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REGISTRATION NO. 333-01247
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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THE COLONIAL BANCGROUP, INC.
(Exact name of Registrant as specified in its charter)
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DELAWARE 6711 63-0661573
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
ONE COMMERCE STREET, SUITE 800 (334) 240-5000
MONTGOMERY, ALABAMA 36104 (Telephone No.)
(Address of principal executive offices)
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W. FLAKE OAKLEY, IV
SECRETARY
POST OFFICE BOX 1108
MONTGOMERY, ALABAMA 36102
(Name and address of agent for service)
COPIES TO:
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MICHAEL D. WATERS, ESQUIRE ROD JONES, ESQ.
MILLER, HAMILTON, SNIDER & ODOM, L.L.C. SHUTTS & BOWEN
ONE COMMERCE STREET, SUITE 802 20 NORTH ORANGE AVENUE
P. O. BOX 19 ORLANDO, FLORIDA 32801
MONTGOMERY, ALABAMA 36101-0019
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON EACH SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
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THE COLONIAL BANCGROUP, INC.
CROSS REFERENCE SHEET
TO ITEMS IN FORM S-4
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<CAPTION>
CAPTION IN PROSPECTUS OR OTHER LOCATION
FORM S-4 ITEM NUMBER AND CAPTION IN REGISTRATION STATEMENT
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Item 1. Forepart of Registration Statement and Facing page, Cross Reference Sheet,
Outside Front Cover Page of Prospectus Outside front cover page of Prospectus
Item 2. Inside Front and Outside Back Cover "AVAILABLE INFORMATION," Inside front
Pages of Prospectus cover page of Prospectus, "DOCUMENTS
INCORPORATED BY REFERENCE," "TABLE OF
CONTENTS"
Item 3. Risk Factors, Ratio of Earnings to "SUMMARY," Cover Page of Prospectus,
Fixed Charges and Other Information "PER SHARE DATA," "THE MERGER," "PRO
FORMA FINANCIAL INFORMATION" AND
"SELECTED FINANCIAL DATA"
Item 4. Terms of the Transaction "THE MERGER," "DOCUMENTS INCORPORATED
BY REFERENCE"
Item 5. Pro Forma Financial Information "PER SHARE DATA," "CONDENSED PRO FORMA
STATEMENTS OF CONDITION," AND
"CONDENSED PRO FORMA STATEMENTS OF
INCOME"
Item 6. Material Contacts with the Company "THE MERGER -- Background of the
Merger," "SBC's Board of Directors'
Reasons for Approving the Merger," and
"Interests of Certain Persons in the
Merger"
Item 7. Additional Information Required for Not Applicable
Reoffering by Persons and Parties
Deemed to be Underwriters
Item 8. Interests of Named Experts and Counsel "LEGAL MATTERS" and "EXPERTS"
Item 9. Disclosure of Commission Position on Not Applicable; See Items 20 and 22
Indemnification for Securities Act below
Liabilities
Item 10. Information with Respect to S-3 "DOCUMENTS INCORPORATED BY REFERENCE,"
Registrants "BUSINESS OF BANCGROUP"
Item 11. Incorporation of Certain Information by "DOCUMENTS INCORPORATED BY REFERENCE"
Reference
Item 12. Information with Respect to S-2 or S-3 Not Applicable
Registrants -- Item 12(b)
Item 13. Incorporation of Certain Information by Not Applicable
Reference
Item 14. Information with Respect to Registrants Not Applicable
Other Than S-3 or S-2 Registrants
Item 15. Information with Respect to S-3 Not Applicable
Companies
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<CAPTION>
CAPTION IN PROSPECTUS OR OTHER LOCATION
FORM S-4 ITEM NUMBER AND CAPTION IN REGISTRATION STATEMENT
- --------------------------------------------------- ---------------------------------------
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Item 16. Information with Respect to S-2 or S-3 Not Applicable
Companies
Item 17. Information with Respect to Companies "BUSINESS OF SOUTHERN BANKING
Other than S-3 or S-2 Companies CORPORATION," "FINANCIAL STATEMENTS"
Item 18. Information if Proxies, Consents or "THE SPECIAL MEETING," "BUSINESS OF
Authorizations are to be Solicited BANCGROUP -- Voting Securities and
Principal Stockholders," "Security
Ownership of Management," "Management
Information"
Item 19. Information if Proxies, Consents or Not Applicable
Authorizations are not to be Solicited
or in an Exchange Offer
Item 20. Indemnification of Directors and PART II, Item 20
Officers
Item 21. Exhibits and Financial Statement PART II, Item 21
Schedules
Item 22. Undertakings PART II, Item 22
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SOUTHERN BANKING CORPORATION
201 EAST PINE STREET
ORLANDO, FLORIDA 32801
(407)481-8833
---------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 1996
---------------------
NOTICE IS HEREBY GIVEN that a special meeting of shareholders (the "Special
Meeting") of Southern Banking Corporation ("SBC") will be held at the office of
Southern Bank of Central Florida located at 919 West State Road 436, Altamonte
Springs, Florida, on , 1996, at p.m., local time, for the
following purposes:
1. Merger. To consider and vote upon the proposed merger (the
"Merger") of SBC with and into The Colonial BancGroup, Inc. ("BancGroup"),
in accordance with an Amended and Restated Agreement and Plan of Merger,
dated as of February 15, 1996 between SBC and BancGroup (the "Agreement").
Pursuant to the Agreement, BancGroup will be the surviving corporation in
the Merger, and each share of common stock of SBC outstanding at the time
of the Merger will be converted into the right to receive .3919 of a share
of the common stock, par value $2.50 per share, of BancGroup ("BancGroup
Common Stock"), with cash paid in lieu of fractional shares at the market
value of such fractional shares, as described more fully in the
accompanying Joint Proxy Statement and Prospectus. The Agreement is
attached to the Joint Proxy Statement and Prospectus as Appendix A.
2. Other Matters. To transact such other business as may properly
come before the Special Meeting or any adjournments or postponements
thereof.
The Board of Directors of SBC has fixed the close of business on
, 1996, as the record date for the determination of shareholders entitled to
notice of and to vote at the Special Meeting. Only holders of record of the
common stock of SBC at the close of business on that date will be entitled to
notice of and to vote at the Special Meeting or any adjournments or
postponements thereof.
Under Florida law, holders of the common stock of SBC are entitled to
dissent from the Merger and to receive in cash the fair value of their shares of
SBC common stock, as described more fully in the accompanying Joint Proxy
Statement and Prospectus.
You are requested to complete and sign the enclosed form of proxy and to
mail it promptly in the enclosed envelope. The proxy may be revoked at any time
by filing a written revocation with the Secretary of SBC, by executing a later
dated proxy and delivering it to the Secretary of SBC, or by attending the
Special Meeting and voting in person.
BY ORDER OF THE BOARD OF DIRECTORS
CHARLES W. BRINKLEY, JR.
President
Orlando, Florida
, 1996
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JOINT PROXY STATEMENT AND PROSPECTUS
COLONIAL BANCGROUP
COMMON STOCK
SOUTHERN BANKING CORPORATION
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1996
This Joint Proxy Statement and Prospectus (the "Prospectus") relates to the
proposed merger (the "Merger") of Southern Banking Corporation, a Florida
corporation ("SBC"), with and into The Colonial BancGroup, Inc., a Delaware
corporation ("BancGroup"). This Prospectus is being furnished to the
shareholders of SBC in connection with the solicitation of proxies by the Board
of Directors of SBC for use at a special meeting of the shareholders of SBC (the
"Special Meeting") to be held on , 1996, at p.m., local time,
at the offices of Southern Bank of Central Florida located at 919 West State
Road 436, Altamonte Springs, Florida, including any adjournments or
postponements thereof. At the Special Meeting, shareholders of SBC will consider
and vote upon the matters set forth in the preceding Notice of Special Meeting
of the Shareholders of Southern Banking Corporation, as more fully described in
this Prospectus.
The Merger will be consummated pursuant to the terms of a certain Amended
and Restated Agreement and Plan of Merger dated as of February 15, 1996 by and
between BancGroup and SBC (the "Agreement"). The Agreement provides that,
subject to the approval of the Agreement by the shareholders of SBC at the
Special Meeting and the satisfaction (or waiver, to the extent that such waiver
is permitted by law) of other conditions contained in the Agreement, SBC will be
merged with and into BancGroup and BancGroup will be the surviving corporation,
and each issued and outstanding share of common stock, par value $1.00 per share
of SBC (the "SBC Common Stock"), other than shares held by persons who do not
vote in favor of the Merger and who properly exercise their dissenter's rights
by following the procedures required under the Florida Business Corporation Act
(the "FBCA"), shall be converted into shares of the common stock, par value
$2.50 per share, of BancGroup (the "BancGroup Common Stock"). The shares of
BancGroup Common Stock are listed on the New York Stock Exchange ("NYSE"). The
closing price per share of the BancGroup Common Stock on the NYSE on May 8, 1996
was $33.
Consummation of the Merger requires, among other things, the affirmative
vote of the holders of at least a majority of the outstanding shares of SBC
Common Stock.
BancGroup has filed a Registration Statement pursuant to the Securities Act
of 1933, as amended (the "Securities Act"), to register the shares of the
BancGroup Common Stock to be issued in connection with the Merger. This document
constitutes a Proxy Statement of SBC in connection with the solicitation of
proxies by SBC for the Special Meeting and a Prospectus of BancGroup with
respect to the BancGroup Common Stock to be issued in the Merger. This
Prospectus and accompanying form of proxy are first being mailed to shareholders
of SBC on or about , 1996.
THE BOARD OF DIRECTORS OF SBC UNANIMOUSLY RECOMMENDS APPROVAL OF THE
MERGER.
---------------------
THE SECURITIES TO WHICH THIS PROSPECTUS RELATES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
THE SHARES OF BANCGROUP COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS
OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL
AGENCY.
The office and mailing address of SBC are 201 East Pine Street, Orlando,
Florida 32801 (telephone 407-481-8833), and the principal office and mailing
address of BancGroup are Colonial Financial Center, One Commerce Street, Post
Office Box 1108, Montgomery, Alabama 36192 (telephone 334-240-5000).
THE DATE OF THIS PROSPECTUS IS , 1996.
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AVAILABLE INFORMATION
BancGroup is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports and other information filed by
BancGroup, including proxy and information statements, can be inspected and
copied at the public reference facilities of the Commission, Judiciary Plaza,
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at certain
regional offices: 7 World Trade Center, 13th Floor, New York, New York 10048;
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511; 1401 Brickell Avenue, Suite 200, Miami, Florida 33131; 1801
California Street, Suite 4800, Denver, Colorado 80202-2648; and 5670 Wilshire
Boulevard, 11th Floor, Los Angeles, California 90036-3648. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The BancGroup Common Stock is listed for trading on the NYSE. Reports,
including proxy and information statements, of BancGroup and other information
may be inspected at the NYSE, 20 Broad Street, New York, New York 10005.
BancGroup has filed with the Commission a Registration Statement under the
Securities Act to register the shares of BancGroup Common Stock being offered in
connection with the Merger. This Prospectus omits certain information contained
in the Registration Statement and exhibits thereto. Such Registration Statement,
including the exhibits thereto, can be inspected at the Public Reference Section
of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of
such Registration Statement can be obtained at prescribed rates from the
Commission at that address.
The information in this Prospectus concerning BancGroup and its
subsidiaries has been furnished by BancGroup, and the information concerning SBC
and its subsidiary has been furnished by SBC. SBC is not subject to the periodic
reporting requirements of the Exchange Act.
DOCUMENTS INCORPORATED BY REFERENCE
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE, WITHOUT CHARGE,
UPON REQUEST FROM THE PERSON SPECIFIED BELOW. IN ORDER TO ENSURE TIMELY DELIVERY
OF THE DOCUMENTS, ANY REQUEST SHOULD BE RECEIVED BY BANCGROUP NO LATER THAN FIVE
BUSINESS DAYS PRIOR TO THE SPECIAL MEETING.
The following documents filed by BancGroup with the Commission are hereby
incorporated by reference into this Prospectus:
(1) BancGroup's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995;
(2) BancGroup's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996; and
(3) BancGroup's Registration Statement on Form 8-A dated November 22,
1994, effective February 22, 1995, containing a description of the
BancGroup Common Stock.
All documents filed by BancGroup pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
Special Meeting shall be deemed incorporated by reference in this Prospectus and
made a part hereof from the date of filing of such documents. Any statement
contained in a document incorporated or deemed incorporated herein by reference
will be deemed to be modified or superseded for the purpose of this Prospectus
to the extent that a statement contained herein or in the other subsequently
filed document which also is or is deemed to be, incorporated herein by
reference modifies or supersedes such statement. Any such statement so modified
or superseded will not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
BancGroup has entered into the Agreement with SBC regarding the Merger
described herein. Various provisions of the Agreement are summarized or referred
to in this Prospectus, and the Agreement is incorporated by reference into this
Prospectus and attached hereto as Appendix A.
2
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BancGroup will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, on the request of any
such person, a copy of any and all of the documents which have been incorporated
herein by reference but not delivered herewith (other than the exhibits to such
documents unless specifically incorporated herein). Such request, in writing or
by telephone, should be directed to W. Flake Oakley, IV, Secretary, The Colonial
BancGroup, Inc., One Commerce Street, Post Office Box 1108, Montgomery, Alabama
36192 (telephone 334-240-5000).
3
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TABLE OF CONTENTS
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PAGE
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SUMMARY.............................................................................
THE SPECIAL MEETING.................................................................
General.............................................................................
Record Date; Shares Entitled to Vote; Vote Required for the Merger..................
Solicitation, Voting and Revocation of Proxies......................................
Effect of Merger on Outstanding BancGroup Common Stock..............................
THE MERGER..........................................................................
General.............................................................................
Background of the Merger............................................................
SBC's Board of Directors' Reasons for Approving the Merger..........................
Opinion of Financial Advisor........................................................
Recommendation of the Board of Directors of SBC.....................................
BancGroup's Reasons for the Merger..................................................
Interests of Certain Persons in the Merger..........................................
Conversion of SBC Common Stock......................................................
Surrender of SBC Common Stock Certificates..........................................
Certain Federal Income Tax Consequences.............................................
Other Possible Consequences.........................................................
Conditions to Consummation of the Merger............................................
Amendment or Termination............................................................
Regulatory Approvals................................................................
Conduct of Business Pending the Merger..............................................
Commitments with Respect to Other Offers............................................
Indemnification.....................................................................
Rights of Dissenting Shareholders...................................................
Resale of BancGroup Common Stock Issued in the Merger...............................
Accounting Treatment................................................................
NYSE Reporting of BancGroup Common Stock Issued in the Merger.......................
COMPARATIVE MARKET PRICES AND DIVIDENDS.............................................
BancGroup...........................................................................
SBC.................................................................................
BANCGROUP CAPITAL STOCK AND DEBENTURES..............................................
BancGroup Common Stock..............................................................
Preference Stock....................................................................
1986 Debentures.....................................................................
Changes in Control..................................................................
COMPARATIVE RIGHTS OF STOCKHOLDERS..................................................
Director Elections..................................................................
Removal of Directors................................................................
Voting..............................................................................
Preemptive Rights...................................................................
Directors' Liability................................................................
Indemnification.....................................................................
Special Meetings of Stockholders; Action Without a Meeting..........................
Mergers, Share Exchanges and Sales of Assets........................................
Amendment of Certificate of Incorporation and Bylaws................................
Rights of Dissenting Stockholders...................................................
Antitakeover Statutes...............................................................
Preferred Stock.....................................................................
Effect of the Merger on SBC Shareholders............................................
PRO FORMA INFORMATION...............................................................
Condensed Pro Forma Statements of Condition (Unaudited).............................
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Condensed Pro Forma Statements of Income (Unaudited)................................
Pro Forma Selected Financial Data (Unaudited).......................................
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES.......................................
Selected Interim Financial Data (Unaudited).........................................
Selected Financial Data.............................................................
Selected Quarterly Financial Data 1995-1994.........................................
SOUTHERN BANKING CORPORATION........................................................
Selected Interim Financial Data (Unaudited).........................................
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the Three Months Ended March 31, 1996 and 1995.....................
Selected Financial Data.............................................................
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the Fiscal Years Ended December 31, 1995, 1994 and 1993............
BUSINESS OF BANCGROUP...............................................................
General.............................................................................
Lending Activities..................................................................
Proposed Affiliate Banks............................................................
Voting Securities and Principal Stockholders........................................
Security Ownership of Management....................................................
Management Information..............................................................
Certain Regulatory Considerations...................................................
BUSINESS OF SOUTHERN BANKING CORPORATION............................................
Southern Bank of Central Florida....................................................
Primary Service Area................................................................
Offices.............................................................................
Employees...........................................................................
Legal Proceedings...................................................................
Supervision and Regulation..........................................................
Principal Holders of SBC Common Stock...............................................
SBC Common Stock Owned by Management................................................
ADJOURNMENT OF SPECIAL MEETING......................................................
OTHER MATTERS.......................................................................
DATE FOR SUBMISSION OF BANCGROUP STOCKHOLDER PROPOSALS..............................
LEGAL MATTERS.......................................................................
EXPERTS.............................................................................
INDEX TO FINANCIAL STATEMENTS.......................................................
APPENDIX A -- Amended and Restated Agreement and Plan of Merger..................... A-1
APPENDIX B -- Opinion of Financial Adviser.......................................... B-1
APPENDIX C -- Sections 607.1301, 607.1302 and 607.1320 of the Florida Business
Corporation Act Regarding Dissenters' Rights...................................... C-1
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS IN CONNECTION WITH THE SOLICITATION OR PROXIES OR THE OFFERING OF
SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY BANCGROUP OR SBC. THIS
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 OR FROM WHOM IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF BANCGROUP
OR SBC SINCE THE DATE OF THIS PROSPECTUS OR THAT INFORMATION IN THIS PROSPECTUS
OR IN THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THE DATES THEREOF.
5
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SUMMARY
The following provides a summary of certain information included in this
Prospectus. This summary is qualified in its entirety by the more detailed
information appearing elsewhere herein, the Appendices hereto and the documents
incorporated herein by reference. Shareholders of SBC are urged to read this
Prospectus in full.
GENERAL
This Prospectus relates to the issuance of shares of BancGroup Common Stock
in connection with the proposed Merger of SBC with and into BancGroup. As a
result of the Merger, SBC's subsidiary, Southern Bank of Central Florida
("Southern Bank"), will become a wholly owned subsidiary of BancGroup. The name
of Southern Bank will be changed to "Colonial Bank." See "THE
MERGER -- General."
THE SPECIAL MEETING
The Special Meeting will be held at the office of Southern Bank, located at
919 West State Road 436, Altamonte Springs, Florida on , 1996, at
p.m., local time, for the purpose of considering and voting upon the Agreement.
Only holders of record of SBC Common Stock at the close of business on
, 1996 (the "Record Date") are entitled to the notice of and to vote
at the Special Meeting. As of such date, 3,362,000 shares of SBC Common Stock
were issued and outstanding. See "THE SPECIAL MEETING."
THE COMPANIES
BancGroup. BancGroup is a bank holding company within the meaning of the
Bank Holding Company Act of 1956, as amended (the "BHCA"). BancGroup was
organized in Delaware in 1974. BancGroup operates through its wholly-owned
subsidiary, Colonial Bank, which conducts a full service commercial banking
business in the State of Alabama through 95 banking offices. BancGroup also
operates a wholly-owned bank subsidiary in Tennessee, the Colonial Bank of
Tennessee, which conducts a general commercial banking business through three
offices located in that state and a wholly-owned federal savings bank, Colonial
Bank, which operates through four offices in Atlanta, Georgia and the
surrounding area. BancGroup has also entered into agreements to acquire banks
located in Dothan, Alabama and Lawrenceville, Georgia. Colonial Mortgage
Company, a subsidiary of Colonial Bank, is a mortgage banking company which has
approximately $10 billion in residential loan servicing and which originates
residential mortgages in 29 states through 6 regional offices. At March 31,
1996, BancGroup had consolidated total assets of $3.9 billion and consolidated
stockholders equity of $268.2 million. See "BUSINESS OF BANCGROUP."
SBC. SBC is a bank holding company within the meaning of the BHCA and was
organized in 1992 for the purpose of acquiring all of the outstanding capital
stock of Southern Bank. Southern Bank conducts a general banking business
through 8 offices located in Orlando, Florida and the surrounding area. SBC has
no subsidiaries other than Southern Bank. At March 31, 1996, SBC had
consolidated total assets of $228.8 million and stockholders equity of $17.3
million. See "BUSINESS OF SOUTHERN BANKING CORPORATION."
TERMS OF THE MERGER
The Agreement provides for the Merger of SBC with and into BancGroup, with
BancGroup to be the surviving corporation. Upon the date of consummation of the
Merger (the "Effective Date"), each outstanding share of SBC Common Stock shall
be converted into the right to receive .3919 of a share of BancGroup Common
Stock (the "Exchange Ratio"). No fractional shares of BancGroup Common Stock
will be issued in connection with the Merger. To the extent cash is paid in lieu
of fractional shares, the cash will be paid based upon the market value of the
BancGroup Common Stock. For this purpose, "market value" shall mean the average
of the closing prices of the BancGroup Common Stock as reported by the NYSE on
each of the 20 trading days ending on the trading day immediately prior to the
Effective Date.
6
<PAGE> 11
As of the date of this Prospectus, SBC had granted options (the "SBC
Options") which entitled the holders thereof to acquire up to 1,112,000 shares
of SBC Common Stock. Under the terms of the Agreement, all SBC Options
outstanding at the Effective Date (other than 94,000 shares of SBC Common Stock
subject to incentive stock options) as to which prior to the Effective Date the
holders thereof shall have consented in writing to the cancellation and
conversion thereof into BancGroup Common Stock shall be canceled at the
Effective Date and exchanged for shares of BancGroup Common Stock, based upon a
formula set forth in the Agreement. Assuming all holders of such SBC Options
consent to such cancellation, BancGroup would issue 287,668 shares of BancGroup
Common Stock in exchange for such options. All SBC Options as to which holders
have not consented to the cancellation thereof (including all incentive stock
options) shall be assumed by BancGroup on substantially the same terms
applicable to the SBC Options, provided that the number of shares of BancGroup
Common Stock to be issued pursuant to such options and the exercise price
thereof shall be adjusted to reflect the Exchange Ratio. The maximum number of
shares of BancGroup Common Stock that would be subject to issue upon the
assumption of all of such SBC Options is 435,793. Holders exercising such
options would pay BancGroup an aggregate of $3,694,614 in cash upon the exercise
of such options.
No adjustments will be made to the number of shares of BancGroup Common
Stock to be issued in the Merger based upon the operating results, financial
condition or other factors relating to either SBC or BancGroup. SBC shareholders
will be given notice of the Merger promptly after the Effective Date of the
Merger. Certificates for the BancGroup Common Stock will not be distributed
until shareholders surrender their certificates representing their shares of SBC
Common Stock.
See "THE MERGER -- Conversion of SBC Common Stock" and "Surrender of SBC
Common Stock Certificates."
For certain information concerning dissenters' rights, voting at the
Special Meeting, and management of BancGroup and SBC, see "THE MERGER -- Rights
of Dissenting Shareholders," "-- Conversion of SBC Common Stock"; "THE SPECIAL
MEETING -- Solicitation, Voting and Revocation of Proxies," "-- Record Date;
Shares Entitled to Vote; Vote Required"; "BUSINESS OF BANCGROUP -- Voting
Securities and Principal Stockholders," "-- Security Ownership of Management,"
and "BUSINESS OF SOUTHERN BANKING CORPORATION -- Principal Holders of SBC Common
Stock," and "-- SBC Common Stock Owned By Management."
RECOMMENDATION OF SBC'S BOARD OF DIRECTORS
The Board of Directors of SBC has unanimously approved the Agreement. THE
BOARD OF DIRECTORS OF SBC BELIEVES THAT THE MERGER IS FAIR TO, AND IN THE BEST
INTERESTS OF, THE SHAREHOLDERS OF SBC, AND RECOMMENDS THAT SHAREHOLDERS VOTE FOR
THE APPROVAL OF THE AGREEMENT. For a discussion of the factors considered by the
Board of Directors in reaching its conclusions, see "THE MERGER -- Background of
the Merger" and "SBC's Board of Directors' Reasons for Approving the Merger."
OPINION OF FINANCIAL ADVISOR
SBC has received an opinion from The Carson Medlin Company ("Carson
Medlin") that the Merger is fair to the shareholders of SBC from a financial
point of view. See "THE MERGER -- Opinion of Financial Advisor."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
All of the directors and certain of the executive officers of SBC hold SBC
Options which entitle them to purchase, in the aggregate, up to 1,016,000 shares
of SBC Common Stock. Under the terms of the Agreement, any SBC Options which are
not exercised prior to the Effective Date will either be converted into shares
of BancGroup Common Stock or converted into options to acquire shares of
BancGroup Common Stock. The treatment of the SBC Options under the Agreement was
based upon the Exchange Ratio, so that the consideration to be received by the
holders of the SBC Options is substantially equivalent to the consideration to
be received by the current shareholders of SBC. However, in the case of any
holder of an
7
<PAGE> 12
SBC Option who elects to convert his SBC Options into shares of BancGroup Common
Stock, the conversion will be based on the market value of the BancGroup Common
Stock as of December 12, 1995 (i.e., $30.625 per share). To the extent that the
market price of the BancGroup Common Stock is less than $30.625 as of the
Effective Date, then a holder who elects to convert his SBC Options into shares
of BancGroup Common Stock will receive more favorable consideration than the
current shareholders of SBC. See "THE MERGER -- Conversion of SBC Common Stock."
On the Effective Date, certain executive officers of Southern Bank who are
not directors will be entitled to receive cash payments under SBC's Share
Performance Bonus Plan (the "Plan"). With respect to rights granted under the
Plan, participants are entitled to receive the difference between the value of
the SBC Common Stock as of the date such rights were granted and the value of
the SBC Common Stock as of the date of any merger or other change in ownership
of SBC. Based on the value of the SBC Common Stock under the terms of the
Agreement, participants in the Plan will receive payments in the aggregate
amount of $630,000 in connection with the Merger. See "THE MERGER -- Interests
of Certain Persons in the Merger."
On the Effective Date, all employees of SBC (including its executive
officers) shall, at BancGroup's option, either become employees of BancGroup or
its subsidiaries or be entitled to severance benefits in accordance with
BancGroup's severance policy as of the date of the Agreement. All employees of
SBC who become employees of BancGroup or its subsidiaries on the Effective Date
shall be entitled, to the extent permitted by applicable law, to participate in
all benefit plans of BancGroup to the same extent as BancGroup's employees.
BancGroup has indicated that it currently intends to retain each of the
executive officers of SBC following the consummation of the Merger (although it
has no obligation to do so), on substantially the same terms and conditions
(including salary) as currently earned by such executive officers.
Under the Agreement, BancGroup has agreed to indemnify the directors and
executive officers of SBC against certain claims and liabilities arising out of
or pertaining to matters existing or occurring at or prior to the Effective
Date, to the fullest extent that SBC would have been required under Florida law,
or in its Articles of Incorporation or Bylaws, to indemnify such persons (and
also to advance expenses as incurred to the fullest extent permitted under
applicable law).
Except as described above, none of the directors or executive officers of
SBC, and no associate of any such person, has any substantial direct or indirect
interest in the Merger, other than an interest arising from the ownership of SBC
Common Stock.
See "THE MERGER -- Interests of Certain Persons in the Merger."
VOTE REQUIRED
Under Florida law, the Agreement must be approved by the affirmative vote
of the holders of at least a majority of the outstanding shares of SBC Common
Stock. Each share of SBC Common Stock is entitled to one vote on the Agreement.
Approval of the Agreement and the Merger by BancGroup stockholders is not
required under Delaware, Florida or other applicable law, or the rules of the
NYSE on which the BancGroup Common Stock is listed. See "THE SPECIAL MEETING."
Only holders of record of SBC Common Stock at the close of business on
, 1996 are entitled to notice of and to vote at the Special Meeting.
As of such date, 3,362,000 shares of SBC Common Stock were issued and
outstanding. As of the Record Date, SBC's directors, executive officers and
their affiliates held approximately 53.7% of the outstanding shares of SBC
Common Stock. As of the same date, the directors, executive officers and
affiliates of BancGroup held no shares of SBC Common Stock. See "THE SPECIAL
MEETING."
BancGroup and certain shareholders of SBC (the "Principal Shareholders")
have entered into letter agreements (the "Shareholder Agreements") dated as of
January 25, 1996, under which the Principal Shareholders have agreed, among
other things, to vote or cause the record owner to vote any shares of SBC
8
<PAGE> 13
Common Stock held by such Principal Shareholders in favor of the Merger and the
Agreement and in favor of the other transactions contemplated between SBC and
BancGroup pursuant to the terms of the Agreement and against any business
combination or other reorganization of any kind involving SBC or its
subsidiaries with any entity other than BancGroup. As of the Record Date, the
Principal Shareholders owned, either beneficially or of record, 2,054,668 shares
of SBC Common Stock or approximately 61.1% of the outstanding shares of SBC
Common Stock held on such date. The parties anticipate that all of the shares of
SBC Common Stock held by the Principal Shareholders will be voted in favor of
the Agreement and the Merger. If all of the Principal Shareholders vote their
shares in favor of the Agreement at the Special Meeting, the Agreement will be
approved, regardless of how the remaining shareholders of SBC vote at the
Special Meeting. Directors and executive officers of BancGroup beneficially own
in the aggregate 2,161,674 shares of BancGroup Common Stock representing
approximately 15% of the outstanding shares, but no vote of BancGroup
Stockholders is required to approve the Merger. See "THE SPECIAL MEETING."
Proxies should be returned to SBC in the envelope enclosed herewith.
Shareholders of SBC submitting proxies may revoke their proxies by (i) giving
notice of such revocation in writing to the Secretary of SBC at or prior to the
Special Meeting, (ii) by executing and delivering a proxy bearing a later date
to the Secretary of SBC at or prior to the Special Meeting, or (iii) by
attending the Special Meeting and voting in person. Because approval of the
Merger requires the approval of at least a majority of the outstanding shares of
SBC Common Stock, failure to submit a proxy or failure to vote in person at the
Special Meeting will have the same effect as a negative vote. See "THE SPECIAL
MEETING -- Solicitation, Voting and Revocation of Proxies."
RIGHTS OF DISSENTING SHAREHOLDERS
Holders of SBC Common Stock as of the Record Date are entitled to
dissenters' rights under Sections 607.1301, 607.1302 and 607.1320 of the FBCA,
copies of which are attached as Appendix C to this Prospectus. Under the FBCA,
any holder of SBC Common Stock as of the Record Date who follows the procedures
set forth in Section 607.1320 will be entitled to receive the fair value of his
or her shares in cash. An SBC shareholder wishing to exercise dissenters' rights
must deliver to SBC, before the vote of holders of SBC Common Stock on the
Agreement at the Special Meeting, a written notice of intent ("Notice of
Intent") to demand payment for his or her shares. Such shareholder must not vote
in favor of approval of the Agreement. Because a signed proxy which does not
contain voting instructions will, unless revoked, be voted for the Agreement, an
SBC shareholder who votes by proxy and who wishes to exercise dissenter's rights
must either: (i) vote against the Agreement or (ii) abstain from voting with
respect to the Agreement. A vote against approval of the Agreement will not, in
and of itself, constitute a demand for dissenters' rights satisfying the
requirements of Section 607.1320.
Any Notice of Intent should be addressed to Southern Banking Corporation,
201 East Pine Street, Orlando, Florida 32801, Attention: Secretary, and should
be executed by or on behalf of the holder of record. The Notice of Intent must
reasonably inform SBC of the identity of the shareholder and that such
shareholder is thereby objecting to the Merger and demanding payment for his or
her shares if the Merger is consummated.
See "THE MERGER -- Rights of Dissenting Shareholders."
Any shareholder of SBC who properly exercises dissenters' rights and
receives the fair value for his or her shares will encounter income tax
treatment different than the treatment for shareholders who do not exercise
dissenters' rights. See "THE MERGER -- Certain Federal Income Tax Consequences."
CONDITIONS TO THE MERGER
The parties' obligation to consummate the Merger is subject to the
satisfaction (or waiver, to the extent permitted by law) of various conditions
set forth in the Agreement.
The mutual obligations of the parties to consummate the Merger are subject
to the following conditions, among others: (i) the approval of the Agreement by
the holders of at least a majority of the outstanding shares
9
<PAGE> 14
of SBC Common Stock; (ii) the approval of the Merger by the Florida Department
of Banking and Finance (the "Florida Department") and The Board of Governors of
the Federal Reserve System (the "Federal Reserve"); (iii) the absence of any
pending or threatened litigation which seeks to restrain or prohibit the Merger;
(iv) the consummation of the Merger on or before September 30, 1996; and (v) the
average closing prices as reported by the NYSE for the BancGroup Common Stock
for the period of twenty consecutive trading days ending on the trading day
immediately preceding the Effective Date shall not be less than $24.625 or
greater than $36.625.
The obligation of SBC to consummate the Merger is further subject to
several conditions, including: (i) the absence of any material adverse changes
in the financial condition or affairs of BancGroup; and (ii) the shares of
BancGroup Common Stock to be issued under the Agreement shall have been approved
for listing on the NYSE.
The obligations of BancGroup to consummate the Merger is subject to various
conditions, including: (i) the absence of any material adverse change in the
financial condition or affairs of SBC; (ii) the holders of not more than 10% of
the outstanding shares of SBC Common Stock shall have exercised dissenters'
rights with respect to their shares; (iii) the receipt of a letter from Coopers
& Lybrand L.L.P. that the Merger will qualify for the "pooling-of-interest"
method of accounting under generally accepted accounting principles; and (iv)
there shall have been no determination by the Board of Directors of BancGroup
that the transactions contemplated by the Agreement have become impractical
because of any state of war or declaration of a banking moratorium in the United
States.
As indicated above, BancGroup's obligation to consummate the Merger is
subject to the condition that holders of no more than 10% of the shares of SBC
Common Stock exercise their dissenter's rights. The purpose of this condition is
to limit the amount of cash which BancGroup is required to expend in the Merger
and to preserve the treatment of the Merger as a "pooling-of-interest" for
accounting purposes. BancGroup has no present intention of waiving this
condition, although it has the right to do so.
Applications for approval of the Merger by the Federal Reserve and the
Florida Department were filed with such agencies on March 25, 1996. The
regulatory approval process is expected to take approximately three months from
that date.
See "THE MERGER -- Conditions to Consummation of the Merger" and
"Regulatory Approvals."
AMENDMENT OR TERMINATION OF AGREEMENT
The Boards of Directors of BancGroup and SBC may agree to amend or
terminate the Agreement at any time prior to the Effective Date. However, the
Board of Directors of SBC shall not agree to any amendments to the Agreement
which would alter the Exchange Ratio or which, in the opinion of the Board of
Directors of SBC, would adversely affect the rights of the shareholders of SBC,
unless such amendments are approved by the holders of a majority of the
outstanding SBC Common Stock. Such amendments may require the filing of an
amendment of the Registration Statement, of which this Prospectus forms a part,
with the Commission. See "THE MERGER -- Amendment or Termination."
COMPARISON OF SHAREHOLDER RIGHTS
The rights of the holders of the SBC Common Stock are different from the
rights of the holders of the BancGroup Common Stock. A discussion of these
rights and a comparison thereof is set forth in the section of this Prospectus
at "COMPARATIVE RIGHTS OF STOCKHOLDERS."
FEDERAL INCOME TAX CONSEQUENCES
Miller, Hamilton, Snider & Odom, L.L.C., counsel for BancGroup, has
delivered to BancGroup and SBC an opinion that, among other things: (i) the
Merger will constitute a tax-free reorganization for federal income tax
purposes; (ii) no gain or loss will be recognized by holders of SBC Common Stock
upon the conversion of SBC Common Stock solely into BancGroup Common Stock by
reason of the Merger (except with respect to cash, if any, received in lieu of
fractional shares in BancGroup Common Stock); (iii) the aggregate tax basis
10
<PAGE> 15
of the BancGroup Common Stock received by SBC shareholders will equal the
aggregate tax basis of the SBC Common Stock surrendered therefor by such
shareholders; and (iv) the holding period of the BancGroup Common Stock received
generally will include the holding period of the SBC Common Stock surrendered.
SBC shareholders whose shares of SBC Common Stock are converted into cash or who
receive cash for shares upon perfection of dissenters' rights, however, will be
required to recognize gain or loss for federal income tax purposes with respect
to such shares. SBC shareholders are urged to consult their own tax advisors as
to the specific tax consequences to them of the Merger. See "THE
MERGER -- Certain Federal Income Tax Consequences."
ACCOUNTING TREATMENT
The acquisition of SBC will be treated as a "pooling of interests"
transaction by BancGroup for accounting purposes. See "THE MERGER -- Accounting
Treatment."
RECENT PER SHARE MARKET PRICES
SBC. There is no established public trading market for the SBC Common
Stock. To the knowledge of SBC, approximately 874,544 shares of SBC Common Stock
have been sold during the last two fiscal years at prices ranging from $4.00 to
$4.50. The most recent sale occurred on June 7, 1995 when 18,744 shares were
sold. SBC is not aware of the price at which this sale was consummated. The next
most recent sale occurred on May 12, 1995, when 574,360 shares were sold at a
price of $4.00 per share.
BancGroup. BancGroup Common Stock is listed for trading on the NYSE under
the symbol "CNB." The following table indicates the high and low closing prices
of the BancGroup Class A Common Stock and the BancGroup Common Stock as reported
on the NASDAQ System and the NYSE, respectively, for the last two full fiscal
years. Prior to February 21, 1995, BancGroup had two classes of Common Stock
outstanding, Class A and Class B. Class B was not publicly traded. Class A was
traded as a NASDAQ security under the symbol "CLBGA" until February 24, 1995. On
February 21, 1995, the BancGroup Class A and Class B Common Stock were
reclassified into BancGroup Common Stock.
<TABLE>
<CAPTION>
PRICE PER
SHARE OF
COMMON STOCK
--------------
HIGH LOW
---- ---
<S> <C> <C>
1994
First Quarter..................................................... 201/4 18
Second Quarter.................................................... 25 19 1/4
Third Quarter..................................................... 243/4 22
Fourth Quarter.................................................... 233/4 19 1/2
1995
First Quarter(1).................................................. 235/8 19 1/2
Second Quarter.................................................... 271/2 23 1/8
Third Quarter..................................................... 297/8 27 1/2
Fourth Quarter.................................................... 327/8 28 1/2
1996
First Quarter..................................................... 361/2 30
Second Quarter
(through May 8, 1996)............................................. 361/8 33
</TABLE>
- ---------------
(1) Trading on the NYSE commenced on February 24, 1995.
On December 20, 1995, the business day immediately prior to the public
announcement of the Merger, the closing price of the BancGroup Common Stock on
the NYSE was $32 7/8 per share. On May 8, 1996, the last reported sale price per
share reported for the BancGroup Common Stock was $33.
11
<PAGE> 16
The following table presents the market value of BancGroup Common Stock on
December 20, 1995, and the market value and equivalent per share value of SBC
common stock on that date:
<TABLE>
<CAPTION>
EQUIVALENT
BANCGROUP SBC BANCGROUP
COMMON STOCK COMMON STOCK COMMON STOCK
(PER SHARE) (PER SHARE) (PER SHARE)
------------ ------------ ------------
<S> <C> <C> <C>
Comparative Market Value.................... $32 7/8(1) $ 4.82(2) $12.88(3)
</TABLE>
- ---------------
(1) Closing price as reported by the NYSE.
(2) There is no established public trading market for the SBC Common Stock. The
value shown is the price at which shares of SBC Common Stock were sold on
the last sale of which management of SBC is aware.
(3) .3919 shares of BancGroup Common Stock will be exchanged for each share of
SBC Common Stock.
See "COMPARATIVE MARKET PRICES AND DIVIDENDS."
CERTAIN LEGAL RESTRICTIONS ON ACQUISITIONS OF CONTROL
Certain restrictions under Delaware law prevent a person who beneficially
owns 15% or more of the BancGroup Common Stock from engaging in a "business
combination" with BancGroup unless certain conditions are satisfied. Also, the
Change in Bank Control Act of 1978 prohibits a person from acquiring "control"
of BancGroup unless certain notice provisions with the Federal Reserve Board
have been satisfied.
BancGroup's Restated Certificate of Incorporation and bylaws also contain
provisions which may deter or prevent a takeover of BancGroup that is not
supported by BancGroup's Board of Directors. These provisions include: (1) a
classified board of directors, (2) supermajority voting requirements for certain
"business combinations" that exceed the provisions of Delaware law described
above, (3) flexibility for the board to consider non-economic and other factors
in evaluating a "business combination," (4) inability of stockholders to call
special meetings and act by written consent, and (5) certain advance notice
provisions for the conduct of business at stockholder meetings.
See "BANCGROUP CAPITAL STOCK AND DEBENTURES" and "COMPARATIVE RIGHTS OF
STOCKHOLDERS."
PER SHARE DATA
The table below presents on a per share basis the book value, cash
dividends and income from continuing operations of BancGroup and SBC on a
historical basis and on a pro forma equivalent basis assuming the acquisition of
SBC. Certain information from the table has been taken from the condensed pro
forma statements of condition and income included elsewhere in this document.
The table should be read in conjunction with those pro forma statements.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR YEAR YEAR
MARCH 31, ENDED ENDED ENDED
1996 1995 1994 1993
------------- ------ ------ ------
<S> <C> <C> <C> <C>
BANCGROUP-HISTORICAL:
Net Income(a)
Primary........................................... $ 0.82 $ 3.12 $ 2.28 $ 2.01
Fully diluted..................................... 0.80 3.02 2.23 1.96
Book value at end of period......................... 19.81 19.35 16.08 14.64
Dividends per share:
Common Stock...................................... 0.270 0.675
Common A.......................................... 0.225 0.80 0.71
Common B.......................................... 0.125 0.40 0.31
</TABLE>
12
<PAGE> 17
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR YEAR YEAR
MARCH 31, ENDED ENDED ENDED
1996 1995 1994 1993
------------- ------ ------ ------
<S> <C> <C> <C> <C>
SOUTHERN BANKING CORPORATION:
Net Income(a)
Historical:
Primary........................................ 0.25 0.62 0.64 0.35
Fully diluted.................................. 0.25 0.62 0.64 0.35
Pro forma equivalent assuming acquisition of
Southern Banking Corporation only(b):
Primary........................................ 0.31 1.14 0.84 0.70
Fully diluted.................................. 0.31 1.11 0.82 0.69
Pro forma equivalent assuming acquisition of
Southern Banking Corporation, Commercial
Bancorp of Georgia, Inc. and Dothan Federal
Savings Bank(b):
Primary........................................ 0.30 1.07 0.79 0.67
Fully diluted.................................. 0.30 1.04 0.78 0.67
Book value at end of period
Historical........................................ 5.14 4.92 4.10 3.38
Pro forma equivalent assuming acquisition of
Southern Banking Corporation only.............. 7.39 N/A N/A N/A
Pro forma equivalent assuming acquisition of
Southern Banking Corporation, Commercial
Bancorp of Georgia, Inc. and Dothan Federal
Savings Bank(b)................................ 7.39 N/A N/A N/A
Dividends per share
Historical........................................ 0.00 0.00 0.00 0.00
Pro forma equivalent assuming acquisition of
Southern Banking Corporation only.............. 0.11 0.26 0.31 0.28
Pro forma equivalent assuming acquisition of
Southern Banking Corporation, Commercial
Bancorp of Georgia, Inc. and Dothan Federal
Savings Bank(c)................................ 0.11 0.26 0.31 0.28
BANCGROUP-PRO FORMA COMBINED (SOUTHERN BANKING
CORPORATION ONLY):
Net Income(a):
Primary........................................... 0.79 2.92 2.14 1.79
Fully diluted..................................... 0.78 2.84 2.10 1.76
Book value at end of period......................... 18.85 N/A N/A N/A
BANCGROUP-PRO FORMA COMBINED (SOUTHERN BANKING
CORPORATION, COMMERCIAL BANCORP OF GEORGIA, INC.
AND DOTHAN FEDERAL SAVINGS BANK):
Net Income(a)
Primary........................................... 0.77 2.73 2.02 1.72
Fully diluted..................................... 0.76 2.66 1.99 1.70
Book value at end of period......................... 18.86 N/A N/A N/A
</TABLE>
- ---------------
<TABLE>
<C> <S>
N/A Not applicable due to pro forma balance sheet being presented only at March 31, 1996
which assumes the transaction was consummated on the latest balance sheet date in
accordance with Rule 11.02(b) of Regulation S-X.
(a) Net Income per share for the year ended December 31, 1993 represents income before
extraordinary items and cumulative effect of change in accounting principle.
</TABLE>
13
<PAGE> 18
<TABLE>
<C> <S>
(b) Pro forma equivalent per share amounts are calculated by multiplying the pro forma
combined total income per share and the pro forma combined total book value per share
of BancGroup (reflecting Southern only and reflecting Southern, Commercial and Dothan)
by the conversion ratio so that the per share amounts are equated to the respective
values for one share of Southern Banking Corporation. For the purposes of these pro
forma equivalent per share amounts, a .3919 BancGroup Common Stock share conversion
ratio is utilized.
(c) Pro forma equivalent dividends per share are shown at BancGroup's Common Stock
dividend per share rate multiplied by the .3919 conversion ratio per share of Southern
Banking Corporation common stock (see note (b)). BancGroup presently contemplates that
dividends will be declared in the future. However, the payment of cash dividends is
subject to BancGroup's actual results of operations as well as certain other internal
and external factors. Accordingly, there is no assurance that cash dividends will
either be declared and paid in the future, or, if declared and paid, that such
dividends will approximate the pro forma amounts indicated.
</TABLE>
14
<PAGE> 19
THE SPECIAL MEETING
GENERAL
This Prospectus is being furnished to the shareholders of SBC in connection
with the solicitation of proxies by the Board of Directors of SBC for use at the
Special Meeting. The purpose of the Special Meeting is to consider and vote upon
the proposed Merger of SBC with and into BancGroup. BancGroup will be the
surviving corporation in the Merger.
This Prospectus is also furnished by BancGroup in connection with the offer
of shares of BancGroup Common Stock to be issued in the Merger. No vote of
BancGroup stockholders is required to approve the Merger.
The Board of Directors of SBC believes that the Merger is in the best
interests of SBC and its shareholders and unanimously recommends that
shareholders vote "FOR" the Merger (item 1 on the proxy card).
RECORD DATE; SHARES ENTITLED TO VOTE; VOTE REQUIRED FOR THE MERGER
The Board of Directors of SBC has fixed the close of business on
, 1996, as the Record Date for determination of shareholders entitled
to vote at the Special Meeting. There were 174 record holders of SBC Common
Stock as of such date. On that date, there were 3,362,000 shares of SBC Common
Stock outstanding, each entitled to one vote per share. SBC is obligated to
issue an additional 1,112,000 shares of SBC Common Stock upon the exercise of
outstanding SBC Options.
The affirmative vote of the holders of at least a majority of the
outstanding shares of SBC Common Stock, whether or not present or represented at
the Special Meeting, is required to approve the Agreement. Broker non-votes and
abstentions will not be counted as votes cast for or against the proposal to
approve the Agreement and, as a result, will have the same effect as votes cast
against the Agreement. Each holder of record of shares of SBC Common Stock is
entitled to cast, for each share registered in his or her name, one vote on the
Agreement and on each other matter presented to a vote of shareholders at the
Special Meeting.
As of the Record Date, directors and executive officers of SBC and their
affiliates were the owners of 1,806,752 shares of SBC Common Stock, representing
approximately 53.7% of the outstanding shares of SBC Common Stock.
Pursuant to the Shareholder Agreements, the Principal Shareholders have
agreed to vote, or to cause the record owner to vote, all shares of SBC Common
Stock held beneficially or of record by such Principal Shareholders in favor of
the Merger and the Agreement. The Principal Shareholders held, as of the Record
Date, 2,054,668 shares or 61.1% of the outstanding shares of SBC Common Stock.
The Principal Shareholders include all of the directors of SBC and Southern
Bank. The parties anticipate that all of the shares of SBC Common Stock held by
the Principal Shareholders will be voted in favor of the Agreement. If all of
the Principal Shareholders vote their shares in favor of the Agreement at the
Special Meeting, the Agreement will be approved, regardless of how the remaining
shareholders of SBC vote at the Special Meeting.
Under the FBCA, shareholders of SBC have the right to dissent from the
Merger. The obligation of BancGroup to consummate the Merger is subject to the
condition that the holders of not more than 10% of the outstanding shares of SBC
Common Stock exercise their dissenters' rights. This condition may be waived by
BancGroup. It was placed in the Agreement by BancGroup to limit the amount of
cash that BancGroup might have to pay in the Merger and to insure that the
Merger qualifies for "pooling-of-interest" accounting. See "THE MERGER -- Rights
of Dissenting Shareholders."
15
<PAGE> 20
If the Merger is approved at the Special Meeting, SBC is expected to merge
with and into BancGroup promptly after the other conditions to the Agreement are
satisfied. See "THE MERGER -- Conditions of Consummation of the Merger."
THE BOARD OF DIRECTORS OF SBC URGES THE STOCKHOLDERS OF SBC TO EXECUTE AND
RETURN THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE AND UNANIMOUSLY RECOMMENDS
THAT THE SHARES REPRESENTED BY THE PROXY BE VOTED IN FAVOR OF THE MERGER.
SOLICITATION, VOTING AND REVOCATION OF PROXIES
In addition to soliciting proxies by mail, directors, officers and other
employees of SBC, without receiving special compensation therefor, may solicit
proxies from SBC's shareholders by telephone, by telegram or in person.
Arrangements will also be made with brokerage firms and other custodians,
nominees and fiduciaries, if any, to forward solicitation materials to any
beneficial owners of shares of the SBC Common Stock.
SBC will bear the cost of assembling and mailing this Prospectus and other
materials furnished to shareholders of SBC. It will also pay all other expenses
of solicitation, including the expenses of brokers, custodians, nominees, and
other fiduciaries who, at the request of SBC, mail material to or otherwise
communicate with beneficial owners of the shares held by them. BancGroup will
pay all expenses incident to the registration of the BancGroup Common Stock to
be issued in connection with the Merger.
Shares of SBC Common Stock represented by a proxy properly signed and
received at or prior to the Special Meeting, unless properly revoked, will be
voted in accordance with the instructions on the proxy. If a proxy is signed and
returned without any voting instructions, shares of SBC Common Stock represented
by the proxy will be voted for the proposal to approve the Agreement. A
shareholder may revoke any proxy given pursuant to this solicitation by: (i)
delivering to the Secretary of SBC, prior or to or at the Special Meeting, a
written notice revoking the proxy; (ii) delivering to the Secretary of SBC, at
or prior to the Special Meeting, a duly executed proxy relating to the same
shares bearing a later date; or (iii) by voting in person at the Special
Meeting. All written notices of revocation and other communications with respect
to the revocation of SBC's proxies should be addressed to:
Southern Banking Corp.
201 East Pine Street
Orlando, FL 32801
Attention: Carol Kodak, Secretary
Attendance at the Special Meeting will not, in and of itself, constitute a
revocation of a proxy.
Votes will be tabulated by one or more inspectors of election appointed by
SBC. Proxies marked as abstentions and shares held in street name which have
been designated by brokers on proxy cards as not voted will not be counted as
votes cast. Such proxies will be counted for purposes of determining whether a
quorum is present at the Special Meeting.
The Board of Directors of SBC is not aware of any business to be acted upon
at the Special Meeting other than consideration of the Merger described herein.
If, however, other matters are properly brought before the Special Meeting, or
any adjournments or postponements thereof, the persons appointed as proxies will
have the discretion to vote or act on such matters according to their best
judgment.
EFFECT OF MERGER ON OUTSTANDING BANCGROUP COMMON STOCK
On the Effective Date, BancGroup will issue 1,605,235 shares of BancGroup
Common Stock to the shareholders of SBC pursuant to the Merger, assuming the
conversion to BancGroup Common Stock of all outstanding SBC Options (except for
incentive options) on the Effective Date and assuming the absence of any
dissenting shareholders. These 1,605,235 shares of BancGroup Common Stock would
represent approximately 10.6% of the total number of shares of BancGroup Common
Stock outstanding following the Merger, not counting any additional shares
BancGroup may issue, including shares to be issued pursuant to other pending
acquisitions. If all holders of SBC Options exercise their options prior to the
Effective Date, a total of 1,753,359 shares of BancGroup Common Stock would be
issued in the Merger.
16
<PAGE> 21
THE MERGER
THE FOLLOWING SETS FORTH A SUMMARY OF ALL MATERIAL PROVISIONS OF THE
AGREEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE AGREEMENT
ATTACHED HERETO AS APPENDIX A, AND CERTAIN PROVISIONS OF THE FBCA RELATING TO
THE RIGHTS OF DISSENTING SHAREHOLDERS, COPIES OF WHICH ARE ATTACHED HERETO AS
APPENDIX B. ALL SBC SHAREHOLDERS ARE URGED TO READ THE AGREEMENT AND THE
APPENDICES IN THEIR ENTIRETY.
GENERAL
The Agreement provides that, subject to shareholder ratification and
confirmation, receipt of necessary regulatory approval and certain other
conditions described below at "Conditions to Consummation of the Merger," SBC
will merge with and into BancGroup. Upon completion of the Merger, the corporate
existence of SBC will cease, and BancGroup will succeed to the business formerly
conducted by SBC. SBC's subsidiary bank, Southern Bank, will become a wholly
owned subsidiary of BancGroup following the Merger. BancGroup intends to operate
Southern Bank in Florida with the name "Colonial Bank".
In the event there is an insufficient number of shares of SBC Common Stock
present in person or by proxy at the Special Meeting to approve the Merger, the
Board of Directors of SBC intends to adjourn the Special Meeting. Any such
adjournment will require the affirmative vote of a majority of shares present at
the Special Meeting. The effect of any such adjournment would be to permit SBC
to continue to solicit additional proxies for approval of the Merger. While such
an adjournment would not invalidate any proxies previously filed, including
those submitted by stockholders voting against the Merger, it would give SBC the
opportunity to solicit additional proxies in favor of the Merger.
BACKGROUND OF THE MERGER
Since the organization of Southern Bank in 1988, its Board of Directors and
management have endeavored to maximize shareholder value through a strategic
plan designed to increase assets and earnings. Management believed this plan
would lead to increases in the market value of the SBC Common Stock.
As part of its strategy, Southern Bank acquired three branches of Florida
Federal Savings Bank in 1991, opened a new branch in each of 1992 and 1994, and
acquired the two offices of Osceola National Bank in 1994. These actions enabled
Southern Bank to establish a major presence throughout the metropolitan Orlando
market. As a result of these actions, as well as Southern Bank's internal
growth, the total assets of SBC grew from $85.3 million at December 31, 1992 to
$210.7 million at September 30, 1995, or an increase of more than 147%. With the
acquisition of Osceola National Bank, SBC became the largest independent banking
organization based in the Orlando market. During this same period, SBC's net
income grew from $384,000 in 1992 to $1,734,000 in 1994, and $1,969,000 for the
first nine months of 1995. SBC's management believes that these factors enabled
SBC to achieve a reputation as a high-performance banking institution and caused
SBC to become an especially attractive acquisition target for out-of-state
financial institutions.
Prior to the discussions with BancGroup, the management of SBC occasionally
received inquiries from other financial institutions regarding the possibility
of an acquisition of SBC. However, SBC did not pursue discussions with these
parties because the Board of Directors and management of SBC believed that such
discussions would not result in an acceptable premium for SBC because it had not
achieved sufficient size or presence in the Orlando banking market.
In the early part of October 1995, a director of BancGroup contacted the
Chairman and the President of SBC to arrange a meeting to discuss a possible
acquisition. At this meeting, the director of BancGroup indicated that BancGroup
planned to expand into Florida and would be willing to pay a suitable premium
for a high-performance community bank in the Orlando area.
On October 18, 1995, the Board of Directors of SBC met to discuss the
interest of BancGroup in acquiring SBC. At this meeting, the management of SBC
made a presentation regarding prices paid for recent acquisitions of
Florida-based financial institutions. Management reviewed the publicly reported
financial terms of recent transactions and noted that prices for Florida
community banks, in general, were relatively high. On this basis, management
concluded that it might be an appropriate time to consider the sale of SBC.
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Management then reviewed the terms of recent transactions involving the
acquisition of what is considered to be the top tier of Florida banks based upon
financial performance. Management noted that these high-performance banks had
recently sold at significantly higher prices which represented 250% to 290% of
book value and 15 to 18 times net income. Management believed that SBC should
expect to receive an offer in this range.
The directors concluded that further discussions with BancGroup were
merited because it appeared that BancGroup would be willing to offer a
substantial premium for SBC. In making this decision, the directors were also
cognizant that future changes in federal banking laws and the continuing
consolidation in the banking industry might reduce prices offered for community
banks in Florida. The directors were also aware that sustained growth of
Southern Bank might become more difficult due to increasing competition and the
lack of attractive local acquisition candidates.
On November 10, 1995, three members of BancGroup's senior management came
to Orlando to meet with SBC's Board of Directors. At this meeting, BancGroup's
management made a detailed presentation regarding BancGroup's current
operations, strategic plans and financial condition. They requested SBC to enter
into a standstill agreement under which SBC would agree not to hold discussions
with other potential purchasers for a period of approximately 80 days. The
purpose of this agreement was to permit both parties to investigate in greater
detail the feasibility of a merger of SBC into BancGroup. Although BancGroup did
not make a specific proposal at the meeting, the representatives of BancGroup
stated that they believed BancGroup would be willing to offer a substantial
premium for SBC. The Board of Directors voted to approve the standstill
agreement in order to encourage BancGroup to make an offer for SBC. The
standstill agreement was executed on November 10, 1995, with an expiration date
of February 1, 1996.
During November 1995, management of SBC and BancGroup exchanged financial
information, and conducted preliminary due diligence investigations regarding
the transaction.
On November 30, 1995, Robert E. Lowder, BancGroup's Chairman and President,
met with SBC's Chairman, Donald Prewitt, and President, Charles W. Brinkley, Jr.
The purpose of this meeting was to discuss the results of the preliminary due
diligence investigations and BancGroup's degree of interest in an acquisition.
During this meeting, Mr. Lowder requested that SBC enter into a letter of intent
under which BancGroup would propose to acquire SBC in exchange for shares of
BancGroup Common Stock. Under this proposal, the shares of SBC Common Stock and
outstanding stock options would be exchanged for shares of BancGroup Common
Stock with an aggregate value of approximately $43 million. SBC's management
responded by requesting that BancGroup raise its offer to $50 million. Mr.
Lowder agreed that BancGroup would consider this request.
On December 1, 1995, BancGroup provided SBC with a letter of intent in
which it proposed to issue .3796 shares of BancGroup Common Stock in exchange
for each outstanding share of SBC Common Stock. Based on the market price of
$29.375 of the BancGroup Common Stock on November 30, 1995, this proposal had a
value of $11.15 for each share of SBC Common Stock, or an aggregate value of
approximately $46 million, assuming the exercise of all outstanding SBC Options
(and after deducting the exercise price of such options).
Following further review and discussion, SBC's directors concluded that SBC
should request a price of at least $12.00 per share. SBC's management then
requested that BancGroup reconsider the terms of the letter of intent.
In response, and following further discussions with management of SBC,
BancGroup submitted a revised letter of intent on December 13, 1995. In the
second letter of intent, BancGroup proposed to issue .3919 shares of BancGroup
Common Stock for each share of SBC Common Stock. This proposal had a value of
approximately $12.00 per share (based on the market price of $30.625 per share
as of December 12, 1995 for the BancGroup Common Stock), or an aggregate value
of approximately $50 million, assuming the exercise of all outstanding SBC
Options (after deducting the exercise price of such options). BancGroup stated
that its willingness to enter into the letter of intent was conditioned on SBC's
agreement to refrain from any negotiations with third parties who might be
interested in acquiring SBC.
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On December 15, 1995, the Boards of Directors of SBC and Southern Bank met
jointly to discuss the second letter of intent submitted by BancGroup. The
revised offer represented a price of 2.51 times the book value of each share of
SBC Common Stock as of September 30, 1995 (assuming the exercise of all SBC
Options) and 20.3 times projected 1995 earnings per share (assuming the exercise
of all SBC Options). After discussion, the directors of SBC unanimously agreed
to accept the letter of intent because they believed that SBC had received the
highest offer it could obtain from BancGroup and that it was unlikely that SBC
would receive a higher offer from any other party. In view of the substantial
premium offered by BancGroup and the potentially adverse impact of a public
solicitation of offers for SBC, the directors concluded that the prohibition on
solicitation of other offers was acceptable to SBC. The letter of intent was
then signed by SBC that same day.
On December 29, 1995, BancGroup provided SBC with an initial draft of the
Agreement with respect to the proposed Merger. During January, 1996, with the
assistance of SBC's counsel and independent accounting firm, SBC and BancGroup
negotiated the terms of the Agreement. During this same period, the parties
continued their due diligence investigations.
On January 17, 1996, the Board of Directors of SBC met to review the terms
of the definitive Agreement. At this meeting, counsel for SBC reviewed the
principal terms of the Agreement with SBC's directors. Management also
reiterated the principal reasons for the Merger, including the attractive price
offered by BancGroup. In this connection, management noted that SBC's obligation
to consummate the Merger would be conditioned upon the receipt of an opinion
from an independent financial adviser that the consideration payable under the
Agreement was fair to the shareholders of SBC from a financial point of view.
After further discussion, the Board of Directors unanimously approved the
final version of the Agreement. The Agreement was subsequently executed by SBC
on January 25, 1996 and by BancGroup on February 5, 1996.
On January 29, 1996, SBC engaged the services of The Carson Medlin Company
("Carson Medlin"), an investment banking firm based in Tampa, Florida, to review
the terms of the Merger from a financial point of view. See "Opinion of
Financial Advisor."
On February 21, 1996, the Board of Directors of SBC met with
representatives of Carson-Medlin to review the financial terms of the Merger. At
this meeting, Carson Medlin delivered its opinion that the consideration to be
received by the shareholders of SBC in the Merger was fair to them from a
financial point of view. Based on this opinion and a further review of the terms
of the Merger, the Board of Directors unanimously agreed to recommend that
shareholders of SBC vote in favor of the Agreement at the Special Meeting. The
Board also agreed to adopt and ratify an amended and restated version of the
Agreement dated as of February 15, 1996, which reflects certain amendments
designed to protect the federal income tax treatment of the SBC Options.
SBC'S BOARD OF DIRECTORS' REASONS FOR APPROVING THE MERGER
In its deliberations with regard to the Merger, the Board of Directors of
SBC considered the following: (i) the consideration to be received by the
shareholders of SBC upon the consummation of the Merger; (ii) the federal income
tax consequences of the Merger; (iii) the transferability of the BancGroup
Common Stock to be received in connection with the Merger; (iv) the financial
condition, earnings record and business prospects of SBC and BancGroup; (v) the
current and historical market prices of BancGroup Common Stock; (vi) the amounts
paid in recent acquisitions of other community banks based in Florida; (vii) the
opinion of Carson Medlin that the consideration to be received by the
shareholders of SBC is fair from a financial point of view; and (viii) the
impact of the Merger on Southern Bank's customers, employees and local
community. The Board also considered BancGroup's ability to offer a broader
range of products and services to the customers of Southern Bank. No specific
weight or value was assigned by the Board of Directors to any of the foregoing
factors.
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OPINION OF FINANCIAL ADVISOR
In January 1996, SBC retained Carson Medlin to provide the Board of
Directors of SBC with a written opinion regarding the fairness of the Merger
from a financial point of view. SBC selected Carson Medlin as its financial
adviser on the basis of Carson Medlin's experience and expertise in representing
community banks in acquisition transactions. Carson Medlin is an investment
banking firm which specializes in the securities of financial institutions
located in the southeastern United States. As part of its investment banking
activities, Carson Medlin is regularly engaged in the valuation of financial
institutions and transactions relating to their securities.
On February 15, 1996, Carson Medlin delivered its written opinion to the
Board of Directors of SBC that the consideration to be received by the
shareholders of SBC for the SBC Common Stock is fair from a financial point of
view. Carson Medlin subsequently confirmed such opinion in writing as of May 24,
1996. The full text of Carson Medlin's written opinion dated May 24, 1996 is
attached as Appendix B to this Prospectus. It sets forth the procedures
followed, assumptions made, matters considered and qualifications and
limitations on the review undertaken by Carson Medlin in connection with its
opinion. The following summary of the opinion is qualified in its entirety by
reference to the full text of such opinion.
Carson Medlin has relied upon, without independent verification, the
accuracy and completeness of the information reviewed by it for purposes of its
opinion. Carson Medlin did not undertake any independent evaluation or appraisal
of the assets and liabilities of SBC, nor was it furnished with any such
appraisals.
Carson Medlin is not an expert in the evaluation of loan portfolios,
including under-performing or non-performing assets, charge-offs or the
allowance for loan losses. It has not reviewed any individual credit files of
SBC or BancGroup. Instead, it has assumed that the allowances for each of SBC
and BancGroup are adequate to cover their potential loan losses. Carson Medlin
assumed that the Merger will be recorded as a pooling-of-interests under
generally accepted accounting principles. Carson Medlin's opinion is necessarily
based on economic, market and other conditions existing on the date of its
opinion, and on information as of various earlier dates made available to it.
Carson Medlin reviewed certain financial projections prepared by SBC.
Carson Medlin assumed that these projections were prepared on a reasonable basis
utilizing the best and most current information available to management of SBC,
and that such projections will be realized in the amounts and at the times
contemplated thereby. SBC does not publicly disclose internal management
projections of the type provided to Carson Medlin. Such projections were not
prepared for, or with a view toward, public disclosure.
In connection with rendering its opinion, Carson Medlin performed a variety
of financial analyses. The preparation of a fairness opinion involves various
determinations as to the most appropriate financial analyses and the application
of those analyses to the particular circumstances. Carson Medlin believes that
its analyses must be considered together as a whole and that selecting portions
of such analyses and the facts considered therein, without considering all other
factors and analyses, could create an incomplete or inaccurate view of the
analyses and the process underlying Carson Medlin's opinion. In its analyses,
Carson Medlin made numerous assumptions with respect to industry performance,
business and economic conditions, and other matters, many of which are beyond
the control of SBC and BancGroup and which may not be realized. Any estimates
contained in Carson Medlin's analyses are not necessarily predictive of future
results or values, which 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 such companies or their securities may
actually be sold. Except as described below, none of the analyses performed by
Carson Medlin were assigned a greater significance by Carson Medlin than any
other.
In connection with its opinion dated May 24, 1996, Carson Medlin reviewed:
(i) the Agreement; (ii) the annual reports to shareholders of BancGroup,
including audited financial statements of BancGroup for the five years ended
December 31, 1995; (iii) audited financial statement of SBC for the five years
ended December 31, 1995; (iv) call reports for SBC for the five years ended
December 31, 1995 and the three months ended March 31, 1996; (v) the unaudited
interim financial statements on Form 10-Q for BancGroup for the three months
ended March 31, 1996; and (vi) certain other financial and operating information
with respect to the business, operations and prospects of SBC and BancGroup. In
addition, Carson Medlin: (i) held discussions with members of the senior
management of SBC and BancGroup regarding the historical and
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current business operations, financial condition and future prospects of their
respective companies; (ii) reviewed the historical market prices and trading
activity for the common stock of SBC and BancGroup and compared them with those
of certain publicly traded companies which it deemed to be relevant; (iii)
compared the results of operations of SBC and BancGroup with those of certain
banking companies which it deemed to be relevant; (iv) compared the proposed
financial terms of the Merger with the financial terms, to the extent publicly
available, of certain other recent business combinations of commercial banking
organizations; (v) analyzed the pro forma financial impact of the Merger on
BancGroup; and (vi) conducted other studies, analyses, inquiries and
examinations as Carson Medlin deemed appropriate.
The following is a summary of the principal analyses performed by Carson
Medlin in connection with its opinion:
Transaction Summary. Carson Medlin calculated the transaction value of the
Merger utilizing the Exchange Ratio and the closing stock price of $35.00 for
the BancGroup Common Stock on May 15, 1996. Based upon the foregoing, Carson
Medlin determined that the 3,362,000 shares of SBC Common Stock presently
outstanding would be converted into approximately 1,317,567 shares of BancGroup
Common Stock with a value of approximately $46.1 million, or $13.72 per share.
Additionally, Carson Medlin determined the value of the consideration to be
received by the holders of the SBC Options. In determining this amount, Carson
Medlin assumed that all SBC Options would be exercised prior to the Effective
Date and converted into shares of SBC Common Stock. If this occurred, the
holders of the SBC Options would receive 1,112,000 shares of SBC Common Stock,
which would be converted into approximately 435,792 shares of BancGroup Common
Stock, with a value of approximately $15.3 million. To exercise their options,
the holders would be required to pay approximately $3.7 million. After deducting
this exercise price, the holders of the SBC Options would receive consideration
valued at approximately $11.6 million.
Based upon the foregoing, Carson Medlin determined that the transaction
value of the Merger to the shareholders and option holders of SBC was
approximately $57.7 million (consisting of $46.1 million to be received by the
holders of the currently outstanding SBC Common Stock and $11.6 million to be
received by the holders of the SBC Options).
In making the foregoing determination, Carson Medlin was aware that the
Agreement provides other alternatives with respect to the treatment of the SBC
Options, including the conversion of certain of the SBC Options directly into
shares of BancGroup Common Stock or the conversion of the SBC Options into
options to acquire shares of BancGroup Common Stock. The presence of these
alternatives did not affect the fairness opinion rendered by Carson Medlin
because the value of the consideration to be received by the holders of the SBC
Options under such alternatives is generally equivalent to the value which they
would receive in the event of the exercise of their options prior to the Merger.
Based on the price of $35.00 per share for BancGroup Common Stock, Carson
Medlin calculated that the aggregate transaction value represented 275% of
adjusted book value (assuming the exercise of all SBC Options), 16.9 times
annualized earnings for the three months ended March 31, 1996, a 22.6% core
deposit premium (defined as the aggregate transaction value minus stated book
value divided by core deposits) and 25.2% of total assets of SBC at March 31,
1996.
Comparable Transaction Analysis. Carson Medlin reviewed certain
information relating to 10 central Florida bank mergers announced or completed
since January 1993, in which the acquired bank had total assets exceeding $100
million (the "Comparable Transactions"). The Comparable Transactions were
(acquiror/ acquiree): AmSouth Bancorporation/Charter Banking Corp., SouthTrust
Corporation/Cypress Banks, Inc.; 1st United Bancorp/American Bancorp; Huntington
Bancshares Incorporated/Security National Corp.; AmSouth Bancorporation/Tampa
Banking Co.; Compass Bancshares, Inc./American Bancorp; Northern Trust
Corp./Beach One Financial; AmSouth Bancorporation/Orange Banking Corp.; AmSouth
Bancorporation/First National Bank of Clearwater; Huntington Bancshares
Incorporated/Peoples Bank of Lakeland. Carson Medlin considered, among other
factors, the earnings, capital level, asset size and quality of assets of the
acquired financial institutions. Carson Medlin compared the transaction prices
to trailing four quarters earnings, stated book values, total assets and core
deposit premiums.
On the basis of the Comparable Transactions, Carson Medlin calculated a
range of purchase prices as a percentage of adjusted book value (assuming the
exercise of all SBC Options) for the Comparable
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Transactions, from a low of 117.4% to a high of 257.8%, with a mean 188.6%.
These transactions indicated a range of values for SBC from $24.6 to $54.1
million, with a mean $39.6 million (based on SBC's adjusted book value of
$20.979 million at March 31, 1996). The aggregate consideration implied by the
terms of the Agreement is approximately $57.7 million (based on a price of
$35.00 for the BancGroup Common Stock as of May 15, 1996) and implies a price to
adjusted book value multiple of 275% which falls above the high end of the range
for the Comparable Transactions.
Carson Medlin calculated a range of purchase prices as a multiple of
earnings for the Comparable Transactions, from a low of 13.1 times to a high of
23.0 times, with a mean of 16.9 times. These transactions indicated a range of
values for SBC from $44.8 to $78.6 million, with a mean of $57.7 million (based
on the annualization of SBC's earnings of $3.416 million for the three months
ended March 31, 1996). The aggregate consideration implied by the terms of the
Agreement is approximately $57.7 million and implies a price to earnings
multiple of 16.9 times which is at the average of the range for the Comparable
Transactions.
Carson Medlin calculated the core deposit premiums for the Comparable
Transactions and found a range of values, from a low of 1.7% to a high of 20.0%,
with a mean of 10.2%. These transactions indicated a range of values for SBC
from $20.3 to $53.1 million, with a mean of $35.5 million (based on SBC's core
deposits of $179.017 million as of March 31, 1996, i.e., total deposits less
CD's greater than $100,000). The premium on SBC's core deposits implied by the
terms of the Merger Agreement is 22.6%, above the high end of the range for the
Comparable Transactions.
Finally, Carson Medlin calculated a range of purchase prices as a
percentage of total assets for the Comparable Transactions, from a low of 6.2%
to a high of 27.9%, with a mean of 16.7%. The indicated range of values for SBC
under this approach was $14.2 to $63.8 million, with a mean value of $38.2
million (based on SBC's total assets of $228.808 million as of March 31, 1996).
The percentage of total assets implied by the terms of the Agreement is
approximately 25.2% and the aggregate purchase price of approximately $57.7
million falls near the high end of the range for the Comparable Transactions.
Industry Comparative Analysis. In connection with rendering its opinion,
Carson Medlin compared selected operating results of SBC to those of 49
publicly-traded community commercial banks in Alabama, Florida, Georgia, North
Carolina, South Carolina, Virginia and West Virginia (the "SIBR Banks") as
contained in the Southeastern Independent Bank Review(TM), a proprietary
research publication prepared by Carson Medlin quarterly since 1991. The SIBR
Banks range in asset size from approximately $83.1 million to $1.8 billion and
in shareholders' equity from approximately $7.6 million to $193.5 million.
Approximately 92% are listed on NASDAQ (including Bulletin Board, OTC, and NMS)
and 8% are not traded on an established market. Carson Medlin considers this
group of financial institutions more comparable to SBC than larger, more widely
traded regional financial institutions. Carson Medlin compared, among other
factors, profitability, capitalization, and asset quality of SBC to these
financial institutions. Carson Medlin noted that based on results through the
first quarter of 1996, (i) SBC had a return on average assets (ROA) for the
three months ended March 31, 1996 of 1.54%, compared to mean ROA of 1.23% for
the SIBR Banks; (ii) SBC had a return on average equity (ROE) for the three
months ended March 31, 1996 of 20.1%, compared to mean ROE of 12.2% for the SIBR
Banks; (iii) SBC had common equity to total assets at March 31, 1996 of 7.6%,
compared to mean common equity to total assets of 10.1% for the SIBR Banks; and
(iv) SBC had nonperforming assets (defined as loans 90 days past due, nonaccrual
loans and other real estate) to total loans net of unearned income and other
real estate at March 31, 1996 of 0.45%, compared to mean nonperforming assets to
total loans net of unearned income and other real estate of 1.00% for the SIBR
Banks. This comparison indicated that SBC's financial performance exceeded the
average SIBR Bank for most of the factors considered.
