specified above
and is required in instances which the Bank deems necessary.
The Bank does not anticipate any material losses as a result of the
commitments and contingent liabilities.
The nature of the business of the Company is such that it ordinarily
results in a certain amount of litigation. In the opinion of
management, there is no litigation in which the outcome will have a
material effect on the consolidated financial statements.
NOTE 8. CONCENTRATIONS OF CREDIT
Most of the Bank's business activity is with customers within its
primary market area which is defined by management in its loan
policy. Accordingly, a substantial portion of the Bank's customers'
ability to honor their contracts is dependent on the business
economy in Snellville, Georgia and surrounding areas of Gwinnett
County. Although the Bank's loan portfolio is diversified, a
substantial portion of the Bank's loans are secured by real estate
in the Bank's primary market area. Accordingly, a substantial
portion of the Bank's loan portfolio is susceptible to changes in
market conditions in the Bank's primary market area. The
concentrations of credit by type of loan are also set forth in Note
3. The Bank, as a matter of policy, does not generally extend
credit to any single borrower or group of related borrowers in
excess of 25% of the Bank's combined capital stock and capital
surplus accounts ($6,000,000) which amounted to $1,500,000 at
December 31, 1995.
F-102
<PAGE> 175
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 9. STOCKHOLDERS' EQUITY
The primary source of funds available to the parent company is the
payment of dividends by the subsidiary Bank. Banking regulations
limit the amount of dividends that may be paid without prior
approval of the Bank's regulatory agency. Approximately $271,000
are available to be paid as dividends by the bank subsidiary at
December 31, 1995.
Banking regulations also require the Bank to maintain minimum
capital levels in relation to Bank assets. At December 31, 1995,
the Bank's capital ratios were considered adequate based on
regulatory minimum capital requirements. The minimum capital
requirements and the actual capital ratios for the Bank at December
31, 1995 are as follows:
<TABLE>
<CAPTION>
REGULATORY
ACTUAL REQUIREMENT
-------- -----------
<S> <C> <C>
Leverage capital ratio 11.08 % $4.00 %
Risk based capital ratios:
Core capital 15.14 % $4.00 %
Total capital 16.25 % $8.00 %
</TABLE>
F-103
<PAGE> 176
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 10. STOCK OPTIONS
On April 29, 1993, the stockholders of the Bank amended the 1991
Incentive Stock Option Plan to delete a $10 per share minimum
limitation on the option exercise price. The minimum limitation is
now the fair market value of the Bank's stock as of the grant date.
Fair market value is defined in the plan as the book value of the
Bank's stock. The aggregate amount of stock which may be purchased
under the plan is 50,000 shares. Eastside Holding Corporation
retroactively adopted the Incentive Stock Option Plan as part of the
formation of the holding company. As of December 31, 1995, options
have been granted and are outstanding as follows:
<TABLE>
<CAPTION>
NUMBER
OF OPTIONS OPTIONS OPTIONS
GRANTED EXPIRE PRICE SHARES EXERCISED TERMINATED UNEXERCISED
------- ------ ----- ------ --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
1992 2002 $ 7.90 25,000 - (7,500) 17,500
1993 2003 8.17 5,000 - - 5,000
1993 2003 8.40 2,000 - - 2,000
1994 2004 9.03 6,500 - - 6,500
------ ------ ------- -------
38,500 - (7,500) 31,000
====== ====== ======= =======
</TABLE>
NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Accounting Standards Board Statement No. 107, "Disclosures
About Fair Value of Financial Instruments," requires disclosure of
fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to
estimate that value. In cases where quoted market prices are not
available, fair values are based on estimates using present value or
other valuation techniques. Those techniques are significantly
affected by the assumptions used, including the discount rate and
estimates of future cash flows. In that regard, the derived fair
value estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate
settlement of the instrument. Statement No. 107 excludes certain
financial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Bank.
F-104
<PAGE> 177
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The following methods and assumptions were used by the Bank in
estimating the fair value of its financial instruments:
Carrying amounts approximate fair values for the following
instruments:
Cash and due from banks
Federal funds sold
Securities available for sale
Variable rate loans that reprice frequently
Equity line loans
Variable rate money market accounts
Variable rate certificates of deposit
Accrued interest receivable
Accrued interest payable
Quoted market prices, where available, or if not available, based on
quoted market prices of comparable instruments for securities held
to maturity.
Discounted cash flows using interest rates currently being offered
on instruments with similar terms and with similar credit quality:
All loans except variable rate loans described above
Fixed rate certificates of deposit
Commitments to extend credit and standby letters of credit are not
recorded until such commitments are funded. The value of these
commitments are the fees charged to enter into such agreements.
These commitments do not represent a significant value to the
Company until such commitments are funded. The Company has
determined that such instruments do not have a distinguishable fair
value and no fair value has been assigned to these instruments.
F-105
<PAGE> 178
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying value and estimated fair values of the Company's
financial instruments at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
ESTIMATED
CARRYING FAIR
VALUE VALUE
------------- ------------
<S> <C> <C>
FINANCIAL ASSETS:
Cash and short-term investments $ 7,143,528 $ 7,143,528
============= ============
Investment securities $ 10,195,855 $ 10,154,379
============= ============
Loans $ 34,702,411 $ 34,594,308
Less allowance for loan losses (450,763) -
------------- ------------
Loans, net $ 34,251,648 $ 34,594,308
============= ============
INTEREST PAYABLE $ 229,269 $ 229,269
============= ============
INTEREST RECEIVABLE $ 468,473 $ 468,473
============= ============
FINANCIAL LIABILITIES:
Noninterest-bearing demand $ 8,818,622 $ 8,818,622
Interest-bearing demand 9,385,952 9,385,952
Savings 2,237,939 2,237,939
Time deposits 27,292,629 28,527,408
------------- ------------
Total deposits $ 47,735,142 $ 48,969,921
============= ============
</TABLE>
F-106
<PAGE> 179
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 12. BUSINESS COMBINATION
EASTSIDE FINANCIAL SERVICES
On June 21, 1994, the Bank formed Eastside Financial Services, Inc.
Eastside Financial Services, Inc. was formed to originate and
service loans made under the Small Business Administration Program.
In October 1994, Eastside Financial Services, Inc. purchased the
right to service approximately $8,000,000 in SBA loans. The cost
of purchasing this service and organizational cost of the Company
are included in other assets ($114,856), net of amortization of
$18,858.
These costs are being amortized as the straight-line basis over 7.5
years, the estimated life of the service contracts on the loans.
EASTSIDE HOLDING CORPORATION
On September 21, 1995, Eastside Holding Corporation acquired all of
the outstanding stock of Eastside Bank & Trust Company in exchange
for 600,000 shares of $6 par value common stock. The acquisition
has been accounted for as a pooling of interests and, accordingly,
all prior financial statements have been restated to reflect the
combination. Income of the subsidiary prior to acquisition on
September 21, 1995 was $486,950, which is included in the
consolidated statement of income.
Also, on November 15, 1995, the Board of Directors voted to enter
into a letter of intent to exchange all of the outstanding shares
of common stock of the Company for common stock in Westside
Financial Corporation, Kennesaw, Georgia. Westside Financial
Corporation will issue additional shares of its common stock in
exchange for the outstanding shares of the Company. The exchange
rate will be based on adjusted book values of the outstanding
shares of each entity at a date prior to closing. Once the
exchange rate is determined, Westside Financial Corporation will
declare a stock dividend to its shareholders in an amount necessary
to assure the Company's shareholders receive a one share for one
share exchange. The transaction will be accounted for as a pooling
of interest and is subject to approval by the shareholders of the
Company and the applicable regulatory authorities.
F-107
<PAGE> 180
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 13. CONDENSED FINANCIAL INFORMATION ON EASTSIDE HOLDING
CORPORATION (PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS
Cash and due from banks $ 10,436
Investments in subsidiary 6,196,872
Other assets 88,466
-----------
Total assets $ 6,295,774
===========
STOCKHOLDERS' EQUITY $ 6,295,774
===========
</TABLE>
CONDENSED STATEMENTS OF INCOME
FROM INCEPTION (SEPTEMBER 21, 1995)
THROUGH DECEMBER 31, 1995
<TABLE>
<S> <C>
DIVIDENDS FROM SUBSIDIARY $ 100,000
-----------
AMORTIZATION EXPENSE 1,098
-----------
Income before equity in undistributed
earnings of subsidiary 98,902
EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARY 58,772
-----------
Net income $ 157,674
===========
</TABLE>
F-108
<PAGE> 181
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 13. CONDENSED FINANCIAL INFORMATION ON EASTSIDE HOLDING
CORPORATION (PARENT COMPANY ONLY) (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
FROM INCEPTION (SEPTEMBER 21, 1995)
THROUGH DECEMBER 31, 1995
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 157,674
Adjustments to reconcile net income to net cash -----------
provided by operating activities:
Amortization 1,098
Increase in other assets (89,564)
Undistributed earnings of subsidiary (58,772)
-----------
Total adjustments (147,238)
-----------
Net cash provided by operating activities 10,436
-----------
Net increase in cash and due from banks 10,436
Cash and due from banks at beginning of year -
-----------
Cash and due from banks at end of year $ 10,436
===========
</TABLE>
F-109
<PAGE> 182
APPENDIX A
MERGER AGREEMENT
<PAGE> 183
EASTSIDE HOLDING CORPORATION
AND
WESTSIDE FINANCIAL CORPORATION
MERGER AGREEMENT
DECEMBER 21, 1995
A-1
<PAGE> 184
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. MERGER A-7
1.1 EHC Merger into WFC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-7
1.2 Effective Date of the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-7
1.3 Management of WFC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-7
1.4 Management of Westside and Eastside. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-7
2. MANNER AND BASIS OF CONVERTING SHARES OF STOCK A-7
2.1 Adjusted Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-7
2.1.1 WFC Adjusted Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-7
2.1.2 EHC Adjusted Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-8
2.1.3 Merger Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-8
2.2 Conversion of Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-8
2.3 Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-8
2.4 WFC Stock Dividend. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-8
2.5 No Fractional Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-9
2.6 Surrender of Stock Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-9
2.6.1 Letter of Transmittal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-9
2.6.2 Rights of Former Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-9
2.6.3 Failure to Surrender Stock Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . A-9
2.7 No Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-10
3. OTHER ACKNOWLEDGEMENTS, AGREEMENTS, ETC. A-10
3.1 Material. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-10
3.1.1 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-10
3.1.2 Supervisory Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-10
3.1.3 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-10
3.2 Access, Information and Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-10
3.2.1 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-10
3.2.2 Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-11
3.3 Registration Statement; Shareholders' Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . . A-11
3.4 Confidential Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-11
3.5 Full Cooperation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-11
3.6 Applications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-12
3.7 Public Announcements and Disclosures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-12
3.8 Generally Accepted Accounting Principles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-12
3.9 Agreement as to Efforts to Consummate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-12
3.10 Accounting and Tax Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-12
4. REPRESENTATIONS AND WARRANTIES OF WFC A-12
4.1 WFC Schedule. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-13
</TABLE>
A-2
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<TABLE>
<S> <C> <C>
4.2 Corporate Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-13
4.3 Authorized Capital Stock; Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-13
4.4 Qualification as a Foreign Corporation Not Required. . . . . . . . . . . . . . . . . . . . . . . . A-13
4.5 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-13
4.6 Non-Contravention. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-14
4.7 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-14
4.8 Notes and Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-14
4.9 Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-15
4.10 Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-15
4.11 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-15
4.12 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-15
4.13 Regulatory Filings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-16
4.14 General Legal Compliance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-16
4.15 Properties; Environmental. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-16
4.16 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-16
4.17 Broker. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-17
4.18 Trademarks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-17
4.19 Sole Agreement to Merge and Sell. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-17
4.20 Insider Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-17
4.21 Employee Benefit Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-17
4.22 Articles and Bylaws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-20
4.23 Books and Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-20
4.24 Absence of Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-20
5. REPRESENTATIONS AND WARRANTIES OF EHC A-22
5.1 EHC Schedule. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-22
5.2 Corporate Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-22
5.3 Authorized Capital Stock; Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-22
5.4 Qualification as a Foreign Corporation Not Required. . . . . . . . . . . . . . . . . . . . . . . . A-23
5.5 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-23
5.6 Non-Contravention. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-23
5.7 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-23
5.8 Notes and Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-23
5.9 Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-24
5.10 Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-24
5.11 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-24
5.12 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-25
5.13 Regulatory Filings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-25
5.14 General Legal Compliance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-25
5.15 Properties; Environmental. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-25
5.16 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-26
5.17 Broker. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-26
5.18 Trademarks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-26
5.19 Sole Agreement to Merge or Sell. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-26
</TABLE>
A-3
<PAGE> 186
<TABLE>
<S> <C> <C>
5.20 Insider Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-26
5.21 Employee Benefit Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-27
5.22 Articles and Bylaws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-29
5.23 Books and Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-29
5.24 Absence of Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-30
6. COVENANTS OF WFC A-31
6.1 Conduct of Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-31
6.2 Capital Stock, Articles and Bylaws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-32
6.3 Notice of Breach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-33
6.4 Sole Agreement to Merge or Sell. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-33
6.5 Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-33
6.6 Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-33
7. COVENANTS OF EHC A-34
7.1 Conduct of Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-34
7.2 Capital Stock, Articles and Bylaws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-35
7.3 Approval of EHC Shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-35
7.4 Proxy Materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-35
7.5 Notice of Breach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-35
7.6 Sole Agreement to Merge or Sell. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-36
7.7 Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-36
7.8 Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-36
8. CONDITIONS TO OBLIGATIONS OF WFC A-37
8.1 Representations and Covenants Compliance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-37
8.2 No Change in Condition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-37
8.3 Closing Certificate and Other Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-37
8.4 Legal Opinion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-37
8.5 No Legal Action. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-37
8.6 Minimum EHC Adjusted Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-37
8.7 Fairness Opinion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-37
9. CONDITIONS TO OBLIGATIONS OF EHC A-37
9.1 Representations and Covenants Compliance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-38
9.2 No Change in Condition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-38
9.3 Closing Certificate and Other Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-38
9.4 Legal Opinion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-38
9.5 No Legal Action. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-38
9.6 WFC Adjusted Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-38
9.7 Fairness Opinion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-38
10. CONDITIONS TO OBLIGATIONS OF BOTH PARTIES A-38
10.1 Government Approval. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-38
</TABLE>
A-4
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<TABLE>
<S> <C> <C>
10.2 Shareholder Approval. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-39
10.3 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-39
10.4 Dissenting Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-39
10.5 Pooling Letters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-39
10.6 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-39
11. ACQUISITION OF DISSENTERS' STOCK A-39
11.1 Dissenting Shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-39
11.2 Notice of Dissent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-40
11.3 Purchaser of Dissenters' Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-40
12. CLOSING A-40
13. TERMINATION A-40
13.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-40
13.2 Procedure and Effect of Termination; Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . A-41
14. MISCELLANEOUS A-41
14.1 Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-41
14.2 Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-41
14.3 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-41
14.4 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-41
14.5 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-42
14.6 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-42
14.7 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-42
14.8 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-43
14.9 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-43
</TABLE>
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MERGER AGREEMENT
THIS MERGER AGREEMENT (the "Agreement") is made and entered into
effective as of the 21st day of December, 1995 by and between WESTSIDE
FINANCIAL CORPORATION ("WFC"), a corporation organized under the laws of the
State of Georgia, and EASTSIDE HOLDING CORPORATION ("EHC"), a corporation
organized under the laws of the State of Georgia (EHC and WFC are sometimes
collectively referred to as the "Parties" and individually referred to as
"Party").
