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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 28, 2000
REGISTRATION NO. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FIRST STERLING BANKS, INC.
(Exact name of registrant as specified in its charter)
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GEORGIA 6712 58-2104977
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
676 CHASTAIN ROAD
KENNESAW, GEORGIA 30144
(770) 422-2888
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------
EDWARD C. MILLIGAN
FIRST STERLING BANKS, INC.
676 CHASTAIN ROAD
KENNESAW, GEORGIA 30144
(770) 422-2888
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
COPY TO:
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T. KENNERLY CARROLL, JR., ESQ. THOMAS O. POWELL, ESQ.
TED S. BIDERMAN, ESQ. TROUTMAN SANDERS LLP
MILLER & MARTIN LLP 600 PEACHTREE STREET, N.E.
1275 PEACHTREE STREET, N.E. SEVENTH SUITE 5200
FLOOR
ATLANTA, GEORGIA 30309-3576 ATLANTA, GEORGIA 30308-2216
(404) 962-6100 (404) 885-3294
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
as soon as practicable after this Registration Statement becomes effective.
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
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<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
OF SECURITIES REGISTERED PER UNIT PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock(1).................... 1,238,400(1) N/A $6,937,015(2) $1,832
</TABLE>
(1) Based upon the maximum number of shares that may be issued upon consummation
of the transaction described herein.
(2) Estimated solely for the purpose of computing the registration fee. Computed
in accordance with Rule 457(f)(2) under the Securities Act of 1933, based on
the book value of the stock of Walton Bank & Trust Co. on September 30,
2000.
------------------------
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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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PROXY STATEMENT OF PROSPECTUS OF
WALTON BANK & TRUST CO. FIRST STERLING BANKS, INC.
FOR THE SPECIAL MEETING OF SHAREHOLDERS FOR 1,238,400 SHARES OF COMMON STOCK
TRADING SYMBOL: NASDAQNM:FSLB
</TABLE>
MEETING OF SHAREHOLDERS
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
The boards of directors of First Sterling and Walton Bank have unanimously
agreed to a merger that will result in Walton Bank merging with and into a
wholly owned subsidiary bank of First Sterling, Main Street Bank. This
transaction provides Walton Bank with growth and strategic opportunities that
would not have been available to Walton Bank on a stand-alone basis.
If the merger is completed, Walton Bank shareholders will receive 2.752
shares of stock of First Sterling for each share of Walton Bank that they own
just before the merger.
The shareholders of Walton Bank shall vote on the proposal to approve the
agreement and plan of merger which is attached as APPENDIX A to this proxy
statement/prospectus.
Whether or not you plan to attend the meeting, please take the time to vote
by completing and mailing the enclosed proxy card to us. If you sign, date and
mail your proxy card without indicating how you want to vote, your proxy will be
counted as a vote in favor of the proposal submitted at the meeting. If you fail
to return your proxy card or do not vote in person at the Walton Bank
shareholders' meeting, the effect will be a vote against the proposal.
The date, time and place of the meeting is as follows:
, 2000
, LOCAL TIME
WALTON BANK & TRUST CO.
1302 WEST SPRING STREET
MONROE, GEORGIA 30655
Pursuant to the Georgia Financial Institutions Code and Article 13 of the
Georgia Business Corporation Code, shareholders of Walton Bank & Trust Co. are
entitled to dissent from the transactions contemplated by the merger agreement.
A copy of the dissenters' rights provisions under Georgia law are attached as
APPENDIX B to this proxy statement/prospectus.
Walton Bank's board of directors has unanimously approved the agreement and
plan of merger. Walton Bank's board of directors believes that the merger is
fair to, and in the best interest of, Walton Bank and its shareholders and
strongly encourages you to vote "FOR" the proposal. Brown, Burke Capital
Partners, L.L.C., an investment banking firm, has issued its opinion to Walton
Bank's board of directors that the consideration to be paid by First Sterling
pursuant to the merger agreement is fair, from a financial point of view, to
Walton Bank and its shareholders.
---------------------------------------------
W. Morris Jordan
President and Chief Executive Officer
Walton Bank & Trust Co.
---------------------------------------------
Edward C. Milligan
President and Chief Executive Officer
First Sterling Banks, Inc.
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN FACTORS THAT
YOU SHOULD CONSIDER BEFORE APPROVING THE MERGER.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF FIRST STERLING COMMON STOCK ARE NOT SAVINGS OR DEPOSIT ACCOUNTS OR
OTHER OBLIGATIONS OF ANY BANK OR NON-BANK SUBSIDIARY OF ANY OF THE PARTIES, AND
THEY ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK
INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY.
The date of this proxy statement/prospectus is , and it is being
mailed or otherwise delivered to Walton Bank shareholders on or about
.
<PAGE>
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND
FINANCIAL INFORMATION ABOUT FIRST STERLING THAT IS NOT INCLUDED IN OR DELIVERED
WITH THIS PROXY STATEMENT/PROSPECTUS. THIS INFORMATION IS AVAILABLE AT NO CHARGE
UPON WRITTEN OR ORAL REQUEST AT THE FOLLOWING ADDRESS:
FIRST STERLING BANKS, INC.
676 CHASTAIN ROAD
KENNESAW, GEORGIA 30144
ATTENTION: BARBARA BOND
TELEPHONE: (770) 422-2888
IN ORDER TO RECEIVE TIMELY DELIVERY OF THIS INFORMATION, YOU MUST REQUEST
THIS INFORMATION NO LATER THAN FIVE BUSINESS DAYS BEFORE THE SPECIAL MEETING
DESCRIBED IN THIS DOCUMENT, OR , 2000.
<PAGE>
WALTON BANK & TRUST CO.
1302 WEST SPRING STREET
MONROE, GEORGIA 30655
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
------------------
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of Walton
Bank & Trust Co. will be held at 1302 West Spring Street, Monroe, Georgia 30655
at a.m., local time, on , 2000, for the following purposes:
1. To consider and vote upon a proposal to approve the agreement and plan
of merger among First Sterling Banks, Inc., Main Street Bank and Walton
Bank & Trust Co. In the merger, each share of Walton Bank common stock
outstanding on the effective date of the merger will be converted into
2.752 shares of First Sterling common stock. You can find a copy of the
agreement and plan of merger attached as APPENDIX A to this proxy
statement/prospectus.
2. To transact such other business, if any, that may properly come before
the special meeting or any adjournment or postponement of the special
meeting.
Only shareholders of record at the close of business on , ,
are entitled to receive notice of and vote at the special meeting or any
adjournment or postponement of the special meeting. Approval of the merger
agreement requires the affirmative vote of at least two-thirds of all of the
votes entitled to be cast at the shareholders meeting.
Dissenters' rights are available under Georgia law to Walton Bank
shareholders with respect to the merger. Please see the section entitled "The
Merger--Statutory provisions for dissenting shareholders" on page 30 of the
accompanying proxy statement/prospectus for a discussion of the availability of
dissenters' rights and the procedures required to be followed to assert
dissenters' rights in connection with the merger.
We look forward to seeing you at the shareholders' meeting. Your vote is
important. Please mark, sign and return your proxy card, whether or not you plan
to attend the shareholders' meeting.
WALTON BANK'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE "FOR" APPROVAL OF THE MERGER.
By Order of the Board of Directors,
Hugh B. Williamson, III
CHAIRMAN OF THE BOARD OF DIRECTORS
Enclosures
, 2000
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING IN PERSON, PLEASE
VOTE, SIGN, DATE AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE ENCLOSED BUSINESS
REPLY ENVELOPE. IF YOU DO ATTEND THE MEETING, YOU MAY WITHDRAW YOUR PROXY AND
VOTE IN PERSON.
IMPORTANT. THE PROMPT RETURN OF PROXIES WILL SAVE WALTON BANK THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES IN ORDER TO INSURE A QUORUM AT THE SHAREHOLDERS'
MEETING. A SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
<PAGE>
TABLE OF CONTENTS
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Questions and answers about the merger...................... 1
A warning about forward-looking statements.................. 3
Summary..................................................... 4
Information about First Sterling (page 42) and Walton Bank
(page 43)............................................... 4
The merger (page 16)...................................... 4
Reasons for the merger (page 18).......................... 5
Walton Bank shareholders' meeting (page 14)............... 5
Walton Bank record date and voting (page 14).............. 5
Walton Bank's board unanimously recommends shareholder
approval (page 14)...................................... 5
First Sterling's dividend policy following the merger
(page 38)............................................... 5
Interests of Walton Bank's management and board of
directors in the
merger (page 32)........................................ 6
Comparative rights of shareholders (page 66).............. 6
Federal income tax considerations (page 28)............... 6
Accounting treatment (page 29)............................ 6
Fairness opinion of Walton Bank's financial advisor (page
20)..................................................... 6
Conditions to the merger (page 26)........................ 6
Termination of the merger agreement (page 27)............. 7
New First Sterling shares to be listed on Nasdaq (page
27)..................................................... 7
Regulatory approvals (page 26)............................ 7
Dissenting shareholders' rights (page 30)................. 7
Comparative stock prices and dividends...................... 8
First Sterling stock information.......................... 8
Walton Bank stock information............................. 9
Selected consolidated financial information................. 10
First Sterling selected historical consolidated financial
information............................................. 10
Walton Bank selected historical financial information..... 11
Historical and pro forma comparative per share data....... 11
Risk factors................................................ 13
The trading volume in First Sterling stock has been low... 13
Changes in interest rates could have an adverse effect on
First Sterling's income................................. 13
First Sterling's operating costs after the merger and
other recent acquisitions may be greater than expected,
and First Sterling's costs savings from the merger and
other recent acquisitions may be less than expected, or
First Sterling may be unable to obtain those cost
savings as soon as expected............................. 13
First Sterling may be unable to successfully integrate
Walton Bank and other acquired businesses or may have
more trouble integrating acquired businesses than
expected................................................ 13
The exchange ratio is fixed despite a change in First
Sterling's stock price.................................. 14
Walton Bank shareholders' meeting........................... 14
Date, time and place...................................... 14
Matters to be considered at the shareholders' meeting..... 14
Record date; shares outstanding; quorum................... 14
Vote required............................................. 14
Voting of proxies......................................... 14
Effect of abstentions and broker non-votes................ 15
Revocability of proxies................................... 15
Solicitation of proxies................................... 15
The merger.................................................. 16
Overview.................................................. 16
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i
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Background of the merger.................................. 16
Reasons for the merger.................................... 18
First Sterling's reasons for the merger................. 18
Walton Bank's reasons for the merger.................... 19
Recommendation of the Walton Bank board of directors.... 19
Opinion of financial advisor to Walton Bank............... 20
Exchange of Walton Bank stock certificates................ 23
Effective time of the merger.............................. 24
Terms of the merger....................................... 24
Fractional shares......................................... 24
Representations and warranties............................ 24
Conduct of business pending the merger.................... 25
Conditions to the merger.................................. 26
Required regulatory approvals............................. 26
Nasdaq listing............................................ 27
Waiver, amendment, and termination........................ 27
Management and operations after the merger................ 28
Important federal income tax consequences of the merger... 28
Accounting treatment...................................... 29
Expenses and fees......................................... 29
Statutory provisions for dissenting shareholders.......... 30
Restrictions on resales by affiliates..................... 31
Interests of certain persons in the merger.................. 32
General................................................... 32
Acquisition of Williamson Insurance Agencies.............. 32
Election of Hugh B. Williamson, III to board of
directors............................................... 33
Employment agreement of W. Morris Jordan.................. 33
Employee benefits......................................... 34
Insurance................................................. 35
Shares owned by management and the board.................. 35
Supervision and regulation.................................. 35
General................................................... 35
Payment of dividends...................................... 38
Financial relationship between First Sterling and its
subsidiaries............................................ 39
Capital adequacy.......................................... 39
Prompt corrective action.................................. 40
Community reinvestment act................................ 41
Privacy................................................... 42
Legislative and regulatory changes........................ 42
Fiscal and monetary policy................................ 42
Information about First Sterling............................ 42
Information about Walton Bank............................... 43
General................................................... 43
Market area and competition............................... 43
Deposits.................................................. 44
Loan portfolio............................................ 44
Investments............................................... 45
Asset/liability management................................ 46
Correspondent banking..................................... 46
Facilities................................................ 46
Data processing........................................... 46
</TABLE>
ii
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Employees................................................. 47
Monetary policies......................................... 47
Legal proceedings......................................... 47
Walton Bank security ownership............................ 47
Walton Bank's management's discussion and analysis of
financial condition and results of operations............. 49
Forward-looking statements................................ 49
Results of Operations for the years ended December 31,
1999 and 1998........................................... 49
Commitments and lines of credit........................... 56
Other income.............................................. 58
Other expenses............................................ 58
Balance sheet review...................................... 58
Securities portfolio...................................... 58
Loan portfolio............................................ 59
Types of loans.......................................... 59
Maturities and sensitivities to changes in interest
rates.................................................. 59
Deposits.................................................. 60
Liquidity................................................. 60
Regulatory capital requirements........................... 61
Asset/liability management................................ 61
Effects of inflation...................................... 62
Directors of Walton Bank.................................... 63
Board committees.......................................... 63
Director compensation..................................... 64
Walton Bank's executive compensation........................ 64
Walton Bank 401(k) Profit Sharing Plan.................... 65
Option grants table....................................... 65
Option exercise and fiscal year-end option value table.... 65
Walton Bank 1990 Key Employee Incentive Stock Option
Plan.................................................... 66
Certain transactions...................................... 66
Comparison of the rights of holders of Walton Bank stock and
First Sterling stock...................................... 66
Authorized capital stock.................................. 66
Preemptive rights......................................... 67
Amendment of articles of incorporation.................... 67
Notice of meetings of shareholders........................ 68
Shareholders' meetings.................................... 68
Record date............................................... 69
Removal of directors...................................... 69
Shareholder inspection rights; shareholder lists.......... 69
Voting rights............................................. 70
Directors................................................. 70
Limitation of liability and indemnification of directors,
officers and employees.................................. 71
Dissenters' rights........................................ 72
Antitakeover provisions; restrictions on certain business
combinations............................................ 72
Amendment of bylaws....................................... 74
Dividends and other distributions......................... 74
Legal matters............................................... 75
Experts..................................................... 75
Shareholder proposals and other matters..................... 75
Where you can get more information.......................... 76
Incorporation of certain documents by reference............. 76
</TABLE>
iii
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Index to Financial Statements............................... F-1
APPENDIX A: AGREEMENT AND PLAN OF MERGER.................... A-1
APPENDIX B: GEORGIA DISSENTERS' RIGHTS STATUTES............. B-1
APPENDIX C: OPINION OF BROWN, BURKE CAPITAL PARTNERS,
L.L.C..................................................... C-1
</TABLE>
iv
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY ARE WE PROPOSING THAT WALTON BANK BE ACQUIRED BY FIRST STERLING?
A. We believe that the proposed acquisition of Walton Bank by First Sterling
will provide our shareholders with substantial benefits and will enable us
to better serve our customers. Our products and markets generally are
complementary. The combined company should be in a better position to take
advantage of opportunities within our market. To review the reasons for the
merger in more detail, see "The merger--Reasons for the merger" at page 18.
Q: WHAT DO I NEED TO DO NOW?
A. Carefully read this document, then indicate on your proxy card how you want
to vote, and sign, date and return it as soon as possible. If you sign and
send in your proxy card and do not indicate how you want to vote, your proxy
will be voted in favor of the merger.
You may attend the shareholders' meeting and vote your shares in person
rather than completing and returning your proxy card. If you do complete and
return your proxy card, you may revoke it at any time prior to the vote at
the shareholders' meeting by following the directions described under
"Walton Bank shareholders' meeting--revocability of proxies" at page 14.
THE BOARD OF DIRECTORS OF WALTON BANK HAS UNANIMOUSLY VOTED TO RECOMMEND
THAT YOU VOTE IN FAVOR OF THE PROPOSAL.
Q: MY SHARES ARE HELD IN MY BROKER'S NAME. HOW DO I GO ABOUT VOTING?
A: Copies of this proxy statement/prospectus have been sent to your broker, who
must forward one to you. The broker will request instructions from you as to
how you want your shares to be voted, and the broker will vote your shares
according to your instructions. Your broker cannot vote your shares without
your instructions.
Q: PLEASE EXPLAIN THE EXCHANGE RATIO IN THE TRANSACTION.
A: Walton Bank shareholders will receive 2.752 shares of First Sterling common
stock in exchange for each share of Walton Bank common stock. We will not
issue fractional shares. Walton Bank shareholders who would otherwise be
entitled to receive a fractional share instead will receive cash based on
the market value of the fractional share of First Sterling common stock at
the time of the merger.
Q: WILL FIRST STERLING PAY DIVIDENDS TO SHAREHOLDERS?
A: After the merger, First Sterling anticipates paying dividends at the current
quarterly rate of $0.08 per share. However, the directors of First Sterling
will use their discretion to decide whether to declare dividends and the
amount of any dividends.
Q: WHAT ARE THE TAX CONSEQUENCES TO WALTON BANK SHAREHOLDERS?
A: Generally, the exchange of shares by Walton Bank shareholders will be
tax-free to Walton Bank's shareholders for federal income tax purposes,
except for taxes on cash received for fractional shares. Please see "The
merger--Important federal income tax consequences of the merger" at page 28
for a description of certain federal income tax consequences of the merger.
Q: WHAT WILL HAPPEN IF I DON'T SEND IN MY PROXY CARD?
A: If you don't send in your proxy card, your shares will not be voted unless
you attend the meeting and vote in person. If a significant number of
shareholders do not return their proxy cards, there may not be enough shares
represented at the meeting to approve the merger even if all those present
are in favor of approval. In that case, the merger could not take place at
that time. The
1
<PAGE>
failure to return your proxy card or vote in person at the meeting will have
the same effect as a vote against the merger.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, we will send all Walton Bank shareholders
written instructions for exchanging their share certificates.
Q: IF I LOST MY WALTON BANK STOCK CERTIFICATE, CAN I STILL GET MY NEW STOCK?
A: Yes. However, you will have to provide a paid surety bond that will protect
First Sterling against a loss in the event someone finds or has your lost
certificate and is able to transfer it. To avoid having to pay for a surety
bond, you should do everything you can to find your Walton Bank certificate
before the time comes to send it in.
Q: WHEN DO YOU EXPECT TO COMPLETE THE MERGER?
A: We are working toward completing the merger as quickly as possible. In
addition to Walton Bank shareholder approval, we must also obtain regulatory
approvals. We hope the merger will be completed approximately one week after
the shareholders' meeting.
Q: WHO SHOULD I CALL WITH QUESTIONS ABOUT THE MERGER?
A: You should call Nedra E. Jackson at (770) 267-2525 if you have any questions.
2
<PAGE>
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this document, and in documents
that we incorporate by reference, that are subject to risks and uncertainties.
These forward-looking statements include the information concerning possible or
assumed future results of operations of First Sterling or Walton Bank or the
consolidated company. When we use words such as "believes," "expects,"
"estimates," "projects," "anticipates," "should," or similar expressions, we are
making forward-looking statements.
You should note that many factors, some of which are discussed elsewhere in
this document, could affect our future financial results and performances. THESE
FACTORS COULD CAUSE THOSE RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN
OUR FORWARD-LOOKING STATEMENTS CONTAINED OR INCORPORATED BY REFERENCE IN THIS
DOCUMENT. You should consider these important factors when you vote on the
merger agreement These factors include the following:
- integrating the businesses and technologies of First Sterling and Walton
Bank and retaining key personnel may be more difficult than we expect;
- our revenues after the merger may be lower than we expect, or our
operating costs may be higher than we expect;
- expected cost savings from the merger may not be fully realized or may not
be realized when expected;
- we may lose business or customers after the merger;
- competition among depository and other financial institutions may increase
significantly;
- changes in the interest rate environment may reduce interest margins;
increases in interest rates generally may reduce loan demand and the
values of our assets and assets securing loans;
- general economic conditions, either nationally or where the combined
company will be doing business, or conditions in securities markets, may
be less favorable than we anticipate;
- legislation or regulatory changes may adversely affect our business; or
- technological changes may increase competitive pressures and increase our
costs.
3
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT. IT DOES NOT
CONTAIN ALL THE INFORMATION THAT IS IMPORTANT TO YOU. EACH ITEM IN THIS SUMMARY
REFERS TO A PAGE WHERE THAT SUBJECT IS DISCUSSED IN MORE DETAIL. TO UNDERSTAND
THE MERGER FULLY, AND FOR A MORE COMPLETE DESCRIPTION OF THE LEGAL TERMS OF THE
MERGER, YOU SHOULD READ CAREFULLY THIS ENTIRE DOCUMENT AND THE DOCUMENTS TO
WHICH WE HAVE REFERRED YOU. SEE "WHERE YOU CAN GET MORE INFORMATION" AT
PAGE 76, AND "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" AT PAGE 76. IN
ADDITION, THE MERGER AGREEMENT IS ATTACHED AS APPENDIX A TO THIS PROXY
STATEMENT/PROSPECTUS. WE ENCOURAGE YOU TO READ THE MERGER AGREEMENT BECAUSE IT
IS THE LEGAL DOCUMENT THAT GOVERNS THE MERGER. UNLESS THE CONTEXT REQUIRES
OTHERWISE, THE TERMS "WE," "OUR," AND "US" REFER TO FIRST STERLING, MAIN STREET
BANK AND WALTON BANK TOGETHER.
INFORMATION ABOUT FIRST STERLING (PAGE 42) AND WALTON BANK (PAGE 43)
FIRST STERLING BANKS, INC.
676 CHASTAIN ROAD
KENNESAW, GEORGIA 30144
(770) 422-2888
First Sterling is a Georgia bank holding company headquartered in Kennesaw,
Georgia, and owns all of the outstanding capital stock of four subsidiary banks:
Westside, Eastside, Main Street and Community. As of September 30, 2000, First
Sterling had total consolidated assets of $980,916,524.
The Westside Bank & Trust Company conducts operations through three full
service branches in Kennesaw and Marietta in Cobb County, Georgia. The Eastside
Bank & Trust Company conducts operations through two full service branches
located in Snellville and Lawrenceville, Gwinnett County, Georgia. Main Street
Bank operates 13 full service banking locations and 15 automated teller machines
located in Barrow, Clarke, Gwinnett, Newton, Rockdale and Walton counties in
Georgia. Community Bank of Georgia conducts operations through its main office
in Tucker, DeKalb County, Georgia and two branch offices located in Lilburn and
Dacula, Gwinnett County, Georgia. All four banks engage in commercial and retail
banking. First Sterling is engaged in a full range of traditional banking,
mortgage banking, investment and insurance services to individual and corporate
customers through its 21 locations.
Prior to consummation of the merger, First Sterling will cause three of its
subsidiary banks to be merged with and into Main Street Bank. After the
subsidiary banks are merged, First Sterling will conduct its full service
banking operations through a single bank subsidiary, Main Street Bank. Also, in
conjunction with the subsidiary mergers, First Sterling will change its name to
Main Street Banks, Inc.
WALTON BANK & TRUST CO.
1302 WEST SPRING STREET
MONROE, GEORGIA 30655
(770) 786-3441
Walton Bank is a Georgia bank headquartered in Monroe, Georgia. As of
September 30, 2000, Walton Bank had total assets of $60.4 million.
Walton Bank conducts operations through two full service banking locations
located in Walton County, Georgia. Walton Bank is engaged in a full range of
traditional and mortgage banking services to individual and corporate customers.
THE MERGER (PAGE 16)
The acquisition of Walton Bank by First Sterling is governed by a merger
agreement. The merger agreement provides that, if all of the conditions set
forth in the merger agreement are satisfied or waived, Walton Bank will merge
with and into Main Street Bank, a wholly owned subsidiary of First Sterling.
Main Street Bank will be the surviving bank after the merger. The merger will
combine the business of Walton Bank with that of Main Street Bank, with Walton
Bank being operated as a part of Main Street Bank.
When the merger is complete, each share of Walton Bank common stock will be
converted into 2.752 shares of First Sterling common stock. This exchange ratio
is fixed. However, the
4
<PAGE>
market price of the First Sterling common stock that Walton Bank shareholders
will receive as a result of the merger may be significantly higher or lower than
its current value or its value at the date of the Walton Bank shareholders
meeting.
All of Walton Bank's outstanding stock options shall be assumed by First
Sterling. After the merger the stock options may only be exercised for First
Sterling stock. The number of shares subject to the options and the exercise
prices shall be adjusted as provided for in the merger agreement.
Cash payments will be made instead of issuing fractional shares. For
example, if you hold 150 shares of Walton Bank common stock, you will receive
412 shares of First Sterling common stock (150 X 2.752 = 412.80), plus a cash
payment equal to the value of 0.80 of a share of First Sterling common stock at
the time of the merger.
Following the merger, First Sterling's existing shareholders will own
approximately 92% of the total outstanding shares of First Sterling common stock
and Walton Bank's shareholders will own approximately 8%.
We encourage you to read the merger agreement, which is attached as
APPENDIX A.
REASONS FOR THE MERGER (PAGE 18)
We believe that by becoming part of a larger organization with greater
resources, Walton Bank will be able to serve its customers and communities
better and provide more competitive services. The merger provides First Sterling
with a natural extension of its Atlanta community bank franchise into Walton
County, Georgia.
WALTON BANK SHAREHOLDERS' MEETING (PAGE 14)
Walton Bank will hold its shareholders' meeting on , at
a.m. local time at 1302 West Spring Street, Monroe, Georgia 30655. At the
shareholders' meeting, the Walton Bank shareholders will be entitled to vote on
the merger.
WALTON BANK RECORD DATE AND VOTING (PAGE 14)
If you owned shares of Walton Bank stock at the close of business on
, , the record date, you are entitled to vote on the merger
agreement and any other matters considered at the meeting. On the record date,
there were 450,000 shares of Walton Bank stock outstanding. You will have one
vote at the meeting for each share of Walton Bank stock you owned on the record
date. The affirmative vote of shareholders owning at least two-thirds of the
outstanding Walton Bank stock is required to approve the merger agreement. As of
September 30, 2000, Walton Bank's directors, executive officers and their
affiliates beneficially owned approximately 47.6% of the outstanding shares of
Walton Bank's common stock entitled to vote at Walton Bank's shareholders'
meeting. These individuals intend to vote in favor of the merger at the
shareholders' meeting.
WALTON BANK'S BOARD UNANIMOUSLY RECOMMENDS SHAREHOLDER APPROVAL (PAGE 14)
The Walton Bank board of directors believes that the merger is in the best
interest of Walton Bank and its shareholders and unanimously recommends that you
vote "FOR" the proposal to approve the merger agreement.
FIRST STERLING'S DIVIDEND POLICY FOLLOWING THE MERGER (PAGE 38)
First Sterling currently pays quarterly dividends of $0.08 per share of
common stock. In light of the exchange ratio, this is equivalent to a quarterly
dividend of $0.22 per share, or an annual dividend of $0.88 per share, on the
Walton Bank common stock. Walton Bank currently pays an annual dividend, which
was $0.50 per share on the Walton Bank common stock in 2000. First Sterling
expects that it will continue to pay the per share amount in quarterly dividends
that it is currently paying, but it may change that policy based on business
conditions, First Sterling's financial condition or other factors.
5
<PAGE>
INTERESTS OF WALTON BANK'S MANAGEMENT AND BOARD OF DIRECTORS IN THE MERGER
(PAGE 32)
When considering the recommendation of the Walton Bank board of directors,
you should be aware that some directors and officers have interests in the
merger that may differ from the interests of other shareholders.
Upon consummation of the merger, First Sterling will enter into an
employment agreement with W. Morris Jordan. Also upon consummation of the
merger, Hugh W. Williamson, III, shall be elected to the board of directors of
Main Street Bank and First Sterling has agreed to vote its Main Street Bank
shares to re-elect Mr. Williamson to the board of Main Street Bank for a minimum
period of five years.
In addition, First Sterling and Mr. Williamson entered into a separate
agreement for the purchase of two insurance agencies owned by Mr. Williamson.
This acquisition was consummated on December , 2000.
The Walton Bank board was aware of these and other interests and considered
them before adopting the merger agreement.
COMPARATIVE RIGHTS OF SHAREHOLDERS (PAGE 66)
Both First Sterling and Walton Bank are incorporated under the laws of the
State of Georgia and are subject to the Georgia Business Corporation Code and
the Georgia Financial Institutions Code, respectively. Upon consummation of the
merger, the shareholders of Walton Bank will become shareholders of First
Sterling and the articles of incorporation and bylaws of First Sterling will
govern their rights. First Sterling's articles of incorporation and bylaws
differ somewhat from Walton Bank.
FEDERAL INCOME TAX CONSIDERATIONS (PAGE 28)
Walton Bank's shareholders will not recognize gain or loss for federal
income tax purposes on the receipt of shares of First Sterling common stock that
they receive in the merger in exchange for shares of Walton Bank stock
surrendered. First Sterling's attorneys will issue a legal opinion to this
effect. Walton Bank's shareholders will be taxed, however, on any cash that they
receive instead of any fractional shares of First Sterling stock, and if Walton
Bank's shareholders properly exercise their rights to dissent to the merger,
they will generally be taxed on the cash that they receive. Tax matters are
complicated and the tax consequences of the merger may vary among shareholders.
We urge you to contact your own tax advisor to fully understand how the merger
will affect you.
ACCOUNTING TREATMENT (PAGE 29)
We expect to account for the merger as a "pooling-of-interests." This means
that, after the merger, we will treat Walton Bank and First Sterling as if they
had always been combined.
FAIRNESS OPINION OF WALTON BANK'S FINANCIAL ADVISOR (PAGE 20)
Brown, Burke Capital Partners, L.L.C., has given an opinion to Walton Bank's
board of directors that, as of the date of this proxy statement/prospectus, the
exchange ratio is fair from a financial point of view to Walton Bank's
shareholders.
This opinion is attached as APPENDIX C to this proxy statement/prospectus.
Walton Bank shareholders should read this opinion completely to understand the
assumptions made, matters considered and limitations of the review undertaken by
Brown, Burke in providing this opinion.
CONDITIONS TO THE MERGER (PAGE 26)
We will complete the merger only if several conditions are satisfied,
including the following:
- At least two-thirds of Walton Bank's outstanding shares are voted in favor
of the merger agreement;
- The representations and warranties made by First Sterling and Walton Bank
in the merger agreement are materially true and correct as of the
effective date of the merger;
- We receive all necessary regulatory approvals and any waiting periods
required by law have passed;
6
<PAGE>
- First Sterling's counsel delivers an opinion concerning the tax free
nature of the merger;
- First Sterling's independent accountants deliver a letter confirming that
the merger will qualify for pooling-of-interests accounting treatment.
TERMINATION OF THE MERGER AGREEMENT (PAGE 27)
Notwithstanding the approval of the merger agreement by Walton Bank's
shareholders at the shareholders' meeting, our boards of directors can jointly
agree to terminate the merger agreement at any time. In addition, either company
can terminate the merger agreement if:
- We do not complete the merger by March 31, 2001;
- The other party materially breaches its representations, warranties or
covenants it made or obligations it has under the merger agreement and
fails to cure the breach;
- The conditions to completing the merger are not satisfied; or
- Any applicable regulatory agency denies approval of the merger.
NEW FIRST STERLING SHARES TO BE LISTED ON NASDAQ (PAGE 27)
The First Sterling shares of common stock to be issued in the merger will be
listed on the Nasdaq National Market.
REGULATORY APPROVALS (PAGE 26)
We cannot complete the merger unless it is approved by the Federal Deposit
Insurance Corporation and the Georgia Department of Banking and Finance. First
Sterling has filed applications with the FDIC and the Georgia Department of
Banking for approval of the merger. We cannot be certain when or if we will
obtain the regulatory approvals. However, we do not know of any reason why we
should not obtain them in a timely manner.
DISSENTING SHAREHOLDERS' RIGHTS (PAGE 30)
Walton Bank shareholders may dissent from the merger and upon following the
requirements of Georgia law receive cash in the amount of the fair value of
their Walton Bank shares instead of the shares of First Sterling stock.
ANY WALTON BANK'S SHAREHOLDER WHO WISHES TO EXERCISE DISSENTERS' RIGHTS
- MUST FILE A WRITTEN NOTICE OF INTENT TO DISSENT PRIOR TO THE VOTE;
- MUST NOT VOTE IN FAVOR OF THE MERGER AGREEMENT; AND
- MUST STRICTLY COMPLY WITH THE PROCEDURAL REQUIREMENTS OF GEORGIA LAW.
A copy of the dissenters' rights statutes is attached as APPENDIX B to this
document. We encourage you to read the statutes carefully and to consult with
legal counsel if you desire to exercise your dissenter's rights.
7
<PAGE>
COMPARATIVE STOCK PRICES AND DIVIDENDS
FIRST STERLING STOCK INFORMATION
As of September 30, 2000, there were approximately 1,294 holders of record
of First Sterling stock. Shares of stock of First Sterling have been traded on
the Nasdaq National Market under the symbol "FSLB" since the first quarter of
1997. The following table sets forth, for each quarter, the high and low sales
prices per share as reported on the Nasdaq National Market. The table also shows
the regular cash dividends paid for First Sterling stock. All information is
adjusted to reflect the 2-for-1 stock split effective March 30, 1998, and the
.2858 stock split effective April 22, 1999.
<TABLE>
<CAPTION>
FIRST STERLING
STOCK
-------------------
FISCAL YEAR HIGH LOW DIVIDEND
----------- -------- -------- --------
<S> <C> <C> <C>
1998
First Quarter............................................... $13.17 $ 9.23 $0.04
Second Quarter.............................................. 13.03 11.38 0.04
Third Quarter............................................... 12.06 10.50 0.04
Fourth Quarter.............................................. 11.28 9.92 0.04
1999
First Quarter............................................... 11.81 10.69 0.04
Second Quarter.............................................. 12.50 10.44 0.04
Third Quarter............................................... 12.25 9.25 0.04
Fourth Quarter.............................................. 14.50 9.25 0.04
2000
First Quarter............................................... 12.13 8.06 0.04
Second Quarter.............................................. 11.63 8.88 0.04
Third Quarter*.............................................. 12.19 11.00 0.08
</TABLE>
------------------------
*Note: Upon completion of the merger between First Sterling Banks, Inc. and
Main Street Banks, Incorporated, the combined company adopted the
dividend policy of Main Street Banks, Incorporated.
After the merger, First Sterling intends to pay dividends at its current
rate of $0.08 per share per quarter. However, the payment of any future
dividends will be subject to First Sterling's earnings, capital adequacy,
liquidity and other factors that the First Sterling board of directors deems
appropriate.
On , 2000, the last day on which First Sterling common stock was
traded prior to the mailing of this proxy statement/prospectus, the last
reported sales price of First Sterling common stock as reported on the Nasdaq
National Market was $ per share. On September 25, 2000, the date
immediately prior to the public announcement of the merger with Walton Bank, the
sales price of First Sterling common stock as reported on the Nasdaq National
Market was $12.1875 per share.
Because the exchange ratio is fixed and because the closing price of First
Sterling common stock is subject to fluctuation, the market value of the shares
of First Sterling common stock that you may receive in the merger may increase
or decrease prior to or following the merger. You are urged to obtain current
market quotations for First Sterling common stock.
8
<PAGE>
WALTON BANK STOCK INFORMATION
Walton Bank stock is not publicly traded in any organized market and is
infrequently transferred or sold. The sales prices known to management of Walton
Bank do not necessarily reflect the price that would be paid for the common
stock in an active market. The price of the Walton Bank common stock in the last
known transaction prior to the mailing of this proxy statement/prospectus on
, 2000, was $ per share. The price of Walton Bank common stock
in the last known transaction prior to September 25, 2000, the date the merger
was publicly announced, was $27.00 per share and occurred on May 31, 2000. Based
on the limited number of transactions of which Walton Bank's management is
aware, sales of Walton Bank's common stock were in a price range of $17.00 to
$20.00 per share during 1998 and between $20.00 and $26.00 during 1999. As of
October 31, 2000, there were 341 holders of record of Walton Bank stock.
The following table sets forth the annual dividend paid on Walton Bank stock
in the first quarter of 1998, 1999 and 2000.
<TABLE>
<CAPTION>
CASH
DIVIDENDS
FISCAL YEAR PAID PER SHARE
----------- --------------
<S> <C>
1998........................................................ $0.50
1999........................................................ 0.35
2000........................................................ 0.50
</TABLE>
9
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
We are providing the following information to help you analyze the financial
aspects of the merger. We derived this information from audited consolidated
financial statements for 1995 through 1999, and unaudited consolidated financial
statements for the periods ending September 30. The information has been
adjusted to reflect all stock splits and stock dividends declared through the
date of this proxy statement/prospectus and First Sterling's financial data has
been restated to reflect the 1999 merger with Georgia Bancshares and the 2000
merger with Main Street Banks, Inc., both of which were accounted for as a
pooling-of-interests. This information is only a summary and you should read it
in conjunction with both of our historical financial statements and related
notes included in this document for First Sterling and Walton Bank and in First
Sterling's quarterly reports which are on file with the SEC. Interim unaudited
data for the nine months ended September 30, 2000 and 1999 of First Sterling and
Walton Bank reflect, in the opinion of the respective managements of First
Sterling and Walton Bank, all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of such data. Results from the
nine months ended September 30, 2000, are not necessarily indicative of results
that may be expected for any other interim period or for the year as a whole.
See "Where you can get more information" at page 76 and "First Sterling
Banks, Inc. Audited Financial Statements" at page F-2 and "Walton Bank & Trust
Co. Audited Financial Statements" at page F-37.
FIRST STERLING SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT
DATA:
Net interest income........... 33,584 28,727 39,526 34,678 31,291 25,700 22,589
Provision for loan losses..... 1,459 1,350 1,730 1,426 2,085 1,162 1,543
Net interest income after
provision for loan losses... 32,125 27,377 37,796 33,252 29,206 24,538 21,046
Net income.................... 8,973 7,960 11,084 9,833 8,279 6,335 5,772
SELECTED BALANCE SHEET DATA:
Total assets.................. 980,917 847,043 851,766 714,949 648,598 559,525 515,246
Loans, net.................... 679,805 598,867 621,672 506,930 442,999 367,676 330,451
Deposits...................... 827,952 708,192 706,229 619,176 579,684 499,840 459,959
Total shareholders' equity.... 81,764 71,763 73,334 68,500 60,880 55,359 50,864
PER SHARE DATA:
Net income, per share
Basic....................... 0.65 0.58 0.80 0.72 0.61 0.47 0.43
Diluted..................... 0.64 0.56 0.79 0.70 0.60 0.46 0.43
Cash dividends declared per
share....................... 0.20 0.12 0.16 0.15 0.13 0.10 0.05
Book value per share.......... 5.90 5.21 5.31 4.98 4.47 4.09 3.77
SELECTED RATIOS:
Net income to average
shareholders' equity........ 18.30% 16.20% 15.60% 15.14% 14.48% 12.00% 11.89%
Net income to average total
assets...................... 1.54% 1.45% 1.41% 1.44% 1.31% 1.18% 1.16%
Average shareholders' equity
to average total assets..... 8.44% 8.98% 9.00% 9.48% 9.07% 8.37% 9.75%
Tier 1 risk-based capital..... 11.12% 10.79% 11.23% 12.16% 12.46% 13.81% 14.01%
Total risk-based capital...... 11.37% 11.96% 12.40% 14.10% 13.67% 15.01% 15.24%
Leverage...................... 8.73% 8.83% 8.58% 9.49% 8.28% 9.49% 8.98%
</TABLE>
10
<PAGE>
WALTON BANK SELECTED HISTORICAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT DATA:
Net interest income.................. 2,240 1,817 2,496 2,277 1,931 1,812 1,618
Provision for loan losses............ 110 45 65 263 36 22 20
Net interest income after provision
for loan losses.................... 2,130 1,772 2,431 2,014 1,895 1,790 1,598
Net income........................... 837 643 860 693 657 576 481
SELECTED BALANCE SHEET DATA:
Total assets......................... 60,436 53,715 54,726 49,008 40,018 35,244 33,227
Loans, net........................... 41,868 35,778 37,031 30,825 25,825 23,680 21,563
Deposits............................. 53,100 47,179 48,025 42,879 34,463 30,401 28,909
Total shareholders' equity........... 6,937 6,108 6,215 5,832 5,269 4,577 4,041
PER SHARE DATA:
Net income, per share
Basic.............................. 1.86 1.43 1.91 1.54 1.46 1.28 1.07
Diluted............................ 1.82 1.42 1.90 1.52 1.44 1.27 1.06
Cash dividends declared per share.... .50 .35 .35 .33 -- -- --
Book value per share................. 15.42 13.57 13.81 12.96 11.71 10.17 8.98
SELECTED RATIOS:
Net income to average shareholders'
equity............................. 13.04% 10.85% 14.33% 12.49% 13.35% 13.37% 12.88%
Net income to average total assets... 1.41% 1.28% 1.67% 1.56% 1.75% 1.68% 1.59%
Average shareholders' equity to
average total assets............... 10.84% 11.77% 11.65% 12.47% 13.08% 12.59% 12.32%
Tier 1 risk-based capital............ 16.94% 17.36% 17.16% 18.04% 19.33% 20.55% 17.90%
Total risk-based capital............. 18.18% 18.55% 18.29% 19.20% 20.57% 21.80% 19.15%
Leverage............................. 11.56% 12.20% 11.78% 11.94% 13.34% 13.10% 11.93%
</TABLE>
HISTORICAL AND PRO FORMA COMPARATIVE PER SHARE DATA
The following table sets forth certain unaudited comparative per share data
relating to shareholders' equity per common share, cash dividends declared per
common share and income from continuing operations per common share. This
information is presented: (i) on a historical basis for First Sterling and
Walton Bank, (ii) on a pro forma combined basis per share of First Sterling
stock to reflect completion of the merger, and (iii) on an equivalent pro forma
basis per share of Walton Bank stock to reflect completion of the merger,
assuming the merger was effective for the periods presented. The pro forma
information has been prepared giving effect to the merger using the
pooling-of-interests accounting method. The following equivalent per share data
of Walton Bank assumes an exchange ratio of 2.752 shares of First Sterling stock
for each share of Walton Bank stock. The information listed as "equivalent pro
forma" was computed by multiplying the pro forma combined amounts by an assumed
exchange ratio of 2.752. It is intended to reflect the fact that Walton Bank
shareholders will receive 2.752 shares of First Sterling common stock for each
share of Walton Bank common stock exchanged in the merger. This information
should be read in conjunction with both of our historical financial statements
and related notes. You should not rely on the pro forma information as being
indicative of the historical results that would have resulted if First Sterling
and Walton Bank had been combined or the future results First Sterling will
experience after the merger. See "Where you can get more
11
<PAGE>
information" at page 76, "First Sterling Banks, Inc. Audited Financial
Statements" at page F-2 and "Walton Bank & Trust Co. Audited Financial
Statements" at page F-37.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
FOR THE NINE DECEMBER 31
MONTHS ENDED --------------------------------
SEPTEMBER 30, 2000 1999 1998 1997
------------------- -------- ---------- --------
<S> <C> <C> <C> <C>
BASIC NET INCOME PER SHARE:
First Sterling, historical...................... 0.65 0.80 0.72 0.61
First Sterling, pro forma combined.............. 0.65 0.80 0.71 0.60
Walton Bank, historical......................... 1.86 1.91 1.54 1.46
Walton Bank, equivalent pro forma............... 1.79 2.19 1.94 1.66
DILUTED NET INCOME PER SHARE:
First Sterling, historical...................... 0.64 0.79 0.70 0.60
First Sterling, pro forma combined.............. 0.64 0.78 0.69 0.59
Walton Bank, historical......................... 1.82 1.90 1.52 1.44
Walton Bank, equivalent pro forma............... 1.76 2.14 1.89 1.63
CASH DIVIDENDS PAID PER SHARE:
First Sterling, historical...................... 0.16 0.16 0.15 0.13
First Sterling, pro forma combined.............. 0.16 0.16 0.15 0.12
Walton Bank, historical......................... 0.50 0.35 0.33 --
Walton Bank, equivalent pro forma............... 0.55 0.43 0.41 0.33
BOOK VALUE PER SHARE (END OF PERIOD):
First Sterling, historical...................... 5.90 5.31 4.98 4.47
Walton Bank, historical......................... 15.42 13.81 12.96 11.71
First Sterling, pro forma combined.............. 5.87 5.29 4.95 4.47
Walton Bank, equivalent pro forma............... 16.16 14.56 13.63 12.14
</TABLE>
12
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROXY STATEMENT/ PROSPECTUS, WE URGE YOU TO CONSIDER THE FOLLOWING
FACTORS BEFORE DECIDING HOW TO VOTE AT THE WALTON BANK SHAREHOLDERS' MEETING.
THE TRADING VOLUME IN FIRST STERLING STOCK HAS BEEN LOW
The trading volume in First Sterling stock on the Nasdaq National Market has
been relatively low when compared with larger companies listed on the Nasdaq
National Market or other stock exchanges. We cannot say with any certainty that
a more active and liquid trading market for First Sterling stock will develop.
Because of this, it may be more difficult for you to sell a large number of
shares for the same price at which a smaller number of shares may sell.
CHANGES IN INTEREST RATES COULD HAVE AN ADVERSE EFFECT ON FIRST STERLING'S
INCOME
The combined company's profitability depends to a large extent upon its net
interest income. Net interest income is the difference between interest income
on interest-earning assets, such as loans and investments, and interest expense
on interest-bearing liabilities, such as deposits and borrowings. Our net
interest income will be adversely affected if market interest rates change such
that the interest the combined company has to pay on deposits and borrowings
increases faster than the interest we earn on loans and investments. See
"Supervision and Regulation--Fiscal and monetary policy" at page 42.
FIRST STERLING'S OPERATING COSTS AFTER THE MERGER AND OTHER RECENT ACQUISITIONS
MAY BE GREATER THAN EXPECTED, AND FIRST STERLING'S COSTS SAVINGS FROM THE MERGER
AND OTHER RECENT ACQUISITIONS MAY BE LESS THAN EXPECTED, OR FIRST STERLING MAY
BE UNABLE TO OBTAIN THOSE COST SAVINGS AS SOON AS EXPECTED
First Sterling's rapid growth over the last several years resulting from
acquisitions it has made--as well as the possibility of future growth from
acquisitions--produces risks of unknown liabilities that may cause costs after
the merger and other past and potential future acquisitions to be greater than
expected. Expectations concerning future earnings depend in part on First
Sterling being able to combine the operations of acquired institutions with
First Sterling's own operations promptly and efficiently, and also on First
Sterling being correct in its assumptions about the financial impact of its
acquisitions.
First Sterling expects that it can achieve cost savings as a result of its
acquisition of Walton Bank and its other recently completed acquisitions. There
is a risk that the anticipated savings may not be realized or that they may be
less than First Sterling expects.
FIRST STERLING MAY BE UNABLE TO SUCCESSFULLY INTEGRATE WALTON BANK AND OTHER
ACQUIRED BUSINESSES OR MAY HAVE MORE TROUBLE INTEGRATING ACQUIRED BUSINESSES
THAN EXPECTED
There is a risk that the maintenance of an acquired institution's--including
Walton Bank's--key customers and personnel and the conversion of its systems and
procedures to First Sterling's systems and procedures may not be possible or
completed on schedule or may be more difficult and costly than expected, which
could cause the acquired operations to perform below expectations. Maintaining
an acquired institution's key customers and personnel and converting its systems
and procedures to First Sterling's systems and procedures are important parts of
First Sterling's acquisition program.
Prior to acquiring an institution, First Sterling frequently estimates that
it will be able to maintain most of the institution's key customers and
personnel and convert its systems and procedures. There is a risk that
integrating Walton Bank and other acquired businesses may take a greater amount
of resources than First Sterling expects.
13
<PAGE>
THE EXCHANGE RATIO IS FIXED DESPITE A CHANGE IN FIRST STERLING'S STOCK PRICE
Each share of Walton Bank common stock owned by you will be converted into
the right to receive First Sterling common stock based on an exchange ratio of
2.752 to 1. Accordingly, there is a risk that you will receive less value for
your shares of Walton Bank common stock if First Sterling's closing price
decreases. The price of First Sterling common stock when the merger takes place
may vary from its price at the date of this proxy statement/prospectus and at
the date of Walton Bank's shareholders' meeting. Such variations in the price of
First Sterling common stock may result from changes in the business, operations
or prospects of First Sterling, regulatory considerations, general market and
economic conditions and other factors. At the time of Walton Bank's
shareholders' meeting, you will not know the exact value of the consideration
you will receive when the merger is completed.
WALTON BANK SHAREHOLDERS' MEETING
DATE, TIME AND PLACE
The Walton Bank shareholders' meeting will be held at the main office of
Walton Bank, at 1302 West Spring Street, Monroe, Georgia 30655 at a.m.
local time, on , 2000.
MATTERS TO BE CONSIDERED AT THE SHAREHOLDERS' MEETING
At the Walton Bank shareholders' meeting, holders of Walton Bank stock will
be asked to consider and vote upon the approval and adoption of the merger
agreement. Shareholders may also consider such other matters as may properly be
brought before the meeting. Finally, Walton Bank shareholders may be asked to
vote on a proposal to adjourn or postpone the shareholders' meeting, which could
be used to allow more time for soliciting additional votes to approve the merger
agreement.
THE BOARD OF DIRECTORS OF WALTON BANK HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND RECOMMENDS A VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
RECORD DATE; SHARES OUTSTANDING; QUORUM
Only shareholders of record of Walton Bank stock at the close of business on
, 2000, will be entitled to notice of, and to vote at, the Walton
Bank meeting. On , 2000, Walton Bank had outstanding 450,000 shares
of Walton Bank common stock. There is no other class of Walton Bank stock
outstanding. Each share of Walton Bank stock entitles the holder to one vote.
The presence at the Walton Bank meeting, in person or by proxy, of shareholders
entitled to cast a majority of all the votes entitled to be cast at the meeting
will constitute a quorum. There must be a quorum present in order for the vote
on the merger agreement to occur.
VOTE REQUIRED
The approval of the merger agreement will require the affirmative vote of at
least two-thirds of the outstanding shares of Walton Bank, or at least 300,000
shares.
As of the Walton Bank record date, directors, executive officers and their
affiliates of Walton Bank had voting power over approximately 214,117 shares of
Walton Bank stock, or approximately 47.6% of the shares of Walton Bank stock
outstanding on the Walton Bank record date. These individuals intend to vote for
the proposal to approve of the merger agreement at the shareholders' meeting.
VOTING OF PROXIES
All executed proxies received at or prior to the shareholders' meeting will
be voted at the shareholders' meeting in the manner specified, unless the proxy
is revoked prior to the vote. Properly
14
<PAGE>
executed proxies that do not contain voting instructions will be voted "FOR" the
proposal to approve the merger agreement.
It is not expected that any other matter will be brought before the
shareholders' meeting. If, however, other matters are properly presented, the
persons named as proxies will vote in accordance with their best judgment with
respect to such matters.
If a quorum is not obtained, the shareholders' meeting may be adjourned for
the purpose of obtaining additional proxies. At any reconvening of the meeting,
all proxies will be voted in the same manner as the proxies would have been
voted at the original convening of the meeting (except for any proxies which
have been revoked or withdrawn).
EFFECT OF ABSTENTIONS AND BROKER NON-VOTES
You may abstain from voting on the merger agreement. Abstentions will be
considered shares present and entitled to vote at the shareholders' meeting, but
will not be counted as votes cast at the meeting. Broker non-votes with respect
to the merger agreement also will not be counted as votes cast at the meeting.
BECAUSE APPROVAL OF THE MERGER AGREEMENT REQUIRES THE AFFIRMATIVE VOTE OF AT
LEAST TWO-THIRDS OF ALL SHARES ENTITLED TO VOTE AT THE WALTON BANK SHAREHOLDERS'
MEETING, ABSTENTIONS BY WALTON BANK SHAREHOLDERS AND BROKER NON-VOTES WILL HAVE
THE SAME EFFECT AS VOTES AGAINST THE MERGER AGREEMENT. ACCORDINGLY, WALTON
BANK'S BOARD OF DIRECTORS URGES YOU TO COMPLETE, DATE AND SIGN THE ACCOMPANYING
FORM OF PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
REVOCABILITY OF PROXIES
The grant of a proxy on the enclosed Walton Bank form does not preclude you
from voting in person or otherwise revoking a proxy. You may revoke a proxy at
any time prior to its exercise by:
- filing with the secretary of Walton Bank a duly executed revocation of
proxy;
- submitting a duly executed proxy bearing a later date; or
- appearing at the shareholders' meeting and voting in person at the
meeting.
Attendance at the shareholders' meeting will not, in and of itself, constitute
revocation of a proxy. All written notices of revocation and other
communications with respect to the revocation of proxies should be addressed to:
Walton Bank & Trust Co., 1302 West Spring Street, Monroe, Georgia 30655,
Attention: Secretary.
SOLICITATION OF PROXIES
Walton Bank will bear the cost of the solicitation of proxies from its
shareholders, except that First Sterling will pay the costs of filing the
registration statement with the SEC, of which this proxy statement is a part. In
addition to solicitation by mail, the directors, officers, and employees of
Walton Bank may solicit proxies from its shareholders by telephone or telegram
or in person without compensation other than reimbursements of their actual and
reasonable expenses. Walton Bank will reimburse any custodians, nominees and
fiduciaries for their reasonable out-of-pocket expenses in connection with
forwarding proxy solicitation material to beneficial owners of the stock they
hold.
WALTON BANK SHAREHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY
CARDS. AS DESCRIBED BELOW UNDER THE CAPTION "THE MERGER--EXCHANGE OF WALTON BANK
STOCK CERTIFICATES," AT PAGE 23, EACH WALTON BANK SHAREHOLDER WILL BE PROVIDED
WITH MATERIALS FOR EXCHANGING SHARES OF WALTON BANK AS PROMPTLY AS PRACTICABLE
AFTER THE CONSUMMATION OF THE MERGER.
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THE MERGER
THE FOLLOWING INFORMATION DESCRIBES INFORMATION PERTAINING TO THE MERGER.
THE DESCRIPTIONS OF THE TERMS AND CONDITIONS OF THE MERGER, THE MERGER
AGREEMENT, AND ANY RELATED DOCUMENTS IN THIS PROXY STATEMENT/ PROSPECTUS ARE NOT
COMPLETE AND ARE QUALIFIED IN THEIR ENTIRETY BY THE MORE DETAILED APPENDICES TO
THIS DOCUMENT WHICH ARE INCORPORATED BY REFERENCE, INCLUDING THE MERGER
AGREEMENT IN APPENDIX A. WE URGE YOU TO READ THE APPENDICES IN THEIR ENTIRETY.
OVERVIEW
The merger agreement provides for a transaction in which Walton Bank will
merge with and into Main Street Bank, a wholly owned subsidiary of First
Sterling. Main Street Bank will be the surviving bank resulting from the merger.
At the effective time of the merger, each issued and outstanding share of Walton
Bank's common stock (excluding shares held by First Sterling or Walton Bank or
any wholly-owned subsidiary of either of them and shares held by shareholders
who have perfected dissenters' rights) will cease to be outstanding and will be
converted into the right to receive 2.752 shares of First Sterling common stock.
BACKGROUND OF THE MERGER
In April of 2000, Hugh B. Williamson, III, Chairman of the board of
directors of Walton Bank met with Frank Brown of Brown, Burke Capital
Partners, L.L.C. to review the state of the equity markets for independent
community-based financial institutions and to discuss strategic alternatives to
enhance shareholder value for the shareholders of Walton Bank. In addition,
Mr. Williamson and Mr. Brown discussed strategic alternatives for two insurance
agencies, of which Mr. Williamson is the substantial majority owner. On May 15,
2000, Mr. Williamson engaged Brown Burke to formally explore strategic
affiliation alternatives for the insurance agencies.
Following Mr. Williamson's meeting with Mr. Brown, the board of directors of
Walton Bank began to discuss strategic alternatives to enhance shareholder
value, including the possibility of a business combination or the possibility of
continuing as an independent institution. The board of directors of Walton Bank
considered the recent trend towards consolidation in the financial services
industry. This trend has been fueled by, among other things, recent banking
legislation that has enabled participants in business combinations to benefit
from the economies of scale available to combined entities. In addition to
considering the general advantages and disadvantages of consolidation, the board
of directors also addressed specific concerns regarding Walton Bank's ability to
continue successfully as an independent institution. These specific concerns
included the imminent retirement of Walton Bank's chief financial officer, Nedra
E. Jackson, the need to expand Walton Bank's facilities to provide additional
office space, and the expiration of Walton Bank's data processing contract in
June of 2001.