Carson Medlin also compared selected operating results of BancGroup to
those of 8 other publicly-traded mid-size regional bank holding companies
defined as those with assets between $3 and $23 billion (the "Peer Banks")
located in the Southeast. The 8 Peer Banks include: AmSouth Bancorporation,
Compass Bancshares, Inc., First American Corporation, First Tennessee National
Corporation, National Commerce Bancorporation, Regions Financial Corporation,
SouthTrust Corporation, and Union Planters Corporation. Carson Medlin considers
this group of southeastern financial institutions comparable to BancGroup as to
financial characteristics, stock price performance and trading volume. Carson
Medlin compared selected balance sheet data, asset quality, capitalization,
profitability ratios and market statistics using financial data at or for the
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three months ended March 31, 1996 and market data as of May 15, 1996. This
comparison showed, among other things, that (i) for the three months ended March
31, 1996, BancGroup's net interest margin was 3.94% compared to a mean of 4.08%
and a median of 3.99% for the Peer Banks; (ii) for the three months ended March
31, 1996, BancGroup's efficiency ratio (defined as noninterest expense divided
by the sum of noninterest income and taxable equivalent net interest income
before provision for loan losses) was 60.8% compared to a mean of 58.5% and a
median of 57.3% for the Peer Banks; (iii) for the three months ended March 31,
1996, BancGroup's ROA was 1.17% compared to a mean of 1.28% and a median of
1.25% for the Peer Banks; (iv) for the three months ended March 31, 1996,
BancGroup's ROE was 16.94% compared to a mean of 16.49% and a median of 16.51%
for the Peer Banks; (v) at March 31, 1996, BancGroup's stockholders' equity to
total assets was 6.83% compared to a mean of 7.79% and a median of 7.90% for the
Peer Banks; (vi) at March 31, 1996, BancGroup's nonperforming assets to total
assets were 0.72% compared to a mean of 0.45% and a median of 0.41% for the Peer
Banks; (vii) at March 31, 1996, the ratio of BancGroup's loan loss reserves to
nonperforming assets was 137% compared to a mean of 319% and a median of 237%
for the Peer Banks; and (viii) at May 15, 1996, BancGroup's market
capitalization was $0.5 billion compared to the Peer Banks which ranged from a
high of $2.9 billion to a low of $0.8 billion. This comparison indicated that
BancGroup is performing near the average for its peer group.
No company or transaction used in the preceding Industry Comparative or
Comparable Transaction Analyses is identical to SBC or the contemplated
transaction. Accordingly, the results of these analyses necessarily involves
complex considerations and judgments concerning differences in financial and
operating characteristics of SBC and other factors that could affect the value
of the companies to which it is being compared. Mathematical analysis (such as
determining the average or median) is not, in itself, a meaningful method of
using comparable industry or transaction data.
Contribution Analysis. Under the terms of the Agreement, BancGroup will
issue approximately 1,753,359 shares of BancGroup Common Stock. At March 31,
1996, there were 13,539,827 shares of BancGroup Common Stock outstanding.
Accordingly, on a pro forma basis, as of March 31, 1996, the 1,753,359 shares to
be issued in the Merger would represent approximately 12.5% of the outstanding
shares of BancGroup after the Merger.
Carson Medlin analyzed the contribution of each of SBC and BancGroup to the
assets, liabilities and historical earnings of the pro forma combined company as
of March 31, 1996. For the three months ended March 31, 1996, SBC would have
contributed 7.2% of net income. At March 31, 1996, SBC would have contributed
5.5% of earning assets, 5.6% of total assets, 6.8% of total deposits, and 7.3%
of adjusted shareholders' equity. The foregoing indicates that SBC's pro forma
ownership in BancGroup exceeds its pro forma contribution to assets, liabilities
and earnings of the combined entity.
Present Value Analysis. Carson Medlin calculated the present value of the
SBC Common Stock assuming that SBC remained an independent bank. For purposes of
this analysis, Carson Medlin utilized certain projections of SBC's future
earnings. It assumed that all of these earnings would be retained and that the
SBC Common Stock would be sold at the end of 5 years at 200% of book value
(which was near the median for the Comparable Transactions). This value was then
discounted to present value utilizing discount rates of 10% through 14%. These
rates were selected because, in Carson Medlin's experience, they represent the
rates that investors in securities such as the SBC Common Stock would demand in
light of the potential appreciation and risks. On the basis of these
assumptions, Carson Medlin calculated that the present value of SBC as an
independent bank ranged from $44.4 to $53.1 million. The transaction value of
$53.3 million implied by the terms of the Agreement falls above the high end of
the range under present value analysis. Carson Medlin noted that the present
value analysis was included because it is a widely used valuation methodology,
but noted that the results of such methodology are highly dependent upon
numerous assumptions, including earnings growth rates, dividend payout rates,
terminal values and discount rates.
Stock Trading History. Carson Medlin reviewed and analyzed the historical
trading prices and volumes for the BancGroup Common Stock on a monthly basis
from December 1992 to April 1996. Carson Medlin also compared price performance
of the BancGroup Common Stock during this period to the Peer Banks. On February
21, 1995, BancGroup reclassified its Class A and Class B Common Stock into one
class of Common Stock. The Common Stock of BancGroup was listed for trading on
the New York Stock Exchange on
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<PAGE> 28
February 24, 1995. Prior to that, BancGroup's Class A Common Stock was quoted on
the NASDAQ National Market System.
During the four quarters ending March 31, 1996, the ratio of stock price to
trailing 12 months earnings per share for the Peer Banks was: a low of 12.6
times, a high of 13.8 times, and a mean of 13.1 times. BancGroup's recent price
to earnings ratio ranged from a low of 9.9 times to a high of 12.1 times, with a
mean of 10.7 times. BancGroup Common Stock has traded on average at a lower
price to earnings ratio than the Peer Banks.
During the four quarters ending March 31, 1996, the stock price as a
percentage of book value for Peer Banks was: a low of 173%, a high of 191%, and
a mean of 185%. BancGroup's recent price to book ratio ranged from a low of 163%
to a high of 189%, with a mean of 173%. BancGroup Common Stock has traded on
average at a lower price to book value ratio than the Peer Banks.
Carson Medlin also examined the recent trading volume in BancGroup Common
Stock, which trades on the New York Stock Exchange, with that of the Peer Banks.
During the four quarters ending March 31, 1996, the quarter end monthly trading
volume of outstanding shares of the Peer Banks ranged from a low of 5.0% to a
high of 5.6% with a mean of 5.4%. BancGroup's quarter end monthly trading volume
to outstanding shares ranged from a low of 1.0% to a high of 2.1% with a mean of
1.5%. Carson Medlin considers BancGroup Common Stock to be liquid and marketable
in comparison with those Peer Banks and other bank holding companies.
Carson Medlin also examined the trading prices and volumes of SBC Common
Stock. SBC Common Stock has not traded in volumes sufficient to be meaningful.
Therefore, Carson Medlin did not place any weight on the market price of the SBC
Common Stock.
Other Analysis. Carson Medlin also reviewed selected investment research
reports on and earnings estimates for BancGroup. In addition, Carson Medlin
prepared an overview of historical financial performance of both SBC and
BancGroup.
The opinion expressed by Carson Medlin was based upon market, economic and
other relevant considerations as they existed and have been evaluated as of the
date of the opinion. Events occurring after the date of issuance of the opinion,
including but not limited to, changes affecting the securities markets, the
results of operations or material changes in the assets or liabilities of SBC
could materially affect the assumptions used in preparing the opinion.
Pursuant to an engagement letter dated January 8, 1996, SBC engaged Carson
Medlin to render a fairness opinion in connection with the proposed Merger. SBC
paid Carson Medlin $30,000 for its services pursuant to the terms of the
engagement letter. SBC has agreed to reimburse Carson Medlin for its reasonable
out-of-pocket expenses and to indemnify Carson Medlin against certain
liabilities, including certain liabilities under the federal securities laws.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF SBC
The Board of Directors of SBC has determined that the Merger is in the best
interests of SBC and its shareholders. THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT THE SHAREHOLDERS OF SBC VOTE IN FAVOR OF THE APPROVAL AND
ADOPTION OF THE MERGER AND THE AGREEMENT.
BANCGROUP'S REASONS FOR THE MERGER
The Board of Directors of BancGroup has unanimously approved the Merger and
the Agreement. BancGroup has been seeking to expand its banking service in the
Florida market, and the Board of Directors of BancGroup believes that the
acquisition of SBC and Southern Bank is consistent with that strategy.
In approving the Merger and the Agreement, the Board of Directors of
BancGroup took into account: (i) the financial performance and condition of SBC,
including its strong capital and good asset quality; (ii) similarities in the
philosophies of BancGroup and SBC, including SBC's commitment to delivering high
quality personalized financial services to its customers; and (iii) SBC's
management's knowledge of and experience in the Central Florida market.
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<PAGE> 29
INTERESTS OF CERTAIN PERSONS IN THE MERGER
All of the directors and certain of the executive officers of SBC hold SBC
Options which entitle them to purchase, in the aggregate, up to 1,016,000 shares
of SBC Common Stock. Under the terms of the Agreement, any SBC Options which are
not exercised prior to the Effective Date will either be converted into shares
of BancGroup Common Stock or converted into options to acquire shares of
BancGroup Common Stock. The ratio at which SBC Options may be converted into
shares of BancGroup Common Stock (the "Conversion Ratio") is based upon the
difference between the respective exercise prices of the SBC Options and $12.00.
The treatment of the SBC Options under the Agreement was based upon the
Exchange Ratio, so that, based on the market value of the BancGroup Common Stock
as of December 13, 1995 (i.e., $30.625 per share), the consideration to be
received by the holders of the SBC Options is substantially equivalent to the
consideration to be received by the current shareholders of SBC. However, since
the various Conversion Ratios applicable to the SBC Options are, in each case,
less than the Exchange Ratio, holders of the SBC Options who elect to convert
their SBC Options into shares of the BancGroup Common Stock will be affected
less by any change in the market value of the BancGroup Common Stock than the
current shareholders of SBC or those who exercise their SBC Options prior to the
Effective Date. See "THE MERGER -- Conversion of SBC Common Stock."
On the Effective Date, certain executive officers of Southern Bank will be
entitled to receive cash payments under SBC's Share Performance Bonus Plan. With
respect to rights granted under the Plan, participants are entitled to receive
the difference between the value of the SBC Common Stock as of the date such
rights were granted and the value of the SBC Common Stock as of the date of any
merger or other change in ownership of SBC. A total of 84,000 "share units" have
been granted under the Plan to six of Southern Bank's executive officers who are
not directors. Each of the share units was granted at a time when the market
value of the SBC Common Stock was determined to be $4.50 per share. Based on the
value of the SBC Common Stock under the terms of the Agreement (i.e., $12.00 per
share as of December 12, 1995), the six executive officers of Southern Bank who
are participants in the Plan will receive payments in the aggregate amount of
$630,000 in connection with the Merger. Share units granted under the Plan do
not have any voting rights at the Special Meeting.
On the Effective Date, all employees of SBC (including its executive
officers) shall, at BancGroup's option, either become employees of BancGroup or
its subsidiaries or be entitled to severance benefits in accordance with
BancGroup's severance policy as of the date of the Agreement. All employees of
SBC who become employees of BancGroup or its subsidiaries on the Effective Date
shall be entitled, to the extent permitted by applicable law, to participate in
all benefit plans of BancGroup to the same extent as BancGroup's employees.
BancGroup has indicated that it currently intends to retain each of the
executive officers of SBC following the consummation of the Merger (although it
has no obligation to do so), on substantially the same terms and conditions
(including salary) as currently earned by such executive officers.
Under the Agreement, BancGroup has agreed to indemnify the directors and
executive officers of SBC against certain claims and liabilities arising out of
or pertaining to matters existing or occurring at or prior to the Effective
Date, to the fullest extent that SBC would have been required under Florida law,
or in its Articles of Incorporation or Bylaws, to indemnify such persons (and
also to advance expenses as incurred to the fullest extent permitted under
applicable law).
Except as described above, none of the directors or executive officers of
SBC, and no associate of any such person, has any substantial direct or indirect
interest in the Merger, other than an interest arising from the ownership of SBC
Common Stock.
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<PAGE> 30
CONVERSION OF SBC COMMON STOCK
On the Effective Date of the Merger, each share of SBC Common Stock
outstanding and held of record by SBC shareholders shall be converted into a
right to receive .3919 of a share of BancGroup Common Stock.
No fractional shares of BancGroup Common Stock will be issued in connection
with the Merger. Each shareholder of SBC having a fractional interest arising
upon the conversion of SBC Common Stock into BancGroup Common Stock will, at the
time of surrender of the certificates representing SBC Common Stock, be paid by
BancGroup an amount of cash equal to the value of such fractional interest based
on the fair market value of such fractional share. Fair market value for this
purpose shall be the average of the closing prices of the BancGroup Common Stock
as reported on the NYSE for each of the 20 consecutive trading days ending on
the trading day immediately prior to the Effective Date.
The Agreement provides that if, prior to the Effective Date, BancGroup
Common Stock shall be changed into a different number of shares or a different
class of shares by reason of any recapitalization or reclassification, stock
dividend, combination, stock split, or reverse stock split of the BancGroup
Common Stock, an appropriate and proportionate adjustment shall be made in the
number of shares of BancGroup Common Stock into which the SBC Common Stock shall
be converted in the Merger.
TREATMENT OF SBC OPTIONS. As of the date of this Prospectus, SBC had
granted SBC Options which entitled the holders thereof to acquire up to
1,112,000 shares of SBC Common Stock. Certain of the SBC Options are incentive
stock options ("ISOs") under Section 422A of the Internal Revenue Code. In
particular, the ISOs consist of options to acquire 64,000 shares at $2.92 per
share and options to acquire 30,000 shares at $3.38 per share. The following
table sets forth certain information regarding the SBC Options (including the
ISOs):
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
SBC COMMON STOCK EXERCISE EXPIRATION
SUBJECT TO SBC OPTIONS PRICE DATE
------------------------------------------------------------ -------- ---------------
<S> <C> <C>
268,000.............................................. $ 2.92 March 14, 1999
584,000.............................................. $ 3.04 April 21, 2003
30,000.............................................. $ 3.38 March 14, 1999
230,000.............................................. $ 4.50 October 5, 2004
</TABLE>
The Agreement contains the following provisions with respect to the
treatment of the SBC Options:
1. Any holder of an SBC Option who exercises his option prior to the
Effective Date shall be treated in the same manner as any other shareholder
of SBC Common Stock, i.e., such holder shall be entitled to receive .3919
of a share of BancGroup Common Stock for each share of SBC Common Stock
owned by the holder as of the Effective Date. In the event that all of the
holders of the SBC Options exercise their options prior to the Effective
Date, they would be required to pay a total of $3,695,000 to SBC to acquire
1,112,000 shares of SBC Common Stock. As a result of the Merger, these
shares would be converted into 435,739 shares of BancGroup Common Stock. As
a result, a total of 1,753,359 shares of BancGroup Common Stock would be
issued in the Merger, assuming no exercise of dissenters' rights.
2. Each of the holders of the SBC Options (other than holders of the
ISOs) has the right to exchange his SBC Options for shares of BancGroup
Common Stock. In particular, each holder of such SBC Options would be
entitled to receive shares of BancGroup Common Stock, in exchange for his
SBC Options, with a value equal to the difference between $12 and the
exercise price per share of the applicable SBC Options, multiplied by the
number of SBC shares which may be acquired under such option. For purposes
of this determination, the BancGroup Common Stock has been valued at
$30.625 per share (which was the market price of the BancGroup Common Stock
at December 12, 1995).
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<PAGE> 31
Assuming all holders of SBC Options (other than ISOs) consent to the
exchange of their SBC Options, they would receive 287,668 shares of
BancGroup Common Stock, as reflected by the following table:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF CURRENT BANCGROUP SHARES
SBC COMMON STOCK EXERCISE TO BE ISSUED
SUBJECT TO SBC OPTIONS PRICE PER CONVERSION FOR SBC OPTIONS
(EXCEPT ISOS) SHARE RATE (EXCEPT ISOS)
------------------------------------------------- --------- ---------- ----------------
<S> <C> <C> <C>
204,000................................... $2.92 .2965 60,486
584,000................................... $3.04 .2926 170,878
230,000................................... $4.50 .2448 56,304
</TABLE>
In that case, a total of 1,605,235 shares of BancGroup Common Stock would
be issued in the Merger. The pro forma financials utilized in this Prospectus
assume that 1,605,235 shares of BancGroup Common Stock will be issued.
3. All of the SBC Options (including the ISOs) which are neither
exercised prior to the Effective Date nor exchanged for BancGroup Common
Stock, shall be converted into options to acquire shares of BancGroup
Common Stock on their existing terms, after adjustment to reflect the
Exchange Ratio under the Agreement. In particular, the number of shares of
BancGroup Common Stock to be issued pursuant to such options shall equal
the number of shares of SBC Common Stock subject to such options multiplied
by .3919, and the exercise price for the BancGroup Common Stock shall be
the exercise price under such options divided by .3919. Assuming that none
of the holders of the SBC Options exercise their options or exchange them
for shares of BancGroup Common Stock as of the Effective Date, then the SBC
Options would be converted into options to acquire 435,793 shares of
BancGroup Common Stock, as reflected by the following table:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
CURRENT BANCGROUP COMMON
NUMBER OF SHARES OF EXERCISE STOCK TO BE SUBJECT
SBC COMMON STOCK PRICE PER TO NEW BANCGROUP ADJUSTED EXERCISE
SUBJECT TO SBC OPTIONS SHARE OPTIONS PRICE
--------- ------------------- -----------------
<S> <C> <C> <C>
268,000........................ $2.92 105,029 $ 7.45
584,000........................ $3.04 228,870 $ 7.76
30,000........................ $3.38 11,757 $ 8.62
230,000........................ $4.50 90,137 $ 11.48
</TABLE>
In that case, a total of 1,317,567 shares of BancGroup Common Stock would
be issued in the Merger.
Notwithstanding the foregoing, no fractional shares of BancGroup Common
Stock shall be issued upon exercise of such options and any fraction of a share
of BancGroup Common Stock that would otherwise be issued upon the exercise of
such options shall be converted into cash upon the exercise of such option in an
amount equal to the product of such fraction and the difference between the
market value of one share of BancGroup Common Stock at the time of exercise of
such option and the per share exercise price of such option. The market value of
one share of BancGroup Common Stock at the time of exercise of such options
shall be the closing sales price of BancGroup Common Stock on the NYSE on the
last trading day preceding the date of exercise.
SURRENDER OF SBC COMMON STOCK CERTIFICATES
Upon the Effective Date and subject to the conditions described at
"Conditions to Consummation of the Merger," SBC's shareholders will
automatically, and without further action by such shareholders or by BancGroup,
become owners of BancGroup Common Stock as described herein. Outstanding
certificates representing shares of the SBC Common Stock shall represent shares
of BancGroup Common Stock. Thereafter, upon surrender of the certificates
formerly representing shares of SBC Common Stock, the holders will be entitled
to receive certificates for the BancGroup Common Stock. Dividends on the shares
of BancGroup Common Stock will accumulate without interest and will not be
distributed to any former shareholder of SBC unless and until such shareholder
surrenders for cancellation his certificate for SBC Common Stock. SunTrust Bank,
Atlanta, Georgia, transfer agent for BancGroup Common Stock, will act as the
Exchange Agent with respect to the shares of SBC Common Stock surrendered in
connection with the Merger.
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<PAGE> 32
A detailed explanation of these arrangements will be mailed to SBC
stockholders promptly following the Effective Date. STOCK CERTIFICATES SHOULD
NOT BE SENT TO THE EXCHANGE AGENT UNTIL SUCH NOTICE IS RECEIVED.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to qualify as a "reorganization" for federal income
tax purposes under Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as
amended (the "Code"). The obligation of SBC and BancGroup to consummate the
Merger is conditioned on the receipt by SBC and BancGroup of an opinion from
Miller, Hamilton, Snider & Odom, L.L.C., counsel to BancGroup, to the effect
that the Merger will constitute such a reorganization. The opinion has been
delivered to SBC and BancGroup. In delivering its opinion, Miller, Hamilton,
Snider & Odom, L.L.C., have received and relied upon certain representations of
BancGroup and SBC and certain other information, data, documentation and other
materials as it deems necessary. The tax opinion is based upon certain
assumptions, including the assumption that SBC has no knowledge of any plan or
intention on the part of the SBC shareholders to sell or dispose of BancGroup
Common Stock that would reduce their holdings to the number of shares having in
the aggregate a fair market value of less than 50% of the total fair market
value of the SBC Common Stock outstanding immediately upon the Merger.
Neither SBC nor BancGroup intends to seek a ruling from the Internal
Revenue Service as to the federal income tax consequences of the Merger. SBC's
shareholders should be aware that the opinion will not be binding on the
Internal Revenue Service or the courts. SBC's shareholders also should be aware
that some of the tax consequences of the Merger are governed by provisions of
the Code as to which there are no final regulations and little or no judicial or
administrative guidance. There can be no assurance that future legislation,
administrative rulings, or court decisions will not adversely affect the
accuracy of the statements contained herein.
Among other things, the following discussion is based on SBC's shareholders
maintaining sufficient equity ownership interest in BancGroup after the Merger.
The Internal Revenue Service takes the position for purposes of issuing an
advance ruling on reorganizations that the shareholders of an acquired
corporation (i.e., SBC) must maintain a continuing equity ownership interest in
the acquiring corporation (i.e., BancGroup) equal, in terms of value, to at
least 50% of their interest in such acquired corporation. For this purpose,
shares of SBC Common Stock exchanged for cash in lieu of fractional shares of
BancGroup Common Stock and shares as to which dissenters' rights are exercised
will be treated as outstanding shares of SBC Common Stock. Moreover, shares of
SBC Common Stock and BancGroup Common Stock held by SBC shareholders and
otherwise sold, redeemed or disposed of prior or subsequent to the Merger may be
taken into account in determining whether the requirement with respect to
continuing equity ownership of BancGroup Common Stock is met by SBC's
shareholders.
The tax opinion states that, provided the assumptions stated therein (and
outlined below) are satisfied, the Merger will constitute a reorganization as
defined in Section 368(a) of the Code, the following federal income tax
consequences will result to SBC's shareholders who exchange their shares of SBC
common stock for shares of BancGroup Common Stock:
(i) No gain or loss will be recognized by SBC's shareholders on the
exchange of shares of SBC Common Stock for shares of BancGroup Common
Stock;
(ii) The aggregate basis of BancGroup Common Stock received by each
SBC shareholder (including any fractional shares of BancGroup Common Stock
deemed received, but not actually received), will be the same as the
aggregate tax basis of the shares of SBC Common Stock surrendered in
exchange therefor;
(iii) The holding period of the shares of BancGroup Common Stock
received by each SBC shareholder will include the period during which the
shares of SBC Common Stock exchanged therefor were held, provided that the
shares of SBC Common Stock were a capital asset in the holder's hands as of
the Effective Date;
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<PAGE> 33
(iv) No gain or loss will be recognized by SBC upon the transfer of
its assets and liabilities to BancGroup. No gain or loss will be recognized
by BancGroup upon the receipt of the assets and liabilities of SBC;
(v) The basis of the assets of SBC acquired by BancGroup will be the
same as the basis of the assets in the hands of SBC immediately prior to
the Merger;
(vi) The holding period of the assets of SBC in the hands of BancGroup
will include the period during which such assets were held by SBC;
(vii) Cash payments received by each SBC shareholder in lieu of a
fractional share of BancGroup Common Stock will be treated for federal
income tax purposes as if the fractional share had been issued in the
exchange and then redeemed by BancGroup. Gain or loss will be recognized on
the redemption of the fractional share and generally will be capital gain
or loss if the SBC Common Stock is a capital asset in the hands of the
holder; and
(viii) An SBC shareholder who dissents and receives only cash pursuant
to appraisal rights will recognize gain or loss. Such gain or loss will, in
general, be treated as capital gain or loss, measured by the difference
between the amount of cash received and the tax basis of the shares of SBC
Common Stock converted, if the shares of SBC Common Stock were held as
capital assets. However, an SBC shareholder who receives only cash may need
to consider the effects of Sections 302 and 318 of the Code in determining
the federal income tax consequences of the transaction.
The following assumptions are stated in the tax opinion:
(1) BancGroup does not plan to sell or otherwise dispose of any of the
stock or assets of Southern Bank of Central Florida, a wholly-owned
subsidiary of SBC (the "Bank") or to liquidate the Bank after the Merger.
(2) BancGroup will continue the historic business of SBC or will use a
significant portion of the historic business assets of SBC in a business.
(3) SBC and the Bank have no knowledge of any plan or intention on the
part of the SBC shareholders to sell or otherwise dispose of the BancGroup
Common Stock to be received by them that would reduce their holdings to a
number of shares having, in the aggregate, a fair market value of less than
fifty percent of the total fair market value of the SBC Common Stock
outstanding immediately before the Merger.
(4) As a result of the Merger, each share of the issued and
outstanding SBC Common Stock will be converted into the right to receive
BancGroup Common Stock.
(5) No fractional shares will be issued in the Merger. In the event
fractional shares result in the exchange, the SBC shareholders entitled to
fractional shares will be paid cash by BancGroup for their fractional
shares.
(6) The fair market value of the BancGroup Common Stock to be received
by the SBC shareholders will be approximately equal to the fair market
value of the SBC stock exchanged therefor.
(7) The proposed Merger will be effected for substantial non-tax
business purposes.
(8) BancGroup will acquire at least 90% of the fair market value of
the net assets and at least 70% of the fair market value of the gross
assets held by SBC immediately prior to the Merger. For purposes of this
representation, SBC assets used to pay its reorganization expenses, and all
redemptions and distributions (except for regular, normal dividends) made
by SBC immediately preceding the Merger and all payments to dissenters, if
any, will be included as assets of SBC held immediately prior to the
Merger.
(9) SBC is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of sec. 368(a)(3)(A) of the Code.
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<PAGE> 34
If the assumption stated above, that there is no plan or intention by the
SBC shareholders to sell or dispose of BancGroup Common Stock that would reduce
their holdings to the number of shares with an aggregate fair market value of at
least 50 percent of the total fair market value of SBC Common Stock outstanding
immediately before the Merger were to be incorrect, then counsel could not opine
that the Merger is a tax free reorganization under Section 368 of the Code.
Accordingly, the Merger must satisfy the "continuity of interest" requirement
contained in Treasury Regulations and judicial authority. The IRS has stated
that, for ruling purposes, for mergers to qualify as tax free reorganizations,
the shareholders of the acquired corporation must receive and retain stock of
the acquiror equal to 50 percent of the aggregate value of the acquired
corporation immediately before the Merger.
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF ALL MATERIAL
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO THE SHAREHOLDERS OF SBC, TO SBC
AND TO BANCGROUP AND DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR LISTING OF
ALL POTENTIAL TAX EFFECTS RELEVANT TO A DECISION WHETHER TO VOTE IN FAVOR OF
APPROVAL OF THE MERGER. THE DISCUSSION DOES NOT ADDRESS THE TAX CONSEQUENCES
THAT MAY BE RELEVANT TO A PARTICULAR SHAREHOLDER SUBJECT TO SPECIAL TREATMENT
UNDER CERTAIN FEDERAL INCOME TAX LAWS, SUCH AS DEALERS IN SECURITIES, BANKS,
INSURANCE COMPANIES, TAX-EXEMPT ORGANIZATIONS, NON-UNITED STATES PERSONS,
STOCKHOLDERS WHO DO NOT HOLD THEIR SHARES OF SBC COMMON STOCK AS "CAPITAL
ASSETS" WITHIN THE MEANING OF SECTION 1221 OF THE CODE, AND SHAREHOLDERS WHO
ACQUIRED THEIR SHARES OF SBC COMMON STOCK PURSUANT TO THE EXERCISE OF OPTIONS OR
OTHERWISE AS COMPENSATION, NOR ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY
STATE, LOCALITY OR FOREIGN JURISDICTION. MOREOVER, THE TAX CONSEQUENCES TO
HOLDERS OF SBC OPTIONS ARE NOT DISCUSSED. THE DISCUSSION IS BASED UPON THE CODE,
TREASURY REGULATIONS THEREUNDER AND ADMINISTRATIVE RULINGS AND COURT DECISIONS
AS OF THE DATE HEREOF. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE AND ANY SUCH
CHANGE COULD AFFECT THE CONTINUING VALIDITY OF THIS DISCUSSION. SBC SHAREHOLDERS
ARE URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE PARTICULAR FEDERAL,
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE MERGER TO THEM.
OTHER POSSIBLE CONSEQUENCES
If the Merger is consummated, the shareholders of SBC, a Florida
corporation, will become shareholders of BancGroup, a Delaware business
corporation.
The state tax consequences, where applicable, of owning stock of a Delaware
business corporation may be different from those of owning shares of a Florida
corporation.
For a discussion of the differences, if any, in the rights, preferences,
and privileges attaching to SBC Common Stock as compared with BancGroup Common
Stock, see "COMPARATIVE RIGHTS OF STOCKHOLDERS."
CONDITIONS TO CONSUMMATION OF THE MERGER
The parties' obligation to consummate the Merger is subject to the
satisfaction (or waiver, to the extent permitted by law) of various conditions
set forth in the Agreement.
The obligations of SBC and BancGroup to consummate the Merger are
conditioned upon, among other things, (i) the approval of the Agreement by the
holders of at least a majority of the outstanding shares of SBC Common Stock;
(ii) the approval of the Merger by the Florida Department of Banking and the
Federal Reserve; (iii) the absence of pending or threatened litigation with a
view to restraining or prohibiting consummation of the Merger or in which it is
sought to obtain divestiture, rescission or damages in connection with the
Merger, (iv) the absence of any investigation by any governmental agency which
might result in any such proceeding, (v) consummation of the Merger no later
than September 30, 1996, and (vi) the average
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<PAGE> 35
closing price as reported by the NYSE for the BancGroup Common Stock for the
period of twenty (20) consecutive trading days ending on the trading day
immediately preceding the Effective Date shall not be less than $24.625 or
greater than $36.625 (provided that these prices shall be appropriately adjusted
in the case of any stock dividend, stock split, or other similar
reclassification of the BancGroup Common Stock).
The obligation of SBC to consummate the Merger is further subject to
several other conditions, including: (i) the absence of any material adverse
change in the financial condition or affairs of BancGroup; (ii) the shares of
BancGroup Common Stock to be issued under the Agreement shall have been approved
for listing on the NYSE; and (iii) the accuracy in all material respects of the
representations and warranties of BancGroup contained in the Agreement and the
performance by BancGroup of all of its covenants and agreements under the
Agreement.
The obligation of BancGroup to consummate the Merger is subject to several
other conditions, including: (i) the absence of any material adverse change in
the financial condition or affairs of SBC; (ii) the holders of not more than 10%
of the outstanding shares of SBC Common Stock shall have exercised dissenters'
rights with respect to their shares; (iii) the receipt of a letter from Coopers
& Lybrand L.L.P. that the Merger will qualify for the "pooling-of-interest"
method of accounting under generally accepted accounting principles; (iv) the
accuracy in all material respects of the representations and warranties of SBC
contained in the Agreement, and the performance by SBC of all of its covenants
and agreements under the Agreement; and (v) the receipt by BancGroup of certain
undertakings from holders of SBC Common Stock who may be deemed to be
"affiliates" of SBC pursuant to the rules of the Commission.
It is anticipated that the foregoing conditions, as well as certain other
conditions contained in the Agreement, such as the receipt of certificates of
officers of each party as to compliance with the Agreement, will be satisfied.
The Agreement provides that SBC and BancGroup may waive all conditions to their
obligations to consummate the Merger, other than the receipt of the requisite
approvals of regulatory authorities and SBC shareholder approval of the Merger.
In making any decision regarding a waiver of one or more conditions to
consummation of the Merger or an amendment of the Agreement, the Boards of
Directors of SBC and BancGroup would be subject to fiduciary duty standards
imposed upon such Boards by relevant law that would require such boards to act
in the best interests of their respective shareholders.
AMENDMENT OR TERMINATION
The Boards of Directors of BancGroup and SBC may agree to amend or
terminate the Agreement before or after approval by the shareholders of SBC.
However, the Board of Directors of SBC shall not agree to any amendments to the
Agreement which would alter the Exchange Ratio or which in the opinion of the
Board of Directors of SBC would adversely affect the rights of the shareholders
of SBC, unless such amendments are approved by the holders of a majority of the
outstanding SBC Common Stock. Such amendments may require the filing of an
amendment of the Registration Statement, of which this Prospectus forms a part,
with the Commission. See "Conditions to Consummation of the Merger."
REGULATORY APPROVALS
The Merger is subject to prior approval of the Federal Reserve under the
BHCA and by the Florida Department under Section 658.28 of the Florida Banking
Code. BancGroup filed applications with the Federal Reserve and with the Florida
Department on March 25, 1996, and the regulatory approval process is expected to
take approximately three months from that date.
Federal Reserve Approval. Under Section 3 of the BHCA, the Federal Reserve
must withhold approval of the Merger if it finds that the transaction will
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 geographic
area. In addition, the Federal Reserve may not approve the Merger if it finds
that the effect thereof may be substantially to lessen competition or tend to
create a monopoly or would in any other manner be in restraint of trade, unless
it finds that the anti-competitive effects of the Merger are clearly outweighed
by the probable effect of the Merger in meeting the convenience and needs of the
communities to be served. The Federal Reserve will also take into consideration
the financial and managerial resources and future prospects of
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<PAGE> 36
BancGroup's banking subsidiaries following the consummation of the Merger, as
well as the compliance records of such banking subsidiaries under the Community
Reinvestment Act. The Federal Reserve has indicated that it will not approve a
significant acquisition unless the resulting institution has adequate
capitalization, taking into account, among other things, asset quality.
The BHCA provides for the publication of notice and public comment on the
application and authorizes the Federal Reserve to permit interested parties to
intervene in the proceedings. If an interested party is permitted to intervene,
such intervention could delay the regulatory approvals required for consummation
of the Merger. Under Section 11 of the BHCA, the Merger may not be consummated
until the 30th day after the date of approval by the Federal Reserve, during
which time the United States Department of Justice or others may challenge the
Merger on antitrust grounds. This 30 day period may be reduced to 15 days under
certain circumstances.
Florida Department of Banking. The Florida Department must also approve
the change of control of Southern Bank which would be effected by the Merger.
Under Section 658.28 of the Florida Banking Code, the Florida Department may
issue a Certificate of Approval for a change of control of a Florida state bank
only after it has made an investigation and has determined that the proposed new
owner of a controlling interest is qualified by reputation and experience and
financial responsibility to control and operate the bank in a legal and proper
manner and that the interest of the other shareholders, if any, and the
depositors and creditors of the bank and the interest of the public generally
will not be jeopardized by the proposed change in ownership or controlling
interest or management.
The Agreement provides that the obligation of each of BancGroup and SBC to
consummate the Merger is conditioned upon the receipt of all necessary
regulatory approvals, including the approval of the Federal Reserve and the
Florida Department. There can be no assurance that the Federal Reserve or the
Florida Department will approve BancGroup's applications to acquire SBC, and, if
such approvals are received, that such approvals will not be conditioned upon
terms and conditions that would cause the parties to abandon the Merger.
CONDUCT OF BUSINESS PENDING THE MERGER
The Agreement contains certain restrictions on the conduct of the business
of SBC pending consummation of the Merger. The Agreement prohibits SBC from
taking any of the following actions, prior to the Effective Date, subject to
certain limited exceptions previously agreed to by the parties, without the
prior written approval of BancGroup:
(i) Issuing, delivering or agreeing to issue or deliver any stock,
bonds or other corporate securities (whether authorized and unissued or
held in the treasury), except shares of SBC Common Stock issued upon the
exercise of SBC Options;
(ii) Borrowing or agreeing to borrow any funds or incurring or
becoming subject to, any liability (absolute or contingent) except
borrowings, obligations and liabilities incurred in the ordinary course of
business and consistent with past practice;
(iii) Paying any material obligation or liability (absolute or
contingent) other than current liabilities reflected in or shown on the
most recent balance sheet and current liabilities incurred since that date
in the ordinary course of business and consistent with past practice;
(iv) Declaring or making or agreeing to declare or make, any payment
of dividends or distributions of any assets of any kind whatsoever to
shareholders, or purchasing or redeeming or agreeing to purchase or redeem,
any of its outstanding securities;
(v) Except in the ordinary course of business, selling or transferring
or agreeing to sell or transfer, any of its assets, property or rights or
canceling, or agreeing to cancel, any debts or claims;
(vi) Except in the ordinary course of business, entering or agreeing
to enter into any agreement or arrangement granting any preferential rights
to purchase any of its assets, property or rights or requiring the consent
of any party to the transfer and assignment of any of its assets, property
or rights;
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(vii) Suffering any losses or waiving any rights of value which in the
aggregate are material;
(viii) Except in the ordinary course of business, making or permitting
any amendment or termination of any contract, agreement or license to which
it is a party if such amendment or termination is material considering its
business as a whole;
(ix) Except in accordance with normal and usual practice, making any
accrual or arrangement for or payment of bonuses or special compensation of
any kind or any severance or termination pay to any present or former
officer or employee;
(x) Except in accordance with normal and usual practice, increasing
the rate of compensation payable to or to become payable to any of its
officers or employees or making any material increase in any
profit-sharing, bonus, deferred compensation, savings, insurance, pension,
retirement or other employee benefit plan, payment or arrangement made to,
for or with any of its officers or employees;
(xi) Failing to operate its business in the ordinary course so as to
preserve its business intact and to preserve the goodwill of its customers
and others with whom it has business relations; and
(xii) Entering into any other material transaction other than in the
ordinary course of business.
COMMITMENTS WITH RESPECT TO OTHER OFFERS
Until the termination of the Agreement, neither SBC nor any of its
directors or officers (or any person representing any of the foregoing) shall
solicit or encourage inquiries or proposals with respect to, furnish any
information relating to or participate in any negotiations or discussions
concerning, any acquisition or purchase of all or of a substantial portion of
the assets of, or of a substantial equity interest in, SBC or any business
combination involving SBC other than as contemplated by the Agreement. SBC will
notify BancGroup immediately if any such inquiries or proposals are received by
SBC, if any such information is requested from SBC, or if any such negotiations
or discussions are sought to be initiated with SBC. SBC shall instruct its
officers, directors, agents or affiliates or their subsidiaries to refrain from
doing any of the above; provided, however, that nothing contained in the
Agreement shall be deemed to prohibit any officer or director of such party from
fulfilling his or her fiduciary duty or from taking any action that is required
by law.
INDEMNIFICATION
BancGroup has agreed to indemnify present and former directors and officers
of SBC and Southern Bank against liabilities arising out of actions or omissions
occurring at or prior to the Effective Date to the extent provided in the FBCA,
and SBC's Articles of Incorporation and Bylaws.
RIGHTS OF DISSENTING SHAREHOLDERS
Holders of SBC Common Stock as of the Record Date are entitled to
dissenters' rights under Sections 607.1301, 607.1302 and 607.1320 of the FBCA,
copies of which are attached as Appendix C to this Prospectus. The following
discussion is not a complete statement of the law pertaining to dissenters'
rights under the FBCA and is qualified in its entirety by reference to Appendix
C.
Under the FBCA, any holder of SBC Common Stock as of the Record Date who
follows the procedures set forth in Section 607.1320 will be entitled to receive
an offer from SBC to pay the dissenting shareholder an amount estimated by SBC
to be the "fair value" for such shareholder's shares. "Fair value" is defined
under the FBCA as the value of the dissenter's shares as of the close of
business on the day prior to the date the merger is approved by the
corporation's shareholders, excluding any appreciation or depreciation in
anticipation of the corporate action, unless exclusion would be inequitable. Any
shareholder who wishes to exercise dissenters' rights, or who wishes to preserve
his or her right to do so, should review the following discussion and Appendix C
carefully because failure to comply timely and properly with the procedures
specified will result in the loss of dissenters' rights under the FBCA. A person
having a beneficial interest in SBC Common Stock held of record in the name of
another person, such as a broker or nominee, must act promptly to cause
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<PAGE> 38
the record holder to follow the steps summarized below properly and in a timely
manner to perfect such dissenters' rights as the beneficial owners may have.
An SBC shareholder wishing to exercise dissenters' rights must deliver to
SBC, before the vote of holders of SBC Common Stock on the Agreement at the
Special Meeting, a written notice of intent ("Notice of Intent") to demand
payment for his or her shares. Such shareholder must not vote in favor of
approval of the Agreement. Because a signed proxy which does not contain voting
instructions will, unless revoked, be voted for the Agreement, an SBC
shareholder who votes by proxy and who wishes to exercise dissenters' rights
must either (i) vote against the Agreement, or (ii) abstain from voting with
respect to the Agreement. A vote against approval of the Agreement will not, in
and of itself, constitute a written demand for dissenters' rights satisfying the
requirements of Section 607.1320.
Any Notice of Intent should be addressed to Southern Banking Corporation,
201 East Pine Street, Orlando, Florida 32801, Attention: Carol Kodak, Secretary,
and should be executed by, or on behalf of, the holder of record. The Notice of
Intent must reasonably inform SBC of the identity of the shareholder and that
such shareholder is thereby objecting to the Merger and demanding payment of his
or her shares if the Merger is consummated.
Under Section 607.1320, SBC must provide written notification (a "Notice of
Approval"), within 10 days after shareholder approval of the Agreement, of such
shareholder approval to each shareholder who gave SBC a Notice of Intent. Within
twenty days after the Notice of Approval is given by SBC, the dissenting
shareholder must file with SBC a written notice of election to dissent ("Notice
of Election to Dissent") and deposit his or her certificates evidencing shares
of SBC Common Stock with SBC simultaneously with the filing of the Notice of
Election to Dissent. Upon filing a Notice of Election to Dissent, a shareholder
shall thereafter be entitled only to payment as provided by Section 607.1320 and
shall not be entitled to vote or to exercise any other rights of a shareholder.
A notice of Election to Dissent may be withdrawn in writing by a dissenting
shareholder at any time before SBC has made an offer to pay for the shares of
the shareholder.
Within 10 days after the expiration of the period in which shareholders may
file their Notice of Election to Dissent or within 10 days after consummation of
the Merger, whichever is later, but in no event more than 90 days after the date
the SBC shareholders approve the Agreement, SBC must make a written offer to
each dissenting stockholder who has filed a Notice of Election of Dissent to pay
an amount that SBC estimates to be the "fair value" of the shares. If the
dissenting shareholder accepts SBC's offer, payment must be made within 90 days
after the offer was made or consummation of the Merger, whichever occurs later.
If SBC fails to make the offer or if the dissenting shareholder does not accept
the offer within 30 days after the offer is made, then SBC, within 30 days after
receipt of written demand from any dissenting shareholder given within 60 days
after consummation of the Merger, must bring an action in a court of competent
jurisdiction in Orange County, Florida, requesting that the "fair value" of the
shares be determined together with a fair rate of interest, as determined by the
court. If SBC fails to bring such an action, any dissenting shareholder may do
so on behalf of SBC.
The costs and expenses of any such action shall be determined by the court
and shall be assessed against SBC, but all or any part of such costs and
expenses may be apportioned and assessed as the court may deem equitable against
any or all of the dissenting shareholders who are parties to the action, and to
whom SBC has made an offer to pay for the shares, if the court finds that such
shareholders' failure to accept such offer was arbitrary, vexatious, or not in
good faith. Such expenses shall include reasonable compensation for, and
reasonable expenses of, appraisers appointed by the court, but shall exclude the
fees and expenses of counsel for, and experts employed by, any party. If the
fair value of the shares, as determined by the court, materially exceeds the
amount SBC offered to pay therefor or if no offer was made, the court may award
to any shareholder who is a party to the proceeding such sum as the court may
determine to be reasonable compensation to any attorney or expert employed by
the shareholder in the action.
SBC shareholders who are considering the assertion of dissenters' rights
should be aware that the "fair value" of their shares of SBC Common Stock as
determined under the FBCA could be more than, the same as, or less than the
consideration they would receive pursuant to the Agreement if they did not seek
dissenters' rights. BancGroup's obligation to consummate the Merger under the
Agreement is subject to the condition
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<PAGE> 39
that not more than 10% of the shares of SBC shall be subject to the exercise of
dissenters' rights under the FBCA.
Only a holder of record of SBC Common Stock as of the Record Date is
entitled to assert dissenters' rights for the shares of SBC Common Stock
registered in that holder's name. The demand for dissenters' rights should be
executed by or on behalf of the holder of record fully and correctly, as his or
her name appears on the stock certificates. If the shares of SBC Common Stock
are owned of record in a fiduciary capacity, such as by a trustee, guardian or
custodian, execution of the demand should be made in this capacity, and if the
shares of SBC Common Stock are owned of record by more than one person, as by
joint tenancy or in common, the demand should be executed by or on behalf of all
joint owners. An authorized agent, including one or more joint owners, may
execute a demand for appraisal on behalf of a holder of record; however, the
agent must identify the record owner or owners and expressly disclose the fact
that, in executing the demand, the agent is acting as agent for such owner or
owners. A record holder such as a broker who holds shares of SBC Common Stock as
nominee for several beneficial owners may exercise dissenters' rights with
respect to the shares of SBC Common Stock held for one or more beneficial owners
while not exercising such rights with respect to the shares of SBC Common Stock
held for other beneficial owners. In such case, the written demand should set
forth the number of shares of SBC Common Stock as to which dissenters' rights
are sought. Where no number of shares of SBC Common Stock is expressly
mentioned, the demand will be presumed to be with respect to all shares of SBC
Common Stock held in the name of the record owners. SBC shareholders who hold
their shares of SBC Common Stock in brokerage accounts or other nominee forms
and who wish to exercise dissenters' rights are urged to consult with their
brokers to determine the appropriate procedures for making a demand.
If any SBC shareholder who demands dissenters' rights with respect to his
or her shares of SBC Common Stock fails to perfect, or effectively withdraws or
loses, the right to dissent, the shareholder's rights as a shareholder will be
restored, and, if the Merger has been consummated, the shares of SBC Common
Stock of such shareholder will be converted into shares of BancGroup Common
Stock in accordance with the terms of the Agreement. A dissenting shareholder
will fail to perfect, or effectively withdraw or lose, the right to dissent if
such shareholder fails to deliver a Notice of Intent to SBC prior to the vote on
the Agreement at the Special Meeting, votes for the approval of the Agreement,
fails to file a Notice of Election to Dissent with SBC, or delivers to SBC a
written withdrawal of his or her Notice of Election to Dissent before an offer
is made by SBC under Section 607.1320. After such offer is made by SBC, no
Notice of Election to Dissent may be withdrawn except with the written consent
of SBC.
Failure to follow the steps required by Sections 607.1301, 607.1302 and
607.1320 of the FBCA for perfecting dissenters' rights will result in the loss
of such rights. Consequently, any SBC shareholder who desires to exercise
dissenters' rights is urged to consult a legal advisor before attempting to
exercise such rights.
RESALE OF BANCGROUP COMMON STOCK ISSUED IN THE MERGER
The issuance of the shares of BancGroup Common Stock pursuant to the Merger
has been registered under the Securities Act of 1933 (the "Securities Act"). As
a result, shareholders of SBC who are not "affiliates" of SBC (as such term is
defined under the Securities Act) may resell, without restriction, all shares of
BancGroup Common Stock which they receive in connection with the Merger. Under
the Securities Act, affiliates of SBC are subject to restrictions on the resale
of the BancGroup Common Stock which they receive in the Merger.
The BancGroup Common Stock received by affiliates of SBC who do not also
become affiliates of BancGroup after the consummation of the Merger may not be
sold except pursuant to an effective Registration Statement under the Securities
Act covering such shares or in compliance with Rule 145 promulgated under the
Securities Act or another applicable exemption from the registration
requirements of the Securities Act. Generally, Rule 145 permits BancGroup Common
Stock held by such shareholders to be sold in accordance with certain provisions
of Rule 144 under the Securities Act. In general, these provisions of Rule 144
permit a person to sell on the open market in brokers transactions within any
three month period a
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<PAGE> 40
number of shares that does not exceed the greater of 1% of the then outstanding
shares of BancGroup Common Stock or the average weekly trading volume in
BancGroup Common Stock reported on NYSE during the four calendar weeks preceding
such sale. Sales under Rule 144 are also subject to the availability of current
public information about BancGroup. The restrictions on sales will cease to
apply under most circumstances once the former SBC affiliate has held the
BancGroup Common Stock for at least two years. BancGroup Common Stock held by
affiliates of SBC who become affiliates of BancGroup will be subject to
additional restrictions on the ability of such persons to resell such shares.
SBC will provide BancGroup with such information as may be reasonably
necessary to determine the identity of those persons (primarily officers,
directors and principal shareholders) who may be deemed to be affiliates of SBC.
SBC will also obtain from each such person a written undertaking to the effect
that no sale or transfer will be made of any shares of BancGroup Common Stock by
such person except pursuant to Rule 145 or pursuant to an effective registration
statement or an exemption from registration under the Securities Act. Receipt of
such an undertaking is a condition to BancGroup's obligation to close the
Merger. If such undertakings are not received and BancGroup waives receipt of
such condition, the certificates for the shares of BancGroup Common Stock to be
issued to such person will contain an appropriate restrictive legend and
appropriate stock transfer orders will be given to BancGroup's stock transfer
agent.
The undertaking from each SBC affiliate will also provide that,
notwithstanding the permissible sale of stock described above, each affiliate of
SBC may not sell or in any other way reduce his or her risk relative to, any
shares of SBC Common Stock or of BancGroup Common Stock during the period
commencing thirty days prior to the Effective Date and ending on the date on
which financial results covering at least thirty days of post-Merger combined
operations of BancGroup and SBC have been published.
ACCOUNTING TREATMENT
BancGroup will account for the Merger as a pooling-of-interest transaction
in accordance with generally accepted accounting principles, which, among other
things, requires that the number of shares of SBC Common Stock acquired for cash
pursuant to the exercise of dissenters' rights or in lieu of fractional shares
not exceed 10% of the outstanding shares of SBC Common Stock. Under this
accounting treatment, assets and liabilities of SBC would be added to those of
BancGroup at their recorded book values, and the shareholders' equity of the two
companies would be combined in BancGroup's consolidated balance sheet. Financial
statements of BancGroup issued after the Effective Date of the Merger will be
restated to reflect the consolidated operations of BancGroup and SBC as if the
Merger had taken place prior to the periods covered by the financial statements.
NYSE REPORTING OF BANCGROUP COMMON STOCK ISSUED IN THE MERGER
Sales of BancGroup Common Stock to be issued in the Merger in exchange for
SBC Common Stock will be reported on NYSE.
COMPARATIVE MARKET PRICES AND DIVIDENDS
BANCGROUP
BancGroup Common Stock is listed for trading on the NYSE. The Common Stock
was first listed on the NYSE on February 24, 1995. Prior to February 21, 1995,
BancGroup had two classes of common stock outstanding, Class A and Class B. The
Class B was not publicly traded. The Class A Common Stock was traded in the
over-the-counter market and quoted on the NASDAQ National Market System. The
BancGroup Class A Common Stock had more limited voting rights than the BancGroup
Class B Common Stock. The Class A and Class B Common Stock were reclassified
into one class of Common Stock on February 21, 1995, and the Class A Common
Stock ceased to be quoted on NASDAQ on February 24, 1995.
The following table shows the dividends paid per share and indicates the
high and low closing prices for the BancGroup Class A Common Stock as reported
by the NASDAQ National Market System up to
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February 24, 1995, and the same information reported by the NYSE for the
BancGroup Common Stock commencing February 24, 1995.
<TABLE>
<CAPTION>
PRICE AND
DIVIDENDS
PAID
------------ DIVIDENDS
HIGH LOW (PER SHARE)
---- --- -----------
<S> <C> <C> <C>
1994
1st Quarter............................................... $20 1/4 $18 $ 0.20
2nd Quarter............................................... 25 191/4 0.20
3rd Quarter............................................... 24 3/4 22 0.20
4th Quarter............................................... 23 3/4 191/2 0.20
1995
1st Quarter............................................... 23 5/8 191/2 0.225
2nd Quarter............................................... 27 1/2 231/8 0.225
3rd Quarter............................................... 29 7/8 271/2 0.225
4th Quarter............................................... 32 7/8 281/2 0.225
1996
1st Quarter............................................... 36 1/2 30 0.27
2nd Quarter
(through May 8, 1996)..................................... 36 1/8 33 0.27
</TABLE>
On December 20, 1995, the business day immediately prior to the public
announcement of the Merger, the closing price as reported on the NYSE of the
BancGroup Common Stock was $32 7/8 per share.
At March 31, 1996, BancGroup's banking subsidiaries accounted for
approximately 98% of BancGroup's consolidated assets. BancGroup derives
substantially all of its income from dividends received from its subsidiary
banks. Various statutory provisions and regulatory policies limit the amount of
dividends the subsidiary banks may pay without regulatory approval. In addition,
federal statutes restrict the ability of subsidiary banks to make loans to
BancGroup, and regulatory policies may also restrict such dividends.
SBC
There is no established public market for the SBC Common Stock. To the
knowledge of SBC, approximately 874,544 shares of SBC Common Stock have been
sold during the last two fiscal years at prices ranging from $4.00 to $4.50 per
share. The most recent sale occurred on June 7, 1995 when 18,744 shares were
sold. SBC is not aware of the price at which this sale was consummated. The next
most recent sale occurred on May 12, 1995 when 574,360 shares were sold at a
price of $4.00 per share.
SBC has never paid dividends.
BANCGROUP CAPITAL STOCK AND DEBENTURES
BancGroup's authorized capital stock consists of 44,000,000 shares of
BancGroup Common Stock, par value $2.50 per share, and 1,000,000 shares of its
Preference Stock, par value $2.50 per share. As of May 8, 1996, there were
issued and outstanding a total of 13,575,465 shares of BancGroup Common Stock.
No shares of Preference Stock are issued and outstanding. BancGroup issued in
1986 $28,750,000 in principal amount of its 7 1/2% Convertible Subordinated
Debentures due 2011 (the "1986 Debentures") of which $9,373,000 are currently
outstanding and are convertible at any time into 333,333 shares of BancGroup
Common Stock, subject to adjustment. There are 199,495 shares of BancGroup
Common Stock subject to issue upon exercise of options under BancGroup's stock
option plans. In addition to BancGroup Common Stock to be issued in the Merger,
BancGroup will issue additional shares of its Common Stock in two pending
acquisitions. See "BUSINESS OF BANCGROUP -- Proposed Affiliate Banks."
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The following statements with respect to BancGroup Common Stock and
Preference Stock are brief summaries of material provisions of Delaware law, the
Restated Certificate of Incorporation (the "Certificate"), as amended, and
bylaws of BancGroup, do not purport to be complete and are qualified in their
entirety by reference to the foregoing.
BANCGROUP COMMON STOCK
Dividends. Subject to the rights of holders of BancGroup's Preference
Stock, if any, to receive certain dividends prior to the declaration of
dividends on shares of BancGroup Common Stock, when and as dividends, payable in
cash, stock or other property, are declared by the BancGroup Board of Directors,
the holders of BancGroup Common Stock are entitled to share ratably in such
dividends.
Voting Rights. Each holder of BancGroup Common Stock has one vote for each
share held on matters presented for consideration by the stockholders.
Preemptive Rights. The holders of BancGroup Common Stock have no
preemptive rights to acquire any additional shares of BancGroup.
Issuance of Stock. The BancGroup Certificate authorizes the BancGroup
Board to issue authorized shares of BancGroup Common Stock without stockholder
approval. However, BancGroup's Common Stock is listed on the NYSE, which
requires stockholder approval of the issuance of additional shares of BancGroup
Common Stock under certain circumstances.
Liquidation Rights. In the event of liquidation, dissolution or winding-up
of BancGroup, whether voluntary or involuntary, the holders of BancGroup Common
Stock will be entitled to share ratably in any of its assets or funds that are
available for distribution to its stockholders after the satisfaction of its
liabilities (or after adequate provision is made therefor) and after preferences
of any outstanding Preference Stock.
PREFERENCE STOCK
BancGroup's Preference Stock may be issued from time to time as a class
without series, or if so determined by the BancGroup Board of Directors, either
in whole or in part in one or more series. The voting rights, and such
designations, preferences and relative, participating, optional or other special
rights, if any, and the qualifications, limitations or restrictions thereof, if
any, including, but not limited to, the dividend rights, conversion rights,
redemption rights and liquidation preferences, if any, of any wholly unissued
series of BancGroup Preference Stock (or of the entire class of BancGroup
Preference Stock if none of such shares has been issued), the number of shares
constituting any such series and the terms and conditions of the issue thereof
may be fixed by resolution of the BancGroup Board of Directors. BancGroup
Preference Stock may have a preference over the BancGroup Common Stock with
respect to the payment of dividends and the distribution of assets in the event
of the liquidation or winding-up of BancGroup and such other preferences as may
be fixed by the BancGroup Board.
1986 DEBENTURES
BancGroup issued in 1986 its 7 1/2% Convertible Subordinated Debentures due
2011 in the total principal amount of $28,750,000. The 1986 Debentures were
issued under a trust indenture (the "1986 Indenture") between BancGroup and
SunTrust Bank, Atlanta, Georgia, as trustee.
The 1986 Debentures will mature on March 31, 2011, and are convertible at
any time into shares of BancGroup Common Stock at the option of a holder
thereof, at the conversion price of $28 principal amount of the 1986 Debentures
for each share of BancGroup Common Stock. The conversion price is, however,
subject to adjustment upon the occurrence of certain events as described in the
1986 Indenture. In the event all of the outstanding 1986 Debentures are
converted into shares of BancGroup Common Stock in accordance with the 1986
Indenture, a total of 333,333 shares of such BancGroup Common Stock will be
issued. The 1986 Debentures are redeemable, in whole or in part, at the option
of BancGroup at certain premiums until 1996, when the redemption price shall be
equal to 100% of the face amount of the 1986 Debentures plus accrued interest.
The payment of principal and interest on the 1986 Debentures is subordinate, to
the extent
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provided in the 1986 Indenture, to the prior payment when due of all Senior
Indebtedness of BancGroup. "Senior Indebtedness" is defined as any indebtedness
of BancGroup for money borrowed, or any indebtedness incurred in connection with
an acquisition or with a merger or consolidation, outstanding on the date of
execution of the 1986 Indenture as originally executed, or thereafter created,
incurred or assumed, and any renewal, extension, modification or refunding
thereof, for the payment of which BancGroup (which term does not include
BancGroup's consolidated or unconsolidated subsidiaries) is at the time of
determination responsible or liable as obligor, guarantor or otherwise. Senior
Indebtedness does not include (i) indebtedness as to which, in the instrument
creating or evidencing the same or pursuant to which the same is outstanding, it
is provided that such indebtedness is subordinate in right of payment to any
other indebtedness of BancGroup, and (ii) indebtedness which by its terms states
that such indebtedness is subordinate to or equally subordinate with the 1986
Debentures.
At March 31, 1996, BancGroup's Senior Indebtedness as defined in the 1986
Indenture aggregated approximately $684.6 million. Such debt includes all
short-term debt consisting of federal funds purchased, securities purchased
under repurchase agreements and borrowings with the Federal Home Loan Bank but
excludes all federally-insured deposits. BancGroup may from time to time incur
additional indebtedness constituting Senior Indebtedness. The 1986 Indenture
does not limit the amount of Senior Indebtedness which BancGroup may incur, nor
does such indenture prohibit BancGroup from creating liens on its property for
any purpose.
CHANGES IN CONTROL
Certain provisions of the BancGroup Certificate and bylaws may have the
effect of preventing, discouraging or delaying any change in control of
BancGroup. The authority of the BancGroup Board of Directors to issue BancGroup
Preference Stock with such rights and privileges, including voting rights, as it
may deem appropriate may enable the BancGroup Board to prevent a change in
control despite a shift in ownership of the BancGroup Common Stock. See
"General" and "Preference Stock." In addition, the power of BancGroup's Board to
issue additional shares of BancGroup Common Stock may help delay or deter a
change in control by increasing the number of shares needed to gain control. See
"BancGroup Common Stock." The following provisions also may deter any change in
control of BancGroup.
Classified Board. BancGroup's Board of Directors is classified into three
classes, as nearly equal in number as possible, with the members of each class
elected to three-year terms. Thus, one-third of BancGroup's Board of Directors
is elected by stockholders each year. With this provision, two annual elections
are required in order to change a majority of the Board of Directors. There are
currently 18 directors of BancGroup. This provision of BancGroup's Certificate
also stipulates that (i) directors can be removed only for cause upon a vote of
80% of the voting power of the outstanding shares entitled to vote in the
election of directors, voting as a class, (ii) vacancies in the Board may only
be filled by a majority vote of the directors remaining in office, (iii) the
maximum number of directors shall be fixed by resolution of the Board of
Directors, and (iv) the provisions relating to the classified Board can only be
amended by the affirmative vote of the holders of at least 80% of the voting
power of the outstanding shares entitled to vote in the election of directors,
voting as a class.
Business Combinations. Certain "Business Combinations" of BancGroup with a
"Related Person" may only be undertaken with the affirmative vote of at least
75% of the outstanding shares of "Voting Stock," plus the affirmative vote of at
least 67% of the outstanding shares of Voting Stock, not counting shares owned
by the Related Person, unless the Continuing Directors of BancGroup approve such
Business Combination. A "Related Person" is a person, or group, who owns or
acquires 10% or more of the outstanding shares of BancGroup Common Stock,
provided that no person shall be a Related Person if such person would have been
a Related Person on the date of approval of this provision by BancGroup's Board
of Directors, i.e., April 20, 1994. An effect of this provision may be to
exclude Robert E. Lowder, the current Chairman and President of BancGroup, and
certain members of his family from the definition of Related Person. A
"Continuing Director" is a director who was a member of the Board of Directors
immediately prior to the time a person became a Related Person. This provision
may not be amended without the affirmative vote of the holders of at least 75%
of the outstanding shares of Voting Stock, plus the affirmative vote of the
outstanding shares of at
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least 67% of the outstanding Voting Stock, excluding shares held by a Related
Person. This provision may have the effect of giving the incumbent Board of
Directors a veto over a merger or other Business Combination that could be
desired by a majority of BancGroup's stockholders. The current Board of
Directors of BancGroup owns approximately 15% of the outstanding shares of
BancGroup Common Stock.
Board Evaluation of Mergers. BancGroup's Certificate permits the Board of
Directors to consider certain factors such as the character and financial
stability of the other party, the projected social, legal, and economic effects
of a proposed transaction upon the employees, suppliers, regulatory agencies and
customers and communities of BancGroup, and other factors when considering
whether BancGroup should undertake a merger, sale of assets, or other similar
transaction with another party. This provision may not be amended except by the
affirmative vote of at least 80% of the outstanding shares of BancGroup Common
Stock. This provision may give greater latitude to the Board of Directors in
terms of the factors which the board may consider in recommending or rejecting a
merger or other Business Combination of BancGroup.
Director Authority. BancGroup's Certificate prohibits stockholders from
calling special stockholders' meetings and acting by written consent. It also
provides that only BancGroup's Board of Directors has the authority to undertake
certain actions with respect to governing BancGroup such as appointing
committees, electing officers, and establishing compensation of officers, and it
allows the Board to act by majority vote.
Bylaw Provisions. BancGroup's bylaws provide that stockholders wishing to
propose nominees for the Board of Directors or other business to be taken up at
an annual meeting of BancGroup stockholders must comply with certain advance
written notice provisions. These bylaw provisions are intended to provide for
the more orderly conduct of stockholder meetings but could make it more
difficult for stockholders to nominate directors or introduce business at
stockholder meetings.
Delaware Business Combination Statute. Subject to some exceptions,
Delaware law prohibits BancGroup from entering into certain "business
combinations" (as defined) involving persons beneficially owning 15% or more of
the outstanding BancGroup Common Stock (or who is an affiliate of BancGroup and
has over the past three years beneficially owned 15% or more of such stock)
(either, for the purpose of this paragraph, an "Interested Stockholder"), unless
the BancGroup Board has approved either (i) the business combination or (ii)
prior to the stock acquisition by which such person's beneficial ownership
interest reached 15% (a "Stock Acquisition"), the Stock Acquisition. The
prohibition lasts for three years from the date of the Stock Acquisition.
Notwithstanding the preceding, Delaware law allows BancGroup to enter into a
business combination with an Interested Stockholder if (i) the business
combination is approved by the BancGroup Board of Directors and authorized by an
affirmative vote of at least 66 2/3% of the outstanding voting stock of
BancGroup which is not owned by the Interested Stockholder or (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
Interested Stockholder, such stockholder owned at least 85% of the outstanding
stock of BancGroup (excluding BancGroup stock held by officers and directors of
BancGroup or by certain BancGroup stock plans). These provisions of Delaware law
apply simultaneously with the provisions of BancGroup's Certificate relating to
business combinations with a related person, described above at "Business
Combinations," but they are generally less restrictive than BancGroup's
Certificate.
Control Acquisitions. As it relates to BancGroup, the Change in Bank
Control Act of 1978 prohibits a person or group of persons from acquiring
"control" of a bank holding company unless the Federal Reserve has been given 60
days' prior written notice of such proposed acquisition and within that time
period the Federal Reserve has not issued a notice disapproving the proposed
acquisition or extending for up to another 30 days the period during which such
a disapproval may be issued. An acquisition may be made prior to the expiration
of the disapproval period if the Federal Reserve issues written notice of its
intent not to disapprove the action. Under a rebuttable presumption established
by the Federal Reserve, the acquisition of more than 10% of a class of voting
stock of a bank holding company with a class of securities registered under
Section 12 of the Exchange Act, such as BancGroup, would, under the
circumstances set forth in the presumption, constitute the acquisition of
control. The receipt of revocable proxies, provided the proxies terminate within
a reasonable time after the meeting to which they relate, is not included in
determining percentages for change in control purposes.
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COMPARATIVE RIGHTS OF STOCKHOLDERS
If the Merger is consummated, all shareholders of SBC other than those
properly exercising dissenters' rights of appraisal will become holders of
BancGroup Common Stock. The rights of the holders of the SBC Common Stock who
become holders of the BancGroup Common Stock following the Merger will be
governed by BancGroup's Certificate and bylaws, as well as the laws of Delaware,
the state in which BancGroup is incorporated.
The following summary compares the rights of the shareholders of SBC Common
Stock with the rights of the holders of the BancGroup Common Stock. For a more
complete description of the rights of the holders of BancGroup Common Stock, see
"BANCGROUP CAPITAL STOCK AND DEBENTURES."
The following information is qualified in its entirety by BancGroup's
Certificate and bylaws, and SBC's Articles of Incorporation and bylaws, the
Delaware General Corporation Law (the "Delaware GCL") and the FBCA.
DIRECTOR ELECTIONS
SBC. SBC's directors are elected to terms of one year. There is no
cumulative voting in the election of directors.
BancGroup. BancGroup's directors are elected to terms of three years with
approximately one-third of the Board to be elected annually. There is no
cumulative voting in the election of directors. See "BANCGROUP CAPITAL STOCK AND
DEBENTURES -- Changes in Control -- Classified Board."
REMOVAL OF DIRECTORS
SBC. SBC's Articles provide that a director may be removed from office
with or without cause by a vote of the holders of a majority of the shares then
entitled to vote at an election of directors.
BancGroup. The BancGroup Certificate provides that a director may be
removed from office, but only for cause and by the affirmative vote of the
holders of at least 80% of the voting shares then entitled to vote at an
election of directors.
VOTING
SBC. Each shareholder of SBC is entitled to one vote for each share of SBC
Common Stock held, and such holders are not entitled to cumulative voting rights
in the election of directors.
BancGroup. Each stockholder of BancGroup is entitled to one vote for each
share of BancGroup Common Stock held, and such holders are not entitled to
cumulative voting rights in the election of directors.
PREEMPTIVE RIGHTS
SBC. The holders of SBC Common Stock have no preemptive rights to acquire
any additional shares of SBC Common Stock or any other shares of SBC capital
stock.
BancGroup. The holders of BancGroup Common Stock have no preemptive rights
to acquire any additional shares of BancGroup Common Stock or any other shares
of BancGroup capital stock.
DIRECTORS' LIABILITY
SBC. Section 607.0831 of the FBCA provides that a director of SBC will not
be personally liable for monetary damages to SBC or any other person for any
statement, vote, decision or failure to act, regarding corporate management or
policy, by a director unless: (a) the director breached or failed to perform his
duties as a director, and (b) the director's breach of or failure to perform
those duties constitutes: (1) a violation of the criminal law, unless the
director had reasonable cause to believe his conduct was lawful or had no
reasonable cause to believe his conduct was unlawful, (2) a transaction in which
the director derived an improper personal benefit, (3) a payment of certain
unlawful dividends and distributions, (4) in a proceeding
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by or in the right of SBC to procure judgment in its favor or by or in the right
of a shareholder, conscious disregard for the best interests of SBC, or willful
misconduct, or (5) in a proceeding by or in the right of someone other than SBC
or a shareholder, recklessness or an act or omission which was committed in bad
faith or with malicious purpose or in a manner exhibiting wanton and willful
disregard of human rights, safety or property. This provision would absolve
directors of SBC of personal liability for negligence in the performance of
their duties, including gross negligence. It would not permit a director to be
exculpated, however, from liability for actions involving conflicts of interest
or breaches of the traditional "duty of loyalty" to SBC and its shareholders,
and it would not affect the availability of injunctive and other equitable
relief as a remedy.
BancGroup. The BancGroup Certificate provides that a director of BancGroup
will have no personal liability to BancGroup or its stockholders for monetary
damages for breach of fiduciary duty as a director except (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) for the payment of certain unlawful dividends
and the making of certain stock purchases or redemptions, or (iv) for any
transaction from which the director derived an improper personal benefit. This
provision would absolve directors of personal liability for negligence in the
performance of duties, including gross negligence. It would not permit a
director to be exculpated, however, for liability for actions involving
conflicts of interest or breaches of the traditional "duty of loyalty" to
BancGroup and its stockholders, and it would not affect the availability of
injunctive or other equitable relief as a remedy.
INDEMNIFICATION
SBC. Under Section 607.0850 of the FBCA and the bylaws of SBC, the
directors and officers of SBC may be indemnified against certain liabilities
which they may incur in their capacity as officers and directors. Such
indemnification is generally available if the executive acted in good faith and
in a manner he or she reasonably believed to be in, or not opposed to, the best
interest of SBC, and with respect to any criminal proceeding, had no reasonable
cause to believe his or her conduct was unlawful. Indemnification may also be
available unless a court of competent jurisdiction establishes by judgment or
their final adjudication that the actions or omissions of the executive are
material to the cause of action so adjudicated and constituted: (a) a violation
of the criminal law, unless the executive had reasonable cause to believe his or
her conduct was lawful or had no reasonable cause to believe his or her conduct
was unlawful; (b) a transaction from which the executive derived an improper
personal benefit; or (c) willful misconduct or conscious disregard for the best
interest of SBC in a proceeding by or in the right of SBC to procure a judgment
in its favor or in a proceeding by or in the right of a shareholder.
To the extent that the proposed indemnitee is successful on the merits or
otherwise in the defense of any action, suit or proceeding (or any claim, issue
or matter therein) he or she must be indemnified against expenses (including
attorney's fees) actually and reasonably incurred by him or her in connection
with such proceeding. SBC maintains a directors and officers insurance policy
pursuant to which officers and directors of SBC would be entitled to
indemnification against certain liabilities, including reimbursement of certain
expenses.
BancGroup. Section 145 of the Delaware GCL contains detailed and
comprehensive provisions providing for indemnification of directors and officers
of Delaware corporations against expenses, judgments, fines and settlements in
connection with litigation. Under the Delaware GCL, other than an action brought
by or in the right of BancGroup, such indemnification is available if it is
determined that the proposed indemnitee acted in good faith and in a manner he
or she reasonably believed to be in or not opposed to the best interests of
BancGroup and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. In actions brought by or
in the right of BancGroup, such indemnification is limited to expenses
(including attorneys' fees) actually and reasonably incurred in the defense or
settlement of such action if the indemnitee acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the best interests of
BancGroup and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person has been adjudged to be liable to
BancGroup unless and only to the extent that the Delaware Court of Chancery or
the court in which the action was brought determines upon
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application that in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses as the court deems
proper.
To the extent that the proposed indemnitee has been successful on the
merits or otherwise in defense of any action, suit or proceeding (or any claim,
issue or matter therein), he or she must be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
BancGroup maintains an officers' and directors' insurance policy and a
separate indemnification agreement pursuant to which officers and directors of
BancGroup would be entitled to indemnification against certain liabilities,
including reimbursement of certain expenses that extends beyond the minimum
indemnification provided by Section 145 of the Delaware GCL.
SPECIAL MEETINGS OF STOCKHOLDERS; ACTION WITHOUT A MEETING
SBC. Under the bylaws of SBC, a special meeting of SBC's shareholders may
be called by the President of SBC, the Board of Directors of SBC, or upon a
request in writing by the holders of not less than 10% of all shares entitled to
vote at the meeting. Additionally, any action which may be taken at any annual
or special meeting of shareholders may be taken without a meeting, without prior
notice and without a vote if a consent in writing, setting forth the actions so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all such shares entitled to vote thereon were
present and voted.
BancGroup. Under the BancGroup Certificate, a special meeting of
BancGroup's stockholders may only be called by a majority of the BancGroup Board
of Directors or by the chairman of the Board of Directors of BancGroup. Holders
of BancGroup Common Stock may not call special meetings or act by written
consent.
MERGERS, SHARE EXCHANGES AND SALES OF ASSETS
SBC. The FBCA provides that mergers and sales of substantially all of the
property of a Florida corporation must be approved by a majority of the
outstanding shares of the corporation entitled to vote thereon. The FBCA also
provides, however, that the shareholders of a corporation surviving a merger
need not approve the transaction if: (a) the articles of incorporation of the
surviving corporation will not differ from its articles before the merger, and
(b) each shareholder of the surviving corporation whose shares were outstanding
immediately prior to the effective date of the merger will hold the same number
of shares with identical designations, preferences, limitations and relative
rights, immediately after the merger.
