<PAGE> 1
Filed Pursuant to Rule 424(b)(2)
Registration No. 333-01345
LOGO COMMERCIAL BANCORP OF GEORGIA, INC.
390 CROGAN STREET
LAWRENCEVILLE, GEORGIA 30245
June 4, 1996
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders (the
"Special Meeting") of Commercial Bancorp of Georgia, Inc. ("CBG") to be held at
the headquarters of CBG, 390 Crogan Street, Lawrenceville, Georgia, at 2:00
p.m., local time, on Tuesday, July 2, 1996.
At this important meeting, you will be asked to consider and vote upon the
approval of the proposed merger (the "Merger") of CBG with and into The Colonial
BancGroup, Inc. ("BancGroup") pursuant to an Agreement and Plan of Merger dated
December 21, 1995 (the "Agreement"), by and among CBG and BancGroup. The
Agreement, among other things, provides that BancGroup will be the surviving
corporation in the Merger. If the proposed Merger is consummated, each
outstanding share of CBG Common Stock (excluding shares held by stockholders who
perfect their dissenters' rights under Georgia law) shall be converted and
exchanged for the right to receive the number of shares of BancGroup Common
Stock equal to $21.07 divided by the "Market Value" of the BancGroup Common
Stock. The Market Value of the BancGroup Common Stock will be equal to the
average of the "Daily Average Value" of the BancGroup Common Stock on the 30
trading days ending on the trading day immediately preceding the effective time
of the Merger. The "Daily Average Value" on each such trading day will be the
average of the high and low sales price of the BancGroup Common Stock on such
day as reported by the New York Stock Exchange.
The affirmative vote of the holders of a majority of the shares of CBG
Common Stock entitled to vote at the Special Meeting is required for approval of
the Agreement and the transactions contemplated thereby.
Enclosed are the (i) Notice of Special Meeting, (ii) Proxy Statement and
Prospectus and (iii) proxy for the Special Meeting. Please review carefully the
Proxy Statement and Prospectus which describes in more detail the Agreement and
the proposed Merger, including a description of the conditions to consummation
of the Merger and the effects of the Merger on the rights of CBG stockholders.
If the CBG stockholders approve the Agreement and the transactions contemplated
thereby and the Merger is consummated, BancGroup will send to you a letter of
transmittal providing instructions for exchanging your CBG stock certificates
for your shares of BancGroup Common Stock. Accordingly, you should not deliver
your CBG stock certificate to CBG or BancGroup until you have received the
letter of transmittal.
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS IN THE BEST
INTERESTS OF CBG'S STOCKHOLDERS AND THAT THE MERGER IS FAIR TO THE CBG
STOCKHOLDERS FROM A FINANCIAL POINT OF VIEW. ACCORDINGLY, YOUR BOARD OF
DIRECTORS HAS APPROVED AND ADOPTED THE AGREEMENT AND CONSUMMATION OF THE
TRANSACTIONS CONTEMPLATED THEREBY, AND RECOMMENDS THAT YOU VOTE "FOR" APPROVAL
OF THE AGREEMENT AND CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY.
IN VIEW OF THE IMPORTANCE OF THE ACTION TO BE TAKEN, WE URGE YOU TO
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND TO RETURN IT PROMPTLY IN THE
ENCLOSED ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU
ATTEND THE SPECIAL MEETING, YOU MAY VOTE IN PERSON, EVEN IF YOU PREVIOUSLY
RETURNED YOUR PROXY.
LOGO
<PAGE> 2
We look forward to seeing you at the Special Meeting.
Sincerely,
/s/ Richard Sikes
Richard Sikes
Chairman of the Board,
President and Chief Executive Officer
CBG STOCKHOLDERS SHOULD NOT SURRENDER OR OTHERWISE ATTEMPT TO EXCHANGE
THEIR CBG COMMON STOCK CERTIFICATES FOR BANCGROUP STOCK CERTIFICATES UNLESS AND
UNTIL THEY HAVE RECEIVED APPROPRIATE NOTICE AND INSTRUCTIONS FOR EXCHANGE.
<PAGE> 3
COMMERCIAL BANCORP OF GEORGIA, INC.
390 CROGAN STREET
LAWRENCEVILLE, GEORGIA 30245
---------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD AT 2:00 P.M. ON JULY 2, 1996
---------------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Special
Meeting") of Commercial Bancorp of Georgia, Inc. ("CBG") will be held at the
headquarters of CBG, 390 Crogan Street, Lawrenceville, Georgia, on Tuesday, July
2, 1996, at 2:00 p.m., local time, for the following purposes:
1. Merger. To consider and vote upon the proposed merger (the
"Merger") of CBG with and into The Colonial BancGroup, Inc. ("BancGroup"),
in accordance with an Agreement and Plan of Merger, dated as of December
21, 1995 (the "Agreement"). Pursuant to the Agreement, BancGroup will be
the surviving corporation in the Merger, and each share of Common Stock of
CBG outstanding at the time of the Merger will be converted into the right
to receive shares of Common Stock of BancGroup, with cash paid in lieu of
fractional shares at the same value as will be paid in BancGroup Common
Stock, 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 thereof.
The Board of Directors of CBG is not aware of any other business to come
before the Special Meeting.
The Board of Directors of CBG has fixed the close of business on May 21,
1996, as the record date for the determination of stockholders entitled to
notice of and to vote at the Special Meeting. Only holders of record of Common
Stock of CBG at the close of business on that date will be entitled to notice of
and to vote at the Special Meeting or any adjournments thereof.
Under Georgia law, holders of Common Stock of CBG are eligible to exercise
dissenters' rights of appraisal and demand payment in cash of the fair value of
his or her shares of CBG Common Stock if the Merger is consummated. The right of
any CBG stockholder to receive such payment is contingent upon strict compliance
with Article 13 of the Georgia Business Corporation Code, a copy of which is
attached to the Joint Proxy Statement and Prospectus as Appendix B and is
incorporated herein by reference. For a summary of Article 13 of the Georgia
Business Corporation Code, see "APPROVAL OF THE MERGER -- Rights of Dissenting
Stockholders."
You are requested to complete and sign the enclosed form of Proxy which is
solicited by the Board of Directors of CBG and to mail it promptly in the
enclosed envelope. The Proxy may be revoked at any time by filing with the
Secretary of CBG a written revocation, by executing a later dated Proxy, or by
attending the Special Meeting and voting in person.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Richard Sikes
RICHARD SIKES
Chairman of the Board, President
and Chief Executive Officer
Lawrenceville, Georgia
June 4, 1996
<PAGE> 4
PROSPECTUS
OF
THE COLONIAL BANCGROUP, INC.
PROXY STATEMENT
OF
COMMERCIAL BANCORP OF GEORGIA, INC.
This Joint Proxy Statement and Prospectus (the "Prospectus") relates to the
proposed merger (the "Merger") of Commercial Bancorp of Georgia, Inc., a Georgia
corporation ("CBG"), with and into The Colonial BancGroup, Inc., a Delaware
corporation ("BancGroup"), and is furnished to CBG's stockholders on or about
the date set forth below. In connection with the Merger, BancGroup will issue
shares of its Common Stock, $2.50 par value per share, to the holders of the
outstanding shares of Common Stock of CBG. As described more fully herein, each
share of CBG Common Stock outstanding at the time of the Merger shall be
converted into the right to receive the number of shares of BancGroup Common
Stock equal to $21.07 divided by the market value of BancGroup Common Stock
determined at the time of the Merger. See "APPROVAL OF THE MERGER -- Conversion
of CBG Common Stock." The shares of Common Stock of BancGroup are listed on the
New York Stock Exchange ("NYSE") under the symbol "CNB." The closing price per
share of such stock as reported by the NYSE on May 8, 1996, was $33.
Consummation of the Merger requires, among other things, the affirmative
vote of at least a majority of the outstanding shares of Common Stock of CBG.
BancGroup has filed a Registration Statement pursuant to the Securities Act
of 1933, as amended, to register the shares of its Common Stock to be issued in
connection with the Merger described herein. This document constitutes a Proxy
Statement of CBG in connection with stockholder approval of the Merger and a
Prospectus of BancGroup with respect to the BancGroup Common Stock to be issued
in the Merger.
THE BOARD OF DIRECTORS OF CBG UNANIMOUSLY RECOMMENDS APPROVAL OF THE
MERGER.
THESE SECURITIES 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 OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER
OBLIGATIONS OF A BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
The executive offices of CBG are located at 390 Crogan Street,
Lawrenceville, Georgia 30245 (telephone 770-339-1900), and the executive offices
of BancGroup are located at Colonial Financial Center, One Commerce Street,
Montgomery, Alabama 36104 (telephone 334-240-5000).
THE DATE OF THIS PROSPECTUS IS JUNE 4, 1996.
<PAGE> 5
AVAILABLE INFORMATION
BancGroup is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, 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; 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 prescribed rates.
BancGroup's 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 of 1933, as amended, to register the shares of Common Stock of
BancGroup 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 has been furnished
by BancGroup and the information concerning CBG has been furnished by CBG. CBG
is also 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 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 BancGroup's
Common Stock.
All documents filed by BancGroup pursuant to Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934 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 an Agreement and Plan of Merger dated as of
December 21, 1995 (the "Agreement") with CBG 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.
(ii)
<PAGE> 6
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). 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).
(iii)
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CAPTION PAGE
- -------------------------------------------------------------------------------------- -----
<S> <C>
SUMMARY............................................................................... 1
INTRODUCTION.......................................................................... 9
General............................................................................... 9
Record Date; Shares Entitled to Vote; Vote Required for the Merger.................... 9
Solicitation, Voting and Revocation of Proxies........................................ 9
Voting Effect of Merger............................................................... 10
APPROVAL OF THE MERGER................................................................ 10
General............................................................................... 10
Background of the Merger.............................................................. 11
Reasons for the Merger................................................................ 13
Opinion of Financial Advisor.......................................................... 14
Interests of Certain Persons in the Merger............................................ 15
Conversion of CBG Common Stock........................................................ 16
Certain Federal Income Tax Consequences............................................... 17
Other Possible Consequences........................................................... 20
Conditions of Consummation of the Merger.............................................. 20
Conduct of Business Pending the Merger................................................ 21
Rights of Dissenting Stockholders..................................................... 22
Resale of BancGroup Common Stock...................................................... 24
Accounting Treatment.................................................................. 24
COMPARATIVE MARKET PRICES AND DIVIDENDS............................................... 24
BancGroup............................................................................. 24
CBG................................................................................... 25
BANCGROUP CAPITAL STOCK AND DEBENTURES................................................ 25
Common Stock.......................................................................... 25
Preference Stock...................................................................... 26
1986 Debentures....................................................................... 26
Changes in Control.................................................................... 27
COMPARATIVE RIGHTS OF STOCKHOLDERS.................................................... 28
Director Elections.................................................................... 29
Removal of Directors.................................................................. 29
Authorized Capital Stock.............................................................. 29
Voting................................................................................ 29
Preemptive Rights..................................................................... 29
Directors' Liability.................................................................. 30
Indemnification....................................................................... 30
Special Meeting of Stockholders; Action Without a Meeting............................. 31
Mergers, Share Exchanges and Sales of Assets.......................................... 31
Amendment of Certificate of Incorporation and Bylaws.................................. 32
Rights of Dissenting Stockholders..................................................... 32
Antitakeover Statutes................................................................. 32
Preferred Stock....................................................................... 33
Dividends............................................................................. 33
Effect of the Merger on CBG Stockholders.............................................. 33
PRO FORMA INFORMATION................................................................. 34
Condensed Pro Forma Statements of Condition (Unaudited)............................... 34
Condensed Pro Forma Statements of Income (Unaudited).................................. 38
Pro Forma Selected Financial Data (Unaudited)......................................... 43
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES......................................... 45
Selected Interim Financial Data (Unaudited)........................................... 45
Selected Financial Data............................................................... 46
Selected Quarterly Financial Data 1995-1994........................................... 48
</TABLE>
(iv)
<PAGE> 8
<TABLE>
<CAPTION>
CAPTION PAGE
- -------------------------------------------------------------------------------------- -----
<S> <C>
COMMERCIAL BANCORP OF GEORGIA, INC.................................................... 49
Selected Interim Financial Data (Unaudited) March 31, 1996 and 1995................... 49
Management's Discussion and Analysis of Financial Condition and Results of Operations
Three Months Ended March 31, 1996 and 1995.......................................... 50
Selected Financial Data 1991-1995..................................................... 52
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 53
BUSINESS OF BANCGROUP................................................................. 75
General............................................................................... 75
Lending Activities.................................................................... 75
Proposed Affiliate Banks.............................................................. 76
Voting Securities and Principal Stockholders.......................................... 76
Security Ownership of Management...................................................... 78
Management Information................................................................ 79
Certain Regulatory Considerations..................................................... 79
BUSINESS OF CBG....................................................................... 81
General............................................................................... 81
Lending Activities.................................................................... 81
Loan Origination...................................................................... 82
Loan Fee Income....................................................................... 83
Non-Performing Assets and Allowance for Loan Losses................................... 83
Investment Securities and Federal Funds Sold.......................................... 83
Deposits.............................................................................. 83
Borrowings............................................................................ 84
Asset and Liability Management........................................................ 84
Data Processing....................................................................... 84
Supervision and Regulation............................................................ 84
Market Area........................................................................... 85
Competition........................................................................... 85
Employees............................................................................. 85
Properties............................................................................ 86
Legal Proceedings..................................................................... 86
CBG Common Stock Owned by Management and Principal Stockholders....................... 87
ADJOURNMENT OF SPECIAL MEETING........................................................ 88
OTHER MATTERS......................................................................... 88
DATE FOR SUBMISSION OF BANCGROUP'S STOCKHOLDER PROPOSALS.............................. 88
INDEPENDENT ACCOUNTANTS............................................................... 88
LEGAL MATTERS......................................................................... 89
INDEX TO FINANCIAL STATEMENTS......................................................... F-1
APPENDIX A -- Agreement and Plan of Merger............................................ A-1
APPENDIX B -- Georgia Statute Regarding Dissenters' Rights of Appraisal............... B-1
APPENDIX C -- Opinion of The Robinson-Humphrey Company, Inc. ......................... C-1
APPENDIX D -- Tax Opinion............................................................. D-1
</TABLE>
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER
TO SELL THE SECURITIES COVERED HEREBY IN ANY JURISDICTION WHERE, OR TO ANY
PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER. THE DELIVERY OF THIS
PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO ITS DATE.
(v)
<PAGE> 9
SUMMARY
The following provides a summary of information included in this
Prospectus. The summary is qualified in its entirety by the more detailed
information appearing elsewhere herein, the Appendices hereto and the documents
incorporated herein by reference. Stockholders of CBG are urged to read this
document in full.
GENERAL
This Prospectus relates to the issuance of shares of BancGroup Common Stock
pursuant to the Merger of CBG with and into BancGroup. BancGroup will be the
surviving corporation in the Merger. Following the Merger, BancGroup intends to
operate CBG's subsidiary bank, Commercial Bank of Georgia ("Commercial Bank"),
as a commercial bank subsidiary in Georgia, and the name of such bank will be
changed after the Merger to include the name "Colonial Bank." BancGroup has an
existing subsidiary federal savings bank located in Georgia, Colonial Bank,
which is referred to herein as Colonial Bank -- Georgia. See "APPROVAL OF THE
MERGER."
The Merger will be presented for approval at the Special Meeting of the
stockholders of CBG to be held on Tuesday, July 2, 1996, at 2:00 p.m., local
time, at the main office of CBG.
See "INTRODUCTION."
TERMS OF THE MERGER
Upon the date of consummation of the Merger (the "Effective Date") and
subject to certain conditions, holders of CBG's Common Stock will be entitled to
receive shares of BancGroup Common Stock. On the Effective Date, each share of
Common Stock of CBG issued and outstanding and held by CBG's stockholders shall
be converted by operation of law into the right to receive the number of shares
of BancGroup Common Stock equal to $21.07 divided by the Market Value (the
"Exchange Ratio"). The Market Value shall represent the per share market value
of BancGroup Common Stock at the Effective Date and shall be equal to the
average of the Daily Average Value (as defined below) of the BancGroup Common
Stock as reported by the NYSE on the thirty (30) trading days ending on the
trading day immediately preceding the Effective Date. The "Daily Average Value"
on each trading day shall be the average of the high and low sales prices of the
BancGroup Common Stock for such trading day as reported by the NYSE.
No fractions of shares of BancGroup Common Stock will be issued in the
Merger. Pursuant to the terms of the Agreement, each holder of shares of CBG
Common Stock who would otherwise be entitled to receive a fraction of a share of
BancGroup Common Stock shall receive, in lieu of such fractional share, cash
(without interest) in an amount equal to such fraction of a share multiplied by
the Market Value.
As an example, if the Market Value is $34, then the Exchange Ratio will be
.6197, and each share of CBG Common Stock will be converted on the Effective
Date into .6197 of a share of BancGroup Common Stock (i.e., $21.07 divided by
$34). As a result, a stockholder of CBG holding 100 shares of CBG Common Stock
would receive in the aggregate 61.97 shares of BancGroup Common Stock (100
multiplied by .6197) with the .97 of a share of BancGroup Common Stock converted
to cash equal to $32.98 ($34 multiplied by .97). The closing sales price on the
NYSE of the BancGroup Common Stock on May 8, 1996, was $33 per share. See
"COMPARATIVE MARKET PRICES AND DIVIDENDS."
Options and warrants held by CBG shareholders (collectively, the "CBG
Options") respecting the right to acquire shares of CBG Common Stock shall be
assumed by BancGroup. Following the Merger, persons holding CBG Options shall be
entitled to acquire BancGroup Common Stock upon exercise of their CBG Options.
The number of shares of BancGroup Common Stock that may be acquired upon
exercise of a CBG Option shall equal the number of shares of CBG Common Stock
formerly subject to the CBG Option multiplied by the Exchange Ratio. The per
share exercise price of the CBG Options shall be adjusted by dividing the per
share exercise price for each CBG Option by the Exchange Ratio. There are
321,760 shares of CBG Common Stock subject to issue upon the exercise of CBG
Options.
1
<PAGE> 10
BancGroup will also assume certain stock appreciation rights and deferred
compensation rights held by certain directors and officers of CBG and Commercial
Bank. BancGroup will pay cash to the holders of these rights in exchange for
termination of the rights. The amount of cash to be paid will be approximately
$392,385 in the aggregate.
See "APPROVAL OF THE MERGER."
Except as stated above, 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 CBG or
BancGroup. The actual number of shares to be issued will depend upon the Market
Value of the BancGroup Common Stock. The aggregate number of shares of BancGroup
Common Stock will increase as the Market Value of such shares falls and will
decrease as the Market Value increases. See "APPROVAL OF THE
MERGER -- Conversion of CBG Common Stock" and "-- Certain Federal Income Tax
Consequences."
CBG stockholders 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 stockholders surrender their certificates representing
their shares of CBG Common Stock. See "APPROVAL OF THE MERGER -- Conversion of
CBG Common Stock."
RECOMMENDATION OF THE CBG BOARD OF DIRECTORS
The terms of the Merger, including the Exchange Ratio for the CBG Common
Stock, were determined through negotiations between CBG and BancGroup following
the submission of acquisition proposals from BancGroup and two other financial
institutions. The Board of Directors of CBG believes that the terms of the
Agreement and the transactions contemplated thereby are in the best interests of
CBG and its stockholders. ACCORDINGLY, THE BOARD OF DIRECTORS OF CBG HAS
APPROVED THE AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND RECOMMENDS
THAT THE CBG STOCKHOLDERS VOTE FOR APPROVAL OF THE AGREEMENT AND THE
CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY.
In reaching its decision to approve the Agreement and the transactions
contemplated thereby, CBG's Board of Directors considered a number of factors,
including: (i) the financial terms of the Merger; (ii) the alternatives to the
Merger, including CBG continuing as an independent financial institution in
light of current economic conditions in CBG's market areas, the existing and
anticipated competition from larger financial institutions operating in the
market areas and the effect of changes in the banking industry resulting from
recent legislation and increased competition; (iii) the current lack of a market
for the CBG Common Stock and the existence of a liquid trading market for the
BancGroup Common Stock which is traded on the NYSE; (iv) the results of a
competitive bidding process utilized by CBG to identify prospective acquirors;
(v) the value of the BancGroup Common Stock to be received by CBG's
stockholders; (vi) the financial terms of recent business combinations among
financial institutions; (vii) the financial condition, results of operations and
future prospects of CBG and BancGroup; (viii) the compatibility of operations of
CBG and BancGroup; (ix) the level of cash dividends currently paid by BancGroup
on its Common Stock; (x) the fact that the Merger qualifies as a tax-free
reorganization to the CBG stockholders except in respect of cash received for
their CBG Common Stock; and (xi) the fairness opinion of The Robinson-Humphrey
Company, Inc. ("Robinson-Humphrey") delivered to CBG with respect to the Merger.
See "APPROVAL OF THE MERGER -- Background of the Merger" and "Reasons for the
Merger."
OPINION OF FINANCIAL ADVISOR
CBG has received a written opinion of Robinson-Humphrey dated December 21,
1995, that, as of such date, the consideration to be received by CBG
stockholders in connection with the Merger is fair, from a financial point of
view, to the holders of CBG Common Stock. The full text of Robinson-Humphrey's
opinion, which describes the procedures followed, assumptions made, limitations
on the review taken, and other matters in connection with rendering such
opinion, is set forth as Appendix C to this Prospectus and should be read in its
entirety by CBG stockholders. For additional information regarding
Robinson-Humphrey's opinion and a discussion of its qualifications, see
"APPROVAL OF THE MERGER -- Opinion of Financial Advisor."
2
<PAGE> 11
INTEREST OF CERTAIN PERSONS IN THE MERGER
Except as stated below, no director or executive officer of CBG, 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 CBG Common
Stock, stock options, stock purchase warrants and stock appreciation rights in
which case the director or officer receives no benefit not shared on a pro rata
basis by all other holders of CBG Common Stock except for stock options, stock
purchase warrants, and stock appreciation rights. Six officers of Commercial
Bank will receive retention bonuses in the aggregate amount of $233,750
contingent upon the completion of the Merger and upon the satisfaction of
certain other conditions. See "APPROVAL OF THE MERGER -- Interest of Certain
Persons in the Merger."
VOTE REQUIRED
The Merger (item 1 on the proxy card) requires the approval of at least a
majority of the outstanding shares of Common Stock of CBG. Each share of CBG
Common Stock outstanding is entitled to one vote. A total of 1,853,302 shares
are outstanding. Only those stockholders of CBG who were stockholders of record
at the close of business on May 21, 1996 are entitled to notice of and to vote
at the Special Meeting. CBG's directors and executive officers own in the
aggregate approximately 36.6% of the outstanding shares of Common Stock of CBG
entitled to vote at the Special Meeting and have indicated their intent to vote
for the Merger. Directors and executive officers of BancGroup beneficially own
in the aggregate 2,161,674 shares representing approximately 15% of the
outstanding shares of Common Stock of BancGroup, but no vote of BancGroup's
stockholders is required for the Merger. See "INTRODUCTION."
Proxies should be submitted in the envelope enclosed herewith. Stockholders
of CBG submitting proxies may revoke their proxies by giving notice of such
revocation in writing to the Secretary of CBG, by executing and delivering a
proxy bearing a later date, or 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 Common Stock of CBG, 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 "INTRODUCTION -- Solicitation, Voting and
Revocation of Proxies."
RIGHTS OF DISSENTING STOCKHOLDERS
Any stockholder of CBG may dissent from the Merger and obtain the fair
value of such holder's CBG Common Stock in cash rather than receive shares of
BancGroup Common Stock if such stockholder (1) has delivered notice in writing
to CBG before the vote is taken at the Special Meeting that he or she intends to
demand payment of his shares if the Merger is consummated and (2) votes against
the Merger or refrains from voting on the Merger. If a stockholder votes against
the Merger or refrains from voting on the Merger but does not deliver the notice
in writing to CBG before the stockholder vote on the Merger occurs, such
stockholder will lose his or her appraisal rights. If the Merger is authorized
at the Special Meeting, BancGroup will deliver a written dissenters' notice
within ten (10) days of the Effective Date to all holders of CBG Common Stock
who have provided notice that they intend to seek payment. Stockholders wishing
to exercise dissenters' rights must follow properly all requirements for the
exercise of such rights as set forth in Article 13 of the Georgia Business
Corporation Code, a copy of which is attached as Appendix B hereto. See
"APPROVAL OF THE MERGER -- Rights of Dissenting Stockholders."
Any stockholder who properly exercises appraisal rights and receives fair
market value for his shares will encounter income tax treatment different than
the treatment for stockholders who do not exercise appraisal rights. See
"APPROVAL OF THE MERGER -- Certain Federal Income Tax Consequences."
For certain information concerning dissenting stockholders' rights, voting
at the Special Meeting, and management of BancGroup and CBG, see "APPROVAL OF
THE MERGER -- Rights of Dissenting Stockholders," "-- Conversion of CBG Common
Stock"; "INTRODUCTION -- 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 CBG -- CBG Common Stock Owned By
Management and Principal Stockholders."
3
<PAGE> 12
CONDITIONS OF CONSUMMATION
The Merger is subject to approval by the requisite vote of at least a
majority of the outstanding shares of Common Stock of CBG, and certain other
conditions. The Merger must be approved by the Georgia Department of Banking and
Finance (the "Georgia Department") and the Board of Governors of the Federal
Reserve System (the "Federal Reserve"). Applications were filed with these
agencies on March 21, 1996, and the regulatory approval process is expected to
take approximately three months from that date. It is anticipated that the
foregoing conditions, as well as certain other conditions contained in the
Agreement, will be satisfied, but the Agreement states that CBG and BancGroup
may waive all conditions to their obligations to consummate the Merger, except
that the conditions of the requisite approvals of regulatory authorities and
stockholder approval of the Merger may not be waived. Either BancGroup or CBG
may terminate the Merger if the Merger is not consummated by September 30, 1996.
See "APPROVAL OF THE MERGER -- Conditions of Consummation of the Merger."
In addition, the Boards of Directors of BancGroup and CBG may amend or
terminate the Agreement before or after approval by the stockholders of CBG. No
amendments will be made to the Agreement which would alter the Exchange Ratio or
which, in the opinion of the Board of Directors of CBG, would adversely affect
the rights of the stockholders of CBG. Any amendments to the Agreement which in
the opinion of the Board of Directors of CBG would have a material adverse
effect upon the stockholders of CBG would be submitted to CBG's stockholders for
approval. Such amendments could require the filing of an amendment of the
Registration Statement, of which this Prospectus forms a part, with the
Commission. See "APPROVAL OF THE MERGER -- Conditions of Consummation of the
Merger."
BUSINESS OF CBG
CBG is a bank holding company organized under the laws of the State of
Georgia and headquartered in Lawrenceville, Georgia. CBG was incorporated in
April 1989 under the name "Commercial Bancorp of Gwinnett, Inc." to serve as the
holding Company for Commercial Bank which began operations in July 1990 under
the name "Commercial Bank of Gwinnett, N.A." In December 1994, Commercial Bank
converted from a national bank charter to a state bank charter under the laws of
the State of Georgia. On March 2, 1995, CBG acquired in a merger transaction
Commercial Bancorp of Georgia, Inc. ("Georgia Bancorp"), a Georgia corporation
and the bank holding company for Commercial Bank of Georgia ("Georgia Bank"). At
the effective time of this transaction, CBG changed its name to "Commercial
Bancorp of Georgia, Inc." On September 30, 1995, Georgia Bank merged with
Commercial Bank and Commercial Bank, as the surviving bank, changed its name to
"Commercial Bank of Georgia." CBG, through Commercial Bank, currently operates
seven bank offices in Cobb, DeKalb, Gwinnett and Fulton Counties, Georgia, from
which it provides a wide range of commercial and retail banking services in its
north metropolitan Atlanta market areas.
For the quarter ended March 31, 1996, CBG reported consolidated net income
of $642,000 after giving retroactive effect to the merger of CBG and Georgia
Bancorp. As of March 31, 1996, CBG had total assets of $235.1 million, total
deposits of $210.7 million and stockholders' equity of $20.4 million. See
"BUSINESS OF CBG," and "COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY."
BUSINESS OF BANCGROUP
BancGroup conducts a commercial banking business in the states of Alabama,
Tennessee and Georgia through 95, 4, and 3 banking offices, respectively.
Colonial Mortgage Company, a subsidiary of BancGroup's Alabama bank subsidiary,
Colonial Bank, is a mortgage company that has $10 billion of residential loan
servicing and 6 offices which cover 29 states. As of March 31, 1996, BancGroup
had consolidated assets of $3.9 billion and consolidated shareholders' equity of
$268.2 million. BancGroup has entered into agreements to acquire an additional
bank in Alabama and to acquire a bank in Orlando, Florida. See "BUSINESS OF
BANCGROUP" and "PRO FORMA INFORMATION."
4
<PAGE> 13
COMMON STOCK OF CBG
The holders of Common Stock of CBG are entitled to dividends as and when
declared by the Board of Directors out of funds legally available therefor, to
one vote for each share held on matters submitted to a vote of stockholders,
and, in the event of liquidation, to the net assets remaining after satisfaction
of all liabilities. As of May 21, 1996, CBG had 1,853,302 shares of its Common
Stock outstanding and approximately 531 stockholders of record. See "COMPARATIVE
RIGHTS OF STOCKHOLDERS."
COMMON STOCK OF BANCGROUP
BancGroup is authorized to issue 44,000,000 shares of its Common Stock, of
which on May 8, 1996, 13,575,465 shares were issued and outstanding. Further, up
to 333,333 shares of Common Stock are issuable upon conversion of certain
debentures of BancGroup and 199,495 shares are subject to issue upon exercise of
outstanding options under BancGroup's stock option plans. BancGroup has
authorized 1,000,000 shares of Preference Stock, none of which has been issued.
Certain provisions of BancGroup's Restated Certificate of Incorporation and
bylaws may have the effect of preventing, delaying or deferring a change in
control of BancGroup. Among other things, these provisions include the election
of the BancGroup Board of Directors on a classified basis, supermajority votes
of stockholders to approve certain business combinations, and the inability of
stockholders to call special meetings or to act by written consent. See
"BANCGROUP CAPITAL STOCK AND DEBENTURES," and "COMPARATIVE RIGHTS OF
STOCKHOLDERS."
FEDERAL INCOME TAX CONSEQUENCES
CBG has received an opinion from Miller, Hamilton, Snider & Odom, L.L.C.,
counsel to BancGroup, a copy of which is included herein as Appendix D, that the
Merger will constitute a tax-free reorganization for federal income tax purposes
and, accordingly, no gain or loss will be recognized by holders of CBG Common
Stock upon the conversion of CBG Common Stock solely into BancGroup Common Stock
by reason of the Merger (except with respect to cash, if any, received in lieu
of fractional share interests in BancGroup Common Stock). Stockholders who
receive cash for their shares of CBG Common Stock upon perfection of dissenters'
rights, however, will realize gain or loss for federal income tax purposes with
respect to such shares. See "APPROVAL OF THE MERGER -- Certain Federal Income
Tax Consequences." CBG stockholders are urged to consult their own tax advisors
as to the specific tax consequences to them of the Merger.
ACCOUNTING TREATMENT
The Merger will be treated as a "pooling of interests" transaction by
BancGroup for financial accounting purposes. See "APPROVAL OF THE
MERGER -- Accounting Treatment."
RECENT PER SHARE MARKET PRICE
CBG. There is no established public trading market for the Common Stock of
CBG. Trading of CBG Common Stock has been sporadic and generally is confined to
the Atlanta, Georgia area. CBG does not maintain a record of the sales prices of
trades of CBG Common Stock, although CBG is aware of a trade in late 1995 at
$13.50 per share. CBG has not paid any dividends on the CBG Common Stock.
BANCGROUP. BancGroup Common Stock is listed for trading on the NYSE under
the symbol "CNB."
5
<PAGE> 14
The following table indicates the high and low closing prices of the
BancGroup Common Stock as reported on the NYSE and on the Nasdaq National Market
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 on the Nasdaq National Market under the
symbol "CLBGA" until February 24, 1995.
<TABLE>
<CAPTION>
PRICE PER SHARE OF
COMMON STOCK
------------------------
DIVIDENDS
HIGH LOW PER SHARE
---- ---- ---------
<S> <C> <C> <C>
1994
First Quarter....................................................... $20 1/4 $ 18 $ 0.200
Second Quarter...................................................... 25 19 1/4 0.200
Third Quarter....................................................... 24 3/4 22 0.200
Fourth Quarter...................................................... 23 3/4 19 1/2 0.200
1995
First Quarter(1).................................................... 23 5/8 19 1/2 0.225
Second Quarter...................................................... 27 1/2 23 1/8 0.225
Third Quarter....................................................... 29 7/8 27 1/2 0.225
Fourth Quarter...................................................... 32 7/8 30 0.225
1996
First Quarter....................................................... 36 1/2 30 0.27
Second Quarter (through May 8, 1996)................................ 36 1/8 33 0.27
</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 execution of the Agreement, the closing price of the
BancGroup Common Stock on the NYSE was $32 7/8 per share. 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 CBG Common Stock on that
date:
<TABLE>
<CAPTION>
EQUIVALENT
BANCGROUP CBG BANCGROUP
COMMON STOCK COMMON STOCK COMMON STOCK
(PER SHARE) (PER SHARE) (PER SHARE)
------------ ------------ ------------
<S> <C> <C> <C>
Comparative Market Value.......................... $32 7/8(1) $13.50(2) $21.07(3)
</TABLE>
- ---------------
(1) Closing price as reported by the NYSE.
(2) There is no established public trading market for the Common Stock of CBG.
The value shown is the price at which shares of Common Stock were sold on
the last sale price prior to December 21, 1995, of which management of CBG
is aware.
(3) If the Merger had closed on that date, .6409 (21.07 / 32.875) shares of
BancGroup Common Stock would have been exchanged for each share of CBG
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 BancGroup's 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 vote requirements for certain
"business combinations" that exceed the provisions of Delaware law described
above, (3) flexibility for the Board to
6
<PAGE> 15
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 "COMPARATIVE RIGHTS OF STOCKHOLDERS."
PER SHARE DATA
The following table presents on a per share basis the book value, cash
dividends and income from continuing operations of BancGroup and CBG on a
historical basis and on a pro forma equivalent basis assuming the acquisition of
CBG. 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............................................................... 0.27 0.675
Common A................................................................... 0.225 0.80 0.71
Common B................................................................... 0.125 0.40 0.31
COMMERCIAL BANCORP OF GEORGIA, INC.:
Net Income(a)
Historical:
Primary.................................................................. 0.34 0.37 0.38 0.49
Fully diluted............................................................ 0.32 0.33 0.38 0.49
Pro forma equivalent assuming acquisition of Commercial Bancorp of Georgia,
Inc. only(b):
Primary.................................................................. 0.49 1.78 1.31 1.15
Fully diluted............................................................ 0.48 1.74 1.29 1.13
Pro forma equivalent assuming acquisition of Commercial Bancorp of Georgia,
Inc,
Southern Banking Corporation and Dothan Federal Savings Bank(b):
Primary.................................................................. 0.47 1.67 1.24 1.05
Fully diluted............................................................ 0.47 1.63 1.22 1.04
Book value at end of period
Historical................................................................. 10.84 10.66 10.09 9.79
Pro forma equivalent assuming acquisition of Commercial Bancorp of Georgia,
Inc...................................................................... 12.06 N/A N/A N/A
Pro forma equivalent assuming acquisition of Commercial Bancorp of Georgia,
Inc.,
Southern Banking Corporation and Dothan Federal Savings Bank(b).......... 11.56 N/A N/A N/A
Dividends per share
Historical................................................................. 0.00 0.00 0.00 0.00
Pro forma equivalent assuming acquisition of Commercial Bancorp of Georgia,
Inc...................................................................... 0.17 0.41 0.49 0.44
Pro forma equivalent assuming acquisition of Commercial Bancorp of Georgia,
Inc.,
Southern Banking Corporation and Dothan Federal Savings Bank(c).......... 0.17 0.41 0.49 0.44
BANCGROUP -- PRO FORMA COMBINED (COMMERCIAL BANCORP OF GEORGIA, INC. ONLY):
Net Income:(a)
Primary.................................................................... 0.80 2.91 2.13 1.88
Fully diluted.............................................................. 0.79 2.83 2.10 1.84
Book value at end of period.................................................. 19.67 N/A N/A N/A
BANCGROUP-PRO FORMA COMBINED (COMMERCIAL BANCORP OF GEORGIA, INC.,
SOUTHERN BANKING CORPORATION 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>
- ---------------
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.
7
<PAGE> 16
(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 Commercial only and reflecting
Commercial, Southern and Dothan) by the conversion ratio so that the per
share amounts are equated to the respective values for one share of CBG. For
the purposes of these pro forma equivalent per share amounts, a .6131
BancGroup Common Stock share conversion ratio is utilized. The ratio is
based on the 30-day average of the Daily Average market price of BancGroup
Common Stock of $34.3688 at May 8, 1996 ($21.07/34.3688 = .6131).
(c) Pro forma equivalent dividends per share are shown at BancGroup's Class A
Common Stock dividend per share rate multiplied by the .6131 conversion
ratio per share of CBG 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.
8
<PAGE> 17
INTRODUCTION
GENERAL
This Prospectus is being furnished to the stockholders of CBG in connection
with the solicitation of proxies by the Board of Directors of CBG for use at a
Special Meeting to be held on Tuesday, July 2, 1996, at 2:00 p.m., local time,
and at any adjournments thereof, as stated in the accompanying Notice of Special
Meeting of Stockholders and described herein. The purpose of the Special Meeting
is to consider and vote upon the proposed Merger of CBG 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 CBG believes that the Merger is in the best
interests of CBG and its stockholders and unanimously recommends that
stockholders vote "FOR" the Merger (item 1 on the proxy card).
RECORD DATE; SHARES ENTITLED TO VOTE; VOTE REQUIRED FOR THE MERGER
The close of business on May 21, 1996, has been fixed by the Board of
Directors of CBG as the record date for determination of stockholders entitled
to vote at the Special Meeting. There were approximately 531 record holders of
CBG Common Stock as of such date. On that date, there were 1,853,302 shares of
CBG Common Stock outstanding, each entitled to one vote per share. An additional
321,760 shares of CBG Common Stock are issuable pursuant to the CBG Options.
Approval of the Merger requires the affirmative vote of at least a majority of
the outstanding shares of CBG Common Stock.
Under Georgia law, stockholders of CBG will have dissenters' rights of
appraisal with respect to the Merger. It is a condition to consummation of the
Merger that the holders of not more than 10% of the outstanding shares of CBG's
Common Stock exercise dissenters' appraisal rights. This condition may be waived
by BancGroup. The condition was placed in the Agreement by BancGroup to limit
the amount of cash that BancGroup might have to pay in the Merger in case a
larger number of stockholders of CBG exercise dissenters' rights of appraisal
and to satisfy certain accounting principles for the pooling of interests method
of accounting. See "APPROVAL OF THE MERGER -- Rights of Dissenting
Stockholders."
If the Merger is approved at the Special Meeting, CBG is expected to merge
with and into BancGroup promptly after the other conditions to the Agreement are
satisfied. See "APPROVAL OF THE MERGER -- Conditions of Consummation of the
Merger." If the Merger is not approved at the Special Meeting and it becomes
reasonably and objectively certain that stockholder approval cannot be obtained
or the other conditions to the Agreement are not satisfied, the Agreement will
be terminated.
THE BOARD OF DIRECTORS OF CBG URGES THE STOCKHOLDERS OF CBG 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 CBG, without receiving special compensation therefor, may solicit
proxies from CBG's stockholders 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 CBG Common Stock held of record by such persons
The cost of mailing this Prospectus and other materials furnished to
stockholders of CBG and all other expenses of solicitation, including the
expenses of brokers, custodians, nominees, and other fiduciaries who, at
9
<PAGE> 18
the request of CBG, mail material to or otherwise communicate with beneficial
owners of the shares held by them, will be paid by CBG. Expenses incident to the
registration of the securities to be issued in connection with the Merger will
be paid by BancGroup.
Each proxy which is solicited on behalf of CBG, as stated on such proxy,
permits each record holder of CBG Common Stock to vote on the Merger. Where a
stockholder specifies his or her choice on the proxy with respect to the Merger,
the shares represented by the proxy will be voted in accordance with such
specification. IF NO SUCH SPECIFICATION IS MADE, THE SHARES WILL BE VOTED IN
FAVOR OF THE MERGER. Properly executed proxies will be voted in accordance with
the determination of a majority of the Board of Directors of CBG as to any other
matter which may properly come before the Special Meeting. The enclosed proxy
card should be returned in the accompanying envelope.
Votes will be tabulated and counted by one or more vote tabulators
appointed by CBG. 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
a quorum at the Special Meeting. Stockholders who execute proxies retain the
right to revoke them at any time. However, abstentions and broker non-votes will
have the same effect as a "no" vote respecting stockholder approval of the
Merger.
A proxy may be revoked at any time before it is voted by: (i) filing with
the Secretary of CBG a written notice of revocation; (ii) delivering to CBG a
duly executed proxy bearing a later date; or (iii) attending the Special Meeting
and voting in person. Attendance at the Special Meeting will not in and of
itself constitute revocation of the proxy.
The Board of Directors of CBG is not aware of any business to be acted upon
at the Special Meeting other than consideration of the Merger described herein.
VOTING EFFECT OF MERGER
Assuming that no dissenters' rights of appraisal are exercised in the
Merger, no CBG Options are exercised prior to the Merger, and a Market Value of
BancGroup Common Stock of $34.369 on the Effective Date (which was the Market
Value calculated as of May 8, 1996), 1,136,180 shares of BancGroup Common Stock
would be distributed to the stockholders of CBG pursuant to the Merger. Based on
those assumptions, the shares of BancGroup Common Stock to be issued in the
Merger would represent approximately 8.0% of the total number of shares of
Common Stock outstanding following the Merger, and not counting any shares of
BancGroup Common Stock that will be issued in other pending acquisitions.
APPROVAL OF THE MERGER
THE FOLLOWING SETS FORTH A SUMMARY OF THE MATERIAL PROVISIONS OF THE
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY. THE DESCRIPTION DOES NOT
PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
AGREEMENT, A COPY OF WHICH IS ATTACHED HERETO AS APPENDIX A, AND CERTAIN
PROVISIONS OF GEORGIA LAW RELATING TO THE RIGHTS OF DISSENTING STOCKHOLDERS, A
COPY OF WHICH IS ATTACHED HERETO AS APPENDIX B. ALL CBG STOCKHOLDERS ARE URGED
TO READ THE AGREEMENT AND THE OTHER APPENDICES IN THEIR ENTIRETY.
GENERAL
Pursuant to the Agreement, subject to stockholder approval, receipt of
necessary regulatory approval and certain other conditions set forth in the
Agreement, CBG will merge with and into BancGroup. Upon completion of the
Merger, the corporate existence of CBG will cease, and BancGroup will succeed to
the business formerly conducted by CBG. Following the Merger, BancGroup intends
to operate Commercial Bank as a commercial bank subsidiary of BancGroup.