W I T N E S S E T H:
WHEREAS, the authorized capital stock of WFC consists of 10,000,000
shares of common stock ("WFC Stock"), of which 586,300 shares are issued and
outstanding;
WHEREAS, The Westside Bank & Trust Company ("Westside"), a banking
corporation organized under the laws of the State of Georgia, is a wholly-owned
subsidiary of WFC;
WHEREAS, the authorized capital stock of EHC consists of 10,000,000
shares of common stock ("EHC Stock"), of which 600,000 shares are issued and
outstanding;
WHEREAS, The Eastside Bank & Trust Company ("Eastside"), a banking
corporation organized under the laws of the State of Georgia is a wholly-owned
subsidiary of EHC;
WHEREAS, the Boards of Directors of the Parties deem it advisable and
in the best interests of each Party and its respective shareholders that
Eastside become a wholly-owned subsidiary of WFC by EHC merging into WFC (the
"Merger") and by the EHC shareholders exchanging and converting their stock
into WFC Stock in the manner and basis hereinafter set out;
WHEREAS, after the Merger, the two banks, Eastside and Westside shall
be separate and wholly-owned subsidiaries of WFC;
WHEREAS, the Board of Directors of EHC deems it advisable and in the
best interests of EHC and its shareholders that EHC be merged into WFC and, by
resolutions duly adopted, have approved and adopted this Agreement and directed
that it be submitted to the shareholders of EHC for approval;
WHEREAS, the Board of Directors of WFC has approved and adopted this
Agreement, and WFC has agreed to join in and be bound hereby and to issue the
shares of WFC Stock, which shareholders of EHC will be entitled to receive upon
consummation of the Merger as provided herein;
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WHEREAS, it is the intention of the Parties to this Agreement that the
Merger of EHC with and into WFC (i) for federal income tax purposes shall
qualify as a "reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and (ii) for accounting
purposes shall be accounted for as a pooling-of- interests; and
NOW THEREFORE, in consideration of the premises, mutual covenants and
agreements contained herein, and for the purpose of stating the method, terms
and conditions of the merger provided for herein, the mode of carrying the same
into effect, the manner and basis of converting and exchanging the shares of
EHC Stock into WFC Stock, as hereinafter provided, and such other provisions
relating to the mergers as the Parties deem necessary or desirable, the Parties
hereto agree as follows:
1. MERGER
1.1 EHC MERGER INTO WFC. Pursuant to the applicable provisions of
the Georgia Business Corporation Code ("Corporation Code"), other provisions of
law and on the terms and conditions set forth herein, EHC shall be merged with
and into WFC. WFC shall be the survivor of this Merger continuing under the
WFC Articles and Bylaws of WFC. The name of WFC shall be changed to a name
which is satisfactory to both Parties which reflects the broader franchise
resulting from the Merger.
1.2 EFFECTIVE DATE OF THE MERGER. The Merger shall be effective
as of the effective date ("Effective Date") as set forth in the Articles of
Merger to be filed with the Georgia Secretary of State in accordance with the
applicable provisions of the Corporation Code.
1.3 MANAGEMENT OF WFC. On the Effective Date after the closing of
the Merger, the Board of Directors of WFC shall be reconstituted initially as
follows: it shall consist of five (5) directors -- two (2) directors chosen by
WFC, two (2) directors chosen by EHC, and a fifth (5th) director, who will be
Edward C. Milligan and who shall initially be elected as the Chairman of the
Board of Directors and Chief Executive Officer of WFC.
1.4 MANAGEMENT OF WESTSIDE AND EASTSIDE. The Boards of Directors
of Westside and Eastside initially following the Merger shall continue
unchanged.
2. MANNER AND BASIS OF CONVERTING SHARES OF STOCK
2.1 ADJUSTED VALUE.
2.1.1 WFC ADJUSTED VALUE. The per share adjusted value for
each outstanding share of WFC Stock ("WFC Adjusted Value") shall be
$11.99, plus or minus its earnings or losses from October 31, 1995
through the end of the month (the "Valuation Date") immediately
preceding the Effective Date, determined in accordance with generally
accepted accounting principles, applied on a consistent basis by the
WFC's independent auditor; provided that: no Merger Expenses (as
hereinafter defined) will be deducted in
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calculating net income during such interim period; any dividends paid
by WFC shall be deducted in calculating the WFC Adjusted Value; and
the loan loss reserve for Westside expressed as a percentage of its
total loans shall on the Valuation Date not be less than such
percentage on October 31, 1995.
2.1.2 EHC ADJUSTED VALUE. The per share adjusted value for
each outstanding share of EHC Stock ("EHC Adjusted Value") shall be
$10.13, plus or minus its earnings or losses from October 31, 1995,
through the Valuation Date, determined in accordance with generally
accepted accounting principles, applied on a consistent basis by the
EHC's independent auditor; provided that: no Merger Expenses (as
hereinafter defined) will be deducted in calculating net income during
such interim period; any dividends paid by EHC shall be deducted in
calculating the EHC Adjusted Value; and the loan loss reserve for
Eastside expressed as a percentage of its total loans shall on the
Valuation Date not be less than such percentage on October 31, 1995.
2.1.3 MERGER EXPENSES. Merger Expenses shall refer only to
authorized reasonable legal, accounting and consulting fees and filing
fees and printing costs paid to third parties in connection with the
Merger.
2.2 CONVERSION OF SHARES. Subject to the provisions of Section
2.1 above, the manner and basis of converting shares of EHC Stock into shares
of WFC Stock, excluding those shares of EHC Stock held by shareholders who have
perfected dissenters' rights of appraisal under the applicable provisions of
the Corporation Code (the "Dissenters' Provisions"), shall be as follows: each
share of EHC Stock shall, by virtue of the Merger and without any action on the
part of any shareholder be converted into the right to receive one share of WFC
Stock.
2.3 OPTIONS. Each option to purchase EHC Stock ("EHC Option")
outstanding at the time that the Merger is consummated shall be converted into
and become rights with respect to WFC Stock and WFC shall assume each such
option in accordance with the terms of the stock option plan under which it was
issued and the stock option or other agreement by which it is evidenced. From
and after the consummation of the Merger, (i) each EHC Option assumed by WFC
may be exercised solely for WFC Stock, (ii) the number shares of WFC Stock
subject to each EHC Option shall be equal to the number of shares of EHC stock
subject to each such EHC Option immediately prior to the consummation date and
(iii) the per share exercise price of the WFC Stock subject to the EHC Options
shall be the same as the per share exercise price of the EHC Stock. It is
intended that the foregoing assumption of EHC Options shall be undertaken in a
manner that will not constitute a "modification" as defined in Section 424 of
the Code as to any EHC Option which is an incentive stock option.
2.4 WFC STOCK DIVIDEND. Immediately prior to the time that the
Merger is consummated, WFC shall pay a stock dividend to the WFC shareholders
(the "WFC Stock Dividend") so that each WFC shareholder at such time shall
receive for each share of WFC Stock a dividend of the number of shares of WFC
Stock determined by subtracting one from the
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quotient determined by dividing the per share WFC Adjusted Value by the per
share EHC Adjusted Value.
2.5 NO FRACTIONAL SHARES. No certificate for a fraction of a
share of WFC Stock shall be issued. Instead, the holders of shares of WFC Stock
who otherwise become entitled to a fraction of a share of WFC Stock as a result
of the WFC Stock Dividend, shall receive the equivalent cash value of such
fractional share based on WFC's per share Adjusted Value at the Valuation Date.
2.6 SURRENDER OF STOCK CERTIFICATE.
2.6.1 LETTER OF TRANSMITTAL. As soon as practicable after
the Effective Date, a letter of transmittal shall be mailed by WFC, as
Exchange Agent (the "Exchange Agent"), to each shareholder of EHC as
of the close of business on the Effective Date. Upon receipt of the
letter of transmittal, each holder of a certificate or certificates
theretofore representing shares of EHC Stock shall surrender such
certificates to the Exchange Agent, together with a properly completed
and signed letter of transmittal, and shall receive in exchange
therefor certificates representing shares of WFC Stock, subject to the
restrictions and conditions of this Agreement. Replacements for stock
certificates which have been destroyed, stolen or lost may be obtained
according to the usual procedures of EHC, as applicable, in order to
permit the surrender of such replacement certificates.
2.6.2 RIGHTS OF FORMER SHAREHOLDERS. As of the Effective
Date, each certificate theretofore representing one or more
outstanding shares of EHC Stock shall be deemed for all corporate
purposes to evidence only the right to receive certificates
representing shares of WFC Stock as provided in accordance with this
Agreement.
2.6.3 FAILURE TO SURRENDER STOCK CERTIFICATES. Until a
former EHC shareholder surrenders his or her stock certificate or
certificates to the Exchange Agent: (i) the shareholder shall not be
issued certificates representing the shares of WFC Stock which such
EHC Stock certificate may otherwise entitle him or her to receive;
(ii) the shareholder shall not have any voting rights in respect of
the shares of WFC Stock which such EHC Stock certificate may otherwise
entitle him or her to receive; (iii) the shareholder shall not be paid
dividends nor other distributions in respect of the shares of WFC
Stock which such EHC Stock certificate may otherwise entitle him or
her to receive; and (iv) any dividends or distributions payable on WFC
Stock shall be retained, without interest, for his or her account
until surrender of such EHC Stock certificate.
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2.7 NO INTEREST. Except as otherwise provided by the Dissenters'
Provisions, any cash payment which is to be made pursuant to this Agreement to
any holder of a certificate formerly representing shares of EHC Stock shall
bear no interest whatsoever regardless of when such certificate is surrendered
to the Exchange Agent.
3. OTHER ACKNOWLEDGEMENTS, AGREEMENTS, ETC.
3.1 MATERIAL. "Material" shall mean, and a "material adverse"
effect or change shall have occurred with respect to each Party within the
meaning of this Agreement, upon the reasonable determination by the other Party
that an event, condition, action or state of facts is material or has a
material adverse effect or constitutes a material adverse change, in the
context of the size, historical performance and market location of the Party or
its subsidiary bank, if any, as of the date of this Agreement, but in any event
shall include any of the following:
3.1.1 UNDISCLOSED LIABILITIES. (a) The existence of any
liability that (1) was required to be disclosed pursuant to this
Agreement and was not so disclosed and (2) together with all other
such undisclosed liabilities exceeds, or may reasonably be expected to
exceed, $50,000 in the aggregate; or (b) the creation or incurrence of
any liability of the Party or its subsidiary bank, if any (other than
liabilities incurred in the ordinary course of business permitted
under Sections 4.9 and 5.9 of this Agreement), that together with all
other such liabilities exceeds, or may reasonably be expected to
exceed, $50,000 in the aggregate; or
3.1.2 SUPERVISORY ACTION. Any cease and desist order,
memorandum of understanding, supervisory agreement, consent order or
similar order or proceeding being filed or issued against the Party or
its subsidiary bank by the Federal Deposit Insurance Corporation
("FDIC"), the Georgia Department of Banking and Finance ("Georgia
Department") or the Board of Governors of the Federal Reserve
("Federal Reserve"); or
3.1.3 OTHER. Any other event, action, condition or state of
facts, which, if such event, condition or state of facts were being
considered during the course of an audit of the books and records of
the Party or any subsidiary bank in accordance with generally accepted
accounting principles, and the standard of materiality for qualifying
such audit were $50,000, would result in such audit being qualified or
would require any disclosure to be made in the report accompanying
such audit with respect to the business, properties or financial
condition of the Party.
3.2 ACCESS, INFORMATION AND DOCUMENTS.
3.2.1 ACCESS. The Parties hereto shall permit each other's
authorized representatives reasonable access during normal business
hours from and after the date hereof and prior to the Effective Date
to all of their respective properties, books, contracts, commitments
and records and shall promptly furnish each other with such
information concerning their respective affairs as each may reasonably
request.
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3.2.2 ASSISTANCE. The personnel of each of the Parties
hereto shall assist the other in making its investigation, and each
shall cause its respective counsel, accountants, employees and other
representatives to be reasonably available for such purposes. During
such investigation, the Parties and their respective authorized
representatives shall have the right to make copies of such records,
files, tax returns and other materials as they may deem advisable. No
investigation made heretofore or hereafter by any Party hereto shall
affect the representations and warranties made by the other Party
hereunder. Each Party agrees to give the other Party notice as soon
as practicable after any determination by it of any fact or occurrence
relating to the other Party which it has discovered through the course
of its investigation and which represents, or is reasonably likely to
represent, either a material breach of any representation, warranty,
covenant or agreement of the other Party or which has had or is
reasonably likely to have a material adverse effect on the other
Party.
3.3 REGISTRATION STATEMENT; SHAREHOLDERS' MEETING. As soon as
practicable after execution of this Agreement, WFC shall file a registration
statement with the Securities and Exchange Commission (the "SEC") covering the
WFC Stock to be issued upon consummation of the Merger (the "Registration
Statement"), and shall use its reasonable efforts to cause the Registration
Statement to become effective under the Securities Act of 1933 (the "1933 Act")
and take any action required to be taken under the applicable state Blue Sky or
securities laws in connection with the issuance of the shares of WFC Stock upon
consummation of the Merger. EHC shall furnish all information concerning it and
the holders of its capital stock as WFC may reasonably request in connection
with such action. EHC shall call a shareholders' meeting (the "Shareholders'
Meeting"), to be held as soon as reasonably practicable after the Registration
Statement is declared effective by the SEC, for the purpose of voting upon
approval of this Agreement and such other related matters as it deems
appropriate. In connection with the Shareholders' Meeting, (i) EHC shall
prepare and file a Proxy Statement (which shall be included in the Registration
Statement) (the "Proxy Statement") with the SEC and mail it to the EHC
shareholders, (ii) WFC shall furnish to EHC all information concerning it that
EHC may reasonably request in connection with such Proxy Statement, (iii) the
Boards of Directors of EHC shall recommend (subject to compliance with its
fiduciary duties as advised by counsel) to its shareholders the approval of
this Agreement, and (iv) the Board of Directors and officers of EHC shall use
their reasonable efforts to obtain such shareholders' approval (subject to
compliance with their fiduciary duties as advised by counsel).
3.4 CONFIDENTIAL INFORMATION. If the transactions contemplated
herein are not consummated, each Party and its representatives shall treat all
information obtained from the other, and not already in the public domain, as
confidential, and each Party (upon written request) shall return to the other
Party all copies made of material belonging to it.
3.5 FULL COOPERATION. The Parties shall cooperate fully with each
other and with their respective counsel, accountants and other agents in
connection with any acts or actions required to be taken as part of their
respective obligations under this Agreement, including cooperation in the
filing of all applications with respect to the transactions contemplated
hereby.
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3.6 APPLICATIONS. WFC shall promptly prepare and file, and EHC
shall cooperate in the preparation and, where appropriate, filing of,
applications with all regulatory authorities having jurisdiction over the
transactions contemplated by this Agreement seeking the requisite consents
necessary to consummate the transactions contemplated by this Agreement.