Faced with these factors, Walton Bank's board of directors retained Brown
Burke to formally explore its strategic affiliation options, by soliciting
confidential indications of acquisition interest from various financial
institutions and other appropriate potential acquirers. Walton Bank selected
Brown Burke because of its familiarity with southeastern financial institutions
and its experience with mergers and acquisitions involving financial
institutions. A primary goal of Walton Bank's board of directors was to obtain a
high value for shareholders and to receive shares of stock that would enjoy
greater liquidity.
Brown Burke contacted 14 companies it believed might have an interest in a
business combination with Walton Bank. After obtaining confidentiality
agreements, Brown Burke provided First Sterling and six other of these companies
with an informational memorandum which included financial and other information
regarding Walton Bank. In connection with its engagement with Mr. Williamson's
insurance agencies, Brown Burke also delivered a separate informational
memorandum which included financial and other information regarding the
insurance agencies. Potential acquirors of both the insurance agencies and
Walton Bank were informed that a potential business combination with the
agencies or
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Walton Bank was not contingent upon a combination with the other. The
prospective acquirers were invited to submit written indications of interest for
either Walton Bank or the insurance agencies, or both.
During July of 2000, representatives of Walton Bank met with representatives
of First Sterling and four other prospective acquirers. Following these
meetings, First Sterling and one other financial institution submitted written
indications of acquisition interest to Brown Burke, each proposing a merger in
which the shareholders of Walton Bank would receive stock of the acquiring
institution. The board of directors of Walton Bank was informed that each
prospective acquirer had also submitted separate indications of interest for
Mr. Williamson's insurance agencies, and that First Sterling's initial
indication of interest for the insurance agencies provided greater consideration
to the owners of the insurance agencies. The other financial institution
subsequently increased its offer to equal the consideration offered by First
Sterling for the insurance agencies, subject to obtaining a validation opinion
regarding the valuation of the insurance agencies.
At the August 22, 2000 meeting of the board of directors of Walton Bank,
Brown Burke provided a comparison of the terms of each indication of interest
received regarding Walton Bank, including the per share consideration to Walton
Bank shareholders, the liquidity of the stock to be received by Walton Bank
shareholders, the dividend pay rate of the acquiring institution, and the size
and profitability of the acquiring institution. Brown Burke indicated that while
the offer of the other financial institution represented a nominally higher
value per share to Walton Bank's shareholders, the market value of the stock of
the other financial institution had increased significantly over the prior
months following the execution of a share repurchase program instituted by its
management. In addition, Brown Burke informed the board of directors that the
average monthly trading volume of First Sterling common stock was over seven
times greater than the average monthly trading volume of the other financial
institution. Brown Burke also indicated that the increase in the dividend pay
rate for Walton Bank's shareholders would be 33% greater in a business
combination with First Sterling. Brown Burke observed that First Sterling was
several times larger than the other financial institution and had enjoyed
greater profitability.
After extensive discussions regarding, among other things, the value to
Walton Bank shareholders, the liquidity of the stock to be received in the
merger, the dividend pay rate of the prospective acquirer, and the size and
profitability of the prospective acquirer, the board of directors determined
that the proposal of First Sterling represented a greater value to the
shareholders of Walton Bank. The board of directors of Walton Bank directed
Brown Burke to contact First Sterling and the other financial institution for a
final indication of interest, and management of Walton Bank was instructed to
negotiate a merger agreement with First Sterling if neither prospective acquirer
materially altered the terms of their initial indication of interest. In
September of 2000, after neither prospective acquirer had materially altered
their initial indication of interest for Walton Bank, management and legal
counsel for Walton Bank began to negotiate a merger agreement with First
Sterling.
Since 1995, First Sterling has been reviewing and analyzing possible
acquisition opportunities in the Atlanta metropolitan area. Its strategic plan
has been to enhance shareholder value by creating a larger organization in the
metropolitan Atlanta area. The goal has been to provide broader and more
comprehensive services to its customers, create efficiencies in the
administration and service functions, and provide a larger shareholder base with
a more liquid security trading in a national market.
The first merger occurred in 1996 when First Sterling's predecessor Westside
Financial Corporation, a one bank holding company located in Kennesaw, Cobb
County, Georgia merged with Eastside Holding Corporation, a one bank holding
company located in Snellville, Gwinnett County, Georgia. The combined company's
subsidiary banks established branches in Marietta and Lawrenceville, the
respective county seats of Cobb and Gwinnett counties and continued to grow
internally. First Sterling's common stock was listed on the Nasdaq National
Market in the second
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quarter of 1997. In 1999 First Sterling consummated a merger with Georgia
Bancshares, Inc. and thereby acquired Community Bank of Georgia with its
headquarters located in Tucker, DeKalb County, Georgia. In early 2000, First
Sterling consummated a merger with Main Street Banks Incorporated, and thereby
acquired Main Street Bank with its headquarters located in Covington, Newton
County, Georgia.
Management of First Sterling discusses and analyzes merger and acquisition
opportunities with various community banks. On June 16, 2000, Brown Burke made
initial inquiries of First Sterling's management regarding a possible
transaction with Walton Bank. Management of both First Sterling and Walton Bank
explored the desirability of a merger of a subsidiary of First Sterling and
Walton Bank in light of their respective goals. This merger would offer greater
growth opportunities for the shareholders of both First Sterling and Walton
Bank. In light of this perceived opportunity, management of First Sterling
informed its board of directors that they believed further discussion was
appropriate and a proposed merger agreement and merger ratio were subsequently
negotiated.
At the September 13, 2000 board meeting for First Sterling, the board
considered a financial analysis of the merger. Miller & Martin LLP also
presented a discussion of the legal aspects of the merger agreement, its
ancillary documents and the proposed employment agreement with Mr. Jordan. First
Sterling's board of directors thoroughly reviewed the information provided and
there was a full discussion by the board and its financial and legal advisors
regarding the specific effects of the merger proposal, including the employment
agreement for Mr. Jordan. Following this discussion, the board of directors of
First Sterling voted unanimously to approve the merger agreement. Approval by
the shareholders of First Sterling is not required under Georgia law. The board
of directors of Main Street Bank unanimously approved the merger agreement on
September 19, 2000.
The final draft of the merger agreement was distributed to Walton Bank's
board of directors on September 22, 2000. On September 26, 2000, Walton Bank's
board of directors met to consider the merger agreement. Walton Bank's legal
counsel presented to Walton Bank's board of directors a summary of the merger
agreement. At that meeting, the board of directors reviewed the terms of the
merger agreement with its legal counsel and received Brown Burke's verbal
opinion that the consideration from First Sterling was fair, from a financial
point of view, to Walton Bank's shareholders. After extensive discussion, the
board of directors of Walton Bank approved the merger agreement.
The definitive merger agreement was executed on September 26, 2000 following
the meeting of the board of directors of Walton Bank.
REASONS FOR THE MERGER
FIRST STERLING'S REASONS FOR THE MERGER
In deciding whether to enter into the merger agreement, First Sterling's
board of directors considered a number of factors, including the following:
- the financial condition and operating results of First Sterling and Walton
Bank;
- a comparison of the terms of the proposed merger with comparable
transactions, both in the southeastern United States and elsewhere; and
- the merger provides First Sterling with a natural extension of its
existing metropolitan Atlanta community bank franchise by expanding its
presence in Walton County, Georgia.
In approving the transaction, First Sterling's board did not specifically
identify any one factor or group of factors as being more significant than any
other factor in the decision making process, although individual directors may
have given one or more factors more weight than other factors.
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WALTON BANK'S REASONS FOR THE MERGER
Walton Bank's board of directors, with the assistance of outside financial
and legal advisors, evaluated the financial, legal and market considerations
bearing on the decision to recommend the merger. The terms of the merger,
including the exchange ratio for shares of Walton Bank's common stock, are the
result of arm's-length negotiations between representatives of Walton Bank and
First Sterling. In reaching its conclusion that the merger agreement is in the
best interest of Walton Bank and its shareholders, Walton Bank's board
considered, without assigning any relative or specific values, a number of
factors, including:
- the fact that First Sterling common stock is traded on the Nasdaq National
Market and has enjoyed a greater dividend payout ratio;
- alternatives to the merger, including continuing to operate Walton Bank on
a stand-alone basis, considering the breadth of its product line, economic
conditions and the prospects for community banking and competition in the
financial services area;
- the exchange ratio of the proposed merger, including the fact that Walton
Bank shareholders will not recognize any gain or loss for federal income
tax purposes on the receipt of First Sterling's common stock in the
merger;
- a comparison of the terms of the proposed merger with comparable
transactions, both in the southeastern United States and elsewhere;
- information concerning the business, financial condition, results of
operations and prospects of Walton Bank and First Sterling;
- competitive factors and trends toward consolidation in the banking
industry; and
- the opinion rendered by Brown Burke to Walton Bank's board that the
exchange ratio is fair, from a financial point of view, to the holders of
Walton Bank's common stock.
Walton Bank's board of directors believes that by becoming part of a larger
organization with greater resources, Walton Bank will be able to serve its
customers and communities better and to provide services that will be
competitive in the combined companies market and elsewhere. Similarly, a larger
organization will be able to provide greater career opportunities for Walton
Bank's employees.
Walton Bank's board of directors also considered the separate agreements and
benefits proposed for employees and management and concluded that those terms
were reasonable. See "Interests of certain persons in the merger" on page 32.
The foregoing discussion of the information and factors considered by Walton
Bank's board of directors is not intended to be exhaustive. Walton Bank's board
of directors did not assign any relative or specific weights to the foregoing
factors, and individual directors may have given different weights to different
factors. Walton Bank's board of directors collectively made its determination
with respect to the merger based on the conclusion reached by its members, in
light of the factors that each of them considered appropriate, that the merger
is in the best interest of Walton Bank's shareholders.
RECOMMENDATION OF THE WALTON BANK BOARD OF DIRECTORS
The board of directors of Walton Bank believes that the terms of the merger
are in the best interest of Walton Bank and its shareholders and has unanimously
approved the merger agreement. The board of directors of Walton Bank unanimously
recommends that the shareholders of Walton Bank approve the merger agreement.
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OPINION OF FINANCIAL ADVISOR TO WALTON BANK
Walton Bank has retained Brown, Burke Capital Partners, L.L.C. to act as its
financial advisor in connection with the merger. A representative of Brown,
Burke participated in meetings of the Walton Bank board of directors held on
August 22, 2000 and September 26, 2000. At the September 26, 2000 meeting, based
upon its review of the merger agreement and plan of merger to purchase Walton
Bank, Brown, Burke rendered its oral opinion to the effect that, as of such
date, conversion of each share of Walton Bank common stock into the right to
receive 2.752 shares of First Sterling common stock and the additional terms to
be provided by the merger agreement were fair to the stockholders and
optionholders of Walton Bank from a financial point of view. Brown, Burke has
also rendered a written opinion to the Walton Bank board of directors that, on
the date of this proxy statement/prospectus, based on the information set forth
therein, the exchange ratio and merger agreement terms were fair to the Walton
Bank stockholders and optionholders from a financial point of view.
THE FULL TEXT OF BROWN, BURKE'S WRITTEN OPINION IS ATTACHED AS APPENDIX C TO
THIS PROXY STATEMENT/ PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. THE
DESCRIPTION OF THE OPINION SET FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO APPENDIX C. WALTON BANK STOCKHOLDERS ARE URGED TO READ THE OPINION
IN ITS ENTIRETY FOR A DESCRIPTION OF THE PROCEDURES FOLLOWED, ASSUMPTIONS MADE,
MATTERS CONSIDERED, AND QUALIFICATIONS AND LIMITATIONS ON THE REVIEW UNDERTAKEN
BY BROWN, BURKE IN CONNECTION THEREWITH.
Brown, Burke's opinion is directed to the Walton Bank board of directors
only and is directed only to the exchange ratio and merger agreement terms and
does not constitute a recommendation to any Walton Bank stockholder regarding
how such stockholder should vote at the shareholders' meeting. Brown, Burke
neither established nor recommended the amount of consideration payable under
the merger agreement.
In arriving at its written opinion, Brown, Burke, among other things:
- analyzed certain audited and unaudited financial statements and other
information of Walton Bank and First Sterling;
- reviewed and discussed with appropriate management personnel of Walton
Bank and First Sterling the past and current business activities and
financial results and the business and financial outlook of Walton Bank
and First Sterling;
- reviewed the historical price and trading activity of the common stock of
First Sterling;
- compared certain financial and stock market data relating to First
Sterling with similar data of other publicly held banking institutions
considered to be potential alternative affiliation candidates to First
Sterling for Walton Bank;
- performed an analysis comparing the pro forma consequences of the merger
to Walton Bank stockholders with respect to fully diluted earnings per
share, book value per share and dividends per share represented by the
First Sterling common stock they will receive in the merger to those same
measures represented by the Walton Bank common stock they currently hold;
- reviewed the prices paid in certain comparable acquisition transactions of
community banking and thrift institutions and the multiples of earnings
and book value and the level of deposit base premium received by the
selling institutions;
- reviewed the merger agreement and certain related documents;
- considered the financial implications of certain other strategic
alternatives available to Walton Bank; and
- performed such other analyses as Brown, Burke deemed appropriate.
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In conducting its analysis and arriving at its opinion, Brown, Burke assumed
and relied upon, without independent verification, the accuracy and completeness
of the information it reviewed for the purposes of the opinion. Brown, Burke
also relied upon the management of Walton Bank with respect to the
reasonableness and achievability of the financial forecast (and the assumptions
and bases underlying such forecast) provided to it. Walton Bank instructed
Brown, Burke that, for the purposes of its opinion, Brown, Burke should assume
that such forecast will be realized in the amounts and in the time periods
currently estimated by the management of Walton Bank. Brown, Burke also assumed,
with Walton Bank's consent, that the aggregate allowances for loan losses for
each of Walton Bank and First Sterling are adequate to cover such losses. Brown,
Burke is not an expert in the evaluation of allowances for loan losses and has
not reviewed any individual credit files. Brown, Burke did not make, nor was it
furnished with, independent valuations or appraisals of the assets or
liabilities of either Walton Bank or First Sterling or any of their
subsidiaries. Brown, Burke did not, and was not asked to, express any opinion
about what the value of First Sterling common stock actually will be when issued
to the holders of Walton Bank common stock pursuant to the merger or the price
at which First Sterling common stock will trade subsequent to the merger.
Moreover, Walton Bank has informed Brown, Burke, and Brown, Burke has assumed,
that the merger will be recorded utilizing pooling-of-interests accounting under
generally accepted accounting principles.
No limitations were imposed by Walton Bank or the Walton Bank board of
directors on the scope of Brown, Burke's investigation or the procedures to be
followed by Brown, Burke in rendering its opinion. As part of its procedures,
Brown, Burke solicited major regional bank holding companies for their
indications of acquisition interest in Walton Bank. The opinion is necessarily
based on economic, market and other conditions as in effect on, and the
information made available to Brown, Burke as of the date of its analysis.
In arriving at the fairness, from a financial point of view, of the
consideration to be received by the stockholders and optionholders of Walton
Bank, Brown, Burke developed an opinion of the value of Walton Bank common stock
should the institution remain independent and analyzed such value in light of
the premium represented by the per share purchase price and merger agreement
terms. In connection with rendering its opinion to the Walton Bank board, Brown,
Burke also reviewed a variety of generally recognized valuation methodologies
and merger analyses and performed those which it believed were most appropriate
for developing its opinion of fairness, from a financial point of view.
The preparation of a fairness opinion involves various determinations of the
most appropriate and relevant methods of financial analysis and the application
of those methods to the particular circumstances, and, therefore, such an
opinion is not readily susceptible to summary description. In arriving at its
fairness opinion, Brown, Burke did not attribute any particular weight to any
analysis or factor considered by it, but rather made qualitative judgments about
the significance and relevancy of each analysis and factor. None of the analyses
performed by Brown, Burke was assigned a greater significance by Brown, Burke
than any other. Accordingly, Brown, Burke believes that its analyses must be
considered as a whole and that a review of selected portions of such analyses
and the factors considered therein, without considering all analyses and
factors, could create a misleading or incomplete view of the processes
underlying its opinion and any conclusions reached therein. In its analyses,
Brown, Burke made numerous assumptions with respect to industry performance,
general business and economic conditions, and other matters, many of which are
beyond Walton Bank's and First Sterling's control. Any estimates contained in
Brown, Burke's analyses are not necessarily indicative of actual values or
predictive of future results or values that may be significantly more or less
favorable than such estimates. Estimates of values of companies do not purport
to be appraisals or necessarily reflect the prices at which companies or their
securities actually may be sold. In addition, as described above, Brown, Burke's
opinion and presentations to the Walton Bank Board were only a few of many
factors taken into consideration by the Walton Bank Board in making its
determination to approve the merger agreement.
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The following is a brief summary of analyses performed by Brown, Burke in
connection with its opinion delivered to the Walton Bank board on September 26,
2000:
SUMMARY OF PROPOSAL. Brown, Burke reviewed the terms of the proposed
transaction as reflected in the merger agreement, including the calculation of
the exchange ratio. Brown, Burke stated that based on the recent price of First
Sterling common stock of $12.1875 per share, an exchange ratio of 2.752 shares
of First Sterling common stock per share of Walton Bank common stock would
provide Walton Bank stockholders a per share value of $33.54 and a total
transaction value of approximately $16.0 million.
INDICATED VALUE OF WALTON BANK AS AN INDEPENDENT BANK. Brown, Burke
undertook an analysis addressing the range of potential values which would be
implied if Walton Bank were to remain an independent bank. Brown, Burke computed
this range of values based on a discounted cash flow analysis, relying on
projections extrapolated from Walton Bank's 2000 forecast and its historical
performance. In this analysis methodology, Brown, Burke assumed stockholders
received, in addition to the projected dividend stream, a terminal valuation at
December 31, 2005 based upon an average of a) 2.00 times projected book value at
December 31, 2005 and b) 14.0 times projected earnings for such year. In
addition, Brown, Burke assumed that all common stock equivalents were converted
to common stock. These amounts were discounted at rates ranging from 12% to 16%
and indicated net present values to Walton Bank stockholders between
$12.4 million and $15.2 million.
PER SHARE MERGER CONSEQUENCES ANALYSIS. Based upon an exchange ratio of
2.752 shares of First Sterling common stock for each share of Walton Bank common
stock and common stock equivalents and using the earnings estimates for Walton
Bank prepared by Walton Bank management and earnings estimates for First
Sterling prepared by First Sterling management and Brown, Burke, Brown, Burke
compared the estimated 2000 and 2001 fully diluted earnings per share of Walton
Bank common stock on a stand-alone basis to the equivalent pro forma fully
diluted earnings per share of First Sterling common stock which would be
received in the merger. Brown, Burke concluded that the merger would result in
an earnings increase of 13.3% in 2000 for Walton Bank stockholders in the
combined company.
Brown, Burke also analyzed the impact of the merger on the amount of fully
diluted book value represented by a share of Walton Bank common stock. Brown,
Burke assumed exercise of all outstanding options and consummation of the
merger. Brown, Burke concluded that the merger would result in an increase of
2.6% in fully diluted book value on an equivalent per share basis for Walton
Bank stockholders projected as of June 30, 2000.
Brown, Burke also compared the amount of dividends expected to be paid on a
share of Walton Bank common stock before the merger to the level expected to be
paid on a pro forma basis reflecting the merger. Brown, Burke concluded that the
merger would result in an increase of 124% in dividends per share for Walton
Bank stockholders.
ANALYSIS OF SELECTED OTHER BANK MERGERS INVOLVING COMMUNITY BANKS AND
THRIFTS. Brown, Burke reviewed 25 mergers involving community banks, thrifts
and bank holding companies announced since January 1, 2000 in which the selling
institution had total assets of between $50 million and $300 million. Brown,
Burke noted in particular the prices paid in these mergers as a multiple of
earnings and book values and the transaction premiums paid in excess of tangible
book value as a percentage of deposits. Brown, Burke also reviewed other data in
connection with each of these mergers, including the level of earnings and the
capital level of the acquired institutions and the return on equity and the
return on assets of the acquired institutions. Brown, Burke then compared this
data to that of Walton Bank and to the value to be received by Walton Bank
stockholders in the merger.
This comparison yielded a range of transaction values as multiples of latest
twelve-months earnings per share of a low of 10.96 times and a high of 55.79
times and a median value of 23.81 times. The
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Walton Bank multiple of trailing earnings was 16.56 times. The calculations
yielded a range of transaction values as multiples of book value per share of a
low of 1.17 times to a high of 3.85 times and a median value of 1.65 times. The
Walton Bank multiple of book value was 2.37 times. Finally, the calculations
yielded a range of deposit base premiums paid from a low of 3.05% to a high of
34.12%, with a median value of 13.50%. The equivalent premium on Walton Bank
deposits represented by the per share purchase price and merger agreement terms
was 29.49%.
No company or transaction used in the above analyses as a comparison is
identical to Walton Bank, First Sterling, or the merger. Accordingly, an
analysis of the results of the foregoing necessarily involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the public
trading value of the companies to which they are being compared. Mathematical
analysis (such as determining the average or median) is not, in itself, a
meaningful method of using comparable company data.
In connection with its opinion dated the date of this proxy
statement/prospectus, Brown, Burke confirmed the appropriateness of its reliance
on the analyses used to render its September 26, 2000 opinion by performing
procedures to update certain of such analyses and by reviewing the assumptions
on which such analyses were based and the factors considered in connection
therewith.
Brown, Burke is continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, private placements, and
valuations for estate, tax, corporate and other purposes. Walton Bank selected
Brown, Burke because of its familiarity with Southeastern financial institutions
and its experience with mergers and acquisitions involving financial
institutions. Walton Bank will pay Brown, Burke a fee of $35,000 upon delivery
of its fairness opinion. An additional fee based upon the aggregate market value
of the consideration received by Walton Bank stockholders and optionholders will
be payable to Brown, Burke upon consummation of the merger. Based upon an
assumed market price of a share of First Sterling common stock at the effective
time of the merger of $12.00 (the closing price of First Sterling common stock
on November 24, 2000) this additional fee would be approximately $207,221. No
compensation payable to Brown, Burke is contingent on the conclusions reached in
the opinion of Brown, Burke. Walton Bank has also agreed to reimburse Brown,
Burke for reasonable out-of-pocket-expenses and to indemnify Brown, Burke and
certain related persons against certain liabilities relating to or arising out
of its engagement.
EXCHANGE OF WALTON BANK STOCK CERTIFICATES
As soon as practicable after the consummation of the merger, a letter of
transmittal furnishing instructions for exchanging Walton Bank stock
certificates (and for replacing any lost, stolen or destroyed certificates) will
be mailed to each Walton Bank shareholder of record as of the close of business
on the effective date of the merger. Each Walton Bank shareholder will be urged
to return this letter of transmittal, as soon as possible, together with his or
her stock certificates to SunTrust Bank, the exchange agent for First Sterling.
As soon as practicable after receipt by the exchange agent of your Walton Bank
stock certificates, you will be mailed the First Sterling stock and/or a check
for any fractional share interest or dividends or distributions to which you are
entitled pursuant to the merger agreement.
As of the effective date of the merger, each Walton Bank stock certificate
will be deemed for all corporate purposes only to evidence the right to receive
certificates representing shares of First Sterling stock pursuant to the merger
agreement. Until your Walton Bank stock certificate is surrendered (or suitable
arrangements made for any lost, stolen or destroyed certificate) you:
- will not be issued a certificate representing the shares of First Sterling
stock which you are otherwise entitled to receive;
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- will not have any voting rights in respect to the shares of First Sterling
stock which you are otherwise entitled to receive; and
- will not be paid dividends or other distributions in respect of the shares
of First Sterling stock which you are otherwise entitled to receive.
Any dividends or distributions or other cash payable to you will be retained,
without interest, for your account until you surrender your stock certificate in
accordance with the letter of transmittal.
There will be no transfers of shares of Walton Bank common stock on Walton
Bank's stock transfer books after the effective time. Walton Bank common stock
certificates presented for transfer after the effective time will be canceled
and exchanged for First Sterling common stock certificates and a check for any
amount to be paid for a fractional share interest.
Existing First Sterling shareholders will keep their existing stock
certificates and should not deliver any certificates for First Sterling stock.
EFFECTIVE TIME OF THE MERGER
The merger will be consummated if it is approved by the shareholders of
Walton Bank, and, unless waived, First Sterling and Walton Bank obtain all
required consents and approvals, including the approvals of the Federal Deposit
Insurance Corporation and the Georgia Department of Banking and Finance, and
satisfy the other conditions to the obligations of the parties to consummate the
merger. The merger will become effective on the date and at the time that a
certificate of merger is issued by the Secretary of State of Georgia. We
presently expect that the effective date will occur in the first quarter of
2001.
TERMS OF THE MERGER
Upon completion of the merger, the separate legal existence of Walton Bank
will cease. All property, rights, powers, duties, obligations, debts and
liabilities of Walton Bank will automatically be transferred to Main Street
Bank. The articles of incorporation of Main Street Bank shall govern the
combined entities.
Upon the merger, each outstanding share of Walton Bank stock will be
automatically converted into, and become a right to receive 2.752 shares of
First Sterling stock. This is the "exchange ratio." Existing shares of First
Sterling held by First Sterling shareholders immediately prior to the merger
shall not be converted and will continue to be issued and outstanding.
FRACTIONAL SHARES
First Sterling will not issue any fractional shares of First Sterling common
stock to former Walton Bank shareholders. Instead, you will receive cash,
without interest, for any fractional share interest. The amount of cash received
will be determined by multiplying the fraction by the average of the last
regular closing sales prices of First Sterling common stock on Nasdaq for the
ten trading days immediately preceding the effective time of the merger. You
will not be entitled to dividends, voting rights or any other shareholder rights
with respect to any fractional share interest.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains customary representations and warranties
relating to, among other things:
- the organization and capital structures of First Sterling, Main Street
Bank and Walton Bank;
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- the due authorization, execution, delivery, performance and enforceability
of the merger agreement;
- consents or approvals of regulatory authorities and third parties
necessary to complete the merger;
- certain financial statements through the period ended June 30, 2000 fairly
present the financial condition and results of operation of the respective
parties in conformity with generally accepted accounting principles
applied on a consistent basis; and
- the absence of material adverse changes, since June 30, 2000, in the
consolidated assets, business, liabilities, financial condition or results
of operations of First Sterling (and its subsidiaries) or Walton Bank or
in any of its relationships with customers, employees, lessors, or others.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the merger agreement, First Sterling and Walton Bank have each
agreed to use reasonable efforts to preserve their business organizations intact
and to maintain satisfactory relationships with its customers, suppliers,
regulators and employees. In addition, First Sterling and Walton Bank agreed to
conduct their businesses and to engage in transactions only in the ordinary
course of business as conducted at the date of the merger agreement, and in
compliance in all material respects with all applicable laws and regulations and
all contracts to which either is a party.
Walton Bank has agreed not to:
- engage in certain activities such as selling property having a book value
exceeding $50,000 or incur indebtedness exceeding $50,000 (except in the
ordinary course of business), make capital contributions to affiliates,
make or commit to make capital expenditures exceeding $50,000 except in
the ordinary course of business, commit to any transaction requiring
regulatory approval (other than the transactions contemplated by the
merger agreement), or fail to maintain all of its properties in good
repair, order and condition, consistent with past practices;
- enter into any compensation agreements or increase salaries, employee
benefits, directors' fees or bonuses, except to the extent consistent with
past practices;
- change employee benefit plans unless required by law, regulation or
judicial interpretation as adjusted by counsel;
- enter into any agreements with officers, directors, immediate family
members of such officers and directors, or affiliates of the banks;
- enter into agreements that call for payment of $50,000, or more, with
certain exceptions; and
- fail to maintain books, accounts and records in the usual, regular and
ordinary manner, on a basis consistent in all material aspects with prior
years.
Walton Bank has agreed, among other things:
- subject to the terms of the merger agreement, to take all actions
necessary to complete the transactions contemplated by the merger
agreement;
- to maintain accurate books and records;
- to file all reports required to be filed with regulatory agencies for
periods ending on or after June 30, 2000; and
- to allow representatives of First Sterling to attend Walton Bank's board
of directors and loan and executive committee meetings (except during
discussions of the merger).
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CONDITIONS TO THE MERGER
The obligations of Walton Bank and First Sterling to consummate the merger
are subject to various conditions, which include the following:
- the merger agreement shall have been duly approved by the Walton Bank
shareholders;
- all necessary governmental approvals for the merger shall have been
obtained, and all waiting periods required by law or imposed by any
governmental authority with respect to the merger shall have expired (see
"The merger--Required regulatory approvals" at page 26);
- no action, suit, proceeding or claim shall have been instituted, made or
threatened relating to the merger;
- we shall have received an opinion of First Sterling's tax counsel that,
among other things, the merger will be treated for federal income tax
purposes as a tax-free "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code of 1986 (see "The
merger--Important federal income tax consequences of the merger" at
page 28);
- we shall have received an opinion from First Sterling's independent public
accountants, that the merger will be treated as a pooling-of-interests for
financial accounting purposes (see "The merger--Accounting treatment" at
page 29);
- the aggregate number of shares of Walton Bank stock dissenting to the
merger shall not disqualify the merger to be accounted for as a
pooling-of-interests.
- the accuracy in all material respects as of September 26, 2000 and as of
the effective date of the merger of the representations and warranties
made, except as otherwise contemplated by the merger agreement;
- the performance by First Sterling and Walton Bank in all material respects
of all covenants and obligations required to be performed by each at or
prior to the effective date of the merger;
- the registration statement registering the shares of First Sterling common
stock to be received by Walton Bank shareholders, of which this proxy
statement/prospectus is a part, must have been declared effective by the
SEC, no stop order suspending the effectiveness of the registration
statement may have been issued, no action, suit, proceeding or
investigation by the SEC to suspend the effectiveness of the registration
statement may have been initiated and be continuing and all necessary
approvals under federal and state securities laws relating to the issuance
or trading of shares of First Sterling common stock issuable pursuant to
the merger must have been received; and
- other conditions which are customary for transactions of the type
contemplated by the merger agreement. See "The merger--Representations and
warranties" at page 24 and "The merger--Conduct of business pending the
merger" at page 25.
REQUIRED REGULATORY APPROVALS
The merger may not proceed unless we receive the required regulatory
approvals. We know of no reason why such approvals would not be obtained, but we
cannot assure you that such regulatory approvals will be obtained or when we
will obtain them. Applications for the approvals described in this section were
filed with the Federal Deposit Insurance Corporation on , 2000 and
with the Georgia Department of Banking and Finance on , 2000.
We are not aware of any other regulatory approvals or actions that are
required for consummation of the merger. Should any other approval or action be
required, we presently contemplate that such approval or action would be sought.
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In evaluating the merger, the FDIC must consider, among other factors, the
financial and managerial resources and future prospects of the institutions and
the convenience and needs of the communities to be served. The relevant statutes
prohibit the FDIC from approving the merger if:
- it would result in a monopoly or be in furtherance of any combination or
conspiracy to monopolize or attempt to monopolize the business of banking
in any part of the United States; or
- its effect in any section of the country could be to lessen substantially
competition or to tend to create a monopoly, or if it would result in a
restraint of trade in any other manner, unless the FDIC should find that
any anti-competitive effects are outweighed clearly by the public interest
and the probable effect of the transaction in meeting the convenience and
needs of the communities to be served.
If the FDIC approves this merger transaction, it will immediately notify the
Attorney General. Generally, unless it involves a probable failure or an
emergency exists requiring expeditious action, a merger transaction may not be
consummated until 30 calendar days after the date of the FDIC's approval.
However, the FDIC may prescribe a 15-day period, provided the Attorney General
concurs with the shorter period.
The Georgia Department of Banking and Finance also must approve the merger.
In its evaluation of the merger, the Georgia Department will take into account
considerations similar to those applied by the FDIC.
NASDAQ LISTING
First Sterling shares are currently listed on the Nasdaq National Market and
the shares to be issued to Walton Bank shareholders shall also be listed on the
Nasdaq National Market.
WAIVER, AMENDMENT, AND TERMINATION
We may agree to amend the merger agreement. However, after approval of the
merger agreement by Walton Bank shareholders, we cannot make any amendment that
modifies the exchange ratio specifying the conversion of Walton Bank shares into
First Sterling shares. One party may waive any breach of the merger agreement by
the other party, or the failure of the other party to meet any conditions or
terms of the merger agreement.
The merger agreement may be terminated and the merger abandoned at any time
prior to the effective date, even though we have received the approval of Walton
Bank shareholders:
- by our mutual consent;
- by either one of us if, without the fault of the terminating party, the
closing of the merger does not occur on or before March 31, 2001;
- by either of us if regulatory approval is denied; or
- by either of us if: (i) the other party materially breaches its
representations, warranties or covenants under the merger agreement and
the breach is not corrected for 30 days after notice; (ii) an event or
circumstance arises as a result of which the other party will be unable to
satisfy certain conditions of the merger agreement; or (iii) if, at the
closing of the merger, any condition to the obligations of such party is
not met.
If the merger is terminated as described above, the merger agreement will
have no effect, except for certain provisions of the merger agreement, including
those relating to the obligations to maintain the confidentiality of certain
information, and to return all documents obtained from the other party under the
merger agreement. In the event of a termination, First Sterling and Walton Bank
will each
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be responsible for its costs, expenses and fees which have been incurred in
attempting to accomplish the transactions contemplated in the merger agreement,
including the expenses associated with its own fairness opinion, attorneys and
consultants.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
After the merger, the First Sterling board of directors and management shall
remain unchanged and the Main Street Bank board of directors shall have ten
members. The members of the board of directors shall be: Eugene L. Argo,
Robert R. Fowler, III, Samuel B. Hay, III, P. Harris Hines, Harry L.
Hudson, Jr., C. Candler Hunt, Edward C. Milligan, Joseph K. Strickland, Jr.,
Frank B. Turner and Hugh B. Williamson, III. Mr. Williamson shall be elected as
a member of the board of directors of Main Street Banks for a minimum period of
five years and First Sterling shall vote its shares of common stock in favor of
such election. W. Morris Jordan shall be employed as an executive vice president
of Main Street Bank and as chief executive officer of the Walton County Banking
Region of Main Street Bank (including Loganville, Georgia).
IMPORTANT FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a summary of the material anticipated federal income tax
consequences of the merger. This summary is based on the federal income tax laws
now in effect and as currently interpreted. This summary does not take into
account possible changes in these laws or interpretations, including amendments
to applicable statutes or regulations or changes in judicial or administrative
rulings, some of which may have retroactive effect. This summary does not
address all aspects of the possible federal income tax consequences of the
merger and is not intended as tax advice to any person.
In particular, this summary does not address the federal income tax
consequences of the merger to Walton Bank shareholders in light of their
particular circumstances or status. For example, this summary does not address
the federal income taxation of the merger to Walton Bank shareholders who are
foreign persons, tax-exempt entities, dealers in securities, insurance companies
or corporations, among others. Nor does this summary address any consequences of
the merger under any state, local or foreign laws, or the tax treatment of
shares of Walton Bank or options or other rights to purchase shares of Walton
Bank stock that are or have been received as compensation. YOU ARE URGED TO
CONSULT YOUR OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER
TO YOU, INCLUDING TAX RETURN REPORTING REQUIREMENTS, THE APPLICATION AND EFFECT
OF FEDERAL, FOREIGN, STATE, LOCAL AND OTHER TAX LAWS, AND THE IMPLICATIONS OF
ANY PROPOSED CHANGES IN THE TAX LAWS.
In connection with the filing of the registration statement of which this
document is a part, Miller & Martin LLP delivered a tax opinion to First
Sterling and Walton Bank. The following discussion summarizes the material
income tax consequences of the merger to the shareholders of Walton Bank which
were described in that opinion. This discussion is qualified in its entirety by
reference to the tax opinion, which is included as an exhibit to the
registration statement. In connection with the tax opinion, Miller & Martin LLP
has relied upon factual assumptions which are customary in similar tax opinions
and representations made by First Sterling and Walton Bank in the merger
agreement.
Cash that a dissenting Walton Bank shareholder receives will be treated as
having been received as a distribution in redemption of such shareholder's
Walton Bank stock. A dissenting shareholder will realize and recognize gain or
loss in an amount equal to the difference between the amount of cash received
and the adjusted tax basis of the Walton Bank stock surrendered. Such gain or
loss will be capital gain or loss if the dissenting shareholder held the Walton
Bank stock as a capital asset at the effective time of the merger and will be
long-term capital gain or loss if such shares of Walton Bank common stock have
been held for more than 12 months as of the effective time of the merger. WALTON
BANK SHAREHOLDERS ELECTING TO EXERCISE DISSENTERS' RIGHTS SHOULD CONSULT THEIR
OWN TAX ADVISORS FOR TAX TREATMENT FOR THEIR PARTICULAR CIRCUMSTANCES.
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The payment of cash to holders of Walton Bank stock in lieu of fractional
share interests of First Sterling's common stock will be treated as if the
fractional shares were issued as part of the exchange pursuant to the merger and
then were redeemed by First Sterling. These cash payments will be treated as
having been received as distributions in full payment in exchange for the First
Sterling common stock redeemed. A Walton Bank shareholder who receives such cash
will recognize gain or loss equal to the difference between the amount of cash
and the tax basis allocated to the fractional share interest exchanged therefor.
Such gain or loss will be capital gain or loss if such stockholder's Walton Bank
stock is held as a capital asset at the effective time of the merger and will be
long-term capital gain or loss if such shares of Walton Bank stock have been
held for more than 12 months as of the effective time of the merger.
The aggregate tax basis of the First Sterling stock that Walton Bank
shareholders receive pursuant to the merger will be the same tax basis as their
shares of Walton Bank stock being exchanged, decreased by any portion of the tax
basis allocated to fractional shares of First Sterling stock that First Sterling
treats as redeemed.
The holding period of the shares of First Sterling stock that Walton Bank
shareholders receive will include the holding period of the shares of Walton
Bank stock being exchanged, provided that the Walton Bank stock is held as a
capital asset on the date of the consummation of the merger.
Based upon the merger agreement, the factual assumptions and representations
made by First Sterling and Walton Bank, Miller & Martin LLP is of the opinion
that:
- The merger will be a tax-free reorganization within the meaning of
Section 368(a) of the Internal Revenue Code;
- The shareholders of Walton Bank will recognize no gain or loss upon the
exchange of their Walton Bank stock solely for shares of First Sterling
stock plus cash in lieu of fractional shares, except for the recognition
of gain as a result of the receipt by the Walton Bank shareholders of cash
in lieu of fractional shares; and
- Neither First Sterling nor Walton Bank will recognize any income, gain or
loss as a consequence of the merger.
ACCOUNTING TREATMENT
It is anticipated that the merger will be accounted for as a
pooling-of-interests transaction under accounting principles generally accepted
in the United States. Under this accounting method, Walton Bank shareholders
will be deemed to have combined their existing voting common stock interest with
that of holders of First Sterling stock by exchanging their shares for shares of
First Sterling common stock. Accordingly, the book value of the assets,
liabilities and shareholders' equity of Walton Bank as reported on its balance
sheet will carry over to First Sterling's consolidated balance sheet, and no
goodwill will be created. First Sterling will be able to include in its
consolidated income the income of Walton Bank for the entire fiscal year in
which the merger occurs. The unaudited pro forma financial information contained
in this proxy statement/prospectus has been prepared using the
pooling-of-interests method of accounting. If the merger does not qualify for
pooling-of-interests accounting treatment, we may terminate the transaction.
EXPENSES AND FEES
First Sterling and Walton Bank shall each be responsible for its costs,
expenses and fees which have been incurred in attempting to accomplish the
merger, including, the expenses associated with its own fairness opinion,
attorneys and consultants.
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STATUTORY PROVISIONS FOR DISSENTING SHAREHOLDERS
THE FOLLOWING DISCUSSION IS NOT A COMPLETE DESCRIPTION OF THE LAW RELATING
TO DISSENTERS' RIGHTS AVAILABLE UNDER GEORGIA LAW AND IS QUALIFIED IN ITS
ENTIRETY BY THE FULL TEXT OF SECTION 7-1-537 OF THE GEORGIA FINANCIAL
INSTITUTIONS CODE AND ARTICLE 13 OF THE GEORGIA BUSINESS CORPORATION CODE. THESE
STATUTORY PROVISIONS ARE REPRINTED IN THEIR ENTIRETY AS APPENDIX B TO THIS PROXY
STATEMENT/PROSPECTUS. IF YOU DESIRE TO EXERCISE DISSENTERS' RIGHTS, YOU SHOULD
REVIEW CAREFULLY THESE STATUTORY PROVISIONS AND ARE URGED TO CONSULT A LEGAL
ADVISOR BEFORE ELECTING OR ATTEMPTING TO EXERCISE THESE RIGHTS.
Any holder of record of Walton Bank 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 such shareholder's shares of Walton
Bank stock if the proposed merger is consummated.
A shareholder of Walton Bank who objects to the merger and desires to
receive payment of the "fair value" of his or her Walton Bank stock:
(a) Must file a written objection to the merger with Walton Bank either
prior to the meeting or at the Walton Bank 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 not vote such shareholder's shares in favor of the merger
agreement; AND
(c) Must timely demand payment and deposit such shareholder's
certificate(s) in accordance with the terms of the dissenters' notice sent
to the dissenting shareholder by Walton Bank 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 Walton Bank must be forwarded to Walton
Bank, & Trust Co., 1302 West Spring Street, Monroe, Georgia 30655-1759,
Attention: Corporate Secretary.
If the merger is approved, Walton Bank will mail, no later than ten 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 Walton Bank in
writing, or, if none, at the shareholder's address as it appears on the records
of Walton Bank. Walton Bank will set a date by which it must receive the payment
demand, which date may not be fewer than 30 nor more than 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 Walton Bank.
If all conditions in (a), (b) and (c) above are satisfied in full, Walton
Bank is required to make a written offer within ten 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 Walton Bank stock at a specific price. If Walton Bank
and any dissenting shareholder are unable to agree on the fair value of the
shares within 60 days, Walton Bank will commence a proceeding in superior court
of the county where its main office is located, to determine the rights of the
dissenting shareholders and the fair value of his or her shares. If Walton Bank
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 Walton Bank,
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'
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provisions. The court may also assess the fees and expenses of attorneys and
experts for the respective parties in amounts the court finds equitable:
(i) against Walton Bank and in favor of any or all dissenters if the court finds
Walton Bank did not substantially comply with the dissenters' provisions; or
(ii) against Walton Bank 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 Walton Bank,
the court may award these attorneys reasonable fees to be paid out of the
amounts awarded the dissenters who were benefited.
One of the conditions to the merger is that the aggregate number of shares
of Walton Bank stock dissenting to the merger shall not exceed an amount which
would cause the transaction not to be accounted for as a pooling-of-interests.
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.
Upon compliance with the statutory procedures, dissenting shareholders will
not have any rights as shareholders of Walton Bank or of First Sterling,
including, among other things, the right to receive dividends and the right to
vote on matters submitted for shareholder consideration.
Walton Bank's shareholders should note that cash paid to dissenting
shareholders in satisfaction of the fair value of their shares will be
recognized as gain or loss for federal income tax purposes.
FAILURE BY A WALTON BANK SHAREHOLDER TO FOLLOW THE STEPS REQUIRED BY THE
GEORGIA FINANCIAL INSTITUTIONS CODE AND THE GEORGIA BUSINESS CORPORATION CODE
FOR EXERCISING DISSENTERS' RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS. IN VIEW
OF THE COMPLEXITY OF THESE PROVISIONS AND THE REQUIREMENT THAT THEY BE STRICTLY
COMPLIED WITH, IF YOU HOLD WALTON BANK COMMON STOCK AND ARE CONSIDERING
DISSENTING FROM THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND EXERCISING
YOUR DISSENTERS' RIGHTS UNDER THE CODES, YOU SHOULD CONSULT YOUR LEGAL ADVISORS.
RESTRICTIONS ON RESALES BY AFFILIATES
The shares of First Sterling common stock to be issued in the merger will be
freely transferable under the Securities Act of 1933. However, this will not be
the case for shares issued to any shareholder who may be deemed to be an
"affiliate" of Walton Bank for purposes of Rule 145 under the Securities Act as
of the date of the shareholders' meeting. Affiliates may resell their First
Sterling stock (i) only in transactions registered under the Securities Act of
1933 or permitted by the resale provisions of Rule 145 under the Securities Act
or as otherwise permitted by the Securities Act and (ii) following the
satisfaction of the requirements of the Securities and Exchange Commission's
Accounting Series Release Nos. 130 and 135 relating to publication of financial
results covering at least 30 days of post-merger combined operations of First
Sterling and Walton Bank. These rules also apply to First Sterling stock owned
by affiliates of First Sterling. Affiliates generally include individuals or
entities that directly, or indirectly through one or more intermediaries,
control, are controlled by or are under common control with First Sterling or
Walton Bank and include directors, certain executive officers and principal
shareholders. The restrictions on resales by an affiliate extend also to certain
related parties of the affiliate, including spouses, relatives and spouse's
relatives who in each case have the same home as the affiliate.
The merger agreement requires Walton Bank to use all reasonable efforts to
cause each of its affiliates to deliver a written agreement to the effect
generally that the affiliate will not offer or otherwise dispose of any shares
of First Sterling stock owned by the affiliate, except in compliance with
(i) the Securities Act and the rules and regulations issued under the Securities
Act and (ii) the requirements of the accounting releases described above.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
GENERAL
Some of Walton Bank's employees and directors may be deemed to have
interests in the merger in addition to their interests as shareholders
generally. These interests include, among others, the election of Hugh B.
Williamson, III, Chairman of the board of directors of Walton Bank, to the board
of directors of Main Street Bank, an employment agreement with W. Morris Jordan,
President and Chief Executive Officer of Walton Bank, proposed employee benefits
for those who become employees of a First Sterling subsidiary after the merger
and insurance coverage. In addition, First Sterling and Mr. Williamson have
entered into a separate agreement under which First Sterling has agreed to
purchase two insurance agencies owned by Mr. Williamson. Brown Burke Capital
Partners, L.L.C., the financial advisor to Walton Bank, provided financial
advisory services to Mr. Williamson in these insurance transactions and also
provided financial advisory services to First Sterling during the last
12 months.
ACQUISITION OF WILLIAMSON INSURANCE AGENCIES
First Sterling has entered into a separate agreement for the acquisition of
two insurance agencies, the Williamson Insurance Agency, Inc. and the
Williamson & Musselwhite Insurance Agency, Inc., of which Mr. Williamson holds
approximately an 82% ownership interest. Under the agreement, the owners of the
insurance agencies will receive a total of 379,565 shares of First Sterling
common stock in exchange for their shares of the insurance agencies, of which
Mr. Williamson will receive 311,445 shares. First Sterling's proposed
acquisition of the insurance agencies is not contingent upon completion of the
merger. First Sterling is expected to complete the acquisition of the insurance
agencies late in the fourth quarter of 2000.
At the time of First Sterling's acquisition of the insurance agencies, First
Sterling will enter into an employment agreement with Mr. Williamson.
Mr. Williamson will be employed as Chief Executive Officer of the Insurance
Division of First Sterling. His term of employment will be for a period of two
years and on the second anniversary, and on each anniversary thereafter, the
term will be extended for an additional one-year period. Either party, by
providing written notice, may cause the term of employment to cease to extend
automatically.
Mr. Williamson's initial base salary will be $156,000, subject to annual
increases of at least 3% for cost of living adjustments, and such other
increases as may be approved by senior management in its sole discretion.
Mr. Williamson will also be eligible for performance bonuses based on the
performance of the Insurance Division of First Sterling. As bonus compensation
for the calendar years 2001 through 2005, Mr. Williamson will be entitled to
participate in a performance bonus pool established for the employees of the
Insurance Division. The performance bonus pool shall include 75% of the amount
by which the pre-tax earnings of the Insurance Division exceed a specified
target amount ($672,000 in 2001, increasing by 12% each year through 2005) until
the amount in the pool equals $750,000, after which 50% of such pre-tax earnings
shall be contributed to the pool. Mr. Williamson, as Chief Executive Officer of
the Insurance Division, and Billy D. Musselwhite, as President of the Insurance
Division, shall have sole discretion to allocate the performance bonus pool
among the employees of the Insurance Division.
In the event Mr. Williamson's employment is terminated other than for cause,
Mr. Williamson will be entitled to receive in a lump sum cash payment the
following amounts:
- the sum of: (i) his base salary through the date of termination to the
extent not theretofore paid; (ii) the product of (x) his target annual
bonus for the year in which the termination occurred and (y) a fraction,
the numerator of which is the number of days in the current fiscal year
through the date of termination, and the denominator of which is 365;
(iii) any accrued vacation pay to the extent not theretofore paid; and
(iv) unless Mr. Williamson has elected a different payout in a prior
deferral election, any compensation previously deferred; and
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- the amount equal to one half times the sum of (i) his base salary in
effect as of the date of termination, and (ii) the target annual bonus,
provided that if the date of termination occurs within two years after a
change in control of First Sterling, the severance payment will be equal
to one times the amounts described in clauses (i) and (ii) above.
In addition, upon a termination other than for cause Mr. Williamson will
continue to be covered under certain employee benefit plans for a period of six
months, or one year if termination occurs within two years of a change in
control of First Sterling, and all of his stock options and other incentive
awards will become immediately exercisable. The employment agreement also
generally restricts Mr. Williamson from (i) disclosing First Sterling or its
affiliates trade secrets, (ii) from competing with First Sterling or its
affiliates within a 25-mile radius of any of First Sterling's offices as of the
date of employment for a period two years following termination of employment,
and (iii) from soliciting any First Sterling customer with whom he had material
contact during the 12-month period immediately preceding the termination of his
employment.
ELECTION OF HUGH B. WILLIAMSON, III TO BOARD OF DIRECTORS
Upon consummation of the merger, Hugh B. Williamson, III shall be elected to
the board of directors of Main Street Bank. The merger agreement provides that
First Sterling will vote its shares of common stock in favor of Mr. Williamson
as a director of Main Street Bank for a period of five years.
EMPLOYMENT AGREEMENT OF W. MORRIS JORDAN
Upon consummation of the merger, First Sterling and Main Street Bank will
enter into an employment agreement with W. Morris Jordan. Mr. Jordan will be
employed as an executive vice president of Main Street Bank and as chief
executive officer of the Walton County Banking Region of Main Street Bank
(including Loganville, Georgia). His term of employment will be for a period of
two years and, on the second anniversary, and on each anniversary thereafter,
the term will be extended for an additional one-year period. Either party, by
providing 90 days advance written notice to the other, may cause the term of
employment to cease to extend automatically. Once either party provides such
notice, the employment relationship will terminate when the current term,
including any prior extensions, ends.
Mr. Jordan's initial annual base salary will be $134,000, subject to annual
increases of 3% for cost of living adjustments, and such other increases as may
be approved by senior management in its sole discretion. Mr. Jordan will be
eligible for an annual bonus based on performance criteria established from year
to year by senior management of the company. However, his annual bonus for the
year 2001 shall be a minimum of 25% of his base salary. If First Sterling
terminates Mr. Jordan's employment other than for cause or Mr. Jordan terminates
for good reason within a period of 90 days after the occurrence of the event
giving rise to good reason, then and, with respect to the payments and benefits
described in clauses (a)(ii) and (b) below, only if Mr. Jordan executes a
release:
(a) First Sterling shall pay to Mr. Jordan a lump sum cash payment of the
following amounts:
(i) the sum of: (i) Mr. Jordan's base salary through the date of
termination to the extent not theretofore paid; (ii) the product of
(x) Mr. Jordan's target annual bonus, if any, for the year in which
the date of termination occurred and (y) a fraction, the numerator
of which is the number of days in the current fiscal year through
the date of termination, and the denominator of which is 365;
(iii) any accrued vacation pay to the extent not theretofore paid;
and (iv) unless Mr. Jordan has elected a different payout date in a
prior deferral election, any compensation previously deferred by
Mr. Jordan to the extent not theretofore paid; and
(ii) the sum of (i) Mr. Jordan's base salary in effect as of the date of
termination, and (ii) Mr. Jordan's target annual bonus, if any, for
the year in which the date of termination occurred; and
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<PAGE>
(b) for one year after the date of termination, or such longer period as may
be provided by the terms of the appropriate plan, program, practice or
policy, First Sterling shall continue benefits to Mr. Jordan or his
family at least equal to those which would have been provided to them in
accordance with the welfare plans of First Sterling if Mr. Jordan's
employment had not been terminated, provided, however, that if
Mr. Jordan becomes re-employed with another employer and is eligible to
receive medical or other welfare benefits under another employer provided
plan, the medical and other welfare benefits described herein shall be
secondary to those provided under such other plan during such applicable
period of eligibility; and
(c) all of Mr. Jordan's outstanding stock options and other incentive awards
from First Sterling in the nature of rights that may be exercised shall
become fully exercisable and all restrictions on Mr. Jordan's outstanding
awards of restricted stock shall lapse; and
(d) to the extent not theretofore paid or provided, First Sterling shall
timely pay or provide to Mr. Jordan any other amounts or benefits
required to be paid or provided or which Mr. Jordan is eligible to
receive under any plan, program, policy or practice under contract or
agreement of First Sterling.
The employment agreement also contains restrictions on the ability of
Mr. Jordan to compete with First Sterling for a period of one year following the
date of termination for any reason whatsoever. He is also restricted on the
disclosure and use of First Sterling's confidential information and trade
secrets. In addition, he is restricted in his ability to solicit First Sterling
customers with whom he had material contact during the 12-month period
immediately preceding the termination of his employment.
EMPLOYEE BENEFITS
The merger agreement generally provides that First Sterling will allow
Walton Bank employees who remain employees after the effective time of the
merger to participate in employee benefit plans and policies that are at least
as favorable as those provided to employees of First Sterling in comparable
positions. Furthermore, First Sterling will waive any preexisting condition
exclusion under any employee health plan to the extent the condition was covered
under the relevant Walton Bank benefit plan on the date which immediately
precedes the effective time of the merger. For purposes of calculating an
employee's accrual of sick time, vacation time, eligibility for and vesting
under any First Sterling employee benefit plans, service with Walton Bank prior
to the effective time of the merger will be treated as service with First
Sterling.
After the merger, First Sterling shall cause to be made available for four
Walton Bank employees sufficient funds to pay each such person a bonus of up to
20% of his or her base salary for the calendar year 2000 during 2001. The amount
of any such bonus shall be determined in the sole discretion of Mr. Jordan and
shall be payable on the date which is 12 months following the closing of the
merger except for Nedra Jackson's bonus which shall be paid by First Sterling
within 10 days after the merger and shall not exceed $15,000. Bonuses for the
other Walton Bank key employees during 2001 shall be determined by the mutual
agreement of Mr. Jordan and Joseph K. Strickland, Jr. of Main Street Bank.
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INSURANCE
First Sterling has agreed to use its reasonable efforts to maintain Walton
Bank's directors' and officers' liability insurance policy, or a policy
providing at least comparable coverage, covering persons who are currently
covered by such insurance for a period of six years after the effective time of
the merger.
SHARES OWNED BY MANAGEMENT AND THE BOARD
As of the record date, the directors and executive officers of Walton Bank
beneficially own approximately 214,117 shares or 47.6% of Walton Bank stock.
SUPERVISION AND REGULATION
The following discussion sets forth certain of the material elements of the
regulatory framework applicable to banks and bank holding companies and provides
certain specific information relevant to First Sterling and Walton Bank. A
change in applicable statutes, regulations or regulatory policy may have a
material effect on the business of First Sterling.
GENERAL
First Sterling is a bank holding company registered with the Federal Reserve
and the Georgia Department of Banking and Finance under the Bank Holding Company
Act and the Georgia Bank Holding Company Act, respectively. Effective
November 17, 2000, pursuant to a previously filed election with the Federal
Reserve, First Sterling became a financial holding company under the provisions
of the Gramm-Leach-Bliley Act which amended the Bank Holding Company Act and
expands the activities in which First Sterling may engage.
First Sterling is subject to the supervision, examination and reporting
requirements of these acts and the regulations of the Federal Reserve and the
Georgia Department of Banking and Finance issued under these acts. First
Sterling's subsidiary banks and Walton Bank are Georgia chartered commercial
banks. Each of the banks is an FDIC member whose deposits are insured to the
full extent permitted by law. As a result, the banks are subject to the
supervision, examination and reporting requirements of the Georgia Department of
Banking and Finance and the FDIC.
The Bank Holding Company Act requires every bank holding company to obtain
the prior approval of the Federal Reserve before:
- it may acquire direct or indirect ownership or control of any voting
shares of any bank if, after the acquisition, the bank holding company
will directly or indirectly own or control more than 5% percent of the
voting shares of the bank;
- it or any of its subsidiaries, other than a bank, may acquire all or
substantially all of the assets of any bank; or
- it may merge or consolidate with any other bank holding company.