In the event there is an insufficient number of shares of CBG Common Stock
present in person or by proxy at the Special Meeting to approve the Merger, the
Board of Directors of CBG intends to adjourn the Special Meeting. Any such
adjournment will require the affirmative vote of a majority of shares present at
the
10
<PAGE> 19
Special Meeting. While such an adjournment would not invalidate any proxies
previously filed, including those filed by CBG stockholders voting against the
Merger, it would give CBG the opportunity to solicit additional proxies in favor
of the Merger.
BACKGROUND OF THE MERGER
Subsequent to CBG's acquisition of Georgia Bancorp in March 1995, the Board
of Directors of CBG began developing a strategic business plan for CBG and
Commercial Bank for the purpose of enhancing stockholder value and improving
liquidity in the CBG Common Stock. As part of the strategic planning process,
the Board of Directors considered a number of alternatives, including remaining
an independent financial institution, growth through possible acquisitions of
smaller financial institutions and the possible sale of CBG. In addition, during
1994 and 1995, CBG and, prior to March 1995, Georgia Bancorp, received
unsolicited indications of possible interest from several financial institutions
regarding business combinations, including a written indication of interest from
BancGroup in April 1995. During the course of its strategic planning activities,
the Board of Directors determined that it would benefit from the advice of a
financial advisor. In April 1995, Robinson-Humphrey met with the CBG Board of
Directors to discuss the current banking environment and the types of services
that Robinson-Humphrey could provide to CBG in connection with strategic
planning. In May 1995, CBG retained Robinson-Humphrey to act as a financial
advisor to CBG to assist in CBG's efforts to develop a strategic business plan
for CBG and Commercial Bank.
During the period from May 1995 to July 1995, the Board of Directors, with
the assistance of Robinson-Humphrey, conducted an analysis and review of the
operations and prospects of CBG in light of a number of factors. The factors
that the Board considered were the financial and business prospects of CBG as an
independent financial institution, the possibility of acquiring or being
acquired by other financial institutions, the impact on CBG of the competitive
and economic conditions in its market areas, and the recent consolidations in
the banking industry and the effect of recent legislation and proposed
legislation on CBG and its competitors. The Board also reviewed information
presented by Robinson-Humphrey setting forth a comparison of financial and stock
trading information with respect to Southeastern banks with assets of less than
$500 million and all United States banks with assets of between $100 million and
$250 million. The Board considered a comparable transaction analysis and a
discounted cash flow analysis prepared by Robinson-Humphrey and described in
more detail under "APPROVAL OF THE MERGER -- Opinion of Financial
Advisor -- Valuation Methodology." As a result of its analysis of the foregoing
factors plus the information presented by Robinson-Humphrey, the Board
determined that the sale of CBG to another appropriate financial institution on
favorable financial and other terms would be in the best interest of the
stockholders of CBG. The Board reached this conclusion for several reasons.
First, after reviewing the information presented by Robinson-Humphrey, the Board
believed that the timing was appropriate for a sale on terms favorable to
stockholders in light of the terms of recent transactions involving financial
institutions similar in size to CBG. Also, the Board believed that recent
consolidations in the banking industry and recent changes in federal law
permitting interstate banking have led to the development of larger financial
institutions with which CBG would find it increasingly difficult to complete in
the future. This was especially true in the Atlanta, Georgia area where over the
last several years large regional and super-regional banks have entered the
market. Larger institutions frequently enjoy economics of scale, have higher
levels of capitalization, and offer a diverse range of customer services and
products that make effective competition for a smaller institution like CBG more
difficult. Additionally, the Board did not believe that CBG could reasonably
expect to expand to size through acquisitions of other financial institutions
under the current market environment on terms favorable to CBG. The Board's
determination to proceed with the possible sale of CBG was based on the
condition that (i) the transaction provide financial and other terms that are
favorable to the CBG stockholders, (ii) the transaction provide liquidity to the
CBG stockholders and (iii) the acquiring institution have a strong financial
position, results of operations and future prospects. Other factors considered
by the Board of Directors are set forth under "APPROVAL OF THE MERGER -- Reasons
for the Merger."
In July 1995, the Board of Directors determined to solicit from other
financial institutions indications of interest in connection with the possible
sale of CBG. The purpose of this process was to determine the level of interest
other financial institutions had in acquiring CBG and the amount and type of
consideration such
11
<PAGE> 20
institutions would pay in such a transaction. The Board of Directors believed
that this information would assist the Board in developing a strategic business
plan designed to enhance stockholder value. On July 31, 1995, CBG engaged
Robinson-Humphrey as exclusive agent for the purpose of (i) identifying
opportunities for the possible sale of, or other business combination involving,
CBG, (ii) advising CBG concerning such opportunities and (iii) participating on
CBG's behalf in negotiations concerning any such sale or business combination.
In August 1995, CBG and Robinson-Humphrey began to prepare a package of
financial information concerning CBG for distribution to potential merger
partners. On August 23, 1995 and September 27, 1995, the Board of Directors met
with representatives of Robinson-Humphrey and legal counsel to discuss and
review the package of financial information and to discuss the marketing process
and the list of potential merger partners. In September 1995, Robinson-Humphrey,
at the direction of the Board of Directors, distributed the financial
information package to prospective merger partners. On October 25, 1995, the
Board of Directors met with representatives of Robinson-Humphrey to review the
status of indications of interest. Robinson-Humphrey reported that several of
the prospective merger partners requested the opportunity to review CBG's
financial results for the nine months ended September 30, 1995 prior to
submitting an indication of interest. The Board of Directors authorized
Robinson-Humphrey to provide the requested financial information and established
November 3, 1995 as the deadline for the submission of indications of interest.
On November 7, 1995 and November 13, 1995, the Board of Directors met with
representatives of Robinson-Humphrey to review the indications of interest
received from the potential merger partners. The Board of Directors reviewed
detailed information and market statistics regarding each entity that submitted
an indication of interest. At the conclusion of the November 13, 1995 meeting,
the Board of Directors instructed Robinson-Humphrey to inform each of the
entities that submitted an indication of interest that CBG intended to select
only one prospective merger partner to perform additional due diligence on CBG
and to negotiate a definitive agreement. The Board instructed Robinson-Humphrey
to offer the prospective merger partners an opportunity to revise their
proposals before the selection of the entity with which CBG would continue
discussions and negotiations. The Board of Directors fixed November 20, 1995, as
the deadline for submission of revised proposals and instructed that the
proposals be firm offers subject to satisfactory due diligence by all parties.
On November 22, 1995, the Board of Directors met again with representatives of
Robinson-Humphrey to review and discuss the revised indications of interest.
After reviewing and analyzing each of the revised indications of interest and
the entities submitting the proposals, the Board of Directors authorized
Robinson-Humphrey to invite BancGroup to perform additional due diligence and to
negotiate a definitive agreement. The Board of Directors appointed a committee
comprised of five Directors to coordinate negotiations with, and due diligence
on, BancGroup. The Board of Directors also authorized legal counsel to draft a
proposed agreement. BancGroup's offer was for $21.15 per share of CBG Common
Stock, payable in BancGroup Common Stock.
During its discussions regarding the proposed merger, the Board of
Directors identified six officers of Commercial Bank that could make important
contributions to the success of Commercial Bank as an independent financial
institution as well as to the success of Commercial Bank following the Merger.
The Directors concurred that CBG should take appropriate action to provide
financial incentive to these officers in order to encourage them to remain in
the employ of Commercial Bank through the date of the Merger. In November 1995,
the Board of Directors approved a retention bonus and severance benefit
arrangement for John T. Hopkins, III, the Executive Vice President and Chief
Financial Officer of CBG and Commercial Bank., and authorized Richard L. Cravey,
a Director of CBG, to negotiate the terms of retention bonus arrangements for
the remaining officers identified by the Board, including Richard Sikes, the
Chairman of the Board, President and Chief Executive Officer of CBG and
Commercial Bank, and Larry D. Key, Executive Vice President of CBG and
Commercial Bank.
During the period from November 23, 1995 until December 21, 1995, CBG and
BancGroup conducted due diligence and negotiated the terms of the definitive
Agreement. On December 21, 1995, the Board of Directors met again with
representatives of Robinson-Humphrey and legal counsel. Robinson-Humphrey and
counsel discussed the due diligence review of BancGroup, outlining the
procedures used and summarizing the results of the review. The Board then
reviewed with counsel the provisions of the proposed definitive
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<PAGE> 21
Agreement. Robinson-Humphrey also reviewed its financial analysis of the
transaction and delivered its opinion that the Agreement and the transactions
contemplated thereby are fair to the stockholders of CBG from a financial point
of view. Mr. Cravey reported to the Board of Directors that BancGroup would not
agree to pay retention bonuses to any officers of Commercial Bank other than
that previously approved for Mr. Hopkins unless CBG would agree to reduce the
purchase price to be paid by BancGroup in the Merger by an amount equal to the
retention bonuses. The Board discussed at length its concern that the loss of
one or more of the identified officers would have a negative impact on the
operations of CBG and Commercial Bank, particularly if the proposed Merger is
not consummated. After extensive discussions, the Board of Directors unanimously
approved the payment of retention bonuses to the five identified officers in the
aggregate amount of $175,000 as described under "APPROVAL OF THE
MERGER -- Interests of Certain Persons in the Merger." The Board of Directors
also authorized a corresponding $.08 per share reduction in the purchase price
in the Merger from $21.15 per share of CBG Common Stock to $21.07 per share of
CBG Common Stock. Robinson-Humphrey confirmed its opinion that a purchase price
of $21.07 is fair to the CBG stockholders from a financial point of view. The
Board of Directors then unanimously approved the proposed Merger on terms and
conditions substantially as set forth in the proposed definitive Agreement
subject to the agreement of BancGroup to the payment of the retention bonuses
and the corresponding reduction in the purchase price. The Board of Directors
authorized Mr. Sikes and Mr. Hopkins to complete negotiations with BancGroup and
to execute and deliver the proposed Agreement on behalf of CBG. See "APPROVAL OF
THE MERGER -- Interests of Certain Persons in the Merger."
REASONS FOR THE MERGER
The terms of the Merger, including the Exchange Ratio for the CBG Common
Stock, were determined through negotiations between CBG and BancGroup following
the submission of acquisition proposals from BancGroup and two other financial
institutions. The Merger will provide CBG stockholders more liquidity in their
investment and will provide them an investment in a financial institution that
is larger and that has greater financial resources than CBG. The Board of
Directors of CBG believes that the terms of the Agreement and the transactions
contemplated thereby are in the best interests of CBG and it stockholders.
In reaching its decision to approve the Agreement and the transactions
contemplated thereby, CBG's Board of Directors considered a number of factors,
including: (i) the financial terms of the Merger; (ii) the alternatives to the
Merger, including CBG continuing as an independent financial institution in
light of current economic conditions in CBG's market areas, the existing and
anticipated competition from larger financial institutions operating in the
market areas and the effect of changes in the banking industry resulting from
recent legislation and increased competition; (iii) the current lack of a market
for the CBG Common Stock and the existence of a liquid trading market for the
BancGroup Common Stock which is traded on the NYSE; (iv) the results of a
competitive bidding process utilized by CBG to identify prospective acquirors;
(v) the value of the BancGroup Common Stock to be received by CBG's
stockholders; (vi) the financial terms of recent business combinations among
financial institutions; (vii) the financial condition, results of operations and
future prospects of CBG and BancGroup; (viii) the compatibility of operations of
CBG and BancGroup; (ix) the level of cash dividends currently paid by BancGroup
on its Common Stock; (x) the fact that the Merger qualifies as a tax-free
reorganization to the CBG stockholders except in respect of cash received for
their CBG Common Stock; and (xi) the fairness opinion of Robinson-Humphrey
Company delivered to CBG with respect to the Merger.
The foregoing discussion of the information and factors considered and
given weight by the CBG Board of Directors is not intended to be exhaustive but
includes the material factors considered by the CBG Board. In addition, in
reaching the determination to approve and recommend the Merger, in view of the
wide variety of factors considered in connection with its evaluation of the
proposed Merger, the CBG Board did not find it practical to, and did not
quantify or otherwise attempt to, assign any relative or specific weights to the
foregoing factors, and the individual directors may have given differing weights
to different factors.
From the point of view of BancGroup, the Merger will enable BancGroup to
expand its banking operations into the State of Georgia.
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OPINION OF FINANCIAL ADVISOR
GENERAL. CBG retained Robinson-Humphrey to act as its financial adviser in
connection with the Merger. Robinson-Humphrey has rendered an opinion to CBG's
Board of Directors that, based on the matters set forth therein, consideration
to be received pursuant to the Merger is fair, from a financial point of view,
to CBG's stockholders. The text of such opinion is set forth as Appendix C of
this Prospectus and should be read in its entirety by stockholders of CBG.
Robinson-Humphrey will update its opinion immediately prior to the closing of
the Merger based upon the price of the BancGroup Common Stock and other
circumstances in existence at such time.
The consideration to be received by CBG stockholders in the Merger was
determined by CBG and BancGroup in their negotiations. No limitations were
imposed by the Board of Directors or management of CBG upon Robinson-Humphrey
with respect to the investigations made or the procedures followed by
Robinson-Humphrey in rendering its opinion.
In connection with rendering its opinion to the CBG Board of Directors,
Robinson-Humphrey performed a variety of financial analyses. However, the
preparation of a fairness opinion involves various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances, and, therefore, such an opinion
is not readily susceptible to summary description. Robinson-Humphrey, in
conducting its analysis and in arriving at its opinion, has not conducted a
physical inspection of any of the properties or assets of CBG, and has not made
or obtained any independent valuation or appraisals of any properties, assets or
liabilities of CBG. Robinson-Humphrey has assumed and relied upon the accuracy
and completeness of the financial and other information that was provided to it
by CBG or that was publicly available. Its opinion is necessarily based on
economic, market and other conditions as in effect on, and the information made
available to it as of the date of, its analyses.
VALUATION METHODOLOGIES. In connection with its opinion on the Merger and
the presentation of that opinion to the CBG Board of Directors,
Robinson-Humphrey performed two valuation analyses with respect to CBG: (i) an
analysis of comparable prices and terms of recent transactions involving
financial institutions purchasing banks; and (ii) a discounted cash flow
analysis. For purposes of the comparable transaction analyses, BancGroup's stock
was valued at $32.875 per share, which was the closing price per share of the
BancGroup Common Stock on December 20, 1995 as reported on the NYSE. Each of
these methodologies is discussed briefly below.
Comparable Transaction Analysis. Robinson-Humphrey performed two analyses
of premiums paid for selected banks with comparable characteristics to CBG.
Comparable transactions were considered to be (i) transactions since January 1,
1995, where the seller was a financial institution headquartered in the
Southeast United States with assets less than $500 million, (ii) transactions
since January 1, 1995, where the seller was a financial institution
headquartered in the United States with assets between $100 and $300 million.
Based on the first type of comparable transactions, financial institutions
purchasing Southeastern-based financial institutions since January 1, 1995, the
analysis yielded a range of transaction values to book value of 1.16 times to
3.04 times, with a mean of 1.91 times and a median of 1.80 times. These compare
to a transaction value for the Merger of approximately 1.87 times CBG's book
value as of September 30, 1995.
The analysis yielded a range of transaction values as a multiple of
tangible book value for the comparable transactions ranging from 1.16 times to
3.38 times, with a mean of 1.97 times and a median of 1.86 times. These compare
to a transaction value to tangible book value at September 30, 1995 of
approximately 1.87 times CBG's tangible book value for the Merger.
The analysis yielded a range of transaction values as a multiple of
trailing twelve month earnings per share. These values ranged from 7.84 times to
38.24 times, with a mean of 18.31 times and a median of 17.84 times. These
compare to a transaction value to CBG's last twelve months earnings as of
September 30, 1995 of approximately 21.07 times for the Merger.
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The analysis yielded a range of transaction values as a percent of total
assets. These values ranged from 6.19 percent to 31.05 percent, with a mean of
16.20 percent and a median of 15.86 percent. These compare to a transaction
value to the September 30, 1995 total assets of CBG of 20.20 percent for the
Merger.
Based on transactions since January 1, 1995, where the seller was a U.S.
financial institution with total assets between $100 and $300 million, the
analysis yielded a range of transaction values to book value of 0.84 times to
3.04 times, with a mean of 1.87 times and a median of 1.94 times. These compare
to a transaction value for the Merger of approximately 1.87 times CBG's book
value as of September 30, 1995.
The analysis yielded a range of transaction values as a multiple of
tangible book value for the comparable transactions ranging from 0.91 times to
3.29 times, with a mean of 1.96 times and a median of 1.99 times. These compare
to a transaction value to CBG's tangible book value at September 30, 1995 of
approximately 1.87 times for the Merger.
The analysis yielded a range of transaction values as a multiple of
trailing twelve month earnings per share, from 6.87 times to 32.13 times, with a
mean of 16.57 times and a median of 16.40 times. These compare to a transaction
value to CBG's last twelve months earnings as of September 30, 1995 of
approximately 21.07 times for the Merger.
The analysis yielded a range of transaction values as a percent of total
assets, from 5.98 percent to 31.05 percent, with a mean of 15.76 percent and a
median of 15.10 percent. These compare to a transaction value to the September
30, 1995 total assets of CBG of 20.20 percent for the Merger.
No company or transaction used in the comparable transaction analyses is
identical to CBG. Accordingly, an analysis of the foregoing necessarily involves
complex considerations and judgments, as well as other factors that affect the
public trading value or the acquisition value of the company to which it is
being compared.
Discounted Cash Flow Analysis. Using discounted cash flow analysis,
Robinson-Humphrey estimated the present value of the future stream of after-tax
cash flows that CBG could produce through 1999, under various circumstances,
assuming that CBG performed in accordance with the earnings/return projections
of management at the time that CBG entered into acquisition discussions in
September 1995. Robinson-Humphrey estimated the terminal value for CBG at the
end of the period by applying multiples of earnings ranging from 9.0 to 11.0x
and then discounting the cash flow streams, dividends paid to stockholders and
terminal value using differing discount rates ranging from 10.0 percent to 12.0
percent chosen to reflect different assumptions regarding the required rates of
return of CBG and the inherent risk surrounding the underlying projections. This
discounted cash flow analysis indicated a reference range of $38.0 million to
$46.1 million, or $17.48 to $21.20 per share, for CBG.
COMPENSATION OF ROBINSON-HUMPHREY. Pursuant to an engagement letter dated
July 31, 1995 between CBG and Robinson-Humphrey, CBG agreed to pay
Robinson-Humphrey a $75,000 fairness opinion fee and an incremental success fee
(to be paid at closing) equal to approximately 1.25% of the total value of the
transaction less the fairness opinion fee. CBG has also agreed to indemnify and
hold harmless Robinson-Humphrey and its officers and employees against certain
liabilities in connection with its services under the engagement letter, except
for liabilities resulting from the negligence of Robinson-Humphrey.
As part of its investment banking business, Robinson-Humphrey is regularly
engaged in the valuation of securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements, and valuations for estate, corporate
and other purposes. CBG's Board of Directors decided to retain Robinson-Humphrey
based on its experience as a financial advisor in mergers and acquisitions of
financial institutions, particularly transactions in the Southeastern region of
the United States, and its knowledge of financial institutions and CBG in
particular.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
During its discussions regarding the proposed Merger, the Board of
Directors of CBG identified six officers of Commercial Bank that the Board
believed to be particularly important to the success of Commercial Bank as an
independent financial institution as well as the success of Commercial Bank
following
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the Merger. The officers identified by the Board include Richard Sikes, the
Chairman of the Board, President and Chief Executive Officer of CBG and
Commercial Bank, Larry D. Key, Executive Vice President and a Director of CBG
and Commercial Bank, and John T. Hopkins, III, Executive Vice President and
Chief Financial Officer of CBG and Commercial Bank. The Board of Directors has
approved the payment of retention bonuses in the aggregate amount of $175,000 to
the five identified officers other than Mr. Hopkins, including $50,000 payable
to each of Messrs. Sikes and Key. The retention bonuses are payable upon the
earlier of (i) 90 days following the Merger or (ii) the involuntary termination
without cause of the eligible officer's employment with Commercial Bank or its
successor following the Merger. In the event the Merger does not occur or an
eligible officer voluntarily terminates his employment with Commercial Bank or
its successor or such employment is terminated for cause prior to the payment of
the retention bonus, such officer would not be eligible for the retention bonus.
If any officer is not entitled to payment of the retention bonus, that officer's
bonus will be distributed pro rata among the remaining officers that are
eligible for retention bonuses.
The Board of Directors approved a separate bonus of $48,750 payable to Mr.
Hopkins. This bonus is payable $10,000 on the date of the Special Meeting and
the balance on the date of the closing of the Merger.
Except as described above, no director or executive officer of CBG, 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 CBG Common
Stock, stock options, stock purchase warrants and stock appreciation rights in
which case the director or officer receives no benefit not shared on a pro rata
basis by all other holders of CBG Common Stock except for stock options, stock
purchase warrants and stock appreciation rights. See "Conversion of CBG Common
Stock."
CONVERSION OF CBG COMMON STOCK
On the Effective Date of the Merger, each share of CBG's Common Stock
outstanding and held of record by CBG stockholders shall be converted into
shares of BancGroup Common Stock. Each such share of CBG Common Stock shall be
converted into the number of shares of BancGroup Common Stock which shall be
equal to $21.07 divided by the Market Value (the "Exchange Ratio"). The Market
Value shall represent the per share market value of BancGroup Common Stock at
the Effective Date and shall be equal to the average of the Daily Average Value
of BancGroup Common Stock as reported by the NYSE on the thirty (30) trading
days ending on the trading day immediately preceding the Effective Date. The
"Daily Average Value" on each trading day shall be the average of the high and
low sales price of the BancGroup Common Stock for such trading day as reported
by the NYSE.
No fractions of shares of BancGroup Common Stock will be issued in the
Merger. Pursuant to the terms of the Agreement, each holder of shares of CBG
Common Stock who would otherwise be entitled to receive a fraction of a share of
BancGroup Common Stock shall receive, in lieu of such fractional share, cash
(without interest) in an amount equal to such fraction of a share multiplied by
the Market Value.
As an example, if the Market Value is $34, then the Exchange Ratio will be
.6197, and each share of CBG Common Stock will be converted on the Effective
Date into .6197 of a share of BancGroup Common Stock (i.e., $21.07 divided by
$34). As a result, a stockholder of CBG holding 100 shares of CBG Common Stock
would receive in the aggregate 61.97 shares of BancGroup Common Stock (100
multiplied by .6197) with the .97 of a share of BancGroup Common Stock converted
to cash equal to $32.98 ($34 multiplied by .97). As the Market Value rises, the
number of shares of BancGroup Common Stock to be issued in the Merger will fall,
and as the Market Value decreases, the number of shares to be issued will
increase. The closing sales price on the NYSE of the BancGroup Common Stock on
May 8, 1996, was $33 per share.
CBG Options respecting the right to acquire shares of CBG Common Stock
shall be assumed by BancGroup. Following the Merger, persons holding CBG Options
shall be entitled to acquire BancGroup Common Stock upon exercise of the CBG
Option. The number of shares of BancGroup Common Stock that may be acquired upon
exercise of a CBG Option shall equal the number of shares of CBG Common Stock
formerly subject to the CBG Option multiplied by the Exchange Ratio. The per
share exercise price of the
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CBG Options shall be adjusted by dividing the per share exercise price for each
CBG Option by the Exchange Ratio. There are 321,760 shares of CBG Common Stock
subject to issue upon the exercise of CBG Options.
BancGroup will also assume certain stock appreciation rights and deferred
compensation rights held by certain directors and officers of CBG and Commercial
Bank. BancGroup will pay cash to the holders of these rights in exchange for
termination of the rights. The amount of cash to be paid will be approximately
$392,385 in the aggregate. See "BUSINESS OF CBG -- CBG Common Stock Owned by
Management and Principal Stockholders."
Upon the Effective Date and subject to the conditions described at
"Conditions of Consummation of the Merger," CBG's stockholders will
automatically, and without further action by such stockholders or by BancGroup,
have the right to receive shares of BancGroup Common Stock upon surrender of the
certificates representing their shares of CBG Common Stock as described herein.
Outstanding certificates representing shares of CBG Common Stock shall represent
the right to receive shares of BancGroup Common Stock. Thereafter, upon
surrender of the certificates formerly representing shares of CBG Common Stock,
the holder will 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 stockholder of CBG unless and until such
stockholder surrenders for cancellation his or her certificate for CBG Common
Stock. Sun Trust Bank, Atlanta, Georgia, transfer agent for BancGroup Common
Stock, will act as the Exchange Agent with respect to the CBG Common Stock
certificates surrendered in connection with the Merger.
The Agreement provides that if BancGroup changes the number of shares of
BancGroup Common Stock issued and outstanding prior to the Effective Date as a
result of a stock split, stock dividend, or similar recapitalization with
respect to such Common Stock and the record date therefor (in the case of a
stock dividend) or the effective date thereof (in the case of a stock split or
similar recapitalization for which a record date is not established) shall be
prior to the Effective Date, the Market Value and, as a result, the Exchange
Ratio shall be proportionately adjusted to reflect such stock split, stock
dividend or other recapitalization.
A detailed explanation of these arrangements will be mailed to CBG
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 Code. The obligation of CBG and
BancGroup to consummate the Merger is conditioned on the receipt by CBG 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.
In delivering its opinion, Miller, Hamilton, Snider & Odom, L.L.C., will receive
and rely upon certain representations of BancGroup and CBG 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 CBG
has no knowledge of any plan or intention on the part of the CBG stockholders 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 CBG Common Stock outstanding
immediately upon the Merger. A copy of such opinion is included in this
Prospectus as Appendix D.
Neither CBG nor BancGroup intends to seek a ruling from the Internal
Revenue Service as to the federal income tax consequences of the Merger. CBG's
stockholders should be aware that the opinion will not be binding on the
Internal Revenue Service or the courts. CBG's stockholders 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 CBG's stockholders
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 stockholders of an acquired
corporation
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(i.e., CBG) 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
CBG Common Stock exchanged for cash in lieu of fractional shares of BancGroup
Common Stock and shares owned by stockholders exercising dissenters' rights will
be treated as outstanding shares of CBG Common Stock. Moreover, shares of CBG
Common Stock and BancGroup Common Stock held by CBG stockholders 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's Common Stock is met by CBG's stockholders.
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 CBG's stockholders who exchange their shares of CBG
Common Stock for shares of BancGroup Common Stock:
(i) No gain or loss will be recognized by CBG's stockholders on the
exchange of shares of CBG Common Stock for shares of BancGroup Common
Stock;
(ii) The aggregate basis of BancGroup Common Stock received by each
CBG stockholder (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 CBG Common Stock surrendered in
exchange therefor increased by the gain, if any, recognized on the
exchange, and decreased by any cash received in the exchange;
(iii) The holding period of the shares of BancGroup Common Stock
received by each CBG stockholder for federal income tax purposes will
include the period during which the shares of CBG Common Stock exchanged
therefor were held, provided that the shares of CBG Common Stock were a
capital asset in the holder's hands;
(iv) No gain or loss will be recognized by CBG 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 CBG;
(v) The basis of the assets of CBG acquired by BancGroup will be the
same as the basis of the assets in the hands of CBG immediately prior to
the Merger;
(vi) The holding period of the assets of CBG in the hands of BancGroup
will include the period during which such assets were held by CBG;
(vii) Cash payments received by each CBG stockholder 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 CBG Common Stock is a capital asset in the hands of the
holder; and
(viii) A CBG stockholder 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 CBG
Common Stock converted, if the shares of CBG Common Stock were held as
capital assets. However, a CBG stockholder 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 Commercial Bank of Georgia, a wholly-owned subsidiary of
CBG (the "Bank") or to liquidate the Bank after the merger, except that the
Bank may be merged into BancGroup's subsidiary federal savings bank located
in Georgia, referred to as Colonial Bank -- Georgia.
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(2) BancGroup will continue the historic business of CBG or will use a
significant portion of the historic business assets of CBG in a business.
(3) CBG and the Bank have no knowledge of any plan or intention on the
part of the CBG stockholders 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 CBG Common Stock
outstanding immediately before the Merger.
(4) As a result of the Merger, each share of the issued and
outstanding CBG 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 CBG stockholders 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 CBG stockholders will be approximately equal to the fair market
value of the CBG 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 CBG immediately prior to the Merger. For purposes of this
representation, CBG assets used to pay its reorganization expenses, and all
redemptions and distributions (except for regular, normal dividends) made
by CBG immediately preceding the Merger and all payments to dissenters, if
any, will be included as assets of CBG held immediately prior to the
Merger.
(9) CBG 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.
If the assumption stated above, that there is no plan or intention by the
CBG stockholders 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 CBG Common Stock
outstanding immediately before the Merger were to be incorrect, then counsel
would not be able to 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 stockholders 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 AS A SUMMARY OF ALL MATERIAL FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER TO THE STOCKHOLDERS OF CBG, TO CBG 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 STOCKHOLDER 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 CBG COMMON STOCK AS "CAPITAL
ASSETS" WITHIN THE MEANING OF SECTION 1221 OF THE CODE, STOCKHOLDERS WHO
ACQUIRED THEIR SHARES OF CBG COMMON STOCK PURSUANT TO THE EXERCISE OF OPTIONS OR
OTHERWISE AS COMPENSATION, NOR ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF
ANY STATE, LOCALITY OR FOREIGN JURISDICTION. THE TAX CONSEQUENCES TO HOLDERS OF
CBG OPTIONS AND STOCK APPRECIATION RIGHTS AND THE TAX CONSEQUENCES OF GRANTS TO
OFFICERS OF RETENTION BONUSES ARE NOT DISCUSSED. THE DISCUSSION IS BASED UPON
THE CODE, TREASURY REGULATIONS THEREUNDER AND ADMINISTRATIVE RULINGS AND COURT
DECISIONS AS OF THE
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<PAGE> 28
DATE HEREOF. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE AND ANY SUCH CHANGE
COULD AFFECT THE CONTINUING VALIDITY OF THIS DISCUSSION. CBG STOCKHOLDERS 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 becomes effective, the stockholders of CBG, a Georgia
corporation, will exchange their shares of CBG Common Stock for securities in 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 Georgia
corporation.
For a discussion of the differences, if any, in the rights, preferences,
and privileges attaching to CBG Common Stock as compared with BancGroup Common
Stock, see "COMPARATIVE RIGHTS OF STOCKHOLDERS."
CONDITIONS OF CONSUMMATION OF THE MERGER
Consummation of the Merger is subject to a number of conditions. The
Agreement must be approved by the affirmative vote of at least a majority of the
outstanding shares of CBG Common Stock.
The Merger must be approved by the Georgia Department and the Federal
Reserve. Applications for approval were filed with these agencies on March 21,
1996, and the regulatory approval process is expected to take approximately
three months from that date. Any of these agencies might refuse or revoke
approval or condition approval on one or more of the parties agreeing to take
some action such as making some change in operations.
The obligations of CBG to consummate the Merger are conditioned, among
other things, upon (i) the absence of litigation or any threat of litigation
challenging the Agreement or seeking damages respecting the Merger that would
have a material adverse effect on BancGroup, Colonial Bank, CBG or Commercial
Bank or consummation of the transactions contemplated by the Agreement, (ii)
receipt of opinions of counsel to BancGroup regarding certain matters, including
the federal income tax consequence of the Merger, (iii) absence of events which
have had a material adverse effect on BancGroup or consummation of the Merger or
which would be materially adverse to the interests of CBG stockholders, and (iv)
receipt of an opinion from Robinson-Humphrey respecting the fairness of the
Merger to the stockholders of CBG from a financial point of view.
The obligations of BancGroup to consummate the Merger are conditioned,
among other things, upon (i) no material adverse change in the business of CBG
or Commercial Bank, (ii) the absence of litigation or a threat of litigation
challenging the Agreement or seeking damages respecting the Merger that would
have a material adverse effect on BancGroup, Colonial Bank or Commercial Bank,
CBG or consummation of the transactions contemplated by the Agreement, (iii)
receipt of an opinion of counsel to CBG as to certain matters, and receipt of an
opinion of BancGroup counsel as to the federal income tax consequence of the
Merger, (iv) receipt from Bricker & Melton, P.A., CBG's independent accountants,
of a letter within five days prior to the Effective Date respecting certain
financial data regarding CBG, (v) the exercise of dissenters rights of appraisal
by no more than 10% of CBG's outstanding shares of Common Stock, (vii) receipt
from affiliates of CBG of undertakings regarding certain restrictions on the
resale of BancGroup Common Stock under Rule 145 of the Securities and Exchange
Commission, and (viii) receipt of an opinion of Coopers & Lybrand L.L.P.,
BancGroup's independent accountants, that the Merger will qualify for the
pooling of interests method of accounting under generally accepted accounting
principles.
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,
but the Agreement states that CBG and BancGroup may waive all conditions to
their
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<PAGE> 29
obligations to consummate the Merger, other than the conditions requiring the
requisite approvals of regulatory authorities and CBG stockholder approval of
the Merger. In making any decisions regarding a waiver of one or more conditions
to consummation of the Merger or an amendment of the Agreement, the Boards of
Directors of CBG 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 stockholders.
In addition, the Boards of Directors of BancGroup and CBG may amend or
terminate the Agreement before or after approval by the stockholders of CBG. No
amendments will be made to the Agreement which would alter the Exchange Ratio or
which, in the opinion of the Board of Directors of CBG, would adversely affect
the rights of the stockholders of CBG. Any amendments to the Agreement which in
the opinion of the Board of Directors of CBG would have a material adverse
effect upon the stockholders of CBG would be submitted to such stockholders for
approval. Such amendments could require the filing of an amendment to the
Registration Statement, of which this Prospectus forms a part, with the
Commission. Either BancGroup or CBG may terminate the Agreement and abandon the
Merger if the Merger has not occurred by September 30, 1996.
CONDUCT OF BUSINESS PENDING THE MERGER
The Agreement contains certain restrictions on the conduct of the business
of CBG pending consummation of the Merger. CBG has agreed that, prior to the
Effective Date, it will not take any of the following actions, subject to
certain limited exceptions previously agreed to by the parties, without the
prior written approval of BancGroup:
(i) Incur any additional debt obligation or other obligation for
borrowed money in excess of $25,000 except in the ordinary course of the
business consistent in all material respects with past practices (which
shall include, for Commercial Bank, creation of deposit liabilities,
purchases of federal funds, advances from the Federal Reserve Bank, and
entry into repurchase agreements fully secured by U.S. government or agency
securities), or impose or suffer the imposition, on any asset of CBG or
Commercial Bank of any lien or permit any such lien to exist (other than in
connection with deposits, repurchase agreements, bankers acceptances,
"treasury tax and loan" accounts established in the ordinary course of
business, the satisfaction of legal requirements in the exercise of trust
powers, and liens in effect as of the date hereof);
(ii) Mortgage, pledge or subject to liens any assets having a value of
$25,000 or more in the aggregate, except liens that exist as of the date of
the Agreement;
(iii) Except for purchase of U.S. Treasury securities or U.S.
Government agency securities, which in either case have maturities of three
years or less, purchase any securities or make any material investment,
either by purchase of stock or securities, contributions to capital, asset
transfers, or purchase of any assets, in any person or entity, or otherwise
acquire direct or indirect control over any person or entity, other than in
connection with (i) foreclosures in the ordinary course of business, or
(ii) acquisitions of control by Commercial Bank in its fiduciary capacity;
(iv) Increase (or announce any increase of) any salaries, wages or
employee benefits, or modify, alter or amend any CBG Options, deferred
compensation plans or stock appreciation rights or hire any new employees
with individual salaries in excess of $35,000 (except to replace existing
employees) other than in the ordinary course of business consistent in all
material respects with past practice;
(v) Amend any charter document or bylaw;
(vi) Issue or sell any of its capital stock (other than upon exercise
of outstanding CBG Options), redeem, purchase or otherwise acquire any
shares of its capital stock, or make any other change in its issued and
outstanding capital stock, or issue any warrant, option or other right to
purchase shares of its capital stock or any security convertible into its
capital stock, or declare any dividends or make any other distribution with
respect to its capital stock;
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<PAGE> 30
(vii) Adjust, split, combine or reclassify any capital stock of CBG or
issue or authorize the issuance of any other securities in respect of or in
substitution for shares of CBG Common Stock, or sell, lease, mortgage or
otherwise dispose of or otherwise encumber any share of capital stock of
Commercial Bank;
(viii) Incur, assume or guarantee any obligation or liability for
borrowed money, or exchange, refund or renew any outstanding indebtedness
of CBG or Commercial Bank in such a manner as to reduce the principal
amount of such indebtedness or increase the interest rate or balance
outstanding other than in the ordinary course of business consistent in all
material respects with past practice;
(ix) Amend or terminate any material agreement, excluding loan
contracts but including any insurance policy, in force on the date hereof;
(x) Enter into or amend any employment contract or agreement between
CBG or Commercial Bank and any person (unless such amendment is required by
applicable law) that CBG or Commercial Bank does not have the unconditional
right to terminate without liability (other than liability for services
already rendered) at any time on or after the Effective Date;
(xi) Adopt any new employee benefit plan of CBG or Commercial Bank or
make any material change in or to any existing employee benefit plans of
CBG or Commercial Bank other than any such change that is required by law
or that, in the opinion of counsel, is necessary or advisable to maintain
the tax qualified status of any such plan; or
(xii) Make any material changes in financial or tax accounting
methods, principles or practices except as may be appropriate to conform to
changes in applicable law or regulatory accounting requirements of
generally accepted accounting principles.
Until the termination of the Agreement, neither CBG 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, knowingly 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, CBG or any business
combination involving CBG except in a situation in which a majority of the full
Board of Directors of CBG has determined upon advice of counsel that such Board
has a fiduciary duty to consider and respond to a bona fide proposal from a
third party. If CBG enters into a letter of intent or definitive agreement
regarding a business combination with a third party prior to the Effective Date
or the termination of the Agreement, it shall be a condition precedent to the
consummation of such business combination that the third party pay to BancGroup
$1,000,000 to compensate BancGroup for its direct and indirect costs and
expenses in connection with the Merger.
BancGroup has agreed to indemnify present and former directors, officers,
employees and agents of Commercial Bank against liabilities arising out of
actions or omissions occurring at or prior to the Effective Date to the full
extent currently provided in CBG's articles of incorporation.
RIGHTS OF DISSENTING STOCKHOLDERS
Article 13 of the Georgia Business Corporation Code provides for rights of
appraisal for the value of the shares of a stockholder who (i) has delivered
notice in writing to CBG before the vote is taken that the stockholder intends
to demand payment for his or her shares if the Merger is consummated and (ii)
either votes against the Merger or refrains from voting on the Merger. The
notice must be delivered to Commercial Bancorp of Georgia, Inc., attention
Corporate Secretary, 390 Crogan Street, Lawrenceville, Georgia 30245. If a
stockholder votes against the Merger or refrains from voting on the Merger, but
does not also deliver the notice in writing to CBG before the stockholder vote
on the Merger occurs, such stockholder will lose his or her appraisal rights.
Within ten (10) days after the Effective Date of the Merger, BancGroup, as
the corporation surviving the Merger, will send to each CBG stockholder who has
given such notice a written dissenter's notice (the "Dissenter's Notice")
stating, among other things, a date not less than thirty (30) days nor more than
sixty (60) days after the date of the Dissenter's Notice by which the
stockholder must submit a written payment
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<PAGE> 31
demand. The Dissenter's Notice will also include where and when stock
certificates for shares of CBG Common Stock must be deposited. A CBG stockholder
who does not demand payment or deposit stock certificates where required by the
date set in the Dissenter's Notice shall lose his or her right to dissent and
will not be entitled to payment for his or her shares.
Within ten (10) days of the later of the Effective Date or receipt of a
payment demand by the dissenting stockholders, BancGroup will offer to pay each
dissenting stockholder who has complied with the requirements of the Georgia
Business Corporation Code the amount which BancGroup estimates to be the fair
value of the shares, plus accrued interest. A stockholder may agree to accept
such offer.
If a dissenting stockholder is dissatisfied with BancGroup's offer of
payment, the stockholder may notify BancGroup in writing within thirty (30) days
of the offer of his or her own estimate of the fair value plus interest and
demand that such payment be made. A dissenting stockholder waives his or her
right to demand payment of a different amount than that offered by BancGroup and
is deemed to have accepted BancGroup's offer unless such written notification is
provided to BancGroup within such period.
In the event a dissenting stockholder's second payment demand remains
unsettled within sixty (60) days after BancGroup receives such demand, BancGroup
will commence a nonjury equitable valuation proceeding in the Gwinnett County
Superior Court to determine the fair value of the shares and accrued interest.
BancGroup will make all dissenting stockholders whose second payment demand
remains unsettled parties to the court proceeding. In the proceeding, the court
will fix a value of the shares and may appoint one or more appraisers to receive
evidence and recommend a decision on the question of fair value. If BancGroup
does not commence the proceeding within sixty (60) days after receiving the
dissenting stockholder's second payment demand, BancGroup shall pay each
dissenting stockholder whose second payment demand remains unsettled the amount
demanded by each such dissenting stockholder in his or her second payment
demand.
The determination of a "fair value" necessarily involves matters of
judgment upon which reasonable persons may disagree. No allowance is permitted
for any increase or decrease in the value of the CBG Common Stock which may be
attributed to the proposed Merger.
A record stockholder may assert dissenters' rights as to fewer than all
shares registered in such holder's name, but only if the record holder dissents
with respect to all shares beneficially owned by any one beneficial stockholder
and provides written notice to CBG of the name and address of each person on
whose behalf the dissenting rights are asserted. A "beneficial shareholder" is
defined in the Georgia Business Corporation Code as a "person who is a
beneficial owner of shares held in a voting trust or by a nominee as the record
shareholder." For these purposes, "shareholder" and "stockholder" have the same
meaning. The rights of a partial dissenter are determined as if the shares as to
which such holder dissents and other shares held by the holder are registered in
different names of stockholders. Thus, if a beneficial stockholder holds shares
of CBG Common Stock through a bank, broker, or other nominee, such beneficial
holder may assert dissenters' rights, but only if the nominee dissents with
respect to all shares beneficially owned by such stockholder through the bank,
broker or nominee and provides CBG with the name and address of each such person
wishing to assert dissenters' rights. A person holding CBG Common Stock through
a bank, broker or other nominee should act promptly to cause such bank, broker
or nominee to follow the proper procedures to perfect any dissenters' rights on
behalf of such person.
A dissenting stockholder may not challenge the Merger unless CBG fails to
comply with appropriate procedures under Georgia law or CBG's Articles of
Incorporation and Bylaws or unless the stockholder vote to approve the Merger
was obtained by fraudulent and deceptive means.
FAILURE OF A STOCKHOLDER TO COMPLY WITH ANY REQUIREMENTS OF THE PROVISIONS
RELATING TO DISSENTER'S RIGHTS OF APPRAISAL WILL RESULT IN A FORFEITURE BY SUCH
STOCKHOLDER OF APPRAISAL RIGHTS. ANY HOLDER OF CBG COMMON STOCK WHO DESIRES TO
EXERCISE DISSENTERS' RIGHTS IS URGED TO CONSULT A LEGAL ADVISOR BEFORE
ATTEMPTING TO EXERCISE SUCH RIGHTS.
References herein to applicable statutes are summaries of portions thereof
and do not purport to be complete and are qualified in their entirety by
reference to applicable law. Article 13 of the Georgia Business
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<PAGE> 32
Corporation Code is attached hereto as Appendix B. STOCKHOLDERS SHOULD READ
APPENDIX B CAREFULLY.