BancGroup. The Delaware GCL provides that mergers and sales of
substantially all of the assets of Delaware corporations must be approved by a
majority of the outstanding stock of the corporation entitled to vote thereon.
The Delaware GCL law also provides, however, that the stockholders of the
corporation surviving a merger need not approve the transaction if: (i) the
agreement of merger does not amend in any respect the certificate of
incorporation of such corporation; (ii) each share of stock of such corporation
outstanding immediately prior to the effective date of the merger is to be an
identical outstanding or treasury share of the surviving corporation after the
effective date of the merger; and (iii) either no shares of common stock of the
surviving corporation and no shares, securities or obligations convertible into
such stock are to be issued or delivered under the plan of merger, or the
authorized unissued shares or the treasury shares of common stock of the
surviving corporation to be issued or delivered under the plan of merger plus
those initially issuable upon conversion of any other shares, securities or
obligations to be issued or delivered under such plan do not exceed 20% of the
shares of common stock of such corporation outstanding immediately prior to the
effective date of the merger. See also "BANCGROUP CAPITAL STOCK AND
DEBENTURES -- Changes in Control" for a description of the statutory provisions
and the provisions of the BancGroup Certificate relating to changes of control
of BancGroup. See "Antitakeover Statutes" for a description of additional
restrictions on business combination transactions.
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AMENDMENT OF CERTIFICATE OF INCORPORATION AND BYLAWS
SBC. Under the FBCA, a Florida corporation's articles of incorporation may
be amended by the affirmative vote of the holders of a majority of the
outstanding shares entitled to vote thereon, and a majority of the outstanding
stock of each class entitled to vote as a class, unless the FBCA, the articles
of incorporation or the bylaws require a greater vote. The SBC Articles and
Bylaws do not require a greater vote. As permitted by the FBCA, SBC's articles
give the Board of Directors and shareholders of SBC the power to adopt, amend or
repeal the bylaws provided that the Board of Directors may not amend or repeal
any bylaw adopted by shareholders if the shareholders specifically provide that
such bylaw is not subject to amendment or repeal by the directors.
BancGroup. Under the Delaware GCL, a Delaware corporation's certificate of
incorporation may be amended by the affirmative vote of the holders of a
majority of the outstanding shares entitled to vote thereon, and a majority of
the outstanding stock of each class entitled to vote as a class, unless the
certificate requires the vote of a larger portion of the stock. The BancGroup
Certificate requires "supermajority" stockholder approval to amend or repeal any
provision of, or adopt any provision inconsistent with, certain provisions in
the BancGroup Certificate governing (i) the election or removal of directors,
(ii) business combinations between BancGroup and a Related Person, and (iii)
board of directors evaluation of business combination procedures. See "BANCGROUP
CAPITAL STOCK AND DEBENTURES -- Changes in Control."
As is permitted by the Delaware GCL, the Certificate gives the Board of
Directors the power to adopt, amend or repeal the bylaws. The stockholders
entitled to vote have concurrent power to adopt, amend or repeal the BancGroup
bylaws.
RIGHTS OF DISSENTING STOCKHOLDERS
SBC. Under the FBCA, a shareholder of SBC has the right, in certain
circumstances, to dissent from certain corporate transactions and receive the
fair value of his or her shares in cash in lieu of the consideration he or she
would otherwise be entitled to receive in the transaction. If the parties are
unable to agree on the fair value of the shares, such fair value is determined
by the Circuit Court in the county in Florida where the registered office of SBC
is located. Dissenters rights are not available with respect to a plan of merger
or share exchange or a proposed sale or exchange of property if the shares are
either registered on a national securities exchange or held of record by not
fewer than 2,000 shareholders. The shareholders are not permitted dissenters
rights in a merger if such corporation is the surviving corporation and no vote
of its shareholders is required. The shareholders of SBC will have dissenters'
rights with respect to the Merger. See "THE MERGER -- Rights of Dissenting
Shareholders."
BancGroup. Under the Delaware GCL, a stockholder has the right, in certain
circumstances, to dissent from certain corporate transactions and receive the
fair market value (excluding any appreciation or depreciation as a consequence
or in expectation of the transaction) of his or her shares in cash in lieu of
the consideration he or she otherwise would have received in the transaction.
Such fair value is determined by the Delaware Court of Chancery if a petition
for appraisal is timely filed. Appraisal rights are not available, however, to
stockholders of a corporation (i) if the shares are listed on a national
securities exchange (as is BancGroup Common Stock) or quoted on the NASDAQ
National Market System, or held of record by more than 2,000 stockholders (as is
BancGroup Common Stock), and (ii) stockholders are permitted by the terms of the
merger or consolidation to accept in exchange for their shares (a) shares of
stock of the surviving or resulting corporation, (b) shares of stock of another
corporation listed on a national securities exchange or held of record by more
than 2,000 stockholders, (c) cash in lieu of fractional shares of such stock, or
(d) any combination thereof. Stockholders are not permitted appraisal rights in
a merger if such corporation is the surviving corporation and no vote of its
stockholders is required.
ANTITAKEOVER STATUTES
SBC. Under the FBCA and subject to certain limited exceptions (not
applicable to the Merger), any merger or consolidation of SBC with another
corporation or the sale, lease or exchange of all or substantially all of SBC's
assets requires the approval of a majority of the shares entitled to vote
thereon.
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Section 607.0901 of FBCA ("Section 607.0901") requires that, in addition to
any vote required by the FBCA and the corporation's articles of incorporation
and subject to the exceptions described below, any "Affiliated Transaction"
between a Florida corporation and any beneficial owner of 10% or more of the
corporation's voting shares, including shares held by any associate or affiliate
of such a person (an "Interested Shareholder"), be approved by the affirmative
vote of the holders of two-thirds of the voting shares of the corporation's
stock, excluding for such purposes any shares held by the Interested
Shareholder. An "Affiliated Transaction" is defined as (i) any merger or
consolidation of the corporation or any of its subsidiaries with an Interested
Shareholder or an associate or affiliate of an Interested Shareholder, (ii) any
sale, lease, exchange or other disposition of assets of the corporation to an
Interested Shareholder or an associate or affiliate of an Interested
Shareholder, having an aggregate market value equal to 5% or more of the
consolidated assets of the corporation or 5% or more of the aggregate market
value of all of the outstanding shares of the corporation, or representing 5% or
more of the earning power or net income of the corporation, (iii) the issuance
or transfer to the Interested Shareholder or an associate or affiliate of the
Interested Shareholder, by the corporation, of shares of the corporation or any
of its subsidiaries which have an aggregate market value equal to 5% or more of
the aggregate market value of all of the outstanding shares of the corporation,
(iv) the adoption of any plan of liquidation or dissolution of the corporation
proposed by, or pursuant to an agreement, arrangement or understanding with, the
Interested Shareholder or any associate or affiliate of the Interested
Shareholder, (v) any reclassification, recapitalization or other transaction
which has the effect of increasing by more than 5% the percentage of outstanding
voting shares of the corporation or any subsidiary of the corporation
beneficially owned by the Interested Shareholder, or (vi) any receipt by the
Interested Shareholder or any associate or affiliate of the Interested
Shareholder of the benefit of any loans or other types of specified financial
assistance from the corporation.
The voting requirements of Section 607.0901 do not apply, however, to an
Affiliated Transaction if, among other things: (a) the Affiliated Transaction
has been approved by a majority of the disinterested directors on the
corporation's board of directors, (b) the Interested Shareholder has been the
beneficial owner of at least 80% of the corporation's outstanding voting shares
for at least five years, (c) the Interested Shareholder is the beneficial owner
of at least 90% of the outstanding voting shares of the corporation, exclusive
of shares acquired from the corporation in a transaction not approved by a
majority of the disinterested directors, (e) certain fair price requirements
have been met, or (f) the corporation has not had more than 300 shareholders of
record at any time during the three years preceding the date of the first
general public announcement of a proposed Affiliated Transaction. The provisions
of Section 607.0901 do not apply if the corporation's original articles of
incorporation contain a provision, or the corporation's articles or by-laws have
been amended, in each case by the affirmative vote of a majority of the
outstanding shares of the corporation's voting shares (excluding any shares held
by an Interested Shareholder), to include a provision, expressly electing that
the corporation not be governed by Section 607.0901. SBC has fewer than 300
shareholders, and, therefore, it is not subject to Section 607.0901.
Section 607.0902 of the FBCA ("Section 607.0902") provides that "Control
Shares" in an "Issuing Public Corporation" acquired in a "Control Share
Acquisition" only have voting rights to the extent granted by Section 607.0902.
"Control Shares" are defined as shares that, except for the provisions of
Section 607.0902, would have voting power with respect to an Issuing Public
Corporation, that when added to all other shares of the Issuing Public
Corporation owned by a person, would entitle that person to exercise the voting
power in the election of directors within any of the following ranges of voting
power: (a) one-fifth (1/5) or more but less than one-third (1/3) of all voting
power; (b) one-third (1/3) or more but less than a majority of all voting power;
or (c) the majority or more of all voting power.
A "Control Share Acquisition" is the acquisition, directly or indirectly,
by any person of ownership of Control Shares. For purposes of this definition,
all shares which are acquired within ninety (90) days before or after the date
of the acquisition of the beneficial ownership of shares which result in a
Control Share Acquisition, and all shares the beneficial ownership of which is
acquired pursuant to a plan to make a Control Share Acquisition, are deemed to
be acquired in the same acquisition.
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An "Issuing Public Corporation" includes a corporation that has: (1) one
hundred or more shareholders, (2) its principal place of business, its principal
office, or substantial assets within the State of Florida and (3) either: (a)
more than ten percent (10%) of its shareholders resident in Florida; (b) more
than ten percent (10%) of the its shares owned by residents of Florida; or (c)
1,000 shareholders resident in Florida. SBC is an Issuing Public Corporation.
Control Shares acquired in a Control Shares Acquisition will only have the
voting rights to the extent they are granted by a resolution approved by the
majority of the shareholders of the Issuing Public Corporation, excluding any
shares held by "Interested Shareholders." For purposes of this section,
"Interested Shares" means shares in respect of which any of the following
persons may exercise voting power in the election of directors: (a) an acquiring
person or a group with respect to a Control Share Acquisition; (b) any officer
of the Issuing Public Corporation; and (c) any employee of the Issuing Public
Corporation who is also a director of the corporation. In the event any Control
Shares are accorded full voting rights and the acquiring person has acquired
Control Shares with a majority or more of all voting power, then all
shareholders of the Issuing Public Corporation have dissenters rights to receive
the fair value of their shares.
Certain transactions are excluded from the definition of a Control Share
Acquisition. These include any merger effected in accordance with FBCA if the
Issuing Public Corporation is a party to the agreement of merger, and any
acquisition approved by the board of directors of the Issuing Public
Corporation. The proposed Merger of SBC with and into BancGroup is exempt from
Section 607.0902 pursuant to these provisions.
BancGroup. As a Delaware corporation, BancGroup is subject to the business
combination statute described under the heading "BANCGROUP CAPITAL STOCK AND
DEBENTURES -- Changes in Control -- Control Acquisitions."
PREFERRED STOCK
SBC. The SBC Articles do not authorize the issuance of any shares of
preferred stock.
BancGroup. The BancGroup Certificate authorizes the issuance of 1,000,000
shares of Preference Stock from time to time by resolution of the BancGroup
Board of Directors. Currently, no shares of Preference Stock are issued and
outstanding. See "BANCGROUP CAPITAL STOCK AND DEBENTURES -- Preference Stock."
EFFECT OF THE MERGER ON SBC SHAREHOLDERS
As of May 8, 1996, SBC had 174 shareholders of record and 3,362,000
outstanding shares of SBC Common Stock. As of that date, BancGroup had
13,575,465 shares of BancGroup Common Stock outstanding with 5,413 stockholders
of record.
Assuming no exercises of dissenter's rights of appraisal and the conversion
of all of the SBC Options (except for the ISOs) at the Effective Date, an
aggregate amount of 1,605,235 shares of BancGroup Common Stock would be issued
to the shareholders of SBC pursuant to the Merger. These shares would represent
approximately 10.6% of the total shares of BancGroup Common Stock outstanding
after the Merger, not counting any shares of BancGroup Common Stock to be issued
in other pending acquisitions. If all holders of SBC Options, including ISOs,
exercised their options prior to the Effective Date, BancGroup would issue in
the Merger 1,753,360 shares of BancGroup Common Stock.
The issuance of the BancGroup Common Stock pursuant to the Merger will
reduce the percentage interest of the BancGroup Common Stock currently held by
each principal stockholder and each director and officer of BancGroup. As a
group, the directors and officers of BancGroup who own 15% of BancGroup's
outstanding shares would own 13.8% after the Merger. See "BUSINESS OF
BANCGROUP -- Voting Securities and Principal Stockholders."
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THE COLONIAL BANCGROUP INC. AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENT OF CONDITION (UNAUDITED)
The following summary includes (i) the condensed consolidated statement of
condition of BancGroup and subsidiaries as of March 31, 1996, (ii) the condensed
consolidated statement of condition of SBC as of March 31, 1996, (iii) the
condensed consolidated statement of condition of Commercial Bancorp of Georgia,
Inc. and subsidiaries ("CBG") as of March 31, 1996, (iv) the condensed statement
of condition of Dothan Federal Savings Bank ("Dothan Federal") as of March 31,
1996, (v) adjustments to give effect to the proposed pooling of interests with
CBG and SBC, and the proposed purchase method acquisition of Dothan Federal and
(vi) the pro forma combined condensed statement of condition of BancGroup and
subsidiaries as if such combination had occurred on March 31, 1996.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of condition of
BancGroup and subsidiaries, incorporated by reference herein, and the statements
of condition of SBC, CBG, and Dothan Federal, included elsewhere herein. The pro
forma information provided below may not be indicative of future results.
47
<PAGE> 52
<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------------------------------------------------------------------
CONSOLIDATED COMMERCIAL
COLONIAL SOUTHERN BANKING ADJUSTMENTS/ BANCORP OF
BANCGROUP CORPORATION (DEDUCTIONS) SUBTOTAL GEORGIA, INC.
------------ ---------------- ------------ ---------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks.............. $ 140,571 $ 15,826 $ 156,397 $ 20,753
Interest-bearing deposits............ 5,003 5,003
Federal funds sold................... 700 22,400 23,100 22,680
Securities available for sale........ 172,206 29,743 201,949 20,835
Investment securities................ 259,165 259,165 13,981
Mortgage loans held for sale......... 193,672 193,672
Loans, net of unearned
income.............................. 2,945,625 152,362 3,097,987 147,362
Less: Allowance for possible loan
losses.............................. (38,443) (1,942) (40,385) (2,625)
------------ -------- ------------ ---------- -------------
Loans, net........................... 2,907,182 150,420 3,057,602 144,737
Premises and equipment, net.......... 58,602 4,877 63,479 5,729
Excess of cost over tangible and
intangible assets acquired, net..... 25,825 2,309 28,134 780
Purchased mortgage servicing
rights.............................. 88,788 88,788
Other real estate owned.............. 9,785 9,785 1,413
Accrued interest and other assets.... 62,894 3,233 66,127 4,246
------------ -------- ------------ ---------- -------------
Total Assets.................. $3,924,393 $228,808 $ 0 $4,153,201 $ 235,154
============== ==================== =============== =========== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits............................. $2,859,262 $209,248 $3,068,510 $ 210,700
FHLB short-term borrowings........... 515,000 515,000
Other short-term borrowings.......... 169,620 169,620
Subordinated debt.................... 9,341 9,341
Other long-term debt................. 27,254 27,254
Other liabilities.................... 75,688 2,275 77,963 4,036
------------ -------- ------------ ---------- -------------
Total liabilities............. 3,656,165 211,523 3,867,688 214,736
Common Stock......................... 33,850 3,362 $ (3,362)(2) 37,863 1,883
4,013(1)
Additional paid in capital........... 144,334 7,405 (7,405)(2) 151,088 16,323
6,754(1)
Treasury Stock....................... (300)
Retained earnings.................... 90,658 6,519 97,177 2,547
Unearned compensation................ (782) (782)
Unrealized gain (loss) on
securities.......................... 168 (1) 167 (35)
------------ -------- ------------ ---------- -------------
Total equity.................. 268,228 17,285 0 285,513 20,418
Total liabilities and
equity...................... $3,924,393 $228,808 $ 0 $4,153,201 $ 235,154
============== ==================== =============== =========== ==============
<CAPTION>
MARCH 31, 1996
-------------------------------------------------------------------------------
PRO FORMA
ADJUSTMENTS/ DOTHAN FEDERAL ADJUSTMENTS/ COMBINED
(DEDUCTIONS) SUBTOTAL SAVINGS BANK (DEDUCTIONS) TOTAL
------------ ---------- -------------- ------------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks.............. $ 177,150 $ 3,854 $ (2,600)(5) $ 178,404
Interest-bearing deposits............ 5,003 5,003
Federal funds sold................... 45,780 45,780
Securities available for sale........ 222,784 4,901 227,685
Investment securities................ 273,146 2,248 (13)(5) 275,381
Mortgage loans held for sale......... 193,672 193,672
Loans, net of unearned
income.............................. 3,245,349 36,679 3,282,028
Less: Allowance for possible loan
losses.............................. (43,010) (298) (43,308)
------------ ---------- ------- ------------ ----------
Loans, net........................... 3,202,339 36,381 3,238,720
Premises and equipment, net.......... 69,208 1,026 70,234
Excess of cost over tangible and
intangible assets acquired, net..... 28,914 1,466(5) 30,380
Purchased mortgage servicing
rights.............................. 88,788 88,788
Other real estate owned.............. 11,198 11,198
Accrued interest and other assets.... 70,373 558 (22)(5) 71,076
(29)(5)
196(5)
------------ ---------- ------- ------------ ----------
Total Assets.................. $ 0 $4,388,355 $ 48,968 $ (1,002) $4,436,321
=============== =========== ================= =============== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits............................. $3,279,210 $ 42,362 $3,321,572
FHLB short-term borrowings........... 515,000 2,083 517,083
Other short-term borrowings.......... 169,620 169,620
Subordinated debt.................... 9,341 9,341
Other long-term debt................. 27,254 27,254
Other liabilities.................... 81,999 461 $ 460(5) 82,920
------------ ---------- ------- ------------ ----------
Total liabilities............. 4,082,424 44,906 460 4,127,790
Common Stock......................... $ (1,883)(4) 40,703 4 (4)(5) 40,897
2,840(3) 194(5)
Additional paid in capital........... (16,323)(4) 166,154 3,329 (3,329)(5) 168,560
15,066(3) 2,406(5)
Treasury Stock....................... 300(4)
Retained earnings.................... 99,724 733 (733)(6) 99,724
Unearned compensation................ (782) (782)
Unrealized gain (loss) on
securities.......................... 132 (4) 4(5) 132
------------ ---------- ------- ------------ ----------
Total equity.................. 0 305,931 4,062 (1,462) 308,531
Total liabilities and
equity...................... $ 0 $4,388,355 $ 48,968 $ (1,002) $4,436,321
=============== =========== ================= =============== ===========
Capital Ratios:
Capital Ratio....................... 7.97% 7.99%
Tangible Leverage Ratio............. 6.38% 6.40%
Tier One Capital Ratio*............. 8.94% 10.03%
Total Capital Ratio*................ 10.54% 11.62%
<CAPTION>
Capital Ratios:
<S> <C> <C> <C> <C> <C>
Capital Ratio....................... 8.09% 8.06%
Tangible Leverage Ratio............. 6.52% 6.47%
Tier One Capital Ratio*............. 9.47% 9.48%
Total Capital Ratio*................ 11.04% 11.05%
</TABLE>
- ---------------
* Based on risk weighted assets.
48
<PAGE> 53
PRO FORMA ADJUSTMENTS
SOUTHERN BANKING CORPORATION (pooling of interest)
(1) To record the issuance of 1,605,235 shares of BancGroup Common Stock in
exchange for all of the outstanding shares and SBC Options (other than incentive
stock options to acquire 94,000 shares of SBC Common Stock) determined as
follows:
<TABLE>
<CAPTION>
OUTSTANDING
SHARES OPTIONS TOTAL
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Southern Bank outstanding shares and options.......... 3,362,000 1,018,000
Conversion ratio per Agreement........................ 0.3919 0.2826*
--------- ---------
Colonial Bancgroup shares to be issued................ 1,317,568 287,667 1,605,235
======== ======== ========
Par value of 1,605,235 shares issued at $2.50 per
share............................................... $ 4,013
Shares issued at par value............................ $ 4,013
Total capital stock of SBC............................ 10,767
---------
Excess recorded as an increase in
contributed capital....................... 6,754
---------
10,767
(2) To eliminate SBC's capital stock:
Common stock, at par value............................ (3,362)
Contributed capital................................... (7,405)
---------
(10,767)
---------
Net change in equity........................ $ 0
========
</TABLE>
- ---------------
* Assumes no SBC Options are exercised prior to the date of combination and
that the weighted average exercise price of the options is $3.32 per share.
See "THE MERGER -- Conversion of SBC Common Stock."
COMMERCIAL BANCORP OF GEORGIA, INC. (pooling of interest)
(3) To record the issuance of 1,136,180 shares of BancGroup Common Stock in
exchange for all of the outstanding shares of CBG:
<TABLE>
<S> <C> <C> <C>
Commercial Bancorp outstanding shares........................... 1,853,302
Conversion ratio, determined as follows:
$21.07 / $34.37 per share, the 30-day average of the Daily
Average market value of BancGroup Common Stock on May 8,
1996....................................................... 0.61306
----------
Colonial BancGroup shares to be issued.......................... $1,136,180
=========
Par value of 1,136,180 shares issued at $2.50 per
share.............................................. $ 2,840
Shares issued at par value........................... $ 2,840
Total capital stock of CBG........................... 17,906
---------
Excess recorded as an increase in
contributed capital...................... 15,066
----------
17,906
</TABLE>
49
<PAGE> 54
(4) To eliminate CBG's capital stock:
<TABLE>
<S> <C>
Common Stock, at par value............................ (1,883)
Contributed capital................................... (16,323)
Treasury Stock........................................ 300
---------
(17,906)
---------
Net change in equity........................ $ 0
========
</TABLE>
DOTHAN FEDERAL SAVINGS BANK (purchase method)
(5) To assign the amount by which the estimated value of the investment in
Dothan Federal is in excess of the historical carrying amount of the net assets
acquired, based on the estimated fair value of such net assets and to record the
investment in Dothan Federal by the issuance of approximately 77,439 shares of
BancGroup Common Stock and $2,600,000 in cash for all of the outstanding 399,688
shares of Dothan Federal as follows:
<TABLE>
<S> <C>
Equity in carrying value of net assets of Dothan
Federal............................................. $ 4,062
Adjustments to state assets at fair value:
Write-down prepaid expenses......................... (22)
Write-down deposit premium.......................... (29)
Write-down investment securities.................... (13)
Acquisition accruals:
Miscellaneous legal, accounting, other
professional..................................... (460)
Tax effect of purchase adjustments.................... 196
Goodwill.............................................. 1,466
---------
Total adjustments........................... 1,138
---------
Adjusted equity in carrying value of net assets....... $ 5,200
========
Allocated as follows:
Par Value of 77,439 shares issued for all
outstanding shares of Dothan Federal............. $ 194
Estimated amount in excess of par value of 77,439
shares of BancGroup Common Stock issued for
Dothan Federal outstanding shares at an assumed
market value of $33.575 per share (10 day average
at May 8, 1996).................................. 2,406
Cash of approximately $6.51 per share paid to Dothan
Federal shareholders............................. 2,600
---------
Total purchase price........................ $ 5,200
========
</TABLE>
50
<PAGE> 55
CONDENSED PRO FORMA STATEMENTS OF INCOME
(UNAUDITED)
The following summaries include (i) the condensed consolidated statements
of income of Colonial BancGroup and subsidiaries on a historical basis for the
three months ended March 31, 1996 and the years ended December 31, 1995, 1994,
and 1993, (ii) the condensed consolidated statements of income of SBC for the
three months ended March 31, 1996 and for the years ended December 31, 1995,
1994, and 1993 (iii) the condensed consolidated statements of income of CBG for
the three months ended March 31, 1996 and for the years ended December 31, 1995,
1994, and 1993, (iv) the condensed statements of income of Dothan Federal for
the three months ended March 31, 1996 and for the years ended December 31, 1995,
1994, and 1993, (v) adjustments to give effect to the proposed pooling of
interests with CBG and SBC, and the proposed purchase method acquisition of
Dothan Federal, and (vi) the pro forma combined condensed consolidated
statements of income of BancGroup and subsidiaries as if such combinations had
occurred on January 1, 1993.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of income of
BancGroup and subsidiaries, incorporated by reference herein, and the statements
of income of SBC, CBG and Dothan Federal included elsewhere herein. The pro
forma information provided may not necessarily be indicative of future results.
51
<PAGE> 56
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
--------------------------------------------------------------------------------------
CONSOLIDATED SOUTHERN COMMERCIAL
COLONIAL BANKING ADJUSTMENTS/ BANCORP OF ADJUSTMENTS/
BANCGROUP CORPORATION (DEDUCTIONS) SUBTOTAL GEORGIA, INC. (DEDUCTIONS)
------------ ----------- ------------ ----------- ------------- ------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Interest income...................... $ 71,986 $ 4,425 $ 0 $ 76,411 $ 4,850 $ 0
Interest expense..................... 38,580 1,620 40,200 2,231
------------ ----------- ------------ ----------- ------------- ------------
Net interest income before provision 33,406 2,805 0 36,211 2,619 0
for loan losses....................
Provision for loan losses............ 1,499 55 1,554 16
------------ ----------- ------------ ----------- ------------- ------------
Net interest income after provision 31,907 2,750 0 34,657 2,603 0
for loan losses....................
------------ ----------- ------------ ----------- ------------- ------------
Noninterest income................... 14,775 781 15,556 544
Noninterest expense.................. 29,570 2,162 31,732 2,128
------------ ----------- ------------ ----------- ------------- ------------
Income before income taxes........... 17,112 1,369 0 18,481 1,019 0
Income taxes......................... 6,058 515 6,573 377
------------ ----------- ------------ ----------- ------------- ------------
Net Income................... $ 11,054 $ 854 $ 0 $ 11,908 $ 642 $ 0
========== ========= ========== ========== ========== ==========
Average primary shares outstanding... 13,546,000 3,647,540 1,605,235 15,151,235 1,840,006 1,136,180
(3,647,540 ) (1,840,006)
Average fully-diluted shares 13,884,000 3,647,541 1,605,235 15,489,235 2,004,548 1,136,180
outstanding........................ (3,647,541 ) (2,004,548)
Earnings per share:
Net Income:
Primary.......................... $ 0.82 $ 0.23 $ 0.79 $ 0.34
Fully diluted.................... $ 0.80 $ 0.23 $ 0.78 $ 0.32
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
----------------------------------------------------------
DOTHAN PRO FORMA
FEDERAL ADJUSTMENTS/ COMBINED
SUBTOTAL SAVINGS BANK (DEDUCTIONS) TOTAL
----------- ------------ ------------ -----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Interest income...................... $ 81,261 $ 924 $ 1(1) $ 82,148
(38)(1)
Interest expense..................... 42,431 604 43,035
----------- ------------ ------------ -----------
Net interest income before provision 38,830 320 (37) 39,113
for loan losses....................
Provision for loan losses............ 1,570 15 1,585
----------- ------------ ------------ -----------
Net interest income after provision 37,260 305 (37) 37,528
for loan losses....................
----------- ------------ ------------ -----------
Noninterest income................... 16,100 27 1(1) 16,128
Noninterest expense.................. 33,860 238 20(1) 34,118
----------- ------------ ------------ -----------
Income before income taxes........... 19,500 94 (56) 19,538
Income taxes......................... 6,950 37 (13)(1) 6,974
----------- ------------ ------------ -----------
Net Income................... $ 12,550 $ 57 $ (43) $ 12,564
========== ========== ========== ==========
Average primary shares outstanding... 16,287,415 399,688 77,439 16,364,854
(399,688)
Average fully-diluted shares 16,625,415 399,688 77,439 16,702,854
outstanding........................ (399,688)
Earnings per share:
Net Income:
Primary.......................... $ 0.77 $ 0.14 $ 0.77
Fully diluted.................... $ 0.76 $ 0.14 $ 0.76
</TABLE>
52
<PAGE> 57
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------------------------------------------
CONSOLIDATED SOUTHERN COMMERCIAL
COLONIAL BANKING ADJUSTMENTS/ BANCORP OF ADJUSTMENTS/
BANCGROUP CORPORATION (DEDUCTIONS) SUBTOTAL GEORGIA, INC. (DEDUCTIONS)
------------ ----------- ------------ ----------- ------------- ------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Interest income...................... $ 250,900 $ 17,267 $ 0 $ 268,167 $ 18,973 $ 0
Interest expense..................... 132,458 6,133 138,591 8,389
------------ ----------- ------------ ----------- ------------- ------------
Net interest income before provision 118,442 11,134 0 129,576 10,584 0
for loan losses....................
Provision for loan losses............ 5,480 525 6,005 1,345
------------ ----------- ------------ ----------- ------------- ------------
Net interest income after provision 112,962 10,609 0 123,571 9,239 0
for loan losses....................
------------ ----------- ------------ ----------- ------------- ------------
Noninterest income................... 50,175 1,978 52,153 2,237
Noninterest expense.................. 103,230 9,214 112,444 9,962
------------ ----------- ------------ ----------- ------------- ------------
Income before income taxes........... 59,907 3,373 0 63,280 1,514 0
Income taxes......................... 21,113 1,282 22,395 846
------------ ----------- ------------ ----------- ------------- ------------
Net Income................... $ 38,794 $ 2,091 $ 0 $ 40,885 $ 668 $ 0
========== ========= ========== ========== ========== ==========
Average primary shares outstanding... 12,418,000 3,356,500 1,605,235 14,023,235 1,826,711 1,136,180
(3,356,500 ) (1,826,711)
Average fully-diluted shares 13,181,000 3,356,500 1,605,235 14,786,235 2,034,063 1,136,180
outstanding........................
(3,356,500 ) (2,034,063)
Earnings per share:
Net Income:
Primary.......................... $ 3.12 $ 0.62 $ 2.92 $ 0.37
Fully diluted.................... $ 3.02 $ 0.62 $ 2.84 $ 0.33
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------------------
DOTHAN PRO FORMA
FEDERAL ADJUSTMENTS/ COMBINED
SUBTOTAL SAVINGS BANK (DEDUCTIONS) TOTAL
----------- ------------ ------------ -----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Interest income...................... $ 287,140 $ 3,533 $ 3(1) $ 290,526
(150)(1)
Interest expense..................... 146,980 2,240 149,220
----------- ------------ ------------ -----------
Net interest income before provision 140,160 1,293 (147) 141,306
for loan losses....................
Provision for loan losses............ 7,350 60 7,410
----------- ------------ ------------ -----------
Net interest income after provision 132,810 1,233 (147) 133,896
for loan losses....................
----------- ------------ ------------ -----------
Noninterest income................... 54,390 73 4(1) 54,467
Noninterest expense.................. 122,406 1,041 79(1) 123,526
----------- ------------ ------------ -----------
Income before income taxes........... 64,794 265 (222) 64,837
Income taxes......................... 23,241 113 (50)(1) 23,304
----------- ------------ ------------ -----------
Net Income................... $ 41,553 $ 152 $ (172) $ 41,533
========== ========== ========== ==========
Average primary shares outstanding... 15,159,415 399,688 77,439 15,236,854
(399,688)
Average fully-diluted shares 15,922,415 399,688 77,439 15,999,854
outstanding........................
(399,688)
Earnings per share:
Net Income:
Primary.......................... $ 2.74 $ 0.38 $ 2.73
Fully diluted.................... $ 2.66 $ 0.38 $ 2.66
</TABLE>
53
<PAGE> 58
<TABLE>
<CAPTION>
DECEMBER 31, 1994
---------------------------------------------------------------------------------------
CONSOLIDATED SOUTHERN COMMERCIAL
COLONIAL BANKING ADJUSTMENTS/ BANCORP OF ADJUSTMENTS/
BANCGROUP CORPORATION (DEDUCTIONS) SUBTOTAL GEORGIA, INC. (DEDUCTIONS)
------------ ----------- ------------ ----------- -------------- ------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Interest income..................... $ 187,230 $ 10,326 $ 0 $ 197,556 $ 14,347 $ 0
Interest expense.................... 82,549 2,895 85,444 5,458
------------ ----------- ------------ ----------- -------------- ------------
Net interest income before provision 104,681 7,431 0 112,112 8,889 0
for loan losses...................
Provision for loan losses........... 6,481 330 6,811 695
------------ ----------- ------------ ----------- -------------- ------------
Net interest income after provision 98,200 7,101 0 105,301 8,194 0
for loan losses...................
------------ ----------- ------------ ----------- -------------- ------------
Noninterest income.................. 44,243 1,294 45,537 2,215
Noninterest expense................. 100,791 5,672 106,463 9,213
------------ ----------- ------------ ----------- -------------- ------------
Income before income taxes.......... 41,652 2,723 0 44,375 1,196 0
Income taxes........................ 14,342 989 15,331 498
------------ ----------- ------------ ----------- -------------- ------------
Net Income.......................... $ 27,310 $ 1,734 $ 0 $ 29,044 $ 698 $ 0
========== ========= ========== ========== =========== ==========
Average primary shares 11,996,000 2,704,109 1,605,235 13,601,235 1,826,711 1,136,180
outstanding....................... (2,704,109 ) (1,826,711)
Average fully-diluted shares 12,763,000 2,704,109 1,605,235 14,368,235 1,826,711 1,136,180
outstanding....................... (2,704,109 ) (1,826,711)
Earnings per share:
Net income:
Primary......................... $ 2.28 $ 0.64 $ 2.14 $ 0.38
Fully diluted................... $ 2.23 $ 0.64 $ 2.10 $ 0.38
<CAPTION>
DECEMBER 31, 1994
-----------------------------------------------------------
DOTHAN PRO FORMA
FEDERAL ADJUSTMENTS/ COMBINED
SUBTOTAL SAVINGS BANK (DEDUCTIONS) TOTAL
----------- ------------ ------------ -----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Interest income..................... $ 211,903 $ 3,089 $ 3(1) $ 214,845
(150)(1)
Interest expense.................... 90,902 1,563 92,465
----------- ------------ ------------ -----------
Net interest income before provision 121,001 1,526 (147) 122,380
for loan losses...................
Provision for loan losses........... 7,506 60 7,566
----------- ------------ ------------ -----------
Net interest income after provision 113,495 1,466 (147) 114,814
for loan losses...................
----------- ------------ ------------ -----------
Noninterest income.................. 47,752 55 4(1) 47,811
Noninterest expense................. 115,676 1,000 79(1) 116,755
----------- ------------ ------------ -----------
Income before income taxes.......... 45,571 521 (222) 45,870
Income taxes........................ 15,829 193 (50)(1) 15,972
----------- ------------ ------------ -----------
Net Income.......................... $ 29,742 $ 328 $ (172) $ 29,898
========== ========== ========== ==========
Average primary shares 14,737,415 399,688 77,439 14,814,854
outstanding....................... (399,688)
Average fully-diluted shares 15,504,415 399,688 77,439 15,581,854
outstanding....................... (399,688)
Earnings per share:
Net income:
Primary......................... $ 2.02 $ 0.82 $ 2.02
Fully diluted................... $ 1.99 $ 0.82 $ 1.99
</TABLE>
54
<PAGE> 59
<TABLE>
<CAPTION>
DECEMBER 31, 1993
---------------------------------------------------------------------------------------------------
COLONIAL SOUTHERN COMMERCIAL
BANCGROUP BANKING ADJUSTMENTS/ BANCORP OF ADJUSTMENTS/
(RESTATED)(1) CORPORATION (DEDUCTIONS) SUBTOTAL GEORGIA, INC. (DEDUCTIONS) SUBTOTAL
----------- ----------- ------------ ----------- ------------- ------------ -----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income.............. $ 141,572 $ 6,931 $ 0 $ 148,503 $ 12,326 $ 0 $ 160,829
Interest expense............. 59,517 2,048 61,565 4,792 66,357
----------- ----------- ------------ ----------- ------------- ------------ -----------
Net interest income before
provision for loan
losses..................... 82,055 4,883 0 86,938 7,534 0 94,472
Provision for loan losses.... 7,945 466 8,411 439 8,850
----------- ----------- ------------ ----------- ------------- ------------ -----------
Net interest income after
provision for loan
losses..................... 74,110 4,417 0 78,527 7,095 0 85,622
----------- ----------- ------------ ----------- ------------- ------------ -----------
Noninterest income........... 40,433 878 41,311 2,134 43,445
Noninterest expense.......... 86,520 4,117 90,637 7,864 98,501
----------- ----------- ------------ ----------- ------------- ------------ -----------
Income before income taxes... 28,023 1,178 0 29,201 1,365 0 30,566
Income taxes................. 8,886 415 9,301 479 9,780
----------- ----------- ------------ ----------- ------------- ------------ -----------
Income before extraordinary
items and cumulative effect
of change in accounting
principle.................. 19,137 763 0 19,900 886 0 20,786
Cumulative effect of change
in accounting principle.... 3,219 47 0 3,266 384 3,650
Extraordinary item, net of
income tax................. (463) (463) (463)
----------- ----------- ------------ ----------- ------------- ------------ -----------
Net Income................... $ 21,893 $ 810 $ 0 $ 22,703 $ 1,270 $ 0 $ 23,973
========== =========== ============ ========== =========== ============ ==========
Average primary shares
outstanding................ 9,530,000 2,200,000 1,605,235 11,135,235 1,826,711 1,136,180 12,271,415
(2,200,000 ) (1,826,711 )
Average fully-diluted shares
outstanding................ 10,623,000 2,200,000 1,605,235 12,228,235 1,826,711 1,136,180 13,364,415
(2,200,000 ) (1,826,711 )
Earnings per share:
Income before extraordinary
item and cumulative
effect of change in
accounting principle:
Primary.................. $ 2.01 $ 0.35 $ 1.79 $ 0.49 $ 1.69
Fully diluted............ $ 1.96 $ 0.35 $ 1.76 $ 0.49 $ 1.67
Net income:
Primary.................. $ 2.30 $ 0.37 $ 2.04 $ 0.70 $ 1.95
Fully diluted............ $ 2.21 $ 0.37 $ 1.99 $ 0.70 $ 1.92
<CAPTION>
DECEMBER 31, 1993
--------------------------------------------
DOTHAN PRO FORMA
FEDERAL ADJUSTMENTS/ COMBINED
SAVINGS BANK (DEDUCTIONS) TOTAL
------------ ------------ -----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Interest income.............. $ 3,220 $ 3(1) $ 163,902
(150)(1)
Interest expense............. 1,486 67,843
------------ ------------ -----------
Net interest income before
provision for loan
losses..................... 1,734 (147) 96,059
Provision for loan losses.... 120 8,970
------------ ------------ -----------
Net interest income after
provision for loan
losses..................... 1,614 (147) 87,089
------------ ------------ -----------
Noninterest income........... 54 4(1) 43,503
Noninterest expense.......... 869 79(1) 99,449
------------ ------------ -----------
Income before income taxes... 799 (222) 31,143
Income taxes................. 169 (50) (1) 9,899
------------ ------------ -----------
Income before extraordinary
items and cumulative effect
of change in accounting
principle.................. 630 (172) 21,244
Cumulative effect of change
in accounting principle.... 3,650
Extraordinary item, net of
income tax................. (463)
------------ ------------ -----------
Net Income................... $ 630 $ (172) $ 24,431
============ ============ ==========
Average primary shares
outstanding................ 399,688 77,439 12,348,854
(399,688)
Average fully-diluted shares
outstanding................ 399,688 77,439 13,441,854
(399,688)
Earnings per share:
Income before extraordinary
item and cumulative
effect of change in
accounting principle:
Primary.................. $ 1.58 $ 1.72
Fully diluted............ $ 1.58 $ 1.70
Net income:
Primary.................. $ 1.58 $ 1.98
Fully diluted............ $ 1.58 $ 1.94
</TABLE>
55
<PAGE> 60
PRO FORMA ADJUSTMENTS
ADJUSTMENTS APPLICABLE TO DOTHAN FEDERAL
(1) To amortize the assignment of estimated fair value in excess of the
carrying amount of assets acquired. The amortization consists of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994 1993
--------- ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Increases in income:
Reversal of amortization of deposit
premium............................. $ 1 $ 4 $ 4 $ 4
Amortization of write-down of
investment securities (5 year
period)............................. 1 3 3 3
Decrease in income:
Earnings forgone on $2,600,000 cash at
an average interest rate of 5.75%... (38) (150) (150) (150)
--------- ------------ ------------ ------------
Total.......................... (36) (143) (143) (143)
--------- ------------ ------------ ------------
Increase in expense:
Amortization of goodwill
(20 year period).................... (20) (79) (79) (79)
--------- ------------ ------------ ------------
Total.......................... (20) (79) (79) (79)
--------- ------------ ------------ ------------
Net decrease in income before tax........ (56) (222) (222) (222)
--------- ------------ ------------ ------------
Tax effect of the pro forma adjustments
(other than goodwill amortization)..... 13 50 50 50
--------- ------------ ------------ ------------
Net decrease in income................... $ (43) $ (172) $ (172) $ (172)
--------- ------------ ------------ ------------
</TABLE>
56
<PAGE> 61
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
PRO FORMA SELECTED FINANCIAL DATA (UNAUDITED)
The following pro forma information includes consolidated BancGroup and
subsidiaries, consolidated SBC, consolidated CBG and Dothan Federal.
<TABLE>
<CAPTION>
FOR THREE FOR THE YEARS ENDED DECEMBER 31,
MONTHS ENDED ----------------------------------------------------
MARCH 31, 1996 1995 1994 1993 1992 1991
-------------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
Interest income......................... $ 82,148 $290,526 $214,845 $163,902 $149,361 $152,874
Interest expense........................ 43,035 149,220 92,465 67,843 69,005 89,357
-------------- -------- -------- -------- -------- --------
Net interest income..................... 39,113 141,306 122,380 96,059 80,356 63,517
Provision for possible loan losses...... 1,585 7,410 7,566 8,970 8,966 7,169
-------------- -------- -------- -------- -------- --------
Net interest income after provision for
possible loan losses.................. 37,528 133,896 114,814 87,089 71,390 56,348
Noninterest income...................... 16,128 54,467 47,811 43,503 37,104 32,744
Noninterest expense..................... 34,118 123,526 116,755 99,449 86,635 73,115
-------------- -------- -------- -------- -------- --------
Income before income taxes.............. 19,538 64,837 45,870 31,143 21,859 15,977
Applicable income taxes................. 6,974 23,304 15,972 9,899 5,699 4,197
-------------- -------- -------- -------- -------- --------
Income before extraordinary items and
the cumulative effect of a change in
accounting for income taxes........... 12,564 41,533 29,898 21,244 16,160 11,780
Extraordinary items, net of income
taxes................................. -- -- -- (463) -- 831
Cumulative effect of a change in
accounting for income
taxes................................. -- -- -- 3,650 -- --
-------------- -------- -------- -------- -------- --------
Net income.............................. $ 12,564 $ 41,533 $ 29,898 $ 24,431 $ 16,160 $ 12,611
============== ========= ========= ========= ========= =========
EARNINGS PER COMMON SHARE
Income before extraordinary items and
the cumulative effect of a change in
accounting for income taxes:
Primary............................... $ 0.77 $ 2.73 $ 2.02 $ 1.72 $ 1.37 $ 1.01
Fully-diluted......................... $ 0.76 $ 2.66 $ 1.99 $ 1.70 $ 1.37 $ 0.90
Net income:
Primary............................... $ 0.77 $ 2.73 $ 2.02 $ 1.98 $ 1.37 $ 1.08
Fully-diluted......................... $ 0.76 $ 2.66 $ 1.99 $ 1.94 $ 1.37 $ .97
Average shares outstanding:
Primary............................... 16,365 15,237 14,815 12,349 11,835 11,724
Fully-diluted......................... 16,703 16,000 15,582 13,442 13,146 13,066
Cash dividends per common share:(1)
Common................................ $ 0.27 $ 0.675 -- -- -- --
Class A............................... -- $ 0.225 $ 0.80 $ 0.71 $ 0.67 $ 0.63
Class B............................... -- $ 0.125 $ 0.40 $ 0.31 $ 0.27 $ 0.23
============== ========= ========= ========= ========= =========
</TABLE>
- ---------------
(1) On February 21, 1995, the Class A and Class B Common Stock were reclassified
into one class of Common Stock.
57
<PAGE> 62
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
PRO FORMA SELECTED FINANCIAL DATA (UNAUDITED) -- (CONTINUED)
The following pro forma information includes consolidated Colonial
BancGroup and subsidiaries, consolidated SBC, consolidated CBG and Dothan
Federal.
<TABLE>
<CAPTION>
FOR THREE MONTHS
ENDED FOR THE YEARS ENDED DECEMBER 31,
MARCH 31, --------------------------------------------------------------
1996 1995 1994 1993 1992 1991
---------------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF CONDITION
At year-end:
Total assets............................ $4,436,321 $4,249,742 $3,263,165 $3,148,493 $2,065,873 $1,895,308
Loans, net of unearned income........... 3,282,028 3,211,349 2,384,566 1,998,144 1,362,208 1,221,168
Mortgage loans held for sale............ 193,672 110,486 60,536 361,496 144,215 105,219
Deposits................................ 3,321,572 3,245,996 2,538,569 2,478,525 1,729,784 1,630,469
Long-term debt.......................... 27,254 29,038 69,203 57,686 23,449 27,890
Shareholders' equity.................... 308,531 292,064 227,633 200,989 126,552 114,039
Average daily balances:
Total assets............................ 4,297,486 3,705,572 3,118,702 2,420,879 2,013,982 1,813,095
Interest-earning assets................. 3,468,892 3,379,930 2,812,788 2,141,925 1,644,962 1,527,523
Loans, net of unearned income........... 3,024,445 2,743,628 2,173,453 1,527,234 1,213,856 1,141,760
Mortgage loans held for sale............ 123,470 97,511 131,121 241,683 118,510 65,373
Deposits................................ 2,347,916 2,866,791 2,506,240 1,909,148 1,576,154 1,474,003
Shareholders' equity.................... 262,473 254,950 218,167 146,816 120,798 105,930
Book value per share at year-end.......... 18.86 18.32 15.38 13.75 10.79 9.78
Tangible book value per share at
year-end................................ 17.00 16.39 14.28 12.63 9.85 8.49
================ ========= ========= ========= ========= =========
SELECTED RATIOS
Income before extraordinary items and the
cumulative effect of a change in
accounting for income taxes to:
Average assets.......................... 0.29% 1.12% 0.96% 0.88% 0.80% 0.65%
Average shareholders' equity............ 4.16 16.29 13.70 14.47 13.38 11.12
Net income to:
Average assets.......................... 0.29 1.12 0.96 1.01 0.80 0.70
Average shareholders' equity............ 4.16 16.29 13.70 16.64 13.38 11.91
Efficiency ratio.......................... 61.76 63.10 68.60 71.26 73.75 75.95
Dividend payout ratio..................... 29.54 25.33 24.86 19.84 25.83 30.62
Average equity to average total assets.... 7.03 6.88 7.00 6.06 6.00 5.84
Allowance for possible loan losses to
total loans (net of unearned income).... 1.32 1.30 1.62 1.64 1.62 1.50
</TABLE>
58
<PAGE> 63
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
SELECTED INTERIM FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1996 1995
------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
STATEMENT OF CONDITION SUMMARY
Total assets...................................................... $ 3,924,393 $ 3,014,654
Loans, net of unearned income..................................... 2,945,625 2,255,647
Total earnings assets............................................. 3,576,371 2,739,092
Deposits.......................................................... 2,859,262 2,295,341
Shareholders' equity.............................................. 268,228 205,886
Book value per share.............................................. $ 19.81 $ 16.86
------------- -------------
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1996 1995
------- -------
<S> <C> <C>
EARNINGS SUMMARY
Net interest income (taxable equivalent)................................. $33,982 $27,779
Provision for loan losses................................................ 1,499 1,067
Noninterest income....................................................... 14,775 10,063
Noninterest expense...................................................... 29,570 23,402
Net income............................................................... 11,054 8,301
Average primary shares outstanding....................................... 13,546 12,049
Average fully diluted shares outstanding................................. 13,884 12,818
Per common share:
Fully-diluted earnings:
Net Income.......................................................... $ .80 $ .67
Dividends:
Common Stock........................................................ 0.27 N/A
Class A............................................................. N/A 0.225
Class B............................................................. N/A 0.125
------- -------
SELECTED RATIOS
Return on average assets................................................. 1.17% 1.18%
Return on average equity................................................. 16.94 17.16
Efficiency ratio......................................................... 60.65 61.84
Equity to assets......................................................... 6.83 6.83
Total capital............................................................ 7.97 8.44
Tangible leverage........................................................ 6.42 6.67
------- -------
</TABLE>
59
<PAGE> 64
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
Interest income............................. $250,900 $187,230 $141,572 $130,624 $138,969
Interest expense............................ 132,458 82,549 59,517 60,576 81,486
-------- -------- -------- -------- --------
Net interest income......................... 118,442 104,681 82,055 70,048 57,483
Provision for possible loan losses.......... 5,480 6,481 7,945 7,979 6,364
-------- -------- -------- -------- --------
Net interest income after provision for
possible loan losses...................... 112,962 98,200 74,110 62,069 51,119
Noninterest income.......................... 50,175 44,243 40,433 34,727 31,271
Noninterest expense......................... 103,230 100,791 86,520 75,529 65,996
-------- -------- -------- -------- --------
Income before income taxes.................. 59,907 41,652 28,023 21,267 16,394
Applicable income taxes..................... 21,113 14,342 8,886 5,715 4,175
-------- -------- -------- -------- --------
Income before extraordinary items and the
cumulative effect of a change in
accounting for income taxes............... 38,794 27,310 19,137 15,552 12,219
Extraordinary items, net of income taxes.... -- -- (463) -- 831
Cumulative effect of a change in accounting
for income taxes.......................... -- -- 3,219 -- --
-------- -------- -------- -------- --------
Net income.................................. $ 38,794 $ 27,310 $ 21,893 $ 15,552 $ 13,050
======== ======== ======== ======== ========
EARNINGS PER COMMON SHARE
Income before extraordinary items and the
cumulative effect of a change in
accounting for income taxes:
Primary................................... $ 3.12 $ 2.28 $ 2.01 $ 1.72 $ 1.37
Fully-diluted............................. $ 3.02 $ 2.23 $ 1.96 $ 1.71 $ 1.37
Net income:
Primary................................... $ 3.12 $ 2.28 $ 2.30 $ 1.72 $ 1.47
Fully-diluted............................. $ 3.02 $ 2.23 $ 2.21 $ 1.71 $ 1.47
Average shares outstanding:
Primary................................... 12,418 11,996 9,530 9,016 8,905
Fully-diluted............................. 13,181 12,763 10,623 10,327 10,247
Cash dividends per common share:(1)
Common...................................... $ 0.675 -- -- -- --
Class A................................... $ 0.225 $ 0.80 $ 0.71 $ 0.67 $ 0.63
Class B................................... $ 0.125 $ 0.40 $ 0.31 $ 0.27 $ 0.23
======== ======== ======== ======== ========
</TABLE>
- ---------------
(1) On February 21, 1995, the Class A and Class B Common Stock were reclassified
into one class of Common Stock.
60
<PAGE> 65
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1995 1994 1993(1) 1992 1991
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF CONDITION
At year-end:
Total assets....................... $3,741,217 $2,838,343 $2,822,521 $1,796,246 $1,687,177
Loans, net of unearned income...... 2,875,581 2,094,028 1,771,989 1,172,151 1,093,728
Mortgage loans held for sale....... 110,486 60,536 361,496 144,215 105,219
Deposits........................... 2,785,958 2,171,464 2,190,998 1,493,479 1,452,344
Long-term debt..................... 29,038 69,042 57,397 22,979 27,225
Shareholders' equity............... 253,148 191,551 172,764 100,406 88,429
Average daily balances:
Total assets....................... $3,239,312 $2,726,710 $2,119,660 $1,764,397 $1,643,622
Interest-earning assets............ 2,958,204 2,458,568 1,871,254 1,540,926 1,450,115
Loans, net of unearned income...... 2,428,823 1,906,385 1,315,910 1,136,124 1,094,096
Mortgage loans held for sale....... 97,511 131,121 241,683 118,510 65,373
Deposits........................... 2,451,253 2,158,532 1,644,658 1,476,668 1,403,538
Shareholders' equity............... 216,256 182,823 119,790 94,833 84,423
Book value per share at year-end..... $ 19.35 $ 16.08 $ 14.64 $ 11.27 $ 10.00
Tangible book value per share at
year-end........................... 17.34 14.71 13.25 10.60 9.21
========= ========= ========= ========= =========
SELECTED RATIOS
Income before extraordinary items and
the cumulative effect of a change
in accounting for income taxes to:
Average assets..................... 1.20% 1.00% 0.90% 0.88% 0.74%
Average shareholders' equity....... 17.94 14.94 15.98 16.40 14.47
Net income to:
Average assets..................... 1.20 1.00 1.03 0.88 0.79
Average shareholders' equity....... 17.94 14.94 18.28 16.40 15.46
Efficiency ratio..................... 60.32 66.68 69.50 70.64 72.52
Dividend payout ratio................ 27.12 27.21 25.33 26.85 31.60
Average equity to average total
assets............................. 6.68 6.70 5.65 5.37 5.14
Total nonperforming assets to net
loans, other real estate and
repossessions...................... .78 0.90 1.31 1.34 1.07
Net charge-offs to average loans..... .13 0.09 0.33 0.47 0.51
Allowance for possible loan losses to
total loans (net of unearned
income)............................ 1.28 1.60 1.62 1.60 1.48
Allowance for possible loan losses to
nonperforming loans................ 271% 314% 347% 246% 246%
========= ========= ========= ========= =========
</TABLE>
61
<PAGE> 66
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
SELECTED QUARTERLY FINANCIAL DATA 1995-1994 (UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
--------------------------------------- ---------------------------------------
DEC. 31 SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30 JUNE 30 MARCH 31
------- -------- ------- -------- ------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income.......................... $70,667 $65,560 $60,664 $54,009 $50,870 $47,180 $45,779 $43,401
Interest expense......................... 38,410 35,124 32,093 26,831 23,341 20,439 19,915 18,854
------- -------- ------- -------- ------- -------- ------- --------
Net interest income...................... 32,257 30,436 28,571 27,178 27,529 26,741 25,864 24,547
Provision for loan losses................ 2,050 1,265 1,098 1,067 1,767 1,818 1,448 1,448
------- -------- ------- -------- ------- -------- ------- --------
Net interest income after provision for
loan losses............................ 30,207 29,171 27,473 26,111 25,762 24,923 24,416 23,099
Net income............................... $10,041 $10,202 $10,250 $ 8,301 $6,644 $ 7,078 $6,740 $ 6,848
======= ======= ======= ========= ======= ======= ======= =========
Per common share:
Net income
Primary................................ $ 0.78 $ 0.83 $ 0.83 $ 0.69 $ 0.55 $ 0.59 $ 0.56 $ 0.57
Fully-diluted.......................... 0.75 0.80 0.80 0.67 0.54 0.58 0.55 0.56
======= ======= ======= ========= ======= ======= ======= =========
</TABLE>
62
<PAGE> 67
SOUTHERN BANKING CORPORATION
SELECTED INTERIM FINANCIAL DATA
<TABLE>
<CAPTION>
MARCH 31,
-------------------
1996 1995
-------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
FINANCIAL CONDITION DATA
Total Amount of:
Assets................................................................. $228,808 $200,956
Investments............................................................ 29,052 32,723
Loans Receivable, net.................................................. 150,420 123,580
Deposits............................................................... 209,248 185,044
Stockholder's Equity................................................... 17,285 14,529
Number of full service customer facilities............................... 8 8
OPERATING DATA
Interest income.......................................................... $ 4,425 $ 3,599
Interest expense......................................................... 1,620 1,321
-------- --------
Net interest income before loan loss provision........................... 2,805 2,278
Provision for loan losses................................................ 55 75
-------- --------
Net interest income after loan loss provision............................ 2,750 2,203
Other income............................................................. 780 670
Other expense............................................................ 2,162 2,071
Income tax expense....................................................... 515 307
-------- --------
Net income............................................................... $ 853 $ 495
======== ========
SELECTED STATISTICAL DATA
Return on assets......................................................... 0.38% 0.26%
Equity to asset ratio (period end)....................................... 7.56% 7.23%
Earnings per share....................................................... $ 0.25 $ 0.15
</TABLE>
63
<PAGE> 68
SBC'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996
COMPARED TO THE THREE MONTHS ENDED MARCH 31, 1995
SBC's net income for the quarter ended March 31, 1996 was $853,653 an
increase of 72.6% from the net income of $494,713 reported in the first quarter
of 1995. Net income per share was also up 67% to $0.25 from $0.15 reported in
1995. The principal reasons for this improvement were the growth of assets and
liabilities and stability in SBC's net interest margin.
NET INTEREST INCOME
Net interest income totalled $2,805,098 for the first quarter of 1996, or
23% higher than $2,277,944 in the first quarter of 1995. The increase in net
interest income was due to an increase of $26.8 million or 21.7% in loans and an
increase of $24.5 million or 17.1% in interest bearing deposits.
Earning assets as of the end of the first quarter of 1996 were $203.5
million, up 17.7% or $30.6 million from the $172.9 million reported at March 31,
1995. The increase in earning assets was largely attributable to increases in
loans and federal funds sold. Net loans at the end of the first quarter were
$150.4 million, reflecting a $26.8 million increase from March 31, 1995. The
increase in earning assets also reflects a $7.8 million or 53% increase in
federal funds sold and a $3.7 million or 11.2% decrease in investment
securities.
Total deposits at March 31, 1996 were $209.2 million, up 13.1% or $24.2
million from March 31, 1995. The increase resulted from an $18.0 million
increase in money market savings and NOW deposits, and a $6.4 million increase
in time deposits, which was offset by a $273,000 decrease in non-interest
bearing demand deposits. The increase in interest-bearing deposits was due to
attractive and competitively priced deposit products and an expanded market
base. The positive impact of the increase in deposits was supported by a
$2,756,000 increase in total stockholders' equity.
The net interest margin for the first quarter of 1996 was 6.27% compared to
6.26% in 1995. This minimal increase was due to the impact of stable rates on
loans and investments, which showed little change from the first quarter of 1995
compared to the first quarter of 1996.
PROVISIONS FOR LOAN LOSSES
The provision for loan losses was $55,000 during the first quarter of 1996,
compared to $75,000 for the first quarter of 1995.
NON-INTEREST INCOME
Non-interest income for the first quarter of 1996 totaled $780,253, which
was 16.4% more than the $670,165 reported in the same period of the prior year
due to the expanded deposit base and the service charges related to those
deposit accounts.
NON-INTEREST EXPENSES
Non-interest expenses totalled $2,161,498 for the first quarter of 1996, up
4.3% or $90,077 from the $2,071,421 reported for the first quarter of 1995. The
major factor in the increase was the continued growth of the bank, resulting in
increases in salary and data processing expenses.
64
<PAGE> 69
PROVISION FOR INCOME TAXES
The income tax provision for the first quarter of 1996 totalled $515,200,
compared with $306,975 for the same period of 1995. The increase of $208,225
from the prior year was due to the 71% increase in pre-tax earnings.
STATEMENT OF CONDITION
Total assets as of March 31, 1996 were $228.8 million, up 13.9% from $201.0
million on March 31, 1995. The growth in total assets paralleled the growth in
deposits discussed above. Net loans totalled $150.4 million at March 31, 1996,
representing a 21.7% increase from $123.6 million reported last year. The
increase in loans was due to increased business development and favorable
economic conditions. Investment securities decreased to $29.1 million, down
11.2% or $3.7 million from the 1995 level of $32.7 million.
The continuing profitability of SBC resulted in an increase of
stockholders' equity to $17.3 million, or 19% more than the $14.5 million at
March 31, 1995.
SBC's risk-based capital ratios remained strong at 8.9% for tier one and
10.1% for total capital at March 31, 1996. Risk-based capital ratios
substantially exceeded the regulatory guidelines of 4% for tier one and 8% for
total capital. The leverage ratio (tier one capital to average assets) of 6.8%
at March 31, 1996 also significantly exceed the regulatory requirement of 3%.
ASSET QUALITY
The total of non-performing assets at March 31, 1996 increased to
$1,426,000 from $1,378,000 at December 31, 1995 and $627,000 at March 1995.
Non-accrual loans totalled $431,000 or 0.28% of total loans at March 31, 1996.,
At December 31, 1995 and March 31, 1995 non-accrual loans totalled $506,000 and
$397,000, respectively. As of March 31, 1996, SBC had disposed of all OREO
assets, compared with a total of $129,000 at December 31, 1995, and $230,000 at
March 31, 1995. Management of SBC is not aware of any loans not disclosed above
in which management has serious doubts as to the ability of the borrowers to
comply with the present loan repayment terms.
PROVISION FOR LOAN LOSSES
The provision for loan losses for the three months ended March 31, 1996 was
$55,000, compared with $75,000 in 1995 due to the low level of charge-offs in
the first quarter of 1996. Net charge-offs during the first quarter of 1996 were
$71,000. The allowance for loan losses was $1,942,000 on March 31, 1996, which
equaled 1.27% of outstanding loans. This compares with $1,613,000 or 1.28% of
outstanding loans at March 31, 1995. The low level of the reserves (relative to
outstanding loans) is attributable to the quality of the loan portfolio.
The quality of the loan portfolio remains sound and the reserve for loan
losses is considered to be adequate to cover current credit-related
uncertainties. Established credit review procedures ensure that close attention
is given to commercial real estate related loans as well as other credit
exposures which may be adversely affected by any significant increase in
interest rates and/or down-turns of segments of the local economy.
65
<PAGE> 70
SOUTHERN BANKING CORPORATION
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
FINANCIAL CONDITION DATA
Total Amount of:
Assets...................................... $230,270 $181,362 $109,634 $85,303 $69,674
Investments................................. 33,663 34,735 14,374 8,972 10,260
Loans Receivable, net....................... 153,089 121,530 77,320 59,839 40,669
Deposits.................................... 211,610 154,734 101,365 78,088 63,466
Stockholder's Equity........................ 16,525 13,736 7,439 6,628 5,945
Number of full service customer facilities.... 8 8 5 5 4
OPERATING DATA
Interest income............................... $ 17,267 $ 10,326 $ 6,931 $ 5,562 $ 3,888
Interest expense.............................. 6,133 2,895 2,048 1,999 2,037
-------- -------- -------- ------- -------
Net interest income before loan loss
provision................................... 11,134 7,431 4,883 3,563 1,851
Provision for loan losses..................... 525 330 466 325 320
-------- -------- -------- ------- -------
Net interest after loan loss provision........ 10,609 7,101 4,417 3,238 1,531
Other income.................................. 1,978 1,294 878 637 261
Other expense................................. 9,214 5,672 4,117 3,419 1,777
Income tax expense............................ 1,282 989 415 72 --
Cumulative effect of change in accounting
principle................................... 47
-------- -------- -------- ------- -------
Net income.................................... $ 2,091 $ 1,734 $ 810 $ 384 $ 15
======== ======== ======== ======= =======
SELECTED STATISTICAL DATA
Return on assets.............................. 1.03% 1.05% 0.83% 0.51% 0.03%
Equity to assets ratio (period end)........... 7.18% 7.57% 6.79% 7.78% 8.53%
Earnings per share............................ $ 0.62 $ 0.64 $ 0.37 $ 0.18 $ 0.03
</TABLE>
66
<PAGE> 71
SBC'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FOR THE FISCAL YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
RESULTS OF OPERATIONS
SBC's consolidated net income for 1995 was $2,091,000, or 21% more than
$1,734,000 in 1994, which was 114% more than the $810,000 earned in 1993. Net
income per common share was $0.62 in 1995, $0.64 in 1994 and $0.37 in 1993. The
earnings per share in 1995, 1994 and 1993 reflect a two for one stock split
effected in June 1994.
SBC's performance in 1995 resulted in a return on average stockholders'
equity of 13.66%, compared to 13.08% in 1994, and 11.78% in 1993. The return on
average assets was 1.03% in 1995, compared to 1.05% in 1994, and 0.83 % in 1993.
SBC's financial performance has improved significantly in the last several years
due to planned growth through acquisitions and target marketing. SBC's
profitability has increased because it has minimized additions to staff, while
maintaining a high level of services.
Over the last two years, the total assets and liabilities of SBC have grown
significantly. Average assets grew from $165 million in 1994 to $202 million in
1995, and average liabilities have increased from $152 million to $187 million.
These increases were the result of the acquisition of two offices with an
existing customer base. In particular, the acquisition of Osceola National Bank
in September 1994 added approximately $49 million in assets and $42 million in
deposit liabilities to SBC's balance sheet. This successful expansion has
enabled SBC to target additional markets and customers through increased lending
limits and new deposit products.
The following ratios reflect SBC's operating results for 1995, 1994 and
1993.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Return on Assets.................................................... 1.03% 1.05% 0.83%
Return on Equity.................................................... 13.66 13.08 11.78
Equity to Assets.................................................... 7.57 8.04 7.08
</TABLE>
NET INTEREST INCOME
Net interest income is defined as the total of interest income on earning
assets less interest expense on deposits and other interest-bearing liabilities.
Earning assets, which consist of loans, investment securities, and federal funds
sold, are financed by a large base of interest-bearing funds in the form of
money market, NOW, savings and time deposits. Earning assets are also funded by
the net amount of non-interest related funds, which consist of noninterest
bearing demand deposits, the allowance for loan losses and stockholders' equity,
reduced by non-interest bearing assets such as cash and due from banks, and
premises and equipment, and other real estate owned ("OREO").
The following table sets forth SBC's average balance sheets and related
interest, yield and rate information for the three last fiscal years.
67
<PAGE> 72
AVERAGE BALANCE SHEETS
<TABLE>
<CAPTION>
1995 1994 1993
---------------------------- ---------------------------- ---------------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- ------ -------- -------- ------ ------- -------- ------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Loans, net of unearned income...... $135,223 $ 14,428 10.67 % $108,979 $ 8,793 8.07% $67,256 $6,046 8.99%
Securities......................... 34,313 2,182 6.36 % 32,550 1,376 4.23% 14,416 701.... 4.86%
Federal funds sold................. 11,359 657 5.78 % 6,085 157 2.58% 6,226 184 2.96%
-------- -------- -------- -------- ------- --------
Total earning assets......... 180,895 17,267 9.55 % 147,614 10,326 7.00% 87,898 6,931 7.89%
-------- -------- -------- -------- ------- --------
Non-interest earning assets:
Cash and due from banks............ 13,068 -- -- 10,813 -- -- 5,968 -- --
Premises and equipment............. 4,988 -- -- 5,203 -- -- 2,639 -- --
Other Real Estate Owned............ 208 -- -- 322 -- -- -- -- --
Other assets....................... 4,857 -- -- 2,521 -- -- 1,353 -- --
Allowance for loan losses.......... (1,661) -- -- (1,446) -- -- (753 ) -- --
Total non-interest earning
assets........................... 21,460 -- -- 17,413 -- -- 9,207 -- --
-------- -------- -------
Total assets................. $202,355 -- -- $165,027 -- -- $97,105 -- --
======== ======== =======
LIABILITIES AND STOCKHOLDERS EQUITY
Interest bearing liabilities:
Savings accounts................... 6,881 143 2.08 % $ 7,012 95 1.35% 3,921 77 1.96%
Money market/NOW accounts.......... 71,545 2,127 2.97 % 56,570 1,178 2.08% 30,814 656 2.13%
Time deposits...................... 67,979 3,789 5.57 % 51,468 1,619 3.15% 31,089 1,315 4.23%
Repurchase agreements.............. -- -- -- -- -- N/A -- -- --
Other borrowings................... 811 74 9.12 % 476 3 0.63% -- -- --
-------- -------- -------- -------- ------- --------
Total interest bearing
liabilities...................... 147,216 6,133 4.17 % 115,526 2,895 2.51% 65,824 2,048 3.11%
-------- -------- -------- -------- ------- --------
Non-interest bearing liabilities:
Demand deposits.................... 38,442 -- -- 35,205 -- -- 23,843 -- --
Other liabilities.................. 1,388 -- -- 1,035 -- -- 564 -- --
-------- -------- -------
Total non-interest bearing
liabilities................ 39,830 -- -- 36,240 -- -- 24,407 -- --
-------- -------- -------
Total liabilities............ 187,046 -- -- 151,766 -- -- 90,231 -- --
Stockholders' Equity................. 15,309 -- -- 13,261 -- -- 6,874 -- --
-------- -------- -------
Total Liabilities and
Stockholders' Equity....... $202,355 -- -- $165,027 -- -- $97,105 -- --
======== ======== =======
Net Interest Income/Spread........... -- $ 11,134 5.38 % -- $ 7,431 4.49% -- $4,883 4.78%
======= ======= =======
Net Interest Yield................... -- -- 6.15 % -- -- 5.03% -- -- 5.56%
</TABLE>
- ---------------
Notes:
- -- The amounts set forth as average balances are based on daily averages for
each fiscal year.
- -- Loan fees, which are included in interest income and in the calculation of
average yields, were $993,000, $851,000 and $803,000 in 1995, 1994 and 1993,
respectively.
- -- Tax exempt income is not calculated on a tax equivalent basis.
- -- Non-accruing loans are included in average loans.
68
<PAGE> 73
Net interest income is primarily affected by changes in the amounts and
types of earning assets, interest-bearing funds and net non-interest related
funds, as well as their relative sensitivity to interest rate movements. The
following chart reflects these factors:
CHANGES IN NET INTEREST INCOME
<TABLE>
<CAPTION>
1995 VS 1994 1994 VS 1993 1993 VS 1992
CHANGE DUE TO: CHANGE DUE TO: CHANGE DUE TO:
------------------------ ------------------------ ------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL VOLUME RATE TOTAL
------ ------ ------ ------ ------ ------ ------ ------ ------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in Interest Income:
Loans..................................... $2,802 $2,833 $5,635 $3,366 $ (619) $2,747 $1,482 $ (56) $1,426
Securities................................ 113 693 806 766 (91) 675 154 (180) (26)
Federal funds sold........................ 305 195 500 (3 ) (24) (27) 3 (34) (31)
------ ------ ------ ------ ------ ------ ------ ------ ------
Total Interest Income............... 3,220 3,721 6,941 4,129 (734) 3,395 1,639 (270) 1,369
------ ------ ------ ------ ------ ------ ------ ------ ------
Increase (Decrease) in Interest Expense:
Savings accounts.......................... (3 ) 51 48 42 (24) 18 16 (17) (1)
Money market/NOW accounts................. 446 503 949 537 (15) 522 155 (143) 12
Time deposits............................. 924 1,246 2,170 640 (336) 304 175 (137) 38
Repurchase agreements..................... -0- -0- -0- -0- -0- -0- -0- -0- -0-
Other borrowings.......................... 31 40 71 3 -0- 3 -0- -0- -0-
------ ------ ------ ------ ------ ------ ------ ------ ------
Total Interest Expense.............. 1,398 1,840 3,238 1,222 (375) 847 346 (297) 49
------ ------ ------ ------ ------ ------ ------ ------ ------
Increase (Decrease) in Net Interest
Income.................................... $1,822 $1,881 $3,703 $2,907 $ (359) $2,548 $1,293 $ 27 $1,320
======= ====== ====== ======= ====== ====== ======= ====== ======
</TABLE>
- ---------------
Notes:
- -- To calculate volume change, multiply the change in volume from current year
to prior year times the prior year's rate.
- -- To calculate rate change, multiply the change in rate from current year to
prior year times the prior year's dollar volume.
- -- Changes which are not due only to volume changes or rate changes are included
in the changes due to volume column.
Net interest income for 1995 was $11,134,000 up 50% from $7,431,000 in
1994, which was up 52% from $4,883,000 in 1993. The growth in net interest
income in 1995 was attributable to an increase in earning asset volumes, which
grew by 23% from 1994. This increase was achieved by attracting a large
percentage of non-interest bearing demand deposits, while at the same time
increasing the loan portfolio. Average loans (which are Southern Bank's highest
yielding earning assets) grew 24% in 1995, while investment securities increased
5%. SBC was also able to maintain loan growth by the ability to target an
expanded customer base due to increased lending limits and additional locations.
SBC showed a 2.55% increase in the yield on earning assets from 1994 to 1995.
The average rate on interest bearing liabilities increased from 2.51% in 1994 to
4.17% in 1995. The increase in the size of SBC significantly affected its
liabilities. Average interest bearing liabilities grew $31,690,000 or 27% in
1995, and average demand deposits climbed $3,237,000 or 9%.
NON-INTEREST INCOME
Non-interest income totalled $1,978,000 in 1995, compared with $1,294,000
in 1994, and $878,000 in 1993. Customer service charges totalled $1,560,000 in
1995, up 47% from $1,062,000 from 1994, which was up 60% from $664,000 in 1993.
The growth in non-interest income from 1993 to 1995 was primarily due to a
substantial increase in the number of checking and deposit accounts arising from
the expansion of Southern Bank.
INVESTMENT SECURITIES GAINS
At December 31, 1995, SBC held investment securities with a market value of
$33,663,000 which was $140,000 more than the book value of the portfolio. This
difference consisted of $140,000 of gross unrealized gains. SBC occasionally
sells a portion of its investment securities available for sale prior to
maturity. This activity resulted in a net securities gain of $22,000 in 1995.
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<PAGE> 74
PROVISION FOR LOAN LOSSES
The provision for loan losses totalled $525,000 in 1995, up from $330,000
in 1994, and up from $466,000 in 1993. See "Allowance and Provision for Loan
Losses."
NON-INTEREST EXPENSES
Non-interest expenses for 1995 totalled $9,214,000 which was up 62% from
$5,672,000 in 1994, which was up 38% from $4,117,000 in 1993. The increase was
primarily due to higher operating expenses due to acquisitions and additional
locations. Non-interest expenses are discussed below in more detail.
PERSONNEL. Personnel expense (which includes salaries and benefits)
represented 49% of total noninterest expenses in 1995, 47% in 1994, and 46% in
1993. Personnel expenses increased 71% to $4,566,000 in 1995, from $2,675,000 in
1994, which was up 41% from $1,894,000 in 1993. These increases were the result
of salary increases, benefit costs, increased number of employees due to growth
and upgrading of personnel. Staff on a full-time equivalent basis averaged 100
in 1995 compared to 83 in 1994, and 54 in 1993.
OCCUPANCY EXPENSE. Net occupancy expense in 1995 totalled $963,000 up 43%
from $674,000 in 1994, which was up 31% from $515,000 in 1993. The principal
reason for the increase was the acquisition and expansion of branches.