The Bank Holding Company Act further provides that the Federal Reserve may
not approve any transaction that would result in a monopoly or that would
substantially lessen competition in the banking business, unless the public
interest in meeting the needs of the communities to be served outweighs the
anti-competitive effects. The Federal Reserve is also required to consider the
financial and managerial resources and future prospects of the bank holding
companies and banks involved and the convenience and needs of the communities to
be served. Consideration of financial resources generally focuses on capital
adequacy, and consideration of convenience and needs issues focuses, in part, on
the performance under the Community Reinvestment Act of 1977 ("CRA"), both of
which are discussed in more detail below.
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The Bank Holding Company Act generally prohibits a bank holding company from
engaging in activities other than:
- banking;
- managing or controlling banks or other permissible subsidiaries; and
- acquiring or retaining direct or indirect control of any company engaged
in any activities other than activities closely related to banking or
managing or controlling banks.
However, the activities permissible to bank holding companies and their
affiliates were substantially expanded by the Gramm-Leach-Bliley Act, which the
President signed on November 12, 1999. Gramm-Leach-Bliley repeals the
anti-affiliation provisions of the Glass-Steagall Act to permit the common
ownership of commercial banks, investment banks and insurance companies. The
Bank Holding Company Act was amended to permit a financial holding company to
engage in any activity and acquire and retain any company that the Federal
Reserve determines to be:
- financial in nature or incidental to such financial activity; or
- complementary to a financial activity and does not pose a substantial risk
to the safety and soundness of depository institutions or the financial
system generally.
The Federal Reserve must consult with the Secretary of the Treasury in
determining whether an activity is financial in nature or incidental to a
financial activity. Holding companies may continue to own companies conducting
activities which had been approved by Federal Reserve order or regulation on the
day before Gramm-Leach-Bliley was enacted.
In determining whether a particular activity is financial in nature or
incidental or complementary to a financial activity, the Federal Reserve must
consider (i) the purpose of the Bank Holding Company and Gramm-Leach-Bliley
Acts, (ii) changes or reasonable expected changes in the marketplace in which
financial holding companies compete and in the technology for delivering
financial services, and (iii) whether the activity is necessary or appropriate
to allow financial holding companies to effectively compete with other financial
service providers and to efficiently deliver information and services. The
Gramm-Leach-Bliley Act expressly lists the following activities as financial in
nature:
- Lending, trust and other banking activities;
- Insuring, guaranteeing, or indemnifying against loss or harm, or providing
and issuing annuities, and acting as principal, agent, or broker for these
purposes, in any state;
- Providing financial, investment, or advisory services;
- Issuing or selling instruments representing interests in pools of assets
permissible for a bank to hold directly;
- Underwriting, dealing in or making a market in securities;
- Other activities that the Federal Reserve may determine to be so closely
related to banking or managing or controlling banks as to be a proper
incident to managing or controlling banks;
- Foreign activities permitted outside of the United States if the Federal
Reserve has determined them to be usual in connection with banking
operations abroad;
- Merchant banking through securities or insurance affiliates; and
- Insurance company portfolio investments.
In qualifying to become a financial holding company, First Sterling's
depository institution subsidiaries were required to be well capitalized and
well managed and must have had a Community Reinvestment Act rating of at least
"satisfactory." Additionally, First Sterling was required to file an
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election with the Federal Reserve to become a financial holding company. As a
result of becoming a financial holding company First Sterling may acquire the
Williamson Insurance Agency, Inc. and the Williamson & Musselwhite Insurance
Agency, Inc.
The Federal Reserve has the power to order a bank holding company or its
subsidiaries to terminate any activity or control of any subsidiary when the
continuation of the activity or control constitutes a serious risk to the
financial safety, soundness or stability of any bank subsidiary of that bank
holding company.
All of First Sterling's subsidiary banks and Walton Bank are members of the
FDIC. Consequently, the FDIC insures their deposits to the maximum extent
provided by law. The banks are also subject to numerous state and federal
statutes and regulations that affect their business, activities and operations,
and each is supervised and examined by one or more state or federal bank
regulatory agencies.
Since First Sterling is acquiring Walton Bank by merging it into Main Street
Bank, both of which are regulated by the FDIC, the FDIC is the primary federal
regulatory agency which will approve the merger. Keeping in mind its broad goal
to foster and maintain a safe, efficient, and competitive banking system that
meets the needs of the communities served, the FDIC will evaluate the pending
merger using three specific standards: competitive factors, prudential factors,
and convenience and needs factors.
In deciding the competitive effects of the proposed merger, the FDIC will
consider the extent of existing competition between and among Main Street Bank
and Walton Bank, other depository institutions, and other providers of similar
or equivalent services in the relevant products market(s) within the relevant
geographic markets. In its analysis of the competitive effects of the proposed
merger, the FDIC will focus particularly on the type and extent of competition
that exists and that will be eliminated, reduced, or enhanced by the merger. The
FDIC will also consider the competitive impact of providers located outside the
relevant geographic market(s) where it is shown that such providers individually
or collectively influence materially the nature, pricing, or quality of services
offered by the providers currently operating within the geographic market(s). If
the FDIC determines that the market shares of Main Street Bank and Walton Bank
are not clearly insignificant, it will also consider the degree of concentration
within the relevant geographic markets.
Turning to the prudential factors, the FDIC normally will not approve a
proposed merger where the resulting institution would fail to meet existing
capital standards, continue with weak or unsatisfactory management, or whose
earnings prospects, both in terms of quantity and quality, are weak, suspect, or
doubtful. In assessing capital adequacy and earnings prospects, particular
attention will be paid to the adequacy of the allowance for loan and lease
losses. In evaluating management, the FDIC will rely to a great extent on the
supervisory histories of Main Street Bank and Walton Bank and of the executive
officers and directors that are proposed for the resultant institution. In
addition, the FDIC may review the adequacy of management's disclosure to
shareholders of the material aspects of the merger to ensure that management has
properly fulfilled its fiduciary duties.
Finally, in assessing the convenience and needs of the communities to be
served, the FDIC will consider such elements as the extent to which the merger
is likely to benefit the general public through higher lending limits, new or
expanded services, reduced prices, increased convenience in utilizing the
services and facilities of the resulting institution, or other means. The FDIC,
as required by the CRA, will also note and consider the CRA performance
evaluation record of Main Street Bank and Walton Bank. An unsatisfactory record
may form the basis for denial or conditional approval of the application.
While there cannot be any guarantee that the FDIC will approve the merger
application, First Sterling is not aware of any condition or circumstance which
might cause the FDIC to reject the application.
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<PAGE>
The First Sterling subsidiary banks and Walton Bank are subject to
regulation, supervision, and examination by the FDIC and the Georgia Department
of Banking and Finance. The FDIC and the Georgia Department of Banking and
Finance regularly examine the operations of our banks and are given the
authority to approve or disapprove mergers, consolidations, the establishment of
branches and similar corporate actions. The FDIC and the Georgia Department of
Banking and Finance also have the power to prevent the continuance or
development of unsafe or unsound banking practices or other violations of law.
PAYMENT OF DIVIDENDS
First Sterling is a legal entity separate and distinct from its bank
subsidiaries. Substantially all of First Sterling's revenues result from amounts
paid as dividends to First Sterling by its subsidiary banks. First Sterling's
banking subsidiaries are subject to statutory and regulatory limitations on the
payment of dividends to First Sterling. First Sterling is also subject to
statutory and regulatory limitations on dividend payments to its shareholders.
If, in the opinion of the federal banking regulators, a depository
institution under its jurisdiction is engaged in or is about to engage in an
unsafe or unsound practice, the regulatory authority may require, after notice
and hearing, that the institution cease and desist from the practice. The
federal banking agencies have indicated that paying dividends that deplete a
depository institution's capital base to an inadequate level would be an unsafe
and unsound banking practice. Under the Federal Deposit Insurance Corporation
Improvement Act of 1991, a depository institution may not pay any dividend if
payment would cause it to become undercapitalized or if it already is
undercapitalized. The federal agencies have also issued policy statements that
provide that bank holding companies and insured banks should generally only pay
dividends out of current operating earnings. See "--Prompt corrective action" at
page 40.
The Georgia Financial Institutions Code and the Georgia Banking Department's
regulations provide:
- that dividends of cash or property may be paid only out of the bank's
retained earnings;
- that dividends may not be paid if the banks' 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
- that dividends may not be paid without prior approval of the Georgia
Banking Department if:
- the bank's total classified assets at its most recent examination
exceed 80% of its equity capital;
- 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
- the ratio of equity capital to total adjusted assets is less than 6%.
Applying these dividend restrictions, and without prior approval of the
Georgia Banking Department, as of September 30, 2000, Eastside, Westside, Main
Street and Community could pay aggregate dividends of $5,823,672 to First
Sterling and Walton Bank could pay dividends of approximately $430,197 to its
shareholders. Through September 30, 2000, Eastside, Westside, Main Street and
Community paid $3,211,259 in cash dividends to First Sterling and Walton Bank
paid $225,000 to its shareholders.
The payment of dividends by First Sterling and its subsidiaries may also be
affected or limited by other factors, such as a requirement by a regulatory
agency to maintain adequate capital above regulatory guidelines.
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FINANCIAL RELATIONSHIP BETWEEN FIRST STERLING AND ITS SUBSIDIARIES
There are also various legal restrictions on the extent to which First
Sterling can borrow or otherwise obtain credit from its banking subsidiaries. In
general, these restrictions require that any such extensions of credit must be
secured by designated amounts of specified collateral and are limited to ten
percent of any banking subsidiary's capital stock and surplus.
Under Federal Reserve policy, First Sterling is expected to act as a source
of financial strength to its banking subsidiaries and to commit resources to
support each banking subsidiary. This support may be required at times when a
bank holding company may not be able to provide such support. Similarly, under
the cross-guarantee provisions of the Federal Deposit Insurance Act, in the
event of a loss suffered or anticipated by the FDIC--as a result of default of a
banking subsidiary of First Sterling--the other banking subsidiaries may be
assessed for the FDIC's loss.
Any capital loans by a bank holding company to a subsidiary bank are usually
subordinate in right of payment to deposits and to certain other indebtedness of
the subsidiary bank. In the event of a bank holding company's bankruptcy, any
commitment by the bank holding company to a federal bank regulatory agency to
maintain the capital of a subsidiary bank will be assumed by the bankruptcy
trustee and entitled to a priority of payment.
CAPITAL ADEQUACY
First Sterling is required to comply with the capital adequacy standards
established by the Federal Reserve. Its subsidiary banks are required to comply
with the capital adequacy standards established by the FDIC. The Federal Reserve
has promulgated two basic measures of capital adequacy for bank holding
companies: a risk-based measure and a leverage measure. All applicable capital
standards must be satisfied for a bank holding company to be considered in
compliance.
The risk-based capital standards are designed to:
- make regulatory capital requirements more sensitive to differences in risk
profile among banks and bank holding companies;
- account for off-balance-sheet exposure; and
- minimize disincentives for holding liquid assets.
Assets and off-balance-sheet items are assigned to broad risk categories, each
with appropriate weights. The resulting capital ratios represent capital as a
percentage of total risk-weighted assets and off-balance-sheet items.
The minimum guideline for the ratio of total capital to risk-weighted assets
is 8% percent and for Tier 1 capital, which is common stock, undivided profits,
minority interests in the equity accounts of consolidated subsidiaries and
noncumulative perpetual preferred stock, less goodwill and certain other
intangible assets, is 4% percent. The remainder may consist of Tier 2 capital,
which is certain subordinated debt, other preferred stock and a limited amount
of loan loss reserves. At September 30, 2000, First Sterling's total risk-based
capital ratio and its Tier 1 risk-based capital ratio were 11.37% and 11.12%
respectively. On a pro forma combined basis such ratios of First Sterling and
Walton Bank at September 30, 2000, would have been 12.68% and 11.43%
respectively.
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio of Tier 1 capital to average assets, less goodwill and certain other
intangible assets, of 3% for bank holding companies that meet specified
criteria. All other bank holding companies generally are required to maintain a
leverage ratio of at least 3%, plus an additional cushion of 1% to 2%. First
Sterling's ratio at September 30, 2000 was 8.73%. On a pro forma combined basis
such ratio of First Sterling and Walton Bank at September 30, 2000, would have
been 8.90%. The guidelines also provide that bank holding companies experiencing
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internal growth or making acquisitions will be expected to maintain strong
capital positions substantially above the minimum supervisory levels without
significant reliance on intangible assets. Furthermore, the Federal Reserve has
indicated that it will consider a "tangible Tier 1 capital leverage ratio" and
other indicia of capital strength in evaluating proposals for expansion or new
activities. The Federal Reserve has not advised First Sterling to maintain any
specific leverage ratio or tangible Tier 1 leverage ratio in excess of the
minimum requirement applicable to it.
First Sterling's subsidiary banks and Walton Bank are subject to risk-based
and leverage capital requirements adopted by the FDIC which are substantially
similar to those adopted by the Federal Reserve for bank holding companies.
First Sterling's subsidiary banks and Walton Bank were in compliance with
applicable minimum capital requirements as of September 30, 2000, which are
Tier 1 Capital 4%, Total Capital 8% and leverage ratio of 4%. The following
chart shows relevant regulatory ratios for each bank as of September 30, 2000:
<TABLE>
<CAPTION>
TIER 1 TOTAL CAPITAL LEVERAGE RATIO
-------- ------------- --------------
<S> <C> <C> <C>
Eastside.................................... 10.43% 11.57% 9.04%
Westside.................................... 11.27% 12.31% 9.01%
Community................................... 9.74% 10.83% 8.21%
Main Street Bank............................ 10.81% 12.07% 8.42%
Walton Bank................................. 16.94% 18.18% 11.56%
</TABLE>
Neither First Sterling or its bank subsidiaries nor Walton Bank have been
advised by any federal banking agency to maintain any specific capital ratio in
excess of the minimum requirement applicable to it.
Failure to meet capital guidelines could subject a bank to a variety of
enforcement remedies, including issuance of a capital directive, the termination
of deposit insurance by the FDIC, a prohibition on taking brokered deposits, and
certain other restrictions on its business. As described below, the FDIC can
impose substantial additional restrictions upon FDIC-insured depository
institutions that fail to meet applicable capital requirements. See "--Prompt
corrective action" at page 40.
PROMPT CORRECTIVE ACTION
The Federal Deposit Insurance Act, among other things, requires the federal
regulatory agencies to take "prompt corrective action" if a depository
institution does not meet minimum capital requirements. The Act establishes five
capital tiers: "well capitalized"; "adequately capitalized"; "undercapitalized";
"significantly undercapitalized"; and "critically undercapitalized." A
depository institution's capital tier will depend upon how its capital levels
compare to various relevant capital measures and certain other factors, as
established by regulation.
The federal bank regulatory agencies have adopted regulations establishing
relevant capital measures and relevant capital levels applicable to FDIC-insured
banks. The relevant capital measures are the total capital ratio, Tier 1 capital
ratio and the leverage ratio. Under the regulations, a FDIC-insured bank will
be:
- "well capitalized" if it has a Total capital ratio of 10% or greater, a
Tier 1 capital ratio of 6% or greater and a leverage ratio of 5% or
greater and is not subject to any order or written directive by the
appropriate regulatory authority to meet and maintain a specific capital
level for any capital measure;
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- "adequately capitalized" if it has a Total capital ratio of 8% or greater,
a Tier 1 capital ratio of 4% or greater and a leverage ratio of 4% or
greater (three percent in certain circumstances) and is not "well
capitalized";
- "undercapitalized" if it has a Total capital ratio of less than 8%, a Tier
1 capital ratio of less than 4% or a leverage ratio of less than 4% (3% in
certain circumstances);
- "significantly undercapitalized" if it has a Total capital ratio of less
than 6%, a Tier 1 capital ratio of less than 3% or a leverage ratio of
less than 3%; and
- "critically undercapitalized" if its tangible equity is equal to or less
than 2% of average quarterly tangible assets.
An institution may be downgraded to, or deemed to be in, a capital category that
is lower than is indicated by its capital ratios if it is determined to be in an
unsafe or unsound condition or if it receives an unsatisfactory examination
rating with respect to certain matters. As of September 30, 2000, First
Sterling, Westside, Eastside, Community, Main Street Bank and Walton Bank each
had capital levels that qualify each as being "well capitalized."
The Federal Deposit Insurance Act generally prohibits a FDIC-insured bank
from making any capital distribution (including payment of a dividend) or paying
any management fee to its holding company if the bank would thereafter be
"undercapitalized." "Undercapitalized" banks are subject to growth limitations
and are required to submit a capital restoration plan. The federal regulators
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
bank's capital. In addition, for a capital restoration plan to be acceptable,
the bank's parent holding company must guarantee that the institution will
comply with such capital restoration plan. The aggregate liability of the parent
holding company is limited to the lesser of: (i) an amount equal to five percent
of the bank's total assets at the time it became "undercapitalized"; and
(ii) the amount which is necessary (or would have been necessary) to bring the
institution into compliance with all capital standards applicable with respect
to such institution as of the time it fails to comply with the plan. If a bank
fails to submit an acceptable plan, it is treated as if it is "significantly
undercapitalized."
"Significantly undercapitalized" insured banks 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" institutions are subject to the appointment of a receiver or
conservator. A bank that is not "well capitalized" is subject to certain
limitations relating to so-called "brokered" deposits.
COMMUNITY REINVESTMENT ACT
The CRA requires federal bank regulatory agencies to encourage financial
institutions to meet the credit needs of low- and moderate-income borrowers in
their local communities. An institution's size and business strategy determines
the type of examination that it will receive. Large, retail-oriented
institutions will be examined using a performance-based lending, investment and
service test. Small institutions will be examined using a streamlined approach.
All institutions may opt to be evaluated under a strategic plan formulated with
community input and pre-approved by the bank regulatory agency.
CRA regulations provide for certain disclosure obligations. Each institution
must post a notice advising the public of its right to comment to the
institution and its regulator on the institution's CRA performance and to review
the institution's CRA public file. Each lending institution must maintain for
public inspection a public file that includes a listing of branch locations and
services, a summary of lending activity, a map of its communities and any
written comments from the public on its
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<PAGE>
performance in meeting community credit needs. The CRA requires public
disclosure of a financial institution's written CRA evaluations. This promotes
enforcement of CRA requirements by providing the public with the status of a
particular institution's community reinvestment record.
The recently enacted Gramm-Leach-Bliley Act makes various changes to the
CRA. Among other changes, CRA agreements with private parties must be disclosed
and annual CRA reports must be made to a bank's primary federal regulator. A
bank holding company will not be permitted to become a financial holding company
and no new activities authorized under this Act may be commenced by a holding
company or by a bank financial subsidiary if any of its bank subsidiaries
received less than a "satisfactory" CRA rating in its latest CRA examination.
PRIVACY
Financial institutions are required to disclose their policies for
collecting and protecting confidential information. Customers generally may
prevent financial institutions from sharing personal financial information with
nonaffiliated third parties except for third parties which market the
institutions' own products and services. Additionally, financial institutions
generally may not disclose consumer account numbers to any nonaffiliated third
party for use in telemarketing, direct mail marketing or other marketing through
electronic mail to consumers.
LEGISLATIVE AND REGULATORY CHANGES
On November 12, 1999, the President signed the Gramm-Leach-Bliley Act into
law. This Act allows bank holding companies that are well managed and well
capitalized and whose depositor subsidiaries have satisfactory or better CRA
ratings to engage in a substantially broader range of nonbanking activities than
were previously permissible, including insurance underwriting and securities
activities.
FISCAL AND MONETARY POLICY
Banking is a business that depends on interest rate differentials. In
general, the difference between the interest paid by a bank on its deposits and
its other borrowings, and the interest received by a bank on its loans and
securities holdings, constitutes the major portion of a bank's earnings. Thus,
the earnings and growth of First Sterling will be subject to the influence of
economic conditions generally, both domestic and foreign, and also to the
monetary and fiscal policies of the United States and its agencies, particularly
the Federal Reserve. The Federal Reserve regulates the supply of money through
various means, including open market dealings in United States government
securities, the discount rate at which banks may borrow from the Federal
Reserve, and the reserve requirements on deposits. The nature and timing of any
changes in such policies and their effect on First Sterling cannot be predicted.
Current and future legislation and the policies established by federal and
state regulatory authorities will affect First Sterling's future operations.
Banking legislation and regulations may limit its growth and the return to our
investors by restricting certain of our activities.
In addition, capital requirements could be changed and have the effect of
restricting our activities or requiring additional capital to be maintained. We
cannot predict what changes, if any, will be made to existing federal and state
legislation and regulations or the effect that such changes may have on First
Sterling's business.
INFORMATION ABOUT FIRST STERLING
Financial and other information relating to First Sterling, including
information relating to First Sterling's current directors and executive
officers, are set forth in First Sterling's 1999 Annual Report
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on Form 10-KSB, First Sterling's prospectus and proxy statement on Form S-4
filed on March 31, 2000, First Sterling's 2000 Quarterly Reports on Form 10-Q
and First Sterling's 2000 Current Reports on Form 8-K, which are incorporated by
reference herein, copies of which may be obtained from First Sterling as
indicated under "Where you can get more information" at page 76. See
"Incorporation of certain documents by reference" at page 76.
First Sterling is a four-bank holding company that engages through its
subsidiaries, the Westside Bank & Trust Company, Eastside Bank & Trust Company,
Community Bank of Georgia and Main Street Bank, in providing full banking
services to customers of the subsidiary banks. First Sterling is engaged in a
full range of traditional banking, mortgage banking, investment and insurance
services to individual and corporate customers through its 21 banking locations.
Prior to consummation of the merger, First Sterling will merge Westside,
Eastside and Community Bank into Main Street Bank and continue all banking
operations through the single subsidiary, Main Street Bank.
INFORMATION ABOUT WALTON BANK
GENERAL
Walton Bank commenced operations in 1988 as an independent, locally owned
commercial bank which conducts business in Monroe, Georgia, with deposits
insured by the FDIC. In June, 1990, Walton Bank opened an additional branch
office in Walnut Grove, Georgia. Walton Bank operates as a locally-owned bank
that targets the banking needs of individuals and small to medium sized
businesses in the Walton County area by emphasizing personal service.
Walton Bank offers a full range of deposit and lending services and is a
member of an electronic banking network, which enables its customers to use the
automated teller machines of other financial institutions. In addition, Walton
Bank offers commercial and business credit services, as well as various consumer
credit services, including home mortgage loans, automobile loans, lines of
credit, home equity loans, home improvement loans and credit card accounts.
Walton Bank had approximately $60.4 million in assets as of September 30, 2000.
MARKET AREA AND COMPETITION
The primary service area of Walton Bank is Walton County, Georgia which is
approximately 40 miles east of Atlanta, Georgia. Walton Bank encounters
competition in its primary service area and in surrounding areas from five other
commercial banks. These competitors offer a full range of banking services and
vigorously compete for all types of services, especially deposits.
The following table illustrates the June 30, 1999 deposit base and market
share of the financial institutions located in Walton County as reported by the
FDIC.
<TABLE>
<CAPTION>
FINANCIAL INSTITUTIONS $ %
---------------------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C>
The National Bank of Walton County...................... 136.3 30.8
Wachovia Bank, N.A...................................... 115.8 26.1
The Community Bank...................................... 76.9 17.4
Georgia Central Bank.................................... 48.5 10.9
Walton Bank............................................. 43.8 9.9
Athens First Bank and Trust............................. 21.9 4.9
</TABLE>
43
<PAGE>
While Walton Bank experiences competition from financial institutions
headquartered in Walton County, some competition also comes from banks outside
of Walton County seeking to make loans in Walton Bank's primary service area. In
addition, in certain aspects of its banking business, Walton Bank also competes
with credit unions, small loan companies, consumer finance companies, brokerage
houses, insurance companies, money market funds, and other financial
institutions which have recently entered the traditional banking markets.
The extent to which other types of financial institutions compete with
commercial banks has increased significantly within the past few years as a
result of federal and state legislation which has, in several respects,
deregulated financial institutions. See "Supervision and Regulation." The full
impact of this legislation and subsequent laws that will continue to deregulate
the financial services industry even further cannot be fully assessed or
predicted.
DEPOSITS
Walton Bank offers a wide range of commercial and consumer interest bearing
and non-interest bearing deposit accounts, including checking accounts, money
market accounts, negotiable order of withdrawal ("NOW") accounts, individual
retirement accounts, certificates of deposit and regular savings accounts. The
sources of deposits are residents, businesses and employees of businesses within
Walton Bank's market area, obtained through the personal solicitation of Walton
Bank's officers and directors, direct mail solicitation and advertisements
published in the local media. Walton Bank pays competitive interest rates on
time and savings deposits. In addition, Walton Bank has implemented a service
charge fee schedule competitive with other financial institutions in Walton
Bank's market area, covering such matters as maintenance fees on checking
accounts, per item processing fees on checking accounts, returned check charges
and the like.
LOAN PORTFOLIO
Walton Bank engages in a full complement of lending activities, including
commercial, consumer/ installment and real estate loans.
Lending is directed principally towards individuals and businesses whose
demands for funds fall within Walton Bank's legal lending limits and which are
potential deposit customers of Walton Bank. This category of loans includes
loans made to individual, partnership or corporate borrowers, and obtained for a
variety of business purposes. Particular emphasis is placed on small and middle
market commercial loans and owner occupied commercial and residential real
estate loans. Walton Bank has no foreign loans outstanding.
Walton Bank may originate loans and participate with other banks with
respect to loans which exceed Walton Bank's lending limits. Management of Walton
Bank does not believe that loan participations necessarily pose any greater risk
of loss than loans which Walton Bank originates.
No material portion of Walton Bank's outstanding loans was concentrated
within a single industry or group of related industries, with the exception of
residential and commercial mortgage loans. As of September 30, 2000, 81% of
Walton Bank's outstanding loans consisted of residential and commercial mortgage
loans. There are no material seasonal factors that would have an adverse impact
on Walton Bank's outstanding loans. However, because Walton Bank derives a
substantial portion of its business from mortgage loans, to the extent that
fluctuations and changes occur in the housing industry, Walton Bank's business
could fluctuate as well.
The following is a description of each of the major categories of loans in
Walton Bank's loan portfolio:
COMMERCIAL AND FINANCIAL. These loans are customarily granted to local
business customers on a fully collateralized basis to meet local credit needs.
The loans can be extended for periods of between
44
<PAGE>
one year and five years and are usually structured to fully amortize over the
term of the loan or balloon after the third year or fifth year of the loan with
an amortization up to ten years. The terms and loan structure are dependent on
the collateral and strength of the borrower. The loan to value ratios range from
40% to 80%. The risks of these types of loans depend on the general business
conditions of the local economy and the local business borrower's ability to
sell its products and services in order to generate sufficient business profits
to repay Walton Bank under the agreed upon terms and conditions. The value of
the collateral held by Walton Bank as a measure of safety against loss is most
volatile in this loan category.
REAL ESTATE--CONSTRUCTION. These loans are made for the construction of
single family residences in Walton Bank's market area. The loans are granted to
qualified individuals with down payments of at least 20% of the appraised value
or contract price, whichever is less. The interest rates fluctuate at 1% to 3%
above Walton Bank's prime interest rate during the six month construction
period. Walton Bank charges a fee of 1/2% to 1% in addition to the normal
closing costs. These loans generally command higher rates and fees commensurate
with the risk warranted in the construction lending field. The risk in
construction lending is dependent upon the performance of the builder in
building the project to the plans and specifications of the borrower and Walton
Bank's ability to administer and control all phases of the construction
disbursements. Upon completion of the construction period, the mortgage is
converted to a permanent loan and normally sold to an investor in the secondary
mortgage market.
REAL ESTATE--MORTGAGE. Walton Bank's adjustable rate mortgages include
lifetime interest rate caps. All such loans are qualified and underwritten to
meet FHLMC guidelines and no negative amortized loans are offered. No loans
carry a prepayment penalty clause and therefore can be paid out or refinanced at
a fixed rate, thus reducing the default risk. These loans are priced according
to proper index and margin, and should not lag behind funding costs.
INSTALLMENT LOANS. These loans are granted to individuals for the purchase
of personal goods such as automobiles, recreational vehicles, mobile homes and
for the improvement of single family real estate in the form of second
mortgages. Walton Bank obtains a lien against the item purchased by the consumer
and holds title until the loan is repaid in full. These loans are generally
granted for periods ranging between one and five years at fixed rates of
interest 1% to 5% above Walton Bank's prime interest rate. The loan to value
ratios range from 40% to 80%. Loss or decline of income by the borrower due to
layoffs, divorce or unexpected medical expenses represent unplanned occurrences
that may represent risk of default to Walton Bank. In the event of default, a
shortfall in the value of the collateral may pose a loss to Walton Bank in this
loan category.
Walton Bank also offers home equity loans to qualified borrowers. The
interest rate floats at 0% to 4% above the prime interest rate quoted in THE
WALL STREET JOURNAL and is capped at 18%. The loan to appraised value cannot
exceed 80% and the maturity is limited to ten years. Walton Bank requires a
first or second mortgage position and loans are made on principal residences
only.
INVESTMENTS
As of September 30, 2000, loans comprised approximately 70% of Walton Bank's
assets, investment securities comprised approximately 23% of Walton Bank's
assets, and federal funds sold comprised approximately 1% of Walton Bank's
assets. Walton Bank invests primarily in direct obligations of the United
States, obligations guaranteed as to principal and interest by the United States
and obligations of agencies of the United States. In addition, Walton Bank
enters into 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 Walton Bank to another bank. A national bank's
lending and investment limits are separate and distinct requirements.
45
<PAGE>
ASSET/LIABILITY MANAGEMENT
It is the objective of Walton Bank to manage assets and liabilities to
provide a satisfactory, consistent level of profitability within the framework
of established cash, loan, investment, borrowing and capital policies. Certain
of the officers of Walton Bank are responsible for monitoring policies and
procedures that are designed to ensure an acceptable composition of
asset/liability mix, stability, and leverage of all source of funds while
adhering to prudent banking practices. 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 Walton Bank seeks to invest the largest portion of
Walton Bank's assets in commercial, consumer and real estate loans.
Walton Bank regards certificates of deposits of $100,000 or more as volatile
deposits. Since its opening in 1988, Walton Bank has maintained sufficient
liquidity to repay these deposits on maturity. While Walton Bank does not
generally pursue these types of deposits, at times it is profitable to do so and
this option is exercised when deemed prudent by management. This accounts for
the volatility in this liability category.
Securities sold subject to repurchase are only done on an exception basis to
maintain account relationships. Although Walton Bank from time to time may enter
into repurchase agreements, there currently are no repurchase agreements
outstanding. Walton Bank has available three overnight federal funds purchased
lines totaling $3 million which may be used to meet liquidity needs. As of
September 30, 2000, Walton Bank had no balances outstanding under these lines.
Walton Bank's asset/liability mix is monitored on a daily basis with a
quarterly report reflecting interest sensitive assets and interest sensitive
liabilities being prepared and presented to Walton Bank's Board of Directors.
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 Walton Bank's earnings.
CORRESPONDENT BANKING
Correspondent banking involves the providing of services by one bank to
another bank which cannot provide that service for itself from an economic or
practical standpoint. Walton Bank is required to purchase correspondent services
offered by larger banks, including check collections, purchase of Federal Funds,
security safekeeping, investment services, coin and currency supplies, overline
and liquidity loan participations and sales of loans to or participations with
correspondent banks.
Walton Bank may sell loan participations to correspondent banks with respect
to loans which exceed Walton Bank's lending limit. As of September 30, 2000,
$812,688 worth of loans had been sold to other banks.
FACILITIES
Walton Bank's main office is located at 1302 West Spring Street, Monroe,
Georgia. The main office consists of 10,000 square feet, five teller stations,
six offices, a vault, a night depository, three drive-in windows and a
board/conference room. Walton Bank's branch office is located at 2470 Highway 81
North, Walnut Grove, Georgia. The branch office consists of 900 square feet,
three teller stations, one office, a vault, a night depository, one drive-in
window and a board/conference room.
DATA PROCESSING
Walton Bank entered into a data processing servicing agreement with SBS Data
Services, an outside service bureau. Under the agreement, Walton Bank receives a
full range of data processing services. The agreement expires in June of 2001.
46
<PAGE>
EMPLOYEES
Walton Bank employs 30 persons on a full-time or part-time basis, including
six officers. Walton Bank hires additional persons as needed on a full-time or
part-time basis, including additional tellers and customer service
representatives. Walton Bank's employees are not represented by a collective
bargaining unit.
MONETARY POLICIES
The results of operations of Walton Bank are affected by credit policies of
monetary authorities, particularly the Federal Reserve Board. The instruments of
monetary policy employed by the Federal Reserve Board include open market
operations in U.S. Government securities, changes in the discount rate on member
bank borrowings, changes in reserve requirements against member bank deposits
and limitations on interest rates which member banks may pay on time and savings
deposits. In view of changing conditions in the national economy and in the
money markets, as well as the effect of action by monetary and fiscal
authorities, including the Federal Reserve Board, no prediction can be made as
to possible future changes in interest rates, deposit levels, loan demand or the
business and earnings of Walton Bank.
LEGAL PROCEEDINGS
In the ordinary course of operations, Walton Bank is a party to various
legal proceedings. In the opinion of its management, there are no proceedings
pending, or to its knowledge, threatened in which an adverse decision would have
a material adverse effect on its financial condition or results of operations.
WALTON BANK SECURITY OWNERSHIP
The following table sets forth certain information as of September 30, 2000
with respect to ownership of the outstanding common stock of Walton Bank by
(i) all persons known to Walton Bank to own beneficially more than 10% of the
outstanding shares of common stock of Walton Bank; (ii) each director of Walton
Bank; and (iii) all directors and executive officers of Walton Bank as a group.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK PERCENT OF
BENEFICIAL OWNER BENEFICIALLY OWNED(1) OUTSTANDING SHARES
---------------- ---------------------- ------------------
<S> <C> <C>
Harold L. Breedlove.................................... 8,672.00(2) 1.9
George J. Hearn, III................................... 25,575.00(3) 5.7
Nedra E. Jackson....................................... 150.00 *
W. Morris Jordan....................................... 23,392.50(4) 5.2
Robert C. King......................................... 19,275.00(5) 4.3
George B. Launius...................................... 21,300.00(6) 4.7
Charles H. Logan....................................... 21,750.00 4.8
Lewis F. Shackleford, Jr............................... 4,567.50(7) 1.0
Wayne A. Tanner........................................ 1,400.00 *
David G. Thompson...................................... 40,485.00(8) 9.0
Hugh B. Williamson, III................................ 47,550.00(9) 10.6
---------- ----
All directors and officers as a group (11 Persons)..... 214,117.00 47.6
</TABLE>
------------------------
* Less than 1%.
(1) Except as otherwise indicated, the persons named in the table have sole
voting and investment powers with respect to all shares shown as
beneficially owned by them. The information shown below is based upon
information furnished by the named persons and based upon "beneficial
47
<PAGE>
ownership" concepts set forth in rules issued under the Securities Exchange
Act of 1934, as amended.
(2) Includes 4,999.50 shares with which Mr. Breedlove holds sole voting and
investment power.
(3) Includes 20,925 shares with which Mr. Hearn holds shared voting and
investment power. Mr. Hearn's address is 1425 South Madison Avenue, Monroe,
Georgia 30655. Mr. Hearn is Mr. Williamson's father-in-law.
(4) Includes 18,900 shares subject to stock options held by M. Jordan, and
includes 2,245 shares with which Mr. Jordan holds shared voting and
investment power. Mr. Jordan's address is 1302 West Spring Street, Monroe,
Georgia 30655.
(5) Includes 3,750 shares held by the King Family Limited Partnership. 8,160
shares held by Henri Wedel as custodian for Mr. King's children, and 2,677
shares held by Mr. King's wife.
(6) Includes 4,200 shares held by Thrifty Mac Drug Company, and 1,500 shares
held by the Thrifty Mac Drug Company profit sharing plan.
(7) Includes 2,902.50 shares with which Mr. Shackleford holds shared voting and
investment power.
(8) Includes 29,250 shares held by Mr. Williamson in his individual capacity,
3,150 shares held by the Williamson Insurance Agency, Inc. profit sharing
plan and 8,085 shares held by various trusts established for the benefit of
family members of Mr. Williamson. Mr. Williamson's address is 216 South
Broad Street, Monroe, Georgia 30655. Mr. Williamson is Mr. Hearn's
son-in-law.
(9) Includes 2,950 shares with which Mr. Thompson holds shared voting and
investment power. Mr. Thompson's address is P.O. Box 49, Monroe, Georgia
30655.
48
<PAGE>
WALTON BANK'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of Walton Bank's financial condition at
December 31, 1999 and 1998 and the results of operations for the two year period
ended December 31, 1999. The purpose of this discussion is to focus on
information about Walton Bank's financial condition and results of operations
which are not otherwise apparent from the audited financial statements.
Reference should be made to those statements and the selected financial data
presented elsewhere in this proxy/prospectus for an understanding of the
following discussion and analysis.
FORWARD-LOOKING STATEMENTS
The following discussion contains certain forward-looking statements which
are based on certain assumptions and describe future plans, strategies, and our
expectations. These forward-looking statements are generally identified by use
of the words "believe," "expect," "intend," "anticipate," "estimate," "project,"
or similar expressions. Our ability to predict results or the actual effect of
future plans or strategies is inherently uncertain. Factors which could have a
material adverse effect on our operations include, but are not limited to,
changes in interest rates, general economic conditions, legislation and
regulation, monetary and fiscal policies of the U.S. Government, including
policies of the U.S. Treasury and the Federal Reserve Board, the quality or
composition of our loan or investment portfolios, demand for loan products,
deposit flows, competition, demand for financial services in our market area,
and accounting principles and guidelines. You should consider these risks and
uncertainties in evaluating forward-looking statements and should not place
undue reliance on such statements. We will not publicly release the result of
any revisions which may be made to any forward-looking statements to reflect
events or circumstances after the date of such statements or to reflect the
occurrence of anticipated or unanticipated events.
RESULTS OF OPERATIONS FOR NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
The following is management's discussion and analysis of certain significant
factors which have affected the Bank's financial position and operating results
for the three and nine month periods ended September 30, 2000 and 1999.
FINANCIAL CONDITION
Total assets have increased by 10.4% from $54.7 million to $60.4 million for
the nine months ended September 30, 2000. The increase in total assets in 2000
exceeds the 9.4% growth for the same period in 1999. The growth in both years
was funded primarily by increases in total deposits of $5.1 million and
$4.3 million, respectively. The increase in total assets for the nine months
ended September 30, 2000 consisted primarily of an increase of $4.9 million in
total loans. The loan to deposit ratio at September 30, 2000 was 80% compared to
78% at December 31, 1999.
Total equity increased $722,000, or 11.6% during the nine months ended
September 30, 2000. The net increase consists of net income for the period of
$837,000 less dividends of $225,000 plus the recovery of unrealized losses
recognized on securities available-for-sale totaling $110,000.
LIQUIDITY
At September 30, 2000, Walton Bank's liquidity was more than adequate in
relation to target ratios. Liquidity is measured by the ratio of net cash,
Federal funds sold and securities to net deposits and short-term liabilities.
Walton Bank has lines of credit available to meet unforeseen liquidity needs.
49
<PAGE>
REGULATORY CAPITAL REQUIREMENTS
Banking regulations require Walton Bank to maintain minimum capital levels
in relation to assets. At September 30, 2000, Walton 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
September 30, 2000 are as follows:
<TABLE>
<CAPTION>
MINIMUM
REGULATORY
ACTUAL REQUIREMENT
-------- -----------
<S> <C> <C>
Leverage Capital Ratio.................................. 11.56% 4.00%
Risk-Based Capital Ratios
Core Capital.......................................... 16.94% 4.00%
Total Capital......................................... 18.18% 8.00%
</TABLE>
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income increased by $134,000, or 21.2%, and $423,000, or 23.3%,
for the three and nine month periods ended September 30, 2000, respectively,
compared to the same periods in 1999. These increases in net interest income are
attributable to an increase in earning assets of $6.5 million, or 12.9% as
compared to September 30, 1999. During this same period, total deposits
increased by $5.9 million, of which 88% was increases in time deposits. The
increase in net interest income is based on the spread between rates earned on
interest earning assets and rates paid on interest bearing liabilities.
The net interest margin was 5.36% and 5.05% at September 30, 2000 and
September 30, 1999, respectively.
PROVISION FOR LOAN LOSSES
The provision for loan losses is based on management's evaluation of the
economic environment, the history of charged off loans and recoveries, size and
composition of the loan portfolio, nonperforming and past due loans, and other
aspects of the loan portfolio. Management reviews the allowance for loan loss on
a quarterly basis and makes provisions as necessary. A provision of $110,000 was
made during the nine month period ending September 30, 2000 based upon this
evaluation process. The allowance for loan loss as a percentage of total loans
was 1.22% at September 30, 2000 compared to 1.14% at December 31, 1999. The
increase in the allowance as a percentage of total loans is primarily the result
of the $4.9 million increase in loans for the nine month period, of which
$4.0 million of the increase is in construction and development loans.
Management believes the allowance for loan loss at September 30, 2000 is
adequate to meet any potential losses in the loan portfolio.
50
<PAGE>
At September 30, 2000 and 1999, nonaccrual, past due, and restructured loans
were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
2000 1999
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Total nonaccruing loans..................................... $118 $118
Loans contractually past due ninety days or more as to
interest or principal payments and still accruing......... 3 --
Loans, the terms of which have been renegotiated to provide
a reduction or deferral of interest or principal because
of deterioration in the financial position of the
borrower.................................................. -- --
Loans now current about which there are serious doubts as to
the ability of the borrower to comply with present loan
repayment terms........................................... -- --
</TABLE>
Nonaccrual loans have remained constant during the last year while past due
loans greater than 90 days and still accruing have increased by only $3,000. As
shown in the following table, net charge-offs increased by $32,000 for the nine
months ended September 30, 2000 as compared to 1999. Net charge-offs as a
percentage of average loans outstanding were .04% for the nine months ended
September 30, 2000 compared to net recoveries as a percentage of average loans
outstanding of .04% for the same period in 1999.
Information regarding the allowance for loan loss data through
September 30, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
2000 1999
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Average amount of loans outstanding....................... $41,799 $32,461
======= =======
Balance of allowance for loan losses at beginning of
period.................................................. $ 426 $ 370
------- -------
Loans charged off
Commercial and financial................................ -- (12)
Real estate............................................. (10) --
Installment............................................. (11) (1)
------- -------
(21) (13)
------- -------
Loans recovered
Commercial and financial................................ -- 4
Real estate............................................. -- 16
Installment............................................. 2 6
------- -------
2 26
------- -------
Net (charge-offs) recoveries.............................. (19) 13
------- -------
Additions to allowance charged to operating expense during
period.................................................. 110 45
------- -------
Balance of allowance for loan losses at end of period..... 517 428
======= =======
Ratio of net loan (charge-offs) recoveries during the
period to average loans outstanding..................... (.04)% .04%
======= =======
</TABLE>
51
<PAGE>
OTHER INCOME
Other income increased by $51,000 and $177,000 for the three and nine month
periods ended September 30, 2000, respectively, compared to the same periods in
1999. The increase in service charges on deposit accounts accounted for $13,000
and $43,000 of the total increase for the three and nine month periods,
respectively. Other operating income increased by $38,000 and $134,000 for the
three and nine month periods ended September 30, 2000, respectively. The
increase in other operating income is primarily the increase in service fees on
loans which increased by $124,000 for the nine month period ended September 30,
2000.
OTHER EXPENSES
Other expenses increased by $32,000 and $228,000, or 18.9% for the three and
nine month periods ended September 30, 2000 as compared to the same periods in
1999. The most significant increase in 2000 was an increase of $112,000 in
salaries and employee benefits for the nine month period. The increase in
salaries and employee benefits represents normal increases in salaries, an
increase of $36,000 in incentive plan expenses, and the addition of one employee
in 2000.
Other operating expenses increased by $89,000 for the nine month period
ended September 30, 2000 as compared to the same period in 1999. The increases
in other operating expenses include increases of $40,000 and $18,000 in data
processing expense and computer expenses, respectively.
NET INCOME
Net income increased by $90,000 and $194,000, respectively, for the three
and nine month periods ended September 30, 2000, or approximately 30% for the
nine month period. The increase in net income can be attributed to continued
increases in interest-earning assets and the increase in other income discussed
above.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NET INCOME
1999 COMPARED TO 1998 For the year ended December 31, 1999, Walton Bank
recorded net income of $860,000 or $1.91 and $1.90 per common share on a basic
and diluted basis, respectively. The increase in net income compared to 1998 was
$168,000, or approximately 24%. The increase in net income in 1999 as compared
with 1998 was primarily because of increases in interest-earning assets and
liabilities which resulted in an increase in net interest income of $219,000,
and a $198,000 reduction in provision for loan losses. This net increase of
$417,000 was offset by $206,000 increases in other expenses.
52
<PAGE>
NET INTEREST INCOME
TABLE 1: AVERAGE BALANCES, INTEREST INCOME, AND INTEREST EXPENSE
The following table contains condensed average balance sheets for the years
indicated. In addition, the amount of Walton Bank's interest income and interest
expense for each category of interest-earning assets and interest-bearing
liabilities and the related average interest rates, net interest spread and net
yield on average interest earning assets are included.
TABLE 1
ANALYSIS OF NET INTEREST INCOME
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1999 1998
------------------------------ ------------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Taxable investment securities.............. $11,736 $ 674 5.74% $ 8,691 $ 548 6.31%
Nontaxable investment securities(1)........ 1,622 79 4.87% 1,191 62 5.21%
Unrealized losses of AFS................... (95) 72
Federal funds sold......................... 2,061 101 4.90% 3,668 196 5.34%
Loans(2)................................... 33,602 3,413 10.16% 29,268 3,116 10.65%
Allowance for loan losses.................. (407) (439)
Cash and due from banks.................... 1,488 1,257
Other assets............................... 1,529 1,524
------- -------
Total.................................... 51,536 $4,267 $45,232 $3,922
======= ====== ======= ======
Total interest-earning assets.............. $49,021 8.70% $42,818 9.16%
======= =======
Liabilities:
Noninterest-bearing demand................. $ 6,629 $ 6,039
Interest bearing demand and savings........ 10,606 236 2.23% 9,477 256 2.70%
Time....................................... 27,926 1,535 5.50% 23,824 1,389 5.83%
------- ------ ------- ------
Total deposits........................... 45,161 1,771 39,340 1,645
Other borrowings........................... 9
Other liabilities.......................... 363 377
Shareholders' equity....................... 6,003 5,515
------- -------
Total.................................... $51,536 $1,771 $45,232 $1,645
======= ====== ======= ======
Total interest-bearing liabilities......... $38,541 4.60% $33,301 4.94%
======= =======
Net interest income........................ $2,496 $2,277
Net interest spread(3)..................... 4.11% 4.22%
Net interest margin(4)..................... 5.09% 5.32%
</TABLE>
------------------------
(1) Yields on nontaxable securities have not been computed on a tax equivalent
basis.
(2) Interest income from loans includes total fee income of approximately
$200,000 and $191,000 for the years ended December 31, 1999 and 1998,
respectively.
(3) Interest rate spread is the weighted average yield on interest-earning
assets minus the average rate on interest-bearing liabilities.
(4) Net interest margin is net interest income divided by average
interest-earning assets.
53
<PAGE>
TABLE 2--RATE AND VOLUME ANALYSIS
The following table describes the extent to which changes in interest rates
and changes in volume of interest-earning assets and interest-bearing
liabilities have affected Walton Bank's interest income and expense during the
years indicated. For each category of interest-earning assets and interest-
bearing liabilities, information is provided on changes attributable to
(i) change in volume (change in volume multiplied by previous year rate);
(ii) change in rate (change in rate multiplied by previous year volume); and
(iii) a combination of change in rate and change in volume. The changes in
interest income and interest expense attributable to both volume and rate have
been allocated proportionately to the change due to volume and the change due to
rate.
ANALYSIS OF CHANGES IN NET INTEREST INCOME
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 COMPARED TO 1998
INCREASE (DECREASE)
DUE TO CHANGE IN
------------------------------------
RATE VOLUME TOTAL
-------- -------- --------
<S> <C> <C> <C>
Income from interest-earning assets:
Interest and fees on loans......................... $(148) $445 $297
Interest on taxable securities..................... (52) 178 126
Interest on nontaxable securities.................. (4) 21 17
Interest on Federal funds sold..................... (15) (80) (95)
----- ---- ----
Total interest income............................ $(219) $564 $345
----- ---- ----
Expense from interest-bearing liabilities:
Interest on interest-bearing deposits.............. $ (48) $ 28 $(20)
Interest on time deposits.......................... (82) 228 146
----- ---- ----
Total interest expense........................... $(130) $256 $126
----- ---- ----
Net interest income.............................. $ (89) $308 $219
===== ==== ====
</TABLE>
1999 COMPARED TO 1998. Net interest income increased by $219,000 for the
year ended December 31, 1999, or 9.6%. The increase in net interest income is
due to an increase of $6.2 million in interest-earning assets, an increase of
14.5%. During the same period, the increase in interest-bearing liabilities was
$5.2 million, an increase of 7.7%. The net interest margin decreased slightly
during the year from 5.32% to 5.09%. The decrease in the net interest margin
reflects the volume of interest-earning assets which were originated in years
prior to 1999. Interest-earning assets typically reprice slower than
interest-bearing liabilities, therefore in the current situation, the net
interest margin reflects past interest rate environments as well as the current
rate environment. As the assets reprice, the net interest margin should
gradually increase in a stable interest rate environment. Additionally,
competition for loans and deposits has a direct effect on the net interest
margin. The overall yield on interest-earning assets decreased by 46 basis
points to 8.70% in 1999, and the rate paid on interest-bearing liabilities
decreased 34 basis points to 4.60%, resulting in a net decrease in the interest
rate spread of 11 basis points, or 4.11%.
The most significant increases in average interest-earning assets consisted
of increases of $4.3 million and $3.5 million in total loans and investment
securities for the year ended December 31, 1999. The average rates paid on
interest-earning assets has decreased moderately in 1999, as discussed
previously. The most significant change was a 49 basis point decrease in the
yield on loans in 1999.
54
<PAGE>
Average interest-bearing demand and savings deposits grew $1.1 million and
average time deposits grew by $4.1 million for the year ended December 31, 1999.
The average rate paid on these deposits in 1999 was 2.23% and 5.50%, down from
2.70% and 5.83%, respectively in 1998.
The growth in average balances accounted for $308,000 of the net $219,000
increase in net interest income for the year ended December 31, 1999. The
changes in yields and rates accounted for a decrease of $89,000 in net interest
income.
PROVISION FOR LOAN LOSSES
For the year ended December 31, 1999, the provision for loan losses
decreased by $198,000 to $65,000, compared to $263,000 for the prior year. The
decrease in 1999 was based on management's evaluation of the overall allowance
for loan losses which included a decrease in net charge-offs of $218,000.
The provision for loan losses is based on management's evaluation of
economic conditions, volume and composition of the loan portfolio, the
historical charge off experience, the level of nonperforming and past due loans,
and other indicators derived from reviewing the loan portfolio. Management
performs such reviews quarterly and adjusts the level of the allowance for loan
losses. At December 31, 1999, the allowance for loan losses was believed to be
adequate to provide for potential losses in the loan portfolio.
The allowance for loan losses represents management's assessment of the risk
associated with extending credit and its evaluation of the quality of the loan
portfolio. Management analyzes the loan portfolio to determine the adequacy of
the allowance for loan losses and the appropriate provision required to maintain
a level considered adequate to absorb anticipated loan losses. In assessing the
adequacy of the allowance, management reviews the size, quality and risk of
loans in the portfolio. Management also considers such factors as Walton Bank's
loan loss experience, the amount of past due and nonperforming loans, specific
known risk, the status and amount of nonperforming assets, underlying collateral
values securing loans, current and anticipated economic conditions and other
factors which affect the allowance for potential credit losses. An analysis of
the credit quality of the loan portfolio and the adequacy of the allowance for
loan losses is prepared by the Loan Committee on a quarterly basis.
Walton Bank's allowance for loan losses is also subject to regulatory
examinations and determinations as to adequacy, which may take into account such
factors as the methodology used to calculate the allowance for loan losses and
the size of the allowance for loan losses in comparison to a group of peer banks
identified by the regulators. During their routine examinations of banks,
regulatory agencies may require a bank to make additional provisions to its
allowance for loan losses when, in the opinion of the regulators, credit
evaluations and allowance for loan loss methodology differ materially from those
of management.
While it is Walton Bank's policy to charge off in the current period loans
for which a loss is considered probable, there are additional risks of future
losses which cannot be quantified precisely or attributed to particular loans or
classes of loans. Because these risks include the state of the economy,
management's judgment as to the adequacy of the allowance is necessarily
approximate and imprecise.
Asset quality showed significant improvement for the year ended
December 31, 1999. Nonaccrual loans as a percentage of total loans decreased
from .46% to .027% during 1999. The ratio of nonperforming assets to total loans
decreased from .46% to .07% for the same period. At December 31, 1999 the
allowance for loan losses as a percentage of total loans was 1.14% compared to
1.19% at December 31, 1998. The slight decrease in the allowance for loan losses
to total loans is reflective of the overall improvement in the loan portfolio.
55
<PAGE>
The following table presents at the dates indicated the aggregate
nonperforming loans for the following categories:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
--------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Loans accounted for on a nonaccrual basis.............. $7,862 $142,040
Loans contractually past due 90 days or more as to
interest or principal payments and still accruing.... -- --
Loans, the terms of which have been renegotiated to
provide a reduction or deferral of interest or
principal because of deterioration in the financial
position of the borrower............................. -- --
Loans now current about which there are serious doubts
as to the ability of the borrower to comply with
present loan repayment terms......................... -- --
</TABLE>
The reduction in interest income associated with nonaccrual loans as of
December 31, 1999 is as follows:
<TABLE>
<S> <C>
Interest income that would have been
recorded on nonaccrual loans under original terms......... $590
Interest income that was recorded
on nonaccrual loans....................................... 334
----
Reduction in interest income............................ $256
====
</TABLE>
In the opinion of management, any loans classified by regulatory authorities
as doubtful, substandard, or special mention that have not been disclosed above
do not (i) represent or result from trends or uncertainties which management
reasonably expects will materially impact future operating results, liquidity,
or capital resources, or (ii) represent material credits about which management
is aware of any information which causes management to have serious doubts as to
the ability of such borrowers to comply with the loan repayment terms. In the
event of non-performance by the borrower, these loans have collateral pledged
which would prevent the recognition of substantial losses. Any loans classified
by regulatory authorities as loss have been charged off.
COMMITMENTS AND LINES OF CREDIT
In the ordinary course of business, Walton Bank has granted commitments to
extend credit and standby letters of 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 the Loan Committee.
These commitments are recorded in the financial statements as they are funded.
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.
Following is a summary of the commitments outstanding at December 31, 1999
and 1998.
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Commitments to extend credit......................... $9,675,285 $2,894,691
Standby letters of credit............................ 184,460 334,939
---------- ----------
$9,859,745 $3,229,630
========== ==========
</TABLE>
Commitments to extend credit include unused commitments for open-end lines
secured by 1-4 family residential properties, commitments to fund loans secured
by commercial real estate,
56
<PAGE>
construction loans, land development loans, and other unused commitments.
Commitments to fund commercial real estate, construction, and land development
loans increased by $6.7 million at December 31, 1999 compared to 1998. This
increase is due to the growth and development in Walton Bank's market area. A
significant portion of the increase in outstanding commitments is in 1-4 family
residential construction and development.
The following table summarizes the allowance for loan losses for each year.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Average balance of loans outstanding................... $33,602 $29,268
======= =======
Balance of allowance for loan losses at beginning of
year................................................. $ 370 $ 335
======= =======
Charge-offs:
Real estate--mortgage................................ -- --
Real estate--construction............................ -- --
Consumer............................................. (4) (10)
Commercial........................................... (32) (230)
------- -------
(36) (240)
------- -------
Recoveries:
Real estate--mortgage................................ 16 --
Real estate--construction............................ -- --
Consumer............................................. 7 12
Commercial........................................... 4 --
------- -------
27 12
------- -------
Net charge-offs........................................ (9) (228)
------- -------
Additions to allowance charged to operations........... 65 263
------- -------
Balance of allowance for loan losses at end of year.... $ 426 $ 370
======= =======
Ratio of net loan charge-offs during the year to
average loans outstanding during the year............ 0.03% 0.78%
</TABLE>
The following table summarizes the allocation of the allowance for loan
losses to types of loans as of the indicated dates.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1999 1998
------------------------ ------------------------
PERCENT OF PERCENT OF
LOANS IN EACH LOANS IN EACH
CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
-------- ------------- -------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial......................... $217 11.07% $205 14.69%
Real estate........................ 164 76.86% 134 72.47%
Consumer........................... 45 12.07% 31 12.84%
---- ------ ---- ------
$426 100.00% $370 100.00%
==== ====== ==== ======
</TABLE>
1999 COMPARED TO 1998. The provision for loan losses decreased to $65,000
from $263,000 for the year ended December 31, 1999. The decrease in the
provision of $198,000 is attributable to the improvement in the loan portfolio
combined with the decrease in net charge-offs during the year. The allowance for
loan losses at December 31, 1999 was $426,000, a net increase of $56,000 for the
year.