3.7 PUBLIC ANNOUNCEMENTS AND DISCLOSURES. The Parties hereto
agree that, from the date hereof until the Effective Date, none of the Parties
to this Agreement shall make any public announcements or disclosures, other
than public announcements and disclosures required to be made by law, relating
to this Agreement or to the transactions contemplated hereby without the prior
approval of the other Party.
3.8 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. Whenever any
financial report, determination, adjustment, warranty, representation or
covenant relates to any financial matter hereunder, it shall, unless stated to
the contrary, be deemed to refer to such item as determined in accordance with
generally accepted accounting principles as set forth in Sections 4.7 and 5.7.
3.9 AGREEMENT AS TO EFFORTS TO CONSUMMATE. Subject to the terms
and conditions of this Agreement, each Party agrees to use, and to cause its
subsidiaries to use, reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper, or
advisable under applicable laws, as promptly as practicable so as to permit
consummation of the Merger at the earliest possible date and to otherwise
enable consummation of the transactions contemplated hereby and shall cooperate
fully with the other Party hereto to that end (it being understood that any
amendments to the Registration Statement filed or a resolicitation of proxies
as a consequence of an acquisition agreement by WFC or any of its subsidiaries
shall not violate this covenant, provided that WFC shall use its reasonable
efforts to cause such Registration Statement to be declared effective so that
the Shareholders' Meeting may be held prior to the date set forth in Section
13.1(b) of this Agreement), including, without limitation, using its reasonable
efforts to lift or rescind any order adversely affecting its ability to
consummate the transactions contemplated herein and to cause to be satisfied
the conditions referred to in Sections 8, 9 and 10 of this Agreement. Each
Party shall use, and shall cause each of its subsidiaries to use, its
reasonable efforts to obtain all consents necessary for the consummation of the
transactions contemplated by this Agreement.
3.10 ACCOUNTING AND TAX TREATMENT. Each of the Parties undertakes
and agrees to use its reasonable efforts to cause the Merger, and to take no
action which would cause the Merger not, to qualify for pooling-of-interests
accounting treatment and treatment as a "reorganization" within the meaning of
Section 368(a) of the Code for federal income tax purposes.
4. REPRESENTATIONS AND WARRANTIES OF WFC
As an inducement to EHC to enter into this Agreement, WFC hereby
represents and warrants to EHC as follows:
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4.1 WFC SCHEDULE. Prior to the date hereof, WFC has delivered to
EHC a schedule (the "WFC Schedule") containing certain information regarding
WFC as indicated at various places in this Agreement. All information set
forth in the WFC Schedule or in documents incorporated by reference in the WFC
Schedule is true, correct and complete, does not omit to state any fact
necessary in order to make the statements therein not misleading, and shall be
deemed for all purposes of this Agreement to constitute part of the
representations and warranties of WFC. The information contained in the WFC
Schedule shall be deemed to be part of and qualify all representations and
warranties contained in this Section. WFC shall promptly provide EHC with
written notification of any event, occurrence or other information necessary to
maintain the WFC Schedule and all other documents and writings furnished to EHC
pursuant to this Agreement as true, correct and complete in all material
respects at all times prior to and including the Effective Date.
4.2 CORPORATE ORGANIZATION. WFC is a corporation, duly organized,
validly existing and in good standing under the laws of the State of Georgia,
and has all requisite corporate power and authority and possesses all licenses,
permits and authorizations necessary for it to own its properties and conduct
its business as presently conducted.
4.3 AUTHORIZED CAPITAL STOCK; SUBSIDIARIES.
4.3.1 The authorized capital stock of WFC consists of
10,000,000 shares of common stock (previously defined as WFC Stock),
of which 586,300 shares are issued and outstanding. All of the
outstanding shares of WFC Stock are validly issued, fully paid and
nonassessable, and none of such shares was issued in violation of the
preemptive rights of any person. There are no other classes of
authorized capital stock of WFC. Except as set forth on the WFC
Schedule, there are no outstanding options, agreements, contracts,
calls or commitments of any character that would require the issuance
by WFC of any shares of its common stock or securities convertible
into such stock.
4.3.2 Except as set forth in the WFC Schedule, WFC has no
subsidiaries and does not own, for its own account, any stocks,
options, calls, warrants or rights to acquire stock or other equity
securities in any partnership or corporation.
4.4 QUALIFICATION AS A FOREIGN CORPORATION NOT REQUIRED. WFC does
not own any property or conduct any business outside of the State of Georgia
which would require it to be qualified as a foreign corporation in any
jurisdiction.
4.5 AUTHORIZATION. This Agreement and its execution by the
President and Secretary of WFC or other persons designated by the Board of
Directors of WFC have been duly authorized, approved and ratified by the Board
of Directors of WFC at meetings duly called and held at which quorums were
present and acting throughout, and this Agreement is valid and binding on WFC.
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4.6 NON-CONTRAVENTION. The execution and delivery of this
Agreement by WFC and the carrying out of the transactions contemplated hereby
will not (a) violate any provisions of its Articles of Incorporation or Bylaws,
(b) result in any breach or violation of the terms or conditions of or cause or
create a right to any acceleration under any agreement to which it is a party
or any judgment, decree or order of any court or administrative agency having
jurisdiction over it, or (c) violate or result in a violation of any federal or
state law, statute, ordinance, rule or regulation applicable to it, subject to
securing the approvals required by Section 10 hereof.
4.7 FINANCIAL STATEMENTS. The audited statements of financial
condition of WFC at December 31, 1994, 1993 and 1992, and the related
statements of income, shareholders' equity, and cash flows for the years then
ended, and the notes thereto, and the unaudited statement of condition at
September 30, 1995, and the related unaudited statement of income for the
nine-month period then ended and the notes thereto (the audited financial
statements at December 31, 1994 and for the year then ended and the notes
thereto being referred to as the "Annual WFC Financials," and the unaudited
financial statements at September 30, 1995 and for the nine months then ended
and the notes thereto being referred to as the "Interim WFC Financials") fairly
present assets, liabilities, financial condition and results of operations of
WFC as of the dates mentioned and for the periods then ended in conformity with
generally accepted accounting principles ("GAAP") applied on a consistent basis
(subject to any exceptions as to consistency as specified in such reports and,
in the case of interim financial statements, to normal recurring year-end
adjustments).
4.8 NOTES AND OBLIGATIONS.
4.8.1 Except as set forth in the WFC Schedule or as provided
for in the loss reserve described in subsection 4.8.2 below, all notes
receivable or other obligations owned by WFC or Westside or due to it
or Westside shown in the Annual and Interim WFC Financials and any
such notes receivable and obligations on the date hereof and on the
Effective Date are and will be genuine, legal and valid obligations of
the respective makers thereof and are not and insofar as WFC is aware
will not be subject to any defense, offset or counterclaim. Except as
set forth in subsection 4.8.2 below, all such notes and obligations
are evidenced by written agreements, true and correct copies of which
will be made available to the other Party for examination prior to the
Effective Date. All such notes and obligations were entered into by
WFC or Westside in the ordinary course of their businesses and in
compliance with all applicable laws and regulations, except as to any
noncompliance which has not and will not have a material adverse
effect on the business, properties or earnings of WFC or Westside.
4.8.2 WFC and Westside have established a loss reserve on the
Annual and Interim WFC Financials which is adequate to cover
anticipated losses which might result from such items as the
insolvency or default of borrowers or obligors on such loans or
obligations, defects in the notes or evidences of obligation
(including losses of original notes or instruments), offsets or
counterclaims properly chargeable to such reserve, or
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the availability of legal or equitable defenses which might preclude
or limit the ability of WFC or Westside to enforce the note or
obligation, and the representations set forth in subsection 4.8.1
above are qualified in their entirety by the aggregate of such loss
reserve.
4.9 LIABILITIES. WFC and Westside have no debt, liability or
obligation of any kind whether or not required to be shown pursuant to GAAP on
the balance sheet of WFC, and whether accrued, absolute, known or unknown,
contingent or otherwise, including, but not limited to: (a) any liability or
obligation on account of any federal, state or local taxes or penalties,
interest or fines with respect to such taxes; (b) any liability arising from or
by virtue of the distribution, delivery or other transfer or disposition of
goods, personal property or services of any type, kind or variety; or (c)
unfunded liabilities with respect to any pension, profit sharing or employee
stock ownership plan, whether operated by WFC or any other entity covering
employees of WFC or Westside, except (i) those reflected on the Annual and
Interim WFC Financials, (ii) liabilities incurred in the ordinary course of
business since December 31, 1994, and (iii) as set forth in the WFC Schedule.
4.10 INVESTMENTS. Except for pledges to secure public and trust
deposits, none of the investments reflected in the Annual WFC Financials and
none of the investments made since the date of the Annual WFC Financials is
subject to any restriction, contractual, statutory or otherwise, which
materially would impair the ability of the holder of such investment freely to
dispose of such investment at any time. The WFC books and records accurately
reflect the nature, terms and characteristics of such investments. No such
investments are derivative investments.
4.11 TAXES. WFC and Westside have filed all federal, state, county
and other tax returns and reports required by applicable law and have paid in
full or has made adequate provision for the payment of all taxes shown on said
returns or claimed to be due by federal, state, county or other taxing
authorities. All such payments of taxes were timely made. WFC does not know
of any circumstances or facts which exist or have heretofore existed which
would constitute grounds for the assessment of any further material tax
liability for any period covered by any of such filed returns. There are no
federal, state or local tax liens upon any property or assets of WFC and
Westside, except for liens for state and local property taxes which are not yet
due. Except as disclosed on the WFC Schedule, the federal income tax returns
of WFC have not been examined by the Internal Revenue Service for any period.
4.12 LITIGATION. Except as set forth in the WFC Schedule, there
are no causes of action pending or (to the knowledge of management) threatened
against WFC or Westside or regulatory orders, memoranda of understanding or
similar documents involving WFC or Westside. Except as set forth in the WFC
Schedule, there are no causes of action pending against WFC or Westside with
respect to the transactions contemplated by this Agreement, and there are no
actions, suits, claims, demands or proceedings pending or threatened against
WFC or Westside which if adversely decided could have a material adverse effect
on the business, prospects, financial condition or results of operations of WFC
or Westside.
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4.13 REGULATORY FILINGS. Since January 1, 1991, WFC and Westside
have filed all reports they were required to file with the FDIC, the Georgia
Department, and the Federal Reserve. As of their respective dates, all such
reports complied in all material respects with all rules, regulations and
instructions promulgated by such agencies and did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of
the circumstances under which they were made, not misleading.
4.14 GENERAL LEGAL COMPLIANCE. Except as set forth in the WFC
Schedule, with respect to the conduct of its business, WFC and Westside are in
compliance in all material respects with all applicable federal, state or local
laws, regulations, ordinances, decrees or orders of any governmental entity,
the noncompliance with which could have a material adverse effect on their
business, prospects, financial condition or results of operations. WFC is not
aware of the existence of any facts which would support the assessment of civil
money penalties against WFC or Westside, their directors, officers or
employees.
4.15 PROPERTIES; ENVIRONMENTAL.
4.15.1 WFC and Westside own good title to or hold a valid
leasehold estate in all of their properties and assets reflected in
the Annual WFC Financials and to all properties acquired after such
date, free and clear of all liens, encumbrances, security interests
and mortgages, except for the liens of state and local property taxes
which are not due and payable, easements or other claims, none of
which materially interfere with the operation of the business of WFC
or the marketability of their properties.
4.15.2 To the best knowledge of WFC, WFC and Westside are in
compliance with all laws, rules and regulations relating to
environmental protection. WFC and Westside have not been notified nor
are otherwise aware that they are potentially liable, or are
considered potentially liable, under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), or any similar state law. There are no actions, suits,
regulatory investigations or other proceedings pending or, to the
knowledge of WFC, threatened against WFC or Westside relating to
environmental protection, nor does WFC have any reason to believe any
such proceedings may be brought against it or Westside. To the best
knowledge of WFC, no disposal, release, storage or discharge of
hazardous or toxic substances, pollutants or contaminants, including
petroleum and gas products, as any of such terms may be defined under
federal, state or local law, has occurred on, in, at or about any of
the facilities or properties of WFC or Westside, or on any properties
held as collateral for any loans held by Westside.
4.16 INSURANCE.
4.16.1 WFC and Westside are not in default with respect to
any provisions of any fire, fidelity bond, directors' and officers'
liability, other liability, title or other
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forms of insurance held by them where the loss of such insurance and
the occurrence of any event intended to be thereby insured against
could have a material adverse effect on the business, prospects,
financial condition or results of operations of WFC and Westside; nor
has WFC or Westside failed to give any notice or present any claim
thereunder in a due and timely fashion.
4.16.2 The WFC Schedule describes each of WFC's and
Westside's insurance policies, including carrier, amount of coverage
and annual premium.
4.17 BROKER. WFC is not in any way obligated for the payment of
fees or expenses to any investment banker, broker or finder in connection with
the origination, negotiation, execution or fairness of this Agreement or the
transactions contemplated hereby.
4.18 TRADEMARKS. WFC and Westside own or have license agreements
to use all trademarks, service marks, copyrights, trade names or patents used
by them in the conduct of their business. WFC and Westside are not infringing
upon, or otherwise violating the rights of any third party with respect to, any
trademark, service mark, copyright, trade name or patent, to the best of its
knowledge. No proceedings have been instituted, or (to the knowledge of WFC)
threatened, nor has any claim been made, against WFC or Westside alleging any
such infringement or violation.
4.19 SOLE AGREEMENT TO MERGE AND SELL. WFC is not a party to any
other acquisition agreement, merger agreement, plan of reorganization, letter
of intent, agreement of sale, or other agreement which would result in the sale
or other disposition, directly or indirectly, of all or substantially all of
its stock or assets.
4.20 INSIDER CONTRACTS. Except as set forth in the WFC Schedule,
(a) WFC and Westside are not a party to or otherwise obligated under any
management agreement, employment contract, consulting agreement, personal
service agreement or other contract or agreement for the provision of similar
services, (b) WFC and Westside are not parties to any agreement or
understanding with any officer or director of WFC or Westside, their affiliates
or the immediate family members of any such officers and directors
(collectively, the "Insiders") which calls for the payment of money by WFC or
Westside and (c) the consummation of the transactions contemplated hereby will
not (either alone or upon the occurrence of any act or event, or with the lapse
of time or both) result in any payment (severance or other) becoming due from
WFC or Westside or the successor thereof to any Insider.
4.21 EMPLOYEE BENEFIT PLANS. As of the date hereof as well as the
Effective Date:
4.21.1 The WFC Schedule contains a true and complete list of
all the following types of agreements or plans established, maintained
or contributed to by WFC and Westside and each other employer, which
together with WFC are treated as a single employer within the meaning
of Section 414 of the Code (hereinafter collectively referred
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to as the "WFC Group"), that are presently in effect or which have
been in effect at any time:
(i) "employee welfare benefit plans" and
"employee pension benefit plans," as defined in Sections 3(1)
and 3(2) of ERISA; and
(ii) any other pension, profit sharing,
retirement, deferred compensation, stock purchase, stock
option, incentive, bonus, vacation, severance, disability,
health, hospitalization, medical, life insurance, vision,
dental, prescription drug, supplemental unemployment, layoff,
automobile, apprenticeship and training, day care,
scholarship, group legal benefits, fringe benefit, or other
employee benefit plan, program, policy, or arrangement,
whether written or unwritten, formal or informal, which any
member of the WFC Group maintains or to which any member of
the WFC Group has any outstanding, present, or future
obligation to contribute to or make payments under, whether
voluntary, contingent, or otherwise (the plans, programs,
policies, or arrangements described in Clauses (i) or (ii) as
established, adopted or maintained by any member of the WFC
Group are herein collectively referred to as the "WFC Plans").