PREMISES AND EQUIPMENT EXPENSE. Premises and equipment expense, which
includes depreciation, rental and maintenance, totalled $428,000 in 1995, up 44%
from $296,000 in 1994, which was up 42% from $208,000 in 1993. The increase
reflects acquired and new or expanded banking office facilities and
implementation of a strategic technology plan for standardized hardware and
software and increased efficiency.
OTHER NON-INTEREST EXPENSES. Other non-interest expenses for 1995 totalled
$3,257,000 up 61% from $2,027,000 in 1994, which was up 35% from $1,500,000 in
1993. Other non-interest expenses were primarily impacted by increased FDIC
insurance premiums due to increased deposit base, and increased data processing
and support areas costs directly related to growth.
PROVISION FOR INCOME TAXES
The income tax provision totalled $1,282,000 in 1995 compared with $989,000
in 1994, and $415,000 in 1993. See Note 7 to the Consolidated Financial
Statements for SBC for more information regarding the income tax provision.
In February 1992, SFAS No. 109, "Accounting for Income Taxes," was issued
by the Financial Accounting Standards Board. SBC adopted SFAS No. 109 effective
January 1, 1993. The adoption of the statement resulted in a $47,000 increase in
earnings in 1993. See Note 7 to the Consolidated Financial Statements of SBC.
CAPITAL EXPENDITURES
SBC's capital expenditures are reviewed by its Board of Directors. SBC
makes capital expenditures in order to improve its ability to provide quality
services to its customers. Capital expenditures equaled $442,000 in 1995,
$1,771,000 in 1994, and $1,324,000 in 1993. These expenditures were principally
related to equipment purchased for various branch sites and changes in equipment
due to technological advances.
ASSET QUALITY AND CREDIT RISK
Investment Securities. SBC maintains a high quality investment portfolio
including U.S. Treasury securities, securities of other U.S. government
entities, state and municipal securities, and other securities. Securities
issued by the U.S. Treasury, other U.S. government entities and states
constitute approximately 98% of SBC's investment portfolio. SBC believes that
the securities have very little risk of default. At December 31, 1995, all of
the securities held in SBC's investment portfolio were rated "A" or better. All
of these securities were classified "available for sale." A rating of "A" or
better means that the bonds are of
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<PAGE> 75
"upper medium grade, with strong ability to repay, possibly with some
susceptibility to adverse economic conditions or changing circumstances."
Ratings are assigned by independent rating agencies and are subject to the
accuracy of reported information concerning the issuers and the subjective
judgment and analysis of the rating agencies. They are not a guarantee of
collectibility. Approximately 10% of these securities mature in one year or less
and 64% in five years or less. As such, the risk of significant fluctuations in
value due to changes in the general level of interest rates is limited.
The following table sets forth information regarding the composition of the
investment portfolio for the last two years (amounts in thousands).
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
INVESTMENT PORTFOLIO 1995 1994 1993
- -------------------------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
U.S. Treasury Securities...................................... $ 6,569 $ 6,268 $ 3,025
Securities of other U.S. Government agencies and
corporations................................................ 21,050 24,022 9,242
Obligations of states and political subdivisions.............. 5,008 3,379 1,507
Other securities.............................................. 1,036 1,066 600
------- ------- -------
Total investments................................... $33,663 $34,735 $14,374
======= ======= =======
</TABLE>
During the last two years, SBC's investment portfolio increased by 134% due
to a significant expansion of SBC's deposits. During this period, SBC has not
materially changed its mix of securities. U.S. Government agencies represented
64% in 1993, 69% in 1994, and 62% in 1995, while U.S. Treasury securities and
municipals represented 32% in 1993, 28% in 1994, and 34% in 1995.
LOANS. SBC maintains a high quality portfolio of real estate, commercial
and consumer loans. All loans over individual lending limits are reviewed and
approved by SBC's loan committee, which ensures that loans comply with
applicable credit standards. In most cases, SBC requires collateral from the
borrower. The type and amount of collateral varies but may include residential
or commercial real estate, deposits held by financial institutions, U.S.
Treasury securities, other marketable securities and personal property.
Collateral values are monitored to ensure that they are maintained at proper
levels.
As of December 31, 1995, approximately 70% of all SBC's loans were real
estate loans secured by real estate in Central Florida. This level of
concentration could present a potential credit risk to SBC because the ultimate
collectibility of these loans is susceptible to adverse changes in real estate
market conditions in this market. SBC has addressed this risk by limiting most
loans to a maximum of 80% of the appraised value of the underlying real estate
and maximum amortization schedules of 15 years with balloons not exceeding five
years.
The following table divides SBC's loan portfolio into five categories. Most
of the loans are short-term and may be renewed or rolled over at maturity. At
that time, SBC undertakes a complete review of the borrower's credit worthiness
and the value of any collateral. If these items are satisfactory, SBC will
generally renew the loan at prevailing interest rates.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
TYPES OF LOANS
Commercial, financial and agricultural..................... $ 36,669 $ 32,148 $ 25,634
Real estate................................................ 97,791 69,837 34,228
Mortgage................................................... 9,887 11,212 12,623
Installment loans to individuals........................... 10,473 10,121 5,942
Overdrafts................................................. 659 297 42
-------- -------- --------
Total loans...................................... $155,479 $123,615 $ 78,469
======== ======== ========
</TABLE>
The following table sets forth information regarding the maturities and
repricing of SBC's loans. For purposes of the table, demand loans are shown as
being payable in one year or less. The entire amount of a
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<PAGE> 76
balloon loan is treated as maturing in the year that the balloon payment is due.
Variable rate loans are shown based on earliest repricing opportunity.
MATURITIES OF LOANS BASED ON REPRICING
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------------------------------
ONE YEAR OVER ONE TO OVER FIVE
TOTAL LOANS: OR LESS FIVE YEARS YEARS TOTAL
- ------------------------------------------------ -------- ----------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Fixed......................................... $ 17,380 $28,771 $ 2,899 $ 49,050
Variable...................................... 106,365 64 -0- 106,429
</TABLE>
SBC's loans are segmented by fixed and variable interest rates. At December
31, 1995, the amount of such loans with a maturity or repricing of more than one
year which had fixed interest terms was $31,670,000 and the amount which had
variable interest terms was $64,000.
COMMERCIAL, FINANCIAL AND AGRICULTURAL LOANS. SBC makes commercial,
financial and agricultural loans to businesses located in Central Florida. The
credit risk associated with business lending is influenced by general economic
conditions, deterioration in a borrower's capital position resulting in
increasing debt to equity ratios, deterioration in a borrower's cash position
resulting in a liquidity problem, and decreasing revenues due to inefficient
operations of the borrower. These loans are generally secured by corporate
assets, marketable securities or other liquid financial instruments. These loans
totalled approximately $36,669,000 at December 31, 1995, and $32,148,000 at
December 31, 1994. Legally binding commitments to extend credit and letters of
credit for these borrowers totalled $16 million on December 31, 1995.
REAL ESTATE LOANS. SBC makes real estate loans from time to time for real
estate projects located in Central Florida. SBC generally requires security in
the form of a mortgage on the underlying real property and the improvements
constructed thereon and personal guarantees. It attempts to limit its credit
exposure to 80% of the appraised value of the underlying real property. On
December 31, 1995, real estate loans totaled $97,791,000. Risks associated with
real estate loans include variations from vacancy projections, delays in
construction, environmental factors, reliability of subcontractors and timing
and reliability of inspections, and costs overruns.
SBC makes real estate loans secured by commercial real estate, including
loans to acquire or refinance office buildings, warehouses and apartments. At
December 31, 1995, these loans totalled $84 million, or 54% of total loans. Most
of these loans have a maturity of five years or less. Almost all of these loans
are secured by real property located in Central Florida. These loans generally
require a loan-to-collateral value of not more than 80% . At December 31, 1995,
SBC had legally binding commitments to extend credit or standby letters of
credit involving commercial real estate borrowers totalling approximately $21
million. At December 31, 1994, SBC had approximately $22 million in such
commitments.
Residential real estate loans totalled $14 million, or 9% of total loans at
December 31, 1995, compared with $13 million, or 10% at December 31, 1994.
Residential real estate loans are predominately adjustable rate home mortgages
which generally require a loan-to-collateral value of not more than 80% and
equity credit lines which generally limit the loan-to-collateral value to not
more than 90%. Most loans have a maximum term of five years. Almost all of the
residential real estate loans are secured by homes in Central Florida. Legally
binding commitments to extend credit secured by residential mortgages totalled
$0.6 million as of December 31, 1995 and $0.5 million as of December 31, 1994.
MORTGAGE LOANS. SBC purchased mortgage loans in 1991. These loans were
$9,887,000 at December 31, 1995. Risks associated with mortgage loans include
reliability of appraisals, deterioration of market values, and accelerated
depreciation of property due to deferred maintenance.
INSTALLMENT LOANS. SBC offers consumer loans and personal and secured
loans. The security for these loans ordinarily consists of automobiles, consumer
goods, marketable securities, certificates of deposit and similar items. These
loans totalled approximately $10 million, or 6% of total loans, on December 31,
1995, compared with $10 million, or 8% of total loans, on December 31, 1994.
Risks associated with installment
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<PAGE> 77
loans include loss of employment of borrowers, declines in the financial
condition of borrowers resulting in delinquencies, and rapid depreciation of
loan collateral.
NON-PERFORMING ASSETS AND PAST DUE LOANS
Non-performing assets consist of non-accrual loans and residential and
commercial properties acquired in partial or total satisfaction of problem loans
which are known as "other real estate owned" or "OREO." Past due loans are loans
that are delinquent 30 days or more which are still accruing interest.
Maintaining a low level of non-performing assets is important to the
ongoing success of any financial institution. SBC's credit review and approval
process is critical to SBC's ability to minimize non-performing assets on a long
term basis. In addition to the negative impact on interest income,
non-performing assets also increase operating costs due to the expense of
collection efforts. It is SBC's policy to place all loans which are past due 90
days or more on non-accrual status, subject to exceptions made on a case by case
basis.
The following table presents SBC's non-performing assets and past due loans
for 1995, 1994 and 1993:
NON-PERFORMING ASSETS AND 90 DAY PAST DUE LOANS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995(1) 1994 1993
------- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Non-Accrual Loans....................................................... $ 506 $200 $131
OREO and in substance foreclosed loans, net............................. 872 275 -0-
------- ---- ----
Total Non Performing Assets............................................. $1,378 $475 $131
------- ---- ----
Accruing Loans Past Due 90 Days......................................... $ 37 $-0- $-0-
====== ==== ====
</TABLE>
- ---------------
(1) For 1995, estimated gross interest income of $33,000 would have been
recorded if the non-accrual loans had been current in accordance with their
original terms and had been outstanding throughout the period or since
origination.
Of the total loan portfolio of $155.5 million at December 31, 1995,
$506,000 or 0.32%, was nonperforming, an increase of $306,000 from year end
1994. Non-performing loans at December 31, 1995 consisted of commercial, real
estate, and installment loans.
Other real estate owned and in substance foreclosed loans at December 31,
1995 consisted of $127,000 of residential real estate and $743,000 of commercial
real estate. SBC believes that the carrying value of its OREO portfolio is
realizable.
ALLOWANCE AND PROVISION FOR LOAN LOSSES
SBC evaluates the adequacy of its allowance for loan losses as part of its
ongoing credit review and approval process. The review process is intended to
identify, as early as possible, customers who may be facing financial
difficulties. Once identified, the extent of the client's financial difficulty
is carefully monitored by SBC's credit administrator, who recommends to the
directors loan committee the portion of any credit that needs a specific reserve
allocation or should be charged off. Other factors considered by the loan
committee in evaluating the adequacy of the allowance include overall loan
volume, historical net loan loss experience, the level and composition of
nonaccrual and past due loans, local economic conditions, and value of any
collateral. From time to time, specific amounts of the reserve are designated
for certain loans in connection with the loan review officer's analysis of the
adequacy of the allowance for loan losses.
While a portion of this allowance is typically intended to cover specific
loan losses, it is considered a general reserve which is available for all
credit-related purposes. The allowance is not a precise amount, but is derived
based upon the above factors and represents management's best estimate of the
amount necessary to adequately cover probable losses from current credit
exposures. The provision for loan losses is a charge
73
<PAGE> 78
against current earnings and is determined by management as the amount needed to
maintain an adequate allowance.
The overall credit quality of the loan portfolio has improved in recent
years as evidenced by SBC's relatively low level of non-performing loans and net
charge-offs. Management relied on these factors, its assessment of the financial
condition of specific clients facing financial difficulties, and the expansion
of its loan portfolio in deciding to increase the allowance for loan losses to
$1,958,000 at December 31, 1995, from $1,609,000 at December 31, 1994.
The following table summarizes the allowance for loan losses for 1995, 1994
and 1993:
ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1994 1993
------ ------ ----
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of period............................. $1,609 $ 900 $640
------ ------ ----
Charge-offs:
Commercial, fin. and agricultural........................ 135 77 193
Real estate -- nonfarm, nonresidential................... -0- 12 -0-
Real estate -- residential............................... 29 -0- -0-
Installment loans........................................ 37 6 17
------ ------ ----
Total charge-offs................................ 201 95 210
------ ------ ----
Recoveries:
Commercial, financial and agricultural................... 23 -0- 4
Real estate -- construction.............................. -0- -0- -0-
Real estate -- nonfarm, nonresidential................... -0- -0- -0-
Real estate -- residential............................... 2 -0- -0-
Installment loans to individuals......................... -0- -0- -0-
------ ------ ----
Total recoveries................................. 25 -0- 4
------ ------ ----
Net charge-offs.................................. 176 95 206
------ ------ ----
Provision charged to operations............................ 525 330 466
Osceola National Bank loan loss reserve at acquisition..... -- 474 --
------ ------ ----
Balance at end of period................................... $1,958 $1,609 $900
====== ====== ====
Ratio of net charge-offs during period to average loans
outstanding
during period............................................ 0.13% 0.07% 0.31%
</TABLE>
In 1995, less than 0.13% of the entire loan portfolio was charged off, with
net charge-offs being a modest $176,000. In 1994, the net charge-offs were 0.07%
of the entire portfolio. SBC's allowance for loan losses increased to $1,958,000
in 1995 which was approximately 1.26% of total loans ($155.5 million). Since
1994, SBC has maintained the allowance for loan losses at approximately 1.20% of
outstanding loans. This level has been more than sufficient to absorb loan
charge-offs during this period.
During 1994, SBC charged-off $135,000 in commercial loans, $29,000 in
residential real estate loans and $37,000 in installment loans. In addition, SBC
had net recoveries of $23,000 in commercial loans, and $2,000 in residential
real estate loans.
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<PAGE> 79
The following table further summarizes the allocation of the allowance for
loan losses by type of loan.
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993
------------------ ------------------ ------------------
PERCENT PERCENT PERCENT
OF LOANS OF LOANS OF LOANS
IN EACH IN EACH IN EACH
CATEGORY CATEGORY CATEGORY
TO TOTAL TO TOTAL TO TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------ -------- ------ -------- ------ --------
(AMOUNT IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial, agricultural....... $ 155 0.10% $ 262 0.21 $166 0.21
Real Estate............................... 232 0.15 106 0.09 49 0.06
Mortgage.................................. -0- 0.00 2 0.00 -0- 0.00
Installment loans......................... 25 0.02 27 0.02 1 0.00
Unallocated general reserves.............. 1,546 0.99 1,212 0.98 684 0.87
------ ------ ------
Total allowance for loan
losses........................ $1,958 1.26 $1,609 1.30 $900 1.14
====== ====== ======
</TABLE>
FINANCIAL CONDITION
SBC's goal is to maintain a high quality and liquid balance sheet. SBC
seeks to achieve this objective through increases in collateralized loans, a
strong portfolio of real estate loans and a stable portfolio of investment
securities of high quality.
INVESTMENT SECURITIES. In 1995, investment securities averaged $34.3
million or 19% of total earning assets. SBC's management strategy for its
investment account is to maintain a very high quality portfolio with generally
short-term maturities. To maximize after tax income, investments in municipal
securities are utilized but with somewhat longer maturities. The investment
portfolio decreased 3% from $34.7 million in 1994 to $33.7 million at December
31, 1995. The decrease was largely due to increased loan demand, which earned
higher yield than what could be obtained through investing activities. The
following tables sets forth information regarding the investment portfolio at
December 31, 1995.
REMAINING MATURITY AND AVERAGE YIELD OF INVESTMENT SECURITIES
(DECEMBER 31, 1995)
<TABLE>
<CAPTION>
ONE YEAR OR ONE TO FIVE FIVE TO TEN OVER TEN
LESS YEARS YEARS YEARS
-------------- --------------- -------------- --------------
BOOK YIELD BOOK YIELD BOOK YIELD BOOK YIELD TOTAL YIELD
------ ----- ------- ----- ------ ----- ------ ----- ------- -----
($ AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities............... $2,449 5.59 % $ 4,042 6.08 % $ -0- -- -0- -- $ 6,491 5.8 %
Securities of other U.S. Governmental
agencies and corporations............ -0- -0- 11,045 6.38 2,719 7.52 % 7,242 5.95 % 21,006 6.38
Obligations of states and political
subdivisions......................... 355 3.49 2,425 4.76 2,025 4.80 177 6.64 4,982 4.75
Other securities....................... -0- -- 500 5.60 -0- -- -0- -- 500 5.60
------ ------- ------ ------ -------
Total.......................... $2,804 5.32 % $18,012 6.07 $4,744 6.36 $7,419 5.97 $32,979 5.85
====== ======= ====== ====== =======
</TABLE>
- ---------------
Note: Yield on tax exempt bonds have not been computed on a equivalent basis.
LOANS. Loans averaged $135 million in 1995, an increase of 24% from the
prior year. The increase in the loan portfolio reflects an expanded customer
base, favorable economic conditions and increased business development. See
"Asset Quality and Credit Risk -- Loans," above.
INTEREST-BEARING LIABILITIES. Total interest-bearing liabilities averaged
$147.2 million in 1995, up from $115.5 million in 1994. Average money market and
NOW deposits increased $15.0 million or 26% to
75
<PAGE> 80
$71.5 million. The increase in time deposits of $16.5 million or 32% was due to
increased market areas due to additional locations and new and attractively
priced deposit products.
The following table sets forth information regarding SBC's average deposits
for the last three years.
AVERAGE DEPOSITS
<TABLE>
<CAPTION>
1995 1994 1993
--------------- --------------- --------------
AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
-------- ---- -------- ---- ------- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Demand deposits -- non-interest bearing..... $38,442.. -- $ 35,205 -- $23,843 --
Savings accounts............................ 6,881 2.08% 7,012 1.35% 3,921 1.96%
Money market and NOW accounts............... 71,545 2.97 56,570 2.08 30,814 2.13
Time deposits............................... 67,979 5.57 51,468 3.15 31,089 4.23
-------- ---- -------- ---- ------- ----
Total deposits.................... $184,847 3.28 $150,255 1.92 $89.667 2.28
======== ==== ======== ==== ======= ====
</TABLE>
The following table summarizes the maturity of time deposits over $100,000.
SUMMARY OF TIME DEPOSITS OVER $100,000 BY MATURITY
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------
(AMOUNTS IN THOUSANDS)
<S> <C>
Three months or less..................................................... $ 10,147
Three to Six months...................................................... 5,373
Six to Twelve months..................................................... 4,321
Over Twelve months....................................................... 5,256
----------
Total.......................................................... $ 25,097
=================
</TABLE>
LIQUIDITY AND RATE SENSITIVITY
The principal functions of asset and liability management are to provide
for adequate liquidity, to manage interest rate exposure by maintaining a
prudent relationship between rate sensitive assets and liabilities and to manage
the size and composition of the balance sheet so as to maximize net interest
income.
Liquidity is the ability to provide funds at minimal cost to meet
fluctuating deposit withdrawals or loan demand. These demands are met by
maturing assets and the capacity to raise funds from internal and external
sources. SBC primarily utilizes cash, federal funds sold and securities
purchased under repurchase agreements to meet its liquidity needs. Although not
utilized in managing daily liquidity needs, the sale of investment securities
provides a secondary source of liquidity.
Fluctuating interest rates, increased competition and changes in the
regulatory environment continue to significantly affect the importance of
interest-rate sensitivity management. Rate sensitivity arises when interest
rates on assets change in a different period of time or a different proportion
than that of interest rates on liabilities. The primary objective of
interest-rate sensitivity management is to prudently structure the balance sheet
so that movements of interest rates on assets and liabilities are highly
correlated and produce a reasonable net interest margin even in periods of
volatile interest rates.
Regular monitoring of assets and liabilities that are rate sensitive within
30 days, 90 days, 180 days and one year is an integral part of SBC's
rate-sensitivity management process. It is SBC's policy to maintain a reasonable
balance of rate-sensitive assets and liabilities on a cumulative one year basis,
thus minimizing net interest income exposure to changes in interest rates. SBC's
sensitivity position at December 31, 1995 was such that net interest income
would increase modestly if there were an increase in short-term interest rates.
76
<PAGE> 81
SBC monitors the interest rate risk sensitivity with traditional gap
measurements. The gap table has certain limitations in its ability to accurately
portray interest sensitivity; however, it does provide a static reading of SBC's
interest rate risk exposure.
SBC's gap table at December 31, 1995 is shown on the following table. This
table shows the repricing structure of SBC's balance sheet with each maturity
interval referring to the earliest repricing opportunity (i.e., the earlier of
scheduled contractual maturities or next reset date) for each asset and
liability. As of that date, SBC remained asset sensitive (interest sensitive
assets subject to repricing exceeded interest sensitive liabilities subject to
repricing) on a 365-day basis to the extent of $4.5 million. This positive gap
at December 31, 1995 was 2.0% of total assets. SBC's targeted gap position is in
the range of negative 15 percent to positive 15 percent. SBC measures its gap
position as a percentage of its total assets.
INTEREST SENSITIVITY TABLE
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
OVER ONE
TOTAL YEAR AND
0-30 30-90 90-180 180-365 INTEREST NON-INTEREST
DAYS DAYS DAYS DAYS SENSITIVE SENSITIVE TOTAL
-------- ------- ------- ------- --------- ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Loans.................... $101,230 $ 4,805 $10,562 $10,540 $ 127,137 $ 28,342 $155,479
Securities............... 6,857 1,501 1,667 2,250 12,275 21,388 33,663
Federal funds sold....... 13,200 -0- -0- -0- 13,200 -0- 13,200
-------- ------- ------- ------- --------- ------------ --------
INTEREST EARNING
LIABILITIES:
Deposits................. 106,782 10,632 13,235 17,423 148,072 18,200 166,272
Gap........................ $ 14,505 $(4,326) $(1,006) $(4,633) $ -- $ 31,530 $ --
======== ======= ======= ======= ======== ========= ========
Cumulative Gap............. $ 14,505 $10,179 9,173 $ 4,540 $ 4,540 $ 36,070 $ 36,070
======== ======= ======= ======= ======== ========= ========
Cumulative Gap as % of
Total Assets............. 6.3% 4.4% 4.0% 2.0% 2.0% 15.7% 15.7%
</TABLE>
CAPITAL
One of management's primary objectives is to maintain a strong capital
position to merit the confidence of customers, bank regulators and stockholders.
A strong capital position helps SBC withstand unforeseen adverse developments
and take advantage of attractive lending and investment opportunities when they
raise. During 1995, stockholders' equity increased by $2.8 million, or 20% over
1994.
The Federal Reserve's final rules pertaining to risk-based capital became
effective as of December 31, 1992. Under these rules, at December 31, 1995,
SBC's tier one capital was 8.9% and the total capital was 10.1% of risk-based
assets. These risk-based capital ratios are well in excess of the minimum
requirements of 4% for tier one and 8% for total risk-based capital ratios.
SBC's leverage ratio (tier one capital to total average adjusted quarterly
assets) of 7.1% at December 31, 1995, is also well in excess of the minimum 4%
requirement. During 1995 as equity capital increased 20% while assets increased
by 27%.
77
<PAGE> 82
The following table sets forth SBC's required and actual capital amounts
and ratios for 1995, 1994 and 1993.
SOUTHERN BANKING CORPORATION
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993
-------------------------------- -------------------------------- --------------------------------
REQUIRED ACTUAL REQUIRED ACTUAL REQUIRED ACTUAL
--------------- --------------- --------------- --------------- --------------- ---------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- ----- -------- ----- -------- ----- -------- ----- -------- ----- -------- -----
($'S IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Tier 1 Capital (to Risk
Weighted Assets).......... $ 6,343 4% $14,050 8.9 % $ 5,192 4% $11,749 9.1 % $3,281 4% $6,991 8.5%
Total 1 Capital (to Risk
Weighted Assets).......... 12,686 8 16,008 10.1 10,385 8 13,358 10.3 6,562 8 7,891 9.6
Tier 1 Capital (to Average
Assets)................... 7,960 4 14,050 7.1 7,644 4 11,749 6.1 4,734 4 6,991 5.9
</TABLE>
78
<PAGE> 83
BUSINESS OF BANCGROUP
GENERAL
BancGroup is a bank holding company registered under the BHCA. It was
organized in 1974 under the laws of Delaware. BancGroup operates as its
wholly-owned subsidiary Colonial Bank which conducts a full service commercial
banking business in the state of Alabama through 95 banking offices. BancGroup
also operates a wholly-owned bank subsidiary in Tennessee, The Colonial Bank of
Tennessee, which conducts a general commercial banking business through four
offices located in that state, and a wholly owned federal savings bank, Colonial
Bank, which operates through three offices in the Atlanta, Georgia area. This
bank located in Georgia is sometimes referred to as Colonial Bank -- Georgia.
Colonial Mortgage Company, a subsidiary of Colonial Bank, is a mortgage banking
company which has approximately $10 billion in residential loan servicing and
which originates mortgages in 29 states through 6 regional offices. BancGroup's
commercial banking loan portfolio is comprised primarily of commercial real
estate loans (22%) and residential real estate loans (49%), a significant
portion of which is located within the State of Alabama. BancGroup's growth in
loans over the past several years has been concentrated in commercial and
residential real estate loans. The lending activities of Colonial Bank in
Alabama are dependent upon the demands within the local markets of its branches.
Based on this demand, loans collateralized by commercial and residential real
estate have been the fastest growing component of Colonial Bank's loan
portfolio.
LENDING ACTIVITIES
BancGroup, through the branches and offices of its subsidiary banks, makes
loans for a range of business and personal uses in response to local demands for
credit. Loans are concentrated in Alabama, Tennessee and Georgia and are
dependent upon economic conditions in those states. Alabama has historically
been a slow growth state. The following broad categories of loans have varying
risks and underwriting standards.
- Commercial Real Estate. Loans classified as commercial real estate loans
are loans which are collateralized by real estate and substantially
dependent upon cash flow from income-producing improvements attached to
the real estate. For BancGroup, these primarily consist of apartments,
hotels, office buildings, shopping centers, amusement/recreational
facilities, one to four family residential housing developments, and
health service facilities.
Loans within this category are underwritten based on projected cash flows
and loan-to-appraised-value ratios of 80% or less. The risks associated
with commercial real estate loans are primarily dependent upon real estate
values in local market areas, the equity investments of borrowers, and the
borrowers' experience and expertise. BancGroup has diversified its
portfolio of commercial real estate loans with less than 10% of its total
loan portfolio concentrated in any of the above-mentioned industries.
- Real Estate Construction. Construction loans include loans to finance
single family and multi-family residential as well as nonresidential real
estate. Loan values for these loans are from 80% to 85% of completed
appraised values. The principal risks associated with these loans are
related to the borrowers' ability to complete the project and local market
demand, the sales market, presales or preleasing, and permanent loan
commitments. BancGroup evaluates presale requirements, preleasing rates,
permanent loan take-out commitments, as well as other factors in
underwriting construction loans.
- Real Estate Mortgages. These loans consist of loans made to finance one
to four family residences and home equity loans on residences. BancGroup
may loan up to 95% of appraised value on these loans without other
collateral or security. The principal risks associated with one to four
family residential loans are the borrowers' debt coverage ratios and real
estate values.
- Commercial, Financial, and Agricultural. Loans classified as commercial,
financial, and agricultural consist of secured and unsecured credit lines
and equipment loans for various industrial, agricultural, commercial,
retail, or service businesses.
79
<PAGE> 84
The risk associated with loans in this category are generally related to
the earnings capacity and cash flows generated from the individual
business activities of the borrowers. Collateral consists primarily of
business equipment, inventory, and accounts receivables with loan-to-value
ratios of less than 80%. Credit may be extended on an unsecured basis or
in excess of 80% of collateral value in circumstances as described in the
paragraph below.
- Installment and Consumer. Installment and consumer loans are loans to
individuals for various purposes. Automobile loans and unsecured loans
make up the majority of these loans. The principal source of repayment is
the earnings capacity of the individual borrowers as well as the value of
the collateral. Installment and consumer loans are sometimes made on an
unsecured basis or with loan-to-value ratios in excess of 80%.
Collateral values referenced above are monitored by loan officers through
property inspections, reference to broad measures of market values, as well as
current experience with similar properties or collateral. Loans with
loan-to-value ratios in excess of 80% have potentially higher risks which are
offset by other factors including the borrower's or guarantors' credit
worthiness, the borrower's other banking relationships, the bank's lending
experience with the borrower, and any other potential sources of repayment.
BancGroup's subsidiary banks fund loans primarily with customer deposits
approximately 10% of which are considered more rate sensitive or volatile than
other deposits.
PROPOSED AFFILIATE BANKS
BancGroup has entered into a definitive agreement dated as of January 22,
1996, to acquire Dothan Federal Savings Bank, Dothan, Alabama ("Dothan
Federal"). Dothan Federal will merge with BancGroup's Alabama bank subsidiary,
Colonial Bank. Based on the market price of BancGroup Common Stock as of May 8,
1996, a total of 77,439 shares of Common Stock of BancGroup would be issued and
$2,600,000 in cash would be paid to the stockholders of Dothan Federal. The
actual number of shares of BancGroup Common Stock (but not cash) to be issued in
this transaction will depend upon the market value of BancGroup Common Stock at
the time of the merger. This transaction is subject to, among other things,
approval by the stockholders of Dothan Federal and approval by appropriate
regulatory authorities. At March 31, 1996, Dothan Federal had assets of $49.1
million, deposits of $42.4 million and stockholders' equity of $3.9 million. See
"THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES -- Condensed Pro Forma Statements
of Condition (Unaudited)."
BancGroup has entered into a definitive agreement dated as of December 21,
1995, to acquire Commercial Bancorp of Georgia, Inc. ("CBG"). CBG is a Georgia
corporation and is a holding company for Commercial Bank of Georgia. CBG will
merge with BancGroup and following such merger Commercial Bank of Georgia will
merge with BancGroup's existing federal savings bank subsidiary in Atlanta,
Colonial Bank -- Georgia. Based on the market price of BancGroup Common Stock as
of May 8, 1996, a total of 1,136,180 shares of BancGroup Common Stock would be
issued to the stockholders of CBG. The actual number of shares of BancGroup
Common Stock to be issued in this transaction will depend upon the market value
of such Common Stock at the time of the Merger. This transaction is subject to,
among other things, approval by the stockholders of CBG and approval by
appropriate regulatory authorities. At March 31, 1996, CBG had assets of $235.2
million, deposits of $210.7 million and stockholders' equity of $20.4 million.
See "THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES -- Condensed Pro Forma
Statements of Condition (Unaudited)."
VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS
As of May 8, 1996, BancGroup had issued and outstanding 13,575,465 shares
of BancGroup Common Stock with 5,413 stockholders of record. Each such share is
entitled to one vote. In addition, as of that date, 199,495 shares of BancGroup
Common Stock were subject to issue upon exercise of options pursuant to
BancGroup's stock option plans and up to 333,333 shares of BancGroup Common
Stock were issuable upon conversion of BancGroup's 1986 Debentures. There are
currently 44,000,000 shares of BancGroup Common Stock authorized.
80
<PAGE> 85
On February 21, 1995, BancGroup concluded a reclassification of its Class A
and Class B Common Stock into one class of Common Stock. The reclassification
was approved by BancGroup's stockholders on December 8, 1994. On February 24,
1995, the Common Stock of BancGroup was listed for trading on the NYSE.
The following table shows those persons who are known to BancGroup to be
beneficial owners as of May 8, 1996, of more than five percent of BancGroup's
outstanding Common Stock.
SHARES OF BANCGROUP BENEFICIALLY OWNED
<TABLE>
<CAPTION>
PERCENTAGE
COMMON OF CLASS
NAME AND ADDRESS STOCK OUTSTANDING(1)
- ----------------------------------------------------------------- --------- --------------
<S> <C> <C>
Robert E. Lowder(2).............................................. 1,437,345(3) 10.37%
Post Office Box 1108
Montgomery, AL 36101
James K. Lowder.................................................. 1,099,649 7.93%
Post Office Box 250
Montgomery, AL 36142
Thomas H. Lowder................................................. 1,073,053 7.74%
Post Office Box 11687
Birmingham, AL 35202
</TABLE>
- ---------------
(1) Percentages are calculated assuming the issuance of 199,495 shares of Common
Stock pursuant to BancGroup's stock option plans.
(2) Robert E. Lowder is the brother of James K. and Thomas H. Lowder. Robert E.
Lowder disclaims any beneficial ownership interest in the shares owned by
his brothers. Robert E. Lowder's mother, Catherine K. Lowder, owns 85,442
shares of Common Stock. Mr. Lowder disclaims any beneficial interest in
such shares.
(3) Includes 90,510 shares of BancGroup Common Stock subject to options under
BancGroup's stock option plans.
81
<PAGE> 86
SECURITY OWNERSHIP OF MANAGEMENT
The following table indicates for each director, executive officer, and all
executive officers and directors of BancGroup as a group the number of shares of
outstanding Common Stock of BancGroup beneficially owned as of May 8, 1996.
SHARES OF BANCGROUP BENEFICIALLY OWNED
<TABLE>
<CAPTION>
PERCENTAGE
COMMON OF CLASS
NAME STOCK OUTSTANDING(1)
- ----------------------------------------------------------------- --------- --------------
<S> <C> <C>
DIRECTORS
Young J. Boozer.................................................. 7,146(2) *
William Britton.................................................. 6,808 *
Jerry J. Chesser................................................. 73,295 *
Augustus K. Clements, III........................................ 9,476
Robert S. Craft.................................................. 5,997 *
Patrick F. Dye................................................... 26,063(3) *
Clinton O. Holdbrooks............................................ 145,932(4) 1.06%
D. B. Jones...................................................... 9,861 *
Harold D. King**................................................. 77,729(4) *
Robert E. Lowder**............................................... 1,437,345(5) 10.37%
John Ed Mathison................................................. 14,227 *
Milton E. McGregor............................................... 0 *
John C. H. Miller, Jr............................................ 10,243 *
Joe D. Mussafer.................................................. 10,000 *
William E. Powell, III........................................... 6,959 *
Jack H. Rainer................................................... 1,345 *
Frances E. Roper................................................. 182,034 1.32%
Ed V. Welch...................................................... 29,646 *
EXECUTIVE OFFICERS WHO ARE NOT ALSO DIRECTORS
Young J. Boozer, III............................................. 22,914(2)(6) *
W. Flake Oakley, IV.............................................. 11,808(6) *
Michael R. Holley................................................ 16,337(6) *
All Executive Officers and Directors as a Group.................. 2,161,674 15.39%
</TABLE>
- ---------------
* Represents less than one percent.
** Executive Officer.
(1) Percentages are calculated assuming the issuance of 199,495 shares of Common
Stock pursuant to BancGroup's stock option plans.
(2) Includes 500 shares of Common Stock out of 1,000 shares owned by Young J.
Boozer, and Young J. Boozer, III EX U/W Phyllis C. Boozer.
(3) Includes 24,600 shares of Common Stock subject to options exercisable under
BancGroup's stock option plans.
(4) Includes 12,262 shares and 12,262 shares of Common Stock subject to options
exercisable by Mr. Holdbrooks and Mr. King, respectively, under BancGroup's
stock option plans.
(5) These shares include 90,510 shares of Common Stock subject to options under
BancGroup's stock option plans. See the table at "Voting Securities and
Principal Stockholders."
(6) Young J. Boozer, III, Michael R. Holley, and W. Flake Oakley, IV, hold
options respecting 12,500, 5,000, and 3,000 shares of Common Stock,
respectively, pursuant to BancGroup's stock option plans.
(7) Includes shares subject to options.
82
<PAGE> 87
MANAGEMENT INFORMATION
Certain information regarding the biographies of the directors and
executive officers of BancGroup, executive compensation and related party
transactions is included in BancGroup's Annual Report on Form 10-K for the
fiscal year ending December 31, 1995, at items 10, 11, and 13 and is
incorporated herein by reference.
CERTAIN REGULATORY CONSIDERATIONS
BancGroup is a registered bank holding company subject to supervision and
regulation by the Federal Reserve. As such, it is subject to the BHCA and many
of the Federal Reserve's regulations promulgated thereunder. It is also subject
to regulation by the Georgia Department of Banking and Finance and by the OTS as
a savings and loan holding company.
BancGroup's subsidiary banks, Colonial Bank, Colonial Bank of Tennessee and
Colonial Bank -- Georgia (the "Subsidiary Banks"), are subject to supervision
and examination by applicable federal and state banking agencies. Colonial Bank,
as a state chartered bank and not a member of the Federal Reserve system, is
regulated and examined both by the State of Alabama Banking Department and by
the FDIC. Colonial Bank of Tennessee is also state chartered and not a member of
the Federal Reserve system and is regulated by both the State of Tennessee
Department of Financial Institutions and by the FDIC. Colonial Bank -- Georgia
is a federal savings bank and is regulated by the OTS. The deposits of the
Subsidiary Banks are insured by the FDIC to the extent provided by law. The FDIC
assesses deposit insurance premiums the amount of which may, in the future,
depend in part on the condition of the Subsidiary Banks. Moreover, the FDIC may
terminate deposit insurance of the Subsidiary Banks under certain circumstances.
Both the FDIC and the respective state regulatory authorities have jurisdiction
over a number of the same matters, including lending decisions, branching and
mergers.
One limitation under the BHCA and the Federal Reserve's regulations
requires that BancGroup obtain prior approval of the Federal Reserve before
BancGroup acquires, directly or indirectly, more than five percent of any class
of voting securities of another bank. Prior approval also must be obtained
before BancGroup acquires all or substantially all of the assets of another
bank, or before it merges or consolidates with another bank holding company.
BancGroup may not engage in "non-banking" activities unless it demonstrates to
the Federal Reserve's satisfaction that the activity in question is closely
related to banking and a proper incident thereto. Because BancGroup is a
registered bank holding company, persons seeking to acquire 25 percent or more
of any class of its voting securities must receive the approval of the Federal
Reserve. Similarly, under certain circumstances, persons seeking to acquire
between 10 percent and 25 percent also may be required to obtain prior Federal
Reserve approval.
In 1989 Congress expressly authorized the acquisition of savings
associations by bank holding companies. BancGroup must obtain the prior approval
of the Federal Reserve and the OTS (among other agencies) before making such an
acquisition and must demonstrate that the likely benefits to the public of the
proposed transaction (such as greater convenience, increased competition, or
gains in efficiency) outweigh potential burdens (such as an undue concentration
of resources, decreased or unfair competition, conflicts of interest, or unsound
banking practices).
Following enactment in 1991 of the FDIC Improvement Act, banks now are
subject to increased reporting requirements and more frequent examinations by
the bank regulators. The agencies also now have the authority to dictate certain
key decisions that formerly were left to management, including compensation
standards, loan underwriting standards, asset growth, and payment of dividends.
Failure to comply with these new standards, or failure to maintain capital above
specified levels set by the regulators, could lead to the imposition of
penalties or the forced resignation of management. If a bank becomes critically
undercapitalized, the bank agencies have the authority to place an institution
into receivership or require that the bank be sold to, or merged with, another
financial institution.
In September 1994 Congress enacted the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994. This legislation, among other things, amended
the BHCA to permit bank holding companies, subject
83
<PAGE> 88
to certain limitations, to acquire either control or substantial assets of a
bank located in states other than that bank holding company's home state
regardless of state law prohibitions. This legislation became effective on
September 29, 1995. In addition, this legislation also amended the Federal
Deposit Insurance Act to permit, beginning on June 1, 1997 (or earlier where
state legislatures provide express authorization), the merger of insured banks
with banks in other states.
The officers and directors of BancGroup and the Subsidiary Banks are
subject to numerous insider transactions restrictions, including limits on the
amount and terms of transactions involving the Subsidiary Banks, on the one
hand, and their principal stockholders, officers, directors, and affiliates on
the other. There are a number of other laws that govern the relationship between
the Subsidiary Banks and their customers. For instance, the Community
Reinvestment Act is designed to encourage lending by banks to persons in low and
moderate income areas. The Home Mortgage Disclosure Act and the Equal Credit
Opportunity Act attempt to minimize lending decisions based on impermissible
criteria, such as race or gender. The Truth-in-Lending Act and the
Truth-in-Savings Act require banks to provide full disclosure of relevant terms
related to loans and savings accounts, respectively. Anti-tying restrictions
(which prohibit, for instance, conditioning the availability or terms of credit
on the purchase of another banking product) further restrict the Subsidiary
Banks' relationships with their customers.
The Budget Reconciliation Act of 1995 ("Budget Act") was passed by Congress
but subsequently vetoed by President Clinton. Congressional leadership and
President Clinton began discussions in 1995 to determine whether the Congress
and the Administration could reach a compromise on budget reconciliation. It is
unknown whether these negotiations will be successful. The Budget Act originally
passed by Congress and subsequently vetoed by the President contained a
provision which directed the FDIC to set a one-time special assessment on
SAIF-insured deposits which would be in an amount sufficient to recapitalize the
Savings Association Insurance Fund ("SAIF"). It is anticipated that a special
assessment in the range of $0.78 to $0.85 per $100 of SAIF-insured deposits
would be necessary in order to recapitalize the SAIF, if the assessment were to
be made in the next six months. The recapitalization would allow a reduction in
the current $0.23 per $100 of SAIF insured deposits. BancGroup's subsidiary
banks maintain deposits which are insured by both the SAIF and the BIF (Bank
Insurance Fund). The SAIF insured deposits in all of BancGroup's subsidiary
banks total $679 million, after adjusting for certain allowances in the current
proposal, which would be subject to the special assessment. In the event a
budget reconciliation agreement is reached between the Congress and the
Administration, it is expected that the agreement would include the special
assessment provision contained in the original Budget Act. If no agreement is
reached by the Congress and the Administration, it is still possible that
Congress could attach such a provision to another piece of legislation or pass
such a provision as a free-standing bill. The Administration, in testimony
before Congress and in the press, has indicated its support of the
recapitalization of SAIF in the manner provided in the Budget Act.
It should be noted that supervision, regulation, and examination of
BancGroup and the Subsidiary Banks are intended primarily for the protection of
depositors, not stockholders.
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<PAGE> 89
BUSINESS OF SOUTHERN BANKING CORPORATION
SBC is a holding company organized in Florida in 1992 for the purpose of
acquiring all of the outstanding capital stock of Southern Bank. Southern Bank
is the only subsidiary of SBC. On March 31, 1996, SBC had consolidated total
assets of $228.8 million and stockholders' equity of $17.3 million. Southern
Bank is the largest independent bank based in the Orlando metropolitan area.
Substantially all of the income of SBC is derived from dividends received from
Southern Bank. The amount of these dividends is directly related to expenses
incurred by SBC and is subject to various regulatory restrictions. See
"Supervision and Regulation".
SOUTHERN BANK OF CENTRAL FLORIDA
Southern Bank was founded in 1988 to provide banking services to the
residents of Central Florida. Since its opening, Southern Bank has attracted
business from customers who prefer to deal with a financial institution which
provides a high level of personal service and responsiveness and a demonstrated
commitment to the local community.
Southern Bank offers a wide range of banking services to individuals and
businesses located in its primary service area. Southern Bank is actively
engaged in the business of seeking deposits from the public and making real
estate, commercial and consumer loans. Southern Bank offers a variety of deposit
accounts to its individual and commercial customers, as well as related banking
services. These services include interest bearing checking accounts, savings
accounts, certificates of deposit, CheckCards, ATM cards, commercial checking
accounts, individual retirement accounts, safe deposit boxes, bank-by-mail
service, a 24-hour voice response system, drive-up teller service, extended
lobby and drive-in hours, an extended daily cut-off time, letters of credit,
draft collection, and direct deposit.
Southern Bank's principal sources of income are interest on loans and
investments and service fees. Its principal expenses are interest paid on
deposits and general operating expenses.
PRIMARY SERVICE AREA
Southern Bank's primary service area is Orange, Seminole and Osceola
Counties, Florida.
OFFICES
The corporate offices of SBC and the Orlando banking office of Southern
Bank are located on the first floor of a fifteen story building located at 201
East Pine Street, Orlando, Florida. This is a leased facility. The banking
office has a five-lane remote drive-in facility. In addition to the Orlando
banking office, Southern Bank operates full service banking offices at the
following locations:
- 2127 West State Road 434, Longwood, Florida
This single-story facility, opened in 1988, includes a three-lane drive-in
and is owned by Southern Bank.
- 919 West State Road 436, Altamonte Springs, Florida
Southern Bank leases the entire first floor and three suites on the third
floor of this three-story facility, acquired from Florida Federal Savings
Bank, FSB, in 1991. A full-service banking office (including a three-lane
drive-in facility), the Credit Administration Department, and the Loan
Operations Department are located on the first floor. The Operations
Support Department and Compliance office lease space on the third floor.
- 894 East Semoran Boulevard, Casselberry, Florida
This single-story facility, acquired from Florida Federal Savings Bank,
FSB, in 1991, includes a three-lane drive-in and is owned by Southern
Bank.
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<PAGE> 90
- 4699 W. Lake Mary Boulevard, Lake Mary, Florida
This single-story facility, opened in 1992, includes a four-lane drive-in.
The building is owned by Southern Bank; the property is leased.
- 699 North Orlando Avenue, Winter Park, Florida
This single-story facility, opened in 1994, includes a three-lane drive-in
and is owned by Southern Bank.
- 2710 North Orange Blossom Trail, Kissimmee, Florida
This two-story facility, acquired from Osceola National Bank in 1994, has
a four-lane drive-in and is leased by Southern Bank.
- 1412 West Vine Street, Kissimmee, Florida
This single-story facility, acquired from Osceola National Bank in 1994,
has a four-lane drive-in and is leased by Southern Bank.
In addition to the above banking offices, Southern Bank formed a Residential
Mortgage Department in 1992 which is housed at 2131 West State Road 434,
Longwood, Florida.
EMPLOYEES
At September 30, 1995, Southern Bank had a staff of approximately 100
full-time employees.
LEGAL PROCEEDINGS
Neither SBC nor Southern Bank is a party to any material legal proceedings,
other than routine litigation incidental to its banking business.
SUPERVISION AND REGULATION
Southern Banking Corporation
SBC is a bank holding company registered under the BHCA. As a result, SBC
is subject to supervision, examination and regulation by the Federal Reserve.
The BHCA and the regulations of the Federal Reserve impose a variety of
requirements on the activities of bank holding companies such as SBC. Certain of
these requirements, along with other federal banking law requirements applicable
to SBC are described below:
Acquisition of Financial Institutions. SBC is required to obtain the
prior approval of the Federal Reserve before it may acquire more than 5% of
the outstanding shares of any class of voting securities or substantially
all of the assets of any bank or bank holding company. Prior approval from
the Federal Reserve is also required for the merger or consolidation of SBC
and another bank holding company. BancGroup has applied for such approval
in connection with the Merger. See "THE MERGER -- Conditions of
Consummation of the Merger."
Non-Banking Activities. SBC is prohibited by the BHCA, except in
certain statutory prescribed instances, from acquiring direct or indirect
ownership and control of more than 5% of the outstanding voting shares of
any company that is not a bank or a bank holding company and from engaging
directly or indirectly in activities other than those of banking, managing
and controlling banks or furnishing services to its subsidiaries. However,
SBC may, subject to the prior approval of the Federal Reserve, engage in,
or acquire shares of companies engaged in, activities that are deemed by
the Federal Reserve to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. In making any such
determination, the Federal Reserve is required to consider whether the
performance of such activities by SBC or any affiliate can reasonably be
expected to produce benefits to the public, such as greater convenience,
increased competition or gains in efficiency, that outweigh possible
adverse effects, such as undue concentration of resources, decreases in
competition, conflicts of interest or unsound banking practices. The
Federal Reserve may also require SBC to terminate an activity or terminate
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<PAGE> 91
control of, liquidate or divest certain subsidiaries or affiliates when the
Federal Reserve believes that the activity or control of the subsidiary or
affiliate constitutes a significant risk to the financial safety, soundness
or stability of any of its banking subsidiaries. At the present time, SBC
does not have any subsidiaries other than Southern Bank and does not engage
in any material non-banking activities.
Capital Structure. The Federal Reserve has the authority to regulate
provisions of certain bank holding company debt, including authority to
impose interest ceilings and reserve requirements on such debts. Under
certain circumstances, SBC must obtain approval from the Federal Reserve
prior to purchasing or redeeming any of its equity securities. Further, SBC
is required by the Federal Reserve to maintain certain minimum levels of
capital.
Tie-In Arrangements. Under the BHCA and the regulations adopted by
the Federal Reserve, a bank holding company and its non-banking
subsidiaries are prohibited from requiring certain tie-in arrangements in
connection with any extension of credit, lease or sale of property or
furnishing of services.
Southern Bank
General. Southern Bank is a commercial bank chartered by the Florida
Department. The deposits of Southern Bank are insured by the FDIC to the maximum
extent provided by law, which is currently $100,000 for each depositor, subject
to certain limited exceptions. Accordingly, Southern Bank is subject to
supervision, regulation and examination by both the Florida Department and the
FDIC. The supervisory, regulatory and enforcement powers of the FDIC were
expanded pursuant to the provisions of the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA"). Southern Bank is also subject to a variety
of state and federal laws and regulations which affect its activities and
operations, including state usury and consumer credit laws, the federal
Truth-in-Lending Act, the Truth-in-Savings Act, the Fair Credit Reporting Act
and the Community Reinvestment Act. Federal law restricts management interlocks
between depository institutions and governs the privacy of bank records and the
transfer of significant amounts of currency. Although certain of these laws and
regulations may indirectly benefit shareholders, they are primarily intended to
protect depositors, the solvency of the Bank Insurance Fund of the FDIC, and the
banking system in general.
As a consequence of the extensive regulation of commercial banking in the
United States, the business of Southern Bank is particularly susceptible to
federal and state legislation and regulations that may have the effect of
increasing the cost of doing business and decreasing the revenues earned by
Southern Bank. For example, increases in the premiums assessed by the FDIC for
deposit insurance can increase the cost of doing business for Southern Bank.
Regulatory Examinations. Both the Florida Department and the FDIC
periodically make unannounced, onsite examinations of Southern Bank. The
supervisory authorities may revalue the assets of Southern Bank, based upon
current appraisals, and require establishment of specific reserves in amounts
equal to the difference between such revaluation and the book value of the
assets.
Capital Adequacy. Southern Bank is subject to capital adequacy regulations
promulgated by the FDIC. To assess the capital adequacy of insured banks, the
FDIC has adopted both minimum supervisory leverage capital-to-asset ratios and
minimum supervisory risk-based capital ratios. The minimum leverage and risk-
based capital standards apply only to the most sound, well-run institutions.
Most institutions are expected to operate with capital ratios above the minimum
standards.
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<PAGE> 92
FDICIA and the regulations adopted under it establish five capital
categories as follows, with the category for any institution determined by the
lowest of any of these ratios:
<TABLE>
<CAPTION>
TIER 1 TIER 1 TOTAL
LEVERAGE RISK-BASED RISK-BASED
RATIO RATIO RATIO
-------------- ------------- -------------
<S> <C> <C> <C>
Well Capitalized..................... 5% or Above 6% or Above 10% or Above
Adequately Capitalized............... 4% or Above(1) 4% or Above 8% or Above
Undercapitalized..................... Less than 4% Less than 4% Less than 8%
Significantly Undercapitalized....... Less than 3% Less than 3% Less than 6%
Critically Undercapitalized.......... Less than 2% -- --
</TABLE>
- ---------------
(1) 3% for banks with the highest supervisory rating.
An insured depository institution may be deemed to be in a capitalization
category that is lower than is indicated by the capital position reflected on
its statement of condition if it receives an unsatisfactory rating by its
examiners with respect to its assets, management, earnings or liquidity.
FDICIA requires federal bank regulatory agencies to take "prompt corrective
action" with respect to banks that do not meet minimum capital requirements and
imposes certain restrictions upon banks which are not "adequately capitalized"
for purposes of FDICIA. Under FDICIA, a bank that is not adequately capitalized
is generally prohibited from accepting or renewing brokered deposits and
offering interest rates on deposits significantly higher than the prevailing
rate in its normal market area or nationally (depending where deposits are
solicited); in addition, "pass-through" insurance coverage may not be available
for certain employee benefit accounts.
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee to
its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized banks are subject to limitation on growth and
are required to submit a capital restoration plan, which must be guaranteed by
the institution's parent company. Institutions that fail to submit an acceptable
plan, or that are significantly undercapitalized, are subject to a host of more
drastic regulatory restrictions and measures.
Southern Bank is in compliance with all applicable capital requirements.
See "SBC'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995."
Risk-Based Insurance. Under the FDIC's risk-based insurance assessment
system, each insured bank is placed in one of nine risk categories based on its
level of capital and other relevant information. Each insured bank's insurance
assessment rate is then determined by the risk category to which it has been
classified by the FDIC. There is a 27 basis point spread between the highest and
lowest assessment rates, so that banks classified as strongest by the FDIC are
subject to a rate of 0%, and banks classified as weakest by the FDIC are subject
to a rate of .27% (subject to a minimum assessment of $1,000).
Reserves and General Operating Restrictions. Under regulations of the FDIC
and Florida law, Southern Bank is required to maintain specified loss and
liquidity reserves. For example, a Florida bank must maintain a liquidity
reserve equal to at least 15% of its total deposit liability. Further, Southern
Bank is subject to limitations on (i) the nature and amount of loans that may be
made, in the aggregate, to all borrowers of Southern Bank, and on those that may
be made to any one person and such person's affiliates, (ii) the amount of
indebtedness that it may incur, and (iii) the nature and amount of investments
that it may make, including investments in real estate and equipment utilized by
Southern Bank in the transaction of its business.
Dividends. The payment of dividends is regulated by Florida and federal
law. In general, a Florida bank may declare dividends without regulatory
approval in an amount up to the sum of net profits in the current year, combined
with retained net profits of the preceding two years.
Regulatory Approvals. A Florida bank must seek approval from the Florida
Department, and in some cases from the FDIC, before increasing or decreasing the
amount of its capital (other than as a result of
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<PAGE> 93
operating earnings and losses), establishing a branch office, acquiring the
capital stock or substantially all of the assets, or assuming the liabilities,
of another financial institution, or merging into or consolidating with another
capital stock financial institution. In many cases, such approval is based on a
review by the Florida Department and the FDIC of the financial condition of the
bank, taking into consideration characteristics such as liquidity, capital
adequacy, and, in the case of branch offices, net-profit-to-asset ratios.
Any person or group of persons proposing to acquire a controlling interest
in and thereby to change the control of a Florida bank must first obtain
approval from the Florida Department. Under some circumstances (not including
the Merger), the FDIC also has the power to disapprove a change of control and
the addition of any individual to the board of directors, or the employment of a
senior executive officer, of a Florida bank.
Insider Transactions. Certain provisions of Florida and federal law are
designed, among other things, to prevent abusive transactions between a bank and
its affiliates and insiders. For example, banks are subject to restrictions on:
(i) loans to and other dealings with affiliates, (ii) the issuance of
guarantees, acceptances or letters of credit on behalf of affiliates, and (iii)
investments in stock or other securities issued by affiliates or acceptance
thereof as collateral for an extension of credit. There are also significant
restrictions and limitations on loans and other extensions of credit by a bank
to its executive officers and directors and the holders of 10% or more of its
voting stock. In many cases, there are substantial monetary penalties for
violations of such restrictions, the maximum limits of which are tied to the
degree of fault of the bank.
PRINCIPAL HOLDERS OF SBC COMMON STOCK
The following table sets forth, as of the date of this Prospectus, the
persons known by SBC to be beneficial owners of more than five (5%) percent of
the shares of SBC Common Stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED PERCENTAGE OF CLASS
- ----------------------------------------------------------- ------------------ -------------------
<S> <C> <C>
Ralph E. Bender............................................ 185,704(1) 5.4%
771 Pine Tree Road
Winter Park, FL 32789
James W. Bowyer............................................ 193,960(2) 5.6%
520 S. Magnolia Avenue
Orlando, FL 32801
Charles W. Brinkley, Jr.................................... 230,867(3) 6.5%
201 East Pine Street
Orlando, Florida 32801
Robert T. Ferris, DDS...................................... 298,760(4) 8.6%
475 Maitland Avenue
Altamonte Springs, FL 32701
Clarence A. Johnson, II.................................... 217,050(5) 6.3%
6649 Amory Ct.-Suite 8
Winter Park, FL 32792
L. C. Norman............................................... 878,600(6) 25.3%
P.O. Box 180275
Casselberry, FL 32718-0275
Jon C. Peterson............................................ 593,952(7) 17.2%
Route 2, Box 169A
Heathsville, VA 22473
J. Donald Prewitt.......................................... 225,941(8) 6.5%
1302 Sweetwater Club Boulevard
Longwood, FL 32779
</TABLE>
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<PAGE> 94
- ---------------
(1) This amount consists of 107,104 shares which Mr. Bender owns jointly with
his wife, and 78,600 which Mr. Bender may purchase under outstanding stock
options.
(2) This amount consists of 103,360 shares which Mr. Bowyer beneficially owns as
trustee for Bowyer Singleton Associates, Inc. Employees Savings and
Retirement Plan, and 90,600 which Mr. Bowyer has the right to acquire under
outstanding stock options.
(3) This amount consists of 57,787 shares directly owned by Mr. Brinkley, 2,480
shares owned by Mr. Brinkley through his individual retirement account, and
170,600 shares which Mr. Brinkley has the right to acquire under
outstanding stock options.
(4) This amount consists of 149,160 shares which Dr. Ferris owns jointly with
his wife, 45,000 shares which Dr. Ferris owns through his individual
retirement account, and 104,600 which Dr. Ferris has the right to acquire
under outstanding stock options.
(5) This amount consists of 113,450 shares owned directly by Mr. Johnson, 13,000
shares held by Mr. Johnson in trust for the benefit of his children, and
90,600 shares which Mr. Johnson has the right to acquire under outstanding
stock options.
(6) This amount consists of 774,000 shares owned directly by Mr. Norman and
104,600 shares which Mr. Norman has the right to acquire under outstanding
stock options.
(7) This amount consists of 29,088 shares held by Mr. Peterson's wife as trustee
for three children, 173,600 shares held directly by Mr. Peterson, 300,664
shares held by Mr. Peterson as trustee for the benefit of his children, and
90,600 shares which Mr. Peterson has the right to acquire under outstanding
stock options.
(8) This amount consists of 99,786 shares directly owned by Mr. Prewitt, 35,555
shares owned by Mr. Prewitt through his pension plan, and 90,600 which Mr.
Prewitt has the right to acquire under outstanding stock options.
SBC COMMON STOCK OWNED BY MANAGEMENT
The following table sets forth, as of the date of this Prospectus, the
number of shares of SBC Common Stock beneficially owned by each director and
executive officer of SBC and Southern Bank, and all directors and executive
officers of SBC as a group.
<TABLE>
<CAPTION>
POSITIONS WITH SBC NUMBER OF SHARES PERCENTAGE
NAME AND SOUTHERN BANK BENEFICIALLY OWNED OF CLASS
- ----------------------------------- -------------------------------- ------------------ ----------
<S> <C> <C> <C>
Ralph E. Bender.................... Director of Southern Bank 185,704(1) 5.4%
James W. Bowyer.................... Director of Southern Bank 193,960(2) 5.6%
Charles W. Brinkley, Jr. .......... President and CEO and Director
of SBC and Southern Bank 230,867(3) 6.5%
</TABLE>
<TABLE>
<S> <C> <C> <C>
Howard E. Davis.................... Orange/Osceola County Executive
of Southern Bank 20,000(4) .6%
Sharyn E. Dickerson................ Senior Vice President and Chief
Financial Officer of Southern
Bank 17,000(5) .5%
Robert T. Ferris, D.D.S............ Director of SBC and Southern
Bank 298,760(6) 8.6%
Bruce W. Flower.................... Director of Southern Bank 128,052(7) 3.7%
Donald W. Grace.................... Corporate Banking Executive of
Southern Bank 20,000(8) .6%
Clarence A. Johnson, II............ Director of SBC and Southern
Bank 217,050(9) 6.3%
L.C. Norman........................ Director of SBC and Southern
Bank 878,600(10) 25.3%
Jon C. Peterson.................... Director of SBC 593,952(11) 17.2%
J. Donald Prewitt.................. Chairman of SBC and Southern
Bank 225,941(12) 6.5%
John G. Squires.................... Director of SBC and Vice-
Chairman of Southern Bank 107,510(13) 3.1%
</TABLE>
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<PAGE> 95
<TABLE>
<CAPTION>
POSITIONS WITH SBC NUMBER OF SHARES PERCENTAGE
NAME AND SOUTHERN BANK BENEFICIALLY OWNED OF CLASS
- ----------------------------------- -------------------------------- ------------------ ----------
<S> <C> <C> <C>
William M. Stange.................. Seminole County Executive of
Southern Bank 6,000(14) .2%
Raymond A. Tiley................... Senior Vice President and Credit
Administration of Southern
Bank 2,000(15) .1%
All Executive Officers and Directors as a Group (15 persons)......... 3,125,396(16) 71.4%
</TABLE>
- ---------------
(1) This amount consists of 107,104 shares which Mr. Bender owns jointly with
his wife, and 78,600 which Mr. Bender may purchase under outstanding stock
options.
(2) This amount consists of 103,360 shares which Mr. Bowyer beneficially owns
as trustee for Bowyer Singleton Associates, Inc. Employees Savings and
Retirement Plan, and 90,600 which Mr. Bowyer has the right to acquire under
outstanding stock options.
(3) This amount consists of 57,787 shares directly owned by Mr. Brinkley, 2,480
shares owned by Mr. Brinkley through his individual retirement account, and
170,600 shares which Mr. Brinkley has the right to acquire under
outstanding stock options.
(4) This amount consists of 20,000 owned by Mr. Davis through his individual
retirement account.
(5) This amount consists of 3,000 owned by Ms. Dickerson through her individual
retirement account and 14,000 shares which she has the right to acquire
under outstanding stock options.
(6) This amount consists of 149,160 shares which Dr. Ferris owns jointly with
his wife, 45,000 shares which Dr. Ferris owns through his individual
retirement account, and 104,600 which Dr. Ferris has the right to acquire
under outstanding stock options.
(7) This amount consists of 27,444 shares which Mr. Flower owns jointly with
his wife, 4,000 shares held by Mr. Flower in trust for one of his children,
6,008 held directly by Mr. Flower in his individual retirement account, and
90,600 shares which Mr. Flower has the right to acquire under outstanding
stock options.
(8) This amount consists of 10,000 shares owned directly by Mr. Grace and
10,000 shares owned by Mr. Grace through his individual retirement account.
(9) This amount consists of 113,450 shares owned directly by Mr. Johnson,
13,000 shares held by Mr. Johnson in trust for the benefit of his children,
and 90,600 shares which Mr. Johnson has the right to acquire under
outstanding stock options.
(10) This amount consists of 774,000 shares owned directly by Mr. Norman and
104,600 shares which Mr. Norman has the right to acquire under outstanding
stock options.
(11) This amount consists of 29,088 shares held by Mr. Peterson's wife as
trustee for their children, T.L. Peterson, K.N. Peterson and J.C. Peterson,
Jr., 173,600 shares directly held by Mr. Peterson, 300,664 shares held by
Mr. Peterson as trustee for the benefit of the Louis H. Peterson Trust, and
90,600 shares which Mr. Peterson has the right to acquire under outstanding
stock options.
(12) This amount consists of 99,786 shares directly owned by Mr. Prewitt
directly, 35,555 shares owned by Mr. Prewitt through his pension plan and
90,600 shares which Mr. Prewitt has the right to acquire under outstanding
stock options.
(13) This amount consists of 16,910 shares held by Mr. Squires through his
individual retirement account and 90,600 shares which Mr. Squires has the
right to acquire under outstanding stock options.
(14) This amount consists of 6,000 shares held directly by Mr. Stange.
(15) This amount consists of 2,000 shares held directly by Mr. Tiley.
(16) This amount includes 1,016,000 shares which directors and executive
officers have the right to acquire under outstanding stock options.
ADJOURNMENT OF SPECIAL MEETING
Approval of the Merger by SBC's shareholders requires the affirmative vote
of at least a majority of the total votes eligible to be cast at the Special
Meeting. In the event there are an insufficient number of shares of SBC Common
Stock present in person or by proxy at the Special Meeting to approve the
Merger, SBC's Board of Directors in its discretion may adjourn the Special
Meeting to a later date. The place and date to
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<PAGE> 96
which the Special Meeting would be adjourned would be announced at the Special
Meeting. Proxies voted against the Merger will not be voted to adjourn the
Special Meeting.
The effect of any such adjournment would be to permit SBC to solicit
additional proxies for approval of the Merger. While such an adjournment would
not invalidate any proxies previously filed, including those filed by
shareholders voting against the Merger, it would afford SBC the opportunity to
solicit additional proxies in favor of the Merger.
OTHER MATTERS
The Board of Directors of SBC is not aware of any business to come before
the Special Meeting other than those matters described above in this Prospectus.
If, however, any other matters not now known should properly come before the
Special Meeting, the proxy holders named in the accompanying proxy will vote
such proxy on such matters as determined by a majority of the Board of Directors
of SBC.
DATE FOR SUBMISSION OF BANCGROUP STOCKHOLDER PROPOSALS
In order to be eligible for inclusion in BancGroup's proxy solicitation
materials for its 1997 annual meeting of stockholders, any stockholder proposal
to take action at such meeting must be received at BancGroup's main office at
One Commerce Street, Post Office Box 1108, Montgomery, Alabama 36192, no later
than 120 calendar days in advance of the date of March 18, 1997.
LEGAL MATTERS
Certain legal matters regarding the shares of BancGroup Common Stock of
BancGroup offered hereby are being passed upon by the law firm of Miller,
Hamilton, Snider & Odom, L.L.C., Mobile, Alabama, of which John C. H. Miller,
Jr., a director of BancGroup and of Colonial Bank, is a partner. Such firm
received fees for legal services performed in 1995 of $1,305,633. John C. H.
Miller, Jr. owns 10,243 shares of Common Stock. Mr. Miller also received
employee-related compensation from BancGroup in 1995 of $58,070.
EXPERTS
Coopers & Lybrand L.L.P. serves as the independent accountants for
BancGroup. The consolidated financial statements of BancGroup as of December 31,
1995 and 1994 and for each of the three years ended December 31, 1995 are
incorporated by reference in this Prospectus in reliance upon the report of such
firm, given on the authority of that firm as experts in accounting and auditing.
It is not expected that a representative of such firm will be present at the
Special Meeting.
KPMG Peat Marwick LLP serves as the independent accountants for SBC. The
consolidated financial statements of SBC as of December 31, 1995 and for the
year ended December 31, 1995 that are in this Prospectus in reliance upon the
report of such firm, are given on the authority of that firm as experts in
accounting and auditing. It is not expected that a representative of such firm
will be present at the Special Meeting.
Coopers & Lybrand L.L.P. previously served as independent accountants for
SBC. The consolidated financial statements of SBC as of December 31, 1994 and
for the two years ended December 31, 1994 that are in this Prospectus in
reliance upon the report of such firm, are given on the authority of that firm
as experts in accounting and auditing. It is not expected that a representative
of such firm will be present at the Special Meeting.
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<PAGE> 97
PLEASE SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE
ACCOMPANYING ENVELOPE AS PROMPTLY AS POSSIBLE. YOU MAY REVOKE THE PROXY BY
GIVING WRITTEN NOTICE OF REVOCATION TO THE SECRETARY OF SBC PRIOR TO THE SPECIAL
MEETING, BY EXECUTING A LATER DATED PROXY AND DELIVERING IT TO THE SECRETARY OF
SBC PRIOR TO THE SPECIAL MEETING OR BY ATTENDING THE SPECIAL MEETING VOTING IN
PERSON.
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<PAGE> 98
INDEX TO FINANCIAL STATEMENTS
COLONIAL BANCGROUP:
All required financial statements have been incorporated by reference into
this prospectus.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SOUTHERN BANKING CORPORATION:
Report of Independent Accountants.......................................................... F-2
Consolidated Balance Sheets, December 31, 1995 and 1994.................................... F-4
Consolidated Statements of Income Years Ended December 31, 1995, 1994 and 1993............. F-5
Consolidated Statements of Stockholders' Equity Years Ended December 31, 1995, 1994
and 1993................................................................................. F-6
Consolidated Statements of Cash Flows Years Ended December 31, 1995, 1994 and 1993......... F-7
Notes to Consolidated Financial Statements................................................. F-8
Consolidated Statements of Financial Condition March 31, 1996 (Unaudited) and December 31,
1995..................................................................................... F-21
Consolidated Statements of Income for the Three Months Ended March 31, 1996 and 1995
(Unaudited).............................................................................. F-22
Consolidated Statements of Stockholders' Equity for the Three Months Ended March 31, 1996
(Unaudited).............................................................................. F-23
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1996 and 1995
(Unaudited).............................................................................. F-24
Notes to Consolidated Financial Statements................................................. F-25
COMMERCIAL BANCORP OF GEORGIA, INC.
Independent Auditors' Report............................................................... F-26
Consolidated Balance Sheets, December 31, 1995 and 1994.................................... F-27
Consolidated Statements of Income Years Ended December 31, 1995, 1994 and 1993............. F-28
Consolidated Statements of Changes in Stockholders' Equity Years Ended December 31, 1995,
1994 and 1993............................................................................ F-29
Consolidated Statements of Cash Flows Years Ended December 31, 1995, 1994 and 1993......... F-30
Notes to Consolidated Financial Statements................................................. F-31
Consolidated Balance Sheet, March 31, 1996 (Unaudited) and December 31, 1995............... F-49
Consolidated Statements of Income for the Three Months Ended March 31, 1996 and
1995 (Unaudited)......................................................................... F-50
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1996
and 1995 (Unaudited)..................................................................... F-51
Notes to Consolidated Financial Statements March 31, 1996 and 1995......................... F-52
DOTHAN FEDERAL SAVINGS BANK:
Report of Independent Public Accountants................................................... F-54
Statements of Financial Condition, June 30, 1995 and 1994.................................. F-55
Statements of Income Years Ended June 30, 1995, 1994 and 1993.............................. F-56
Statements of Stockholders' Equity Years Ended June 30, 1995, 1994 and 1993................ F-57
Statements of Cash Flows Years Ended June 30, 1995, 1994 and 1993.......................... F-58
Notes to Financial Statements.............................................................. F-59
Condensed Statements of Financial Condition, March 31, 1996 and 1995 (Unaudited)........... F-70
Condensed Statements of Income for the Nine Months Ended March 31, 1996 and 1995
(Unaudited).............................................................................. F-71
Condensed Statement of Stockholders' Equity for the Nine Months Ended March 31, 1996 and
1995 (Unaudited)......................................................................... F-72
Condensed Statements of Cash Flows for the Nine Months Ended March 31, 1996 and 1995
(Unaudited).............................................................................. F-73
Notes to Condensed Financial Statements.................................................... F-74
</TABLE>
F-1
<PAGE> 99
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Southern Banking Corporation and Subsidiary:
We have audited the accompanying consolidated balance sheet of Southern
Banking Corporation and subsidiary as of December 31, 1995 and the related
consolidated statements of income, stockholders' equity and cash flows for the
year then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 audit provides a reasonable basis for our opinion.
In our opinion, the 1995 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Southern Banking Corporation and subsidiary as of December 31, 1995, and the
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
Orlando, Florida
January 26, 1996
F-2
<PAGE> 100
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Southern Banking Corporation and Subsidiary
Altamonte Springs, Florida
We have audited the accompanying consolidated balance sheet of Southern
Banking Corporation and Subsidiary as of December 31, 1994, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the two years in the period ended December 31, 1994. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our 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 Southern
Banking Corporation and Subsidiary as of December 31, 1994, and the results of
their operations and their cash flows for each of the two years in the period
ended December 31, 1994, in conformity with generally accepted accounting
principles.
As discussed in Note 2, effective January 1, 1994, the Company adopted
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities.
COOPERS & LYBRAND L.L.P.