RESALE OF BANCGROUP COMMON STOCK
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") and
the shares so issued may be traded without restriction, except that such
registration does not cover resales by persons ("Affiliates") receiving such
BancGroup Common Stock who may be deemed to control or be controlled by, or be
under common control with CBG at the time of the Special Meeting. Rule 145
promulgated by the Commission under the Securities Act restricts the resale of
Common Stock received in the Merger by Affiliates.
CBG will provide BancGroup with such information as may be reasonably
necessary to determine the identity of those persons (primarily officers,
directors and principal stockholders) who may be deemed to be Affiliates. CBG
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 of the Commission or pursuant to an effective
registration 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 certificates 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 stop transfer orders will be given to BancGroup's stock transfer
agent.
ACCOUNTING TREATMENT
BancGroup will account for the Merger as a pooling-of-interests transaction
in accordance with generally accepted accounting principles, which, among other
things, require that the number of shares of CBG 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 CBG Common Stock. Under this
accounting treatment, assets and liabilities of CBG 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 CBG as if the
Merger had taken place prior to the periods covered by the financial statements.
COMPARATIVE MARKET PRICES AND DIVIDENDS
BANCGROUP
BancGroup Common Stock is listed for trading on the NYSE. The BancGroup
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.
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
the Nasdaq National Market on February 24, 1995.
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The following table shows the dividends paid per share and indicates the
high and low closing prices for the Class A Common Stock as reported by the
Nasdaq National Market up to 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> <C>
1994 -- 1st Quarter............................................... $20 1/4 $ 18 $ 0.200
2nd Quarter............................................... 25 19 1/4 0.200
3rd Quarter............................................... 24 3/4 22 0.200
4th Quarter............................................... 23 3/4 19 1/2 0.200
1995 -- 1st Quarter............................................... 23 5/8 19 1/2 0.225
2nd Quarter............................................... 27 1/2 23 1/2 0.225
3rd Quarter............................................... 29 7/8 27 1/2 0.225
4th Quarter............................................... 32 7/8 28 1/2 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 December 31, 1995, BancGroup's banking subsidiaries accounted for
approximately 99.98% of BancGroup's consolidated assets. BancGroup derives
substantially all of its income from dividends received from its subsidiary
banks. Various statutory provisions 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.
CBG
There is no organized public market for the CBG Common Stock. Trading of
CBG Common Stock has been sporadic and generally is confined to the Atlanta,
Georgia area. CBG does not maintain a record of the sales prices of trades of
CBG Common Stock, although CBG is aware of a trade in late 1995 at $13.50 per
share. CBG has not paid any dividends on the CBG Common Stock.
BANCGROUP CAPITAL STOCK AND DEBENTURES
BancGroup's authorized capital stock consists of 44,000,000 shares of its
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 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 Common Stock,
subject to adjustment. There are 199,495 shares of Common Stock subject to issue
upon exercise of options under BancGroup's stock option plans. In addition to
BancGroup Common Stock issued in the Merger, BancGroup will issue additional
shares of its Common Stock in two pending acquisitions. See "BUSINESS OF
BANCGROUP -- Proposed Affiliate Banks."
The following statements with respect to BancGroup Common Stock and
Preference Stock are brief summaries of material provisions of Delaware law and
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.
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
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<PAGE> 34
dividends, payable in cash, stock or other property, are declared by the
BancGroup Board of Directors, the holders of Common Stock are entitled to share
ratably in such dividends.
Voting Rights. Each holder of Common Stock has one vote for each share
held on matters presented for consideration by the stockholders.
Preemptive Rights. The holders of 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 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 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 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 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 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
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
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<PAGE> 35
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 BancGroup Board's power 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
"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 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 chairman and president of BancGroup, or 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 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 Common Stock of
BancGroup.
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
27
<PAGE> 36
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 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 Board has been
given 60 days' prior written notice of such proposed acquisition and within that
time period the Federal Reserve Board 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 Board issues written
notice of its intent not to disapprove the action. Under a rebuttable
presumption established by the Federal Reserve Board, 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.
COMPARATIVE RIGHTS OF STOCKHOLDERS
If the Merger is consummated, all stockholders of CBG other than those
properly exercising dissenters' rights of appraisal will become holders of
BancGroup Common Stock. The rights of the holders of the Common Stock of CBG who
become holders of the Common Stock of BancGroup 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.
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<PAGE> 37
The following summary compares the rights of holders of Common Stock of CBG
with the rights of the holders of the Common Stock of BancGroup. 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 CBG's Articles of Incorporation and bylaws, the
Delaware General Corporation Law (the "Delaware GCL") and the Georgia Business
Corporation Code.
DIRECTOR ELECTIONS
CBG. The Bylaws of CBG provide that the Board of Directors of CBG shall
consist of 13 Directors. CBG's Directors are elected at each annual meeting of
stockholders to one year terms expiring at the next annual meeting following
their election and until their successors are duly elected and qualified.
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
CBG. The Articles of Incorporation of CBG provide that any director may be
removed from office at any time, but only for cause, by the affirmative vote of
the stockholders of record holding a majority of the then outstanding shares of
stock of each class of CBG entitled to vote in the elections of directors at a
meeting of stockholders called for that purpose. For purposes of the Articles of
Incorporation, "cause" means any act or omission for which a director may be
personally liable to CBG or its stockholders pursuant to the Articles of
Incorporation as well as any other act or omission which relates to personal
dishonesty, incompetence or intentional failure to perform stated duties.
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.
AUTHORIZED CAPITAL STOCK
CBG. The Articles of Incorporation of CBG authorize the issuance of up to
10,000,000 shares of Common Stock, par value $1.00 per share, and up to
10,000,000 shares of series preferred stock, $1.00 par value per share. Shares
of preferred stock may be issued in one or more series with such voting powers,
designations, preferences, rights, qualifications, limitations and restrictions
as shall be specified by the Board of Directors of CBG. As of May 21, 1996,
1,853,302 shares of CBG Common Stock were issued and outstanding and no shares
of CBG Preferred Stock were issued and outstanding.
BancGroup. The BancGroup Certificate authorizes the issuance of up to
44,000,000 shares of Common Stock, of which 13,575,465 shares were issued and
outstanding as of May 8, 1996, and up to 1,000,000 shares of Preference Stock,
$2.50 par value per share, of which no shares are issued and outstanding. The
Preference Stock is issuable in series, each series having such rights and
preferences as the BancGroup Board may fix and determine by resolution.
VOTING
CBG. Holders of CBG Common Stock are entitled to one vote for each share
of CBG Common Stock held, and such holders are not entitled to cumulative voting
rights in the election of directors.
BancGroup. Each stockholder 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
CBG. The Holders of CBG Common Stock have no preemptive rights to acquire
any additional shares of CBG Common Stock or any other shares of CBG capital
stock.
29
<PAGE> 38
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
CBG. The Articles of Incorporation of CBG provide that a director of CBG
shall not be personally liable to CBG or its stockholders for monetary damages
for breach of his or her duty of care or other duty as a director, except for
liability (i) for any appropriation, in violation of his or her duties, of any
business opportunity of CBG, (ii) for any acts or omissions which involve
intentional misconduct or a knowing violation of law, (iii) for the payment of
certain unlawful dividends and other distributions, or (iv) for any transaction
from which the director derives an improper personal benefit.
BancGroup. Similarly, 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
CBG. As permitted by the Georgia Business Corporation Code, CBG's Articles
of Incorporation contain detailed and comprehensive provisions providing for
indemnification of directors and officers of CBG against expenses, judgments,
fines and settlements in connection with pending or threatened litigation
against such director or officer by reason of the fact that he or she, or a
person of whom he or she is the legal representative, is or was a director or
officer of CBG or is or was serving at the request of CBG as a director,
officer, employee or agent of another entity provided that he or she acted in a
manner he or she believed in good faith to be in or not opposed to the best
interests of CBG and, in the case of any criminal proceeding, he or she had no
reasonable cause to believe his conduct was unlawful. Pursuant to the Georgia
Business Corporation Code, CBG is prohibited from indemnifying a director or
officer in connection with a proceeding by or in the right of CBG in which the
director or officer was adjudged liable to CBG or in connection with any
proceeding in which he or she was adjudged liable on the basis that personal
benefit was improperly received. In addition, CBG maintains an officers' and
directors' insurance policy pursuant to which officers and directors of CBG
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 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.
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<PAGE> 39
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.
In addition, 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
CBG. Pursuant to CBG's Bylaws, a special meeting of stockholders of CBG
may be called at any time by the Board of Directors, the Chairman of the Board
or the President and shall be called by the Chairman of the Board, the President
or the Secretary of CBG upon the written request of stockholders owning not less
than 25 percent of the outstanding stock of CBG. Additionally, pursuant to CBG's
Articles of Incorporation, any action that is required to be taken or that may
be taken at a meeting of the stockholders of CBG may be taken without a meeting
if a written consent, setting forth the action to be taken, is signed by those
persons who would be entitled to vote at a meeting those shares having voting
power to cast not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote 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
CBG. The Georgia Business Corporation Code provides that mergers, share
exchanges and sales of substantially all of the assets of CBG must be approved
by a majority of the outstanding stock of CBG entitled to vote thereon. The
Georgia Business Corporation Code also provides, however, that the stockholders
of CBG need not approve a merger if CBG is the surviving corporation in the
merger and: (i) the Articles of Incorporation of the surviving corporation will
not differ from its Articles of Incorporation before the merger; (ii) each
stockholder of the surviving corporation whose shares were outstanding
immediately before 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; and (iii) the number and kind of shares
outstanding immediately after the merger, plus the number and kind of shares
issuable as a result of the merger and by the conversion of securities issued in
connection with the merger or the exercise of rights and warrants issued
pursuant to the merger, will not exceed the total number and kind of shares of
the surviving corporation authorized by its Articles of Incorporation
immediately prior to the transaction.
BancGroup. The Delaware GCL provides that mergers and sales of
substantially all of the assets of a corporation 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
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<PAGE> 40
of control of BancGroup. See "Antitakeover Statutes" for a description of
additional restrictions on business combination transactions.
AMENDMENT OF CERTIFICATE OF INCORPORATION AND BYLAWS
CBG. Pursuant to the Georgia Business Corporation Code, a corporation's
articles of incorporation may be amended by the affirmative vote of the holders
of a majority of the outstanding shares of capital stock entitled to vote
thereon unless the Georgia Business Corporation Code, the Articles of
Incorporation or, in certain circumstances, the Board of Directors requires a
greater vote. The Board of Directors of CBG, with certain exceptions, has the
power to adopt, amend or repeal the Bylaws of CBG. The stockholders entitled to
vote also have the power to adopt, amend or repeal the Bylaws of CBG.
BancGroup. Under the Delaware GCL, a 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
CBG. Pursuant to the Georgia Business Corporation Code, a stockholder of
CBG 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 of or in expectation of the proposed transaction)
of his or her shares of CBG Common Stock in cash in lieu of the consideration he
or she otherwise would have received in the proposed transaction. For a
description of such dissenter's rights, see "APPROVAL OF THE MERGER -- Rights of
Dissenting Stockholders."
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, 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
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." Although the Georgia
Business Corporation Code allows a corporation to elect to be covered by
business combination statutes, CBG has not elected to be covered by such
statutes.
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<PAGE> 41
PREFERRED STOCK
CBG. The Articles of Incorporation of CBG authorize the issuance of
10,000,000 shares of preferred stock from time to time by resolution of the CBG
Board of Directors without action by the stockholders of CBG. Currently, no
shares of preferred stock of CBG are issued and outstanding.
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."
DIVIDENDS
CBG. The Georgia Business Corporation Code provides that a board of
directors of a Georgia corporation may authorize and the corporation may make
distributions to its stockholders subject to restriction by its articles of
incorporation. Notwithstanding the foregoing, the Georgia Business Corporation
Code prohibits any distribution if, after giving effect to the distribution, (i)
the corporation would not be able to pay its debts as they become due in the
usual course of business or (ii) the corporation's total assets would be less
than the sum of its total liabilities plus (unless the articles of incorporation
permit otherwise) the amount that would be needed, if the corporation were to be
dissolved at the time of the distribution, to satisfy the preferential rights
upon dissolution of stockholders whose preferential rights are superior to those
receiving the distribution. CBG's Articles of Incorporation provide that subject
to applicable provisions of the Georgia Business Corporation Code, CBG from time
to time may distribute a portion of its assets, in cash or in property, to its
stockholders out of the capital surplus of CBG and may purchase any part of its
stock out of the unreserved and unrestricted capital surplus as well as out of
the unreserved and unrestricted earned surplus of CBG.
BancGroup. The Delaware GCL provides that subject to any restrictions in
the corporation's certificate of incorporation, dividends may be declared from
the corporation's surplus or, if there is no surplus, from its net profits for
the fiscal year in which the dividend is declared and the preceding fiscal year.
Dividends may not be declared, however, if the corporation's capital has been
diminished to an amount less than the aggregate amount of all capital
represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets. Substantially all of the funds
available for the payment of dividends by BancGroup are derived from its
subsidiary banks. There are various regulatory limitations on the ability of
BancGroup's subsidiary banks to pay dividends to BancGroup. See "BUSINESS OF
BANCGROUP -- Certain Regulatory Considerations."
EFFECT OF THE MERGER ON CBG STOCKHOLDERS
As of May 21, 1996, the number of stockholders of record of CBG was
approximately 531 and the number of shares of CBG Common Stock outstanding was
1,853,302. As of May 8, 1996, BancGroup had 13,575,465 shares of BancGroup
Common Stock outstanding with 5,413 stockholders of record.
Assuming at the Effective Date a Market Value per share of the BancGroup
Common Stock of $34.369, (which was the Market Value calculated as of May 8,
1996), and no exercises of CBG Options or dissenters' rights, 1,136,180 shares
of BancGroup Common Stock would be distributed to the stockholders of CBG
pursuant to the Merger. These shares would represent 8.0% of the total shares of
Common Stock outstanding after the Merger not counting any shares of BancGroup
Common Stock that will be issued in other pending acquisitions. At that Market
Value, the CBG Options would convert to options to acquire 231,481 shares of
BancGroup Common Stock after the Effective Date.
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. Based on
the foregoing assumptions, as a group, the directors and officers of BancGroup
who own approximately 15% of BancGroup's outstanding shares will own
approximately 14% after the Merger. See "BUSINESS OF BANCGROUP -- Voting
Securities and Principal Stockholders."
BancGroup has entered into agreements pursuant to which additional shares
of BancGroup Common Stock will be issued. See "BUSINESS OF BANCGROUP -- Proposed
Affiliate Banks."
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<PAGE> 42
THE COLONIAL BANCGROUP INC. AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENTS OF CONDITION (UNAUDITED)
(IN THOUSANDS)
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 Commercial Bancorp of Georgia, Inc. and
subsidiaries ("CBG") as of March 31, 1996, (iii) the condensed consolidated
statement of condition of Southern Banking Corporation and subsidiary ("SBC") 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 CBG, SBC, and Dothan Federal, included elsewhere herein. The pro
forma information provided below may not be indicative of future results.
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------------------------------------------------------------
COMMERCIAL SOUTHERN
COLONIAL BANCORP OF ADJUSTMENTS/ BANKING ADJUSTMENTS/
BANCGROUP GEORGIA, INC. (DEDUCTIONS) SUBTOTAL CORPORATION (DEDUCTIONS)
---------- ------------- ------------ ---------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Cash and due from banks............. $ 140,571 $ 20,753 $ 161,324 $ 16,325
Interest-bearing deposits........... 5,003 5,003
Federal funds sold.................. 700 22,680 23,380 22,400
Securities available for sale....... 172,206 20,835 193,041 29,244
Investment securities............... 259,165 13,981 273,146
Mortgage loans held for sale........ 193,672 193,672
Loans, net of unearned income....... 2,945,625 147,362 3,092,987 152,362
Less: Allowance for possible loan
losses............................ (38,443 ) (2,625) (41,068) (1,942)
---------- ------------- ------------ ---------- ----------- ------------
Loans, net.......................... 2,907,182 144,737 3,051,919 150,420
Premises and equipment, net......... 58,602 5,729 64,331 4,877
Excess of cost over tangible and
intangible assets acquired, net... 25,825 780 26,605 2,309
Purchased mortgage servicing
rights............................ 88,788 88,788
Other real estate owned............. 9,785 1,413 11,198
Accrued interest and other assets... 62,894 4,246 67,140 3,233
---------- ------------- ------------ ---------- ----------- ------------
Total Assets................ $3,924,393 $ 235,154 $ 0 $4,159,547 $ 228,808 $ 0
========= =========== ============ ========= =========== ============
<CAPTION>
PRO FORMA
DOTHAN FEDERAL ADJUSTMENTS/ COMBINED
SUBTOTAL SAVINGS BANK (DEDUCTIONS) TOTAL
---------- -------------- ------------ ----------
<S> <C> <C> <C> <C>
ASSETS:
Cash and due from banks............. $ 177,649 $ 3,854 $ (2,600)(5) $ 178,903
Interest-bearing deposits........... 5,003 5,003
Federal funds sold.................. 45,780 45,780
Securities available for sale....... 222,285 4,901 227,186
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................ $4,388,355 $ 48,968 $ (1,002) $4,436,321
========= ============== ============ ==========
</TABLE>
34
<PAGE> 43
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------------------------------------------------------------
COMMERCIAL SOUTHERN
COLONIAL BANCORP OF ADJUSTMENTS/ BANKING ADJUSTMENTS/
BANCGROUP GEORGIA, INC. (DEDUCTIONS) SUBTOTAL CORPORATION (DEDUCTIONS)
---------- ------------- ------------ ---------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS'
EQUITY:
Deposits............................ $2,859,262 $ 210,700 $3,069,962 $ 209,248
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 4,036 79,724 2,275
---------- ------------- ------------ ---------- ----------- ------------
Total liabilities........... 3,656,165 214,736 3,870,901 211,523
Common Stock........................ 33,850 1,883 $ (1,883)(2) 36,690 3,362 $ (3,362) (4)
2,840 (1) 4,013 (3)
Additional paid in capital.......... 144,334 16,323 (16,323)(2) 159,400 7,405 (7,405)(4)
15,066 (1) 6,754 (3)
Treasury Stock...................... (300) 300 (2)
Retained earnings................... 90,658 2,547 93,205 6,519
Unearned compensation............... (782) (782)
Unrealized gain (loss) on
securities........................ 168 (35) 133 (1)
---------- ------------- ------------ ---------- ----------- ------------
Total equity................ 268,228 20,418 0 288,646 17,285 0
---------- ------------- ------------ ---------- ----------- ------------
Total liabilities and equity........ $3,924,393 $ 235,154 $ 0 $4,159,547 $ 228,808 $ 0
========== =========== ============ ========= =========== ============
Capital Ratios:
Capital Ratio..................... 7.97% 8.07%
Tangible Leverage Ratio........... 6.38% 6.50%
Tier One Capital Ratio*........... 8.94% 9.42%
Total Capital Ratio*.............. 10.54% 11.0%
<CAPTION>
PRO FORMA
DOTHAN FEDERAL ADJUSTMENTS/ COMBINED
SUBTOTAL SAVINGS BANK (DEDUCTIONS) TOTAL
---------- -------------- ------------ ----------
<S> <C> <C> <C> <C>
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........................ 40,703 4 (4)(5) 40,897
194 (5)
Additional paid in capital.......... 166,154 3,329 (3,329)(5) 168,560
2,406 (5)
Treasury Stock......................
Retained earnings................... 99,724 733 (733)(5) 99,724
Unearned compensation............... (782) (782)
Unrealized gain (loss) on
securities........................ 132 (4) 4 (5) 132
---------- ------- ------------ ----------
Total equity................ 305,931 4,062 (1,462) 308,531
---------- ------- ------------ ----------
Total liabilities and equity........ $4,388,355 $ 48,968 $ (1,002) $4,436,321
========= ============== ============ ==========
Capital Ratios:
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>
35
<PAGE> 44
Pro Forma Adjustments (In Thousands):
COMMERCIAL BANCORP OF GEORGIA, INC.
(pooling of interest)
(1) 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>
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; see "Conversion of
CBG Common Stock"........................................... 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
(2) To eliminate CBG's capital stock:
Common stock, at par value................................................ (1,883)
Contributed capital....................................................... (16,323)
Treasury Stock............................................................ 300
--------
(17,906)
--------
Net change in equity............................................ $ 0
========
</TABLE>
SOUTHERN BANKING CORPORATION:
(pooling of interest)
(3) 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
----------- --------- ---------
<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
</TABLE>
(4) To eliminate SBC's capital stock:
<TABLE>
<S> <C>
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.
36
<PAGE> 45
DOTHAN FEDERAL:
(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>
37
<PAGE> 46
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 CBG for the
three months ended March 31, 1996 and the years ended December 31, 1995, 1994,
and 1993 (iii) the condensed consolidated statements of income of SBC for the
three months ended March 31, 1996 and 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 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 CBG, SBC and Dothan Federal included elsewhere herein. The pro
forma information provided may not necessarily be indicative of future results.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
---------------------------------------------------------------------------------------
CONSOLIDATED COMMERCIAL SOUTHERN
COLONIAL BANCORP OF ADJUSTMENTS/ BANKING ADJUSTMENTS/
BANCGROUP GEORGIA, INC. (DEDUCTIONS) SUBTOTAL CORPORATION (DEDUCTIONS)
------------ -------------- ------------ ----------- ----------- ------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Interest income.......................... $ 71,986 $ 4,850 $ 0 $ 76,836 $ 4,425 $ 0
Interest expense......................... 38,580 2,231 40,811 1,620
------------ -------------- ------------ ----------- ----------- ------------
Net interest income before provision for
loan losses............................ 33,406 2,619 0 36,025 2,805 0
Provision for loan losses................ 1,499 16 1,515 55
------------ -------------- ------------ ----------- ----------- ------------
Net interest income after provision for
loan losses............................ 31,907 2,603 0 34,510 2,750 0
------------ -------------- ------------ ----------- ----------- ------------
Noninterest income....................... 14,775 544 15,319 781
Noninterest expense...................... 29,570 2,128 31,698 2,162
------------ -------------- ------------ ----------- ----------- ------------
Income before income taxes............... 17,112 1,019 0 18,131 1,369 0
Income taxes............................. 6,058 377 6,435 515
------------ -------------- ------------ ----------- ----------- ------------
Net income............................... $ 11,054 $ 642 $ 0 $ 11,696 $ 854 $ 0
========== ========== =========== ========== ========= ===========
Average primary shares outstanding....... 13,546,000 1,840,006 1,136,180 14,682,180 3,647,540 1,605,235
(1,840,006) (3,647,540)
Average fully-diluted shares
outstanding............................ 13,884,000 2,004,548 1,136,180 15,020,180 3,647,541 1,605,235
(2,004,548) (3,647,541)
Earnings per share:
Net Income:
Primary.............................. $ 0.82 $ 0.34 $ 0.80 $ 0.23
Fully diluted........................ $ 0.80 $ 0.32 $ 0.79 $ 0.23
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
-------------------------------------------------------
DOTHAN
FEDERAL PRO FORMA
SAVINGS ADJUSTMENTS/ COMBINED
SUBTOTAL 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 for
loan losses............................ 38,830 320 (37) 39,113
Provision for loan losses................ 1,570 15 1,585
----------- -------- ------------ -----------
Net interest income after provision for
loan losses............................ 37,260 305 (37) 37,528
----------- -------- ------------ -----------
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
outstanding............................ 16,625,415 399,688 77,439 16,702,854
(399,688)
Earnings per share:
Net Income:
Primary.............................. $ 0.77 $ 0.14 $ 0.77
Fully diluted........................ $ 0.76 $ 0.14 $ 0.76
</TABLE>
38
<PAGE> 47
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------------------------------------------
CONSOLIDATED COMMERCIAL SOUTHERN
COLONIAL BANCORP OF ADJUSTMENTS/ BANKING ADJUSTMENTS/
BANCGROUP GEORGIA, INC. (DEDUCTIONS) SUBTOTAL CORPORATION (DEDUCTIONS)
------------ -------------- ------------ ----------- ----------- ------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Interest income.......................... $ 250,900 $ 18,973 $ 0 $ 269,873 $ 17,267 $ 0
Interest expense......................... 132,458 8,389 140,847 6,133
------------ -------------- ------------ ----------- ----------- ------------
Net interest income before provision for
loan losses............................ 118,442 10,584 0 129,026 11,134 0
Provision for loan losses................ 5,480 1,345 6,825 525
------------ -------------- ------------ ----------- ----------- ------------
Net interest income after provision for
loan losses............................ 112,962 9,239 0 122,201 10,609 0
------------ -------------- ------------ ----------- ----------- ------------
Noninterest income....................... 50,175 2,237 52,412 1,978
Noninterest expense...................... 103,230 9,962 113,192 9,214
------------ -------------- ------------ ----------- ----------- ------------
Income before income taxes............... 59,907 1,514 0 61,421 3,373 0
Income taxes............................. 21,113 846 21,959 1,282
------------ -------------- ------------ ----------- ----------- ------------
Net Income............................... $ 38,794 $ 668 $ 0 $ 39,462 $ 2,091 $ 0
========== ========== =========== ========== ========= ===========
Average primary shares outstanding....... 12,418,000 1,826,711 1,136,180 13,554,180 3,356,500 1,605,235
(1,826,711) (3,356,500)
Average fully-diluted shares
outstanding............................ 13,181,000 2,034,063 1,136,180 14,317,180 3,356,500 1,605,235
(2,034,063) (3,356,500)
Earnings per share:
Net Income:
Primary.............................. $ 3.12 $ 0.37 $ 2.91 $ 0.62
Fully diluted........................ $ 3.02 $ 0.33 $ 2.83 $ 0.62
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------------------------------
DOTHAN
FEDERAL PRO FORMA
SAVINGS ADJUSTMENTS/ COMBINED
SUBTOTAL 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 for
loan losses............................ 140,160 1,293 (147) 141,306
Provision for loan losses................ 7,350 60 7,410
----------- -------- ------------ -----------
Net interest income after provision for
loan losses............................ 132,810 1,233 (147) 133,896
----------- -------- ------------ -----------
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
outstanding............................ 15,922,415 399,688 77,439 15,999,854
(399,688)
Earnings per share:
Net Income:
Primary.............................. $ 2.74 $ 0.38 $ 2.73
Fully diluted........................ $ 2.66 $ 0.38 $ 2.66
</TABLE>
39
<PAGE> 48
<TABLE>
<CAPTION>
DECEMBER 31, 1994
---------------------------------------------------------------------------------------
CONSOLIDATED COMMERCIAL SOUTHERN
COLONIAL BANCORP OF ADJUSTMENTS/ BANKING ADJUSTMENTS/
BANCGROUP GEORGIA, INC. (DEDUCTIONS) SUBTOTAL CORPORATION (DEDUCTIONS)
------------ -------------- ------------ ----------- ----------- ------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Interest income.......................... $ 187,230 $ 14,347 $ 0 $ 201,577 $ 10,326 $ 0
Interest expense......................... 82,549 5,458 88,007 2,895
------------ -------------- ------------ ----------- ----------- ------------
Net interest income before provision for
loan losses............................ 104,681 8,889 0 113,570 7,431 0
Provision for loan losses................ 6,481 695 7,176 330
------------ -------------- ------------ ----------- ----------- ------------
Net interest income after provision for
loan losses............................ 98,200 8,194 0 106,394 7,101 0
------------ -------------- ------------ ----------- ----------- ------------
Noninterest income....................... 44,243 2,215 46,458 1,294
Noninterest expense...................... 100,791 9,213 110,004 5,672
------------ -------------- ------------ ----------- ----------- ------------
Income before income taxes............... 41,652 1,196 0 42,848 2,723 0
Income taxes............................. 14,342 498 14,840 989
------------ -------------- ------------ ----------- ----------- ------------
Net Income............................... $ 27,310 $ 698 $ 0 $ 28,008 $ 1,734 $ 0
========== ========== =========== ========== ========= ===========
Average primary shares outstanding....... 11,996,000 1,826,711 1,136,180 13,132,180 2,704,109 1,605,235
(1,826,711) (2,704,109)
Average fully-diluted shares
outstanding............................ 12,763,000 1,826,711 1,136,180 13,899,180 2,704,109 1,605,235
(1,826,711) (2,704,109)
Earnings per share:
Net income:
Primary.............................. $ 2.28 $ 0.38 $ 2.13 $ 0.64
Fully diluted........................ $ 2.23 $ 0.38 $ 2.10 $ 0.64
<CAPTION>
DECEMBER 31, 1994
-----------------------------------------------------
DOTHAN
FEDERAL PRO FORMA
SAVINGS ADJUSTMENTS/ COMBINED
SUBTOTAL 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 for
loan losses............................ 121,001 1,526 (147) 122,380
Provision for loan losses................ 7,506 60 7,566
----------- -------- ------------ -----------
Net interest income after provision for
loan losses............................ 113,495 1,466 (147) 114,814
----------- -------- ------------ -----------
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 outstanding....... 14,737,415 399,688 77,439 14,814,854
(399,688)
Average fully-diluted shares
outstanding............................ 15,504,415 399,688 77,439 15,581,854
(399,688)
Earnings per share:
Net income:
Primary.............................. $ 2.02 $ 0.82 $ 2.02
Fully diluted........................ $ 1.99 $ 0.82 $ 1.99
</TABLE>
40
<PAGE> 49
<TABLE>
<CAPTION>
DECEMBER 31, 1993
---------------------------------------------------------------------------------------
CONSOLIDATED COMMERCIAL SOUTHERN
COLONIAL BANCORP OF ADJUSTMENTS/ BANKING ADJUSTMENTS/
BANCGROUP GEORGIA, INC. (DEDUCTIONS) SUBTOTAL CORPORATION (DEDUCTIONS)
------------ -------------- ------------ ----------- ----------- ------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Interest income.......................... $ 141,572 $ 12,326 $ 0 $ 153,898 $ 6,931 $ 0
Interest expense......................... 59,517 4,792 64,309 2,048
------------ -------------- ------------ ----------- ----------- ------------
Net interest income before provision for
loan losses............................ 82,055 7,534 0 89,589 4,883 0
Provision for loan losses................ 7,945 439 8,384 466
------------ -------------- ------------ ----------- ----------- ------------
Net interest income after provision for
loan losses............................ 74,110 7,095 0 81,205 4,417 0
------------ -------------- ------------ ----------- ----------- ------------
Noninterest income....................... 40,433 2,134 42,567 878
Noninterest expense...................... 86,520 7,864 94,384 4,117
------------ -------------- ------------ ----------- ----------- ------------
Income before income taxes............... 28,023 1,365 0 29,388 1,178 0
Income taxes............................. 8,886 479 9,365 415
------------ -------------- ------------ ----------- ----------- ------------
Income before extraordinary items and
cumulative effect of change in
accounting principle................... 19,137 886 0 20,023 763 0
Cumulative effect of change in accounting
principle.............................. 3,219 384 0 3,603 47
Extraordinary item, net of income tax.... (463) (463)
------------ -------------- ------------ ----------- ----------- ------------
Net Income............................... $ 21,893 $ 1,270 $ 0 $ 23,163 $ 810 $ 0
========== ========== =========== ========== ========= ===========
Average primary shares outstanding....... 9,530,000 1,826,711 1,136,180 10,666,180 2,200,000 1,605,235
(1,826,711) (2,200,000)
Average fully-diluted shares
outstanding............................ 10,623,000 1,826,711 1,136,180 11,759,180 2,200,000 1,605,235
(1,826,711) (2,200,000)
Earnings per share:
Income before extraordinary item and
cumulative effect of change in
accounting principle:
Primary.............................. $ 2.01 $ 0.49 $ 1.88 $ 0.35
Fully diluted........................ $ 1.96 $ 0.49 $ 1.84 $ 0.35
Net income:
Primary.............................. $ 2.30 $ 0.70 $ 2.17 $ 0.37
Fully diluted........................ $ 2.21 $ 0.70 $ 2.11 $ 0.37
<CAPTION>
DECEMBER 31, 1993
-----------------------------------------------------
DOTHAN
FEDERAL PRO FORMA
SAVINGS ADJUSTMENTS/ COMBINED
SUBTOTAL BANK (DEDUCTIONS) TOTAL
----------- -------- ------------ -----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Interest income.......................... $ 160,829 $ 3,220 $ 3 (1) $ 163,902
(150)
Interest expense......................... 66,357 1,486 67,843
----------- -------- ------------ -----------
Net interest income before provision for
loan losses............................ 94,472 1,734 (147) 96,059
Provision for loan losses................ 8,850 120 8,970
----------- -------- ------------ -----------
Net interest income after provision for
loan losses............................ 85,622 1,614 (147) 87,089
----------- -------- ------------ -----------
Noninterest income....................... 43,445 54 4 (1) 43,503
Noninterest expense...................... 98,501 869 79 (1) 99,449
----------- -------- ------------ -----------
Income before income taxes............... 30,566 799 (222) 31,143
Income taxes............................. 9,780 169 (50)(1) 9,899
----------- -------- ------------ -----------
Income before extraordinary items and
cumulative effect of change in
accounting principle................... 20,786 630 (172) 21,244
Cumulative effect of change in accounting
principle.............................. 3,650 3,650
Extraordinary item, net of income tax.... (463) (463)
----------- -------- ------------ -----------
Net Income............................... $ 23,973 $ 630 $ (172) $ 24,431
========== ======== =========== ==========
Average primary shares outstanding....... 12,271,415 399,688 77,439 12,348,854
(399,688)
Average fully-diluted shares
outstanding............................ 13,364,415 399,688 77,439 13,441,854
(399,688)
Earnings per share:
Income before extraordinary item and
cumulative effect of change in
accounting principle:
Primary.............................. $ 1.69 $ 1.58 $ 1.72
Fully diluted........................ $ 1.67 $ 1.58 $ 1.70
Net income:
Primary.............................. $ 1.95 $ 1.58 $ 1.98
Fully diluted........................ $ 1.92 $ 1.58 $ 1.94
</TABLE>
41
<PAGE> 50
Pro Forma Adjustments (In Thousands):
ADJUSTMENTS APPLICABLE TO DOTHAN FEDERAL SAVINGS BANK:
(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
--------- ------------ ------------ ------------
<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
Decreases 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>
42
<PAGE> 51
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
PRO FORMA SELECTED FINANCIAL DATA (UNAUDITED)
The following pro forma information includes consolidated BancGroup and
subsidiaries, consolidated CBG, consolidated SBC 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..................... 34,119 123,526 116,755 99,449 86,635 73,115
-------------- -------- -------- -------- -------- --------
Income before income taxes.............. 19,537 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........... 12,563 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.............................. $ 12,563 $ 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.
43
<PAGE> 52
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 CBG, consolidated SBC 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............................ $4,436,367 $4,249,742 3,263,165 3,148,493 2,065,873 1,895,308
Loans, net of unearned income........... 3,282,055 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>
44
<PAGE> 53
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 2,295,841
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>
45
<PAGE> 54
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.
46
<PAGE> 55
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA -- (CONTINUED)
<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 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................ 0.78 0.90 1.31 1.34 1.07
Net charge-offs to average loans............... 0.13 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>
47
<PAGE> 56
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>
48
<PAGE> 57
COMMERCIAL BANCORP OF GEORGIA, INC.
SELECTED INTERIM FINANCIAL DATA
(UNAUDITED)
<TABLE>
<CAPTION>
AT MARCH 31,
-------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
FINANCIAL CONDITION DATA
Total amount of:
Assets................................................................. $235,154 $203,437
Investments............................................................ 34,816 25,729
Federal funds.......................................................... 22,680 11,570
Loans receivable, net.................................................. 144,737 142,147
Deposits............................................................... 210,700 181,488
Obligation under capital lease......................................... 76 127
Stockholders' equity................................................... 20,418 19,384
Number of full service customer facilities............................... 7 7
OPERATING DATA
Interest income.......................................................... $ 4,850 $ 4,352
Interest expense......................................................... 2,231 1,682
-------- --------
Net interest income before loan loss provision........................... 2,619 2,670
Provision for loan loss.................................................. 16 196
-------- --------
Net interest income after loan loss provision............................ 2,603 2,474
Gain on sale of investments.............................................. -- --
Gain on sale of loans.................................................... 73 89
Other income............................................................. 471 408
Other expense............................................................ 2,128 2,112
-------- --------
Income (loss) before tax expense (benefit)............................... 1,019 859
Income tax expense (benefit)............................................. 377 343
-------- --------
Income (loss) before cumulative effect of accounting change.............. 642 516
Cumulative effect of accounting change................................... -- --
-------- --------
Net income (loss)........................................................ $ 642 $ 516
======== ========
SELECTED STATISTICAL DATA
Return on assets......................................................... 0.28% 0.26%
Equity-to-asset ratio.................................................... 8.68% 9.53%
Dividends per share...................................................... -- --
Earnings (loss) per share:
Primary:
Before cumulative effect of change.................................. $ .34 $ .28
Cumulative effect of change......................................... -- --
-------- --------
$ .34 $ .28
======== ========
Fully diluted.......................................................... $ .32 $ .28
======== ========
</TABLE>
49
<PAGE> 58
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
CBG and its subsidiary, Commercial Bank, reported net income of $642,000
for the first quarter of 1996, an increase of 24 percent compared to $516,000
for the first quarter of 1995. Primary earnings per share for the first quarter
of 1996 and 1995 were $.34 and $.28, respectively. The increase in net income
was due primarily to a reduced provision for loan losses in 1996 as compared to
1995, which was partially offset by a decline in net interest income of $51,000.
This decline in net interest income was due to a $498,000 increase in interest
income offset by a $549,000 increase in interest expense.
Total assets increased 2 percent, or $4.4 million, to $235.2 million at
March 31, 1996, as compared to $230.7 million at December 31, 1995. This asset
increase was funded primarily by growth in deposits, which increased $4.1
million, or 2 percent, to $210.7 million at March 31, 1996, as compared to
$206.6 million at December 31, 1995. This deposit growth, combined with declines
in cash and due from banks of $854,000 and investment securities of $997,000,
funded loan growth of $2.4 million and an increase in federal funds sold of $3.7
million.
Net interest income declined $51,000, or 2 percent, to $2.6 million for the
three months ended March 31, 1996, as compared to 1995. This decline was due to
a reduction in the net interest margin, which was partially offset by an
increase in the average volume of earning assets. CBG's net interest margin
declined 96 basis points to 5.16 percent at March 31, 1996, compared to 6.12
percent at March 31, 1995. The average volume of earning assets was $203.2
million and $174.4 million at March 31, 1996 and 1995, respectively, an increase
of 17 percent. Interest on other time deposits was the primary contributor to
the increase in interest expense, increasing to $1.4 million in 1996. This
increase is due to both an increase in volume and an increase in rates paid on
these deposits.
The provision for loan losses declined 92 percent to $16,000 for the three
months ended March 31, 1996, as compared to $196,000 for the same period in
1995. This decline is due to (1) a decline in loan growth from the first quarter
of 1995, (2) a decline in net charge-offs from the first quarter of 1995, and
(3) the loan loss provision made by CBG in the fourth quarter of 1995. This
increased provision in 1995 was based upon management's assessment of the
quality of the loan portfolio and the relative uncertainty regarding economic
conditions in CBG's market area.
Other income totaled $544,000 for the first three months of 1996, an
increase of 10 percent over the 1995 amount of $497,000. The primary contributor
to the increase was debit card servicing fees, which increased $50,000 as CBG
continued to expand its Electronic Banking Department. Other expense remained
relatively constant, increasing only $16,000.
ASSET QUALITY
The loan loss reserve was $2.6 million at March 31, 1996 and December 31,
1995. The allowance for loan losses as a percent of loans was 1.8 percent at
March 31, 1996 and December 31, 1995.
Net charge-offs were $10,000 for the three months ended March 31, 1996,
compared to $142,000 for the same period in 1995, a decline of $132,000 or 93
percent. Net charge-offs as a percent of average loans were .01 percent and .10
percent at March 31, 1996 and 1995, respectively. Nonaccrual loans and loans
past due over 90 days increased from $1.0 million at December 31, 1995, to $1.3
million at March 31, 1996. However, loans considered impaired under Statement of
Financial Accounting Standards No. 114 have declined by $600,000 due to the
foreclosure of properties related to one builder. Real estate owned has
increased to $1.4 million at March 31, 1996, from $1.1 million at December 31,
1995. Foreclosures of $600,000 were partially offset by sales of $300,000.
The loan portfolio is periodically reviewed to evaluate the outstanding
loans and to measure both the performance of the portfolio and the adequacy of
the allowance for loan losses. This analysis includes a review of delinquency
trends, actual losses, and internal credit ratings. Management's judgement as to
the adequacy of the allowance is based upon a number of assumptions about future
events which it believes to be reasonable, but which may or may not be
reasonable. However, because of the inherent uncertainty of assumptions made
50
<PAGE> 59
during the evaluation process, there can be no assurance that loan losses in
future periods will not exceed the allowance for loan losses or that additional
allocations to the allowance will not be required.
LIQUIDITY AND CAPITAL ADEQUACY
Commercial Bank's loan-to-deposit ratio was 70 percent at March 31, 1996
and December 31, 1995. Commercial Bank had excess liquidity in the form of
federal funds sold of $22.7 million and $18.9 million at March 31, 1996, and
December 31, 1995, respectively. Management analyzes the level of
off-balance-sheet assets, such as unfunded loan commitments, liquid investments,
and available fund lines, in an attempt to minimize the possibility that a
potential shortfall will exist. Based on this analysis, management believes that
CBG has adequate liquidity to meet short-term operating requirements; however,
no assurances can be given in this regard.
Shareholders' equity increased 3 percent, or $628,000, to $20.4 million at
March 31, 1996, as compared to $19.8 million at December 31, 1995. The increase
was due to the retention of first quarter 1996 net income of $642,000, offset by
the change in CBG's market valuation reserve on investment securities available
for sale from a $239,000 unrealized gain at December 31, 1995, to a $34,000
unrealized loss at March 31,1996. Shareholders' equity also increased by
$259,000 due to the exercise of 26,591 shares of stock options during 1996.
Commercial Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. These regulations require
Commercial Bank to maintain a minimum Tier 1 leverage ratio of 4 percent. Tier 1
capital consists of common shareholders' equity, less certain intangibles.
Commercial Bank's Tier 1 leverage ratio was 8 percent at March 31, 1996,
compared to 7.7 percent at December 31, 1995. Commercial Bank is also required
to maintain a total risk-weighted capital ratio of 8 percent, with one-half of
this amount, or 4 percent, made up of Tier 1 capital. Risk-weighted assets
consist of balance sheet assets, adjusted by risk category, and
off-balance-sheet assets equivalents similarly adjusted. At March 31, 1996,
Commercial Bank had a risk-weighted total capital ratio of 12.3 percent,
compared to 12.4 percent at December 31, 1995, and a Tier 1 risk-weighted
capital ratio of 11 percent, compared to 11.1 percent at December 31, 1995.