For each WFC Plan, WFC will deliver to the other Party true and
complete copies of all documents as they may have been amended to the
date hereof which establish the WFC Plan, the most recent summary plan
description, the annual reports filed for the three most recent plan
years, the most recent actuarial report prepared, if any, and any
current insurance contract relating to such WFC Plan.
4.21.2 Each of the WFC Plans maintained, or previously
maintained, by any member of the WFC Group has at all times been
operated in material compliance with ERISA and the Code. Each WFC
Plan (i) which is intended to satisfy the requirements of Code Section
401(a), and the trust for which is intended to be exempt from taxation
under Code Section 501(a), or (ii) which is intended to be exempt from
taxation under Code Section 501(c)(9) (collectively, the "WFC
Qualified Plans") has received a favorable determination letter to
that effect from the Internal Revenue Service, and such favorable
determination letter remains in effect and, except as set forth in the
WFC Schedule, no such WFC Qualified Plan has been amended since the
issuance of the most recent favorable determination letter. The WFC
Qualified Plans currently comply in form with the requirements under
the Code, other than changes required by statutes, regulations and
rulings for which amendments are not yet required.
4.21.3 No member of the WFC Group has any past, present or
future obligation or liability to contribute to any "multiemployer
plan," as defined in ERISA Section 3(37), or any single-employer plan
having two or more contributing sponsors at least two of whom are not
under common control, as described in ERISA Section 4063.
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4.21.4 Except as set forth in the WFC Schedule, no member of
the WFC Group currently maintains an "employee pension benefit plan"
as defined in ERISA Section 3(2). No assets of the WFC Group are, and
WFC does not reasonably expect them to become, subject to a lien
imposed under ERISA Section 4068 or Code Section 412 and no assets of
the WFC Group have been provided as security to any WFC Plan pursuant
to Code Section 401(a)(29).
4.21.5 No termination or partial termination of any WFC
Qualified Plan has occurred nor has a notice of intent to terminate
any WFC Qualified Plan been issued by a member of the WFC Group.
4.21.6 No member of the WFC Group nor any other "disqualified
person" or "party in interest," as defined in Code Section 4975 and
ERISA Section 3(14), respectively, has engaged in any "prohibited
transaction," as defined in Code Section 4975 or ERISA Section 406.
All "fiduciaries," as defined in ERISA Section 3(21), each member of
the WFC Group and their respective officers and employees, with
respect to the WFC Plans, have complied in all material respects with
the requirements of ERISA Section 404.
4.21.7 To the best knowledge of WFC, each member of the WFC
Group has complied in all material respects with the continuation
coverage requirements of Title X of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended.
4.21.8 Other than routine claims for benefits, there are no
actions, audits, investigations, suits, or claims pending, or
threatened against any of the WFC Plans or any fiduciary of any of the
WFC Plans or against the assets of any of the WFC Plans.
4.21.9 Except as provided in the WFC Schedule, each member of
the WFC Group has made full and timely payment of, or has accrued
pending full and timely payment, all amounts which are required under
the terms of each WFC Plan to be paid by the WFC Group.
4.21.10 No member of the WFC Group has an obligation to any
retired or former employee, or any current employee upon retirement,
under any WFC Plan, and any WFC Plan can be terminated without
resulting in any liability to WFC for any additional penalties,
premiums, fees, or any other charges.
4.21.11 Except as provided in the WFC Schedule, no member of
the WFC Group has any outstanding, present or future obligation to
make payments to an insurer for premiums, reserves or other liability
relating to an WFC Plan under any arrangement with an insurer.
4.21.12 No member of the WFC Group is obligated, contingently
or otherwise, under any agreement to pay any amount which will be
treated as an "excess parachute
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payment" as defined in Code Section 280G(b), determined without regard
to Code Section 280G(b)(2)(A)(i).
4.21.13 No member of the WFC Group is liable for any unpaid
wages, bonuses or commissions, or taxes, penalties, assessments or
forfeitures arising from any employment matter other than (i)
liabilities accrued on the Annual and Interim WFC Financials and (ii)
wages owed for services rendered since the payroll date immediately
preceding the Effective Date.
4.21.14 Until the Effective Date, no member of the WFC Group
shall amend any WFC Plan, except to the extent necessary to maintain
compliance with the Code or ERISA or, except to the extent provided to
the contrary herein, increase any benefits or rights under any WFC
Plan, or adopt any new plan, program, policy, or arrangement which, if
it existed as of the Effective Date, would constitute a WFC Plan.
4.21.15 The consummation of the transactions contemplated
hereby will not accelerate or increase any liability under any WFC
Plan because of an acceleration or increase of any of the rights or
benefits to which employees may be entitled thereunder.
4.22 ARTICLES AND BYLAWS. WFC has previously delivered to the
other Party true and correct copies of the Articles of Incorporation and Bylaws
of WFC and Westside.
4.23 BOOKS AND RECORDS. The books of account and other financial
records of WFC and Westside are, in all material respects, complete and
correct, maintained in accordance with good business practice, and are fairly
reflected in the Annual and Interim WFC Financials. The minute books of WFC
and Westside accurately reflect all material corporate action of the
shareholders and the Board of Directors (including any Executive Committee
thereof) of WFC and Westside.
4.24 ABSENCE OF CHANGES. Except as specifically provided for in
this Agreement or specifically set forth in the WFC Schedule, since September
30, 1995:
4.24.1 There has been no change in the business, assets,
liabilities, results of operations or financial condition of WFC or
Westside, or in any of its relationships with customers, employees,
lessors or others, other than changes in the ordinary course of
business, none of which individually or in the aggregate has had or
which management of WFC believes may have a material adverse effect on
such business or properties;
4.24.2 There has been no damage, destruction or loss to the
assets, properties or business of WFC or Westside, whether or not
covered by insurance, which has had or which management of WFC
believes may have a material adverse effect thereon;
4.24.3 The business of WFC or Westside has been operated in
the ordinary course and not otherwise;
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4.24.4 The properties and assets of WFC and Westside used in
their businesses have been maintained in good order, repair and
condition, ordinary wear and tear excepted;
4.24.5 The books, accounts and records of WFC and Westside
have been maintained in the usual, regular and ordinary manner;
4.24.6 There has been no declaration, setting aside or
payment of any dividend or other distribution on or in respect of the
capital stock of WFC;
4.24.7 Except as set forth in the WFC Schedule, there has
been no increase in the compensation or in the rate of compensation or
commissions payable or to become payable by WFC or Westside to any
director or executive officer, or any employee earning $25,000 or more
per annum, or any increase in any payment of or commitment to pay any
bonus, profit sharing or other extraordinary compensation to any
employee;
4.24.8 There has been no change in the Articles of
Incorporation or Bylaws of WFC and Westside;
4.24.9 There has been no labor dispute, unfair labor practice
charge or employment discrimination charge, nor, to the knowledge of
management of WFC, any organizational effort by any union, or
institution or (to the knowledge of management of WFC) threatened
institution, of any organizational effort, complaint or other
proceeding in connection therewith, involving WFC or Westside or
affecting their operations;
4.24.10 Except as set forth in the WFC Schedule, there has
been no issuance, sale, repurchase, acquisition, or redemption by WFC
of any of its authorized capital stock, bonds, notes, debt or other
securities or any modification or amendment of the rights of the
holders of any outstanding capital stock, bonds, notes, debt or other
securities thereof;
4.24.11 There has been no mortgage, lien or other encumbrance
or security interest (other than liens for current taxes not yet due
or purchase money security interests arising in the ordinary course of
business) created on or in (including without limitation any deposit
for security consisting of) any asset or assets of WFC or Westside or
assumed by them with respect to any asset or assets;
4.24.12 There has been no indebtedness or other liability or
obligation (whether absolute, accrued, contingent or otherwise)
incurred by WFC or Westside whether or not it would be required to be
reflected on a balance sheet of WFC prepared as of the date hereof in
accordance with GAAP applied on a consistent basis, except as incurred
in the ordinary course of business;
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4.24.13 No obligation or liability of WFC or Westside has
been discharged or satisfied, other than in the ordinary course of
business;
4.24.14 Except as set forth in the WFC Schedule, there has
been no sale, transfer or other disposition of any asset or assets of
WFC or Westside, other than sales in the ordinary course of business;
and
4.24.15 There has been no amendment, termination or waiver of
any right of WFC or Westside under any contract or agreement or
governmental license, permit or permission which has had or may have a
material adverse effect on its business or properties.
5. REPRESENTATIONS AND WARRANTIES OF EHC
As an inducement to WFC to enter into this Agreement, EHC hereby
represents and warrants to WFC as follows:
5.1 EHC SCHEDULE. Prior to the date hereof, EHC has delivered to
the other Party a schedule (the "EHC Schedule") containing certain information
regarding EHC as indicated at various places in this Agreement. All
information set forth in the EHC Schedule or in documents incorporated by
reference in the EHC Schedule is true, correct and complete, does not omit to
state any fact necessary in order to make the statements therein not
misleading, and shall be deemed for all purposes of this Agreement to
constitute part of the representations and warranties of EHC. The information
contained in the EHC Schedule shall be deemed to be part of and qualify all
representations and warranties contained in this Section. EHC shall promptly
provide WFC with written notification of any event, occurrence or other
information necessary to maintain the EHC Schedule and all other documents and
writings furnished to the other Party pursuant to this Agreement as true,
correct and complete in all material respects at all times prior to and
including the Effective Date.
5.2 CORPORATE ORGANIZATION. EHC is a corporation, duly organized,
validly existing and in good standing under the laws of the State of Georgia,
and has all requisite corporate power and authority and possesses all licenses,
permits and authorizations necessary for it to own its properties and conduct
its business as presently conducted.
5.3 AUTHORIZED CAPITAL STOCK; SUBSIDIARIES.
5.3.1 The authorized capital stock of EHC consists of
10,000,000 shares of common stock (previously defined as EHC Stock),
of which 600,000 shares are issued and outstanding. All of the
outstanding shares of EHC Stock are validly issued, fully paid and
nonassessable, and none of such shares was issued in violation of the
preemptive rights of any person. There are no other classes of
authorized capital stock of EHC. Except as set forth on the EHC
Schedule, there are no outstanding options, agreements, contracts,
calls or commitments of any character that would require the
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issuance by EHC of any shares of its common stock or securities
convertible into such stock.
5.3.2 Except as set forth in the EHC Schedule, EHC has no
subsidiaries and does not own, for its own account, any stocks,
options, calls, warrants or rights to acquire stock or other equity
securities in any partnership or corporation.
5.4 QUALIFICATION AS A FOREIGN CORPORATION NOT REQUIRED. EHC does
not own any property or conduct any business outside of the State of Georgia
which would require it to be qualified as a foreign corporation in any
jurisdiction.
5.5 AUTHORIZATION. This Agreement and its execution by the
President and Secretary of EHC or other persons designated by the Board of
Directors of EHC have been duly authorized, approved and ratified by the Board
of Directors of EHC at meetings duly called and held at which quorums were
present and acting throughout, and, subject to approval by its shareholders as
required by law, this Agreement is valid and binding on EHC.
5.6 NON-CONTRAVENTION. The execution and delivery of this
Agreement by EHC and the carrying out of the transactions contemplated hereby
will not (a) violate any provisions of its Articles of Incorporation or Bylaws,
(b) result in any breach or violation of the terms or conditions of or cause or
create a right to any acceleration under any agreement to which it is a party
or any judgment, decree or order of any court or administrative agency having
jurisdiction over it, or (c) violate or result in a violation of any federal or
state law, statute, ordinance, rule or regulation applicable to it, subject to
securing the approvals required by Section 10 hereof.
5.7 FINANCIAL STATEMENTS. The audited statements of financial
condition of EHC at December 31, 1994, 1993 and 1992, and the related
statements of income, shareholders' equity, and cash flows for the years then
ended, and the notes thereto, and the unaudited statement of condition at
September 30, 1995, and the related unaudited statement of income for the
nine-month period then ended and the notes thereto (the audited financial
statements at December 31, 1994 and for the year then ended and the notes
thereto being referred to as the "Annual EHC Financials," and the unaudited
financial statements at September 30, 1995 and for the nine months then ended
and the notes thereto being referred to as the "Interim EHC Financials") fairly
present assets, liabilities, financial condition and results of operations of
EHC as of the dates mentioned and for the periods then ended in conformity with
GAAP applied on a consistent basis (subject to any exceptions as to consistency
as specified in such reports and, in the case of interim financial statements,
to normal recurring year-end adjustments).
5.8 NOTES AND OBLIGATIONS.
5.8.1 Except as set forth in the EHC Schedule or as provided
for in the loss reserve described in subsection 5.8.2 below, all notes
receivable or other obligations owned by EHC or Eastside or due to
them shown in the Annual and Interim EHC
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Financials and any such notes receivable and obligations on the date
hereof and on the Effective Date are and will be genuine, legal and
valid obligations of the respective makers thereof and are not and
insofar as EHC is aware will not be subject to any defense, offset or
counterclaim. Except as set forth in subsection 5.8.2 below, all such
notes and obligations are evidenced by written agreements, true and
correct copies of which will be made available to the other Parties
for examination prior to the Effective Date. All such notes and
obligations were entered into by EHC or Eastside in the ordinary
course of their businesses and in compliance with all applicable laws
and regulations, except as to any noncompliance which has not and will
not have a material adverse effect on the business, properties or
earnings of EHC or Eastside.
5.8.2 EHC and Eastside have established a loss reserve on the
Annual and Interim EHC Financials which is adequate to cover
anticipated losses which might result from such items as the
insolvency or default of borrowers or obligors on such loans or
obligations, defects in the notes or evidences of obligation
(including losses of original notes or instruments), offsets or
counterclaims properly chargeable to such reserve, or the availability
of legal or equitable defenses which might preclude or limit the
ability of EHC or Eastside to enforce the note or obligation, and the
representations set forth in subsection 5.8.1 above are qualified in
their entirety by the aggregate of such loss reserve.
5.9 LIABILITIES. EHC and Eastside have no debt, liability or
obligation of any kind whether or not required to be shown pursuant to GAAP on
the balance sheet of EHC, and whether accrued, absolute, known or unknown,
contingent or otherwise, including, but not limited to: (a) any liability or
obligation on account of any federal, state or local taxes or penalties,
interest or fines with respect to such taxes; (b) any liability arising from or
by virtue of the distribution, delivery or other transfer or disposition of
goods, personal property or services of any type, kind or variety; or (c)
unfunded liabilities with respect to any pension, profit sharing or employee
stock ownership plan, whether operated by EHC or Eastside or any other entity
covering employees of EHC or Eastside, except (i) those reflected on the Annual
and Interim EHC Financials, (ii) liabilities incurred in the ordinary course of
business since December 31, 1994, and (iii) as set forth in the EHC Schedule.