Orlando, Florida
January 13, 1995
F-3
<PAGE> 101
SOUTHERN BANKING CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and due from banks......................................... $ 19,547,844 $ 13,590,206
Federal funds sold.............................................. 13,200,000 --
------------ ------------
Total cash and cash equivalents......................... 32,747,844 13,590,206
Interest bearing deposits in banks................................ 894,989 1,305,057
Investment securities available for sale.......................... 33,118,517 18,104,538
Investment securities held to maturity (estimated market value of
$544,300 and $16,050,406 in 1995 and 1994, respectively)........ 544,300 16,630,592
Loans, less allowance for loan losses of $1,958,423 for 1995 and
$1,608,656 for 1994............................................. 153,089,355 121,530,420
Premises and equipment, net....................................... 4,884,690 5,028,758
Accrued interest receivable....................................... 1,416,321 1,136,962
Goodwill.......................................................... 2,118,897 2,211,876
Prepaid expenses and other assets................................. 1,454,589 1,823,409
------------ ------------
Total assets............................................ $230,269,502 $181,361,818
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest bearing............................................. $ 45,337,294 $ 36,665,552
Interest bearing:
Demand....................................................... 25,999,459 22,724,259
Savings...................................................... 69,619,117 43,022,947
Time, $100,000 and over...................................... 25,097,258 16,569,300
Other time................................................... 45,556,645 35,751,950
------------ ------------
Total deposits.......................................... 211,609,773 154,734,008
Federal funds purchased........................................... -- 12,000,000
Accrued interest payable.......................................... 633,889 365,886
Accounts payable and other liabilities............................ 1,501,263 526,443
------------ ------------
Total liabilities....................................... 213,744,925 167,626,337
------------ ------------
Stockholders' equity:
Common stock, par value $1.00 per share; authorized 10,000,000
shares, issued and outstanding 3,362,000 and 3,350,000 shares
for 1995 and 1994, respectively.............................. 3,362,000 3,350,000
Surplus......................................................... 7,405,082 7,382,042
Retained earnings............................................... 5,665,188 3,574,412
Unrealized gain (loss) on investment securities available for
sale, net.................................................... 92,307 (570,973)
------------ ------------
Total stockholders' equity.............................. 16,524,577 13,735,481
Commitments and contingencies
------------ ------------
Total liabilities and stockholders' equity.............. $230,269,502 $181,361,818
=========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-4
<PAGE> 102
SOUTHERN BANKING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- ----------
<S> <C> <C> <C>
Interest income and fees:
Loans.................................................. $14,427,934 $ 8,793,436 $6,045,913
Investment securities held to maturity and investment
securities available for sale....................... 2,126,296 1,290,968 630,670
Interest bearing deposits.............................. 55,206 84,806 70,377
Federal funds sold..................................... 657,319 156,966 184,026
----------- ----------- ----------
Total interest income.......................... 17,266,755 10,326,176 6,930,986
Interest expense:
Deposits............................................... 6,132,712 2,894,899 2,047,577
----------- ----------- ----------
Net interest income............................ 11,134,043 7,431,277 4,883,409
Provision for loan losses................................ 525,000 330,000 466,425
----------- ----------- ----------
Net interest income after provision for loan
losses....................................... 10,609,043 7,101,277 4,416,984
----------- ----------- ----------
Other income:
Service charges on deposit accounts.................... 1,560,061 1,061,899 664,047
Other income........................................... 417,727 231,722 214,109
----------- ----------- ----------
Total other income............................. 1,977,788 1,293,621 878,156
----------- ----------- ----------
Other expenses:
Salaries and wages..................................... 3,307,967 2,332,796 1,643,898
Employee benefits...................................... 1,258,344 342,038 250,147
Net occupancy expense.................................. 963,371 674,168 515,211
Equipment expense...................................... 427,838 296,650 207,418
Other noninterest expenses............................. 3,256,888 2,026,742 1,500,022
----------- ----------- ----------
Total other expenses........................... 9,214,408 5,672,394 4,116,696
----------- ----------- ----------
Income before income tax taxes................. 3,372,423 2,722,504 1,178,444
Income taxes............................................. 1,281,647 988,901 415,250
----------- ----------- ----------
Income before cumulative effect of change in
accounting principle......................... 2,090,776 1,733,603 763,194
Cumulative effect of change in accounting principle...... -- -- 46,874
----------- ----------- ----------
Net income..................................... $ 2,090,776 $ 1,733,603 $ 810,068
========== ========== =========
Net income per common share.............................. $ .62 $ .64 $ .37
========== ========== =========
Weighted average shares outstanding...................... 3,356,500 2,704,109 2,200,000
========== ========== =========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-5
<PAGE> 103
SOUTHERN BANKING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
ON INVESTMENT
SECURITIES TOTAL
COMMON RETAINED AVAILABLE FOR STOCKHOLDERS'
STOCK SURPLUS EARNINGS SALE, NET EQUITY
---------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992......... $2,200,000 $3,397,677 $1,030,741 $ -- $ 6,628,418
Net income......................... -- -- 810,068 -- 810,068
---------- ---------- ---------- ------------- -------------
Balance, December 31, 1993......... 2,200,000 3,397,677 1,840,809 -- 7,438,486
Adjustment to beginning balance for
change in accounting principle,
net of income taxes of $4,607.... -- -- -- (7,636) (7,636)
Issuance of common stock (net of
issuance costs of $40,635)....... 1,150,000 3,984,365 -- -- 5,134,365
Unrealized losses on investment
securities available for sale,
net.............................. -- -- -- (563,337) (563,337)
Net income......................... -- -- 1,733,603 -- 1,733,603
---------- ---------- ---------- ------------- -------------
Balance, December 31, 1994......... 3,350,000 7,382,042 3,574,412 (570,973) 13,735,481
Issuance of common stock........... 12,000 23,040 -- -- 35,040
Change in unrealized gain (loss) on
investment
securities -- available for
sale............................. -- -- -- 663,280 663,280
Net income......................... -- -- 2,090,776 -- 2,090,776
---------- ---------- ---------- ------------- -------------
Balance, December 31, 1995......... $3,362,000 $7,405,082 $5,665,188 $ 92,307 $ 16,524,577
========= ========= ========= ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 104
SOUTHERN BANKING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................... $ 2,090,776 $ 1,733,603 $ 810,068
Adjustments to reconcile net income to net cash provided by
operating activities:
Cumulative effect of change in accounting principle........ -- -- (46,874)
Depreciation and amortization.............................. 581,832 368,458 225,989
Deferred income taxes...................................... (472,944) -- --
Net amortization of premiums and accretion of discounts on
investment securities held to maturity and investment
securities available for sale............................ (71,714) 456,555 (1,321)
Provision for loan losses.................................. 525,000 330,000 466,425
Deferred loan origination fees............................. 416,935 226,636 47,285
(Gain) loss on sale of investment securities available for
sale..................................................... (22,414) 5,264 (13,750)
Gain on sale of loan....................................... (26,941) -- --
Loss on sale of other real estate owned.................... 10,418 -- --
Gain on sale of fixed assets............................... (19,969) -- --
Writedown to fair value on other real estate owned......... 10,000 -- --
Cash provided by (used in) changes in:
Accrued interest receivable.............................. (279,359) (364,738) (148,433)
Prepaid expenses and other assets........................ 299,520 241,434 218,143
Accrued interest payable................................. 268,003 (98,083) 162,868
Accounts payable and other liabilities................... 974,820 (293,838) 156,487
------------ ------------ ------------
Net cash provided by operating activities............. 4,283,963 2,605,291 1,876,887
------------ ------------ ------------
Cash flows (used in) investing activities:
Loans (net of collections)................................... (33,208,790) (20,946,882) (17,994,865)
Purchases of investment securities available for sale........ (7,862,849) (9,497,570) (13,487,394)
Proceeds from sales and maturities of investment securities
available for sale......................................... 9,938,930 4,173,181 8,114,067
Acquisition of Osceola National Bank......................... -- (3,121,275) --
Proceeds from sale of fixed assets........................... 117,340 -- --
Proceeds from maturities of interest bearing deposits........ 410,068 400,000 300,000
Proceeds from sale of Federal Reserve Bank stock............. 150,000 -- --
Purchase of premises and equipment........................... (442,156) (1,770,970) (1,324,129)
Purchase of interest bearing deposits in banks............... -- -- (996,778)
Proceeds from the sale of other real estate owned............ 281,972 -- --
Proceeds from sale of loan................................... 578,355 -- --
------------ ------------ ------------
Net cash used in investing activities................. (30,037,130) (30,763,516) (25,389,099)
------------ ------------ ------------
Cash flows provided by financing activities:
Net increase in demand deposits, NOW accounts and passbook
savings accounts........................................... 38,543,112 13,750,315 22,525,126
Net increase (decrease) in certificates of deposit........... 18,332,653 (1,247,893) 751,746
Net (decrease) increase in Federal funds purchased........... (12,000,000) 12,000,000 --
Net proceeds from issuance of common stock................... 35,040 5,134,365 --
Payments on note payable..................................... -- -- (75,000)
------------ ------------ ------------
Net cash provided by financing activities............. 44,910,805 29,636,787 23,201,872
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents......................................... 19,157,638 1,478,562 (310,340)
Cash and cash equivalents at beginning of year................. 13,590,206 12,111,644 12,421,984
------------ ------------ ------------
Cash and cash equivalents at end of year....................... $ 32,747,844 $ 13,590,206 $ 12,111,644
============= ============= =============
Cash paid during the year for:
Interest..................................................... $ 5,864,709 $ 2,992,982 $ 1,884,709
============= ============= =============
Taxes........................................................ $ 1,251,787 $ 1,281,284 $ 485,598
============= ============= =============
Supplemental disclosures of non-cash transactions:
Transfer of loans to other real estate owned................. $ 156,506 $ -- $ --
============= ============= =============
Market value adjustment -- investment securities available
for sale:
Market value adjustment -- investments..................... 139,860 (919,780) --
Deferred income tax liability (asset)...................... 47,553 (348,807) --
------------ ------------ ------------
Unrealized gain (loss) on investments available for
sale, net........................................... $ 92,307 $ (570,973) $ --
============= ============= =============
</TABLE>
See accompanying notes to the consolidated financial statements.
F-7
<PAGE> 105
SOUTHERN BANKING CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(1) ORGANIZATION
Southern Banking Corporation (the Company) is a bank holding company with a
wholly-owned subsidiary, Southern Bank of Central Florida (the Bank), a
state-chartered bank headquartered in Altamonte Springs, Florida. The Company
commenced operations on August 29, 1988. As of December 31, 1995, the Bank
operates eight branches: four in Seminole County, two in Osceola County and two
in Orange County. The Bank's primary market is Central Florida.
The Company's deposits are insured by the Federal Deposit Insurance
Corporation.
On September 30, 1994, the Bank acquired substantially all of the
outstanding common stock of Osceola National Bank (ONB). The acquisition has
been accounted for under the purchase method, whereby the purchase price of
$6,069,000 has been allocated to the underlying assets and liabilities based on
their respective fair values at the date of acquisition. A summary of the
purchase price allocation as referenced in the accompanying consolidated balance
sheet is as follows:
<TABLE>
<S> <C>
Cash and cash equivalents............................................... $ 2,948,000
Investment securities................................................... 16,542,000
Loans, net.............................................................. 23,820,000
Premises and equipment.................................................. 1,053,000
Goodwill................................................................ 2,242,000
Other assets............................................................ 784,000
Deposits................................................................ 40,867,000
Other liabilities....................................................... 453,000
</TABLE>
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of the Company and its subsidiary
conform to generally accepted accounting principles.
(a) Use of Estimates
The preparation of consolidated 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
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
(b) Principles of Consolidation
The consolidated financial statements of the corporation include the
accounts of Southern Banking Corporation and its wholly owned subsidiary,
Southern Bank. The operations of the Company consist primarily of the operations
of the Bank. All significant intercompany accounts and transactions have been
eliminated in consolidation.
(c) Investment Securities Held to Maturity and Investment Securities Available
for Sale
At January 1, 1994, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities". SFAS 115 requires the reporting of certain securities at
fair value except for those securities in which the Company has the positive
intent and ability to hold to maturity. Investments to be held for indefinite
periods of time and not intended to be held to maturity are classified as
available for sale and are carried at fair value. Unrealized holding gains
F-8
<PAGE> 106
SOUTHERN BANKING CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and losses are included in stockholders' equity net of the effect of income
taxes. Realized gains and losses on investment securities are computed using the
specific identification method.
Securities that management has the intent and the Company has the ability
at the time of purchase or origination to hold until maturity are classified as
investment securities held to maturity. Securities in this category are carried
at amortized cost adjusted for accretion of discounts and amortization of
premiums using the level yield method over the estimated life of the securities.
If a security has a decline in fair value below its amortized cost that is other
than temporary, then the security will be written down to its new cost basis by
recording a loss in the consolidated statements of income.
In November 1995, the Bank elected to transfer investment securities
previously classified as held to maturity into the available for sale category,
in accordance with guidelines issued by the Financial Accounting Standards Board
which permitted such a one-time election.
The cumulative effect of adopting SFAS No. 115 as of January 1, 1994 was a
decrease in the opening balance of stockholders' equity of $7,636 (net of $4,607
in deferred income taxes) to reflect the unrealized losses on securities
classified as available-for-sale that were previously classified as investment
securities and carried at amortized cost.
(d) Loans
Loans receivable that the Company has the intent and ability to hold until
maturity or payoff are reported at their outstanding unpaid principal balance
reduced by any charge-offs or specific valuation accounts, net of any deferred
fees on originated loans.
Loan origination fees are capitalized and recognized in income over the
contractual life of the loans, adjusted for estimated prepayments based on the
Company's historical prepayment experience.
Loans are placed on nonaccrual status when the loan becomes 90 days past
due as to interest or principal, unless the loan is both well secured and in the
process of collection, or when the full timely collection of interest or
principal becomes uncertain. When a loan is placed on nonaccrual status, the
accrued and unpaid interest receivable is written off and the loan is accounted
for on the cash or cost recovery method thereafter until qualifying for return
to accrual status.
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan", as
amended by SFAS No. 118, "Accounting by Creditors for Impairment of a
Loan -- Income Recognition and Disclosure", on January 1, 1995. The Company,
considering current information and events regarding the borrower's ability to
repay their obligations, considers a loan to be impaired when it is probable
that the Company will be unable to collect all amounts due according to the
contractual terms of the loan agreement. When a loan is considered to be
impaired, the amount of the impairment is measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate or
the secondary market value of the loan, or the fair value of the collateral for
collateral dependent loans. Impaired loans are written down to the extent that
principal is judged to be uncollectible and, in the case of impaired collateral
dependent loans where repayment is expected to be provided solely by the
underlying collateral and there is no other available and reliable sources of
repayment, are written down to the lower of cost or collateral value. Impairment
losses are included in the allowance for loan losses through a charge to the
provisions for loan losses. Cash receipts on impaired loans are applied to
reduce the principal amount of such loans until the principal has been recovered
and are recognized as interest income thereafter.
Adoption of SFAS No. 114 as amended by SFAS No. 118 had no impact on the
level of the overall allowance for loan losses or on operating results, and does
not affect the Company's policies regarding write-offs, recoveries or income
recognition.
F-9
<PAGE> 107
SOUTHERN BANKING CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(e) Allowance for Loan Losses
The allowance for loan losses is established through a provision for loan
losses charged to expenses. Loans are charged against the allowance when
management believes that the collectibility of the principal is unlikely. The
allowance is an estimated amount that management believes will be adequate to
absorb losses inherent in the loan portfolio and commitments to extend credit,
based on evaluations of its collectibility. The evaluations take into
consideration such factors as changes in the nature and volume of the portfolio,
overall portfolio quality, specific problem loans and commitments, and current
and anticipated economic conditions that may affect the borrowers' ability to
pay. While management uses the best information available to recognize losses on
loans, future additions to the allowance may be necessary based on changes in
economic conditions.
In accordance with SFAS No. 114 as amended by SFAS No. 118, the Company
records impairment in the value of its loans as an addition to the allowance for
loan losses. Any changes in the value of impaired loans due to the passage of
time or revision in estimates are reported as adjustments to provision expenses
in the same manner in which impairment initially was recognized.
Regulatory examiners may require the Company to recognize additions to the
allowance based upon their judgments about the information available to them at
the time of their examination.
(f) Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation
which is computed principally on the straight-line method over the estimated
useful lives (3-40 years) of the assets. Leasehold improvements are amortized on
the straight-line method over the shorter of the estimated useful lives (10-20
years) of the improvements or the terms of the related lease.
(g) Intangible Assets
The Company recorded goodwill for the excess of the purchase price of
Osceola National Bank over the estimated fair value of the net assets required.
The Company assesses the recoverability of goodwill based on its best estimates
of expected future cash flows on an undiscounted basis. The goodwill is being
amortized on a straight-line basis over 20 years. Amortization expense was
$92,979 and $30,541 for 1995 and 1994, respectively.
The premium paid for the core deposit base in connection with the
acquisition of deposits has been recorded as a core deposit intangible and is
included in prepaid expenses and other assets in the accompanying consolidated
balance sheets. The core deposit intangible is being amortized over the
estimated life of the core deposits which is approximately seven years.
(h) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that included the enactment date. Deferred tax assets are recognized
subject to management's judgment that realization is more likely than not.
(i) Other Real Estate Owned
Real estate acquired in the settlement of loans is initially recorded at
the lower of cost (principal balance of the former loan plus costs of obtaining
title and possession) or estimated fair value, net of estimated selling
F-10
<PAGE> 108
SOUTHERN BANKING CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
costs, at the date of acquisition. Subsequently, such real estate acquired is
carried at the lower of cost or fair value less estimated selling costs. Costs
relating to development and improvement of the property are capitalized, whereas
those relating to holding the property are charged to operations.
Other real estate owned is included in prepaid expenses and other assets in
the accompanying consolidated financial statements.
(j) Net Income Per Common Share
Net income per common share has been computed using the weighted average
number of shares outstanding during the year.
(k) Reclassifications
Certain previously reported amounts have been reclassed to conform to
current presentation.
(3) INVESTMENT SECURITIES HELD TO MATURITY AND INVESTMENT SECURITIES AVAILABLE
FOR SALE
The amortized cost and estimated market values of investment securities
held to maturity and available for sale at December 31, 1995 and 1994 are as
follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
INVESTMENT SECURITIES HELD TO MATURITY:
1995:
Federal Home Loan Bank and Federal Reserve
Stock................................... $ 544,300 $ -- $ -- $ 544,300
========== ======= ========= ==========
1994:
Federal Home Loan Bank and Federal Reserve
Stock................................... 694,300 -- -- 694,300
U.S. Treasury securities and obligations of
U.S. Government corporations and
agencies................................ 3,963,351 -- (105,823) 3,857,528
Mortgage-backed securities................. 8,690,465 15,393 (303,798) 8,402,060
Obligations of states and political
subdivisions............................ 3,282,476 -- (185,958) 3,096,518
----------- ---------- ---------- -----------
$16,630,592 $ 15,393 $ (595,579) $16,050,406
========== ======= ========= ==========
</TABLE>
F-11
<PAGE> 109
SOUTHERN BANKING CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
INVESTMENT SECURITIES AVAILABLE FOR SALE:
1995:
U.S. Treasury securities and obligations of
U.S. Government corporations and
agencies................................ $23,071,497 $ 39,299 $ -- $23,110,796
Mortgage-backed securities................. 4,425,773 82,028 -- 4,507,801
Obligations of states and political
subdivisions............................ 4,981,387 26,533 -- 5,007,920
Other debt securities...................... 500,000 -- (8,000) 492,000
----------- ---------- ---------- -----------
$32,978,657 $ 147,860 $ (8,000) $33,118,517
========== ======== ========= ==========
1994:
U.S. Treasury securities and obligations of
U.S. Government corporations and
agencies................................ 12,917,751 941 (403,886) 12,514,806
Mortgage-backed securities................. 5,506,567 -- (384,120) 5,122,447
Obligations of states and political
subdivisions............................ 100,000 -- (3,965) 96,035
Other debt securities...................... 500,000 -- (128,750) 371,250
----------- ---------- ---------- -----------
$19,024,318 $ 941 $ (920,721) $18,104,538
========== ======== ========= ==========
</TABLE>
During November 1995, the Bank transferred investment securities classified
as held to maturity to the available for sale category in accordance with the
guidelines issued by the Financial Accounting Standards Board which permitted
such a one-time election. The amortized cost of the investment securities
transferred was $16,407,809, the estimated market value was $16,666,942 and the
unrealized gain was $259,133.
The amortized cost and estimated market value of investment securities at
December 31, 1995, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST MARKET VALUE
----------- -------------
<S> <C> <C>
INVESTMENT SECURITIES AVAILABLE FOR SALE:
Due in one year or less............................................. $ 5,890,406 $ 5,927,785
Due after one year through five years............................... 14,925,266 15,071,702
Due after five years through ten years.............................. 4,744,119 4,786,787
Due in more than ten years.......................................... 7,418,866 7,332,243
----------- -------------
$32,978,657 $ 33,118,517
========== ==========
INVESTMENT SECURITIES HELD TO MATURITY:
Federal Home Loan Bank stock........................................ $ 544,300 $ 544,300
========== ==========
</TABLE>
Proceeds from sales and maturities of investments available for sale during
1995, 1994 and 1993 were $10,088,930, $4,173,181 and $8,114,067, respectively.
Gross realized gains and losses on the sale of investments available for sale
during 1995 were $59,344 and $36,930, respectively. Gross realized losses on the
sale of investments during 1994 were $5,264 and gross gains on the sale of
investments in 1993 were $13,750.
Investment securities with book values of $4,702,835 and $1,505,266 at
December 31, 1995 and 1994, respectively, and with market values of
approximately $4,793,984 and $1,479,843 at December 31, 1995 and 1994,
respectively, were pledged as collateral for public funds and treasury tax and
loan deposits.
F-12
<PAGE> 110
SOUTHERN BANKING CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) LOANS
A summary of loan distribution at December 31, 1995 and 1994 follows:
<TABLE>
<CAPTION>
1995 1994
------------ -------------
<S> <C> <C>
Commercial.............................................. $ 36,668,890 $ 32,148,230
Mortgage................................................ 9,886,837 11,211,674
Real estate............................................. 97,791,120 69,836,655
Installment............................................. 10,472,877 10,120,846
------------ -------------
154,819,724 123,317,405
Overdrafts.............................................. 658,976 297,396
Unearned discounts...................................... (10,949) (33,255)
Deferred loan fees...................................... (419,973) (442,470)
------------ -------------
155,047,778 123,139,076
Allowance for loan losses............................... (1,958,423) (1,608,656)
------------ -------------
$153,089,355 $ 121,530,420
=========== ===========
</TABLE>
The recorded investment in loans for which an impairment has been
recognized and the related allowance for loan losses at December 31, 1995 were
$1,139,523 and $-0-, respectively. The average recorded investment in impaired
loans during 1995 was $1,170,626. Interest income recognized on impaired loans
during 1995 was $59,264.
Changes in the allowance for loan losses for the years ended December 31,
1995, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ---------
<S> <C> <C> <C>
Balance, beginning of year........................ $1,608,656 $ 900,000 $ 639,860
Osceola National Bank loan loss reserve at
acquisition..................................... -- 473,645 --
Provision charged to operations................... 525,000 330,000 466,425
Recoveries on previous charge-offs................ 25,714 -- 3,755
Loans charged-off................................. (200,947) (94,989) (210,040)
---------- ---------- ---------
Balance, end of year.............................. $1,958,423 $1,608,656 $ 900,000
========= ========= =========
</TABLE>
At December 31, 1995, 1994 and 1993, nonaccrual loans were $505,706,
$199,614 and $43,241, respectively. If interest due on all nonaccrual loans had
been accrued at the original contract rates, estimated interest income would
have been increased by $33,000 in 1995, $25,000 in 1994 and $2,500 in 1993.
(5) PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31, 1995 and 1994 follows:
<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
Land......................................................... $ 827,004 $ 827,004
Bank premises................................................ 2,433,116 2,433,116
Leasehold improvements....................................... 625,464 575,274
Furniture, fixtures and equipment............................ 2,548,087 2,066,183
Construction in process...................................... 54,704 --
----------- ----------
6,488,375 5,901,577
Less accumulated depreciation................................ (1,603,685) (872,819)
----------- ----------
$ 4,884,690 $5,028,758
========== =========
</TABLE>
F-13
<PAGE> 111
SOUTHERN BANKING CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," requires that the Company disclose
estimated fair values for financial instruments. The following methods and
assumptions were used by the Company in estimating fair values of financial
instruments as disclosed herein:
Cash and Cash Equivalents -- The carrying amount of cash and cash
equivalents (demand deposits maintained by the Company at various financial
institutions) and federal funds sold represents fair value.
Investment Securities Available for Sale and Held to Maturity -- The
Company's investment securities available for sale and held to maturity
represent investments in equity securities, U.S. Government obligations,
U.S. Government Agency securities, and state and political subdivisions.
The Company's equity investments at year end represents a stock investment
in the Federal Home Loan Bank. The stock is not publicly traded and the
carrying amount was used to estimate the fair value. The fair value of the
U.S. Government obligations and U.S. Government Agency obligations and
state and local political subdivision portfolios was estimated based on
quoted market prices.
Interest Bearing Deposits in Banks -- The carrying amount of the
interest bearing deposits in banks approximates their 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. Fair values for commercial real estate, commercial and consumer
loans other than variable rate loans are estimated using discounted cash
flow analysis, using interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality. Fair values of
impaired loans are estimated using discounted cash flow analysis or
underlying collateral values, where applicable.
Deposits -- The fair values disclosed for demand deposits are, by
definition, equal to the amount payable on demand at December 31, 1995
(that is their carrying amounts). The carrying amounts of variable rate,
fixed term money market accounts and certificates of deposit (CDs)
approximate their fair value at the reporting date. Fair values for fixed
rate CDs are estimated using a discounted cash flow calculation that
applies interest rates currently being offered on certificates to a
schedule of aggregated expected monthly maturities on time deposits.
Commitments -- Fair values for off-balance-sheet lending commitments
are based on fees currently charged to enter into similar agreements,
taking into account the remaining terms of the agreements and the
counterparties' credit standing.
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at December 31, 1995. SFAS No. 107,
"Disclosures About Fair Value of Financial Instruments", defines fair value of a
financial instrument as the amount at which the instrument would be exchanged in
a current transaction between willing parties.
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
------------ ------------
<S> <C> <C>
Financial assets:
Cash and due from banks and federal funds sold.................. $ 32,747,844 $ 32,747,844
Interest bearing deposits in banks.............................. 894,989 894,989
Investment securities available for sale........................ 33,118,517 33,118,517
Investment securities held to maturity.......................... 544,300 544,300
Loans (carrying amount less allowance for loan losses of
$1,958,423).................................................. 153,089,355 152,000,000
</TABLE>
F-14
<PAGE> 112
SOUTHERN BANKING CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
------------ ------------
<S> <C> <C>
Financial liabilities:
Deposits:
Without stated maturities.................................... $140,955,870 $140,956,000
With stated maturities....................................... 70,653,903 71,923,592
Commitments:
Letter of credit................................................ -- 2,853,000
Loan commitments................................................ -- 34,501,000
</TABLE>
The carrying amounts shown in the table are included in the consolidated
balance sheet under the indicated captions.
(7) INCOME TAXES
The provision for income taxes for 1995, 1994 and 1993 consists of the
following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
Year ended December 31, 1995:
Federal.......................................... $1,602,230 $ (404,885) $1,197,345
State............................................ 152,361 (68,059) 84,302
---------- --------- ----------
$1,754,591 $ (472,944) $1,281,647
========== ========= ==========
Year ended December 31, 1994:
Federal.......................................... $ 999,859 $ (106,703) $ 893,156
State............................................ 114,010 (18,265) 95,745
---------- --------- ----------
$1,113,869 $ (124,968) $ 988,901
========== ========= ==========
Year ended December 31, 1993:
Federal.......................................... $ 456,679 $ (74,752) $ 381,927
State............................................ 41,304 (7,981) 33,323
---------- --------- ----------
$ 497,983 $ (82,733) $ 415,250
========== ========= ==========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1995 and 1994 are presented below.
<TABLE>
<CAPTION>
1995 1994
---------- --------
<S> <C> <C>
Deferred tax assets:
Unrealized loss on investment securities available for sale.......... $ -- $348,807
Loan receivable, due to allowance for loan losses.................... 600,738 526,338
Accrued stock appreciation rights.................................... 237,069 --
Acquisition costs accrual............................................ 112,891 --
Deferred loan fee amortization....................................... 84,234 97,307
Deferred rent........................................................ 29,005 2,402
Other................................................................ 19,145 --
---------- --------
Total deferred tax assets.................................... 1,083,082 974,854
Less valuation allowance............................................. -- --
---------- --------
Net deferred tax assets...................................... 1,083,082 974,854
---------- --------
</TABLE>
F-15
<PAGE> 113
SOUTHERN BANKING CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1995 1994
---------- --------
<S> <C> <C>
Deferred tax liabilities:
Unrealized gain on investment securities available for sale.......... 47,553 --
Premises and equipment, due to differences in depreciation methods
and useful lives.................................................. 70,469 91,919
Investments, due to accretion........................................ 22,838 --
Other................................................................ -- 17,297
---------- --------
Total deferred tax liabilities............................... 140,860 109,216
---------- --------
Net deferred tax asset....................................... $ 942,222 $865,638
========= ========
</TABLE>
The Company has recorded a deferred tax asset of $942,222 and $865,638 as
of December 31, 1995 and 1994, respectively. Although realization of the
deferred tax asset is not assured, the Company believes that it has paid
sufficient taxes in prior carryback years which will enable it to realize the
deferred tax asset. The amount of the deferred tax asset considered realizable,
however, could be reduced in the near term if estimates of future taxable income
during the carryforward periods are reduced. No valuation allowance as defined
by SFAS 109, "Accounting for Income Taxes", is required at December 31, 1995 and
1994.
A reconciliation between the actual tax expense and the "expected" tax
expense (computed by applying the U.S. federal corporate tax rate of 34% to
earnings before income taxes) is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- -------- --------
<S> <C> <C> <C>
"Expected" tax expense.............................. $1,146,624 $925,651 $400,671
State income tax expense, net of federal benefit.... 55,639 63,192 18,936
Life insurance premiums on officers................. 389 190 190
Meals and entertainment and dues.................... 18,851 14,171 4,085
Tax exempt interest................................. (48,128) (29,221) (8,632)
Goodwill amortization............................... 37,949 10,384 --
Other............................................... 70,323 4,534 --
---------- -------- --------
Actual tax expense........................ $1,281,647 $988,901 $415,250
========= ======== ========
</TABLE>
(8) STOCK BASED COMPENSATION PLANS
The Company's stock option plans adopted prior to December 31, 1992
authorize the granting of options for up to 160,000 shares of common stock of
organizing directors and key officers and employees of the Company. Under the
plans, options are granted at a price determined in each case by a committee of
the Board of Directors, but shall not be less than one hundred percent (100%) of
the fair market value of a share of common stock on the date the option is
granted, the book value thereof or $5.825 per share, whichever is greater. Such
options are exercisable over a period of ten years from the date of grant.
During the year ended December 31, 1993, the Company adopted a stock option
plan authorizing the granting of options of shares of common stock to directors
and certain key employees of the Company. The total number of shares which may
be issued under this plan and other plans adopted by the Company shall not
exceed twenty percent (20%) of the Company's total authorized shares. Under the
plan, the options are granted at a price determined in each case by the
committee of the Board of Directors, but shall not be less than one hundred
percent (100%) of the fair market value of the stock as of the date the option
is granted or the par value of such shares, whichever is greater. Such options
are exercisable over a period of ten years from the date of grant.
F-16
<PAGE> 114
SOUTHERN BANKING CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information with respect to the Company's organizing director stock option
plan is as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES UNDER OPTION: SHARES PER SHARE
---------------------------------------------------------------- --------- ------------
<S> <C> <C>
Outstanding at December 31, 1994................................ 216,000 $ 2.92
Granted....................................................... -- --
Exercised..................................................... (12,000) 2.92
Cancelled..................................................... -- --
--------- ------
Outstanding at December 31, 1995................................ 204,000 $ 2.92
======== =========
</TABLE>
Information with respect to the Company's employee incentive stock options
plan is as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES UNDER OPTION: SHARES PER SHARE
--------------------------------------------------------------- --------- ------------
<S> <C> <C>
Outstanding at December 31, 1994............................... 104,000 $2.92 - 3.38
Granted...................................................... -- --
Exercised.................................................... -- --
Cancelled.................................................... (10,000) 2.92 - 3.38
--------- ------------
Outstanding at December 31, 1995............................... 94,000 $2.92 - 3.38
======== ==========
</TABLE>
Information with respect to the Company's director and key employee stock
option plan is as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES UNDER OPTION: SHARES PER SHARE
--------------------------------------------------------------- --------- ------------
<S> <C> <C>
Outstanding at December 31, 1994............................... 814,000 $3.04 - 4.50
Granted...................................................... -- --
Exercised.................................................... -- --
Cancelled.................................................... -- --
--------- ------------
Outstanding at December 31, 1995............................... 814,000 $3.04 - 4.50
======== ==========
</TABLE>
During 1994, the Company adopted an employee stock appreciation plan in
which hypothetical investments in shares of the Company's common stock are
awarded to key employees. The benefits vest over 5 years and are paid at the
close of the vesting period based upon the appreciation of the shares between
the grant and the exercise date. Under the plan, 84,000 shares were granted,
none of which were exercised or cancelled as of December 31, 1995. Compensation
expense pursuant to the plan was approximately $630,000 in 1995 (see note 16).
(9) EMPLOYEE BENEFIT PLAN
Effective January 1, 1993, the Company adopted a deferred savings plan
under Internal Revenue Code Section 401(k), which covers substantially all of
the Company's employees who meet minimum length of service requirements. Under
the provisions of the plan, employees may contribute up to 15% of their
compensation on a pre-tax basis. The Company matches the employee contribution
25% up to a maximum of 4%. The Company's contribution to the plan was $14,354,
$26,431 and $13,955 for the years ended December 31, 1995, 1994 and 1993,
respectively.
F-17
<PAGE> 115
SOUTHERN BANKING CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(10) COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases several of its facilities under operating leases which
expire at various periods through September 2004. Future minimum lease payments,
by year and in the aggregate, under all operating leases as of December 31, 1995
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
-----------------------------------------------------------------------
<S> <C>
1996......................................................... $ 525,339
1997......................................................... 378,144
1998......................................................... 391,126
1999......................................................... 405,296
Thereafter................................................... 1,662,419
----------
$3,362,324
=========
</TABLE>
Rent expense was approximately $582,000, $385,000 and $342,000 for 1995,
1994 and 1993, respectively.
(11) RETAINED EARNINGS
The payment of dividends by the Company is subject to certain regulatory
restrictions.
(12) REGULATORY CAPITAL
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
was signed into law on December 19, 1991. Regulations implementing the prompt
corrective action provisions of FDICIA became effective on December 19, 1992. In
addition to the prompt corrective action requirements, FDICIA includes
significant changes to the legal and regulatory environment for insured
depository institutions, including reductions in insurance coverage for certain
kinds of deposits, increased supervision by the Federal regulatory agencies,
increased reporting requirements for insured institutions, and new regulations
concerning internal controls, accounting, and operations.
The prompt corrective action regulations define specific capital categories
based on an institution's capital ratios. The capital categories, in declining
order, are "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized," and "critically undercapitalized."
Institutions categorized as "undercapitalized" or worse are subject to certain
restrictions, including the requirement to file a capital plan with its primary
Federal regulator, prohibitions on the payment of dividends and management fees,
restrictions on executive compensation, and increased supervisory monitoring,
among other things. Other restrictions may be imposed on the institution by the
FDIC, including requirements to raise additional capital, sell assets, or sell
the entire institution. Once an institution becomes "critically
undercapitalized" it must generally be placed in receivership or conservatorship
within 90 days.
F-18
<PAGE> 116
SOUTHERN BANKING CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the capital thresholds for each prompt
corrective action capital categories. An institution's capital category is based
on whether it meets the threshold for all three capital ratios within the
category.
<TABLE>
<CAPTION>
TIER 1 TOTAL
LEVERAGE RISK-BASED RISK-BASED
CATEGORIES RATIO RATIO RATIO
- ------------------------------------------------ -------------- -------------- --------------
<S> <C> <C> <C>
"Well capitalized".............................. 5% or higher 6% or higher 10% or higher
"Adequately capitalized"........................ 4% or higher 4% or higher 8% or higher
"Undercapitalized".............................. less than 4% less than 4% less than 8%
"Significantly undercapitalized"................ less than 3% less than 3% less than 6%
"Critically undercapitalized"................... An institution is considered "critically under
capitalized" if its ratio of tangible equity to
total assets is 2% or less.
</TABLE>
At December 31, 1995, the Bank's total leverage ratio (unaudited) was
7.06%, Tier 1 risk-based ratio (unaudited) was 8.86%, and total risk-based ratio
(unaudited) was 10.07%. Accordingly, at December 31, 1995, the Company's
management believes the Bank is in the "well capitalized" category.
(13) CREDIT COMMITMENTS
The Bank has outstanding at any time a significant number of commitments to
extend credit. These arrangements are subject to strict credit control
assessments and each customer's credit worthiness is evaluated on a case-by-case
basis. A summary of commitments to extend credit and standby letters of credit
written at December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Standby letters of credit................................... $ 2,853,000 $ 1,877,000
Unfunded firm loan commitments.............................. 34,501,000 33,162,000
</TABLE>
Because many commitments expire without being funded in whole or part, the
contract amounts are not estimates of future cash flows.
The majority of loan commitments have terms up to one year, and have
variable interest rates which range from 9% to 9.5%.
Loan commitments written have off-balance-sheet credit risk because only
original fees are recognized in the statement of financial position until the
commitments are fulfilled or expire. Credit risk represents the accounting loss
that would be recognized at the reporting date if counterparties failed
completely to perform as contracted. The credit risk amounts are equal to the
contractual amounts, assuming that the amounts are fully advanced and that, in
accordance with the requirements of FASB Statement No. 105, "Disclosure of
Information About Financial Instruments with Off-Balance-Sheet Risk and
Financial Instruments with Concentrations of Credit Risk", collateral or other
security is of no value.
The Bank's policy is to require customers to provide collateral prior to
the disbursement of approved loans. The amount of collateral obtained, if it is
deemed necessary by the Bank upon extension of credit, is based on management's
credit evaluation of the counterparty. Collateral held varies but may include
accounts receivable, inventory, real estate and income producing commercial
properties.
Standby letters of credit are contractual commitments issued by the Bank to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers.
F-19
<PAGE> 117
SOUTHERN BANKING CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(14) CONCENTRATION OF CREDIT RISK
The Bank originates real estate, consumer and commercial loans primarily in
its Central Florida market area. Although the Bank has a diversified loan
portfolio, a substantial portion of its borrowers' ability to honor their
contracts is dependent upon the economy of Central Florida. The Bank does not
have a significant exposure to any individual customer or counterparty.
(15) RELATED PARTY TRANSACTIONS
Loans
Loans receivable from principal stockholders, directors, executive officers
and companies in which they have a 10% or more beneficial interest aggregated
approximately $3,333,000 and $3,672,000 at December 31, 1995 and 1994,
respectively. All loans were made in the ordinary course of business. At
December 31, 1995, principal stockholders, directors and executive officers of
the Company and their related interests had $344,393 available in lines of
credit and commitments.
Deposits
Deposits of principal stockholders, directors, executive officers and
companies in which they have a 10% or more beneficial interest aggregated
approximately $9,369,000 and $10,196,000 at December 31, 1995 and 1994,
respectively.
(16) PROPOSED ACQUISITION
In January 1996, the Company entered into a definitive agreement with the
Colonial BancGroup, Incorporated to acquire the Company in a stock for stock
transaction. The expected effective date of the acquisition is June 1996 subject
to shareholder and regulatory approval.
(17) SOUTHERN BANKING CORPORATION (PARENT COMPANY ONLY)
Presented below are the financial statements of Southern Banking
Corporation:
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents........................................... $ 30,265 $ 31,266
Investment in subsidiary bank, Southern Bank of Central Florida..... 16,472,370 13,645,379
Other assets........................................................ 46,942 58,836
----------- -----------
$16,549,577 $13,735,481
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and other liabilities.............................. $ 25,000 $ --
Common stock, par value $1.00 per share; 10,000,000 shares
authorized; 3,362,000 and 3,350,000 shares issued and outstanding
in 1995 and 1994.................................................. 3,362,000 3,350,000
Surplus............................................................. 7,405,082 7,382,042
Retained earnings................................................... 5,665,188 3,574,412
Unrealized gain (loss) on investments available for sale, net....... 92,307 (570,973)
----------- -----------
$16,549,577 $13,735,481
========== ==========
</TABLE>
F-20
<PAGE> 118
SOUTHERN BANKING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
1995
MARCH 31, ------------
1996
------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and due from banks......................................... $ 15,825,690 $ 19,547,844
Federal funds sold.............................................. 22,400,000 13,200,000
Investment securities available for sale........................ 29,052,217 34,013,506
Loans receivable, net........................................... 150,420,224 153,089,355
Federal Home Loan Bank stock, at cost........................... 690,800 544,300
Office properties and equipment, net............................ 4,876,611 4,884,690
Accrued interest receivable..................................... 1,296,223 1,416,321
Other assets.................................................... 4,245,956 3,573,486
------------ ------------
Total assets.......................................... $228,807,721 $230,269,502
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits...................................................... $209,247,704 $211,609,773
Accrued expenses and other liabilities........................ 2,274,867 2,135,152
------------ ------------
Total liabilities..................................... 211,522,571 213,744,925
------------ ------------
Stockholders' Equity:
Common stock, $1.00 par value, authorized 10,000,000 shares;
issued and outstanding shares 3,362,000 at March 31, 1996
and December 31, 1995...................................... $ 3,362,000 $ 3,362,000
Additional paid-in capital.................................... 7,405,082 7,405,082
Net unrealized gain (loss) on AFS Securities.................. (773) 92,307
Retained earnings............................................. 6,518,841 5,665,188
------------ ------------
Total stockholders' equity............................ 17,285,150 16,524,577
------------ ------------
Total liabilities and stockholders' equity............ $228,807,721 $230,269,502
=========== ===========
</TABLE>
F-21
<PAGE> 119
SOUTHERN BANKING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1996 1995
---------- ----------
(UNAUDITED)
<S> <C> <C>
INTEREST INCOME:
Loans................................................................. $3,724,318 $2,975,614
Other investments..................................................... 700,271 623,319
---------- ----------
Total interest income....................................... 4,424,589 3,598,933
---------- ----------
INTEREST EXPENSE:
Deposits.............................................................. 1,619,491 1,320,989
Advance and other borrowings.......................................... -- --
---------- ----------
Total Interest Expense...................................... 1,619,491 1,320,989
---------- ----------
Net Interest Income......................................... 2,805,098 2,277,944
Provision for possible loan losses.................................... 55,000 75,000
---------- ----------
Net interest income after provision for possible loan losses.......... 2,750,098 2,202,944
---------- ----------
OTHER INCOME:
Loan fees and service charges......................................... 719,325 624,865
Mortgage loan servicing fees.......................................... 8,546 5,297
Gain (loss) on sale of securities..................................... -- (36,941)
Other operating income, net........................................... 52,382 76,944
---------- ----------
780,253 670,165
---------- ----------
GENERAL AND ADMINISTRATIVE EXPENSES:
Compensation, payroll taxes, and fringe benefits...................... 1,116,545 949,796
Occupancy and equipment expense....................................... 363,057 340,711
Other................................................................. 681,896 780,914
---------- ----------
Total general and administrative expenses................... 2,161,498 2,071,421
---------- ----------
Income before income taxes.................................. 1,368,853 801,688
---------- ----------
Income tax expense.................................................... 515,200 306,975
---------- ----------
Net income.......................................................... $ 853,653 $ 494,713
========= =========
</TABLE>
F-22
<PAGE> 120
SOUTHERN BANKING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- ADDITIONAL NET UNREALIZED TOTAL
NUMBER OF PAID-IN RETAINED GAIN/LOSS STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS ON AFS EQUITY
--------- ---------- ---------- ---------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995.................. 3,362,000 $3,362,000 $7,405,082 $5,665,188 $ 92,307 $ 16,524,577
Purchase and retirement
of common stock....... -- -- -- -- -- --
MVA to AFS Securities
(unaudited)........... -- -- -- -- (93,080) (93,080)
Net income
(unaudited)........... -- -- -- 853,653 -- 853,653
--------- ---------- ---------- ---------- -------------- ------------
Balance at March 31,
1996 (unaudited)...... 3,362,000 $3,362,000 $7,405,082 $6,518,841 $ (773) $ 17,285,150
======== ========= ========= ========= =========== ==========
</TABLE>
F-23
<PAGE> 121
SOUTHERN BANKING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income...................................................... $ 853,653 $ 494,713
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................ 156,182 118,145
Net amortization of premiums and accretion of discounts on
investment securities held to maturity and investment
securities available for
sale....................................................... (11,965) (12,723)
Provision for loan losses.................................... 55,000 75,000
Deferred loan origination fees............................... 11,655 28,913
Loss on sale of investment securities available for sale..... -- 36,941
Cash provided by (used in) changes in:
Accrued interest receivable................................ 120,098 13,113
Other assets............................................... (703,447) 407,677
Accrued expenses and other liabilities..................... 139,715 490,211
----------- -----------
Net cash provided by operating activities............... 620,891 1,651,990
----------- -----------
Cash flows from investing activities:
Loans, net of collections....................................... 2,602,476 (2,382,833)
Proceeds from sales and maturities of investment securities
available for sale........................................... 4,880,174 3,212,625
Purchase of Federal Home Loan Bank stock........................ (146,500) --
Proceeds from sale of Federal Reserve Bank stock................ -- 150,000
Purchase of premises and equipment.............................. (117,126) (125,513)
----------- -----------
Net cash provided by investing activities............... 7,219,024 854,279
----------- -----------
Cash flows from financing activities:
Net increase (decrease) in deposits............................. (2,362,069) 30,310,201
Net decrease in Federal funds purchased......................... -- (12,000,000)
----------- -----------
Net cash provided by (used in) financing activities..... (2,362,069) 18,310,201
----------- -----------
Net increase in cash and cash equivalents............... 5,477,846 20,816,470
Cash and cash equivalents at beginning of year.................... 32,747,844 13,590,206
----------- -----------
Cash and cash equivalents at end of year.......................... $38,225,690 $34,406,676
========== ==========
Cash paid during the year for:
Interest........................................................ $ 1,667,078 $ 1,176,794
========== ==========
Taxes........................................................... 40,308 --
========== ==========
Supplemental disclosures of non-cash transactions:
Transfer of loans to other real estate owned.................... $ -- $ 229,880
========== ==========
Market value adjustment -- investment securities available for
sale:
Market value adjustment -- investments....................... $ (1,171) $ (445,971)
Deferred income tax asset.................................... (398) (173,572)
----------- -----------
Unrealized loss on investments available for sale,
net.................................................. $ (773) $ (272,399)
========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-24
<PAGE> 122
SOUTHERN BANKING CORPORATION AND SUBSIDIARY
NOTES TO THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements of
Southern Banking Corporation and its Subsidiary ("the Company") have been
prepared in accordance with generally accepted accounting principles for interim
financial information. These unaudited interim financial statements should be
read in conjunction with the audited consolidated financial statements and
footnotes included in the Company's 1995 annual report.
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting only of
normal recurring accruals) necessary to present fairly the financial position as
of March 31, 1996 and the results of operations and cash flows for the interim
periods ended March 31, 1996 and 1995. Operating results for the three month
period ended March 31, 1996 are not necessarily indicative of the results of
operations to be expected for the year.
NOTE B -- COMMITMENTS AND CONTINGENCIES
The Company's subsidiary bank makes loan commitments and incurs contingent
liabilities in the normal course of business which are not reflected in the
consolidated statements of condition.
NOTE C -- ACCOUNTING CHANGES
On January 1, 1996 the Company adopted the Financial Standards Board issued
SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of". SFAS 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by the entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If the future undiscounted
cash flows expected to result from the use of the asset and its eventual
disposition are less than the carrying amount of the asset, an impairment loss
is recognized. This statement also requires that long-lived assets and certain
intangibles to be disposed of be reported at the lower of carrying amount or
fair value less cost to sell. Management believes that the adoption of SFAS No.
121 will not have a material impact on the Company's financial statements.
On January 1, 1996 the Company adopted the Financial Standards Board issued
SFAS 122, "Accounting for Mortgage Servicing Rights". This Statement amends
certain provisions of SFAS No. 65 to substantially eliminate the accounting
distinction between rights to service mortgage loans for others that are
acquired through loan origination activities and those acquired through purchase
transactions. The Statement requires the allocation of the total cost of the
mortgage loans to the mortgage servicing rights and the loans (without the
mortgage servicing rights), based on their relative fair values, if it is
practicable to estimate those fair values. Mortgage servicing rights are then
amortized in proportion to and over the period of estimated net servicing income
and should be evaluated for impairment based on their fair value. Management
believes that the adoption of SFAS No. 122 will not have a material impact on
the Company's financial statements.
On January 1, 1996 the Company adopted Financial Standards Board issued
SFAS 123, "Accounting for Stock-Based Compensation". SFAS 123 establishes a fair
value based method of accounting for stock-based compensation plans. The
Statement permits an entity, however, in determining its net income to continue
to apply the accounting provisions of Opinion 25 to its stock-based employee
compensation arrangements. The Company has both director and employee stock
compensation plans. Management believes that the adoption of SFAS No. 123 will
not have a material impact on the Company's financial statements.
F-25
<PAGE> 123
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Commercial Bancorp of Georgia, Inc.
and Subsidiary
Lawrenceville, Georgia
We have audited the accompanying consolidated balance sheets of Commercial
Bancorp of Georgia, Inc. (formerly known as Commercial Bancorp of Gwinnett,
Inc.) and subsidiary as of December 31, 1995 and 1994, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of Commercial Bancorp of Georgia, Inc.'s management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. We audited the consolidated financial statements
of Commercial Bancorp of Georgia, Inc. (formerly known as Commercial Bancorp of
Gwinnett, Inc.) and subsidiary as of December 31, 1993, and for the year then
ended, and our report, dated January 25, 1994, expressed an unqualified opinion
on those statements. The consolidated financial statements of the former
Commercial Bancorp of Georgia, Inc. and subsidiary as of December 31, 1993, and
for the year then ended, were audited by other auditors whose report, dated
March 2, 1994, expressed an unqualified opinion on those statements.
The consolidated financial statements of Commercial Bancorp of Georgia,
Inc. (formerly known as Commercial Bancorp of Gwinnett, Inc.) as of December 31,
1994, and for the two years in the period then ended, have been restated to
reflect the 1995 pooling of interests with the former Commercial Bancorp of
Georgia, Inc., as described in Note B of the consolidated financial statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Commercial Bancorp of Georgia, Inc. (formerly known as Commercial Bancorp of
Gwinnett, Inc.) and subsidiary as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles. We also
audited the combination of the accompanying consolidated statements of income
and cash flows for the year ended December 31, 1993, after restatement for the
1995 pooling of interests. In our opinion, such consolidated statements have
been properly combined on the basis described in Note A to the consolidated
financial statements.
As discussed in Note A to the consolidated financial statements, in 1995
the Company adopted the provisions of Statement of Financial Accounting
Standards No. 114 on the accounting for impaired loans.
BRICKER & MELTON, P.A.
March 15, 1996
Duluth, Georgia
F-26
<PAGE> 124
COMMERCIAL BANCORP OF GEORGIA, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks (Note D).................................. $ 21,606,814 $ 12,164,453
Interest-bearing deposits in other banks.......................... -- 200,000
Federal funds sold................................................ 18,939,000 14,610,000
Investment securities held to maturity (market value of
$14,513,114 and $18,226,280 for 1995 and 1994, respectively)
(Note E)........................................................ 14,501,738 19,096,399
Investment securities available for sale (Note E)................. 21,310,904 7,311,800
Other investments................................................. -- 180,000
Loans, net of deferred loan fees (Notes F and L).................. 144,930,447 135,702,655
Loans held for sale............................................... -- 189,590
Less: Allowance for loan losses................................... (2,619,545) (1,966,411)
------------ ------------
Loans, net.............................................. 142,310,902.. 133,925,834
Premises and equipment, net (Note G).............................. 5,786,453 5,995,057
Other real estate, net (Note H)................................... 1,102,261 1,480,417
Intangible assets, net of accumulated amortization of $595,781 and
$432,491 for 1995 and 1994, respectively........................ 821,347 984,637
Accrued interest receivable....................................... 1,728,691 1,532,366
Other assets (Note J)............................................. 2,598,764 1,896,522
------------ ------------
TOTAL ASSETS............................................ $230,706,874 $199,377,485
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing demand................................... $ 35,030,207 $ 38,075,216
Interest-bearing demand and money market..................... 49,657,927 46,423,500
Savings...................................................... 5,382,903 5,744,815
Time deposits of $100,000 or more............................ 26,273,745 18,766,716
Other time deposits.......................................... 90,285,240 69,253,881
------------ ------------
Total Deposits.......................................... 206,630,022 178,264,128
------------ ------------
Note payable (Note L)........................................ -- 50,000
Obligation under capital leases (Note G)..................... 103,079 160,692
Accrued interest payable..................................... 1,694,426 1,066,201
Accrued merger expenses (Note C)............................. 1,272,941 --
Other liabilities............................................ 1,215,759 1,104,624
------------ ------------
TOTAL LIABILITIES....................................... 210,916,227 180,645,645
------------ ------------
STOCKHOLDERS' EQUITY (Note M)
Common stock -- $1 par value: 10,000,000 shares authorized,
1,856,711 shares issued and outstanding...................... 1,856,711 1,856,711
Surplus......................................................... 16,090,386.. 16,090,386
Retained earnings............................................... 1,904,740 1,236,769
Treasury stock, at cost, 30,000 shares.......................... (300,000) (300,000)
Market valuation reserve on investment securities available for
sale (Note E)................................................ 238,810 (152,026)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY.............................. 19,790,647 18,731,840
------------ ------------
Commitments and contingent liabilities (Notes N and O)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............. $230,706,874 $199,377,485
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-27
<PAGE> 125
COMMERCIAL BANCORP OF GEORGIA, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees....................................... $16,054,571 $12,517,671 $10,853,400
Investment securities:
Taxable................................................... 1,690,133 1,217,364 1,123,736
Tax-exempt................................................ 20,539 10,693 2,231
Dividends................................................. 3,060 10,800 10,800
Federal funds sold.......................................... 1,200,394 586,398 336,179
Deposits in other banks..................................... 4,558 4,295 --
----------- ----------- -----------
TOTAL INTEREST INCOME................................ 18,973,255 14,347,221 12,326,346
----------- ----------- -----------
INTEREST EXPENSE
Interest-bearing demand and money market.................... 1,753,461 1,427,552 1,304,223
Savings..................................................... 164,857.... 162,809 118,444
Time deposits of $100,000 or more........................... 1,360,400 857,799 705,595
Other time deposits......................................... 5,081,669 2,978,769 2,635,520
Obligation under capital leases (Note G).................... 7,700 12,171 14,970
Other (Notes K and L)....................................... 21,586 18,906 13,533
----------- ----------- -----------
TOTAL INTEREST EXPENSE............................... 8,389,673 5,458,006 4,792,285
----------- ----------- -----------
NET INTEREST INCOME.................................. 10,583,582 8,889,215 7,534,061
PROVISION FOR LOAN LOSSES (Note F)............................ 1,345,191 694,967 438,854
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES............................................. 9,238,391 8,194,248 7,095,207
----------- ----------- -----------
OTHER INCOME
Service charges on deposit accounts......................... 953,343 918,899 671,802
Investment securities gains, net (Note E)................... -- -- 66,912
Gains on sales of SBA loan participations................... 394,594 526,400 529,942
Fees/gains on the origination/sale of mortgage loans........ 110,951 164,032 473,574
Loan servicing fees......................................... 345,606 254,723 185,962
Debit card servicing fees................................... 241,051 116,307 --
Other income................................................ 192,061 234,886 205,611
----------- ----------- -----------
TOTAL OTHER INCOME................................... 2,237,606 2,215,247 2,133,803
----------- ----------- -----------
OTHER EXPENSE
Salaries and employee benefits (Note K)..................... 4,399,640 4,518,188 4,045,739
Net occupancy and equipment expense (Note G)................ 1,251,805 1,403,746 1,237,045
Other real estate expense (Note H).......................... 315,222 308,872 142,030
Amortization expense........................................ 163,290 157,594 158,540
Pending merger expense (Note C)............................. 1,272,941 -- --
Other expense (Note P)...................................... 2,559,115 2,824,909 2,280,444
----------- ----------- -----------
TOTAL OTHER EXPENSE.................................. 9,962,013 9,213,309 7,863,798
----------- ----------- -----------
INCOME BEFORE INCOME TAXES........................... 1,513,984 1,196,186 1,365,212
INCOME TAX EXPENSE (Note J)................................... 846,013 498,408 479,024
----------- ----------- -----------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLES.............................. 667,971 697,778 886,188
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES FOR
INCOME TAXES (Note J)....................................... -- -- 383,691
----------- ----------- -----------
NET INCOME........................................... $ 667,971 $ 697,778 $ 1,269,879
============ ============ ============
EARNINGS PER SHARE (Note A)
Before cumulative effect of change.......................... $ .37 $ .38 $ .49
Cumulative effect of change................................. -- -- .21
----------- ----------- -----------
Primary..................................................... $.37........ $ .38 $ .70
============ ============ ============
Fully diluted............................................... $ .33 $ .38 $ .70
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-28
<PAGE> 126
COMMERCIAL BANCORP OF GEORGIA, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
----------------------------------------------------------------------------
MARKET
COMMON RETAINED TREASURY VALUATION
STOCK SURPLUS EARNINGS STOCK RESERVE TOTAL
---------- ----------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992...... $ 620,000 $ 5,454,022 $(1,020,736) $ -- $ -- $ 5,053,286
Effect of merger with the former
Commercial Bancorp of Georgia,
Inc. (Note B)................... 1,236,711 10,636,364 289,848 (300,000) -- 11,862,923
Net income........................ -- -- 1,269,879 -- -- 1,269,879
---------- ----------- ----------- --------- --------- -----------
BALANCE AT DECEMBER 31, 1993...... 1,856,711 16,090,386 538,991 (300,000) -- 18,186,088
Net income........................ -- -- 697,778 -- -- 697,778
Market valuation adjustment....... -- -- -- -- (152,026) (152,026)
---------- ----------- ----------- --------- --------- -----------
BALANCE AT DECEMBER 31, 1994...... 1,856,711 16,090,386 1,236,769 (300,000) (152,026) 18,731,840
Net income........................ -- -- 667,971 -- -- 667,971
Market valuation adjustment....... -- -- -- -- 390,836 390,836
---------- ----------- ----------- --------- --------- -----------
BALANCE AT DECEMBER 31, 1995...... $1,856,711 $16,090,386 $ 1,904,740 $(300,000) $ 238,810 $19,790,647
========== ============ ============ ========== ========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-29
<PAGE> 127
COMMERCIAL BANCORP OF GEORGIA, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................................... $ 667,971 $ 697,778 $ 1,269,879
Adjustments to reconcile net income to net cash provided by operating
activities:
Cumulative effect of change in accounting principles................... -- -- (383,691)
Provision for loan losses.............................................. 1,345,191 694,967 438,854
Net amortization on investment securities.............................. 35,543 58,068 149,280
Depreciation and amortization.......................................... 583,318 656,940 631,128
Amortization of intangible assets...................................... 163,290 157,594 158,540
Provision for losses on other real estate.............................. 238,173 231,939 27,751
Investment securities gains, net....................................... -- -- (66,912)
Deferred income tax benefit............................................ (549,338) (441,699) (63,025)
(Increase) decrease in loans held for sale............................. 189,590 2,617,474 (616,414)
Gains on sales of SBA loans............................................ (394,594) (526,400) (529,942)
(Increase) decrease in interest receivable............................. (196,325) (451,067) 32,917
Increase in interest payable........................................... 628,225 221,225 195,113
(Increase) decrease in other assets.................................... (354,243) 54,497 (86,398)
Increase in accrued merger expenses.................................... 1,272,941 -- --
Increase in other liabilities.......................................... 111,135 225,150 592,872
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES........................ 3,740,877 4,196,466 1,749,952
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) decrease in interest-bearing deposits in other banks........ 200,000 (200,000) 1,682,000
Purchases of investment securities held to maturity.................... (4,051,986) (6,590,000) (5,311,044)
Purchases of investment securities available for sale.................. (18,457,557) (7,423,081) (10,305,683)
Proceeds from sales of investment securities........................... -- -- 6,150,146
Proceeds from sales of other investments............................... 180,000 -- --
Maturities of investment securities held to maturity................... 8,610,975 2,956,286 3,496,175
Maturities of investment securities available for sale................. 5,050,757 4,731,165 6,326,704
Proceeds from sales of SBA loans....................................... 5,018,637 7,027,300 5,734,588
Loans originated or acquired, net of principal repayments.............. (15,703,127) (31,547,292) (20,447,741)
Purchases of premises and equipment.................................... (374,714) (986,397) (494,501)
Capital improvements to other real estate.............................. (66,551) (331,898) (97,378)
Proceeds from sales of other real estate............................... 1,365,769 1,558,021 1,512,170
------------ ------------ ------------
NET CASH USED BY INVESTING ACTIVITIES............................ (18,227,797) (30,805,896) (11,754,564)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in federal funds purchased.................................... -- -- (1,500,000)
Net increase (decrease) in demand, money market and savings accounts... (172,494) 13,998,284 8,934,421
Time deposits accepted, net of repayments.............................. 28,538,388 12,211,051 17,267,714
Reduction of capital lease obligation.................................. (57,613) (128,498) (181,085)
Proceeds from note payable............................................. -- 50,000 --
Repayment of note payable.............................................. (50,000) -- --
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES........................ 28,258,281 26,130,837 24,521,050
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..................... 13,771,361 (478,593) 14,516,438
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR........................... 26,774,453 27,253,046 12,736,608
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR................................. $ 40,545,814 $ 26,774,453 $ 27,253,046
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH PAID:
Interest............................................................... $ 7,761,448 $ 5,236,781 $ 4,656,511
=========== =========== ===========
Income taxes........................................................... $ 1,872,283 $ 1,214,700 $ 289,500
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING AND INVESTING ACTIVITIES:
Real estate acquired in settlement of loans............................ $ 1,159,235 $ 1,560,749 $ 504,323
=========== =========== ===========
Transfers of investment securities to held to maturity................. $ -- $ 9,286,388 $ --
=========== =========== ===========
Transfers of investment securities to available for sale............... $ -- $ 2,553,851 $ 9,267,563
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-30
<PAGE> 128
COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Commercial Bancorp of Georgia, Inc. and subsidiary provide a full range of
banking services in metropolitan Atlanta through its offices in Gwinnett,
Fulton, Cobb and DeKalb counties.
The accounting and reporting policies of Commercial Bancorp of Georgia,
Inc. and subsidiary conform to generally accepted accounting principles and to
general practices within the banking industry. The following is a summary of the
more significant of these policies.
The financial statements have been prepared in conformity with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the balance sheet
and revenues and expenses for the period. Actual results could differ
significantly from those estimates. Material estimates that are particularly
susceptible to significant change in the near term relate, for example, to the
determination of the allowance for loan losses, the market valuation reserve on
investment securities available for sale, 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, the decline in market
value of investment securities available for sale is temporary, 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. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the allowance for loan losses and valuation of other real
estate. Such agencies may require the recognition of additions to the allowance
or valuation adjustments to other real estate based on their judgments about
information available to them at the time of their examination.
BASIS OF PRESENTATION
The consolidated financial statements of Commercial Bancorp of Georgia,
Inc. (formerly Commercial Bancorp of Gwinnett, Inc.) (Parent Company) and its
wholly-owned subsidiary, Commercial Bank of Georgia (formerly known as
Commercial Bank of Gwinnett), collectively known as the Company, as of December
31, 1994, and for the two years in the period then ended, have been restated to
reflect the 1995 pooling of interests with the former Commercial Bancorp of
Georgia, Inc. and subsidiary as described in Note B. These restated consolidated
financial statements include the accounts of both entities and their wholly-
owned subsidiaries. The stock of the Parent Company held by the former
Commercial Bancorp of Georgia, Inc. has been treated as treasury stock. All
other significant intercompany accounts and transactions have been eliminated in
consolidation.
INVESTMENT SECURITIES
Investment securities which management has the ability and intent to hold
to maturity are reported at cost, adjusted for amortization of premium and
accretion of discount. Investment securities available for sale are reported at
fair value, with unrealized gains and losses reported as a separate component of
stockholders' equity, net of the related tax effect. Other investments are
reported at cost. Earnings are reported when interest is accrued or when
dividends are received.
Premium and discount on all investment securities are amortized (deducted)
and accreted (added), respectively, to interest income on the effective yield
method over the period to the maturity of the related securities. Premium and
discount on mortgage-backed securities are amortized (deducted) and accreted
(added), respectively, to interest income using a method which approximates a
level yield over the period to maturity of the related securities taking into
consideration assumed prepayment patterns.
Gains or losses on disposition are computed by the specific identification
method for all securities.
F-31
<PAGE> 129
COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LOANS
Loans are reported at the gross amount outstanding less net deferred loan
fees and a valuation allowance for loan losses. Interest income on all loans is
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. 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. Income on impaired loans is recognized
using both the interest income and the cash basis methods.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 114 (SFAS 114) on accounting by creditors for
impairment of a loan. SFAS 114, as amended by SFAS 118, requires that impaired
loans be measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate, or at the loan's fair value if
the loan is collateral dependent. The provisions of SFAS 114 were effective for
the Company beginning in 1995. The adoption did not have a significant adverse
effect on the Company.
Loans held for sale represent loans originated for sale by the Company in
the secondary market and are reported at the lower of cost or market.
Gains and losses on sales of loans and participating interests in loans are
recognized at the time of sale, as determined by the difference between the net
sales proceeds and the fair value of the loans sold. Discounts recorded to
adjust the value of the portions of the loans retained to fair value are
amortized to income over the life of the loan. Gains on sales of SBA loans are
deferred and recognized as income when all conditions of the sale have been met.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision for loan
losses charged to expense. The allowance represents an amount which, in
management's judgment, will be adequate to absorb probable losses on existing
loans that may become uncollectible. Management's judgment in determining the
adequacy of the allowance is based on evaluations of the collectibility of loans
and takes into consideration such factors as changes in the nature and volume of
the loan portfolio, current economic conditions that may affect the borrower's
ability to pay, overall portfolio quality and review of specific problem loans.
Periodic revisions are made to the allowance when circumstances which
necessitate such revisions become known. Recognized losses are charged to the
allowance for loan losses, while subsequent recoveries are added to the
allowance.
PREMISES AND EQUIPMENT
Premises and equipment are reported at cost less accumulated depreciation
and amortization. For financial reporting purposes, depreciation and
amortization are computed using primarily straight-line methods over the
estimated useful lives of the assets. Capital lease assets are amortized over
the shorter of the estimated useful lives of the assets or term of the related
leases. Expenditures for maintenance and repairs are charged to operations as
incurred, while major renewals and betterments are capitalized. When property is
disposed of, the related cost and accumulated depreciation are removed from the
accounts and any gain or loss is reflected in income. For Federal tax reporting
purposes, depreciation and amortization are computed using primarily accelerated
methods.
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 and a valuation allowance for losses. The allowance
represents an amount which, in management's judgement, will be adequate to
absorb probable losses. Losses incurred in the acquisition of foreclosed
properties are charged against the allowance for loan
F-32
<PAGE> 130
COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
losses at the time of foreclosure. Provisions for subsequent devaluation of
other real estate are charged against the current period's operations. Losses on
disposal of other real estate are charged to the valuation allowance for losses.
Costs associated with improving the property are capitalized to the extent fair
value less estimated selling expenses is not exceeded. Holding costs for other
real estate are expensed as incurred.
ORGANIZATIONAL COSTS
The expenses associated with the formation of the Company were capitalized
as organizational costs and are being amortized on the straight-line method over
five years.
INTANGIBLE ASSETS
Intangible assets, primarily arising from premiums paid in acquiring
deposits of other financial institutions, are amortized on a straight-line basis
over a period of 120 months. Certain legal and other costs incurred in
connection with the acquisition of branch facilities and related deposits from
other financial institutions have been capitalized and are amortized using the
straight-line method over 60 months.
INCOME TAXES
The tax effect of transactions is recorded at current tax rates in the
periods the transactions are reported for financial statement purposes. Deferred
income taxes are established for the temporary differences between the financial
reporting basis and the tax basis of the Company's assets and liabilities at
enacted tax rates expected to be in effect when such amounts are realized or
settled. The Company files its income tax returns on a consolidated basis.
PENDING ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 121 (SFAS 121), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The Company is
required to implement SFAS 121 by December 31, 1996. The provisions of SFAS 121
will require the Company to review long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The adoption is not expected to have a significant
impact on the Company.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 122 (SFAS 122), "Mortgage Servicing Rights," as an
amendment to SFAS 65. The Company is required to implement SFAS 122 by December
31, 1996. The provisions of SFAS 122 eliminate the accounting distinction
between rights to service mortgage loans that are acquired through loan
origination and those acquired through purchase. The adoption is not expected to
have a significant impact on the Company.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation." The Company is required to implement SFAS 123 in 1996. SFAS 123
establishes a method of accounting for stock compensation plans based on fair
value. Companies are permitted to continue to use the existing method of
accounting but are required to disclose pro forma net income and earnings per
share as if SFAS 123 had been used to measure compensation cost. The adoption of
SFAS 123 is not expected to have a significant impact on the Company.
EARNINGS PER SHARE
Primary earnings per share is based on the weighted average number of
shares outstanding during the period (1,826,711 in 1995, 1994 and 1993) and
common stock equivalents which would arise from the assumed exercise of
outstanding options and warrants unless their effect would be antidilutive.
Stock options and warrants, as described in Note M, are considered to be common
stock equivalents. For purposes of the
F-33
<PAGE> 131
COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
fully diluted computation, the number of shares that would be issued from the
exercise of stock options and warrants has been reduced by the number of shares
which could have been purchased from the proceeds at the market price of the
Company's stock on December 31, 1995, because that price was higher than the
average market price during the year. The number of shares used in the
computation of fully diluted earnings per share in 1995 is 2,034,063.
FINANCIAL INSTRUMENTS
In the ordinary course of business, the Bank has entered 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 related fees are incurred or
received.
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.
Investment securities
The fair value of investment securities held to maturity and available for
sale is estimated based on quotes received from independent pricing services.
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 discount 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.
Deposits
The fair value of deposits with no stated maturity, such as demand, NOW and
money market, and savings accounts, is equal to the amount payable on demand at
year-end. 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.
Capital lease obligations
The fair value of the Company's capital lease obligations is estimated
using discounted cash flow analyses based on the current borrowing rate for
similar types of arrangements.
Accrued interest
The carrying amount of accrued interest receivable and payable approximates
fair value.
F-34
<PAGE> 132
COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 requirements of Statement of Financial Accounting Standards No. 107
(SFAS 107), "Disclosure About Fair Value of Financial Instruments," was
effective for financial statements of entities with less than $150 million in
total assets for fiscal years ending after December 15, 1995. At December 31,
1994, prior to the merger, Commercial Bank of Georgia and the former Commercial
Bank of Gwinnett each had less than $150 million in total assets and, therefore,
were not required to adopt SFAS 107 until 1995.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, noninterest-bearing amounts due from banks and federal funds sold.
Generally, federal funds are purchased and sold for one-day periods.
RECLASSIFICATIONS
Certain reclassifications have been made in the 1994 and 1993 financial
statements to conform with the 1995 presentation.
NOTE B. BUSINESS COMBINATION AND RESTATEMENT OF FINANCIAL STATEMENTS
On March 2, 1995, the former Commercial Bancorp of Georgia, Inc. merged
with Commercial Bancorp of Gwinnett, Inc., and Commercial Bancorp of Gwinnett,
Inc., the surviving entity, changed its name to Commercial Bancorp of Georgia,
Inc. On September 30, 1995, Commercial Bank of Georgia merged with Commercial
Bank of Gwinnett, and Commercial Bank of Gwinnett, the surviving entity, changed
its name to Commercial Bank of Georgia. A total of 1,236,711 shares of
Commercial Bancorp of Gwinnett, Inc. stock was issued for all of the issued and
outstanding shares of the former Commercial Bancorp of Georgia, Inc. No cash,
except for nominal dissenting shareholders and fractional shares, was paid in
the transaction.
The transaction was accounted for as a pooling of interests. The financial
statements as of December 31, 1994, and for the two years in the period then
ended, have been restated to include the financial position and results of
operations of the former Commercial Bancorp of Georgia, Inc.
F-35
<PAGE> 133
COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's consolidated financial data have been restated as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------
1994 1993
---------- ----------
<S> <C> <C>
Net Interest Income:
Commercial Bancorp of Gwinnett, before merger............. $2,988,641 $2,264,431
Commercial Bancorp of Georgia............................. 5,900,574 5,269,630
---------- ----------
Total....................................................... $8,889,215 $7,534,061
========= =========
Net Income:
Commercial Bancorp of Gwinnett, before merger............. $ 340,596 $ 751,743
Commercial Bancorp of Georgia............................. 357,182 518,136
---------- ----------
Total....................................................... $ 697,778 $1,269,879
========= =========
Net Income Per Share:
Commercial Bancorp of Gwinnett, before merger............. $ .55 $ 1.21(1)
Effect of restatement for Commercial Bancorp of Georgia... (.17) (.51)
---------- ----------
Total....................................................... $ .38 $ .70
========= =========
</TABLE>
- ---------------
(1) Includes a $383,691 increase in net income for cumulative effect of change
in accounting principles for income taxes.
NOTE C. PENDING MERGER
During December 1995, the Company and The Colonial BancGroup, Inc.
(Colonial) entered into an agreement to merge the two companies. The agreement
provides that, upon consummation of the merger, each outstanding share of
Commercial Bancorp of Georgia, Inc. common stock shall be converted and
exchanged for the right to receive the number of shares of Colonial common stock
equal to $21.07 divided by the market value, as defined, of Colonial's common
stock. The merger will be accounted for as a pooling of interests. As of
December 31, 1995, the Company has accrued $1,272,941 in expenses related to the
pending merger. The merger is subject to regulatory and shareholder approval and
is anticipated to be consummated during the third quarter of 1996.
NOTE D. CASH AND DUE FROM BANKS
A bank is required to maintain average reserve balances with the Federal
Reserve Bank, on deposit with national banks or in cash. The Bank's reserve
requirement at December 31, 1995 and 1994, was approximately $1,039,000 and
$1,048,000, respectively. The Bank maintained cash balances which were adequate
to meet this requirement.
F-36
<PAGE> 134
COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE E. INVESTMENT SECURITIES
The amortized cost and estimated market value of investment securities held
to maturity are as follows at December 31:
<TABLE>
<CAPTION>
1995
---------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities................. $ 3,028,525 $ 8,366 $ 10,076 $ 3,026,815
U.S. Government agencies and
corporations........................... 3,506,950 5,916 21,319 3,491,547
Mortgage-backed securities............... 7,571,900 45,034 22,067 7,594,867
States and political subdivisions........ 394,363 5,522 -- 399,885
----------- ---------- ---------- -----------
$14,501,738 $ 64,838 $ 53,462 $14,513,114
========== ======== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
1994
---------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities................. $ 6,042,396 $ -- $ 262,964 $ 5,779,432
U.S. Government agencies and
corporations........................... 7,558,899 -- 368,318 7,190,581
Mortgage-backed securities............... 4,300,822 -- 198,968 4,101,854
States and political subdivisions........ 894,312 -- 32,789 861,523
Other securities......................... 299,970 -- 7,080 292,890
----------- ---------- ---------- -----------
$19,096,399 $ -- $ 870,119 $18,226,280
========== ======== ======== ==========
</TABLE>
The amortized cost and estimated market value of investment securities
available for sale are as follows at December 31:
<TABLE>
<CAPTION>
1995
---------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities................. $ 1,702,570 $ 8,995 $ 1,530 $ 1,710,035
U.S. Government agencies and
corporations........................... 17,039,466 321,250 2,420 17,358,296
Mortgage-backed securities............... 2,207,034 35,539 -- 2,242,573
----------- ---------- ---------- -----------
$20,949,070 $ 365,784 $ 3,950 $21,310,904
========== ======== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
1994
---------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities................. $ 4,697,116 $ -- $ 110,703 $ 4,586,413
U.S. Government agencies and
corporations........................... 1,247,515 -- 97,128 1,150,387
Mortgage-backed securities............... 1,597,510 -- 22,510 1,575,000
----------- ---------- ---------- -----------
$ 7,542,141 $ -- $ 230,341 $ 7,311,800
========== ======== ======== ==========
</TABLE>
In conjunction with the adoption of SFAS 115, in 1994 the Company
transferred investment securities totaling $9,286,388 from available for sale to
held to maturity and securities totaling $2,553,851 to available for sale due to
management's reevaluation of the investment portfolio.