51
<PAGE> 60
COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
FINANCIAL CONDITION DATA
Total amount of:
Assets............................ $230,707 $199,377 $172,255 $145,906 $105,129
Investments....................... 35,813 26,588 20,551 22,818 8,454
Federal funds..................... 18,939 14,610 19,187 6,202 14,685
Loans receivable, net............. 142,311 133,926 113,753 98,938 66,046
Deposits.......................... 206,630 178,264 152,055 126,081 86,163
Obligation under capital lease.... 103 161 289 470 665
Stockholders' equity.............. 19,791 18,732 18,186 16,918 17,063
Number of full service customer
facilities........................ 7 7 7 7 3
OPERATING DATA
Interest income..................... $ 18,973 $ 14,347 $ 12,326 $ 10,300 $ 7,605
Interest expense.................... 8,389 5,458 4,792 4,814 4,194
-------- -------- -------- -------- --------
Net interest income before loan loss
provision......................... 10,584 8,889 7,534 5,486 3,411
Provision for loan loss............. 1,345 695 439 652 413
-------- -------- -------- -------- --------
Net interest income after loan loss
provision......................... 9,239 8,194 7,095 4,834 2,998
Gain on sale of investments......... -- -- 67 65 223
Gain on sale of loans............... 506 690 1,004 854 404
Other income........................ 1,731 1,525 1,063 744 509
Other expense....................... 9,962 9,213 7,864 6,688 4,604
-------- -------- -------- -------- --------
Income (loss) before tax expense
(benefit)......................... 1,514 1,196 1,365 (191) (470)
Income tax expense (benefit)........ 846 498 479 (45) 22
-------- -------- -------- -------- --------
Income (loss) before cumulative
effect of accounting change....... 668 698 886 (146) (492)
Cumulative effect of accounting
change(1)......................... -- -- 384 -- --
-------- -------- -------- -------- --------
Net income (loss)................... $ 668 $ 698 $ 1,270 $ (146) $ (492)
======== ======== ======== ======== ========
SELECTED STATISTICAL DATA
Return on assets.................... 0.31% 0.38% 0.78% (0.11)% (0.54)%
Equity-to-asset ratio............... 8.86% 10.09% 10.78% 11.60% 16.23%
Dividends per share................. -- -- -- -- --
Earnings (loss) per share:
Primary:
Before cumulative effect of
change......................... $ .37 $ .38 $ .49 $ (.08) $ (.27)
Cumulative effect of change....... -- -- .21 -- --
-------- -------- -------- -------- --------
$ .37 $ .38 $ .70 $ (.08) $ (.27)
======== ======== ======== ======== ========
Fully diluted..................... $ .33 $ .38 $ .70 $ (.08) $ (.27)
======== ======== ======== ======== ========
</TABLE>
- ---------------
(1) In 1993, CBG recorded a one-time cumulative effect due to the adoption of
Statement of Financial Accounting Standards No. 109 on the accounting for
income taxes.
52
<PAGE> 61
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
The purpose of this discussion is to focus on significant changes in the
financial condition and results of operations of CBG and its subsidiary,
Commercial Bank, for the years ended December 31, 1995, 1994 and 1993. The
discussion and analysis are intended to supplement and highlight information
contained in the consolidated financial statements and selected financial data
of CBG presented elsewhere in this document. The following should be read in
conjunction with the consolidated financial statements of CBG contained in this
document and other financial information contained herein.
CBG was originally incorporated under the name "Commercial Bancorp of
Gwinnett, Inc." to serve as the bank holding company for Commercial Bank which
began operations under the name "Commercial Bank of Gwinnett, N.A." On March 2,
1995, CBG acquired, in a merger transaction, Commercial Bancorp of Georgia,
Inc., a Georgia corporation and the bank holding company for Commercial Bank of
Georgia. At the effective time of this merger, CBG changed its name to
"Commercial Bancorp of Georgia, Inc." In connection with the merger, CBG issued
1,236,711 shares of CBG Common Stock to the stockholders of Commercial Bancorp
of Georgia, Inc. Effective September 30, 1995, Commercial Bank of Georgia merged
with Commercial Bank of Gwinnett and Commercial Bank of Gwinnett changed its
name to Commercial Bank of Georgia. The mergers were treated as a pooling of
interests for accounting purposes. Accordingly, the results of operations are
combined for all the periods presented and the assets and liabilities are
included in the balance sheet at historical cost. The results of the mergers
created a single holding company owning a single bank subsidiary.
As a bank holding company, CBG is intended to facilitate Commercial Bank's
ability to serve its customers' requirements for financial services. The primary
activity of CBG is the ownership and operation of Commercial Bank.
Results of Operations for the Years Ended December 31, 1995 and 1994
Net income for 1995 was $668,000 compared to $698,000 for 1994. The
decrease of $30,000, or 4%, was substantially due to expenses related to the
pending merger with BancGroup and an increased loan loss provision, offset by an
increase in net interest income. Net interest income increased by $1.7 million
for the year 1995, or 19%. During 1995, average interest rates increased, along
with an increase in loan volume of $9.0 million, or 7%. In addition, investment
securities increased by $9.4 million, or 36%, and federal funds sold increased
by $4.3 million, or 30%. Asset growth of $31.3 million, or 16%, during 1995 was
funded primarily with deposit growth of $28.4 million, or 16%. The increase in
deposits during the year has increased interest expense by $2.9 million, or 54%,
from 1994 to $8.4 million in 1995. Cost reductions began in mid-1994 and were
reflected in salaries and benefits which decreased $119,000, or 3%, during the
year and was facilitated through staff reductions. These cost reductions
continued during 1995 by decreasing occupancy expense, equipment cost and other
expense $418,000, or 10%. However, these reductions were offset by increases in
the loan loss provision of $650,000, or 94%, and expenses related to the pending
merger which totaled $1.3 million and were incurred in 1995.
Total average assets for the years ended December 31, 1995 and 1994 were
$217.5 million and $182.9 million, respectively. Total average assets increased
$34.6 million, or 19%, for the year ended December 31, 1995 as compared to 1994.
The ratio of net income to average assets for the years ended December 31,
1995 and 1994 was .31% and .38%, respectively. The ratio of net income to
average stockholders' equity for such periods was 3.47% and 3.78%, respectively.
Primary earnings per share for the years ended December 31, 1995 and 1994 was
$.37 and $.38, respectively. Fully diluted earnings per share was $.33 in 1995
and $.38 in 1994.
53
<PAGE> 62
The following table summarizes the results of operations of CBG on a
consolidated basis for the years ended December 31:
<TABLE>
<CAPTION>
1995 1994
------- ------
(IN THOUSANDS)
<S> <C> <C>
INCOME STATEMENT DATA:
Net interest income................................................. $10,584 $8,889
Provision for loan losses........................................... 1,345 695
Other income........................................................ 2,237 2,215
Other expense....................................................... 9,962 9,213
Income tax expense.................................................. 846 498
Net income.......................................................... 668 698
RETURN ON EQUITY AND ASSETS:
Return on average assets............................................ .31% .38%
Return on average equity............................................ 3.47% 3.78%
Dividend payout ratio............................................... -- --
Equity-to-assets ratio.............................................. 8.86% 10.09%
</TABLE>
Earning Assets. Average earning assets were $194.8 million in 1995, an
increase of $32.3 million, or 20%, from $162.5 million in 1994. Total earning
assets increased $22.4 million, or 13%, from December 31, 1994, due to a $9.0
million increase in loans, a $9.4 million increase in investments, a $4.3
million increase in federal funds sold and a $200,000 decrease in other
securities. At December 31, 1995, the mix of earning assets was comprised of
total loans of 73%, investment securities of 18%, and federal funds sold of 9%.
At December 31, 1994, total earning assets totaled $177.3 million, and the mix
of earning assets was comprised of total loans of 77%, investment securities of
15% and federal funds sold of 8%.
Net interest spread at December 31, 1995 and 1994 was 4.55% and 4.79%,
respectively. Net interest margin at December 31, 1995 and 1994 was 5.43% and
5.47%, respectively.
Investments. The composition of CBG's investment securities portfolio
reflects CBG's investment strategy of maximizing portfolio yields commensurate
with risk and liquidity considerations. The primary objectives of CBG's
investment strategy are to maintain an appropriate level of liquidity and to
provide a source of interest income with minimal credit risk. Maturities and
principal prepayments of investment securities provided $13.7 million and $7.7
million in funds during 1995 and 1994, respectively.
Investment securities totaled $35.8 million at December 31, 1995, an
increase of $9.4 million from December 31, 1994. Average investment securities
totaled $29.6 million during 1995 compared to $25.0 million during 1994.
Investment securities classified as held to maturity totaled $14.5 million
at December 31, 1995 compared to $19.1 million at December 31, 1994,
representing a decrease of $4.6 million, or 24%. Investment securities
classified as available for sale totaled $21.3 million at December 31, 1995
compared to $7.3 million at December 31, 1994, representing an increase of $14.0
million, or 192%. The increase in investments classified as available for sale
was primarily due to anticipated liquidity needs.
The amortized cost and estimated market value of investment securities
available for sale are as follows at December 31 (in thousands):
<TABLE>
<CAPTION>
1995
---------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
U.S. Treasury securities................. $ 1,703 $ 9 $ 2 $ 1,710
U.S. Government agencies and
corporations........................... 17,039 321 2 17,358
Mortgage-backed securities............... 2,207 36 -- 2,243
--------- ---------- ---------- -------
$20,949 $366 $ 4 $21,311
======= ======== ======== =======
</TABLE>
54
<PAGE> 63
<TABLE>
<CAPTION>
1994
---------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
U.S. Treasury securities................. $ 4,697 $ -- $111 $ 4,586
U.S. Government agencies and
corporations........................... 1,247 -- 97 1,150
Mortgage-backed securities............... 1,598 -- 22 1,576
--------- ---------- ---------- -------
$ 7,542 $ -- $230 $ 7,312
======= ======== ======== =======
</TABLE>
The amortized cost and estimated market value of investment securities held
to maturity are as follows at December 31 (in thousands):
<TABLE>
<CAPTION>
1995
---------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
U.S. Treasury securities................. $ 3,029 $ 8 $ 10 $ 3,027
U.S. Government agencies and
corporations........................... 3,506 6 21 3,491
Mortgage-backed securities............... 7,572 45 22 7,595
States and political subdivisions........ 394 6 -- 400
--------- --- ---------- -------
$14,501 $ 65 $ 53 $14,513
======= ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
1994
---------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
U.S. Treasury securities................. $ 6,042 $ -- $263 $ 5,779
U.S. Government agencies and
corporations........................... 7,559 -- 368 7,191
Mortgage-backed securities............... 4,301 -- 199 4,102
States and political subdivisions........ 894 -- 33 861
Other securities......................... 300 -- 7 293
--------- ---------- ---------- -------
$19,096 $ -- $870 $18,226
======= ======== ======== =======
</TABLE>
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 differ from contractual
maturities because borrowers may have the right to call or repay 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 INVESTMENT
SECURITIES SECURITIES
HELD TO MATURITY AVAILABLE FOR SALE
-------------------- --------------------
AMORTIZED MARKET AMORTIZED MARKET NET
COST VALUE COST VALUE YIELD
---------- ------- ---------- ------- ------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Due in one year or less......................... $ 2,382 $ 2,396 $ -- $ -- 5.66%
Due after one year through five years........... 7,745 7,715 10,242 10,365 5.88%
Due after five years through ten years.......... -- -- 9,105 9,339 7.15%
Due after ten years............................. 4,374 4,402 1,602 1,607 6.91%
---------- ------- ---------- ------- ------
$ 14,501 $14,513 $ 20,949 $21,311 5.78%
======== ======= ======== ======= ======
</TABLE>
- ---------------
Note: Yields on tax-exempt securities have not been presented on a
tax-equivalent basis.
During 1995 and 1994, no investment securities were sold. CBG's available
for sale portfolio at December 31, 1995 had, net of deferred taxes, net
unrealized gains of $239,000 compared to net unrealized losses of $152,000 at
December 31, 1994. The absence of investment security sales during 1995 and 1994
reflected CBG's excess liquidity, and the change from net unrealized losses to
net unrealized gains resulted primarily from the increase in the general level
of interest rates and the maturity of certain securities with more volatile
market value fluctuations.
55
<PAGE> 64
At December 31, 1995, mortgage-backed securities in CBG's held to maturity
portfolio had net unrealized gains of $23,000 compared to net unrealized losses
of $199,000 at December 31, 1994. The market value of these securities may be
adversely affected by prepayments which tend to increase in a declining interest
rate environment.
During 1995 and 1994, CBG classified its investment securities as held to
maturity or available for sale. No securities were held in trading accounts. In
1994, CBG adopted Statement of Financial Accounting Standards No. 115, which
required that securities available for sale be reported at their market value
with unrealized gains and losses, net of taxes, shown as a separate component of
stockholders' equity. Held to maturity securities were reported at amortized
cost in both 1995 and 1994.
Loans. Loans outstanding at December 31, 1995, totaled $144.9 million, an
increase of $9.0 million, or 7%, from December 31, 1994, when outstandings were
$135.7 million, exclusive of loans held for sale of $189,000. Increases from
December 31, 1994, were primarily in real estate mortgage loans of $8.4 million
and real estate construction loans of $7.1 million, offset in part by decreases
in commercial loans of $5.4 million and loans to individuals of $1.0 million.
Loan demand in CBG's markets improved in 1995 compared to 1994 due to the
strength of the metropolitan Atlanta, Georgia, economy. The area experienced
growth in personal income, a lower unemployment rate than the national average,
and an in-migration of people with typical needs for banking products and
services. Construction loan outstandings increased significantly in 1995 due to
new customers, funding of residential construction loan commitments in excess of
loan payoffs and a lower level of loan participations sold to other financial
institutions during the year.
Unfunded loan commitments totaled $49.5 million and $38.3 million at
December 31, 1995 and 1994, respectively. Management believes that funding of
these commitments will come from normal operations.
Average loans totaled $144.6 million during 1995 compared to $123.0 million
for 1994. A $21.6 million, or 18%, increase in loans is due primarily to
construction lending and real estate mortgage lending. In addition, the growth
in the portfolio resulted from CBG's ongoing efforts to increase the loan
portfolio through the origination of loans.
The type and amount of loans outstanding are shown in the following table
according to type of loans at December 31:
<TABLE>
<CAPTION>
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Commercial, financial and agricultural......................... $ 34,522 $ 39,885
Real estate -- construction.................................... 58,110 50,980
Real estate -- mortgage........................................ 45,040 36,637
Consumer, installment and other loans.......................... 8,001 8,901
-------- --------
Total loans.......................................... 145,673 136,403
Less: Net deferred loan fees................................... (743) (700)
-------- --------
Loans, net of deferred loan fees............................... $144,930 $135,703
======== ========
</TABLE>
CBG's loan-to-deposit ratio averaged 75.0% for 1995 compared to 76.0% for
1994. At December 31, 1995, the loan-to-deposit ratio was 70.1%. The decrease is
due to deposit growth during 1995 exceeding loan demand.
CBG's loan production efforts were not fully reflected in the amounts
outstanding because of loan sales and participations. The guaranteed portion of
business loans originated under the auspices of the Small Business
Administration (the "SBA") is generally sold to investors as soon as practical
after a loan is closed. Construction loan participations are sold to other
financial institutions in periods when the growth in loan demand exceeds the
growth in deposits. CBG generally sells its residential mortgage loan
originations to investors. Proceeds from sales of SBA loans were $5.0 million
and $7.0 million for the years ended December 31, 1995 and 1994, respectively.
56
<PAGE> 65
The following table presents an analysis of maturities of loans as of
December 31, 1995 (in thousands):
<TABLE>
<CAPTION>
MATURING IN MATURING IN MATURING
ONE YEAR ONE TO FIVE AFTER
OR LESS YEARS FIVE YEARS TOTAL
----------- ----------- ---------- --------
<S> <C> <C> <C> <C>
Commercial, financial and agricultural...... $24,538 $ 6,070 $ 3,914 $ 34,522
Real estate -- construction................. 58,048 62 -- 58,110
Real estate -- mortgage..................... 8,090 14,831 22,119 45,040
Consumer, installment and other loans....... 4,036 3,847 118 8,001
----------- ----------- ---------- --------
$94,712 $24,810 $ 26,151 $145,673
========= ========= ======== ========
</TABLE>
Scheduled repayments are reported in the maturity category in which the
payment is due based upon contract terms. Demand loans, loans having no stated
schedule of repayments, and overdrafts are reported as due in one year or less.
The following is a presentation of an analysis of sensitivity of loans to
changes in interest rates as of December 31, 1995 (in thousands):
<TABLE>
<S> <C>
Loans due after one year with predetermined interest rates................. $49,980
Loans due after one year with floating interest rates...................... 981
</TABLE>
CBG grants loans and extensions of credit to individuals and a variety of
firms and corporations located in its market area which is the metropolitan
Atlanta counties of Fulton, DeKalb, Cobb and Gwinnett. These counties enjoy a
diverse and vibrant economy, with no concentrations related to a particular
industry. A substantial portion of the loan portfolio is collateralized by
improved and unimproved real estate, the value of which is generally dependant
upon various economic factors which affect the real estate market.
Federal Funds Sold. Federal funds sold averaged $20.5 million during 1995
compared to $14.4 million during 1994. Total federal funds sold at December 31,
1995 of $18.9 million represented an increase of $4.3 million, or 30%, from
December 31, 1994. The 1995 average balance primarily increased due to the
deposit growth obtained by CBG in the second and third quarters of 1995.
Deposits. Deposits averaged $192.8 million during 1995 compared to $162.9
million during 1994. Total deposits at December 31, 1995 of $206.6 million
represented an increase of $28.4 million, or 16%, from December 31, 1994. The
increase was due to an increase of $31.4 million in interest-bearing deposits
and a decrease of $3.0 million in noninterest-bearing deposits. Time deposits in
excess of $100,000 increased $7.5 million and other time deposits increased
$21.0 million for 1995 primarily due to a special promotion during the second
quarter of 1995. There were no foreign deposits or brokered deposits in 1995 and
1994.
Commercial Bank offers a wide range of commercial and consumer deposit
accounts, including noninterest-bearing checking accounts, money market checking
accounts (consumer and commercial), negotiable order of withdrawal ("NOW")
accounts, individual retirement accounts, time certificates of deposit, and
regular savings accounts. The following table contains a breakdown of the
average balance and the average rate paid on each of the categories:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1995 1994
--------------- ---------------
AMOUNT RATE AMOUNT RATE
-------- ---- -------- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Noninterest-bearing demand deposits................. $ 31,792 -- $ 28,491 --
Interest-bearing demand deposits.................... 46,290 3.79% 46,738 3.05%
Savings deposits.................................... 5,338 3.09% 5,777 2.82%
Time deposits of $100,000 and over.................. 22,521 6.04% 18,913 4.54%
Other time deposits................................. 86,823 5.85% 62,951 4.73%
-------- --------
$192,764 $162,870
======== ========
</TABLE>
57
<PAGE> 66
Average interest-bearing deposits increased $26.6 million, or 20%, to
$161.0 million during 1995 compared to $134.4 million in 1994. Average
noninterest-bearing deposits increased $3.3 million, or 12%, to $31.8 million
during 1995 compared to $28.5 million in 1994.
The amount of time certificates of deposit issued in amounts of $100,000 or
more at December 31, 1995 are shown below by maturity category, which is based
on the time remaining until maturity for the period indicated from December 31,
1995.
<TABLE>
<CAPTION>
TIME DEPOSITS OF
$100,000 OR MORE
----------------
(IN THOUSANDS)
<S> <C>
Three months or less........................................................... $ 8,887
Over three months through six months........................................... 7,733
Over six months through twelve months.......................................... 3,914
Over twelve months............................................................. 5,740
----------------
$ 26,274
=============
</TABLE>
The sources of deposits typically are residents and businesses and their
employees within Commercial Bank's market area and are obtained through personal
solicitation, by Commercial Bank's officers and directors, direct mail
solicitation, and advertisements published in the local media.
Interest Rate Sensitivity Management. Interest rate sensitivity is a
function of the repricing characteristics of CBG's portfolio of assets and
liabilities. The repricing characteristics are the time frames within which the
interest-earning assets and interest-bearing liabilities are subject to interest
rate changes either at replacement, repricing or maturity during the life of the
asset or liability. Interest rate sensitivity management focuses on the maturity
structure of assets and liabilities and their repricing characteristics during
periods of change in market interest rates. Effective interest rate sensitivity
management seeks to ensure that both assets and liabilities respond to changes
in interest rates within an acceptable time frame, thereby minimizing the effect
of interest rate movements on net interest income. Interest rate sensitivity is
measured as the difference between the volumes of assets and liabilities in
CBG's current portfolio that are subject to repricing at various time horizons
of one year or less, one to five years and over five years. The difference is
known as interest rate sensitivity gap.
CBG's profitability, like that of most financial institutions, is dependent
to a large extent upon its net interest income. Management believes, therefore,
that changes in interest rates have a more significant impact on a financial
institution's performance than the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or in the same
magnitude as the price of goods and services, since such prices are affected by
inflation. Whenever interest-earning assets reprice to market interest rates at
a different pace than interest-bearing liabilities, net interest income
performance will be affected favorably or unfavorably during periods of changes
in general interest rates. In a volatile interest rate environment, liquidity
and the maturity structure of CBG's assets and liabilities are critical to the
maintenance of acceptable performance levels. While CBG is unable to predict
future changes in market rates of interest, an upward trend in interest rates
would tend to have an overall positive effect on CBG's net interest margin based
on the following table, as CBG's interest-bearing liabilities are not scheduled
to reprice faster than its interest-earning assets.
At December 31, 1995, $116 million, or 58%, of CBG's total earning assets
may reprice during the next 12 months compared to $127.7 million, or 74%, of
total interest-bearing liabilities. For the one year and over time frame, the
corresponding relationships are $84.0 million, or 42%, of earning assets and
$43.9 million, or 26%, of interest-bearing liabilities.
58
<PAGE> 67
The following table presents an analysis of the scheduled repricing of
CBG's earning assets and interest-bearing liabilities based on expected
maturities with the exception of loans which are based on scheduled repayments.
Expected maturities and scheduled repayments may differ from actual results.
INTEREST RATE SENSITIVITY ANALYSIS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
0-3 3-12 1-5 OVER
MONTHS MONTHS YEARS 5 YEARS TOTAL
-------- -------- -------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
EARNING ASSETS:
Fixed rate loans..................... $ 6,538 $ 10,292 $ 23,829 $26,151 $ 66,810
Variable rate loans.................. 45,016 32,866 981 -- 78,863
Federal funds sold................... 18,939 -- -- -- 18,939
Investment securities -- fixed
rate............................... -- 1,882 17,987 15,082 34,951
Investment securities -- variable
rate............................... 500 -- -- -- 500
-------- -------- -------- ------- --------
Total earning assets....... $ 70,993 $ 45,040 $ 42,797 $41,233 $200,063
======== ======== ======== ======= ========
INTEREST-BEARING LIABILITIES:
Money market......................... $ 31,447 $ -- $ -- $ -- $ 31,447
NOW.................................. 18,211 -- -- -- 18,211
Savings.............................. 5,383 -- -- -- 5,383
Time, $100,000 and over.............. 8,887 11,647 5,740 -- 26,274
Other time........................... 18,916 33,199 38,170 -- 90,285
-------- -------- -------- ------- --------
Total interest-bearing
liabilities.............. $ 82,844 $ 44,846 $ 43,910 $ -- $171,600
======== ======== ======== ======= ========
Interest sensitivity gap............. $(11,851) $ 194 $ (1,113) $41,233 $ 28,463
======== ======== ======== ======= ========
Cumulative interest sensitivity
gap................................ $(11,851) $(11,657) $(12,770) $28,463
======== ======== ======== =======
Ratio of interest sensitive assets to
interest sensitive liabilities..... 85.69% 100.43% 97.47% 0.00% 116.59%
Cumulative ratio of interest
sensitive assets to interest
sensitive liabilities.............. 85.69% 90.87% 92.56% 116.59%
Ratio of cumulative interest
sensitivity gap to total earning
assets............................. (5.92)% (5.83)% (6.38)% 14.23%
</TABLE>
Based on this gap analysis and assuming no change in the mix of earning
assets or interest-bearing liabilities, falling interest rates could reduce the
net interest margin while rising interest rates could increase the net interest
margin. The present gap position is within the range acceptable to management.
CBG has not entered into any off-balance-sheet interest rate contracts,
such as swaps, caps and floors, to alter CBG's interest rate sensitivity.
Liquidity. Liquidity is the ability to convert assets into cash or cash
equivalents without significant loss and to raise additional funds by increasing
liabilities. Liquidity management involves maintaining CBG's ability to meet
day-to-day cash flow requirements to ensure the availability of an adequate
level of funds to meet the loan demand and deposit withdrawal needs of CBG's
customers. CBG actively manages the levels, types and maturities of earning
assets in relation to the sources of funds available to ensure adequate funding
will be available at all times.
Federal funds sold and investment securities scheduled to mature within one
year totaled $21.3 million at December 31, 1995 and represented the primary
source of CBG's liquidity. In addition, at December 31, 1995, a total of $21.3
million of investment securities was available for sale as additional liquidity,
compared to $7.3 million at December 31, 1994.
CBG's loan-to-deposit ratio averaged 75.0% during 1995 compared to 76.0%
for 1994. The deposit growth in 1995 primarily funded loan growth of $9.0
million, investment growth of $9.4 million and liquidity in the
59
<PAGE> 68
form of $18.9 million in federal funds sold. The loan-to-deposit ratio at
December 31, 1995 was 70.1%. The average loan-to-deposit ratio decrease was due
to deposit growth exceeding loan demand. This increase did not significantly
change the liquidity position of CBG during 1995.
Another source of liquidity is CBG's ability to sell loans and loan
participations to other financial institutions and investors as discussed in
"Earning Assets" above. In addition, the construction loans originated by CBG
usually have a repayment period of less than nine months which provides
flexibility in managing the level of loan commitments and loan outstandings.
CBG has short-term funding available through federal funds lines of credit
with correspondent banks. Federal funds lines totaled $8.0 million at December
31, 1995. The entire amount was available for liquidity needs.
CBG's main source of funding of earning assets is through the generation of
deposits. During 1995, deposits net of repayments provided $28.4 million in
funds compared to $26.2 million in 1994. The majority of this funding during
1995 came from time deposits. In addition to the generation of deposits, the
sale and maturity of certain earning assets provided additional liquidity in
1995. Maturities of investment securities provided $13.7 million and sales of
SBA loans provided $5.0 million in funds during 1995, as compared to $7.7
million and $7.0 million in 1994, respectively. The major uses of those funds
were for the purchase of investment securities of $22.5 million and the
origination of loans, net of repayments, of $15.7 million. During 1994, these
amounts were $14.0 million and $31.5 million, respectively.
Capital Resources. CBG's stockholders' equity at December 31, 1995 was
$19.8 million, an increase of $1.1 million from December 31, 1994. Retention of
earnings accounted for the majority of the increase in stockholders' equity
during 1995, along with a $391,000 change from a $152,000 net unrealized loss to
a $239,000 net unrealized gain on securities available for sale.
In connection with the March 2, 1995 merger of Commercial Bancorp of
Georgia, Inc. with CBG, CBG issued a total of 1,236,711 shares of CBG common
stock to the stockholders of Commercial Bancorp of Georgia, Inc. The merger was
accounted for as a pooling of interests.
Average stockholders' equity as a percentage of total average assets is one
measure used to determine capital strength. CBG's ratio of average stockholders'
equity to total average assets for 1995 was 8.9% compared to 10.1% at December
31, 1994. The decrease in this ratio during 1995 resulted from the growth rate
of assets exceeding that of equity.
Two important indicators of capital adequacy in the banking industry are
the leverage ratio and the tangible leverage ratio. The leverage ratio is
defined as common stockholders' equity minus goodwill and other intangibles
disallowed by bank regulators divided by quarterly average assets minus goodwill
and other disallowed intangibles. The tangible leverage ratio is defined as
common stockholders' equity minus all intangibles divided by quarterly average
assets minus all intangibles. Because all of Commercial Bank's intangibles are
those that are disallowed, Commercial Bank's leverage ratio is the same as its
tangible leverage ratio. This ratio was 7.7% at December 31, 1995 and 8.0% at
December 31, 1994.
Risk-based capital guidelines take into consideration risk factors, as
defined by regulators, associated with various categories of assets. Under the
guidelines, capital strength is measured by two tiers which are used in
conjunction with risk-adjusted assets to determine risk-based capital ratios.
Commercial Bank's Tier 1 capital, which consists of equity less goodwill, was
$17.7 million and $15.9 million at December 31, 1995 and 1994, respectively.
Tier 2 capital, equivalent to the allowance for loan losses limited to 1.25% of
risk weighted assets, was $1.9 million and $1.8 million at December 31, 1995 and
1994, respectively. Tier 1 capital plus Tier 2 capital is referred to as Total
Qualifying Capital and was $19.6 million and $17.7 million at December 31, 1995
and 1994, respectively. The percentage ratios as calculated under the guidelines
were 11.1% and 12.4% for Tier 1 and Total Qualifying Capital, respectively, at
December 31, 1995 as compared to 10.7% and 12.0%, respectively, at December 31,
1994. The risk-based capital ratios increased during 1995 due primarily to the
change in mix of assets and increase in capital.
60
<PAGE> 69
The capitalization of Commercial Bank has always exceeded the minimum
ratios required for "well capitalized" banks as defined by federal regulators,
currently 4% leverage capital, 4% Tier 1 capital and 8% Total Qualifying
Capital. CBG continually monitors these ratios to ensure that Commercial Bank's
ratios exceed the minimum ratios required under applicable regulations.
RISK-BASED CAPITAL AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMMERCIAL BANK
OF GEORGIA
-------------------
AMOUNT PERCENT
------- -------
<S> <C> <C>
Risk based capital ratios:
Tier 1 capital.......................................................... $17,662 11.10%
Tier 1 capital -- minimum required...................................... 6,355 4.00%
-------
Excess.................................................................... $11,307
=======
Risk base capital (Tier 2).............................................. $19,648 12.40%
Risk base capital -- minimum required................................... 12,710 8.00%
-------
Excess.................................................................... $ 6,938
=======
Leverage ratios:
Total core capital...................................................... $17,662 7.70%
Minimum leverage requirement............................................ 9,202 4.00%
-------
Excess.................................................................... $ 8,460
=======
</TABLE>
Net Interest Income. Net interest income is the principal component of a
financial institution's income stream. It represents the difference or spread
between interest and fee income generated from earning assets and the interest
expense paid on deposits and borrowed funds. Fluctuations in interest rates as
well as volume and mix changes in earning assets and interest-bearing
liabilities can materially impact net interest margin. In the following
discussion of net interest margin, tax-exempt yields and interest income amounts
are not presented on a tax-equivalent basis.
Net interest income for the year ended December 31, 1995 increased $1.7
million, or 19%, to $10.6 million from $8.9 million for the year ended December
31, 1994. This increase in net interest income resulted primarily from growth in
investment securities, loans and federal funds sold.
Interest income increased $4.6 million, or 32%, to $18.9 million in 1995
compared to $14.3 million in 1994. Interest income increased in 1995 due to a
20% increase in the average volume of earning assets, and a 91 basis point
increase in average yield on earning assets. Average loan volume increased $21.6
million, or 18%, to $144.6 million in 1995 compared to $123.0 million in 1994.
This increase in volume was accompanied by a 92 basis point increase in yield
during the same period.
Total interest expense increased $2.9 million, or 54%, to $8.4 million in
1995 compared to $5.5 million in 1994 due to a $26.6 million, or 20%, increase
in average volume of interest-bearing liabilities, along with a 115 basis point
increase in rates paid on interest-bearing liabilities. The increase in rates
paid on interest-bearing liabilities reflects the change in the composition of
CBG's deposit portfolio to be more time deposit driven.
The trend in net interest income is commonly evaluated in terms of average
rates using the net interest margin and the interest rate spread. The net
interest margin on earning assets is computed by dividing net interest income by
average total earning assets. The net interest margin declined 4 basis points to
5.43% for 1995 from 5.47% for 1994.
The interest rate spread measures the difference between the average yield
on earning assets and the average rate paid on interest-bearing liabilities. The
interest rate spread decreased to 4.55% for the year ended 1995 from 4.79% for
the year ended 1994.
61
<PAGE> 70
The following table sets forth certain consolidated statistical information
with respect to average balances, interest income and expense and average
yields/rates for the years ended December 31:
AVERAGE BALANCE SHEET AND ANALYSIS OF NET INTEREST INCOME
<TABLE>
<CAPTION>
1995 1994
---------------------------- ----------------------------
AVERAGE INCOME/ YIELDS/ AVERAGE INCOME/ YIELDS/
BALANCES EXPENSE RATES BALANCES EXPENSE RATES
-------- ------- ------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
AVERAGE ASSETS
Loans(1).......................... $144,587 $16,055 11.10% $123,007 $12,518 10.18%
Investment securities:
Taxable......................... 29,006 1,693 5.84% 24,562 1,228 5.00%
Tax-exempt(2)................... 639 21 3.29% 466 11 2.36%
Federal funds sold................ 20,476 1,200 5.86% 14,414 586 4.07%
Deposits in banks................. 80 4 5.00% 74 4 5.41%
-------- ------- ------- -------- ------- -------
Total earning assets.... 194,788 18,973 9.74% 162,523 14,347 8.83%
Total other assets................ 22,685 20,359
-------- --------
Total average assets.... $217,473 $182,882
======== ========
AVERAGE LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing deposits:
NOW accounts.................... $ 15,323 413 2.70% $ 14,618 361 2.47%
Money market accounts........... 30,967 1,340 4.33% 32,120 1,066 3.32%
Savings......................... 5,338 165 3.09% 5,777 163 2.82%
Time, $100,000 and over......... 22,521 1,360 6.04% 18,913 858 4.54%
Other time deposits............. 86,823 5,082 5.85% 62,951 2,979 4.73%
-------- ------- ------- -------- ------- -------
Total interest-bearing
deposits.............. 160,972 8,360 5.19% 134,379 5,427 4.04%
Noninterest-bearing deposits...... 31,792 28,491
Other liabilities................. 5,448 29 1,553 31
-------- ------- -------- -------
Total average liabilities......... 198,212 8,389 164,423 5,458
Stockholders' equity.............. 19,261 18,459
-------- --------
Total average
liabilities and
stockholders'
equity................ $217,473 8,389 $182,882 5,458
======== ========
------- -------
Net interest income/Net interest
spread.......................... $10,584 4.55% $ 8,889 4.79%
======= ===== ======= =====
Net interest margin............... 5.43% 5.47%
===== =====
</TABLE>
- ---------------
(1) Interest income includes loan fees of $1.8 million in both 1995 and 1994.
Nonaccrual loans are included in the average balances, and interest income
on such loans is recognized on a cash basis.
(2) Interest income on tax-exempt securities has not been presented on a
tax-equivalent basis.
62
<PAGE> 71
The following table reflects the changes in net interest income resulting
from changes in interest rates and from asset and liability volume. Federally
tax-exempt interest is not presented on a tax-equivalent basis. The change in
interest attributable to rate has been determined by applying the change in rate
between years to average balances outstanding in later years. The change in
interest due to volume has been determined by applying the rate from the earlier
year to the change in average balances outstanding between years. Thus, changes
that are not solely due to volume changes or solely due to rate changes have
been allocated on a pro rata basis between volume and rate.
RATE AND VOLUME ANALYSIS
<TABLE>
<CAPTION>
DECEMBER 31, 1995 VS. 1994
------------------------------
CHANGES DUE TO
------------------------------
INCREASE
RATE VOLUME (DECREASE)
------ ------ ----------
(IN THOUSANDS)
<S> <C> <C> <C>
INCREASE (DECREASE) IN:
Income from earning assets:
Interest and fees on loans..................................... $1,209 $2,328 $3,537
Interest on investment securities.............................. 226 249 475
Interest on federal funds sold................................. 314 300 614
------ ------ ----------
Total interest income.................................. 1,749 2,877 4,626
------ ------ ----------
Expense from interest-bearing liabilities:
Demand and money market.......................................... 340 (14) 326
Savings.......................................................... 15 (13) 2
Time deposits of $100,000 or more................................ 319 183 502
Other time deposits.............................................. 809 1,294 2,103
------ ------ ----------
Total interest expense................................. 1,483 1,450 2,933
------ ------ ----------
Net interest income.................................... $ 266 $1,427 $1,693
====== ====== ========
</TABLE>
Provision for Loan Losses, Net Charge-Offs and Allowance for Loan
Losses. The provision for loan losses is the cost of providing an allowance or
reserve for anticipated future losses on loans. The amount of the provision for
a period is dependent upon many factors including loan growth, net charge-offs,
changes in the composition of the loan portfolio, delinquencies and management's
assessment of loan portfolio quality, the value of collateral and general
economic factors.
The provision for loan losses for 1995 was $1,345,000, compared to $695,000
for 1994. The increase in the loan loss provision during 1995 was based on CBG's
internal loan quality grading system and the level of net charge-offs in 1995 as
well as management's assessment of the risk of future loan losses in the growing
loan portfolio. Management provided an additional $892,000 to the provision for
loan losses in the fourth quarter of 1995, which included $380,000 in normal
monthly provisions and a one-time increase of $512,000 due to estimated changes
in economic uncertainty.
Net loan charge-offs were $692,000, or .48%, of average loans outstanding
during 1995 compared to $142,000, or .12%, of average loans outstanding for
1994. Charge-offs totaled $761,000 during 1995 and $217,000 for the same period
in 1994. Recoveries of amounts previously charged off were $69,000 and $75,000,
respectively, during such periods.
The allowance for loan losses at December 31, 1995 of $2,619,000 was
$653,000, or 33%, higher than the December 31, 1994 allowance of $1,966,000. At
December 31, 1995, the allowance for loan losses was 1.81% of loans outstanding,
and at December 31, 1994, the allowance was 1.45% of loans outstanding.
Specific reserves have been established for specifically identified problem
loans where management considers losses to be likely. A general reserve has been
established by management to provide for loans considered to be potential
problems as well as for future problem loans which are currently unidentified.
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<PAGE> 72
CBG has allocated the allowance for loan losses according to the amount
deemed to be reasonably necessary to provide for the possibility of losses being
incurred within the categories of loans set forth in the following table. The
amount of such components of the allowance for loan losses for the years ended
December 31, and the ratio of loans in each category to the outstanding loan
balance, are presented below:
<TABLE>
<CAPTION>
1995 1994
--------------------------- ---------------------------
ALLOWANCE RATIO OF ALLOWANCE RATIO OF
FOR LOAN LOANS IN EACH FOR LOAN LOANS IN EACH
LOSSES CATEGORY LOSSES CATEGORY
----------- ------------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial............................ $ 1,048 24% $ 727 29%
Real estate -- construction........... 524 40% 374 37%
Real estate -- mortgage............... 550 31% 275 27%
Installment and other consumer........ 497 5% 590 7%
----------- --- ----------- ---
Totals...................... $ 2,619 100% $ 1,966 100%
========= ========== ========= ==========
</TABLE>
The following table presents an analysis of CBG's loan loss experience for
the years ended December 31:
<TABLE>
<CAPTION>
1995 1994
------ ------
(IN THOUSANDS)
<S> <C> <C>
Balance of reserve for loan losses at beginning of year............ $1,966 $1,413
------ ------
Charge-offs:
Commercial, financial and agricultural........................... (435) (104)
Real estate -- construction...................................... -- --
Real estate -- mortgage.......................................... (80) (3)
Installment and other consumer................................... (246) (110)
------ ------
(761) (217)
------ ------
Recoveries:
Commercial, financial and agricultural........................... 56 40
Real estate -- construction...................................... -- --
Real estate -- mortgage.......................................... -- --
Installment and other consumer................................... 13 35
------ ------
69 75
------ ------
Net charge-offs.......................................... (692) (142)
------ ------
Additions to reserve charged to operating expenses................. 1,345 695
------ ------
Balance of reserve for loan losses at end of year.................. $2,619 $1,966
====== ======
Ratio of net loan charge-offs to average loans outstanding during
the year......................................................... 0.48% 0.12%
====== ======
</TABLE>
Nonperforming Assets. The following is a summary of nonperforming and past
due loans and foreclosed assets as of December 31:
<TABLE>
<CAPTION>
1995 1994
------ ------
(IN THOUSANDS)
<S> <C> <C>
Loans accounted for on a nonaccrual basis............................ $ 734 $ 770
Accruing loans which are contractually past due 90 days or more as to
interest or principal payments..................................... 315 --
Loans, the terms of which have been renegotiated to provide a
reduction or deferral of interest or principal balance because of
deterioration in the financial position of the borrower............ 765 1,026
Loans considered impaired under SFAS 114............................. 1,787 --
Foreclosed assets in other real estate............................... 1,102 1,480
------ ------
Total...................................................... $4,703 $3,276
====== ======
</TABLE>
64
<PAGE> 73
Nonperforming assets include nonaccrual loans and other real estate owned.
Accruals on loans are discontinued when management believes, after consideration
of economic and business conditions and collection efforts, that collection of
interest is doubtful. Additionally, all loans contractually past due 90 days or
more, which are not in the process of collection and adequately secured, are
placed on nonaccrual status. Other real estate owned represents real property
acquired through foreclosure or through a deed in lieu of foreclosure.
CBG's nonaccrual loans and other real estate owned at December 31, 1995
totaled $1.8 million, a decrease of $414,000 from the December 31, 1994 amount
of $2.3 million. Loans which were restructured due to a deterioration in the
financial position of the borrower totaled $765,000 and $1,026,000 in 1995 and
1994, respectively. Nonaccrual loans at December 31, 1995 totaled $734,000, a
decrease of $36,000 from $770,000 at December 31, 1994. The change in nonaccrual
loans during 1995 was attributable to transfers of loans to other real estate
owned. If the nonaccrual loans had been accruing interest for the full year,
Commercial Bank would have recognized an additional $42,000 in interest income
in 1995. Commercial Bank recognized approximately $16,000 in interest income on
these loans in 1995. The amount of income on restructured loans that would have
been recorded if the loans had been maintained on their original terms and the
income actually realized is not disclosed due to management's belief that the
collection of such information would involve unwarranted or undue burden or
expense.
Other real estate owned totaled $1.1 million at December 31, 1995 compared
to $1.5 million at December 31, 1994. A significant component of other real
estate owned is a 159 acre single-family housing development located in Fulton
County, Georgia, obtained through foreclosure in 1992. Management determined the
best strategy to obtain the highest value for this property was to develop the
property in two phases. Phase one, consisting of 34 building lots already
developed, would be sold to builders. In Phase two, 52 acres would be developed
into 36 building lots and sold to builders and the remaining 30 acres would be
divided into large tracts and marketed to individuals and builders. In 1994,
management recorded a $200,000 reserve on this property due to uncertainties in
the real estate market and an appraisal of the property. The net book value of
this property at December 31, 1995 was $465,000.
At December 31, 1995, Commercial Bank had approximately $1,787,000 in loans
which were impaired under Statement of Financial Accounting Standards No. 114.
SFAS 114 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. Loans totaling
$1,537,000, which are secured by real estate, have not been allocated a specific
impairment reserve. These loans are collateral dependent and are in the process
of foreclosure. Based on the fair value of the properties, no loss is expected
to occur upon the sale of the collateral.
As of December 31, 1995, loans totaling approximately $3,711,000 were
classified for regulatory purposes as doubtful or substandard that have not been
disclosed in the above table, which (i) represent or result from trends or
uncertainties which management reasonably expects may materially impact future
operating results, liquidity, or capital resources, or (ii) represent material
credits with respect to which management has serious doubts as to the ability of
the borrowers to comply with the loan repayment terms. Reserves are specifically
allocated to each of these loans based on management's assessment of risk and
the value of collateral, if any, pledged to secure such loans.