5.10 INVESTMENTS. Except for pledges to secure public and trust
deposits, none of the investments reflected in the Annual EHC Financials and
none of the investments made since the date of the Annual EHC Financials is
subject to any restriction, contractual, statutory or otherwise, which
materially would impair the ability of the holder of such investment freely to
dispose of such investment at any time. The EHC books and records accurately
reflect the nature, terms and characteristics of such investments. No such
investments are derivative investments.
5.11 TAXES. EHC and Eastside have filed all federal, state, county
and other tax returns and reports required by applicable law and have paid in
full or has made adequate provision for the payment of all taxes shown on said
returns or claimed to be due by federal,
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state, county or other taxing authorities. All such payments of taxes were
timely made. EHC does not know of any circumstances or facts which exist or
have heretofore existed which would constitute grounds for the assessment of
any further material tax liability for any period covered by any of such filed
returns. There are no federal, state or local tax liens upon any property or
assets of EHC or Eastside, except for liens for state and local property taxes
which are not yet due. Except as disclosed on the EHC Schedule, the federal
income tax returns of EHC have not been examined by the Internal Revenue
Service for any period.
5.12 LITIGATION. Except as set forth in the EHC Schedule, there
are no causes of action pending or (to the knowledge of management) threatened
against EHC or Eastside or regulatory orders, memoranda of understanding or
similar documents involving EHC or Eastside. Except as set forth in the EHC
Schedule, there are no causes of action pending against EHC or Eastside with
respect to the transactions contemplated by this Agreement, and there are no
actions, suits, claims, demands or proceedings pending or threatened against
EHC or Eastside which if adversely decided could have a material adverse effect
on the business, prospects, financial condition or results of operations of EHC
or Eastside.
5.13 REGULATORY FILINGS. Since January 1, 1991, EHC and Eastside
have filed all reports they were required to file with the Federal Reserve, the
FDIC and Georgia Department. As of their respective dates, all such reports
complied in all material respects with all rules, regulations and instructions
promulgated by such agencies and did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading.
5.14 GENERAL LEGAL COMPLIANCE. Except as set forth in the EHC
Schedule, with respect to the conduct of its business, EHC and Eastside are in
compliance in all material respects with all applicable federal, state or local
laws, regulations, ordinances, decrees or orders of any governmental entity,
the noncompliance with which could have a material adverse effect on their
business, prospects, financial condition or results of operations. EHC is not
aware of the existence of any facts which would support the assessment of civil
money penalties against EHC or Eastside, their directors, officers or
employees.
5.15 PROPERTIES; ENVIRONMENTAL.
5.15.1 EHC and Eastside own good title to or hold a valid
leasehold estate in all of their properties and assets reflected in
the Annual EHC Financials and to all properties acquired after such
date, free and clear of all liens, encumbrances, security interests
and mortgages, except for the liens of state and local property taxes
which are not due and payable, easements or other claims, none of
which materially interfere with the operation of the business of EHC
or Eastside or the marketability of their properties.
5.15.2 To the best knowledge of EHC, EHC and Eastside are in
compliance with all laws, rules and regulations relating to
environmental protection. EHC and Eastside
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have not been notified nor are otherwise aware that they are
potentially liable, or are considered potentially liable, under
CERCLA, or any similar state law. There are no actions, suits,
regulatory investigations or other proceedings pending or, to the
knowledge of EHC, threatened against EHC or Eastside relating to
environmental protection, nor does EHC have any reason to believe any
such proceedings may be brought against it or Eastside. To the best
knowledge of EHC, no disposal, release, storage or discharge of
hazardous or toxic substances, pollutants or contaminants, including
petroleum and gas products, as any of such terms may be defined under
federal, state or local law, has occurred on, in, at or about any of
the facilities or properties of EHC or Eastside, or on any properties
held as collateral for any loans held by Eastside.
5.16 INSURANCE.
5.16.1 EHC and Eastside are not in default with respect to
any provisions of any fire, fidelity bond, directors' and officers'
liability, other liability, title or other forms of insurance held by
them where the loss of such insurance and the occurrence of any event
intended to be thereby insured against could have a material adverse
effect on the business, prospects, financial condition or results of
operations of EHC or Eastside; nor has EHC or Eastside failed to give
any notice or present any claim thereunder in a due and timely
fashion.
5.16.2 The EHC Schedule describes each of EHC's and
Eastside's insurance policies, including carrier, amount of coverage
and annual premium.
5.17 BROKER. EHC is not in any way obligated for the payment of
fees or expenses to any investment banker, broker or finder in connection with
the origination, negotiation, execution or fairness of this Agreement or the
transactions contemplated hereby.
5.18 TRADEMARKS. EHC or Eastside own or have license agreements to
use all trademarks, service marks, copyrights, trade names or patents used by
them in the conduct of their businesses. EHC and Eastside are not infringing
upon, or otherwise violating the rights of any third party with respect to, any
trademark, service mark, copyright, trade name or patent, to the best of EHC's
knowledge. No proceedings have been instituted, or (to the knowledge of EHC)
threatened, nor has any claim been made, against EHC or Eastside alleging any
such infringement or violation.
5.19 SOLE AGREEMENT TO MERGE OR SELL. EHC is not a party to any
other acquisition agreement, merger agreement, plan of reorganization, letter
of intent, agreement of sale, or other agreement which would result in the sale
or other disposition, directly or indirectly, of all or substantially all of
its stock or assets.
5.20 INSIDER CONTRACTS. Except as set forth in the EHC Schedule,
(a) EHC and Eastside are not parties to or otherwise obligated under any
management agreement, employment
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contract, consulting agreement, personal service agreement or other contract or
agreement for the provision of similar services, (b) EHC or Eastside are not
parties to any agreement or understanding with any officer or director of EHC,
its affiliates or the immediate family members of any such officers and
directors (collectively, the "EHC Insiders") which calls for the payment of
money by EHC or Eastside and (c) the consummation of the transactions
contemplated hereby will not (either alone or upon the occurrence of any act or
event, or with the lapse of time or both) result in any payment (severance or
other) becoming due from EHC or Eastside or the successor thereof to any EHC
Insider.
5.21 EMPLOYEE BENEFIT PLANS. As of the date hereof as well as the
Effective Date:
5.21.1 The EHC Schedule contains a true and complete list of
all the following types of agreements or plans established, maintained
or contributed to by EHC and Eastside and each other employer, which
together with EHC are treated as a single employer within the meaning
of Section 414 of the Code (hereinafter collectively referred to as
the "EHC Group"), that are presently in effect or which have been in
effect at any time:
(i) "employee welfare benefit plans" and
"employee pension benefit plans," as defined in Sections 3(1)
and 3(2) of ERISA; and
(ii) any other pension, profit sharing,
retirement, deferred compensation, stock purchase, stock
option, incentive, bonus, vacation, severance, disability,
health, hospitalization, medical, life insurance, vision,
dental, prescription drug, supplemental unemployment, layoff,
automobile, apprenticeship and training, day care,
scholarship, group legal benefits, fringe benefit, or other
employee benefit plan, program, policy, or arrangement,
whether written or unwritten, formal or informal, which any
member of the EHC Group maintains or to which any member of
the EHC Group has any outstanding, present, or future
obligation to contribute to or make payments under, whether
voluntary, contingent, or otherwise (the plans, programs,
policies, or arrangements described in Clauses (i) or (ii) as
established, adopted or maintained by any member of the EHC
Group are herein collectively referred to as the "EHC Plans").
For each EHC Plan, EHC will deliver to the other Party true
and complete copies of all documents as they may have been
amended to the date hereof which establish the EHC Plan, the
most recent summary plan description, the annual reports filed
for the three most recent plan years, the most recent
actuarial report prepared, if any, and any current insurance
contract relating to such EHC Plan.
5.21.2 Each of the EHC Plans maintained, or previously
maintained, by any member of the EHC Group has at all times been
operated in material compliance with ERISA and the Code. Each EHC
Plan (i) which is intended to satisfy the requirements
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of Code Section 401(a), and the trust for which is intended to be
exempt from taxation under Code Section 501(a), or (ii) which is
intended to be exempt from taxation under Code Section 501(c)(9)
(collectively, the "EHC Qualified Plans") has received a favorable
determination letter to that effect from the Internal Revenue Service,
and such favorable determination letter remains in effect and, except
as set forth in the EHC Schedule, no such EHC Qualified Plan has been
amended since the issuance of the most recent favorable determination
letter. The EHC Qualified Plans currently comply in form with the
requirements under the Code, other than changes required by statutes,
regulations and rulings for which amendments are not yet required.
5.21.3 No member of the EHC Group has any past, present or
future obligation or liability to contribute to any "multiemployer
plan," as defined in ERISA Section 3(37), or any single-employer plan
having two or more contributing sponsors at least two of whom are not
under common control, as described in ERISA Section 4063.
5.21.4 Except as set forth in the EHC Schedule, no member of
the EHC Group currently maintains an "employee pension benefit plan"
as defined in ERISA Section 3(2). No assets of the EHC Group are, and
EHC does not reasonably expect them to become, subject to a lien
imposed under ERISA Section 4068 or Code Section 412 and no assets of
the EHC Group have been provided as security to any EHC Plan pursuant
to Code Section 401(a)(29).
5.21.5 No termination or partial termination of any EHC
Qualified Plan has occurred nor has a notice of intent to terminate
any EHC Qualified Plan been issued by a member of the EHC Group.
5.21.6 No member of the EHC Group nor any other "disqualified
person" or "party in interest," as defined in Code Section 4975 and
ERISA Section 3(14), respectively, has engaged in any "prohibited
transaction," as defined in Code Section 4975 or ERISA Section 406.
All "fiduciaries," as defined in ERISA Section 3(21), each member of
the EHC Group and their respective officers and employees, with
respect to the EHC Plans, have complied in all material respects with
the requirements of ERISA Section 404.
5.21.7 To the best knowledge of EHC, each member of the EHC
Group has complied in all material respects with the continuation
coverage requirements of Title X of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended.
5.21.8 Other than routine claims for benefits, there are no
actions, audits, investigations, suits, or claims pending, or
threatened against any of the EHC Plans or any fiduciary of any of the
EHC Plans or against the assets of any of the EHC Plans.
5.21.9 Except as provided in the EHC Schedule, each member of
the EHC Group has made full and timely payment of, or has accrued
pending full and timely
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payment, all amounts which are required under the terms of each EHC
Plan to be paid by the EHC Group.
5.21.10 No member of the EHC Group has an obligation to any
retired or former employee, or any current employee upon retirement,
under any EHC Plan, and any EHC Plan can be terminated without
resulting in any liability to EHC for any additional penalties,
premiums, fees, or any other charges.
5.21.11 Except as provided in the EHC Schedule, no member of
the EHC Group has any outstanding, present or future obligation to
make payments to an insurer for premiums, reserves or other liability
relating to an EHC Plan under any arrangement with an insurer.
5.21.12 No member of the EHC Group is obligated, contingently
or otherwise, under any agreement to pay any amount which will be
treated as an "excess parachute payment" as defined in Code Section
280G(b), determined without regard to Code Section 280G(b)(2)(A)(i).
5.21.13 No member of the EHC Group is liable for any unpaid
wages, bonuses or commissions, or taxes, penalties, assessments or
forfeitures arising from any employment matter other than (i)
liabilities accrued on the Annual and Interim EHC Financials and (ii)
wages owed for services rendered since the payroll date immediately
preceding the Effective Date.
5.21.14 Until the Effective Date, no member of the EHC Group
shall amend any EHC Plan, except to the extent necessary to maintain
compliance with the Code or ERISA or, except to the extent provided to
the contrary herein, increase any benefits or rights under any EHC
Plan, or adopt any new plan, program, policy, or arrangement which, if
it existed as of the Effective Date, would constitute a EHC Plan.
5.21.15 The consummation of the transactions contemplated
hereby will not accelerate or increase any liability under any EHC
Plan because of an acceleration or increase of any of the rights or
benefits to which employees may be entitled thereunder.
5.22 ARTICLES AND BYLAWS. EHC has previously delivered to the
other Party true and correct copies of the Articles of Incorporation and Bylaws
of EHC and Eastside.
5.23 BOOKS AND RECORDS. The books of account and other financial
records of EHC and Eastside are, in all material respects, complete and
correct, maintained in accordance with good business practice, and are fairly
reflected in the Annual and Interim EHC Financials. The minute books of EHC
and Eastside accurately reflect all material corporate action of the
shareholders and the Board of Directors (including any Executive Committee
thereof) of EHC and Eastside.
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5.24 ABSENCE OF CHANGES. Except as specifically provided for in
this Agreement or specifically set forth in the EHC Schedule, since September
30, 1995:
5.24.1 There has been no change in the business, assets,
liabilities, results of operations or financial condition of EHC and
Eastside, or in any of their relationships with customers, employees,
lessors or others, other than changes in the ordinary course of
business, none of which individually or in the aggregate has had or
which management of EHC and Eastside believe may have a material
adverse effect on such business or properties;
5.24.2 There has been no damage, destruction or loss to the
assets, properties or business of EHC and Eastside, whether or not
covered by insurance, which has had or which management of EHC and
Eastside believe may have a material adverse effect thereon;
5.24.3 The businesses of EHC and Eastside have been operated
in the ordinary course and not otherwise;
5.24.4 The properties and assets of EHC and Eastside used in
their businesses have been maintained in good order, repair and
condition, ordinary wear and tear excepted;
5.24.5 The books, accounts and records of EHC and Eastside
have been maintained in the usual, regular and ordinary manner;
5.24.6 There has been no declaration, setting aside or
payment of any dividend or other distribution on or in respect of the
capital stock of EHC;
5.24.7 Except as set forth in the EHC Schedule, there has
been no increase in the compensation or in the rate of compensation or
commissions payable or to become payable by EHC and Eastside to any
director or executive officer, or any employee earning $25,000 or more
per annum, or any increase in any payment of or commitment to pay any
bonus, profit sharing or other extraordinary compensation to any
employee;
5.24.8 There has been no change in the Articles of
Incorporation or Bylaws of EHC and Eastside;
5.24.9 There has been no labor dispute, unfair labor practice
charge or employment discrimination charge, nor, to the knowledge of
management of EHC, any organizational effort by any union, or
institution or (to the knowledge of management of EHC) threatened
institution, of any organizational effort, complaint or other
proceeding in connection therewith, involving EHC or Eastside or
affecting their operations;
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5.24.10 There has been no issuance, sale, repurchase,
acquisition, or redemption by EHC of any of its authorized capital
stock, bonds, notes, debt or other securities or any modification or
amendment of the rights of the holders of any outstanding capital
stock, bonds, notes, debt or other securities thereof;
5.24.11 There has been no mortgage, lien or other encumbrance
or security interest (other than liens for current taxes not yet due
or purchase money security interests arising in the ordinary course of
business) created on or in (including without limitation any deposit
for security consisting of) any asset or assets of EHC or Eastside or
assumed by them with respect to any asset or assets;
5.24.12 There has been no indebtedness or other liability or
obligation (whether absolute, accrued, contingent or otherwise)
incurred by EHC or Eastside whether or not it would be required to be
reflected on a balance sheet of EHC or Eastside prepared as of the
date hereof in accordance with GAAP applied on a consistent basis,
except as incurred in the ordinary course of business;
5.24.13 No obligation or liability of EHC or Eastside has
been discharged or satisfied, other than in the ordinary course of
business;
5.24.14 Except as set forth in the EHC Schedule, there has
been no sale, transfer or other disposition of any asset or assets of
EHC or Eastside, other than sales in the ordinary course of business;
and
5.24.15 There has been no amendment, termination or waiver of
any right of EHC or Eastside under any contract or agreement or
governmental license, permit or permission which has had or may have a
material adverse effect on its business or properties.