The unrealized gain on available for sale securities, net of the related
deferred taxes of $123,024, is $238,810 at December 31, 1995, and is included as
a separate component of stockholders' equity. The unrealized loss on available
for sale securities, net of the related deferred taxes of $78,315, is $152,026
at December 31, 1994, and is included as a separate component of stockholders'
equity.
F-37
<PAGE> 135
COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The amortized cost and estimated market value of investment securities held
to maturity and available for sale at December 31, 1995, by contractual
maturity, are shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
without call or prepayment penalties. Mortgage-backed securities have been
allocated based on stated maturity dates after considering assumed prepayment
patterns.
<TABLE>
<CAPTION>
INVESTMENT SECURITIES INVESTMENT SECURITIES
HELD TO MATURITY AVAILABLE FOR SALE
------------------------- -------------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Due in one year or less..................... $ 2,381,985 $ 2,395,764 $ -- $ --
Due after one year through five years....... 7,744,780 7,714,781 10,242,037 10,364,629
Due after five years through ten years...... -- -- 9,105,498 9,339,342
Due after ten years......................... 4,374,973 4,402,569 1,601,535 1,606,933
----------- ----------- ----------- -----------
$14,501,738 $14,513,114 $20,949,070 $21,310,904
========== ========== ========== ==========
</TABLE>
There were no sales of investment securities during 1995 and 1994. Proceeds
from sales of investment securities during 1993 were $6,150,146, with gross
gains of $66,912 and gross losses of $0 realized on those transactions.
Investment securities with carrying values of $1,534,254 and $1,542,548 and
approximate market values of $1,531,728 and $1,589,798 at December 31, 1995 and
1994, respectively, were pledged to secure public funds and certain other
deposits as required by law.
At December 31, 1995, the Company has no outstanding derivative financial
instruments such as swaps, options, futures or forward contracts.
NOTE F. LOANS
Major classifications of loans are as follows at December 31:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Commercial, financial and agricultural............................ $ 34,522,237 $ 39,884,915
Real estate -- construction....................................... 58,109,400 50,979,892
Real estate -- mortgage........................................... 45,040,309 36,636,921
Consumer, installment and other loans............................. 8,001,055 8,900,980
------------ ------------
Total loans............................................. 145,673,001 136,402,708
Less: Net deferred loan fees...................................... (742,554) (700,053)
------------ ------------
Loans, net of deferred loan fees........................ $144,930,447 $135,702,655
=========== ===========
</TABLE>
Most of the Bank's business activity is with customers located within the
Atlanta metropolitan area. As of December 31, 1995 and 1994, the Bank had a
concentration of credit risk aggregating approximately $103,150,000 and
$87,617,000, respectively, in loans secured by real estate.
At December 31, 1995 and 1994, non-accrual loans totaled approximately
$734,000 and $770,000, respectively. If such loans had been on a full-accrual
basis, interest income would have been approximately $42,000 and $30,000 higher,
respectively. At December 31, 1995 and 1994, renegotiated and/or restructured
loans totaled approximately $765,000 and $1,026,000, respectively.
At December 31, 1995, the Bank has approximately $1,787,000 in loans which
are impaired under SFAS 114. Loans totaling approximately $1,537,000, which are
secured by real estate, have not been allocated a specific impairment reserve.
These loans are considered collateral dependent and foreclosure is probable.
F-38
<PAGE> 136
COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Based on the fair market value of the properties, management expects the Bank to
incur no loss upon the subsequent disposition of the collateral. The allowance
for impaired loans at December 31, 1995, is approximately $182,000. The average
outstanding amount of impaired loans during 1995 is approximately $1,254,000.
The following is a summary of transactions in the allowance for loan losses
for the years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Balance, beginning of year......................... $1,966,411 $1,412,732 $1,189,398
Provision charged to expense....................... 1,345,191 694,967 438,854
Loans charged off.................................. (761,339) (216,922) (247,345)
Recoveries of loans charged off.................... 69,282 75,634 31,825
---------- ---------- ----------
Balance, end of year............................... $2,619,545 $1,966,411 $1,412,732
========= ========= =========
</TABLE>
NOTE G. PREMISES AND EQUIPMENT
Premises and equipment are comprised of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Land.......................................................... $1,453,814 $1,453,814
Buildings..................................................... 3,859,347 3,820,219
Leasehold improvements........................................ 428,203 454,641
Furniture, fixtures and equipment............................. 2,068,158 1,864,321
Capital lease assets for furniture, fixtures and equipment.... 685,342 610,492
---------- ----------
8,494,864 8,203,487
Less: Accumulated depreciation and amortization............... (2,112,248) (1,719,433)
Accumulated depreciation of capital lease assets........ (596,163) (488,997)
---------- ----------
$5,786,453 $5,995,057
========= =========
</TABLE>
The charge to operating expense for depreciation and amortization,
including amortization of capital lease assets, was $583,318, $656,940 and
$631,128 in 1995, 1994 and 1993, respectively.
Future minimum lease payments under capital lease obligations and the
present value of the net minimum lease payments at December 31, 1995, are as
follows:
<TABLE>
<CAPTION>
YEAR AMOUNTS
-------------------------------------------------------------------------- --------
<S> <C>
1996...................................................................... $ 89,058
1997...................................................................... 18,271
--------
Total minimum lease payments.................................... 107,329
Less amount representing interest......................................... (4,250)
--------
Present value of net minimum lease payments............................... $103,079
========
</TABLE>
F-39
<PAGE> 137
COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company leases office space under noncancelable operating lease
agreements with remaining terms in excess of one year. Future minimum annual net
rentals required under the terms of these operating leases at December 31, 1995,
are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNTS
-------------------------------------------------------------------------- --------
<S> <C>
1996...................................................................... $224,080
1997...................................................................... 122,452
1998...................................................................... 50,400
1999...................................................................... 50,400
2000...................................................................... 50,400
Thereafter................................................................ 104,400
--------
$602,132
========
</TABLE>
Rental expense charged to operations was approximately $303,000, $326,000
and $339,000 in 1995, 1994 and 1993, respectively. Rental income of
approximately $101,000, $125,000 and $123,000 for 1995, 1994 and 1993,
respectively, is included as a reduction of net occupancy expense in the
consolidated statements of income.
NOTE H. OTHER REAL ESTATE
The following is a summary of transactions in the valuation allowance for
losses on other real estate for the years ended December 31:
<TABLE>
<CAPTION>
1995 1994
--------- --------
<S> <C> <C>
Balance, beginning of year.................................... $ 200,000 $ 4,000
Provision charged to expense.................................. 238,173 231,939
Losses charged off............................................ (129,673) (35,939)
--------- --------
Balance, end of year.......................................... $ 308,500 $200,000
========= ========
</TABLE>
Net expenses of other real estate totaled $315,222, $308,872 and $142,030
for the years ended December 31, 1995, 1994 and 1993, respectively.
NOTE I. SHORT-TERM BORROWINGS
The Bank utilizes short-term borrowings as needed for liquidity purposes in
the form of federal funds purchased. The Bank has unsecured lines of credit for
federal funds purchased from other banks totaling $8,000,000. At December 31,
1995 and 1994, there were no amounts outstanding under these lines.
NOTE J. INCOME TAXES
The following are the components of income tax expense as provided for the
years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
---------- --------- --------
<S> <C> <C> <C>
Current income tax provision....................... $1,395,351 $ 940,107 $542,049
Deferred income tax benefit........................ (549,338) (441,699) (63,025)
---------- --------- --------
$ 846,013 $ 498,408 $479,024
========= ========= ========
</TABLE>
F-40
<PAGE> 138
COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of income tax computed at the Federal statutory income tax
rate to total income taxes is as follows for the years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Pretax income.................................... $1,513,984 $1,196,186 $1,365,212
========= ========= =========
Income tax computed at Federal statutory rate.... $ 514,755 $ 406,704 $ 464,172
Increase (decrease) resulting from:
Nondeductible expenses......................... 289,254 100,132 4,509
State income taxes............................. 63,981 20,315 --
Other, net..................................... (21,977) (28,743) 10,343
---------- ---------- ----------
$ 846,013 $ 498,408 $ 479,024
========= ========= =========
</TABLE>
The Company adopted Statement of Financial Accounting Standards No. 109 as
of January 1, 1993. The cumulative effect on prior years of this change in
accounting principles increased net income in 1993 by $383,691 and is reported
separately in the consolidated statement of operations.
At December 31, 1993, the Company had available net loss carryforwards of
approximately $190,000 for financial reporting purposes which were fully
utilized in 1994.
The following summarizes the tax effects of temporary differences which
comprise the net deferred tax assets at December 31:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Allowance for loan losses.................................... $ 814,171 $ 575,946
Intangible assets............................................ 78,218 62,897
Net deferred loan fees....................................... 287,551 275,416
Accumulated depreciation..................................... 169,879 108,268
Deferred compensation........................................ 318,705 122,366
Other real estate............................................ 123,919 110,222
Market valuation reserve..................................... (123,024) 78,315
Other, net................................................... 33,964 21,954
---------- ----------
$1,703,383 $1,355,384
========= =========
</TABLE>
NOTE K. SAVINGS AND DEFERRED COMPENSATION PLANS
The Company has established a 401(k) Savings Plan (Plan) for the benefit of
eligible employees and their beneficiaries. Participants under the Plan may
elect to contribute up to 20 percent of their gross salaries, excluding bonuses,
to the Plan. Any matching contributions are made at the discretion of the
Company. For the years ended December 31, 1995, 1994 and 1993, the Company
contributed $80,000, $21,000 and $10,000, respectively, to the Plan.
The former Commercial Bancorp of Georgia, Inc. maintained a deferred
compensation plan for directors which provided for the deferral of fees for
outside directors. In 1995, in conjunction with the merger, the plan was
modified to include the directors of the former Commercial Bancorp of Gwinnett,
Inc. All liabilities established under the former plan were assumed by the new
plan. The 1995 plan provides that amounts deferred are treated as if applied to
purchase the number of shares of common stock of the Company that could have
been purchased with the fees at the time of deferral. Participants generally
will receive payment in a single cash distribution upon leaving the Board of
Directors. Amounts expensed under the plan totaled $30,900, $41,600 and $27,150
in 1995, 1994 and 1993, respectively. During 1995, in conjunction with the
pending merger, the Company accrued an additional $181,603 related to the plan.
F-41
<PAGE> 139
COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The employment contract between the Company and the President established a
retirement plan (Plan) for the benefit of the President. The Plan provides for a
monthly benefit of $1,500 to be paid to the President commencing on his
sixty-second birthday and continuing until his death. The Plan will remain in
effect regardless of the President's employment status with the Company. For the
years ended December 31, 1995, 1994 and 1993, the Company recorded total
compensation expense of $16,170, $17,531 and $19,000, respectively, and interest
expense of $10,265, $8,917 and $5,901, respectively, related to this Plan.
The employment contract between the Company and the President also
established a supplemental deferred compensation benefit (Annuity) for the
President. The agreement provides for a monthly benefit of $1,780 to be paid to
the President commencing on his sixty-second birthday and continuing for a
ten-year period provided the President remains in the Company's employ through
April 25, 1996. For the years ended December 31, 1995, 1994 and 1993, the
Company recorded compensation expense of $12,830, $13,891 and $15,049,
respectively, and interest expense of $8,135, $7,061 and $7,450, respectively,
related to this Annuity. An annuity contract was purchased by the Company to
fund the Plan. At December 31, 1995, the annuity contract was valued at
$138,769, and is included in other assets in the accompanying consolidated
balance sheet.
During 1995, in conjunction with the pending merger, certain Bank officers
and employees were awarded a retention bonus for continuing their employment
through the merger. At December 31, 1995, the Company accrued $233,750 for
retention bonuses, which is included in accrued merger expenses in the
accompanying consolidated balance sheet.
NOTE L. RELATED PARTY TRANSACTIONS
As of December 31, 1995 and 1994, the Bank had direct and indirect loans
which aggregated $2,698,178 and $2,919,404, respectively, outstanding to or for
the benefit of certain of the Company's officers, directors, and their related
interests. During 1995, $34,000 of such loans were made and repayments totaled
$255,226. These loans were made in the ordinary course of business in conformity
with normal credit terms, including interest rates and collateral requirements
prevailing at the time for comparable transactions with other borrowers. These
individuals and their related interests also maintain customary demand and time
deposit accounts with the Bank.
As of December 31, 1994, the Company had a $50,000 short-term unsecured
note payable to a related party. The note was scheduled to mature in May 1995
and bore interest at two percentage points above The Wall Street Journal prime
rate. The loan was repaid upon maturity.
NOTE M. STOCKHOLDERS' EQUITY
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 Bank's financial statements. The regulations require the
Bank to meet specific capital adequacy guidelines that involve quantitative
measures of the Bank's assets, liabilities, and certain off-balance-sheet items
as calculated under regulatory accounting practices. The Bank's capital
classification is also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank 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 Bank
must maintain minimum Tier 1 leverage, Tier 1 risk-based, and total risk-
F-42
<PAGE> 140
COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
based ratios as set forth in the table. The Bank's actual capital amounts and
ratios are also presented in the table.
<TABLE>
<CAPTION>
1995
-----------------------------------------------
REQUIRED ACTUAL
--------------------- ---------------------
AMOUNT (RATIO) AMOUNT (RATIO)
----------- ------- ----------- -------
<S> <C> <C> <C> <C>
Tier 1 Capital (to Average Assets)................. $ 9,202,000 4.0% $17,662,000 7.7%
Tier 1 Capital (to Risk Weighted Assets)........... $ 6,355,000 4.0% $17,662,000 11.1%
Total Capital (to Risk Weighted Assets)............ $12,710,000 8.0% $19,648,000 12.4%
</TABLE>
<TABLE>
<CAPTION>
1994
-----------------------------------------------
REQUIRED ACTUAL
--------------------- ---------------------
AMOUNT (RATIO) AMOUNT (RATIO)
----------- ------- ----------- -------
<S> <C> <C> <C> <C>
Tier 1 Capital (to Average Assets)................. $ 7,933,000 4.0% $15,881,000 8.0%
Tier 1 Capital (to Risk Weighted Assets)........... $ 5,932,000 4.0% $15,881,000 10.7%
Total Capital (to Risk Weighted Assets)............ $11,864,000 8.0% $17,736,000 12.0%
</TABLE>
Management believes, as of December 31, 1995, that the Bank meets all
capital requirements to which it is subject.
The Board of Directors has approved an aggregate of 135,611 stock options
to be issued to certain officers. Of the options outstanding at December 31,
1995, 61,851 are exercisable for a period of seven years from the date of grant
at the book value of the Company's stock at the end of the most recent quarter
immediately prior to the award of options, 13,000 are exercisable for a period
of seven years from the date of grant at the greater of the market value of the
Company's stock at the date of grant or $10 per share, and 22,500 are
exercisable at $12 per share for a period of ten years from the date of grant.
In the event of a change of control of the Company, all outstanding options will
be considered earned.
Summarized options data is as follows at December 31:
<TABLE>
<CAPTION>
1995 1994
--------------------------- --------------------------
NUMBER OF PRICE PER NUMBER OF PRICE PER
SHARES SHARE SHARES SHARE
--------- --------------- --------- --------------
<S> <C> <C> <C> <C>
Options outstanding at beginning of
year................................ 74,351 $ 9.57 - 10.21 73,351 $9.57 - 10.21
Options granted....................... 24,000 10.00 - 12.00 1,000 10.00
Options exercised..................... -- -- -- --
Options canceled...................... (1,000) 10.00 -- --
--------- --------------- --------- --------------
Options outstanding at end of year.... 97,351 $ 9.57 - 12.00 74,351 $9.57 - 10.21
======== ============ ======== ===========
Options available for grant at end of
year................................ 38,260 38,760
======== ========
</TABLE>
In connection with the Company's formation and initial stock offering,
255,000 non-transferable warrants were issued to organizing stockholders and
certain officers. The warrants allow such individuals to purchase one additional
share of common stock for each share purchased in connection with the initial
offering and are exercisable for ten years from the date that the Company
commenced operations (July 27, 1990) at the greater of the Company's book value
per common share as of the most recent quarter-end or $10 per share. At December
31, 1995 and 1994, all issued warrants were outstanding.
The Company's current employment contract with the President and CEO of the
Company provides for the right to receive cash payments based upon the
appreciation in the value of the Company's common stock over time (Stock
Appreciation Rights). This executive has been granted the right to receive a
total of 13,565 units of Stock Appreciation Rights over three years beginning in
1990. The value of the units depends on the Bank's performance, as defined in
the employment agreement, and the units are exercisable for a period of
F-43
<PAGE> 141
COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
seven years after the date of grant. At December 31, 1995, all 13,565 units have
been granted and none have been exercised. In conjunction with the pending
merger, the Company has accrued $46,732 for the payment of these Stock
Appreciation Rights.
Georgia banking laws limit the amount of dividends which the Bank may pay
to the Parent Company without obtaining prior approval from the Georgia
Department of Banking and Finance. Such approval would be required if either (a)
the Bank's ratio of equity capital to adjusted total assets is less than 6%; (b)
the aggregate amount of dividends declared by the Bank exceeds 50% of net
profits, after taxes but before dividends, for the previous calendar year; or
(c) the percentage of the Bank's assets classified as doubtful as to repayment
exceeds 80% of the Bank's equity capital. The Bank paid no dividends in 1995 or
1994.
NOTE N. OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
The Bank is party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. These instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
consolidated balance sheets. The contract amounts of these instruments reflect
the extent of involvement the Bank has in particular classes of financial
instruments.
The Bank's exposure to credit loss in the event of nonperformance by the
customer on the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amounts of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as they do 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. At December 31, 1995 and 1994, unfunded
commitments to extend credit were approximately $49,497,000 and $38,317,000,
respectively. The Bank's experience has been that approximately 90 percent of
loan commitments are drawn upon by customers.
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. The Bank had approximately
$1,777,000 and $1,184,000 in irrevocable standby letters of credit outstanding
at December 31, 1995 and 1994, respectively. The Bank was required to perform on
standby letters of credit totaling $10,000 during both 1995 and 1994.
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 obligor.
Collateral varies but may include accounts receivable, inventory, property,
plant and equipment, and income-producing commercial properties for those
commitments on which collateral is deemed necessary.
NOTE O. COMMITMENTS AND CONTINGENCIES
The Company is a defendant in certain legal actions arising from its normal
business activities. Management believes that those actions are without merit or
that the ultimate liability, if any, resulting from them will not materially
affect the Company's financial position.
F-44
<PAGE> 142
COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE P. SUPPLEMENTAL FINANCIAL DATA
Components of other expense in excess of 1% of total interest and other
income are as follows at December 31:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Legal and professional fees........................... $307,384 $374,199 $257,353
FDIC assessment....................................... 233,613 350,559 302,211
Data processing fees.................................. 282,767 214,957 182,988
Stationery and supplies............................... 202,215 206,355 199,658
Completed merger expenses............................. 39,141 267,221 14,251
</TABLE>
NOTE Q. FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are as
follows at December 31:
<TABLE>
<CAPTION>
1995
-----------------------------
ESTIMATED
CARRYING FAIR
VALUE VALUE
------------ ------------
<S> <C> <C>
Financial assets:
Cash and cash equivalents............................. $ 40,545,814 $ 40,545,814
Investment securities held to maturity................ 14,501,738 14,513,114
Investment securities available for sale.............. 21,310,904 21,310,904
Loans................................................. 145,673,001 144,427,666
Accrued interest receivable........................... 1,728,691 1,728,691
Financial liabilities:
Noncontractual deposits............................... $ 90,071,037 $ 90,071,037
Contractual deposits.................................. 116,558,985 115,537,715
Capital lease obligation.............................. 103,079 97,669
Accrued interest payable.............................. 1,694,426 1,694,426
Off-balance-sheet instruments:
Undisbursed credit lines.............................. $ 49,073,858
Standby letters of credit............................. 1,761,809
</TABLE>
F-45
<PAGE> 143
COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE R. CONDENSED FINANCIAL INFORMATION OF COMMERCIAL BANCORP OF
GEORGIA, INC.
CONDENSED BALANCE SHEETS
(PARENT ONLY)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
Cash on deposit with subsidiary..................................... $ 1,252,808 $ 355,160
Investment in subsidiary............................................ 18,720,857 16,697,895
Loans to related parties............................................ 31,000 31,000
Other real estate................................................... 465,483 936,436
Other assets........................................................ 178,673 795,584
----------- -----------
TOTAL ASSETS.............................................. $20,648,821 $18,816,075
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Note payable...................................................... $ -- $ 50,000
Accrued merger expenses........................................... 857,588 --
Other liabilities................................................. 586 34,235
----------- -----------
TOTAL LIABILITIES......................................... 858,174 84,235
----------- -----------
STOCKHOLDERS' EQUITY
Common stock...................................................... 1,856,711 1,856,711
Surplus........................................................... 16,090,386 16,090,386
Retained earnings................................................. 1,904,740 1,236,769
Treasury stock.................................................... (300,000) (300,000)
Market valuation reserve.......................................... 238,810 (152,026)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY................................ 19,790,647 18,731,840
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................ $20,648,821 $18,816,075
========== ==========
</TABLE>
F-46
<PAGE> 144
COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED STATEMENTS OF INCOME
(PARENT ONLY)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
INCOME
Interest income......................................... $ 2,816 $ 10,558 $ 5,670
Other income............................................ -- -- 4,400
----------- ---------- ----------
TOTAL INCOME.................................... 2,816 10,558 10,070
----------- ---------- ----------
EXPENSE
Completed merger expenses............................... 39,141 267,221 14,251
Other real estate expense............................... 47,350 227,147 91,731
Pending merger expense.................................. 857,588 -- --
Other expense........................................... 80,179 132,792 132,718
----------- ---------- ----------
TOTAL EXPENSE................................... 1,024,258 627,160 238,700
----------- ---------- ----------
LOSS BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED
EARNINGS OF SUBSIDIARY.................................. (1,021,442) (616,602) (228,630)
INCOME TAX BENEFIT.............................. 57,287 134,678 64,103
----------- ---------- ----------
LOSS BEFORE EQUITY IN UNDISTRIBUTED EARNINGS OF
SUBSIDIARY.............................................. (964,155) (481,924) (164,527)
EQUITY IN UNDISTRIBUTED EARNINGS OF
SUBSIDIARY.................................... 1,632,126 1,179,702 1,387,121
----------- ---------- ----------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLES.............................................. 667,971 697,778 1,222,594
Cumulative effect of change in accounting principles...... -- -- 47,285
----------- ---------- ----------
NET INCOME................................................ $ 667,971 $ 697,778 $1,269,879
========== ========= =========
</TABLE>
F-47
<PAGE> 145
COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
(PARENT ONLY)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................ $ 667,971 $ 697,778 $ 1,269,879
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of subsidiary..... (1,632,126) (1,179,702) (1,387,121)
Provision for losses on other real estate.......... -- 200,000 --
(Increase) decrease in other assets................ 616,911 (78,515) (152,352)
Increase (decrease) in other liabilities........... 823,939 (5,126) 39,361
----------- ----------- -----------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES.................................. 476,695 (365,565) (230,233)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in subsidiary.............................. -- (515,518) --
Proceeds from sales of other real estate.............. 537,504 363,347 561,909
Capital improvements to other real estate............. (66,551) (331,898) (97,378)
----------- ----------- -----------
NET CASH PROVIDED (USED) BY INVESTING
ACTIVITIES.................................. 470,953 (484,069) 464,531
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from note payable............................ -- 50,000 --
Repayment of note payable............................. (50,000) -- --
----------- ----------- -----------
NET CASH FLOWS PROVIDED (USED) BY FINANCING
ACTIVITIES.................................. (50,000) 50,000 --
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH......................... 897,648 (799,634) 234,298
CASH AT BEGINNING OF YEAR............................... 355,160 1,154,794 920,496
----------- ----------- -----------
CASH AT END OF YEAR..................................... $ 1,252,808 $ 355,160 $ 1,154,794
========== ========== ==========
</TABLE>
F-48
<PAGE> 146
COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and due from banks........................................... $ 20,753,065 $ 21,606,814
Federal funds sold................................................ 22,680,000 18,939,000
Investment securities:
Held to maturity................................................ 13,980,602 14,501,738
Available for sale.............................................. 20,835,479 21,310,904
Loans, net of deferred loan fees.................................. 147,361,805 144,930,447
Less: Allowance for loan losses................................... (2,625,222) (2,619,545)
------------ ------------
Loans, net...................................................... 144,736,583 142,310,902
Fixed assets, net................................................. 5,728,552 5,786,453
Other real estate, net............................................ 1,413,472 1,102,261
Intangible assets, net............................................ 780,525 821,347
Accrued interest receivable....................................... 1,702,543 1,728,691
Other assets...................................................... 2,542,726 2,598,764
------------ ------------
TOTAL ASSETS............................................ $235,153,547 $230,706,874
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing demand...................................... $ 32,736,341 $ 35,030,207
Interest-bearing demand and money market........................ 52,692,852 49,657,927
Savings......................................................... 5,360,191 5,382,903
Time deposits of $100,000 or more............................... 28,752,937 26,273,745
Other time deposits............................................. 91,156,935 90,285,240
------------ ------------
Total Deposits.......................................... 210,699,256 206,630,022
------------ ------------
Obligation under capital leases................................... 76,331 103,079
Accrued interest payable.......................................... 1,684,675 1,694,426
Accrued merger expenses........................................... 1,026,834 1,272,941
Other liabilities................................................. 1,248,205 1,215,759
------------ ------------
TOTAL LIABILITIES....................................... 214,735,301 210,916,227
------------ ------------
STOCKHOLDERS' EQUITY
Common stock -- $1 par value: 10,000,000 shares authorized,
1,883,302 and 1,856,711 shares issued........................... 1,883,302 1,856,711
Surplus......................................................... 16,322,712 16,090,386
Retained earnings............................................... 2,546,712 1,904,740
Treasury stock, at cost, 30,000 shares.......................... (300,000) (300,000)
Market valuation reserve on investment securities available for
sale......................................................... (34,480) 238,810
------------ ------------
TOTAL STOCKHOLDERS' EQUITY.............................. 20,418,246 19,790,647
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............. $235,153,547 $230,706,874
=========== ===========
</TABLE>
F-49
<PAGE> 147
COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
(UNAUDITED)
<S> <C> <C>
INTEREST INCOME
Loans, including fees............................................. $4,012,271 $3,873,232
Investment securities............................................. 549,325 356,118
Federal funds sold and deposits in other banks.................... 288,709 122,564
---------- ----------
TOTAL INTEREST INCOME..................................... 4,850,305 4,351,914
---------- ----------
INTEREST EXPENSE
Interest-bearing demand and money market.......................... 417,179 438,877
Savings........................................................... 39,264 42,438
Time deposits of $100,000 or more................................. 408,332 415,918
Other time deposits............................................... 1,360,420 782,014
Obligation under capital leases................................... 804 1,814
Other............................................................. 4,956 973
---------- ----------
TOTAL INTEREST EXPENSE.................................... 2,230,955 1,682,034
---------- ----------
NET INTEREST INCOME....................................... 2,619,350 2,669,880
PROVISION FOR LOAN LOSSES........................................... 15,852 196,400
---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES....... 2,603,498 2,473,480
---------- ----------
OTHER INCOME
Service charges on deposit accounts............................... 245,677 250,520
Gains on sales of SBA loan participations......................... 44,861 72,020
Fees/gains on the origination/sale of mortgage loans.............. 27,999 16,706
Loan servicing fees............................................... 80,098 69,517
Debit card servicing fees......................................... 116,194 66,322
Other income...................................................... 29,397 21,455
---------- ----------
TOTAL OTHER INCOME........................................ 544,226 496,540
---------- ----------
OTHER EXPENSE
Salaries and employee benefits.................................... 1,187,094 1,053,544
Net occupancy and equipment expense............................... 308,055 335,040
Other real estate expense......................................... 29,911 17,825
Amortization expense.............................................. 40,822 40,822
Other expense (Note B)............................................ 562,792 664,309
---------- ----------
TOTAL OTHER EXPENSE....................................... 2,128,674 2,111,540
---------- ----------
INCOME BEFORE INCOME TAXES................................ 1,019,050 858,480
INCOME TAX EXPENSE.................................................. 377,078 342,576
---------- ----------
NET INCOME................................................ $ 641,972 $ 515,904
========= =========
EARNINGS PER SHARE (Note C)
Primary........................................................... $ .34 $ .28
========= =========
Fully diluted..................................................... $ .32 $ .28
========= =========
</TABLE>
F-50
<PAGE> 148
COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................... $ 641,972 $ 515,904
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses.................................. 15,852 196,400
Depreciation and amortization.............................. 132,692 139,013
Amortization of intangible assets.......................... 40,822 40,822
Gains on sales of SBA loans................................ (44,861) (72,020)
(Increase) decrease in interest receivable................. 26,148 (41,148)
(Increase) decrease in other assets........................ 196,823 (79,776)
Increase (decrease) in interest payable.................... (9,751) 135,681
Decrease in accrued merger expenses........................ (246,107) --
Increase in other liabilities.............................. 32,446 81,082
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES............. 786,036 915,958
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investment securities held to maturity........... -- --
Purchases of investment securities available for sale......... -- --
Maturities of investment securities held to maturity.......... 521,136 183,849
Maturities of investment securities available for sale........ 61,350 989,205
Sales of investment securities available for sale............. -- --
Proceeds from sales of SBA loans.............................. 1,076,250 647,200
Loans originated or acquired, net of principal repayments..... (4,097,784) (8,993,145)
Purchases of premises and equipment........................... (74,791) (11,747)
Proceeds from sales of other real estate...................... 313,651 441,721
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES................. (2,200,188) (6,742,917)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand, money market and savings
accounts................................................... 718,347 (8,248,606)
Time deposits accepted, net of repayments..................... 3,350,887 11,472,514
Reduction of capital lease obligation......................... (26,748) (33,827)
Exercise of stock options..................................... 258,917 --
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES............. 4,301,403 3,190,081
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 2,887,251 (2,636,878)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD........................................................ 40,545,814 26,835,755
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD...................... $43,433,065 $24,198,877
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH PAID:
Interest...................................................... $ 2,240,706 $ 1,546,353
========== ==========
Income taxes.................................................. $ -- $ 100,969
========== ==========
SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING AND INVESTING
ACTIVITIES:
Real estate acquired in settlement of loans................ $ 624,862 $ --
========== ==========
</TABLE>
F-51
<PAGE> 149
COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB. Accordingly,
these statements do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three month period ended March 31, 1996, are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1996. For further information, refer to the audited financial
statements and footnotes thereto included in the Company's annual report on Form
10-KSB for the year ended December 31, 1995.
NOTE B -- SUPPLEMENTAL FINANCIAL DATA
Components of other operating expense in excess of one percent of total
interest and other income for the periods ended March 31, 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
FDIC Insurance Assessment.......................................... $11,293 $97,077
Stationery and Supplies............................................ $59,603 $54,954
Data Processing Fees............................................... $84,952 $54,583
</TABLE>
NOTE C -- EARNINGS PER SHARE
Earnings per share has been computed based on the weighted average number
of common stock and common stock equivalents outstanding during the period,
which totaled 1,840,006 and 1,826,711 shares, respectively, for primary earnings
per share and 2,004,548 and 1,826,711 shares, respectively, for fully diluted
earnings per share for the three-month periods ended March 31, 1996 and 1995.
NOTE D -- PENDING ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 121 (SFAS 121), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The Company is
required to implement SFAS 121 by December 31, 1996. The provisions of SFAS 121
will require the Company to review long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The adoption is not expected to have a significant
impact on the Company.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 122 (SFAS 122), "Mortgage Servicing Rights," as an
amendment to SFAS 65. The Company is required to implement SFAS 122 by December
31, 1996. The provisions of SFAS 122 eliminate the accounting distinction
between rights to service mortgage loans that are acquired through loan
origination and those acquired through purchase. The adoption is not expected to
have a significant impact on the Company.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation." The Company is required to implement SFAS 123 in 1996. SFAS 123
establishes a method of accounting for stock compensation plans based on fair
value. Companies are permitted to continue to use the existing method of
accounting but are required to disclose pro forma net income and earnings per
share as if SFAS 123 had been used to measure compensation cost. The adoption of
SFAS 123 is not expected to have a significant impact on the Company.
F-52
<PAGE> 150
COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE E -- PENDING ACQUISITION
During December 1995, the Company and The Colonial BancGroup, Inc. entered
into an agreement to merge the two companies. For further discussion, see Note C
to the Notes to Consolidated Financial Statements included in the Company's
annual report on Form 10-KSB for the year ended December 31, 1995.
F-53
<PAGE> 151
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Dothan Federal Savings Bank:
We have audited the accompanying statements of financial condition of
DOTHAN FEDERAL SAVINGS BANK (a federally chartered savings bank) as of June 30,
1995 and 1994 and the related statements of income, stockholders' equity, and
cash flows for each of the three years in the period ended June 30, 1995. 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
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Dothan Federal Savings Bank
as of June 30, 1995 and 1994 and the results of its operations and its cash
flows for each of the three years in the period ended June 30, 1995 in
conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, effective June 30,
1994, the Bank changed its method of accounting for investment securities and
mortgage-backed securities.
Arthur Andersen LLP
Birmingham, Alabama
July 28, 1995, (except with
respect to the matter
discussed in Note 14, as to which
the date is February 19, 1996)
F-54
<PAGE> 152
DOTHAN FEDERAL SAVINGS BANK
STATEMENTS OF FINANCIAL CONDITION
AS OF JUNE 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS:
Cash on hand and in banks........................................... $ 543,604 $ 396,328
Interest-bearing deposits in other banks............................ 369,732 417,151
----------- -----------
913,336 813,479
----------- -----------
SECURITIES AVAILABLE FOR SALE (Notes 1 and 2)....................... 5,280,789 5,713,879
SECURITIES HELD TO MATURITY, fair values of $1,504,690 and
$2,486,016, respectively (Notes 1 and 2).......................... 1,498,130 2,507,212
LOANS RECEIVABLE, net of allowance for loan losses of $255,722 and
$212,313, respectively (Notes 1 and 3)............................ 35,457,409 29,916,526
LAND, BUILDINGS, AND EQUIPMENT, less accumulated depreciation of
$180,194 and $202,981, respectively (Notes 1 and 4)............... 1,048,117 771,369
REAL ESTATE OWNED (Note 5):
Held pending sale................................................... 0 27,000
Properties under mortgage loans to facilitate sale.................. 28,765 69,746
ACCRUED INTEREST AND DIVIDENDS RECEIVABLE (Note 6).................. 331,692 293,312
OTHER ASSETS (Note 1)............................................... 98,823 69,583
----------- -----------
Total assets.............................................. $44,657,061 $40,182,106
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits (Note 7)................................................. $37,627,012 $32,191,484
Federal Home Loan Bank advances (Note 8).......................... 2,666,667 3,833,333
Advance payments by borrowers for taxes and insurance............. 186,094 161,947
Accrued interest payable.......................................... 179,610 93,418
Income taxes payable (Notes 1 and 9):
Current........................................................ 15,465 193,458
Deferred....................................................... 41,765 14,286
----------- -----------
57,230 207,744
----------- -----------
Accrued expenses and other liabilities............................ 42,538 40,860
----------- -----------
Total liabilities......................................... 40,759,151 36,528,786
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY (Note 1):
Preferred stock, 1,000,000 shares authorized, none issued, par
value of $.01.................................................. 0 0
Common stock, 4,000,000 shares authorized, 399,688 issued and
outstanding, par value of $.01................................. 3,997 3,997
Paid-in capital................................................... 3,329,339 3,329,339
Retained earnings................................................. 605,099 447,845
Unrealized loss on securities available for sale, net (Notes 1 and
2)............................................................. (40,525) (127,861)
----------- -----------
Total stockholders' equity................................ 3,897,910 3,653,320
----------- -----------
Total liabilities and stockholders' equity................ $44,657,061 $40,182,106
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-55
<PAGE> 153
DOTHAN FEDERAL SAVINGS BANK
STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans................................. $2,873,845 $2,797,004 $2,852,402
Interest and dividends on securities available for sale.... 309,585 242,319 0
Interest on mortgage-backed securities..................... 0 0 103,364
Interest and dividends on securities....................... 73,136 88,334 73,034
Other interest income...................................... 36,875 32,248 59,482
---------- ---------- ----------
Total interest income............................ 3,293,441 3,159,905 3,088,282
---------- ---------- ----------
INTEREST EXPENSE:
Interest on deposits (Note 7).............................. 1,619,537 1,278,586 1,371,427
Interest on other borrowings (Note 8)...................... 255,341 180,976 138,727
---------- ---------- ----------
Total interest expense........................... 1,874,878 1,459,562 1,510,154
---------- ---------- ----------
Net interest income.............................. 1,418,563 1,700,343 1,578,128
PROVISION FOR LOAN LOSSES (Notes 1 and 3).................. 60,000 60,000 90,000
---------- ---------- ----------
Net interest income after provision for loan
losses......................................... 1,358,563 1,640,343 1,488,128
---------- ---------- ----------
OTHER INCOME:
Service charges............................................ 47,251 38,794 32,620
Gain on sale of securities................................. 7,169 0 34,531
Gain/(loss) on sale of loans............................... 3,304 25,847 0
Other income............................................... 490 6,612 2,289
---------- ---------- ----------
Total other income............................... 58,214 71,253 69,440
---------- ---------- ----------
OTHER EXPENSES:
Salaries and employee benefits (Note 11)................... 508,742 500,980 426,802
Office building and equipment.............................. 143,657 127,668 101,183
Federal deposit insurance premiums......................... 75,682 74,159 66,894
Data processing............................................ 79,042 64,244 63,140
Real estate owned (income)/expense, net.................... (3,838) (13,739) 47,643
Other expenses............................................. 253,359 203,111 216,159
---------- ---------- ----------
Total other expenses............................. 1,056,644 956,423 921,821
---------- ---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES................... 360,133 755,173 635,747
Provision for income taxes (Notes 1 and 9)................. 142,926 278,125 0
---------- ---------- ----------
NET INCOME................................................. $ 217,207 $ 477,048 $ 635,747
========= ========= =========
EARNINGS PER SHARE (Note 1)................................ $ .54 $ 1.19 $ 1.59
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-56
<PAGE> 154
DOTHAN FEDERAL SAVINGS BANK
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
COMMON STOCK RETAINED UNREALIZED TOTAL
------------------- PAID-IN EARNINGS GAIN (LOSS), STOCKHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) NET EQUITY
------- --------- ---------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1992....... 399,688 $ 399,688 $2,933,648 $(664,950) $ 0 $ 2,668,386
Net income................... 0 0 0 635,747 0 635,747
Change in par value (Note
1)......................... 0 (395,691) 395,691 0 0 0
------- --------- ---------- --------- ------------ -------------
BALANCE, JUNE 30, 1993....... 399,688 3,997 3,329,339 (29,203) 0 3,304,133
Net income................... 0 0 0 477,048 0 477,048
Unrealized loss on securities
available for sale, net
(Notes 1 and 2)............ 0 0 0 0 (127,861) (127,861)
------- --------- ---------- --------- ------------ -------------
BALANCE, JUNE 30, 1994....... 399,688 3,997 3,329,339 447,845 (127,861) 3,653,320
Net income................... 0 0 0 217,207 0 217,207
Dividends paid............... 0 0 0 (59,953) 0 (59,953)
Change in unrealized loss on
securities available for
sale, net (Notes 1 and
2)......................... 0 0 0 0 87,336 87,336
------- --------- ---------- --------- ------------ -------------
BALANCE, JUNE 30, 1995....... 399,688 $ 3,997 $3,329,339 $ 605,099 $ (40,525) $ 3,897,910
======= ========= ========= ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-57
<PAGE> 155
DOTHAN FEDERAL SAVINGS BANK
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income....................................................... $ 217,207 $ 477,048 $ 635,747
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.................................. 65,200 78,351 83,071
Accretion of deferred income................................... (84,431) (149,915) (89,051)
Provision for losses on loans and real estate owned............ 60,000 60,000 165,000
Provision for deferred taxes................................... 17,482 80,125 0
Loan fees deferred, net........................................ 49,169 95,325 127,461
Federal Home Loan Bank stock dividend.......................... 0 (10,300) (14,400)
Loss (gain), net, on sale of:
Loans........................................................ (3,304) (25,847) 0
Real estate owned............................................ (5,980) (15,145) (31,433)
Securities available for sale................................ (7,169) 0 0
Securities................................................... 0 0 (34,531)
Equipment.................................................... 27,704 (2,353) 3,364
Change in assets and liabilities:
Increase in accrued interest and dividends receivable........ (38,380) (31,856) (3,015)
Decrease in other assets..................................... 3,390 3,077 1,065
Increase (decrease) in current income taxes payable.......... (262,680) 193,458 0
Increase (decrease) in accrued expenses and other
liabilities................................................ 1,678 727 (6,590)
Increase in accrued interest payable......................... 86,192 39,046 9,338
------------ ----------- -----------
Net cash provided by operating activities............... 126,078 791,741 846,026
------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities held to maturity.......... 1,500,000 0 0
Proceeds from sales of securities available for sale............. 184,508 0 0
Proceeds from sales of loans..................................... 1,756,117 3,534,550 0
Proceeds from sales of mortgage-backed securities................ 0 0 496,354
Proceeds from sales of equipment................................. 10,500 14,077 0
Proceeds from sales of real estate owned......................... 40,000 40,000 95,000
Repayments on securities available for sale...................... 437,139 0 0
Repayments on mortgage-backed securities......................... 0 514,469 424,130
Purchases of securities held to maturity......................... (496,328) (1,508,047) (300,000)
Purchases of mortgage-backed securities.......................... 0 (3,002,680) (1,455,195)
Loans originated, net of repayments.............................. (3,368,654) (512,306) (3,828,340)
Loans and participations purchased............................... (3,902,260) 0 (3,850,752)
Capital expenditures............................................. (367,099) (77,823) (12,640)
Purchase of Federal Home Loan Bank stock......................... (53,200) (19,900) (4,300)
------------ ----------- -----------
Net cash used in investing activities................... (4,259,277) (1,017,660) (8,435,743)
------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in deposits, net............................. 5,435,528 (967,403) 5,013,703
Principal payments on capital lease obligation................... 0 0 (40,933)
Advances from Federal Home Loan Bank............................. 16,850,000 7,000,000 3,000,000
Repayments of Federal Home Loan Bank advances.................... (18,016,666) (6,666,667) (1,500,000)
Increase (decrease) in advance payments by borrowers for taxes
and insurance.................................................. 24,147 (2,706) 57,075
Cash dividends paid.............................................. (59,953) 0 0
------------ ----------- -----------
Net cash (used in) provided by financing activities..... 4,233,056 (636,776) 6,529,845
------------ ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................................... 99,857 (862,695) (1,059,872)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR..................... 813,479 1,676,174 2,736,046
------------ ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR........................... $ 913,336 $ 813,479 $ 1,676,174
============= ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-58
<PAGE> 156
DOTHAN FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SECURITIES
Securities designated as available for sale are reported at fair value. The
unrealized difference between amortized cost and fair value on securities
available for sale is excluded from earnings and is reported net of deferred
taxes as a component of stockholders' equity. This caption includes securities
that management intends to use as part of its asset/liability management
strategy or that may be sold in response to changes in interest rates, changes
in prepayment risk, liquidity needs, or for other purposes.
Securities designated as held to maturity are reported at amortized cost,
as the Bank has both the ability and positive intent to hold these securities to
maturity. There are no securities classified as trading as of June 30, 1995 or
1994.
Amortization of premium and accretion of discount are computed under the
interest method. The adjusted cost of the specific security sold is used to
compute realized gain or loss on the sale of securities.
On June 30, 1994, Dothan Federal Savings Bank (the "Bank") adopted
Financial Accounting Standards Board ("FASB") Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities."
Initial adoption of SFAS No. 115 was accomplished by transferring certain
securities previously shown as investment securities or mortgage-backed
securities to the available for sale portfolio and had the effect of decreasing
stockholders' equity by $127,861 at June 30, 1994; it had no effect on 1994
income.
Prior to the adoption of SFAS No. 115, securities determined to be held on
a long-term basis or until maturity were accounted for in a manner similar to
securities held to maturity.
LOANS RECEIVABLE
Loans receivable are stated at unpaid principal balances, less the
allowance for loan losses and net of deferred loan origination fees and
premiums.
An allowance is established for uncollectible interest on loans that are 60
days past due based on management's periodic evaluations. The allowance is
established by a charge to interest income equal to all interest previously
accrued, and income is subsequently recognized only to the extent that cash
payments are received until, in management's judgment, the borrower's ability to
make periodic interest and principal payments has been demonstrated, in which
case the loan is returned to accrual status.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained through provisions charged to
expense at levels which management considers adequate to absorb losses inherent
in the loan portfolio. The allowance is decreased by charge-offs, net of
recoveries. Management's evaluation of the allowance includes a review of all
loans for which full collectibility is not reasonably assured and considers,
among other factors, prior years' loss experience, economic conditions,
distribution of loans by risk class, and the estimated value of underlying
collateral. Though management believes the allowance for loan losses to be
adequate, ultimate losses may vary from these evaluations; however, the
allowance is reviewed periodically and, as adjustments become necessary, they
are reported in earnings in the periods in which they become known.
During 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan," which is effective for fiscal years beginning after
December 15, 1994. SFAS No. 114 requires that impaired loans be valued based on
the present value of those loans' estimated cash flows at each loan's effective
interest rate or the loan's observable market price or the fair value of the
underlying collateral. In October 1994, the
F-59
<PAGE> 157
DOTHAN FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FASB issued SFAS No. 118, "Accounting by Creditors for Impairment of a
Loan -- Income Recognition and Disclosures", an amendment to SFAS No. 114. SFAS
No. 118 amends SFAS No. 114 to allow a creditor to use existing methods for
recognizing interest on an impaired loan. Management adopted SFAS Nos. 114 and
118 as of July 1, 1995; however, given the Bank's current loan portfolio
composition, the impact of adoption was not material.
LOAN ORIGINATION FEES, PREMIUMS, AND DISCOUNTS
Loan origination fees, net of direct costs associated with originating or
acquiring loans, are treated as an adjustment to the yield of the related loans
using the interest method over the contractual term of the loans. Such
adjustments are reflected in "Interest and fees on loans" in the accompanying
statements of income. Loan commitment fees are recognized into income upon
expiration of the commitment period, unless the commitment results in the loan
being funded and maintained in the loan portfolio.
Premiums paid and discounts received in connection with loans receivable
are amortized to interest income over the lives of the loans using the interest
method.
LAND, BUILDINGS, AND EQUIPMENT
Land, buildings, and equipment are carried at cost, net of accumulated
depreciation. Depreciation is computed on the straight-line method over the
estimated useful lives of the assets (40 years for buildings and 3 to 25 years
for equipment).
INTANGIBLE ASSETS
Intangible assets, included in "Other Assets" in the accompanying
statements of financial condition, consist of premiums paid to acquire the
deposits of other financial institutions. These costs ($33,498 and $50,562 at
June 30, 1995 and 1994, respectively) are being amortized using an accelerated
method over an eight year period which approximates the expected deposit
relationship lives. Amortization expense totaled $17,064, $20,565, and $24,065
in fiscal 1995, 1994, and 1993, respectively.
INCOME TAXES
The financial statements have been prepared on an accrual basis. Because
some income and expense items are recognized in different periods for financial
reporting purposes and for purposes of computing currently payable income taxes,
a provision or credit for deferred income taxes is made for such temporary
differences.
Effective July 1, 1991, the Bank adopted the asset and liability approach
for financial accounting and reporting of income taxes pursuant to SFAS No. 109,
"Accounting for Income Taxes."
No provision for income taxes was reflected in the statement of income for
the year ended June 30, 1993 due to the utilization of net operating loss
("NOL") carryforwards. The Bank utilized all of its federal and state NOL
carryforwards during fiscal 1994.
CHANGE IN PAR VALUE
On October 22, 1992, the Bank changed the par value of all authorized
preferred and common stock from $1.00 per share to $.01 per share.
F-60
<PAGE> 158
DOTHAN FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENTS OF CASH FLOWS
Cash and cash equivalents, for purposes of reporting cash flows, include
cash on hand and in banks and interest-bearing deposits in banks.
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Supplemental cash flow information:
Cash paid during the period for:
Income taxes.......................................... $ 388,095 $ 4,513 $ 0
========= ========= =========
Interest.............................................. $1,788,686 $1,420,516 $1,500,816
========= ========= =========
Noncash transactions:
Transfers of loans receivable to real estate owned.... $ 6,000 $ 0 $ 0
========= ========= =========
Transfer of mortgage-backed and investment securities
to securities available for sale at fair value...... $ 0 $5,713,879 $ 0
========= ========= =========
Increase/(decrease) in unrealized net loss on
securities available for sale, net of deferred tax
provision/(benefit) of $44,961 and $(65,839),
respectively........................................ $ (87,336) $ 127,861 $ 0
========= ========= =========
</TABLE>
EARNINGS PER SHARE
Earnings per share have been calculated on the basis of the weighted
average number of shares of common stock outstanding, which were 399,688 during
fiscal years 1995, 1994, and 1993.
FINANCIAL STATEMENT RECLASSIFICATION
The financial statements for the prior years have been reclassified in
certain instances in order to conform with the 1995 financial statement
presentation. The reclassification did not change total assets or net income in
the prior years.
PENDING ACCOUNTING STANDARDS
Financial Instruments
In December 1991, the FASB issued SFAS No. 107, "Disclosures about Fair
Values of Financial Instruments", adoption of which is required for fiscal years
ending after December 15, 1995. In October 1994, the FASB issued SFAS No. 119,
"Disclosure about Derivative Financial Instruments and Fair Value of Financial
Instruments," adoption of which is required for fiscal years ending after
December 15, 1995. The Bank has elected not to adopt the provisions of these
statements before the required date.
DISCLOSURE OF CERTAIN RISKS
In December 1994, the Accounting Standards Division of the AICPA approved
SOP 94-6, "Disclosure of Certain Significant Risks and Uncertainties." SOP 94-6
requires disclosures in the financial statements beyond those now being required
or generally made in the financial statements about the risks and uncertainties
existing as of the date of those financial statements in the following areas:
nature of operations, use of estimates in the preparation of financial
statements, certain significant estimates, and current vulnerability due to
certain concentrations. SOP 94-6 is effective for financial statements issued
for fiscal years ending after December 15, 1995. The Bank has elected not to
adopt the provisions of SOP 94-6 before the required date.
F-61
<PAGE> 159
DOTHAN FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121
establishes accounting standards for evaluating the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used and for long-lived assets and certain identifiable
intangibles to be disposed of. The Bank has elected not to adopt the provisions
of SFAS No. 121 until the required date, though management does not believe that
the adoption of SFAS No. 121 will have a significant impact on the Bank's
financial position or on the results of its operations.
MORTGAGE SERVICING RIGHTS
In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage
Servicing Rights," an amendment to SFAS No. 65. SFAS No. 122 amends certain
provisions of SFAS No. 65 to eliminate the accounting distinction between rights
to service mortgage loans for others that are acquired through loan origination
activities and those acquired through purchase transactions. Management does not
intend to adopt the provisions of SFAS No. 122 before the required date. Based
on the Bank's current operating activities, management does not believe that the
adoption of this Statement will have a material impact on the Bank's financial
condition or results of operations.
2. SECURITIES AVAILABLE FOR SALE AND SECURITIES HELD TO MATURITY
The amortized historical cost, approximate fair value, and gross unrealized
gains and losses of the Bank's securities available for sale and securities held
to maturity at June 30, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
SECURITIES AVAILABLE FOR SALE
------------------------------------------------------------------------------------------------
1995 1994
----------------------------------------------- -----------------------------------------------
AMORTIZED GROSS GROSS AMORTIZED GROSS GROSS
HISTORICAL UNREALIZED UNREALIZED FAIR HISTORICAL UNREALIZED UNREALIZED FAIR
COST GAIN (LOSS) VALUE COST GAIN (LOSS) VALUE
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FHLB stock............... $ 340,300 $ 0 $ 0 $ 340,300 $ 287,100 $ 0 $ 0 $ 287,100
Mortgage-backed
securities............. 4,701,892 6,416 (66,317) 4,641,991 5,320,479 10,740 (199,635) 5,131,584
Mutual Fund.............. 300,000 0 (1,502) 298,498 300,000 0 (4,805) 295,195
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
$5,342,192 $6,416 $ (67,819) $5,280,789 $5,907,579 $ 10,740 $ (204,440) $5,713,879
========== ======== ========= ========== ========== ======== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
SECURITIES HELD TO MATURITY
------------------------------------------------------------------------------------------------
1995 1994
----------------------------------------------- -----------------------------------------------
AMORTIZED GROSS GROSS AMORTIZED GROSS GROSS
HISTORICAL UNREALIZED UNREALIZED FAIR HISTORICAL UNREALIZED UNREALIZED FAIR
COST GAIN (LOSS) VALUE COST GAIN (LOSS) VALUE
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities... $1,498,130 $ 11,295 $ (4,735) $1,504,690 $2,507,212 $1,602 $ (22,798) $2,486,016
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
$1,498,130 $ 11,295 $ (4,735) $1,504,690 $2,507,212 $1,602 $ (22,798) $2,486,016
========== ======== ======== ========== ========== ======== ========= ==========
</TABLE>
The amortized historical cost and approximate fair value of securities
available for sale and securities held to maturity at June 30, 1995 by
contractual maturity, are shown below. Expected maturities will differ from
F-62
<PAGE> 160
DOTHAN FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
contractual maturities because issuers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
----------------------- -----------------------
AMORTIZED AMORTIZED
HISTORICAL FAIR HISTORICAL FAIR
COST VALUE COST VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Due in one year or less......................... $ 300,000 $ 298,498 $1,001,142 $ 996,407
Due after one year through five years........... 0 0 496,988 508,283
Due after five years through ten years.......... 4,701,892 4,641,991 0 0
---------- ---------- ---------- ----------
5,001,892 4,940,489 1,498,130 1,504,690
FHLB stock...................................... 340,300 340,300 0 0
---------- ---------- ---------- ----------
$5,342,192 $5,280,789 $1,498,130 $1,504,690
========= ========= ========= =========
</TABLE>
Mortgage-backed securities totaling $934,227 have been pledged as
collateral against certain large deposits at June 30, 1995. Deposits (public
monies) associated with pledged mortgage-backed securities had an aggregate
balance of $750,000 at June 30, 1995.
Proceeds from sales of securities available for sale during 1995 were
$184,508 with gross gains of $7,169 realized on the sales. There were no
securities sales during fiscal 1994.
3. LOANS RECEIVABLE
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Mortgage loans:
Conventional loans:
Construction loans, primarily on one-to-four family
residences.................................................... $ 2,400,460 $ 3,670,870
Loans on existing property:
Residential.................................................. 26,673,402 20,621,089
Commercial................................................... 1,940,483 2,657,103
FHA and VA loans............................................. 1,937,669 2,601,330
Other loans, primarily consumer and lines of credit................. 3,717,059 2,772,807
Less:
Undisbursed portion of mortgage loans............................. (679,809) (1,879,760)
Unearned loan fees................................................ (249,452) (282,972)
Allowance for loan losses......................................... (255,722) (212,313)
Net acquisition discount.......................................... (26,681) (31,628)
----------- -----------
Total loans receivable, net............................... $35,457,409 $29,916,526
========== ==========
</TABLE>
As a savings bank, the Bank has a credit concentration in residential
mortgage loans. The majority of the Bank's customers are located in Dothan,
Alabama, and the surrounding area. The ability of these borrowers to repay is
highly dependent on local economic conditions.
Loans receivable at June 30, 1995 and 1994 included $145,531 and $10,452,
respectively, in loans that had been placed on nonaccrual status. Interest
income recognized on the nonaccrual loans outstanding at June 30, 1995 and 1994
was $2,217 and $1,119, respectively, as compared to $11,184 and $1,340 of
interest income in 1995 and 1994, respectively, that would have been recorded
under the original terms of the loans.
At June 30, 1995 and 1994, loans to key officers, directors and principal
stockholders and their affiliates amounted to $894,331 and $831,373,
respectively. In the opinion of management, related party loans are made on
substantially the same terms, including interest rates and collateral, as
comparable transactions with
F-63
<PAGE> 161
DOTHAN FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
unrelated parties and do not involve more than normal risks of collectibility.
During fiscal 1995, new loans totaled $613,939 and repayments were $550,981.
An analysis of the Bank's allowance for loan losses for the years ended
June 30, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Beginning balance.............................................. $212,313 $177,336
Provision...................................................... 60,000 60,000
Charge-offs.................................................... (16,591) (25,523)
Recoveries..................................................... 0 500
-------- --------
Ending balance................................................. $255,722 $212,313
======== ========
</TABLE>
4. LAND, BUILDINGS, AND EQUIPMENT
Land, buildings, and equipment, as reflected in the accompanying statements
of financial condition at June 30, 1995 and 1994 consisted of the following:
<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
Land........................................................ $ 222,707 $ 222,707
Buildings................................................... 773,399 419,329
Furniture, fixtures and equipment........................... 232,205 293,173
Construction in progress.................................... 0 39,141
---------- ---------
1,228,311 974,350
Less accumulated depreciation and amortization.............. (180,194) (202,981)
---------- ---------
$1,048,117 $ 771,369
========= =========
</TABLE>
5. REAL ESTATE OWNED
Real estate owned consists either of properties acquired through
foreclosure and held pending sale or properties sold under mortgage loans to
facilitate sale and accounted for under the deposit method. Real estate owned is
carried at the lower of loan balance or fair value, less estimated costs of
disposition. Subsequent to foreclosure, real estate owned is evaluated on an
individual basis for changes in fair value. Future declines in fair value of the
asset less costs of disposition below its carrying amount result in an increase
in the valuation allowance account. Future increases in fair value of the asset
less costs of disposition above its carrying amount reduce the valuation
allowance account, but not below zero. Minor costs relating to holding and
maintaining the property are expensed and amounts incurred to improve the
property are capitalized. The amounts expensed in fiscal 1995, 1994, and 1993
were $2,142, $4,280, and $10,699, respectively. The amount capitalized in fiscal
1995 was $1,020. No amounts were capitalized in fiscal 1994 or 1993. Valuations
are periodically performed by management and a provision for estimated losses on
real estate is charged to earnings when such losses are anticipated. No property
was held pending sale at June 30, 1995. Property held pending sale at June 30,
1994 consisted of residential property with a basis of $27,000 and no valuation
allowance.
There were no valuation allowances for real estate owned for the years
ended June 30, 1995 and 1994 and there was no related activity in the valuation
allowances.
F-64
<PAGE> 162
DOTHAN FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. ACCRUED INTEREST AND DIVIDENDS RECEIVABLE
Accrued interest and dividends receivable at June 30, 1995 and 1994 is
summarized as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Securities held to maturity.................................... $ 29,086 $ 52,378
Securities available for sale.................................. 31,353 28,748
Loans receivable............................................... 271,253 212,186
-------- --------
$331,692 $293,312
======== ========
</TABLE>
7. DEPOSITS
The weighted average rate payable on all deposits at June 30, 1995 and 1994
was 5.48% and 4.10%, respectively. Deposits at June 30, 1995 and 1994 and the
related range of interest rates payable for deposits outstanding at June 30,
1995 consisted of the following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Statement savings, 3.0%................................... $ 1,522,588 $ 1,312,254
NOW accounts, 2.5% to 2.75%............................... 2,837,515 2,905,669
Money market accounts, 3.0% to 4.0%....................... 4,414,154 5,624,221
Certificates of deposit, 2.62% to 10.50%.................. 28,852,755 22,349,340
----------- -----------
$37,627,012 $32,191,484
========== ==========
</TABLE>
Certificates of deposit above included $4,620,069 and $3,719,531,
respectively, of certificates in excess of $100,000 at June 30, 1995 and 1994.
At June 30, 1995 and 1994, scheduled maturities of certificates of deposit
were as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Within one year........................................... $16,507,873 $12,535,224
One to three years........................................ 12,141,196 8,629,291
Thereafter................................................ 203,686 1,184,825
----------- -----------
$28,852,755 $22,349,340
========== ==========
</TABLE>
Interest expense on deposits consisted of the following:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Statement savings.................................. $ 53,089 $ 24,852 $ 20,319
NOW accounts....................................... 58,338 53,240 49,201
Money market accounts.............................. 198,978 216,652 278,288
Certificates of deposit............................ 1,309,132 983,842 1,023,619
---------- ---------- ----------
$1,619,537 $1,278,586 $1,371,427
========= ========= =========
</TABLE>
F-65
<PAGE> 163
DOTHAN FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. FEDERAL HOME LOAN BANK ADVANCES
Federal Home Loan Bank advances outstanding at June 30, 1995 and 1994
mature as follows:
<TABLE>
<CAPTION>
INTEREST
RATE 1995 1994
-------- ---------- ----------
<S> <C> <C> <C>
July 8, 1994........................................... 6.70% $ 0 $ 500,000
September 28, 1995..................................... 4.25% 166,667 833,333
September 27, 1998..................................... 4.73% 2,500,000 2,500,000
---------- ----------
$2,666,667 $3,833,333
========= =========
</TABLE>
The Bank is required by its blanket floating lien agreement with the
Federal Home Loan Bank to maintain qualifying collateral for its advances in an
amount at least equal to 175% of such advances. In addition, the Bank's
investment in Federal Home Loan Bank stock is pledged as collateral on
outstanding advances.
In 1994, the Bank maintained a $3,000,000 line of credit with the Federal
Home Loan Bank at a variable rate, which was 6.70% at June 30, 1994, which
matured July 8, 1994. The amount outstanding under this line of credit at June
30, 1994 was $500,000 and is included in the outstanding advances disclosed
above.
9. INCOME TAXES
The provision for income taxes for the years ended June 30, 1995 and 1994
were as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Current:
Federal........................................................ $144,943 $173,000
State.......................................................... 15,465 25,000
-------- --------
160,408 198,000
Deferred......................................................... (17,482) 80,125
-------- --------
Totals................................................. $142,926 $278,125
======== ========
</TABLE>
No provision for income taxes was recorded for the year ended June 30, 1993
due to utilization of net operating loss carryforwards (see Note 1).
The differences between the provision for income taxes and the amount
computed by applying the statutory federal income tax rate of 34% to income
before taxes for the years ended June 30, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Expected income tax expense at federal tax rate.................. $122,445 $256,758
Add (deduct):
Utilization of NOL carryforwards............................... 0 (78,452)
State income tax, net of federal tax benefit................... 10,207 16,716
Restoration of deferred tax liability.......................... 0 75,583
Other, net..................................................... 10,274 7,520
-------- --------
Totals................................................. $142,926 $278,125
======== ========
</TABLE>
F-66
<PAGE> 164
DOTHAN FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The components of the net deferred tax liability as of June 30, 1995 and
1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Deferred tax asset:
Unrealized loss................................................ $ 20,878 $ 65,839
-------- --------
Deferred tax liability:
FHLB stock dividend............................................ (21,852) (23,340)
Depreciation................................................... (14,047) (10,786)
Capital leases................................................. (29,332) (32,319)
Other.......................................................... 2,588 (13,680)
-------- --------
Total deferred tax liability........................... (62,643) (80,125)
-------- --------
Net deferred tax liability............................. $(41,765) $(14,286)
======== ========
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is party to financial instruments with off-balance sheet risk in
the normal course of business, primarily to meet the financing needs of its
customers. These financial instruments consisted of commitments to extend credit
and amounted to $182,000 at June 30, 1995. The Bank's policies as to collateral
and assumption of credit risk for off-balance sheet items are essentially the
same as those for extension of credit to its customers.
LITIGATION
The Bank is a party to litigation and claims arising in the normal course
of business. Management, after consultation with legal counsel, believes that
the liabilities, if any, arising from such litigation and claims will not be
material to the financial statements.
FDIC ASSESSMENTS
The FDIC-SAIF assessments became effective January 1, 1990. The FDIC
assessment rate was 20.8 basis points of insured deposits through December 31,
1990, and has been 23 basis points since January 1, 1991. However, significant
debate has ensued in Congress and within the industry as to the disparity
between bank and thrift deposit insurance premiums which arose during 1995 when
bank premiums were reduced when the target capitalization of the Bank Insurance
Fund ("BIF") was achieved. To eliminate and reduce the disparity and provide for
the recapitalization of the Savings Association Insurance Fund ("SAIF"), a
special recapitalization premium for SAIF deposits has been discussed
approximating 85 basis points. No decision has been finalized as to the
resolution of BIF/SAIF premium disparity or the fund recapitalization issue. In
the event of an 85 basis point assessment, the Bank would incur approximately
$320,000 in expense.
11. COMPENSATION AND BENEFITS
During fiscal 1994, the Bank adopted a profit sharing plan and distributes
funds earned to employees on a semiannual basis. Total distributions during 1995
related to this plan were $18,954, which are included in "Salaries and employee
benefits" in the accompanying statements of income. The Bank also adopted a
defined-contribution 401(k) plan, but does not contribute or match the
employees' contributions.
In December 1990 and November 1992, the FASB issued SFAS No. 106,
"Accounting for Postretirement Benefits Other Than Pensions" and SFAS No. 112,
"Employers' Accounting for Postemployment Benefits", respectively. The Bank does
not offer these benefits, as defined, to its employees and, accordingly,
F-67
<PAGE> 165
DOTHAN FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SFAS No. 106 had no effect on the Bank's 1995 financial statements and SFAS No.
112 at the date of adoption will have no effect on the Bank's financial
condition based on current activity.
12. REGULATION
As a federally chartered savings bank, the Bank is required by its primary
regulator, the Office of Thrift Supervision ("OTS"), to maintain capital
sufficient to meet three requirements, as defined: (1) a tangible capital
requirement equal to 1.5% of adjusted total assets; (2) a leverage or core
capital requirement of 3% of adjusted total assets, though it is anticipated
that most institutions will be required by the regulators to maintain capital of
an additional 100 to 200 basis points; and (3) a risk-based capital requirement
equal to 8% of risk-weighted assets, which were approximately $21,895,200 at
June 30, 1995. Assets and off-balance sheet commitments are assigned a
credit-risk weighting based upon their relative risk ranging from 0% for assets
backed by the full faith and credit of the United States Government or that pose
no credit risk to the Bank, to 100% for assets such as commercial loans,
delinquent, or repossessed assets.
The following is a reconciliation of the Bank's total stockholders' equity
to the Bank's tangible, core, and risk-based capital available to meet its
regulatory requirements:
<TABLE>
<CAPTION>
JUNE 30, 1995
-------------
<S> <C>
Stockholders' equity as reported in the accompanying financial
statements............................................................ $ 3,897,910
Intangible assets required to be deducted............................... (33,498)
Unrealized loss on debt securities available for sale................... 39,534
-----------
Tangible capital........................................................ 3,903,946
Required deductions..................................................... 0
-----------
Core capital............................................................ 3,903,946
General allowance for loan losses....................................... 135,322
-----------
Risk-based capital...................................................... $ 4,039,268
===========
</TABLE>
The following presents the Bank's capital levels and ratios compared to its
minimum capital requirements:
<TABLE>
<CAPTION>
AMOUNT PERCENTAGE
---------- ----------
<S> <C> <C>
Tangible capital, as defined................................... $3,903,946 8.74%
Required minimum............................................... 669,946 1.50
---------- -----
Excess............................................... $3,234,000 7.24%
========= =====
Core capital, as defined....................................... $3,903,946 8.74%
Required minimum (a)........................................... 1,339,893 3.00
---------- -----
Excess............................................... $2,564,053 5.74%
========= =====
Risk-based capital............................................. $4,039,268 18.45%
Required minimum............................................... 1,751,616 8.00
---------- -----
Excess............................................... $2,287,652 10.45%
========= =====
</TABLE>
- ---------------
(a) The required minimum based on 5% would be $2,233,155, leaving an excess of
$1,670,791.
Capital requirements continue to be under study by the OTS. Management
continues to monitor these requirements and contemplated changes and believes
that the Bank will continue to exceed its regulatory minimum requirements.
F-68
<PAGE> 166
DOTHAN FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Bank has not been required by the OTS to incorporate an interest rate
risk component to the risk-based capital requirement. This regulation requires a
deduction from risk-based capital based on an institution's exposure to interest
rate risk. Management believes the Bank would continue to exceed its regulatory
minimum requirements if the interest rate risk component is ever required.
Effective December 19, 1992, the Bank became subject to additional capital
standards established by the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA"). These regulations established capital standards in five
categories ranging from "critically undercapitalized" to "well capitalized," and
defined "well capitalized" as at least 5% for core (leverage) capital and at
least 10% for risk-based capital. Institutions with a core capital less than 4%
or risk-based capital less than 8% are considered "undercapitalized," and
subject to increasingly stringent prompt corrective action measures. The Bank's
capital ratios above place it in the "well capitalized" category.
13. INTEREST RATE SENSITIVITY
A portion of the Bank's interest earning assets are long-term fixed rate
mortgage loans and mortgage-backed securities (approximately 79%), while its
principal source of funds are savings deposits with maturities of three years or
less (approximately 99%). Because of the short-term nature of the savings
deposits, their cost generally reflects returns currently available in the
market. Accordingly, the savings deposits have a high degree of interest rate
sensitivity while the mortgage loan portfolio, to the extent of fixed rate
loans, is relatively fixed and has much less sensitivity to changes in current
market rates. Although these conditions are somewhat mitigated by the Bank's
risk management strategies of selling long-term fixed rate loans and reinvesting
in adjustable-rate mortgage-backed securities, changes in market interest rates
tend to directly affect the level of net interest income.
14. SUBSEQUENT EVENT
On January 22, 1996, the Bank entered into a definitive agreement for the
acquisition of the Bank by The Colonial BancGroup, Inc. ("BancGroup"), in which
BancGroup will acquire all of the outstanding stock of the Bank, consideration
consisting of both shares of BancGroup's common stock and cash for an aggregate
purchase price of approximately $5,200,000. This transaction is subject to,
among other things, approval by the stockholders of the Bank and BancGroup and
approval by the appropriate regulatory authorities. In connection with the
pending acquisition, the Bank has entered into agreements with its president and
chief executive officer and its vice president and controller pursuant to which
each could receive cash payments following the merger, should they terminate
employment with the Bank or BancGroup following the merger. Total payments
possible under the agreements, if exercised, would approximate $54,000.
F-69
<PAGE> 167
DOTHAN FEDERAL SAVINGS BANK
CONDENSED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash................................................................ $ 3,853,521 $ 1,487,601
Securities available for sale....................................... 4,900,823 5,456,746
Securities held to maturity......................................... 2,248,026 1,498,386
Loans receivable.................................................... 36,380,791 35,465,079
Land, buildings, and equipment...................................... 1,025,705 1,090,831
Real estate owned................................................... 27,479 102,352
Accrued interest and dividends receivable........................... 362,161 309,226
Other assets........................................................ 168,988 292,083
----------- -----------
$48,967,494 $45,702,304
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits............................................................ $42,362,182 $35,011,092
Federal Home Loan Bank advances..................................... 2,083,333 6,333,333
Advance payments by borrowers for taxes and insurance............... 134,203 157,050
Accrued interest payable............................................ 134,324 139,444
Accrued expenses and other liabilities.............................. 191,433 258,874
----------- -----------
Total Liabilities......................................... $44,905,475 $41,899,793
----------- -----------
Stockholders' Equity
Preferred stock, 1,000,000 shares authorized, none issued, par value
of $.01........................................................... $ 0 $ 0
Common Stock, 4,000,000 shares authorized, 399,688 issued and
outstanding, par value of $.01.................................... 3,997 3,997
Paid-in Capital..................................................... 3,329,339 3,329,339
Retained Earnings................................................... 733,190 594,746
Unrealized loss on securities available for sale, net............... (4,507) (125,571)
----------- -----------
Total Stockholders' Equity................................ $ 4,062,019 3,802,511
----------- -----------
$48,967,494 $45,702,304
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-70
<PAGE> 168
DOTHAN FEDERAL SAVINGS BANK
CONDENSED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31,
---------------------------
1996 1995
---------- ----------
(UNAUDITED)
<S> <C> <C>
Interest Income:
Loans........................................................... $2,259,446 $2,104,612
Other investments............................................... 456,540 301,087
---------- ----------
Total interest income................................... 2,715,986 2,405,699
---------- ----------
Interest Expense
Deposits........................................................ 1,716,440 1,139,741
Other Borrowings................................................ 86,450 187,456
---------- ----------
Total interest expense.................................. 1,802,890 1,327,197
---------- ----------
Net Interest income..................................... 913,096 1,078,502
Provision for possible loan losses................................ 45,000 45,000
---------- ----------
Net interest income after provision for possible loan losses...... 868,096 1,033,502
---------- ----------
Other Income:
Other loan fees and charges..................................... 32,877 28,799
Demand deposit fees............................................. 25,822 22,187
Other income.................................................... 22,929 14,184
---------- ----------
Total other income...................................... 81,628 65,170
---------- ----------
Other Expenses:
Salaries and employee benefits.................................. 321,292 357,197
Office building and equipment................................... 87,785 99,029
Federal deposit insurance premiums.............................. 65,204 56,500
Data processing................................................. 51,475 59,460
Other expenses.................................................. 204,708 190,125
---------- ----------
Total other expenses.................................... 730,464 762,311
---------- ----------
Income before provision for income taxes................ 219,260 336,361
---------- ----------
Provision for income taxes........................................ 91,169 129,508
---------- ----------
Net Income.............................................. $ 128,091 $ 206,853
========= =========
Earnings Per Share................................................ $ 0.32 $ 0.52
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-71
<PAGE> 169
DOTHAN FEDERAL SAVINGS BANK
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK
------------------ UNREALIZED TOTAL
NUMBER OF ADDITIONAL RETAINED GAIN/(LOSS), STOCKHOLDERS'
SHARES AMOUNT PAID-IN CAPITAL EARNINGS NET EQUITY
--------- ------ --------------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1995......................... 399,688 $3,997 $ 3,329,339 $605,099 $(40,525) $ 3,897,910
Net income....................................... 0 0 0 128,091 0 128,091
Change in unrealized loss on securities available
for sale, net.................................. 0 0 0 0 36,018 36,018
--------- ------ --------------- -------- ------------ -------------
Balance at March 31, 1996........................ 399,688 $3,997 $ 3,329,339 $733,190 $ (4,507) $ 4,062,019
</TABLE>
The accompanying notes are an integral part of these statements.