There may be additional loans within CBG's portfolio that may become
classified as conditions dictate; however, management was not aware of any such
loans that are material in amount at December 31, 1995. Management continues to
emphasize the need to maintain a low level of nonperforming assets and to return
nonperforming assets to earning status.
Noninterest Income. Noninterest income consists of revenue generated from
a broad range of financial services and activities, including fee-based services
and gains on sales of loans. Noninterest income increased $22,000, or 1%, to
$2.2 million for the year ended December 31, 1995 from $2.2 million for the year
ended December 31, 1994.
65
<PAGE> 74
Mortgage origination fees totaled $111,000 in 1995 compared to $164,000 in
1994, a decrease of $53,000, or 32%. This decrease reflected management's
decision to not pursue mortgage banking activities except as an adjunct to its
construction lending and for customers who express a desire for mortgage
financing as part of their banking relationship with CBG.
Gains on sales of loans of $395,000 decreased 25%, or $131,000, in 1995
compared to $526,000 in 1994. The sales consisted of the guaranteed portion of
loans originated under the SBA's guaranteed loan program. The lower level of
gains reflected management's decision to sell a lower percentage of the loans to
investors due to changes in the SBA program. Accompanied by this decline in
gains on sale of loans was an increase in loan servicing fees of $91,000, or
36%, to $346,000 in 1995 as more SBA loans were retained by CBG.
Service charges on deposits were $953,000 in 1995, an increase of $34,000,
or 4%, as compared to $919,000 for 1994. This increase resulted from deposit
growth and a repricing of all service charges assessed by CBG.
Debit card servicing fees were $241,000 in 1995, an increase of $125,000,
or 108%, from $116,000 in 1994. These fees are derived from a corporate
sponsorship program promoted by CBG's Electronic Banking Division. An increase
in the volume of automated clearing house transactions processed is the primary
contributor to the increase.
Other operating income decreased 18% to $192,000 or $43,000 in 1995
compared to $235,000 in 1994, primarily due to a decline in miscellaneous income
and processing fees received from correspondent institutions.
Noninterest Expense. Operating expenses increased $749,000, or 8%, to
$10.0 million in 1995 compared to $9.2 million in 1994. Despite a general
decline in ongoing operating expenses, total operating expenses increased due to
the expenses relating to the pending merger with BancGroup. These costs include
fees for brokerage services related to the transaction, various retention
bonuses for key employees and accruals for professional fees associated with the
transaction. Salaries and related expenses decreased $119,000, or 3%, to $4.4
million in 1995 from $4.5 million in 1994 primarily due to a branch closing and
ongoing cost reduction programs. A reduction in staff was implemented in the
second and third quarters of 1995 to reduce operating expenses and, thereby,
continue to improve operating results in the future.
Occupancy expense totaled $1.3 million in 1995 compared to $1.4 million in
1994. The decrease in occupancy expense of $152,000 was primarily due to
decreased lease costs from various canceled leases due to the combination of the
two companies in 1995 as previously discussed.
Other operating expenses during 1995 totaled $2.6 million compared to $2.8
million in 1994. The decrease was a result of cost reduction programs and
efficiencies gained from the 1995 merger with the former Commercial Bancorp of
Georgia, Inc.
Income Taxes. The effective tax rate as a percentage of pretax income was
56% in 1995 and 42% in 1994, respectively. The increase in the effective tax
rate in 1995 is due to the fact that a substantial portion of the merger-related
expenses incurred by CBG are not deductible for federal income tax purposes.
Dividends. CBG's only source of funds for the payment of dividends is
dividends paid by Commercial Bank. Bank regulations restrict the amount of
dividends which Commercial Bank may pay without obtaining prior approval. If
Commercial Bank meets certain requirements pertaining to credit quality and
capital ratios, dividends may be paid to CBG if the aggregate amount of
dividends declared in the calendar year does not exceed 50% of the net profits
after taxes, but before dividends, for the previous calendar year. Commercial
Bank has not paid any dividends to CBG in 1995 and 1994.
Other Accounting Issues. The FASB has issued SFAS No. 114, Accounting by
Creditors for Impairment of a Loan. SFAS No. 114 requires that impaired loans be
measured based on the present value of expected future cash flows discounted at
the loan's effective interest rate, which is the contractual interest rate
adjusted for any deferred loan fees or costs, premium, or discount existing at
the inception or acquisition of the loan. SFAS No. 114 was effective for fiscal
years beginning after December 15, 1994, with earlier adoption permitted. CBG
adopted SFAS No. 114 in fiscal 1995 without a material impact.
66
<PAGE> 75
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 119, Disclosure About Derivative Financial Instruments
and Fair Value of Financial Instruments. The provisions of SFAS 119 require and
encourage disclosure of information about derivative financial instruments, such
as options, swaps, futures and forward contracts. CBG has no such items;
therefore, the adoption of SFAS 119 had no significant impact on CBG. The
requirements of SFAS 119 were effective in 1995 for financial statements of
entities with less than $150 million in total assets. 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 119 until 1995.
The FASB has issued SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. CBG is required
to implement SFAS No. 121 by December 31, 1996. The provisions of SFAS No. 121
will require CBG 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 of SFAS No. 121 is not expected to have a
significant impact on CBG.
The FASB has issued SFAS No. 122, Mortgage Servicing Rights, as an
amendment to SFAS No. 65. CBG is required to implement SFAS No. 122 by December
31, 1996. The provisions of SFAS No. 122 eliminate the accounting distinction
between rights to service mortgage loans that are acquired through loan
origination and those acquired through purchase. The adoption of SFAS No. 122 is
not expected to have a significant impact on CBG.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 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 CBG.
Impact of Inflation. Unlike most industrial companies, the assets and
liabilities of financial institutions such as CBG are primarily monetary in
nature. Therefore, interest rates have a more significant effect on CBG's
performance than do the effects of changes in the general rate of inflation and
change in prices. In addition, interest rates do not necessarily move in the
same direction or in the same magnitude as the prices of goods and services. As
discussed previously, management seeks to manage the relationships between
interest-sensitive assets and liabilities in order to protect against wide
interest rate fluctuations, including those resulting from inflation.
Results of Operations for the Years Ended December 31, 1994 and 1993
Summary. Net income for 1994 was $698,000, a decrease of $572,000, or 45%,
from $1.3 million for 1993. Net income per share before cumulative effect of
change was $.38 in 1994 and $.49 in 1993. The decline in earnings in 1994 as
compared to 1993 was the result of a 17% increase in operating expenses and a
58% increase in the loan loss provision which exceeded the 18% increase in net
interest income. During 1994, CBG opened a branch facility and loan origination
office which increased operating and other related costs as compared to 1993.
CBG also incurred the majority of the expenses related to the merger with the
former Commercial Bancorp of Georgia, Inc. during 1994. These increases in
expense were partially offset by an 18% increase in net interest income.
Additionally, in 1993, CBG recorded a nonrecurring adjustment to earnings of
$384,000 related to the cumulative effect of change in accounting principle
based on the adoption of SFAS No. 109, Accounting for Income Taxes. Exclusive of
this nonrecurring income, net income declined 21% during 1994.
67
<PAGE> 76
The following table summarizes the results of operations of CBG on a
consolidated basis for the years ended December 31:
<TABLE>
<CAPTION>
1994 1993
------ ------
(IN THOUSANDS)
<S> <C> <C>
INCOME STATEMENT DATA:
Net interest income.......................................................... $8,889 $7,534
Provision for loan losses.................................................... 695 439
Other income................................................................. 2,215 2,134
Other expense................................................................ 9,213 7,864
Income tax expense........................................................... 498 479
Net income before cumulative effect of change in accounting principle........ 698 886
Cumulative effect of change in accounting principle(1)....................... -- 384
Net income................................................................... 698 1,270
RETURN ON EQUITY AND ASSETS:
Return on average assets..................................................... .38% .78%
Return on average equity..................................................... 3.78% 7.24%
Dividend payout ratio........................................................ -- --
Equity-to-assets ratio....................................................... 10.09% 10.78%
</TABLE>
- ---------------
(1) See further discussion of cumulative effect of change in accounting
principle in Income Taxes.
Liquidity. Liquidity is the ability to convert assets into cash or cash
equivalents without significant loss and to raise additional funds by increasing
liabilities. Liquidity management involves maintaining CBG's ability to meet
day-to-day cash flow requirements to ensure the availability of an adequate
level of funds to meet the loan demand and deposit withdrawal needs of CBG's
customers. CBG actively manages the levels, types and maturities of earning
assets in relation to the sources of funds available to ensure adequate funding
will be available at all times.
CBG's main source of funding of earning assets is through the generation of
deposits. During 1994, deposits net of repayments provided $26.2 million in
funds. This funding was obtained equally from all types of deposits. In addition
to the generation of deposits, the sale and maturity of certain earning assets
provided additional liquidity in 1994. Maturities of investment securities
provided $7.7 million and sales of SBA loans provided $7.0 million in funds
during 1994. The major use of funds during 1994 was for the origination of
loans, which totaled $31.5 million net of repayments. Another major use was for
the purchase of investment securities which totaled $14.0 million during 1994.
CBG also has liquidity sources through the ability to sell loan participations
to other financial institutions. In addition, the construction loans originated
by CBG usually have a repayment period of less than nine months, which provides
flexibility to CBG in managing its level of loan commitments and loans
outstanding.
CBG has short-term funding available through federal funds lines of credit
with correspondent banks. Federal funds lines of credit totaled $8.0 million at
December 31, 1994 and 1993. The entire amount was available for liquidity needs.
Capital Resources. Stockholders' equity at December 31, 1994 was $18.7
million. Net income accounted for all of the increase in stockholders' equity in
1994, net of the market valuation adjustment for unrealized losses on available
for sale securities which totaled $152,000, net of tax, at December 31, 1994. A
strong capital position, which is vital to the continued profitability of CBG,
also promotes depositor and investor confidence and provides a solid foundation
for the future growth of the organization. CBG's capital requirements have been
met primarily through the initial capitalization of CBG and through the
retention of earnings.
Average stockholders' equity as a percentage of total average assets is one
measure used to determine capital strength. The ratio of average stockholders'
equity to average assets for 1994 was 10.09%.
68
<PAGE> 77
Two important indicators of capital adequacy in the banking industry are
the leverage ratio and the tangible leverage ratio. The leverage ratio is
defined as common stockholders' equity minus goodwill and other intangibles
disallowed by bank regulators divided by total quarterly average assets minus
goodwill and other disallowed intangibles. The tangible leverage ratio is
defined as common stockholders' equity minus all intangibles divided by total
average assets minus all intangibles. Because all of Commercial Bank's
intangibles are those that are disallowed, Commercial Bank's leverage ratio is
the same as its tangible leverage ratio. This ratio was 8.00% at December 31,
1994.
Risk-based capital guidelines take into consideration risk factors, as
defined by Commercial Bank's regulators, associated with various categories of
assets. Under the guidelines, capital strength is measured by two tiers, which
are used in conjunction with risk-adjusted assets to determine risk-based
capital ratios. Commercial Bank's Tier I capital, which consists of equity less
goodwill, was $15.9 million at December 31, 1994. Tier II capital, equivalent to
the allowance for loan losses limited to 1.25% of risk-weighted assets, was $1.8
million at December 31, 1994. Tier I capital plus Tier II capital is referred to
as Total Qualifying Capital and was $17.7 million at 1994 year-end. The
percentage ratios as calculated under the guidelines were 10.7% and 12.0% for
Tier I and Total Qualifying Capital, respectively, at December 31, 1994.
The capitalization of Commercial Bank has always exceeded the minimum
ratios required for "well capitalized" banks as defined by federal regulators,
currently 4% leverage capital, 4% Tier I capital and 8% Total Qualifying
Capital. CBG continually monitors these ratios to ensure that Commercial Bank's
ratios exceed the minimum ratios required under applicable regulations.
Net Interest Income. Net interest income is the principal component of a
financial institution's income stream and represents the difference or spread
between interest and fee income generated from earning assets and the interest
expense paid on deposits and borrowed funds. Fluctuations in interest rates as
well as volume and mix changes in earning assets and interest-bearing
liabilities can materially impact net interest margin. In the following
discussion of net interest margin, tax-exempt yields and interest income amounts
are not presented on a tax-equivalent basis.
Net interest income for 1994 increased $1.4 million, or 18%, to $8.9
million from $7.5 million in 1993. This increase in net interest income resulted
primarily from growth in average earning assets, predominantly in loans, and was
offset somewhat by an increase of $666,000 in interest expense due to growth in
the volume of interest-bearing liabilities.
Interest income increased $2.0 million, or 16%, to $14.3 million in 1994
from $12.3 million in 1993. Interest income increased in 1994 due to an 11%
increase in the average volume of loans outstanding and a 39 basis point
increase in the average yield. Most categories of earning assets experienced
increases in both volume and yield in 1994 compared to 1993, with the exception
of investment securities, which had a decline in yield but an overall increase
in interest income due to volume increases.
Total interest expense increased $666,000, or 14%, in 1994 due to a 9 basis
point increase in rates paid on interest-bearing liabilities and a 12% increase
in average volume. Time deposits dominated the trend of increasing interest
expense by increasing 16% in average volume while rates remained relatively
constant.
The trend in net interest income is commonly evaluated in terms of average
rates using the net interest margin and the interest rate spread. The net
interest margin on earning assets is computed by dividing net interest income by
average total earning assets. The net interest margin increased 15 basis points
to 5.47% in 1994. The increase in net interest margin resulted from an increase
in the size of CBG's loan portfolio which generally consists of higher yielding
assets. In particular, the increase in Commercial Bank's real estate
construction portfolio, which accounted for 74% of the increase in loans during
1994, helped increase Commercial Bank's yield on earning assets. This type of
loan generally enjoys higher yields than other earning assets due to a
combination of loan fees, a variable rate structure and a shorter term of
repayment.
The interest rate spread measures the difference between the average yield
on earning assets and the average rate paid on interest-bearing liabilities. The
interest rate spread increased to 4.79% in 1994 from 4.76% in 1993.
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<PAGE> 78
The following table sets forth certain consolidated statistical information
with respect to average balances, interest income and expense, and average
yields/rates for the years ended December 31:
AVERAGE BALANCE SHEET AND ANALYSIS OF NET INTEREST INCOME
<TABLE>
<CAPTION>
1994 1993
---------------------------- ----------------------------
AVERAGE INCOME/ YIELDS/ AVERAGE INCOME/ YIELDS/
BALANCES EXPENSE RATES BALANCES EXPENSE RATES
-------- ------- ------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
AVERAGE ASSETS
Loans(1)................................ $123,007 $12,518 10.18% $110,887 $10,853 9.79%
Investment securities:
Taxable............................... 24,562 1,228 5.00% 19,702 1,135 5.76%
Tax-exempt(2)......................... 466 11 2.36% 77 2 2.60%
Federal funds sold...................... 14,414 586 4.07% 10,856 336 3.10%
Deposits in banks....................... 74 4 5.41% -- -- --%
-------- ------- ------- -------- ------- -------
Total earning assets.......... 162,523 14,347 8.83% 141,522 12,326 8.71%
Total other assets...................... 20,359 21,341
-------- --------
Total average assets.......... $182,882 $162,863
======== ========
AVERAGE LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest-bearing deposits:
NOW accounts.......................... $ 14,618 361 2.47% $ 12,484 325 2.60%
Money market accounts................. 32,120 1,066 3.32% 32,739 979 2.99%
Savings............................... 5,777 163 2.82% 4,567 118 2.58%
Time, $100,000 and over............... 18,913 858 4.54% 15,672 706 4.50%
Other time deposits................... 62,951 2,979 4.73% 55,062 2,635 4.79%
-------- ------- ------- -------- ------- -------
Total interest-bearing deposits......... 134,379 5,427 4.04% 120,524 4,763 3.95%
Noninterest-bearing deposits............ 28,491 21,177
Other liabilities....................... 1,553 31 3,610 29
-------- ------- -------- -------
Total average liabilities............... 164,423 5,458 145,311 4,792
Stockholders' equity.................... 18,459 17,552
-------- --------
Total average liabilities and
stockholders' equity........ $182,882 5,458 $162,863 4,792
======== ========
------- -------
Net interest income/Net interest
spread................................ $ 8,889 4.79% $ 7,534 4.76%
======= ===== ======= =====
Net interest margin..................... 5.47% 5.32%
===== =====
</TABLE>
- ---------------
(1) Interest income includes loan fees of $1.8 million and $1.6 million in 1994
and 1993, respectively. Nonaccrual loans are included in the average
balances, and interest income on such loans is recognized on a cash basis.
(2) Interest income on tax-exempt securities has not been presented on a
tax-equivalent basis.
The following table reflects the changes in net interest income resulting
from changes in interest rates and from asset and liability volume. Federally
tax-exempt interest is not presented on a tax-equivalent basis. The change in
interest attributable to rate has been determined by applying the change in rate
between years to average balances outstanding in later years. The change in
interest due to volume has been determined by applying the rate from the earlier
year to the change in average balances outstanding between years. Thus,
70
<PAGE> 79
changes that are not solely due to volume changes or solely due to rate changes
have been allocated on a pro rata basis between volume and rate.
RATE AND VOLUME ANALYSIS
<TABLE>
<CAPTION>
DECEMBER 31, 1994 VS. 1993
-------------------------------
CHANGES DUE TO
-------------------------------
INCREASE
RATE VOLUME (DECREASE)
----- ------ ----------
(IN THOUSANDS)
<S> <C> <C> <C>
INCREASE (DECREASE) IN:
Income from earning assets:
Interest and fees on loans........................... $ 445 $1,220 $1,665
Interest on investment securities.................... (178) 280 102
Interest on federal funds sold....................... 122 128 250
Total interest income........................ 2 2 4
----- ------ ----------
Expense from interest-bearing liabilities:............. 391 1,630 2,021
----- ------ ----------
Demand and money market................................ 77 46 123
Savings................................................ 12 33 45
Time deposits of $100,000 or more...................... 5 147 152
Other time deposits.................................... (31) 375 344
----- ------ ----------
Total interest expense....................... 63 601 664
----- ------ ----------
Net interest income.......................... $ 328 $1,029 $1,357
===== ====== ========
</TABLE>
Provision for Loan Losses, Net Charge-Offs and Allowance for Loan
Losses. The provision for loan losses is the cost of providing an allowance or
reserve for anticipated future losses on loans. The amount of the provision for
a period is dependent upon many factors including loan growth, net charge-offs,
changes in the composition of the loan portfolio, delinquencies and management's
assessment of loan portfolio quality, the value of collateral and general
economic factors.
The provision for loan losses in 1994 was $695,000 compared to $439,000 in
1993. The 58% increase in the provision during 1994 reflected the increased
volume of loans in CBG's portfolio and management's assessment of the risk of
future loan losses in the growing loan portfolio.
Net loan charge-offs were $142,000, or .12% of average loans outstanding,
during 1994 versus $215,000, or .19% of average loans, in 1993. Recoveries of
amounts previously charged off were $75,000 in 1994 and $32,000 in 1993.
Although it is CBG's policy to charge off loans in the period in which a loss is
considered probable, there are additional risks for future losses that cannot be
quantified precisely or attributed to particular loans or classes of loans.
Because these risks include the state of the economy, management's judgment as
to the adequacy of the allowance is necessarily approximate and imprecise.
The allowance for loan losses increased 39% in 1994 to $2.0 million at
December 31, 1994. At December 31, 1994, the allowance for loan losses was 1.45%
of loans outstanding.
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<PAGE> 80
The following table presents an analysis of CBG's loan loss experience for
the years ended December 31:
<TABLE>
<CAPTION>
1994 1993
------ ------
(IN THOUSANDS)
<S> <C> <C>
Balance of reserve for loan losses at beginning of year.......... $1,413 $1,189
------ ------
Charge-offs:
Commercial, financial and agricultural......................... (104) (166)
Real estate -- construction.................................... -- --
Real estate -- mortgage........................................ (3) --
Installment and other consumer................................. (110) (81)
------ ------
(217) (247)
------ ------
Recoveries:
Commercial, financial and agricultural......................... 40 30
Real estate -- construction.................................... -- --
Real estate -- mortgage........................................ -- --
Installment and other consumer................................. 35 2
------ ------
75 32
------ ------
Net charge-offs........................................ (142) (215)
------ ------
Additions to reserve charged to operating expenses............... 695 439
------ ------
Balance of reserve for loan losses at end of year................ $1,966 $1,413
====== ======
Ratio of net loan charge-offs to average loans outstanding during
the year....................................................... 0.12% 0.19%
====== ======
</TABLE>
Nonperforming Assets. Nonperforming assets include nonaccrual loans and
other real estate owned. Accruals on loans are discontinued when management
believes, after consideration of economic and business conditions and collection
efforts, that collection of interest is doubtful. Additionally, all loans
contractually past due 90 days or more which are not in the process of
collection and adequately secured are placed on nonaccrual status. Other real
estate owned represents real property acquired through foreclosure or through a
deed in lieu of foreclosure.
CBG's nonaccrual loans at December 31, 1994 totaled $770,000. Loans, the
terms of which were restructured due to the deterioration of the borrowers'
financial position, totaled $1.0 million at December 31, 1994.
There may be additional loans within CBG's portfolio that may become
nonperforming. However, management was not aware of any such loans that are
material in amount at December 31, 1994. Management continues to emphasize the
need to maintain a low level of nonperforming assets and to return nonperforming
assets to earning status.
Other real estate owned totaled $1.5 million at December 31, 1994. The
primary component of other real estate is a 159 acre single family housing
development located in Fulton County, Georgia, obtained through foreclosure in
1992. Management determined the best strategy to obtain the highest value for
this property was to liquidate the property in two phases. Phase one, consisting
of 34 building lots already developed, would be sold to builders. In Phase two,
52 acres would be developed into 36 building lots and sold to builders and the
remaining 30 acres divided into large tracts and marketed to individuals and
builders. The property had an original book value of $1.6 million, which had
been reduced to $936,000 at December 1994 through the sale of building lots and
the recording of a $200,000 reserve on the property due to uncertainties in the
real estate market and a recent appraisal of the property.
Noninterest Income. Noninterest income consists of revenue generated from
a broad range of financial services and activities, including fee-based
services, gains on sales of loans and investment securities gains and losses.
Noninterest income increased $81,000, or 4%, to $2.2 million in 1994 from $2.1
million in 1993.
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<PAGE> 81
Mortgage origination fees totaled $164,000 in 1994, a decrease of $310,000,
or 65%, from $474,000 in 1993. This decrease resulted from management's decision
to pursue mortgage-related business only as an adjunct to its core business base
and the closing of the mortgage department.
Gains on sales of loans of $526,000 in 1994 remained relatively constant
compared to $530,000 in gains in 1993. In addition, loan servicing fees
increased $69,000, or 37%, to $255,000, due to a larger servicing portfolio
outstanding in 1994.
Service charges on deposits were $919,000 in 1994, an increase of $247,000,
or 37%, over the 1993 amount of $672,000. The increase in 1994 was attributable
to a repricing of service charges assessed to deposit account customers and an
increase in the average volume of noninterest-bearing demand deposit accounts.
CBG's electronic banking department completed its first full year of
operations in 1994 and provided $116,000 in income from debit card servicing
fees. These fees are from the department's debit card sponsorship program.
Other operating income increased 14%, or $29,000, to $235,000 in 1994
compared to $206,000 in 1993, primarily due to an increase in miscellaneous
income.
CBG had no gains or losses on securities transactions in 1994 as compared
to gains of $67,000 in 1993. The future results of securities sales are
dependent on factors such as movements in interest rates and changes in the
securities markets, neither of which can be predicted with certainty.
Noninterest Expense. Operating expenses of $9.2 million increased $1.3
million, or 17%, during 1994 over the 1993 amount of $7.9 million. Salaries and
related expense of $4.5 million increased $472,000, or 12%, from $4.0 million in
1993. These increases reflected the salaries of additional employees hired in
connection with the establishment of a new branch facility and loan origination
office. Cost reductions regarding personnel were begun in 1994. However, the
costs related to various severance agreements nullified the 1994 effects of
these reductions. These cost reduction programs did include the closing of one
of CBG's branches. However, this branch closing occurred in December 1994,
leaving the effects of the salary and occupancy reductions to be felt during
1995.
Occupancy expense of $1.4 million in 1994 increased $167,000, or 14%, from
$1.2 million in 1993. This increase in 1994 reflects costs related to opening a
branch facility and loan origination office in 1994.
Other operating expenses of $2.8 million in 1994 increased $545,000, or
24%, from $2.3 million in 1993. This increase is primarily due to expenses
related to the completed merger with the former Commercial Bancorp of Georgia,
Inc., as well as general increases due to the growth during the year.
Income Taxes. The effective tax rate as a percentage of pretax income was
42% in 1994 and 35% in 1993. The increase in the effective tax rate in 1994 is
due to the fact that a substantial portion of the merger-related expenses
incurred in 1994 are not deductible for federal income tax purposes.
SFAS No. 109, Accounting for Income Taxes, was issued by the FASB in
February 1992. CBG adopted SFAS No. 109 effective January 1, 1993, with a
$384,000 increase in earnings due to the adoption. Prior years' financial
statements have not been restated to apply the provisions of SFAS No. 109.
Dividends. CBG's only source of funds for the payment of dividends is
dividends paid by Commercial Bank. Bank regulations restrict the amount of
dividends which Commercial Bank may pay without obtaining prior approval. If
Commercial Bank meets certain requirements pertaining to credit quality and
capital ratios, dividends may be paid to CBG if the aggregate amount of
dividends declared in the calendar year does not exceed 50% of the net profits
after taxes, but before dividends, for the previous calendar year. Commercial
Bank has not paid any dividends to CBG in 1994 and 1993.
Other Accounting Issues. The FASB has issued SFAS No. 114, Accounting by
Creditors for Impairment of a Loan. SFAS No. 114 requires that impaired loans be
measured on the present value of expected future cash flows discounted at the
loan's effective interest rate, which is the contractual interest rate adjusted
for any deferred loan fees or costs, premium, or discount existing at the
inception or acquisition of the loan.
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<PAGE> 82
SFAS No. 114 is effective for fiscal years beginning after December 15, 1994,
with earlier adoption permitted. CBG plans to adopt SFAS 114 in 1995 as
required.
The FASB has issued SFAS No. 115, Accounting for Certain Investments in
Debt and Equity Securities, which requires that a bank's debt securities be
classified in one of three categories based on management's ability and intent
to hold the securities: (1) trading securities; (2) securities held to maturity;
or (3) securities available for sale. Securities held in a trading account are
reported at fair value, with unrealized gains and losses included in earnings.
Securities designated as held to maturity are reported at amortized cost.
Securities classified as available for sale are reported at fair value with
unrealized gains and losses, net of taxes, excluded from earnings and shown
separately as a component of shareholders' equity. In conjunction with the
adoption of SFAS No. 115, in 1994 CBG transferred investment securities totaling
$9.3 million to held to maturity and securities totaling $2.6 million to
available for sale.
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<PAGE> 83
BUSINESS OF BANCGROUP
GENERAL
BancGroup is a bank holding company registered under the Bank Holding
Company Act of 1956, as amended. It was organized in 1974 under the laws of
Delaware. BancGroup operates as its wholly-owned subsidiary bank in Alabama,
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. 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. 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 real
estate loans. The lending activities of Colonial Bank are dependent upon the
demands within the local markets of its branches. Based on this demand, loans
collateralized by commercial real estate have been the fastest growing component
of Colonial Bank's loan portfolio.
LENDING ACTIVITIES OF BANCGROUP
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, Georgia and Tennessee 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 multifamily 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.
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<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 and $2,600,000 in
cash will be offered to the stockholders of Dothan Federal. The actual number of
shares of BancGroup Common Stock (but not the cash) 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 Dothan Federal and approval by appropriate regulatory
authorities. At March 31, 1996, Dothan Federal had assets of $49.0 million,
deposits of $42.4 million and stockholders' equity of $4.0 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 February 15,
1996, to acquire Southern Banking Corporation, Orlando, Florida ("Southern").
Southern is a Florida corporation and is a holding company for Southern Bank of
Central Florida. Southern will merge with BancGroup and following such merger
Southern Bank of Central Florida will become a subsidiary of BancGroup with the
name "Colonial Bank". A total of 1,605,235 shares of Common Stock of BancGroup
will be offered to the stockholders of Southern, not counting additional shares
to be issued to certain persons holding options to purchase Southern common
stock under stock option plans. This transaction is subject to, among other
things, approval by the stockholders of Southern and approval by appropriate
regulatory authorities. At March 31, 1996, Southern had assets of $228.8
million, deposits of $209.3 million and stockholders' equity of $17.3 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 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 Common Stock were
subject to issue upon exercise of options pursuant to BancGroup's stock option
plans and up to 333,333 shares of Common Stock were issuable upon conversion of
BancGroup's 1986 Debentures. There are currently 44,000,000 shares of Common
Stock authorized.
76
<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.
<TABLE>
<CAPTION>
SHARES OF BANCGROUP
BENEFICIALLY OWNED
----------------------------
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(2)................................................. 1,099,649 7.93
Post Office Box 250
Montgomery, AL 36142
Thomas H. Lowder(2)................................................ 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.
77
<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.
<TABLE>
<CAPTION>
SHARES OF BANCGROUP
BENEFICIALLY OWNED
------------------------------
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...................................................... 27,646 *
CERTAIN 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 & Directors as a Group.................... 2,161,674(7) 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.
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<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 Bank Holding
Company Act of 1956 as amended (the "BHC Act") 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, a
federal savings bank, 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 BHC Act 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 BHC Act to permit bank holding companies,
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subject 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
bank's 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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BUSINESS OF CBG
GENERAL
CBG was incorporated under the laws of the State of Georgia on April 19,
1989, under the name "Commercial Bancorp of Gwinnett, Inc.," for the purpose of
becoming a bank holding company for Commercial Bank. Commercial Bank was
originally organized as a federally chartered national bank on July 27, 1990
under the name "Commercial Bank of Gwinnett, N.A." On June 7, 1990, CBG
completed its initial public offering of 620,000 shares of CBG Common Stock at a
price of $10.00 per share. On July 27, 1990, CBG used $6,000,000 of the proceeds
from the offering to acquire all of the capital stock of Commercial Bank. In
December 1994, Commercial Bank converted from a national bank charter to a state
bank charter under the laws of the State of Georgia and changed its name to
"Commercial Bank of Gwinnett".
On March 2, 1995, CBG acquired in a merger transaction Georgia Bancorp, a
Georgia corporation and the bank holding company for Georgia Bank. Georgia
Bancorp was incorporated under the laws of the State of Georgia on January 13,
1988, for the purpose of becoming a bank holding company for Georgia Bank.
Georgia Bancorp completed its initial public offering of 1,200,000 shares of its
Common Stock at a price of $10.00 per share in June 1988. On June 17, 1988,
Georgia Bancorp used $8,000,000 of the proceeds from its public offering to
acquire all of the capital stock of Georgia Bank.
At the effective time of the merger transaction in which CBG acquired
Georgia Bancorp, CBG changed its name to "Commercial Bancorp of Georgia, Inc."
On September 30, 1995, Georgia Bank merged with Commercial Bank and Commercial
Bank, as the surviving bank, changed its name to "Commercial Bank of Georgia."
Currently, CBG does not engage in any significant activities other than its
ownership and operation of Commercial Bank. As a result, the results of
operations and financial condition of CBG are determined primarily by the
results of operations and financial condition of Commercial Bank.
Commercial Bank is engaged in the commercial banking business in the
metropolitan Atlanta area through its main office in Lawrenceville, Gwinnett
County, Georgia and through six branch offices located in Gwinnett, Fulton, Cobb
and DeKalb Counties, Georgia. Commercial Bank's business consists primarily of
attracting deposits from the general public and, with these funds, making
consumer loans, commercial loans, residential construction loans and other
investments.
Commercial Bank's earnings are primarily from net interest income which
represents the difference or spread between interest and fee income generated
from earning assets and the interest expense paid on deposits and borrowed
funds. Fluctuations in interest rates as well as volume and mix changes in
earning assets and interest-bearing liabilities can materially impact net
interest income. A measure of this relationship is the net interest margin and
yield on earning assets. For 1995, the yield on earning assets was 9.74% and the
rate paid on interest-bearing liabilities was 5.19%. CBG's net interest income
for 1995 was $10.6 million and was equivalent to an interest rate spread of
4.55%. Net interest margin, defined as net interest income as a percentage of
average earning assets, was 5.43% for 1995. The earnings of CBG are
significantly influenced by the direction and magnitude of interest rate
movements in the economy. Because of the direct bearing interest rate
fluctuations have on the earning ability of CBG, interest rate risk management
is an important component of CBG's overall asset and liability management
strategy.
LENDING ACTIVITIES
CBG's loan portfolio consists primarily of commercial, real estate and
consumer loans. CBG makes substantially all of its loans to individuals residing
in Georgia and to businesses headquartered or conducting a substantial portion
of their business in Georgia. Loans at December 31, 1995, totaled $142.3 million
net of allowance for loan losses.
Commercial loans totaled $34.5 million at December 31, 1995, and consisted
of loans to individuals, partnerships and businesses for a variety of business
purposes such as business expansion, working capital and similar needs. CBG
considers small and medium size businesses to be the primary market. The typical
loan
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has an average maturity of 15 months and has a variable interest rate that is
tied to prime rate. CBG has no concentrations of loans to particular borrowers
and no loans to foreign entities.
Real estate loans to residential home builders for the construction of
single family houses and loans secured by real estate totaled $58.1 million at
December 31, 1995. These loans generally have a maturity of less than one year,
have variable interest rates tied to prime rate, and have related commitment
fees of up to 2% of the loan amount. The risk associated with real estate
construction is evaluated closely in the underwriting and loan approval process.
During construction and up to the time of the loan payoff, property subject to
loans is inspected for work completed, condition and marketing.
At December 31, 1995, CBG had outstanding $45.0 million in real estate
mortgage loans. CBG originates these loans with either fixed or adjustable rates
primarily for retention in the loan portfolio. These loans are secured by
residential real estate.
Installment and other consumer loans outstanding at December 31, 1995, of
$8.0 million are loans made directly to individuals for various purposes
including home improvement, automobile purchases and other consumer purchases.
These loans are generally made for a term of five years or less and at a fixed
rate of interest.
LOAN ORIGINATION
Loans are originated by 26 officers who have positions with
responsibilities devoted primarily to lending activities. Sources of loan
requests include current customers, referrals, individuals and corporations
solicited, and customers who seek loans on an unsolicited basis (walk-ins). Loan
requests and applications are processed with supporting documentation in a
standard manner.
Loan approval is governed by a written loan policy of CBG. The Board of
Directors of Commercial Bank has established lending authorities and reporting
limits for each loan officer. Each loan made in excess of a loan officer's limit
must be submitted to the next higher lending authority up to a loan request
amount of $200,000. All loans over $200,000 must be approved by the Officers'
Loan Committee composed of five senior officers of Commercial Bank including the
President and Senior Credit Officer of Commercial Bank. This committee meets
weekly and can approve loan relationships up to $500,000.
Each loan relationship of $500,000 or more must be approved by Commercial
Bank's Directors' Loan Committee consisting of the President, Chief Credit
Officer and four directors. The Loan Committee meets as needed and is authorized
by the Board of Directors to approve loan requests up to Commercial Bank's legal
lending limit for any single borrower.
CBG's lending policy is designed to minimize risk in all segments of the
portfolio by restricting loans to customers doing business in its immediate
market area. Additionally, it is CBG's policy to maintain loan relationships
with its deposit customers, rather than seek high yield transactional loans.
CBG's policy prohibits loans to borrowers with impaired credit history and
prohibits loans with extended terms. Real estate loans not related to
construction, acquisition and development are based generally on the borrower's
income and ability to repay from normal, ongoing business activities and are not
dependent on the sale of real estate collateral for repayment. Construction,
acquisition and development loans are restricted to proven builders and
developers and are based on the borrower's capital, historical profitability,
and the relationship of the project to current market conditions. In addition,
all loans to a borrower are reviewed, regardless of classification, each time
such borrower requests a renewal or extension of any loan or requests an
additional loan. All lines of credit are reviewed annually prior to renewal.
CBG may sell loan participations to other financial institutions and
investors. Loans deemed too large an indebtedness for a single loan relationship
are partially sold as participations to other financial institutions. Loans are
also sold as participations when the volume of loans exceeds a desired level of
concentration in CBG's portfolio. The guaranteed portion of loans originated
under the auspices of the SBA are sold to investors to avoid a concentration
risk and as a source of income. Total loans sold from CBG's primary lending
categories of construction and SBA loans totaled $5.0 million in 1995.
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LOAN FEE INCOME
CBG receives commitment fees and other loan fees for the origination of
loans. Fee income derived from these sources varies with competitive conditions,
the volume of origination, prepayments, and loans sold or participated.
Commitment fees and fees related to loans originated are received from a
borrower for granting a loan and are a percentage of the loan amount, generally
less than 2%. Fees received from borrowers are recognized in the period received
to the extent of the related cost of origination. The remaining loan fees are
deferred over the life of the loan and amortized to income as a yield adjustment
for the related loan in accordance with Statement of Financial Accounting
Standards No. 91, "Accounting for Nonrefundable Fees and Cost Associated with
Originating or Acquiring Loans and Initial Direct Cost of Leases." Fee income
recognized in this manner totaled $1.8 million in 1995. Fee income received for
late payment charges and other services are not a material source of income.
NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES
It is the policy of CBG that all loans are subject to an independent
review. This function is performed by the loan review officer as the mechanism
for implementing this policy. The loan review officer is responsible for the
independent review of all borrowing relationships involving commitments of funds
that exceed $500,000, including total relationships that exceed $500,000, and
all loans rated substandard or worse. These loans are reviewed at least
annually. The review ensures that the borrowing relationship meets all legal and
bank loan policy requirements, loan authorities have been met, credit
information is adequate to support the loan, collateral is valid and sufficient
liens have been perfected, and legal documentation has been filed.
All loans classified adversely are reviewed quarterly and past due loans
are reviewed monthly by the Officers' Loan Committee. A quarterly status report
for each adversely classified loan is submitted by the officer to update
management on any deterioration or improvement in the collectibility of the
loan.
As a matter of policy, CBG places loans on nonaccrual status whenever
collection becomes doubtful or when payment of interest or principal is 90 days
past due unless the loan is adequately secured by collateral. A loan is
charged-off when the collection of principal and interest is so questionable
that the loan can no longer be considered a sound bankable asset.
CBG maintains an allowance for loan losses sufficient to meet anticipated
future loan losses on the existing loan portfolio. The allowance amount is
determined by an internal credit rating system for all loans outstanding and
additional allocations for loans which have experienced a deterioration in
credit quality. On a monthly basis, the level of the allowance is adjusted based
on the internal rating system and management's assessment of other factors such
as loan growth trends, net charge-offs, changes in the composition of the loan
portfolio, delinquencies, the value of collateral and the general economic
factors. At December 31, 1995, the allowance for loan losses was $2.6 million
which was 1.81% of total loans outstanding.
INVESTMENT SECURITIES AND FEDERAL FUNDS SOLD
Investment securities are a major component of earning assets and total
$35.8 million at December 31, 1995. The portfolio is managed to provide an
acceptable rate of return and provide liquidity necessary to facilitate the
funding of loan commitments and to meet deposit withdrawal requests of
customers. CBG invests primarily in high grade investment quality securities
issued by the U.S. Treasury and U.S. Government agencies with maturities
generally less than five years but ranging from less than one year to seven
years.
Federal funds sold totaled $18.9 million at December 31, 1995. Deposits in
excess of lending requirements are invested in federal funds because of the need
to have liquidity for anticipated loan demand. This category of earning assets
is viewed as an excess liquidity portfolio with CBG's overall strategy.
DEPOSITS
Deposits totaled $206.6 million at December 31, 1995, and consist of a
variety of transactional accounts and time deposit accounts for individuals and
business customers. CBG accepts deposits at the main office and six branch
offices. Interest rates paid on deposit accounts are very competitive in the
Atlanta market. CBG
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offers competitive interest rates in its market area without aggressively
pricing its deposit rates. CBG has been successful in obtaining commercial
deposits from its loan customers and seeks to cross-sell its retail deposit
customers with other services.
BORROWINGS
CBG has unsecured lines of credit for federal funds purchased available
from correspondent banks totaling $8.0 million at December 31, 1995. The use of
these lines is infrequent and at December 31, 1995, no amounts were utilized
under these lines.
ASSET AND LIABILITY MANAGEMENT
Asset and liability management functions not only assure adequate liquidity
to meet the needs of customers, but also monitor the interest rate sensitivity
between interest-sensitive assets and interest-sensitive liabilities. In a
banking environment, both assets and liabilities are considered sources of
funding, and both are monitored on a daily basis. The asset portion of the
balance sheet provides liquidity primarily through loan principal repayments,
maturities of investment securities and sales of investment securities. Other
short-term investments such as federal funds sold are additional sources of
liquidity funding. The liability portion of the balance sheet provides liquidity
through various customer deposit accounts. Federal funds purchased is an
additional source of short-term liquidity.
Interest rate sensitivity is a function of the repricing characteristics of
CBG's portfolio of assets and liabilities. Interest rate sensitivity management
seeks to ensure that both assets and liabilities respond to change in interest
rates within an acceptable time frame, thereby minimizing the effect of interest
rate movement on net interest income. CBG is liability sensitive within a one
year time frame in that its interest-bearing liabilities reprice more rapidly
than its loans, investment securities and federal funds sold. This provides
lower net interest income when the general level of interest rates is rising.
Conversely, this sensitivity will result in additional net interest income when
rates are declining.
DATA PROCESSING
CBG's data processing is performed by an unaffiliated independent company.
Financial data related to CBG's general accounts and loan and deposit customers'
records are accounted for in this manner. Loan servicing for SBA is accounted
for on a separate data processing system maintained by CBG.
SUPERVISION AND REGULATION
CBG is a registered bank holding company subject to regulation by the
Federal Reserve Board under the Bank Holding Company Act. CBG is required to
file financial information with the Federal Reserve Board periodically and is
subject to periodic examinations by the Federal Reserve Board. The Bank Holding
Company Act requires Federal Reserve Board approval of bank acquisitions and
prohibits a bank holding company from engaging in any business other than
banking or bank-related activities.
Since CBG is incorporated in the State of Georgia, it is also registered
with and subject to supervision and regulation by the Georgia Department. CBG
files periodic information to keep the Georgia Department informed that CBG has
complied with provisions of Georgia law and the regulations and orders issued
thereunder by the Georgia Department. The Georgia Department may make
examinations of CBG.
Commercial Bank is a state chartered bank and is subject to supervision,
regulation and examination by the Georgia Department and the Federal Deposit
Insurance Corporation ("FDIC"), which monitor all operations of Commercial Bank.
This monitoring includes review of loan loss reserve, loans, investment
securities, establishment of branches and capital. The FDIC has broad authority
to prevent the development or continuance of unsound and unsafe banking
practices. Pursuant to this authority, the FDIC has adopted regulations which,
among other things restrict preferential loans by banks to "insiders" of banks,
require banks to keep information on loans to major shareholders and executive
officers, and bar certain director and officer interlocks between financial
institutions. The FDIC also is authorized to approve conversions, mergers,
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consolidations and assumption of deposit liability transactions between insured
banks and uninsured banks or institutions and to prevent capital or surplus
diminution in such transactions where the resulting, continuing, or assumed bank
is an insured nonmember state bank. Commercial Bank is a member of the Bank
Insurance Fund of FDIC and, as such, its deposits are insured by the FDIC to the
extent provided by law.