6. COVENANTS OF WFC
Except with the prior written approval of the other Party, WFC agrees
that from the date of this Agreement until the Effective Date or until this
Agreement is terminated by the Parties as herein provided:
6.1 CONDUCT OF BUSINESS. Each of WFC and Westside:
(a) Will conduct its business only in the ordinary course
as conducted at the date of this Agreement, and in compliance in all
material respects with all applicable laws and regulations and all
contracts to which it is a party;
(b) Will use all reasonable efforts to maintain
satisfactory relationships with its customers, suppliers, regulators
and employees;
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(c) Will permit a representative of the other Party to
attend and participate (i) in all meetings of the Board of Directors
of WFC and Westside and (ii) in all meetings of their loan and
executive committees (but only to the extent of expressing their
opinion on any matter before the Board and not otherwise to influence
the Board's decision and not to vote) with such representative to be
excused during deliberations relating to the transactions contemplated
by this Agreement;
(d) Will not dispose of any property or incur any
indebtedness except in the ordinary course of business; will not make
any capital contribution to any affiliate or non-affiliate; will not
mortgage, pledge or otherwise encumber any of its properties except in
the ordinary course of business; will not make or commit to make any
capital expenditure except in the ordinary course of business; will
not commit to any transaction requiring regulatory approval (other
than the transactions contemplated by this Agreement); will not fail
to maintain all of its properties in good repair, order and condition;
(e) Will not increase salaries, employee benefits,
directors' fees or bonuses, except to the extent consistent with past
practices, and will not enter into any compensation agreements with
anyone, except as set forth in the WFC Schedule;
(f) Will make no changes to insurance, pension or other
employee benefit plans;
(g) Will not enter into any agreement, including without
limitation any agreement for the purchase, sale or lease of any
property or for the furnishing of services, with any WFC Insider;
(h) Will not make any commitments or enter into any
contracts which, individually or in the aggregate, call for the
payment of $50,000 or more by WFC or Westside, (i) except for
agreements, commitments or contracts for the purchase, sale or lease
of goods or services in the ordinary course of business and not in
excess of WFC's or Westside's then current requirements, (ii) except
for the acceptance of deposits and the making and selling of loans in
the ordinary course of business as a lending institution, and except
as set forth in the WFC Schedule; and
(i) Will not fail to maintain its books, accounts and
records in the usual, regular and ordinary manner, on a basis
consistent in all material respects with prior years.
6.2 CAPITAL STOCK, ARTICLES AND BYLAWS. Except with the prior
written approval of the other Party, neither WFC nor Westside will (a) issue
any shares of capital stock or any rights or options with respect thereto,
except as set forth in the WFC Schedule; (b) declare, set aside or pay any
dividends or make any other distributions with respect to its capital stock,
except in accordance with past practices or as set forth in the WFC Schedule;
(c) directly or
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indirectly redeem, purchase or otherwise acquire any of its capital stock,
except as set forth in the WFC Schedule; (d) effect a stock split or
reclassification of its stock or create any new class of capital stock or issue
any capital debt; or (e) amend its Articles of Incorporation or Bylaws.
6.3 NOTICE OF BREACH. WFC and Westside shall promptly give
written notice to the other Party upon becoming aware of the impending or
threatened occurrence of any event which would cause or constitute a breach of
any of the representations, warranties or covenants made by them in this
Agreement and shall use their respective best efforts to prevent or promptly
remedy the same.
6.4 SOLE AGREEMENT TO MERGE OR SELL. During the term of this
Agreement, neither WFC nor Westside will directly or indirectly (through, if
applicable, their respective directors, officers, employees, representatives or
otherwise) make, solicit, initiate or encourage proposals or offers from any
party other than the other Party relating to any recapitalization, merger,
consolidation, acquisition or purchase of all or substantially all of the
assets of, or any equity interest in, WFC or Westside if the effect of such
proposed transaction would be to impair or delay the ability of WFC to
consummate the transactions contemplated by this Agreement. Each of WFC and
Westside shall immediately cease and cause to be terminated all such contacts
or negotiations with third parties, if any. Neither WFC nor Westside will,
directly or indirectly (as aforesaid) participate in any negotiations
regarding, furnish to any other person any information with respect to, assist
or participate in any effort or attempt by any other person to do or seek any
of the foregoing. One of WFC or Westside shall promptly notify the other Party
of any unsolicited proposal or offer WFC or Westside, as applicable, receives
with respect to the foregoing. Notwithstanding anything in this Section 6.4 to
the contrary, the directors of WFC and Westside shall not be obligated to take
or not to take any action that they shall be advised in writing by counsel that
their fiduciary duties, in their capacities as directors of WFC or Westside,
under applicable law, require them to take or not to take.
6.5 REPORTS. Each of WFC and Westside shall file, and shall
promptly provide the other Party with a copy of, all of the reports required to
be filed by it with regulatory agencies for periods ending on and after
December 31, 1994, and each shall, to the extent permitted by law, promptly
provide to the other Party copies of all correspondence submitted to or
received by it from any regulatory agency.
6.6 INDEMNITY. With respect to any claim made or action commenced
within six (6) years after the consummation of the Merger, WFC shall indemnify
and hold harmless to the extent permitted by the provisions of the Articles of
Incorporation and Bylaws of EHC, each as in effect as of the date hereof, each
director, officer, and employee of EHC against any costs or expenses (including
attorneys' fees), judgments, fines, losses, threatened or completed action,
suit, proceeding or investigation (whether civil, criminal, administrative or
investigative) arising out of or pertaining to any action or omission by such
director, officer or employee on or prior to the consummation of the Merger in
his capacity as such, provided, however, that the aggregate amount of such
indemnification shall not exceed $1,000,000, and that such indemnification
shall be to the fullest extent permitted by applicable Georgia law.
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7. COVENANTS OF EHC
Except with the prior written approval of the other Party, EHC agrees
that from the date of this Agreement until the Effective Date or until this
Agreement is terminated by the Parties as herein provided:
7.1 CONDUCT OF BUSINESS. Each of EHC and Eastside:
(a) Will conduct its business only in the ordinary course
as conducted at the date of this Agreement, and in compliance in all
material respects with all applicable laws and regulations and all
contracts to which it is a party;
(b) Will use all reasonable efforts to maintain
satisfactory relationships with its customers, suppliers, regulators
and employees;
(c) Will permit a representative of the other Party to
attend and participate (i) in all meetings of the Board of Directors
of EHC and Eastside and (ii) in all meetings of their loan and
executive committees (but only to the extent of expressing their
opinion on any matter before the Board and not otherwise to influence
the Board's decision and not to vote) with such representative to be
excused during deliberations relating to the transactions contemplated
by this Agreement;
(d) Will not dispose of any property or incur any
indebtedness except in the ordinary course of business; will not make
any capital contribution to any affiliate or non-affiliate; will not
mortgage, pledge or otherwise encumber any of its properties except in
the ordinary course of business; will not make or commit to make any
capital expenditure except in the ordinary course of business; will
not commit to any transaction requiring regulatory approval (other
than the transactions contemplated by this Agreement); will not fail
to maintain all of its properties in good repair, order and condition;
(e) Will not increase salaries, employee benefits,
directors' fees or bonuses, except to the extent consistent with past
practices, and will not enter into any compensation agreements with
anyone, except as set forth in the EHC Schedule;
(f) Will make no changes to insurance, pension or other
employee benefit plans;
(g) Will not enter into any agreement, including without
limitation any agreement for the purchase, sale or lease of any
property or for the furnishing of services, with any EHC Insider;
(h) Will not make any commitments or enter into any
contracts which, individually or in the aggregate, call for the
payment of $50,000 or more by EHC or
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Eastside, (i) except for agreements, commitments or contracts for the
purchase, sale or lease of goods or services in the ordinary course of
business and not in excess of EHC's or Eastside's then current
requirements, (ii) except for the acceptance of deposits and the
making and selling of loans in the ordinary course of business as a
lending institution, and except as set forth in the EHC Schedule; and
(i) Will not fail to maintain its books, accounts and
records in the usual, regular and ordinary manner, on a basis
consistent in all material respects with prior years.
7.2 CAPITAL STOCK, ARTICLES AND BYLAWS. Except with the prior
written approval of the other Party, neither EHC nor Eastside will (a) issue
any shares of capital stock or any rights or options with respect thereto,
except as set forth in the EHC Schedule; (b) declare, set aside or pay any
dividends or make any other distributions with respect to its capital stock;
(c) directly or indirectly redeem, purchase or otherwise acquire any of its
capital stock, except as set forth in the EHC Schedule; (d) effect a stock
split or reclassification of its stock or create any new class of capital stock
or issue any capital debt; or (e) amend its Articles of Incorporation or
Bylaws.
7.3 APPROVAL OF EHC SHAREHOLDERS. EHC shall cause a meeting of
its shareholders (the "EHC Shareholders' Meeting") to be held on such date as
shall be agreed upon with the other Party for the purpose of considering the
approval of the Merger and adoption of this Agreement. EHC shall deliver to
the other Party promptly at the conclusion of the EHC Shareholders' Meeting, a
certificate stating (a) the number of shares present in person or by proxy at
the meeting, (b) the number of shares which were voted for the Merger, (c) the
number of shares which were voted against the Merger, and (d) the number of
shares dissenting to the Merger. Such certificate shall include the names and
mailing addresses of the shareholders who voted against the Merger and of the
holders of shares dissenting to the Merger.
7.4 PROXY MATERIALS. Neither the proxy materials nor any other
materials (or amendments thereof or supplements thereto) to be furnished by EHC
to its shareholders in connection with the transactions contemplated by this
Agreement will, at the times such documents are distributed to EHC shareholders
through the Effective Date, contain with respect to EHC or Eastside any untrue
statement of a material fact or omit to state any information required to be
stated therein or omit to state any material fact necessary in order to make
the statements made therein, in light of the circumstances under which they are
made with respect to EHC and Eastside, not misleading.
7.5 NOTICE OF BREACH. EHC and Eastside shall promptly give
written notice to the other Party upon becoming aware of the impending or
threatened occurrence of any event which would cause or constitute a breach of
any of the representations, warranties or covenants made by them in this
Agreement and shall use their respective best efforts to prevent or promptly
remedy the same.
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7.6 SOLE AGREEMENT TO MERGE OR SELL. During the term of this
Agreement, neither EHC nor Eastside will directly or indirectly (through, if
applicable, their respective directors, officers, employees, representatives or
otherwise) make, solicit, initiate or encourage proposals or offers from any
party other than WFC relating to any recapitalization, merger, consolidation,
acquisition or purchase of all or substantially all of the assets of, or any
equity interest in, EHC or Eastside if the effect of such proposed transaction
would be to impair or delay the ability of EHC to consummate the transactions
contemplated by this Agreement. Each of EHC and Eastside shall immediately
cease and cause to be terminated all such contacts or negotiations with third
parties, if any. Neither EHC nor Eastside will, directly or indirectly (as
aforesaid) participate in any negotiations regarding, furnish to any other
person any information with respect to, assist or participate in any effort or
attempt by any other person to do or seek any of the foregoing. One of EHC or
Eastside shall promptly notify the other Party of any unsolicited proposal or
offer EHC or Eastside, as applicable, receives with respect to the foregoing.
Notwithstanding anything in this Section 7.6 to the contrary, the directors of
EHC and Eastside shall not be obligated to take or not to take any action that
they shall be advised in writing by counsel that their fiduciary duties, in
their capacities as directors of EHC or Eastside, under applicable law, require
them to take or not to take.
7.7 REPORTS. Each of EHC and Eastside shall file, and shall
promptly provide the other Party with a copy of, all of the reports required to
be filed by it with regulatory agencies for periods ending on and after
December 31, 1994, and each shall, to the extent permitted by law, promptly
provide to the other Party copies of all correspondence submitted to or
received by it from any regulatory agency.
7.8 AFFILIATES. At least thirty (30) days prior to the Effective
Date of the Merger, EHC shall deliver to WFC a letter identifying all persons
who are, at the time this Agreement is submitted for approval to the
shareholders of EHC, "affiliates" of EHC for purposes of Rule 145 under the
Securities Act of 1933. EHC shall use all reasonable efforts to cause each
person who is identified as an "Affiliate" in the letter referred to above to
deliver to WFC not later than thirty (30) days prior to the Effective Date of
the Merger, a written agreement providing that such person will not sell,
pledge, transfer, or otherwise dispose of the EHC Stock held by such person
except as contemplated by such written agreement or by this Agreement and will
not sell, pledge, transfer, or otherwise dispose of the WFC Stock to be
received by such person upon consummation of the Merger except in compliance
with applicable provisions of the Securities Act of 1933, and the rules and
regulations thereunder and until such time as the financial results covering at
least thirty (30) days of combined operations of WFC and EHC have been
published within the meaning of Section 201.01 of the SEC's Codification of
Financial Reporting Policies. If the Merger will qualify for
pooling-of-interests accounting treatment, the WFC Stock issued to such
Affiliates of EHC in exchange for the EHC Stock shall not be transferable until
such time as the financial results covering at least thirty (30) days of
combined operations of WFC and EHC have been published within the meaning of
Section 201.01 of the SEC's Codification of Financial Reporting Policies
regardless of whether each such person has provided the written agreement
referred to in this Section 7.8. WFC shall not be required to maintain the
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effectiveness of the Registration Statement under the Securities Act of 1933
for the purposes of resale of EHC Stock by such persons.
8. CONDITIONS TO OBLIGATIONS OF WFC
The obligations of WFC hereunder are, at the option of WFC, subject to
the following conditions:
8.1 REPRESENTATIONS AND COVENANTS COMPLIANCE. The representations
and warranties of EHC contained in Section 5, shall be true and correct in all
material respects as of the date of this Agreement and as of the Effective Date
with the same force and effect as if made on and as of the Effective Date,
except for changes contemplated by this Agreement. EHC shall have performed
and complied with its covenants made in Section 7.
8.2 NO CHANGE IN CONDITION. There shall have occurred no material
adverse change in the financial condition of EHC from that presented in the
Interim EHC Financials.
8.3 CLOSING CERTIFICATE AND OTHER DOCUMENTS. WFC shall have
received a certificate signed by the President and Chief Financial Officer of
EHC, dated the Effective Date, to the effect that (a) the representations and
warranties made in Section 5, are true and correct as of the date of such
certificate, (b) the covenants made in Section 7, have been fully performed as
of the date of such certificate, and (c) the conditions set forth in this
Section 8 have been complied with and satisfied as of the Effective Date. WFC
shall have received all such other documents and materials from EHC as it deems
necessary or appropriate.
8.4 LEGAL OPINION. WFC shall have received a favorable legal
opinion from counsel to EHC in form and substance reasonably satisfactory to
WFC's counsel.
8.5 NO LEGAL ACTION. No action, suit, proceeding or claim shall
have been instituted, made or threatened relating to the Merger.