57
<PAGE>
The net charge-offs decreased from $228,000 in 1998 to $9,000 in 1999,
representing a net charge-off ratio of .03% compared to 0.78% in 1998. The
allowance to nonaccruing loans increased during 1999 to 54.2%, compared to 2.6%
in 1998.
OTHER INCOME
1999 COMPARED TO 1998. Other income increased by $103,000 in 1999, or
20.7%, compared to 1998. Deposit and service charge income increased by $45,000
for the year ended December 31, 1999. This increase is due primarily to an
increase of $39,000 in NSF and overdraft fees. Included in other income is loan
servicing income which increased for the year ended December 31, 1999 by
$54,000, to $133,000. This increase is directly related to the increase in
mortgage lending activity which fluctuates with the rise and fall of mortgage
rates.
OTHER EXPENSES
1999 COMPARED TO 1998. Other expenses increased during 1999 by $211,000
compared to the same period in 1998. Salaries and employee benefits increased by
$182,000 for the year. The increase in salaries and employee benefits includes
normal increases in salaries, group insurance, payroll taxes, profit sharing and
employee incentives along with increases directly related to an increased number
of employees. The number of full-time equivalent employees increased by three to
26 as of December 31, 1999. Equipment and occupancy expenses combined increased
by $29,000. The increase in equipment and occupancy expenses is not directly
related to any one significant increase or change in operations. Other operating
expenses remained constant for 1999.
BALANCE SHEET REVIEW
1999 COMPARED TO 1998. Total assets increased in 1999 by $5.7 million, or
11.7%. The most significant increase in assets came in the growth of the loan
portfolio, which grew $6.3 million, or 20.1%. Total interest-earning assets
increased by $4.8 million, or 10.2% in 1999 as compared to 1998. Other assets
increased in 1999 by $252,000 for the same period. The increase in other assets
consists primarily of an increase of $78,000 in interest receivable and an
increase of $188,000 in deferred tax assets related to the unrealized losses on
securities available-for-sale.
Total deposits increased by $5.1 million, or 12.0%, which funded for the
most part the asset growth. Non-interest-bearing demand deposits increased by
$338,000, or 5.7%, interest-bearing demand and savings decreased by
$1.3 million, or 11.6%, and time deposits increased by $6.1 million, or 23.7%.
Stockholders' equity increased by $383,000. This increase reflected net
earnings of $860,000 less dividends declared of $158,000. Accumulated other
comprehensive loss represents the net unrealized losses on securities
available-for-sale which increased during 1999 by $320,000 to $263,000, net of
taxes.
SECURITIES PORTFOLIO
The carrying amounts of securities at the dates indicated are summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
--------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
U.S. Treasury and government
agencies and corporations............................ $10,586 $ 8,710
State and municipal securities......................... 1,718 1,241
Mortgage-backed securities............................. 907 1,285
------- -------
$13,211 $11,236
======= =======
</TABLE>
58
<PAGE>
The carrying amounts of securities in each category as of December 31, 1999
are shown in the following table according to maturity classifications.
<TABLE>
<CAPTION>
U.S. TREASURY AND
GOVERNMENT AGENCIES
AND CORPORATIONS,
INCLUDING
MORTGAGE-BACKED STATE AND MUNICIPAL
SECURITIES SECURITIES
------------------------- -------------------------
CARRYING CARRYING
AMOUNT YIELD AMOUNT YIELD
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
One year or less.................................... $ -- --% $ -- --%
After one year through five years................... 8,981 6.15% 100 4.45%
After five years through ten years.................. 1,848 6.69% 868 4.73%
After ten years..................................... 664 6.49% 750 5.33%
------- ------
$11,493 $1,718
======= ======
</TABLE>
LOAN PORTFOLIO
TYPES OF LOANS
The amount of loans outstanding at the indicated dates are shown in the
following table according to the type of loan.
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------
1999 1998
--------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Commercial, financial, agricultural.................... $ 4,157 $ 4,588
Real estate--construction.............................. 10,610 6,337
Real estate--mortgage.................................. 18,261 16,294
Consumer and other..................................... 4,535 4,009
------- -------
$37,563 $31,228
Less unearned income................................... (106) (33)
Less allowance for loan losses......................... (426) (370)
------- -------
Loans, net............................................. $37,031 $30,825
======= =======
</TABLE>
MATURITIES AND SENSITIVITIES TO CHANGES IN INTEREST RATES
Total loans as of December 31, 1999 are shown in the following table
according to maturity classifications (i) one year or less, (ii) after one year
through three years, and (iii) after three years. The disclosure of loans by the
above categories, and by maturity of one year to five years and over five years,
is not available and to obtain this information would cause undue time and
expense to be incurred by Walton Bank.
<TABLE>
<CAPTION>
(DOLLARS IN
MATURITY: THOUSANDS)
--------- -----------
<S> <C>
One year or less............................................ $25,033
After one year through three years.......................... $ 4,048
After three years........................................... $ 8,482
</TABLE>
59
<PAGE>
Total loans as of December 31, 1999 with a maturity after one year which
have (i) predetermined interest rates, and (ii) floating or adjustable interest
rates, are presented below:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
-----------
<S> <C>
Predetermined rates......................................... $8,140
Floating or adjustable rates................................ $4,390
</TABLE>
DEPOSITS
The average amount of deposits and average rates paid thereon, classified as
to noninterest-bearing demand deposits, interest-bearing demand and savings
deposits and time deposits, for the periods indicated are presented below.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1999 1998
------------------- -------------------
AMOUNT RATE AMOUNT RATE
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Noninterest-bearing demand deposits........... $ 6,629 --% $ 6,039 --%
Interest-bearing demand and savings
deposits.................................... 10,606 2.23% 9,477 2.70%
Time deposits................................. 27,926 5.50% 23,824 5.83%
------- -------
$45,161 $39,340
======= =======
</TABLE>
The amounts of time certificates of deposit issued in amounts of $100,000 or
more as of December 31, 1999 are shown below by category, which is based on time
remaining until maturity of (i) three months or less, (ii) over three through
six months, (iii) over six through 12 months, and (iv) over 12 months.
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
-----------
<S> <C>
Three months or less........................................ $1,894
Over three months through 12 months......................... 4,015
Over 12 months.............................................. 2,097
------
$8,006
======
</TABLE>
LIQUIDITY
Liquidity represents the ability to meet the needs of customers to withdraw
funds from deposit accounts, to borrow funds and to meet their credit needs.
Walton Bank manages its liquidity needs in such a way that the needs of
depositors and borrowers are met on a timely basis so that the operations of
Walton Bank are not interrupted. Sources of liquidity available to meet these
needs include cash on deposit, Federal funds, securities available for sale,
maturities of securities, and principal payments on loans. Growth in Walton
Bank's deposit base provides an additional source as does access to funds
through relationships with correspondent banks. Liquidity needs at Walton Bank
can also be met through loan participations sold to other financial
institutions.
At December 31, 1999 the liquidity position of Walton Bank was considered
adequate and within guidelines set forth in Walton Bank's liquidity policy.
REGULATORY CAPITAL REQUIREMENTS
Walton Bank is subject to minimum capital standards as set forth by federal
bank regulatory agencies.
60
<PAGE>
Walton Bank's capital for regulatory purposes differs from Walton Bank's
equity as determined under generally accepted accounting principles. Generally,
"Tier 1" regulatory capital will equal capital as determined under generally
accepted accounting principles less any unrealized gains or losses on securities
available for sale while "Tier 2" capital includes the allowance for loan losses
up to certain limitations. Total risk based capital is the sum of Tier 1 and
Tier 2 capital. Walton Bank's capital ratios and required minimums at
December 31, 1999 are shown below:
<TABLE>
<CAPTION>
MINIMUM
REGULATORY
REQUIREMENT ACTUAL
----------- --------
<S> <C> <C>
Tier 1 capital to risk adjusted assets...................... 4.00% 17.16%
Total capital to risk adjusted assets....................... 8.00% 18.29%
Tier 1 leverage ratio (to average quarterly assets)......... 3.00% 11.78%
</TABLE>
Total capital at Walton Bank also has an important effect on the amount of FDIC
insurance premiums paid. Institutions not considered well capitalized are
subject to higher rates for FDIC insurance.
ASSET/LIABILITY MANAGEMENT
It is Walton Bank's objective to manage 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 within Walton Bank are charged with the responsibility for monitoring
policies and procedures that are designed to ensure acceptable composition of
the asset/liability mix.
Walton Bank's asset/liability mix is monitored on a regular basis with a
report reflecting the interest rate sensitive assets and interest rate sensitive
liabilities being prepared and presented to the Board of Directors and
management's Asset/Liability Committee on a quarterly basis. The objective is to
monitor interest rate sensitive assets and liabilities so as to minimize the
impact of substantial movements in interest rates on earnings. An asset or
liability is considered to be interest rate-sensitive if it will reprice or
mature within the time period analyzed, usually one year or less. The interest
rate-sensitivity gap is the difference between the interest-earning assets and
interest-bearing liabilities scheduled to mature or reprice within such time
period. A gap is considered positive when the amount of interest rate-sensitive
assets exceeds the amount of interest rate-sensitive liabilities. A gap is
considered negative when the amount of interest rate-sensitive liabilities
exceeds the interest rate-sensitive assets. During a period of rising interest
rates, a negative gap would tend to adversely affect net interest income, while
a positive gap would tend to result in an increase in net interest income.
Conversely, during a period of falling interest rates, a negative gap would tend
to result in an increase in net interest income, while a positive gap would tend
to adversely affect net interest income. If Walton Bank's assets and liabilities
were equally flexible and moved concurrently, the impact of any increase or
decrease in interest rates on net interest income would be minimal.
A simple interest rate "gap" analysis by itself may not be an accurate
indicator of how net interest income will be affected by changes in interest
rates. Accordingly, Walton Bank also evaluates how the repayment of particular
assets and liabilities is impacted by changes in interest rates. Income
associated with interest-earning assets and costs associated with
interest-bearing liabilities may not be affected uniformly by changes in
interest rates. In addition, the magnitude and duration of changes in interest
rates may have a significant impact on net interest income. For example,
although certain assets and liabilities may have similar maturities or periods
of repricing, they may react in different degrees to changes in market interest
rates. Interest rates on certain types of assets and liabilities fluctuate in
advance of changes in general market rates, while interest rates on other types
may lag behind changes in general market rates. In addition, certain assets,
such as adjustable rate mortgage loans, have features (generally referred to as
"interest rate caps") which limit changes in interest rates. Prepayment and
early withdrawal levels also could deviate significantly from those assumed in
calculating the
61
<PAGE>
interest rate gap. The ability of many borrowers to service their debts also may
decrease in the event of an interest rate increase.
ANALYSIS OF INTEREST SENSITIVITY
AS OF DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
0-3 3-12 1-2 OVER 2
MONTHS MONTHS YEARS YEARS TOTAL
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Federal funds sold.............................. $ 980 $ -- $ -- $ -- $ 980
Securities...................................... 1,114 3,525 3,177 5,395 13,211
Loans(1)........................................ 19,889 9,534 2,573 5,567 37,563
------- ------- ------ ------- -------
Total interest-earning assets............... $21,983 $13,059 $5,750 $10,962 $51,754
------- ------- ------ ------- -------
Interest-bearing liabilities:
Interest-bearing demand deposits.............. $ 8,109 $ -- $ -- $ -- $ 8,109
Savings....................................... 1,769 -- -- -- 1,769
Time deposits................................. 7,326 16,836 3,121 4,561 31,844
------- ------- ------ ------- -------
Total interest-bearing liabilities.......... 17,204 16,836 3,121 4,561 41,722
------- ------- ------ ------- -------
Interest rate sensitivity gap................... $ 4,779 $(3,777) $2,629 $ 6,401 $10,032
======= ======= ====== ======= =======
Cumulative interest rate sensitivity gap........ $ 4,779 $ 1,002 $3,631 $10,032
======= ======= ====== =======
Interest rate sensitivity gap ratio............. 1.28 .78 1.84 2.40
======= ======= ====== =======
Cumulative interest rate sensitivity gap
ratio......................................... 1.28 1.03 1.10 1.24
======= ======= ====== =======
</TABLE>
------------------------
(1) Includes nonaccrual loans.
The above table summarizes interest-sensitive assets and liabilities for
Walton Bank as of December 31, 1999. Adjustable rate loans are included in the
period in which their interest rates are scheduled to adjust. Fixed rate loans
are included in the periods in which they are anticipated to be repaid based on
scheduled maturities and anticipated prepayments. Investment securities are
included in their period of maturity while mortgage backed securities are
included according to expected repayment. Certificates of deposit are presented
according to contractual maturity.
At December 31, 1999, Walton Bank's cumulative one year interest rate
sensitivity gap ratio was 103%. Walton Bank's targeted ratio is 80% to 120% in
this time horizon. This indicates that the interest-earning assets will reprice
during this period at a rate slower than the interest-bearing liabilities.
Walton Bank's experience has been that not all liabilities shown as being
subject to repricing will in fact reprice with changes in market rates. Walton
Bank has a base of core deposits consisting of interest bearing checking
accounts and passbook savings accounts whose average balances and rates paid
thereon will not fluctuate with changes in the levels of market interest rates.
EFFECTS OF INFLATION
Walton Bank's consolidated financial statements and related data presented
herein have been prepared in accordance with generally accepted accounting
principles which require the measure of financial position and operational
results in terms of historic dollars, without considering changes in the
relative purchasing power of money over time due to inflation.
62
<PAGE>
Inflation generally increases the costs of funds and operating overhead, and
to the extent loans and other assets bear viable rates, the yields on such
assets. Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant effect on the performance of a
financial institution than the effects of general levels of inflation. In
addition, inflation affects financial institutions' cost of goods and services
purchased, the cost of salaries and benefits, occupancy expense, and similar
items. Inflation and related increases in interest rates generally decrease the
market value of investments and loans held and may adversely affect liquidity,
earnings, and stockholders' equity. Mortgage originations and refinancings tend
to slow as interest rates increase, and likely will reduce Walton Bank's volume
of such activities and the income from the sale of residential mortgage loans in
the secondary market.
DIRECTORS OF WALTON BANK
BOARD COMMITTEES
The business and affairs of Walton Bank are under the direction of its Board
of Directors. Walton Bank's Board of Directors has five standing committees,
consisting of the Audit Committee, the Executive Committee, the Funds Management
Committee, the Loan Committee, and the Marketing Committee. The Board of
Directors of Walton Bank serves as the Nominating Committee for the purpose of
nominating persons to serve on the Board of Directors.
AUDIT COMMITTEE. The Audit Committee recommends to the Board of Directors
of Walton Bank the independent public accountants to be selected to audit Walton
Bank's annual financial statements and will approve any special assignments
given to the independent public accountants. The committee also reviews the
planned scope of the annual audit, any changes in accounting principles and the
effectiveness and efficiency of Walton Bank's internal accounting staff.
Additionally, the committee provides oversight to Walton Bank's compliance staff
for adherence with regulatory rules and regulations, including the Community
Reinvestment Act. The committee further reviews management organization and
development. The committee is chaired by Wayne A. Tanner, and also includes
Robert C. King, George B. Launius, Charles B. Logan, and Hugh B. Williamson,
III.
EXECUTIVE COMMITTEE. The executive committee is authorized, between
meetings of Walton Bank's Board of Directors, to perform all duties and exercise
all authority of the Board of Directors, except for those duties and authorities
specifically granted to other committees or which are exclusively reserved to
the full Board of Directors. Additionally, the committee makes recommendations
to Walton Bank's Board of Directors regarding matters relating to the overall
management of Walton Bank. The committee is chaired by Hugh B. Williamson, III
and also includes Harold L. Breedlove, W. Morris Jordan, Robert C. King, and
Charles H. Logan.
FUNDS MANAGEMENT COMMITTEE. The Funds Management Committee provides
guidance to Walton Bank in balancing the yields and maturities in Walton Bank's
loans and investments to its deposits and borrowings. The committee is chaired
by W. Morris Jordan, and also includes Nedra E. Jackson, Lewis F. Shackleford,
Jr., and David G. Thompson.
LOAN COMMITTEE. Walton Bank's Loan Committee reviews any loan request made
by a potential borrower over an established credit threshold for compliance with
Walton Bank's lending policies and federal and state rules and regulations
governing extensions of credit. After making this review, the committee decides
whether to extend credit to the potential borrower. The committee is chaired by
George J. Hearn, III, and also includes W. Morris Jordan, Lewis F. Shackleford,
Jr., David G. Thompson and Hugh B. Williamson, III.
MARKETING COMMITTEE. The Marketing Committee considers and recommends new
products and services to the Board of Directors, and develops marketing,
advertising and promotional strategies. The
63
<PAGE>
committee is chaired by Harold L. Breedlove, and also includes W. Morris Jordan,
Wayne A. Tanner and Hugh B. Williamson, III.
Upon consummation of the merger, Hugh B. Williamson, III, a director of
Walton Bank, will be elected a director of Main Street Bank, and W. Morris
Jordan, the president and chief executive officer of Walton Bank, will become an
executive vice president of Main Street Bank and chief executive officer of the
Walton County banking region of Main Street Bank.
The table below sets forth: (i) the year each of Mr. Williamson and
Mr. Jordan was first elected as a director of Walton Bank; (ii) their respective
ages at September 30, 2000; and (iii) their respective positions with Walton
Bank and other business experience for the past five years.
<TABLE>
<CAPTION>
NAME, YEAR FIRST ELECTED TO BOARD OF WALTON POSITION WITH WALTON BANK AND
BANK AGE PRINCIPAL OCCUPATION DURING THE PAST FIVE YEARS
------------------------------------------- -------- ---------------------------------------------------
<S> <C> <C>
Hugh B. Williamson, III (1987)............ 46 Mr. Williamson currently serves as Chairman of
Walton Bank's Board of Directors and serves on
Walton Bank's Executive and Loan Committees. Mr.
Williamson has been the President of the Williamson
Insurance Agency, Inc. since 1986, the President of
Williamson & Musselwhite Insurance Agency, Inc.
since 1986, and the President of H.B. Williamson
Properties, LLC since 1997, and is a partner in
several real estate partnerships.
W. Morris Jordan (1990)................... 41 Mr. Jordan has served as a director and as
president and chief executive officer of Walton
Bank since 1990. He currently serves on Walton
Bank's Loan, Executive, Marketing and Funds
Management Committees.
</TABLE>
DIRECTOR COMPENSATION
The directors of Walton Bank receive a retainer fee of $125 each month and a
fee of $250 for each board meeting attended. In addition, the directors of
Walton Bank also receive a fee of $75 for each board committee meeting attended.
WALTON BANK'S EXECUTIVE COMPENSATION
The following table sets forth a summary of compensation paid to or accrued
on behalf of the chief executive officer of Walton Bank for services rendered to
Walton Bank in all capacities during the 1999, 1998 and 1997 fiscal years.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
----------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
FISCAL COMPENSATION OPTIONS COMPENSATION*
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($) (#) ($)
--------------------------- -------- --------- -------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
W. Morris Jordan,............. 1999 118,000 20,000 -- 1,500 6,059
President and 1998 108,000 10,000 -- 1,500 3,851
Chief Executive 1997 106,900 0 -- 1,500 3,314
Officer
</TABLE>
------------------------
* The amounts included in All Other Compensation represent Walton Bank's
contributions to the Walton Bank 401(k) Profit Sharing Plan. See "Walton
Bank 401(k) Profit Sharing Plan" discussed below.
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<PAGE>
WALTON BANK 401(K) PROFIT SHARING PLAN
All employees of Walton Bank who meet age, hours and employment tenure
requirements are eligible to participate in the Walton Bank 401(k) profit
sharing plan. Walton Bank can contribute to the plan such amount as may be
determined by the board of directors of the bank. Participants may make
voluntary contributions through payroll deductions or through cash payments.
Walton Bank matches voluntary contributions made by participants up to 6% of the
participant's total compensation.
OPTION GRANTS TABLE
The following table sets forth certain information regarding the grant of
stock options in the 1999 fiscal year to the persons named in the summary
compensation table above.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF SECURITIES % OF TOTAL OPTIONS EXERCISE OR
UNDERLYING GRANTED TO EMPLOYEES BASE PRICE EXPIRATION
NAME OPTIONS GRANTED(1) IN FISCAL YEAR ($/SH) DATE
---- -------------------- -------------------- ----------- ----------
<S> <C> <C> <C> <C>
W. Morris Jordan................... 1,500 25 13.81 12/31/2009
</TABLE>
------------------------
(1) Mr. Jordan's options become exercisable in equal increments of 20% over a
period of five years from the grant date. All options expire and are void
unless exercised on or before ten years following the grant date.
OPTION EXERCISE AND FISCAL YEAR-END OPTION VALUE TABLE
The following table sets forth certain information regarding the exercise of
stock options in the 1999 fiscal year by the persons named in the summary
compensation table above and the value of options held by such persons at the
end of such fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FY-END (#) AT FY-END ($)(1)
ACQUIRED ON VALUE REALIZED ------------------------- -------------------------
NAME EXERCISE ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- -------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
W. Morris Jordan......... 0 0 17,850/3,150 351,463/40,501
</TABLE>
------------------------
(1) Dollar values calculated by determining the difference between the estimated
fair market value of the Walton Bank common stock at September 30, 2000
($27.00) and the exercise price of such options. Because no organized
trading market exists for the Walton Bank common stock, the fair market
value was computed by reference to recent sales of the Walton Bank common
stock.
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<PAGE>
WALTON BANK 1990 KEY EMPLOYEE INCENTIVE STOCK OPTION PLAN
The 1990 Key Employee Incentive Stock Option Plan became effective on
July 23, 1990 and remained in effect for a term of ten years, expiring on
July 23, 2000. The plan provided for the grant of options to purchase shares of
the Walton Bank's common stock to "key employees" of Walton Bank as defined
under the plan. The plan was administered by the Board of Directors of Walton
Bank, which had the authority to select recipients, designate the number of
shares covered by each option, and, subject to certain restrictions, specify the
terms of the options. The plan provided for the granting of both "incentive
stock options" and "non-qualified stock options." The exercise price for each
incentive stock option granted under the plan was no less than 100% of the fair
market value of Walton Bank's common stock on the date of grant, and the
exercise price for each non-qualified stock option granted under the plan was no
less than 80% of the fair market value of the bank's common stock. Options
issued under the plan with respect to 26,000 shares of Walton Bank's common
stock remain outstanding. No stock options granted under the plan are
exercisable after ten years from the date of grant.
CERTAIN TRANSACTIONS
Walton Bank's directors and certain business organizations and individuals
associated with them are customers and have banking transactions with Walton
Bank in the ordinary course of business. Such transactions include loans,
commitments, lines of credit and letters of credit. All of these transactions
are made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons, and do not involve more than normal risk of collectibility or
present any other unfavorable features. Additional transactions with these
persons are anticipated in the future.
COMPARISON OF THE RIGHTS OF HOLDERS OF WALTON BANK STOCK AND FIRST STERLING
STOCK
Upon consummation of the merger, shareholders of Walton Bank (other than
those shareholders exercising dissenters' rights) will automatically become
shareholders of First Sterling. The shareholders of First Sterling will be
governed by and subject to the articles of incorporation and bylaws of First
Sterling rather than the articles of incorporation and bylaws of Walton Bank.
First Sterling is a Georgia corporation organized and existing under the
Georgia Business Corporation Act. Walton Bank is a Georgia bank organized and
existing under the Georgia Financial Institutions Code. The following is a
summary of the material differences in the rights of holders of First Sterling
and Walton Bank common stock. The summary is necessarily general and it is not
intended to be a complete statement of all differences affecting the rights of
shareholders and respective entities, and is qualified in its entirety by
reference to the Georgia Business Corporation Code, the Georgia Financial
Institutions Code, as well as the articles of incorporation and bylaws of each
corporation. Shareholders should consult with their own legal counsel with
respect to specific differences and changes in their rights as shareholders
which will result from the proposed merger.
AUTHORIZED CAPITAL STOCK
FIRST STERLING
First Sterling's articles of incorporation authorize the issuance of up to
50,000,000 shares of no par value common stock, of which there are 13,867,451
shares outstanding. Because the exchange of shares by virtue of the merger is to
be effected at the rate of 2.752 shares of First Sterling stock for each share
of Walton Bank stock, First Sterling will have approximately 15,105,851 shares
outstanding after consummation of the merger.
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<PAGE>
WALTON BANK
Walton Bank's articles of incorporation authorize the issuance of up to
1,000,000 shares of common stock, par value $5.00 per share, of which there are
currently 450,000 shares outstanding.
PREEMPTIVE RIGHTS
FIRST STERLING
Under the Georgia Business Corporation Act, shareholders do not have
preemptive rights to acquire the corporation's unissued or treasury shares,
unless the articles of incorporation so provide. First Sterling's articles of
incorporation do not provide for preemptive rights.
WALTON BANK
Walton Bank shareholders have preemptive rights with respect to their shares
as provided in the Georgia Financial Institutions Code. Preemptive rights allow
a shareholder to acquire proportional amounts of Walton Bank's unissued or
treasury shares upon the decision of the board of directors to issue stock. This
means the shareholders have the opportunity to maintain their percentage
ownership in Walton Bank. The preemptive rights are subject to certain
limitations. No shareholder of Walton Bank common stock has any preemptive right
with respect to shares of any other class which may be issued or sold by Walton
Bank. There are no preemptive rights to: (i) shares issued as a share dividend;
(ii) fractional shares; (iii) shares issued pursuant to share plans as
compensation to officers and employees of the bank or trust company or of any
affiliate of the bank or trust company or to a trustee on behalf of such
employees, on terms and conditions approved by the directors and the affirmative
vote of a majority of the shares entitled to vote thereon and in such manner as
may be provided by the bylaws or by the board; (iv) shares issued pursuant to
acquisition of substantially all of the assets of another bank or trust company;
(v) shares released by waiver from their preemptive right by the affirmative
vote or written consent of the holders of two-thirds of the shares of the class
to be issued; and (vi) shares which have been offered to shareholders to satisfy
their preemptive right but not purchased by them within the prescribed time and
which are thereafter issued or sold to any other person or persons at a price
not less than the price at which they were offered to such shareholders.
AMENDMENT OF ARTICLES OF INCORPORATION
FIRST STERLING
With respect to amending or repealing (i) the class structure of the board,
(ii) indemnification of directors, (iii) the change of control super-majority
voting requirements, and (iv) the factors the board of directors are to consider
for change of control proposals, the affirmative vote of two-thirds of First
Sterling's directors is necessary. If two-thirds of the directors approve such
an amendment then the amendment will only need the approval of a majority of the
shareholder votes entitled to be cast on the amendment. However, if two-thirds
of the directors do not vote for such an amendment, the amendment may still pass
if two-thirds of the outstanding shares of First Sterling vote to approve such
amendment.
As to the remaining provisions of First Sterling's articles of
incorporation, under Georgia law, the First Sterling board of directors may
amend its articles of incorporation without shareholder action if the amendment
relates to certain procedural matters as set forth in Section 14-2-1002 of the
Georgia Business Corporation Code. For all other amendments, First Sterling's
board of directors must propose amendments to the articles of incorporation for
submission to the shareholders. The amendment must then be submitted to a vote
and be approved by a majority of the shareholders entitled to vote on the
amendment.
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<PAGE>
WALTON BANK
Under the Georgia Financial Institutions Code, Walton Bank's board of
directors may not amend its articles of incorporation without shareholder
approval. To amend Walton Bank's articles of incorporation, the board of
directors, by resolution, may propose an amendment and direct that it be
submitted to a vote at a meeting of shareholders. Unless the amendment involves
certain matters as set forth in Section 7-1-511(d) and (e) of the Georgia
Financial Institutions Code, adoption of amendments requires the affirmative
vote of the shareholders entitled to cast at least a majority of the votes which
all shareholders are entitled to cast thereon, and, if any class is entitled to
vote thereon as a class, adoption of amendments requires at least a majority of
the outstanding shares of such class.
If the amendment involves any of the following matters related to any class,
the holders of the outstanding shares of such class shall be entitled to vote as
a class on such amendment regardless of any limitation stated in the articles on
the voting rights of such class:
- Make any change in the preferences, redemption provisions, qualifications,
limitations, restrictions, or special or relative rights of the shares of
any class adverse to such class;
- Increase or decrease the par value of the shares of any class;
- Increase the authorized number of shares of any class;
- Limit or deny the existing preemptive rights of the shares of any class;
or
- Authorize a new class of shares or increase the number of authorized
shares of any class, senior or superior in any respect to the shares of
any class previously authorized.
If the amendment involves changing the bank into a trust company, an
affirmative vote of at least two-thirds of all the shares entitled to vote
thereon or of each class entitled to vote thereon where voting by class is
required, shall be required to adopt the amendment.
NOTICE OF MEETINGS OF SHAREHOLDERS
FIRST STERLING
The First Sterling bylaws provide that First Sterling must notify the
shareholders between ten and 60 days before any annual or shareholders' meeting
of the date, time and place of the meeting, and, for shareholders' meetings, the
purpose for which the meeting is called.
WALTON BANK
The Walton Bank bylaws provide that Walton Bank must notify shareholders
between ten and 50 days before any annual or shareholders' meeting of the date,
place, and hour of the meeting, and, for shareholders' meetings, the general
nature of the business to be transacted at the meeting.
SHAREHOLDERS' MEETINGS
FIRST STERLING
A shareholders' meeting of the shareholders may be called by the board of
directors, the president, or by written request of at least two-thirds of the
shareholders of First Sterling.
WALTON BANK
A shareholders' meeting of the shareholders of Walton Bank may be called by
the President, the Chairman of the Board, or the board of directors, or upon the
written request of the holders of 25% or more of the shares of capital stock of
Walton Bank entitled to vote in the election of directors.
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<PAGE>
RECORD DATE
FIRST STERLING
The board of directors may fix a record date in order to determine who the
shareholders of the corporation are for purposes of determining such things as
the receipt of dividends or voting rights. This record date must not be more
than 70 days and not less than ten days before a meeting or action requiring a
determination of shareholders.
WALTON BANK
The board of directors may fix a record date in order to determine who the
shareholders of the corporation are for purposes of determining such things as
the receipt of dividends or notice and voting rights. This record date must be
not more than 50 and in the case of a shareholders' meeting not less than ten
days prior to the date of the shareholders' meeting or action requiring a
determination of shareholders.
REMOVAL OF DIRECTORS
FIRST STERLING
A director of First Sterling may be removed, at a meeting with respect to
which notice of such purpose has been given, without cause upon a two-thirds
vote of the outstanding shares of First Sterling. A director may be removed, at
a meeting with respect to which notice of such purpose has been given, with
cause, by the affirmative vote of a majority of outstanding shares, or upon the
affirmative vote of the directors then in office.
WALTON BANK
A director of Walton Bank may be removed, at a meeting with respect to which
notice of such purpose has been given, with or without cause, by the affirmative
vote of the holders of a majority of the shares entitled to vote at an election
of directors. In addition, a director may be removed by the board of directors
if such director is adjudicated an incompetent by a court, convicted of a
felony, does not, within 60 days of his or her election, accept the office in
writing or by attendance at a meeting of the board of directors and fulfill any
other requirements for holding the office of director, or if he or she fails to
attend regular meetings of the board of directors for six consecutive meetings
without having been excused by the board of directors.
SHAREHOLDER INSPECTION RIGHTS; SHAREHOLDER LISTS
FIRST STERLING
Qualified shareholders have the right to inspect and copy First Sterling's
books and records of account, minutes and record of shareholders if their demand
is in good faith and for a proper purpose. The shareholder must give First
Sterling at least five business days written notice of the demand, describing
with reasonable particularity the purpose and the requested records. The records
must be directly connected with the shareholder's purpose. Additionally, the
rights of inspection and copying are limited to shareholders who either have
been shareholders for at least six months or hold at least 5% of the outstanding
shares of First Sterling.
The First Sterling bylaws provide that First Sterling must prepare an
alphabetical list of all shareholders showing the addresses and share holdings
of each shareholder and must make such list available continuously throughout
each shareholder meeting.
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<PAGE>
WALTON BANK
Walton Bank is required to maintain throughout the year for inspection by
any shareholder the following:
- Each Call Report of Condition and Report of Income since the last
shareholders' meeting at which such information was distributed;
- A listing of all shareholders giving each of their names, post office
address of record, and number of shares owned; and
- A listing of compensation to each director and chief executive officer if
not a director, including salaries, bonuses, committee fees, commission
from sale of insurance, etc.
Walton Bank's bylaws also grant the board of directors the power to
determine which accounts, books, and records of the bank that are open for
inspection of shareholders, except such accounts, books and records that are
specifically open to inspection by law, and the authority to fix reasonable
rules and regulations not in conflict with the applicable law for the inspection
of accounts, books, and records which by law or by determination of the board of
directors must be open to inspection; provided, however, Walton Bank's bylaws
require that a copy of the bylaws, with all amendments, must be kept at all
times in a convenient place in the registered office of Walton Bank, and must be
open for inspection by all shareholders during banking hours.
The Georgia Financial Institutions Code also provides that after fixing a
record date for a meeting, Walton Bank must prepare a list of all shareholders
entitled to vote at a shareholders' meeting, arranged in alphabetical order,
showing the number and class, if any, held by each shareholder, and make such
list available for inspection by any shareholder at the time and place of the
meeting.
VOTING RIGHTS
FIRST STERLING
Each holder of First Sterling stock is entitled to one vote per share on all
matters submitted to a vote of shareholders. In the election of directors, each
holder of First Sterling stock has the right to vote the number of shares owned
by him or her on the record date for as many persons as there are directors to
be elected. Cumulative voting is not available with respect to the election of
directors of First Sterling.
WALTON BANK
Each holder of Walton Bank stock is entitled to one vote per share on all
matters submitted to a vote of shareholders. In the election of directors, each
holder of Walton Bank stock has the right to vote the number of shares owned by
him or her on the record date for as many persons as there are directors to be
elected. Cumulative voting is not available with respect to the election of
directors of Walton Bank.
DIRECTORS
FIRST STERLING
The bylaws of First Sterling provide that the board of directors of First
Sterling shall have from five to 25 members, and the board of directors of First
Sterling currently has eight members. Pursuant to the articles of incorporation,
First Sterling's directors are divided into three classes, each consisting of
approximately one-third of the total directors. Each year, one class of the
directors comes up for election, resulting in director terms of three years.
Directors are elected by a majority of the votes
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<PAGE>
entitled to be cast in the election at a meeting at which a quorum is present.
The board of directors of First Sterling may fill vacancies arising in its
directorship.
WALTON BANK
The bylaws of Walton Bank provide that the board of directors of Walton Bank
shall have from five to 25 members, and the board of directors of Walton Bank
currently has 11 members. The directors are elected by the affirmative vote of
the majority of the shares represented at the annual meeting of shareholders.
The board of directors of Walton Bank may fill vacancies arising in its
directorship.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
FIRST STERLING
The Georgia Business Corporation Act requires that a director discharge his
or her duties as a director subject to several general standards of care. Each
director must act in a manner he or she believes in good faith to be in the best
interest of the corporation. Additionally, a director must exercise the care of
an ordinarily prudent person in a like position and in similar circumstances.
First Sterling's articles of incorporation provide that, to the extent
permitted by law, no director will be liable to First Sterling or its
shareholders for monetary damages for breach of his or her duty of care or other
duty as a director, except for liability for:
- any appropriation, in violation of his or her duties, of any business
opportunity of First Sterling;
- acts or omissions not in good faith or which involve intentional
misconduct or knowing violation of law;
- the types of liability set forth in Section 14-2-832 of the Georgia
Business Corporation Code dealing with unlawful distributions of corporate
assets to shareholders; or
- any transaction from which the director derived an improper material
tangible personal benefit.
First Sterling's bylaws provide that First Sterling shall indemnify or
obligate itself to indemnify an individual made a party to a proceeding because
he or she is or was a director, officer, employee or agent of First Sterling.
First Sterling shall indemnify these individuals for reasonable expenses,
judgments, fines, penalties and amounts paid in settlement that are incurred in
connection with the proceeding if the individual acted in a manner that he or
she believed in good faith to be in or not opposed to the best interests of
First Sterling and, in the case of any criminal proceeding, if he or she had no
reasonable cause to believe his or her conduct was unlawful. To the extent that
a director, officer, employee or agent of First Sterling has been successful, on
the merits or otherwise, in defending any proceeding to which he or she was a
party, or in defending any claim, issue or matter in the proceeding, because he
or she is or was a director, officer, employee or agent of First Sterling, First
Sterling will indemnify the director, officer, employee or agent against
reasonable expenses he or she incurred in connection with the proceeding.
While First Sterling's bylaws authorize indemnification under certain
circumstances, Federal law prohibits First Sterling from paying any
indemnification with respect to any liability or legal expenses incurred by a
director, officer, employee or agent as a result of an action or proceeding by a
Federal banking agency resulting in a civil money penalty or certain other
remedies against such person. Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to directors, officers or persons
controlling First Sterling pursuant to the foregoing provisions, First Sterling
has been informed that in the opinion of the SEC indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable.
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<PAGE>
WALTON BANK
Walton Bank's articles of incorporation provide that a director will have no
personal liability to shareholders of Walton Bank for monetary damages, or for
breach of any fiduciary duty as a director owed to a shareholder of Walton Bank,
except for liability for:
- any appropriation, in violation of his duties, of any business opportunity
of Walton Bank;
- acts or omissions which involve intentional misconduct or a knowing
violation of law;
- the types of liability set forth in Section 7-1-494 of the Georgia
Financial Institutions Code dealing with unauthorized distributions of
assets; or
- any transaction from which the director derived an improper personal
benefit.
Walton Bank's bylaws provide that Walton Bank shall indemnify any person who
is or was a party, or is threatened to be made a party, to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she is or was
a director of Walton Bank. Walton Bank shall indemnify these individuals for any
expenses, judgments, fines, and amounts paid in settlement, that are incurred in
connection with the proceeding. Under Georgia law, such indemnification is
proper if the individual acted in a manner that he or she believed in good faith
to be in or not opposed to the best interests of Walton Bank and, in the case of
any criminal proceeding, if he or she had no reasonable cause to believe his or
her conduct was unlawful.
Walton Bank is subject to the Federal banking and securities law
restrictions on the indemnification of directors to the same extent as First
Sterling.
DISSENTERS' RIGHTS
FIRST STERLING
Georgia law generally provides dissenters' rights for mergers and certain
share exchanges that would require shareholder approval, sales of all or
substantially all of the assets, certain amendments to the articles of
incorporation and any corporate action taken pursuant to a shareholder vote to
the extent the articles of incorporation, bylaws, or a resolution of the board
of directors entitle shareholders to dissent. However, Georgia law does not
provide dissenters' rights for Georgia corporations which have over 2,000 record
holders or whose voting stock is listed on a national securities exchange.
Because First Sterling's stock is listed on a national securities exchange, the
shareholders of First Sterling do not have dissenters' rights.
WALTON BANK
The Georgia Financial Institutions Code provides that a shareholder of a
bank who objects to the plan is entitled to the same rights and remedies of a
dissenting shareholder under the Georgia Business Corporation Code. Walton Bank
does not have 2,000 shareholders and its common stock is not listed on a
national securities exchange. Therefore, holders of Walton Bank's common stock
do have dissenters' rights. See "The Merger--Statutory provisions for dissenting
shareholders."
ANTITAKEOVER PROVISIONS; RESTRICTIONS ON CERTAIN BUSINESS COMBINATIONS
FIRST STERLING
First Sterling's articles of incorporation and bylaws have restrictions
which discourage attempts to acquire control of First Sterling in non-negotiated
transactions. The following is a description of the antitakeover provisions
included in First Sterling's articles of incorporation and bylaws. Walton Bank's
articles of incorporation and bylaws do not contain similar provisions.
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<PAGE>
CLASSIFICATION OF THE BOARD OF DIRECTORS. Article 7 of First Sterling's
Articles of Incorporation divides the board of directors into three classes,
Class I, Class II and Class III, each of which is as nearly equal in numbers 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 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 of First Sterling's bylaws
provides that a change in the number of directors of First Sterling requires 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 First Sterling stock. Article 8 of the articles of incorporation of First
Sterling provides that any amendment to this bylaw will require the affirmative
vote of at least two-thirds of the outstanding shares of First Sterling stock.
The total number of directors for First Sterling is currently set at eight. 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 First
Sterling provides that directors of First Sterling may be removed during their
terms for "cause" by the affirmative vote of the holders of a majority of the
outstanding shares of First Sterling stock or by the affirmative vote of a
majority of the directors then in office. They may be removed 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 First Sterling, adjudication as an incompetent by a court,
determination by at least two-thirds of the incumbent directors of First
Sterling that the conduct of the director to be removed has been inimical to the
best interest of First Sterling, or the director was an employee or officer of
First Sterling or any of its subsidiaries and was discharged or resigned at the
request of the board of directors of First Sterling or any subsidiary of First
Sterling 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.
SUPERMAJORITY VOTING ON CERTAIN TRANSACTIONS. Article 13 of the articles of
incorporation of First Sterling, provides, with certain exceptions, that any
merger or share exchange involving First Sterling 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 First Sterling stock. However, an exception to this rule exists where the
board of directors of First Sterling 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.
EVALUATION OF AN ACQUISITION PROPOSAL. Article 14 of First Sterling's
articles of incorporation provides that the response of First Sterling to any
acquisition proposal made by another party will be based on the board's
evaluation of the best interests of First Sterling and its shareholders. As used
herein, the terms "acquisition proposal" refers to any offer of another party
(i) to make a tender offer or exchange offer for any equity security of First
Sterling, (ii) to merge or consolidate First Sterling with another corporation
or (iii) to purchase or otherwise acquire all or substantially all of the
properties and assets owned by First Sterling. Article 14 charges the board, in
evaluating an acquisition proposal, to consider all relevant factors, including:
(i) the expected social and economic effects of the
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transaction on the employees, customers and other constituents (e.g., suppliers
of goods and services) of First Sterling; (ii) the expected social and economic
effects on the communities within which First Sterling operates; and (iii) the
consideration being offered by the other corporation in relation (a) to the then
current value of First Sterling as determined by a freely negotiated transaction
and (b) to the board of directors' then estimate of First Sterling's future
value as an independent entity. The enumerated factors are not exclusive, and
the board may consider other relevant factors.
AMENDMENT OF ANTITAKEOVER PROVISIONS. Any amendment of Articles 7, 8, 9, 13
and 14 of First Sterling's articles of incorporation requires the affirmative
vote of the holders of at least two-thirds of the outstanding shares of First
Sterling 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.
WALTON BANK
The articles of incorporation and bylaws of Walton Bank do not contain
specific anti-takeover provisions. The Georgia Financial Institutions Code does,
however, set forth specific requirements for the approval of a merger.
Specifically, to adopt a plan of merger, the Georgia Financial Institutions Code
requires the affirmative vote of a majority of the directors and the affirmative
vote of the holders of at least two-thirds of the outstanding shares of Walton
Bank stock.
AMENDMENT OF BYLAWS
FIRST STERLING
First Sterling's bylaws may be altered or amended by either the shareholders
or the board of directors; provided, however, that if such action is to be taken
at a meeting of the shareholders, notice of the general nature of the proposed
change in the bylaws shall be given in the notice of the meeting. First
Sterling's shareholders may also provide that any bylaws altered or amended by
the shareholders may not be altered or amended by the board of directors.
Generally, any action with respect to First Sterling's bylaws shall require
either an affirmative vote of a majority of all shares entitled to elect
directors or an affirmative vote of a majority of all directors then holding
office. Provided, however, that any amendment of the bylaws changing the number
of directors requires the affirmative vote of two-thirds of the issued and
outstanding shares entitled to vote in any election of directors.
WALTON BANK
Walton Bank's bylaws may be altered or amended by either the shareholders or
the board of directors; provided, however, that any bylaws adopted by the board
of directors may be altered, amended, or repealed, and new bylaws adopted, by
the shareholders.
DIVIDENDS AND OTHER DISTRIBUTIONS
FIRST STERLING
Neither the First Sterling articles of incorporation nor the bylaws set
forth any restriction on the ability of First Sterling to issue dividends to its
shareholders. The Georgia Business Corporation Code, though, forbids any
distribution which, after being given effect, would leave First Sterling unable
to pay its debts when they become due in the usual course of business.
Additionally, the Georgia Business Corporation Code provides that no
distribution shall be made if, after given in effect, the corporation's total
assets would, based upon the financial statements or a valuation, as determined
by First Sterling, be less than the sum of its total liabilities plus the amount
that would be needed to satisfy any preferential dissolution rights.
74
<PAGE>
WALTON BANK
Walton Bank's bylaws set forth restrictions on the ability of Walton Bank to
issue dividends to its shareholders. Walton Bank may issue dividends at any
regular or shareholders' meeting only out of the retained earnings of the bank,
only when the bank meets the paid-in-capital and/or appropriated retained
earnings requirements of the Georgia Financial Institutions Code and only in
compliance with the regulations of the Georgia Department of Banking and Finance
regarding payment of dividends.
Walton Bank's bylaws also restrict the ability of the board of directors to
declare dividends that are paid in the authorized but unissued shares of the
bank out of any retained earnings of the bank. Such dividends may be issued only
if they are issued at not less than the par value of the stock. There is
transferred to capital stock at the time such dividend is paid an amount of
retained earnings at least equal to the aggregate par value of the shares to be
issued as a dividend and after payment of the dividend the bank maintains the
paid-in-capital and/or appropriated retained earnings requirements of the
Financial Institutions Code of Georgia.
LEGAL MATTERS
Certain federal income tax consequences of the merger and the legality of
the authorization and issuance under Georgia law of the First Sterling stock to
be issued in the merger will be passed upon by counsel to First Sterling,
Miller & Martin LLP, 1275 Peachtree Street, N.E., Suite 700, Atlanta, Georgia
30309.
Troutman Sanders LLP, 600 Peachtree Street, N.E., Suite 5200, Atlanta,
Georgia 30308-2216, has acted as counsel to Walton Bank in connection with
certain legal matters relating to the merger.
EXPERTS
The consolidated financial statements of First Sterling as of December 31,
1999 and 1998 and for each of the three years in the period ended December 31,
1999, appearing in this proxy statement/ prospectus have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, which are based in part on the reports of Mauldin &
Jenkins, independent auditors. The financial statements referred to above are
included in reliance upon such reports given on the authority of those firms as
experts in accounting and auditing.
Mauldin & Jenkins, LLC, have also audited Walton Bank's financial statements
as of December 31, 1999 and 1998, and for the years then ended as set forth in
their report. Walton Bank included the financial statements in the prospectus
and elsewhere in the registration statement in reliance on their report, given
on their authority as experts in accounting and auditing.
SHAREHOLDER PROPOSALS AND OTHER MATTERS
In order to be eligible for inclusion in Walton Bank's proxy materials for
next year's annual meeting of shareholders, if the merger is not consummated,
any shareholder proposal to take action at the meeting must be received at
Walton Bank's main office at 1302 West Spring Street, Monroe, Georgia 30655, no
later than December 18, 2000.
In the event that Walton Bank receives notice of a shareholder proposal to
take action at next year's annual meeting of shareholders, if the merger is not
consummated before the time of such meeting, that is not submitted for inclusion
in Walton Bank's proxy material, the persons named in the proxy sent by Walton
Bank to its shareholders intend to exercise their discretion to vote on the
shareholder proposal in accordance with their best judgment if notice of the
proposal is not received at Walton Bank's main office by March 3, 2001.
75
<PAGE>
Any shareholder proposal intended for inclusion in First Sterling's proxy
statement for next year's annual meeting of shareholders must be received at the
principal offices of First Sterling no later than December 27, 2000.
WHERE YOU CAN GET MORE INFORMATION
First Sterling files annual, quarterly and special reports, proxy statements
and other information with the SEC. The reports, proxy statements and other
information filed by First Sterling with the SEC can be inspected and copied at
the offices of the SEC Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the SEC's regional offices located at Seven World Trade Center,
New York, New York 10048, and Citicorp Center, 500 West Madison Avenue, Suite
1400, Chicago, Illinois 60661-2511. Copies of such material also can be obtained
from the Public Reference Room of the SEC at 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates, and from the web site that the SEC maintains at
http://www.sec.gov. You may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. First Sterling's stock is
quoted on the Nasdaq National Market. The reports, proxy statements and other
information concerning First Sterling can be inspected at the offices of Nasdaq
Operations, 1735 K Street, N.W., Washington, D.C. 20006.
First Sterling has filed a registration statement on Form S-4 to register
with the SEC the First Sterling stock to be issued to shareholders of Walton
Bank in the merger. This proxy statement/ prospectus is a part of the
registration statement and constitutes a prospectus of First Sterling in
addition to being a proxy statement of Walton Bank for its shareholders'
meeting. As allowed by SEC rules, this proxy statement/prospectus does not
contain all the information you can find in the registration statement or the
exhibits to the registration statement. Copies of the registration statement and
the exhibits and schedules thereto may be inspected, without charge, at the
offices of the SEC, or obtained at prescribed rates from the Public Reference
Section of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, or obtained from the SEC web site.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows First Sterling to incorporate by reference information into
this proxy statement/ prospectus. This means that we can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is deemed to be part of this
proxy statement/prospectus, except for any information superseded by information
in this proxy statement/prospectus. This proxy statement/prospectus incorporates
by reference the documents set forth below that First Sterling has previously
filed with the SEC:
- Annual Report on Form 10-KSB for the year ended December 31, 1999 for
First Sterling;
- Joint proxy statement/prospectus or Form S-4 filed March 31, 2000;
- Quarterly Reports on Forms 10-Q for the quarters ended March 31, 2000,
June 30, 2000 and September 30, 2000;
- Current Reports on Form 8-K filed by First Sterling on June 1, 2000,
June 7, 2000 and October 10, 2000 and Amended Form 8-K/A on August 8,
2000; and
- The description of First Sterling common stock contained in First
Sterling's Registration Statement on Form 8-A, as filed on November 7,
1994, and any amendment or report filed for the purpose of updating such
description.
All documents filed by First Sterling with the SEC pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after the date
of this proxy statement/prospectus and prior to the shareholders' meeting shall
be deemed to be incorporated by reference into this proxy statement/ prospectus
from the date of filing of such documents.
76
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE ARE AVAILABLE FROM FIRST STERLING WITHOUT
CHARGE, EXCLUDING ALL EXHIBITS, UNLESS WE HAVE SPECIFICALLY INCORPORATED BY
REFERENCE AN EXHIBIT IN THIS PROXY STATEMENT/ PROSPECTUS. WALTON BANK
SHAREHOLDERS MAY OBTAIN DOCUMENTS INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT/PROSPECTUS BY REQUESTING THEM IN WRITING OR BY TELEPHONE FROM
MS. BARBARA J. BOND, FIRST STERLING BANKS, INC., P. O. BOX 2147, MARIETTA,
GEORGIA 30061 (770-422-2888). IF YOU WOULD LIKE TO REQUEST DOCUMENTS, PLEASE DO
SO BY , 2001 TO RECEIVE THEM BEFORE THE SHAREHOLDERS' MEETING.
All information concerning First Sterling and its subsidiaries has been
furnished by First Sterling, and all information concerning Walton Bank has been
furnished by Walton Bank.
You should rely only on the information contained or incorporated by
reference in this proxy statement/prospectus to vote on the merger. We have not
authorized anyone to provide you with information that is different from what is
contained in this proxy statement/prospectus. This proxy statement/prospectus is
dated , 2000. You should not assume that the information contained
in this proxy statement/prospectus is accurate as of any date other than such
date, and neither the mailing of this proxy statement/prospectus to shareholders
nor the issuance of First Sterling stock in the merger shall create any
implication to the contrary. This proxy statement/prospectus does not constitute
an offer to sell, or a solicitation of an offer to buy, any securities, or the
solicitation of a proxy, in any jurisdiction to or from any person to whom it is
not lawful to make any such offer or solicitation in such jurisdiction. Neither
the delivery of this proxy statement/prospectus nor any distribution of
securities made hereunder shall, under any circumstances, create an implication
that there has been no change in the affairs of First Sterling or Walton Bank
since the date hereof or that the information herein is correct as of any time
subsequent to its date.
77
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
First Sterling Banks, Inc. Financial Statements............. F-2
Independent Auditor's Report.............................. F-4
Consolidated Balance Sheets as of December 31, 1999 and
1998.................................................... F-7
Consolidated Statements of Income for years ended
December 31, 1999, 1998 and 1997........................ F-8
Consolidated Statement of Shareholders' Equity for years
ended December 31, 1999 and 1998........................ F-10
Consolidated Statements of Cash Flows for years ended
December 31, 1999, 1998 and 1997........................ F-12
Notes to Financial Statements............................. F-14
Walton Bank & Trust Co. Financial Statements................ F-37
Condensed Balance Sheets September 30, 2000 and
December 31, 1999....................................... F-37
Condensed Statements of Income and Comprehensive Income
three and nine months ended September 30, 2000 and
1999.................................................... F-38
Condensed Statements of Cash Flows nine months ended
September 30, 2000 and 1999............................. F-39
Notes to Unaudited Financial Statements................... F-40
Independent Auditor's Report.............................. F-43
Balance Sheets as of December 31, 1999 and 1998........... F-44
Statements of Income for years ended December 31, 1999,
1998 and 1997........................................... F-45
Statements of Comprehensive Income for years ended
December 31, 1999 and 1998.............................. F-46
Statements of Shareholders' Equity for years ended
December 31, 1999 and 1998.............................. F-47
Statements of Cash Flows for years ended December 31, 1999
and 1998................................................ F-48
Notes to Financial Statements............................. F-49
</TABLE>
F-1
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
First Sterling Banks, Inc. and Subsidiaries
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
WITH REPORT OF INDEPENDENT AUDITORS
F-2
<PAGE>
FIRST STERLING BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
CONTENTS
<TABLE>
<S> <C>
Reports of Independent Auditors............................. F-4
Consolidated Financial Statements
Consolidated Balance Sheets................................. F-7
Consolidated Statements of Income........................... F-8
Consolidated Statements of Changes in Shareholders'
Equity.................................................... F-10
Consolidated Statements of Cash Flows....................... F-12
Notes to Consolidated Financial Statements.................. F-14
</TABLE>
F-3
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP]
REPORT OF INDEPENDENT AUDITORS
Board of Directors
First Sterling Banks, Inc.
We have audited the accompanying consolidated balance sheets of First
Sterling Banks, Inc. and Subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 1999. 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 did not audit the financial statements of First Sterling
Banks, Inc. and Subsidiaries, prior to their restatement for the 2000 pooling of
interests as described in Note 19, which statements reflect total assets
constituting 41% in 1999 and 40% in 1998, and total revenues constituting 37% in
1999, 36% in 1998, and 35% in 1997 of the related consolidated totals. Those
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to data included for First Sterling
Banks, Inc. and Subsidiaries, prior to their restatement for the 2000 pooling of
interests as described in Note 19, is based solely on the report of the other
auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of First Sterling Banks, Inc. and
Subsidiaries at December 31, 1999 and 1998, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
/s/ ERNST & YOUNG LLP
May 24, 2000,
Except Note 21, as to
which the date is
September 26, 2000
F-4
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
First Sterling Banks, Inc. and Subsidiaries
Kennesaw, Georgia
We have audited the accompanying consolidated balance sheets of FIRST
STERLING BANKS, INC. AND SUBSIDIARIES as of December 31, 1999 and 1998, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1999. 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 did not audit the financial statements for Georgia
Bancshares, Inc. which statements reflect total assets of $82,572,113 as of
December 31, 1998 and net interest income of $3,541,715 and $2,940,320 for the
years ended December 31, 1998 and 1997, respectively. Those statements were
audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to data included for Georgia Bancshares, Inc., is
based solely on the report of other auditors.
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 First
Sterling Banks, Inc. and Subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with generally accepted
accounting principles.