Under Georgia law, Commercial Bank may, from time to time, pay dividends on
its outstanding shares in cash, property, or its own shares, except when
Commercial Bank is insolvent or when the payment thereof would render Commercial
Bank insolvent or when the declaration or payment thereof would be contrary to
any restrictions contained in the articles, and subject to the following
provisions: (1) dividends may be declared and paid in cash or property only out
of the retained earnings of Commercial Bank; (2) dividends may not be declared
or paid at any time that Commercial Bank does not have the paid-in capital and
appropriated retained earnings, in combination, equal to at least 20% of its
capital stock; and (3) dividends may not be paid without the prior approval of
the Georgia Department in excess of specified amounts as may be fixed by
regulations of the Georgia Department.
Commercial Bank is also subject to the provisions of the Community
Reinvestment Act of 1977, which requires the appropriate federal bank regulatory
agency, in connection with its regular examination of a bank, to assess the
bank's record in meeting the credit needs of the community serviced by the bank,
including low and moderate income neighborhoods.
MARKET AREA
CBG's principal market areas are located in the north metropolitan Atlanta,
Georgia, counties of Gwinnett, Fulton, Cobb and DeKalb. This area has
experienced sustained growth in population, per capita income, housing starts
and other indicators of economic growth. The Atlanta metropolitan area enjoys a
diverse, broadly based economy, with above average business concentrations in
the real estate industry, distribution services, financial and other industries.
Management continually monitors the impact of prevailing and expected
economic and business conditions in managing the loan portfolio. Weakening
economic conditions or strongly rising interest rates could cause a
deterioration in the quality of the loan portfolio, particularly as it relates
to the real estate and construction loans of CBG.
COMPETITION
CBG encounters intense competition in its business, generally from other
banks located in its market area, and competes for interest-bearing funds with
other banks, mutual funds and other financial institutions. Increasingly, in the
conduct of certain lending activities, CBG competes with finance companies,
savings and loan associations, credit unions, as well as other commercial banks.
The banking industry continues to experience consolidation into larger
banking enterprises. This trend will intensify as barriers to interstate banking
are removed through enacted legislation. The competition encountered by CBG for
lending opportunities and deposit acquisition will intensify as its market is
increasingly dominated by super-regional banks that are much larger in terms of
assets and deposits.
EMPLOYEES
CBG employs 121 people on a full-time equivalent basis, including 106
full-time employees. CBG provides a variety of benefit programs including group
health, accident and other insurance, and retirement plans. CBG also maintains
training, educational and affirmative action programs designed to equip
employees for positions of increasing responsibility in both management and
operation positions.
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PROPERTIES
The following table sets forth certain information concerning the offices
of CBG.
<TABLE>
<CAPTION>
YEAR SQUARE
LOCATION ACQUIRED FOOTAGE OWNED/LEASED
- ------------------------------------------------------------ -------- ------- --------------
<S> <C> <C> <C>
MAIN OFFICE:
390 Crogan Street
Lawrenceville, GA 30245..................................... 1990 24,000 Owned
BRANCH OFFICES:
500 Northridge
Atlanta, GA 30350........................................... 1988 11,737 Leased(1)
155 Norcross Street
Alpharetta, GA 30201........................................ 1991 2,500 Owned
1041 Windy Hill Road
Smyrna, GA 30080............................................ 1992 3,100 Leased(2)
3361 Clairmont Road
Atlanta, GA 30329........................................... 1992 3,115 Land leased
and building
owned(3)
5987 Mableton Parkway
Mableton, GA 30059.......................................... 1992 3,000 Owned
5245 Pleasant Hill Road
Duluth, GA 30136............................................ 1994 4,809 Owned
ELECTRONIC BANKING OPERATIONS:
175 Gwinnett Drive
Lawrenceville, GA 30245..................................... 1995 3,034 Leased(4)
</TABLE>
- ---------------
(1) The lease expires on April 30, 1997.
(2) The lease expires on July 11, 2003.
(3) The lease expires on December 31, 2001.
(4) The lease expires on August 31, 1997.
LEGAL PROCEEDINGS
CBG is not a party to any material legal proceedings.
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CBG COMMON STOCK OWNED BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth information as of May 21, 1996, regarding
the ownership of the CBG Common Stock by each director and executive officer of
CBG, by each person known to CBG to be the beneficial owner of more than 5% of
the CBG Common Stock and by all directors and executive officers as a group.
Unless otherwise indicated, all persons shown in the table have sole voting and
investment power with regard to the shares shown.
<TABLE>
<CAPTION>
SHARES OF
CBG BENEFICIALLY
NAME POSITION OWNED(1) PERCENT OF CLASS
- ---------------------------------------------------- --------------------- ----------------- ----------------
<S> <C> <C> <C>
Richard Sikes....................................... Chairman of the 29,000(2) 1.57%
Board, President and
Chief Executive
Officer
Larry D. Key........................................ Executive Vice 26,049(3) 1.42
President and
Director
John T. Hopkins, III................................ Executive Vice -- *
President and Chief
Financial Officer
Richard L. Cravey................................... Director 135,915(4) 7.32
Paul A. Duke........................................ Director 86,732(4) 4.67
Samuel N. Frankel................................... Director 36,087(5) 1.98
Carole E. Kendall................................... Director 109,771(6) 5.93
Reid Merritt........................................ Director 5,000 *
Chris A. Peifer..................................... Director 175,330(4)(7) 9.44
William W. Schultz.................................. Director 129,334(4)(8) 6.97
T. Michael Tennant.................................. Director 12,000(9) *
Worth L. Thompson, Jr............................... Director 67,000(4)(10) 3.61
James C. Walker..................................... Director 8,044(11) *
Isaac H. Willis, M.D................................ Director 127,020(12) 6.88
All directors and executive officers as a group (14 947,282(13) 46.00%
persons)..........................................
</TABLE>
- ---------------
* Less than 1%.
(1) The stock ownership information shown has been furnished to CBG by the
named persons and group. Beneficial ownership as reported in the table and
elsewhere in this Prospectus has been determined in accordance with
Securities and Exchange Commission regulations and includes shares of CBG's
Common Stock which may be acquired within 60 days upon the exercise of
outstanding stock warrants or options.
(2) The shares shown as owned by Mr. Sikes include 19,000 shares that he may
acquire upon exercise of warrants and options.
(3) The shares shown as owned by Mr. Key include 12,500 shares that he may
acquire upon exercise of warrants and options.
(4) The shares shown as owned by each of Messrs. Cravey, Duke, Peifer, Schultz
and Thompson include 30,000 shares that he may acquire upon exercise of
warrants. Mr. Cravey's address is 4855 Tanglewood Court, Atlanta, Georgia
30327.
(5) The shares shown as owned by Mr. Frankel include 36,062 shares held in Mr.
Frankel's account under the Frankel, Hardwick, Tanenbaum and Fink, P.C.
401(k) Profit Sharing Plan.
(6) The shares shown as owned by Ms. Kendall include 25,000 shares that she may
acquire upon exercise of warrants, 5,175 shares owned jointly with her two
adult children, 25,000 shares owned by her husband's Individual Retirement
Account and 5,175 shares owned by her husband.
(7) The shares shown as owned by Mr. Peifer include 6,210 shares held in trust
by Mr. Peifer's wife for the benefit of their minor children. Mr. Peifer's
address is 16308 Villa Real de Avila, Tampa, Florida 33613.
(8) The shares shown as owned by Mr. Schultz include 42,500 shares held in Mr.
Schultz's account under the Billy Schultz, Inc. Pension and Profit Sharing
Plan. Mr. Schultz's address is Suite 170, 1145 Rottenwood Drive, Marietta,
Georgia 30067.
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(9) The shares shown as owned by Mr. Tennant include 6,000 shares that he may
acquire upon exercise of warrants.
(10) The shares shown as owned by Mr. Thompson include 29,900 shares owned by
Thompson Management, Inc., a company owned by Mr. Thompson, 5,000 shares
owned by Mr. Thompson's Individual Retirement Account and 2,000 shares held
by Mr. Thompson as custodian for his two daughters.
(11) The shares shown as owned by Mr. Walker include 500 shares owned by Mr.
Walker's wife and as to which Mr. Walker disclaims beneficial ownership.
(12) The shares shown as owned by Dr. Willis include 20,000 shares that he may
acquire upon exercise of warrants, 73,820 shares owned jointly with his
wife and 20,700 shares held by his wife in trust for the benefit of his
children. Dr. Willis' address is 1411 Regency Road, N.W., Atlanta, Georgia
30327.
(13) The shares include 28,910 shares which are held in custodianship for minor
children, 500 shares owned by spouses of the directors and as to which
beneficial ownership is disclaimed and 232,500 shares which may be acquired
upon exercise of outstanding stock warrants and options.
ADJOURNMENT OF SPECIAL MEETING
Approval of the Merger by CBG's stockholders 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 CBG Common
Stock, represented in person or by proxy at the Special Meeting to approve the
Merger, CBG's Board of Directors, in its discretion, may adjourn the Special
Meeting to a later date. The place and date to 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 CBG to solicit
additional proxies for approval of the Merger. While such an adjournment would
not invalidate any proxies previously filed, including those filed by
stockholders voting against the Merger, it would afford CBG the opportunity to
solicit additional proxies in favor of the Merger.
OTHER MATTERS
The Board of Directors of CBG 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 CBG.
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 March 18, 1997.
INDEPENDENT ACCOUNTANTS
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.
Bricker & Melton, P.A., serves as the independent accountants for CBG. The
financial statements of CBG for the years ending December 31, 1995, 1994 and
1993 are included in this Prospectus in reliance upon the report of such firm
included herein and upon the authority of such firm as experts in accounting and
88
<PAGE> 97
auditing. It is expected that a representative of such firm will be present at
the Special Meeting and will have an opportunity to answer questions from
stockholders.
LEGAL MATTERS
Certain legal matters regarding the shares of 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 from
BancGroup and its subsidiaries for 1995 of $1,305,633. John C. H. Miller, Jr.
owns 10,243 shares of BancGroup Common Stock. Mr. Miller also received
employee-related compensation from BancGroup in 1995 of $58,070.
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 PERSON NAMED IN THE NOTICE OF THE
SPECIAL MEETING PRIOR TO THE SPECIAL MEETING, BY EXECUTING A LATER DATED PROXY
OR BY ATTENDING THE SPECIAL MEETING VOTING IN PERSON.
89
<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>
COMMERCIAL BANCORP OF GEORGIA, INC.
Independent Auditors' Report............................................................... F-2
Consolidated Balance Sheets, December 31, 1995 and 1994.................................... F-3
Consolidated Statements of Income Years Ended December 31, 1995, 1994 and 1993............. F-4
Consolidated Statements of Changes in Stockholders' Equity Years Ended December 31, 1995,
1994
and 1993................................................................................. F-5
Consolidated Statements of Cash Flows Years Ended December 31, 1995, 1994 and 1993......... F-6
Notes to Consolidated Financial Statements................................................. F-7
Consolidated Balance Sheets, March 31, 1996 (Unaudited) and December 31, 1995.............. F-25
Consolidated Statements of Income Three Months Ended March 31, 1996 and 1995 (Unaudited)... F-26
Consolidated Statements of Cash Flows Three Months Ended March 31, 1996 and 1995
(Unaudited).............................................................................. F-27
Notes to Consolidated Financial Statements................................................. F-28
SOUTHERN BANKING CORPORATION:
Independent Auditors' Report............................................................... F-30
Consolidated Balance Sheets, December 31, 1995 and 1994.................................... F-32
Consolidated Statements of Income Years Ended December 31, 1995, 1994 and 1993............. F-33
Consolidated Statements of Stockholders' Equity Years Ended December 31, 1995, 1994
and 1993................................................................................. F-34
Consolidated Statements of Cash Flows Years Ended December 31, 1995, 1994 and 1993......... F-35
Notes to Consolidated Financial Statements................................................. F-36
Consolidated Statements of Financial Condition, March 31, 1996 (Unaudited) and December 31,
1995..................................................................................... F-50
Consolidated Statement of Income for the Three Months Ended March 31, 1996 and 1995
(Unaudited).............................................................................. F-51
Consolidated Statement of Stockholders' Equity for the Three Months Ended March 31, 1996
(Unaudited).............................................................................. F-52
Consolidated Statements of Cash Flows Three Months Ended March 31, 1996 and 1995
(Unaudited).............................................................................. F-53
Notes to Consolidated Financial Statements................................................. F-54
DOTHAN FEDERAL SAVINGS BANK:
Report of Independent Public Accountants................................................... F-55
Statements of Financial Condition, June 30, 1995 and 1994.................................. F-56
Statements of Income Years Ended June 30, 1995, 1994 and 1993.............................. F-57
Statements of Stockholders' Equity Years Ended June 30, 1995, 1994 and 1993................ F-58
Statements of Cash Flows Years Ended June 30, 1995, 1994 and 1993.......................... F-59
Notes to Financial Statements.............................................................. F-60
Condensed Statements of Financial Condition, March 31, 1996 and 1995 (Unaudited)........... F-71
Condensed Statements of Income for the Nine Months Ended March 31, 1996 and 1995
(Unaudited).............................................................................. F-72
Statement of Stockholders' Equity for the Nine Months Ended March 31, 1996
(Unaudited).............................................................................. F-73
Statements of Cash Flows for the Nine Months Ended March 31, 1996 and 1995................. F-74
Notes to Condensed Financial Statements.................................................... F-75
</TABLE>
F-1
<PAGE> 99
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-2
<PAGE> 100
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-3
<PAGE> 101
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-4
<PAGE> 102
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-5
<PAGE> 103
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-6
<PAGE> 104
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-7
<PAGE> 105
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-8
<PAGE> 106
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-9
<PAGE> 107
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-10
<PAGE> 108
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-11
<PAGE> 109
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-12
<PAGE> 110
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-13
<PAGE> 111
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-14
<PAGE> 112
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-15
<PAGE> 113
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-16
<PAGE> 114
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-17
<PAGE> 115
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-18
<PAGE> 116
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-19
<PAGE> 117
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-20
<PAGE> 118
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-21
<PAGE> 119
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-22
<PAGE> 120
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-23
<PAGE> 121
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-24
<PAGE> 122
COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
1995
1996 ------------
------------
(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-25
<PAGE> 123
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-26
<PAGE> 124
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-27
<PAGE> 125
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-28
<PAGE> 126
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-29
<PAGE> 127
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-30
<PAGE> 128
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-31
<PAGE> 129
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-32
<PAGE> 130
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-33
<PAGE> 131
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-34
<PAGE> 132
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-35
<PAGE> 133
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-36
<PAGE> 134
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-37
<PAGE> 135
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-38
<PAGE> 136
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-39
<PAGE> 137
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-40
<PAGE> 138
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-41
<PAGE> 139
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-42
<PAGE> 140
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-43
<PAGE> 141
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-44
<PAGE> 142
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-45
<PAGE> 143
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-46
<PAGE> 144
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-47
<PAGE> 145
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-48
<PAGE> 146
SOUTHERN BANKING CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Equity in subsidiary's undistributed net income............ $2,246,670 $1,746,870 $ 831,515
Dividends received......................................... -- 10,000 --
Interest income............................................ -- 4,184 --
Other expense.............................................. (155,894) (41,489) (34,386)
Income tax benefits........................................ -- 14,038 12,939
---------- ---------- ----------
Net income............................................... 2,090,776 1,733,603 810,068
Retained earnings, beginning of period..................... 3,574,412 1,840,809 1,030,741
---------- ---------- ----------
Retained earnings, end of year............................. $5,665,188 $3,574,412 $1,840,809
========= ========= =========
</TABLE>
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- ---------
<S> <C> <C> <C>
Operating activities:
Net income............................................. $ 2,090,776 $ 1,733,603 $ 810,068
Adjustments to reconcile net income to net cash used by
operating activities:
Undistributed earnings of subsidiary................ (2,246,670) (1,746,870) (831,515)
Amortization........................................ 11,894 11,894 11,895
(Increase) in other assets.......................... -- (26,977) --
Increase in accounts payable and other
liabilities....................................... 25,000 -- --
----------- ----------- ---------
Net cash used in operating activities.......... (119,000) (28,350) (9,552)
----------- ----------- ---------
Investing activities:
Dividends received from bank........................... -- -- 94,811
Investment in bank..................................... 82,959 (5,087,061) --
----------- ----------- ---------
Net cash provided by (used in) investing
activities................................... 82,959 (5,087,061) 94,811
----------- ----------- ---------
Financing activities:
Proceeds from the issuance of common stock............. 35,040 5,134,365 --
Retirement of note payable............................. -- -- (75,780)
----------- ----------- ---------
Net cash provided by (used in) financing
activities................................... 35,040 5,134,365 (75,780)
----------- ----------- ---------
Net increase (decrease) in cash and cash
equivalents.................................. (1,001) 18,954 9,479
Cash and cash equivalents, beginning of year............. 31,266 12,312 2,833
----------- ----------- ---------
Cash and cash equivalents, end of year................... $ 30,265 $ 31,266 $ 12,312
========== ========== =========
</TABLE>
F-49
<PAGE> 147
SOUTHERN BANKING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
------------ ------------
(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........................................... 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 03/31/96 and
12/31/95................................................... $ 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-50
<PAGE> 148
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-51
<PAGE> 149
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-52
<PAGE> 150
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
=========== ============
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 investment available for sale, net.... $ (773) (272,399)
=========== ============
</TABLE>
See accompanying notes to the consolidated financial statements.
F-53
<PAGE> 151
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-54
<PAGE> 152
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-55
<PAGE> 153
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-56
<PAGE> 154
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-57
<PAGE> 155
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-58
<PAGE> 156
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-59
<PAGE> 157
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-60
<PAGE> 158
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-61
<PAGE> 159
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-62
<PAGE> 160
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-63
<PAGE> 161
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-64
<PAGE> 162
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-65
<PAGE> 163
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-66
<PAGE> 164
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-67
<PAGE> 165
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-68
<PAGE> 166
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-69
<PAGE> 167
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 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-70
<PAGE> 168
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-71
<PAGE> 169
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-72
<PAGE> 170
DOTHAN FEDERAL SAVINGS BANK
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-73
<PAGE> 171
DOTHAN FEDERAL SAVINGS BANK
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 1996 AND 1995
<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-74
<PAGE> 172
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-75
<PAGE> 173
APPENDIX A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is made and entered into and is effective
as of the 21st day of December, 1995 (the "Agreement"), by and among The
Colonial BancGroup, Inc., a Delaware corporation ("Acquiror"), and Commercial
Bancorp of Georgia, Inc., a Georgia corporation ("CBG"). Certain capitalized
terms used herein shall have the meanings ascribed to such terms in Appendix A
hereto.
W I T N E S S E T H:
WHEREAS, Acquiror owns all of the issued and outstanding shares of capital
stock of Colonial Bank; and
WHEREAS, CBG is a one-bank holding company that owns all of the issued and
outstanding capital stock of Commercial Bank; and
WHEREAS, the Boards of Directors of Acquiror, and CBG have approved the
merger of CBG with and into Acquiror (the "Merger") upon the terms and subject
to the conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants and agreements, and upon and subject to the terms and the conditions
hereinafter set forth, the parties do hereby agree as follows:
ARTICLE I
THE MERGER
1.01 The Merger. Upon the terms and subject to the conditions of this
Agreement and in accordance with applicable law, at the Effective Time (as
defined in Section 1.02 below) CBG shall be merged with and into Acquiror and
the separate existence of CBG shall thereupon cease. Acquiror shall be the
surviving corporation in the Merger (hereinafter sometimes referred to as the
"Surviving Corporation") and the name of the Surviving Corporation shall be "The
Colonial BancGroup, Inc." As a result of the Merger, Commercial Bank will become
a wholly-owned subsidiary of Acquiror.
1.02 Effective Time of the Merger. The Merger shall become effective at
the time (the "Effective Time") specified in the Certificate of Merger to be
issued by the Secretary of State of the State of Delaware. The filing of the
Certificate of Merger shall be made simultaneously with or as soon as possible
following the closing of the transactions contemplated by this Agreement in
accordance with Article XII hereof. It is the intent of the parties hereto that
the Effective Time shall be within five business days from the date of the last
required approval and the expiration of any applicable waiting periods or as
soon as practicable thereafter.
1.03 Further Acts. If, at any time after the Effective Time, the Surviving
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 Surviving Corporation, title to and
possession of any property or right of CBG or Acquiror, acquired as a result of
the Merger, or (ii) otherwise to carry out the purposes of this Agreement, CBG
or Acquiror and its officers and directors shall execute and deliver all such
proper deeds, assignments and assurances in law and do all reasonable acts
necessary or proper to vest, perfect or confirm title to, and possession of,
such property or rights in the Surviving Corporation and otherwise to carry out
the purposes of this Agreement; and the proper officers and directors of the
Surviving Corporation are fully authorized in the name of CBG or Acquiror, or
otherwise, to take any and all such action.
A-1
<PAGE> 174
ARTICLE II
THE SURVIVING CORPORATION
2.01 Articles of Incorporation. The Certificate of Incorporation of
Acquiror in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation after the Effective
Time until otherwise amended or repealed.
2.02 Bylaws. The Bylaws of Acquiror in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation after the
Effective Time until otherwise amended or repealed.
2.03 Directors and Officers of the Surviving Corporation. The directors of
Acquiror in office immediately prior to the Effective Time shall serve as the
directors of the Surviving Corporation following the Effective Time. The
officers of Acquiror in office immediately prior to the Effective Time shall
serve as the officers of the Surviving Corporation following the Effective Time.
ARTICLE III
CONVERSION OF SHARES
3.01 Conversion of Shares. Subject to the provisions of this Article III,
at the Effective Time, by virtue of the Merger and without any action on the
part of Acquiror, Colonial Bank, CBG, Commercial Bank, or the stockholders of
any of the foregoing, the shares of the constituent corporations shall be
converted as follows:
(a) Each share of capital stock of Acquiror (the "Acquiror Capital
Stock"), including the Common Stock, $2.50 par value per share of Acquiror
("Acquiror Common Stock"), and any associated rights to acquire Acquiror
Capital Stock, issued and outstanding immediately prior to the Effective
Time shall remain issued and outstanding from and after the Effective Time.
(b) Each share of Common Stock of Colonial Bank issued and outstanding
immediately prior to the Effective Time shall remain issued and outstanding
from and after the Effective Time.
(c) Each share of Common Stock, $1.00 par value per share, of CBG
("CGB Common Stock") issued and outstanding at the Effective Time (other
than treasury stock or shares held by Acquiror which shares shall be
canceled) shall cease to be outstanding and shall, by virtue of the Merger
and without any action on the part of the holder thereof, be converted into
and exchanged for the right to receive the number of shares of Acquiror
Common Stock equal to $21.07 divided by the Market Value (subject to
appropriate adjustment in the event of a stock split, stock dividend or
recapitalization or other similar event applicable to shares of Acquiror
Common Stock prior to the Effective Time) (the "Exchange Ratio") upon
surrender of the certificate representing such shares of CBG Common Stock.
The Market Value shall represent the per share market value of the Acquiror
Common Stock at the Effective Time and shall be equal to the average of the
Daily Average Value (as defined below) of the Acquiror Common Stock as
reported by The New York Stock Exchange ("NYSE") on the thirty (30) trading
days ending on the trading day immediately preceding the Effective Time.
The Daily Average Value on each trading day shall be the average of the
high and low sales price of the Acquiror Common Stock for such trading day
as reported by the NYSE.
(d) Each share of Common Stock of Commercial Bank issued and
outstanding immediately prior to the Effective Time shall remain issued and
outstanding from and after the Effective Time and shall be wholly owned by
the Surviving Corporation.
3.02 Anti-Dilution Provisions. In the event Acquiror changes the number of
shares of Acquiror Common Stock issued and outstanding prior to the Effective
Time as a result of a stock split, stock dividend, or similar recapitalization
with respect to such stock and the record date therefor (in the case of a stock
dividend) or the effective date thereof (in the case of a stock split or similar
recapitalization for which a record date is not established) shall be prior to
the Effective Time, the Market Value and, as a result, the Exchange Ratio shall
be proportionately adjusted to reflect such stock split, stock dividend or other
recapitalization.
A-2
<PAGE> 175
3.03 Fractional Shares. Notwithstanding any other provision of this
Agreement, each holder of shares of CBG Common Stock exchanged pursuant to the
Merger who would otherwise have been entitled to receive a fraction of a share
of Acquiror Common Stock (after taking into account all certificates delivered
by such holder) shall receive, in lieu thereof, cash (without interest) in an
amount equal to such fractional part of a share of Acquiror Common Stock
multiplied by the Market Value. No such holder will be entitled to dividends,
voting rights, or any other rights as a stockholder in respect of any fractional
shares.
3.04 Conversion of Stock Options, Warrants and Stock Appreciation
Rights. (a) At the Effective Time, all rights with respect to CBG Common Stock
pursuant to stock options, stock purchase warrants or similar rights, including
rights under contracts with employees of Commercial Bank (collectively, "CBG
Options"), granted by CBG or Commercial Bank, which are outstanding at the
Effective Time, whether or not exercisable, shall be converted into and become
rights with respect to Acquiror Common Stock, and Acquiror shall assume each CBG
Option, in accordance with the terms of the agreement or plan by which it is
evidenced, except that from and after the Effective Time, (i) each CBG Option
assumed by Acquiror may be exercised solely for shares of Acquiror Common Stock,
(ii) the number of shares of Acquiror Common Stock subject to such CBG Option
shall be equal to the number of shares of CBG Common Stock subject to such CBG
Option immediately prior to the Effective Time multiplied by the Exchange Ratio,
and (iii) the per share exercise price under each such CBG Option shall be
adjusted by dividing the per share exercise price under each such CBG Option by
the Exchange Ratio and rounding up to the nearest cent. Notwithstanding the
provisions of clause (ii) of the preceding sentence, Acquiror shall not be
obligated to issue any fraction of a share of Acquiror Common Stock upon
exercise of CBG Options and any fraction of a share of Acquiror Common Stock
that otherwise would be issued upon the exercise of a converted CBG Option shall
represent the right to receive a cash payment upon exercise of such converted
CBG Option equal to the product of such fraction and the difference between the
market value of one share of Acquiror Common Stock at the time of exercise of
such Option and the per share exercise price of such CBG Option as adjusted
pursuant to clause (iii) of the preceding sentence. The market value of one
share of Acquiror Common Stock at the time of exercise of a CBG Option shall be
the last sale price of such common stock on the NYSE (as reported by The Wall
Street Journal or, if not reported thereby, any other authoritative source
selected by Acquiror) on the last trading day preceding the date of exercise. As
soon as practicable after the Effective Time, Acquiror shall file a registration
statement on Form S-3 or Form S-8, as the case may be (or any successor or other
appropriate forms), with respect to the shares of Acquiror Common Stock subject
to such options and shall use its reasonable best efforts to maintain the
effectiveness of such registration statement (and maintain the current status of
the prospectus or prospectuses contained therein) for so long as such CBG
Options remain outstanding. Schedule 3.04(a) lists the names of all persons
holding CBG Options, the number of shares of CBG Common Stock issuable upon
exercise of such CBG Options and the per share exercise price of such CBG
Options.
As soon as practicable after the Effective Time, Acquiror shall deliver to
the holders of each CBG Option an appropriate notice setting forth such holder's
rights pursuant to such CBG Option following the Merger. At or prior to the
Effective Time, Acquiror shall take all corporate action necessary to reserve
for issuance sufficient shares of Acquiror Common Stock for delivery upon the
exercise of CBG Options assumed by it in accordance with this Section 3.04.
(b) At the Effective Time, all obligations of CBG or Commercial Bank under
stock appreciation rights or similar rights, including rights under the
Commercial Bancorp of Georgia, Inc. and Commercial Bank of Georgia Deferred
Compensation Plan for Directors, as amended, the Commercial Bancorp of Georgia,
Inc., Commercial Bank of Georgia and Commercial Bank of Gwinnett 1995 Deferred
Compensation Plan for Directors (such plans are referred to herein collectively
as the "Deferred Compensation Plans") and under contracts with employees of CBG
or Commercial Bank (such stock appreciation rights and similar rights are
referred to as "CBG Stock Appreciation Rights"), granted by CBG or Commercial
Bank shall be assumed by Acquiror. Within ten (10) days following the Effective
Time, Acquiror shall pay to each holder of CBG Stock Appreciation Rights cash
equal to the value of such holder's CBG Stock Appreciation Right(s) determined
in accordance with the terms of the plan or agreement under which such rights
were granted except that, solely for purposes of determining the amount of cash
to be paid to participants in the Deferred Compensation Plans,
A-3
<PAGE> 176
each Stock Unit (as defined in the respective Deferred Compensation Plan)
credited to a participant's account under the Deferred Compensation Plans shall
be deemed to have a value of $21.07 without regard to the fair market value of
the CBG Common Stock on the immediately preceding Valuation Date (as defined in
the Deferred Compensation Plans). Effective as of the day immediately following
the date hereof, no additional director fees will be deferred under the Deferred
Compensation Plans. Schedule 3.04(b) sets forth the names of all persons holding
CBG Stock Appreciation Rights, the number of units of stock appreciation rights
and the current method of determining the value of such stock appreciation
rights.
3.05 Exchange Procedures. Promptly after the Effective Time, Acquiror
shall cause the exchange agent selected by Acquiror (the "Exchange Agent") to
mail to the former stockholders of CBG appropriate transmittal materials. After
the Effective Time, each holder of shares of CBG Common Stock issued and
outstanding at the Effective Time shall surrender the certificate or
certificates representing such shares to the Exchange Agent and shall promptly
upon surrender thereof receive in exchange therefor the consideration provided
in Section 3.01 of this Agreement, together with all undelivered dividends or
distributions in respect of such shares (without interest thereon) pursuant to
Section 3.06 of this Agreement. To the extent required by Section 3.03 of this
Agreement, each holder of shares of CBG Common Stock issued and outstanding at
the Effective Time also shall receive, upon surrender of the certificate or
certificates representing such shares, cash in lieu of any fractional share of
Acquiror Common Stock to which such holder may be otherwise entitled (without
interest). Acquiror shall not be obligated to deliver the consideration to which
any former holder of CBG Common Stock is entitled as a result of the Merger
until such holder surrenders such holder's certificate or certificates
representing the shares of CBG Common Stock for exchange as provided in this
Section 3.05. The certificate or certificates of CBG Common Stock so surrendered
shall be duly endorsed as the Exchange Agent may require. Any other provision of
this Agreement notwithstanding, neither Acquiror, the Surviving Corporation nor
the Exchange Agent shall be liable to a holder of CBG Common Stock for any
amounts paid or property delivered in good faith to a public official pursuant
to any applicable abandoned property law.
3.06 Rights of Former CBG Stockholders. At the Effective Time, the stock
transfer books of CBG shall be closed as to holders of CBG Common Stock
immediately prior to the Effective Time and no transfer of CBG Common Stock by
any such holder shall thereafter be made or recognized. Until surrendered for
exchange in accordance with the provisions of Section 3.05 of this Agreement,
each certificate theretofore representing shares of CBG Common Stock shall from
and after the Effective Time represent for all purposes only the right to
receive the consideration provided in Sections 3.01 and 3.03 of this Agreement
in exchange therefor. Whenever a dividend or other distribution is declared by
Acquiror on the Acquiror Common Stock, the record date for which is at or after
the Effective Time, the declaration shall include dividends or other
distributions on all shares issuable pursuant to this Agreement, but beginning
60 days after the Effective Time no dividend or other distribution payable to
the holders of record of Acquiror Common Stock as of any time subsequent to the
Effective Time shall be delivered to the holder of any certificate representing
shares of CBG Common Stock issued and outstanding at the Effective Time until
such holder surrenders such certificate for exchange as provided in Section 3.05
of this Agreement. However, upon surrender of such CBG Common Stock certificate,
both the Acquiror Common Stock certificate (together with all such undelivered
dividends or other distributions without interest) and any undelivered dividends
and cash payments to be paid for fractional share interests (without interest)
shall be delivered and paid with respect to each share represented by such
certificate.
3.07 Dissenters' Rights. Notwithstanding Section 3.01, no outstanding
share of CBG Common Stock shall be converted into or represent a right to
receive any shares of Acquiror Common Stock pursuant to Section 3.01 if the
holder thereof has demanded and perfected his demand for payment of the fair
value of such share in accordance with the applicable provisions of Article 13
of the Georgia Business Corporation Code (the "Dissenter Provisions") and has
not effectively withdrawn or lost his right to such payment. All such shares of
CBG Common Stock shall represent only the rights granted with respect to such
shares pursuant to the Dissenter Provisions. CBG shall give notice to Acquiror
upon receipt by CBG of any written demands for payment of the fair value of CBG
Common Stock and of withdrawals of such demands and any other written
communications provided in accordance with or pursuant to the Dissenter
Provisions (any stockholder duly making such a demand being hereinafter called a
"Dissenting Stockholder"). Acquiror shall
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have the right to participate in all negotiations and proceedings with respect
to any Dissenting Stockholder. CBG agrees that it will not, except with the
prior consent of Acquiror, make any determination of fair value or any payment
with respect to, or settle or offer to settle any matter arising out of, any
dissent. Each Dissenting Stockholder, if any, who becomes entitled to payment
for his shares of CBG Common Stock pursuant to the Dissenter Provisions shall
receive payment therefor from Acquiror (but only after the amount thereof shall
have been agreed upon or finally determined pursuant to the Dissenter
Provisions) and such dissenting shares of CBG Common Stock shall be canceled. If
any holder of shares of CBG Common Stock who demands payment of the fair value
of his shares under the Dissenter Provisions shall effectively withdraw or lose
(through failure to perfect or otherwise) his right to such payment at any time,
the shares of CBG Common Stock of such holder shall be converted into a right to
receive the consideration set forth in Section 3.01 hereof.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CBG
CBG represents and warrants to Acquiror as follows:
4.01 Organization. CBG is a corporation validly existing and in good
standing under the laws of the State of Georgia. CBG has all requisite corporate
power and authority to carry on and conduct its business as now being conducted
and to own, lease or operate its material properties and assets. CBG is duly
qualified as a foreign corporation, and is in good standing, in each state and
foreign jurisdiction where the character of its assets or the nature or conduct
of its business requires it to be so qualified except for such states and
jurisdictions in which the failure to be so qualified will not have a Material
Adverse Effect on CBG.
4.02 Power and Authority. CBG has the corporate power and authority
necessary to execute, deliver and perform its obligations under this Agreement
and to consummate the transactions contemplated hereby. The execution, delivery
and performance of this Agreement, and the consummation of the transactions
contemplated hereby, have been duly and validly authorized by all necessary
corporate action on the part of CBG (subject to receipt of appropriate approval
by the stockholders of CBG). Subject to such stockholder approval, this
Agreement constitutes CBG's legal, valid and binding obligation, enforceable
against CBG in accordance with its terms.
4.03 Capitalization. (a) The authorized capital stock of CBG consists of
(i) 10,000,000 shares of CBG Common Stock, of which 1,826,708 shares are issued
and outstanding (not including shares reserved for issuance upon the exercise of
CBG Options) and 35,000 shares were held as treasury shares as of the date of
this Agreement, and (ii) 10,000,000 shares of serial preferred stock, $1.00 par
value per share, none of which are issued and outstanding. All of the issued and
outstanding shares of capital stock of CBG are duly and validly issued and
outstanding and are fully paid and nonassessable under the Georgia Business
Corporation Code. None of the outstanding shares of capital stock of CBG has
been issued in violation of any preemptive rights of the current or past
stockholders of CBG. CBG has reserved 348,351 shares of CBG Common Stock for
issuance upon the exercise of outstanding CBG Options.
(b) Except as set forth in Schedule 4.03(b) hereto, there are no
outstanding subscriptions, options, calls, contracts, commitments,
understandings, restrictions, arrangements, rights or warrants, including any
right of conversion or exchange under any outstanding security, instrument or
other agreement, obligating CBG to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of the capital stock of CBG or
obligating CBG to grant, extend or enter into any such agreement or commitment.
4.04 Subsidiaries. CBG has no direct or indirect Subsidiaries other than
Commercial Bank, which is a commercial bank duly organized, validly existing and
in good standing under the laws of the State of Georgia and has the corporate
power and authority necessary for it to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted. Commercial
Bank is qualified to do business, and is in good standing, in each jurisdiction
in which the properties owned, leased or operated by it or the nature of the
business conducted by it makes such qualification necessary except for
jurisdictions in which the failure to so qualify would not have a Material
Adverse Effect on CBG. Commercial Bank is an "insured institution" as
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defined in the Federal Deposit Insurance Act and applicable regulations
thereunder, and its deposits are insured by the Bank Insurance Fund to the
extent permitted by applicable law. All of the outstanding shares of capital
stock of Commercial Bank are validly issued, fully paid, nonassessable and free
of preemptive rights and are owned by CBG free and clear of any liens, claims,
encumbrances, security interests, equities, charges and options of any nature
whatsoever. There are no subscriptions, options, warrants, rights, calls,
contracts, proxies or other commitments, understandings, restrictions or
arrangements relating to the issuance, sale, voting, transfer, ownership or
other rights with respect to any shares of capital stock of Commercial Bank,
including any right of conversion or exchange under any outstanding security,
instrument or agreement.
4.05 Information Supplied for Use in Registration Statement. Written
information supplied by CBG to Acquiror and designated specifically for use in
the Registration Statement (as hereinafter defined) or any amendment or
supplement thereto, 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. The Registration Statement on Form S-4
including the Proxy Statement/Prospectus set forth therein, to be filed by
Acquiror with the Commission in connection with the registration under the
Securities Act of 1933, as amended (the "Securities Act"), of the Acquiror
Common Stock, as amended at the time it becomes effective and as thereafter
amended, is referred to herein as the "Registration Statement." The Proxy
Statement/Prospectus in the form included in the Registration Statement at the
time it becomes effective and at the time it is delivered to the stockholders of
CBG is referred to herein as the "Proxy Statement/Prospectus."
4.06 Financial Statements. (a) CBG has filed and made available to
Acquiror all forms, reports, and documents filed by CBG with the Commission
since December 31, 1994 (collectively the "CBG SEC Reports"). The CBG SEC
Reports (i) at the time filed, complied in all material respects with the
applicable requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and (ii) did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated in such CBG SEC Reports or necessary in
order to make the statements in such CBG SEC Reports, in light of the
circumstances under which they were made, not misleading in any material
respects.
(b) Schedule 4.06(b) contains (i) the audited consolidated balance sheets
(including related notes and schedules) of CBG as of December 31, 1994, the
related audited consolidated statements of income, retained earnings, and cash
flows (including related notes and schedules) for each of the three years in the
period ended December 31, 1994 (the "Audited Financial Statements"); and (ii)
the unaudited consolidated balance sheet (including related notes and schedules)
of CBG as of September 30, 1995, the related unaudited consolidated statements
of income, retained earnings, and cash flows (including related notes and
schedules), for the three and nine month periods then ended (such unaudited
consolidated financial statements hereinafter are referred to as the "Interim
Financial Statements," and the Interim Financial Statements and the Audited
Financial Statements are referred to collectively as the "CBG Financial
Statements"). The Audited Financial Statements present fairly in all material
respects the consolidated financial position of CBG and the results of its
operations as of the respective dates and for the respective periods covered by
the Audited Financial Statements. The Audited Financial Statements have been
prepared in accordance with generally accepted accounting principles ("GAAP") or
regulatory accounting principles applicable to banks and bank holding companies
applied on a consistent basis. The Interim Financial Statements have been
prepared in accordance with GAAP or regulatory accounting principles applicable
to banks and bank holding companies (in each case as applicable to interim
unaudited financial statements) and present fairly in all material respects the
consolidated financial position of CBG and the results of its operations as of
the respective dates and for the respective periods covered by the Interim
Financial Statements, subject to normal and recurring year-end adjustments which
are not expected to be material in amount.
(c) Since September 30, 1995, except as disclosed in the CBG Financial
Statements, the CBG and SEC Reports or in Schedule 4.06(c) hereto, there have
been no events, changes, or occurrences which have had, or will have, a Material
Adverse Effect on CBG.
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4.07 No Undisclosed Liabilities. Except as reflected and reserved against
in the CBG Financial Statements, or disclosed in the notes thereto, or as shown
in Schedule 4.07, neither CBG nor Commercial Bank has incurred since September
30, 1995 any material liability or obligation which will have a Material Adverse
Effect on CBG, except for liabilities and obligations incurred by CBG or
Commercial Bank in the ordinary course of its business. Except as set forth in
Schedule 4.07, since September 30, 1995, neither CBG nor Commercial Bank has
incurred or paid any material liability or obligation which would have a
Material Adverse Effect on CBG except for liabilities and obligations incurred
by CBG or Commercial Bank in the ordinary course of its business.
4.08 No Violation of Law. Each of CBG and Commercial Bank has in effect
all Permits necessary for it to carry on its business as now conducted, except
for those Permits the absence of which will not have a Material Adverse Effect
on CBG, and there has occurred no Default under any such Permit, other than
defaults which will not have a Material Adverse Effect on CBG. Except as
disclosed in Schedule 4.08 hereto, neither CBG nor Commercial Bank:
(a) to the knowledge of CBG, is in violation of any Laws, Orders, or
Permits applicable to its business or employees conducting its business,
except for violations which will not have a Material Adverse Effect on CBG;
and
(b) since January 1, 1994, has received any notification or
communication from any agency or department of federal, state, or local
government or any Agency or the staff thereof (i) asserting that CBG or
Commercial Bank is not in compliance with any of the Laws or Orders which
such governmental authority or Agency enforces, where such noncompliance
will have a Material Adverse Effect on CBG, (ii) threatening to revoke any
Permits, the revocation of which will have a Material Adverse Effect on CBG
or (iii) requiring CBG or Commercial Bank to enter into or consent to the
issuance of a cease and desist order, formal agreement, directive,
commitment, or memorandum of understanding, or to adopt any Board
resolution or similar undertaking, which restricts materially the conduct
of its business, or relates to its capital adequacy, its credit or reserve
policies, its management, or the payment of dividends.
4.09 Assets. (a) Except as disclosed in Schedule 4.09 hereto or as
disclosed or reserved against in the CBG Financial Statements, CBG and
Commercial Bank have good and marketable title, free and clear of all Liens, to
all of their respective material Assets reflected in CBG's most recent balance
sheet referred to in Section 4.06.
(b) Schedule 4.09(b) sets forth a list and description of all material real
and personal property owned or leased by CBG or Commercial Bank, either as
lessor or lessee.
(c) Except as disclosed in Schedule 4.09(c) hereto, there are presently no
claims pending under any policies of insurance and no notices have been given by
CBG or Commercial Bank under such policies.
4.10 Indebtedness. Schedule 4.10 sets forth a complete and accurate list
and description of all instruments or other documents relating to any direct or
indirect indebtedness for borrowed money of CBG and Commercial Bank (other than
deposit liabilities), as well as indebtedness by way of lease-purchase
arrangements, guarantees, undertakings on which others rely in extending credit
and all conditional sales contracts, chattel mortgages and other security
arrangements with respect to personal property used or owned by CBG or
Commercial Bank. CBG has made available to Acquiror a true, correct and complete
copy of each of the items listed in Schedule 4.10.