8.6 MINIMUM EHC ADJUSTED VALUE. The per share Adjusted Value of
EHC Stock shall not be less than $8.
8.7 FAIRNESS OPINION. WFC shall have received from a firm
selected by it, a letter dated not more than five (5) business days prior to
the date of the EHC Proxy Statement to the effect that, in the opinion of such
firm, the consideration being paid by WFC for the EHC Stock is fair to the WFC
shareholders from a financial point of view.
9. CONDITIONS TO OBLIGATIONS OF EHC
The obligations of EHC hereunder are, at the option of EHC, subject to
the following conditions:
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9.1 REPRESENTATIONS AND COVENANTS COMPLIANCE. The representations
and warranties of WFC contained in Section 4, shall be true and correct in all
material respects as of the date of this Agreement and as of the Effective Date
with the same force and effect as if made on and as of the Effective Date,
except for changes contemplated by this Agreement. WFC shall have performed
and complied with all of its covenants made in Section 6.
9.2 NO CHANGE IN CONDITION. There shall have occurred no material
adverse change in the financial condition of WFC from that presented in the
Interim WFC Financials.
9.3 CLOSING CERTIFICATE AND OTHER DOCUMENTS. EHC shall have
received certificates signed by the respective President and Chief Financial
Officer of WFC, dated the Effective Date, to the effect that (a) the
representations and warranties made in Section 4, are true and correct as of
the date of such certificate, (b) the covenants made in Section 6, have been
fully performed as of the date of such certificate, and (c) the conditions set
forth in this Section 9 have been complied with and satisfied as of the
Effective Date. EHC shall have received all such other documents and materials
from WFC as it deems necessary or appropriate.
9.4 LEGAL OPINION. EHC shall have received a favorable legal
opinion from Counsel to WFC and a favorable tax opinion from counsel to WFC,
all in form and substance reasonably satisfactory to EHC's counsel.
9.5 NO LEGAL ACTION. No action, suit, proceeding or claim shall
have been instituted, made or threatened relating to the Merger.
9.6 WFC ADJUSTED VALUE. The per share Adjusted Value of WFC Stock
shall not be less than $10.
9.7 FAIRNESS OPINION. EHC shall have received from a firm
selected by it a letter, dated not more than five (5) business days prior to
the date of the EHC Proxy Statement, to the effect that, in the opinion of such
firm, the consideration to be received by EHC shareholders in connection with
the Merger is fair, from a financial point of view, to such shareholders.
10. CONDITIONS TO OBLIGATIONS OF BOTH PARTIES
The respective obligations of the Parties hereto are subject to the
following conditions:
10.1 GOVERNMENT APPROVAL. The Federal Reserve and the Georgia
Department shall have approved the Merger and all other required regulatory
approvals of the Merger shall have been received and any applicable waiting
periods shall have expired. There shall
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be no action pending concerning the Merger brought by the United States
Attorney General under the antitrust laws.
10.2 SHAREHOLDER APPROVAL. The holders of the legally required
number of the outstanding shares of EHC Stock at a meeting duly called and held
with proper notice thereof, shall have approved the Merger pursuant to this
Agreement.
10.3 REGISTRATION STATEMENT. At the time of mailing the Proxy
Statement of EHC to its shareholders in connection with the meeting at which
the Merger will be considered and thereafter through the Effective Date, the
Registration Statement shall be effective under the 1933 Act, no stop orders
suspending the effectiveness of the Registration Statement shall have been
issued, no action, suit, proceeding or investigation by the SEC to suspend the
effectiveness thereof shall have been initiated and be continuing, and all
necessary approvals under state securities laws or the 1933 Act or the
Securities Exchange Act of 1934 relating to the issuance or trading of the
shares of WFC Stock issuable pursuant to the Merger shall have been received.
10.4 DISSENTING SHARES. The aggregate number of shares of EHC
Stock, dissenting to the Merger shall not exceed 60,000 shares and shall not
create in the reasonable judgment of the Board of Directors of WFC, ultimate
liability of EHC to dissenting shareholders that is likely to exceed
$1,020,000.00, unless the Parties shall agree to a larger amount.
10.5 POOLING LETTERS. Each of the Parties shall have received a
letter, dated as of the Effective Date, in form and substance reasonably
acceptable to such Party, from Mauldin & Jenkins to the effect that the Merger
will qualify for pooling-of-interests accounting treatment.
10.6 TAX MATTERS. EHC and WFC shall have received a written
opinion of counsel for WFC in form reasonably satisfactory to it (the "Tax
Opinion"), to the effect that for federal income tax purposes (i) the Merger
will constitute a reorganization within the meaning of Section 368(a) of the
Code, (ii) the exchange in the Merger of EHC Stock for WFC Stock will not give
rise to gain or loss to the stockholders of EHC with respect to such exchange
(except to the extent of any cash received), and (iii) neither EHC nor WFC will
recognize gain or loss as a consequence of the Merger except for income and
deferred gain recognized pursuant to Treasury regulations issued under Section
1502 of the Code. In rendering such Tax Opinion, counsel for WFC shall be
entitled to rely upon representations of officers of EHC and WFC reasonably
satisfactory in form and substance to such counsel.
11. ACQUISITION OF DISSENTERS' STOCK
11.1 DISSENTING SHAREHOLDERS. Any shareholder of EHC who fully
complies with the applicable Dissenters' Provisions shall be entitled to
dissent from the Merger (a "Dissenting Shareholder") and seek appraisal
remedies, provided that such shareholder has not voted, either in person or by
proxy, in favor of such merger.
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11.2 NOTICE OF DISSENT. EHC shall give prompt notice to the other
Party of any demand received by it from a Dissenting Shareholder, and both
Parties shall have the right to participate in all negotiations and proceedings
with respect to such dissent. Each Party agrees that it will not, except with
the prior consent of the other, purport to make any determination of fair
value, make any payment with respect to, or settle or offer to settle any
matter arising out of such dissent.
11.3 PURCHASER OF DISSENTERS' STOCK. Each Dissenting Shareholder
who becomes entitled to receive the fair value of his or her shares shall
receive such value from the EHC but only after the value shall have been
agreed upon or finally determined pursuant to the applicable Dissenters'
Provisions. Immediately upon the purchase by EHC of any shares of EHC Stock
from the Dissenting Shareholder pursuant to the Dissenters' Provisions, WFC
shall purchase such shares from EHC for the same price as shall have been paid
by the EHC to the Dissenting Shareholder. The shares of EHC Stock so purchased
by WFC shall be cancelled.
12. CLOSING
The closing (the "Closing") of the Merger shall take place on the
fifth (5th) business day after the latest to occur of (a) approval of the
Merger by the holders of the outstanding shares of EHC Stock, (b) approval by
the applicable regulatory authorities and (c) expiration of any required
waiting periods associated with such regulatory approvals, or on such other
date mutually agreeable to the Parties hereto. The Closing shall take place at
10:00 a.m. at the offices of Glass, McCullough, Sherrill & Harrold, 1409
Peachtree Street, N.E., Atlanta, Georgia 30309, or at such other time and
place mutually agreeable to the Parties hereto. At the Closing, the Parties
hereto shall execute and deliver such instruments and certificates as are
required by this Agreement and as are necessary or appropriate to close the
transactions contemplated herein.
13. TERMINATION
13.1 TERMINATION. This Agreement may be terminated at any time
prior to the Effective Date:
(a) By mutual consent of the Parties hereto; or
(b) By either Party hereto if, without fault of such
terminating party, the Closing shall not have occurred on or before
July 31, 1996, unless the Parties hereto shall have agreed to extend
this Agreement to a later date; or
(c) By either Party hereto if any application
contemplated by this Agreement is deemed withdrawn or affirmatively
denied by the applicable regulatory agency; or
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(d) By a Party if the other Party breaches its
representations, warranties or covenants hereunder in any material
respect and such breach remains uncured for a period of ten days after
notice of such breach is given to such Party, or if the other Party
does not meet the conditions to the obligations of such Party.
13.2 PROCEDURE AND EFFECT OF TERMINATION; EXPENSES. In the event
of termination and abandonment of this Agreement by the Parties hereto pursuant
to Section 13.1, written notice thereof shall promptly be given to the others,
and this Agreement shall terminate and the transaction contemplated hereby
shall be abandoned without further action by the Parties hereto. In the event
of such termination and abandonment, each Party shall share equally in the
cost, expenses and fees which have been reasonably incurred by both Parties in
attempting to accomplish the transactions contemplated herein. No Party hereto
(or any of their respective directors or officers) shall have any liability or
further obligation to the other Party to this Agreement, except for the
obligations set forth in Section 3.4 and except that nothing herein will
relieve any Party from liability for any willful breach of this Agreement.
14. MISCELLANEOUS
14.1 AMENDMENT. At any time before or after approval and adoption
hereof by the shareholders of EHC, this Agreement may be amended by agreement
between the Parties hereto; provided, however, that after the approval and
adoption of this Agreement by the EHC shareholders, no amendment changing
Sections 2.1 and 2.2 shall be valid without having been approved by the EHC
shareholders in the manner required for approval of this Agreement.
14.2 WAIVER. A waiver by either Party hereto of any breach of a
term or condition of this Agreement shall not operate as a waiver of any other
breach of such term or condition or of other terms or conditions, nor shall
failure to enforce any term or condition operate as a waiver of such term or
condition nor be deemed to be a waiver or release of any other right, in law or
at equity, or claim which a Party may have against the other Party for anything
arising out of, connected with or based upon this Agreement. A waiver shall be
effective only if evidenced by a writing signed by the Party who is entitled to
the benefit of the term or condition of this Agreement which is to be waived.
A waiver of a term or condition on one occasion shall not be deemed to be a
waiver of the same or of any other term or condition on a future occasion.
14.3 ENTIRE AGREEMENT. This Agreement supersedes all prior
discussions and agreements with respect hereto, and no representations or
agreement not included herein shall survive the execution hereof.
14.4 NOTICES. All notices, requests, consents, and other
communications hereunder shall be in writing, and shall be mailed postage
prepaid or hand delivered, addressed as follows:
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If to EHC:
Mr. Reggie D. Cox, President
Eastside Holding Corporation
2019 Scenic Highway
Snellville, Georgia 30278
with a copy to: Robert F. Cook, Esq.
Parker, Johnson, Cook & Dunlevie
1275 Peachtree Street, N.E.
Suite 700
Atlanta, Georgia 30309-3574
If to WFC:
Mr. Edward C. Milligan
Westside Financial Corporation
1200 Barrett Parkway
Kennesaw, Georgia 30144
with a copy to: T. Kennerly Carroll, Esq.
Glass, McCullough, Sherrill & Harrold
1409 Peachtree Street, N.E.
Atlanta, Georgia 30309
14.5 ASSIGNMENT. Except as expressly contemplated hereby, neither
this Agreement nor any of the rights, interests or obligations hereunder shall
be assigned by any Party hereto (whether by operation of law or otherwise)
without the prior written consent of the other Party. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the Parties and their respective successors and assigns.
14.6 SEVERABILITY. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
14.7 COUNTERPARTS. 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.
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14.8 HEADINGS. The title of this Agreement and the headings herein
set out are for convenience of reference only and shall not be deemed a part of
this Agreement.
14.9 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Georgia.
IN WITNESS WHEREOF, the Parties hereto have caused by this Merger
Agreement to be executed by their duly authorized officers and their corporate
seals to be affixed hereto, as of the month, day and year first above written.
EASTSIDE HOLDING CORPORATION
[SEAL]
By:/s/ Reggie D. Cox
----------------------------------
Reggie D. Cox, President
ATTEST:
/s/ Fredrick D. Jones
- ---------------------------------
Secretary
WESTSIDE FINANCIAL
CORPORATION
[SEAL]
By:/s/ Edward C. Milligan
----------------------------------
Edward C. Milligan, President
ATTEST:
/s/ Barbara J. Bond
- ---------------------------------
Secretary
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APPENDIX B
OPINION OF FINANCIAL ADVISOR
<PAGE> 227
[MERCER CAPITAL LOGO]
================================================================================
5860 Ridgeway Center Parkway, Suite 410 - Memphis, Tennessee 38120-4048 -
Phone: (901) 685-2120 - Telecopier: (901) 685-2199
March 19, 1996
The Board of Directors
c/o Mr. Reggie D. Cox
President
Eastside Financial Corporation
2019 Scenic Highway
Snellville, Georgia 30278
Re: Fairness Opinion Regarding the Proposed Acquisition of Eastside Holding
Corporation by Westside Financial Corporation
Dear Directors:
Mercer Capital Management, Inc. ("Mercer Capital") has been retained by the
Board of Directors of Eastside Holding Corporation ("EHC") to issue a fairness
opinion for the proposed merger between EHC and Westside Financial Corporation
("WFC"). The fairness opinion is issued from a financial point of view on
behalf of EHC shareholders.
Under the terms of the Agreement, dated December 21, 1995, EHC shareholders
will receive 1.00 shares of WFC for each share of EHC.(1) The exchange ratio
is based upon a negotiated "adjusted value" of $10.13 for EHC and $11.99 for
WFC. The adjusted values reflect the adjusted book value for each institution
as calculated by Mauldin & Jenkins, certified public accountants, as of October
31, 1995. Adjusted values will be recalculated immediately prior to closing
using the same formula based upon adjusted book values. As part of the
Agreement, WFC shareholders will receive a stock dividend immediately prior to
the consummation of the merger based upon the following formula:
- ------------------
(1) EHC presently has 600,000 shares outstanding, implying that 600,000 WFC
shares will be issued to EHC stockholders.
B-1
AMERICA'S BUSINESS VALUATION RESOURCE
<PAGE> 228
The Board of Directors
c/o Mr. Reggie D. Cox
March 19, 1996
Page two
(WFC's adjusted value/EHC's adjusted value) - 1
or
($11.99/$10.13) - 1 = 18.36%
The stock dividend is intended to lower WFC's adjusted value to EHC's adjusted
value so that the one-for-one exchange ratio will be based upon equivalent
adjusted (book) values.(2) The adjusted book value exchange ratio highlights
the type of transaction which the WFC-EHC merger can be considered: a merger of
equals ("MOE").
Based upon WFC's most recent trading value of $17.00 per share, or $14.36 per
share if the price adjusts to reflect the planned stock dividend, EHC
stockholders will receive an aggregate consideration of $8.6 million. The
purchase price represents 137% of EHC's year-end book value, 13.5x reported
1995 net income and 17.9x EHC's fully-taxable pro forma net income.(3)
As part of the engagement, a representative of Mercer Capital visited with EHC
management in Snellville, Georgia and WFC management in Kennesaw, Georgia.
Factors considered in rendering the opinion include:
1. Terms of the Merger Agreement ("the Agreement");
2. An analysis of the merger's pricing in relation to indications of fair
market value for EHC derived through considering comparable (guideline)
transactions and discounted cash flow analyses;
- -------------------------
(2) The stock dividend formula implies that 107,652 WFC shares will be issued
to WFC stockholders based upon its 586,300 shares which are presently
outstanding.
(3) EHC reported net income of $645 thousand during 1995. The Bank did not pay
income taxes during the first half of the year due to a then existing net
operating loss carryfoward. Fully-taxable earnings assume a blended
Federal/State rate of 38%, which would lower reported net income to an
estimated $481 thousand.