/s/ MAULDIN & JENKINS, LLC
Atlanta, Georgia
January 27, 2000
F-5
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Georgia Bancshares, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of Georgia
Bancshares, Inc. and subsidiary as of December 31, 1998 and 1997, and the
related statements of earnings, comprehensive income, changes in stockholders'
equity and cash flows for each of the three years in the period ended
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Georgia
Bancshares, Inc. and subsidiary as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
/s/ PORTER KEADLE MOORE, LLP
Atlanta, Georgia
February 3, 1999
F-6
<PAGE>
FIRST STERLING BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 35,822,324 $ 31,362,821
Interest-bearing deposits in banks.......................... 1,733,612 348,807
Federal funds sold and securities purchased under agreement
to resell................................................. 35,620,000 20,339,000
Investment securities held to maturity (fair value of
$15,182,297 and $13,044,485 at December 31, 1999 and 1998,
respectively)............................................. 15,541,492 12,497,146
Investment securities available for sale.................... 96,643,976 100,350,503
Other investments........................................... 3,374,756 2,182,479
Mortgage loans held for sale................................ 1,356,664 4,282,914
Loans, net of unearned income............................... 630,990,126 515,147,116
Allowance for loan losses................................... (9,317,788) (8,217,313)
------------ ------------
Loans, net.................................................. 621,672,338 506,929,803
Premises and equipment, net................................. 26,666,959 24,956,216
Other real estate........................................... 685,000 832,023
Accrued interest receivable................................. 3,526,663 2,739,057
Goodwill and other intangible assets........................ 1,384,300 1,823,067
Other assets................................................ 7,737,457 6,305,832
------------ ------------
Total assets................................................ $851,765,541 $714,949,668
============ ============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing demand.............................. $124,932,088 $116,151,990
Interest-bearing demand and money market................ 178,966,344 150,674,747
Savings................................................. 41,481,575 40,571,836
Time deposits of $100,000 or more....................... 91,625,058 77,649,704
Other time deposits..................................... 269,223,566 234,127,746
------------ ------------
Total deposits.............................................. 706,228,631 619,176,023
Accrued interest payable.................................... 3,025,862 2,146,261
Federal Home Loan Bank advances............................. 49,142,500 20,000,000
Federal funds purchased..................................... 18,872,722 3,393,962
Other liabilities........................................... 1,161,874 1,732,597
------------ ------------
Total liabilities........................................... 778,431,589 646,448,843
SHAREHOLDERS' EQUITY
Common stock--no par value per share; 50,000,000 shares
authorized; issued and outstanding, 13,880,431 shares in
1999 and 13,055,876 in 1998............................... 28,103,430 27,921,002
Retained earnings........................................... 49,063,455 41,538,281
Accumulated other comprehensive income (loss)............... (2,799,058) 75,417
Treasury stock, 169,082 and 131,500 shares, respectively.... (1,033,875) (1,033,875)
------------ ------------
Total shareholders' equity.................................. 73,333,952 68,500,825
------------ ------------
Total liabilities and shareholders' equity.................. $851,765,541 $714,949,668
============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
F-7
<PAGE>
FIRST STERLING BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Interest income:
Loans, including fees............................... $56,313,192 $48,937,441 $42,549,337
Interest on investment securities:
Taxable........................................... 5,491,544 5,279,785 5,962,234
Non-taxable....................................... 1,072,659 1,036,936 976,261
Federal funds sold.................................. 1,251,305 1,989,555 2,819,009
Interest-bearing deposits in banks.................. 39,587 11,875 15,797
----------- ----------- -----------
Total interest income................................. 64,168,287 57,255,592 52,322,638
Interest expense:
Interest-bearing demand and money market............ 3,874,897 3,950,080 3,583,826
Savings............................................. 1,093,252 1,023,383 913,874
Time deposits of $100,000 or more................... 4,371,506 4,318,615 3,631,434
Other time deposits................................. 13,130,625 12,564,543 12,758,501
Federal Funds purchased............................. 351,056 88,266 22,314
Federal Home Loan Bank advances..................... 1,605,471 586,113 105,661
Other............................................... 214,655 46,758 16,044
----------- ----------- -----------
Total interest expense................................ 24,641,462 22,577,758 21,031,654
Net interest income................................... 39,526,825 36,677,834 31,290,984
Provision for loan losses............................. 1,730,000 1,426,000 2,085,000
----------- ----------- -----------
Net interest income after provision for loan losses... 37,796,825 33,251,834 29,205,984
Noninterest income:
Service charges on deposit accounts................. 4,300,090 3,837,554 3,593,612
Investment securities gains......................... 9,037 41,445 16,958
Gain (loss) on sales of premises and equipment...... 547,758 55,284 (192,059)
Gains on sales of mortgage loans.................... 309,316 296,845 --
Gains on sales of other loans....................... 41,946 200,035 378,266
Other income........................................ 2,983,672 2,945,054 2,044,375
----------- ----------- -----------
Total noninterest income.............................. 8,191,819 7,376,217 5,841,152
</TABLE>
F-8
<PAGE>
FIRST STERLING BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------------
1999 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
Noninterest expense:
Salaries and other compensation....................... 13,520,073 12,478,621 10,821,592
Employee benefits..................................... 2,028,618 1,947,320 1,920,386
Net occupancy and equipment expense................... 4,035,947 3,650,424 3,291,049
Professional services................................. 867,660 315,015 308,854
Regulatory agency assessments......................... 156,621 161,351 107,622
Amortization of intangible assets..................... 438,767 438,767 438,767
Other expense......................................... 7,984,383 7,131,314 5,923,650
----------- ---------- ----------
Total noninterest expense............................... 29,032,069 26,122,812 22,811,920
Income before income taxes.............................. 16,956,575 14,505,239 12,235,216
Income tax expense (including tax effect of securities
gains of $2,888, $15,048 and $7,761 for the years
ended December 31, 1999, 1998 and 1997,
respectively)......................................... 5,872,808 4,674,364 3,956,768
----------- ---------- ----------
Net income.............................................. $11,083,767 $9,830,875 $8,278,448
=========== ========== ==========
Earnings per share:
Basic................................................. $ 0.80 $ 0.72 $ 0.61
=========== ========== ==========
Diluted............................................... $ 0.79 $ 0.70 $ 0.60
=========== ========== ==========
Weighted average common shares outstanding:
Basic................................................. 13,778,337 13,657,000 13,572,000
=========== ========== ==========
Diluted............................................... 14,101,503 14,047,000 13,798,000
=========== ========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
F-9
<PAGE>
FIRST STERLING BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK TREASURY STOCK OTHER TOTAL
------------------------ ---------------------- RETAINED COMPREHENSIVE SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT EARNINGS INCOME (LOSS) EQUITY
---------- ----------- -------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997...... 4,979,641 $26,815,429 30,750 $(415,000) $29,335,265 $(376,117) $55,359,577
Comprehensive income, net of
tax:
Net income.................. -- -- -- -- 8,278,448 -- 8,278,448
Other comprehensive income:
Net unrealized gains on
investment securities
held for sale arising in
the current year........ -- -- -- -- -- 458,396 458,396
Less reclassification
adjustment for net gains
included in net income.. -- -- -- -- -- (11,716) (11,716)
-----------
Comprehensive income.......... 8,725,128
Cash dividends declared per
share by pooled companies:
First Sterling
Banks, Inc.--$.27 per
share..................... -- -- -- -- (564,768) -- (564,768)
Main Street
Banks, Inc.--$.17 per
share..................... -- -- -- -- (2,360,290) -- (2,360,290)
Exercise of Stock Options..... 23,334 208,199 -- -- -- -- 208,199
Purchase of Treasury Stock.... 35,000 (618,875) -- -- (618,875)
Stock issued under restricted
stock award plan............ 9,700 145,500 -- -- -- -- 145,500
Stock forfeited under
restricted stock award
plan........................ (1,040) (14,065) -- -- -- -- (14,065)
---------- ----------- ------- ----------- ----------- --------- -----------
Balance at December 31, 1997.... 5,011,635 27,155,063 65,750 (1,033,875) 34,688,655 70,563 60,880,406
Comprehensive income, net of
tax:
Net income.................. -- -- -- -- 9,830,875 -- 9,830,875
Other comprehensive income:
Net unrealized losses on
investment securities
held for sale arising in
the current year........ -- -- -- -- -- 8,107 8,107
Less reclassification
adjustment for net gains
included in net income.. -- -- -- -- -- (3,253) (3,253)
-----------
Comprehensive income.......... 9,835,729
Cash dividends declared per
share by pooled companies:
First Sterling
Banks, Inc.--$.15 per
share................... -- -- -- -- (644,242) -- (644,242)
Main Street
Banks, Inc.--$.27 per
share................... -- -- -- -- (2,337,007) -- (2,337,007)
Issuance of common stock...... 132,000 680,000 -- -- -- -- 680,000
Common stock split............ 7,901,865 -- 65,750 -- -- -- --
Exercise of stock
options--First Sterling..... 10,376 85,939 -- -- -- -- 85,939
---------- ----------- ------- ----------- ----------- --------- -----------
Balance at December 31, 1998.... 13,055,876 27,921,002 131,500 (1,033,875) 41,538,281 75,417 68,500,825
</TABLE>
F-10
<PAGE>
FIRST STERLING BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK TREASURY STOCK OTHER TOTAL
------------------------ ---------------------- RETAINED COMPREHENSIVE SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT EARNINGS INCOME (LOSS) EQUITY
---------- ----------- -------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998.... 13,055,876 27,921,002 131,500 (1,033,875) 41,538,281 75,417 68,500,825
Comprehensive income, net of
tax:
Net income.................. -- -- -- -- 11,083,767 -- 11,083,767
Other comprehensive income:
Net unrealized losses on
investment securities
held for sale arising in
the current year........ -- -- -- -- -- (2,886,740) (2,886,740)
Less reclassification
adjustment for net gains
included in net income.. -- -- -- -- -- 12,265 12,265
-----------
Comprehensive income.......... 8,209,292
Cash dividends declared per
share by pooled companies:
First Sterling
Banks, Inc.--$.16 per
share..................... -- -- -- -- (2,825,168) -- (2,825,168)
Main Street
Banks, Inc.--$.27 per
share..................... -- -- -- -- (792,892) -- (792,892)
Common stock issued pursuant
to:
Issuance of common stock.... 4,000 20,000 -- -- -- -- 20,000
Stock dividend.............. 790,269 -- 37,582 -- -- -- --
Exercise of stock option.... 32,886 173,428 -- -- -- -- 173,428
Stock forfeited under
restricted stock award
plan........................ (2,600) (11,000) -- -- -- -- (11,000)
Tax benefit from exercise of
stock options................. -- -- -- -- 59,467 -- 59,467
---------- ----------- ------- ----------- ----------- --------- -----------
Balance at December 31, 1999.... 13,880,431 $28,103,430 169,082 $(1,033,875) $49,063,455 ($2,799,058) $73,333,952
========== =========== ======= =========== =========== ========= ===========
</TABLE>
SEE ACCOMPANYING NOTES.
F-11
<PAGE>
FIRST STERLING BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................ $ 11,083,767 $ 9,830,875 $ 8,278,448
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses........................... 1,730,000 1,426,000 2,085,000
Depreciation and amortization of premises and
equipment......................................... 1,866,207 1,592,400 1,444,014
Amortization of intangible assets................... 438,767 438,767 438,767
Net (gain) loss on sales of OREO.................... (478) 22,438 10,677
Investment securities gains......................... (9,037) (41,465) (17,584)
Net accretion of investment securities.............. (45,225) (33,502) (10,022)
Net accretion of loans purchased.................... (109,828) (69,695) (126,214)
Gain on sales of premises and equipment............. (547,758) (55,284) 150,059
Net decrease (increase) in mortgage loans held for
sale.............................................. 2,926,250 (4,282,914) (4,070,000)
Gains on sales of mortgage loans.................... (339,662) (456,293) --
Gains on sales of other loans....................... (11,600) (40,587) (378,266)
Deferred income tax benefit......................... (245,728) (13,145) (375,905)
Deferred net loan fees.............................. 100,270 100,120 50,135
Vesting in restricted stock award plan.............. 443,832 493,000 335,700
Changes in operating assets and liabilities:
Increase in accrued interest receivable........... (1,123,244) (8,667) (571,440)
Increase in accrued interest payable.............. 607,639 31,564 465,689
Other............................................. (231,135) (1,247,253) 350,668
------------ ----------- -----------
Net cash provided by operating activities............. 16,533,037 7,686,359 8,059,726
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investment securities held to maturity... (4,272,280) (3,764,460) (1,015,000)
Purchases of investment securities available for
sale................................................ (38,238,422) (67,808,141) (64,940,810)
Purchases of other investments........................ (1,016,177) (14,000) (54,300)
Maturities of investment securities held to
maturity............................................ 1,237,790 5,617,764 3,612,387
Maturities and calls of investment securities
available for sale.................................. 33,084,833 49,842,256 51,946,123
Proceeds from sales of investment securities available
for sale............................................ 4,420,285 10,294,738 3,225,835
Net increase in loans funded.......................... (116,816,252) (66,358,179) (73,722,203)
Purchases of premises and equipment................... (3,978,265) (4,935,163) (1,533,616)
Proceeds from sales of premises and equipment......... 1,367,599 491,506 572,198
Proceeds from sales of OREO........................... 573,924 1,668,069 889,343
Improvements to and first lien payoffs on other real
estate.............................................. -- (119,079) --
------------ ----------- -----------
Net cash used by investing activities................. (123,636,965) (75,084,689) (81,020,043)
</TABLE>
F-12
<PAGE>
FIRST STERLING BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand and savings accounts............ 37,981,434 33,163,296 36,148,588
Increase in time deposits.............................. 49,071,174 6,328,834 43,695,175
Increase in federal funds purchased.................... 15,478,760 1,539,901 1,248,166
Increase in Federal Home Loan Bank advances............ 29,142,500 18,000,000 2,000,000
Dividends paid......................................... (3,618,060) (2,818,142) (2,381,958)
Purchase of treasury stock............................. -- (618,875)
Proceeds from the issuance of common stock............. 173,428 70,939 208,199
----------- ----------- -----------
Net cash provided by financing activities.............. 128,229,236 56,284,828 80,299,295
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents... 21,125,308 (11,113,502) 7,338,978
Cash and cash equivalents at beginning of year......... 52,050,628 63,164,130 55,825,152
----------- ----------- -----------
Cash and cash equivalents at end of year............... $73,175,936 $52,050,628 $63,164,130
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest............................................. $24,033,823 $22,570,646 $20,587,517
=========== =========== ===========
Income taxes, net.................................... $ 4,319,100 $ 4,678,724 $ 4,430,720
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF NONCASH TRANSACTIONS
Loans transferred to real estate acquired through
foreclosure.......................................... $ 630,321 $ 614,120 $ 496,750
=========== =========== ===========
Bank owned premises transferred to other real estate... $ -- $ 685,000 $ --
=========== =========== ===========
Unrealized (gains) losses on securities available for
sale................................................. $ 3,071,986 $ (39,532) $ (104,059)
=========== =========== ===========
Change in unrealized loss on securities available for
sale, net of tax..................................... $ -- $ -- $ 49,857
=========== =========== ===========
Transfers from loans to other assets................... $ -- $ -- $ 208,532
=========== =========== ===========
Sales of other real estate financed.................... $ -- $ 166,429 $ --
=========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
F-13
<PAGE>
FIRST STERLING BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
First Sterling Banks, Inc. is a multi-bank holding company which conducts
business primarily in Barrow, Clarke, Cobb, Dekalb, Gwinnett, Newton, Rockdale
and Walton counties through its wholly owned subsidiaries, Main Street Bank
("Main Street"), The Westside Bank & Trust Company ("Westside"), The Eastside
Bank & Trust Company ("Eastside"), and Community Bank of Georgia ("Community")
(collectively the "Banks"). The Banks provide a full range of traditional
banking, mortgage banking, and investment and insurance services to individual
and corporate customers in their primary market areas and surrounding counties.
The Eastside Bank & Trust Company has a wholly owned subsidiary, Eastside
Financial Services, Inc., which originates, sells and services loans made under
the Small Business Administration (SBA) Program.
The consolidated financial statements of First Sterling Banks, Inc. and
Subsidiaries (collectively the "Company") are prepared in accordance with
generally accepted accounting principles and practices within the financial
services industry, which require management to make estimates and assumptions
that affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ significantly from those
estimates. Material estimates that are particularly susceptible to significant
change in the near term relate to the determination of the allowance for loan
losses and the valuation of other real estate acquired in connection with
foreclosures or in satisfaction of loans. Management believes that the allowance
for loan losses is adequate and the valuation of other real estate is
appropriate. While management uses available information to recognize losses on
loans, future additions to the allowance may be necessary based on changes in
economic conditions.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of First Sterling
Banks, Inc. ("Parent") and its wholly owned subsidiaries. All significant
intercompany transactions and balances have been eliminated in consolidation.
BUSINESS COMBINATIONS
In business combinations accounted for as poolings-of-interests, the
financial position and results of operations and cash flows of the respective
companies are restated as though the companies were combined for all historical
periods. Accordingly, the financial statements reflect the business combinations
between First Sterling Banks, Inc., Georgia Bancshares, Inc. and Main Street
Banks, Incorporated.
INVESTMENT SECURITIES
Management determines the appropriate classification of investment
securities at the time of purchase and reevaluates such designation as of each
balance sheet date. Investment securities are classified as held-to-maturity
when the Company has the positive intent and the ability to hold the securities
to maturity. Held to maturity securities are stated at amortized cost.
Investment securities not classified as held-to-maturity are classified as
available for sale. Available for sale securities are stated at fair value with
the unrealized gains and losses, net of tax, reported as a separate component of
shareholders' equity. Other investments are stated at amortized cost.
F-14
<PAGE>
FIRST STERLING BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Realized gains and losses, and declines in value determined to be other than
temporary are included in net securities gains (losses). The cost of securities
sold is based on the specific identification method.
The amortized cost of investment securities classified as held-to-maturity
or available for sale is adjusted for amortization of premiums and accretion of
discounts to expected maturity, or in the case of mortgage-backed securities,
over the estimated life of the security. Such amortization is included in
interest income from investments.
SECURITIES PURCHASED UNDER RESELL AGREEMENTS
Securities purchased under resell agreements are recorded at the amounts at
which the securities are acquired plus accrued interest. The Company enters into
purchases of U. S. Government and agency securities under resell agreements to
resell substantially identical securities.
The amounts advanced under resell agreements represent short-term loans and
are combined with Federal funds sold in the balance sheet. The securities
underlying the resell agreements are delivered by appropriate entry into a
third-party custodian's account designated by the Company under a written
custodial agreement that explicitly recognizes the Company's interest in the
securities.
LOANS
Loans are reported at the gross amount outstanding reduced by purchase
discount, deferred net loan fees, and unearned income. Interest income on loans
is generally recognized over the terms of the loans based on the unpaid daily
principal amount outstanding. If the collectibility of interest appears
doubtful, the accrual thereof is discontinued. When accrual of interest is
discontinued, all unpaid interest is reversed. Interest income on such loans is
subsequently recognized only to the extent cash payments are received, the full
recovery of principal is anticipated, or after full principal has been recovered
when collection of principal is in question.
Gains on sales of loans are recognized at the time of sale, as determined by
the difference between the net sales proceeds and the book value of the loans
sold.
Loan origination fees, net of direct loan origination costs, are deferred
and recognized as income over the life of the related loan on a level-yield
basis.
MORTGAGE LOANS HELD FOR SALE
Mortgage loans held-for-sale are recorded at the lower of cost or market on
an individual loan basis. Market value is determined based on outstanding
commitments from investors and prevailing market conditions. Gains and losses on
sales of loans are recognized at settlement date. Gains and losses are
determined as the difference between the net sales proceeds and carrying value
of the loans sold.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision for loan
losses charged to expense. The allowance represents an amount which, in
management's judgment, will be adequate to absorb
F-15
<PAGE>
FIRST STERLING BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
inherent losses on the existing loan portfolio. Management's judgment in
determining the adequacy of the allowance is based on evaluations of the
collectibility of loans taking into consideration such factors as changes in the
nature and volume of the loan portfolio, current economic conditions that may
affect the borrower's ability to pay, overall portfolio quality and review of
specific problem loans. Periodic revisions are made to the allowance when
circumstances which necessitate such revisions become known. Recognized losses
are charged to the allowance for loan losses, while subsequent recoveries are
added to the allowance.
PREMISES AND EQUIPMENT
Premises and equipment are reported at cost less accumulated depreciation
and amortization. Depreciation and amortization are computed using primarily
accelerated methods over the estimated useful lives of the assets. Leasehold
improvements are amortized over the shorter of the estimated useful lives of the
improvements or the term of the related lease.
OTHER REAL ESTATE
Other real estate represents property acquired through foreclosure or in
settlement of loans and is recorded at the lower of cost or fair value less
estimated selling expenses. Losses incurred in the acquisition of foreclosed
properties are charged against the allowance for loan losses at the time of
foreclosure. Subsequent writedowns of other real estate are charged to current
operations.
GOODWILL AND OTHER INTANGIBLE ASSETS
Substantially all costs in excess of net assets of entities acquired are
being amortized using the straight-line method over periods ranging from 10 to
15 years. Other intangibles related to entities acquired are being amortized
over periods ranging from 5 to 10 years using the straight-line method.
Intangible assets related to capital lease rights are being amortized over the
term of the related lease using the straight-line method. Accumulated
amortization was $3,289,700, $2,850,933 and $2,412,166 at December 31, 1999,
1998 and 1997, respectively. Amortization expense totaled $438,767 for the
periods ended December 31, 1999, 1998 and 1997.
SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
Securities sold under repurchase agreements which are classified as secured
borrowing, generally mature within one to four days from the transaction date.
Securities sold under repurchase agreements are reflected at the amount of cash
received in connection with the transaction. The Company monitors the fair value
of the underlying securities on a daily basis.
INCOME TAXES
The Company accounts for income taxes using the liability method. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates that will be in effect when the differences
are expected to reverse.
F-16
<PAGE>
FIRST STERLING BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized.
EARNINGS PER SHARE AND COMMON STOCK SPLITS
The Company has adopted the provisions of Financial Accounting Standards
Board No. 128, "Earnings Per Share" ("Statement 128"). All earnings per share
amounts for all periods presented have been restated to conform to the
requirements of Statement 128. All per share amounts have been adjusted for the
common stock splits, effected in the form of stock dividends, to shareholders of
record on March 16, 1998 and April 22, 1999.
FINANCIAL INSTRUMENTS
In the ordinary course of business, the Company enters into
off-balance-sheet financial instruments consisting of commitments to extend
credit and standby letters of credit. Such financial instruments are recorded in
the financial statements when they are funded or when related fees are incurred
or received.
COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income", describes comprehensive income as the total of all
components of comprehensive income, including net income. Other comprehensive
income refers to revenues, expenses, gains and losses that under generally
accepted accounting principles are included in comprehensive income but excluded
from net income. Currently, the Company's other comprehensive income consists of
unrealized gains and losses on available-for-sale securities.
CASH AND CASH EQUIVALENTS
For purposes of presentation in the statement of cash flows, cash and cash
equivalents include cash on hand, amounts due from banks, interest-bearing
deposits in banks and federal funds sold. Generally, federal funds are purchased
and sold for one-day periods.
RECLASSIFICATION
Certain previously reported amounts have been reclassified to conform to
current presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("Statement 133"). Statement 133 establishes new
accounting and reporting standards for derivatives. This statement requires all
derivatives to be measured at fair value and recognized as either assets or
liabilities in the statement of financial condition. Accounting for the changes
in fair value of a derivative depends on the intended use of the derivative and
the resulting designation. In June 1999, the Financial Accounting Standards
Board elected to defer the effective date of this statement for one year.
Adoption of this statement is required for the Company's financial statements
for the year ending December 31, 2001.
F-17
<PAGE>
FIRST STERLING BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Adoption is not expected to result in a material financial impact based on the
Company's limited use of derivatives.
2. CASH AND DUE FROM BANKS
The Company is required to maintain average reserve balances with the
Federal Reserve Bank, on deposit with national banks, or in cash. The average
reserve requirements at December 31, 1999 and 1998 were approximately $9,561,000
and $8,588,000 respectively. The Company maintained cash balances and reserves
which were adequate to meet these requirements.
3. INVESTMENT SECURITIES
The amortized cost and estimated fair value of investment securities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------------------------------------------
GROSS GROSS ESTIMATED FAIR
AMORTIZED COST UNREALIZED GAINS UNREALIZED LOSSES VALUE
-------------- ---------------- ----------------- --------------
<S> <C> <C> <C> <C>
HELD TO MATURITY SECURITIES
States and political subdivisions... $ 15,541,492 $ -- $ (359,195) $15,182,297
============ ======= =========== ===========
AVAILABLE FOR SALE SECURITIES
U.S. Treasury securities............ $ 3,992,001 $ 1,166 $ (51,117) $ 3,942,050
U.S. Government agencies and
corporations...................... 43,505,005 -- (1,763,306) 41,741,699
States and municipal securities..... 9,733,328 22,228 (664,043) 9,091,513
Mortgage-backed securities.......... 42,582,513 41,457 (1,738,256) 40,885,714
Equity securities................... 983,000 -- -- 983,000
------------ ------- ----------- -----------
Total............................... $100,795,847 $64,851 $(4,216,722) $96,643,976
============ ======= =========== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------------------------------------------------------
GROSS GROSS ESTIMATED FAIR
AMORTIZED COST UNREALIZED GAINS UNREALIZED LOSSES VALUE
-------------- ---------------- ----------------- --------------
<S> <C> <C> <C> <C>
HELD TO MATURITY SECURITIES
States and political subdivisions... $ 12,497,146 $547,339 $ -- $ 13,044,485
============ ======== ========= ============
AVAILABLE FOR SALE SECURITIES
U.S. Treasury securities............ $ 3,991,421 $ 49,529 $ -- $ 4,040,950
U.S. Government agencies and
corporations...................... 33,599,810 144,500 (56,688) 33,687,622
States and political subdivisions... 10,437,572 249,819 (33,865) 10,653,526
Mortgage-backed securities.......... 51,241,554 123,815 (203,864) 51,161,505
Equity securities................... 806,900 -- -- 806,900
------------ -------- --------- ------------
Total............................... $100,077,257 $567,663 $(294,417) $100,350,503
============ ======== ========= ============
</TABLE>
F-18
<PAGE>
FIRST STERLING BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENT SECURITIES (CONTINUED)
Other investments are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Federal Home Loan Bank stock................................ $3,010,500 $1,966,200
Southeast Bankcard Association stock........................ 40,000 40,000
Community Financial Services, Inc. stock.................... 100,000 100,000
North Georgia Bank Stock.................................... 150,000 --
Banker's Bank Stock......................................... 72,500 72,500
Other....................................................... 1,756 3,779
---------- ----------
$3,374,756 $2,182,479
========== ==========
</TABLE>
The amortized cost and estimated fair value of investment securities held to
maturity and available for sale at December 31, 1999, by contractual maturity,
are shown below. Expected maturities will differ from contractual maturities
because issuers may have the right to call or repay obligations without call or
prepayment penalties.
<TABLE>
<CAPTION>
INVESTMENT SECURITIES
HELD TO MATURITY INVESTMENT SECURITIES
------------------------- AVAILABLE FOR SALE
------------------------- -------------------------
AMORTIZED AMORTIZED
COST FAIR VALUE COST FAIR VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Due in one year or less................... $ 1,666,596 $ 1,674,320 $ 2,759,659 $ 2,722,787
Due after one year through five years..... 6,014,190 5,933,710 35,620,981 34,606,429
Due after five years through ten years.... 5,294,497 5,204,872 19,753,666 18,850,343
Due after ten years....................... 2,566,209 2,369,395 21,637,262 20,434,034
Mortgage backed securities................ -- -- 20,041,279 19,047,383
----------- ----------- ----------- -----------
$15,541,492 $15,182,297 $99,812,847 $95,660,976
=========== =========== =========== ===========
</TABLE>
During 1999, proceeds from sales of investment securities available for sale
were $4,420,285 with gross gains of $16,929 and gross losses of $21,842 realized
on those sales. During 1998, proceeds from sales of investment securities
available for sale were $10,294,738 with gross gains of $48,987 and gross losses
of $25,075 realization of those sales. During 1997, proceeds from sales of
investment securities available for sale were $3,225,835 with gross gains of
$21,908 and gross losses of $9,617 realized on those sales. During 1999, 1998
and 1997, net gains of $13,950, $17,533 and $4,667, respectively, were realized
on investment securities called prior to contractual maturity.
The related income tax expense on sale of securities for the periods ended
December 31, 1999, 1998 and 1997 was $2,888, $15,048 and $7,761, respectively
Securities with a carrying value of approximately $74,739,835 and
$84,063,503 and estimated fair values of $73,504,077 and $84,395,915 at
December 31, 1999 and 1998, respectively, were pledged to secure public deposits
as provided by law.
F-19
<PAGE>
FIRST STERLING BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LOANS
Loans are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
Consumer Loans.............................................. $ 55,199,206 $ 46,145,656
Residential Mortgage Loans.................................. 102,104,723 97,563,512
Construction Loans.......................................... 117,047,523 90,003,252
Business Loans.............................................. 157,612,891 129,393,517
Real Estate Loans--Other.................................... 200,883,792 153,767,396
------------ ------------
Total loans................................................. 632,848,135 516,873,333
Less:
Purchase discount......................................... (289,594) (399,422)
Deferred net loan fees.................................... (1,135,101) (911,278)
Unearned income........................................... (433,314) (415,517)
Allowance for loan losses................................. (9,317,788) (8,217,313)
------------ ------------
Loans net................................................... $621,672,338 $506,929,803
============ ============
</TABLE>
Loans in nonaccrual status amounted to $1,743,004 and $1,562,230 at
December 31, 1999 and 1998, respectively. The allowance for loan losses related
to these impaired loans was $221,112 and $216,339 at December 31, 1999 and 1998,
respectively. The average recorded investment impaired loans was $1,693,856,
$1,070,431 and $436,742 at December 31, 1999, 1998 and 1997, respectively. If
such loans had been on an accrual basis, interest income would have been
approximately $172,402, $82,407 and $27,993 higher for the periods ended
December 31, 1999, 1998, and 1997, respectively.
An analysis of activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------
1999 1998 1997
---------- ---------- -----------
<S> <C> <C> <C>
Balance at beginning of year............................. $8,217,313 $7,168,010 $ 6,062,382
Provision charged to expense........................... 1,730,000 1,426,000 2,084,842
Loans charged off...................................... (977,452) (809,277) (1,269,440)
Recoveries of loans previously charged off............. 347,927 432,580 290,226
---------- ---------- -----------
Balance at end of year................................... $9,317,788 $8,217,313 $ 7,168,010
========== ========== ===========
</TABLE>
A substantial portion of the Company's loans are secured by real estate in
northeast Georgia communities, primarily in Barrow, Clarke, Cobb, Gwinnett,
Newton, Rockdale, and Walton counties. In addition, a substantial portion of
real estate acquired through foreclosure consists of single-family residential
properties and land located in these same markets. The ultimate collectibility
of a substantial portion of the Company's loan portfolio and the recovery of a
substantial portion of the carrying amount of real estate are susceptible to
changes in market conditions in northeast Georgia.
F-20
<PAGE>
FIRST STERLING BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. PREMISES AND EQUIPMENT
Premises and equipment are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Land............................................... $ 7,091,513 $ 6,982,532
Buildings and leasehold improvements............... 16,654,156 14,488,225
Furniture, fixtures and equipment.................. 12,255,171 10,314,867
Construction in process............................ 283,474 991,312
----------- -----------
Less accumulated depreciation and amortization..... (9,617,355) (7,820,720)
----------- -----------
$26,666,959 24,956,216
=========== ===========
</TABLE>
Depreciation and amortization expense totaled $1,866,207, $1,592,400 and
$1,444,014 for the periods ended December 31, 1999, 1998 and 1997, respectively.
The Company leases certain buildings and various equipment under operating
leases. Minimum payments, by year and in the aggregate, under noncancelable
operating leases with initial or remaining terms in excess of one year as of
December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000........................................................ $ 301,332
2001........................................................ 315,025
2002........................................................ 291,087
2003........................................................ 285,739
2004........................................................ 259,997
Thereafter.................................................. 759,105
----------
Total minimum lease payments................................ $2,212,285
==========
</TABLE>
Rental expense for all operating leases was $287,350, $211,942 and $154,915
in 1999, 1998 and 1997, respectively. Rental income of $1,950, $29,582 and
$20,880 for the period ended December 31, 1999, 1998 and 1997, respectively, is
included as a reduction of net occupancy and equipment expense in the
consolidated statements of income.
6. INTEREST BEARING DEPOSITS
A summary of time deposits by year of maturity at December 31, 1999 is as
follows:
<TABLE>
<S> <C>
2000........................................................ $293,842,625
2001........................................................ 53,773,502
2002........................................................ 5,654,328
2003........................................................ 5,334,757
2004 and after.............................................. 2,243,412
------------
Total time deposits......................................... $360,848,624
============
</TABLE>
The Company had $91,625,058 and $77,649,704 in time deposits over $100,000
at December 31, 1999 and 1998, respectively.
F-21
<PAGE>
FIRST STERLING BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INTEREST BEARING DEPOSITS (CONTINUED)
Interest expense on these deposits was $4,371,506, $4,318,615 and $3,631,434
for the years ended December 31, 1999, 1998 and 1997, respectively.
7. BORROWINGS
At December 31, 1999 and 1998 the Company had advances borrowed from the
Federal Home Loan Bank totaling $49,142,500 and $20,000,000, respectively.
Interest payments and principal payments are due at various maturity dates
through 2008 with rates ranging from 4.41% to 6.70%. The Company has pledged all
of its eligible residential mortgage loans secured by first mortgages on
one-to-four family dwellings as collateral. The Company is allowed to borrow up
to 75% of the balance of the eligible loans pledged as collateral. At
December 31, 1999 and 1998 the available balance under the Company's line with
the Federal Home Loan Bank was approximately $55,700,000 and $55,300,000,
respectively. The Company's weighted average interest rate on borrowings for the
periods ended December 31, 1999, 1998 and 1997 was 5.64%, 5.52% and 5.99%,
respectively. Of the $49,142,500 balance outstanding at December 31, 1999,
$17,015,000 matures in 2000, $5,015,000 matures in 2001, $5,015,000 matures in
2002, $8,015,000 matures in 2003, $4,015,000 matures in 2004, and $10,067,500
matures thereafter.
8. INCOME TAXES
Income tax expense is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Current income tax provision............. $6,118,536 $4,687,509 $4,332,673
Deferred income tax expense (benefit).... (245,728) (13,145) (375,905)
---------- ---------- ----------
$5,872,808 $4,674,364 $3,956,768
========== ========== ==========
</TABLE>
A reconciliation of income tax computed at statutory rates to total income
tax expense is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Pretax income......................... $16,956,575 $14,505,239 $12,235,216
Income tax computed at statutory
rate................................ $ 5,765,236 $ 4,931,781 $ 4,159,998
Increase (decrease) resulting from:
Tax-exempt interest................. (464,315) (417,521) (387,395)
Nondeductible interest on tax-exempt
investments....................... 65,866 27,505 34,064
Amortization of goodwill............ 35,790 35,790 35,790
Other, net.......................... 470,231 96,809 114,311
----------- ----------- -----------
$ 5,872,808 $ 4,674,364 $ 3,956,768
=========== =========== ===========
</TABLE>
F-22
<PAGE>
FIRST STERLING BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
The following summarizes the significant components of the Company's
deferred tax assets and (liabilities):
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Allowance for loan losses............................ $2,782,707 $2,336,066
Premises and Equipment............................... (495,401) (371,957)
Core deposit intangible.............................. 47,038 (15,594)
Deferred net loan fees............................... 336,556 260,697
Net unrealized losses (gains) on investment
securities available for sale...................... 1,458,736 (90,829)
Other, net........................................... (108,288) (195,434)
---------- ----------
Net deferred tax asset............................... $4,021,348 $1,922,949
========== ==========
</TABLE>
9. EMPLOYEE BENEFITS
The Company sponsors a 401(k) Employee Savings Plan that permits employees
to defer annual cash compensation as specified under the plan. The Board of
Directors determines the annual Company contribution, which was $251,166,
$248,385 and $325,316 in 1999, 1998 and 1997, respectively.
The Company has a Management Incentive Bonus Plan for key executives that
provides annual cash awards, if approved, based on eligible compensation and
achieving earnings goals. The Company also has a General Bonus Plan that
provides for annual cash awards to eligible employees as established by the
Board of Directors. The total expense under these plans was $1,057,961, $823,584
and $749,100 in 1999, 1998 and 1997, respectively.
The Company has deferred compensation agreements for certain of its key
officers and directors which provide for death and retirement benefits. The
estimated amounts to be paid under these agreements have been funded through the
purchase of life insurance policies and other investment accounts. The balance
of the deferred compensation included in other liabilities amounted to $272,119,
$131,394 and $67,455 at December 31, 1999, 1998 and 1997, respectively. Deferred
compensation expense recognized under these agreements amounted to $149,808,
$48,748 and $67,455 for the years ended December 31, 1999, 1998 and 1997,
respectively. The balance of the policy cash surrender value and other
investment accounts included in other assets was $1,023,745, $957,493 and
$858,000 at December 31, 1999, 1998 and 1997, respectively. Income recognized on
the policies and accounts amounted to $42,252, $31,461 and $42,249 for the years
ended December 31, 1999, 1998 and 1997, respectively.
10. RELATED PARTY TRANSACTIONS
Directors, executive officers, and their related interests were customers of
the Company and had other transactions with the Company in the ordinary course
of business. Loans outstanding to certain directors, executive officers, and
their related interests at December 31, 1999 and 1998 were $11,407,106 and
$8,655,435, respectively. For the periods ended December 31, 1999 and 1998,
$4,234,233 and $2,315,228, respectively of such loans were made and loan
repayments totaled $1,260,092 and $1,739,284 for the respective periods. It is
the policy of the Company that such
F-23
<PAGE>
FIRST STERLING BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. RELATED PARTY TRANSACTIONS (CONTINUED)
transactions be made on substantially the same terms as those prevailing at the
time for comparable loans to other persons. These individuals and their related
interests also maintain customary demand and time deposit accounts with the
Company.
The Company has operating leases for bank premises that are owned by related
parties. These related parties consist of an individual who is a primary
shareholder, member of the Board of Directors, and an Executive Officer of the
Company, and also members of this individual's family. Terms for these related
party leases are substantially the same as those that would be expected to
prevail in the market place. During 1999, 1998 and 1997, total lease payments
under these related party leases totaled approximately $130,000, $110,000 and
$95,000, respectively.
11. SHAREHOLDERS' EQUITY
Banking regulations limit the amount of dividends that may be paid to the
Parent without prior approval of the applicable regulatory agency. At
December 31, 1999, under current state banking laws, the approval of the Georgia
Department of Banking and Finance will be required if the total of all dividends
declared by the Banks in the calendar year exceeds 50 percent of the net profits
for the previous calendar year and the ratio of equity capital to adjusted total
assets is less than 6 percent.
The Company has adopted a nonqualified Restricted Stock Award Plan and a
Long-term Incentive Plan, which grant restricted stock and other stock based
compensation to key executives and officers of the Company. In the case of
restricted stock, Company executives and officers designated as an "eligible
executive" will vest in the number of shares of common stock awarded under the
plan based on service over the next five years. A total of 960,000 shares are
authorized to be issued under the plans, with 765,960 and 764,560 shares of
restricted stock issued as of December 31, 1999 and 1998. A total of 567,560 and
492,240 shares were vested with 198,400 and 272,320 shares issued and unvested
as of December 31, 1999 and 1998.
F-24
<PAGE>
FIRST STERLING BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. STOCK OPTIONS
The Company has various stock option plans with common stock reserved for
key employees and directors. At December 31, 1999, the Company had 179,560
shares of its authorized but unissued common stock reserved for future grants
under the stock option plans. Option prices under these plans are equal to the
fair value of the Company's common stock on the date of the grant. The options
vest over time periods determined by the Compensation Committee of the Board of
Directors and expire ten years from date of grant. Other pertinent information
related to the options is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------------
1999 1998
------------------------- -------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
NUMBER EXERCISE PRICE NUMBER EXERCISE PRICE
-------- -------------- -------- --------------
<S> <C> <C> <C> <C>
Under option, beginning of year.............. 634,596 $ 5.32 612,543 $4.96
Granted.................................... 72,809 11.46 74,568 9.43
Exercised.................................. (32,886) 5.27 (13,037) 5.44
Terminated................................. (4,773) 6.24 (39,478) 7.58
------- -------
Under option, end of year.................... 669,746 5.98 634,596 5.32
------- -------
Exercisable, end of year..................... 608,911 5.49 557,072 4.80
======= =======
Weighted-average fair value of options
granted during the year.................... $ 5.01 $ 3.82
</TABLE>
<TABLE>
<CAPTION>
UNDER OPTION, OPTIONS EXERCISABLE,
END OF YEAR END OF YEAR
------------------------------------------------------------------------------- -----------------------
WEIGHTED-
WEIGHTED- AVERAGE WEIGHTED-
AVERAGE REMAINING AVERAGE
EXERCISE CONTRACTUAL NUMBER EXERCISE
RANGE OF EXERCISE PRICES NUMBER PRICE LIFE EXERCISABLE PRICE
------------------------ -------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 3.07 - 4.55............................. 309,200 $ 3.62 5 309,200 $ 3.62
$ 4.82 - 7.19............................. 234,574 $ 6.34 7 232,517 $ 6.33
$ 7.40 - 9.72............................. 32,269 $ 9.45 9 9,434 $ 8.80
$11.08 - 12.83............................. 93,703 $11.67 10 57,760 $11.56
------- -------
669,746... 7 608,911
======= =======
</TABLE>
As permitted by SFAS No. 123 ("Accounting for stock-Based Compensation"),
the Company recognizes compensation cost for stock-based employee compensation
awards in accordance with APB Opinion No. 25 ("Accounting for Stock Issued to
Employees"). The Company recognized $0, $15,000 and $0 of compensation costs for
stock-based employee compensation awards for the years ended
F-25
<PAGE>
FIRST STERLING BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. STOCK OPTIONS (CONTINUED)
December 31, 1999, 1998, and 1997, respectively. If the Company had recognized
compensation cost in accordance with SFAS No. 123, net income and earnings per
share would have been reduced as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------
1999 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
Net income:
As reported........................................... $11,083,767 $9,830,875 $8,278,783
Stock-based compensation, net of related tax effect... (215,923) (40,536) (162,391)
----------- ---------- ----------
As adjusted........................................... $10,867,844 $9,790,339 $8,116,392
=========== ========== ==========
Basic earnings per share:
As reported........................................... $ 0.80 $ 0.72 $ 0.61
Stock-based compensation, net of related tax effect... 0.02 0.00 0.01
----------- ---------- ----------
As adjusted........................................... $ 0.78 $ 0.72 $ 0.60
=========== ========== ==========
</TABLE>
The fair value of the options granted during the year was based upon the
discounted value of future cash flows of the options using the following
weighted-average assumptions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------
1999 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
Risk-free interest rate................................. 6.47% 5.12% 5.97%
Expected life of the options............................ 7 YEARS 7 years 7 years
Expected dividends (as a percent of the fair value of
the stock)............................................ 1.27% 1.71% 1.98%
Volatility.............................................. 35.59% 37.79% 18.50%
</TABLE>
F-26
<PAGE>
FIRST STERLING BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. EARNINGS PER SHARE
The following is a reconciliation of net income and weighted-average shares
outstanding used in determining basic and diluted earnings per common share
(EPS):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
-------------------------------------------------
WEIGHTED AVERAGE
NET INCOME SHARES PER SHARE AMOUNT
----------- ---------------- ----------------
<S> <C> <C> <C>
Basic EPS........................................ $11,083,767 13,778,337 $0.80
=====
Effect of dilutive securities-Stock options...... -- 323,166
----------- ----------
Diluted EPS...................................... $11,083,767 14,101,503 $0.79
=========== ========== =====
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
--------------------------------------------
<S> <C> <C> <C>
Basic EPS........................................ $ 9,830,875 13,639,051 $0.72
=====
Effect of dilutive securities-Stock options...... -- 342,453
----------- ----------
Diluted EPS...................................... $ 9,830,875 13,981,504 $0.70
=========== ========== =====
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
--------------------------------------------
<S> <C> <C> <C>
Basic EPS........................................ $ 8,278,783 13,550,538 $0.61
=====
Effect of dilutive securities-Stock options...... -- 210,878
----------- ----------
Diluted EPS...................................... $ 8,278,783 13,761,416 $0.60
=========== ========== =====
</TABLE>
14. REGULATORY MATTERS
The Company and its banking subsidiaries are subject to various regulatory
capital requirements administered by federal and state banking agencies. Failure
to meet minimum capital requirements can initiate certain mandatory, and
possibly additional discretionary, actions by regulators that, if undertaken,
could have a direct material effect on the Banks' financial statements. The
regulations require the Company and its banking subsidiaries to meet specific
capital adequacy guidelines that involve quantitative measures of the Company's
and its banking subsidiaries' assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The Company and its
banking subsidiaries' capital classification is also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Banks to maintain minimum amounts and ratios (set forth in the table
below) of Tier 1 capital (as defined in the regulations) to total average assets
(as defined), and minimum ratios of Tier 1 and total capital (as defined) to
risk-weighted assets (as defined). To be considered adequately capitalized (as
defined) under the regulatory framework for prompt corrective action, the Banks
must maintain minimum Tier 1 leverage, Tier 1 risk-based, and total risk-based
ratios as set forth in the following tables.
The Banks' actual capital amounts and ratios are also presented in the
following tables. As of December 31, 1999, the most recent regulatory
notification, the Banks, except for The Eastside Bank & Trust Company which was
adequately capitalized, were considered well capitalized under current
regulatory guidelines. There are no conditions or events since that notification
that management believes have changed the Banks' category.
F-27
<PAGE>
FIRST STERLING BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. REGULATORY MATTERS (CONTINUED)
The following is a summary of the Company's and its banking subsidiaries'
capital ratios at December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
UNDER PROMPT
FOR CAPITAL CORRECTIVE
ACTUAL ADEQUACY ACTION
AMOUNT RATIO PURPOSES RATIO PROVISIONS RATIO
----------- -------- ----------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Company
As of December 31, 1999
Total Capital (to Risk Weighted
Assets)........................ $82,778,000 12.40% $53,402,000 8% $66,753,000 10%
Tier 1 Capital (to Risk Weighted
Assets)........................ 74,948,000 11.23% 26,701,000 4% 40,052,000 6%
Tier 1 Capital (to Average
Assets)........................ 74,948,000 8.58% 34,966,000 4% 43,707,000 5%
As of December 31, 1998
Total Capital (to Risk Weighted
Assets)........................ 73,620,000 13.32% 44,228,000 8% 55,286,000 10%
Tier 1 Capital (to Risk Weighted
Assets)........................ 67,150,000 12.16% 22,114,000 4% 33,171,334 6%
Tier 1 Capital (to Average
Assets)........................ 67,150,000 9.49% 28,304,000 4% 35,380,000 5%
As of December 31, 1997
Total Capital (to Risk Weighted
Assets)........................ 65,498,000 13.67% 38,299,000 8% 47,874,000 10%
Tier 1 Capital (to Risk Weighted
Assets)........................ 59,689,000 12.46% 19,149,000 4% 28,724,000 6%
Tier 1 Capital (to Average
Assets)........................ 59,689,000 8.28% 28,830,000 4% 36,038,000 5%
</TABLE>
F-28
<PAGE>
FIRST STERLING BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. REGULATORY MATTERS (CONTINUED)
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
UNDER PROMPT
FOR CAPITAL CORRECTIVE
ACTUAL ADEQUACY ACTION
AMOUNT RATIO PURPOSES RATIO PROVISIONS RATIO
----------- -------- ----------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Main Street only
As of December 31, 1999
Total Capital (to Risk Weighted
Assets)........................ $48,948,000 12.86% $30,450,080 8% $38,062,600 10%
Tier 1 Capital (to Risk Weighted
Assets)........................ 46,158,000 12.13% 15,225,040 4% 22,837,560 6%
Tier 1 Capital (to Average
Assets)........................ 46,158,000 9.27% 19,917,920 4% 24,897,400 5%
As of December 31, 1998
Total Capital (to Risk Weighted
Assets)........................ 45,713,000 14.00% 26,121,000 8% 32,651,000 10%
Tier 1 Capital (to Risk Weighted
Assets)........................ 41,610,000 12.74% 13,061,000 4% 19,591,000 6%
Tier 1 Capital (to Average
Assets)........................ 41,610,000 9.67% 17,213,000 4% 21,516,000 5%
As of December 31, 1997
Total Capital (to Risk Weighted
Assets)........................ 40,642,000 13.66% 23,805,000 8% 29,756,000 10%
Tier 1 Capital (to Risk Weighted
Assets)........................ 36,906,000 12.40% 11,903,000 4% 17,854,000 6%
Tier 1 Capital (to Average
Assets)........................ 36,906,000 9.00% 16,403,000 4% 20,504,000 5%
</TABLE>
F-29
<PAGE>
FIRST STERLING BANKS, INC. AND SUBSIDIARIES
'>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. REGULATORY MATTERS (CONTINUED)
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
UNDER
PROMPT
FOR CAPITAL CORRECTIVE
ACTUAL ADEQUACY ACTION
AMOUNT RATIO PURPOSES RATIO PROVISIONS RATIO
---------- -------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Westside only
As of December 31, 1999
Total Capital (to Risk Weighted
Assets)............................. 12,463,000 11.37% $8,770,000 8% $10,962,000 10%
Tier 1 Capital (to Risk Weighted
Assets)............................. 11,408,000 10.41% 4,385,000 4% 6,577,000 6%
Tier 1 Capital (to Average Assets).... 11,408,000 6.99% 6,533,000 4% 8,166,000 5%
As of December 31, 1998
Total Capital (to Risk Weighted
Assets)............................. 10,727,000 13.35% 6,428,000 8% 8,035,000 10%
Tier 1 Capital (to Risk Weighted
Assets)............................. 9,911,000 12.34% 3,214,000 4% 4,821,000 6%
Tier 1 Capital (to Average Assets).... 9,911,000 8.75% 4,529,000 4% 5,661,000 5%
As of December 31, 1997
Total Capital (to Risk Weighted
Assets)............................. 9,501,000 13.92% 5,460,000 8% 6,825,000 10%
Tier 1 Capital (to Risk Weighted
Assets)............................. 8,684,000 12.73% 2,730,000 4% 4,095,000 6%
Tier 1 Capital (to Average Assets).... 8,684,000 5.03% 6,903,000 4% 8,629,000 5%
</TABLE>
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
UNDER
PROMPT
FOR CAPITAL CORRECTIVE
ACTUAL ADEQUACY ACTION
AMOUNT RATIO PURPOSES RATIO PROVISIONS RATIO
---------- -------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Eastside only
As of December 31, 1999
Total Capital (to Risk Weighted
Assets)............................. $9,937,000 9.92% $8,019,000 8% $10,022,000 10%
Tier 1 Capital (to Risk Weighted
Assets)............................. 8,854,000 8.83% 4,009,000 4% 6,014,000 6%
Tier 1 Capital (to Average Assets).... 8,854,000 7.49% 4,726,000 4% 5,908,000 5%
As of December 31, 1998
Total Capital (to Risk Weighted
Assets)............................. 8,668,000 10.69% 6,488,000 8% 8,110,000 10%
Tier 1 Capital (to Risk Weighted
Assets)............................. 7,858,000 9.69% 3,244,000 4% 4,866,000 6%
Tier 1 Capital (to Average Assets).... 7,858,000 9.02% 3,483,000 4% 4,354,000 5%
As of December 31, 1997
Total Capital (to Risk Weighted
Assets)............................. 7,596,000 13.37% 4,546,000 8% 5,683,000 10%
Tier 1 Capital (to Risk Weighted
Assets)............................. 7,033,000 12.38% 2,273,000 4% 3,410,000 6%
Tier 1 Capital (to Average Assets).... 7,033,000 9.63% 2,921,000 4% 3,651,000 5%
</TABLE>
F-30
<PAGE>
FIRST STERLING BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. REGULATORY MATTERS (CONTINUED)
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
UNDER PROMPT
FOR CAPITAL CORRECTIVE
ACTUAL ADEQUACY ACTION
AMOUNT RATIO PURPOSES RATIO PROVISIONS RATIO
---------- -------- ----------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Community only
As of December 31, 1999
Total Capital (to Risk
Weighted Assets)............... $9,364,000 11.50% $6,517,000 8% $8,146,000 10%
Tier 1 Capital (to Risk Weighted
Assets)........................ 8,429,000 10.35% 3,259,000 4% 4,888,000 6%
Tier 1 Capital (to Average
Assets)........................ 8,429,000 8.88% 3,799,000 4% 4,748,000 5%
As of December 31, 1998
Total Capital (to Risk Weighted
Assets)........................ 8,198,000 12.60% 5,219,000 8% 6,524,000 10%
Tier 1 Capital (to Risk Weighted
Assets)........................ 7,457,000 11.40% 2,610,000 4% 3,914,000 6%
Tier 1 Capital (to Average
Assets)........................ 7,457,000 9.70% 3,071,000 4% 3,838,000 5%
As of December 31, 1997
Total Capital (to Risk Weighted
Assets)........................ 7,421,000 13.20% 4,493,000 8% 5,617,000 10%
Tier 1 Capital (to Risk Weighted
Assets)........................ 6,728,000 12.00% 2,247,000 4% 3,370,000 6%
Tier 1 Capital (to Average
Assets)........................ 6,728,000 10.30% 2,613,000 4% 3,267,000 5%
</TABLE>
15. OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of their customers.
These financial instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
consolidated statements of financial condition.
The contract amounts of those instruments reflect the extent of involvement the
Company has in particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
customer to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments. The Company uses the same credit policies in making commitments and
conditional obligations as are used for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Total commitments to extend credit at
December 31, 1999 and 1998 include
F-31
<PAGE>
FIRST STERLING BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS (CONTINUED)
$21,371,000 and $9,719,000, respectively, in undisbursed credit lines and
$33,708,000 and $29,711,000, respectively, in unfunded construction and
development loans. The Company's experience has been that approximately
80 percent of loan commitments are ultimately drawn upon by customers.
The Company issues standby letters of credit, which are conditional commitments
issued to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
The Company had $630,000 and $668,000 in irrevocable standby letters of credit
outstanding at December 31, 1999 and 1998, respectively.
The Company was not required to perform under any standby letters of credit
during 1999 or 1998.
The Company evaluates each customer's creditworthiness on a case-by-case basis.
The amount of collateral obtained, if deemed necessary by the Company upon
extension of credit, is based on management's credit evaluation of the borrower.
Collateral held varies but may include accounts receivable, inventory, property,
plant and equipment, residential real estate, and income-producing commercial
properties on those commitments for which collateral is deemed necessary.
16. LITIGATION
The Company, in the normal course of business, is subject to various pending or
threatened lawsuits in which claims for monetary damages are asserted. Although
it is not possible for the Company to predict the outcome of these lawsuits or
the range of any possible loss, management, after consultation with legal
counsel, does not anticipate that the ultimate aggregate liability, if any,
arising from these lawsuits will have a material adverse effect on the Company's
financial position or operating results.
17. FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company uses the following methods and assumptions in estimating fair values
of financial instruments:
Cash and cash equivalents--The carrying amount of cash and cash equivalents
approximates fair value.
Interest-bearing deposits--The carrying amount of interest-bearing deposits
approximates fair value.
Investment securities--The fair value of investment securities held to
maturity and available for sale is estimated based on published bid prices
or bid quotations received from securities dealers. The carrying amount of
other investments approximates fair value.
Loans--For variable rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on carrying values.
For all other loans, fair values are calculated by discounting the
contractual cash flows using estimated market rates which reflect the credit
and interest rate risk inherent in the loan, or by using the current rates
at which similar loans would be made to borrowers with similar credit
ratings and for the same remaining maturities.
F-32
<PAGE>
FIRST STERLING BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
Mortgage loans held for sale--The carrying amount of mortgage loans held for
sale approximates fair value.
Deposits--The fair value of deposits with no stated maturity, such as
demand, NOW and MMDA, and savings accounts, is equal to the amount payable
on demand. The fair value of certificates of deposit is based on the
discounted value of contractual cash flows using the rates currently offered
for deposits of similar remaining maturities.
Accrued interest--The carrying amount of accrued interest receivable and
payable approximates fair value.