F-72
<PAGE> 170
DOTHAN FEDERAL SAVINGS BANK
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................. $ 128,090 $ 206,853
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................. 39,548 63,778
Accretion of deferred income.............................................. (48,374) (57,490)
Provision for losses on loans and real estate owned....................... 45,000 45,000
Loan fees deferred, net................................................... 35,738 35,978
Loss (gain), net, on sale of:
Loans and REO........................................................... (5,267) (5,427)
Equipment............................................................... (3,355) 0
Change in assets and liabilities:
Increase in accrued interest and dividends receivable................... (30,469) (15,914)
Increase in other assets................................................ (125,831) (235,627)
Increase (decrease) in current income taxes payable..................... 29,600 (42,905)
Increase in accrued expenses and other liabilities...................... 88,678 51,996
Increase (decrease) in accrued interest payable......................... (45,286) 46,026
----------- -----------
Net cash provided by operating activities............................ 108,072 92,268
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities held to maturity..................... 1,500,000 1,500,000
Proceeds from sales of securities available-for-sale........................ 2,500 0
Proceeds from sales of loans................................................ 1,691,667 1,028,550
Proceeds from sales of equipment............................................ 7,100 7,562
Repayments on securities available for sale................................. 425,921 311,416
Purchases of FHLB stock..................................................... 0 (53,200)
Purchases of securities held to maturity.................................... (2,249,531) (496,328)
Loans originated, net of repayments......................................... (1,758,007) (3,050,170)
Loans and participations purchased.......................................... (871,619) (3,555,698)
Capital expenditures........................................................ (15,863) (365,036)
----------- -----------
Net cash used in investing activities................................ (1,267,832) (4,672,904)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in deposits, net........................................ 4,735,170 2,819,608
Advances from Federal Home Loan Bank........................................ 0 16,350,000
Repayments of Federal Home Loan Bank advances............................... (583,334) (13,850,000)
Decrease in advance payments by borrowers for taxes and insurance........... (51,891) (4,897)
Cash dividends paid......................................................... 0 (59,953)
----------- -----------
Net cash (used in) provided by financing activities.................. 4,099,945 5,254,758
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS......................................... 2,940,185 674,122
CASH AND CASH EQUIVALENTS, beginning of period................................ 913,336 813,479
----------- -----------
CASH AND CASH EQUIVALENTS, end of period...................................... 3,853,521 1,487,601
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes.............................................................. 61,570 172,413
============ ============
Interest.................................................................. 1,848,176 1,281,171
============ ============
Noncash transactions:
Transfers of loans receivable to real estate owned........................ 0 6,000
============ ============
Increase in unrealized net loss on securities available for sale, net of
deferred tax benefit of $18,452 and $1,179, respectively................. 54,471 3,470
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-73
<PAGE> 171
DOTHAN FEDERAL SAVINGS BANK
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
1. BASIS OF PRESENTATION
The condensed financial statements were prepared by Dothan Federal Savings
Bank (the "Bank") without audit, but in the opinion of management, reflect all
adjustments necessary for the fair presentation of the Bank's financial position
and results of operations for the nine month periods ended March 31, 1996 and
1995. Results of operations for the interim 1996 period are not necessarily
indicative of results expected for the full year. While certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted, the Bank believes that the disclosures herein are adequate to make the
information presented not misleading. These condensed financial statements
should be read in conjunction with the financial statements and the notes
thereto included in the Bank's statements of financial condition for the year
ended June 30, 1995. The accounting policies employed are the same as those
shown in Note 1 to the statements of financial condition.
2. IMPLEMENTATION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NOS. 114 AND
118
During 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan," which is effective for fiscal years beginning after
December 15, 1994. SFAS No. 114 requires that impaired loans be valued based on
the present value of those loans' estimated cash flows at each loan's effective
interest rate or the loan's observable market price or the fair value of the
underlying collateral. In October 1994, the FASB issued SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosures", an amendment to SFAS No. 114. SFAS No. 118 amends SFAS No. 114 to
allow a creditor to use existing methods for recognizing interest on an impaired
loan. Management adopted SFAS Nos. 114 and 118 as of July 1, 1995; however,
given the Bank's current loan portfolio composition, the impact of adoption was
not material.
3. FDIC ASSESSMENTS
The FDIC-SAIF assessments became effective January 1, 1990. The FDIC
assessment rate was 20.8 basis points of insured deposits through December 31,
1990, and has been 23 basis points since January 1, 1991. However, significant
debate has ensued in Congress and within the industry as to the disparity
between bank and thrift deposit insurance premiums which arose during 1995 when
bank premiums were reduced when the target capitalization of the Bank Insurance
Fund ("BIF") was achieved. To eliminate or reduce the disparity and provide for
the recapitalization of the Savings Association Insurance Fund ("SAIF"), a
special recapitalization premium for SAIF deposits has been discussed
approximating 85 basis points. No decision has been finalized as to the
resolution of BIF/SAIF premium disparity or the fund recapitalization issue. In
the event of an 85 basis point assessment, the Bank would incur approximately
$320,000 in expense.
4. SUBSEQUENT EVENT
On January 22, 1996, the Bank entered into a definitive agreement for the
acquisition of the Bank by the Colonial BancGroup, Inc. ("BancGroup"), in which
BancGroup will acquire all of the outstanding stock of the Bank, consideration
consisting of both shares of BancGroup's common stock and cash for an aggregate
purchase price approximating $5,200,000. This transaction is subject to, among
other things, approval by the stockholders of the Bank and approval by the
appropriate regulatory authorities. In connection with the pending acquisition,
the Bank has entered into agreements with its president and chief executive
officer and its vice president and controller, pursuant to which each could
receive cash payments following the merger should they terminate employment with
the Bank or BancGroup following the merger. Total payments possible under the
agreements, if exercised, would approximate $54,000.
F-74
<PAGE> 172
APPENDIX A
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
THE COLONIAL BANCGROUP, INC.,
AND
SOUTHERN BANKING CORPORATION
DATED AS OF
FEBRUARY 15, 1996
<PAGE> 173
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CAPTION PAGE
- ------- ----
<S> <C> <C> <C>
ARTICLE 1 -- NAME
1.1 Name............................................................................ A-5
ARTICLE 2 -- MERGER -- TERMS AND CONDITIONS
2.1 Applicable Law.................................................................. A-5
2.2 Corporate Existence............................................................. A-5
2.3 Articles of Incorporation and Bylaws............................................ A-6
2.4 Resulting Corporation's Officers and Board...................................... A-6
2.5 Shareholder Approval............................................................ A-6
2.6 Further Acts.................................................................... A-6
2.7 Effective Date and Closing...................................................... A-6
ARTICLE 3 -- CONVERSION OF SOUTHERN STOCK
3.1 Conversion of Southern Stock.................................................... A-6
3.2 Surrender of Southern Stock..................................................... A-8
3.3 Fractional Shares............................................................... A-8
3.4 Adjustments..................................................................... A-8
3.5 BancGroup Stock................................................................. A-8
3.6 Dissenting Rights............................................................... A-8
ARTICLE 4 -- REPRESENTATIONS, WARRANTIES AND COVENANTS OF BANCGROUP
4.1 Organization.................................................................... A-8
4.2 Capital Stock................................................................... A-9
4.3 Financial Statements; Taxes..................................................... A-9
4.4 No Conflict with Other Instrument............................................... A-10
4.5 Absence of Material Adverse Change.............................................. A-10
4.6 Approval of Agreements.......................................................... A-10
4.7 Tax Treatment................................................................... A-10
4.8 Title and Related Matters....................................................... A-10
4.9 Subsidiaries.................................................................... A-10
4.10 Contracts....................................................................... A-10
4.11 Litigation...................................................................... A-11
4.12 Compliance...................................................................... A-11
4.13 Registration Statement.......................................................... A-11
4.14 SEC Filings..................................................................... A-11
4.15 Form S-4........................................................................ A-11
4.16 Brokers......................................................................... A-12
4.17 Government Authorization........................................................ A-12
4.18 Absence of Regulatory Communications............................................ A-12
4.19 Disclosure...................................................................... A-12
ARTICLE 5 -- REPRESENTATIONS, WARRANTIES AND COVENANTS OF SOUTHERN
5.1 Organization.................................................................... A-12
5.2 Capital Stock................................................................... A-12
5.3 Subsidiaries.................................................................... A-12
5.4 Financial Statements; Taxes..................................................... A-12
5.5 Absence of Certain Changes or Events............................................ A-13
5.6 Title and Related Matters....................................................... A-14
5.7 Commitments..................................................................... A-15
5.8 Charter and Bylaws.............................................................. A-15
</TABLE>
A-2
<PAGE> 174
<TABLE>
<CAPTION>
CAPTION PAGE
- ------- ----
<S> <C> <C> <C>
5.9 Litigation...................................................................... A-15
5.10 Material Contract Defaults...................................................... A-15
5.11 No Conflict with Other Instrument............................................... A-16
5.12 Governmental Authorization...................................................... A-16
5.13 Absence of Regulatory Communications............................................ A-16
5.14 Absence of Material Adverse Change.............................................. A-16
5.15 Insurance....................................................................... A-16
5.16 Pension and Employee Benefit Plans.............................................. A-16
5.17 Buy-Sell Agreement.............................................................. A-16
5.18 Brokers......................................................................... A-17
5.19 Approval of Agreements.......................................................... A-17
5.20 Disclosure...................................................................... A-17
5.21 Registration Statement.......................................................... A-17
5.22 Loans; Adequacy of Allowance for Loan Losses.................................... A-17
5.23 Environmental Matters........................................................... A-17
5.24 Transfer of Shares.............................................................. A-18
5.25 Collective Bargaining........................................................... A-18
5.26 Labor Disputes.................................................................. A-18
5.27 Derivative Contracts............................................................ A-18
ARTICLE 6 -- ADDITIONAL COVENANTS
6.1 Additional Covenants of BancGroup............................................... A-18
6.2 Additional Covenants of Southern................................................ A-20
ARTICLE 7 -- MUTUAL COVENANTS AND AGREEMENTS
7.1 Best Efforts; Cooperation....................................................... A-21
7.2 Press Release................................................................... A-22
7.3 Mutual Disclosure............................................................... A-22
7.4 Access to Properties and Records................................................ A-22
ARTICLE 8 -- CONDITIONS TO OBLIGATIONS OF ALL PARTIES
8.1 Approval by Shareholders........................................................ A-22
8.2 Regulatory Authority Approval................................................... A-22
8.3 Litigation...................................................................... A-22
8.4 Registration Statement.......................................................... A-22
8.5 Tax Opinion..................................................................... A-23
8.6 Market Value.................................................................... A-23
ARTICLE 9 -- CONDITIONS TO OBLIGATIONS OF SOUTHERN
9.1 Representations, Warranties and Covenants....................................... A-23
9.2 Adverse Changes................................................................. A-23
9.3 Closing Certificate............................................................. A-23
9.4 Opinion of Counsel.............................................................. A-24
9.5 Comfort Letter.................................................................. A-24
9.6 Fairness Opinion................................................................ A-24
9.7 NYSE Listing.................................................................... A-24
9.8 Other Matters................................................................... A-24
ARTICLE 10 -- CONDITIONS TO OBLIGATIONS OF BANCGROUP
10.1 Representations, Warranties and Covenants....................................... A-24
10.2 Adverse Changes................................................................. A-24
10.3 Closing Certificate............................................................. A-25
10.4 Opinion of Counsel.............................................................. A-25
10.5 Controlling Shareholders........................................................ A-25
10.6 Other Matters................................................................... A-25
</TABLE>
A-3
<PAGE> 175
<TABLE>
<CAPTION>
CAPTION PAGE
- ------- ----
<S> <C> <C> <C>
10.7 Dissenters...................................................................... A-25
10.8 Pooling of Interests............................................................ A-25
10.9 Material Events................................................................. A-25
ARTICLE 11 -- TERMINATION OF REPRESENTATIONS AND WARRANTIES............................ A-26
ARTICLE 12 -- NOTICES.................................................................. A-26
ARTICLE 13 -- AMENDMENT OR TERMINATION
13.1 Amendment....................................................................... A-26
13.2 Termination..................................................................... A-26
13.3 Damages......................................................................... A-27
ARTICLE 14 -- DEFINITIONS.............................................................. A-27
ARTICLE 15 -- MISCELLANEOUS
15.1 Expenses........................................................................ A-31
15.2 Benefit......................................................................... A-31
15.3 Governing Law................................................................... A-31
15.4 Counterparts.................................................................... A-31
15.5 Headings........................................................................ A-31
15.6 Severability.................................................................... A-31
15.7 Construction.................................................................... A-31
15.8 Return of Information........................................................... A-31
15.9 Equitable Remedies.............................................................. A-31
15.10 Attorneys' Fees................................................................. A-31
15.11 No Waiver....................................................................... A-31
15.12 Remedies Cumulative............................................................. A-32
15.13 Entire Contract................................................................. A-32
</TABLE>
A-4
<PAGE> 176
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER is made and entered
into as of this the 15th day of February 1996, by and between SOUTHERN BANKING
CORPORATION ("Southern"), a Florida corporation, and THE COLONIAL BANCGROUP,
INC. ("BancGroup"), a Delaware corporation. This Agreement replaces and
supersedes in its entirety the Agreement and Plan of Merger dated as of January
25, 1996 by and between BancGroup and Southern (the "original agreement"),
except that whenever a section of this Agreement refers to a Schedule or
Exhibit, the Schedule or Exhibit provided with the original agreement in
response to the comparable section of the original agreement shall be deemed to
have also been provided pursuant to this Agreement.
WITNESSETH
WHEREAS, Southern operates as a bank holding company for its wholly owned
subsidiary, Southern Bank of Central Florida (the "Bank"), with its principal
office in Orlando, Florida; and
WHEREAS, BancGroup is a bank holding company with subsidiary banks in
Alabama, Georgia and Tennessee; and
WHEREAS, Southern wishes to merge with BancGroup; and
WHEREAS, it is the intention of BancGroup and Southern that such merger
shall qualify for federal income tax purposes as a "reorganization" within the
meaning of section 368(a) of the Code, as defined herein;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the Parties hereto agree as follows:
ARTICLE 1
NAME
1.1 Name. The name of the corporation resulting from the Merger shall be
"The Colonial BancGroup, Inc."
ARTICLE 2
MERGER -- TERMS AND CONDITIONS
2.1 Applicable Law. On the Effective Date, Southern shall be merged with
and into BancGroup (herein referred to as the "Resulting Corporation" whenever
reference is made to it as of the time of merger or thereafter). The Merger
shall be undertaken pursuant to the provisions of and with the effect provided
in the DGCL and the FBCA. The offices and facilities of Southern and of
BancGroup shall become the offices and facilities of the Resulting Corporation.
2.2 Corporate Existence. On the Effective Date, the corporate existence of
Southern and of BancGroup shall, as provided in the DGCL and the FBCA, be merged
into and continued in the Resulting Corporation, and the Resulting Corporation
shall be deemed to be the same corporation as Southern and BancGroup. All
rights, franchises and interests of Southern and BancGroup, respectively, in and
to every type of property (real, personal and mixed) and choses in action shall
be transferred to and vested in the Resulting Corporation by virtue of the
Merger without any deed or other transfer. The Resulting Corporation on the
Effective Date, and without any order or other action on the part of any court
or otherwise, shall hold and enjoy all rights of property, franchises and
interests, including appointments, designations and nominations and all other
rights and interests as trustee, executor, administrator, transfer agent and
registrar of stocks and bonds, guardian of estates, assignee, and receiver and
in every other fiduciary capacity and in every agency, and capacity, in the
A-5
<PAGE> 177
same manner and to the same extent as such rights, franchises and interests were
held or enjoyed by Southern and BancGroup, respectively, on the Effective Date.
2.3 Articles of Incorporation and Bylaws. On the Effective Date, the
certificate of incorporation and bylaws of the Resulting Corporation shall be
the restated certificate of incorporation and bylaws of BancGroup as they exist
immediately before the Effective Date.
2.4 Resulting Corporation's Officers and Board. The board of directors and
the officers of the Resulting Corporation on the Effective Date shall consist of
those persons serving in such capacities of BancGroup as of the Effective Date.
2.5 Shareholder Approval. This Agreement shall be submitted to the
shareholders of Southern at the Stockholders Meeting to be held as promptly as
practicable consistent with the satisfaction of the conditions set forth in this
Agreement. Upon approval by the requisite vote of the shareholders of Southern
as required by applicable Law, this Agreement shall become effective as soon as
practicable thereafter in the manner provided in section 2.7 hereof.
2.6 Further Acts. If, at any time after the Effective Date, the Resulting
Corporation shall consider or be advised that any further assignments or
assurances in law or any other acts are necessary or desirable (i) to vest,
perfect, confirm or record, in the Resulting Corporation, title to and
possession of any property or right of Southern or BancGroup, acquired as a
result of the Merger, or (ii) otherwise to carry out the purposes of this
Agreement, Southern or BancGroup and its officers and directors shall execute
and deliver all such proper deeds, assignments and assurances in law and do all
acts necessary or proper to vest, perfect or confirm title to, and possession
of, such property or rights in the Resulting Corporation and otherwise to carry
out the purposes of this Agreement; and the proper officers and directors of the
Resulting Corporation are fully authorized in the name of Southern or BancGroup,
or otherwise, to take any and all such action.
2.7 Effective Date and Closing. Subject to the terms of all requirements
of Law and the conditions specified in this Agreement, the Merger shall become
effective on the date specified in the Certificate of Merger to be issued by the
Secretary of State of the State of Delaware (such time being herein called the
"Effective Date"). The Closing shall take place at the offices of BancGroup, in
Montgomery, Alabama, at 11:00 a.m. on the date that the Effective Date occurs or
at such other place and time that the Parties may mutually agree.
ARTICLE 3
CONVERSION OF SOUTHERN STOCK
3.1 Conversion of Southern Stock. (a) On the Effective Date, and subject
to sections 3.3 and 3.6, each share of common stock of Southern outstanding and
held by Southern's shareholders (the "Southern Stock"), shall be converted into
.3919 of a share of BancGroup Common Stock (i.e., the "Exchange Ratio"). Shares
of Southern common stock that may be issued pursuant to the exercise of options
under Southern's stock option plans (the "Southern Options") shall be converted
as provided in section 3.1(b).
(b)(i) Southern shall cancel and exchange all Southern Options outstanding
at the Effective Date as to which, at least five days prior to the Effective
Date, the holders thereof have consented in writing to the cancellation and
conversion thereof. In exchange therefor, Southern shall distribute shares of
BancGroup Common Stock as determined below. BancGroup shall issue such shares of
BancGroup Common Stock to Southern for delivery to the holders of Southern
Options on the Effective Date. Notwithstanding the foregoing, Southern Options
granted pursuant to the 1989 Employee Incentive Stock Option Plan (the "ISOs")
may not be exchanged for shares of BancGroup Common Stock pursuant to this
section but shall be converted into BancGroup options pursuant to section
3.1(b)(ii). The number of shares of BancGroup
A-6
<PAGE> 178
Common Stock to be issued in exchange for the cancellation of the Southern
Options, excluding the ISOs, is set forth in the following table:
<TABLE>
<CAPTION>
BANCGROUP SHARES
NUMBER OF SHARES EXERCISE PRICE CONVERSION TO BE ISSUED FOR
SUBJECT TO SOUTHERN OPTIONS PER SHARE RATE SOUTHERN OPTIONS
- ----------------------------------------------------- -------------- ---------- ---------------------
<S> <C> <C> <C>
204,000............................................. $ 2.92 .2965 60,486
584,000............................................. 3.04 .2926 170,878
230,000............................................. 4.50 .2448 56,304
------ ---------- ----------
1,018,000............................................ 287,668
----------
</TABLE>
No fractions of shares of BancGroup Common Stock shall be issued and fractions
shall be exchanged for cash in accordance with section 3.3 hereof. As of the
date hereof, the number of shares of common stock of Southern outstanding and
held of record is 3,362,000 and the number of shares subject to Southern
Options, including the ISOs, is 1,112,000. Assuming no Southern Options are
exercised prior to the Effective Date, and all Southern Options other than the
ISOs are converted in accordance with this section 3.1(b)(i), the number of
shares of BancGroup Common Stock to be issued in the Merger shall be 1,605,235.
Schedule 3.1(b) hereto sets forth the names of all persons holding Southern
Options, the number of shares of Southern common stock subject to such options
and the exercise price per share for such options.
(b)(ii) On the Effective Date, BancGroup shall assume all Southern Options
outstanding as to which the holders thereof have not consented to the
cancellation and conversion thereof as provided by section 3.1(b)(i) and each
such option shall represent the right to acquire BancGroup Common Stock on
substantially the same terms applicable to the Southern Options except as
specified below in this section. The number of shares of BancGroup Common Stock
to be issued pursuant to such options shall equal the number of shares of
Southern common stock subject to such Southern Options multiplied by .3919. The
exercise price for the acquisition of BancGroup Common Stock shall be the
exercise price for each share of Southern common stock subject to such options
divided by .3919. Assuming that none of the holders of the Southern Options
consent to the cancellation and conversion thereof as provided by Section
3.1(b)(i), then the Southern Options would be converted into BancGroup Options
with the following terms:
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF SHARES OF
SHARES OF BANCGROUP
SOUTHERN COMMON STOCK
COMMON STOCK TO BE
CURRENTLY SUBJECT TO
SUBJECT TO NEW
SOUTHERN CURRENT BANCGROUP ADJUSTED
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE EXPIRATION DATE
- ------------ -------------- ------------ -------------- -----------------
<C> <C> <C> <C> <S>
268,000 $ 2.92 105,029 $ 7.45 March 14, 1999
584,000 3.04 228,870 7.76 April 21, 2003
30,000 3.38 11,757 8.62 March 14, 1999
230,000 4.50 90,137 11.48 October 5, 2004
- ------------ ------ ------------ ------- -----------------
1,112,000 435,793
</TABLE>
Notwithstanding the foregoing, no fractions of shares of BancGroup Common Stock
shall be issued upon exercise of such options and any fraction of a share of
BancGroup Common Stock that would otherwise be issued upon the exercise of such
options shall be converted into cash upon the exercise of such option in an
amount equal to the product of such fraction and the difference between the
market value of one share of BancGroup Common Stock at the time of exercise of
such option and the per share exercise price of such option. The market value of
one share of BancGroup Common Stock at the time of exercise of such options
shall be the closing sales price of BancGroup Common Stock on the NYSE on the
last trading day preceding the date of exercise. As soon as practicable after
the Effective Date, BancGroup shall file at its expense a registration statement
with the SEC on Form S-8 or other appropriate form with respect to the shares of
BancGroup Common Stock to be issued pursuant to such options and shall use its
reasonable best efforts to maintain the effectiveness of such registration
statement for so long as such options remain outstanding. Such
A-7
<PAGE> 179
shares shall also be registered or qualified for sale under the securities laws
of any state in which registration or qualification is necessary.
3.2 Surrender of Southern Stock. After the Effective Date, each holder of
an outstanding certificate or certificates which prior thereto represented
shares of Southern Stock who is entitled to receive BancGroup Common Stock shall
be entitled, upon surrender to BancGroup of their certificate or certificates
representing shares of Southern Stock, to receive in exchange therefor a
certificate or certificates representing the number of whole shares of BancGroup
Common Stock into and for which the shares of Southern Stock so surrendered
shall have been converted, such certificates to be of such denominations and
registered in such names as such holder may reasonably request. Until so
surrendered and exchanged, each such outstanding certificate which, prior to the
Effective Date, represented shares of Southern Stock and which is to be
converted into BancGroup Common Stock shall for all purposes evidence ownership
of the BancGroup Common Stock into and for which such shares shall have been so
converted, except that no dividends or other distributions with respect to such
BancGroup Common Stock shall be made until the certificates previously
representing shares of Southern Stock shall have been properly tendered.
3.3 Fractional Shares. No fractional shares of BancGroup Common Stock
shall be issued, and each holder of shares of Southern Stock having a fractional
interest arising upon the conversion of such shares into shares of BancGroup
Common Stock shall, at the time of surrender of the certificates previously
representing Southern Stock, be paid by BancGroup an amount in cash equal to the
market value of such fractional share. For this purpose, "market value" shall
mean the average of the closing prices of BancGroup Common Stock on each of the
20 trading days ending on the trading day immediately prior to the Effective
Date as reported by the NYSE.
3.4 Adjustments. In the event that prior to the Effective Date BancGroup
Common Stock shall be changed into a different number of shares or a different
class of shares by reason of any recapitalization or reclassification, stock
dividend, combination, stock split, or reverse stock split of the Common Stock,
an appropriate and proportionate adjustment shall be made in the number of
shares of BancGroup Common Stock into which the Southern Stock and Southern
Options shall be converted, and the market values stated in section 8.6 hereof
shall be appropriately adjusted.
3.5 BancGroup Stock. The shares of Common Stock of BancGroup issued and
outstanding immediately before the Effective Date shall continue to be issued
and outstanding shares of the Resulting Corporation.
3.6 Dissenting Rights. Any shareholder of Southern who shall not have
voted in favor of this Agreement and who has complied with the applicable
procedures set forth in the FBCA, relating to rights of dissenting shareholders,
shall be entitled to receive payment for the fair value of his Southern Stock.
If after the Effective Date a dissenting shareholder of Southern fails to
perfect, or effectively withdraws or loses, his right to appraisal and payment
for his shares of Southern Stock, BancGroup shall issue and deliver the
consideration to which such holder of shares of Southern Stock is entitled under
Section 3.1 (without interest) upon surrender of such holder of the certificate
or certificates representing shares of Southern Stock held by him.
ARTICLE 4
REPRESENTATIONS, WARRANTIES AND COVENANTS OF BANCGROUP
BancGroup represents, warrants and covenants to and with Southern as
follows:
4.1 Organization. BancGroup is a corporation duly organized, validly
existing and in good standing under the Laws of the State of Delaware. BancGroup
has the necessary corporate powers to carry on its business as presently
conducted and is qualified to do business in every jurisdiction in which the
character and location of the Assets owned by it or the nature of the business
transacted by it requires qualification or in which the failure to qualify
could, individually or in the aggregate, have a Material Adverse Effect on the
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<PAGE> 180
condition (financial or other), earnings, business, affairs, Assets, properties,
prospects or results of operations of BancGroup or of BancGroup and its
Subsidiaries taken as a whole.
4.2 Capital Stock. (a) The authorized capital stock of BancGroup consists
of (A) 44,000,000 shares of Common Stock, $2.50 par value per share, of which as
of September 30, 1995, 12,267,143 shares were validly issued and outstanding,
fully paid and nonassessable and are not subject to preemptive rights, and (B)
1,000,000 shares of Preference Stock, $2.50 par value per share, none of which
are issued and outstanding. The shares of Common Stock to be issued upon the
Merger are duly authorized and, when so issued, will be validly issued and
outstanding, fully paid and nonassessable, will have been registered under the
1933 Act, and will have been registered or qualified under the securities laws
of all jurisdictions in which such registration or qualification is required,
based upon information provided by Southern.
(b) The authorized capital stock of each Subsidiary of BancGroup is validly
issued and outstanding, fully paid and nonassessable, and each Subsidiary is
wholly owned, directly or indirectly, by BancGroup.
4.3 Financial Statements; Taxes. (a) BancGroup has delivered to Southern
copies of the following financial statements of BancGroup.
(i) Consolidated balance sheets as of December 31, 1993, and December
31, 1994, and for the nine months ending September 30, 1995;
(ii) Consolidated statements of operations for each of the three years
ended December 31, 1992, 1993 and 1994, and for the nine months ending
September 30, 1995;
(iii) Consolidated statements of cash flows for each of the three
years ended December 31, 1992, 1993 and 1994, and for the nine months
ending September 30, 1995; and
(iv) Consolidated statements of changes in shareholders' equity for
the three years ended December 31, 1992, 1993 and 1994, and for the nine
months ending September 30, 1995.
All such financial statements are in all material respects in accordance with
the books and records of BancGroup and have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated, all as more particularly set forth in the
notes to such statements. Each of the consolidated balance sheets presents
fairly as of its date the consolidated financial condition of BancGroup and its
Subsidiaries. Except as and to the extent reflected or reserved against in such
balance sheets (including the notes thereto), BancGroup did not have, as of the
dates of such balance sheets, any material Liabilities or obligations (absolute
or contingent) of a nature customarily reflected in a balance sheet or the notes
thereto, other than Liabilities (including reserves) in the amount set forth in
such balance sheets and the notes thereto. The statements of consolidated
income, shareholders' equity and changes in consolidated financial position
present fairly the results of operations and changes in financial position of
BancGroup and its Subsidiaries for the periods indicated. The foregoing
representations, insofar as they relate to the unaudited interim financial
statements of BancGroup for the nine months ended September 30, 1995, are
subject in all cases to normal recurring year-end adjustments and the omission
of footnote disclosure.
(b) All Tax returns required to be filed by or on behalf of BancGroup have
been timely filed (or requests for extensions therefor have been timely filed
and granted and have not expired), and all returns filed are complete and
accurate in all material respects. All Taxes shown on said returns to be due and
all additional assessments received have been paid. The amounts recorded for
Taxes on the balance sheets provided under section 4.3(a) are, to the Knowledge
of BancGroup, sufficient in all material respects for the payment of all unpaid
federal, state, county, local, foreign or other Taxes (including any interest or
penalties) of BancGroup accrued for or applicable to the period ended on the
dates thereof, and all years and periods prior thereto and for which BancGroup
may at said dates have been liable in its own right or as transferee of the
Assets of, or as successor to, any other corporation or other party. No audit,
examination or investigation is presently being conducted or, to the Knowledge
of BancGroup, threatened by any taxing authority which is likely to result in a
material Tax Liability, no material unpaid Tax deficiencies or additional
liabilities of any sort have been proposed by any governmental representative
and no agreements for extension of time for the assessment of any material
amount of Tax have been entered into by or on behalf of BancGroup. BancGroup has
withheld
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from its employees (and timely paid to the appropriate governmental entity)
proper and accurate amounts for all periods in material compliance with all Tax
withholding provisions of applicable federal, state, foreign and local Laws
(including without limitation, income, social security and employment Tax
withholding for all types of compensation).
4.4 No Conflict with Other Instrument. The consummation of the
transactions contemplated by this Agreement will not result in a breach of or
constitute a Default (without regard to the giving of notice or the passage of
time) under any material indenture, mortgage, deed of trust or other material
agreement or instrument to which BancGroup or any of its Subsidiaries is a party
or by which they or their Assets may be bound; will not conflict with any
provision of the restated certificate of incorporation or bylaws of BancGroup or
the articles of incorporation or bylaws of any of its Subsidiaries; and will not
violate any provision of any Law, regulation, judgment or decree binding on them
or any of their Assets.
4.5 Absence of Material Adverse Change. Since the date of the most recent
balance sheet provided under section 4.3(a)(i) above, 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 BancGroup.
4.6 Approval of Agreements. The board of directors of BancGroup has, or
will have prior to the Effective Date, approved this Agreement and the
transactions contemplated by it and have, or will have prior to the Effective
Date, authorized the execution and delivery by BancGroup of this Agreement. This
Agreement constitutes the legal, valid and binding obligation of BancGroup,
enforceable against it in accordance with its terms. Approval of this Agreement
by the stockholders of BancGroup is not required by applicable law. Subject to
the matters referred to in section 8.2, BancGroup has full power, authority and
legal right to enter into this Agreement and to consummate the transactions
contemplated by this Agreement. BancGroup has no Knowledge of any fact or
circumstance under which the appropriate regulatory approvals required by
section 8.2 will not be granted without the imposition of material conditions or
material delays.
4.7 Tax Treatment. BancGroup has no present plan to sell or otherwise
dispose of any of the Assets of Southern, or to liquidate any Subsidiaries,
subsequent to the Merger, and BancGroup intends to continue the historic
business of Southern.
4.8 Title and Related Matters. BancGroup has good and marketable title to
all the properties, interests in properties and Assets, real and personal,
reflected in the most recent balance sheet referred to in section 4.3(a), or
acquired after the date of such balance sheet (except properties, interests and
Assets sold or otherwise disposed of since such date, in the ordinary course of
business), free and clear of all mortgages, Liens, pledges, charges or
encumbrances except (i) mortgages and other encumbrances referred to in the
notes of such balance sheet, (ii) liens for current Taxes not yet due and
payable and (iii) such imperfections of title and easements as do not materially
detract from or interfere with the present use of the properties subject thereto
or affected thereby, or otherwise materially impair present business operations
at such properties. To the Knowledge of BancGroup, the material structures and
equipment of BancGroup comply in all material respects with the requirements of
all applicable Laws.
4.9 Subsidiaries. Each Subsidiary of BancGroup has been duly incorporated
and is validly existing as a corporation in good standing under the Laws of the
jurisdiction of its incorporation and each Subsidiary has been duly qualified as
a foreign corporation to transact business and is in good standing under the
Laws of each other jurisdiction in which it owns or leases properties, or
conducts any business so as to require such qualification and in which the
failure to be duly qualified could have a Material Adverse Effect upon BancGroup
and its Subsidiaries considered as one enterprise; each of the banking
Subsidiaries of BancGroup has its deposits fully insured by the Federal Deposit
Insurance Corporation to the extent provided by the Federal Deposit Insurance
Act; and the businesses of the non-bank Subsidiaries of BancGroup are permitted
to subsidiaries of registered bank holding companies.
4.10 Contracts. Neither BancGroup nor any of its Subsidiaries is in
violation of its respective certificate of incorporation or by-laws or in
default in the performance or observance of any material obligation, agreement,
covenant or condition contained in any Contract, indenture, mortgage, loan
agreement, note, lease or other instrument to which it is a party or by which it
or its property may be bound.
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4.11 Litigation. Except as disclosed in or reserved for in BancGroup's
financial statements, there is no Litigation before or by any court or Agency,
domestic or foreign, now pending, or, to the Knowledge of BancGroup, threatened
against or affecting BancGroup or any of its Subsidiaries (nor is BancGroup
aware of any facts which could give rise to any such Litigation) which is
required to be disclosed in the Registration Statement (other than as disclosed
therein), or which is likely to have any Material Adverse Effect or prospective
Material Adverse Effect in the condition, financial or otherwise, or in the
general affairs, management, stockholders' equity or results of operations of
BancGroup and its Subsidiaries considered as one enterprise, or which is likely
to materially and adversely affect the properties or Assets thereof or which is
likely to materially affect or delay the consummation of the transactions
contemplated by this Agreement; all pending legal or governmental proceedings to
which BancGroup or any Subsidiary is a party or of which any of their properties
is the subject which are not described in the Registration Statement, including
ordinary routine litigation incidental to the business, are, considered in the
aggregate, not material; and neither BancGroup nor any of its Subsidiaries have
any contingent obligations which could be considered material to BancGroup and
its Subsidiaries considered as one enterprise which are not disclosed in the
Registration Statement as it may be amended or supplemented.
4.12 Compliance. BancGroup and its Subsidiaries, in the conduct of their
businesses, are to the Knowledge of BancGroup, in material compliance with all
material federal, state or local Laws applicable to their or the conduct of
their businesses.
4.13 Registration Statement. At the time the Registration Statement
becomes effective and at the time of the Stockholders' Meeting, the Registration
Statement, including the Proxy Statement which shall constitute a part thereof,
will comply in all material respects with the requirements of the 1933 Act and
the rules and regulations thereunder, will not contain an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the representations and warranties
in this subsection shall not apply to statements in or omissions from the Proxy
Statement made in reliance upon and in conformity with information furnished in
writing to BancGroup by Southern or any of its representatives expressly for use
in the Proxy Statement or information included in the Proxy Statement regarding
the business of Southern, its operations, Assets and capital.
4.14 SEC Filings. (a) BancGroup has heretofore delivered to Southern
copies of BancGroup's: (i) Annual Report on Form 10-K for the fiscal year ended
December 31, 1994; (ii) 1994 Annual Report to Shareholders; (iii) Quarterly
Reports on Form 10-Q for the fiscal quarters ended March 31, 1995, June 30, 1995
and September 30, 1995; and (iv) all other reports, registration statements and
other documents filed by BancGroup with the SEC since December 31, 1994. Since
December 31, 1994, BancGroup has timely filed all reports and registration
statements and the documents required to be filed with the SEC under the rules
and regulations of the SEC and all such reports and registration statements or
other documents have complied in all material respects, as of their respective
filing dates and effective dates, as the case may be, with all the applicable
requirements of the 1933 Act and the 1934 Act. As of the respective filing and
effective dates, none of such reports or registration statements or other
documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the
statements therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(b) The documents incorporated by reference into the Registration
Statement, at the time they were filed with the SEC, complied in all material
respects with the requirements of the 1934 Act and Regulations thereunder and
when read together and with the other information in the Registration Statement
will not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading at the time the Registration Statement becomes effective
or at the time of the Stockholders Meeting.
4.15 Form S-4. The conditions for use of a registration statement on SEC
Form S-4 set forth in the General Instructions on Form S-4 have been or will be
satisfied with respect to BancGroup and the Registration Statement.
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4.16 Brokers. All negotiations relative to this Agreement and the
transactions contemplated by this Agreement have been carried on by BancGroup
directly with Southern and without the intervention of any other person, either
as a result of any act of BancGroup or otherwise in such manner as to give
rights to any valid claim against BancGroup for finders fee, brokerage
commissions or other like payment.
4.17 Government Authorization. BancGroup and its Subsidiaries have all
Permits that, to the Knowledge of BancGroup and its Subsidiaries, are or will be
legally required to enable BancGroup or any of its Subsidiaries to conduct their
businesses in all material respects as now conducted by each of them.
4.18 Absence of Regulatory Communications. Neither BancGroup nor any of
its Subsidiaries is subject to, or has received during the past three (3) years,
any written communication directed specifically to it from any Agency to which
it is subject or pursuant to which such Agency has imposed or has indicated it
may impose any material restrictions on the operations of it or the business
conducted by it or in which such Agency has raised a material question
concerning the condition, financial or otherwise, of such company.
4.19 Disclosure. No representation or warranty, or any statement or
certificate furnished or to be furnished to Southern by BancGroup, contains or
will contain any untrue statement of a material fact, or omits or will omit to
state a material fact necessary to make the statements contained in this
Agreement or in any such statement or certificate not misleading.
ARTICLE 5
REPRESENTATIONS, WARRANTIES AND COVENANTS OF SOUTHERN
Southern represents, warrants and covenants to and with BancGroup, as
follows:
5.1 Organization. Southern is a Florida corporation, and the Bank is a
Florida banking corporation and not a member of the Federal Reserve System. Each
Southern Company is duly organized, validly existing and in good standing under
the respective Laws of its jurisdiction of incorporation and has all requisite
power and authority to carry on its business as it is now being conducted and is
qualified to do business in every jurisdiction in which the character and
location of the Assets owned by it or the nature of the business transacted by
it requires qualification or in which the failure to qualify could,
individually, or in the aggregate, have a Material Adverse Effect on the
condition (financial or other) earnings, business, affairs, Assets, properties,
prospects or results of operations of Southern or of Southern and its
Subsidiaries taken as a whole.
5.2 Capital Stock. (i) As of September 30, 1995, the authorized capital
stock of Southern consists of 10,000,000 shares of common stock, $1.00 par value
per share, 3,362,000 shares of which are issued and outstanding. All of such
shares which are outstanding are validly issued, fully paid and nonassessable
and not subject to preemptive rights. Southern has 1,112,000 shares of its
common stock subject to exercise pursuant to stock options under its stock
option plans. Except for the foregoing, Southern does not have any other
arrangements or commitments obligating it to issue shares of its capital stock
or any securities convertible into or having the right to purchase shares of its
capital stock.
5.3 Subsidiaries. Southern has no direct Subsidiaries other than the Bank,
and there are no operating subsidiaries of the Bank. Southern owns all of the
issued and outstanding capital stock of the Bank free and clear of any liens,
claims or encumbrances of any kind. All of the issued and outstanding shares of
capital stock of the Subsidiaries have been validly issued and are fully paid
and non-assessable. As of September 30, 1995, there were 1,000,000 shares of the
common stock, par value $4.00 per share, authorized of the Bank, 527,778 of
which are issued and outstanding and wholly owned by Southern.
5.4 Financial Statements; Taxes. (a) Southern has delivered to BancGroup
copies of the following financial statements of Southern:
(i) Consolidated statements of financial condition as of December 31,
1993 and 1994, and for the nine months ending September 30, 1995;
(ii) Consolidated statements of income for each of the three years
ended December 31, 1992, 1993 and 1994, and for the nine months ending
September 30, 1995;
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(iii) Consolidated statements of stockholders' equity for each of the
three years ended December 31, 1992, 1993, and 1994, and for the nine
months ending September 30, 1995; and
(iv) Consolidated statements of cash flows for the three years ended
December 31, 1992, 1993 and 1994, and for the nine months ending September
30, 1995.
All of the foregoing financial statements are in all material respects in
accordance with the books and records of Southern and have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated, except for changes required by GAAP, all
as more particularly set forth in the notes to such statements. Each of such
balance sheets presents fairly as of its date the financial condition of
Southern. Except as and to the extent reflected or reserved against in such
balance sheets (including the notes thereto), Southern did not have, as of the
date of such balance sheets, any material Liabilities or obligations (absolute
or contingent) of a nature customarily reflected in a balance sheet or the notes
thereto, other than Liabilities (including reserves) in the amount set forth in
such balance sheets and the notes thereto. The statements of income,
stockholders' equity and cash flows present fairly the results of operation,
changes in shareholders equity and cash flows of Southern for the periods
indicated. The foregoing representations, insofar as they relate to the
unaudited interim financial statements of Southern for the nine months ended
September 30, 1995, are subject in all cases to normal recurring year-end
adjustments and the omission of footnote disclosure.
(b) Except as set forth on Schedule 5.4(b), all Tax returns required to be
filed by or on behalf of Southern have been timely filed (or requests for
extensions therefor have been timely filed and granted and have not expired),
and all returns filed are complete and accurate in all material respects. All
Taxes shown on said returns to be due and all additional assessments received
have been paid. The amounts recorded for Taxes on the balance sheets provided
under section 5.4(a) are, to the Knowledge of Southern, sufficient in all
material respects for the payment of all unpaid federal, state, county, local,
foreign and other Taxes (including any interest or penalties) of Southern
accrued for or applicable to the period ended on the dates thereof, and all
years and periods prior thereto and for which Southern may at said dates have
been liable in its own right or as a transferee of the Assets of, or as
successor to, any other corporation or other party. No audit, examination or
investigation is presently being conducted or, to the Knowledge of Southern,
threatened by any taxing authority which is likely to result in a material Tax
Liability, no material unpaid Tax deficiencies or additional liability of any
sort have been proposed by any governmental representative and no agreements for
extension of time for the assessment of any material amount of Tax have been
entered into by or on behalf of Southern. Southern has not executed an extension
or waiver of any statute of limitations on the assessment or collection of any
Tax due that is currently in effect.
(c) Each Southern Company has withheld from its employees (and timely paid
to the appropriate governmental entity) proper and accurate amounts for all
periods in material compliance with all Tax withholding provisions of applicable
federal, state, foreign and local Laws (including without limitation, income,
social security and employment Tax withholding for all types of compensation).
Each Southern Company is in compliance with, and its records contain all
information and documents (including properly completed IRS Forms W-9) necessary
to comply with, all applicable information reporting and Tax withholding
requirements under federal, state and local Tax Laws, and such records identify
with specificity all accounts subject to backup withholding under section 3406
of the Code.
5.5 Absence of Certain Changes or Events. Except as set forth on Schedule
5.5, since the date of the most recent balance sheet provided under section
5.4(a)(i) above, no Southern Company has
(a) issued, delivered or agreed to issue or deliver any stock, bonds
or other corporate securities (whether authorized and unissued or held in
the treasury) except shares of common stock issued upon the exercise of
Southern Options and shares issued as director's qualifying shares;
(b) borrowed or agreed to borrow any funds or incurred, or become
subject to, any Liability (absolute or contingent) except borrowings,
obligations and Liabilities incurred in the ordinary course of business and
consistent with past practice;
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(c) paid any material obligation or Liability (absolute or contingent)
other than current Liabilities reflected in or shown on the most recent
balance sheet referred to in section 5.4(a)(i) and current Liabilities
incurred since that date in the ordinary course of business and consistent
with past practice;
(d) declared or made, or agreed to declare or make, any payment of
dividends or distributions of any Assets of any kind whatsoever to
shareholders, or purchased or redeemed, or agreed to purchase or redeem,
any of its outstanding securities;
(e) except in the ordinary course of business, sold or transferred, or
agreed to sell or transfer, any of its Assets, or canceled, or agreed to
cancel, any debts or claims;
(f) except in the ordinary course of business, entered or agreed to
enter into any agreement or arrangement granting any preferential rights to
purchase any of its Assets, or requiring the consent of any party to the
transfer and assignment of any of its Assets;
(g) suffered any Losses or waived any rights of value which in either
event in the aggregate are material considering its business as a whole;
(h) except in the ordinary course of business, made or permitted any
amendment or termination of any Contract, agreement or license to which it
is a party if such amendment or termination is material considering its
business as a whole;
(i) except in accordance with normal and usual practice, made any
accrual or arrangement for or payment of bonuses or special compensation of
any kind or any severance or termination pay to any present or former
officer or employee;
(j) except in accordance with normal and usual practice, increased the
rate of compensation payable to or to become payable to any of its officers
or employees or made any material increase in any profit sharing, bonus,
deferred compensation, savings, insurance, pension, retirement or other
employee benefit plan, payment or arrangement made to, for or with any of
its officers or employees;
(k) received notice or had Knowledge or reason to believe that any of
its substantial customers has terminated or intends to terminate its
relationship, which termination would have a Material Adverse Effect on its
financial condition, results of operations, business, Assets or properties;
(l) failed to operate its business in the ordinary course so as to
preserve its business intact and to preserve the goodwill of its customers
and others with whom it has business relations;
(m) entered into any other material transaction other than in the
ordinary course of business; or
(n) agreed in writing, or otherwise, to take any action described in
clauses (a) through (m) above.
Between the date hereof and the Effective Date, no Southern Company,
without the express written approval of BancGroup, will do any of the things
listed in clauses (a) through (n) of this section 5.5 except as permitted
therein or as contemplated in this Agreement, and no Southern Company will enter
into or amend any material Contract without the express written consent of
BancGroup. Southern may request the consent of BancGroup to any of the foregoing
actions by furnishing BancGroup with a written request which describes the
action proposed to be taken by Southern. Such consent shall not be unreasonably
withheld. BancGroup shall have a period of 10 day from the date on which it
receives such request within which to notify Southern of either its consent or
refusal to consent, to the proposed action. BancGroup's failure to respond to
any such request within such 10 days period shall be deemed to constitute a
consent to the action proposed in Southern's request.
5.6 Title and Related Matters.
(a) Title. Southern has good and marketable title to all the properties,
interest in properties and Assets, real and personal, reflected in the most
recent balance sheet referred to in section 5.4(a)(i), or acquired after the
date of such balance sheet (except properties, interests and Assets sold or
otherwise disposed of since such date, in the ordinary course of business), free
and clear of all mortgages, Liens, pledges, charges or encumbrances except (i)
mortgages and other encumbrances referred to in the notes to such balance sheet,
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(ii) Liens for current Taxes not yet due and payable and (iii) such
imperfections of title and easements as do not materially detract from or
interfere with the present use of the properties subject thereto or affected
thereby, or otherwise materially impair present business operations at such
properties. To the Knowledge of Southern, the material structures and equipment
of each Southern Company comply in all material respects with the requirements
of all applicable Laws.
(b) Leases. Schedule 5.6(b) sets forth a list and description of all real
and personal property owned or leased by any Southern Company, either as lessor
or lessee.
(c) Personal Property. Schedule 5.6(c) sets forth a depreciation schedule
of each Southern Company's fixed Assets as of December 31, 1994.
(d) Computer Hardware and Software. Schedule 5.6(d) contains a description
of all agreements relating to data processing computer software and hardware now
being used in the business operations of any Southern Company. Southern is not
aware of any defects, irregularities or problems with any of its computer
hardware or software which renders such hardware or software unable to
satisfactorily perform the tasks and functions to be performed by them in the
business of any Southern Company.
5.7 Commitments. Except as set forth in Schedule 5.7, no Southern Company
is a party to any oral or written (i) Contracts for the employment of any
officer or employee which is not terminable on 30 days' (or less) notice, (ii)
profit sharing, bonus, deferred compensation, savings, stock option, severance
pay, pension or retirement plan, agreement or arrangement, (iii) loan agreement,
indenture or similar agreement relating to the borrowing of money by such party,
(iv) guaranty of any obligation for the borrowing of money or otherwise,
excluding endorsements made for collection, and guaranties made in the ordinary
course of business, (v) consulting or other similar material Contracts, (vi)
collective bargaining agreement, (vii) agreement with any present or former
officer, director or shareholder of such party, or (viii) other Contract,
agreement or other commitment which is material to the business, operations,
property, prospects or Assets or to the condition, financial or otherwise, of
any Southern Company. Complete and accurate copies of all Contracts, plans and
other items so listed have been made or will be made available to BancGroup for
inspection.
5.8 Charter and Bylaws. Schedule 5.8 contains true and correct copies of
the articles of incorporation and bylaws of each Southern Company, including all
amendments thereto, as currently in effect. There will be no changes in such
articles of incorporation or bylaws prior to the Effective Date, without the
prior written consent of BancGroup.
5.9 Litigation. There is no Litigation (whether or not purportedly on
behalf of Southern) pending or, to the Knowledge of Southern, threatened against
or affecting any Southern Company (nor is Southern aware of any facts which are
likely to give rise to any such Litigation) at law or in equity, or before or by
any governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, or before any arbitrator of any kind,
which involves the possibility of any judgment or Liability not fully covered by
insurance in excess of a reasonable deductible amount or which may have a
Material Adverse Effect on the business operations, properties or Assets or in
the condition, financial or otherwise, of any Southern Company, and no Southern
Company is in Default with respect to any judgment, order, writ, injunction,
decree, award, rule or regulation of any court, arbitrator or governmental
department, commission, board, bureau, agency or instrumentality, which Default
would have a Material Adverse Effect on the business operations, properties or
Assets or in the condition, financial or otherwise, of such party. To the
Knowledge of Southern, each Southern Company has complied in all material
respects with all material applicable Laws and Regulations including those
imposing Taxes, or any applicable jurisdiction and of all states,
municipalities, other political subdivisions and Agencies, in respect of the
ownership of its properties and the conduct of its business, which, if not
complied with, would have a Material Adverse Effect in the business operations,
properties or Assets or in the condition, financial or otherwise, of any such
Southern Company.
5.10 Material Contract Defaults. Except as disclosed on Schedule 5.10, no
Southern Company is in Default in any material respect under the terms of any
material Contract, agreement, lease or other commitment which is or may be,
material to the business, operations, properties or Assets, or the condition,
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financial or otherwise, of such company and, to the Knowledge of Southern, there
is no event which, with notice or lapse of time, or both, may be or become an
event of Default under any such material Contract, agreement, lease or other
commitment in respect of which adequate steps have not been taken to prevent
such a Default from occurring.
5.11 No Conflict with Other Instrument. The consummation of the
transactions contemplated by this Agreement will not result in the breach of any
term or provision of or constitute a Default under any Contract, indenture,
mortgage, deed of trust or other material agreement or instrument to which any
Southern Company is a party and will not conflict with any provision of the
charter or bylaws of any Southern Company.
5.12 Governmental Authorization. Each Southern Company has all Permits
that, to the Knowledge of Southern, are or will be legally required to enable
any Southern Company to conduct its business in all material respects as now
conducted by each Southern Company.
5.13 Absence of Regulatory Communications. Except as provided in Schedule
5.13, no Southern Company is subject to, nor has any Southern Company received
during the past three years, any written communication directed specifically to
it from any Agency to which it is subject or pursuant to which such Agency has
imposed or has indicated it may impose any material restrictions on the
operations of it or the business conducted by it or in which such Agency has
raised any material question concerning the condition, financial or otherwise,
of such company.
5.14 Absence of Material Adverse Change. To the Knowledge of Southern,
since the date of the most recent balance sheet provided under section
5.4(a)(i), there have been no events, changes or occurrences which have had, or
are reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on any Southern Company.
5.15 Insurance. Each Southern Company has in effect insurance coverage and
bonds with reputable insurers which, in respect to amounts, types and risks
insured, management of Southern reasonably believes to be adequate for the type
of business conducted by such company. No Southern Company is liable for any
material retroactive premium adjustment. All insurance policies and bonds are
valid, enforceable and in full force and effect, and no Southern Company has
received any notice of any material premium increase or cancellation with
respect to any of its insurance policies or bonds. Within the last three years,
no Southern Company has been refused any insurance coverage which it has sought
or applied for, and it has no reason to believe that existing insurance coverage
cannot be renewed as and when the same shall expire, upon terms and conditions
as favorable as those presently in effect, other than possible increases in
premiums that do not result from any extraordinary loss experience. All policies
of insurance presently held or policies containing substantially equivalent
coverage will be outstanding and in full force with respect to each Southern
Company at all times from the date hereof to the Effective Date.
5.16 Pension and Employee Benefit Plans. (a) To the Knowledge of Southern,
all employee benefit plans of each Southern Company have been established in
compliance with, and such plans have been operated in material compliance with,
all applicable Laws. Except as set forth in Section 5.16, no Southern Company
sponsors or otherwise maintains a "pension plan" within the meaning of section
3(2) of ERISA or any other retirement plan other than the Southern 401(k) plan
that is intended to qualify under section 401 of the Code, nor do any unfunded
Liabilities exist with respect to any employee benefit plan, past or present. To
the Knowledge of Southern, no employee benefit plan, any trust created
thereunder or any trustee or administrator thereof has engaged in a "prohibited
transaction," as defined in section 4975 of the Code, which may have a Material
Adverse Effect on the condition, financial or otherwise, of any Southern
Company.
(b) To the Knowledge of Southern, no amounts payable to any employee of any
Southern Company will fail to be deductible for federal income tax purposes by
virtue of Section 280G of the Code and regulations thereunder.
5.17 Buy-Sell Agreement. To the Knowledge of Southern, there are no
agreements among any of its shareholders granting to any person or persons a
right of first refusal in respect of the sale, transfer, or other disposition of
shares of outstanding securities by any shareholder of Southern, any similar
agreement or any voting agreement or voting trust in respect of any such shares.
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5.18 Brokers. Except for services provided for Southern by The Carson
Medlin Company, all negotiations relative to this Agreement and the transactions
contemplated by this Agreement have been carried on by Southern directly with
BancGroup and without the intervention of any other person, either as a result
of any act of Southern, or otherwise, in such manner as to give rise to any
valid claim against Southern for a finder's fee, brokerage commission or other
like payment.
5.19 Approval of Agreements. The board of directors of Southern has
approved this Agreement and the transactions contemplated by this Agreement and
has authorized the execution and delivery by Southern of this Agreement. Subject
to the matters referred to in section 8.2, Southern has full power, authority
and legal right to enter into this Agreement, and, upon appropriate vote of the
shareholders of Southern in accordance with this Agreement, Southern shall have
full power, authority and legal right to consummate the transactions
contemplated by this Agreement.
5.20 Disclosure. No representation or warranty, nor any statement or
certificate furnished or to be furnished to BancGroup by Southern, contains or
will contain any untrue statement of a material fact, or omits or will omit to
state a material fact necessary to make the statements contained in this
Agreement or in any such statement or certificate not misleading.
5.21 Registration Statement. At the time the Registration Statement
becomes effective and at the time of the Stockholders Meeting, the Registration
Statement, including the Proxy Statement which shall constitute part thereof,
will not contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading; provided, however,
that the representations and warranties in this section shall only apply to
statements in or omissions from the Proxy Statement relating to descriptions of
the business of Southern, its Assets, properties, operations, and capital stock
or to information furnished in writing by Southern or its representatives
expressly for inclusion in the Proxy Statement.
5.22 Loans; Adequacy of Allowance for Loan Losses. All reserves for loan
losses shown on the most recent financial statements furnished by Southern have
been calculated in accordance with prudent and customary banking practices and
are adequate to reflect the risk inherent in the loans of Southern. Southern has
no Knowledge of any fact which is likely to require a future material increase
in the provision for loan losses or a material decrease in the loan loss reserve
reflected in such financial statements. Each loan reflected as an Asset on the
financial statements of Southern is the legal, valid and binding obligation of
the obligor of each loan, enforceable in accordance with its terms subject to
the effect of bankruptcy, insolvency, reorganization, moratorium, or other
similar laws relating to creditors' rights generally and to general equitable
principles. Southern does not have in its portfolio any loan exceeding its legal
lending limit, and except as disclosed on Schedule 5.22, Southern has no known
significant delinquent, substandard, doubtful, loss, nonperforming or problem
loans.
5.23 Environmental Matters. Except as provided in Schedule 5.23, to the
Knowledge of Southern, each Southern Company is in material compliance with all
Laws and other governmental requirements relating to the generation, management,
handling, transportation, treatment, disposal, storage, delivery, discharge,
release or emission of any waste, pollution, or toxic, hazardous or other
substance (the "Environmental Laws"), and Southern has no Knowledge that any
Southern Company has not complied with all regulations and requirements
promulgated by the Occupational Safety and Health Administration that are
applicable to any Southern Company. To the Knowledge of Southern, there is no
Litigation pending or threatened with respect to any violation or alleged
violation of the Environmental Laws. To the Knowledge of Southern, with respect
to Assets of or owned by any Southern Company, including any Loan Property, (i)
there has been no spillage, leakage, contamination or release of any substances
for which the appropriate remedial action has not been completed; (ii) no owned
or leased property is contaminated with or contains any hazardous substance or
waste; and (iii) there are no underground storage tanks on any premises owned or
leased by any Southern Company. Southern has no Knowledge of any facts which
might suggest that any Southern Company has engaged in any management practice
with respect to any of its past or existing borrowers which could reasonably be
expected to subject any Southern Company to any Liability, either directly or
indirectly, under the principles of law as set forth in United States v. Fleet
Factors Corp., 901 F.2d 1550 (11th Cir. 1990) or any
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similar principles. Moreover, to the Knowledge of Southern, no Southern Company
has extended credit, either on a secured or unsecured basis, to any person or
other entity engaged in any activities which would require or requires such
person or entity to obtain any Permits which are required under any
Environmental Law which has not been obtained.
5.24 Transfer of Shares. Southern has no Knowledge of any plan or
intention on the part of Southern's shareholders to sell or otherwise dispose of
any of the BancGroup Common Stock to be received by them in the Merger that
would reduce such shareholders' ownership to a number of shares having, in the
aggregate, a fair market value of less than fifty (50%) percent of the total
fair market value of Southern common stock outstanding immediately before the
Merger.
5.25 Collective Bargaining. There are no labor contracts, collective
bargaining agreements, letters of undertakings or other arrangements, formal or
informal, between any Southern Company and any union or labor organization
covering any of any Southern Company's employees and none of said employees are
represented by any union or labor organization.
5.26 Labor Disputes. To the Knowledge of Southern, each Southern Company
is in material compliance with all federal and state laws respecting employment
and employment practices, terms and conditions of employment, wages and hours.
No Southern Company is or has been engaged in any unfair labor practice, and, to
the Knowledge of Southern, no unfair labor practice complaint against any
Southern Company is pending before the National Labor Relations Board. Relations
between management of each Southern Company and the employees are amicable and
there have not been, nor to the Knowledge of Southern, are there presently, any
attempts to organize employees, nor to the Knowledge of Southern, are there
plans for any such attempts.
5.27 Derivative Contracts. No Southern Company is a party to or has agreed
to enter into a swap, forward, future, option, cap, floor or collar financial
contract, or any other interest rate or foreign currency protection contract or
derivative security not included in Southern's financial statements delivered
under section 5.4 hereof which is a financial derivative contract (including
various combinations thereof).
ARTICLE 6
ADDITIONAL COVENANTS
6.1 Additional Covenants of BancGroup. BancGroup covenants to and with
Southern as follows:
(a) Registration Statement and Other Filings. BancGroup shall prepare
and file with the SEC the Registration Statement on Form S-4 (or such other
form as may be appropriate) and all amendments and supplements thereto, in
form reasonably satisfactory to Southern and its counsel, with respect to
the Common Stock to be issued pursuant to this Agreement. BancGroup shall
use reasonable good faith efforts to prepare all necessary filings with any
Agencies which may be necessary for approval to consummate the transactions
contemplated by this Agreement.
(b) Blue Sky Permits. BancGroup shall use its best efforts to obtain,
prior to the effective date of the Registration Statement, all necessary
state securities Law or "blue sky" Permits and approvals required to carry
out the transactions contemplated by this Agreement.
(c) Financial Statements. BancGroup shall furnish to Southern:
(i) As soon as practicable and in any event within forty-five (45)
days after the end of each quarterly period (other than the last
quarterly period) in each fiscal year, consolidated statements of
operations of BancGroup for such period and for the period beginning at
the commencement of the fiscal year and ending at the end of such
quarterly period, and a consolidated statement of financial condition of
BancGroup as of the end of such quarterly period, setting forth in each
case in comparative form figures for the corresponding periods ending in
the preceding fiscal year, subject to changes resulting from year-end
adjustments;
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(ii) Promptly upon receipt thereof, copies of all audit reports
submitted to BancGroup by independent auditors in connection with each
annual, interim or special audit of the books of BancGroup made by such
accountants;
(iii) As soon as practicable, copies of all such financial
statements and reports as it shall send to its stockholders and of such
regular and periodic reports as BancGroup may file with the SEC or any
other Agency; and
(iv) With reasonable promptness, such additional financial data as
Southern may reasonably request.
(d) No Control of Southern by BancGroup. Notwithstanding any other
provision hereof, until the Effective Date, the authority to establish and
implement the business policies of Southern shall continue to reside solely
in Southern's officers and board of directors.
(e) Listing. Prior to the Effective Date, BancGroup shall use its
reasonable efforts to list the shares of BancGroup Common Stock to be
issued in the Merger on the NYSE or other quotations system on which such
shares are primarily traded.
(f) Employee Benefit Matters. On the Effective Date, all employees of
any Southern Company shall, at BancGroup's option, either became employees
of the Resulting Corporation or its Subsidiaries or be entitled to
severance benefits in accordance with Colonial Bank's severance policy as
of the date of this Agreement. All employees of any Southern Company who
become employees of the Resulting Corporation or its Subsidiaries on the
Effective Date shall be entitled, to the extent permitted by applicable
Law, to participate in all benefit plans of Colonial Bank to the same
extent as Colonial Bank employees. Employees of any Southern Company who
become employees of the Resulting Corporation or its Subsidiaries shall be
allowed to participate as of the Effective Date in the medical and dental
benefits plan of Colonial Bank as new employees of Colonial Bank, and the
time of employment of such employees who are employed at least 30 hours per
week with any Southern Company shall be counted as employment under such
dental and medical plans of Colonial Bank for purposes of calculating any
30 day waiting period and pre-existing condition limitations. To the extent
permitted by applicable Law, the period of service with the appropriate
Southern Company of all employees who become employees of the Resulting
Corporation or its Subsidiaries on the Effective Date shall be recognized
only for vesting and eligibility purposes under Colonial Bank's benefit
plans. In addition, if the Effective Date falls within an annual period of
coverage under any group health plan or group dental plan of the Resulting
Corporation and its Subsidiaries, each such Southern Company employee shall
be given credit for covered expenses paid by that employee under comparable
employee benefit plans of the Southern Company during the applicable
coverage period through the Effective Date towards satisfaction of any
annual deductible limitation and out-of-pocket maximum that may apply under
that group health plan or group dental plan of the Resulting Corporation
and its Subsidiaries.
(g) Indemnification; Directors and Officers Insurance. (i) From and
after the Effective Date, BancGroup shall indemnify and advance costs and
expenses (including reasonable attorneys fees, disbursements and expenses)
and hold harmless each present and former director and/or officer of
Southern or its Subsidiaries determined as of the Effective Date (the
"Indemnified Parties"), against any costs or expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims, damages, settlements or
liabilities (collectively, "Costs") incurred in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative (each a "Claim"), arising out of or
pertaining to matters existing or occurring at or prior to the Effective
Date, whether asserted or claimed prior to, at or after the Effective Date
to the fullest extent that Southern would have been required under Florida
law and its Articles of Incorporation or Bylaws in effect on the date
hereof, to indemnify such person (and also advance expenses as incurred to
the fullest extent permitted under applicable law).
(ii) Any Indemnified Party wishing to claim indemnification under
Section 6.1 (i) shall notify BancGroup within forty-five (45) days of the
Indemnified Party's receipt of a notice of any Claim, but
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the failure to so notify shall not relieve BancGroup of any liability it
may have to such Indemnified Party if such failure does not materially
prejudice the Indemnifying Party. In the event of any claim (whether
arising before or after the Effective Date), (i) BancGroup shall have the
right to assume the defense thereof, and BancGroup shall not be liable to
such Indemnified Parties for any legal expenses of other counsel or any
other expenses subsequently incurred by such Indemnified Parties in
connection with the defense thereof, except that if BancGroup elects not to
assume such defense, or counsel for the indemnified Parties advises that
there are issues which raise conflicts of interest between BancGroup and
the Indemnified Parties, the Indemnified Parties may retain counsel
satisfactory to them, and BancGroup shall pay the reasonable fees and
expenses of such counsel for the Indemnified Parties promptly after
statements therefore are received; provided, however, that BancGroup shall
be obligated pursuant to this paragraph (ii) to pay for only one firm of
counsel for all Indemnified Parties in any jurisdiction unless the use of
one counsel for such Indemnified Parties will present such counsel with a
conflict of interest, (ii) the Indemnified Parties will cooperate in the
defense of any such matter, and (iii) and BancGroup shall not be liable for
any settlement effected without its prior written consent which shall not
be unreasonably withheld. If such indemnity with any respect to any
Indemnified Party is unenforceable against BancGroup, then BancGroup and
the Indemnified Party shall contribute to the amount payable in such
proportion as is appropriate to reflect relative faults and benefits.
(iii) For a period of four (4) years after the Effective Date,
BancGroup shall cause to be maintained in effect the current policies with
directors and officers liability insurance maintained by Southern (provided
that BancGroup may substitute therefore policies of at least the same
coverage and amounts containing terms and conditions which are no less
advantageous to such directors and officers and provided that the
deductible amount on BancGroup's policies may be higher than that for
existing Southern policies) with respect to claims arising from facts or
events which occurred before the Effective Date, provided that such
policies may be maintained at a cost that is comparable to the cost of such
policies as of the date of this Agreement.
(iv) If BancGroup or any of its successors and assigns, (i) shall
consolidate with or merge into any other corporation or entity and shall
not be the continuing or surviving corporation or entity of such
consolidation or merger, or (ii) shall transfer all or substantially all of
its property and assets to any individual, corporation or other entity,
then, in each such case, proper provision shall be made so that the
successors and assigns of BancGroup and its Subsidiaries shall assume the
obligations set forth in this section.
(v) The provisions of this Section 6.1(g) are intended to be for the
benefit of, and shall be enforceable by each Indemnified Party, and each
Indemnified Party's heirs and representatives.
6.2 Additional Covenants of Southern. Southern covenants to and with
BancGroup as follows:
(a) Operations. Southern will conduct its business and the business
of each Southern Company in a proper and prudent manner and will use its
best efforts to maintain its relationships with its depositors, customers
and employees. No Southern Company will engage in any material transaction
outside the ordinary course of business or make any material change in its
accounting policies or methods of operation, nor will Southern permit the
occurrence of any change or event which would render any of the
representations and warranties in Article 5 hereof untrue in any material
respect at and as of the Effective Date with the same effect as though such
representations and warranties had been made at and as of such Effective
Date. Southern may request the consent of BancGroup to any of the foregoing
actions by furnishing BancGroup with a written request which describes the
action proposed to be taken by Southern. Such consent shall not be
unreasonably withheld. BancGroup shall have a period of 10 days from the
date on which it receives such request within which to notify Southern of
either its consent or refusal to consent, to the proposed action.
BancGroup's failure to respond to any such request within such 10 day
period shall be deemed to constitute a consent to the action proposed in
Southern's request.
(b) Stockholders Meeting; Best Efforts. Southern will cause the
Stockholders Meeting to be held for the purpose of approving the Merger as
soon as practicable after the effective date of the Registration Statement,
and will use its best efforts to bring about the transactions contemplated
by this Agreement,
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including stockholder approval of this Agreement, as soon as practicable
unless this Agreement is terminated as provided herein.
(c) Prohibited Negotiations. Until the termination of this Agreement,
neither Southern nor any of Southern's directors or officers (or any person
representing any of the foregoing) shall solicit or encourage inquiries or
proposals with respect to, furnish any information relating to or
participate in any negotiations or discussions concerning, any acquisition
or purchase of all or of a substantial portion of the Assets of, or of a
substantial equity interest in, Southern or any business combination
involving Southern or any Southern Company other than as contemplated by
this Agreement. Southern will notify BancGroup immediately if any such
inquiries or proposals are received by Southern, if any such information is
requested from Southern, or if any such negotiations or discussions are
sought to be initiated with Southern, and Southern shall instruct
Southern's officers, directors, agents or affiliates or their subsidiaries
to refrain from doing any of the above; provided, however, that nothing
contained herein shall be deemed to prohibit any officer or director of
Southern from fulfilling his fiduciary duty or from taking any action that
is required by Law.
(d) Director Recommendation. The members of the Board of Directors of
Southern agree to support publicly the Merger, provided, however, that
nothing contained herein shall be deemed to prohibit any officer or
director of Southern from fulfilling his fiduciary duty or from taking any
action that is required by Law.
(e) Shareholder Voting. Southern shall on the date of execution of
this Agreement obtain an agreement from certain of its shareholders
substantially in the form set forth in Exhibit A.
(f) Financial Statements. Southern shall furnish to BancGroup:
(i) As soon as practicable and in any event within 30 days after
the end of each quarterly period (other than the last quarterly period)
in each fiscal year, consolidated statements of operations of Southern
for such period and for the period beginning at the commencement of the
fiscal year and ending at the end of such quarterly period, and a
consolidated statement of financial condition of Southern as of the end
of such quarterly period, setting forth in each case in comparative form
figures for the corresponding periods ending in the preceding fiscal
year, subject to changes resulting from year-end adjustments;
(ii) Promptly upon receipt thereof, copies of all audit reports
submitted to Southern by independent auditors in connection with each
annual, interim or special audit of the books of Southern made by such
accountants;
(iii) As soon a practicable, copies of all such financial
statements and reports as it shall send to its stockholders and of such
regular and periodic reports as Southern may file with the SEC or any
other Agency; and
(iv) With reasonable promptness, such additional financial data as
the BancGroup may reasonably request.
ARTICLE 7
MUTUAL COVENANTS AND AGREEMENTS
7.1 Best Efforts; Cooperation. Subject to the terms and conditions herein
provided, BancGroup and Southern each agrees to use its best efforts
promptly to take, or cause to be taken, all actions and do, or cause to be
done, all things necessary, proper or advisable under applicable Laws or
otherwise, including, without limitation, promptly making required deliveries
of stockholder lists and stock transfer reports and attempting to obtain all
necessary Consents and waivers and regulatory approvals, to consummate and make
effective, as soon as practicable, the transactions contemplated by this
Agreement. The officers of each Party to this Agreement shall fully cooperate
with officers and employees, accountants, counsel and other representatives of
the other Parties not only in fulfilling the duties hereunder of the Party of
which they are officers but also in
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assisting, directly or through direction of employees and other persons under
their supervision or control, such as stock transfer agents for the Party, the
other Parties requiring information which is reasonably available from such
Party.
7.2 Press Release. Each Party hereto agrees that, unless approved by the
other Parties in advance, such Party will not make any public announcement,
issue any press release or other publicity or confirm any statements by any
person not a party to this Agreement concerning the transactions contemplated
hereby. Notwithstanding the foregoing, each Party hereto reserves the right to
make any disclosure if such Party, in its reasonable discretion, deems such
disclosure required by Law. In that event, such Party shall provide to the other
Party the text of such disclosure sufficiently in advance to enable the other
Party to have a reasonable opportunity to comment thereon.
7.3 Mutual Disclosure. Each Party hereto agrees to promptly furnish to
each other Party hereto its public disclosures and filings not precluded from
disclosure by Law including but not limited to call reports, Form 8-K, Form 10-Q
and Form 10-K filings, Y-2 applications, reports on Form Y-6, quarterly or
special reports to shareholders, Tax returns, Form S-8 registration statements
and similar documents.
7.4 Access to Properties and Records. Each Party hereto shall afford the
officers and authorized representatives of each of the other Parties full access
to the Assets, books and records of such Party in order that such other Parties
may have full opportunity to make such investigation as they shall desire of the
affairs of such Party and shall furnish to such Parties such additional
financial and operating data and other information as to its businesses and
Assets as shall be from time to time reasonably requested.
ARTICLE 8
CONDITIONS TO OBLIGATIONS OF ALL PARTIES
The obligations of BancGroup and Southern to cause the transactions
contemplated by this Agreement to be consummated shall be subject to the
satisfaction, in the sole discretion of the Party relying upon such conditions,
on or before the Effective Date of all the following conditions, except as such
Parties may waive such conditions in writing:
8.1 Approval by Shareholders. At the Stockholders Meeting, this Agreement
and the matters contemplated by this Agreement shall have been duly approved by
the vote of the holders of not less than the requisite number of the issued and
outstanding voting securities of Southern as is required by applicable Law and
Southern's articles of incorporation and by-laws.
8.2 Regulatory Authority Approval. Orders, Consents and approvals, in form
and substance reasonably satisfactory to BancGroup and Southern shall have been
entered by the Board of Governors of the Federal Reserve System and other
appropriate bank regulatory Agencies (i) granting the authority necessary for
the consummation of the transactions contemplated by this Agreement and (ii)
satisfying all other requirements prescribed by Law.
8.3 Litigation. There shall be no pending or threatened Litigation in any
court or any pending or threatened proceeding by any governmental commission,
board or Agency, with a view to seeking or in which it is sought to restrain or
prohibit consummation of the transactions contemplated by this Agreement or in
which it is sought to obtain divestiture, rescission or damages in connection
with the transactions contemplated by this Agreement and no investigation by any
Agency shall be pending or threatened which might result in any such suit,
action or other proceeding.