4.11 Litigation. Except as set forth in Schedule 4.11 or in the CBG SEC
Reports, there are no claims, suits, actions or known investigations,
indictments or informations, proceedings or arbitrations, grievances or other
procedures (including grand jury investigations, actions or proceedings, and
product liability and workers' compensation suits, actions or proceedings) of
which CBG has received notice pending or, to the knowledge of CBG, threatened in
writing, before any court, commission, arbitration tribunal, or judicial,
governmental or administrative department, body, agency, administrator or
official, grand jury, or any other forum for the resolution of grievances,
against CBG or Commercial Bank or involving any of its property or business
which, if determined adversely to CBG or Commercial Bank, would have a Material
Adverse Effect on CBG. There are no judgments, orders, writs, injunctions,
decrees or known indictments or informations,
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grand jury subpoenas or civil investigative demands, plea agreements,
stipulations or awards (whether rendered by a court, commission, arbitration
tribunal, or judicial, governmental or administrative department, body, agency,
administrator or official, grand jury or any other forum for the resolution of
grievances) against or relating to CBG or Commercial Bank or involving any of
its property or business.
4.12 Employees. Schedule 4.12 sets forth the names and current
compensation (broken down by category, e.g., salary, bonus, commission) of all
employees of CBG and Commercial Bank. Other than as set forth in Schedule 4.12
or as contemplated by this Agreement, neither CBG nor Commercial Bank is a party
to any employment or other contracts with any of its employees.
4.13 Employee Benefits. (a) To the knowledge of CBG, all employee benefit
plans of CBG and Commercial Bank have been established in compliance with, and
such plans have been operated in material compliance with, all applicable laws.
Except as set forth on Schedule 4.13, neither CBG nor Commercial Bank sponsors
or otherwise maintains a "pension plan" within the meaning of section 3(2) of
ERISA or any other retirement plan other than the CBG 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.
Schedule 4.13 includes a copy of the Internal Revenue Service determination
letter respecting the CBG 401(k) plan. To the knowledge of CBG, no employee
benefit plan, any trust created thereunder nor 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 CBG.
(b) CBG has no reason to believe that any amount payable to any employee of
CBG or Commercial Bank will fail to be deductible for federal income tax
purposes by virtue of Section 280G of the Code and regulations thereunder.
4.14 Collective Bargaining. There are no labor contracts, collective
bargaining agreements, letters of understanding or other arrangements, formal or
informal, between CBG or Commercial Bank and any union or labor organization
covering any of CBG's or Commercial Bank's employees and none of said employees
are represented by any union or labor organization.
4.15 Labor Disputes. CBG and Commercial Bank are in material compliance
with all federal and state laws respecting employment and employment practices,
terms and conditions of employment, wages and hours. CBG and Commercial Bank are
not and have not been engaged in any unfair labor practice, and, to the
knowledge of CBG, no unfair labor practice complaint against CBG or Commercial
Bank is pending before the National Labor Relations Board. Relations between
management and the employees are amicable and there have not been, nor to the
knowledge of CBG are there presently, any attempts to organize employees, nor to
the knowledge of CBG are there plans for any such attempts.
4.16 Bank Accounts. Schedule 4.16 sets forth a complete and accurate list
of each bank or financial institution in which CBG or Commercial Bank has an
account or safe deposit box (giving the address and account numbers) and the
names of the persons authorized to draw thereon or to have access thereto.
4.17 Environmental Requirements. To the knowledge of CBG, except as
disclosed in Schedule 4.17, neither CBG nor Commercial Bank owns any property
(including other real estate owned but excluding any property in which CBG or
Commercial Bank has only a security interest), which is in violation of any
federal or state law, regulation, or treaty relating to the storage, handling,
transportation, treatment or disposal of hazardous substances (as defined in 42
U.S.C. Section 9601) or hazardous materials (as defined by any federal or state
law or regulation) or other waste products, which violation will result in or
have a Material Adverse Effect on CBG, and CBG and Commercial Bank have received
all permits, licenses or other approvals as may be required of and under
applicable federal and state environmental laws and regulations to conduct its
respective business as currently conducted, except where the failure to have
such permits, licenses or other approvals will not have a Material Adverse
Effect on CBG. CBG and Commercial Bank are in compliance in all material
respects with the terms and conditions of any such permit, license or approval,
and has not received any notices or claims that it is a responsible party or a
potentially responsible party in connection with any claim or notice asserted
pursuant to 42 U.S.C. Section 9601 et. seq. or any state superfund law except
where such failure to comply with the terms and conditions of any such permit,
license
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or approval will not have a Material Adverse Effect on CBG. CBG and Commercial
Bank have complied in all material respects with applicable laws and regulations
with respect to the disposal of all of its hazardous substances, hazardous
materials and other waste products.
4.18 Contracts and Commitments. Except as set forth in Schedule 4.18 or in
the CBG SEC Reports and contracts made in the ordinary course of business:
(a) Neither CBG nor Commercial Bank has any agreement or contract that
is material to its business, operations or prospects other than those
agreements which have been furnished to Acquiror;
(b) Neither CBG nor Commercial Bank has any outstanding material
agreement or contract, written or oral, with any officer, employee, agent,
consultant, advisor, or broker that is not cancelable by CBG or Commercial
Bank, on notice of not longer than thirty (30) days and without liability,
penalty or premium of any kind; and
(c) Except as noted in Schedule 4.10 and except for negotiable
instruments in the process of collection, neither CBG nor Commercial Bank
has any power of attorney outstanding or any material contract, commitment
or liability (whether absolute, accrued, contingent or otherwise), as
guarantor, surety, co-signer, endorser, co-maker or indemnitor in respect
of the contract or commitment of any other person, corporation,
partnership, joint venture, association, organization or other entity.
4.19 No Conflict. The execution and delivery of this Agreement by CBG and
Commercial Bank, the consummation of the transactions contemplated herein by CBG
and Commercial Bank, and the performance of the covenants and agreements of CBG
and Commercial Bank herein, subject to fulfillment of the conditions set forth
in this Agreement, will not, with or without the giving of notice or the lapse
of time, or both, (i) violate or conflict with any of the provisions of any
charter document or bylaw of CBG or Commercial Bank; or (ii) conflict with or
result in a breach or default under or cause termination of any term or
condition of any material mortgage, indenture, contract, license, permit,
instrument, or other material agreement, document or instrument to which CBG or
Commercial Bank is a party or by which CBG or Commercial Bank or its properties
may be bound which breach, default or violation would cause a Material Adverse
Effect to CBG; or (iii) violate any provision of law, statute, regulation, court
order or ruling of any governmental authority to which CBG or Commercial Bank is
a party or by which it or its properties may be bound and which violation would
have a Material Adverse Effect on CBG.
4.20 Agreements in Full Force and Effect. All material contracts,
agreements, plans, leases, policies and licenses to which CBG or Commercial Bank
is a party and which are described in the Proxy Statement/ Prospectus and/or
referred to, or required to be referred to, in any Schedule delivered hereunder
are valid and binding, and are in full force and effect in all material respects
and are enforceable in accordance with their material terms, except to the
extent that the validity or enforceability thereof may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting creditors' rights
generally.
4.21 Required Consents and Approvals. Other than the approval of the
consummation of the Merger by CBG's stockholders and by applicable bank
regulatory agencies, no Consent or approval is required by virtue of the
execution hereof by CBG or Commercial Bank or the consummation of any of the
transactions contemplated herein by CBG or Commercial Bank the failure of which
to obtain would have a Material Adverse Effect on CBG or on the transactions
contemplated by this Agreement.
4.22 Absence of Certain Changes and Events. Except as set forth in
Schedule 4.22 or in the ordinary course of business, since September 30, 1995,
CBG and Commercial Bank, taken as a whole, have not:
(a) suffered any damage or destruction adversely and materially
affecting CBG;
(b) made any declaration, setting aside or payment of any dividend or
other distribution of assets (whether in cash, stock or property) with
respect to its capital stock, or any direct or indirect redemption,
purchase or other acquisition of such stock, or otherwise made any payment
of cash or any transfer of other assets;
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(c) suffered any material adverse change in its working capital,
assets, liabilities, financial condition or business prospects other than
as a result of this Agreement and the transactions contemplated hereby;
(d) suffered any material adverse change in the collectibility of its
loan portfolio not subject to loan loss reserves;
(e) except for customary increases based on term of service,
performance or regular promotion of employees, increased (or announced any
increase in) the compensation payable or to become payable to any employee,
or increased (or announced any increase in) any bonus, insurance, pension
or other employee benefit plan, payment or arrangement for such employees,
or entered into or amended any employment, consulting, severance or similar
agreement;
(f) incurred, assumed or guaranteed any liability or obligation
(absolute, accrued, contingent or otherwise) other than in the ordinary
course of business consistent with past practice or in connection with this
transaction;
(g) paid, discharged, satisfied or renewed any claim, liability or
obligation other than payment in the ordinary course of business consistent
with past practice;
(h) permitted any of its assets to be subjected to any Lien;
(i) waived any material claims or rights;
(j) sold, transferred or otherwise disposed of any of its material
Assets, except in the ordinary course of business consistent with past
practice;
(k) made any material capital expenditure or investment except in the
ordinary course of business consistent with past practice;
(l) made any change in any material method, practice or principle of
financial or tax accounting;
(m) managed working capital components, including cash, loans,
deposits and other current liabilities in a fashion inconsistent in any
material respect with past practice, including failing to make all budgeted
and other normal capital expenditures, repairs, improvements and
dispositions;
(n) paid, loaned, advanced, sold, transferred or leased any asset to
any employee, except for normal compensation involving salary and benefits
and except for loans to officers and directors;
(o) issued or sold any of its capital stock (other than pursuant to
the exercise of any CBG Options) or issued any warrant, option or other
right to purchase shares of its capital stock, or any security convertible
into its capital stock;
(p) received notice that any of its substantial customers has
terminated or intends to terminate its deposit or lending relationship with
Commercial Bank other than in the ordinary course of business, which
termination would have a Material Adverse Effect on CBG;
(q) failed to operate its business in the ordinary course in all
material respects;
(r) except in the ordinary course of business, made or permitted any
amendment or termination of any material contract, agreement or license to
which it is a party if such amendment or termination would have a Material
Adverse Effect on CBG; or
(s) agreed in writing, or otherwise, to take any action described in
this Section.
4.23 Tax Matters.
(a) Definitions. For purposes of this Agreement, the term "Taxes" shall
mean all taxes, however denominated, including any interest, penalties or other
additions to tax that may become payable in respect thereof, imposed by any
federal, territorial, state, local or foreign government or any agency or
political subdivision of any such government, which taxes shall include, without
limiting the generality of the foregoing, all income or profits taxes
(including, but not limited to, federal income taxes and state income taxes),
payroll and employee withholding taxes, unemployment insurance, social security
taxes, sales and use taxes, ad
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valorem taxes, excise taxes, franchise taxes, gross receipts taxes, business
license taxes, occupation taxes, real and personal property taxes, stamp taxes,
environmental taxes, transfer taxes, workers' compensation, PBGC premiums and
other governmental charges, and other obligations of the same or of a similar
nature to any of the foregoing, which CBG or Commercial Bank is required to pay,
withhold or collect.
(b) Returns Filed and Taxes Paid. (i) All Tax returns required to be filed
by or on behalf of CBG or Commercial Bank have been duly filed on a timely basis
and such Tax returns are true, complete and correct in all material respects;
(ii) all Taxes shown to be payable on the returns or on subsequent assessments
with respect thereto have been paid in full on a timely basis, and no other
Taxes are payable by CBG and Commercial Bank with respect to items or periods
covered by such returns (whether or not shown on or reportable on such returns)
or with respect to any period prior to the date of this Agreement; (iii) CBG and
Commercial Bank have withheld and paid over all Taxes required to have been
withheld and paid over, and complied with all information reporting and backup
withholding requirements, including maintenance of required records with respect
thereto, in connection with amounts paid or owing to any employee, creditor,
independent contractor, or other third party; and (iv) there are no liens on any
of the assets of CBG or Commercial Bank with respect to Taxes, other than liens
for Taxes not yet due and payable.
(c) Tax Deficiencies; Audits; Statutes of Limitations. (i) The Tax returns
of CBG and Commercial Bank have never been audited by a government or taxing
authority, nor is any such audit in process, pending or, to the knowledge of
CBG, threatened; (ii) no deficiencies exist or have been asserted or are
expected to be asserted with respect to Taxes of CBG or Commercial Bank and
neither CBG nor Commercial Bank has received notice that it has not filed a Tax
return or paid Taxes required to be filed or paid by it; (iii) neither CBG nor
Commercial Bank is a party to any action or proceeding for assessment or
collection of Taxes, nor has such event been asserted or, to the knowledge of
CBG, threatened against CBG or Commercial Bank; (iv) no waiver or extension of
any statute of limitations is in effect with respect to Taxes or Tax returns of
CBG or Commercial Bank; (v) CBG and Commercial Bank have disclosed on its
federal income tax returns all positions taken therein that could give rise to a
"substantial understatement of income tax" within the meaning of Section 6662 of
the Code; and (vi) neither CBG nor Commercial Bank has made an application or
request (either in writing or verbally, formally or informally) to the Internal
Revenue Service to change methods of accounting or taxable year.
(d) Tax Sharing Agreements. Except as otherwise disclosed in Schedule
4.23(d), neither CBG nor Commercial Bank is (or have they ever been) a party to
any tax sharing agreement.
4.24 Loan Loss Reserves. Commercial Bank's allowances for possible loan
losses is reasonably adequate as of the date hereof in all material respects
based upon the classification of the outstanding loans to provide for all
anticipated losses, net of recoveries related to loans previously charged-off,
on loans outstanding as of the date hereof.
4.25 Brokers. Except for services provide for CBG by The Robinson-Humphrey
Company, Inc., all negotiations relative to this Agreement and the transactions
contemplated hereby have been carried on by CBG directly with Acquiror and
without intervention of any other person, either as a result of any act of CBG
or Commercial Bank, or otherwise, in such manner as to give rise to any valid
claim against CBG or Commercial Bank for a finder's fee, brokerage commission or
other like payment.
4.26 Derivative Contracts. Neither CBG nor Commercial Bank 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 the CBG Financial
Statements which is a financial derivative contract (including various
combinations thereof).
4.27 Material Contract Defaults. Neither CBG nor Commercial Bank is in
default in any material respect under the terms of any contract, agreement,
lease or other commitment which is material to the business, operations,
properties or Assets, or the condition, financial or otherwise, of such company
and which default will have a Material Adverse Effect on CBG and, to the
knowledge of CBG, there is no event which, with notice or lapse of time, or
both, may be or become an event of default under such material contract,
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agreement, lease or other commitment in respect of which reasonable steps have
not been taken to prevent such a default from occurring.
4.28 Insurance. Schedule 4.28 sets forth a list of all insurance policies
and bonds in effect for CBG or Commercial Bank. All such insurance policies and
bonds are valid, enforceable and in full force and effect, and neither CBG nor
Commercial Bank has received any notice of a premium increase or cancellation
with respect to any of such insurance policies or bonds. Since January 1, 1994,
to the knowledge of CBG, neither CBG nor Commercial Bank has been refused any
insurance coverage which it has sought or applied for, and CBG has no knowledge
that existing insurance coverage cannot be renewed as and when the same shall
expire, upon terms and conditions as favorable in all material respects 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 such company at all times
from the date hereof to the Effective Time. To the knowledge of CBG, there are
no pending or threatened claims against CBG's or Commercial Bank's director's
and officer's liability insurance policy.
4.29 Buy-Sell Agreement. To the knowledge of CBG, 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 CBG (other than in connection with
the pledge of such shares), any similar agreement or any voting agreement or
voting trust in respect of any such shares.
4.30 Transfer of Shares. CBG has not received written notice of any plan
or intention on the part of CBG's shareholders to sell or otherwise dispose of
any of the Acquiror Common Stock to be received by them in the Merger that would
reduce such shareholders' aggregate 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 CBG common stock outstanding immediately before the Merger.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND COLONIAL BANK
Acquiror hereby represents and warrants to CBG as follows:
5.01 Organization. Acquiror is a corporation validly existing and in good
standing under the laws of the State of Delaware. Colonial Bank has been duly
incorporated and is validly existing as a commercial bank under the laws of the
State of Alabama. Each of Acquiror and its Subsidiaries has all requisite
corporate power and authority to carry on and conduct its respective business as
now being conducted and to own, lease or operate its material properties and
assets. Acquiror and each of its Subsidiaries is duly qualified as a foreign
corporation, and is in good standing, in each state (including, in the case of
Acquiror, the State of Georgia) and foreign jurisdiction where the character of
its assets or the nature or conduct of its business requires it to be so
qualified except for such states and jurisdictions in which the failure to be so
qualified will not have a Material Adverse Effect on Acquiror.
5.02 Power and Authority. Acquiror has the corporate power and authority
necessary to execute, deliver and perform its obligations under this Agreement
and to consummate the transactions contemplated hereby. The execution, delivery
and performance of this Agreement, and the consummation of the transactions
contemplated hereby, have been duly and validly authorized by all necessary
corporate action on the part of Acquiror. This Agreement constitutes Acquiror's
legal, valid and binding obligation, enforceable against Acquiror in accordance
with its terms.
5.03 Authorized and Outstanding Stock. The authorized Acquiror Capital
Stock and the number of issued and outstanding shares thereof as of the date
hereof is set forth in Schedule 5.03 hereto. All of such issued and outstanding
shares of capital stock of Acquiror are duly and validly issued and outstanding
and are fully paid and nonassessable. The shares of Acquiror Common Stock to be
issued and delivered to the stockholders of CBG pursuant to the Merger have been
duly reserved for issuance and, upon issuance to the
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stockholders of CBG pursuant to the terms of this Agreement, will be validly
issued, fully paid and nonassessable. All issuances of the capital stock of
Acquiror have been, and the issuance of shares to the stockholders of CBG will
be, in compliance with all applicable agreements and all applicable laws,
including federal and state securities laws, and all taxes thereon have been
paid.
5.04 No Conflict. The execution and delivery of this Agreement by Acquiror
and Colonial Bank, the consummation of the transactions contemplated herein by
Acquiror and Colonial Bank, and the performance of the covenants and agreements
of Acquiror and Colonial Bank, subject to the fulfillment of the conditions to
Acquiror's and Colonial Bank's obligations set forth in this Agreement, will
not, with or without the giving of notice or the lapse of time, or both, (i)
violate or conflict with any of the provisions of any charter document or bylaws
of Acquiror or Colonial Bank; (ii) violate, conflict with or result in breach or
default under or cause termination of any term or condition of any material
mortgage, indenture, contract, license, permit, instrument, or other material
agreement, document or instrument to which Acquiror or any of its Subsidiaries
is a party or by which Acquiror or any of its Subsidiaries or any of their
properties may be bound which breach, default or violation would cause a
Material Adverse Effect on Acquiror; or (iii) violate any provision of law,
statute, rule, regulation, court order, judgment or decree, or ruling of any
governmental authority, to which Acquiror or Colonial Bank is a party or by
which Acquiror or Colonial Bank or their properties may be bound.
5.05 Financial Statements. (a) Acquiror has filed and made available to
CBG all forms, reports and documents required to be filed by Acquiror with the
Commission since December 31, 1994, other than registration statements on Form
S-8 (collectively, the "Acquiror SEC Reports"). The Acquiror SEC Reports (i) at
the time filed, complied in all material respects with the applicable
requirements of the Securities Act and the Exchange Act, as the case may be, and
(ii) did not at the time they were filed (or if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such filing)
contain any untrue statement of a material fact or omit to state a material fact
required to be stated in such Acquiror SEC Reports or necessary in order to make
the statements in such Acquiror SEC Reports, in light of the circumstances under
which they were made, not misleading.
(b) Each of the financial statements of Acquiror (including, in each case,
any related notes) contained in the Acquiror SEC Reports, including any Acquiror
SEC Reports filed after the date of this Agreement until the Effective Time
(collectively, the "Acquiror Financial Statements"), complied as to form in all
material respects with the applicable published rules and regulations of the
Commission with respect thereto, was prepared in accordance with GAAP applied on
a consistent basis throughout the periods involved (except as may be indicated
in the notes to such financial statements or, in the case of unaudited
statements, as permitted by Form 10-Q of the Commission), and fairly presented
the consolidated financial position of Acquiror and its Subsidiaries as at the
respective dates and the consolidated results of its operations and cash flows
for the periods indicated, except that the unaudited interim financial
statements were or are subject to normal and recurring year-end adjustments
which were not or are not expected to be material in amount.
(c) Since September 30, 1995, except as disclosed in the Acquiror SEC
Reports, there have been no events, changes or occurrences which have had, or
will have, a Material Adverse Effect on Acquiror.
5.06 No Material Changes. Neither Acquiror nor any of its Subsidiaries has
sustained, directly or indirectly, since September 30, 1995, any material loss
or interference with its business. Except as set forth on Schedule 5.06, since
September 30, 1995, there has not been any change in the capital stock or
long-term debt of Acquiror or any of its Subsidiaries, or any material adverse
change, or any development involving a prospective material adverse change, in
or affecting the collectibility of the loan portfolio of Acquiror or its
Subsidiaries or in or affecting the general affairs, management, financial
position, stockholders' equity, assets, results of operations or prospects of
Acquiror or any of its subsidiaries, whether or not arising in the ordinary
course of business. Except as disclosed in the notes to the latest audited
consolidated financial statements of Acquiror included in the Acquiror SEC
Reports or on Schedule 5.06, neither Acquiror nor any of its subsidiaries has
incurred or undertaken any liability or obligation, direct, indirect or
contingent, which is material to the business or condition (financial or other)
of Acquiror, except for liabilities or obligations incurred in the ordinary
course of business.
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5.07 Required Consents and Approvals. Other than the approval of the
consummation of the Merger by applicable bank regulatory agencies, no consent or
approval is required by virtue of the execution hereof by Acquiror or Colonial
Bank or the consummation of any of the transactions contemplated herein by
Acquiror or Colonial Bank.
5.08 No Undisclosed Liabilities. Except as and to the extent reflected and
adequately reserved against in the financial statements included in the Acquiror
SEC Reports, neither Acquiror nor any subsidiary of Acquiror has any material
liability or obligation whatsoever, whether accrued, absolute, contingent or
otherwise.
5.09 No Violation of Law. Neither Acquiror nor any subsidiary of Acquiror,
to its knowledge, is, has been and will be (by virtue of any past or present
action, omission to act, contract to which it is a party or any occurrence or
state of facts whatsoever) in violation of any applicable local, state or
federal law, ordinance, regulation, order, injunction or decree, or any other
requirement of any governmental body, agency or authority or court binding on
any of them, or relating to their property or business or their advertising,
sales or pricing practices (including, without limitation, any banking laws or
regulations, antitrust laws or regulations, and the statutes, rules and
regulations commonly referred to as the Environmental Protection Act, the
Americans With Disabilities Act, and the statutes and regulations of any state
or other jurisdiction in which Acquiror or any of its Subsidiaries does
business), nor will Acquiror or any of its Subsidiaries hereafter suffer or
incur any material loss, liability, penalty or expense (including, without
limitation, attorneys' fees) by virtue of any such violation.
5.10 Litigation. Other than as disclosed in the Acquiror SEC Reports,
there are no charges, suits, actions, investigations of a material nature
pending or threatened against Acquiror or any of its Subsidiaries.
5.11 Securities and Exchange Commission Matters. On the effective date of
the Registration Statement, at all times subsequent thereto and including the
closing date and when any post-effective amendment to the Registration Statement
becomes effective or any amendment or supplement to the Prospectus is filed with
the Commission, the Registration Statement and the Proxy Statement/Prospectus
(as amended or as supplemented), including the financial statements included or
incorporated by reference in the Proxy Statement/Prospectus, did or will comply
with all applicable provisions of the Securities Act, the Exchange Act, the
rules and regulations of the Commission under the Securities Act and the
Exchange Act (collectively, the "Rules and Regulations"), and will contain all
statements required to be stated therein in accordance with the Securities Act,
the Exchange Act, and the Rules and Regulations. On the effective date of the
Registration Statement and when any post-effective amendment to the Registration
Statement becomes effective, no part of the Registration Statement, the Proxy
Statement/Prospectus, any such amendment or supplement or any documents
incorporated therein by reference did or will contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein not misleading. At the
effective date of the Registration Statement, the date the Proxy
Statement/Prospectus or any amendment or supplement to the Proxy
Statement/Prospectus is filed with the Commission and at the Effective Time the
Proxy Statement/Prospectus did not or will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The foregoing representations and warranties in this Section 5.11 do
not apply to any statements or omissions made in reliance on and in conformity
with information relating to CBG furnished in writing to Acquiror by CBG
specifically for inclusion in the Registration Statement or Proxy
Statement/Prospectus or any amendment or supplement thereto.
Any documents or filings that are incorporated by reference, when they were
or shall be filed with the Commission, as the case may be, complied or will
comply in all material respects with the requirements of the Securities Act, or
the Exchange Act, as applicable, and the Rules and Regulations.
5.12 Loan Loss Reserves. Acquiror's allowances for possible loan losses is
reasonably adequate as of the date hereof in all material respects to provide
for all anticipated losses based on the classification of such loans, net of
recoveries related to loans previously charged-off, on loans outstanding as of
the date hereof.
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5.13 Assets. Except as disclosed in the Acquiror SEC Reports or as
disclosed or reserved against in the Acquiror Financial Statements, Acquiror and
its Subsidiaries have good and marketable title, free and clear of all Liens, to
all of their respective material Assets reflected in Acquiror's most recent
balance sheet referred to in Section 5.05.
5.14 Tax Matters.
(a) Returns Filed and Taxes Paid. (i) All Tax returns required to be filed
by or on behalf of Acquiror and any of its Subsidiaries have been duly filed on
a timely basis and such Tax returns are true, complete and correct in all
material respects; (ii) all Taxes shown to be payable on the returns or on
subsequent assessments with respect thereto have been paid in full on a timely
basis, and no other Taxes are payable by Acquiror or its Subsidiaries with
respect to items or periods covered by such returns (whether or not shown on or
reportable on such returns) or with respect to any period prior to the date of
this Agreement; (iii) Acquiror and its Subsidiaries have withheld and paid over
all Taxes required to have been withheld and paid over, and complied with all
information reporting and backup withholding requirements, including maintenance
of required records with respect thereto, in connection with amounts paid or
owing to any employee, creditor, independent contractor, or other third party;
and (iv) there are no liens on any of the assets of Acquiror or its Subsidiaries
with respect to Taxes, other than liens for Taxes not yet due and payable.
(b) Tax Deficiencies; Audits; Statutes of Limitations. (i) No deficiencies
exist or have been asserted or are expected to be asserted with respect to Taxes
of Acquiror or any of its Subsidiaries and neither Acquiror nor any of its
Subsidiaries has received notice that it has not filed a Tax return or paid
Taxes required to be filed or paid by it; (ii) neither Acquiror nor any of its
Subsidiaries is a party to any action or proceeding for assessment or collection
of Taxes, nor has such event been asserted or, to the knowledge of Acquiror,
threatened against Acquiror or any of its Subsidiaries; (iii) no waiver or
extension of any statute of limitations is in effect with respect to Taxes or
Tax returns of Acquiror or any of its Subsidiaries; (iv) Acquiror and its
Subsidiaries have disclosed on its federal income tax returns all positions
taken therein that could give rise to a "substantial understatement of income
tax" within the meaning of Section 6662 of the Code; and (v) neither Acquiror
nor any of its Subsidiaries has made an application or request (either in
writing or verbally, formally or informally) to the Internal Revenue Service to
change methods of accounting or taxable year.
5.15 Tax Treatment. Acquiror has no present plans to sell or otherwise
dispose of any of the Assets of CBG, or to liquidate any Subsidiaries (except
that Acquiror may merge Commercial Bank into a subsidiary of Acquiror),
subsequent to the Merger and Acquiror intends to continue the historic business
of CBG.
5.16 Employee Benefits. To the knowledge of Acquiror, all employee benefit
plans of Acquiror and each of its Subsidiaries have been established in
compliance with, and such plans have been operated in material compliance with,
all applicable laws. Except as set forth on Schedule 5.16, neither Acquiror nor
any of its Subsidiaries sponsors or otherwise maintains a "pension plan" within
the meaning of section 3(2) of ERISA or any other retirement plan other than the
Acquiror 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 Acquiror, no employee benefit plan, any
trust created thereunder nor 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 Acquiror.
5.17 Environmental Requirements. To the knowledge of Acquiror, except as
disclosed in Schedule 5.17, neither Acquiror nor any of its Subsidiaries owns
any property (including other real estate owned but excluding any property in
which Acquiror or any of its Subsidiaries has only a security interest), which
is in violation of any federal or state law, regulation, or treaty relating to
the storage, handling, transportation, treatment or disposal of hazardous
substances (as defined in 42 U.S.C. Section 9601) or hazardous materials (as
defined by any federal or state law or regulation) or other waste products,
which violation will result in or have a Material Adverse Effect on Acquiror,
and Acquiror and its Subsidiaries have received all permits, licenses or other
approvals as may be required of and under applicable federal and state
environmental laws and regulations to conduct its respective business as
currently conducted, except where the failure to have such permits, licenses or
other approvals will not have a Material Adverse Effect on Acquiror. Acquiror
and its Subsidiaries are in compliance in all material respects with the terms
and conditions of any such permit,
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license or approval, and has not received any notices or claims that it is a
responsible party or a potentially responsible party in connection with any
claim or notice asserted pursuant to 42 U.S.C. Section 9601 et. seq. or any
state superfund law except where such failure to comply with the terms and
conditions of any such permit, license or approval will not have a Material
Adverse Effect on Acquiror. Acquiror and its Subsidiaries have complied in all
material respects with applicable laws and regulations with respect to the
disposal of all of its hazardous substances, hazardous materials and other waste
products.
5.18 Derivative Contracts. Neither Acquiror nor any of its Subsidiaries 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 the Acquiror
Financial Statements which is a financial derivative contract (including various
combinations thereof).
5.19 Material Contract Defaults. Neither Acquiror nor any of its
Subsidiaries is in default in any material respect under the terms of any
contract, agreement, lease or other commitment which is material to the
business, operations, properties or Assets, or the condition, financial or
otherwise, of such company and which default will have a Material Adverse Effect
on Acquiror and, to the knowledge of Acquiror, there is no event which, with
notice or lapse of time, or both, may be or become an event of default under
such material contract, agreement, lease or other commitment in respect of which
reasonable steps have not been taken to prevent such a default from occurring.
ARTICLE VI
COVENANTS OF CBG
6.01 Pre-Closing Operations of CBG. CBG hereby covenants and agrees that,
except as consented to in writing by Acquiror, pending the Closing, CBG and
Commercial Bank will operate and conduct its business only in the ordinary
course consistent in all material respects with prior practices. Pursuant
thereto and not in limitation of the foregoing, from and after the date hereof:
(a) CBG and Commercial Bank shall manage its working capital,
including cash, loans, other current assets, deposits and other current
liabilities, in a fashion consistent in all material respects with past
practice.
(b) CBG and Commercial Bank shall maintain its physical Assets in
their present state of repair (ordinary wear and tear excepted).
(c) CBG and Commercial Bank shall not take any of the following
actions after the date of this Agreement without the prior written consent
of Acquiror, which consent shall not be unreasonably withheld, conditioned
or delayed:
(i) Incur any additional debt obligation or other obligation for
borrowed money in excess of an aggregate of $25,000 except in the
ordinary course of the business consistent in all material respects with
past practices (which shall include, for Commercial Bank, creation of
deposit liabilities, purchases of federal funds, advances from the
Federal Reserve Bank, and entry into repurchase agreements fully secured
by U.S. government or agency securities), or impose or suffer the
imposition, on any asset of CBG or Commercial Bank of any Lien or permit
any such Lien to exist (other than in connection with deposits,
repurchase agreements, bankers acceptances, "treasury tax and loan"
accounts established in the ordinary course of business, the
satisfaction of legal requirements in the exercise of trust powers, and
Liens in effect as of the date hereof);
(ii) Mortgage, pledge or subject to Liens any assets having a value
of $25,000 or more in the aggregate; except Liens that exist as of the
date of this Agreement;
(iii) Except for purchases of U.S. Treasury securities or U.S.
Government agency securities, which in either case have maturities of
three years or less, purchase any securities or make any material
investment, either by purchase of stock or securities, contributions to
capital, asset transfers, or purchase of any assets, in any Person, or
otherwise acquire direct or indirect control over any
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Person, other than in connection with (i) foreclosures in the ordinary
course of business, or (ii) acquisitions of control by Commercial Bank
in its fiduciary capacity;
(iv) Except as set forth in Schedule 4.12, increase (or announce
any increase of) any salaries, wages or employee benefits, modify, alter
or amend any CBG Options, Deferred Compensation Plans or CBG Stock
Appreciation Rights or hire any new employees with individual salaries
in excess of $35,000 (except to replace existing employees) other than
in the ordinary course of business consistent in all material respects
with past practice;
(v) Amend any charter document or bylaw;
(vi) Issue or sell any of its capital stock (other than upon
exercise of outstanding CBG Options or warrants), redeem, purchase or
otherwise acquire any shares of its capital stock, or make any other
change in its issued and outstanding capital stock, or, except as set
forth in Schedule 6.01(c)(vi), issue any warrant, option or other right
to purchase shares of its capital stock or any security convertible into
its capital stock, or declare any dividends or make any other
distribution with respect to its capital stock;
(vii) Adjust, split, combine or reclassify any capital stock of CBG
or issue or authorize the issuance of any other securities in respect of
or in substitution for shares of CBG Common Stock, or sell, lease,
mortgage or otherwise dispose of or otherwise encumber any shares of
capital stock of Commercial Bank;
(viii) Incur, assume or guarantee any obligation or liability for
borrowed money, or exchange, refund or renew any outstanding
indebtedness of CBG or Commercial Bank in such a manner as to reduce the
principal amount of such indebtedness or increase the interest rate or
balance outstanding other than in the ordinary course of business
consistent in all material respects with past practice;
(ix) Amend or terminate any material agreement, excluding loan
contracts but including any insurance policy, in force on the date
hereof;
(x) Except as set forth in Schedule 6.01(c)(x), enter into or amend
any employment contract or agreement between any CBG or Commercial Bank
and any person (unless such amendment is required by applicable law)
that CBG or Commercial Bank does not have the unconditional right to
terminate without liability (other than liability for services already
rendered) at any time on or after the Effective Time;
(xi) Adopt any new employee benefit plan of CBG or Commercial Bank
or make any material change in or to any existing employee benefit plans
of CBG or Commercial Bank other than any such change that is required by
law or that, in the opinion of counsel, is necessary or advisable to
maintain the tax qualified status of any such plan; or
(xii) Make any material changes in financial or tax accounting
methods, principles or practices except as may be appropriate to conform
to changes in applicable law or regulatory accounting requirements or
GAAP.
6.02 Access. From the date of this Agreement through the Closing Date, CBG
and Commercial Bank shall (i) provide Acquiror and its respective designees
(officers, employees, counsel, accountants, and other authorized representatives
who shall be bound by Section 8.03 hereof) with such information as Acquiror may
from time to time reasonably request with respect to CBG and Commercial Bank and
the transactions contemplated by this Agreement; (ii) provide Acquiror and its
designees reasonable access during regular business hours and upon reasonable
notice to the books, records, offices, personnel, counsel, accountants and
actuaries of CBG and Commercial Bank as Acquiror or its designees may from time
to time reasonably request; and (iii) permit Acquiror and its designees to make
such inspections thereof as Acquiror may reasonably request. Any investigation
shall be conducted in such a manner so as not to interfere unreasonably with the
operation of the business of CBG and Commercial Bank.
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6.03 Interim Financials. As promptly as practicable after each regular
accounting period subsequent to September 30, 1995 and prior to the Closing
Date, CBG will deliver to Acquiror periodic financial reports concerning CBG and
Commercial Bank in the form which it customarily prepares for its internal
purposes and, if available, unaudited statements of the financial position of
CBG and Commercial Bank as of the last day of each accounting period and
unaudited statements of income and cash flows of CBG and Commercial Bank for the
period then ended.
6.04 Meeting of Stockholders. As soon as practicable following the
execution of this Agreement, CBG shall call a meeting of its stockholders to be
held after the effective date of the Registration Statement for the purpose of
considering and voting upon the Merger.
6.05 Notice of Breach or Potential Breach or Adverse Change. CBG shall
promptly notify Acquiror of any change, circumstance or event which would cause
any of the representations or warranties made by CBG and Commercial Bank
pursuant to this Agreement to be untrue as of the date hereof or at the Closing
or which prevents CBG and Commercial Bank from complying with any of its
obligations hereunder.
ARTICLE VII
COVENANTS OF ACQUIROR
Acquiror hereby covenants and agrees as follows:
7.01 Access. From the date of this Agreement through the Closing Date,
Acquiror and Colonial Bank shall (i) provide CBG and its designees (officers,
employees, counsel, accountants, actuaries, and other authorized
representatives) with such information as CBG and Commercial Bank may from time
to time reasonably request with respect to Acquiror and its Subsidiaries and the
transactions contemplated by this Agreement; (ii) provide CBG and its designees
access during regular business hours and upon reasonable notice to the books,
records, offices, personnel, counsel, accountants and actuaries of Acquiror and
its Subsidiaries, as CBG or its designees may from time to time reasonably
request; and (iii) permit CBG and its designees to make such inspections thereof
as CBG may reasonably request. Any investigation shall be conducted in such a
manner so as not to interfere unreasonably with the operation of the business of
Acquiror and its Subsidiaries.
7.02 Interim Financials. As promptly as practicable after each quarterly
accounting period subsequent to September 30, 1995 and prior to the Closing
Date, Acquiror will deliver to CBG periodic financial reports in the form which
it customarily prepares for its internal purposes and, if available, Acquiror
will deliver to CBG unaudited statements of the consolidated financial position
of Acquiror as of the last day of each accounting period and unaudited
consolidated statements of income and cash flow of Acquiror for the period then
ended.
7.03 Notice of Breach or Potential Breach or Adverse Change. Acquiror
shall promptly notify CBG of any change, circumstance or event which would cause
any of the representations or warranties made by Acquiror or Colonial Bank
pursuant to this Agreement to be untrue as of the date hereof or at the Closing
or which prevents Acquiror or Colonial Bank from complying with any of its
obligations hereunder.
7.04 New York Stock Exchange Listing. Acquiror shall cause the shares of
Acquiror Common Stock to be issued in the Merger to be listed for trading on the
NYSE on or before the Effective Time.
7.05 Employee Benefit Matters. At the Effective Time, all employees of CBG
or Commercial Bank shall, at Acquiror's option, either (i) remain employees of
Commercial Bank or become employees of the Surviving Corporation or its
Subsidiaries ("Retained Employees") or (ii) be entitled to severance benefits in
accordance with Colonial Bank's severance policy in effect as of the date of
this Agreement, with credit being given to each such employee for the years of
service of such employee with CBG or Commercial Bank as if he or she had been an
employee of Colonial during such period for purposes of determining the level of
severance. All Retained Employees shall be entitled, to the extent permitted by
applicable law, to participate in all benefit plans of Acquiror and/or Colonial
Bank to the same extent as Colonial Bank employees. Retained Employees shall be
allowed to participate as of the Effective Time in the medical and dental
benefits plans of Acquiror and/or Colonial Bank as new employees of Colonial
Bank with a waiver of the any waiting period and of any
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pre-existing condition limitations. To the extent permitted by applicable law,
the period of service with CBG and Commercial Bank of all Retained Employees
shall be recognized for vesting and eligibility purposes under Colonial Bank's
benefit plans provided that no credit shall be given for the purpose of
calculating the accrued benefits under Acquiror's defined benefit plan. In
addition, if the Effective Time falls within an annual period of coverage under
any group health plan or group dental plan of the Surviving Corporation or its
Subsidiaries, each Retained Employee shall be given credit for covered expenses
paid by that employee under the comparable employee benefit plans of CBG and
Commercial Bank during the applicable coverage period through the Effective Time
towards the satisfaction of any deductible limitation and out-of-pocket maximum
that may apply under the group health plan or group dental plan of the Surviving
Corporation and its Subsidiaries.
7.06 Georgia Board of Directors. Effective as of the Effective Time,
Acquiror shall cause to be elected to the Board of Directors of Commercial Bank
certain of the current directors of CBG who shall be agreed upon by Acquiror and
CBG prior to the Effective Time.
ARTICLE VIII
COVENANTS OF THE PARTIES
Acquiror and CBG hereby covenant to and agree with one another as follows:
8.01 Approvals of Third Parties; Satisfaction of Conditions to
Closing. Acquiror, Colonial Bank, CBG and Commercial Bank will use their
reasonable efforts, and will cooperate with one another, to secure all necessary
consents, approvals, authorizations and exemptions from governmental agencies
and other third parties, including, without limitation, all consents required by
Sections 9.05 and 9.06 hereof. In connection therewith, Acquiror shall promptly
prepare and file applications with all regulatory authorities having
jurisdiction over the transactions contemplated by this Agreement seeking the
requisite consents and approvals to such transactions. Acquiror, Colonial Bank,
CBG and Commercial Bank will use their reasonable, good faith efforts to cause
or obtain the satisfaction of the conditions specified in Article X. Acquiror
and Colonial Bank will use their reasonable, good faith efforts to cause or
obtain the satisfaction of the conditions specified in Article IX.
8.02 Preparation of Registration Statement and the Proxy
Statement/Prospectus. Acquiror and CBG shall promptly prepare the Proxy
Statement/Prospectus and Acquiror shall promptly prepare and file with the
Commission the Registration Statement, in which the Proxy Statement/Prospectus
will be included. Each of CBG and Acquiror shall use all reasonable efforts to
file the Registration Statement as soon as practicable after the date hereof and
to have the Registration Statement declared effective under the Securities Act
as promptly as practicable after such filing. Acquiror shall also take any
action (other than qualifying to do business in any jurisdiction in which it is
now not so qualified) required to be taken under any applicable state securities
laws in connection with the issuance of the Acquiror Common Stock in the Merger.
8.03 Confidentiality. In connection with this Agreement, the parties may
have access to information which is nonpublic, confidential or proprietary in
nature. All of such information, in whole or in part, together with any
analyses, compilations, studies or other documents prepared by any party, which
contain or otherwise reflect any such information is hereinafter referred to as
the "Information". Each party hereby agrees that the Information will be kept
confidential and shall not, without the prior mutual written consent of the
parties, be disclosed, in any manner whatsoever, in whole or in part, and shall
not be used by any party following the termination of this Agreement. Each party
agrees to transmit the Information only to its respective employees and
representatives who need to know the Information and who shall agree to be bound
by the terms and conditions of this Agreement. In any event, each party shall be
responsible for any breach of this Agreement by its respective employees or
representatives. If the transactions contemplated hereunder are not consummated,
the parties shall return the Information to the other promptly upon request and
no party shall retain any copies. In the event any party becomes legally
compelled to disclose any of the Information, such party will provide to the
other parties prompt notice so that each other party may seek a protective order
or other appropriate remedy and/or waive compliance with the provisions of this
Agreement. In the event that such
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protective order or other remedy is not obtained, or compliance with the
provisions of this Agreement is waived, a party will furnish only that portion
of the Information which is legally required, and to the extent requested by the
other party, will exercise its best efforts to obtain a protective order or
other reliable assurance that confidential treatment will be accorded the
Information. The term "Information" does not include information which (i) was
known to any party about another party prior to its disclosure, provided that
such information was lawfully obtained or developed, (ii) becomes generally
available to the public other than as a result of a disclosure by a party in
violation of this Agreement, or (iii) becomes available from a source other than
a party to this Agreement, if the source is not bound by a confidentiality
agreement and such source lawfully obtained such information.