Off-balance-sheet instruments--Fair values for off-balance-sheet lending
commitments are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and
the borrowers' credit standing.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------------------------------
1999 1998
--------------------------- ---------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks............. $ 35,822,324 $ 35,822,234 $ 31,362,821 $ 31,362,821
Interest-bearing deposits........... 1,733,612 1,733,612 348,807 348,807
Investment securities held to
maturity.......................... 15,541,492 15,182,297 12,497,146 13,044,485
Investment securities available for
sale.............................. 96,643,976 96,643,976 100,350,503 100,350,503
Other investments................... 3,374,756 3,374,756 2,182,479 2,182,479
Loans (net of unearned income)...... 630,990,126 626,417,262 515,147,116 514,157,969
Mortgage loans held for sale........ 1,356,664 1,356,664 4,282,914 4,282,914
Accrued interest receivable......... 3,526,663 3,526,663 2,739,057 2,739,057
Financial liabilities:
Noncontractual deposits............. 345,380,007 348,820,174 307,398,573 307,238,827
Contractual deposits................ 360,848,624 360,650,812 311,777,450 313,896,470
Securities sold under repurchase
agreements........................ 18,872,722 18,872,722 3,393,962 3,393,962
Federal Home Loan Advances.......... 49,142,500 49,142,500 20,000,000 20,000,000
Accrued interest payable............ 3,025,862 3,025,862 2,146,261 2,146,261
Off-balance-sheet instruments:
Undisbursed credit lines............ 21,371,000 194,991 9,719,000 88,676
Unfunded construction and
development loans................. 33,708,000 307,555 29,711,000 271,087
Standby letters of credit........... 630,000 5,748 668,000 6,095
</TABLE>
18. OTHER COMPREHENSIVE INCOME
Statement No. 130 requires that all components of comprehensive income and
total comprehensive income be reported on one of the following: (1) the
statement of income, (2) the statement of changes
F-33
<PAGE>
FIRST STERLING BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. OTHER COMPREHENSIVE INCOME (CONTINUED)
in shareholders equity, or (3) a separate statement of comprehensive income.
Comprehensive income is comprised of net income and all changes to shareholders'
equity, except those due to investments by owners (changes in paid-in-capital)
and distributions to owners (dividends). The Company adopted this statement
effective January 1, 1998 and has elected to report comprehensive income in the
consolidated statements of changes in shareholders' equity.
19. BUSINESS COMBINATIONS
On April 23, 1999, the Company effected a business combination and merger
with Georgia Bancshares, Inc. by exchanging 1,461,632 shares of its common stock
for all of the common stock of Georgia Bancshares, Inc. The combination was
accounted for as a pooling of interest and, accordingly, all prior financial
statements have been restated to include Georgia Bancshares, Inc. All per share
and stock option data has been restated to reflect the effects of the business
combination and stock dividend.
On May 24, 2000, the Company effected a business combination and merger with
Main Street Banks, Inc. (the former parent of Main Street). Under the terms of
the transaction, Main Street Banks, Inc. shareholders received 1.01 shares of
First Sterling Banks, Inc. common stock for each share of Main Street
Banks, Inc. stock owned prior to the merger. The combination was accounted for
as a pooling of interests and, accordingly, all prior financial statements have
been restated to include the financial results of Main Street Banks, Inc.
The results of operations on the separate companies for periods prior to the
combination are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net interest income:
First Sterling Banks, Inc., exclusive of pre-acquisition
amounts................................................. $13,073,247 $ 8,316,106
Georgia Bancshares, Inc.(1) .............................. 1,220,175 3,278,715
Main Street Banks, Incorporated........................... 23,503,403 21,657,013
----------- -----------
Total....................................................... $37,796,825 $33,251,834
Net income:
First Sterling Banks, Inc., exclusive of pre-acquisition
amounts................................................. $ 3,536,180 $ 2,471,194
Georgia Bancshares, Inc.(1) .............................. 313,921 844,306
Main Street Banks, Incorporated........................... 7,233,666 6,515,375
----------- -----------
Total....................................................... $11,083,767 $ 9,830,875
</TABLE>
------------------------
(1) 1999 amounts reflect the results of operations from January 1, 1999 through
the effective merger date of April 23, 1999. Results of operations for the
period from April 24, 1999 through December 31, 1999 are included in First
Sterling Banks, Inc. amounts.
F-34
<PAGE>
FIRST STERLING BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20. PARENT COMPANY FINANCIAL INFORMATION
The following information presents the condensed balance sheet of the Parent
at December 31, 1999 and 1998, and the statements of income and cash flows for
the years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEET
-------------------------
DECEMBER 31
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 2,112,333 $ 2,294,151
Investment in subsidiaries.................................. 71,260,718 66,143,650
OTHER ASSETS................................................ 687,328 732,695
----------- -----------
Total assets................................................ $74,060,379 $69,170,496
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Other liabilities........................................... $ 726,427 $ 669,671
Shareholders' equity........................................ 73,333,952 68,500,825
----------- -----------
Total liabilities and shareholders' equity.................. $74,060,379 $69,170,496
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME
-------------------------------------
DECEMBER 31
-------------------------------------
1999 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
Income:
Dividends from subsidiaries........................... $ 3,874,267 $3,616,560 $3,110,208
Expenses:
Salaries and employee benefits........................ 93,367 10,500 10,500
Legal and professional................................ 81,615 22,381 24,338
Merger Expenses....................................... 308,908 105,531 --
Other expenses........................................ 254,463 280,463 218,354
----------- ---------- ----------
Total expenses.......................................... 738,353 418,875 253,192
----------- ---------- ----------
Income before income tax benefits and equity in
undistributed income of subsidiaries.................. 3,135,914 3,197,685 2,857,016
Benefit for income taxes................................ 174,777 151,057 86,635
----------- ---------- ----------
Income before equity in undistributed income of
subsidiary............................................ 3,310,691 3,348,742 2,943,651
Equity in undistributed income of subsidiary............ 7,773,076 6,482,133 5,337,797
----------- ---------- ----------
Net income.............................................. $11,083,767 $9,830,875 $8,278,448
=========== ========== ==========
</TABLE>
F-35
<PAGE>
FIRST STERLING BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20. PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
DECEMBER 31
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income................................................ 11,083,767 9,830,875 8,278,448
Adjustments to reconcile net income to net cash provided
by operating activities:
Undistributed income of subsidiary...................... (7,773,076) (6,482,133) (5,334,797)
Other................................................... (47,877) (689,338) 29,517
---------- ---------- ----------
Net cash provided by operating activities................. 3,262,814 2,659,404 2,973,168
FINANCING ACTIVITIES
Dividends paid............................................ (3,618,060) (2,818,142) (2,381,956)
Purchase of treasury stock................................ -- -- (618,875)
Proceeds from exercise of stock options................... 173,428 70,939 208,199
---------- ---------- ----------
Net cash used in financing activities..................... (3,444,632) 2,747,203 (2,792,632)
Net decrease in cash...................................... (181,818) (87,799) 180,536
Cash at beginning of period............................... 2,294,151 2,381,950 2,201,414
---------- ---------- ----------
Cash at end of period..................................... 2,112,333 2,294,151 2,381,950
========== ========== ==========
</TABLE>
21. SUBSEQUENT EVENTS
During September 2000, the Company announced its intent to acquire Walton
Bank and Trust Company ("Walton"). Walton is a community bank located in Monroe
with total assets of $62 million.
If the merger is completed, each share of Walton Bank & Trust Company common
stock will be exchanged for 2.752 shares of the Company's common stock. The
exchange in the acquisition of Walton's stock for the Company's stock will not
give rise to taxable gain or loss to shareholders of Walton nor will the Company
recognize taxable gain or loss as a consequence of the acquisition.
The Company expects to complete the acquisition during the first quarter of
2001 and is in the process of obtaining approval from the Federal Reserve Bank
and the Georgia Department of Banking and Finance.
During September 2000, the Company also announced the proposed acquisition
of two insurance agencies affiliated with Walton. These transactions are
expected to close in December 2000 and are expected to be accounted for as
poolings of interests.
F-36
<PAGE>
WALTON BANK & TRUST CO.
CONDENSED BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
-------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 1,944,721 $ 1,873,176
Securities available-for-sale, at fair value................ 13,519,210 12,524,902
Securities held-to-maturity (fair value approximately
$710,000; $697,000)....................................... 686,318 686,282
Federal funds sold.......................................... 820,000 980,000
Loans....................................................... 42,385,145 37,457,189
Less allowance for loan losses.............................. 517,295 426,134
----------- -----------
Loans, net.............................................. 41,867,850 37,031,055
----------- -----------
Premises and equipment...................................... 745,521 810,782
Other assets................................................ 852,609 819,814
----------- -----------
$60,436,229 $54,726,011
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing demand................................ $ 7,205,192 $ 6,302,865
Interest-bearing demand................................... 7,500,449 8,109,134
Savings................................................... 1,911,724 1,768,667
Time...................................................... 36,482,985 31,844,325
----------- -----------
Total deposits.......................................... 53,100,350 48,024,991
Other liabilities........................................... 398,864 486,307
----------- -----------
Total liabilities....................................... 53,499,214 48,511,298
----------- -----------
Commitments and contingent liabilities
Stockholders' equity
Common stock, par value $5; 1,000,000 shares authorized;
450,000 shares issued and outstanding................... 2,250,000 2,250,000
Capital surplus........................................... 741,771 741,771
Retained earnings, substantially restricted............... 4,098,541 3,486,233
Accumulated other comprehensive loss...................... (153,297) (263,291)
----------- -----------
Total stockholders' equity.............................. 6,937,015 6,214,713
----------- -----------
$60,436,229 $54,726,011
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-37
<PAGE>
WALTON BANK & TRUST CO.
CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- -----------------------
2000 1999 2000 1999
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans........................................ $1,181,671 $ 862,379 $3,339,875 $2,449,037
Taxable securities........................... 187,548 171,723 541,843 502,146
Nontaxable securities........................ 25,117 19,024 69,336 56,919
Federal funds sold........................... 27,815 17,161 48,666 85,465
Deposits in banks............................ 37 0 37 0
---------- --------- ---------- ----------
TOTAL INTEREST INCOME...................... 1,422,188 1,070,287 3,999,757 3,093,567
---------- --------- ---------- ----------
INTEREST EXPENSE
Interest on deposits......................... 636,246 436,047 1,735,910 1,276,125
Interest on other borrowings................. 17,492 27 23,674 27
---------- --------- ---------- ----------
TOTAL INTEREST EXPENSE..................... 653,738 436,074 1,759,584 1,276,152
---------- --------- ---------- ----------
NET INTEREST INCOME........................ 768,450 634,213 2,240,173 1,817,415
PROVISION FOR LOAN LOSSES...................... 30,000 15,000 110,000 45,000
---------- --------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES.............................. 738,450 619,213 2,130,173 1,772,415
---------- --------- ---------- ----------
OTHER INCOME
Service charges on deposit accounts.......... 104,360 91,129 308,069 265,495
Other operating income....................... 90,526 52,377 286,305 151,950
---------- --------- ---------- ----------
194,886 143,506 594,374 417,445
---------- --------- ---------- ----------
OTHER EXPENSES
Salaries and employee benefits............... 264,067 241,845 786,697 675,024
Equipment and occupancy expenses............. 51,208 48,191 169,981 142,706
Other operating expenses..................... 153,321 146,340 480,765 391,422
---------- --------- ---------- ----------
468,596 436,376 1,437,443 1,209,152
---------- --------- ---------- ----------
INCOME BEFORE INCOME TAXES................. 464,740 326,343 1,287,104 980,708
INCOME TAX EXPENSE............................. 160,730 112,775 449,796 337,440
---------- --------- ---------- ----------
NET INCOME................................. 304,010 213,568 837,308 643,268
OTHER COMPREHENSIVE INCOME (LOSS):
Unrealized gains (losses) on securities
available-for-sale arising during period,
net of tax................................. 109,703 (29,214) 109,994 (209,807)
---------- --------- ---------- ----------
COMPREHENSIVE INCOME....................... $ 413,713 $ 184,354 $ 947,302 $ 433,461
========== ========= ========== ==========
BASIC EARNINGS PER COMMON SHARE................ $ 0.68 $ 0.47 $ 1.86 $ 1.43
========== ========= ========== ==========
DILUTED EARNINGS PER COMMON SHARE.............. $ 0.66 $ 0.47 $ 1.82 $ 1.42
========== ========= ========== ==========
CASH DIVIDENDS PER SHARE OF COMMON STOCK....... $ -- $ -- $ 0.50 $ 0.35
========== ========= ========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-38
<PAGE>
WALTON BANK & TRUST CO.
CONDENSED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................ $ 837,308 $ 643,268
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation............................................ 67,801 54,347
Provision for loan losses............................... 110,000 45,000
Other operating activities.............................. (124,416) (2,668)
----------- -----------
Net cash provided by operating activities............. 890,693 739,947
----------- -----------
INVESTING ACTIVITIES
Purchases of securities available-for-sale................ (1,628,578) (4,230,794)
Proceeds from sales of securities available-for-sale...... 748,406 0
Proceeds from maturities of securities
available-for-sale...................................... 0 1,894,859
Proceeds from maturities of securities held-to-maturity... 0 2,149
Net decrease in Federal funds sold........................ 160,000 3,000,000
Net increase in loans..................................... (4,946,795) (4,997,334)
Purchase of premises and equipment........................ (2,540) (130,795)
----------- -----------
Net cash used in investing activities................. (5,669,507) (4,461,915)
----------- -----------
FINANCING ACTIVITIES
Net increase in deposits.................................. 5,075,359 4,300,075
Dividends paid............................................ (225,000) (157,500)
----------- -----------
Net cash provided by financing activities............. 4,850,359 4,142,575
----------- -----------
Net increase in cash and due from banks..................... 71,545 420,607
Cash and due from banks at beginning of period.............. 1,873,176 1,226,687
----------- -----------
Cash and due from banks at end of period.................... $ 1,944,721 $ 1,647,294
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-39
<PAGE>
WALTON BANK & TRUST CO.
NOTES TO 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 and nine month periods ended
September 30, 2000 are not necessarily indicative of the results to be expected
for the full year.
NOTE 2. CURRENT ACCOUNTING DEVELOPMENTS
In June of 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." The effective date of this
statement has been deferred by SFAS No. 137 until fiscal years beginning after
June 15, 2000. However, the statement permits early adoption as of the beginning
of any fiscal quarter after its issuance. In June 2000, the FASB issued SFAS
No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities, an amendment of FASB Statement No. 133." SFAS No. 138 amends certain
provisions of SFAS No. 133. The Bank expects to adopt this statement effective
January 1, 2001. SFAS No. 133 requires the Bank to recognize all derivatives as
either assets or liabilities in the balance sheet at fair value. For derivatives
that are not designated as hedges, the gain or loss must be recognized in
earnings in the period of change. For derivatives that are designated as hedges,
changes in the fair value of the hedged assets, liabilities, or firm commitments
must be recognized in earnings, depending on the nature of the hedge. The
ineffective portion of a derivative's change in fair value must be recognized in
earnings immediately. Management has not yet determined what effect the adoption
of SFAS No. 133 will have on the Bank's earnings or financial position.
NOTE 3.
On September 26, 2000, the Bank signed an Agreement and Plan of Merger with
First Sterling Banks, Inc. ("First Sterling"). This agreement provides for the
merger of the Bank with and into a wholly owned subsidiary bank of First
Sterling, with First Sterling being the surviving corporation of the merger.
In the merger, each share of the Bank's common stock outstanding on the
effective date of the merger will be converted into 2.752 of First Sterling
common stock.
F-40
<PAGE>
WALTON BANK & TRUST CO.
FINANCIAL REPORT
DECEMBER 31, 1999
F-41
<PAGE>
WALTON BANK & TRUST CO.
FINANCIAL REPORT
DECEMBER 31, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
INDEPENDENT AUDITOR'S REPORT................................ F-43
FINANCIAL STATEMENTS
BALANCE SHEETS............................................ F-44
STATEMENTS OF INCOME...................................... F-45
STATEMENTS OF COMPREHENSIVE INCOME........................ F-46
STATEMENTS OF STOCKHOLDERS' EQUITY........................ F-47
STATEMENTS OF CASH FLOWS.................................. F-48
NOTES TO FINANCIAL STATEMENTS............................. F-49
</TABLE>
F-42
<PAGE>
INDEPENDENT AUDITOR'S REPORT
TO THE BOARD OF DIRECTORS
WALTON BANK & TRUST CO.
MONROE, GEORGIA
We have audited the accompanying balance sheets of WALTON BANK & TRUST CO.
as of December 31, 1999 and 1998, and the related statements of income,
comprehensive income, stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Bank'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
misstatements. 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 Walton Bank & Trust Co. as
of December 31, 1999 and 1998, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
Atlanta, Georgia
February 2, 2000
F-43
<PAGE>
WALTON BANK & TRUST CO.
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 1,873,176 $ 1,226,687
Federal funds sold.......................................... 980,000 4,430,000
Securities available-for-sale............................... 12,524,902 10,434,438
Securities held-to-maturity (fair value $697,480 and
$860,566)................................................. 686,282 801,105
Loans....................................................... 37,457,189 31,195,474
Less allowance for loan losses.............................. 426,134 370,252
----------- -----------
Loans, net.............................................. 37,031,055 30,825,222
----------- -----------
Premises and equipment...................................... 810,782 722,061
Other assets................................................ 819,814 568,131
----------- -----------
TOTAL ASSETS............................................ $54,726,011 $49,007,644
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing demand................................ $ 6,302,865 $ 5,965,080
Interest-bearing demand................................... 8,109,134 9,182,596
Savings................................................... 1,768,667 1,991,287
Time, $100,000 and over................................... 8,006,124 6,806,103
Other time................................................ 23,838,201 18,933,784
----------- -----------
TOTAL DEPOSITS.......................................... 48,024,991 42,878,850
Other liabilities........................................... 486,307 297,090
----------- -----------
TOTAL LIABILITIES....................................... 48,511,298 43,175,940
----------- -----------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Common stock, par value $5; 1,000,000 shares authorized;
450,000 shares issued and outstanding................... 2,250,000 2,250,000
Capital surplus........................................... 741,771 741,771
Retained earnings, substantially restricted............... 3,486,233 2,783,340
Accumulated other comprehensive income (loss)............. (263,291) 56,593
----------- -----------
TOTAL STOCKHOLDERS' EQUITY.............................. 6,214,713 5,831,704
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............. $54,726,011 $49,007,644
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-44
<PAGE>
WALTON BANK & TRUST CO.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
INTEREST INCOME
Loans..................................................... $3,413,493 $3,116,151
Taxable securities........................................ 673,731 547,862
Nontaxable securities..................................... 79,313 61,910
Federal funds sold........................................ 100,647 195,627
---------- ----------
Total interest income................................... 4,267,184 3,921,550
---------- ----------
INTEREST EXPENSE
Interest on deposits...................................... 1,771,137 1,644,973
Interest on other borrowings.............................. 89 --
---------- ----------
Total interest expense.................................. 1,771,226 1,644,973
---------- ----------
NET INTEREST INCOME..................................... 2,495,958 2,276,577
PROVISION FOR LOAN LOSSES................................... 65,000 262,745
---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES..... 2,430,958 2,013,832
---------- ----------
OTHER INCOME
Service charges on deposit accounts....................... 372,129 326,737
Loan servicing income..................................... 132,905 78,540
Other operating income.................................... 96,733 93,147
---------- ----------
Total other income...................................... 601,767 498,424
---------- ----------
OTHER EXPENSES
Salaries and employee benefits............................ 942,991 761,090
Equipment expenses........................................ 100,537 77,688
Occupancy expenses........................................ 103,952 97,933
Other operating expenses.................................. 570,887 570,735
---------- ----------
Total other expenses.................................... 1,718,367 1,507,446
---------- ----------
INCOME BEFORE INCOME TAXES.............................. 1,314,358 1,004,810
INCOME TAX EXPENSE.......................................... 453,965 312,168
---------- ----------
NET INCOME.............................................. $ 860,393 $ 692,642
========== ==========
BASIC EARNINGS PER SHARE.................................... $ 1.91 $ 1.54
========== ==========
DILUTED EARNINGS PER SHARE.................................. $ 1.90 $ 1.52
========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-45
<PAGE>
WALTON BANK & TRUST CO.
STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
NET INCOME.................................................. $860,393 $692,642
OTHER COMPREHENSIVE INCOME (LOSS):
Unrealized gains (losses) on securities
available-for-sale:
Net unrealized holding gains (losses) on securities
available-for-sale arising during period, net of taxes
(benefits) of $(187,869) and $11,490, respectively.... (319,884) 19,566
-------- --------
COMPREHENSIVE INCOME........................................ $540,509 $712,208
======== ========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-46
<PAGE>
WALTON BANK & TRUST CO.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER TOTAL
--------------------- CAPITAL RETAINED COMPREHENSIVE STOCKHOLDERS'
SHARES PAR VALUE SURPLUS EARNINGS INCOME (LOSS) EQUITY
-------- ---------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997..... 300,000 $1,500,000 $1,491,771 $2,240,698 $ 37,027 $5,269,496
Net income................... -- -- -- 692,642 -- 692,642
Stock split, three-for-two... 150,000 750,000 (750,000) -- -- --
Dividend declared $.50....... -- -- -- (150,000) -- (150,000)
Other comprehensive income... -- -- -- -- 19,566 19,566
------- ---------- ---------- ---------- --------- ----------
BALANCE, DECEMBER 31, 1998..... 450,000 2,250,000 741,771 2,783,340 56,593 5,831,704
Net income................... -- -- -- 860,393 -- 860,393
Dividend declared $.35....... -- -- -- (157,500) -- (157,500)
Other comprehensive loss..... -- -- -- -- (319,884) (319,884)
------- ---------- ---------- ---------- --------- ----------
BALANCE, DECEMBER 31, 1999..... 450,000 $2,250,000 $ 741,771 $3,486,233 $(263,291) $6,214,713
======= ========== ========== ========== ========= ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-47
<PAGE>
WALTON BANK & TRUST CO.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................ $ 860,393 $ 692,642
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation............................................ 76,079 66,964
Provision for loan losses............................... 65,000 262,745
Deferred income taxes................................... (37,130) (33,049)
Increase in interest receivable......................... (78,165) (89,543)
Increase in interest payable............................ 21,591 24,337
Increase (decrease) in taxes payable.................... 139,966 (49,242)
Other operating activities.............................. 79,141 50,300
----------- -----------
Net cash provided by operating activities............. 1,126,875 925,154
----------- -----------
INVESTING ACTIVITIES
Purchases of securities available-for-sale................ (4,561,107) (7,374,967)
Proceeds from maturities of securities
available-for-sale...................................... 1,962,890 5,153,953
Proceeds from maturities of securities held-to-maturity... 114,823 396,053
Net (increase) decrease in Federal funds sold............. 3,450,000 (2,490,000)
Net increase in loans..................................... (6,270,833) (5,262,707)
Purchase of premises and equipment........................ (189,325) --
Net proceeds from disposals of premises and equipment..... 24,525 (24,640)
----------- -----------
Net cash used in investing activities................. (5,469,027) (9,602,308)
----------- -----------
FINANCING ACTIVITIES
Increase in deposits...................................... 5,146,141 8,416,037
Dividends paid............................................ (157,500) (150,000)
----------- -----------
Net cash provided by financing activities............. 4,988,641 8,266,037
----------- -----------
Net increase (decrease) in cash and due from banks.......... 646,489 (411,117)
Cash and due from banks at beginning of year................ 1,226,687 1,637,804
----------- -----------
Cash and due from banks at end of year...................... $ 1,873,176 $ 1,226,687
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest................................................ $ 1,749,635 $ 1,620,636
Income taxes............................................ 351,129 394,459
NONCASH TRANSACTION
Unrealized (gains) losses on securities
available-for-sale...................................... 507,753 (31,056)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-48
<PAGE>
WALTON BANK & TRUST CO.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Walton Bank & Trust Company (the "Bank") is a commercial bank located in
Monroe, Walton County, Georgia with one branch located in Walnut Grove, Georgia.
The Bank provides a full range of banking services in its primary market area of
Walton County and surrounding counties.
BASIS OF PRESENTATION
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities as of the balance sheet date
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Material estimates that are
particularly susceptible to significant change in the near term relate to the
determination of the allowance for loan losses and deferred tax assets.
CASH AND DUE FROM BANKS
Cash on hand, cash items in process of collection, and amounts due from
banks are included in cash and due from banks.
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.
SECURITIES
Securities are classified based on management's intention on the date of
purchase. Securities which management has the intent and ability to hold to
maturity are classified as held-to-maturity and recorded at amortized cost. All
other securities are classified as available-for-sale and recorded at fair value
with net unrealized gains and losses reported in other comprehensive income
(loss).
Interest on securities, including amortization of premiums and accretion of
discounts, are included in interest income. Realized gains and losses from the
sale of securities are determined using the specific identification method.
LOANS
Loans are reported at their outstanding principal balances less unearned
interest and fees and the allowance for loan losses. Interest income is accrued
based on the principal balance outstanding.
Loan origination fees and direct costs of most loans are recognized at the
time the loan is recorded. Loan origination fees and costs incurred for other
loans are deferred and recognized as income over the life of the loan. Because
net origination loan fees and costs are not material, the results of operations
are not materially different than the results which would be obtained by
accounting for all loan fees and costs in accordance with generally accepted
accounting principles.
The accrual of interest on loans is discontinued when, in management's
opinion, the borrower may be unable to meet payments as they become due and for
all loans past due greater than ninety days. Interest income is subsequently
recognized only to the extent cash payments exceed the outstanding principal
balance or when the loan is returned to accrual status.
F-49
<PAGE>
WALTON BANK & TRUST CO.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The allowance for loan losses is maintained at a level that management
believes to be adequate to absorb potential losses in the loan portfolio. Loan
losses are charged against the allowance when management believes the
uncollectibility of a loan is confirmed. Subsequent recoveries are credited to
the allowance. Management's determination of the adequacy of the allowance is
based on an evaluation of the portfolio, past loan loss experience, current
economic conditions, volume, growth, composition of the loan portfolio, and
other risks inherent in the portfolio. This evaluation is inherently subjective
as it requires material estimates that are susceptible to significant change
including the amounts and timing of future cash flows expected to be received on
impaired loans. 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.
A loan is considered impaired when it is probable the Bank will be unable to
collect all principal and interest payments due in accordance with the
contractual terms of the loan agreement. Individually identified impaired loans
are measured based on the present value of expected payments, using the
contractual loan rate as the discount rate, the loan's observable market price
or the fair value of the collateral if the loan is collateral dependent. If the
recorded investment in the impaired loan exceeds the measure of fair value, a
valuation allowance is established as a component of the allowance for loan
losses. Changes to the valuation allowance are recorded as a component of the
provision for loan losses.
PREMISES AND EQUIPMENT
Land is carried at cost. Premises and equipment are carried at cost less
accumulated depreciation computed principally by the straight-line method over
the estimated useful lives of the assets.
INCOME TAXES
Income tax expense consists of current and deferred taxes. Current income
tax provisions approximate taxes to be paid or refunded for the applicable year.
Deferred income tax assets and liabilities are determined using the balance
sheet method. Under this method, the net deferred tax asset or liability is
determined based on the tax effects of the differences between the book and tax
bases of the various balance sheet assets and liabilities and gives current
recognition to changes in tax rates and laws.
Recognition of deferred tax balance sheet amounts is based on management's
belief that it is more likely than not that the tax benefit associated with
certain temporary differences will be realized. A valuation allowance would be
recorded for those deferred tax items for which it is more likely than not that
realization would not occur.
EARNINGS PER SHARE
Basic earnings per share are computed by dividing net income by the
weighted- average number of shares of common stock outstanding. Diluted earnings
per share are computed by dividing net income by the sum of the weighted-average
number of shares of common stock outstanding and potential common shares.
Potential common shares consist of stock options.
F-50
<PAGE>
WALTON BANK & TRUST CO.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE INCOME
Statement of Financial Accounting Standards ("SFAS") No. 130 describes
comprehensive income as the total of all components of comprehensive income,
including net income. Other comprehensive income refers to revenues, expenses,
gains and losses that under generally accepted accounting principles are
included in comprehensive income but excluded from net income. Currently, the
Bank's other comprehensive income consists of unrealized gains and losses on
available-for-sale securities.
RECENT DEVELOPMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". The effective
date of this statement has been deferred by SFAS No. 137 until fiscal years
beginning after June 15, 2000. However, the statement permits early adoption as
of the beginning of any fiscal quarter after its issuance. The Bank expects to
adopt this statement effective January 1, 2001. SFAS No. 133 requires the Bank
to recognize all derivatives as either assets or liabilities in the balance
sheet at fair value. For derivatives that are not designated as hedges, the gain
or loss must be recognized in earnings in the period of change. For derivatives
that are designated as hedges, changes in the fair value of the hedged assets,
liabilities, or firm commitments must be recognized in earnings or recognized in
other comprehensive income until the hedged item is recognized in earnings,
depending on the nature of the hedge. The ineffective portion of a derivative's
change in fair value must be recognized in earnings immediately. Management has
not yet determined what effect the adoption of SFAS No. 133 will have on the
Bank's earnings or financial position.
There are no other recent accounting pronouncements that have had, or are
expected to have, a material effect on the Bank's financial statements.
F-51
<PAGE>
WALTON BANK & TRUST CO.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. SECURITIES
The amortized cost and fair value of securities are summarized 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, 1999:
U. S. GOVERNMENT AND AGENCY SECURITIES...... $10,956,987 $ 1,293 $(372,351) $10,585,929
STATE AND MUNICIPAL SECURITIES.............. 1,081,063 -- (49,729) 1,031,334
MORTGAGE-BACKED SECURITIES.................. 904,775 6,256 (3,392) 907,639
----------- ------- --------- -----------
$12,942,825 $ 7,549 $(425,472) $12,524,902
=========== ======= ========= ===========
December 31, 1998:
U. S. Government and agency securities...... $ 8,653,713 $66,080 $ (9,731) $ 8,710,062
State and municipal securities.............. 420,835 18,680 -- 439,515
Mortgage-backed securities.................. 1,270,060 14,801 -- 1,284,861
----------- ------- --------- -----------
$10,344,608 $99,561 $ (9,731) $10,434,438
=========== ======= ========= ===========
SECURITIES HELD-TO-MATURITY
DECEMBER 31, 1999:
STATE AND MUNICIPAL SECURITIES.............. $ 686,282 $13,091 $ (1,893) $ 697,480
=========== ======= ========= ===========
December 31, 1998:
State and municipal securities.............. $ 801,105 $59,452 $ -- $ 860,556
=========== ======= ========= ===========
</TABLE>
Securities with a carrying value of $1,458,000 and $1,220,090 at
December 31, 1999 and 1998, respectively, were pledged to secure public deposits
and for other purposes.
There were no gains or losses on sales of securities available-for-sale
during 1999 or 1998.
The amortized cost and fair value of debt securities as of December 31, 1999
by contractual maturity are shown below. Maturities may differ from contractual
maturities of mortgage-backed securities because the mortgages underlying the
securities may be called or prepaid with or without penalty. Therefore, these
securities are not included in the maturity categories in the following summary.
<TABLE>
<CAPTION>
SECURITIES AVAILABLE-FOR-SALE SECURITIES HELD-TO-MATURITY
------------------------------- ---------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
----------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
Due from one to five years............ $ 9,137,881 $ 8,838,048 $ 98,625 $100,009
Due from five to ten years............ 2,449,364 2,356,398 587,657 597,471
Due after ten years................... 450,805 422,817 -- --
Mortgage-backed securities............ 904,775 907,639 -- --
----------- ----------- -------- --------
$12,942,825 $12,524,902 $686,282 $697,480
=========== =========== ======== ========
</TABLE>
F-52
<PAGE>
WALTON BANK & TRUST CO.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of loans is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Commercial, financial and agricultural..... $ 4,157,000 $ 4,588,000
Real estate--construction.................. 10,610,000 6,337,000
Real estate--mortgage...................... 18,261,000 16,294,000
Consumer and other......................... 4,534,787 4,009,876
----------- -----------
37,562,787 31,228,876
Unearned interest and fees................. (105,598) (33,402)
Allowance for loan losses.................. (426,134) (370,252)
----------- -----------
Loans, net............................. $37,031,055 $30,825,222
=========== ===========
</TABLE>
Changes in the allowance for loan losses for the years ended December 31,
1999 and 1998 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
-------- ---------
<S> <C> <C>
Balance, beginning of year..................... $370,252 $ 334,719
Provision for loan losses.................... 65,000 262,745
Loans charged off............................ (36,331) (239,839)
Recoveries................................... 27,213 12,627
-------- ---------
Balance, end of year........................... $426,134 $ 370,252
======== =========
</TABLE>
The following is a summary of information pertaining to impaired loans:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Impaired loans without a valuation allowance...... $4,339 $136,506
Impaired loans with a valuation allowance......... -- --
------ --------
Total impaired loans.......................... $4,339 $136,506
====== ========
Valuation allowance related to impaired loans..... $ -- $ --
====== ========
Average investment in impaired loans.............. $4,579 $156,876
====== ========
</TABLE>
The Bank has granted loans to related parties including directors, executive
officers, and their related entities. 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. Changes in related
party loans for the year ended December 31, 1999 are as follows:
<TABLE>
<S> <C>
Balance, beginning of year.............................. $ 1,141,691
Advances.............................................. 1,346,707
Repayments............................................ (1,107,365)
-----------
Balance, end of year.................................... $ 1,381,033
===========
</TABLE>
F-53
<PAGE>
WALTON BANK & TRUST CO.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Land......................................... $ 180,476 $ 180,476
Buildings.................................... 747,778 747,778
Equipment.................................... 520,379 363,806
---------- ----------
1,448,633 1,292,060
Accumulated depreciation..................... (637,851) (569,999)
---------- ----------
$ 810,782 $ 722,061
========== ==========
</TABLE>
NOTE 5. DEPOSITS
At December 31, 1999, the scheduled maturities of time deposits are as
follows:
<TABLE>
<S> <C>
2000........................................................ $24,162,099
2001........................................................ 5,808,334
2002........................................................ 433,798
2003........................................................ 982,407
2004........................................................ 457,687
-----------
$31,844,325
===========
</TABLE>
NOTE 6. EMPLOYEE BENEFIT PLANS
STOCK OPTION PLAN
The Bank has a stock option plan with 45,000 shares of common stock being
reserved for options to key employees. The option price of an incentive stock
option shall not be less than the fair market value of the stock as of the date
of grant, and the option price of a non-incentive stock option shall not be less
than 80% of the fair market value of the stock as of the date of grant. The
exercise period for those options granted is determined by the Board of
Directors, but in no instance shall such period exceed ten years from the date
of grant. The Board of Directors have the authority to prescribe in any stock
option agreement that the options may be exercised only in accordance with an
accrual schedule.
F-54
<PAGE>
WALTON BANK & TRUST CO.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. EMPLOYEE BENEFIT PLANS (CONTINUED)
Other pertinent information related to the options is as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------- --------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
NUMBER PRICE NUMBER PRICE
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Under option, beginning of year.................. 19,500 $ 7.91 18,000 $ 7.49
Granted.......................................... 6,500 13.39 1,500 12.95
------ ------
Under option, end of year........................ 26,000 9.28 19,500 7.91
====== ======
Options exercisable at year-end.................. 16,800 7.55 16,800 7.55
Weighted-average fair value of options granted
during the year................................ 3.51 3.25
</TABLE>
Information pertaining to options outstanding at December 31, 1999 is as
follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- -----------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
------------------------ ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$6.67--$8.98..................... 16,500 4.3 years $ 7.11 15,150 $ 7.04
$11.71--$13.26................... 9,500 9.3 years 13.05 1,650 12.27
------ ------
Outstanding at end of year....... 26,000 6.1 years 9.28 16,800 7.55
====== ======
</TABLE>
The Bank applies APB Opinion 25 and related Interpretations in accounting
for the stock option plan. Accordingly, no compensation cost has been
recognized. Had compensation cost for the stock option plan been determined
based on the fair value at the grant dates for awards under the plan consistent
with the method prescribed by FASB Statement No. 123, net income and earnings
per share would have been adjusted to the pro forma amounts indicated below.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C> <C>
Net income As reported...................................... $860,393 $692,642
Pro forma........................................ $846,236 $689,624
Earnings per share As reported...................................... $ 1.91 $ 1.54
Pro forma........................................ $ 1.88 $ 1.53
Earnings per share-- As reported...................................... $ 1.90 $ 1.52
assuming dilution Pro forma........................................ $ 1.86 $ 1.51
</TABLE>
F-55
<PAGE>
WALTON BANK & TRUST CO.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. EMPLOYEE BENEFIT PLANS (CONTINUED)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999
------------
<S> <C>
Dividend yield.......................................... 2.5%
Expected life........................................... 10 years
Expected volatility..................................... .01%
Risk-free interest rate................................. 6.86%
</TABLE>
PROFIT SHARING PLAN
The Bank has a contributory 401(k) Employee Savings plan available to all
eligible employees, subject to certain minimum age and service requirements. The
Bank contributed $27,634 and $18,842 to the plan for the years ended
December 31, 1999 and 1998, respectively.
NOTE 7. INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
----------------------
1999 1998
-------- --------
<S> <C> <C>
Current........................................ $491,095 $345,217
Deferred....................................... (37,130) (33,049)
-------- --------
Income tax expense........................... $453,965 $312,168
======== ========
</TABLE>
The Bank's income tax expense 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>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1999 1998
------------------- -------------------
AMOUNT PERCENT AMOUNT PERCENT
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Income taxes at statutory rate....... $446,882 34% $341,637 34%
State income tax................... 28,591 2 20,814 2
Tax exempt income.................. (26,966) (2) (21,050) (2)
Other items, net................... 5,458 -- (29,233) (3)
-------- -- -------- --
Income tax expense................... $453,965 34% $312,168 31%
======== == ======== ==
</TABLE>
F-56
<PAGE>
WALTON BANK & TRUST CO.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. INCOME TAXES (CONTINUED)
The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
DEFERRED TAX ASSETS:
Allowance for loan losses............................. $126,458 $105,368
Securities available-for-sale......................... 154,632 --
-------- --------
281,090 105,368
-------- --------
DEFERRED TAX LIABILITIES:
Accrual to cash adjustment for income tax reporting
purposes............................................ 111,335 129,965
Depreciation.......................................... 11,631 9,041
Securities available-for-sale......................... -- 33,237
-------- --------
122,966 172,243
-------- --------
NET DEFERRED TAX ASSETS (LIABILITIES)............... $158,124 $(66,875)
======== ========
</TABLE>
NOTE 8. EARNINGS PER SHARE
Diluted earnings per share were computed by dividing net income by the
weighted average number of shares of common stock and common stock equivalents
outstanding. The number of common shares was increased by the number of shares
issuable upon the exercise of the stock options described in Note 6. This
theoretical increase in the number of common shares was reduced by the number of
common shares which are assumed to have been repurchased for the treasury with
the proceeds from the exercise of the options; these purchases were assumed to
have been made at the price per share that approximates average market price.
The treasury stock method for determining the amount of dilution of stock
options is based on the concept that common shares which could have been
purchased with the proceeds of the exercise of common stock options at market
price are not actually outstanding common shares.
Presented below is a summary of the components used to calculate basic and
diluted earnings per share for the years ended December 31, 1999 and 1998.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net income.................................................. $860,393 $692,642
======== ========
Weighted average common shares outstanding.................. $450,000 $450,000
Net effect of the assumed exercise of stock options based on
the treasury stock method using average market price for
the year.................................................. 3,810 7,066
-------- --------
Total weighted average common shares and common stock
equivalents outstanding................................... 453,810 457,066
======== ========
Diluted earnings per share.................................. $ 1.90 $ 1.52
======== ========
</TABLE>
F-57
<PAGE>
WALTON BANK & TRUST CO.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. 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.
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. A summary of the Bank's commitments is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Commitments to extend credit......................... $9,675,285 $2,894,691
Standby letters of credit............................ 184,460 334,939
---------- ----------
$9,859,745 $3,229,630
========== ==========
</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, crops, 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 loans to customers. Collateral held varies as
specified above and is required in instances which the Bank deems necessary.
In the normal course of business, the Bank is involved in various legal
proceedings. In the opinion of management for the Bank, any liability resulting
from such proceedings would not have a material effect on the Bank's financial
statements.
NOTE 10. CONCENTRATIONS OF CREDIT
The Bank originates primarily commercial, residential and consumer loans to
customers in the Walton County area and surrounding counties. The ability of the
majority of the Bank's customers to honor their contractual loan obligations is
dependent on the local and metro Atlanta economies.
Seventy-seven percent of the Bank's loan portfolio is concentrated in loans
secured by real estate, of which twenty-eight percent consists of construction
loans. A substantial portion of these loans are secured by real estate in the
Bank's primary market area. Accordingly, the ultimate collectibility of the loan
portfolio is susceptible to changes in market conditions in the Bank's primary
market area. The other significant concentrations of credit by type of loan are
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 statutory
capital, or approximately $1,000,000.
F-58
<PAGE>
WALTON BANK & TRUST CO.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. REGULATORY MATTERS
The Bank is subject to certain restrictions on the amount of dividends that
may be declared without prior regulatory approval. The Bank has appropriated
retained earnings of $1,007,050 that cannot be used for payment of dividends. At
December 31, 1999, approximately $430,000 of retained earnings were available
for dividend declaration without regulatory approval.
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory, and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices. The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of Total and Tier I
capital to risk-weighted assets and of Tier I capital to average assets.
Management believes, as of December 31, 1999, the Bank met all capital adequacy
requirements to which it is subject.
At December 31, 1999, the most recent notification from the Federal Deposit
Insurance Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Bank must maintain minimum Total risk-based, Tier I risk-based,
and Tier I leverage ratios as set forth in the following table. There are no
conditions or events since that notification that management believes have
changed the Bank's category.
The Bank's actual capital amounts and ratios at December 31, 1999 and 1998
are presented in the following table.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
UNDER PROMPT
FOR CAPITAL CORRECTIVE
ADEQUACY ACTION
ACTUAL PURPOSES PROVISIONS
------------------- ------------------- -------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1999:
TOTAL CAPITAL TO RISK WEIGHTED ASSETS.......... $6,904 18.29% $3,020 8% $3,775 10%
TIER I CAPITAL TO RISK WEIGHTED ASSETS......... $6,478 17.16% $1,510 4% $2,265 6%
TIER I CAPITAL TO AVERAGE ASSETS............... $6,478 11.78% $2,200 4% $2,751 5%
As of December 31, 1998:
Total Capital to Risk Weighted Assets.......... $6,146 19.20% $2,561 8% $3,201 10%
Tier I Capital to Risk Weighted Assets......... $5,775 18.04% $1,281 4% $1,921 6%
Tier I Capital to Average Assets............... $5,775 11.94% $1,935 4% $2,419 5%
</TABLE>
F-59
<PAGE>
WALTON BANK & TRUST CO.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 12. SUPPLEMENTAL FINANCIAL DATA
Components of other operating expenses in excess of 1% of total revenue are
as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Stationary and supplies................................... $54,542 $51,300
Data processing........................................... 59,607 97,724
</TABLE>
NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Bank in estimating
its fair value disclosures for financial instruments. In cases where quoted
market prices are not available, fair values are based on estimates using
discounted cash flow models. Those models are significantly affected by the
assumptions used, including the discount rates and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. The use of different methodologies
may have a material effect on the estimated fair value amounts. Also, the fair
value estimates presented herein are based on pertinent information available to
management as of December 31, 1999 and 1998. Such amounts have not been revalued
for purposes of these financial statements since those dates and, therefore,
current estimates of fair value may differ significantly from the amounts
presented herein.
CASH, DUE FROM BANKS, AND FEDERAL FUNDS SOLD:
The carrying amounts of cash, due from banks, and Federal funds sold
approximate their fair value.
SECURITIES:
Fair values for securities are based on available quoted market prices.
LOANS:
For variable-rate loans that reprice frequently and have no significant
change in credit risk, fair values are based on carrying values. For other
loans, the fair values are estimated using discounted cash flow models, using
current market interest rates offered for loans with similar terms to borrowers
of similar credit quality. Fair values for impaired loans are estimated using
discounted cash flow models or based on the fair value of the underlying
collateral.
DEPOSITS:
The carrying amounts of demand deposits, savings deposits, and variable-rate
certificates of deposit approximate their fair values. Fair values for
fixed-rate certificates of deposit are estimated using discounted cash flow
models, using current market interest rates offered on certificates with similar
remaining maturities.
F-60
<PAGE>
WALTON BANK & TRUST CO.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
ACCRUED INTEREST:
The carrying amounts of accrued interest approximate their fair values.
OFF-BALANCE-SHEET INSTRUMENTS:
Fair values of the Bank's off-balance sheet financial instruments are based
on fees charged to enter into similar agreements. However, commitments to extend
credit and standby letters of credit do not represent a significant value to the
Bank until such commitments are funded. The Bank has determined that these
instruments do not have a distinguishable fair value and no fair value has been
assigned.
The estimated fair values and related carrying amounts of the Bank's
financial instruments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1999 1998
------------------------- -------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Financial assets:
Cash, due from banks and Federal funds
sold.................................. $ 2,853,176 $ 2,853,176 $ 5,656,687 $ 5,656,687
Securities.............................. 13,211,184 12,922,382 11,235,543 11,295,004
Loans................................... 37,031,055 37,426,658 30,825,222 31,560,541
Accrued interest receivable............. 517,795 517,795 439,630 439,630
Financial liabilities:
Deposits................................ 48,024,991 47,977,194 42,878,850 42,901,913
Accrued interest payable................ 191,722 191,722 170,131 170,131
</TABLE>
NOTE 14. STOCK SPLIT
On February 17, 1998, the Bank declared a three-for-two common stock split
payable on or after March 3, 1998 to shareholders of record on March 2, 1998.
The number of shares outstanding after the split was 450,000. An amount equal to
the par value of common stock declared was transferred from capital surplus to
common stock.
F-61
<PAGE>
APPENDIX A TO JOINT
PROXY STATEMENT/PROSPECTUS
<PAGE>
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
WALTON BANK & TRUST CO.
("WBT")
FIRST STERLING BANKS, INC.
("FSLB")
AND
MAIN STREET BANK
("MSB")
SEPTEMBER 26, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<C> <C> <S> <C>
1. MERGER.......................................................... 1
1.1 FSLB-SUB MERGER INTO WBT.................................... 1
1.2 EFFECTIVE DATE OF THE MERGER................................ 1
1.3 MANAGEMENT OF THE RESULTING INSTITUTION..................... 2
2. MANNER AND BASIS OF CONVERTING SHARES OF STOCK.................. 2
2.1 CONVERSION OF SHARES........................................ 2
2.2 WBT STOCK OPTIONS AND RELATED MATTERS....................... 2
2.3 SHARES HELD BY FSLB OR WBT.................................. 3
2.4 FRACTIONAL SHARES........................................... 3
2.5 SURRENDER OF STOCK CERTIFICATES............................. 4
2.6 NO INTEREST................................................. 4
3. OTHER ACKNOWLEDGEMENTS, AGREEMENTS, ETC......................... 4
3.1 MATERIAL.................................................... 4
3.2 MATERIAL ADVERSE EFFECT OR CHANGE........................... 4
3.3 ACCESS, INFORMATION AND DOCUMENTS........................... 5
3.4 REGISTRATION STATEMENT; WBT SHAREHOLDERS' MEETING........... 6
3.5 CONFIDENTIAL INFORMATION.................................... 6
3.6 FULL COOPERATION............................................ 6
3.7 APPLICATIONS................................................ 6
3.8 PUBLIC ANNOUNCEMENTS AND DISCLOSURES........................ 6
3.9 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.................... 7
3.10 AGREEMENT AS TO EFFORTS TO CONSUMMATE....................... 7
3.11 ACCOUNTING AND TAX TREATMENT................................ 7
3.12 KNOWLEDGE................................................... 7
4. REPRESENTATIONS AND WARRANTIES OF WBT........................... 7
4.1 WBT SCHEDULE................................................ 7
4.2 CORPORATE ORGANIZATION...................................... 7
4.3 AUTHORIZED CAPITAL STOCK; SUBSIDIARIES...................... 7
4.4 QUALIFICATION AS A FOREIGN CORPORATION NOT REQUIRED......... 8
4.5 AUTHORIZATION............................................... 8
4.6 NON-CONTRAVENTION........................................... 8
4.7 FINANCIAL STATEMENTS........................................ 8
4.8 NOTES AND OBLIGATIONS....................................... 8
4.9 LIABILITIES................................................. 9
4.10 INVESTMENTS................................................. 9
4.11 TAXES....................................................... 9
4.12 LITIGATION.................................................. 9
4.13 REGULATORY FILINGS.......................................... 10
4.14 GENERAL LEGAL COMPLIANCE.................................... 10
4.15 PROPERTIES; ENVIRONMENTAL................................... 10
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<C> <C> <S> <C>
4.16 INSURANCE................................................... 11
4.17 BROKER...................................................... 11
4.18 TRADEMARKS.................................................. 11
4.19 SOLE AGREEMENT TO MERGE OR SELL............................. 11
4.20 INSIDER CONTRACTS........................................... 12
4.21 EMPLOYEE BENEFIT PLANS...................................... 12
4.22 ARTICLES AND BYLAWS......................................... 14
4.23 BOOKS AND RECORDS........................................... 14
4.24 ABSENCE OF CHANGES.......................................... 14
5. REPRESENTATIONS AND WARRANTIES OF FSLB AND MSB.................. 15
5.1 CORPORATE ORGANIZATION...................................... 15
5.2 AUTHORIZED CAPITAL STOCK.................................... 15
5.3 QUALIFICATION AS A FOREIGN CORPORATION NOT REQUIRED......... 16
5.4 AUTHORIZATION............................................... 16
5.5 NON-CONTRAVENTION........................................... 16
5.6 FINANCIAL STATEMENTS........................................ 16
5.7 SEC FILINGS................................................. 16
5.8 ABSENCE OF UNDISCLOSED LIABILITIES.......................... 17
5.9 LEGAL PROCEEDINGS........................................... 17
5.10 REGULATORY FILINGS.......................................... 17
5.11 GENERAL LEGAL COMPLIANCE.................................... 17
5.12 BROKER...................................................... 17
5.13 ABSENCE OF CHANGES.......................................... 17
6. COVENANTS OF WBT................................................ 18
6.1 CONDUCT OF BUSINESS......................................... 18
6.2 CAPITAL STOCK, ARTICLES AND BYLAWS.......................... 18
6.3 APPROVAL OF WBT SHAREHOLDERS................................ 19
6.4 PROXY MATERIALS............................................. 19
6.5 NOTICE OF BREACH............................................ 19
6.6 SOLE AGREEMENT TO MERGE OR SELL............................. 19
6.7 REPORTS..................................................... 19
6.8 AFFILIATES.................................................. 19
7. COVENANTS OF FSLB AND MSB....................................... 20
7.1 CONDUCT OF BUSINESS......................................... 20
7.2 APPROVAL OF MSB SHAREHOLDER................................. 20
7.3 NOTICE OF BREACH............................................ 20
7.4 SOLE AGREEMENT TO MERGE OR SELL............................. 20
7.5 REPORTS..................................................... 20
7.6 INDEMNITY................................................... 21
7.7 EMPLOYEE BENEFITS........................................... 21
7.8 EXCHANGE LISTING............................................ 22
8. CONDITIONS TO OBLIGATIONS OF WBT................................ 22
8.1 REPRESENTATIONS AND COVENANTS COMPLIANCE.................... 22
8.2 NO CHANGE IN CONDITION...................................... 22
8.3 CLOSING CERTIFICATE AND OTHER DOCUMENTS..................... 22
8.4 LEGAL OPINION............................................... 22
8.5 NO LEGAL ACTION............................................. 22
8.6 FAIRNESS OPINION............................................ 22
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<C> <C> <S> <C>
9. CONDITIONS TO OBLIGATIONS OF FSLB AND MSB....................... 22
9.1 REPRESENTATIONS AND COVENANTS COMPLIANCE.................... 22
9.2 NO CHANGE IN CONDITION...................................... 22
9.3 CLOSING CERTIFICATE AND OTHER DOCUMENTS..................... 22
9.4. LEGAL OPINION............................................... 22
9.5 NO LEGAL ACTION............................................. 23
10. CONDITIONS TO OBLIGATIONS OF BOTH PARTIES....................... 23
10.1 GOVERNMENT APPROVAL......................................... 23
10.2 SHAREHOLDER APPROVAL........................................ 23
10.3 REGISTRATION STATEMENT AND NASDAQ LISTING................... 23
10.4 DISSENTING SHARES........................................... 23
10.5 POOLING LETTERS............................................. 23
10.6 TAX MATTERS................................................. 23
11. ACQUISITION OF DISSENTERS' STOCK................................ 23
11.1 DISSENTING SHAREHOLDERS..................................... 23
11.2 NOTICE OF DISSENT........................................... 24
11.3 PURCHASER OF DISSENTERS' STOCK.............................. 24
12. CLOSING......................................................... 24
12.1 CLOSING..................................................... 24
12.2 NON-SURVIVAL OF REPRESENTATIONS AND COVENANTS............... 24
13. TERMINATION..................................................... 24
13.1 TERMINATION................................................. 24
13.2 PROCEDURE AND EFFECT OF TERMINATION; EXPENSES............... 24
14. MISCELLANEOUS................................................... 25
14.1 AMENDMENT................................................... 25
14.2 WAIVER...................................................... 25
14.3 ENTIRE AGREEMENT............................................ 25
14.4 NOTICES..................................................... 25
14.5 ASSIGNMENT.................................................. 26
14.6 SEVERABILITY................................................ 26
14.7 COUNTERPARTS................................................ 26
14.8 HEADINGS.................................................... 26
14.9 GOVERNING LAW............................................... 26
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and entered into
effective as of the 26th day of September, 2000 by and among the WALTON BANK &
TRUST CO. ("WBT"), a Georgia banking corporation, FIRST STERLING BANKS, INC.
("FSLB"), a Georgia corporation, and MAIN STREET BANK ("MSB"), a Georgia banking
corporation and a wholly-owned subsidiary of FSLB (WBT, FSLB and MSB 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 FSLB consists of 50,000,000 shares
of common stock, no par value ("FSLB Stock"), of which 13,869,552 shares are
issued and outstanding;
WHEREAS, MSB is a wholly-owned subsidiary of FSLB and its authorized capital
stock consists of 370,000 shares of common stock, $10.00 par value ("MSB
Stock"), of which 339,800 shares are issued and outstanding;
WHEREAS, the authorized capital stock of WBT consists of 1,000,000 shares of
common stock, $5.00 par value ("WBT Stock"), of which 450,000 shares are issued
and outstanding;
WHEREAS, WBT has 26,000 shares of its common stock subject to the WBT Stock
Option Plan;
WHEREAS, the Boards of Directors of each Party deem it advisable and in the
best interests of such Party and its respective shareholders that WBT and MSB
merge on the basis set forth in this Agreement (the "Merger"), with MSB being
the surviving and resulting corporation arising from such merger, under the name
"Main Street Bank." (MSB, as the resulting institution, is occasionally referred
to herein as the "Resulting Institution");
WHEREAS, FSLB as the sole shareholder of MSB, will deliver or cause to be
delivered, to the shareholders and option holders of WBT the consideration to be
exchanged pursuant to the Merger in accordance with the terms of this Agreement;
WHEREAS, the Board of Directors of WBT and MSB have approved and adopted
this Agreement and directed that it be submitted to their respective
shareholders for approval;
WHEREAS, it is the intention of the Parties to this Agreement that the
merger of WBT into MSB (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:
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 WBT
Stock into FSLB Stock, as hereinafter provided, and such other provisions
relating to the Merger as the Parties deem necessary or desirable, the Parties
hereto agree as follows:
1. MERGER.
1.1 WBT MERGER INTO MSB. Pursuant to the applicable provisions of the
Financial Institutions Code of Georgia ("Financial Institutions Code"), other
provisions of law and on the terms and conditions set forth herein, WBT shall be
merged with and into MSB. MSB shall be the Resulting Institution. The name of
the Resulting Institution shall be "Main Street Bank." The Articles of
Incorporation and Bylaws of MSB shall be the same as in effect immediately prior
to the Merger and shall remain in effect thereafter until amended by the
Resulting Institution.
A-1
<PAGE>
1.2 EFFECTIVE DATE OF THE MERGER. Subject to compliance with the various
conditions and requirements of this Agreement, 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 Financial Institutions Code.
1.3 MANAGEMENT OF THE RESULTING INSTITUTION.
1.3.1 BOARD OF DIRECTORS. On the Effective Date, the Board of
Directors of the Resulting Institution shall consist of ten (10) directors
each to hold office for a term expiring at the next succeeding annual
meeting of the shareholders of the Resulting Institution, and until their
successors have been elected and qualified. The initial members of the Board
of Directors of the Resulting Institution, are as follows:
Eugene L. Argo, Robert R. Fowler, III, Samuel B. Hay, III, P. Harris
Hines, Harry L. Hudson, Jr., C. Chandler Hunt, Edward C. Milligan,
Joseph K. Strickland, Jr., Frank B. Turner and Hugh B. Williamson, III.
Mr. Hugh B. Williamson, III shall become a member of the Board of
Directors of the Resulting Institution for a minimum period of five
(5) years and FSLB shall vote its shares of common stock and equivalents in
favor of such election. This covenant shall survive the Effective Date.