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The Board of Directors
c/o Mr. Reggie D. Cox
March 19, 1996
Page three
3. An analysis of the relative contributions each institution will
provide to the post-merger organization in terms of earnings,
stockholders equity and the like;
4. An analysis of the estimated pro-forma changes in book value per
share, earnings per share, dividends per share and overall
ownership from the perspective of the EHC shareholders;
5. A review of WFC's historical financial performance, historical stock
pricing, the liquidity of its shares and current pricing in
relation to other publicly traded bank holding companies based in
the Southeast;
6. Tax consequences of the merger for EHC shareholders; and,
7. Restrictions placed on WFC shares received in the merger.
Mercer Capital did not compile nor audit EHC's or WFC's financial statements,
nor have we independently verified the information reviewed. We have relied
upon such information as being complete and accurate in all material respects.
We have not made an independent valuation of the loan portfolio, adequacy of
the loan loss reserve or other assets of either institution.
Our opinion does not constitute a recommendation to any shareholder as to how
the shareholder should vote on the proposed merger, nor have we expressed any
opinion as to the prices at which any security of WFC or EHC might trade in the
future.
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<PAGE> 230
The Board of Directors
c/o Mr. Reggie D. Cox
March 19, 1996
Page four
Based upon our analysis of the proposed transaction, it is our opinion that the
acquisition of Eastside Holding Corporation by Westside Financial Corporation
is fair from a financial point of view for EHC shareholders.
Sincerely yours,
MERCER CAPITAL MANAGEMENT, INC.
/s/ Jeff K. Davis
Jeff K. Davis, ASA, CFA
Vice President
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APPENDIX C
DISSENTERS' PROVISIONS
<PAGE> 232
APPENDIX C
DISSENTERS' PROVISIONS
GEORGIA BUSINESS CORPORATION CODE
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) "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.
(3) "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.
(4) "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.
(5) "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.
(6) "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.
(7) "Shareholder" means the record shareholder or the
beneficial shareholder.
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 or her shares in the event
of, any of the following corporate actions:
(1) Consummation of a plan of merger to which the
corporation is a party:
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(A) If approval of the shareholders of the
corporation is required for the merger by Code Section
14-2-1103 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 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
or her shares under this article may not challenge the corporate action
creating his or her entitlement
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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.
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 or her name only if he or she 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 or she asserts dissenters' rights. The rights of a partial
dissenter under this Code section are determined as if the shares as to which
he or she dissents and his or her other shares were registered in the names of
different shareholders.
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' 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.
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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 or her intent to demand payment for his or her
shares if the proposed action is effectuated; and
(2) Must not vote his or her 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 or her
shares under this article.
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;
(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.
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 or her certificates
in accordance with the terms of the notice.
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(b) A record shareholder who demands payment and deposits his or
her 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 or her share certificates where required, each by the date set in the
dissenters' notice, is not entitled to payment for his or her shares under this
article.
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.
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 offer to pay each dissenter who complied
with Code Section 14-2-1323 the amount the corporation estimates to be the fair
value of his or her shares, plus accrued interest.
(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, payment
for his or her shares shall
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be made within 60 days after the making of the offer or the taking of the
proposed corporate action, whichever is later.
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.
14-2-1327. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.
(a) A dissenter may notify the corporation in writing of his or
her own estimate of the fair value of his or her shares and amount of interest
due, and demand payment of his or her estimate of the fair value of his or her
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 or her shares or that the
interest due is incorrectly calculated; or
(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 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 made or 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 or
her own estimate of the fair value of his or her shares and the amount of
interest due and demand payment of his or her estimate of the fair value of his
or her shares and interest due.
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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 and
publication, or in any other matter permitted by law.
(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 the 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 or
her shares, plus interest to the date of judgment.
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.
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(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 benefitted.
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.
C-8
<PAGE> 240
PART II.
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 11 of the Registrant's Articles of Incorporation, filed as
Exhibit 3.1 hereto, limits the liability of directors of the Registrant. A
description of this provision is included under the heading "Description of WFC
Stock - Limitation of Liability" in the Proxy Statement/Prospectus set forth in
Part I of this Registration Statement, and such description is incorporated by
reference herein.
Article 9 of the Registrant's Bylaws, incorporated by reference as
Exhibit 3.3 hereto, provides for indemnification of directors and officers of
the Registrant. A description of this provision is included under the heading
"Description of WFC Stock - Indemnification" in the Proxy Statement/Prospectus
set forth in Part I of this Registration Statement, and such description is
incorporated by reference herein.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------- -----------
<S> <C>
2.1 Merger Agreement, dated December 21, 1995, between the Registrant and Eastside Holding Corporation,
included as Appendix A to the Proxy Statement/Prospectus set forth in Part I of the Registration
Statement
3.1 Articles of Incorporation of Registrant which were filed as Exhibit 3.1 to Registrant's Registration
Statement on Form S-1 (File No. 33-78046)
3.2 Bylaws of the Registrant which were filed as Exhibit 3.2 to Registrant's Registration Statement on Form
S-1 (File No. 33-78046)
5.1 Opinion of Glass, McCullough, Sherrill & Harrold as to the legality of the securities being registered
(1)
8.1 Opinion of Glass, McCullough, Sherrill & Harrold as to certain federal income tax consequences of the
Merger(1)
10.1 Westside Financial Corporation 1994 Substitute Incentive Stock Option Plan for The Westside Bank &
Trust Company's Incentive Stock Option Plan filed as Exhibit 4.4 to Form S-8 (File No. 33-97300)
</TABLE>
II-1
<PAGE> 241
<TABLE>
<S> <C>
10.2 Form of Westside Financial Corporation 1994 Incentive Stock Option Agreement filed as Exhibit 4.5 to
Form S-8 (File No. 33-97300)
10.3 Westside Financial Corporation 1995 Directors Stock Option Plan filed as Exhibit 4.4 to Form S-8 (File
No. 33-81053)
10.4 Form of Westside Financial Corporation 1995 Directors Stock Option Agreement filed as Exhibit 4.5 to
Form S-8 (File No. 33-81053)
10.5 Employment Agreement dated August 16, 1995, between Westside Financial Corporation, The Westside Bank &
Trust Company and Edward C. Milligan(1)
20.1 Letter to Shareholders of Eastside Holding Corporation to accompany the Proxy Statement/Prospectus(1)
20.2 Notice of the Special Shareholders' Meeting of Eastside Holding Corporation(1)
20.3 Form of proxy solicited by the Board of Directors of Eastside Holding Corporation(1)
20.4 Fairness Opinion from Mercer Capital Management, Inc. included as Appendix B to the Proxy
Statement/Prospectus set forth in Part I of the Registration Statement
21.1 Subsidiaries of the Registrant(1)
23.1 Consents of Glass, McCullough, Sherrill & Harrold are contained in its opinions filed as Exhibits 5.1
and 8.1 hereto(1)
23.2 Consent of Mauldin & Jenkins concerning the financial statements of Westside Financial Corporation
23.3 Consent of Mauldin & Jenkins concerning the financial statements of Eastside Holding Corporation
23.4 Consent of Mercer Capital Management, Inc. (1)
</TABLE>
II-2
<PAGE> 242
<TABLE>
<S> <C>
24.1 A Power of Attorney relating to this Registration Statement is set forth on the signature pages to this
Registration Statement(1)
27 Financial Data Schedule (for SEC use only)
</TABLE>
- -----------------------------
(1) Included in Registration Statement filed April 1, 1996.
ITEM 22. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this Registration Statement;
(i) To include any Prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or
events arising after the effective date of the Registration Statement (or the
most recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range may
be reflected in the form of Prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent no
more than 20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective registration
statement.
(iii) To include any material information with
respect to the plan of distribution not previously disclosed in the
Registration Statement or any material change to such information in the
Registration Statement;
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.
II-3
<PAGE> 243
(4) That prior to any public reoffering of the securities
registered hereunder through use of a Prospectus which is a part of this
Registration Statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the issuer undertakes that such
reoffering Prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items of
the applicable form.
(5) That every Prospectus (i) that is filed pursuant to
paragraph (4) immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Securities Act of 1933 and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the Registration Statement and will not be used until
such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(6) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions (See
Item 20), or otherwise, the Registrant has been advised that in the opinion of
the Commission such indemnification is against the public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
(b) The undersigned Registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the Prospectus
pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the Registration Statement
through the date of responding to the request.
(c) The undersigned Registrant hereby undertakes to supply by
means of a post-effective amendment all information concerning a transaction,
and the company being acquired involved therein, and that was not the subject
of and included in the Registration Statement when it became effective.
II-4
<PAGE> 244
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement Amendment to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Kennesaw, State of Georgia, on the 21th day of June, 1996.
WESTSIDE FINANCIAL CORPORATION
By: /s/ Edward C. Milligan
-----------------------------
Edward C. Milligan, President
Pursuant to the requirements of the Securities Act of 1933 this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Edward C. Milligan President and June 21, 1996
- -------------------------------------- Director(2) --
Edward C. Milligan
Robert E. Bowden* Director June 21, 1996
- -------------------------------------- --
Robert E. Bowden
L. Myron Cantrell* Director June 21, 1996
- -------------------------------------- --
L. Myron Cantrell
David N. Hauseman* Director June 21, 1996
- -------------------------------------- --
David N. Hauseman
J. Richard Mahaffey* Director June 21, 1996
- -------------------------------------- --
J. Richard Mahaffey
James J. Tidwell, Sr.* Director June 21, 1996
- -------------------------------------- --
James J. Tidwell, Sr.
</TABLE>
II-5
<PAGE> 245
<TABLE>
<S> <C> <C>
Fred Williams, Jr.* Director June 21, 1996
- --------------------------------------
Fred Williams, Jr.
/s/ Barbara J. Bond Senior Vice June 21, 1996
- -------------------------------------- President/Treasurer(3)
Barbara J. Bond
* By Power of Attorney
/s/ Edward C. Milligan
- --------------------------------------
Edward C. Milligan
Attorney in Fact
Date: June 21, 1996
--
</TABLE>
- ---------------------------------------
(1) Principal executive officer
(2) Principal financial and accounting officer
II-6
<PAGE> 246
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C>
2.1 Merger Agreement, dated December 21, 1995, between the
Registrant and Eastside Holding Corporation, included as
Appendix A to the Proxy Statement/Prospectus set forth in
Part I of the Registration Statement
3.1 Articles of Incorporation of Registrant which were filed as
Exhibit 3.1 to Registrant's Registration Statement on Form
S-1 (File No. 33-78046)
3.2 Bylaws of the Registrant which were filed as Exhibit 3.2 to
Registrant's Registration Statement on Form S-1 (File No.
33-78046)
5.1 Opinion of Glass, McCullough, Sherrill & Harrold as to the
legality of the securities being registered(1)
8.1 Opinion of Glass, McCullough, Sherrill & Harrold as to
certain federal income tax consequences of the Merger(1)
10.1 Westside Financial Corporation 1994 Substitute Incentive
Stock Option Plan for The Westside Bank & Trust Company's
Incentive Stock Option Plan filed as Exhibit 4.4 to Form S-8
(File No. 33-97300)
10.2 Form of Westside Financial Corporation 1994 Incentive Stock
Option Agreement filed as Exhibit 4.5 to Form S-8 (File No.
33-97300)
10.3 Westside Financial Corporation 1995 Directors Stock Option
Plan filed as Exhibit 4.4 to Form S-8 (File No.
33-81053)
10.4 Form of Westside Financial Corporation 1995 Directors Stock
Option Agreement filed as Exhibit 4.5 to Form S-8 (File No.
33-81053)
10.5 Employment Agreement dated August 16, 1995, between Westside
Financial Corporation, The Westside Bank & Trust Company and
Edward C. Milligan(1)
20.1 Letter to Shareholders of Eastside Holding Corporation to
accompany the Proxy Statement/Prospectus(1)
20.2 Notice of the Special Shareholders' Meeting of Eastside
Holding Corporation(1)
</TABLE>
<PAGE> 247
<TABLE>
<S> <C>
20.3 Form of proxy solicited by the Board of Directors of Eastside
Holding Corporation(1)
20.4 Fairness Opinion from Mercer Capital Management, Inc.
included as Appendix B to the Proxy Statement/Prospectus set
forth in Part I of the Registration Statement
21.1 Subsidiaries of the Registrant(1)
23.1 Consents of Glass, McCullough, Sherrill & Harrold are
contained in its opinions filed as Exhibits 5.1 and 8.1
hereto(1)
23.2 Consent of Mauldin & Jenkins concerning the financial
statements of Westside Financial Corporation
23.3 Consent of Mauldin & Jenkins concerning the financial
statements of Eastside Holding Corporation
23.4 Consent of Mercer Capital Management, Inc.(1)
24.1 A Power of Attorney relating to this Registration Statement
is set forth on the signature pages to this Registration
Statement(1)
27 Financial Data Schedule (for SEC use only)
</TABLE>
__________________
(1) Included in Registration Statement filed April 1, 1996.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF MAULDIN & JENKINS CONCERNING THE
FINANCIAL STATEMENTS OF
WESTSIDE FINANCIAL CORPORATION
<PAGE> 2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We hereby consent to the use of our report dated January 5, 1996 relating to
the financial statements of Westside Financial Corporation, Kennesaw, Georgia
included in the Registration Statement on Form S-4 filed by Westside Financial
Corporation and the reference to our firm's name under the heading of
accounting matters.
/s/ Mauldin & Jenkins, LLC
Atlanta, Georgia
June 10, 1996
<PAGE> 1
EXHIBIT 23.3
CONSENT OF MAULDIN & JENKINS CONCERNING THE
FINANCIAL STATEMENTS OF
EASTSIDE HOLDING CORPORATION
<PAGE> 2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We hereby consent to the use of our report dated February 9, 1996 relating to
the financial statements of Eastside Holding Corporation, Snellville, Georgia
included in the Registration Statement on Form S-4 filed by Westside Financial
Corporation and the reference to our firm's name under the heading of
accounting matters.
/s/ Mauldin & Jenkins, LLC
Atlanta, Georgia
June 10, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,072
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 9,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 13,356
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 38,445
<ALLOWANCE> 564
<TOTAL-ASSETS> 65,603
<DEPOSITS> 57,730
<SHORT-TERM> 0
<LIABILITIES-OTHER> 577
<LONG-TERM> 0
0
0
<COMMON> 6,114
<OTHER-SE> 1,182
<TOTAL-LIABILITIES-AND-EQUITY> 65,603
<INTEREST-LOAN> 3,734
<INTEREST-INVEST> 748
<INTEREST-OTHER> 754
<INTEREST-TOTAL> 5,236
<INTEREST-DEPOSIT> 2,099
<INTEREST-EXPENSE> 2,099
<INTEREST-INCOME-NET> 3,138
<LOAN-LOSSES> 101
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,749
<INCOME-PRETAX> 1,535
<INCOME-PRE-EXTRAORDINARY> 1,535
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 971
<EPS-PRIMARY> 1.60
<EPS-DILUTED> 0
<YIELD-ACTUAL> 5.27
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 473
<CHARGE-OFFS> 22
<RECOVERIES> 12
<ALLOWANCE-CLOSE> 564
<ALLOWANCE-DOMESTIC> 564
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