8.04 Press Releases. Prior to the Effective Time, CBG and Acquiror shall
consult with each other as to the form and substance of any press release or
other public disclosure related to this Agreement or to transactions
contemplated hereby; provided that nothing in this Section 8.04 shall be deemed
to prohibit any party hereto from making any disclosure which its counsel deems
necessary or advisable in order to satisfy such party's disclosure obligations
imposed by law.
ARTICLE IX
CONDITIONS TO OBLIGATIONS OF CBG
Each of the obligations of CBG to be performed hereunder shall be subject
to the satisfaction (or waiver by CBG) at or prior to the Effective Time of the
covenants of Acquiror set forth herein and of each of the following conditions:
9.01 Representations and Warranties True at Closing Date. Each of
Acquiror's and Colonial Bank's representations and warranties contained in this
Agreement shall be true in all material respects on and as of the Closing Date
with the same force and effect as though made on and as of such date; Acquiror
and Colonial Bank shall have complied in all material respects with the
covenants and agreements set forth herein to be performed or complied with by
them on or before the Effective Time; and Acquiror and Colonial Bank shall have
delivered to CBG and Commercial Bank a certificate in form and substance
reasonably satisfactory to CBG confirming such matters and such other matters as
may be reasonably requested by CBG.
9.02 Litigation. There shall not be any Litigation or threat of Litigation
against any party hereto (a) challenging the validity or legality of this
Agreement or (b) seeking damages in respect of or seeking to restrain or
invalidate the transactions contemplated by this Agreement which, in the
judgment of CBG, based upon advice of counsel, would have a Material Adverse
Effect on Acquiror, Colonial Bank, CBG, Commercial Bank or the consummation of
the transactions contemplated by this Agreement.
9.03 Opinion of Counsel. CBG and Commercial Bank shall have received from
counsel to Acquiror an opinion, dated as of the Closing Date, in form and
substance reasonably satisfactory to CBG and its counsel.
9.04 Tax Opinion. CBG and Commercial Bank shall have received from Miller,
Hamilton, Snider & Odom, L.L.C., counsel to Acquiror, an opinion in form and
substance reasonably satisfactory to CBG and its counsel 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 CBG or Commercial Bank
in connection with the Merger, (iii) no gain or loss will be recognized by the
shareholders of CBG who receive shares of Acquiror Common Stock in the Merger
except to the extent of any taxable "boot" received by such persons from
Acquiror, and except to the extent of any dividends received from CBG prior to
the Effective Time, (iv) the tax basis of the Acquiror Common Stock received by
such shareholders from Acquiror in connection with the Merger will be equal to
the sum of the tax basis of their shares of CBG Common Stock exchanged in the
Merger and the amount of gain, if any, which was recognized by the exchanging
CBG shareholder, including any portion treated as a dividend, less the value of
taxable boot, if any, received by such shareholder in the Merger, (v) the
holding period of the Acquiror Common Stock will include the holding period of
the shares of CBG Common Stock exchanged therefor if such shares of CBG Common
Stock were capital assets in the hands of the exchanging CBG shareholder, and
(vi) cash received by a CBG shareholder in lieu of a fractional share interest
of Acquiror Common Stock will be treated as having been received as a
distribution in full
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payment in exchange for the fractional share interest of Acquiror Common Stock
which he would otherwise be entitled to receive and will qualify as capital gain
or loss (assuming the CBG Common Stock was a capital asset in his hands as of
the Effective Time).
9.05 Documents Satisfactory in Form and Substance. All agreements,
certificates, opinions and other documents delivered by Acquiror or Colonial
Bank to CBG and Commercial Bank hereunder or in connection herewith shall be in
form and substance satisfactory to counsel for CBG and Commercial Bank, in the
exercise of such counsel's reasonable judgment.
9.06 Required Governmental Approvals. All governmental authorizations,
consents and approvals necessary for the valid consummation of the transactions
contemplated hereby shall have been obtained and shall be in full force and
effect. All applicable governmental pre-acquisition filing, information
furnishing and waiting period requirements shall have been met or such
compliance shall have been waived by the governmental authority having authority
to grant such waivers.
9.07 Stockholder Approval. This Agreement and the transactions
contemplated hereby shall have been approved and adopted by the affirmative vote
of the holders of a majority of the outstanding shares of CBG Common Stock
entitled to vote thereon.
9.08 Absence of Adverse Facts. No fact, event or condition shall exist, or
shall be reasonably likely to occur or has occurred that (a) has had a Material
Adverse Effect on, or which may be reasonably foreseen to have a Material
Adverse Effect on Acquiror or the consummation of the transactions contemplated
by this Agreement which has not been waived by CBG (in the exercise of its sole
and exclusive discretion), (b) would be materially adverse to the interests of
CBG or its stockholders, or (c) would render the transactions contemplated by
this Agreement impractical because of any material event including but not
limited to a state of war, national emergency, banking moratorium or general
suspension of trading on the NYSE, or other national securities exchange.
9.09 Fairness Opinion. CBG shall have received from The Robinson-Humphrey
Company, Inc. a letter in form and substance satisfactory to CBG which provides
that this Agreement and the transactions contemplated thereby are fair to the
stockholders of CBG from a financial point of view.
ARTICLE X
CONDITIONS TO OBLIGATIONS OF ACQUIROR
The obligations of Acquiror to be performed hereunder shall be subject to
the satisfaction (or waiver by Acquiror) on or before the Effective Time of each
of the Covenants of CBG set forth herein and of each of the following
conditions:
10.01 Representations and Warranties True at Closing Date. Each of the
representations and warranties of CBG and Commercial Bank contained in this
Agreement shall be true in all material respects on and as of the Closing Date
with the same force and effect as though made on and as of such date; CBG and
Commercial Bank shall have performed and complied in all respects with the
covenants and agreements set forth herein to be performed or complied with by
CBG or Commercial Bank on or before the Effective Time; and CBG and Commercial
Bank shall have delivered to Acquiror and Colonial Bank a certificate in form
and substance reasonably satisfactory to Acquiror confirming such matters and
confirming such other matters as may be reasonably requested by Acquiror.
10.02 No Material Change. Other than changes relating to, or resulting
from, the existence of, or the terms of, this Agreement and the transactions
contemplated hereby, including any related loss of employees or customers of CBG
or Commercial Bank, neither Acquiror nor any of its Subsidiaries shall have
suffered any material adverse change since September 30, 1995 in its business,
operations, prospects, financial condition, working capital, assets, liabilities
(absolute, accrued, contingent or otherwise), reserves or operations.
10.03 Litigation. There shall not be any litigation or threat of
litigation against any party hereto (a) challenging the validity or legality of
this Agreement or (b) seeking damages in respect of or seeking to
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restrain or invalidate the transactions contemplated by this Agreement which, in
the judgment of either Acquiror or Colonial Bank, would have a material adverse
effect on Acquiror, Colonial Bank, Commercial Bank or the consummation of the
transactions contemplated by this Agreement.
10.04 Required Governmental Approvals. All governmental authorizations,
consents and approvals necessary for the valid consummation of the transactions
contemplated hereby shall have been obtained and shall be in full force and
effect. All applicable governmental pre-acquisition filing, information
furnishing and waiting period requirements shall have been met or such
compliance shall have been waived by the governmental authority having authority
to grant such waivers.
10.05 Opinion of Counsel to CBG. Acquiror shall have received from counsel
to CBG an opinion, dated the Closing Date, in form and substance reasonably
satisfactory to Acquiror, and its counsel.
10.06 Documents Satisfactory in Form and Substance. All agreements,
certificates, opinions and other documents delivered by CBG and Commercial Bank
to Acquiror and Colonial Bank hereunder shall be in form and substance
satisfactory to counsel for Acquiror, in the exercise of such counsel's
reasonable judgment.
10.07 Accountants' Letters. Acquiror and Colonial Bank shall have received
a letter from CBG's independent accountants with respect to the financial,
accounting and statistical data regarding CBG and Commercial Bank set forth in
the Registration Statement dated within five days prior to the Closing Date.
10.08 Limitation on Dissenting Stockholders. All periods for notification
of demands by Dissenting Stockholders pursuant to the Dissenter Provisions shall
have expired. Neither CBG, Commercial Bank, Acquiror nor Colonial Bank shall
have received notification of demands from Dissenting Stockholders who hold an
aggregate of ten percent (10%) or more of the outstanding CBG Common Stock.
10.09 Controlling Shareholders. Each shareholder of CBG who may be an
"affiliate" of CBG within the meaning of Rule 145 of the Rules and Regulations
under the Securities Act shall have executed and delivered to Acquiror a
commitment and undertaking to the effect that such person shall not make a
"distribution" (within the meaning of Rule 145) of the Acquiror Common Stock
which he receives upon the Effective Time and that such Acquiror Common Stock
will be held subject to all applicable provisions of the Securities Act and the
rules and regulations of the Commission thereunder.
10.10 Pooling of Interests. Acquiror 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.
10.11 Tax Opinion. The opinion of Miller, Hamilton, Snider & Odom, L.L.C.,
rendered pursuant to Section 10.11 hereof shall be in form and substance
reasonably satisfactory to Acquiror.
ARTICLE XI
INDEMNIFICATION
11.01 Indemnification. (a) Acquiror shall, and shall cause the Surviving
Corporation to, indemnify, defend, and hold harmless the present and former
directors, officers, employees and agents of the CBG and Commercial Bank (each
an "Indemnified Party") against all Liabilities arising out of or in connection
with actions or omissions, or alleged actions or omissions, occurring at or
prior to the Effective Time or alleged to have occurred at or prior to the
Effective Time (including the transactions contemplated by this Agreement) to
the full extent provided in the Articles of Incorporation of CBG in effect
immediately prior to the Effective Time.
(b) If Acquiror or the Surviving Corporation or any of their successors or
assigns shall consolidate with or merge into any other entity and shall not be
the continuing or surviving entity of such consolidation or merger or shall
transfer all or substantially all of its assets to any person or entity, then
and in each case, proper provision shall be made so that the successors and
assigns of Acquiror or Surviving Corporation, as the case may be, shall assume
the obligations set forth in this Article XI.
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(c) The provisions of this Article XI are intended to be for the benefit
of, and enforceable by, each Indemnified Party, his or her heirs and
representatives.
(d) In addition to the foregoing provisions of this Section 11.01, Acquiror
shall purchase from a reputable insurance company director and officer liability
insurance that will provide "tail" liability insurance coverage during the two
year period following the Closing for the benefit of all of the current
directors and officers of CBG and/or Commercial Bank, which coverage shall
provide substantially the same coverage for such persons as CBG's and Commercial
Bank's existing director and officer insurance policy. In the event such
insurance policy is not available from any insurance company, Acquiror shall not
be required to comply with this subsection (d). Acquiror shall not be required
to purchase such a policy if the annual premium exceeds two times the annual
premiums currently paid by CBG or Commercial Bank.
ARTICLE XII
CLOSING
12.01 Closing Date. Subject to the satisfaction or waiver of the
conditions set forth herein, the consummation of the Merger (the "Closing")
shall take place at 10:00 a.m. on June 28, 1996 in the offices of Long, Aldridge
& Norman, Suite 5300, One Peachtree Center, 303 Peachtree Street, Atlanta,
Georgia, or on such other date or at such other time and place as the parties
shall agree (the "Closing Date").
ARTICLE XIII
TERMINATION PRIOR TO CLOSING
13.01 Termination of Agreement. This Agreement may be terminated at any
time prior to the Closing:
(a) By the mutual written consent of Acquiror and CBG;
(b) By CBG in writing, without liability, if Acquiror or Colonial Bank
shall (i) fail to perform in any material respect its agreements contained
herein required to be performed by it on or prior to the Closing Date, or
(ii) materially breach any of its representations, warranties or covenants
contained herein, which failure or breach is not cured within thirty (30)
days after CBG and Commercial Bank has notified Acquiror or Colonial Bank
of its intent to terminate this Agreement pursuant to this subparagraph
(b);
(c) By Acquiror or in writing, without liability, if CBG shall (i)
fail to perform in any material respect its agreements contained herein
required to be performed by it on or prior to the Closing Date, or (ii)
materially breach any of its representations, warranties or covenants
contained herein, which failure or breach is not cured within thirty (30)
days after Acquiror has notified CBG of its intent to terminate this
Agreement pursuant to this subparagraph (c).
(d) By either Acquiror or CBG in writing, without liability, if there
shall be any order, writ, injunction or decree of any court or governmental
or regulatory agency binding on Acquiror, Colonial Bank, CBG or Commercial
Bank, which prohibits or restrains Acquiror, Colonial Bank, CBG or
Commercial Bank from consummating the transactions contemplated hereby,
provided that Acquiror, Colonial Bank, CBG or Commercial Bank shall have
used their reasonable, good faith efforts to have any such order, writ,
injunction or decree lifted, and the same shall not have been lifted within
30 days after entry, by any such court or governmental or regulatory
agency;
(e) By either Acquiror or CBG, in writing, without liability, if for
any reason the Closing has not occurred by September 30, 1996;
(f) By either Acquiror or CBG if any event has occurred which would
have a Material Adverse Effect on any other party to this Agreement or
their respective Subsidiaries;
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(g) By Acquiror or CBG in the event that any conditions precedent to
the obligations of such party to consummate the transactions contemplated
hereby cannot be satisfied or fulfilled by September 30, 1996.
13.02 Termination of Obligations. Termination of this Agreement pursuant
to this Article XIII shall terminate all obligations of the parties hereunder;
provided, however, that termination pursuant to subparagraphs (b) or (c) of
Section 13.01 hereof shall not relieve a defaulting or breaching party from any
liability to the other party hereto for knowing or willful defaults or breaches.
ARTICLE XIV
EXPENSES
14.01 Expenses. Acquiror, Colonial Bank, CGB and Commercial Bank each
agrees to pay its own fees and expenses incurred in connection with the
transactions contemplated by this Agreement. The Surviving Corporation shall pay
the fees and expenses of The Robinson-Humphrey Company, Inc. in connection with
the transactions contemplated hereby.
ARTICLE XV
MISCELLANEOUS
15.01 Survival. The representations and warranties of Acquiror, Colonial
Bank, CBG and Commercial Bank contained herein or in any certificate or other
document delivered pursuant hereto or in connection herewith shall not survive
the Closing.
15.02 Entire Agreement. This Agreement (including the Schedules)
constitutes the sole understanding of the parties with respect to the subject
matter hereof; provided, however, that this provision is not intended to
abrogate any other written agreement between the parties executed with or after
this Agreement.
15.03 Amendment. No amendment, modification or alteration of the terms or
provisions of this Agreement shall be binding unless the same shall be in
writing and duly executed by the parties hereto.
15.04 Parties Bound by Agreement; Successors and Assigns. The terms,
conditions and obligations of this Agreement shall inure to the benefit of and
be binding upon the parties hereto and the respective successors and assigns
thereof.
15.05 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
and all of which shall constitute the same instrument.
15.06 Headings. The headings of the Sections and paragraphs of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction thereof.
15.07 Modification and Waiver. Any of the terms or conditions of this
Agreement may be waived in writing at any time by the party which is entitled to
the benefits thereof. No waiver of any of the provisions of this Agreement shall
be deemed to or shall constitute a waiver of any other provision hereof (whether
or not similar).
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15.08 Notices. Any notice, request, instruction or other document to be
given hereunder by any party hereto to any other party hereto shall be in
writing and delivered personally or sent by registered or certified mail
(including by overnight courier or express mail service), postage or fees
prepaid,
if to CBG or Commercial Bank, to:
Commercial Bancorp of Georgia, Inc.
390 Crogan Street
Lawrenceville, Georgia 30245
Attention: Richard Sikes, President
and Chief Executive Officer
with a copy to:
Long, Aldridge & Norman
Suite 5300
303 Peachtree Street
Atlanta, Georgia 30308
Attention: David M. Calhoun
if to Acquiror or Colonial Bank, to:
W. Flake Oakley, IV
Chief Financial Officer
One Commerce Street, Suite 800
Montgomery, Alabama 36104
with a copy to:
Miller, Hamilton, Snider & Odom, L.L.C.
One Commerce Street, Suite 802
Montgomery, Alabama 36104
Attention: Michael D. Waters
or at such other address for a party as shall be specified by like notice. Any
notice which is delivered personally in the manner provided herein shall be
deemed to have been duly given to the party to whom it is directed upon actual
receipt by such party or the office of such party. Any notice which is addressed
and mailed in the manner herein provided shall be conclusively presumed to have
been duly given to the party to which it is addressed at the close of business,
local time of the recipient, on the fourth business day after the day it is so
placed in the mail or, if earlier, the time of actual receipt.
15.09 Governing Law. This Agreement is executed by the parties in, and
shall be construed in accordance with and governed by the laws of, the State of
Georgia without giving effect to the principles of conflicts of law thereof.
15.10 Acquisition Proposals. From and after the date of this Agreement and
until any termination pursuant to Article XIII, CBG and Commercial Bank shall
not (and shall use its best efforts to ensure that its directors and officers
shall not), directly or indirectly, solicit or encourage any inquiries or
proposals from any Person (other than Acquiror or a Subsidiary thereof) or (ii)
knowingly furnish any information about or with respect to CBG or its
Subsidiaries or participate in any negotiations or discussions concerning any
acquisition, merger, combination or sale of a significant amount of assets of
CBG or Commercial Bank (collectively, a "Business Combination"); except in a
situation in which a majority of the full Board of Directors of CBG has
determined upon advice of counsel that such Board has a fiduciary duty to
consider and respond to a bona fide proposal by a third party, regardless of
whether such proposal was directly or indirectly received as a result of conduct
sought to be prohibited by this Section 15.10. Upon the occurrence of such
determination by the Board of Directors of CBG, such Board shall provide written
notice of its determination and intention to consider such proposal to Acquiror
at least two business days before responding to the proposal or providing any
information with respect to CBG or Commercial Bank in response to the proposal,
indicating the material
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terms of such proposal; provided, however, that if such proposal by its terms
requires a response in a shorter period, CBG shall provide such notice,
information and undertaking to Acquiror as promptly as practicable in the
circumstances.
In the event that CBG enters into a letter of intent or definitive
agreement regarding a Business Combination with any third party (other than
Acquiror or any of its Subsidiaries) prior to the earlier of (i) the Closing or
(ii) the termination of this Agreement pursuant to Article XIII hereof, CBG
covenants and agrees that it shall be a condition precedent to the consummation
of such Business Combination that such third party pay to Acquiror at the time
of consummation of such Business Combination the principal sum of $1,000,000 as
liquidated damages to compensate Acquiror for its direct and indirect costs and
expenses in connection with the transactions contemplated by this Agreement,
including Acquiror's management time devoted to negotiation and preparation for
the Merger and Acquiror's loss as a result of the Merger not being consummated.
Acquiror acknowledges that such payment shall be the sole and exclusive remedy
of Acquiror under this Agreement in the event of such a Business Combination.
Upon payment of such amount, Acquiror shall have no cause of action or claim
(either in law or in equity) whatsoever against CBG, Commercial Bank or the
directors and officers of CBG or Commercial Bank with respect to this Agreement
or in connection with the Business Combination.
15.11 No Third-Party Beneficiaries. With the exception of the parties to
this Agreement and the Indemnified Parties, there shall exist no right of any
person to claim a beneficial interest in this Agreement or any rights occurring
by virtue of this Agreement.
15.12 "Including." Words of inclusion shall not be construed as terms of
limitation herein, so that references to "included" matters shall be regarded as
non-exclusive, non-characterizing illustrations.
15.13 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 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.
15.14 Return of Information. In the event of termination of this Agreement
prior to the Effective Time, 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.
15.15 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.
15.16 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 party not in
breach or default, nor shall it be construed to be a waiver 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.
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15.18 Remedies Cumulative. All remedies provided in this Agreement, by law
or otherwise, shall be cumulative and not alternative.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed on its behalf as of the date indicated on the first page
hereof.
<TABLE>
<S> <C>
ATTEST: COLONIAL BANCGROUP, INC.
By: /s/ Walter Thompson By: /s/ W. Flake Oakley, IV
----------------------------- -----------------------------------------
Title: Senior Vice President Title: Chief Financial Officer
------------------------- -------------------------------------
ATTEST: COMMERCIAL BANCORP OF GEORGIA, INC.
By: /s/ John P. Hopkins By: /s/ Richard Sikes
----------------------------- -----------------------------------------
Title: Secretary Title: President and Chief Executive Officer
------------------------- -------------------------------------
</TABLE>
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DEFINITIONS
(a) The following terms, which are capitalized in the Agreement, shall have
the meanings set forth below for the purpose of the Agreement:
"Acquiror" shall mean The Colonial BancGroup, Inc., a Delaware corporation
with its principal offices in Montgomery, Alabama.
"Acquiror Common Stock" shall mean Acquiror's Common Stock, $2.50 par value
per share, authorized and defined in the Restated Certificate of Incorporation
of Acquiror, as amended.
"Agency" or "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, all
state regulatory agencies having jurisdiction over the parties to the Agreement
and their respective Subsidiaries, and the Commission.
"Agreement" shall mean this Agreement and Plan of Merger and the Exhibits
and Schedules delivered pursuant hereto and incorporated herein by reference.
"Assets" of a party shall mean all of the assets, properties, and rights of
such party 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 party's business, directly or indirectly, in
whole or in part, whether or not carried on the books and records of such party,
and whether or not owned in the name of such party or any Subsidiary of such
party and wherever located.
"CBG" shall mean Commercial Bancorp of Georgia, Inc., a Georgia corporation
with its principal offices in Georgia.
"CBG Common Stock" shall mean CBG's Common Stock, $1.00 par value per
share, authorized and defined in the Articles of Incorporation of CBG.
"Closing" shall mean the closing of the transactions contemplated hereby as
described in Section 12.01 of the Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commercial Bank" shall mean Commercial Bank of Georgia, a Georgia state
chartered commercial bank with its home office in Georgia.
"Commission" shall mean the United States Securities and Exchange
Commission.
"Consent" shall mean any consent, approval, authorization, clearance,
exemption, waiver, or similar affirmation by any Person pursuant to any
Contract, Law, Order or Permit.
"Contract" shall mean any material written or oral agreement, arrangement,
authorization, commitment, contract, indenture, instrument, lease or obligation,
of any kind or character, or other material agreement 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 material 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 material
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.
"Effective Time" shall mean the date and time at which the Merger becomes
effective as defined in Section 1.02 of the Agreement.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
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"GAAP" shall mean generally accepted accounting principles as applicable to
banks and their holding companies.
"Knowledge" shall mean, in the case of CBG or Commercial Bank, the actual
knowledge of the Chairman of the Board, President, Chief Financial Officer and
Chief Credit Officer of CBG or Commercial Bank and, in the case of Acquiror or
Colonial Bank, means the knowledge of the Chairman, President, Chief Financial
Officer, Chief Accounting Officer, Chief Credit Officer or any Senior or
Executive Vice President of Acquiror or it Subsidiaries.
"Law" shall mean 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" shall, unless otherwise defined, mean 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" shall mean any conditional sale agreement, default or title,
easement, encroachment, encumbrance, hypothecating, infringement, lien,
mortgage, pledge, reservation, restriction, security interest, title retention
or other security arrangement, or any adverse right or interest, charge, or
claim of 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, restrictive covenants and
other encumbrances on real property which do not materially adversely affect the
use of such property by the current owner thereof.
"Litigation" shall mean 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.
The term "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" with respect to any party shall mean an event,
change or occurrence which has a material adverse impact on (i) the financial
position, business or results or 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 GAAP or regulatory accounting principles generally
applicable to banks and their holding companies, (y) actions or omissions of a
party (or any of its Subsidiaries) taken with the prior written consent of the
other party in contemplation of the transactions contemplated hereby, (z) the
effect of this Agreement, including compliance with this Agreement, on the
operating performance of the parties, including expenses incurred by the parties
in connection with this Agreement and the loss of employees and/or customers of
a party as a result of this Agreement and the transactions contemplated thereby.
"Merger" shall mean the merger of CBG with Acquiror as contemplated in this
Agreement.
"NYSE" shall mean The New York Stock Exchange.
"Order" shall mean 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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"Permit" shall mean 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" shall mean 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/Prospectus" shall mean the proxy statement/prospectus used
by CBG to solicit the approval of its stockholders of the transactions
contemplated by this Agreement and used by Acquiror in connection with the
issuance of the Acquiror Common Stock to the stockholders of CBG.
"Registration Statement" shall mean the registration statement on Form S-4,
or such other appropriate form, to be filed with the Commission by Acquiror, and
which has been agreed to by CBG, to register the shares of Acquiror Common Stock
offered to stockholders of CBG pursuant to this Agreement, including the Proxy
Statement/Prospectus).
"Resulting Corporation" shall mean the Acquiror as the surviving
corporation resulting from the Merger.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Subsidiaries" shall mean 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.
(b) The following terms shall have the meanings ascribed to such terms in
the Section of the Agreement referenced below:
<TABLE>
<CAPTION>
TERM SECTION
----------------------------------------------------------------------------- -------
<S> <C>
"Acquiror Capital Stock"..................................................... 3.01
"Acquiror Financial Statements".............................................. 5.05(b)
"Acquiror SEC Reports"....................................................... 5.05(a)
"Audited Financial Statements"............................................... 4.06(b)
"CBG Financial Statements"................................................... 4.06(b)
"CBG Option"................................................................. 3.04(a)
"CBG SEC Reports"............................................................ 4.06(a)
"CBG Stock Appreciation Rights".............................................. 3.04(b)
"Dissenter Provisions"....................................................... 3.07
"Dissenting Stockholder"..................................................... 3.07
"Exchange Agent"............................................................. 3.05
"Exchange Ratio"............................................................. 3.01(c)
"Indemnified Party".......................................................... 11.01(a)
"Interim Financial Statements"............................................... 4.06(b)
"Market Value"............................................................... 3.01(c)
"Retained Employees"......................................................... 7.05
"Rules and Regulations"...................................................... 3.11
"Surviving Corporation"...................................................... 1.01
"Taxes"...................................................................... 4.23(a)
</TABLE>
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APPENDIX B
PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
SEC. 14-2-1301. DEFINITIONS.
As used in this article, the term:
a. "Beneficial shareholder" means the person who is a beneficial owner
of shares held in a voting trust or by a nominee as the record shareholder.
b. "Corporate Action" means the transaction or other action by the
corporation that creates dissenters' rights under Code Section 14-2-1302.
c. "Corporation" means the issuer of shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger
or share exchange of that issuer.
d. "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Code Section 14-2-1302 and who exercises that right
when and in the manner required by Code Sections 14-2-1320 through
14-2-1327.
e. "Fair value," with respect to a dissenter's shares, means the value
of the shares immediately before the effectuation of the corporate action
to which the dissenter objects, excluding any appreciation or depreciation
in anticipation of the corporate action.
f. "Interest" means interest from the effective date of the corporate
action until the date of payment, at a rate that is fair and equitable
under all the circumstances.
g. "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee certificate on file
with a corporation.
h. "Shareholder" means the record shareholder or the beneficial
shareholder.
SEC. 14-2-1302. RIGHT TO DISSENT.
(a) A record shareholder of the corporation is entitled to dissent from,
and obtain payment of the fair value of his shares in the event of, any of the
following corporate actions:
(1) Consummation of a plan of merger to which the corporation is a
party:
(A) If approval of the shareholders of the corporation is required
for the merger by Code Section 14-2-1103 or the articles of
incorporation and the shareholder is entitled to vote on the merger; or
(B) If the corporation is a subsidiary that is merged with its
parent under Code Section 14-2-1104;
(2) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(3) Consummation of a sale or exchange of all or substantially all of
the property of the corporation if a shareholder vote is required on the
sale or exchange pursuant to Code Section 14-2-1202, but not including a
sale pursuant to court order or a sale for cash pursuant to a plan by which
all or substantially all of the net proceeds of the sale will be
distributed to the shareholders within one year after the date of sale;
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(4) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preferential right of the shares;
(B) Creates, alters, or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities;
(D) Excludes or limits the right of the shares to vote on any
matter, or to cumulate votes, other than a limitation by dilution
through issuance of shares or other securities with similar voting
rights;
(E) Reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be acquired
for cash under Code Section 14-2-604; or
(F) Cancels, redeems, or repurchases all or part of the shares of
the class; or
(5) Any corporate action taken pursuant to a shareholder vote to the
extent that Article 9 of this chapter, the articles of incorporation,
bylaws, or a resolution of the board of directors provides that voting or
nonvoting shareholders are entitled to dissent and obtain payment for their
shares.
(b) A shareholder entitled to dissent and obtain payment for his shares
under this article may not challenge the corporate action creating his
entitlement unless the corporate action fails to comply with procedural
requirements of this chapter or the articles of incorporation or bylaws of the
corporation or the vote required to obtain approval of the corporate action was
obtained by fraudulent and deceptive means, regardless of whether the
shareholder has exercised dissenter's rights.
(c) Notwithstanding any other provision of this article, there shall be no
right of dissent in favor of the holder of shares of any class or series which,
at the record date fixed to determine the shareholders entitled to receive
notice of and to vote at a meeting at which a plan of merger or share exchange
or a sale or exchange of property or an amendment of the articles of
incorporation is to be acted on, were either listed on a national securities
exchange or held of record by more than 2,000 shareholders, unless:
(1) In the case of a plan of merger or share exchange, the holders of
shares of the class or series are required under the plan of merger or
share exchange to accept for their shares anything except shares of the
surviving corporation or another publicly held corporation which at the
effective date of the merger or share exchange are either listed on a
national securities exchange or held of record by more than 2,000
shareholders, except for scrip or cash payments in lieu of fractional
shares; or
(2) The articles of incorporation or a resolution of the board of
directors approving the transaction provides otherwise.
SEC. 14-2-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
A record shareholder may assert dissenters' rights as to fewer than all the
shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one beneficial shareholder and notifies the
corporation in writing of the name and address of each person on whose behalf he
asserts dissenters' rights. The rights of a partial dissenter under this Code
section are determined as if the shares as to which he dissents and his other
shares were registered in the names of different shareholders.
PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
SEC. 14-2-1320. NOTICE OF DISSENTERS' RIGHTS.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the meeting
notice must state that shareholders are or may be entitled to assert dissenters'
rights under this article and be accompanied by a copy of this article.
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(b) If corporate action creating dissenters' rights under Code Section
14-2-1302 is taken without a vote of shareholders, the corporation shall notify
in writing all shareholders entitled to assert dissenters' rights that the
action was taken and send them the dissenters' notice described in Code Section
14-2-1322 no later than ten days after the corporate action was taken.
SEC. 14-2-1321. NOTICE OF INTENT TO DEMAND PAYMENT.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record
shareholder who wishes to assert dissenters' rights:
(1) Must deliver to the corporation before the vote is taken written
notice of his intent to demand payment for his shares if the proposed
action is effectuated; and
(2) Must not vote his shares in favor of the proposed action.
(b) A record shareholder who does not satisfy the requirements of
subsection (a) of this Code section is not entitled to payment for his shares
under this article.
SEC. 14-2-1322. DISSENTERS' NOTICE.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is authorized at a shareholders' meeting, the corporation
shall deliver a written dissenters' notice to all shareholders who satisfied the
requirements of Code Section 14-2-1321.
(b) The dissenters' notice must be sent no later than ten days after the
corporate action was taken and must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(3) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than 30 nor more than 60 days after the
date the notice required in subsection (a) of this Code section is
delivered; and
(4) Be accompanied by a copy of this article.
SEC. 14-2-1323. DUTY TO DEMAND PAYMENT.
(a) A record shareholder sent a dissenters' notice described in Code
Section 14-2-1322 must demand payment and deposit his certificates in accordance
with the terms of the notice.
(b) A record shareholder who demands payment and deposits his shares under
subsection (a) of this Code section retains all other rights of a shareholder
until these rights are canceled or modified by the taking of the proposed
corporate action.
(c) A record shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this article.
SEC. 14-2-1324. SHARE RESTRICTIONS.
(a) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is taken or the restrictions released under Code Section 14-2-1326.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
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SEC. 14-2-1325. OFFER OF PAYMENT.
(a) Except as provided in Code Section 14-2-1327, within ten days of the
later of the date the proposed corporate action is taken or receipt of a payment
demand, the corporation shall by notice to each dissenter who complied with Code
Section 14-2-1323 offer to pay to such dissenter the amount the corporation
estimates to be the fair value of his or her shares, plus accrued interest.
(b) The offer of payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal year
ending not more than 16 months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for
that year, and the latest available interim financial statements, if any;
(2) A statement of the corporation's estimate of the fair value of the
shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under Code
Section 14-2-1327; and
(5) A copy of this article.
(c) If the shareholder accepts the corporation's offer by written notice to
the corporation within 30 days after the corporation's offer or is deemed to
have accepted such offer by failure to respond within said 30 days, payment for
his or her shares shall be made within 60 days after the making of the offer or
the taking of the proposed corporate action, whichever is later.
SEC. 14-2-1326. FAILURE TO TAKE ACTION.
(a) If the corporation does not take the proposed action within 60 days
after the date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If, after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under Code Section 14-2-1322 and repeat the payment demand
procedure.
SEC. 14-2-1327. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.
(a) A dissenter may notify the corporation in writing of his own estimate
of the fair value of his shares and amount of interest due, and demand payment
of his estimate of the fair value of his shares and interest due, if:
(1) The dissenter believes that the amount offered under Code Section
14-2-1325 is less than the fair value of his shares or that the interest
due is incorrectly calculated; or
(2) The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within 60 days after the date set for
demanding payment.
(b) A dissenter waives his or her right to demand payment under this Code
section and is deemed to have accepted the corporation's offer unless he or she
notifies the corporation of his or her demand in writing under subsection (a) of
this Code section within 30 days after the corporation offered payment for his
or her shares, as provided in Code Section 14-2-1325.
(c) If the corporation does not offer payment within the time set forth in
subsection (a) of Code Section 14-2-1325:
(1) The shareholder may demand the information required under
subsection (b) of Code Section 14-2-1325, and the corporation shall provide
the information to the shareholder within ten days after receipt of a
written demand for the information; and
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(2) The shareholder may at any time, subject to the limitations period
of Code Section 14-2-1332, notify the corporation of his own estimate of
the fair value of his shares and the amount of interest due and demand
payment of his estimate of the fair value of his shares and interest due.
PART 3. JUDICIAL APPRAISAL OF SHARES
SEC. 14-2-1330. COURT ACTION.
(a) If a demand for payment under Code Section 14-2-1327 remains unsettled,
the corporation shall commence a proceeding within 60 days after receiving the
payment demand and petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding within
the 60 day period, it shall pay each dissenter whose demand remains unsettled
the amount demanded.
(b) The corporation shall commence the proceeding, which shall be a nonjury
equitable valuation proceeding, in the superior court of the county where a
corporation's registered office is located. If the surviving corporation is a
foreign corporation without a registered office in this state, it shall commence
the proceeding in the county in this state where the registered office of the
domestic corporation merged with or whose shares were acquired by the foreign
corporation was located.
(c) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding, which
shall have the effect of an action quasi in rem against their shares. The
corporation shall serve a copy of the petition in the proceeding upon each
dissenting shareholder who is a resident of this state in the manner provided by
law for the service of a summons and complaint, and upon each nonresident
dissenting shareholder either by registered or certified mail or by publication,
or in any other manner permitted by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) of this Code section is plenary and exclusive. The court
may appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers described
in the order appointing them or in any amendment to it. Except as otherwise
provided in this chapter, Chapter 11 of Title 9, known as the "Georgia Civil
Practice Act," applies to any proceeding with respect to dissenters' rights
under this chapter.
(e) Each dissenter made a party to the proceeding is entitled to judgment
for the amount which the court finds to be the fair value of his shares, plus
interest to the date of judgment.
SEC. 14-2-1331. COURT COSTS AND COUNSEL FEES.
(a) The court in an appraisal proceeding commenced under Code Section
14-2-1330 shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court, but not
including fees and expenses of attorneys and experts for the respective parties.
The court shall assess the costs against the corporation, except that the court
may assess the costs against all or some of the dissenters, in amounts the court
finds equitable, to the extent the court finds the dissenters acted arbitrarily,
vexatiously, or not in good faith in demanding payment under Code Section
14-2-1327.
(b) The court may also assess the fees and expenses of attorneys and
experts for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of Code Sections 14-2-1320 through 14-2-1327; or
(2) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by this article.
(c) If the court finds that the services of attorneys for any dissenter
were of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation,
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the court may award to these attorneys reasonable fees to be paid out of the
amounts awarded the dissenters who were benefitted.
SEC. 14-2-1332. LIMITATION OF ACTIONS.
No action by any dissenter to enforce dissenters' rights shall be brought
more than three years after the corporate action was taken, regardless of
whether notice of the corporate action and of the right to dissent was given by
the corporation in compliance with the provisions of Code Section 14-2-1320 and
Code Section 14-2-1322.
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APPENDIX C
December 21, 1995
Board of Directors
Commercial Bancorp of Georgia, Inc.
390 Crogan Street, N.W.
Lawrenceville, Georgia 30246
Ladies and Gentlemen:
In connection with the proposed acquisition of Commercial Bancorp of
Georgia, Inc. ("CBGA") by Colonial BancGroup, Inc. ("CNB") (the "Merger"), you
have asked us to render an opinion as to whether the financial terms of the
Merger, as provided in the Agreement and Plan of Merger dated as of December 21,
1995 among such parties (the "Merger Agreement"), are fair, from a financial
point of view, to the stockholders of CBGA. Under the terms of the Merger,
holders of all outstanding shares of CBGA stock will receive consideration equal
to $21.07 shares of CNB common stock for each CBGA share held. Based on a
closing price per share for CNB of $32.875, the implied purchase price per share
as of December 20, 1995 was .6409 shares of CNB stock for each share of CBGA.
Our firm, as part of its investment banking business, is frequently
involved in the valuation of securities as related to public underwritings,
private placements, mergers, acquisitions, recapitalizations and other purposes.
In connection with our study for rendering this opinion, we have reviewed
the Definitive Agreement, CBGA's financial results for fiscal years 1990 through
1994 and through the quarter ended September 30, 1995 and certain documents and
information we deem relevant to our analysis. We have also held discussions with
senior management of CBGA for the purpose of reviewing the historical and
current operations of, and outlook for CBGA, industry trends, the terms of the
proposed Merger, and related matters.
We have also studied published financial data concerning certain other
publicly traded banks which we deem comparable to CBGA as well as certain
financial data relating to acquisitions of other banks that we deem relevant or
comparable. In addition, we have reviewed other published information, performed
certain financial analyses and considered other factors and information which we
deem relevant.
We have reviewed similar information and data relating to CNB including its
historical financial statements, from fiscal 1990 up through and including the
quarter ended September 30, 1995.
In rendering this opinion, we have relied upon the accuracy of the
Definitive Agreement, the financial information listed above, and other
information furnished to us by CBGA and CNB. We have not separately verified
this information nor have we made an independent evaluation of any of the assets
or liabilities of CBGA and CNB.
Based upon the foregoing and upon current market and economic conditions,
we are of the opinion that, from a financial point of view, the consideration as
provided in the Agreement and Plan of Merger is fair to the stockholders of
CBGA.
Very truly yours,
THE ROBINSON-HUMPHREY COMPANY, INC.
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APPENDIX D
May 15, 1996
Mobile Office
The Colonial BancGroup, Inc.
One Commerce Street
Suite 800
Montgomery, Alabama 36104
Commercial Bancorp of Georgia, Inc.
390 Crogan Street
Lawrenceville, Georgia 30245
RE: TAX OPINION
Gentlemen:
We have acted as counsel to The Colonial BancGroup, Inc., a Delaware
corporation ("BancGroup"), in connection with the merger of Commercial Bancorp
of Georgia, Inc. ("CBG") with and into BancGroup (the "Merger") pursuant to the
Agreement and Plan of Merger, dated December 21, 1995 (the "Agreement") by and
between BancGroup and CBG. This opinion is being rendered to you pursuant to
paragraph 9.03 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 CBG 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 conclusions stated herein.
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 or assets of Commercial Bank of Georgia, a wholly-owned subsidiary of
CBG (the "Bank") or to liquidate the Bank after the merger, except that the
Bank may be merged into BancGroup's subsidiary federal savings bank located
in Georgia, referred to as Colonial Bank -- Georgia.
(2) BancGroup will continue the historic business of CBG or will use a
significant portion of the historic business assets of CBG in a business.
(3) CBG and the Bank have no knowledge of any plan or intention on the
part of the CBG stockholders 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 CBG Common Stock
outstanding immediately before the merger.
(4) As a result of the Merger, each share of the issued and
outstanding CBG 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 CBG stockholders 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 CBG stockholders will be approximately equal to the fair market
value of the CBG stock exchanged therefor.
(7) The proposed Merger will be effected for substantial non-tax
business purposes.
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(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 CBG immediately prior to the Merger. For purposes of this
representation, CBG assets used to pay its reorganization expenses, and all
redemptions and distributions (except for regular, normal dividends) made
by CBG immediately preceding the Merger and all payments to dissenters, if
any, will be included as assets of CBG held immediately prior to the
Merger.
(9) CBG 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 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:
(1) The Merger of CBG 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. CBG 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 CBG 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 CBG. Section 1032(a) of the Code.
(3) The basis of the assets of CBG acquired by BancGroup will be the
same as the basis of the assets in the hands of CBG immediately prior to
the Merger. Section 362(b) of the Code.
(4) The holding period of the assets of CBG in the hands of BancGroup
will include the period during which such assets were held by CBG. Section
1223(2) of the Code.
(5) A CBG stockholder who exchanges shares of CBG 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 CBG stockholder, 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 CBG stock, will recognize
gain or loss equal to the difference between the amount of cash received
and the stockholder's basis in the shares of CBG stock surrendered. Section
1001 of the Code. Such gain or loss will be capital gain or loss if the CBG
shares are capital assets in the hands of the stockholder.
(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 CBG stockholder 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 stockholder's family, and by related entities (such as
corporations, partnerships, trusts, and estates) in which the stockholder,
a member of his family, or a related entity has an interest, may be counted
as owned by the stockholder. Similarly, an entity may be treated as owning
shares owned by related persons or entities (such as stockholders,
partners, or beneficiaries).
(8) The tax basis of the BancGroup Common Stock received by an CBG
stockholder will be the same as the adjusted tax basis of the shares of CBG
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 a CBG
stockholder will include the holding period of the shares of CBG stock
exchanged therefor if such shares were capital assets in the hands of the
exchanging shareholder. Section 1223(1) of the Code.
(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 stockholder
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will recognize gain or loss equal to the difference between the cash
received and the basis of such fractional share interest.
No opinion is expressed as to the tax treatment of any conditions existing
at the time of, or effects resulting from, the Merger that are not specifically
covered by the above opinion, including the effect, if any, of the Merger on the
tax consequences of the Merger in March, 1995, of Commercial Bancorp of Georgia,
Inc., a Georgia corporation into Commercial Bancorp of Gwinnett, Inc., or the
Merger in September, 1995, of Commercial Bank of Georgia into Commercial Bank.
Very truly yours,
MILLER, HAMILTON, SNIDER & ODOM, L.L.C.
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