1.3.2 CERTAIN OFFICERS; DIRECTORS. Mr. W. Morris Jordan shall be
employed as the Executive Vice President of MSB and as Chief Executive
Officer of the Walton County Banking Region of MSB (including Loganville,
Georgia). He shall have an employment contract on the terms set forth in
Exhibit A hereto.
2. MANNER AND BASIS OF CONVERTING SHARES OF STOCK.
2.1 CONVERSION OF SHARES. Subject to the provisions of this Section 2, at
the time the Merger is consummated (the "Effective Time"), by virtue of the
Merger and without any action on the part of MSB or WBT or the shareholders of
either of the foregoing, the shares of the constituent corporations shall be
converted as follows:
(a) Each share of MSB Stock issued and outstanding immediately prior to
the Effective Time shall be continue to be issued and outstanding following
the Merger.
(b) Each share of WBT Stock issued and outstanding immediately prior to
the Effective Time, excluding shares held by FSLB or WBT or any wholly-owned
subsidiary of either of them, in each case other than in a fiduciary
capacity or as a result of debts previously contracted and shares held by
shareholders who have protected dissenters' rights of appraisal under the
applicable provisions (the "Dissenter's Provisions") of the Financial
Institutions Code and the Georgia Business Corporation Code ("Corporation
Code"), shall cease to be outstanding and shall be converted into and
exchanged for 2.752 shares of FSLB Stock (the "Conversion Ratio"). The
Conversion Ratio, including the number of FSLB Stock issuable in the Merger,
shall be subject to an appropriate adjustment in the event of any stock
split, reverse stock split, dividend payable in FSLB Stock, reclassification
or similar distribution whereby FSLB issues FSLB Stock or any securities
convertible into or exchangeable for FSLB Stock without receiving any
consideration in exchange therefor, provided that the record date of such
transaction is a date after the date of this Agreement and prior to the
Effective Date.
2.2 WBT STOCK OPTIONS AND RELATED MATTERS.
(a) As of the Effective Time, all rights with respect to the WBT Stock
issuable pursuant to the exercise of stock options ("WBT Options") granted
by WBT under stock option plans of WBT (the "WBT Stock Option Plans"), which
are outstanding at the Effective Time of the Merger,
A-2
<PAGE>
whether or not such WBT Options are then exercisable, shall, subject to this
section, be assumed by FSLB in accordance with the terms of the particular
WBT Stock Option Plan under which such WBT Options were issued and the stock
agreement by which such WBT Options are evidenced. From and after the
Effective Time of the Merger, (i) each WBT Option assumed by FSLB hereunder
may be exercised solely for FSLB Stock, (ii) the number of FSLB Stock
subject to such WBT Option shall be equal to the number of shares of WBT
Stock subject to such WBT Option immediately prior to the Effective Time
multiplied by the Conversion Ratio, and (iii) the per share exercise price
under each such WBT Option shall be adjusted by dividing the per share
exercise price under each WBT Option by the Conversion Ratio and rounding up
to the nearest cent.
(b) At all times after the Effective Time, FSLB shall reserve for
issuance such number of FSLB Stock as shall be necessary to permit the
exercise of WBT Options in the manner contemplated by this Agreement. At or
prior to, or at the election of FSLB within a reasonable time (not to exceed
30 days) after, the Effective Time, FSLB shall file a Registration Statement
on Form S-3 or Form S-8, as the case may be (or any successor or other
appropriate form), with respect to the FSLB Stock subject to the WBT Options
and shall use its best efforts to maintain the effectiveness of such
registration statement or registration statements (and maintain the current
status of the prospectus or prospectuses contained therein) for so long as
any of the WBT Options remain outstanding. FSLB shall make any filings
required under any applicable state securities laws to qualify the FSLB
Stock subject to such WBT Options for resale thereunder.
(c) The number of shares of FSLB Stock subject to the WBT Options to be
assumed by FSLB hereunder and the exercise price thereof shall, from and
after the Effective Time, be subject to appropriate adjustments in the event
of the occurrence of any transaction described in Section 2.1(b) hereof if
the record date with respect to such transaction is on or after the
Effective Time.
(d) It is intended that the foregoing assumption of WBT Options shall
satisfy all the requirements under Section 424(a) of the Code and be
undertaken in a manner that will not constitute a "modification" as defined
in Section 424(h) of the Code as to any stock option which is an incentive
stock option as defined in Section 422 of the Code. All restrictions or
limitations on transfer with respect to WBT Stock awarded under a WBT Stock
Option Plan ("Restricted Stock"), to the extent that such restrictions or
limitations shall not have already lapsed, shall remain in full force and
effect with respect to the FSLB Stock into which such Restricted Stock is
converted pursuant to this Agreement, unless such restrictions arise under
the Securities Act of 1933 (the "1933 Act") and are eliminated by virtue of
the Registration Statement described in Section 3.4 below. Except as
otherwise provided herein, (i) the provisions of the WBT Stock Option Plans
that provide for the issuance or grant of any other interest in respect of
the capital stock of WBT shall be deleted as of the Effective Time of the
Merger and (ii) WBT shall take all reasonable steps to ensure that following
the Effective Time of the Merger no holder of WBT Options shall have any
right thereunder to acquire any equity securities of WBT.
(e) WBT shall use its best efforts to procure from each holder of WBT
Options, and shall deliver to FSLB at the Closing, an executed
acknowledgement of the treatment and disposition of such holder's WBT
Options, as provided for under Section 2.2 of this Agreement.
2.3 SHARES HELD BY FSLB OR WBT. Each of the shares of WBT Stock held by
WBT or FSLB, or any wholly-owned subsidiary of either of them, in each case
other than in a fiduciary capacity or as a result of debts previously contracted
shall be canceled and retired at the Effective Time and no consideration shall
be issued in exchange therefor.
2.4 FRACTIONAL SHARES. Notwithstanding any other provision of this
Agreement, each holder of shares of WBT Stock exchanged pursuant to the Merger
who would otherwise have been entitled to receive a fraction of a share of FSLB
Stock (after taking into account all certificates
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delivered by such holder) shall receive, in lieu thereof, cash (without
interest) in an amount equal to such fractional part of a share of FSLB Stock
multiplied by the market value of one share of FSLB Stock at the Effective Time.
The market value of one share of FSLB Stock at the Effective Time shall be the
average of the last sale prices of such common stock on Nasdaq (as reported by
any authoritative source reasonably selected by FSLB and reasonably acceptable
to WBT) on the ten trading days immediately preceding the Effective Time. No
such holder will be entitled to dividends, voting rights, or any other rights as
a shareholder in respect of any fractional shares that would otherwise be issued
pursuant to the Merger.
2.5 SURRENDER OF STOCK CERTIFICATES.
2.5.1 LETTER OF TRANSMITTAL. As soon as practicable after the
Effective Date, a letter of transmittal shall be mailed by SunTrust Bank, as
Exchange Agent (the "Exchange Agent"), to each shareholder of WBT 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 WBT 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 FSLB Stock.
Replacements for stock certificates which have been destroyed, stolen or
lost may be obtained according to the usual procedures of WBT, as
applicable, in order to permit the surrender of such replacement
certificates.
2.5.2 RIGHTS OF FORMER SHAREHOLDERS. As of the Effective Date, each
certificate theretofore representing one or more outstanding shares of WBT
Stock shall be deemed for all corporate purposes to evidence only the right
to receive certificates representing shares of FSLB Stock as provided in
accordance with this Agreement.
2.5.3 FAILURE TO SURRENDER STOCK CERTIFICATES. Until a former WBT
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 FSLB Stock which such WBT Stock certificate may
otherwise entitle such shareholder to receive; (ii) the shareholder shall
not have any voting rights in respect of the shares of FSLB Stock which such
WBT Stock certificate may otherwise entitle such shareholder to receive;
(iii) the shareholder shall not be paid dividends nor other distributions in
respect of the shares of FSLB Stock which such WBT Stock certificate may
otherwise entitle such shareholder to receive; and (iv) any dividends or
distributions payable on FSLB Stock shall be retained, without interest, for
such shareholder's account until surrender of such WBT Stock certificate.
Nothing contained herein shall affect the rights of shareholders of WBT to
dividends and distributions with respect to shares of WBT Stock prior to the
Effective Time.
2.6 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 WBT 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 be determined in light of the facts and
circumstances of the matter in question in the context of the size, historical
performance and market location of the Party.
3.2 MATERIAL ADVERSE EFFECT OR CHANGE. "Material adverse" effect or change
shall mean any event, change or occurrence, which individually or together with
any other event, change or occurrence, has a material adverse impact on (i) the
financial position, business, or results of operations of the Party and its
subsidiaries, taken as a whole, or (ii) the ability of a Party or its
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shareholders to perform their respective obligations under this Agreement or to
consummate the Merger or the other transactions contemplated by this Agreement,
provided that a material adverse effect or change shall not be deemed to include
the impact of (a) changes in banking and similar laws of general applicability
or interpretations thereof by courts or governmental authorities, (b) changes in
generally accepted accounting principles or regulatory accounting principles
generally applicable to banks and their holding companies, (c) actions and
omissions of either FSLB or WBT (or any of their respective subsidiaries) or the
shareholders taken with the prior informed written consent of the other Party in
contemplation of the transactions contemplated hereby, and (d) the direct
effects of compliance with this Agreement on the operating performance of either
FSLB or WBT, including fees and expenses incurred by them in consummating the
transactions contemplated by this Agreement. With the exception of the foregoing
exclusions and without limiting the generality of the foregoing, the following
shall constitute material adverse effects or changes for the purposes of this
Agreement:
3.2.1 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, $200,000 in the aggregate
for FSLB or $50,000 in the aggregate for WBT; or (b) the creation or
incurrence of any liability of a Party or any of its subsidiary banks,
(other than liabilities incurred in the ordinary course of business
permitted under Sections 4.9 and 5.8 of this Agreement), that together with
all other such liabilities exceeds, or may reasonably be expected to exceed,
$200,000 in the aggregate for FSLB or $50,000 in the aggregate for WBT; or
3.2.2 SUPERVISORY ACTION. Any cease and desist order, consent order or
similar order or proceeding being filed or issued against, a Party or any of
its subsidiary banks by the Securities and Exchange Commission ("SEC"), 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 the entering into of any memorandum
of understanding, supervisory agreement between or among the Party or any of
its subsidiary banks by the FDIC, Georgia Department or Federal Reserve; or
3.2.3 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
of its subsidiary banks in accordance with generally accepted accounting
principles, and the standards of materiality for qualifying such audit were
$200,000 for FSLB or $50,000 for WBT, 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.
3.3 ACCESS, INFORMATION AND DOCUMENTS.
3.3.1 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 Time 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.
3.3.2 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 theretofore 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
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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.
3.4 REGISTRATION STATEMENT; WBT SHAREHOLDERS' MEETING. As soon as
practicable after execution of this Agreement, FSLB shall file a registration
statement with the SEC covering the FSLB 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 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 FSLB Stock upon
consummation of the Merger. WBT shall furnish all information concerning it and
the holders of its capital stock as FSLB may reasonably request in connection
with such action. WBT shall call a shareholders' meeting (the "WBT 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 WBT's shareholders' meeting, (i) WBT shall
prepare and file a proxy statement (the "Proxy Statement") (which shall be
included in the Registration Statement) with the SEC and mail it to each of
WBT's shareholders, (ii) FSLB shall furnish to the other Party all information
concerning it that WBT may reasonably request in connection with such Proxy
Statement, (iii) the Boards of Directors of WBT shall recommend (subject to
compliance with its fiduciary duties, following consultation with its legal
advisers) to its shareholders the approval of this Agreement, and (iv) the Board
of Directors and officers of WBT shall use their reasonable efforts to obtain
such shareholders' approval (subject to compliance with their fiduciary duties,
following consultation with its legal advisers).
3.5 CONFIDENTIAL INFORMATION. In addition to the Parties' respective
obligations under the Confidentiality Agreement, which is hereby reaffirmed and
re-adopted, and incorporated by reference herein, each Party shall, and shall
cause its advisers and agents to, maintain the confidentiality of all
confidential information furnished to it by the other Party concerning its and
its subsidiaries' businesses, operations, and financial positions and shall not
use such information for any purpose except in furtherance of the transactions
contemplated by this Agreement. If 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 such
confidential information received from the other, as well as all copies and work
papers containing such confidential information, or shall certify the
destruction thereof.
3.6 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.
3.7 APPLICATIONS. FSLB shall promptly prepare and file, and WBT 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. FSLB shall permit
WBT to review (and approve with respect to information relating to WBT) such
applications prior to filing same and shall provide copies of such applications
to WBT and its counsel.
3.8 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
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by law, relating to this Agreement or to the transactions contemplated hereby
without the prior approval of the other Party.
3.9 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 ("GAAP") as set forth in Sections 4.7 and 5.6.
3.10 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, 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.
3.11 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.
3.12 KNOWLEDGE. As used in this Agreement, references "to the knowledge
of" or "known by" a Party shall mean the Board of Directors, Chairman, President
and any officer of the Party (or any person holding such position in any of its
subsidiaries that are banks).
4. REPRESENTATIONS AND WARRANTIES OF WBT.
As an inducement to FSLB to enter into this Agreement, WBT hereby represents
and warrants to FSLB as follows:
4.1 WBT SCHEDULE. Prior to the date hereof, WBT has delivered to FSLB a
schedule (the "WBT Schedule") containing certain information regarding WBT as
indicated at various places in this Agreement. All information set forth in the
WBT Schedule or in documents incorporated by reference in the WBT 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 WBT. The information contained in the WBT Schedule shall be deemed
to be part of and qualify all representations and warranties contained in this
Section, provided, however, that in order to be part of or modify a
representation or warranty, the WBT Schedule must reference the particular
warranty or representation by Section. WBT shall promptly provide FSLB with
written notification of any material event, occurrence or other information that
would be required to be included on the WBT Schedule if the WBT Schedule were to
be prepared as of the date of such event, occurrence or information.
4.2 CORPORATE ORGANIZATION. WBT is a bank, 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, to engage in the
business of banking within the State of Georgia and to conduct its business as
presently conducted.
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4.3 AUTHORIZED CAPITAL STOCK; SUBSIDIARIES.
4.3.1 The authorized capital stock of WBT consists of 1,000,000 shares of
common stock, $5.00 par value (previously defined as WBT Stock), of which
450,000 shares are issued and outstanding. All of the outstanding shares of
WBT 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 WBT. Except as set forth
on the WBT Schedule and under the WBT Stock Option Plan, there are no
outstanding options, agreements, contracts, calls or commitments of any
character that would require the issuance by WBT of any shares of its common
stock or securities convertible into such stock.
4.3.2 Except as set forth on the WBT Schedule, WBT 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. WBT 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 WBT or other persons designated by the Board of Directors of WBT
have been duly authorized, approved and ratified by the Board of Directors of
WBT 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 WBT.
4.6 NON-CONTRAVENTION. The execution and delivery of this Agreement by WBT
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 balance sheets of WBT at
December 31, 1999 and 1998, and the related statements of comprehensive income,
stockholders' equity, and cash flows for the years then ended, and the notes
thereto, and the unaudited balance sheet at June 30, 2000 and the related
unaudited statements of income for the periods, ended June 30, 2000 and 1999,
and the notes thereto (the audited financial statements at December 31, 1999 and
1998 and for the years then ended and the notes thereto being referred to as the
"Annual WBT Financials," and the unaudited financial statements at June 30, 2000
and for the periods then ended and the notes thereto being referred to as the
"Interim WBT Financials") fairly present assets, liabilities, financial
condition and results of operations of WBT 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).
4.8 NOTES AND OBLIGATIONS.
4.8.1 Except as set forth in the WBT Schedule or except to the extent
such matters are adequately provided for in the loss reserve described in
subsection 4.8.2 below, all notes receivable or other obligations owned by
WBT or due to it shown in the Annual WBT Financials and Interim WBT
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 WBT
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 FSLB for
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examination prior to the Effective Date. All such notes and obligations were
entered into by WBT in the ordinary course of its business 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 WBT.
4.8.2 The loss reserves established by WBT on the Annual WBT Financials
and Interim WBT Financials were, as of the dates thereof, adequate (within
the meaning of GAAP and applicable regulatory requirements or guidelines) 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 WBT 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, except
where the failure of such loss reserve to be so adequate is not reasonably
likely to have a material adverse effect on WBT.
4.9 LIABILITIES. WBT has no debt, liability or obligation of any kind
whether or not required to be shown pursuant to GAAP on the balance sheet of WBT
that would constitute a material adverse effect with respect to WBT except
(i) those reflected on the Annual WBT Financials and Interim WBT Financials,
(ii) liabilities incurred in the ordinary course of business since December 31,
1999, and (iii) as set forth in the WBT Schedule.
4.10 INVESTMENTS. Except for pledges to secure public and trust deposits
or as set forth in the WBT Schedule, none of the investments reflected in the
Annual WBT Financials and none of the investments made since the date of the
Annual WBT 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 WBT books and
records accurately reflect the nature, terms and characteristics of such
investments. No such investments are derivative investments except as described
on the WBT Schedule.
4.11 TAXES. WBT has filed all federal, state, county and other tax returns
and reports required by applicable law and has 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 except to the extent
that such failures to file, taken together, are not reasonably likely to have a
material adverse effect on WBT. All such payments of taxes were timely made. WBT
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. To
the knowledge of WBT, there are no tax examinations or proceedings pending or
threatened for any period and WBT does not know of any circumstances or facts
which would cause any such examinations or proceedings. There are no federal,
state or local tax liens upon any property or assets of WBT, except for liens
for state and local property taxes which are not yet due. Except as disclosed on
the WBT Schedule, the federal income tax returns of WBT have not been examined
by the Internal Revenue Service for any period, and WBT has not consented to the
extension of any statute of limitations with respect to any period.
4.12 LITIGATION. Except as set forth in the WBT Schedule, there are no
causes of action pending or (to the knowledge of WBT) threatened against WBT or
regulatory orders, memoranda of understanding or similar documents involving
WBT. Except as set forth in the WBT Schedule, there are no causes of action
pending against WBT with respect to the transactions contemplated by this
Agreement, and there are no actions, suits, claims, demands or proceedings
pending or (to the knowledge of WBT) threatened against WBT which, if adversely
decided, could have a material adverse effect on the business, prospects,
financial condition or results of operations of WBT.
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4.13 REGULATORY FILINGS. Since January 1, 1996, WBT has filed all reports
it was required to file with 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.
4.14 GENERAL LEGAL COMPLIANCE. Except as set forth in the WBT Schedule, to
the knowledge of WBT with respect to the conduct of its business, WBT is 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 its business,
prospects, financial condition or results of operations. WBT is not aware of the
existence of any facts which would support the assessment of civil money
penalties against WBT, its directors, officers or employees in their capacity as
directors, officers or employees of WBT.
4.15 PROPERTIES; ENVIRONMENTAL.
4.15.1 Except as set forth on the WBT Schedule or in the Annual WBT
Financials or the Interim WBT Financials, WBT owns good title to or hold a
valid leasehold estate in all of their properties and assets reflected in
the Annual WBT 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 WBT or the marketability of its properties.
4.15.2 To the knowledge of WBT, WBT is in compliance with all
Environmental Laws except for violations which are not reasonably likely to
have, individually or in the aggregate, a material adverse effect on WBT.
WBT has not been notified nor is otherwise aware that it is liable,
potentially liable, or are considered potentially liable, under any
Environmental Laws. There are no actions, suits, regulatory investigations,
requests for information or other proceedings pending or, to the knowledge
of WBT, threatened against WBT relating to environmental protection, nor
does WBT have any reason to believe any such actions, suits, investigations,
requests or proceedings may be brought against it. To the knowledge of WBT,
no disposal, release, storage or discharge of any Hazardous Materials has
occurred on, in, at or about any of the facilities or properties of WBT, or
on any properties held as collateral for any loans held by WBT except such
as are not likely to have a material adverse effect on WBT.
All above-ground and underground storage tanks located on any of the
facilities or properties of WBT have been identified in the WBT Schedule,
together with a description of the materials stored therein and a statement
as to whether such tanks and separators are currently used by WBT, if any.
To the knowledge of WBT, none of such tanks and separators, and no
above-ground and underground storage tanks located on any properties held as
collateral for any loans held by WBT or any of its subsidiaries, is leaking
or has leaked except such as are not likely to have a material adverse
effect on WBT. Except as identified on the WBT Schedule, none of the
facilities or properties of WBT contain any asbestos-containing materials,
and to the knowledge of WBT, none of such materials, and no
asbestos-containing materials at any properties held as collateral for any
loans held by WBT, require removal, remediation, or encapsulation except
such as are not likely to have a material adverse effect on WBT. To the
knowledge of WBT, except as identified on the WBT Schedule, no environmental
audit or other investigation has been conducted at the facilities or
properties of WBT.
For purposes of this Agreement, the terms "Environmental Law" or
"Environmental Laws" shall mean any and all statutes, codes, laws
(including, without limitation, common law), ordinances, agency rules,
regulations, and guidance, and reporting or licensing requirements
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relating to pollution or protection of human health or the environment
(including ambient air, surface water, ground water, land surface, or
subsurface strata), including, without limitation (i) the Comprehensive
Environmental Response Compensation and Liability Act, 42 U.S.C.
SectionSection9601 ET SEQ. ("CERCLA"); (ii) the Solid Waste Disposal Act, as
amended by the Resource Conservation and Recovery Act, 42 U.S.C.
SectionSection6901 ET SEQ., ("RCRA"); (iii) the Emergency Planning and
Community Right to Know Act (42 U.S.C. SectionSection11001 ET SEQ.);
(iv) the Clean Air Act (42 U.S.C. SectionSection 7401 ET SEQ.); (v) the
Clean Water Act (33 U.S.C. I 1251 ET SEQ.); (vi) any state, county,
municipal or local statutes, laws or ordinances similar or analogous to the
federal statutes listed in parts (i) - (v) of this subparagraph, (vii) any
amendments to the statutes, laws or ordinances listed in parts (i) -
(vi) of this subparagraph, (viii) any rules, regulations, guidelines,
directives, orders or the like adopted pursuant to or implementing the
statutes, laws, ordinances and amendments listed in parts (i) - (vii) of
this subparagraph; and (ix) any other law, statute, ordinance, amendment,
rule, regulation, guideline, directive, order or the like relating to
environmental protection or to employee health and safety.
For purposes of this Agreement, the terms "Hazardous Material" or
"Hazardous Materials" shall mean any and all chemicals, substances, wastes,
materials, pollutants, contaminants, equipment or fixtures defined as or
deemed hazardous or toxic or otherwise regulated under any Environmental
Law, including, without limitation, RCRA hazardous wastes, CERCLA hazardous
substances, pesticides and other agricultural chemicals, oil and petroleum
products or byproducts and any constituents thereof, asbestos-containing
materials, and polychlorinated biphenyls ("PCBs").
4.16 INSURANCE.
4.16.1 WBT is 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 WBT; nor has WBT failed to give any
notice or present any claim thereunder in a due and timely fashion where
such failure would be reasonably likely to have a material adverse effect on
WBT.
4.16.2 The WBT Schedule describes each of WBT's insurance policies,
including carrier, amount of coverage and annual premium.
4.17 BROKER. Except with respect to a fee to be paid to Brown, Burke
Capital Partners, L.L.C., WBT 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. Except as set forth on the WBT Schedule, WBT owns or has
license agreements to use all trademarks, service marks, copyrights, trade names
or patents used by it in the conduct of its businesses. WBT is 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 knowledge of
WBT. No proceedings have been instituted, or (to the knowledge of WBT)
threatened, nor has any claim been made against WBT alleging any such
infringement or violation.
4.19 SOLE AGREEMENT TO MERGE OR SELL. Except as set forth on the WBT
Schedule and other than this Agreement, WBT 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.
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4.20 INSIDER CONTRACTS. Except as set forth in the WBT Schedule, (a) WBT
is 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) WBT is not a
party to any written agreement or understanding with any officer or director of
WBT, its affiliates or the immediate family members of any such officers and
directors (collectively, the "WBT Insiders") which calls for the payment of
money by WBT 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 WBT or the successor thereof to any WBT Insider under any written or oral
agreement or understanding.
4.21 EMPLOYEE BENEFIT PLANS. As of the date hereof as well as the
Effective Date:
4.21.1 The WBT Schedule contains a true and complete list of all the
following types of agreements or plans established, maintained or
contributed to by WBT and each other employer, which together with WBT are
treated as a single employer within the meaning of Section 414 of the Code
(hereinafter collectively referred to as the "WBT 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(l) 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 WBT Group maintains or to which any member of the
WBT 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 WBT Group are herein collectively referred to as the "WBT Plans").
For each WBT Plan, WBT will deliver to FSLB true and complete copies of
all documents as they may have been amended to the date hereof which
establish the WBT 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 WBT Plan and such other documents and information as FSLB
may reasonably request. No member of the WBT Group is or has ever been part
of a group of corporations and/or other business entities treated as a
single employer within the meaning of Section 414 of the Code other than the
WBT Group itself.
4.21.2 Each of the WBT Plans maintained, or previously maintained, by any
member of the WBT Group has at all times been operated in material
compliance with ERISA, the Code and the terms of the Plan itself. Each WBT
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 "WBT 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 WBT Schedule, no such WBT Qualified Plan has
been amended since the issuance of the most recent favorable determination
letter. The WBT 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.
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4.21.3 No member of the WBT 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.
4.21.4 Except as set forth in the WBT Schedule, no member of the WBT Group
currently maintains an "employee pension benefit plan" as defined in ERISA
Section 3(2). No assets of the WBT Group are, and WBT 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 WBT Group have been provided as
security to any WBT Plan pursuant to Code Section 401(a)(29).
4.21.5 No termination or partial termination of any WBT Qualified Plan has
occurred nor has a notice of intent to terminate any WBT Qualified Plan been
issued by a member of the WBT Group.
4.21.6 No member of the WBT 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 WBT Group and their
respective officers and employees, with respect to the WBT Plans, have
complied in all material respects with the requirements of ERISA
Section 404.
4.21.7 To the knowledge of WBT, each member of the WBT 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, to the knowledge of WBT,
there are no actions, audits, investigations, suits, or claims pending, or
threatened against any of the WBT Plans or any fiduciary of any of the WBT
Plans or against the assets of any of the WBT Plans.
4.21.9 Except as provided in the WBT Schedule, each member of the WBT
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 WBT
Plan to be paid by the WBT Group.
4.21.10 No member of the WBT Group has an obligation to any retired or
former employee, or any current employee upon retirement, under any WBT
Plan, and any WBT Plan can be terminated without resulting in any liability
to WBT for any additional material penalties, premiums, fees, or any other
charges.
4.21.11 Except as provided in the WBT Schedule, no member of the WBT Group
has any outstanding, present or future obligation to make payments to an
insurer for premiums, reserves or other liability relating to a WBT Plan
under any arrangement with an insurer which obligation is reasonably likely
to have a material adverse effect on WBT.
4.21.12 No member of the WBT 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).
4.21.13 Except as set forth on the WBT Schedule, no member of the WBT 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 WBT Financials and
(ii) wages owed for services rendered since the payroll date immediately
preceding the Effective Date which liability is reasonably likely to have a
material adverse effect on WBT.
4.21.14 Until the Effective Date, no member of the WBT Group shall amend
any WBT Plan, except to the extent necessary to maintain compliance with the
Code or ERISA or, except to the
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extent provided to the contrary herein, increase any benefits or rights
under any WBT Plan, or adopt any new plan, program, policy, or arrangement
which, if it existed as of the Effective Date, would constitute a WBT Plan.
4.21.15 The consummation of the transactions contemplated hereby will not
accelerate or increase any liability under any WBT Plan because of an
acceleration or increase of any of the rights or benefits to which employees
may be entitled thereunder which liability is reasonably likely to have a
material adverse effect on WBT.
4.21.16 There are no restrictions on the right of WBT to terminate any WBT
Plan without incurring any liability to a participant or beneficiary of such
plan or any other party, other than the liability to satisfy claims for
benefits incurred or accrued prior to such termination.
4.21.17 No representative or employee of WBT has made any representation to
any individual regarding his or her eligibility for a WBT Plan, or the
benefits provided under a WBT Plan, that is not consistent with the terms of
such Plan.
4.22 ARTICLES AND BYLAWS. WBT has previously delivered to FSLB true and
correct copies of the Articles of Incorporation and Bylaws of WBT.
4.23 BOOKS AND RECORDS. The books of account and other financial records
of WBT are, in all material respects, complete and correct, maintained in
accordance with good business practice, and are fairly reflected in the Annual
WBT Financials and Interim WBT Financials. The minute books of WBT accurately
reflect all material corporate action of the shareholders and the Board of
Directors (including any Executive Committee thereof) of WBT.
4.24 ABSENCE OF CHANGES. Except as specifically provided for in this
Agreement or specifically set forth in the WBT Schedule, since June 30, 2000:
4.24.1 There has been no change in the business, assets, liabilities,
results of operations or financial condition of WBT 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 WBT 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 WBT, whether or not covered by insurance, which
has had or which management of WBT believes may have a material adverse
effect thereon;
4.24.3 The business of WBT has been operated in the ordinary course and
not otherwise;
4.24.4 The properties and assets of WBT used in its business has been
maintained in good order, repair and condition, ordinary wear and tear
excepted;
4.24.5 The books, accounts and records of WBT 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 WBT
except as set forth in Section 6.2 of this Agreement;
4.24.7 Except as set forth in the WBT Schedule, there has been no increase
in the compensation or in the rate of compensation or commissions payable or
to become payable by WBT to any director or executive officer, or any
employee earning $50,000 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 WBT;
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4.24.9 There has been no labor dispute, unfair labor practice charge or
employment discrimination charge, nor, to the knowledge of management of
WBT, any organizational effort by any union, or institution or (to the
knowledge of WBT) threatened institution, of any organizational effort,
complaint or other proceeding in connection therewith, involving WBT or
materially and adversely affecting its operations;
4.24.10 Except as set forth in the WBT Schedule, there has been no
issuance, sale, repurchase, acquisition, or redemption by WBT 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 material 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 WBT or assumed by it with
respect to any asset or assets;
4.24.12 There has been no material indebtedness or other material liability
or obligation (whether absolute, accrued, contingent or otherwise) incurred
by WBT whether or not it would be required to be reflected on a balance
sheet of WBT prepared as of the date hereof in accordance with GAAP applied
on a consistent basis, except as incurred in the ordinary course of
business;
4.24.13 No material obligation or liability of WBT has been discharged or
satisfied, other than in the ordinary course of business;
4.24.14 Except as set forth in the WBT Schedule, there has been no sale,
transfer or other disposition of any material asset or assets of WBT, 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
WBT 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 FSLB AND MSB.
As an inducement to WBT to enter into this Agreement, FSLB and MSB, jointly
and severally, hereby represent and warrant to WBT as follows:
5.1 CORPORATE ORGANIZATION. FSLB is a corporation, duly organized, validly
existing and in good standing under the laws of the State of Georgia. MSB is a
bank, duly organized, validly existing and in good standing under the laws of
the State of Georgia. Each 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. Each subsidiary
banking corporation of FSLB is organized under the laws of the State of Georgia,
with all requisite power and authority, and with all licenses, permits and
authorizations necessary to own its properties, to engage in the business of
banking within the State of Georgia and to conduct its business as presently
conducted.
5.2 AUTHORIZED CAPITAL STOCK.
5.2.1 (a) The authorized capital stock of FSLB consists of 50,000,000
shares of common stock, no par value (previously defined as FSLB Stock), of
which 13,869,552 shares are issued and outstanding. All of the outstanding
shares of FSLB 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 FSLB.
(b) The authorized capital stock of MSB consists of 370,000 shares of
common stock, $10.00 par value (previously defined as MSB Stock), of which
339,800 shares are issued and outstanding. All of the outstanding shares of
MSB Stock are validly issued, fully paid and nonassessable, and
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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 MSB.
5.3 QUALIFICATION AS A FOREIGN CORPORATION NOT REQUIRED. Neither FSLB nor
MSB owns any property or conducts any business outside of the State of Georgia,
which would require it to be qualified as a foreign corporation in any
jurisdiction.
5.4 AUTHORIZATION. This Agreement and its execution by the President and
Secretary of each of FSLB and MSB or other persons designated by the Board of
Directors of each of FSLB and MSB have been duly authorized, approved and
ratified by the Board of Directors of each of FSLB and MSB at meetings duly
called and held at which quorums were present and acting throughout. This
Agreement is valid and binding on FSLB and MSB.
5.5 NON-CONTRAVENTION. The execution and delivery of this Agreement by
each of FSLB and MSB 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 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.
5.6 FINANCIAL STATEMENTS. The audited consolidated statements of financial
condition of FSLB at December 31, 1999, 1998 and 1997, and the related
statements of consolidated income, shareholders' equity, and cash flows for the
years then ended, and the notes thereto, and the unaudited consolidated
statement of condition at June 30, 2000 and the related unaudited consolidated
statement of income for the periods then ended and the notes thereto (the
audited consolidated financial statements at December 31, 1999, 1998 and 1997
and for the years then ended and the notes thereto being referred to as the
"Annual FSLB Financials," and the unaudited consolidated financial statements at
June 30, 2000 and for the periods then ended and the notes thereto being
referred to as the "Interim FSLB Financials") fairly present assets,
liabilities, financial condition and results of consolidated operations of FSLB
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 consolidated financial
statements, to normal recurring year-end adjustments).
5.7 SEC FILINGS.
5.7.1 FSLB has filed all forms, reports and documents required to be
filed by FSLB with the SEC since December 31, 1995 (collectively, the "FSLB
SEC Reports"). The FSLB SEC Reports (i) at the time filed, complied in all
material respects with the applicable requirements of the 1933 Act and the
Securities Exchange Act of 1934 (the "Exchange Act"), as the case may be,
and (ii) did not at the time they were filed (or if amended or superseded by
a filing prior to the date of this Agreement, then on the date of such
filing) contain any untrue statement of material fact or omit to state a
material fact required to be stated in such FSLB SEC Reports or necessary in
order to make the statements in such FSLB SEC Reports, in light of the
circumstances under which they were made, not misleading.
5.7.2 Each of the FSLB consolidated financial statements (including, in
each case, any related notes) contained in the FSLB SEC Reports, including
any FSLB SEC Reports filed after the date of this Agreement until the
Effective Time, complied or will comply as to form in all material respects
with the applicable published rules and regulations of the SEC with respect
thereto, was or will be prepared in accordance with GAAP applied on a
consistent basis throughout the periods involved (except as may be indicated
in the notes to such financial statements or, in the case of unaudited
consolidated statements, as permitted by Form 10-Q or Form 10-QSB of the
SEC) and
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fairly presented or will fairly present the consolidated financial position
of FSLB and its subsidiaries as at the respective dates and the consolidated
results of its operations and cash flows for the periods indicated, except
that the unaudited interim consolidated financial statements were or are
subject to normal and recurring year-end adjustments which were not or are
not expected to be material in amount or effect.
5.8 ABSENCE OF UNDISCLOSED LIABILITIES. FSLB and its subsidiaries do not
have any material liabilities that are reasonably likely to have individually or
in the aggregate a material adverse effect on FSLB, except liabilities which are
accrued or reserved against in the consolidated balance sheets of FSLB as of
June 30, 2000 included in Interim FSLB Financials or reflected in the notes
thereto. FSLB and its subsidiaries have not incurred or paid any liability since
June 30, 2000, except for such liabilities incurred or paid in the ordinary
course of business consistent with past business practice and which are not
reasonably likely to have, individually or in the aggregate, a material adverse
effect on FSLB.
5.9 LEGAL PROCEEDINGS. Except to the extent specifically reserved against
in the Interim FSLB Financials dated prior to the date of this Agreement, there
is no litigation instituted or pending, or, to the knowledge of FSLB, threatened
(or unasserted but considered probable of assertion and which if asserted would
have at least a reasonable probability of an unfavorable outcome) against FSLB
or any of its subsidiaries, or against any asset, interest, or right of any of
them, nor are there any orders of any regulatory authorities, other governmental
authorities, or abitrators outstanding against FSLB or any of its subsidiaries,
that are reasonably likely to have, individually or in the aggregate, a material
adverse effect on FSLB.
5.10 REGULATORY FILINGS. Since January 1, 1996, FSLB and its subsidiaries
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.
5.11 GENERAL LEGAL COMPLIANCE. To the knowledge of FSLB with respect to
the conduct of its business, FSLB and its subsidiaries 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 businesses, prospects,
financial conditions or results of operations. FSLB is not aware of the
existence of any facts which would support the assessment of civil money
penalties against FSLB or any of its subsidiaries, their directors, officers or
employees.
5.12 BROKER. Except with respect to a fee to be paid The Robinson-Humphrey
Company, LLC, FSLB 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.
5.13 ABSENCE OF CHANGES. Since June 30, 2000, except as disclosed in the
Interim FSLB Financials filed with the SEC after such date and prior to the date
of this Agreement, there have been no events, changes or occurrences which have
had, or are reasonably likely to have, individually or in the aggregate, a
material adverse effect on FSLB.
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6. COVENANTS OF WBT.
6.1 CONDUCT OF BUSINESS. Except with the prior written approval of FSLB,
WBT agrees that from the date of this Agreement until the Effective Date or
until this Agreement is terminated as herein provided that WBT:
(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 FSLB to attend (i) all meetings of
the Board of Directors of WBT and (ii) all meetings of its loan and
executive committees (but only to the extent of expressing its 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 having a book value exceeding
$50,000 or incur any indebtedness exceeding $50,000 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 exceeding $50,000 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 consistent with past practices;
(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 WBT Schedule;
(f) Will make no changes to any of the WBT Plans unless required by law,
regulation or judicial interpretation as advised by counsel;
(g) Except as set forth in the WBT Schedule, 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
WBT 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
WBT, (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 WBT'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
WBT 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 FSLB, WBT will not (a) issue or agree to issue any shares of capital
stock or any rights or options with respect thereto, or issue or agree to issue
any shares of capital stock with respect to any of its subsidiaries or rights or
options with respect thereto, except as set forth in the WBT Schedule (which
Schedule shall only permit the issuance of shares pursuant to the exercise of
options outstanding on the date hereof, and shall set forth the number of shares
subject to such options, the holder and the exercise price thereof);
(b) declare, set aside or pay any dividends or make any other distributions with
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respect to its capital stock, except that WBT may continue paying its regular,
normal dividends in accordance with its past practices; (c) directly or
indirectly redeem, purchase or otherwise acquire any of its capital stock,
except as set forth in the WBT 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 APPROVAL OF WBT SHAREHOLDERS. The WBT Shareholders' Meeting shall be
held on such date as shall be agreed upon with FSLB for the purpose of
considering the approval of the Merger and adoption of this Agreement. WBT shall
deliver to FSLB promptly at the conclusion of the WBT 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.
6.4 PROXY MATERIALS. To the knowledge of WBT, neither the proxy materials
nor any other materials (or amendments thereof or supplements thereto) to be
furnished by WBT to its shareholders in connection with the transactions
contemplated by this Agreement will, at the times such documents are distributed
to WBT shareholders through the Effective Date, contain with respect to WBT any
untrue statement of a material fact or omit to state any material 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 WBT, not misleading.
6.5 NOTICE OF BREACH. WBT shall promptly give written notice to FSLB 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 it in this Agreement and shall use its respective best efforts
to prevent or promptly remedy the same.
6.6 SOLE AGREEMENT TO MERGE OR SELL. During the term of this Agreement,
WBT will not directly or indirectly (through, if applicable, its respective
directors, officers, employees, representatives or otherwise) make, solicit,
initiate or encourage proposals or offers from any party other than FSLB
relating to any recapitalization, merger, consolidation, acquisition or purchase
of all or substantially all of the assets of, or any equity interest in, WBT if
the effect of such proposed transaction would be to impair or delay the ability
of WBT to consummate the transactions contemplated by this Agreement. WBT shall
immediately cease and cause to be terminated all such contacts or negotiations
with third parties, if any. WBT will not, 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, except where the failure to
furnish such information or to participate in such negotiations or discussions
would constitute a breach of the fiduciary duties of the Board of Directors of
WBT (as determined in good faith after consultation with counsel to WBT). WBT
shall promptly notify FSLB of any unsolicited proposal or offer WBT receives
with respect to the foregoing.
6.7 REPORTS. WBT shall file, and shall promptly provide FSLB with a copy
of, all of the reports required to be filed by it with regulatory agencies for
periods ending on and after June 30, 2000, and shall, to the extent permitted by
law, promptly provide to FSLB copies of all correspondence submitted to or
received by it from any regulatory agency.
6.8 AFFILIATES. At least 30 days prior to the Effective Date, WBT shall
deliver to FSLB a letter identifying all persons who are, at the time this
Agreement is submitted for approval to the shareholders of WBT, "affiliates" of
WBT for purposes of Rule 145 under the 1933 Act. WBT shall use all reasonable
efforts to cause each person who is identified as an "Affiliate" in the letter
referred to above to deliver to FSLB not later than 30 days prior to the
Effective Date, a written agreement providing that such person will not sell,
pledge, transfer, or otherwise dispose of the WBT Stock held
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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 FSLB
Stock to be received by such person upon consummation of the Merger except in
compliance with applicable provisions of the 1933 Act and the rules and
regulations thereunder. If the Merger will qualify for pooling-of-interests
accounting treatment, the FSLB Stock issued to such Affiliates of WBT in
exchange for the WBT Stock shall not be transferable until such time as the
financial results covering at least 30 days of combined operations of FSLB and
WBT 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 6.8. FSLB
shall not be required to maintain the effectiveness of the Registration
Statement under the 1933 Act for the purposes of resale of FSLB Stock by such
persons.
7. COVENANTS OF FSLB AND MSB.
7.1 CONDUCT OF BUSINESS. FSLB agrees that from the date of this Agreement
until the Effective Date or until this Agreement is terminated by the Parties as
herein provided, each of FSLB and its subsidiaries:
(a) Will not, without the prior approval of WBT, amend its Articles of
Incorporation or Bylaws, in each case in a manner which is adverse to and
discriminates against the holders of WBT Stock;
(b) 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; and
(c) Will use all reasonable efforts to maintain satisfactory
relationships with its customers, suppliers, regulators and employees;
7.2 APPROVAL OF MSB SHAREHOLDER. FSLB as the sole shareholder of MSB shall
execute a written consent approving the Merger.
7.3 NOTICE OF BREACH. FSLB shall promptly give written notice to WBT 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 it in this Agreement and shall use its respective best efforts
to prevent or promptly remedy the same.
7.4 SOLE AGREEMENT TO MERGE OR SELL. During the term of this Agreement,
FSLB will not directly or indirectly (through, if applicable, its respective
directors, officers, employees, representatives or otherwise) make, solicit,
initiate or encourage proposals or offers from any party other than WBT relating
to any recapitalization, merger, consolidation, acquisition or purchase of all
or substantially all of the assets of, or any equity interest in, FSLB or any of
its subsidiaries if the effect of such proposed transaction would be to impair
or delay the ability of FSLB to consummate the transactions contemplated by this
Agreement. FSLB shall immediately cease and cause to be terminated all such
contacts or negotiations with third parties, if any. FSLB will not, 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, except
where the failure to furnish such information or to participate in such
negotiations or discussions would constitute a breach of the fiduciary duties of
the Board of Directors of FSLB (as determined in good faith after consultation
with counsel to FSLB) FSLB shall promptly notify WBT of any unsolicited proposal
or offer FSLB receives with respect to the foregoing.
7.5 REPORTS. FSLB shall file, and shall promptly provide WBT with a copy
of, all of the reports required to be filed by it or any of its subsidiaries
with any regulatory agencies (including without limitation, the SEC, the FDIC,
the Georgia Department and the Federal Reserve) for periods
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ending on and after December 31, 1999, and shall, to the extent permitted by
law, promptly provide to WBT copies of all correspondence submitted to or
received by it or any of its subsidiaries from any regulatory agency.
7.6 INDEMNITY.
(a) With respect to any claim made or action commenced within six years
after the Effective Date of the Merger, FSLB shall indemnify and hold
harmless to the extent permitted by the provisions of the Articles of
Incorporation and Bylaws of WBT, each as in effect as of the date hereof,
each director, officer, and employee of WBT 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 or her capacity as such, and such
indemnification shall be to the fullest extent permitted by applicable
Georgia law.
(b) FSLB shall use its reasonable efforts to maintain WBT's existing
directors' and officers' liability insurance policy (or a policy, including
existing policy, providing at least comparable coverage) covering persons
who are currently covered by such insurance for a period of six years after
the Effective Date on terms no less favorable than those in effect on the
date hereof.
(c) If FSLB or any of its successors or assigns shall consolidate with
or merge into any other entity and shall not be the continuing or surviving
entity of such consolidation or merger or shall transfer all or
substantially all of its assets to any person or entity, then and in each
case, proper provision shall be made so that the surviving or acquiring
entity shall assume the obligations set forth in this Section 7.6.
7.7 EMPLOYEE BENEFITS. For purposes of calculating an employee's accrual
of sick time, vacation time, eligibility for and vesting under any FSLB employee
benefit plan, but not for purposes of calculating benefit accrual under any FSLB
employee benefit plan that is also a defined benefit plan within the meaning of
Section 3(35) of ERISA, each employee of WBT shall be credited with his or her
period of employment with WBT or any predecessor of WBT. The amount of such
accruals, however, shall be based on the terms of such FSLB employee benefit
plan or other benefit program, without regard to the accrual schedules under any
corresponding WBT employee benefit plan.
Immediately after the Effective Date and for at least one year thereafter,
FSLB shall allow WBT employees who continue in employment on and after the
Effective Date to participate in employee benefit plans and policies that are at
least as favorable as those provided to employees of FSLB in comparable
positions.
After the Closing, FSLB shall cause to be made available for Needra Jackson,
Ben Malcom, Thelma Anderson and Jan Chancey sufficient funds to pay each such
person a bonus equal to 20% of his or her base salary for the calendar year 2000
during 2001. The amount of any such bonus shall be determined in the sole
discretion of W. Morris Jordan and shall be payable on the date which is
12 months following the Closing, except for Needra Jackson's bonus which shall
be paid by FSLB within 10 days after the Closing and shall not exceed $15,000.
Bonuses for the other WBT key employees during 2001 shall be determined by the
mutual agreement of Mr. Jordan and Joseph K. Strickland, Jr.
FSLB shall waive, under its medical plan, any pre-existing condition
exclusion for any WBT employee who continues in employment after the Effective
Date and becomes covered under such medical plan, to the extent that such
pre-existing condition would have been covered under the comparable WBT employee
benefit plan and the individual with the pre-existing condition was covered
under such plan.
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7.8 EXCHANGE LISTING. FSLB shall use its reasonable efforts to list, prior
to the Effective Time, on Nasdaq, subject to official notice of issuance, the
shares of FSLB Common Stock to be issued to the holders of WBT Common Stock.
8. CONDITIONS TO OBLIGATIONS OF WBT.
The obligations of WBT hereunder are, at the option of WBT, subject to the
following conditions:
8.1 REPRESENTATIONS AND COVENANTS COMPLIANCE. The representations and
warranties of FSLB contained in Section 5, shall be true and correct 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. FSLB and MSB shall have performed and complied
in all material respects with all of 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 FSLB from that presented in the Interim
FSLB Financials.
8.3 CLOSING CERTIFICATE AND OTHER DOCUMENTS. WBT shall have received
certificates signed by the respective President and Chief Financial Officer of
FSLB and MSB, dated the Effective Date, to the effect that requirements of
Sections 8.1 and 8.2 above have been satisfied and that the other conditions set
forth in this Section 8 have been complied with and satisfied as of the
Effective Date.
8.4 LEGAL OPINION. WBT shall have received a favorable legal opinion from
counsel to FSLB in form and substance satisfactory to WBT'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 FAIRNESS OPINION. WBT shall have received from Brown, Burke Capital
Partners, L.L.C., or such other firm as may be selected by it, a letter, dated
not more than five business days prior to the date of the WBT Proxy Statement,
reconfirming the oral fairness opinion received by WBT at or prior to the
execution of this Agreement, to the effect that, in the opinion of such firm,
the consideration to be received by WBT shareholders in connection with the
Merger is fair, from a financial point of view, to such shareholders.
9. CONDITIONS TO OBLIGATIONS OF FSLB AND MSB.
The obligations of FSLB and MSB hereunder are, at the option of FSLB,
subject to the following conditions:
9.1 REPRESENTATIONS AND COVENANTS COMPLIANCE. The representations and
warranties of WBT contained in Section 4, shall be true and correct 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. WBT shall have performed and complied in all
material respects with 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 WBT from that presented in the Interim WBT
Financials.
9.3 CLOSING CERTIFICATE AND OTHER DOCUMENTS. FSLB shall have received a
certificate signed by the President and Chief Financial Officer of WBT dated the
Effective Date, to the effect that the requirements of Sections 9.1 and 9.2
above have been satisfied and that the other conditions set forth in this
Section 9 have been complied with and satisfied as of the Effective Date.
9.4. LEGAL OPINION. FSLB shall have received a favorable legal opinion
from counsel to WBT that is in form and substance reasonably satisfactory to
FSLB's counsel.
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9.5 NO LEGAL ACTION. No action, suit, proceeding or claim shall have been
instituted, made or threatened relating to the Merger.
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, FDIC 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 be no action pending concerning the
Merger brought by the United States Attorney General under antitrust laws.
10.2 SHAREHOLDER APPROVAL. The holders of the legally required number of
the outstanding shares of WBT Stock at a meeting duly called and held, with
proper notice thereof, shall have approved the Merger.
10.3 REGISTRATION STATEMENT AND NASDAQ LISTING. At the time of mailing the
proxy statement of WBT and prospectus of FSLB to shareholders of WBT in
connection with the WBT Shareholders' meeting 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 Exchange Act or relating to the issuance or trading of the shares of
FSLB Stock issuable pursuant to the Merger shall have been received. Further,
FSLB shall have received approval from Nasdaq to list all additional shares to
be issued to WBT's shareholders pursuant to this Agreement.
10.4 DISSENTING SHARES. The aggregate number of shares of WBT Stock,
dissenting to the Merger shall not exceed an amount which would cause the
transaction not to be accounted for as a pooling-of-interests.
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 Ernst & Young, LLP to the effect that the Merger will qualify
for pooling-of-interests accounting treatment.
10.6 TAX MATTERS. WBT and FSLB shall have received a written opinion of
counsel for FSLB in form reasonably satisfactory to WBT and FSLB (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 WBT Stock for FSLB Stock will not give
rise to gain or loss to the shareholders of WBT with respect to such exchange
(except to the extent of any cash received), (iii) neither WBT nor FSLB 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, and (iv) the assumption by FSLB of WBT Options
qualifying as "incentive stock options" under Section 422 of the Code will
satisfy the requirements of Section 424(a) of the Code and will not constitute a
modification of such options under Section 424(h) of the Code. In rendering such
Tax Opinion, counsel for FSLB shall be entitled to rely upon representations of
officers of WBT and FSLB reasonably satisfactory in form and substance to such
counsel.
11. ACQUISITION OF DISSENTERS' STOCK
11.1 DISSENTING SHAREHOLDERS. Any shareholder of WBT who fully complies
with the applicable Dissenters' Provisions shall be entitled to dissent from the
Merger (a "Dissenting Shareholder") and seek appraisal remedies under the
Dissenters' Provisions, provided that such shareholder has not voted, either in
person or by proxy, in favor of the Merger.
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11.2 NOTICE OF DISSENT. WBT shall give prompt notice to FSLB of any demand
received by it from a Dissenting Shareholder, and both Parties shall have the
right to participate in any 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 WBT but only after the value shall have been agreed upon or
finally determined pursuant to the applicable Dissenters' Provisions.
Immediately upon the purchase by WBT of any shares of WBT Stock from the
Dissenting Shareholder pursuant to the Dissenters' Provisions, FSLB shall
purchase such shares from WBT for the same price as shall have been paid by WBT
to the Dissenting Shareholder. The shares of WBT Stock so purchased by FSLB
shall be cancelled.
12. CLOSING.
12.1 CLOSING. The closing (the "Closing") of the Merger shall take place
on the fifth (5th) business day after the latest to occur of (a) requisite
approval of the Merger by the holders of the outstanding shares of WBT 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 such 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.
12.2 NON-SURVIVAL OF REPRESENTATIONS AND COVENANTS The respective
representations, warranties, obligations, covenants, and agreements of the
Parties shall not survive the Closing except this Section 12.2, Sections 1, 2,
7.6 and 7.7.
13. TERMINATION.
13.1 TERMINATION. This Agreement may be terminated at any time prior to
the Effective Date:
(a) By mutual written 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 March 31, 2001, unless the
Parties hereto shall have agreed in writing 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
(d) By a Party if the other Party (i) breaches its representations,
warranties or covenants hereunder in any material respect and such breach
remains uncured for a period of 30 days after notice of such breach is given
to such Party, (ii) an event or circumstance arises which, in the reasonable
opinion of the Board of Directors of the Party, the other Party will be
unable to satisfy the conditions set forth in Sections 8, 9 or 10, as
appropriate, or (iii) if, at the Closing, any condition to the obligations
of such Party is not met.
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 be responsible for the costs,
expenses and fees which have been incurred by such Party in attempting to
accomplish the transactions
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contemplated herein, including the expenses associated with its fairness opinion
and any attorneys and consultants retained by such Party. 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 3.5 and this Section 13, and except that
nothing herein will relieve any Party from liability for any willful breach of
this Agreement or any warranty, representation or covenant contained herein.
14. MISCELLANEOUS.
14.1 AMENDMENT. At any time before or after approval and adoption hereof
by the shareholders of WBT, this Agreement may be amended by agreement between
the Parties hereto; PROVIDED, HOWEVER, that after the approval and adoption of
this Agreement by the WBT shareholders, no amendment changing any provision of
Section 2 shall be valid without having been approved by the WBT 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
or incorporated 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, send by
courier, hand delivered or faxed, as follows:
If to WBT:
Mr. W. Morris Jordan, President and CEO
Walton Bank & Trust Company
1302 W. Spring Street
Monroe, Georgia 30655-1759
Fax: 770-267-0450
with a copy to:
Thomas O. Powell, Esq.
Troutman Sanders LLP
600 Peachtree Street, N.E.
Suite 5200
Atlanta, Georgia 30308-2216
Fax: 404-962-6658
If to FSLB and MSB:
Mr. Edward C. Milligan, President and CEO
First Sterling Banks, Inc.
676 Chastain Road
Kennesaw, Georgia 30144
Fax: 770-422-9855
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with a copy to:
T. Kennerly Carroll, Jr., Esq.
Miller & Martin LLP
1275 Peachtree Street, N.E.
Suite 700
Atlanta, Georgia 30309-3576
Fax: 404-962-6300
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.
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.
[SIGNATURES ON FOLLOWING PAGE]
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<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused by this Agreement and
Plan of Merger 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.
<TABLE>
<S> <C> <C>
WALTON BANK & TRUST COMPANY
By: /s/ W. MORRIS JORDAN
----------------------------------------
Name and Title: W. Morris Jordan
PRESIDENT AND CEO
[SEAL]
</TABLE>
<TABLE>
<S> <C> <C>
Attest:
By: /s/ HUGH B. WILLIAMSON, III
----------------------------------------
Name and Title: CHAIRMAN
</TABLE>
<TABLE>
<S> <C> <C>
FIRST STERLING BANKS, INC.
By: /s/ EDWARD C. MILLIGAN
----------------------------------------
Name and Title: Edward C. Milligan
PRESIDENT AND CEO
[SEAL]
</TABLE>
<TABLE>
<S> <C> <C>
Attest:
By: /s/ SAMUEL B. HAY, III
----------------------------------------
Name and Title: Samuel B. Hay, III
EXECUTIVE VICE PRESIDENT
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
MAIN STREET BANK
By: /s/ SAMUEL B. HAY, III
----------------------------------------
Name and Title: Samuel B. Hay, III
CHAIRMAN AND CEO
[SEAL]
</TABLE>
<TABLE>
<S> <C> <C>
Attest:
By: /s/ RONALD H. COOK, JR.
----------------------------------------
Name and Title: Ronald H. Cook, Jr.
SECRETARY
</TABLE>
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<PAGE>
EXHIBIT A
TO
APPENDIX A
DRAFT DATED SEPTEMBER 28, 2000
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into this
day of , 2000 by and between First Sterling Banks, Inc., a
Georgia corporation (hereinafter, the "Company"), Main Street Bank, a Georgia
bank ("Main Street Bank"), and W. Morris Jordan (hereinafter, "Executive"), to
be effective as of the Effective Date, as defined in Section 1.