8.4 Registration Statement. The Registration Statement shall be effective
under the 1933 Act and no stop order suspending the effectiveness of the
Registration Statement shall be in effect; no proceedings for such purpose, or
under the proxy rules of the SEC or any bank regulatory authority pursuant to
the 1934 Act, as amended, and with respect to the transactions contemplated
hereby, shall be pending before or threatened by the SEC or any bank regulatory
authority; and all approvals or authorizations for the offer of BancGroup Common
Stock shall have been received or obtained pursuant to any applicable state
securities Laws, and no
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stop order or proceeding with respect to the transactions contemplated hereby
shall be pending or threatened under any such state Law.
8.5 Tax Opinion. An opinion of Miller, Hamilton, Snider & Odom, L.L.C.,
counsel to BancGroup, shall have been received by Southern and BancGroup in form
and substance reasonably satisfactory to Southern and BancGroup to the effect
that (i) the Merger will constitute a "reorganization" within the meaning of
section 368 of the Code; (ii) no gain or loss will be recognized by Southern or
BancGroup; (iii) no gain or loss will be recognized to the stockholders of
Southern who receive shares of BancGroup Common Stock; (iv) the basis of the
BancGroup Common Stock received in the Merger will be equal to the basis of the
shares of Southern common stock exchanged in the Merger; (v) the holding period
of the BancGroup Common Stock will include the holding period of the shares of
Southern common stock exchanged therefor if such shares of Southern common stock
were capital assets in the hands of the exchanging Southern stockholder; and
(vi) cash received by a Southern stockholder in lieu of a fractional share
interest of BancGroup Common Stock will be treated as having been received as a
distribution in full payment in exchange for the fractional share interest of
BancGroup Common Stock which he would otherwise be entitled to receive and will
qualify as capital gain or loss (assuming Southern common stock was a capital
asset in his hands as of the Effective Date).
8.6 Market Value. The average of the closing prices as reported by the
NYSE of BancGroup Common Stock for the period of 20 consecutive trading days
ending on the trading day immediately preceding the Effective Date shall not be
less than $24.625 or greater than $36.625.
ARTICLE 9
CONDITIONS TO OBLIGATIONS OF SOUTHERN
The obligations of Southern to cause the transactions contemplated by this
Agreement to be consummated shall be subject to the satisfaction on or before
the Effective Date of all the following conditions except as Southern may waive
such conditions in writing:
9.1 Representations, Warranties and Covenants. Notwithstanding any
investigation made by or on behalf of Southern, all representations and
warranties of BancGroup contained in this Agreement shall be true in all
material respects on and as of the Effective Date as if such representations and
warranties were made on and as of such Effective Date, and BancGroup shall have
performed in all material respects all agreements and covenants required by this
Agreement to be performed by it on or prior to the Effective Date.
9.2 Adverse Changes. There shall have been no changes after the date of
the most recent balance sheet provided under section 4.3(a)(i) hereof in the
results of operations (as compared with the corresponding period of the prior
fiscal year), Assets, Liabilities, financial condition or affairs of BancGroup
which in their total effect constitute a Material Adverse Effect, nor shall
there have been any material changes in the Laws governing the business of
BancGroup or which would impair the rights of Southern or its stockholders
pursuant to this Agreement.
9.3 Closing Certificate. In addition to any other deliveries required to
be delivered hereunder, Southern shall have received a certificate from the
President or a Vice President and from the Secretary or Assistant Secretary of
BancGroup dated as of the Closing certifying that:
(a) the Board of Directors of BancGroup has duly adopted resolutions
(copies of which shall be attached to such certificate) approving the
substantive terms of this Agreement and authorizing the consummation of the
transactions contemplated by this Agreement and such resolutions have not
been amended or modified and remain in full force and effect;
(b) each person executing this Agreement on behalf of BancGroup is an
officer of BancGroup holding the office or offices specified therein and
the signature of each person set forth on such certificate is his or her
genuine signature;
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(c) the certificate of incorporation and bylaws of BancGroup
referenced in section 4.4 hereof remain in full force and effect;
(d) such persons have no knowledge of a basis for any material claim,
in any court or before any Agency or arbitration and or otherwise against,
by or affecting BancGroup or the business, prospects, condition (financial
or otherwise), or Assets of BancGroup or which would prevent the
performance of this Agreement or the transactions contemplated by this
Agreement or declare the same unlawful or cause the recision thereof;
(e) to such persons' knowledge, the Proxy Statement delivered to
Southern's stockholders, or any amendments or revisions thereto so
delivered, as of the date thereof, did not contain or incorporate by
reference, any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, not misleading in light of the circumstances under
which they were made (it being understood that such persons need not
express a statement as to information concerning or provided by Southern
for inclusion in such Proxy Statement); and
(f) the conditions set forth in this Article 9 insofar as they relate
to BancGroup have been satisfied.
9.4 Opinion of Counsel. Southern shall have received an opinion of Miller,
Hamilton, Snider & Odom, L.L.C., counsel to BancGroup, dated as of the Closing,
in form reasonably satisfactory to Southern, as to matters set forth in Exhibit
B hereto.
9.5 Comfort Letter. Southern shall have received from Coopers & Lybrand,
L.L.P., comfort letters dated the date of the mailing of the Proxy Statement and
the Effective Date, covering matters customary in transactions such as the
Merger, and in form and substance reasonably satisfactory to Southern.
9.6 Fairness Opinion. Southern shall have received prior to the mailing of
the Proxy Statement from The Carson Medlin Company a letter setting forth its
opinion that the consideration to be received by the shareholders of Southern
under the terms of this Agreement is fair to them from a financial point of
view.
9.7 NYSE Listing. The shares of BancGroup Common Stock to be issued under
this Agreement shall have been approved for listing on the NYSE.
9.8 Other Matters. There shall have been furnished to such counsel for
Southern certified copies of such corporate records of BancGroup and copies of
such other documents as such counsel may reasonably have requested for such
purpose.
ARTICLE 10
CONDITIONS TO OBLIGATIONS OF BANCGROUP
The obligations of BancGroup to cause the transactions contemplated by this
Agreement to be consummated shall be subject to the satisfaction by Southern on
or before the Effective Date of the following conditions except as BancGroup may
waive such conditions in writing:
10.1 Representations, Warranties and Covenants. Notwithstanding any
investigation made by or on behalf of BancGroup, all representations and
warranties of Southern contained in this Agreement shall be true in all material
respects on and as of the Effective Date as if such representations and
warranties were made on and as of the Effective Date, and Southern shall have
performed in all material respects all agreements and covenants required by this
Agreement to be performed by it on or prior to the Effective Date.
10.2 Adverse Changes. There shall have been no changes after the date of
the most recent balance sheet provided under section 5.4(a)(i) hereof in the
results of operations (as compared with the corresponding period of the prior
fiscal year), Assets, Liabilities, financial condition, or affairs of Southern
which constitute a Material Adverse Effect, nor shall there have been any
material changes in the Laws governing the business of Southern which would
impair BancGroup's rights pursuant to this Agreement.
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10.3 Closing Certificate. In addition to any other deliveries required to
be delivered hereunder, BancGroup shall have received a certificate from the
President or Vice President and from the Secretary or Assistant Secretary of
Southern dated as of the Closing certifying that:
(a) the Board of Directors of Southern has duly adopted resolutions
(copies of which shall be attached to such certificate) approving the
substantive terms of this Agreement and authorizing the consummation of the
transactions contemplated by this Agreement and such resolutions have not
been amended or modified and remain in full force and effect;
(b) the shareholders of Southern have duly adopted resolutions (copies
of which shall be attached to such certificate) approving the substantive
terms of the Merger and the transactions contemplated thereby and such
resolutions have not been amended or modified and remain in full force and
effect;
(c) each person executing this Agreement on behalf of Southern is an
officer of Southern holding the office or offices specified therein and the
signature of each person set forth on such certificate is his or her
genuine signature;
(d) the charter documents of Southern and the Bank referenced in
section 5.8 hereof were in full force and effect and have not been amended
or modified since the date hereof;
(e) to such persons' knowledge, the Proxy Statement delivered to
Southern's stockholders, or any amendments or revisions thereto so
delivered, as of the date thereof, did not contain or incorporate by
reference any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, not misleading in light of the circumstances under
which they were made (it being understood that such persons need only
express a statement as to information concerning or provided by Southern
for inclusion in such Proxy Statement); and
(f) the conditions set forth in this Article 10 insofar as they relate
to Southern have been satisfied.
10.4 Opinion of Counsel. BancGroup shall have received an opinion of
Shutts & Bowen, counsel to Southern, dated as of the Closing, in form reasonably
satisfactory to BancGroup, as to matters set forth in Exhibit C hereto.
10.5 Controlling Shareholders. Each shareholder of Southern who may be an
"affiliate" of Southern, within the meaning of Rule 145 of the general rules and
regulations under the 1933 Act shall have executed and delivered an agreement
satisfactory to BancGroup to the effect that such person shall not make a
"distribution" (within the meaning of Rule 145) of the Common Stock which he
receives upon the Effective Date and that such Common Stock will be held subject
to all applicable provisions of the 1933 Act and the rules and regulations of
the SEC thereunder. The agreement will also provide that no affiliate of
Southern will sell or otherwise reduce such affiliate's risk relative to any
shares of BancGroup Common Stock received in the Merger until financial results
concerning at least 30 days of post-Merger combined operations have been
published. Southern recognizes and acknowledges that Common Stock issued to such
persons may bear a legend evidencing the agreement described above.
10.6 Other Matters. There shall have been furnished to counsel for
BancGroup certified copies of such corporate records of Southern and copies of
such other documents as such counsel may reasonably have requested for such
purpose.
10.7 Dissenters. The number of shares as to which shareholders of Southern
have exercised dissenters rights of appraisal under section 3.6 does not exceed
10% of the outstanding shares of common stock of Southern.
10.8 Pooling of Interests. BancGroup shall have received the written
opinion of Coopers & Lybrand, L.L.P., that the Merger will qualify for the
pooling of interests method of accounting under generally accepted accounting
principles.
10.9 Material Events. There shall have been no determination by the board
of directors of BancGroup that the transactions contemplated by this Agreement
have become impractical because of any state of war or declaration of a banking
moratorium in the United States.
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ARTICLE 11
TERMINATION OF REPRESENTATIONS AND WARRANTIES
All representations and warranties provided in Articles 4 and 5 of this
Agreement or in any closing certificate pursuant to Articles 9 and 10 shall
terminate and be extinguished at and shall not survive the Effective Date. All
covenants, agreements and undertakings required by this Agreement to be
performed by any Party hereto following the Effective Date shall survive such
Effective Date and be binding upon such Party. If the Merger is not consummated,
all representations, warranties, obligations, covenants, or agreements hereunder
or in any certificate delivered hereunder relating to the transaction which is
not consummated shall be deemed to be terminated or extinguished except that
Section 7.2, Article 11, Article 15 and any applicable definitions of Article
14, shall survive. Items disclosed in the Exhibits and Schedules attached hereto
are incorporated into this Agreement and form a part of the representations,
warranties, covenants or agreements to which they relate. Information provided
in such Exhibits and Schedules is provided only in response to the specific
section of this Agreement which calls for such information.
ARTICLE 12
NOTICES
All notices, requests, demands and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given at the
time given or mailed, first class postage prepaid:
(a) If to Southern to Charles W. Brinkley, Jr. President and CEO,
Southern Banking Corporation, 201 East Pine Street, Orlando, Florida 32801,
facsimile (407) 481-9879, with copies to Rod Jones, Esq., Shutts & Bowen,
Suite 1000, 20 North Orange Avenue, Orlando, Florida 32801, facsimile (407)
425-8316, or as may otherwise be specified by Southern in writing to
BancGroup.
(b) If to BancGroup, to W. Flake Oakley, IV, One Commerce Street,
Suite 800, Montgomery, Alabama, 36104, facsimile (334) 240-6040, with a
copy to Michael D. Waters, Miller, Hamilton, Snider & Odom, One Commerce
Street, Suite 802, Montgomery, Alabama 36104, facsimile (334) 265-4533, or
as may otherwise be specified in writing by BancGroup to Southern.
ARTICLE 13
AMENDMENT OR TERMINATION
13.1 Amendment. This Agreement may be amended by the mutual consent of
BancGroup and Southern before or after approval of the transactions contemplated
herein by the shareholders of Southern.
13.2 Termination. This Agreement may be terminated at any time prior to or
on the Effective Date whether before or after action thereon by the shareholders
of Southern, as follows:
(a) by the mutual consent of the respective boards of directors of
Southern and BancGroup;
(b) by the board of directors of either Party (provided that the
terminating Party is not then in material breach of any representation,
warranty, covenant, or other agreement contained in this Agreement) in the
event of a breach by the other Party of any representation or warranty
contained in this Agreement which cannot be or has not been cured within
thirty (30) days after the giving of written notice to the breaching Party
of such breach and which breach would provide the non-breaching Party the
ability to refuse to consummate the Merger under the standard set forth in
section 10.1 of this Agreement in the case of BancGroup and section 9.1 of
this Agreement in the case of Southern;
(c) by the board of directors of either Party (provided that the
terminating Party is not then in material breach of any representation,
warranty, covenant, or other agreement contained in this Agreement) in the
event of a material breach by the other Party of any covenant or agreement
contained in this Agreement which cannot be or has not been cured within
thirty (30) days after the giving of
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written notice to the breaching Party of such breach, or if any of the
conditions to the obligations of such Party contained in this Agreement
shall not have been satisfied in full;
(d) by the board of directors of either BancGroup or Southern if all
transactions contemplated by this Agreement shall not have been consummated
on or prior to September 30, 1996, if the failure to consummate the
transactions provided for in this Agreement on or before such date is not
caused by any breach of this Agreement by the Party electing to terminate
pursuant to this section 13.2(d); or
(e) by the board of directors of either BancGroup or Southern if the
average of the closing prices of the BancGroup Common Stock reported by the
NYSE for the 20 consecutive trading days ending on the trading day
immediately proceeding the Effective Date shall be less than $24.625 or
greater than $36.625.
13.3 Damages. In the event of termination pursuant to section 13.2,
Southern and BancGroup shall not be liable for damages for any breach of
warranty or representation contained in this Agreement made in good faith, and,
in that case, the expenses incurred shall be borne as set forth in section 15.1
hereof.
ARTICLE 14
DEFINITIONS
(a) The following terms, which are capitalized in this Agreement, shall
have the meanings set forth below for the purpose of this Agreement:
Agencies Shall mean, collectively, the Federal Trade
Commission, the United States Department of
Justice, the Board of the Governors of the Federal
Reserve System, the Federal Deposit Insurance
Corporation, the Office of Thrift Supervision, all
state regulatory agencies having jurisdiction over
the Parties and their respective Subsidiaries, HUD,
the VA, the FHA, the GNMA, the FNMA, the FHLMC, the
NYSE, and the SEC.
Agreement Shall mean this Amended and Restated Agreement and
Plan of Merger and the Exhibits and Schedules
delivered pursuant hereto and incorporated herein
by reference.
Assets Of a Person shall mean all of the assets,
properties, businesses and rights of such Person of
every kind, nature, character and description,
whether real, personal or mixed, tangible or
intangible, accrued or contingent, or otherwise
relating to or utilized in such Person's business,
directly or indirectly, in whole or in part,
whether or not carried on the books and records of
such Person, and whether or not owned in the name
of such Person or any Affiliate of such Person and
wherever located.
BancGroup The Colonial BancGroup, Inc., a Delaware
corporation with its principal offices in
Montgomery, Alabama.
Bank Southern Bank of Central Florida, a Florida banking
corporation.
Closing The closing of the transactions contemplated hereby
as described in section 2.7 of this Agreement.
Code The Internal Revenue Code of 1986, as amended.
Common Stock BancGroup's Common Stock authorized and defined in
the restated certificate of incorporation of
BancGroup, as amended.
Consent Any consent, approval, authorization, clearance,
exemption, waiver, or similar affirmation by any
Person pursuant to any Contract, Law, Order, or
Permit.
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Contract Any written or oral agreement, arrangement,
authorization, commitment, contract, indenture,
instrument, lease, obligation, plan, practice,
restriction, understanding or undertaking of any
kind or character, or other document to which any
Person is a party or that is binding on any Person
or its capital stock, Assets or business.
Default Shall mean (i) any breach or violation of or
default under any Contract, Order or Permit, (ii)
any occurrence of any event that with the passage
of time or the giving of notice or both would
constitute a breach or violation of or default
under any Contract, Order or Permit, or (iii) any
occurrence of any event that with or without the
passage of time or the giving of notice would give
rise to a right to terminate or revoke, change the
current terms of, or renegotiate, or to accelerate,
increase, or impose any Liability under, any
Contract, Order or Permit.
DGCL The Delaware General Corporation Law.
Effective Date Means the date and time at which the Merger becomes
effective as defined in section 2.7 hereof.
Environmental Laws Means the laws, regulations and governmental
requirements referred to in section 5.23 hereof.
ERISA The Employee Retirement Income Security Act of
1974, as amended.
Exchange Ratio The ratio of the number of shares of BancGroup
Common Stock to be issued for one share of Southern
Stock, as defined in section 3.1(a).
Exhibits A through C, inclusive, shall mean the Exhibits so
marked, copies of which are attached to this
Agreement. Such Exhibits are hereby incorporated by
reference herein and made a part hereof, and may be
referred to in this Agreement and any other related
instrument or document without being attached
hereto.
FBCA The Florida Business Corporation Act
Knowledge Means the actual knowledge of the Chairman,
President, Chief Financial Officer, Chief
Accounting Officer, Chief Credit Officer, General
Counsel or any Senior or Executive Vice President
of BancGroup, in the case of knowledge of
BancGroup, or of Southern and the Bank, in the case
of knowledge of Southern.
Law Any code, law, ordinance, regulation, reporting or
licensing requirement, rule, or statute applicable
to a Person or its Assets, Liabilities or business,
including those promulgated, interpreted or
enforced by any Agency.
Liability Any direct or indirect, primary or secondary,
liability, indebtedness, obligation, penalty, cost
or expense (including costs of investigation,
collection and defense), deficiency, guaranty or
endorsement of or by any Person (other than
endorsements of notes, bills, checks, and drafts
presented for collection or deposit in the ordinary
course of business) of any type, whether accrued,
absolute or contingent, liquidated or unliquidated,
matured or unmatured, or otherwise.
Lien Any conditional sale agreement, default of title,
easement, encroachment, encumbrance, hypothecation,
infringement, lien, mortgage, pledge, reservation,
restriction, security interest, title retention or
other security arrangement, or any adverse right or
interest, charge, or claim of
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any nature whatsoever of, on, or with respect to
any property or property interest, other than (i)
Liens for current property Taxes not yet due and
payable, (ii) for depository institution
Subsidiaries of a Party, pledges to secure deposits
and other Liens incurred in the ordinary course of
the banking business, and (iii) Liens in the form
of easements and restrictive covenants on real
property which do not materially adversely affect
the use of such property by the current owner
thereof.
Litigation Any action, arbitration, complaint, criminal
prosecution, governmental or other examination or
investigation, hearing, inquiry, administrative or
other proceeding relating to or affecting a Party,
its business, its Assets (including Contracts
related to it), or the transactions contemplated by
this Agreement.
Loan Property Any property owned by the Party in question or by
any of its Subsidiaries or in which such Party or
Subsidiary holds a security interest, and, where
required by the context, includes the owner or
operator of such property, but only with respect to
such property.
Loss Any and all direct or indirect payments,
obligations, recoveries, deficiencies, fines,
penalties, interest, assessments, losses,
diminution in the value of Assets, damages,
punitive, exemplary or consequential damages
(including, but not limited to, lost income and
profits and interruptions of business),
liabilities, costs, expenses (including without
limitation, reasonable attorneys' fees and
expenses, and consultant's fees and other costs of
defense or investigation), and interest on any
amount payable to a third party as a result of the
foregoing.
material For purposes of this Agreement shall be determined
in light of the facts and circumstances of the
matter in question; provided that any specific
monetary amount stated in this Agreement shall
determine materiality in that instance.
Material Adverse Effect On a Party shall mean an event, change or
occurrence which has a material adverse impact on
(i) the financial position, business, or results of
operations of such Party and its Subsidiaries,
taken as a whole, or (ii) the ability of such Party
to perform its obligations under this Agreement or
to consummate the Merger or the other transactions
contemplated by this Agreement provided that
"material adverse impact" shall not be deemed to
include the impact of (x) changes in banking and
similar laws of general applicability or
interpretations thereof by courts or governmental
authorities, (y) changes in generally accepted
accounting principles or regulatory accounting
principles generally applicable to banks and their
holding companies, and (z) the Merger and
compliance with the provisions of this Agreement on
the operating performance of the Parties.
Merger The merger of Southern with BancGroup as
contemplated in this Agreement.
NYSE The New York Stock Exchange.
Order Any administrative decision or award, decree,
injunction, judgment, order, quasi-judicial
decision or award, ruling, or writ of any federal,
state, local or foreign or other court, arbitrator,
mediator, tribunal, administrative agency or
Agency.
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Party Shall mean Southern or BancGroup, and "Parties"
shall mean both Southern and BancGroup.
Permit Any federal, state, local, and foreign governmental
approval, authorization, certificate, easement,
filing, franchise, license, notice, permit, or
right to which any Person is a party or that is or
may be binding upon or inure to the benefit of any
Person or its securities, Assets or business.
Person A natural person or any legal, commercial or
governmental entity, such as, but not limited to, a
corporation, general partnership, joint venture,
limited partnership, limited liability company,
trust, business association, group acting in
concert, or any person acting in a representative
capacity.
Proxy Statement The proxy statement used by Southern to solicit the
approval of its stockholders of the transactions
contemplated by this Agreement, which shall include
the prospectus of BancGroup relating to the
issuance of the BancGroup Common Stock to the
shareholders of Southern.
Registration Statement The registration statement on Form S-4, or such
other appropriate form, to be filed with the SEC by
BancGroup, and which has been agreed to by
Southern, to register the shares of BancGroup
Common Stock offered to stockholders of the Bank
pursuant to this Agreement, including the Proxy
Statement.
Resulting Corporation BancGroup, as the surviving corporation resulting
from the Merger.
SEC United States Securities and Exchange Commission.
Southern Southern Banking Corporation, a Florida
corporation.
Southern Company Shall mean Southern the Bank, any Subsidiary of
Southern or the Bank, or any person or entity
acquired as a Subsidiary of Southern or the Bank in
the future and owned by Southern at the Effective
Date.
Southern Options Options respecting the issuance of Southern common
stock pursuant to Southern's stock option plans.
Southern Stock Shares of Common stock, par value $1.00 per share,
of Southern.
Stockholders Meeting The special meeting of stockholders of Southern
called to approve the transactions contemplated by
this Agreement.
Subsidiaries Shall mean all those corporations, banks,
associations, or other entities of which the entity
in question owns or controls 5% or more of the
outstanding equity securities either directly or
through an unbroken chain of entities as to each of
which 5% or more of the outstanding equity
securities is owned directly or indirectly by its
parent; provided, however, there shall not be
included any such entity acquired through
foreclosure or any such entity the equity
securities of which are owned or controlled in a
fiduciary capacity.
Tax or Taxes Means any federal, state, county, local, foreign,
and other taxes, assessments, charges, fares, and
impositions, including interest and penalties
thereon or with respect thereto.
1933 Act The Securities Act of 1933, as amended.
1934 Act The Securities Exchange Act of 1934, as amended.
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ARTICLE 15
MISCELLANEOUS
15.1 Expenses. Each Party hereto shall bear its own legal, auditing,
trustee, investment banking, regulatory and other expenses in connection with
this Agreement and the transactions contemplated hereby.
15.2 Benefit. This Agreement shall inure to the benefit of and be binding
upon Southern and BancGroup, and their respective successors. This Agreement
shall not be assignable by any Party without the prior written consent of the
other Party.
15.3 Governing Law. This Agreement shall be governed by, and construed in
accordance with the Laws of the State of Alabama without regard to any conflict
of Laws.
15.4 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to constitute an original. Each such counterpart shall
become effective when one counterpart has been signed by each Party thereto.
15.5 Headings. The headings of the various articles and sections of this
Agreement are for convenience of reference only and shall not be deemed a part
of this Agreement or considered in construing the provisions thereof.
15.6 Severability. Any term or provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining terms and provisions thereof or affecting the
validity or enforceability of such provision in any other jurisdiction, and if
any term or provision of this Agreement is held by any court of competent
jurisdiction to be void, voidable, invalid or unenforceable in any given
circumstance or situation, then all other terms and provisions, being severable,
shall remain in full force and effect in such circumstance or situation and the
said term or provision shall remain valid and in effect in any other
circumstances or situation.
15.7 Construction. Use of the masculine pronoun herein shall be deemed to
refer to the feminine and neuter genders and the use of singular references
shall be deemed to include the plural and vice versa, as appropriate. No
inference in favor of or against any Party shall be drawn from the fact that
such Party or such Party's counsel has drafted any portion of this Agreement.
15.8 Return of Information. In the event of termination of this Agreement
prior to the Effective Date, each Party shall return to the other, without
retaining copies thereof, all confidential or non-public documents, work papers
and other materials obtained from the other Party in connection with the
transactions contemplated in this Agreement and shall keep such information
confidential, not disclose such information to any other person or entity, and
not use such information in connection with its business.
15.9 Equitable Remedies. The parties hereto agree that, in the event of a
breach of this Agreement by either Party, the other Party may be without an
adequate remedy at law owing to the unique nature of the contemplated
transactions. In recognition thereof, in addition to (and not in lieu of) any
remedies at law that may be available to the non-breaching Party, the
non-breaching Party shall be entitled to obtain equitable relief, including the
remedies of specific performance and injunction, in the event of a breach of
this Agreement by the other Party, and no attempt on the part of the
non-breaching Party to obtain such equitable relief shall be deemed to
constitute an election of remedies by the non-breaching Party that would
preclude the non-breaching Party from obtaining any remedies at law to which it
would otherwise be entitled.
15.10 Attorneys' Fees. If any Party hereto shall bring an action at law or
in equity to enforce its rights under this Agreement (including an action based
upon a misrepresentation or the breach of any warranty, covenant, agreement or
obligation contained herein), the prevailing Party in such action shall be
entitled to recover from the other Party its costs and expenses incurred in
connection with such action (including fees, disbursements and expenses of
attorneys and costs of investigation).
15.11 No Waiver. No failure, delay or omission of or by any Party in
exercising any right, power or remedy upon any breach or Default of any other
Party shall impair any such rights, powers or remedies of the
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Party not in breach or Default, nor shall it be construed to be a wavier of any
such right, power or remedy, or an acquiescence in any similar breach or
Default; nor shall any waiver of any single breach or Default be deemed a waiver
of any other breach or default theretofore or thereafter occurring. Any waiver,
permit, consent or approval of any kind or character on the part of any Party of
any provisions of this Agreement must be in writing and be executed by the
Parties to this Agreement and shall be effective only to the extent specifically
set forth in such writing.
15.12 Remedies Cumulative. All remedies provided in this Agreement, by law
or otherwise, shall be cumulative and not alternative.
15.13 Entire Contract. This Agreement and the documents and instruments
referred to herein constitute the entire contract between the parties to this
Agreement and supersede all other understandings with respect to the subject
matter of this Agreement.
IN WITNESS WHEREOF, Financial and BancGroup have caused this Agreement to
be signed by their respective duly authorized officers as of the date first
above written.
<TABLE>
<S> <C>
ATTEST: SOUTHERN BANKING CORPORATION
BY: Charles W. Brinkley BY: J. Donald Prewitt
ITS: President & CEO ITS: Chairman
(CORPORATE SEAL)
ATTEST: THE COLONIAL BANCGROUP, INC.
BY: Teresa Skipper BY: W. Flake Oakley
ITS: Assistant Secretary ITS: Chief Financial Officer
(CORPORATE SEAL)
</TABLE>
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APPENDIX B
May 24, 1996
Board of Directors
Southern Banking Corporation
201 East Pine Street
Orlando, FL 32801
Members of the Board:
You have requested our opinion as to the fairness, from a financial point
of view, of the consideration to be received by the shareholders of Southern
Banking Corporation ("SBC") under the terms of a certain Amended and Restated
Agreement and Plan of Merger dated February 15, 1996 (the "Agreement") pursuant
to which SBC will be acquired by The Colonial BancGroup, Inc. ("BancGroup") (the
"Merger"). Under the terms of the Agreement, SBC's 3,362,000 issued and
outstanding shares of common stock will be converted into the right to receive
approximately 1,317,567 shares of common stock of BancGroup. Additionally, SBC's
1,112,000 outstanding options may be converted into the right to receive
approximately 435,792 shares of BancGroup Common Stock (assuming the exercise of
all of the options), subject to adjustment under certain circumstances. The
foregoing summary of the Merger is qualified in its entirety by reference to the
Agreement.
The Carson Medlin Company is a National Association of Securities Dealers,
Inc. (NASD) member investment banking firm which specializes in the securities
of southeastern United States financial institutions. As part of our investment
banking activities, we are regularly engaged in the valuation of southeastern
United States financial institutions and transactions relating to their
securities. We regularly publish our research on independent community banks
regarding their financial and stock price performance. We are familiar with the
commercial banking industry in Florida and the major commercial banks operating
in that market. We have been retained by SBC in a financial advisory capacity to
render our opinion hereunder, for which we will receive compensation.
In reaching our opinion, we have analyzed the respective financial
positions, both current and historical, of BancGroup and SBC. We have reviewed:
(i) the Agreement; (ii) the annual reports to shareholders of BancGroup,
including audited financial statements for the five years ended December 31,
1995; (iii) audited financial statements of SBC for the five years ended
December 31, 1995; (iv) call reports for SBC for the five years ended December
31, 1995 and the three months ended March 31, 1996; (v) the unaudited interim
financial statements on Form 10-Q of BancGroup for the three months ended March
31, 1996; and, (vi) certain financial and operating information with respect to
the business, operations and prospects of BancGroup and SBC. We also: (i) held
discussions with members of the senior management of BancGroup and SBC regarding
historical and current business operations, financial condition and future
prospects of their respective companies; (ii) reviewed the historical market
prices and trading activity for the common stocks of BancGroup and SBC and
compared them with those of certain publicly traded companies which we deemed to
be relevant; (iii) compared the results of operations of BancGroup and SBC with
those of certain banking companies which we deemed to be relevant; (iv) compared
the proposed financial terms of the Merger with the financial terms, to the
extent publicly available, of certain other recent business combinations of
commercial banking organizations; (v) analyzed the pro forma financial impact of
the Merger on BancGroup; and (vi) conducted such other studies, analyses,
inquiries and examinations as we deemed appropriate.
We have relied upon and assumed, without independent verification, the
accuracy and completeness of all information provided to us. We have not
performed or considered any independent appraisal or evaluation of the assets of
SBC or BancGroup. The opinion we express herein is necessarily based upon
market, economic and other relevant considerations as they exist and can be
evaluated as of the date of this letter.
<PAGE> 205
Based upon the foregoing, it is our opinion that the aggregate
consideration provided for in the Agreement is fair, from a financial point of
view, to the shareholders of Southern Banking Corporation.
Very truly yours,
THE CARSON MEDLIN COMPANY
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<PAGE> 206
APPENDIX C
FLORIDA BUSINESS CORPORATION ACT
SEC. 607.1301-1320
607.1301. DISSENTERS' RIGHTS; DEFINITIONS
The following definitions apply to ss. 607.1302 and 607.1320:
(1) "Corporation" means the issuer of the shares held by a dissenting
shareholder before the corporate action or the surviving or acquiring
corporation by merger or share exchange of that issuer.
(2) "Fair value," with respect to a dissenter's shares, means the
value of the shares as of the close of business on the day prior to the
shareholders' authorization date, excluding any appreciation or
depreciation in anticipation of the corporate action unless exclusion would
be inequitable.
(3) "Shareholders' authorization date" means the date on which the
shareholders' vote authorizing the proposed action was taken, the date on
which the corporation received written consents without a meeting from the
requisite number of shareholders in order to authorize the action, or, in
the case of a merger pursuant to s. 607.1104, the day prior to the date on
which a copy of the plan of merger was mailed to each shareholder of record
of the subsidiary corporation.
607.1302. RIGHT OF SHAREHOLDERS TO DISSENT
(1) Any shareholder of a corporation has the right to dissent from, and
obtain payment of the fair value of his shares in the event of, any of the
following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a
party:
1. If the shareholder is entitled to vote on the merger, or
2. If the corporation is a subsidiary that is merged with its
parent under s. 607.1104, and the shareholders would have been entitled
to vote on action taken, except for the applicability of s. 604.1104;
(b) Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation, other than in the usual and regular
course of business, if the shareholder is entitled to vote on the sale or
exchange pursuant to s. 607.1202, including a sale in dissolution 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 1 year after the date of sale;
(c) As provided in s. 607.0902(11), the approval of a control-share
acquisition;
(d) Consummation of a plan of share exchange to which the corporation
is a party as the corporation the shares of which will be acquired, if the
shareholder is entitled to vote on the plan;
(e) Any amendment of the articles of incorporation if the shareholder
is entitled to vote on the amendment and if such amendment would adversely
affect such shareholder by:
1. Altering or abolishing any preemptive rights attached to any of
his shares;
2. Altering or abolishing the voting rights pertaining to any of
his shares, except as such rights may be affected by the voting rights
of new shares then being authorized of any existing or new class or
series of shares;
3. Effecting an exchange, cancellation, or reclassification of any
of his shares, when such exchange, cancellation, or reclassification
would alter or abolish his voting rights or alter his percentage of
equity in the corporation, or effecting a reduction or cancellation of
accrued dividends or other arrearages in respect to such shares;
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4. Reducing the stated redemption price of any of his redeemable
shares, altering or abolishing any provision relating to any sinking
fund for the redemption or purchase of any of his shares, or making any
of his shares subject to redemption when they are not otherwise
redeemable;
5. Making noncumulative, in whole or in part, dividends of any of
his preferred shares which had theretofore been cumulative;
6. Reducing the stated dividend preference of any of his preferred
shares; or
7. Reducing any stated preferential amount payable on any of his
preferred shares upon voluntary or involuntary liquidation; or
(f) Any corporate action taken, to the extent the articles of
incorporation provide that a voting or nonvoting shareholder is entitled to
dissent and obtain payment for his shares.
(2) A shareholder dissenting from any amendment specified in paragraph
(1)(e) has the right to dissent only as to those of his shares which are
adversely affected by the amendment.
(3) A shareholder may dissent as to less than all the shares registered in
his name. In that event, his rights shall be determined as if the shares as to
which he has dissented and his other shares were registered in the names of
different shareholders.
(4) Unless the articles of incorporation otherwise provide, this section
does not apply with respect to a plan of merger or share exchange or a proposed
sale or exchange of property, to the holders of shares of any class or series
which, on the record date fixed to determine the shareholders entitled to vote
at the meeting of shareholders at which such action is to be acted upon or to
consent to any such action without a meeting, were either registered on a
national securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of Securities
Dealers, Inc., or held of record by not fewer than 2,000 shareholders.
(5) A shareholder entitled to dissent and obtain payment for his shares
under this section may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
607.1320. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
(1)(a) If a proposed corporate action creating dissenters' rights under s.
607.1302 is submitted to a vote at a shareholders' meeting, the meeting notice
shall state that shareholders are or may be entitled to assert dissenters'
rights and be accompanied by a copy of ss. 607.1301, 607.1302, and 607.1320. A
shareholder who wishes to assert dissenters' rights shall:
1. Deliver to the corporation before the vote is taken written notice
of his intent to demand payment for his shares if the proposed action is
effectuated, and
2. Not vote his shares in favor of the proposed action. A proxy or
vote against the proposed action does not constitute such a notice of
intent to demand payment.
(b) If proposed corporate action creating dissenters' rights under s.
607.1302 is effectuated by written consent without a meeting, the corporation
shall deliver a copy of ss. 607.1301, 607.1302, and 607.1320 to each shareholder
simultaneously with any request for his written consent, or if such a request is
not made, within 10 days after the date the corporation received written
consents without a meeting from the requisite number of shareholders necessary
to authorize the action.
(2) Within 10 days after the shareholders' authorization date, the
corporation shall give written notice of such authorization or consent or
adoption of the plan of merger, as the case may be, to each shareholder who
filed a notice of intent to demand payment for his shares pursuant to paragraph
(1)(a) or, in the case of action authorized by written consent, to each
shareholder, excepting any who voted for, or consented in writing to, the
proposed action.
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(3) Within 20 days after the giving of notice to him, any shareholder who
elects to dissent shall file with the corporation a notice of such election,
stating his name and address, the number, classes, and series of shares as to
which he dissents, and a demand for payment of the fair value of his shares. Any
shareholder failing to file such election to dissent within the period set forth
shall be bound by the terms of the proposed corporate action. Any shareholder
filing an election to dissent shall deposit his certificates for certificated
shares with the corporation simultaneously with the filing of the election to
dissent. The corporation may restrict the transfer of uncertificated shares from
the date the shareholder's election to dissent is filed with the corporation.
(4) Upon filing a notice of election to dissent, the shareholder shall
thereafter be entitled only to payment as provided in this section and shall not
be entitled to vote or to exercise any other rights of a shareholder. A notice
of election may be withdrawn in writing by the shareholder at any time before an
offer is made by the corporation, as provided in subsection (5), to pay for his
shares. After such offer, no such notice of election may be withdrawn unless the
corporation consents thereto. However, the right of such shareholder to be paid
the fair value of his shares shall cease, and he shall be reinstated to have all
his rights as a shareholder as of the filing of his notice of election,
including any intervening preemptive rights and the right to payment of any
intervening dividend or other distribution or, if any such rights have expired
or any such dividend or distribution other than in cash has been completed, in
lieu thereof, at the election of the corporation, the fair value thereof in cash
as determined by the board as of the time of such expiration or completion, but
without prejudice otherwise to any corporate proceedings that may have been
taken in the interim, if:
(a) Such demand is withdrawn as provided in this section;
(b) The proposed corporate action is abandoned or rescinded or the
shareholders revoke the authority to effect such action;
(c) No demand or petition for the determination of fair value by a
court has been made or filed within the time provided in this section; or
(d) A court of competent jurisdiction determines that such shareholder
is not entitled to the relief provided by this section.
(5) Within 10 days after the expiration of the period in which shareholders
may file their notices of election to dissent, or within 10 days after such
corporate action is effected, whichever is later (but in no case later than 90
days from the shareholders' authorization date), the corporation shall make a
written offer to each dissenting shareholder who has made demand as provided in
this section to pay an amount the corporation estimates to be the fair value for
such shares. If the corporate action has not been consummated before the
expiration of the 90-day period after the shareholders' authorization date, the
offer may be made conditional upon the consummation of such action. Such notice
and offer shall be accompanied by:
(a) A balance sheet of the corporation, the shares of which the
dissenting shareholder holds, as of the latest available date and not more
than 12 months prior to the making of such offer; and
(b) A profit and loss statement of such corporation for the 12-month
period ended on the date of such balance sheet or, if the corporation was
not in existence throughout such 12-month period, for the portion thereof
during which it was in existence.
(6) If within 30 days after the making of such offer any shareholder
accepts the same, payment for his shares shall be made within 90 days after the
making of such offer or the consummation of the proposed action, whichever is
later. Upon payment of the agreed value, the dissenting shareholder shall cease
to have any interest in such shares.
(7) If the corporation fails to make such offer within the period specified
therefor in subsection (5) or if it makes the offer and any dissenting
shareholder or shareholders fail to accept the same within the period of 30 days
thereafter, then the corporation, within 30 days after receipt of written demand
from any dissenting shareholder given within 60 days after the date on which
such corporate action was effected, shall, or at its election at any time within
such period of 60 days may, file an action in any court of competent
jurisdiction in
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the county in this state where the registered office of the corporation is
located requesting that the fair value of such shares be determined. The court
shall also determine whether each dissenting shareholder, as to whom the
corporation requests the court to make such determination, is entitled to
receive payment for his shares. If the corporation fails to institute the
proceeding as herein provided, any dissenting shareholder may do so in the name
of the corporation. All dissenting shareholders (whether or not residents of
this state), other than shareholders who have agreed with the corporation as to
the value of their shares, shall be made parties to the proceeding as an action
against their shares. The corporation shall serve a copy of the initial pleading
in such 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 such other manner as is permitted by law.
The jurisdiction of the court is plenary and exclusive. All shareholders who are
proper parties to the proceeding are entitled to judgment against the
corporation for the amount of the fair value of their shares. The court may, if
it so elects, appoint one or more persons as appraisers to receive evidence and
recommend a decision on the question of fair value. The appraisers shall have
such power and authority as is specified in the order of their appointment or an
amendment thereof. The corporation shall pay each dissenting shareholder the
amount found to be due him within 10 days after final determination of the
proceedings. Upon payment of the judgment, the dissenting shareholder shall
cease to have any interest in such shares.
(8) The judgment may, at the discretion of the court, include a fair rate
of interest, to be determined by the court.
(9) The costs and expenses of any such proceeding shall be determined by
the court and shall be assessed against the corporation, but all or any part of
such costs and expenses may be apportioned and assessed as the court deems
equitable against any or all of the dissenting shareholders who are parties to
the proceeding, to whom the corporation has made an offer to pay for the shares,
if the court finds that the action of such shareholders in failing to accept
such offer was arbitrary, vexatious, or not in good faith. Such expenses shall
include reasonable compensation for, and reasonable expenses of, the appraisers,
but shall exclude the fees and expenses of counsel for, and experts employed by,
any party. If the fair value of the shares, as determined, materially exceeds
the amount which the corporation offered to pay therefor or if no offer was
made, the court in its discretion may award to any shareholder who is a party to
the proceeding such sum as the court determines to be reasonable compensation to
any attorney or expert employed by the shareholder in the proceeding.
(10) Shares acquired by a corporation pursuant to payment of the agreed
value thereof or pursuant to payment of the judgment entered therefor, as
provided in this section, may be held and disposed of by such corporation as
authorized but unissued shares of the corporation, except that, in the case of a
merger, they may be held and disposed of as the plan of merger otherwise
provides. The shares of the surviving corporation into which the shares of such
dissenting shareholders would have been converted had they assented to the
merger shall have the status of authorized but unissued shares of the surviving
corporation.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to section 145 of the Delaware General Corporation Law, as
amended, and the Restated Certificate of Incorporation of the Registrant (or
"BancGroup") , officers, directors, employees, and agents of the Registrant are
entitled to indemnification against liabilities incurred while acting in such
capacities on behalf of the Registrant, including reimbursement of certain
expenses. In addition, the Registrant maintains an officers and all of its
directors insurance policy pursuant to which officers and directors of the
Registrant are entitled to indemnification against certain liabilities,
including reimbursement of certain expenses, and the Registrant has indemnity
agreements (the "Indemnification Agreements") with certain officers and all of
its directors pursuant to which such persons may be indemnified by the
Registrant against certain liabilities, including expenses.
The Indemnification Agreements are intended to provide additional
indemnification to directors and offers of BancGroup beyond the specific
provisions of the Delaware General Corporation Law. Under the Delaware General
Corporation Law, a company may indemnify its directors and officers in
circumstances other than those under which indemnification and the advance of
expenses are expressly permitted by applicable statutory provisions.
Under the Delaware General Corporation Law, a director, officer, employee
or agent of a corporation (i) must be indemnified by the corporation for all
expenses incurred by him (including attorneys' fees) when he is successful on
the merits or otherwise in defense of any action, suit or proceeding brought by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, (ii) may be indemnified by the corporation against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement of
any such proceeding (other than a proceeding by or in the right of the
corporation) even if he is not successful on the merits if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interest of the corporation (and, in the case of a criminal proceeding, had no
reasonable cause to believe his conduct was unlawful), and (iii) may be
indemnified by the corporation for expenses (including attorneys' fees) incurred
by him in the defense or settlement of a proceeding brought by or in the right
of the corporation, if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation;
provided that no indemnification may be made under the circumstances described
in clause (iii) if the director, officer, employee or agent is adjudged liable
to the corporation, unless a court determines that, despite the adjudication of
liability but in view of all of the circumstances, he is fairly and reasonably
entitled to indemnification for the expenses which the court shall deem proper.
The indemnification described in clauses (ii) and (iii) above (unless ordered by
a court) may be made only as authorized in a specific case upon determination by
(i) a majority of a quorum of disinterested directors, (ii) independent legal
counsel in a written opinion, or (iii) the stock holders, that indemnification
is proper in the circumstances because the applicable standard of conduct has
been met. Expenses (including attorneys' fees) incurred by an officer or
director in defending a proceeding may be advanced by the corporation prior to
the final disposition of the proceeding upon receipt of an undertaking by or on
behalf of the director or officer to repay the advance if it is ultimately
determined that he is not entitled to be indemnified by the corporation.
Expenses (including attorneys' fees) incurred by other employees and agents may
be advanced by the corporation upon terms and conditions deemed appropriate by
the board of directors.
The indemnification provided by the Delaware General Corporation Law has at
least two limitations that are addressed by the Indemnification Agreements; (ii)
BancGroup is under no obligation to advance expenses to a director or officer,
and (ii) except in the case of a proceeding in which a director or officer is
successful on the merits or otherwise, indemnification of a director or officer
is discretionary rather than mandatory.
The Indemnification Agreements, therefore, cover any and all expenses
(including attorneys' fees and all other charges paid or payable in connection
therewith) incurred in connection with investigating, defending, being a witness
or participating in (including an appeal), or preparing to defend, be a witness
in or participate in, any threatened, pending or completed action, suit or
proceeding, or any inquiry or investigation, whether
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civil, criminal, administrative or otherwise, related to the fact that such
director or officer is or was a director, officer, employee or agent of
BancGroup or is or was serving at the request of BancGroup as a director,
officer, employee, agent, partner, committee member or fiduciary of another
corporation, partnership, joint venture, employee benefit plan, trust or other
enterprise, or by reason of anything done or not done by such director or
officer in any such capacity.
The Indemnification Agreements also provide for the prompt advancement of
all expenses incurred in connection with any proceeding and obligate the
director or officer to reimburse BancGroup for all amounts so advanced if it is
subsequently determined, as provided in the Indemnification Agreements, that the
director or officer is not entitled to indemnification.
The Indemnification Agreements further provide that the director or officer
is entitled to indemnification for, and advancement of, all expenses (including
attorneys' fees) incurred in any proceeding seeking to collect from BancGroup an
indemnity claim or advancement of expenses under the Indemnification Agreements,
BancGroup's Certificate of Incorporation, or the Delaware General Corporation
Law, regardless of whether the director or officer is successful in such
proceeding.
The Indemnification Agreements impose upon BancGroup the burden of proving
that the director or officer is not entitled to indemnification in any
particular case, and the Indemnification Agreements negate certain presumptions
which might otherwise be drawn against a director or officer in certain
circumstances. Further, the Indemnification Agreements provide that if BancGroup
pays a director or officer pursuant to an Indemnification Agreement, BancGroup
will be subrogated to such director's or officer's rights to recover from third
parties.
The Indemnification Agreements stipulate that a director's or officer's
rights under such contracts are not exclusive of any other indemnity rights a
director or officer may have; however, the Indemnification Agreements prevent
double payment. The Indemnification Agreements require the maintenance of
directors' and officers' liability insurance if such insurance can be maintained
on terms, including rates, satisfactory to BancGroup.
The benefits of the Indemnification Agreements would not be available if
(i) the action with respect to which indemnification is sought was initiated or
brought voluntarily by the officer or director (other than an action to enforce
the right to indemnification under the Indemnification Agreements); (ii) the
officer or director is paid for such expense or liability under an insurance
policy; (iii) the proceeding is for an accounting of profits pursuant to Section
16(b) of the Securities Exchange Act of 1934, as amended; (iv) the conduct of
the officer or director is adjudged as constituting an unlawful personal
benefit, or active or deliberate dishonesty or willful fraud or illegality; or
(v) a court determines that indemnification or advancement of expenses is
unlawful under the circumstances.
The Indemnification Agreements would provide indemnification for
liabilities arising under the Securities Act of 1933, as amended. BancGroup has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in such act and is,
therefore, unenforceable.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following is a list of exhibits that are included in Part II of the
Registration Statement. Such exhibits are separately indexed elsewhere in the
Registration Statement.
DESCRIPTION
Exhibit 2 Plan of acquisition, reorganization, arrangement, liquidation of
successor:
Amended and Restated Agreement and Plan of Merger between The Colonial
BancGroup, Inc. and Southern Banking Corporation, dated as of February
15, 1996, included in the Prospectus portion of this Registration
Statement at Appendix A and incorporated herein by reference.
Exhibit 3 Articles of Incorporation and Bylaws:
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DESCRIPTION
(A) Restated Certificate of Incorporation of the Registrant, filed as
Exhibit 4.1 to the Registrant's Current Report on Form 8-K, dated
February 21, 1995, and incorporated herein by reference.
(B) Bylaws of the Registrant, filed as Exhibit 4.2 to the Registrant's
Current Report on Form 8-K, dated February 21, 1995, and incorporated
herein by reference.
Exhibit 4 Instruments defining the rights of security holders:
(A) Article 4 of the Restated Certificate of Incorporation of the
Registrant filed as Exhibit 4.1 to the Registrant's Current Report on
Form 8-K, dated February 21, 1995, and incorporated herein by
reference.
(B) Article II of the Bylaws of the Registrant filed as Exhibit 4.2 to
the Registrant's Current Report on Form 8-K, dated February 21,
1995, and incorporated herein by reference.
(C) Dividend Reinvestment and Class A Common Stock Purchase Plan of the
Registrant dated January 15, 1986, and Amendment No. 1 thereto dated
as of June 10, 1986, filed as Exhibit 4(C) to the Registrant's
Registration Statement on Form S-4 (File No. 33-07015), effective
July 15, 1986, and incorporated herein by reference.
(D) Trust Indenture dated as of March 25, 1986, included as Exhibit 4 to
the Registrant's Amendment No. 1 to Registration Statement on Form
S-2, file number 33-4004, effective March 25, 1986, and incorporated
herein by reference.
Exhibit 5 Opinion of Miller, Hamilton, Snider & Odom, L.L.C. as to certain
Delaware law issues of the securities being registered, contained as
Exhibit 5 to the Registration statement on Form S-4, Registration No.
333-01247, of which this is Amendment No. 1, and incorporated herein
by reference.
Exhibit 8 Tax Opinion of Miller, Hamilton, Snider & Odom, L.L.C.
Exhibit 10 Material Contracts:
(A)(1) Second Amendment and Restatement of 1982 Incentive Stock Plan of the
Registrant, filed as Exhibit 4-1 to the Registrant's Registration
Statement on Form S-8 (Commission Registration No. 33-41036),
effective June 4, 1991, and incorporated herein by reference.
(A)(2) Second Amendment and Restatement to 1982 Nonqualified Stock Option
Plan of the Registrant filed as Exhibit 4-2 to the Registrant's
Registration Statement on Form S-8 (Commission Registration No.
33-41036), effective June 4, 1991, and incorporated herein by
reference).
(A)(3) 1992 Incentive Stock Option Plan of the Registrant, filed as Exhibit
4-1 to Registrant's Registration Statement on Form S-8 (File No.
33-47770), effective May 8, 1992, and incorporated herein by
reference.
(A)(4) 1992 Nonqualified Stock Option Plan of the Registrant, filed as
Exhibit 4-2 to Registrant's Registration Statement on Form S-8 (File
No. 33-47770), effective May 8, 1992, and incorporated herein by
reference.
(B)(1) Residential Loan Funding Agreement between Colonial Bank and Colonial
Mortgage Company dated January 18, 1988, included as Exhibit 10(B)(1)
to the Registrant's Registration Statement as Form S-4, file no.
33-52952, and incorporated herein by reference.
(B)(2) Loan Agreement between the Registrant and SunBank, National
Association, dated August 29, 1995 filed as Exhibit 10(B)(2) to the
Registrant's Registration Statement on Form S-4, registration number
33-01163 and incorporated herein by reference.
(B)(3) 1993 Term Loan Agreement between the Registrant and SunBank, National
Association, and related Pledge Agreement filed as Exhibit 10(B)(1)
to Amendment No. 2 of the Registrant's Registration Statement on Form
S-4, registration number 33-63826 and incorporated herein by
reference.
(C)(1) The Colonial BancGroup, Inc. First Amended and Restated Restricted
Stock Plan for Directors, as amended, included as Exhibit 10(C)(1) to
the Registrant's Registration Statement as Form S-4, file no.
33-52952, and incorporated herein by reference.
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DESCRIPTION
(C)(2) The Colonial BancGroup, Inc., Stock Bonus and Retention Plan,
included as Exhibit 10(C)(2) to the Registrant's Registration
Statement as Form S-4, file no. 33-52952, and incorporated herein by
reference.
(D) Stock Purchase Agreement dated as of July 20, 1994, by and among The
Colonial BancGroup, Inc., Colonial Bank, The Colonial Company,
Colonial Mortgage Company, and Robert E., James K. and Thomas H.
Lowder, included as Exhibit 2 in Registrant's registration statement
on Form S-4, Registration No. 33-83692 and incorporated herein by
reference.
(E) Agreement and Plan of Merger between The Colonial BancGroup, Inc. and
Commercial Bancorp of Georgia, Inc., dated as of December 21, 1995,
included as Exhibit 10(E) to Registrant's Registration Statement on
Form S-4, Registration No. 33-01163, and incorporated herein by
reference.
Exhibit 13 Registrant's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996, and incorporated herein by reference.
Exhibit 21 List of subsidiaries of the Registrant, contained at Exhibit 21 to
the Registration Statement on Form S-4, Registration No. 333-01247,
of which this is Amendment No. 1, and incorporated herein by
reference.
Exhibit 23 Consents of experts and counsel:
(A) Consent of Coopers & Lybrand, L.L.P.
(B) Consent of Miller, Hamilton, Snider & Odom, L.L.C.
(C) Consent of Coopers & Lybrand, L.L.P.
(D) Consent of The Carson Medlin Company
(E) Consent of Bricker & Melton, P.A.
(F) Consent and report of Price Waterhouse, L.L.P.
(G) Consent of Arthur Andersen L.L.P.
(H) Consent of KPMG Peat Marwick LLP
Exhibit 24 Power of Attorney, contained at Exhibit 24 to the Registration
Statement on Form S-4, Registration No. 333-01247, of which this is
Amendment No. 1 and incorporated herein by reference.
Exhibit 99 Additional exhibits:
(A) Form of Proxy of Southern Banking Corporation, contained at Exhibit
99(A) to the Registration Statement on Form S-4, Registration No.
333-01247, of which this is Amendment No. 1 and incorporated herein
by reference.
(b) Financial Statement Schedules
The financial statement schedules required to be included pursuant to this
Item are not included herein because they are not applicable or the required
information is shown in the financial statements or notes thereto.
ITEM 22. UNDERTAKINGS.
(a) The undersigned hereby undertakes as follows as required by Item 512 of
Regulation S-K:
(1) 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.
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(2) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately above, 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 such securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) Insofar as indemnification for liabilities arising under the Act
may be permitted to directors, officers, and controlling persons of the
Registrant, 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.
(b) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of Form S-4, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
(c) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
(d) 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;
(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 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.
(e) 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.
II-5
<PAGE> 215
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 Montgomery, Alabama, on
the 23rd day of May, 1996.
THE COLONIAL BANCGROUP, INC.
By: /s/ ROBERT E. LOWDER
----------------------------
Robert E. Lowder
Its Chairman of the Board
of Directors, Chief
Executive Officer, and
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- --------------------------------------------- ---------------------------- ------------------
<S> <C> <C>
/s/ ROBERT E. LOWDER Chairman of the Board of **
- --------------------------------------------- Directors, President and
Robert E. Lowder Chief Executive Officer
/s/ W. FLAKE OAKLEY, IV Chief Financial Officer, **
- --------------------------------------------- Secretary and Treasurer
W. Flake Oakley, IV (Principal Financial
Officer and Principal
Accounting Officer)
*
Director **
- ---------------------------------------------
Young J. Boozer
* Director **
- ---------------------------------------------
William Britton
* Director **
- ---------------------------------------------
Jerry J. Chesser
* Director **
- ---------------------------------------------
Augustus K. Clements, III
* Director **
- ---------------------------------------------
Robert C. Craft
* Director **
- ---------------------------------------------
Patrick F. Dye
* Director **
- ---------------------------------------------
Clinton O. Holdbrooks
* Director **
- ---------------------------------------------
D. B. Jones
* Director **
- ---------------------------------------------
Harold D. King
</TABLE>
II-6
<PAGE> 216
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- --------------------------------------------- ---------------------------- ------------------
<S> <C> <C>
* Director **
- ---------------------------------------------
John Ed Mathison
* Director **
- ---------------------------------------------
Milton E. McGregor
* Director **
- ---------------------------------------------
John C. H. Miller, Jr.
* Director **
- ---------------------------------------------
Joe D. Mussafer
* Director **
- ---------------------------------------------
William E. Powell
* Director **
- ---------------------------------------------
Jack H. Rainer
* Director **
- ---------------------------------------------
Frances E. Roper
* Director **
- ---------------------------------------------
Ed V. Welch
</TABLE>
- ---------------
* The undersigned, acting pursuant to a power of attorney, has signed this
Registration Statement on Form S-4 for and on behalf of the persons indicated
above as such persons' true and lawful attorney-in-fact and in their names,
places and stead, in the capacities indicated above and on the date indicated
below.
/s/ W. FLAKE OAKLEY, IV
-------------------------------
W. Flake Oakley, IV
Attorney-in-Fact
** Dated: May 23, 1996
II-7
<PAGE> 217
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
- ------- ----
<S> <C> <C>
Exhibit 2 Plan of acquisition, reorganization, arrangement,
liquidation of successor:
Amended and Restated Agreement and Plan of Merger between
The Colonial BancGroup, Inc., and Southern Banding
Corporation, dated as of February 15, 1996, included in the
Prospectus portion of this registration statement at
Appendix A and incorporated herein by reference.
Exhibit 3 Articles of Incorporation and Bylaws:
(A) Restated Certificate of Incorporation of the Registrant,
filed as Exhibit 4.1 to the Registrant's Current Report on
Form 8-K, dated February 21, 1995, and incorporated herein
by reference.
(B) Bylaws of the Registrant, as amended, filed as Exhibit 4.2
to the Registrant's Current Report on Form 8-K, dated
February 21, 1995, and incorporated herein by reference.
Exhibit 4 Instruments defining the rights of security holders:
(A) Article 4 of the Restated Certificate of Incorporation of
the Registrant filed as Exhibit 4.1 to the Registrant's
Current Report on Form 8-K, dated February 21, 1995, and
incorporated herein by reference.
(B) Article II of the Bylaws of the Registrant filed as Exhibit
4.2 to the Registrant's Current Report on Form 8-K, dated
February 21, 1995, and incorporated herein by reference.
(C) Dividend Reinvestment and Class A Common Stock Purchase Plan
of the Registrant dated January 15, 1986, and Amendment No.
1 thereto dated as of June 10, 1986, filed as Exhibit 4(C)
to the Registrant's Registration Statement on Form S-4 (File
No. 33-07015), effective July 15, 1986, and incorporated
herein by reference.
(D) Trust Indenture dated as of March 25, 1986, included as
Exhibit 4 to the Registrant's Amendment No. 1 to
Registration Statement on Form S-2, file number 33-4004,
effective March 25, 1986, and incorporated herein by
reference.
</TABLE>
<PAGE> 218
Exhibit 5 Opinion of Miller, Hamilton, Snider & Odom, L.L.C. as to
certain Delaware law issues of the securities being
registered, contained at Exhibit 5 of the Registration
Statement on Form S-4, Registration No. 333-01247, of which
this is Amendment No. 1 and incorporated herein by
reference.
Exhibit 8 Tax Opinion of Miller, Hamilton, Snider & Odom, L.L.C.
Exhibit 10 Material Contracts:
(A)(1) Second Amendment and Restatement of 1982 Incentive Stock
Plan of the Registrant, filed as Exhibit 4-1 to the
Registrant's Registration Statement on Form S-8 (Commission
Registration No. 33-41036), effective June 4, 1991, and
incorporated herein by reference.
(A)(2) Second Amendment and Restatement to 1982 Nonqualified Stock
Option Plan of the Registrant filed as Exhibit 4-2 to the
Registrant's Registration Statement on Form S-8 (Commission
Registration No. 33-41036), effective June 4, 1991, and
incorporated herein by reference).
(A)(3) 1992 Incentive Stock Option Plan of the Registrant, filed as
Exhibit 4-1 to Registrant's Registration Statement on Form
S-8 (File No. 33-47770), effective May 8, 1992, and
incorporated herein by reference.
(A)(4) 1992 Nonqualified Stock Option Plan of the Registrant, filed
as Exhibit 4-2 to Registrant's Registration Statement on
Form S-8 (File No. 33-47770), effective May 8, 1992, and
incorporated herein by reference.
(B)(1) Residential Loan Funding Agreement between Colonial Bank and
Colonial Mortgage Company dated January 18, 1988, included
as Exhibit 10(B)(1) to the Registrant's Registration
Statement as Form S-4, file no. 33-52952, and incorporated
herein by reference.
(B)(2) Loan Agreement between the Registrant and SunBank, National
Association, dated August 29, 1995, filed as Exhibit
10(B)(2) to the Registrant's Registration Statement on Form
S-4, registration number 33-01163 and incorporated herein by
reference.
(B)(3) 1993 Term Loan Agreement between the Registrant and SunBank,
National Association, and related Pledge Agreement filed as
Exhibit 10(B)(1) to Amendment No. 2 of the Registrant's
Registration Statement on Form S-4, registration number
33-63826 and incorporated herein by reference.
(C)(1) The Colonial BancGroup, Inc. First Amended and Restated
Restricted Stock Plan for Directors, as amended, included as
Exhibit 10(C)(1) to the Registrant's Registration Statement
as
<PAGE> 219
Form S-4, file no. 33-52952, and incorporated herein by
reference.
(C)(2) The Colonial BancGroup, Inc., Stock Bonus and Retention
Plan, included as Exhibit 10(C)(2) to the Registrant's
Registration Statement as Form S-4, file no. 33-52952, and
incorporated herein by reference.
(D) Stock Purchase Agreement dated as of July 20, 1994, by and
among The Colonial BancGroup, Inc., Colonial Bank, The
Colonial Company, Colonial Mortgage Company, and Robert E.,
James K. and Thomas H. Lowder, included as Exhibit 2 in
Registrant's registration statement on Form S-4,
Registration No. 33-83692 and incorporated herein by
reference.
(E) Agreement and Plan of Merger between The Colonial BancGroup,
Inc, and Commercial Bancorp of Georgia, Inc., dated as of
December 21, 1995, included as Exhibit 10(E) to Registrant's
Registration Statement on Form S-4, Registration
No. 33-01163, and incorporated herein by reference.
Exhibit 13 Registrant's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1995, June 30, 1995 and September 30, 1995,
and incorporated herein by reference.
Exhibit 21 List of subsidiaries of the Registrant contained at
Exhibit 21 of the Registration Statement on Form S-4,
Registration No. 333-01247, of which this is Amendment No.
1, and incorporated herein by reference.
Exhibit 23 Consents of experts and counsel:
(A) Consent of Coopers & Lybrand, L.L.P.
(B) Consent of Miller, Hamilton, Snider & Odom, L.L.C.
(C) Consent of Coopers & Lybrand, L.L.P.
(D) Consent of The Carson Medlin Company
(E) Consent of Bricker & Melton, P.A.
(F) Consent and report of Price Waterhouse L.L.P.
(G) Consent of Arthur Andersen L.L.P.
(H) Consent of KPMG Peat Marwick LLP
Exhibit 24 Power of Attorney, contained at Exhibit 24 of the
Registration Statement on Form S-4, Registration No.
333-01247, of which this is Amendment No. 1, and incorporated
herein by reference.
<PAGE> 220
Exhibit 99 Additional exhibits:
(A) Form of Proxy of Southern Banking Corporation contained at
Exhibit 99(A) of the Registration Statement on Form S-4,
Registration No. 333-01247, of which this is Amendment No.
1, and incorporated herein by reference.
<PAGE> 1
EXHIBIT 8
TAX OPINION
<PAGE> 2
[On Miller, Hamilton, Snider & Odom, L.L.C. Letterhead]
May 20, 1996
Montgomery Office
The Colonial BancGroup, Inc.
One Commerce Street
Suite 800
Montgomery, AL 36104
Southern Banking Corporation
201 East Pine Street
Orlando, FL 32801
Re: Tax Opinion
Gentlemen:
We have acted as counsel to The Colonial BancGroup, Inc., a
Delaware corporation ("BancGroup"), in connection with the merger (the
"Merger") of Southern Banking Corporation ("SBC") with and into BancGroup
pursuant to the Amended and Restated Agreement and Plan of Merger, dated
February 15, 1996 (the "Agreement") by and between BancGroup and SBC. This
opinion is being rendered to you pursuant to paragraph 8.5 of the Agreement.
In rendering this opinion, we have relied upon the facts,
which are not restated herein, but rather, as they have been presented to us in
the Agreement, and in a preliminary joint proxy statement-prospectus of
BancGroup and SBC to be filed with the Securities and Exchange Commission. We
have assumed, with your consent, that the facts presented to us provide an
accurate and complete description of the facts and circumstances concerning the
proposed transaction. Any changes to the facts, representations, or documents
referred to in this opinion may affect the conclusion stated herein.
<PAGE> 3
May 20, 1996
Page 2
In connection with this opinion, we have assumed, with your
consent, the following:
(1) BancGroup does not plan to sell or otherwise dispose of
any of the stock of Southern Bank of Central Florida, a wholly-owned subsidiary
of SBC (the "Bank") or to liquidate the Bank after the Merger.
(2) BancGroup will continue the historic business of SBC or
will use a significant portion of the historic business assets of SBC in a
business.
(3) SBC has no knowledge of any plan or intention on the
part of its shareholders to sell or otherwise dispose of the BancGroup common
stock to be received by them that would reduce their holdings to a number of
shares having, in the aggregate, a fair market value of less than fifty percent
of the total fair market value of the SBC common stock outstanding immediately
before the Merger.
(4) As a result of the Merger, each share of the issued and
outstanding SBC common stock will be converted into the right to receive
BancGroup common stock.
(5) No fractional shares will be issued in the Merger. In
the event fractional shares result in the exchange, the SBC shareholders
entitled to fractional shares will be paid cash by BancGroup for their
fractional shares.
(6) The fair market value of the BancGroup common stock to
be received by the SBC shareholders will be approximately equal to the fair
market value of the SBC stock exchanged therefor.
(7) The proposed Merger will be effected for substantial
non-tax business purposes.
(8) BancGroup will acquire at least 90% of the fair market
value of the net assets and at least 70% of the fair market value of the gross
assets held by SBC immediately prior to the Merger. For purposes of this
representation, SBC assets used to pay its reorganization expenses, and all
redemptions and distributions (except for regular, normal dividends) made by
SBC immediately preceding the Merger and all payments to dissenters, if any,
will be included as assets of SBC held immediately prior to the Merger.
(9) SBC is not under the jurisdiction of a court in a Title
11 or similar case within the meaning of Section 368(a)(3)(A) of the Internal
Revenue Code of 1986, as amended (the "Code").
On the basis of the foregoing and our consideration of such
other matters as we have considered necessary, we advise you that, in our
opinion, for federal income tax purposes:
<PAGE> 4
May 20, 1996
Page 3
(1) The Merger of SBC with and into BancGroup in accordance
with the terms of the Agreement will constitute a reorganization within the
meaning of Sections 368(a)(1)(A) of the Code. SBC and BancGroup will each be a
"party to a reorganization" under Section 368(b) of the Code.
(2) No gain or loss will be recognized by SBC upon the
transfer of its assets and liabilities to BancGroup. Sections 357(a) and
361(a) of the Code. No gain or loss will be recognized by BancGroup upon the
receipt of the assets and liabilities of SBC. Section 1032(a) of the Code.
(3) The basis of the assets of SBC acquired by BancGroup
will be the same as the basis of the assets in the hands of SBC immediately
prior to the Merger. Section 362(b) of the Code.
(4) The holding period of the assets of SBC in the hands of
BancGroup will include the period during which such assets were held by SBC.
Section 1223(2) of the Code.
(5) An SBC shareholder who exchanges shares of SBC stock
solely for shares of BancGroup common stock as described in the Agreement will
not recognize gain or loss. Section 354 of the Code.
(6) A dissenting SBC shareholder, who is not deemed to own
any shares of BancGroup under the constructive ownership rules of Section 318
of the Code (see the discussion below of Section 318 of the Code), and who
receives only cash in exchange for his shares of SBC stock, will recognize gain
or loss equal to the difference between the amount of cash received and the
shareholder's basis in the shares of SBC stock surrendered. Section 1001 of
the Code. Such gain or loss will be capital gain or loss if the SBC shares are
capital assets in the hands of the shareholder.
(7) The constructive ownership rules of Section 318 of the
Code apply in determining whether the receipt of cash has "the effect of the
distribution of a dividend" and whether a dissenting SBC shareholder who
actually has received all cash is deemed to have received a combination of cash
and BancGroup common stock. Under these rules, shares subject to options and
shares owned (or, in some cases, constructively owned) by members of the
shareholder's family, and by related entities (such as corporations,
partnerships, trusts, and estates) in which the shareholder, a member of his
family, or a related entity has an interest, may be counted as owned by the
shareholder. Similarly, an entity may be treated as owning shares owned by
related persons or entities (such as shareholders, partners, or beneficiaries).
(8) The tax basis of the BancGroup common stock received by
an SBC shareholder will be the same as the adjusted tax basis of the shares of
SBC stock exchanged, decreased by the amount of cash received and increased by
the amount treated as a dividend and the amount of gain recognized on the
exchange. Section 358(a)(1) of the Code.
(9) The holding period of the BancGroup common stock
received by an SBC shareholder will include the holding period of the shares of
SBC stock exchanged therefor if such shares were capital assets in the hands of
the exchanging shareholder. Section 1223(1) of the Code.
<PAGE> 5
February 15, 1996
Page 4
(10) Cash received in lieu of a fractional share interest in
BancGroup common stock will be treated as received in payment for such
interest. Rev. Rul. 66-365, 1966 - 2 C.B. 116. The shareholder will recognize
gain or loss equal to the difference between the cash received and the basis of
such fractional share interest.
Very truly yours,
MILLER, HAMILTON, SNIDER & ODOM, L.L.C.
<PAGE> 1
EXHIBIT 23(A)
CONSENT OF COOPERS & LYBRAND, L.L.P.
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement on
Form S-4 (File No. 333-01345) of our report dated February 23, 1996, on our
audits of the consolidated financial statements of the Colonial BancGroup, Inc.
and subsidiaries as of December 31, 1995 and 1994 and for each of the three
years ended December 31, 1995. We also consent to the reference to our Firm as
"experts" under the caption Independent Accountants.
/s/ Coopers & Lybrand LLP
-------------------------
Coopers & Lybrand L.L.P.
Montgomery, Alabama
May 23, 1996
<PAGE> 1
EXHIBIT 23(B)
CONSENT OF MILLER, HAMILTON, SNIDER & ODOM, L.L.C.
<PAGE> 2
CONSENT OF COUNSEL
THE COLONIAL BANCGROUP, INC.
WE HEREBY CONSENT TO USE IN THIS FORM S-4 REGISTRATION
STATEMENT OF THE COLONIAL BANCGROUP, INC., OF OUR NAME IN THE PROSPECTUS, WHICH
IS A PART OF SUCH REGISTRATION STATEMENT, UNDER THE HEADINGS "APPROVAL OF THE
MERGER - CERTAIN FEDERAL INCOME TAX CONSEQUENCES" AND "LEGAL MATTERS," AND TO
THE SUMMARIZATION OF OUR OPINIONS REFERENCED THEREIN.
/S/ MILLER, HAMILTON, SNIDER & ODOM, L.L.C.
May 23, 1996
<PAGE> 1
EXHIBIT 23(C)
CONSENT OF COOPERS & LYBRAND, L.L.C.
<PAGE> 2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation in this registration statement on Form S-4
(File No. 333-01345) of our report dated January 13, 1995, on our audits of
the financial statements of Southern Banking Corporation and Subsidiary as of
December 31, 1994 and for each of the two years ended December 31, 1994.
/s/ Coopers & Lybrand LLP
--------------------------
Coopers & Lybrand L.L.P.
Orlando, Florida
May 23, 1996
<PAGE> 1
EXHIBIT 23(D)
CONSENT OF THE CARSON MEDLIN COMPANY
<PAGE> 2
CONSENT OF THE CARSON MEDLIN COMPANY
We hereby consent to the inclusion as Appendix B to the Prospectus constituting
part of the Registration Statement on Form S-4 of The Colonial BancGroup, Inc.
of our letter to the Board of Directors of Southern Banking Corporation and to
the references made to such letter and to the firm in such Prospectus. In
giving such consent, we do not thereby admit that we come within the category
of persons whose consent is required under Section 7 of the Securities Act of
1933 or the rules and regulations of the Securities and Exchange Commission
thereunder.
/s/ The Carson Medlin Company
THE CARSON MEDLIN COMPANY
Tampa, Florida
May 28, 1996
<PAGE> 1
EXHIBIT 23(E)
CONSENT OF BRICKER & MELTON, P.A.
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We hereby consent to the use of our report dated March 15, 1996, relating to
the consolidated financial statements of Commercial Bancorp of Georgia, Inc.
and Subsidiary (formerly Commercial Bancorp of Gwinnett, Inc.), and our report
dated January 25, 1994, relating to the consolidated financial statements of
Commercial Bancorp of Gwinnett, Inc. and Subsidiary, included in the
Registration Statement on Form S-4 and Proxy Statement.
/s/ Bricker & Melton, P.A.
Duluth, Georgia
May 24, 1996
<PAGE> 1
EXHIBIT 23 (F)
CONSENT AND REPORT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Joint Proxy Statement and Prospectus
constituting part of this Registration Statement on Form S-4 of The Colonial
BancGroup, Inc. of our report dated March 2, 1994 relating to the consolidated
statements of income, of changes in shareholders' equity and of cash flows of
the former Commercial Bancorp of Georgia, Inc. for the year ended December 31,
1993, which is referred to in such Joint Proxy Statement and Prospectus.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Atlanta, Georgia
May 24, 1996
<PAGE> 1
EXHIBIT 23(G)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountans, we hereby consent to the use of our report
and to all references to our Firm included in or made a part of this
Registration Statement.
/s/ Arthur Andersen, L.L.P.
Birmingham, Alabama
May 23, 1996
<PAGE> 1
EXHIBIT 23 (H)
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Southern Banking Corporation:
We Consent to the use of our report dated January 26, 1996 on the consolidated
financial statements of Southern Banking Corporation and subsidiary as of and
for the year ended December 31, 1995 in the Joint Proxy Statement and us of The
Colonial BancGroup Inc. and Southern Banking Corporation.
/s/ /KPMG Peat Marwick LLP
Orlando, Florida
May 24, 1996