BACKGROUND
Executive currently serves as the President and Chief Executive Officer of
Walton Bank & Trust Co. ("Walton"). The Company and Walton have entered into
that certain Agreement and Plan of Merger, dated as of , 2000 (the
"Merger Agreement"), pursuant to which Walton will merge with and into Main
Street Bank (the "Merger"). The Company desires to employ Executive as Executive
Vice President of the Company's banking subsidiary or subsidiaries and as Chief
Executive Officer of the Walton County Banking Region of the Company (including
Loganville, Georgia) following the Merger, in accordance with the terms of this
Agreement. Executive is willing to serve as such in accordance with the terms
and conditions of this Agreement.
NOW THEREFORE, in consideration of the foregoing and of the mutual covenants
and agreements set forth herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. EFFECTIVE DATE. The effective date of this Agreement (the "Effective
Date") will be the date on which the effective time of the Merger occurs.
2. EMPLOYMENT. Executive is hereby employed on the Effective Date as
Executive Vice President of the Company's banking subsidiary or subsidiaries and
as Chief Executive Officer of the Walton County Banking Region of the Company
(including Loganville, Georgia). In such capacity, Executive shall have such
responsibilities commensurate with such position as shall be assigned to him by
the Executive Vice President, Banking, the Chief Executive Officer, the Chief
Operating Officer or the Board of Directors of the Company. Executive will
report directly to the Executive Vice President, Banking, of the Company.
3. EMPLOYMENT PERIOD. Unless earlier terminated herein in accordance with
Section 6 hereof, Executive's employment shall be for a two year term (the
"Employment Period"), beginning on the Effective Date. Beginning on the second
anniversary of the Effective Date and on each anniversary of the Effective Date,
the Employment Period shall, without further action by Executive or the Company,
be extended by an additional one-year period; PROVIDED, HOWEVER, that either
Executive or the Company may, by 90 days advance notice to the other, cause the
Employment Period to cease to extend automatically. Upon such notice, the
Employment Period shall terminate upon the expiration of the then-current term,
including any prior extensions.
4. EXTENT OF SERVICE. During the Employment Period, and excluding any
periods of vacation to which Executive is entitled, Executive agrees to devote
his business time, attention, skill and efforts exclusively to the faithful
performance of his duties hereunder; PROVIDED, HOWEVER, that it shall not be a
violation of this Agreement for Executive to (i) devote reasonable periods of
time to charitable and community activities and, with the approval of the
Company, industry or professional activities, and/or
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(ii) manage personal business interests and investments, so long as such
activities do not materially interfere with the performance of Executive's
responsibilities under this Agreement. It is expressly understood and agreed
that to the extent that any such activities have been conducted by Executive
prior to date of this Agreement, the continued conduct of such activities (or
the conduct of activities similar in nature and scope thereto) subsequent to the
Effective Date shall not thereafter be deemed to interfere with the performance
of Executive's responsibilities hereunder.
5. COMPENSATION AND BENEFITS.
(a) BASE SALARY. During each year of the Employment Period, the
Company will pay to Executive annual base salary in the amount equal to U.S.
$134,000 ("Base Salary"), less normal withholdings, payable in equal monthly or
more frequent installments as are customary under the Company's payroll
practices from time to time. Senior management of the Company shall review
Executive's Base Salary annually and in its sole discretion, may increase
Executive's Base Salary from year to year; provided that annual increases of at
least 3%, intended to approximate cost of living increases, shall be automatic.
The annual review of Executive's salary will consider, among other things,
Executive's own performance and the performance of the Company.
(b) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the Employment
Period, Executive shall be entitled to participate in all incentive, savings and
retirement plans, practices, policies and programs applicable generally to
executive vice presidents of the Company's banking subsidiaries ("Peer
Executives"), and on the same basis as such Peer Executives, with full credit
given for Executive's total accumulated years of employment at Walton for
purposes of determining vesting and eligibility. Without limiting the foregoing,
during the Employment Period, Executive will be eligible for an annual bonus
based on performance criteria established from year to year by senior management
of the Company; provided, that Executive's annual bonus for calendar year 2001
shall be a minimum of 25% of his Base Salary.
(c) WELFARE BENEFIT PLANS. During the Employment Period, Executive and
Executive's family shall be eligible for participation in, and shall receive all
benefits under, the welfare benefit plans, practices, policies and programs
provided by the Company (including, without limitation, medical, prescription,
dental, disability, employee life, group life, accidental death and travel
accident insurance plans and programs) ("Welfare Plans") to the extent
applicable generally to Peer Executives, with full credit given for Executive's
total accumulated years of employment at Walton for purposes of determining
vesting and eligibility.
(d) EXPENSES. During the Employment Period, Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred by
Executive in accordance with the policies, practices and procedures of the
Company to the extent applicable generally to Peer Executives.
(e) FRINGE BENEFITS. During the Employment Period, Executive shall be
entitled to fringe benefits in accordance with the plans, practices, programs
and policies of the Company in effect for Peer Executives. Without limiting the
foregoing, during the Employment Period, Executive shall: (i) be provided a car
allowance or a Company-owned car of a model appropriate to his position, as
determined by senior management of the Company, it being agreed that this
obligation shall be fulfilled initially by the Company's assumption of the lease
on the automobile being leased by Executive as of the Effective Date and the
payment by the Company of the tag, taxes, insurance, maintenance and repair
expense related to the automobile (and Executive shall have the right at the end
of such lease term to purchase the automobile at the residual value); (ii) be
reimbursed by the Company for dues and assessments charged by the Rotary Club
and the Monroe Country Club; (iii) be reimbursed by the Company for travel and
related expenses associated with Executive's and his spouse's attendance at the
annual convention of either the Georgia Bankers Association or the Community
Bankers Association during calendar year 2001 and, subject to the approval of
senior management of the Company, in future years; and (iv) be reimbursed by the
Company for any fees and expenses incurred by Walton in
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connection with its proposed formation of a bank holding company for which
Executive has any liability.
(g) PAST SERVICE CREDIT. Executive shall be given full credit for
Executive's years of employment with Walton and its predecessors for all
purposes under the plans, programs, policies, agreements and practices covering
Executive pursuant to this Section 5. The Company shall cause the Welfare Plans
to (i) waive, with respect to Executive, any waiting period and restrictions and
limitations for preexisting conditions or insurability, and (ii) credit
Executive with any deductible, co-payment, co-insurance, or maximum
out-of-pocket payments made by Executive under the welfare plans of Walton so as
to reduce the amount of any deductible, co-payment, co-insurance or maximum
out-of-pocket payments payable by Executive under the Welfare Plans of the
Company.
6. TERMINATION OF AGREEMENT.
(a) DEATH, RETIREMENT OR DISABILITY. Executive's employment shall
terminate automatically upon Executive's death or Retirement during the
Employment Period. For purposes of this Agreement, "Retirement" shall mean
normal retirement as defined in the Company's then-current retirement plan, or
if there is no such retirement plan, "Retirement" shall mean voluntary
termination after age 65 with ten years of service. If the Company determines in
good faith that the Disability of Executive has occurred during the Employment
Period (pursuant to the definition of Disability set forth below), it may give
to Executive written notice of its intention to terminate Executive's
employment. In such event, Executive's employment shall terminate effective on
the 30th day after receipt of such written notice by Executive (the "Disability
Effective Date"), provided that, within the 30 days after such receipt,
Executive shall not have returned to full-time performance of Executive's
duties. For purposes of this Agreement, "Disability" shall mean the inability of
Executive, as determined by the Board, to substantially perform the essential
functions of his regular duties and responsibilities, with or without reasonable
accommodation, due to a medically determinable physical or mental illness which
has lasted (or can reasonably be expected to last) for a period of six
consecutive months. At the request of Executive or his personal representative,
the Board's determination that the Disability of Executive has occurred shall be
certified by two physicians mutually agreed upon by Executive, or his personal
representative, and the Company. Failing such independent certification (if so
requested by Executive), Executive's termination shall be deemed a termination
by the Company without Cause and not a termination by reason of his Disability.
(b) TERMINATION BY THE COMPANY. The Company may terminate Executive's
employment during the Employment Period with or without Cause. For purposes of
this Agreement, "Cause" shall mean:
(i) the willful and continued failure of Executive to perform
substantially Executive's duties with the Company (other than any such failure
resulting from incapacity due to physical or mental illness, and specifically
excluding any failure by Executive, after reasonable efforts, to meet
performance expectations), after a written demand for substantial performance is
delivered to Executive by the Chief Executive Officer, the Chief Operating
Officer or the Board of Directors of the Company which specifically identifies
the manner in which such officer or the Board believes that Executive has not
substantially performed Executive's duties, or
(ii) the willful engaging by Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by Executive in bad faith or without reasonable belief that Executive's
action or omission was in the best interests of the Company and its shareholders
and subsidiaries. Any act, or failure to act, based upon authority given
pursuant to a resolution duly adopted by the Board or based upon the advice of
counsel for the Company shall be
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conclusively presumed to be done, or omitted to be done, by Executive in good
faith and in the best interests of the Company, its shareholders and
subsidiaries. The cessation of employment of Executive under subparagraph
(i) or (ii) above shall not be deemed to be for Cause unless and until there
shall have been delivered to Executive a copy of a resolution duly adopted by
the affirmative vote of not less than two-thirds of the entire membership of the
Board of Directors of the Company at a meeting of such Board called and held for
such purpose (after reasonable notice is provided to Executive and Executive is
given an opportunity, together with counsel, to be heard before such Board),
finding that, in the good faith opinion of such Board, Executive is guilty of
the conduct described in subparagraph (i) or (ii) above, and specifying the
particulars thereof in detail.
(c) TERMINATION BY EXECUTIVE. Executive's employment may be terminated
by Executive for Good Reason or no reason. For purposes of this Agreement, "Good
Reason" shall mean:
(i) without the written consent of Executive, a reduction in
Executive's status, title, position or responsibilities (including reporting
responsibilities) at any time after the Effective Date, or the assignment to
Executive of any duties or responsibilities which, in Executive's reasonable
judgment, are materially inconsistent with his status, title, position or
responsibilities as in effect at the Effective Date or, if greater, at any time
thereafter; or any other change in condition or circumstances that in
Executive's reasonable judgment makes it materially more difficult for Executive
to carry out the duties and responsibilities of his then-existing office;
provided that Good Reason under this subparagraph (i) excludes an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by
Executive;
(ii) a reduction, without the written consent of Executive, in
Executive's Base Salary as in effect on the Effective Date or as the same may be
increased from time to time, or any failure to pay Executive any compensation or
benefits to which he is entitled within ten (10) days of the date due;
(iii) the failure by the Company (A) to continue in effect (without
reduction in benefit level and/or reward opportunities) any compensation or
employee benefit plan in which Executive participated as of the Effective Date,
or at any time thereafter, that is material to Executive's total compensation,
unless an equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan, or (B) to continue
Executive's participation therein (or in such substitute or alternative plan) on
a basis not materially less favorable, both in terms of the amount of benefits
provided and the level of Executive's participation therein relative to other
participants;
(iv) the Company's requiring Executive, without his consent, to be
based at any office or location other than in Walton County, Georgia or to
travel on Company business to a substantially greater extent than required
immediately prior to the Effective Date;
(v) any failure by the Company to comply with and satisfy
Section 12(c) of this Agreement; or
(vi) the material breach by the Company of any provision of this
Agreement, excluding an isolated, insubstantial and inadvertent action not taken
in bad faith and which is remedied by the Company promptly after receipt of
notice thereof given by Executive.
Good Reason shall not include Executive's death or Disability. The Company
shall have an opportunity to cure any claimed event of Good Reason (other than
under clause (iii) above) within 30 days of notice from Executive. The Company
shall notify Executive of the claimed cure of any claimed event of Good Reason
and the manner in which such claimed cure was effected, and, if accepted by
Executive, any Notice of Termination delivered by Executive based on such
claimed Good Reason shall be deemed withdrawn and shall not be effective to
terminate the Agreement. Executive's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any circumstances
constituting Good Reason hereunder.
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(d) NOTICE OF TERMINATION. Any termination by the Company for Cause,
or by Executive for Good Reason, shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 13(f) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
Executive's employment under the provision so indicated and (iii) specifies the
termination date. If a dispute exists concerning the provisions of this
Agreement that apply to Executive's termination of employment, the parties shall
pursue the resolution of such dispute with reasonable diligence.
(e) DATE OF TERMINATION. "Date of Termination" means (i) if
Executive's employment is terminated other than by reason of death or
Disability, the date of receipt of the Notice of Termination, or any later date
specified therein, or (ii) if Executive's employment is terminated by reason of
death or Disability, the Date of Termination will be the date of death or the
Disability Effective Date, as the case may be.
7. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) TERMINATION BY EXECUTIVE FOR GOOD REASON; TERMINATION BY THE
COMPANY OTHER THAN FOR CAUSE. If, during the Employment Period, the Company
shall terminate Executive's employment other than for Cause, or Executive shall
terminate employment for Good Reason within a period of 90 days after the
occurrence of the event giving rise to Good Reason, then and, with respect to
the payments and benefits described in clauses (i)(B) and (ii) below, only if
Executive executes a Release in substantially the form of EXHIBIT A hereto (the
"Release"):
(i) the Company shall pay to Executive in a lump sum in cash within
30 days after the Date of Termination the aggregate of the following amounts:
A. the sum of (1) Executive's Base Salary through the Date of
Termination to the extent not theretofore paid, (2) the product of
(x) Executive's target annual bonus, if any, for the year in which the Date
of Termination occurred (the "Target Annual Bonus") and (y) a fraction, the
numerator of which is the number of days in the current fiscal year through
the Date of Termination, and the denominator of which is 365, and (3) any
accrued vacation pay to the extent not theretofore paid, and (4) unless
Executive has elected a different payout date in a prior deferral election,
any compensation previously deferred by Executive (together with any accrued
interest or earnings thereon) to the extent not theretofore paid (the sum of
the amounts described in clauses (1), (2), (3) and (4) shall be hereinafter
referred to as the "Accrued Obligations"); and
B. the amount equal to one times the sum of (1) Executive's Base Salary
in effect as of the Date of Termination, and (2) the Target Annual Bonus;
and
(ii) for one year after the Date of Termination, or such longer
period as may be provided by the terms of the appropriate plan, program,
practice or policy, the Company shall continue benefits to Executive and/or
Executive's family at least equal to those which would have been provided to
them in accordance with the Welfare Plans described in Section 5(c) of this
Agreement if Executive's employment had not been terminated or, if more
favorable to Executive, as in effect generally at any time thereafter with
respect to other Peer Executives and their families, provided, however, that if
Executive becomes re-employed with another employer and is eligible to receive
medical or other welfare benefits under another employer provided plan, the
medical and other welfare benefits described herein shall be secondary to those
provided under such other plan during such applicable period of eligibility; and
(iii) all of Executive's outstanding stock options and other
incentive awards from the Company in the nature of rights that may be exercised
shall become fully exercisable and all restrictions on Executive's outstanding
awards of restricted stock shall lapse; and
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(iv) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to Executive any other amounts or benefits required
to be paid or provided or which Executive is eligible to receive under any plan,
program, policy or practice or contract or agreement of the Company (such other
amounts and benefits shall be hereinafter referred to as the "Other Benefits").
(b) DEATH; DISABILITY OR RETIREMENT. If Executive's employment is
terminated by reason of Executive's death, Disability or Retirement during the
Employment Period, this Agreement shall terminate without further obligations to
Executive or his legal representatives under this Agreement, other than for
payment of Accrued Obligations and the timely payment or provision of Other
Benefits. Accrued Obligations shall be paid to Executive's estate or
beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of
Termination. With respect to the provision of Other Benefits, the term Other
Benefits as used in this Section 7(b) shall include, without limitation, and
Executive's estate and/or beneficiaries shall be entitled to receive, benefits
under such plans, programs, practices and policies relating to death, disability
or retirement benefits, if any, as are applicable to Executive on the Date of
Termination.
(c) TERMINATION FOR CAUSE OR VOLUNTARY TERMINATION WITHOUT GOOD
REASON. If Executive's employment shall be terminated for Cause during the
Employment Period, or if Executive voluntarily terminates employment during the
Employment Period without Good Reason, this Agreement shall terminate without
further obligations to Executive, other than for payment of Accrued Obligations
(excluding the pro-rata bonus described in clause 2 of Section 7(a)(i)(A)) and
the timely payment or provision of Other Benefits.
8. NON-EXCLUSIVITY OF RIGHTS; FULL SETTLEMENT. Nothing in this Agreement
shall prevent or limit Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company and for which
Executive may qualify, nor, subject to Section 13(d), shall anything herein
limit or otherwise affect such rights as Executive may have under any contract
or agreement with the Company. Amounts which are vested benefits or which
Executive is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement. The Company's
obligation to make the payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action which the
Company may have against Executive or others.
9. REPRESENTATIONS AND WARRANTIES. Executive hereby represents and
warrants to the Company that Executive is not a party to, or otherwise subject
to, any covenant not to compete with any person or entity, and Executive's
execution of this Agreement and performance of his obligations hereunder will
not violate the terms or conditions of any contract or obligation, written or
oral, between Executive and any other person or entity.
10. RESTRICTIONS ON CONDUCT OF EXECUTIVE.
(a) GENERAL. Prior to the Effective Date, Walton has been engaged in
the business of banking and the provision of banking products and services.
Executive has been actively involved in such business activities on behalf of
Walton, and therefore has acquired intimate knowledge of, and experience related
to, such business, which if exploited by Executive in contravention of this
Agreement, would seriously, adversely and irreparably affect the ability of the
Company to derive the benefit or value from its acquisition of Walton. This
Agreement is a material inducement to the Company to enter into the Merger,
Executive will derive substantial benefit and value from the Merger, and the
Company would be unwilling to enter into the Merger if Executive did not enter
into this Agreement. Executive and the Company understand and agree that the
purpose of the provisions of this Section 10 is to protect legitimate business
interests of the Company, as more fully described
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below, and is not intended to impair or infringe upon Executive's right to work,
earn a living, or acquire and possess property from the fruits of his labor.
Executive hereby acknowledges that the post-employment restrictions set forth in
this Section 10 are reasonable and that they do not, and will not, unduly impair
his ability to earn a living after the termination of this Agreement. Therefore,
subject to the limitations of reasonableness imposed by law, Executive shall be
subject to the restrictions set forth in this Section 10.
(b) DEFINITIONS. The following capitalized terms used in this
Section 10 shall have the meanings assigned to them below, which definitions
shall apply to both the singular and the plural forms of such terms:
"COMPETITIVE POSITION" means any employment with a Competitor in
which Executive will use or is likely to use any Confidential Information or
Trade Secrets, or in which Executive has duties for such Competitor that relate
to Competitive Services and that are the same or similar to those services
actually performed by Executive for the Company;
"COMPETITIVE SERVICES" means the provision of banking products
and services similar in scope to those provided by Walton as of the Effective
Date. The definition of Competitive Services shall be amended from time to time,
by the addition of an Appendix I to this Agreement executed by both parties, so
as to more accurately reflect the Company's actual banking business activities
engaged in by Executive on behalf of the Company and its subsidiaries as they
may change over the course of the Employment Period.
"COMPETITOR" means any Person engaged, wholly or in part, in
Competitive Services.
"CONFIDENTIAL INFORMATION" means all information regarding the
Company, its activities, business or clients that is the subject of reasonable
efforts by the Company to maintain its confidentiality and that is not generally
disclosed by practice or authority to persons not employed by the Company, but
that does not rise to the level of a Trade Secret. "Confidential Information"
shall include, but is not limited to, financial plans and data concerning the
Company; management planning information; business plans; operational methods;
market studies; marketing plans or strategies; product development techniques or
plans; customer lists; details of customer contracts; current and anticipated
customer requirements; past, current and planned research and development;
business acquisition plans; and new personnel acquisition plans. "Confidential
Information" shall not include information that has become generally available
to the public by the act of one who has the right to disclose such information
without violating any right or privilege of the Company. This definition shall
not limit any definition of "confidential information" or any equivalent term
under state or federal law.
"DETERMINATION DATE" means the date of termination of
Executive's employment with the Company for any reason whatsoever or any earlier
date (during the Employment Period) of an alleged breach of the Restrictive
Covenants by Executive.
"PERSON" means any individual or any corporation, partnership,
joint venture, limited liability company, association or other entity or
enterprise.
"PRINCIPAL OR REPRESENTATIVE" means a principal, owner, partner,
shareholder, joint venturer, investor, member, trustee, director, officer,
manager, employee, agent, representative or consultant.
"PROTECTED CUSTOMERS" means any Person to whom the Company has
sold its products or services or solicited to sell its products or services
during the twelve (12) months prior to the Determination Date.
"PROTECTED EMPLOYEES" means employees of the Company who were
employed by the Company at any time within six (6) months prior to the
Determination Date.
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"RESTRICTED PERIOD" means the Employment Period and a period
extending one (1) year from the Date of Termination.
"RESTRICTED TERRITORY" means the areas within a 25 mile radius
of the retail offices of the Company or its subsidiaries located in the
following Georgia communities: Monroe and Loganville. The definition of
Restricted Territory shall be amended from time to time, by the addition of an
Appendix I to this Agreement executed by both parties, so as to more accurately
reflect the territory in which Executive conducts Competitive Services on behalf
of the Company over the course of the Employment Period.
"RESTRICTIVE COVENANTS" means the restrictive covenants
contained in Section 10(c) hereof.
"TRADE SECRET" means all information, without regard to form,
including, but not limited to, technical or nontechnical data, a formula, a
pattern, a compilation, a program, a device, a method, a technique, a drawing, a
process, financial data, financial plans, product plans, distribution lists or a
list of actual or potential customers, advertisers or suppliers which is not
commonly known by or available to the public and which information: (A) derives
economic value, actual or potential, from not being generally known to, and not
being readily ascertainable by proper means by, other persons who can obtain
economic value from its disclosure or use; and (B) is the subject of efforts
that are reasonable under the circumstances to maintain its secrecy. Without
limiting the foregoing, Trade Secret means any item of confidential information
that constitutes a "trade secret(s)" under the common law or statutory law of
the State of Georgia.
(c) RESTRICTIVE COVENANTS.
(i) RESTRICTION ON DISCLOSURE AND USE OF CONFIDENTIAL INFORMATION
AND TRADE SECRETS. Executive understands and agrees that the Confidential
Information and Trade Secrets constitute valuable assets of the Company and its
affiliated entities, and may not be converted to Executive's own use.
Accordingly, Executive hereby agrees that Executive shall not, directly or
indirectly, at any time during the Restricted Period reveal, divulge, or
disclose to any Person not expressly authorized by the Company any Confidential
Information, and Executive shall not, directly or indirectly, at any time during
the Restricted Period use or make use of any Confidential Information in
connection with any business activity other than that of the Company. Throughout
the term of this Agreement and at all times after the date that this Agreement
terminates for any reason, Executive shall not directly or indirectly transmit
or disclose any Trade Secret of the Company to any Person, and shall not make
use of any such Trade Secret, directly or indirectly, for himself or for others,
without the prior written consent of the Company. The parties acknowledge and
agree that this Agreement is not intended to, and does not, alter either the
Company's rights or Executive's obligations under any state or federal statutory
or common law regarding trade secrets and unfair trade practices.
Anything herein to the contrary notwithstanding, Executive shall not be
restricted from disclosing or using Confidential Information that is required to
be disclosed by law, court order or other legal process; PROVIDED, HOWEVER, that
in the event disclosure is required by law, Executive shall provide the Company
with prompt notice of such requirement so that the Company may seek an
appropriate protective order prior to any such required disclosure by Executive.
(ii) NONSOLICITATION OF PROTECTED EMPLOYEES. Executive understands
and agrees that the relationship between the Company and each of its Protected
Employees constitutes a valuable asset of the Company and may not be converted
to Executive's own use. Accordingly, Executive hereby agrees that during the
Restricted Period Executive shall not directly or indirectly on Executive's own
behalf or as a Principal or Representative of any Person or otherwise solicit or
induce any Protected Employee to terminate his or her employment relationship
with the Company or to enter into employment with any other Person.
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(iii) RESTRICTION ON RELATIONSHIPS WITH PROTECTED
CUSTOMERS. Executive understands and agrees that the relationship between the
Company and each of its Protected Customers constitutes a valuable asset of the
Company and may not be converted to Executive's own use. Accordingly, Executive
hereby agrees that, during the Restricted Period, Executive shall not, without
the prior written consent of the Company, directly or indirectly, on Executive's
own behalf or as a Principal or Representative of any Person, solicit, divert,
take away or attempt to solicit, divert or take away a Protected Customer for
the purpose of providing or selling Competitive Services; provided, however,
that the prohibition of this covenant shall apply only to Protected Customers
with whom Executive had Material Contact on the Company's behalf during the
twelve (12) months immediately preceding the termination of his employment
hereunder. For purposes of this Agreement, Executive had "Material Contact" with
a Protected Customer if (a) he had business dealings with the Protected Customer
on the Company's behalf; (b) he was responsible for supervising or coordinating
the dealings between the Company and the Protected Customer; or (c) he obtained
Trade Secrets or Confidential Information about the customer as a result of his
association with the Company.
(iv) NONCOMPETITION WITH THE COMPANY. The parties acknowledge:
(A) that Executive's services under this Agreement require special expertise and
talent in the provision of Competitive Services and that Executive will have
substantial contacts with customers of the Company; (B) that pursuant to this
Agreement, Executive will be placed in a position of trust and responsibility
and he will have access to a substantial amount of Confidential Information and
Trade Secrets and that the Company is placing him in such position and giving
him access to such information in reliance upon his agreement not to compete
with the Company during the Restricted Period; (C) that due to his management
duties, Executive will be the repository of a substantial portion of the
goodwill of the Company and would have an unfair advantage in competing with the
Company; (D) that due to Executive's special experience and talent, the loss of
Executive's services to the Company under this Agreement cannot reasonably or
adequately be compensated solely by damages in an action at law; (E) that
Executive is capable of competing with the Company; and (F) that Executive is
capable of obtaining gainful, lucrative and desirable employment that does not
violate the restrictions contained in this Agreement. In consideration of the
compensation and benefits being paid and to be paid by the Company to Executive
hereunder, Executive hereby agrees that, during the Restricted Period, Executive
will not, without prior written consent of the Company, directly or indirectly
seek or obtain a Competitive Position in the Restricted Territory with a
Competitor; PROVIDED, HOWEVER, that the provisions of this Agreement shall not
be deemed to prohibit the ownership by Executive of any securities of the
Company or its affiliated entities or not more than five percent (5%) of any
class of securities of any corporation having a class of securities registered
pursuant to the Securities Exchange Act of 1934, as amended.
(d) ENFORCEMENT OF RESTRICTIVE COVENANTS.
(i) RIGHTS AND REMEDIES UPON BREACH. In the event Executive
breaches, or threatens to commit a breach of, any of the provisions of the
Restrictive Covenants, the Company shall have the right and remedy to enjoin,
preliminarily and permanently, Executive from violating or threatening to
violate the Restrictive Covenants and to have the Restrictive Covenants
specifically enforced by any court of competent jurisdiction, it being agreed
that any breach or threatened breach of the Restrictive Covenants would cause
irreparable injury to the Company and that money damages would not provide an
adequate remedy to the Company. Such right and remedy shall be in addition to,
and not in lieu of, any other rights and remedies available to the Company at
law or in equity.
(ii) SEVERABILITY OF COVENANTS. Executive acknowledges and agrees
that the Restrictive Covenants are reasonable and valid in time and scope and in
all other respects. The covenants set forth in this Agreement shall be
considered and construed as separate and independent covenants. Should any part
or provision of any covenant be held invalid, void or unenforceable in any court
of competent jurisdiction, such invalidity, voidness or unenforceability shall
not render invalid, void or unenforceable
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any other part or provision of this Agreement. If any portion of the foregoing
provisions is found to be invalid or unenforceable by a court of competent
jurisdiction because its duration, the territory, the definition of activities
or the definition of information covered is considered to be invalid or
unreasonable in scope, the invalid or unreasonable term shall be redefined, or a
new enforceable term provided, such that the intent of the Company and Executive
in agreeing to the provisions of this Agreement will not be impaired and the
provision in question shall be enforceable to the fullest extent of the
applicable laws.
(iii) REFORMATION. The parties hereunder agree that it is their
intention that the Restrictive Covenants be enforced in accordance with their
terms to the maximum extent possible under applicable law. The parties further
agree that, in the event any court of competent jurisdiction shall find that any
provision hereof is not enforceable in accordance with its terms, the court
shall reform the Restrictive Covenants such that they shall be enforceable to
the maximum extent permissible at law.
11. ARBITRATION. Any claim or dispute arising under this Agreement shall
be subject to arbitration, and prior to commencing any court action, the parties
agree that they shall arbitrate all controversies. The arbitration shall be
conducted in Atlanta, Georgia, in accordance with the Employment Dispute Rules
of the American Arbitration Association and the Federal Arbitration Act, 9
U.S.C. Section1, ET. SEQ. The arbitrator(s) shall be authorized to award both
liquidated and actual damages, in addition to injunctive relief, but no punitive
damages. Such an award shall be binding and conclusive upon the parties hereto,
subject to 9 U.S.C. Section10. Each party shall have the right to have the award
made the judgment of a court of competent jurisdiction.
12. ASSIGNMENT AND SUCCESSORS.
(a) This Agreement is personal to Executive and without the prior
written consent of the Company shall not be assignable by Executive otherwise
than by will or the laws of descent and distribution. This Agreement shall inure
to the benefit of and be enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place.
13. MISCELLANEOUS.
(a) WAIVER. Failure of any party to insist, in one or more instances,
on performance by the other in strict accordance with the terms and conditions
of this Agreement shall not be deemed a waiver or relinquishment of any right
granted in this Agreement or of the future performance of any such term or
condition or of any other term or condition of this Agreement, unless such
waiver is contained in a writing signed by the party making the waiver.
(b) SEVERABILITY. If any provision or covenant, or any part thereof,
of this Agreement should be held by any court to be invalid, illegal or
unenforceable, either in whole or in part, such invalidity, illegality or
unenforceability shall not affect the validity, legality or enforceability of
the remaining provisions or covenants, or any part thereof, of this Agreement,
all of which shall remain in full force and effect.
(c) OTHER AGENTS. Nothing in this Agreement is to be interpreted as
limiting the Company from employing other personnel on such terms and conditions
as may be satisfactory to it.
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(d) ENTIRE AGREEMENT. Except as provided herein, this Agreement
contains the entire agreement between the Company and Executive with respect to
the subject matter hereof and, from and after the Effective Date, this Agreement
shall supersede any other agreement between the parties with respect to the
subject matter hereof.
(e) GOVERNING LAW. Except to the extent preempted by federal law, and
without regard to conflict of laws principles, the laws of the State of Georgia
shall govern this Agreement in all respects, whether as to its validity,
construction, capacity, performance or otherwise.
(f) NOTICES. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if delivered or three days after mailing if mailed, first class,
certified mail, postage prepaid:
<TABLE>
<S> <C>
To Company: First Sterling Banks, Inc.
Edward C. Milligan, President and CEO
1200 Barrett Parkway
Kennesaw, Georgia 30144
To Main Street: Main Street Bank
Sam B. Hay, CEO
----------------------------
----------------------------
To Executive: W. Morris Jordan
510 Riverbend Road
Monroe, Georgia 30655
</TABLE>
Any party may change the address to which notices, requests, demands and other
communications shall be delivered or mailed by giving notice thereof to the
other parties in the same manner provided herein.
(g) AMENDMENTS AND MODIFICATIONS. This Agreement may be amended or
modified only by a writing signed by both parties hereto, which makes specific
reference to this Agreement.
(h) CONSTRUCTION. Each party and his or its counsel have reviewed this
Agreement and have been provided the opportunity to revise this Agreement and
accordingly, the normal rule of construction to the effect that any ambiguities
are to be resolved against the drafting party shall not be employed in the
interpretation of this Agreement. Instead, the language of all parts of this
Agreement shall be construed as a whole, and according to its fair meaning, and
not strictly for or against any party.
(i) NO SET-OFF, ETC. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and, except as
expressly provided herein, such amounts shall not be reduced whether or not the
Executive obtains other employment.
(j) COSTS OF ENFORCEMENT. In any action taken in good faith relating
to the enforcement of this Agreement or any provision herein, Executive shall be
entitled to be paid any and all costs and expenses incurred by him in enforcing
or establishing his rights thereunder, including, without limitation, reasonable
attorneys' fees, whether suit be brought or not, and whether or not incurred in
trial, bankruptcy or appellate proceedings.
(SIGNATURES ON FOLLOWING PAGE)
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this
Agreement as of the date first above written.
<TABLE>
<S> <C> <C>
FIRST STERLING BANKS, INC.
By:
----------------------------
Title:
----------------------------
MAIN STREET BANK
By:
----------------------------
Title:
----------------------------
EXECUTIVE:
----------------------------
W. Morris Jordan
</TABLE>
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<PAGE>
EXHIBIT A
FORM OF RELEASE
THIS RELEASE ("Release") is granted effective as of the day of ,
, by W. Morris Jordan ("Executive") in favor of First Sterling
Banks, Inc. (the "Company"). This is the Release referred to that certain
Employment Agreement dated as of , 2000 by and between the Company and
Executive (the "Employment Agreement"). Executive gives this Release in
consideration of the Company's promises and covenants as recited in the
Employment Agreement, with respect to which this Release is an integral part.
1. RELEASE OF THE COMPANY. Executive, for himself, his successors,
assigns, attorneys, and all those entitled to assert his rights, now and forever
hereby releases and discharges the Company and its respective officers,
directors, stockholders, trustees, employees, agents, parent corporations,
subsidiaries, affiliates, estates, successors, assigns and attorneys ("the
Released Parties"), from any and all claims, actions, causes of action, sums of
money due, suits, debts, liens, covenants, contracts, obligations, costs,
expenses, damages, judgments, agreements, promises, demands, claims for
attorney's fees and costs, or liabilities whatsoever, in law or in equity, which
Executive ever had or now has against the Released Parties, including any claims
arising by reason of or in any way connected with any employment relationship
which existed between the Company or any of its parents, subsidiaries,
affiliates, or predecessors, and Executive. It is understood and agreed that
this Release is intended to cover all actions, causes of action, claims or
demands for any damage, loss or injury, which may be traced either directly or
indirectly to the aforesaid employment relationship, or the termination of that
relationship, that Executive has, had or purports to have, from the beginning of
time to the date of this Release, whether known or unknown, that now exists, no
matter how remotely they may be related to the aforesaid employment relationship
including but not limited to claims for employment discrimination under federal
or state law, except as provided in Paragraph 2; claims arising under Title VII
of the Civil Rights Act, 42 U.S.C. Section 2000(e), ET SEQ. or the Americans
With Disabilities Act, 42 U.S.C. Section 12101 ET SEQ.; claims for statutory or
common law wrongful discharge, including any claims arising under the Fair Labor
Standards Act, 29 U.S.C. Section 201 ET SEQ.; claims for attorney's fees,
expenses and costs; claims for defamation; claims for wages or vacation pay;
claims for benefits, including any claims arising under the Executive Retirement
Income Security Act, 29 U.S.C. Section 1001, ET SEQ.; and provided, however,
that nothing herein shall release the Company of its obligations to Executive
under the Employment Agreement, the Merger Agreement or any other contractual
obligations between the Company or its affiliates and Executive, or any
indemnification obligations to Executive under the Company's bylaws, articles of
incorporation, Georgia law or otherwise.
2. RELEASE OF CLAIMS UNDER AGE DISCRIMINATION IN EMPLOYMENT ACT. Without
limiting the generality of the foregoing, Executive agrees that by executing
this Release, he has released and waived any and all claims he has or may have
as of the date of this Release for age discrimination under the Age
Discrimination in Employment Act, 29 U.S.C. Section 621, ET SEQ. It is
understood that Executive is advised to consult with an attorney prior to
executing this Release; that he in fact has consulted a knowledgeable, competent
attorney regarding this Release; that he may, before executing this Release,
consider this Release for a period of twenty-one (21) calendar days; and that
the consideration he receives for this Release is in addition to amounts to
which he was already entitled. It is further understood that this Release is not
effective until seven (7) calendar days after the execution of this Release and
that Executive may revoke this Release within seven (7) calendar days from the
date of execution hereof.
Executive agrees that he has carefully read this Release and is signing it
voluntarily. Executive acknowledges that he has had twenty one (21) days from
receipt of this Release to review it prior to signing or that, if Executive is
signing this Release prior to the expiration of such 21-day period, Executive is
waiving his right to review the Release for such full 21-day period prior to
signing it.
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<PAGE>
Executive has the right to revoke this release within seven (7) days following
the date of its execution by him. However, if Executive revokes this Release
within such seven (7) day period, no severance benefit will be payable to him
under the Employment Agreement and he shall return to the Company any such
payment received prior to that date.
EXECUTIVE HAS CAREFULLY READ THIS RELEASE AND ACKNOWLEDGES THAT IT
CONSTITUTES A GENERAL RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS AGAINST THE
COMPANY UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT. EXECUTIVE ACKNOWLEDGES
THAT HE HAS HAD A FULL OPPORTUNITY TO CONSULT WITH AN ATTORNEY OR OTHER ADVISOR
OF HIS CHOOSING CONCERNING HIS EXECUTION OF THIS RELEASE AND THAT HE IS SIGNING
THIS RELEASE VOLUNTARILY AND WITH THE FULL INTENT OF RELEASING THE COMPANY FROM
ALL SUCH CLAIMS.
--------------------------------------------------------------------
W. Morris Jordan
Date:
--------------------------------------------------------------------
A-42
<PAGE>
APPENDIX B TO JOINT
PROXY STATEMENT/PROSPECTUS
GEORGIA DISSENTERS' RIGHTS STATUTE
GEORGIA FINANCIAL INSTITUTIONS CODE
7-1-537. RIGHTS OF DISSENTING SHAREHOLDERS; SURRENDER OF CERTIFICATES
(a) A shareholder of a bank or trust company which is a party to a plan of
proposed merger or consolidation under this part who objects to the plan shall
be entitled to the rights and remedies of a dissenting shareholder as determined
under Chapter 2 of Title 14, known as the "Georgia Business Corporation Code."
(b) The bank or trust company into which the other or others have been
merged or consolidated, as the case may be, shall have the right to require the
return of the original certificates of stock held by each shareholder in each or
either of the institutions and in lieu thereof;
(1) To issue to each shareholder new certificates for such number of
shares of the institution into which the others shall have been merged or
consolidated; or
(2) To cause to be paid or delivered to each shareholder the amount of
cash or securities of any other corporation or combination of cash and such
securities as, under the plan of merger or consolidation, the said sharer
may be entitled to receive.
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.
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<PAGE>
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:
(A) If approval of the shareholder of the corporation is required for
the merger by Code Section 14-2-1103 or 14-2-1104 or the articles of
incorporation and the shareholder is entitled to vote on the merger; or
(B) If the corporation is a subsidiary that is merged with its parent
under Code Section 14-2-1104;
(2) Consummation of a plan of share exchange to which the corporation is
a party as the corporation whose shares will be acquired, if the shareholder
is entitled to vote on the plan;
(3) Consummation of a sale or exchange of all or substantially all of
the property of the corporation if a shareholder vote is required on the
sale or exchange pursuant to Code Section 14-2-1202, but not including a
sale pursuant to court order or a sale for cash pursuant to a plan by which
all or substantially all of the net proceeds of the sale will be distributed
to the shareholders within one year after the date of sale;
(4) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preferential right of the shares;
(B) Creates, alters or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities;
(D) Excludes or limits the right of the shares to vote on any matter,
or to cumulate votes, other than a limitation by dilution through
issuance of shares or other securities with similar voting rights;
(E) Reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be acquired
for cash under Code Section 14-2-604; or
(F) Cancels, redeems or repurchases all or part of the shares of the
class; or
(5) Any corporate action taken pursuant to a shareholder vote to the
extent that Article 9 of this chapter, the articles of incorporation,
bylaws, or a resolution of the board of 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
entitlement unless the corporate action fails to comply with procedural
requirements of this chapter or the articles of incorporation or bylaws of the
corporation or the vote required to obtain approval of the corporate action was
obtained by fraudulent and deceptive means, regardless of whether the
shareholder has exercised dissenter's rights.
(c) Notwithstanding any other provision of this article, there shall be no
right of dissent in favor of the holder of shares of any class or series which,
at the record date fixed to determine the shareholders entitled to receive
notice of and to vote at a meeting at which a plan of merger or share exchange
or a sale or exchange of property or an amendment of the articles of
incorporation is to be
B-2
<PAGE>
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 no later than ten days after the corporate action was taken.
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.
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<PAGE>
(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.
(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.
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<PAGE>
(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 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 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.
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
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<PAGE>
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 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, an amount
the court finds equitable, to the extent the court finds the dissenters acted
arbitrarily, vexatiously, or not in good faith in demanding payment under Code
Section 14-2-1327.
(b) The court may also assess the fees and expenses of attorneys and experts
for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the
requirements of Code Sections 14-2-1320 through 14-2-1327; or
(2) Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses
are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by this article.
(c) If the court finds that the services of attorneys for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these attorneys reasonable fees to be paid out of the amounts awarded
the dissenters who were benefited.
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 corporation 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.
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<PAGE>
APPENDIX C TO JOINT
PROXY STATEMENT/PROSPECTUS
<PAGE>
[LETTERHEAD OF BROWN, BURKE CAPITAL PARTNERS, LLC]
December , 2000
Board of Directors
Walton Bank & Trust Company
1302 West Spring Street
Monroe, GA 30655
Dear Members of the Board:
You have asked us to advise you with respect to the fairness to the
shareholders and optionholders of Walton Bank & Trust Company (the "Company"),
from a financial point of view, of the exchange ratio and merger agreement terms
(the "Exchange Ratio and Terms") provided for in the Agreement and Plan of
Merger (the "Merger Agreement") dated September 26, 2000 between the Company and
First Sterling Banks, Inc. ("First Sterling"). The Merger Agreement provides for
a merger (the "Merger") of the Company and First Sterling pursuant to which the
common shareholders of the Company will receive 2.752 common shares of First
Sterling for every common share of the Company they hold and optionholders shall
receive the right to 2.752 shares of First Sterling common stock for each option
to purchase a share of the Company they hold. The exercise price per share for
each of the options to acquire common stock of the Company shall be adjusted by
dividing the original exercise price by 2.752.
In arriving at our opinion, we have reviewed certain publicly available
business and financial information relating to First Sterling and the Company.
We have also reviewed certain other information, including financial forecasts
and budgets, provided to us by First Sterling and the Company, and have
discussed with First Sterling's and the Company's managements the business and
prospects of First Sterling and the Company.
We have also considered certain financial and stock market data of First
Sterling and the Company and we have compared that data with similar data for
other publicly held bank holding companies and we have considered the financial
terms of certain other comparable transactions which have recently been
effected. We also considered such other information, financial studies, analyses
and investigations and financial, economic and market criteria which we deemed
relevant. In connection with our review, we have not independently verified any
of the foregoing information and have relied on its being complete and accurate
in all material respects. With respect to the financial forecasts and budgets,
we have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of First Sterling's and the
Company's managements as to the future financial performance of First Sterling
and the Company. In addition, we have not made an independent evaluation or
appraisal of the assets of First Sterling or the Company and we have assumed
that the aggregate allowances for loan losses for First Sterling and the Company
are adequate to cover such losses. We have solicited third party indications of
interest in acquiring the Company and have considered the results of that
solicitation in arriving at our opinion.
It should be noted that this opinion is based on market conditions and other
circumstances existing on the date hereof and this opinion does not represent
our views as to what the value of the First Sterling common stock necessarily
will be when the First Sterling common stock is issued to the stockholders of
the Company upon consummation of the Merger.
We have acted as financial advisor to the Company in connection with the
Merger and will receive a fee for our services, a significant portion of which
is contingent upon the consummation of the Merger.
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<PAGE>
Board of Directors
Walton Bank & Trust Company
November , 2000
Page Two
We agree to the inclusion of this opinion letter in the Proxy
Statement/Prospectus relating to the Merger. The opinion may not, however, be
summarized, excerpted from or otherwise publicly referred to without our prior
written consent.
Based upon and subject to the foregoing, it is our opinion that as of the
date hereof, the Exchange Ratio and Terms of the Merger are fair to the common
shareholders and optionholders of the Company from a financial point of view.
Very truly yours,
BROWN, BURKE CAPITAL PARTNERS, L.L.C.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 14-2-850 through 14-2-859 of the Georgia Business Corporation Code
set forth provisions pertaining to the indemnification of and insurance for
directors and officers of a corporation. The Georgia Business Corporation Code
provides for the mandatory indemnification of a director, against reasonable
expenses incurred by the director in connection with a proceeding, where a
director is wholly successful in the defense of the proceeding and where the
proceeding is one to which he or she was a party because he or she was a
director of the corporation. The Georgia Business Corporation Code grants the
Registrant the power to indemnify its directors and officers against liability
for certain of their acts.
Article 10 of the Registrant's Articles of Incorporation limits the
liability of directors of the Registrant. A description of this provision is
included under the heading "Comparison of the rights of holders of Walton Bank
stock and First Sterling stock--Limitation of liability and indemnification of
directors, officers and employees" 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 provides for indemnification of and
insurance for directors and officers of the Registrant. A description of this
provision is also included under the heading set forth above 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
--------------------- ------------------------------------------------------------
<C> <S>
2.1 Merger Agreement dated September 26, 2000, among the
Registrant, Main Street Bank and Walton Bank & Trust Co.,
included as APPENDIX A to the Proxy Statement/Prospectus set
forth in Part I of the Registration Statement
3.1 Restated Articles of Incorporation of First Sterling
Banks, Inc.
3.3 Bylaws of First Sterling Banks, Inc. (incorporated by
reference to Exhibit 3.2 to Registration Statement
No. 33-78046 of Form S-4)
4.1 See page 1 of Registrant's Articles of Incorporation
(defining its common stock)
5.1 Opinion of Miller & Martin LLP as to the legality of the
securities being registered
8.1 Form of Opinion of Miller & Martin LLP as to certain federal
income tax consequences of the Merger
10.1 Registrant's 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)
(incorporated by reference)
10.2 Form of Registrant's 1994 Incentive Stock Option Agreement
filed as Exhibit 4.5 to Form S-8 (File No. 33-97300)
(incorporated by reference)
10.3 Registrant's 1995 Directors Stock Option Plan filed as
Exhibit 4.4 to Form S-8 (File No. 33-81053) (incorporated
by reference)
10.4 Form of Registrant's 1995 Directors Stock Option Agreement
filed as Exhibit 4.5 to Form S-8 (File No. 33-81053)
(incorporated by reference)
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--------------------- ------------------------------------------------------------
<C> <S>
10.5 Registrant's 1996 Substitute Incentive Stock Option Plan
filed as Exhibit 4.1 to Form S-8 (File No. 333-15069)
(incorporated by reference)
10.6 Form of Registrant's 1996 Substitute Incentive Stock Option
Agreement filed as Exhibit 4.2 to Form S-8 (File
No. 333-15069) (incorporated by reference)
10.7 Registrant's 1997 Directors Stock Option Plan filed as
Exhibit 4.1 to Form S-8 (File No. 333-56473) (incorporated
by reference)
10.8 Form of Registrant's 1997 Directors Stock Option Agreement
filed as Exhibit 4.2 to Form S-8 (File No. 333-56473)
(incorporated by reference)
10.9 Registrant's 1997 Incentive Stock Option Plan filed as
Exhibit 4.1 to Form S-8 (File No. 333-74555) (incorporated
by reference)
10.10 Form of Registrant's 1997 Incentive Stock Option Agreement
filed as Exhibit 4.2 to Form S-8 (File No. 333-74555)
(incorporated by reference)
10.11 Registrant's 1999 Directors Stock Option Plan included as
Exhibit 10.11 to Form S-4 (File No. 333-33844)
(incorporated by reference)
10.12 Form of Registrant's 1999 Directors Stock Option Agreement
filed as Exhibit 4.2 to Form S-8 (File No. 333-88645)
(incorporated by reference)
10.13 Employment Agreement dated May 24, 2000 between Registrant
and Edward C. Milligan
10.14 Employment Agreement dated May 24, 2000 between the
Registrant and Robert R. Fowler, III
10.15 Employment Agreement dated May 24, 2000 between the
Registrant and Sam B. Hay
10.16 Employment Agreement dated May 24, 2000 between the
Registrant and Joseph K. Strickland, Jr.
10.17 Employment Agreement dated January 5, 1998, between The
Eastside Bank & Trust Company and Christopher H. Burnett
filed as Exhibit 10.14 to Registrant's Form 10-KSB for the
year ended December 31, 1998 (incorporated by reference)
10.18 Employment Agreement dated January 1, 1998 between Community
Bank of Georgia and Ted A. Murphy filed as Exhibit 10.19 to
Form S-4 (File No. 333-33844) (incorporated by reference)
10.19 Proposed Employment Agreement, between the Registrant, Main
Street Bank and W. Morris Jordan, to be entered into upon
consummation of the merger of Main Street Bank and Walton
Bank included in Exhibit A to the merger agreement included
as APPENDIX A to the Proxy Statement/Prospectus set forth in
Part I of the Registration Statement
13.1 Registrant's Annual Report on Form 10-KSB for the year ended
December 31, 1999 (incorporated by reference)
23.1 Consents of Miller & Martin LLP are contained in its
opinions filed as Exhibits 5.1 and 8.1 hereto
23.2 Consent of Mauldin & Jenkins, LLC concerning the financial
statements of Walton Bank & Trust Co.
23.3 Consent of Ernst & Young LLP concerning the financial
statements of First Sterling Banks, Inc.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--------------------- ------------------------------------------------------------
<C> <S>
23.4 Consent of Porter Keadle Moore, LLP concerning the financial
statements of Georgia Bancshares, Inc.
23.5 Consent of Brown, Burke Capital Partners, L.L.C.
24 A Power of Attorney relating to this Registration Statement
is set forth on the signature pages to this Registration
Statement
99.1 Opinion of Brown, Burke Capital Partners, L.L.C. dated
, 2000 (included as APPENDIX C to the Joint
Proxy Statement/Prospectus)
99.2 Form of Proxy Card for the Special Meeting of Shareholders
of Walton Bank & Trust Co.
</TABLE>
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 end 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 a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement; and
(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.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
II-3
<PAGE>
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
(d) (1) The undersigned registrant hereby undertakes as follows: 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.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Act 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.
(e) 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, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(f) 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.
(g) 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, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Kennesaw, State of
Georgia, on the 27th day of November, 2000.
<TABLE>
<S> <C>
FIRST STERLING BANKS, INC.
/s/ EDWARD C. MILLIGAN
--------------------------------------------
Edward C. Milligan,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned constitutes and
appoints Edward C. Milligan his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments to this
Registration Statement (including pre- and post-effective amendments), and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto such
attorney-in-fact, full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises, as fully
to all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that such attorney-in-fact, or his substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
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
--------- ----- ----
<C> <S> <C>
/s/ EDWARD C. MILLIGAN President, Chief Executive Officer November 27, 2000
------------------------------------ and Director(1)
Edward C. Milligan
/s/ ROBERT R. FOWLER, III Director November 27, 2000
------------------------------------
Robert R. Fowler, III
/s/ SAM B. HAY, III Director November 27, 2000
------------------------------------
Sam B. Hay, III
/s/ C. CANDLER HUNT Director November 27, 2000
------------------------------------
C. Candler Hunt
/s/ FRANK B. TURNER Director November 27, 2000
------------------------------------
Frank B. Turner
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ EUGENE L. ARGO Director November 27, 2000
------------------------------------
Eugene L. Argo
/s/ P. HARRIS HINES Director November 27, 2000
------------------------------------
P. Harris Hines
/s/ HARRY L. HUDSON, JR. Director November 27, 2000
------------------------------------
Harry L. Hudson, Jr.
/s/ BARBARA J. BOND Secretary(2) November 27, 2000
------------------------------------
Barbara J. Bond
</TABLE>
------------------------
(1) Principal executive officer
(2) Principal financial and accounting officer
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--------------------- ------------------------------------------------------------
<C> <S>
2.1 Merger Agreement dated September 26, 2000, among the
Registrant, Main Street Bank and Walton Bank & Trust Co.,
included as APPENDIX A to the Proxy Statement/Prospectus
set forth in Part I of the Registration Statement
3.1 Restated Articles of Incorporation of First Sterling
Banks, Inc.
3.2 Bylaws of First Sterling Banks, Inc. (incorporated by
reference to Exhibit 3.2 to Registration Statement
No. 33-78046 of Form S-4)
4.1 See page 1 of Registrant's Articles of Incorporation
(defining its common stock)
5.1 Opinion of Miller & Martin LLP as to the legality of the
securities being registered
8.1 Form of Opinion of Miller & Martin LLP as to certain federal
income tax consequences of the Merger
10.1 Registrant's 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)
(incorporated by reference)
10.2 Form of Registrant's 1994 Incentive Stock Option Agreement
filed as Exhibit 4.5 to Form S-8 (File No. 33-97300)
(incorporated by reference)
10.3 Registrant's 1995 Directors Stock Option Plan filed as
Exhibit 4.4 to Form S-8 (File No. 33-81053) (incorporated
by reference)
10.4 Form of Registrant's 1995 Directors Stock Option Agreement
filed as Exhibit 4.5 to Form S-8 (File No. 33-81053)
(incorporated by reference)
10.5 Registrant's 1996 Substitute Incentive Stock Option Plan
filed as Exhibit 4.1 to Form S-8 (File No. 333-15069)
(incorporated by reference)
10.6 Form of Registrant's 1996 Substitute Incentive Stock Option
Agreement filed as Exhibit 4.2 to Form S-8 (File
No. 333-15069) (incorporated by reference)
10.7 Registrant's 1997 Directors Stock Option Plan filed as
Exhibit 4.1 to Form S-8 (File No. 333-56473) (incorporated
by reference)
10.8 Form of Registrant's 1997 Directors Stock Option Agreement
filed as Exhibit 4.2 to Form S-8 (File No. 333-56473)
(incorporated by reference)
10.9 Registrant's 1997 Incentive Stock Option Plan filed as
Exhibit 4.1 to Form S-8 (File No. 333-74555) (incorporated
by reference)
10.10 Form of Registrant's 1997 Incentive Stock Option Agreement
filed as Exhibit 4.2 to Form S-8 (File No. 333-74555)
(incorporated by reference)
10.11 Registrant's 1999 Directors Stock Option Plan included as
Exhibit 10.11 to Form S-4 (File No. 333-33844)
(incorporated by reference)
10.12 Form of Registrant's 1999 Directors Stock Option Agreement
filed as Exhibit 4.2 to Form S-8 (File No. 333-88645)
(incorporated by reference)
10.13 Employment Agreement dated May 24, 2000 between Registrant
and Edward C. Milligan
10.14 Employment Agreement dated May 24, 2000 between the
Registrant and Robert R. Fowler, III
10.15 Employment Agreement dated May 24, 2000 between the
Registrant and Sam B. Hay
10.16 Employment Agreement dated May 24, 2000 between the
Registrant and Joseph K. Strickland, Jr.
10.17 Employment Agreement dated January 5, 1998, between The
Eastside Bank & Trust Company and Christopher H. Burnett
filed as Exhibit 10.14 to Registrant's Form 10-KSB for the
year ended December 31, 1998 (incorporated by reference)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--------------------- ------------------------------------------------------------
<C> <S>
10.18 Employment Agreement dated January 1, 1998 between Community
Bank of Georgia and Ted A. Murphy filed as Exhibit 10.19
to Form S-4 (File No. 333-33844) (incorporated by
reference)
10.19 Proposed Employment Agreement, between the Registrant, Main
Street Bank and W. Morris Jordan, to be entered into upon
consummation of the merger of Main Street Bank and Walton
Bank included in Exhibit A to the merger agreement
included as APPENDIX A to the Proxy Statement/Prospectus
set forth in Part I of the Registration Statement
13.1 Registrant's Annual Report on Form 10-KSB for the year ended
December 31, 1999 (incorporated by reference)
23.1 Consents of Miller & Martin LLP are contained in its
opinions filed as Exhibits 5.1 and 8.1 hereto
23.2 Consent of Mauldin & Jenkins, LLC concerning the financial
statements of Walton Bank & Trust Co.
23.3 Consent of Ernst & Young LLP concerning the financial
statements of First Sterling Banks, Inc.
23.4 Consent of Porter Keadle Moore, LLP concerning the financial
statements of Georgia Bancshares, Inc.
23.5 Consent of Brown, Burke Capital Partners, L.L.C.
24 A Power of Attorney relating to this Registration Statement
is set forth on the signature pages to this Registration
Statement
99.1 Opinion of Brown, Burke Capital Partners, L.L.C. dated
, 2000 (included as APPENDIX C to the Joint
Proxy Statement/Prospectus)
99.2 Form of Proxy Card for the Special Meeting of Shareholders
of Walton Bank & Trust Co.
</TABLE>
